How the oil cartel changed global trading (Paper Money, by Adam Smith, 1981)

Adam Smith. Paper Money. (1981) A discussion of the effects of the oil crisis of the early 1970s, when Saudi Arabia and nearby countries formed OPEC. This resulted in what Smith calls “the greatest transfer of wealth” in the history of Earth. Its effect on money was to devalue the dollar, which now has about 1/10th of its former value.

In 1980 or thereabouts the second round of inflation began. Central banks everywhere raised interest rates into the double digits. Ordinary folk like us faced mortgages offered at above 20%. We paid 23% on the line of credit we used to build our house. The bank manager asked his central office to approve a mortgage in the high teens. As that rate came down year-by-year, we maintained the high mortgage payment, and so paid it off in less than half the originally calculated time.

Smith has managed to turn his tale of accounting, interest rates, monetary policy and such into a page turner. That’s the effect of both the large number of stories about his interviews with bankers, economists, money market gurus etc, and of his style. He tells the story of his investigations, which reveals the story of the two huge rounds of inflation and the restructuring of the global banking system. He writes high journalism: Factually as accurate as he can make it, larded with analysis and theory, all conveyed as his personal experience and thinking.

A side effect of reading this book is a better understanding of why Trump’s tariffs (if sustained) will lead to another round of inflation, and probably another restructuring of the global banking system. Another effect is a clearer insight into international trade: Basically, it’s bartering, with the values of the goods in the contracts and account books denominated in US dollars. A possible (and based on Smith’s explanations IMO a likely) outcome of the tariffs will be the loss of the US dollar’s status as the global currency.

Highly recommended. ****

Footnote: As of this posting, Trump has rolled back tariffs on several types of food. It seems the tariffs have begun to bite, and the voters are unhappy.

What's the Economy For? (Patel, The Value of Nothing, 2009)

Raj Patel. The Value of Nothing. (2009) Modern economic theory ascribes a value of $0 to externals. For example, treating effluent before discharging it into the nearest watercourse costs money, but untreated effluent costs nothing. More precisely, leaving the purification of effluent to natural processes costs nothing. 

Since we believe the aim of our economy is to maximise profit, we believe that the aim of our producers is to minimise cost, which in turn means to maximise externals. It also means minimising the provision of social goods, which cost money. Thus the drive to minimise taxes, which pay not only for necessities but also for amenities. Finally, the drive to maximise profits spurs the quest to privatise public goods such as education and parks, and to oppose the transfer of necessary services such as healthcare from private to public organisations.

Patel’s book is an extended discussion on the value of those external processes that suppsedly cost nothing. Hence the title. He begins by estimating the full cost of those zero-cost externals. An example is the $3.95 hamburger whose true cost is about $200.

Like many others who have meditated on the costs of using nature to do our dirty work, he concludes that these externals provide services of value, if only the monetary cost avoided by using them. From that starting point, he widens his discussion. The book is an argument for an economy that recognises that ecosystems are fundamental, and instead of treating them as zero-cost, treats them as the essential and hence most valuable part of the economy. He understands that any change to our economic systems entails changes to our politics, and discusses those as well, adducing examples of successful local, communal control.

Well, that’s a simplification of this book, which touches on everything that’s implied by the question What is the economy for? 

Recommended. ****

Financial Shenanigans: The Roaring '80s (Smith, 1988)

Adam Smith. The Roaring ‘80s (1988) “Adam Smith” (George Goodman) was a financial adviser with a knack for story-telling.  For some time he told those stories for Esquire and other magazines. This book is one of several that collected his columns. He understands his subject, and he knows enough people in the moneysphere that he can always get the interview that will clarify the current economic crisis or hiccup. And most crises turn out to be hiccups. His style is breezy (for once the cliche fits), a mix of high, medium, and low-level explanation, and illustrative anecdotes. Lots of anecdotes. The effect is that, at least while you’re reading about it, the most abstruse economic theory seems plausible. Or not, depending on Smith’s thesis.

What Smith demonstrates most, though, is that economics isn’t just about the money, and that collectively we have at best a confused mess of notions about finance and the economy generally. At worst, we suffer from a mess of contradictory superstitions, chief of which are the ones surrounding the concept of a free market. Smith’s accounts of financial shenanigans make it quite clear that all markets are distorted by players with market clout. And that these players all eventually succumb to the temptation to use their clout to make the market work for their exclusive benefit. Financial crime may lack gore, but there's no shortage of victims.

