The least desirable way to handle this situation is to play ‘let’s make a deal’ with the rental agency once you’re at your destination ‘ you’d be at a total disadvantage and there may be no acceptably safe cars in the lot anyway. If your machine doesn’t have a 12V DC input jack, then you can still use a battery, but you’ll have to use an inverter. Later on, people feel great when they see their pictures
April 25, 2014 § Leave a comment
Piketty wants to provide a theory relevant to growth, which requires physical capital as its input. And yet he deploys an empirical measure that is unrelated to productive physical capital and whose dollar value depends, in part, on the return on capital. Where does the rate of return come from? Piketty never says. He merely asserts that the return on capital has usually averaged a certain value, say 5 percent on land in the nineteenth century, and higher in the twentieth.
The basic neoclassical theory holds that the rate of return on capital depends on its (marginal) productivity. In that case, we must be thinking of physical capital—and this (again) appears to be Piketty’s view. But the effort to build a theory of physical capital with a technological rate-of-return collapsed long ago, under a withering challenge from critics based in Cambridge, England in the 1950s and 1960s, notably Joan Robinson, Piero Sraffa, and Luigi Pasinetti.
Piketty devotes just three pages to the “Cambridge-Cambridge” controversies, but they are important because they are wildly misleading. He writes:
Controversy continued… between economists based primarily in Cambridge, Massachusetts (including [Robert] Solow and [Paul] Samuelson) . . . and economists working in Cambridge, England . . . who (not without a certain confusion at times) saw in Solow’s model a claim that growth is always perfectly balanced, thus negating the importance Keynes had attributed to short-term fluctuations. It was not until the 1970s that Solow’s so-called neoclassical growth model definitively carried the day.
But the argument of the critics was not about Keynes, or fluctuations. It was about the concept of physical capital and whether profit can be derived from a production function. In desperate summary, the case was three-fold. First: one cannot add up the values of capital objects to get a common quantity without a prior rate of interest, which (since it is prior) must come from the financial and not the physical world. Second, if the actual interest rate is a financial variable, varying for financial reasons, the physical interpretation of a dollar-valued capital stock is meaningless. Third, a more subtle point: as the rate of interest falls, there is no systematic tendency to adopt a more “capital-intensive” technology, as the neoclassical model supposed.
In short, the Cambridge critique made meaningless the claim that richer countries got that way by using “more” capital. In fact, richer countries often use less apparent capital; they have a larger share of services in their output and of labor in their exports—the “Leontief paradox.” Instead, these countries became rich—as Pasinetti later argued—by learning, by improving technique, by installing infrastructure, with education, and—as I have argued—by implementing thoroughgoing regulation and social insurance. None of this has any necessary relation to Solow’s physical concept of capital, and still less to a measure of the capitalization of wealth in financial markets.
There is no reason to think that financial capitalization bears any close relationship to economic development. Most of the Asian countries, including Korea, Japan, and China, did very well for decades without financialization; so did continental Europe in the postwar years, and for that matter so did the United States before 1970…
To summarize so far, Thomas Piketty’s book about capital is neither about capital in the sense used by Marx nor about the physical capital that serves as a factor of production in the neoclassical model of economic growth. It is a book mainly about the valuation placed on tangible and financial assets, the distribution of those assets through time, and the inheritance of wealth from one generation to the next.
Why is this interesting? Adam Smith wrote the definitive one-sentence treatment: “Wealth, as Mr. Hobbes says, is power.” Private financial valuation measures power, including political power, even if the holder plays no active economic role. Absentee landlords and the Koch brothers have power of this type. Piketty calls it “patrimonial capitalism”—in other words, not the real thing.
Thanks to the French Revolution, registry of wealth and inheritance has been good in Piketty’s homeland for a long time. This allows Piketty to show how the simple determinants of the concentration of wealth are the rate of return on assets and the rates of economic and population growth. If the rate of return exceeds the growth rate, then the rich and the elderly gain in relation to everyone else. Meanwhile, inheritances depend on the extent to which the elderly accumulate—which is greater the longer they live—and on the rate at which they die. These two forces yield a flow of inheritances that Piketty estimates to be about 15 percent of annual income presently in France—astonishingly high for a factor that gets no attention at all in newspapers or textbooks. read more
PHOTOGRAPH: Mie Prefecture Fisheries Research Institute
In what is amounting to a waking nightmare, today I found a 52 page Word document called “Notes to Think About.”
