price mechanism

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pages: 819 words: 181,185

Derivatives Markets by David Goldenberg

Black-Scholes formula, Brownian motion, capital asset pricing model, commodity trading advisor, compound rate of return, conceptual framework, correlation coefficient, Credit Default Swap, discounted cash flows, discrete time, diversification, diversified portfolio, en.wikipedia.org, financial innovation, fudge factor, implied volatility, incomplete markets, interest rate derivative, interest rate swap, law of one price, locking in a profit, London Interbank Offered Rate, Louis Bachelier, margin call, market microstructure, martingale, Myron Scholes, Norbert Wiener, Paul Samuelson, price mechanism, random walk, reserve currency, risk/return, riskless arbitrage, Sharpe ratio, short selling, stochastic process, stochastic volatility, time value of money, transaction costs, volatility smile, Wiener process, yield curve, zero-coupon bond, zero-sum game

Without this guarantee, our efforts to find a unique replicating portfolio may indeed fail because we will not be able to distinguish between the multiple, no-arbitrage pricing mechanisms available in a simply no-arbitrage market. Note that once we have a unique pricing mechanism, which is guaranteed by market completeness, then we get no-arbitrage by the First Fundamental Theorem of Asset Pricing. The only case in which this is not true is when there does not exist a linear, positive pricing mechanism. In that case, there would also be arbitrage opportunities, in which case linear, positive pricing wouldn’t even make sense. Furthermore, why would anyone want to replicate derivative securities if not for the fact that the pricing mechanism emerges from that exercise, as we will shortly see in the single period BOPM? Replication is an academic exercise in a world with arbitrage opportunities because no linear, positive pricing mechanism exists in that world.

Its existence is predicated on no-arbitrage. Therefore all pricing methods, when the underlying model is complete, must lead to the same result given by replication. Without no-arbitrage, either built into the definition of complete markets or assumed, there is no viable pricing mechanism at all. Even with no-arbitrage, there are multiple viable pricing mechanisms. Complete markets filter them down to one by implying a unique pricing mechanism, the one generated by the replicating portfolio. The BOPM is known to be a complete model, so once we get a linear, positive pricing mechanism we know that it is the correct and only one. The quick way to see completeness of the BOPM (N=1) is to use our rule of thumb. All of the uncertainty in the model is embodied in the stock price movement up or down. There are no other sources of uncertainty.

Specifically, the lessons we learn from the fundamental theorems of asset pricing are the relationships between no-arbitrage, the existence of a linear, positive pricing mechanism, and the uniqueness of the pricing mechanism. However, we have to be careful in applying these theorems, as there are numerous pitfalls in doing so. We already know, from Chapter 15, that the existence of a linear, positive pricing mechanism that can be used to price all contingent claims (including the underlying asset), is equivalent to the existence of an EMM for the discounted, underlying price process. (Think of the contingent claim as having only one risky security in its replicating portfolio). No-arbitrage, in turn, is equivalent to the existence of a linear, positive pricing mechanism; the first fundamental theorem of asset pricing encapsulates the economic content of no-arbitrage in mathematical terms.


pages: 378 words: 110,518

Postcapitalism: A Guide to Our Future by Paul Mason

Alfred Russel Wallace, bank run, banking crisis, banks create money, Basel III, basic income, Bernie Madoff, Bill Gates: Altair 8800, bitcoin, Branko Milanovic, Bretton Woods, BRICs, British Empire, business cycle, business process, butterfly effect, call centre, capital controls, Cesare Marchetti: Marchetti’s constant, Claude Shannon: information theory, collaborative economy, collective bargaining, Corn Laws, corporate social responsibility, creative destruction, credit crunch, currency manipulation / currency intervention, currency peg, David Graeber, deglobalization, deindustrialization, deskilling, discovery of the americas, Downton Abbey, drone strike, en.wikipedia.org, energy security, eurozone crisis, factory automation, financial repression, Firefox, Fractional reserve banking, Frederick Winslow Taylor, full employment, future of work, game design, income inequality, inflation targeting, informal economy, information asymmetry, intangible asset, Intergovernmental Panel on Climate Change (IPCC), Internet of things, job automation, John Maynard Keynes: Economic Possibilities for our Grandchildren, Joseph Schumpeter, Kenneth Arrow, Kevin Kelly, Kickstarter, knowledge economy, knowledge worker, late capitalism, low skilled workers, market clearing, means of production, Metcalfe's law, microservices, money: store of value / unit of account / medium of exchange, mortgage debt, Network effects, new economy, Norbert Wiener, Occupy movement, oil shale / tar sands, oil shock, Paul Samuelson, payday loans, Pearl River Delta, post-industrial society, precariat, price mechanism, profit motive, quantitative easing, race to the bottom, RAND corporation, rent-seeking, reserve currency, RFID, Richard Stallman, Robert Gordon, Robert Metcalfe, secular stagnation, sharing economy, Stewart Brand, structural adjustment programs, supply-chain management, The Future of Employment, the scientific method, The Wealth of Nations by Adam Smith, Transnistria, union organizing, universal basic income, urban decay, urban planning, Vilfredo Pareto, wages for housework, WikiLeaks, women in the workforce

Meanwhile, the information content of other physical goods is rising, exposing more commodities to the possibility that their production costs begin to plummet too. All this is eroding the very price mechanism that marginalism describes so perfectly. The economy at present, consists both of scarce and abundant goods; our behaviour is a mixture of the old pleasure-vs-pain choices, made in our own self-interest, alongside sharing and cooperation, which seem to the marginalists like sabotage. But in a full information economy – where much of the utility was provided through information and physical goods were relatively abundant – the price mechanism as described by marginalism would fall apart. Because marginalism was a theory of prices and prices only, it cannot comprehend a world of zero-priced goods, shared economic space, non-market organizations and non-ownable products.

They also assume that people in the marketplace have perfect information. Romer showed that, once the economy is composed of shareable information goods, imperfect competition becomes the norm. The equilibrium state of an info-tech economy is one where monopolies dominate and people have unequal access to the information they need to make rational buying decisions. Info-tech, in short, destroys the normal price mechanism, whereby competition drives prices down towards the cost of production. A track on iTunes costs next to zero to store on Apple’s server, and next to zero to transmit to my computer. Whatever it cost the record company to produce (in terms of artist fees and marketing costs) it costs me 99p simply because it’s unlawful to copy it for free. The interplay between supply and demand does not come into the price of an iTunes track: the supply of the Beatles ‘Love Me Do’ on iTunes is infinite.

Now Romer, working inside the mainstream and using its methods, had knocked down the mainstream’s defence against these critics. For Romer’s research had shown that, once you move to an information economy, the market mechanism for setting prices will drive the marginal cost of certain goods, over time, towards zero – eroding profits in the process. In short, information technology is corroding the normal operation of the price mechanism. This has revolutionary implications for everything, as the rest of this book explores. If they’d understood capitalism as a finite system, Romer and his supporters might have explored the massive implications of this extraordinary statement – but they did not. They assumed the economy was, as in the textbooks, composed of price makers and price takers: rational individuals trying to pursue their self-interest through the market.


pages: 280 words: 74,559

Fully Automated Luxury Communism by Aaron Bastani

"Robert Solow", autonomous vehicles, banking crisis, basic income, Berlin Wall, Bernie Sanders, Bretton Woods, capital controls, cashless society, central bank independence, collapse of Lehman Brothers, computer age, computer vision, David Ricardo: comparative advantage, decarbonisation, dematerialisation, Donald Trump, double helix, Elon Musk, energy transition, Erik Brynjolfsson, financial independence, Francis Fukuyama: the end of history, future of work, G4S, housing crisis, income inequality, industrial robot, Intergovernmental Panel on Climate Change (IPCC), Internet of things, Isaac Newton, James Watt: steam engine, Jeff Bezos, job automation, John Markoff, John Maynard Keynes: technological unemployment, Joseph Schumpeter, Kevin Kelly, Kuiper Belt, land reform, liberal capitalism, low earth orbit, low skilled workers, M-Pesa, market fundamentalism, means of production, mobile money, more computing power than Apollo, new economy, off grid, pattern recognition, Peter H. Diamandis: Planetary Resources, post scarcity, post-work, price mechanism, price stability, private space industry, Productivity paradox, profit motive, race to the bottom, RFID, rising living standards, Second Machine Age, self-driving car, sensor fusion, shareholder value, Silicon Valley, Simon Kuznets, Slavoj Žižek, stem cell, Stewart Brand, technoutopianism, the built environment, the scientific method, The Wealth of Nations by Adam Smith, Thomas Malthus, transatlantic slave trade, Travis Kalanick, universal basic income, V2 rocket, Watson beat the top human players on Jeopardy!, Whole Earth Catalog, working-age population

If information goods are to be distributed at their marginal cost of production – zero – they cannot be created and produced by entrepreneurial firms that use revenues obtained from sales to consumers to cover their costs. If information goods are to be created and produced … (companies) must be able to anticipate selling their products at a profit to someone. Remarkably, two of the most esteemed economists in the world were conceding a quite remarkable truth: the price mechanism had broken down for what should be the most valuable part of the commodity – its instructions. Economics, for so long obsessed with the issue of dealing with scarcity, began to see glimpses of something beyond it – the only problem being this broke down the system of incentives by which people are meant to create things under capitalism, namely profit. Their proposed solution – of exclusion and creating artificial scarcity – was sketchy but revealing.

But given the terrestrial challenges asteroid mining could address, primarily resource scarcity, as well as the new horizons it will undoubtedly open up, its rise over the coming century appears inevitable. Abundance beyond Value There is one final issue, however, that many in the industry appear unwilling to face. It is a problem born of success, much as the Horse Manure Crisis of 1894 placed the limits of the First Disruption against the abundance of the Second. It is also a problem born of extreme supply, which, as we’ve already seen, is difficult to reconcile with the price mechanism. You see, there is so much mineral wealth beyond our planet, on other planets, moons and asteroids, that the moment off-world mining becomes a viable industry, the price of the very commodities investors had previously found so precious will collapse. The most instructive example here is the asteroid 16 Psyche, located in the belt between Mars and Jupiter. Measuring over 200 kilometres in diameter, it is one of the largest asteroids in our solar system, composed of iron, nickel and rarer elements such as copper, gold and platinum.

He added how these new material relations concurrently created new mental ones too, on which arises a legal and political superstructure and to which correspond definite forms of social consciousness. The mode of production of material life conditions the general process of social, political and intellectual life. It is not the consciousness of men that determines their existence, but their social existence that determines their consciousness. Marx proceeded to say something of supreme importance, especially given what is happening to the price mechanism for information goods, even according to the likes of Paul Romer and Larry Summers: At a certain stage of development, the material productive forces of society come into conflict with the existing relations of production or – this merely expresses the same thing in legal terms – with the property relations within the framework of which they have operated hitherto. From forms of development of the productive forces these relations turn into their fetters.


pages: 571 words: 106,255

The Bitcoin Standard: The Decentralized Alternative to Central Banking by Saifedean Ammous

Airbnb, altcoin, bank run, banks create money, bitcoin, Black Swan, blockchain, Bretton Woods, British Empire, business cycle, capital controls, central bank independence, conceptual framework, creative destruction, cryptocurrency, currency manipulation / currency intervention, currency peg, delayed gratification, disintermediation, distributed ledger, Ethereum, ethereum blockchain, fiat currency, fixed income, floating exchange rates, Fractional reserve banking, full employment, George Gilder, global reserve currency, high net worth, invention of the telegraph, Isaac Newton, iterative process, jimmy wales, Joseph Schumpeter, market bubble, market clearing, means of production, money: store of value / unit of account / medium of exchange, moral hazard, Network effects, Paul Samuelson, peer-to-peer, Peter Thiel, price mechanism, price stability, profit motive, QR code, ransomware, reserve currency, Richard Feynman, risk tolerance, Satoshi Nakamoto, secular stagnation, smart contracts, special drawing rights, Stanford marshmallow experiment, The Nature of the Firm, the payments system, too big to fail, transaction costs, Walter Mischel, zero-sum game

The fatal flaw of socialism that Mises exposed was that without a price mechanism emerging on a free market, socialism would fail at economic calculation, most crucially in the allocation of capital goods3. As discussed earlier, capital production involves progressively sophisticated methods of production, longer time horizons, and a larger number of intermediate goods not consumed for their own sake, but only produced so as to take part in the production of final consumer goods in the future. Sophisticated structures of production only emerge from an intricate web of individual calculations by producers of each capital and consumer good buying and selling inputs and outputs to one another4. The most productive allocation is determined only through the price mechanism allowing the most productive users of capital goods to bid highest for them.

The conclusion obvious to anyone with a basic understanding of money and economics is that the cause of the Great Crash of 1929 was the diversion away from the gold standard in the post‐WWI years, and that the deepening of the Depression was caused by government control and socialization of the economy in the Hoover and FDR years. Neither the suspension of the gold standard nor the wartime spending did anything to alleviate the Great Depression. As the major economies of the world went off the gold standard, global trade was soon to be shipwrecked on the shores of oscillating fiat money. With no standard of value to allow an international price mechanism to exist, and with governments increasingly captured by statist and isolationist impulses, currency manipulation emerged as a tool of trade policy, with countries seeking to devalue their currencies in order to give their exporters an advantage. More trade barriers were erected, and economic nationalism became the ethos of that era, with predictably disastrous consequences. The nations that had prospered together 40 years earlier, trading under one universal gold standard, now had large monetary and trade barriers between them, loud populist leaders who blamed all their failures on other nations, and a rising tide of hateful nationalism that was soon to fulfill Otto Mallery's prophecy: “If soldiers are not to cross international boundaries, goods must do so.

A survey without prices would find that everyone would like their own Ferrari, but of course, when people have to pay, very few choose Ferraris. Central planners can never know the preferences of each individual nor allocate resources in the way that satisfies that individual's needs best. Further, when the government owns all inputs into all the production processes of the economy, the absence of a price mechanism makes it virtually impossible to coordinate the production of various capital goods in the right quantities to allow all the factories to function. Scarcity is the starting point of all economics, and it is not possible to produce unlimited quantities of all inputs; trade‐offs need to be made, so allocating capital, land, and labor to the production of steel must come at the expense of creating more copper.


pages: 494 words: 132,975

Keynes Hayek: The Clash That Defined Modern Economics by Nicholas Wapshott

"Robert Solow", airport security, banking crisis, Bretton Woods, British Empire, business cycle, collective bargaining, complexity theory, creative destruction, cuban missile crisis, Francis Fukuyama: the end of history, full employment, Gordon Gekko, greed is good, Gunnar Myrdal, if you build it, they will come, Isaac Newton, Joseph Schumpeter, Kickstarter, liquidationism / Banker’s doctrine / the Treasury view, means of production, Mont Pelerin Society, mortgage debt, New Journalism, Northern Rock, Paul Samuelson, Philip Mirowski, price mechanism, pushing on a string, road to serfdom, Robert Bork, Ronald Reagan, Simon Kuznets, The Chicago School, The Great Moderation, The Wealth of Nations by Adam Smith, Thomas Malthus, trickle-down economics, War on Poverty, Yom Kippur War

There were, however, in passages of The Pure Theory arguments that, intended primarily as a warning to Keynesians, were to hint at a way forward—and also offer a warning—to those, such as Milton Friedman, who would follow Hayek into the anti-Keynesian camp. “There is little ground for believing that a system with the modern complex credit structure will ever work smoothly without some deliberate control of the monetary mechanism,” Hayek wrote, “since money by its very nature constitutes a kind of loose joint in the self-equilibrating apparatus of the price mechanism which is bound to impede its working. The aim of any successful monetary policy must be to reduce as far as possible this slack in the self-correcting forces of the price mechanism, and to make adaptation more prompt so as to reduce the necessity for a later, more violent, reaction.”42 But, in a warning to those like Friedman who would come to resort to quantitative monetary theory as a cure-all, Hayek suggested there were strict limits to this means of managing the economy. “We are certainly entitled to conclude . . . that the extent to which we can hope to shape events at will by controlling money are much more limited, that the scope of monetary policy is much more restricted, than is today widely believed,” he wrote.

Mises’s 1920 Economic Calculation in the Socialist Commonwealth and his landmark 1922 Socialism: An Economic and Sociological Analysis unsettled Hayek’s social democratic beliefs and helped convince him that collectivism was a false god. As Hayek put it, “Socialism promised to fulfill our hopes for a more rational, more just world. And then came [Mises’s Socialism]. Our hopes were dashed. Socialism told us that we had been looking for improvement in the wrong direction.”1 Mises’s principal objection to a communist or socialist society was that it ignored the price mechanism he believed essential for any economy to operate efficiently. He argued in Economic Calculation that because in a socialist society the government owned the main industries—“the means of production”—and therefore set the prices of goods, the key purpose of prices, to distribute scarce resources, was made redundant. He claimed that “every step that takes us away from private ownership of the means of production and from the use of money also takes us away from rational economics.”2 Mises’s arguments went to the core of the debate that was to ensue between Keynes and Hayek, and they presaged one of Hayek’s eventual contentions, that by ignoring market prices socialism deprives individuals of their unique contribution to society—to express, through their willingness to pay a price, their opinion of the worth of an object or service.

For instance, a factory making the ice trays for commercial refrigerators might go out of business when there was a slump in demand for ice cream. The nub of the issue, according to Hayek, was that by reducing interest rates, the central bank interfered in the relationship between savings and investment. He and the Austrian School believed that all markets over time, including the market in money, would reach a state of equilibrium where the supply of goods from manufacturers and demand came to be matched. Hayek suggested that the price mechanism reflected the tendency toward equilibrium and that any attempt to artificially alter prices would have dire consequences. In his view, to tamper with prices was merely to tinker with the symptoms of the shift toward equilibrium. To artificially reduce interest rates, or the price of borrowing money, merely led to price inflation, while raising interest rates artificially meant encouraging a contraction of business activity (a slump).


pages: 218 words: 62,889

Sabotage: The Financial System's Nasty Business by Anastasia Nesvetailova, Ronen Palan

algorithmic trading, bank run, banking crisis, barriers to entry, Basel III, Bernie Sanders, big-box store, bitcoin, Black-Scholes formula, blockchain, Blythe Masters, bonus culture, Bretton Woods, business process, collateralized debt obligation, corporate raider, Credit Default Swap, credit default swaps / collateralized debt obligations, cryptocurrency, distributed ledger, diversification, Double Irish / Dutch Sandwich, en.wikipedia.org, Eugene Fama: efficient market hypothesis, financial innovation, financial intermediation, financial repression, fixed income, gig economy, Gordon Gekko, high net worth, Hyman Minsky, information asymmetry, interest rate derivative, interest rate swap, Joseph Schumpeter, Kenneth Arrow, litecoin, London Interbank Offered Rate, London Whale, Long Term Capital Management, margin call, market fundamentalism, mortgage debt, new economy, Northern Rock, offshore financial centre, Paul Samuelson, peer-to-peer lending, plutocrats, Plutocrats, Ponzi scheme, price mechanism, regulatory arbitrage, rent-seeking, reserve currency, Ross Ulbricht, shareholder value, short selling, smart contracts, sovereign wealth fund, Thorstein Veblen, too big to fail

Since the implication of the theory is that those businesses who play by the rules will only be delaying and deferring the inevitable – loss of profit and collapse – while running at very low profitability in the meantime, the question arises whether those businesses may not seek a more permanent solution to their problem, a more permanent ‘disequilibrium’ in the markets, to ensure that the discipline of the price mechanism may apply to others, but less so to them. Perhaps, and this is our core contention, the business of finance is not that different to other businesses. There is a long tradition of thought and research that shows how successful industrial or services businesses seek ways of interfering with the market, by influencing it, changing it in such a way that competition rules do not apply to them – and, ideally, exclusively not to them.

We will try to show that sabotage – or, to use Veblen’s terms, something in the way of retardation, restriction, withdrawal or harming of either the clients, competitors or governments – is most probably the main source of profitability in finance and the surest way to individual bonuses and corporate profits. We demonstrate that in each of the selected cases we study profitable transactions or ‘deals’ did not arise from a competitive edge in skills, capacity, expertise, hard work or superior knowledge (known as theory of asymmetrical information). Instead, they involved elements or attempts at controlling markets; that is, sabotaging the price mechanism, through either internal misrepresentation of information or facts, or predatory practices that are presently or potentially damaging to clients, competitors or the government, or a combination of all three. Specifically, what is often presented as isolated scandals in the financial system falls into one of the three categories of sabotage: sabotaging the clients, sabotaging competitors or sabotaging governments (or simultaneously all three).

The noted anomaly would later become known as Volcker’s paradox, and would refer to the seemingly strange coexistence of intense competition and historically high profit rates in commercial banking.4 Why was this a puzzle for one of the leading economic figures of his generation? To resolve Volcker’s paradox, and to understand Veblen’s theory of sabotage, we need to turn to the dilemma of profitability. THE DILEMMA OF PROFITABILITY There is no better way to start than with an idea that is taught to every student of economics around their third, or perhaps fourth, week of Economics 101. After learning about the workings of the price mechanism in competitive markets and the behaviour of (rather selfish) utility-maximizing consumers, students are usually directed to a chapter called ‘Market Equilibrium under Perfect Competition’. There they discover, alas, that it is next to impossible for firms to make profits in perfectly competitive markets. Here comes one of the greatest ironies of economics. The theory widely used to introduce market reforms in the name of greater efficiencies and individual wealth in fact shows, compellingly, that although the main motivation of economic agents is to make money, in a properly functioning market they hardly make any money at all.


Meghnad Desai Marxian economic theory by Unknown

business cycle, commoditize, Corn Laws, full employment, land reform, means of production, p-value, price mechanism, profit motive

The link between profits and surplus value becomes complex and in fighting against exploitation workers cannot fight against their own industry's owners in isolation; they have to fight the whole system. The price mechanism thus divides up total surplus value into profits of different industries such that rates of profit are equal. (There is a further division of profits into interest, ground rent, etc., which Marx discusses in Vol. Ill). The condition that total surplus value equals total profits is not just another equation but a way in which, for Marx, the price and value systems are linked up. For Bortkiewicz, the price mechanism has the role of allocating total value produced into different incomes (wages, profits, etc.) and different total revenue after sale for each Department in such a way that the rate of profit is equal.

It is not a 'behavioural' rule, nor is it a necessary part of Mar:'s value theory.3 It is a way of reducing the number of unknowns in the transfonnation problem from six (three gi and three ri) to four, since the four equations in the price domain can only solve for four unknowns. If the rates of exploitation diffc:"ed ss from one industry to another and the organic composition did as well but the rate of profit was equal across industries, then the'explanation of 'dissolving' of value relations becomes very complex. Why is this so? The role of price mechanism and exchange in Marx' s theory is to mask surplus value and make it appear legitimate as profit. The profit of anyone particular firm, industry or Department does not equal the surplus value produced by it. The equalisation of the rate of profit across industries in price terms means that price movements and 'behavioural' decisions of capitalists regarding choice of techniques etc. can be seen as equalising profit rates.


pages: 310 words: 90,817

Paper Money Collapse: The Folly of Elastic Money and the Coming Monetary Breakdown by Detlev S. Schlichter

bank run, banks create money, British Empire, business cycle, capital controls, Carmen Reinhart, central bank independence, currency peg, fixed income, Fractional reserve banking, German hyperinflation, global reserve currency, inflation targeting, Kenneth Rogoff, Kickstarter, Long Term Capital Management, market clearing, Martin Wolf, means of production, money market fund, moral hazard, mortgage debt, open economy, Ponzi scheme, price discovery process, price mechanism, price stability, pushing on a string, quantitative easing, reserve currency, rising living standards, risk tolerance, savings glut, the market place, The Wealth of Nations by Adam Smith, Thorstein Veblen, transaction costs, Y2K

Such a crisis theory was first developed by the British Currency School in the nineteenth century but had found a full and satisfactory elaboration only through the Austrian School in the early twentieth century, not least by Mises himself.17 But underconsumption theories were not dead. They once again rose to prominence in the form of Keynesianism in the 1930s, which has constituted the most influential underconsumption theory to this day. All underconsumption theories suffer from an irrational fear of savings and a lack of appreciation of the pricing mechanism. Saving, consumption and investing are interconnected and coordinated via market prices, including interest rates. Saving is the basis for prosperity. No society has ever risen, nor could any society conceivably ever rise, out of poverty and into prosperity via consumption. It is saving and production that generate wealth. By shifting resources from meeting present consumption needs and by allocating them to productive uses to meet future consumption needs, that is, by saving and investing, society generates the capital stock that raises the productivity of labor and allows a larger supply of goods and services, and also different and better goods and services.

And those who take his savings in the meantime and use it to build productive capital sell their produce practically to the same saver at the point when he finally wants to consume. Saving means postponing consumption, not nonconsumption. To explain the origin of a recession it is not sufficient to point to the level of savings, which by itself can never constitute a problem. One needs to explain why the pricing mechanism that coordinates the various activities in the economy fails, and for this, money is the prime candidate. The so-called savings glut theory became popular before the recent financial crisis, not least because it was embraced by Ben Bernanke in a speech in 2005 before he became chairman of the Federal Reserve.18 In this speech, Bernanke did not deal with the financial crisis, which at that time had not commenced, but with a set of perceived or real imbalances, which were widely debated at the time, in particular the large and widening U.S. current account deficit.

In contrast to older and more standard underconsumption theories, this excess savings theory does not identify the problem as one of savings being too high and, consequently, consumption too low relative to the present production of consumption goods. The problem seems to be that savings are too high relative to present investment activity in the countries where people save. The surplus savings thus washes up on U.S. shores, where it causes imbalances in the domestic economy. As in previous excess savings theories, it is difficult to see a problem in this for as long as the pricing mechanism works. The amount of saving and the amount of investment are not two uncorrelated magnitudes that we must hope will somehow match. An uninhibited market and nondistorted interest rates coordinate the two. True savings mean that real resources have been freed up from meeting present consumption needs and have become available for investment purposes. Lower interest rates that result from true savings do not send wrong signals but they correctly communicate that more real resources are available for investing.


Mastering Private Equity by Zeisberger, Claudia,Prahl, Michael,White, Bowen, Michael Prahl, Bowen White

asset allocation, backtesting, barriers to entry, Basel III, business process, buy low sell high, capital controls, carried interest, commoditize, corporate governance, corporate raider, correlation coefficient, creative destruction, discounted cash flows, disintermediation, disruptive innovation, distributed generation, diversification, diversified portfolio, family office, fixed income, high net worth, information asymmetry, intangible asset, Lean Startup, market clearing, passive investing, pattern recognition, performance metric, price mechanism, profit maximization, risk tolerance, risk-adjusted returns, risk/return, shareholder value, Sharpe ratio, Silicon Valley, sovereign wealth fund, statistical arbitrage, time value of money, transaction costs

Yet, given that businesses often need to carry a cash balance to continue operations, a buyer may require a seller to leave an amount of petty cash on the balance sheet that will be added to the purchase price in the working capital adjustment. Closing Mechanisms The closing mechanism set out in a transaction’s SPA defines the manner in which net debt and target working capital will be measured. The two main mechanisms used in a buyout are the locked-box mechanism and the completion accounts mechanism. LOCKED-BOX MECHANISM: A locked-box mechanism is a fixed-price mechanism that sets the value of net debt and working capital at a specific date (known as the locked-box date) before the signing of the SPA. This date is usually a relatively recent one, between the last annual balance sheet date and the date of SPA signing. When this mechanism is employed, the economic risk of the target is transferred to the buyer as of the locked-box date, and the buyer receives all cash profits generated by the target from that date onward.

In a final check of the transaction, an investment bank or accounting firm will render a fairness opinion that states whether or not a transaction is fair, with a focus on price. Closing This chapter offered insights into some of the tangible and intangible elements in the PE deal process, bidding strategies, pricing adjustments and closing mechanisms, respectively. While a thorough understanding of the deal pricing mechanics in LBOs is crucial, this is a rather ambiguous part of the investment process that is heavily influenced by experience. It requires the ability to relate to and negotiate with various parties, to recognize and adjust to changing circumstances and in particular lever one’s network of professional relationships. We will return to more solid ground in the following chapters as we focus on deal structuring and deal documentation.

Issues in Negotiating Cash-Free Debt-Free Deals, RSM US, http://rsmus.com/pdf/wp_tas_cash_free_debt-free_transactions.pdf. Sautter, Christina M. (2013) Auction Theory and Standstills: Dealing with Friends and Foes in a Sale of Corporate Control, Case Western Reserve Law Review, 64(2), https://ssrn.com/abstract=2207693 or http://dx.doi.org/10.2139/ssrn.2207693. Tattersall, C., Roth, P. and Pütz, V. (2012) Share Purchase Agreements: Purchase Price Mechanisms and Current Trends in Practice, Ernst & Young, http://www.ey.com/Publication/vwLUAssets/EY_TAS_-_Share_Purchase_Agreements_spring_2012/$FILE/EY-SPA%20brochure-spring-2012_eng.pdf. Notes 1 The dynamics in venture investments is different and is addressed in detail in Chapter 2 Venture Capital and Chapter 7 Target Valuation. 2 EBITDA is often used as a proxy for cash flow. However, in many cases, the characteristics of the business may require the buyer to cross-reference the resultant price with other metrics like EBITDA-maintenance capex or EBITDA less net cost of providing vendor financing to customers. 3 Debt multiple is a measure of a company’s ability to manage and pay off its debt.


pages: 777 words: 186,993

Imagining India by Nandan Nilekani

addicted to oil, affirmative action, Airbus A320, BRICs, British Empire, business process, business process outsourcing, call centre, clean water, colonial rule, corporate governance, cuban missile crisis, deindustrialization, demographic dividend, demographic transition, Deng Xiaoping, digital map, distributed generation, farmers can use mobile phones to check market prices, full employment, ghettoisation, glass ceiling, global supply chain, Hernando de Soto, income inequality, informal economy, information asymmetry, Intergovernmental Panel on Climate Change (IPCC), joint-stock company, knowledge economy, land reform, light touch regulation, LNG terminal, load shedding, low cost airline, Mahatma Gandhi, market fragmentation, mass immigration, Mikhail Gorbachev, Network effects, new economy, New Urbanism, open economy, Parag Khanna, pension reform, Potemkin village, price mechanism, race to the bottom, rent control, rolodex, Ronald Reagan, school vouchers, Silicon Valley, smart grid, special economic zone, The Wealth of Nations by Adam Smith, Thomas L Friedman, Thomas Malthus, transaction costs, trickle-down economics, unemployed young men, upwardly mobile, urban planning, urban renewal, women in the workforce, working poor, working-age population

For farmers and entrepreneurs alike, effective infrastructure lowers the cost and entry barriers to participating in markets. Praful says, “Farmers in Kashmir tell me that if they could send their flower harvests into Indian markets by air, it would massively cut their losses from decay, and expand their reach across India.” Telecom and road networks also mean the chance for farmers and fishermen to negotiate prices in markets directly and discover market trends as opposed to depending on support price mechanisms and middlemen networks. Better irrigation networks mean not having to rely on a fickle-minded monsoon or free electricity for pumps—and this has a big effect. Sixty-nine percent of people in nonirrigated areas are poor, while in irrigated areas this figure falls to 2 percent. Similarly, a million rupees on roads lifts an estimated 123 people out of poverty. In other words, a million rupees spent on roads can reduce poverty seven times more effectively than the same spends on antipoverty programs.

Using carbon as the major currency bill for environmental costs is useful since carbon generation and loss tend to cycle through the entire natural system—through air, trees, soil and water. Such pricing consequently incorporates the impact of direct carbon sources such as coal plants, as well as indirect sources such as the destruction of carbon “sinks” like forests and water bodies. Such carbon pricing can only be effective if we have the governance to manage it; else it will go the way of our other environmental regulations. An effective, enforceable pricing mechanism would require an independent, institutional carbon regulator. “A carbon regulator like SEBI,” Vinod Khosla says, “would bring in both auditing and transparency, and could form a regional exchange in Asia for carbon trading.” In addition, decentralized governance—empowering towns, cities and villages—would be critical in monitoring carbon projects more effectively. “The politics of environmentalism is most powerful at the local level,” Sharad says.

Such decentralization of power would be especially important to enable cities and villages to immediately respond to natural crises, such as the seasonal droughts, floods and storms that are becoming commonplace. Additionally, embracing clear, ambitious environmental goals that include pollution caps would allow India to influence the terms of the global climate change debate more clearly in its favor. By accepting carbon pricing mechanisms, for instance, India gains the bargaining power to negotiate for transfers of technology and funding for emission cuts. Such negotiations are reasonable on the grounds that the rich nations with their emissions have used up a large part of the emissions “reservoir” since 1850, leading to the potentially massive climate adaptation costs for India. Probably the biggest advantage for the Indian government in taking up a carbon-pricing policy is that it makes environmental policy a “single issue” challenge.


Globalists: The End of Empire and the Birth of Neoliberalism by Quinn Slobodian

Asian financial crisis, Berlin Wall, bilateral investment treaty, borderless world, Bretton Woods, British Empire, business cycle, capital controls, central bank independence, collective bargaining, David Ricardo: comparative advantage, Deng Xiaoping, desegregation, Dissolution of the Soviet Union, Doha Development Round, eurozone crisis, Fall of the Berlin Wall, floating exchange rates, full employment, Gunnar Myrdal, Hernando de Soto, invisible hand, liberal capitalism, liberal world order, market fundamentalism, Martin Wolf, Mercator projection, Mont Pelerin Society, Norbert Wiener, offshore financial centre, oil shock, open economy, pattern recognition, Paul Samuelson, Pearl River Delta, Philip Mirowski, price mechanism, quantitative easing, random walk, rent control, rent-seeking, road to serfdom, Ronald Reagan, special economic zone, statistical model, The Chicago School, the market place, The Wealth of Nations by Adam Smith, theory of mind, Thomas L Friedman, trade liberalization, urban renewal, Washington Consensus, Wolfgang Streeck, zero-sum game

If prices accurately reflected the relative supply and demand on markets, then t­ hese would guide entrepreneurs to the most efficient use of their resources. For prices to serve their function, however, they must not encounter re­sis­tance. He gave the specific example of l­abor: “­Here the price mechanism is partially switched off, and real frictional losses can occur in the form of strikes and unemployment.” Luckily, he pointed out, “­labor was the most mobile and diverse of all the ­factors of production.”98 Even if unemployment figures remained constant, the ­actual mass of unemployed usually rotated in and out as ­people moved from position to position. In the demand for the “faultless functioning of the price mechanism,” Haberler conjured an image reminiscent of an enormous clockwork or factory apparatus, shuttling components from one location to the other. He cited earlier thinkers like Bastiat, who argued that f­ree trade worked like invention, constantly rearranging the landscape of production, sending workers to new places of work when one has been outmoded or squeezed out by overseas competition.

One of the major ruptures in the neoliberal narrative of the twentieth ­century was the First World War. Scholars have observed that in the course of that war, all belligerent powers “moved in the direction of or­ ga­nized capitalism and war collectivism.”6 Foreign-­owned property was seized, command economies replaced market supply and demand, centralized regimes of rationing and resource allocation displaced the price mechanism, and national governments and planning boards demolished the walls of corporate secrecy, intruded into private accounts and affairs of business to gather data about production and distribution, and created what some called “war socialism” and what the German A W o r l d of W alls 29 statesman and entrepreneur Walther Rathenau called the Großwirtschaft, or “­great economy.”7 In the course of the war, the sacred nature of private property across borders was ­violated; the space of the private cap­i­tal­ist was desecrated.

Even as the MPS met in Hong Kong, the Chinese Communist Party was planning its own institutional fix for the P ­ eople’s Republic of China. At the time, mainland China as a ­whole exported no more than the tiny colony of Hong Kong. Deng Xiaoping’s reforms started a pro­cess ­toward China’s own form of nonmajoritarian capitalism, slowly introducing market freedoms without expanding po­liti­cal repre­sen­ta­tion. The price mechanism was permitted without the mechanism of popu­lar sovereignty—­t he multiparty election. In 1979, China opened the country’s first export pro­cessing zones in the Pearl River Delta, a region of exception outside of the national tax structure that would become a defining form of neoliberal-­style development by the 1990s.100 This ­future was distant in the 1970s, however, and in the de­cade of the NIEO, the situation still looked dire to neoliberals.


pages: 561 words: 87,892

Losing Control: The Emerging Threats to Western Prosperity by Stephen D. King

Admiral Zheng, asset-backed security, barriers to entry, Berlin Wall, Bernie Madoff, Bretton Woods, BRICs, British Empire, business cycle, capital controls, Celtic Tiger, central bank independence, collateralized debt obligation, corporate governance, credit crunch, crony capitalism, currency manipulation / currency intervention, currency peg, David Ricardo: comparative advantage, demographic dividend, demographic transition, Deng Xiaoping, Diane Coyle, Fall of the Berlin Wall, financial deregulation, financial innovation, fixed income, Francis Fukuyama: the end of history, full employment, G4S, George Akerlof, German hyperinflation, Gini coefficient, hiring and firing, income inequality, income per capita, inflation targeting, invisible hand, Isaac Newton, knowledge economy, labour market flexibility, labour mobility, liberal capitalism, low skilled workers, market clearing, Martin Wolf, mass immigration, Mexican peso crisis / tequila crisis, Naomi Klein, new economy, old age dependency ratio, Paul Samuelson, Ponzi scheme, price mechanism, price stability, purchasing power parity, rent-seeking, reserve currency, rising living standards, Ronald Reagan, savings glut, Silicon Valley, Simon Kuznets, sovereign wealth fund, spice trade, statistical model, technology bubble, The Great Moderation, The inhabitant of London could order by telephone, sipping his morning tea in bed, the various products of the whole earth, The Market for Lemons, The Wealth of Nations by Adam Smith, Thomas Malthus, trade route, transaction costs, Washington Consensus, women in the workforce, working-age population, Y2K, Yom Kippur War

While we don’t pop down to the local supermarket and studiously calculate the opportunity costs of each of our purchases, opportunity cost is still involved. Our budgets reflect scarce resources. And the way we allocate those resources depends on price. The price mechanism, in turn, is a remarkably efficient way of allowing us to make informed choices about scarcity. If something is expensive, its opportunity cost may be high. If something is cheap, its opportunity cost might be correspondingly low. Adam Smith (1723–1790), one of the economic greats and now deservedly immortalized on the Bank of England £20 note, called the price mechanism the ‘invisible hand’.8 Many people have been seduced by Smith’s ideas, sufficiently so as to claim that free markets are the sole reason behind the West’s ongoing prosperity. Yet markets do not always work very well.

And is Western economic power beginning to fade? The interaction between the Western world and the emerging nations brings the politics back into economics (and, for that matter, takes the mathematics out). FAITH IN THE MARKET Market forces alone cannot deal with political economy. Nevertheless, for many years, policymakers were happy to leave difficulties over scarcity to the market and, in particular, to the price mechanism. It is easy to see why. Since the end of the First World War, the political and economic debate both among and within the major powers has focused on the relative merits of market and state as providers of our economic well-being. Early in the twentieth century, the debate became increasingly polarized through the impact of the Russian Revolution in 1917, the strengthening of the trade-union movement in the UK in the 1920s and the US Great Depression of the 1930s.


pages: 490 words: 117,629

Unconventional Success: A Fundamental Approach to Personal Investment by David F. Swensen

asset allocation, asset-backed security, buy and hold, capital controls, cognitive dissonance, corporate governance, diversification, diversified portfolio, fixed income, index fund, law of one price, Long Term Capital Management, market bubble, market clearing, market fundamentalism, money market fund, passive investing, Paul Samuelson, pez dispenser, price mechanism, profit maximization, profit motive, risk tolerance, risk-adjusted returns, Robert Shiller, Robert Shiller, shareholder value, Silicon Valley, Steve Ballmer, stocks for the long run, survivorship bias, technology bubble, the market place, transaction costs, Vanguard fund, yield curve, zero-sum game

The distributor marketed Dividend Shares at the previous day’s liquidating value “plus a premium of 8-2/3 percent of the offering price” (i.e., slightly less than 9-1/2 percent of liquidating value).19 The offering price remained good until noon on the offering day. In essence, for the entire morning of any given trading day distributors offered Dividend Shares at the previous day’s price. Even though the stale-pricing mechanism theoretically allowed individual investors to make profits by trading at yesterday’s prices, the nearly 9.5 percent load effectively eliminated the possibility of individual investors exploiting profitable arbitrage opportunities. Dealers, however, faced no such hurdle, as load-free trading allowed them to take advantage of the system. Beyond the ability to trade load free, dealers enjoyed a hidden, critical advantage in stale-price trading.

Disclosure failed to inhibit dealer activity. Finally, the Investment Company Act of 1940 eliminated the two-price system, forcing fund management companies to find new methods of fleecing mutual-fund investors. SEC-Mandated Stale Prices To the continued disadvantage of individual investors and in spite of the Investment Company Act of 1940’s proscriptions, large investors found ways to exploit the newly revised mutual-fund pricing mechanisms. Even though the SEC Report on Investment Trusts and Investment Companies recognized that “if both the sales and redemption prices were based on the closing asset value on the day of the receipt of the order, many abusive trading practices of distributors and dealers which existed or were possible under the two-price system could be eliminated,” the 1940 Act failed to institute such a system.

Pilgrim Baxter & Associates agreed to a $100 million settlement, while neither admitting nor denying guilt.38 Stale pricing of mutual-fund shares provided market-timing opportunities for bad actors during the entire history of the mutual-fund industry. In the 1920s and 1930s, stale pricing underlay the investor-unfriendly two-price system. In the 1940s, 1950s, and 1960s, stale pricing resulted from backward-looking pricing mechanisms that allowed investors to trade today at yesterday’s prices. In the 1970s, 1980s, 1990s, and 2000s, stale pricing occurred in mutual funds holding securities that traded in different time zones or that traded infrequently, or both. Over the decades, opportunities for profit from stale pricing persisted, even as the targets for ill-gotten gains changed. The most straightforward solution to the problem of market timing involves fair pricing of mutual-fund shares.


The Limits of the Market: The Pendulum Between Government and Market by Paul de Grauwe, Anna Asbury

"Robert Solow", banking crisis, Capital in the Twenty-First Century by Thomas Piketty, Carmen Reinhart, conceptual framework, crony capitalism, Erik Brynjolfsson, eurozone crisis, Honoré de Balzac, income inequality, income per capita, Intergovernmental Panel on Climate Change (IPCC), invisible hand, John Maynard Keynes: Economic Possibilities for our Grandchildren, Joseph Schumpeter, Kenneth Arrow, Kenneth Rogoff, Kitchen Debate, means of production, moral hazard, Paul Samuelson, price discrimination, price mechanism, profit motive, Robert Gordon, Ronald Coase, Simon Kuznets, The Nature of the Firm, The Rise and Fall of American Growth, too big to fail, transaction costs, trickle-down economics, ultimatum game, very high income

I argued earlier that every government action which attempts to defend collective interests will harm private interests. Such policies are also coercive in character. To start with, taxes must be levied, and they are imposed on individuals against their will. Furthermore, the entirety of the collective action is aimed at changing the behaviour of individuals. That can be achieved gently through the price mechanism. For example a tax on products which pollute the environment will raise their price. Consumers remain free to buy the product, but because it has become more expensive, many consumers will buy less of it. Coercion is unavoidable, even with this soft approach, because it involves levying a tax. There are some harmful activities, however, which cannot be tackled softly and must be prohibited.

