Re: What caused the world economy to collapse,article link

On 2009-02-01, Democracy Highlander <democracy.highlander@xxxxxxxxx> wrote:
Let consider 2 countries C1, and C2. Both of them produce and consume
bread and wine. C1 is 2% more efficient at making bread than C2 and C2
is 2% more efficient as C1 at producing wine.

Case 1: C1 and C2 keep their own localized economies and trade only
surpluses and use protectionism to keep both bread and wine
productions.

Case 2: C1 and C2 implement total free-trade, C1 specialize on bread
and C2 only wine and then trade with each other. Because of
advantages, they both consume 2% more bread and wine.

Case 2 (Globalized economy) seems definitely better to case 1
(Protectionist economies).

Now, let consider a plague of locust in C1 destroying all their crop.

Case 1: C1 is left without food. They appeal to humanitarian aid from
C2 and also agree to trade most of their wine for some bread. C2 help/
trade with them and give them enough bread (1/3 of C2 production) to
survive till next year.

Case 2: Both C1 and C2 are left without food. If they are the only
major players into the global economy of liberty loving countries. Now
it is a good time for their enemies C3 and C4 to attack and subdue
them both. Bye bye freedom, we will always remember you.

.................................

For many many years, from when the systems started to become complex,
the engineers knew that as a complex a system, as easy can fail. In
order to handle the ever growing complexity, engineers started to
develop complex systems in independent modules, able to be designed
and operate independent of each other, and they just communicate
using a small and well managed interface. That way, if a sub-system
fail it crash does not affect other sub-systems. The supervisor module
will detect the failure of a sub-system and try to restart/reboot it.

This modularization does indeed introduce a lot of inefficiencies. The
computer used for flight control can also handle communications very
well, but it never will. The reason is that the engineers want to
prevent a potential crash of the comm module to make the plane
unresponsive to pilot commands. If the comm module crash, the co-pilot
just turn it off-on without the risk that the pilot lose the control.
This safety feature however, imply multiple computers, with their own
power sources, cases, heat sinks etc. It is less efficient but is able
to handle failures. It goes so far as to have duplicate subsystems for
the most critical components like flight computers.

One can only wonder how an economist proponent of globalization will
propose to consolidate all the computers of a plane into a powerful PC
running an off the shelve Microsoft Windows Vista - Home Edition for
"efficiency" purpose :-) Oppose any "useless redundancy" because this
is not what the market wants and even globalize all the electric
circuits on the plane on a single big fuse, instead of that "wasteful"
fuse panel with independent circuits.

If the financial system would not been as tightly integrated, and
globalized and so consolidated in huge large financial institutions
(too big to fail) the sub-prime problems in US would been visible much
much sooner. A number of small banks fail, our friends from England,
Germany, Canada, Australia or yes, even France would been able to help
and nothing bad happen.

Unfortunate, instead of having a large number of small local/national
banks we allowed a wave of huge consolidation of the financial power
in institutions "too big to fail". We gave them the right to globalize
at their will and by this to induce unhealthy inter-connects into all
our friends financial systems (more circuits on a single fuse).
By this, when the short-circuit happen in US, there was available
enough raw power to
keep the wire running hotter and hotter until it started a fire
everywhere in the system.

.........................................................

Looking at this economic collapse we shall start to think. Efficiency
is not always the only purpose:

Yes, we can increase the production with 2% but we risk to loose our
freedom for that. Do we really want to pay that price price ?

We can reduce at half the weight of the avionics, and that will
increase the fuel efficiency with 1% for every plane. But for that 1%
increase we are going to have every one in five planes crashing and
killing everybody on board. Do we really want to pay that price
price ?

We can globalize our economy, giving free-trade rights to corporations
to do at will whatever they want without any government control and
supervision. But by doing this we will have something worst than Great
Depression, a world wide systemic collapse that have the power to be a
civilization ending event. Do we really want to pay that price
price ?

I agree wholeheartedly (have been saying the same thing for a long
time): we need modularity, because that becomes shock-proof. In terms
of economics that means inefficiency, or maybe not: the disasters that
increase their damage effects because of interdependence must be counted
as a decrease in economic efficiency.

Economic wealth output is also not the only factor to considder:
economic interdependence running at high/vulnerable "wealth efficiency"
means a serious loss of sovereignty for all countries.