A page turner. The time frame is the Reagan years, plus and minus, and all that’s changed since then is that the libertarians have more clout than ever. They will finish the work of economic destruction that began under Reagan. That destruction did not succeed. Smith (and his group of financial gurus) predicted the financial crisis that hit in 2008. Without government bailouts, that crisis would have destroyed the American financial industry. This time, with the government apparatus being systematically gutted, there may be nothing to save the us from the wreck.

Recommended. ****

Depressions, demand, and money: An economic puzzle.

Some years ago, I posted the following in the Comment section of a major newspaper. I can't recall the details of the story, but there was the threat of an economic downturn.

A puzzle about Depressions keeps bothering me: In a Depression there is tremendous demand for goods, mostly consumables. There is a pool of workers willing to produce and satisfy that demand. It looks to me like a Depression violates the "law" of Supply and Demand.

So why doesn't production match demand? The culprit seems to be "debt", which must be paid at all costs. Even if it prolongs the Depression by reducing the profits needed to pay the debt.

Something is seriously wrong with an economic theory that can't explain why its founding principles don't work.

Another reader commented as follows:

@Wolf Kirchmeir 

Something is seriously wrong with your understanding of the economic dynamics of depressions. In a depression contrary to your assertion there is NOT a tremendous demand for goods. In fact, due to massive unemployment demand plummets, as does the incentive to supply that demand. The result is spiral where decreasing demand and the decrease incentive to supply feedback on one another. The dirty little secret about capitalism is that distressed markets when left to their own devices will collapse without outside i.e. government intervention in the form [of] fiscal and monetary policy and massive fiscal stimulus which creates enough demand to literally resuscitate a distressed economy until markets are able to function without that assistance.

This was my answer:

@[name] You're using classical economics, which equates "demand" with the amount of money available to spend. But demand is what I need and want. Money is merely a measure of my ability to satisfy my demand, and that's not the same thing at all.

In short, the classical explanation doesn't resolve the puzzle, it creates the puzzle.

My need and desire for stuff doesn't depend on the amount of money I have. It depends on how much food, shelter, clothing etc that I have. Demand rises and falls with that supply of needs and wants. To repeat: Money is just a measure of my ability to satisfy my demand. Not enough money means incomplete satisfaction of demand. It does not mean reduction of demand. On the contrary. The less money I have, the more demand I have. So if you use available money as a measure of "demand", that shows that there is something wrong with how money is distributed.

The reference to the "dirty little secret of capitalism" I think reinforces that point, if I understand it correctly. Government's injection of money doesn't "create demand", it just reduces the mismatch between demand and money.

The puzzle remains, because it's about  psychology, not about finance.

We All Live In A Bubble (The Reality Bubble, Tong, 2019)

 Ziya Tong. The Reality Bubble (2019) We all live in a bubble created by our brains. The bubble includes the simulation of physical reality and the social and psychological realities we’ve learned to think of as just the way things are. But these realities have blind spots. Tong begins with the visual blind spot and spends a good deal of time describing what we can’t or don’t see because of our limited sensory and cognitive equipment. Science provides methods for filling in the blind spots, but it’s limited by the social and conceptual environment of its time, and its results are always tentative and incomplete. But it’s the best tool we have.
     Tong builds on this insight to describe the blind spots that make the bubbles dangerously comfortable places to live. The most serious blind spots are in our images of our relation to the non-human world. We see ourselves as different and separate from our environment. But that environment is our life support system. Misconceiving that fact will destroy human life as we know it. It’s already destroyed huge swaths of non-human life: in the last century, about 90% of wildlife has disappeared, partly because we’ve hunted it, but mostly because we’ve converted their habitats into agricultural land.
      Tong’s facts and insights range from exhilarating to depressing. Her final explicit message is that we must see what the blind spots hide from us, else we will continue to make suicidal choices. I don’t see good odds of that change happening. Policy makers are abysmally ignorant of the most basic science, and the rest of us are not much better. Economics is fatally flawed. The Friedmanites believe that efficiency means converting as many costs as possible into externalities, which don’t show up in profit-and-loss statements. So-called capitalism assumes that profit is the sole purpose of business. Very few economists show any kind of awareness of science and technology other than as a means of increasing profits. The natural world is perceived as a bundle of resources to be converted into cash as efficiently as possible. Not doing so is considered wasteful.
     In general, people believe that a rising GDP and increased productivity are signs of economic health. GDP merely tracks the money, not what it buys. Increasing productivity requires increasing consumption, not to mention that much of what’s produced satisfies mere whim. We believe that having more stuff means a better standard of living. Etc. And ever and again we are told that we must balance economic values against environmental costs, as if the economy were independent of the environment. That particular delusion amounts to insanity.
    Buy or borrow the book and read it. ****

