price mechanism

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pages: 819 words: 181,185

Derivatives Markets by David Goldenberg

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Black-Scholes formula, Brownian motion, capital asset pricing model, commodity trading advisor, compound rate of return, conceptual framework, Credit Default Swap, discounted cash flows, discrete time, diversification, diversified portfolio, en.wikipedia.org, financial innovation, fudge factor, implied volatility, incomplete markets, interest rate derivative, interest rate swap, law of one price, locking in a profit, London Interbank Offered Rate, Louis Bachelier, margin call, market microstructure, martingale, Myron Scholes, Norbert Wiener, Paul Samuelson, price mechanism, random walk, reserve currency, risk/return, riskless arbitrage, Sharpe ratio, short selling, stochastic process, stochastic volatility, time value of money, transaction costs, volatility smile, Wiener process, Y2K, yield curve, zero-coupon bond, zero-sum game

Without this guarantee, our efforts to find a unique replicating portfolio may indeed fail because we will not be able to distinguish between the multiple, no-arbitrage pricing mechanisms available in a simply no-arbitrage market. Note that once we have a unique pricing mechanism, which is guaranteed by market completeness, then we get no-arbitrage by the First Fundamental Theorem of Asset Pricing. The only case in which this is not true is when there does not exist a linear, positive pricing mechanism. In that case, there would also be arbitrage opportunities, in which case linear, positive pricing wouldn’t even make sense. Furthermore, why would anyone want to replicate derivative securities if not for the fact that the pricing mechanism emerges from that exercise, as we 452 OPTIONS will shortly see in the single period BOPM? Replication is an academic exercise in a world with arbitrage opportunities because no linear, positive pricing mechanism exists in that world.

Therefore all pricing methods, when the underlying model is complete, must lead to the same result given by replication. Without no-arbitrage, either built into the definition of complete markets or assumed, there is no viable pricing mechanism at all. Even with no-arbitrage, there are multiple viable pricing mechanisms. Complete markets filter them down to one by implying a unique pricing mechanism, the one generated by the replicating portfolio. OPTION PRICING IN DISCRETE TIME, PART 1 465 The BOPM is known to be a complete model, so once we get a linear, positive pricing mechanism we know that it is the correct and only one. The quick way to see completeness of the BOPM (N=1) is to use our rule of thumb. All of the uncertainty in the model is embodied in the stock price movement up or down. There are no other sources of uncertainty.

Specifically, the lessons we learn from the fundamental theorems of asset pricing are the relationships between no-arbitrage, the existence of a linear, positive pricing mechanism, and the uniqueness of the pricing mechanism. However, we have to be careful in applying these theorems, as there are numerous pitfalls in doing so. We already know, from Chapter 15, that the existence of a linear, positive pricing mechanism that can be used to price all contingent claims (including the underlying asset), is equivalent to the existence of an EMM for the discounted, underlying price process. (Think of the contingent claim as having RISK-NEUTRAL VALUATION 597 only one risky security in its replicating portfolio). No-arbitrage, in turn, is equivalent to the existence of a linear, positive pricing mechanism; the first fundamental theorem of asset pricing encapsulates the economic content of no-arbitrage in mathematical terms.


pages: 378 words: 110,518

Postcapitalism: A Guide to Our Future by Paul Mason

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Alfred Russel Wallace, bank run, banking crisis, banks create money, Basel III, basic income, Bernie Madoff, Bill Gates: Altair 8800, bitcoin, Branko Milanovic, Bretton Woods, BRICs, British Empire, business process, butterfly effect, call centre, capital controls, Cesare Marchetti: Marchetti’s constant, Claude Shannon: information theory, collaborative economy, collective bargaining, Corn Laws, corporate social responsibility, creative destruction, credit crunch, currency manipulation / currency intervention, currency peg, David Graeber, deglobalization, deindustrialization, deskilling, discovery of the americas, Downton Abbey, drone strike, en.wikipedia.org, energy security, eurozone crisis, factory automation, financial repression, Firefox, Fractional reserve banking, Frederick Winslow Taylor, full employment, future of work, game design, income inequality, inflation targeting, informal economy, information asymmetry, intangible asset, Intergovernmental Panel on Climate Change (IPCC), Internet of things, job automation, John Maynard Keynes: Economic Possibilities for our Grandchildren, Joseph Schumpeter, Kenneth Arrow, Kevin Kelly, knowledge economy, knowledge worker, late capitalism, low skilled workers, market clearing, means of production, Metcalfe's law, money: store of value / unit of account / medium of exchange, mortgage debt, Network effects, new economy, Norbert Wiener, Occupy movement, oil shale / tar sands, oil shock, Paul Samuelson, payday loans, Pearl River Delta, post-industrial society, precariat, price mechanism, profit motive, quantitative easing, race to the bottom, RAND corporation, rent-seeking, reserve currency, RFID, Richard Stallman, Robert Gordon, Robert Metcalfe, secular stagnation, sharing economy, Stewart Brand, structural adjustment programs, supply-chain management, The Future of Employment, the scientific method, The Wealth of Nations by Adam Smith, Transnistria, union organizing, universal basic income, urban decay, urban planning, Vilfredo Pareto, wages for housework, women in the workforce

Meanwhile, the information content of other physical goods is rising, exposing more commodities to the possibility that their production costs begin to plummet too. All this is eroding the very price mechanism that marginalism describes so perfectly. The economy at present, consists both of scarce and abundant goods; our behaviour is a mixture of the old pleasure-vs-pain choices, made in our own self-interest, alongside sharing and cooperation, which seem to the marginalists like sabotage. But in a full information economy – where much of the utility was provided through information and physical goods were relatively abundant – the price mechanism as described by marginalism would fall apart. Because marginalism was a theory of prices and prices only, it cannot comprehend a world of zero-priced goods, shared economic space, non-market organizations and non-ownable products.

They also assume that people in the marketplace have perfect information. Romer showed that, once the economy is composed of shareable information goods, imperfect competition becomes the norm. The equilibrium state of an info-tech economy is one where monopolies dominate and people have unequal access to the information they need to make rational buying decisions. Info-tech, in short, destroys the normal price mechanism, whereby competition drives prices down towards the cost of production. A track on iTunes costs next to zero to store on Apple’s server, and next to zero to transmit to my computer. Whatever it cost the record company to produce (in terms of artist fees and marketing costs) it costs me 99p simply because it’s unlawful to copy it for free. The interplay between supply and demand does not come into the price of an iTunes track: the supply of the Beatles ‘Love Me Do’ on iTunes is infinite.

Now Romer, working inside the mainstream and using its methods, had knocked down the mainstream’s defence against these critics. For Romer’s research had shown that, once you move to an information economy, the market mechanism for setting prices will drive the marginal cost of certain goods, over time, towards zero – eroding profits in the process. In short, information technology is corroding the normal operation of the price mechanism. This has revolutionary implications for everything, as the rest of this book explores. If they’d understood capitalism as a finite system, Romer and his supporters might have explored the massive implications of this extraordinary statement – but they did not. They assumed the economy was, as in the textbooks, composed of price makers and price takers: rational individuals trying to pursue their self-interest through the market.


pages: 494 words: 132,975

Keynes Hayek: The Clash That Defined Modern Economics by Nicholas Wapshott

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airport security, banking crisis, Bretton Woods, British Empire, collective bargaining, complexity theory, creative destruction, cuban missile crisis, Francis Fukuyama: the end of history, full employment, Gordon Gekko, greed is good, Gunnar Myrdal, if you build it, they will come, Isaac Newton, Joseph Schumpeter, liquidationism / Banker’s doctrine / the Treasury view, means of production, Mont Pelerin Society, mortgage debt, New Journalism, Northern Rock, Paul Samuelson, Philip Mirowski, price mechanism, pushing on a string, road to serfdom, Robert Bork, Ronald Reagan, Simon Kuznets, The Chicago School, The Great Moderation, The Wealth of Nations by Adam Smith, Thomas Malthus, trickle-down economics, War on Poverty, Yom Kippur War

There were, however, in passages of The Pure Theory arguments that, intended primarily as a warning to Keynesians, were to hint at a way forward—and also offer a warning—to those, such as Milton Friedman, who would follow Hayek into the anti-Keynesian camp. “There is little ground for believing that a system with the modern complex credit structure will ever work smoothly without some deliberate control of the monetary mechanism,” Hayek wrote, “since money by its very nature constitutes a kind of loose joint in the self-equilibrating apparatus of the price mechanism which is bound to impede its working. The aim of any successful monetary policy must be to reduce as far as possible this slack in the self-correcting forces of the price mechanism, and to make adaptation more prompt so as to reduce the necessity for a later, more violent, reaction.”42 But, in a warning to those like Friedman who would come to resort to quantitative monetary theory as a cure-all, Hayek suggested there were strict limits to this means of managing the economy. “We are certainly entitled to conclude . . . that the extent to which we can hope to shape events at will by controlling money are much more limited, that the scope of monetary policy is much more restricted, than is today widely believed,” he wrote.

Mises’s 1920 Economic Calculation in the Socialist Commonwealth and his landmark 1922 Socialism: An Economic and Sociological Analysis unsettled Hayek’s social democratic beliefs and helped convince him that collectivism was a false god. As Hayek put it, “Socialism promised to fulfill our hopes for a more rational, more just world. And then came [Mises’s Socialism]. Our hopes were dashed. Socialism told us that we had been looking for improvement in the wrong direction.”1 Mises’s principal objection to a communist or socialist society was that it ignored the price mechanism he believed essential for any economy to operate efficiently. He argued in Economic Calculation that because in a socialist society the government owned the main industries—“the means of production”—and therefore set the prices of goods, the key purpose of prices, to distribute scarce resources, was made redundant. He claimed that “every step that takes us away from private ownership of the means of production and from the use of money also takes us away from rational economics.”2 Mises’s arguments went to the core of the debate that was to ensue between Keynes and Hayek, and they presaged one of Hayek’s eventual contentions, that by ignoring market prices socialism deprives individuals of their unique contribution to society—to express, through their willingness to pay a price, their opinion of the worth of an object or service.

For instance, a factory making the ice trays for commercial refrigerators might go out of business when there was a slump in demand for ice cream. The nub of the issue, according to Hayek, was that by reducing interest rates, the central bank interfered in the relationship between savings and investment. He and the Austrian School believed that all markets over time, including the market in money, would reach a state of equilibrium where the supply of goods from manufacturers and demand came to be matched. Hayek suggested that the price mechanism reflected the tendency toward equilibrium and that any attempt to artificially alter prices would have dire consequences. In his view, to tamper with prices was merely to tinker with the symptoms of the shift toward equilibrium. To artificially reduce interest rates, or the price of borrowing money, merely led to price inflation, while raising interest rates artificially meant encouraging a contraction of business activity (a slump).

Meghnad Desai Marxian economic theory by Unknown

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commoditize, Corn Laws, full employment, land reform, means of production, p-value, price mechanism, profit motive

The link between profits and surplus value becomes complex and in fighting against exploitation workers cannot fight against their own industry's owners in isolation; they have to fight the whole system. The price mechanism thus divides up total surplus value into profits of different industries such that rates of profit are equal. (There is a further division of profits into interest, ground rent, etc., which Marx discusses in Vol. Ill). The condition that total surplus value equals total profits is not just another equation but a way in which, for Marx, the price and value systems are linked up. For Bortkiewicz, the price mechanism has the role of allocating total value produced into different incomes (wages, profits, etc.) and different total revenue after sale for each Department in such a way that the rate of profit is equal.

It is not a 'behavioural' rule, nor is it a necessary part of Mar:'s value theory.3 It is a way of reducing the number of unknowns in the transfonnation problem from six (three gi and three ri) to four, since the four equations in the price domain can only solve for four unknowns. If the rates of exploitation diffc:"ed ss from one industry to another and the organic composition did as well but the rate of profit was equal across industries, then the'explanation of 'dissolving' of value relations becomes very complex. Why is this so? The role of price mechanism and exchange in Marx' s theory is to mask surplus value and make it appear legitimate as profit. The profit of anyone particular firm, industry or Department does not equal the surplus value produced by it. The equalisation of the rate of profit across industries in price terms means that price movements and 'behavioural' decisions of capitalists regarding choice of techniques etc. can be seen as equalising profit rates.


pages: 310 words: 90,817

Paper Money Collapse: The Folly of Elastic Money and the Coming Monetary Breakdown by Detlev S. Schlichter

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bank run, banks create money, British Empire, capital controls, Carmen Reinhart, central bank independence, currency peg, fixed income, Fractional reserve banking, German hyperinflation, global reserve currency, inflation targeting, Kenneth Rogoff, Long Term Capital Management, market clearing, Martin Wolf, means of production, money market fund, moral hazard, mortgage debt, open economy, Ponzi scheme, price discovery process, price mechanism, price stability, pushing on a string, quantitative easing, reserve currency, rising living standards, risk tolerance, savings glut, the market place, The Wealth of Nations by Adam Smith, Thorstein Veblen, transaction costs, Y2K

Such a crisis theory was first developed by the British Currency School in the nineteenth century but had found a full and satisfactory elaboration only through the Austrian School in the early twentieth century, not least by Mises himself.17 But underconsumption theories were not dead. They once again rose to prominence in the form of Keynesianism in the 1930s, which has constituted the most influential underconsumption theory to this day. All underconsumption theories suffer from an irrational fear of savings and a lack of appreciation of the pricing mechanism. Saving, consumption and investing are interconnected and coordinated via market prices, including interest rates. Saving is the basis for prosperity. No society has ever risen, nor could any society conceivably ever rise, out of poverty and into prosperity via consumption. It is saving and production that generate wealth. By shifting resources from meeting present consumption needs and by allocating them to productive uses to meet future consumption needs, that is, by saving and investing, society generates the capital stock that raises the productivity of labor and allows a larger supply of goods and services, and also different and better goods and services.

And those who take his savings in the meantime and use it to build productive capital sell their produce practically to the same saver at the point when he finally wants to consume. Saving means postponing consumption, not nonconsumption. To explain the origin of a recession it is not sufficient to point to the level of savings, which by itself can never constitute a problem. One needs to explain why the pricing mechanism that coordinates the various activities in the economy fails, and for this, money is the prime candidate. The so-called savings glut theory became popular before the recent financial crisis, not least because it was embraced by Ben Bernanke in a speech in 2005 before he became chairman of the Federal Reserve.18 In this speech, Bernanke did not deal with the financial crisis, which at that time had not commenced, but with a set of perceived or real imbalances, which were widely debated at the time, in particular the large and widening U.S. current account deficit.

In contrast to older and more standard underconsumption theories, this excess savings theory does not identify the problem as one of savings being too high and, consequently, consumption too low relative to the present production of consumption goods. The problem seems to be that savings are too high relative to present investment activity in the countries where people save. The surplus savings thus washes up on U.S. shores, where it causes imbalances in the domestic economy. As in previous excess savings theories, it is difficult to see a problem in this for as long as the pricing mechanism works. The amount of saving and the amount of investment are not two uncorrelated magnitudes that we must hope will somehow match. An uninhibited market and nondistorted interest rates coordinate the two. True savings mean that real resources have been freed up from meeting present consumption needs and have become available for investment purposes. Lower interest rates that result from true savings do not send wrong signals but they correctly communicate that more real resources are available for investing.


pages: 777 words: 186,993

Imagining India by Nandan Nilekani

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affirmative action, Airbus A320, BRICs, British Empire, business process, business process outsourcing, call centre, clean water, colonial rule, corporate governance, cuban missile crisis, deindustrialization, demographic dividend, demographic transition, Deng Xiaoping, digital map, distributed generation, farmers can use mobile phones to check market prices, full employment, ghettoisation, glass ceiling, global supply chain, Hernando de Soto, income inequality, informal economy, Intergovernmental Panel on Climate Change (IPCC), joint-stock company, knowledge economy, labour market flexibility, land reform, light touch regulation, LNG terminal, load shedding, Mahatma Gandhi, market fragmentation, mass immigration, Mikhail Gorbachev, Network effects, new economy, New Urbanism, open economy, Parag Khanna, pension reform, Potemkin village, price mechanism, race to the bottom, rent control, rolodex, Ronald Reagan, school vouchers, Silicon Valley, smart grid, special economic zone, The Wealth of Nations by Adam Smith, Thomas L Friedman, Thomas Malthus, transaction costs, trickle-down economics, unemployed young men, upwardly mobile, urban planning, urban renewal, women in the workforce, working poor, working-age population

For farmers and entrepreneurs alike, effective infrastructure lowers the cost and entry barriers to participating in markets. Praful says, “Farmers in Kashmir tell me that if they could send their flower harvests into Indian markets by air, it would massively cut their losses from decay, and expand their reach across India.” Telecom and road networks also mean the chance for farmers and fishermen to negotiate prices in markets directly and discover market trends as opposed to depending on support price mechanisms and middlemen networks. Better irrigation networks mean not having to rely on a fickle-minded monsoon or free electricity for pumps—and this has a big effect. Sixty-nine percent of people in nonirrigated areas are poor, while in irrigated areas this figure falls to 2 percent. Similarly, a million rupees on roads lifts an estimated 123 people out of poverty. In other words, a million rupees spent on roads can reduce poverty seven times more effectively than the same spends on antipoverty programs.

Using carbon as the major currency bill for environmental costs is useful since carbon generation and loss tend to cycle through the entire natural system—through air, trees, soil and water. Such pricing consequently incorporates the impact of direct carbon sources such as coal plants, as well as indirect sources such as the destruction of carbon “sinks” like forests and water bodies. Such carbon pricing can only be effective if we have the governance to manage it; else it will go the way of our other environmental regulations. An effective, enforceable pricing mechanism would require an independent, institutional carbon regulator. “A carbon regulator like SEBI,” Vinod Khosla says, “would bring in both auditing and transparency, and could form a regional exchange in Asia for carbon trading.” In addition, decentralized governance—empowering towns, cities and villages—would be critical in monitoring carbon projects more effectively. “The politics of environmentalism is most powerful at the local level,” Sharad says.

Such decentralization of power would be especially important to enable cities and villages to immediately respond to natural crises, such as the seasonal droughts, floods and storms that are becoming commonplace. Additionally, embracing clear, ambitious environmental goals that include pollution caps would allow India to influence the terms of the global climate change debate more clearly in its favor. By accepting carbon pricing mechanisms, for instance, India gains the bargaining power to negotiate for transfers of technology and funding for emission cuts. Such negotiations are reasonable on the grounds that the rich nations with their emissions have used up a large part of the emissions “reservoir” since 1850, leading to the potentially massive climate adaptation costs for India. Probably the biggest advantage for the Indian government in taking up a carbon-pricing policy is that it makes environmental policy a “single issue” challenge.


pages: 490 words: 117,629

Unconventional Success: A Fundamental Approach to Personal Investment by David F. Swensen

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asset allocation, asset-backed security, capital controls, cognitive dissonance, corporate governance, diversification, diversified portfolio, fixed income, index fund, law of one price, Long Term Capital Management, market bubble, market clearing, market fundamentalism, money market fund, passive investing, Paul Samuelson, pez dispenser, price mechanism, profit maximization, profit motive, risk tolerance, risk-adjusted returns, Robert Shiller, Robert Shiller, shareholder value, Silicon Valley, Steve Ballmer, survivorship bias, technology bubble, the market place, transaction costs, Vanguard fund, yield curve, zero-sum game

The distributor marketed Dividend Shares at the previous day’s liquidating value “plus a premium of 8-2/3 percent of the offering price” (i.e., slightly less than 9-1/2 percent of liquidating value).19 The offering price remained good until noon on the offering day. In essence, for the entire morning of any given trading day distributors offered Dividend Shares at the previous day’s price. Even though the stale-pricing mechanism theoretically allowed individual investors to make profits by trading at yesterday’s prices, the nearly 9.5 percent load effectively eliminated the possibility of individual investors exploiting profitable arbitrage opportunities. Dealers, however, faced no such hurdle, as load-free trading allowed them to take advantage of the system. Beyond the ability to trade load free, dealers enjoyed a hidden, critical advantage in stale-price trading.

Disclosure failed to inhibit dealer activity. Finally, the Investment Company Act of 1940 eliminated the two-price system, forcing fund management companies to find new methods of fleecing mutual-fund investors. SEC-Mandated Stale Prices To the continued disadvantage of individual investors and in spite of the Investment Company Act of 1940’s proscriptions, large investors found ways to exploit the newly revised mutual-fund pricing mechanisms. Even though the SEC Report on Investment Trusts and Investment Companies recognized that “if both the sales and redemption prices were based on the closing asset value on the day of the receipt of the order, many abusive trading practices of distributors and dealers which existed or were possible under the two-price system could be eliminated,” the 1940 Act failed to institute such a system.

Pilgrim Baxter & Associates agreed to a $100 million settlement, while neither admitting nor denying guilt.38 Stale pricing of mutual-fund shares provided market-timing opportunities for bad actors during the entire history of the mutual-fund industry. In the 1920s and 1930s, stale pricing underlay the investor-unfriendly two-price system. In the 1940s, 1950s, and 1960s, stale pricing resulted from backward-looking pricing mechanisms that allowed investors to trade today at yesterday’s prices. In the 1970s, 1980s, 1990s, and 2000s, stale pricing occurred in mutual funds holding securities that traded in different time zones or that traded infrequently, or both. Over the decades, opportunities for profit from stale pricing persisted, even as the targets for ill-gotten gains changed. The most straightforward solution to the problem of market timing involves fair pricing of mutual-fund shares.


pages: 651 words: 161,270

Global Spin: The Corporate Assault on Environmentalism by Sharon Beder

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American Legislative Exchange Council, battle of ideas, business climate, centre right, clean water, corporate governance, Exxon Valdez, Gary Taubes, global village, Intergovernmental Panel on Climate Change (IPCC), invisible hand, laissez-faire capitalism, oil shale / tar sands, old-boy network, price mechanism, profit maximization, Ralph Nader, RAND corporation, Ronald Reagan, shareholder value, telemarketer, The Bell Curve by Richard Herrnstein and Charles Murray, the market place, The Wealth of Nations by Adam Smith, urban planning

Other environmental resources such as clean air are not given a price at all, and are therefore viewed by economists as free. These economists argue that environmental assets tend to be overused or abused because they are too cheap. Their solution is to create a pricing mechanism so that environmental values are internalized by businesses that harm the environment: the extra costs involved in price-based economic instruments such as charges, taxes and subsidies are supposed to provide an incentive to change environmentally damaging behaviour. Such pricing mechanisms are also supposed to prevent the depletion of natural resources. John Hood, a visiting fellow at the Heritage Foundation and Vice-President of the John Locke Foundation, maintains: For natural resources over which property rights are relatively easy to establish, such as oil, minerals, or timber, prices serve as an early warning signal to companies about scarcity.

In the US they have attempted to hamstring the regulatory process by advocating legislation which would ensure that regulatory efforts become too expensive and difficult to implement, by insisting on cost benefit analyses and risk assessments of proposed legislation and compensation to state governments and property owners for the costs of complying with the legislation. Throughout the Western world, these think-tanks have promoted free-market techniques such as tradeable property and pollution rights, pricing mechanisms, tax incentives, and voluntary agreements for dealing with environmental degradation. These have been taken seriously by governments and in some cases accepted by environmentalists as a valid alternative to tougher legislation (see Chapter Six). Corporations have also turned their attention to the next generation, through the development and distribution of ‘educational’ material to schools.

47 Some think-tank economists also argue that there is little incentive to protect environmental resources that are not privately owned; their solution is to create property rights over parts of the environment that are currently free. Rights-based economic instruments such as tradeable pollution rights, for example, “create rights to use environmental resources, or to pollute the environment, up to a predetermined limit” and allow these rights to be traded.48 Rights-based measures are also a way of providing a pricing mechanism for environmental resources. A ‘proper’ price places environmental resources beyond the reach of those who wish to exploit them, or, at the very least, ensures that the social benefits of exploitation exceed the social costs, however these benefits and costs are measured. Accordingly the solution to environmental problems becomes one of ‘marketizing’ the environment through the creation of markets in pollution rights, imposing taxes or subsidies so that prices reflect social costs and awarding quotas of right to pollute.49 Both price- and rights-based measures are market-based.


pages: 561 words: 87,892

Losing Control: The Emerging Threats to Western Prosperity by Stephen D. King

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Admiral Zheng, asset-backed security, barriers to entry, Berlin Wall, Bernie Madoff, Bretton Woods, BRICs, British Empire, capital controls, Celtic Tiger, central bank independence, collateralized debt obligation, corporate governance, credit crunch, crony capitalism, currency manipulation / currency intervention, currency peg, David Ricardo: comparative advantage, demographic dividend, demographic transition, Deng Xiaoping, Diane Coyle, Fall of the Berlin Wall, financial deregulation, financial innovation, fixed income, Francis Fukuyama: the end of history, full employment, George Akerlof, German hyperinflation, Gini coefficient, hiring and firing, income inequality, income per capita, inflation targeting, invisible hand, Isaac Newton, knowledge economy, labour market flexibility, labour mobility, liberal capitalism, low skilled workers, market clearing, Martin Wolf, mass immigration, Mexican peso crisis / tequila crisis, Naomi Klein, new economy, old age dependency ratio, Paul Samuelson, Ponzi scheme, price mechanism, price stability, purchasing power parity, rent-seeking, reserve currency, rising living standards, Ronald Reagan, savings glut, Silicon Valley, Simon Kuznets, sovereign wealth fund, spice trade, statistical model, technology bubble, The Great Moderation, The inhabitant of London could order by telephone, sipping his morning tea in bed, the various products of the whole earth, The Market for Lemons, The Wealth of Nations by Adam Smith, Thomas Malthus, trade route, transaction costs, Washington Consensus, women in the workforce, working-age population, Y2K, Yom Kippur War

While we don’t pop down to the local supermarket and studiously calculate the opportunity costs of each of our purchases, opportunity cost is still involved. Our budgets reflect scarce resources. And the way we allocate those resources depends on price. The price mechanism, in turn, is a remarkably efficient way of allowing us to make informed choices about scarcity. If something is expensive, its opportunity cost may be high. If something is cheap, its opportunity cost might be correspondingly low. Adam Smith (1723–1790), one of the economic greats and now deservedly immortalized on the Bank of England £20 note, called the price mechanism the ‘invisible hand’.8 Many people have been seduced by Smith’s ideas, sufficiently so as to claim that free markets are the sole reason behind the West’s ongoing prosperity. Yet markets do not always work very well.

And is Western economic power beginning to fade? The interaction between the Western world and the emerging nations brings the politics back into economics (and, for that matter, takes the mathematics out). FAITH IN THE MARKET Market forces alone cannot deal with political economy. Nevertheless, for many years, policymakers were happy to leave difficulties over scarcity to the market and, in particular, to the price mechanism. It is easy to see why. Since the end of the First World War, the political and economic debate both among and within the major powers has focused on the relative merits of market and state as providers of our economic well-being. Early in the twentieth century, the debate became increasingly polarized through the impact of the Russian Revolution in 1917, the strengthening of the trade-union movement in the UK in the 1920s and the US Great Depression of the 1930s.

When the Money Runs Out: The End of Western Affluence by Stephen D. King

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Albert Einstein, Asian financial crisis, asset-backed security, banking crisis, Basel III, Berlin Wall, Bernie Madoff, British Empire, capital controls, central bank independence, collapse of Lehman Brothers, collateralized debt obligation, congestion charging, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, crony capitalism, cross-subsidies, debt deflation, Deng Xiaoping, Diane Coyle, endowment effect, eurozone crisis, Fall of the Berlin Wall, financial innovation, financial repression, fixed income, floating exchange rates, full employment, George Akerlof, German hyperinflation, Hyman Minsky, income inequality, income per capita, inflation targeting, invisible hand, John Maynard Keynes: Economic Possibilities for our Grandchildren, joint-stock company, liquidationism / Banker’s doctrine / the Treasury view, liquidity trap, London Interbank Offered Rate, loss aversion, market clearing, mass immigration, moral hazard, mortgage debt, new economy, New Urbanism, Nick Leeson, Northern Rock, Occupy movement, oil shale / tar sands, oil shock, old age dependency ratio, price mechanism, price stability, quantitative easing, railway mania, rent-seeking, reserve currency, rising living standards, South Sea Bubble, sovereign wealth fund, technology bubble, The Market for Lemons, The Spirit Level, The Wealth of Nations by Adam Smith, Thomas Malthus, Tobin tax, too big to fail, trade route, trickle-down economics, Washington Consensus, women in the workforce, working-age population

Before the financial crisis, monetary and fiscal policies were, in most countries, conducted separately. This was a reaction to the excess inflation of the 1970s, a period during which central banks were too often required to do the bidding of their political masters. For a while, inflation was endemic, leading to losses for those on 77 4099.indd 77 29/03/13 2:23 PM When the Money Runs Out fixed monetary incomes – most obviously pensioners – and huge distortions to the price mechanism – Adam Smith’s ‘invisible hand’. By making central banks independent, and thus no longer subject to the temptations of the electoral cycle, the hope was that inflation would eventually be brought back under control, leaving the world a much happier place. The financial crisis has destroyed this separation of monetary church from state. By altering the yield on government debt, quantitative easing has, in effect, brought governments and central banks back together again.

