Can Philosophy Save the Markets? Philorum 19 November 2008
Can Philosophy Save the Markets?
Philorum 19 November 2008
Philosophy: Need for Paradigms
• Like Road Maps– Bearings– Directions
• Principles• Foundations• Assumptions
If the World Were a Village of 100
• The demographics would look a bit like this:– The village would have 60 Asians, 14 Africans, 12
Europeans, 8 South Americans, 5 from the USA and Canada, and 1 from the South Pacific
– 51 would be male, 49 would be female– 82 would be non-white; 18 white– 67 would be non-Christian• 5 atheist• 17 non-religious
http://www.familycare.org/news/if_the_world.htm
If the World Were a Village of 100
– 80 would live in substandard housing– 67 would be unable to read– 50 would be malnourished and 1 dying of starvation– 33 would be without access to a safe water supply – 39 would lack access to improved sanitation– 24 would not have any electricity (And of the 76 that do
have electricity, most would only use it for light at night.)– 7 people would have access to the Internet– 1 would have a college education– 1 would have HIV
http://www.familycare.org/news/if_the_world.htm
If the World Were a Village of 100
– 20 of the richest: 75% of the income of the village (US$11,250 or US$31 a day)• 5 would be US citizens controlling 32% of the entire
world’s wealth (US$19,200 or US$52.50 a day)
– 33 of the poorest: 3% of the income of “the village” (US$600 or less than US$2 a day)
– 47 middle class: 22% of the rest of the income of the village (US$2,444 or US$6.70)
http://www.familycare.org/news/if_the_world.htmhttp://www.hewett.norfolk.sch.uk/curric/NEWGEOG/global/global.htm
Conflicting Interests?
• First World– Inflation, Unemployment,
Recession– Financial Market Instability
& Lack of Confidence– Climate Change/Emissions
Mitigation & Capture
• Third World– Food Crisis & Massive Poverty– Debt Burdens & Political
Oppression– Health-Jobs Trade-Offs &
Perceived Overpopulation
• “Middle” World: e.g., Brazil, Russia India, China, Argentina & ASEAN (BRICAA)– Preserving Substantial Material Gains– Maintaining Momentum of Growth– Socio-political Stability of Regimes that
Made Progress in Their Own Terms Possible
Why Is There Imbalance/Disharmony?
• First World • Third World
• “Middle” World
• Cut your population!
• Liberalize & globalize!
• Pay your debts!
• Reduce your emissions (Don’t grow too fast)!
• Respect human rights!
• Play by “our” WTO/GATT Rules!
Why Is There Imbalance/Disharmony?
• First World • Third World
• “Middle” World
• Open your borders like we do ours!
• Give us a fair go/fair trade!
• Justice before repayment!
• Reduce your emissions!
• Lead by example!
• Re-write “your” rules/We have our own!
Why Is There Imbalance/Disharmony?
• First World • Third World
• “Middle” World
• Give us a better deal!
• Don’t interfere!
• Let’s do more business!
• Let’s “respect” each other!
JB’s anecdotal observations
What Do the People Want?
• First World– Recession: Job Security– Inflation: Purchasing Power
& Consumer Confidence– Environment– Well-Being
• Third World– Basic Necessities– Livelihood– Education– Happiness & Peace
• “Middle” World– Livelihood– Lifestyle– Education– Aspirations
Global Financial Meltdown
• Crisis of Confidence• Antithesis of IMF
Prescriptions to the Highly Indebted Third World Countries– Liberal Government
Spending– Tax Cuts– Lower Interest Rates– Except for “More Trade!”
