Thursday, June 25, 2009 33 Comments

UR succumbs to virology

This week's post is postponed to the weekend.

If you need something to read in the meantime, why not consider Professor Seeley's classic of imperialist history, The Expansion of England (1883)? Or perhaps Professor Hearnshaw's Democracy at the Crossways (1918)? Or even Professor Hobhouse's intriguingly-titled Democracy and Reaction (1905)? As we Jews like to say - think British, dress Yiddish.

33 Comments:

Blogger Mitchell said...

Or Celia Green on a viewpoint that has been lost since the heyday of the British Empire.

June 25, 2009 at 9:48 PM  
Anonymous endefo said...

"As we Jews like to say - think British, dress Yiddish."

How about a much better slogan - No Jews, just right.

June 25, 2009 at 11:35 PM  
Anonymous josh said...

feel better.

June 26, 2009 at 6:17 AM  
Blogger Sandy said...

UR succumbs to the study of viruses?

June 26, 2009 at 10:27 AM  
Blogger TGGP said...

I think it's supposed to be “Speak Victorian, Think Pagan”.

Sandy, I've heard those who pick up "Plague Time" and "Survival of the Sickest" are unable to put them down.

June 26, 2009 at 5:44 PM  
Blogger Publius said...

Moldy, I wish you stop posting your technocratic political fantasies and just give us a reading list.

June 26, 2009 at 9:14 PM  
Anonymous Bearded Spock said...

sifting through MMB's technocratic fantasies are a small price to pay for the fascinating political/historical analysis he provides.

June 27, 2009 at 1:57 PM  
Blogger Blode0322 said...

I actually wish he'd be more clear about some of the details in his thesis that government would be better if it were run like a well-run corporation. He's often said tantalizing things about how corporations themselves would be better run if corporate management had been modernized since the 1930s. A few posters, notably the estimable Michael S., have made some suggestions in this regard, but really, you'd think Moldbug could be more clear about what he thinks the main problem in US corporate management are, if he's going to advocate government emulating it.

June 27, 2009 at 2:23 PM  
Anonymous josh said...

Blode: Did you read his post about the "rotary" system?

June 27, 2009 at 3:41 PM  
Blogger Porphyrogenitus said...

Teh Rotary System rulez! It's soooo 1337 everyone should live under it!

I do wonder what sort of virology he succumbed to. Mayhap he'll enlighten us.

June 27, 2009 at 4:32 PM  
Blogger Blode0322 said...

Well, the Rotary Management post just seems to show how screwy corporations would be if they were managed the way the US government is. Moldbug has also dropped some hints about screwiness in the actual corporate world. I am sure it has something to do with effective stockholder control or vigilant boards of directors or something. Steve Sailer seems to think the current depression was generated mainly by loans to Dalits and Helots, but I'm not sure if that is what Moldbug is getting at.

Michael S. also talked about a French-style bankruptcy law in which officers could be charged for fraud in circumstances where they wouldn't be in US, implying that we are too lax and penalties for gambling corporate assets unto bankruptcy are ineffective. Not sure if that is what Moldbug is going for....

June 27, 2009 at 9:29 PM  
Blogger TGGP said...

I'm going to vote against more reading lists and for more technocratic fantasies. I might be in the minority, but fortunately this is an anti-democracy blog where votes count for nothing.

June 27, 2009 at 10:27 PM  
Blogger Porphyrogenitus said...

Blode, re. the Rotary Syetem: Yeah, that's the point. That's what makes it so awesomesauce!

And look, it's taking root as we speak - more and more banks and automotive companies are adopting a version of the rotary system with every passing month!

What could possibly go wrong?

Re. the current recession/economic crisis: I think Moldbug blames that more on fiat money ("a rage for paper money and other improper or wicked project"), though of course politicians attempting to generate mass appeal he would also blame. And the masses for letting themselves be appealed to, when all that really happened was a whole lot of rent seeking behavior at their *expense* rather than to their benefit.

Myself I'm still not wholely converted to specie currency (for lack of a better term. I suppose "absolutely limited money supply" would be a better description).

I do think the Rotary System is the wave of the future for large corporations in the brave new world the USG is creating. The good news is they'll only have to please one "customer" to get boundless donatives!

At least until the whole thing falls apart, which alas might take longer than some people think and thus cause more long-term damage.

June 28, 2009 at 10:25 AM  
Anonymous josh said...

What would be a great would be a reading list compiled on a single page organized by period.

June 28, 2009 at 10:49 AM  
Blogger TGGP said...

