Considering the financial crises of the past years, it would seem that the collapse of banks, most notably that of Lehman Brothers, was also caused by a failure to understand or predict what consequences it would have if everyone worldwide did what a few "financial geniuses" had devised as novel tools for making money, namely derivatives. Derivatives, like short selling, works well for a few who do it under the assumption that the financial markets follow their established habits of selling and buying stocks or bonds or, in particular, loans. However, if everyone is doing that at the same time, there is no tangible value left in the objects of trade, and the market collapses.
In a way, this is the analogon of each country trying to maintain a positive trade balance -- at least one country has to collapse then, as discussed in the previous post.
It would appear that in a global market with a sufficiently short reaction time constant (as compared to local effects) or in anything global that involves some exchange of items such as money, goods, or ideas, the assumption of a predictable behavior is fallacious. Like in congested car traffic on highways, new phenomena emerge that are fundamentally different from horse carriage traffic. New rules needed to be established to govern road traffic, and new effects like traffic jams in the absence of road obstacles were observed.
The state of current affairs calls for the development of a systems theory that describes the new phenomena we have recently witnessed. It looks as if those trained in traditional economics cannot deliver on this. In view of the fact that the new financial tools that caused the recent collapse of global finance was to a large part developed by physicists, it might as well come from that community of scientific minds already used to developing complex models of intricate naturally occurring systems.
Thursday, September 22, 2011
Thursday, August 25, 2011
Economic theory
It's really funny how naïve the economic concepts of our politicians are: They still measure a nation's economic success by its trade balance! ... and it has to be positive. – What does that mean? Well, the country is only happy if it sells more goods to other countries than it buys from them. That's what every economic effort has as its goal.
That concept—which interestingly is, or certainly was, identified as Nationalökonomie in German—works well, sort of, if the country in question is comparatively small and its neighbors are large, that is, the effort of the small country doesn't have a substantial effect on the economies of those neighbors. They can accommodate their negative trade balances with the small country if each has a positive trade balance with its other neighbors. But what happens if one wants to generalize this concept to all countries that exchange goods with each other? If there is a finite number of countries that all share a finite space as each one's economy tries to achieve a positive trade balance, then there must be at least one country that will have a negative trade balance. That country absorbs all the trade surplus of the other ones.
Obviously, there is a fundamental problem if one wants to generalize this approach as the correct economic theory for all participants in a global economy. It cannot be the long-term goal of any one player to maintain a positive trade balance. It works, of course, over short periods of time, namely until the effect of one country's positive trade balance has made itself felt with all the other trade partners who then implement countermeasures designed to turn their own trade balance positive. The time over which local economic success spreads becomes ever smaller as global trade is enabled by nearly instantaneous communication of actions between trade partners, currently due to the internet and World Wide Web being globally available.
So I am really surprised that politicians still use this unrealistic measure of success in their arguments for political power. It is similarly surprising that the economists have not come up with an adequate concept – or theory or paradigm – of how a modern global economy should be set up. What are the goals that can be generalized for a global market and that make an industry, or an economic sector, successful?
And it can't be derivatives and such things which have brought down the financial sector down. It has to be based on values generated by those economic sectors. They are, of course, the several industries and services like electronics, transportation, agriculture and food, health, etc., to the extent that hey have a global aspect.
It should, however, be also considered for local efforts whether a controlled growth under a generalizable concept would not be much more adequate than growth at all cost and unlimited increasing profit. There must be a different definition of what "being successful" means, something where size, growth, and work environment, style, are adequately tuned to each other. Ultimately, growth can only be possible on a global basis, that is, only if values increase for all and everyone equally, worldwide. Each country (if national borders for economic purposes actually still made sense) must change (possibly both ways!) only adiabatically, in unison with its neighbors which means globally. This quasi-static behavior of each entity involved requires a business model for the economy that is very different from what we see today. Also, I don't see any theoretical approach as yet to such a new set of goals and maxims.
That concept—which interestingly is, or certainly was, identified as Nationalökonomie in German—works well, sort of, if the country in question is comparatively small and its neighbors are large, that is, the effort of the small country doesn't have a substantial effect on the economies of those neighbors. They can accommodate their negative trade balances with the small country if each has a positive trade balance with its other neighbors. But what happens if one wants to generalize this concept to all countries that exchange goods with each other? If there is a finite number of countries that all share a finite space as each one's economy tries to achieve a positive trade balance, then there must be at least one country that will have a negative trade balance. That country absorbs all the trade surplus of the other ones.
Obviously, there is a fundamental problem if one wants to generalize this approach as the correct economic theory for all participants in a global economy. It cannot be the long-term goal of any one player to maintain a positive trade balance. It works, of course, over short periods of time, namely until the effect of one country's positive trade balance has made itself felt with all the other trade partners who then implement countermeasures designed to turn their own trade balance positive. The time over which local economic success spreads becomes ever smaller as global trade is enabled by nearly instantaneous communication of actions between trade partners, currently due to the internet and World Wide Web being globally available.
