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Print Page - [BLOG] Cars and Class Warfare

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I Drew This => Today's Editorial => Topic started by: Manufacturing Dissent on December 12, 2008, 08:58:35 EST



Title: [BLOG] Cars and Class Warfare
Post by: Manufacturing Dissent on December 12, 2008, 08:58:35 EST
http://www.idrewthis.org/2008/12/cars-and-class-warfare.html

New blog entry by Liberal Seagull is up.


Title: Re: [BLOG] Cars and Class Warfare
Post by: Current on December 12, 2008, 10:22:27 EST
Regarding the AIG vs GM issue....

There is a difference in thinking here.  Many people think about the car industry in terms of what F. A. Hayek called Scottish or British rationalism.  They see that it is an industry that has grown up over time.  They understand that like other industries it has evolved, it is not the product of deliberate design.  They see it as particular instance of the phenomenon of evolving industry.  They think (rightly in my view) that general principles that have proven correct in the past apply here, there is nothing special here.  One of those principles being that bad companies should be allowed to fail and go bankrupt.

People think of the financial sector differently.  Look at the words they use, often commentators speak of the banking SYSTEM.  As an engineer I speak about computer systems and communications systems.  I call them systems because they are constructed by rational engineering principles by conscience human thought.  Talking about the "banking system" is wrong-headed.  It is like an engineer saying that there is a computing industry in the computer they are using.  (It is mostly correct though to talk of the Federal Reserve system).  This attitude is what Hayek called Cartesian or French Rationalism.  People see the financial sector as something that is mechanical and rationally designed.  When a portion of it fails they see it as a component that requires replacing or repairing.  They don't think about it as an industry.

The crisis goes directly to the difference between schools of political thought.  Socialists often see rationality as the answer to every problem, particularly their own rationality.  They see the past as wild and foolish and they see most of their fellow humans as similar.  But they think that they and their fellows can look at the relevant facts and come to a conclusion about the best way forward.  Designing society is like designing a machine.  Hence, socialists make plans for bailing out both the finance industry and the car industry.  After all, how hard can it be?  And what is the alternative?  Socialists see everything done by others as chaos.

Conservatives and Classical Liberals look at things in a much different light.  They think that various parts of society have evolved.  What is needed first is to understand how that evolution has taken place.  It is doubtful that the rational abilities of a few people can understand all of the particulars.  The market communicates information between the various parties and ensures that much of it need never be communicated.  This is not something that could be replicated by a few smart people.  Hayek said "The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design."

In current times though conservatives have taken on the more french idea of rationality as applying to the financial industry.  The thought is that if the big banks are not bailed out then there will be chaos which will have a great effect on their customers and the economy as a whole.  There is some truth in this.  Ironically though this truth comes because of earlier actions taken on the basis of a the same sort of philosophy.  In particular the Federal Reserve system protects the commercial banks in such a way that makes contagion more likely.

This is why the auto bailout is a bit of a distraction.  What is most important at present for the western countries is to reestablish a financial industry.  Not a faux-industry run from the centre through the Federal Reserve and the regulators.  A financial industry will work, because other industries work.  A financial system however stands little chance of working in the long term.


Title: Re: [BLOG] Cars and Class Warfare
Post by: joshbrenton on December 12, 2008, 13:17:49 EST
Here's something I've been wondering:

Toyota auto workers are paid a little less hourly wage than UAW members. Yet Toyota managed to make a greater profit while GM lost millions in 2008, even though both companies sold about the same number of cars that year.

It seems to me that the big 3 here in the US don't know what they're doing. Wouldn't it make more sense to give ownership of Ford, GM and Chrysler to competent companies?

Wait... that's kind of moot now since the White House passed the bailout. Nice goin, Dubya. One more colossal fuck-up before you leave office. Have these last few months been Bush's efforts to get a jump start on the socialist program that we're soon going to experience?


Title: Re: [BLOG] Cars and Class Warfare
Post by: Ihlosi on December 12, 2008, 13:34:29 EST
Toyota auto workers are paid a little less hourly wage than UAW members. Yet Toyota managed to make a greater profit while GM lost millions in 2008, even though both companies sold about the same number of cars that year.

Well, Toyota isn't saddled with all the obligations (pension plans and such) that GM is.

Quote
It seems to me that the big 3 here in the US don't know what they're doing. Wouldn't it make more sense to give ownership of Ford, GM and Chrysler to competent companies?

Err ... who would you have in mind? And would they really want to be burdened with any of the three? And what other companies have experience at making and selling cars?

Quote
Wait... that's kind of moot now since the White House passed the bailout.

Last I heard, it hasn't even passed congress yet.


Title: Re: [BLOG] Cars and Class Warfare
Post by: Current on December 12, 2008, 13:43:04 EST
Quote from: Liberal Seagull
There's been a lot of talk lately, both in Congress and in the media, about Chapter 11 bankruptcy reorganization as a strategy for General Motors. While this has worked well for airlines, I don't think it's an option for GM, for two reasons:

* Buying a car is a long-term relationship. When people buy an airline ticket, they only care if the airline is around long enough to make the trip. When they buy a car, though, they want some reassurance that the company will be around long enough to make good on the warranty. If people hear that GM has declared bankruptcy, they will flee dealerships in droves, robbing the company of the income it needs to rebuild itself.
Does that mean then that every company that makes a product that involved long-term relationships should be spared from bankruptcy?  Certainly Bankruptcy will not work well for GM.  However it is better than liquidation or a bailout.

Quote from: Liberal Seagull
* AIG issued credit default swaps on GM. A lot of credit default swaps, apparently; according to Forbes.com, estimates are that AIG's exposure is about 10 times the outstanding debt. If GM declares bankruptcy, AIG is on the hook for that money, and guess who currently owns AIG? That's right, the government. In a nutshell, if we let GM go bankrupt, we taxpayers are likely to end up paying out eight to ten times as much as if we bail them out.
OK, after the government bails them out who is going to insure their debt?  The current bailout is not enough to secure GMs future.   AIG and through it the government will likely have to take this cost anyway.

As far as I understand the issue the current price of Credit default swaps on GMs debt indicate that bankruptcy is almost a certainty.  If the market thought the bailout would affect anything this wouldn't be the case.  Of course the market could be wrong, but I doubt that.

It is likely the only way to prevent GM going under will be regular bailouts.

Quote from: Ihlosi
Well, Toyota isn't saddled with all the obligations (pension plans and such) that GM is.
What does that have to do with anything?

Quote from: joshbreton
It seems to me that the big 3 here in the US don't know what they're doing. Wouldn't it make more sense to give ownership of Ford, GM and Chrysler to competent companies?
Quote from: Ihlosi
Err ... who would you have in mind? And would they really want to be burdened with any of the three? And what other companies have experience at making and selling cars?
You are both thinking too much in the french rationalistic manner I talked about earlier.

You don't need to solve these problems, bankruptcy will solve them.  Whoever can make use of the capital will buy it, history demonstrates that.  If another company can use all of GM they will buy the whole company.  If not they will strip out the profitable parts.


Title: Re: [BLOG] Cars and Class Warfare
Post by: Heq on December 12, 2008, 16:57:57 EST
It's actually not so much a difference in philosophy as a difference in neccessity.  While I was against the bailout for the banks as well, the best reason I have thus been given is:

Well, we all know that there is way, way, way more money out there then was issued, when people realize that banks lend out vastly more then they take in, they're gonna be pissed.

This is a simplistic method of pointing out that the government, since FDR, has been committing a style of wide-scale fraud.  While it is debatable as to wether excessive lending (ie: lending money I don't actually -have-) is fraud, the government cycle works something like (simplified, because a lof of people don't much care for the math, so we have four consumers, a bank, and the government), for this example, there is no market and

Gov:  Here's 100$
Con A: I put it in the bank.
Bank: I keep 10$ and loan out 90$
Con B: I put in bank too!
Bank: I keep 9$, and loan out 81$
Con C: I like banking!
Bank:  You're a mongoloid, so I loan out 73$
Con D: I buy government bonds for 73$, now the government has more money!

Gov: I take your milkshakes give me 25$ each, then I have a balanced budget!
ConA,B,C: Gives us monies bank, we needs it!
Bank:  I only have 27$, I go ask for monies to make up deficet from federal reserve!

Fed:  That isn't a 48$ shortfall, it's a 4.8 trillion dollar shortfall!
Bank:  Can I haves moneis?
Fed:  We no have that much monies for you!
Gov:  No-one is paying taxes, they all have no monies!  I know, I use 48 of the 73 of government bonds monies to issue monies, then I can collect the monies!
Con D:  I want my bonds monies!
Gov:  Uh-oh!

It's a little more complex then that, the origonal argument was that excessive issuance wasn't fraud becasue everyone who mattered knew what was going on, but no, most people don't know that their monies is no actually in the bank.  In tha above example, you can see how with merely four customers, and while holding a 10% required reserve, the bank quickly turns 100$ into 364$ with no additional production.

This is what was origonally meant by inflating the monatary supply, which is okay until someone, let's take Con A, asks for his full 100$, which the bank does not have.

Normally everyone doesn't ask at the same time, unless too many people need money at the same time, say they were all investing in a "sure fire never fail make money for nothing" scheme.  This is how a 2% utter failure rate snowballs and the Reserve is left on the floor crying.  However, the government derives taxes from this unissued money and so needs the cycle to continue.

Pretty much everyone in the 30s pointed out that this was the long term implications of FDR's belief that it's okay to play very fast and loose with money (To take a pot shot at Obama, he has said FDR was his favorite president, not the man to imitate right now), no-one after FDR could get out of the cycle because it would have meant admitting the government didn't have...well...it's actually didn't have all the money it had promised.

This is why the government needed to support the bailout, because it's up to its elbows in the churn and while it may be for the long term good if people knew what was going on and new regulations were put in place, god forbid you ask anyone to make less money.


Title: Re: [BLOG] Cars and Class Warfare
Post by: Ihlosi on December 12, 2008, 17:36:03 EST
Quote from: Ihlosi
Well, Toyota isn't saddled with all the obligations (pension plans and such) that GM is.
What does that have to do with anything?

It's a big chunk of the problem. Toyota can be more profitable since they don't have to deal with a constant drain on their cash.

Quote
You don't need to solve these problems, bankruptcy will solve them.  Whoever can make use of the capital will buy it, history demonstrates that.

Well, yes. Even if that means tearing down all the factories, using the land for parking spaces or landfills (Hey, if you got the whole thing for $10 ...). I personally have to deal with this kind of "lack of solution" every morning, since part of the building I work in is now used by a "logistics" company (it used to belong to HP) and having to use a major truck route to get to the parking spaces is no fun at best (and dangerous at worst, we've had numerous accidents already with trucks backing into cars and such).

But yeah, it's some kind of solution to the "vacant office building" problem.


Title: Re: [BLOG] Cars and Class Warfare
Post by: joshbrenton on December 13, 2008, 00:45:45 EST

Quote
Wait... that's kind of moot now since the White House passed the bailout.

Last I heard, it hasn't even passed congress yet.


Sorry. I misread an article today and assumed that the White House bypassed Congress and went ahead with it anyway. My mistake.


Title: Re: [BLOG] Cars and Class Warfare
Post by: Manufacturing Dissent on December 13, 2008, 00:51:51 EST
Here's something I've been wondering:

Toyota auto workers are paid a little less hourly wage than UAW members. Yet Toyota managed to make a greater profit while GM lost millions in 2008, even though both companies sold about the same number of cars that year.

It seems to me that the big 3 here in the US don't know what they're doing. Wouldn't it make more sense to give ownership of Ford, GM and Chrysler to competent companies?

Wait... that's kind of moot now since the White House passed the bailout. Nice goin, Dubya. One more colossal fuck-up before you leave office. Have these last few months been Bush's efforts to get a jump start on the socialist program that we're soon going to experience?

So of the four companies, the one who receives government R&D grants from Japan is the one who's doing well, and this is your basis for saying that the government shouldn't get involved in the problem?


Title: Re: [BLOG] Cars and Class Warfare
Post by: wodan46 on December 13, 2008, 02:14:09 EST
Stuff
I think you miss the central problem of economic systems, which is that they run on magic pixie dust, and Greenspan ate all the pixies when he left office.


Title: Re: [BLOG] Cars and Class Warfare
Post by: Blue Boy from Red Country on December 13, 2008, 11:26:20 EST
You don't need to solve these problems, bankruptcy will solve them.  Whoever can make use of the capital will buy it, history demonstrates that.  If another company can use all of GM they will buy the whole company.  If not they will strip out the profitable parts.

...and in stripping out the "profitable parts," you'll scatter the work force, many of whom don't have transferable skills nor access the proper training to obtain similar employment - and even if they did, it would be difficult to find new employment when the trend is to fire and not hire. That's one of the major reasons people are resistant to allowing bankruptcy; regardless of whether the business "deserves to fail," the employees certainly don't deserve to have their livelihood endangered.


Title: Re: [BLOG] Cars and Class Warfare
Post by: Ihlosi on December 13, 2008, 12:40:38 EST
It's a little more complex then that,

It's not only a little more complex than that - in any scenario where you're dealing with lending and completely forget to account for the debt, you'll end up "inflating the money supply". In the example you give, there's $344 in balance, but also $244 in debt. And there's only $100 that can actually be spent by someone.


Title: Re: [BLOG] Cars and Class Warfare
Post by: Psy on December 13, 2008, 14:00:19 EST
You are both thinking too much in the french rationalistic manner I talked about earlier.

You don't need to solve these problems, bankruptcy will solve them.  Whoever can make use of the capital will buy it, history demonstrates that.  If another company can use all of GM they will buy the whole company.  If not they will strip out the profitable parts.

Bankruptcy won't solve the crisis of underconsumption it would make the crisis worse.  The the big three auto companies make up a huge chunk of consumption of commodities of both consumer goods and industrial goods and there is currently no industrial growth in the USA to make for the drop in consumption that would be caused by reduced wages (and giving workers cheap credit won't work anymore).


Title: Re: [BLOG] Cars and Class Warfare
Post by: Heq on December 13, 2008, 20:10:50 EST
Ihlosi, if only that were the case.

All the debt there exists in the bank, and in the form of taxes (kinda debt), and you presume people don't spend today what they owe tommorow.

This is one of the breakdowns in economics, the assumption of rationality.  People really suck at planning, really, really suck at it.


Title: Re: [BLOG] Cars and Class Warfare
Post by: wodan46 on December 14, 2008, 01:18:05 EST
This is one of the breakdowns in economics, the assumption of rationality.  People really suck at planning, really, really suck at it.
That's what I've been trying to tell Current for the last 30 years or so, judged my completely rational and accurate biological clock.

People are good about making rational decisions only if it is in the short term and emotional factors aren't prominent.  That can be simplified to people are not good at making rational decisions.


Title: Re: [BLOG] Cars and Class Warfare
Post by: Current on December 14, 2008, 10:37:48 EST
Quote from: Ihlosi
Well, Toyota isn't saddled with all the obligations (pension plans and such) that GM is.
What does that have to do with anything?

It's a big chunk of the problem. Toyota can be more profitable since they don't have to deal with a constant drain on their cash.
I fail to see your point.  Toyota don't have these costs, so what?  The US automakers do have them.

Quote
You don't need to solve these problems, bankruptcy will solve them.  Whoever can make use of the capital will buy it, history demonstrates that.

Well, yes. Even if that means tearing down all the factories, using the land for parking spaces or landfills (Hey, if you got the whole thing for $10 ...). I personally have to deal with this kind of "lack of solution" every morning, since part of the building I work in is now used by a "logistics" company (it used to belong to HP) and having to use a major truck route to get to the parking spaces is no fun at best (and dangerous at worst, we've had numerous accidents already with trucks backing into cars and such).

But yeah, it's some kind of solution to the "vacant office building" problem.
That's hardly a lack of solution.  You have just demonstrated that the assets are being reused.  Certainly all assets of this sort can't be reused, some factories will inevitably be torn down.  This is far better though then operating those assets at a loss.  Operating them at a loss means that other members of the community would be paying for the asset to continue operating.  In that case in what way is it an asset at all?

You don't need to solve these problems, bankruptcy will solve them.  Whoever can make use of the capital will buy it, history demonstrates that.  If another company can use all of GM they will buy the whole company.  If not they will strip out the profitable parts.

...and in stripping out the "profitable parts," you'll scatter the work force, many of whom don't have transferable skills nor access the proper training to obtain similar employment - and even if they did, it would be difficult to find new employment when the trend is to fire and not hire. That's one of the major reasons people are resistant to allowing bankruptcy; regardless of whether the business "deserves to fail," the employees certainly don't deserve to have their livelihood endangered.
The employees have for some time worked for companies that they know are not stable.  They should have thought about this and prepared for it by finding work elsewhere or by saving for that eventuality.

Here's something I've been wondering:

Toyota auto workers are paid a little less hourly wage than UAW members. Yet Toyota managed to make a greater profit while GM lost millions in 2008, even though both companies sold about the same number of cars that year.

It seems to me that the big 3 here in the US don't know what they're doing. Wouldn't it make more sense to give ownership of Ford, GM and Chrysler to competent companies?

Wait... that's kind of moot now since the White House passed the bailout. Nice goin, Dubya. One more colossal fuck-up before you leave office. Have these last few months been Bush's efforts to get a jump start on the socialist program that we're soon going to experience?

So of the four companies, the one who receives government R&D grants from Japan is the one who's doing well, and this is your basis for saying that the government shouldn't get involved in the problem?
To a great extent the Japanese car companies succeed because they are supported by money from the Japanese taxpayer.  However, just because the Japanese are doing this doesn't mean that it is the clever thing to do, far from it.  The funds used to support the Japanese car companies are coming at the cost of Japanese consumers and businesses.

Think carefully about it.  Let's say we have industry X, that industry is subsidised by country A and by country B.  It is clearly in the interest of either of the two countries to stop the subsidy.  If, for example country A were to stop the subsidy then the other industries in their country will benefit and they would still be able to buy the subsidised good X from country B.


Regarding Heq's critique of fractional reserve banking and central banking...
It's a little more complex then that,

It's not only a little more complex than that - in any scenario where you're dealing with lending and completely forget to account for the debt, you'll end up "inflating the money supply". In the example you give, there's $344 in balance, but also $244 in debt. And there's only $100 that can actually be spent by someone.
Yes.  The other side of what Heq is talking about is money.  He concentrates on the debt production process, but this debt production process is, by it's nature, also a money production process.  Read the wikipedia articles on fractional reserve banking and fiat money.

Ihlosi, if only that were the case.

All the debt there exists in the bank, and in the form of taxes (kinda debt), and you presume people don't spend today what they owe tommorow.

This is one of the breakdowns in economics, the assumption of rationality.  People really suck at planning, really, really suck at it.
The frightening thing though is that it doesn't require any breakdown of rationality at all.  Ludvig Von Mises showed this almost a century ago.  At every step it is rational for those involved to play along.  The banks make more profit by fractional reserve banking.  The consumers get lower interest rates.  Governments get to charge lower taxes and spend more.  The downsides are the inflation it causes and the increased risk of systemic crisis like the current one.  However these costs are systemwide and in a fiat money system with central banking not concentrated on those who make the decisions.

This is one of the breakdowns in economics, the assumption of rationality.  People really suck at planning, really, really suck at it.
That's what I've been trying to tell Current for the last 30 years or so, judged my completely rational and accurate biological clock.

People are good about making rational decisions only if it is in the short term and emotional factors aren't prominent.  That can be simplified to people are not good at making rational decisions.
I don't think we really disagree so much.  You seemed to agree in our earlier conversations that the rules people use are accurate in most cases but break down in some particular cases.  That is hardly saying that people are "not good at making rational decisions".  I certainly am not claiming that people are perfectly rational.


Title: Re: [BLOG] Cars and Class Warfare
Post by: Bringerofpie on December 14, 2008, 10:44:59 EST
Current, subsidies are not necessarily bad for the economy. Granted, things like agricultural subsidies that we have in the U.S. and EU are really horribly done, but they can actually be quite useful.


Title: Re: [BLOG] Cars and Class Warfare
Post by: Current on December 14, 2008, 10:50:07 EST
Current, subsidies are not necessarily bad for the economy. Granted, things like agricultural subsidies that we have in the U.S. and EU are really horribly done, but they can actually be quite useful.
How?

The point is, if funding something is profitable then the private sector are likely to do it.  Only if public sector investors are better at finding profit opportunities can subsidies be useful.  And, why should public sector investors be able to do that?  Public sector investors are rewarded by votes not by profit, so they are motivated to do what will give them the most votes.


Title: Re: [BLOG] Cars and Class Warfare
Post by: Current on December 14, 2008, 11:24:10 EST
Quote from: Manufacturing Dissent
So of the four companies, the one who receives government R&D grants from Japan is the one who's doing well, and this is your basis for saying that the government shouldn't get involved in the problem?
Don Boudreaux said about this, in a letter to the Wall Street Journal...

Quote from: Boudreaux
    Dear Editor:

    Even if Stephen Collins is correct that the yen is artificially undervalued, the title of his letter - "An Artificially Weak Yen Yields Subsidies for Japan" - is mistaken (Letters, Nov. 29).

    To keep the yen undervalued, Japan's government must accumulate massive foreign-exchange holdings.  Acquiring these dollars and other currencies requires the Japanese government to tax its citizens either directly or surreptitiously through inflation.  This policy harms rather than helps the Japanese people - hardly a subsidy "for Japan."

    And while some Japanese exporters might benefit from an undervalued yen, so, too, do American consumers.  We get automobiles and other Japanese-made products in exchange for oodles of tiny monochrome pictures of dead American statesmen.  Now that's a subsidy!

    Sincerely,
    Donald J. Boudreaux


Title: Re: [BLOG] Cars and Class Warfare
Post by: Psy on December 14, 2008, 12:07:54 EST
The employees have for some time worked for companies that they know are not stable.  They should have thought about this and prepared for it by finding work elsewhere or by saving for that eventuality.

There is not much point in preparing, if the big three fall the US would fall into deep depression due to the huge sudden drop in consumption.


Title: Re: [BLOG] Cars and Class Warfare
Post by: Current on December 14, 2008, 12:14:12 EST
Also, this Class warfare stuff is idiocy too...

Quote from: Liberal Seagull
While we're on the subject, I'm distressed at the level of classism that's hidden in this debate. One of the benefits being touted for bankruptcy is that it would allow GM to bust the United Auto Workers Union by eliminating its labor contracts. When insurer AIG was bailed out at a cost of more than twice what the auto industry is asking for, I don't recall anyone questioning what workers there earned; yet it's taken as given by everyone involved in this debate that auto factory workers are overpaid. We're apparently happy with white collar workers making whatever they can, but heaven forbid that a blue collar worker might make a middle class wage.
It is a matter of how they are getting it.  The UAW have a monopoly on labour to manufacture cars in Detroit.  This is why it's members earn more.  Now, I would argue that this is not much of an issue, since there is competition in other parts of the country.  However, many people (including most progressives) take a much harder line on supposed monopolies than I do.

Quote from: Liberal Seagull
The rhetoric we're seeing used against the middle and lower classes in this recession is really toxic. As Media Matters points out, the conservative media have blamed minorities and undocumented immigrants for the housing downturn,
No they aren't.  They are blaming loans to such groups.  Most of the attacks I've seen have being on Senator Barney Frank for passing regulations forcing banks to loan to high-risk borrowers.  This truly part of the problem, something the left must accept.

Quote from: Liberal Seagull
and union members for the auto industry's problems;
It is though a major part of the problem.  It is not inaccurate to say so.

Quote from: Liberal Seagull
groups that have little or no influence in the marketplace,
Little or no influence??  They are the groups most goods and services are made for, they have by far the most influence.

Quote from: Liberal Seagull
and have benefited little and suffered greatly in the last eight
That is rubbish.  Read the statistics.

The employees have for some time worked for companies that they know are not stable.  They should have thought about this and prepared for it by finding work elsewhere or by saving for that eventuality.

There is not much point in preparing, if the big three fall the US would fall into deep depression due to the huge sudden drop in consumption.
No it won't.  Auto workers are not really a large group.  Anyway, a fall in consumption is nothing more than a temporary risk to an economy.  In time capital equipment and staff will be employed in other industries.

You may not agree.  In the final analysis all I can say is, "watch what happens in the future".


Title: Re: [BLOG] Cars and Class Warfare
Post by: Psy on December 14, 2008, 12:56:29 EST
The employees have for some time worked for companies that they know are not stable.  They should have thought about this and prepared for it by finding work elsewhere or by saving for that eventuality.

There is not much point in preparing, if the big three fall the US would fall into deep depression due to the huge sudden drop in consumption.
No it won't.  Auto workers are not really a large group.  Anyway, a fall in consumption is nothing more than a temporary risk to an economy.  In time capital equipment and staff will be employed in other industries.

You may not agree.  In the final analysis all I can say is, "watch what happens in the future".
You don't have a LTV understanding of the situation.  The American auto industry from a LTV perspective is makes up a large chunk of the US economy, the American auto industry consumes a large chunk of industrial goods and the auto workers and workers farther up the production stream consume a large chunk of consumer goods and significant chunk of global consumer production services these workers.  The global economy is already contracting as there is already rising underconsumption, encase you slept through the classical economic theory, underconsumption is when a lack of paying consumption causes a lack of industrial expansion which is suppose to mop up surplus value in the system.

There is also the Marxist crisis theory that comes to the same conclusion yet explains the problem differently (still within a LTV framework), basically that the rate of profit would take more of a hit when you take out that consumption and don't replace it and the global economy is already in contraction.

From the LTV point of view there is not problem with the UAW the other car manufactures has similar labor costs just elsewhere (for example in Japanese car manufactures have labor costs in R&D subsidies), also LTV shows low wages only benefit individual capitalists yet for overall health of capitalism high wages are better as it means higher commodity values and higher consumption of workers.


Title: Re: [BLOG] Cars and Class Warfare
Post by: Current on December 14, 2008, 13:06:31 EST
Well, I understand what LTV implies in this situation.  However, I think LTV is rubbish, for reasons I have given many times before.


Title: Re: [BLOG] Cars and Class Warfare
Post by: Heq on December 14, 2008, 13:14:05 EST
Current, the rational thing to say is the outsiders, if you care to whisper her name, Randian view of it.

It's kind of like what a collegue said recently about derivitive trading "You know, at some point, someone is going to realize there is nothing there, then these stocks are gonna Nortel" (for the non-canucks, Nortel was a futures stock masquerading as a tech stock with nothing behind it which lost near everything a short while back).  Once the government and the public starts dealing in non-stuffs, while presuming they are stuffs, there is always the danger the public will "wise up"

I, as a paranoid psychotic, do not believe the benefits of such a system outweigh the dangers within it.  Of course, those in government often don't see the big train a-coming (or, just as often, assume that they can dodge it when it hits), and those outside of government rely of the government to protect them from the smash and grab.

It's like a whole bunch of white frat boys wandering around Zimbabwe.  Without anyone keeping their eyes out for potential trouble, and each assured that someone else is keeping a look out, they are going to get boned, the only question is how long their luck holds.


Title: Re: [BLOG] Cars and Class Warfare
Post by: Psy on December 14, 2008, 13:26:22 EST
Well, I understand what LTV implies in this situation.  However, I think LTV is rubbish, for reasons I have given many times before.
LTV crisis theories have explained crises in capitalism pretty well.  Also if the capitalist markets can easily deal with falling consumption then why hasn't it fixed it yet?  This crisis dates back to last year and back to the 1970's if you include the bubbles as part of the current crisis.


Title: Re: [BLOG] Cars and Class Warfare
Post by: Current on December 14, 2008, 13:50:29 EST
Heq, I agree with you.  In the end the Federal Reserve will inflate the currency so much that it will become worthless.  At that point the west will have to move back to sound money.

Well, I understand what LTV implies in this situation.  However, I think LTV is rubbish, for reasons I have given many times before.
LTV crisis theories have explained crises in capitalism pretty well.
No it doesn't.  There is no real evidence that the Marxist view of crises explains crises at all.  If you know of some then please point to it.

Also if the capitalist markets can easily deal with falling consumption then why hasn't it fixed it yet?  This crisis dates back to last year and back to the 1970's if you include the bubbles as part of the current crisis.
It is, as Heq mentions, the fault of the Federal Reserve.  Read a book on Austrian economics and all will become clear.


Title: Re: [BLOG] Cars and Class Warfare
Post by: Psy on December 14, 2008, 14:25:44 EST
Well, I understand what LTV implies in this situation.  However, I think LTV is rubbish, for reasons I have given many times before.
LTV crisis theories have explained crises in capitalism pretty well.
No it doesn't.  There is no real evidence that the Marxist view of crises explains crises at all.  If you know of some then please point to it.
I said LTV crisis theories, meaning also classical economic theories of crisis.

Like I said classical economic crisis theory is the theory of underconsumption, that there is not enough consumption in the economy.  If we look we see a growing slump in consumption already, as factories cut back production it has rippled through the economy causing even less consumption causing commodity devaluation as you get gluts of commodites since workers can't consume them.

The Marxist crisis theory is slightly different, that value gets stuck in the from of commodites causing a falling rate of profit, again if we look we also notice this is true, capitalists faced with sudden drops in their returns and nowhere to invest hoard their money, causing smaller capitalists to run out of credit causing them to go belly up causing underconsumption. 

Quote from: Current
Also if the capitalist markets can easily deal with falling consumption then why hasn't it fixed it yet?  This crisis dates back to last year and back to the 1970's if you include the bubbles as part of the current crisis.
It is, as Heq mentions, the fault of the Federal Reserve.  Read a book on Austrian economics and all will become clear.
The Federal Reserve followed the monetarist theory that the Great Depression was supposedly being caused by a liquidity problem.  As for Austrian economics, they blame all capitalist crisis on contraction of the money supply so how can there be a contraction of the money supply when the Federal Reserve is pumping in liquidity?   LTV crisis theories make much more sense as it explains liquidity doesn't really mater (meaning the Federal Reserve pumping in liquidity didn't really do anything) that the problem is of surplus value not being consumed.


Title: Re: [BLOG] Cars and Class Warfare
Post by: wodan46 on December 14, 2008, 14:51:31 EST
This is one of the breakdowns in economics, the assumption of rationality.  People really suck at planning, really, really suck at it.
That's what I've been trying to tell Current for the last 30 years or so, judged my completely rational and accurate biological clock.

People are good about making rational decisions only if it is in the short term and emotional factors aren't prominent.  That can be simplified to people are not good at making rational decisions.
I don't think we really disagree so much.  You seemed to agree in our earlier conversations that the rules people use are accurate in most cases but break down in some particular cases.  That is hardly saying that people are "not good at making rational decisions".  I certainly am not claiming that people are perfectly rational.
The difference between our perspectives is the degree to which we consider those particular cases to occur, and the importance of such cases.  For example, as we are discussing, me and Heq do not think that people are not good at rationally planning for future.  People make countless small decisions each day, most of which are rational common sense built out of heuristics, such as looking before crossing the street, but if that one irrational decision about the future costs them their house, it costs them their house, mostly rational
or not, and if plans are not made to decrease the chances of such a decision backfiring, a lot of people will lose houses.  Were it not for out bloated bureaucracy, people would be far more vulnerable to such situations, and society would tear itself apart, because the free market is only capable of correcting itself if people are able to gauge the future, which they are either too irrational to be able to do, or simply lack the needed information anyway.  The capitalistic free market system is far too dependent on people acting smart and rational as a matter of course, while the system we have right now assumes that most people fail to do so some of the time and the some people fail to do so most of the time.

A democratic-republican government with a big bureaucracy is the worst form of government, besides all the others.  The bureaucracy is unpleasant, but the alternatives are even worse.


Title: Re: [BLOG] Cars and Class Warfare
Post by: Heq on December 15, 2008, 01:31:04 EST
I'm actually not for big government, as I think the government is also run by people who are, if anything, even less competant then random people pulled off the street (a bit of an excess, but you get the point).

However, one cannot simply turn the corner and run, people need to understand before they can have certain priveldges and the consequences thrust upon them, and I probably tacitly accept that there are whole slews of the population which will never be self sufficent (for whatever reason) and it is cheaper to coddle them then to let them run rampant.


Title: Re: [BLOG] Cars and Class Warfare
Post by: Blue Boy from Red Country on December 15, 2008, 18:10:39 EST
You don't need to solve these problems, bankruptcy will solve them.  Whoever can make use of the capital will buy it, history demonstrates that.  If another company can use all of GM they will buy the whole company.  If not they will strip out the profitable parts.

...and in stripping out the "profitable parts," you'll scatter the work force, many of whom don't have transferable skills nor access the proper training to obtain similar employment - and even if they did, it would be difficult to find new employment when the trend is to fire and not hire. That's one of the major reasons people are resistant to allowing bankruptcy; regardless of whether the business "deserves to fail," the employees certainly don't deserve to have their livelihood endangered.
The employees have for some time worked for companies that they know are not stable.  They should have thought about this and prepared for it by finding work elsewhere or by saving for that eventuality.
[/quote]

First, not everyone enjoys the same level of job mobility. I'm sure most workers are well aware that the company is unstable, but its not as if they can easily search for and obtain a new job. Even if they were willing to relocate (which has a negative impact on the quality of life when someone is still close to their extended family, among other things), there's little guarantee that they'd find comparable work giving the shrinking industrial base in the US. Those working in manufacturing typically can't find jobs above minimum wage due to the higher demand for advanced education and the stigma against manual laborers.

Second, even if the wage for these employees is substantial, it's not enough to adequately save. With the average income being greatly outpaced by the cost of living, these workers are going to be spending most of their income sustaining the current quality of life and doing what they can to ensure their children have opportunities. Unless you're significantly wealthy, you simply don't earn enough to save the kind of money it would take to protect against job loss.


Title: Re: [BLOG] Cars and Class Warfare
Post by: Current on December 17, 2008, 13:16:48 EST
Well, I understand what LTV implies in this situation.  However, I think LTV is rubbish, for reasons I have given many times before.
LTV crisis theories have explained crises in capitalism pretty well.
No it doesn't.  There is no real evidence that the Marxist view of crises explains crises at all.  If you know of some then please point to it.
I said LTV crisis theories, meaning also classical economic theories of crisis.

Like I said classical economic crisis theory is the theory of underconsumption, that there is not enough consumption in the economy.  If we look we see a growing slump in consumption already, as factories cut back production it has rippled through the economy causing even less consumption causing commodity devaluation as you get gluts of commodites since workers can't consume them.
What specific classical theory are you using here?

The Marxist crisis theory is slightly different, that value gets stuck in the from of commodites causing a falling rate of profit, again if we look we also notice this is true, capitalists faced with sudden drops in their returns and nowhere to invest hoard their money, causing smaller capitalists to run out of credit causing them to go belly up causing underconsumption.
What you describe here is simply what Austrians call "misallocation" or what Monetarists/Neo-Keynesians call "disacallocation".  The wrong things are made and people don't want them.  This is obviously not a fatal situation.  The solution is simply to look at what people do want and make it.

