Wednesday, October 17, 2012

Rent Seeking - The Price of Inequality III

I promised to look at Stiglitz's analysis of rent seeking in America and it's implications.  A little belatedly I will try to do that.  Stiglitz defines rent-seeking as “using political and economic power to get a larger share of the national pie, rather than to grow the national pie”.  In Wikipedia  we find this definition "In economics, rent-seeking is an attempt to obtain economic rent by manipulating the social or political environment in which economic activities occur, rather than by creating new wealth."

Rent originally referred primarily to rent on land but in modern economics the term has become expanded to newer an wider forms of activity. In another quote from Stiglitz he argues.
"Much of the top-most wealth instead comes because of successful “rent seeking.” Economists use the term “rents” for income derived from owning an asset, rather than from effort. “Rent seeking” refers to attempts to garner a larger share of the economic pie, rather than making the pie larger.
Monopolists, for example, gain their wealth through restricting production — which makes the size of the pie smaller. When we look at divided societies abroad, like so many of the dysfunctional oil-rich countries, we diagnose their problem as an infliction of excessive rent seeking — too much of society’s resources go to attempts to grab a larger share of the oil wealth, too little to expanding the economy. What we don’t realize is the extent to which the United States, too, has become a rent-seeking society."
Stiglitz demonstrates that  have a system that actively redistributes income and wealth from huge numbers of people at the bottom of the pyramid to a tiny number at the very top.  He shows how the financial system is permeated to the core with rent seeking such as the predatory lending in the sub-prime mortgage disaster about which he says:
"the form of rent seeking that is most egregious - and that has been most perfected in recent years - has been the ability of those in the financial sector to take advantage of the poor and uninformed (p. 32). This is because financial companies almost always know more about their product (mortgage, derivative, stock, etc.) then do their customers, and the industry has been able to minimize any regulation or action by the government to even the playing field."
He also deals with a range of rent seeking including in the so-called high-tech areas.  For example in something that should be dear to the hearts of us Canadians he covers the case of the patent troll rip off of RIM.  One aspect of rent seeking he doesn't discuss is organized crime and the Mafia which is typical rent seeking in search of "a piece of the action".

Another big M rent seeker is Microsoft whose rent seeking he briefly touches on.  He doesn't discuss MS's latest rent seeking scam, the extension of it's attempts to extort money over it's alleged and secret  patents that  Linux supposedly infringes, to an apparently successful shakedown of smartphone manufacturers producing Android phones. "Nice little earner you've got there, you could be protected from a very expensive lawsuit if you pay us a percentage".  Come to to think of it Ballmer looks a little like Tony Soprano.

Stiglitz's academic area is the distortion of free markets by information asymmetry and he shows that rent seeking is a consequence of this.

More on The Price of Inequality to come.

Sunday, October 14, 2012

The Price of Inequality II

I finally finished The Price of Inequality yesterday so I guess it is now time to sum up my views. As I said in my previous post  it is a very angry book.  Stiglitz is justly outraged at the way the "1%" has increased it's wealth at the the expense of everyone else (both the middle and the poor) while at the same time as it has destabilized the economy, inhibited growth and brought about the Great Financial Recession.

The book examines how this happened, it's effect on American society as a whole and it's effect on American politics and legal system.  The way corporate political donations corrupt American "democracy".  Indeed as I put it some time back on a Guardian CIF post "... in America politicians are bought and sold like pork belly futures". He describes a legal system that  where inequality is eroding the rule of law.  A legal system where not only can wealth buy favourable outcomes in the courts but also where corporations can buy laws that represent their interests against those of the majority of citizens.

Finally he finishes  with a chapter entitled The way Forward: Another World is Possible, recalling the slogan of the anti-globalization protesters of over a decade ago. In this chapter he presents his proposals for reversing the trend towards increasing inequality as a way of stabilizing the American economy and achieving a return to growth.

Tomorrow I will look at Stiglitz's analysis of rent seeking in America and it's implications.

Tuesday, October 9, 2012

The Price of Inequality - Stiglitz

As I mentioned in This Blog is Reanimated  I am currently reading "The Price of Inequality: How Today's Divided Society Endangers Our Future" by Joseph Stiglitz. Well I have finally just reached the last chapter "The Way Forward: Another World is Possible" so it seems time to post my initial impressions.

For those that don't know Stiglitz's work he is a Nobel prizewinning (2001) economist.  He was a member of Clinton's Council of Economic Advisers (1993-97) from 1995 he became Chairman of the Council and consequently a member of the Clinton cabinet.  In 1997 he moved on to become  senior vice-president and chief economist of the World Bank later being effectively fired in 2000 because of pressure from the US treasury after his critique of the policies of the IMF and the damage they had caused.

Stiglitz returned to academia with a professorship at Columbia,  and he has  been active over the past decade in international organizations including chairing  the Socialist International Commission on Global Financial Issues and the UN Commission of Experts on Reforms of the International Monetary and Financial System.  He has also published a number of popular books on economic topics and I have read a most of those published since  "Making Globalization Work,".  

Stiglitz's most important contribution to economic theory relates to information asymmetry and the the effect of this on markets. His work with mathematical rigour completely demolishes neo-classical economic theory and also the monetarist theory of the freshwater school of economics of Milton Friedman and the "Chicago Boys" which he derides as mere "ideology"

"The Price of Inequality: How Today's Divided Society Endangers Our Future" is his most recent popular book.  It may be the most important book published so far this century, it is also justly a very angry book. We will look at the book and its arguments in more detail in following posts.

