Is it economics or politics? Part 3

It has been more than a month since part 2 and it is difficult for me to pull things together.  The truth is, the current machinations in Washington are both economics and politics.  I have to work to understand both if I am to have any chance at understanding what is happening.  A few things are clear, at least to me.

First, we will all be better off if we spend less money.  This applies to the government and to each of us as private citizens.  We need to reduce government expenditures and increase the quality and effectiveness of government programs.  I know that sounds contradictory but this is the essence of our problem.  Spending more money on anything doesn't in and of itself make that something better.  Surely our experience with health care is a case in point.  We spend a lot more money than other developed countries--both in total and per capita--and yet have no better health system and in many cases less good health outcomes.  I favor moving to single payer approach but there are other alternatives.  Without question, however, if we cannot figure out how to spend less on health care no amount of tinkering with payment systems will come close to touching our problem.

Both government and individuals need to move away from the use of debt to finance ongoing consumption.  Debt is important to families, corporations and government as a way of financing investments, not consumption.  Debt financed consumption is what leads to speculative bubbles and the resulting collapses.

So we need to change some of the rules to reduce future spending on Social Security, Medicare and Medicaid as well as the defense industry.  That will hurt, no question but there is no alternative. There is a big but.  We need to increase investment in fundamental infrastructure:  transportation, education, communication, and basic research.  If these are reduced when we already are feeling the impact of aging and inadequate infrastructure, what will happen if we reduce these even further?  While these investments must increase, we must also increase the quality and effectiveness of these basic systems.  It does little good to increase debt to increase college attendance if the resulting student debt is a crushing  load that distorts vocational and career choice.  We cannot let the cost of education run wild just as we cannot do that in health care.

Second, we must increase tax revenues and adjust the tax code so that it is more equitable.  The tax code is not going to increase or decrease job creation.  We need to make sure that we have enough common resources and that those most able to contribute do so equitably.  Those of us who paid federal incomes taxes from 2000 on have benefited from tax decreases that we did not seek and did not need.  We have gotten a free ride for the last ten years or more.  Simple equity suggests that we should now contribute more to help put the entire system back in balance.

So it is simple.  Spend less and take in more.  Sooner than later we will pay down the debt to manageable levels and begin to have a surplus just as we did before the drunken sailor in us got in control.  As a nation we took in less money and began to spend more, a lot more.  We used debt to finance the deficits.  Now we simply have to spend less and contribute more to get back to go.

I have little patience with either the Democrats or the Republicans.  Both parties have become so partisan that no one can simply stand up and speak the plain truth and be guided by what the country needs.

Is It Economics or Politics? Part 2

In The Origins of Political Order, Francis Fukuyama has shown that a successful society requires a coherent and potent central state government.  Successful state governments over the logn run are those characterized by potency, accountability, and rule of law.  As cultures and societies develop in terms of literacy, successful states must possess all three characteristics.  The recent experience of the Arab Spring makes clear that simply being potent, indeed, even an all powerful dictatorship will not be able to maintain itself without accountability to citizens and a strong rule of law.  Any dictatorship that thinks it can maintain itself in power while simultaneously educating its population is fooling itself unless it also understands that it must limit its power through accountability to those governed and through the primacy of law over the law giver.  It is not reasonable to understand the current Occupy Wall Street phenomenon as a response to clear evidence that Wall Street elites are functionally above the law and have not been called to account for the financial debacle in which they participated and from which they profited.  To the extent that politicians and policy makers are seen as complicit with this "lawlessness," they could pay a heavy electoral price.

But this argument, salient as I believe it is, is not particularly relevant to the Tea Party and other libertarian foces--mainly in the Republican party though not exclusively--who desire to continue the dismantling of the federal governing structure that has asserted itself more strongly from 1930's New Deal through roughly the mid seventies.  Fukuyama points out that one of the traditional roles of a central governing authority has often been to protect ordinary citizens from powerful forces in a society, forces that if become too powerful can begin to abuse that power to advantage themselves and disadvantage those with less power.  Most of us stereotypically think of a king as a person with unlimited power who abuses and enslaves the ordinary folk of his  realm.  Actually the real picture is different.  Typically the King used his authority to counter the power and might of  the nobility who often abused the serfs who lives lives of indentured servitude to enrich the nobles.

It is also true that sometimes kings became too powerful and the nobles banded together to counteract that power on their on behalf and consequently on behalf of the serfs.  Often these conflict centered on the taxes levied by the crown to strengthen the central government and to defend against external enemies or wage wars of aggression and expansion.  The key seems to be a system in which there is a balance of power among the various factions.  It appears that inevitably when one faction becomes too powerful vis a vis others, it tends to abuse that power to advantage itself.

