Re: Stiglitz on Soros--question for Leigh

["Leigh Harkness" <Leigh@xxxxxxxxxxxxxxxxxxxx>]

Bill

I have responded to your questions below.

You may find it useful to distinguish between monetary issues and real
issues in the economy.  I recollect that even Keynes confused himself on
this matter, mixing up monetary investment with real investment.

Although both software and hardware exist as part of your computer system,
when we try to diagnose a computer problem, we first consider whether it is
a hardware or software problem.

It is the same in economics.  The real economy is like computer hardware and
includes people, real investment, real capital (equipment and buildings),
skills, land, enterprise etc.

The monetary side of the economy is like computer software and includes
money, prices, exchange rates, interest rates, etc.

When you boast that:

> I am on record as saying that foreign trade should be conducted on a
> barter basis, similar to the way that the old Soviet Union traded.

you are despairing about the economic software.  Sure, we may have bad
economic software at the moment.  But the purpose of our discussions on PKT
is to work out what is wrong with it and how to write good software that
achieves the objectives we want in the economy such as full employment and
sustainable trade performance.

Regards

Leigh





> LH: "If by capital formation you mean investment, then there was $720
> billion of investment over that period of which $256 billion was
investment
> in equipment."
> ---
>
> Is that net new investment or replacement cost in the form of a revolving
> fund?  Isn't it your contention that net bank credit is equal to the
> current account deficit?  Or is it net investment by foreigners in
Australia?

That invesment is in new buildings and equiment.  Some may be replacement
but a large part would be new.


> LH:  "Are you implying here that the Australian dollar is overvalued
> or that Chinese workers are more efficient?"
> ---
>
> I am on record as saying that foreign trade should be conducted on a
> barter basis, similar to the way that the old Soviet Union traded.
Relative
> "valuation" between currencies is irresolvable in the absence of a
centralized
> monetary authority which would require centralized sovereignty and we're
> not quite ready for that.

We traded profitably for many years before 1972 without the need a
centralized monetary authority.  What went wrong.  If we understand that, we
may be able to put in place a better system.


> As to the efficiency of Chinese workers, they might be more efficient
> or they might not be.  It is entirely beside the point.  Persistent trade
> imbalances are not caused by relative efficiencies or comparative
advantage
> but predatory pricing, which will continue so long as there are cultural,
> political and social differences between nations.

When you say predatory pricing, you are saying that this is a software
problem and you imply the exchange rate.  The price of one countries goods
relative to prices in the other is an exchange rate issue.


> An Australian manufacturer, let's say, pays good wages and maintains
> a safe and pleasant workplace with a clean smokestack.  He is required
> to compete in his own domestic marketplace against "competitors" who
> can enslave their workforce under subsistence conditions, pollute their
> environment, and recover almost the entirety of their costs of production
> in their protected domestic "market."  Everything they sell into Australia
> is pure profit no matter what the exchange rate.  No matter what the
> exchange rate, they can drop their prices to whatever it takes to capture
> more and more of the Australian market from their Australian "competitor."

You are talking here of pricing issues which is still a software matter.
Trade protection using hardware (such as quotas) is the hardest to deal
with.

> LH:  "You are welcome to come up with better metaphors for explaining
> evidence."
> ---


> Your "pool of goods" presumes that its quantity is unaffected by
entrepreneurial
> activity, money or credit.  That doesn't fit the facts.

The pool of  goods analogy is not affected by entrepreneurial activity.  If
an entrepreneur sells more into the economic pool, the money they earn
entitles them to buy more from the pool.  They do not earn rights to draw
from the pool until they sell to the pool.