A new Facebook group dedicated to reforming economics tuition has just been established by Edward Fullbrook, the coordinator of PAECON, the Post-Autistic ECOnomics Network.
Called Toxic Textbooks, its aim is to support and coordinate student protest against neoclassical economics at universities and schools around the world. Its manifesto is:
Toxic textbooks helped cause the economic meltdown
The current economic meltdown is not the result of natural causes or human conspiracy, but because society at all levels became infected with false beliefs regarding the nature of economic reality. And the primary sources of this infection are the “neoclassical” or “mainstream” textbooks long used in introductory economics courses in universities throughout the world.
Mass miseducation
Every year these “mainstream” books serve to indoctrinate millions of students in a quaint ideology (perfect rationality of economic agents, market efficiency, the invisible hand, etc.) cunningly disguised as science. This mass miseducation deprives society of the moral and intellectual capacities it needs in order to design and maintain the support systems required by market economies.
We need new, non-toxic textbooks
More economic catastrophes will befall us and our children if we do not replace these toxic textbooks with non-toxic ones immediately. If decency and good sense prevail in academia, then affecting this reform will not be a problem. But textbook reform will damage many economic faculties and toxic textbook authors. The former will suffer losses to their reputations, the latter to their royalties, which in some cases run to millions of dollars.
Together, we can overcome these vested interests
Society can therefore expect well-placed and richly-funded strategic resistance to doing the right and necessary thing. This website and the associated Facebook group exist to help citizens, especially students, mobilize and organize themselves to overcome these vested interests.
Edward has also established a website, also called Toxic Textbooks, , as an adjunct to the Facebook group.
As I have argued numerous times on this blog, though there is no doubt that most neoclassical economists are well-meaning and fervently believe they make a positive contribution to society, their underlying model of the economy is delusional. Following a bad theory ultimately leads to catastrophe, and that is what we have today with the Global Financial Crisis.
Conventional economics not only completely failed to anticipate this calamity, but actively if unconsciously aided its growth by promoting deregulation of finance, by the development of financial derivatives, and via rescues of the financial system that simply encouraged its Ponzi behaviour to scale heights that poor old Charles Ponzi could only have dreamed of.
If economics were in any sense a science, this dramatic failure would lead to a period of soul searching and intellectual forment from which would emerge a more empirically grounded vision. But with the essentially unscientific nature of economics, this development is unlikely unless enormous pressure is brought to bear on academic economics departments by their students, by business groups, unions, and community groups–in short by anyone whose welfare is affected by the economy.
The most immediate source of pressure will be students of economics, who can and should actively protest against being taught neoclassical dogma as the global economy goes into meltdown around them.
As an undergraduate, I led such a revolt at the University of Sydney in 1973. We had marked success in that battle, but lost the war in that economics in general came to be dominated by the false vision of Milton Friedman, rather than by truly scientific, empirically grounded analysis. In a very direct way, the financial crisis is a direct consequence of Friedman’s intellectual victory in the 1970s. Now that we can see the consequences of that victory, it is essential to finally win the war to bring realism into economics.
The time has come for economics students to once again be revolting. Edward Fullbrook has established this group to provide a New Media focus for such student action. I have proudly joined, and I encourage all critical economics academics and students to do likewise.
May 16th, 2009 at 12:49 pm
Steve,
So instead of telling us whether it is better to buy golden coins or maybe silver bars in order to preserve our wealth you want us to read something like that?
http://www.paecon.net/PAEReview/issue49/Costanza49.pdf
“This new model of development would be based clearly on the goal of sustainable human well-being. It would use measures of progress that clearly acknowledge this goal. It would acknowledge the importance of ecological sustainability, social fairness, and real economic efficiency. Ecological sustainability implies recognizing that natural and social capital are not infinitely substitutable for built and human capital, and that real biophysical limits exist to the expansion of the market economy.
Social fairness implies recognizing that the distribution of wealth is an important determinant of social capital and quality of life. The conventional model has bought into the assumption that the best way to improve welfare is through growth in marketed consumption as measured by GDP. This focus on growth has not improved overall societal welfare and explicit attention to distribution issues is sorely needed.”
You are supposed to advice us on silver bars not on this kind of greenish-reddish brainwash leading to dictatorships, communism , inflation or even worse, higher taxation.
I can understand the the forum can also be used to discuss the Austrian ideas since they are build on the solid and obvious foundation that natural resources are infinite and that filling up the tank in my 4WD car is morally more important than life of these silly people in 3rd world countries. And that the preservation of MY wealth during these treacherous times will benefit the human civilisation.
Dear Steve just advice me on that, don’t waste your time on anything else. Gold or silver, silver or gold? When to buy when to sell?
My property. It is sacred. It has been given to me by God (or two or three).
Printing money is a crime. All the money has already been printed and it is MINE. Hands off and stick a fork!
May 16th, 2009 at 3:08 pm
ak,
your rivalling Steve’s go flow mobile;-)
May 16th, 2009 at 3:09 pm
As usual Satyajit Das is right on the money.
http://business.theage.com.au/business/end-of-the-age-of-plentiful-debt-20090515-b63t.html?page=-1
May 16th, 2009 at 6:02 pm
What is a disaster but is never spoken of is why textbooks cost so much in the first place. The marginal cost of printing a textbook is probably around $10-15, not the ludicrous price of $50-150 students are flogged for. The marginal cost of an electronic version of a textbook, say in PDF format, is $0.
It is beyond belief that the economics profession, orthodox and heterodox alike, have not even bothered to investigate a different system of financing textbook production in the 21st century. Currently we are using a 15th century medieval economic mechanism, intellectual property rights (more specifically copyrights).
The economist Dean Baker has created a model of a new form of financing textbook production that is far more efficient. His report can be found here http://www.cepr.net/documents/publications/textbook_2005_09.pdf
I would suggest a similar model in Australia. There are approximately 800,000 students at the tertiary level in Australia (universities and TAFEs). Each student would be charged an extra $100 each. This means that local students would be charged an extra $100 on top of their HECS debt, which is usually $5000-10000/year, so this sum in comparison is insignificant. International students pay an extra $100 as part of their full-cost fees.
An educational fund can be set up at the federal level which would choose an outstanding and distinguished academic (or two) to write a textbook (or two) pertaining to their field of science. 800,000 students x $100 = $80 million. These academics will be compensated for their hard work with a lump sum, say $100,000. $80 million divided by $100,000 = 800 textbooks a year.
The textbook will then be placed within the public domain for everyone to access. Because there is no copyright on the textbook, its monopoly price will be eliminated and can be printed at marginal cost or zero cost for electronic downloads.
Copyrights for textbooks are a disaster, not just for the outlandish monopoly prices. Having been at university for a number of years, there was not one textbook that was fully used. The major reason why textbooks are so big (300-1000) pages is due to copyrights and the distorted model of profit-seeking it produces. In order to make the 12th edition, for example, a few changes are made, more pages are added, and then academics are told that the 11th edition is “out of date” and all students should now purchase the new 12th edition. But the vast majority of students, in a semester-long subject, can’t get through all the content of a textbook, thus leaving a great portion of the textbook unstudied and thus wasteful.
In a properly functioning market, competition would force prices down to marginal cost (Steve has mentioned the problems of P=MC, so bear this in mind). Under copyright, you will find 5-8 textbooks on, say introductory microeconomics, in the university library. But the content is generally all the same and cross-product competition under copyright leads only to small price reductions, still far above marginal cost. Copyright results in “me-too” textbooks, like pharmaceutical drugs. Furthermore, authors generally don’t even get much from the sales of their textbooks. It is the publishing houses that use their power to grab most of the proceeds from the textbook sales.
If textbooks were financed and produced under this new model, textbooks would be far cheaper, smaller, and more accessible due to online availability. Many students use laptops today and could even just read the necessary pages off the screen rather than purchasing the actual textbook, thus saving some paper. Any necessary content for class can be printed off from the online document (most likely a PDF), rather than purchasing the full textbook.
The genius of this system is that this form of efficient government intervention can be run side-by-side with the current grossly inefficient form of government intervention of intellectual property rights, in this case, copyrights. The current system would collapse within a year to two as somewhat “rational” students will flock to purchase the new textbooks at marginal cost ($10-15) or simply download it for free. Which student in their right mind would want to purchase a textbook at monopoly prices?