People hit by the blind forces of the market organize themselves using the state’s power to build a protective mechanism, the most important form of which is a social security system. This protective mechanism could also take other forms such as import protection or protection against the entry of newcomers into a market. It was the conviction of Polanyi that these protective mechanisms will destroy the market system, as they eliminate its flexibility. In particular it makes the price mechanism that should guide the system towards an equilibrium unreliable. As a result, the market system will stop producing the best possible outcome for everybody. It cannot be relied upon to produce growth and innovation. This will in the end lead to its demise as it is widely perceived to be inefficient and corrupt. It is surprising to find that this theory has a lot of adherents today among employers who complain about protective regulations imposed by the state that make it hard if not impossible to be a dynamic entrepreneur.


When the Money Runs Out: The End of Western Affluence by Stephen D. King

Albert Einstein, Asian financial crisis, asset-backed security, banking crisis, Basel III, Berlin Wall, Bernie Madoff, British Empire, business cycle, capital controls, central bank independence, collapse of Lehman Brothers, collateralized debt obligation, congestion charging, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, crony capitalism, cross-subsidies, debt deflation, Deng Xiaoping, Diane Coyle, endowment effect, eurozone crisis, Fall of the Berlin Wall, financial innovation, financial repression, fixed income, floating exchange rates, full employment, George Akerlof, German hyperinflation, Hyman Minsky, income inequality, income per capita, inflation targeting, invisible hand, John Maynard Keynes: Economic Possibilities for our Grandchildren, joint-stock company, Kickstarter, liquidationism / Banker’s doctrine / the Treasury view, liquidity trap, London Interbank Offered Rate, loss aversion, market clearing, mass immigration, moral hazard, mortgage debt, new economy, New Urbanism, Nick Leeson, Northern Rock, Occupy movement, oil shale / tar sands, oil shock, old age dependency ratio, price mechanism, price stability, quantitative easing, railway mania, rent-seeking, reserve currency, rising living standards, South Sea Bubble, sovereign wealth fund, technology bubble, The Market for Lemons, The Spirit Level, The Wealth of Nations by Adam Smith, Thomas Malthus, Tobin tax, too big to fail, trade route, trickle-down economics, Washington Consensus, women in the workforce, working-age population

Before the financial crisis, monetary and fiscal policies were, in most countries, conducted separately. This was a reaction to the excess inflation of the 1970s, a period during which central banks were too often required to do the bidding of their political masters. For a while, inflation was endemic, leading to losses for those on 77 4099.indd 77 29/03/13 2:23 PM When the Money Runs Out fixed monetary incomes – most obviously pensioners – and huge distortions to the price mechanism – Adam Smith’s ‘invisible hand’. By making central banks independent, and thus no longer subject to the temptations of the electoral cycle, the hope was that inflation would eventually be brought back under control, leaving the world a much happier place. The financial crisis has destroyed this separation of monetary church from state. By altering the yield on government debt, quantitative easing has, in effect, brought governments and central banks back together again.

Even then, the risk of an abuse of political power cannot be ruled out. 206 4099.indd 206 29/03/13 2:23 PM CHAPTER NINE DYSTOPIA At the end of the twentieth century, it seemed as though markets had emerged triumphant. Whether thanks to Adam Smith with his invisible hand or to Friedrich Hayek with his hatred of central planning,1 proponents of free markets had won the argument. They knew that a happy and prosperous society depended on the decisions of millions of individuals whose actions were ‘coordinated’ through the miracle that is the price mechanism. Rapid global growth was a direct result of the spread of market forces around the world. Those who resisted this process would ultimately lose out. Deregulation and privatization spread like wildfire, such was our collective faith in the wisdom of markets. The Soviet model had failed. The Asian model, so it seemed, was also in the process of failing. Yet we became overconfident. We began to extrapolate economic gains into the future.

Central banks can attempt to get around this by buying an ever wider range of assets to encourage a flow of credit to the private sector too – in September 2012, for example, the Federal Reserve announced ongoing purchases of mortgage-­backed securities – but this, surely, compounds the problem: if interest rates on an ever increasing amount of debt are determined by the central bank, capital markets become totally redundant. They may not have always worked well in the past but their complete removal surely opens the way for a huge misallocation of capital: absent a functioning price mechanism, it’s difficult to see how investment decisions can be made on an informed basis, leading, in turn, to a much lower growth rate of GDP in the future. So there can be no doubt that high levels of government debt have to be tackled, even in a world where central banks are free to print money. The costs may not be so immediate – in contrast to the Greek and Spanish experience – but high and growing levels of government 241 4099.indd 241 29/03/13 2:23 PM When the Money Runs Out debt eat away at the fabric of economic progress: one way or the other, they squeeze out the market.


pages: 350 words: 103,988

Reinventing the Bazaar: A Natural History of Markets by John McMillan

"Robert Solow", accounting loophole / creative accounting, Albert Einstein, Alvin Roth, Andrei Shleifer, Anton Chekhov, Asian financial crisis, congestion charging, corporate governance, corporate raider, crony capitalism, Dava Sobel, Deng Xiaoping, experimental economics, experimental subject, fear of failure, first-price auction, frictionless, frictionless market, George Akerlof, George Gilder, global village, Hernando de Soto, I think there is a world market for maybe five computers, income inequality, income per capita, informal economy, information asymmetry, invisible hand, Isaac Newton, job-hopping, John Harrison: Longitude, John von Neumann, Kenneth Arrow, land reform, lone genius, manufacturing employment, market clearing, market design, market friction, market microstructure, means of production, Network effects, new economy, offshore financial centre, ought to be enough for anybody, pez dispenser, pre–internet, price mechanism, profit maximization, profit motive, proxy bid, purchasing power parity, Ronald Coase, Ronald Reagan, sealed-bid auction, second-price auction, Silicon Valley, spectrum auction, Stewart Brand, The Market for Lemons, The Nature of the Firm, The Wealth of Nations by Adam Smith, trade liberalization, transaction costs, War on Poverty, Xiaogang Anhui farmers, yield management

With the auction system reengineered to handle the massive volume of traffic, they relaunched AuctionWeb as eBay in September 1997. Less than two years later eBay’s stock market value reached $22 billion. The business press proclaimed eBay’s reinvention of markets. BusinessWeek said that, with its online auctions, “eBay has single-handedly created a new market.” According to the Economist, “Internet auctioneers such as eBay may be the instigators of a revolutionary leap forward in the efficiency of the price mechanism.”5 The eBay web site is a high-tech flea market. It has over 42 million registered users; the typical user spends twenty minutes a day on the site. Around five million auctions are running on any given day, selling everything from cast-offs to fine art. As I write this, for example, there are nearly fifteen hundred items listed under the heading “Victorian tradecards”—which, it turns out, are a nineteenth-century version of junk mail. eBay has created a global market for goods that previously had a purely local market.

The price that emerges from this competitive market process aggregates the information and beliefs about the firm’s value held by all investors interested enough to submit bids. The open IPO, Hambrecht says, “delivers a price that is a lot closer to the real market demand than an artificially negotiated price.” While “the original business model was to see if we could put together the breadth and power of the web with an auction process,” the difficult part of it was getting “a different pricing mechanism in a market that was used to negotiated pricing.” The open IPO is “inherently a more efficient and cheaper process.” An early sign of the potential of IPO auctions was the enraged reaction from those doing business in the entrenched way. An industry observer remarked of Hambrecht, “Other investment banks act as though he’s the anti-Christ.”11 While entering the IPO business and dissuading issuing firms from using the big-name investment banks was an arduous process, the new way of running IPOs won a few early converts, as firms like the online magazine Salon.com in 1999 and Peet’s Coffee & Tea in 2001 chose to go public via open IPOs.

Sealed-bid auctions are used for selling vacation time-shares. A few sites allow package bidding. One wine auction site, for example, packages bottles into sets (usually different vintages from a particular vineyard). It then accepts not only bids on the individual bottles but also all-or-nothing bids on the package. If a bid for the package exceeds the total of the high bids for the individual bottles, the package bidder wins. Hybrid pricing mechanisms—setting prices while allowing some auction-like elements of information generation—are used by online sellers of tickets for air travel and sporting events. Before the internet, fixing ticket prices in advance meant that when demand was unexpectedly low, seats went unfilled on planes and in stadiums. Internet sellers are able to offer deep discounts just before the flight or the game, earning revenue from seats that otherwise would have been empty.


pages: 651 words: 161,270

Global Spin: The Corporate Assault on Environmentalism by Sharon Beder

American Legislative Exchange Council, battle of ideas, business climate, centre right, clean water, corporate governance, Exxon Valdez, Gary Taubes, global village, Intergovernmental Panel on Climate Change (IPCC), invisible hand, laissez-faire capitalism, oil shale / tar sands, old-boy network, price mechanism, profit maximization, Ralph Nader, RAND corporation, Ronald Reagan, shareholder value, telemarketer, The Bell Curve by Richard Herrnstein and Charles Murray, the market place, The Wealth of Nations by Adam Smith, urban planning

Other environmental resources such as clean air are not given a price at all, and are therefore viewed by economists as free. These economists argue that environmental assets tend to be overused or abused because they are too cheap. Their solution is to create a pricing mechanism so that environmental values are internalized by businesses that harm the environment: the extra costs involved in price-based economic instruments such as charges, taxes and subsidies are supposed to provide an incentive to change environmentally damaging behaviour. Such pricing mechanisms are also supposed to prevent the depletion of natural resources. John Hood, a visiting fellow at the Heritage Foundation and Vice-President of the John Locke Foundation, maintains: For natural resources over which property rights are relatively easy to establish, such as oil, minerals, or timber, prices serve as an early warning signal to companies about scarcity.

In the US they have attempted to hamstring the regulatory process by advocating legislation which would ensure that regulatory efforts become too expensive and difficult to implement, by insisting on cost benefit analyses and risk assessments of proposed legislation and compensation to state governments and property owners for the costs of complying with the legislation. Throughout the Western world, these think-tanks have promoted free-market techniques such as tradeable property and pollution rights, pricing mechanisms, tax incentives, and voluntary agreements for dealing with environmental degradation. These have been taken seriously by governments and in some cases accepted by environmentalists as a valid alternative to tougher legislation (see Chapter Six). Corporations have also turned their attention to the next generation, through the development and distribution of ‘educational’ material to schools.

47 Some think-tank economists also argue that there is little incentive to protect environmental resources that are not privately owned; their solution is to create property rights over parts of the environment that are currently free. Rights-based economic instruments such as tradeable pollution rights, for example, “create rights to use environmental resources, or to pollute the environment, up to a predetermined limit” and allow these rights to be traded.48 Rights-based measures are also a way of providing a pricing mechanism for environmental resources. A ‘proper’ price places environmental resources beyond the reach of those who wish to exploit them, or, at the very least, ensures that the social benefits of exploitation exceed the social costs, however these benefits and costs are measured. Accordingly the solution to environmental problems becomes one of ‘marketizing’ the environment through the creation of markets in pollution rights, imposing taxes or subsidies so that prices reflect social costs and awarding quotas of right to pollute.49 Both price- and rights-based measures are market-based.


pages: 585 words: 165,304

Trust: The Social Virtue and the Creation of Prosperity by Francis Fukuyama

barriers to entry, Berlin Wall, blue-collar work, business climate, business cycle, capital controls, collective bargaining, corporate governance, corporate raider, creative destruction, deindustrialization, Deng Xiaoping, deskilling, double entry bookkeeping, equal pay for equal work, European colonialism, Francis Fukuyama: the end of history, Frederick Winslow Taylor, full employment, George Gilder, glass ceiling, global village, Gunnar Myrdal, hiring and firing, industrial robot, Jane Jacobs, job satisfaction, joint-stock company, joint-stock limited liability company, Joseph Schumpeter, Kenneth Arrow, land reform, liberal capitalism, liberation theology, low skilled workers, manufacturing employment, mittelstand, price mechanism, profit maximization, RAND corporation, rent-seeking, Ronald Coase, Silicon Valley, Steve Jobs, Steve Wozniak, The Death and Life of Great American Cities, The Nature of the Firm, the scientific method, The Wealth of Nations by Adam Smith, transaction costs, transfer pricing, traveling salesman, union organizing

At the same time, the people working within this hierarchy are supposed to cooperate, and not compete, against each other. This apparent contradiction between the competitive free market and the cooperative yet authoritarian firm was the starting point of a seminal article written in the 1930s by the economist Ronald Coase.11 Coase noted that the essence of the market was the price mechanism, which brought supply and demand into equilibrium, but that within the firm, the price mechanism was suppressed and goods were allocated by command. If the price mechanism was deemed so efficient, the question arose: Why did firms exist at all? It is conceivable, for example, that cars could be manufactured entirely without car companies in a decentralized market. One firm would sell a car design to a final assembler, which would purchase the major components from subcontractors, which would in turn purchase the parts for subassemblies from other independent parts suppliers; the assembled car could then be sold to an independent marketing organization, which would sell it to a dealer and thence to the final consumer.

Boone, 204 Piore, Michael, 103, 229 Pitney-Bowes, 65, 79, 275 Pitts, Jesse, 116 Poland, 356, 361 Political Confucianism, 84, 85, 92, 350 Political economy, 18 Polygamy, 291 Porcelain manufacturing, 81 Pornography, 316 Portugal, 41 Poverty, 38, 62, 303, 353 Preindustrial societies, 45-46, 63, 132, 313 Presbyterians, 289 Presidents’ Council (Japan), 130, 197 Prestowitz, Clyde, 14 Price mechanism, 200 Pride, 358 Primogeniture, 88, 116, 130, 173-174 Principles of Scientific Management, The (Taylor), 225, 231 Privacy, right to, 316 Professional associations, 157, 309 Property rights, 63-65, 87, 150, 223, 275, 336, 350 Protestant Ethic and the Spirit of Capitalism, The (Weber), 37, 40, 43-46 Protestantism, 44-47, 142, 156, 279, 283, 286-294, 336 Protestant Reformation, 40, 44, 154, 286 “Protestant Sects and the Spirit of Capitalism” (Weber), 46 Public goods, 155 Puritanism, 36, 44, 183, 279, 289, 290, 292 Purposive contracts, 222-223 Putnam, Robert, 56, 100, 104, 105, 108, 109, 309 Qing China, 81 Quakers, 46, 289 Quality circles, 262, 317 Quayle, Dan, 61, 67 Railroads, 47-48, 273-274 Rathenau, Emil, 212, 213 Rational choice theory, 17 Rational desire, 358 Rational utility maximization, 18-21, 33-35, 37, 38, 41, 46, 351, 358, 360 Reciprocal obligation, 186, 188-193, 195, 197, 202, 205-207, 260-262 Recognition, desire for, 6-7, 358-360 Redding, Gordon, 75 Reformation, 40, 44, 154 Regionalism, in South Korea, 140, 141 Reliability, 43, 46 Religion, 28, 54, 131, 141-142, 154-155, 177-180, 182-183, 279-280, 283-294, 319; see also specific religions Religion of China, The (Weber), 65 Renaissance, 108 Renault, 114, 117, 123 Republic of Korea: see South Korea Restructuring, 48, 185 Revealed preference, 19 Reverse racism, 295 Riemon, Soga, 169 Rieppel, Paul, 232 Riesman, David, 277 Rights, 10, 314-317 Riots, 298 Risk, attitudes toward, 36-37, 46 Rockefeller, Jay, 78 Rockefeller, John D., 276 Rockefeller, Nelson, 78 Roosevelt, Theodore, 215, 276 Rosenberg, Nathan, 154 Rotating credit associations, 300-302 Rousseau, Jean-Jacques, 285 Royal Dutch/Shell, 212 Rules, proliferation of, 222-224 Russia, 28, 356, 357 Sabel, Charles, 103, 229, 242 Samsung Electric Company, 71, 73, 128, 134, 136, 140, 144 Samuel, Marcus, 250 Samurai class, 136, 173, 175, 350, 360 Sanyo, 79 Sardinia, 100 Sato, Eisaku, 173 Scargill, Arthur, 239 Schumpeter, Joseph, 159, 311 Scientific management, 225-230 Scientific method, 350 Sears, Roebuck, 65, 79, 275 Second Treatise on Government (Locke), 285 Self-interest, 18-19, 21, 26, 149, 156 Semiconductor industry, 143, 170 Seniority-based compensation system, 172, 188 Seven Samurai, The (film), 183 Shame, 358 Sharecropping, 107 Sharpton, Al, 295 Shell Oil, 250 Sheng Hsuan-huai, 79 Sherman Anti-Trust Act, 204, 214, 215, 276 Shimomura family, 169 Shipbuilding industry, 16, 139, 144 Shiseido, 79 Shotoku, Prince Taishi, 177 Sicily, 100, 107 Siemens, 31, 212, 213 Silicon Graphics, 165 Silla dynasty, 132 Simint, 103 Singapore, 70, 85, 92, 93, 179, 329, 337, 338 Single-parent families, 51, 61-62, 67, 309, 353 Slavery, 296, 302-303 Small-scale industrialization, in Italy, 97, 102-105, 108-111, 229 Smith, Adam, 7, 13, 17-18, 224, 229, 259, 326, 359, 360 Smith, Joseph, 290, 291 Smith, Roger, 262 Snecma, 123 Social capital, 10, 11, 16, 97, 101, 102, 150, 321, 325, 336, 355, 356, 358, 362 acquisition of, 26-27 defined, 26 distribution among societies, 28 economic consequences of, 27, 29 spontaneous sociability as subset of, 27 Social class in France, 120-121 in Great Britain, 158-159, 249-251 in South Korea, 132, 136 Social virtues, 43, 46, 48 Soft authoritarianism, 85 Sony America, 181 Southern Christian Leadership Conference, 304 South Korea, 16, 20, 127-145 adoption in, 132 auto industry in, 265 chaebol system in, 73, 128-130, 133-138, 142, 144, 145, 333 concentration of industry in, 128-129 familism in, 63, 128, 131, 133, 134, 137, 145, 331-332 family structure in, 130-132, 336 firm size in, 29, 71, 163, 327, 329, 332, 333 industrial policy and structure in, 127-128, 132-137 inheritance in, 130-132, 134 Japanese influence on, 128-130 labor relations in, 136-137, 264 lineage in, 132-133, 140 management style in, 128, 134-135 military service in, 140-141 nationalism in, 141 network organizations in, 73, 128-130 regionalism in, 140, 141 religion in, 131 social class in, 132, 136 state, role of, 52, 128, 137-140, 338, 344 wealth concentration in, 144-145 Soviet Jewish emigrés, 55 Soviet Union, 24, 40, 52, 54-55, 225 Sozialmarktwirtschaft, 217, 218, 232, 242 Spain, 41, 50, 55, 56 Spanish Civil War, 40 Spontaneous sociability, 10, 25, 27-29, 31, 47, 48, 50, 98, 104, 107, 149-151, 158, 159, 161, 171, 206, 207, 273, 281, 304-306, 318, 333, 338, 339, 342, 355, 357, 358 Ssangyong, 133 Stalin, Joseph, 55, 225 Standard Oil trust, 215, 274, 276 Stark, Rodney, 289 State, role of, 15-17, 27, 30, 52-54, 57, 72, 81-82, 101-102, 122-125, 128, 137-140, 279, 338, 339, 344 Status contracts, 222 Steel industry, 16, 124, 143, 211, 219, 226, 256, 341 Stein-Hardenberg reforms (1807-1812), 246-247 Steuart, James, 360 Stigler, George, 13 Stollwercks, 213 Strikes, 136-137, 216 Sumitomo, 7, 9, 73, 162, 166, 169, 198, 199, 205 Sung dynasty, 179 Sun Microsystems, 24, 165 Sunrise and sunset industries, 15-16 Sun Yat-sen, 138 Suzuki, Shosan, 182-183 Sweden, 29, 162, 163, 212, 288, 328 Switzerland, 29, 162, 163, 212 Syngman Rhee, 139, 142, 143 Taehan Textile and Tachan Electric, 134 Taika period, 131, 182 Taiwan, 16, 29, 50, 70, 81, 92, 93 cottage industries in, 87 familism in, 67, 74, 86-87, 329, 331 firm size in, 29, 30, 71, 326, 327, 329, 332, 333 network organizations in, 73, 197, 198 state, role of, 52, 57, 72, 82, 138, 338 Taoism, 84 Tariffs, 14 Taylor, Frederick W., 225-227, 231, 232, 255 Taylorism, 225-234, 255-260, 266, 313, 317 Technological innovations, 23-26, 30, 125, 316-317, 340-341, 353, 354 Terza Italia, 100-108 Textile industry, 16, 225 Thailand, 71, 338 Thatcher, Margaret, 251 Theory of Moral Sentiments, The (Smith), 18, 359 Thick description, 34 Thomas, Robert, 47, 63, 122 Thomson-CSF, 123 Thrift, 37 Thurow, Lester, 28 Time-and-motion studies, 225 Tocqueville, Alexis de, 39, 50, 55-56, 118, 120, 122-124, 235, 272-273, 290 Toffler, Alvin, 23 Toffler, Heidi, 23 Tokugawa period, 132, 179, 182, 183, 191 Tönnies, Ferdinand, 273 Toshiba, 165 Toyo Kogyo, 199 Toyota Motor Company, 8, 48, 163, 197, 201, 257-258, 263 Tracking system, 239-240 Trade associations, 117, 204, 216, 309 Transaction costs, 27-28, 151, 153, 200-202, 204, 342, 352 Trinidadians, 303 Trusts, 204, 214, 276 Tu Wei-ming, 84, 85 Tyson, Laura, 14 Ukraine, 356, 357 United Auto Workers (UAW), 226, 262, 263 U.S.


pages: 533

Future Politics: Living Together in a World Transformed by Tech by Jamie Susskind

3D printing, additive manufacturing, affirmative action, agricultural Revolution, Airbnb, airport security, Andrew Keen, artificial general intelligence, augmented reality, automated trading system, autonomous vehicles, basic income, Bertrand Russell: In Praise of Idleness, bitcoin, blockchain, brain emulation, British Empire, business process, Capital in the Twenty-First Century by Thomas Piketty, cashless society, Cass Sunstein, cellular automata, cloud computing, computer age, computer vision, continuation of politics by other means, correlation does not imply causation, crowdsourcing, cryptocurrency, digital map, distributed ledger, Donald Trump, easy for humans, difficult for computers, Edward Snowden, Elon Musk, en.wikipedia.org, Erik Brynjolfsson, Ethereum, ethereum blockchain, Filter Bubble, future of work, Google bus, Google X / Alphabet X, Googley, industrial robot, informal economy, intangible asset, Internet of things, invention of the printing press, invention of writing, Isaac Newton, Jaron Lanier, John Markoff, Joseph Schumpeter, Kevin Kelly, knowledge economy, lifelogging, Metcalfe’s law, mittelstand, more computing power than Apollo, move fast and break things, move fast and break things, natural language processing, Network effects, new economy, night-watchman state, Oculus Rift, Panopticon Jeremy Bentham, pattern recognition, payday loans, price discrimination, price mechanism, RAND corporation, ransomware, Ray Kurzweil, Richard Stallman, ride hailing / ride sharing, road to serfdom, Robert Mercer, Satoshi Nakamoto, Second Machine Age, selection bias, self-driving car, sexual politics, sharing economy, Silicon Valley, Silicon Valley startup, Skype, smart cities, Smart Cities: Big Data, Civic Hackers, and the Quest for a New Utopia, smart contracts, Snapchat, speech recognition, Steve Jobs, Steve Wozniak, Steven Levy, technological singularity, the built environment, The Structural Transformation of the Public Sphere, The Wisdom of Crowds, Thomas L Friedman, universal basic income, urban planning, Watson beat the top human players on Jeopardy!, working-age population

The results OUP CORRECTED PROOF – FINAL, 28/05/18, SPi РЕЛИЗ ПОДГОТОВИЛА ГРУППА "What's News" VK.COM/WSNWS Algorithms of Distribution 269 they are shown directly delimit the set of options from which they choose in making their purchases.29 Often algorithms will apply class distinctions: online shopping platforms routinely display advertisements for payday loans to less well-off groups.30 Every algorithm of this kind will benefit some groups more than others. The question is, whose interests should they prioritize? The seller or the buyer? Rich or poor? These are quintessential questions of distributive justice. Algorithms and Price Finally, algorithms increasingly intervene in the most fundamental machinery of the market economy: the price mechanism. Cus­ tomers may be charged more or less depending on where they live (outlets like Staples charge differentially for the same product depending on the postcode of the buyer),31 the time of day (gas stations charge more in hours of peak demand),32 and the weather outside (vending machines can use algorithms to vary prices according to the heat).33 These are simple examples but the possibilities are much more radical.

Not so in the digital lifeworld.When I buy my groceries using a digital application it might be hard to know if the price displayed has been tailormade for me, based on my past spending habits and whatever else the vendor has learned about me. OUP CORRECTED PROOF – FINAL, 28/05/18, SPi РЕЛИЗ ПОДГОТОВИЛА ГРУППА "What's News" VK.COM/WSNWS 270 FUTURE POLITICS Algorithmic interference with the price mechanism raises ­profound questions of distributive justice. Is it just for people to pay different prices for the same thing? The market already fails to guarantee that the least well-off will get enough or receive ­priority in the allocation of scarce social goods. Nor does it ensure equality of opportunity, or that people get what they deserve. Personspecific pricing could make this worse. A sick man might be prepared to pay his entire life’s savings for a simple operation to save his life, but does that mean that’s what he should pay?

32 OUP CORRECTED PROOF – FINAL, 28/05/18, SPi РЕЛИЗ ПОДГОТОВИЛА ГРУППА "What's News" VK.COM/WSNWS Index Jie, Ke 32 job applicants 266–7, 268 Jobs, Steve 314 Johnson, Bobby 399 Johnson, Steve 427 Jones, Steve 388 Jøsang, Audun 423 Jouppi, Norm 375 judicial system 102 Jury Theorem 224 justice algorithmic injustice 279–94 civil 259 concept 74–5, 76 conceptual analysis 81 criminal 259 as desert 260–1 as dessert 261, 262 distributive 257–70, 274, 278 and equality, difference between 259 fairness principle 353 property 313–41 in recognition 260, 271–8 social see social justice technological unemployment 295–312 Justinian, Emperor 202 Kahane, Guy 434 Kant, Immanuel 186, 272, 406 Karrahalios, Karrie 433 Kasparov, Garry 31, 36, 373 Kassarnig,Valentin 372 Keen, Andrew 376 Kelion, Leo 413 Kellmereit, Daniel 380 Kelly, Kevin 20, 21, 370, 373, 374, 375, 430 Kelly, Rick 384, 385 Kelly III, John E. 386, 388 Kelsen, Hans 103, 392 Kennedy, John F. 164, 188, 347 Kennedy, Robert F. 256 Keurig 116 Khatchadourian, Raffi 52, 382 503 Khomami, Nadia 397 Al-Khw­ār izmī, Abd’Abdallah Muhammad ibn Mūsā 94 Kim, Mark 376 King, Martin Luther 6, 180, 257, 360, 404 Kirchner, Lauren 403 Kirobo Mini 55 Kitchin, Rob 376, 377, 380, 381, 387, 388, 391, 404 Klaas, Brian 408 Kleinman, Zoe 383 Knockel, Jeffrey 399 Koch brothers 230 Kolhatkar, Sheelah 367, 423 Kollanyi, Bence 413 Korea 20 Kotler, Steven 374, 435 Krasodomski-Jones, Alex 412 Kurzweil, Ray 38, 366, 374, 436 Kymlicka, Will 418 labour market 303 Lai, Richard 386 Lampos,Vasileios 393 Landemore, Hélène 408, 411, 416 Laney, Doug 431 Langbort, Cedric 433 language importance to politics 16–17, 19 limits of 10–11 political concepts 76–80 public and private power 157 Lanier, Jaron 367, 374, 384, 400, 416, 419, 428, 431, 435 Data Deal 338 human enhancement 363 network effect 321 Silicon Valley startups 6–7 Wiki Democracy 246 Lant, Karla 376 Laouris,Yiannis 435 Large Hadron Collider 65 Larkin,Yelena 427 Larson, Jeff 403, 422 Larson, Selena 370, 421 OUP CORRECTED PROOF – FINAL, 28/05/18, SPi РЕЛИЗ ПОДГОТОВИЛА ГРУППА "What's News" VK.COM/WSNWS 504 Index law adaptive 107–10 AI Democracy 253 AI systems 31 code-ified 110–12, 245 digital 100–14 dissent 179–80 enforcement 101–7 intellectual property 332 justice in recognition 274–5 oral cultures 111–12 rule of 115 self-enforcing 101–3 supercharged state 171–2 wise restraints 185–6 written 111, 112 Lawrence, Neil 374, 388, 427 Leftwich, Adrian 389 Lenin,Vladimir Ilyich 21, 153, 370 Leonardo Da Vinci 28 Lessig, Lawrence 391, 392, 394, 420, 433 code as law 96 cyberspace as a place 97 free software 359 law enforcement through force 104, 105 privatization of force 100, 117 Leta Jones, Meg 138, 397, 432 Levellers 215–16 Levy, Steven 404 Lewis, Michael 428 liberal democracy 216–17, 246, 254 liberal-democratic principle of legitimacy 350 liberalism 77, 350 liberty 3, 10, 23, 346 concept 74–5, 76 conceptual analysis 81 contextual analysis 84 Deliberative Democracy 234 and democracy 207–8, 222, 225, 249 digital 205–7 digital dissent 179–84 digital liberation 168–71 harm principle 195–205 human enhancement 363 nature of politics 74 price mechanism 270 and private power 189–94 supercharged state 171–9 and the tech firm 188–208 transparency regulation 355 types 164–8 wise restraints 184–6 see also freedom Library of Congress 56 life-logs 63 Lincoln, Abraham 89, 210, 231, 323 Linn, Allison 398 Linux 243–4, 245, 333 Lipińska,Veronika 435 lip-reading 30 liquid democracy 242 Lively, J. 409 Livingston, James 425 Livy 216 loans, and distributive justice 267, 268 Locke, John 216, 246, 301, 323, 429 loomio.org 234 Lopatto, Elizabeth 434 lottery, work distribution via 304 Loveluck, Benjamin 378 Luca, Michael 423 luck egalitarianism 262, 307 Luddites 13 Lukes, Steven 390–1, 395, 398 Luxemburg, Rosa 348, 432 Lynch, Jack 384 Machiavelli, Niccolò 188, 217, 406, 409 machine learning 34–7, 266 algorithmic injustice 293 commons 332 data-based injustice 282 Data Democracy 248 data’s economic importance 317 distributive justice 267 future of code 98 group membership fallacy 284 OUP CORRECTED PROOF – FINAL, 28/05/18, SPi РЕЛИЗ ПОДГОТОВИЛА ГРУППА "What's News" VK.COM/WSNWS Index increasingly quantified society 61 liberty and private power 191 political campaigning 220 predictions 139, 173, 175 productive technologies 316 rule-based injustice 284 MacKinnon, Rebecca 396 Madison, James 216, 241, 369, 415 MagicLeap 59 Maistre, Joseph de 101 make-work 304 manipulation 93, 122 code 96, 97 digital liberation 170–1 harm principle 200 Mannheim, Karl 78, 390 Manyika, James 424 Mao, Huina 416 Marconi, Guglielmo 21 marginalization 273 Margretts, Helen 410 market system, and distributive justice 264–5 Markoff, John 400, 413 Martinez, Peter 413 Marx, Karl 367, 390, 398, 415, 417, 424, 425, 429, 434, 436 Communist Manifesto 326–7, 362 Direct Democracy 240–1 future of political ideas 86 justice 258 perception-control 144 on philosophers 7 political concepts 78 property 324, 326–7 sorcerer 366 workers 295, 298, 301, 307 Mason, Paul 374 Massachusetts Institute of Technology see MIT Mattu, Surya 403 Maxim, Hiram 20 Mayer-Schönberger,Viktor 387, 388, 395, 397, 427, 433 data 62, 65 forgetting versus remembering 137 505 Mayr, Otto 14, 368 McAfee, Andrew 374, 382, 390, 393, 427, 431 capital 315, 316, 334 McChesney, Robert W. 400, 427 McDermott, Daniel 390 McGinnis, John O. 416 McKinsey 295, 299 Mearian, Lucas 386 MedEthEx 108 medicine 3D printing 56–7 AI systems 31, 32, 108–9, 113 digital law 112–13 increasingly integrated technology 51, 54, 56–7 ransomware 182 robotics 54 technological unemployment 300 Medium 183 memory 136–8 Merchant, Brian 430 merit, and distributive justice 261 Mesthene, Emmanuel G. 368 metadata 63 Metcalfe’s Law 320 Metz, Cade 372, 373, 374, 375, 380 Metz, Rachel 407 Michaely, Roni 427 Microsoft acquisitions 318 chips 40 commons 332 concentration of tech industry 318, 320 Global Internet Forum to Counter Terrorism 191 HoloLens 59 patents 315 speech-recognition AI system 30 Tay 37, 346 might is right 349 military AI systems 31 brain–computer interfaces 48 sensors 50 OUP CORRECTED PROOF – FINAL, 28/05/18, SPi РЕЛИЗ ПОДГОТОВИЛА ГРУППА "What's News" VK.COM/WSNWS 506 Index Mill, James 195 Mill, John Stuart 367, 403, 406–7, 411, 414, 415 change, need for 3 Deliberative Democracy 234 democracy 223 freedom of speech, constraints on 237 harm principle 196, 198, 199, 203 liberty 195–6, 201, 203 liquid democracy 242 normative analysis 83 predictions 173 upbringing 195 Miller, David 435 Mills, Laurence 418 Milton, John 124, 167, 395 minstrel accounts 232 Mirani, Leo 396 Miremadi, Mehdi 424 Misra, Tanvi 377 MIT affective computing 53 bomb-detecting spinach 50–1 Senseable City Lab 50 Technology Review Custom 427 temporary tattoos for smartphone control 51 Mitchell, Margaret 403 Mitchell, William J. 183, 376, 405 Mizokami, Kyle 379 Moley 407 Momentum Machines 299 Montesquieu, Charles de Secondat, Baron de 358, 433 Moore, Gordon 39, 374 Moore’s Law 39–40, 41 morality AI Democracy 253 automation of 176–7 Data Democracy 249–50 Direct Democracy 240 fragmented 204, 231 harm principle 200–5 justice in distribution 261 see also ethics Moravec’s paradox 54, 382 More, Max 402, 434 Morgan, J.


pages: 403 words: 111,119

Doughnut Economics: Seven Ways to Think Like a 21st-Century Economist by Kate Raworth

"Robert Solow", 3D printing, Asian financial crisis, bank run, basic income, battle of ideas, Berlin Wall, bitcoin, blockchain, Branko Milanovic, Bretton Woods, Buckminster Fuller, business cycle, call centre, Capital in the Twenty-First Century by Thomas Piketty, Cass Sunstein, choice architecture, clean water, cognitive bias, collapse of Lehman Brothers, complexity theory, creative destruction, crowdsourcing, cryptocurrency, Daniel Kahneman / Amos Tversky, David Ricardo: comparative advantage, dematerialisation, disruptive innovation, Douglas Engelbart, Douglas Engelbart, en.wikipedia.org, energy transition, Erik Brynjolfsson, Ethereum, ethereum blockchain, Eugene Fama: efficient market hypothesis, experimental economics, Exxon Valdez, Fall of the Berlin Wall, financial deregulation, Financial Instability Hypothesis, full employment, global supply chain, global village, Henri Poincaré, hiring and firing, Howard Zinn, Hyman Minsky, income inequality, Intergovernmental Panel on Climate Change (IPCC), invention of writing, invisible hand, Isaac Newton, John Maynard Keynes: Economic Possibilities for our Grandchildren, Joseph Schumpeter, Kenneth Arrow, Kenneth Rogoff, Kickstarter, land reform, land value tax, Landlord’s Game, loss aversion, low skilled workers, M-Pesa, Mahatma Gandhi, market fundamentalism, Martin Wolf, means of production, megacity, mobile money, Mont Pelerin Society, Myron Scholes, neoliberal agenda, Network effects, Occupy movement, off grid, offshore financial centre, oil shale / tar sands, out of africa, Paul Samuelson, peer-to-peer, planetary scale, price mechanism, quantitative easing, randomized controlled trial, Richard Thaler, Ronald Reagan, Second Machine Age, secular stagnation, shareholder value, sharing economy, Silicon Valley, Simon Kuznets, smart cities, smart meter, Social Responsibility of Business Is to Increase Its Profits, South Sea Bubble, statistical model, Steve Ballmer, The Chicago School, The Great Moderation, the map is not the territory, the market place, The Spirit Level, The Wealth of Nations by Adam Smith, Thomas Malthus, Thorstein Veblen, too big to fail, Torches of Freedom, trickle-down economics, ultimatum game, universal basic income, Upton Sinclair, Vilfredo Pareto, wikimedia commons

From this vantage point – counter-intuitive though it may sound – equilibrium economics actually turns out to be a form of systems analysis, just an extremely limited one. It get the results it seeks by imposing severely restrictive assumptions about how market systems behave – assumptions including perfect competition, diminishing returns, full information, and rational actors – so that no errant effects get in the way of the price mechanism’s ability to act as the balancing feedback loop that restores market equilibrium. Think of it in terms of starlings: what restrictions would you have to impose on a large flock of these birds if you wanted to make sure that they all stayed still? You could place each bird in its own narrow little coop and shut them all away in a dark, quiet room: that should encourage them to stay put. But don’t expect the flock to behave like that once you remove these unnatural confines and release them into the air.

According to their projections for the business-as-usual scenario, as global population and output expanded, non-renewable resources like oil, minerals and metals would be depleted, leading to a drop in industrial output and food production, ultimately resulting in famine, a large fall in the human population, and greatly reduced living standards for all. When launched, their analysis simultaneously raised the alarm about the state of the world, introduced systems thinking widely into policy debates, and caused an uproar amongst those committed to the goal of growth.44 Mainstream economists were quick to deride the model’s design on the basis that it underplayed the balancing feedback of the price mechanism in markets. If non-renewable resources became scarce, they argued, their prices would rise, triggering greater efficiency in their use, the wider use of substitutes, and exploration for new sources. But in dismissing World 3 and its implied limits to growth, they too quickly dismissed the role and effects of what the 1970s model simply called ‘pollution’, which – unlike metals, minerals and fossil fuels – typically carries no price and so generates no direct market feedback.

In economic terms, healthy hierarchy means, for example, ensuring that the financial sector is in service to the productive economy, which in turn is in service to life.50 Second, self-organisation is born out of a system’s capacity to make its own structures more complex, like a dividing cell, a growing social movement, or an expanding city. In the economy much self-organising goes on in the marketplace through the price mechanism – that was Adam Smith’s insight – but it also takes place in the commons and in the household too – the insight of Elinor Ostrom and generations of feminist economists. All three of these realms of provisioning can self-organise effectively to meet people’s wants and needs, and the state should support all three in doing so. Lastly, resilience emerges out of a system’s ability to endure and bounce back from stress, like a jelly that wobbles on a plate without losing its form, or a spider’s web that survives a storm.


pages: 453 words: 117,893

What Would the Great Economists Do?: How Twelve Brilliant Minds Would Solve Today's Biggest Problems by Linda Yueh

"Robert Solow", 3D printing, additive manufacturing, Asian financial crisis, augmented reality, bank run, banking crisis, basic income, Ben Bernanke: helicopter money, Berlin Wall, Bernie Sanders, Big bang: deregulation of the City of London, bitcoin, Branko Milanovic, Bretton Woods, BRICs, business cycle, Capital in the Twenty-First Century by Thomas Piketty, clean water, collective bargaining, computer age, Corn Laws, creative destruction, credit crunch, Credit Default Swap, cryptocurrency, currency peg, dark matter, David Ricardo: comparative advantage, debt deflation, declining real wages, deindustrialization, Deng Xiaoping, Doha Development Round, Donald Trump, endogenous growth, everywhere but in the productivity statistics, Fall of the Berlin Wall, fear of failure, financial deregulation, financial innovation, Financial Instability Hypothesis, fixed income, forward guidance, full employment, Gini coefficient, global supply chain, Gunnar Myrdal, Hyman Minsky, income inequality, index card, indoor plumbing, industrial robot, information asymmetry, intangible asset, invisible hand, job automation, John Maynard Keynes: Economic Possibilities for our Grandchildren, joint-stock company, Joseph Schumpeter, laissez-faire capitalism, land reform, lateral thinking, life extension, low-wage service sector, manufacturing employment, market bubble, means of production, mittelstand, Mont Pelerin Society, moral hazard, mortgage debt, negative equity, Nelson Mandela, non-tariff barriers, Northern Rock, Occupy movement, oil shale / tar sands, open economy, paradox of thrift, Paul Samuelson, price mechanism, price stability, Productivity paradox, purchasing power parity, quantitative easing, RAND corporation, rent control, rent-seeking, reserve currency, reshoring, road to serfdom, Robert Shiller, Robert Shiller, Ronald Coase, Ronald Reagan, school vouchers, secular stagnation, Shenzhen was a fishing village, Silicon Valley, Simon Kuznets, special economic zone, Steve Jobs, The Chicago School, The Wealth of Nations by Adam Smith, Thomas Malthus, too big to fail, total factor productivity, trade liberalization, universal basic income, unorthodox policies, Washington Consensus, We are the 99%, women in the workforce, working-age population

Whatever the reason, rebalancing the British economy hasn’t exactly been successful: services have recovered to pre-crisis levels without too much help or attention from the government, but manufacturing has still to do so nearly a decade after the event. So, should Britain continue its efforts to rebalance its economy? What would Adam Smith do? Adam Smith on rebalancing the economy Adam Smith’s economic system is formulated around three pillars: the division of labour, the price mechanism and the medium of exchange (money). Both the price of goods or services and the wages of those who produce them are dictated by the price mechanism (dubbed by Smith as the ‘invisible hand’). Money has a role set by the market to pay for goods/services, and its supply should not be distorted by the state, for example via mercantilist policies where the aim of trade is to run a surplus of exports over imports and to increase a country’s store of gold and silver. Let’s delve into these concepts to discern how Smith would view the rebalancing debate.