How Money Began... (Whitehead and Baskerville, Money, 1975)

 

     Geoffrey Whitehead & Patricia Baskerville. Money (1975). Subtitled How Money Began and How it Works, which is a nice summary of the book’s intentions. Apparently aimed at the curious middle-schooler, it succeeds. At the time it was written, very little was known about the origins of money, and despite a few lucky finds since then, we still don’t know much. By the time Middle Eastern city states codified law, money was already in use, and the laws designed to promote fair and honest trading were brutal. It seems that the propensity for cheating is somewhat stronger in us than for fair and honest dealing.
     Within its modest aims, the book is a success. I learned a few new details about coinage and paper money. The book is strongest dealing in physical money, and weakest in its explanations of how money works, skimming over the psychology (as economic theories generally do). The authors make a distinction between wealth and money early on, but don’t mention that the money-is-wealth superstition was a factor in the inflation caused by Spain’s importation of huge amounts of gold and silver in the 15/1600s. The Spanish did not grasp that these "precious" metals were only as valuable as what they could buy, which was less and less as the supply of silver and gold increased.
     The authors mention the usual concepts of money as a medium of trade and store of value, and talk about money as measuring prices. The printing is excellent. Recommended if you can find a copy. This one will be donated to the library’s book sale. **½

Econ 101: The supply web.

Consider the ball point pen. It’s cheap, it’s everywhere, it’s still useful despite the increased digitisation of our everyday lives. Millions are sold every day. Millions are discarded every day, too.

The earliest versions of the ballpoint pen date from the 1800s. They were unreliable. The ink usually blobbed and smeared, or dried out. The ball didn’t transport the ink reliably, so the pen skipped, and the writing felt rough. Its modern version was invented by Laszlo Biro, with the help of his brother Gyorgy and friend Juan Meyne. It’s a triumph of technology. Without modern applied chemistry and physics, the pen would be neither reliable nor cheap. Only pencils are cheaper. The vast majority of ballpoint pens are disposable. Even refillable ones are usually thrown out.

The simplest ball point pen is the Bic Cristal™. It has seven components:

1. Barrel: plastic. 2. Cap: plastic. 3. Plug: plastic. 4. Ink reservoir: plastic. 5. Ink: dyes, alcohols, fatty acids. 6. Ball: metal. 7. Ball socket: metal

All parts begin as ores and oil, raw materials which are refined to make feedstock (plastics, metals, ink) with which to make the parts of the pen. The pen is made by the thousands on machines that began as raw materials that were processed into parts for assembly. The pens are packaged, warehoused, and eventually shipped to the retail store. The packaging, warehousing, and transportation also began as raw materials.

The sequence from raw material to final product is called the supply chain. But it’s really a supply web. I have two observations about the supply web.

One, it’s fragile, because every member of it tries to reduce costs. A failure by any member to deliver what’s asked will ripple through the web, sometimes causing shortages of apparently unrelated products. Resilience requires excess capacity, but excess capacity is unused most of the time. That looks like unproductive cost to the accountant, so it’s reduced and even eliminated.

Two, we rely on people to do their work well at every step. The ballpoint pen has involved hundreds of people, from the producers of the ores and oil to the truckers that delivered the product to your local store,. Of these hundreds of people, the only one you deal with in person is the store clerk.

Edited for clarity 2023-10-25

Bread (musings)

     Bread is called the staff of life. When I was a kid, I thought of a staff as made of wood. A staff made of bread made no sense. That was before I understood metaphors of function: Just as a staff supports a man, so bread supports life.

