Tuesday, 3 April 2012

Ayn Rand TV Pleasure

Hello all,

        No quotes today, nothing. BUT I have something even better, an amazing documentary that everyone should watch. Its about Ayn Rand, and the incredible influence she's had in America. In particular her relationship to Alan Greenspan, former chairman of the Federal reserve.
       Anyways, I dont want to ruin the story for anyone, so I'm just going to post the link to the video... Did I mention that EVERYONE should watch this?


Also, the documentarian, Adam Curtis, makes some of the best documentaries I've ever seen. So if you dig this one, look up his others.

Monday, 2 April 2012

Whooo, new poster, new post, new series.

Greetings fellow proles,

        Looks like we're getting more people interested as using this blog as an outlet for all their thoughts and pontifications about economics. I like this alot and encourage as many submissions and reading of submissions as possible
        Sara Wray, as she would like to be called, is going to start blogging about music and economics. This is an awesome idea as the whole music industry and the production of music is something that seems underdiscussed, but can be a great way to apply the 'crap' we learn in school to something that we care about.


and here it is:

The Market for Music: Is Music a Public Good?
In comparison to music I don’t really care about economics. Don’t get me wrong, I like equilibrium as much as the next person, but given the choice to read about interest rates or to just sit and listen to music I’m going to pick listening to music.

This has been problematic while trying to be an economics student, but this morning I woke up with an idea: why not start a blog section on music? Over the next little while I will be putting forward some ideas about the markets for music to see what you all think.

The first is based on a conversation I had with Dan L about public goods:

A pure public good is a good that is non-rivalrous and non-exclusionary. Non-rivalrous means that the cost of providing the same good to each additional consumer is zero.  Non-exclusionary means that no one can be excluded from consumption.

The textbook example is fireworks. Once fireworks go off you cannot exclude someone close by from watching them, but it will not create additional costs if they indeed decide to.

In an age of digitalism, music is non-rivalrous. Distributing and downloading music over the internet is effectively costless.
Though personally listening to music is quite exclusionary (you can’t listen to what is in my headphones), there are many ways to listen to music that are not. The radio is a good example. If you have a radio you cannot be excluded from listening to any airwave you choose. The trend in fact is to move towards non-exclusionary ways of distributing music. These include podcasts, blogs, youtube posts by the artists etc.

So, is music a pure public good?
Though my above analysis comes with its flaws, music comes closer to being a public good than most things we think of as being one.

This means that without some kind of intervention, competitive pressures will lead to an under provision of goods.

Instead of the traditional horizontal aggregation of demand curves, the aggregate demand curve of a pure public good is a vertical summation of individual demand curves. That is, the quantity of a good stays the same and each individual can pay into it as they would like without changing g the quantity supplied. This is illustrated below.

The free rider problem arises. If one individual [person 3 perhaps] is willing to buy a song, other individuals [person 1 and 2] can take advantage of that and just download it, listen to it on youtube, the radio or a podcast for free.  The music will be provided at MB3=MC and both person 1 and 2 will be able to consume more than they would if they had to foot the entire cost.  But with an aggregate demand curve of MBi, indicating the marginal benefit to society, the point at which MB3=MC will be less than the socially optimal point G*.

So what can be done about this free rider problem? Governments need to be collecting and redistributing each individual’s willingness to pay for music in order to obtain G*. In other words, tax revenues should be used to subsidize music.


~ Sara Wray

Friday, 30 March 2012

Daily Quote!

It seems that I might actually try to keep having a daily quote. The quality and relevence may vary vastly, but atleast there will be something posted that people can think about, I'm thinking about trying to include a little bit of an explanation of each quote, and why its important/cool..