Quote from: Current
Also if the capitalist markets can easily deal with falling consumption then why hasn't it fixed it yet?  This crisis dates back to last year and back to the 1970's if you include the bubbles as part of the current crisis.
It is, as Heq mentions, the fault of the Federal Reserve.  Read a book on Austrian economics and all will become clear.
The Federal Reserve followed the monetarist theory that the Great Depression was supposedly being caused by a liquidity problem.
Yes.  They are what is called "New Keynesians" they follow a sort of mixture of Keynes and Monetarism.

As for Austrian economics, they blame all capitalist crisis on contraction of the money supply
No they don't.  Austrian blame crises on the Federal Reserve control of money supply disrupting the structure of production.  It is quite a complicated theory, I can't really summarize it easily.  You can read about it on the internet.


Title: Re: [BLOG] Cars and Class Warfare
Post by: Current on December 17, 2008, 13:39:05 EST
This is one of the breakdowns in economics, the assumption of rationality.  People really suck at planning, really, really suck at it.
That's what I've been trying to tell Current for the last 30 years or so, judged my completely rational and accurate biological clock.

People are good about making rational decisions only if it is in the short term and emotional factors aren't prominent.  That can be simplified to people are not good at making rational decisions.
I don't think we really disagree so much.  You seemed to agree in our earlier conversations that the rules people use are accurate in most cases but break down in some particular cases.  That is hardly saying that people are "not good at making rational decisions".  I certainly am not claiming that people are perfectly rational.
The difference between our perspectives is the degree to which we consider those particular cases to occur, and the importance of such cases.  For example, as we are discussing, me and Heq do not think that people are not good at rationally planning for future.  People make countless small decisions each day, most of which are rational common sense built out of heuristics, such as looking before crossing the street, but if that one irrational decision about the future costs them their house, it costs them their house, mostly rational
or not, and if plans are not made to decrease the chances of such a decision backfiring, a lot of people will lose houses.
OK.

Were it not for out bloated bureaucracy, people would be far more vulnerable to such situations, and society would tear itself apart, because the free market is only capable of correcting itself if people are able to gauge the future, which they are either too irrational to be able to do, or simply lack the needed information anyway.  The capitalistic free market system is far too dependent on people acting smart and rational as a matter of course, while the system we have right now assumes that most people fail to do so some of the time and the some people fail to do so most of the time.

A democratic-republican government with a big bureaucracy is the worst form of government, besides all the others.  The bureaucracy is unpleasant, but the alternatives are even worse.
Please tell me how the "bloated bureaucracy" suddenly solves all our problems?

If you are arguing for a basic level of welfare, then I agree with you.  However I think supporting the "bloated bureaucracy" you are arguing for all the other government interventions too.  Here I definitely disagree with you.  Bureaucrats sit far away from the situation of the individual performing an economic exchange.  The bureaucrat in question may be much more intelligent and rational than the individual.  However, that doesn't mean that they can wave a magic wand and ensure nothing bad happens.  There are three reasons for this.  Firstly, the government official does not know the particular local facts of the trade.  He or she does not know the exact situation facing the decision makers.  Secondly, the government official or politician is not really interested in the welfare of those concerned.  The bureaucrat is likely interested in having an easy life and keeping his job.  The politician is likely interested in winning the next election by ensuring the swing-vote goes his way.


Title: Re: [BLOG] Cars and Class Warfare
Post by: boring7 on December 17, 2008, 13:41:56 EST
Tangents aside, I had trouble with Seagull's new article.  The link posted had this: "There is a feeling in this country -- apparent in the often condescending, dismissive way Detroit's automobile companies have been treated on Capitol Hill -- that people who work with their hands and the companies that employ them are inferior to those who work with their minds and plow profit from information."

This is the same "small-town values" garbage that Palin was gabbling during the campaign, and I do not care for it.  

Don't get me wrong, the Union is getting a lot of disingenuous or dishonest mud slung at it, but when the average quoted by Seagull is still 255% of what I (a "mind" worker) am making, I think that perhaps their wages are a bit over-inflated.  Further, even if I assume the union is completely legit and not overpaid at all, the car companies that they work for *are* incompetent boobs who were given enough rope to hang themselves.  The market is already tilted in their favor.  Management chose to make a great many bad business choices (some thanks to Saint Reagan, actually) and are in deep trouble because of it.  The only reason GM's "last, best hope for profitability" (The Volt) exists is because the "incompetent" government made them work on it.  If there is one thing the internet libertarians have taught me, it's that NO ONE can do worse than the government, so if you did you fail at failing and should kill yourself.  

Of course, internet libertarians specialize in a hateful brand of such lol-gic, but the point still stands.  


Title: Re: [BLOG] Cars and Class Warfare
Post by: Psy on December 17, 2008, 14:06:54 EST
Well, I understand what LTV implies in this situation.  However, I think LTV is rubbish, for reasons I have given many times before.
LTV crisis theories have explained crises in capitalism pretty well.
No it doesn't.  There is no real evidence that the Marxist view of crises explains crises at all.  If you know of some then please point to it.
I said LTV crisis theories, meaning also classical economic theories of crisis.

Like I said classical economic crisis theory is the theory of underconsumption, that there is not enough consumption in the economy.  If we look we see a growing slump in consumption already, as factories cut back production it has rippled through the economy causing even less consumption causing commodity devaluation as you get gluts of commodites since workers can't consume them.
What specific classical theory are you using here?
The main crisis theory of classical economics is that of underconsumption.  This is the theory that crisis accrue when a growing amount of value in the system can't be consumed that disrupts the capitalist cycle.  Marx didn't dismiss this theory and instead expanded upon it.

Quote from: Current
The Marxist crisis theory is slightly different, that value gets stuck in the from of commodites causing a falling rate of profit, again if we look we also notice this is true, capitalists faced with sudden drops in their returns and nowhere to invest hoard their money, causing smaller capitalists to run out of credit causing them to go belly up causing underconsumption.
What you describe here is simply what Austrians call "misallocation" or what Monetarists/Neo-Keynesians call "disacallocation".  The wrong things are made and people don't want them.  This is obviously not a fatal situation.  The solution is simply to look at what people do want and make it.
This is different in both LTV crisis theories it is not that people don't want the commodities it is that people can't afford to consume the commodites.  For example right now across the board consumption is down, there is not a single industry that is not currently contracting, thus looking at what people want is not a solution since the problem is that people can't afford to consume the products of society.

Quote from: Current
Quote from: Current
Also if the capitalist markets can easily deal with falling consumption then why hasn't it fixed it yet?  This crisis dates back to last year and back to the 1970's if you include the bubbles as part of the current crisis.
It is, as Heq mentions, the fault of the Federal Reserve.  Read a book on Austrian economics and all will become clear.
The Federal Reserve followed the monetarist theory that the Great Depression was supposedly being caused by a liquidity problem.
Yes.  They are what is called "New Keynesians" they follow a sort of mixture of Keynes and Monetarism.
Right

Quote from: Current
As for Austrian economics, they blame all capitalist crisis on contraction of the money supply
No they don't.  Austrian blame crises on the Federal Reserve control of money supply disrupting the structure of production.  It is quite a complicated theory, I can't really summarize it easily.  You can read about it on the internet.
I have and they totally ignore realities, even with record low interest rates we are facing major deflation of the money supply, your money is going farther today then it did in June as fictional capital evaporates and value gets frozen in the form of unsold commodities.  The Federal Reserve is failing so you can't blame the crisis on them, the world is still facing huge deflation as value freezes up more.  Austrian economic theory predicted inflation not deflation and they still are predicting inflation while commodity prices are dropping like a rock, their theory can't come to terms that we are facing deflation and not inflation.  You have deflation because consumers can't consume and capitalists can't accumulate more capital so both hoard their money causing a reduction of money in circulation.


Title: Re: [BLOG] Cars and Class Warfare
Post by: Medivh on December 17, 2008, 19:18:00 EST
I have and they totally ignore realities

Warning! Blatant parrotfish detected!


Title: Re: [BLOG] Cars and Class Warfare
Post by: Psy on December 17, 2008, 19:42:12 EST
I have and they totally ignore realities

Warning! Blatant parrotfish detected!
Come on Austrian economics is not taken seriously by any reputable University in the world, most economists treat Austrian economists as religious freaks that deal in blind faith rather then science.  They don't back any of their theories with mathematical models, they reject the scientific method and instead totally rely on axioms.   Austrian economics is creationism of economists, it can't back up its theory with a shred of science and throws out any science that contradicts their beliefs.


Title: Re: [BLOG] Cars and Class Warfare
Post by: Medivh on December 18, 2008, 02:25:36 EST
"Parrotfish" in this context is the description of a person who, in describing a verbal sparring partner, uses terms that have been aptly used against the subject in the past. The term derives from the combination of multiple arguments with religious fundamentalists, and the concept that "a fish doesn't know what wet is".

Thus, in describing you as a parrotfish, I'm stating that you're saying that Austrian economists are treated as zealots because people have said that about you and your economic theories. You don't necessarily understand why, and it seems to have gained traction amongst the audience. So you go and try it against someone at a later stage.

In short; "People call me a religious freak for my adherence to Marxism. Other people seem to be persuaded by this. Thus, I can call opponents religious freaks for theory x, and other people will be persuaded by my statement!"

We'll just leave the straw men and projection in your argument alone for now, though.


Title: Re: [BLOG] Cars and Class Warfare
Post by: Psy on December 18, 2008, 10:13:00 EST
"Parrotfish" in this context is the description of a person who, in describing a verbal sparring partner, uses terms that have been aptly used against the subject in the past. The term derives from the combination of multiple arguments with religious fundamentalists, and the concept that "a fish doesn't know what wet is".

Thus, in describing you as a parrotfish, I'm stating that you're saying that Austrian economists are treated as zealots because people have said that about you and your economic theories. You don't necessarily understand why, and it seems to have gained traction amongst the audience. So you go and try it against someone at a later stage.

In short; "People call me a religious freak for my adherence to Marxism. Other people seem to be persuaded by this. Thus, I can call opponents religious freaks for theory x, and other people will be persuaded by my statement!"

We'll just leave the straw men and projection in your argument alone for now, though.
Classical economic theory and Marxist economic theory has mathematical modes and adheres to the scientific method, there are reputable Universities that teach both as sciences. 


Title: Re: [BLOG] Cars and Class Warfare
Post by: boring7 on December 18, 2008, 13:00:27 EST
I have and they totally ignore realities

Warning! Blatant parrotfish detected!
Come on Austrian economics is not taken seriously by any reputable University in the world, most economists treat Austrian economists as religious freaks that deal in blind faith rather then science.  They don't back any of their theories with mathematical models, they reject the scientific method and instead totally rely on axioms.   Austrian economics is creationism of economists, it can't back up its theory with a shred of science and throws out any science that contradicts their beliefs.
I find most economists are religious freaks that deal in blind faith rather than science. 

I haven't paid much attention to this debate, but I'll say this, if the first place to look for Austrian economics is "online" then chances are good that it is *not* taken seriously by "reputable universities" since they prefer books and papers and other things with that faux-respectability air about them. 


Title: Re: [BLOG] Cars and Class Warfare
Post by: Psy on December 18, 2008, 13:45:07 EST
I have and they totally ignore realities

Warning! Blatant parrotfish detected!
Come on Austrian economics is not taken seriously by any reputable University in the world, most economists treat Austrian economists as religious freaks that deal in blind faith rather then science.  They don't back any of their theories with mathematical models, they reject the scientific method and instead totally rely on axioms.   Austrian economics is creationism of economists, it can't back up its theory with a shred of science and throws out any science that contradicts their beliefs.
I find most economists are religious freaks that deal in blind faith rather than science. 

I haven't paid much attention to this debate, but I'll say this, if the first place to look for Austrian economics is "online" then chances are good that it is *not* taken seriously by "reputable universities" since they prefer books and papers and other things with that faux-respectability air about them. 
Well for starters Austrain economics lectures in Universities are usually laughably small, there is little point in Universities holding courses for a theory that is highly unpopular.  In contrast lectures on classical and Marxist economic theories can pack a lecture hall and there is far more subject matter to cover in classical and Marxist economic theory compared to Austrain economics since Austrain economic theory is no where as dense as other economic theories.


Title: Re: [BLOG] Cars and Class Warfare
Post by: Medivh on December 18, 2008, 17:58:44 EST
"Parrotfish" in this context is the description of a person who, in describing a verbal sparring partner, uses terms that have been aptly used against the subject in the past. The term derives from the combination of multiple arguments with religious fundamentalists, and the concept that "a fish doesn't know what wet is".

Thus, in describing you as a parrotfish, I'm stating that you're saying that Austrian economists are treated as zealots because people have said that about you and your economic theories. You don't necessarily understand why, and it seems to have gained traction amongst the audience. So you go and try it against someone at a later stage.

In short; "People call me a religious freak for my adherence to Marxism. Other people seem to be persuaded by this. Thus, I can call opponents religious freaks for theory x, and other people will be persuaded by my statement!"

We'll just leave the straw men and projection in your argument alone for now, though.
Classical economic theory and Marxist economic theory has mathematical modes and adheres to the scientific method, there are reputable Universities that teach both as sciences. 

By the gods! My irony cortex! Now I need aspirin.


Title: Re: [BLOG] Cars and Class Warfare
Post by: Psy on December 18, 2008, 20:40:46 EST
"Parrotfish" in this context is the description of a person who, in describing a verbal sparring partner, uses terms that have been aptly used against the subject in the past. The term derives from the combination of multiple arguments with religious fundamentalists, and the concept that "a fish doesn't know what wet is".

Thus, in describing you as a parrotfish, I'm stating that you're saying that Austrian economists are treated as zealots because people have said that about you and your economic theories. You don't necessarily understand why, and it seems to have gained traction amongst the audience. So you go and try it against someone at a later stage.

In short; "People call me a religious freak for my adherence to Marxism. Other people seem to be persuaded by this. Thus, I can call opponents religious freaks for theory x, and other people will be persuaded by my statement!"

We'll just leave the straw men and projection in your argument alone for now, though.
Classical economic theory and Marxist economic theory has mathematical modes and adheres to the scientific method, there are reputable Universities that teach both as sciences. 

By the gods! My irony cortex! Now I need aspirin.
The intellectual criticism of Marxism is never it being unscientific, it is the opposite that Marx's capital is far too dense.


Title: Re: [BLOG] Cars and Class Warfare
Post by: Current on December 19, 2008, 07:22:02 EST
Don't get me wrong, the Union is getting a lot of disingenuous or dishonest mud slung at it, but when the average quoted by Seagull is still 255% of what I (a "mind" worker) am making, I think that perhaps their wages are a bit over-inflated.
Do you mean the amount that Seagull quoted in total or the hourly wage.  As I understand it, the hourly wage that UAW workers make is not that out of line with other automotive workers.

I don't really think that "mind workers" are necessarily worth more than manual workers.  It all depends on the circumstances.  Many manual jobs are very difficult and only a few people can do them.

The point that needs making about the UAW is that the benefits their workers get are much more generous than those in other companies.  There is little evidence are not more generous because they work harder, rather the higher degree of unionisation seems the likely differentiating factor.  This is shown by the difference in benefits and productivity between UAW workers and other non-unionised workforces, UAW workers get more benefits but don't have much higher productivity.  This extra cost is not just at the expense the shareholders of the big three.  Rather it is at the expense of the buyer of cars and the taxpayers funding the bailout.

Really though, as you mention later it doesn't matter why UAW workers are paid more.  The behaviour of the companies in question is the real issue.

Further, even if I assume the union is completely legit and not overpaid at all, the car companies that they work for *are* incompetent boobs who were given enough rope to hang themselves.  The market is already tilted in their favor.  Management chose to make a great many bad business choices (some thanks to Saint Reagan, actually) and are in deep trouble because of it.
Yes.

The only reason GM's "last, best hope for profitability" (The Volt) exists is because the "incompetent" government made them work on it.  If there is one thing the internet libertarians have taught me, it's that NO ONE can do worse than the government, so if you did you fail at failing and should kill yourself.  

Of course, internet libertarians specialize in a hateful brand of such lol-gic, but the point still stands.  
Well, I for one am unsurprised that the management of a company that has been propped-up for years by tariffs and is now going bankrupt are dumber than government.

I find most economists are religious freaks that deal in blind faith rather than science. 
Please note what you said above...
Don't get me wrong, the Union is getting a lot of disingenuous or dishonest mud slung at it, but when the average quoted by Seagull is still 255% of what I (a "mind" worker) am making, I think that perhaps their wages are a bit over-inflated.
That is a little bit of economic theorizing.  What evidence or logic do you have for it?  You claim most economists are "religious freaks that deal in blind faith rather than science".  What evidence or logic would you give for this statement?

I haven't paid much attention to this debate, but I'll say this, if the first place to look for Austrian economics is "online" then chances are good that it is *not* taken seriously by "reputable universities" since they prefer books and papers and other things with that faux-respectability air about them. 
The journals of Austrian economics research are available on-line, as are many of the important books about it.  This is quite common these days in many research areas.  See arxiv (http://arxiv.org/) for an example from the hard sciences.


Title: Re: [BLOG] Cars and Class Warfare
Post by: Psy on December 19, 2008, 11:27:49 EST
Don't get me wrong, the Union is getting a lot of disingenuous or dishonest mud slung at it, but when the average quoted by Seagull is still 255% of what I (a "mind" worker) am making, I think that perhaps their wages are a bit over-inflated.
Do you mean the amount that Seagull quoted in total or the hourly wage.  As I understand it, the hourly wage that UAW workers make is not that out of line with other automotive workers.

I don't really think that "mind workers" are necessarily worth more than manual workers.  It all depends on the circumstances.  Many manual jobs are very difficult and only a few people can do them.

The point that needs making about the UAW is that the benefits their workers get are much more generous than those in other companies.  There is little evidence are not more generous because they work harder, rather the higher degree of unionisation seems the likely differentiating factor.  This is shown by the difference in benefits and productivity between UAW workers and other non-unionised workforces, UAW workers get more benefits but don't have much higher productivity.  This extra cost is not just at the expense the shareholders of the big three.  Rather it is at the expense of the buyer of cars and the taxpayers funding the bailout.

Really though, as you mention later it doesn't matter why UAW workers are paid more.  The behaviour of the companies in question is the real issue.
Of course this view ignores LTV, that the more productive autoworkers are the less exchange value they produce since there is a finite demand for cars and it is shrinking, thus increased productively would only result in cars having less exchange value that would mean increased productively would only lead to less profits.

What you mean is level of exploitation, that UAW workers are not as exploited as their non-union counterparts, meaning more exchange value goes to UAW workers then goes to non-union workers.


Title: Re: [BLOG] Cars and Class Warfare
Post by: Heq on December 19, 2008, 11:36:13 EST
*adjusts glasses*

Actually that was exactly what undid the last of the Marxist holdouts at universities.

Karl Popper made a very good argument that while Marxism used to be scientific, anyone who holds it at this point cannot be considered scientifica, and the current theory is not scientific.  Science requires predictions of occurrances should bear out, and early marxism made such predictions, however, few of the predictions bore out and thus the theory needs to be either modified or abandoned.  Instead, excuses were made.

Given that the predictions of Marxism have not come to pass, and the theory cannot account for these occurances, it is a failed theory.

Most economists are big on their paradigm, this should come as a suprise to no-one.  People have dedicated their lives to a certain paradigm and are going to be uppity when they discover it has come unglued, the alternative is hard for many people to accept (positivism) as it leaves one in a constant "best guess" lurch.  The problem most people have with the Austrian system was not the system itself, but the bedrock upon which it rested.  it makes certain predictions about the human animal which...well...they just aren't true.

On a final note, I do agree with seagull that there is a contempt for manual labour in politics, and it didn't start out on the right.  Once academia shoulder-checked the unions out of the mainstream left it is rather unsuprising that the natural academic condescention found it's way into the political sphere (it's not like the right was going to stop it).  Though I argue a good chunk of the financial bailouts came because politicians were covering their own portfolios.


Title: Re: [BLOG] Cars and Class Warfare
Post by: Psy on December 19, 2008, 11:56:58 EST
*adjusts glasses*

Actually that was exactly what undid the last of the Marxist holdouts at universities.

Karl Popper made a very good argument that while Marxism used to be scientific, anyone who holds it at this point cannot be considered scientifica, and the current theory is not scientific.  Science requires predictions of occurrances should bear out, and early marxism made such predictions, however, few of the predictions bore out and thus the theory needs to be either modified or abandoned.  Instead, excuses were made.

Given that the predictions of Marxism have not come to pass, and the theory cannot account for these occurances, it is a failed theory.

Marxist theories has accrued within tolerable limits.  Marx said there was a tenancy for the rate of profit to fall and that is pretty much what has happened.  Marxism is mostly still seen as a scientific theory thus why there is still scientific debates for and against that accrue in academic writings.


Title: Re: [BLOG] Cars and Class Warfare
Post by: Andrei on December 19, 2008, 12:17:54 EST
Quote from: Current
Many people think about the car industry in terms of what F. A. Hayek called Scottish or British rationalism.  They see that it is an industry that has grown up over time.

(...)

One of those principles being that bad companies should be allowed to fail and go bankrupt.

People think of the financial sector differently.
And so they should. There are a number of differences between banking and other industries:

1) You are forced to use it.
Litterally. Many employers won't pay you otherwise. Even if you don't have a bank account, cashing a paycheck depends on the solvency of banks. Telephony and electricity are the only other industries that are similar, and they are often state monopolies.

2) If it craps out, the effect on customers is greater than in other industries.
Self-explanatory. There is no greater commitment to a company than to entrust it a good part of your life savings.

3)There are relatively few ways to protect yourself.

Correct me if I'm wrong, but I think you've never been affected, or known anyone who was affected, by a bank crapping out. I think the question is purely theoretical to you, so you don't mind dogmatically applying ideology.

I've never been affected directly, but I know people who have. There was a time when banks popped up and down in Romania. It sucked. Most people decided to keep money at home in foreign currency, or to put it in the state bank which was kept afloat by the government directly. Anything else was just dumb.

So, no, you're wrong on this. Banking isn't an industry like any other anymore. It used to be, it no longer is. This is a fallacy you often commit, the "it worked in the early 19th century so it can work now because nothing has changed since" fallacy.

Back when you could get paid directly. Back when keeping money at home was a good option. Back when you could buy property without needing direct credit.

Nowadays, banking is so vital to day to day life, and its failure is so serious, that it can't be considered "an industry like any other". I'd say it's more like firefighting, or prevention of epidemics. It has the potential to do so much damage to society that it can't be allowed to fail, at least not to a serious extent.
_______________________________________

Quote from: Psy
Well for starters Austrain economics lectures in Universities are usually laughably small, there is little point in Universities holding courses for a theory that is highly unpopular.  In contrast lectures on classical and Marxist economic theories can pack a lecture hall (...)
God, I so hate that argument.

If a professor proposes to give a special topics cours in, say "Combinatorial Lie groups and algebras"*, the administrator you'll talk to will think "He'd get paid for teaching a class that maybe 5 or 6 grad students will pay tuition money for.", and unless he's very lucky, the answer will be "If you want to hold a grad seminar, be my guest, but I don't think there will be enough interest for a course..."

If, on the other hand, he volunteers to teach something along the lines of "Introduction to basic linear algebra"**, the administrator will almost wet himself thinking of all the complacent pseudo-students willing to spend their parent's money on a course they couldn't possibly fail.

And thus do undergrads learn less and less while grads learn narrower and narrowe subjects as they are only exposed to high-level topics via their advisor.

*:The topic that led (more or less) to the last Fields medal in algebra. Also the topic my advisor wanted to present in a special topics course next semester.
**:A good description of what my advisor will be teaching next semester.


Title: Re: [BLOG] Cars and Class Warfare
Post by: Current on December 19, 2008, 12:19:00 EST
What specific classical theory are you using here?
The main crisis theory of classical economics is that of underconsumption.  This is the theory that crisis accrue when a growing amount of value in the system can't be consumed that disrupts the capitalist cycle.  Marx didn't dismiss this theory and instead expanded upon it.
Please tell me what part of classical economics you are talking about.  Are you talking about the "Great Glut" controversy?

Quote from: Current
The Marxist crisis theory is slightly different, that value gets stuck in the from of commodites causing a falling rate of profit, again if we look we also notice this is true, capitalists faced with sudden drops in their returns and nowhere to invest hoard their money, causing smaller capitalists to run out of credit causing them to go belly up causing underconsumption.
What you describe here is simply what Austrians call "misallocation" or what Monetarists/Neo-Keynesians call "disacallocation".  The wrong things are made and people don't want them.  This is obviously not a fatal situation.  The solution is simply to look at what people do want and make it.
This is different in both LTV crisis theories it is not that people don't want the commodities it is that people can't afford to consume the commodites.  For example right now across the board consumption is down, there is not a single industry that is not currently contracting, thus looking at what people want is not a solution since the problem is that people can't afford to consume the products of society.
What though pays for products?  Marxists claim to be able to see through the illusions of money.  I'm not sure though that you are doing so in this case.

Goods and services are paid for with money.  Money itself is bought with other goods and services.  No situation where people "cannot afford to consume" can exist for long.  All of those who sell products must, if they are to sell at all, sell at market prices.  If their prices are so high that no-one is buying them they must reduce those prices.  The same applies to companies selling products as workers selling labour.

The amount of hours of "dead labour" supposedly inhered in existing goods and capital does not matter.

Quote from: Current
As for Austrian economics, they blame all capitalist crisis on contraction of the money supply
No they don't.  Austrian blame crises on the Federal Reserve control of money supply disrupting the structure of production.  It is quite a complicated theory, I can't really summarize it easily.  You can read about it on the internet.
I have and they totally ignore realities, even with record low interest rates we are facing major deflation of the money supply, your money is going farther today then it did in June as fictional capital evaporates and value gets frozen in the form of unsold commodities.  The Federal Reserve is failing so you can't blame the crisis on them, the world is still facing huge deflation as value freezes up more.  Austrian economic theory predicted inflation not deflation and they still are predicting inflation while commodity prices are dropping like a rock, their theory can't come to terms that we are facing deflation and not inflation.  You have deflation because consumers can't consume and capitalists can't accumulate more capital so both hoard their money causing a reduction of money in circulation.
You don't understand Austrian economic theory.  In a situation like this it holds the both the possibility of deflation or inflation open.

The case Austrian economists make for blaming the Federal Reserve is that their past actions, particularly the very low interest rates of recent years, brought about the crisis.  What the Fed can or cannot do now has nothing to do with the causes of the crisis.

Also, it is not true that Austrian economists predict inflation as the outcome of crises like this.  They hold both the possibilities of inflation and deflation open.  F.A. Hayek pointed out that the central bank does not control the amount of current account money ("M1") but controls the amount of reserves.  Therefore central bank attempts to increase the money supply may fail if the commercial banks are not willing to use their reserves to create more loans.  This is the situation we are in now.

You have deflation because consumers can't consume and capitalists can't accumulate more capital so both hoard their money causing a reduction of money in circulation.
Yes.  Such a situation is only temporary though.  Consumers still need to eat and do other things.  Capitalists are in a similar position.  It may be wise for an investor to dissolve his lowest-performing investments in a crisis like this.  It makes no sense though to dissolve those which are continuing to perform.

Come on Austrian economics is not taken seriously by any reputable University in the world, most economists treat Austrian economists as religious freaks that deal in blind faith rather then science.  They don't back any of their theories with mathematical models, they reject the scientific method and instead totally rely on axioms.   Austrian economics is creationism of economists, it can't back up its theory with a shred of science and throws out any science that contradicts their beliefs.
Well, I'd agree with some of your criticisms of Austrian economics.  However....  Austrian economics certainly is treated seriously by other Universities and by many economists.  George Mason University and Auburn University both employ professors who profess to be Austrian economists and teach course in the subject.

Certainly some Austrian economist do take the view of Ludvig von Mises that all important economics can be derived from simple almost axiomatic rules of human behaviour.  However, these Miseans are only one group within Austrian economics.  I certainly don't agree with them.

You are correct that most Austrian economics does not involve mathematical models, some though does.  Having a mathematical model though does not necessarily make a theory correct a bad theory may still have a mathematical model.  Also, a theory that has a mathematical model is not more defensible than one that doesn't.

Well for starters Austrain economics lectures in Universities are usually laughably small, there is little point in Universities holding courses for a theory that is highly unpopular.  In contrast lectures on classical and Marxist economic theories can pack a lecture hall and there is far more subject matter to cover in classical and Marxist economic theory compared to Austrain economics since Austrain economic theory is no where as dense as other economic theories.
Hmm, I'm not sure what you mean by "dense".

...
Classical economic theory and Marxist economic theory has mathematical modes and adheres to the scientific method, there are reputable Universities that teach both as sciences.  
Yes, there are Universities that teach both as scientific theories certainly.  That doesn't though mean that they are correct.

By the gods! My irony cortex! Now I need aspirin.
The intellectual criticism of Marxism is never it being unscientific, it is the opposite that Marx's capital is far too dense.
The criticisms leveled at Marxism are that its underlying axioms are flawed.  Massive, dense and apparently precise theories can be constructed on the basis of these axioms.  Leontief matrices, input-output diagrams and so on are all very nice, and I'm sure undergraduates love them.  However the axioms they are based on are clearly false and they have failed to describe what has happened in history.  Were the "Tendency for profits to fall" to be a reality they would have fallen to zero more than a century ago.

Marxist theories has accrued within tolerable limits.  Marx said there was a tenancy for the rate of profit to fall and that is pretty much what has happened.  Marxism is mostly still seen as a scientific theory thus why there is still scientific debates for and against that accrue in academic writings.
Really.  Please provide some evidence for this "Tendency of Profits to fall" then.

Of course this view ignores LTV,
Indeed.  I always ignore LTV, because it is rubbish.  I have explained why many times in other threads.

that the more productive autoworkers are the less exchange value they produce since there is a finite demand for cars and it is shrinking, thus increased productively would only result in cars having less exchange value that would mean increased productively would only lead to less profits.
Now that's interesting reasoning.... Let us say auto workers are more productive.  If they were what would that mean?  Costs to produce a car may be lower.  In this case the price to the consumer may fall due to competition, if the methods of increasing productivity were known to all manufacturers.

This though tells us nothing about profits.  An investor or entrepreneur does not make profits by taxing his workforce.  He or she makes high-level decisions about where investment funds are to go, which projects and ventures are likely to be profitable and which aren't.  Profits and losses depend on how good these decisions are.

What you mean is level of exploitation, that UAW workers are not as exploited as their non-union counterparts, meaning more exchange value goes to UAW workers then goes to non-union workers.
Exploitation in the Marxist sense is a creature spawned from LTV.  It only makes sense in that context.  Since LTV does not make sense the Marxist concept of exploitation does not either.


Title: Re: [BLOG] Cars and Class Warfare
Post by: Psy on December 19, 2008, 13:16:48 EST
What specific classical theory are you using here?
The main crisis theory of classical economics is that of underconsumption.  This is the theory that crisis accrue when a growing amount of value in the system can't be consumed that disrupts the capitalist cycle.  Marx didn't dismiss this theory and instead expanded upon it.
Please tell me what part of classical economics you are talking about.  Are you talking about the "Great Glut" controversy?
The theory of underconsumption (http://en.wikipedia.org/wiki/Underconsumption).

Quote from: Current
Quote from: Current
The Marxist crisis theory is slightly different, that value gets stuck in the from of commodites causing a falling rate of profit, again if we look we also notice this is true, capitalists faced with sudden drops in their returns and nowhere to invest hoard their money, causing smaller capitalists to run out of credit causing them to go belly up causing underconsumption.
What you describe here is simply what Austrians call "misallocation" or what Monetarists/Neo-Keynesians call "disacallocation".  The wrong things are made and people don't want them.  This is obviously not a fatal situation.  The solution is simply to look at what people do want and make it.
This is different in both LTV crisis theories it is not that people don't want the commodities it is that people can't afford to consume the commodites.  For example right now across the board consumption is down, there is not a single industry that is not currently contracting, thus looking at what people want is not a solution since the problem is that people can't afford to consume the products of society.
What though pays for products?  Marxists claim to be able to see through the illusions of money.  I'm not sure though that you are doing so in this case.

Goods and services are paid for with money.  Money itself is bought with other goods and services.  No situation where people "cannot afford to consume" can exist for long.  All of those who sell products must, if they are to sell at all, sell at market prices.  If their prices are so high that no-one is buying them they must reduce those prices.  The same applies to companies selling products as workers selling labour.

The amount of hours of "dead labour" supposedly inhered in existing goods and capital does not matter.
That assumes C-M-C or M-C-M yet not M-C-M1.

As soon as you add profits into the system you have a demand gap where there is more exchange value in the system then ability to consume.  This is solved by expansion, the greater inputs for the next production cycle mops of the excess exchange value in the current production cycle (meaning a significant chunk of profits are re-invested into expanding production) , the problem is if you don't have expansion this excess exchange value becomes unconsumed and you have underconsumption (in Classical economic theory) or overproduction (in Marxist economic theory)

Quote from: Current
Quote from: Current
As for Austrian economics, they blame all capitalist crisis on contraction of the money supply
No they don't.  Austrian blame crises on the Federal Reserve control of money supply disrupting the structure of production.  It is quite a complicated theory, I can't really summarize it easily.  You can read about it on the internet.
I have and they totally ignore realities, even with record low interest rates we are facing major deflation of the money supply, your money is going farther today then it did in June as fictional capital evaporates and value gets frozen in the form of unsold commodities.  The Federal Reserve is failing so you can't blame the crisis on them, the world is still facing huge deflation as value freezes up more.  Austrian economic theory predicted inflation not deflation and they still are predicting inflation while commodity prices are dropping like a rock, their theory can't come to terms that we are facing deflation and not inflation.  You have deflation because consumers can't consume and capitalists can't accumulate more capital so both hoard their money causing a reduction of money in circulation.
You don't understand Austrian economic theory.  In a situation like this it holds the both the possibility of deflation or inflation open.

The case Austrian economists make for blaming the Federal Reserve is that their past actions, particularly the very low interest rates of recent years, brought about the crisis.  What the Fed can or cannot do now has nothing to do with the causes of the crisis.

Also, it is not true that Austrian economists predict inflation as the outcome of crises like this.  They hold both the possibilities of inflation and deflation open.  F.A. Hayek pointed out that the central bank does not control the amount of current account money ("M1") but controls the amount of reserves.  Therefore central bank attempts to increase the money supply may fail if the commercial banks are not willing to use their reserves to create more loans.  This is the situation we are in now.
That ignores the stagnation of the 1970's, and the continued fall in the rate of profit since the 1970's in production.  You can't blame the Federal Reserve for saving capitalism from stagnation by beefing up financial capital.