So I am really surprised that politicians still use this unrealistic measure of success in their arguments for political power. It is similarly surprising that the economists have not come up with an adequate concept – or theory or paradigm – of how a modern global economy should be set up. What are the goals that can be generalized for a global market and that make an industry, or an economic sector, successful?
And it can't be derivatives and such things which have brought down the financial sector down. It has to be based on values generated by those economic sectors. They are, of course, the several industries and services like electronics, transportation, agriculture and food, health, etc., to the extent that hey have a global aspect.
It should, however, be also considered for local efforts whether a controlled growth under a generalizable concept would not be much more adequate than growth at all cost and unlimited increasing profit. There must be a different definition of what "being successful" means, something where size, growth, and work environment, style, are adequately tuned to each other. Ultimately, growth can only be possible on a global basis, that is, only if values increase for all and everyone equally, worldwide. Each country (if national borders for economic purposes actually still made sense) must change (possibly both ways!) only adiabatically, in unison with its neighbors which means globally. This quasi-static behavior of each entity involved requires a business model for the economy that is very different from what we see today. Also, I don't see any theoretical approach as yet to such a new set of goals and maxims.
Monday, March 7, 2011
Auguste Comte's "religion"
In the meantime I came across a book review by Peter Schöttler in the periodical DIE ZEIT, 16 Feb. 2011, which discusses a new book by Wolf Lepenies by the title "Auguste Comte: Die Macht der Zeichen", Hanser Verlag . It is about Comte's philosophy of Positivism – something that was forgotten for most of the 20th century although Comte is credited with having coined and partly defined what we know now as Sociology — Lepenies nennt ihn 'the first sociologist of the 21st century'.
In the context of the previous blog, however, Comte is important because he founded a system he called the Religion of Humanity, a replacement of religion based an a god or gods, and intented as the basis for the spiritual, moral and ethical life of humans in modern societies. His positivism was at the same time philosophy, politics, religion and morals (Lepenies, p.18). Apart from the fact that some of the ideas he concocted more than 150 years ago in Paris, France, are somewhat out of place today, this idea of a godless 'religion', i.e., atheism based on science and philosphy, that satisfies the apparent human need for spiritual service to a higher common good seems to be something like what I think I have in mind.
So I bought Lepenies' book and started reading it. It holds everything Schöttler promises in his review. I am sorry that I haven't come across this earlier, in my high school years or as a student. The surprising aspect for me is that Comte realized that people need and want rituals and community without a god figure behind it. He also saw the possibility that an ethical basis for individuals and societies need not come from fear of the wrath of god or the horror of eternal hell, and not the promise of life in heaven either. These are concepts derived from a pre-scientific age which was indeed governed by fears of effects from unexplained natural phenomena.
These are Comte's fundamental formulas, slogans and mottos:
1. Ordre et Progrès
2. L'amour pour principe, l'ordre pour base et le progrès pour but.
3. Vivre pour Autrui
Comte issued his Prospectus des travaux scientifiques nécessaires pour réorganiser la société and says about his approach to put his ideas into place: "Après avoir mentalement constitué la nouvelle philosphie, il faut bien que je m'occupe enfin de son installation sociale." (Cited in the footnotes on p.96 of Lepenies's book.) He wrote Système de la politique positive to propagate a "humanity religion", a religion without god in which humanity replaces the usual higher being; Comte says: "Während die Protestanten und die Deisten immer die Religion im Namen Gottes attackiert haben, müssen wir, ganz im Gegenteil, letztlich Gott im Namen der Religion abschaffen." (cited after Lepenies, p.25) In March of 1848 he founded the Société Positiviste which was initially called 'Ordre et Progrès: Association libre pour l'instruction positive du peuple dans tout l'Occident européen' which is already something of a brief manifesto.
It is interesting to learn that Comte had a good response to his ideas in England and America: John Ruskin, John Fisher, William Mitchell Gillespie, John Stuart Mills, ...
As it happens, this week's Der Spiegel (Nr. 9, 28.2.2011) carries an article on p. 54 titled "Das gottlose Dorf" which is described in the table of contents by this 'abstract', as copied verbatim from there: "Können Muslime und Christen friedlich zusammenleben? Ja, wenn sie nüchtern bleiben und aufhören, an Gott zu glauben — diese Idee hatte der Äthiopier Zumra Nuru und gründete ein eigenes Dorf mit eigenen Regeln. In Awra Amba sind Religion und Alkohol verboten, Männer und Frauen gleichberechtigt, und der erwirtschaftete Gewinn wird geteilt. Das Modell funktioniert."
This is in essence Comte's 'order and progress'; not much more is necessary to get society to function. Leaving any god out of the equation will make a huge progress. The examples where a 'godless' society didn't work, like the SSSR and other communist governments, have more to do with a misguided economic model, and in any case, godless doesn't mean free of rituals that bring people together to reflect on common human qualities, morals, ethics. Comte includes the arts in this, particularly the musical and graphical arts, and instituted weekly local meetings among members of his society.