Even then, the risk of an abuse of political power cannot be ruled out. 206 4099.indd 206 29/03/13 2:23 PM CHAPTER NINE DYSTOPIA At the end of the twentieth century, it seemed as though markets had emerged triumphant. Whether thanks to Adam Smith with his invisible hand or to Friedrich Hayek with his hatred of central planning,1 proponents of free markets had won the argument. They knew that a happy and prosperous society depended on the decisions of millions of individuals whose actions were ‘coordinated’ through the miracle that is the price mechanism. Rapid global growth was a direct result of the spread of market forces around the world. Those who resisted this process would ultimately lose out. Deregulation and privatization spread like wildfire, such was our collective faith in the wisdom of markets. The Soviet model had failed. The Asian model, so it seemed, was also in the process of failing. Yet we became overconfident. We began to extrapolate economic gains into the future.

Central banks can attempt to get around this by buying an ever wider range of assets to encourage a flow of credit to the private sector too – in September 2012, for example, the Federal Reserve announced ongoing purchases of mortgage-­backed securities – but this, surely, compounds the problem: if interest rates on an ever increasing amount of debt are determined by the central bank, capital markets become totally redundant. They may not have always worked well in the past but their complete removal surely opens the way for a huge misallocation of capital: absent a functioning price mechanism, it’s difficult to see how investment decisions can be made on an informed basis, leading, in turn, to a much lower growth rate of GDP in the future. So there can be no doubt that high levels of government debt have to be tackled, even in a world where central banks are free to print money. The costs may not be so immediate – in contrast to the Greek and Spanish experience – but high and growing levels of government 241 4099.indd 241 29/03/13 2:23 PM When the Money Runs Out debt eat away at the fabric of economic progress: one way or the other, they squeeze out the market.


pages: 350 words: 103,988

Reinventing the Bazaar: A Natural History of Markets by John McMillan

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accounting loophole / creative accounting, Albert Einstein, Alvin Roth, Andrei Shleifer, Anton Chekhov, Asian financial crisis, congestion charging, corporate governance, corporate raider, crony capitalism, Dava Sobel, Deng Xiaoping, experimental economics, experimental subject, fear of failure, first-price auction, frictionless, frictionless market, George Akerlof, George Gilder, global village, Hernando de Soto, I think there is a world market for maybe five computers, income inequality, income per capita, informal economy, information asymmetry, invisible hand, Isaac Newton, job-hopping, John Harrison: Longitude, John von Neumann, Kenneth Arrow, land reform, lone genius, manufacturing employment, market clearing, market design, market friction, market microstructure, means of production, Network effects, new economy, offshore financial centre, ought to be enough for anybody, pez dispenser, pre–internet, price mechanism, profit maximization, profit motive, proxy bid, purchasing power parity, Ronald Coase, Ronald Reagan, sealed-bid auction, second-price auction, Silicon Valley, spectrum auction, Stewart Brand, The Market for Lemons, The Nature of the Firm, The Wealth of Nations by Adam Smith, trade liberalization, transaction costs, War on Poverty, Xiaogang Anhui farmers, yield management

With the auction system reengineered to handle the massive volume of traffic, they relaunched AuctionWeb as eBay in September 1997. Less than two years later eBay’s stock market value reached $22 billion. The business press proclaimed eBay’s reinvention of markets. BusinessWeek said that, with its online auctions, “eBay has single-handedly created a new market.” According to the Economist, “Internet auctioneers such as eBay may be the instigators of a revolutionary leap forward in the efficiency of the price mechanism.”5 The eBay web site is a high-tech flea market. It has over 42 million registered users; the typical user spends twenty minutes a day on the site. Around five million auctions are running on any given day, selling everything from cast-offs to fine art. As I write this, for example, there are nearly fifteen hundred items listed under the heading “Victorian tradecards”—which, it turns out, are a nineteenth-century version of junk mail. eBay has created a global market for goods that previously had a purely local market.

The price that emerges from this competitive market process aggregates the information and beliefs about the firm’s value held by all investors interested enough to submit bids. The open IPO, Hambrecht says, “delivers a price that is a lot closer to the real market demand than an artificially negotiated price.” While “the original business model was to see if we could put together the breadth and power of the web with an auction process,” the difficult part of it was getting “a different pricing mechanism in a market that was used to negotiated pricing.” The open IPO is “inherently a more efficient and cheaper process.” An early sign of the potential of IPO auctions was the enraged reaction from those doing business in the entrenched way. An industry observer remarked of Hambrecht, “Other investment banks act as though he’s the anti-Christ.”11 While entering the IPO business and dissuading issuing firms from using the big-name investment banks was an arduous process, the new way of running IPOs won a few early converts, as firms like the online magazine Salon.com in 1999 and Peet’s Coffee & Tea in 2001 chose to go public via open IPOs.

Sealed-bid auctions are used for selling vacation time-shares. A few sites allow package bidding. One wine auction site, for example, packages bottles into sets (usually different vintages from a particular vineyard). It then accepts not only bids on the individual bottles but also all-or-nothing bids on the package. If a bid for the package exceeds the total of the high bids for the individual bottles, the package bidder wins. Hybrid pricing mechanisms—setting prices while allowing some auction-like elements of information generation—are used by online sellers of tickets for air travel and sporting events. Before the internet, fixing ticket prices in advance meant that when demand was unexpectedly low, seats went unfilled on planes and in stadiums. Internet sellers are able to offer deep discounts just before the flight or the game, earning revenue from seats that otherwise would have been empty.


pages: 403 words: 111,119

Doughnut Economics: Seven Ways to Think Like a 21st-Century Economist by Kate Raworth

3D printing, Asian financial crisis, bank run, basic income, battle of ideas, Berlin Wall, bitcoin, blockchain, Branko Milanovic, Bretton Woods, Buckminster Fuller, call centre, Capital in the Twenty-First Century by Thomas Piketty, Cass Sunstein, choice architecture, clean water, cognitive bias, collapse of Lehman Brothers, complexity theory, creative destruction, crowdsourcing, cryptocurrency, Daniel Kahneman / Amos Tversky, David Ricardo: comparative advantage, dematerialisation, Douglas Engelbart, Douglas Engelbart, en.wikipedia.org, energy transition, Erik Brynjolfsson, ethereum blockchain, Eugene Fama: efficient market hypothesis, experimental economics, Exxon Valdez, Fall of the Berlin Wall, financial deregulation, Financial Instability Hypothesis, full employment, global supply chain, global village, Henri Poincaré, hiring and firing, Howard Zinn, Hyman Minsky, income inequality, Intergovernmental Panel on Climate Change (IPCC), invention of writing, invisible hand, Isaac Newton, John Maynard Keynes: Economic Possibilities for our Grandchildren, Joseph Schumpeter, Kenneth Arrow, Kenneth Rogoff, land reform, land value tax, Landlord’s Game, loss aversion, low skilled workers, M-Pesa, Mahatma Gandhi, market fundamentalism, Martin Wolf, means of production, megacity, mobile money, Mont Pelerin Society, Myron Scholes, neoliberal agenda, Network effects, Occupy movement, off grid, offshore financial centre, oil shale / tar sands, out of africa, Paul Samuelson, peer-to-peer, planetary scale, price mechanism, quantitative easing, randomized controlled trial, Richard Thaler, Ronald Reagan, Second Machine Age, secular stagnation, shareholder value, sharing economy, Silicon Valley, Simon Kuznets, smart cities, smart meter, South Sea Bubble, statistical model, Steve Ballmer, The Chicago School, The Great Moderation, the map is not the territory, the market place, The Spirit Level, The Wealth of Nations by Adam Smith, Thomas Malthus, Thorstein Veblen, too big to fail, Torches of Freedom, trickle-down economics, ultimatum game, universal basic income, Upton Sinclair, Vilfredo Pareto, wikimedia commons

From this vantage point – counter-intuitive though it may sound – equilibrium economics actually turns out to be a form of systems analysis, just an extremely limited one. It get the results it seeks by imposing severely restrictive assumptions about how market systems behave – assumptions including perfect competition, diminishing returns, full information, and rational actors – so that no errant effects get in the way of the price mechanism’s ability to act as the balancing feedback loop that restores market equilibrium. Think of it in terms of starlings: what restrictions would you have to impose on a large flock of these birds if you wanted to make sure that they all stayed still? You could place each bird in its own narrow little coop and shut them all away in a dark, quiet room: that should encourage them to stay put. But don’t expect the flock to behave like that once you remove these unnatural confines and release them into the air.

According to their projections for the business-as-usual scenario, as global population and output expanded, non-renewable resources like oil, minerals and metals would be depleted, leading to a drop in industrial output and food production, ultimately resulting in famine, a large fall in the human population, and greatly reduced living standards for all. When launched, their analysis simultaneously raised the alarm about the state of the world, introduced systems thinking widely into policy debates, and caused an uproar amongst those committed to the goal of growth.44 Mainstream economists were quick to deride the model’s design on the basis that it underplayed the balancing feedback of the price mechanism in markets. If non-renewable resources became scarce, they argued, their prices would rise, triggering greater efficiency in their use, the wider use of substitutes, and exploration for new sources. But in dismissing World 3 and its implied limits to growth, they too quickly dismissed the role and effects of what the 1970s model simply called ‘pollution’, which – unlike metals, minerals and fossil fuels – typically carries no price and so generates no direct market feedback.

In economic terms, healthy hierarchy means, for example, ensuring that the financial sector is in service to the productive economy, which in turn is in service to life.50 Second, self-organisation is born out of a system’s capacity to make its own structures more complex, like a dividing cell, a growing social movement, or an expanding city. In the economy much self-organising goes on in the marketplace through the price mechanism – that was Adam Smith’s insight – but it also takes place in the commons and in the household too – the insight of Elinor Ostrom and generations of feminist economists. All three of these realms of provisioning can self-organise effectively to meet people’s wants and needs, and the state should support all three in doing so. Lastly, resilience emerges out of a system’s ability to endure and bounce back from stress, like a jelly that wobbles on a plate without losing its form, or a spider’s web that survives a storm.


pages: 242 words: 68,019

Why Information Grows: The Evolution of Order, From Atoms to Economies by Cesar Hidalgo

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Ada Lovelace, Albert Einstein, Arthur Eddington, assortative mating, Claude Shannon: information theory, David Ricardo: comparative advantage, Douglas Hofstadter, Everything should be made as simple as possible, frictionless, frictionless market, George Akerlof, Gödel, Escher, Bach, income inequality, income per capita, industrial cluster, information asymmetry, invention of the telegraph, invisible hand, Isaac Newton, James Watt: steam engine, Jane Jacobs, job satisfaction, John von Neumann, New Economic Geography, Norbert Wiener, p-value, Paul Samuelson, phenotype, price mechanism, Richard Florida, Ronald Coase, Rubik’s Cube, Silicon Valley, Simon Kuznets, Skype, statistical model, Steve Jobs, Steve Wozniak, Steven Pinker, The Market for Lemons, The Nature of the Firm, The Wealth of Nations by Adam Smith, total factor productivity, transaction costs, working-age population

In Coase’s view, the economy was not a collection of fluid and frictionless market transactions but a set of islands of conscious power, shielded from each other and from the dynamics of the price mechanisms. Firms are hierarchical, Coase emphasized, and the interactions between a firm’s workers are often political. So in Coase’s view, hiring a worker was a form of contract in which a person was hired to do a task that had not yet been specified, since what a worker will be asked to do a few months down the road is rarely known when she is hired. Coase dedicated much of his academic career to explaining the existence and boundaries of these islands of power. His answers become known as the transaction cost theory of the firm. Coase’s explanation of the boundaries of a firm was brilliant and simple. It was based on the idea that economic transactions are costly and not as fluid as the cheerleaders of the price mechanism religiously believed. Often, market transactions require negotiations, drafting of contracts, setting up inspections, settling disputes, and so on.


pages: 478 words: 126,416

Other People's Money: Masters of the Universe or Servants of the People? by John Kay

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Affordable Care Act / Obamacare, asset-backed security, bank run, banking crisis, Basel III, Bernie Madoff, Big bang: deregulation of the City of London, bitcoin, Black Swan, Bonfire of the Vanities, bonus culture, Bretton Woods, call centre, capital asset pricing model, Capital in the Twenty-First Century by Thomas Piketty, cognitive dissonance, corporate governance, Credit Default Swap, cross-subsidies, dematerialisation, diversification, diversified portfolio, Edward Lloyd's coffeehouse, Elon Musk, Eugene Fama: efficient market hypothesis, eurozone crisis, financial innovation, financial intermediation, financial thriller, fixed income, Flash crash, forward guidance, Fractional reserve banking, full employment, George Akerlof, German hyperinflation, Goldman Sachs: Vampire Squid, Growth in a Time of Debt, income inequality, index fund, inflation targeting, information asymmetry, intangible asset, interest rate derivative, interest rate swap, invention of the wheel, Irish property bubble, Isaac Newton, John Meriwether, light touch regulation, London Whale, Long Term Capital Management, loose coupling, low cost carrier, M-Pesa, market design, millennium bug, mittelstand, money market fund, moral hazard, mortgage debt, Myron Scholes, new economy, Nick Leeson, Northern Rock, obamacare, Occupy movement, offshore financial centre, oil shock, passive investing, Paul Samuelson, peer-to-peer lending, performance metric, Peter Thiel, Piper Alpha, Ponzi scheme, price mechanism, purchasing power parity, quantitative easing, quantitative trading / quantitative finance, railway mania, Ralph Waldo Emerson, random walk, regulatory arbitrage, Renaissance Technologies, rent control, Richard Feynman, risk tolerance, road to serfdom, Robert Shiller, Robert Shiller, Ronald Reagan, Schrödinger's Cat, shareholder value, Silicon Valley, Simon Kuznets, South Sea Bubble, sovereign wealth fund, Spread Networks laid a new fibre optics cable between New York and Chicago, Steve Jobs, Steve Wozniak, The Great Moderation, The Market for Lemons, the market place, The Myth of the Rational Market, the payments system, The Wealth of Nations by Adam Smith, The Wisdom of Crowds, Tobin tax, too big to fail, transaction costs, tulip mania, Upton Sinclair, Vanguard fund, Washington Consensus, We are the 99%, Yom Kippur War

When there is a surge in demand for cash from banks – as at Northern Rock – the available cash is allocated by queuing: the people at the front of the queue get their money in full; those at the back risk having to wait or losing out altogether. When there is a sudden surge in demand for milk, the same happens: there is a queue and those who are late to join the queue get no milk. If the surge is more sustained, dairies probably raise the price and the available supply is allocated differently. The queue rations by rejecting some demands, the market uses the price mechanism to ration by discouraging some people from buying or selling. Most securities markets – in contrast to deposit-taking institutions – ration by price. If too many people want to realise their investment in a company, the price of that company’s shares falls. The ability of savers to buy and sell shares enables companies to raise permanent capital without locking shareholders into holding their investments indefinitely.

But if the contribution of an activity to society is judged by how much money the promoters make from it, it is hardly surprising if people outside finance and business form the view that such values should not be allowed near our schools and hospitals – or, for that matter, our pharmaceutical industry, our infrastructure, our supermarkets. And view bankers with contempt. This intellectual misconception behind the thought that prosperity might be enhanced by trade in baseball cards has been associated with an economic model that misunderstands the (important) role that markets play in enabling complex modern economies to manage information. Prices act as signals, and the price mechanism is an important guide to resource allocation: that does not mean that the constantly changing price on the Bloomberg screen is a complete and comprehensive distillation of the wisdom of the ages. There are many guides to value other than price, whether we are talking about a Shakespeare play or a business organisation. Although these economic models represent at best an oversimplification, at worst a travesty, of how free markets work in reality, their rhetoric has been powerful – and convenient.

.: Hyperion 220 Loomis, Carol 108 lotteries 65, 66, 68, 72 Lucas, Robert 40 Lynch, Dennios 108 Lynch, Peter 108, 109 M M-Pesa 186 Maastricht Treaty (1993) 243, 250 McCardie, Sir Henry 83, 84, 282, 284 McGowan, Harry 45 Machiavelli, Niccolò 224 McKinley, William 44 McKinsey 115, 126 Macy’s department store 46 Madoff, Bernard 29, 118, 131, 132, 177, 232, 293 Madoff Securities 177 Magnus, King of Sweden 196 Manhattan Island, New York: and Native American sellers 59, 63 Manne, Henry 46 manufacturing companies, rise of 45 Marconi 48 marine insurance 62, 63 mark-to-market accounting 126, 128–9, 320n22 mark-to-model approach 128–9, 320n21 Market Abuse Directive (MAD) 226 market economy 4, 281, 302, 308 ‘market for corporate control, the’ 46 market risk 97, 98, 177, 192 market-makers 25, 28, 30, 31 market-making 49, 109, 118, 136 Markets in Financial Instruments Directive (MIFID) 226 Markkula, Mike 162, 166, 167 Markopolos, Harry 232 Markowitz, Harry 69 Markowitz model of portfolio allocation 68–9 Martin, Felix 323n5 martingale 130, 131, 136, 139, 190 Marx, Groucho 252 Marx, Karl 144, 145 Capital 143 Mary Poppins (film) 11, 12 MasterCard 186 Masters, Brooke 120 maturity transformation 88, 92 Maxwell, Robert 197, 201 Mayan civilisation 277 Meade, James 263 Means, Gardiner 51 Meeker, Mary 40, 167 Melamed, Leo 19 Mercedes 170 merchant banks 25, 30, 33 Meriwether, John 110, 134 Merkel, Angela 231 Merrill Lynch 135, 199, 293, 300 Merton, Robert 110 Metronet 159 Meyer, André 205 MGM 33 Microsoft 29, 167 middleman, role of the 80–87 agency and trading 82–3 analysts 86 bad intermediaries 81–2 from agency to trading 84–5 identifying goods and services required 80, 81 logistics 80, 81 services from financial intermediaries 80–81 supply chain 80, 81 transparency 84 ‘wisdom of crowds’ 86–7 Midland Bank 24 Milken, Michael 46, 292 ‘millennium bug’ 40 Miller, Bill 108, 109 Minuit, Peter 59, 63 Mises, Ludwig von 225 Mittelstand (medium-size business sector) 52, 168, 169, 170, 171, 172 mobile banking apps 181 mobile phone payment transfers 186–7 Modigliani-Miller theorem 318n9 monetarism 241 monetary economics 5 monetary policy 241, 243, 245, 246 money creation 88 money market fund 120–21 Moneyball phenomenon 165 monopolies 45 Monte Carlo casino 123 Monte dei Paschi Bank of Siena 24 Montgomery Securities 167 Moody’s rating agency 21, 248, 249, 313n6 moral hazard 74, 75, 76, 92, 95, 256, 258 Morgan, J.P. 44, 166, 291 Morgan Stanley 25, 40, 130, 135, 167, 268 Morgenthau, District Attorney Robert 232–3 mortality tables 256 mortgage banks 27 mortgage market fluctuation in mortgage costs 148 mechanised assessment 84–5 mortgage-backed securities 20, 21, 40, 85, 90, 100, 128, 130, 150, 151, 152, 168, 176–7, 284 synthetic 152 Mozilo, Angelo 150, 152, 154, 293 MSCI World Bank Index 135 muckraking 44, 54–5, 79 ‘mugus’ 118, 260 multinational companies, and diversification 96–7 Munger, Charlie 127 Munich, Germany 62 Munich Re 62 Musk, Elon 168 mutual funds 27, 108, 202, 206 mutual societies 30 mutualisation 79 mutuality 124, 213 ‘My Way’ (song) 72 N Napoleon Bonaparte 26 Napster 185 NASA 276 NASDAQ 29, 108, 161 National Economic Council (US) 5, 58 National Employment Savings Trust (NEST) 255 National Institutes of Health 167 National Insurance Fund (UK) 254 National Provincial Bank 24 National Science Foundation 167 National Westminster Bank 24, 34 Nationwide 151 Native Americans 59, 63 Nazis 219, 221 neo-liberal economic policies 39, 301 Netjets 107 Netscape 40 Neue Markt 170 New Deal 225 ‘new economy’ bubble (1999) 23, 34, 40, 42, 98, 132, 167, 199, 232, 280 new issue market 112–13 New Orleans, Louisiana: Hurricane Katrina disaster (2005) 79 New Testament 76 New York Stock Exchange 26–7, 28, 29, 31, 49, 292 New York Times 283 News of the World 292, 295 Newton, Isaac 35, 132, 313n18 Niederhoffer, Victor 109 NINJAs (no income, no job, no assets) 222 Nixon, Richard 36 ‘no arbitrage’ condition 69 non-price competition 112, 219 Norman, Montagu 253 Northern Rock 89, 90–91, 92, 150, 152 Norwegian sovereign wealth fund 161, 253 Nostradamus 274 O Obama, Barack 5, 58, 77, 194, 271, 301 ‘Obamacare’ 77 Occidental Petroleum 63 Occupy movement 52, 54, 312n2 ‘Occupy Wall Street’ slogan 305 off-balance-sheet financing 153, 158, 160, 210, 250 Office of Thrift Supervision 152–3 oil shock (1973–4) 14, 36–7, 89 Old Testament 75–6 oligarchy 269, 302–3, 305 oligopoly 118, 188 Olney, Richard 233, 237, 270 open market operations 244 options 19, 22 Organisation for Economic Co-operation and Development (OECD) 263 Osborne, George 328n19 ‘out of the money option’ 102, 103 Overend, Gurney & Co. 31 overseas assets and liabilities 179–80, 179 owner-managed businesses 30 ox parable xi-xii Oxford University 12 P Pacific Gas and Electric 246 Pan Am 238 Paris financial centre 26 Parliamentary Commission on Banking Standards 295 partnerships 30, 49, 50, 234 limited liability 313n14 Partnoy, Frank 268 passive funds 99, 212 passive management 207, 209, 212 Patek Philippe 195, 196 Paulson, Hank 300 Paulson, John 64, 109, 115, 152, 191, 284 ‘payment in kind’ securities 131 payment protection policies 198 payments system 6, 7, 25, 180, 181–8, 247, 259–60, 281, 297, 306 PayPal 167, 168, 187 Pecora, Ferdinand 25 Pecora hearings (1932–34) 218 peer-to-peer lending 81 pension funds 29, 98, 175, 177, 197, 199, 200, 201, 208, 213, 254, 282, 284 pension provision 78, 253–6 pension rights 53, 178 Perkins, Charles 233 perpetual inventory method 321n4 Perrow, Charles 278, 279 personal financial management 6, 7 personal liability 296 ‘petrodollars’ 14, 37 Pfizer 96 Pierpoint Morgan, J. 165 Piper Alpha oil rig disaster (1987) 63 Ponzi, Charles 131, 132 Ponzi schemes 131, 132, 136, 201 pooled investment funds 197 portfolio insurance 38 Potts, Robin, QC 61, 63, 72, 119, 193 PPI, mis-selling of 296 Prebble, Lucy: ENRON 126 price competition 112, 219 price discovery 226 price mechanism 92 Prince, Chuck 34 private equity 27, 98, 166, 210 managers 210, 289 private insurance 76, 77 private sector 78 privatisation 39, 78, 157, 158, 258, 307 probabilistic thinking 67, 71, 79 Procter & Gamble 69, 108 product innovation 13 property and infrastructure 154–60 protectionism 13 Prudential 200 public companies, conversion to 18, 31–2, 49 public debt 252 public sector 78 Q Quandt, Herbert 170 Quandt Foundation 170 quantitative easing 245, 251 quantitative style 110–11 quants 22, 107, 110 Quattrone, Frank 167, 292–3 queuing 92 Quinn, Sean 156 R railroad regulation 237 railway mania (1840s) 35 Raines, Franklin 152 Rajan, Raghuram 56, 58, 79, 102 Rakoff, Judge Jed 233, 294, 295 Ramsey, Frank 67, 68 Rand, Ayn 79, 240 ‘random walk’ 69 Ranieri, Lew 20, 22, 106–7, 134, 152 rating agencies 21, 41, 84–5, 97, 151, 152, 153, 159, 249–50 rationality 66–7, 68 RBS see Royal Bank of Scotland re-insurance 62–3 Reagan, Ronald 18, 23, 54, 59, 240 real economy 7, 18, 57, 143, 172, 190, 213, 226, 239, 271, 280, 288, 292, 298 redundancy 73, 279 Reed, John 33–4, 48, 49, 50, 51, 242, 293, 314n40 reform 270–96 other people’s money 282–5 personal responsibility 292–6 principles of 270–75 the reform of structure 285–92 robust systems and complex structures 276–81 regulation 215, 217–39 the Basel agreements 220–25 and competition 113 the origins of financial regulation 217–19 ‘principle-based’ 224 the regulation industry 229–33 ‘rule-based’ 224 securities regulation 225–9 what went wrong 233–9 ‘Regulation Q’ (US) 13, 14, 20, 28, 120, 121 regulatory agencies 229, 230, 231, 235, 238, 274, 295, 305 regulatory arbitrage 119–24, 164, 223, 250 regulatory capture 237, 248, 262 Reich, Robert 265, 266 Reinhart, C.M. 251 relationship breakdown 74, 79 Rembrandts, genuine/fake 103, 127 Renaissance Technologies 110, 111, 191 ‘repo 105’ arbitrage 122 repo agreement 121–2 repo market 121 Reserve Bank of India 58 Reserve Primary Fund 121 Resolution Trust Corporation 150 retirement pension 78 return on equity (RoE) 136–7, 191 Revelstoke, first Lord 31 risk 6, 7, 55, 56–79 adverse selection and moral hazard 72–9 analysis by ‘ketchup economists’ 64 chasing the dream 65–72 Geithner on 57–8 investment 256 Jackson Hole symposium 56–7 Kohn on 56 laying bets on the interpretation of incomplete information 61 and Lloyd’s 62–3 the LMX spiral 62–3, 64 longevity 256 market 97, 98 mitigation 297 randomness 76 socialisation of individual risks 61 specific 97–8 risk management 67–8, 72, 79, 137, 191, 229, 233, 234, 256 risk premium 208 risk thermostat 74–5 risk weighting 222, 224 risk-pooling 258 RJR Nabisco 46, 204 ‘robber barons’ 44, 45, 51–2 Robertson, Julian 98, 109, 132 Robertson Stephens 167 Rockefeller, John D. 44, 52, 196 Rocket Internet 170 Rogers, Richard 62 Rogoff, K.S. 251 rogue traders 130, 300 Rohatyn, Felix 205 Rolls-Royce 90 Roman empire 277, 278 Rome, Treaty of (1964) 170 Rooney, Wayne 268 Roosevelt, Franklin D. v, 25, 235 Roosevelt, Theodore 43–4, 235, 323n1 Rothschild family 217 Royal Bank of Scotland 11, 12, 14, 24, 26, 34, 78, 91, 103, 124, 129, 135, 138, 139, 211, 231, 293 Rubin, Robert 57 In an Uncertain World 67 Ruskin, John 60, 63 Unto this Last 56 Russia defaults on debts 39 oligarchies 303 Russian Revolution (1917) 3 S Saes 168 St Paul’s Churchyard, City of London 305 Salomon Bros. 20, 22, 27, 34, 110, 133–4 ‘Salomon North’ 110 Salz Review: An Independent Review of Barclays’ Business Practices 217 Samuelson, Paul 208 Samwer, Oliver 170 Sarkozy, Nicolas 248, 249 Savage, L.J. 67 Scholes, Myron 19, 69, 110 Schrödinger’s cat 129 Scottish Parliament 158 Scottish Widows 26, 27, 30 Scottish Widows Fund 26, 197, 201, 212, 256 search 195, 209, 213 defined 144 and the investment bank 197 Second World War 36, 221 secondary markets 85, 170, 210 Securities and Exchange Commission (SEC) 20, 64, 126, 152, 197, 225, 226, 228, 230, 232, 247, 292, 293, 294, 313n6 securities regulation 225–9 securitisation 20–21, 54, 100, 151, 153, 164, 169, 171, 222–3 securitisation boom (1980s) 200 securitised loans 98 See’s Candies 107 Segarra, Carmen 232 self-financing companies 45, 179, 195–6 sell-side analysts 199 Sequoia Capital 166 Shad, John S.R. 225, 228–9 shareholder value 4, 45, 46, 50, 211 Sharpe, William 69, 70 Shell 96 Sherman Act (1891) 44 Shiller, Robert 85 Siemens 196 Siemens, Werner von 196 Silicon Valley, California 166, 167, 168, 171, 172 Simon, Hermann 168 Simons, Jim 23, 27, 110, 111–12, 124 Sinatra, Frank 72 Sinclair, Upton 54, 79, 104, 132–3 The Jungle 44 Sing Sing maximum-security gaol, New York 292 Skilling, Jeff 126, 127, 128, 149, 197, 259 Slim, Carlos 52 Sloan, Alfred 45, 49 Sloan Foundation 49 small and medium-size enterprises (SMEs), financing 165–72, 291 Smith, Adam 31, 51, 60 The Wealth of Nations v, 56, 106 Smith, Greg 283 Smith Barney 34 social security 52, 79, 255 Social Security Trust Fund (US) 254, 255 socialism 4, 225, 301 Société Générale 130 ‘soft commission’ 29 ‘soft’ commodities 17 Soros, George 23, 27, 98, 109, 111–12, 124, 132 South Sea Bubble (18th century) 35, 132, 292 sovereign wealth funds 161, 253 Soviet empire 36 Soviet Union 225 collapse of 23 lack of confidence in supplies 89–90 Spain: property bubble 42 Sparks, D.L. 114, 283, 284 specific risk 97–8 speculation 93 Spitzer, Eliot 232, 292 spread 28, 94 Spread Networks 2 Square 187 Stamp Duty 274 Standard & Poor’s rating agency 21, 99, 248, 249, 313n6 Standard Life 26, 27, 30 standard of living 77 Standard Oil 44, 196, 323n1 Standard Oil of New Jersey (later Exxon) 323n1 Stanford University 167 Stanhope 158 State Street 200, 207 sterling devaluation (1967) 18 stewardship 144, 163, 195–203, 203, 208, 209, 210, 211, 213 Stewart, Jimmy 12 Stigler, George 237 stock exchanges 17 see also individual stock exchanges stock markets change in organisation of 28 as a means of taking money out of companies 162 rise of 38 stock-picking 108 stockbrokers 16, 25, 30, 197, 198 Stoll, Clifford 227–8 stone fei (in Micronesia) 323n5 Stone, Richard 263 Stora Enso 196 strict liability 295–6 Strine, Chancellor Leo 117 structured investment vehicles (SIVs) 158, 223 sub-prime lending 34–5, 75 sub-prime mortgages 63, 75, 109, 149, 150, 169, 244 Summers, Larry 22, 55, 73, 119, 154, 299 criticism of Rajan’s views 57 ‘ketchup economics’ 5, 57, 69 support for financialisation 57 on transformation of investment banking 15 Sunday Times 143 ‘Rich List’ 156 supermarkets: financial services 27 supply chain 80, 81, 83, 89, 92 Surowiecki, James: The Wisdom of Crowds xi swap markets 21 SWIFT clearing system 184 Swiss Re 62 syndication 62 Syriza 306 T Taibbi, Matt 55 tailgating 102, 103, 104, 128, 129, 130, 136, 138, 140, 152, 155, 190–91, 200 Tainter, Joseph 277 Taleb, Nassim Nicholas 125, 183 Fooled by Randomness 133 Tarbell, Ida 44, 54 TARGET2 system 184, 244 TARP programme 138 tax havens 123 Taylor, Martin 185 Taylor Bean and Whitaker 293 Tea Party 306 technological innovation 13, 185, 187 Tel Aviv, Israel 171 telecommunications network 181, 182 Tesla Motors 168 Tetra 168 TfL 159 Thai exchange rate, collapse of (1997) 39 Thain, John 300 Thatcher, Margaret 18, 23, 54, 59, 148, 151, 157 Thiel, Peter 167 Third World debt problem 37, 131 thrifts 25, 149, 150, 151, 154, 174, 290, 292 ticket touts 94–5 Tobin, James 273 Tobin tax 273–4 Tolstoy, Count Leo 97 Tonnies, Ferdinand 17 ‘too big to fail’ 75, 140, 276, 277 Tourre, Fabrice ‘Fabulous Fab’ 63–4, 115, 118, 232, 293, 294 trader model 82, 83 trader, rise of the 16–24 elements of the new trading culture 21–2 factors contributing to the change 17–18 foreign exchange 18–19 from personal relationships to anonymous markets 17 hedge fund managers 23 independent traders 22–3 information technology 19–20 regulation 20 securitisation 20–21 shift from agency to trading 16 trading as a principal source of revenue and remuneration 17 trader model 82, 83 ‘trading book’ 320n20 transparency 29, 84, 205, 210, 212, 226, 260 Travelers Group 33, 34, 48 ‘treasure islands’ 122–3 Treasuries 75 Treasury (UK) 135, 158 troubled assets relief program 135 Truman, Harry S. 230, 325n13 trust 83–4, 85, 182, 213, 218, 260–61 Tuckett, David 43, 71, 79 tulip mania (1630s) 35 Turner, Adair 303 TWA 238 Twain, Mark: Pudd’nhead Wilson’s Calendar 95–6 Twitter 185 U UBS 33, 134 UK Independence Party 306 unemployment 73, 74, 79 unit trusts 202 United States global dominance of the finance industry 218 house prices 41, 43, 149, 174 stock bubble (1929) 201 universal banks 26–7, 33 University of Chicago 19, 69 ‘unknown unknowns’ 67 UPS delivery system 279–80 US Defense Department 167 US Steel 44 US Supreme Court 228, 229, 304 US Treasury 36, 38, 135 utility networks 181–2 V value discovery 226–7 value horizon 109 Van Agtmael, Antoine 39 Vanderbilt, Cornelius 44 Vanguard 200, 207, 213 venture capital 166 firms 27, 168 venture capitalists 171, 172 Vickers Commission 194 Viniar, David 204–5, 233, 282, 283, 284 VISA 186 volatility 85, 93, 98, 103, 131, 255 Volcker, Paul 150, 181 Volcker Rule 194 voluntary agencies 258 W wagers and credit default swaps 119 defined 61 at Lloyd’s coffee house 71–2 lottery tickets 65 Wall Street, New York 1, 16, 312n2 careers in 15 rivalry with London 13 staffing of 217 Wall Street Crash (1929) 20, 25, 27, 36, 127, 201 Wall Street Journal 294 Wallenberg family 108 Walmart 81, 83 Warburg 134 Warren, Elizabeth 237 Washington consensus 39 Washington Mutual 135, 149 Wasserstein, Bruce 204, 205 Watergate affair 240 ‘We are the 99 per cent’ slogan 52, 305 ‘We are Wall Street’ 16, 55, 267–8, 271, 300, 301 Weber, Max 17 Weill, Sandy 33–4, 35, 48–51, 55, 91, 149, 293, 314n40 Weinstock, Arnold 48 Welch, Jack 45–6, 48, 50, 52, 126, 314n40 WestLB 169 Westminster Bank 24 Whitney, Richard 292 Wilson, Harold 18 windfall payments 14, 32, 127, 153, 290 winner’s curse 103, 104, 156, 318n11 Winslow Jones, Alfred 23 Winton Capital 111 Wolfe, Humbert 7 The Uncelestial City 1 Wolfe, Tom 268 The Bonfire of the Vanities 16, 22 women traders 22 Woodford, Neil 108 Woodward, Bob: Maestro 240 World Bank 14, 220 World.Com bonds 197 Wozniak, Steve 162 Wriston, Walter 37 Y Yellen, Janet 230–31 Yom Kippur War (1973) 36 YouTube 185 Z Zurich, Switzerland 62