There would be academics around the world who would immediately transfer their copyright of existing textbooks to the Australian government in exchange for the lump sum, thus saving time for the writing of a textbook.
I think that this system based upon Dean Baker’s model, is fairly logical and would save students immense sums over time as well as making information publicly available, as it has the characteristics of a pure public good. Strangely enough, this last point is never brought up in economic debate even though it is starkly obvious and has huge implications for other sectors of the economy.
It appears that as long as government intervention redistributes wealth from generally poor students towards rich publishing corporations and academics including economists, they will remain silent on this issue. Economists will not want to understand something when their income from textbooks through copyrights depends on them not understanding it. Orthodox economists are in favour of cutting tariffs which tend to be around 10-30% in Australia, but remain silent on intellectual property rights which cause far greater distortions anywhere from 100-1000% (books and textbooks), branded clothing and apparel made for the prices of peanuts in sweatshops under conditions of near slavery then sold for outlandish prices – 200-2000% (think Nike shoes), 500-1,000,000% for pharmaceutical drugs where taxpayers and academia do most of the R&D anyway, and infinite markups for software (having a marginal cost of $0).
What a disaster.
May 16th, 2009 at 7:32 pm
steady on ak, think we need to tone down the ranting and vitriol a little,
think its best , not take ourselves too seriously and discuss these things in good humour
May 16th, 2009 at 11:47 pm
mahaish,
I didn’t want to offend anybody. I just wanted to expose the very basic misalignment of values.
I’m sorry this has to be a kind of essay but otherwise I wouldn’t be able to address all the issues I think are important in this context.
One system of values is based on the philosophical and psychological assumption that individuals who are free – unsupervised (apart from imposing certain rules based on the “natural” moral system) create the best possible outcome for all the people. This happens because we always act rationally in our best self-interest. This was summarised in the best form by Margaret Thatcher: “There’s no such thing as society – merely individuals and their families”. Coincidently this system of values constitutes the foundation of neo-classical economics and (in the extreme form) the Austrian school. The political purpose of the neo-classical economics is to prove that the liberal system is the best possible.
People coming from that direction will obviously criticise the mistakes and excesses committed by the politicians, corporations and bankers during the previous speculative bubble period. They will see clearly that natural rules were broken and the behaviour was corrupt and immoral. I will not disagree with these statements. But I think that the problem is much deeper.
The alternative system of values is based on the different concept of the human nature and society. An individual is a social creature constantly interacting with the others, not necessarily rational, often driven by emotions and instincts inherited from our animal ancestors. We feel compassion, we hate, we love, we are easily manipulated and we make a lot of decisions unconsciously. I don’t want to say that neo-classical economists ignore for example the power of love in interpersonal relationships but they will still use the same simple model of decision-making process when they analyse the economical behaviour.
For me the most important limitation of the neo-classical economics is that it is built on a 18-century concept of human nature (utilitarianism) and simply ignores all scientific knowledge acquired by social psychologists since.
Steve wrote a very valuable book about formal errors found in the neo-classical theory but this one which I just mentioned alone is grave enough for me to disqualify the most of the official economics as a science.
There is a separate branch of psychology called the psychology of consumer behaviour. As one can expect the findings of this science are used to create marketing strategies (and making money). Unfortunately the decision-making behaviour is quite complex and cannot be used to create simplified mathematical models leading to equilibrium. It has recently become possible to model decision-making process using software models called agents but this approach is not suitable for creating a simplified model of reality. So nobody has attempted integrating psychology and official mainstream economics.
On the individual values plane interacting with other people and “experiencing” may be equally important than “having” and “using”. More “cargo” does not necessarily mean more happiness. Unfortunately the cargo cult still dominates in official economics handbooks. The ultimate goal is to maximise the GDP what means to maximise consumption. The economy must grow. There is no room for moderation in consumption as this is exactly the definition of a recession. (Some socialists unfortunately share the same materialistic and I would say simplistic view – often for different reasons).
If we include all these modern findings about the human nature into our discussion about social values – suddenly freedom and the right to private property are not the only values. The right to live in dignity, to work, to have equal access to shared resources and many other rights become important as well. There will be cases when one can argue for a violation of freedom or the property rights because this might be better for the society as a whole (and for its members – fellow humans). The best example for that is taxation – even if money taken away from me is given to a non-productive drug addict I still think that this is fair. He has the same right to live even if he suffers from the consequences of his past mistakes. He is a human being exactly like Bill Gates or Warren Buffett and we have a moral duty to look after everyone. This also extends to people living in poor countries.
The value of everything cannot be reduced to money, happiness cannot be reduced to consumption and society cannot be reduced to merely a sum of its members.
Liberals will say that all these nice words only lead to the domination of the oppressive and corrupt state. This indeed happened in the communist countries. According to liberals only the free market guarantees the best possible outcome. Helping the drug addict is actually harming him and us – he should be given back freedom and responsibility even if it means that he will die or kill somebody in order to get a fix. He needs to be punished if he does not obey the law and this is all we can do for him. Some of the liberals may express muted dissatisfaction with the behaviour of large corporations (monopolies are considered to be bad) but in general the least intervention of the state the better.
The critique of the unfettered free market as the best possible solution comes from different angles. The most obvious finding is that it simply doesn’t work because the players are capable of not obeying all the rules. In fact they constantly work very hard to circumvent them. Large corporations and banks are extremely proficient in doing that. They can corrupt the political system easily – and often within the law. Another obvious observation is that the system is unfair – it leads to exploitation and that some of the players have to lose to let the others win.
There is yet another dimension of the fundamental misalignment of philosophical principles and values – the environment. The observation that our resources are finite and that we share common responsibility for not destroying our habitat. For neo-liberals the Earth is flat – this is what they can see. Yesterday there was enough oil and today there is enough oil so tomorrow it will be the same.
The official economics has no means to include the constrains of natural environment. The system is designed to grow the consumption and production. There is a naive assumption that progress will solve all our problems at the right time. Just like cars replaced horses when our cities became too big. Any attempts to argue that this is not the case are greeted with a strong denial. Earth is flat after all.
I don’t agree. The set of environmental issues facing us and our children is much more serious than the Global Financial Crisis. It is not about whether we survive as a species. It is about our sophisticated culture which will collapse if the temperature rises by several centigrades and billions of people die because of famine.
I would say that more emphasis needs to be put into the development of alternative economics taking real human nature and human environment into consideration. Technological progress can and will lead to the improvement of our living conditions but at the same time raw energy consumption must be reduced dramatically. This has to happen in the globalised world where large nations like China and India are reclaiming the place they deserve. I would again argue for considering radical solutions like personal carbon trading. They need to be modelled and scrutinised scientifically.
Somebody may argue that this is a violation of freedom. Yes it is. But I prefer to have a personal carbon limit imposed upon me than to watch not polar bears dying but my fellow humans experiencing a famine we don’t have to have.
I would argue that the neo-classical economics became a carbon-copy of late Marxism-Leninism. It is based on 18-century philosophy, it uses speculative methodology instead of relying on observations and modelling. It is supposed to be the ultimate social science guiding us to happiness of the mankind. Finally it is used as a political tool. It didn’t lead to totalitarianism like Stalinism (which was different to the late scholastic Marxism-Leninism from the period 1956-1989) but it served at least on a few occasions as the ideological backbone for oppressive regimes like of Pinochet in Chile.
It has to go to hell exactly as its infamous predecessor.
I wouldn’t be surprised if most of the readers could agree with at least some of the values I believe in. However when confronted with practical issues (when they have to chose between conflicting values) and confronted with arguments I presented in my previous posts they often chose the answers from the neo-liberal handbook. This hardly surprises me. I observed the same phenomenon when I was a college student in the 80-ties in a country where communism was dying a long and painful for everyone death. The simplified set of values and ideas present in the neo-liberal system is very useful especially when my own wealth can be eroded. “The system will always self-regulate”. “The State is evil”. “Taxation is stealing”.
I don’t want to say that I can prove that I am right. I am not an economist just a person concerned with what is going on. It is yours to enjoy the collapse of the other great ideology – the first act has already begun. Trust me, the GFC is the ultimate self-destruction, they cannot fix it, ideologies are very brittle. I can only hope that it will be as peaceful as the previous one. And that people realise that we have to fix our attitude to environment before the environment fixes the problem itself.
