Rent, Debt, and Power
In 2009 Rolling Stone published an article by Matt Taibbi about Goldman Sachs. Taibbi writes: “The world’s most powerful investment bank is a great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money.” The statement is rather unfair to vampire squids, but aside from that detail the characterization is quite appropriate and, moreover, equally applicable to the finance, insurance, and real estate (FIRE) sector as a whole. In Killing the Host, Michael Hudson describes the FIRE sector as parasitic. He writes that “instead of creating a mutually beneficial symbiosis with...
A Toy Model of Production Costs and Supply
In Economics as Malignant Make Believe I showed that the derivation of the supply curve in mainstream (neoclassical) economics is nonsense because production costs are nothing like they are assumed to be. This made me wonder, however, what would happen if you’d use a more realistic model of production costs – What would production and supply look like then? This isn’t that hard to model, so I built a simulation model on a free afternoon. In the following, I will first explain the model and after that I will discuss the results of running the model at different settings as...
On Free Trade Ideology
According to conventional “wisdom” free trade leads to prosperity. Usually the idea is based on a version of David Ricardo’s (1817) theory of “comparative advantage” which is taught in most high-school economics classes. There is, however, a fundamental problem with that theory, as was shown by Frank Graham in 1923, and unfortunately that problem tends to be ignored. In the following, I will briefly summarize Ricardo’s theory and Graham’s correction thereof, and discuss why the latter is ignored and the effects and implications of that neglect. Ricardo’s model Assume a world with two countries, “country A” and “country B”, and...