As a practical rule it is probably best if each country:
- has its own currency
- has its own sufficient food/water supply or could start that up quickly
- at least has some industry in all important areas

The politicians are also mudying the water of the economic debate: "free
trade" is now a word denoting free-price setting as much as it is about
no border tarriffs/barriers. That is wrong: borders keep a country
sovereign, modular, insulated to a degree. Within the country there
should exist a free price setting trade system. Border tarriffs are a
great tool to keep the economic filth/instability out of an economy, for
example: if we know that certain cars are build with effectively slave
labor (a serious imbalance/disaster in the production country, which
will potentially correct itself during an upcoming civil war or other
such calamity), then slapping a tax on those cars equal to what they
would cost under fair labor (might triple the cost of such cars)
insulates the home economy from the outside world disasters, it does
not promote the sales of the slave build cars (humanitarian profit),
and once that country goes through a correction the home country
remains relatively unaffected because the market for slave build cars
was kept small, thus allowing honestly build cars to dominate that
market already. In the ultimate case much or everything could be
internally fabricated for the home market, in which case a country
is 100% protected from foreign problems (that is probably not an
optimum position either).

The best design is IMHO: many many sovereign countries, none too large.
Even when some go through great corruption periods or whatever, there
would be so many other countries to shift trade to that most other
countries wouldn't even feel it.

The modularity is very important for political efficiency: to find out
what policies work and what don't. The more countries, the more
different policies are being implemented concurrently. Example: if the
USA had been 12 sovereign countries, they would only have had one Bush
in one of them, only of of these countries at one time would go through
a financial crash. Seeing that, the other countries who are into
Government lending practices and wars or whatnot, seeing the crash might
get out of such choices. In case the whole world is one nation political
efficiency drops to near zero.

|Economic efficiency ^
| *
| * *
| * *
|* *
0--------------------------------Interdependence>
|> cost of disaster greater

|Political efficiency ^
| *
| * *
|* *
|* *
0---------------------------------Interdependence>
|> loss of diversity & sovereignty reduces political experimentation
^^Simplest forms of interdependence lost: knowledge from other countries.

Hence the optimum level of interdependence / trade barriers lies
somewhere less inter-dependent then pure economic efficiency taking
account of cost of disasters, to allow for political efficiency. Or
rather: for the optimum level of inter-dependence you also have to
take into account the importance of political efficiency, since
political efficiency is extremely important for how well an economy
functions.

An example is easily found: say one country invents a better economic
model. Other countries could benefit from that: political efficiency
transfers into economic efficiency. In a totally inter-dependent "one
nation" world no country can invent a better economic system since
they would be tied hand & foot to what exists, and may have to contend
with the overwhelming economic power of the big companies & banks who
don't have general economic efficiency as their goal, but maximization
of exploitation of the Earth & humanity for their own benefits and
position in the competitive market.

Trade barriers should remain in a serious manner, and remain the
toy for day to day politics. The great empires USA, India, China,
EU must be cut up into quite a few new fully sovereign "modules."
Each must have its own currency (or it is not sovereign), and should
strife to be an independend "universe" for itself, or at least be
able to survive fully independent (food/water/shelter). I think this
also makes for a more interesting world. Foreign trade becomes a
carefully done bonus for marginal economic efficiency, rather then
pretty much the back-bone of many national economies. Having complete
set of industries in all countries breeds employement & general
competence.
.

Relevant Pages

  • Re: the negative side of globalization
    ... "Globalization" has been a reality since the first pre-historic person got ... in a boat to go find neighbors to trade with. ... Eventually the Japanese economy grew to the point that they were ... within the countries they have an influence in. ...
    (soc.culture.filipino)
  • Re: WGA Strike 90%+ vote to strike
    ... refers to how much of the money that gets paid in to the plan gets ... gunpoint and then disburse it without doing anything else. ... efficiency is not all that great either. ... They only withdraw from the economy, ...
    (rec.arts.sf.tv.babylon5.moderated)
  • Re: One particularly nice recent acquisition
    ... I had to quote the quote that starts the first chapter: ... -- The State Senate of Illinois yesterday ... efficiency and economy." ...
    (rec.arts.mystery)
  • Re: Rising Food Costs
    ... Economy and efficiency are often used interchangeably when the ... just like everyone who drives a vehicle ... That MPG rating for vehicles only applies to constant ideal ...
    (rec.food.cooking)
  • Re: One particularly nice recent acquisition
    ... I had to quote the quote that starts the first chapter: ... efficiency and economy." ... And it just gets betterer and betterer. ...
    (rec.arts.mystery)