February 12, 2012 4:04 PM

Source: Precious metal: India’s love affair with gold

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Daniel Kahneman: Many psychologists think of the mind in terms of two systems. System one is the associative one. System one is the impulsive one. System one tends to me more emotional. System two is capable of following rules and system two is more socialized in the sense that it supervises what people say and to some extent what they think and tends to bring those things in line with existing norms.

There has been a fair amount of research indicating there are classes of decision where following your gut is a good idea. It’s a fairly limited class. It’s much more limited than most people think. If you’re choosing posters or if you’re choosing things in terms of whether you would like them in future you’ll do reasonably well following your immediate impulse.

For other decisions, following you immediate impulse is not guaranteed to do well. It could do well. It depends a lot on how much experience you’ve had. If you have had a lot of experience in a particular domain you can trust yourself in that domain – if you’ve been able to learn from your mistakes, which isn’t always true. Otherwise, in big decisions, in really big decisions, you might want to slow down, and that is almost the only advice that we have for people. When things get really big and you’re really not sure, slow down.

We’re very inclined to take subjective confidence at face value, that is, to assume that if an individual feels confident in a judgment or in a decision then that must be valid. People are extremely confident even when they don’t know what they are talking about or don’t know what they are doing. So confidence is a mark of intuitive thinking regardless of whether intuitive thinking is expert intuitive thinking or heuristic intuitive thinking.

To distinguish intuitive thoughts that you can trust from those you can’t trust you really have to look at the environment and you have to look at the individual’s opportunity to learn the environment. There are some environments that simply cannot be learned because they are chaotic and too complex. So I don’t believe people have intuitions about stocks because we know that that world is not regular enough to support valid intuition.

Now there are domains. Wall Street and stock picking is not the same thing. Many people – and that certainly is true for hedge funds – without necessarily having internal information, which is illegal, they have a lot more information than other people about particular industries or about particular companies. There, some of them, I think, may know enough to build expertise. Most of them probably don’t and had better do an extensive analysis.

So you have to look at the world, not look at people’s confidence.

On Chinese-American relations:

“The U.S. has a lot of problems. American workers are under pressure: high unemployment, stagnant real wages, a big trade deficit and the largest piece is with China. Washington wants to say, this is China’s fault. My sense is that’s an example of being unwilling or unable to look in the mirror and accept what is our own responsibility.”

“We do run a trade deficit with China, but we run trade deficits with 87 other countries. It’s a multilateral problem, a clear reflection of our shortfall of saving. We can’t blame China for that -we’ve got to accept responsibility for our own lack of saving.”

“China is an opportunity for us. It’s our third largest and most rapidly growing export market. We need a new source of growth. Let’s turn to exports and push for open market access into rapidly growing Chinese domestic demand. That should be the agenda.”

On how to level the playing field with China:

“Deflect attention away from the currency. Look at China’s policies on government procurement, so-called indigenous innovations, that many American companies are saying, squeeze them out. The debate should be on market access, not on the currency. The Chinese currency is moving up 25% against the dollar over the last five years, it’ll keep moving up. That’s not the issue. We’re missing the opportunity, which again is market access.”

“China is about to change the model. They are moving away a model driven by exports and investments, to one that will be driven increasingly by internal private consumption. This will be the biggest consumer story globally of our lifetime. Let’s be in a place to take advantage.”

On whether China is the political scapegoat in the U.S.:

“The consumer share of the Chinese economy is 33%. We’re at 71%. They have decades to go to get to the point where we are. We need to encourage them to boost their internal private consumption. Because they’re an open economy, they import a lot of things from overseas. They import from Japan, Korea,Taiwan, Germany and from the United States. Shame on us if we don’t advantage of being able to sell more things made in America that Chinese consumers do want, and will want, for years to come.”

“Jobs are a critical part of the economic equation for any country, whether it’s the United States, China or anyone else. Yet [China] recognizes their limits to what they can produce for their home consumption right now. In a global economy, there’s plenty of opportunity for global producers to participate, provided their markets are open to us.”

On whether China will continue buying U.S. debt:

“No, it’s not going to continue. China is buying Treasuries because they have a lot of excess or surplus saving. As they now focus on boosting internal consumption, they’ll slowly absorb their surplus savings and have less left over to put into Treasuries.”

“We have to get our act together if we don’t save, and it possibly means higher interest rates. These are all great issues for President Obama and Vice President Joe Biden to discuss with the soon-to-be president of China Xi Jinping. Let’s turn this into an opportunity and not into a politically inspired, perceived threat.”

