Curt Doolittle

Category: Economics, Finance, and Political Economy

  • Germany Should Exit The Euro And Return To the Mark

    THe NYT Opinion page includes recommends Germany leave the Euro? (Referring to a posting elsewhere.) Yes, it makes sense. Earlier last month I wrote a series of letters and posts recommending Germany pull out of the Euro myself. Mediterranean Europe and Germanic europe are too different in culture, social structure and values. Restore the DM. Leave the Euro to the southern countries who need it, and have similar social values, and are willing to fund those social values. Currencies as they are currently used, are the primary means of social insurance and redistribution. People are naturally gregarious to their own ethnic groups, and are naturally not gregarious with what they see as competing groups, and in particular, groups that they see as a permanent drain on their resources. Because currencies are a means of social insurance they are inseparable from the social orders that employ them. Countries need their own currencies. The spanish, italians and greeks can then maintain their historical poverty born of their less productive lifestyles, without impoverishing the north. Besides, the north has a new permanent semi-revolutionary underclass it is supporting at home to deal with. THe USA has a similar problem. It is a domestic empire over somewhere between four and six separate cultures, with entirely different economic interests, and cultural interests, and political friction between them is becoming intolerable. The only reason that america government has functioned since the 1900’s, is because of the two party system, and the south’s rejection of the republican party. With the south now more pragmatic, this prior balance has been shattered, and the country is increasingly a north and west against a south and interior. For exactly the same reasons as europeans face these problems. It is all well and good to believe in the myths of egalitarian secular humanism, while you’re living in a temporary era of post-war, then post-soviet prosperity. But western civilization no longer has it’s economic advantage over the rest of the world. The west will be permanently poorer, even if retaining it’s ordinal status, for some period of time, simply due to the northern european people’s ancient tendency to eschew corruption. Since a currency is a reflection of social values, nations need their own currencies. The euro was a failure. Return to the DM.

  • An Understanding Of Greenspan

    A more analytical understanding of Greenspan: First, If you read enough of Greenspan, he tried to master the processes by which businesses actually made decisions, to a degree that few economists ever attempt. He was intimately aware of the daily needs and habits of business. He was intimately informed in a way few others seem to have been. Second, he actually believed the new devices for distributing risk (along with the formulae of the quants) would work as prescribed. Third. like most people of the Regan/Thatcher era, he was trying to counteract socialist influences in society. They had very clear memories of the pre-johnson era and also had the unfortunate experience of living through the 1970’s, which was about as depressing and hopeless as the times we face today. It was from this contrast that they took their motivation. We forget that in retrospect, these people were trying to use monetary policy to reconstruct prior libertarian values. They hoped to rebuilt a society of individual responsibility (and ownership) using a tool which accomplishes the opposite, even if they felt using that tool was acceptable if it was only used for the short term. It is in these three errors that Greenspan built his house of cards: first, business can use credit to privatize wins and socialize losses, and did so. Deep knowledge of business is good, but deeper knowledge of human nature is even better. Personally I am not sure this device to retrain people out of socialistic beliefs would not have worked had the state provided direct liquidity into competitive innovation in the Indian model rather than general liquidity, and regulated banking such that all originated loans must remain with their originators. In effect libertarian values need to come from somewhere. They are not terribly natural to man. And liberty has always, throughout history, been the objective of a minority. (PLease don’t beat on me for advocating state intention, i”m not attempting to do so, only explain what would have been possible in context.) Second, the new devices and formulae were erroneous, and for commonly stood austrian reasons: the quantitative content of these devices is inseparable from the individual knowledge of the loan’s originator. Very little debt is predictable under duress, and it cannot be aggregated, because fundamentally all credit consists of unique categories, because these categories are determined by knowledge only available to the originator. Third, the influence of these people on the momentum of the bureaucracy, was insufficient. And that is the real Misesian/Rothbardian problem. To enact such a thing at scale would require political force actively despised by the field’s advocates. Describing an ideal state of affairs is an impressive and important research program. It has yielded most of the answer we are looking for in solving the problem of economic, political and social theory. People in our libertarian camp, have not supplied yet a sufficiently POSITIVE argument for political economy. Hoppe is closest. Hayek tried desperately. But Mises, Hayek, Parsons, and Popper all failed to provide a sufficiently positive argument. It certainly appears that Keynes did find a sufficiently positive argument even if it was an erroneous one. (Although the debate is open on whether he would have approved of how his ideas were used.) But more importantly, libertarians are a minority. We have always been a minority. And we are likely to continue to be one. We have a philosophy of the entrepreneurial class. And as a class philosophy it is an insufficient philosophy as currently constructed. That is, unless we understand that in this division of labor we need at least three philosophical frameworks: one for each class. As such, while Greenspan failed, I don’t blame him for failing, any more than I blame Rothbard, Mises, Hayek, Popper or Parsons for failing. It is becoming clear that the dominant political structure of the future consists not of democratic capitalism, nor social democracy, but of totalitarian capitalism, because only totalitarian capitalism can concentrate capital in sufficient quantity and rapidly in time to maintain the status of elites in one nation against those of others. And if we think that there will not be political elites who profit from their position, then we do not understand the history of mankind.

