Here's Larry Summers in the Financial Times.
Summers explains the current economic situation and provides context as to how it came about.
I really enjoy reading Summers as he tries to remain unbiased in the more government-less government debate. He simply addresses the problem and then attempts to provide an immensely pragmatic solution using his deep understanding of the effects of certain incentives. Few others who weigh in on these issues can remain as unbiased as Summers. Whether one wishes to admit it or not, our current economic situation is the product of years of complex intertwining of the public and private sectors, and any call for more or less laissez-faire must be conditioned on the potential consequences. Not many other experts--if any--understand that fact as well as Larry Summers.
Showing posts with label Capitalism. Show all posts
Showing posts with label Capitalism. Show all posts
Thursday, August 14, 2008
Saturday, August 9, 2008
Creative Capitalism
A few months ago Bill Gates made a speech at Davos imploring the world's corporations and civic leaders to help harness the powers of capitalism and use it to reduce inequity and poverty around the globe. This speech ignited a debate amongst many economists and other generally very smart people at the blogsite Creative Capitalism. There are many interesting perspectives on the issue, which makes the site worth sorting through, and I do think the overall goal of the project was to produce a book, but a few highlights can be found here, here, here, and here. There are many other good posts that I've failed to highlight (Nobel Laureattes too!).
Overall, I think the debate was informative, but it was obvious that many of the writers were arguing past one another. The variety of backgrounds that the writers were drawing from made it where many arrived with their own preconcieved--though very detailed and well supported--notions about what institutional structures and economic theories identify the best method for producing a well-functioning wealth generating society. Some of the posters merely provide nice sounding platitudes and high-minded ideas about reforming the system. Others slog through the gritty circumstances that exist where much of the world's poor live. I doubt anyone changed positions in the entire debate.
My view is this:
1) It was capitalism--only capitalism--that produced the awe-inspiring wealth found in most of the western world. Much of the world remains poor because they have yet to embrace this socio-economic system.
2) The extent of inequity and poverty throughout much of the rest of the world remains not due to any inherent defect found in the capitalistic economic system, but is instead the product of poorly structured institutions designed to maintain order and stability. In much of the world, governments frustrate the efforts of private individuals trying to increase and build wealth through forced expropriation of personal property, or other policies that erode the ability to calculate the relative values of things in the economy (Zimbabwe serves as a striking example). Much of the problems are created by and due to poor government.
3) Some cultures maintain beliefs that stigmatize wealth creation and hard work. This places a check on productive activity.
4) The first goal should be to seize at the low hanging fruit. Almost immediate improvements in the lives of the world's poor can emerge from the elimination of our agricultural subsidies and trade restrictions. By eliminating subsidies and embracing free-trade, we will provide to the world's poor access to the largest market in the world, as well as allow them to increase production in the areas where they already have an existing comparative advantage. Though this seems unlikely with the interest groups vying for control an influence in the US Government. Virtually everyone is aware of the ethanol debacle, yet we still have the ethanol subsidies after all.
Overall, I think the debate was informative, but it was obvious that many of the writers were arguing past one another. The variety of backgrounds that the writers were drawing from made it where many arrived with their own preconcieved--though very detailed and well supported--notions about what institutional structures and economic theories identify the best method for producing a well-functioning wealth generating society. Some of the posters merely provide nice sounding platitudes and high-minded ideas about reforming the system. Others slog through the gritty circumstances that exist where much of the world's poor live. I doubt anyone changed positions in the entire debate.
My view is this:
1) It was capitalism--only capitalism--that produced the awe-inspiring wealth found in most of the western world. Much of the world remains poor because they have yet to embrace this socio-economic system.
2) The extent of inequity and poverty throughout much of the rest of the world remains not due to any inherent defect found in the capitalistic economic system, but is instead the product of poorly structured institutions designed to maintain order and stability. In much of the world, governments frustrate the efforts of private individuals trying to increase and build wealth through forced expropriation of personal property, or other policies that erode the ability to calculate the relative values of things in the economy (Zimbabwe serves as a striking example). Much of the problems are created by and due to poor government.
3) Some cultures maintain beliefs that stigmatize wealth creation and hard work. This places a check on productive activity.