Americans can see this same balance of power issues played out in the formation of the United States.  The central question was whether  this country would be a confederation fo states or a sovereign nation with a strong central government that was not dependent upon the states for agreement with central policies especially including taxes.  The early experience with the confederacy approach convinced almost all that a confederacy would not work because it was not working.  A loose amalgam of sovereign states would not be able to achieve the potential of the new country and deliver on the promise of the revolution, let alone be able to pay the debts incurred in the War of Independence.  All thirteen states eventually approved the proposed Constitution with its strong central government and they did so through popularly elected conventions in each state.  The year long debate was often vociferous and at times rancorous but everyone eventually realized the wisdom of the central government approach.  This would have been the end of the discussion were it not for the fact of slavery and the inability of the founders and framers to deal with that abomination.

The one area where the federal government was forbidden by the constitution itself from taking action was slavery.  There could be no federal action outlawing this practice.  As a result the question of constraining federal power was often framed in terms of preventing the central government from constraining state governments.  Eventually the growing population in the non-slave states resulted in support for a federal policy of emancipation, i.e., forcing slave states to abandon their peculiar practice.  It took a bloody Civil War to settle the issue, actually two issues.  First, slavery was diametrically opposed to the principles of freedom and humanity embodied in the constitution.  Second, the federal government exercised proper sovereignty over the nation and the several states.

To be continued.

Is It Economics or Politics? Part 1

What is going on in Washington and in the early stages of the presidential electoral process?  Are the core issues economic--deficits, entitlement over commitments, unemployment--or do they have more to do with political theory?  At first I thought this was all about the economy and how to recover from the disastrous recession worsened by unbridled speculation. However common sense responses to these economic challenges seemed to gain little traction.

After all the sensible approach--the one endorsed by almost all economists--is that the federal government should continue and probably increase stimulus expenditures in the short term in order to sustain demand in the economy and thus assist in the recovery from the Great Recession.  At the same time, long term changes are required in terms of expenditure reduction and revenue increase so that the structural and long term deficit is reduced. Admittedly this is a tricky course of action and one that requires leadership at all levels. Never has it been more true that "everything has to be on the table" than it is right now. But to let a concern with the deficit overcome a proper concern about recovery from the recession will follow the same disastrous path taken by Japan in the 1990's, its "lost decade."

There is a focus on the jobs issue, and rightly so.  As long as unemployment is at 9+%--actually probably more in the middle teens since those who have stopped looking are not counted--consumer demand, the mother's milk of the U.S. economy, cannot possibly be strong& enough to support a recovery. It would seem that the problem is how to create jobs by somehow encouraging businesses to invest in new products and services and thus hire the people needed for that investment. The problem is that in general U.S. businesses are sitting on a huge amount of cash but are unwilling to invest because there is not sufficient demand. This is the classic reason for government stimulus to create the demand that then creates the jobs that then further increase demand, but consumer demand this time. So how come we don't agree to do this?

I think the answer is that the agenda of many in Washington has more to do with political philosophy and not economics.  I believe they are using the economic woes of the country to justify political actions that will materially weaken the central, that is federal government, in order to implement what they believe to be the fundamental political principles of the American experiment. Flying under the banner of "no new taxes" and "we must reduce the deficit," are a powerful and coherent group of conservative activists whose true agenda was aptly described by Grover Norquist, "I don't want to abolish government. I simply want to reduce it to the size where I can drag it into the bathroom and drown it in the bathtub."  


To be continued...

9/11 Lesson for Politicians...and You and Me

January 2002

We are about to remember the events of September 11, 2001...as well we should.  Personally I have tried not to pay attention to the hype that began a month ago and which will reach a crescendo Sunday September 11.  I am especially avoiding the speeches and comments by politicians about that day and its meaning for America.

As I reflect on what happened that day, I keep thinking about the actions of people we have come to call "first responders."  These are police, fire, and emergency professionals from numerous governmental agencies and jurisdictions.  Their job is to protect, serve and rescue us when we are confronted with crises and danger.

On that fateful day in 2001, thousands of first responders entered the damaged and burning twin towers to find and rescue people.  They knew they were placing their lives in jeopardy but just as surely they knew what their calling was and proceeded with profound and unmistakable courage.  They placed their lives in jeopardy to serve the citizens they were sworn to protect.  Perhaps few of them ever thought it would come to risking their life in such a horrendous fashion but each knew that if it should come to pass their training and character would provide them the strength to fulfill their mission of service.

