Comments 60

让资本主义免遭“经济学入门”课的荼毒

Aug 31, 2018 Simon Johnson

发自华盛顿特区——在全美各地，新生们正在进入大学——并开始接触“经济学入门”课程。这门入门课程通常会教授一个在很大程度上令人放心的信息：如果允许市场发挥作用，就必然会获得良好的结果——如生产力增长、工资增长以及大众普遍共享的繁荣。

不幸的是，正如我某本著作的合著者詹姆斯·郭（James Kwak）在其新书《经济学主义：坏经济学和不平等的兴起》中所指出的那样，“经济学入门”远远无法涵盖这门学科的所有内容，甚至如果拿来指导明智政策制定的话，实际上可以被认为是存在误导性的。市场有可能是好的，但它们也极易受到各类滥用行为的影响——有些甚至出自知名私营部门从业者之手。这不是理论上的问题；它是我们当前政策辩论的核心，包括刚刚提出的重要新立法法案。

一个核心问题是市场激励机制会奖励那些自利的个人行为，而不考虑社会的利益或成本。我们通常忽略了自身行为对他人的溢出效应或“外部性”。“初级经济学”教科书虽然确实在某些事件背景下（例如污染）讨论过这一问题，而人们也普遍同意：如果想拥有洁净空气、洁净的水以及减少其他污染物，就需要对破坏环境行为加以规管。

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Simon Johnson

Writing for PS since 2007
111 Commentaries

Simon Johnson, a former chief economist of the IMF, is a professor at MIT Sloan, a senior fellow at the Peterson Institute for International Economics, and co-founder of a leading economics blog, The Baseline Scenario. He is the co-author, with Jonathan Gruber of Jump-Starting America: How Breakthrough Science Can Revive the Economic Growth and the American Dream.

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0 Comments on this paragraph, 60 in all 60 Comments on this article

Elizabeth Pula Sep 3, 2018

I wish.
- Elizabeth Pula Sep 7, 2018
  
  https://www.motherjones.com/politics/2006/05/predator-state/
  this little link gives an inkling to establishing a perspective that all of us are wishing for, to solve the unsolvable problem, that is really solvable, and that everybody is really working on, each in our own way. Hint:The map of "economics" is not flat, it's just being viewed that way, incorrectly.
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Elizabeth Pula Sep 3, 2018

I think the following information is very important to add to the comments on this Article about Saving Capitalism from Economics 101. It is a long comment, and quote, but I think it needs to be as quoted, and not condensed any further.

I am adding a quote from hawkeyec, and here is a link to his commentary page at Seeking Alpha.

https://seekingalpha.com/user/1114391/comments

I think what this man has written is very important about not only cybernetics, but for economic theory, especially with the new LAW process being initiated, and as he notes especially for policy discussions.

“A main tenet in cybernetics is the "Law of Requisite Variety." This rule says that for a dynamic system to maintain a steady state it must exhibit requisite variety, defined as a level of resources that enables the system to react effectively to any damaging change in the environment and ensure its survival. This requirement can force an organization (one type of system) to keep more resources that it can use in the short run because some problems may be rare and overrated (see Visual Capitalist link). Maintaining requisite variety can make rarer problems expensive to prepare for and reduces near-term return in order to protect against long-term disaster. So a natural reaction to this resource cost issue is to get "lean and mean" by maintaining only the the most important resources for the most likely problems. However, going lean increases risk, often by an amount that is difficult to evaluate (statistically and/or politically). Sadly, this lean strategy, when promoted aggressively, can really create problems (exploding sewer treatment plants). Years of this lean and mean approach have left us with an aging infrastructure, prisons that are a mess, deteriorating educational outcomes, and public pensions that are largely a disaster, among other things. Striking a balance between fiscal economy and requisite variety is one of the most difficult choices all mangers ever have to confront, yet little is ever mentioned about this choice in either academic research or policy discussions. “

He also mentions some excellent issues about a real problem for labor, and especially labor statistics, courtesy of his wife, which I of course found to be a super side note.

“The real problem, and this also affects the CPI and its relatives, lies in the sampling process and the equations themselves. Over time, not always that much time, two main things change in the environment. One is the overall balance of various job categories in the economy. Total employment and other data rely on an assumed weighting of each different category of workers within the system, just as the CPI's market basket assumes we spend a certain amount of our budget on each type of goods. If a category is given the wrong weight in the overall analysis, it mis-specifies the importance of that sector and messes up the overall estimates. Each employment sector also has separate sampling equations based on certain assumptions about the behavior of employment in that sector. As you rightfully point out in your analysis, sampling and related errors cause problems with the numbers. The trouble is, there is much pressure in the management of economic indicators to keep each series reasonably consistent in its creation so period-to-period comparisons can be made effectively. This pushes administrators to keep the equations stable and not change the assumptions, to protect series stability. However, the environment does change, rendering some of the specific mathematical inputs obsolete, thereby thwarting the goal of maintaining an effective series capable of time series comparisons. As my wife got me to understand this problem is a great source of tension among even the most well-meaning administrators and tends to keep the estimation processes behind the reality curve. “

Now, that may help in furthering the new-eggs at MIT along…..

AND all of that is courtesy of a great analysis and analyst- Jeff Miller at Seeking Alpha.
https://seekingalpha.com/article/4203635-weighing-week-ahead-jobs?isDirectRoadblock=false
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Elizabeth Pula Sep 3, 2018

If there is no GOODWILL to enforce the law, then any law is irrelevant in the real society and economy. There has been no will to enforce the law. There is only bad will to allow
certain people to be able to be the only ones to profit from the laws that were not enforced, as the law should have been enforced with the use of good will and common sense by the human beings elected or appointed to positions of power within the state.

Here's a great quote from same article, at what the Supreme court accomplished-"The power of labor continues to wane; the Supreme Court’s Janus v. AFSCME decision, while ostensibly limited to public sector unions, signaled in certain terms the willingness of the court’s conservative majority—five guys who have never held a real job—to effectively overturn the entire National Labor Relations Act if given the opportunity. The justices, who imagine working at Wendy’s is like getting hired as an associate at Hogan & Hartson after a couple of federal clerkships, reason that every employee can simply negotiate for the best possible deal with every employer."

The next step is the inevitable comeback of full-scale slavery in the 21st century.
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Elizabeth Pula Sep 3, 2018

Saving Capitalism from ......?????https://voxeu.org/article/credit-supply-and-housing-speculation
Does capitalism really need saving?
- Elizabeth Pula Sep 3, 2018
  
  "But wages remain flat, and companies have used their latest bounty for stock buybacks, a transparent form of market manipulation that was illegal until the Reagan-era SEC began to chip away at the edifice of New Deal market reforms. " from-https://www.truthdig.com/articles/capitalism-is-beyond-saving-and-america-is-living-proof/
  
  Now, the hype gets carried to the next level on PS. What's really significant is the fact of "market manipulation that was illegal until the Reagan-era SEC began to chip away at the edifice of New Deal market reforms." than became LEGAL by law. So now, the Dems are going to propose new LAWS??? to counteract what the Reps LAWS accomplished. Really now? The real problem is market manipulation that is being carried to further degrees to allow financialization to further escalate inflationary effects and of course defects that then affect the majority, but not certain specific locales, nor certain specific "classes" or others.
  
