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The Grand Failure of Conventional Economics

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"If we take the very long view, we find that all of conventional economics developed in the era of ever-cheaper, ever-more abundant energy and the miraculous "low hanging fruit" productivity gains made possible by cheap energy and the tools of mass production and industrialization. Like a creature that was born in the morning and has only seen daylight, conventional economics has never experienced night and so it has no conception of darkness.

This is true of classical, neo-classical, Marxist, Socialist, Keynesian, Neoliberal, "Capitalism with Chinese characteristics," etc."

 

http://www.oftwominds.com/blogapril11/failure-of-economics3-11.html

Politics is subservient to conventional economic theory which is running the global economy into the ground.

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Economics Seminar Ends

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Thank you all for being here. This seminar is now over. I want to recap a few
important points.

All one needs to know about economic theory can fit on one sheet of paper. The
material can be found at http://tinyurl.com/3huenty

The centerpiece of neoclassical theory is "Pareto Optimality" (AKA, "economic
efficiency," AKA, "equilibrium"). If Pareto is false, then it's all false.

In 1952, Maurice Allais tested the Pareto theory and found that it failed to
correctly predict consumer behavior:

"A test of the theory's validity was presented to Savage by Maurice Allais over
lunch, during a conference in Paris in 1952. Allais made Savage fill out a list
of questions with which he could show that Savage violated his own theory." --
Floris Heukelom, Kahneman and Tversky and the Origin of Behavioral Economics,
2007

Pareto optimality was falsified in 1952. Economic efficiency was falsified in
1952. Economic equilibrium was falsified in 1952.

Economics became politics in 1952 when Friedman decided to ignore the fact that
his theory had been falsified.

Friedman was wrong in principle. Nash was wrong in principle. Neumann and
Morgenstern were wrong in principle. Game theory is wrong in principle. Animals
are "logical" -- NOT "mathematical":

"People surely do use some sort of logic. All languages have logical terms like
not, and, same, equivalent, and opposite. Children use and, not, or, and if
appropriately before they turn three, not only in English but in half a dozen
other languages that have been studied. Logical inferences are ubiquitous in
human thought, particularly when we understand language. … Logic is
indispensable in inferring true things about the world from piecemeal facts
acquired from other people via language or from one's own generalizations." —
Steven Pinker, HOW THE MIND WORKS, 1997

Biologists tell us a mathematical animal couldn't have evolved.
http://tinyurl.com/3kq7v3r

For an idea of how animals actually "decide" See http://tinyurl.com/3oklvsm

Global Capitalism is now limited by global "net energy." Thus, a economic reset
wouldn't solve the world's economic problems.
http://www.jayhanson.us/NewSynopsis.pdf

Capitalism can't run backwards and will eventually be replaced by other
political systems. The rich will not allow political change until it impacts
their personal lives -- by then it will be to late to avoid the worst. IMHO, a
rerun of Weimar Germany is our most-likely future.

Aloha,

Jay

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Money Energy Flows

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Edited by Neal Grout, Tuesday, 5 Apr 2011, 17:27

“Minerals are inexhaustible and will never be depleted. A stream of investment creates additions to proved reserves, a very large in-ground inventory, constantly renewed as it is extracted… How much was in the ground at the start and how much will be left at the end are unknown and irrelevant… There are plenty of fossil fuels and no limit to potential electrical capacity. It is all a matter of money.” 

 M. A. Adelman, 1993

“…the world can, in effect, get along without natural resources… at some finite cost, production can be freed of dependence on exhaustible resources altogether.”

 — Nobel winner Robert Solow, 1974

 

 The economic unit of measure is “price” — which is a “transitory effect” — not a “cause.” For example, a dollar’s worth of oil today will not be a dollar’s worth of oil tomorrow

- Jay Hanson

 

 

The flow of energy through the economy is not dependent on the flow of money; in fact the exact opposite. Money (an abstract concept) is a reverse flow on energy throughput in an economy and dependent on that energy.

Its therefore not possible to invest our way out of a net energy crisis.

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This Time We’re Taking the Whole Planet With Us

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This Time We’re Taking the Whole Planet With Us

http://www.truthdig.com/report/item/this_time_were_taking_the_whole_planet_with_us_20110307/

Posted on Mar 7, 2011

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Corporate Corruption

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"Obviously businesses in our system must be kept from having any ability whatsoever to influence government decision-making in any way, or the system breaks down. When businesses are able to influence government, they will influence government in ways that provide themselves - and only themselves - with more profits, meaning lower costs, meaning fewer jobs at worse pay and not protecting workers, the environment or other businesses. And, they will fight to keep their ability to influence government, using the resulting wealth gains to increase their power over the government which increases their wealth which increases their power over the government which increases their wealth which increases their power over the government which increases their wealth which increases their power over the government which increases their wealth which increases their power over the government ..."

