Donny Tedjo Blog

Saturday, August 19, 2006

The Blindmen And The Elephant - Godfrey Saxe's

Global Imbalanca is that only problem inside your heads
It was six men of Hindustan,
To learning much inclined,
Who went to see the Elephant
(Though all of them were blind),
That each by observation
Might satisfy his mind.

The First approach'd the Elephant,
And happening to fall
Against his broad and sturdy side,
At once began to bawl:
"God bless me! but the Elephant
Is very like a wall!"

The Second, feeling of the tusk,
Cried, -"Ho! what have we here
So very round and smooth and sharp?
To me 'tis mighty clear,
This wonder of an Elephant
Is very like a spear!"

The Third approach'd the animal,
And happening to take
The squirming trunk within his hands,
Thus boldly up and spake:
"I see," -quoth he- "the Elephant
Is very like a snake!"

The Fourth reached out an eager hand,
And felt about the knee:
"What most this wondrous beast is like
Is mighty plain," -quoth he,-
"'Tis clear enough the Elephant
Is very like a tree!"

The Fifth, who chanced to touch the ear,
Said- "E'en the blindest man
Can tell what this resembles most;
Deny the fact who can,
This marvel of an Elephant
Is very like a fan!"

The Sixth no sooner had begun
About the beast to grope,
Then, seizing on the swinging tail
That fell within his scope,
"I see," -quoth he,- "the Elephant
Is very like a rope!"

And so these men of Indostan
Disputed loud and long,
Each in his own opinion
Exceeding stiff and strong,
Though each was partly in the right,
And all were in the wrong!
(John Godfrey Saxe's ( 1816-1887) version of the famous Indian legend)

As the Blind man, I'm also just want to say a words about An Elephant called Global Imbalances.

Some society transform themselves technological and economically more rapidly than others. We realized that diferrent sectors within the same society exhibits different rates of changes (cultural Lag).
We as observers of an event are able to produce substantially different but equally plausible accounts of it; it will then called as Effect of the subjectivity of perception on recollection.

In cases Global Imbalances, The Cases tells the same story, that of an Imbalances condition, could be observed from different points of view.
Each version of the story differs from the others in significant ways, it happened because the Observer have difference background Education, Ideological and also Cultur.
Each person telling the story believes that their version is "The Truth" because each person whose made explanation and interpretation of the the cases, have their own agenda.

Normally society needs scapegoats, which used as as pressures of change impingge more heavily on individual and prevalence of futureschock.

Problems of Imbalances

Underconsumption and inequality
The economy produced more than it consumed, because the consumers did not have enough income. Thus the unequal distribution of wealth throughout the Worlds caused the Imbalances.
According to this view, wages increased at a rate lower than productivity increases. Most of the benefit of the increased productivity went into profits, which went into the stock market bubble rather than into consumer purchases.

Corporations continued to expand their capital facilities, the economy seems flourished. Under pressure from the Coolidge administration and from business, the Reserve Board brought the discount rate low, encouraging high--and excessive--investment. As consequences The capital investments had created more plant space than could be profitably used, and factories were producing more than consumers could purchase.

According to this view, the root cause of Imbalances was a global overinvestment in capacity compared to wages and earnings from independent businesses, such as farms.
The goverments made solution by pumpping money into consumers' pockets, with hope to redistribute purchasing power, maintain the industrial base, but reinflate prices and wages to force as much of the inflationary increase in purchasing power into consumer spending. The economy was overbuilt and new factories would not needed ;-p

The money supply
It's the most complicated theme and also quite difficult to understand, expecially for non economist like me. There are some argue which is right or wrong seems much absurd so the most important is The quantity theory of money; Friedman called it as the "Great Contraction" a period of falling income, prices, and employment caused by the choking effects of a restricted money supply.
It was quite complicated to described how to creating money from nothings; and if you have allready understand money mechanics it would usefull to take a looks Roubini Rashomon in his writing in his blogs, and also Eichengreen in his writing in Global Imbalances: and also Hausmann isf only you are economist ;-P

A lack of diversification
Another theory attributes the Imbalances is a serious lack of diversification in economy. Prosperity had been excessively dependent on a few basic industries, notably in those industries which allready began to decline. Once these crucial industries began to weaken, there was not enough strength in the other sectors of the economy to take up the slack. Even when these industry sectors was thriving backs, some others industries were declining steadily.
Which Industry sectors I'm talkings'bout ?? The answer every ones have Their Own Agendas, so I have right not to sayed which Industry is that ;-P.

The credit structure
The nation's largest banks were failing to maintain adequate reserves and were investing recklessly in papper money market or making unwise loans. In other words, the banking system was not well prepared to absorb the shock of a major recession. The banking system as a whole, moreover, was only very loosely regulated by the System at this time.

Ideological perspectives
So far I've only knew three broad categories of ideological theory that could be described as Socialist, Liberal/Capitalist or might also Austrian Economic perspectives.
The Socialist said that over-concentration of wealth, is the the failure of capitalist societies.
The Austrians said that insufficient democracy and social accountability of corporations, that it was instead an interference in the capitalist market by government that was the cause of the Imbalances.
The Capitalist said that "profit motive" or pursuit of profit before all else would lead to general misery, some of these formulations have found support in Game Theory, which shows how actors with dominant strategies can force sub-pareto optimal solutions on a larger system.
Which is the Truths is not really important, the importance is to understand how it's mechanism works and take advantages from it for yourself/your works palaces.

That's All and much talking about Nothings :-)