  • Schiller Takes A Step Toward Capitalism 3.0

    From an article in the NY Times. A Way To Share In The Nation’s Growth Robert Schiller, who I greatly admire, recommends one step toward Capitalism v3.0. Why? Because investment in the productivity of a nation does not privatize wins and socialize losses, as does debt. It is gambling, but gambling by people who know what they’re doing, rather than simply impoverishing citizens for government’s incompetence. I have worked on this particular theory quite extensively, and it appears that the worldwide impact would be positive and durable. The argument against it, is that it makes governments accountable. And the entire purpose of government seems, at least from the historical record, to be one of avoiding political accountability at all costs. Which is precisely why we need this particular solution.

    Shiller: Sell Shares in the U.S., Not Just Its Debt Thursday, 31 Dec 2009 09:09 AM Article Font Size By: Julie Crawshaw Yale economics professor Robert Shiller says a new kind of government security is needed, one based on equity instead of debt. “Corporations raise money by issuing both debt and equity, the latter giving investors an implicit share in future profits,” Shiller writes in The New York Times. “Governments should do something like this, too, and not just rely on debt,” he says. “We would sell shares in America instead of just debt of the American government.” Shiller even suggests a name for the new security, which would be based on Gross Domestic Product: a “trill,” because it would represent one-trillionth of annual GDP. Though GDP numbers still are subject to periodic revisions, “the basic problem has been largely solved,” Shiller says. “Such securities might help assuage doubts that governments can sustain the deficit spending required to keep sagging economies stimulated and protected from the threat of a truly serious recession.” If substantial markets could be established for them, Shiller notes, trills would be a major new source of government funding, issued with the full faith and credit of the respective governments — which means investors could trust that governments would pay out shares as promised, or buy back the trills at market prices. “What the average citizen doesn’t explicitly understand is that a significant part of the government’s plan to repair the financial system and the economy is to pay savers nothing and allow damaged financial institutions to earn a nice, guaranteed spread,” Bill Gross, co-CIO of Pimco, told The New York Times. “It’s capitalism, I guess, but it’s not to be applauded.” © Newsmax. All rights reserved.

    When governments no longer can justify violence, they resort to fraud. Debt at this level is either ignorance, stupidity, the replacement of wisdom with ‘hope’ which is a secular version of trust a divinity, or simple outright fraud. And it is not a question of political parties. The left destroys through it’s kind of policy debt, and the right though it’s kind of monetary debt. The only difference is that the right’s method can be corrected through a recession, depression, price adjustments and fiscal collapse. The left’s will require a bloody revolution, and destruction of the civilization itself. Between those two ‘bads’, perhaps, the ‘bad’ of the left is worse, but it is only marginally worse. It would simply be better for all of us if government could not commit fraud on such a scale, ever, under any circumstances. To prevent policial fraud we need methods and processes that are measurable, and to measurable they need to be calculable. Calculability is an extension of perception, and an extension that is necessary because our innate human perception is unable to make judgements without the aids that calculation provides for us. (Numbers represent consistent immutable categories.) Accountability requires calculability. Capitalism 3.0 creates political accountability through plain old fashion calculability. Curt

  • Losses Are Losses Regardless Of Size: Tiger Woods, Losses and Celebrity Endorsements

    December 29th, 2009 § 0 Comments

    Over on The Sports Economist, I found a posting about a UC Davis Press Release on the Tiger Woods scandal and the losses incurred by companies that had sponsored him.

    And Felix Salmon editorializes that the number is an example of specious academic research (in other words, like most academic research that has popular appeal, it’s nonsense.) I’m not a big fan of Felix for historical reasons, but his criticism is spot on.

    Now, how am I going to spin this as another example of a strategic marketing error that is the fault of executive management?

