Category: theMarketSoul © 2013

If only we could…

…[take] the human being out of the market entirely, then we should have a proper, effective and efficient market…?
So might go the refrain of Neo-liberal economics, or at least a slightly different take on the Neo-liberal ideal of ‘every interaction should be a market transaction‘.

inspiration

That Neo-liberal economic refrain is part of the inspiration behind the creation of the ‘Soul of the Market’ or rather theMarketSoul and this site.
With this last post of 2013, we thought a bit of reflection and a reminder of our inspiration and founding philosophy might be in order.
In order for a market to be effective, there has to be a few ripples in the ebbs and flows of the transactions and interactions making up the market processes.  Therefore, we have to be able to tolerate human frailties and flaws, or else the market becomes too mechanistic and dare we say it preordained.  This can naturally not be an effective outcome for any market.  Human failings and market failure are two sides of the same coin.  However, we should work together in order to limit the inevitable damage and negative consequences of both human and market failure.  This does not necessarily translate into more regulation, might we add at this juncture.
Let us never forget this and celebrate process frailty, failure, learn to develop and embrace tolerance, persistence and perseverance; basic elements of human nature…
We should never forget our inspiration, put it to aspiration and strive to achieve our own unique and specific dreams.
Human Nature / Logo
Human Nature / Logo (Photo credit: Ars Electronica)
Go, Inspire, Aspire and Achieve…
theMarketSoul ©2013
Our final word of 2013 is:

CONSOLIDATION

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Technical Default Options – US Government Shutdown Analysis (Part2)

Seal of the United States Department of the Tr...
Seal of the United States Department of the Treasury (Photo credit: Wikipedia)

The real challenge and issue:

The US Debt default that is looming ever larger with each passing day that the US Congress, Senate and White House seem to treat as a brinkmanship fatigue challenge will have a specific default structure or process attached to it, that the rest of the world needs to get to grips with very quickly.

Breakdown of political party representation in...
Breakdown of political party representation in the United States Senate during the 112th Congress. Blue: Democrat Red: Republican Light Blue: Independent (caucused with Democrats) (Photo credit: Wikipedia)

What are the consequences:

Because, if Americans are willing to engage in quasi-negotiations with each other on this acrimonious level; then world beware, they will treat you with even more disdain and petulance than they have been treating each other.

And yet, no Creditor Nation of the USA seem in the least bit prepared for the hard bargaining the USA Treasury officials will engage in when the technical default moves into a more serious phase.

This is commercial war on a scale we have not experienced for quite some time.

And the most disparaging part of this process or potential risk is that no commentator has yet stood up and called time on this challenge or at the very least attempted to pull the veil from the threat and fall-out the rest of the world will experience.

The western front of the United States Capitol...
The western front of the United States Capitol. The Capitol serves as the seat of government for the United States Congress, the legislative branch of the U.S. federal government. It is located in Washington, D.C., on top of Capitol Hill at the east end of the National Mall. The building is marked by its central dome above a rotunda and two wings. It is an exemplar of the Neoclassical architecture style. (Photo credit: Wikipedia)

What next?

Of course 17 October 2013 is a technical default breach days only; because as most business people who experienced bankruptcy will attest to is the fact that you can continue to trade (on the goodwill of your creditors) beyond the point of being solvent, so long as those creditors continue to good-naturedly extend some further credit or payment terms to you.

theMarketSoul ©2013

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US Treasury Yield Curve – The Shutdown Analysis (Part 1)

Seal of the United States Department of the Tr...
Seal of the United States Department of the Treasury (Photo credit: Wikipedia)

Today we very briefly focus on the dynamics we have observed in the US Treasury Yield Curve between two critical dates:

1. The Yield Curve at 30 September 2013 – The day before the US government shutdown officially began

2. Friday 11 October 2013, exactly 11 days into the White House, Congress and Senate stand-off

YC shutdown AnalysisWhat can clearly be observed from the Yield Curve for Treasury Bills (T-Bills) dated 30 days is that the spread between 30 September 2013 (at 0.10%) to the rate at 11 October 2013 (0.26%) has significantly increased and that the Yield Curve has become inverted.  Normally the sign of a recession or other financial calamity to come.