Quote from: Current
You have deflation because consumers can't consume and capitalists can't accumulate more capital so both hoard their money causing a reduction of money in circulation.
Yes.  Such a situation is only temporary though.  Consumers still need to eat and do other things.  Capitalists are in a similar position.  It may be wise for an investor to dissolve his lowest-performing investments in a crisis like this.  It makes no sense though to dissolve those which are continuing to perform.
Japan went through deflation for a decade so no it is not a temporary condition since stagnation naturally causes the conditions for deflation.

Quote from: Current
Come on Austrian economics is not taken seriously by any reputable University in the world, most economists treat Austrian economists as religious freaks that deal in blind faith rather then science.  They don't back any of their theories with mathematical models, they reject the scientific method and instead totally rely on axioms.   Austrian economics is creationism of economists, it can't back up its theory with a shred of science and throws out any science that contradicts their beliefs.
Well, I'd agree with some of your criticisms of Austrian economics.  However....  Austrian economics certainly is treated seriously by other Universities and by many economists.  George Mason University and Auburn University both employ professors who profess to be Austrian economists and teach course in the subject.

Certainly some Austrian economist do take the view of Ludvig von Mises that all important economics can be derived from simple almost axiomatic rules of human behaviour.  However, these Miseans are only one group within Austrian economics.  I certainly don't agree with them.

You are correct that most Austrian economics does not involve mathematical models, some though does.  Having a mathematical model though does not necessarily make a theory correct a bad theory may still have a mathematical model.  Also, a theory that has a mathematical model is not more defensible than one that doesn't.
Mathematical models even abstract ones like those in Marxist economic theory show people what you are talking about.

Quote from: Current
Well for starters Austrain economics lectures in Universities are usually laughably small, there is little point in Universities holding courses for a theory that is highly unpopular.  In contrast lectures on classical and Marxist economic theories can pack a lecture hall and there is far more subject matter to cover in classical and Marxist economic theory compared to Austrain economics since Austrain economic theory is no where as dense as other economic theories.
Hmm, I'm not sure what you mean by "dense".
Classical and Marxist economy theory explains the difference between a individual relationship to a commodity through use-value and a social relationship through buying/selling a commodity via its exchange vale, Austrain economic theory pretty much doesn't go into political economy.


Quote from: Current
...
Classical economic theory and Marxist economic theory has mathematical modes and adheres to the scientific method, there are reputable Universities that teach both as sciences. 
Yes, there are Universities that teach both as scientific theories certainly.  That doesn't though mean that they are correct.
It does make both respectable theories.

Quote from: Medivh
By the gods! My irony cortex! Now I need aspirin.
The intellectual criticism of Marxism is never it being unscientific, it is the opposite that Marx's capital is far too dense.
The criticisms leveled at Marxism are that its underlying axioms are flawed.  Massive, dense and apparently precise theories can be constructed on the basis of these axioms.  Leontief matrices, input-output diagrams and so on are all very nice, and I'm sure undergraduates love them.  However the axioms they are based on are clearly false and they have failed to describe what has happened in history.  Were the "Tendency for profits to fall" to be a reality they would have fallen to zero more than a century ago.

Marxist theories has accrued within tolerable limits.  Marx said there was a tenancy for the rate of profit to fall and that is pretty much what has happened.  Marxism is mostly still seen as a scientific theory thus why there is still scientific debates for and against that accrue in academic writings.
Really.  Please provide some evidence for this "Tendency of Profits to fall" then.
You seem to not understand what Marx meant by tendency of profits to fall.  First it does not mean profits fall, profits can rise while the rate of profit falls.

The rate of profit is (surplus-value)/(capital invested), meaning a falling rate of profit means diminishing rate of returns on investments.   So what did Marx mean by this?  He was saying as constant capital grows the rate of profit tends to fall. 

So what happened?  In the 1970's a high concentrated of constant capital caused a fall in the rate of profit in the west, this was solved by moving production to where capital was not concentrated, and the result was it only delayed the fall in the rate of profit.

Quote from: Medivh
Of course this view ignores LTV,
Indeed.  I always ignore LTV, because it is rubbish.  I have explained why many times in other threads.
Yet LTV is best measure of exchange value. 

Quote from: Medivh
that the more productive autoworkers are the less exchange value they produce since there is a finite demand for cars and it is shrinking, thus increased productively would only result in cars having less exchange value that would mean increased productively would only lead to less profits.
Now that's interesting reasoning.... Let us say auto workers are more productive.  If they were what would that mean?  Costs to produce a car may be lower.  In this case the price to the consumer may fall due to competition, if the methods of increasing productivity were known to all manufacturers.

This though tells us nothing about profits.  An investor or entrepreneur does not make profits by taxing his workforce.  He or she makes high-level decisions about where investment funds are to go, which projects and ventures are likely to be profitable and which aren't.  Profits and losses depend on how good these decisions are.
If the capitalists can't expand demand through lower prices then the overall exchange value produced by the automaker is lower.

Quote from: Medivh
What you mean is level of exploitation, that UAW workers are not as exploited as their non-union counterparts, meaning more exchange value goes to UAW workers then goes to non-union workers.
Exploitation in the Marxist sense is a creature spawned from LTV.  It only makes sense in that context.  Since LTV does not make sense the Marxist concept of exploitation does not either.
Not everyone thinks LTV is senseless.


Title: Re: [BLOG] Cars and Class Warfare
Post by: boring7 on December 21, 2008, 00:29:38 EST
I find most economists are religious freaks that deal in blind faith rather than science. 
Please note what you said above...
Don't get me wrong, the Union is getting a lot of disingenuous or dishonest mud slung at it, but when the average quoted by Seagull is still 255% of what I (a "mind" worker) am making, I think that perhaps their wages are a bit over-inflated.
That is a little bit of economic theorizing.  What evidence or logic do you have for it?  You claim most economists are "religious freaks that deal in blind faith rather than science".  What evidence or logic would you give for this statement?
As Tom Cruise might say, "you're being glib." 

I'm a "mind" working, according to Writey McLinked the prejudice (in America) is to pay me more because of that.  He asserted this prejudice was wrong, and I am going out on a limb and assuming he feels I am of equal value rather than a worthless schlub who shouldn't be paid anything.  That's fine, I'm not making a value judgment on that stance, but by that standard I'm getting paid less at my job than an auto worker at an equal level.  Clearly this is full of vagaries and assumptions, but then I also used terms like "I think," and "even if that's false," because it is NOT a particularly scientific study, just an idea.  I happen to think my job requires comparable work and training, but I get paid far less, what does that mean economically?  Part-and-parcel is the fact that wages HAVE to be higher in a part of the country where the cost-of-living is higher or the workers cannot afford to work there. 

You are stretching this into some sort of belief that I made an assertion about economics and economic theory and are attacking and insulting me over it.  This really goes hand-in-hand with my assertion that economists in general (and now YOU in particular) are religious freaks who argue against straw-men and are constantly on the attack like fundamentalist believers are constantly "defending god" by trying to outlaw gay marriage or protest soldier's funeralsyeahIwentthere. 

You're also a great big-THAT'S ALL THE TIME WE HAVE FOR TONIGHT FOLKS!  SEE YOU LATER! 


Title: Re: [BLOG] Cars and Class Warfare
Post by: Current on December 22, 2008, 20:12:52 EST
What specific classical theory are you using here?
The main crisis theory of classical economics is that of underconsumption.  This is the theory that crisis accrue when a growing amount of value in the system can't be consumed that disrupts the capitalist cycle.  Marx didn't dismiss this theory and instead expanded upon it.
Please tell me what part of classical economics you are talking about.  Are you talking about the "Great Glut" controversy?
The theory of underconsumption (http://en.wikipedia.org/wiki/Underconsumption).
OK.  That is part of the "Great Glut" controversy.

Quote from: Current
Quote from: Current
The Marxist crisis theory is slightly different, that value gets stuck in the from of commodites causing a falling rate of profit, again if we look we also notice this is true, capitalists faced with sudden drops in their returns and nowhere to invest hoard their money, causing smaller capitalists to run out of credit causing them to go belly up causing underconsumption.
What you describe here is simply what Austrians call "misallocation" or what Monetarists/Neo-Keynesians call "disacallocation".  The wrong things are made and people don't want them.  This is obviously not a fatal situation.  The solution is simply to look at what people do want and make it.
This is different in both LTV crisis theories it is not that people don't want the commodities it is that people can't afford to consume the commodites.  For example right now across the board consumption is down, there is not a single industry that is not currently contracting, thus looking at what people want is not a solution since the problem is that people can't afford to consume the products of society.
What though pays for products?  Marxists claim to be able to see through the illusions of money.  I'm not sure though that you are doing so in this case.

Goods and services are paid for with money.  Money itself is bought with other goods and services.  No situation where people "cannot afford to consume" can exist for long.  All of those who sell products must, if they are to sell at all, sell at market prices.  If their prices are so high that no-one is buying them they must reduce those prices.  The same applies to companies selling products as workers selling labour.

The amount of hours of "dead labour" supposedly inhered in existing goods and capital does not matter.
That assumes C-M-C or M-C-M yet not M-C-M1.
No.  I take the position of all modern marginalist economists, which is that all three of those sorts of transactions occur.

For those following this discussion who aren't familiar with it I'll explain what those mean....

All of these are trading activities.  C-M means to exchange goods for money, M-C to exchange money for goods.  C-M-C means to exchange goods for money then to exchange that money for different goods.  M-C-M1 means to exchange money for goods then to trade those for a larger quantity of money.  M-C-M means to do the same but for the same quantity of money.

In Marxism a C-M-C transaction is one that occurs in a pre-capitalist society.  The baker exchanges his bread for money then buys cutlery with his money from the blacksmith.  A M-C-M1 transaction is what a capitalist attempts.  He or she invests money in capital, stock, and labour and tries to produce a product that has a higher exchange value than the inputs.  M-C-M is to break even.

As soon as you add profits into the system you have a demand gap where there is more exchange value in the system then ability to consume.
You don't simply "add profits into the system".  A market economy is not something constructed by design.  Profit is not a tax that is taken by businesses.  Rather a business is able to charge a profit because the market for its outputs yields a higher price than the market for its inputs.

Let's say that the price of a good does not necessarily have any relation to the labour that went into producing it.  This is the reality of the matter.  If a producer is selling a product what does he do if he can't sell it for a profit?  Does he hold on to it?  Obviously not forever, he must cut the price and sell at break-even or for a loss.  Once that happens where is the demand gap?

This is solved by expansion,
By whom?  This is a strange line of reasoning.  Are we to believe that some capitalist thought of expansion as a means of preventing the problem you see and secretly told all other capitalists?

the greater inputs for the next production cycle mops of the excess exchange value in the current production cycle (meaning a significant chunk of profits are re-invested into expanding production) , the problem is if you don't have expansion this excess exchange value becomes unconsumed and you have underconsumption (in Classical economic theory) or overproduction (in Marxist economic theory)
It does not simply happen by accident that expansion and profit occur at the same time.  They are inter-related.

The entrepreneur finds an amount of money, M.  He or she then buys capital, stock, labour etc with that, with the intention of making a prifit, by selling the results for more than M.  This is not something anyone can do.  A person cannot take M buy with it any old bunch of stuff to make up C and be sure that they can sell the output of that for more than M.  Doing it requires knowledge and intelligence.  If anyone could do it then managing a portfolio of investments would earn minimum wage.

As I said earlier, a successful business is one where the market value of the outputs exceeds that of the inputs.  Broadly speaking this occurs because the use-value of the outputs exceeds the inputs.  Hence expansion and profits are often associated.

Which brings me to the main point... In Classical or Marxist theory we are talking about underconsumption or overproduction of what?  This is matter for what is called "Say's law", a piece of Classical economics.  What consitutes "demand" for goods?  In economics it is just ability to pay, ability to pay either with other goods or with money.  If we discount money then goods and services are demanded using other goods and services and supplied using other goods and services.  In this case there can be no underconsumption or overproduction in any economic sense.  The situation in a crisis is not "overproduction" or "underconsumption" in a general sense rather the wrong things have being produced.  Trade descreases because of misallocation.

Once a crisis has begun though it may lead to an increase in demand for money rather than goods and services, and/or a decreasing demand for labour.

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Quote from: Current
As for Austrian economics, they blame all capitalist crisis on contraction of the money supply
No they don't.  Austrian blame crises on the Federal Reserve control of money supply disrupting the structure of production.  It is quite a complicated theory, I can't really summarize it easily.  You can read about it on the internet.
I have and they totally ignore realities, even with record low interest rates we are facing major deflation of the money supply, your money is going farther today then it did in June as fictional capital evaporates and value gets frozen in the form of unsold commodities.  The Federal Reserve is failing so you can't blame the crisis on them, the world is still facing huge deflation as value freezes up more.  Austrian economic theory predicted inflation not deflation and they still are predicting inflation while commodity prices are dropping like a rock, their theory can't come to terms that we are facing deflation and not inflation.  You have deflation because consumers can't consume and capitalists can't accumulate more capital so both hoard their money causing a reduction of money in circulation.
You don't understand Austrian economic theory.  In a situation like this it holds the both the possibility of deflation or inflation open.

The case Austrian economists make for blaming the Federal Reserve is that their past actions, particularly the very low interest rates of recent years, brought about the crisis.  What the Fed can or cannot do now has nothing to do with the causes of the crisis.

Also, it is not true that Austrian economists predict inflation as the outcome of crises like this.  They hold both the possibilities of inflation and deflation open.  F.A. Hayek pointed out that the central bank does not control the amount of current account money ("M1") but controls the amount of reserves.  Therefore central bank attempts to increase the money supply may fail if the commercial banks are not willing to use their reserves to create more loans.  This is the situation we are in now.
That ignores the stagnation of the 1970's, and the continued fall in the rate of profit since the 1970's in production.  You can't blame the Federal Reserve for saving capitalism from stagnation by beefing up financial capital.
Austrian theory does not preclude "stagnation" happening whether or not there is a crisis.  If entrepreneurial decisions are bad or there is much misguided government interference then it indicates that there may be stagnation or recession.

Nor does Austrian theory preclude falling rates of profit in production.  To begin with I have seen no evidence that such a falling rate of profit has occurred.  However even if it has it is not really very relevant.  Production of physical goods is not the only productive economic act.

I don't really know what you mean by the last sentence.

Quote from: Current
You have deflation because consumers can't consume and capitalists can't accumulate more capital so both hoard their money causing a reduction of money in circulation.
Yes.  Such a situation is only temporary though.  Consumers still need to eat and do other things.  Capitalists are in a similar position.  It may be wise for an investor to dissolve his lowest-performing investments in a crisis like this.  It makes no sense though to dissolve those which are continuing to perform.
Japan went through deflation for a decade so no it is not a temporary condition since stagnation naturally causes the conditions for deflation.
Japan went through deflation for a decade, the UK went through it for nearly all of the 19th century.  Deflation itself is not particularlybad or particularly interesting.

What I was talking about here is your statement about the liquidity trap "both hoard their money causing a reduction of money in circulation."  As I said above such a liquidity trap is only temporary.  A person may put more of their wealth in money, but they are not going to put it all in money.

In an economy with flexible prices the liquidity trap is temporary.  Once vendors realise they cannot sell for a profit they are forced to sell for a loss.  Japan in it's "lost decade" was not such an economy.  The government intervened to prevent prices from being flexible.

Quote from: Current
Come on Austrian economics is not taken seriously by any reputable University in the world, most economists treat Austrian economists as religious freaks that deal in blind faith rather then science.  They don't back any of their theories with mathematical models, they reject the scientific method and instead totally rely on axioms.   Austrian economics is creationism of economists, it can't back up its theory with a shred of science and throws out any science that contradicts their beliefs.
Well, I'd agree with some of your criticisms of Austrian economics.  However....  Austrian economics certainly is treated seriously by other Universities and by many economists.  George Mason University and Auburn University both employ professors who profess to be Austrian economists and teach course in the subject.

Certainly some Austrian economist do take the view of Ludvig von Mises that all important economics can be derived from simple almost axiomatic rules of human behaviour.  However, these Miseans are only one group within Austrian economics.  I certainly don't agree with them.

You are correct that most Austrian economics does not involve mathematical models, some though does.  Having a mathematical model though does not necessarily make a theory correct a bad theory may still have a mathematical model.  Also, a theory that has a mathematical model is not more defensible than one that doesn't.
Mathematical models even abstract ones like those in Marxist economic theory show people what you are talking about.
But you don't necessarily have to use mathematical models.  In this discussion so far we have not done so yet I think it's still clear what we are talking about.  Mathematics is appropriate in some cases and inappropriate in others.

Quote from: Current
Well for starters Austrain economics lectures in Universities are usually laughably small, there is little point in Universities holding courses for a theory that is highly unpopular.  In contrast lectures on classical and Marxist economic theories can pack a lecture hall and there is far more subject matter to cover in classical and Marxist economic theory compared to Austrain economics since Austrain economic theory is no where as dense as other economic theories.
Hmm, I'm not sure what you mean by "dense".
Classical and Marxist economy theory explains the difference between a individual relationship to a commodity through use-value and a social relationship through buying/selling a commodity via its exchange vale,
Afraid not.  The Austrians talk about that all the time.  See "Human Action" by Ludvig Von Mises or the books about capital by Bohm-Bawerk.

Austrain economic theory pretty much doesn't go into political economy.
That's an interesting criticism.  Mostly economists say that Austrian economics is obsessed by it.  Everything by Ludvig Von Mises is full of Political economy.

Quote from: Current
...
Classical economic theory and Marxist economic theory has mathematical modes and adheres to the scientific method, there are reputable Universities that teach both as sciences. 
Yes, there are Universities that teach both as scientific theories certainly.  That doesn't though mean that they are correct.
It does make both respectable theories.
Well, what is respectable or not is all a matter of opinion.  I certainly agree that some academics consider them respectable theories.

Quote from: Medivh
By the gods! My irony cortex! Now I need aspirin.
The intellectual criticism of Marxism is never it being unscientific, it is the opposite that Marx's capital is far too dense.
The criticisms leveled at Marxism are that its underlying axioms are flawed.  Massive, dense and apparently precise theories can be constructed on the basis of these axioms.  Leontief matrices, input-output diagrams and so on are all very nice, and I'm sure undergraduates love them.  However the axioms they are based on are clearly false and they have failed to describe what has happened in history.  Were the "Tendency for profits to fall" to be a reality they would have fallen to zero more than a century ago.

Marxist theories has accrued within tolerable limits.  Marx said there was a tenancy for the rate of profit to fall and that is pretty much what has happened.  Marxism is mostly still seen as a scientific theory thus why there is still scientific debates for and against that accrue in academic writings.
Really.  Please provide some evidence for this "Tendency of Profits to fall" then.
You seem to not understand what Marx meant by tendency of profits to fall.  First it does not mean profits fall, profits can rise while the rate of profit falls.
I know that.

The rate of profit is (surplus-value)/(capital invested), meaning a falling rate of profit means diminishing rate of returns on investments.   So what did Marx mean by this?  He was saying as constant capital grows the rate of profit tends to fall. 

So what happened?  In the 1970's a high concentrated of constant capital caused a fall in the rate of profit in the west, this was solved by moving production to where capital was not concentrated, and the result was it only delayed the fall in the rate of profit.
Can you show this?  Do you have any charts of rate or profit to back up your statements?

Quote from: Medivh
Of course this view ignores LTV,
Indeed.  I always ignore LTV, because it is rubbish.  I have explained why many times in other threads.
Yet LTV is best measure of exchange value.
Can you show this?  Could you for example show a measurement of the price of some goods and the amount of labour it took to make them?

Quote from: Medivh
that the more productive autoworkers are the less exchange value they produce since there is a finite demand for cars and it is shrinking, thus increased productively would only result in cars having less exchange value that would mean increased productively would only lead to less profits.
Now that's interesting reasoning.... Let us say auto workers are more productive.  If they were what would that mean?  Costs to produce a car may be lower.  In this case the price to the consumer may fall due to competition, if the methods of increasing productivity were known to all manufacturers.

This though tells us nothing about profits.  An investor or entrepreneur does not make profits by taxing his workforce.  He or she makes high-level decisions about where investment funds are to go, which projects and ventures are likely to be profitable and which aren't.  Profits and losses depend on how good these decisions are.
If the capitalists can't expand demand through lower prices then the overall exchange value produced by the automaker is lower.
Yep.  I fail to see how this is an argument against what I have said.

Quote from: Medivh
What you mean is level of exploitation, that UAW workers are not as exploited as their non-union counterparts, meaning more exchange value goes to UAW workers then goes to non-union workers.
Exploitation in the Marxist sense is a creature spawned from LTV.  It only makes sense in that context.  Since LTV does not make sense the Marxist concept of exploitation does not either.
Not everyone thinks LTV is senseless.
No.  In my view though to argue for "exploitation" in the Marxist sense first you must produce a solid argument for LTV.


Title: Re: [BLOG] Cars and Class Warfare
Post by: Current on December 22, 2008, 20:28:27 EST
I find most economists are religious freaks that deal in blind faith rather than science. 
Please note what you said above...
Don't get me wrong, the Union is getting a lot of disingenuous or dishonest mud slung at it, but when the average quoted by Seagull is still 255% of what I (a "mind" worker) am making, I think that perhaps their wages are a bit over-inflated.
That is a little bit of economic theorizing.  What evidence or logic do you have for it?  You claim most economists are "religious freaks that deal in blind faith rather than science".  What evidence or logic would you give for this statement?
As Tom Cruise might say, "you're being glib." 

I'm a "mind" working, according to Writey McLinked the prejudice (in America) is to pay me more because of that.
Really?  Who is Writey McLinked?  Do I have to take special drugs to understand this post?

He asserted this prejudice was wrong, and I am going out on a limb and assuming he feels I am of equal value rather than a worthless schlub who shouldn't be paid anything.  That's fine, I'm not making a value judgment on that stance, but by that standard I'm getting paid less at my job than an auto worker at an equal level.  Clearly this is full of vagaries and assumptions, but then I also used terms like "I think," and "even if that's false," because it is NOT a particularly scientific study, just an idea.  I happen to think my job requires comparable work and training, but I get paid far less,
What I mean is, you are making an economic theory here.  Certainly not a particularly scientific study as you say.  Why then do you condemn those who try to make a more scientific study?

what does that mean economically?  Part-and-parcel is the fact that wages HAVE to be higher in a part of the country where the cost-of-living is higher or the workers cannot afford to work there. 
Well yes. (Note this is another economic theory).

You are stretching this into some sort of belief that I made an assertion about economics and economic theory and are attacking and insulting me over it.
You have.  You are talking about how much various people get paid.  It is called Labour Economics.

This really goes hand-in-hand with my assertion that economists in general (and now YOU in particular) are religious freaks who argue against straw-men and are constantly on the attack like fundamentalist believers are constantly "defending god" by trying to outlaw gay marriage or protest soldier's funeralsyeahIwentthere. 

You're also a great big-THAT'S ALL THE TIME WE HAVE FOR TONIGHT FOLKS!  SEE YOU LATER! 
Economics is not just the high level business of predicting how many trillions US consumption will be next quarter according to some set of equations.  That sort of thing, predictive macroeconomics is only a part of it (and a part with a reputation for dubiousness).  Economics deals with all transactions.

When I talk about economics I am usually talking about the same sorts of things as those you were theorising about.


Title: Re: [BLOG] Cars and Class Warfare
Post by: wodan46 on December 22, 2008, 22:12:47 EST
Economics isn't really a science.  Science requires you to make hypotheses, than test them in peer reviewed double blind studies and the like, before coming to a conclusion.  Economics loves to make nice big theories and only bothers to test them after the fact, if at all.  In regards to scientific rigor, that approach is is equivalent to Historical Analysis on a good day and Creationism on a bad one.


Title: Re: [BLOG] Cars and Class Warfare
Post by: Heq on December 22, 2008, 22:23:42 EST
It's not justified to say all of economics is unscientific.  Economics is like physics, really covers a lot of ground, and most people are more interested in reading about the wierd theoretical bits then the boring ground-pounding bits.

Most econ folks like to show how much they know by going on about big ass theories based on kinda fishy evidence, this is what may be referred to as "Being in academia", or "Ivory Tower syndrom", because you're playing the game for the OMGWTFBBQ U R SOOOO SMRT!!!!1! moments.  To be fair they are not the dominant force in economics, just the loud, bellicose folks everyone tends to notice.

Which makes sense, as the vast majority of stuff in economics there really is no heavy debate on.  There are few, if any, serious marxists, and even people (like myself) who may say fractional backing is evil admit there is little we can do about it now.  Once you get to deal with the "okay, let's make real estimations for use inside a group" it's actually pretty dull.  I suspect Current and I could scoff up about Japan for a bit, but if you took us and said "Draw up a budget, accepting current political leaders" we'd be pretty close.  I might think that I could convince my leadership to never put in another Olympic bid, but beyond that *shrugs* it's accounting made big.


Title: Re: [BLOG] Cars and Class Warfare
Post by: Psy on December 22, 2008, 22:31:24 EST
What specific classical theory are you using here?
The main crisis theory of classical economics is that of underconsumption.  This is the theory that crisis accrue when a growing amount of value in the system can't be consumed that disrupts the capitalist cycle.  Marx didn't dismiss this theory and instead expanded upon it.
Please tell me what part of classical economics you are talking about.  Are you talking about the "Great Glut" controversy?
The theory of underconsumption (http://en.wikipedia.org/wiki/Underconsumption).
OK.  That is part of the "Great Glut" controversy.
Okay.

Quote from: Current
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The Marxist crisis theory is slightly different, that value gets stuck in the from of commodites causing a falling rate of profit, again if we look we also notice this is true, capitalists faced with sudden drops in their returns and nowhere to invest hoard their money, causing smaller capitalists to run out of credit causing them to go belly up causing underconsumption.
What you describe here is simply what Austrians call "misallocation" or what Monetarists/Neo-Keynesians call "disacallocation".  The wrong things are made and people don't want them.  This is obviously not a fatal situation.  The solution is simply to look at what people do want and make it.
This is different in both LTV crisis theories it is not that people don't want the commodities it is that people can't afford to consume the commodites.  For example right now across the board consumption is down, there is not a single industry that is not currently contracting, thus looking at what people want is not a solution since the problem is that people can't afford to consume the products of society.
What though pays for products?  Marxists claim to be able to see through the illusions of money.  I'm not sure though that you are doing so in this case.

Goods and services are paid for with money.  Money itself is bought with other goods and services.  No situation where people "cannot afford to consume" can exist for long.  All of those who sell products must, if they are to sell at all, sell at market prices.  If their prices are so high that no-one is buying them they must reduce those prices.  The same applies to companies selling products as workers selling labour.

The amount of hours of "dead labour" supposedly inhered in existing goods and capital does not matter.
That assumes C-M-C or M-C-M yet not M-C-M1.
No.  I take the position of all modern marginalist economists, which is that all three of those sorts of transactions occur.

For those following this discussion who aren't familiar with it I'll explain what those mean....

All of these are trading activities.  C-M means to exchange goods for money, M-C to exchange money for goods.  C-M-C means to exchange goods for money then to exchange that money for different goods.  M-C-M1 means to exchange money for goods then to trade those for a larger quantity of money.  M-C-M means to do the same but for the same quantity of money.

In Marxism a C-M-C transaction is one that occurs in a pre-capitalist society.  The baker exchanges his bread for money then buys cutlery with his money from the blacksmith.  A M-C-M1 transaction is what a capitalist attempts.  He or she invests money in capital, stock, and labour and tries to produce a product that has a higher exchange value than the inputs.  M-C-M is to break even.

As soon as you add profits into the system you have a demand gap where there is more exchange value in the system then ability to consume.
You don't simply "add profits into the system".  A market economy is not something constructed by design.  Profit is not a tax that is taken by businesses.  Rather a business is able to charge a profit because the market for its outputs yields a higher price than the market for its inputs.

Let's say that the price of a good does not necessarily have any relation to the labour that went into producing it.  This is the reality of the matter.  If a producer is selling a product what does he do if he can't sell it for a profit?  Does he hold on to it?  Obviously not forever, he must cut the price and sell at break-even or for a loss.  Once that happens where is the demand gap?

This is solved by expansion,
By whom?  This is a strange line of reasoning.  Are we to believe that some capitalist thought of expansion as a means of preventing the problem you see and secretly told all other capitalists?

the greater inputs for the next production cycle mops of the excess exchange value in the current production cycle (meaning a significant chunk of profits are re-invested into expanding production) , the problem is if you don't have expansion this excess exchange value becomes unconsumed and you have underconsumption (in Classical economic theory) or overproduction (in Marxist economic theory)
It does not simply happen by accident that expansion and profit occur at the same time.  They are inter-related.

The entrepreneur finds an amount of money, M.  He or she then buys capital, stock, labour etc with that, with the intention of making a prifit, by selling the results for more than M.  This is not something anyone can do.  A person cannot take M buy with it any old bunch of stuff to make up C and be sure that they can sell the output of that for more than M.  Doing it requires knowledge and intelligence.  If anyone could do it then managing a portfolio of investments would earn minimum wage.

As I said earlier, a successful business is one where the market value of the outputs exceeds that of the inputs.  Broadly speaking this occurs because the use-value of the outputs exceeds the inputs.  Hence expansion and profits are often associated.

Which brings me to the main point... In Classical or Marxist theory we are talking about underconsumption or overproduction of what?  This is matter for what is called "Say's law", a piece of Classical economics.  What consitutes "demand" for goods?  In economics it is just ability to pay, ability to pay either with other goods or with money.  If we discount money then goods and services are demanded using other goods and services and supplied using other goods and services.  In this case there can be no underconsumption or overproduction in any economic sense.  The situation in a crisis is not "overproduction" or "underconsumption" in a general sense rather the wrong things have being produced.  Trade descreases because of misallocation.

Once a crisis has begun though it may lead to an increase in demand for money rather than goods and services, and/or a decreasing demand for labour.
Here is the problem, profit means there has to growth, if revenues are stagnant then you just have M-C-M.  Meaning in the next production period you are also going to have more commodities (thus it is really M-C-M1-C1-M2).  Now since every period the output of the last period become input of the next it means when you a fall in demand in consumer goods it ripples causing a fall in the demand for expanding the means of production causing a feed back loop.

As for the idea of misallocation, it doesn't work, if there was profitable investment investors would find it, the problem is that there is not enough profitable investment in the system to consume all investment money in the system.

Quote from: Current
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As for Austrian economics, they blame all capitalist crisis on contraction of the money supply
No they don't.  Austrian blame crises on the Federal Reserve control of money supply disrupting the structure of production.  It is quite a complicated theory, I can't really summarize it easily.  You can read about it on the internet.
I have and they totally ignore realities, even with record low interest rates we are facing major deflation of the money supply, your money is going farther today then it did in June as fictional capital evaporates and value gets frozen in the form of unsold commodities.  The Federal Reserve is failing so you can't blame the crisis on them, the world is still facing huge deflation as value freezes up more.  Austrian economic theory predicted inflation not deflation and they still are predicting inflation while commodity prices are dropping like a rock, their theory can't come to terms that we are facing deflation and not inflation.  You have deflation because consumers can't consume and capitalists can't accumulate more capital so both hoard their money causing a reduction of money in circulation.
You don't understand Austrian economic theory.  In a situation like this it holds the both the possibility of deflation or inflation open.

The case Austrian economists make for blaming the Federal Reserve is that their past actions, particularly the very low interest rates of recent years, brought about the crisis.  What the Fed can or cannot do now has nothing to do with the causes of the crisis.

Also, it is not true that Austrian economists predict inflation as the outcome of crises like this.  They hold both the possibilities of inflation and deflation open.  F.A. Hayek pointed out that the central bank does not control the amount of current account money ("M1") but controls the amount of reserves.  Therefore central bank attempts to increase the money supply may fail if the commercial banks are not willing to use their reserves to create more loans.  This is the situation we are in now.
That ignores the stagnation of the 1970's, and the continued fall in the rate of profit since the 1970's in production.  You can't blame the Federal Reserve for saving capitalism from stagnation by beefing up financial capital.
Austrian theory does not preclude "stagnation" happening whether or not there is a crisis.  If entrepreneurial decisions are bad or there is much misguided government interference then it indicates that there may be stagnation or recession.

Nor does Austrian theory preclude falling rates of profit in production.  To begin with I have seen no evidence that such a falling rate of profit has occurred.  However even if it has it is not really very relevant.  Production of physical goods is not the only productive economic act.

I don't really know what you mean by the last sentence.
The highest rate of profit was during the long boom, the world has never recovered to the rate of returns that existed during that period.  This stagnation is not just with physical goods but the entire productive sectors of the world economy.  My last sentence means was that the Federal Reserve faced with stagnation of the productive sectors of the economy shifted focus to growing speculation.

Quote from: Current
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You have deflation because consumers can't consume and capitalists can't accumulate more capital so both hoard their money causing a reduction of money in circulation.
Yes.  Such a situation is only temporary though.  Consumers still need to eat and do other things.  Capitalists are in a similar position.  It may be wise for an investor to dissolve his lowest-performing investments in a crisis like this.  It makes no sense though to dissolve those which are continuing to perform.
Japan went through deflation for a decade so no it is not a temporary condition since stagnation naturally causes the conditions for deflation.
Japan went through deflation for a decade, the UK went through it for nearly all of the 19th century.  Deflation itself is not particularlybad or particularly interesting.

What I was talking about here is your statement about the liquidity trap "both hoard their money causing a reduction of money in circulation."  As I said above such a liquidity trap is only temporary.  A person may put more of their wealth in money, but they are not going to put it all in money.

In an economy with flexible prices the liquidity trap is temporary.  Once vendors realise they cannot sell for a profit they are forced to sell for a loss.  Japan in it's "lost decade" was not such an economy.  The government intervened to prevent prices from being flexible.
Once capitalist realize they cannot sell for a profit they invest elsewhere, if they can't invest elsewhere they go belly up.

Quote from: Current
Quote from: Current
Come on Austrian economics is not taken seriously by any reputable University in the world, most economists treat Austrian economists as religious freaks that deal in blind faith rather then science.  They don't back any of their theories with mathematical models, they reject the scientific method and instead totally rely on axioms.   Austrian economics is creationism of economists, it can't back up its theory with a shred of science and throws out any science that contradicts their beliefs.
Well, I'd agree with some of your criticisms of Austrian economics.  However....  Austrian economics certainly is treated seriously by other Universities and by many economists.  George Mason University and Auburn University both employ professors who profess to be Austrian economists and teach course in the subject.

