Put a few things in perspective

Thought I should just post this and see what happens. Probably none of it surprising, but at this time of year, when we've bee settling marks for students term papers and exams the bit about jobs that don't yet exist makes you think about the skills they're acquiring.
I'm so glad I didn't do a vocational degree!

Plagging for beginners

Admire my parking skills, originally uploaded by Bashed.

I've been thinking (don't groan like that please).

The banking crisis - the general downturn of everything as a result - is quite a complex demonstration of Garrett Hardin's 'Tragedy of the Commons' and his observation of the number of times organisations and people are selfish - despite the negative consequences even to themselves.

I thought the photo was quite a nice illustration of behaviour that clearly seemed perfectly logical to the driver, but at some cost to others.

In many areas of life, people engage in behaviour which has short term personal benefits, but causes other people to suffer. But Hardin's insight was with regard to unregulated commons (or common goods) which are a limited resource to which many have access.

This issue is that there can be a considerable incentive to exploit the resource to the detriment of all other users and that, ultimately, to one's own. This is a kind of prisoner's dilemma in which two prisoners will be set free if both keep quiet. However each can incriminate the other and the first one to do so increases his/her chances of release. The result is that both are likely to co-operate with the authorities.

In the commons problem Hardin had it that cattle herders using a common would tend to over-graze the land. They tended to 'commonize the costs' and 'privatize the profits' and some have argued that is exactly what has happened in the financial services industry.

Incidentally I first came across Hardin many years ago writing something for my Masters about altruistic behaviour which I was hoping would turn into a doctoral thesis. I was inspired by the retelling of this, with some elaboration, in a fascinating book called 'The Origins of Virtue' written by a guy called Matt Ridley. It's a very well-written book and I'd recommend it.

I also found a reference to PLAG - protagonist loss/antagonist gain - behaviour. The fact is that many people do act altruistically. It's possible to reduce this down to some kind of selfish exchange behaviour ("well, they get a kick out of giving to charity" or the 'feel good' reward); a utilitarian argument, but I think this over-simplifies behaviour.

At the time I was thinking about all this I established that there were enough examples of people exhibiting 'PLAG' behaviour to demand an explanation that wasn't just about selfish exchange and then I found Bourdieu...but that's another story.

Back to the financial crisis. It's fairly clear that institutions were acting as if the market could go on climbing and they could continue to profit from this without considering the 'resource' that was being exploited. This 'common' resource could be said to be the real economy or maybe it's just people (as workers and consumers) but, in any case, there was and is a limit to how far you can repackage and re-sell debt.

Even as the mortgage market collapsed like a souffle, banks continued to commonize costs - in fact the world's governments seemed conditioned to accept this - after all they are there to step in and protect the little people...aren't they? So houses and life and medical insurance are propped up by giving money to the banks.

Well, I've said before that I struggle with some economics, but surely the more efficient route would be to give the support direct to the consumer so they could spend or save (in a bank) as they needed. Writing off a lot of debt would help.

Instead governments, working within a broken banking system, are enabling a few to continue to 'privatise profits'.

Matt Ridley...mmmm...feeling you've heard that name before? Possibly.

Until October 2007 he was Chairman of Northern Rock.

He doesn't mention that on his CV.

[Having written this check out George Monbiot putting the boot in far more effectively than I]

You'd never know I studied economics once

Wall_Street crisis, originally uploaded by semarlfb.

Let’s imagine there’s a world with 1 million people (easy numbers for my poor maths).

Each person has £1000 in savings and is paid £100 per annum to work for one of 100 companies. (You could make it more realistic, but the maths, the maths!)

Ten of those companies are banks.

So…

Each company employs 10,000 people (including the bosses) and pays out £1m in wages. So has to make at least £1m a year to keep going.

It makes things that the 1 million people buy…with their £1000 savings and/or their £100 wages.

Ten companies look after all this money. £1000m in savings and £1m in current (checking) accounts. They have to take out of the system £1m to pay their staff, but of course each £100 goes into other companies – like supermarkets, car dealers etc and then ends up back in one of the ten banks.

I don’t speculate on the value of the companies – there is only so much money to go around so it’s irrelevant.

Some companies will be good at bringing in money and others will go short. The former will bank the money (or spend it) and it will still end up in a bank. Where the latter kind of company might ask to borrow it.

If they end up not being able to pay it back, they’ll go bust. But the money will still be in the system.

So, my question is this, how do they screw up?

Explanations for the hard of thinking, welcome. And feel free to elaborate on my model.