  How many years did it take to counter attack the NEW DEAL market reforms? Those were market reforms. The new laws whether in the 1980's or in 2018 are not market reforms.
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John Dabbar Sep 2, 2018

Read the book "The Battle for the Soul of Capitalism" by John Bogle
Founder, The Vanguard Group
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Elizabeth Pula Sep 2, 2018

WOW!- thanks for the super condensed version of ECON 101. Here's my much-to-do-about-nothing- " Much like printing money under Keynesian economics, it is instead recycling it creating deficits." That recycling of deficits, sure hasn't been helping much on the "demand" side of the equation, but maybe, adding a little water might help in re-constituting what real money is still floating around, after all the vacuuming is done.
- David Punabantu Sep 3, 2018
  
  Thank you Madam. Yes taxes above 8.3 percent commence the recycling factor eating up real wages. It is a structural flaw in many budgets. Take the British 2018 budget at £814 billion that breaks down to £67.83 billion. Total GDP for 2018 estimated at £2029.8 billion. To collect £814 billion budget a extraction rate or tax of 3.34 percent per month would yield £67.83 billion per month or £814 billion per year. As taxes are above the 8.3 percent threshold, the government will collect the budget, spend it, re collect it, spend it, recollect it, spend it in a cyclical pattern many times in a single budget year. In effect it will be like Keynesian economics and the printing of money except instead of printing physically, the printing is done by recycling it. Taxes thus become compounded. A government tax at 30 percent in the first cyclical would extract that value leaving 70 percent. Then in the next cycle extract another 30 percent leaving 40 percent. The next 30 percent extraction in real terms is facing 40 percent left of the economy and in real value terms is 70 plus percent. Once all the value is extracted of savings, investments of ordinary people government borrows against a "fiscal and economic crisis" ...as it has consumed more than is allowed within a specific time frame.
  - Elizabeth Pula Sep 3, 2018
    
    You refer to very valid realities of the economy. From my personal perspective, I find it quite difficult to think in the "financial terms of billions". I am hedging, and concluding with absolutely no proof, that I fit in with the majority, that really don't think in "billions" when it comes to financial calculations. There just is no day-to-day personal experience that makes the "billion" scale easily comprehensible, and relatable. It is very important to understand the impact of the "churn" effect, due to different "financial processes", in that scale of reference. We all experience the effects of inflation, on the personal and impersonal levels, without really understanding the dynamics-in-process. You are the first person that I have read anywhere in "common access media" that has "carried-out-the-numbers-at-that-critical-higher-level". When budgets are mentioned in the billions scale, which is the only scale valid for macro-economics, and global dynamics, I again hedge that only cognitive bias kicks in as a person reads the "rest of the story" and jumps to conclusions, and forms opinions, based on cognitive bias. I know I do it a lot more often than I want, or would like to admit, especially publicly, or even privately. Your perspective is definitely a "real" and "necessary" one to bring some of the aspects of Economics 101+ to a broader audience.
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Waleed Addas Sep 2, 2018

This is an excellent step in transparency/good governance; hold accountable whoever takes more than what is rightful or whoever inflicts harm on members of societies. This also comes closer to one of the most fundamental maxims in Islamic jurisprudence: "La Darar Wa La Dirar", translation from Arabic : "one must not harm himself/herself or bring harm to others". A universal guiding principle for social and economic behavior and incentives. One should go even further and propose a much wider "accountable capitalism act" : to hold accountable all asset owners for the lack of use (utility) of the assets under their ownership/contractual responsibility, e.g. real estate, land, labor, capital, stocks, knowledge etc etc with the proviso that, "if you don't use it properly (i.e. the asset), you will lose it (i.e. the asset may be taken away and re-allocated to someone else who can use it much more efficiently with better equitable benefits"! This will be a new capitalism but with a human face!
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Raymonde🚶‍♂️🏕️ Raymonde🚶‍♂️🏕️ Sep 1, 2018

"The enforcement of antitrust law has slipped a long way in recent years." I'm not sure there really is any enforcement at all. Matt Stoller makes the case that there really is no such thing as enforcement against large corporations. The FTC is still waiting for Facebook to comply with an injunction from 2011.
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Mark Cancellieri Sep 1, 2018

The annoying thing about this article is that the author assumes that government intervention is not rife with flaws itself. He compares an imagined ideal of government intervention with the actual operation of the market. It's a monumental error that pretty much *all* interventionistas make.
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Paul Daley Sep 1, 2018

Warren's bill is all about legal privileges with economic consequences. The privileges are warranted only when the consequences are good enough to offset concerns about the equal protection of the laws. But, in the US, the privileges enjoyed by investors in US corporations have produced fragile and debt-burdened corporations that are not in a position to stand up to any economic storm without massive support from the FED and the USG. That is why the law must change; it creates unacceptable risks and burdens for the state itself.
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Aycan Hickey Sep 1, 2018

What I remember from Econ 101 is 'ceteris paribus'. That is never the case in the real economy as sensible policymakers will know.
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nigel southway Sep 1, 2018

The bit about environmental protections is off the wall. But the concerns about corporate controls is on track.
Main issue is that corporations have gone trans-national due to uncontrolled globalization and don't fit the national corporate model and national systems need to be changed to better manage this.. it’s about taxes and labor arbitrage and border tariffs.
- M M Sep 1, 2018
  
  Nigel, it is about "Conflict of Interests"!
  - nigel southway Sep 1, 2018
    
    It’s about FAR MORE than conflict of interest… its about the science of economics being wrong on many fronts… mainly because it has become politicized. almost like a religion… in other sciences there are “laws” that define our formulas that we apply to get to a solution… economists have lost the plot in many ways by trading laws for a religious fanaticism even when the facts do not support these beliefs…. To my mind a lot of the teachings need to be rewritten with a far more open and optional stance.
    - Elizabeth Pula Sep 3, 2018
      
      Economics is really a study of "theories". The science is really applied mathematics, and all it's permutations. Then, a person can use mathematics, from the permutations, the combinations, and then the "applications" to possibly apply any and all kinds of theories, including nonsense and a lot of collaboration based on nonsensical theory and theories, or no theories at all. Now, in reality, there are a lot of people using applications that think they are the beginning and the end of everything. Also, in reality, there are a lot of people using applications that don't know, or even think about what they are doing in the process. So that really complicates the whole subject of anything, especially economic theory.
      - nigel southway Sep 3, 2018
        
        so... What you are saying is most economist practice....Alchemy...
        
        Elizabeth Pula Sep 3, 2018
        
        I wish. Most recently, it's more like sleight-of-hand, without much real technique, but a lot of bubbling finesse.
        
        nigel southway Sep 3, 2018
        
        Probably. but it’s also the fact that national economic management so far…has been encumbered with all this liberal democracy stuff with any alternative discussions about immigration and balanced trade being deemed politically incorrect. We have been forced without questioning to participate in G20 G7 or 8 and the WTO and IMS and the UN with the directions of multilateralists who have insisted on unilateral yet unwise trade deals. We have also had to contend with many other hangers on and global panhandlers wanting handouts with no return.... All this has placed the interests of national citizens less central to the agenda… Trump is right… its all been a distraction… and has ment we have followed economic theories proving to be wrong… A return to all things national is good as it resets the needed balance point.
        
        Elizabeth Pula Sep 3, 2018
        
        Jeffrey Sachs has just added an article on PS- on effects on the US dollar. That's the crux of the
        problem- pulling away from dollar controls. It's
        happening. It's a happening that is not in one man's control at all.
        
        I think this is really crucial- From Sachs: "A third advantage lies in regulatory control: The US either directly manages or co-manages the world’s most important settlements systems, giving it an important way to monitor and limit the flow of funds related to terrorism, narco-trafficking, illegal weapons sales, tax evasion, and other illicit activities."
        
        When that goes......
        
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    - Brian Kullman Sep 1, 2018
      
      There is a reason the economics is not considered a "science". It is not susceptible to laboratory testing. Theories/laws of economics are tested by observation of the real world in "uncontrolled experiments".
      
      Economics appears "scientific" because it makes major use of mathematics. The math is very elegant and allows economists to communicate with each other in a common "language". But the connection to the messy real world is often simply not there.
      - nigel southway Sep 1, 2018
        
        O so true... they (economists ) are like complex machine operators who don't understand the controls or its complex workings and just push and pull levers and press all the buttons to survive... we would ground a pilot for such a situation but we are forced to fly with these guys!!!
        