Porphyrogenitus:
Oddly enough, John Maynard Keynes also thought fiat money was the worst possible system.


josh:
MM did list ten books from which he'd choose to construct a reactionary theory of modern history which he listed in order of composition:
http://unqualified-reservations.blogspot.com/2007/10/how-dawkins-got-pwned-part-4.html
He also gave a list of recommended books divided by prospective reader and topic:
http://unqualified-reservations.blogspot.com/2007/10/how-dawkins-got-pwned-part-4.html
I have shamefully not opened Background to Betrayal in months.

One conspicuous absence in MM's lists is anything by Leoni. When he started out MM said that there was little in his writing not found in Rothbard/Mises, Kuenelt-Leddihn, de Jouvenel, Leoni and Africa Addio. He's discussed most of the other ones. Admittedly, he did say that before he rejected the Glorious Revolution for Carlyle, Filmer etc.

June 28, 2009 at 2:31 PM  
Blogger Porphyrogenitus said...

I suppose Keynes wasn't wrong about everything. :p Just because he was completely daffy on some things. Actually Keynes made some good points in his time (most of which were since forgotten by Keynesians).

Still, an inelastic money supply in a elastic population and even moreso an elastic economy would cause deflation, which is no good thing either.

Not that I know a good solution. I just don't think an completely inelastic money supply such as Moldbug favors is one. Perhaps we can hire the Fnargl guy to control the money supply for us.

As for a reading list, this dude here: http://moldbuggery.blogspot.com/ has collected seemingly every UR post and the books/articles/whatnot mentioned within them. (I used the links on that site when reading the archives). The "Books" citations next to most of the post links is probably the closest thing you'll get to a complete reading list.

June 28, 2009 at 4:32 PM  
Anonymous RP said...

Porphyrogenitus, what is so bad about things becoming less expensive?

June 28, 2009 at 11:33 PM  
Blogger Porphyrogenitus said...

Its one thing for things to become less expensive due to greater real productivity and whatnot - witness the cost of computing power, the cost of cell phones (going from an expensive brick for the rich to basic models being essentially given away for free) and the like.

As with inflation not really making things "more expensive" but instead representing monetary degeneration, deflation, doesn't really make things less expensive though. It's price disruption, just as inflation is.

I'm still curious what virology Moldbug succumed to. I'm half-curious if it's something like NedaNet...

June 29, 2009 at 9:13 AM  
Anonymous Anonymous said...

Oh, I think Mencius just has a cold or something

June 29, 2009 at 11:37 AM  
Anonymous kassir said...

Porphyrogenitus,

You're reading too much monetarist nonsense. Productivity growth is deflation. It is not disruptive, it is simply the price mechanism spontaneously adjusting and clearing to the increased productivity. There is nothing disruptive about this.

Monetarist and Keynesians have spent the last 80 years trying to find arguments to prove that this is harmful, but they're all just excuses for the government to print money. Holland was on a gold standard for 150 years of uninterrupted economic growth that was deflationary and there was never a problem.

June 29, 2009 at 2:34 PM  
Anonymous Anonymous said...

"Steve Sailer seems to think the current depression was generated mainly by loans to Dalits and Helots, but I'm not sure if that is what Moldbug is getting at."

Steve Sailer makes the micro point that the proximate cause of the meltdown was the huge increase in Dalit and Helot loans. MM makes the macro point that any system where a volume of bad loans causes the whole system to either collapse or be at severe risk of collapse is a badly engineered system.

Tacoma Narrows Bridge analogy:

Steve Sailer: winds caused the bridge to vibrate at the harmonic frequency of the bridge.

Mencius: the bridge was badly designed and collapsed when weather conditions revealed this.

As far as the deflation debate goes, since reading MM and being exposed to Austrian economics I see the world quite differently. There is a huge industry dedicated to replicating what every currency should feature as part of the standard design: deflation. Finance is immense and most of it is dedicated not to allocating capital to productive industries but to creating ever more complex derivatives. Why? So people can get returns on their money and postpone consumption. Unfortunately, the debt claims that it generates are vulnerable to any perturbation whereby a decline in value of the underlying asset causes a chain of derivatives to collapse, which causes other derivates to collapse, which continues until a new equilibrium is reached. That's just the risk of events causing a bubble to pop (and there's always another bubble in a fiat money system).

On the other hand, you've got the risk that the corporation run under the rotor system which has the legal right to print as much currency as it pleases will separate responsibility and control to a large enough degree that the owners of the USG (its nominal employees) will, through the tragedy of the commons, simply inflate the currency to worthlessness. Because of the nature of the system where every force pushes for further separation of responsibility and control this is inevitable. Some bureaucrat in the Department of Education doesn't want to cause hyperinflation but on the other hand, him giving up his claim on freshly printed dollars isn't going to stop it. Might as well take the loot when it's offered.

