Wednesday, 16 April 2014

Socially useless Economists?

Starting a discussion about which economic activities are or are not 'socially' useful opens a can of worms. Is Opera - or Music in general - socially useful? or hairdressing beyond simply chopping off surplus hair? Opinions will differ widely and the last thing we want is to leave the answer to this question to authorities, be they religious (we had enough of that for 2000+ years), political or - academics. The discussion about the merits (or lack thereof) of High Frequency Trading (HFT) illustrates this very well. While I have often argued that the rules of the stock exchange should be adjusted so that the rules of 'priority and precedence' are brought up-to-date for the internet age it is means overkill when economists or regulators attack the activity per-se claiming that it is socially useless. That may well be the case. Participants may see it as just another form of gambling (Casinos are also a negative sum game for the punters) and should be free to enjoy their long as they are collectively willing to accept the net negative costs associated with this activity. And I am gentleman enough not to question Mr. Stiglitz' social usefulness.

Tuesday, 15 April 2014

Higher taxes no solution for Income Inequality

Robert Shiller is too much focused on the simple expedient of higher taxes for the rich (however defined) as a tool to stop rising inequality. It may well paper over the underlying malaise but does little to change the reasons behind the increase in differences between income (and even more importantly, wealth) disparities in the USA and many other countries. Only a thorough review of policies concerning the way the capitalist system works (ownership of productive assets, capital gains and inheritance taxes, intellectual property rights, educational policies to name just a few) will lead to a substantial reduction in inequality.

Tuesday, 8 April 2014

Sanctions on Russia may backfire

Sanctions seem to have replaced actual warfare as the preferred weapon these days. But are sanctions imposed on Russia in the wake of the annexation of Crimea going to have the intended effect? More than in other cases of (usually futile) sanctions the latest version of sanctions will have little effect - or even backfire on the sponsors in the 'West'. A look at the map makes it clear that Russia is not just any country that can be bossed around 'gunship style'. It is a whole continent! So self-sufficiency should not be a problem. And looking at economic history a period of isolation from the world markets, esp the main economies, should actually do wonders for the development of a competitive domestic industry. Do Russians - the broad mass of people, not the oligarchs - really need to buy BMW's or other high-end luxuries from the West? The USA and Germany have expanded their domestic industries behind tariff walls, and the English navigation act has contributed substantially to the rise of British sea power. Cutting off access to international financial markets will not lead to the default by Russian borrowers as predicted in some places. Russia can simply declare 'Force majeure' and refuse to pay back the loans if they are not rolled over at the behest of unaccountable political lobbies. The USA have only minor trade relationships with Russia, but therefore Russia is not much exposed to any lost trade with that country either. And the EU may be a substantial partner, but the world is large enough, there is China, India, Brazil etc. And if Russia really gets needled too much it can make overtures to Iran and other states therefore setting the cat among the pigeons.