        Elizabeth Pula Sep 2, 2018
        
        Now I know why there are so many "economic crashes"!
        
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    - M M Sep 1, 2018
      
      It is astonishing the large number of politicians that turned economists / academics or vice versa (as in the case of E Warren) and not only in the US but practically everywhere around the world, one wonders about the real purpose of such a link between academia, politics, finance, religion, etc...
      - nigel southway Sep 1, 2018
        
        Yes.. agreed.... and at the risk of being a little crass… they all fall into 2 categories...
        1/ Too useless or lazy to get real jobs outside of politics, academia or finance
        
        2/ All are in a new category in society called “Elites”
        
        Most sit well in both categories….
        
        Hence the movement by many voters away from the current political institution.
        
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David Punabantu Sep 1, 2018

There is economic theory and how that theory is implemented, which in many cases serves certain interests. The question is how much do we understand economic theory and how far does the practical implementation of such theory go? Take a look at the so called free market of supply and demand and the IMF fixed cross rates for example. The IMF fixed cross rates goes against the free market system. The IMF fixed cross rates are based on the exchange rate of the US dollar against the Sterling pound. On the 30th of March 2018, the Sterling pound value to the US dollar was £1 equal to US$1.404. The Euro value against the Sterling pound was £1 was equal to €1.140 while against the US dollar it stood at US$1 to €0.81169. By dividing €1.140 by €0.81169 it gives the cross rates of 1.404. When looking at the North Korean Won its Sterling pound value stood on the same day at KPW1,263 while its US dollar value at KPW900.69 giving a cross rate of 1.403. For the Japanese Yen on the same day the JPY149.067 for the Sterling pound manifested and JPY106.185 for the US dollar giving a cross rate of 1.404. The same picture is seen in the Indian Rupee INR65.06 per US dollar against INR91.36 per Sterling pound to give a 1.404 cross rate. The Canadian Dollar CAD1.288 per US dollar against CAD1.809 per Sterling pound to yield a cross rate of 1.404. The Ethiopian Birr ETB27.56 per US dollar against ETB38.69 per Sterling pound gives 1.404 as a cross rate. The Chinese Reminbi CNY6.272 per US dollar against CNY8.812 per Sterling pound gives a similar cross rate as all currencies across the world do. So Economics 101 tells us that something is wtong. The question is do all money markets across the world have day in and day out the exact liquidity of Sterling pound and US dollars to reflect the exact exchange rate between the UK and US as reflected in the IMF fixed cross rate system. The reality on the ground is IMF fixed cross rates distort the market and value and thus undermining free trade. Economics 101 still rules and serves as yard stick to measure the distortion. The IMF needs to move to Free Floating Cross Rate to reflect the real position of currencies within markets and let currency arbitrage equalise quotations between markets.
Another human error in deciphering Economics 101 is seen in reality on the London Metal Exchange. Take a look at the London Metal Exchange (LME). The LME in a single day handle US$10 billion as 85 percent of the world's base metals pass through it. It is fed by the London money markets that handle US$1.5 trillion plus a day. The LME only allows the US dollar, the Sterling pound, the Euro, the Japanese Yen and in 2015 the Chinese Reminbi as accepted currencies to buy up all of Africa's mineral wealth despite Africa supplying the LME with base metals for centuries. In other words African currencies are banned from purchasing their own production. Is that what Adam Smith said? Economics 101. Adam Smith's Supply and Demand doctrine talks of Country X with Commodity X with Currency X. It is the supply of Commodity X and it's demand bought by Currency X that creates a price. If Country Y wanted Commodity X then Country Y would have to change its Currency Y into Currency X to buy Commodity X. That is why a Euro cannot buy anything directly from the US until it is changed into a US dollar. A US dollar cannot buy anything from the EU until it is changed into a Euro. But for Africa, Latin America, Asia minus China and Japan the US dollar buys directly their commodities by passing national currencies and thus violating Adam Smith's market doctrine. Then again the LME say in one day can sell 100,000 tons of copper at say US$1000 per ton. Hence the price of US$1000 per ton is based on a supply of 100,000 tons of copper. Yet a nation may have only contributed 1,000 tons to the 100,000 tons of copper. Thus the US$1,000 per ton is an aggregate price of many copper producers who produce copper at different rates and at different costs and have different ore concentrations. The copper producers have different national currency liquidities hence different values can be assigned to the copper based on each nation's value profile. A nation may demand US$1,000 per ton of copper it is stating it produced 100,000 tons which is -99,000 tons (MINUS 99,000 TONS being MINUS IS$99,000,000 and physically US$1,000,000 whose value is also is minus US$99,000,000. The same applies to IMF fixed cross rates. Understanding Economics 101 helps us to see human folly. Then we come to The Theory of a Firm and the notion of "profits" based on human experience of economics. . Basic economics 101. Imperfect Competition. Say's Law Supply creates its own demand. When a company produces 10 tins of baked beans at £1 each per day it expects through the Theory of Rational Expectations £10 per day per 10 tins of baked beans. Hence each day the shops sell ten tins of baked beans and the shelves are empty. The £10 per day per 10 tins sold is the perfect price. However if the next day only 5 tins of baked beans are bought the company still gets its £10 as each tin of baked beans now costs £2, which is termed the imperfect price and is production inflation leaving 5 tins of baked beans per day on the shelves unsold. In effect the firm, over time when they do sell the unsold baked beans tins the company will declare a profit of £10 from the delayed sale of baked beans per unit time. That is why in the developed world shops are full of unsold goods. Who do you think is paying for the goods? Hence when you buy a tin of baked beans or a pack of chicken you are also paying for the other ones you have left on the shelves or fridge. As the company has already made its basic income at £10 per per day, it can now discount the remaining 5 tins of unsold baked beans. To this you always see sales or promotions every other week in big retail shops. Then again do economists really understand that Statistical Behaviour of numbers to understand the underlying mathematical laws that underpin economic theory taught in Economics 101? Some thing economists have yet to understand. A calender year does not make an economic unit. Any tax above 8 percent causes government to collect spend and recollect and re spend etc in a cyclical pattern the nation budget. Much like printing money under Keynesian economics, it is instead recycling it creating deficits. The higher the tax above 8 percent the greater the recycling. Hence in a calender year a nation can go through 52 budgets for example, 52 economic years in a calender year, against which statistical data representing a calender year compresses into a week. The underlying axiom to statistical data is counting systems. Figures may count in hexadecimal (base 16), or Vigesimal (base 20) or Hexavigesimal (base 26) or Pentasexagesimal (base 65) or may change from one base system to another but are all expressed expressed in a decimal system. Take time a second is broken into hundreds, sixty seconds make a minute it's not 100 seconds. 60 minutes make an hour and 24 hours a day. A set of figures may be counting in binary but expressed in decimal systems will appear to rise much faster, but if it is counting in hexadecimal system but expressed in decimal it will appear to rise much slower. Therefore the true nature of statistical behaviour is identifying the counting system with specific counting or "time" frames in relation to other time frames to determine its exact behaviour. Even famous physicist Albert Einstein (1879-1955) in 1926 in a letter to Max Born (1882-1970) when he talked of the statistical nature of quantum physics said, "is certainly imposing. But an inner voice tells me that it is not yet the real thing. The theory says a lot, but it does not bring us closer to the secret of the Old One. I at any rate am convinced that He does not throw dice, (Clark)."
Therefore it is not surprising in that reading financial and economic statistics, especially when they exhibit a behaviour that humans fail to interpret the hieroglyphics, creates a crisis. The crisis has always been a problem associated with the mathematical laws inherent in heterogeneous numerical systems against human built equations functioning in a homogenous numerical system being used to interpret them as not being good enough to understand the higher statistical laws needed to as Descartes said, "perceive all things at once."
The fault is not Economics 101 but human perception of Economics 101.
- Elizabeth Pula Sep 2, 2018
  