     But in fact through most of human existence, there was no bread. The earliest archeological evidence for bread of a sort is about 30,000 years old. By that time homo sapiens had existed for at least 200,000 years. That bread was a cooked or semi-roasted porridge made of grains; I don’t think anyone nowadays would recognise it as bread. Flatbread baked on hot stones or a griddle is the closest modern equivalent.

     The archeology shows that these first bread makers relied on hunting and gathering for most of their food. Cereal grains were one among several types of seeds gathered for food. It took several thousand years to develop cultivation of grains; perhaps someone noticed that spilled grain would provide a crop the following year, and decided to experiment. However it began, that invention or discovery began the constantly accelerating development of technology that has made our species the dominant life form on this planet. 

     Bread as staple food and agriculture go together, in fact agriculture makes no sense without bread. The earliest agricultural settlements were villages, some fortified, some not, surrounded by fields and pastures. The last users of stone tools built them about 10,000 years ago. When metallurgy was invented around 3500BCE, that technology developed swiftly, and within a few hundred years we find cities dominating the farming villages in their vicinity. These complex polities require writing, an armed force, and centrally administered law to survive.

     I think it’s no accident that the invention of bread and the earliest forms of writing, mnemonic symbols, are nearly contemporary. These symbols were used to help the reader recall everything from lists of trade goods to signs of future events to myths, those stories in which the sacred and secular histories of the tribe were mingled. Surprisingly quickly, these early mnemonic systems developed into scripts. 

     Bread as a staple requires agriculture, which requires a hierarchical social structure to ensure that the backbreaking (and boring) work of plowing, seeding, and harvest is done. A hierarchical society needs an agreed body of rules and customs. Law, in other words, enforced as much by common beliefs as by physical force. Customs, religious and otherwise, express the common understanding of how the world does and should work. Written law codifies those beliefs; the law describes what is to be done and what is not to be done. Writing is also handy for keeping accounts, so much so that writing numbers probably predated writing words. 

     Bread is not only the staff of life, it’s the driver of those changes in human society that we are pleased to label progress.

 

 

Class war? Yes, always.

NYT comment 2020-01-17 on “The Bernie Sanders Fallacy”, by David Brooks, in which he argued that there is no class war.

There has always been a class war. Rulers and ruled do have common interests, nicely summarised in the Canadian triplet of "peace, order, and good government." But they also have different interests, and these sooner or later lead to more or less open conflict.

Nevertheless, I think Brooks is correct: Values matter more than economics. Economics is a means, not and end. We want a strong economy not because a strong economy is good in itself but because it enables us to achieve our non-economic goals.

It seems to me that two of the central values of all human societies  are fairness and justice. Capitalism as it is practiced these days is unfair and unjust. The irony is that Trump's promise to "drain the swamp", to  punish China for stealing jobs, to restore good old American manufacturing and mining jobs etc, all these promises appealed to these values. That's why so many centrists and independents voted for him. That's why the Democratic hopefuls have to emphasise fairness and justice. E.g., the present tax system is unfair to the 99%. Dumping pollutants into the air, earth, and water is a form of freeloading, which is unjust. And so on.

The Dems' campaign is at bottom about fairness and justice. The leftist term "class war" is a distraction, especially so in a country where a sizeable minority freaks out at any hint of "socialism."

Cicero and Public Debt: A fake quote, but it gives one to think. (Repost)

 

 A statement allegedly (1) by Marcus Tullius Cicero (January 106 – 7 December 43 BC):

The Budget should be balanced, the Treasury should be refilled, the public debt should be reduced, the arrogance of officialdom should be tempered and controlled, and the assistance to foreign lands should be curtailed, lest Rome will become bankrupt. People must again learn to work instead of living on public assistance.

Cicero lived in an empire, which was rich enough to pay the costs of military occupation and administration of the (ever longer) supply chains that sustained Rome. Whoever put these words in his mouth thought as if Cicero lived in a subsistence economy, one that's barely able to meet the needs of its citizens. They were wrong. (2)

We live in an economy capable of even greater over-production than Rome. We make too much, but we still think about our economy as if we can't make enough (3). That causes a lot of stupid decisions, whose effects are now becoming clear: Too many people (4), too much production and consumption, too much exploitation of natural resources (5), etc, all of which are the causes of the climate crisis, the ecological crisis, and the many sociopolitical crises around the world. The only question left is which crisis will destroy our way of life first, and just how bad it will be. If we don't learn to think differently, we won't adapt fast enough to survive with anything remotely like our present way of life (6).

