Michael Perleman's Thanksgiving Rant

Cute piece, especially for a rant. From his Unsettling Economics site

Matter and Antimatter: How to Create a Crisis: A Thanksgiving Rant

Posted November 27, 2008
Filed under: economics

Skilled physicists do not know how to take nothing and turn it into matter and antimatter, but finance behaves as if it had the capacity to do something similar. Imagine a simple market economy about to create a bubble. I want to tell the story of this bubble, only to put the current, crazy stimulus package into perspective.

Somebody says to me they have a piece of paper worth $1 million. I can buy for half the price. I borrow the money to cover most of the cost. People are willing to lend me the money confident in the belief that my paper will increase in value. Other people are engaging in the same transaction, spreading confidence that these papers are now increasing in value, say to $600,000.

The seller of the paper now has a half-million dollars, having given up nothing but blank piece of paper. I have a capital gain of hundred thousand dollars. My lenders have a credit with a half-million dollars. We are all better off, even though nothing has been produced.

Feeling secure in the increasing value of our paper, I along with the other “investors” now start consuming more, spreading prosperity for the economy. Virtually everybody is enjoying the benefit of the bubble. Within a short period of time, people throughout the economy making decisions based on the increasing appearance of health and the economy.

At some point, people realize that this paper is nothing more than a blank sheet of writing paper. The bubble may have stimulated some investment that is capable of producing real economic benefits, but mostly it has induced people to consume and commit themselves to pay back debts.

Remember, this prosperity was built out of nothing. In the end, matter and antimatter collided. The lenders have lost their money. The speculators and consumers are in debt. Most lack the wherewithal to repay their debts. But in the case of the current bubble, the economy does not have the productive capacity to put everything together. The loans came from abroad and so did many consumer goods.

At the same time, the government loans are ultimately dependent on another set of loans, also largely from abroad. How will these loans ever be repaid? Will new loans keep coming as the bubble engulfs the rest of the world?

Should the government come in and give me a half-million dollars so that I can repay my loan? Should I be rewarded for my stupidity and naivete? Will that policy really make the economy healthy? Or will it policy just facilitate the creation of even greater bubbles?

Obviously, the most sensible decision would be to put the money into making a more healthy economy, one less susceptible to speculation–something impossible under capitalism, but that is another question. Eventually, somebody will have to pay the piper. The policy today seems to be an effort to shield the very people who created the crisis, placing the burden on the most innocent.

The graphic picture of the stimulus package that I posted yesterday suggests a government response just as foolish as the speculations that set off the bubble in the first place.

Happy Thanksgiving.

Interesting Piece on Mobility

From the December issue of Britain’s Prospect magazine. A pretty good, easy-to-read treatment of some of the complications of measuring mobility over long periods involving much political, economic and demographic change.

More mobile than we think

December 2008 | 153 Essays
Britain has more upward social mobility than is often assumed–on some measures more than Germany. But there is least movement where it matters most for the idea of meritocracy, at the very top and the bottom. Can Gordon Brown help out?
David Goodhart

America has elected not just a black president but a leader who is the son of a single mother who was, at least briefly, dependent on food stamps. It couldn’t happen here, says the political and media consensus in Britain which alleges that social mobility ground to a halt sometime in the 1980s, after a brief golden age in the 1950s and 1960s.

Not everyone agrees with that consensus. “There really has been a lot of nonsense talked about the death of mobility,” says the eminent sociologist John Goldthorpe. He is himself a beneficiary of social mobility, having been born 73 years ago in south Yorkshire, the son of a colliery clerk. He rose via Wath on Dearne grammar school (attended 25 years later, then a comprehensive, by William Hague) to University College, London. As a young sociologist he wrote a famous study of affluent workers in Luton and went on to become one of the world’s most respected academic analysts of social mobility.

One of the people who is most responsible for the “death of mobility” consensus is the businessman Peter Lampl. By chance, like Goldthorpe, Lampl spent some of his early years in the Yorkshire coalfield–the son of an immigrant Czech mining engineer. When his father moved south to the National Coal Board office in London, Lampl went to Reigate grammar school and thence on to Oxford and business success in America. When he returned in the 1990s, Lampl was horrified to find fewer bright children from state schools going to Oxbridge than had been the case in the 1960s and 1970s and set up the Sutton Trust to try to do something about it.

Read the rest of the article