  David- I meant to post my last comment, as a reply to yours. So, here's another WOW! your summary was a great one!
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- nigel southway Sep 1, 2018
  
  My Takeaway is maybe and certainly the interpretation of Adam Smith is wrong and is taken too simplistically ….. You talk about units of measure.... and the real measurement dichotomy is a very fixed one and its the measure of citizenship... we have a global economy with a total under-planned evolution with many mismanaged activities with uncontrolled global trade increased 8 times since 1980 but real wealth almost flatlined for most of the rapidly expanding population, with most citizens fixed in a national economy...Last time I checked most people are fixed in one nation.... The debate is are we in a global market that works or a bunch of national markets trying to fit into this mess... This is where most economist struggle and fail to explain other than glib religious terms like free trade and multilateralism that leave many of us cold..
  - David Punabantu Sep 3, 2018
    
    Yes there is a mess as you rightly put it Sir. The question is how do we remove the economist's interpretation of events, by eliminating the economist's prior reason of economic parameters, by distinguishing between real properties and characteristics within specific time frames? How as Albert Einstein put it arrive at truth or the axioms of a system? How do we separate the " objects of experience" and the ideas that interconnect these experiences to arrive at truth. Whether something goes up or down is a human experience, it is just a shift or change. The current frame of economic knowledge still is similar to a time when men believed the earth went round the sun or if you travelled to far you would fall off the flat earth. The "flat earth" assigns one value across the world for the US dollar and Sterling pound as exhibited by the IMF fixed cross rates. Then again the issue of the "exorbitant privilege" the US dollar enjoys is human is nature and distorts value. This single human factor transcends geographical boundaries. The economic universe for the US dollar and it's influence exceeds it's geographical boundaries. When some country like Singapore demands direct payment for its goods in US dollars how does that differ from an American in the US demanding US dollars for a burger? The real national identity in the economic universe is currencies that epitomise all the value of work and goods and services produced and bought by a nation. So for Singapore selling in US dollars how then does the Singapore currency register that value? How then does a nation exist in the economic universe if it cannot see its value? The true nature of the economic universe is that the value of the US dollar should vary from market to market and from time to time. This was noted by the IMF Managing Director “Mr. M. Gutt at his Harvard University address on “The Practical Problems of Exchange Rates” on the 13th February 1948, where the indirect exchange rate of the US dollar to the Sterling pound was £1 per US$2.6 as US$1 equaled 600 Lire and £1 equaled 1,560 Lire, while the direct Sterling-US dollar rate stood at £1 per US$4.” (The Practical Problems of Exchange Rates cited in Tew (1967) p.79) Here, Italian exporters were allowed to retain half their export earnings that they sold to importers, while the other half was sold to monetary authorities. In both cases the export revenue was not directly offloaded on Italy’s money markets which in turn affected the cross rate parity.
    Consequently, as Italy’s money markets like many money markets in developing nations today did and do not strictly adhere to the supply and demand doctrine, Americans found it cheaper to buy goods from the UK via Italy. Italy’s restricted money market liquidities against its traded goods with specific trading partners provided certain volumes of foreign currencies which did not duplicate the fixed cross rate position found in London’s money markets. Britain objected to Italy’s position as Italy was gaining US dollars at the expense of the Sterling Area gaining those US dollar inflows. This pushed the already delicate Sterling Area’s balance of payments with the US Dollar Area into a precarious condition.
    The IMF moved in to impose the fixed cross rate regime in the name of “multiple currency practices” in favour of Britain. Italy thus lost out on trade with America and Americans now had to pay more for British goods. Unfortunately the IMF move once again undermined currency cross rates in relation to existing currency liquidities within national money markets in favour of Britain.
    It is against this that the issues of trade deficits, and alleged currency manipulation, continue to haunt global trade. The fixed cross rate system is not market driven and basically indicates symptoms of multiple currency practices promoted by the misapplication of the supply and demand doctrine. In other words it creates a monopoly devoid of any consciousness or soul.market for local importers wishing to buy foreign currencies to purchase imports.
    A higher price being paid for foreign currencies acts like a tariff on imports that, “certain countries, particularly in Latin America, have used them [multiple currency] as a means of restricting imports without resorting to complicated administrative controls.”(IMF Annual Report (1948) p.27)
    To this end, “the Fund discussed [the] practices under which part of the exchange earnings or their equivalent are to be retained by exporters…Most of these practices have discriminatory currency features; some are clearly multiple currency practices.”(IMF Fourth Annual Report on Exchange Restrictions (1953) cited in Tew (1967) p.82)
    Such practices infringe on the Fund’s Agreement that “no member shall engage in…any discriminatory currency arrangements or multiple currency practices.” (Articles of Agreement: Article VIII Section 3 (2011)). What then is the true nature of the economic universe? The picture that emerges, in a free floating cross rate system for example, may see Country Z having trade surplus with Country J as it uses Yen to convert into Country Z’s currency the Kwachas to buy copper. This creates an exchange rate of ¥1,000 per K1 as Country J uses her Yen to purchase Kwachas, Country Z’s national currency. Country Z buys very little from Country J in relation to what Country Z exports to Country J. To this, Country J uses the purchased Country Z’s Kwachas to buy copper, against which Country Z accumulates Yen in its market as the Fund as noted in Article I of the Fund Agreement is, “to assist in the establishment of a [multilateral] system of payments in respect of current transactions between nations.” Although the exchange rate in Country Z for the US dollar, based on Country Z’s market liquidity may be K8 per US dollar, in Country J it may well be ¥200 per US dollar as Country J trades more with the United States than Country Z.
    If a citizen in Country Z wanted to import an iphone from the United States pegged at US$500, it would be cheaper to buy the iphone via Country J, but this would in turn affect market liquidities in both Country Z and Country J money markets and hence exchange rates as exchange arbitrage operations occur. The US$500 iphone in Country Z in Kwacha terms based on its K8 per US dollar rate would cost K4,000, but through Country J the cost of the iphone would be ¥100,000 at ¥200 per US dollar, being through Country Z’s Kwacha/Yen exchange rate at ¥1,000 per K1 be worth K100, which is equal in US dollars based on Country Z’s US dollar/Kwacha exchange rate at US$12.50. At US$12.50 per iphone the United States would be on an equal footing to deal with another country called China with its cheap exports unless China’s cross-rates are lower in the countries China/United States/Country Z’s exchange rate configurations.
    It would then be a question of quality and finding the best value in currency arbitrage operations.
    The United States would still get its US$500 disregardless of the value step up or step down and the problem of external disequilibrium is addressed provided each country settled its exports in its national currencies.
    What emerges from this with regards to global trade and finance and the “exchange rate” creates three distinct exchange operations. Yet the core is the human element now has choice and is not restricted to one value that takes on a personal of multinationals Vs us. May be value in the current economic system is just not flowing. It is human perception and prior reason that affects what we see. We see China's rise to economic power. Yet look closely. The difference between China and the US is clearly seen in economic policy. A look at what former editor of the Financial Times Mr Crowther wrote in his book"An outline of money" he wrote , " “if a purchaser is someone who want D-marks in order to pay for German exports, the fact that he can get his marks cheap is equivalent to a reduction in the price of exports; it will stimulate sale in exactly the same way as an ordinary depreciation of the exchange rate” (Crowther (1951) p.260).
    China has depreciated the price of its products to stimulate inflows, while western economic philosophy has been depreciate currencies to stimulate inflows as echoed by the IMF. China follows "who want D-marks in order to pay for German exports" ..by having "who wants Chinese Rhiminbi in order to pay for Chinese exports" ...Although Chinese firms quote their exports in US dollars payments are settled in Chinese Reminbi to the firms as a result of Chinese foreign currency regulations. So now we understand why Chinese products are cheap. Could American products be equally as cheap? Yes they can be in a free floating cross rate system along the lines of a market driven system. Economics is meant to serve people not people serving economics.
    - nigel southway Sep 3, 2018
      