In the context of the previous blog, however, Comte is important because he founded a system he called the Religion of Humanity, a replacement of religion based an a god or gods, and intented as the basis for the spiritual, moral and ethical life of humans in modern societies. His positivism was at the same time philosophy, politics, religion and morals (Lepenies, p.18). Apart from the fact that some of the ideas he concocted more than 150 years ago in Paris, France, are somewhat out of place today, this idea of a godless 'religion', i.e., atheism based on science and philosphy, that satisfies the apparent human need for spiritual service to a higher common good seems to be something like what I think I have in mind.
So I bought Lepenies' book and started reading it. It holds everything Schöttler promises in his review. I am sorry that I haven't come across this earlier, in my high school years or as a student. The surprising aspect for me is that Comte realized that people need and want rituals and community without a god figure behind it. He also saw the possibility that an ethical basis for individuals and societies need not come from fear of the wrath of god or the horror of eternal hell, and not the promise of life in heaven either. These are concepts derived from a pre-scientific age which was indeed governed by fears of effects from unexplained natural phenomena.
These are Comte's fundamental formulas, slogans and mottos:
1. Ordre et Progrès
2. L'amour pour principe, l'ordre pour base et le progrès pour but.
3. Vivre pour Autrui
Comte issued his Prospectus des travaux scientifiques nécessaires pour réorganiser la société and says about his approach to put his ideas into place: "Après avoir mentalement constitué la nouvelle philosphie, il faut bien que je m'occupe enfin de son installation sociale." (Cited in the footnotes on p.96 of Lepenies's book.) He wrote Système de la politique positive to propagate a "humanity religion", a religion without god in which humanity replaces the usual higher being; Comte says: "Während die Protestanten und die Deisten immer die Religion im Namen Gottes attackiert haben, müssen wir, ganz im Gegenteil, letztlich Gott im Namen der Religion abschaffen." (cited after Lepenies, p.25) In March of 1848 he founded the Société Positiviste which was initially called 'Ordre et Progrès: Association libre pour l'instruction positive du peuple dans tout l'Occident européen' which is already something of a brief manifesto.
It is interesting to learn that Comte had a good response to his ideas in England and America: John Ruskin, John Fisher, William Mitchell Gillespie, John Stuart Mills, ...
As it happens, this week's Der Spiegel (Nr. 9, 28.2.2011) carries an article on p. 54 titled "Das gottlose Dorf" which is described in the table of contents by this 'abstract', as copied verbatim from there: "Können Muslime und Christen friedlich zusammenleben? Ja, wenn sie nüchtern bleiben und aufhören, an Gott zu glauben — diese Idee hatte der Äthiopier Zumra Nuru und gründete ein eigenes Dorf mit eigenen Regeln. In Awra Amba sind Religion und Alkohol verboten, Männer und Frauen gleichberechtigt, und der erwirtschaftete Gewinn wird geteilt. Das Modell funktioniert."
This is in essence Comte's 'order and progress'; not much more is necessary to get society to function. Leaving any god out of the equation will make a huge progress. The examples where a 'godless' society didn't work, like the SSSR and other communist governments, have more to do with a misguided economic model, and in any case, godless doesn't mean free of rituals that bring people together to reflect on common human qualities, morals, ethics. Comte includes the arts in this, particularly the musical and graphical arts, and instituted weekly local meetings among members of his society.
Wednesday, February 2, 2011
Old age and atheism
Having retired in April 2009, I gradually find time to get back to some of the efforts started earlier, such as a blog about the assembly of cubes from the shapes of playing pieces of the game Rumis. In 5 years, there were no comments or contributions to that topic, so it is probably warranted to start a new one, with a different title and different theme.
This blog is about sorting out some ideas by writing them down here. That will help with their consolidation and also their development into a clearer view than random thoughts and mental associations usually allow. There are, of course, topics that appear to be of particular relevance, to me and to society.
One of these is atheism as recently laid out forcefully by writers like Richard Dawkins and Sam Harris; to round things out one should also mention Christopher Hitchens here. It is really important, also in view of a more and more globally organized world, to get rid of the concept of god at all as an ordering principle if a common ground between different cultures and human behavioral patterns is sought. To this end, the emotional need for rites and community experience needs to be filled without reference to a 'supreme being' – something that may take a couple of generations to achieve.
This blog is about sorting out some ideas by writing them down here. That will help with their consolidation and also their development into a clearer view than random thoughts and mental associations usually allow. There are, of course, topics that appear to be of particular relevance, to me and to society.
One of these is atheism as recently laid out forcefully by writers like Richard Dawkins and Sam Harris; to round things out one should also mention Christopher Hitchens here. It is really important, also in view of a more and more globally organized world, to get rid of the concept of god at all as an ordering principle if a common ground between different cultures and human behavioral patterns is sought. To this end, the emotional need for rites and community experience needs to be filled without reference to a 'supreme being' – something that may take a couple of generations to achieve.
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