Hayek himself also began to step away from technical economic theory and towards broader issues of social inquiry. He had not forgotten his background in the Austrian School, which was firmly at odds with social planning and excessive government intervention in the economy. His contemporary von Mises had questioned how it would be possible for any economic system, by which he meant communism, to exist without a price mechanism to allocate and incentivize economic activity. He believed that critics of capitalism, and, at the time of the inter-war years, there were many, failed to point out how a socialist system could be properly organized. Without prices, there would be no way for the baker to know how much to sell his bread for. Collectivist Economic Planning, which Hayek edited in 1935, marked his transformation from economic theory to political philosophy.


pages: 374 words: 113,126

The Great Economists: How Their Ideas Can Help Us Today by Linda Yueh

"Robert Solow", 3D printing, additive manufacturing, Asian financial crisis, augmented reality, bank run, banking crisis, basic income, Ben Bernanke: helicopter money, Berlin Wall, Bernie Sanders, Big bang: deregulation of the City of London, bitcoin, Branko Milanovic, Bretton Woods, BRICs, business cycle, Capital in the Twenty-First Century by Thomas Piketty, clean water, collective bargaining, computer age, Corn Laws, creative destruction, credit crunch, Credit Default Swap, cryptocurrency, currency peg, dark matter, David Ricardo: comparative advantage, debt deflation, declining real wages, deindustrialization, Deng Xiaoping, Doha Development Round, Donald Trump, endogenous growth, everywhere but in the productivity statistics, Fall of the Berlin Wall, fear of failure, financial deregulation, financial innovation, Financial Instability Hypothesis, fixed income, forward guidance, full employment, Gini coefficient, global supply chain, Gunnar Myrdal, Hyman Minsky, income inequality, index card, indoor plumbing, industrial robot, information asymmetry, intangible asset, invisible hand, job automation, John Maynard Keynes: Economic Possibilities for our Grandchildren, joint-stock company, Joseph Schumpeter, laissez-faire capitalism, land reform, lateral thinking, life extension, manufacturing employment, market bubble, means of production, mittelstand, Mont Pelerin Society, moral hazard, mortgage debt, negative equity, Nelson Mandela, non-tariff barriers, Northern Rock, Occupy movement, oil shale / tar sands, open economy, paradox of thrift, Paul Samuelson, price mechanism, price stability, Productivity paradox, purchasing power parity, quantitative easing, RAND corporation, rent control, rent-seeking, reserve currency, reshoring, road to serfdom, Robert Shiller, Robert Shiller, Ronald Coase, Ronald Reagan, school vouchers, secular stagnation, Shenzhen was a fishing village, Silicon Valley, Simon Kuznets, special economic zone, Steve Jobs, The Chicago School, The Wealth of Nations by Adam Smith, Thomas Malthus, too big to fail, total factor productivity, trade liberalization, universal basic income, unorthodox policies, Washington Consensus, We are the 99%, women in the workforce, working-age population

Whatever the reason, rebalancing the British economy hasn’t exactly been successful: services have recovered to pre-crisis levels without too much help or attention from the government, but manufacturing has still to do so nearly a decade after the event. So, should Britain continue its efforts to rebalance its economy? What would Adam Smith do? Adam Smith on rebalancing the economy Adam Smith’s economic system is formulated around three pillars: the division of labour, the price mechanism and the medium of exchange (money). Both the price of goods or services and the wages of those who produce them are dictated by the price mechanism (dubbed by Smith as the ‘invisible hand’). Money has a role set by the market to pay for goods/services, and its supply should not be distorted by the state, for example via mercantilist policies where the aim of trade is to run a surplus of exports over imports and to increase a country’s store of gold and silver. Let’s delve into these concepts to discern how Smith would view the rebalancing debate.

Hayek himself also began to step away from technical economic theory and towards broader issues of social inquiry. He had not forgotten his background in the Austrian School, which was firmly at odds with social planning and excessive government intervention in the economy. His contemporary von Mises had questioned how it would be possible for any economic system, by which he meant communism, to exist without a price mechanism to allocate and incentivize economic activity. He believed that critics of capitalism, and, at the time of the inter-war years, there were many, failed to point out how a socialist system could be properly organized. Without prices, there would be no way for the baker to know how much to sell his bread for. Collectivist Economic Planning, which Hayek edited in 1935, marked his transformation from economic theory to political philosophy.


pages: 242 words: 68,019

Why Information Grows: The Evolution of Order, From Atoms to Economies by Cesar Hidalgo

"Robert Solow", Ada Lovelace, Albert Einstein, Arthur Eddington, assortative mating, business cycle, Claude Shannon: information theory, David Ricardo: comparative advantage, Douglas Hofstadter, Everything should be made as simple as possible, frictionless, frictionless market, George Akerlof, Gödel, Escher, Bach, income inequality, income per capita, industrial cluster, information asymmetry, invention of the telegraph, invisible hand, Isaac Newton, James Watt: steam engine, Jane Jacobs, job satisfaction, John von Neumann, Joi Ito, New Economic Geography, Norbert Wiener, p-value, Paul Samuelson, phenotype, price mechanism, Richard Florida, Ronald Coase, Rubik’s Cube, Silicon Valley, Simon Kuznets, Skype, statistical model, Steve Jobs, Steve Wozniak, Steven Pinker, The Market for Lemons, The Nature of the Firm, The Wealth of Nations by Adam Smith, total factor productivity, transaction costs, working-age population

In Coase’s view, the economy was not a collection of fluid and frictionless market transactions but a set of islands of conscious power, shielded from each other and from the dynamics of the price mechanisms. Firms are hierarchical, Coase emphasized, and the interactions between a firm’s workers are often political. So in Coase’s view, hiring a worker was a form of contract in which a person was hired to do a task that had not yet been specified, since what a worker will be asked to do a few months down the road is rarely known when she is hired. Coase dedicated much of his academic career to explaining the existence and boundaries of these islands of power. His answers become known as the transaction cost theory of the firm. Coase’s explanation of the boundaries of a firm was brilliant and simple. It was based on the idea that economic transactions are costly and not as fluid as the cheerleaders of the price mechanism religiously believed. Often, market transactions require negotiations, drafting of contracts, setting up inspections, settling disputes, and so on.


pages: 504 words: 126,835

The Innovation Illusion: How So Little Is Created by So Many Working So Hard by Fredrik Erixon, Bjorn Weigel

"Robert Solow", Airbnb, Albert Einstein, American ideology, asset allocation, autonomous vehicles, barriers to entry, Basel III, Bernie Madoff, bitcoin, Black Swan, blockchain, BRICs, Burning Man, business cycle, Capital in the Twenty-First Century by Thomas Piketty, Cass Sunstein, Clayton Christensen, Colonization of Mars, commoditize, corporate governance, corporate social responsibility, creative destruction, crony capitalism, dark matter, David Graeber, David Ricardo: comparative advantage, discounted cash flows, distributed ledger, Donald Trump, Elon Musk, Erik Brynjolfsson, fear of failure, first square of the chessboard / second half of the chessboard, Francis Fukuyama: the end of history, George Gilder, global supply chain, global value chain, Google Glasses, Google X / Alphabet X, Gordon Gekko, high net worth, hiring and firing, Hyman Minsky, income inequality, income per capita, index fund, industrial robot, Internet of things, Jeff Bezos, job automation, job satisfaction, John Maynard Keynes: Economic Possibilities for our Grandchildren, John Maynard Keynes: technological unemployment, joint-stock company, Joseph Schumpeter, Just-in-time delivery, Kevin Kelly, knowledge economy, laissez-faire capitalism, Lyft, manufacturing employment, Mark Zuckerberg, market design, Martin Wolf, mass affluent, means of production, Mont Pelerin Society, Network effects, new economy, offshore financial centre, pensions crisis, Peter Thiel, Potemkin village, price mechanism, principal–agent problem, Productivity paradox, QWERTY keyboard, RAND corporation, Ray Kurzweil, rent-seeking, risk tolerance, risk/return, Robert Gordon, Ronald Coase, Ronald Reagan, savings glut, Second Machine Age, secular stagnation, Silicon Valley, Silicon Valley startup, Skype, sovereign wealth fund, Steve Ballmer, Steve Jobs, Steve Wozniak, technological singularity, telemarketer, The Chicago School, The Future of Employment, The Nature of the Firm, The Rise and Fall of American Growth, The Wealth of Nations by Adam Smith, too big to fail, total factor productivity, transaction costs, transportation-network company, tulip mania, Tyler Cowen: Great Stagnation, uber lyft, University of East Anglia, unpaid internship, Vanguard fund, Yogi Berra

However, this time it’s different – or so we are told. Tech thinker Kevin Kelly has prophesied the rise of a new form of socialism as a consequence of unobstructed source technology and community-generated content.20 Capitalism is a highly adaptive creature, argues the contrarian economic reporter Paul Mason, but it is not going to survive the current revolution in information technology.21 Information, he argues, will destroy the price mechanism and new forms of collaborative production will do away with what is left of market capitalism. The passion for technological determinism also thrives on the other side of the ideological fence. “The Goliath of totalitarianism will be brought down by the David of the microchip,” mused conservative icon Ronald Reagan,22 who drew heavily from technology enthusiasts like George Gilder, an economist who later identified the billion-transistor chip as the cure to root out all economic evil.23 A British libertarian politician has predicted that the new digital age will be the end of politics.24 Neoconservatives similarly were quick to embrace the revolutionary promise of technology.

Coase challenged the prevailing ignorance with an idea of the firm and its boundaries.16 He argued that firms and their boundaries (their size, functions and, to use a modern definition, “demarcation between the organization and its environment”17) are defined by transaction costs. Or, to translate it into the language of economics: the marginal costs and benefits of contracting out production through the market’s price mechanism versus combining necessary parts of the production “in-house” through the firm. You can also call it the make-or-buy question: should companies produce themselves or buy from others? It is a basic question, yet one that many economists and business observers ignore. Companies have different origins and thrive for a variety of reasons, but they all have one thing in common, Coase argued: if capital and labor miraculously found each other spontaneously, firms would become pointless.

And, in a way, the higher they are, the better it is to have companies, because the transaction costs partly set the value of a firm. Firms, if you want to be provocative, exist because markets fail, at least in a theoretical way. And the greater the failure, the more space there is for an upward valuation of companies. Coase put it slightly more dryly: “The main reason why it is profitable to establish a firm would seem to be that there is a cost of using the price mechanism.”18 A successful firm can bank on the value of its unique combination of ideas, management, capital, and labor – or of what it has that cannot easily be reproduced by the market, or copied by another firm. Companies exist because they reduce market transaction costs. Yet if this is the case, why has the process of capitalist competition not coalesced all firms into a single gigantic unit? Why is there not just one company in a country, let alone the world, which rules the market?


pages: 478 words: 126,416

Other People's Money: Masters of the Universe or Servants of the People? by John Kay

Affordable Care Act / Obamacare, asset-backed security, bank run, banking crisis, Basel III, Bernie Madoff, Big bang: deregulation of the City of London, bitcoin, Black Swan, Bonfire of the Vanities, bonus culture, Bretton Woods, buy and hold, call centre, capital asset pricing model, Capital in the Twenty-First Century by Thomas Piketty, cognitive dissonance, corporate governance, Credit Default Swap, cross-subsidies, dematerialisation, disruptive innovation, diversification, diversified portfolio, Edward Lloyd's coffeehouse, Elon Musk, Eugene Fama: efficient market hypothesis, eurozone crisis, financial innovation, financial intermediation, financial thriller, fixed income, Flash crash, forward guidance, Fractional reserve banking, full employment, George Akerlof, German hyperinflation, Goldman Sachs: Vampire Squid, Growth in a Time of Debt, income inequality, index fund, inflation targeting, information asymmetry, intangible asset, interest rate derivative, interest rate swap, invention of the wheel, Irish property bubble, Isaac Newton, John Meriwether, light touch regulation, London Whale, Long Term Capital Management, loose coupling, low cost airline, low cost carrier, M-Pesa, market design, millennium bug, mittelstand, money market fund, moral hazard, mortgage debt, Myron Scholes, NetJets, new economy, Nick Leeson, Northern Rock, obamacare, Occupy movement, offshore financial centre, oil shock, passive investing, Paul Samuelson, peer-to-peer lending, performance metric, Peter Thiel, Piper Alpha, Ponzi scheme, price mechanism, purchasing power parity, quantitative easing, quantitative trading / quantitative finance, railway mania, Ralph Waldo Emerson, random walk, regulatory arbitrage, Renaissance Technologies, rent control, risk tolerance, road to serfdom, Robert Shiller, Robert Shiller, Ronald Reagan, Schrödinger's Cat, shareholder value, Silicon Valley, Simon Kuznets, South Sea Bubble, sovereign wealth fund, Spread Networks laid a new fibre optics cable between New York and Chicago, Steve Jobs, Steve Wozniak, The Great Moderation, The Market for Lemons, the market place, The Myth of the Rational Market, the payments system, The Wealth of Nations by Adam Smith, The Wisdom of Crowds, Tobin tax, too big to fail, transaction costs, tulip mania, Upton Sinclair, Vanguard fund, Washington Consensus, We are the 99%, Yom Kippur War

When there is a surge in demand for cash from banks – as at Northern Rock – the available cash is allocated by queuing: the people at the front of the queue get their money in full; those at the back risk having to wait or losing out altogether. When there is a sudden surge in demand for milk, the same happens: there is a queue and those who are late to join the queue get no milk. If the surge is more sustained, dairies probably raise the price and the available supply is allocated differently. The queue rations by rejecting some demands, the market uses the price mechanism to ration by discouraging some people from buying or selling. Most securities markets – in contrast to deposit-taking institutions – ration by price. If too many people want to realise their investment in a company, the price of that company’s shares falls. The ability of savers to buy and sell shares enables companies to raise permanent capital without locking shareholders into holding their investments indefinitely.

But if the contribution of an activity to society is judged by how much money the promoters make from it, it is hardly surprising if people outside finance and business form the view that such values should not be allowed near our schools and hospitals – or, for that matter, our pharmaceutical industry, our infrastructure, our supermarkets. And view bankers with contempt. This intellectual misconception behind the thought that prosperity might be enhanced by trade in baseball cards has been associated with an economic model that misunderstands the (important) role that markets play in enabling complex modern economies to manage information. Prices act as signals, and the price mechanism is an important guide to resource allocation: that does not mean that the constantly changing price on the Bloomberg screen is a complete and comprehensive distillation of the wisdom of the ages. There are many guides to value other than price, whether we are talking about a Shakespeare play or a business organisation. Although these economic models represent at best an oversimplification, at worst a travesty, of how free markets work in reality, their rhetoric has been powerful – and convenient.

.: Hyperion 220 Loomis, Carol 108 lotteries 65, 66, 68, 72 Lucas, Robert 40 Lynch, Dennios 108 Lynch, Peter 108, 109 M M-Pesa 186 Maastricht Treaty (1993) 243, 250 McCardie, Sir Henry 83, 84, 282, 284 McGowan, Harry 45 Machiavelli, Niccolò 224 McKinley, William 44 McKinsey 115, 126 Macy’s department store 46 Madoff, Bernard 29, 118, 131, 132, 177, 232, 293 Madoff Securities 177 Magnus, King of Sweden 196 Manhattan Island, New York: and Native American sellers 59, 63 Manne, Henry 46 manufacturing companies, rise of 45 Marconi 48 marine insurance 62, 63 mark-to-market accounting 126, 128–9, 320n22 mark-to-model approach 128–9, 320n21 Market Abuse Directive (MAD) 226 market economy 4, 281, 302, 308 ‘market for corporate control, the’ 46 market risk 97, 98, 177, 192 market-makers 25, 28, 30, 31 market-making 49, 109, 118, 136 Markets in Financial Instruments Directive (MIFID) 226 Markkula, Mike 162, 166, 167 Markopolos, Harry 232 Markowitz, Harry 69 Markowitz model of portfolio allocation 68–9 Martin, Felix 323n5 martingale 130, 131, 136, 139, 190 Marx, Groucho 252 Marx, Karl 144, 145 Capital 143 Mary Poppins (film) 11, 12 MasterCard 186 Masters, Brooke 120 maturity transformation 88, 92 Maxwell, Robert 197, 201 Mayan civilisation 277 Meade, James 263 Means, Gardiner 51 Meeker, Mary 40, 167 Melamed, Leo 19 Mercedes 170 merchant banks 25, 30, 33 Meriwether, John 110, 134 Merkel, Angela 231 Merrill Lynch 135, 199, 293, 300 Merton, Robert 110 Metronet 159 Meyer, André 205 MGM 33 Microsoft 29, 167 middleman, role of the 80–87 agency and trading 82–3 analysts 86 bad intermediaries 81–2 from agency to trading 84–5 identifying goods and services required 80, 81 logistics 80, 81 services from financial intermediaries 80–81 supply chain 80, 81 transparency 84 ‘wisdom of crowds’ 86–7 Midland Bank 24 Milken, Michael 46, 292 ‘millennium bug’ 40 Miller, Bill 108, 109 Minuit, Peter 59, 63 Mises, Ludwig von 225 Mittelstand (medium-size business sector) 52, 168, 169, 170, 171, 172 mobile banking apps 181 mobile phone payment transfers 186–7 Modigliani-Miller theorem 318n9 monetarism 241 monetary economics 5 monetary policy 241, 243, 245, 246 money creation 88 money market fund 120–21 Moneyball phenomenon 165 monopolies 45 Monte Carlo casino 123 Monte dei Paschi Bank of Siena 24 Montgomery Securities 167 Moody’s rating agency 21, 248, 249, 313n6 moral hazard 74, 75, 76, 92, 95, 256, 258 Morgan, J.P. 44, 166, 291 Morgan Stanley 25, 40, 130, 135, 167, 268 Morgenthau, District Attorney Robert 232–3 mortality tables 256 mortgage banks 27 mortgage market fluctuation in mortgage costs 148 mechanised assessment 84–5 mortgage-backed securities 20, 21, 40, 85, 90, 100, 128, 130, 150, 151, 152, 168, 176–7, 284 synthetic 152 Mozilo, Angelo 150, 152, 154, 293 MSCI World Bank Index 135 muckraking 44, 54–5, 79 ‘mugus’ 118, 260 multinational companies, and diversification 96–7 Munger, Charlie 127 Munich, Germany 62 Munich Re 62 Musk, Elon 168 mutual funds 27, 108, 202, 206 mutual societies 30 mutualisation 79 mutuality 124, 213 ‘My Way’ (song) 72 N Napoleon Bonaparte 26 Napster 185 NASA 276 NASDAQ 29, 108, 161 National Economic Council (US) 5, 58 National Employment Savings Trust (NEST) 255 National Institutes of Health 167 National Insurance Fund (UK) 254 National Provincial Bank 24 National Science Foundation 167 National Westminster Bank 24, 34 Nationwide 151 Native Americans 59, 63 Nazis 219, 221 neo-liberal economic policies 39, 301 Netjets 107 Netscape 40 Neue Markt 170 New Deal 225 ‘new economy’ bubble (1999) 23, 34, 40, 42, 98, 132, 167, 199, 232, 280 new issue market 112–13 New Orleans, Louisiana: Hurricane Katrina disaster (2005) 79 New Testament 76 New York Stock Exchange 26–7, 28, 29, 31, 49, 292 New York Times 283 News of the World 292, 295 Newton, Isaac 35, 132, 313n18 Niederhoffer, Victor 109 NINJAs (no income, no job, no assets) 222 Nixon, Richard 36 ‘no arbitrage’ condition 69 non-price competition 112, 219 Norman, Montagu 253 Northern Rock 89, 90–91, 92, 150, 152 Norwegian sovereign wealth fund 161, 253 Nostradamus 274 O Obama, Barack 5, 58, 77, 194, 271, 301 ‘Obamacare’ 77 Occidental Petroleum 63 Occupy movement 52, 54, 312n2 ‘Occupy Wall Street’ slogan 305 off-balance-sheet financing 153, 158, 160, 210, 250 Office of Thrift Supervision 152–3 oil shock (1973–4) 14, 36–7, 89 Old Testament 75–6 oligarchy 269, 302–3, 305 oligopoly 118, 188 Olney, Richard 233, 237, 270 open market operations 244 options 19, 22 Organisation for Economic Co-operation and Development (OECD) 263 Osborne, George 328n19 ‘out of the money option’ 102, 103 Overend, Gurney & Co. 31 overseas assets and liabilities 179–80, 179 owner-managed businesses 30 ox parable xi-xii Oxford University 12 P Pacific Gas and Electric 246 Pan Am 238 Paris financial centre 26 Parliamentary Commission on Banking Standards 295 partnerships 30, 49, 50, 234 limited liability 313n14 Partnoy, Frank 268 passive funds 99, 212 passive management 207, 209, 212 Patek Philippe 195, 196 Paulson, Hank 300 Paulson, John 64, 109, 115, 152, 191, 284 ‘payment in kind’ securities 131 payment protection policies 198 payments system 6, 7, 25, 180, 181–8, 247, 259–60, 281, 297, 306 PayPal 167, 168, 187 Pecora, Ferdinand 25 Pecora hearings (1932–34) 218 peer-to-peer lending 81 pension funds 29, 98, 175, 177, 197, 199, 200, 201, 208, 213, 254, 282, 284 pension provision 78, 253–6 pension rights 53, 178 Perkins, Charles 233 perpetual inventory method 321n4 Perrow, Charles 278, 279 personal financial management 6, 7 personal liability 296 ‘petrodollars’ 14, 37 Pfizer 96 Pierpoint Morgan, J. 165 Piper Alpha oil rig disaster (1987) 63 Ponzi, Charles 131, 132 Ponzi schemes 131, 132, 136, 201 pooled investment funds 197 portfolio insurance 38 Potts, Robin, QC 61, 63, 72, 119, 193 PPI, mis-selling of 296 Prebble, Lucy: ENRON 126 price competition 112, 219 price discovery 226 price mechanism 92 Prince, Chuck 34 private equity 27, 98, 166, 210 managers 210, 289 private insurance 76, 77 private sector 78 privatisation 39, 78, 157, 158, 258, 307 probabilistic thinking 67, 71, 79 Procter & Gamble 69, 108 product innovation 13 property and infrastructure 154–60 protectionism 13 Prudential 200 public companies, conversion to 18, 31–2, 49 public debt 252 public sector 78 Q Quandt, Herbert 170 Quandt Foundation 170 quantitative easing 245, 251 quantitative style 110–11 quants 22, 107, 110 Quattrone, Frank 167, 292–3 queuing 92 Quinn, Sean 156 R railroad regulation 237 railway mania (1840s) 35 Raines, Franklin 152 Rajan, Raghuram 56, 58, 79, 102 Rakoff, Judge Jed 233, 294, 295 Ramsey, Frank 67, 68 Rand, Ayn 79, 240 ‘random walk’ 69 Ranieri, Lew 20, 22, 106–7, 134, 152 rating agencies 21, 41, 84–5, 97, 151, 152, 153, 159, 249–50 rationality 66–7, 68 RBS see Royal Bank of Scotland re-insurance 62–3 Reagan, Ronald 18, 23, 54, 59, 240 real economy 7, 18, 57, 143, 172, 190, 213, 226, 239, 271, 280, 288, 292, 298 redundancy 73, 279 Reed, John 33–4, 48, 49, 50, 51, 242, 293, 314n40 reform 270–96 other people’s money 282–5 personal responsibility 292–6 principles of 270–75 the reform of structure 285–92 robust systems and complex structures 276–81 regulation 215, 217–39 the Basel agreements 220–25 and competition 113 the origins of financial regulation 217–19 ‘principle-based’ 224 the regulation industry 229–33 ‘rule-based’ 224 securities regulation 225–9 what went wrong 233–9 ‘Regulation Q’ (US) 13, 14, 20, 28, 120, 121 regulatory agencies 229, 230, 231, 235, 238, 274, 295, 305 regulatory arbitrage 119–24, 164, 223, 250 regulatory capture 237, 248, 262 Reich, Robert 265, 266 Reinhart, C.M. 251 relationship breakdown 74, 79 Rembrandts, genuine/fake 103, 127 Renaissance Technologies 110, 111, 191 ‘repo 105’ arbitrage 122 repo agreement 121–2 repo market 121 Reserve Bank of India 58 Reserve Primary Fund 121 Resolution Trust Corporation 150 retirement pension 78 return on equity (RoE) 136–7, 191 Revelstoke, first Lord 31 risk 6, 7, 55, 56–79 adverse selection and moral hazard 72–9 analysis by ‘ketchup economists’ 64 chasing the dream 65–72 Geithner on 57–8 investment 256 Jackson Hole symposium 56–7 Kohn on 56 laying bets on the interpretation of incomplete information 61 and Lloyd’s 62–3 the LMX spiral 62–3, 64 longevity 256 market 97, 98 mitigation 297 randomness 76 socialisation of individual risks 61 specific 97–8 risk management 67–8, 72, 79, 137, 191, 229, 233, 234, 256 risk premium 208 risk thermostat 74–5 risk weighting 222, 224 risk-pooling 258 RJR Nabisco 46, 204 ‘robber barons’ 44, 45, 51–2 Robertson, Julian 98, 109, 132 Robertson Stephens 167 Rockefeller, John D. 44, 52, 196 Rocket Internet 170 Rogers, Richard 62 Rogoff, K.S. 251 rogue traders 130, 300 Rohatyn, Felix 205 Rolls-Royce 90 Roman empire 277, 278 Rome, Treaty of (1964) 170 Rooney, Wayne 268 Roosevelt, Franklin D. v, 25, 235 Roosevelt, Theodore 43–4, 235, 323n1 Rothschild family 217 Royal Bank of Scotland 11, 12, 14, 24, 26, 34, 78, 91, 103, 124, 129, 135, 138, 139, 211, 231, 293 Rubin, Robert 57 In an Uncertain World 67 Ruskin, John 60, 63 Unto this Last 56 Russia defaults on debts 39 oligarchies 303 Russian Revolution (1917) 3 S Saes 168 St Paul’s Churchyard, City of London 305 Salomon Bros. 20, 22, 27, 34, 110, 133–4 ‘Salomon North’ 110 Salz Review: An Independent Review of Barclays’ Business Practices 217 Samuelson, Paul 208 Samwer, Oliver 170 Sarkozy, Nicolas 248, 249 Savage, L.J. 67 Scholes, Myron 19, 69, 110 Schrödinger’s cat 129 Scottish Parliament 158 Scottish Widows 26, 27, 30 Scottish Widows Fund 26, 197, 201, 212, 256 search 195, 209, 213 defined 144 and the investment bank 197 Second World War 36, 221 secondary markets 85, 170, 210 Securities and Exchange Commission (SEC) 20, 64, 126, 152, 197, 225, 226, 228, 230, 232, 247, 292, 293, 294, 313n6 securities regulation 225–9 securitisation 20–21, 54, 100, 151, 153, 164, 169, 171, 222–3 securitisation boom (1980s) 200 securitised loans 98 See’s Candies 107 Segarra, Carmen 232 self-financing companies 45, 179, 195–6 sell-side analysts 199 Sequoia Capital 166 Shad, John S.R. 225, 228–9 shareholder value 4, 45, 46, 50, 211 Sharpe, William 69, 70 Shell 96 Sherman Act (1891) 44 Shiller, Robert 85 Siemens 196 Siemens, Werner von 196 Silicon Valley, California 166, 167, 168, 171, 172 Simon, Hermann 168 Simons, Jim 23, 27, 110, 111–12, 124 Sinatra, Frank 72 Sinclair, Upton 54, 79, 104, 132–3 The Jungle 44 Sing Sing maximum-security gaol, New York 292 Skilling, Jeff 126, 127, 128, 149, 197, 259 Slim, Carlos 52 Sloan, Alfred 45, 49 Sloan Foundation 49 small and medium-size enterprises (SMEs), financing 165–72, 291 Smith, Adam 31, 51, 60 The Wealth of Nations v, 56, 106 Smith, Greg 283 Smith Barney 34 social security 52, 79, 255 Social Security Trust Fund (US) 254, 255 socialism 4, 225, 301 Société Générale 130 ‘soft commission’ 29 ‘soft’ commodities 17 Soros, George 23, 27, 98, 109, 111–12, 124, 132 South Sea Bubble (18th century) 35, 132, 292 sovereign wealth funds 161, 253 Soviet empire 36 Soviet Union 225 collapse of 23 lack of confidence in supplies 89–90 Spain: property bubble 42 Sparks, D.L. 114, 283, 284 specific risk 97–8 speculation 93 Spitzer, Eliot 232, 292 spread 28, 94 Spread Networks 2 Square 187 Stamp Duty 274 Standard & Poor’s rating agency 21, 99, 248, 249, 313n6 Standard Life 26, 27, 30 standard of living 77 Standard Oil 44, 196, 323n1 Standard Oil of New Jersey (later Exxon) 323n1 Stanford University 167 Stanhope 158 State Street 200, 207 sterling devaluation (1967) 18 stewardship 144, 163, 195–203, 203, 208, 209, 210, 211, 213 Stewart, Jimmy 12 Stigler, George 237 stock exchanges 17 see also individual stock exchanges stock markets change in organisation of 28 as a means of taking money out of companies 162 rise of 38 stock-picking 108 stockbrokers 16, 25, 30, 197, 198 Stoll, Clifford 227–8 stone fei (in Micronesia) 323n5 Stone, Richard 263 Stora Enso 196 strict liability 295–6 Strine, Chancellor Leo 117 structured investment vehicles (SIVs) 158, 223 sub-prime lending 34–5, 75 sub-prime mortgages 63, 75, 109, 149, 150, 169, 244 Summers, Larry 22, 55, 73, 119, 154, 299 criticism of Rajan’s views 57 ‘ketchup economics’ 5, 57, 69 support for financialisation 57 on transformation of investment banking 15 Sunday Times 143 ‘Rich List’ 156 supermarkets: financial services 27 supply chain 80, 81, 83, 89, 92 Surowiecki, James: The Wisdom of Crowds xi swap markets 21 SWIFT clearing system 184 Swiss Re 62 syndication 62 Syriza 306 T Taibbi, Matt 55 tailgating 102, 103, 104, 128, 129, 130, 136, 138, 140, 152, 155, 190–91, 200 Tainter, Joseph 277 Taleb, Nassim Nicholas 125, 183 Fooled by Randomness 133 Tarbell, Ida 44, 54 TARGET2 system 184, 244 TARP programme 138 tax havens 123 Taylor, Martin 185 Taylor Bean and Whitaker 293 Tea Party 306 technological innovation 13, 185, 187 Tel Aviv, Israel 171 telecommunications network 181, 182 Tesla Motors 168 Tetra 168 TfL 159 Thai exchange rate, collapse of (1997) 39 Thain, John 300 Thatcher, Margaret 18, 23, 54, 59, 148, 151, 157 Thiel, Peter 167 Third World debt problem 37, 131 thrifts 25, 149, 150, 151, 154, 174, 290, 292 ticket touts 94–5 Tobin, James 273 Tobin tax 273–4 Tolstoy, Count Leo 97 Tonnies, Ferdinand 17 ‘too big to fail’ 75, 140, 276, 277 Tourre, Fabrice ‘Fabulous Fab’ 63–4, 115, 118, 232, 293, 294 trader model 82, 83 trader, rise of the 16–24 elements of the new trading culture 21–2 factors contributing to the change 17–18 foreign exchange 18–19 from personal relationships to anonymous markets 17 hedge fund managers 23 independent traders 22–3 information technology 19–20 regulation 20 securitisation 20–21 shift from agency to trading 16 trading as a principal source of revenue and remuneration 17 trader model 82, 83 ‘trading book’ 320n20 transparency 29, 84, 205, 210, 212, 226, 260 Travelers Group 33, 34, 48 ‘treasure islands’ 122–3 Treasuries 75 Treasury (UK) 135, 158 troubled assets relief program 135 Truman, Harry S. 230, 325n13 trust 83–4, 85, 182, 213, 218, 260–61 Tuckett, David 43, 71, 79 tulip mania (1630s) 35 Turner, Adair 303 TWA 238 Twain, Mark: Pudd’nhead Wilson’s Calendar 95–6 Twitter 185 U UBS 33, 134 UK Independence Party 306 unemployment 73, 74, 79 unit trusts 202 United States global dominance of the finance industry 218 house prices 41, 43, 149, 174 stock bubble (1929) 201 universal banks 26–7, 33 University of Chicago 19, 69 ‘unknown unknowns’ 67 UPS delivery system 279–80 US Defense Department 167 US Steel 44 US Supreme Court 228, 229, 304 US Treasury 36, 38, 135 utility networks 181–2 V value discovery 226–7 value horizon 109 Van Agtmael, Antoine 39 Vanderbilt, Cornelius 44 Vanguard 200, 207, 213 venture capital 166 firms 27, 168 venture capitalists 171, 172 Vickers Commission 194 Viniar, David 204–5, 233, 282, 283, 284 VISA 186 volatility 85, 93, 98, 103, 131, 255 Volcker, Paul 150, 181 Volcker Rule 194 voluntary agencies 258 W wagers and credit default swaps 119 defined 61 at Lloyd’s coffee house 71–2 lottery tickets 65 Wall Street, New York 1, 16, 312n2 careers in 15 rivalry with London 13 staffing of 217 Wall Street Crash (1929) 20, 25, 27, 36, 127, 201 Wall Street Journal 294 Wallenberg family 108 Walmart 81, 83 Warburg 134 Warren, Elizabeth 237 Washington consensus 39 Washington Mutual 135, 149 Wasserstein, Bruce 204, 205 Watergate affair 240 ‘We are the 99 per cent’ slogan 52, 305 ‘We are Wall Street’ 16, 55, 267–8, 271, 300, 301 Weber, Max 17 Weill, Sandy 33–4, 35, 48–51, 55, 91, 149, 293, 314n40 Weinstock, Arnold 48 Welch, Jack 45–6, 48, 50, 52, 126, 314n40 WestLB 169 Westminster Bank 24 Whitney, Richard 292 Wilson, Harold 18 windfall payments 14, 32, 127, 153, 290 winner’s curse 103, 104, 156, 318n11 Winslow Jones, Alfred 23 Winton Capital 111 Wolfe, Humbert 7 The Uncelestial City 1 Wolfe, Tom 268 The Bonfire of the Vanities 16, 22 women traders 22 Woodford, Neil 108 Woodward, Bob: Maestro 240 World Bank 14, 220 World.Com bonds 197 Wozniak, Steve 162 Wriston, Walter 37 Y Yellen, Janet 230–31 Yom Kippur War (1973) 36 YouTube 185 Z Zurich, Switzerland 62


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Culture and Prosperity: The Truth About Markets - Why Some Nations Are Rich but Most Remain Poor by John Kay

"Robert Solow", Albert Einstein, Asian financial crisis, Barry Marshall: ulcers, Berlin Wall, Big bang: deregulation of the City of London, business cycle, California gold rush, complexity theory, computer age, constrained optimization, corporate governance, corporate social responsibility, correlation does not imply causation, Daniel Kahneman / Amos Tversky, David Ricardo: comparative advantage, Donald Trump, double entry bookkeeping, double helix, Edward Lloyd's coffeehouse, equity premium, Ernest Rutherford, European colonialism, experimental economics, Exxon Valdez, failed state, financial innovation, Francis Fukuyama: the end of history, George Akerlof, George Gilder, greed is good, Gunnar Myrdal, haute couture, illegal immigration, income inequality, industrial cluster, information asymmetry, intangible asset, invention of the telephone, invention of the wheel, invisible hand, John Meriwether, John Nash: game theory, John von Neumann, Kenneth Arrow, Kevin Kelly, knowledge economy, light touch regulation, Long Term Capital Management, loss aversion, Mahatma Gandhi, market bubble, market clearing, market fundamentalism, means of production, Menlo Park, Mikhail Gorbachev, money: store of value / unit of account / medium of exchange, moral hazard, Myron Scholes, Naomi Klein, Nash equilibrium, new economy, oil shale / tar sands, oil shock, Pareto efficiency, Paul Samuelson, pets.com, popular electronics, price discrimination, price mechanism, prisoner's dilemma, profit maximization, purchasing power parity, QWERTY keyboard, Ralph Nader, RAND corporation, random walk, rent-seeking, Right to Buy, risk tolerance, road to serfdom, Ronald Coase, Ronald Reagan, second-price auction, shareholder value, Silicon Valley, Simon Kuznets, South Sea Bubble, Steve Jobs, telemarketer, The Chicago School, The Market for Lemons, The Nature of the Firm, the new new thing, The Predators' Ball, The Wealth of Nations by Adam Smith, Thorstein Veblen, total factor productivity, transaction costs, tulip mania, urban decay, Vilfredo Pareto, Washington Consensus, women in the workforce, yield curve, yield management

When I tell family and friends that I badly need something, and they defer their own needs, I play a card that loses its value if I play it often. These implicit prices, central to both personal and commercial lives, are called opportunity costs: the price of doing A is that it becomes more difficult to do B. Among small groups of people who deal with each other frequently and know each other well-friends, families, close colleagues, the inhabitants of Sicelo's village-resource allocation occurs through these implicit price mechanisms. Market exchanges are needed when people deal outside these closed circles. Incentive compatibility is immediately more serious. We understand the real needs of our friends and family better than the needs of people we hardly know. Market exchanges allow longer chains of wants. If I had to find a plumber who needed lessons in economics, my tap might drip for a long time. I might look for a bank needing economic advice that would offer the plumber a loan, but this would be complex to negotiate.

., 295 research support, 269-70 See also disciplined pluralism political economy, 201-3,314-15 politics, 55, 62, 69 adaptive behavior, 252 of economics, 333-35 public choice theory, 343 risk assessment, 156-57 self-interest, 12, 250-51, 317 strategic behavior, 100-101 pollution, 263-65 poor states, 16-17,53,64-65,67,211, 277-88 coordination failures, 127 dependencytheor~60,284-86 economic policy, 335-37 future of, 354-55 inequality in, 51-52 reasons for, 47,319,355-56 and rent seeking, 295 Porter, Michael, 334 { 417} portfolio theory, 160 Portrait ofDr. Gachet (van Gogh), 92-96, 102-4,137,191,228 Posner, Richard, 189, 199 postmodernism, 312,329,333 Prebisch, Raoul, 60, 285 Prebisch-Singer thesis, 285 price mechanism, 98-99, 128 airline seats, 151-52 flower market, 146-48 "going rate," 231, 232 and imperfect information, 223-24, 227-28,229-31 market rigging, 150-51 oil markets, 143-45 supply and demand, 139, 140-41, 164, 230-33 Prisoner's Dilemma, 205, 252-55, 256, 330, 331 privatization, 11,312 probability theory, 234 production and exchange, 83-92, 93, 146 access regulation, 296 assignment of goods, 93-104 costs, 140, 151 and economic rent, 145,294-95, 300 as economics definition, 83 efficiency in, 193-94,201-2 productivity theories, 289-300 See also coordination; supply and demand productivity, 8, 9, 86 factors in, 28-29,51, 178,279,354 GDP per worker, 43-44 and income distribution, 289-90, 300, 321,353 and material living standards, 45-49 range in 1820, 67 profits, 343 property, 57,230-31 property rights, 11, 52, 54, 59, 62, 75, 81, 206 definition problems, 189-90,351-52 and market truths, 318-19 rules as, 82 and welfare economics, 202 See also intellectual property Protestantism, 52, 55-57 public choice theory, 251-52,343 public goods, 248-52,253,257-58,341-42 purchasing power parity, 46, 47, 162,289 Putnam, Richard, 172 put option, 160,237,241 queue theory, 127, 128-29, 130, 147, 171, 198 QWERTY layout, 131,260 Rand, Ayn, 315 "random walk" process, 159 rational-choice models, 324, 328,329, 337, 339 rationality, 199-201,210-21,229,231,234, 244-46,311,329,347-48 meaning to economists, 210-11,219-20 { 418} Index Rawls,John, 201-3,314-15 Reagan, Ronald, 194, 335 redistribution, 321,335,353 Rawls on, 202,203,314-15 regulation, 14-16,20,87-88,200,314,344, 352 arguments against, 11, 349 reinsurance, 154 religion, 52, 55-57, 125-26 rent.

See living standards standards, 259-62,350-51 Stanislaw,Joseph, 10, 11 statistics, economic, 31-50 Stigler, George, 199, 327, 360 Stiglitz, Joe, 206-7, 336, 360 stock markets, 169-71 anomalies, 235 Asian crisis (1997), 16, 53, 150-51,237 electronic trading, 149 inception of, 55, 170 noise traders, 236,245,246 and risk, 159,235,236-37,319 shareholders, 79, 170,296-97 share valuation, 171,218,229,245,297 speculation, 244-45 sustainable economic rents, 300 U.S. boom/bubble (1990s), 10, 124, 243-44,246,297,329,336,342 volatility of, 237,244 stock options, 297 { 419} Stone,Richard,38,360 strategic behavior, 100-102, 116,219 Sultan of Brunei, 299,301 Summers, Larry, 174 supermarkets. See queue theory supply and demand, 230-33 capital, 163-67 commodity products, 138-46 coordination of, 127-28, 137, 141-43 demand timing, 142 equilibrium of. See general equilibrium incentive compatibility, 98-100, 104, 151 and information asymmetry, 206, 207, 222-33,319 See also competitive markets; price mechanisms Sweden, 24, 26, 27,43-45,67,260,289, 304-5 Switzerland, 15-16,31,43,56,67 cost ofliving, 48, 49 economic lives, 23, 43, 44, 187-89,209, 289,301,302-4 economic organization, 305 specialization, 91-92 Tagamet, 273 Taiwan, 63, 64 Tanzania, 280,281 Tawney, R. H., 56 taxation in free market, 11, 15-16,313,314,315,344 for public goods, 250 and rent seeking, 296 tax curs, 33 7 teams, 20,252-53, 300-310,320 income distribution within, 290-93, 300-301 technology colonial transfer of, 59 and coordination, 207 and living standards, 26-27, 28 See also innovation technology stocks, 124 telecom stocks, 229, 244 telephone system, 262-63, 271 terrorist incidents market, 157 Thurow, Lester, 315,316 tin market, 150 tipping, 75 "tit for tat" strategy, 254-55 Titmuss, Richard, 258 Tobin,James, 356, 360 Tocqueville, Alexis de, 57, 172,322 tolerance, 52 Toyota,64,89,296 trade, 177, 198 specialization, 86-92 See also production and exchange trademarks, 74,224,272,352 transactions, 73-82 costs, 205-6, 219 and information asymmetry, 222-33,319 transistor, 268 { 420} Index Trump, Donald, 317 trust, 20, 51,225,256,319 Tucker, Albert, 254, 330 Turing, Alan, 267,269,272-73,274 Turnbull, Colin, 286, 322 Tversky, Amos, 220, 235 uncertainty, 234, 241-42.


pages: 515 words: 126,820

Blockchain Revolution: How the Technology Behind Bitcoin Is Changing Money, Business, and the World by Don Tapscott, Alex Tapscott

Airbnb, altcoin, asset-backed security, autonomous vehicles, barriers to entry, bitcoin, blockchain, Blythe Masters, Bretton Woods, business process, buy and hold, Capital in the Twenty-First Century by Thomas Piketty, carbon footprint, clean water, cloud computing, cognitive dissonance, commoditize, corporate governance, corporate social responsibility, creative destruction, Credit Default Swap, crowdsourcing, cryptocurrency, disintermediation, disruptive innovation, distributed ledger, Donald Trump, double entry bookkeeping, Edward Snowden, Elon Musk, Erik Brynjolfsson, Ethereum, ethereum blockchain, failed state, fiat currency, financial innovation, Firefox, first square of the chessboard, first square of the chessboard / second half of the chessboard, future of work, Galaxy Zoo, George Gilder, glass ceiling, Google bus, Hernando de Soto, income inequality, informal economy, information asymmetry, intangible asset, interest rate swap, Internet of things, Jeff Bezos, jimmy wales, Kickstarter, knowledge worker, Kodak vs Instagram, Lean Startup, litecoin, Lyft, M-Pesa, Marc Andreessen, Mark Zuckerberg, Marshall McLuhan, means of production, microcredit, mobile money, money market fund, Network effects, new economy, Oculus Rift, off grid, pattern recognition, peer-to-peer, peer-to-peer lending, peer-to-peer model, performance metric, Peter Thiel, planetary scale, Ponzi scheme, prediction markets, price mechanism, Productivity paradox, QR code, quantitative easing, ransomware, Ray Kurzweil, renewable energy credits, rent-seeking, ride hailing / ride sharing, Ronald Coase, Ronald Reagan, Satoshi Nakamoto, Second Machine Age, seigniorage, self-driving car, sharing economy, Silicon Valley, Skype, smart contracts, smart grid, social graph, social intelligence, social software, standardized shipping container, Stephen Hawking, Steve Jobs, Steve Wozniak, Stewart Brand, supply-chain management, TaskRabbit, The Fortune at the Bottom of the Pyramid, The Nature of the Firm, The Wisdom of Crowds, transaction costs, Turing complete, Turing test, Uber and Lyft, uber lyft, unbanked and underbanked, underbanked, unorthodox policies, wealth creators, X Prize, Y2K, Zipcar

Throughout his writings, Coase discussed costs of coordinating, meshing, or otherwise orchestrating the different people, products, and processes into an enterprise that can effectively create value. Against traditional economists who argued that there were internal markets within firms, Coase said that when “a workman moves from department Y to department X, he does not go because of a change in relative prices, but because he is ordered to do so.”25 In other words, markets allocate resources via the price mechanism, but firms allocate resources via authoritative direction. Williamson went on to explain that there are two significant coordinating systems. First is the price system for decentralized resource allocation needs and opportunities (the market). But second, (traditional) “firms employ a different organizing principle—that of hierarchy—whereupon authority is used to affect resource allocation.”

