Can Philosophy Save the Markets?

Philorum 19 November 2008

Philosophy: Need for Paradigms

• Like Road Maps– Bearings– Directions

• Principles• Foundations• Assumptions

If the World Were a Village of 100

• The demographics would look a bit like this:– The village would have 60 Asians, 14 Africans, 12

Europeans, 8 South Americans, 5 from the USA and Canada, and 1 from the South Pacific

– 51 would be male, 49 would be female– 82 would be non-white; 18 white– 67 would be non-Christian• 5 atheist• 17 non-religious

http://www.familycare.org/news/if_the_world.htm

– 80 would live in substandard housing– 67 would be unable to read– 50 would be malnourished and 1 dying of starvation– 33 would be without access to a safe water supply – 39 would lack access to improved sanitation– 24 would not have any electricity (And of the 76 that do

have electricity, most would only use it for light at night.)– 7 people would have access to the Internet– 1 would have a college education– 1 would have HIV

http://www.familycare.org/news/if_the_world.htm

– 20 of the richest: 75% of the income of the village (US$11,250 or US$31 a day)• 5 would be US citizens controlling 32% of the entire

world’s wealth (US$19,200 or US$52.50 a day)

– 33 of the poorest: 3% of the income of “the village” (US$600 or less than US$2 a day)

– 47 middle class: 22% of the rest of the income of the village (US$2,444 or US$6.70)

http://www.familycare.org/news/if_the_world.htmhttp://www.hewett.norfolk.sch.uk/curric/NEWGEOG/global/global.htm

Conflicting Interests?

• First World– Inflation, Unemployment,

Recession– Financial Market Instability

& Lack of Confidence– Climate Change/Emissions

Mitigation & Capture

• Third World– Food Crisis & Massive Poverty– Debt Burdens & Political

Oppression– Health-Jobs Trade-Offs &

Perceived Overpopulation

• “Middle” World: e.g., Brazil, Russia India, China, Argentina & ASEAN (BRICAA)– Preserving Substantial Material Gains– Maintaining Momentum of Growth– Socio-political Stability of Regimes that

Made Progress in Their Own Terms Possible

Why Is There Imbalance/Disharmony?

• First World • Third World

• “Middle” World

• Cut your population!

• Liberalize & globalize!

• Pay your debts!

• Reduce your emissions (Don’t grow too fast)!

• Respect human rights!

• Play by “our” WTO/GATT Rules!

• Open your borders like we do ours!

• Give us a fair go/fair trade!

• Justice before repayment!

• Reduce your emissions!

• Lead by example!

• Re-write “your” rules/We have our own!

• Give us a better deal!

• Don’t interfere!

• Let’s do more business!

• Let’s “respect” each other!

JB’s anecdotal observations

What Do the People Want?

• First World– Recession: Job Security– Inflation: Purchasing Power

& Consumer Confidence– Environment– Well-Being

• Third World– Basic Necessities– Livelihood– Education– Happiness & Peace

• “Middle” World– Livelihood– Lifestyle– Education– Aspirations

Global Financial Meltdown

• Crisis of Confidence• Antithesis of IMF

Prescriptions to the Highly Indebted Third World Countries– Liberal Government

Spending– Tax Cuts– Lower Interest Rates– Except for “More Trade!”

• G20: “Looking over each other’s shoulders”

• Epileptic seizure-like market decline

• Ultimate burden falls on taxpayers

• The greatest beneficiaries of the boom & are unaccountable ... Til now

Is Economics a Failure? Neutral Perspective

• Microeconomics– Profit Maximization– Utility Optimization– Cost Minimization– Satisficing: Compromise

• Macroeconomics– Economic Growth– Price Stability– Sustainable Development– Global Dynamics

