19 July 2009
We are always wrong
Last year the Icelandic currency “króna” collapsed with a devastating effect on Icelandic businesses and individuals. But it wasn’t the first time the króna collapsed, bringing ruin to Icelanders. As a currency it has, as measured against the Danish kroner, fallen to less than 1/1000th of the value it had when first instated. Nor is it the first time its collapse had a devastating effect on me and my relatives.
Back in 2001 the króna took a dive in value. The immediate effect was, of course, a sudden surge of inflation. A less immediate but no less destructive effect was a curious consequence of timing and of quirks in the Icelandic student loan system.
Student loans in Iceland are paid in króna at the end of each semester, but the amount is based on the value of the króna and cost of living in the country in question at the start of the semester. The time between is covered by taking out expensive overdrafts.
You can already see where that went wrong.
So, me and my sister faced a situation where we had around 60% of whatever was accepted as needed for a student to live in the countries we lived in (me in Bristol, UK and my sister in Florence, Italy).
Over the next few months, my sister lost enough weight to drop a dress size and I turned into a gaunt, hostile and bad-tempered shadow of myself. We both got through it and recovered from the financial and psychological consequences of the event, but it took years and I, at least, was left with additional debt that I only managed to pay off completely sometime in 2008.
One event reduced the value of everything I owned (and didn’t own but had borrowed) by more than a third and had repercussions that afflicted me and my relatives for almost a decade.
This was possible because money has no value in itself, it is a promise of value backed only by the word and trust of the issuing government.
In short, it is a virtual, digital good made by a monopoly producer.
All the recent proclamations of gurus, economists and pundits on the inevitable zero price of all things electronic are largely invalidated by the fact that all this value is measured against a virtual good that is guarded by law and encryption and bartered and traded in markets like any other good. It behaves somewhat differently, of course, but it doesn’t operate under any semblance of the “inevitable” rules set out by the punditry.
Value in the marketplace is governed by varied, diverse and contradictory forces and institutions. The physical context of value is tough to gauge and is an inexact science to begin with. Value in the digital context becomes an art, governed by so many institutions, traditions, spaces and forces that any one idea and any one model is benevolent only to specific and isolated instances and is a tyrant to the general, inapplicable as a catch-all explanation for the whole. To debate digital economics, as with any other field of ideas that touches upon human thoughts and actions, you need to argue with passion, be ready to change your mind in an instant—because certainty is impossible—and be able to understand that in the long-term we are always wrong.
Baldur Bjarnason – Follow me on twitter because otherwise you might miss an update, and you don't want that, now do you?
11 July 2009
Bring us your joy
And the varieties of circumstances which influence these reciprocal interests are so endless, that all endeavour to deduce rules of action from balance of expediency is in vain. And it is meant to be in vain. For no human actions were ever intended by the maker of men to be guided by balances of expediency, but by balances of justice. (John Ruskin – Unto This Last)
Economics and finance are an art and a craft which ask us to bring our greed, fear, anger ad mistrust to the fore and, through perverse incentives, drive us to separate ourselves emotionally and intellectually from other human beings.
This blog is about the humane side of economics, as seen through the lens of media, art and design. I won’t leave out the pragmatic, complex or difficult aspects of economics or argue based on unrealistic or naïve models. Instead I expect our understanding of work, marketing, sales and economics to be based on the premise that our lives and work should bring us joy, meaning, satisfaction and compassion.
I’m looking forward to writing about:
Digital and virtual value
Publishing and art in a digital economy
Romer’s theories on new growth and how they apply to media and software
Akerlof’s ideas on the quality of a market
The consequences, good and bad, of piracy
How to deal with and use those consequences
How economic forces shape art, style and writing on the web
And more, of course. Hope you will find it useful, relevant and, more than anything else, optimistic.