David Johnson

 


http://www.truth-out.org/businesses-do-not-create-jobs65095

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Corporate Behaviour

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Edited by Neal Grout, Saturday, 6 Nov 2010, 06:42
ELEVEN INHERENT RULES OF CORPORATE BEHAVIOR by Jerry Mander

The following list is an attempt to articulate the obligatory rules by which corporations operate. Some of the rules overlap, but taken together they help reveal why corporations behave as they do and how they have come to dominate their environment and the human beings within it.

1.  The Profit Imperative: Profit is the ultimate measure of all corporate decisions. It takes precedence over community well-being, worker health, public health, peace, environmental preservation or national security. Corporations will even find ways to trade with national "enemies"—Libya, Iran, the former Soviet Union, Cuba—when public policy abhors it. The profit imperative and the growth imperative are the most fundamental corporate drives; together they represent the corporation's instinct to "live."

2.  The Growth Imperative: Corporations live or die by whether they can sustain growth. On this depends relationships to investors, to the stock market, to banks and to public perception. The growth imperative also fuels the corporate desire to find and develop scarce resources in obscure parts of the world.

This effect is now clearly visible, as the world's few remaining pristine places are sacrificed to corporate production. The peoples who inhabit these resource-rich regions are similarly pressured to give up their traditional ways and climb on the wheel of production-consumption. Corporate planners consciously attempt to bring "less developed societies into the modern world" to create infrastructures for development, as well as new workers and new consumers. Corporations claim that they do this for altruistic reasons to raise the living standard—but corporations have no altruism.

Theoretically, privately held corporations—those owned by individuals or families—do not have the imperative to expand. In practice, however, their behavior is the same. Such privately held giants as Bechtel Corporation have shown no propensity to moderate growth.

3.  Competition and Aggression: Corporations place every person in management in fierce competition with each other. Anyone interested in a corporate career must hone his or her ability to seize the moment. This applies to gaining an edge over another company or over a colleague within the company. As an employee, you are expected to be part of the "team," but you also must be ready to climb over your own colleagues.

Corporate ideology holds that competition improves worker incentive and corporate performances and therefore benefits society. Our society has accepted this premise utterly. Unfortunately, however, it also surfaces in personal relationships. Living by standards of competition and aggression on the job, human beings have few avenues to express softer, more personal feelings. (In politics, non-aggressive behavior is interpreted as weakness.)

4.  Amorality: Not being human, corporations do not have morals or altruistic goals. So decisions that maybe antithetical to community goals or environmental health are made without misgivings. In fact, corporate executives praise "non-emotionality" as a basis for "objective" decision-making.

Corporations, however, seek to hide their amorality and attempt to act as if they were altruistic. Lately, there has been a concerted effort by American industry to appear concerned with environmental cleanup, community arts or drug programs. Corporate efforts that seem altruistic are really Public relations ploys or directly self-serving projects.

There has recently been a spurt of corporate advertising about how corporations work to clean the environment. A company that installs offshore oil rigs will run ads about how fish are thriving under the rigs. Logging companies known for their clearcutting practices will run millions of dollars' worth of ads about their "tree farms."

It is a fair rule of thumb that corporations tend to advertise the very qualities they do not have in order to allay negative public perceptions. When corporations say "we care," it is almost always in response to the widespread perception that they do not have feelings or morals.

If the benefits do not accrue, the altruistic pose is dropped. When Exxon realized that its cleanup of Alaskan shores was not easing the public rage about the oil spill, it simply dropped all pretense of altruism and ceased working.

5.  Hierarchy: Corporate laws require that corporations be structured into classes of superiors and subordinated within a centralized pyramidal structure: chairman, directors, chief executive officer, vice presidents, division managers and so on. The efficiency of this hierarchical form (which also characterizes the military, the government and most institutions in our society) is rarely questioned.

The effect on society from adopting the hierarchical form is to make it seem natural that we have all been placed within a national pecking order. Some jobs are better than others, some lifestyles are better than others, some neighborhoods, some races, some kinds of knowledge. Men over women. Westerners over non-Westerners. Humans over nature.

That effective, non-hierarchical modes of organization exist on the planet, and have been successful for millennia, is barely known by most Americans.

