Electronic money payments in the Middle East

This week’s The Economist has an article about the introduction of electronic payment systems in the Middle East.

This sounds like a major change in the type of money being used  – a transition from cash to a more intangible type of money.

It illustrates that money should be considered purchasing power rather than a commodity.

I wonder what percent of the money supply in Middle East countries is cash and what percent is bank deposits?  To what extent is fractional reserve money being used?

For their sake I hope the transition does not include increasing fractional reserve money because that is a Ponzi scheme.  As fractional reserve money is based on loans if all debt plus interest had to be repaid at once there would not be enough money.  This type of money works only so long as there is continued economic growth and a continuously increasing supply of new money via new loans.

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

Rape and the battle of the sexes

This one is a little off topic but if The Economist can run an article on rape, then I can comment on it.

Most of us  are sexual people to some extent or the other and in some way or the other.  thus there are a lot of variations.   The variations could include men who want their partners to be willing and women who want a little bit of force.

Rape is only one part of the battle of the sexes.   There are a lot of women who are liars, selfish,  inconsiderate, or dominate and these women can cause a lot of grief to their partners, probably even more so if marriage is involved.

Recently while on a cruise we took an excursion to a native village.   Having had some experience with natives in British Columbia where it has been said some 90 per cent of the people have experienced sexual abuse, I was wondering if these natives had similar experiences.

On the bus ride to this village we were told that by the age of 14 most of the girls had two children.  It would appear that sexual abuse just did not exist for them.

I consider it wrong to force one’s sexual values, morals or practices upon others.

There is an old “Confucius say” line that rape is impossible because a woman can  run faster with her pants up than a man with his pants down

 

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.

 

The gold standard, money and stability

Thanks to a Republican senator and the dynamics of that party we are hearing calls for a return to the monetary gold standard.

I see this as a reaction to economic events most people don’t understand and the fact even fewer understand how money works in the economy.  We look for explanations which relieve ourselves of responsiblity.  Therefore the economic crisis is the fault of former president Nixon who took the United States off the gold standard in August 1971.

In these uncertain economic times we are looking for stability and what can be more stable and solid than gold.   Never mind that since 1971 there have been major fluctuations in the price of gold and there were economic problems before then.  Going back onto the gold standard in search of stability would probably introduce even more instability into the economy.

We start this analysis with the formula

MV=PQ
where:

M= the money supply
V= the velcoity at which money changes hands
P= the price level
Q= the total of goods and services produced in the economy.

Some people doubt the validity of this formula but to me it appears to have a lot of logic and common sense.  It is an important tool for understanding the the financial world connects with the physical economy.   The important thing is that if any one item goes up or down then something else also has to change.

Probably most of the people who want a return to the gold standard are concerned about inflation which treatens to wipe out their savings.

If we were to go back onto the gold standard that would in effect be trying to hold M steady.

Thus if the Q were to go up or down then either the V or the P would have to go up or down.  It it would most likely be the P then we would have inflation or deflation when what we really want is price stability.  Going back to the gold standard would probably increase instability.

But the gold standard people are right to focus on changes in the M in the equation.  The thing is that for there to be price stability the M has to be easily variable and that takes us to my favorite topic – how we create money.

Let’s not go into that now.  Let’s just say that the way we create money is a Ponzi scheme which works only when there is economic growth, an increasing M, and that my essay “LETS go to market: dealing with the economic crisis” proposes another way of creating money which would be easily variable.

 

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.

The Ponzi scheme of creating money

The first time I used “Ponzi scheme” to describe the fractional reserve process of creating money I feared I was skating on thin ice. It’s a rather strong term with which to describe a process which most of the people who don’t understand how it works (and those who do) consider to be motherhood.  However, it has in the past (the depression of the 1930s)and almost certainly will in the future cause a great deal of human suffering.

Therefore it was with some relief that I discovered that Richard Heinberg says the same thing in his book The End of Growth: Adapting to Our New Economic Reality (P. 33)

I like his way of explaining the problem.  because all of our money is created by the making of loans, if all the outstanding debt were to be paid off at one time there would not be enough money to repay it all because of the interest.  The charging of interest on the debt/money means there is never enough money available to repay all outstanding debt.