Having made such gloomy pronouncements, I still wish you a good day. :-)

Footnotes:
1. From https://checkyourfact.com/2019/08/19/fact-check-cicero-quote-budgeting-treasury-public-debt/
“The quote does not appear in any of Cicero’s surviving works. It actually comes from best-selling author Taylor Caldwell’s novel about ancient Rome.” Note the phrase "assistance to foreign lands": Rome never did this. And the phrase "public assistance" is American, not Roman.

2. Any empire capable of maintaining itself for any length of time clearly was capable of producing far more than its citizens needed. Rome had about three times as many “statutory holidays” as we have, thus a much shorter working year. Even slaves got some time off on those holidays.

3. The USA spends over a trillion dollars per year on its armed forces and the wars they fight.

4. In my lifetime, the Earth’s human population has grown more than fourfold. 1940: about 2 billion.  2021: over 8 billion.

5. It’s likely that there won’t be enough food to feed all human beings sometime between 2025 and 2050, not because we don't produce enough, but because we insist on using "the market" to for its production and distribution.

6. Just how different will it be? Best case: Something like a medieval life-style for the survivors, with small farms producing enough food to sustain the necessary artisans and traders. Worst case: Back to the stone age, with perhaps some of the survivors being able to scavenge useful materials like iron from the ruins. That is, if humans don't go extinct.

Money: its invention and history

 

 Lapham’s Quarterly I-2: About Money (2008) Compiled just before the financial collapse of 2008, this collection nevertheless covers all the main points, both as theoretical discussion and as evidence for the theories. Herewith a few stray thoughts prompted by this collection.
     Money is said to be a means of exchange, a measure of value, a standard of deferred payment, and a store of value. Historically, the means of exchange came first, approximately 6000 years ago in Mesopotamia. But a means of exchange is possible only if there is also an agreed measure of value, so those two aspects of money are fundamentally the same. The transition of material specie to abstract money happened via letters of credit and bank notes. Both of these were written promises to pay specie “on presentation” of the letter or note.
     In short, the value of money is what we (more or less unanimously) agree it is. That value is basically what we can buy with it. Unfortunately, money has also been treated as a commodity. In fact, a web search on “money” tosses up several sites that state that money is a commodity.
     The “labour theory of value” claims that money  measures the amount of labour needed to provide some good or service. The problem with that notion is that the price of some types of labour may be well below their value as measured in comparison with other types of labour. What’s more, pretty well everybody believes they are underpaid compared to what many, perhaps most, other people are paid for their labour.
     None of the common definitions of money get to the heart of the matter: Money is a system of universally accepted IOUs. A $10 bill shows that you provided $10 worth of goods or services, and hence are owed $10 worth of goods and services in exchange.
     There is fundamental confusion around the notions of value, cost, and price, terms which are often used interchangeably, and (worse) any one of which is often used to express different meanings in the same discussion. If economists could agree on fixed definitions of these terms, economics might actually become the science it aspires to be. As it is, much economic theory consists of ad hoc formulas used to “prove” that some political notion or other is an objective truth. Thus the claim that prices rise and fall according to “market forces”, while in fact some people ask for more money, and other people agree or refuse to pay more. The Law of Supply and Demand is supposed to explain how this works, but in fact the rise and fall in prices has to do with the psychology of the buyer and seller, which includes many more factors than the awareness of scarcity and abundance. It also has to do with market dominance, a polite phrase for monopoly. It is a commonly overlooked irony of “free market competition” that its aim is to eliminate competitors.
     My working definitions are:
Cost: the sum of materials, energy, and human labour required to produce some good or provide some service.
Price: The amount of money the vendor is willing to sell for.
Value: The amount of money the buyer is willing to pay.
     Cost is objective: it can be measured. Price and value are subjective: they exist only in the minds of seller and buyer. The so-called law of supply and demand begins there.
     One of the first of Lapham’s collections, but already excellent. ****

Cicero didn't say this, but it's still worth a comment or two.

