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Friday 11 August 2023
Friday 16 June 2023
Economic Freedoms and Outcomes
Discuss the relationship between economic freedom and economic outcomes in a market system
Let's take a balanced approach by discussing both the positive and negative aspects of the relationship between economic freedom and economic outcomes in a market system:
- Economic Freedom and Positive Outcomes:
a) Entrepreneurship and Innovation: Economic freedom fosters an environment where individuals can freely engage in entrepreneurship and innovation, leading to economic growth and job creation.
Example: "In countries with high economic freedom, like South Korea, entrepreneurs have been able to start successful businesses and drive technological advancements, resulting in economic prosperity and increased employment opportunities."
b) Efficient Resource Allocation: Economic freedom allows market forces to allocate resources efficiently based on supply and demand, ensuring optimal utilization and productivity.
Example: "In a market system with economic freedom, price signals help guide producers in allocating resources effectively. This leads to efficient production and distribution, benefiting both producers and consumers."
- Potential Negative Aspects of Economic Freedom:
a) Income Inequality: Unrestricted economic freedom can contribute to income inequality, as it allows for the accumulation of wealth by a few individuals or groups.
Example: "In some cases, economic freedom has led to a concentration of wealth among the top earners, exacerbating income inequality and creating social disparities."
b) Market Failures and Externalities: In a completely free market, certain goods and services, such as public goods or environmental conservation, may be underprovided due to market failures. Additionally, negative externalities like pollution may not be adequately addressed without government intervention.
Example: "While economic freedom encourages efficiency, it may overlook external costs such as pollution. Without regulations, businesses may not be motivated to address environmental concerns, leading to negative consequences for society."
Quotation: "Capitalism does a number of things very well: it helps create an entrepreneurial spirit, it gets people motivated to come up with new ideas, and that's a good thing." - Bernie Sanders
It's important to strike a balance between economic freedom and necessary regulations to address income inequality, market failures, and externalities. Governments often play a role in ensuring fairness, protecting consumers, and implementing policies to address societal concerns.
By acknowledging both the positive and negative aspects, societies can aim for a market system that promotes economic freedom while addressing the challenges associated with income inequality and market failures. This balanced approach can help achieve sustainable economic growth and social well-being.
Are Inheritance Laws Good for Capitalism?
The evaluation of inheritance laws and their impact on capitalism can be subjective, and opinions on this matter can vary:
- Supportive of Capitalism:
a) Encouragement of Wealth Accumulation: Inheritance laws can motivate individuals to accumulate wealth and engage in entrepreneurial activities, which are essential for capitalist economies to thrive.
Example: "Inheritance laws incentivize individuals to work hard and invest their time and resources to build wealth, knowing that they can pass it on to future generations."
b) Preserving Family Businesses: Inheritance laws can help maintain and preserve family-owned businesses, which often play a significant role in the capitalist system.
Example: "Inheritance laws allow successful family businesses to continue operating across generations, contributing to economic growth and employment opportunities."
- Challenging for Capitalism:
a) Wealth Concentration and Inequality: Inheritance laws may perpetuate wealth concentration within a few families, potentially leading to income inequality and reduced economic mobility.
Example: "Inheritance laws that allow massive wealth transfers can create a system where the rich become richer, leaving fewer opportunities for others to accumulate wealth."
b) Market Distortions: Inheritance laws can distort market dynamics by providing individuals with resources without necessarily requiring them to contribute actively to the economy. This can hinder the meritocratic principles of capitalism.
Example: "Inheritance laws can result in some individuals having significant advantages in terms of wealth and resources, irrespective of their efforts or abilities."
"It is well enough that people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning." - Henry Ford
This quote indirectly touches upon the potential negative consequences of wealth concentration, which can be influenced by inheritance laws. Concentration of wealth and power can lead to societal unrest and disrupt the capitalist system itself.
Overall, the evaluation of inheritance laws in relation to capitalism depends on weighing the advantages of wealth accumulation and business preservation against the challenges of wealth concentration and market distortions. It is important to strike a balance that promotes economic growth, social mobility, and fair opportunities for all individuals within a capitalist framework.
Wednesday 18 January 2023
Saturday 18 June 2022
Thursday 16 June 2022
Sunday 12 June 2022
Bitcoin: It’s always difficult to get people to understand something if their wealth depends on their not understanding it.