Certainly some Austrian economist do take the view of Ludvig von Mises that all important economics can be derived from simple almost axiomatic rules of human behaviour.  However, these Miseans are only one group within Austrian economics.  I certainly don't agree with them.

You are correct that most Austrian economics does not involve mathematical models, some though does.  Having a mathematical model though does not necessarily make a theory correct a bad theory may still have a mathematical model.  Also, a theory that has a mathematical model is not more defensible than one that doesn't.
Mathematical models even abstract ones like those in Marxist economic theory show people what you are talking about.
But you don't necessarily have to use mathematical models.  In this discussion so far we have not done so yet I think it's still clear what we are talking about.  Mathematics is appropriate in some cases and inappropriate in others.
The math allows for economics to plug in numbers to show what is going on.

Quote from: Current
Quote from: Current
Well for starters Austrain economics lectures in Universities are usually laughably small, there is little point in Universities holding courses for a theory that is highly unpopular.  In contrast lectures on classical and Marxist economic theories can pack a lecture hall and there is far more subject matter to cover in classical and Marxist economic theory compared to Austrain economics since Austrain economic theory is no where as dense as other economic theories.
Hmm, I'm not sure what you mean by "dense".
Classical and Marxist economy theory explains the difference between a individual relationship to a commodity through use-value and a social relationship through buying/selling a commodity via its exchange vale,
Afraid not.  The Austrians talk about that all the time.  See "Human Action" by Ludvig Von Mises or the books about capital by Bohm-Bawerk.
I meant the clear distinction between use-value, exchange value and the act of using a commodity and buying/selling a commodity.  When you use a watch you are not changing its exchange value, if you use a watch that belongs to a store you are not stealing value as the watch has the same exchange value.

Quote from: Current
Austrain economic theory pretty much doesn't go into political economy.
That's an interesting criticism.  Mostly economists say that Austrian economics is obsessed by it.  Everything by Ludvig Von Mises is full of Political economy.
Actually no, they pretend class doesn't exist as so the political relationship between worker and owner doesn't exist. 

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...
Classical economic theory and Marxist economic theory has mathematical modes and adheres to the scientific method, there are reputable Universities that teach both as sciences. 
Yes, there are Universities that teach both as scientific theories certainly.  That doesn't though mean that they are correct.
It does make both respectable theories.
Well, what is respectable or not is all a matter of opinion.  I certainly agree that some academics consider them respectable theories.
Right.

Quote from: Current
The rate of profit is (surplus-value)/(capital invested), meaning a falling rate of profit means diminishing rate of returns on investments.   So what did Marx mean by this?  He was saying as constant capital grows the rate of profit tends to fall. 

So what happened?  In the 1970's a high concentrated of constant capital caused a fall in the rate of profit in the west, this was solved by moving production to where capital was not concentrated, and the result was it only delayed the fall in the rate of profit.
Can you show this?  Do you have any charts of rate or profit to back up your statements?
In Wiki (http://en.wikipedia.org/wiki/Tendency_of_the_rate_of_profit_to_fall)
"There is also some statistical evidence that, as a broad historical trend, average profitability in industry has fallen through the 20th century (see, for instance, Robert Brenner and the research of Dumenil & Levy for the time after the second world war)."

Also in the notes of David McNally (http://marxandthefinancialcrisisof2008.blogspot.com/2008/12/david-mcnally-from-financial-crisis-to.html) annalist on the recent crisis he cites works of other economists that have analyzed the falling rate of profit. 

Quote from: Medivh
Quote from: Medivh
Of course this view ignores LTV,
Indeed.  I always ignore LTV, because it is rubbish.  I have explained why many times in other threads.
Yet LTV is best measure of exchange value.
Can you show this?  Could you for example show a measurement of the price of some goods and the amount of labour it took to make them?
Can you show use-value is a better measurement of exchange value? 

Quote from: Medivh
Quote from: Medivh
that the more productive autoworkers are the less exchange value they produce since there is a finite demand for cars and it is shrinking, thus increased productively would only result in cars having less exchange value that would mean increased productively would only lead to less profits.
Now that's interesting reasoning.... Let us say auto workers are more productive.  If they were what would that mean?  Costs to produce a car may be lower.  In this case the price to the consumer may fall due to competition, if the methods of increasing productivity were known to all manufacturers.

This though tells us nothing about profits.  An investor or entrepreneur does not make profits by taxing his workforce.  He or she makes high-level decisions about where investment funds are to go, which projects and ventures are likely to be profitable and which aren't.  Profits and losses depend on how good these decisions are.
If the capitalists can't expand demand through lower prices then the overall exchange value produced by the automaker is lower.
Yep.  I fail to see how this is an argument against what I have said.
The more productive the factory is at making cars the less value the factory makes if demand is fixed.  This is the paradox of capitalism were progress means less exchange value when the driving force of the system is to maximum exchange value. 

Quote from: Medivh
Quote from: Medivh
What you mean is level of exploitation, that UAW workers are not as exploited as their non-union counterparts, meaning more exchange value goes to UAW workers then goes to non-union workers.
Exploitation in the Marxist sense is a creature spawned from LTV.  It only makes sense in that context.  Since LTV does not make sense the Marxist concept of exploitation does not either.
Not everyone thinks LTV is senseless.
No.  In my view though to argue for "exploitation" in the Marxist sense first you must produce a solid argument for LTV.
Value is created in the production process, labor is key to the production process.


Title: Re: [BLOG] Cars and Class Warfare
Post by: Heq on December 22, 2008, 22:43:28 EST
Your wiki doesn't mention the key reason for the rejection.

On average, given a stagnant technology -it may be the case that- capital increases yeild fewer returns, but technology is not stagnant, and increase capital causes increase in tech-trends which normally should kick you back increased returns.

There are examples where it doesn't, but the whole article feels very old.  The language there is clunky, but we produce a great deal more -stuff- now then we did even 15 years ago.  Sure, the money value to the stuff is less, but most of us live in an opulance which the uber-elite of a century ago would find boggling.


Title: Re: [BLOG] Cars and Class Warfare
Post by: wodan46 on December 23, 2008, 00:06:55 EST
It's not justified to say all of economics is unscientific.  Economics is like physics, really covers a lot of ground, and most people are more interested in reading about the wierd theoretical bits then the boring ground-pounding bits.
Libertarians come across to me as insisting on the whole shebang, weird theoretical bits and all.  They also don't merely follow theories, but make wide-reaching assumptions from those theories about how to run societies.

Most econ folks like to show how much they know by going on about big ass theories based on kinda fishy evidence, this is what may be referred to as "Being in academia", or "Ivory Tower syndrom", because you're playing the game for the OMGWTFBBQ U R SOOOO SMRT!!!!1! moments.  To be fair they are not the dominant force in economics, just the loud, bellicose folks everyone tends to notice.
... aren't loud, bellicose, folks that everyone tend to notice the dominant force in most fields of argument, especially those where there severe shortages of rational foundations to build on?  Especially when those fields leak over into politics?

Which makes sense, as the vast majority of stuff in economics there really is no heavy debate on.  There are few, if any, serious marxists, and even people (like myself) who may say fractional backing is evil admit there is little we can do about it now.  Once you get to deal with the "okay, let's make real estimations for use inside a group" it's actually pretty dull.  I suspect Current and I could scoff up about Japan for a bit, but if you took us and said "Draw up a budget, accepting current political leaders" we'd be pretty close.  I might think that I could convince my leadership to never put in another Olympic bid, but beyond that *shrugs* it's accounting made big.
I think it has to do more with the mental contortions people have to undergo to fit the economist's model, assuming that people are this rational or that stupid in order for it to work.


Title: Re: [BLOG] Cars and Class Warfare
Post by: Psy on December 23, 2008, 01:33:20 EST
Your wiki doesn't mention the key reason for the rejection.

On average, given a stagnant technology -it may be the case that- capital increases yeild fewer returns, but technology is not stagnant, and increase capital causes increase in tech-trends which normally should kick you back increased returns.

There are examples where it doesn't, but the whole article feels very old.  The language there is clunky, but we produce a great deal more -stuff- now then we did even 15 years ago.  Sure, the money value to the stuff is less, but most of us live in an opulance which the uber-elite of a century ago would find boggling.
It is not technology that brings stagnation by productivity, basically the more productive the less effort to produce thus the less exchange value produced if demand is constant. 


Title: Re: [BLOG] Cars and Class Warfare
Post by: Heq on December 23, 2008, 02:18:40 EST
Psy, yes but we all have more stuff!

It is better to have more then less, that is kind of the goal here.

Wodan, yeah, I just felt like my countrymen needed defending.  I disagree with some base assumptions of the big theories nowadays, but I suspect the real pill that no-one wants to fess up is that there is no such thing as a universal model in any field (any empirical field anyway), just general trends.  The early empiracists sort of said that, but we're a primate that really, really, really wants the universal to be rule-bound.


Title: Re: [BLOG] Cars and Class Warfare
Post by: Psy on December 23, 2008, 10:10:25 EST
Psy, yes but we all have more stuff!

It is better to have more then less, that is kind of the goal here.

Wodan, yeah, I just felt like my countrymen needed defending.  I disagree with some base assumptions of the big theories nowadays, but I suspect the real pill that no-one wants to fess up is that there is no such thing as a universal model in any field (any empirical field anyway), just general trends.  The early empiracists sort of said that, but we're a primate that really, really, really wants the universal to be rule-bound.
Yet the capitalists don't want the commodities, investors in GM don't care about the cars in GM inventory as they want those cars converted into money.  Since higher productive means each car is worth less that means when rate of growth of demand peaks so does the rate of return on their investment in GM.


Title: Re: [BLOG] Cars and Class Warfare
Post by: Current on December 23, 2008, 17:26:16 EST
I forgot this...

Quote from: Current
You don't need to solve these problems, bankruptcy will solve them.  Whoever can make use of the capital will buy it, history demonstrates that.  If another company can use all of GM they will buy the whole company.  If not they will strip out the profitable parts.

...and in stripping out the "profitable parts," you'll scatter the work force, many of whom don't have transferable skills nor access the proper training to obtain similar employment - and even if they did, it would be difficult to find new employment when the trend is to fire and not hire. That's one of the major reasons people are resistant to allowing bankruptcy; regardless of whether the business "deserves to fail," the employees certainly don't deserve to have their livelihood endangered.
The employees have for some time worked for companies that they know are not stable.  They should have thought about this and prepared for it by finding work elsewhere or by saving for that eventuality.

First, not everyone enjoys the same level of job mobility. I'm sure most workers are well aware that the company is unstable, but its not as if they can easily search for and obtain a new job. Even if they were willing to relocate (which has a negative impact on the quality of life when someone is still close to their extended family, among other things), there's little guarantee that they'd find comparable work giving the shrinking industrial base in the US. Those working in manufacturing typically can't find jobs above minimum wage due to the higher demand for advanced education and the stigma against manual laborers.

Second, even if the wage for these employees is substantial, it's not enough to adequately save. With the average income being greatly outpaced by the cost of living, these workers are going to be spending most of their income sustaining the current quality of life and doing what they can to ensure their children have opportunities. Unless you're significantly wealthy, you simply don't earn enough to save the kind of money it would take to protect against job loss.
These are problems being faced by many people.  Why should employees of car companies have a special case here?

Besides I don't really agree with you.  Wages for these workers have been high for many years.  They had the opportunity to make provisions.  For most of my life I have made much less than one of these workers, but I would still be able to live through many years of unemployment with only my savings.



Title: Re: [BLOG] Cars and Class Warfare
Post by: Blue Boy from Red Country on December 23, 2008, 22:29:24 EST
I forgot this...

Quote from: Current
You don't need to solve these problems, bankruptcy will solve them.  Whoever can make use of the capital will buy it, history demonstrates that.  If another company can use all of GM they will buy the whole company.  If not they will strip out the profitable parts.

...and in stripping out the "profitable parts," you'll scatter the work force, many of whom don't have transferable skills nor access the proper training to obtain similar employment - and even if they did, it would be difficult to find new employment when the trend is to fire and not hire. That's one of the major reasons people are resistant to allowing bankruptcy; regardless of whether the business "deserves to fail," the employees certainly don't deserve to have their livelihood endangered.
The employees have for some time worked for companies that they know are not stable.  They should have thought about this and prepared for it by finding work elsewhere or by saving for that eventuality.

First, not everyone enjoys the same level of job mobility. I'm sure most workers are well aware that the company is unstable, but its not as if they can easily search for and obtain a new job. Even if they were willing to relocate (which has a negative impact on the quality of life when someone is still close to their extended family, among other things), there's little guarantee that they'd find comparable work giving the shrinking industrial base in the US. Those working in manufacturing typically can't find jobs above minimum wage due to the higher demand for advanced education and the stigma against manual laborers.

Second, even if the wage for these employees is substantial, it's not enough to adequately save. With the average income being greatly outpaced by the cost of living, these workers are going to be spending most of their income sustaining the current quality of life and doing what they can to ensure their children have opportunities. Unless you're significantly wealthy, you simply don't earn enough to save the kind of money it would take to protect against job loss.
These are problems being faced by many people.  Why should employees of car companies have a special case here?

Besides I don't really agree with you.  Wages for these workers have been high for many years.  They had the opportunity to make provisions.  For most of my life I have made much less than one of these workers, but I would still be able to live through many years of unemployment with only my savings.


I was speaking a bit more abstractly. I don't think that employees of car companies deserve special treatment; I was more objecting to the general attitude of just letting businesses fail as if it will solve everything. Its far too impersonal, focusing on the business/commercial aspects without acknowledging the fact these business are part of thousands of people's livelihoods - something you can't just "liquidate."

As for their earnings, I honestly don't know the actual figures. I wouldn't be surprised if they were comparatively high due to the strong union presence. Regardless, I am highly skeptical that a person could save enough to sustain a modest lifestyle for the months, even years, it would take to find comparable work. (That is, without a lot of investment, expertise, and luck in the stock market.) Unless show some credible figures to the contrary, I'm going to stick with my previous assertion that saving for contingencies is not practical in modern America.


Title: Re: [BLOG] Cars and Class Warfare
Post by: wodan46 on December 24, 2008, 00:18:23 EST
Frankly, Americans should be saving more period, but far too many people insist on living paycheck to paycheck.  While most people don't, if 10% do, those 10% are screwed when the economy shifts, and their screwedness cascades onto other groups.

The "only middle class people have enough money to save in the first place" story doesn't jive with me.  I think there is sufficient evidence that poor people can save, use credit cards wisely, and plan for the long term as well.


Title: Re: [BLOG] Cars and Class Warfare
Post by: Current on December 26, 2008, 13:06:34 EST
Economics isn't really a science.  Science requires you to make hypotheses, than test them in peer reviewed double blind studies and the like, before coming to a conclusion.  Economics loves to make nice big theories and only bothers to test them after the fact, if at all.  In regards to scientific rigor, that approach is is equivalent to Historical Analysis on a good day and Creationism on a bad one.
It's interesting that you bring up creationism.  The argument that you are making here is similar to one brought up against darwinian evolution.  When Darwin, Wallace and the other early evolutionary biologists first made the argument for natural selection they did so on the basis of historical evidence.  The subject of their theory was essentially historical.  So they could not test their hypothesis using later experimentation.  What they did was historical analysis.  Does this mean then that the theory of natural selection is not science?  Well, I think there is an argument for that point of view.  I think the most reasonable argument though is that it is a different sort of science to normal experimental science.

Evolutionary biology and economics are very interlinked and similar subjects.  Today they both use a different sort of method to that you describe.  In economics a set of ideas about how people behave in small scale situations are constructed, so called "microfoundations".  Then how those microfoundations affect other larger-scales is investigated.  The same sort of thing is done in evolutionary biology.

It's not justified to say all of economics is unscientific.  Economics is like physics, really covers a lot of ground, and most people are more interested in reading about the wierd theoretical bits then the boring ground-pounding bits.
Libertarians come across to me as insisting on the whole shebang, weird theoretical bits and all.  They also don't merely follow theories, but make wide-reaching assumptions from those theories about how to run societies.
You have this entirely the wrong way around.

My understanding of your views Wodan is that you are a sort of centre-left interventionist.  What you have argued for in the past is for government intervention into this or that market.  We have often talked about this in general.  But, you have only given a few examples of policies that you support.

Think about a specific piece of economic interventionism.  What interventionism requires is that the government move into the market and stop market participants from doing some things and make them to others.  For the government to intervene successfully in the economy they must first understand how the market will behave.  It must then understand what a better decision is.  Lastly, the government must know how to intervene to bring about a better outcome without causing other unintended consequences.

Doing all of this requires much more complicated economics than anything economic non-interventionists use.  The economics I talk about in my posts is much simpler than that used by interventionists.  Also, it requires far fewer problematic modeling assumptions.  Read a book on Keynesian or New-Keynesian economics and you will see what I mean.

Read the discussion I have being having in this thread with Psy.  Psy understands this issue much better than most of the soft left on this forum.  If you take the view that decisions on economic matters should be done by the government then you have to have a theory of how that is to be done.  Psy chooses conventional Marxist/Leninist communism and argues for it.


Title: Re: [BLOG] Cars and Class Warfare
Post by: Heq on December 26, 2008, 13:41:17 EST
Just to be a prick, "can" is a very ugly word.  Poor people can save and yadda yadda, but by and large they are ignorant of how money or budgeting works, so they are unlikely to (as they don't understand why it is the case).

So while one can state that an individual can and should, as a group it's probably expecting too much.  I mean, a poor person can learn nuclear physics without going to university, but I would be a fool if I walked into Harlem High and brought in an advanced lecturer on the minutae of string theory.


Title: Re: [BLOG] Cars and Class Warfare
Post by: Blue Boy from Red Country on December 26, 2008, 14:05:20 EST
Quote
Frankly, Americans should be saving more period, but far too many people insist on living paycheck to paycheck.  While most people don't, if 10% do, those 10% are screwed when the economy shifts, and their screwedness cascades onto other groups.

Just to be a prick, "can" is a very ugly word.  Poor people can save and yadda yadda, but by and large they are ignorant of how money or budgeting works, so they are unlikely to (as they don't understand why it is the case).

Yes, there are those who are poor in part due to a lack of the knowledge or discipline to budget and manage finances in the long term. However, I've known plenty, including myself, who've simply been unable to. When you're between jobs, have finished school and are having difficulty finding work, or going through a similar transition, your monetary situation is not stable enough to make reasonable assumptions upon which to build a budget.

I think a lot of people never truly gain a sense of stability. Whereas I managed to find a job with sufficient pay a month or so before I exhausted all of my savings, not all of us are so fortunate. They go from paycheck to paycheck because they've become mired down with debt and other obligations. They aren't in a position to make decisions about to decide how their income is allocated - it's pretty much all accounted for and then some.


Title: Re: [BLOG] Cars and Class Warfare
Post by: wodan46 on December 26, 2008, 21:55:06 EST
Economics isn't really a science.  Science requires you to make hypotheses, than test them in peer reviewed double blind studies and the like, before coming to a conclusion.  Economics loves to make nice big theories and only bothers to test them after the fact, if at all.  In regards to scientific rigor, that approach is is equivalent to Historical Analysis on a good day and Creationism on a bad one.
It's interesting that you bring up creationism.  The argument that you are making here is similar to one brought up against darwinian evolution.  When Darwin, Wallace and the other early evolutionary biologists first made the argument for natural selection they did so on the basis of historical evidence.  The subject of their theory was essentially historical.  So they could not test their hypothesis using later experimentation.  What they did was historical analysis.  Does this mean then that the theory of natural selection is not science?  Well, I think there is an argument for that point of view.  I think the most reasonable argument though is that it is a different sort of science to normal experimental science.

Evolutionary biology and economics are very interlinked and similar subjects.  Today they both use a different sort of method to that you describe.  In economics a set of ideas about how people behave in small scale situations are constructed, so called "microfoundations".  Then how those microfoundations affect other larger-scales is investigated.  The same sort of thing is done in evolutionary biology.
Observational evidence is significantly weaker than more actual evidence.  This is understandable for things like Evolution or Plate Tectonics, which can't have truly direct experimental evidence applied due to their very nature.  Economics, however, can be tested experimentally.

Libertarians come across to me as insisting on the whole shebang, weird theoretical bits and all.  They also don't merely follow theories, but make wide-reaching assumptions from those theories about how to run societies.
You have this entirely the wrong way around.

My understanding of your views Wodan is that you are a sort of centre-left interventionist.  What you have argued for in the past is for government intervention into this or that market.  We have often talked about this in general.  But, you have only given a few examples of policies that you support.
Intervention is a fairly vague term, which can take ominous or pleasant meanings in different circumstances.  I've tried to vaguely

Think about a specific piece of economic interventionism.  What interventionism requires is that the government move into the market and stop market participants from doing some things and make them to others.  For the government to intervene successfully in the economy they must first understand how the market will behave.  It must then understand what a better decision is.  Lastly, the government must know how to intervene to bring about a better outcome without causing other unintended consequences.

Doing all of this requires much more complicated economics than anything economic non-interventionists use.  The economics I talk about in my posts is much simpler than that used by interventionists.  Also, it requires far fewer problematic modeling assumptions.  Read a book on Keynesian or New-Keynesian economics and you will see what I mean.
Failure to intervene is in itself an intervention, and a drastic one at that, with major consequences.  Like it or not, the government is responsible for the people, for it IS the people, it is their attempt to operate coherently on a large scale.

Let me offer you a classic example.  A train is going down some tracks out of control and will kill 4 people in the way who aren't paying attention.  If you pull a switch, it will go on to a different set of tracks, and only kill 1 person.  Many people have stated that they refuse to pull the switch.  They think that by not pulling the switch, by not getting involved, they've absolved themselves of any responsibility for what happens.  They are wrong.

Of course, the problem with this is that it is not an accurate reflection of the world.  In the real world, the information regarding different courses of action is not always available.  However, the decisions still have to be made, and thus they should be delegated to those who can make such a decisions best.

So the question lies as to whether or not the corporation or the government is more able to make decisions benefiting people.  The answer is quite plainly the government, for such is really a trick question.  This is because the government represents the interests of the people, and is controlled by the interests of the people.  The corporations motivated by small groups of people that don't represent society.

However, the real question is whether or not people are capable of handling economic decisions.  The answer is NO.  Individual people make terrible economic decisions regularly.  So do corporations.  Short term decisions are dominated by emotion, and few have the capacity to analyze the impact of long term decisions.  This was the purpose of the earlier discussion on rationality that we had.  It is also a good reason for why people pay other people for expert advice.  Even if they were capable of knowing a given subject in depth, they certainly can't know all subjects in depth.

Moreover, society does not replace those people with ones more competent, as natural selection will do.  That is because those who control the lifeblood of the nations economy have access to such wealth and power that they are as a whole immune to the process.  Look to the past.  The evidence is clear.  Unfettered capitalism has always led to economic disaster.  Capitalists are not long term planners, but short term pillagers, concerned with making as much money as possible as quickly as possible, with no concern about what will happen latter, after all, that will happen mainly to other people.

The Government, on the other hand is concerned with the long term.  It is concerned with the interests of the people.  It can and does hire experts on the subject.  Sure, it will be wrong often.  So will the corporations, and so will the people.  However, the government is the only entity that both represents the people's interests and has the ability to act coherently on a large and long term scale.

Government Intervention in economic affairs is no different than how it deals with enforcing the law with regards to criminals.  The government restricts courses of action which are likely to cause damage to society, and punishes those who succeed in causing damage to society.

I suspect you underestimate the value of government intervention.  As discussed before, people are not capable of handling decisions to a full degree, both short term and long term.  Some of this is a product of emotion, irrationality, and inability to consider the long term.  However, some of this is simply due to people not being able to be experts on every field.  Regulations in a field represent judgments by experts paid to represent and advise the people, by the people.  They are an expert in the field and the average person is not.

Take safety regulation.  What would happen if it was all removed?  People would not know which products to buy and have no way of determining if they are safe.  Companies would have no reason to keep their products safe, for even if other companies did keep their products safe, the public would not be able to tell the difference, because they are not experts.

Of course, you could say that not all people asked for that expert advice.  However, those people are first of all foolish, for in most subjects expert advice will be better than their own decisions, if not by much.  Second of all, the people did ask, through their votes, and through their decision to form a representative government.

Of course, you could say that the experts in the government can get corrupt and mislead you.  So long as there is a free press and a motivated public, such governments will be cleared of corruption, for the public does not want a government to represent them as such.  However, a corporations is motivated to mislead you from the start.  The corporation does not act in the public's interest, it was never motivated by such, and through the condensation of wealth and power, it will never be motivated to do so via natural selection or free markets.  When the power is in the hands of the few, a market may be free, but it isn't free free.

In short, government intervention is bad.  Lack of government intervention is worse.  Deal with it, ideally by ensuring that the public is motivated, whereupon the free press will likely give them the information they need to find their fate again.


Title: Re: [BLOG] Cars and Class Warfare
Post by: Medivh on December 27, 2008, 00:42:49 EST
Economics isn't really a science.  Science requires you to make hypotheses, than test them in peer reviewed double blind studies and the like, before coming to a conclusion.  Economics loves to make nice big theories and only bothers to test them after the fact, if at all.  In regards to scientific rigor, that approach is is equivalent to Historical Analysis on a good day and Creationism on a bad one.
It's interesting that you bring up creationism.  The argument that you are making here is similar to one brought up against darwinian evolution.  When Darwin, Wallace and the other early evolutionary biologists first made the argument for natural selection they did so on the basis of historical evidence.  The subject of their theory was essentially historical.  So they could not test their hypothesis using later experimentation.  What they did was historical analysis.  Does this mean then that the theory of natural selection is not science?  Well, I think there is an argument for that point of view.  I think the most reasonable argument though is that it is a different sort of science to normal experimental science.

Nope. Incorrect. Very wrong. Apologies if I sound over the top here, but evolution is a subject that is very easy, and that people still manage to arse up frequently and often.

Evolution theory didn't start with Darwin, he just found the good evidence. Here's how: Darwin was the naturalist on the HMS Beagle. He got the captain to drop him off on one side of the South American continent and made his way across it while the Beagle went round the southern tip. When he met up with the Beagle on the western seaboard, they went to the Galapagos Islands. Here, Darwin saw birds that were very similar, but with minor differences that enabled them to survive better on the Galapagos Islands. Things like beak alterations that allowed easier cracking of nuts, a more common food source on the islands than mainland South America.

Indeed, he found varieties on different islands that were of the same species, but of differing characteristics. Considering the evidence, it was clear that minor variations had become amplified over many generations. Not historical evidence at all, you see. Noticing that Nature produces different breeds of the same species in the same way that husbandry produces different breeds of dog.

Evolutionary biology and economics are very interlinked and similar subjects.  Today they both use a different sort of method to that you describe.  In economics a set of ideas about how people behave in small scale situations are constructed, so called "microfoundations".  Then how those microfoundations affect other larger-scales is investigated.  The same sort of thing is done in evolutionary biology.

The difference is that scientists have produced evolution in bacterial culture. Set E. Coli in culture with minimal food apart from citrine, and the bacteria will, given a few thousand generations, become able to consume citrine. While Darwin wasn't able to do experimentation to prove evolution, we can. Economies are somewhat more... troublesome?... to replicate like that.


Title: Re: [BLOG] Cars and Class Warfare
Post by: Blue Boy from Red Country on December 27, 2008, 10:18:10 EST
The difference is that scientists have produced evolution in bacterial culture. Set E. Coli in culture with minimal food apart from citrine, and the bacteria will, given a few thousand generations, become able to consume citrine. While Darwin wasn't able to do experimentation to prove evolution, we can. Economies are somewhat more... troublesome?... to replicate like that.

Yeah, Macroeconomics is probably one of the most difficult things to conduct experiments with since the task of creating a controlled and artificial economy is so daunting. Microeconomics, however, is a breeze... all it took for my professor to demonstrate "utils" was a box of Crispy Cream donuts.

One thing that concerns me is the apparent lack of study on how Microeconomics (the decisions of individual people and businesses) relates to Macroeconomics (the behavior of large scale economies). There's a lot of discussion that's quite abstract and too removed to be of much use in making an economy benefit the general populace. Meanwhile, those who do intervene to promote economic stability and security don't have much of an intellectual framework to guide them.

(Disclaimer: Economics is one of those subjects I know just enough of to be dangerous. I'm no expert.)


Title: Re: [BLOG] Cars and Class Warfare
Post by: wodan46 on December 27, 2008, 17:13:17 EST
Economics isn't really a science.  Science requires you to make hypotheses, than test them in peer reviewed double blind studies and the like, before coming to a conclusion.  Economics loves to make nice big theories and only bothers to test them after the fact, if at all.  In regards to scientific rigor, that approach is is equivalent to Historical Analysis on a good day and Creationism on a bad one.
It's interesting that you bring up creationism.  The argument that you are making here is similar to one brought up against darwinian evolution.  When Darwin, Wallace and the other early evolutionary biologists first made the argument for natural selection they did so on the basis of historical evidence.  The subject of their theory was essentially historical.  So they could not test their hypothesis using later experimentation.  What they did was historical analysis.  Does this mean then that the theory of natural selection is not science?  Well, I think there is an argument for that point of view.  I think the most reasonable argument though is that it is a different sort of science to normal experimental science.

Nope. Incorrect. Very wrong. Apologies if I sound over the top here, but evolution is a subject that is very easy, and that people still manage to arse up frequently and often.

Evolution theory didn't start with Darwin, he just found the good evidence. Here's how: Darwin was the naturalist on the HMS Beagle. He got the captain to drop him off on one side of the South American continent and made his way across it while the Beagle went round the southern tip. When he met up with the Beagle on the western seaboard, they went to the Galapagos Islands. Here, Darwin saw birds that were very similar, but with minor differences that enabled them to survive better on the Galapagos Islands. Things like beak alterations that allowed easier cracking of nuts, a more common food source on the islands than mainland South America.

Indeed, he found varieties on different islands that were of the same species, but of differing characteristics. Considering the evidence, it was clear that minor variations had become amplified over many generations. Not historical evidence at all, you see. Noticing that Nature produces different breeds of the same species in the same way that husbandry produces different breeds of dog.
I'm sorry, but I agree with Current on that specific point, if not the conclusion.  All of what you have described is observational evidence.  Historical evidence is one form of observational evidence, and it tends to be a bad one, for it is anecdotal in nature.  Such evidence is acceptable to come up with a hypothesis, but not a theory.  The specific evidence you proffered is also anecdotal in nature.     

It certainly seems simple and obvious that if a genetic pool is variable and inheritable, and predators and starvation kill those with poor genes, that this will inevitably lead to animals with better average genes.  However, keep in mind that libertarians and creationists think that their pet concepts are equally simple and obvious.

If Darwin had taken a statistical sampling of birds to analyze beak size over generations, then of relationship between beak size and survival rate, he would have collected a non-anecdotal and stronger form of observational evidence, that suggests that there is a correlation between time and the development of adaptations that improve odds of survival.

To clarify: Anecdotal Observational Evidence<Non-Anecdotal Observational Evidence<Experimental Evidence

Evolution really isn't able to collect true Experimental Evidence, due to genetic changes happening over too long a period of time.  The same is true for Geology and Astronomy.  However, due to the strong amounts of observational evidence that has been collected for them, in addition to experimental evidence taken from other fields as support, such as Biology showing that genetic quality is inheritable, they are generally accepted.

Back to the main question, Economics.  Though I'm not really up to date on the terminology, Macroeconomics appears to be observation only, but Microeconomics is definitely something that can be done in experiments.  I agree with Medivh that the problem is applying microeconomic concepts to macroeconomic situations.  Microeconomic experiments represent isolated circumstances and don't incorporate the full range of human behavior, as Current as pointed out, many of the experiments that indicate irrational behavior can also be shown to be a product of heuristics that would make sense in day to day situations, but not the experiment.  Unfortunately, that doesn't tell us when a heuristic that makes sense to someone starts to be used in a situation where it doesn't frequently.

Evolutionary biology and economics are very interlinked and similar subjects.  Today they both use a different sort of method to that you describe.  In economics a set of ideas about how people behave in small scale situations are constructed, so called "microfoundations".  Then how those microfoundations affect other larger-scales is investigated.  The same sort of thing is done in evolutionary biology.

The difference is that scientists have produced evolution in bacterial culture. Set E. Coli in culture with minimal food apart from citrine, and the bacteria will, given a few thousand generations, become able to consume citrine. While Darwin wasn't able to do experimentation to prove evolution, we can. Economies are somewhat more... troublesome?... to replicate like that.
I stand correct about the experimental part.  However, Citrine is a form of quartz, do you mean Citrate, which is a salt of an organic acid and thus more edible?


Title: Re: [BLOG] Cars and Class Warfare
Post by: rwpikul on December 27, 2008, 22:27:47 EST
I'm sorry, but I agree with Current on that specific point, if not the conclusion.  All of what you have described is observational evidence.  Historical evidence is one form of observational evidence, and it tends to be a bad one, for it is anecdotal in nature.  Such evidence is acceptable to come up with a hypothesis, but not a theory.  The specific evidence you proffered is also anecdotal in nature.     

You are incorrect in two ways, first:

Observational evidence, including historical, is fully useful in developing a theory, you just need to be able to predict what observations you should make.  For example, Tiktaalik fossils were predicted both in description and general location long before any were actually found.

Quote from: wodan46
Evolution really isn't able to collect true Experimental Evidence, due to genetic changes happening over too long a period of time.

Second:

Work on things like Drosophilidae and bacteria have very much been experimental, including things like induced speciation and the development of novel adaptations.


Title: Re: [BLOG] Cars and Class Warfare
Post by: wodan46 on December 27, 2008, 23:03:34 EST
You are incorrect in two ways, first:

Observational evidence, including historical, is fully useful in developing a theory, you just need to be able to predict what observations you should make.
Observations that can lead to correct predictions about future details are indeed science, at least if they are consistent about it.

Nevertheless, it is weaker than experimental evidence, in that it is less able to demonstrate cause.  Also, historical evidence does not lead directly to strict predictions in the way that other observational evidence might.  I suspect we are interpreting the term historical evidence differently though.


Second:

Work on things like Drosophilidae and bacteria have very much been experimental, including things like induced speciation and the development of novel adaptations.
I already admitted I was wrong on that.


Title: Re: [BLOG] Cars and Class Warfare
Post by: Medivh on December 28, 2008, 01:36:14 EST
I'm sorry, but I agree with Current on that specific point, if not the conclusion.  All of what you have described is observational evidence.  Historical evidence is one form of observational evidence, and it tends to be a bad one, for it is anecdotal in nature.  Such evidence is acceptable to come up with a hypothesis, but not a theory.  The specific evidence you proffered is also anecdotal in nature.     

I disagree that Darwin's evidence was anecdotal. He recorded it in as formal a way as was available to him, and in such a way as would allow anyone with the time and inclination to replicate his observations. Anecdotes fail as scientific evidence because they fail to be repeatable.