 

A statement allegedly (1) by Marcus Tullius Cicero (January 106 – 7 December 43 BC):

The Budget should be balanced, the Treasury should be refilled, the public debt should be reduced, the arrogance of officialdom should be tempered and controlled, and the assistance to foreign lands should be curtailed, lest Rome will become bankrupt.
People must again learn to work instead of living on public assistance.

Cicero lived in an empire, which was rich enough to pay the costs of military occupation and administration of the (ever longer) supply chains that sustained Rome. Whoever put these words in his mouth thought as if Cicero lived in a subsistence economy, one that's barely able to meet the needs of its citizens. They were wrong. (2)

We live in an economy capable of even greater over-production than Rome. We make too much, but we still think about our economy as if we can't make enough (3). That causes a lot of stupid decisions, whose effects are now becoming clear: Too many people (4), too much production and consumption, too much exploitation of natural resources (5), etc, all of which are the causes of the climate crisis, the ecological crisis, and the many sociopolitical crises around the world. The only question left is which crisis will destroy our way of life first, and just how bad it will be. If we don't learn to think differently, we won't adapt fast enough to survive in anything remotely like our present way of life (6).

Having made such gloomy pronouncements, I still wish you a good day. :-)

Footnotes:
1. From https://checkyourfact.com/2019/08/19/fact-check-cicero-quote-budgeting-treasury-public-debt/
“The quote does not appear in any of Cicero’s surviving works. It actually comes from best-selling author Taylor Caldwell’s novel about ancient Rome.”

2. Any empire capable of maintaining itself for any length of time clearly was capable of producing far more than its citizens needed. Rome had about three times as many “statutory holidays” (several of them lasting two or more days) as we have, thus a much shorter working year. Even slaves got some time off on those holidays.

3. The USA spends over a trillion dollars per year on its armed forces and the wars they fight.

4. In my lifetime, the Earth’s human population has grown more than fourfold. 1940: about 2 billion.  2021: over 8 billion.

5. It’s likely that there won’t be enough food to feed all humans being sometime between 2025 and 2050.

6. Just how different will it be? Best case: Something like a medieval life-style for the survivors: small farms producing enough food to sustain the necessary artisans and traders in the settlement. Worst case: back to the stone age, with perhaps some of the survivors being able to scavenge useful materials like iron from the ruins.

Update 2021-09-23: Typos fixed, and a couple of clarifying edits.

Trade and Music (Lapham's Quarterlies)

 

 Lapham’s Quarterly XII-2: Trade (2019) Exchange of favours is not a human species-specific trait, but organised trade is. It’s one of the constants of human culture. All human societies regulate exchange, ranging from customs and conventions to formal rules and laws governing everything from weights and measures to contracts.
     The bits and pieces assembled here remind us that many humans will cheat if they can get away with it, hence the need for law. They also remind us that humans have co-operated from the beginning to gain advantages in trading, ranging from guilds and cartels to international agreements governing trade between cities and nations. The corresponding counter is conventions and agreements that give everyone the same opportunities for fair trading.
     Trading rules within societies (families, tribes, and eventually larger communities) ensured that essentials were produced and shared equitably. Trading between such groups ensured that necessary and desirable materials and products reached those who needed and wanted them. Trade made us what we are today: the most wide-spread and successful animal on Earth. It also encouraged the development of our most dangerous vice, greed, which has brought us to the point of no return in climate change.
     In short, trade is essential to human beings, and trade requires honest dealing and justice. It also raises a question: Was it trade that distinguished us from our sibling species, the Neanderthals, Denisovians, and others? Was it trade that gave us the advantages that enabled us to outcompete them? I see no obvious method for answering this question, but I think it’s an important one. Equally important is the question of how we can adapt our trading practices to survive climate change.
     Another good collection. Pretty well all past issues are available from the publisher; some have been reprinted as annual sets. ****