           So here goes this one, its a quote of the 19th century economist Charles Babbage, which is lifted from Harry Braverman's book: Labour and Monopoly Capital. In the particular chapter about Mr.Babbage, Braverman outlines what is known as Babbage's great principle of economical production. This principle has gone largely unnoticed by most modern economists because it pertains directly to the production process - a foggy ground which most 'legitimate' economist are wholy unconcerned with. Why this is, I dont know, but it seems to me production plays atleast as large a role as exchange in any economy.
           Anyways, Babbage's great principle states that the division of labour plays such an important part in capitalist economies because it allows the owner to split up the work into different pieces each requiring less skill than would be required if one person were responsible for the whole manufacturing process. By this one can pay each worker less - because less skill is required - than would be required for a worker who is an expert in the whole production process. The ramifications of this are great, as it implies that work no longer requires a mastery of some field, but instead, a simplistic knowledge of a simplified work process. Work becomes a process where it is in the owners best interest to have less and less skilled worker doing less and less skilled work. aaaand, here is the quote:

           That the master manufacturer, by dividing the work to be executed into different processes, each requiring different degrees of skill or of force, can purchase exactly that precise quantity of both which is necessary for each process; whereas, if the whole work were executed by one workman, that person must possess sufficient skill to perform the most difficult, and sufficient strength to execute the most laborious, of the operations into which the art is divided.

             This principle leads the way for women and children to be labourers. Its a bonus for the capitalist because women and children are much more docile and will accept lower wages than their male counterparts...

on that note: Happy Friday!


Thursday, 29 March 2012

Divorce of Ownership and GM's Demise

For those of you who have taken 4410 you have most certainly come across Thorstein Veblen's divorce of ownership from control of the firm. For those of you who haven't, I will outline Galbraith's take on the subject from his book The New Industrial State:

Galbraith argues that power over capital no longer lies with the CEO or the entrepreneur or anyone who is in a position of ownership of a firm, including the stockholders. Rather, it is what he defines as the technostructure, a group of people consisting of technicians, engineers, managers or anyone who is engrained in the “leadership of the modern industrial enterprise down to just short of the labor force” (72). The need for a technostructure in a firm is, again, derived from the requirement from technology that there are specialized people who not only preform specialized production tasks, such as the design of the product, but also the management of the different sectors of  the firm. 

In fact, he maintains that there is a “divorce of the owner of the capital from the control of the enterprise…[i]t replaces the entrepreneur, as the directing force of the enterprise with management” such that all the power for decision making, control of production and control of profits now lies with the technostructure, not the owners (87).  

From this, Galbraith goes on to argue that the age old truth in economics, that corporations only pursue profits, is no longer true. Under the guise of entrepreneurial control of the firm, a singular goal pursuit of profits would be logical, such that the entrepreneur benefits from increased profits in personal compensation. However, in Galbraith’s system, the technostruture has no direct benefit from increased profits. Engineers, accountants, low level managers, product designers and the like rarely see a personal pay increase from an annual increase in profits, only the ownership, such as the stockholders, do. It follows that the technostructure is not motivated to maximize profits, such that it does not necessarily benefit them. 

This is not to say that profits are not necessary, for if the firm was not producing profits, the owners could restructure the firm and disrupt the technostructure. Such is the case then it is important to maintain profitability, but it is not the case that there is a desire to maximize profits. Galbraith contends that rather it is the pursuit of the security of the technostructure and the pursuit of the growth of the firm that is important. The technostruture may seek to maintain profitability, but only in self-preservation. 

Could it be possible that this focus on growth rather than pure profits led GM's recent collapse? GM's operations were heavily reliant on advanced technology that necessitated a deep seeded technostructure within the corporation. It's plausible to argue that GM's technostructure was so focused on growth, it not only lost track of its profitability, but also it grew beyond capable self management which may have been a key factor in its declining profitability. However, before ownership was able to realize this and rearrange its management system, it was too late.

I'm aware there were other things besides managerial incompetence that led to GM's demise, but I think it stands to reason that this may be a good example of Veblen's and Galbraith's theory at work in the real world.