May 17th, 2009 at 2:02 am
Maybe it is time to consider the GPI instead of the GDP
http://www.rprogress.org/sustainability_indicators/genuine_progress_indicator.htm
We believe that if policymakers measure what really matters to people—health care, safety, a clean environment, and other indicators of well-being—economic policy would naturally shift towards sustainability.
Quote:
Redefining Progress created the Genuine Progress Indicator (GPI) in 1995 as an alternative to the gross domestic product (GDP). The GPI enables policymakers at the national, state, regional, or local level to measure how well their citizens are doing both economically and socially.
Paul
May 17th, 2009 at 5:11 am
Paul,
You make an interesting point. In his book, The Post-Corporate World, David Korten mentions a similar measure that shows that the upward trend in sustainable per-capita economic well-being ceased in 1981 in Australia. Since then, Australia has been on a stagnant or downward trend.
GDP as an indicator for human well-being is dripping in ideology; there has been constructed far better measures of well-being. The link you provide shows one of them.
The GDP is distorted in itself. It basically measures only the value of transactions that has occurred within a year. If all the negative externalities caused by our institutions (mostly business corporations) were factored into the GDP, then I suspect that our GDP would be either hovering just above $0 for the year of 2008 or actually negative.
This resolution would be economically conservative as it makes no value judgment but rather seeks to incorporate the monetized costs of negative externalities (for example, waste, damage, pollution, congestion, depletion, noise, manipulation, preventable workplace accidents, etc). Such externalities are the rule rather than the exception. Economists like to pretend they are small or non-existent and thus can be confined to a footnote. However, the opposite is the case.
The problems of introducing a new measure of well-being is not one of methodology (whether conservative or liberal) or complexity but one of power. Power (Australia’s millionaires, billionaires, corporations and corporate executives) are opposed as it immediately becomes obvious that development even in first-world countries like Australia has been heading backwards for a long time. Progress, in their view, occurs when the wealth of the nation is transferred to them.
May 17th, 2009 at 12:03 pm
Last week a mainstream economist and former deputy governor of RBA, Stephen Grenville asked:
“Can the economic theory found in modern textbooks explain the Global Financial Crisis (GFC) and offer guidance on preventing a recurrence?”
No one here appears to have refer to this:
http://www.lowyinstitute.org/Publication.asp?pid=1041
May 17th, 2009 at 3:23 pm
Philip said
“What is a disaster but is never spoken of is why textbooks cost so much in the first place. The marginal cost of printing a textbook is probably around $10-15, not the ludicrous price of $50-150 students are flogged for. The marginal cost of an electronic version of a textbook, say in PDF format, is $0.”
What are you complaing about. If you dont like paying for a book then dont read the books that you have to pay for. No one is forcing you to pay for a book; its your choice.
If you University is forcing you to buy a book then its the fault of the Academics who wants to make money; thus attack your peers.
If you want to read material that you agree with then publish your own book electronically for free.
There’s enough free material on the net to keep one informed in just about everything.
If you want journals to be free then read the free journals. Note that most journals are non-for-profit but they charge heaps. Why? because they have the best office building, travel in style and basically live the good life under the guise of non-for-profit.
My feeling poor Philips is that you have never done anything productive. If not then here’s your chance. Start up your own non-for-profit company; try and convince authors to think the way you do and then publish cheap books. This is you chance to be productive, make a difference – its your calling. No point whining – just get up off your ass and do it.
May 17th, 2009 at 3:44 pm
Aac,
It appears that you have missed the point: intellectual property rights are a medieval economic mechanism that causes far too many distortions to be used in 21st century Australia.
You usually have something insightful to say, but on this occasion your personal attacks put you on the level of ‘ak’. Attack the theory, not the person – a simple concept.
May 17th, 2009 at 3:57 pm
Philip said
Its only personal is the context that you are complaining about the cost of books and I am suggesting you do something constructive about it. Maybe you dont understand the cost of publishing. Go to your library and ask them what it cost to maintain a journal, take Physics A. Then go to the publishers and ask them where all the money goes, develop a feel for the logistsics involved in matining integrety in regards to referees, references and accuracy in general. Then formulate your plan of attack.
When you publish in a journal a form that transfers the Copyright to the journal is signed. Have you asked yourself why? because if they didnt do this then everyone would duplicate the articles and the so called non-for-profit organization will go broke.
Think thropugh what you are saying. The patenting system is no doubt flawed but not entirely. Intellectual property also has problems but without it there would be few books worth reading; ie. you get what you pay for.
Here’s a thought experiment. How many people would work full time writing a book if they could not make a living off it – very few.
Oh, and if you say that the gov should then ask yourself how many “paid for gov” books are worth the paper they are written on.
I’ve had enough of this school boy socialist bull – excuse the French but you people really have no clue.
Intellectual property
May 17th, 2009 at 5:26 pm
Sadly, it is becoming normal for academics to attempt to force their students to buy a particular textbook (and particular edition), some even sell copyrighted “workbooks” and all answers must be submitted in the “workbook” or else they are not regarded as legitimate.
I agree that blaming copyright won’t solve problems that are essentially corruption and misuse of academic authority. More competition in the tertiary education marketplace would be a better idea.
In the digital age, the cost of publishing is very close to zero. Less than the cost of going out for a beer once a week. There’s no logistics involved in peer review if the peers are happy to post their reviews in public. If academia has got to the point where coercion is too powerful for people to put out an honest review with their name on it in public, then God help us, we are in far more trouble than the darkest fears of Steve Keen.
But why set our target so low, just to be writing a textbook? Why not start a whole system of education based off free material on the Web? There’s enough raw material our there, most of the work is just collecting and categorising. I’m up for it!
Who cares if they work part time? Are we in a desperate hurry? A lot of people working part time (but cooperatively) will achieve much more than one person working full time in isolation.
In the particular case of research articles (and the sort of books that are essentially a narrative wrapping a set of research articles), the main objective of publication is publicity for the researcher (or team). Trying to gain more publicity by restricting distribution is a bit like gnawing off your own leg in the hope of getting a better time in the Marathon.
Researchers regularly sign the rights to their articles over to publishers for not a cent in remuneration.
May 17th, 2009 at 5:56 pm
GDP as an indicator for human well-being is dripping in ideology; there has been constructed far better measures of well-being. The link you provide shows one of them.
It’s a simple enough concept. Presuming that every transaction is voluntary (on the part of all parties concerned), then all parties to the transaction must be seeing a benefit (else they would opt-out of that particular offer). Thus, more transactions equals more benefit.
The first and most obvious problem is that not all transactions are voluntary. For a start, taxation (a major transaction on everyone’s books) is not voluntary. Then there is government spending, also not voluntary. Thus, if a stimulus package boosts GDP then it also destroys the very measure of wellbeing that GDP represents by artificially pumping the figures with non-voluntary transactions.
Other transactions are not really voluntary, although they might seem to be. For example, in certain industries you must be a member of a union before you are allowed to work in that industry. You could choose to walk away from the industry (and many do) but that merely increases the wages of those who join the union and stay.
Other transactions include unaccounted liabilities. For example, John Doe might be a suspect in lighting a bushfire in Victoria. John never gets caught but his action of fire lighting does increase GDP. With the cost of fire fighting, ambulances, medical expenses, insurance and rebuilding we have many transactions that were only entered into as a consequence of John Doe’s actions.
We could make a stimulus package that involves an RAAF flyover distributing incendiaries every summer and it WOULD increase GDP, but hopefully we are all agreed that such things are a very bad idea for the economy.
Now after proving how bad GDP really is, if you rank countries in order of GDP per capita… there is no doubt that those with high GDP per capita are better off than those with low GDP per capita. So GDP does provide a rough measure between rich and poor nations.
Measures such as GPI sound like a nice idea but inevitably include some of the values of whoever is building the indicator. I would consider the Internet very valuable and amazingly cheap considering how powerful it is. It is cheap because there is competition driving down profits, not because no one would be willing to pay more for it (that’s a flaw in both the GDP and the GPI measurement because people don’t reveal how much they would be willing to pay for goods).