Scary scary stuff.

-Steve Johnson

June 29, 2009 at 3:54 PM  
Blogger Porphyrogenitus said...

Productivity growth is no more deflation than inflation represents a decline in productivity.

Look at it this way, as I illustrated in my initial comment: If you double the price of everything, including labour (inflation), the "only" thing that's happened is money has been devalued. This will definately have follow-on economic effects, but it doesn't represent a halving of productivity.

Similarly, if the prices of everything, including labour, drop by 50%, you haven't really gained anything - you're not *really* paying less, you're only nominally paying less.

Of course, in real-life deflationary scenarios, the prices of everything does not drop at the same rate - which is one of the causes of deflationary disruption.

Now, if prices of goods drop because of real improvements in productivity, as opposed to simply limited money supply, then that is the result of productivity gains.

Another illustration: How well do you think the economy would run if, in 1789, they constitutionally set a limit on the number of dollars, and fixed the amount that could exist at any one time, at the number of dollars that existed in 1789.

I suppose a "solution" would be to come up with new currency denominations in fractions of cents (the new millionth cent piece might be coming out right now! With Obama's face on it!), but then you're really just back where we are now.

June 29, 2009 at 8:05 PM  
Blogger Porphyrogenitus said...

Note that none of the above should be construed as suggesting I'm in favor of inflation or currency debasement, either.

Constantine IX has a lot to answer for...

June 29, 2009 at 8:10 PM  
Anonymous Anonymous said...

"I suppose a "solution" would be to come up with new currency denominations in fractions of cents (the new millionth cent piece might be coming out right now! With Obama's face on it!), but then you're really just back where we are now."

Actually we're not.

Fixed dollar scenario:

You earn k dollars. When you earn them, they represent c percent of total dollars outstanding. This means that you can buy c percent of the product of the nation. In 10 years you can still buy c percent of the product of the nation. If people who accept dollars invest wisely, they will be able to produce more in 10 years than now. You will be able to buy more goods and services than you were able to 10 years ago.

Actual scenario:

You earn x dollars. When you earn them, they represent y percent of total dollars outstanding. You can buy y percent of the nation's products. In 10 years, the money supply will double (about). Starting out, you will be able to buy 1/2 y percent of the nation's products. If the nation's total output more than doubles you'll be able to buy more than you were able to 10 years ago. If not, less.

People do like to save for the future so they don't want to spend all of their money.

People don't like to collect objects that become worth less and less over time.

People tend to believe that if they do what their peers do, they'll be safe.

The result of these preferences is that people will then pump money into schemes designed to beat inflation. Of course, there is a competitive market in money making schemes. Since everyone jumps on the same ideas, every once in a while, they blow up spectacularly. Because of the bad design of our financial system, every blow up threatens to take the whole system with it.

-Steve Johnson

June 29, 2009 at 9:20 PM  
Blogger Aaron Davies said...

@steve johnson: this is basically where my thinking has been headed recently: the highest-level picture is that constant inflation forces huge chunks of the economy to be devoted to earning "returns" which would be completely unnecessary under a fixed money supply; these returns can (generally) only be earned through risk, so most economic activity is much riskier than it should be. e.g., how common would hundred-billion dollar corporations carrying ten-trillion dollar debt loads in desperate attempts to maintain five-percent-per-year growth be if no one were scrambling to find growth stocks so "save" their money in?

June 30, 2009 at 12:43 AM  
Blogger Porphyrogenitus said...

"Fixed dollar scenario:"

Actually, that will not be how it works.

You have c dollars. In ten years time, the population has become P+10% and the economy has grown to E+100%.

You have the same amount of dollars chasing more goods and services.

This will create an artificial increase in the demand for dollars (deflation), just as devaluation creates an artificial decrease (inflation).

It will not be directly related to productivity gains, because productivity does not increase at the same rate across all sectors of the economy (I'd say it's been negative lately in fields such as education, for example, even while we've experienced great productivity gains in some other areas of the economy).

Productivity gains are not equalized across all sectors of the economy but deflation seems to confuse people into thinking it is. (Just as inflation confuses people into thinking they're being screwed by gougers raising the prices of goods, when the actual price of goods is stable or perhaps even declining because producers are having trouble keeping up with inflation, it's "only" the nominal price that is increasing, because some jackanape is pumping out too many bills).

Population growth may not increase productivity at all (indeed it might lower it in certain circumstances - for example, a highly developed economy importing a lot of cheap, uneducated laborers). But over time that's certainly going to affect the nominal value of a dollar if the supply was fixed when the population was X, and the population has since grown to 100X.

That, along with differential productivity gains (or declines) nullifies the claim that deflation equates simply to productivity gains.