Citrine is a form of quartz, do you mean Citrate, which is a salt of an organic acid and thus more edible?

Yes, it was citrate. Tending more towards the physical sciences, I'm more familiar with minerals that come out of mines than organic chem. If only slightly.

(Actually, I think it was a game that I played, that had citrine crystals in it, as a distraction)


Title: Re: [BLOG] Cars and Class Warfare
Post by: wodan46 on December 28, 2008, 11:01:59 EST
I think that we can define that the key aspect of science is the ability to make repeatable and testable statements about how the world works, that can be used to successfully make future predictions.


Title: Re: [BLOG] Cars and Class Warfare
Post by: Heq on December 29, 2008, 20:56:29 EST
Blue boy, actually, there is a lot of work on the mirco/macro theory, but you won't hear about much of it in economics class, indeed, you will hear little of it in university for the next 10-20 years, because the vast majority of the work hails from...duh-dun-duh outside of academia.

Academia is really good with long term theories, but very, very bad with new stuff (the peer review method is a system which enforces a status quo), talking about chimera and value structures is really wiffley to boot and there is no concise language.

Imagine if the world was written by german philosophers, that's kind of what it is.  Just plain old f'in ugly.  Part of why people still cling to Kapital and to Prodhon's work is because it, well, it is a complete system in a language which is sensible.  Foucault is probably the closest to accessible, but I actually like Jom Jubak's musing on micro-macro when he gets on it.  I hope that man writes textbooks some day, but sadly, he makes much more money not writing textbooks.

There is very little reason for people who legit understand money to stay in academia, unless they either have a religious/social opposition to money or attach very little value to it.  This means that the only people who stay within academia who really, really, understand economics come from money, and that is a hella dangerous bias.


Title: Re: [BLOG] Cars and Class Warfare
Post by: wodan46 on December 29, 2008, 22:41:34 EST
Blue boy, actually, there is a lot of work on the mirco/macro theory, but you won't hear about much of it in economics class, indeed, you will hear little of it in university for the next 10-20 years, because the vast majority of the work hails from...duh-dun-duh outside of academia.

Academia is really good with long term theories, but very, very bad with new stuff (the peer review method is a system which enforces a status quo), talking about chimera and value structures is really wiffley to boot and there is no concise language.

Imagine if the world was written by german philosophers, that's kind of what it is.  Just plain old f'in ugly.  Part of why people still cling to Kapital and to Prodhon's work is because it, well, it is a complete system in a language which is sensible.  Foucault is probably the closest to accessible, but I actually like Jom Jubak's musing on micro-macro when he gets on it.  I hope that man writes textbooks some day, but sadly, he makes much more money not writing textbooks.

There is very little reason for people who legit understand money to stay in academia, unless they either have a religious/social opposition to money or attach very little value to it.  This means that the only people who stay within academia who really, really, understand economics come from money, and that is a hella dangerous bias.
In retrospect, all of what you said should be obvious, but having it put out like that is rather depressing.  All those competent at economics are busy making money, while the economists that actually teach economics are the ones who are full of ulterior motives and/or crappy theories that are then foisted upon the general public and decision makers.


Title: Re: [BLOG] Cars and Class Warfare
Post by: Blue Boy from Red Country on December 30, 2008, 13:40:36 EST
Blue boy, actually, there is a lot of work on the mirco/macro theory, but you won't hear about much of it in economics class, indeed, you will hear little of it in university for the next 10-20 years, because the vast majority of the work hails from...duh-dun-duh outside of academia.

Academia is really good with long term theories, but very, very bad with new stuff (the peer review method is a system which enforces a status quo), talking about chimera and value structures is really wiffley to boot and there is no concise language.

Imagine if the world was written by german philosophers, that's kind of what it is.  Just plain old f'in ugly.  Part of why people still cling to Kapital and to Prodhon's work is because it, well, it is a complete system in a language which is sensible.  Foucault is probably the closest to accessible, but I actually like Jom Jubak's musing on micro-macro when he gets on it.  I hope that man writes textbooks some day, but sadly, he makes much more money not writing textbooks.

There is very little reason for people who legit understand money to stay in academia, unless they either have a religious/social opposition to money or attach very little value to it.  This means that the only people who stay within academia who really, really, understand economics come from money, and that is a hella dangerous bias.
In retrospect, all of what you said should be obvious, but having it put out like that is rather depressing.  All those competent at economics are busy making money, while the economists that actually teach economics are the ones who are full of ulterior motives and/or crappy theories that are then foisted upon the general public and decision makers.

Heq is good at that. ;)

Thanks for throwing a few names out, by the way, Heq. It'll give me a place to start to satisfy my curiosity.


Title: Re: [BLOG] Cars and Class Warfare
Post by: Heq on December 31, 2008, 02:50:19 EST
It should read Jim Jubak

http://articles.moneycentral.msn.com/Investing/JubaksJournal/SelectionsFromJubaksBookshelf.aspx

I don't advise all of these works, but I'm biased and fully accept that what is written in Heq-language may make no sense to someone else and visa-versa.  C'est la Vie, though I think Ghengis Khan and the Making of the Modern World (I think that's the title) contains much more insight once you get an eye for money, as the Mongols basically caved an empire out of money (and men, but it was the money that held the whole thing together for a short while).

Let me just look to my right, okay, Naill Ferguson is currently on my reading list, and is a good overall text from what I've cracked into so far.  It's not OMGWTFBBQ stuff, it's an orthodox history of cash flow (to some degree), but it's not going to go on at length about Kublai Khan and Fiat currency (the man is a fucking finacnial genius).

Simone Weil's Oppression and Liberty contains the greatest critique of marxism around, well written and insightful.  She's a Jewish Nietzschian who believes in the unique salvation of Christianity and eventually died in a madhouse (and should have been made a saint), but her insights into how markets interact is brilliantly simple.  Essentially it's a combination of obfuscantism which constantly holds that someone else must be the one in charge, but that the system is self-perpetuating and is a permenant part of social interaction.

I keep it next to my copy of the Communist Manifesto and other works, just so I am never tempted to see them as rational.

If you have any specific fields I can probably at least give you a rough pointer, though I will dick-ride the Medici.


Title: Re: [BLOG] Cars and Class Warfare
Post by: Current on December 31, 2008, 11:42:02 EST
Quote from: Current
Quote from: Current
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The Marxist crisis theory is slightly different, that value gets stuck in the from of commodites causing a falling rate of profit, again if we look we also notice this is true, capitalists faced with sudden drops in their returns and nowhere to invest hoard their money, causing smaller capitalists to run out of credit causing them to go belly up causing underconsumption.
What you describe here is simply what Austrians call "misallocation" or what Monetarists/Neo-Keynesians call "disacallocation".  The wrong things are made and people don't want them.  This is obviously not a fatal situation.  The solution is simply to look at what people do want and make it.
This is different in both LTV crisis theories it is not that people don't want the commodities it is that people can't afford to consume the commodites.  For example right now across the board consumption is down, there is not a single industry that is not currently contracting, thus looking at what people want is not a solution since the problem is that people can't afford to consume the products of society.
What though pays for products?  Marxists claim to be able to see through the illusions of money.  I'm not sure though that you are doing so in this case.

Goods and services are paid for with money.  Money itself is bought with other goods and services.  No situation where people "cannot afford to consume" can exist for long.  All of those who sell products must, if they are to sell at all, sell at market prices.  If their prices are so high that no-one is buying them they must reduce those prices.  The same applies to companies selling products as workers selling labour.

The amount of hours of "dead labour" supposedly inhered in existing goods and capital does not matter.
That assumes C-M-C or M-C-M yet not M-C-M1.
No.  I take the position of all modern marginalist economists, which is that all three of those sorts of transactions occur.

For those following this discussion who aren't familiar with it I'll explain what those mean....

All of these are trading activities.  C-M means to exchange goods for money, M-C to exchange money for goods.  C-M-C means to exchange goods for money then to exchange that money for different goods.  M-C-M1 means to exchange money for goods then to trade those for a larger quantity of money.  M-C-M means to do the same but for the same quantity of money.

In Marxism a C-M-C transaction is one that occurs in a pre-capitalist society.  The baker exchanges his bread for money then buys cutlery with his money from the blacksmith.  Or it can mean the exchange process of a worker.  A M-C-M1 transaction is what a capitalist attempts.  He or she invests money in capital, stock, and labour and tries to produce a product that has a higher exchange value than the inputs.  M-C-M is to break even.

As soon as you add profits into the system you have a demand gap where there is more exchange value in the system then ability to consume.
You don't simply "add profits into the system".  A market economy is not something constructed by design.  Profit is not a tax that is taken by businesses.  Rather a business is able to charge a profit because the market for its outputs yields a higher price than the market for its inputs.

Let's say that the price of a good does not necessarily have any relation to the labour that went into producing it.  This is the reality of the matter.  If a producer is selling a product what does he do if he can't sell it for a profit?  Does he hold on to it?  Obviously not forever, he must cut the price and sell at break-even or for a loss.  Once that happens where is the demand gap?

This is solved by expansion,
By whom?  This is a strange line of reasoning.  Are we to believe that some capitalist thought of expansion as a means of preventing the problem you see and secretly told all other capitalists?

the greater inputs for the next production cycle mops of the excess exchange value in the current production cycle (meaning a significant chunk of profits are re-invested into expanding production) , the problem is if you don't have expansion this excess exchange value becomes unconsumed and you have underconsumption (in Classical economic theory) or overproduction (in Marxist economic theory)
It does not simply happen by accident that expansion and profit occur at the same time.  They are inter-related.

The entrepreneur finds an amount of money, M.  He or she then buys capital, stock, labour etc with that, with the intention of making a prifit, by selling the results for more than M.  This is not something anyone can do.  A person cannot take M buy with it any old bunch of stuff to make up C and be sure that they can sell the output of that for more than M.  Doing it requires knowledge and intelligence.  If anyone could do it then managing a portfolio of investments would earn minimum wage.

As I said earlier, a successful business is one where the market value of the outputs exceeds that of the inputs.  Broadly speaking this occurs because the use-value of the outputs exceeds the inputs.  Hence expansion and profits are often associated.

Which brings me to the main point... In Classical or Marxist theory we are talking about underconsumption or overproduction of what?  This is matter for what is called "Say's law", a piece of Classical economics.  What consitutes "demand" for goods?  In economics it is just ability to pay, ability to pay either with other goods or with money.  If we discount money then goods and services are demanded using other goods and services and supplied using other goods and services.  In this case there can be no underconsumption or overproduction in any economic sense.  The situation in a crisis is not "overproduction" or "underconsumption" in a general sense rather the wrong things have being produced.  Trade descreases because of misallocation.

Once a crisis has begun though it may lead to an increase in demand for money rather than goods and services, and/or a decreasing demand for labour.
Here is the problem, profit means there has to growth,
Not necessarily.  I agree that profit and growth are linked, but both can exist without the other.  I agree though that it is unlikely that there will be good profits in times without growth.

if revenues are stagnant then you just have M-C-M.
No.  What determines if profit is produced or not by some business is the cost it can sell its products for compared to the cost that it can buy its inputs for.  If there is no growth in the economy that does not necessarily mean that each business breaks even.  It doesn't mean that on aggregate profit will be zero either. 

If you think that it does then please show us why.

Meaning in the next production period you are also going to have more commodities (thus it is really M-C-M1-C1-M2).  Now since every period the output of the last period become input of the next it means when you a fall in demand in consumer goods it ripples causing a fall in the demand for expanding the means of production causing a feed back loop.
Let us say at the start of year 1 there exists an amount of money M1 which is spent by businesses.  They use this to buy products C1.  Note it is not these products that the businesses sell, in most cases they are made into new products.  Let us call those D1.  Only speculators buy and sell products without changing them.  The same logic applies to services.  Those products are sold by the businesses in question for an amount of money I'll call M2.  In year 2 businesses spend M3 to buy products produced in earlier production cycles.

So we have:
M1->C1->D1->M2 ... M3

The use-value of C1 and D1 are not necessarily related.  If businesses have done their job, and the profit motive makes that very likely, then the price of D1 will exceed C1.  This again makes it likely that the use-value of D1 will exceed C1.  (But it is not certain and even then the question use-value-to-whom? is hard to answer).

Also, the amount of money invested in the next accounting period is not necessarily related to that invested in the previous.  Money may lie dormant for many periods.  So, the equations you quote don't tell us anything.

What we do know however is Say's law.  This indicates that there will be a recovery.  You can read about it here (http://mises.org/journals/qjae/pdf/qjae4_4_2.pdf).

As for the idea of misallocation, it doesn't work, if there was profitable investment investors would find it, the problem is that there is not enough profitable investment in the system to consume all investment money in the system.
The problem is that misallocation has occurred in the past.  It occurred during the boom.  What we are now suffering from is the knock-on effects of that misallocation.

You are correct though that if there were profitable investments then investors would find them.  This is what will happen.

You may be right to say that there are large amounts of investment funds chasing few good investments.  In this case even low yielding investments will be valued relatively highly and returns will be poor in the immediate future.

Quote from: Current
Quote from: Current
Quote from: Current
As for Austrian economics, they blame all capitalist crisis on contraction of the money supply
No they don't.  Austrian blame crises on the Federal Reserve control of money supply disrupting the structure of production.  It is quite a complicated theory, I can't really summarize it easily.  You can read about it on the internet.
I have and they totally ignore realities, even with record low interest rates we are facing major deflation of the money supply, your money is going farther today then it did in June as fictional capital evaporates and value gets frozen in the form of unsold commodities.  The Federal Reserve is failing so you can't blame the crisis on them, the world is still facing huge deflation as value freezes up more.  Austrian economic theory predicted inflation not deflation and they still are predicting inflation while commodity prices are dropping like a rock, their theory can't come to terms that we are facing deflation and not inflation.  You have deflation because consumers can't consume and capitalists can't accumulate more capital so both hoard their money causing a reduction of money in circulation.
You don't understand Austrian economic theory.  In a situation like this it holds the both the possibility of deflation or inflation open.

The case Austrian economists make for blaming the Federal Reserve is that their past actions, particularly the very low interest rates of recent years, brought about the crisis.  What the Fed can or cannot do now has nothing to do with the causes of the crisis.

Also, it is not true that Austrian economists predict inflation as the outcome of crises like this.  They hold both the possibilities of inflation and deflation open.  F.A. Hayek pointed out that the central bank does not control the amount of current account money ("M1") but controls the amount of reserves.  Therefore central bank attempts to increase the money supply may fail if the commercial banks are not willing to use their reserves to create more loans.  This is the situation we are in now.
That ignores the stagnation of the 1970's, and the continued fall in the rate of profit since the 1970's in production.  You can't blame the Federal Reserve for saving capitalism from stagnation by beefing up financial capital.
Austrian theory does not preclude "stagnation" happening whether or not there is a crisis.  If entrepreneurial decisions are bad or there is much misguided government interference then it indicates that there may be stagnation or recession.

Nor does Austrian theory preclude falling rates of profit in production.  To begin with I have seen no evidence that such a falling rate of profit has occurred.  However even if it has it is not really very relevant.  Production of physical goods is not the only productive economic act.

I don't really know what you mean by the last sentence.
The highest rate of profit was during the long boom, the world has never recovered to the rate of returns that existed during that period.
Well, I can believe that.  Do you have any evidence for it though?

This stagnation is not just with physical goods but the entire productive sectors of the world economy.  My last sentence means was that the Federal Reserve faced with stagnation of the productive sectors of the economy shifted focus to growing speculation.
I agree that there was stagnation in the 1970s.  Mostly caused by the economic policies of the 60s and 70s.

There were many causes of recovery.  One of them was deregulation, which is I think what you are talking about.  But, all the governments and central banks can be credited with here is that they stepped aside and removed restrictions that they had put in place in earlier decades.

Quote from: Current
Quote from: Current
You have deflation because consumers can't consume and capitalists can't accumulate more capital so both hoard their money causing a reduction of money in circulation.
Yes.  Such a situation is only temporary though.  Consumers still need to eat and do other things.  Capitalists are in a similar position.  It may be wise for an investor to dissolve his lowest-performing investments in a crisis like this.  It makes no sense though to dissolve those which are continuing to perform.
Japan went through deflation for a decade so no it is not a temporary condition since stagnation naturally causes the conditions for deflation.
Japan went through deflation for a decade, the UK went through it for nearly all of the 19th century.  Deflation itself is not particularlybad or particularly interesting.

What I was talking about here is your statement about the liquidity trap "both hoard their money causing a reduction of money in circulation."  As I said above such a liquidity trap is only temporary.  A person may put more of their wealth in money, but they are not going to put it all in money.

In an economy with flexible prices the liquidity trap is temporary.  Once vendors realise they cannot sell for a profit they are forced to sell for a loss.  Japan in it's "lost decade" was not such an economy.  The government intervened to prevent prices from being flexible.
Once capitalist realize they cannot sell for a profit they invest elsewhere, if they can't invest elsewhere they go belly up.
That's a rather simplistic way to look at it.  Let's say a sole capitalist owns an unprofitable enterprise.  He thinks there is nowhere better he can invest.  So, he has to sell this business or liquidate it.  What happens then?  Will the capitalist hoard all his money?  Obviously not, to begin with he must live and must therefore spend.  Also, he will continue to search for profitable enterprises.  He can also invest in commodities that have scarcity value such as precious metals or land.

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Quote from: Current
Come on Austrian economics is not taken seriously by any reputable University in the world, most economists treat Austrian economists as religious freaks that deal in blind faith rather then science.  They don't back any of their theories with mathematical models, they reject the scientific method and instead totally rely on axioms.   Austrian economics is creationism of economists, it can't back up its theory with a shred of science and throws out any science that contradicts their beliefs.
Well, I'd agree with some of your criticisms of Austrian economics.  However....  Austrian economics certainly is treated seriously by other Universities and by many economists.  George Mason University and Auburn University both employ professors who profess to be Austrian economists and teach course in the subject.

Certainly some Austrian economist do take the view of Ludvig von Mises that all important economics can be derived from simple almost axiomatic rules of human behaviour.  However, these Miseans are only one group within Austrian economics.  I certainly don't agree with them.

You are correct that most Austrian economics does not involve mathematical models, some though does.  Having a mathematical model though does not necessarily make a theory correct a bad theory may still have a mathematical model.  Also, a theory that has a mathematical model is not more defensible than one that doesn't.
Mathematical models even abstract ones like those in Marxist economic theory show people what you are talking about.
But you don't necessarily have to use mathematical models.  In this discussion so far we have not done so yet I think it's still clear what we are talking about.  Mathematics is appropriate in some cases and inappropriate in others.
The math allows for economics to plug in numbers to show what is going on.
Really?  Well, why don't you do so?  I have seen a great deal of theory about how the labour theory of value can be used to analyze economies.  I have not seen many attempts to actually do it.  That said I'll have a read of Dumenil and Levy's.

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Well for starters Austrain economics lectures in Universities are usually laughably small, there is little point in Universities holding courses for a theory that is highly unpopular.  In contrast lectures on classical and Marxist economic theories can pack a lecture hall and there is far more subject matter to cover in classical and Marxist economic theory compared to Austrain economics since Austrain economic theory is no where as dense as other economic theories.
Hmm, I'm not sure what you mean by "dense".
Classical and Marxist economy theory explains the difference between a individual relationship to a commodity through use-value and a social relationship through buying/selling a commodity via its exchange vale,
Afraid not.  The Austrians talk about that all the time.  See "Human Action" by Ludvig Von Mises or the books about capital by Bohm-Bawerk.
I meant the clear distinction between use-value, exchange value and the act of using a commodity and buying/selling a commodity.  When you use a watch you are not changing its exchange value, if you use a watch that belongs to a store you are not stealing value as the watch has the same exchange value.
Read some of Bohm-Bawerk and Ludvig Von Mises.  They discuss this, at length.

Also, you are wrong about the watch.  It has use-value to a person or organization to have the use of product for a period of time.

For example, lets say a person takes watch that belongs to a store for a year and then returns it.  Even if the watch has not being damaged the business has lost the use of it for that year.  Bohm-Bawerk mentions this, the example he gives is a carpenter's plane.

This brings me back to an example I used earlier.  Imagine a person is offered a house for a price.  The person can either have the house now, or in one years time.  Clearly almost any person would choose to have the house straight away rather than waiting.

Quote from: Current
Austrain economic theory pretty much doesn't go into political economy.
That's an interesting criticism.  Mostly economists say that Austrian economics is obsessed by it.  Everything by Ludvig Von Mises is full of Political economy.
Actually no, they pretend class doesn't exist as so the political relationship between worker and owner doesn't exist.
They discuss it frequently.  Read "The Road to Serfdom" by F.A. Hayek or "Socialism" or "The Anti-Capitalistic Mentality" by Von Mises.

Quote from: Current
The rate of profit is (surplus-value)/(capital invested), meaning a falling rate of profit means diminishing rate of returns on investments.   So what did Marx mean by this?  He was saying as constant capital grows the rate of profit tends to fall. 

So what happened?  In the 1970's a high concentrated of constant capital caused a fall in the rate of profit in the west, this was solved by moving production to where capital was not concentrated, and the result was it only delayed the fall in the rate of profit.
Can you show this?  Do you have any charts of rate or profit to back up your statements?
In Wiki (http://en.wikipedia.org/wiki/Tendency_of_the_rate_of_profit_to_fall)
"There is also some statistical evidence that, as a broad historical trend, average profitability in industry has fallen through the 20th century (see, for instance, Robert Brenner and the research of Dumenil & Levy for the time after the second world war)."
Well, it's difficult for me to critcise Brenner without buying his book since the pages claiming to show diminishing rate of profit are not included in the google preview.

Similarly most of Dumenil & Levy's work is behind paywalls (oh, the irony!).  I have though found one paper "Profit Rate: Gravitation and Trends" which I'll comment on later.

Also in the notes of David McNally (http://marxandthefinancialcrisisof2008.blogspot.com/2008/12/david-mcnally-from-financial-crisis-to.html) annalist on the recent crisis he cites works of other economists that have analyzed the falling rate of profit. 
Well, I read McNally's paper, it doesn't give any evidence for the tendency of the rate of profit to fall.  It is financial commentary with Marxist arguments.  In his note McNally cites Brenner.

Quote from: Medivh
Quote from: Medivh
Of course this view ignores LTV,
Indeed.  I always ignore LTV, because it is rubbish.  I have explained why many times in other threads.
Yet LTV is best measure of exchange value.
Can you show this?  Could you for example show a measurement of the price of some goods and the amount of labour it took to make them?
Can you show use-value is a better measurement of exchange value? 
I'm not claiming that use-value is a better measurement of exchange value.  What I'm claiming is that labour value is not an accurate measure of exchange value.  In marginalist economics exchange value/price of a good is determined by many things; the use-value of the commodity to the consumers who could buy it, the funds those consumers have, by it's scarcity, and by the price prevailing in markets for goods that could subsitute for the good in question.  The use-value is not something that can be objectively measured, it is something individual.  It is difficult to make a valid comparison because of the individual nature of use-value, it concerns what individuals think so it can't be easily dealt with en masse.  The opinion of many individuals cannot be summarized in a number. So, in marginalist economics no equation can be written down to predict what the price of a particular good will be.  (This doesn't mean though that marginalist economics doesn't make predictions, it does, but they are not this specific).

Most of these ideas are contained in the analysis of supply and demand by the classical economists which is used by Marx.  All that is missing is cross-substitution.  This is the idea that one good that performs a job competes with others that perform similar jobs.  So, pizza restaurants compete with chinese restaurants and compete with cooking at home.  Cross-substitutability hardly needs experiments to demonstrate its validity though we see it every day.

On this subject what differentiates Marxism from Marginalism is not that we marginalist make much different claims.  The difference is that Marxists make more claims.  Both sides say that there is demand which concerns use-value and ability to pay.  Both sides say there is supply which concerns scarcity, entrepreneurship and other markets.  Marginalists add that there is cross substitution, Marxists don't mention this but can hardly deny it.  Then Marxists go on to claim that the supply vs demand process of price setting is relevant only in the short-run.  They claim that in the long run the labour theory of value takes over.  Over the long terms the other factors in supply and demand are supposed to be neutralised.

For this reason I think it is your job to back up why you think LTV is valid.

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that the more productive autoworkers are the less exchange value they produce since there is a finite demand for cars and it is shrinking, thus increased productively would only result in cars having less exchange value that would mean increased productively would only lead to less profits.
Now that's interesting reasoning.... Let us say auto workers are more productive.  If they were what would that mean?  Costs to produce a car may be lower.  In this case the price to the consumer may fall due to competition, if the methods of increasing productivity were known to all manufacturers.

This though tells us nothing about profits.  An investor or entrepreneur does not make profits by taxing his workforce.  He or she makes high-level decisions about where investment funds are to go, which projects and ventures are likely to be profitable and which aren't.  Profits and losses depend on how good these decisions are.
If the capitalists can't expand demand through lower prices then the overall exchange value produced by the automaker is lower.
Yep.  I fail to see how this is an argument against what I have said.
The more productive the factory is at making cars the less value the factory makes if demand is fixed.  This is the paradox of capitalism were progress means less exchange value when the driving force of the system is to maximum exchange value.
If a factory is more productive at making cars then it does not produce cars that have lower use-value.  If this car company in question has made productivity improvements that other companies have not then it will be able to sell cars for a similar price to those others and make more profit.  If other car manufacturing businesses have all made similar improvements then the price of cars will fall.  For this reason in a growing economy with a fixed amount of circulating money there is likely to be price deflation.

All this means is that any entrepreneur who wants to make a profit must know how to combine the factors of production together well to do so.

If, for some reason, demand is stationary in one sector then those businesses competing in it must deal with that.  This does not mean that making profit in such a sector is impossible.  I agree though that it makes things more difficult.

None of this is a "Paradox of Capitalism".  To begin with how can something that isn't designed by man have paradoxes?  It's like saying that the paradox of a Mango is it's striving for greenness on the outside and orangeness on the inside.  What though Marxist mean here is quite simple.  Individual businesses attempt to make themselves as profitable as possible.  Overall though the forces of competition limit their profits, this is obvious.  It doesn't mean though that zero profit is necessarily the end result.

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What you mean is level of exploitation, that UAW workers are not as exploited as their non-union counterparts, meaning more exchange value goes to UAW workers then goes to non-union workers.
Exploitation in the Marxist sense is a creature spawned from LTV.  It only makes sense in that context.  Since LTV does not make sense the Marxist concept of exploitation does not either.
Not everyone thinks LTV is senseless.
No.  In my view though to argue for "exploitation" in the Marxist sense first you must produce a solid argument for LTV.
Value is created in the production process,
Value -that is use-value or price- is not the exclusive product of the production process.  In terms of the types of value that can be sensibly discussed, use-value and price.

labor is key to the production process.
That does not close the case unfortunately, as we have discussed before.


Title: Re: [BLOG] Cars and Class Warfare
Post by: Psy on December 31, 2008, 14:32:47 EST
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The Marxist crisis theory is slightly different, that value gets stuck in the from of commodites causing a falling rate of profit, again if we look we also notice this is true, capitalists faced with sudden drops in their returns and nowhere to invest hoard their money, causing smaller capitalists to run out of credit causing them to go belly up causing underconsumption.
What you describe here is simply what Austrians call "misallocation" or what Monetarists/Neo-Keynesians call "disacallocation".  The wrong things are made and people don't want them.  This is obviously not a fatal situation.  The solution is simply to look at what people do want and make it.
This is different in both LTV crisis theories it is not that people don't want the commodities it is that people can't afford to consume the commodites.  For example right now across the board consumption is down, there is not a single industry that is not currently contracting, thus looking at what people want is not a solution since the problem is that people can't afford to consume the products of society.
What though pays for products?  Marxists claim to be able to see through the illusions of money.  I'm not sure though that you are doing so in this case.

Goods and services are paid for with money.  Money itself is bought with other goods and services.  No situation where people "cannot afford to consume" can exist for long.  All of those who sell products must, if they are to sell at all, sell at market prices.  If their prices are so high that no-one is buying them they must reduce those prices.  The same applies to companies selling products as workers selling labour.

The amount of hours of "dead labour" supposedly inhered in existing goods and capital does not matter.
That assumes C-M-C or M-C-M yet not M-C-M1.
No.  I take the position of all modern marginalist economists, which is that all three of those sorts of transactions occur.

For those following this discussion who aren't familiar with it I'll explain what those mean....

All of these are trading activities.  C-M means to exchange goods for money, M-C to exchange money for goods.  C-M-C means to exchange goods for money then to exchange that money for different goods.  M-C-M1 means to exchange money for goods then to trade those for a larger quantity of money.  M-C-M means to do the same but for the same quantity of money.

In Marxism a C-M-C transaction is one that occurs in a pre-capitalist society.  The baker exchanges his bread for money then buys cutlery with his money from the blacksmith.  Or it can mean the exchange process of a worker.  A M-C-M1 transaction is what a capitalist attempts.  He or she invests money in capital, stock, and labour and tries to produce a product that has a higher exchange value than the inputs.  M-C-M is to break even.

As soon as you add profits into the system you have a demand gap where there is more exchange value in the system then ability to consume.
You don't simply "add profits into the system".  A market economy is not something constructed by design.  Profit is not a tax that is taken by businesses.  Rather a business is able to charge a profit because the market for its outputs yields a higher price than the market for its inputs.

Let's say that the price of a good does not necessarily have any relation to the labour that went into producing it.  This is the reality of the matter.  If a producer is selling a product what does he do if he can't sell it for a profit?  Does he hold on to it?  Obviously not forever, he must cut the price and sell at break-even or for a loss.  Once that happens where is the demand gap?

This is solved by expansion,
By whom?  This is a strange line of reasoning.  Are we to believe that some capitalist thought of expansion as a means of preventing the problem you see and secretly told all other capitalists?

the greater inputs for the next production cycle mops of the excess exchange value in the current production cycle (meaning a significant chunk of profits are re-invested into expanding production) , the problem is if you don't have expansion this excess exchange value becomes unconsumed and you have underconsumption (in Classical economic theory) or overproduction (in Marxist economic theory)
It does not simply happen by accident that expansion and profit occur at the same time.  They are inter-related.

The entrepreneur finds an amount of money, M.  He or she then buys capital, stock, labour etc with that, with the intention of making a prifit, by selling the results for more than M.  This is not something anyone can do.  A person cannot take M buy with it any old bunch of stuff to make up C and be sure that they can sell the output of that for more than M.  Doing it requires knowledge and intelligence.  If anyone could do it then managing a portfolio of investments would earn minimum wage.

As I said earlier, a successful business is one where the market value of the outputs exceeds that of the inputs.  Broadly speaking this occurs because the use-value of the outputs exceeds the inputs.  Hence expansion and profits are often associated.

Which brings me to the main point... In Classical or Marxist theory we are talking about underconsumption or overproduction of what?  This is matter for what is called "Say's law", a piece of Classical economics.  What consitutes "demand" for goods?  In economics it is just ability to pay, ability to pay either with other goods or with money.  If we discount money then goods and services are demanded using other goods and services and supplied using other goods and services.  In this case there can be no underconsumption or overproduction in any economic sense.  The situation in a crisis is not "overproduction" or "underconsumption" in a general sense rather the wrong things have being produced.  Trade descreases because of misallocation.

Once a crisis has begun though it may lead to an increase in demand for money rather than goods and services, and/or a decreasing demand for labour.
Here is the problem, profit means there has to growth,
Not necessarily.  I agree that profit and growth are linked, but both can exist without the other.  I agree though that it is unlikely that there will be good profits in times without growth.

if revenues are stagnant then you just have M-C-M.
No.  What determines if profit is produced or not by some business is the cost it can sell its products for compared to the cost that it can buy its inputs for.  If there is no growth in the economy that does not necessarily mean that each business breaks even.  It doesn't mean that on aggregate profit will be zero either. 

If you think that it does then please show us why.

Meaning in the next production period you are also going to have more commodities (thus it is really M-C-M1-C1-M2).  Now since every period the output of the last period become input of the next it means when you a fall in demand in consumer goods it ripples causing a fall in the demand for expanding the means of production causing a feed back loop.
Let us say at the start of year 1 there exists an amount of money M1 which is spent by businesses.  They use this to buy products C1.  Note it is not these products that the businesses sell, in most cases they are made into new products.  Let us call those D1.  Only speculators buy and sell products without changing them.  The same logic applies to services.  Those products are sold by the businesses in question for an amount of money I'll call M2.  In year 2 businesses spend M3 to buy products produced in earlier production cycles.

So we have:
M1->C1->D1->M2 ... M3

The use-value of C1 and D1 are not necessarily related.  If businesses have done their job, and the profit motive makes that very likely, then the price of D1 will exceed C1.  This again makes it likely that the use-value of D1 will exceed C1.  (But it is not certain and even then the question use-value-to-whom? is hard to answer).

Also, the amount of money invested in the next accounting period is not necessarily related to that invested in the previous.  Money may lie dormant for many periods.  So, the equations you quote don't tell us anything.

What we do know however is Say's law.  This indicates that there will be a recovery.  You can read about it here (http://mises.org/journals/qjae/pdf/qjae4_4_2.pdf).
I'm talking at a macro level.  M=all money in the system as a measure of all value in the system C=all commodities in the system (with money not considered a commodity in this case) thus M would equal C as M would be measuring the value of C.  So if the value of M equals the value of C then you can't increase the value of M without increasing the value of C (the value of money is directly linked to the value of commodities that money can buy).  Thus expanding profits at a macro level are only possible by expanding consumption of commodities.

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As for the idea of misallocation, it doesn't work, if there was profitable investment investors would find it, the problem is that there is not enough profitable investment in the system to consume all investment money in the system.
The problem is that misallocation has occurred in the past.  It occurred during the boom.  What we are now suffering from is the knock-on effects of that misallocation.

You are correct though that if there were profitable investments then investors would find them.  This is what will happen.

You may be right to say that there are large amounts of investment funds chasing few good investments.  In this case even low yielding investments will be valued relatively highly and returns will be poor in the immediate future.
Outside a centrally planned market it is impossible to properly allocate investment as it impossible for individual capitalists to balance the two departments of production (consumer commodities and industrial commodities) due huge differences in production cycles and huge differences in lifespans of fixed capital.

So Marx didn't believe misallocation was a good explanation for crises as misallocation is par for the course for capitalism yet capitalism is not always in crisis thus the theory of misallocation still doesn't explain why capitalism gets into crises.