Bitcoin mining has previously produced lucrative gross margins as high as 90%. Photograph: Jack Guez/AFP/Getty Images
In the bad old days, prospecting for gold was a grisly business involving hysterical crowds, pickaxes, digging, the wearing of appalling hats, standing in rivers panning for nuggets, “staking” claims and so on. The California gold rush of 1848-55, for example, brought 300,000 hopefuls to the Sierra Nevada and northern California and involved the massacre of thousands of Indigenous people.
In our day, the new gold is bitcoin, a cryptocurrency, and prospecting for it has become a genteel armchair activity, although it is called “mining”, for old times’ sake. What it actually involves is using computers to perform unfathomably complicated calculations to create cryptographic “hashes” – codes that are, in practical terms, uncrackable.
Sounds intimidating, doesn’t it? But in reality anyone can play the game. You just have to have the right kit – a special bitcoin-mining computer called an Asic (application-specific integrated circuit). These gizmos are readily available online. I’m looking at one as I write: the Bitmain Antminer S19, which costs $6,999 (£5,600) and can do 95 terahashes – 95tn calculations – every second.
Mining is a misleading term for the computational work that’s needed to validate transactions on the blockchain – the cryptographically protected distributed ledger that underpins bitcoin. For every “block” that a miner is able to validate, they are rewarded with a number (currently 6.3) of new bitcoins. The value of the reward is tied to the prevailing price of the currency at the time. Not so long ago, for example, when each bitcoin stood at $68,000, that reward was worth nearly $430,000.
So you can understand why bitcoin mining looks a bit like a contemporary version of what happened in California in the 1840s. While most of the hopeful arrivals then were Americans, there were also thousands from Latin America, Europe, Australia and China. The Judge Business School in Cambridge, which has been tracking bitcoin mining for years, now finds that the US, with 37.84% of global hashrates, remains the biggest location, followed by China (21.11%), Kazakhstan (13.22%), Canada (6.48%) and Russia (4.66%).
So bitcoin mining has become a global phenomenon. And while here and there there are small outfits diversifying into it, such as the Californian pancake-batter maker that bought an Asic after pancake sales plunged during the pandemic, most miners are now industrial-scale operations with large sheds of Asics in serried racks, looking for all the world like small-scale data centres of the kind run by Google and co.
And, like data centres, they are power-hungry. That Bitmain Antminer machine, for example, has a power rating of 3,250 watts. It was recently estimated that bitcoin consumes about 110 terawatt hours per year, which is 0.55% of global electricity production, or roughly equivalent to the annual energy draw of countries such Malaysia or Sweden.
For many operators, bitcoin mining has up to now been an astonishingly lucrative activity, with gross margins sometimes as high as 90%. But suddenly things have changed. First, bitcoin’s price has plunged – from its peak of $68,000 to $30,587 as I write this. And second, electricity prices have soared – by up to 70% in parts of the world, leading some industry experts to calculate that mining a single bitcoin can now cost up to $25,000. So the industry finds itself squeezed at both ends. Just like any ordinary business, in other words.
There’s an agreeable sense of schadenfreude in all this. Bitcoin has been a fascinating phenomenon from the very beginning, but one that morphed under the pressure of greed. Originally conceived as a currency – that is, as a means of payment – it rapidly became perceived as an asset class and, in a time of low interest rates, was the subject of an hysterical speculative bubble that now seems to have deflated, even if it hasn’t definitively burst.
Although it was predictable from the outset that, as the currency evolved, maintenance of its underpinning cryptographic blockchain would become ever-more onerous, it took a long time for the environmental consequences of that fact to be realised. But perhaps that’s a hallmark of every speculative bubble. It’s always difficult to get people to understand something if their wealth – real or anticipated – depends on their not understanding it. Meanwhile, the rest of us are left with the realisation that even the coolest idea can fry the planet.
Sunday 15 May 2022
Friday 22 April 2022
Beware the rich persons’ savings glut
Since the 1990s, the private share of national wealth has soared while public wealth has shrunk writes Gillian Tett in The FT
Thursday 3 March 2022
Sunday 20 February 2022
Thursday 15 July 2021
Monday 22 February 2021
Saturday 6 February 2021
The parable of John Rawls
Janan Ganesh in The FT
In the latest Pixar film, Soul, every human life starts out as a blank slate in a cosmic holding pen. Not until clerks ascribe personalities and vocations does the corporeal world open. As all souls are at their mercy, there is fairness of a kind. There is also chilling caprice. And so Pixar cuts the stakes by ensuring that each endowment is benign. No one ends up with dire impairments or unmarketable talents in the “Great Before”.