4) The first goal should be to seize at the low hanging fruit. Almost immediate improvements in the lives of the world's poor can emerge from the elimination of our agricultural subsidies and trade restrictions. By eliminating subsidies and embracing free-trade, we will provide to the world's poor access to the largest market in the world, as well as allow them to increase production in the areas where they already have an existing comparative advantage. Though this seems unlikely with the interest groups vying for control an influence in the US Government. Virtually everyone is aware of the ethanol debacle, yet we still have the ethanol subsidies after all.
Thursday, July 17, 2008
Quote of the day (#2)
"[W]hile is it easy to protect a particular person or group against the loss which might be caused by an unforeseen change, by preventing people from taking notice of the change after it has occurred, this merely shifts onto other shoulders but does not prevent it. If, e.g., capital invested in very expensive plant is protected against obsolescence by new inventions by prohibiting the introduction of such new inventions, this increases the security of the owners of the existing plant but deprives the public of the benefit of the new inventions. Or, in other words, it does not really reduce uncertainty for society as a whole if we make the behavior of the people more predictable by preventing them from adapting themselves to an unforeseen change in their knowledge of the world. The only genuine reduction of uncertainty consists in increasing its knowledge, but never in preventing people from making use of new knowledge."
This quote can be found in the 21st footnote of Friedrich von Hayek's essay titled "Individualism: True and False". The essay is taken from a lecture given by Hayek in 1945, and a copy of it can be found in his book, published in 1948, Individualism and Economic Order.
"Individualism: True and False" is a fabulous essay, one that is filled with many interesting thoughts pertaining to the debate over Socialism and Capitalism, as well as a brief, yet thoroughly fascinating, explaination of the subtle differences between the ideas on individualism orginating from the French physiocrats and British classical liberals. But the most important idea that Hayek discusses is that on the distiction between institutions and human societal organizations based upon Reason, with a capital R, and those that have orginated without any specific design by the human mind. Hayak argues that much of what contributes to the cohesiveness of modern society is essentially unknowable to any one person--the extent of these processes cannot be grasped by any one mind, making it impossible for society to be successfully managed by rules and regulations conceived by the human mind (Reason) and then implemented in a top-down fashion. Hayek concludes that the only basis for a truly free and prosperous system of social organization consists in the adherence to a set of principles that serve to solidify and codify commonly agreed to norms that facilitate peaceable social cooperation. Hayek's views are humbling; it takes a lot of courage to admit that there may be limits to the extent that the human mind can fully grasp the extensiveness and magnificence of modern civilization.
The goal is to develop principles that treat people equally before the law and in the protection of their personal property rights, not in any programs or policies that have the objective to make all people equal absolutely. It seems that modern civilization and our method of social cooperation depends upon it, as Hayek warned "while it may not be difficult to destroy the spontaneous formations which are the indispensible bases of a free civilization, it may be beyond our power deliberately to reconstruct such a civilization once these foundations are destroyed." Yikes!
This quote can be found in the 21st footnote of Friedrich von Hayek's essay titled "Individualism: True and False". The essay is taken from a lecture given by Hayek in 1945, and a copy of it can be found in his book, published in 1948, Individualism and Economic Order.
"Individualism: True and False" is a fabulous essay, one that is filled with many interesting thoughts pertaining to the debate over Socialism and Capitalism, as well as a brief, yet thoroughly fascinating, explaination of the subtle differences between the ideas on individualism orginating from the French physiocrats and British classical liberals. But the most important idea that Hayek discusses is that on the distiction between institutions and human societal organizations based upon Reason, with a capital R, and those that have orginated without any specific design by the human mind. Hayak argues that much of what contributes to the cohesiveness of modern society is essentially unknowable to any one person--the extent of these processes cannot be grasped by any one mind, making it impossible for society to be successfully managed by rules and regulations conceived by the human mind (Reason) and then implemented in a top-down fashion. Hayek concludes that the only basis for a truly free and prosperous system of social organization consists in the adherence to a set of principles that serve to solidify and codify commonly agreed to norms that facilitate peaceable social cooperation. Hayek's views are humbling; it takes a lot of courage to admit that there may be limits to the extent that the human mind can fully grasp the extensiveness and magnificence of modern civilization.
