Dear Friends of the American Monetary Institute

Please take a moment to concentrate on this message, and consider the very particular action it asks of you, to help our nation achieve meaningful change to assure that no “Wild West” banking system ever again despoils our people.

Place: Busboys and Poets Restaurant (Langston Room)
2021   14th St.   NW,    Washington DC  20009

 Date:  Thursday, April 10, 2008                  Time: 6:00 PM to 8:00 PM

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Reservations not necessary but really appreciated 

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This came about from a post about population reduction being the answer to reducing carbon emissions. As i noted in my previous post population growth, especially in developing countries, is putting severe pressure on all resources.

China has been on to this well in advance with its one child per couple policy.  For developed countries teenage pregnancies have been a bit of a problem and something that has not been adequately addressed. This idea fits in neatly with the premise of the “Logic of Life” by Tim Harford.

Tim notes that people make complicated  calculations about potential trade offs every day whether its to have unprotected sex or park illegally. He argues cogently that we do respond to incentives and change behaviour when the pay offs look in our favour.

For example he notes research which showed juvenile crime lower or falling in US states where the age for adult criminality was lower than in states where it was higher. The reason was simple: the payoffs were worse for juvenile criminals in states where they would be tried in the adult system. Juveniles were simply responding to the market.

So for teenage pregnancies it is a similar story. Where welfare benefits are good for both mother and baby, there is no disincentive to get pregnant. So the payoffs for riskier behaviour are ok. That’s because as a society we value the rights of the baby and choose to provide for it regardless of how it arrived.

Now imagine we said to all teenage girls that for every year until a certain age (whether 18 or 21) they would receive $200 in a savings account for not getting pregnant. That would be an interesting idea to model.

Now I am sure there are many pros and cons to this but I like the idea of policymaking taking into account how people behave rather than what officials deem to be a good or right thing to do.

Forget about the behaviour of small firms or the slope of the IS/LM curve. Think about why people get out of bed in the morning, pay silly prices for a cup of coffee and can’t build a business on Cameroon. Think about how China has grown so fast. How did it happen? Why?

I was lucky enough to attend a lunch last Friday in Wellington (thanks Jim for the head’s up) and hear Tim talk about his new book “The Logic of Life”. I’m looking forward to reading it. It crosses back and forth across the social science spectrum which i believe is incredibly important for an economist to do.

It’s not just about numbers and graphs. As Tim says, it’s about people and the things they do, resources they use and how and why they do it. When I studied economics (University of Manchester 1987!) we lived in a faculty of social science with the option to major in one of 11 different topics as diverse as social anthropology to accounting and finance. These days you’re likely to find economics buried in the commerce faculty.

This approach has failed the student as it presents economics as being about business and numbers. It isn’t at all. Those are merely outcomes and outputs. How people allocate scare resources is a combination of anthropology, psychology, politics, finance, geography , history and so on.

The silo approach that many universities have taken goes counter to the understanding we have developed of systems and the extra efficiencies that coherence or consilience brings.

Economists like Tim Harford will bring new interest to this critical subject and hopefully widen the lens that it is viewed through. After all any economist who can discuss the market for blow jobs with a straight face has to be on to something

But with the $ swift decline into obscurity the fans of something more solid than the US Treasurer’s signature on a piece of paper are clamoring fro the return of the Gold Standard as a way of preserving the value of paper and controlling the impulse of bankers to keep printing the stuff.

Well yes that does seem to be a problem. I’ve touched on this before when looking at how the Bank of England experienced several runs just after it was formed. Why? Because they printed way more paper than they had in reserves of gold. So gold or no gold, there is nothing to stop authorities or private banks printing paper or more accurately filling up spreadsheets with lots of numbers.

I’m ambivalent on this gold business. Storage issues, never mind the horrendous process of digging the stuff out of the ground, present problems as do the ability to carry it safely but really its a confidence thing.

Readers of this blog should hopefully know by now that money is an artificial construct. We can make it anyway we like. It’s created into existence in some form in order that we can exchange goods, services and labour in an efficient manner.