Culture and Prosperity: The Truth About Markets - Why Some Nations Are Rich but Most Remain Poor by John Kay

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Albert Einstein, Asian financial crisis, Barry Marshall: ulcers, Berlin Wall, Big bang: deregulation of the City of London, California gold rush, complexity theory, computer age, constrained optimization, corporate governance, corporate social responsibility, correlation does not imply causation, Daniel Kahneman / Amos Tversky, David Ricardo: comparative advantage, Donald Trump, double entry bookkeeping, double helix, Edward Lloyd's coffeehouse, equity premium, Ernest Rutherford, European colonialism, experimental economics, Exxon Valdez, failed state, financial innovation, Francis Fukuyama: the end of history, George Akerlof, George Gilder, greed is good, Gunnar Myrdal, haute couture, illegal immigration, income inequality, industrial cluster, information asymmetry, intangible asset, invention of the telephone, invention of the wheel, invisible hand, John Meriwether, John Nash: game theory, John von Neumann, Kenneth Arrow, Kevin Kelly, knowledge economy, labour market flexibility, late capitalism, light touch regulation, Long Term Capital Management, loss aversion, Mahatma Gandhi, market bubble, market clearing, market fundamentalism, means of production, Menlo Park, Mikhail Gorbachev, money: store of value / unit of account / medium of exchange, moral hazard, Myron Scholes, Naomi Klein, Nash equilibrium, new economy, oil shale / tar sands, oil shock, Pareto efficiency, Paul Samuelson, pets.com, popular electronics, price discrimination, price mechanism, prisoner's dilemma, profit maximization, purchasing power parity, QWERTY keyboard, Ralph Nader, RAND corporation, random walk, rent-seeking, Right to Buy, risk tolerance, road to serfdom, Ronald Coase, Ronald Reagan, second-price auction, shareholder value, Silicon Valley, Simon Kuznets, South Sea Bubble, Steve Jobs, telemarketer, The Chicago School, The Death and Life of Great American Cities, The Market for Lemons, The Nature of the Firm, the new new thing, The Predators' Ball, The Wealth of Nations by Adam Smith, Thorstein Veblen, total factor productivity, transaction costs, tulip mania, urban decay, Vilfredo Pareto, Washington Consensus, women in the workforce, yield curve, yield management

When I tell family and friends that I badly need something, and they defer their own needs, I play a card that loses its value if I play it often. These implicit prices, central to both personal and commercial lives, are called opportunity costs: the price of doing A is that it becomes more difficult to do B. Among small groups of people who deal with each other frequently and know each other well-friends, families, close colleagues, the inhabitants of Sicelo's village-resource allocation occurs through these implicit price mechanisms. Market exchanges are needed when people deal outside these closed circles. Incentive compatibility is immediately more serious. We understand the real needs of our friends and family better than the needs of people we hardly know. Market exchanges allow longer chains of wants. If I had to find a plumber who needed lessons in economics, my tap might drip for a long time. I might look for a bank needing economic advice that would offer the plumber a loan, but this would be complex to negotiate.

., 295 research support, 269-70 See also disciplined pluralism political economy, 201-3,314-15 politics, 55, 62, 69 adaptive behavior, 252 of economics, 333-35 public choice theory, 343 risk assessment, 156-57 self-interest, 12, 250-51, 317 strategic behavior, 100-101 pollution, 263-65 poor states, 16-17,53,64-65,67,211, 277-88 coordination failures, 127 dependencytheor~60,284-86 economic policy, 335-37 future of, 354-55 inequality in, 51-52 reasons for, 47,319,355-56 and rent seeking, 295 Porter, Michael, 334 { 417} portfolio theory, 160 Portrait ofDr. Gachet (van Gogh), 92-96, 102-4,137,191,228 Posner, Richard, 189, 199 postmodernism, 312,329,333 Prebisch, Raoul, 60, 285 Prebisch-Singer thesis, 285 price mechanism, 98-99, 128 airline seats, 151-52 flower market, 146-48 "going rate," 231, 232 and imperfect information, 223-24, 227-28,229-31 market rigging, 150-51 oil markets, 143-45 supply and demand, 139, 140-41, 164, 230-33 Prisoner's Dilemma, 205, 252-55, 256, 330, 331 privatization, 11,312 probability theory, 234 production and exchange, 83-92, 93, 146 access regulation, 296 assignment of goods, 93-104 costs, 140, 151 and economic rent, 145,294-95, 300 as economics definition, 83 efficiency in, 193-94,201-2 productivity theories, 289-300 See also coordination; supply and demand productivity, 8, 9, 86 factors in, 28-29,51, 178,279,354 GDP per worker, 43-44 and income distribution, 289-90, 300, 321,353 and material living standards, 45-49 range in 1820, 67 profits, 343 property, 57,230-31 property rights, 11, 52, 54, 59, 62, 75, 81, 206 definition problems, 189-90,351-52 and market truths, 318-19 rules as, 82 and welfare economics, 202 See also intellectual property Protestantism, 52, 55-57 public choice theory, 251-52,343 public goods, 248-52,253,257-58,341-42 purchasing power parity, 46, 47, 162,289 Putnam, Richard, 172 put option, 160,237,241 queue theory, 127, 128-29, 130, 147, 171, 198 QWERTY layout, 131,260 Rand, Ayn, 315 "random walk" process, 159 rational-choice models, 324, 328,329, 337, 339 rationality, 199-201,210-21,229,231,234, 244-46,311,329,347-48 meaning to economists, 210-11,219-20 { 418} Index Rawls,John, 201-3,314-15 Reagan, Ronald, 194, 335 redistribution, 321,335,353 Rawls on, 202,203,314-15 regulation, 14-16,20,87-88,200,314,344, 352 arguments against, 11, 349 reinsurance, 154 religion, 52, 55-57, 125-26 rent.

See living standards standards, 259-62,350-51 Stanislaw,Joseph, 10, 11 statistics, economic, 31-50 Stigler, George, 199, 327, 360 Stiglitz, Joe, 206-7, 336, 360 stock markets, 169-71 anomalies, 235 Asian crisis (1997), 16, 53, 150-51,237 electronic trading, 149 inception of, 55, 170 noise traders, 236,245,246 and risk, 159,235,236-37,319 shareholders, 79, 170,296-97 share valuation, 171,218,229,245,297 speculation, 244-45 sustainable economic rents, 300 U.S. boom/bubble (1990s), 10, 124, 243-44,246,297,329,336,342 volatility of, 237,244 stock options, 297 { 419} Stone,Richard,38,360 strategic behavior, 100-102, 116,219 Sultan of Brunei, 299,301 Summers, Larry, 174 supermarkets. See queue theory supply and demand, 230-33 capital, 163-67 commodity products, 138-46 coordination of, 127-28, 137, 141-43 demand timing, 142 equilibrium of. See general equilibrium incentive compatibility, 98-100, 104, 151 and information asymmetry, 206, 207, 222-33,319 See also competitive markets; price mechanisms Sweden, 24, 26, 27,43-45,67,260,289, 304-5 Switzerland, 15-16,31,43,56,67 cost ofliving, 48, 49 economic lives, 23, 43, 44, 187-89,209, 289,301,302-4 economic organization, 305 specialization, 91-92 Tagamet, 273 Taiwan, 63, 64 Tanzania, 280,281 Tawney, R. H., 56 taxation in free market, 11, 15-16,313,314,315,344 for public goods, 250 and rent seeking, 296 tax curs, 33 7 teams, 20,252-53, 300-310,320 income distribution within, 290-93, 300-301 technology colonial transfer of, 59 and coordination, 207 and living standards, 26-27, 28 See also innovation technology stocks, 124 telecom stocks, 229, 244 telephone system, 262-63, 271 terrorist incidents market, 157 Thurow, Lester, 315,316 tin market, 150 tipping, 75 "tit for tat" strategy, 254-55 Titmuss, Richard, 258 Tobin,James, 356, 360 Tocqueville, Alexis de, 57, 172,322 tolerance, 52 Toyota,64,89,296 trade, 177, 198 specialization, 86-92 See also production and exchange trademarks, 74,224,272,352 transactions, 73-82 costs, 205-6, 219 and information asymmetry, 222-33,319 transistor, 268 { 420} Index Trump, Donald, 317 trust, 20, 51,225,256,319 Tucker, Albert, 254, 330 Turing, Alan, 267,269,272-73,274 Turnbull, Colin, 286, 322 Tversky, Amos, 220, 235 uncertainty, 234, 241-42.


pages: 515 words: 126,820

Blockchain Revolution: How the Technology Behind Bitcoin Is Changing Money, Business, and the World by Don Tapscott, Alex Tapscott

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Airbnb, altcoin, asset-backed security, autonomous vehicles, barriers to entry, bitcoin, blockchain, Bretton Woods, business process, Capital in the Twenty-First Century by Thomas Piketty, carbon footprint, clean water, cloud computing, cognitive dissonance, commoditize, corporate governance, corporate social responsibility, creative destruction, Credit Default Swap, crowdsourcing, cryptocurrency, disintermediation, distributed ledger, Donald Trump, double entry bookkeeping, Edward Snowden, Elon Musk, Erik Brynjolfsson, ethereum blockchain, failed state, fiat currency, financial innovation, Firefox, first square of the chessboard, first square of the chessboard / second half of the chessboard, future of work, Galaxy Zoo, George Gilder, glass ceiling, Google bus, Hernando de Soto, income inequality, informal economy, information asymmetry, intangible asset, interest rate swap, Internet of things, Jeff Bezos, jimmy wales, Kickstarter, knowledge worker, Kodak vs Instagram, Lean Startup, litecoin, Lyft, M-Pesa, Marc Andreessen, Mark Zuckerberg, Marshall McLuhan, means of production, microcredit, mobile money, money market fund, Network effects, new economy, Oculus Rift, off grid, pattern recognition, peer-to-peer, peer-to-peer lending, peer-to-peer model, performance metric, Peter Thiel, planetary scale, Ponzi scheme, prediction markets, price mechanism, Productivity paradox, QR code, quantitative easing, ransomware, Ray Kurzweil, renewable energy credits, rent-seeking, ride hailing / ride sharing, Ronald Coase, Ronald Reagan, Satoshi Nakamoto, Second Machine Age, seigniorage, self-driving car, sharing economy, Silicon Valley, Skype, smart contracts, smart grid, social graph, social software, Stephen Hawking, Steve Jobs, Steve Wozniak, Stewart Brand, supply-chain management, TaskRabbit, The Fortune at the Bottom of the Pyramid, The Nature of the Firm, The Wisdom of Crowds, transaction costs, Turing complete, Turing test, Uber and Lyft, unbanked and underbanked, underbanked, unorthodox policies, wealth creators, X Prize, Y2K, Zipcar

Throughout his writings, Coase discussed costs of coordinating, meshing, or otherwise orchestrating the different people, products, and processes into an enterprise that can effectively create value. Against traditional economists who argued that there were internal markets within firms, Coase said that when “a workman moves from department Y to department X, he does not go because of a change in relative prices, but because he is ordered to do so.”25 In other words, markets allocate resources via the price mechanism, but firms allocate resources via authoritative direction. Williamson went on to explain that there are two significant coordinating systems. First is the price system for decentralized resource allocation needs and opportunities (the market). But second, (traditional) “firms employ a different organizing principle—that of hierarchy—whereupon authority is used to affect resource allocation.”

If the firms don’t deliver a certain level of revenue, then the contracts can automatically terminate. Artists also need automated subsidiary rights management, wherever possible or desired, where prospective licensees either accept or reject the artist’s terms of use and payment. The contract itself enforces each deal and can notify the artist of any breaches and terminations. Auction/Dynamic Pricing Mechanisms to experiment with promotions and versioning of content, even peg subsidiary rights royalty percentages to the demand of a song. For example, if consumer downloads of a song spike, then an advertiser who licensed that song for a commercial automatically has to pay more when the commercial runs. Reputation System that culls data from a bitcoin address’s transaction history and social media, to create a reputation score for that address.

Abra, 20, 186–88, 325n Academic institutions as players in blockchain ecosystem, 286 role in culture, 246–49 Accenture, 69, 70 Accessibility, 256–57 Accountability, 10, 30, 108–9, 303 in foreign aid, 20–21, 190–91 in government, 23, 199, 202, 207–9, 309 in microfinance, 192 Accounting, 63, 64, 73–79 double-entry, 7, 74, 75, 310 triple-entry, 77, 78–79, 180 World Wide Ledger, 6–8, 75–77, 142 Accounting fraud, 74, 76 AccountingWEB, 74 Adams, Scott, 106 Advocacy networks, 302–3 Agency costs, 107 Agency risk, 60 Agenda, for next digital age, 307–9 Aggregating economy, 17–18, 134–35, 164–65 Agora Voting, 218–19 Agriculture, 138–39, 157–58 Airbnb, 17, 18, 115–17, 134, 135, 270 Allaire, Jeremy, 71–72, 75–76 Allianz, 156 Allied Control, 261 Altcoins, 60, 257 Amazon, 13, 72–73, 118, 122, 123 American Association of Independent Music, 230 American Society of Composers, Authors and Publishers (ASCAP), 229 Andreessen, Marc, 5, 9, 80, 311 Andreessen Horowitz, 178–79, 284 Andresen, Gavin, 51, 104, 285, 305 implementation challenges, 257, 260, 262, 271–72 Angaritis, Dino Mark, 31–32, 115, 131, 153 Animating objects, 22, 155, 156–61 Anti–money laundering/know your customer (AML/KYC), 42, 44, 302 Antonopoulos, Andreas, 70, 125, 128, 225, 233, 255 design principles, 40, 47–48 digital identity, 15, 264–65 re-architecting the firm, 86, 96, 97, 98, 102 AOL, 255 Apple, 13, 118, 150, 161, 229, 235 Application specific integrated circuits (ASICs), 261 Arab Spring, 200 Ariely, Dan, 279 Art (artists), 21, 239–43 buying through bitcoin blockchain, 240–42 ownership rights, 45–49, 132–33 profile of next-gen patron, 242–43 Artificial intelligence (AI), 91, 123, 265, 274 Artist-centric music model, 231–35 Artists and repertoire (A&R), 238–39 Artlery, 239–43 Ascribe, 132–33, 243 Asset ownership, 19–20, 193–95 Asymmetric cryptography, 39–40 Athey, Susan, 111 Attention markets, 140–41 Attestation, in financial services, 56, 57, 58 Auction/dynamic pricing mechanisms, 234 Audits, 6–7, 63, 75–77, 78 Augur, 82, 83, 84–85, 181, 220, 224 Australian outback, power poles, 145, 146–47 Authenticating identity and value, in financial services, 61, 64 Automated Clearing House (ACH), 59, 293 Automated subsidiary rights management, 234 Autonomous agents, 22, 120, 121, 122–25, 126, 321–22n Autonomous vehicles, 156–57, 165–67 Back, Adam, 34, 41 “Backdoor access,” 244 Background checks, 176 bAirbnb, 115–17 Balanc3, 76, 178 Bandcamp, 235 Bank of Canada, 9, 294, 296 Bank of England, 9, 294 Bankruptcy laws, 174 Banks.


pages: 504 words: 126,835

The Innovation Illusion: How So Little Is Created by So Many Working So Hard by Fredrik Erixon, Bjorn Weigel

Airbnb, Albert Einstein, asset allocation, autonomous vehicles, barriers to entry, Basel III, Bernie Madoff, bitcoin, Black Swan, blockchain, BRICs, Burning Man, Capital in the Twenty-First Century by Thomas Piketty, Cass Sunstein, Clayton Christensen, Colonization of Mars, commoditize, corporate governance, corporate social responsibility, creative destruction, crony capitalism, dark matter, David Graeber, David Ricardo: comparative advantage, discounted cash flows, distributed ledger, Donald Trump, Elon Musk, Erik Brynjolfsson, fear of failure, first square of the chessboard / second half of the chessboard, Francis Fukuyama: the end of history, George Gilder, global supply chain, global value chain, Google Glasses, Google X / Alphabet X, Gordon Gekko, high net worth, hiring and firing, Hyman Minsky, income inequality, income per capita, index fund, industrial robot, Internet of things, Jeff Bezos, job automation, job satisfaction, John Maynard Keynes: Economic Possibilities for our Grandchildren, John Maynard Keynes: technological unemployment, joint-stock company, Joseph Schumpeter, Just-in-time delivery, Kevin Kelly, knowledge economy, labour market flexibility, laissez-faire capitalism, lump of labour, Lyft, manufacturing employment, Mark Zuckerberg, market design, Martin Wolf, mass affluent, means of production, Mont Pelerin Society, Network effects, new economy, offshore financial centre, pensions crisis, Peter Thiel, Potemkin village, price mechanism, principal–agent problem, Productivity paradox, QWERTY keyboard, RAND corporation, Ray Kurzweil, rent-seeking, risk tolerance, risk/return, Robert Gordon, Ronald Coase, Ronald Reagan, savings glut, Second Machine Age, secular stagnation, Silicon Valley, Silicon Valley startup, Skype, sovereign wealth fund, Steve Ballmer, Steve Jobs, Steve Wozniak, technological singularity, telemarketer, The Chicago School, The Future of Employment, The Nature of the Firm, The Wealth of Nations by Adam Smith, too big to fail, total factor productivity, transaction costs, transportation-network company, tulip mania, Tyler Cowen: Great Stagnation, University of East Anglia, unpaid internship, Vanguard fund, Yogi Berra

However, this time it’s different – or so we are told. Tech thinker Kevin Kelly has prophesied the rise of a new form of socialism as a consequence of unobstructed source technology and community-generated content.20 Capitalism is a highly adaptive creature, argues the contrarian economic reporter Paul Mason, but it is not going to survive the current revolution in information technology.21 Information, he argues, will destroy the price mechanism and new forms of collaborative production will do away with what is left of market capitalism. The passion for technological determinism also thrives on the other side of the ideological fence. “The Goliath of totalitarianism will be brought down by the David of the microchip,” mused conservative icon Ronald Reagan,22 who drew heavily from technology enthusiasts like George Gilder, an economist who later identified the billion-transistor chip as the cure to root out all economic evil.23 A British libertarian politician has predicted that the new digital age will be the end of politics.24 Neoconservatives similarly were quick to embrace the revolutionary promise of technology.

Coase challenged the prevailing ignorance with an idea of the firm and its boundaries.16 He argued that firms and their boundaries (their size, functions and, to use a modern definition, “demarcation between the organization and its environment”17) are defined by transaction costs. Or, to translate it into the language of economics: the marginal costs and benefits of contracting out production through the market’s price mechanism versus combining necessary parts of the production “in-house” through the firm. You can also call it the make-or-buy question: should companies produce themselves or buy from others? It is a basic question, yet one that many economists and business observers ignore. Companies have different origins and thrive for a variety of reasons, but they all have one thing in common, Coase argued: if capital and labor miraculously found each other spontaneously, firms would become pointless.