    It’s easy. Because what makes the estimated $12B (or 1b, or whatever number of millions) in losses from the Tiger Woods scandal more interesting, is that celebrity endorsements have very little positive impact on brands, and advertising agencies have known this for decades.

    Celebrity sponsorships improve the public’s awareness of the celebrity outside of his or her own field. But that awareness does not translate to the products themselves. In general, Tiger made more people (especially minorities) interested in golf. But he did not necessarily advance the revenue of the “non-golf” brands he was associated with. (I do not have data on Tiger, I’m using comparisons of past celebrities – although I would honestly love to be proven wrong on this).

    For example, some of the models and actresses do fairly well with brand development, and have impact on the brand, but they manufacture that value – they don’t bring it to the table. Wilford Brimley’s commercials for grape nuts were a positive example, but he created that value as a character actor, rather than brought it to the table in the form of external legitimacy.

    So given the data on losses to shareholder value from the Tiger Woods scandal, it at least appears to confirm what most of us already know: celebrities increase awareness of the celebrity, but have little or no impact on the bottom line, but celebrity exposure once engaged in a brand, has a serious downside that is logarithmically more negative than any possible gain can warrant risking.

    And if you pick a reasonably attractive high performance high stress male athlete that marries a woman clearly outside his social class, and who travels extensively among fans (especially homogamous status-seeking females) that you helped create through increasing his exposure, you are simply asking for trouble. You get the same problem if you bring in a young female olympic medalist from a small town, and give her unfettered access to the media – she will speak honestly, and pragmatically, from her heart, and that is not the job of politicians or brand representatives whose job it is, is to perpetuate myths. (Yes, that’s a politicians duty: to perpetuate a myth, because political decisions in large groups are decided according to mythos.)

    Now, part of the problem is his own agency’s fault. They positioned the poor guy as a saint. Nike never does this kind of thing that I’m aware of. THey leave room for human frailty. If you don’t you just create a vehicle for necessary failure. They did. He stepped in it. It cost a lot of money – specious self promoting academic research or not.

    Celebrities cannot legitimize brands by bringing external legitimacy to them. Characters that symbolize brands, rendered by talented actors bring acting talent to the process of creating brand value. (Mr Whipple – played by Dick Wilson, Wilford Brimley – for Grape Nuts, and Catherine Zeta Jones for T-Mobile, for example, all created brand value.)

    In other words, blame the CEO and CMO, and agency for the lost $X-Billion, because it wasn’t Tiger’s fault for being Tiger, it was their fault for using a celebrity as a means of promotin when celebrities have near-zero positive impact on the business.

    Advertising should not be comprehensible to executive management. Sales data that is the result of advertising should be comprehensible to executive management. But that’s not how it works. A very smart guy, Larry Ellison, CEO of Oracle personally knows the agency and who is representing his company. And while I, he id due his how personal criticisms at times, as a CEO he should be respected for his depth and flexibility and accountability – he demands accountability and is involved in how his company is marketed.

    So it’s CEO’s and CMO’s that lost billions by manufacturing a celebrity that they can talk about with their friends, when the data is clearly that celebrities have very little positive impact on brands, and very high negative impact on brands, and they were betting on the chastity of a guy (probably with a lot of legal nonsense that assumes far more of a human animal that is possible) who has about zero chance of holding to those achievements – not because of a character flaw, but because any person under duress for a long enough period will seek human comforts and rationalize them.

    We worry about CEO corruption as if it’s an intentional malice rather than the foibles of being a human being in the midst of disconnected, fragmentary, and often erroneous data, in a rapidly changing market, under considerable time pressure, with credit money distorting all financial data worldwide, when CEO’s appear to be, at least from the data, some of the most ethical people in the world – especially given that they must fight the daily battle of tax, banking, investment, regulatory, journalism and political leader’s desire to attribute predictive value to temporal noise in data as if it is a trend, without resorting to calling the leadership of each of these categories ignorant fools, or giving away their current strategy. That’s a task that makes a centrist politician’s duties look tame by comparison. Yet we do not hold CEO’s accountable for malinvestment that was made despite being clearly contrary to all existing evidence.

    Except for Nike, who is in this kind of business with full knowledge of the consequences, (and employs some of the smartest people in marketing today) and EA, which of course, is directly profiting from Tiger’s name, (and is an exceptionally well run organization with deep knowledge of it’s customers) and Golf Digest who again profits directly from his participation and legitimacy in expanding the sport of golf, we should blame the CMO’s of the companies that invested in Tiger Woods. (Accenture, Amex, ATT, Gatorade, TLC, Gillette ) because it’s their decision to invest in a risky strategy (most likely because it’s easy to get through the bureaucracy) instead of developing a character or characters that represents their brand. (Geiko, and Progressive insurance are the current popular winners.)