“This is a political year for the U.S. and a transition year for them. Politics are tough in the United States right now in a way we have never seen before. And even in a one-party state like China, there are political constituencies that need to be taken into consideration.”

On a slowing economy in China:

“China is slowing right now, we know that…There’s a lot of talk about a crash landing, a hard landing in China – property bubbles, inflation bubbles. I think those fears are overblown. I think China will slow in to the 8, 8.5% zone.”

“The wild card for China is a disorderly EU break-up. I still put in a low probability on that, even given the problems we’re seeing in Greece right now.”

On inflation in China:

“Inflation popped up a little bit in January, but it’s 4.5%. The government is really focused on reducing food price inflation. They’ve jacked up their reserved ratio requirements in the banking system. The Central Bank has tightened five times in the past year. They’ve got a pretty good handle on inflation right now. I don’t think that’s a risk.”

On investing long-term in China:

“I think for a long-term investor, China’s been a very weak equity market over the past 18 months, especially in the last nine months. What’s driving that is the fear that the landing would be hard. I think it will be soft. If I’m right, there will be opportunity there.”

Bruce Bartlett on Where the Right Went Wrong from BillMoyers.com on Vimeo.

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Source:
Bruce Bartlett on Where the Right Went Wrong
Moyers & Company, February 10, 2012
http://billmoyers.com/segment/bruce-bartlett-on-where-the-right-went-wrong/

Visit msnbc.com for breaking news, world news, and news about the economy

>> on to assault to theft. officially crime declined in 2011 in this country. but what is a stolen car compared to trillions of dollars being sucked out of our economy while a giant slug of debt lays over our housing market preventing any adaptation while a few individuals collect all the money from a savings and loan crisis . our next guest says white collar crime is so pervasive in this country that it has exploded and yet the handcuffs are nowhere. joining us is former banking regulator bill black . how do you explain the lack of a culture of engagement in solving problems?

>> because we had unilateral disarmament against white collar crime . they already cut the number of prosecutions of financial fraud by more than half from 20 years ago. fraud bigger or smaller these days from 20 years ago?

>> what about our conquering hero, barack obama , who is going to save us ?

>> he cut the prosecutions fewer from bush so that we have no white collar elite criminal who caused this crisis.

>> but surely there’s a reason why this president would reduce the number of prosecutors because there’s obviously a new technique for prosecuting financial fraud.

>> yes. it’s called nonprosecution.

>> that requires lower staffing levels.

>> it does. but it fits nicely into what we heard. you don’t get into the way of both parties. how did we reduce violent crime ? we studied it, god forbid . we spent resources. we looked for hot spots of crime.

>> you madman.

>> we looked for broken windows in civility that leads to crime. we looked for gangs that created crime.

>> what would be the equivalent of the braten method for white collar crime ?

>> maybe mortgage banking when they started making liar’s loans. that wasn’t subtle.

>> there might be fraud? that could be an indication of misrepresented security?

>> i have a ph.d. in criminology and that’s what i focused on. i think anybody in the world might figure out that a loan called fraudulent might be fraudulent. since one-third of all loans by 2006 were liars loans and nobody stopped it, nobody intervened in the hot spots . since we weakened the fiduciary duties .

>> i’m going to ask you the $30 trillion question. william bratton shows up and wants crime rates in the city. put the cops where the crime is. you roll in, william black , federal prosecutor . here to hot spot crime. here’s how you do it. fraud task force . go after the liars loans. you know where the states are. go to nevada. go to south florida . go to southern california . if you do that, unlike crime, you disrupt a massive, very profitable business that is perpetuating that fraud. whereas street crime , it’s politically advantageous.

>> and you have insufficient resources so you look for choke points. with few resources, you can get the biggest bang for your buck . there are three credit rating agencies . you velgt who was giving the liars loans. you would have shut down the market. there are only five investment banks . if you had gone after one of them, lehman brothers , the entity that did tens of billions of dollars of liars loans. they fired their fraud guy because he made a criminal referral.

>> that’s a good solution.

>> that’s a good solution. then with very few resources, you could have prevented this entire crisis. we can debate the amount.

>> that’s the point of hot spotting. when you know where to go, investigate the fraud. look at the funds at lehman brothers . you don’t need a nationwide task force of investigators. you need smart investigators going to the choke point. you want to go the way of lehman. fine. make my day.

>> that’s called hot spotting white-collar crime. thank you.

>> it’s what makes possible honest business.

>> you have to have the regulatory cops on the beat. and they took the cops off the beat.

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Feb. 3, 2012

Who Is President Matters Much Less Than We Think: Freakonomics’ Stephen Dubner