And, in a way, the higher they are, the better it is to have companies, because the transaction costs partly set the value of a firm. Firms, if you want to be provocative, exist because markets fail, at least in a theoretical way. And the greater the failure, the more space there is for an upward valuation of companies. Coase put it slightly more dryly: “The main reason why it is profitable to establish a firm would seem to be that there is a cost of using the price mechanism.”18 A successful firm can bank on the value of its unique combination of ideas, management, capital, and labor – or of what it has that cannot easily be reproduced by the market, or copied by another firm. Companies exist because they reduce market transaction costs. Yet if this is the case, why has the process of capitalist competition not coalesced all firms into a single gigantic unit? Why is there not just one company in a country, let alone the world, which rules the market?


pages: 585 words: 165,304

Trust: The Social Virtue and the Creation of Prosperity by Francis Fukuyama

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barriers to entry, Berlin Wall, blue-collar work, business climate, capital controls, collective bargaining, corporate governance, corporate raider, creative destruction, deindustrialization, Deng Xiaoping, deskilling, double entry bookkeeping, equal pay for equal work, European colonialism, Francis Fukuyama: the end of history, Frederick Winslow Taylor, full employment, George Gilder, glass ceiling, global village, Gunnar Myrdal, hiring and firing, industrial robot, Jane Jacobs, job satisfaction, joint-stock company, joint-stock limited liability company, Joseph Schumpeter, Kenneth Arrow, labour market flexibility, labour mobility, land reform, liberal capitalism, liberation theology, low skilled workers, manufacturing employment, mittelstand, price mechanism, profit maximization, RAND corporation, rent-seeking, Ronald Coase, Silicon Valley, Steve Jobs, Steve Wozniak, The Death and Life of Great American Cities, The Nature of the Firm, the scientific method, The Wealth of Nations by Adam Smith, transaction costs, transfer pricing, traveling salesman, union organizing

At the same time, the people working within this hierarchy are supposed to cooperate, and not compete, against each other. This apparent contradiction between the competitive free market and the cooperative yet authoritarian firm was the starting point of a seminal article written in the 1930s by the economist Ronald Coase.11 Coase noted that the essence of the market was the price mechanism, which brought supply and demand into equilibrium, but that within the firm, the price mechanism was suppressed and goods were allocated by command. If the price mechanism was deemed so efficient, the question arose: Why did firms exist at all? It is conceivable, for example, that cars could be manufactured entirely without car companies in a decentralized market. One firm would sell a car design to a final assembler, which would purchase the major components from subcontractors, which would in turn purchase the parts for subassemblies from other independent parts suppliers; the assembled car could then be sold to an independent marketing organization, which would sell it to a dealer and thence to the final consumer.

Boone, 204 Piore, Michael, 103, 229 Pitney-Bowes, 65, 79, 275 Pitts, Jesse, 116 Poland, 356, 361 Political Confucianism, 84, 85, 92, 350 Political economy, 18 Polygamy, 291 Porcelain manufacturing, 81 Pornography, 316 Portugal, 41 Poverty, 38, 62, 303, 353 Preindustrial societies, 45-46, 63, 132, 313 Presbyterians, 289 Presidents’ Council (Japan), 130, 197 Prestowitz, Clyde, 14 Price mechanism, 200 Pride, 358 Primogeniture, 88, 116, 130, 173-174 Principles of Scientific Management, The (Taylor), 225, 231 Privacy, right to, 316 Professional associations, 157, 309 Property rights, 63-65, 87, 150, 223, 275, 336, 350 Protestant Ethic and the Spirit of Capitalism, The (Weber), 37, 40, 43-46 Protestantism, 44-47, 142, 156, 279, 283, 286-294, 336 Protestant Reformation, 40, 44, 154, 286 “Protestant Sects and the Spirit of Capitalism” (Weber), 46 Public goods, 155 Puritanism, 36, 44, 183, 279, 289, 290, 292 Purposive contracts, 222-223 Putnam, Robert, 56, 100, 104, 105, 108, 109, 309 Qing China, 81 Quakers, 46, 289 Quality circles, 262, 317 Quayle, Dan, 61, 67 Railroads, 47-48, 273-274 Rathenau, Emil, 212, 213 Rational choice theory, 17 Rational desire, 358 Rational utility maximization, 18-21, 33-35, 37, 38, 41, 46, 351, 358, 360 Reciprocal obligation, 186, 188-193, 195, 197, 202, 205-207, 260-262 Recognition, desire for, 6-7, 358-360 Redding, Gordon, 75 Reformation, 40, 44, 154 Regionalism, in South Korea, 140, 141 Reliability, 43, 46 Religion, 28, 54, 131, 141-142, 154-155, 177-180, 182-183, 279-280, 283-294, 319; see also specific religions Religion of China, The (Weber), 65 Renaissance, 108 Renault, 114, 117, 123 Republic of Korea: see South Korea Restructuring, 48, 185 Revealed preference, 19 Reverse racism, 295 Riemon, Soga, 169 Rieppel, Paul, 232 Riesman, David, 277 Rights, 10, 314-317 Riots, 298 Risk, attitudes toward, 36-37, 46 Rockefeller, Jay, 78 Rockefeller, John D., 276 Rockefeller, Nelson, 78 Roosevelt, Theodore, 215, 276 Rosenberg, Nathan, 154 Rotating credit associations, 300-302 Rousseau, Jean-Jacques, 285 Royal Dutch/Shell, 212 Rules, proliferation of, 222-224 Russia, 28, 356, 357 Sabel, Charles, 103, 229, 242 Samsung Electric Company, 71, 73, 128, 134, 136, 140, 144 Samuel, Marcus, 250 Samurai class, 136, 173, 175, 350, 360 Sanyo, 79 Sardinia, 100 Sato, Eisaku, 173 Scargill, Arthur, 239 Schumpeter, Joseph, 159, 311 Scientific management, 225-230 Scientific method, 350 Sears, Roebuck, 65, 79, 275 Second Treatise on Government (Locke), 285 Self-interest, 18-19, 21, 26, 149, 156 Semiconductor industry, 143, 170 Seniority-based compensation system, 172, 188 Seven Samurai, The (film), 183 Shame, 358 Sharecropping, 107 Sharpton, Al, 295 Shell Oil, 250 Sheng Hsuan-huai, 79 Sherman Anti-Trust Act, 204, 214, 215, 276 Shimomura family, 169 Shipbuilding industry, 16, 139, 144 Shiseido, 79 Shotoku, Prince Taishi, 177 Sicily, 100, 107 Siemens, 31, 212, 213 Silicon Graphics, 165 Silla dynasty, 132 Simint, 103 Singapore, 70, 85, 92, 93, 179, 329, 337, 338 Single-parent families, 51, 61-62, 67, 309, 353 Slavery, 296, 302-303 Small-scale industrialization, in Italy, 97, 102-105, 108-111, 229 Smith, Adam, 7, 13, 17-18, 224, 229, 259, 326, 359, 360 Smith, Joseph, 290, 291 Smith, Roger, 262 Snecma, 123 Social capital, 10, 11, 16, 97, 101, 102, 150, 321, 325, 336, 355, 356, 358, 362 acquisition of, 26-27 defined, 26 distribution among societies, 28 economic consequences of, 27, 29 spontaneous sociability as subset of, 27 Social class in France, 120-121 in Great Britain, 158-159, 249-251 in South Korea, 132, 136 Social virtues, 43, 46, 48 Soft authoritarianism, 85 Sony America, 181 Southern Christian Leadership Conference, 304 South Korea, 16, 20, 127-145 adoption in, 132 auto industry in, 265 chaebol system in, 73, 128-130, 133-138, 142, 144, 145, 333 concentration of industry in, 128-129 familism in, 63, 128, 131, 133, 134, 137, 145, 331-332 family structure in, 130-132, 336 firm size in, 29, 71, 163, 327, 329, 332, 333 industrial policy and structure in, 127-128, 132-137 inheritance in, 130-132, 134 Japanese influence on, 128-130 labor relations in, 136-137, 264 lineage in, 132-133, 140 management style in, 128, 134-135 military service in, 140-141 nationalism in, 141 network organizations in, 73, 128-130 regionalism in, 140, 141 religion in, 131 social class in, 132, 136 state, role of, 52, 128, 137-140, 338, 344 wealth concentration in, 144-145 Soviet Jewish emigrés, 55 Soviet Union, 24, 40, 52, 54-55, 225 Sozialmarktwirtschaft, 217, 218, 232, 242 Spain, 41, 50, 55, 56 Spanish Civil War, 40 Spontaneous sociability, 10, 25, 27-29, 31, 47, 48, 50, 98, 104, 107, 149-151, 158, 159, 161, 171, 206, 207, 273, 281, 304-306, 318, 333, 338, 339, 342, 355, 357, 358 Ssangyong, 133 Stalin, Joseph, 55, 225 Standard Oil trust, 215, 274, 276 Stark, Rodney, 289 State, role of, 15-17, 27, 30, 52-54, 57, 72, 81-82, 101-102, 122-125, 128, 137-140, 279, 338, 339, 344 Status contracts, 222 Steel industry, 16, 124, 143, 211, 219, 226, 256, 341 Stein-Hardenberg reforms (1807-1812), 246-247 Steuart, James, 360 Stigler, George, 13 Stollwercks, 213 Strikes, 136-137, 216 Sumitomo, 7, 9, 73, 162, 166, 169, 198, 199, 205 Sung dynasty, 179 Sun Microsystems, 24, 165 Sunrise and sunset industries, 15-16 Sun Yat-sen, 138 Suzuki, Shosan, 182-183 Sweden, 29, 162, 163, 212, 288, 328 Switzerland, 29, 162, 163, 212 Syngman Rhee, 139, 142, 143 Taehan Textile and Tachan Electric, 134 Taika period, 131, 182 Taiwan, 16, 29, 50, 70, 81, 92, 93 cottage industries in, 87 familism in, 67, 74, 86-87, 329, 331 firm size in, 29, 30, 71, 326, 327, 329, 332, 333 network organizations in, 73, 197, 198 state, role of, 52, 57, 72, 82, 138, 338 Taoism, 84 Tariffs, 14 Taylor, Frederick W., 225-227, 231, 232, 255 Taylorism, 225-234, 255-260, 266, 313, 317 Technological innovations, 23-26, 30, 125, 316-317, 340-341, 353, 354 Terza Italia, 100-108 Textile industry, 16, 225 Thailand, 71, 338 Thatcher, Margaret, 251 Theory of Moral Sentiments, The (Smith), 18, 359 Thick description, 34 Thomas, Robert, 47, 63, 122 Thomson-CSF, 123 Thrift, 37 Thurow, Lester, 28 Time-and-motion studies, 225 Tocqueville, Alexis de, 39, 50, 55-56, 118, 120, 122-124, 235, 272-273, 290 Toffler, Alvin, 23 Toffler, Heidi, 23 Tokugawa period, 132, 179, 182, 183, 191 Tönnies, Ferdinand, 273 Toshiba, 165 Toyo Kogyo, 199 Toyota Motor Company, 8, 48, 163, 197, 201, 257-258, 263 Tracking system, 239-240 Trade associations, 117, 204, 216, 309 Transaction costs, 27-28, 151, 153, 200-202, 204, 342, 352 Trinidadians, 303 Trusts, 204, 214, 276 Tu Wei-ming, 84, 85 Tyson, Laura, 14 Ukraine, 356, 357 United Auto Workers (UAW), 226, 262, 263 U.S.


pages: 870 words: 259,362

Austerity Britain: 1945-51 by David Kynaston

Alistair Cooke, anti-communist, British Empire, Chelsea Manning, collective bargaining, continuous integration, deindustrialization, deskilling, Etonian, full employment, garden city movement, hiring and firing, industrial cluster, invisible hand, job satisfaction, labour mobility, light touch regulation, mass immigration, moral panic, Neil Kinnock, occupational segregation, price mechanism, rent control, reserve currency, road to serfdom, Ronald Reagan, stakhanovite, strikebreaker, the market place, upwardly mobile, urban planning, urban renewal, very high income, wage slave, washing machines reduced drudgery, wealth creators, women in the workforce, young professional

Relatively early in the war, the great economist John Maynard Keynes had more or less won the battle within the Treasury to persuade that deeply conservative institution to accept at least a substantial measure of demand management as the principal way of regulating the economy in order to keep the level of unemployment down. Thereafter, the real intellectual conflict among radically minded ‘activators’ was between Keynesians and those whose ideal was wartime-style (and Soviet-style) direct physical planning. For the former, there was still a significant role – at least in theory – to be played by the price mechanism of the market; for the latter, that role was fairly surplus to requirements. By the end of the war, it seemed that the force was with the out-and-out planners, with their emphasis on investment planning and, through direct controls over labour, manpower planning. Indeed, such was the temper of the times that even most Keynesians had, in a visceral sense, little real faith in, or any great intellectual curiosity about, the possible economic merits of the market or of supply-side reforms.

Durbin – born in 1906, the son of a Baptist minister – was an attractively paradoxical figure. He once remarked that his three greatest pleasures were ‘food, sleep and sex’ but accused D. H. Lawrence of ‘shallow abstractions’ in relation to ‘freedom in sexual relations’; politically, he defined himself as a ‘militant Moderate’; and, as a trained economist who had lectured through the 1930s at the LSE, he combined a strong belief in economic planning with the conviction that the price mechanism was indispensable if the liberty of consumers in a modern democracy was to be ensured. During the 1930s, Durbin became close to the young psychiatrist John Bowlby, and the influence of Bowlby ran through much of his major work, The Politics of Democratic Socialism, published in 1940. As for economics itself, Durbin made a brave gesture towards the ‘sound money’ school – its citadel the City of London – that had wrecked Ramsay MacDonald’s 1931 Labour government, by declaring that ‘it is not wise in the long run to expect to live upon golden eggs and slowly to strangle the goose that lays them’.

For a whole hour it went on with hardly a pause, hardly a word from me, and then abruptly he stood up, pleaded pressure of many things and escorted me to the door.’10 Anthony Wedgwood Benn – son of a Liberal-turned-Labour peer, in his early 20s, about to come down from Oxford after being a fighter pilot in the war – did not yet have executive responsibilities but in early 1948 he composed his private ‘Thoughts on Socialism’. Arguing that pre-war ‘poverty and squalor and undernourishment’ had made ‘a mockery of the price mechanism as a means of translating needs into economic demand’, he nevertheless accepted that ‘economic efficiency demands a degree of inequality because of the need for incentives’. Even so: ‘A certain standard of health, nourishment and housing must be maintained for all. No one else can do it but the state and in Britain a new paternalism is state paternalism: looking after those who cannot look after themselves.


pages: 350 words: 103,270

The Devil's Derivatives: The Untold Story of the Slick Traders and Hapless Regulators Who Almost Blew Up Wall Street . . . And Are Ready to Do It Again by Nicholas Dunbar

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asset-backed security, bank run, banking crisis, Basel III, Black Swan, Black-Scholes formula, bonus culture, break the buck, capital asset pricing model, Carmen Reinhart, Cass Sunstein, collateralized debt obligation, commoditize, Credit Default Swap, credit default swaps / collateralized debt obligations, delayed gratification, diversification, Edmond Halley, facts on the ground, financial innovation, fixed income, George Akerlof, implied volatility, index fund, interest rate derivative, interest rate swap, Isaac Newton, John Meriwether, Kenneth Rogoff, Long Term Capital Management, margin call, market bubble, money market fund, Myron Scholes, Nick Leeson, Northern Rock, offshore financial centre, Paul Samuelson, price mechanism, regulatory arbitrage, rent-seeking, Richard Thaler, risk tolerance, risk/return, Ronald Reagan, shareholder value, short selling, statistical model, The Chicago School, Thomas Bayes, time value of money, too big to fail, transaction costs, value at risk, Vanguard fund, yield curve, zero-sum game

The banks that created and traded OTC derivatives did not want to take only one side of the market, such as only buying yen or only lending money at a five-year interest rate. The derivative-dealing banks set themselves up as secretive mini-exchanges. They would seek out customers with opposing views and line them up without the other’s knowledge. The bank sitting between them would not be exposed to the market’s going up or down and could simply skim off a percentage from both sides, dominating the all-important pricing mechanism that was the derivatives market’s big selling point. There was so much to be skimmed in this way, and so many ways to do it. But perhaps the most lucrative way of all was to invent new derivatives. In Singapore on the night after the conference, I joined a group of conference delegates on a tour of some of the city’s famed nightspots. With me were a pair of English expat bankers who worked on the emerging market bond trading desk of a Japanese bank.

The Snake Is Eating Its Tail In light of the global meltdown set off by AIG’s plunge, an obvious question repeatedly asked is, Why couldn’t Wall Street and the European banks forgo the additional collateral that a downgraded AIG was obliged to pay them? The answer is that they could have done that, but at the price of triggering an AIG default. Goldman, sitting at the heart of the super-senior swap deals and CDO pricing mechanism, like a spider at the center of its web, had hedged against that outcome, using default swaps written on AIG itself. On planet Derivative, Goldman had its bases covered. There was only one scenario that scared Goldman—if AIG was prevented from defaulting by the government and was also prevented from making default swap collateral payments. According to a senior official at the firm, “Through the aggregate of our collateral and our CDS, we were fully protected against the default.


pages: 265 words: 15,515

Nomad Citizenship: Free-Market Communism and the Slow-Motion General Strike by Eugene W. Holland

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capital controls, cognitive dissonance, Colonization of Mars, complexity theory, continuation of politics by other means, deskilling, Firefox, Frederick Winslow Taylor, full employment, informal economy, invisible hand, Jane Jacobs, means of production, microcredit, money: store of value / unit of account / medium of exchange, Naomi Klein, New Urbanism, peak oil, price mechanism, Richard Stallman, Ronald Coase, slashdot, The Death and Life of Great American Cities, The Wisdom of Crowds, transaction costs, Upton Sinclair, urban renewal, wage slave, working poor

A now-classic analysis of capitalist production spearheaded by Ronald Coase in the 1930s and developed subsequently by Oliver Williamson and others examined the relative transaction costs to a business firm of buying goods and services on the open market compared to hiring people to produce those same goods and services within the firm.95 Where transaction costs of buying on the open market are high, production is integrated into the firm and triggered by managerial command; where they are low, production is out­ sourced and triggered by market pricing mechanisms. Commons-based peer production breaks completely free of this paradigm: participating programmers are not paid for their contributions, nor are they told what to do by some supervising manager. Instead, they engage and contribute on their own free initiative. It is worth being clear in this regard about the role of Linus Torvald in the peer-production process, for he is nothing like an orchestra conductor: programmers are not obeying his commands to write or patch a certain piece of software; this is taken care of immanently and voluntarily through the mediation of Web sites like SourceForge and Savannah.

There may be a family resem­ blance (in the strong, W ittgensteinian sense) between von H ayek’s rejection of so­ cialist planning and fellow-Viennese W ittgenstein’s rejection of logical positivism; von Hayek says, “I fear th a t our theoretical habits of approaching the problem w ith the assum ption of more or less perfect knowledge on the p art of almost ev­ eryone has made us som ewhat blind to the true function of the price mechanism and led us to apply rather misleading standards in judging its efficiency” (527). 40. Ibid., 521. 41. Ibid. 42. Ibid., 526. 43. Ibid., 524. 44. T he end of Asimov’s I, Robot poses exactly this question, b u t the issue also arises in Plato’s Republic and Z am y atin ’s We. 45. Von Hayek, “Use of Knowledge in Society,” 5 2 5 -2 7 . 46. In addition to the volum inous literature on th e fair trade movement, see H ow ard, “ C entral Coast C onsum ers W ant M ore Food-R elated In fo rm atio n ” ; H ow ard and Allen, “Consumer Willingness to Pay for Domestic ‘Fair Trade’” and “Beyond Organic and Fair Trade?”


pages: 484 words: 104,873

Rise of the Robots: Technology and the Threat of a Jobless Future by Martin Ford

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3D printing, additive manufacturing, Affordable Care Act / Obamacare, AI winter, algorithmic trading, Amazon Mechanical Turk, artificial general intelligence, assortative mating, autonomous vehicles, banking crisis, basic income, Baxter: Rethink Robotics, Bernie Madoff, Bill Joy: nanobots, call centre, Capital in the Twenty-First Century by Thomas Piketty, Chris Urmson, Clayton Christensen, clean water, cloud computing, collateralized debt obligation, commoditize, computer age, creative destruction, debt deflation, deskilling, diversified portfolio, Erik Brynjolfsson, factory automation, financial innovation, Flash crash, Fractional reserve banking, Freestyle chess, full employment, Goldman Sachs: Vampire Squid, Gunnar Myrdal, High speed trading, income inequality, indoor plumbing, industrial robot, informal economy, iterative process, Jaron Lanier, job automation, John Markoff, John Maynard Keynes: technological unemployment, John von Neumann, Kenneth Arrow, Khan Academy, knowledge worker, labor-force participation, labour mobility, liquidity trap, low skilled workers, low-wage service sector, Lyft, manufacturing employment, Marc Andreessen, McJob, moral hazard, Narrative Science, Network effects, new economy, Nicholas Carr, Norbert Wiener, obamacare, optical character recognition, passive income, Paul Samuelson, performance metric, Peter Thiel, Plutocrats, plutocrats, post scarcity, precision agriculture, price mechanism, Ray Kurzweil, rent control, rent-seeking, reshoring, RFID, Richard Feynman, Richard Feynman, Rodney Brooks, secular stagnation, self-driving car, Silicon Valley, Silicon Valley startup, single-payer health, software is eating the world, sovereign wealth fund, speech recognition, Spread Networks laid a new fibre optics cable between New York and Chicago, stealth mode startup, stem cell, Stephen Hawking, Steve Jobs, Steven Levy, Steven Pinker, strong AI, Stuxnet, technological singularity, telepresence, telepresence robot, The Bell Curve by Richard Herrnstein and Charles Murray, The Coming Technological Singularity, The Future of Employment, Thomas L Friedman, too big to fail, Tyler Cowen: Great Stagnation, union organizing, Vernor Vinge, very high income, Watson beat the top human players on Jeopardy!, women in the workforce

.* Most intelligent people understand this (and are very likely to bring up Steve Jobs and the iPhone when discussing it). The problem is that health care is a broken market and no amount of technology is likely to bring down costs unless the structural problems in the industry are resolved. There is also, I think, a great deal of confusion about the nature of the health care market and exactly where an effective market pricing mechanism should come into play. Many people would like to believe that health care is a normal consumer market: if only we could get insurance companies, and especially the government, out of the way and instead push decisions and costs onto the consumer (or patient), then we’d get innovations and outcomes similar to what we’ve seen in other industries (Steve Jobs might be mentioned again here). The reality, however, is that health care is simply not comparable to other markets for consumer products and services, and this has been well understood for over half a century.

The prices for the tests and scans bear little relation to the actual costs of these services—after all, they’re listed in the chargemaster—and they are highly profitable. Every time our doctor presses her touch screen, she essentially mints money. While this example is, at the moment, imaginary, there is an abundance of evidence demonstrating that new health care technologies very often lead to more spending rather than improved productivity. The primary reason is that there is no effective market pricing mechanism to drive increased efficiency. In the absence of market pressure, providers often invest in technologies designed to increase revenue rather than efficiency, or where they do achieve increased productivity they simply retain the profits rather than lowering prices. The poster child for technology investment as a driver of health care inflation may well be the “proton beam” facilities that are being built to treat prostate cancer.


pages: 273 words: 34,920

Free Market Missionaries: The Corporate Manipulation of Community Values by Sharon Beder

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anti-communist, battle of ideas, business climate, corporate governance, en.wikipedia.org, full employment, income inequality, invisible hand, liquidationism / Banker’s doctrine / the Treasury view, minimum wage unemployment, Mont Pelerin Society, new economy, old-boy network, popular capitalism, Powell Memorandum, price mechanism, profit motive, Ralph Nader, rent control, risk/return, road to serfdom, Ronald Reagan, school vouchers, shareholder value, spread of share-ownership, structural adjustment programs, The Chicago School, the market place, The Wealth of Nations by Adam Smith, Thomas L Friedman, Torches of Freedom, trade liberalization, traveling salesman, trickle-down economics, Upton Sinclair, Washington Consensus, wealth creators, young professional

But the study of his own advantage naturally, or rather necessarily, leads him to prefer that employment which is most advantageous to the society.26 The free market gospel claims that the Market is able to perfectly match production to consumer demand without the need for centralized planning, while keeping prices close to the cost of the most efficient production, and while encouraging innovation to extend the choice for buyers. It achieves this through competition. Free market missionaries declare that the Market is democratic because it is driven by individual choices; it is efficient because of competition between sellers; and it is non-discriminatory because the price mechanism is impartial when it comes to colour, gender and race. Choice, competition and efficiency ensure everyone is better off because the economy produces all the goods that people want at the lowest possible price and available resources are supposedly fully and efficiently utilized.27 The ultimate test of general welfare within this view is of course wealth, where wealth refers to the bountiful ‘production and sale of marketed goods and services’.

Greg Lindsay is, in fact, a vice president of the Mont Pèlerin Society; in the 1980s CIS organized the Pacific Regional Meeting of the Mont Pèlerin Society. CIS is committed to ‘an economy based on free and competitive markets’ and ‘individual liberty and choice’, including ‘the right to property’. It claims government decision-making should be turned over to the market and that the market and its automatic pricing mechanism should be used to allocate resources. It has strong links with the Washington-based Cato Institute (see Chapter 8).18 CIS deals with ‘practical public policy issues’ as well as ‘more intellectual issues focusing on the way societies work and the importance of liberty in securing prosperity both economically and socially’. It publishes the work of various conservatives, including media baron Rupert Murdoch; economists such as Hayek and Friedman; conservative US law professor and ‘takings’ expert, Richard Epstein; Nick Greiner, a former premier of New South Wales; and various think tank scholars from the US and the UK.


pages: 383 words: 98,179

Last Trains: Dr Beeching and the Death of Rural England by Charles Loft

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Beeching cuts, computer age, Downton Abbey, full employment, intermodal, price mechanism, railway mania, urban planning

Buchanan’s report would come out as part of the operation.183 This was Marples speaking, not his officials, and he hoped to be placed in charge of the project, but nothing came of it as Macmillan’s modernisation project focused on short-term goals. Buchanan’s appointment and report helped fuel a conflict in transport policy advice between physical planners and economists which was to fester over the following decade. In hindsight, this diverted attention from the need to develop an effective pricing mechanism for road use by raising the false prospect that the car could be physically accommodated. It might appear that this was the real legacy of Marples’s predilection for road building, but the Treasury’s interest in road pricing had not even begun to address the practical and political difficulties of such a measure in 1959 and the idea received no more encouragement from Barbara Castle than it had from Marples.