    Tiger’s downfall was a foregone conclusion, and certainly, in the trade, the topic of a barstool raffle on his time-to-failure. He’s a human being, and no matter how many layers of paper indemnification we wrap a human in, he is still a human living in a world of other humans.

    But while the contract clauses can stop you from paying out your sponsorship fees, and some well spent money will help consumers forget the negative association with your brand, it cannot so easily recover lost shareholder value, despite the fickle memories of investors. Billions are BFN’s to lose. And they are lost by executives who buy into celebrity endorsements instead of building brand value around characters that they actually own, and in particular, fictional characters that can’t get caught in infidelity in hotel rooms with waitresses.

    from: www.puretheoryofmarketing.com (offline)

  • A Subtle Redefinition In Opportunity Cost

    I am going to redefine Opportunity Cost from the difference between one choice and another, to include the opportunity of expending violence. Because that is the FIRST cost that they pay in every transaction. I’m going to redefine Time preference from the silly Austrian implication that all purchasing decisions are made primarily by price, to the acknowledgement that all prices are in fact habits, and that decisions are made primarily by the culmination of OTHER factors, (and logically must be since prices are rarely different in any meaningful way) such that Time Preference is the aggregate approach to either consumption or capitalization. Such that a high time preference in the classical sense means consumption, and therefore is a short time preference, and that low time preference in the classical sense means capitalization, and therefore is a long time preference. A subtle difference, but the difference is meaningful: people do not care about prices between one object and another as much as they care about the other properties. In a universe of aesthetic rather than material differences, Prices simply allow people to categorize similar choices together so that they can apply other preferences, social biases, and subsidies. Because unlike the idea types to derive from marginalism’s attempt to make possible quantification, people actually ACT in the way I describe, even though that way is resistant to modeling.

  • A Convert: Winterspeak and the Public Purpose Of Banking

    Over on Winterspeak, I found another convert.

    ….a bank should be required to keep all loans it makes on its books until maturity.

    In under six hundred words he provides a solution to a great deal of the problem. I’ve extended this basic line of reasoning to explain WHY banking should be run this way, WHY the public should and must insure banks, and WHY we can provide redistribution using these institutions, and HOW to look at government differently. But then I’m trying to solve the broader problem. To determine how we must govern, we must agree on what life we desire. To agree on that life we must understand what kind of creatures we are. These two statements are as old as philosophy itself. However, these ancient questions are formulated with an assumption about our power of decision making: we may not be able to make decisions with out the institutions that help us do so. The civic republican tradition of political participation assumes we can make such judgements, or that we need only philosophical knowledge or religious tradition to do so. When, at some level of complexity we cannot sense the data with which to make these decisions in any possible way. I’ve included the article here in it’s entirety for posterity.

    Winterspeak The Public Purpose Of Banking THURSDAY, NOVEMBER 12, 2009 The Public Purpose of Banking While Lloyd Blankfein claims bankers are worth Billions, even as they destroy Trillions, it’s worth taking a look at what the public purpose of banking is. Chicago economists, sit back down, the public purpose of banking is not to enrich their shareholders any more than the public purpose of pharmaceutical companies is. Capitalism works by enriching owners as they compete to provide some value to customers. So, what is the value that banks deliver to their customers? First, what is a bank? My definition is simple and goes to the heart of their public purpose: a bank is an entity that has a reserve account at the Fed. That is it. If you have a reserve account at the Fed, it means you can lend unconstrained by your reserve balance. Briefly, this is how it works: 1. You make a loan. This debits your reserve account, and you credit a receivable account. 2. The loan gets deposited, which credits that reserve account, and credits a liability. Note how the loan created the deposit, not the other way around. 3. If the loan and the deposit are made at the same institution, that institution has no net change to its reserve levels. If the loan and deposit were made at different institutions, then the institution short reserves borrows what it needs from the institution long reserves overnight. That’s it. If you or I make a loan, we cannot use the reserve credit that the corresponding deposit creates to top up our own reserve levels. Thus this clear, operational difference between banks and non-banks. Ultimately, the Govt creates all reserves, so why not just have the Govt make loans directly? Because we do not want the Government to make credit decisions, they are too likely to dole out money to politically connected constituencies, while starving worthwhile, but unconnected borrowers. You can see this today, as banks and unions get Billions, while shop keepers, dry cleaners, manufacturers, and restauranteurs shutter their businesses and go on the dole. An institution that makes loans it knows will not be paid back is not making loans at all, it is making gifts, and the operational bankruptcy of the FHA is a great example of this in action. Many adjectives come to mind: corrupt, wasteful, abominable, unfair, fraudulent, etc. This is the opposite of Responsible Governance. Barry, we really expected more. So, to keep responsible lending, we put private capital infront of public capital and ask that private capital take the first loss on loans it makes which turn out to be bad. Ultimately, taxpayer money is there as backup, but it should not be directing investment. We call this institutional arrangement a “bank”. This simple sensible construct is utterly lost on policy makers and the commentariat alike. For banking to do the job it is meant to do (ie. make loans that will be paid back), a bank should be required to keep all loans it makes on its books until maturity. It should be forbidden to participate in any secondary markets, in any way. It should not run a prop trading desk. It should not sell insurance. It should not have a fee-for-service business. It should simply conduct its own credit analysis, make loans, and service them. And in return for providing this public purpose, a bank shall have a reserve account at the Fed.