It is subject to the laws of supply and demand like any other product or service.

William Rees-Mogg makes some interesting points about it here but the reality is still the same gold or no gold. We must control the supply of money. 1:1 exchange for gold is a way to do that but its so last century. Surely we can come up with a smarter way of doing it.

My favoured approach is for a central monetary authority to issue interest free new money into the system directly. that supply of money (the only supply) could be controlled on an annual basis responding to set limits, constraints and changes in demand, population etc.

Goodbye interest, goodbye inflation and goodbye financial markets as we know them.

Gold bugs or not, we have to do something about the current system before it blows up and makes the 1930s depression look like an afternoon tea party.

The Greens have come out with a story about a buried chapter in this report. They claim that Chapter 13 was pulled due to a very negative slant on the dairy industry. It pointed to dairy as the “largest cause of environmental decline” in New Zealand. Anyone who likes to swim in their local stream, river or lake could attest to that.

The dairy industry is also one of the biggest earners for the country. There you have it. New Zealand is no more immune to political lobbying than any other country except its pretty transparent. It’s hard to keep anything a secret here.

The Greens propose that this report come under the auspices of the Parliamentary Commissioner of the Environment rather than the government.

Yes to that!  The government simply cannot be trusted to be objective. Yes it’s a sad statement to make but that’s the way it is until we get a more distributed form of democracy and power.

If you can’t sleep then here is the link to the various reports.

It actually falls neatly into and out of most of the political spectrum. Where it diverges is on the issue of control. Politics is all about who is in control whether Blue, Red, Yellow or Green or any shade in between. Basic income is about giving everyone access to the financial commons and allowing them the just get on with it. It isn’t a social policy its an expression of freedom and a right.

It will be interesting to see how this debate develops but I’m glad to see it taking on a more formal conversation.

Added to that is a citizens income, disestablishment of welfare, better infrastructure and importantly a compulsory health insurance.

It will be interesting to discuss these issues further. I may invite Owen to expand on them here. The name is a bit of a mouthful but that can be worked on.

It’s a very good start though.

It’s kind of kooky but has some merits once you wade through the initial reactions. The idea of getting a permit to smoke is not likely to win much support but what it does is create an extra layer in the choice process. If we assume that people are not rational actors (opposite to received economic theory) then asking them to consider the choice before they make it may have some merit.

This is a similar approach that I have often thought might work with drugs, namely that you have to apply for a permit to gain access to the required drug from a doctor. Implicitly this means rocking up and saying yes i’m an addict and a need a prescription. You then get your drug for example heroin, which would be pure and therefore less harmful, from the medical authorities.

We know what a healthy and balanced lifestyle looks like but for many that is a pipe dream. Could this proposal help or is it just another bad idea with good intentions?

His main focus is always to step back from the hysteria and hype and look more pragmatically at the problem. I would say this is a sensible approach though it’s hard to ever get sensible debate when it comes to the environment.

Nothing else quite allows people to represent themselves as good or worthy and label others as bad or dirty.

Lomborg is not into saving the planet. He’s into calm reasoning and tries to stay within the remits of his expertise as a statistician. Interestingly enough Al Gore has been getting a judicial working over in the UK over his alarmist portrayal of the situation.

The moral of this story is that we need to make reasoned policy based on what we know and can observe. That a warmer climate presents severe challenges is not without doubt but let’s keep a clear head whilst working out what, if anything, we can do about it.

Letting issues like this develop into a battle between good and bad just leads to reactive approaches. Lomborg falls somewhere in between and is worth listening too even if just to disagree with.

It’s not too late to have another look. Many Kyoto advocates have told me there is too much time and money invested in it to change tack now. Well that’s not good enough. If Kyoto is not going to work then it should be set aside. It doesn’t mean a step back but a step forward.

So i’m dusting off my proposal based around Montreal. I think it’s time to realise that major reductions can only come from the supply side.

See Climate Control and also have a look at Oliver Tickell’s proposal Kyoto 2.