28/2/16: Expresso on Paul Mason's Latest Book

Portugal's Expresso reviewing Paul Mason's ( @paulmasonnews ) recent book "Postcapitalism: A Guide to Our Future" here: http://expresso.sapo.pt/economia/2016-02-28-Vem-ai-o-pos-capitalismo, including a comment of mine.

In English, my full view:

In his latest book, Paul Mason tackles some key themes of the global economic development in the new millennium : themes of debt overhangs, technological disruptions and the shifting of political, social and economic systems toward more data-intensive, more open and democratic platforms. Noting the links between the fragility of the global financial system (the financialisation hypothesis), persistent macroeconomic imbalances (global current account imbalances and savings-investment mismatch),  and the severe levels of private and public indebtedness, he draws two key conclusions that are required to describe the current state of the world economy: the link between the no-longer sustainable model of economic growth based on leveraging, and the need to break the status quo of indebtedness in the real economy. For those of us, who have, over the years, persistently called for these changes to be enabled by fiscal and monetary policies, Mason's book is a welcome addition to the arsenal of intellectual arguments supporting real change in the ways we structure our macroeconomic policies. For those who, like majority of Europe's political elites, have sleepwalked through the ongoing financial, fiscal, monetary and economic crises, it is a necessary wake up call.

I covered the above themes throughout the blog and across a range of articles in the past, most recent being this example: http://trueeconomics.blogspot.com/2016/02/17216-four-horsemen-of-economic.html.

4/4/15: History of Capitalism in 12 minutes & its Future in 4 more...

A new series of programmes for BBC (#BBCRicherWorld) by our own Colm O'Regan @colmoregan (one of the all-time-bestest hosts at Kilkenomics):

Episode 1: http://www.bbc.com/news/magazine-31658746
Episode 2: http://www.bbc.com/news/magazine-31817997
Episode 3: http://www.bbc.com/news/magazine-31818000
Episode 4: http://www.bbc.com/news/magazine-31818387

Self-promotion warning… absolutely worth a look for the lighter look at Capitalism. Covering Marx, Smith, other dead souls of economics, Keynes & Friedman, the twin evils of the recent past, and reaching into 21st Century and Corporatism. Even Anglo gets visualised... which just confirms: Ireland's bust is now the stuff of the global legends...

H/T to Stephen Ryan for posting the link to the fourth segment.

18/2/15: A Tale of Two Capitalisms & Economics Education

A recent paper by Bennett, Daniel L., titled "A Tale of Two Capitalisms: Perilous Misperceptions About Capitalism, Entrepreneurship, Government, and Inequality" (December 11, 2014, http://ssrn.com/abstract=2537118) examined "two widely held perceptions about capitalism, challenging the popular view that capitalism is a villainous perpetuator and government a saintly corrector of cronyism and inequality".

Much of this erroneous view has been driven by the fallout from the Global Financial Crisis, the Great Recession and the Euro Debt Crisis, although those of us who lived through it face-to-face would note the obvious error in this paradigm when it comes to expectations about the Government role.

As authors note, "this characterization is largely driven by misperceptions. Capitalism is viewed as a system that favors the elite at the expense of everyone else (crony capitalism), rather than one that promotes economic liberty and opportunity for all (free market capitalism). The state is meanwhile viewed as a benevolent and omniscient corrector of market failures and provider of public goods (romantic view of politics), rather than a political system operated by agents whose actions may reflect their own self-interest and not the welfare of the general public (public choice view). These misperceptions result in not only a distorted understanding of the institutional structure that underlies capitalism and the mechanism in which income is distributed, but also lead to perilous reform prescriptions that undermine free market capitalism and generate unintended consequences that act to reduce individual and societal well-being."

The paper shows how "institutions that constrain the discretionary authority of government incentivize productive entrepreneurship and facilitate free market capitalism, giving rise to a natural or market determined income distribution and opportunity for economic mobility." In other words, markets do work, when markets are allowed to work. On the other hand, "institutions that do not sufficiently constrain the authority of government incentivize unproductive entrepreneurship and facilitate the development of crony capitalism, resulting in structural inequality and little opportunity for economic mobility." In other words, markets don't work when they are prevented from working.

As per empirical evidence, the author concludes that:

"This tale of two capitalisms provides insights about the connection between institutions, entrepreneurship, and the desirability of income inequality. Empirical evidence suggests that sound monetary institutions and legal institutions that protect private property rights and enforce the rule of law provide an environment favorable for free market capitalism and productive entrepreneurship, as well as promote greater economic development and less income inequality. This tends to support
Milton Friedman’s (1980) famous proclamation: ““A society that puts equality before freedom will get neither. A society that puts freedom before equality will get a high degree of both.”"

"A growing body of evidence and the theory advanced here suggests that the development and preservation of institutions supportive of free market capitalism is the best way to facilitate productive entrepreneurship, economic development, economic mobility, and a distribution of income that, while unequal, is determined by merit rather than political ties, and is lower than that which exists in less capitalistic economies."