  • Flashlights, Power Grids, Institutions of Calculation, Pride and Human Frailty

    The difference between the schools of quantitative and behavioral of economics consists largely in which errors they choose to accept in furthering the utility of their craft. Each of these schools masters a set of conceptual levers with which they seek to solve problems. Or more realistically, the people in the school learn levers, and define their schools by the limits of those levers. They explore their field with levers. They do not necessarily even understand, or agree upon the problem they are solving with those levers. Often, they redefine the problem by the levers at their disposal – a form of unintentional circular reasoning that is rarely evident except in retrospect. A lever is something that they can use to run a test. Testing is the sensory tool of science. But more clearly, methods and their tests are extensions of human perception. Think of them as an insects antennae. They sense whatever they are designed to sense. But it is up to humans to synthesize that new sensory data into a cogent whole. The problem occurs when our specialists become so enamored of their sensors that they bias their perception of the whole, as something designed to be explored by the sensors at their disposal. Like any school of thought, the limits of that school are determined by the methodological scope of it’s levers, what effects they ignore, or what priorities the school’s practitioners give to which effects either considered or ignored. Most often, practitioners become enthralled with the levers they best understand. These ignored effects, and preferred levers, constitute errors. THey must be errors, if they eliminate or ignore information — information that may be either influential to the test, or influential to secondary causes. My favorite response by economists is “… but we don’t consider that economics, so we dont consider this a problem for us to solve.” When in fact, economics is simply the school of measurement of the social sciences, when we choose to make material improvements in life — due to the increasing division of labor and resulting decrease in prices – our method of determining political policy. Economists then ignore the secondary causes of their research: they seek to justify a tool, rather than follow a chain of causation. In the quantitative (abstract) and experiential (experiential and logical) schools of economics, participants either err on the side of understanding human behavior in favor of models that support levers of government intervention, or they err on the side of understanding that there are consequences to policy in the absence of knowledge about secondary causes. The difference in priority between the quantitative and the behavioral, is simply the priority that each gives to it’s methods. They seek to solve the problem from different ends of the human spectrum. For example, the behaviorists did not understand the stickiness of prices and contracts over time, nor the importance of having sufficient money in the system, nor the problem with their concept of freedom, its relation to property, property to calculation and incentive, or the epistemology that property permits humans to employ. The quantiatives did not understand number of very important things, primarily the nature of entrepreneurship, the limits of the DSEM (dynamic stochastic equilibrium model) the nature of what numbers can represent as categories given that factors of production, and even all objects in human experience, have different utility at different times. Nor did they understand how important habitual knowledge, (traditions and habits) are in society, and how quiclky humans forget them when they are not of daily use due to social programs or credit money, inflation, or taxation. Nor did any of them understand that the problem we faced was the nature and dependence of society on human calculation itself, and that accounting practices, government by and laws, as well as the democratic system of government, are effectively laundering useful causality from the pricing system, as well as distorting it through the use of excess credit money. This axis of differences between abstract quantitative and experiential logical is intersected by those people that err on the side of institutional conservatism as a protection against fashion or err on the side of institutional change as a means of altering society by way of its institutions of cooperation and conflict resolution. However, both ends of teh spectrum ignore either the opportunity for change in preference for risk against institutions, or ignore the impact on institutions in favor of experimental change. And these differences are not minor or meaningless. It is the difference in the philosophy of giving people tools by which to better themselves and others, by fulfilling wants, and rewarding those who do so, and the opposite camp, which desires to change the status of humans at the discretion of the political managers who can achieve the power to pull the levers of their choice, and create class conflict over the spoils of productivity gain. The debate rages. However, it appears, at least after cautious study of the history of ideas, that experiments that extend our institutions of calculation are those that are material investments in humanity. And those that are more fashionable, are minor adjustments to class, power, and material randomness as we fitfully pursue life. Our problem is not economics. It’s calculation. Our political system is destroying our ability to calculate – because it’s members do not understand the underlying problem of human calculation, nor the need to modify government to facilitate it. That change, that one change, is the single most important modification we need to make to our institutions. Redistribution becomes calculable under that model. Class warfare becomes unnecessary. And to support Durkhiem, it prevents the state from suppressing freedom and individuality, because it no longer needs to, nor does it need to be a costly behemoth sitting on top of our society, nor can it, because it’s worth would be measurable. That is the methodology that we need: measurement of causality. Prediction is simply a silly chimera to compensate for the lack of information because we launder causality from our political efforts, and to justify the pulling of levers of government through taxes and laws because we lack that measurement and the information it contains. And if my argument appears to favor both sides, yielding confusion rather than clarity, it is because we must continue to compensate for the practical reality of human frailty and foible, while creating institutions that allow us our political expression as a vent for our frustrations, while building a set of institutions that make our society increasingly calculable, comparable, forecastable, perceivable, and thusly one of cooperation in a division of knowledge and labor. But we must not, ever, think that politics is more than a vent for the resolution of conflict between groups. Our society is it’s institutions of calculation. Our fitful political rhetoric an amusement and distraction that rails against our lack of control over them, while at the same time our prosperity entirely dependent upon them. And we must constantly monitor our schools of thought, as well as our own fantasies, so that we are not so enthralled in our pride, that we forget that we are inventing our future, not discovering it, and that each of these methods, schools of though, political systems, is a flashlight in the dark, and our institutions of calculation the power grid that keeps them lit.