6.  Quantification, Linearity, Segmentation: Corporations require that subjective information be translated into objective form, i.e. numbers. The subjective or spiritual aspects of forests, for example, cannot be translated, and so do not enter corporate equations. Forests are evaluated only as "board feet."

When corporations are asked to clean up their smokestack emissions, they lobby to relax the new standards in order to contain costs. The result is that a predictable number of people are expected to become sick and die.

The operative corporate standard is not "as safe as humanly possible," but rather, "as safe as possible commensurate with maintaining acceptable profit."

7.  Dehumanization: In the great majority of corporations, employees are viewed as ciphers, as non-managerial cogs in the wheel, replaceable by others or by machines.

As for management employees, not subject to quite the same indignities, they nonetheless must practice a style of decision making that "does not let feelings get in the way." This applies as much to firing employees as it does to dealing with the consequences of corporate behavior in the environment or the community.

8.  Exploitation: All corporate profit is obtained by a simple formula: Profit equals the difference between the amount paid to an employee and the economic value of the employee's output, and/or the difference between the amount paid for raw materials used in production (including costs of processing), and the ultimate sales price of processed raw materials. Karl Marx was right: a worker is not compensated for full value of his or her labor—neither is the raw material supplier. The owners of capital skim off part of the value as profit. Profit is based on underpayment.

Capitalists argue that this is a fair deal, since both workers and the people who mine or farm the resources (usually in Third World environments) get paid. But this arrangement is inherently imbalanced. The owner of the capital—the corporation or the bank always obtains additional benefit. While the worker makes a wage, the owner of capital gets the benefit of the worker's labor, plus the surplus profit the worker produces, which is then reinvested to produce yet more surplus.

9.  Ephemerality: Corporations exist beyond time and space: they are legal creations that only exist on paper. They do not die a natural death; they outlive their own creators. They have no commitment to locale, employees or neighbors. Having no morality, no commitment to place and no physical nature (a factory, while being a physical entity, is not the corporation). A corporation can relocate all of its operations at the first sign of inconvenience—demanding employees, high taxes and restrictive environmental laws. The traditional ideal of community engagement is antithetical to corporation behavior.

10.  Opposition to Nature: Though individuals who work for corporations may personally love nature, corporations themselves, and corporate societies, are intrinsically committed to intervening in, altering and transforming nature. For corporations engaged in commodity manufacturing, profit comes from transmogrifying raw materials into saleable forms. Metals from the ground are converted into cars.

Trees are converted into boards, houses, furniture and paper products. Oil is converted into energy. In all such energy, a piece of nature is taken from where it belongs and processed into a new form. All manufacturing depends upon intervention and reorganization of nature. After natural resources are used up in one part of the globe, the corporation moves on to another part.

This transformation of nature occurs in all societies where manufacturing takes place. But in capitalist, corporate societies, the process is accelerated because capitalist societies and corporations must grow by extracting resources from nature and reprocessing them at an ever-quickening pace. Meanwhile, the consumption end of the cycle is also accelerated by corporations that have an interest in convincing people that commodities bring material satisfaction. Inner satisfaction, self-sufficiency, contentment in nature or a lack of a desire to acquire wealth are subversive to corporate goals.

Banks finance the conversion of nature insurance companies help reduce the financial risks involved. On a finite planet, the process cannot continue indefinitely.

11.  Homogenization: American rhetoric claims that commodity society delivers greater choice and diversity than other societies. "Choice" in this context means product choice in the marketplace: many brands to choose from and diverse features on otherwise identical products. Actually, corporations have a stake in all of us living our lives in a similar manner, achieving our pleasures from things that we buy in a world where each family lives isolated in a single family home and has the same machines as every other family on the block. The "singles" phenomenon has proved even more productive than the nuclear family, since each person duplicates the consumption patterns of every other person.

Lifestyles and economic systems that emphasize sharing commodities and work, that do not encourage commodity accumulation or that celebrate non-material values, are not good for business. People living collectively, sharing such "hard" goods as washing machines, cars and appliances (or worse, getting along without them) are outrageous to corporate commodity society.

Native societies—which celebrate an utterly non-material relationship to life, the planet and the spirit—are regarded as backward, inferior and unenlightened. We are told that they envy the choices we have. To the degree these societies continue to exist, they represent a threat to the homogenization of worldwide markets and culture. Corporate society works hard to retrain such people in attitudes and values appropriate to corporate goals.