The system works only so long as there is continued economic growth and a continuously increasing supply of money which means more and more debt.  The problems come when economic growth slows or stops and some of that debt has to be reduced.  As there is not enough money to repay it the purchasing power of the debt is reduced  by  the failure of financial institutions or the drop in prices of assets such as housing.  (The purchasing power of money can also be lost to inflation.)

Heinberg sees a need for a new way to create money and directs our attention to  local currencies such as a Local Exchange Trading System. (LETS).  That too made me feel good as my own proposal for money is to expand the LETS into a National Exchange Trading System.  For more on this and an explanation of fractional reserve banking see my essay “LETS go to market: Dealing with the Economic Crisis” on this web log.

Criticizing economists

Following is a quote from James K Galbraith at the start of the introduction to the book The End of Growth: Adapting to our New Economic Reality by Richard Heinberg and published in 2011 by New Society Publishers.  (Apparently James K. Galbraith is the son of John Kenneth Galbraith)

When I read this quote I thought this book has to be interesting and it is.  Hopefully there will be more from this book in later posts.

Leading active members of today’s economics profession … have formed themselves into a kind of Politburo for correct economic thinking.  As a general rule – as one might generally expect from a gentleman’s club – this has placed them on the wrong side of every important policy issue, and not just recently but for decades.   They predict disaster where none occurs.  They deny the possibility of events that then happen ….  They oppose the most basic, decent and sensible reforms, while offering placebos instead.    They are always surprised when something untoward (like a recession) actually occurs.  And when  finally they sense that some position cannot be sustained, they do not reexamine  their ideas.  They do not consider the possibility of flaw in logic or theory.  Rather, they simply change the subject.   No one loses face, in this club, for having been wrong.  No one is dis-invited from presenting papers at later annual meetings.  And still less is any from the outside invited in.

 

Here are links to a couple of my own criticisms of economists: one, two.

 

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.

Criteria for a health care plan

 

With health care likely to become a big issue in the U.S. election and an issue in many other countries here are three points against which I would want included in   a health care plan

First I believe we should have a collective responsibility to ensure all citizens have the opportunity to experience the same standard of living as all other citizens.  That includes health care

The second is that we should be able to make our own lifestyle decisions. Most if not all of us do and eat things which are long-term detrimental to our health and all of us have to take the consequences of those decisions.

The third is that quite a few years ago The Economist reported that 80 per cent of health care spending is in the last six months of life.  This should not be included in our collective responsibility although if a person or family has to resources and wants to go there they should be allowed.

Some years ago there was a story that the Chinese paid their doctors so long as they were healthy.  When they got sick the treatment started and the payments ended. Wouldn’t it be interesting if this concept could be incorporated into a health care plan.

 

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.

The U.S. election – meanness or dominance

As a Canadian I have been trying to ignore the U.S. election.   However when I saw where some libertarian market economics people were excited about the appointment of Paul Ryan as the vice-presidential candidate I decided to have a little look.

What I found is that while Ryan supports a market economy and smaller government he has proposed a 16 per cent reduction in U.S. spending on social programs.  This goes against my belief that we should have a collective responsibility to ensure everyone has the opportunity for the same standard of living as everyone else.

Another concern is that this reinforces the view that market economics is heartless and mean-spirited.   An income support scheme of some sort has to be an essential part of market economics.

On the other side of the political divide there are a lot of people who appear to believe they have a right to tell others how to live their lives.  One would expect these people to support a political party that promised to interfere in the economy and people’s lives.

So there you have it – a choice between dominance and meanness.  If I were American I would probably deliberately spoil my ballot.

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.

Wal-Mart and impoving honesty in the financial industry

It’s hard not to get the idea that large sections of the financial industry operate on a culture that what most of us would consider fraud is acceptable and even desirable.

The question is how to change that culture.  It appears that legislation and enforcement just doesn’t work.  There are always loopholes to exploit.

For a while I’ve been wondering if making the industry more competitive would help as competition reduces profits.  One would have to repeal legislation and regulations which limit competition (and wear hearing protectors from the screams of those in the industry.)  One would also have to take away from banks the ability create money by making loans. (Even louder screams.)