• G20: “Looking over each other’s shoulders”
• Epileptic seizure-like market decline
• Ultimate burden falls on taxpayers
• The greatest beneficiaries of the boom & are unaccountable ... Til now
Is Economics a Failure? Neutral Perspective
• Microeconomics– Profit Maximization– Utility Optimization– Cost Minimization– Satisficing: Compromise
• Macroeconomics– Economic Growth– Price Stability– Sustainable Development– Global Dynamics
• Policies– Purpose/Objectives– Incentives/Disincentives
• Institutions– Information &
Knowledge– Systems/Procedures
• Processes– Infrastructure– Resource Mobilization
Is Economics a Failure? Dismal Economics
• Information Asymmetry– Manipulation of the
Naivete & Ignorance of Others
– Conquest• Exploitation of the
Powerless & Marginalised
• Rent-Seeking– Economic Gains from
Political Favor/Largesse
• Economist as Professional Mercenary
• No Ethos– Morality: Capital Sins &
Condemnation
• False Science– Ability to “Predict” or
Forecast due to Too Much Assumptions
• Too Politically Diverse – Too many cooks spoil
the broth: neo-libs; socialists; religious
Is Economics a Failure? Normative Economics
• Rights: from Property-Based to Rights & Needs-Based
• Disclosure: Knowledge of One’s Interests & of Others
• Politics: How to Pursue One’s Interests without Infringing on the Similar or More Basic Rights of Others
• Ethos– Empathy– Positive-Sum Gaming
• Science – Models/Scenarios– Analyses, Estimates– Question Assumptions
• Politics– Core Principles– Reflexivity: Cause-Effect
Cycles
Conceptual Vicious Cycle of Poverty
Low Income
Low Savings
Low Productivity of Capital
Underdeveloped Physical & Social Infrastructure
WB/IMF & ODA Model
Higher Income
Higher Savings
Higher Productivity of Capital
Better Physical & Social Infrastructure
Loans, Aid, GrantsPolicy Changes Direct Foreign Investments
The Real Vicious Cycle of PovertyLow Income of the
Farmer, Worker, Consumer &
Microenterpeneur
Low Savings of the Farmer, Worker,
Consumer & Microenterpeneur
Low Productivity of Capital to the Farmer, Worker,
Consumer & Microenterpeneur
Underdeveloped Physical & Social Infrastructure
Usurious Lending & Oppressive Monopoly-
Monopsonist Middlemen
Patronage Political Structures
Benefits
Benefits
Entrenches
Cooperation in Micro-systemsHigher Income of the
Farmer, Worker, Consumer &
Microenterpeneur
Savings of the Farmer, Worker, Consumer & Microenterpeneur
Higher Productivity of Capital to the Farmer, Worker, Consumer &
Microenterpeneur
Self-Help Cooperative Enterprises & Institutions
Usurious Lending & Oppressive Monopoly-
Monopsonist Middlemen
Patronage Political Structures
Diminished Dependence
Capitalizes& Governs
Cooperation in Micro-systemsHigher Income of the
Farmer, Worker, Consumer &
Microenterpeneur
Savings of the Farmer, Worker, Consumer & Microenterpeneur
Higher Productivity of Capital to the Farmer, Worker, Consumer &
Microenterpeneur
Self-Help Cooperative Enterprises & Institutions
Diminished Dependence
Capitalized & Governed
Loans, Aid, GrantsPolicy Changes Direct Foreign Investments
Lessons for the First World
Business Incomes
Household Incomes
Economic Performance
Physical & Social Infrastructure
Raise Labor Cost Competitiveness =
Cut Labor Costs;Privatise Investors
Attraction
Improves
Savings; Superfunds
Mutualization: Cooperative Privatisation
Business Incomes
Household Incomes & Stock of Wealth
Economic Performance
Physical & Social Infrastructure
Improves
Household Savings = Superannuation
Patronage
Invest
Intro to the Meltdown: Balance Sheet
AssetsDebts
Capital
Proper Accounting
Share Capital
Working Capital
Earning Assets
Fixed Non-Earning Assets
Debts
Income
Reserves
What Happened
Share Capital
Working Capital
Optimised Valuation of Earning Assets
Fixed Non-Earning Assets
Debts
Spectacular Incomes
Inadequate reserves because of credit default insurance
The Reckoning
Reduced Working Capital to Pay Debts
Deflating Value of Earning Assets as Defaults Occurred
Fixed Non-Earning Assets
Ballooning Value of
Unserved Debts
The Proposed Rescue
Reduced Working Capital to Pay Debts
Deflating Value of Earning Assets as Defaults Occurred
Fixed Non-Earning Assets
Ballooning Value of
Unserved Debts
Cash from Government Government Capital
The More Just ProposalReduced Working
Capital to Pay Debts
Deflating Value of Earning Assets as Defaults Occurred
Fixed Non-Earning Assets
Ballooning Value of
Unserved Debts
Government Bonds Government CapitalCounterpart Private Capital Private Debt Converted to Capital
or Fresh Capital
At the Core of the Problem
Income
Savings/Capital
Less Produced Goods & Services
Current Private Property Practice on Land/Commons
Speculative Incomes
Monetary Economics
• MV = PQ• Money Supply• Velocity• Price levels = Inflation• Quantity of
goods/services
• Personal Level/Analogy• Payslip• Times received annually• Cost of what’s acquired• Price of what’s acquired
A Common Wealth Based on Real Values
Personal Incomes
Savings/Capital
More Produced Goods & Services
Access to Land/Commons Based on Productive Activity
Than On Speculation
Land Rent “Tax”
Can Philosophy Save the Markets?
• IMHO, yes ...• Problem is that it is always easier said than
done ...• And those with the power do not have the will
to contradict their vested interests• Owning up to one’s decisions is difficult• But just because it hasn’t doesn’t mean it will
never happen.