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According to standard theory, capitalism, or at least “free market” capitalism, works by individuals and businesses trying to maximize their own self interest. In essence they act selfishly and the net result is that they create a benefit for the overall society. While selfishness might seem dangerous, this selfish behavior is actually constrained by the market. If, for example, a company acts selfishly by selling shoddy goods, they will eventually loose sales when the public finds out that they are buying junk. This acts as negative reinforcement which essentially constrains the company’s ability to sell junk. A rational company will, therefore, not sell junk.  There are two important aspects of the free market that help to provide this governor of selfish behavior: the first is that people as economic actors are assumed to act rationally, and the second is the idea that the market works best when everyone has complete and accurate information. So to continue with my example, we should assume that people will act rationally and not purchase shoddy goods, and second we should assume that people will have an easy ability to know what is a shoddy good. The problem with the free market, however, is that (1) people are not rational, and (2) people do not have complete and accurate information. Examples of both abound. Advertising is based on the proven fact that people can be swayed to buy things that they do not need. And, even with the internet, we do not have complete and accurate information about products and services in the marketplace. So these regulators of selfish behavior do not work properly. Despite that, many economic purists believe that it is not just OK, but actually preferable, for people to act selfishly.  

But that type of behavior has negative consequences. Here are two recent examples. First, a drunk commodities trader in England singlehandedly pushed up the price of oil, and cost his firm millions of dollars. Drink. Trade. Refill. Lose $10 Million. The New York Times, July 1, 2010.  http://www.nytimes.com/2010/07/01/business/global/01oil.html   The second story involves Goldman Sachs and the kinds of derivative that nearly brought down the world’s financial markets in 2008. Time Magazine: How Goldman Trashed a Town, Time, July 5, 2010. Pg 32-33. http://www.time.com/time/magazine/article/0,9171,1999417,00.html Apparently Goldman created a derivative based on adjustable rate mortgages for a trader named John Paulson, who was pretty sure they were crap and would fail, and who therefore shorted them, or bet against them. Goldman, apparently knowing they were junk, engaged in some slick trading to unload the derivatives. It involved multiple sales to various different people, and at each point the new purchaser became less aware of the true nature of the derivative. Finally a number of municipalities bought the derivatives from companies that they had dealt with before, and therefore considered reliable. But what they bought was junk, and they lost millions when the derivative market crashed.  So how does that comport with economic theory? Plenty of people acted selfishly, but what about rationally? And how could people have full and accurate information when they were being lied to? And finally, how does laissez-faire economic theory explain drunk commodities brokers?

A banner at a coal industry sponsored golf outing in Prestonburg Kentucky took a nasty swipe at actress and Kentucky native Ashley Judd. The banner had a picture of Ms. Judd without a top, but with her hands over her breasts, and said “Ashley makes a living removing her top. Why can’t coal miners?” It was, apparently, directed at Judd’s criticism of mountaintop removal in eastern Kentucky.

 

The story was in the Lexington Herald Leader, and is available at:

Banner mocks topless Judd for Coal Comments

It was a particularly personal, nasty attack. Nearly 2500 years ago the Greek philosopher Aristotle said that when you have no other argument, attack the man: or in this case the woman. Aristotle knew if for what it was, a punk move, a cheap shot.

The issue of mountaintop removal is complex, and certainly many of the opponents engage in simplistic logic and reasoning. But that doesn’t justify an ugly, nasty, personal attack.

 

There is really no other way to say it. People (and organizations) that engage in nasty attacks are nasty people.   

Great article in this weeks Business Lexington on wind power in Kentucky. New maps of wind speed at higher elevations indicate that there is harvestable amounts of wind available in Kentucky. According to conservative estimates there is enough wind to generate over 100,000 Gigawatt Hours per year of electricity. Kentucky currently uses about 90,000 GWH per year, so theoretically there is enough wind to power the entire Commonwealth.

The article is at: http://www.smileypete.com/Articles-c-2010-07-08-93700.113117_Winds_of_Change.html

There are two concerns about wind and other renewable sources, like solar. First they are not available all the time, which coal certainly is. And second it currently costs more to generate wind, because it is a new technology.

Addressing the second issue first: coal is a finite resource, and as supplies decline price will increase. So at some point the price of coal power will be higher than the price of alternatives. It makes sense to start phasing in alternatives now, which will help with economies of scale and help bring down the cost.

