Re: Stiglitz on Soros--question for Leigh

["Henry C.K. Liu" <hliu@xxxxxxxxxxxxxx>]

Please forgive me for barging in on this discussion.  The hardware/software
analogy is appropriate perhaps for the virtual economy, but not the real
economy.  Price is never a matter of economics, it is a matter of power.  To
talk about predatory pricing of goods without tracing it to predatory pricing of
labor is to balme the victim for the crime.  Economic consideratiosn only enter
the formula if power between trading parties is evenly distibuted.

Henry C.K. Liu

Clifford Poirot wrote:

> Leigh,
>
> I am surprised that you would make some of these following statements on a
> PK list:
>
> You wrote:
>
> 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.
>
> I do not believe that Keynes, or even that most Keynesians have ever made
> this error. To the contrary. If you recall, the whole purposes for the
> Savings-Investment distinction made in every principles level text is
> precisely to distinguish between the purchase of financial instruments by
> households (savings-or financial investment) and the act of purchasing
> capital goods by firms (Investment). If anything, the distinction between
> "monetary investment" and "real investment" is basic and fundamental to
> Keynes and Keynesians.
>
> 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.
>
> We might also want to consider if it is a compatability problem-like trying
> to run Netscape on a Windows platform, and constantly freezing up your
> screen while you wait for JAVA to start. Similarly, we might consider if
> there are things going on in the financial sector, that mess up the "real"
> sector.
>
> 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.
>
> The point of PK economics is that the software side of the economy is real
> and non-neutral.
>
> 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.
>
> Bill's assertion may be complete lunacy, but that does not vitiate the fact
> that financial problems in international trade have at times, messed up the
> whole system. Of course, that was the basis for the formation of the Bretton
> Woods system in the first place and it was disarticulation in that system
> that led to its breakdown.
>
> > 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.