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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
      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 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

      *******************************
      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
      are
      >
      > all producing 50 grand cars because that is what people are buying,
      > because they speculate that they can afford the loan on them BUT
      then
      > 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
      grand
      >
      > cars which people could (with hindsight) afford. Not only that, the
      > misallocation of capital used to make the cars means we have
      destroyed
      >
      > 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
      in
      > 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
      anyhing.
      > If someone made a wrong decision, he will have to pay for it. He
      will
      > 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
      government
      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
      all
      > 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
      rather
      > 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 -
      basically
      this means that wealth created by labour was used to get more labour
      to
      waste their time. Then that invested labour and capital had to be
      redeployed (the redeployment had a cost). This all did make our
      society
      poorer - we do all benefit from wealth creation by others after all.

      Cheers,

      Mark

      ------------------------------------

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