Beyond regulatory capture

From Simon Johnson, 'The Quiet Coup", Altantic Monthly May, 2009.

Mr. Johnson is a former chief economist for the IMF. As such, he has been involved in financial rescue packages for a number of emerging economies. The general problem is that the oligarchs have taken on outsized risks, which have gone bad. The solution is for the government to let a few of them fall. This is politically difficult, as the oligarchs have power.

He writes: "In a primitive political system, power is transmitted through violence, or the threat of violence: military coups, private militias, and so on. In a less primitive system more typical of emerging markets, power is transmitted via money: bribes, kickbacks, and offshore bank accounts. Although lobbying and campaign contributions certainly play major roles in the American
political system, old-fashioned corruption—envelopes stuffed with $100 bills—is probably a
sideshow today, Jack Abramoff notwithstanding.

Instead, the American financial industry gained political power by amassing a kind of cultural
capital—a belief system ... Washington already believed that large financial institutions and free-flowing capital markets were crucial to America's position in the world."

Article saved as Johnson2009IMF.pdf

I was right but he got the credit

Time to dig out my emails to my dad from last spring, claiming that Max was right. I should do econ columns.

Here is Umair Haque making my point. To be fair, he is more eloquent than I was, but to be fair, he has the incentive to put the time into making it eloquent.

http://blogs.hbr.org/haque/2011/09/was_marx_right.html

Umair Haque rants

These are taken from his unofficial blog. The guy is in serious rant territory, but he is good at it

Everything below is a quote/copypaste from
Source: http://umairhaque.blogspot.com
Because the truly poisonous effect of industrial age institutions, by undercounting real costs, and overcounting real benefits, isn't merely that they limit us to creating fake, thin artificial value and ponzi-like hollow "profit" today--but, more perniciously, that they shatter the incentives for great achievement tomorrow. They crumple the human spirit, smash the human psyche, dull the human brain, and toxify the human heart

Hence, here's what a nation who wants to be tomorrow's powerhouse of prosperity really needs: a 21st century plan to reboot industrial age institutions. To reimagine and rethink the clunking, belching contraptions known as "GDP", "the corporation", "investment banks", "credit ratings", "jobs", "government", and more. To reimagine them as eudaimonic levers--tools that can amplify not the just "industrial output" of nations, but which can ignite and spark the highest human potential; levers that can raise people not merely into lowest-common-denominator faux-designer Jersey Shore material plenitude--but into meaningfully well lived lives. At it's worthiest, an economy is an engine not merely for "enrichment"--but for human prosperity.

We've forgotten what the economy's for. It's not a lowest-common-denominator tool for vulgar material plenitude, or a brain-dead mechanism for mere financial "enrichment"--but, at it's best, it's highest, it's most enlightened, it's fundamentally worthiest, an economy must be an engine of human prosperity: a eudaimonic lever. A lever strong enough to raise human potential to unseen--and perhaps even undreamt of--heights.

Here's what all the above really says: far from a wishful ideal, eudaimonia's a razor-sharp necessity. No society in which the returns to rent-seeking outweight those to creating, building, transforming, and bettering can prosper. No society in which people are treated as chattels to be bought and sold by and to the highest bidder can be said to meet any definition of human prosperity.

Tomas Sedelack "The Economics of good and evil"

Advises the Hungarian goverment on policy.

Studied economy in myths and religious texts, then studied myths and religious texts in economics.

triggered an idea-- model the evolution of the fairy tale?

Governments have two tools: Fiscal policy, that is the ability to put the people into debt, and monetary policy, that is the ability to print money (or remove it)

Fiscal policy: Jacob/Pharoh, 7 rich years and 7 lean years.

Interesting that it has been 7 rich years, from 2001 until 2008...
Jocob advised Pharoh to set aside 20%

We ate everything, and in fact did more, we borrowed recklessly during the good years.

Compare GDP to deficit growth, US had a net of -28% over the last few years. GDP by itself is not enough, since you can only borrow money from your future (unless you default..)

Hungarian policy is to keep the GDP growth and deficit at a fixed ratio. Save in the rich years, spend in the lean years.

Monitary policy. Analogy to the One Ring in LotR. Great power, but corrupts and destroys. He is here talking about the ability to print money.

Interest rate is like alcohol. Alcohol doesn't give you more energy, it merely lets you move some energy to Friday night from Saturday morning. Nothing wrong with that. A bit of a problem if you move energy from Monday morning to Sunday night, esp. if you have an important meeting.

Problem with interest rates is you time-shift the money more than a few days, and you do not know what the conditions will be when the energy deficit hits.

Our society has a built in weakness. It says you need the money at the start of your career, to pay for college, house, car. And you have the money at the end of your career. Which is a problem if you don't become CEO.

Edgar Cahn 5/12/2011

Activist, attorney, iterant troublemanker Edgar Cahn gave a brilliant lecture.

He has three topics: pizza, operating systems, and the pirus.

Pizza. You can deliver pizza, you can deliver products, but you cannot deliver justice, community, or human values. Those items require all parties to participate.

Examples.
Juvinile Court. Allowed to try all non-violent youth crime in DC. The jurors are teenagers. The court can sentence offenders to jury duty. Trial by your peers. The kids buy into the justice because they ARE the justice system. And they start to behave.

The Homecommers. People who didn't want to be called ex-cons. Started volunteering for community service. Cut recidivisim by huge amounts.

Operating system.
Our economy is based on so much more than money, but money is currently the only measure.

The problem with money. Money values things that are rare. Common things have little or no economic value. Thus, the things which make us human, which are intrinsic to all humanity, which are found in every person, have no monetary value.

Pirus.
Need to build a two-fuel economy. We still need money, but that should be the gas, the bit that gets used the least and is only there when the other just doesn't quite make it. The other, the respect for every human's worth, should be the main fuel.

That ended his talk. But one of the questions brought out another fantastic zinger. Mr. Cahn, after pointing out that public officials are the only professionals who are not required to act according to the best knowledge (malpractice in doctors, forget the term for attorneys, also applies to engineers, etc).

The way to show discriminatory behavor by courts is NOT to look backwards at cases tried (more blacks then whites sent to jail, etc), but forwards. Make them aware of what best practices are, what works, and what consequences different options have. Then, if they don't change, you can show that they have INTENDED the discriminatory outcomes.

Diane Coyle

Economist, wrote some books on sustainable growth. Lots of quick, focused answers which support her view and ignore any difficulties raised by the questioner.

An idea from the discussion (not hers): Capitalism gains much of its legitimacy from the claim that it improves the lives of everyone. But in the last years* it has only improved the lot of the upper few percent. Is capitalism facing a crisis of legitimacy?

*US incomes for middle class stable or declining since the 70's (that is 40 years now, two generations). Other examples from other countries, I am sure.

What this ignores is the tremendous gains in quality and variety of stuff. Cell phones, internet, etc all are near universally accessible now. The possibilities offered to the poor are much greater than they were 40 years ago.

She disagrees with the claim that increasing GDP does not lead to increasing happiness, noting that happiness is measured on a fixed scale while GDP can (theoretically) grow without limit. If one compares log(GDP) [which does have a limit] with happiness, then increasing GDP does associate with increasing happiness.

Need to work on my rant on this topic...

Next idea: Our society is suffering from a lack of faith in the future. No sense of progress, unlike (say) the Victorian age. This is another topic to develop further...

The solution to the world's economic crisis

The world economy is based on a model of continual growth. Even a fool recognizes that infinite growth is not sustainable in a finite space (ie, earth). The solution: virtual shoppers.

Virtual shoppers. An army of internet robot consumers. Infinite consumption, allowing for infinite growth.