Knowing and Making

From Mario Rizzo's comment on Coordination Problem (an Austrian blog): Keynes...does turn certain virtues (like saving) into vices -- from an economic or consequentialist perspective. What is particularly disturbing is that from a long-run perspective surely saving is a "virtue." But surely it's not. Investment  is a virtue; and saving, usually, is what enables investment. Saving in itself is a neutral act, because one person's savings are another person's debt. In the Keynesian model, attempts to increase saving while investment is falling simply lead to a spiral of shrinking income. It's investment that creates future wealth. According to the savings identity , total savings does equal investment, but that statement is misleading for two reasons: one, because this definition of investment includes inventory (which may be built up involuntarily, and is not especially "virtuous"); and two, because it hides the effects of savings in one peri...

This beautifully shot photostory isn't strictly about sweatshops, but it might as well be. The women who work as porters in Ghana's city markets must endure: Long hours Backbreaking physical labour Low pay Living in cramped slum conditions Moving from a village where there's food to share, to the city where you starve if you have no money Sounds terrible, right? And yet: People are doing it voluntarily It lets them build up savings They can reinvest those savings in a business, or in going home to start a family It is being used to finance their own or their children's education, so the next generation won't have to do the same Nobody is idealising this lifestyle. It's hard work, I wouldn't want to do it, and at least one of the women in the story who has left the job is glad to be out of it. There is an element of randomness, and if you have no money one day, nobody is going to feed you. But it's more dangerous to idealise the alternat...

One year ago, you invested £100,000 in a money market investment account. Unfortunately, you chose to keep it with a small UK bank which has lent too much money to subprime borrowers. You signed up for a fixed-term deal where you receive 6% interest for four years in return for keeping your money in there. Reading Robert Peston's blog one day, you find out that the bank is about to get into trouble. It has had to write off 15% of its asset base. Your deposit is not covered by government insurance and the bank is going to be partially liquidated; you are going to lose 11% of your money! Overnight your balance will drop to 89% of its previous value. The bank is still going to keep trading so you won't get your money back - the term deposit will remain in place, but at least they will keep paying interest on the reduced balance. What remains of the bank will be taken over by the government so there seems to be no risk of a further writedown. You figure there is about 30 seconds to...