      If after all this writing you are advocating free floating currency .. then you are heading in the wrong direction... the currencies are already gamed far too much by the stock market (casino)… we used to have a gold standard.. the US dollar as a reference is a poor substitute .. maybe time to back to gold or something else... or maybe enforced balanced trade or such.
      - David Punabantu Sep 3, 2018
        
        It is a rather difficult problem. Can one absolute value be assigned to a currency? Will this currency reflect what appears on the ground? What can be learn from having one fixed value? In 1949, Britain devalued the pound sterling by 30%. This was a major world economic event given that the pound was and still is one of the major currencies in the world. In fact, 9 other countries followed suit then to devalue by a similar margin. They were Australia, India, South Africa, New Zealand, Eire, Denmark, Norway, Egypt, and Israel. The question id did Norway, India, Eire, Denmark need to devalue by 30 percent as if they had the same economic strength and financial muscle as Britain? The effect of the devaluation was bound to be more serve on the economies of Norway, Denmark etc which also appears to be happening between EU states today with the size of the German economy against other smaller EU states. Then again as you said so rightly to go back to the gold standard. But can one value system rule the world economy? If it is so then what happens to purchasing power? Tax structures vary between countries and any tax above 8.3 percent recycles the government budget within its set time frame a calender year. Much like Keynesian economics government collects the budget, spends it, recollects it, spends it again etc. At each cycle government eats up more leaving less for you and me. So when we look at one US dollar of yesteryear it buys less than it does today. Yes a Gold Standard would preserve value provided governments can keep that value and control it's level of taxation. It's a double edged sword. This is the crisis the European Exchange Rate Mechao (ERM) faced between July and August when speculators drove the ERM down that resulted in the collapse of the Maastricht Treaty. The remedy saw EU finance ministers increase their float rate margins by 15 percent either side of the D mark the ERM anchor currency from two and a quarter percent. This was in response to some EU nations overshooting set budget targets. The UK got ejected from the system but all the other currencies maintained their numerical value but all floated downwards as it in effect was a 30 percent depreciation. The problem of a Gold Standard is that national development programs get constraint.The nature of increased float rates have brought back past dilemmas faced by international currencies and trade as noted in the 1960s and 1949 and 1931 with trade and budget deficits. In fact the Bretton Wood crisis saw the Sterling depreciation against the US dollar not exceed 7 percent from the time the floating started up to the middle of October, but reached more than 11 percent at the beginning of November 1972. (Bank of Zambia (1972) p.1). Behind all this the United Kingdom in the 1960s experienced a worsening trade balance, while as far back as 1958 some Western European countries also started to acquire gold instead of US dollars and the United States lost US$2.3 billion. The outflow of gold continued. At the beginning of the 1950s, the value of American gold stock amounted to US$25 billion. By 1968 it had sunk to US$10 billion. (Bo Sodersten (1960) p.454).
        Empirical findings in the late 1980s suggest that the move by industrial countries to floating exchange rates, following the collapse of the Bretton Wood fixed exchange rate system, had some effect in reducing the level and the rate of growth of international trade. (Bank of Botswana (1996) p.54).
        The increasing depreciation rate or float rate of the US dollar means US dollar global liquidity is increasing. The US dollar will always face the Triffin Dilemma as long as one value is assigned to it across all markets disregard less of size.
        
        A new reply to this comment has been posted.
      - David Punabantu Sep 3, 2018
        
        It is a rather difficult problem. Can one absolute value be assigned to a currency? Will this currency reflect what appears on the ground? What can be learn from having one fixed value? In 1949, Britain devalued the pound sterling by 30%. This was a major world economic event given that the pound was and still is one of the major currencies in the world. In fact, 9 other countries followed suit then to devalue by a similar margin. They were Australia, India, South Africa, New Zealand, Eire, Denmark, Norway, Egypt, and Israel. The question id did Norway, India, Eire, Denmark need to devalue by 30 percent as if they had the same economic strength and financial muscle as Britain? The effect of the devaluation was bound to be more serve on the economies of Norway, Denmark etc which also appears to be happening between EU states today with the size of the German economy against other smaller EU states. Then again as you said so rightly to go back to the gold standard. But can one value system rule the world economy? If it is so then what happens to purchasing power? Tax structures vary between countries and any tax above 8.3 percent recycles the government budget within its set time frame a calender year. Much like Keynesian economics government collects the budget, spends it, recollects it, spends it again etc. At each cycle government eats up more leaving less for you and me. So when we look at one US dollar of yesteryear it buys less than it does today. Yes a Gold Standard would preserve value provided governments can keep that value and control it's level of taxation. It's a double edged sword. This is the crisis the European Exchange Rate Mechao (ERM) faced between July and August when speculators drove the ERM down that resulted in the collapse of the Maastricht Treaty. The remedy saw EU finance ministers increase their float rate margins by 15 percent either side of the D mark the ERM anchor currency from two and a quarter percent. This was in response to some EU nations overshooting set budget targets. The UK got ejected from the system but all the other currencies maintained their numerical value but all floated downwards as it in effect was a 30 percent depreciation. The problem of a Gold Standard is that national development programs get constraint.The nature of increased float rates have brought back past dilemmas faced by international currencies and trade as noted in the 1960s and 1949 and 1931 with trade and budget deficits. In fact the Bretton Wood crisis saw the Sterling depreciation against the US dollar not exceed 7 percent from the time the floating started up to the middle of October, but reached more than 11 percent at the beginning of November 1972. (Bank of Zambia (1972) p.1). Behind all this the United Kingdom in the 1960s experienced a worsening trade balance, while as far back as 1958 some Western European countries also started to acquire gold instead of US dollars and the United States lost US$2.3 billion. The outflow of gold continued. At the beginning of the 1950s, the value of American gold stock amounted to US$25 billion. By 1968 it had sunk to US$10 billion. (Bo Sodersten (1960) p.454).
        Empirical findings in the late 1980s suggest that the move by industrial countries to floating exchange rates, following the collapse of the Bretton Wood fixed exchange rate system, had some effect in reducing the level and the rate of growth of international trade. (Bank of Botswana (1996) p.54).
        The increasing depreciation rate or float rate of the US dollar means US dollar global liquidity is increasing. The US dollar will always face the Triffin Dilemma as long as one value is assigned to it across all markets disregard less of size.It was the Interim Committee of the Board of Governors of the IMF’s fifth meeting held in Jamaica in January 1976 that set to resolve the on going 1960 Bretton Wood crisis, which in the past also plagued the Gold Standard.
        The chief features of the Bretton Woods system were an obligation for each country to adopt a monetary policy that maintained the exchange rate of its currency within a fixed value—plus or minus one percent—in terms of gold and the ability of the IMF to bridge temporary imbalances of payments.
        ‘In the face of increasing financial strain, the system collapsed in 1971, after the United States unilaterally terminated convertibility of the dollars to gold.
        It is here that the Jamaica meeting was set to reconstruct a new system of rules and management involving the future of global trade.
        Here the IMF Board of Governors’ fifth meeting “set the seal on the Second Amendment of the IMF articles that limited reforms to those areas on which consensus had been reached [in an attempt to correct the crisis.] But on the central aspect of reform-the exchange rate regime, convertibility of official balances and the reserve system-the Jamaica agreement virtually accepts the fait accompli that had followed the breakdown of the Bretton Wood system.”
        The Jamaica reforms basically outlined a believed path out of the Triffin Dilemma that was responsible for global crises.
        The answer to the Triffin Dilemma that the global economic and financial universe faced was, “continuing with the prevailing situation with the role of the US dollar reduced, with an increased role for other currencies and private financial markets, and with all governments trying to reduce their exposure to exogenous events; or moving in the direction of regional monetary blocs, which would each work out their own relations with other monetary areas; or advancing to a better-organized world system”.
        For Africa under the Jamaica reforms, the monetary blocs such as the African Union (AU) have been formed but its focus is on commodities, while the Europe has formed the European Union (EU).
        Yet with the EU hit by the 2008 crisis, huge geographical monetary blocs are not immune to the global melt down. Hence the interpretation of monetary blocs within the mandate of the Jamaica Reforms basically falls on each national currency participating in global trade and establishing exchange rates driven by currency markets and trade with its trading partners is paramount, rather than the geographical interpretation of monetary blocs being associated to continents.
        Alongside this, the Jamaica reforms encouraged the creation of super economic blocs so strong that they would withstand any economic or financial shocks experienced in the 1970s.
        Consequently, the move towards regional blocs saw the European Economic Community (EEC) accelerate its formation into the European Union and its Euro as a move away from the US dollar, and the US moved to create the North America Free Trade Area (NAFTA), while for Africa, the Organization for African Unity (OAU) was transformed into the African Union (AU).
        For the AU, the Fund prescribed that it would work it its own relations with other monetary blocs, which has seen Africa sign the Lome Convention and South Africa a trade deal with the EU.
        However, after the 2008 US Sub-prime crisis the financial collapse of the EU’s Euro and the US economy has brought into question the Jamaica reforms effectiveness.
        After 2008, stimulus measures taken to resuscitate major economies have disintegrated into Quantitative Easing Policies (QEP) marked with accelerated float rates and the printing of money which basically has brought back discarded and discredited economic management ideologies in the 1970s into the 22nd century lime light of economic management.
        Attitudes supporting such policies as QEP are historical as noted in the 29th Annual Report of the Bank of International Settlements (BIS), that
        “the fact that such a considerable proportion of the total volume of liquidity consists of liabilities of the United States and the United Kingdom implies that the working system of international payments depends at present to a large extent on the pursuit by those countries of economic and monetary policies aimed at maintaining the purchasing power of their monetary units, and so preserving confidence, both at home and abroad, in their currencies.
        If in the future-as is greatly hoped-further expansions of trade take place, the volume of international monetary reserves may have to be adjusted to the increasing need of means of payment. The problem then may arise on deciding what will be the best ways of effecting such an adjustment. This is a technical problem that monetary authorities will have to consider in good time.” (29th Annual Report of BIS pp.243-4 cited in Tew (1967) p.188)
        
