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Sometimes regulations help businesses by limiting the ability of firms to engage in activities that bring them greater profits in the short run but ultimately destroy the common resource that all business firms need. For example, regulating the intensity of fish farming may reduce the profits of individual fish farms but help the fish-farming industry as a whole by preserving the quality of water that all the fish farms have to use. For another example, it may be in the interest of individual firms to employ children and lower their wage bills. However, a widespread use of child labour will lower the quality of the labour force in the longer run by stunting the physical and mental development of children. [...]
Businesses plan their activities--often down to the last detail. Indeed, that is where Marx got the idea of centrally planning the whole economy. When he talked about planning, there was in fact no real-life government that practising planning. At the time, only firms planned. What Marx predicted was that the 'rational' planning approach of the capitalist firms would eventually prove superior to the wasteful anarchy of the market and thus eventually be extended to the whole economy. To be sure, he criticized planning within the firm as despotism by capitalism, but he believed that, once private property was abolished and the capitalists eliminated, the rational elements of such despotism could be isolated and harnessed for the social good.
cool
[...] Why should people who have worked hard and obtained a university degree against all odds be rewarded in the same way as someone, coming from the same poor background, who goes into a life of petty crime?
This argument is correct. We cannot, and should not, explain someone's performance only by the environment in which he has grown up. Individuals do have responsibilities for what they have made out of their lives.
However, while correct, this argument is only part of the story. Individuals are not born into a vacuum. The socio-economic environment they operate in puts serious restrictions on what they can do. Or even what they want to do. [...]
his example: working-class children who think university is not for them. or, for a more personal example: girls who dont think the tech industry is for them
Yes, in theory, a shoeshine boy from a poor provincial town in Peru can go to Stanford and do a PhD, as the former Peruvian President Alejandro Toledo has done, but for one Toledo we have millions of Peruvian children who did not even make it to high school. Of course, we could argue that all those millions of poor Peruvian children are lazy good-for-nothings, snice Mr. Toledo has proven that they too could have gone to Stanford if they had tried hard enough. But I think it is much more plausible to say that Mr Toledo is the exception. Without some equality of outcome (of parental income), poor people cannot take full advantage of equality of opportunity.
i really liked this passage, but wish he had taken it a step further, with a thought experiment: imagine if, by some fluke, a bunch of his peers had also been super brilliant and would have excelled at Stanford. or even not by some fluke--imagine he and his friends made a study group and helped lift each other up despite all the obstacles in their way. imagine if his entire high school graduating class were brilliant and all worthy of Stanford--maybe even more worthy than any other applicants. Does that mean Stanford will accept them all? No, of course not. Stanford can't accept more than a few token brilliant, poor Peruvians in any given year. The goal of institutions like Stanford is not to meritocratically allocate spaces to the most deserving or most promising students. The goal is to use these so-called meritocratic stories as a shield while, covertly, allocating spaces predominantly to children of alumni and others who fit the ideal that Stanford has created over the years. This facade of meritocracy is what allows people to pretend that the system is fair and thus override their natural squeamishness around inequality.
also ties into exceptionalism re: Obama
Thus, exactly because finance is efficient at responding to changing profit opportunities, it can become harmful for the rest ef the economy. And this is why James Tobin, the 1981 Nobel laureate in economics, talked of the need to 'throw some sand in the wheels of our excessively efficient international money markets'. For this purpose, Tobin proposed a financial transaction tax, deliberately intended so slow down financial flows. A taboo in polite circles until recently, the so-called Tobin Tax has recently been advocated by Gordon Brown, the former British prime minister. But the Tobin Tax is not the only way in which we can reduce the speed gap between finance and the real economy. Other means include making hostile takeovers difficult (hereby reducing the gains from speculative investment in stocks), banning short-selling (the practice of selling shares that you do not own today), increasing margin requirements (that is, the proportion of the money that has to be paid upfront when buying shares) or putting restrictions on cross-border capital movements, especially for developing countries.
The economics of Herbert Simon and his followers has really changed the way we understand modern firms and, more broadly, the modern economy. It helps us break away from the myth that our economy is exclusively populated by rational self-seekers interacting through the market mechanism. When we understand that the modern economy is populated by people with limited rationality and complex motives, who are organized in a complex way, combining markets, (public and private) bureaucracies and networks, we begin to understand that our economy cannot be run according to free-market economics. When we more closely observe the more successful firms, governments and countries, we see they are the ones that have this kind of nuanced view of capitalism, not the simplistic free-market view.
Even within the dominant school of economics, that is, the neo-classical school, which provides much of the foundation for free-market economics, there are theories that explain why free markets are likely to produce sub-optimal results. These are theories of 'market failure' or 'welfare economics', first proposed by the early twentieth-century Cambridge professor Arthur Pigu, and later developed by modern-day economists such as Amartya Sen, William Baumol and Joseph Stiglitz [...]
But we are material beings and cannot live on ideas, however great the knowledge economy may sound. Morever, we have always lived in a knowledge economy in the sense that it has always been a command over superior knowledge, rather than the physical nature of activities, that has ultimately decided which country is rich or poor. [...]
his argument here is that countries need to shift away from services, which are 1) not tradeable and 2) often highly dependent and even parasitic on the manufacturing sector, and instead invest more in infrastructure (more basic than the Internet) and industry
This book is not an anti-capitalist manifesto. Being critical of free-market ideology is not the same as being against capitalism. Despite its problems and limitations, I believe that capitalism is still the best economic system that humanity has invented. My criticism is of a particular version of capitalism that has dominated the world in the last three decades, that is, free-market capitalism. This is not the only way to run capitalism, and certainly not the best, as the records of the last three decades shows. The book shows that there are ways in which capitalism should, and can, be made better.
baby steps I guess
[...] "The Führer himself," Virginie said heavily, "is an artist, after all." Reproductions of his barely competent watercolors, his hesitant lines, his featureless faces, his vacuous, pretty, empty urban façades, had circulated as curios in occult Paris. Virginie and Thibault shared a glance of contempt.
FORESHADOWING