  • From The Private Sector: We Don’t Need Stimulus We Need Credit

    1) From the private sector: We don’t need stimulus we need credit. Banks simply wont lend. While the process of correcting bank balance sheets is underway, that same process must occur in small and medium sized business before any turnaround can occur. In my largest company’s case, our banks have been failing gradually, and we have been cost cutting, not because of decline in profitability, but because of decline in borrowing capacity, and an inability to find new banks willing to lend. About 20% of the work force was affected. In the other company I own, we are experiencing similar problems. 2) We need an area of growth that creates opportunity, and we need it in an area where we can CREATE DEMAND by innovating (taking risks by trial and error). Demand is not simply naturally derived from abstract confidence, it is created by investment, risk, promotion, advertising, and sales. People consume according to stimuli and status attainment. But they have to be aware of opportunities for stimuli and status attainment. And we must constantly develop new products to inspire them to work, risk, borrow and spend. The government is not stimulating anything that will help us CREATE demand. For example, building power plants, or a new power grid, which reduce costs and allow us to compete by discounted power cost rather than discounted labor cost. It is creating further expenditure requiring infrastructure. This is of course, a temporary fix, that is a long term drain on the economy. Instead, stimulate the creation of opportunities. Or at least, understand that there are a minimum of three classes 1) banking and finance, 2) entrepreneurs, engineers and scientists, and 3) clerks, laborers and craftspeople, and that stimulus generally helps the first and the last, but the middle is where the job creation comes from. And fundamentally, the entrepreneur cannot borrow today. Entrepreneurs, while often called capitalists are rarely possessed of a lot of capital. They are possessed of the ability to unite capital, knowledge and resources (including labor) in pursuit of opportunity for mutual gain. 3) Fixing the problem of an incalculable economy (loss of consumer confidence because of decrease in anticipated opportunities, and therefore disincentive to risk money and credit) is repaired most easily by having the government fund banks to buy back depreciation in home prices, and refinance those new homes, preserving the equity of the homeowner. THis would return to government (the treasury) the accountability for their actions in flooding the economy with unproductive credit, and the resulting distortionary prices.. This one policy enactment (which a number of us tried to promote in the spring of 08) would have the most efficient and quickest effect on changing consumer confidence because it can occur fast enough that the stickiness of wages and prices can correct. Countering uncertainty requires acting on debt reduction (home balance sheets) faster than the contracts (wages and prices) can be renegotiated in the private sector, which is a collection of promises and agreements and habits between individuals. Of course, the old argument is this: everyone wants to use stimulus to build roads because they require unskilled labor, and therefore have an immediate effect on the least flexible people in the economy. But these roads have to be maintained perpetually, and high cost, and generally are not. When, planes on the other hand cause the opposite reaction. Then the question becomes, not just one of redistribution, or debt, but urgency, and motivating all of the productive classes of finance, entrepreneurship and labor, to work together. Not focusing on just one or another, but all three. This is one of the other failures of the bias that comes from overemphasis of monetary policy: forgetting that we have to move all three classes of people in order to stimulate the economy.