May 17th, 2009 at 6:01 pm
Aac,
You’re essentially comparing IPR to nothing, which is a fallacy because I’m not doing that. I’m comparing IPR to a better system.
Since you have read my post on textbooks, you would have noticed that students (local and international), not the government, are funding the costs of textbooks in a different manner, rather than forking out far more to purchase monopoly priced textbooks.
As for the general ideal that you get what you pay for: this clearly doesn’t hold true with monopoly priced products. You’ve just invoked one of the greatest arguments against IPR. That’s why economists across the spectrum have opposed monopoly since the time of Adam Smith. A monopoly in telecommunications or steel may increase the markup by 20-70%. IPR, by contrast, will cause markups of between 100-1,000,000% depending on the product.
Furthermore, the vast majority of people who work under IPR aren’t even compensated well for their effort. The publishing houses, music and film studios, journal and software businesses, etc appropriate the majority of fruits of the hard effort of these people. There are ways to compensate people for their work but it doesn’t follow for a moment that the most efficient method is IPR.
By discussing journals, you’ve inadvertently picked what is probably the greatest rip-off under IPR, though they comprise a tiny segment of the overall economy. The authors, referees, and editors generally don’t get compensated for their work. Vast numbers of journals are owned by publishing houses which never paid for the content and yet charge monopoly prices.
“Consider the market for scientific journals. Scientists rely on professional journals to keep themselves abreast of new developments in their fields. Traditionally, universities modest subsidized scholarly journals as part of their commitment to furthering the overall education process. With the drastic cuts in state support for education, financially squeezed universities cut subsidies. No longer solvent, journals fell into the hands of great conglomerates. Suddenly, these journals became a major source of profit. Prices skyrocketed. Many journals now cost more than $1,000 per year. These prices seem to bear no relationship to the cost of production. Reviewers, and even editors, frequently work without pay. Authors often submit their articles in digital form, saving the publisher much of the cost of typesetting. In addition, journals frequently require a fee from would-be authors just for the privilege of having their work considered for publication.” (pp. 96-97)
Perelman, Michael. 1999. Class Warfare In The Information Age (New York: St. Martin’s Press)
Decades ago, the creation and upkeep of journals were financed by universities through modest sums. These days, universities pay far more for them than through the old system. It’s a turn for the worse. Journals are first and foremost an integral part of the scientific process. Academics don’t expect to get compensated by either the old system or IPR. Thus, journal corporations shouldn’t be making monopoly rents from a product that is freely made by scientists pursuing the scientific interest. If journal corporations could charge prices more in line with the moderate costs of upkeep then perhaps it would be acceptable but the point is that they don’t.
A better system for compensating people for creative work is the voucher system advocated by conservative economists for a long time. Dean Baker has a report on such a system: http://www.cepr.net/documents/publications/ip_2003_11.pdf
The reason why I condemn this form of extreme state intervention is because the costs outweigh the benefits. I understand the costs of production, logistics, maintenance, etc which is the fundamental reason why I oppose IPR. The term “intellectual property rights” is contradictory. Property rights are assigned to scarce, rivalrous resources to ensure their efficient allocation among economic agents. Electronic information is not scarce and not rivalrous.
“But surely it is clear, given the origin, justification, and function of property rights, that they are applicable only to scarce resources. Were we in a Garden of Eden where land and other goods were infinitely abundant, there would be no scarcity and, therefore, no need for property rules; property concepts would be meaningless. The idea of conflict, and the idea of rights, would not even arise. For example, your taking my lawnmower would not really deprive me of it if I could conjure up another in the blink of an eye. Lawnmower-taking in these circumstances would not be “theft.” Property rights are not applicable to things of infinite abundance, because there cannot be conflict over such things. Thus, property rights must have objective, discernible borders, and must be allocated in accordance with the first- occupier homesteading rule. Moreover, property rights can apply only to scarce resources.” (p. 31)
Kinsella, Stephan. 2008. Against Intellectual Property (Auburn, Alabama: Ludwig von Mises Institute)
The onus should be on those who advocate utilizing tremendously inefficient 15th century state intervention to funnel monopoly rents to corporations. They are the reactionary socialists. Unfortunately, due to corporate power and perverse ideology, it will be up to others to show that better economic systems can be created to ensure that the majority of costs can be eliminated and all people, not a few corporations, can be compensated more fairly for their hard work.
As for ideology, I’m called a communist because I oppose totalitarian collectivist institutions called corporations, I’m called a socialist because I oppose corporate socialism and inefficient government intervention, and I’m called a left-wing radical because I believe that businesses should adhere to conservative market principles. The irony is just awesome.
May 17th, 2009 at 6:53 pm
expensive books and software,
piracy is a great antidote for this desease spread by monopolists and cartels,
reality check number 1 for any monopolists out there
we are living a world thats moving away from centralised control of resources and information, despite the herculien efforts of monopolists to stop this process.
open source is the future of everything, whether we like it or not.
long live piracy
May 17th, 2009 at 7:01 pm
nice post Philip, thanks for the ‘voucher’ link – re intellectual property rights – I am a fan of people getting paid for their work. I don’t see why intellectual and creative labour should have no value. But I think the model we work under whereby corporations (and maybe other abstract entities) can own any sort of IPR is wrong. We would be much better off if IPR could only be held by individuals and that such IPR was extinguished upon their death.
May 17th, 2009 at 8:52 pm
Hi Everyone
A lot of this stuff you’re talking about is quite interesting, but I feel most of you are quite a bit off-topic. The point of this post I’d thought was about economic text books and what’s being taught to students, and how it can be changed. Now from reading Steve’s posts for the last few months and your blogs you’re all wanting change. But a lot of you have gone off on tangents about intellectual property and copyright, the costs of text books etc. I must admit some of your posts are so l-o-o-o-n-n-g-g that I just skimmed what you’d said.
Can we get back to the topic of Steve’s post? He ends up with: ‘The time has come for economics students to once again “be revolting”. Edward Fullbrook has established this group to provide a New Media focus for such student action. I have proudly joined, and I encourage all critical economics academics and students to do likewise.’
I’d prefer to read discussion on this site on the topic of changing how economics is being taught, and how text books can be changed. Otherwise it seems to me that neoclassical economics will continue to be taught and nothing will change.
May 17th, 2009 at 9:36 pm
Tel,
You are right about the coercion that can take place within the educational setting. Academics can compose curricula which rely heavily on textbooks that they have authored, or perhaps some of their colleagues have authored – perhaps a conflict of interest. Sometimes it is not their fault when it comes to requiring students to purchase the latest edition as publishing houses cease producing last semester’s edition and will now only produce the latest, more expensive, edition. Some textbooks have labels on their front covers informing the buyer that this book can only be sold in Australia or the United States and can’t be resold in other countries. This nonsensical interference in markets, supported by the state, is similar to the DVD region coding mechanism. It is not designed to produce better products, but for publishing houses and film studios to further advance their power over consumers.
However, this coercion takes place due to IPR on textbooks. If textbooks were placed into the public domain, there would be no conflict of interest as academics composing their curricula couldn’t profit from engaging in this slight of hand. There exists a tremendous amount of economic literature in regards to corruption and rent-seeking caused by monopolistic practices. Moreover, the educational experience can be promoted as academics can pick and choose from various chapters across a number of textbooks to compose what they feel is the best mix of academic content to most effectively teach students.
“Of course there is a rationale for copyright monopolies: the monopoly allows the publisher to recoup the expenses of producing the book, the fees paid to the author(s), editors, illustrators and other upfront costs associated with putting together the textbook. However, copyrights are only one way to cover these costs and not necessarily the best way. Copyrights are a relic of the medieval guild system. While they may have been an efficient mechanism to support creative work in that era, it does not follow that they are the most efficient mechanism for supporting creative work in the Internet Age.” (p.
Baker, Dean. 2005. “Are Copyrights A Textbook Scam? Alternatives to Financing Textbook Production in the 21st Century”, Center for Economic and Policy Research, Washington D.C.
