The sacred mystery of capital - Prospect Magazine

Summary:
Julian Gough compares capitalism and modern economics to religion. The advance of science has removed the divine mystery from much of life, but in the past 30 years, the advance of free market capitalism has put it back. Only modern economics can now provide forces that we don’t understand. Modern high finance, like the Latin of the Christian Church, has profound mysteries at its core. Not even bankers know what a collateralised debt obligation cubed really is. The abandonment of the gold standard in 1971 was the crucifixion and resurrection of capitalism; the traumatic and liberating event which allowed capitalism to be purely religious and entirely driven by faith. As with all religions, once its link to the physical world was severed, free market capitalism mourned briefly, then experienced a surge of energy and expansion. From "fiat lux" to “fiat money.” But as with all religious expansions, success bred hubristic dementia. The elevation of metaphysical above physical turned into a kind of contempt for the physical. (Published: July 2008)

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Quote of the Day

"It is a bit like the opening of Macbeth, with the three ghastly witches brewing up trouble amid thunder and lightning—only here, the three troublemakers are the housing market, the financial markets, and commodity prices." Janet Yellen

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Getting the right picture - Pittsburgh Tribune-Review

Summary:

Don Boudreaux on how some may see more imports from abroad and domestic job losses as a sign of trouble, and others see them as a boon, depending on one's perspective. Same facts, different interpretation. Compare with drawing of old woman/beautiful girl. One and the same picture, but depending ond your perspective, you see either the former or the latter. (Published: 14/05/2008)

Notes:

• Drawings that looks like two very different things depending upon how the viewer looks at it
• e.g. craggy face of an old woman suddenly looks like a beautiful woman standing in a sexy pose
• same picture. Same objective reality. Two wholly different sightings.
• Similar with economics:
• same set of facts, same objective reality, two (or more) very different stories depending upon the attitude and knowledge of the observer examining these facts
• more imports from abroad and the losses of specific domestic jobs
• sign of trouble for domestic economy to some
• boon to others: opportunity to get valuable goods and services at lower costs; scarce domestic labor released to produce outputs that would otherwise be too costly to obtain
• overwhelming objection to imports is that the domestic workers whom they displace are unlikely ever again to find employment at wages close to those that they once earned in their now-defunct jobs
• this objection rests on the presumption that these workers were overpaid in their former jobs
• every employer prefers to hire workers at wages as low as possible
• but due to competition between employers, wages are in reality close to the amount that a worker contributes to the employers' bottom line
• every employer willling to pay employee up to that amount
  
• no one to decline an opportunity to get $20 for e.g. $19.50
• as a result, wages in a competitive market economy generally reflect the hourly value of workers to their employers
• employers need workers no less than workers need employers
• skeptics of free trade complain about workers losing their jobs to imports
• craggy-old-lady version of the reality
• free-trade proponents believe that workers who lose jobs today generally have comparable opportunities in other industries
• beautiful-woman version of the same reality
• unlike with any of those static drawings where one perspective is as correct as the other, for the economy there is usually one perspective that is objectively most accurate
• this correct perspective is the one that encompasses not only what's happening today but what will likely happen in the future
• when freer trade eliminates some jobs, it releases labor and capital to produce things that previously were too costly to produce
• consumers eventually get not only the imports, but also the additional domestic production made possible by those imports
• domestic resources become more productively employed because competition shifts them from less-productive to more-productive enterprises and industries

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Quote of the Day

"The crossroads of trade are the meeting place of ideas, the attrition ground of rival customs and beliefs; diversities beget conflict, comparison, thought; superstitions cancel one another, and reason begins." - Will Durant

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