February 25, 2014 § Leave a comment
Crystal Palace fans reacted to Wayne Rooney’s new £300,000 per week contract with chants of “you fat greedy bastard.”
Sadly, Mr Rooney did not respond in the manner of one of his celebrated predecessors. But he should have, because the chant is wrong. Mr Rooney is not getting £300,000 a week because he is unusually greedy: in the improbable event of being offered such money, who among us would turn it down? He is getting it because he is unusually powerful – a power which is not entirely due merely to his exceptional skill.
Palace fans, then, are committing the fundamental attribution error – they are blaming Rooney’s salary upon his personal character rather than upon his situation.
Although Palace fans are – with the odd exception – not famous for their powers of thought, this error is a common one: “greedy bankers” is a cliche, “overly powerful bankers”, whilst true, is not. read more
PHOTOGRAPH: Anita Sto
Amid stiff, abrupt sentences I wandered; and, presently, I had no fault to charge against their abrupt tellings; for, better far than my own ambitious phrasing, is this mutilated story capable
August 21, 2013 § 1 Comment
The official history of Monopoly, as told by Hasbro, which owns the brand, states that the board game was invented in 1933 by an unemployed steam-radiator repairman and part-time dog walker from Philadelphia named Charles Darrow. Darrow had dreamed up what he described as a real estate trading game whose property names were taken from Atlantic City, the resort town where he’d summered as a child. Patented in 1935 by Darrow and the corporate game maker Parker Brothers, Monopoly sold just over 2 million copies in its first two years of production, making Darrow a rich man and likely saving Parker Brothers from bankruptcy. It would go on to become the world’s best-selling proprietary board game. At least 1 billion people in 111 countries speaking forty-three languages have played it, with an estimated 6 billion little green houses manufactured to date. Monopoly boards have been created using the streets of almost every major American city; they’ve been branded around financiers (Berkshire Hathaway Monopoly), sports teams (Chicago Bears Monopoly), television shows (The Simpsons Monopoly), automobiles (Corvette Monopoly), and farm equipment (John Deere Monopoly).
The game’s true origins, however, go unmentioned in the official literature. Three decades before Darrow’s patent, in 1903, a Maryland actress named Lizzie Magie created a proto-Monopoly as a tool for teaching the philosophy of Henry George, a nineteenth-century writer who had popularized the notion that no single person could claim to “own” land. In his book Progress and Poverty (1879), George called private land ownership an “erroneous and destructive principle” and argued that land should be held in common, with members of society acting collectively as “the general landlord.”
Magie called her invention The Landlord’s Game, and when it was released in 1906 it looked remarkably similar to what we know today as Monopoly. It featured a continuous track along each side of a square board; the track was divided into blocks, each marked with the name of a property, its purchase price, and its rental value. The game was played with dice and scrip cash, and players moved pawns around the track. It had railroads and public utilities—the Soakum Lighting System, the Slambang Trolley—and a “luxury tax” of $75. It also had Chance cards with quotes attributed to Thomas Jefferson (“The earth belongs in usufruct to the living”), John Ruskin (“It begins to be asked on many sides how the possessors of the land became possessed of it”), and Andrew Carnegie (“The greatest astonishment of my life was the discovery that the man who does the work is not the man who gets rich”). The game’s most expensive properties to buy, and those most remunerative to own, were New York City’s Broadway, Fifth Avenue, and Wall Street. In place of Monopoly’s “Go!” was a box marked “Labor Upon Mother Earth Produces Wages.” The Landlord Game’s chief entertainment was the same as in Monopoly: competitors were to be saddled with debt and ultimately reduced to financial ruin, and only one person, the supermonopolist, would stand tall in the end. The players could, however, vote to do something not officially allowed in Monopoly: cooperate. Under this alternative rule set, they would pay land rent not to a property’s title holder but into a common pot—the rent effectively socialized so that, as Magie later wrote, “Prosperity is achieved.”