        Currently, the best way of effecting the adjustment has witnessed the global exchange rate policy shift from; the Gold Standard, to fixed exchange rates, to a floating exchange rate in the 1970s, to after the 2008 US Sub-prime crisis to Quantitative Easing Policies (QEP).
        It is at this juncture that the supply and demand doctrine coupled with its free market forces appears to have failed, after so religiously being followed for over three decades, as the foundation of sound economic and financial management.
        
        nigel southway Sep 8, 2018
        
        It’s not difficult at all... just have each country control its currency but with inter-country controls like a gold standard or something else that forces less unnecessary trade at the expense of the populations of each country.
        
        Many international transactions are either speculation or trade that is undertaken with labor arbitrage or other corporate ploys rather than a benefit to each country or even the corporation itself.
        
        Current forms of globalization has lowered the control nations have on their economies... the first step is to disallow currency manipulation that transfers wealth.
        
        David Punabantu Sep 8, 2018
        
        TContaining "value" in a gold standard has a temporal aspect to it. May be this is human instinct to see things in a certain way. In 1993 between July/August EU Finance Ministers decided to increase their band margins by 15 percent either side of the D mark from two and a quarter percent margin. In effect a 30 percent depreciation. This depreciation appeared 15 days later as an appreciation in some currencies and that appreciation collapsed three months later on. The same EU Maastricht Treaty collapse of 1993 reappeared two and a half years later as the Asian crisis reinfecting other economies as a price hike which reinfected the original country that experienced the appreciation. The same event appeared to recoil across time taking on different forms based on a countries exposure and size. Yes there is one gold standard the "vast sea of value" . Within all this under the Gold Standard purchasing power parities were respected and governments tried to maintain them. In other words in the "temporal aspect" the velocity of money was maintained around 4. It meant that every 90 days government could collect it's budget and spend it and recollect it, respond it. This coincided with company board meetings, hence decisions made in board meetings had 90 days to pan out. In a case study IMF reforms saw this velocity shift from 4 to 17. The result was every 21 days government collected the budget and spent it. Prices rose roughly every month and people demanded a year's wage as a monthly salary. Within 227 days government coffers ran dry in line with the high tax level that saw government consume all the GDP. Firms collapsed as board meetings every 90 days had their decisions overrun as the time horizon had changed. What had to be done in a calender year had to be done in 21 days. As the local budget expired in 227 days local firms collapsed, as debt escalated which meant despite the 1993 appreciation they could not buy US dollars as they lacked the local currency to buy US dollars. This fell in line with the US dollar value of the budget to last 586 days well beyond the budgeted time of 365 days. In effect relative to the US dollar economy it's "temporal position" was far greater. What was interesting was during the study it appeared that the set economic properties dictated human behaviour and decisions. We feel the absoluteness of a "Gold Standard" but if "time" in our economic universe is not constant as each country has different market sizes, different production rates, different demand and consumption patterns how then do we standardize time? Free Floating Cross Rates can work but as you so rightly said "speculators" would buy up currencies cheap then use those proceeds to buy commodities even cheaper and sell dearer. How then can governments control this? Is this variable value of the US dollar no different from what former editor of the Financial Times wrote Mr Crowther. Instead of depreciation of currencies it is products. But what if currencies were like products and had different values depending on the market. With this information age the constraints of trade and currency arbitrage could be that every one would go on line and speculate making an income of US$500 into US$5000 to purchase that house or car. It could be the "stimulus" package. We must accept that deficits and surpluses co-exist at the same time but spatially spread. When looking at the US dollar universe in the light of the Triffin Dilemma the US geologically experiences a deficit while US dollar holders experience a surplus. Both at the same time. But one thing is certain that some prominent person said about economics is that the economy constructs everybody into its service whether we like it or not. Countries are just ships sailing in an immense sea of value and we must bring in line that value with the objects around us like money and goods.
        
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        David Punabantu Sep 8, 2018
        
        TContaining "value" in a gold standard has a temporal aspect to it. May be this is human instinct to see things in a certain way. In 1993 between July/August EU Finance Ministers decided to increase their band margins by 15 percent either side of the D mark from two and a quarter percent margin. In effect a 30 percent depreciation. This depreciation appeared 15 days later as an appreciation in some currencies and that appreciation collapsed three months later on. The same EU Maastricht Treaty collapse of 1993 reappeared two and a half years later as the Asian crisis reinfecting other economies as a price hike which reinfected the original country that experienced the appreciation. The same event appeared to recoil across time taking on different forms based on a countries exposure and size. Yes there is one gold standard the "vast sea of value" . Within all this under the Gold Standard purchasing power parities were respected and governments tried to maintain them. In other words in the "temporal aspect" the velocity of money was maintained around 4. It meant that every 90 days government could collect it's budget and spend it and recollect it, respond it. This coincided with company board meetings, hence decisions made in board meetings had 90 days to pan out. In a case study IMF reforms saw this velocity shift from 4 to 17. The result was every 21 days government collected the budget and spent it. Prices rose roughly every month and people demanded a year's wage as a monthly salary. Within 227 days government coffers ran dry in line with the high tax level that saw government consume all the GDP. Firms collapsed as board meetings every 90 days had their decisions overrun as the time horizon had changed. What had to be done in a calender year had to be done in 21 days. As the local budget expired in 227 days local firms collapsed, as debt escalated which meant despite the 1993 appreciation they could not buy US dollars as they lacked the local currency to buy US dollars. This fell in line with the US dollar value of the budget to last 586 days well beyond the budgeted time of 365 days. In effect relative to the US dollar economy it's "temporal position" was far greater. What was interesting was during the study it appeared that the set economic properties dictated human behaviour and decisions. We feel the absoluteness of a "Gold Standard" but if "time" in our economic universe is not constant as each country has different market sizes, different production rates, different demand and consumption patterns how then do we standardize time? Free Floating Cross Rates can work but as you so rightly said "speculators" would buy up currencies cheap then use those proceeds to buy commodities even cheaper and sell dearer. How then can governments control this? Is this variable value of the US dollar no different from what former editor of the Financial Times wrote Mr Crowther. Instead of depreciation of currencies it is products. But what if currencies were like products and had different values depending on the market. With this information age the constraints of trade and currency arbitrage could be that every one would go on line and speculate making an income of US$500 into US$5000 to purchase that house or car. It could be the "stimulus" package. We must accept that deficits and surpluses co-exist at the same time but spatially spread. When looking at the US dollar universe in the light of the Triffin Dilemma the US geologically experiences a deficit while US dollar holders experience a surplus. Both at the same time. But one thing is certain that some prominent person said about economics is that the economy constructs everybody into its service whether we like it or not. Countries are just ships sailing in an immense sea of value and we must bring in line that value with the objects around us like money and goods.
        