If the industry were more competitive would its firms have to be more honest just to stay in business?

i don’t know the answer to that question but it was with considerable interest I noticed the following quotes from the article about Wal-Mart in the artlicle in yesterday”s post.

 

By now, it is accepted wisdom that Wal-Mart makes the companies it does business with more efficient and focused, leaner and faster.

 

To a person, all those interviewed credit Wal-Mart with a fundamental integrity in its dealings that’s unusual in the world of consumer goods, retailing, and groceries. Wal-Mart does not cheat suppliers, it keeps its word, it pays its bills briskly. “They are tough people but very honest; they treat you honestly,” says Peter Campanella, who ran the business that sold Corning kitchenware products, both at Corning and then at World Kitchen. “It was a joke to do business with most of their competitors. A fiasco.”

 

Those sound like qualities which are desperately needed in the financial industry and from which everyone would benefit.

Maybe we should be encouraging Wal-Mart to go into the financial industry.

 

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.

The evil Wal-Mart and offshore competition

Some people love to bash Wal-Mart.  This article is from 2003 but I suspect a lot of current critics would like it very much.

If you want to make money by far the best way is to go into a field where government legislation restricts competition – become a doctor or a teacher or something with  patent and copyright legislation.

There probably isn’t much legislation to restrict competition in retail sales so firms in that business have to sharpen their pencils or use marketing tactics.  Reading this article it is clear that Wal-mart is or has been very good with the pencil.  I am more opposed to legislation that restricts competition and marketing tactics than I am to firms that use sharp pencils.

On the theory that firms relying on legislation to restrict competition would be heavy into lobbying, I googled “Wal-Mart lobbying.”  It appears Wal-mart has not put much effort into lobbying although it is now starting to campaign for online retailers to be required to collect sales tax.

The issue appears to be that offshore competition, showing up in Wal-mart, is forcing some American manufacturers to go out of business putting their employees out of work.  Firms going out of business is a normal, and sometimes necessary thing.  The way to deal with that is a universal income scheme such as the negative income tax proposed by Milton Friedman or my own proposal for universal subsistence payments.

We should not feel guilty about buying things made in other countries.  Trade is a social activity and we want other countries to buy things from us.

I’m not a fan of Wal-Mart but I do occasionally go there.  I pride myself that most of the time I leave the store with only those items I had planned on buying.  I also know from experience they don’t always have the lowest prices and I can’t recall ever seeing Wal-Mart advertise quality.

In the retail segment of our economy there are lots of firms and lots of competition.  They all use marketing tactics to give them an edge. Therefore we should remember the old saying: “Buyer beware.”

 

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.

A mountain lake in British Columbia

economics102

Intellectual property rights

The protection of intellectual property rights in one of the foundations of our economy and is responsible for all the modern gadgets we use including the computers used in writing and reading this weblog.

Yes, in that property rights are one of the major ways in which we restrict competition in our economy.

But we might be better off if we didn’t protect intellectual property.

Here’s an article which claims Germany was able to quickly industrialize and catch up to the British because that country was slow in enacting copyright legislation.

I have read that during the British industrial revolution patent legislation was loosely enforced if at all and  there was  considerable circulation of ideas.  Some of the major inventors did not get rich and some died poor.

If the Romans had had copyright we would not have the Bible and if the Elizabethans had had copyright we would not have Shakespeare. It may be that a lot of creative people are motivated by things other than money.

If we didn’t have patent and copyright we might now be using more advanced and much cheaper computers, some of the world’s most difficult diseases might have been dealt with and the Olympics would probably a lot less commercial.

On the other hand, British Columbia coastal natives are quite possessive of their dances and songs.  While watching some visiting dancers I  asked the lady who led her band’s dancing if she was noting some of the steps to incorporate into her own dancing. She was somewhat emphatic in telling me she couldn’t do that because the dance belonged to those dancers and couldn’t be used without permission.  That was a part of their culture.

One of the features of perfect competition is that there must be no barriers to people getting into a field.  If we really wanted a competitive market economy we would abolish patent and copyright legislation.

 

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.

%d bloggers like this: