All dressed in white?

I've written elsewhere about the particular brand of corruption in the Czech Republic. This may not be a unique way of going about it, but the Czech approach seems to be centered in the prosecutorial function. That is, make sure the "right" people hold the position of prosecutor, and you can sleep soundly knowing that, however much your corrupt behavior in office gets written about in the press, you'll never see the inside of a jail cell, or even a courtroom for that matter.

The current Czech government was put together after elections in late May, 2010. The coalition parties were sort of an odd ménage à trois, but one of the things holding them together was their stated commitment to deal with corruption, and one of the great hopes in that effort was Jiří Pospíšil, the minister of justice.

Pospíšil was a young guy who'd earned a law degree from the law school of the University of West Bohemia (and unlike some of his fellow alums, he actually earned it--the law school was caught up in scandal when it turned out that there were mayors and others scattered across the political landscape who held law degrees from West Bohemia, but whose transcripts included passing grades for exams they'd evidently never taken).

When is an economy not an ecosystem

In the previous part of my reply to Jason's most recent volley in our bout of blog tennis, I described the essay "I, Pencil," by Leonard Read, with its description of how an economy works that sounds an awful lot like how an ecosystem works, as far as being self-organized and unplanned.

The more famous economist Friedrich Hayek provides a different phrasing of that same vision, in this case emphasizing the role of the price system in making that self-organization possible. Hayek distinguishes between what might be called the "textbook" economic problem and the real problem. The textbook problem is to have equal marginal rates of substitution for all items in all uses. That is, if a piece of coal would be worth 20¢ in one use and 15¢ in another, it should be moved from the second use to the first. You lose 15¢ in the second application, but gain 20¢ in the first. And because you now have a bit more coal in the first application, the value of the next piece of coal is presumably a bit lower, and since you have less coal in the second application, the value of what's left should go up a bit. As you keep moving coal from the second use to the first, the marginal values keep moving closer together, and when they meet, you've achieved efficiency in coal for those two uses and you should stop. Do it for every use of every good in the economy, all at the same time, and you've solved the "textbook" problem.

Hayek's point (and it's an excellent one) is that this isn't the real problem. The real problem is that no single mind has all the info needed to solve the textbook problem.

The peculiar character of the problem of a rational economic order is determined precisely by the fact that the knowledge of the circumstances of which we must make use never exists in concentrated or integrated form, but solely as the dispersed bits of incomplete and frequently contradictory knowledge which all the separate individuals possess. The economic problem of society is thus not merely a problem of how to allocate “given” resources—if “given” is taken to mean given to a single mind which deliberately solves the problem set by these “data.” It is rather a problem of how to secure the best use of resources known to any of the members of society, for ends whose relative importance only these individuals know. Or, to put it briefly, it is a problem of the utilization of knowledge not given to anyone in its totality. [Hayek, The use of knowledge in society, American Economic Review 35(4):519-530; pp. 519-520]

Hayek also distinguishes three types of planning: the centralized planning that most people think of when they hear the word; decentralized planning by many separate persons (better known as “competition”); and a “halfway house” of planning organized by whole industries, otherwise known as “monopoly”). And he says that the best form of “planning” is the one that will best gather information about what needs to be done and can be done, and best distributes that information back to those who will actually do the work. 

The nightmares of small countries

Go take a look at the first two pictures accompanying this post--no, seriously, go look, I'll wait right here; there's one right at the top and a second half a screen below.

They're taken from the terrace of the Czech embassy ... yes, of course, in Paris. After World War I, the new Czechoslovak state obtained the building from a lady, a French aristocrat, a fact which the author submits as evidence of what good connections the founders of Czechoslovakia had with influential people among the citizenry of important Western countries. He's sees connections like these slipping away, and he's concerned about the consequences for the modern Czech state.

What follows are excerpts from that post. In a couple of spots I've included a summary of connecting material in square brackets, or explanatory comments in curly brackets.

~ Karl


The Czech Republic lacks strategic allies among the citizenry in the West

- Jan Čulík

In the long run, has the safe existence of a democratic Czech Republic been secured from a foreign-policy perspective. Can we safely foresee what the situation in Europe will be five or ten years from now? We all know that in our unstable times, the foreign-policy situation can change radically. In 2007, who would have suspected that a serious economic and financial crisis would occur and that even the future of the euro, the Eurozone, and the European Union would be called into question? In 1932, who could have predicted that in ten years, Jews in Europe would be murdered by the hundreds of thousands?

… Historically, the Czech lands have always been the victim of the great powers and their influence. They have had to march to the colonizer’s tune.

"The struggle continues"

This is a translation of a post on Britské listy. I've added explanations of acronyms in the text, with more context at the end. If it interests you, I'd suggest reading through it just for the sense of things, then looking at the explanatory notes, and finally coming back to the main text.

I thought the piece within the piece was noteworthy for the pre-1989 language and perspective.