If the firms don’t deliver a certain level of revenue, then the contracts can automatically terminate. Artists also need automated subsidiary rights management, wherever possible or desired, where prospective licensees either accept or reject the artist’s terms of use and payment. The contract itself enforces each deal and can notify the artist of any breaches and terminations. Auction/Dynamic Pricing Mechanisms to experiment with promotions and versioning of content, even peg subsidiary rights royalty percentages to the demand of a song. For example, if consumer downloads of a song spike, then an advertiser who licensed that song for a commercial automatically has to pay more when the commercial runs. Reputation System that culls data from a bitcoin address’s transaction history and social media, to create a reputation score for that address.

Abra, 20, 186–88, 325n Academic institutions as players in blockchain ecosystem, 286 role in culture, 246–49 Accenture, 69, 70 Accessibility, 256–57 Accountability, 10, 30, 108–9, 303 in foreign aid, 20–21, 190–91 in government, 23, 199, 202, 207–9, 309 in microfinance, 192 Accounting, 63, 64, 73–79 double-entry, 7, 74, 75, 310 triple-entry, 77, 78–79, 180 World Wide Ledger, 6–8, 75–77, 142 Accounting fraud, 74, 76 AccountingWEB, 74 Adams, Scott, 106 Advocacy networks, 302–3 Agency costs, 107 Agency risk, 60 Agenda, for next digital age, 307–9 Aggregating economy, 17–18, 134–35, 164–65 Agora Voting, 218–19 Agriculture, 138–39, 157–58 Airbnb, 17, 18, 115–17, 134, 135, 270 Allaire, Jeremy, 71–72, 75–76 Allianz, 156 Allied Control, 261 Altcoins, 60, 257 Amazon, 13, 72–73, 118, 122, 123 American Association of Independent Music, 230 American Society of Composers, Authors and Publishers (ASCAP), 229 Andreessen, Marc, 5, 9, 80, 311 Andreessen Horowitz, 178–79, 284 Andresen, Gavin, 51, 104, 285, 305 implementation challenges, 257, 260, 262, 271–72 Angaritis, Dino Mark, 31–32, 115, 131, 153 Animating objects, 22, 155, 156–61 Anti–money laundering/know your customer (AML/KYC), 42, 44, 302 Antonopoulos, Andreas, 70, 125, 128, 225, 233, 255 design principles, 40, 47–48 digital identity, 15, 264–65 re-architecting the firm, 86, 96, 97, 98, 102 AOL, 255 Apple, 13, 118, 150, 161, 229, 235 Application specific integrated circuits (ASICs), 261 Arab Spring, 200 Ariely, Dan, 279 Art (artists), 21, 239–43 buying through bitcoin blockchain, 240–42 ownership rights, 45–49, 132–33 profile of next-gen patron, 242–43 Artificial intelligence (AI), 91, 123, 265, 274 Artist-centric music model, 231–35 Artists and repertoire (A&R), 238–39 Artlery, 239–43 Ascribe, 132–33, 243 Asset ownership, 19–20, 193–95 Asymmetric cryptography, 39–40 Athey, Susan, 111 Attention markets, 140–41 Attestation, in financial services, 56, 57, 58 Auction/dynamic pricing mechanisms, 234 Audits, 6–7, 63, 75–77, 78 Augur, 82, 83, 84–85, 181, 220, 224 Australian outback, power poles, 145, 146–47 Authenticating identity and value, in financial services, 61, 64 Automated Clearing House (ACH), 59, 293 Automated subsidiary rights management, 234 Autonomous agents, 22, 120, 121, 122–25, 126, 321–22n Autonomous vehicles, 156–57, 165–67 Back, Adam, 34, 41 “Backdoor access,” 244 Background checks, 176 bAirbnb, 115–17 Balanc3, 76, 178 Bandcamp, 235 Bank of Canada, 9, 294, 296 Bank of England, 9, 294 Bankruptcy laws, 174 Banks.


pages: 870 words: 259,362

Austerity Britain: 1945-51 by David Kynaston

Alistair Cooke, anti-communist, British Empire, Chelsea Manning, collective bargaining, continuous integration, deindustrialization, deskilling, Etonian, full employment, garden city movement, hiring and firing, industrial cluster, invisible hand, job satisfaction, labour mobility, light touch regulation, mass immigration, moral panic, Neil Kinnock, occupational segregation, price mechanism, rent control, reserve currency, road to serfdom, Ronald Reagan, shared worldview, stakhanovite, strikebreaker, the market place, upwardly mobile, urban planning, urban renewal, very high income, wage slave, washing machines reduced drudgery, wealth creators, women in the workforce, young professional

Relatively early in the war, the great economist John Maynard Keynes had more or less won the battle within the Treasury to persuade that deeply conservative institution to accept at least a substantial measure of demand management as the principal way of regulating the economy in order to keep the level of unemployment down. Thereafter, the real intellectual conflict among radically minded ‘activators’ was between Keynesians and those whose ideal was wartime-style (and Soviet-style) direct physical planning. For the former, there was still a significant role – at least in theory – to be played by the price mechanism of the market; for the latter, that role was fairly surplus to requirements. By the end of the war, it seemed that the force was with the out-and-out planners, with their emphasis on investment planning and, through direct controls over labour, manpower planning. Indeed, such was the temper of the times that even most Keynesians had, in a visceral sense, little real faith in, or any great intellectual curiosity about, the possible economic merits of the market or of supply-side reforms.

Durbin – born in 1906, the son of a Baptist minister – was an attractively paradoxical figure. He once remarked that his three greatest pleasures were ‘food, sleep and sex’ but accused D. H. Lawrence of ‘shallow abstractions’ in relation to ‘freedom in sexual relations’; politically, he defined himself as a ‘militant Moderate’; and, as a trained economist who had lectured through the 1930s at the LSE, he combined a strong belief in economic planning with the conviction that the price mechanism was indispensable if the liberty of consumers in a modern democracy was to be ensured. During the 1930s, Durbin became close to the young psychiatrist John Bowlby, and the influence of Bowlby ran through much of his major work, The Politics of Democratic Socialism, published in 1940. As for economics itself, Durbin made a brave gesture towards the ‘sound money’ school – its citadel the City of London – that had wrecked Ramsay MacDonald’s 1931 Labour government, by declaring that ‘it is not wise in the long run to expect to live upon golden eggs and slowly to strangle the goose that lays them’.

For a whole hour it went on with hardly a pause, hardly a word from me, and then abruptly he stood up, pleaded pressure of many things and escorted me to the door.’10 Anthony Wedgwood Benn – son of a Liberal-turned-Labour peer, in his early 20s, about to come down from Oxford after being a fighter pilot in the war – did not yet have executive responsibilities but in early 1948 he composed his private ‘Thoughts on Socialism’. Arguing that pre-war ‘poverty and squalor and undernourishment’ had made ‘a mockery of the price mechanism as a means of translating needs into economic demand’, he nevertheless accepted that ‘economic efficiency demands a degree of inequality because of the need for incentives’. Even so: ‘A certain standard of health, nourishment and housing must be maintained for all. No one else can do it but the state and in Britain a new paternalism is state paternalism: looking after those who cannot look after themselves.


pages: 309 words: 85,584

Nine Crises: Fifty Years of Covering the British Economy From Devaluation to Brexit by William Keegan

banking crisis, Berlin Wall, Big bang: deregulation of the City of London, Boris Johnson, Bretton Woods, British Empire, capital controls, congestion charging, deindustrialization, Donald Trump, Etonian, eurozone crisis, Fall of the Berlin Wall, financial innovation, financial thriller, floating exchange rates, full employment, gig economy, inflation targeting, Just-in-time delivery, light touch regulation, liquidity trap, Martin Wolf, moral hazard, negative equity, Neil Kinnock, non-tariff barriers, North Sea oil, Northern Rock, oil shock, Parkinson's law, Paul Samuelson, pre–internet, price mechanism, quantitative easing, Ronald Reagan, school vouchers, short selling, South Sea Bubble, The Chicago School, transaction costs, tulip mania, Winter of Discontent, Yom Kippur War

For years, Labour had been terrified of being considered ‘the party of devaluation’ – just as, after the onset of the financial crisis of 2007, Gordon Brown, haunted by accusations that Labour was the party of nationalisation, was slow to accept the advice of his officials that he would have to nationalise Northern Rock. As president of the Board of Trade, Wilson had presided over what he referred to as ‘a bonfire of controls’, left over from the recent war. Unlike most economists, he was more tuned intellectually to physical, supply-side measures such as import controls to cure a trade deficit rather than to use of the price mechanism for a currency adjustment. Moreover, the devaluation of August 1931, when Britain came off the gold standard, may have taken place under the National Government, but the Prime Minister and Chancellor in that government were the Labour politicians Ramsay MacDonald and Philip Snowden. The memory contributed to the criticism that Labour was the party of devaluation. In addition to Wilson’s personal distaste for devaluation, he was able to cite powerful international considerations at the time.

But, arithmetically, this also meant that foreign currency would cost British buyers almost 17 per cent more than before. Moreover, it would take time for the hoped-for beneficent effects of devaluation to work through the system. The higher price of imports and cheaper exports would inevitably make the trade and balance of payments deficits worse before they got better, when, it was hoped, via the workings of the price mechanism and the impact on profitability, the volume of exports would rise and the import bill would be lower than it might otherwise be. There were many nervous moments. The essence of the policy was to move resources into exports (or ‘import saving’). In an economy close to full employment, this required restraint on domestic spending – both public and private. The sense of urgency was communicated to the public by restrictive budgets and tight controls on hire purchase (HP) agreements; arrangements which may seem bizarre to a modern age.


pages: 304 words: 90,084

Net Zero: How We Stop Causing Climate Change by Dieter Helm

3D printing, autonomous vehicles, Berlin Wall, blockchain, Boris Johnson, carbon footprint, clean water, congestion charging, coronavirus, COVID-19, Covid-19, decarbonisation, deindustrialization, demand response, Deng Xiaoping, Donald Trump, fixed income, food miles, Francis Fukuyama: the end of history, Haber-Bosch Process, hydrogen economy, Intergovernmental Panel on Climate Change (IPCC), Internet of things, market design, means of production, North Sea oil, off grid, oil shale / tar sands, oil shock, peak oil, planetary scale, price mechanism, quantitative easing, remote working, reshoring, Ronald Reagan, smart meter, South China Sea, sovereign wealth fund, statistical model, Thomas Malthus

The more powerful they are, the greater the distortions away from the public interest to the private interests of their members. Regulation plus lobbyists equals more expensive decarbonisation. Regulation of consumption is particularly difficult. People do not like to be told what they cannot buy, and they hate rationing. Rationing might work in a war, in the context of a completely planned economy where the price mechanism has been all but eliminated. While there is a lot of food safety and health and safety regulation, top-down instructions tend to backfire. We have not managed to ban cigarettes, and indeed when it comes to recreational drugs, regulation has not worked well. The Americans tried prohibition, with limited success. Labelling is about as good as it gets – valuable and worthwhile, but hardly sufficient for the task ahead.

Once a rule is set it is very hard to get rid of, unless there is some countervailing vested interest. Unlike carbon taxes, regulation is easy to capture, and it usually is captured.[14] Urban regulation and planning The other pollutants from transport are mainly local in their impacts. Nowhere is this more obvious than in towns and cities. Emissions from cars and lorries damage people’s lungs and shorten lives. Pricing mechanisms can make some difference, and urban congestion charges have a part to play. They ration the supply of road space and can reduce traffic. By calibrating these charges according to engine size and vintage (and hence pollution), the more polluting ones can be priced off the road. Congestion charges will, however, never be sufficient, and the regulatory and planning options have to come into play.


Order Without Design: How Markets Shape Cities by Alain Bertaud

autonomous vehicles, call centre, colonial rule, congestion charging, creative destruction, cross-subsidies, Deng Xiaoping, discounted cash flows, Donald Trump, Edward Glaeser, en.wikipedia.org, extreme commuting, garden city movement, Google Earth, Jane Jacobs, job satisfaction, Joseph Schumpeter, land tenure, manufacturing employment, market design, market fragmentation, megacity, new economy, New Urbanism, openstreetmap, Pearl River Delta, price mechanism, rent control, Right to Buy, Ronald Coase, self-driving car, Silicon Valley, special economic zone, the built environment, trade route, transaction costs, transit-oriented development, trickle-down economics, urban planning, urban sprawl, zero-sum game

Administrative allocation of street space to a specific mode of transport may result in some positive outcomes in some circumstances, but it also introduces a rigidity when demand fluctuates at different hours of the day or over time. The rigidity introduced by an administrative allocation of street area to a preferred mode of transport may result in a loss of mobility. In market economies, supply and demand is matched through pricing mechanisms. Would it be possible to have a pricing system that determines the optimum mix of different modes of transport through a pricing mechanism without relying on administrative allocation of street space to an exclusive mode of transport? As I have suggested earlier, we should approach urban transport as a real estate problem. A municipality is the owner of the streets. The rent charged for using the street should be based on how large an area, how long, when, and where a commuter is using it.

Beginning in 2004, all new passenger vehicles—including SUVs, minivans, vans and pick-up trucks—must meet more stringent tailpipe emission standards.27 Figure 5.20 shows the changes in pollution in Germany from new gasoline nondiesel cars over several decades. The changes show that government mandates, while imperfect tools, are still effective at triggering the technological changes necessary to reduce pollution that markets, in the absence of pricing mechanisms, have been unable to provide. Figure 5.20 Changes in gasoline-car pollutant emissions in Germany, 1990–2013. Sources: Table 2: Fuel-specific IEF for passenger cars, in Fkg/TJ, Ministry of the Environment, Federal Environment Agency (Umweltbundesamt, UBA), Dessau-Roßlau, Germany. The decrease in pollution emissions shown in figure 5.20 is due to a combination of technological change allowing a decrease in gasoline used per kilometer and changes in engine and exhaust treatment that reduce tailpipe pollutants.


pages: 383 words: 98,179

Last Trains: Dr Beeching and the Death of Rural England by Charles Loft

Beeching cuts, computer age, Downton Abbey, full employment, intermodal, Kickstarter, price mechanism, railway mania, urban planning

Buchanan’s report would come out as part of the operation.183 This was Marples speaking, not his officials, and he hoped to be placed in charge of the project, but nothing came of it as Macmillan’s modernisation project focused on short-term goals. Buchanan’s appointment and report helped fuel a conflict in transport policy advice between physical planners and economists which was to fester over the following decade. In hindsight, this diverted attention from the need to develop an effective pricing mechanism for road use by raising the false prospect that the car could be physically accommodated. It might appear that this was the real legacy of Marples’s predilection for road building, but the Treasury’s interest in road pricing had not even begun to address the practical and political difficulties of such a measure in 1959 and the idea received no more encouragement from Barbara Castle than it had from Marples.

Higher rail passenger numbers, increasing congestion, concern over the environmental consequences of the car and the realisation that we cannot simply build our way out of congestion have heightened the impact of those closures which probably should never have been made and increased the number which look wrong in hindsight. Nevertheless, rail policy in the late 1950s and early 1960s represented a significant advance on 1951–6, because genuine attempts to understand and tackle the problem were made. The most obvious omission in the development of transport policy during this period was the absence of an effective pricing mechanism for road use. One problem with the car is that its costs are not sufficiently related to its use and in particular to the kind of use one makes of it; but if this was a flaw in the Treasury’s response to the transport revolution, it was one determined by political realities. In an ideal railway world the taxpayer would pay the rail operator a fee for the benefit provided by every rail service (not just those that lose money) to those who do not pay directly in fares and freight charges.


pages: 350 words: 103,270

The Devil's Derivatives: The Untold Story of the Slick Traders and Hapless Regulators Who Almost Blew Up Wall Street . . . And Are Ready to Do It Again by Nicholas Dunbar

asset-backed security, bank run, banking crisis, Basel III, Black Swan, Black-Scholes formula, bonus culture, break the buck, buy and hold, capital asset pricing model, Carmen Reinhart, Cass Sunstein, collateralized debt obligation, commoditize, Credit Default Swap, credit default swaps / collateralized debt obligations, delayed gratification, diversification, Edmond Halley, facts on the ground, financial innovation, fixed income, George Akerlof, implied volatility, index fund, interest rate derivative, interest rate swap, Isaac Newton, John Meriwether, Kenneth Rogoff, Kickstarter, Long Term Capital Management, margin call, market bubble, money market fund, Myron Scholes, Nick Leeson, Northern Rock, offshore financial centre, Paul Samuelson, price mechanism, regulatory arbitrage, rent-seeking, Richard Thaler, risk tolerance, risk/return, Ronald Reagan, shareholder value, short selling, statistical model, The Chicago School, Thomas Bayes, time value of money, too big to fail, transaction costs, value at risk, Vanguard fund, yield curve, zero-sum game

The banks that created and traded OTC derivatives did not want to take only one side of the market, such as only buying yen or only lending money at a five-year interest rate. The derivative-dealing banks set themselves up as secretive mini-exchanges. They would seek out customers with opposing views and line them up without the other’s knowledge. The bank sitting between them would not be exposed to the market’s going up or down and could simply skim off a percentage from both sides, dominating the all-important pricing mechanism that was the derivatives market’s big selling point. There was so much to be skimmed in this way, and so many ways to do it. But perhaps the most lucrative way of all was to invent new derivatives. In Singapore on the night after the conference, I joined a group of conference delegates on a tour of some of the city’s famed nightspots. With me were a pair of English expat bankers who worked on the emerging market bond trading desk of a Japanese bank.

The Snake Is Eating Its Tail In light of the global meltdown set off by AIG’s plunge, an obvious question repeatedly asked is, Why couldn’t Wall Street and the European banks forgo the additional collateral that a downgraded AIG was obliged to pay them? The answer is that they could have done that, but at the price of triggering an AIG default. Goldman, sitting at the heart of the super-senior swap deals and CDO pricing mechanism, like a spider at the center of its web, had hedged against that outcome, using default swaps written on AIG itself. On planet Derivative, Goldman had its bases covered. There was only one scenario that scared Goldman—if AIG was prevented from defaulting by the government and was also prevented from making default swap collateral payments. According to a senior official at the firm, “Through the aggregate of our collateral and our CDS, we were fully protected against the default.


pages: 484 words: 104,873

Rise of the Robots: Technology and the Threat of a Jobless Future by Martin Ford

"Robert Solow", 3D printing, additive manufacturing, Affordable Care Act / Obamacare, AI winter, algorithmic trading, Amazon Mechanical Turk, artificial general intelligence, assortative mating, autonomous vehicles, banking crisis, basic income, Baxter: Rethink Robotics, Bernie Madoff, Bill Joy: nanobots, business cycle, call centre, Capital in the Twenty-First Century by Thomas Piketty, Chris Urmson, Clayton Christensen, clean water, cloud computing, collateralized debt obligation, commoditize, computer age, creative destruction, debt deflation, deskilling, disruptive innovation, diversified portfolio, Erik Brynjolfsson, factory automation, financial innovation, Flash crash, Fractional reserve banking, Freestyle chess, full employment, Goldman Sachs: Vampire Squid, Gunnar Myrdal, High speed trading, income inequality, indoor plumbing, industrial robot, informal economy, iterative process, Jaron Lanier, job automation, John Markoff, John Maynard Keynes: technological unemployment, John von Neumann, Kenneth Arrow, Khan Academy, knowledge worker, labor-force participation, liquidity trap, low skilled workers, low-wage service sector, Lyft, manufacturing employment, Marc Andreessen, McJob, moral hazard, Narrative Science, Network effects, new economy, Nicholas Carr, Norbert Wiener, obamacare, optical character recognition, passive income, Paul Samuelson, performance metric, Peter Thiel, plutocrats, Plutocrats, post scarcity, precision agriculture, price mechanism, Ray Kurzweil, rent control, rent-seeking, reshoring, RFID, Richard Feynman, Rodney Brooks, Sam Peltzman, secular stagnation, self-driving car, Silicon Valley, Silicon Valley startup, single-payer health, software is eating the world, sovereign wealth fund, speech recognition, Spread Networks laid a new fibre optics cable between New York and Chicago, stealth mode startup, stem cell, Stephen Hawking, Steve Jobs, Steven Levy, Steven Pinker, strong AI, Stuxnet, technological singularity, telepresence, telepresence robot, The Bell Curve by Richard Herrnstein and Charles Murray, The Coming Technological Singularity, The Future of Employment, Thomas L Friedman, too big to fail, Tyler Cowen: Great Stagnation, uber lyft, union organizing, Vernor Vinge, very high income, Watson beat the top human players on Jeopardy!, women in the workforce

.* Most intelligent people understand this (and are very likely to bring up Steve Jobs and the iPhone when discussing it). The problem is that health care is a broken market and no amount of technology is likely to bring down costs unless the structural problems in the industry are resolved. There is also, I think, a great deal of confusion about the nature of the health care market and exactly where an effective market pricing mechanism should come into play. Many people would like to believe that health care is a normal consumer market: if only we could get insurance companies, and especially the government, out of the way and instead push decisions and costs onto the consumer (or patient), then we’d get innovations and outcomes similar to what we’ve seen in other industries (Steve Jobs might be mentioned again here). The reality, however, is that health care is simply not comparable to other markets for consumer products and services, and this has been well understood for over half a century.

The prices for the tests and scans bear little relation to the actual costs of these services—after all, they’re listed in the chargemaster—and they are highly profitable. Every time our doctor presses her touch screen, she essentially mints money. While this example is, at the moment, imaginary, there is an abundance of evidence demonstrating that new health care technologies very often lead to more spending rather than improved productivity. The primary reason is that there is no effective market pricing mechanism to drive increased efficiency. In the absence of market pressure, providers often invest in technologies designed to increase revenue rather than efficiency, or where they do achieve increased productivity they simply retain the profits rather than lowering prices. The poster child for technology investment as a driver of health care inflation may well be the “proton beam” facilities that are being built to treat prostate cancer.


pages: 273 words: 34,920

Free Market Missionaries: The Corporate Manipulation of Community Values by Sharon Beder

anti-communist, battle of ideas, business climate, corporate governance, en.wikipedia.org, full employment, income inequality, invisible hand, liquidationism / Banker’s doctrine / the Treasury view, minimum wage unemployment, Mont Pelerin Society, new economy, old-boy network, popular capitalism, Powell Memorandum, price mechanism, profit motive, Ralph Nader, rent control, risk/return, road to serfdom, Ronald Reagan, school vouchers, shareholder value, spread of share-ownership, structural adjustment programs, The Chicago School, the market place, The Wealth of Nations by Adam Smith, Thomas L Friedman, Torches of Freedom, trade liberalization, traveling salesman, trickle-down economics, Upton Sinclair, Washington Consensus, wealth creators, young professional

But the study of his own advantage naturally, or rather necessarily, leads him to prefer that employment which is most advantageous to the society.26 The free market gospel claims that the Market is able to perfectly match production to consumer demand without the need for centralized planning, while keeping prices close to the cost of the most efficient production, and while encouraging innovation to extend the choice for buyers. It achieves this through competition. Free market missionaries declare that the Market is democratic because it is driven by individual choices; it is efficient because of competition between sellers; and it is non-discriminatory because the price mechanism is impartial when it comes to colour, gender and race. Choice, competition and efficiency ensure everyone is better off because the economy produces all the goods that people want at the lowest possible price and available resources are supposedly fully and efficiently utilized.27 The ultimate test of general welfare within this view is of course wealth, where wealth refers to the bountiful ‘production and sale of marketed goods and services’.

Greg Lindsay is, in fact, a vice president of the Mont Pèlerin Society; in the 1980s CIS organized the Pacific Regional Meeting of the Mont Pèlerin Society. CIS is committed to ‘an economy based on free and competitive markets’ and ‘individual liberty and choice’, including ‘the right to property’. It claims government decision-making should be turned over to the market and that the market and its automatic pricing mechanism should be used to allocate resources. It has strong links with the Washington-based Cato Institute (see Chapter 8).18 CIS deals with ‘practical public policy issues’ as well as ‘more intellectual issues focusing on the way societies work and the importance of liberty in securing prosperity both economically and socially’. It publishes the work of various conservatives, including media baron Rupert Murdoch; economists such as Hayek and Friedman; conservative US law professor and ‘takings’ expert, Richard Epstein; Nick Greiner, a former premier of New South Wales; and various think tank scholars from the US and the UK.


pages: 121 words: 36,908

Four Futures: Life After Capitalism by Peter Frase

Airbnb, basic income, bitcoin, business cycle, call centre, Capital in the Twenty-First Century by Thomas Piketty, carbon footprint, cryptocurrency, deindustrialization, Edward Snowden, Erik Brynjolfsson, Ferguson, Missouri, fixed income, full employment, future of work, high net worth, income inequality, industrial robot, informal economy, Intergovernmental Panel on Climate Change (IPCC), iterative process, job automation, John Maynard Keynes: Economic Possibilities for our Grandchildren, litecoin, mass incarceration, means of production, Occupy movement, pattern recognition, peak oil, plutocrats, Plutocrats, post-work, postindustrial economy, price mechanism, private military company, Ray Kurzweil, Robert Gordon, Second Machine Age, self-driving car, sharing economy, Silicon Valley, smart meter, TaskRabbit, technoutopianism, The Future of Employment, Thomas Malthus, Tyler Cowen: Great Stagnation, universal basic income, Wall-E, Watson beat the top human players on Jeopardy!, We are the 99%, Wolfgang Streeck

We see this starkly in the case of Uber, which has provoked strikes and protests from its drivers over its tendency to arbitrarily change their fares and working conditions. But if we posit a world in which everyone is allocated the same basic income and nobody has control over vast pools of wealth, this objection disappears. Think of the basic income as the ration card that gives you access to your share of all that is scarce in the world. Rather than allocate specific amounts of each scarce resource, the pricing mechanism of the market is used to protect against overuse. To illustrate what this means, consider a mundane example: parking. In American cities, street parking has traditionally been free in most areas or available at a small fixed price. This is a dramatic underpricing, in the sense that it leads people to overconsume the limited resource of parking spaces, leading to a shortage of free spaces and many cars cruising around looking for spaces.


pages: 265 words: 15,515

Nomad Citizenship: Free-Market Communism and the Slow-Motion General Strike by Eugene W. Holland

business cycle, capital controls, cognitive dissonance, Colonization of Mars, complexity theory, continuation of politics by other means, deskilling, Firefox, Frederick Winslow Taylor, full employment, informal economy, invisible hand, Jane Jacobs, means of production, microcredit, money: store of value / unit of account / medium of exchange, Naomi Klein, New Urbanism, peak oil, price mechanism, Richard Stallman, Ronald Coase, slashdot, The Death and Life of Great American Cities, The Wisdom of Crowds, transaction costs, Upton Sinclair, urban renewal, wage slave, working poor

A now-classic analysis of capitalist production spearheaded by Ronald Coase in the 1930s and developed subsequently by Oliver Williamson and others examined the relative transaction costs to a business firm of buying goods and services on the open market compared to hiring people to produce those same goods and services within the firm.95 Where transaction costs of buying on the open market are high, production is integrated into the firm and triggered by managerial command; where they are low, production is out­ sourced and triggered by market pricing mechanisms. Commons-based peer production breaks completely free of this paradigm: participating programmers are not paid for their contributions, nor are they told what to do by some supervising manager. Instead, they engage and contribute on their own free initiative. It is worth being clear in this regard about the role of Linus Torvald in the peer-production process, for he is nothing like an orchestra conductor: programmers are not obeying his commands to write or patch a certain piece of software; this is taken care of immanently and voluntarily through the mediation of Web sites like SourceForge and Savannah.

There may be a family resem­ blance (in the strong, W ittgensteinian sense) between von H ayek’s rejection of so­ cialist planning and fellow-Viennese W ittgenstein’s rejection of logical positivism; von Hayek says, “I fear th a t our theoretical habits of approaching the problem w ith the assum ption of more or less perfect knowledge on the p art of almost ev­ eryone has made us som ewhat blind to the true function of the price mechanism and led us to apply rather misleading standards in judging its efficiency” (527). 40. Ibid., 521. 41. Ibid. 42. Ibid., 526. 43. Ibid., 524. 44. T he end of Asimov’s I, Robot poses exactly this question, b u t the issue also arises in Plato’s Republic and Z am y atin ’s We. 45. Von Hayek, “Use of Knowledge in Society,” 5 2 5 -2 7 . 46. In addition to the volum inous literature on th e fair trade movement, see H ow ard, “ C entral Coast C onsum ers W ant M ore Food-R elated In fo rm atio n ” ; H ow ard and Allen, “Consumer Willingness to Pay for Domestic ‘Fair Trade’” and “Beyond Organic and Fair Trade?”


pages: 316 words: 117,228

The Code of Capital: How the Law Creates Wealth and Inequality by Katharina Pistor

"Robert Solow", Andrei Shleifer, Asian financial crisis, asset-backed security, barriers to entry, Bernie Madoff, bilateral investment treaty, bitcoin, blockchain, Bretton Woods, business cycle, business process, Capital in the Twenty-First Century by Thomas Piketty, Carmen Reinhart, central bank independence, collateralized debt obligation, colonial rule, conceptual framework, Corn Laws, corporate governance, creative destruction, Credit Default Swap, credit default swaps / collateralized debt obligations, cryptocurrency, Donald Trump, double helix, Edward Glaeser, Ethereum, ethereum blockchain, facts on the ground, financial innovation, financial intermediation, fixed income, Francis Fukuyama: the end of history, full employment, global reserve currency, Hernando de Soto, income inequality, intangible asset, investor state dispute settlement, invisible hand, joint-stock company, joint-stock limited liability company, Joseph Schumpeter, Kenneth Rogoff, land reform, land tenure, London Interbank Offered Rate, Long Term Capital Management, means of production, money market fund, moral hazard, offshore financial centre, phenotype, Ponzi scheme, price mechanism, price stability, profit maximization, railway mania, regulatory arbitrage, reserve currency, Ronald Coase, Satoshi Nakamoto, secular stagnation, self-driving car, shareholder value, Silicon Valley, smart contracts, software patent, sovereign wealth fund, The Nature of the Firm, The Wealth of Nations by Adam Smith, Thorstein Veblen, time value of money, too big to fail, trade route, transaction costs, Wolfgang Streeck

But it may still be worth pondering what a truly different solution might look like. Currently, there are two radically different options on the table. One option is to do away with the legal privileges of capital and turn our economic and political system into “radical markets.”45 According to Posner and Weyl, radical markets are meant to dismantle the last vestiges of politics by subordinating all decisions and, one might add, all values, to the price mechanism. The two authors claim that the efficient allocation of resources based on a fully competitive market is the path to a “just society.”46 It follows that property rights shall be replaced with contingent use rights. Rather than hoarding wealth over time and protecting it against competing challenges, in this new world, the law protects only temporal use rights. These use rights can be challenged by anybody who offers a price over and above the value we have assigned to these assets.

In this new order, rights are purposefully forged to achieve change and lose at least some of their power once a given purpose has been achieved to make way for new rights and new purposes. Which of these alternatives one prefers will depend largely on one’s view of humans as either self-interested, profit-maximizing individuals, or as social beings capable of self-reflection and collective self-governance. It also depends on one’s idea of freedom—economic freedom devoted to a sole cause, that of efficient resource allocation with the help of the pricing mechanism, or only as a means to an end, the end being individual freedom within a just society.49 These big philosophical debates cannot be resolved here. But contrasting these two models helps illuminate two core messages of this book. First, law is central for the organization of modern society, including for the organization of markets and the assets that are created for and traded on them. Law creates the conditions for realizing our individual and social aspirations either as preference aggregating machines in a system in which efficiency is idolized, or as autonomous individuals in a deliberative polity, where reason, not just money, rules.


pages: 497 words: 143,175

Pivotal Decade: How the United States Traded Factories for Finance in the Seventies by Judith Stein

"Robert Solow", 1960s counterculture, activist lawyer, affirmative action, airline deregulation, anti-communist, Ayatollah Khomeini, barriers to entry, Berlin Wall, blue-collar work, Bretton Woods, business cycle, capital controls, centre right, collective bargaining, Credit Default Swap, crony capitalism, David Ricardo: comparative advantage, deindustrialization, desegregation, energy security, Fall of the Berlin Wall, falling living standards, feminist movement, financial deregulation, floating exchange rates, full employment, Gunnar Myrdal, income inequality, income per capita, intermodal, invisible hand, knowledge worker, laissez-faire capitalism, liberal capitalism, Long Term Capital Management, manufacturing employment, market bubble, Martin Wolf, new economy, oil shale / tar sands, oil shock, open economy, Paul Samuelson, payday loans, post-industrial society, post-oil, price mechanism, price stability, Ralph Nader, RAND corporation, reserve currency, Robert Gordon, Ronald Reagan, Simon Kuznets, strikebreaker, trade liberalization, union organizing, urban planning, urban renewal, War on Poverty, Washington Consensus, working poor, Yom Kippur War

More than twenty thousand steel jobs were gone. As it did in the past, the United States produced a trade remedy. Undersecretary of the Treasury Anthony Solomon set up minimum prices for imports. The price was based on the costs of the most efficient foreign producer, Japan. Actually, the Japanese were prepared for quotas and were amazed that Carter demanded only minimum prices. Under the trigger price mechanism (TPM), prices lower than the minimum price would activate a fast track investigation to determine whether dumping occurred. But the price allowed the Europeans and many developing countries to dump with impunity because they could sell at the Japanese price, which was below their own cost of production.108 Initially, Solomon believed that the TPM would be enough to return the industry to profitability, so it could modernize and invest in pollution control.109 But by 1979 Solomon wondered, “Should we fight ’em or join ’em?”

Stevenson, Adlai Stone, Richard Strauss, Robert student activism Students for a Democratic Society (SDS) Summers, Lawrence supply-side economics Swann, Thelma Sweezy, Paul Taft, Robert Taft-Hartley Act Tarbell, Ida tariffs: European Teeter, Robert Teeters, Nancy telecommunications Texas Instruments textile industry, U.S. Textile Workers Union of America Theobald, Robert Thieu, Nguyen Van Third World exporters, politics of Tho, Le Duc Thompson, Dudley Thompson, Frank Thurmond, Strom Thurow, Lester Tobin, James Tokyo Round Townsend, Lynn Townsend, William Toyota trade, U.S., deficits Trade Act Trade Agreements Act Trade Expansion Act Trezise, Philip trigger price mechanism (TPM) Trilateral Commission Tsongas, Paul Tugwell, Rexford Ture, Norman B. Turner, Tom Udall, Morris K. Udall, Stuart Ullman, Al unemployment, U.S. among African Americans and business interests and the Federal Reserve and foreign trade government interventions to reduce and inflation linked to economic growth as political issue rates of United Automobile Workers (UAW) United Kingdom United Nations United Steelworkers of America Uruguay Round U.S.


Adam Smith: Father of Economics by Jesse Norman

"Robert Solow", active measures, Andrei Shleifer, balance sheet recession, bank run, banking crisis, Basel III, Berlin Wall, Black Swan, Branko Milanovic, Bretton Woods, British Empire, Broken windows theory, business cycle, business process, Capital in the Twenty-First Century by Thomas Piketty, Carmen Reinhart, centre right, cognitive dissonance, collateralized debt obligation, colonial exploitation, Corn Laws, Credit Default Swap, credit default swaps / collateralized debt obligations, crony capitalism, David Brooks, David Ricardo: comparative advantage, deindustrialization, Eugene Fama: efficient market hypothesis, experimental economics, Fall of the Berlin Wall, Fellow of the Royal Society, financial intermediation, frictionless, frictionless market, future of work, George Akerlof, Hyman Minsky, income inequality, incomplete markets, information asymmetry, intangible asset, invention of the telescope, invisible hand, Isaac Newton, Jean Tirole, John Nash: game theory, joint-stock company, Joseph Schumpeter, Kenneth Arrow, Kenneth Rogoff, lateral thinking, loss aversion, market bubble, market fundamentalism, Martin Wolf, means of production, money market fund, Mont Pelerin Society, moral hazard, moral panic, Naomi Klein, negative equity, Network effects, new economy, non-tariff barriers, Northern Rock, Pareto efficiency, Paul Samuelson, Peter Thiel, Philip Mirowski, price mechanism, principal–agent problem, profit maximization, purchasing power parity, random walk, rent-seeking, Richard Thaler, Robert Shiller, Robert Shiller, Ronald Coase, scientific worldview, seigniorage, Socratic dialogue, South Sea Bubble, special economic zone, speech recognition, Steven Pinker, The Chicago School, The Myth of the Rational Market, The Nature of the Firm, The Rise and Fall of American Growth, The Wealth of Nations by Adam Smith, The Wisdom of Crowds, theory of mind, Thomas Malthus, Thorstein Veblen, time value of money, transaction costs, transfer pricing, Veblen good, Vilfredo Pareto, Washington Consensus, working poor, zero-sum game

The buyers generally have a fixed or natural end-use for the goods—the trips get made, the meals get eaten, the holidays get taken—and so they do not generally switch roles to become sellers depending on price. The selling mechanism is generally a single sale price as in supermarkets, not the bid–offer spreads seen on foreign exchange kiosks at airports, or one of a large range of other possible price mechanisms. On the whole, these markets work in the way canonically attributed to Smith on the model of the so-called ‘invisible hand’, with supply and demand tending towards competitive equilibrium, and they work extremely well. Another way of thinking of these markets is that they exhibit what has become known as the ‘wisdom of crowds’, and they do so because they satisfy four conditions: those involved are diverse in their access to information and in their opinions; they are independent, each person exercising his or her own view and not deferring to others; they are decentralized, so that they can specialize or draw on local knowledge; and there is a means—a market mechanism—to aggregate or gather their private judgements or choices together into a collective decision.

THE ECONOMIC CONSEQUENCES OF FORGETTING SMITH This brief and inevitably schematic account of a highly complex set of events illustrates all of our key themes. First of all, it underlines the deep difference between markets for products, many of which can readily be understood in terms of a tendency to equilibrium and the so-called invisible hand, and asset markets, which have a different price mechanism, a different internal logic and an embedded tendency to boom and bust. The 2008 recession vividly highlighted the contrast between the different kinds of markets: US consumption of non-durable goods and services had a maximum decline of 1.7 per cent; but that of housing fell by nearly 60 per cent. This is an astonishing difference. Secondly, it allows us to return to the question with which we started: the adequacy or otherwise of the Efficient Market Hypothesis.


pages: 470 words: 130,269

The Marginal Revolutionaries: How Austrian Economists Fought the War of Ideas by Janek Wasserman

Albert Einstein, American Legislative Exchange Council, anti-communist, battle of ideas, Berlin Wall, Bretton Woods, business cycle, collective bargaining, Corn Laws, correlation does not imply causation, creative destruction, David Ricardo: comparative advantage, different worldview, Donald Trump, experimental economics, Fall of the Berlin Wall, floating exchange rates, Fractional reserve banking, Francis Fukuyama: the end of history, full employment, Gunnar Myrdal, housing crisis, Internet Archive, invisible hand, John von Neumann, Joseph Schumpeter, laissez-faire capitalism, liberal capitalism, market fundamentalism, mass immigration, means of production, Menlo Park, Mont Pelerin Society, New Journalism, New Urbanism, old-boy network, Paul Samuelson, Philip Mirowski, price mechanism, price stability, RAND corporation, random walk, rent control, road to serfdom, Robert Bork, rolodex, Ronald Coase, Ronald Reagan, Silicon Valley, Simon Kuznets, The Chicago School, The Wealth of Nations by Adam Smith, Thomas Kuhn: the structure of scientific revolutions, Thomas Malthus, trade liberalization, union organizing, urban planning, Vilfredo Pareto, Washington Consensus, zero-sum game, éminence grise

If the Keynesians and Chicagoans challenged the Austrians to reconsider some of their methodological and policy assumptions, socialism posed an existential threat to their entire worldview. In the shadow of the Great Depression, Austrians faced a resurgent Marxism, which confronted the Austrians on their former battlefield: the issue of socialist calculation. When we left the socialist calculation debate in the 1920s, Mises’s argument about the unfeasibility of a functioning price mechanism in a state-directed economy carried the day. The worldwide depression prompted a reevaluation. As Western economies stagnated and shrank, the Soviet Union, in the midst of its first Five-Year Plan, appeared to be flourishing. In the United Kingdom, France, and Spain, communist, socialist, and social democratic parties gained in popularity at the expense of liberal parties. Elsewhere in central and eastern Europe, the middle of the political spectrum, including most liberal parties, hollowed out, as the authoritarian and fascist Right and socialist Left grew.

