Education problems

Two items on the INTERNET this morning got me going on schools and education. First, CBC news reports British Columbia teachers have voted 90 per cent in favor of strike and will likely take job action in September. The second was a defense of teachers by a Huffington Post columnist.

I can easily accept that most teachers are sincere, intelligent and exceptionally caring people. Teaching can be a highly stressful occupation although I suspect a lot of the stress comes from administration rather than students.

I have three concerns that probably put me in conflict with most teachers’ unions.

First, education should be primarily the responsibility and under the direction of parents. Thus I like the concepts of charter schools and vouchers so that parents can choose the education their children get.

Second teachers should be considered as servants rather than professionals on a par with doctors and lawyers. We go to professionals because we are in a crisis situation and we hope they have specialized knowledge which will help us out of the crisis. We hire teachers to do a job which we could do ourselves but choose not to.

The third is that education is a monopoly industry. It is an industry in which the monopoly profits go to those people who work in it and one which suffers from all the problems of a monopoly. It should be possible to introduce some competition and maintain our commitment to provide a basic education to all children .

A scrollsawer’s view of the world

Steve Good is a prolific designer of patterns to be cut on the scrollsaw which he publishes on his weblog Scrollsaw Workshop.  I suspect a lot of people around the world will relate to todays drawing which I have copied below.  One could easily replace the U.S. with one’s own country or the whole world.

I suggest the basic problem is that most of us, most of the time act and think in our own short-term interests as opposed to our own long-term interests or the interests of the communtiy as a whole..

Frequently I am tempted to forget about economics and just cut on the scrollsaw.


Tuesday, June 28, 2011

Sooner or Later She’s Gonna Break!


Thomas Jefferson said, “I predict future happiness for Americans if they can prevent the government from wasting the labors of the people under the pretense of taking care of them.”

Sorry for the politics but that’s just the mood I’m in tonight.

The living planet report

In October of last year the World Wildlife Fund published its Living Planet Report. This report claims our ecological footprint exceeds the earths biocapacity by 50 percent and that by 2030 we will need two earths to support sustainable life on the planet. This could explain a lot of the dismal economic news we have been getting lately.

Yet I have seen no discussion of this report – not even any attempts to contradict it. That’s a pity because if this report is correct, or even partly correct, prompt and drastic action is required to minimize the human suffering that will/ is happening..


Why we can’t let banks fail

One of the concerns with the Greek (and Irish and Spanish and Portuguese and the rest of Europe) debt crisis is that a number of banks will have to take a loss. It is tempting to say “so what, banks are rich and their shareholders can cope with a loss better than anyone else.

But there are some complications. Banks are essential in creating the money supply. When banks make a loan they create money and the total money supply is increased.. When the loan is repaid, the money supply decreases until the money is re-loaned and the supply goes back up.

Thus the money supply is constant – until a central bank purchases government bonds. This is the creation of new money but because of fractional reserve requirements (banks are required to hold a percentage of deposits in reserve against withdrawals) money created by the central bank is called high powered money and the money supply goes up with a multiplier effect.

All this is explained in any textbook on the economics of money and banking. What I have never seen explained is the effect on the money supply when a bank writes off a loan. Probably it has the reverse effect of high powered money – a decreased money supply subject to the same multiplier.

In most cases the writing off of loans will have little effect on the money supply However, if the amounts to be written off are large as was the case with the American housing crisis or is likely to be the case with any sovereign debt write off , the impact on the money supply will be substantial and it we lead to an abrupt decline economic activity.

Banks and their shareholders my be rich, but if they suffer loses on their loans, a lot others will become much poorer and out of jobs.

(Here is a link to the wikipedia article on money creation)

How not to become a slave

Through the centuries/millenia those people who have built empires have needed others to do the grunt work of agriculture, manufacturing and administration. This has often meant using force or capture to make people into slaves or serfs. A more subtle way to enslave people is to give them cash loans. In peasant societies loans have often been for weddings or funerals. While people owe money they remain under control and if they can’t repay the loan they and often their descendants become formal slaves.

Of course, this doesn’t apply to us. Or does it? It may be that many in our society are unable to do the things they really want to do because they have to work to pay of a debt which was encouraged and easy to get. A further complication is that in a time of economic difficulty people are losing their jobs but the debt is still there.

The CBC filled a report today from Statistics Canada that “the total amount of debt that Canadians hold in relation to their incomes continued to inch higher in the first quarter.

“The debt-to-income level ticked almost a full percentage point higher to 147.3 per cent in the January to March period, the agency said. The figure is a measure of total debt load — including mortgage and consumer debt — versus disposable income.”

If you don’t want to become a slave, then try not to get into debt.

Bitcoin: an attempt at a new way of creating money

Bitcoin, an attempt to establish a new “peer-to-peer” virtual currency is described in an article in The Economist of June 16, 2011.

One can accept the need to search for new ways of creating money. I believe the recent financial crisis was in part a failure in the way in which our economy currently creates money. (Money is created when bankers make loans, subject to a multiplier effect from the requirement to maintain reserves. When a whole lot of loans went bad this decreased the money supply, again with a multiplier effect. With a suddenly decreased money supply, the economy went for a loop.)

One of the problems with the bitcoin system is the quantity of money available is strictly controlled according to a formula.

I have always liked the quantity theory of money which states that MV=PQ where M is the money supply, V is the velocity at which it changes hands, P is the price or price index and Q is the quantity of goods and services produced.. Therefore as Q goes up (or down) there also need to be changes in at least one of the others. If we want prices to remain constant, then we need a way of creating money such that the supply can easily be varied according to the quantity of goods and service produced.

Jobs versus the environment

There has always been some conflict between environmental concerns and the need for people to have a job. With the current economic uncertainty this conflict is becoming more of an issue. For example see the article “Soaring emissions” in The Economist of June 4th, 2011 which deals with the politics of this issue in the United States.

We tend to treat employment as a motherhood issue. Jobs are important because they provide us with a standard of living – food, shelter and leisure activities – and because they provide a means for self identification (sometimes)..

But if we were to see the problem as one of providing food and shelter in an age of incredible agricultural and industrial efficiencies, there may be other solutions. One option might be some form of a guaranteed annual income


Early this year(January 20, 2011)The Economist published an article on millionaires.

The article suggests most millionaires got there through their own efforts and hard work.

I suggest they also benefited from government legislation that restricts competition – copyright and patent legislation,  licensing requirments and  trade restrictions.

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