For close to thirty years after Magie fashioned her first board on an old piece of pressed wood, The Landlord’s Game was played in various forms and under different names—“Monopoly,” “Finance,” “Auction.” It was especially popular among Quaker communities in Atlantic City and Philadelphia, as well as among economics professors and university students who’d taken an interest in socialism. Shared freely as an invention in the public domain, as much a part of the cultural commons as chess or checkers, The Landlord’s Game was, in effect, the property of anyone who learned how to play it. read more
PHOTOGRAPH: Yokonami Osamu
July 19, 2013 § Leave a comment
The economic vocabulary shapes the semantics of how reality is perceived, and conversely, as Orwell noted, “the decline of a language must ultimately have political and economic causes.” “Protecting savings” and “making savers whole” have become euphemisms for downsizing the economy and sacrificing new direct investment in order to preserve the fortunes of rentiers. While psychologists speak of well-adjusted individuals, economists may ask whether the economy’s debts should be adjusted to the ability to pay, or whether growth and living standards should be “adjusted” (that is, sacrificed) to preserve the value of creditor claims. One may ask similar questions regarding the terms “democracy,” “value,” and “efficiency,” and reality itself…
Addictive demand: Neoclassical price theory is based on the assumption of diminishing marginal utility: The more food, clothes or other consumption goods one has, the less pleasure each additional unit gives. But as the ancients knew, this principle is not true of wealth, especially of money. The more property one has, the more one wants. Wealth is addictive, sucking its possessors into a compulsive drive to accumulate. (See Hubris.)
Agio: Medieval Europe banned usury, but legalistic-minded Churchmen rationalized the practice of charging it in the form of a foreign-exchange fee. Money was borrowed in one country or currency, to be paid back in another at an exchange-rate which incorporated the usury charge in the guise of a money-changing fee (agio). The most egregious example was the “dry” exchange in which no goods actually were imported or exported. This agio loophole helped channel European banking along the lines of short-term trade financing and discounting bills of exchange.
Asset-price inflation: A policy in which the banking system recycles savings and extends new credit to finance the purchase of real estate, stocks and bonds so as to create windfall gains (euphemized as capital gains). The financial boom that resulted from steering pension-plan reserves into the stock market has inspired proposals to privatize Social Security’s wage withholding in a similar way (see Forced Saving, Labor Capitalism and Pension-Fund Capitalism). Meanwhile, property prices are inflated by steering mortgage credit into real estate, lowering interest rates so that higher mortgage debts can be carried, and loosening the terms of mortgage lending, reducing the down payments needed yet minimizing the repayment of principle by stretching out the loan maturity. Fiscal policy contributes to this phenomenon by shifting taxes off of finance and property onto labor (see Tax Shift).
Higher asset prices often are welcomed as increasing net worth (and hence the balance sheet of wealth), as long as the rise in market prices outpaces the growth of debt. But rising property prices increase living costs by panicking home buyers to buy now in order to avoid seeing the rise in property prices outstrip wage gains.
Asset-price inflation goes hand in hand with debt deflation and aggravates polarization as higher prices for homes oblige families to go further into debt. This diverts more income to the financial sector to channel into real estate, as well as into the stock and bond markets.
An inner contradiction of this process occurs as higher price/earnings ratios reduce the income yields on financial securities, while higher price/rent ratios for real estate reduces the ability of rental income to carry the interest and related financial charges. This leads to pressure to reduce property taxes in order to alleviate the financial squeeze.
Asset stripping: Corporate raiders take over companies, cut back research and development spending and other lines of business that do not produce short-term returns, and downsize their labor force in order to make the remaining employees work harder to pick up the slack. This practice is euphemized as wealth creation when its effect is to improve reported earnings. This raises stock prices over the short term, but undercuts long-term growth in production and competitiveness. (See Free Market.) read more
PHOTOGRAPH: Deborah Paauwe