Higher rail passenger numbers, increasing congestion, concern over the environmental consequences of the car and the realisation that we cannot simply build our way out of congestion have heightened the impact of those closures which probably should never have been made and increased the number which look wrong in hindsight. Nevertheless, rail policy in the late 1950s and early 1960s represented a significant advance on 1951–6, because genuine attempts to understand and tackle the problem were made. The most obvious omission in the development of transport policy during this period was the absence of an effective pricing mechanism for road use. One problem with the car is that its costs are not sufficiently related to its use and in particular to the kind of use one makes of it; but if this was a flaw in the Treasury’s response to the transport revolution, it was one determined by political realities. In an ideal railway world the taxpayer would pay the rail operator a fee for the benefit provided by every rail service (not just those that lose money) to those who do not pay directly in fares and freight charges.


pages: 121 words: 36,908

Four Futures: Life After Capitalism by Peter Frase

3D printing, Airbnb, basic income, bitcoin, call centre, Capital in the Twenty-First Century by Thomas Piketty, carbon footprint, cryptocurrency, deindustrialization, Edward Snowden, Erik Brynjolfsson, Ferguson, Missouri, fixed income, full employment, future of work, high net worth, income inequality, industrial robot, informal economy, Intergovernmental Panel on Climate Change (IPCC), iterative process, job automation, John Maynard Keynes: Economic Possibilities for our Grandchildren, litecoin, mass incarceration, means of production, Norbert Wiener, Occupy movement, pattern recognition, peak oil, Plutocrats, plutocrats, postindustrial economy, price mechanism, private military company, Ray Kurzweil, Robert Gordon, Second Machine Age, self-driving car, sharing economy, Silicon Valley, smart meter, TaskRabbit, technoutopianism, The Future of Employment, Thomas Malthus, Tyler Cowen: Great Stagnation, universal basic income, Wall-E, Watson beat the top human players on Jeopardy!, We are the 99%, Wolfgang Streeck

We see this starkly in the case of Uber, which has provoked strikes and protests from its drivers over its tendency to arbitrarily change their fares and working conditions. But if we posit a world in which everyone is allocated the same basic income and nobody has control over vast pools of wealth, this objection disappears. Think of the basic income as the ration card that gives you access to your share of all that is scarce in the world. Rather than allocate specific amounts of each scarce resource, the pricing mechanism of the market is used to protect against overuse. To illustrate what this means, consider a mundane example: parking. In American cities, street parking has traditionally been free in most areas or available at a small fixed price. This is a dramatic underpricing, in the sense that it leads people to overconsume the limited resource of parking spaces, leading to a shortage of free spaces and many cars cruising around looking for spaces.


pages: 586 words: 159,901

Wall Street: How It Works And for Whom by Doug Henwood

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accounting loophole / creative accounting, activist fund / activist shareholder / activist investor, affirmative action, Andrei Shleifer, asset allocation, asset-backed security, bank run, banking crisis, barriers to entry, borderless world, Bretton Woods, British Empire, capital asset pricing model, capital controls, central bank independence, computerized trading, corporate governance, corporate raider, correlation coefficient, correlation does not imply causation, credit crunch, currency manipulation / currency intervention, David Ricardo: comparative advantage, debt deflation, declining real wages, deindustrialization, dematerialisation, diversification, diversified portfolio, Donald Trump, equity premium, Eugene Fama: efficient market hypothesis, experimental subject, facts on the ground, financial deregulation, financial innovation, Financial Instability Hypothesis, floating exchange rates, full employment, George Akerlof, George Gilder, hiring and firing, Hyman Minsky, implied volatility, index arbitrage, index fund, information asymmetry, interest rate swap, Internet Archive, invisible hand, Irwin Jacobs, Isaac Newton, joint-stock company, Joseph Schumpeter, kremlinology, labor-force participation, late capitalism, law of one price, liberal capitalism, liquidationism / Banker’s doctrine / the Treasury view, London Interbank Offered Rate, Louis Bachelier, market bubble, Mexican peso crisis / tequila crisis, microcredit, minimum wage unemployment, money market fund, moral hazard, mortgage debt, mortgage tax deduction, Myron Scholes, oil shock, Paul Samuelson, payday loans, pension reform, Plutocrats, plutocrats, price mechanism, price stability, prisoner's dilemma, profit maximization, publication bias, Ralph Nader, random walk, reserve currency, Richard Thaler, risk tolerance, Robert Gordon, Robert Shiller, Robert Shiller, selection bias, shareholder value, short selling, Slavoj Žižek, South Sea Bubble, The inhabitant of London could order by telephone, sipping his morning tea in bed, the various products of the whole earth, The Market for Lemons, The Nature of the Firm, The Predators' Ball, The Wealth of Nations by Adam Smith, transaction costs, transcontinental railway, women in the workforce, yield curve, zero-coupon bond

Markowitz apparently overlooked Lewis' descriptions of how Salomon's traders bought mortgages from failing savings and loans, repackaged them into bonds, and sold them back to the thrifts at enormous profit to themselves and huge losses to the S&Ls — and eventually, U.S. taxpayers.^^ Deregulated and doomed, they were eager to play games on Wall Street. Here is Lewis' (1989a, p. 105) description of the miraculous Smithian pricing mechanism at work: Trader Tom DiNapoli fondly remembers a call from one thrift president. "He wanted to sell a hundred million dollars' worth of his thirty-year loans ...and buy a hundred million dollars of some other loans with the cash from the sale. I told him I'd bid [buy] his loans at seventy-five [cents on the dollar] and offer him the others at eighty-five." The thrift president scratched his head at the numbers.

In Coasian language, the transaction's costs would exceed its return. Further, contracts cannot be written to cover every eventuality; every spill can't be anticipated, so it pays to have a janitor on hand to deploy whenever an unexpected disaster presents itself. In such cases, the price system hardly enters the picture. Or, in Coase's concise definition, "the distinguishing mark of the firm is the supersession of the price mechanism." But under capitalism, the scope of conscious planning rarely extends beyond a firm's boundaries; the price system is the normal governor of relations among firms and between firms and final consumers. Conventional economics still treats the market as essentially self-regulating: the system, outside the firm, still works itself. But in reality there are substantial costs of time and money devoted to making the system work.


pages: 497 words: 143,175

Pivotal Decade: How the United States Traded Factories for Finance in the Seventies by Judith Stein

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1960s counterculture, affirmative action, airline deregulation, anti-communist, Ayatollah Khomeini, barriers to entry, Berlin Wall, blue-collar work, Bretton Woods, capital controls, centre right, collective bargaining, Credit Default Swap, crony capitalism, David Ricardo: comparative advantage, deindustrialization, desegregation, energy security, Fall of the Berlin Wall, falling living standards, feminist movement, financial deregulation, floating exchange rates, full employment, Gunnar Myrdal, income inequality, income per capita, intermodal, invisible hand, knowledge worker, laissez-faire capitalism, liberal capitalism, Long Term Capital Management, manufacturing employment, market bubble, Martin Wolf, new economy, oil shale / tar sands, oil shock, open economy, Paul Samuelson, payday loans, post-industrial society, post-oil, price mechanism, price stability, Ralph Nader, RAND corporation, reserve currency, Robert Gordon, Ronald Reagan, Simon Kuznets, strikebreaker, trade liberalization, union organizing, urban planning, urban renewal, War on Poverty, Washington Consensus, working poor, Yom Kippur War

More than twenty thousand steel jobs were gone. As it did in the past, the United States produced a trade remedy. Undersecretary of the Treasury Anthony Solomon set up minimum prices for imports. The price was based on the costs of the most efficient foreign producer, Japan. Actually, the Japanese were prepared for quotas and were amazed that Carter demanded only minimum prices. Under the trigger price mechanism (TPM), prices lower than the minimum price would activate a fast track investigation to determine whether dumping occurred. But the price allowed the Europeans and many developing countries to dump with impunity because they could sell at the Japanese price, which was below their own cost of production.108 Initially, Solomon believed that the TPM would be enough to return the industry to profitability, so it could modernize and invest in pollution control.109 But by 1979 Solomon wondered, “Should we fight ’em or join ’em?”

Stevenson, Adlai Stone, Richard Strauss, Robert student activism Students for a Democratic Society (SDS) Summers, Lawrence supply-side economics Swann, Thelma Sweezy, Paul Taft, Robert Taft-Hartley Act Tarbell, Ida tariffs: European Teeter, Robert Teeters, Nancy telecommunications Texas Instruments textile industry, U.S. Textile Workers Union of America Theobald, Robert Thieu, Nguyen Van Third World exporters, politics of Tho, Le Duc Thompson, Dudley Thompson, Frank Thurmond, Strom Thurow, Lester Tobin, James Tokyo Round Townsend, Lynn Townsend, William Toyota trade, U.S., deficits Trade Act Trade Agreements Act Trade Expansion Act Trezise, Philip trigger price mechanism (TPM) Trilateral Commission Tsongas, Paul Tugwell, Rexford Ture, Norman B. Turner, Tom Udall, Morris K. Udall, Stuart Ullman, Al unemployment, U.S. among African Americans and business interests and the Federal Reserve and foreign trade government interventions to reduce and inflation linked to economic growth as political issue rates of United Automobile Workers (UAW) United Kingdom United Nations United Steelworkers of America Uruguay Round U.S.


pages: 331 words: 60,536

The Sovereign Individual: How to Survive and Thrive During the Collapse of the Welfare State by James Dale Davidson, Rees Mogg

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affirmative action, agricultural Revolution, bank run, barriers to entry, Berlin Wall, borderless world, British Empire, California gold rush, clean water, colonial rule, Columbine, compound rate of return, creative destruction, Danny Hillis, debt deflation, ending welfare as we know it, epigenetics, Fall of the Berlin Wall, falling living standards, feminist movement, financial independence, Francis Fukuyama: the end of history, full employment, George Gilder, Hernando de Soto, illegal immigration, income inequality, informal economy, information retrieval, Isaac Newton, Kevin Kelly, market clearing, Martin Wolf, Menlo Park, money: store of value / unit of account / medium of exchange, new economy, New Urbanism, offshore financial centre, Parkinson's law, pattern recognition, phenotype, price mechanism, profit maximization, rent-seeking, reserve currency, road to serfdom, Ronald Coase, school vouchers, seigniorage, Silicon Valley, spice trade, statistical model, telepresence, The Nature of the Firm, the scientific method, The Wealth of Nations by Adam Smith, Thomas L Friedman, Thomas Malthus, trade route, transaction costs, Turing machine, union organizing, very high income, Vilfredo Pareto

Kroszncr, by "the completeness of market forces and the ability of market forces to penetrate intrafirm relationships."26 As we argued earlier, it is doubtful that firms will be able to survive the increasing penetration of market forces into what have heretofore been "intrafirm relationships." As a result, firms will tend to dissolve as information technology makes it more rewarding to rely upon the price mechanism and the auction market to undertake tasks that need doing rather than having them internalized within a formal organization. As information technology increasingly automates the production process, it will take away part of the raison d 'etre of the firm, the need to employ and motivate managers to monitor individual workers. "Why Are There Firms?" Remember, the question "Why are there firms?" is not as trivial as it may seem on casual observation. Microeconomics generally assumes that the price mechanism is the most effective means of coordinating resources for their most valued uses. As Putterman and Kroszner observe, this tends to imply that organizations like firms have no inherent "economic raison d'etre."27 In this sense, firms are mainly artifacts of information and transaction costs, which information technologies tend to reduce drastically.


pages: 298 words: 81,200

Where Good Ideas Come from: The Natural History of Innovation by Steven Johnson

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Ada Lovelace, Albert Einstein, Alfred Russel Wallace, carbon-based life, Cass Sunstein, cleantech, complexity theory, conceptual framework, cosmic microwave background, creative destruction, crowdsourcing, data acquisition, digital Maoism, digital map, discovery of DNA, Dmitri Mendeleev, double entry bookkeeping, double helix, Douglas Engelbart, Douglas Engelbart, Drosophila, Edmond Halley, Edward Lloyd's coffeehouse, Ernest Rutherford, Geoffrey West, Santa Fe Institute, greed is good, Hans Lippershey, Henri Poincaré, hive mind, Howard Rheingold, hypertext link, invention of air conditioning, invention of movable type, invention of the printing press, invention of the telephone, Isaac Newton, Islamic Golden Age, Jacquard loom, James Hargreaves, James Watt: steam engine, Jane Jacobs, Jaron Lanier, John Snow's cholera map, Joseph Schumpeter, Joseph-Marie Jacquard, Kevin Kelly, lone genius, Louis Daguerre, Louis Pasteur, Mason jar, mass immigration, Mercator projection, On the Revolutions of the Heavenly Spheres, online collectivism, packet switching, PageRank, patent troll, pattern recognition, price mechanism, profit motive, Ray Oldenburg, Richard Florida, Richard Thaler, Ronald Reagan, side project, Silicon Valley, silicon-based life, six sigma, Solar eclipse in 1919, spinning jenny, Steve Jobs, Steve Wozniak, Stewart Brand, The Death and Life of Great American Cities, The Great Good Place, The Wisdom of Crowds, Thomas Kuhn: the structure of scientific revolutions, transaction costs, urban planning

In modern tech-speak, markets allowed innovation to flourish at the edges of the network. Planned economies were more like the old mainframe computer systems that predated the Internet, where every participant had to get authorization from a central machine to do new work. When Friedrich von Hayek launched his influential argument in the 1940s about the importance of price signals in market economies, he was observing a related phenomenon: the decentralized pricing mechanism of the marketplace allows an entrepreneur to gauge the relative value of his or her innovation. If you come up with an interesting new contraption, you don’t need to persuade a government commission of its value. You just need to get someone to buy it. Entire institutions and legal frameworks—not to mention a vast tower of conventional wisdom—have been built around the Carrier model of innovation.


pages: 252 words: 80,636

Bureaucracy by David Graeber

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3D printing, a long time ago in a galaxy far, far away, Affordable Care Act / Obamacare, airport security, Albert Einstein, banking crisis, barriers to entry, borderless world, Bretton Woods, British Empire, collateralized debt obligation, Columbine, conceptual framework, Corn Laws, David Graeber, George Gilder, High speed trading, hiring and firing, Kitchen Debate, late capitalism, means of production, music of the spheres, new economy, obamacare, Occupy movement, Parkinson's law, Peter Thiel, planetary scale, price mechanism, Ronald Reagan, self-driving car, Silicon Valley, South Sea Bubble, transcontinental railway, union organizing, urban planning, zero-sum game

There followed stage two of the argument, which was, in its essence, that bureaucracy represents an inherent flaw in the democratic project.9 Its greatest exponent was Ludwig von Mises, an exiled Austrian aristocrat, whose 1944 book Bureaucracy argued that by definition, systems of government administration could never organize information with anything like the efficiency of impersonal market pricing mechanisms. However, extending the vote to the losers of the economic game would inevitably lead to calls for government intervention, framed as high-minded schemes for trying to solve social problems through administrative means. Von Mises was willing to admit that many of those who embraced such solutions were entirely well-meaning; however, their efforts could only make matters worse. In fact, he felt they would ultimately end up destroying the political basis of democracy itself, since the administrators of social programs would inevitably form power-blocs far more influential than the politicians elected to run the government, and support ever-more radical reforms.


pages: 218 words: 63,471

How We Got Here: A Slightly Irreverent History of Technology and Markets by Andy Kessler

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Albert Einstein, Andy Kessler, automated trading system, bank run, Big bang: deregulation of the City of London, Bob Noyce, Bretton Woods, British Empire, buttonwood tree, Claude Shannon: information theory, Corn Laws, Douglas Engelbart, Edward Lloyd's coffeehouse, fiat currency, fixed income, floating exchange rates, Fractional reserve banking, full employment, Grace Hopper, invention of the steam engine, invention of the telephone, invisible hand, Isaac Newton, Jacquard loom, Jacquard loom, James Hargreaves, James Watt: steam engine, John von Neumann, joint-stock company, joint-stock limited liability company, Joseph-Marie Jacquard, Leonard Kleinrock, Marc Andreessen, Maui Hawaii, Menlo Park, Metcalfe's law, Metcalfe’s law, packet switching, price mechanism, probability theory / Blaise Pascal / Pierre de Fermat, profit motive, railway mania, RAND corporation, Robert Metcalfe, Silicon Valley, Small Order Execution System, South Sea Bubble, spice trade, spinning jenny, Steve Jobs, supply-chain management, supply-chain management software, trade route, transatlantic slave trade, transatlantic slave trade, tulip mania, Turing machine, Turing test, William Shockley: the traitorous eight

So Trust with a capital T is key. It’s the same for stock markets. If everyone sells Intel on the same day, its price would go to zero, there are not enough buyers or capital to handle a run on the stock. But it doesn’t go to zero. At a low enough price, some investors see the value of Intel’s future earnings and start buying it. So stock markets are built on Trust with a capital T as well, but there is a price mechanism to hold off runs and panics. Not so with banks. *** More trade meant even more gold flowed into England, but unfortunately, there was no outlet for it. The Brits could have bought more foreign goods, which would have reduced their trade surplus and incoming gold, but there was not much to buy, and the echo of mercantilism of times past still encouraged exports and hording gold. England might have bought foreign fixed assets, maybe land or buildings, but they weren’t necessarily for sale.


pages: 232 words: 77,956

Private Island: Why Britain Now Belongs to Someone Else by James Meek

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Affordable Care Act / Obamacare, Berlin Wall, business continuity plan, call centre, clean water, Deng Xiaoping, Etonian, HESCO bastion, housing crisis, illegal immigration, Martin Wolf, medical bankruptcy, Mikhail Gorbachev, post-industrial society, pre–internet, price mechanism, Right to Buy, risk tolerance, road to serfdom, Ronald Reagan, Rubik’s Cube, Skype, sovereign wealth fund, Washington Consensus, working poor

Battle was well aware of the unfairness of the French takeover, but was under the impression that Littlechild was happy to see it go ahead. The civil servants who might have told him otherwise don’t seem to have made a fuss about it; the DTI’s permanent secretary at the time, Michael Scholar, told me in an email that the EDF takeover ‘was not in the department a cause célèbre’. Battle now regrets not challenging Littlechild and the other regulators. ‘The regulator was completely fixed on price mechanism as the be all and end all, and opening up to new entrants. On paper it sounded fine. But in the real global economy, we couldn’t buy a French power station, and they could buy ours. We didn’t get a grip on the regulators. We left the framework to them. We should have changed the remit. We were too cautious and nervous about questioning the market. Why was it that we had to lose our nationalised industries in order to hand them over to nationalised industries from other countries?


pages: 193 words: 63,618

The Fair Trade Scandal: Marketing Poverty to Benefit the Rich by Ndongo Sylla

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British Empire, carbon footprint, corporate social responsibility, David Ricardo: comparative advantage, deglobalization, Doha Development Round, Food sovereignty, global value chain, illegal immigration, income inequality, income per capita, invisible hand, Joseph Schumpeter, labour mobility, land reform, market fundamentalism, mass immigration, means of production, Mont Pelerin Society, Naomi Klein, non-tariff barriers, offshore financial centre, open economy, Philip Mirowski, Plutocrats, plutocrats, price mechanism, purchasing power parity, Ronald Reagan, Scientific racism, selection bias, structural adjustment programs, The Wealth of Nations by Adam Smith, trade liberalization, transaction costs, transatlantic slave trade, trickle-down economics, Washington Consensus, zero-sum game

It offers real-time tracking of the agricultural products it certifies. It does not guarantee a minimum price. Prices are negotiated between sellers and buyers. According to this foundation, however, buyers are always prepared to agree a price increase which would reflect the value added provided by the label. The price of certification is also determined through a negotiation process between sellers and buyers. UTZ Certified does not interfere with the pricing mechanism. It simply levies administrative costs. However, it is criticised for having relatively loose standards on the environment and the rights of workers. Founded in 1991 and based in Washington, the mission of the Smithsonian Migratory Bird Center is to study, popularise and protect migrating birds. It promotes a rather original label. In 1998, it introduced the Bird-friendly Coffee programme in order to promote practices that help protect the habitats of migratory birds.


pages: 252 words: 73,131

The Inner Lives of Markets: How People Shape Them—And They Shape Us by Tim Sullivan

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Airbnb, airport security, Al Roth, Alvin Roth, Andrei Shleifer, attribution theory, autonomous vehicles, barriers to entry, Brownian motion, centralized clearinghouse, Chuck Templeton: OpenTable, clean water, conceptual framework, constrained optimization, continuous double auction, creative destruction, deferred acceptance, Donald Trump, Edward Glaeser, experimental subject, first-price auction, framing effect, frictionless, fundamental attribution error, George Akerlof, Goldman Sachs: Vampire Squid, Gunnar Myrdal, helicopter parent, information asymmetry, Internet of things, invisible hand, Isaac Newton, iterative process, Jean Tirole, Jeff Bezos, Johann Wolfgang von Goethe, John Nash: game theory, John von Neumann, Joseph Schumpeter, Kenneth Arrow, late fees, linear programming, Lyft, market clearing, market design, market friction, medical residency, multi-sided market, mutually assured destruction, Nash equilibrium, Occupy movement, Pareto efficiency, Paul Samuelson, Peter Thiel, pets.com, pez dispenser, pre–internet, price mechanism, price stability, prisoner's dilemma, profit motive, proxy bid, RAND corporation, ride hailing / ride sharing, Robert Shiller, Robert Shiller, Ronald Coase, school choice, school vouchers, sealed-bid auction, second-price auction, second-price sealed-bid, sharing economy, Silicon Valley, spectrum auction, Steve Jobs, Tacoma Narrows Bridge, technoutopianism, telemarketer, The Market for Lemons, The Wisdom of Crowds, Thomas Malthus, Thorstein Veblen, trade route, transaction costs, two-sided market, uranium enrichment, Vickrey auction, Vilfredo Pareto, winner-take-all economy

In the past, economists might have ignored this kind of problem, since it fell well outside the scope of the discipline (although nearly all economists experienced the existential angst of some version of this dance, usually in the role of Albert). For much of the economics profession’s existence, when economists thought about allocating resources, they focused on two polar options: market prices or a bossy manager or bureaucrat. Problems like matching middle-school dancers didn’t lend itself to the price mechanism, which would have had dancers paying for one another’s attention (we’re sure you can immediately see the problems with a pay-to-date system). And a Soviet-style central planning committee (made up of who? the popular kids? the principal? concerned parents?) won’t go very far in solving the problem either. The middle-school dance needs a market design makeover, and not one that can be accomplished by market makers of the credit card or Uber variety.


pages: 224 words: 69,494

Mobility: A New Urban Design and Transport Planning Philosophy for a Sustainable Future by John Whitelegg

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active transport: walking or cycling, Berlin Wall, British Empire, car-free, conceptual framework, congestion charging, corporate social responsibility, decarbonisation, energy transition, eurozone crisis, glass ceiling, Intergovernmental Panel on Climate Change (IPCC), megacity, meta analysis, meta-analysis, New Urbanism, peak oil, post-industrial society, price mechanism, Right to Buy, smart cities, telepresence, the built environment, The Death and Life of Great American Cities, The Spirit Level, transit-oriented development, urban planning, urban sprawl

Reduction of traffic volume (fewer vehicle kilometres). More energy conscious driving behaviour. Enhanced traffic circulation (by infrastructure changes and electronic methods).” The same conclusion was reached in a European Conference of Ministers of Transport study published in 1995 (OECD, 1995). This study listed 29 measures grouped under 4 headings: Land use management. Road traffic management. Environmental protection. Pricing mechanisms. As in the TNO (1992) study the authors argued: “All the policy instruments listed are potentially helpful but no single one of them has the power to achieve the objectives of sustainable development: to do this governments need to introduce packages of policies that are mutually reinforcing.” In 2004 the UK Department for Transport funded a study on how to reduce CO2 emissions in transport by 60% (Hickman and Banister, 2005).

Global Governance and Financial Crises by Meghnad Desai, Yahia Said

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Asian financial crisis, bank run, banking crisis, Bretton Woods, capital controls, central bank independence, corporate governance, creative destruction, credit crunch, crony capitalism, currency peg, deglobalization, financial deregulation, financial innovation, Financial Instability Hypothesis, financial intermediation, financial repression, floating exchange rates, frictionless, frictionless market, German hyperinflation, information asymmetry, knowledge economy, liberal capitalism, liberal world order, Long Term Capital Management, market bubble, Mexican peso crisis / tequila crisis, moral hazard, Nick Leeson, oil shock, open economy, price mechanism, price stability, Real Time Gross Settlement, rent-seeking, short selling, special drawing rights, structural adjustment programs, Tobin tax, transaction costs, Washington Consensus

Baker was convinced in 1985 that growth should resume via structural reforms and that the international institutions should back up structural adjustments in granting longer credits under conditions which became more intrusive. Macroeconomic stabilization was no longer held as the single device to recover an already ploughed growth track. Microeconomic conditions for growth had to be created in privatizing public sectors, in deregulating price mechanisms, in opening markets to foreign competition. On the financial side, liberalization had to be undertaken to reduce the amount of foreign debt via securitization (Brady Plan in 1989) and to attract new funds from non-bank private creditors. Without endorsing debt reduction schemes publicly, the IMF actively encouraged commercial banks that had provisioned their losses to sell their loans at a discount.


pages: 261 words: 81,802

The Trouble With Billionaires by Linda McQuaig

battle of ideas, Bernie Madoff, Big bang: deregulation of the City of London, British Empire, Build a better mousetrap, carried interest, collateralized debt obligation, computer age, corporate governance, Credit Default Swap, credit default swaps / collateralized debt obligations, Douglas Engelbart, Douglas Engelbart, employer provided health coverage, financial deregulation, fixed income, full employment, George Akerlof, Gini coefficient, income inequality, Intergovernmental Panel on Climate Change (IPCC), invention of the telephone, invention of the wheel, invisible hand, Isaac Newton, Jacquard loom, Jacquard loom, Joseph-Marie Jacquard, laissez-faire capitalism, land tenure, Mark Zuckerberg, market bubble, Martin Wolf, mega-rich, minimum wage unemployment, Mont Pelerin Society, Naomi Klein, neoliberal agenda, Northern Rock, offshore financial centre, Paul Samuelson, Plutocrats, plutocrats, Ponzi scheme, pre–internet, price mechanism, purchasing power parity, RAND corporation, rent-seeking, rising living standards, road to serfdom, Ronald Reagan, The Chicago School, The Spirit Level, The Wealth of Nations by Adam Smith, Tobin tax, too big to fail, trickle-down economics, Vanguard fund, very high income, wealth creators, women in the workforce

He recognized that capitalism could only survive in a democracy if the general public benefited from it, and this involved redistributing its bounty, which otherwise ends up concentrated in the hands of the few. Simons argued that progressive taxation was the best way to achieve the necessary redistribution – since it involved the least amount of government intrusion in the market. Taxes, after all, don’t interfere with the market’s ability to determine prices and to allocate resources through the price mechanism – key features of the market economy. They don’t involve a government bureaucrat imposing measures that interfere with the basic elements of supply and demand. ‘No fundamental disturbance of the whole system is involved,’ noted Simons in his classic ‌1938 text Personal Income Taxation.6 He elaborated on this theme later, in Economic Policy for a Free Society, emphasizing how progressive taxation achieves redistribution without impinging on freedom: ‘What is important for libertarians is that we preserve the basic processes of free exchange and that egalitarian measures be superimposed on those processes, effecting redistribution afterward and not in the immediate course ‌of production and commercial transactions.’7 It could be added here that taxation – and even heavy taxation of the rich – was supported by no less a conservative heavyweight than Adam Smith.

Patriot Games by Tom Clancy

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British Empire, invisible hand, pattern recognition, place-making, price mechanism

"I must be slowing down." "Poor baby, having to drink all that champagne all by himself." She kissed him on the forehead. "Screwdriver." He handed it to her. Cathy took a quick look at the plans. "No wonder, you dummy. You're using a short screw when you're supposed to use a long one." "I keep forgetting that I'm married to a high-priced mechanic." "That's real Christmas spirit. Jack." She grinned as she turned the screw into place. "A very pretty, smart, and extremely lovable high-priced mechanic." He ran a finger down the back of her neck. "That's a little better." "Who's better with tools than I am, one-handed." Her head turned to reveal the sort of smile a wife saves only for the husband she loves. "Give me another screw. Jack, and I'll forgive you." "Don't you think you should finish the doll house first?"

The Age of Turbulence: Adventures in a New World (Hardback) - Common by Alan Greenspan

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air freight, airline deregulation, Albert Einstein, asset-backed security, bank run, Berlin Wall, Bretton Woods, business process, call centre, capital controls, central bank independence, collateralized debt obligation, collective bargaining, conceptual framework, Corn Laws, corporate governance, corporate raider, correlation coefficient, creative destruction, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, crony capitalism, cuban missile crisis, currency peg, Deng Xiaoping, Dissolution of the Soviet Union, Doha Development Round, double entry bookkeeping, equity premium, everywhere but in the productivity statistics, Fall of the Berlin Wall, fiat currency, financial innovation, financial intermediation, full employment, Gini coefficient, Hernando de Soto, income inequality, income per capita, invisible hand, Joseph Schumpeter, labor-force participation, labour market flexibility, laissez-faire capitalism, land reform, Long Term Capital Management, Mahatma Gandhi, manufacturing employment, market bubble, means of production, Mikhail Gorbachev, moral hazard, mortgage debt, Myron Scholes, new economy, North Sea oil, oil shock, open economy, Pearl River Delta, pets.com, Potemkin village, price mechanism, price stability, Productivity paradox, profit maximization, purchasing power parity, random walk, reserve currency, Right to Buy, risk tolerance, Ronald Reagan, shareholder value, short selling, Silicon Valley, special economic zone, the payments system, The Wealth of Nations by Adam Smith, Thorstein Veblen, too big to fail, total factor productivity, trade liberalization, trade route, transaction costs, transcontinental railway, urban renewal, working-age population, Y2K, zero-sum game

I suspected that the aide didn't actually believe that, but I couldn't tell whether what he really felt was cynicism or doubt. One might think that smart planning authorities should have been able to adjust to their models' shortcomings. People like Sitaryan are smart, and they tried. But they took too much on themselves. Without the immediate signals of price changes that make capitalist markets work, how was anyone to know how much of each product to manufacture? Without the help of a market pricing mechanism, Soviet economic planning had no effective feedback to guide it. Just as important, the planners did not have the signals of finance to adjust the allocation of savings to real productive investments that accommodated the population's shifting needs and tastes. Years before becoming Fed chairman, I'd actually tried picturing myself in the central planner's job. From 1983 to 1985,1 served under Reagan on the President's Foreign Intelligence Advisory Board (PFIAB), where I was asked to review U.S. assessments of the Soviet ability to absorb the strain of accelerated armament.

