Depressing headlines

After reading this morning’s headlines I am planning on going into hibernation in my workshop and working on a scrollsaw project and some wood turning.

Here are some of the headlines:

World lacks enough food, fuel as population soars-UN


Working Poor: Almost Half Of U.S. Households Live One Crisis From The Bread Line

 

Europe Migrant Deaths: Record Number Of Migrants Died While Trying To Reach Continent, UN Says

 

 

Are we running out of resources?

Are we running out of resources?  This question was asked on the Linkedin forum “The Economnic Outlook”.  Following is my answer.

Your asking this question indicates there may be a problem.

Probably we are not running out of resources but it could well be that we have used up a lot of the easily available resources which could be just as serious.  We are already seeing rising prices and lower standards of living for many people.

The using up of easily accessible resources is complicated by the fact that price is equal to the marginal cost of producing the last unit.  This  means that as resources become more expensive to extract the price of the cheaper to extract resources which are still left also goes up.

This in turn leads to a transfer of purchasing power from consumers to the owners of the cheaper resources.

Aging population

Some people like to worry about an aging population.  Here is an article about projections that the Japanese population will decline by one-third.

The fear is that as the proportion of older people increases the burden of supporting them will fall on decreasing numbers of younger people. The easy answer is that this burden should not be too great thanks to technology which has improved tremendously over recent years and which many continue to improve.

A more difficult answer is that for all of us, and especially those of us who are retired, our well-being depends upon the ratio of population to goods and services produced and our ability to lay claim to those resources.

As there is some evidence the ability to produce goods and services throughout the world is declining there may well be declining standards of living for all of us.

In my essay “LETS go to market: Dealing with the economic crisis” which is a part of this weblog I try to show one way we could organize our economy to minimize the suffering from a declining economy.

Coping with economic inequalities

Economic inequalities continue to be a hot issue and will probably do so for some time to come.

Inequalities have been a part of the human experience for a long time, probably since people started farming and produced an agricultural surplus.

There are people who aspire to be richer than others and some of them will use any means to get there.  This too has probably been the case for millenia.  In medieval Europe there were three classes of people – those who prayed, those who fought and those who worked to support the first two.

Prior to the industrial revolution the main method of  exploitation involved force – armies and invasions, goon squads to enforce taxation.

With the industrial revolution two things changed.  There became available easier and less violent ways to acquire riches.  Governments passed legislation which restricted competition and allowed some people to become rich.  And, increased production allowed a larger surplus which could be shared  especially as the supply of labor relative to demand gave the 99 per cent some bargaining power.

Now that the economy is going down the 99 per cent are losing some of their bargaining power and inequalities are becoming more of an issue.

Is there a way to change the world so that there can be more equality.  The problem with revolutions is that they just allow new faces into the one percent.

The following prayer hangs on the wall by our kitchen table although in this case I find I am lacking in wisdom.

God grant me the Serenity to accept the things I cannot change

Courage to change the things I can …

and Wisdom to know the difference

Peak oil and energy costs

Our civilization has been built upon energy stored in the earth’s crust and which has been easily extracted.  The continuation of the lifestye we know depends upon a continuing supply of cheap energy.

Therefore this article on peak oil on the Scientific American website is of particular interest.  It appears we are relying more and more on oil which is expensive to extract.

In evaluating energy sources the key question is how many units of energy does it take to acquire 100 units of energy.  Clearly for new sources of oil this figure is increasing.

The next question is what proportion of the energy comes at the higher cost and what is happening to this figure.  As the proportion goes up there will be less energy with which to maintain our lifestyle.

A further complication is that price is equal to the marginal cost, i.e. the cost of producing the last unit.  As the price goes up to pay for the latest discoveries the owners of the remaining  easily extracted energy will receive windfall profits.  This will be a transfer of purchasing power from consumers to the original owners.

LETS go to market: Dealing with the economic crisis

A 4000-word essay titled “LETS go to market: Dealing with the economic crisis”  has been added as a page to this web log.  Some of the ideas in this essay have not (yet) been presented in the web log.

The ideas in this article are outside mainstream economic analysis but I believed they are mostly based on the economics I learned as a student at the University of British Columbia.

We look at the formula from the quantity theory of money which I prefer to call the connectivity       formula  because it shows how the real part of the economy connects with  the financial.   There have been many ups and downs in the Q part of this formula.  These changes have impacted previous economic crisis.  The underlying cause of the current crisis is probably the unsustainable use of resources.

Three ways of creating money are considered  (gold, fractional  reserve and Local Exchange trading system [LETS]) and the advantages and disadvantages of each. If there is anything that should be considered funny money it is fractional reserve money.  Therefore I suggest we expand LETS into  a National Exchange Trading System.(NETS)

Such a radical change in our financial organization would be an opportune time to make other changes on our economic organization.  I would like to see the perfect competition model  used as a guideline.

I believe subsidies should be given to consumers rather than producers therefore I propose that transfer payments and subsidies should be replaced with a universal subsistence program.

You can read the essay here.

If you liked this post your are invited to comment, press the like button and/or click  one of the share buttons. If you disagree you are invited to say why in a comment.  While I like the idea of sharing this platform, my personality is such that I don’t reply to many comments.

Which is the best economic “ism”?