Although there is a great amount of information available on the Internet, the problem with this is information asymmetry. The reason why students enrol in educational courses it to learn about a field of science they are interested in. As they don’t already possess the required information about the topics they are studying, they can’t know in advance what information on the Internet is most suitable from them. That is why academics are tasked by their educational employers to construct curricula that promote effective learning. Furthermore, information on the Internet may not be of the most accurate quality, leading to more information asymmetry. The Internet is a very powerful tool, so educational institutions should put textbooks online for all to access.
IPR on textbooks creates some other problems. I remember reading an article by Joseph Stiglitz who noticed that students would rip sections out of textbooks in the university library in order to prevent other students from using it. Obviously, this is a crime, and can be alleviated by making textbooks publicly available to all. Students will photocopy sections out of textbooks that they need for class, another crime under current law. Sometimes scanned copies of textbooks will be placed on the Internet, though of questionable quality. Monopoly clearly causes economic and social distortions, so it is time for a better system of financing textbooks to be constructed.
I like your illustration of “leg gnawing” as it describes current scientific practice under IPR. The scientific enterprise is not profit motivated; it is one of scientific advancement first and foremost. Professional recognition provides an enormous incentive to scientists, but which is unfortunately diminished under IPR.
“Presently, the lure of profit combined with a lack of adequate public funding has seduced the scientific community largely to turn its back on basic research and to concentrate on corporate-sponsored research. In addition, within this increasingly profit-oriented research environment, employers are compelling researchers to adopt a code of secrecy, even though open communication has been one of the essential features of the scientific achievements of the past. While this strategy might product some quick returns, its long-term implications are ominous. Those interests that are rapidly accumulating intellectual property rights are very effective in extracting the maximum value from preexisting public research, without contributing much to make comparable progress possible in the future. Worse yet, in the current rush to restructure the economy by reducing the public sector to a minimum, the now popular neoliberal policies being put in place are preventing the development of a new generation of basic scientific research.” (p. 9)
“As universities, especially the more prestigious ones, become beholden to corporate powers for funding, the corporations reap a threefold windfall. First, university research is cheaper than corporate research. The universities supply buildings, libraries, and other facilities, as well as low-wage graduate students. More important, other things being equal, scientists prefer working in an academic atmosphere. As a result, universities produce better research than corporate laboratories. Second, corporations can project a philanthropic image by funding universities. Finally, and perhaps most important of all, the corporations get to set the national research agenda. Given university dependence on corporate funding, the corporate sector can silence potential critics, or at least shroud their work from the view of potential critics. After all, anybody within the university who questions the corporate agenda poses a risk to the university’s finances.” (p. 99)
“In effect, then, this epidemic of entrepreneurialism, infecting both the universities and a good number of their researchers, contaminates the scientific process with the same sort of defects that impede corporate science. Because so many leaders have deluded themselves into thinking that the recent successes in both science and the economy rest wholly on the individual efforts of private enterprise, they feel confident in hobbling the very institutions responsible for so much technological progress.” (pp. 102-103)
Perelman, Michael. 2004. Steal This Idea: Intellectual Property Rights and the Corporate Confiscation of Creativity (New York: Palgrave Macmillan)
mahaish,
Piracy, as is generally understood, is the theft of property. Thus we arrive at a contradiction when defining the theft of digital information. As property rights are assigned to scarce and rivalrous resources to ensure their efficient allocation, it becomes illegal for an economic agent to steal property assigned to another economic agent. However, digital information isn’t scarce and rivalrous, therefore invalidating the use of property rights. Thus it follows that digital information can’t be stolen through theft. Piracy, as it is commonly defined by law, is economically invalid, and is therefore not theft. This is a simple concept that tends to trip people up in the debate about piracy.
I think that piracy is probably one of the primary forces which has turned peoples’ attention to the ineffective policies that IPR produces. As for the comment on information and resource centralization, it is true concerning the state but not corporations. Fewer and fewer corporations control the means of production, allocation and consumption of information, through the primary vehicle of IPR. This is as worrying as letting the state control information. While I advocate using lump-sum taxes and/or consumer fees to finance the creation of information, neither the state nor corporations should be controlling information.
Open source has been one of the outstanding institutions of the information economy. Through the incentives of personal achievement and recognition, it has created software that is either on par or above that of commercial quality. I use a few open source packages simply because it is better than commercial software, regardless of price. The open source community should be assisted by extending resources to them, whether it comes from the state, universities, non-profit foundations, etc.
nanks,
You’re right about IPR expiring upon the author(s) death; I think copyright has now been extended from the life of the author plus another 50-70 years after death. Check out http://www.cepr.net/index.php/component/option,com_issues/task,view_issue/issue,13/Itemid,22/ for some more information you might enjoy reading.
“The lengths of time that holders of patents or copyrights get to exercise their monopoly right today wildly exceed the time necessary to encourage intellectual work. Worse yet, perhaps the majority of these increasingly powerful rights reflect no contribution whatsoever on the part of the holder. Patent holders today often reveal no important information to the rest of society. Instead, people or corporations are holding rights to intellectual property merely on the basis that they were the first to stake a claim, even though they made little or no contribution to the overall discovery.” (p.
Perelman, Michael. 2004. Steal This Idea: Intellectual Property Rights and the Corporate Confiscation of Creativity (New York: Palgrave Macmillan)
May 17th, 2009 at 10:27 pm
hi phil,
thanks for the post, great insight,
i was being a bit tongue in cheek, re piracy
cant say i agree with you re centralisation,
i suppose it depends on what industries we are talking about,
cant see the ikea i sation of jet liners, so boeing are safe,
but microsoft and her software sisters, rupert murdochs small business’s, power utilities, sony and the music industry in general to name a few.
even the humble motor car , if this electric car stuff takes off. whats the bet we’ll be able to buy the kit at dick smiths before long
their means of production are definately under threat, and the only way they will survive in their present form is through state protection.
funilly enough, i think book publishing is safe , nothing better than the feel of a good book, a cup of tea and a comfy chair, with a warm sun peaking through the window.
there are somethings technology cant replace.
May 18th, 2009 at 6:06 am
ak said
“The best example for that is taxation – even if money taken away from me is given to a non-productive drug addict I still think that this is fair. He has the same right to live even if he suffers from the consequences of his past mistakes. He is a human being exactly like Bill Gates or Warren Buffett and we have a moral duty to look after everyone. This also extends to people living in poor countries.”
Fabulous insight ak but why wait for the government to decide what’s right. Be principled and give your worked-for dollars to the drug addicts now. Its the least hard working Australians can do for their fellow human beings.
May 18th, 2009 at 6:08 am
Philip said
“As for ideology, I’m called a communist because I oppose totalitarian collectivist institutions called corporations, I’m called a socialist because I oppose corporate socialism and inefficient government intervention, and I’m called a left-wing radical because I believe that businesses should adhere to conservative market principles. The irony is just awesome.”
Adding qualifiers; who wouldn’t oppose “totalitarian collectivist institutions called corporations” and “inefficient government intervention” and who wouldn’t agree that “businesses should adhere to conservative market principles”. Maybe I did miss your text book point or maybe ak post threw me. In you opposition to “corporate socialism” I presume you mean the bailing out of large institution by government or the favouring of large institutions by government.
Many postulate that the western world’s move towards socialism in the past 30 years is the root cause of the GFC. The idea that all wants and needs of all individuals can be catered for by government. The individual has become thy beggar.
May 18th, 2009 at 7:23 am
Here is a book that shouldn’t be burned: it arrives at the same conclusion as “Debunking Economics” but from a completely different perspective. It’s “The Fourth Turning” (Strauss, William and Howe, Neil) ISBN 055306682X.
Written twelve years ago, the authors appear to have gleaned some eye opening precepts about the situation we are in in 2009. Unlike Lord Rees-Mogg, who could see the current dilemma winding up twenty years ago but predicted Armageddon, Strauss and Howe leave the outcome of the “fourth turning” to some extent to the reader’s imagination. Based on historical cycles dating back to the Etruscans, the premise is that we are in for a crisis and massive change to the social order. The financial crisis may be just the precursor. “History shapes generations, and generations shape history”.
May 18th, 2009 at 12:11 pm
Hi Aac,
If you are saying above that collectively we rely too much on the teat of Gov’t , then I agree with you.
While I’m no economist, it is crystal clear to me that those of the Left Wing are always ready to embark on massive Govt subsidy, profligate spending and hair brained “money for nothing” schemes like QE. All in the name of the greater good and wealth redistribution. (It so much easier than working and saving).