 Lapham’s Quarterly X-4: Music (2017) I enjoyed the pieces by the musicians and composers best. Mixes of memoir, technical discussions, and reviews. They gave me insights not only into how music-makers experience the world and their art, but also into why I find music an essential part of my life. Music “sounds the way feelings feel”, to quote a phrase from Suzanne Langer’s Philosophy in a New Key (1957). David Levitin’s researches into the neurology of music support that insight.
     There have been many speculations about the source of music’s power and of the human need to make it, and the attempts to justify or ban it on theological, moral, or philosophical grounds. The excerpts here are interesting as evidence of how all attempts at understanding ourselves are predicated on and hence limited by contemporary assumptions about reality. They may have satisfied the writers and their readers, but reading them now I was continually distracted by current knowledge of neurology, and a wider experience of music than some of these writers had. They also demonstrate the role of culture in music: in most cultures, music is assumed to be a finished art, and students are taught to emulate and replicate music as defined by their predecessors. The notion that art should be new, that an artist should create new and original works even when within a tradition, that notion seems to be peculiarly European, and a recent one, too.
     There are several fascinating bits about the instruments. All are versions of the three basic technologies: pipes, strings, and drums. ****

"Let's Talk About Biden and Oil Jobs...." (link)

Title of a talk by Beau, was sent to me by email. I think Beau's blunt talk is worth a listen. Click here.

 

The Dougnut: A sustainable economy is one that doesn't "grow".

Kate Raworth proposes a new economic model based on the ecological limits of the Earth. Sensible. Realistic. Humane. Therefore certain to be opposed by the pathetic "entrepreneurs" who believe that profit will somehow insulate them from the facts of biology and physics. Or the "libertarians" who believe that economic freedom mean being free to make as much money as possible.

Find a brief video here: The Doughnut Economy.

Wiki has an article, too: Doughnut (economic model).

Financial Crimes

Arianna Huffington. Pigs at the Trough (2003). Here it is 17 years later, and the game continues. Some of the star players have been retired (some via criminal indictment), the rules have been tweaked to benefit the cheats more than ever, and the referees no longer pretend to control the game.
     Huffington’s book is a detailed overview of the financial scandals of the early 2000s, with names like Enron and Andersen showing up in several chapters. Lessons learned? Just keep on buying the most complaisant legislators available. Five years later, we saw the financial meltdown of 2008, in which the rescue money went to the perpetrators instead of their victims. Business as usual. If the bail-out money had been credited directly to the borrowers’ accounts, most of them would have become home-owners pretty quick, and the decade-long limping towards recovery would have lasted maybe three years.
     History doesn’t repeat itself exactly, but humans solve problems in much the way as their ancestors did. These solutions toss up the same problems as before, and the cycles continue. If you find a copy of this book, read it. It will help you recognise the players on the current teams of malefactors. ****

Mathematics and the News

 

 

John Allen Paulos. A Mathematician Reads the Newspaper (1995) I bought this book because I’d read Paulos’s Innumeracy, a seminal book that I think every teacher should read. This book extends one of his themes, that the media are a prime source of innumeracy, and so tend to distort and misinform. Each section corresponds to a section of the paper, News, Sports, the Arts, etc. The misuse or misreporting of statistics features in all sections, but the unwarranted surprise at coincidences, and confidence in economic and sports forecasts, together come a close second.
     Once again, Paulos muses on the vagaries of voting. Every voting system ever attempted has produced results that annoy a large section, sometimes even the majority, of voters. If he were to write today, he would note the vacuousness of political polling, which always produces more or less misleading results.
     But mathematics is about patterns and processes, so even the society section, with its reports about charity balls, the doings of famous people, etc, gives opportunity for mathematical musing about relationship networks, and the interconnectedness of our social circles, which Facebook et al have made more obvious than ever in the 25 years since Paulos wrote the book.
     This was a re-read, I enjoyed the book, but not as much as Innumeracy. ***

     Update 2020 08 13: Percentages are real problem.
     One of the most common errors is to report a percentage change without reporting the base rate. For example, "XYZ increases the cancer of some obscure organ  by 150%". True, it increases the rate from 1 per 100,000 per year to 3 per 100,000 per year.
     Another egregious error is to confuse percentage points with percentages. Thus, "Unemployment rate increases 2 %". Yup, it rose  from 5% to 7%, which is an increase of 2/5, or 40%.

