Times.konradturski.com – Political and Economic Commentary by a Postgrad in London

“This” is singular and “These” is plural for the same reason that “Thesis” is singular and “Theses” is plural.

The Nobel committee may contact me at my usual address.

About a week ago I heard a clever little witticism regarding the fundamental difference between buyer and sellers. It went something like this: if you are buyer, it doesn’t matter what language you speak: every seller will work their hardest to understand you. If you are a seller, you wont sell a thing unless you speak the local language.

This is the common experience of many travelers. However, there is a built-in dilemma in this observation.

In economic theory, and practice, there is a fundamental equivalence between suppliers and demanders; a buyer is thus a seller by any other name. I will offer two examples to illustrate this point. The first is that of the stock market: in order to operate in it, you need to wear both hats; there are no pre-ordained buyers or sellers. Simply to function in the stock market, you must, in sequence, be both a buyer and seller.

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In yesterday’s Financial Times, billionaire George Soros warns that a commodity bubble may be forming in the wake of widespread public anxiety about peak oil and worldwide agricultural demand. What does this have to do with the Federal Reserve?

Technically nothing; effectively everything. If Soros is right (and I have my reservations, despite the recent trend toward consulting the financier barons about everything under the sun) then this would mark the third price asset bubble to afflict the U.S. economy in under a decade (the dot-com bubble and the housing bubble / subprime crisis being the first and second respectively). It seems that new asset price crises are appearing faster than their respective colloquial names (dot-com, subprime) are added to the spellchecker.

And why shouldn’t they? It has been widely reported (and this I have no reason to doubt) that financial instruments are reaching a level of complexity that too often exceeds the understanding of the legions of anthropology undergrads herded out of Wellesley or Berkeley every year to manage them. As a recent un-attributed quote in the FT about the subprime crisis sums up, “For years we have been told that bankers were paid so much because you were cleverer than the rest of us. Now it turns out you were not clever at all and we are all suffering for your stupidity.”

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Neo-Goric (ni’oh gor-ik) [adj, adv.]: A boneheaded proposal intended to suggest an individual’s propensity for self-sacrifice in the face of Global Warming, even in contradiction with, well-known, well-established, and well-regarded laws of natural or social science. Related to, but not to be confused with, correctly-alarmist Paleo-Goric rhetoric (see for example Al Gore’s “An Inconvenient Truth”).

This is not the first time I have taken issue with Thomas L. “Beat the Palestinians with a Stick” Friedman, but as he has crossed the thin line between normative political debate and economic axioms, I feel I could do worse than to point out the Neo-Goric blatherskite of his article yesterday in the NYT; I’ll give you a moment to read it over.

In particular, this gem:

Therefore, what our mythical candidate would be proposing, argues the energy economist Philip Verleger Jr., is a “price floor” for gasoline: $4 a gallon for regular unleaded, which is still half the going rate in Europe today. Washington would declare that it would never let the price fall below that level. If it does, it would increase the federal gasoline tax on a monthly basis to make up the difference between the pump price and the market price.

In keeping with long-standing tradition, Friedman begins this rubbish by alluding to an economist, much as Hillary “I don’t think comparative advantage exists” Clinton began her adorable refutation of economics with a reference to Paul Samuelson (a Google search of “Hillary Buiter” produces a great article explaining why Samuelson is, indeed, a great economist – and why Hillary is not). I’ll reserve judgement on Mr. Verleger’s credentials for the time being (the results of an Internet search are not promising); let’s me just set the story straight.

There is a certain natural tendency to seek Karma in economics; as a result, it’s easy enough to tell people that fun things – like price ceilings on gasoline – will not be good in the long run, for the same reasons you cannot eat desert before you finish your dinner. We’re used to self-restraint in this department.

The problem is that economics is, at its core, is not a morality play; it has more to say than don’t do bad things. The problem with Friedman’s proposal is that price floors are just as damaging as price ceilings; instead of demand exceeding supply, you’ll have supply exceeding demand. The problem here (besides an unnecessary loss of income for your corner gas station owner) lies in incentives and information. Prices transmit information about the state of resources, as well as demand for them. If half of America switched to cars that were twice as efficient, all else being equal, we’d expect demand for gas to halve. But this is a good thing - it would lead to lower prices, lower emissions, and no market distortions. By proposing price floors, Friedman is treading a dangerous path towards price manipulation with ostensibly “moral goals.” This was tried in Central Eastern Europe, and it’ll take another thirty years for GDP per capita to catch up with its Western neighbors.

So cut it out, Friedman.

This was the title of a long-forgotten essay by Russian Nikolai Chernyshevsky in the latter 19th century. In its time, it was the most popular publication among Russia’s Liberal Elite (born 1848, died approx. 1904), and the title was in fact adapted by a self-aware Lenin in a 20th century pamphlet on Socialist Democracy. The contrast between the two pamphlets – whereas Chernyshevsky imagined a kind of unfeasible utopia, Lenin’s vision was immediate and approachable – is appropriate, given the contrasting Hegelian and Marxist milieus that inspired each writer. Whereas Hegel always emphasized the means of progress, Marx went further in identifying (incorrectly) its ends in the form of Proletarian Utopia. More importantly, Chernyshevsky, Marx, Lenin, Hegel, and all the others are dead, and the question remains: What is to be Done? We seem to live in a state of flux where the short term answer to that question is always clear, while the medium and long term answers are anything but. I guess Keynes had an answer. But he’s dead too.

No seriously, even married economists seem to exist in a perpetual state of Nash Equilibrium.