Our skilled jobs are the highest paid in the world. Accordingly, were we to allow open migration of skilled workers to this country, there would soon be a lower wage premium of skilled over lesser skilled and an end to our shortages of skilled workers.* The shortages occur because we are inhibiting world competitive labor markets from functioning. Administrative exclusionary rules have been substituted for the pricing mechanism. In the process, we have created in this country a privileged, native-born elite of skilled workers whose incomes are being supported at noncompetitively high levels by immigration quotas on skilled professionals. Eliminating such restrictions would, at the stroke of a pen, reduce much income inequality and address the problem of a potentially noncompetitive capital stock. The politics of immigration policy, of course, is influenced by far more than economics.


pages: 381 words: 101,559

Currency Wars: The Making of the Next Gobal Crisis by James Rickards

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Asian financial crisis, bank run, Benoit Mandelbrot, Berlin Wall, Big bang: deregulation of the City of London, Black Swan, borderless world, Bretton Woods, BRICs, British Empire, business climate, capital controls, Carmen Reinhart, Cass Sunstein, collateralized debt obligation, complexity theory, corporate governance, Credit Default Swap, credit default swaps / collateralized debt obligations, currency manipulation / currency intervention, currency peg, Daniel Kahneman / Amos Tversky, Deng Xiaoping, diversification, diversified portfolio, Fall of the Berlin Wall, family office, financial innovation, floating exchange rates, full employment, game design, German hyperinflation, Gini coefficient, global rebalancing, global reserve currency, high net worth, income inequality, interest rate derivative, John Meriwether, Kenneth Rogoff, labour mobility, laissez-faire capitalism, liquidity trap, Long Term Capital Management, mandelbrot fractal, margin call, market bubble, Mexican peso crisis / tequila crisis, money market fund, money: store of value / unit of account / medium of exchange, Myron Scholes, Network effects, New Journalism, Nixon shock, offshore financial centre, oil shock, one-China policy, open economy, paradox of thrift, Paul Samuelson, price mechanism, price stability, private sector deleveraging, quantitative easing, race to the bottom, RAND corporation, rent-seeking, reserve currency, Ronald Reagan, sovereign wealth fund, special drawing rights, special economic zone, The Myth of the Rational Market, The Wealth of Nations by Adam Smith, The Wisdom of Crowds, Thomas Kuhn: the structure of scientific revolutions, time value of money, too big to fail, value at risk, War on Poverty, Washington Consensus, zero-sum game

,” the IMF presented a blueprint for the creation of a liquid SDR bond market, the antecedent to replacing the dollar as the global reserve currency with SDRs. The IMF’s paper identifies both potential issuers of SDR bonds, including the World Bank and regional development banks, and potential buyers, including sovereign wealth funds and global corporations. The study contains recommended maturity structures and pricing mechanisms, as well as detailed diagrams for the clearance, settlement and financing of such bonds. Suggestions are made to change the SDR basket over time so as to enhance the weight of the Chinese yuan and to diminish the weight of the dollar. The IMF study is optimistic about the speed and stealth with which this could be accomplished. “Experience . . . suggests the process may be relatively fast and need not involve significant public support,” it states.


pages: 364 words: 101,286

The Misbehavior of Markets by Benoit Mandelbrot

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Albert Einstein, asset allocation, Augustin-Louis Cauchy, Benoit Mandelbrot, Big bang: deregulation of the City of London, Black-Scholes formula, British Empire, Brownian motion, buy low sell high, capital asset pricing model, carbon-based life, discounted cash flows, diversification, double helix, Edward Lorenz: Chaos theory, Elliott wave, equity premium, Eugene Fama: efficient market hypothesis, Fellow of the Royal Society, full employment, Georg Cantor, Henri Poincaré, implied volatility, index fund, informal economy, invisible hand, John Meriwether, John von Neumann, Long Term Capital Management, Louis Bachelier, mandelbrot fractal, market bubble, market microstructure, Myron Scholes, new economy, paper trading, passive investing, Paul Lévy, Paul Samuelson, Plutocrats, plutocrats, price mechanism, quantitative trading / quantitative finance, Ralph Nelson Elliott, RAND corporation, random walk, risk tolerance, Robert Shiller, Robert Shiller, short selling, statistical arbitrage, statistical model, Steve Ballmer, stochastic volatility, transfer pricing, value at risk, Vilfredo Pareto, volatility smile

Wars start, peace returns, economies expand, firms fail—all these come and go, affecting prices. But the fundamental process by which prices react to news does not change. A mathematician would say market processes are “stationary.” This contradicts some would-be reformers of the random-walk model who explain the way volatility clusters by asserting that the market is in some way changing, that volatility varies because the pricing mechanism varies. Wrong. A striking example: My analysis of cotton prices over the past century shows the same broad pattern of price variability at the turn of the last century when prices were unregulated, as there was in the 1930s when prices were regulated as part of the New Deal. Rule IV. Markets mislead. Patterns are the fool’s gold of financial markets. The power of chance suffices to create spurious patterns and pseudo-cycles that, for all the world, appear predictable and bankable.


pages: 321 words: 85,267

Suburban Nation by Andres Duany, Elizabeth Plater-Zyberk, Jeff Speck

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A Pattern Language, big-box store, car-free, Celebration, Florida, City Beautiful movement, desegregation, edge city, Frank Gehry, housing crisis, if you build it, they will come, income inequality, intermodal, Jane Jacobs, jitney, McMansion, New Urbanism, place-making, price mechanism, profit motive, Ralph Nader, Seaside, Florida, Silicon Valley, skinny streets, the built environment, The Death and Life of Great American Cities, The Great Good Place, transit-oriented development, urban planning, urban renewal, urban sprawl, white flight, working poor, Works Progress Administration

Already, cars and other vehicles are seen as the worst polluters of urban air and the biggest producers of carbon dioxide, the chief suspect in global warming (The Economist, “Living with the Car,” 4). About half of U.S. air pollution emissions come from motor vehicles (MacKenzie, Dower, and Chen, 14). bf “Cheap gasoline forever, whatever,” is how The Economist describes the American approach to transportation planning, adding: “Hence the paradox that the freest market in the world eschews the price mechanism and applies command-and-control regulation to a central portion of its economy” (“Living with the Car,” 7). bg As The Boston Globe’s David Nyhan notes, “If that result were an election, we’d call it a landslide … Conclusion: the people are way out in front of the politicians again” (Nyhan, “For the Planet’s Sake, Hike the Gas Tax,” A27). bh Philip Langdon, A Better Place to Live, 119.


pages: 348 words: 99,383

The Financial Crisis and the Free Market Cure: Why Pure Capitalism Is the World Economy's Only Hope by John A. Allison

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Affordable Care Act / Obamacare, bank run, banking crisis, Bernie Madoff, clean water, collateralized debt obligation, correlation does not imply causation, Credit Default Swap, credit default swaps / collateralized debt obligations, crony capitalism, disintermediation, fiat currency, financial innovation, Fractional reserve banking, full employment, high net worth, housing crisis, invisible hand, life extension, low skilled workers, market bubble, market clearing, minimum wage unemployment, money market fund, moral hazard, negative equity, obamacare, Paul Samuelson, price mechanism, price stability, profit maximization, quantitative easing, race to the bottom, reserve currency, risk/return, Robert Shiller, Robert Shiller, The Bell Curve by Richard Herrnstein and Charles Murray, too big to fail, transaction costs, yield curve, zero-sum game

Imagine if you had food insurance: every time you went to the grocery store, you would file a claim for your food purchases, and your insurance company would negotiate with the grocery store over the prices and maybe ask you to take back something that it did not think was good for you. One of the fundamental laws of economics is that if a good or service is priced at less than it is worth, it will be overused—that is, wasted—because the pricing mechanism has been destroyed. The typical consumer of health services in today’s government-enforced hybrid system never negotiates with his doctor over price. In addition, the doctor has a major incentive to overprescribe because the more she does, the more she gets paid and the more she reduces the risk of being sued. I have had numerous doctors confidentially admit that they request far too many procedures because these procedures are “free” to the patient, and why take the liability risk?


pages: 311 words: 17,232

Living in a Material World: The Commodity Connection by Kevin Morrison

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barriers to entry, Berlin Wall, carbon footprint, clean water, commoditize, commodity trading advisor, computerized trading, diversified portfolio, Doha Development Round, Elon Musk, energy security, European colonialism, flex fuel, food miles, Hernando de Soto, Hugh Fearnley-Whittingstall, hydrogen economy, Intergovernmental Panel on Climate Change (IPCC), Long Term Capital Management, new economy, North Sea oil, oil rush, oil shale / tar sands, oil shock, out of africa, Paul Samuelson, peak oil, price mechanism, Ronald Coase, Ronald Reagan, Silicon Valley, sovereign wealth fund, the payments system, The Wealth of Nations by Adam Smith, trade liberalization, transaction costs, uranium enrichment, young professional

For much of the early period the British pound was the currency of international trade, so the LME’s contracts, together with the imposition of tariffs were more suitable for global trading and London was therefore able to remain the centre of global copper trading. Copper trade on the LME really took off after the nationalization of Codelco, which preferred to sell its copper at a price set by the market rather than a producer price mechanism. The other main competitor to the LME is the Shanghai Futures Exchange. 214 | LIVING IN A MATERIAL WORLD Copper Rush Even the US is having a new copper rush, just as it did in the late 19th century. In some ways things have not changed; there was an 80% increase in the number of active mining claims on public lands to more than 370 000 in the four and a half years to July 2007, mainly in the western US states, though some are near iconic American sites like the Grand Canyon and Yosemite National Park.


pages: 364 words: 99,613

Servant Economy: Where America's Elite Is Sending the Middle Class by Jeff Faux

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back-to-the-land, Bernie Sanders, Black Swan, Bretton Woods, BRICs, British Empire, call centre, centre right, cognitive dissonance, collateralized debt obligation, collective bargaining, creative destruction, Credit Default Swap, credit default swaps / collateralized debt obligations, crony capitalism, currency manipulation / currency intervention, David Brooks, David Ricardo: comparative advantage, falling living standards, financial deregulation, financial innovation, full employment, hiring and firing, Howard Zinn, Hyman Minsky, illegal immigration, indoor plumbing, informal economy, invisible hand, John Maynard Keynes: Economic Possibilities for our Grandchildren, lake wobegon effect, Long Term Capital Management, market fundamentalism, Martin Wolf, McMansion, medical malpractice, mortgage debt, Myron Scholes, Naomi Klein, new economy, oil shock, old-boy network, Paul Samuelson, Plutocrats, plutocrats, price mechanism, price stability, private military company, Ralph Nader, reserve currency, rising living standards, Robert Shiller, Robert Shiller, rolodex, Ronald Reagan, school vouchers, Silicon Valley, single-payer health, South China Sea, statistical model, Steve Jobs, Thomas L Friedman, Thorstein Veblen, too big to fail, trade route, Triangle Shirtwaist Factory, union organizing, upwardly mobile, urban renewal, War on Poverty, We are the 99%, working poor, Yogi Berra, Yom Kippur War

That U.S. consumers, representing less than 5 percent of the world’s current population, can continue to use 25 percent of the world’s fossil-fuel resources is not credible. Moreover, although we don’t know how long it will take for the full force of climate change to arrive, we can see it coming. In the wake of our recent financial disasters, to imagine that these resource and environmental pressures can in any way be resolved by the price mechanisms of unregulated markets is preposterous. Yet, no serious observer believes that our current political institutions are capable of dealing with that reality. A governing class that will not bring itself to rescue the sinking incomes of the majority of its voters in the next election is hardly going to lead the world to stop a projected rise in the sea level decades in the future. And neither is it likely that a public, suddenly finding itself under more financial stress, will force its governing class to pay more attention to the fate of the planet.


pages: 337 words: 89,075

Understanding Asset Allocation: An Intuitive Approach to Maximizing Your Portfolio by Victor A. Canto

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accounting loophole / creative accounting, airline deregulation, Andrei Shleifer, asset allocation, Bretton Woods, buy low sell high, capital asset pricing model, commodity trading advisor, corporate governance, discounted cash flows, diversification, diversified portfolio, fixed income, frictionless, high net worth, index fund, inflation targeting, invisible hand, John Meriwether, law of one price, liquidity trap, London Interbank Offered Rate, Long Term Capital Management, market bubble, merger arbitrage, money market fund, new economy, passive investing, Paul Samuelson, price mechanism, purchasing power parity, risk tolerance, risk-adjusted returns, risk/return, Ronald Reagan, selection bias, shareholder value, Sharpe ratio, short selling, statistical arbitrage, survivorship bias, the market place, transaction costs, Y2K, yield curve, zero-sum game

Either exchange-traded funds (ETFs), or passively managed low-cost index funds, could fill most buckets in question. ETFs and the low cost-managed index funds are diversified baskets of securities designed to track the performance of well-known indices, proprietary indices or basket of securities. The major differences between the two is that the ETF are traded as individual stocks on major exchanges while the passive funds are subject to the traditional mutual funds-pricing mechanism (that is, at the close of market). They offer diversification or exposure to an entire market index or sector with one security at very low costs (that is, management fees). Each asset class was available at some point over the last three decades. Looking forward, it is readily apparent that—with ETFs’ proliferation—investors can now easily expand their choices and further disaggregate the international allocation, the fixed-income allocation, and even the domestic allocation (see Figure 6.4).


pages: 318 words: 87,570

Broken Markets: How High Frequency Trading and Predatory Practices on Wall Street Are Destroying Investor Confidence and Your Portfolio by Sal Arnuk, Joseph Saluzzi

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algorithmic trading, automated trading system, Bernie Madoff, buttonwood tree, commoditize, computerized trading, corporate governance, cuban missile crisis, financial innovation, Flash crash, Gordon Gekko, High speed trading, latency arbitrage, locking in a profit, Mark Zuckerberg, market fragmentation, Ponzi scheme, price discovery process, price mechanism, price stability, Sergey Aleynikov, Sharpe ratio, short selling, Small Order Execution System, statistical arbitrage, transaction costs, two-sided market, zero-sum game

Most industry professionals we talk to believe these four horsemen are responsible for 40–50% of all trading on the NYSE. With their electronic savvy and prowess, they optimize their automated trading programs to maximize the money they earn from trading as well as from rebates paid to them by NYSE. DMMs make money not only from buying stocks and selling them higher, but also from the exchanges, which reward them with rebates for “adding liquidity.” The exchanges have adopted complex pricing mechanisms that reward the adding of liquidity with a small rebate, while charging a small fee for the taking of liquidity. Due to these exchange rebates, DMMs can make money even when they buy and sell at the same price. A critical factor in doing this is speed. Key for the DMMs’ success, therefore, is being as close as possible to the exchange. DMMs have several things tipping the scales in their favor versus traditional investors and traders.


pages: 323 words: 95,939

Present Shock: When Everything Happens Now by Douglas Rushkoff

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algorithmic trading, Andrew Keen, bank run, Benoit Mandelbrot, big-box store, Black Swan, British Empire, Buckminster Fuller, cashless society, citizen journalism, clockwork universe, cognitive dissonance, Credit Default Swap, crowdsourcing, Danny Hillis, disintermediation, Donald Trump, double helix, East Village, Elliott wave, European colonialism, Extropian, facts on the ground, Flash crash, game design, global supply chain, global village, Howard Rheingold, hypertext link, Inbox Zero, invention of agriculture, invention of hypertext, invisible hand, iterative process, John Nash: game theory, Kevin Kelly, laissez-faire capitalism, Law of Accelerating Returns, loss aversion, mandelbrot fractal, Marshall McLuhan, Merlin Mann, Milgram experiment, mutually assured destruction, negative equity, Network effects, New Urbanism, Nicholas Carr, Norbert Wiener, Occupy movement, passive investing, pattern recognition, peak oil, price mechanism, prisoner's dilemma, Ralph Nelson Elliott, RAND corporation, Ray Kurzweil, recommendation engine, selective serotonin reuptake inhibitor (SSRI), Silicon Valley, Skype, social graph, South Sea Bubble, Steve Jobs, Steve Wozniak, Steven Pinker, Stewart Brand, supply-chain management, the medium is the message, The Wisdom of Crowds, theory of mind, Turing test, upwardly mobile, Whole Earth Catalog, WikiLeaks, Y2K, zero-sum game

Instead of seeing some magical, inexplicable method through which markets solved its problems fairly, Hayek saw markets working through a more systemic process. In his view, pricing is established collectively by thousands or even millions of individual actors, each acting on his own little bit of knowledge. The marketplace serves to resolve all these little pieces of data in a process Hayek called “catallaxy”—a self-organizing system of voluntary cooperation. Feedback and iteration. Price mechanisms were not human inventions so much as the result of collective activity on a lower order. Humans were part of a bigger system that could achieve “spontaneous order.” Between chaos theory, cybernetic systems, and computing brawn, economists finally had the tools to approach the marketplace as a working catallaxy—as a product of nature as complex and stable as human life itself. Economists at the Santa Fe Institute, in particular, churned out chaotic models for the collective economic activity to which humans contributed unconsciously as members of this bigger fractal reality.


pages: 313 words: 95,077

Here Comes Everybody: The Power of Organizing Without Organizations by Clay Shirky

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Andrew Keen, Berlin Wall, bioinformatics, Brewster Kahle, c2.com, crowdsourcing, en.wikipedia.org, hiring and firing, hive mind, Howard Rheingold, Internet Archive, invention of agriculture, invention of movable type, invention of the printing press, invention of the telegraph, jimmy wales, Kuiper Belt, liberation theology, lump of labour, Mahatma Gandhi, means of production, Merlin Mann, Metcalfe’s law, Nash equilibrium, Network effects, Nicholas Carr, Picturephone, place-making, Pluto: dwarf planet, prediction markets, price mechanism, prisoner's dilemma, profit motive, Richard Stallman, Robert Metcalfe, Ronald Coase, Silicon Valley, slashdot, social software, Stewart Brand, supply-chain management, The Nature of the Firm, The Wealth of Nations by Adam Smith, The Wisdom of Crowds, transaction costs, ultimatum game, Vilfredo Pareto, Yogi Berra

People have to be less tightly connected, on average, to one another. As a result, such groups are better able to produce what James Surowiecki has called “the wisdom of crowds.” In his book of that name he identified the ways distributed groups whose members aren’t connected can often generate better answers, by pooling their knowledge or intuition without having to come to an agreement. We have many ways of achieving this kind of aggregation, from market pricing mechanisms to voting to the prediction markets Surowiecki champions, but these methods all have two common characteristics: they work better in large groups, and they don’t require direct communication as the norm among members. (Indeed, in the case of markets, such communication is often forbidden, on the grounds that small clusters of collaborators can actually pervert the workings of the large system.)


pages: 318 words: 85,824

A Brief History of Neoliberalism by David Harvey

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affirmative action, Asian financial crisis, Berlin Wall, Bretton Woods, business climate, capital controls, centre right, collective bargaining, creative destruction, crony capitalism, debt deflation, declining real wages, deglobalization, deindustrialization, Deng Xiaoping, Fall of the Berlin Wall, financial deregulation, financial intermediation, financial repression, full employment, George Gilder, Gini coefficient, global reserve currency, illegal immigration, income inequality, informal economy, labour market flexibility, land tenure, late capitalism, Long Term Capital Management, low-wage service sector, manufacturing employment, market fundamentalism, mass immigration, means of production, Mexican peso crisis / tequila crisis, Mont Pelerin Society, mortgage tax deduction, neoliberal agenda, new economy, Pearl River Delta, phenotype, Ponzi scheme, price mechanism, race to the bottom, rent-seeking, reserve currency, Ronald Reagan, Silicon Valley, special economic zone, structural adjustment programs, the built environment, The Chicago School, transaction costs, union organizing, urban renewal, urban sprawl, Washington Consensus, Winter of Discontent

The weak legal protections for capitalist enterprises put a premium on informal local relations and trust networks that the overseas Chinese were in a privileged position to exploit.15 Subsequently the Chinese government designated several ‘open coastal cities’ as well as ‘open economic regions’ for foreign investment (Figure 5.1). After 1995 it virtually opened the whole country up to foreign direct investment of any type. The wave of bankruptcies that hit some of the TVEs in the manufacturing sector in 1997–8, spilling over into many of the SOEs in the main urban centres, proved a turning-point. Competitive pricing mechanisms then took over from the devolution of power from the central state to the localities as the core process impelling the restructuring of the economy. The effect was to severely damage, if not destroy, many of the SOEs and create a vast wave of unemployment. Reports of considerable labour unrest abounded (see below) and the Chinese government was faced with the problem of absorbing vast labour surpluses if it was to survive.16 It could not solely rely on an ever-expanding inflow of foreign direct investment to solve the problem, important though this might be.


pages: 325 words: 90,659

Narconomics: How to Run a Drug Cartel by Tom Wainwright

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Airbnb, barriers to entry, bitcoin, business process, call centre, collateralized debt obligation, corporate social responsibility, Credit Default Swap, credit default swaps / collateralized debt obligations, failed state, financial innovation, illegal immigration, Mark Zuckerberg, microcredit, price mechanism, RAND corporation, Ronald Reagan, Skype

People with apples to sell take them to the market, and people who want to buy apples go to meet them. The buyers have a look at what’s on offer. If an apple seller sets too high a price, the buyers will go elsewhere. If a buyer bids too little, the seller will offer the apples to someone else instead. A price is agreed when both buyer and seller are satisfied that they are getting the best deal they can. This is the basis of the price mechanism that magically matches supply and demand in market economies around the world. Now imagine the market for an illegal product, such as a banned narcotic. The product’s illegality means that deals have to take place in secret. So unless law and order has really broken down, there is no open market where buyers can compare prices and sellers can hawk their wares. Instead, buyers can shop only from dealers whom they know, through some connection or other.


pages: 323 words: 90,868

The Wealth of Humans: Work, Power, and Status in the Twenty-First Century by Ryan Avent

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3D printing, Airbnb, American energy revolution, assortative mating, autonomous vehicles, Bakken shale, barriers to entry, basic income, Bernie Sanders, BRICs, call centre, Capital in the Twenty-First Century by Thomas Piketty, Clayton Christensen, cloud computing, collective bargaining, computer age, creative destruction, dark matter, David Ricardo: comparative advantage, deindustrialization, dematerialisation, Deng Xiaoping, deskilling, Dissolution of the Soviet Union, Donald Trump, Downton Abbey, Edward Glaeser, Erik Brynjolfsson, eurozone crisis, everywhere but in the productivity statistics, falling living standards, first square of the chessboard, first square of the chessboard / second half of the chessboard, Ford paid five dollars a day, Francis Fukuyama: the end of history, future of work, gig economy, global supply chain, global value chain, hydraulic fracturing, income inequality, indoor plumbing, industrial robot, intangible asset, interchangeable parts, Internet of things, inventory management, invisible hand, Jacquard loom, James Watt: steam engine, Jeff Bezos, John Maynard Keynes: Economic Possibilities for our Grandchildren, Joseph-Marie Jacquard, knowledge economy, low skilled workers, lump of labour, Lyft, manufacturing employment, Marc Andreessen, mass immigration, means of production, new economy, performance metric, pets.com, price mechanism, quantitative easing, Ray Kurzweil, rent-seeking, reshoring, rising living standards, Robert Gordon, Ronald Coase, savings glut, Second Machine Age, secular stagnation, self-driving car, sharing economy, Silicon Valley, single-payer health, software is eating the world, supply-chain management, supply-chain management software, TaskRabbit, The Future of Employment, The Nature of the Firm, The Spirit Level, The Wealth of Nations by Adam Smith, Thomas Malthus, trade liberalization, transaction costs, Tyler Cowen: Great Stagnation, Uber and Lyft, Uber for X, very high income, working-age population

As that demand built, it soon became clear that these urban centres were unable to accommodate a population boom anything like those they had absorbed in the past. Since then, the gap between housing costs and construction costs has widened steadily. If housing supply is free to respond to demand, then when the willingness to pay to live in a city rises above construction costs builders build more in order to pocket the spread as profit. If supply can’t easily respond, however, then the existing stock of housing must be rationed, using the price mechanism. The cost of housing must rise until enough would-be residents decide the cost of living in the city is no longer worth the benefit. Across the US economy as a whole, housing is about 38 per cent more expensive than it would be if housing supply could easily adjust to demand, according to one recent estimate.7 In the tightest markets, such as Manhattan and San Francisco, the effect on prices is considerably larger: most of the cost of housing is attributable to the difficulty of building more.


pages: 421 words: 110,406

Platform Revolution: How Networked Markets Are Transforming the Economy--And How to Make Them Work for You by Sangeet Paul Choudary, Marshall W. van Alstyne, Geoffrey G. Parker

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3D printing, Affordable Care Act / Obamacare, Airbnb, Alvin Roth, Amazon Mechanical Turk, Amazon Web Services, Andrei Shleifer, Apple's 1984 Super Bowl advert, autonomous vehicles, barriers to entry, big data - Walmart - Pop Tarts, bitcoin, blockchain, business process, buy low sell high, chief data officer, Chuck Templeton: OpenTable, clean water, cloud computing, connected car, corporate governance, crowdsourcing, data acquisition, data is the new oil, digital map, discounted cash flows, disintermediation, Edward Glaeser, Elon Musk, en.wikipedia.org, Erik Brynjolfsson, financial innovation, Haber-Bosch Process, High speed trading, information asymmetry, Internet of things, inventory management, invisible hand, Jean Tirole, Jeff Bezos, jimmy wales, John Markoff, Khan Academy, Kickstarter, Lean Startup, Lyft, Marc Andreessen, market design, Metcalfe’s law, multi-sided market, Network effects, new economy, payday loans, peer-to-peer lending, Peter Thiel, pets.com, pre–internet, price mechanism, recommendation engine, RFID, Richard Stallman, ride hailing / ride sharing, Robert Metcalfe, Ronald Coase, Satoshi Nakamoto, self-driving car, shareholder value, sharing economy, side project, Silicon Valley, Skype, smart contracts, smart grid, Snapchat, software is eating the world, Steve Jobs, TaskRabbit, The Chicago School, the payments system, Tim Cook: Apple, transaction costs, two-sided market, Uber and Lyft, Uber for X, winner-take-all economy, zero-sum game, Zipcar

As Heiferman explained in an interview five years later, “The big headline, by the way, in going from free to fee for us is: Yeah, we lost 95% of our activity but now we have much, much, more going on than we ever did before and half the Meetups are successful, as opposed to 1–2% being successful.”5 As we’ve discussed, a platform’s goal is not simply to pump up the numbers of participants and interactions. It must also take steps to encourage desirable interactions and discourage undesirable ones. Meetup’s monetization model helped it achieve exactly that. By discouraging organizers who weren’t serious about their objectives, the pricing mechanism created a culture of quality on the platform. It’s a mistake to assume that network effects can always be optimized by simply refraining from charging users. A better approach to analyzing the monetization challenge is to ask these questions: How can we generate revenues without reducing our positive network effects? Can we devise a pricing strategy that strengthens our positive network effects while reducing our negative network effects?


pages: 329 words: 88,954

Emergence by Steven Johnson

A Pattern Language, agricultural Revolution, Brewster Kahle, British Empire, Claude Shannon: information theory, complexity theory, Danny Hillis, Douglas Hofstadter, edge city, epigenetics, game design, garden city movement, Gödel, Escher, Bach, hive mind, Howard Rheingold, hypertext link, invisible hand, Jane Jacobs, Kevin Kelly, late capitalism, Marshall McLuhan, mass immigration, Menlo Park, Murano, Venice glass, Naomi Klein, new economy, New Urbanism, Norbert Wiener, pattern recognition, pez dispenser, phenotype, Potemkin village, price mechanism, profit motive, Ray Kurzweil, slashdot, Socratic dialogue, stakhanovite, Steven Pinker, The Death and Life of Great American Cities, The Wealth of Nations by Adam Smith, theory of mind, Thomas Kuhn: the structure of scientific revolutions, traveling salesman, trickle-down economics, Turing machine, Turing test, urban planning, urban renewal, Vannevar Bush

