First they laugh at you, then they fight you…

Posted on April 3, 2012 by kierkegaurd

While I agree liberty can’t be the ONLY value, I have to say it’s pretty fundamental. How else can we express/enjoy our other values without it? Liberty is not sufficient but is surely necessary. Good point about the statue of liberty and the pro-immigration line, but what is this “all libertarians are racist” bullshit? As if LGBT people and ethnic minorities and people of alternative lifestyles aren’t those BEST SERVED by a truly libertarian outlook. Liberty as the first value means all these different ways of being are respected. But it looks like the anger has come. Is this the fighting stage?

Twitt
Posted in Philosophical, Political | Tagged , , , , , | 2 Comments

M’yes and what we see in the British financial sector is *RANT RANT RANT* …

Posted on April 2, 2012 by kierkegaurd

So…continuing the trend of posting papers, because why not. Wrote this as a segment of a “group paper” on the global financial crisis as felt by Great Britain for an econ class. Clear signs your professor is pretty collectivist (kidding!): five people have to suffer from my procrastination and disagreement with mainstream macro theory. I tried to tone it down for this and eventually cut out the really rant-astic section. But, I saved my notes from that bit and so, I felt like I should post the paper here with those notes included. This is what I would have written if it weren’t a group paper. As much as they should be angry at me, my group should also thank me for not turning this in: (ranty part in red) 

**Look out for a link to an article about China’s savings when I finally find it again. **

Behind a decade of improvements and relative wealth were significant misunderstandings of the workings of various major drivers of the British economy. Namely, many of the assumptions made regarding the functioning of the expansive British financial market were directly responsible for behavior that was unsustainable and led to the eventual crisis. It became quickly apparent that much of the great expanse of “wealth” that was created by the British financial sector in the years leading up to the crisis was being overvalued and that important characteristics of these years of credit expansion had been hidden from those evaluating the economy. The sheer size of the British financial market, along with its high degree of globalization and integration with foreign markets, and the use of this sector of the economy to fund many important security measures (pensions and the like) introduced the risk that any crisis in the financial market would be felt across the economy. Specifically the use of new and complex financial products, especially those backed by credit tied to property (mortgages), in pension and other savings programs led to the introduction of the risk inherent in all financial markets (and especially in one so globalized) into the larger economy. (Martin 128)

Many of the issues with financial sector stemmed from behavior that reflected a misunderstanding or simply a lack of knowledge of what was actually happening within the credit expansion and upturn in the years leading up the crisis. The common wisdom was that the upturn was endlessly sustainable and that the wealth being created by these complex financial products was to be expected to continue given their backing in mortgages and the continual and expected rises in the value of houses/property. There were two major issues with this prevailing view. One was that betting on the continual increase of housing prices turned out to be much more risky than expected. The second was that the assumption that these sorts of financial maneuvers were insulated from the rest of the economy the lack of concern for their having a major effect on the greater economy led to much more risky behavior on the part of the financial markets. Part of this stemmed from the methods of modelling the financial market used pre-crisis. The models used often obscured that fact that these markets interacted with the greater economy in real and substantial ways. (Barrell) Had this been realized earlier, we can conjecture that financial firms in the UK, namely those responsible for repackaging and expanding the use of mortgage-backed securities (sub-prime among them) would have been more risk-averse in their behavior and would not have expanded the use of these complicated and risky financial derivatives based on the housing market. The focus by banks and financial institutions during this time was not on long term schemes for growth but rather on short term wholesaling of credit. (Baglioni) This means that rather than considering the possible changes in the housing and other markets, these institutions traded often and were much more receptive to quick massive gains which also opened the door to potential quick massive losses (which we saw come home to roost in 2007/8). (Shin 106)

The issue, it appears is not the downturn itself, so much as it is the upturn beforehand. The overheating, and the governmental (procyclical) support of this trend drove perceived values ever higher. This was even more true in the US. Conversely, China is getting it much more right. Their very prudent concern about “hot money” and overexpansion puts the onus on the proper forces in the economy; those who would seek endless expansion are questioned as to whether it reflects real and measurable growth in terms of wealth or an inflation. Often mocked for not allowing the forces of pent up capital to be released upon the world, I would argue that such massive savings is enabling a long slow growth and preventing the volatility and risk we see in “western” nations today. Granted, actual regulations restricting use of capital  and granting of credit don’t strike me as the best way to do this (high interest rates would be one way to do this without limiting choice as much), it does seem to be keeping China on track to real wealth creation. In the US and other “western” nations we see a different trend, inflation, stemming directly from money expansion or from the expansion of credit and non-M1 money. Inflation serves to do a few things: it undermines the real value of anything produced and of all wealth, and also obscures the true state of the economy. Inflation is inflation, whether in derivatives or cash and we need to realize this. We need to fear the boom no matter where it stems from and maintain a high savings rate to encourage actual saving. Because eventually the day of reckoning comes and all this false wealth is swept away like a massive storm that cleanses everything and reveals the truth. The true value of these assets are revealed and we are left without the security we thought we had. When the eggs we had counted and already sold never hatch, we have to pay back all we sold them for, and reset again to the underlying reality of the economy that we sought to ignore, with our faces turned optimistically towards the bright sun of utopian assumptions of never ending growth and having “solved” the business cycle. Much better to assume we don’t know and underestimate, than bet on nothing going wrong.

