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« Reply #90 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.
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Ihlosi
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« Reply #91 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.
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Medivh
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« Reply #92 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.
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And if i catch you comin' back my way
I'm gonna serve it to you
And that ain't what you want to hear
But that's what I'll do
-- "Seven Nation Army", The White Stripes

So what you're telling me is that LTV's fudge factor means more than it's independent variable?
Yes...
Andrei
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« Reply #93 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...
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He looked severely at me for awhile, then, grabbing his moustaches, he said:
- Boss, with all due respect, you are naive and pedant.

"Alexis Zorba", by Nikos Kazantzakis (translation mine)
Heq
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« Reply #94 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.
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« Reply #95 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 Wink.

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.
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« Reply #96 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 Wink.

And then we can nuke the thread from orbit and hope that's the end of it! Tongue

(Death to prop 8! Tongue)

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 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 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.
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So what you're telling me is that LTV's fudge factor means more than it's independent variable?
Yes...
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« Reply #97 on: January 06, 2009, 12:19:13 EST »

Quote from: Ihlosi
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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.
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« Reply #98 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...

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...
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« Reply #99 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.
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« Reply #100 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.
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« Reply #101 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.
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« Reply #102 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.
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So what you're telling me is that LTV's fudge factor means more than it's independent variable?
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« Reply #103 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.

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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).
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« Reply #104 on: January 27, 2009, 11:32:53 EST »

A bit of necroposting....

This article is interesting, as is this article.

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.
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