  • Response To Economists View: One Way To Look At The Bush Years

    RE: “One way to look at the Bush years is that job growth was lousy so the Fed (and the government policies) subsidized construction jobs by creating a housing bubble. That jobs program abruptly ended. It is now time for a new jobs program. For the longer run, it is time for a different labor policy that will create many more jobs.”

    It’s not just a way to look at it, it’s what happened. They wanted to create this ownership society as a means of countering the growth of urbanized socialism, and the diminishment of freedom, and competitive prosperity. This is the most important dimension of the multi-dimensional philosophy that they have been following. (We tend to classify them as having a simplistic philosophy but it is not so. It is not useful to underestimate the thought of your competitors.) The rest of it is essentially a universalist christian concept for the material benefit of mankind, (going back to Alexander) that promotes democracy as a means of exporting control over world resources in order to keep prices low, and maintain military and political power. The problem is for their philosophy, that in the end, society has become urbanized, and large and dense. And the epistemology of urbanites is very different from the epistemology of farmers. There is more similarity between the evolutionary tendencies of urbanites and slavery economies, than the evolutionary tendencies of farmers, for precisely these epistemological reasons. THis difference has been understood for a long time, and written about extensively. However, our current status of behavioral economics has not reached a sufficient state of maturity to connect this set of tendencies, with density of population, and availability of opportunity cost at the expense of perceptibility of causality. Furthermore, our calculative institutions (accounting and taxation) as they are currently practiced, effectively launder causality from our information systems, and require us to rely on the farmer vs urbanite dichotomy as a religious or political difference, or ‘taste’, or even as a strategy of class warfare,versus relying upon factual information that allows us to analyze our behavior and make judgments about it. Fortunately we know how to fix these issues, so that the epistemological clarity of farming (visibly of cause and effect) is available to the urbanite. Unfortunately, we have a form of government that distracts us from solving this problem by individual profiteering on the resolution of conflicts between groups and classes. Our biological sensitivity to fairness, which compels us to work hard, and endure costs, in order to punish those who steal from us, or treat us unfairly, seeks to commit violence, control, or punishment between groups in order to feel fairness has been satisfied. However, this masks the underlying problem as one of solving the underlying problem as one of extending human senses, perception, and comparitive and calculative ability such that we can make decisions for collective benefit. There is an argument that such accountability, which would come from epistemological clarity, would still be avoided by the peasantry, because of necessity we much manage consumption through the pricing system. However, redistribution can mollify discontent as it has in much of europe, assuming that there is anything to redistribute, because the population provides competitive value in contrast to other competing groups. I have a more benign view, which is that if a sufficient number of people can understand that this is a problem of providing information, on the scale that was provided by double entry accounting, and the inventory process facilitating taxation, and the standardization of currency, a small number of simple policies can be enacted that will provide us with the information we need, and therefore will allow us to cooperate, profit, and redistribute without the necessity of relying upon democratic negotiation for the purposes of resolving disputes between classes. Capitalism is with us forever as a set of institutions, precisely because humans cannot, in real time, process complexity of information without those institutions. Redistribution is likewise with us forever, since there is a difference between the necessity of incentive and the necessity of calculative power, and the preference for fairness. Likewise, social and economic classes are with us forever, because people requires status differences in order to pursue the mating ritual, and will create them faster than such differences will be redistributed, just as they will create black markets to circumvent anti-capitalist activity. But capitalism and socialism as biases, are only necessary as biases, because we cannot calculate, measure, and compare, the complexity of society in which we live. It may seem simplistic that society can be better managed by implementing changes in accounting, taxes, banking, credit, and the scope of lawmaking, but our society is changing BECAUSE of changes in these things. Instead, these institutions are what made our complex society possible, and our social systems, because they require decision and legislation rather than simply relying on evolution of business practices, simply evolves much more slowly. If we simply correct this problem, we can get away from class warfare, and into cooperating between classes for mutual gain. In other words, we are trying to build a science of economics on testing assumptions because we lack data needed to actually understand causality. We will have a much easier time if we have the data, and we have the technology, in both accounting and record keeping, to maintain causality in our data. Truth=Causality

