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Archive for December, 2008

Happy Holidays

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Outside Agitator: Naomi Klein

When she arrived back at university in 1996, she discovered that everything had changed. During her previous stint as an undergraduate, she had spent all her time protesting the underrepresentation of women and minorities in the curriculum and the media; campus politics in 1989 had mostly meant identity politics. But students in 1996 weren’t interested in identity; what they talked about was economics. At the time, corporations were starting to make inroads into schools: soft-drink companies were negotiating exclusive deals; advertisements were appearing in bathrooms. There was a feeling in the air that corporations were getting too powerful—more powerful than governments, but not accountable to anyone except their shareholders.

[…]

“The crash on Wall Street should be for Friedmanism what the fall of the Berlin Wall was for authoritarian Communism, an indictment of an ideology”

Stocks Plummet, Shoplifting Takes-off

As the economy has weakened, shoplifting has increased, and retail security experts say the problem has grown worse this holiday season. Shoplifters are taking everything from compact discs and baby formula to gift cards and designer clothing.

Police departments across the country say that shoplifting arrests are 10 percent to 20 percent higher this year than last. The problem is probably even greater than arrest records indicate since shoplifters are often banned from stores rather than arrested.

Much of the increase has come from first-time offenders…making rash decisions in a pinch, the authorities say. But the ease with which stolen goods can be sold on the Internet has meant a bigger role for organized crime rings, which also engage in receipt fraud, fake price tagging and gift card schemes, the police and security experts say.

But At Least You Still Look Good: Botox Treatments On the Rise Despite Economic Downturn

Nearly three out of four plastic surgeons who responded to a survey this fall reported that demand has increased or held steady for minimally invasive procedures, including Allergan Inc.’s Botox antiwrinkle drug.

Increasingly, many aesthetic patients view their treatments as professional self-preservation rather than as a personal indulgence. Appearances make a difference, says Kathleen Hudson, a 57-year-old marketing consultant in Falls Church, Va. “If you’re in the business world and you want to be competitive with the younger people, you need to stay on top of your game,” she says.

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The Consumer’s Dilemma

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This headline is striking for its elegance: “Revise regulation, the theory of market equilibrium is wrong”. Obviously this speaks directly to a major criticism of neoclassical theory by heterodox economists. An article in the Real World Economics Review (formerly PAER) identifies methodological equilibration as one of three axioms intrinsic in neoclassical theory. Soros’ criticism strikes a chord with me.
Now, like any eager economics student, I was first entranced by equilibrium in micro when we drew our supply and demand curves and saw where they crossed- the equilibrium point. I’m naturally attracted to lines that cross at a point. Even better when intermediate macro taught me that in the AS-AD model, the point of intersection was self-reinforcing. Move away from it, and you just go right back; it’s so elegant proving it to yourself.

But, things like the financial crisis throw the notion of equlibrium off kilter:

We are in the midst of the worst financial crisis since the 1930s. The salient feature of the crisis is that it was not caused by some external shock like OPEC raising the price of oil. It was generated by the financial system itself. This fact – a defect inherent in the system – contradicts the generally accepted theory that financial markets tend toward equilibrium and deviations from the equilibrium occur either in a random manner or are caused by some sudden external event to which markets have difficulty in adjusting. The current approach to market regulation has been based on this theory, but the severity and amplitude of the crisis proves convincingly that there is something fundamentally wrong with it.

Even better, Soros explains that when you go away formt he intersection, neat little arrows don’t lead you back:

I have developed an alternative theory which holds that financial markets do not reflect the underlying conditions accurately. They provide a picture that is always biased or distorted in some way or another. More importantly, the distorted views held by market participants and expressed in market prices can, under certain circumstances, affect the so-called fundamentals that market prices are supposed to reflect.

I call this two-way circular connection between market prices and the underlying reality “reflexivity.” I contend that financial markets are always reflexive and on occasion they can veer quite far away from the so-called equilibrium. In other words, financial markets are prone to producing bubbles.

What then to do about it? Regulate. This is not the heterodox solution, but no one expects Soros  to call for the nationalization of the financial system, although he oes acknowledge that regulation within the current system is limited by lack of information, another good assumption to start with. It’s encouraging to see another prominent voice approach the financial system with correct premises.




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The Real Price Of Gold

A powerful and poetic story from National Geographic about the “21st Century Gold Rush“.

No single element has tantalized and tormented the human imagination more than the shimmering metal known by the chemical symbol Au. For thousands of years the desire to possess gold has driven people to extremes, fueling wars and conquests, girding empires and currencies, leveling mountains and forests. Gold is not vital to human existence; it has, in fact, relatively few practical uses. Yet its chief virtues—its unusual density and malleability along with its imperishable shine—have made it one of the world’s most coveted commodities, a transcendent symbol of beauty, wealth, and immortality.

