My Virtual Display
 Random thoughts and notes to self

A question from Yahoo! Answers:

Does globalisation mean that rising inequality is inevitable?

What kind of inequality are you talking about? Inequality between countries or inequality within countries?

For example, the globalization in software, pharmaceuticals, and financial services is single-handedly responsible for the fact that the gap in compensation between software developers, life scientists, and finance professionals in the U.S. and India is closing; it still exists, but it is significantly smaller than it was 20 years ago. At the same time, the gap between earnings of a college-educated Indian software developer and those of an illiterate Indian farmer has increased…

Standard economic theory predicts that wages in industries producing internationally tradable outputs will converge (in the long-run, the difference in wages will reflect only transportation costs and differences in productivity), while wages in industries producing non-tradable outputs will be determined by local market conditions.

A question from Yahoo! Answers:

What are the reasons why GMOs are NOT the solution to hunger of poor countries?

Because hunger has nothing to do with agriculture; not anymore, anyway. The world as a whole has been awash in food since 1900 or so. The only reasons hunger still happens are war-related displacement of farmers (think Ethiopia) and excessive government interference in food trade (think India).

A question from Yahoo! Answers:

Is it possible for the stock market to rise in value at a greater rate than the economy?

Yes. You seem to be thinking only of GDP and completely forgetting the capital stock…

For example, at the beginning of fiscal 2006, the total capital stock in the U.S. economy (at current cost, including residential buildings) was about $30 trillion. During fiscal 2006, that capital stock earned about $2.8 trillion in interest, dividends, rents, and proprietors’ income. So overall, the U.S. economy earned a 9.3% return on investment. Since creditors consistently earn less than that (after adjusting for defaults), stockholders must earn more (in the long-run, anyway). The reality concurs; in the long-run, the U.S. stock market delivers approximately 12% per annum, of which approximately 2% come as dividends with the remaining 10% being capital gains (or, in your terms, the “rise in value”).

A question from Yahoo! Answers:

Capitalism. A house of cards?

With the fiasco of “Northern Rock” in the UK and the prime lending furore in the US, do you not think that our whole economy is a house of cards?

Is the Stock Exchange not anything more than a glorified bookmakers?

Wasn’t the the great depression caused by pumped up greed and then loss of confidence?
I’m not saying that we should go back to the barter system, but it would at least ensure a more equitable, solid system, or not?

Can’t we do it any better, or must avarice always lie at the heart of an economics?

A modern market economy is indeed a house of cards. Its success depends on people doing what they promised do. When too many people are unable or unwilling to fulfill their promises, we have a crisis. Fortunately or unfortunately, there is no other basis to build a modern economy.

Are stock exchanges glorified bookmakers? Yes and no, depending on your perspective. Yes, because they do accept bets. No, because the game that is played on a stock exchange is a positive-sum game, whereas bookmakers generally administer negative-sum games.

Was the Great Depression caused by pumped up greed and then loss of confidence? Perhaps (other explanations include overregulation of the banking system, underdiversified economy, and unexpected bumper crop), but it was prolonged by downright stupid fiscal policy.

As to your claim that the barter system would ensure a more equitable system, it’s simply wrong. A number of societies in pre-Columbian America lived under a barter system, and invariably ended up as brutal tyrannies where a war-loving tribe would subjugate and exploit its neighbors, with the bulk of wealth controlled by the ruling family.

Distribution of wealth is determined largely by government policy and demographics, rather than by how the underlying economy works…

A question from Yahoo! Answers:

Did white european settlers go anywhere and not kill the natives?

we were talking about the 1600 and 1700’s in histroy class and someone brought this up Did white european settlers go anywhere and not kill the natives, they killed natives in america, australia, africa what about the other places

Define “kill”. In Tahiti, for example, Europeans did not kill natives with guns, but typhus and smallpox carried by Europeans brought the population count from between 120,000 and 200,000 in 1770s to about 16,000 in 1797…

A question from Yahoo! Answers:

Economic Schools in the 20th Century?

I’m writing a paper comparing the various schools of economic thought that were prevelant in the 20th century. My goal is to discuss the most influential and important schools as well as cover a wide spectrum of thought. I need to compare at least four schools, but at most five, so which schools do you think should be included?