Saturday 19 December 2020
Wednesday 29 January 2020
Why should I care - Lectures on Inequality
Sunday 22 December 2019
Robert Skidelsky speaks: How and how not to do economics
Thursday 19 September 2019
For the sake of life on Earth, we must put a limit on wealth
It is not quite true that behind every great fortune lies a great crime. Musicians and novelists, for example, can become extremely rich by giving other people pleasure. But it does appear to be universally true that in front of every great fortune lies a great crime. Immense wealth translates automatically into immense environmental impacts, regardless of the intentions of those who possess it. The very wealthy, almost as a matter of definition, are committing ecocide.
Greta Thunberg to Congress: ‘You’re not trying hard enough. Sorry’
A few weeks ago, I received a letter from a worker at a British private airport. “I see things that really shouldn’t be happening in 2019,” he wrote. Every day he sees Global 7000 jets, Gulfstream G650s and even Boeing 737s take off from the airport carrying a single passenger, mostly flying to Russia and the US. The private Boeing 737s, built to take 174 passengers, are filled at the airport with around 25,000 litres of fuel. That’s as much fossil energy as a small African town might use in a year.
Where are these single passengers going? Perhaps to visit one of their superhomes, constructed and run at vast environmental cost, or to take a trip on their superyacht, which might burn 500 litres of diesel an hour just ticking over, and which is built and furnished with rare materials extracted at the expense of beautiful places. The most expensive yacht in the world, costing £3bn, is a preposterous slab of floating bling called History Supreme. It carries 100 tonnes of gold and platinum wrapped around almost every surface, even the anchor.
Perhaps we shouldn’t be surprised to learn that when Google convened a meeting of the rich and famous at the Verdura resort in Sicily in July to discuss climate breakdown, its delegates arrived in 114 private jets and a fleet of megayachts, and drove around the island in supercars. Even when they mean well, the ultrarich cannot help trashing the living world.
‘Superyachts, built and furnished with rare materials, can burn 500 litres of diesel per hour just ticking over.’ The superyacht Aviva off the Cornish coast. Photograph: Simon Maycock/Alamy Stock Photo
A series of research papers shows that income is by far the most important determinant of environmental impact. It doesn’t matter how green you think you are; if you have surplus money, you spend it. The only form of consumption that’s clearly and positively correlated with good environmental intentions is diet: people who see themselves as green tend to eat less meat and more organic vegetables. But attitudes have little bearing on the amount of transport fuel, home energy and other materials you consume. Money conquers all.
The disastrous effects of spending power are compounded by the psychological impacts of being wealthy. Plenty of studies show that the richer you are, the less you are able to connect with other people. Wealth suppresses empathy. One paper reveals that drivers in expensive cars are less likely to stop for people using pedestrian crossings than drivers in cheap cars. Another revealed that rich people were less able than poorer people to feel compassion towards children with cancer. Though they are disproportionately responsible for our environmental crises, the rich will be hurt least and last by planetary disaster, while the poor are hurt first and worst. The richer people are, the research suggests, the less such knowledge is likely to trouble them.
Another issue is that wealth limits the perspectives of even the best-intentioned people. This week, Bill Gates argued in an interview with the Financial Times that divesting (ditching stocks) from fossil fuels is a waste of time. It would be better, he claimed, to pour money into disruptive new technologies with lower emissions. Of course we need new technologies. But he has missed the crucial point: in seeking to prevent climate breakdown, what counts is not what you do but what you stop doing. It doesn’t matter how many solar panels you install if you don’t simultaneously shut down coal and gas burners. Unless existing fossil fuel plants are retired before the end of their lives, and all exploration and development of new fossil fuel reserves is cancelled, there is little chance of preventing more than 1.5C of global heating.
But this requires structural change, which involves political intervention as well as technological innovation: anathema to Silicon Valley billionaires. It demands an acknowledgement that money is not a magic wand that makes all the bad stuff go away.
Tomorrow, I’ll be joining the global climate strike, in which adults will stand with the young people whose call to action has resonated around the world. As a freelancer, I’ve been wondering who I’m striking against. Myself? Yes: one aspect of myself, at least. Perhaps the most radical thing we can now do is to limit our material aspirations. The assumption on which governments and economists operate is that everyone strives to maximise their wealth. If we succeed in this task, we inevitably demolish our life support systems. Were the poor to live like the rich, and the rich to live like the oligarchs, we would destroy everything. The continued pursuit of wealth in a world that has enough already (albeit very poorly distributed) is a formula for mass destitution.
