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What is Wealth - Where has it Gone?

by rdf Thu Apr 10th, 2008 at 12:20:44 PM EST

There has been a great deal of discussion about wealth in the past few years. There are two common themes. The increasing wealth of a society will aid all sectors and is the best way to eliminate poverty. The rise of wealth disparity in many developed countries is having negative effects on social cohesion and the ability of the society to remain democratic.

But, before one can discuss the effects of wealth one needs to decide what wealth really is. This brings up the issues of price and value. Price is the simplest concept to define, the price of something is what it costs at the moment when a transaction takes place. Many people find this definition unsatisfactory, however. We frequently hear that something is a "bargain" or overpriced. What is really meant is that the current price differs from what we feel a fair price should be. This gets us to value, a much trickier concept.

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Class Warfare

by rdf Tue Apr 1st, 2008 at 02:32:58 PM EST

There is a neo-populist movement afoot in the US right how. No one is sure exactly what to call it. Analogies with the original Populist party break down over issues of tariffs and xenophobia. The later "Progressive" movement, which is credited with creating the first round of government regulatory agencies, doesn't fit well either. It didn't have the broad-based working class foundation that is meant when one talks about populism.

These days when critics accuse liberals of engaging in "class warfare" they mean the the working classes are looking to rein in the excesses of the super wealthy. Since this group is tiny, the appeal to defending the rights of Paris Hilton doesn't work well, so they try to include the top 20% as well.

I propose to separate the classes on a different basis than is usually the case. In my scheme there are only two classes: those who have to work for a living and those who don't. Those who work may have different levels of income and wealth, but if they lose their wages they will, eventually, starve.

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Measuring Democracy

by rdf Wed Mar 26th, 2008 at 11:37:32 AM EST

There are a number of new books out which try to show that more democratic countries have a higher level of economic equality and also a higher level sustained economic growth. There is some question as to whether equality leads to growth or vice versa, but the issue I'd like to discuss is how to measure democracy.

There are many studies and organizations which aim to rate states on an authoritarian - democracy scale, but many also add in civil liberties as well. I have something slightly different in mind.

Read more... (13 comments, 1902 words in story)

On "Free" Trade

by rdf Mon Mar 24th, 2008 at 12:15:32 PM EST

One of the key axioms of the "Washington Consensus" is that international trade is good for both parties and is the only viable road to development in the third world. They have been promoting this vision, in one form or another, for 50 years.

There are many critics of this view who illustrate their objections with a large number of case studies. These generally fall into two categories. In the first are the examples of states which have been the object of much international advice and intervention and still haven't done well. Much of Africa falls into this category. The second are those states which have done well, but have ignored most of the policy prescriptions promoted by entities such as the World Bank and IMF. Examples include South Korea and China.

Diary rescue by Migeru

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Do Subsidies Work?

by rdf Sun Mar 16th, 2008 at 11:07:32 AM EST

Frequently when prices get too high in some sector governments are called upon to provide subsidies to those who can't afford to pay.

In the US there are a large number of these. Heating fuel subsidies, food stamps, housing rental assistance and Medicaid (not Medicare) are aimed at necessities. There are also government subsidies such as Pell Grants to help pay college tuition. With the sudden downturn in the housing market there are proposals to subsidize existing mortgages. So these actions work?

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Too Many People - Too Little Work

by rdf Thu Mar 13th, 2008 at 02:14:27 PM EST

One of the current problems in the developed world is that there is too little work to go around. As the two biggest areas of traditional enterprise (manufacturing and agriculture) have become increasingly mechanized, the number of people needed has declined.

In much of the industrialized world agriculture now requires under 5% of the workforce. Many industrial firms typically run at 70-80% of capacity. Societies have adapted in two ways, the most commonly considered is the rise of services, the other is the creation of new products of marginal utility. Even these steps have not solved the problem, the unemployment rate is kept at a modest level, but the percentage of people employed continues to decline. The two numbers don't track because official reporting agencies exclude various categories of the non-working from the labor force.