This is why I find it so ridiculous that we keep suggesting that China needs to “consumerize” in order to keep growing. This assumption that you can drive growth through consumption is ridiculous. You don’t create by borrowing money to buy things and then hoping this induces those making the things you buy to make more. They will make as much as they can given the resources and investment and creative innovation that they recieve. If you want them to produce more, try and encourage these things. Innovation, and investment. Demand is never the problem. It can’t be. Human demand, firstly, is infinite. We will consume until we can’t anymore. This is human nature. If we’re not consuming it’s because we can’t (yes, maybe if you lend we will consumer more, but this doesn’t mean we can support anything on this – someone has to pay the piper). Probably because as households we’re not recieving enough pay or saving enough to feel we can spend. We receive less for our labor when the producer receives less for selling or can’t produce as much. Changing the price level through inflation doesn’t fix this because as we receive more, our costs also go up. The only way this gets better is when producers actually produce more due to innovation or more resources or better practices. This is the second reason demand can’t induce production, because the price level can shift. More demand doesn’t mean I have to produce more, only that I sell whatever I can produce for a higher price. Inflation.

Furthermore, we should more careful about the faith we put not only in our own ability to avoid overreaching, but our ability to even know what it is the economy is doing. In most cases it seems we have little idea what’s really happening, and this is a factor that played into the 2007/8 crisis as well.

The major issue was that the financial tools being used themselves hid important information about the riskiness of these tools and the underlying assets they were backed by. Namely, by averaging and aggregating housing prices and the value of mortgages, the financial system hid the risks that existed and the fact that prices were beginning to turn down long before the crisis. This encouraged increased trading and valuing of these assets, despite the fact that their real value was falling. (UK Banks Asset Quality) In fact, rather than decreasing the degree to which assets were backed by mortgages in response to these changes, the obscuring of this market led to a vast expansion in the volume of mortgage backed securities and their value (as reflected by their value within financial markets) in the months directly before the crisis. (UK Bank Lending) Part of the issue here was that many of these securities were not British in origin and there were serious misunderstandings about what was happening in, for instance, the American financial and housing markets. The high degree of integration of the American and British markets meant that the United Kingdom felt very strongly the effects of the credit contraction in the US, and paid dearly for this.

Works Cited

(yeah, I know on a blog? wtf? I figured I should include it since the paper had it…idk)

Baglioni, Angelo. “Liquidity Crunch in the Interbank Market: Is It Credit or Liquidity Risk, or Both?” Journal of Financial Services Research (2011). SpringerLink.

Barrell, R., S. Kirby, and E. P. Davis. “Modelling The Uk Banking Sector.” National Institute Economic Review 214.1 (2010): F67-72. Sage Publications.

Enders, Zeno, and Alexandra Peter. “The International Transmission of the Financial Crisis – A German Perspective.” (2011). Heidelberg University.

Martin, Ron, and Richard Minns. “Undermining the Financial Basis of Regions: The Spatial Structure and Implications of the UK Pension Fund System.” University of Cambridge: Regional Studies (2007). Routledge.

Shin, Hyun Song. “Reflections on Northern Rock: The Bank Run That Heralded the Global Financial Crisis.” Journal of Economic Perspectives 23.1 (2009): 101-19.

“UK Banks Asset Quality.” FT.com (2007): 1. ProQuest Central; ProQuest Social Science Journals.

“UK Bank Lending.” FT.com (2008): n/a. ProQuest Central; ProQuest Social Science Journals.

Twitt
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Afraid of the Public…

Posted on March 31, 2012 by kierkegaurd

So John Rawls is perhaps one of the most brilliant philosophical minds to have ever lived and written. Recently finished Political Liberalism for a class I’m taking and while it took me literally forever to read, it was definitely worth it. The man was genius, no question. However, and my professor warned us we may feel this way, I disagree with him on SO MUCH. As my professor put it, there’s literally an industry built around Rawls-bashing in the world of academia and even pop-philosophy. Regardless of this, Rawls is still brilliant. I don’t know why I feel compelled to state that before I present my own complaints and further feed this industry, but I feel like I owe it to him. I mean I would never have considered half the ideas I’ve been thinking in the past few weeks without having read this. I think he gets at some really foundational ideas that set the stage for real insight. I also, however, think he fails at the goal that he’s set for himself. But more on that below. So, without further ado, a paper I wrote bashing Rawls for a philosophy class. Warning: It’s long for a blog post but short for a paper. Hope it’s as interesting to others as it was to write!