1. The neoclassical school
2. Keynesian economics
3. Rational-expectations economics
4. Non-structural econometrics

And, if you have any room left, the dynamic stochastic general equilibrium economics.

A question from Yahoo! Answers:

A Mathematician and A Physicist?

What is the basic difference between a mathematician and a physicist considering they both deal with numbers?

Let’s start with physicists. Physicists come in two flavors; theoretical physicists study material world mathematically, sometimes making predictions that certain things must happen in a certain way; experimental physicists actually build experimental installations to test the theoretical physicists’ predictions. So it is theoretical physicists who look like mathematicians sometimes.

The difference between theoretical physicists and mathematicians is that mathematicians do not need their brainwork to describe anything in the physical world (their only concern is internal consistency of their proofs), while theoretical physicists seek ways to describe the physical world mathematically and make testable predictions based on their mathematical reasoning (during the 20th century, for example, a whole slew of elementary particles were predicted by theoreticians before being discovered by experimenters).

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How different would life be if the Carthaginians won the Punic Wars?

Not at all. Carthaginians, had they won, would either eventually Romanize or return to Carthage after installing a friendlier government in Rome. Carthage might have had armed forces capable of defeating the Roman armed forces, but it definitely did not have an army big enough to occupy Italy.

Additionally, although Carthage is located in North Africa, its culture is in fact Phoenician. The city was founded by Phoenician traders from Tyre, which is located in present-day Lebanon. The native North Africans, Numidians, were actually at war with Carthage, and de-facto allies of Rome.

A question from Yahoo! Answers:

Can you have a fiat currency without a central bank?

Currently the United States dollar, and (as far as I know) the rest of the world’s currencies are fiat, that is there are no commodities (gold) supporting the value of the money system. This system is enforced by the Federal Reserve System in the United States, as well as by the other central banks in other countries, who are charged with maintaining monitary stability. They, however, do not seem very well equiped to do so, as can be attested to by all the problems created in the economy by their bad policies (for instance the current “housing crisis” that was caused by the Fed keeping interest rates too low for too long post 9/11). I believe a market based solution would be a better way of insuring monitary stability, however, I can see no way to do this with our current fiat currency. I believe it would be possible to do so with a commodity based currency, however, to do so would require deflating the dollar enough to a point that the USA would be destitute.

You absolutely can have a fiat currency without a central bank. Just put the Treasury (or Ministry of Finance, or whatever else you call it) in charge of monetary policy. The problem with that approach is that the Treasury, headed by a political appointee, will use monetary policy for short-term political gains. An independent central bank, where governors are appointed for longer terms and on a staggered basis is usually more capable of resisting those pressures.

As to gold supposedly supporting the value of money, you are sorely mistaken. Gold, as J.M. Keynes explained back in 1930s, does NOT support the value of money; it is money (and goods and services it buys) that supports the value of gold. When you break the artificial link between gold and money, gold becomes what it really is, a technical metal traded in a highly volatile market. Just look at the history of gold prices; over the last 30 years, gold was traded for anywhere between below $300 and above $600.

As to monetary stability, it is not as desirable as you would think. In many cases, monetary flexibility is more important. A moderate devaluation of national currency and a monetary easing can help a country to end a recession faster or not get into one in the first place. Also, read up on Robert Mundell’s “unholy trinity”; out of three major policy objectives (inflation, unemployment, and exchange rate) you can with, some degree of confidence, control any two. When you choose the exchange rate as your policy target, you automatically lose your ability to impact either inflation or unemployment.

To summarize, as bad as fiat currencies may be, the alternative (a commodity-based currency) is substantially worse.

A question from Yahoo! Answers:

Catherine the great?

please can some body thell me why she was a good ruler and why she was a bad ruler

You tell me. She ascended to the throne by engineering a coup d’état against her husband (who was later murdered by her lover’s brother, although there is no evidence of her involvement in the murder), resisted all attempts to improve the lot of indentured peasants (who at the time comprised the majority of the Russian population) while at the same time giving substantial concessions to the landed gentry, stifled dissidence, both religious and political, and rewarded her lovers with crown properties. Speaking of her, lovers, one of them was Grigori Potemkin, after whom the expression “Potemkin village” was coined. Another was StanisÅ‚aw Poniatowski, who was eventually (and with Russian military support) installed as a king of Poland…