June 30, 2009 at 7:28 AM  
Anonymous Anonymous said...

"I'm still curious what virology Moldbug succumed to."

He has a baby, and probably caught a bug from her. I'm always catching things from my boy.

June 30, 2009 at 9:49 AM  
Anonymous Michael S. said...

The current financial crisis was not caused mainly by too many loans to Dalits and Helots. There certainly were too many such loans but the main problem was that there were generally too many loans made against insufficient collateral.

Fannie Mae's and Freddie Mac's definition of a qualified loan (i.e., one that they would buy on the secondary market) was any loan up to 97% of appraised value and under a total of $417,000. The bulk of such loans were not made to the 'working poor' or whatever the euphemism du jour for Dalits and Helots may be. They were made to ordinary middle-class wage-earning folks.

Fan & Fred held or guaranteed more than 50% of the residential mortgages in the country on such terms, which made them in effect an oligopsony in the secondary-mortgage market. They set the standard that smaller players had to meet or beat.

Enabling someone to buy a house with 3% down effectively set a margin requirement in the housing market that was comparable to that prevailing in commodities futures trading. There was thus very little cushion against even a small downward fluctuation in prices - and little recognition of the degree to which housing prices were a product of prevailing interest rates.

When borrowers with 5-year adjustable rate mortgages (on 30-year amortization schedules) made at the low prevailing rates during 2002-3 came up for their first five-year adjustment, considerably higher rates were then prevalent. A rise of even 200 - 250 basis points in mortgage interest is capable of doubling the monthly payment under such circumstances.

Just as in past financial panics, when rises in call money rates brought about margin calls and the sudden sale of stocks, leading ultimately to a cascading fall in stock prices. so the refinancing of these 5-year ARMs in 2007-8 led to more houses being put on the market than there were willing buyers for them; and with little or no equity in their properties, many mortgagors found themselves 'upside down,' owing more than their houses were worth. In such circumstances there was little to prevent their simply walking away from their obligations and allowing the mortgagees to foreclose. When a lender forecloses on a house, that shifts money on its balance sheet from a performing loan to "other real estate owned" - which is a source of cost rather than income. Hence the collapse in residential real estate prices has spread to a collapse in mortgage-backed securities, and thence to a collapse of the institutions that held them. Ergo sunt lacrimae rerum.

June 30, 2009 at 11:21 AM  
Anonymous Anonymous said...

Porphyrogenitus,

Your understanding of money, inflation and deflation is so impressive you deserve a job as an Ivy League professor in Economics. And your own NYTimes column.

June 30, 2009 at 10:50 PM  
Blogger GW said...

If we really should be concerned about having an inelastic currency with an elastic population, it would be a relatively simple matter index the amount of the currency to the last population census at a fixed rate (the rate can be a power of 2 units per person if that satisfies MM's need for computer-friendly numbers). That yields a currency that can show just enough elasticity to respond to population increase (do we make the govt. retire dollars when the population decreases?) without opening the door to inflationary bugaboos.

It also creates some interesting incentives for people to have babies (beyond the obvious).

July 1, 2009 at 10:42 AM  
Blogger Porphyrogenitus said...

Anonymous: I assume you're being sarcastic, which makes it brilliant that you were brave enough to log in as anonymous and added nothing of substance to the thread.

I'll try an example even the simple-minded should be able to understand.

There is an Engineer and a Professor of Afro-American Studies. Both of them make c.

After N years, the Engineer's productivity has tripled because of better tools, time use, and the like.

At the same time, the Professor cons the university to hire an Adjunct to do most of the teaching, so that he can spend his time producing a rap album enjoyed by his brother, and some tracts on poetic justice read by dozens. His productivity declines by half.

The amount of money in the system is fixed. The Adjunct is paid .5c and performs half of the Professor's job.

This being an unjust world, the money comes equally from the Engineer and the Professor (they are both taxed).

Now they both make .75c

Note that overall productivity in this simple economy has doubled. But productivity in the Engineering sector accounts for all the gain, money is spread more thinly across the population and buys more, as long as what you're buying is a product of the engineering sector.

The education sector costs more but produces the same amount.

July 1, 2009 at 1:47 PM  
Blogger newt0311 said...

@Porphyrogenitus

"This being an unjust world, the money comes equally from the Engineer and the Professor (they are both taxed).

Now they both make .75c."

Exactly how does that work? In a competitive market economy, people are paid according to their productivity. Your example does not take that into account. Your example would make more sense with savings (i.e., they already had amount X) but then it doesn't seem to be a problem.

July 1, 2009 at 6:02 PM  
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July 14, 2009 at 11:00 PM  

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