The Rational the Reasonable and the Public
One of the central distinctions that Rawls makes in Political Liberalism is that between the rational and the reasonable. Where most philosophical traditions view these concepts as linked with the reasonable dependent on the rational, Rawls claims this is not the case. Rather, he sees both the rational and the reasonable as necessary for his purposes (the determination of an “appropriate conception of justice for specifying the fair terms of social cooperation between citizens regarded as free and equal, and as fully cooperating members of society over a complete life, from one generation to the next.”) and linked in this way, but not by the priority of the rational over the reasonable. At this point it becomes necessary to define then, what is meant by the reasonable. While Rawls does note that we differentiate the two in everyday conversation and brings forward the example of our common claim that a proposal may be perfectly rational without being reasonable, this only gives us a vague idea of what is meant and what is required for a proposal to be considered reasonable. The reasonable must fulfill a series of requirements distinct from those that determine the rational. Rather than attempting to define reasonable directly, Rawls then attempts to show what is meant here by describing two aspects of reasonableness “as virtues of persons.” What are these two “virtues” and what is their implication for the usefulness of reasonableness as a partner to rationality in determining the appropriate concept of justice?

The two “virtues” that Rawls outlines are, firstly: that reasonable persons “…are ready to propose principles and standards as fair terms of cooperation and abide by them willingly, given the assurance that others will likewise do so.” The second virtue is that they are:
“…ready to discuss the fair terms that others propose.” The footnote here, I find, gives us a bit of a clearer definition of what is meant by being willing to propose standards that are fair and accept others. It discusses the psychological motivation to only propose that which we feel we can justify to others, and only accept what they can justify to us on our own terms. This means that the standard for the reasonable is necessarily a public one. Rawls goes on to discuss this public nature of reasonableness. The reasonable is based on the idea of public reciprocity. Here we are referred to the earlier discussion of reciprocity, that is, that it is situated between mutual advantage and altruism. This means that when a person acts reasonably they neither forget their own private internal ends nor the consideration of others’ ends, but hold both as valuable. The reasonable is our ability to both recognize that others have ends without giving up our own. We are then taken to the question of how this actually differs from rationality, and the answer we get is that the rational, while sometimes approximating this consideration never actually contains it.

The central tension and concern here is what exactly defines the difference between robust rationality and reasonableness. The admission is made that purely rational actors are by no means solely self-interested. Rather, they may by virtue of “affections” and “attachments” consider others and the ends of these others. We are then told that, however, they lack a certain moral sensibility that underlines the desire to “engage in fair cooperation as such.” This seems to mean that they do not value fairness for the sake of fairness, but can only fall back to seeking mutual advantage and not true reciprocity. However, the extent to which this ideal of fairness may actually be an internal end for most or all people is never dealt with. Despite a very careful consideration of the differences between the robust rational (the enlightened rational if you will) and the reasonable, seems to leave something wanting. If the only true difference is that the reasonable is more publicly defined, why can this not be achieved by mutual advantage alone, correctly understood? That is, why must we assume that persons do not internalize others’ and societies’ ends to the extent that they will rationally seek what is reasonable? The implication here is that the publicness of reasonableness doesn’t actually add anything particularly special to the concept of justice as fairness insofar as we are able to achieve this with rationality alone, so long as that rationality is robust.

There is some degree to which it seems as if Rawls is arguing in something of a circle. Justice as fairness is defined as the rational paired with the reasonable. It is then claimed that the reasonable is centrally predicated on an idea of public justifiability. Justice as fairness also is presented as being based on the publicness of the considerations and the fact of “overlapping consensus.” This means that to some extent they are used to define each other with “publicness” being the only actual underlying defining factor. I find there to be something deeply unsettling about the fact that publicness seems to be the only condition beyond rationality for fair cooperation in society. Certainly some degree of consideration of consensus is sensible, but Rawls himself admits that: “Merely reasonable agents would have no ends of their own.” This seems problematic to me, for this means that we are left only with the ends of the rational individual actor. If it is possible for these ends to be abhorrent, anti-social, and undesired, what good does the reasonable do if it is not able to present some other end above these and is only able to determine which of these possibly abhorrent ends is most publicly accepted? It seems likely that even without reasonableness the most “public” ends would be taken to completion on the shear virtue of having the most rational individuals working for the achievement of these ends over others. Publicness, in fact, seems to be pernicious basis for justice in that it limits the possible ends we may seek to those which are more generally understood (intuitively it seems that these would be lower ends) and places the public will clearly above the individual will in such a way that it extenuates the power of those with more power (due to greater following) over others. This is the problem of democracy in general, so it is sensible that Rawls’ defense of democratic society as the ultimate society would be open to this critique.

Finally, and perhaps this is outside the scope of the present considerations, we find often that what people will agree to in public (what they will vote for, advocate for, think they want when in groups situations) often does not reflect either their own personal ends well or anything resembling the good of the society taken as a whole. This means that what is reasonable and justifiable to others may not be able to preserve our individual ends, which Rawls would like to do (he revels this by claiming we should allow individuals to keep their own comprehensive moralities, religiosities, etc.). I realize this doesn’t leave us with much to cling to. Rather, it is simply more of a claim that the “impossible” problem which Rawls sets up to solve may actually be impossible.

Twitt
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