By Bron Suchecki, on July 6th, 2009
Dmitry Orlov recently posted an article titled Definancialisation, Deglobalisation, Relocalisation.
For those not familiar with Dmitry, he is the author of Reinventing Collapse, which is all about “prepar[ing] for life without much money, where imported goods are scarce, and where people have to provide for their own needs, and those of their immediate neighbours.”
In this article, Dmitry has a go at money and suggests barter can do the job but then suggest this is probably a better solution:
One option is to organise as communities to produce certain goods that the entire community wants: food, clothing, shelter, security and entertainment. Everyone makes their contribution, in exchange for the end product, which everyone gets to share. It is also possible to organise to produce goods that can be used in trade with other communities: trade goods. Trade goods are a much better way to store wealth than money, which is, let’s face it, an essentially useless substance.
I can’t say I share Dmitry’s belief in this socialist nirvana. The catch for me is “everyone makes their contribution” bit. Anyway, my main beef is with his belief that trade goods are a better way to store wealth and that money is essentially useless. Now I’m not going to discuss why money is better than barter (either between individuals or “communities” it doesn’t matter), as I think most people reading this get it. I’m more interested in why Dmitry would be so negative on money given its obvious efficiency it brings to exchange. The explanation is in this statement later in the article:
When we use money, we cede power to those who create money (by creating debt) and who destroy money (by cancelling debt). We also empower the ranks of people whose area of expertise is in the manipulation of arbitrary rules and arithmetic abstractions rather than in engaging directly with the physical world.
This has to be one of the best examples of the infiltration of the idea of fiat into society. This guy’s whole shtick is about radically challenging society yet he can’t conceive of money as anything but debt, so much so that he proposes returning to barter rather than retaining the benefits of money, but money which is directly engaged with the physical world – gold.
Another example of this misguided thinking is his statement that a lack of money “makes it more difficult to hoard wealth”. Professor Fekete has often debunked this demonisation of hoarding. Dmitry himself is confused on this matter – he thinks it is OK to hoard wealth in the form of trade goods, but not money.
I considered replying to Dmitry’s article on these matters, but thinking about how brainwashed (I can think of no better word) he is on money, I considered it a futile task. I could see a stereotypical negative perception of gold as some goldbug doom and gloom eccentricity. I see a need to condense Professor Fekete’s work into an easy (and quick) to understand case for sound money. Another one for the to-do list.
By Winton Bates, on April 27th, 2009
The essential feature of a tit-for-tat strategy is reciprocity – rewarding cooperation and punishing defection. In his book, “Born to be Good”, Dacher Keltner claims that “tit-for-tat instantiates the principle of cost-benefit reversal”. He argues that a set of mechanisms that reverse the cost-benefit analysis of giving is built into the human organism. He suggests: “These mechanisms might prioritize the gains of others over those of the self, and transform others’ gains into one’s own” (p. 71).
Keltner bases his claim that tit-for-tat involved cost-benefit reversal on three observations:
- When cooperation is the default setting, tit-for-tat favours mutually beneficial cooperation.
- Tit-for-tat is not envious – the strategy doesn’t change as a partner’s benefits mount.
- Tit-for-tat is a forgiving strategy – cooperation is resumed following the first cooperative action of a defector.
It seems to me, however, that none of these features of tit-for-tat necessarily involves prioritizing the gains of others over those of the self. It is possible for a tit-for-tat strategy to be adopted purely out of self interest. Robert Axelrod recognised this in “The Evolution of Cooperation” (p 173-4) , in his discussion of the experiments that Keltner uses as the basis for his discussion of tit-for-tat.
A tit-for-tat strategy based on self-interest provides a plausible explanation for the emergence of cooperation among strangers who have no reason to trust each other. For example, consider a situation where strangers are considering the initiation of trade in the absence of third party (e.g. government) protection against opportunistic use of force and fraud. From the perspective of each party the possible outcomes would be: a) a potential gain from trade; b) a potential loss resulting from opportunism by the other party – i.e. theft of the goods offered for trade; c) a potential gain from opportunism – theft of goods offered for trade by the other party; d) a stand-off.
If trade occurs in this situation, is it likely to be because one party places higher priority on the potential gains to the other party than on the potential gains to the self? I think it is more likely to occur because both parties consider that, in view of the likely responses of each other, they have more to gain from a series of mutually beneficial exchanges that they would gain from attempting to steal from each other.
If both parties adopt a consistent tit-for-tat strategy, then trade is likely to continue and they may come to trust each other. It is possible to envisage that the relationship could even develop to a point where they each gain some satisfaction from the benefit that they bestow upon each other through the exchange of goods. But this trust and affection is the outgrowth of mutually beneficial cooperation rather than a pre-condition for it.
I don’t understand why Dacher Keltner seeks to denigrate those who see self interest as a motivating force (see: How high was Adam Smith’s jen ratio?) and seeks to eliminate self-interest from the evolution of social cooperation. Perhaps he identifies the self-interest motive with opportunism, greed and selfishness to such an extent that he cannot see that it is good to desire to avoid being a burden on others, to help family members and other loved ones, and to accumulate the means to contribute generously to worthwhile causes. Perhaps he is uncomfortable with the idea that an invisible hand involved in voluntary exchange processes could enable people to benefit from cooperation with each other without actually intending to benefit each other.
By Emmanuel Tabones, on January 9th, 2009
I first became aware of Ha-joon Chang’s latest book, Bad Samaritans: The Myth of Free Trade and the Secret History of Capitalism in a critique written by Edward Glaeser , a prominent economist at Harvard University, and published in the daily paper, the New York Sun. I read this review with great interest. Professor Chang, currently with Cambridge University, is also an economist and a leading expert on development economics, which focuses on issues related to economic growth in low-income countries.