“As in the legal analogy”: Technically, Slashdot moderators don’t give each post a grade on the scale. Posts start out life at 0 or 1 (depending on whether their authors are registered users of the system.) Moderators can then “spend” a moderation point rating a post either up or down. A post that starts life at 1, and receives three positive points and one negative point would be at Level 3, because 1 plus 3 minus 1 equals 3. “He was far”: Jacobs, 2000, 154. A related idea is the pricing mechanism of market economies as an information-processing system, as described by the libertarian demigod Friedrich von Hayek. “Long before the fall of communism, Hayek identified its oft-overlooked weakness: not only did it fail to offer an incentive to work hard; it forced signals connecting supply and demand to travel a tortuous path that invited distortion.” Wright, 199. “Others were busy”: Interview conducted with Rob Malda, April 2000.


pages: 341 words: 116,854

The Devil's Playground: A Century of Pleasure and Profit in Times Square by James Traub

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Anton Chekhov, Broken windows theory, Buckminster Fuller, delayed gratification, Donald Trump, fear of failure, intangible asset, Jane Jacobs, jitney, light touch regulation, megastructure, New Urbanism, Peter Eisenman, Plutocrats, plutocrats, price mechanism, rent control, Ronald Reagan, upwardly mobile, urban planning, urban renewal

The name was driving away the upscale crowd—Asian girls, in particular, didn’t want to have anything to do with the place—and attracting the wrong kind of attention. Law & Order wanted to shoot a murder scene on the premises; Sex and the City wanted a sex scene. Marc wasn’t interested. “No sex, no murder, nothing negative.” But where was the positive going to come from? Marc admitted that he was hurting; the promoters he booked in weren’t making the bar minimums he charged, and he was being forced to shift to a different pricing mechanism. The economy was killing everyone. Maybe this bid for respectability would crash, and Show World would end with racks full of kung fu videos like everyone else. But I was rooting for Marc. It was obvious, in retrospect, that Todo Con Nada at Show World had been foredoomed. Richie Basciano did not aspire to be alternative anything; neither, for that matter, did Times Square. And this particular rear entry to Times Square, here on Eighth Avenue, was not about making weird stuff broadly acceptable; it was about making dirty stuff broadly acceptable.


pages: 468 words: 145,998

On the Brink: Inside the Race to Stop the Collapse of the Global Financial System by Henry M. Paulson

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asset-backed security, bank run, banking crisis, break the buck, Bretton Woods, collateralized debt obligation, corporate governance, Credit Default Swap, credit default swaps / collateralized debt obligations, Doha Development Round, fear of failure, financial innovation, fixed income, housing crisis, income inequality, London Interbank Offered Rate, Long Term Capital Management, margin call, money market fund, moral hazard, Northern Rock, price discovery process, price mechanism, regulatory arbitrage, Ronald Reagan, Saturday Night Live, short selling, sovereign wealth fund, technology bubble, too big to fail, trade liberalization, young professional

This meant, for example, that rather than just eliminating golden parachutes in the new contracts of certain executive officers, the top officers of banks accepting capital would have to forgo any such payments in existing contracts as well; they would also have to provide for clawbacks of pay if financial statements were found to be materially inaccurate. There were a few outstanding issues. We needed to get bank regulators to sign off on the treatment of the capital for regulatory purposes, and I also wanted to nail down a pricing mechanism that would ensure widespread participation while keeping the program voluntary. But overall I felt confident we finally had the framework for a workable approach. In any case, we needed to get a capital program together immediately to help the financial system. The short sellers had wasted little time justifying John Mack’s worries, returning to the market on Thursday to drive shares of both Morgan Stanley and Merrill Lynch down 26 percent.


pages: 366 words: 117,875

Arrival City by Doug Saunders

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agricultural Revolution, Ayatollah Khomeini, Berlin Wall, Branko Milanovic, call centre, credit crunch, Deng Xiaoping, desegregation, ghettoisation, Gini coefficient, guest worker program, Hernando de Soto, Honoré de Balzac, illegal immigration, immigration reform, income inequality, informal economy, Jane Jacobs, Kibera, land reform, land tenure, low skilled workers, mass immigration, megacity, microcredit, new economy, Pearl River Delta, pensions crisis, place-making, price mechanism, rent control, Silicon Valley, special economic zone, the built environment, The Chicago School, The Death and Life of Great American Cities, upwardly mobile, urban planning, urban sprawl, white flight, working poor, working-age population

Although much attention has gone to Asian migrants to the suburbs, who arrive with skills, savings, and high levels of cultural capital, they are actually outnumbered by the suburb-bound Central Americans and Mexicans, who, in their first stages of arrival, have filled construction, landscaping, and service-industry jobs in the fast-expanding suburban fringe. Much of the suburban settlement has to do with family and village networks, which establish chain-migration footholds in an affordable suburb, rapidly turning a small group of workers into a large and concentrated influx; one Washington-area official calls this “the cousin syndrome.” Economists have also observed an immigration-driven pricing mechanism with a suburbanizing effect, in which first-wave migrants arrive in the urban core in such great numbers that they drive up arrival-city rents and drive down immigrant wages, making the inner-ring suburbs appear more appealing, in wages and rent, to the next wave of villagers to arrive.22 This pattern is even more sharply defined in the largest cities of Canada. In Toronto, which receives 40 percent of the country’s 300,000 annual immigrants, a 2008 study found that almost all of them were settling in the suburbs—a complete reversal of the pattern of the 1970s, when most migrants settled in the downtown core—with wealthier urban–urban migrants from the Indian subcontinent and China settling in the outer suburbs and village-born migrants from Africa, Latin America, and Asia settling in inner-ring arrival cities such as Victoria Park, Thorncliffe Park, and southern Etobicoke.


pages: 431 words: 132,416

No One Would Listen: A True Financial Thriller by Harry Markopolos

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backtesting, barriers to entry, Bernie Madoff, call centre, centralized clearinghouse, correlation coefficient, diversified portfolio, Edward Thorp, Emanuel Derman, Eugene Fama: efficient market hypothesis, family office, financial thriller, fixed income, forensic accounting, high net worth, index card, Long Term Capital Management, Louis Bachelier, offshore financial centre, Ponzi scheme, price mechanism, quantitative trading / quantitative finance, regulatory arbitrage, Renaissance Technologies, risk-adjusted returns, risk/return, rolodex, Sharpe ratio, statistical arbitrage, too big to fail, transaction costs, your tax dollars at work

You can’t regulate common sense, but some sort of guidelines should be available to investors on the SEC’s web site, pointing out that if you don’t know how to model an OTC derivative yourself, then you, your company, or your municipality shouldn’t be trading them. The SEC should closely investigate all disclosures in the OTC municipal derivatives market, because this sector of the marketplace is just rife with fraud. In many instances it is still a pay-to-play market with opaque disclosure documents and even more opaque pricing mechanisms, which only serve to defraud government entities. I have seen the state of Massachusetts lose $450 million because no one in state government knew how to price interest rate swaptions. The Massachusetts Turnpike Authority was picked off by several Wall Street firms because they were lured into OTC transactions in which they didn’t understand the pricing or the risks. Once again, you can’t regulate common sense, but we can regulate the OTC markets so they no longer remain outposts of lawlessness.


pages: 482 words: 117,962

Exceptional People: How Migration Shaped Our World and Will Define Our Future by Ian Goldin, Geoffrey Cameron, Meera Balarajan

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Admiral Zheng, agricultural Revolution, barriers to entry, Berlin Wall, Branko Milanovic, British Empire, conceptual framework, creative destruction, demographic transition, Deng Xiaoping, endogenous growth, failed state, Fall of the Berlin Wall, Gini coefficient, global supply chain, guest worker program, illegal immigration, income inequality, income per capita, Intergovernmental Panel on Climate Change (IPCC), job automation, Joseph Schumpeter, knowledge economy, labor-force participation, labour mobility, Lao Tzu, life extension, low skilled workers, low-wage service sector, Malacca Straits, mass immigration, microcredit, Network effects, new economy, New Urbanism, old age dependency ratio, open borders, out of africa, price mechanism, purchasing power parity, Richard Florida, selection bias, Silicon Valley, Silicon Valley startup, Skype, spice trade, trade route, transaction costs, transatlantic slave trade, transatlantic slave trade, women in the workforce, working-age population

As this cosmopolitan mélange illustrates, the Indian Ocean and Southeast Asia formed “a zone of ecumenical trade…larger than any that had been created before.”99 Similar to what occurred in the Mediterranean trade, close contact between migrant communities drove convergence in commercial practices. One such practice was collective price bargaining, where a ship's captain would bargain on behalf of all of the merchants on board. The accelerating pace of cross-cultural trade also attuned more general patterns of behavior in the region toward trade, augmenting “the everyday routines of life” through the growth of specialization and the spread of the price mechanism. While Europeans would be the first to open up the Atlantic route to the Americas, in the early fifteenth century, the Chinese first established contact over the Indian and Pacific Oceans. Between 1403 and 1433, Admiral Zheng He, under the patronage of the Ming Emperor Zhu Di, undertook a series of explorations with fleets that at times numbered up to 300 ships, carrying 20,000 men. These sailed from China, through Southeast Asia across India to Eastern Africa, and some accounts even suggest that he rounded the Cape of Good Hope almost a century before Bartolomeu Dias did—heading in the opposite direction.100 The ships used by Zheng He were about ten times the average size of the largest ships then built in Europe.


pages: 298 words: 43,745

Understanding Sponsored Search: Core Elements of Keyword Advertising by Jim Jansen

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AltaVista, barriers to entry, Black Swan, bounce rate, business intelligence, butterfly effect, call centre, Claude Shannon: information theory, complexity theory, correlation does not imply causation, en.wikipedia.org, first-price auction, information asymmetry, information retrieval, intangible asset, inventory management, life extension, linear programming, megacity, Nash equilibrium, Network effects, PageRank, place-making, price mechanism, psychological pricing, random walk, Schrödinger's Cat, sealed-bid auction, search engine result page, second-price auction, second-price sealed-bid, sentiment analysis, social web, software as a service, stochastic process, telemarketer, the market place, The Present Situation in Quantum Mechanics, the scientific method, The Wisdom of Crowds, Vickrey auction, Vilfredo Pareto, yield management

Microsoft entered the sponsoredsearch auction business in 2006 [3]. Yahoo!, which had purchased Overture in 2003, introduced a revamped sponsored-search auction in 2007. Baidu modeled both the Google auction and presentation in 2009. The auction process or platform, typically called a market, takes some set of resources and allocates these resources to those participating in the auction based on a pricing mechanism known as a bid. Therefore, an auction is simply a market with an explicit set of rules to determine resource allocation. The prices of these resources are based on bids from the participants in that market [4]. For sponsored search, the search engines are the market as the keyphrase bidding platform where advertisers (virtually) gather. The resource is the ad positions, which is the SERP real estate for ad placement.


pages: 566 words: 155,428

After the Music Stopped: The Financial Crisis, the Response, and the Work Ahead by Alan S. Blinder

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Affordable Care Act / Obamacare, asset-backed security, bank run, banking crisis, banks create money, break the buck, Carmen Reinhart, central bank independence, collapse of Lehman Brothers, collateralized debt obligation, conceptual framework, corporate governance, Credit Default Swap, credit default swaps / collateralized debt obligations, Detroit bankruptcy, diversification, double entry bookkeeping, eurozone crisis, facts on the ground, financial innovation, fixed income, friendly fire, full employment, hiring and firing, housing crisis, Hyman Minsky, illegal immigration, inflation targeting, interest rate swap, Isaac Newton, Kenneth Rogoff, liquidity trap, London Interbank Offered Rate, Long Term Capital Management, market bubble, market clearing, market fundamentalism, McMansion, money market fund, moral hazard, naked short selling, new economy, Nick Leeson, Northern Rock, Occupy movement, offshore financial centre, price mechanism, quantitative easing, Ralph Waldo Emerson, Robert Shiller, Robert Shiller, Ronald Reagan, shareholder value, short selling, South Sea Bubble, statistical model, the payments system, time value of money, too big to fail, working-age population, yield curve, Yogi Berra

The congressman was Walter Jones. “got them into trouble”: Ibid. “sensitive to the public outrage”: Paulson, On the Brink, 261. “We can’t say that now”: Wessel, In Fed We Trust, 227. was no easy task: Though the technical problems required thought, they were not insoluble. Swagel reports that “we had reverse auctions to buy MBSs essentially ready to go by late October 2008—including a pricing mechanism.” Swagel, “The Financial Crisis: An Inside View,” Brookings Papers on Economic Activity, 55. drew huzzahs from many experts: One example: Krugman, “Gordon Does Good,” New York Times. I was one of four people on earth: Little did I know that Warren Buffett, the Sage of Omaha, was another. Sorkin, Too Big to Fail, 510–12. “we went that route”: Irwin and Cho, “Paulson’s Change in Rescue Tactics,” Washington Post, D1.


pages: 632 words: 159,454

War and Gold: A Five-Hundred-Year History of Empires, Adventures, and Debt by Kwasi Kwarteng

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accounting loophole / creative accounting, anti-communist, Asian financial crisis, asset-backed security, Atahualpa, balance sheet recession, bank run, banking crisis, Big bang: deregulation of the City of London, Bretton Woods, British Empire, California gold rush, capital controls, Carmen Reinhart, central bank independence, centre right, collapse of Lehman Brothers, collateralized debt obligation, credit crunch, currency manipulation / currency intervention, Deng Xiaoping, discovery of the americas, Etonian, eurozone crisis, fiat currency, financial innovation, fixed income, floating exchange rates, Francisco Pizarro, full employment, German hyperinflation, hiring and firing, income inequality, invisible hand, Isaac Newton, John Maynard Keynes: Economic Possibilities for our Grandchildren, joint-stock company, joint-stock limited liability company, Joseph Schumpeter, Kenneth Rogoff, labour market flexibility, liberal capitalism, market bubble, money: store of value / unit of account / medium of exchange, moral hazard, new economy, oil shock, Plutocrats, plutocrats, Ponzi scheme, price mechanism, quantitative easing, rolodex, Ronald Reagan, South Sea Bubble, The inhabitant of London could order by telephone, sipping his morning tea in bed, the various products of the whole earth, the market place, The Wealth of Nations by Adam Smith, too big to fail, War on Poverty, Yom Kippur War

By contrast, for France and the United States, the gold standard was still, until a comparatively late period, an article of faith. For these nations, argued Keynes, ‘the competitive disadvantage will be concentrated’. They had ‘already taken nearly all the available surplus gold in the whole world’.17 In France, according to one recent observer, ‘until early 1935 the policy-making establishment was convinced that a liberal economy needed a fixed anchor, namely the gold franc, to allow the price mechanism to operate’. Needless to say, the ‘budget had to be balanced’.18 The election as President of Franklin Delano Roosevelt in 1932 shifted the mood on the commitment to dollar–gold convertibility. It removed what Keynes had memorably called ‘the magic spell of immobility which [had] been cast over the White House’ in Herbert Hoover’s time.19 Once Roosevelt was inaugurated in March 1933, he declared a national bank holiday, and immediately suspended gold convertibility and foreign exchange dealings.


pages: 494 words: 142,285

The Future of Ideas: The Fate of the Commons in a Connected World by Lawrence Lessig

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AltaVista, Andy Kessler, barriers to entry, business process, Cass Sunstein, commoditize, computer age, creative destruction, dark matter, disintermediation, Donald Davies, Erik Brynjolfsson, George Gilder, Hacker Ethic, Hedy Lamarr / George Antheil, Howard Rheingold, Hush-A-Phone, HyperCard, hypertext link, Innovator's Dilemma, invention of hypertext, inventory management, invisible hand, Jean Tirole, Jeff Bezos, Joseph Schumpeter, Kenneth Arrow, Larry Wall, Leonard Kleinrock, linked data, Marc Andreessen, Menlo Park, Network effects, new economy, packet switching, peer-to-peer, peer-to-peer model, price mechanism, profit maximization, RAND corporation, rent control, rent-seeking, RFC: Request For Comment, Richard Stallman, Richard Thaler, Robert Bork, Ronald Coase, Search for Extraterrestrial Intelligence, SETI@home, Silicon Valley, smart grid, software patent, spectrum auction, Steve Crocker, Steven Levy, Stewart Brand, Ted Nelson, Telecommunications Act of 1996, The Chicago School, transaction costs, zero-sum game

See Yochai Benkler, “Overcoming Agoraphobia: Building the Commons of the Digitally Networked Environment,” Harvard Journal of Law & Technology 11 (1998): 287, 316-17. 15 As Coase wrote: “But it is a commonplace of economics that almost all resources used in the economic system (and not simply radio and television frequencies) are limited in amount and scarce, in that people would like to use more than exists. Land, labor and capital are all scarce, but this, of itself, does not call for government regulation. It is true that some mechanism has to be employed to decide who, out of the many claimants, should be allowed to use the scarce resource. But the way this is usually done in the American economic system is to employ the price mechanism, and this allocates resources to users without the need for government regulation.” R. H. Coase, “The Federal Communications Commission,” Journal of Law & Economics 2 (1959): 1, 14. 16 Hazlett has been prolific in advancing this argument. See, e.g., Hazlett and Sosa, “Chilling the Internet? Lessons from FCC Regulation of Radio Broadcasting,” Michigan Telecommunications & Technology Law Review 4 (1997-98): 35; Hazlett, “Physical Scarcity, Rent Seeking, and the First Amendment,” Columbia Law Review 97 (1997): 905; Hazlett, “Assigning Property Rights to Radio Spectrum Users: Why Did FCC License Auctions Take 67 Years?


pages: 422 words: 131,666

Life Inc.: How the World Became a Corporation and How to Take It Back by Douglas Rushkoff

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affirmative action, Amazon Mechanical Turk, banks create money, big-box store, Bretton Woods, car-free, colonial exploitation, Community Supported Agriculture, complexity theory, computer age, corporate governance, credit crunch, currency manipulation / currency intervention, David Ricardo: comparative advantage, death of newspapers, don't be evil, Donald Trump, double entry bookkeeping, easy for humans, difficult for computers, financial innovation, Firefox, full employment, global village, Google Earth, greed is good, Howard Rheingold, income per capita, invention of the printing press, invisible hand, Jane Jacobs, John Nash: game theory, joint-stock company, Kevin Kelly, laissez-faire capitalism, loss aversion, market bubble, market design, Marshall McLuhan, Milgram experiment, moral hazard, mutually assured destruction, Naomi Klein, negative equity, new economy, New Urbanism, Norbert Wiener, peak oil, peer-to-peer, place-making, placebo effect, Ponzi scheme, price mechanism, price stability, principal–agent problem, private military company, profit maximization, profit motive, race to the bottom, RAND corporation, rent-seeking, RFID, road to serfdom, Ronald Reagan, short selling, Silicon Valley, Simon Kuznets, social software, Steve Jobs, Telecommunications Act of 1996, telemarketer, The Wealth of Nations by Adam Smith, Thomas L Friedman, too big to fail, trade route, trickle-down economics, union organizing, urban decay, urban planning, urban renewal, Vannevar Bush, Victor Gruen, white flight, working poor, Works Progress Administration, Y2K, young professional, zero-sum game

There’s just no way to predict what everyone might want, however good the math you’re using. Since the information required to make production decisions is inherently decentralized, it should be gathered and reconciled through decentralized means. Adam Smith had already argued that if everyone goes after his own interests, the interests of the greater society will be served. Hayek extended this logic, contending that the price mechanisms of a freely functioning market will naturally synchronize the demands of people with the market’s supply. In Hayek’s view, this mechanism is not of human design, but a spontaneous “catallaxy”: a self-organizing system of voluntary cooperation. As millions of people both rationally and irrationally pursued their goals, a working market would order itself around them. The market was as much a part of human beings as their DNA.

Investment: A History by Norton Reamer, Jesse Downing

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activist fund / activist shareholder / activist investor, Albert Einstein, algorithmic trading, asset allocation, backtesting, banking crisis, Berlin Wall, Bernie Madoff, break the buck, Brownian motion, buttonwood tree, California gold rush, capital asset pricing model, Carmen Reinhart, carried interest, colonial rule, credit crunch, Credit Default Swap, Daniel Kahneman / Amos Tversky, debt deflation, discounted cash flows, diversified portfolio, equity premium, estate planning, Eugene Fama: efficient market hypothesis, Fall of the Berlin Wall, family office, Fellow of the Royal Society, financial innovation, fixed income, Gordon Gekko, Henri Poincaré, high net worth, index fund, information asymmetry, interest rate swap, invention of the telegraph, James Hargreaves, James Watt: steam engine, joint-stock company, Kenneth Rogoff, labor-force participation, land tenure, London Interbank Offered Rate, Long Term Capital Management, loss aversion, Louis Bachelier, margin call, means of production, Menlo Park, merger arbitrage, money market fund, moral hazard, mortgage debt, Myron Scholes, negative equity, Network effects, new economy, Nick Leeson, Own Your Own Home, Paul Samuelson, pension reform, Ponzi scheme, price mechanism, principal–agent problem, profit maximization, quantitative easing, RAND corporation, random walk, Renaissance Technologies, Richard Thaler, risk tolerance, risk-adjusted returns, risk/return, Robert Shiller, Robert Shiller, Sand Hill Road, Sharpe ratio, short selling, Silicon Valley, South Sea Bubble, sovereign wealth fund, spinning jenny, statistical arbitrage, survivorship bias, technology bubble, The Wealth of Nations by Adam Smith, time value of money, too big to fail, transaction costs, underbanked, Vanguard fund, working poor, yield curve

As long as there have been financial markets, there have been commentators eager to interpret even their short-term movements—movements that are sometimes muted, sometimes violent, but rarely predictable. All this leads to a central question: how does one make sense of the movements of the market? How does one sift through all the noise and reach meaning? That is the task of the investor, accomplished by deploying methods of valuation. Valuation is the process of finding logic amid this noise, hoping to uncover areas of the market where the price mechanism has failed—areas that are the exploitable opportunities and the bread and butter of the successful investor. Investing and the companion enterprise of valuation have always been more of an art than a science. However, in the last century, there has been a burgeoning field of investment science that has profoundly The Emergence of Investment Theory 229 shaped and guided the way practitioners approach their art.


pages: 475 words: 155,554

The Default Line: The Inside Story of People, Banks and Entire Nations on the Edge by Faisal Islam

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Asian financial crisis, asset-backed security, balance sheet recession, bank run, banking crisis, Basel III, Ben Bernanke: helicopter money, Berlin Wall, Big bang: deregulation of the City of London, British Empire, capital controls, carbon footprint, Celtic Tiger, central bank independence, centre right, collapse of Lehman Brothers, credit crunch, Credit Default Swap, crony capitalism, dark matter, deindustrialization, Deng Xiaoping, disintermediation, energy security, Eugene Fama: efficient market hypothesis, eurozone crisis, financial deregulation, financial innovation, financial repression, floating exchange rates, forensic accounting, forward guidance, full employment, G4S, ghettoisation, global rebalancing, global reserve currency, hiring and firing, inflation targeting, Irish property bubble, Just-in-time delivery, labour market flexibility, light touch regulation, London Whale, Long Term Capital Management, margin call, market clearing, megacity, Mikhail Gorbachev, mini-job, mittelstand, moral hazard, mortgage debt, mortgage tax deduction, mutually assured destruction, Myron Scholes, negative equity, North Sea oil, Northern Rock, offshore financial centre, open economy, paradox of thrift, Pearl River Delta, pension reform, price mechanism, price stability, profit motive, quantitative easing, quantitative trading / quantitative finance, race to the bottom, regulatory arbitrage, reserve currency, reshoring, Right to Buy, rising living standards, Ronald Reagan, savings glut, shareholder value, sovereign wealth fund, The Chicago School, the payments system, too big to fail, trade route, transaction costs, two tier labour market, unorthodox policies, uranium enrichment, urban planning, value at risk, working-age population, zero-sum game

In other words, BTL pushed up house prices ever more, at a time when they appeared to be falling. Good for some, but not for all. I saw for myself how, even in 2010, estate agents would market £100,000 houses in Greater Manchester to well-heeled investors at the National Landlord Show in Kensington on the basis of rental yield. In BTL, multiples of rental yield replace multiples of salary as the pricing mechanism for our homes. Young first-time buyers such as Naomi Jacobs in Newcastle finds herself more in a property nightmare than a property dream. ‘I’d love to buy a little house now,’ she told me. She wants to have a family, and as the family gets bigger so she’d want a bigger house. That is the dream. Naomi is a science graduate, a science graduate with a job. But she can’t get a mortgage. She blames the buy-to-letters.

The End of Power: From Boardrooms to Battlefields and Churches to States, Why Being in Charge Isn’t What It Used to Be by Moises Naim

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additive manufacturing, barriers to entry, Berlin Wall, bilateral investment treaty, business process, business process outsourcing, call centre, citizen journalism, Clayton Christensen, clean water, collapse of Lehman Brothers, collective bargaining, colonial rule, conceptual framework, corporate governance, creative destruction, crony capitalism, deskilling, disintermediation, don't be evil, failed state, Fall of the Berlin Wall, financial deregulation, Francis Fukuyama: the end of history, illegal immigration, immigration reform, income inequality, income per capita, intangible asset, intermodal, invisible hand, job-hopping, Joseph Schumpeter, Julian Assange, Kickstarter, liberation theology, Martin Wolf, mega-rich, megacity, Naomi Klein, Nate Silver, new economy, Northern Rock, Occupy movement, open borders, open economy, Peace of Westphalia, Plutocrats, plutocrats, price mechanism, price stability, private military company, profit maximization, Ronald Coase, Ronald Reagan, Silicon Valley, Skype, Steve Jobs, The Nature of the Firm, Thomas Malthus, too big to fail, trade route, transaction costs, Washington Consensus, WikiLeaks, World Values Survey, zero-sum game

Consider the threat of climate change: even as the rise from poverty of China and India has lifted the lives of billions, it has also accelerated their greenhouse gas emissions dramatically. China overtook the United States as the single largest emitter of greenhouse gases in 2006, and India that year was ranked fourth. Any effort to reduce carbon emissions in one country must take into account the actions of the other—not least because as environmental policies and carbon pricing mechanisms in developed countries take hold, companies have responded by shifting their carbon-intensive production offshore. From arms exports and Internet-domain conventions to fisheries and agricultural trade, just about every subject for international negotiation now involves more demands from a growing number of stakeholders. As a result, we are increasingly unable to take action that goes beyond the lowest common denominator and actually makes a dent in the problem at hand.


pages: 395 words: 116,675

The Evolution of Everything: How New Ideas Emerge by Matt Ridley

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affirmative action, Affordable Care Act / Obamacare, Albert Einstein, Alfred Russel Wallace, altcoin, anthropic principle, anti-communist, bank run, banking crisis, barriers to entry, bitcoin, blockchain, British Empire, Broken windows theory, Columbian Exchange, computer age, Corn Laws, cosmological constant, creative destruction, Credit Default Swap, crony capitalism, crowdsourcing, cryptocurrency, David Ricardo: comparative advantage, demographic transition, Deng Xiaoping, discovery of DNA, Donald Davies, double helix, Downton Abbey, Edward Glaeser, Edward Lorenz: Chaos theory, Edward Snowden, endogenous growth, epigenetics, ethereum blockchain, facts on the ground, falling living standards, Ferguson, Missouri, financial deregulation, financial innovation, Frederick Winslow Taylor, Geoffrey West, Santa Fe Institute, George Gilder, George Santayana, Gunnar Myrdal, Henri Poincaré, hydraulic fracturing, imperial preference, income per capita, indoor plumbing, interchangeable parts, Intergovernmental Panel on Climate Change (IPCC), invisible hand, Isaac Newton, Jane Jacobs, Jeff Bezos, joint-stock company, Joseph Schumpeter, Kenneth Arrow, Kevin Kelly, Khan Academy, knowledge economy, land reform, Lao Tzu, long peace, Lyft, M-Pesa, Mahatma Gandhi, Mark Zuckerberg, means of production, meta analysis, meta-analysis, mobile money, money: store of value / unit of account / medium of exchange, Mont Pelerin Society, moral hazard, Necker cube, obamacare, out of africa, packet switching, peer-to-peer, phenotype, Pierre-Simon Laplace, price mechanism, profit motive, RAND corporation, random walk, Ray Kurzweil, rent-seeking, reserve currency, Richard Feynman, Richard Feynman, rising living standards, road to serfdom, Ronald Coase, Ronald Reagan, Satoshi Nakamoto, Second Machine Age, sharing economy, smart contracts, South Sea Bubble, Steve Jobs, Steven Pinker, The Wealth of Nations by Adam Smith, Thorstein Veblen, transaction costs, women in the workforce

The more open and free the market, the less opportunity there is for exploitation and predation, because the easier it is for consumers to boycott the predators and for competitors to whittle away their excess profits. In its ideal form, therefore, the free market is a device for creating networks of collaboration among people to raise each other’s living standards, a device for coordinating production and a device for communicating information about needs through the price mechanism. Also a device for encouraging innovation. It is the very opposite of the rampant and selfish individualism that so many churchmen and others seem to think it is. The market is a system of mass cooperation. You compete with rival producers, sure, but you cooperate with your customers, your suppliers and your colleagues. Commerce both needs and breeds trust. Imperfect markets are better than no markets Few would disagree with this formulation, but equally few would accept that the ideal is ever realised in practice.