The price of gold has soared by 235 percent in the ast 8 years, but global supplies are dwindling.

Now the world’s richest deposits are fast being depleted, and new discoveries are rare. Gone are the hundred-mile-long gold reefs in South Africa or cherry-size nuggets in California. Most of the gold left to mine exists as traces buried in remote and fragile corners of the globe. It’s an invitation to destruction. But there is no shortage of miners, big and small, who are willing to accept.

And, what came as a surprise to me, was who is (or isn’t) the top consumer of gold in the world.

Nowhere is the gold obsession more culturally entrenched than it is in India. Per capita income in this country of a billion people is $2,700, but it has been the world’s runaway leader in gold demand for several decades. In 2007, India consumed 773.6 tons of gold, about 20 percent of the world gold market and more than double that purchased by either of its closest followers, China (363.3 tons) and the U.S. (278.1 tons).

The article goes on to document the wars, violence, crime, and degradation (human and ecological) wraught by the continuing gold frenzy.  Armies of migrant workers labor tirelessly extracting the gold from precarious environments while armies and countries often profit off these trades amidst civil and regional wars.

Juxtaposed to these images of “artisanal” gold mining is industrial gold mining, which accounts for 3/4 of today’s gold extraction.

[Industrial] Gold mining, however, generates more waste per ounce than any other metal, and the mines’ mind-bending disparities of scale show why: These gashes in the Earth are so massive they can be seen from space, yet the particles being mined in them are so microscopic that, in many cases, more than 200 could fit on the head of a pin.

The article is pretty lengthy, but the stories are fascinating.  From Peru to Indonesia, gold is leaving a not so sterling mark on much of this world.

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South Korean parliament members are fighting over a proposed free trade pact with the United States.  Members of the party opposing the deal were locked out of a discussion meeting today, leading to physical clashes and “at least one person bleeding from the face.”

The parliamentary battle over a contentious free trade deal in South Korea led to a confrontation on Thursday in which opposition lawmakers used a sledgehammer to knock down the doors of a blockaded room in which a committee was discussing the agreement.

What’s at stake?

The members of the opposition Democratic Party were trying to stop the trade agreement with the United States from advancing to the floor of parliament for a final vote. The governing party has been seeking to ratify the trade pact by year’s end, saying it would improve South Korea’s competitiveness and ties with the United States. Opponents say it will hurt South Korean farmers.

Across the pond…

The pact faces stiff opposition in United States Congress, where many fear it could disadvantage struggling American automakers.

UPDATE: More coverage and a video.

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Food Fights

Our biggest aspirational peer is apparently years ahead of us in locally grown, organic food. That’s right, pseudo-communist Cuba is a leader in urban gardens, which have substantially cut Cuba’s need to import food from the United States. What is interesting is that Cuba, not always seen as a standard-bearer of the free market, has done this with economically smart food policy:

“We have taken organic agriculture to a social level,” said Salcines.

Castro has decentralized farm decision-making and raised the prices that the state pays for agricultural products, which has increased milk production, for example, by almost 20 percent.

And, in September, the government began renting out unused state-owned lands to farmers and cooperatives, measures that met with approval of international aid groups.

“Decentralization and economic incentives. If those elements are expanded to the rest of the agricultural sector, the response will be the same,” said Welthungerhilfe’s Haep.

Meanwhile, it appears the free market US is headed for more of the same, as Tom Vilsack, former governor of Iowa, is being named Obama’s ag secretary. He comes from a state dominated by corn politics, which means that we are in for more of the same: corn subsidies, fertilizer subsidies, et al. that are geared towards large farms, not small farms and certainly not consumers. An organic consumers group is worried about the food safety implications of this move:

“Obama’s choice for Secretary of Agriculture points to the continuation of agribusiness as usual, the failed policies of chemical- and energy-intensive, genetically engineered industrial agriculture,” said Cummins. “Americans were promised ‘change,’ not just another shill for Monsanto and corporate agribusiness. Considering the challenges we collectively face as a nation, from climate change and rising energy costs to food insecurity, we need an administration that moves beyond ‘business as usual’ to fundamental change—before it’s too late,” concluded Cummins.

I’m not Joe free market, but it’s pretty obvious when non-free market policies are doing the opposite of achieveing social welfare. This is clearly one of those cases. If the government is going to subsidize aspects of agriculture, it should subsidize those aspects that benefit small farmers, consumers, and the environment. Meanwhile, Ezra Klein believes we need to change the USDA to a Dept of Food. Interesting stuff. At the end of the day, it’s sad that we are having a discussion about food policy and health care where Cuba seems to come out ahead in various aspects.

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