 As to the second issue, wind would be a suplement to coal until better batteries and other storage methods are found. Coal would still be available as a back up. Using wind would not immediatly replace coal. But as mentioned, coal is a finite resource and will eventually run out. Using alternatives now will reduce the use rate of coal, which will mean that the coal we have will last longer, and that will mean miners will employed longer.

Alternatives, like wind, are a win-win. They will reduce demand for coal, which will reduce polution and help stabilize prices, and they will create jobs in a new segment of the energy market. Not a bad deal.  

I just read three articles about growing Chinese economic and political influence in Africa. The articles are:

 

The Next Empire, The Atlantic Monthly, May 2010

http://www.theatlantic.com/magazine/archive/2010/05/the-next-empire/8018

 

China’s New Continent, Time Magazine, July 5, 2010

http://www.time.com/time/specials/packages/article/0,28804,2000110_2000287_2000276,00.html

 

Look Who’s Leading, Time Magazine, July 12, 2010

http://www.time.com/time/specials/packages/article/0,28804,2000110_2000287_2001036,00.html

 

The Chinese economy is growing dramatically. They have an almost insatiable need for natural resources to supply their factories, and they are turning to Africa to obtain these resources. There are a couple of different scenarios that these articles discuss. One possibility is that the Africans will see China as new colonists, trying to exploit Africa just like the Europeans did just over a century ago. Another possibility is that the systemic problems in Africa (largely widespread corruption and ineffective governments) will prevent China from doing more than merely purchasing raw resources from Africa.

But the third possibility is that with Chinese money, and the growing professionalism described in the second Time article, African could be transformed. That would certainly be great for the Africans. But it might not be so great for the United States. The first Time article notes that China has now surpassed the United States as the leading investor in Africa. If Africa modernizes with Chinese help, African countries will most likely model their economy on China’s, and will most likely turn to China for a variety of other economic, political, and military advice.

The Chinese, apparently, see Africa as an opportunity. For the most part the United States sees Africa (or at least a majority of the nations on the Continent) as a problem needing to be fixed. The Chinese are building mines to obtain raw material, factories to process the raw material into bulk commodities, and transportation systems to move those commodities to ports for shipment to the factories of China. The United States builds schools, clinics, and water treatment facilities. For all of the admirable high-mindedness of the American projects, it is the Chinese who are raising the standard of living of the people of Africa. In twenty years, if the African economy takes off, I hope the people think kindly of the United States. Because unless things change, their main trading partner will be China.  

Among the reasons that some Republicans give for opposing the extension of unemployment benefits is that it actually encourages people not to look for work. In other words if people are getting unemployment benefits they will not look for work, and so if their benefits end they will be forced to get a job.

There are two problems with that outlook. First it implies that most people are lazy. I think that is an ugly view of humanity, but I will save that topic for another day.

The other problem is that it ignores economic reality. The unfortunate reality in the current recession is that there are simply not as many jobs as there are people looking for and needing jobs. According to a recent article in the New York Times:

 

For young adults, the prospects in the workplace, even for the college-educated, have rarely been so bleak. Apart from the 14 percent who are unemployed and seeking work … 23 percent are not even seeking a job, according to data from the Bureau of Labor Statistics. The total, 37 percent, is the highest in more than three decades and a rate reminiscent of the 1930s. [According to the story a large chunk of that 23 percent are in the “too discouraged to look” category.] 

The college-educated among these young adults are better off. But nearly 17 percent are either unemployed or not seeking work, a record level (although some are in graduate school). The unemployment rate for college-educated young adults, 5.5 percent, is nearly double what it was on the eve of the Great Recession, in 2007, and the highest level — by almost two percentage points — since the bureau started to keep records in 1994 for those with at least four years of college.

The full story can be found at: http://www.nytimes.com/2010/07/07/business/economy/07generation.html?pagewanted=1&ref=homepage&src=me

This is a serious problem for this nation. Regardless of where you may stand on the issue of extending unemployment benefits, it is imperative that we begin to look at the major problems facing our economy, and start to come up with ways to fix them. The constant political fight in Washington, which is supposedly about “ideology”, is not even remotely addressing the real issues. And rather than address the real problems facing the economy, some Republicans are willing to kick the unemployed while they are down. Kind of sad.  

I haven’t posted in a long while, so this is a test, only a test, nothing to be alarmed about.

And just for a test I think I’ll try to link to something:

Here’s an article from Salon:

http://www.salon.com/2012/08/23/poll_republicans_really_dislike_muslims/

Hey, that worked.