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Stop doing it if it hurts!

by rdf Mon Mar 3rd, 2008 at 02:33:54 PM EST

One of the mysteries of human behavior is why we persist in doing the same thing over and over again when it continually fails to work. When individuals persist in such actions we commonly call them "insane" or "true believers".

The insane designation comes from the old joke: "what do you call a person who does the same thing over and over again and expects a different outcome?"

The "true believers" can range from those who invoke magical ceremonies to those who insist that market fundamentalism will work, if just given enough time.

I'm going to suggest a new approach. If it hasn't worked so far, do the opposite. I'll offer a few samples, feel free to add your own. And, no, I don't necessarily agree with all my suggestions...

Read more... (6 comments, 693 words in story)

Economic Philosophers

by rdf Sun Mar 2nd, 2008 at 12:25:00 PM EST

In most sciences the titans of the discipline are no longer read or quoted. The ideas that they established have been folded into body of knowledge and used as the foundations for further research. People don't read Newton or Einstein (even if they could read Latin or German).

Fields of study where the opposite is true seem to have the characteristics of ideologies. It is expected that religious believers will read and study the key works by the founders of their faith. The same thing seems to be common in non-religious ideologies. Marx is read by Marxists and Freud is read by Freudians.

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What's Wrong with Tariffs?

by rdf Thu Feb 28th, 2008 at 05:17:07 PM EST

I'm reading another of the recent rash of books which concern development policies in the third world over the past 50, or so, years. This one, "Bad Samaritans" by Ha-Joon Chang supports protective tariffs for countries trying to establish their own domestic industries without having to worry about the competition from already dominant foreign firms.

This is part of a small, but increasingly vocal, heterodox movement which disagrees with the conventional wisdom that "free trade" is the correct solution to all international economic issues. I'm not interested in rehashing the arguments, other than to point out that the "protectionists" can point to some rather successful examples that illustrate their thesis. In this book, it is the author's home country of South Korea.

I have something else in mind...

Diary rescue by Migeru

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Paying for Your Own Life

by rdf Sat Feb 23rd, 2008 at 04:31:30 PM EST

Economists and politicians like to make things complicated by tossing in all sorts of extraneous information when discussing public policy. It's really very simple if you just strip away everything but the essentials. When you do you find that you must pay for your own life.

Here's why.

Diary rescue by Migeru

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Why Fight Inflation?

by rdf Tue Feb 19th, 2008 at 12:07:09 PM EST

Inflation has existed ever since the invention of money. It is always decried as a bad thing which must be eliminated or at least controlled. Lately the absolutist position of earlier ages has been replaced by inflation "targeting" by central banks. The current head of the US Federal Reserve, Ben Bernanke, even wrote a book on the subject.

My understanding of why inflation is regarded as something to be prevented depends on a model of social and economic interests. In my model there are three broad classes of people. The lowest class, the working class and the rentier class.

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Non-Adiabatic Economics

by rdf Sat Feb 16th, 2008 at 11:27:35 AM EST

[I'm still working my way through this idea, so regard this posting as a first draft...]

Most economic theories assume that the system under consideration is stable or is, at least, tending toward a stable state. I'm going to make an analogy with thermodynamics.

The situation I have in mind is one of an ideal gas enclosed in a vessel. The law that we are concerned with is the gas law which states that pressure time volume equals a constant for a given temperature, i.e PV = C. In the ideal situation (say a gas under pressure from a piston) as we push down on the piston the volume will decrease and the pressure will increase. In the ideal situation this is called an adiabatic process. In the real world, however there is a chance that the temperature will change as the vessel conducts heat from the gas to the surroundings through the walls of the container. This is a non-adiabatic process.

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Outsourcing Social Services

by rdf Mon Feb 11th, 2008 at 05:13:01 PM EST

[I'm working on a new essay for my web site. Before I put it up, I thought I'd post it here to see if there are any remarks that might lead me to make some final revisions.]

