CapitalistImperialistPig

Paul Krugman, writing in the NYT , points out that the recent market turbulence triggered by China is part of a pattern of instability. But why does the world economy keep stumbling? On the surface, we seem to have had a remarkable run of bad luck. First there was the housing bust, and the banking crisis it triggered. Then, just as the worst seemed to be over, Europe went into debt crisis and double-dip recession. Europe eventually achieved a precarious stability and began growing again — but now we’re seeing big problems in China and other emerging markets, which were previously pillars of strength. But these aren’t just a series of unrelated accidents. Instead, what we’re seeing is what happens when too much money is chasing too few investment opportunities. More than a decade ago, Ben Bernanke famously argued that a ballooning U.S. trade deficit was the result, not of domestic factors, but of a “global saving glut”: a huge excess of savings over investment in China and other de...

Money and the global village. Money is one of our most purely constructed imagined realities. It's value depends almost entirely on the fact that other people find it valuable. Coins were invented in Lydia 2700 years ago, but their usefullness was soon apparent. India started accepting the Roman Denarius, and when they started making their own coins, copied the Roman coin down to the image of Augustus on the face. Yuval Noah Harari calls money the most universal and undiscriminating product of culture. People all over the world would accept Roman coins whether they hated Rome or loved it, and similarly the American dollar today. So why should cultures who disagree on every other value put their faith in money? Mostly it's a matter of knowing that other people trust it, that plus supply and demand. Of course money also depends on the fact, or imagined fact, of a powerful government dedicated to protecting its value. Too bad the Republican congress won't take Harari...

I got a big kick out of prof Harari's lectures on money - one of the prime drivers of the transition to a global culture. Money is one of the purest creations of the human mind, in the sense that its value is almost entirely the product of a shared imagined reality. It's been invented many times in many places, and is essential for any complex economy. Occasionally, but hardly generally, money consists of things of real intrinsic value, like cigarettes, cattle, slave girls, or baskets of wheat. More commonly, especially in modern societies, it consists of things whose intrinsic value is slight, like cowrie shells, coins of gold or silver, banknotes, or entires in an electronic ledger. The value of money lies in our shared expectation that it can be exchanged for all sorts of real goods and services. What exactly underpins our shared belief that those coins or banknotes will continue to be useful to us? Beyond our shared imaginations, it's often the power of a state. ...

Somebody noted that it's hard for Americans to get too worked up about rich guys running for President because everybody running is pretty rich compared to an average American. Determining exactly where one winds up on the income scale seems to be a bit of an inexact science, since estimates vary a bit, but to be a bare minimum one per center you need to make something like $400,000 per year. One percenters are a fairly diverse lot , but executives are the largest component by far, though large numbers of doctors, financial professionals, and some lawyers also make the cut. Add in a few actors, athletes, salesmen, lottery winners, etc. The President qualifies, probably on the basis of salary alone, but he also makes some from his book sales. The jump is steep to the next factor of ten, the 0.1%. It takes about $2 million to qualify here, and the Obamas missed last year, though not by too much. Candidate Newt Gingrich made it easily with his $5 million dollar income, but he ...

I have previously mentioned here that David Graeber has written a book on the history of debt: Debt, The First 5000 Years. Among many other subjects, he discusses the origins of money. In particular he disses the just so story on the subject concocted by Adam Smith, and the slightly more elaborate version of the same just so story by Carl Menger. It seems, however, that the Menger version (in English here ), is one of the sacred texts of the Austrian economic religion, and Robert P. Murphy (an adjunct priest at their high temple) was offended enough to come to Menger's defense. Not by the book, by the way, since he hadn't read it, but by what he extracted from an interview with the author. Unsurprisingly, he significantly misunderstands Graeber's point and consequently constructs a rather wrongheaded critique . First a summary. Menger's long winded guess at the nature of money reduces to this: participants in a barter economy found it really inconvenient so the mo...

Louise Story and Mathew Saltmarsh, writing in the New York Times , see signs of inching toward a European fiscal union - in effect, a United States of Europe.  The motivation is obvious - the apparent instability of the Euro zone as currently constituted - but the obstacles are enormous.  I don't expect it to happen, at least not until the Euro sheds a few of the weaker members, but the implications would obviously be huge. One problem is that the situation is evolving rapidly, and politics moves with glacial speed.  The other problem is the question of who gets what.  So far the bankers having been driving this train, and I would be very surprised if European citizenry would be willing to give up so much to save a bunch of bankers who got into this problem mostly through their own stupidity. At some point, I think, the insolvent banks need to be annihilated or reorganized.  And how about requiring adequate reserves for credit default swaps and other insuran...