A meaningful strike in defence of the living world is, in part, a strike against the desire to raise our incomes and accumulate wealth: a desire shaped, more than we are probably aware, by dominant social and economic narratives. I see myself as striking in support of a radical and disturbing concept: enough. Individually and collectively, it is time to decide what “enough” looks like, and how to know when we’ve achieved it.
There’s a name for this approach, coined by the Belgian philosopher Ingrid Robeyns: limitarianism. Robeyns argues that there should be an upper limit to the amount of income and wealth a person can amass. Just as we recognise a poverty line, below which no one should fall, we should recognise a riches line, above which no one should rise. This call for a levelling down is perhaps the most blasphemous idea in contemporary discourse.
But her arguments are sound. Surplus money allows some people to exercise inordinate power over others: in the workplace; in politics; and above all in the capture, use and destruction of the planet’s natural wealth. If everyone is to flourish, we cannot afford the rich. Nor can we afford our own aspirations, which the culture of wealth maximisation encourages.
The grim truth is that the rich are able to live as they do only because others are poor: there is neither the physical nor ecological space for everyone to pursue private luxury. Instead we should strive for private sufficiency, public luxury. Life on Earth depends on moderation.
Sunday 15 September 2019
Never mind ‘tax raids’, Labour – just abolish private education
The British class system is an organised racket. It concentrates wealth and power in the hands of the few, while 14 million Britons languish in poverty.
If you are dim but have rich parents, a life of comfort, affluence and power is almost inevitable – while the bright but poor are systematically robbed of their potential. The well-to-do are all but guaranteed places at the top table of the media, law, politics, medicine, military, civil service and arts. As inequality grows, so too does the stranglehold of the rich over democracy. The wealthiest 1,000 can double their fortunes in the aftermath of financial calamity, while workers suffer the worst squeeze in wages since the Napoleonic wars. State support is lavished on rich vested interests – such as the banks responsible for Britain’s economic turmoil – but stripped from disabled and low-paid people. The powerful have less stressful lives, and the prosperous are healthier, expecting to live a decade longer than those living in the most deprived areas.
No grammar schools, lots of play: the secrets of Europe’s top education system
Unless this rotten system is abolished, Britain will never be free of social and political turmoil. It is therefore welcome – overdue, in fact – to read the Daily Telegraph’s horrified front-page story: “Corbyn tax raid on private schools”.
The segregation of children by the bank balances of their parents is integral to the class system, and the Labour Against Private Schools group has been leading an energetic campaign to shift the party’s position. The party is looking at scrapping the tax subsidies enjoyed by private education, which are de facto public subsidies for class privilege: moves such as ending VAT exemptions for school fees, as well as making private schools pay the rates other businesses are expected to. If the class system has an unofficial motto, it is “one rule for us, and one rule for everybody else”. Private schools encapsulate that, and forcing these gilded institutions to stand on their own two feet should be a bare minimum.
More radically, Labour is debating whether to commit to abolishing private education. This is exactly what the party should do, even if it is via the “slow and painless euthanasia” advocated by Robert Verkaik, the author of Posh Boys: How English Public Schools Ruin Britain. Compelling private schools to apply by the same VAT and business rate rules as others will starve them of funds, forcing many of them out of business.
Private education is, in part, a con: past OECD research has suggested that there is not “much of a performance difference” between state and private schools when socio-economic background is factored in. In other words, children from richer backgrounds – because the odds are stacked in their favour from their very conception – tend to do well, whichever school they’re sent to. However unpalatable it is for some to hear it, many well-to-do parents send their offspring to private schools because they fear them mixing with the children of the poor. Private schools do confer other advantages, of course: whether it be networks, or a sense of confidence that can shade into a poisonous sense of social superiority.
Mixing together is good for children from different backgrounds: the evidence suggests that the “cultural capital” of pupils with more privileged, university-educated parents rubs off on poorer peers without their own academic progress suffering. Such mixing creates more well-rounded human beings, breaking down social barriers. If sharp-elbowed parents are no longer able to buy themselves out of state education, they are incentivised to improve their local schools.
Look at Finland: it has almost no private or grammar schools, and instead provides a high-quality local state school for every pupil, and its education system is among the best performing on Earth. It shows why Labour should be more radical still: not least committing to abolishing grammar schools, which take in far fewer pupils who are eligible for free school meals.