Setting aside that this interpretation of Capitalism, Socialism, and Democracy missed Schumpeter’s ironical attitude toward “successful” socialism and “failing” capitalism, Heilbroner built his Schumpeterian argument on Mises’s and Hayek’s work on socialist calculation. They had pinpointed the fundamental problems that planned economies had not (and could not) overcome. These were not just economic issues with price mechanisms or coordination problems with information either; they were also cultural ones. Channeling his inner Austrian, he wrote, “capitalism is a social order built upon a deeply embedded and widely believed principle expressed in the actions and beliefs of its most important representatives.” Or, as he put it succinctly elsewhere, “It turns out, of course, that Mises was right.”4 Heilbroner’s searching essays provoked many people on the left and cheered people on the right.


pages: 495 words: 138,188

The Great Transformation: The Political and Economic Origins of Our Time by Karl Polanyi

agricultural Revolution, Berlin Wall, borderless world, business cycle, central bank independence, Corn Laws, currency manipulation / currency intervention, David Ricardo: comparative advantage, Fall of the Berlin Wall, full employment, inflation targeting, joint-stock company, Kula ring, land reform, land tenure, liberal capitalism, manufacturing employment, new economy, Panopticon Jeremy Bentham, price mechanism, profit motive, Republic of Letters, road to serfdom, Ronald Reagan, the market place, The Wealth of Nations by Adam Smith, trade liberalization, trade route, trickle-down economics, Washington Consensus, Wolfgang Streeck, working poor, Works Progress Administration

POLANYI’S CONCEPT OF EMBEDDEDNESS The logical starting point for explaining Polanyi’s thinking is his concept of embeddedness. Perhaps his most famous contribution to social thought, this concept has also been a source of enormous confusion. Polanyi starts by emphasizing that the entire tradition of modern economic thought, continuing up to the present moment, rests on the concept of the economy as an interlocking system of markets that automatically adjusts supply and demand through the price mechanism. Even when economists acknowledge that the market system sometimes need help from government to overcome market failure, they still rely on this concept of the economy as an equilibrating system of integrated markets. Polanyi’s intent is to show how sharply this concept differs from the reality of human societies throughout recorded human history. Before the nineteenth century, he insists, the human economy was always embedded in society.

., For the Common Good: Redirecting the Economy toward Community, the Environment, and a Sustainable Future (Boston: Beacon Press, 1989). 13. Implicit in Polanyi’s argument is a more specific critique of the market as a self-regulating mechanism. In the case of manufactured commodities, a falling price for an abundant commodity restores equilibrium by both encouraging increased consumption and by discouraging new production. In the case of fictitious commodities, the effectiveness of the price mechanism is reduced because automatic increases or decreases in supply cannot be assumed. 14. For many other commodities as well, government involvement is a precondition for market competition. See the aptly titled book by Steven Vogel, Freer Markets, More Rules: Regulatory Reform in Advanced Industrial Countries (Ithaca, N.Y.: Cornell University Press, 1996). 15. Monetarists have tried repeatedly without success to establish a fixed rule for managing the growth of the money supply that would eliminate the discretion of central bankers.


pages: 172 words: 49,890

The Dhandho Investor: The Low-Risk Value Method to High Returns by Mohnish Pabrai

asset allocation, backtesting, beat the dealer, Black-Scholes formula, business intelligence, call centre, cuban missile crisis, discounted cash flows, Edward Thorp, Exxon Valdez, fixed income, hiring and firing, index fund, inventory management, Mahatma Gandhi, merger arbitrage, passive investing, price mechanism, Silicon Valley, time value of money, transaction costs, zero-sum game

All the shareholders letters are archived on Berkshire Hathaway’s web site and they are a treasure trove of wisdom. About EMTs, Buffett commented: Observing correctly that the market was frequently efficient, [academics and Wall Street pros] went on to conclude incorrectly that it was always efficient. The difference between these propositions is night and day.6 —Warren Buffett Markets aren’t fully efficient because humans control its auction-driven pricing mechanism. Humans are subject to vacillating between extreme fear and extreme greed. When humans, as a group, are extremely fearful, the pricing of the underlying assets are likely to fall below intrinsic value; extreme greed is likely to lead to exuberant pricing. If a business owner is extremely pessimistic and fearful about the future of his business and decides to sell it, it is likely to take him several months to get a sale consummated.


pages: 204 words: 53,261

The Tyranny of Metrics by Jerry Z. Muller

Affordable Care Act / Obamacare, Atul Gawande, Cass Sunstein, Checklist Manifesto, Chelsea Manning, collapse of Lehman Brothers, corporate governance, Credit Default Swap, crowdsourcing, delayed gratification, deskilling, Edward Snowden, Erik Brynjolfsson, Frederick Winslow Taylor, George Akerlof, Hyman Minsky, intangible asset, Jean Tirole, job satisfaction, joint-stock company, joint-stock limited liability company, Moneyball by Michael Lewis explains big data, performance metric, price mechanism, RAND corporation, school choice, Second Machine Age, selection bias, Steven Levy, total factor productivity, transaction costs, WikiLeaks

That was the battle-cry of advocates of what became known as the “New Public Management.” The principals were in the first instance those who paid for agencies and nonprofit organizations: in the case of government, the taxpayers. The organizations’ students, patients, or clients were now to be regarded as their customers. One difficulty, for those who sought to make such organizations more like a business, was that there was no price mechanism by which to determine whether those who supplied the funds were getting good value for their money. In a competitive market, consumers can compare the price of goods and services with the quality of the products on offer, and can make informed decisions about what to buy. Prices convey a lot of information in a concise, transparent form. But how were the taxpayers to evaluate schools, universities, hospitals, government agencies, or charitable organizations?


End the Fed by Ron Paul

affirmative action, Bernie Madoff, Bernie Sanders, Bretton Woods, business cycle, crony capitalism, currency manipulation / currency intervention, fiat currency, Fractional reserve banking, hiring and firing, housing crisis, illegal immigration, invisible hand, Khyber Pass, Long Term Capital Management, market bubble, means of production, moral hazard, Ponzi scheme, price mechanism, reserve currency, road to serfdom, Robert Gordon, Ronald Reagan, too big to fail, tulip mania, Y2K

Business was brisk, and the event took place across the street from the police station. This was probably my first real-life experience in the free market solving problems generated by government mischief. Sadly, we haven’t learned a whole lot. Even today, as we’re struggling to get out of a gigantic economic crisis, the principle of government meddling in pricing goods and services persists. The worse the crisis gets, the more government interferes in the pricing mechanism. Today the black market in labor and goods is huge. Our disastrous tax code has contributed substantially to the need for the underground economy. This need will surely grow as the economy further deteriorates. In economic terms, all this activity is beneficial in the underground, despite politicians’ cries that the government is being cheated out of hundreds of billions of dollars in tax revenue.


pages: 586 words: 159,901

Wall Street: How It Works And for Whom by Doug Henwood

accounting loophole / creative accounting, activist fund / activist shareholder / activist investor, affirmative action, Andrei Shleifer, asset allocation, asset-backed security, bank run, banking crisis, barriers to entry, borderless world, Bretton Woods, British Empire, business cycle, capital asset pricing model, capital controls, central bank independence, computerized trading, corporate governance, corporate raider, correlation coefficient, correlation does not imply causation, credit crunch, currency manipulation / currency intervention, David Ricardo: comparative advantage, debt deflation, declining real wages, deindustrialization, dematerialisation, diversification, diversified portfolio, Donald Trump, equity premium, Eugene Fama: efficient market hypothesis, experimental subject, facts on the ground, financial deregulation, financial innovation, Financial Instability Hypothesis, floating exchange rates, full employment, George Akerlof, George Gilder, hiring and firing, Hyman Minsky, implied volatility, index arbitrage, index fund, information asymmetry, interest rate swap, Internet Archive, invisible hand, Irwin Jacobs, Isaac Newton, joint-stock company, Joseph Schumpeter, kremlinology, labor-force participation, late capitalism, law of one price, liberal capitalism, liquidationism / Banker’s doctrine / the Treasury view, London Interbank Offered Rate, Louis Bachelier, market bubble, Mexican peso crisis / tequila crisis, microcredit, minimum wage unemployment, money market fund, moral hazard, mortgage debt, mortgage tax deduction, Myron Scholes, oil shock, Paul Samuelson, payday loans, pension reform, plutocrats, Plutocrats, price mechanism, price stability, prisoner's dilemma, profit maximization, publication bias, Ralph Nader, random walk, reserve currency, Richard Thaler, risk tolerance, Robert Gordon, Robert Shiller, Robert Shiller, selection bias, shareholder value, short selling, Slavoj Žižek, South Sea Bubble, The inhabitant of London could order by telephone, sipping his morning tea in bed, the various products of the whole earth, The Market for Lemons, The Nature of the Firm, The Predators' Ball, The Wealth of Nations by Adam Smith, transaction costs, transcontinental railway, women in the workforce, yield curve, zero-coupon bond

Markowitz apparently overlooked Lewis' descriptions of how Salomon's traders bought mortgages from failing savings and loans, repackaged them into bonds, and sold them back to the thrifts at enormous profit to themselves and huge losses to the S&Ls — and eventually, U.S. taxpayers.^^ Deregulated and doomed, they were eager to play games on Wall Street. Here is Lewis' (1989a, p. 105) description of the miraculous Smithian pricing mechanism at work: Trader Tom DiNapoli fondly remembers a call from one thrift president. "He wanted to sell a hundred million dollars' worth of his thirty-year loans ...and buy a hundred million dollars of some other loans with the cash from the sale. I told him I'd bid [buy] his loans at seventy-five [cents on the dollar] and offer him the others at eighty-five." The thrift president scratched his head at the numbers.

In Coasian language, the transaction's costs would exceed its return. Further, contracts cannot be written to cover every eventuality; every spill can't be anticipated, so it pays to have a janitor on hand to deploy whenever an unexpected disaster presents itself. In such cases, the price system hardly enters the picture. Or, in Coase's concise definition, "the distinguishing mark of the firm is the supersession of the price mechanism." But under capitalism, the scope of conscious planning rarely extends beyond a firm's boundaries; the price system is the normal governor of relations among firms and between firms and final consumers. Conventional economics still treats the market as essentially self-regulating: the system, outside the firm, still works itself. But in reality there are substantial costs of time and money devoted to making the system work.


pages: 331 words: 60,536

The Sovereign Individual: How to Survive and Thrive During the Collapse of the Welfare State by James Dale Davidson, Rees Mogg

affirmative action, agricultural Revolution, bank run, barriers to entry, Berlin Wall, borderless world, British Empire, California gold rush, clean water, colonial rule, Columbine, compound rate of return, creative destruction, Danny Hillis, debt deflation, ending welfare as we know it, epigenetics, Fall of the Berlin Wall, falling living standards, feminist movement, financial independence, Francis Fukuyama: the end of history, full employment, George Gilder, Hernando de Soto, illegal immigration, income inequality, informal economy, information retrieval, Isaac Newton, Kevin Kelly, market clearing, Martin Wolf, Menlo Park, money: store of value / unit of account / medium of exchange, new economy, New Urbanism, Norman Macrae, offshore financial centre, Parkinson's law, pattern recognition, phenotype, price mechanism, profit maximization, rent-seeking, reserve currency, road to serfdom, Ronald Coase, Sam Peltzman, school vouchers, seigniorage, Silicon Valley, spice trade, statistical model, telepresence, The Nature of the Firm, the scientific method, The Wealth of Nations by Adam Smith, Thomas L Friedman, Thomas Malthus, trade route, transaction costs, Turing machine, union organizing, very high income, Vilfredo Pareto

Kroszncr, by "the completeness of market forces and the ability of market forces to penetrate intrafirm relationships."26 As we argued earlier, it is doubtful that firms will be able to survive the increasing penetration of market forces into what have heretofore been "intrafirm relationships." As a result, firms will tend to dissolve as information technology makes it more rewarding to rely upon the price mechanism and the auction market to undertake tasks that need doing rather than having them internalized within a formal organization. As information technology increasingly automates the production process, it will take away part of the raison d 'etre of the firm, the need to employ and motivate managers to monitor individual workers. "Why Are There Firms?" Remember, the question "Why are there firms?" is not as trivial as it may seem on casual observation. Microeconomics generally assumes that the price mechanism is the most effective means of coordinating resources for their most valued uses. As Putterman and Kroszner observe, this tends to imply that organizations like firms have no inherent "economic raison d'etre."27 In this sense, firms are mainly artifacts of information and transaction costs, which information technologies tend to reduce drastically.


pages: 215 words: 59,188

Seriously Curious: The Facts and Figures That Turn Our World Upside Down by Tom Standage

agricultural Revolution, augmented reality, autonomous vehicles, blood diamonds, corporate governance, Deng Xiaoping, Donald Trump, Elon Musk, failed state, financial independence, gender pay gap, gig economy, Gini coefficient, high net worth, income inequality, index fund, industrial robot, Internet of things, invisible hand, job-hopping, Julian Assange, life extension, Lyft, M-Pesa, Mahatma Gandhi, manufacturing employment, mega-rich, megacity, Minecraft, mobile money, natural language processing, Nelson Mandela, plutocrats, Plutocrats, price mechanism, purchasing power parity, ransomware, reshoring, ride hailing / ride sharing, Ronald Coase, self-driving car, Silicon Valley, Snapchat, South China Sea, speech recognition, stem cell, supply-chain management, transaction costs, Uber and Lyft, uber lyft, undersea cable, US Airways Flight 1549, WikiLeaks

Many characteristic health problems of old age, such as difficulties with hearing or eyesight, are not fatal; but unless they are dealt with, and unless public spaces are adapted to the needs of the elderly, they can make life miserable. Pavements, street signs and pedestrian signals, for example, are often designed for the young and able-bodied. Richer countries have more money to spend on making them better suited to older age groups. That may not extend lifespans, but it can help people make the most of their remaining years. Why do companies exist? The idea of the price mechanism is central to the study of economics. Market prices convey information about what people want to buy and what others want to sell. Adam Smith used the metaphor of the “invisible hand” to describe how the economy is governed by price signals. In 1937 a paper published by Ronald Coase, a British economist, pointed out a flaw in this view: it did not explain what goes on within firms. When employees switch from one division to another, for instance, they do not do so in response to higher wages, but because they are ordered to.


pages: 190 words: 62,941

Wild Ride: Inside Uber's Quest for World Domination by Adam Lashinsky

"side hustle", Airbnb, always be closing, Amazon Web Services, autonomous vehicles, Ayatollah Khomeini, business process, Chuck Templeton: OpenTable:, cognitive dissonance, corporate governance, DARPA: Urban Challenge, Donald Trump, Elon Musk, gig economy, Golden Gate Park, Google X / Alphabet X, information retrieval, Jeff Bezos, Lyft, Marc Andreessen, Mark Zuckerberg, megacity, Menlo Park, new economy, pattern recognition, price mechanism, ride hailing / ride sharing, Sand Hill Road, self-driving car, Silicon Valley, Silicon Valley startup, Skype, Snapchat, South of Market, San Francisco, sovereign wealth fund, statistical model, Steve Jobs, TaskRabbit, Tony Hsieh, transportation-network company, Travis Kalanick, turn-by-turn navigation, Uber and Lyft, Uber for X, uber lyft, ubercab, young professional

Gurley concluded: “Uber has no intention of abandoning dynamic pricing precisely because it is in the consumer’s best interest, especially when one understands the true alternatives.” Surge pricing would remain controversial as well as a source of academic fascination for years. In 2015, a group of scholars commissioned by the U.S. Federal Trade Commission published a long analysis of Uber’s pricing mechanism, concluding that the company’s “black box” algorithm raised “important questions of fairness and transparency.” The acrimony over a topic that was simultaneously wonky and relatable to any passenger also helped introduce the public to a new global commercial character: Travis Kalanick, the “asshole.” Suddenly a public figure with his face on the cover of magazines and a highly sought-after speaker on the conference circuit, Kalanick began to be known not only as the scrappy entrepreneur of his self-image but also as a cutthroat businessman with a tin ear to consumer sentiment.


pages: 215 words: 61,435

Why Liberalism Failed by Patrick J. Deneen

David Brooks, Donald Trump, en.wikipedia.org, Francis Fukuyama: the end of history, income inequality, mortgage debt, Nicholas Carr, plutocrats, Plutocrats, price mechanism, Ronald Reagan, shared worldview, Steven Levy, the scientific method, Thomas L Friedman, Tyler Cowen: Great Stagnation, women in the workforce, zero-sum game

According to Polanyi, the replacement of this economy required a deliberate and often violent reshaping of local economies, most often by elite economic and state actors disrupting and displacing traditional communities and practices. The “individuation” of people required not only the separation of markets from social and religious contexts but people’s acceptance that their labor and its products were nothing more than commodities subject to price mechanisms, a transformative way of considering people and nature alike in newly utilitarian and individualistic terms. Yet market liberalism required treating both people and natural resources as these “fictitious commodities”—as material for use in industrial processes—in order to disassociate markets from morals and “re-train” people to think of themselves as individuals separate from nature and one another.


pages: 218 words: 63,471

How We Got Here: A Slightly Irreverent History of Technology and Markets by Andy Kessler

Albert Einstein, Andy Kessler, animal electricity, automated trading system, bank run, Big bang: deregulation of the City of London, Bob Noyce, Bretton Woods, British Empire, buttonwood tree, Claude Shannon: information theory, Corn Laws, Douglas Engelbart, Edward Lloyd's coffeehouse, fiat currency, fixed income, floating exchange rates, Fractional reserve banking, full employment, Grace Hopper, invention of the steam engine, invention of the telephone, invisible hand, Isaac Newton, Jacquard loom, James Hargreaves, James Watt: steam engine, John von Neumann, joint-stock company, joint-stock limited liability company, Joseph-Marie Jacquard, Kickstarter, Leonard Kleinrock, Marc Andreessen, Maui Hawaii, Menlo Park, Metcalfe's law, Metcalfe’s law, Mitch Kapor, packet switching, price mechanism, probability theory / Blaise Pascal / Pierre de Fermat, profit motive, railway mania, RAND corporation, Robert Metcalfe, Silicon Valley, Small Order Execution System, South Sea Bubble, spice trade, spinning jenny, Steve Jobs, supply-chain management, supply-chain management software, trade route, transatlantic slave trade, tulip mania, Turing machine, Turing test, undersea cable, William Shockley: the traitorous eight

So Trust with a capital T is key. It’s the same for stock markets. If everyone sells Intel on the same day, its price would go to zero, there are not enough buyers or capital to handle a run on the stock. But it doesn’t go to zero. At a low enough price, some investors see the value of Intel’s future earnings and start buying it. So stock markets are built on Trust with a capital T as well, but there is a price mechanism to hold off runs and panics. Not so with banks. *** More trade meant even more gold flowed into England, but unfortunately, there was no outlet for it. The Brits could have bought more foreign goods, which would have reduced their trade surplus and incoming gold, but there was not much to buy, and the echo of mercantilism of times past still encouraged exports and hording gold. England might have bought foreign fixed assets, maybe land or buildings, but they weren’t necessarily for sale.


pages: 224 words: 69,494

Mobility: A New Urban Design and Transport Planning Philosophy for a Sustainable Future by John Whitelegg

active transport: walking or cycling, Berlin Wall, British Empire, car-free, conceptual framework, congestion charging, corporate social responsibility, decarbonisation, energy transition, eurozone crisis, glass ceiling, Intergovernmental Panel on Climate Change (IPCC), megacity, meta analysis, meta-analysis, New Urbanism, peak oil, post-industrial society, price mechanism, Right to Buy, smart cities, telepresence, the built environment, The Death and Life of Great American Cities, The Spirit Level, transit-oriented development, urban planning, urban sprawl

Reduction of traffic volume (fewer vehicle kilometres). More energy conscious driving behaviour. Enhanced traffic circulation (by infrastructure changes and electronic methods).” The same conclusion was reached in a European Conference of Ministers of Transport study published in 1995 (OECD, 1995). This study listed 29 measures grouped under 4 headings: Land use management. Road traffic management. Environmental protection. Pricing mechanisms. As in the TNO (1992) study the authors argued: “All the policy instruments listed are potentially helpful but no single one of them has the power to achieve the objectives of sustainable development: to do this governments need to introduce packages of policies that are mutually reinforcing.” In 2004 the UK Department for Transport funded a study on how to reduce CO2 emissions in transport by 60% (Hickman and Banister, 2005).


pages: 232 words: 77,956

Private Island: Why Britain Now Belongs to Someone Else by James Meek

Affordable Care Act / Obamacare, Berlin Wall, business continuity plan, call centre, clean water, Deng Xiaoping, Etonian, HESCO bastion, housing crisis, illegal immigration, Martin Wolf, medical bankruptcy, Mikhail Gorbachev, post-industrial society, pre–internet, price mechanism, Right to Buy, risk tolerance, road to serfdom, Ronald Reagan, Rubik’s Cube, Skype, sovereign wealth fund, Washington Consensus, working poor

Battle was well aware of the unfairness of the French takeover, but was under the impression that Littlechild was happy to see it go ahead. The civil servants who might have told him otherwise don’t seem to have made a fuss about it; the DTI’s permanent secretary at the time, Michael Scholar, told me in an email that the EDF takeover ‘was not in the department a cause célèbre’. Battle now regrets not challenging Littlechild and the other regulators. ‘The regulator was completely fixed on price mechanism as the be all and end all, and opening up to new entrants. On paper it sounded fine. But in the real global economy, we couldn’t buy a French power station, and they could buy ours. We didn’t get a grip on the regulators. We left the framework to them. We should have changed the remit. We were too cautious and nervous about questioning the market. Why was it that we had to lose our nationalised industries in order to hand them over to nationalised industries from other countries?


pages: 267 words: 72,552

Reinventing Capitalism in the Age of Big Data by Viktor Mayer-Schönberger, Thomas Ramge

accounting loophole / creative accounting, Air France Flight 447, Airbnb, Alvin Roth, Atul Gawande, augmented reality, banking crisis, basic income, Bayesian statistics, bitcoin, blockchain, Capital in the Twenty-First Century by Thomas Piketty, carbon footprint, Cass Sunstein, centralized clearinghouse, Checklist Manifesto, cloud computing, cognitive bias, conceptual framework, creative destruction, Daniel Kahneman / Amos Tversky, disruptive innovation, Donald Trump, double entry bookkeeping, Elon Musk, en.wikipedia.org, Erik Brynjolfsson, Ford paid five dollars a day, Frederick Winslow Taylor, fundamental attribution error, George Akerlof, gig economy, Google Glasses, information asymmetry, interchangeable parts, invention of the telegraph, inventory management, invisible hand, James Watt: steam engine, Jeff Bezos, job automation, job satisfaction, joint-stock company, Joseph Schumpeter, Kickstarter, knowledge worker, labor-force participation, land reform, lone genius, low cost airline, low cost carrier, Marc Andreessen, market bubble, market design, market fundamentalism, means of production, meta analysis, meta-analysis, Moneyball by Michael Lewis explains big data, multi-sided market, natural language processing, Network effects, Norbert Wiener, offshore financial centre, Parag Khanna, payday loans, peer-to-peer lending, Peter Thiel, Ponzi scheme, prediction markets, price anchoring, price mechanism, purchasing power parity, random walk, recommendation engine, Richard Thaler, ride hailing / ride sharing, Sam Altman, Second Machine Age, self-driving car, Silicon Valley, Silicon Valley startup, six sigma, smart grid, smart meter, Snapchat, statistical model, Steve Jobs, technoutopianism, The Future of Employment, The Market for Lemons, The Nature of the Firm, transaction costs, universal basic income, William Langewiesche, Y Combinator

BlaBlaCar’s ride-sharing market isn’t alone in using rich data. From Internet travel site Kayak to online investment company SigFig, to digital labor platform Upwork, more and more markets that use data to help participants find better matches are gaining traction and attracting attention. In this book, we connect the dots between the difficulties faced by traditional online markets; the error of the stock market’s trusted pricing mechanism; and the rise of markets rich with data. We argue that a reboot of the market fueled by data will lead to a fundamental reconfiguration of our economy, one that will be arguably as momentous as the Industrial Revolution, reinventing capitalism as we know it. The market is a tremendously successful social innovation. It’s a mechanism to help us divvy up scarce resources efficiently. That’s a simple statement—with enormous impact.


pages: 193 words: 63,618

The Fair Trade Scandal: Marketing Poverty to Benefit the Rich by Ndongo Sylla

British Empire, carbon footprint, corporate social responsibility, David Ricardo: comparative advantage, deglobalization, Doha Development Round, Food sovereignty, global value chain, illegal immigration, income inequality, income per capita, invisible hand, Joseph Schumpeter, labour mobility, land reform, market fundamentalism, mass immigration, means of production, Mont Pelerin Society, Naomi Klein, non-tariff barriers, offshore financial centre, open economy, Philip Mirowski, plutocrats, Plutocrats, price mechanism, purchasing power parity, Ronald Reagan, Scientific racism, selection bias, structural adjustment programs, The Wealth of Nations by Adam Smith, trade liberalization, transaction costs, transatlantic slave trade, trickle-down economics, Washington Consensus, zero-sum game

It offers real-time tracking of the agricultural products it certifies. It does not guarantee a minimum price. Prices are negotiated between sellers and buyers. According to this foundation, however, buyers are always prepared to agree a price increase which would reflect the value added provided by the label. The price of certification is also determined through a negotiation process between sellers and buyers. UTZ Certified does not interfere with the pricing mechanism. It simply levies administrative costs. However, it is criticised for having relatively loose standards on the environment and the rights of workers. Founded in 1991 and based in Washington, the mission of the Smithsonian Migratory Bird Center is to study, popularise and protect migrating birds. It promotes a rather original label. In 1998, it introduced the Bird-friendly Coffee programme in order to promote practices that help protect the habitats of migratory birds.


Global Governance and Financial Crises by Meghnad Desai, Yahia Said

Asian financial crisis, bank run, banking crisis, Bretton Woods, business cycle, capital controls, central bank independence, corporate governance, creative destruction, credit crunch, crony capitalism, currency peg, deglobalization, financial deregulation, financial innovation, Financial Instability Hypothesis, financial intermediation, financial repression, floating exchange rates, frictionless, frictionless market, German hyperinflation, information asymmetry, knowledge economy, liberal capitalism, liberal world order, Long Term Capital Management, market bubble, Mexican peso crisis / tequila crisis, moral hazard, Nick Leeson, oil shock, open economy, price mechanism, price stability, Real Time Gross Settlement, rent-seeking, short selling, special drawing rights, structural adjustment programs, Tobin tax, transaction costs, Washington Consensus

Baker was convinced in 1985 that growth should resume via structural reforms and that the international institutions should back up structural adjustments in granting longer credits under conditions which became more intrusive. Macroeconomic stabilization was no longer held as the single device to recover an already ploughed growth track. Microeconomic conditions for growth had to be created in privatizing public sectors, in deregulating price mechanisms, in opening markets to foreign competition. On the financial side, liberalization had to be undertaken to reduce the amount of foreign debt via securitization (Brady Plan in 1989) and to attract new funds from non-bank private creditors. Without endorsing debt reduction schemes publicly, the IMF actively encouraged commercial banks that had provisioned their losses to sell their loans at a discount.


pages: 252 words: 73,131

The Inner Lives of Markets: How People Shape Them—And They Shape Us by Tim Sullivan

"Robert Solow", Airbnb, airport security, Al Roth, Alvin Roth, Andrei Shleifer, attribution theory, autonomous vehicles, barriers to entry, Brownian motion, business cycle, buy and hold, centralized clearinghouse, Chuck Templeton: OpenTable:, clean water, conceptual framework, constrained optimization, continuous double auction, creative destruction, deferred acceptance, Donald Trump, Edward Glaeser, experimental subject, first-price auction, framing effect, frictionless, fundamental attribution error, George Akerlof, Goldman Sachs: Vampire Squid, Gunnar Myrdal, helicopter parent, information asymmetry, Internet of things, invisible hand, Isaac Newton, iterative process, Jean Tirole, Jeff Bezos, Johann Wolfgang von Goethe, John Nash: game theory, John von Neumann, Joseph Schumpeter, Kenneth Arrow, late fees, linear programming, Lyft, market clearing, market design, market friction, medical residency, multi-sided market, mutually assured destruction, Nash equilibrium, Occupy movement, Pareto efficiency, Paul Samuelson, Peter Thiel, pets.com, pez dispenser, pre–internet, price mechanism, price stability, prisoner's dilemma, profit motive, proxy bid, RAND corporation, ride hailing / ride sharing, Robert Shiller, Robert Shiller, Ronald Coase, school choice, school vouchers, sealed-bid auction, second-price auction, second-price sealed-bid, sharing economy, Silicon Valley, spectrum auction, Steve Jobs, Tacoma Narrows Bridge, technoutopianism, telemarketer, The Market for Lemons, The Wisdom of Crowds, Thomas Malthus, Thorstein Veblen, trade route, transaction costs, two-sided market, uber lyft, uranium enrichment, Vickrey auction, Vilfredo Pareto, winner-take-all economy

In the past, economists might have ignored this kind of problem, since it fell well outside the scope of the discipline (although nearly all economists experienced the existential angst of some version of this dance, usually in the role of Albert). For much of the economics profession’s existence, when economists thought about allocating resources, they focused on two polar options: market prices or a bossy manager or bureaucrat. Problems like matching middle-school dancers didn’t lend itself to the price mechanism, which would have had dancers paying for one another’s attention (we’re sure you can immediately see the problems with a pay-to-date system). And a Soviet-style central planning committee (made up of who? the popular kids? the principal? concerned parents?) won’t go very far in solving the problem either. The middle-school dance needs a market design makeover, and not one that can be accomplished by market makers of the credit card or Uber variety.


Patriot Games by Tom Clancy

British Empire, invisible hand, orbital mechanics / astrodynamics, pattern recognition, place-making, price mechanism

"I must be slowing down." "Poor baby, having to drink all that champagne all by himself." She kissed him on the forehead. "Screwdriver." He handed it to her. Cathy took a quick look at the plans. "No wonder, you dummy. You're using a short screw when you're supposed to use a long one." "I keep forgetting that I'm married to a high-priced mechanic." "That's real Christmas spirit. Jack." She grinned as she turned the screw into place. "A very pretty, smart, and extremely lovable high-priced mechanic." He ran a finger down the back of her neck. "That's a little better." "Who's better with tools than I am, one-handed." Her head turned to reveal the sort of smile a wife saves only for the husband she loves. "Give me another screw. Jack, and I'll forgive you." "Don't you think you should finish the doll house first?"


pages: 298 words: 81,200

Where Good Ideas Come from: The Natural History of Innovation by Steven Johnson

Ada Lovelace, Albert Einstein, Alfred Russel Wallace, carbon-based life, Cass Sunstein, cleantech, complexity theory, conceptual framework, cosmic microwave background, creative destruction, crowdsourcing, data acquisition, digital Maoism, digital map, discovery of DNA, Dmitri Mendeleev, double entry bookkeeping, double helix, Douglas Engelbart, Douglas Engelbart, Drosophila, Edmond Halley, Edward Lloyd's coffeehouse, Ernest Rutherford, Geoffrey West, Santa Fe Institute, greed is good, Hans Lippershey, Henri Poincaré, hive mind, Howard Rheingold, hypertext link, invention of air conditioning, invention of movable type, invention of the printing press, invention of the telephone, Isaac Newton, Islamic Golden Age, James Hargreaves, James Watt: steam engine, Jane Jacobs, Jaron Lanier, Johannes Kepler, John Snow's cholera map, Joseph Schumpeter, Joseph-Marie Jacquard, Kevin Kelly, lone genius, Louis Daguerre, Louis Pasteur, Mason jar, mass immigration, Mercator projection, On the Revolutions of the Heavenly Spheres, online collectivism, packet switching, PageRank, patent troll, pattern recognition, price mechanism, profit motive, Ray Oldenburg, Richard Florida, Richard Thaler, Ronald Reagan, side project, Silicon Valley, silicon-based life, six sigma, Solar eclipse in 1919, spinning jenny, Steve Jobs, Steve Wozniak, Stewart Brand, The Death and Life of Great American Cities, The Great Good Place, The Wisdom of Crowds, Thomas Kuhn: the structure of scientific revolutions, transaction costs, urban planning

In modern tech-speak, markets allowed innovation to flourish at the edges of the network. Planned economies were more like the old mainframe computer systems that predated the Internet, where every participant had to get authorization from a central machine to do new work. When Friedrich von Hayek launched his influential argument in the 1940s about the importance of price signals in market economies, he was observing a related phenomenon: the decentralized pricing mechanism of the marketplace allows an entrepreneur to gauge the relative value of his or her innovation. If you come up with an interesting new contraption, you don’t need to persuade a government commission of its value. You just need to get someone to buy it. Entire institutions and legal frameworks—not to mention a vast tower of conventional wisdom—have been built around the Carrier model of innovation.


pages: 321 words: 85,267

Suburban Nation by Andres Duany, Elizabeth Plater-Zyberk, Jeff Speck

A Pattern Language, American ideology, big-box store, car-free, Celebration, Florida, City Beautiful movement, desegregation, edge city, Frank Gehry, housing crisis, if you build it, they will come, income inequality, intermodal, Jane Jacobs, jitney, McMansion, New Urbanism, Peter Calthorpe, place-making, price mechanism, profit motive, Ralph Nader, Seaside, Florida, Silicon Valley, skinny streets, the built environment, The Death and Life of Great American Cities, The Great Good Place, transit-oriented development, urban planning, urban renewal, urban sprawl, white flight, working poor, Works Progress Administration

Already, cars and other vehicles are seen as the worst polluters of urban air and the biggest producers of carbon dioxide, the chief suspect in global warming (The Economist, “Living with the Car,” 4). About half of U.S. air pollution emissions come from motor vehicles (MacKenzie, Dower, and Chen, 14). bf “Cheap gasoline forever, whatever,” is how The Economist describes the American approach to transportation planning, adding: “Hence the paradox that the freest market in the world eschews the price mechanism and applies command-and-control regulation to a central portion of its economy” (“Living with the Car,” 7). bg As The Boston Globe’s David Nyhan notes, “If that result were an election, we’d call it a landslide … Conclusion: the people are way out in front of the politicians again” (Nyhan, “For the Planet’s Sake, Hike the Gas Tax,” A27). bh Philip Langdon, A Better Place to Live, 119.


pages: 252 words: 80,636

Bureaucracy by David Graeber

a long time ago in a galaxy far, far away, Affordable Care Act / Obamacare, airport security, Albert Einstein, banking crisis, barriers to entry, borderless world, Bretton Woods, British Empire, collateralized debt obligation, Columbine, conceptual framework, Corn Laws, David Graeber, George Gilder, High speed trading, hiring and firing, Kitchen Debate, late capitalism, means of production, music of the spheres, new economy, obamacare, Occupy movement, Parkinson's law, Peter Thiel, planetary scale, post-work, price mechanism, Ronald Reagan, self-driving car, Silicon Valley, South Sea Bubble, transcontinental railway, union organizing, urban planning, zero-sum game

There followed stage two of the argument, which was, in its essence, that bureaucracy represents an inherent flaw in the democratic project.9 Its greatest exponent was Ludwig von Mises, an exiled Austrian aristocrat, whose 1944 book Bureaucracy argued that by definition, systems of government administration could never organize information with anything like the efficiency of impersonal market pricing mechanisms. However, extending the vote to the losers of the economic game would inevitably lead to calls for government intervention, framed as high-minded schemes for trying to solve social problems through administrative means. Von Mises was willing to admit that many of those who embraced such solutions were entirely well-meaning; however, their efforts could only make matters worse. In fact, he felt they would ultimately end up destroying the political basis of democracy itself, since the administrators of social programs would inevitably form power-blocs far more influential than the politicians elected to run the government, and support ever-more radical reforms.


pages: 306 words: 82,765

Skin in the Game: Hidden Asymmetries in Daily Life by Nassim Nicholas Taleb

availability heuristic, Benoit Mandelbrot, Bernie Madoff, Black Swan, Brownian motion, Capital in the Twenty-First Century by Thomas Piketty, Cass Sunstein, cellular automata, Claude Shannon: information theory, cognitive dissonance, complexity theory, David Graeber, disintermediation, Donald Trump, Edward Thorp, equity premium, financial independence, information asymmetry, invisible hand, knowledge economy, loss aversion, mandelbrot fractal, mental accounting, microbiome, moral hazard, Murray Gell-Mann, offshore financial centre, p-value, Paul Samuelson, Ponzi scheme, price mechanism, principal–agent problem, Ralph Nader, random walk, rent-seeking, Richard Feynman, Richard Thaler, Ronald Coase, Ronald Reagan, Rory Sutherland, Silicon Valley, Steven Pinker, stochastic process, survivorship bias, The Nature of the Firm, transaction costs, urban planning, Yogi Berra

Meanwhile, by contrast, the person who related the story went bankrupt while knowing every intimate detail about the green lumber. The fallacy is that what one may need to know in the real world does not necessarily match what one can perceive through intellect: it doesn’t mean that details are not relevant, only that those we tend (IYI-style) to believe are important can distract us from more central attributes of the price mechanism. In any activity, hidden details are only revealed via Lindy. Another aspect: What can be phrased and expressed in a clear narrative that convinces suckers will be a sucker trap. My friend Terry B., who taught an investment class, invited two speakers. One looked the part of the investment manager, down to a tee: tailored clothes, expensive watch, shiny shoes, and clarity of exposition.


pages: 318 words: 85,824

A Brief History of Neoliberalism by David Harvey

affirmative action, Asian financial crisis, Berlin Wall, Bretton Woods, business climate, business cycle, capital controls, centre right, collective bargaining, creative destruction, crony capitalism, debt deflation, declining real wages, deglobalization, deindustrialization, Deng Xiaoping, Fall of the Berlin Wall, financial deregulation, financial intermediation, financial repression, full employment, George Gilder, Gini coefficient, global reserve currency, illegal immigration, income inequality, informal economy, labour market flexibility, land tenure, late capitalism, Long Term Capital Management, low-wage service sector, manufacturing employment, market fundamentalism, mass immigration, means of production, Mexican peso crisis / tequila crisis, Mont Pelerin Society, mortgage tax deduction, neoliberal agenda, new economy, Pearl River Delta, phenotype, Ponzi scheme, price mechanism, race to the bottom, rent-seeking, reserve currency, Ronald Reagan, Silicon Valley, special economic zone, structural adjustment programs, the built environment, The Chicago School, transaction costs, union organizing, urban renewal, urban sprawl, Washington Consensus, Winter of Discontent

The weak legal protections for capitalist enterprises put a premium on informal local relations and trust networks that the overseas Chinese were in a privileged position to exploit.15 Subsequently the Chinese government designated several ‘open coastal cities’ as well as ‘open economic regions’ for foreign investment (Figure 5.1). After 1995 it virtually opened the whole country up to foreign direct investment of any type. The wave of bankruptcies that hit some of the TVEs in the manufacturing sector in 1997–8, spilling over into many of the SOEs in the main urban centres, proved a turning-point. Competitive pricing mechanisms then took over from the devolution of power from the central state to the localities as the core process impelling the restructuring of the economy. The effect was to severely damage, if not destroy, many of the SOEs and create a vast wave of unemployment. Reports of considerable labour unrest abounded (see below) and the Chinese government was faced with the problem of absorbing vast labour surpluses if it was to survive.16 It could not solely rely on an ever-expanding inflow of foreign direct investment to solve the problem, important though this might be.


pages: 261 words: 81,802

The Trouble With Billionaires by Linda McQuaig

"Robert Solow", battle of ideas, Bernie Madoff, Big bang: deregulation of the City of London, British Empire, Build a better mousetrap, carried interest, collateralized debt obligation, computer age, corporate governance, Credit Default Swap, credit default swaps / collateralized debt obligations, Douglas Engelbart, Douglas Engelbart, employer provided health coverage, financial deregulation, fixed income, full employment, George Akerlof, Gini coefficient, income inequality, Intergovernmental Panel on Climate Change (IPCC), invention of the telephone, invention of the wheel, invisible hand, Isaac Newton, Jacquard loom, Joseph-Marie Jacquard, laissez-faire capitalism, land tenure, lateral thinking, Mark Zuckerberg, market bubble, Martin Wolf, mega-rich, minimum wage unemployment, Mont Pelerin Society, Naomi Klein, neoliberal agenda, Northern Rock, offshore financial centre, Paul Samuelson, plutocrats, Plutocrats, Ponzi scheme, pre–internet, price mechanism, purchasing power parity, RAND corporation, rent-seeking, rising living standards, road to serfdom, Ronald Reagan, The Chicago School, The Spirit Level, The Wealth of Nations by Adam Smith, Tobin tax, too big to fail, trickle-down economics, Vanguard fund, very high income, wealth creators, women in the workforce

He recognized that capitalism could only survive in a democracy if the general public benefited from it, and this involved redistributing its bounty, which otherwise ends up concentrated in the hands of the few. Simons argued that progressive taxation was the best way to achieve the necessary redistribution – since it involved the least amount of government intrusion in the market. Taxes, after all, don’t interfere with the market’s ability to determine prices and to allocate resources through the price mechanism – key features of the market economy. They don’t involve a government bureaucrat imposing measures that interfere with the basic elements of supply and demand. ‘No fundamental disturbance of the whole system is involved,’ noted Simons in his classic ‌1938 text Personal Income Taxation.6 He elaborated on this theme later, in Economic Policy for a Free Society, emphasizing how progressive taxation achieves redistribution without impinging on freedom: ‘What is important for libertarians is that we preserve the basic processes of free exchange and that egalitarian measures be superimposed on those processes, effecting redistribution afterward and not in the immediate course ‌of production and commercial transactions.’7 It could be added here that taxation – and even heavy taxation of the rich – was supported by no less a conservative heavyweight than Adam Smith.


pages: 263 words: 80,594

Stolen: How to Save the World From Financialisation by Grace Blakeley

"Robert Solow", activist fund / activist shareholder / activist investor, asset-backed security, balance sheet recession, bank run, banking crisis, banks create money, Basel III, basic income, battle of ideas, Berlin Wall, Big bang: deregulation of the City of London, bitcoin, Bretton Woods, business cycle, call centre, capital controls, Capital in the Twenty-First Century by Thomas Piketty, Carmen Reinhart, central bank independence, collapse of Lehman Brothers, collective bargaining, corporate governance, corporate raider, credit crunch, Credit Default Swap, cryptocurrency, currency peg, David Graeber, debt deflation, decarbonisation, Donald Trump, eurozone crisis, Fall of the Berlin Wall, falling living standards, financial deregulation, financial innovation, Financial Instability Hypothesis, financial intermediation, fixed income, full employment, G4S, gender pay gap, gig economy, Gini coefficient, global reserve currency, global supply chain, housing crisis, Hyman Minsky, income inequality, inflation targeting, Intergovernmental Panel on Climate Change (IPCC), Kenneth Rogoff, Kickstarter, land value tax, light touch regulation, low skilled workers, market clearing, means of production, money market fund, Mont Pelerin Society, moral hazard, mortgage debt, negative equity, neoliberal agenda, new economy, Northern Rock, offshore financial centre, paradox of thrift, payday loans, pensions crisis, Ponzi scheme, price mechanism, principal–agent problem, profit motive, quantitative easing, race to the bottom, regulatory arbitrage, reserve currency, Right to Buy, rising living standards, risk-adjusted returns, road to serfdom, savings glut, secular stagnation, shareholder value, Social Responsibility of Business Is to Increase Its Profits, sovereign wealth fund, the built environment, The Great Moderation, too big to fail, transfer pricing, universal basic income, Winter of Discontent, working-age population, yield curve, zero-sum game