As per sources of the public misconceptions about capitalism in its various forms, "The scarcity of public choice and institutional analysis in mainstream economics education has contributes to widely held misperceptions about capitalism, entrepreneurship, government, and inequality. An analysis by FIke and Gwartney (2014) finds that only half of the 23 most common economic principles textbooks provide any coverage of public choice topics and that the coverage of market failure is sextuple that of government failure. The economics profession must do a better job of educating students and the public about the nuanced but vital distinction between the varieties of capitalism, and the important role of institutions in constraining the Hobbesian propensity of man to “rape, pillage, and plunder” and enabling the Smithian proclivity of man to “truck, barter, and exchange”
(Boettke, 2013)."

27/1/15: Bankruptcy & Capitalism Are Not the Same as Religion & Hell

I have recently seen some economists offer the following explanation of the role of bankruptcy in the market economy: "Capitalism without bankruptcy is like catholicism without a concept of hell".

That is a fallacious view at best, and a dangerous basis for policy formation to boot.

It is fallacious for a number of reasons, relating to both philosophy and economics.

Firstly: Capitalism, unlike religion is an ethical, but not a moralist (imperative) system. Hence, a concept of eternal damnation simply does not apply, nor should apply, to capitalism. Nothing eternal (imperative) is relevant to capitalism, including the principle of permanently enshrined law. In fact, capitalism is a system that is based on change, including change applying to its core principles. Example: transition in property rights definition as it evolved under capitalism. Change is something that is impossible in a moral imperative systems: the Hell is the Hell and it will always be the Hell. In contrast, even the most basic foundations of capitalism evolve over time. Humanity used to have markets for slaves. We no longer do, for a good of the system. Capitalism used to define capital as physical 'stuff', it now includes 'intangibles'. And so on. This ability of capitalism to change - both continuously (evolutionary) and discontinuously (revolutionary) - preempts any possibility of an 'eternal' value concept, such as 'Hell', applying to it.

Secondly: Capitalism is based on utilitarian ethics. It is ok to alter private property rights (even with partial only compensation) under certain circumstances. It is ok to restrict some markets and transactions, when Pareto efficiency allows us. And so on... There can be no Pareto efficiency justification for a fundamental sin. Hence, bankruptcy in capitalism is not a form of punishment (damnation) a priori, but a system for resolving dilemma of un-recoverable liabilities. It is instrumental - a resolution system and a restart system. Hell is a permanent state, inescapable once entered into. And Hell exists solely for the purpose of punishment. It is not instrumental - it is absolute.

Thirdly: Bankruptcy is a manifestation of the process of creative destruction. Which is a dynamic process and also value-additive process. Hell is a system of a final state of being. There is neither a desirability for finality, nor transformative imperative to alter a being through bankruptcy.

In short, a statement of "Bankruptcy ~ Hell", while sounding remotely plausible, commits a basic fallacy of moralism: over-extending an imperative moral consideration to something that requires none.

So why do I take this statement to task?

Precisely because our system of bankruptcy is erroneously designed to follow that fallacious principle. We use bankruptcy not to resolve the problem of un-repayable liabilities in the first action, but to punish the person / entity that caused the problem. We make bankruptcy painful beyond the reason of simply maximising the recovery of losses in order to 'teach others a lesson' in a way that the threat of Hell is supposed to do.

As long as we keep following such a moralist view of bankruptcy, we will continue to unncessarily penalise entrepreneurship and risk-taking; we will continue to force unnecessarily high costs of failure on enterprises and people that undertake enterprise. In other words, we will continue to subsidise returns and rewards to statism to a life of secured complacency.

Capitalism without bankruptcy is a prison without an exit. It imprisons, wrongly, the innocents to rescue bankrupt enterprises (as in the case of banks rescues), or it imprisons too harshly those who take a risk and experience a failure (as in the case of some entrepreneurs trapped in, say, Nama). In both cases, absence of a utilitarian (not absolutist or moralist) bankruptcy destroys value - economic, social and personal.

Hell is the concept of an ultimate judgement and eternal punishment for moral sins, best left to God to apply, than economists.

5/5/2012: Marx v Austrians: 0:1... still

A superb and a must-read paper on virtues, failures & quantifiability of 'alternative' ideological structures: Capitalism, Socialism and Calculations, by Brent Butgereit and Art Carden.

The paper is now published in the Economic Affairs, Vol. 31, Issue 3, pp. 41-45, 2011  but you can get a working paper version of it free here.

Per authors: "The merits and demerits of what we call ―capitalism have been sources of much attention since Adam Smith...  We consider the criticisms of the Smithian capitalist system as stated most prominently by Karl Marx, and we evaluate Marx‘s proposed solution to the evils of capitalism—specifically, socialism. We also explore the contributions of Ludwig von Mises and Friedrich Hayek to the debate about whether Marx‘s proposed alternative was really an alternative.

Mises and Hayek provide powerful critiques of Marx‘s socialist vision by addressing the problem of economic calculation and the inability of central authorities to acquire knowledge diffused and distributed across an entire society.  We question whether Marx offered a solution and then consider more recent attacks on capitalism and its alleged destruction of cultural capital.

The theoretical contributions of Mises and Hayek are supported by recent empirical contributions suggesting that liberal political economy is robust."

Worth a read!