Michael Battalio


Friday, November 28, 2014

Discussions on Wealth (part 4): Chapter 2 discussion - externalities

This discussion on wealth is an offshoot of Serious Conversations parts 53 and 54. We are considering the book The Origin of Wealth by Eric D. Beinhocker. (I do not profit from clicks). (Ed.: we will be taking the general format of outlining the major points of the chapter and then discussing what we believe to be important or intriguing points.)

        The free market is the most just decider in allocation of wealth (pg 28). This leads into an assessment of externalities:  Is there such thing as a completely free market?  It may be the most just, but does that really matter in practice? There will always be forces outside of the market pulling the market in one direction or another.  The wealthy will always be in more control of the market than the non-wealthy, so if the free market is the most just, by deduction, all other markets must be unjust.  And because no market will ever be the ideal market, all extant markets are unjust.  This is the perfect argument for the intervention of government.  
        No market is completely free. The currency of the market cannot account for all of the costs and benefits for all market forces because our economy is so compartmentalized. Externalities are not noticed when they don’t have an immediate effect on the goods accumulated or exchanged. For example, the climate impacts of greenhouse gas emission are an enormous negative externality that is not factored in because a factory owner doesn’t care how polluting the electricity they use is. They only care that the price not vary drastically. The generation, distribution, pollution of the energy production is some other factory owner’s problem. A second example: societal investments in education pay off in the long run by spurring innovation from educated workers, but a company isn’t going to make a voluntary investment because the investment might not pay off until after the executives making the investment have left.
        A free market assumes that everyone started off fairly and the wealth was distributed evenly. Even if you come up with an amazing strategy for a perfectly fair market, people are still going to start out with advantages and disadvantages, and if your strategy doesn't provide ways for those on the bottom to rise up, then it's not going to help them out at all. So, we need an external entity to moderate the not so free market. The market isn’t free because of the government. The market isn’t free because it is an imperfect universe we live in. The government makes it more equitable though taxation and regulation. Only the quantity of government involvement should be debated.

Friday, November 07, 2014

Discussions on Wealth (part 4): Chapter 2 discussion - specialization

This discussion on wealth is an offshoot of Serious Conversations parts 53 and 54. We are considering the book The Origin of Wealth by Eric D. Beinhocker. (I do not profit from clicks). (Ed.: we will be taking the general format of outlining the major points of the chapter and then discussing what we believe to be important or intriguing points.)

        The point was made that specialization is important. The division of labor has played an vital role in spurring productivity. The example provided in the book was the manufacture of pens. However, specialization is not necessarily a good thing. Productivity is gained, but innovation is lost. An understanding of multiple fields is required to use ideas from one field to advance another. (E.g. The mathematics of economics was borrowed from physics. One the other hand the mathematics of economics was overly simplified.) What is the optimal level of specialization in a society?

        Should all people have some generalization or should some people specialize and encourage others to be generalists?  We have to consider the specialization of all people individually for the greater good.  That seems really complicated.  When we’ve talked about specialization before I believe that I noted that it is now impossible to be a total generalist now.  We know so much that it is not possible to know a little bit of everything.  Before the 20th century, one person could accumulate and understand most of the breadth of human knowledge.  Now though, there is too much information being created even in one subject.  Presently, it is more than likely that you can merely be generalist in a few fields, but not completely general.  It is insurmountable to know even all of one subject.  Think of trying to keep up with all of physics or even less general like plasma physics or solid state physics — a nigh impossible task.  This is what increasing higher education degrees lead you toward — less generalization, more specialization.  All of academia is built around that.
        Perhaps instead of generalization we should focus more on collaboration and communication.  Let’s not all work to be general but work to communicate our specialized knowledge to fields tangential to our own. Maybe start up companies that are successful are those that have that just right mix of the generalists and the specifisists with the proper amount of communication between them.

        I just finished reading a book on Chaos by James Gleick.  One of the key themes of that book was that since chaos was a kind of new science and new approach of treating the noise in a system it had to be “discovered” in each field almost independently because no one reads journals from other disciplines.  For example, it took a decade after Lorenz published his work on attractors in the Journal of the Atmospheric Sciences for biologists to recognize that attractor behavior occurs in the growth of populations as well – same thing for particle physicists and cosmologists. And to bring it back around, it wasn’t until the 1980s that economists began looking for fractals and attractors in economic data.  If there had been generalists in each field they would have recognized how useful Lorenz’s work was back in 1963, but no cosmologist, biologist, economist would read a meteorological journal.  I wonder if since we will be applying biological principles to economics if the author will bring up chaos.
 
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