        A new reply to this comment has been posted.
        
        David Punabantu Sep 8, 2018
        
        An "advanced gold standard" could do the trick provided governments don't reck it with overtaxing people.
        
        David Punabantu Sep 8, 2018
        
        Containing "value" in a gold standard has a temporal aspect to it. May be this is human instinct to see things in a certain way. In 1993 between July/August EU Finance Ministers decided to increase their band margins by 15 percent either side of the D mark from two and a quarter percent margin. In effect a 30 percent depreciation. This depreciation appeared 15 days later as an appreciation in some currencies and that appreciation collapsed three months later on. The same EU Maastricht Treaty collapse of 1993 reappeared two and a half years later as the Asian crisis reinfecting other economies as a price hike which reinfected the original country that experienced the appreciation. The same event appeared to recoil across time taking on different forms based on a countries exposure and size. Yes there is one gold standard the "vast sea of value" . Within all this under the Gold Standard purchasing power parities were respected and governments tried to maintain them. In other words in the "temporal aspect" the velocity of money was maintained around 4. It meant that every 90 days government could collect it's budget and spend it and recollect it, respond it. This coincided with company board meetings, hence decisions made in board meetings had 90 days to pan out. In a case study IMF reforms saw this velocity shift from 4 to 17. The result was every 21 days government collected the budget and spent it. Prices rose roughly every month and people demanded a year's wage as a monthly salary. Within 227 days government coffers ran dry in line with the high tax level that saw government consume all the GDP. Firms collapsed as board meetings every 90 days had their decisions overrun as the time horizon had changed. What had to be done in a calender year had to be done in 21 days. As the local budget expired in 227 days local firms collapsed, as debt escalated which meant despite the 1993 appreciation they could not buy US dollars as they lacked the local currency to buy US dollars. This fell in line with the US dollar value of the budget to last 586 days well beyond the budgeted time of 365 days. In effect relative to the US dollar economy it's "temporal position" was far greater. What was interesting was during the study it appeared that the set economic properties dictated human behaviour and decisions. We feel the absoluteness of a "Gold Standard" but if "time" in our economic universe is not constant as each country has different market sizes, different production rates, different demand and consumption patterns how then do we standardize time? Free Floating Cross Rates can work but as you so rightly said "speculators" would buy up currencies cheap then use those proceeds to buy commodities even cheaper and sell dearer. How then can governments control this? Is this variable value of the US dollar no different from what former editor of the Financial Times wrote Mr Crowther. Instead of depreciation of currencies it is products. But what if currencies were like products and had different values depending on the market. With this information age the constraints of trade and currency arbitrage could be that every one would go on line and speculate making an income of US$500 into US$5000 to purchase that house or car. It could be the "stimulus" package. We must accept that deficits and surpluses co-exist at the same time but spatially spread. When looking at the US dollar universe in the light of the Triffin Dilemma the US geologically experiences a deficit while US dollar holders experience a surplus. Both at the same time. But one thing is certain that some prominent person said about economics is that the economy constructs everybody into its service whether we like it or not. Countries are just ships sailing in an immense sea of value and we must bring in line that value with the objects around us like money and goods. But we must understand what happens when we don't buy, don't speculate.
        
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Per Kurowski Sep 1, 2018

And should not regulators be expected to take Statistics 101 and learn about conditional probabilities before concocting their risk weighted capital requirements for banks?
https://subprimeregulations.blogspot.com/2018/08/risk-weighted-capital-requirements-for.html
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M M Aug 31, 2018

Elizabeth Warren has better devote her time and energy at serving her community instead of chasing wild goose. More regulations for the sake of regulating is counterproductive. Markets are already over- regulated and are supervised by an endless number of bodies and organisations. To try and push the blame (or the accountability) to the workers / employees and to hold them responsible for the inefficiencies or incompetence of the regulators and of the regulatory bodies / agencies is called "deceit" and has got nothing to do with Econ 101!
- neo- confucius Sep 1, 2018
  
  I find it difficult to arrive at a similar conclusion with the sentences suggesting employees should get some representation on the board of directors, that they would bear some responsibility of their actions. How that will make them bear all the blame and be responsible for the inefficiencies and incompetence of the regulators is beyond me. It is a political statement rather than a reasoning argument.
  - Elizabeth Pula Sep 3, 2018
    
    You make a good point. The legal proposal is attempting to compensate for levels of mis-understanding. You can't do it through the legal system. The legal system is practically functioning totally independently of the "real" people in communities. Try to take any kind of case to court as a citizen. Good luck. But, the real issue is getting understanding of functional economics presented on valid platforms. It takes time to get the messages across on any platform. Transitioning thought from theory to application takes time. There are many aspects of Marx's theories that are not discussed just due to politics. That will need to change. The major impact will affect "corporatism" and the "state", globally.
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  - M M Sep 1, 2018
    
    NC. The job of an employee is to work and not to govern. A seat on a Board of any Company involves by definition responsibilities and accordingly, accountabilities. In many corporations, the workers or employees are represented by their unions or union representatives to act on their behalf within the corporate structure. Unless Elisabeth Warren is looking at ways to bypass the unions and union representatives, one fails to see any merit in her arguments or proposed legislation. If the matter is about remuneration and benefits, there are many employee schemes that can be developed by the management of a company to reward the workforce without any need for additional regulations. And you are right, my comment is political because Elisabeth Warren is a politician, a lawyer, a former academic and as such all she cares about is having yet another self serving piece of legislation passed by congress, only in this case such a piece of legislation shall probably bear her name and fingerprints, a kind of immortality really, in her own mind!
    - Elizabeth Pula Sep 2, 2018
      
      Legal changes equating "corporation" with a "person" has muddied the laws, and this new legislation won't help much of anything.
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john zac Aug 31, 2018

Very well said, all the way around. I would only add the fact that the morality of how much money one has should finally be demoted to how it was made. Which puts everyone under scrutinity
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Curtis Carpenter Aug 31, 2018

To be fair, I had the privilege to work under two CEOs that I felt had a very clear sense of social responsibility, and I'm sure there are many others today.