I was going to comment about this stupidity but this says it better than I;
http://globaleconomicanalysis.blogspot.com/2009/05/obama-budget-chief-promises-free-lunch.html
“More Free Lunch Keynesian Nonsense
Free lunch theories are coming out of the woodwork (or rather every corner of academia). Latest up to bat is Alan Blinder, Princeton professor of economics. Please consider It’s No Time to Stop This Train.”
The Socialists and the Keynesians have never encountered a worthy cause that can’t be funded from voodoo economics such as QE. Even when we are stone broke.
Rather than deal with the stark reality of today (we cannot afford it), is it better to rob money from the future in the form of debt and borrowings? Only then to make our children pay off our debts.
May 18th, 2009 at 2:42 pm
Can’t see the argument in Socialism or Capitalism as we have neither in the economy. Our economy basic Keynesian is a “mixed” economy now if we are going to argue about just what percentage of this or that should make up the “mix” now that is a different story. Let’s go!
May 18th, 2009 at 2:59 pm
Interestingly Paul Krugman just referenced Minsky in his blog (possibly for the first time? Though he has discussed Fisher before.) Krugman says “…what we really need is a model that can produce a Minsky moment — the point at which margin calls force deleveraging… I hope I actually have a model by then…” I of course submitted a comment referencing Professor Keen’s model
(approval TBD). It’s not the first time comments on his blog have referenced Professor Keen, and Paul Krugman has given evidence that he at least sometimes reads his blog’s comments…
May 18th, 2009 at 3:11 pm
Hello “Effit” nice to see you jumping back in
With your attempt to inject a call for a
‘pulling back of the reins’.
It is worth repeating, which I have done below in the hope that some to whom it pertains will take a second look (and hopefully consideration), rather than burying it with their own ‘ too long, self-centred pieces’
‘Effit’
“A lot of this stuff you’re talking about is quite interesting, but I feel most of you are quite a bit off-topic. The point of this post I’d thought was about economic text books and what’s being taught to students, and how it can be changed. Now from reading Steve’s posts for the last few months and your blogs you’re all wanting change. But a lot of you have gone off on tangents about intellectual property and copyright, the costs of text books etc. I must admit some of your posts are so l-o-o-o-n-n-g-g that I just skimmed what you’d said.
Can we get back to the topic of Steve’s post? He ends up with: ‘The time has come for economics students to once again “be revolting”. Edward Fullbrook has established this group to provide a New Media focus for such student action. I have proudly joined, and I encourage all critical economics academics and students to do likewise.
I’d prefer to read discussion on this site on the topic of changing how economics is being taught, and how text books can be changed. Otherwise it seems to me that neoclassical economics will continue to be taught and nothing will change.”
This is a fantastic site that is meant to continue the presentation of the work of Steve Keen that is decades in the making and an ongoing piece of work.
There are people whose contributions go back a considerable way(including ‘Effit’,'bullturnedbear’, ‘MACCA’,
‘Aac’, ‘nanks’,'Tommyt’, ‘homes4aussies’etc etc)and no doubt many others besides and many others before these, whose contributions have faded or been pushed away.
Quite correctly, the pure economics perspective is strong, but clearly there are others like myself who came here with a ’sociological’ interest and perspective.
Then of course there are the philosophical and political emphasise or perspectives added from time to time.
I agree with ‘Effit’ that we should be careful not to risk ‘choking off’ the spread of perspectives that we could once rely upon at this site, always mindful of the wishes and priorities of the man who made it possible.
‘Ak’ “But I prefer to have a personal carbon limit imposed upon me than to watch not polar bears dying but my fellow humans experiencing a famine we don’t have to have.”
Maybe ‘Ak’ might like to take a break and calculate his (my bet) carbon footprint, so we can determine how much to ‘tax’ him.
And otherwise we might give the ‘environment’ of this blog site a bit of a rest, by limiting the number and size of individual contributions in a given period.
May 18th, 2009 at 3:17 pm
gaday,
I think the point I have been trying to make essentially is ; enough with the text books, the “isms” and quotes from dusty 40 year old economic manuscripts quoting guys dead many decades ago.
How about we start the repair job with what we know works, observes the property rights of the individual, looks after the most vulnerable and is affordable within our means?
I think that pretty much gets rid of the luny left and the conservative fascist extremes of the debate. And leaves us with a balanced middle bit in which we hopefully find that allusive thing we all call commonsense.
May 18th, 2009 at 6:07 pm
Hey Steve,
I really enjoy Minsky’s analysis and commentary on private debt… as an Austrian schooler, I feel that we should raise public awareness of this issue.
I know that a lot of Austrian schoolers like reading your analysis here and abroad. I am aware with some of your disagreements with the Austrian school, maybe you could clarify them for me? I did hear you describe that their premise that government is the main engine for money creation and you subsequently ‘corrected’ this false notion by a well-written treatise on fractional reserve banking (FRB). But from my readings of Murray Rothbard and others, they are even more vocal than you are of the ‘evils’ of FRB. This is one of the primary issues that define the difference between the Chicagoists and the Austrians.
The strong opposition that the Austrians have against the government are due to the practices of the central bank, the monetary inflation, the debasement of the currency and ultimately manipulation of the interest rates.
The Austrian school correctly recognize that monetary/debt expansion occurs via FRB, but it can only expand to insane levels once the interest rates are artificially suppressed by the central bank.
So did I characterize your initial criticism of the Austrian school correctly? Or is it more that you disagree with their proposed solutions?
May 18th, 2009 at 7:03 pm
Steve,
Thank you very much for your remarks. It was never my intention to offend anybody however I believe that showing the absurdity of certain ideas related to economics and the society in general has been one of the main goals of this blog.
My activity has to be scaled down anyway.
al49er,
This is really gorgeous. You seem to be a bit younger so you have a better chance to see the meltdown with your own eyes.
May 18th, 2009 at 7:10 pm
University level education aside (which I agree is insanely one-sided and needs a complete overhaul), what about the millions of high school kids who are subjected to Keynesian nonsense through state-set curriculum (is anyone surprised that the government ‘might’ have a vested interest in promoting Keynes?) and advance their economic literacy beyond that!
May 18th, 2009 at 7:57 pm
drwasho,
I tried to answer question about Austrians to another guy in the discussion for a different blogpost:
http://www.debtdeflation.com/blogs/2009/04/13/talk-to-the-fabian-forum-the-global-financial-crisis-how-bad-will-it-get/
There is also a Steve’s reaction. Basically, the problem is that the issues are inherent in lending money, and if you were to abolish FRB, you would face much worse problems much more often. Also, central banks are irrelevant for the discussion (since Steve model is purely credit economy).
May 18th, 2009 at 8:24 pm
Thanks, ‘ak’
Does 60 in August make me older or younger than you – and more or less
‘ gorgeous’ or should that be ‘precious’?
And does that give me a better or lesser perspective than yours – at what age?
May 18th, 2009 at 8:56 pm
I have numerous issues with the Austrian School Drwasho,
which I’ll probably address when I get around to replying to commentary on my critiques of Say’s Law on an Austrian site. They’re too lengthy for here, but at some point I will probably write a blog post on them.
In a nutshell on money, they have an effectively commodity-based notion and a belief that the market for money operates like a standard commodity market in the absence of government intervention. Both views are wrong. As one Austrian blogger here finally conceded some time ago, the Austrian view that markets are characterised by disequilibrium but also a tendency to return to equilibrium means that even if a pure Austrian financial system existed, it would be prone to bubbles. The question would then be one of degree–big ones, or little ones? It is a question of degree, assuming their model of money creation is valid.
Since I don’t believe they have a valid model of money creation, I expect the answer would be that there would be big debt bubbles–but, I hasten to add, nowhere near as big as the one we’re currently in. One way in which I agree with them is that I believe, on the basis of experience, that the Reserve-mediated financial system we have has actually amplified the tendency that a free market money system would have towards bubbles. Without a Federal Reserve, we would probably have had a mild Depression back in 1987. It would have been bad of course, and it would have led to calls for the market to be regulated (were it not at the time). But with a Federal Reserve, it’s “rescues” simply amplified the tendency of the financial system to extend debt, leading to a crash of at least twice the magnitude of what we would have had without the rescues.