In undeveloped parts of the world, satellite communication introduces Western television and advertising, while improvements in the technical infrastructure speed up the pace of development. Most of this activity is funded by the World Bank and the International Monetary Fund, as well as agencies such as the US Agency for International Development, the Inter-American Bank and the Asian-American Bank, all of which serve multinational corporate enterprise.

The ultimate goal of corporate multinationals was expressed in a revealing quote by the president of Nabisco Corporation: "One world of homogeneous consumption. . . [I am] looking forward to the day when Arabs and Americans, Latinos and Scandinavians, will be munching Ritz crackers as enthusiastically as they already drink Coke or brush their teeth with Colgate." Page 31

********
In the book, Trilateralism, editor Holly Sklar wrote: "Corporations not only advertise products, they promote lifestyles rooted in consumption, patterned largely after the United States.... [They] look forward to a post-national age in which [Western] social, economic and political values are transformed into universal values... a world economy in which all national economies beat to the rhythm of transnational corporate capitalism.... The Western way is the good way; national culture is inferior."

Form Is Content Corporations are inherently bold, aggressive and competitive. Though they exist in a society that claims to operate by moral principles, they are structurally amoral. It is inevitable that they will dehumanize people who work for them and the overall society as well. They are disloyal to workers, including their own managers. Corporations can be disloyal to the communities they have been part of for many years. Corporations do not care about nations; they live beyond boundaries. They are intrinsically committed to destroying nature. And they have an inexorable, unabatable, voracious need to grow and to expand. In dominating other cultures, in digging up the Earth, corporations blindly follow the codes that have been built into them as if they were genes.

We must abandon the idea that corporations can reform themselves. To ask corporate executives to behave in a morally defensible manner is absurd. Corporations, and the people within them, are following a system of logic that leads inexorably toward dominant behaviors. To ask corporations to behave otherwise is like asking an army to adopt pacifism.

Corporation: n. An ingenious device for obtaining individual profit without individual responsibility. —Ambrose Bierce, 1842-1914.

Excerpted from: IN THE ABSENCE OF THE SACRED: The Failure of Technology and the Survival of the Indian Nations, Sierra Club Books, 730 Polk St.. San Francisco, CA 94109.

from the Winter 1995, EARTH ISLAND JOURNAL which is published quarterly by , 300 Broadway # 28, San Francisco, CA 94133 Phone: 415-788-3666; FAX: 415-788-7324
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Quote of the Day

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Edited by Neal Grout, Tuesday, 5 Apr 2011, 17:36
"People have a genetically programmed sense of fairness. This means we are wired
for cooperation and egalitarianism as much as we are wired for violence and
competition. The environment determines which behavior will be expressed. This
also means that humans are not naturally predisposed toward capitalism. People
only accept capitalism so long as they think it's fair - that's where economics
comes in to play."

Patrick McCleary
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Nature loss 'to damage economies'

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http://news.bbc.co.uk/2/hi/science_and_environment/10103179.stm

"An ongoing project known as The Economics of Ecosystems and Biodiversity (TEEB) is attempting to quantify the monetary value of various services that nature provides for us.

These services include purifying water and air, protecting coasts from storms and maintaining wildlife for ecotourism.

The rationale is that when such services disappear or are degraded, they have to be replaced out of society's coffers."

How ridiculous is this? That we can put a price on eco system services is ludicrous! and who does it benefit to formulate such a price?

If we have a 200 hectare area of rain forest, the most intensely bio-diverse habitat known, and owned by a company, do they care how much the ecosystem services of that forest is worth? No they don't because to the company the only profit to be made is from bringing the timber to market and then re using the land for some other profit making development. It doesn't matter if the ecosystem services are worth 4 hundred or 4 billion dollars for our small stretch of forest because that value cannot be converted to cash in the bank.

 From a corporate perspective, the only one that counts when converting natural resources into profit, the value of the ecosystem services provided are 0$ and always will be. That at some point in the future we will use the profits from the cash invested from the destruction of the forest to provide artificial substitutes for ecosystem services is also stupid. We're not even sure of all the ecosystem service we gain from nature let alone how to replicate them.

 The only solution is government legislation providing total protection for the ecosystem services nature provides humanity but considering we live in a capitalist society and the corporate economic subsystem is showing clear signs of sub-optimization of societies entire hierarchy from top (political) to bottom (brainwashing your kids through TV advertising) I wouldn't hold my breath for any political solution.

The hubris is shocking!

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A clean, simple computation, no doubt, only that it never works

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What gets accumulated?

