Happy birthday Milton Friedman

In honor of what would have been Milton  Friedman’s 100th birthday the Webb has a number of suggestions that we need him to solve current economic problems.

If he were born in 1912 then he would have been in his 20s as the world was coming out of the depression and his thinking was strongly influenced by the world’s going into a period of unprecedented economic growth.

For his advice to be relevant now he would have to had adapted to current circumstances in which it is doubtful economic growth can continue.

Even so I like a lot of what he said.  Here’s a link to ten of his best quotes.

 

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Decision making and subsidies for bio fuels

In spite of low prices for shale gas there appear to be increasing concerns about energy availability.

We need energy to keep our bodies alive and we need energy to operate the machines upon which we depend. All energy comes from the sun and we use it in different forms for food and fuel.

The problem comes when the same form of energy can be used for both  as is the case with bio fuels such as corn and sugar.  Who is to decide the balance?

Some people concerned about fuel shortages have sought and been given subsides for bio fuels.

The chairman of Nestle, wanting people to buy more of his processed food products is complaining about the subsidies as they appear to be contributing to high food prices.

So long as the subsidies continue the balance is being determined by some politician and/or bureaucrat.

If there were no subsidies you and I would be making the decision in our shopping  decisions.

As we live a 45-minute drive from the store where we do most of our shopping our decisions would probably be different from yours. If all government subsidies for all products were to be dropped we would probably have to make some major lifestyle changes.

Even so, I repeat that subsidies should be given to consumers rather than producers.

 

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Adam Smith and election funding

For some time I have been saying capitalism as we practice it should be defined as a system in which governments pass legislation which allows some people to make profits by restricting competition.

I hate to admit it but I have never read Adam Smith’s Wealth of Nations although some years ago I purchased a second-hand copy.

Therefore I perked up when I read a column in The Guardian that Adam Smith said something similar.

 

However, what is less well known is that Smith shared some of the key concerns of today’s critics of neoliberalism. His most famous work, The Wealth of Nations, offered a powerful political critique of the “one per cent” of his day, to borrow the terminology of the Occupy movement. In what he himself described as a “very violent attack” on an unjust status quo, Smith repeatedly emphasised the role of power, influence and class in distorting economic policy to serve the interests of a narrow elite.

 

Smith noted that the “English legislature has been peculiarly attentive to the interests of commerce” because policymakers were continually “imposed upon by the sophistry of merchants”. The vested interests “like an overgrown standing army … have become formidable to the government, and upon many occasions intimidate the legislature”. They argue their case “with all the passionate confidence of interested falsehood”, predicting national ruin if their demands are not met.

 

Now take a look at this item from The Huffington Post which reports on some aspects of financing for the current U.S. election.  It appears a lot of people with an interest in restricting competition are putting a lot of money into the election campaign.

I figure one of the most neglected features of the perfect competition model is that there should be perfect knowledge.

Therefore rather than restricting election financing I would suggest all parts of the campaign should include the source of funding and what legislation the source is interested in influencing or retaining.

I have now downloaded Adam Smith’s book onto my ereader.  That was a lot quicker than trying to find the hard copy.

 

Regulating banks and competition

This week’s The Economist has an article about a small bank in Texas which is challenging in court the Dodd-Frank act passed two years ago to increase the regulation of the banking industry.

I have a theory that most if not all economic legislation works to restrict competition and it appears the Dodd-Frank act does this by making life difficult for the small banks.

It also appears small banks, or at least this one, being small have to follow prudent banking practices and have fewer opportunities to gamble with other people’s money.

Maybe the best way to regulate the financial industries is to ensure they are highly competitive and repeal legislation which restricts competition.

Of course the big banks would turn their lobbyists loose on this one.

 

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Understanding the Euro crisis

The key to understanding the crisis in Europe (and around the world) is to go back to the classroom.

When economics professors start their lectures they often draw on the blackboard (or used to) an x-shaped graph with an x and y-axis.  One of the lines represents the real or physical aspect of the economy and the other represents the financial.

This is an important distinction which is mostly forgotten when we leave the classroom.

If we want to understand what is happening in Europe we must look at both sides of the graph.

On the financial side I think the way in which we create money is a Ponzi scheme which collapses from time to time.  We are probably dealing with a financial collapse which is made worse by what is happening in the physical world.

Since the depression of the 1930s the people of this world have used up a lot of resources.  There may be lots of resources left but we have used the most accessible.  What is left will require a lot more energy and work to extract.   This has to have a major impact on the economy.

To deal with the financial crisis we can regroup and continue until the next crisis or we could try to figure out a new way of creating money.

To deal with the resource crisis we may have to reevaluate our commitment to economic growth.

Considering the psychological and political difficulties in changing the way we create money or dropping a commitment to economic growth one starts to think we may be better not to try to understand the crisis.  But that too might pose some problems.

 

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Bashing Paul Krugman

I’ve been having difficulty coming up with an idea for a post but one can always fall back to bashing Paul Krugman.  While it’s fair game to disagree with someone I prefer not to put him down. I can’t resist this one.  The guy generates so many words he must have a DBS degree.  (The D stands for doctor.)

There are four areas of disagreement.

First, the stimulus and money creation policies he promotes  were what was needed in the 1930s but are probably not right for current circumstances.  Both of these have been tried and appear not to be working.

Second, if the underlying problem is with the resource base, then increasing economic activity is going to make things worse and possibly bring forward the date of a major economic collapse.

My third concern is that even if we have the resources to prepare for an alien invasion, is that really what we want to do with our time and resources. There are so many things to do in arts, music, crafts and social fields that some of us would find more rewarding.  Also I think each individual  should decide for him/herself what to do rather than have to do what some economist decrees.

A fourth concern is that inflation which he also promotes is a form of theft.

On the other hand Krugman does have some uses.  He gives us something to think about and he has helped me come up with a post for this weblog.

 

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The power of professionals

This week’s The Economist has two articles on medicine and doctors in China which prompted the following thoughts.

One of the more fascinating courses I took in university was on the sociology of work where the professor spent some time talking about what makes a professional.

We go to a professional when we are in a crisis and the professional has specialized knowledge which can help us.

This gives professionals a great deal of power over us and it encourages them to let us think they know more than they do.

It also means some of them are able to take advantage of us and it appears this applies to doctors in lots of countries.

The way for us to deal with this is to try to live a reasonable lifestyle (exercise and good diet) and when our turn comes, try to accept it gracefully.

 

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.

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