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RE: [LandCafe] AIG/Lehman lessons

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  • Harry Pollard
    Mark, Your point about the tech bubble is noted. Much mis-allocation . Yet, those who were right made money, those who weren t went to Chapter 11. Things
    Message 1 of 18 , Oct 16 10:21 AM

      Your point about the tech bubble is noted.

      Much 'mis-allocation'.

      Yet, those who were right made money, those who weren't went to
      Chapter 11.

      Things don't always pan out as one would like.

      The movies are a good example.

      "Body of Lies" starring Leonardo de Caprio and Russell Crowe, directed
      by Ridley Scott, was a sure thing - top stars, very good director,

      It cost $70 million, but has so far brought in a gross of less than
      $16 million. (The film makers don't get the gross.)

      Misallocated resources? On the other hand, Fahrenheit 9/11 brought in
      $222 million even though it cost only $6 million.

      That's the market!


      Harry Pollard
      Henry George School of Los Angeles
      Box 655
      Tujunga CA 91042
      (818) 352-4141

      -----Original Message-----
      From: LandCafe@yahoogroups.com [mailto:LandCafe@yahoogroups.com] On
      Behalf Of Mark Porthouse
      Sent: Sunday, October 12, 2008 5:43 AM
      To: Land Caf�
      Subject: Re: [LandCafe] AIG/Lehman lessons

      Harry Pollard said the following on 11/10/2008 18:48:
      > Mark said:
      > You are right to say that on a money-go-round such as poker or the
      > stock
      > market no wealth is destroyed, just redistributed. The only way to
      > destroy wealth is production, production of the wrong thing. If we
      > all producing 50 grand cars because that is what people are buying,
      > because they speculate that they can afford the loan on them BUT
      > the unknown future arrives and it turns out they couldn't afford the
      > loans, then we find the misallocation of wealth making 50 grand cars
      > was
      > actually a destruction of wealth - we should have been making 20
      > cars which people could (with hindsight) afford. Not only that, the
      > misallocation of capital used to make the cars means we have
      > further real wealth as we end up with factories in mothballs. On top
      > of
      > that we have misallocation of labour - all the workers we employed
      > the factories we now have to redeploy, but first we have to allocate
      > capital to the new factories for 10 grand cars that is all we can
      > afford
      > because we blew our wealth on 50 grand cars.
      > ********Harry***************
      > Don't fall into the neo-Classical trap. "We" don't have to do
      > If someone made a wrong decision, he will have to pay for it. He
      > learn from his mistake. (If he doesn't, he'll be quickly broke!)

      Absolutely, when I say "we" I mean society, I don't mean that
      needs to or should interfere!

      > Georgist friend of mine, Jack Casey, would only buy cheap four year
      > old luxury Cadillacs. He would point out that the old Cadillac had
      > the "advanced features" being touted on the current crop.

      We run a twenty year old Mercedes that we're very happy with! :)

      > ********Harry*************
      > I doubt that 'bubbles' have a significant economic effect and I
      > think that is true of land bubbles too. Much more important is the
      > "normal" crippling effect of rack-renting. Now, there is a
      > misallocation we could do without!
      > **************************

      I agree that rack-rent or at the very least land rent being taken by
      landlords is much more significant. However, I do believe that bubbles

      do have significant economic effects. Look at the tech stock bubble:
      Billions of dollars were misaollocated to tech developments -
      this means that wealth created by labour was used to get more labour
      waste their time. Then that invested labour and capital had to be
      redeployed (the redeployment had a cost). This all did make our
      poorer - we do all benefit from wealth creation by others after all.




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