Our question:

Will Thursday 17 October 2013 be D-Day (for Disaster or Domino-day) when the whole lot starts tumbling down again?

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The Kuznets swing and the market for labour and skills

You must have seen the headlines recently? British wages falling sharply in real terms versus our EU brethren…

We wrote about a particular economic phenomenon referred to in this post about economic cycles and particularly the Kuznets swing; which we find the most interesting and thought provoking cycle. The reason for this is that it is a generational cycle, only lasting or more accurately stated lasting anywhere between 15 – 25 years.

Image representing oDesk as depicted in CrunchBase
Image via CrunchBase

So where are we on this cycle and what does it mean for me, should be the two most obvious questions to answer?

Lets address both separately below.

Firstly we believe we are now around seven years into a downward phase of the Kuznets cycle, therefore to some analysts it would mean that we are either almost half way or to others around a third of the way through this cycle.

Secondly, and more importantly, the impact it has on market participants like all of us:

We believe that the downward phase of a Kuznets swing is the ‘exuberance‘ correcting phase; when markets and other factors of productions contributing to mostly normal market clearing activity ‘got slightly out of kilter’. The Kuznets swing is always there to bring these factors of production into alignment. It is a consolidation phase of the cycle and interestingly for this particular phase, it coincides with disruptive technological advances around Cloud Computing, dis-aggregation of intermediaries, especially in labour markets with labour or skills exchanges appearing everywhere.  Examples include, Elance, oDesk, PeoplePerHour, etc..

English: Cloud Computing
English: Cloud Computing (Photo credit: Wikipedia)

Furthermore, and this is the most import action point for our readers to understand and appreciate, this consolidation and technological advance has a severe impact of wages levels and the distribution of where actual ‘work’ is being performed.

Hence headlines like the one we spotted this morning regarding real wages in Britain declining relative to other (very unproductive EU cousins) are not helpful without the pundit exploring and engaging n deeper analysis of the underlying drivers for the pressure.

The Income and Substitution effects of a wage ...
The Income and Substitution effects of a wage increase (Photo credit: Wikipedia)

Our recommendation:

Understand that the world of work is changing much faster than we had ever become used to in previous generations. As active able and willing participants in this market for labour and skills we have clear choices: Up-skill, be competitive appreciate and plan for volatility in the labour supply market, by ensuring flexibility in location, skills and prices. It is especially painful to suffer real wage declines, but remember this is the market’s subtle way of signalling a problem or challenge in that particular market and a way of adjusting in order to restore the natural balance and clearing prices.

We believe every interfering politician and educating commentator should always bear this in mind.