The "corporatocracy" does indeed seem to loom though, fulfilling Adam Smith's prediction that the merchant class, unchecked, will always end up owning the government, however it is structured.
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Janos Nagy Aug 31, 2018

The only responsibility that corporations has is to reinvest the profits where the earned it.
Oops ...isnt globalization just about the opposite.
You can not have a responsible capitalism system where profits can be moved anywhere leaving the debt it created for the nations to pay for.
- Elizabeth Pula Sep 2, 2018
  
  So, the majority of citizens that are not members of the "corptocracy" are the unwitting victims. So, the losses get churned from sector to sector, by strategized "buys" and "sells", by HFT, and key managers/traders with data access for strategic maneuvers in and out of the specific targeted markets within specific nations. That is such a lovely balanced free-market system.
  
  All of that activity just keeps churning along, no matter what any law says or doesn't say.
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Rick Puglisi Aug 31, 2018

Corporations licensed to serve the nation? Sounds like national socialism. Why not just balance trade which keeps our freedom and restores worker bargaining power.
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vivek iyer Aug 31, 2018

Self interested behaviour, by definition, is rewarding to the agent. Also, by definition, it ignores costs or benefits to others. Thus if I eat up all the food in the fridge- this is self interested behaviour. It means others in the office or home will go hungry. It would be better if I had to pay for food. Then I would eat less and there would be more for others to eat.

The author does not seem to realize this basic fact though, it seems he has written a whole book on Economics. It seems unlikely it could be any good given that the author says= 'One core problem is that market incentives reward self-interested private behavior, without accounting for social benefits or costs.' He does not seem to understand that market incentives reward self-interested behaviour which is also beneficial- indeed, more so- to somebody else. Thus when you sell something on ebay- you benefit but so does some one else who, probably, would have been prepared to pay even more for the thing. This is 'consumer surplus'.

There is 'agent-principal' hazard in non-market arrangements- e.g. within the Coasian firm. There are proper economists, smart people, who work in this area using cutting edge Maths. Indeed, this year, both the Fields Medal and Nevanlinna prize were given to people whose work throws light upon core aspects of Econ. This is not the silly Econ 101 this gentleman is speaking off.

What he does not understand is that corporate funding of political parties is a double edged sword. It may be harmful, but it also may be helpful. It could restrain some crazy demagogue.

Warren's proposed act should be welcomed by monopolistic firms. Why? It increases the legitimacy of rent-seeking activity and also raises compliance costs and thus barriers to entry. In Germany, this type of thinking has led to slower real wage growth- something employers welcome.

Transparency is not a good thing. It militates for risk aversion and preference falsification. It gives rise to McKelvey chaos and agenda control. It features increased Djikstra concurrency deadlock and livelock.

Nowadays, thanks to the internet, and blogs like 'marginal revolution' or sites like 'Quora', young people studying Econ 101 can quickly check that the obsolete panaceas this author is peddling have been shown both empirically and theoretically to be foolish.
- Elizabeth Pula Sep 3, 2018
  
  More political idealizing rather than policy establishing will not help understanding Economics 101. A lot of laws today are politicizing the legal arena, rather than creating positive or even negative functional change that affect the majority of "consumers" in the economy.
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- Curtis Carpenter Aug 31, 2018
  
  "Transparency is not a good thing."
  What a revealing statement of one's basic philosophical/political inclinations.
  - vivek iyer Aug 31, 2018
    
    Empirical and theoretical research in Economics (which is what this post is about) shows 'Transparency kills information aggregation' vide https://warwick.ac.uk/fac/soc/economics/research/workingpapers/2015/twerp_1088_hughes.pdf
    
    Economics is a positive, wholly alethic and analytical discipline. No well formed proposition of positive Economics has any 'philosophical' or 'aesthetic' or 'theological' content.
    
    I am sorry, your comment casts doubt on your competence in the field regarding which the author is making certain claims.
    - Elizabeth Pula Sep 2, 2018
      
      A lot of "economics" today is just "opinion" of economic theories that were written by only a few "real economic theorists". There really is no focus on policies, that can change dynamics within societies. The "models" haven't changed much. All of the emphasis is on the "supply" or production activities and the consequences are whatever the consequences are. If negative, today, it's create more debt and leave for the next generation to deal with the problem. There is no focus on re-establishing any change to the "state", or examining any "should-there-be's" change?
      
      In the US, we are effectively becoming a nation without any laws that really mean anything to anybody. The laws are written to allow corporations to circumvent any responsibility for any result affecting the citizens of the state. When you reach that point, the citizens are effectively worth nothing, and totally powerless. So what kind of state do you have, with totally powerless citizens? You don't have any state. You have certain corporations that are doing just fine. Any citizens that are doing just fine are only citizens that are members of the specific corporations that are doing just fine. You no longer have states, nor a nation of states.
      - vivek iyer Sep 2, 2018
        
        It is perfectly rational for American voters to want more power over Corporations. The question is, how is it to be done? One method, advocated by the Catholic Church, which gained prominence in the Thirties, was 'Corporatism' whereby various industries were regulated by boards comprising various 'stakeholders'. This was compatible with Keynesian 'demand management'. However, it proved inefficient and imposed a burden on the young and the self-employed.
        
        Older people may remember the Seventies when big Corporations demanded bigger and bigger subsidies. There was institutionalised wage discrimination and growing 'Duality'- i.e. the small scale sector was squeezed while the big players flourished.
        
        Big Corporations want to be protected both from hostile takeover as well as from price and quality competition. They have the resources to hire the top P.R and Advertising and Lobbying firms so as to create a 'Green' and 'Caring' image. However, if history is any guide, this comes at the expense of the consumer, the small producer, and the self employed and non-union, or weak bargaining power, sectors.
        
        Countries which have 'low Tobin Q ratios'- i.e. where Corporations are undervalued- also have lower real wage growth and feature behemoths in sunset, not sunrise, industries. It is true that a flourishing 'mittelstand' - i.e. mid-sized, often family run, manufacturing firms- can off set this tendency to some extent. However, the dynamism you see in Sunrise sectors is missing from these countries. Thirty years ago, some people said 'the US should be more like Japan'- no one says that now. Germany too appears to be doing well but probably was over cautious in repressing wage growth. The result is that the East is getting depopulated and extreme Parties are gaining salience.
        
        Warren's proposals are backed by some pretty dodgy Economic theories and flat out wrong econometric results. Still, in a democracy we should welcome new ideas and vigorous debate and so on balance she deserves praise- more particularly because she has good and decent values. The problem is 'corporatism' assumes population homogeneity whereas, it appears, in America there is currently a backlash against increased heterogeneity. So, going down this road would be more about protecting older, indigenous, workers and companies in 'sunset' industries than about helping the most vulnerable.
        
        Elizabeth Pula Sep 3, 2018
        
        You present valid points. As all of the commenters, and authors of the articles do too. Johnson may use some of these comments for "his next book". Regardless, I write on PS in the comment area, for practice, at least. This platform is sort-of like University Blackboard postings. As the internet changes to allow writing that is co-operative, Economics 101 will improve. Presently, due to limitations of publishing print vs online, and educating students to develop their thought process, time delays have presented certain "gaps" in the timeliness of thought for the present generation of students. It should change to the better pretty rapidly.
        
        Of course, other "issues" will simultaneously develop. Unfortunately, censoring of thought may be a real anomaly of events. Everybody, on all levels, is trying to earn money and keep the economies floating.
        
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Jerry hough Aug 31, 2018

This seems very pious and meaningless, as one would expect from a representative of a very rich state.

The problem is not so much the top 1% as it is the owners of the means of production, to use Marx's language. Those are the top 20-25% who owns stocks in their retirement funds. Unfortunately, this now includes government employees, When the market tripled under Ob
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Paul Daley Aug 31, 2018

Warren's proposal is one of the absolutely essential reforms to American capitalism, where a combination of lax bankruptcy rules, limited liability privileges and legal doctrines that demand that corporations attend only to the interests of stockholders have produced a cadre of fragile, heavily indebted corporations that are increasingly dependent on cheap credit and tax cuts for their profitability. It will no doubt take several years for this legislation to become law, but it is at least a step in the right direction.
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