May 18th, 2009 at 9:02 pm
al49er,
I’m younger but I’m not young.
The problem is that the climate is an objective factor affecting our economy.
Is this irrelevant to us?
http://www.abc.net.au/science/news/stories/2007/2073363.htm
I think that the science behind global warming models is sound and we have collected enough information to be seriously concerned.
We can either do nothing and bet that the strongest (obviously us) will survive or start doing something meaningful now. What if we are not the strongest nation on the Earth? What if for example Sumatra becomes a desert and all these people try to settle in Australia?
What will happen to our “wealth” then?
If you think that I am wrong please present arguments instead of trying to throttle the discussion.
May 18th, 2009 at 9:03 pm
drwash:
The Austrian school correctly recognize that monetary/debt expansion occurs via FRB, but it can only expand to insane levels once the interest rates are artificially suppressed by the central bank.
Respectfully, you’re wrong.
Suppose a business is thought to be profitable at 25% interest. Business owner A borrows money from bank B. Bank B gives A the equivalent of 5% of its depositors funds at 25% interest. Bank B then goes on to sell A’s mortgage to Investor C (for a fee) and is replenished its 5% capital. Repeat cycle indefinitely. Money is made through fees.
With a hyperconservative fractional reserve of 50% the bank can generate massive system wide debt while all the time being financially sound, despite high interest rates through the process of securitisation. In fact you could abolish fractional reserve banking and debt in the community could expand infinitely through this mechanism.
May 18th, 2009 at 9:19 pm
Macca
How refreshing I could not agree more.
One of the topics I would like to see defined is Capital. What is Capital? I should firstly qualify I have no economic background I have been in business for myself just on 40 years. I read Ayn Rand prolifically in my twenties, I convert my thoughts form her readings as an economist in the real World to a philosopher. I maintain that view today. I read Miltom and Rose Friedman. Von Hayek and Von Mises along time ago. Galbraith (senior ) and a littel Keynes all of it at that time beyond me as I tried as dilligently as I could to apply the theories to business. I failed. The maths simply didn’t add up. I didn’t know Ponzi or what it meant, all I did know was that you can’t lend the same amount of money twice and call it Capital each time.Capital needed to be free of encumbence before it could be re invested.
My biggest concern and reason for discussing this on this blog is the toxic teachings that are out there. It is almost snake oil salesmanship.
Theeconomic mess is allowed to get away from the average Joe because it is too “hard” to understand. Bringing simple mathematics into it is a great start. There is no way that we will change the system and achieve what Steve wants by only appealing to the intellectual. The debate is there already and always has been – oh it may be Neo classical versus Minsky-Fisher or it could be x versus y whatever there will always be intellectual debate, blocking, prevaricating, and moving around the given subject all pretending that it doesn’t belong to them – it’s not subjective in affect and therefore doesn’t become effective objectively.
The majority of people just want to know “how is it going to affect ME”! AND ONCE THEY KNOW THAT SOME BODY ELSE KNOWS THE TRUTH THEY WILL THEN HAND IT OVER TO THEM. Steve has that ability. I went to one of his addresses by invite (my son)at the Architectual Institute at Potts Point. I was very impressed with Steve’s presentation and more so with the amount of info that was absorbed by the individuals in attendance.
Steve is right, the education of text and learning has to come from the source, Universities and future environemnts that encourage open and lateral thought, not confined doctrine that is only respected by those that revere somebody that has read more than themselves and therefore deemed to be more learned, even when their ego’s don’t really believe it.
As for those outside we can influence others by gaining better understanding of what should be done to monitor an economy on a day to day basis without either inflating or deflating it by manipulating interest rates, the pendulum is too far apart before correction therefore creating instability especially at the end of the cycle. The result is one has to be very good with ones timing in entering this World if one wants to be financially successful.
May 18th, 2009 at 10:03 pm
Well al49er (18 May 3:11pm) – you tried and I tried to get the conversation onto Steve’s topic ‘Economic Students: Join Toxic textbooks’ but only the first comment from ‘ak’ remotely addressed the topic.
Have any of you actually read what Steve had to say? You’ve all jumped onto your ‘pet’ topics and away you’ve all gone hell for leather! Meanwhile all those toxic textbooks on Neoclassical Economics must be churning away on the printing presses!
Gaday I’ve just read your last comments and at last someone has mentioned text books! BTW – a few paragraph breaks would make it easier to read. Cheers.
May 18th, 2009 at 10:32 pm
Effit,
We can always try to replace elements of this:
http://en.wikipedia.org/wiki/Microeconomics
with elements of that:
http://www.consumerpsychologist.com/
However poor students still have to demonstrate their knowledge of the scholastics and this is the problem. It has more to do with how the “Academia”, one of the few medieval institutions which are still around us, is organised (and who pulls the financial strings).
I had an abortive attempt of doing a PhD >10 years ago in Artificial Inteligence. I was supposed to write an expert system with a knowlegde base and a set of reasioning rules. So I did it and found the system completly useless.
“Great, the program is working, now write an article”
“Yes, professor but the program is useless” “Doesn’t matter you can still write an article.”
Is this science?
Gaday, Macca,
I would love to believe that we can actually get away from the current situation by simply tweaking a few things.
May 18th, 2009 at 11:15 pm
“ak’
Given what you’ve put up to support the ’science’ for “global warming”, at this stage there is nothing for me to answer.
“I think that the science behind global warming models is sound and we have collected enough information to be seriously concerned.”
is not a scientific proposition and neither is one pathetic article.
As earlier readers of this blog site would know I am more than happy to accommodate the ‘carbon cowboys’. It is simply that I accepted Steve’s earlier request that collectively we don’t bang on within this site about ‘off topic’ subjects.
Which is what ‘Effit’ attempted to say to all – politely.
But if ‘ak’ you want to show me the model that proves anthropogenic caused climate change and indeed even ‘that carbon is the culprit’(0.04% of the atmosphere)by all means have a crack.
Just don’t pepper your case with “I think” and
“what if” as serious propositions.
Maybe ‘water vapour’ might be a more fruitful greenhouse gas for you to follow.
And as for, “I’m younger but I’m not young”,
a simple number would have done and we could all give it our own considerations – but that’s a bit specific, direct and obvious and clearly not the way you work is it?
It is getting past and ‘old’ man’s bedtime.
How’s that for “gorgeous” son !
May 18th, 2009 at 11:55 pm
On the Toxic Textbooks website, it has a question mark under the heading of “non-toxic textbooks”. Now that I have said my part about textbooks that is never discussed (IPR), I will ask a question: what non-toxic economic textbooks are available to read? How does one establish the criteria of a toxic or non-toxic economics textbook?
I think it would be prudent of Steve to construct another web page with a comprehensive list of journals, reports, theses, and textbooks that visitors and members of this site will find interesting to read – self education is very important.
May 19th, 2009 at 1:10 am
al49er,
I understand that you would like to remove the issue of human-made climate change from the discussion about the Global Financial Crisis and the oversimplified economical models.
My assumption is that you would like to guard Steve’s forum from this issue by converting the discussion into a slanging match.
I don’t subscribe to that convention so I am unable to provide any further arguments to dismiss claims you made despite the fact that I am competent enough in physics. However I am quite resistant to any kind of bullying so I’ll not give up.
The issue is not off-topic and is too important to be ignored especially in the context of economical education.
The only reason I am moderately optimistic about our long term future is that we have energy efficient technologies available here and now – they simply have to be implemented. We should also be able to gradually replace burning coal or oil with other ways of generating energy. The only way to do so is by changing the whole paradigm of the global economy and by forcing technological progress to replace the pseudo progress and pseudo economical growth associated only with consuming more and more energy. Coincidently the same pseudo economical growth was also associated with the speculative bubble leading to GFC.
Philip,
I fully agree with your opinion that the current IPR system and the system of distributing scientific information are outdated. However I think that there is no magic way of forcing the change – apart from slowly growing the volume of information available in the public domain (what I am trying to do right now). The system based on maximising individual gain at the cost of collective loses has to give way first – possibly by losing competition as an effect of GFC. As long as the majority of people think that “greed is good”, “private property is good and common property is bad”, “state is ineffective while corporations are efficient” things won’t change much.