Other radical measures are necessary too. Poverty damages the educational potential of children, whether through stress or poor diet, while overcrowded, poor-quality housing has the same impact too. Gaps in vocabulary open up an early age, underlining the need for early intervention. The educational expert Melissa Benn recommends that, rather than emulating the often narrow curriculums of private schools, there should be a move by state schools away from exam results: a wrap-around qualification could include a personal project, community work and a broader array of subjects.
In the coming election, Labour has to be more radical and ambitious than it was 2017. At the very core of its new manifesto must be a determination to overcome a class system that is a ceaseless engine of misery, insecurity and injustice.
Britain is a playground for the rich, but this is not a fact of life – and a commitment to ending private education will send a strong message that time has finally been called on a rotten class system.
Thursday 13 June 2019
Higher Education in The USA: Rigged from inside and outside?
“Nothing is fun until you are good at it,” said Amy Chua in her book Battle Hymn of the Tiger Mother. Eight years later the Yale professor continues to display her prowess.
This week Sophia Chua-Rubenfeld, Ms Chua’s daughter, was hired as a Supreme Court clerk by Brett Kavanaugh — the judge for whom her mother vouched during his stormy Senate hearings last autumn.
Ms Chua is a shrewd string-puller. A Supreme Court clerkship sets up a young lawyer for life. Whether she is enjoying the publicity is another matter. Overnight the Chuas have turned into emblems of what Americans distrust about their meritocracy.
There is much more where that came from. What Ms Chua did was brazen. The liberal academic offered a very public endorsement of the conservative Mr Kavanaugh. As the head of the Yale committee that steers graduates into highly-coveted clerkships, Ms Chua boosted his credibility with her endorsement.
But the apparent quid pro quo was legal. Actresses Lori Loughlin and Felicity Huffman, on the other hand, are accused of having broken the law.
The first is alleged to have paid $500,000 to fake athletics records that would help her two daughters enter the University of Southern California. The second has pleaded guilty to paying $15,000 to cheat on her daughter’s standardised admission test. Both Hollywood actresses, and one of their husbands, face likely jail in the “Operation Varsity Blues” scandal.
Americans would be forgiven for blurring the moral of these tales.
On pure arithmetic, the average American’s chances of entering a top university are tiny if they are born into the wrong home. Studies show that an eighth grade (14-year-old) child from a lower income bracket who achieves maths results in the top quarter is less likely to graduate than a kid in the upper income bracket scored in the bottom quarter. This is the reverse of how meritocracy should work. Children from the wealthiest 1 per cent take more Ivy League places than the bottom 60 per cent combined. Being born under a roof like Ms Chua’s — with two high-achieving parents obsessed with your success — is almost impossible to match.
That is how most of the world works. The US has erected three additional barriers. The first is legacy places. In contrast to most other democracies, America’s top universities credit an applicant if a parent, or grandparent, went to the school. A better name for this would be “hereditary preference”, which is antithetical to America’s creed. Roughly one in six Ivy League places are taken by children of alumni. This sharply reduces the places available to children of talent from disadvantaged backgrounds.
The second is affirmative action. The courts will soon rule on an Asian-American class action suit alleging that Harvard University discriminated against them. A significant — though artfully selected — share of places are reserved for children of Hispanic and African-American backgrounds. The fact that some of those are also legacy applicants adds a layer of irony. Whichever way it goes, the case is likely to end up in the Supreme Court. Mr Kavanaugh, who is a legacy graduate of Yale, could prove the decisive vote on whether affirmative action will survive. That prospect, too, is rich in irony.
The third barrier is brute wealth. If you endow a library, or a medical lab, the university will bend over backwards to admit your child. A prime example is Jared Kushner, Donald Trump’s son-in-law, whose poor SAT scores critics perceive may have been outweighed by his father’s $2.5m donation to Harvard. The US tax system even rewards such palm-greasing by making it tax-deductible. The fact that the best universities are richer than some countries (Harvard’s $38bn endowment is larger than the GDPs of El Salvador and Nicaragua combined) is no check on their ambitions. They always want more.
The most egregious figure in the college admissions scandal is William McGlashan, a former partner at TPG, the private equity firm. He allegedly offered a bribe of $250,000 to get his son into a top university. His job was to head TPG’s social impact unit — capitalism’s virtue signalling arm.
You do well by doing good, goes the saying. Which brings us back to Ms Chua. The best restraint on any elite is its sense of shame. Without that code, anything is possible. Everyone in America seems to know the system is rigged. The real distinction is whether you rig things from inside the law or outside.