In the inter-war period, Keynes had mounted a challenge to the economics profession by developing a theory of economic demand that challenged the central tenet of classical economics — Say’s law, the idea that supply creates its own demand.8 According to Jean-Baptiste Say — a Napoleonic-era French economist — prices in a free market will rise and fall to ensure that the market “clears”, leaving no goods or services left once everyone has had the chance to bid. If the market fails to clear — i.e. if businesses have products to sell but no one wants to buy them — it is because something is getting in the way of the price mechanism, like taxes or regulation. The law applied to workers as well as commodities, which reinforced the idea that there could be such a thing as involuntary unemployment. If a worker was unable to find a job, it was because he was setting his wage expec- tations too high. This ideology was, of course, at odds with the experiences of those who had lived through the Great Depression. But the classical economists would retort that their field was a science, which paid no heed to the sensibilities of working people.


pages: 348 words: 99,383

The Financial Crisis and the Free Market Cure: Why Pure Capitalism Is the World Economy's Only Hope by John A. Allison

Affordable Care Act / Obamacare, American ideology, bank run, banking crisis, Bernie Madoff, business cycle, clean water, collateralized debt obligation, correlation does not imply causation, Credit Default Swap, credit default swaps / collateralized debt obligations, crony capitalism, disintermediation, fiat currency, financial innovation, Fractional reserve banking, full employment, high net worth, housing crisis, invisible hand, life extension, low skilled workers, market bubble, market clearing, minimum wage unemployment, money market fund, moral hazard, negative equity, obamacare, Paul Samuelson, price mechanism, price stability, profit maximization, quantitative easing, race to the bottom, reserve currency, risk/return, Robert Shiller, Robert Shiller, The Bell Curve by Richard Herrnstein and Charles Murray, too big to fail, transaction costs, yield curve, zero-sum game

Imagine if you had food insurance: every time you went to the grocery store, you would file a claim for your food purchases, and your insurance company would negotiate with the grocery store over the prices and maybe ask you to take back something that it did not think was good for you. One of the fundamental laws of economics is that if a good or service is priced at less than it is worth, it will be overused—that is, wasted—because the pricing mechanism has been destroyed. The typical consumer of health services in today’s government-enforced hybrid system never negotiates with his doctor over price. In addition, the doctor has a major incentive to overprescribe because the more she does, the more she gets paid and the more she reduces the risk of being sued. I have had numerous doctors confidentially admit that they request far too many procedures because these procedures are “free” to the patient, and why take the liability risk?


pages: 318 words: 87,570

Broken Markets: How High Frequency Trading and Predatory Practices on Wall Street Are Destroying Investor Confidence and Your Portfolio by Sal Arnuk, Joseph Saluzzi

algorithmic trading, automated trading system, Bernie Madoff, buttonwood tree, buy and hold, commoditize, computerized trading, corporate governance, cuban missile crisis, financial innovation, Flash crash, Gordon Gekko, High speed trading, latency arbitrage, locking in a profit, Mark Zuckerberg, market fragmentation, Ponzi scheme, price discovery process, price mechanism, price stability, Sergey Aleynikov, Sharpe ratio, short selling, Small Order Execution System, statistical arbitrage, stocks for the long run, stocks for the long term, transaction costs, two-sided market, zero-sum game

Most industry professionals we talk to believe these four horsemen are responsible for 40–50% of all trading on the NYSE. With their electronic savvy and prowess, they optimize their automated trading programs to maximize the money they earn from trading as well as from rebates paid to them by NYSE. DMMs make money not only from buying stocks and selling them higher, but also from the exchanges, which reward them with rebates for “adding liquidity.” The exchanges have adopted complex pricing mechanisms that reward the adding of liquidity with a small rebate, while charging a small fee for the taking of liquidity. Due to these exchange rebates, DMMs can make money even when they buy and sell at the same price. A critical factor in doing this is speed. Key for the DMMs’ success, therefore, is being as close as possible to the exchange. DMMs have several things tipping the scales in their favor versus traditional investors and traders.


pages: 325 words: 90,659

Narconomics: How to Run a Drug Cartel by Tom Wainwright

Airbnb, barriers to entry, bitcoin, business process, call centre, collateralized debt obligation, corporate social responsibility, Credit Default Swap, credit default swaps / collateralized debt obligations, failed state, financial innovation, illegal immigration, Mark Zuckerberg, microcredit, price mechanism, RAND corporation, Ronald Reagan, Sam Peltzman, Skype

People with apples to sell take them to the market, and people who want to buy apples go to meet them. The buyers have a look at what’s on offer. If an apple seller sets too high a price, the buyers will go elsewhere. If a buyer bids too little, the seller will offer the apples to someone else instead. A price is agreed when both buyer and seller are satisfied that they are getting the best deal they can. This is the basis of the price mechanism that magically matches supply and demand in market economies around the world. Now imagine the market for an illegal product, such as a banned narcotic. The product’s illegality means that deals have to take place in secret. So unless law and order has really broken down, there is no open market where buyers can compare prices and sellers can hawk their wares. Instead, buyers can shop only from dealers whom they know, through some connection or other.


pages: 340 words: 94,464

Randomistas: How Radical Researchers Changed Our World by Andrew Leigh

Albert Einstein, Amazon Mechanical Turk, Anton Chekhov, Atul Gawande, basic income, Black Swan, correlation does not imply causation, crowdsourcing, David Brooks, Donald Trump, ending welfare as we know it, Estimating the Reproducibility of Psychological Science, experimental economics, Flynn Effect, germ theory of disease, Ignaz Semmelweis: hand washing, Indoor air pollution, Isaac Newton, Kickstarter, longitudinal study, loss aversion, Lyft, Marshall McLuhan, meta analysis, meta-analysis, microcredit, Netflix Prize, nudge unit, offshore financial centre, p-value, placebo effect, price mechanism, publication bias, RAND corporation, randomized controlled trial, recommendation engine, Richard Feynman, ride hailing / ride sharing, Robert Metcalfe, Ronald Reagan, statistical model, Steven Pinker, uber lyft, universal basic income, War on Poverty

Hoch, 1998, ‘An anchoring and adjustment model of purchase quantity decisions’, Journal of Marketing Research, vol. 35, no. 1, pp. 71–81 35Kusum L. Ailawadi, Bari A. Harlam, Jacques César & David Trounce, ‘Quantifying and improving promotion effectiveness at CVS’, Marketing Science, vol. 26, no. 4, 2007, pp. 566–75. 36Ju-Young Kim, Martin Natter & Martni Spann, ‘Pay what you want: A new participative pricing mechanism’, Journal of Marketing, vol. 73, 2009, pp. 44–58. 37Greer K. Gosnell, John A. List & Robert Metcalfe, ‘A new approach to an age-old problem: Solving externalities by incenting workers directly’, NBER Working Paper No. 22316, Cambridge, MA: NBER, 2016. 38Bruce S. Shearer, ‘Piece rates, fixed wages and incentives: Evidence from a field experiment’, Review of Economic Studies, vol. 71, no. 2, 2004, pp. 513–34. 39Lan Shi, ‘Incentive effect of piece-rate contracts: Evidence from two small field experiments’, B.E.


pages: 320 words: 90,526

Squeezed: Why Our Families Can't Afford America by Alissa Quart

Affordable Care Act / Obamacare, Airbnb, Automated Insights, autonomous vehicles, barriers to entry, basic income, Bernie Sanders, business intelligence, Donald Trump, Downton Abbey, East Village, Elon Musk, full employment, future of work, gig economy, glass ceiling, haute couture, income inequality, Jaron Lanier, job automation, late capitalism, Lyft, minimum wage unemployment, moral panic, new economy, nuclear winter, obamacare, Ponzi scheme, post-work, precariat, price mechanism, rent control, ride hailing / ride sharing, school choice, sharing economy, Silicon Valley, Skype, Snapchat, surplus humans, TaskRabbit, Travis Kalanick, Uber and Lyft, Uber for X, uber lyft, union organizing, universal basic income, upwardly mobile, wages for housework, women in the workforce, working poor

She liked being over a shoulder, spying on an apartment because an apartment was the whole world to her. This “reading” of a nonverbal creature was all-consuming and exhausting labor. Caring for her was as full-time as it could get. And yet I needed to actually work too. Ironically, I even depended on (low-level) automation to help me so that I could edit while my daughter relaxed: her Fisher-Price mechanical swing rocked her back and forth so many times faster and for so much longer than I could. (Plus, it was fluffy and adorable, built to resemble a sheep.) As an infant, she often fell asleep this way, in a vibrating robot sheep’s mechanical embrace. I knew I was supposed to be rocking her in my orange nursing chair, swaddled in a white cotton blanket with ducks printed on it, to satisfy her desire for repetitive movement, but the auto-rocker seemed to be doing it better.


pages: 329 words: 88,954

Emergence by Steven Johnson

A Pattern Language, agricultural Revolution, Brewster Kahle, British Empire, Claude Shannon: information theory, complexity theory, Danny Hillis, Douglas Hofstadter, edge city, epigenetics, game design, garden city movement, Gödel, Escher, Bach, hive mind, Howard Rheingold, hypertext link, invisible hand, Jane Jacobs, Kevin Kelly, late capitalism, Marshall McLuhan, mass immigration, Menlo Park, Mitch Kapor, Murano, Venice glass, Naomi Klein, new economy, New Urbanism, Norbert Wiener, pattern recognition, pez dispenser, phenotype, Potemkin village, price mechanism, profit motive, Ray Kurzweil, slashdot, social intelligence, Socratic dialogue, stakhanovite, Steven Pinker, The Death and Life of Great American Cities, The Wealth of Nations by Adam Smith, theory of mind, Thomas Kuhn: the structure of scientific revolutions, traveling salesman, trickle-down economics, Turing machine, Turing test, urban planning, urban renewal, Vannevar Bush

“As in the legal analogy”: Technically, Slashdot moderators don’t give each post a grade on the scale. Posts start out life at 0 or 1 (depending on whether their authors are registered users of the system.) Moderators can then “spend” a moderation point rating a post either up or down. A post that starts life at 1, and receives three positive points and one negative point would be at Level 3, because 1 plus 3 minus 1 equals 3. “He was far”: Jacobs, 2000, 154. A related idea is the pricing mechanism of market economies as an information-processing system, as described by the libertarian demigod Friedrich von Hayek. “Long before the fall of communism, Hayek identified its oft-overlooked weakness: not only did it fail to offer an incentive to work hard; it forced signals connecting supply and demand to travel a tortuous path that invited distortion.” Wright, 199. “Others were busy”: Interview conducted with Rob Malda, April 2000.


pages: 313 words: 95,077

Here Comes Everybody: The Power of Organizing Without Organizations by Clay Shirky

Andrew Keen, Berlin Wall, bioinformatics, Brewster Kahle, c2.com, Charles Lindbergh, crowdsourcing, en.wikipedia.org, hiring and firing, hive mind, Howard Rheingold, Internet Archive, invention of agriculture, invention of movable type, invention of the printing press, invention of the telegraph, jimmy wales, Joi Ito, Kuiper Belt, liberation theology, Mahatma Gandhi, means of production, Merlin Mann, Metcalfe’s law, Nash equilibrium, Network effects, Nicholas Carr, Picturephone, place-making, Pluto: dwarf planet, prediction markets, price mechanism, prisoner's dilemma, profit motive, Richard Stallman, Robert Metcalfe, Ronald Coase, Silicon Valley, slashdot, social software, Stewart Brand, supply-chain management, The Nature of the Firm, The Wealth of Nations by Adam Smith, The Wisdom of Crowds, transaction costs, ultimatum game, Vilfredo Pareto, Yogi Berra

People have to be less tightly connected, on average, to one another. As a result, such groups are better able to produce what James Surowiecki has called “the wisdom of crowds.” In his book of that name he identified the ways distributed groups whose members aren’t connected can often generate better answers, by pooling their knowledge or intuition without having to come to an agreement. We have many ways of achieving this kind of aggregation, from market pricing mechanisms to voting to the prediction markets Surowiecki champions, but these methods all have two common characteristics: they work better in large groups, and they don’t require direct communication as the norm among members. (Indeed, in the case of markets, such communication is often forbidden, on the grounds that small clusters of collaborators can actually pervert the workings of the large system.)


pages: 323 words: 90,868

The Wealth of Humans: Work, Power, and Status in the Twenty-First Century by Ryan Avent

"Robert Solow", 3D printing, Airbnb, American energy revolution, assortative mating, autonomous vehicles, Bakken shale, barriers to entry, basic income, Bernie Sanders, BRICs, business cycle, call centre, Capital in the Twenty-First Century by Thomas Piketty, Clayton Christensen, cloud computing, collective bargaining, computer age, creative destruction, dark matter, David Ricardo: comparative advantage, deindustrialization, dematerialisation, Deng Xiaoping, deskilling, disruptive innovation, Dissolution of the Soviet Union, Donald Trump, Downton Abbey, Edward Glaeser, Erik Brynjolfsson, eurozone crisis, everywhere but in the productivity statistics, falling living standards, first square of the chessboard, first square of the chessboard / second half of the chessboard, Ford paid five dollars a day, Francis Fukuyama: the end of history, future of work, gig economy, global supply chain, global value chain, hydraulic fracturing, income inequality, indoor plumbing, industrial robot, intangible asset, interchangeable parts, Internet of things, inventory management, invisible hand, James Watt: steam engine, Jeff Bezos, John Maynard Keynes: Economic Possibilities for our Grandchildren, Joseph-Marie Jacquard, knowledge economy, low skilled workers, lump of labour, Lyft, manufacturing employment, Marc Andreessen, mass immigration, means of production, new economy, performance metric, pets.com, post-work, price mechanism, quantitative easing, Ray Kurzweil, rent-seeking, reshoring, rising living standards, Robert Gordon, Ronald Coase, savings glut, Second Machine Age, secular stagnation, self-driving car, sharing economy, Silicon Valley, single-payer health, software is eating the world, supply-chain management, supply-chain management software, TaskRabbit, The Future of Employment, The Nature of the Firm, The Rise and Fall of American Growth, The Spirit Level, The Wealth of Nations by Adam Smith, trade liberalization, transaction costs, Tyler Cowen: Great Stagnation, Uber and Lyft, Uber for X, uber lyft, very high income, working-age population

As that demand built, it soon became clear that these urban centres were unable to accommodate a population boom anything like those they had absorbed in the past. Since then, the gap between housing costs and construction costs has widened steadily. If housing supply is free to respond to demand, then when the willingness to pay to live in a city rises above construction costs builders build more in order to pocket the spread as profit. If supply can’t easily respond, however, then the existing stock of housing must be rationed, using the price mechanism. The cost of housing must rise until enough would-be residents decide the cost of living in the city is no longer worth the benefit. Across the US economy as a whole, housing is about 38 per cent more expensive than it would be if housing supply could easily adjust to demand, according to one recent estimate.7 In the tightest markets, such as Manhattan and San Francisco, the effect on prices is considerably larger: most of the cost of housing is attributable to the difficulty of building more.


pages: 324 words: 93,606

No Such Thing as a Free Gift: The Gates Foundation and the Price of Philanthropy by Linsey McGoey

activist fund / activist shareholder / activist investor, Affordable Care Act / Obamacare, agricultural Revolution, American Legislative Exchange Council, bitcoin, Bob Geldof, cashless society, clean water, cognitive dissonance, collapse of Lehman Brothers, colonial rule, corporate governance, corporate social responsibility, crony capitalism, effective altruism, Etonian, financial innovation, Food sovereignty, Ford paid five dollars a day, germ theory of disease, hiring and firing, Howard Zinn, income inequality, income per capita, invisible hand, Jane Jacobs, Joseph Schumpeter, liquidationism / Banker’s doctrine / the Treasury view, M-Pesa, Mahatma Gandhi, Mark Zuckerberg, meta analysis, meta-analysis, microcredit, Mitch Kapor, Mont Pelerin Society, Naomi Klein, obamacare, Peter Singer: altruism, Peter Thiel, plutocrats, Plutocrats, price mechanism, profit motive, Ralph Waldo Emerson, rent-seeking, road to serfdom, Ronald Reagan, school choice, selective serotonin reuptake inhibitor (SSRI), Silicon Valley, Slavoj Žižek, Steve Jobs, strikebreaker, The Wealth of Nations by Adam Smith, Thorstein Veblen, trickle-down economics, urban planning, wealth creators

The reason why economics is not like the natural sciences, Hayek believed, is because economic transactions are rooted in human motivations, and human motivations are too ephemeral to ever be understood through the same tools used to understand physical laws of nature. Hayek’s understanding of the limits of economic knowledge was essential to his criticism of state planning. In place of a central planner, he argued, what are needed are autonomous market actors – those capable of responding swiftly, through pricing mechanisms, to the fleeting decisions of countless individuals separated by space and time. In Hayek’s words, ‘the most significant fact about this system is the economy of knowledge with which it operates, or how little the individual participants need to know in order to be able to take the right action’.2 Hayek’s Serfdom helped to inspire populist reactions against the evils of ‘big government’ even as, quite ironically, he embarked on a spirited campaign of ‘re-education’ through invitation-only meetings launched at the resort of Mont Pelerin sur Vevey in 1947, high in the Swiss Alps, with funding from the Volker Fund, an American philanthropic organization.


pages: 294 words: 89,406

Lying for Money: How Fraud Makes the World Go Round by Daniel Davies

bank run, banking crisis, Bernie Madoff, bitcoin, Black Swan, Bretton Woods, business cycle, business process, collapse of Lehman Brothers, compound rate of return, cryptocurrency, financial deregulation, fixed income, Frederick Winslow Taylor, Gordon Gekko, high net worth, illegal immigration, index arbitrage, Nick Leeson, offshore financial centre, Peter Thiel, Ponzi scheme, price mechanism, principal–agent problem, railway mania, Ronald Coase, Ronald Reagan, short selling, social web, South Sea Bubble, The Great Moderation, the payments system, The Wealth of Nations by Adam Smith, time value of money, web of trust

A large cluster of these long-term contracts is what we call a firm, and Ronald Coase’s contribution to this strand of intellectual history was to set out the circumstances under which firms would form, and how the economy would tend not to the frictionless ideal, but to be made up of islands of central planning* linked by bridges of price signals. Of course, bringing the theory of the firm back into the model brings back a lot of the information problems associated with the socialist planning debate. The price mechanism and decentralised markets work to use private information at the firm level, but within the firms, managers are as blind as Soviet central planners ever were. The problem of trying to make sure your desired outcome happens when you can’t directly monitor the person responsible for doing it is, in the most general terms possible, known as the principal/agent problem, and something like three or four Nobel Prizes in economics (Mirlees, Tirole and at least half each of Meade and Hanson) have been given out for progress in tackling various versions of it.


pages: 920 words: 233,102

Unelected Power: The Quest for Legitimacy in Central Banking and the Regulatory State by Paul Tucker

Andrei Shleifer, bank run, banking crisis, barriers to entry, Basel III, battle of ideas, Ben Bernanke: helicopter money, Berlin Wall, Bretton Woods, business cycle, capital controls, Carmen Reinhart, Cass Sunstein, central bank independence, centre right, conceptual framework, corporate governance, diversified portfolio, Fall of the Berlin Wall, financial innovation, financial intermediation, financial repression, first-past-the-post, floating exchange rates, forensic accounting, forward guidance, Fractional reserve banking, Francis Fukuyama: the end of history, full employment, George Akerlof, incomplete markets, inflation targeting, information asymmetry, invisible hand, iterative process, Jean Tirole, Joseph Schumpeter, Kenneth Arrow, Kenneth Rogoff, liberal capitalism, light touch regulation, Long Term Capital Management, means of production, money market fund, Mont Pelerin Society, moral hazard, Northern Rock, Pareto efficiency, Paul Samuelson, price mechanism, price stability, principal–agent problem, profit maximization, quantitative easing, regulatory arbitrage, reserve currency, risk tolerance, risk-adjusted returns, road to serfdom, Robert Bork, Ronald Coase, seigniorage, short selling, Social Responsibility of Business Is to Increase Its Profits, stochastic process, The Chicago School, The Great Moderation, The Market for Lemons, the payments system, too big to fail, transaction costs, Vilfredo Pareto, Washington Consensus, yield curve, zero-coupon bond, zero-sum game

The idea of a Pareto improvement is, nevertheless, useful because it captures the thought that if we can make some people better off (improve their well-being) without making anyone worse off, we should. Over the middle decades of the last century, economists pinned down the circumstances under which Adam Smith’s invisible hand can bring about efficiency in this sense. In their famous “welfare theorems,” Kenneth Arrow, Gerard Debreu, and Lionel McKenzie uncovered the ideal or abstract conditions under which a market economy (the price mechanism) would deliver an efficient allocation of resources, with no gains from trade—no potential Pareto improvements—left unexploited and, therefore, with everyone left with their well-being as high as possible given the original distribution of resources. If those initial endowments were redistributed, perfect markets would generate a new Pareto-efficient state of affairs. An even more powerful result, known as the Second Welfare Theorem, was that under perfect competition any desired Pareto-efficient state could be obtained through an appropriate reshuffling of people’s initial endowments.

Indeed, rather amazingly, some of the strongest political support for the 1930s Chicago Plan came from advocates of government deciding how to allocate credit in the economy. As Senator Bronson Cutting put it at the time, “private financiers are not entitled to any profit on credit.”14 A project that academics saw as immunizing money from credit was, in some political eyes, a means of getting the price mechanism out of credit allocation, converting the central bank from a monetary institution into a state-credit bank. It is something to ponder: credit creation in the hands of politicians—pandering to popularity, doing favors for friends, or approximating a planned economy. Arguments aside, the narrow banking question is for elected politicians. In the wake of the 2008–2009 phase of the Great Financial Crisis, the issues were debated, to different degrees in different countries.15 Rightly or wrongly, the universal decision was not to make what would have amounted to a massive change in the constitution of money.


The Age of Turbulence: Adventures in a New World (Hardback) - Common by Alan Greenspan

"Robert Solow", addicted to oil, air freight, airline deregulation, Albert Einstein, asset-backed security, bank run, Berlin Wall, Bretton Woods, business cycle, business process, buy and hold, call centre, capital controls, central bank independence, collateralized debt obligation, collective bargaining, conceptual framework, Corn Laws, corporate governance, corporate raider, correlation coefficient, creative destruction, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, crony capitalism, cuban missile crisis, currency peg, Deng Xiaoping, Dissolution of the Soviet Union, Doha Development Round, double entry bookkeeping, equity premium, everywhere but in the productivity statistics, Fall of the Berlin Wall, fiat currency, financial innovation, financial intermediation, full employment, Gini coefficient, Hernando de Soto, income inequality, income per capita, invisible hand, Joseph Schumpeter, labor-force participation, laissez-faire capitalism, land reform, Long Term Capital Management, Mahatma Gandhi, manufacturing employment, market bubble, means of production, Mikhail Gorbachev, moral hazard, mortgage debt, Myron Scholes, Nelson Mandela, new economy, North Sea oil, oil shock, open economy, Pearl River Delta, pets.com, Potemkin village, price mechanism, price stability, Productivity paradox, profit maximization, purchasing power parity, random walk, reserve currency, Right to Buy, risk tolerance, Ronald Reagan, shareholder value, short selling, Silicon Valley, special economic zone, stocks for the long run, the payments system, The Wealth of Nations by Adam Smith, Thorstein Veblen, too big to fail, total factor productivity, trade liberalization, trade route, transaction costs, transcontinental railway, urban renewal, working-age population, Y2K, zero-sum game

I suspected that the aide didn't actually believe that, but I couldn't tell whether what he really felt was cynicism or doubt. One might think that smart planning authorities should have been able to adjust to their models' shortcomings. People like Sitaryan are smart, and they tried. But they took too much on themselves. Without the immediate signals of price changes that make capitalist markets work, how was anyone to know how much of each product to manufacture? Without the help of a market pricing mechanism, Soviet economic planning had no effective feedback to guide it. Just as important, the planners did not have the signals of finance to adjust the allocation of savings to real productive investments that accommodated the population's shifting needs and tastes. Years before becoming Fed chairman, I'd actually tried picturing myself in the central planner's job. From 1983 to 1985,1 served under Reagan on the President's Foreign Intelligence Advisory Board (PFIAB), where I was asked to review U.S. assessments of the Soviet ability to absorb the strain of accelerated armament.

Our skilled jobs are the highest paid in the world. Accordingly, were we to allow open migration of skilled workers to this country, there would soon be a lower wage premium of skilled over lesser skilled and an end to our shortages of skilled workers.* The shortages occur because we are inhibiting world competitive labor markets from functioning. Administrative exclusionary rules have been substituted for the pricing mechanism. In the process, we have created in this country a privileged, native-born elite of skilled workers whose incomes are being supported at noncompetitively high levels by immigration quotas on skilled professionals. Eliminating such restrictions would, at the stroke of a pen, reduce much income inequality and address the problem of a potentially noncompetitive capital stock. The politics of immigration policy, of course, is influenced by far more than economics.


pages: 364 words: 101,286

The Misbehavior of Markets: A Fractal View of Financial Turbulence by Benoit Mandelbrot, Richard L. Hudson

Albert Einstein, asset allocation, Augustin-Louis Cauchy, Benoit Mandelbrot, Big bang: deregulation of the City of London, Black-Scholes formula, British Empire, Brownian motion, business cycle, buy and hold, buy low sell high, capital asset pricing model, carbon-based life, discounted cash flows, diversification, double helix, Edward Lorenz: Chaos theory, Elliott wave, equity premium, Eugene Fama: efficient market hypothesis, Fellow of the Royal Society, full employment, Georg Cantor, Henri Poincaré, implied volatility, index fund, informal economy, invisible hand, John Meriwether, John von Neumann, Long Term Capital Management, Louis Bachelier, mandelbrot fractal, market bubble, market microstructure, Myron Scholes, new economy, paper trading, passive investing, Paul Lévy, Paul Samuelson, plutocrats, Plutocrats, price mechanism, quantitative trading / quantitative finance, Ralph Nelson Elliott, RAND corporation, random walk, risk tolerance, Robert Shiller, Robert Shiller, short selling, statistical arbitrage, statistical model, Steve Ballmer, stochastic volatility, transfer pricing, value at risk, Vilfredo Pareto, volatility smile

Wars start, peace returns, economies expand, firms fail—all these come and go, affecting prices. But the fundamental process by which prices react to news does not change. A mathematician would say market processes are “stationary.” This contradicts some would-be reformers of the random-walk model who explain the way volatility clusters by asserting that the market is in some way changing, that volatility varies because the pricing mechanism varies. Wrong. A striking example: My analysis of cotton prices over the past century shows the same broad pattern of price variability at the turn of the last century when prices were unregulated, as there was in the 1930s when prices were regulated as part of the New Deal. Rule IV. Markets mislead. Patterns are the fool’s gold of financial markets. The power of chance suffices to create spurious patterns and pseudo-cycles that, for all the world, appear predictable and bankable.


pages: 381 words: 101,559

Currency Wars: The Making of the Next Gobal Crisis by James Rickards

Asian financial crisis, bank run, Benoit Mandelbrot, Berlin Wall, Big bang: deregulation of the City of London, Black Swan, borderless world, Bretton Woods, BRICs, British Empire, business climate, buy and hold, capital controls, Carmen Reinhart, Cass Sunstein, collateralized debt obligation, complexity theory, corporate governance, Credit Default Swap, credit default swaps / collateralized debt obligations, currency manipulation / currency intervention, currency peg, Daniel Kahneman / Amos Tversky, Deng Xiaoping, diversification, diversified portfolio, Fall of the Berlin Wall, family office, financial innovation, floating exchange rates, full employment, game design, German hyperinflation, Gini coefficient, global rebalancing, global reserve currency, high net worth, income inequality, interest rate derivative, John Meriwether, Kenneth Rogoff, laissez-faire capitalism, liquidity trap, Long Term Capital Management, mandelbrot fractal, margin call, market bubble, Mexican peso crisis / tequila crisis, money market fund, money: store of value / unit of account / medium of exchange, Myron Scholes, Network effects, New Journalism, Nixon shock, offshore financial centre, oil shock, one-China policy, open economy, paradox of thrift, Paul Samuelson, price mechanism, price stability, private sector deleveraging, quantitative easing, race to the bottom, RAND corporation, rent-seeking, reserve currency, Ronald Reagan, sovereign wealth fund, special drawing rights, special economic zone, The Myth of the Rational Market, The Wealth of Nations by Adam Smith, The Wisdom of Crowds, Thomas Kuhn: the structure of scientific revolutions, time value of money, too big to fail, value at risk, War on Poverty, Washington Consensus, zero-sum game

,” the IMF presented a blueprint for the creation of a liquid SDR bond market, the antecedent to replacing the dollar as the global reserve currency with SDRs. The IMF’s paper identifies both potential issuers of SDR bonds, including the World Bank and regional development banks, and potential buyers, including sovereign wealth funds and global corporations. The study contains recommended maturity structures and pricing mechanisms, as well as detailed diagrams for the clearance, settlement and financing of such bonds. Suggestions are made to change the SDR basket over time so as to enhance the weight of the Chinese yuan and to diminish the weight of the dollar. The IMF study is optimistic about the speed and stealth with which this could be accomplished. “Experience . . . suggests the process may be relatively fast and need not involve significant public support,” it states.


pages: 364 words: 99,613

Servant Economy: Where America's Elite Is Sending the Middle Class by Jeff Faux

back-to-the-land, Bernie Sanders, Black Swan, Bretton Woods, BRICs, British Empire, business cycle, call centre, centre right, cognitive dissonance, collateralized debt obligation, collective bargaining, creative destruction, Credit Default Swap, credit default swaps / collateralized debt obligations, crony capitalism, currency manipulation / currency intervention, David Brooks, David Ricardo: comparative advantage, disruptive innovation, falling living standards, financial deregulation, financial innovation, full employment, hiring and firing, Howard Zinn, Hyman Minsky, illegal immigration, indoor plumbing, informal economy, invisible hand, John Maynard Keynes: Economic Possibilities for our Grandchildren, Kickstarter, lake wobegon effect, Long Term Capital Management, market fundamentalism, Martin Wolf, McMansion, medical malpractice, mortgage debt, Myron Scholes, Naomi Klein, new economy, oil shock, old-boy network, Paul Samuelson, plutocrats, Plutocrats, price mechanism, price stability, private military company, Ralph Nader, reserve currency, rising living standards, Robert Shiller, Robert Shiller, rolodex, Ronald Reagan, school vouchers, Silicon Valley, single-payer health, South China Sea, statistical model, Steve Jobs, Thomas L Friedman, Thorstein Veblen, too big to fail, trade route, Triangle Shirtwaist Factory, union organizing, upwardly mobile, urban renewal, War on Poverty, We are the 99%, working poor, Yogi Berra, Yom Kippur War

That U.S. consumers, representing less than 5 percent of the world’s current population, can continue to use 25 percent of the world’s fossil-fuel resources is not credible. Moreover, although we don’t know how long it will take for the full force of climate change to arrive, we can see it coming. In the wake of our recent financial disasters, to imagine that these resource and environmental pressures can in any way be resolved by the price mechanisms of unregulated markets is preposterous. Yet, no serious observer believes that our current political institutions are capable of dealing with that reality. A governing class that will not bring itself to rescue the sinking incomes of the majority of its voters in the next election is hardly going to lead the world to stop a projected rise in the sea level decades in the future. And neither is it likely that a public, suddenly finding itself under more financial stress, will force its governing class to pay more attention to the fate of the planet.


pages: 337 words: 89,075

Understanding Asset Allocation: An Intuitive Approach to Maximizing Your Portfolio by Victor A. Canto

accounting loophole / creative accounting, airline deregulation, Andrei Shleifer, asset allocation, Bretton Woods, business cycle, buy and hold, buy low sell high, capital asset pricing model, commodity trading advisor, corporate governance, discounted cash flows, diversification, diversified portfolio, fixed income, frictionless, high net worth, index fund, inflation targeting, invisible hand, John Meriwether, law of one price, liquidity trap, London Interbank Offered Rate, Long Term Capital Management, low cost airline, market bubble, merger arbitrage, money market fund, new economy, passive investing, Paul Samuelson, price mechanism, purchasing power parity, risk tolerance, risk-adjusted returns, risk/return, Ronald Reagan, selection bias, shareholder value, Sharpe ratio, short selling, statistical arbitrage, stocks for the long run, survivorship bias, the market place, transaction costs, Y2K, yield curve, zero-sum game

Either exchange-traded funds (ETFs), or passively managed low-cost index funds, could fill most buckets in question. ETFs and the low cost-managed index funds are diversified baskets of securities designed to track the performance of well-known indices, proprietary indices or basket of securities. The major differences between the two is that the ETF are traded as individual stocks on major exchanges while the passive funds are subject to the traditional mutual funds-pricing mechanism (that is, at the close of market). They offer diversification or exposure to an entire market index or sector with one security at very low costs (that is, management fees). Each asset class was available at some point over the last three decades. Looking forward, it is readily apparent that—with ETFs’ proliferation—investors can now easily expand their choices and further disaggregate the international allocation, the fixed-income allocation, and even the domestic allocation (see Figure 6.4).


pages: 348 words: 97,277

The Truth Machine: The Blockchain and the Future of Everything by Paul Vigna, Michael J. Casey

3D printing, additive manufacturing, Airbnb, altcoin, Amazon Web Services, barriers to entry, basic income, Berlin Wall, Bernie Madoff, bitcoin, blockchain, blood diamonds, Blythe Masters, business process, buy and hold, carbon footprint, cashless society, cloud computing, computer age, computerized trading, conceptual framework, Credit Default Swap, crowdsourcing, cryptocurrency, cyber-physical system, dematerialisation, disintermediation, distributed ledger, Donald Trump, double entry bookkeeping, Edward Snowden, Elon Musk, Ethereum, ethereum blockchain, failed state, fault tolerance, fiat currency, financial innovation, financial intermediation, global supply chain, Hernando de Soto, hive mind, informal economy, intangible asset, Internet of things, Joi Ito, Kickstarter, linked data, litecoin, longitudinal study, Lyft, M-Pesa, Marc Andreessen, market clearing, mobile money, money: store of value / unit of account / medium of exchange, Network effects, off grid, pets.com, prediction markets, pre–internet, price mechanism, profit maximization, profit motive, ransomware, rent-seeking, RFID, ride hailing / ride sharing, Ross Ulbricht, Satoshi Nakamoto, self-driving car, sharing economy, Silicon Valley, smart contracts, smart meter, Snapchat, social web, software is eating the world, supply-chain management, Ted Nelson, the market place, too big to fail, trade route, transaction costs, Travis Kalanick, Turing complete, Uber and Lyft, uber lyft, unbanked and underbanked, underbanked, universal basic income, web of trust, zero-sum game

How do you prove people aren’t meddling with their meters or overcharging for power delivery? Also, if you want to do this properly, you need all those payments and receipts to be settled in a special, internally traded currency, a token whose floating value is pegged to kilowatt hours and that the user can convert into dollars, to help optimize local grid management. That way, you will have a market pricing mechanism to carry out similar load-management strategies as those used by traditional grid managers in much wider energy regions. A floating KwH token represents a local price for power, and like all market prices it functions as a signal to users within the microgrid. But because it’s a digital signal, people can finely tune their devices’ response to it. They can choose to charge their Teslas only when power is abundant and cheap, for example, or they can create priority lists of different devices, some of which can automatically turn off (for example, the TV), while others will be programmed to stay on (the refrigerator).


pages: 332 words: 100,601

Rebooting India: Realizing a Billion Aspirations by Nandan Nilekani

Airbnb, Atul Gawande, autonomous vehicles, barriers to entry, bitcoin, call centre, cashless society, clean water, cloud computing, collaborative consumption, congestion charging, DARPA: Urban Challenge, dematerialisation, demographic dividend, Edward Snowden, en.wikipedia.org, energy security, financial exclusion, Google Hangouts, illegal immigration, informal economy, Khan Academy, Kickstarter, knowledge economy, land reform, law of one price, M-Pesa, Mahatma Gandhi, Marc Andreessen, Mark Zuckerberg, mobile money, Mohammed Bouazizi, more computing power than Apollo, Negawatt, Network effects, new economy, offshore financial centre, price mechanism, price stability, rent-seeking, RFID, Ronald Coase, school choice, school vouchers, self-driving car, sharing economy, Silicon Valley, Skype, smart grid, smart meter, software is eating the world, source of truth, Steve Jobs, The Nature of the Firm, transaction costs, WikiLeaks

In the technical design of a smart grid, IT can help monitor and control electricity real-time with fine granularity, construct a robust, self-healing grid—detect outages, load, congestion and shortfall, and establish two-way power exchange with a large number of renewable generators, storage devices and devices such as plug-in hybrid vehicles. In terms of commercial and behavioural issues, IT can help identify theft and losses, provide choice to customers, allow for new pricing mechanisms such as Time-of-Day (ToD) or real-time, enable much improved transparency and conservation, and provide the structure for sophisticated billing, collection and information management. So, what are technology’s limitations in this sphere? The report states: We must remember that IT by itself cannot change practices and fundamentals directly. This includes altering the fundamentals of the power system—including supply and demand, tariff structure and power quality—changing operational practices and organizational culture, reducing losses and theft, meeting environmental challenges, and changing governance and project management.


pages: 371 words: 98,534

Red Flags: Why Xi's China Is in Jeopardy by George Magnus

3D printing, 9 dash line, Admiral Zheng, Asian financial crisis, autonomous vehicles, balance sheet recession, banking crisis, Bretton Woods, BRICs, British Empire, business process, capital controls, carbon footprint, Carmen Reinhart, cloud computing, colonial exploitation, corporate governance, crony capitalism, currency manipulation / currency intervention, currency peg, demographic dividend, demographic transition, Deng Xiaoping, Doha Development Round, Donald Trump, financial deregulation, financial innovation, financial repression, fixed income, floating exchange rates, full employment, Gini coefficient, global reserve currency, high net worth, hiring and firing, Hyman Minsky, income inequality, industrial robot, Internet of things, invention of movable type, Joseph Schumpeter, Kenneth Rogoff, Kickstarter, labour market flexibility, labour mobility, land reform, Malacca Straits, means of production, megacity, money market fund, moral hazard, non-tariff barriers, Northern Rock, offshore financial centre, old age dependency ratio, open economy, peer-to-peer lending, pension reform, price mechanism, purchasing power parity, regulatory arbitrage, rent-seeking, reserve currency, rising living standards, risk tolerance, smart cities, South China Sea, sovereign wealth fund, special drawing rights, special economic zone, speech recognition, The Wealth of Nations by Adam Smith, total factor productivity, trade route, urban planning, Washington Consensus, women in the workforce, working-age population, zero-sum game

They were publicly owned but this was overshadowed by the fact that they partnered with private entrepreneurs in a ‘de facto’ property rights arrangement in which the threat of expropriation was deemed less likely by virtue of the partnership.13 Throughout the last twenty-five years or so, China’s bureaucracy has continued to adapt, and experiment with, and test aspects of, the ‘capitalist mode of production’ on a trial-and-error basis. It introduced a vast body of law, even though it is subservient to the Party and the state. It established and pursued a number of market pricing mechanisms and liberalisation initiatives while phasing out many quantitative economic controls and targets. It privatised many SOEs, while retaining and rebooting others at the heart of the economic system. It modernised and liberalised the financial system at home and its interaction with foreign finance systems up to a point, even if the last few years have seen some back-pedalling as the implications of liberalisation became difficult to absorb and accept.


pages: 323 words: 95,939

Present Shock: When Everything Happens Now by Douglas Rushkoff

algorithmic trading, Andrew Keen, bank run, Benoit Mandelbrot, big-box store, Black Swan, British Empire, Buckminster Fuller, business cycle, cashless society, citizen journalism, clockwork universe, cognitive dissonance, Credit Default Swap, crowdsourcing, Danny Hillis, disintermediation, Donald Trump, double helix, East Village, Elliott wave, European colonialism, Extropian, facts on the ground, Flash crash, game design, global pandemic, global supply chain, global village, Howard Rheingold, hypertext link, Inbox Zero, invention of agriculture, invention of hypertext, invisible hand, iterative process, John Nash: game theory, Kevin Kelly, laissez-faire capitalism, lateral thinking, Law of Accelerating Returns, loss aversion, mandelbrot fractal, Marshall McLuhan, Merlin Mann, Milgram experiment, mutually assured destruction, negative equity, Network effects, New Urbanism, Nicholas Carr, Norbert Wiener, Occupy movement, passive investing, pattern recognition, peak oil, price mechanism, prisoner's dilemma, Ralph Nelson Elliott, RAND corporation, Ray Kurzweil, recommendation engine, selective serotonin reuptake inhibitor (SSRI), Silicon Valley, Skype, social graph, South Sea Bubble, Steve Jobs, Steve Wozniak, Steven Pinker, Stewart Brand, supply-chain management, the medium is the message, The Wisdom of Crowds, theory of mind, Turing test, upwardly mobile, Whole Earth Catalog, WikiLeaks, Y2K, zero-sum game

Instead of seeing some magical, inexplicable method through which markets solved its problems fairly, Hayek saw markets working through a more systemic process. In his view, pricing is established collectively by thousands or even millions of individual actors, each acting on his own little bit of knowledge. The marketplace serves to resolve all these little pieces of data in a process Hayek called “catallaxy”—a self-organizing system of voluntary cooperation. Feedback and iteration. Price mechanisms were not human inventions so much as the result of collective activity on a lower order. Humans were part of a bigger system that could achieve “spontaneous order.” Between chaos theory, cybernetic systems, and computing brawn, economists finally had the tools to approach the marketplace as a working catallaxy—as a product of nature as complex and stable as human life itself. Economists at the Santa Fe Institute, in particular, churned out chaotic models for the collective economic activity to which humans contributed unconsciously as members of this bigger fractal reality.


pages: 306 words: 97,211

Value Investing: From Graham to Buffett and Beyond by Bruce C. N. Greenwald, Judd Kahn, Paul D. Sonkin, Michael van Biema

Andrei Shleifer, barriers to entry, Berlin Wall, business cycle, capital asset pricing model, corporate raider, creative destruction, Daniel Kahneman / Amos Tversky, discounted cash flows, diversified portfolio, Eugene Fama: efficient market hypothesis, fixed income, index fund, intangible asset, Long Term Capital Management, naked short selling, new economy, place-making, price mechanism, quantitative trading / quantitative finance, Richard Thaler, shareholder value, short selling, Silicon Valley, stocks for the long run, Telecommunications Act of 1996, time value of money, tulip mania, Y2K, zero-sum game

Therefore, our overall unrealized and realized pre-tax gains in equities for the three year period came to approximately $112 million. During this same interval the Dow-Jones Industrial Average declined from 852 to 805. It was a marvelous period for the valueoriented equity buyer. We continue to find for our insurance portfolios small portions of really outstanding businesses that are available, through the auction pricing mechanism of security markets, at prices dramatically cheaper than the valuations inferior businesses command on negotiated sales. This program of acquisition of small fractions of businesses (common stocks) at bargain prices, for which little enthusiasm exists, contrasts sharply with general corporate acquisition activity, for which much enthusiasm exists. It seems quite clear to us that either corporations are making very significant mistakes in purchasing entire businesses at prices prevailing in negotiated transactions and takeover bids, or that we eventually are going to make considerable sums of money buying small portions of such businesses at the greatly discounted valuations prevailing in the stock market.


pages: 311 words: 17,232

Living in a Material World: The Commodity Connection by Kevin Morrison

addicted to oil, barriers to entry, Berlin Wall, carbon footprint, clean water, commoditize, commodity trading advisor, computerized trading, diversified portfolio, Doha Development Round, Elon Musk, energy security, European colonialism, flex fuel, food miles, Hernando de Soto, Hugh Fearnley-Whittingstall, hydrogen economy, Intergovernmental Panel on Climate Change (IPCC), Kickstarter, Long Term Capital Management, new economy, North Sea oil, oil rush, oil shale / tar sands, oil shock, out of africa, Paul Samuelson, peak oil, price mechanism, Ronald Coase, Ronald Reagan, Silicon Valley, sovereign wealth fund, the payments system, The Wealth of Nations by Adam Smith, trade liberalization, transaction costs, uranium enrichment, young professional

For much of the early period the British pound was the currency of international trade, so the LME’s contracts, together with the imposition of tariffs were more suitable for global trading and London was therefore able to remain the centre of global copper trading. Copper trade on the LME really took off after the nationalization of Codelco, which preferred to sell its copper at a price set by the market rather than a producer price mechanism. The other main competitor to the LME is the Shanghai Futures Exchange. 214 | LIVING IN A MATERIAL WORLD Copper Rush Even the US is having a new copper rush, just as it did in the late 19th century. In some ways things have not changed; there was an 80% increase in the number of active mining claims on public lands to more than 370 000 in the four and a half years to July 2007, mainly in the western US states, though some are near iconic American sites like the Grand Canyon and Yosemite National Park.


pages: 344 words: 104,077

Superminds: The Surprising Power of People and Computers Thinking Together by Thomas W. Malone

agricultural Revolution, Airbnb, Albert Einstein, Amazon Mechanical Turk, Apple's 1984 Super Bowl advert, Asperger Syndrome, Baxter: Rethink Robotics, bitcoin, blockchain, business process, call centre, clean water, creative destruction, crowdsourcing, Donald Trump, Douglas Engelbart, Douglas Engelbart, drone strike, Elon Musk, en.wikipedia.org, Erik Brynjolfsson, experimental economics, Exxon Valdez, future of work, Galaxy Zoo, gig economy, happiness index / gross national happiness, industrial robot, Internet of things, invention of the telegraph, inventory management, invisible hand, Jeff Rulifson, jimmy wales, job automation, John Markoff, Joi Ito, Joseph Schumpeter, Kenneth Arrow, knowledge worker, longitudinal study, Lyft, Marshall McLuhan, Occupy movement, Pareto efficiency, pattern recognition, prediction markets, price mechanism, Ray Kurzweil, Rodney Brooks, Ronald Coase, Second Machine Age, self-driving car, Silicon Valley, slashdot, social intelligence, Stephen Hawking, Steve Jobs, Steven Pinker, Stewart Brand, technological singularity, The Nature of the Firm, The Wealth of Nations by Adam Smith, The Wisdom of Crowds, theory of mind, Tim Cook: Apple, transaction costs, Travis Kalanick, Uber for X, uber lyft, Vernor Vinge, Vilfredo Pareto, Watson beat the top human players on Jeopardy!