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As for Austrian economics, they blame all capitalist crisis on contraction of the money supply
No they don't.  Austrian blame crises on the Federal Reserve control of money supply disrupting the structure of production.  It is quite a complicated theory, I can't really summarize it easily.  You can read about it on the internet.
I have and they totally ignore realities, even with record low interest rates we are facing major deflation of the money supply, your money is going farther today then it did in June as fictional capital evaporates and value gets frozen in the form of unsold commodities.  The Federal Reserve is failing so you can't blame the crisis on them, the world is still facing huge deflation as value freezes up more.  Austrian economic theory predicted inflation not deflation and they still are predicting inflation while commodity prices are dropping like a rock, their theory can't come to terms that we are facing deflation and not inflation.  You have deflation because consumers can't consume and capitalists can't accumulate more capital so both hoard their money causing a reduction of money in circulation.
You don't understand Austrian economic theory.  In a situation like this it holds the both the possibility of deflation or inflation open.

The case Austrian economists make for blaming the Federal Reserve is that their past actions, particularly the very low interest rates of recent years, brought about the crisis.  What the Fed can or cannot do now has nothing to do with the causes of the crisis.

Also, it is not true that Austrian economists predict inflation as the outcome of crises like this.  They hold both the possibilities of inflation and deflation open.  F.A. Hayek pointed out that the central bank does not control the amount of current account money ("M1") but controls the amount of reserves.  Therefore central bank attempts to increase the money supply may fail if the commercial banks are not willing to use their reserves to create more loans.  This is the situation we are in now.
That ignores the stagnation of the 1970's, and the continued fall in the rate of profit since the 1970's in production.  You can't blame the Federal Reserve for saving capitalism from stagnation by beefing up financial capital.
Austrian theory does not preclude "stagnation" happening whether or not there is a crisis.  If entrepreneurial decisions are bad or there is much misguided government interference then it indicates that there may be stagnation or recession.

Nor does Austrian theory preclude falling rates of profit in production.  To begin with I have seen no evidence that such a falling rate of profit has occurred.  However even if it has it is not really very relevant.  Production of physical goods is not the only productive economic act.

I don't really know what you mean by the last sentence.
The highest rate of profit was during the long boom, the world has never recovered to the rate of returns that existed during that period.
Well, I can believe that.  Do you have any evidence for it though?
There are many graphs on the Internet like http://www.wsws.org/articles/2006/mar2006/profit.jpg (http://www.wsws.org/articles/2006/mar2006/profit.jpg)

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This stagnation is not just with physical goods but the entire productive sectors of the world economy.  My last sentence means was that the Federal Reserve faced with stagnation of the productive sectors of the economy shifted focus to growing speculation.
I agree that there was stagnation in the 1970s.  Mostly caused by the economic policies of the 60s and 70s.
That doesn't explain why 60's showed the peak of profits under the same economic polities or why it was world wide economic stagnation with every industrial nation with a high concentration of fixed capital.

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There were many causes of recovery.  One of them was deregulation, which is I think what you are talking about.  But, all the governments and central banks can be credited with here is that they stepped aside and removed restrictions that they had put in place in earlier decades.
Nope, all the deregulation did was make bourgeoisie states subsidize profits, there was many finical crises since "deregulation" and every time governments borrowed to subsidized profits every time there was a market crash, the only difference is this crash is far too large for the major capitalist powers to bailout.


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You have deflation because consumers can't consume and capitalists can't accumulate more capital so both hoard their money causing a reduction of money in circulation.
Yes.  Such a situation is only temporary though.  Consumers still need to eat and do other things.  Capitalists are in a similar position.  It may be wise for an investor to dissolve his lowest-performing investments in a crisis like this.  It makes no sense though to dissolve those which are continuing to perform.
Japan went through deflation for a decade so no it is not a temporary condition since stagnation naturally causes the conditions for deflation.
Japan went through deflation for a decade, the UK went through it for nearly all of the 19th century.  Deflation itself is not particularlybad or particularly interesting.

What I was talking about here is your statement about the liquidity trap "both hoard their money causing a reduction of money in circulation."  As I said above such a liquidity trap is only temporary.  A person may put more of their wealth in money, but they are not going to put it all in money.

In an economy with flexible prices the liquidity trap is temporary.  Once vendors realise they cannot sell for a profit they are forced to sell for a loss.  Japan in it's "lost decade" was not such an economy.  The government intervened to prevent prices from being flexible.
Once capitalist realize they cannot sell for a profit they invest elsewhere, if they can't invest elsewhere they go belly up.
That's a rather simplistic way to look at it.  Let's say a sole capitalist owns an unprofitable enterprise.  He thinks there is nowhere better he can invest.  So, he has to sell this business or liquidate it.  What happens then?  Will the capitalist hoard all his money?  Obviously not, to begin with he must live and must therefore spend.  Also, he will continue to search for profitable enterprises.  He can also invest in commodities that have scarcity value such as precious metals or land.
Capitalists consumption is insignificant compared to the consumption of investment also you have a huge drop of consumption caused by lay-offs and lower wages.

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Come on Austrian economics is not taken seriously by any reputable University in the world, most economists treat Austrian economists as religious freaks that deal in blind faith rather then science.  They don't back any of their theories with mathematical models, they reject the scientific method and instead totally rely on axioms.   Austrian economics is creationism of economists, it can't back up its theory with a shred of science and throws out any science that contradicts their beliefs.
Well, I'd agree with some of your criticisms of Austrian economics.  However....  Austrian economics certainly is treated seriously by other Universities and by many economists.  George Mason University and Auburn University both employ professors who profess to be Austrian economists and teach course in the subject.

Certainly some Austrian economist do take the view of Ludvig von Mises that all important economics can be derived from simple almost axiomatic rules of human behaviour.  However, these Miseans are only one group within Austrian economics.  I certainly don't agree with them.

You are correct that most Austrian economics does not involve mathematical models, some though does.  Having a mathematical model though does not necessarily make a theory correct a bad theory may still have a mathematical model.  Also, a theory that has a mathematical model is not more defensible than one that doesn't.
Mathematical models even abstract ones like those in Marxist economic theory show people what you are talking about.
But you don't necessarily have to use mathematical models.  In this discussion so far we have not done so yet I think it's still clear what we are talking about.  Mathematics is appropriate in some cases and inappropriate in others.
The math allows for economics to plug in numbers to show what is going on.
Really?  Well, why don't you do so?  I have seen a great deal of theory about how the labour theory of value can be used to analyze economies.  I have not seen many attempts to actually do it.  That said I'll have a read of Dumenil and Levy's.
I assume you know of the abstract math of LTV

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Well for starters Austrain economics lectures in Universities are usually laughably small, there is little point in Universities holding courses for a theory that is highly unpopular.  In contrast lectures on classical and Marxist economic theories can pack a lecture hall and there is far more subject matter to cover in classical and Marxist economic theory compared to Austrain economics since Austrain economic theory is no where as dense as other economic theories.
Hmm, I'm not sure what you mean by "dense".
Classical and Marxist economy theory explains the difference between a individual relationship to a commodity through use-value and a social relationship through buying/selling a commodity via its exchange vale,
Afraid not.  The Austrians talk about that all the time.  See "Human Action" by Ludvig Von Mises or the books about capital by Bohm-Bawerk.
I meant the clear distinction between use-value, exchange value and the act of using a commodity and buying/selling a commodity.  When you use a watch you are not changing its exchange value, if you use a watch that belongs to a store you are not stealing value as the watch has the same exchange value.
Read some of Bohm-Bawerk and Ludvig Von Mises.  They discuss this, at length.

Also, you are wrong about the watch.  It has use-value to a person or organization to have the use of product for a period of time.

For example, lets say a person takes watch that belongs to a store for a year and then returns it.  Even if the watch has not being damaged the business has lost the use of it for that year.  Bohm-Bawerk mentions this, the example he gives is a carpenter's plane.
For that year the store wouldn't have the watch and of course you have devaluation over time.  My point is that if you used a watch in a store to tell time without taking it out of the store you didn't change its exchange value.

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This brings me back to an example I used earlier.  Imagine a person is offered a house for a price.  The person can either have the house now, or in one years time.  Clearly almost any person would choose to have the house straight away rather than waiting.
In LTV this is covered in differing lengths of production cycles.

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Austrain economic theory pretty much doesn't go into political economy.
That's an interesting criticism.  Mostly economists say that Austrian economics is obsessed by it.  Everything by Ludvig Von Mises is full of Political economy.
Actually no, they pretend class doesn't exist as so the political relationship between worker and owner doesn't exist.
They discuss it frequently.  Read "The Road to Serfdom" by F.A. Hayek or "Socialism" or "The Anti-Capitalistic Mentality" by Von Mises.
They really don't, they talk like the state is outside of the capitalist class, they talk like workers have equality with the capitalist class, they talk like capitalists have equality with each other.  The bailouts suggest otherwise that the state is mostly concerned with the affairs of the capitalist class and willing to help them at the expense of the well being of the working class and even at the expense of smaller capitalists. 

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The rate of profit is (surplus-value)/(capital invested), meaning a falling rate of profit means diminishing rate of returns on investments.   So what did Marx mean by this?  He was saying as constant capital grows the rate of profit tends to fall. 

So what happened?  In the 1970's a high concentrated of constant capital caused a fall in the rate of profit in the west, this was solved by moving production to where capital was not concentrated, and the result was it only delayed the fall in the rate of profit.
Can you show this?  Do you have any charts of rate or profit to back up your statements?
In Wiki (http://en.wikipedia.org/wiki/Tendency_of_the_rate_of_profit_to_fall)
"There is also some statistical evidence that, as a broad historical trend, average profitability in industry has fallen through the 20th century (see, for instance, Robert Brenner and the research of Dumenil & Levy for the time after the second world war)."
Well, it's difficult for me to critcise Brenner without buying his book since the pages claiming to show diminishing rate of profit are not included in the google preview.

Similarly most of Dumenil & Levy's work is behind paywalls (oh, the irony!).  I have though found one paper "Profit Rate: Gravitation and Trends" which I'll comment on later.
Okay

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Also in the notes of David McNally (http://marxandthefinancialcrisisof2008.blogspot.com/2008/12/david-mcnally-from-financial-crisis-to.html) annalist on the recent crisis he cites works of other economists that have analyzed the falling rate of profit. 
Well, I read McNally's paper, it doesn't give any evidence for the tendency of the rate of profit to fall.  It is financial commentary with Marxist arguments.  In his note McNally cites Brenner.
Right

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Of course this view ignores LTV,
Indeed.  I always ignore LTV, because it is rubbish.  I have explained why many times in other threads.
Yet LTV is best measure of exchange value.
Can you show this?  Could you for example show a measurement of the price of some goods and the amount of labour it took to make them?
Can you show use-value is a better measurement of exchange value? 
I'm not claiming that use-value is a better measurement of exchange value.  What I'm claiming is that labour value is not an accurate measure of exchange value.  In marginalist economics exchange value/price of a good is determined by many things; the use-value of the commodity to the consumers who could buy it, the funds those consumers have, by it's scarcity, and by the price prevailing in markets for goods that could subsitute for the good in question.  The use-value is not something that can be objectively measured, it is something individual.  It is difficult to make a valid comparison because of the individual nature of use-value, it concerns what individuals think so it can't be easily dealt with en masse.  The opinion of many individuals cannot be summarized in a number. So, in marginalist economics no equation can be written down to predict what the price of a particular good will be.  (This doesn't mean though that marginalist economics doesn't make predictions, it does, but they are not this specific).

Most of these ideas are contained in the analysis of supply and demand by the classical economists which is used by Marx.  All that is missing is cross-substitution.  This is the idea that one good that performs a job competes with others that perform similar jobs.  So, pizza restaurants compete with chinese restaurants and compete with cooking at home.  Cross-substitutability hardly needs experiments to demonstrate its validity though we see it every day.

On this subject what differentiates Marxism from Marginalism is not that we marginalist make much different claims.  The difference is that Marxists make more claims.  Both sides say that there is demand which concerns use-value and ability to pay.  Both sides say there is supply which concerns scarcity, entrepreneurship and other markets.  Marginalists add that there is cross substitution, Marxists don't mention this but can hardly deny it.  Then Marxists go on to claim that the supply vs demand process of price setting is relevant only in the short-run.  They claim that in the long run the labour theory of value takes over.  Over the long terms the other factors in supply and demand are supposed to be neutralised.

For this reason I think it is your job to back up why you think LTV is valid.
Because while adding use-value can add demand alone it usually doesn't add exchange value to a product, what does is usually labor value.  Like I said before the RIAA argument against piracy is not that it is useful therefore you should pay but that labor went into the creation of these works so you should pay, and the counter argument is that the artist don't get the bulk of the money from sales.

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that the more productive autoworkers are the less exchange value they produce since there is a finite demand for cars and it is shrinking, thus increased productively would only result in cars having less exchange value that would mean increased productively would only lead to less profits.
Now that's interesting reasoning.... Let us say auto workers are more productive.  If they were what would that mean?  Costs to produce a car may be lower.  In this case the price to the consumer may fall due to competition, if the methods of increasing productivity were known to all manufacturers.

This though tells us nothing about profits.  An investor or entrepreneur does not make profits by taxing his workforce.  He or she makes high-level decisions about where investment funds are to go, which projects and ventures are likely to be profitable and which aren't.  Profits and losses depend on how good these decisions are.
If the capitalists can't expand demand through lower prices then the overall exchange value produced by the automaker is lower.
Yep.  I fail to see how this is an argument against what I have said.
The more productive the factory is at making cars the less value the factory makes if demand is fixed.  This is the paradox of capitalism were progress means less exchange value when the driving force of the system is to maximum exchange value.
If a factory is more productive at making cars then it does not produce cars that have lower use-value.  If this car company in question has made productivity improvements that other companies have not then it will be able to sell cars for a similar price to those others and make more profit.  If other car manufacturing businesses have all made similar improvements then the price of cars will fall.  For this reason in a growing economy with a fixed amount of circulating money there is likely to be price deflation.

All this means is that any entrepreneur who wants to make a profit must know how to combine the factors of production together well to do so.

If, for some reason, demand is stationary in one sector then those businesses competing in it must deal with that.  This does not mean that making profit in such a sector is impossible.  I agree though that it makes things more difficult.
I was using the automotive industry as a macro example. 


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None of this is a "Paradox of Capitalism".  To begin with how can something that isn't designed by man have paradoxes? 
It's like saying that the paradox of a Mango is it's striving for greenness on the outside and orangeness on the inside.  What though Marxist mean here is quite simple.  Individual businesses attempt to make themselves as profitable as possible.  Overall though the forces of competition limit their profits, this is obvious.  It doesn't mean though that zero profit is necessarily the end result.

Capitalism is a human made social system like feudalism before it.

Quote from: Current
Quote from: Medivh
Quote from: Medivh
What you mean is level of exploitation, that UAW workers are not as exploited as their non-union counterparts, meaning more exchange value goes to UAW workers then goes to non-union workers.
Exploitation in the Marxist sense is a creature spawned from LTV.  It only makes sense in that context.  Since LTV does not make sense the Marxist concept of exploitation does not either.
Not everyone thinks LTV is senseless.
No.  In my view though to argue for "exploitation" in the Marxist sense first you must produce a solid argument for LTV.
Value is created in the production process,
Value -that is use-value or price- is not the exclusive product of the production process.  In terms of the types of value that can be sensibly discussed, use-value and price.
The value is born out of the production process.

Quote from: Current
labor is key to the production process.
That does not close the case unfortunately, as we have discussed before.
Useful stuff that requires no labor (like air) has no exchange value.


Title: Re: [BLOG] Cars and Class Warfare
Post by: Current on January 01, 2009, 19:09:31 EST
Economics isn't really a science.  Science requires you to make hypotheses, than test them in peer reviewed double blind studies and the like, before coming to a conclusion.  Economics loves to make nice big theories and only bothers to test them after the fact, if at all.  In regards to scientific rigor, that approach is is equivalent to Historical Analysis on a good day and Creationism on a bad one.
It's interesting that you bring up creationism.  The argument that you are making here is similar to one brought up against darwinian evolution.  When Darwin, Wallace and the other early evolutionary biologists first made the argument for natural selection they did so on the basis of historical evidence.  The subject of their theory was essentially historical.  So they could not test their hypothesis using later experimentation.  What they did was historical analysis.  Does this mean then that the theory of natural selection is not science?  Well, I think there is an argument for that point of view.  I think the most reasonable argument though is that it is a different sort of science to normal experimental science.

Nope. Incorrect. Very wrong. Apologies if I sound over the top here, but evolution is a subject that is very easy, and that people still manage to arse up frequently and often.

Evolution theory didn't start with Darwin, he just found the good evidence.
No.  Before Charles Darwin there were many other evolutionary theories but nothing really the same.

His Grandfather Erasmus Darwin held the theory that acquired characteristics were inherited.  A theory that later became known as Lamarckism.

Charles Darwin did think of the theory of Darwinian evolution though.  Several other people had thought of it before him, Alfred Russell Wallace, William Charles Wells and Patrick Matthew.  Wells and Matthew's ideas were not well known.  I expect you know what happened between Darwin and Wallace.

Here's how: Darwin was the naturalist on the HMS Beagle. He got the captain to drop him off on one side of the South American continent and made his way across it while the Beagle went round the southern tip. When he met up with the Beagle on the western seaboard, they went to the Galapagos Islands. Here, Darwin saw birds that were very similar, but with minor differences that enabled them to survive better on the Galapagos Islands. Things like beak alterations that allowed easier cracking of nuts, a more common food source on the islands than mainland South America.

Indeed, he found varieties on different islands that were of the same species, but of differing characteristics. Considering the evidence, it was clear that minor variations had become amplified over many generations. Not historical evidence at all, you see. Noticing that Nature produces different breeds of the same species in the same way that husbandry produces different breeds of dog.
What Darwin noticed was the differences between the animals in the various places that he travelled to.  The "splendid isolation" of the Galapagos islands.  These provided him, and later evolutionary biologists with a set of what are called "natural experiments".  This is all historical evidence though in the sense that he never saw the process itself take place he saw only the results.

So, I don't think that I am wrong.

Evolutionary biology and economics are very interlinked and similar subjects.  Today they both use a different sort of method to that you describe.  In economics a set of ideas about how people behave in small scale situations are constructed, so called "microfoundations".  Then how those microfoundations affect other larger-scales is investigated.  The same sort of thing is done in evolutionary biology.

The difference is that scientists have produced evolution in bacterial culture. Set E. Coli in culture with minimal food apart from citrine, and the bacteria will, given a few thousand generations, become able to consume citrine. While Darwin wasn't able to do experimentation to prove evolution, we can. Economies are somewhat more... troublesome?... to replicate like that.
Would you say that without the evidence from such experiments that Darwinian evolution is a theory that should be dismissed?  Were the creationists and other critics right until the time when such experiments were possible?

I personally don't think so, historical evidence is useful.  It is perhaps not as good as experimental evidence, but this depends on the situation.

For example, what does the experiment you describe with E. Coli really show?  Without our prior knowledge to guide us it shows very little.  Had Lamarck or Erasmus Darwin being shown the experiment I expect they would have concluded that one generation of the bacteria had developed the ability to consume citrine and passed it to subsequent generations.

If a catastrophe theorist or a creationist were shown the experiment they may have pointed out that it is merely an instance of selective breeding.  They would then point out that selective breeding has being known about for a long time, it is nothing new.  They may point out that the real questions are whether such selection can create anything majorly novel and whether the natural environment provides a means of such selection.  These questions can still only be answered by historical evidence.


Title: Re: [BLOG] Cars and Class Warfare
Post by: Current on January 01, 2009, 19:30:02 EST
The difference is that scientists have produced evolution in bacterial culture. Set E. Coli in culture with minimal food apart from citrine, and the bacteria will, given a few thousand generations, become able to consume citrine. While Darwin wasn't able to do experimentation to prove evolution, we can. Economies are somewhat more... troublesome?... to replicate like that.

Yeah, Macroeconomics is probably one of the most difficult things to conduct experiments with since the task of creating a controlled and artificial economy is so daunting. Microeconomics, however, is a breeze...
Yes.  Micro is much easier.

all it took for my professor to demonstrate "utils" was a box of Crispy Cream donuts.
"Utils" are a quite dubious concept.  The underlying marginalist argument is really quite good.  However the formation of a general unit, the "util" is quite dubious, even as a conceptual device.  See the argument in the first chapter of Ludvig Von Mise's book "The Theory of Money and Credit", it's available online somewhere.

One thing that concerns me is the apparent lack of study on how Microeconomics (the decisions of individual people and businesses) relates to Macroeconomics (the behavior of large scale economies). There's a lot of discussion that's quite abstract and too removed to be of much use in making an economy benefit the general populace.
The theories that suffer from that problem are the Keynesian, Post-Keynesian, Marxist, Sraffian and New Keynesian theories.  All of the schools that Left-wing interventionists love.

It is New Classicals and Austrians that ground their macroeconomic theories in their microeconomic theories.

Meanwhile, those who do intervene to promote economic stability and security don't have much of an intellectual framework to guide them.
Yes.

It is unfair to condemn economists as a whole on the basis of the sorts of Keynesians theorists who have no basis for their theories in microeconomics.  These sort of theorists are only one branch of economics.  Many economists only study microeconomics and are not concerned with macro at all.


Title: Re: [BLOG] Cars and Class Warfare
Post by: Current on January 01, 2009, 20:22:13 EST
Blue boy, actually, there is a lot of work on the mirco/macro theory, but you won't hear about much of it in economics class, indeed, you will hear little of it in university for the next 10-20 years, because the vast majority of the work hails from...duh-dun-duh outside of academia.

Academia is really good with long term theories, but very, very bad with new stuff (the peer review method is a system which enforces a status quo), talking about chimera and value structures is really wiffley to boot and there is no concise language.

Imagine if the world was written by german philosophers, that's kind of what it is.  Just plain old f'in ugly.  Part of why people still cling to Kapital and to Prodhon's work is because it, well, it is a complete system in a language which is sensible.  Foucault is probably the closest to accessible, but I actually like Jom Jubak's musing on micro-macro when he gets on it.  I hope that man writes textbooks some day, but sadly, he makes much more money not writing textbooks.
Well, I might have a read of some of those in the future.

There is very little reason for people who legit understand money to stay in academia, unless they either have a religious/social opposition to money or attach very little value to it.  This means that the only people who stay within academia who really, really, understand economics come from money, and that is a hella dangerous bias.
In retrospect, all of what you said should be obvious, but having it put out like that is rather depressing.  All those competent at economics are busy making money, while the economists that actually teach economics are the ones who are full of ulterior motives and/or crappy theories that are then foisted upon the general public and decision makers.
I don't think you are really right about this.

There is a difference between economics and economic forecasting.  Economics is studying the general form of economies and how they work.  Economic forecasting is making specific predictions about what will happen at specific times.  Economics intends to give general views on what the results of certain government or private actions will be that are correct regardless of specifics.  Economics is often not that concerned about the particular price changes that will occur or when.  Most of the macroeconomic theories I've mentioned so far tell a person little about how to predict exactly what will happen next.  Many economists consider this to be in the nature of the problem.  If the knowledge of a correct theory by a person could allow them to make a killing out of it then it isn't really a correct theory in the long term.  (This is idea has a name which I've forgotten).

Making money depends on economic forecasting which is a different sort of game.  To make money you don't really need to know very much outside the particular market you are operating in.  You can make money by knowing about that very well.  Every rich person I've met who has made their money themselves has done it that way or through management.  This sort of forecasting really has little to do with economics in general.  It is mostly done through mathematical prediction algorithms or special knowledge of the particular market, not economic knowledge.


Title: Re: [BLOG] Cars and Class Warfare
Post by: Current on January 01, 2009, 20:28:11 EST
Economics isn't really a science.  Science requires you to make hypotheses, than test them in peer reviewed double blind studies and the like, before coming to a conclusion.  Economics loves to make nice big theories and only bothers to test them after the fact, if at all.  In regards to scientific rigor, that approach is is equivalent to Historical Analysis on a good day and Creationism on a bad one.
It's interesting that you bring up creationism.  The argument that you are making here is similar to one brought up against darwinian evolution.  When Darwin, Wallace and the other early evolutionary biologists first made the argument for natural selection they did so on the basis of historical evidence.  The subject of their theory was essentially historical.  So they could not test their hypothesis using later experimentation.  What they did was historical analysis.  Does this mean then that the theory of natural selection is not science?  Well, I think there is an argument for that point of view.  I think the most reasonable argument though is that it is a different sort of science to normal experimental science.

Evolutionary biology and economics are very interlinked and similar subjects.  Today they both use a different sort of method to that you describe.  In economics a set of ideas about how people behave in small scale situations are constructed, so called "microfoundations".  Then how those microfoundations affect other larger-scales is investigated.  The same sort of thing is done in evolutionary biology.
Observational evidence is significantly weaker than more actual evidence.  This is understandable for things like Evolution or Plate Tectonics, which can't have truly direct experimental evidence applied due to their very nature.  Economics, however, can be tested experimentally.
Well, I don't really agree with that.  It depends on the experiments and observations in question.  Some types of observation are quite reliable and some types of experiment very difficult.  It depends on the situation.  Most of the observations that are used in economics are very simple ones.

Besides, economic ideas have being tested by experiments too.  They have been tested by the natural experiments that come about by different countries or regions taking different economic policies for example.

Some have being tested by laboratory experiments such as those of Vernon Smith.  There are many problems with those sorts of experiments though.

Libertarians come across to me as insisting on the whole shebang, weird theoretical bits and all.  They also don't merely follow theories, but make wide-reaching assumptions from those theories about how to run societies.
You have this entirely the wrong way around.

My understanding of your views Wodan is that you are a sort of centre-left interventionist.  What you have argued for in the past is for government intervention into this or that market.  We have often talked about this in general.  But, you have only given a few examples of policies that you support.
Intervention is a fairly vague term, which can take ominous or pleasant meanings in different circumstances.  I've tried to vaguely

Think about a specific piece of economic interventionism.  What interventionism requires is that the government move into the market and stop market participants from doing some things and make them to others.  For the government to intervene successfully in the economy they must first understand how the market will behave.  It must then understand what a better decision is.  Lastly, the government must know how to intervene to bring about a better outcome without causing other unintended consequences.

Doing all of this requires much more complicated economics than anything economic non-interventionists use.  The economics I talk about in my posts is much simpler than that used by interventionists.  Also, it requires far fewer problematic modeling assumptions.  Read a book on Keynesian or New-Keynesian economics and you will see what I mean.
Failure to intervene is in itself an intervention, and a drastic one at that, with major consequences.
If you are going to define intervention is that way doesn't it make the term rather meaningless?  The way I define it is that an intervention is, erm, an intervention, not intervening is not intervening.  I think that with this sort of definition in mind we can have a sensible discussion about the issue.

You don't seem though to have tackled my criticism.  To intervene you must have a theory behind your actions.  If intervention X should be done why should it be done?

Like it or not, the government is responsible for the people, for it IS the people,
Government is not the people, is it.  Read a little about the political philosopher who originated this view, Werner Sombart, and I think you will be quite shocked.

it is their attempt to operate coherently on a large scale.

Let me offer you a classic example.  A train is going down some tracks out of control and will kill 4 people in the way who aren't paying attention.  If you pull a switch, it will go on to a different set of tracks, and only kill 1 person.  Many people have stated that they refuse to pull the switch.  They think that by not pulling the switch, by not getting involved, they've absolved themselves of any responsibility for what happens.  They are wrong.
As you admit this has little to do with what we are discussing.  I disagree with you on this, it is not the responsibility of an individual put in this situation to respond in any way, unless of course they played a part in bringing it about.

Of course, the problem with this is that it is not an accurate reflection of the world.  In the real world, the information regarding different courses of action is not always available.  However, the decisions still have to be made, and thus they should be delegated to those who can make such a decisions best.
Yes.

So the question lies as to whether or not the corporation or the government is more able to make decisions benefiting people.  The answer is quite plainly the government, for such is really a trick question.  This is because the government represents the interests of the people, and is controlled by the interests of the people.  The corporations motivated by small groups of people that don't represent society.
Economic decisions are not only made by businesses, they are made by all of us in our day-to-day lives.  It is not simply "corporations or the government", many decisions don't involve either.  Those that are between businesses and individuals are under the control of both parties, both parties may decide who they deal with.

What I was trying to talk about here was not the effectiveness of democracy.  We've talked about it before, and I disagree with you about it quite a lot.  We can talk about that if you like though.  What I was talking about was not interest but rather the problem of what to do.  An interventionist like yourself must not only support interventionism, he or she must have an idea about what that intervention should be.

However, the real question is whether or not people are capable of handling economic decisions.  The answer is NO.  Individual people make terrible economic decisions regularly.  So do corporations.  Short term decisions are dominated by emotion, and few have the capacity to analyze the impact of long term decisions.  This was the purpose of the earlier discussion on rationality that we had.  It is also a good reason for why people pay other people for expert advice.  Even if they were capable of knowing a given subject in depth, they certainly can't know all subjects in depth.
Well, I disagree with you here.  I'll come back to this.

Moreover, society does not replace those people with ones more competent, as natural selection will do.  That is because those who control the lifeblood of the nations economy have access to such wealth and power that they are as a whole immune to the process.
I don't think they are.  In the UK at least many rich financiers have lost large amounts in the credit crunch.

Look to the past.  The evidence is clear.  Unfettered capitalism has always led to economic disaster.  Capitalists are not long term planners, but short term pillagers, concerned with making as much money as possible as quickly as possible, with no concern about what will happen latter, after all, that will happen mainly to other people.
What evidence from the past would you cite for that?

How can, for example, a capitalist be a "short term pillager"?  A capitalist is just an investor a businessman.  He or she makes trades with others that they agree to.  How can such an action by "pillaging"?  Obviously it cannot.  To pillage a businessman must go outside his or her role as a businessman.  Unless of course you accept the labour theory of value arguments of Marxists, and I think those have been comprehensively shown to be incorrect.

Similarly, what "will happen mainly to other people"?  A businessperson deals with his or her business.  Their actions affect others only because others agree to be affected by them by entering into agreements with them by working for them, for example.  Compare this to government -which you hold in such high regard- it's mistakes are felt by everyone.

The Government, on the other hand is concerned with the long term.  It is concerned with the interests of the people.  It can and does hire experts on the subject.  Sure, it will be wrong often.  So will the corporations, and so will the people.  However, the government is the only entity that both represents the people's interests and has the ability to act coherently on a large and long term scale.
A government is not necessarily interested in the long term, it is interested in being re-elected.  If that means taking short-term decisions that are damaging in the long-term then it will do so.  For example the UK Labour government of the last eleven years have never had a long-term energy policy.  They have also vastly increased the national debt.  All of this is to the long-term detriment of the UK, but it has been useful for the government because it has helped their re-election.

Similarly, a government is not necessarily concerned with the interest of the people.  They may simply appear to be concerned about them in order to win votes and power.  In my opinion this is the nature of most politicians.

As we have discussed before even in the best case government only represents the majority.

Government Intervention in economic affairs is no different than how it deals with enforcing the law with regards to criminals.  The government restricts courses of action which are likely to cause damage to society, and punishes those who succeed in causing damage to society.
It is much different.  The process of punishing crime is one that is well-understood.  One that has being in place in every society since the beginnings of civilisation.  Economic intervention is completely different.  It depends on recent ideas in economics which are extremely controversial.

The legal system has checks and balances.  Processes of government economic intervention mostly do not.

I suspect you underestimate the value of government intervention.  As discussed before, people are not capable of handling decisions to a full degree, both short term and long term.  Some of this is a product of emotion, irrationality, and inability to consider the long term.  However, some of this is simply due to people not being able to be experts on every field.  Regulations in a field represent judgments by experts paid to represent and advise the people, by the people.  They are an expert in the field and the average person is not.
But how do such experts construct regulation?  Do the correct regulations to put in place enter their brains by some mystical democractic form of religious revelation?  Obviously not.  Their actions are based upon theory.  This is why I am criticising your view of economics.

Any economic regulation must be based upon an economic theory.  Types of home mortgage provide a good example of this.  In the US the regulatory authorities took the view that home mortgages should be of a certain type.  The UK authorities took the view that home mortgages of certain types should be encouraged and other discouraged.  Both authorities took different views of what should be encouraged and what should be discouraged, contradictory views in fact.  The reason for this is that those responsible held to different economic theories. 

You must agree with the "weird theoretical" bits of economics much more than me to have any faith that regulators can make good decisions.  For example, the theory that the Fed use to control the interest rate -New Keynesian theory- depends upon the assumption of rationality.  So, I don't think you can agree with the Fed setting the interest rate and disagree with the assumption of rationality.

Also, as Hayek pointed out the individual making decisions understands the perculiarities of his own situation.  He may not be as knowledgable as the expert, but he knows what he is attempting.  The expert is not in the same position, an expert does not have that information.  So, you must also have a reason to think that expert economic knowledge is more important than the particular knowledge of individuals.

Take safety regulation.  What would happen if it was all removed?  People would not know which products to buy and have no way of determining if they are safe.  Companies would have no reason to keep their products safe, for even if other companies did keep their products safe, the public would not be able to tell the difference, because they are not experts.
Well, I wouldn't agree with removing all (or even most) safety regulations.  However I don't agree with you that things would be particularly bad if there were removed.  Most people are sensible enough to employ experts to check into things they cannot understand.

Of course, you could say that not all people asked for that expert advice.  However, those people are first of all foolish, for in most subjects expert advice will be better than their own decisions, if not by much.  Second of all, the people did ask, through their votes, and through their decision to form a representative government.
Yes.  However only a proportion of the public need vote for it for it to become law and to be enforced on the rest.  This is the downside of the process.

Of course, you could say that the experts in the government can get corrupt and mislead you.  So long as there is a free press and a motivated public, such governments will be cleared of corruption, for the public does not want a government to represent them as such.
To begin with why should the public be "motivated"?  Each member of the public only has a tiny portion of decision making power, so it make virtually no difference to them how they exercise it.

The public may not want corruption, but can they recognise it if it is present?  Also, are they motivated sufficiently to prevent it?  I think they are to some extent, but there will always be a great deal of corruption in politics.  It is the whole nature of the process.

However, a corporations is motivated to mislead you from the start.  The corporation does not act in the public's interest, it was never motivated by such, and through the condensation of wealth and power, it will never be motivated to do so via natural selection or free markets.  When the power is in the hands of the few, a market may be free, but it isn't free free.
More scaremongering about "corporations" I see.  Do you have any evidence that the free market is not doing its job?  Here in the UK many large chain stores are going out of business.  As far as I can tell the free market is doing its job fine.

Power though is not only in the "hands of the few".  In modern capitalist societies we are all free to make our own economic decisions, to a great extent anyway.  Taking that away does not only mean taking it away from businesses, it means taking it away from individuals too.  When a business is not free to sell a particular product that means that customers are not free to buy it.

In short, government intervention is bad.  Lack of government intervention is worse.  Deal with it, ideally by ensuring that the public is motivated, whereupon the free press will likely give them the information they need to find their fate again.
How though does all this make them any more intelligent and rational than they are in economic decisions?  If people are irrational, emotional and short-term in their economic decisions then why should they be any better in their electoral decisions?  I have asked you this question many times, but I don't recall ever getting a full answer.


