Good relationships and good economics

 

Economics is the most fundamental of social sciences because it is about relationships. The study of economics should be about the ways in which we can organize the exchange of goods and services. As this involves interacting with others it is largely about how we deal with family, friends and neighbors. The study of economics should include economic history, the economies of previous civilizations and economic anthropology. It also means we should be trying to organize an economy based on good relationships.

As exchange involves dealing with other people in a variety of different ways from theft to giving, economics involves the study of how we deal with each other.

A fundamental of relationships is that for a relationship to be satisfactory there must be a more or less equal two-way exchange. Sadly our current economy is based mostly on exploitation. The culture of a lot of businesses, especially large ones, is to make as much profit as possible, even if it means taking advantage of customers.

The challenge is to organize our economy so that our economic relationships qualify as being good – equal exchanges. This writer suggests two sources of inspiration; the bushmen of the Kalahari desert in Africa and the perfect completion model of economics.

lion-577104_1920There is archeological evidence that the bushmen have sustained a stable society for up to 200,000 years. Survival has been without wars and exploitation. This is an incredible accomplishment. We owe it to ourselves to examine their society to see what we can copy. Genius is 90 per cent plagiarism.

These hunters and gathers have been well-studied. My reference is Affluence without Abundance: The disappearing world of the bushmen by James Suzman published by Bloomsbury in 2017.

The Bushmen were hunters and gathers living from hand to mouth and relocating frequently. As they had to carry everything when they moved they developed a mindset that had little need or use for material things other than a few basics. Their knowledge of their environment was such that they always had sufficient food available with a minimum of “work”. They worked for survival rather than to satisfy their own or other people’s ambition.

As they always had adequate food, surpluses and savings were not part of their lives or their thinking. This was important as surpluses and saving must be controlled and this can lead to unequal relationships and exploitation.

Leadership was very low-key and social control was mostly verbal via teasing and ridicule. As they lived in small groups the size of which changed with the seasons it was easy to get away from social conflicts. (This is a major problem for Canadian native people many of whom live on reserves and cannot easily relocate.)

This blogger does not want to adopt a total hunting and gathering lifestyle especially as the size of the world’s population makes it difficult if not impossible. However I believe these people have a lot to teach us about relationships and economics and values. It could be we are the ones who are uncivilized.

We often lie to ourselves and the greatest lies are about economics. The greatest lie is that our economy is based on capitalism and markets. This is a falsehood to cover the fact our economy is based upon legislation that restricts competition. So long as we believe the lies we can continue to promote an economy that is unequal and exploitive.

I believe if we really want an economy which encourages good relationships we should use the perfect competition model as a guideline. All legislation which restricts competition should be repealed. This includes patent and copyright legislation and licensing. Subsides should be given to consumers rather than producers in the form of a guaranteed income scheme. Businesses would be mostly small-scale; so small that participants would be unable to control prices with spending and purchasing decisions. These changes would do away with huge profits and most high incomes. Economic growth would not be needed as people would not have to have jobs to survive. These changes would also cause a lot of screaming from the people who benefit from competition.

Another good feature would be better relationships as people would be able to interact without trying to exploit each other.

One of the differences between hunting and gathering societies and the “civilizations” which have dominated history is who makes decisions. When people are working for survival rather than to satisfy ambitions they make their own decisions. When they are working for ambition decisions are made be the owner of the ambition.

Force is one of the ways people get others to work for them. Other ways are psychological – the work ethic, marketing techniques, limiting free speech, limiting voting rights, making people feel guilty and using logical fallacies to influence thinking. The last two have been and are being used to great effect by feminists. My experience of this world and my observations of this world tell me feminism is mostly BS and a control issue. Feminists want to control men and their thinking. They do a lot to discourage good relationships.

A lot of us have been so indoctrinated with the “capitalist” way of thinking we do not realize the extent to which we are being exploited. Some studies of people on their death beds have found that the greatest regrets are for placing profits above relationships.

Most of us have been raised in a culture which places material things above all else. This blogger believes we should learn from the bushmen to adapt to a non-growth economy and focus on good relationships. The perfect competition model of economics provides some good guidelines as to how to get there.

 

The random walk and fractals

Long-Term Capital Management,  the theory of fractals and the Hurst Exponent lead me to question that markets are random and rational in the debate recently given a nudge by the awarding of the Nobel Prize in economics to economists on either side of this question.

For me the timing of the award was good because I have just finished reading When Genius Failed: The Rise and Fall of Long-Term Capital Management by Roger Lowenstein.

Long-Term Capital Management was an attempt to make money  out of a belief that markets are rational.  The company employed academics in economics/mathematics to trade according to models run on computers.  It worked for a while and this company became one of the most successful hedge funds and two of its board members were awarded the Nobel prize in economics.  But one of the reasons it failed was because the markets did not always behave as they had been modelled.  They behaved like fractals.

Another reason the company failed is that its employees were not really geniuses.  I have a theory that genius is 90 percent plagiarism.  Thus anyone can be 90 percent genius so long as they listen.  Those who don’t listen are stuck down below 10 percent. This would suggest that to be a genius you have to listen.    It is clear from the book that these guys were not listeners.   They were caught with the idea that you can prove how smart you are by how much money you can make.

The author of this book figures the way to make sure there isn’t another LTCM is with greater regulation.  Rather than regulation governments should require financial institutions to publish detailed information about their operations.  These guys were extremely secretive and refused to provide their associates with information which would have revealed their operations as being much riskier than anyone believed.  Their customers should have refused to work with them but the company was making so much money no one wanted to be left out.

I didn’t learn about fractals until sometime after I had studied economics. Now I think they provide a good model for a lot of human activity including markets and economics.

The classic example of a fractal is the sea-shore with its ins and outs and more ins and outs within the major ones.  Think of the song about a wheel within a wheel within a wheel.  The Elliott wave theory is a fractal, just remove the fives.  Markets and the economy can be seen as a series of trends with trends within trends.  They also have major turning points rather than following the straight line of regression analysis.

So the problem for somebody trying to forecast markets or the economy is to identify turning points, especially the major ones.

There is a concept of fractal dimension which indicates the extent of the trends and it can be calculated with the formula 2 – H where H is the Hurst Exponent.  Changes in fractal dimension indicate turning points.

Edwin Hurst was a hydraulic engineer working on the Nile River in the first half of the twentieth century.  He wanted to prove the different annual river flows were random and developed a way of testing a series of numbers to determine whether or not they were random.  To his surprise they were not.

The same test can be applied to any time series including market and economic data.  The Hurst exponent can now be calculated with as few as 32 data points and it varies considerably with each calculation, most indicating the numbers are not random.  This by itself is a strong indication that there are problems with the random walk theory.

I suspect a lot of the “quants”  who are currently using “black boxes” to play the markets, apparently with some success, are using the Hurst Exponent.

The importance of the debate about random walk may depend upon how much we want to understand about how markets and the economy actually work.  It may be that some people don’t want to understand how things actually work.  For those of us who do I think fractals are more promising.  And one should never place one’s savings with fund managers who don’t listen.

Competition and regulating tax preparers

This news item is probably a tiny bit of good news for American tax payers.  The IRS has been told it cannot  regulate tax preparers.

Whatever the rationale,  regulations and in effect licensing would restrict  competition and force up prices.

Economic theory tells us that to have perfect competition all participants in a market should have perfect knowledge.

Therefore, If the IRS is concerned about the quality of work being done by some tax preparers, the way to deal with it is to require tax preparers to tell clients their qualifications and of any problems they have with the IRS with respect to other work.

 

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.

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