 

To a lay person, the question may seem simple to answer: money. Capitalists accumulate when they grow richer; they decumulate when they become poorer. And that is certainly true, but not entirely. To see what is missing, suppose that the actual holdings of a capitalist haven’t changed but that their prices have all risen by 10 per cent, thus making him 10 per cent richer. Now assume further that the overall price level – measured by the GDP price deflator – has also grown at the same rate of 10 per cent, so that the ‘amount’ of commodities the capitalist can buy with his assets remains the same. The capitalist has certainly accumulated in nominal terms, but this increase was merely a price phenomenon. Since the process has affected neither the ‘productive capacity’ of his assets nor their ‘purchasing power’, from a material perspective he has ended right where he started. For this reason, political economists – conservative and critical alike – insist that when measuring accumulation we ignore the price of capital and concentrate only on its material, or ‘real’, quantity.

 

There is, of course, nothing very unusual about this insistence. After all, political economy is concerned primarily with material processes, so it seems only sensible that the same emphasis should apply to capital. The only problem is that in order to focus on ‘real’ quantities, we first have to separate them from prices; and surprising at it may sound, in general the two cannot be separated.

 

Separating quantity from price

 

To understand the difficulty, let’s put aside the theory for a moment and look at what the statisticians do. Their procedure is straightforward: they assume that the dollar market value of any basket of commodities (MV) is equal to its ‘real’ quantity (Q) times its unit price (P), and then they rearrange the equation. Symbolically, they start from:

 

1. MV = Q × P

 

Which is equivalent to:

 

2. Q = MV/P

 

These formulae are taken to be completely general. They apply to any basket of commodities at any point in time – from the contents of a supermarket cart pushed by a London shopper in 2008, to the annual output of the Chinese economy in 2000, to the global stock of ‘capital goods’ in 1820. Given data on the market value and price of any set of commodities, calculating its ‘real’ quantity and growth rate is a simple matter of plugging in the numbers and computing the results.

 

To illustrate, suppose the U.S. Bureau of Economic Analysis wishes to calculate the ‘real’ rate of accumulation in the automobile industry from 1990 to 2000. The statisticians know that, over the decade, the market value (at replacement cost) of the industry’s capital stock (MV) grew by 93 per cent and that 17 per cent of that increase was due to a rise in unit price (P). Based on these data, the statisticians can easily tell us that the ‘real’ rate of accumulation – measured by the rate of growth of Q – was 65 per cent (1.93 / 1.17 –1 ≈ 0.65).2

 

A clean, simple computation, no doubt, only that it never works. The failure is as general as the formulas. The calculation fails with ‘capital goods’, just as it fails with GDP, private consumption, gross investment or any other collection of heterogeneous commodities. And the reason is embarrassingly simple. Equation (2) above tells us that in order to compute the quantity we first need to know the price. What it doesn’t say is that in order to know the price we first need to know the quantity. . . .

 

To see the circularity, consider the following facts. An automotive factory is made of many different tools, machines and structures. Over time, the nature of these items tends to change. They may take less time and effort to produce; they may become more or less ‘productive’ due to technical improvement and wear and tear; their composition may change with new machines replacing older ones; they may be used to produce different and even entirely new output; etc. The result of these many changes is that today’s automobile factories are not the same as yesterday’s, or as last year’s. The price index of automobile factories, however, is supposed to track, over time, the price of the very same factories. The obvious question, then, is: ‘How can such an index be computed when the underlying factories – the “things” whose price the index is supposed to measure – keep changing from one year to the next?’

Jay Hanson

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The Century of Self

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Edited by Neal Grout, Thursday, 29 Apr 2010, 11:55

This TV documentary details the suboptimization (dominance to the detriment) of society by the economic subsystem. This suboptimization pervades all levels of society heirachy from the top (politics) to the citizens in their day to day lives (TV advertising and the bank bailouts).

http://www.rewtube.com/the-century-of-the-self-episode-1/

http://www.rewtube.com/the-century-of-the-self-episode-2/

http://www.rewtube.com/the-century-of-the-self-episode-3/

http://www.rewtube.com/the-century-of-the-self-episode-4/

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Rediculous Quote

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Edited by Neal Grout, Thursday, 18 Mar 2010, 18:35
"You have to separate the economic from the physical point of view. Many of the mistakes people make come from this. Like the stupid projections of the Club of Rome: they used a purely physical approach, without taking prices into account."

Milton Friedman, Economist
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The Economist Has no Clothes

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Edited by Neal Grout, Thursday, 18 Mar 2010, 18:40

A good look at economics and the pseudoscience that supports it.

http://www.scientificamerican.com/article.cfm?id=the-economist-has-no-clothes

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