~ Karl

The congress of the “radical leftist” party—the KSČM—has ended. [Komunistická strana Čech a Moravy, the Communist Party of Bohemia and Moravia, the successor to the Communist Party of Czechoslovakia]. The second-strongest party on the Czech political spectrum, if we can believe public opinion surveys. Most journalists' broadcasts from it were “diary” entries about nothing; nobody offered a more analytical perspective. Vojtěch Filip was (again) chosen as chair, while his opponent Grospič lost all down the line. Even the already impotent Haló noviny didn’t offer an analysis of the congress in a journalistically respectable fashion. Of course, there was an analysis of the defeat of the “dinosaur wing,” personified by Grospič and Semelová, an analysis offered by the camp of the dinosaurs themselves: in the magazine Dialog, which you won’t find on newsstands.

As an aside: Allow me to point out for the narks from BIS [Bezpešnostní informační služba, the Security Information Service, something like the FBI] and the communist-baiting Senator Štětina, that the editorial board of Dialog is entirely independent of the KSČM. In terms of personnel, in terms of organization, and in economic terms. Just to be clear.

The "I, Pencil" problem

This is a prelude to a reply to Jason's post Expropriate Goldman Sachs, though it may not look like it at first.

http://www.citehr.com/244044-pencil-sculptures-amazing-work.html

Many economics teachers know I, Pencil, a 1958 essay by Leonard Read, who had earlier set up the Foundation for Economic Education. The idea is that Read is taking dictation for a pencil (yes, for a pencil, not with a pencil--I don't know what Read was writing with, maybe it was they very same talking pencil he was writing about ... this is starting to get a little too much like Alice in Wonderland). Anyway, Read is telling the story of this humble pencil, a pencil who wants us to understand "the miraculousness which I symbolize," which can be seen in the fact that "not a single person on the face of this earth knows how to make me."

Read (or the pencil) isn't just talking about the workers in the pencil factory. There are also the people cutting the trees that will provide the wood, the people mixing graphite with Mississippi clay to make the "leads," the miners who dig up the ore for the metal bit that holds the eraser (I learned from this essay that it's called a ferrule), the people who transport all these various components. And then there are the people who make all the different kinds of machinery used in all these far-flung parts of the process. And the people who make the beds and the kitchen pots for the logging camp ... You could play this game all night.

All of these things come together to make a pencil, yet no single person is in charge of the whole thing. By chance, it occurred to me a couple days ago (before I read Jason's post) that Read's fable is actually an excellent example of how an economy is an ecosystem--I don't think he meant it that way, but I think that's what it is.

Pot meet kettle

(UPDATE: Jason responded to this post with Expropriate Goldman Sachs: Jumpstart jobs for a green economy, and I half responded to that with The "I, Pencil" problem.)

My colleague from anthropology, Jason Antrosio, sent me a link yesterday to an article on alternet about an article in Playboy (vicarious pleasures only around here). The alternet article is by Bill Black, a professor at the University of Missouri at Kansas City who specializes in white-color crime (preventing and prosecuting it, not engaging in it). He's widely respected by the "heterodox" economists he's writing about here. He exposed Congressional corruption during the Savings & Loan debacle of the 1980s, and he's said some very sensible things about the current crisis. Along the lines of, If you don't send people to jail for violating criminal statutes, then you just encourage them to keep breaking them, and that's not going to be good for the economy.

from http://www.aberdeenquest.com/Artwork/CastIronKettle.asp?timeline=1800_1900_Home

The spitting image of democracy

A few days ago in Prague, someone spat on the Finance Minister, Miroslav Kalousek. What follows is a translation of a press release from ProAlt, an activist group (their name is short for “pro alternativu,” or “for an alternative,” and their subtitle is “initiative for a critique of reforms and in support of alternatives”).

I encountered the press release on the website Britske listy, which bills itself as a "journal about everything which isn't much talked about in the Czech Republic."

The video of the slapping incident (see the link below on the text for "incident from September 21st, 2011") is worth watching. It comes from a security camera, and in February it somehow made its way to Blesk, a tabloid that bills itself as "the most entertaining news portal. From there, of course, it made its way around Czech media. (The narrator of the attached video says that Kalousek paid a fine of 1000 crowns--about $50--for the slap.)

They've come a long way from the heady days of November '89.

Position of ProAlt on Finance Minister Miroslav Kalousek being spat upon

Kalousek was intentionally provocative

Press release

Prague, June 8^th, 2012

What grows on trees

You've almost certainly heard the expression: “Money doesn't grow on trees, you know.” In other words, our means are limited, we can't allow ourselves to do just whatever comes into our heads, or engage in frivolity—after all, money doesn't grow on trees.

from http://spiritualdeepdish.com/2008/04/22/a-money-tree/

Actually, it's an oddly chosen phrase. It seems to convey an image of stuff just dangling there, yours for the taking—which money isn't.

But what does grow on trees? Take apples, for example.

Supply curves: Kinked? Or merely confused?

I'm still working through the comments from Saturday's post--actually, this is the second post working through one comment. The first reply-post dealt with the question of affording the necessary work of restructuring our built environment. This one is about Jason's other point, wondering how much of the kinked supply curve I showed in the original post was about geopolitics, especially events around the Iraq War, rather than being simply a story about inability to expand production. "We should of course be pointing to resource limitations, but the danger is that if Oil output soars as Iraq retools, then all those naysayers will point to that as evidence for their position."

The Iraq story is a reasonable guess but it doesn't end up fitting the data all that well. Here's a recasting of the kinked supply curve, with the different parts broken out:

You can see that the original price run-up goes from sometime in 2004 to July of 2008. Then there's the dramatic price collapse from August of 2008 through the next January, followed by a renewed rise back to around $100 per barrel, where it has hung out for more than a year (though it has slipped in the last month or so--the data only run through February of this year).

Problems of a feather flock together

Responding to my post from Sunday, commenter Bob raised the issue of technological efficiencies that make many jobs superfluous. He also mentioned the phenomenon of increasing life expectancy, with a smaller portion of our years being productive ones.

Technological efficiency applies far more in the production of physical things (food, clothes, cars, toys, etc.) than it does to the provision of services. Efficiency in these parts of the economy--greater labor productivity--means that a smaller portion of the population can provide the goods for the population as a whole to use.

Bob made a second point, which was that our lives are getting longer but our productive years aren’t extending by as much. That means that a smaller portion of our population will be in a position to be doing things the economy considers productive. Say, wouldn’t it be handy if the society’s material needs could be met a shrinking share of the population …?

This turns out to have a structural similarity to the issue of the original post. In that case, I argued that there’s lots of work that needs doing but that we haven’t figured out how to pay for it. (Or as I revised myself in my answer to Jason’s comment, we haven’t made the necessarily political decision that we will pay for it.) In this case, we have people who are getting better and better at getting stuff done, and a growing population of people who won’t be in a position to get stuff done but rather will need stuff done for them.

Problem, meet solution.

Of course, it’s not that simple. Just because there’s an increasing population of retirees who need goods and services, doesn’t mean that we will arrange a structure under which they can get those goods and services, and other people can get paid for providing those things. But just as it’s physically possible to do the work that will prepare us for future resource constraints, it’s physically possible to solve this problem as well--it’s physically possible for a society where workers are getting ever more productive to see that retirees (and children) have what they need, and that others are gainfully employed in that work.

Seeing that it happens is a political, and social, and economic problem. If we don’t solve it, it’s because we don’t care to.

How do we pay for it?

Yesterday I posted a response to a Paul Krugman column that my sister had sent me. I agreed that the current emphasis on "austerity" was misguided, but wondered whether conventional stimulative policy would be as effective as our models suggest, because we're up against long-run energy constraints that weren't a major concern in earlier recessions. It's not that there isn't work that needs to be done to adapt to an energy-constrained future. Rather, our normal way of paying for these things is based on the premise of greater wealth in the future; if energy constraints make it hard for the economy to grow, then it's not clear how we do pay for the necessary work.

Between my sister and me, she's definitely the practical one, as shown by her immediately asking the sensible next question, "So how do we pay for it?" I don't know. That's a bone I've been worrying at for a few years now and I think I'm getting closer to an answer, though I don't quite have it. My closest approach so far has been in a presentation I made last month at a conference in Cooperstown on local energy. I'm getting the presentation "out" in the form of a series of blog posts, and I'm about halfway through; with any luck, I'll be able to finish them up in the next couple of weeks, but even once I do, my answer to my sister will probably still be, "I don't quite know ... quite yet."

My colleague Jason Antrosio pushed back harder than my sister. His first observation was that the "kinked supply curve" I described in my post could be less about geology and more about geopolitics--specifically, the removal of Iraq from the world oil market due to sanctions, then invasion, then civil war. His second point was that I sound awfully like a structuralist. I'll deal with that second concern first.

Yes, but ...

Paul Krugman is hammering away again today, pointing out that Britain's budget-cutting moves are based on bad metaphor and ulterior motives. The hidden agenda is the dismantling of social programs: for politicians who never liked the social safety net in the first place, the budget deficit is an opportunity to put some more holes in it.  The bad metaphor is the old chestnut of the family budget: when a household has run up debts, it has to cut back, and a government is no different.

Except that, as PK points out, a government is different--or rather, an economy as a whole is different from a single household. "Our debt is mostly money we owe to each other; even more important, our income mostly comes from selling things to each other. Your spending is my income, and my spending is your income."

It's an important point, and one worth making again and again, even if it never seems to get through. (It was my sister who originally pointed me to the column, adding, "Doesn't this poor guy ever get tired of having to say the same thing over and over?" Which immediately made me think of this motivational poster.) And in principle I agree. But I have a concern with it as well.