The goal is to develop principles that treat people equally before the law and in the protection of their personal property rights, not in any programs or policies that have the objective to make all people equal absolutely. It seems that modern civilization and our method of social cooperation depends upon it, as Hayek warned "while it may not be difficult to destroy the spontaneous formations which are the indispensible bases of a free civilization, it may be beyond our power deliberately to reconstruct such a civilization once these foundations are destroyed." Yikes!
Sunday, July 6, 2008
Chart of the Day: More Wealth Brings More Leisure
Despite occasional recessions (and one Great Depression), over the past 130 years there has been a consistent tendency for people to spend less and less of their finite time doing what has traditionally been termed "work". This development is solely the product of capitalism and the benefits of a free-market economic system.
HT: Carpe Diem
Sunday, June 22, 2008
Confused As Ever: The Theory of Interest
Continuing along with the Mengerian theme, I just finished reading his chapter on the theory of value. I must say that it is a supurb analysis, though dense at times, but an altogether essential passage for aspiring economists. My one problem originates from his brief references to the interest phenomena and its requisite causes. Menger echoes the views of the 20th century American economist F.H. Knight as he writes "Some economists represent the payment of interest as a reimbursement for the abstinence of the owner of capital. Against this doctrice, I must point out that the abstinence of a person cannot, by itself, attain goods-character and thus value." (p.156) and later on pages 158-59 and 172-74 Menger emphasizes interest as a type of price for the services of capital.
This view seems to be at odds with what I have already found in the writings of Ludwig von Mises, among other more recent Austrian economists. Mises writes that the interest phenomena originates from intertemporal preferences, ie. people prefer present consumption to some future consumption, and in order to forgo present consumption there must be some higher consumption possibility in the future. The interest rate, according to Mises, reflects the price at which it takes the marginal person to forgo present consumption in favor of consumption in some far-off future period. And off of this formulation of the interest concept Mises concocted the famous Austrian theory of the trade cycle. So if Mises' theory is the less acceptable version, then this could have far reaching effects on my views of a whole host of very important concepts (Hayek's work on the trade cycle, the idea that capital is heterogenous and not, as F.H. Knight and J.B. Clark argued, a homogeneous fund).
Perhaps this incongruity in Menger and Mises views on interest merely reflects the fact that Menger was writing a pioneering work, and like every work that blazes a newly divergent intellectual trail, there is likely to be some errors or misconceptions, which then need to be reformulated and expounded upon by future scholars. Regardless, what this discovery means for me is that I now must investigate F.H. Knight's conception of capital theory and all its attendent implications for the interest phenomena and the structure of production in a capitalistic economy. I hear Milton Friedman's conception of capital ran along the same lines as Knight, so it's not a completely bogus viewpoint.
This view seems to be at odds with what I have already found in the writings of Ludwig von Mises, among other more recent Austrian economists. Mises writes that the interest phenomena originates from intertemporal preferences, ie. people prefer present consumption to some future consumption, and in order to forgo present consumption there must be some higher consumption possibility in the future. The interest rate, according to Mises, reflects the price at which it takes the marginal person to forgo present consumption in favor of consumption in some far-off future period. And off of this formulation of the interest concept Mises concocted the famous Austrian theory of the trade cycle. So if Mises' theory is the less acceptable version, then this could have far reaching effects on my views of a whole host of very important concepts (Hayek's work on the trade cycle, the idea that capital is heterogenous and not, as F.H. Knight and J.B. Clark argued, a homogeneous fund).
Perhaps this incongruity in Menger and Mises views on interest merely reflects the fact that Menger was writing a pioneering work, and like every work that blazes a newly divergent intellectual trail, there is likely to be some errors or misconceptions, which then need to be reformulated and expounded upon by future scholars. Regardless, what this discovery means for me is that I now must investigate F.H. Knight's conception of capital theory and all its attendent implications for the interest phenomena and the structure of production in a capitalistic economy. I hear Milton Friedman's conception of capital ran along the same lines as Knight, so it's not a completely bogus viewpoint.
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