theMarketSoul ©2013

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Pony ponderings…

Have you ever overheard a small debate between children related to #economics? Some at theMarketSoul (c)1999 -2013 find themselves in Spain this weekend, relaxing with family and the following conversation between young siblings are worth repeating.
In some bizarre way, it relates to labour economics and the minimum wage:
Pony
Pony (Photo credit: Moyan_Brenn_BE_BACK_IN_SEPTEMBER)
We had just observed a single horse drawn carriage in the streets of Marbella, when the conversation kicked off.
C1 “What is the minimum wages?”
C2 “I don’t know, why should I?”
A1 “It currently is around €7.00 / hour or something very close”
C1 “Ok, so if one apple costs say €1, then the pony should get 7 apples an hour for working, right?”
C2 “Why?” [by the way C1 is 13 years old and C2 is 11 years old”
C1 “Because that is the minimum wage”
C2 “That doesn’t make any sense!”
C1 “What do you mean it does not make any sense, it is simple mathematics?”
C2 “Why should the pony get 7 apples per hour? What if it only wants 3 apples and something else?”
C1 “Because that is the minimum wage!”
C2 “Yes, but the pony might not want so many apples. The pony might want to choose for itself how many apples it wants”
C1 “Now you don’t make any sense to me at all!  The pony should get exactly what the minimum wage is, or more”
C2 “But the pony might not want or need all those apples. It might need fewer apples, but want more oats or something else. The pony should choose and not someone else…”
And thus we had a little insight into an economic debate between the ‘social cohesion’ leaning child and the ‘libertarian’ leaning child. No fisticuffs or bad mouthing, but different opinions and different attitudes to life. It will be interesting to listen into another conversation along these lines.
With a binding minimum wage of w the marginal ...
With a binding minimum wage of w the marginal cost to the firm becomes the horizontal black MC ‘ line, and the firm maximises profits at A with a higher employment L . However in this example the minimum wage is higher than the competitive one, leading to involuntary unemployment equal to the segment AB. (Photo credit: Wikipedia)
We agree with C2’s questions on where the choice for the minimum wage really lies. The wage level should be determined by the provider of the labour, whether individually or collectively bargained, but there should be no interference from government in this process.
Take note Europe, this is just one factor contributing to your long drawn out decline. Markets, not quasi-markets and constant political interference and distortions in the markets; should determine clearing prices or wages.
But this seems to be a lesson a child can learn, but not grown up political leaders…
theMarketSoul ©2013

Dysfunctional, “Disinterested” and Disenfranchised

…and some would add it is a Disaster!

The fact is that in a Digitised Economy with control as the key behavioural modification tool utilised in organisational context; the more ‘control’ and micro management we apply, the more dysfunctional, disinterested and disenfranchised employees and collaborators become.

Now the terms employee and collaborator used in such close proximity should create a slight twinge of cognitive dissonance, but do we really pick up on the subtleties of the situation? Possibly not, however this thought piece is an extension of our initial thoughts on [the Future is collaboration], publish a week ago.

Logo Open Source Initiative
Logo Open Source Initiative (Photo credit: Wikipedia)

With collaboration and an Open Source or purely OPEN philosophy to achieving value creation for individuals and society in large, the biggest ‘contractual challenge’ of the beginning of the 21st Century is the revolution in the engagement process.

No longer a process purely dominated by an HR focus, but more around our key concept of CLUSTERS OF SKILLS & EXPERIENCE.

Creating the environment and framework that supports the ability of market participants to ‘cluster’ around skills bases and then for willing procurers of those clustered skills to engage in such a market is the cornerstone of the Digitised Economy in the third wave of ‘Industrialised Revolution’. In fact the word Industrial Revolution is a disingenuous statement to make, as the third wave of prosperity should be called the DIGITAL EVOLUTION.

Open Source Media Framework Icon
Open Source Media Framework Icon (Photo credit: Wikipedia)

theMarketSoul ©2013

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The Inverse Relationship

Inverse Relationships
Inverse Relationships (Photo credit: Thomas Hawk)

We have always been fascinated by the Inverse Relationship between the Experience Curve and Cost.

Pure logical would dictate that (and indeed a convex demand curve) that as you ‘slide’ down the curve, the price / cost would become lower. Yet in practice, this hardly ever happens? Big Question mark…

Is this because the further we slide down the Experience Curve, the more utilitarian (fancy economic term we used there!) the benefit becomes? Yet, it also adds to the overall risk of the Experience or Value being added.

English: An example of the relationship betwee...
English: An example of the relationship between the IS-LM and Aggregate Demand curve in Economics. (Photo credit: Wikipedia)

Is this a counter intuitive argument or are we just getting plain confused by the inverse relationship?

theMarketSoul (c) 2013

DUO
DUO (Photo credit: Fabrizio Aiana (AKA trystan_o))
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