• Policies– Purpose/Objectives– Incentives/Disincentives

• Institutions– Information &

Knowledge– Systems/Procedures

• Processes– Infrastructure– Resource Mobilization

Is Economics a Failure? Dismal Economics

• Information Asymmetry– Manipulation of the

Naivete & Ignorance of Others

– Conquest• Exploitation of the

Powerless & Marginalised

• Rent-Seeking– Economic Gains from

Political Favor/Largesse

• Economist as Professional Mercenary

• No Ethos– Morality: Capital Sins &

Condemnation

• False Science– Ability to “Predict” or

Forecast due to Too Much Assumptions

• Too Politically Diverse – Too many cooks spoil

the broth: neo-libs; socialists; religious

Is Economics a Failure? Normative Economics

• Rights: from Property-Based to Rights & Needs-Based

• Disclosure: Knowledge of One’s Interests & of Others

• Politics: How to Pursue One’s Interests without Infringing on the Similar or More Basic Rights of Others

• Ethos– Empathy– Positive-Sum Gaming

• Science – Models/Scenarios– Analyses, Estimates– Question Assumptions

• Politics– Core Principles– Reflexivity: Cause-Effect

Cycles

Conceptual Vicious Cycle of Poverty

Low Income

Low Savings

Low Productivity of Capital

Underdeveloped Physical & Social Infrastructure

WB/IMF & ODA Model

Higher Income

Higher Savings

Higher Productivity of Capital

Better Physical & Social Infrastructure

Loans, Aid, GrantsPolicy Changes Direct Foreign Investments

The Real Vicious Cycle of PovertyLow Income of the

Farmer, Worker, Consumer &

Microenterpeneur

Low Savings of the Farmer, Worker,

Consumer & Microenterpeneur

Low Productivity of Capital to the Farmer, Worker,

Consumer & Microenterpeneur

Underdeveloped Physical & Social Infrastructure

Usurious Lending & Oppressive Monopoly-

Monopsonist Middlemen

Patronage Political Structures

Benefits

Entrenches

Cooperation in Micro-systemsHigher Income of the

Microenterpeneur

Savings of the Farmer, Worker, Consumer & Microenterpeneur

Higher Productivity of Capital to the Farmer, Worker, Consumer &

Microenterpeneur

Self-Help Cooperative Enterprises & Institutions

Usurious Lending & Oppressive Monopoly-

Monopsonist Middlemen

Patronage Political Structures

Diminished Dependence

Capitalizes& Governs

Cooperation in Micro-systemsHigher Income of the

Microenterpeneur

Savings of the Farmer, Worker, Consumer & Microenterpeneur

Higher Productivity of Capital to the Farmer, Worker, Consumer &

Microenterpeneur

Self-Help Cooperative Enterprises & Institutions

Diminished Dependence

Capitalized & Governed

Loans, Aid, GrantsPolicy Changes Direct Foreign Investments

Lessons for the First World

Business Incomes

Household Incomes

Economic Performance

Physical & Social Infrastructure

Raise Labor Cost Competitiveness =

Cut Labor Costs;Privatise Investors

Attraction

Improves

Savings; Superfunds

Mutualization: Cooperative Privatisation

Business Incomes

Household Incomes & Stock of Wealth

Economic Performance

Physical & Social Infrastructure

Improves

Household Savings = Superannuation

Patronage

Invest

Intro to the Meltdown: Balance Sheet

AssetsDebts

Capital

Proper Accounting

Share Capital

Working Capital

Earning Assets

Fixed Non-Earning Assets

Income

Reserves

What Happened

Share Capital

Working Capital

Optimised Valuation of Earning Assets

Spectacular Incomes

Inadequate reserves because of credit default insurance

The Reckoning

Reduced Working Capital to Pay Debts

Deflating Value of Earning Assets as Defaults Occurred

Ballooning Value of

Unserved Debts

The Proposed Rescue

Reduced Working Capital to Pay Debts

Ballooning Value of

Unserved Debts

Cash from Government Government Capital

The More Just ProposalReduced Working

Capital to Pay Debts

Ballooning Value of

Unserved Debts

Government Bonds Government CapitalCounterpart Private Capital Private Debt Converted to Capital

or Fresh Capital

At the Core of the Problem

Income

Savings/Capital

Less Produced Goods & Services

Current Private Property Practice on Land/Commons

Speculative Incomes

Monetary Economics

• MV = PQ• Money Supply• Velocity• Price levels = Inflation• Quantity of

goods/services

• Personal Level/Analogy• Payslip• Times received annually• Cost of what’s acquired• Price of what’s acquired

A Common Wealth Based on Real Values

Personal Incomes

Savings/Capital