Title: Re: [BLOG] Cars and Class Warfare
Post by: wodan46 on January 02, 2009, 00:49:00 EST
I'm not going to respond to every last reply, as many are on basically the same topic, as were my statements before.  Instead, I'll just focused on the most representative ones and give them the long ranty replies.  Also, I'd like to note that I rarely mean things in absolutes, only that the thing is meaningful enough to be focused upon.

Besides, economic ideas have being tested by experiments too.  They have been tested by the natural experiments that come about by different countries or regions taking different economic policies for example.
Natural Experiment is an oxymoron.  Experiments are inherently about operating in a controlled, unnatural circumstance, specifically so that they can eliminate any extraneous variables, and isolate the effects of a particular one.

it is their attempt to operate coherently on a large scale.
Let me offer you a classic example.  A train is going down some tracks out of control and will kill 4 people in the way who aren't paying attention.  If you pull a switch, it will go on to a different set of tracks, and only kill 1 person.  Many people have stated that they refuse to pull the switch.  They think that by not pulling the switch, by not getting involved, they've absolved themselves of any responsibility for what happens.  They are wrong.
As you admit this has little to do with what we are discussing.  I disagree with you on this, it is not the responsibility of an individual put in this situation to respond in any way, unless of course they played a part in bringing it about.
That is where we are in disagreement.  If a person is in a position to manipulate the course of an event, they carry responsibility for how the event occurs.  They don't carry ALL the responsibility, but nevertheless, I will hold them accountable for their choice, and if they decide not to act, that is also still a choice to be held accountable for.  Hence, I believe that government is responsible for a wide variety of choices that affect countless lives, and if the government chooses not to intervene, they have still made a choice, and they must be held accountable for it.  I will hold them accountable for every choice, whether it be intervention or not.  After all, it is my own responsibility, as a citizen, to hold the government accountable, and to deny that would be a choice as well, and a bad one.

In short, all this talk of intervention implies that the government is somehow outside of societal affairs, and that it barges in and starts punching people.  To me, government is intrinsically involved in societal affairs from the second it was put together, voted into office, and granted power by its citizens.

So the question lies as to whether or not the corporation or the government is more able to make decisions benefiting people.  The answer is quite plainly the government, for such is really a trick question.  This is because the government represents the interests of the people, and is controlled by the interests of the people.  The corporations motivated by small groups of people that don't represent society.
Economic decisions are not only made by businesses, they are made by all of us in our day-to-day lives.  It is not simply "corporations or the government", many decisions don't involve either.  Those that are between businesses and individuals are under the control of both parties, both parties may decide who they deal with.
While correct, it is irrelevant.  Corporations and the Government represent the only large scale decision making structures in the country, power will always be alloted to the large scale decision making structures, the question is how it should be allocated.

What I was talking about was not interest but rather the problem of what to do.  An interventionist like yourself must not only support interventionism, he or she must have an idea about what that intervention should be.
I have not the slightest clue.  That isn't the kind of knowledge any one person can have.  A group of experts, picked by a larger group of experts, who were picked by the general public, maybe, if they can present convincing evidence.

I can have a general idea though.  Lots of people are falling out through the bottom of the system, many of whom have useful talents?  Solution: build a safety net that can keep them functioning within the societal machinery.  People who are at the top of the system but don't have useful talents?  Solution: Remove them gently if possible, contain their damages regardless, such as through the aforementioned safety net.  People abusing the safety net?  Solution: Redesign it so they can't.  I don't know how to handle this?  Solution: Find a group of experts who can, and who are motivated to provide the answer and not screw me, you know, such as a government that can be made accountable for its actions via a free press and a motivated people.

I don't think they are.  In the UK at least many rich financiers have lost large amounts in the credit crunch.
Have they lost their houses?  Their jobs?  Their bonuses?  The only reason any of them has occurred at all is because they finally did so many destructive actions at once that they were unable to shift all the consequences onto others.

Look to the past.  The evidence is clear.  Unfettered capitalism has always led to economic disaster.  Capitalists are not long term planners, but short term pillagers, concerned with making as much money as possible as quickly as possible, with no concern about what will happen latter, after all, that will happen mainly to other people.
What evidence from the past would you cite for that?
Its kind of obvious.  The housing crunch, for example, was rampant speculation.  This has occurred repeatedly, wherein Capitalists see an area of profit, then keep hitting the area for more profit until finally too much happens at once, and the area collapses.  They then shift all the losses onto everyone that isn't them and move out to look for the next area.  I suppose calling Capitalists pillagers wasn't quite the right term, perhaps calling them a horde of locusts would be a better way of putting it.  They think only of short term profit.  Take commercial fishing.  They overfished for short term gain, resulting later generations having a far smaller fish supply that was no longer able to reproduce and generate gains of that magnitude.  The capitalists always overfish.

If they were most patient, if they were more moderate, they could generate steady gains, but those that do such will be out-competed in the short term by those that don't.  As the world resources continue to deplete and system after system is overly used, I see government control as the only way to mitigate such behavior.  They punish over-fishers enough to ensure that the steady fishers are more competitive.

And yes, I know that the housing crunch was also due to the government.  Specifically, the government undoing the constraints it had placed, put another way, they chose to not intervene.  Didn't work out too well though.

A businessperson deals with his or her business.  Their actions affect others only because others agree to be affected by them by entering into agreements with them by working for them, for example.
Interesting.  So you think that a transaction made by a business is done in a vacuum, and has no external effects, nor any long term consequences.  Do you seriously believe that kind of stuff?

Compare this to government -which you hold in such high regard- it's mistakes are felt by everyone.
Everyone's mistakes are felt by everyone, to some degree or another.  The government is just the one who can be held accountable for it.

A government is not necessarily interested in the long term, it is interested in being re-elected.  If that means taking short-term decisions that are damaging in the long-term then it will do so.  For example the UK Labour government of the last eleven years have never had a long-term energy policy.  They have also vastly increased the national debt.  All of this is to the long-term detriment of the UK, but it has been useful for the government because it has helped their re-election.

Similarly, a government is not necessarily concerned with the interest of the people.  They may simply appear to be concerned about them in order to win votes and power.  In my opinion this is the nature of most politicians.
That is true.  However, if the people wanted their government to have a long term energy policy, they would get one.  The problem is that people don't seem to want anything.  That must change.  That change must start with ourselves, and then in the people around us, including our family, friends, and people we meet on the internet to argue politics about.

As we have discussed before even in the best case government only represents the majority.
That is true for a democracy.  That is why I am glad we do not have one, but instead a form of government that grants majority control with minority protection.  Granted, our system has become more democratic over the years.  Perhaps that's part of the problem.  Our original system had the president being elected not by the public, but by the electoral college, and the senators being elected by lower government officials in the states.  That system meant that people could understand the people they elected more directly, and those people could in turn elect those they understood directly as well.

Government Intervention in economic affairs is no different than how it deals with enforcing the law with regards to criminals.  The government restricts courses of action which are likely to cause damage to society, and punishes those who succeed in causing damage to society.
It is much different.  The process of punishing crime is one that is well-understood.  One that has being in place in every society since the beginnings of civilisation.  Economic intervention is completely different.  It depends on recent ideas in economics which are extremely controversial.

The legal system has checks and balances.  Processes of government economic intervention mostly do not.
I thought you contemptuously viewed the legal system as being ineffective.  Also economic intervention does have checks and balances, as it is administered via people within the government, who are in turn held under checks and balances by other people in the government and/or the general public.  The problem is that the check/balance system regarding politics/economics has a tendency to crystallize into iron triangles, which are a pain to deal with, but I believe they can be stopped.

But how do such experts construct regulation?  Do the correct regulations to put in place enter their brains by some mystical democractic form of religious revelation?  Obviously not.  Their actions are based upon theory.  This is why I am criticising your view of economics.
Here are a couple of theories.  Tell me when they start to get too far out for your tastes: White collar crime is bad.  Dumping costs onto people not involved in the transaction is bad.  Excessive constraining of unions is bad.  Unions having too much power is also bad.  Products that do not do as advertised are bad.  Products that kill/injure people without warning are bad.

Granted, whether a given solution to the above problems is good is more difficult to ascertain.  I'll leave that in the hands of experts motivated to work in the public interest, working in concert with each other.  I certainly can't ascertain it that well, and I'm not going to trust a government

Any economic regulation must be based upon an economic theory.  Types of home mortgage provide a good example of this.  In the US the regulatory authorities took the view that home mortgages should be of a certain type.  The UK authorities took the view that home mortgages of certain types should be encouraged and other discouraged.  Both authorities took different views of what should be encouraged and what should be discouraged, contradictory views in fact.  The reason for this is that those responsible held to different economic theories. 

You must agree with the "weird theoretical" bits of economics much more than me to have any faith that regulators can make good decisions.
I don't trust the regulators to make good decisions.  I trust the regulators to make decisions with better results than the alternatives, of letting individuals and corporations sort things out themselves.

For example, the theory that the Fed use to control the interest rate -New Keynesian theory- depends upon the assumption of rationality.  So, I don't think you can agree with the Fed setting the interest rate and disagree with the assumption of rationality.
Who said I agreed with the Fed?  Also, I'm more concerned with whether or not they get results than whether or not it was done on sound methodological grounds.  So long as their theories are able to predict things and react appropriately, they are good enough otherwise, they should be disposed with.  While I can't dispose them, I can vote someone in who will hire someone who will decide to dispose of them.  Close enough.

Also, as Hayek pointed out the individual making decisions understands the perculiarities of his own situation.  He may not be as knowledgable as the expert, but he knows what he is attempting.  The expert is not in the same position, an expert does not have that information.  So, you must also have a reason to think that expert economic knowledge is more important than the particular knowledge of individuals.
An expert isn't much of an expert if they don't use and operate within the proper perspectives needed to get results.

Well, I wouldn't agree with removing all (or even most) safety regulations.  However I don't agree with you that things would be particularly bad if there were removed.  Most people are sensible enough to employ experts to check into things they cannot understand.
The government IS the employed expert.  What alternatives are there?  The internet?  Some guy whose motivations are nebulous and unknown, whose only stated goal is to make money by advising you, but might make more money being a corporate stooge, or even if he didn't he wouldn't be differentiable from an actual stooge?

Of course, you could say that the experts in the government can get corrupt and mislead you.  So long as there is a free press and a motivated public, such governments will be cleared of corruption, for the public does not want a government to represent them as such.
To begin with why should the public be "motivated"?  Each member of the public only has a tiny portion of decision making power, so it make virtually no difference to them how they exercise it.
The public should be motivated because it is in their benefit to have a corrupt government.  Also, stop spouting that nonsense about individuals having little power.  While that may be true, the public has a lot of power, and the public is made up of individuals.  1 Vote CAN make a difference.  Look at my state of Virginia.  It was solidly a red state for 4 decades.  If people had insisted on believing that one vote could not change it, then we would have never gone blue.  We went blue because countless people decided at the same time that they would make a difference.

See the vital thing to realize is that if people believe that they can make a difference, they can.  Hence, if I can convince people to believe that, which becomes harder every time someone like you starts shouting out about such things.  Political Systems, much like Economic Systems, ultimately run on belief.

The public may not want corruption, but can they recognise it if it is present?  Also, are they motivated sufficiently to prevent it?  I think they are to some extent, but there will always be a great deal of corruption in politics.  It is the whole nature of the process.
If the people want a free and active press, they will have it, and if they do, corruption will be limited.

However, a corporations is motivated to mislead you from the start.  The corporation does not act in the public's interest, it was never motivated by such, and through the condensation of wealth and power, it will never be motivated to do so via natural selection or free markets.  When the power is in the hands of the few, a market may be free, but it isn't free free.
More scaremongering about "corporations" I see.  Do you have any evidence that the free market is not doing its job?  Here in the UK many large chain stores are going out of business.  As far as I can tell the free market is doing its job fine.
Your anecdote does not impress me.  Especially since it isn't that they are failing because they are being outcompeted, but they that they outcompeted their opponents, then failed anyway, and have left a vacuum that will/is causing massive damage to multiple levels of society.

Power though is not only in the "hands of the few".  In modern capitalist societies we are all free to make our own economic decisions, to a great extent anyway.  Taking that away does not only mean taking it away from businesses, it means taking it away from individuals too.  When a business is not free to sell a particular product that means that customers are not free to buy it.
Business regularly deprive people of choices, then force bad ones down their throats.  I seek to deprive businesses the power to provide the public with clearly bad choices.

In short, government intervention is bad.  Lack of government intervention is worse.  Deal with it, ideally by ensuring that the public is motivated, whereupon the free press will likely give them the information they need to find their fate again.
How though does all this make them any more intelligent and rational than they are in economic decisions?  If people are irrational, emotional and short-term in their economic decisions then why should they be any better in their electoral decisions?  I have asked you this question many times, but I don't recall ever getting a full answer.
They aren't.  Nevertheless, it is better than any of the alternatives.  If people believe in the electoral process it will work.  No amount of belief will make the alternatives work.


Title: Re: [BLOG] Cars and Class Warfare
Post by: Heq on January 02, 2009, 02:18:03 EST
Current, we're probably on about different styles of moneymaking, or maybe we just run in different crowds.

Big scale stuff is how one makes "real money", which are inherantly beyond single industries, as single industries have a cap on how much can be made in them, and individual businesses tend to succeed or fail.  Of course, I'm a fan of spiders which are kinda a new-school trick, so they wouldn't represent traditional investors (well, some mutual fund guys would be under that umbrella).

My point being that either way can make money, and like most of my collegues, I am looking at leaving the academy relatively soon (2-4 years) because while educating others is nice, lots of money is also nice.  I could tell myself I will return to academia afterwords, but I'm fairly sure that it's an addictive lifestyle.  I don't think my case is unique, once you are good enough that people start thinking your advice is worth asking, they offer you significantly more money then any academic institution would.


Title: Re: [BLOG] Cars and Class Warfare
Post by: Current on January 02, 2009, 19:57:02 EST
Current, we're probably on about different styles of moneymaking, or maybe we just run in different crowds.

Big scale stuff is how one makes "real money", which are inherantly beyond single industries, as single industries have a cap on how much can be made in them, and individual businesses tend to succeed or fail.  Of course, I'm a fan of spiders which are kinda a new-school trick, so they wouldn't represent traditional investors (well, some mutual fund guys would be under that umbrella).
A person though can make a large fortune in only one industry.  Even those who have made fortunes by using many industries have often used the same tricks across those industries.  Buffett for example invests in the same way in many industries.

My point being that either way can make money, and like most of my collegues, I am looking at leaving the academy relatively soon (2-4 years) because while educating others is nice, lots of money is also nice.  I could tell myself I will return to academia afterwords, but I'm fairly sure that it's an addictive lifestyle.  I don't think my case is unique, once you are good enough that people start thinking your advice is worth asking, they offer you significantly more money then any academic institution would.
I don't really disagree about where the smart people are.   Most of them aren't in academia.

But, people underestimate the importance of what problem a person is focused upon.  People in business are focused on entirely different problems to those in academia.


Title: Re: [BLOG] Cars and Class Warfare
Post by: Heq on January 02, 2009, 23:30:22 EST
Current, sorta.

I mean, there are macro theoreticians in business.  Let us take an example of a typical chain of questions that came up recently for me.

Boss asks advisor about X country.
Advisor comes up with plans to make money at X in country.
Advisor however, wants to get a general understanding of what is going on in regards to the Y of country X and potential political and infrastructure problems in regards to Y and so buys me some delicious food (yum), we sit down and I hash over the data with him, he returns to give recommendation.

This is no different from when a student asks the same questions in that field, in essance, they both want the same thing, an interpeter of data and trends.


Title: Re: [BLOG] Cars and Class Warfare
Post by: Heq on January 02, 2009, 23:35:17 EST
I would also be remiss if I didn't point out that soon my entire industry will be replaced by one man.

Todd Diamond

http://www.nationalpost.com/multimedia/video/diamond/index.html


Title: Re: [BLOG] Cars and Class Warfare
Post by: Current on January 03, 2009, 18:55:47 EST
Current, sorta.

I mean, there are macro theoreticians in business.  Let us take an example of a typical chain of questions that came up recently for me.

Boss asks advisor about X country.
Advisor comes up with plans to make money at X in country.
Advisor however, wants to get a general understanding of what is going on in regards to the Y of country X and potential political and infrastructure problems in regards to Y and so buys me some delicious food (yum), we sit down and I hash over the data with him, he returns to give recommendation.

This is no different from when a student asks the same questions in that field, in essance, they both want the same thing, an interpeter of data and trends.
Yes.  I haven't really seen any evidence though that this breed of macroeconomist is any more knowledgable than any other sort.


Title: Re: [BLOG] Cars and Class Warfare
Post by: Current on January 03, 2009, 19:11:20 EST
A reply to an earlier message I missed...

Quote from: Current
Many people think about the car industry in terms of what F. A. Hayek called Scottish or British rationalism.  They see that it is an industry that has grown up over time.

(...)

One of those principles being that bad companies should be allowed to fail and go bankrupt.

People think of the financial sector differently.
And so they should. There are a number of differences between banking and other industries:

1) You are forced to use it.
Litterally. Many employers won't pay you otherwise. Even if you don't have a bank account, cashing a paycheck depends on the solvency of banks. Telephony and electricity are the only other industries that are similar, and they are often state monopolies.

2) If it craps out, the effect on customers is greater than in other industries.
Self-explanatory. There is no greater commitment to a company than to entrust it a good part of your life savings.

3)There are relatively few ways to protect yourself.

Correct me if I'm wrong, but I think you've never been affected, or known anyone who was affected, by a bank crapping out. I think the question is purely theoretical to you, so you don't mind dogmatically applying ideology.

I've never been affected directly, but I know people who have. There was a time when banks popped up and down in Romania. It sucked. Most people decided to keep money at home in foreign currency, or to put it in the state bank which was kept afloat by the government directly. Anything else was just dumb.

So, no, you're wrong on this. Banking isn't an industry like any other anymore. It used to be, it no longer is. This is a fallacy you often commit, the "it worked in the early 19th century so it can work now because nothing has changed since" fallacy.

Back when you could get paid directly. Back when keeping money at home was a good option. Back when you could buy property without needing direct credit.

Nowadays, banking is so vital to day to day life, and its failure is so serious, that it can't be considered "an industry like any other". I'd say it's more like firefighting, or prevention of epidemics. It has the potential to do so much damage to society that it can't be allowed to fail, at least not to a serious extent.
Well, I agree with you that there are differences between the modern financial sector and other industries.  These differences though don't mean that banking can't operate as a more normal industry.  To begin with there is no reason why everyone must be paid wages into their bank accounts, as is the law in many countries.

The situation is not like telephone or electricity.  In those businesses there is a provider to a particular household that normally has a local monopoly, at least in the last leg of supply.  No really similar situation occurs in banking.  The only situation that is somewhat similar is the current account or deposit account a person uses - more on that later.  Other services like loans may be had from many different suppliers, not all of them even banks.

I'll elaborate my criticism of the current system more.... The way modern banking works is very complicated.  It is essentially not a free-market but rather a sort of strange public-private system.  In my view it is a great source of problems and contributed significantly to the current crisis.

The problems begin with central bank gaurantees.  In most nations today there is a government controlled central bank.  This provides a "lender of last resort" service to the commercial banks.  If a commercial bank cannot meet its commitments to repay debts to others then it can borrow from the central bank.  Normally at a special high rate.  This is the source of many if not most of the problems.

What it means firstly is that banks have an unfair advantage over other lending organizations.  A business or an individual lender who lends does not have this protection.  So, the central banking system is a form of government sponsored cartel which assists the commercial banks in dominating the lending business.

The second major effect of the lending guarantee is to protect the banks from their mistakes.  If a bank becomes insolvent then it can become solvent again by borrowing from the central bank.  So, a commercial bank's balance-sheet risk is hedged.  The result of this is that the risk is transferred from the commercial bank to the central bank.  As the left have accurately put it the profits of banking are privatized but the losses are socialized.  (What they omit to mention is that the left themselves brought this situation about).  In most circumstances the loan service the central bank guarantee is not needed.  When a commercial bank is facing difficulties it asks other commercial banks for loans.  Those other banks know that the first bank can borrow from the central bank.  So, it is not a great risk for them to lend.  This means that the central banks guarantee is not normally used except during crises.

In most industries problems reveal themselves first as insolvencies.  That is some companies fail because they cannot repay their debts.  Then later if things get worse other companies fail because they cannot make a profit.  In banking insolvencies can not occur in the same way.  So failures, when they occur, are larger.

So, how do central banks prevent these problems?  Traditionally they did so by the old-boys network.  If a commercial bank was lending in a way the central bank thought reckless then the chairman of that bank would be brought into the office of the chairman of the central bank and given a dressing down.  In the US he would be informed that a crowd of three-letter regulatory agencies were about to descend on his door.  In the UK he would be informed that he was no longer in line for a knighthood.  This sort of thing has a name, it is called "frown cost".

Now, the aspects of the banking system I've described so far are really not disastrously bad.  Foolish perhaps and over-reliant on the competence and good intentions of central bankers.  What makes it much worse is the use of central banking to regulate interest rates.

In the past central banks required commercial banks to keep reserves.  These were a means of preventing those banks from becoming insolvent and having to borrow from the central bank.  Today though reserves are used to control money supply.

Banks offer their customers what are amusingly called "deposit accounts".  Their customers may be forgiven for thinking that they are like deposit boxes.  The possessions a person puts in a deposit box remains their own, the owner of a set of deposit boxes must take care of them.  This is what is known in law as a bailment.  Deposit accounts however are debts, money the banks borrow from their customers.   The banks lend this money out to others.  This brings about the well known money multiplier effect which I've described before where deposits in one account are lent out and become deposits in another.  In this situation the reserve the bank must keep acts to dampen the effect of adding new money to the system.

Central banks employ numerous economists to decide what the interest rate should be.  They have various theories about how beneficial things for the economy can be achieved by certain interest rates.  Use of these ideas - whether they are correct or not - directly threatens the central banks role as lender of last resort.

A few days ago there was amusing interview with an old banker from the Bank of England (the UK central bank) on British TV.  He said that the chairman of the Bank of England could have easily have stopped the housing bubble in the UK.  All he need have done is to have brought the leaders of the big commercial banks into his office and warned them to change their lending behaviour.  Sadly this old banker is rather out of touch.  Had the chairman of the Bank of England done so I'm pretty sure I can guess what the leader of the commercial banks would have said.  They would have said something like "The interest rate is the fee that we charge our customers for loans.  Your organization sets that rate.  If you think we are taking on loans that are too risky then why have you set the interest rate so low?".

In my view the problems with the banking system that we have now are sufficiently serious that we should abandon the current way of doing things.  If anything has being demonstrated by the current crisis it is that whether the interest rate is 7% or 3% matters very little compared to whether or not banking works.  The safe way to deal with the future is to abandon manipulation of the interest rate.  In the medium term central banks should stop attempting to manipulate that rate.  In the long term the "lender of last resort" system should be phased out.  A better means of security would be to ensure by law (and policing) that each bank keep a full reserve of all deposit accounts, so it can always pay all of its depositors.  Lastly, it may be wise for currencies to be linked back to commodities such as gold as they were in the past.


Title: Re: [BLOG] Cars and Class Warfare
Post by: Ihlosi on January 04, 2009, 03:17:30 EST
A better means of security would be to ensure by law (and policing) that each bank keep a full reserve of all deposit accounts, so it can always pay all of its depositors.

How are people going to borrow money, then? To me, that sounds like it's back to loansharkery, with all the bad things that come with it (i.e. only people with _lots_ of money can profit from interest, since only they can lend out the amounts usually requested for purchases like houses, real estate, etc). And what role are banks going to play? Are they going to become places where the customers pay money (more than they already do) just to have their money in an account?

Also, most of the arguments against fractional reserve banking vilify it by doing (deliberately or negligently) questionable accounting (e.g. they ignore all the negative balance created in the lending process, assume that the central bank is an infinite source of money, etc). You can multiply money just as well with full reserve banking if you deliberately perform card tricks when doing the accounting.

Quote
Lastly, it may be wise for currencies to be linked back to commodities such as gold as they were in the past.

I don't think that linking the value of currencies to the mercy and goodwill of a group of mining cartels is a better solution than the current system. It's putting all eggs in one basket and then giving it to the fox for safekeeping. The value of _any_ commodity can be manipulated in either direction.


Title: Re: [BLOG] Cars and Class Warfare
Post by: Medivh on January 04, 2009, 08:21:39 EST
Economics isn't really a science.  Science requires you to make hypotheses, than test them in peer reviewed double blind studies and the like, before coming to a conclusion.  Economics loves to make nice big theories and only bothers to test them after the fact, if at all.  In regards to scientific rigor, that approach is is equivalent to Historical Analysis on a good day and Creationism on a bad one.
It's interesting that you bring up creationism.  The argument that you are making here is similar to one brought up against darwinian evolution.  When Darwin, Wallace and the other early evolutionary biologists first made the argument for natural selection they did so on the basis of historical evidence.  The subject of their theory was essentially historical.  So they could not test their hypothesis using later experimentation.  What they did was historical analysis.  Does this mean then that the theory of natural selection is not science?  Well, I think there is an argument for that point of view.  I think the most reasonable argument though is that it is a different sort of science to normal experimental science.

Nope. Incorrect. Very wrong. Apologies if I sound over the top here, but evolution is a subject that is very easy, and that people still manage to arse up frequently and often.

Evolution theory didn't start with Darwin, he just found the good evidence.
No.  Before Charles Darwin there were many other evolutionary theories but nothing really the same.

His Grandfather Erasmus Darwin held the theory that acquired characteristics were inherited.  A theory that later became known as Lamarckism.

Lamarckism was an important precursor to true evolution. Just like the four humors were an important fore-runner to germ theory.

Charles Darwin did think of the theory of Darwinian evolution though.  Several other people had thought of it before him, Alfred Russell Wallace, William Charles Wells and Patrick Matthew.  Wells and Matthew's ideas were not well known.  I expect you know what happened between Darwin and Wallace.

It's true that Darwin's thoughts were independent. But they weren't original and of whole cloth, as you imply.

Here's how: Darwin was the naturalist on the HMS Beagle. He got the captain to drop him off on one side of the South American continent and made his way across it while the Beagle went round the southern tip. When he met up with the Beagle on the western seaboard, they went to the Galapagos Islands. Here, Darwin saw birds that were very similar, but with minor differences that enabled them to survive better on the Galapagos Islands. Things like beak alterations that allowed easier cracking of nuts, a more common food source on the islands than mainland South America.

Indeed, he found varieties on different islands that were of the same species, but of differing characteristics. Considering the evidence, it was clear that minor variations had become amplified over many generations. Not historical evidence at all, you see. Noticing that Nature produces different breeds of the same species in the same way that husbandry produces different breeds of dog.
What Darwin noticed was the differences between the animals in the various places that he travelled to.  The "splendid isolation" of the Galapagos islands.  These provided him, and later evolutionary biologists with a set of what are called "natural experiments".  This is all historical evidence though in the sense that he never saw the process itself take place he saw only the results.

So, I don't think that I am wrong.

It's a common misconception that Darwin thought of evolution using only the Galapogos Islands as reference, but it's not true. As I said, he had the near uniformity of the South American continent on the one hand, and the independent breeds of each island on the other.

It wasn't historical evidence, it was non-anecdotal observational evidence. Not quite as good as experimental evidence, but not nearly as far flung as historical evidence.

Evolutionary biology and economics are very interlinked and similar subjects.  Today they both use a different sort of method to that you describe.  In economics a set of ideas about how people behave in small scale situations are constructed, so called "microfoundations".  Then how those microfoundations affect other larger-scales is investigated.  The same sort of thing is done in evolutionary biology.

The difference is that scientists have produced evolution in bacterial culture. Set E. Coli in culture with minimal food apart from citrine, and the bacteria will, given a few thousand generations, become able to consume citrine. While Darwin wasn't able to do experimentation to prove evolution, we can. Economies are somewhat more... troublesome?... to replicate like that.
Would you say that without the evidence from such experiments that Darwinian evolution is a theory that should be dismissed?  Were the creationists and other critics right until the time when such experiments were possible?

No, I don't. I think that Evolution shouldn't have been considered as strong as it has been without such evidence, but it still managed to explain everything, without exception. The reason why it was so strongly considered was because of this, and because nothing else had the same property.

Very few, if any, economic theories have that property.

I personally don't think so, historical evidence is useful.  It is perhaps not as good as experimental evidence, but this depends on the situation.

Ignoring the problem implication there, historical evidence is useful. As a starting point.

Economics, though, just has too many variables to consider. You can't get historical records in enough detail.

For example, what does the experiment you describe with E. Coli really show?  Without our prior knowledge to guide us it shows very little.  Had Lamarck or Erasmus Darwin being shown the experiment I expect they would have concluded that one generation of the bacteria had developed the ability to consume citrine and passed it to subsequent generations.

That's not far from the truth. Hence why Lamarckism was an important step. A generation contained Cit+ mutants, which then thrived over and above the others. However, they weren't able to live purely on citrine. Later generations improved on this ability, and those mutants thrived over and above the lesser-able mutants.

Essentially, it was clear that some mutations happened at around this generation, some more between there and the other, and a few more around that one.

If a catastrophe theorist or a creationist were shown the experiment they may have pointed out that it is merely an instance of selective breeding.  They would then point out that selective breeding has being known about for a long time, it is nothing new.  They may point out that the real questions are whether such selection can create anything majorly novel and whether the natural environment provides a means of such selection.  These questions can still only be answered by historical evidence.

Creationists have already tried. It's not selective breeding as you start with traits that you want to enhance and you pick pairings based off a likelyhood of enhancing that trait. E. Coli reproduces asexually. Never minding what's coming next.

As to "majorly novel", no E. Coli strains known of thus far have been Cit+. Thus, clearly it can produce something majorly novel. Given asexual reproduction, the environment is the only factor dictating survival of mutants.

Concluding that; the experiment tells us a lot more than you seem to think. It tells us a lot more than I can tell you, as my intellect lends its self to the physical sciences more than the biological. However, I've never heard of a way to test an economic theory, barring forcing people to participate by stranding them on an island. Economics isn't testable, it can't be science.


Title: Re: [BLOG] Cars and Class Warfare
Post by: Andrei on January 05, 2009, 09:51:56 EST
Quote from: Current
Well, I agree with you that there are differences between the modern financial sector and other industries.  These differences though don't mean that banking can't operate as a more normal industry.  To begin with there is no reason why everyone must be paid wages into their bank accounts, as is the law in many countries.
There is no reason I can't go tutor in bermuda shorts and a striking pink shirt. It's a case of "I didn't say you couldn't, I said you shouldn't."

Besides, as I said in my post, even if you don't have a bank account, you'll still be paid with a check so having money still depends on the solvency of one bank or another. And jobs which pay cash either pay very little or aren't legal.

Quote from: Current
The situation is not like telephone or electricity.
I never said it was, I said it shared a particular property with telephone and electricity, namely that you can't avoid using it. I should have added "water supply" to the list, although that's almost everywhere a state monopoly.

Your basic argument here is that since you can keep your money in different banks, you can avoid risks to a great extent. This sounds great in theory. In practice however, how many bank accounts can you have? Even assuming you have four of them, does losing 25% of your savings overnight, unpredictably and through no fault of your own, sound like a sword you'd like dangling over your head?

I admit that I have neither interest nor patience for economics, so I skipped most of your post, which I wouldn't be qualified to comment on anyway.

That being said, let me propose a different banking system which, from a customer's point of view, would work great :

There would be a central, state-backed bank, which would act as a safety-deposit box for its customers and wouldn't go under unless the state craps out (in which case there would be bigger problems anyway).

However, the central bank stays out of the lending business. It works strictly as a safety deposit box, at most would it have some very low interest savings plans.

Lending, high-interest savings plans and so forth would be left to private banks. I think that's enough for them to turn a healthy profit without resorting to loan-sharking, especially if the central banks makes sure the private banks remain small or occasionally fiddles around with them a little (let's not pretend the central bank wouldn't have some influence on the private ones).

And if one of them craps out, it would be unpleasent for those who invested in it, but it would have been an avoidable and perhaps predictable downturn, and probably wouldn't have much consequences anyways.
_____________________________________________________

Quote from: Heq
There is very little reason for people who legit understand money to stay in academia, unless they either have a religious/social opposition to money or attach very little value to it.
I'm not sure of that.

The business world may offer higher wages, but the academic one offers very good salaries, in addition of many other bonuses.

To name just one, tenure essentially guarantees you a high-paying and relatively pleasent job for the rest of your life, regardless of laziness, obnoxiousness or senility.

I know tenured academics recipients which suffer from these. I still don't know anyone on tenure that is at once lazy, obnoxious and senile... but I have high hopes of becoming the one.

I don't see what the business world could offer that could compare...


Title: Re: [BLOG] Cars and Class Warfare
Post by: Heq on January 05, 2009, 13:34:44 EST
Well, if you work in a profitable field and don't hemmorage away your money, you can retire at 45, which is about the age most profs can make a run at tenure.

Tenure trask is actually not as common as it once was (for good reason), and the politics in academia are nasty.


Title: Re: [BLOG] Cars and Class Warfare
Post by: Current on January 05, 2009, 15:16:04 EST
I've created the thread of doom here....  Now we're debating economics, economic liberalism, Darwinism and Marxism.  Maybe we should debate religion and gay rights too just so we can have all the hot-button issues in one thread ;).

Economics isn't really a science.  Science requires you to make hypotheses, than test them in peer reviewed double blind studies and the like, before coming to a conclusion.  Economics loves to make nice big theories and only bothers to test them after the fact, if at all.  In regards to scientific rigor, that approach is is equivalent to Historical Analysis on a good day and Creationism on a bad one.
It's interesting that you bring up creationism.  The argument that you are making here is similar to one brought up against darwinian evolution.  When Darwin, Wallace and the other early evolutionary biologists first made the argument for natural selection they did so on the basis of historical evidence.  The subject of their theory was essentially historical.  So they could not test their hypothesis using later experimentation.  What they did was historical analysis.  Does this mean then that the theory of natural selection is not science?  Well, I think there is an argument for that point of view.  I think the most reasonable argument though is that it is a different sort of science to normal experimental science.

Nope. Incorrect. Very wrong. Apologies if I sound over the top here, but evolution is a subject that is very easy, and that people still manage to arse up frequently and often.

Evolution theory didn't start with Darwin, he just found the good evidence.
No.  Before Charles Darwin there were many other evolutionary theories but nothing really the same.

His Grandfather Erasmus Darwin held the theory that acquired characteristics were inherited.  A theory that later became known as Lamarckism.