In other words, having a single hierarchical management structure that can appropriately adapt to changing situations can often lead to lower long-term costs of group decision making. This is the best explanation we have for why hierarchically managed companies exist in our economy instead of every worker being an independent contractor who negotiates with others every day to do the work that needs to be done. Comparing Markets to Communities Like hierarchies, markets can have either higher or lower decision-making costs than communities. The same price mechanism that often makes markets cheaper than hierarchies also makes them cheaper than communities when coordinating large numbers of people and decisions. On the other hand, communities, like hierarchies, are often better than markets at dealing with transaction costs arising from things like contract negotiations and hold-up problems. In a community, for example, people already have lots of reasons to go along with decisions that are dictated by community norms; if they violate these norms, they know that the community has many ways to punish them.


pages: 408 words: 108,985

Rewriting the Rules of the European Economy: An Agenda for Growth and Shared Prosperity by Joseph E. Stiglitz

Airbnb, balance sheet recession, bank run, banking crisis, barriers to entry, Basel III, basic income, Berlin Wall, bilateral investment treaty, business cycle, business process, Capital in the Twenty-First Century by Thomas Piketty, central bank independence, collapse of Lehman Brothers, collective bargaining, corporate governance, corporate raider, corporate social responsibility, creative destruction, credit crunch, deindustrialization, discovery of DNA, diversified portfolio, Donald Trump, eurozone crisis, Fall of the Berlin Wall, financial intermediation, Francis Fukuyama: the end of history, full employment, gender pay gap, George Akerlof, gig economy, Gini coefficient, hiring and firing, housing crisis, Hyman Minsky, income inequality, inflation targeting, informal economy, information asymmetry, intangible asset, investor state dispute settlement, invisible hand, Isaac Newton, labor-force participation, liberal capitalism, low skilled workers, market fundamentalism, mini-job, moral hazard, non-tariff barriers, offshore financial centre, open economy, patent troll, pension reform, price mechanism, price stability, purchasing power parity, quantitative easing, race to the bottom, regulatory arbitrage, rent-seeking, Robert Shiller, Robert Shiller, Ronald Reagan, selection bias, shareholder value, Silicon Valley, sovereign wealth fund, TaskRabbit, too big to fail, trade liberalization, transaction costs, transfer pricing, trickle-down economics, tulip mania, universal basic income, unorthodox policies, zero-sum game

While there is considerable evidence that technology evolved toward higher employment of skilled workers (compared to unskilled ones), there is little evidence that it evolved toward higher use of capital (compared to labor). # For instance, the best singers or athletes are enormously well paid but others receive low incomes. ** Shifting old-age retirement programs from pay-as-you-go pensions to fully funded retirement accounts breaks intergenerational solidarity and leaves individuals to save for their own retirement, undermining economic stability. †† Zoning is used because designing a price mechanism is essentially far too complex. ‡‡ Again, the ECB, national central banks, and European governments can use both carrots and sticks. The ECB, for instance, could restrict access to refinancing to banks that satisfied these targets. Alternatively, governments could make available the information described earlier (for issuing public option mortgages) at no cost to private lenders. Chapter 8 A European Social Security System for the Twenty-First Century The social insurance systems that Europe—notably Germany—pioneered in the late nineteenth century have served its people well.


pages: 341 words: 116,854

The Devil's Playground: A Century of Pleasure and Profit in Times Square by James Traub

Anton Chekhov, Broken windows theory, Buckminster Fuller, Charles Lindbergh, delayed gratification, Donald Trump, fear of failure, intangible asset, Jane Jacobs, jitney, light touch regulation, megastructure, New Urbanism, Peter Eisenman, plutocrats, Plutocrats, price mechanism, rent control, Ronald Reagan, upwardly mobile, urban planning, urban renewal

The name was driving away the upscale crowd—Asian girls, in particular, didn’t want to have anything to do with the place—and attracting the wrong kind of attention. Law & Order wanted to shoot a murder scene on the premises; Sex and the City wanted a sex scene. Marc wasn’t interested. “No sex, no murder, nothing negative.” But where was the positive going to come from? Marc admitted that he was hurting; the promoters he booked in weren’t making the bar minimums he charged, and he was being forced to shift to a different pricing mechanism. The economy was killing everyone. Maybe this bid for respectability would crash, and Show World would end with racks full of kung fu videos like everyone else. But I was rooting for Marc. It was obvious, in retrospect, that Todo Con Nada at Show World had been foredoomed. Richie Basciano did not aspire to be alternative anything; neither, for that matter, did Times Square. And this particular rear entry to Times Square, here on Eighth Avenue, was not about making weird stuff broadly acceptable; it was about making dirty stuff broadly acceptable.


pages: 366 words: 117,875

Arrival City by Doug Saunders

agricultural Revolution, Ayatollah Khomeini, Berlin Wall, Branko Milanovic, call centre, credit crunch, Deng Xiaoping, desegregation, ghettoisation, Gini coefficient, guest worker program, Hernando de Soto, Honoré de Balzac, illegal immigration, immigration reform, income inequality, informal economy, Jane Jacobs, Kibera, land reform, land tenure, low skilled workers, mass immigration, megacity, microcredit, new economy, Pearl River Delta, pensions crisis, place-making, price mechanism, rent control, Silicon Valley, special economic zone, the built environment, The Chicago School, The Death and Life of Great American Cities, upwardly mobile, urban planning, urban sprawl, white flight, working poor, working-age population

Although much attention has gone to Asian migrants to the suburbs, who arrive with skills, savings, and high levels of cultural capital, they are actually outnumbered by the suburb-bound Central Americans and Mexicans, who, in their first stages of arrival, have filled construction, landscaping, and service-industry jobs in the fast-expanding suburban fringe. Much of the suburban settlement has to do with family and village networks, which establish chain-migration footholds in an affordable suburb, rapidly turning a small group of workers into a large and concentrated influx; one Washington-area official calls this “the cousin syndrome.” Economists have also observed an immigration-driven pricing mechanism with a suburbanizing effect, in which first-wave migrants arrive in the urban core in such great numbers that they drive up arrival-city rents and drive down immigrant wages, making the inner-ring suburbs appear more appealing, in wages and rent, to the next wave of villagers to arrive.22 This pattern is even more sharply defined in the largest cities of Canada. In Toronto, which receives 40 percent of the country’s 300,000 annual immigrants, a 2008 study found that almost all of them were settling in the suburbs—a complete reversal of the pattern of the 1970s, when most migrants settled in the downtown core—with wealthier urban–urban migrants from the Indian subcontinent and China settling in the outer suburbs and village-born migrants from Africa, Latin America, and Asia settling in inner-ring arrival cities such as Victoria Park, Thorncliffe Park, and southern Etobicoke.


pages: 482 words: 117,962

Exceptional People: How Migration Shaped Our World and Will Define Our Future by Ian Goldin, Geoffrey Cameron, Meera Balarajan

Admiral Zheng, agricultural Revolution, barriers to entry, Berlin Wall, Branko Milanovic, British Empire, conceptual framework, creative destruction, demographic transition, Deng Xiaoping, endogenous growth, failed state, Fall of the Berlin Wall, Gini coefficient, global pandemic, global supply chain, guest worker program, illegal immigration, income inequality, income per capita, Intergovernmental Panel on Climate Change (IPCC), job automation, Joseph Schumpeter, knowledge economy, labor-force participation, labour mobility, Lao Tzu, life extension, longitudinal study, low skilled workers, low-wage service sector, Malacca Straits, mass immigration, microcredit, Nelson Mandela, Network effects, new economy, New Urbanism, old age dependency ratio, open borders, out of africa, price mechanism, purchasing power parity, Richard Florida, selection bias, Silicon Valley, Silicon Valley startup, Skype, spice trade, trade route, transaction costs, transatlantic slave trade, women in the workforce, working-age population

As this cosmopolitan mélange illustrates, the Indian Ocean and Southeast Asia formed “a zone of ecumenical trade…larger than any that had been created before.”99 Similar to what occurred in the Mediterranean trade, close contact between migrant communities drove convergence in commercial practices. One such practice was collective price bargaining, where a ship's captain would bargain on behalf of all of the merchants on board. The accelerating pace of cross-cultural trade also attuned more general patterns of behavior in the region toward trade, augmenting “the everyday routines of life” through the growth of specialization and the spread of the price mechanism. While Europeans would be the first to open up the Atlantic route to the Americas, in the early fifteenth century, the Chinese first established contact over the Indian and Pacific Oceans. Between 1403 and 1433, Admiral Zheng He, under the patronage of the Ming Emperor Zhu Di, undertook a series of explorations with fleets that at times numbered up to 300 ships, carrying 20,000 men. These sailed from China, through Southeast Asia across India to Eastern Africa, and some accounts even suggest that he rounded the Cape of Good Hope almost a century before Bartolomeu Dias did—heading in the opposite direction.100 The ships used by Zheng He were about ten times the average size of the largest ships then built in Europe.


pages: 298 words: 43,745

Understanding Sponsored Search: Core Elements of Keyword Advertising by Jim Jansen

AltaVista, barriers to entry, Black Swan, bounce rate, business intelligence, butterfly effect, call centre, Claude Shannon: information theory, complexity theory, correlation does not imply causation, en.wikipedia.org, first-price auction, information asymmetry, information retrieval, intangible asset, inventory management, life extension, linear programming, longitudinal study, megacity, Nash equilibrium, Network effects, PageRank, place-making, price mechanism, psychological pricing, random walk, Schrödinger's Cat, sealed-bid auction, search engine result page, second-price auction, second-price sealed-bid, sentiment analysis, social web, software as a service, stochastic process, telemarketer, the market place, The Present Situation in Quantum Mechanics, the scientific method, The Wisdom of Crowds, Vickrey auction, Vilfredo Pareto, yield management

Microsoft entered the sponsoredsearch auction business in 2006 [3]. Yahoo!, which had purchased Overture in 2003, introduced a revamped sponsored-search auction in 2007. Baidu modeled both the Google auction and presentation in 2009. The auction process or platform, typically called a market, takes some set of resources and allocates these resources to those participating in the auction based on a pricing mechanism known as a bid. Therefore, an auction is simply a market with an explicit set of rules to determine resource allocation. The prices of these resources are based on bids from the participants in that market [4]. For sponsored search, the search engines are the market as the keyphrase bidding platform where advertisers (virtually) gather. The resource is the ad positions, which is the SERP real estate for ad placement.


pages: 421 words: 110,406

Platform Revolution: How Networked Markets Are Transforming the Economy--And How to Make Them Work for You by Sangeet Paul Choudary, Marshall W. van Alstyne, Geoffrey G. Parker

3D printing, Affordable Care Act / Obamacare, Airbnb, Alvin Roth, Amazon Mechanical Turk, Amazon Web Services, Andrei Shleifer, Apple's 1984 Super Bowl advert, autonomous vehicles, barriers to entry, big data - Walmart - Pop Tarts, bitcoin, blockchain, business cycle, business process, buy low sell high, chief data officer, Chuck Templeton: OpenTable:, clean water, cloud computing, connected car, corporate governance, crowdsourcing, data acquisition, data is the new oil, digital map, discounted cash flows, disintermediation, Edward Glaeser, Elon Musk, en.wikipedia.org, Erik Brynjolfsson, financial innovation, Haber-Bosch Process, High speed trading, information asymmetry, Internet of things, inventory management, invisible hand, Jean Tirole, Jeff Bezos, jimmy wales, John Markoff, Khan Academy, Kickstarter, Lean Startup, Lyft, Marc Andreessen, market design, Metcalfe’s law, multi-sided market, Network effects, new economy, payday loans, peer-to-peer lending, Peter Thiel, pets.com, pre–internet, price mechanism, recommendation engine, RFID, Richard Stallman, ride hailing / ride sharing, Robert Metcalfe, Ronald Coase, Satoshi Nakamoto, self-driving car, shareholder value, sharing economy, side project, Silicon Valley, Skype, smart contracts, smart grid, Snapchat, software is eating the world, Steve Jobs, TaskRabbit, The Chicago School, the payments system, Tim Cook: Apple, transaction costs, Travis Kalanick, two-sided market, Uber and Lyft, Uber for X, uber lyft, winner-take-all economy, zero-sum game, Zipcar

As Heiferman explained in an interview five years later, “The big headline, by the way, in going from free to fee for us is: Yeah, we lost 95% of our activity but now we have much, much, more going on than we ever did before and half the Meetups are successful, as opposed to 1–2% being successful.”5 As we’ve discussed, a platform’s goal is not simply to pump up the numbers of participants and interactions. It must also take steps to encourage desirable interactions and discourage undesirable ones. Meetup’s monetization model helped it achieve exactly that. By discouraging organizers who weren’t serious about their objectives, the pricing mechanism created a culture of quality on the platform. It’s a mistake to assume that network effects can always be optimized by simply refraining from charging users. A better approach to analyzing the monetization challenge is to ask these questions: How can we generate revenues without reducing our positive network effects? Can we devise a pricing strategy that strengthens our positive network effects while reducing our negative network effects?


pages: 474 words: 120,801

The End of Power: From Boardrooms to Battlefields and Churches to States, Why Being in Charge Isn’t What It Used to Be by Moises Naim

additive manufacturing, barriers to entry, Berlin Wall, bilateral investment treaty, business cycle, business process, business process outsourcing, call centre, citizen journalism, Clayton Christensen, clean water, collapse of Lehman Brothers, collective bargaining, colonial rule, conceptual framework, corporate governance, creative destruction, crony capitalism, deskilling, disintermediation, disruptive innovation, don't be evil, failed state, Fall of the Berlin Wall, financial deregulation, Francis Fukuyama: the end of history, illegal immigration, immigration reform, income inequality, income per capita, intangible asset, intermodal, invisible hand, job-hopping, Joseph Schumpeter, Julian Assange, Kickstarter, liberation theology, Martin Wolf, mega-rich, megacity, Naomi Klein, Nate Silver, new economy, Northern Rock, Occupy movement, open borders, open economy, Peace of Westphalia, plutocrats, Plutocrats, price mechanism, price stability, private military company, profit maximization, Ronald Coase, Ronald Reagan, Silicon Valley, Skype, Steve Jobs, The Nature of the Firm, Thomas Malthus, too big to fail, trade route, transaction costs, Washington Consensus, WikiLeaks, World Values Survey, zero-sum game

Consider the threat of climate change: even as the rise from poverty of China and India has lifted the lives of billions, it has also accelerated their greenhouse gas emissions dramatically. China overtook the United States as the single largest emitter of greenhouse gases in 2006, and India that year was ranked fourth. Any effort to reduce carbon emissions in one country must take into account the actions of the other—not least because as environmental policies and carbon pricing mechanisms in developed countries take hold, companies have responded by shifting their carbon-intensive production offshore. From arms exports and Internet-domain conventions to fisheries and agricultural trade, just about every subject for international negotiation now involves more demands from a growing number of stakeholders. As a result, we are increasingly unable to take action that goes beyond the lowest common denominator and actually makes a dent in the problem at hand.


Trading Risk: Enhanced Profitability Through Risk Control by Kenneth L. Grant

backtesting, business cycle, buy and hold, commodity trading advisor, correlation coefficient, correlation does not imply causation, delta neutral, diversification, diversified portfolio, fixed income, frictionless, frictionless market, George Santayana, implied volatility, interest rate swap, invisible hand, Isaac Newton, John Meriwether, Long Term Capital Management, market design, Myron Scholes, performance metric, price mechanism, price stability, risk tolerance, risk-adjusted returns, Sharpe ratio, short selling, South Sea Bubble, Stephen Hawking, the scientific method, The Wealth of Nations by Adam Smith, transaction costs, two-sided market, value at risk, volatility arbitrage, yield curve, zero-coupon bond

In order to analyze transactions-level performance for this portfolio, it would be useful to know something about the volume of these securities, not to mention their volatilities, betas, sectors, and other market characteristics. However, it would be neither necessary nor indeed efficient to record these statistics every time the portfolio manager executed a trade in one of these names. Rather, this information is best obtained from other sources, including electronic-pricing mechanisms such as Reuters and Bloomberg, as well as financial print publications, such as Barron’s. Defining a Transaction As a final consideration in setting up your trade-level analysis tool kit, you must decide what among your transactions activity specifically constitutes a “trade.” This is particularly important for active traders (including professionals) who very often maintain a core position in a given security while scaling up and down the exact quantities they are holding at any time on the basis of market conditions.


pages: 395 words: 116,675

The Evolution of Everything: How New Ideas Emerge by Matt Ridley

"Robert Solow", affirmative action, Affordable Care Act / Obamacare, Albert Einstein, Alfred Russel Wallace, AltaVista, altcoin, anthropic principle, anti-communist, bank run, banking crisis, barriers to entry, bitcoin, blockchain, Boris Johnson, British Empire, Broken windows theory, Columbian Exchange, computer age, Corn Laws, cosmological constant, creative destruction, Credit Default Swap, crony capitalism, crowdsourcing, cryptocurrency, David Ricardo: comparative advantage, demographic transition, Deng Xiaoping, discovery of DNA, Donald Davies, double helix, Downton Abbey, Edward Glaeser, Edward Lorenz: Chaos theory, Edward Snowden, endogenous growth, epigenetics, Ethereum, ethereum blockchain, facts on the ground, falling living standards, Ferguson, Missouri, financial deregulation, financial innovation, Frederick Winslow Taylor, Geoffrey West, Santa Fe Institute, George Gilder, George Santayana, Gunnar Myrdal, Henri Poincaré, hydraulic fracturing, imperial preference, income per capita, indoor plumbing, interchangeable parts, Intergovernmental Panel on Climate Change (IPCC), invisible hand, Isaac Newton, Jane Jacobs, Jeff Bezos, joint-stock company, Joseph Schumpeter, Kenneth Arrow, Kevin Kelly, Khan Academy, knowledge economy, land reform, Lao Tzu, long peace, Lyft, M-Pesa, Mahatma Gandhi, Mark Zuckerberg, means of production, meta analysis, meta-analysis, mobile money, money: store of value / unit of account / medium of exchange, Mont Pelerin Society, moral hazard, Necker cube, obamacare, out of africa, packet switching, peer-to-peer, phenotype, Pierre-Simon Laplace, price mechanism, profit motive, RAND corporation, random walk, Ray Kurzweil, rent-seeking, reserve currency, Richard Feynman, rising living standards, road to serfdom, Ronald Coase, Ronald Reagan, Satoshi Nakamoto, Second Machine Age, sharing economy, smart contracts, South Sea Bubble, Steve Jobs, Steven Pinker, The Wealth of Nations by Adam Smith, Thorstein Veblen, transaction costs, twin studies, uber lyft, women in the workforce

The more open and free the market, the less opportunity there is for exploitation and predation, because the easier it is for consumers to boycott the predators and for competitors to whittle away their excess profits. In its ideal form, therefore, the free market is a device for creating networks of collaboration among people to raise each other’s living standards, a device for coordinating production and a device for communicating information about needs through the price mechanism. Also a device for encouraging innovation. It is the very opposite of the rampant and selfish individualism that so many churchmen and others seem to think it is. The market is a system of mass cooperation. You compete with rival producers, sure, but you cooperate with your customers, your suppliers and your colleagues. Commerce both needs and breeds trust. Imperfect markets are better than no markets Few would disagree with this formulation, but equally few would accept that the ideal is ever realised in practice.


pages: 354 words: 118,970

Transaction Man: The Rise of the Deal and the Decline of the American Dream by Nicholas Lemann

Affordable Care Act / Obamacare, Airbnb, airline deregulation, Albert Einstein, augmented reality, basic income, Bernie Sanders, Black-Scholes formula, buy and hold, capital controls, computerized trading, corporate governance, cryptocurrency, Daniel Kahneman / Amos Tversky, dematerialisation, diversified portfolio, Donald Trump, Elon Musk, Eugene Fama: efficient market hypothesis, financial deregulation, financial innovation, fixed income, future of work, George Akerlof, gig economy, Henry Ford's grandson gave labor union leader Walter Reuther a tour of the company’s new, automated factory…, index fund, information asymmetry, invisible hand, Irwin Jacobs, Joi Ito, Joseph Schumpeter, Kenneth Arrow, Kickstarter, life extension, Long Term Capital Management, Mark Zuckerberg, mass immigration, means of production, Metcalfe’s law, money market fund, Mont Pelerin Society, moral hazard, Myron Scholes, new economy, Norman Mailer, obamacare, Paul Samuelson, Peter Thiel, price mechanism, principal–agent problem, profit maximization, quantitative trading / quantitative finance, Ralph Nader, Richard Thaler, road to serfdom, Robert Bork, Robert Metcalfe, rolodex, Ronald Coase, Ronald Reagan, Sand Hill Road, shareholder value, short selling, Silicon Valley, Silicon Valley ideology, Silicon Valley startup, Social Responsibility of Business Is to Increase Its Profits, Steve Jobs, TaskRabbit, The Nature of the Firm, the payments system, Thomas Kuhn: the structure of scientific revolutions, Thorstein Veblen, too big to fail, transaction costs, universal basic income, War on Poverty, white flight, working poor

He called The Modern Corporation and Private Property “folklore,” adding that Berle’s more recent writings were no better: in endorsing the idea of corporate executives as statesmen who served a public purpose, Berle was running the risk of “losing the only objective standard available for judging quality among corporate managers,” which was their economic performance. All attempts to consider the corporation as a social institution “represent disguised efforts to find an alternative to the price mechanism in economic matters.” In a second article, Manne proposed a solution to the problems created by decades of muddy thinking about the corporation: the establishment of a “market for corporate control,” in which a newly empowered breed of shareholders would, if management failed to perform well economically, arrange for the corporation to be acquired by a new owner who would better serve their interests.


pages: 492 words: 118,882

The Blockchain Alternative: Rethinking Macroeconomic Policy and Economic Theory by Kariappa Bheemaiah

accounting loophole / creative accounting, Ada Lovelace, Airbnb, algorithmic trading, asset allocation, autonomous vehicles, balance sheet recession, bank run, banks create money, Basel III, basic income, Ben Bernanke: helicopter money, bitcoin, blockchain, Bretton Woods, business cycle, business process, call centre, capital controls, Capital in the Twenty-First Century by Thomas Piketty, cashless society, cellular automata, central bank independence, Claude Shannon: information theory, cloud computing, cognitive dissonance, collateralized debt obligation, commoditize, complexity theory, constrained optimization, corporate governance, creative destruction, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, crowdsourcing, cryptocurrency, David Graeber, deskilling, Diane Coyle, discrete time, disruptive innovation, distributed ledger, diversification, double entry bookkeeping, Ethereum, ethereum blockchain, fiat currency, financial innovation, financial intermediation, Flash crash, floating exchange rates, Fractional reserve banking, full employment, George Akerlof, illegal immigration, income inequality, income per capita, inflation targeting, information asymmetry, interest rate derivative, inventory management, invisible hand, John Maynard Keynes: technological unemployment, John von Neumann, joint-stock company, Joseph Schumpeter, Kenneth Arrow, Kenneth Rogoff, Kevin Kelly, knowledge economy, large denomination, liquidity trap, London Whale, low skilled workers, M-Pesa, Marc Andreessen, market bubble, market fundamentalism, Mexican peso crisis / tequila crisis, MITM: man-in-the-middle, money market fund, money: store of value / unit of account / medium of exchange, mortgage debt, natural language processing, Network effects, new economy, Nikolai Kondratiev, offshore financial centre, packet switching, Pareto efficiency, pattern recognition, peer-to-peer lending, Ponzi scheme, precariat, pre–internet, price mechanism, price stability, private sector deleveraging, profit maximization, QR code, quantitative easing, quantitative trading / quantitative finance, Ray Kurzweil, Real Time Gross Settlement, rent control, rent-seeking, Satoshi Nakamoto, Satyajit Das, savings glut, seigniorage, Silicon Valley, Skype, smart contracts, software as a service, software is eating the world, speech recognition, statistical model, Stephen Hawking, supply-chain management, technology bubble, The Chicago School, The Future of Employment, The Great Moderation, the market place, The Nature of the Firm, the payments system, the scientific method, The Wealth of Nations by Adam Smith, Thomas Kuhn: the structure of scientific revolutions, too big to fail, trade liberalization, transaction costs, Turing machine, Turing test, universal basic income, Von Neumann architecture, Washington Consensus

In his seminal paper, ‘The Nature of the Firm’, Coase noted that while economies involve plenty of planning, a large part of this planning is not coordinated by the price system and takes place within the boundaries of the firm (Hidalgo, 2015). As firms have hierarchies, most interactions within a firm are political. This creates boundaries of power that influence transactions and interactions causing them to deviate from the clear-cut dynamics of market price mechanisms. This is seen in the form of contracts, inspections, disputes, negotiations, etc. These boundaries in turn rack up costs and the greater the cost associated with a transaction, the more friction associated with making the transaction. But trust is an essential element in any network as it allows for the transfer of information, knowledge and knowhow. If there is a greater amount of trust in the network, links are formed more easily and transactions occur with a greater amount of fluidity thus increasing the network size.


pages: 476 words: 125,219

Digital Disconnect: How Capitalism Is Turning the Internet Against Democracy by Robert W. McChesney

2013 Report for America's Infrastructure - American Society of Civil Engineers - 19 March 2013, access to a mobile phone, Albert Einstein, American Legislative Exchange Council, American Society of Civil Engineers: Report Card, Automated Insights, barriers to entry, Berlin Wall, business cycle, Cass Sunstein, citizen journalism, cloud computing, collaborative consumption, collective bargaining, creative destruction, crony capitalism, David Brooks, death of newspapers, declining real wages, Double Irish / Dutch Sandwich, Erik Brynjolfsson, failed state, Filter Bubble, full employment, future of journalism, George Gilder, Gini coefficient, Google Earth, income inequality, informal economy, intangible asset, invention of agriculture, invisible hand, Jaron Lanier, Jeff Bezos, jimmy wales, John Markoff, John Maynard Keynes: Economic Possibilities for our Grandchildren, Joseph Schumpeter, Julian Assange, Kickstarter, Mark Zuckerberg, Marshall McLuhan, means of production, Metcalfe’s law, mutually assured destruction, national security letter, Nelson Mandela, Network effects, new economy, New Journalism, Nicholas Carr, Occupy movement, offshore financial centre, patent troll, Peter Thiel, plutocrats, Plutocrats, post scarcity, price mechanism, profit maximization, profit motive, QWERTY keyboard, Ralph Nader, Richard Stallman, road to serfdom, Robert Metcalfe, Saturday Night Live, sentiment analysis, Silicon Valley, single-payer health, Skype, spectrum auction, Steve Jobs, Steve Wozniak, Steven Levy, Steven Pinker, Stewart Brand, Telecommunications Act of 1996, the medium is the message, The Spirit Level, The Structural Transformation of the Public Sphere, The Wealth of Nations by Adam Smith, Thorstein Veblen, too big to fail, transfer pricing, Upton Sinclair, WikiLeaks, winner-take-all economy, yellow journalism

And if you have to have a prayer session before raising the price by 10 percent, then you’ve got a terrible business.” For Buffett it is all about monopoly power, not management. “If you own the only newspaper in town, up until the last five years or so, you had pricing power and you didn’t have to go to the office” and worry about management issues.44 The consequences for mainstream economics are disastrous if the price mechanism and market competition are removed as the main regulatory mechanisms. The economy will be inefficient and unfair. In general, economists have punted on this issue rather than face up to the reality of Buffett’s world and the implications of Hayek’s concern.45 As important and revealing as concentration ratios for industries are, they are of more limited value today than in the past in getting at the full range of monopoly power of the giant corporation.


pages: 431 words: 132,416

No One Would Listen: A True Financial Thriller by Harry Markopolos

backtesting, barriers to entry, Bernie Madoff, buy and hold, call centre, centralized clearinghouse, correlation coefficient, diversified portfolio, Edward Thorp, Emanuel Derman, Eugene Fama: efficient market hypothesis, family office, financial thriller, fixed income, forensic accounting, high net worth, index card, Long Term Capital Management, Louis Bachelier, offshore financial centre, Ponzi scheme, price mechanism, quantitative trading / quantitative finance, regulatory arbitrage, Renaissance Technologies, risk-adjusted returns, risk/return, rolodex, Sharpe ratio, statistical arbitrage, too big to fail, transaction costs, your tax dollars at work

You can’t regulate common sense, but some sort of guidelines should be available to investors on the SEC’s web site, pointing out that if you don’t know how to model an OTC derivative yourself, then you, your company, or your municipality shouldn’t be trading them. The SEC should closely investigate all disclosures in the OTC municipal derivatives market, because this sector of the marketplace is just rife with fraud. In many instances it is still a pay-to-play market with opaque disclosure documents and even more opaque pricing mechanisms, which only serve to defraud government entities. I have seen the state of Massachusetts lose $450 million because no one in state government knew how to price interest rate swaptions. The Massachusetts Turnpike Authority was picked off by several Wall Street firms because they were lured into OTC transactions in which they didn’t understand the pricing or the risks. Once again, you can’t regulate common sense, but we can regulate the OTC markets so they no longer remain outposts of lawlessness.


pages: 422 words: 131,666

Life Inc.: How the World Became a Corporation and How to Take It Back by Douglas Rushkoff

addicted to oil, affirmative action, Amazon Mechanical Turk, anti-globalists, banks create money, big-box store, Bretton Woods, car-free, Charles Lindbergh, colonial exploitation, Community Supported Agriculture, complexity theory, computer age, corporate governance, credit crunch, currency manipulation / currency intervention, David Ricardo: comparative advantage, death of newspapers, don't be evil, Donald Trump, double entry bookkeeping, easy for humans, difficult for computers, financial innovation, Firefox, full employment, global village, Google Earth, greed is good, Howard Rheingold, income per capita, invention of the printing press, invisible hand, Jane Jacobs, John Nash: game theory, joint-stock company, Kevin Kelly, Kickstarter, laissez-faire capitalism, loss aversion, market bubble, market design, Marshall McLuhan, Milgram experiment, moral hazard, mutually assured destruction, Naomi Klein, negative equity, new economy, New Urbanism, Norbert Wiener, peak oil, peer-to-peer, place-making, placebo effect, Ponzi scheme, price mechanism, price stability, principal–agent problem, private military company, profit maximization, profit motive, race to the bottom, RAND corporation, rent-seeking, RFID, road to serfdom, Ronald Reagan, short selling, Silicon Valley, Simon Kuznets, social software, Steve Jobs, Telecommunications Act of 1996, telemarketer, The Wealth of Nations by Adam Smith, Thomas L Friedman, too big to fail, trade route, trickle-down economics, union organizing, urban decay, urban planning, urban renewal, Vannevar Bush, Victor Gruen, white flight, working poor, Works Progress Administration, Y2K, young professional, zero-sum game

There’s just no way to predict what everyone might want, however good the math you’re using. Since the information required to make production decisions is inherently decentralized, it should be gathered and reconciled through decentralized means. Adam Smith had already argued that if everyone goes after his own interests, the interests of the greater society will be served. Hayek extended this logic, contending that the price mechanisms of a freely functioning market will naturally synchronize the demands of people with the market’s supply. In Hayek’s view, this mechanism is not of human design, but a spontaneous “catallaxy”: a self-organizing system of voluntary cooperation. As millions of people both rationally and irrationally pursued their goals, a working market would order itself around them. The market was as much a part of human beings as their DNA.


The New Enclosure: The Appropriation of Public Land in Neoliberal Britain by Brett Christophers

Boris Johnson, Capital in the Twenty-First Century by Thomas Piketty, Corn Laws, credit crunch, cross-subsidies, Diane Coyle, estate planning, ghettoisation, Hernando de Soto, housing crisis, income inequality, invisible hand, land reform, land tenure, land value tax, late capitalism, market clearing, Martin Wolf, New Journalism, New Urbanism, off grid, offshore financial centre, performance metric, Philip Mirowski, price mechanism, price stability, profit motive, Right to Buy, Skype, sovereign wealth fund, special economic zone, the built environment, The Wealth of Nations by Adam Smith, Thorstein Veblen, urban sprawl, wealth creators

Government would be (very) small; so would be its need for land. But despite the claims of political-economic libertarians such as the late Murray Rothbard, few significant theorists of capitalism would suggest that all services can be effectively provided, or should therefore be provided, by the private sector. ‘The market’, understood here as an aggregation of private-sector actors whose relations are mediated purely through the price mechanism, sometimes ‘fails’. It is ill-adapted to providing some types of services, failing to do so adequately when given the task. Those services, theorists suggest, should be provided by the state, as they often have been in the past. Adam Smith’s thinking has long been a touchstone in this regard. Widely considered the father figure of laissez-faire economics, Smith nonetheless saw a critical need for an interventionist state in certain vital areas of social and economic life – so much so, in fact, that Rothbard would later dismiss him as no less than ‘a necessary precursor of Karl Marx’.1 (Don’t tell the Adam Smith Institute.)


pages: 494 words: 142,285

The Future of Ideas: The Fate of the Commons in a Connected World by Lawrence Lessig

AltaVista, Andy Kessler, barriers to entry, business process, Cass Sunstein, commoditize, computer age, creative destruction, dark matter, disintermediation, disruptive innovation, Donald Davies, Erik Brynjolfsson, George Gilder, Hacker Ethic, Hedy Lamarr / George Antheil, Howard Rheingold, Hush-A-Phone, HyperCard, hypertext link, Innovator's Dilemma, invention of hypertext, inventory management, invisible hand, Jean Tirole, Jeff Bezos, Joseph Schumpeter, Kenneth Arrow, Larry Wall, Leonard Kleinrock, linked data, Marc Andreessen, Menlo Park, Mitch Kapor, Network effects, new economy, packet switching, peer-to-peer, peer-to-peer model, price mechanism, profit maximization, RAND corporation, rent control, rent-seeking, RFC: Request For Comment, Richard Stallman, Richard Thaler, Robert Bork, Ronald Coase, Search for Extraterrestrial Intelligence, SETI@home, Silicon Valley, smart grid, software patent, spectrum auction, Steve Crocker, Steven Levy, Stewart Brand, Ted Nelson, Telecommunications Act of 1996, The Chicago School, transaction costs, zero-sum game

See Yochai Benkler, “Overcoming Agoraphobia: Building the Commons of the Digitally Networked Environment,” Harvard Journal of Law & Technology 11 (1998): 287, 316-17. 15 As Coase wrote: “But it is a commonplace of economics that almost all resources used in the economic system (and not simply radio and television frequencies) are limited in amount and scarce, in that people would like to use more than exists. Land, labor and capital are all scarce, but this, of itself, does not call for government regulation. It is true that some mechanism has to be employed to decide who, out of the many claimants, should be allowed to use the scarce resource. But the way this is usually done in the American economic system is to employ the price mechanism, and this allocates resources to users without the need for government regulation.” R. H. Coase, “The Federal Communications Commission,” Journal of Law & Economics 2 (1959): 1, 14. 16 Hazlett has been prolific in advancing this argument. See, e.g., Hazlett and Sosa, “Chilling the Internet? Lessons from FCC Regulation of Radio Broadcasting,” Michigan Telecommunications & Technology Law Review 4 (1997-98): 35; Hazlett, “Physical Scarcity, Rent Seeking, and the First Amendment,” Columbia Law Review 97 (1997): 905; Hazlett, “Assigning Property Rights to Radio Spectrum Users: Why Did FCC License Auctions Take 67 Years?


pages: 464 words: 139,088

The End of Alchemy: Money, Banking and the Future of the Global Economy by Mervyn King

"Robert Solow", Andrei Shleifer, Asian financial crisis, asset-backed security, balance sheet recession, bank run, banking crisis, banks create money, Berlin Wall, Bernie Madoff, Big bang: deregulation of the City of London, bitcoin, Black Swan, Bretton Woods, British Empire, business cycle, capital controls, Carmen Reinhart, Cass Sunstein, central bank independence, centre right, collapse of Lehman Brothers, creative destruction, Credit Default Swap, crowdsourcing, Daniel Kahneman / Amos Tversky, David Ricardo: comparative advantage, distributed generation, Doha Development Round, Edmond Halley, Fall of the Berlin Wall, falling living standards, fiat currency, financial innovation, financial intermediation, floating exchange rates, forward guidance, Fractional reserve banking, Francis Fukuyama: the end of history, full employment, German hyperinflation, Hyman Minsky, inflation targeting, invisible hand, John Maynard Keynes: Economic Possibilities for our Grandchildren, John Meriwether, joint-stock company, Joseph Schumpeter, Kenneth Arrow, Kenneth Rogoff, labour market flexibility, large denomination, lateral thinking, liquidity trap, Long Term Capital Management, manufacturing employment, market clearing, Martin Wolf, Mexican peso crisis / tequila crisis, money market fund, money: store of value / unit of account / medium of exchange, moral hazard, Myron Scholes, Nick Leeson, North Sea oil, Northern Rock, oil shale / tar sands, oil shock, open economy, paradox of thrift, Paul Samuelson, Ponzi scheme, price mechanism, price stability, purchasing power parity, quantitative easing, rent-seeking, reserve currency, Richard Thaler, rising living standards, Robert Shiller, Robert Shiller, Satoshi Nakamoto, savings glut, secular stagnation, seigniorage, stem cell, Steve Jobs, The Great Moderation, the payments system, The Rise and Fall of American Growth, Thomas Malthus, too big to fail, transaction costs, Tyler Cowen: Great Stagnation, yield curve, Yom Kippur War, zero-sum game

A sensible coping strategy to deal with this problem is not artificially to coordinate policies that naturally belong to national governments, but to seek agreement on an orderly recovery and rebalancing of the global economy. The way in which each country will choose to rebalance is a matter for itself, but it is in the interests of all countries to find a common timetable for that rebalancing. The natural broker for an agreement is the IMF. Our best chance of solving the prisoner’s dilemma, while retaining national sovereignty, is to use the price mechanism, not suppress it. Arrangements to fix or limit movements of exchange rates tend to backfire as unexpected events require changes in rates to avoid economic suffering. At the heart of the problem is the question that so troubled the negotiators at Bretton Woods. How can one create symmetric obligations on countries with trade surpluses and trade deficits? The international monetary order set up after the Second World War failed to do so, and the result is that fixed exchange rates have proved deflationary.


pages: 495 words: 136,714

Money for Nothing by Thomas Levenson

Albert Einstein, asset-backed security, bank run, British Empire, carried interest, clockwork universe, credit crunch, Edmond Halley, Edward Lloyd's coffeehouse, experimental subject, failed state, Fellow of the Royal Society, fiat currency, financial innovation, Fractional reserve banking, income inequality, Isaac Newton, joint-stock company, market bubble, open economy, price mechanism, quantitative easing, Republic of Letters, risk/return, side project, South Sea Bubble, The Wealth of Nations by Adam Smith

His thinking matured in 1705, when his next treatise, titled Money and Trade Reconsidered: with a Proposal for Supplying the Nation with Money, set out what the economist and central banker François Velde has called “the first…theoretical framework” for much of the modern conception of money. There, Law argued that money was, like any commodity, subject to supply and demand; that the amount of money available within a society determined prices within a market; and that this price mechanism shaped a nation’s trade, its employment, and the productive capacity of its economy. This was not wholly new thinking—recall that Isaac Newton answering Pollexfen had offered some similar notions, and that others were working on related ideas. But there was more to come: Law’s book offered only the first steps in an argument he would work out over the next decade. As he thought through the problem, Law first analyzed the various things money does: it can store value (money in the bank), it serves as the medium of exchange (buying and selling), and it is the device, as he put it, through which “contracts are made payable”—which is another way of saying that money allows bargains to extend across time, with set, established payments to be made at some agreed-upon later date.


pages: 1,535 words: 337,071

Networks, Crowds, and Markets: Reasoning About a Highly Connected World by David Easley, Jon Kleinberg

Albert Einstein, AltaVista, clean water, conceptual framework, Daniel Kahneman / Amos Tversky, Douglas Hofstadter, Erdős number, experimental subject, first-price auction, fudge factor, George Akerlof, Gerard Salton, Gerard Salton, Gödel, Escher, Bach, incomplete markets, information asymmetry, information retrieval, John Nash: game theory, Kenneth Arrow, longitudinal study, market clearing, market microstructure, moral hazard, Nash equilibrium, Network effects, Pareto efficiency, Paul Erdős, planetary scale, prediction markets, price anchoring, price mechanism, prisoner's dilemma, random walk, recommendation engine, Richard Thaler, Ronald Coase, sealed-bid auction, search engine result page, second-price auction, second-price sealed-bid, Simon Singh, slashdot, social web, Steve Jobs, stochastic process, Ted Nelson, The Market for Lemons, The Wisdom of Crowds, trade route, transaction costs, ultimatum game, Vannevar Bush, Vickrey auction, Vilfredo Pareto, Yogi Berra, zero-sum game

Here, the point is that bidders in a first-price auction will tend to bid lower than they do in a second-price auction, and in fact this lowering of bids will tend to offset what would otherwise look like a difference in the size of the winning bid. This consideration will come up as a central issue at various points later in the chapter. 9.4 Second-Price Auctions The sealed-bid second-price auction is particularly interesting, and there are a number of examples of it in widespread use. The auction form used on eBay is essentially a second-price auction. The pricing mechanism that search engines use to sell keyword-based advertising is a generalization of the second-price auction, as we will see in Chapter 15. One of the most important results in auction theory is the fact we mentioned toward the end of the previous section: with independent, private values, bidding your true value is a dominant strategy in a second price sealed-bid auction. That is, the best choice of bid is exactly what the object is worth to you.