In my first essay (Abolish Philanthropy) I explained why I am opposed to large-scale personal philanthropy. I focused on the anti-democratic nature of having a single person determining where the money should go.

I would now like to focus on another aspect of the defects in philanthropy, the outsourcing of what should be a function of society at large - social services.

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Progress (and lack of)

by rdf Mon Feb 11th, 2008 at 08:21:07 AM EST

Two random items from the world of ideas.

Last year Jerome and I had a minor debate on using economic forces to improve auto efficiency. I proposed a scheme of taxing the original purchaser based upon some criteria such as the difference in MPG and a standard.

Apparently the California legislature is going to try a variation of this idea. based upon emissions instead of directly on fuel efficiency.

Diary rescue by Migeru

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What is Saving? What is Spending?

by rdf Tue Jan 29th, 2008 at 07:10:29 AM EST

The decline in world financial markets and the slowdown in economic growth has brought out many pundits with ideas on how to remedy things.

One of my problems with economic pundits is that they assume that words they use have a clear meaning. I'm currently having a problem with the words "savings" and "spending".

Brought across by afew

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Blowing my own horn - the crash

by rdf Sun Jan 27th, 2008 at 04:59:17 AM EST

I'm not really pleased when one of my essays predicting disaster comes true, but "I told you so".

Here's the text of my essay originally posted three years ago on my web site. It's been getting a bit of increased traffic of late.

This is the link to the original, but I've reproduced it below as well.

With slight reformatting - Diary rescue by Migeru

Read more... (20 comments, 1956 words in story)

Forgetting History - Paying the Price

by rdf Thu Jan 24th, 2008 at 05:56:38 AM EST

I've been reading a lot of material written in the late 19th and 20th Centuries for the past several years. This hasn't been deliberate, but various sub-interests have just had their heyday then.

One of these threads has been the popularity of tales of the self-made man (commonly called Horatio Alger stories) that were in vogue during the first golden age. Men like Carnegie and Rockefeller inspired a lot of fictional versions. Most had one of two points of view, the superficial one was that hard work and "pluck" led to wealth and success. The other, darker one, was that wealth was a false goal and true success was to be found in helping one's fellow man. Sometimes the hero discovered this late in life, other times he died unenlightened.

Diary rescue by Migeru

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Impermanent Art

by rdf Fri Jan 11th, 2008 at 02:26:32 PM EST

For most of the history of the world "art" was something that served a utility function. Most of it was generated for use in various ceremonies and wasn't valued as an independent object. The only exception might be the religious art which started to be created during the Renaissance to decorate churches, and a little later, the homes of the elite.

Even so much of it was set aside after a generation or two and replaced by something more fashionable. This was especially true of music where original works were expected routinely. Without a way to reproduce the works mechanically they had little circulation either.

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Inequality and redistribution in the UK, 1983-2004

by rdf Thu Jan 10th, 2008 at 08:37:29 AM EST

[Via a link on Mark Thoma's blog]

The standard framework for thinking about inequality and redistribution - the median voter approach - predicts that rising inequality should produce more redistribution. The facts reject this prediction for the UK and suggest that beliefs may be an important missing factor.

Diary rescue - In Wales

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Do People Want to Spend Less?

by rdf Wed Jan 9th, 2008 at 03:51:37 PM EST

I had an interesting experience recently, I got a box of hot cereal mix for a present. The brand is one that I used to eat as a kid and has been somewhat revived by new owners. Making a bowlful for breakfast got me thinking about how people's spending habits have changed in the past 50 years.

I did a quick calculation and a bowl of the porridge costs about 25 cents (US). To complete my breakfast I make a mug of coffee which works out to about 12 cents. When I'm not in the mood for the hot cereal I have a home made muffin. I cheat a bit and use a ready made mix, so each muffin comes out about 40 cents.

Read more... (25 comments, 305 words in story)
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