   Update 2020 12 22: Raw numbers vs Rates: How to misreport covid-19

     Every day now we hear the number of new cases and deaths from covid-19. Almost never the rates. For example, Ontario reported some 2100 new cases the other day, while Alberta reported about 1800. But Ontario has roughly three times the population of Alberta, so the rate in Alberta is about three times higher.

     The mistake is to treat every jurisdiction equally, which hardly ever makes sense. The same error shows up when reporting miscellaneous numbers about cities and towns. Such as crime rates. Small towns naturally have fewer crimes, but related to population, the crime rates are usually higher than in the large cities.

     Related to time, the rates are of course lower. Hence the pained astonishment when a neighbour murders his family. This suggests that we pay more attention to events along our individual time-lines, and less to events within the communtiy at large. Our preception biases mislead us.

     Rule of thumb: Do The Arithmetic! Always calculate the rates.

     

Econ 101: Market Failure.

Econ 101: Market Failure

On a radio talk show this morning (June 14, 2020), I heard a guest use the phrase "The market didn't work as it should".

Where, pray tell, is it written that the market should work in any particular way? It's quite obvious to me that the market simply works as it works. There is no "should" about it. Unless you adhere to Neo-liberal economics, which has more than a whiff of elitist arrogance about it, and with its indifference to human psychology clearly implies that if only people behaved rationally, the world would unfold as it should, rewarding the right people with riches, and punishing the wrong ones with poverty.

And how does the market actually work? It aggregates human choices, is all. Left to itself, "the market" demonstrates that human desires, whims, greed, ignorance, powerlust, etc drive buying decisions far more often than rational self-interested understanding of the long-, medium-, or even short-term consequences of those decisions. When the unpleasant consequences appear, the Chicago School refers to "market failure".

"Market failure" is in fact the Chicago School's failure to account for reality.

The market never fails. It shows us what we believe is important. Important enough to spend money on, anyhow. Too often, those beliefs are mistaken. And that's a polite way to say it.

Econ 101: Why wage subsidies won’t bankrupt the country

A comment in response to the Financial Post’s worry about how much the wage subsidy program will cost. It was announced by Prime Minister Trudeau on 2020 03 30.

Since this is a wage subsidy program, most of the money will be used to pay for shelter, utilities, food, and transportation. Most of these dollars will generate sales tax revenue for  the Province (8% in Ontario) and/or the Federal government (5%) when spent.

But a dollar spent will be spent again. The consensus is that a dollar will be spent between five and seven times before all or part of it returns to the original spender. That means about 65 to 70% of the money will return to the governments.

In short, the wage subsidy will largely pay for itself. The question, “How much will the program cost?” misses the point.

Footnote: The Canadian government will provide wage subsidies of 75% on the first $59,400 of a person's wages. This will be available to all employers whose business has been impacted by covid-19. The Prime Minister also urged businesses to pay the additional 25%, and warned that any business trying to game the system will be dealt with. Many workers will eventually pay income tax on all or part of the wage subsidy.

Update 2020 03 31: My arithmetic is off, since food isn't taxed. So I estimate the payback in taxes at about 40 to 70%. However I haven't factored in the payback, financial and otherwise, of keeping the suppliers of food and transportation etc in business.

Econ 101: Supply chain fragility (another example of neo-liberal economic failure)

A letter I sent to the Atlantic Magazine a few minutes ago

Re: https://www.theatlantic.com/ideas/archive/2020/03/supply-chains-and-coronavirus/608329/

Lizzy O'Leary's piece is a welcome reminder of reality. But it doesn't go far enough. The cure is not to "diversify the supply chain", as implied towards the of her article. It's to change the mindset that maximizing profits is the aim of a business, or worse, that it's the aim of the economy.

It is that mindset that has pared down resilience. A resilient system has redundancies. Redundancies cost money. Removing them reduces the costs, and hence maximizes profits.

Business profitability is one, and only one, of the many numbers that describe the state of an economy. Believing that it is the purpose of the system to maximize that one number is obviously crazy. One might as well say that it is the purpose of eating to maximize the throughput of the digestive system.

Businesses exist to provide what we need and what we want. That is their social, and therefore their economic role. "Profit" is a signal that the business is fulfilling that role. That's all it is.

It's time to rescue the economy from the advice of economists who have a superstitious reverence for profitability.