We will refer to this as the Vickrey-Clarke-Groves (VCG) principle, after the work of Clarke and Groves, who generalized the central idea behind Vickrey’s second-price auction for single items [111, 198, 393]. For matching markets, we will describe an application of this principle due to Herman Leonard [266] and 454 CHAPTER 15. SPONSORED SEARCH MARKETS Gabrielle Demange [127]; it develops a pricing mechanism in this context that causes buyers to reveal their valuations truthfully. Applying the VCG Principle to Matching Markets. In a matching market, we have a set of buyers and a set of sellers — with equal numbers of each — and buyer j has a valuation of vij for the item being sold by seller i.2 We are assuming here that each buyer knows her own valuations, but that these valuations are not known to the other buyers or to the sellers.


pages: 468 words: 145,998

On the Brink: Inside the Race to Stop the Collapse of the Global Financial System by Henry M. Paulson

asset-backed security, bank run, banking crisis, break the buck, Bretton Woods, buy and hold, collateralized debt obligation, corporate governance, Credit Default Swap, credit default swaps / collateralized debt obligations, Doha Development Round, fear of failure, financial innovation, fixed income, housing crisis, income inequality, London Interbank Offered Rate, Long Term Capital Management, margin call, money market fund, moral hazard, Northern Rock, price discovery process, price mechanism, regulatory arbitrage, Ronald Reagan, Saturday Night Live, short selling, sovereign wealth fund, technology bubble, too big to fail, trade liberalization, young professional

This meant, for example, that rather than just eliminating golden parachutes in the new contracts of certain executive officers, the top officers of banks accepting capital would have to forgo any such payments in existing contracts as well; they would also have to provide for clawbacks of pay if financial statements were found to be materially inaccurate. There were a few outstanding issues. We needed to get bank regulators to sign off on the treatment of the capital for regulatory purposes, and I also wanted to nail down a pricing mechanism that would ensure widespread participation while keeping the program voluntary. But overall I felt confident we finally had the framework for a workable approach. In any case, we needed to get a capital program together immediately to help the financial system. The short sellers had wasted little time justifying John Mack’s worries, returning to the market on Thursday to drive shares of both Morgan Stanley and Merrill Lynch down 26 percent.


pages: 566 words: 155,428

After the Music Stopped: The Financial Crisis, the Response, and the Work Ahead by Alan S. Blinder

"Robert Solow", Affordable Care Act / Obamacare, asset-backed security, bank run, banking crisis, banks create money, break the buck, Carmen Reinhart, central bank independence, collapse of Lehman Brothers, collateralized debt obligation, conceptual framework, corporate governance, Credit Default Swap, credit default swaps / collateralized debt obligations, Detroit bankruptcy, diversification, double entry bookkeeping, eurozone crisis, facts on the ground, financial innovation, fixed income, friendly fire, full employment, hiring and firing, housing crisis, Hyman Minsky, illegal immigration, inflation targeting, interest rate swap, Isaac Newton, Kenneth Rogoff, liquidity trap, London Interbank Offered Rate, Long Term Capital Management, market bubble, market clearing, market fundamentalism, McMansion, money market fund, moral hazard, naked short selling, new economy, Nick Leeson, Northern Rock, Occupy movement, offshore financial centre, price mechanism, quantitative easing, Ralph Waldo Emerson, Robert Shiller, Robert Shiller, Ronald Reagan, shareholder value, short selling, South Sea Bubble, statistical model, the payments system, time value of money, too big to fail, working-age population, yield curve, Yogi Berra

The congressman was Walter Jones. “got them into trouble”: Ibid. “sensitive to the public outrage”: Paulson, On the Brink, 261. “We can’t say that now”: Wessel, In Fed We Trust, 227. was no easy task: Though the technical problems required thought, they were not insoluble. Swagel reports that “we had reverse auctions to buy MBSs essentially ready to go by late October 2008—including a pricing mechanism.” Swagel, “The Financial Crisis: An Inside View,” Brookings Papers on Economic Activity, 55. drew huzzahs from many experts: One example: Krugman, “Gordon Does Good,” New York Times. I was one of four people on earth: Little did I know that Warren Buffett, the Sage of Omaha, was another. Sorkin, Too Big to Fail, 510–12. “we went that route”: Irwin and Cho, “Paulson’s Change in Rescue Tactics,” Washington Post, D1.


pages: 482 words: 149,351

The Finance Curse: How Global Finance Is Making Us All Poorer by Nicholas Shaxson

activist fund / activist shareholder / activist investor, Airbnb, airline deregulation, anti-communist, bank run, banking crisis, Basel III, Bernie Madoff, Big bang: deregulation of the City of London, Blythe Masters, Boris Johnson, Bretton Woods, British Empire, business climate, business cycle, capital controls, carried interest, Cass Sunstein, Celtic Tiger, central bank independence, centre right, Clayton Christensen, cloud computing, corporate governance, corporate raider, creative destruction, Credit Default Swap, cross-subsidies, David Ricardo: comparative advantage, demographic dividend, Deng Xiaoping, desegregation, Donald Trump, Etonian, failed state, falling living standards, family office, financial deregulation, financial innovation, forensic accounting, Francis Fukuyama: the end of history, full employment, gig economy, Gini coefficient, global supply chain, high net worth, income inequality, index fund, invisible hand, Jeff Bezos, Kickstarter, land value tax, late capitalism, light touch regulation, London Whale, Long Term Capital Management, low skilled workers, manufacturing employment, Mark Zuckerberg, Martin Wolf, Mont Pelerin Society, moral hazard, neoliberal agenda, Network effects, new economy, Northern Rock, offshore financial centre, old-boy network, out of africa, Paul Samuelson, plutocrats, Plutocrats, Ponzi scheme, price mechanism, purchasing power parity, pushing on a string, race to the bottom, regulatory arbitrage, rent-seeking, road to serfdom, Robert Bork, Ronald Coase, Ronald Reagan, shareholder value, sharing economy, Silicon Valley, Skype, smart grid, Social Responsibility of Business Is to Increase Its Profits, South Sea Bubble, sovereign wealth fund, special economic zone, Steve Ballmer, Steve Jobs, The Chicago School, Thorstein Veblen, too big to fail, transfer pricing, wealth creators, white picket fence, women in the workforce, zero-sum game

That particular night Director hosted twenty dinner guests, largely conservative thinkers, including not just Friedman but George Stigler, who would go on to make a name for himself attacking government regulation, the British economist Ronald Coase and a fire-breathing conservative lawyer called Robert Bork.1 The University of Chicago in those days was a bear pit, an arena of intense macho intellectual combat where academics were constantly struggling to outdo each other with clever theories about efficient markets – theories that often perched on toe-curling assumptions – to adopt unconventional, even anti-social positions usually supporting big business and attacking big government. Mathematical and logical elegance trumped the messy reality of life and the world. Director himself was one of the truest of true believers in neoliberalism: that pretty much anything worthwhile could and should be shoehorned into the price mechanism in the interests of ‘efficiency’. His messianic zeal mesmerised many of his students. One was Bork, who commented, ‘Aaron gradually destroyed my dreams of socialism with price theory,’ adding that many of his colleagues ‘underwent what can only be called a religious conversion’.2 The guests that evening were there to listen to Ronald Coase present a draft paper, The Problem of Social Cost.


pages: 632 words: 159,454

War and Gold: A Five-Hundred-Year History of Empires, Adventures, and Debt by Kwasi Kwarteng

accounting loophole / creative accounting, anti-communist, Asian financial crisis, asset-backed security, Atahualpa, balance sheet recession, bank run, banking crisis, Big bang: deregulation of the City of London, Bretton Woods, British Empire, business cycle, California gold rush, capital controls, Carmen Reinhart, central bank independence, centre right, collapse of Lehman Brothers, collateralized debt obligation, credit crunch, currency manipulation / currency intervention, Deng Xiaoping, discovery of the americas, Etonian, eurozone crisis, fiat currency, financial innovation, fixed income, floating exchange rates, Francisco Pizarro, full employment, German hyperinflation, hiring and firing, income inequality, invisible hand, Isaac Newton, John Maynard Keynes: Economic Possibilities for our Grandchildren, joint-stock company, joint-stock limited liability company, Joseph Schumpeter, Kenneth Rogoff, labour market flexibility, liberal capitalism, market bubble, money: store of value / unit of account / medium of exchange, moral hazard, new economy, oil shock, plutocrats, Plutocrats, Ponzi scheme, price mechanism, quantitative easing, rolodex, Ronald Reagan, South Sea Bubble, The inhabitant of London could order by telephone, sipping his morning tea in bed, the various products of the whole earth, the market place, The Wealth of Nations by Adam Smith, too big to fail, War on Poverty, Yom Kippur War

By contrast, for France and the United States, the gold standard was still, until a comparatively late period, an article of faith. For these nations, argued Keynes, ‘the competitive disadvantage will be concentrated’. They had ‘already taken nearly all the available surplus gold in the whole world’.17 In France, according to one recent observer, ‘until early 1935 the policy-making establishment was convinced that a liberal economy needed a fixed anchor, namely the gold franc, to allow the price mechanism to operate’. Needless to say, the ‘budget had to be balanced’.18 The election as President of Franklin Delano Roosevelt in 1932 shifted the mood on the commitment to dollar–gold convertibility. It removed what Keynes had memorably called ‘the magic spell of immobility which [had] been cast over the White House’ in Herbert Hoover’s time.19 Once Roosevelt was inaugurated in March 1933, he declared a national bank holiday, and immediately suspended gold convertibility and foreign exchange dealings.


Investment: A History by Norton Reamer, Jesse Downing

activist fund / activist shareholder / activist investor, Albert Einstein, algorithmic trading, asset allocation, backtesting, banking crisis, Berlin Wall, Bernie Madoff, break the buck, Brownian motion, business cycle, buttonwood tree, buy and hold, California gold rush, capital asset pricing model, Carmen Reinhart, carried interest, colonial rule, credit crunch, Credit Default Swap, Daniel Kahneman / Amos Tversky, debt deflation, discounted cash flows, diversified portfolio, dogs of the Dow, equity premium, estate planning, Eugene Fama: efficient market hypothesis, Fall of the Berlin Wall, family office, Fellow of the Royal Society, financial innovation, fixed income, Gordon Gekko, Henri Poincaré, high net worth, index fund, information asymmetry, interest rate swap, invention of the telegraph, James Hargreaves, James Watt: steam engine, joint-stock company, Kenneth Rogoff, labor-force participation, land tenure, London Interbank Offered Rate, Long Term Capital Management, loss aversion, Louis Bachelier, margin call, means of production, Menlo Park, merger arbitrage, money market fund, moral hazard, mortgage debt, Myron Scholes, negative equity, Network effects, new economy, Nick Leeson, Own Your Own Home, Paul Samuelson, pension reform, Ponzi scheme, price mechanism, principal–agent problem, profit maximization, quantitative easing, RAND corporation, random walk, Renaissance Technologies, Richard Thaler, risk tolerance, risk-adjusted returns, risk/return, Robert Shiller, Robert Shiller, Sand Hill Road, Sharpe ratio, short selling, Silicon Valley, South Sea Bubble, sovereign wealth fund, spinning jenny, statistical arbitrage, survivorship bias, technology bubble, The Wealth of Nations by Adam Smith, time value of money, too big to fail, transaction costs, underbanked, Vanguard fund, working poor, yield curve

As long as there have been financial markets, there have been commentators eager to interpret even their short-term movements—movements that are sometimes muted, sometimes violent, but rarely predictable. All this leads to a central question: how does one make sense of the movements of the market? How does one sift through all the noise and reach meaning? That is the task of the investor, accomplished by deploying methods of valuation. Valuation is the process of finding logic amid this noise, hoping to uncover areas of the market where the price mechanism has failed—areas that are the exploitable opportunities and the bread and butter of the successful investor. Investing and the companion enterprise of valuation have always been more of an art than a science. However, in the last century, there has been a burgeoning field of investment science that has profoundly The Emergence of Investment Theory 229 shaped and guided the way practitioners approach their art.


India's Long Road by Vijay Joshi

Affordable Care Act / Obamacare, barriers to entry, Basel III, basic income, blue-collar work, Bretton Woods, business climate, capital controls, central bank independence, clean water, collapse of Lehman Brothers, collective bargaining, colonial rule, congestion charging, corporate governance, creative destruction, crony capitalism, decarbonisation, deindustrialization, demographic dividend, demographic transition, Doha Development Round, eurozone crisis, facts on the ground, failed state, financial intermediation, financial repression, first-past-the-post, floating exchange rates, full employment, germ theory of disease, Gini coefficient, global supply chain, global value chain, hiring and firing, income inequality, Indoor air pollution, Induced demand, inflation targeting, invisible hand, land reform, Mahatma Gandhi, manufacturing employment, Martin Wolf, means of production, microcredit, moral hazard, obamacare, Pareto efficiency, price mechanism, price stability, principal–agent problem, profit maximization, profit motive, purchasing power parity, quantitative easing, race to the bottom, randomized controlled trial, rent-seeking, reserve currency, rising living standards, school choice, school vouchers, secular stagnation, Silicon Valley, smart cities, South China Sea, special drawing rights, The Future of Employment, The Market for Lemons, too big to fail, total factor productivity, trade liberalization, transaction costs, universal basic income, urban sprawl, working-age population

This clearly points to low productivity of investment as the main proximate reason for the poor performance (see the rising capital-​output ratios in Tables 2.1 and 2.2). Low productivity in turn was the product of three features of economic policy: inappropriate and excessive state intervention in markets; the dominant role of the public sector; and neglect of critical social sectors. The origins of the first two features lay in statist doctrines, characterised by antipathy towards business, contempt for the price mechanism, and hostility to international trade that had a special resonance in many post-​colonial societies. In India, a further twist was given to this kind of thinking by a ‘heavy industry’ strategy (based loosely on Soviet planning models), which was adopted in the Second Five Year Plan and used to justify the physical allocation of investment.5 It was taken for granted that extensive government intervention and controls were necessary to subdue or supplant the market, and make the private sector’s activities consonant with the planned trajectory of output.6 Once the controls were established, the dynamic of rent-​seeking took over and they proliferated to the point where no economic activity, unless of very small scale, could be legally pursued without obtaining dozens of permits and licences from different departments of government.


pages: 519 words: 148,131

An Empire of Wealth: Rise of American Economy Power 1607-2000 by John Steele Gordon

accounting loophole / creative accounting, bank run, banking crisis, Bretton Woods, British Empire, business cycle, buttonwood tree, California gold rush, clean water, collective bargaining, Corn Laws, corporate governance, cuban missile crisis, disintermediation, double entry bookkeeping, failed state, financial independence, Frederick Winslow Taylor, full employment, global village, imperial preference, informal economy, interchangeable parts, invisible hand, Isaac Newton, Jacquard loom, James Hargreaves, James Watt: steam engine, joint-stock company, joint-stock limited liability company, lone genius, Louis Pasteur, margin call, Marshall McLuhan, means of production, Menlo Park, Mikhail Gorbachev, money market fund, money: store of value / unit of account / medium of exchange, moral hazard, new economy, New Urbanism, postindustrial economy, price mechanism, Ralph Waldo Emerson, RAND corporation, rent control, rent-seeking, reserve currency, rolodex, Ronald Reagan, spinning jenny, The Wealth of Nations by Adam Smith, trade route, transaction costs, transcontinental railway, undersea cable, Yom Kippur War

The ice man and the ice wagon entered into American folklore and legend, and the American love affair with both iced drinks and frozen desserts (still a notable American peculiarity to most Europeans, especially the British) was already in full swing. By 1880 the extent of the ice trade was estimated at eight million tons annually, and mild winters invariably brought newspaper warnings of an impending “ice famine” the following summer and swiftly rising prices. Mechanical refrigeration ended the trade with the more distant foreign cities in the 1880s, when it could no longer compete with locally made ice. But the domestic trade continued to expand until well into the twentieth century, when the household refrigerator began replacing the ice man. THE DEEP DEPRESSION that had started in 1837 began to lift in the mid-1840s. Federal government revenues, a good measure of economic activity, had been a miserable $8.3 million in 1843, the lowest in decades.


pages: 475 words: 155,554

The Default Line: The Inside Story of People, Banks and Entire Nations on the Edge by Faisal Islam

Asian financial crisis, asset-backed security, balance sheet recession, bank run, banking crisis, Basel III, Ben Bernanke: helicopter money, Berlin Wall, Big bang: deregulation of the City of London, Boris Johnson, British Empire, capital controls, carbon footprint, Celtic Tiger, central bank independence, centre right, collapse of Lehman Brothers, credit crunch, Credit Default Swap, crony capitalism, dark matter, deindustrialization, Deng Xiaoping, disintermediation, energy security, Eugene Fama: efficient market hypothesis, eurozone crisis, financial deregulation, financial innovation, financial repression, floating exchange rates, forensic accounting, forward guidance, full employment, G4S, ghettoisation, global rebalancing, global reserve currency, hiring and firing, inflation targeting, Irish property bubble, Just-in-time delivery, labour market flexibility, light touch regulation, London Whale, Long Term Capital Management, margin call, market clearing, megacity, Mikhail Gorbachev, mini-job, mittelstand, moral hazard, mortgage debt, mortgage tax deduction, mutually assured destruction, Myron Scholes, negative equity, North Sea oil, Northern Rock, offshore financial centre, open economy, paradox of thrift, Pearl River Delta, pension reform, price mechanism, price stability, profit motive, quantitative easing, quantitative trading / quantitative finance, race to the bottom, regulatory arbitrage, reserve currency, reshoring, Right to Buy, rising living standards, Ronald Reagan, savings glut, shareholder value, sovereign wealth fund, The Chicago School, the payments system, too big to fail, trade route, transaction costs, two tier labour market, unorthodox policies, uranium enrichment, urban planning, value at risk, WikiLeaks, working-age population, zero-sum game

In other words, BTL pushed up house prices ever more, at a time when they appeared to be falling. Good for some, but not for all. I saw for myself how, even in 2010, estate agents would market £100,000 houses in Greater Manchester to well-heeled investors at the National Landlord Show in Kensington on the basis of rental yield. In BTL, multiples of rental yield replace multiples of salary as the pricing mechanism for our homes. Young first-time buyers such as Naomi Jacobs in Newcastle finds herself more in a property nightmare than a property dream. ‘I’d love to buy a little house now,’ she told me. She wants to have a family, and as the family gets bigger so she’d want a bigger house. That is the dream. Naomi is a science graduate, a science graduate with a job. But she can’t get a mortgage. She blames the buy-to-letters.


pages: 535 words: 158,863

Superclass: The Global Power Elite and the World They Are Making by David Rothkopf

airport security, anti-communist, asset allocation, Ayatollah Khomeini, bank run, barriers to entry, Berlin Wall, Bob Geldof, Branko Milanovic, Bretton Woods, BRICs, business cycle, carried interest, clean water, corporate governance, creative destruction, crony capitalism, David Brooks, Doha Development Round, Donald Trump, financial innovation, fixed income, Francis Fukuyama: the end of history, Gini coefficient, global village, high net worth, income inequality, industrial cluster, informal economy, Internet Archive, Jeff Bezos, jimmy wales, joint-stock company, knowledge economy, liberal capitalism, Live Aid, Long Term Capital Management, Mahatma Gandhi, Mark Zuckerberg, market fundamentalism, Marshall McLuhan, Martin Wolf, mass immigration, means of production, Mexican peso crisis / tequila crisis, Mikhail Gorbachev, Nelson Mandela, old-boy network, open borders, plutocrats, Plutocrats, Ponzi scheme, price mechanism, shareholder value, Skype, special economic zone, Steve Jobs, Thorstein Veblen, too big to fail, trade liberalization, trickle-down economics, upwardly mobile, Vilfredo Pareto, Washington Consensus, William Langewiesche

Indeed, the private sector leadership of the energy community has formed one of the most important global power networks, intensely concentrated in the hands of a few key players, and one that—like finance—globalized early on, well ahead of many other industries. (Much of this process was driven by the Seven Sisters offspring of Standard Oil.) It is also a network in turmoil today, thanks both to geopolitical upheaval and to the recognition that the global energy paradigm is changing as a consequence of global warming, innovations in alternative technologies, and persistent national security concerns about the current system—notably its pricing mechanisms and the unintended consequences of whom it empowers. One set of the principal actors in this hybrid power network are the senior executives of the world’s leading nationally owned energy companies (national oil companies/NOCs), or the government officials to whom they ultimately report. On the other side are independent oil companies (IOCs) working with them, often possessing more advanced technology and key resources.


The New Map: Energy, Climate, and the Clash of Nations by Daniel Yergin

3D printing, 9 dash line, activist fund / activist shareholder / activist investor, addicted to oil, Admiral Zheng, Albert Einstein, American energy revolution, Asian financial crisis, autonomous vehicles, Ayatollah Khomeini, Bakken shale, Bernie Sanders, BRICs, British Empire, coronavirus, COVID-19, Covid-19, decarbonisation, Deng Xiaoping, disruptive innovation, distributed generation, Donald Trump, Edward Snowden, Elon Musk, energy security, energy transition, failed state, gig economy, global pandemic, global supply chain, hydraulic fracturing, Indoor air pollution, Intergovernmental Panel on Climate Change (IPCC), inventory management, James Watt: steam engine, Kickstarter, LNG terminal, Lyft, Malacca Straits, Malcom McLean invented shipping containers, Masdar, mass incarceration, megacity, Mikhail Gorbachev, mutually assured destruction, new economy, off grid, oil rush, oil shale / tar sands, oil shock, open economy, paypal mafia, peak oil, pension reform, price mechanism, purchasing power parity, RAND corporation, rent-seeking, ride hailing / ride sharing, Ronald Reagan, self-driving car, Silicon Valley, smart cities, South China Sea, sovereign wealth fund, supply-chain management, trade route, Travis Kalanick, Uber and Lyft, uber lyft, ubercab, UNCLOS, UNCLOS, uranium enrichment, women in the workforce

So significant has this personal dimension become that one of the major U.S. television networks invites “those who care deeply about the planet’s future” to go to its “confessions” page on its website to share how personally “you have fallen short in preventing climate change.”13 Chapter 42 GREEN DEALS C limate has risen to the top rung of policy in a number of nations. Of the G20 countries, fourteen deploy or have announced plans to deploy carbon pricing mechanisms or some kind of carbon tax. The United Kingdom announced that it will legally commit to zero carbon emissions by 2050. Two dozen other countries are promising the same, though the path for most is far from clear. Europe, more than anywhere else on the planet, is seeking to build an “After Paris” world. And, more than anywhere else, it is seeking to use government policy to drive this energy transition.


pages: 807 words: 154,435

Radical Uncertainty: Decision-Making for an Unknowable Future by Mervyn King, John Kay

"Robert Solow", Airbus A320, Albert Einstein, Albert Michelson, algorithmic trading, Antoine Gombaud: Chevalier de Méré, Arthur Eddington, autonomous vehicles, availability heuristic, banking crisis, Barry Marshall: ulcers, battle of ideas, Benoit Mandelbrot, bitcoin, Black Swan, Bonfire of the Vanities, Brownian motion, business cycle, business process, capital asset pricing model, central bank independence, collapse of Lehman Brothers, correlation does not imply causation, credit crunch, cryptocurrency, cuban missile crisis, Daniel Kahneman / Amos Tversky, David Ricardo: comparative advantage, demographic transition, discounted cash flows, disruptive innovation, diversification, diversified portfolio, Donald Trump, easy for humans, difficult for computers, Edmond Halley, Edward Lloyd's coffeehouse, Edward Thorp, Elon Musk, Ethereum, Eugene Fama: efficient market hypothesis, experimental economics, experimental subject, fear of failure, feminist movement, financial deregulation, George Akerlof, germ theory of disease, Hans Rosling, Ignaz Semmelweis: hand washing, income per capita, incomplete markets, inflation targeting, information asymmetry, invention of the wheel, invisible hand, Jeff Bezos, Johannes Kepler, John Maynard Keynes: Economic Possibilities for our Grandchildren, John Snow's cholera map, John von Neumann, Kenneth Arrow, Long Term Capital Management, loss aversion, Louis Pasteur, mandelbrot fractal, market bubble, market fundamentalism, Moneyball by Michael Lewis explains big data, Nash equilibrium, Nate Silver, new economy, Nick Leeson, Northern Rock, oil shock, Paul Samuelson, peak oil, Peter Thiel, Philip Mirowski, Pierre-Simon Laplace, popular electronics, price mechanism, probability theory / Blaise Pascal / Pierre de Fermat, quantitative trading / quantitative finance, railway mania, RAND corporation, rent-seeking, Richard Feynman, Richard Thaler, risk tolerance, risk-adjusted returns, Robert Shiller, Robert Shiller, Ronald Coase, sealed-bid auction, shareholder value, Silicon Valley, Simon Kuznets, Socratic dialogue, South Sea Bubble, spectrum auction, Steve Ballmer, Steve Jobs, Steve Wozniak, Tacoma Narrows Bridge, Thales and the olive presses, Thales of Miletus, The Chicago School, the map is not the territory, The Market for Lemons, The Nature of the Firm, The Signal and the Noise by Nate Silver, The Wealth of Nations by Adam Smith, The Wisdom of Crowds, Thomas Bayes, Thomas Davenport, Thomas Malthus, Toyota Production System, transaction costs, ultimatum game, urban planning, value at risk, World Values Survey, Yom Kippur War, zero-sum game

In the nineteenth century, Leon Walras, a French economist working at the University of Lausanne, attempted to express in a system of equations the idea that the uncoordinated decisions of millions of people might produce aggregate outcomes that were not only coherent but efficient. 10 But Walrasian analysis only reached fruition when, as described in chapter 14 , new and powerful mathematical tools were applied to economics by Kenneth Arrow and Gerard Debreu. 11 For some devotees of laissez faire, this was the analysis they had been waiting for – a rigorous mathematical demonstration of the maxim that ‘you can’t buck the market’. Building on Walras, Arrow and Debreu envisaged a ‘grand auction’, to which consumers brought their demand curves, workers and resource owners their supply curves, and producers their technical capabilities. In this ‘grand auction’ the price mechanism secured an equilibrium which reconciled all these demands and supplies and in which no one could be better off without making someone else worse off – all possible mutually advantageous trades had been realised. But in a radically uncertain world, markets are necessarily incomplete. There is no market in oil for delivery in 2075, for example, because there are so many uncertainties that no one is willing to trade.


How to Be a Liberal by Ian Dunt

4chan, Alfred Russel Wallace, bank run, battle of ideas, Big bang: deregulation of the City of London, Boris Johnson, bounce rate, British Empire, Brixton riot, Carmen Reinhart, centre right, David Ricardo: comparative advantage, Dominic Cummings, Donald Trump, eurozone crisis, experimental subject, feminist movement, Francis Fukuyama: the end of history, full employment, Growth in a Time of Debt, illegal immigration, invisible hand, John Bercow, Kenneth Rogoff, liberal world order, Mark Zuckerberg, mass immigration, means of production, Mohammed Bouazizi, Northern Rock, old-boy network, Paul Samuelson, Peter Thiel, price mechanism, profit motive, quantitative easing, recommendation engine, road to serfdom, Ronald Reagan, Saturday Night Live, Scientific racism, Silicon Valley, The Wealth of Nations by Adam Smith, too big to fail, upwardly mobile, Winter of Discontent, working poor, zero-sum game

If lots of people wanted something that was being produced in small quantities, they would be willing to pay more for it and the price would rise. Other producers would see that there was a lot of profit to be made and start making it themselves. Eventually there would be more supply and the price would fall. But if few customers wanted a product, the price would fall. People would stop producing it, because it didn’t make much profit, until there was a reduction in supply and the price would eventually rise. This price mechanism gave people all sorts of vital data about scarcity and desire. And it meant that production suddenly became efficient. The profit motive encouraged cheaper production, driving down costs and maximising national output. Importantly, this was not achieved by planning. It flowed naturally from people’s self-interest. Each individual, Smith said, in the single most famous metaphor in all of economics, was ‘led by an invisible hand to promote an end which was no part of his intention.’


pages: 710 words: 164,527

The Battle of Bretton Woods: John Maynard Keynes, Harry Dexter White, and the Making of a New World Order by Benn Steil

activist fund / activist shareholder / activist investor, Albert Einstein, Asian financial crisis, banks create money, Bretton Woods, British Empire, business cycle, capital controls, Charles Lindbergh, currency manipulation / currency intervention, currency peg, deindustrialization, European colonialism, facts on the ground, fiat currency, financial independence, floating exchange rates, full employment, global reserve currency, imperial preference, invisible hand, Isaac Newton, John Maynard Keynes: Economic Possibilities for our Grandchildren, Joseph Schumpeter, Kenneth Rogoff, lateral thinking, margin call, means of production, money: store of value / unit of account / medium of exchange, Monroe Doctrine, New Journalism, open economy, Paul Samuelson, Potemkin village, price mechanism, price stability, psychological pricing, reserve currency, road to serfdom, seigniorage, South China Sea, special drawing rights, The Great Moderation, the market place, trade liberalization, Works Progress Administration

If the simple basic ideas can become familiar and acceptable, time and experience and the collaboration of a number of minds will discover the best way of expressing them.”87 The central argument of the book was revolutionary (at least to economists): the economy had no natural tendency toward full employment. High unemployment could persist indefinitely if governments did not intervene forcefully to boost consumption demand. Cheap money provided by the central bank was not enough. This was wholly contrary to classical economics, which held that protracted involuntary unemployment was a result of some interference in the workings of the price mechanism. Classical economics showed that full employment required flexible wages; Keynes showed why, with different assumptions, falling wages could actually worsen unemployment. These different assumptions were related to the nature of money, human psychology, and conventions of contemporary society. Each of these on its own would do for his argument, and he was not that particular. Such a brazen treatise would have gotten a much colder reception during the American boom years of the 1920s, but in the midst of a Great Depression, with unheard-of levels of unemployment, it was compelling even to economists who disagreed with Keynes’s logical apparatus.


pages: 553 words: 168,111

The Asylum: The Renegades Who Hijacked the World's Oil Market by Leah McGrath Goodman

anti-communist, Asian financial crisis, automated trading system, banking crisis, barriers to entry, Bernie Madoff, computerized trading, corporate governance, corporate raider, credit crunch, Credit Default Swap, East Village, energy security, Etonian, family office, Flash crash, global reserve currency, greed is good, High speed trading, light touch regulation, market fundamentalism, peak oil, Peter Thiel, pre–internet, price mechanism, profit motive, regulatory arbitrage, reserve currency, rolodex, Ronald Reagan, side project, Silicon Valley, upwardly mobile, zero-sum game

Energy analysts, observing Wall Street’s apparent interest in stowing away ever-greater amounts of oil in Cushing, fretted that the town was having an outsize and unreasonable effect on energy prices. They believed Cushing should no longer be the epicenter of the oil universe and that Texas crude had become a red herring. “The dynamics of the U.S. crude oil market have become increasingly bizarre in recent weeks and have now reached the point where the oil price mechanism itself has gotten stuck in a fairly vicious loop,” wrote Paul Horsnell, head of commodities research at Barclay’s Bank. “In terms of being a reflection of general market conditions, West Texas Intermediate has become about as useful as a chocolate oven glove.” But Schaeffer could breathe easy. The traders paid little attention to comments about chocolate oven gloves. They mostly just read the sports page.


pages: 554 words: 168,114

Oil: Money, Politics, and Power in the 21st Century by Tom Bower

addicted to oil, Ayatollah Khomeini, banking crisis, bonus culture, corporate governance, credit crunch, energy security, Exxon Valdez, falling living standards, fear of failure, forensic accounting, index fund, interest rate swap, kremlinology, LNG terminal, Long Term Capital Management, margin call, Mikhail Gorbachev, millennium bug, MITM: man-in-the-middle, Nelson Mandela, new economy, North Sea oil, offshore financial centre, oil shale / tar sands, oil shock, passive investing, peak oil, Piper Alpha, price mechanism, price stability, Ronald Reagan, shareholder value, short selling, Silicon Valley, sovereign wealth fund, transaction costs, transfer pricing, zero-sum game, éminence grise

Among them was Castle Energy, a refining company that had sold Metallgesellschaft gasoline and heating oil for future delivery at the higher prices, on the assumption that prices would in fact fall. Their wisdom was Benson’s disaster. He was fired, and Metallgesellschaft was ruined. Speculating about oil prices, insiders acknowledged, was not suited to amateurs. The involvement of bankers and big traders complicated the pricing of Saudi oil for Laney Littlejohn. Regularly, Littlejohn was told by Jorge Montepeque that his pricing mechanism was being manipulated. “We’re watching Japanese traders squeeze the market in Dubai,” Montepeque declared. “Everyone’s manipulating in Dubai. It’s full of daisy chains.” Aramco or Shell could have terminated the squeezes by releasing more oil in the region, but refused. Montepeque suspected their motives. Littlejohn was unimpressed. “Platts’s prices are goofy,” he complained, “because Platts’s assessor is goofy.”


Basic Income: A Radical Proposal for a Free Society and a Sane Economy by Philippe van Parijs, Yannick Vanderborght

"Robert Solow", Airbnb, Albert Einstein, basic income, Berlin Wall, Bertrand Russell: In Praise of Idleness, centre right, collective bargaining, cryptocurrency, David Graeber, declining real wages, diversified portfolio, Edward Snowden, eurozone crisis, Fall of the Berlin Wall, feminist movement, full employment, future of work, George Akerlof, illegal immigration, income per capita, informal economy, job automation, John Maynard Keynes: Economic Possibilities for our Grandchildren, John Maynard Keynes: technological unemployment, Kickstarter, Marshall McLuhan, means of production, minimum wage unemployment, open borders, Paul Samuelson, pension reform, precariat, price mechanism, profit motive, purchasing power parity, quantitative easing, race to the bottom, road to serfdom, Second Machine Age, secular stagnation, selection bias, sharing economy, sovereign wealth fund, The Spirit Level, The Wealth of Nations by Adam Smith, Thomas Malthus, Tobin tax, universal basic income, urban planning, urban renewal, War on Poverty, working poor

“Outline of an Economic Policy for a Â�Labour Government.” In Â�Meade, The Collected Papers of James Â�Meade, ed. Susan Howsen, vol. 1: Employment and Inflation, ch. 4. London: Unwin Hyman. —Â�—Â�—. 1937. An Introduction to Economic AnalyÂ�sis and Policy. Oxford: Oxford University Press. —Â�—Â�—. 1938. Consumers’ Credits and Unemployment. Oxford: Oxford University Press. —Â�—Â�—. 1948. Planning and the Price Mechanism: The Liberal-Â�Socialist Solution. London: Allen and Unwin. —Â�—Â�—. 1957. “The Balance of Payments ProbÂ�lems of a Â�Free Trade Area.” Economic Journal 67(3): 379–396. —Â�—Â�—. 1971. The Intelligent Radical’s Guide to Economic Policy. London: Allen and Unwin. —Â�—Â�—. 1989. Agathotopia: The Economics of Partnership. Aberdeen: Aberdeen University Press. —Â�—Â�—. 1993. Liberty, Equality and Efficiency.


pages: 662 words: 180,546

Never Let a Serious Crisis Go to Waste: How Neoliberalism Survived the Financial Meltdown by Philip Mirowski

"Robert Solow", Alvin Roth, Andrei Shleifer, asset-backed security, bank run, barriers to entry, Basel III, Berlin Wall, Bernie Madoff, Bernie Sanders, Black Swan, blue-collar work, Bretton Woods, Brownian motion, business cycle, capital controls, Carmen Reinhart, Cass Sunstein, central bank independence, cognitive dissonance, collapse of Lehman Brothers, collateralized debt obligation, complexity theory, constrained optimization, creative destruction, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, crony capitalism, dark matter, David Brooks, David Graeber, debt deflation, deindustrialization, do-ocracy, Edward Glaeser, Eugene Fama: efficient market hypothesis, experimental economics, facts on the ground, Fall of the Berlin Wall, financial deregulation, financial innovation, Flash crash, full employment, George Akerlof, Goldman Sachs: Vampire Squid, Hernando de Soto, housing crisis, Hyman Minsky, illegal immigration, income inequality, incomplete markets, information asymmetry, invisible hand, Jean Tirole, joint-stock company, Kenneth Arrow, Kenneth Rogoff, Kickstarter, knowledge economy, l'esprit de l'escalier, labor-force participation, liberal capitalism, liquidity trap, loose coupling, manufacturing employment, market clearing, market design, market fundamentalism, Martin Wolf, money market fund, Mont Pelerin Society, moral hazard, mortgage debt, Naomi Klein, Nash equilibrium, night-watchman state, Northern Rock, Occupy movement, offshore financial centre, oil shock, Pareto efficiency, Paul Samuelson, payday loans, Philip Mirowski, Ponzi scheme, precariat, prediction markets, price mechanism, profit motive, quantitative easing, race to the bottom, random walk, rent-seeking, Richard Thaler, road to serfdom, Robert Shiller, Robert Shiller, Ronald Coase, Ronald Reagan, savings glut, school choice, sealed-bid auction, Silicon Valley, South Sea Bubble, Steven Levy, technoutopianism, The Chicago School, The Great Moderation, the map is not the territory, The Myth of the Rational Market, the scientific method, The Wisdom of Crowds, theory of mind, Thomas Kuhn: the structure of scientific revolutions, Thorstein Veblen, Tobin tax, too big to fail, transaction costs, Vilfredo Pareto, War on Poverty, Washington Consensus, We are the 99%, working poor

But this just displays a deficiency of hermeneutic attention. Both the Fed and the profession can accept that the EMH, properly understood, and bubbles are entirely compatible—you just won’t know you are in one till it bursts. And paraphrasing Bill Clinton, it all depends what you mean by “bubble.” Yet Stiglitz never really repudiates the neoliberal doctrine of the Marketplace of Ideas. “The price mechanism is at the core of the market process of gathering, processing and transmitting information.” There is nothing autodestructive about the Marketplace of Ideas. But then, who in the elite of the orthodox economics profession ever thought otherwise?81 The endless quest to delete the EMH from the Ten Commandments of Neoclassicism almost constitutes the definition of “empty gesture” within orthodox economics. 3) Abandon the DSGE Model A third reaction to the crisis is to refrain from indictment of the global orthodoxy, and instead suggest that since the crisis was eminently a “macroeconomic” event, the onus for failure must be narrowly restricted to that subset of the profession tasked with study of the macroeconomy; and furthermore, the correct response is to simply jettison the paradigmatic model found in contemporary macroeconomic textbooks, the so-called Dynamic Stochastic General Equilibrium (DSGE) model.


pages: 607 words: 185,487

Seeing Like a State: How Certain Schemes to Improve the Human Condition Have Failed by James C. Scott

agricultural Revolution, business cycle, clean water, colonial rule, commoditize, deskilling, facts on the ground, germ theory of disease, informal economy, invention of writing, invisible hand, Jane Jacobs, Kenneth Arrow, land reform, land tenure, Louis Pasteur, new economy, New Urbanism, Potemkin village, price mechanism, profit maximization, road to serfdom, Silicon Valley, stochastic process, the built environment, The Death and Life of Great American Cities, the scientific method, Thorstein Veblen, urban decay, urban planning, urban renewal, working poor

States with the pretensions and power that I criticize have for the most part vanished or have drastically curbed their ambitions. And yet, as I make clear in examining scientific farming, industrial agriculture, and capitalist markets in general, large-scale capitalism is just as much an agency of homogenization, uniformity, grids, and heroic simplification as the state is, with the difference being that, for capitalists, simplification must pay. A market necessarily reduces quality to quantity via the price mechanism and promotes standardization; in markets, money talks, not people. Today, global capitalism is perhaps the most powerful force for homogenization, whereas the state may in some instances be the defender of local difference and variety. (In Enlightenment's Wake, John Gray makes a similar case for liberalism, which he regards as self-limiting because it rests on cultural and institutional capital that it is bound to undermine.)


pages: 650 words: 203,191

After Tamerlane: The Global History of Empire Since 1405 by John Darwin

agricultural Revolution, Atahualpa, Berlin Wall, Bretton Woods, British Empire,