Sunday, October 7, 2012

Einstein's God Part I

Over at Pharyngula PZ reports that a letter from Einstein containing this quote :
"The word God is for me nothing more than the expression and product of human weaknesses, the Bible a collection of honorable, but still primitive legends which are nevertheless pretty childish. No interpretation no matter how subtle can (for me) change this. These subtilised interpretations are highly manifold according to their nature and have almost nothing to do with the original text." - 1947
is going up for auction.

Other quotations in which Einstein expresses his absence of belief in a personal God include this:
"It was, of course, a lie what you read about my religious convictions, a lie which is being systematically repeated. I do not believe in a personal God and I have never denied this but have expressed it clearly. If something is in me which can be called religious then it is the unbounded admiration for the structure of the world so far as our science can reveal it" - 1954
So Einstein did not believe in a personal God and therefore was not a theist, he was therefore an atheist.   However Einstein in a number of places claims not to be an atheist but rather an agnostic.   
"I have repeatedly said that in my opinion the idea of a personal God is a childlike one. You may call me an agnostic, but I do not share the crusading spirit of the professional atheist whose fervor is mostly due to a painful act of liberation from the fetters of religious indoctrination received in youth. I prefer an attitude of humility corresponding to the weakness of our intellectual understanding of nature and of our own being". - 1949
This is a position similar to Darwin's which I intend to more fully explore in a later post and like Darwin he tries to escape the only meaningful definition of an atheist  as a person who does not believe in a personal God.  The consequence of which is that agnosticism or even deism are both subsets of atheism.  And talking about sets Einstein puts up a vigorous defence of the outspoken and campaigning atheist Bertrand Russell.
"Great spirits have always encountered violent opposition from mediocre minds. The mediocre mind is incapable of understanding the man who refuses to bow blindly to conventional prejudices and chooses instead to express his opinions courageously and honestly." - 1940

At times he has no alternative but to admit his atheism, for example in refuting the claim of a Jesuit priest that he had converted to Christianity:
"I have never talked to a Jesuit priest in my life and I am astonished by the audacity to tell such lies about me. From the viewpoint of a Jesuit priest I am, of course, and have always been an atheist." - 1945
Enough for now, I am sure I will post more on it later.

Champagne Cava Comparison

As I mentioned in my last post:
"We have just finished a bottle of Cattier champagne (Champagne Cattier Brut Premier Cru) for our anniversary and are opening a bottle of Cava Reyes de Aragon Brut Reserva."
This seems like a good moment to have a Champagne to Cava  comparison.  The Cattier was released by the the LCBO last year here in Ontario and it has been sitting for about a year in our cellar (well cupboard with a wine rack in it).  We had been hoping to find a champagne with the distinct toasty note we remembered from twenty years ago and haven't really noticed in the cheaper champagne we have been buying here.  We didn't really get the toast note we hoped for, but it was a fine champagne full of depth and complexity with a noticeable  straw colour.  It was one of the best champagnes we have had here and excellent value at $39.95 but then again we are not trying Dom Perignon at >$200, we are not even running to Bolly.

The Cava Reyes de Aragon Brut we had only bought a couple of weeks ago, but it is a 2009 vintage which is anyway the about of maturing time a "champagne method" sparkler (I guess according to the champagne producers I am not allowed to use that term) needs before release.  This is an outstandingly  good cava, like the Cattier it had a (not so strong) straw colour with a depth and complexity that matched the champagne.  In fact it was difficult to tell it from the champagne.  It was almost as good as the champagne only on  a few notes did it not quite equal the Cattier.  Incredible value for $13.95

This Blog is Reanimated

It is Thanksgiving weekend here in Canada and I think I should use the time to start regular posts on this neglected blog.  So I think I should outline the main areas and topics I plan to cover and why.  One obvious area is politics and political economy both Canadian and global.  Also I intend to comment on the books I am currently reading or recently read.  Currently I am reading "The Price of Inequality" by  Joseph Stiglitz (the Nobel prizewinning economist), in many ways it is central to my current political concerns, the growth of oligarchic hegemonism  and its use of neo-liberalism to redistribute wealth upward from ordinary working people to the ultra-rich (nowadays often referred to as the 1%).

The other main area I intend to comment on is science.  Having spent all my working life in research laboratories both in industry and universities, science should be an obvious area of interest. My area of expertise is instrumental analytical chemistry, not the most interesting topic to blog on, though I intend to touch on it at times if something interesting turns up.  However having been educated at the tri-junction of  chemistry, biology and physics it is not surprising that I have developed a passing interest evolutionary theory, quantum chemistry and ever since my teens, cosmology. So I definitely intend to cover these topics.

With regard to evolution I am also currently reading  Rebecca Stott's "Darwin's Ghosts, The Secret History of Evolution" this has an unfortunate subtitle given to the North American edition its' more accurate subtitle in the original British edition was "In Search of the First Evolutionists" which is one of the things I will discuss here when I finish the volume.  One important topic in current biology is the ENCODE debacle and its supposed obituary of Junk DNA.  I have to get a post together on this to try and analyse the controversy.

In the area of cosmology I plan that in addition to discussing recent popular books on cosmology, to post links to interesting recent articles on arXiv to draw them to the attention of non specialists like myself.

Finally my wife has suggested I comment on our wine choices.  We have just finished a bottle of Cattier champagne (Champagne Cattier Brut Premier Cru) for our anniversary and are opening a bottle of Cava Reyes de Aragon Brut Reserva.  So you see our tastes tend towards sparkling wine.