The Blockchain Alternative: Rethinking Macroeconomic Policy and Economic Theory by Kariappa Bheemaiah

accounting loophole / creative accounting, Ada Lovelace, Airbnb, algorithmic trading, asset allocation, autonomous vehicles, balance sheet recession, bank run, banks create money, Basel III, basic income, Ben Bernanke: helicopter money, bitcoin, blockchain, Bretton Woods, business process, call centre, capital controls, Capital in the Twenty-First Century by Thomas Piketty, cashless society, cellular automata, central bank independence, Claude Shannon: information theory, cloud computing, cognitive dissonance, collateralized debt obligation, commoditize, complexity theory, constrained optimization, corporate governance, creative destruction, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, crowdsourcing, cryptocurrency, David Graeber, deskilling, Diane Coyle, discrete time, distributed ledger, diversification, double entry bookkeeping, ethereum blockchain, fiat currency, financial innovation, financial intermediation, Flash crash, floating exchange rates, Fractional reserve banking, full employment, George Akerlof, illegal immigration, income inequality, income per capita, inflation targeting, information asymmetry, interest rate derivative, inventory management, invisible hand, John Maynard Keynes: technological unemployment, John von Neumann, joint-stock company, Joseph Schumpeter, Kenneth Arrow, Kenneth Rogoff, Kevin Kelly, knowledge economy, labour market flexibility, large denomination, liquidity trap, London Whale, low skilled workers, M-Pesa, Marc Andreessen, market bubble, market fundamentalism, Mexican peso crisis / tequila crisis, money market fund, money: store of value / unit of account / medium of exchange, mortgage debt, natural language processing, Network effects, new economy, Nikolai Kondratiev, offshore financial centre, packet switching, Pareto efficiency, pattern recognition, peer-to-peer lending, Ponzi scheme, precariat, pre–internet, price mechanism, price stability, private sector deleveraging, profit maximization, QR code, quantitative easing, quantitative trading / quantitative finance, Ray Kurzweil, Real Time Gross Settlement, rent control, rent-seeking, Satoshi Nakamoto, Satyajit Das, savings glut, seigniorage, Silicon Valley, Skype, smart contracts, software as a service, software is eating the world, speech recognition, statistical model, Stephen Hawking, supply-chain management, technology bubble, The Chicago School, The Future of Employment, The Great Moderation, the market place, The Nature of the Firm, the payments system, the scientific method, The Wealth of Nations by Adam Smith, Thomas Kuhn: the structure of scientific revolutions, too big to fail, trade liberalization, transaction costs, Turing machine, Turing test, universal basic income, Von Neumann architecture, Washington Consensus

In his seminal paper, ‘The Nature of the Firm’, Coase noted that while economies involve plenty of planning, a large part of this planning is not coordinated by the price system and takes place within the boundaries of the firm (Hidalgo, 2015). As firms have hierarchies, most interactions within a firm are political. This creates boundaries of power that influence transactions and interactions causing them to deviate from the clear-cut dynamics of market price mechanisms. This is seen in the form of contracts, inspections, disputes, negotiations, etc. These boundaries in turn rack up costs and the greater the cost associated with a transaction, the more friction associated with making the transaction. But trust is an essential element in any network as it allows for the transfer of information, knowledge and knowhow. If there is a greater amount of trust in the network, links are formed more easily and transactions occur with a greater amount of fluidity thus increasing the network size.


India's Long Road by Vijay Joshi

Affordable Care Act / Obamacare, barriers to entry, Basel III, basic income, blue-collar work, Bretton Woods, business climate, capital controls, central bank independence, clean water, collapse of Lehman Brothers, collective bargaining, colonial rule, congestion charging, corporate governance, creative destruction, crony capitalism, decarbonisation, deindustrialization, demographic dividend, demographic transition, Doha Development Round, eurozone crisis, facts on the ground, failed state, financial intermediation, financial repression, first-past-the-post, floating exchange rates, full employment, germ theory of disease, Gini coefficient, global supply chain, global value chain, hiring and firing, income inequality, Indoor air pollution, Induced demand, inflation targeting, invisible hand, land reform, Mahatma Gandhi, manufacturing employment, Martin Wolf, means of production, microcredit, moral hazard, obamacare, Pareto efficiency, price mechanism, price stability, principal–agent problem, profit maximization, profit motive, purchasing power parity, quantitative easing, race to the bottom, randomized controlled trial, rent-seeking, reserve currency, rising living standards, school choice, school vouchers, secular stagnation, Silicon Valley, smart cities, South China Sea, special drawing rights, The Future of Employment, The Market for Lemons, too big to fail, total factor productivity, trade liberalization, transaction costs, universal basic income, urban sprawl, working-age population

This clearly points to low productivity of investment as the main proximate reason for the poor performance (see the rising capital-​output ratios in Tables 2.1 and 2.2). Low productivity in turn was the product of three features of economic policy: inappropriate and excessive state intervention in markets; the dominant role of the public sector; and neglect of critical social sectors. The origins of the first two features lay in statist doctrines, characterised by antipathy towards business, contempt for the price mechanism, and hostility to international trade that had a special resonance in many post-​colonial societies. In India, a further twist was given to this kind of thinking by a ‘heavy industry’ strategy (based loosely on Soviet planning models), which was adopted in the Second Five Year Plan and used to justify the physical allocation of investment.5 It was taken for granted that extensive government intervention and controls were necessary to subdue or supplant the market, and make the private sector’s activities consonant with the planned trajectory of output.6 Once the controls were established, the dynamic of rent-​seeking took over and they proliferated to the point where no economic activity, unless of very small scale, could be legally pursued without obtaining dozens of permits and licences from different departments of government.


pages: 464 words: 139,088

The End of Alchemy: Money, Banking and the Future of the Global Economy by Mervyn King

Andrei Shleifer, Asian financial crisis, asset-backed security, balance sheet recession, bank run, banking crisis, banks create money, Berlin Wall, Bernie Madoff, Big bang: deregulation of the City of London, bitcoin, Black Swan, Bretton Woods, British Empire, capital controls, Carmen Reinhart, Cass Sunstein, central bank independence, centre right, collapse of Lehman Brothers, creative destruction, Credit Default Swap, crowdsourcing, Daniel Kahneman / Amos Tversky, David Ricardo: comparative advantage, distributed generation, Doha Development Round, Edmond Halley, Fall of the Berlin Wall, falling living standards, fiat currency, financial innovation, financial intermediation, floating exchange rates, forward guidance, Fractional reserve banking, Francis Fukuyama: the end of history, full employment, German hyperinflation, Hyman Minsky, inflation targeting, invisible hand, John Maynard Keynes: Economic Possibilities for our Grandchildren, John Meriwether, joint-stock company, Joseph Schumpeter, Kenneth Arrow, Kenneth Rogoff, labour market flexibility, large denomination, liquidity trap, Long Term Capital Management, manufacturing employment, market clearing, Martin Wolf, Mexican peso crisis / tequila crisis, money market fund, money: store of value / unit of account / medium of exchange, moral hazard, Myron Scholes, Nick Leeson, North Sea oil, Northern Rock, oil shale / tar sands, oil shock, open economy, paradox of thrift, Paul Samuelson, Ponzi scheme, price mechanism, price stability, purchasing power parity, quantitative easing, rent-seeking, reserve currency, Richard Thaler, rising living standards, Robert Shiller, Robert Shiller, Satoshi Nakamoto, savings glut, secular stagnation, seigniorage, stem cell, Steve Jobs, The Great Moderation, the payments system, Thomas Malthus, too big to fail, transaction costs, Tyler Cowen: Great Stagnation, yield curve, Yom Kippur War, zero-sum game

A sensible coping strategy to deal with this problem is not artificially to coordinate policies that naturally belong to national governments, but to seek agreement on an orderly recovery and rebalancing of the global economy. The way in which each country will choose to rebalance is a matter for itself, but it is in the interests of all countries to find a common timetable for that rebalancing. The natural broker for an agreement is the IMF. Our best chance of solving the prisoner’s dilemma, while retaining national sovereignty, is to use the price mechanism, not suppress it. Arrangements to fix or limit movements of exchange rates tend to backfire as unexpected events require changes in rates to avoid economic suffering. At the heart of the problem is the question that so troubled the negotiators at Bretton Woods. How can one create symmetric obligations on countries with trade surpluses and trade deficits? The international monetary order set up after the Second World War failed to do so, and the result is that fixed exchange rates have proved deflationary.


pages: 650 words: 203,191

After Tamerlane: The Global History of Empire Since 1405 by John Darwin

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agricultural Revolution, Atahualpa, Berlin Wall, Bretton Woods, British Empire, Cape to Cairo, colonial rule, Columbian Exchange, cuban missile crisis, deglobalization, deindustrialization, European colonialism, failed state, Francisco Pizarro, invisible hand, Isaac Newton, joint-stock company, Khartoum Gordon, laissez-faire capitalism, land reform, Mahatma Gandhi, Malacca Straits, mutually assured destruction, new economy, New Urbanism, oil shock, open economy, price mechanism, reserve currency, Ronald Reagan, Scramble for Africa, South China Sea, South Sea Bubble, spice trade, The Wealth of Nations by Adam Smith, trade route, transaction costs, transatlantic slave trade

The explanation may lie in the converging pressures for internal reform and the ill-fated schemes of the Soviet leaders to escape from the vice they thought was closing upon them. The basic failing of the Soviet system was economic. After 1970, the rapid growth of previous decades could not be sustained. The extra production to improve living standards and fund the apparatus of military power eluded the Soviet planners. Without the sanction of terror, the command economy that Stalin had fashioned lost its grip on the workforce.92 The lack of a price mechanism to direct investment and select innovation became more and more costly. To make matters worse, the setbacks affecting the market economies in the 1970s proved very short-lived. In the G- 7 countries (Germany, Italy, France, Britain, Canada, Japan and the United States) that made up the core of the capitalist world, the 1980s sawextremely rapid movement towards the characteristic forms of commercial globalization: ever-greater dependence upon exports and trade; bank activity across national borders; the flowof capital into foreign investment; the large-scale buying and selling of currencies.93 America’s corporate economy staged a major recovery in the 1980s.94 The spectacular growth of so-called ‘newly industrialized countries’, like Singapore, Malaysia, Thailand, Taiwan and, above all, South Korea (the world’s tenth largest producer of steel by 1989), most of which had sheltered under American strategic protection, erased the fear that they would be hollowed out by Marxist liberation movements.


pages: 700 words: 201,953

The Social Life of Money by Nigel Dodd

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accounting loophole / creative accounting, bank run, banking crisis, banks create money, Bernie Madoff, bitcoin, blockchain, borderless world, Bretton Woods, BRICs, capital controls, cashless society, central bank independence, collapse of Lehman Brothers, collateralized debt obligation, commoditize, computer age, conceptual framework, credit crunch, cross-subsidies, David Graeber, debt deflation, dematerialisation, disintermediation, eurozone crisis, fiat currency, financial exclusion, financial innovation, Financial Instability Hypothesis, financial repression, floating exchange rates, Fractional reserve banking, German hyperinflation, Goldman Sachs: Vampire Squid, Hyman Minsky, illegal immigration, informal economy, interest rate swap, Isaac Newton, John Maynard Keynes: Economic Possibilities for our Grandchildren, joint-stock company, Joseph Schumpeter, Kula ring, laissez-faire capitalism, land reform, late capitalism, liberal capitalism, liquidity trap, litecoin, London Interbank Offered Rate, M-Pesa, Marshall McLuhan, means of production, mental accounting, microcredit, mobile money, money market fund, money: store of value / unit of account / medium of exchange, mortgage debt, negative equity, new economy, Nixon shock, Occupy movement, offshore financial centre, paradox of thrift, payday loans, Peace of Westphalia, peer-to-peer, peer-to-peer lending, Ponzi scheme, post scarcity, postnationalism / post nation state, predatory finance, price mechanism, price stability, quantitative easing, quantitative trading / quantitative finance, remote working, rent-seeking, reserve currency, Richard Thaler, Robert Shiller, Robert Shiller, Satoshi Nakamoto, Scientific racism, seigniorage, Skype, Slavoj Žižek, South Sea Bubble, sovereign wealth fund, special drawing rights, The Wealth of Nations by Adam Smith, too big to fail, trade liberalization, transaction costs, Veblen good, Wave and Pay, Westphalian system, WikiLeaks, Wolfgang Streeck, yield curve, zero-coupon bond

The principle would be that economies can expand only to the extent that they become more energy efficient: using up too much of a country’s energy quota would be like running up too much debt, with domestic “inflation” eventually forcing it to contract. Douthwaite’s proposals represent a utopian pricing system, which uses a chosen scarce resource—energy, as opposed to labor or time, for example—to underpin the value of money. In such a system, the price mechanism is meant to achieve a more equitable distribution of the resource in question. In all such instances—gold, labor money, time dollars, and energy units—the logic is that by holding money’s value to a commodity that is in finite supply, prices have to stabilize over time. With gold, the aim is to hold prices steady. With labor and time, the objective is to ensure that those who provide goods and services are rewarded more equitably because by definition, the prices people pay as consumers are equivalent to the efforts they expend as producers.


pages: 662 words: 180,546

Never Let a Serious Crisis Go to Waste: How Neoliberalism Survived the Financial Meltdown by Philip Mirowski

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Alvin Roth, Andrei Shleifer, asset-backed security, bank run, barriers to entry, Basel III, Berlin Wall, Bernie Madoff, Bernie Sanders, Black Swan, blue-collar work, Bretton Woods, Brownian motion, capital controls, Carmen Reinhart, Cass Sunstein, central bank independence, cognitive dissonance, collapse of Lehman Brothers, collateralized debt obligation, complexity theory, constrained optimization, creative destruction, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, crony capitalism, dark matter, David Brooks, David Graeber, debt deflation, deindustrialization, Edward Glaeser, Eugene Fama: efficient market hypothesis, experimental economics, facts on the ground, Fall of the Berlin Wall, financial deregulation, financial innovation, Flash crash, full employment, George Akerlof, Goldman Sachs: Vampire Squid, Hernando de Soto, housing crisis, Hyman Minsky, illegal immigration, income inequality, incomplete markets, information asymmetry, invisible hand, Jean Tirole, joint-stock company, Kenneth Arrow, Kenneth Rogoff, knowledge economy, l'esprit de l'escalier, labor-force participation, liberal capitalism, liquidity trap, loose coupling, manufacturing employment, market clearing, market design, market fundamentalism, Martin Wolf, money market fund, Mont Pelerin Society, moral hazard, mortgage debt, Naomi Klein, Nash equilibrium, night-watchman state, Northern Rock, Occupy movement, offshore financial centre, oil shock, Pareto efficiency, Paul Samuelson, payday loans, Philip Mirowski, Ponzi scheme, precariat, prediction markets, price mechanism, profit motive, quantitative easing, race to the bottom, random walk, rent-seeking, Richard Thaler, road to serfdom, Robert Shiller, Robert Shiller, Ronald Coase, Ronald Reagan, savings glut, school choice, sealed-bid auction, Silicon Valley, South Sea Bubble, Steven Levy, technoutopianism, The Chicago School, The Great Moderation, the map is not the territory, The Myth of the Rational Market, the scientific method, The Wisdom of Crowds, theory of mind, Thomas Kuhn: the structure of scientific revolutions, Thorstein Veblen, Tobin tax, too big to fail, transaction costs, Vilfredo Pareto, War on Poverty, Washington Consensus, We are the 99%, working poor

But this just displays a deficiency of hermeneutic attention. Both the Fed and the profession can accept that the EMH, properly understood, and bubbles are entirely compatible—you just won’t know you are in one till it bursts. And paraphrasing Bill Clinton, it all depends what you mean by “bubble.” Yet Stiglitz never really repudiates the neoliberal doctrine of the Marketplace of Ideas. “The price mechanism is at the core of the market process of gathering, processing and transmitting information.” There is nothing autodestructive about the Marketplace of Ideas. But then, who in the elite of the orthodox economics profession ever thought otherwise?81 The endless quest to delete the EMH from the Ten Commandments of Neoclassicism almost constitutes the definition of “empty gesture” within orthodox economics. 3) Abandon the DSGE Model A third reaction to the crisis is to refrain from indictment of the global orthodoxy, and instead suggest that since the crisis was eminently a “macroeconomic” event, the onus for failure must be narrowly restricted to that subset of the profession tasked with study of the macroeconomy; and furthermore, the correct response is to simply jettison the paradigmatic model found in contemporary macroeconomic textbooks, the so-called Dynamic Stochastic General Equilibrium (DSGE) model.


pages: 851 words: 247,711

The Atlantic and Its Enemies: A History of the Cold War by Norman Stone

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affirmative action, anti-communist, Ayatollah Khomeini, bank run, banking crisis, Berlin Wall, Bernie Madoff, Big bang: deregulation of the City of London, Bonfire of the Vanities, Bretton Woods, British Empire, central bank independence, Deng Xiaoping, desegregation, Dissolution of the Soviet Union, European colonialism, facts on the ground, Fall of the Berlin Wall, financial deregulation, Francis Fukuyama: the end of history, Frederick Winslow Taylor, full employment, Gunnar Myrdal, Henry Ford's grandson gave labor union leader Walter Reuther a tour of the company’s new, automated factory…, illegal immigration, income per capita, interchangeable parts, Jane Jacobs, Joseph Schumpeter, labour mobility, land reform, long peace, mass immigration, means of production, Mikhail Gorbachev, new economy, Norman Mailer, North Sea oil, oil shock, Paul Samuelson, Ponzi scheme, popular capitalism, price mechanism, price stability, RAND corporation, rent-seeking, Ronald Reagan, Silicon Valley, special drawing rights, Steve Jobs, strikebreaker, The Death and Life of Great American Cities, trade liberalization, trickle-down economics, V2 rocket, War on Poverty, Washington Consensus, Yom Kippur War, éminence grise

The standard reporting requirements for the Federal Register required 200,000 respondents and five million man-hours; and ‘for the oil industry [it] became more important than the geologist’s report’. The direct costs ran into thousands of millions, and there were tales of extraordinary waste and maladministration. The regulation was meant to ensure fair shares, and to bring back refineries that had been kept out of service. It seems only to have profited lawyers. Administrations lurched, unwilling to accept that the price mechanism was in the end valuable. President Gerald Ford, in January 1975, talked nuclear power and coal; ecologists went to town. However, two things were at last put through. The Alaskan Pipeline, set to cost $10bn, was allowed; and in 1975 American automobiles had to have fuel efficiency standards. In 1977 Carter took over, appointing a multipurpose warhorse, James Schlesinger, as his maker of energy policy, in effect hoping for rationing because a CIA report of 1976 had predicted another oil shortage.


pages: 934 words: 232,651

Iron Curtain: The Crushing of Eastern Europe, 1945-1956 by Anne Applebaum

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active measures, affirmative action, anti-communist, Berlin Wall, centre right, deindustrialization, Fall of the Berlin Wall, falling living standards, hiring and firing, illegal immigration, indoor plumbing, Internet Archive, Johann Wolfgang von Goethe, land reform, language of flowers, means of production, New Urbanism, Potemkin village, price mechanism, road to serfdom, Ronald Reagan, Slavoj Žižek, stakhanovite, strikebreaker, union organizing, urban planning

And so, one by one, Eastern European governments began drawing up complex, multiyear, Soviet-style central plans, setting targets for everything from road construction to shoe production. Hungary launched its Three-Year Plan in August 1947, and would announce a Five-Year Plan in 1950. Poland also launched a Three-Year Plan in 1947, and a Six-Year Plan in 1950. Germany launched a Two-Year Plan in January 1949 and then a Five-Year Plan for the years 1951–55. The targets set in these first plans were often pulled from the air, and the understanding of pricing mechanisms was unsophisticated, to say the least. One of Poland’s first economic bureaucrats tried to keep track of the fluctuating prices of coal and bread in the months before the first plan went into effect, imagining that would eventually help him set the “correct” prices for all goods—prices which, of course, would never need to be changed again, he thought, since there would be no inflation in a communist economy.


pages: 846 words: 232,630

Darwin's Dangerous Idea: Evolution and the Meanings of Life by Daniel C. Dennett

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Albert Einstein, Alfred Russel Wallace, anthropic principle, assortative mating, buy low sell high, cellular automata, combinatorial explosion, complexity theory, computer age, conceptual framework, Conway's Game of Life, Danny Hillis, double helix, Douglas Hofstadter, Drosophila, finite state, Gödel, Escher, Bach, In Cold Blood by Truman Capote, invention of writing, Isaac Newton, Johann Wolfgang von Goethe, John von Neumann, Murray Gell-Mann, New Journalism, non-fiction novel, Peter Singer: altruism, phenotype, price mechanism, prisoner's dilemma, QWERTY keyboard, random walk, Richard Feynman, Richard Feynman, Rodney Brooks, Schrödinger's Cat, selection bias, Stephen Hawking, Steven Pinker, strong AI, the scientific method, theory of mind, Thomas Malthus, Turing machine, Turing test

And the creatures that don't have eyes at all are neither better nor worse on any absolute scale of design; their lineage has just never been given this problem to solve. It is this same variability in luck in the various lineages that makes it impossible to define a single Archimedean point from which global progress could be measured. Is it progress when you have to work an extra job to pay for the high-priced mechanic you have to hire to fix your car when it breaks because it is too complex for you to fix in the way you used to fix your old clunker? Who is to say? Some lineages get trapped in (or are lucky enough to wander into — take your pick) a path in Design Space in which complexity begets complexity, in an arms race of competitive design. Others are fortunate enough (or unfortunate enough-take your pick) to have hit upon a relatively simple solution to life's problems at the outset and, having nailed it a billion years ago, have had nothing much to do in the way of design work ever since.


pages: 554 words: 168,114

Oil: Money, Politics, and Power in the 21st Century by Tom Bower

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Ayatollah Khomeini, banking crisis, bonus culture, corporate governance, credit crunch, energy security, Exxon Valdez, falling living standards, fear of failure, forensic accounting, index fund, interest rate swap, kremlinology, LNG terminal, Long Term Capital Management, margin call, Mikhail Gorbachev, millennium bug, new economy, North Sea oil, offshore financial centre, oil shale / tar sands, oil shock, passive investing, peak oil, Piper Alpha, price mechanism, price stability, Ronald Reagan, shareholder value, short selling, Silicon Valley, sovereign wealth fund, transaction costs, transfer pricing, zero-sum game, éminence grise

Among them was Castle Energy, a refining company that had sold Metallgesellschaft gasoline and heating oil for future delivery at the higher prices, on the assumption that prices would in fact fall. Their wisdom was Benson’s disaster. He was fired, and Metallgesellschaft was ruined. Speculating about oil prices, insiders acknowledged, was not suited to amateurs. The involvement of bankers and big traders complicated the pricing of Saudi oil for Laney Littlejohn. Regularly, Littlejohn was told by Jorge Montepeque that his pricing mechanism was being manipulated. “We’re watching Japanese traders squeeze the market in Dubai,” Montepeque declared. “Everyone’s manipulating in Dubai. It’s full of daisy chains.” Aramco or Shell could have terminated the squeezes by releasing more oil in the region, but refused. Montepeque suspected their motives. Littlejohn was unimpressed. “Platts’s prices are goofy,” he complained, “because Platts’s assessor is goofy.”


pages: 710 words: 164,527

The Battle of Bretton Woods: John Maynard Keynes, Harry Dexter White, and the Making of a New World Order by Benn Steil

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activist fund / activist shareholder / activist investor, Albert Einstein, Asian financial crisis, banks create money, Bretton Woods, British Empire, capital controls, currency manipulation / currency intervention, currency peg, deindustrialization, European colonialism, facts on the ground, fiat currency, financial independence, floating exchange rates, full employment, global reserve currency, imperial preference, invisible hand, Isaac Newton, John Maynard Keynes: Economic Possibilities for our Grandchildren, Joseph Schumpeter, Kenneth Rogoff, margin call, means of production, money: store of value / unit of account / medium of exchange, Monroe Doctrine, New Journalism, open economy, Paul Samuelson, Potemkin village, price mechanism, price stability, psychological pricing, reserve currency, road to serfdom, seigniorage, South China Sea, special drawing rights, The Great Moderation, the market place, trade liberalization, Works Progress Administration

If the simple basic ideas can become familiar and acceptable, time and experience and the collaboration of a number of minds will discover the best way of expressing them.”87 The central argument of the book was revolutionary (at least to economists): the economy had no natural tendency toward full employment. High unemployment could persist indefinitely if governments did not intervene forcefully to boost consumption demand. Cheap money provided by the central bank was not enough. This was wholly contrary to classical economics, which held that protracted involuntary unemployment was a result of some interference in the workings of the price mechanism. Classical economics showed that full employment required flexible wages; Keynes showed why, with different assumptions, falling wages could actually worsen unemployment. These different assumptions were related to the nature of money, human psychology, and conventions of contemporary society. Each of these on its own would do for his argument, and he was not that particular. Such a brazen treatise would have gotten a much colder reception during the American boom years of the 1920s, but in the midst of a Great Depression, with unheard-of levels of unemployment, it was compelling even to economists who disagreed with Keynes’s logical apparatus.


pages: 1,351 words: 404,177

Nixonland: The Rise of a President and the Fracturing of America by Rick Perlstein

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affirmative action, Alistair Cooke, Bay Area Rapid Transit, Berlin Wall, Bretton Woods, cognitive dissonance, cuban missile crisis, delayed gratification, desegregation, East Village, European colonialism, full employment, Golden Gate Park, Haight Ashbury, immigration reform, In Cold Blood by Truman Capote, index card, indoor plumbing, Kitchen Debate, liberal capitalism, Mahatma Gandhi, Marshall McLuhan, Monroe Doctrine, moral panic, New Urbanism, Norman Mailer, Own Your Own Home, Paul Samuelson, Plutocrats, plutocrats, price mechanism, Ralph Nader, RAND corporation, rolodex, Ronald Reagan, sexual politics, the medium is the message, traveling salesman, upwardly mobile, urban planning, urban renewal, walking around money, War on Poverty, white picket fence, Whole Earth Catalog

To those who claimed it unconstitutional for the federal government to interfere with the private housing market, the bill’s supporters pointed out how deeply the federal government subsidized the private housing market. To those who said integration brought neighborhood breakdown, they introduced social science into the Congressional Record (“Old concepts about neighborhood homogeneity, the relationship of changes in value to housing supply, the price mechanism as a controlling factor in family mobility, the significance of panic-selling and block-busting techniques, and property maintenance habits of nonwhite families are being revised and are no longer supported by responsible literature in the field”) and the conclusions of President Eisenhower’s Civil Rights Commission that integration brought lower “rates of disease, juvenile delinquency, crime, and social demoralization.”