Personally I think that the West is still fighting the ideological cold war with a no longer existing enemy – communism. You cannot win when there is no enemy.
May 19th, 2009 at 1:26 am
i know nothing about economics,but could someone please tell what the private sector debt level is for australia ? i have read some of Steves posts and looked at the graphs Debt to GDP as being 160 percent debt to levels of GDP , i understand that in 1930 it was 80 % , and in depression of 1890 it was just over 100 % now according to Steves graphs it is over 165 % . could some one please tell me how much that is in terms of how much money is actually owed ?,i guess with recent bailout or ’stimulus ‘money will be mixed in with private sector debt so the figures will be a bit muddy. why is it that the private sector debt levels are rarely, if ever mentioned in the media ? ,why wasn’t it more of a political issue when labor were in opposition etc ? i am totally bewildered but i am certain i am not the only one ? why are the media so silent? i looked at property prices for France and Germany , flats in Berlin [tempelhof ]fully renovated $AUD50,000 ,Houses across France in the countryside $AUD70,000 that gets you something very nice ,my brother bought a great house [brick]in Atlanta USA for $US34,000,here people think we have to pay over $450,000 for something comparable,the good news from ABC today is that there has been a ‘rise in home affordability ? really ?,gosh ! sounds like a polite way of saying something really nasty ?….i love australia but it is a fools paradise when it comes to so called ‘real’ estate, what is wrong with people ? i follow long wave economics [novice]EWI , i expect housing prices to eventually finish at pre-bubble prices at1981 levels, but realise that this will take many years levels . if some one could tell me private sector debt level ? i would be very grateful. thankyou
May 19th, 2009 at 3:10 am
Steve, I’ve been wondering whether you plan to elaborate on how you see derivatives interacting with the other factors you describe. I’ve only seen a few brief comments along these lines:
“You’ll see that as of July 2008, there was $683 trillion worth of outstanding derivative contracts out there. Now, when that gets netted out we’re going to see a fairly substantial increase in even that astronomical level of debt.”
While I understand how derivatives could cause massive cascading counterparty problems during a debt deflation, I haven’t been clear on whether they contribute to asset bubbles on the way up… (Thoughts?) But below are some opinions on this I’m wondering whether you or readers have feedback on.
Tyler at ZeroHedge posted an analysis of the liquity pyramid of David Roche. Here is some of the source material in Roche’s book. It seems (to me) to align with Steve’s ‘roving cavaliers’ analysis of money creation, but with more of a financial industry perspective versus Steve’s more abstract academic perspective. Is that accurate?
I see Steve answered a question about David Roche once before here, saying “Roche is half right”, but I’m unclear on where you think Roche is wrong?
The ZeroHedge reader comments also make for interesting reading — especially on the ways in which derivatives impact liquidy, velocity, leverage, etc. Unfortunately I don’t know which ones are accurate, but I found many interesting if true (I’m happy to hear any thoughts on accuracy and relevance), e.g.:
“…by definition net value of derivatives are zero sum. The problem is that derivative contracts have a notional value. They exist on somebody’s balance sheet, and as such they are deposited in some custodian institution. As a deposit they count to the deposit base and therefore to the lending capacity of the bank. When derivative contracts are netted out / cancelled, those deposits disappear from bank balance sheets. They in turn have to curtail lending. That is where the deflationary pressure comes from.”
“In theory the net value of derivatives should be zero, but in practice it almost never is. It is quite common for two institutions to exchange a derivative and for BOTH parties to report a net gain on the transaction. GAAP accounting rules allow for this since there is no liquid market in many of the derivatives and so the management of each institution gets to “estimate” the market to market (mark to magic) value of the transaction. When it is banks that are the markers of these transactions, then the money supply increases.”
“The crumbling tower of CDS is a deleveraging event.”
“Certainly I think securitisation increases the velocity of money and I suspect derivatives do as well. I don’t think securitisation increases the money supply but you could argue derivatives do through accounting rules which allow derivatives to added to the balance sheet on both side of the contract…. Derivatives can be unwound slowly, but the impact on the velocity of money is so profound not even the US treasury will be able to do more than slow the decline.”
This also suggests that even if debt measured by the Fed (thanks for the pointer Steve) has yet to contract, perhaps deleveraging IS well underway if derivatives oustanding have shrunk significantly already? If they are the biggest liquidity tier and notional values are cut in half already and the system has survived so far, is that a glimmer of optimism for the outlook for deleveraging overall?
Also a follow up post “Chasing The Shadow of Money” seems worthy of discussion, but my comment is too long already.
May 19th, 2009 at 7:49 am
Part of that is already available on the “About” page here Philip. Also the Lectures page here (and my website Debunking Economics) provide an alternative curriculum.
Not enough of that is focused on true alternatives yet, but the lectures on Dynamics, Evolutionary Economics, and Managerial Economics provide some of that.
May 19th, 2009 at 8:03 am
al49er,
The reason I don’t enjoy seeing discussion of Global Warming here is because it seems to be a higher potential source of vitriol than any other non-list topic.
For the record, I have read sufficient of the academic literature on this topic to accept that the global warming case is well founded. I also regard the Limits to Growth as a very well constructed analysis of the impact of the myriad feedback effects that exist on our biosphere, and that research implies problems from any number of sources (not just greenhouse issues) due to our demands on the planet exceeding its capacity to reproduce itself.
But I don’t bring these views to bear in the discussion because I have seen extraneous beliefs on other discussion lists bring those discussion lists undone, and I don’t intend seeing that happen here.
I’d also remind people that what might be easily taken as a witty dig at someone when done face to face can come across as very harsh through the medium of printed text. I’d be happier if people reviewed any personal remarks they made about another discussant and tempered them down somehow before committing them to print.
May 19th, 2009 at 8:14 am
You’ll find the approximate figure published in RBA Bulletin Statistical Table D2 Marcus. It’s currently A$1.916 trillion.
I say approximate because it doesn’t include the impact of some non-bank backed corporate bonds that add about another $100 billion.
There is a set of ABS data that I am told is more comprehensive, but I haven’t had the time to suss this out and produce my own sum. I tend to work just with the RBA D02 table data because that can’t be disputed, and the trends (and levels!) there are enough to make my case, even if the actual total is worse.
May 19th, 2009 at 8:18 am
You’re getting your roaches mixed up hlb! My comment was about Lyndon Laroache, who is an American demagogue with critical arguments about credit and debt that are pretty accurate, and conspiracy theories about the causes of the problem that are off with the fairies (eg, that the financial crisis has been engineered by the British to destroy America and re-institute the British Empire…).
The analysis you point to here by David Roche is pretty good.
May 19th, 2009 at 12:48 pm
@SteveZ:
I would hardly call 50% reserve banking ‘hyper-conservative’… Austrian schoolers advocate for 100% reserve banking and sound money (i.e. backed by gold or silver). If there is any fractional reserve banking occurring, otherwise known as fraud, there is an inherent chance of a minor bubble or a bank run occurring. With the cooperation of the central bank, low interest rates and 10% FRB, the bubbles are much more severe to the point that they threaten the system.
Interest rates aren’t supposed to be set arbitrarily, they are set based on the ratio of money in deposit and credit that is lent… so if you have low reserves, your interest rates need to be higher to attract depositors. If you have high reserves, you can lower the interest rate to attract lending. Of course, this is inherent destabilizing and I advocate, like Murray Rothbard, separating 1) the protection/storage of savings & 2) the legitimate function debentures to provide credit to individuals and businesses. I’m not saying that bubbles wouldn’t occur once this happens, but the size and impact would be severely reduced and restricted.
May 19th, 2009 at 12:56 pm
On topic (for once
) the issue of teaching economics. The ‘push’ for broader texts eg a more traditional academic approach along the lines of History of Economic Ideas sounds great. But the ‘pull’ has to be there as well. As an academic I felt there was a trend toward instrumental readings of education by the students – jobs jobs jobs!. How do the academics here (Steve et al) think students will find a course less obviously targetted to the current job market/ideology? Isn’t ‘Toxic Textbooks’ reflecting a more general struggle to reinstate education as an independent component of society with its own history and values. (I certainly hope so.)