  • Credit Funded Jobs Programs

    Another response from “A Shaky Start” on Economists View

    RE: “One way to look at the Bush years is that job growth was lousy so the Fed (and the government policies) subsidized construction jobs by creating a housing bubble. That jobs program abruptly ended. It is now time for a new jobs program. For the longer run, it is time for a different labor policy that will create many more jobs.”

    It’s not just a way to look at it, it’s what happened. THey wanted to create this ownership society as a means of countering the growth of urbanized socialism, and the diminishment of freedom, and competitive prosperity. This is the most important dimension of the multi-dimensional philosophy that they have been following. (We tend to classify them as having a simplistic philosophy but it is not so. It is not useful to underestimate the thought of your competitors.) The rest of it is essentially a universalist christian concept for the material benefit of mankind, (going back to Alexander) that promotes democracy as a means of exporting control over world resources in order to keep prices low, and maintain military and political power. The problem is for their philosophy, that in the end, society has become urbanized, and large and dense. And the epistemology of urbanites is very different from the epistemology of farmers. There is more similarity between the evolutionary tendencies of urbanites and slavery economies, than the evolutionary tendencies of farmers, for precisely these epistemological reasons. THis difference has been understood for a long time, and written about extensively. However, our current status of behavioral economics has not reached a sufficient state of maturity to connect this set of tendencies, with density of population, and availability of opportunity cost at the expense of perceptibility of causality. Furthermore, our calculative institutions (accounting and taxation) as they are currently practiced, effectively launder causality from our information systems, and require us to rely on the farmer vs urbanite dichotomy as a religious or political difference, or ‘taste’, or even as a strategy of class warfare,versus relying upon factual information that allows us to analyze our behavior and make judgments about it. Fortunately we know how to fix these issues, so that the epistemological clarity of farming (visibly of cause and effect) is available to the urbanite. Unfortunately, we have a form of government that distracts us from solving this problem by individual profiteering on the resolution of conflicts between groups and classes. Our biological sensitivity to fairness, which compels us to work hard, and endure costs, in order to punish those who steal from us, or treat us unfairly, seeks to commit violence, control, or punishment between groups in order to feel fairness has been satisfied. However, this masks the underlying problem as one of solving the underlying problem as one of extending human senses, perception, and comparitive and calculative ability such that we can make decisions for collective benefit. There is an argument that such accountability, which would come from epistemological clarity, would still be avoided by the peasantry, because of necessity we much manage consumption through the pricing system. However, redistribution can mollify discontent as it has in much of europe, assuming that there is anything to redistribute, because the population provides competitive value in contrast to other competing groups. I have a more benign view, which is that if a sufficient number of people can understand that this is a problem of providing information, on the scale that was provided by double entry accounting, and the inventory process facilitating taxation, and the standardization of currency, a small number of simple policies can be enacted that will provide us with the information we need, and therefore will allow us to cooperate, profit, and redistribute without the necessity of relying upon democratic negotiation for the purposes of resolving disputes between classes. Capitalism is with us forever as a set of institutions, precisely because humans cannot, in real time, process complexity of information without those institutions. Redistribution is likewise with us forever, since there is a difference between the necessity of incentive and the necessity of calculative power, and the preference for fairness. Likewise, social and economic classes are with us forever, because people requires status differences in order to pursue the mating ritual, and will create them faster than such differences will be redistributed, just as they will create black markets to circumvent anti-capitalist activity. But capitalism and socialism as biases, are only necessary as biases, because we cannot calculate, measure, and compare, the complexity of society in which we live. It may seem simplistic that society can be better managed by implementing changes in accounting, taxes, banking, credit, and the scope of lawmaking, but our society is changing BECAUSE of changes in these things. Instead, these institutions are what made our complex society possible, and our social systems, because they require decision and legislation rather than simply relying on evolution of business practices, simply evolves much more slowly. If we simply correct this problem, we can get away from class warfare, and into cooperating between classes for mutual gain. In other words, we are trying to build a science of economics on testing assumptions because we lack data needed to actually understand causality. We will have a much easier time if we have the data, and we have the technology, in both accounting and record keeping, to maintain causality in our data. Truth=Causality