The following was posted as a comment to The Economist editorial with its feature on state capitalism in the January 21 issue.

Does it really matter which “ism” one uses to describe a large industrial economy?

They all feature close connections between the political and economic elites, they all exploit large quantities of resources and they all use the power of the state to enforce legislation which restricts competition.  The “one per cent” applies to all of them.

One has to note The Economist is a strong supporter of the “isms” in that it frequently promotes the concept of “the rule of law”  which is not necessarily justice.

(The author of this comment has a web log on economics at https://economics102.wordpress.com/)

How the one per cent got to be rich

This week’s issue of The Economist has an article on the one per cent in the United States.

Here are two reasons why we have very rich people.

First, governments pass legislation which  interferes with the workings of competitive markets.  If markets were perfectly competitive there would be no profits and therefore no rich people.

For example, for there to be perfect competition it has to be easy for new firms to get into any industry and for that they must have knowledge of the technology.  Patent legislation, whatever the merits of intellectual property arguments, restricts competition and allows the patent holder to make profits that otherwise would not be available.

Other examples of legislation that restricts competition are copyright, licensing, regulations and trade restrictions.

Second, the reason bankers become rich is that they create money when they make loans.   This gives them a great deal of power in that they decide what projects go ahead and by whom.  It also provides them with opportunities to take cuts for themselves and they also get to charge interest on the money they have created.

So, if we want a more equal economy we should repeal some of the legislation which restricts competition and we should look for another way to create money.

The Euro zone’s impossible dilemma

Some economist are worried that attempts to deal with the euro zone crisis are going to force Europe into a recession.  Here’s a link to one such forecast.

It’s a valid fear but one that applies to the whole planet rather than just Europe.  The probable cause of a world-wide recession is that we are using resources at a rate which is not sustainable.

If this is true then policy makers face an impossible dilemma.

Policies which lead to recession will hurt a lot of people and especially the poor.  In this case the line between rich and poor will likely be quite high.

The conventional wisdom is that to deal with a recession governments should spend to stimulate the economy even if they have to go massively into debt.

Stimulating the economy when there is resource depletion is going to deplete resources even faster and will bring forward a major crash.

A further complication is that the Euro zone financial crisis will likely lead to a sharp reduction in the money supply.  Without money the exchange of goods and services will be curtailed.

Resource depletion combined with a loss of money supply has the potential to be disastrous.  But it should leave a few resources for the survivors.

Should retirement savings be forced?

An article on the CBC news website asks if Canadians should be forced to save for retirement.

The article points out that some people pushing for this are in the financial industry and have a vested interest in getting more people to put money into retirement funds.

I would point out our well-being and standard of living in retirement will depend upon the ratio of population to the quantity of goods and services being produced at the time of one’s retirement.  At this time it is not clear what that ratio will be next year let alone into the future.

There are three risks facing retirement savings.  Inflation could wipe them out,  the institutions holding them could go broke or they could bed lost to fraud.  The longer the term the greater the risks.

I still think the best investment is a market garden.

I would refer you to the story at the start of the previous post on this blog.

A warning for all investors

The following was posted to the comments section of the Buttonwood column  in the January 7, 2012 issue of The  Economicst.

The following story is from an article on hedge funds in the The Economist of November 16, 2006.

http://www.economist.com/node/8173853

THERE is an old Wall Street story that can be adapted for the modern world of hedge funds. A young hedge-fund trainee is taken to the harbour. “Here”, says his boss, “are the partners’ yachts. And over there are the yachts of the bankers who lend to us.” The naive youth replies: “But where are the customers’ yachts?”

This story should probably be issued as a warning to anyone who trusts somebody else to look after their money.

(The author of this comment has a web log on economics at https://economics102.wordpress.com/)

Why we hate bankers

The following was posted as a comment on The Economist website to an article on demonizing bankers in the January 7, 2012 issue.

http://www.economist.com/node/21542389

The reason bankers are the focus of economic frustrations is that they create money when they make loans.

By creating money they have lots of opportunities to take cuts for themselves, they have the power to say what projects go ahead and by whom and they get to charge rent (interest) on the money they create.  Those are three good reasons for people to hate them and for bankers to tolerate the hatred.

(The author of this comment has a web log on economics at https://economics102.wordpress.com/)

Comparing economies

The New Years eve edition of The Economist has an article speculating how long it will be before China overtakes the United States as the world’s largest economy.

Do we really need to be so competitive?   Does it really matter which country produces the most guns and butter?

If we are going to evaluate or compare countries there may be other  interesting ways to do so.  Here are my suggestions for some questions to ask.

How many hours a week do we need to “work” the standard of living we desire and how many do we actually work?

To what extent do we “work” to support the goals and ambitions of others?

To what extent are we able to follow our own non economic interests whether they be music, art, watching television, writing about economics or vegging in the sun?

To what extent are we subject to pressure from others regarding values, morals, religion or sexuality?

To what extent are able to enjoy our sexuality in our own way and to the extent we wish?

2011 in review

The WordPress.com stats helper monkeys prepared a 2011 annual report for this blog.

Here’s an excerpt:

A San Francisco cable car holds 60 people. This blog was viewed about 1,800 times in 2011. If it were a cable car, it would take about 30 trips to carry that many people.

Click here to see the complete report.

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