Lamarckism was an important precursor to true evolution. Just like the four humors were an important fore-runner to germ theory.
I that sarcasm?

Well, assuming it is, I disagree.  To begin with Lamarckism is an evolutionary theory, it may not be a correct theory but it is certainly an evolutionary one.  It proposes that living things have changed in form over time.  This was quite a significant departure of thought at the time it was first proposed.

Before it an act of creation by some god or higher being was the normal explanation for the existence and form of living things.  Even explanations that invoked catastrophes generally relied on creation occurring after those catastrophes.

The proposal of gradual change was an important step forward for what came later.  It was something that the ancient greeks considered, but my point is that its re-emergence was important.

Charles Darwin did think of the theory of Darwinian evolution though.  Several other people had thought of it before him, Alfred Russell Wallace, William Charles Wells and Patrick Matthew.  Wells and Matthew's ideas were not well known.  I expect you know what happened between Darwin and Wallace.

It's true that Darwin's thoughts were independent. But they weren't original and of whole cloth, as you imply.
As far as I know the evidence suggests that Charles Darwin though of his theory of evolution separately to the other men involved.  So, he was at least as original as the others, though he was certainly not first.

I don't really know what you mean by "of whole cloth".  If you mean his ideas were very incomplete I agree.

What distinguishes Darwin from the others is the great amount of work he did in the area.

Here's how: Darwin was the naturalist on the HMS Beagle. He got the captain to drop him off on one side of the South American continent and made his way across it while the Beagle went round the southern tip. When he met up with the Beagle on the western seaboard, they went to the Galapagos Islands. Here, Darwin saw birds that were very similar, but with minor differences that enabled them to survive better on the Galapagos Islands. Things like beak alterations that allowed easier cracking of nuts, a more common food source on the islands than mainland South America.

Indeed, he found varieties on different islands that were of the same species, but of differing characteristics. Considering the evidence, it was clear that minor variations had become amplified over many generations. Not historical evidence at all, you see. Noticing that Nature produces different breeds of the same species in the same way that husbandry produces different breeds of dog.
What Darwin noticed was the differences between the animals in the various places that he travelled to.  The "splendid isolation" of the Galapagos islands.  These provided him, and later evolutionary biologists with a set of what are called "natural experiments".  This is all historical evidence though in the sense that he never saw the process itself take place he saw only the results.

So, I don't think that I am wrong.

It's a common misconception that Darwin thought of evolution using only the Galapogos Islands as reference, but it's not true. As I said, he had the near uniformity of the South American continent on the one hand, and the independent breeds of each island on the other.
Yes.

It wasn't historical evidence, it was non-anecdotal observational evidence. Not quite as good as experimental evidence, but not nearly as far flung as historical evidence.
I don't agree.  What Darwin did was to compare live animal and plant species he found in various parts of the world, and also fossils.  As you mention he didn't just make comparisons within the Galapagos island but also more widely.  The observation of the living species may be reasonably called just that, "observation".

However the dividing line between "far flung" historical evidence and this sort of observation is not as clear cut as you imply.

What Darwin observed directly was the characteristics of the living things he studied.  He then created a theory which provided an explanation for some of those characteristics.  That theory was about the past, it provides a model for how things change over time.  What he drew from the observations he made was information on how history had progressed.  He augmented this with information from fossils.

As a comparison, consider two researchers.  Both are researching the movement of human beings across the world in prehistoric times.  One researcher examines remains of humans, and their settlement that have been discovered in different parts of the world, archeology.  The other researcher examines the genetics of existing settled human populations.  It may be argued that the first researcher is relying on "historical evidence" whereas the second is relying on "observational evidence".  But this really isn't the case both are looking at evidence of the past.

People thinking about this are distracted by the different characteristics of what is being observed.  Archaeological remains bring to mind the past, and the only purpose in collecting them is to study the past.  The DNA material in our bodies is of course still in use.  When it is used for the purpose I have described though it is a tool for studying the past.  Both sorts of research are really similar.

Darwin's writings are quite similar in their arguments to some of Adam Smith's.  Smith compared the economic situations of various nations, he then constructed a theory to attempt to explain them.  Darwin did something quite similar.  Both of them used evidence that was comparative and historical.  Even when they were looking at the present they were doing so in order to derive from it information to understand change over time.

Smith uses other sorts of argument too.

Evolutionary biology and economics are very interlinked and similar subjects.  Today they both use a different sort of method to that you describe.  In economics a set of ideas about how people behave in small scale situations are constructed, so called "microfoundations".  Then how those microfoundations affect other larger-scales is investigated.  The same sort of thing is done in evolutionary biology.

The difference is that scientists have produced evolution in bacterial culture. Set E. Coli in culture with minimal food apart from citrine, and the bacteria will, given a few thousand generations, become able to consume citrine. While Darwin wasn't able to do experimentation to prove evolution, we can. Economies are somewhat more... troublesome?... to replicate like that.
Would you say that without the evidence from such experiments that Darwinian evolution is a theory that should be dismissed?  Were the creationists and other critics right until the time when such experiments were possible?

No, I don't. I think that Evolution shouldn't have been considered as strong as it has been without such evidence, but it still managed to explain everything, without exception. The reason why it was so strongly considered was because of this, and because nothing else had the same property.

Very few, if any, economic theories have that property.
The original evolutionary theory that Darwin and early workers proposed did not explain everything without exception.  It had many problems.  The evolution of sexes for example was difficult to explain.  Modern genetic evolutionary theory encompasses most of the ideas of Darwin's theory but adds much more.  Current evolutionary theory is also a work in progress.

There is also a great difference in the level of explanation that is attempted.  Early evolutionists and early economists did not attempt to predict a great deal.  Textbook Darwinian evolution, for example, is similar to the most basic parts of economics, the explanation of  competition in markets.  Carl Menger's explanation of the basics of market competition has being as robust as the basics of Darwinism.

Both Economists and Evolutionary Biologists attempt to explain more today, with varying degrees of success.

I personally don't think so, historical evidence is useful.  It is perhaps not as good as experimental evidence, but this depends on the situation.

Ignoring the problem implication there, historical evidence is useful. As a starting point.

Economics, though, just has too many variables to consider. You can't get historical records in enough detail.
To do what?  It all depends on what the theory in question is.  I agree with you that there are not enough historical records to work with, for some cases.  However, many economic theories don't require huge amounts of data.

For example, what does the experiment you describe with E. Coli really show?  Without our prior knowledge to guide us it shows very little.  Had Lamarck or Erasmus Darwin being shown the experiment I expect they would have concluded that one generation of the bacteria had developed the ability to consume citrine and passed it to subsequent generations.

That's not far from the truth. Hence why Lamarckism was an important step. A generation contained Cit+ mutants, which then thrived over and above the others. However, they weren't able to live purely on citrine. Later generations improved on this ability, and those mutants thrived over and above the lesser-able mutants.

Essentially, it was clear that some mutations happened at around this generation, some more between there and the other, and a few more around that one.
I see, interesting.

If a catastrophe theorist or a creationist were shown the experiment they may have pointed out that it is merely an instance of selective breeding.  They would then point out that selective breeding has being known about for a long time, it is nothing new.  They may point out that the real questions are whether such selection can create anything majorly novel and whether the natural environment provides a means of such selection.  These questions can still only be answered by historical evidence.

Creationists have already tried. It's not selective breeding as you start with traits that you want to enhance and you pick pairings based off a likelyhood of enhancing that trait. E. Coli reproduces asexually. Never minding what's coming next.

As to "majorly novel", no E. Coli strains known of thus far have been Cit+. Thus, clearly it can produce something majorly novel. Given asexual reproduction, the environment is the only factor dictating survival of mutants.
To be clear about this I'm not saying that the creationists are right here, I'm saying that the historical evidence is much more important than experiments like this one.

To begin with what is majorly novel is all a matter of opinion.  I don't think the change you describe here is as significantly novel as the evolution of eyes, for example.

It's not selective breeding as you start with traits that you want to enhance and you pick pairings based off a likelyhood of enhancing that trait.
You don't need to necessarily pick the traits at all to do selective breeding.  The environment the plants or animals are exposed to can pick traits for you.

Concluding that; the experiment tells us a lot more than you seem to think. It tells us a lot more than I can tell you, as my intellect lends its self to the physical sciences more than the biological. However, I've never heard of a way to test an economic theory, barring forcing people to participate by stranding them on an island. Economics isn't testable, it can't be science.
As I said earlier there are several ways to find information to indicate the validity of economic theories.

Firstly, there are the natural experiments formed when different groups of people do different things.  For example two otherwise similar nations could adopt different economic policies.  This provides an opportunity to gather information about the effects of those policies.  This approach is of-course fraught with difficulties.  The original groups may not be similar and if several policies change at once it is difficult to see which are relevant.

Secondly, experiments can be done in certain aspects of economics.  Vernon Smith has done this, for example.  These sorts of experiments suffer from the problem that, like other sorts of experiment, it is difficult to make them mirror the real world.  To be honest I don't out that much hope for this method.  But I'd point out that it is possible.

Thirdly, what economics concerns itself with is the effects of decisions and actions on the larger scale.  The simplest way to examine this is to observe how those decisions take place (the "microfoundations" and to extrapolate how that works to the larger scale.  These sort of theories can then be tested against each other by two methods.  Firstly by examination of the empirical data and secondly by examining how reasonable the theory about the underlying decision making is.

Notice that if you think about your viewpoint it would be hard for you to call Astronomy a science.  It deals with observations without dealing with experiments, except where it meets nuclear physics.

More importantly though, if you take the view that it isn't a science then does that mean that you don't consider it worth studying?  I don't think this argument can really be made since it is obviously very important.  Also, notice what Wodan is trying to do by attacking economics, he is proposing essentially that his views about intervention take preference.  He has ideas about these and they imply a theory of how large scale economics works, so he is no less an economic theorist than those he attacks.


Title: Re: [BLOG] Cars and Class Warfare
Post by: Medivh on January 05, 2009, 21:41:14 EST
I've created the thread of doom here....  Now we're debating economics, economic liberalism, Darwinism and Marxism.  Maybe we should debate religion and gay rights too just so we can have all the hot-button issues in one thread ;).

And then we can nuke the thread from orbit and hope that's the end of it! :P

(Death to prop 8! :P)

Unfortunately for me, I'm only interested in the Darwinism part of it, and only because so many people I deal with get it wrong in really stupid ways. Some of them on purpose, due to the fact that were they to understand better, they'd need to change their worldview.

Economics isn't really a science.  Science requires you to make hypotheses, than test them in peer reviewed double blind studies and the like, before coming to a conclusion.  Economics loves to make nice big theories and only bothers to test them after the fact, if at all.  In regards to scientific rigor, that approach is is equivalent to Historical Analysis on a good day and Creationism on a bad one.
It's interesting that you bring up creationism.  The argument that you are making here is similar to one brought up against darwinian evolution.  When Darwin, Wallace and the other early evolutionary biologists first made the argument for natural selection they did so on the basis of historical evidence.  The subject of their theory was essentially historical.  So they could not test their hypothesis using later experimentation.  What they did was historical analysis.  Does this mean then that the theory of natural selection is not science?  Well, I think there is an argument for that point of view.  I think the most reasonable argument though is that it is a different sort of science to normal experimental science.

Nope. Incorrect. Very wrong. Apologies if I sound over the top here, but evolution is a subject that is very easy, and that people still manage to arse up frequently and often.

Evolution theory didn't start with Darwin, he just found the good evidence.
No.  Before Charles Darwin there were many other evolutionary theories but nothing really the same.

His Grandfather Erasmus Darwin held the theory that acquired characteristics were inherited.  A theory that later became known as Lamarckism.

Lamarckism was an important precursor to true evolution. Just like the four humors were an important fore-runner to germ theory.
I that sarcasm?

Well, assuming it is, I disagree.  To begin with Lamarckism is an evolutionary theory, it may not be a correct theory but it is certainly an evolutionary one.  It proposes that living things have changed in form over time.  This was quite a significant departure of thought at the time it was first proposed.

Before it an act of creation by some god or higher being was the normal explanation for the existence and form of living things.  Even explanations that invoked catastrophes generally relied on creation occurring after those catastrophes.

The proposal of gradual change was an important step forward for what came later.  It was something that the ancient greeks considered, but my point is that its re-emergence was important.

No sarcasm at all. Unfortunately I grabbed the wrong example with four humours. There are far too many steps between that and germ theory. A better example would have been spontaneous generation.

Charles Darwin did think of the theory of Darwinian evolution though.  Several other people had thought of it before him, Alfred Russell Wallace, William Charles Wells and Patrick Matthew.  Wells and Matthew's ideas were not well known.  I expect you know what happened between Darwin and Wallace.

It's true that Darwin's thoughts were independent. But they weren't original and of whole cloth, as you imply.
As far as I know the evidence suggests that Charles Darwin though of his theory of evolution separately to the other men involved.  So, he was at least as original as the others, though he was certainly not first.

I don't really know what you mean by "of whole cloth".  If you mean his ideas were very incomplete I agree.

What distinguishes Darwin from the others is the great amount of work he did in the area.

I see I'm not particularly clear. Allow me to clean that up.

Darwin's thoughts were independent of Wallace, Wells and Matthew. He didn't credit-steal, nor did he discuss with any of these men before publishing, AFAIK.

Darwin's thoughts weren't original in the same way that Newton's thoughts weren't. "If I have been able to see further, it was only because I stood on the shoulders of giants," said Newton, and the same was true of Darwin.

It wasn't historical evidence, it was non-anecdotal observational evidence. Not quite as good as experimental evidence, but not nearly as far flung as historical evidence.
I don't agree.  What Darwin did was to compare live animal and plant species he found in various parts of the world, and also fossils.  As you mention he didn't just make comparisons within the Galapagos island but also more widely.  The observation of the living species may be reasonably called just that, "observation".

However the dividing line between "far flung" historical evidence and this sort of observation is not as clear cut as you imply.

What Darwin observed directly was the characteristics of the living things he studied.  He then created a theory which provided an explanation for some of those characteristics.  That theory was about the past, it provides a model for how things change over time.  What he drew from the observations he made was information on how history had progressed.  He augmented this with information from fossils.

I draw a line here, because I'm mostly with you to this point, but the below paragraph loses me. Though the fossils came much later, I believe.

As a comparison, consider two researchers.  Both are researching the movement of human beings across the world in prehistoric times.  One researcher examines remains of humans, and their settlement that have been discovered in different parts of the world, archeology.  The other researcher examines the genetics of existing settled human populations.  It may be argued that the first researcher is relying on "historical evidence" whereas the second is relying on "observational evidence".  But this really isn't the case both are looking at evidence of the past.

See, the second is starting with the assumption that mutation hasn't changed the genetics of people so far that they can't be traced. There a lot more in the way of tenuous connections for the second one and that's why it's less reliable than direct observation. Darwin's observation didn't assume to start with, and the theory that followed was the simplest explanation for the observations.

People thinking about this are distracted by the different characteristics of what is being observed.  Archaeological remains bring to mind the past, and the only purpose in collecting them is to study the past.  The DNA material in our bodies is of course still in use.  When it is used for the purpose I have described though it is a tool for studying the past.  Both sorts of research are really similar.

And contrary to common sense, the DNA research is likely less reliable than the archaeological research.

Darwin's writings are quite similar in their arguments to some of Adam Smith's.  Smith compared the economic situations of various nations, he then constructed a theory to attempt to explain them.  Darwin did something quite similar.  Both of them used evidence that was comparative and historical.  Even when they were looking at the present they were doing so in order to derive from it information to understand change over time.

Smith uses other sorts of argument too.

All of which is fine, but to compare the history of economics to modern corporatism, and say that it's the natural outcome is much like saying cyborgs are the natural outcome of natural evolution.

Which is to say, we don't expect evolution to apply to humans in meaningful ways, as we're not in an environment that kills all the weaker specimens. In the same way, applying Smith's ideas of economics, allowing for refinements in the theory, to modern corporatism doesn't make sense.

Evolutionary biology and economics are very interlinked and similar subjects.  Today they both use a different sort of method to that you describe.  In economics a set of ideas about how people behave in small scale situations are constructed, so called "microfoundations".  Then how those microfoundations affect other larger-scales is investigated.  The same sort of thing is done in evolutionary biology.

The difference is that scientists have produced evolution in bacterial culture. Set E. Coli in culture with minimal food apart from citrine, and the bacteria will, given a few thousand generations, become able to consume citrine. While Darwin wasn't able to do experimentation to prove evolution, we can. Economies are somewhat more... troublesome?... to replicate like that.
Would you say that without the evidence from such experiments that Darwinian evolution is a theory that should be dismissed?  Were the creationists and other critics right until the time when such experiments were possible?

No, I don't. I think that Evolution shouldn't have been considered as strong as it has been without such evidence, but it still managed to explain everything, without exception. The reason why it was so strongly considered was because of this, and because nothing else had the same property.

Very few, if any, economic theories have that property.
The original evolutionary theory that Darwin and early workers proposed did not explain everything without exception.  It had many problems.  The evolution of sexes for example was difficult to explain.  Modern genetic evolutionary theory encompasses most of the ideas of Darwin's theory but adds much more.  Current evolutionary theory is also a work in progress.

There is also a great difference in the level of explanation that is attempted.  Early evolutionists and early economists did not attempt to predict a great deal.  Textbook Darwinian evolution, for example, is similar to the most basic parts of economics, the explanation of  competition in markets.  Carl Menger's explanation of the basics of market competition has being as robust as the basics of Darwinism.

Both Economists and Evolutionary Biologists attempt to explain more today, with varying degrees of success.

I disagree that today's evolutionary biologists have varying degrees of success. Every proposed "irreducibly complex" system in biology has been shown up completely. All challengers to evolutionary theory have been swatted aside with ease. Economic theory is a very divided field, by comparison.

The only way in which evolutionary biology has had varying success is in explaining the theory properly to laypeople.

I personally don't think so, historical evidence is useful.  It is perhaps not as good as experimental evidence, but this depends on the situation.

Ignoring the problem implication there, historical evidence is useful. As a starting point.

Economics, though, just has too many variables to consider. You can't get historical records in enough detail.
To do what?  It all depends on what the theory in question is.  I agree with you that there are not enough historical records to work with, for some cases.  However, many economic theories don't require huge amounts of data.

Anything that explains modern corporatism needs more data than is available, or feasible, to work with. We have theories that work well when there are companies that stick to primary, secondary or tertiary work. But we have corporations that take in some primary products, own the production of some others, take in some secondary products while they're producing others, and do all their own tertiary work. Hell, we even have corporations that do none of that.

Alumina Limited (http://en.wikipedia.org/wiki/Alumina_Limited) is a publicly traded corporation in Australia. The entirety of their activities involve co-owning Alcoa World Aluminium and Chemicals (AWAC). Alumina owns 40% of AWAC. Alcoa Incorporated (http://en.wikipedia.org/wiki/Alcoa) owns the other 60%, and operates everything owned by AWAC. Thus, Alumina does nothing.

Economic theory fails to explain this, as far as I'm aware.

If a catastrophe theorist or a creationist were shown the experiment they may have pointed out that it is merely an instance of selective breeding.  They would then point out that selective breeding has being known about for a long time, it is nothing new.  They may point out that the real questions are whether such selection can create anything majorly novel and whether the natural environment provides a means of such selection.  These questions can still only be answered by historical evidence.

Creationists have already tried. It's not selective breeding as you start with traits that you want to enhance and you pick pairings based off a likelyhood of enhancing that trait. E. Coli reproduces asexually. Never minding what's coming next.

As to "majorly novel", no E. Coli strains known of thus far have been Cit+. Thus, clearly it can produce something majorly novel. Given asexual reproduction, the environment is the only factor dictating survival of mutants.
To be clear about this I'm not saying that the creationists are right here, I'm saying that the historical evidence is much more important than experiments like this one.

To begin with what is majorly novel is all a matter of opinion.  I don't think the change you describe here is as significantly novel as the evolution of eyes, for example.

Fair enough. But given the complexity of the organism, it's like humans mutating to be able to eat grass. Or be able to digest and use all of a celery stick.

It's not selective breeding as you start with traits that you want to enhance and you pick pairings based off a likelyhood of enhancing that trait.
You don't need to necessarily pick the traits at all to do selective breeding.  The environment the plants or animals are exposed to can pick traits for you.

That's not really selective breeding, then, is it? Natural selection, to be sure, but not selective breeding.

Concluding that; the experiment tells us a lot more than you seem to think. It tells us a lot more than I can tell you, as my intellect lends its self to the physical sciences more than the biological. However, I've never heard of a way to test an economic theory, barring forcing people to participate by stranding them on an island. Economics isn't testable, it can't be science.
As I said earlier there are several ways to find information to indicate the validity of economic theories.

Firstly, there are the natural experiments formed when different groups of people do different things.  For example two otherwise similar nations could adopt different economic policies.  This provides an opportunity to gather information about the effects of those policies.  This approach is of-course fraught with difficulties.  The original groups may not be similar and if several policies change at once it is difficult to see which are relevant.

Another difficulty is that it's rare to find countries that are similar enough to even lie about them being similar, were you to want to be dishonest and "prove" your pet theory in such a way. Even the US and Australia, which share a lot of culture, are very different economically.

Secondly, experiments can be done in certain aspects of economics.  Vernon Smith has done this, for example.  These sorts of experiments suffer from the problem that, like other sorts of experiment, it is difficult to make them mirror the real world.  To be honest I don't out that much hope for this method.  But I'd point out that it is possible.

The micro-macro jump. Problems abound, yes.

Thirdly, what economics concerns itself with is the effects of decisions and actions on the larger scale.  The simplest way to examine this is to observe how those decisions take place (the "microfoundations" and to extrapolate how that works to the larger scale.  These sort of theories can then be tested against each other by two methods.  Firstly by examination of the empirical data and secondly by examining how reasonable the theory about the underlying decision making is.

This also suffers from the problem of "many things changed, what was the cause of this particular effect?"

Notice that if you think about your viewpoint it would be hard for you to call Astronomy a science.  It deals with observations without dealing with experiments, except where it meets nuclear physics.

Not true. You can write up your theories into a simulation of the universe on a computer, and see how closely the simulation matches observation.

More importantly though, if you take the view that it isn't a science then does that mean that you don't consider it worth studying?  I don't think this argument can really be made since it is obviously very important.  Also, notice what Wodan is trying to do by attacking economics, he is proposing essentially that his views about intervention take preference.  He has ideas about these and they imply a theory of how large scale economics works, so he is no less an economic theorist than those he attacks.

Not that it's not worth studying, but that it's perhaps not good to rely on it. At this point we have many economists advising leaders of almost all countries as to how to meet certain goals. However, the economists are uncertain as to the outcomes themselves. As such, the idea of economics being trusted like evolutionary biology strikes me as equivalent to building on a fault line and assuming that it's as sturdy as the middle of a tectonic plate.


Title: Re: [BLOG] Cars and Class Warfare
Post by: Current on January 06, 2009, 12:19:13 EST
Quote from: Ihlosi
Quote from: Current
A better means of security would be to ensure by law (and policing) that each bank keep a full reserve of all deposit accounts, so it can always pay all of its depositors.

How are people going to borrow money, then?
From banks, just not from deposit accounts.  Deposit accounts are not the only source of fund for loans.  Banks also offer savings accounts and bonds.  For these sorts of account the bank will not normally offer the services of a deposit account.  In most cases the saver is aware that he or she is loaning their money to the bank and that the bank is not necessarily good for the debt and won't necessarily be able to pay it without notice.  The bondholder is certainly aware of this.

Quote from: Ihlosi
Are they going to become places where the customers pay money (more than they already do) just to have their money in an account?
That's quite likely.  It is a trade off there can be safer banking or cheaper banking.

Quote from: Ihlosi
Also, most of the arguments against fractional reserve banking vilify it by doing (deliberately or negligently) questionable accounting (e.g. they ignore all the negative balance created in the lending process,
I don't think that is really true.  Let's look at a fractional reserve banking system....

Person A has £2000 in their current account.  Their bank, bank X, loans out £1900 of it to person B.  Now, bank X has kept £100 in reserve.  Person B then has £1900 in their bank account at bank Y.  Person B also has a debt of £1900.  This debt is different from the current account balances because person B is not a bank.

The money in the bank accounts is what is called a money-substitute.  That means it is practically identical to money.  Having £5 in your bank account is the same as having a £5 note.  The debt of person B is not of the same status, it is not a money substitute, since he could default.  The bank is protected by the central bank so it's chances of defaulting are much, much lower.

I think it would be useful to explain the normal argument against fractional reserve banking given by Murray Rothbard....  Rothbard created a good analogy for the problem.  In the 19th century both banks and grain elevators deal in the warehousing of commodities.  Banks warehoused money and grain elevators warehoused grain.  Both had systems that used notes.  A grain elevator gave the person it was storing grain for a note, like a warehouse ticket.  A bank gave notes too, saying "I promise to pay the bearer on demand the sum of ...".  Both industries succumbed to the same temptation.  They noticed that they almost always kept in storage a certain amount of the commodity.  Since their reserve is a homogeneous commodity no customer knew whether what they deposited was what was returned to them, or cared.  So, when they would create some more notes, without anything behind them, for money or for grain and circulate them.  Banks would use the notes to buy things or to pay debts.  Grain elevators owners would trade their notes on grain exchanges.

Eventually the law was changed to ban grain elevator businesses from doing this.  The law granted banks the ability continue to do this.  Now, Rothbard's argument is that this was dishonest.  Here I don't really agree with Rothbard, before the issue came up it was not really clear what the agreements represented by notes or deposit accounts were.  Whether they were a promise to store something or a debt was not defined.

The main problem though is the central bank gaurantees.  It is these that allow notes and deposit accounts to become true money substitutes.  Before central banks gauranteed to act as "lender of last resort" to commercial banks things were different.  A commercial bank could run a fractional reserve, and many would do so.  But this was risky, if they were unable to make good on their accounts they would be bankrupt.  If their customers found they were not able to meet their commitments then there would be bank run.  Other banks could prey on them by deliberately stockpiling their notes and requesting to be redeemed all at once.  As banks would use fractional reserves but not aggressive ones.

So, two changes could help prevent problems such as the recent crisis a great deal.  Firstly the central bank protection of commercial banks could be removed, secondly deposit accounts could be given the status of a bailment contract and policed as such, making them a real deposit.  If these things were done together the consumer would lose nothing.  Formerly their balance was a debt protected by the central bank and deposit insurance.  After the change their account contains the full amount.

Quote from: Ihlosi
assume that the central bank is an infinite source of money, etc).
The central bank is an infinite source of money.  Central banks do not go bankrupt.  When there is a threat of that occurring governments step in to prevent it.  Perhaps there is a theoretical chance of it happening, but in practice central banks are infinite sources of money.

The final limitation on their money issuing powers is when the population stop using the money.  In Zimbabwe for example the local currency is used as toilet paper, people trade using South African money or by barter.

Quote from: Ihlosi
You can multiply money just as well with full reserve banking if you deliberately perform card tricks when doing the accounting.
That can only really be done by creating a successful money substitute, something that people will accept as money.  A note will be accepted as having a value close to money if people believe that the issuer is good for the note.  In the long term there are only two ways to do this.  For the issuer to be good for the note by keeping sufficient funds aside to make that possible.  Or for the issuer to somehow harness the powers of government and have them provide funds in emergencies.


Title: Re: [BLOG] Cars and Class Warfare
Post by: Andrei on January 06, 2009, 17:56:07 EST
Quote from: Current
I've created the thread of doom here....  Now we're debating economics, economic liberalism, Darwinism and Marxism.  Maybe we should debate religion and gay rights too just so we can have all the hot-button issues in one thread.
I aim to please... (http://www.faithfacts.org/blog/biblical-capitalism)

Now all we need is to get gay rights involved in this discussion. I think we should do it as an off-shoot of the darwinism debate.

Homosexuality is, after all, a liability from an evolutionary point of view (success of a species being its success at reproduction and all that jazz).

Quote from: Medivh
Darwin's thoughts weren't original in the same way that Newton's thoughts weren't. "If I have been able to see further, it was only because I stood on the shoulders of giants," said Newton, and the same was true of Darwin.
I'd be careful about using Newton as an example.

IIRC, he was accused on more than one occasion of not just sitting on the shoulders of others but also of looking over their shoulders while they were writing and publishing what he saw before they got to...


Title: Re: [BLOG] Cars and Class Warfare
Post by: rogue-kun on January 06, 2009, 18:26:57 EST
Homosexuality is, after all, a liability from an evolutionary point of view (success of a species being its success at reproduction and all that jazz).

Except in over population situations.


Title: Re: [BLOG] Cars and Class Warfare
Post by: Current on January 06, 2009, 18:31:53 EST
Homosexuality is, after all, a liability from an evolutionary point of view (success of a species being its success at reproduction and all that jazz).

Except in over population situations.
From an evolutionary point of view it is very, very complicated.  There are many scenarios in which homosexuality may be evolutionary beneficial, however nobody really know which of these if any explain the phenomenon.  The existence of a possible reasons does not mean that we know the reason.

It is also possible that it is just something not significant enough to have gained enough of an evolutionary disadvantage to weed out.

Also, I know this is controversial, it is possibly not genetic or not entirely genetic.


Title: Re: [BLOG] Cars and Class Warfare
Post by: rogue-kun on January 06, 2009, 18:45:35 EST
Also, I know this is controversial, it is possibly not genetic or not entirely genetic.

 the later parts is not so controversial, if you couple it with Kinsey scale.


Title: Re: [BLOG] Cars and Class Warfare
Post by: Medivh on January 06, 2009, 19:08:41 EST
Quote from: Medivh
Darwin's thoughts weren't original in the same way that Newton's thoughts weren't. "If I have been able to see further, it was only because I stood on the shoulders of giants," said Newton, and the same was true of Darwin.
I'd be careful about using Newton as an example.

IIRC, he was accused on more than one occasion of not just sitting on the shoulders of others but also of looking over their shoulders while they were writing and publishing what he saw before they got to...

Yeah, I was originally going with Planck, but the "shoulders of giants" quote popped into my head and I figured I should change it.


Title: Re: [BLOG] Cars and Class Warfare
Post by: Ihlosi on January 07, 2009, 03:23:10 EST
From banks, just not from deposit accounts.  Deposit accounts are not the only source of fund for loans.  Banks also offer savings accounts and bonds.

Savings accounts have ridiculously short cancellation periods (6 months at the most) compared to most loans. Most bonds also run much shorter than loans like mortgages. The problem here is that most investment of money is short-term compared to the things people take out loans for. If you want to invest your money for 20 to 30 years, real estate and other forms of investment suddenly start to rival bonds that would run that long. This is a fundamental problem - people want to invest money for much shorter terms than they want to borrow it for.

So, this would not solve the problem, as it's still possible for the bank to run out of cash if it sells (long term) loans on the one side and accepts deposits/sells bonds (shorter term than that of the loans)  on the other side. The only thing that would is having bonds that run as long or longer than usual loans, and you'd have a hard time selling 20+ year bonds to possible investors.

Quote
That's quite likely.  It is a trade off there can be safer banking or cheaper banking.

You're not going to be able to sell a checking account for $20/mo. to customers. The money is going to go under the mattress again.

Quote
Person A has £2000 in their current account.  Their bank, bank X, loans out £1900 of it to person B.  Now, bank X has kept £100 in reserve.  Person B then has £1900 in their bank account at bank Y.  Person B also has a debt of £1900.  This debt is different from the current account balances because person B is not a bank.

It still needs to be included in the accounting if you want to track money multiplication (the one part of the vilification).

Quote
The money in the bank accounts is what is called a money-substitute.  That means it is practically identical to money.  Having £5 in your bank account is the same as having a £5 note.  The debt of person B is not of the same status, it is not a money substitute, since he could default.  The bank is protected by the central bank so it's chances of defaulting are much, much lower.

The risk of default of the debtor is factored into the interest rate, which is how the banks protect themselves against losing too much money from default. And if the assessment of the debt of person B is realistic, you can put a price on the whole package and sell it.

And the job of the central bank is not to protect the bank against running out of assets, it's to keep the bank from running out of liquidity. The central bank, in most countries, doesn't just give the bank some money for nothing - it requires some form of security, usually in the form of securities, and it's picky about which ones it accepts.

Quote
The main problem though is the central bank gaurantees.  It is these that allow notes and deposit accounts to become true money substitutes.  Before central banks gauranteed to act as "lender of last resort" to commercial banks things were different.  A commercial bank could run a fractional reserve, and many would do so.  But this was risky, if they were unable to make good on their accounts they would be bankrupt.  If their customers found they were not able to meet their commitments then there would be bank run.

Here's another issue: Bank runs don't happen when banks aren't able to meet their commitments, they happen when enough customers suspect that they will not be able to. At that point, the whole thing becomes a self-fulfilling prophecy (and game theory has found out that at that point, even if _you_ personally believe the bank is still sound, it's still your best choice to participate in the bank run).

Quote
The central bank is an infinite source of money.

In its functions as a lender to bank it doesn't fill that role, though, since it doesn't just hand out cash to banks when they ask for it.

The infinite source of money thing only happens when the government keeps messing up big time, at which point you have much, much bigger problems than money, usually in the form of mobs of thugs with guns.

Quote
That can only really be done by creating a successful money substitute, something that people will accept as money.

No, all you need is something you can put a price on and sell. That is a much lower requirement than creating a money substitute. And, of course, you need to do deliberately creative accounting (similar to ignoring the negative balances when discussing the money multiplication issue).


Title: Re: [BLOG] Cars and Class Warfare
Post by: Current on January 27, 2009, 11:32:53 EST
A bit of necroposting....

This article (http://www.coyoteblog.com/coyote_blog/2009/01/prosecuting-the-those-with-bad-pr.html) is interesting, as is this article (http://blog.kir.com/archives/2009/01/making_bad_poli.asp).

The point both make is that curious standards are applied to different CEOs.  For example, it now looks like Rick Wagoner was lying when he talked about the financial situation at GM a few months ago.  Certainly if he was if his case for bailing out GM is to be believed.  Which means that either he was lying in the past or is lying now.

The executives of Enron were convicted for making false statements about the company they ran.  Many other executives have done the same though.  Whether or not an executive gets away with it seem to depend on how popular his company is or how popular he or she is.

If a company employs very many people or is seen as the financial lynchpin for an area then it seems the CEO gets away with optimistic statements when in other situations those statements may be considered illegal.


Title: Re: [BLOG] Cars and Class Warfare
Post by: Heq on January 27, 2009, 12:28:46 EST
My gods, are you implying that those who enforce the laws do not do so impartially?

Next you will tell me that government censorship exists to accomplish something other then the protection of sweet-sweet children, and that the stimulous package is a gaint lobbiest bribe.

Obama protect me!