While Professor Glaeser regards this book as being “well written and far more serious” than others which share similar views, he disputes a number of points such as this idea that “there is anything secret about this history of American protectionism.” Professor Glaeser notes for instance, that the “Tariff of Abominations and the Smoot-Hawley Tariff are often taught in high school history classes.
Professor Chang insists that historically, high tariffs were largely responsible for the economic success of both the United States and Britain. Professor Glaeser disagrees, citing “insufficient evidence” based on his own findings and the work of other researchers. Meanwhile, Dartmouth economist Douglas Irwin has provided documentation that also disputes Professor Chang’s argument. For example, in response to the question,“Were high import tariffs somehow related to the strong U.S. economic growth during the late nineteenth century?”, Professor Irwin states his answer in a paper entitled “Historical Aspects of U.S. Trade Policy,” published in the non-partisan National Bureau of Economic Research (NBER), in which he cites a number of factors such as “population expansion and capital accumulation as playing a greater role in late nineteenth-century economic growth than improved productivity.” In fact, he observes that tariffs may have had a “detrimental affect by raising the prices for imported capital goods and discouraging capital accumulation.” Surprisingly, Professor Irwin has found that the “greatest productivity growth was in non-trade sectors (such as utilities and services) not directly affected by tariffs.”
Professor Irwin is barely mentioned in “Bad Samaritans” perhaps because he had expressed similar observations in his critique of Kicking Away the Ladder: Development Strategy in Historical Perspective , which was a previous work authored by Professor Chang.
Professor Glaeser similarly pointed out that “Bad Samaritans” could have been more effective if it had “delved deeper into understanding the broader historical impact of trade protectionism in the United States and Britain in relation to other economic factors.”
Having read the book, I believe that Professor Chang’s focus on high tariffs as being key to economic growth above most everything else is a fundamental flaw in his position along with the argument that “American and British free trade advocates are guilty of hypocrisy” because historically, their countries have not always practiced what they have preached.
Perhaps Professor Glaeser said it best when he mentioned that there is “alternative view that economists shouldn’t be required to endorse the worst policies of their own countries.”
By Cheryl Grey, on August 1st, 2008
How Small Is It?
New Zealand’s entire gross domestic product, the value of all goods and services produced within a year, was approximately $128.1 billion in 2007, around the same amount as the state of Iowa. The importation of one major piece of industrial machinery earlier this year required a comment in investment banks’ economic reports so as not to set the import-export seesaw tottering. Economic analysts regularly track “external migration” as workers flock to Australia, Canada and the United Kingdom for jobs, then flow back home when economic times pick up. When 29,000 jobs were lost in the first quarter of 2008, that was 1.3% of all the jobs in the nation, and it was enough to send the unemployment rate from 3.4% to 3.6%.
Services comprise the largest single sector of the economy and in 2006 made up 76% of employment. Agriculture, although only 7% of the total economic pie, heavily influences the rest, with industrial sectors including food processing such as milk and meat, wood and paper production from forestry and textiles from wool. It’s estimated that the recent drought’s effect on agriculture, and its attendant industrial sectors and hydroelectric production, was enough to knock a full percentage point from GDP growth in the first half of 2008.
Industrial production is kept discreet so that it doesn’t injure the other major industry—tourism—nor the burgeoning film sector. Crude oil, extracted offshore from the Tui oilfield, is loaded aboard tankers from the wellhead and immediately exported to overseas refineries rather than touching those pristine shores, while the government has funded an agency called Film New Zealand as a “one-stop shop” (their term) for producers of movies both major and minor to simplify the process from casting to special effects.
Achilles’ Heel
But much of this economy is based on trade, and exports influence fully 22% of New Zealand’s GDP, leaving the economy at the mercy of global whipsaws. Although soaring commodities prices, including milk, meat and crude oil, have bolstered trade-based cash flows for the past few years, imported refined gasoline costs have surged even higher, rising 12.8% in the first quarter alone and driving consumer inflation to income-crunching levels.
The Reserve Bank of New Zealand’s attempts to contain inflation have included raising the interbank (wholesale) interest rate to an eye-popping 8.25% and leaving it there for a solid year. However, this has made the New Zealand dollar a favorite for international investors dabbling in what’s called the carry trade, where funds are borrowed in a nation with a very low interest rate (such as Japan’s 0.5% or the 2.0% current in the United States) and invested in a nation with a high one. Although the investor risks currency fluctuations wiping out those gains, the practice has become so popular that New Zealand’s currency has been pushed to frantically high levels—making their goods more expensive overseas and reducing the volume and value of those all-important exports proportionally.
It doesn’t help that there’s a housing market “correction” underway there, too, matching those in the U.S. and UK although not as severe. With banks passing on those high interest charges to their clients, mortgage rates are variable and in double digits, sending home sales plunging by 42% since June 2007.
The official definition of a recession is two consecutive quarters of negative GDP growth. With first quarter 2008 GDP printing at −0.3% and the second quarter looking even worse, it’s likely that New Zealand will be the first industrialized nation in 2008 to meet this definition.
Economic analysts expect that the slowing growth will cool inflation and give the Reserve Bank a chance to lower those interest rates, leading to higher domestic growth over time and sending international investors elsewhere in their search of carry trade profits. As the New Zealand dollar weakens against other major currencies, their exports will become more affordable overseas and those discreet industries will become more competitive on the global marketplace.
Who knows, Peter Jackson’s next New Zealand movie, The Hobbit, scheduled to go into pre-production in 2009 and into shooting in 2010, may be enough to pull the entire nation out of the recession. And an end to the drought won’t hurt, either.
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