I am sure that there will be no end of speeches by politicians about all this.  Many will praise these first responders without understanding the central message for them.  We elect you to serve and protect us and the common good.  Your prime objective is service not the saving of your own political lives.  We have a right to expect that you will be guided by values of service and courage and not by the need to satisfy special interests, whether on the left or right, whether liberal or conservative, whether business or labor, etc.  We have seen enough of politicians who play footsie with special interests of all types, especially those with checkbooks open and pens ready.

It is sometimes said that politicians are motivated by fear and the biggest fear is not being re-elected.  Those first responders surely felt fear for their lives and yet they proceeded to carry out their duties to all of us.  Politicians need to walk up to the fear of not being elected and proceed to do their duty to all of us without making  political compromises to insure their re-election.

The lesson is clear for all of us, not just politicians.  We are called to live out our lives in accord with our deepest values not in order to achieve success, high regard from others, or power.  The example of those first responders can help us consider our deepest commitments and resolve to live those out in our lives.  A message for all of us including politicians.

A Penny a Bit

Jaron Lanier

I have just finished reading Jaron Lanier's You Are Not A Gadget: A Manifesto. Here is what the book jacket says about him:  "Jaron Lanier, a Silicon Valley visionary since the 1980's, was among the first to predict the revolutionary changes the World Wide Web would bring to commerce and culture."  The book is relatively short but very heavy going, at least for me.

It is a fascinating critique of the web, especially what he calls web 2.0, and it's call for open and free architecture and content as well as the ultimate wisdom of the hive, the mass of people interacting over the internet.  It is interesting to read what an accomplished technologist--and musical artist--thinks of the internet and the web.  He see strong positives as well as some important dangers.

One idea that resonated with me is that the vast majority of content on the web is not new and creative but reworking of previously existing content, often "mashed up" to seem new.  In the "mash up" process individual contributors are rarely identified and that is a conscious cultural norm.  The whole idea is that millions of people interacting on the web are a better path to truth or at least accuracy than experts creating content based on their expertise and research. This is the "hive mind" that represents the best hope of the web 2.0 world.  The problem is that it leads to a reduction to the mean.  Individual creativity, spontaneity, and idiosyncrasy are worn down by the relentless drive of the "hive mind" to coalesce around a single answer or set of answers.  Anonymous postings, 142 character tweets, and unverified Facebook postings are examples of what can go wrong.

This helped explain to me why I typically lose patience with cable news coverage as well as the local newspaper.  When news happens, both seem to be flooded with variants of i-reporters who know next to nothing about what happened but are more than willing to share their reactions and feelings.  Rather than near from knowledgeable news sources and experts, we get comments from people "like us" because this apparently is the best way to get to the reality of what happened.  Wrong.  The best way to get there is to listen to and read people who know what they are talking about.

This can happen because all content is free or ought to be according to the web 2.0 advocates.  This is a good thing and I applaud it from one point of view.  But from another, it means that I have to put up with a lot of uncreative, rehashed content.  He has a simple but probably impractical idea.  Everybody should pay to view content.  This payment would replace current ISP monthly fees and should be calibrated to about equal those fees.  The important part of his suggestion, however, is that the payment would be net of payments made by others to view your content.  Thus if you view a lot of content but very few people find your content interesting or you don't really post anything other than Facebook postings and tweets, your monthly payments would be higher than someone whose content other found interesting and creative. Such a system would encourage people to create and post content that was creative and interesting.  It would value actual websites rather than cookie cutter frameworks like Facebook.

I am not sure I have done Lanier's suggestion credit but I think he is on to something.  Pick up the book and give it try.

Wealth gaps rise to record highs between whites, blacks and Hispanics – Global Public Square - CNN.com Blogs

In the midst of the debt limit debate last week, a report appeared from the Pew Research Center detailing the impact of the Great Recession on American households by race.  Although we would probably not be surprised to learn that the impact on household wealth was greater on Hispanic and black households, we might be surprised at the scale of the difference.

The median wealth of white households is 20 times that of black households and 18 times that of Hispanic households, according to a Pew Research Center analysis of newly available government data from 2009.  These lopsided wealth ratios are the largest since the government began publishing such data a quarter century ago and roughly twice the size of the ratios that had prevailed between these three groups for the two decades prior to the Great Recession that ended in 2009.

This further disturbing confirmation of the direction our country is heading.  While those who have more than enough continue to desire and acquire more as they pursue their own narrow economic self interest, we are becoming a nation of extremes economically.  When this is combined with an overlay of race, it presents an ugly and unsettling picture.  We seem incapable of accepting the demonstrated fact that when income and wealth are more evenly distributed, life is better, safer, healthier and more fulfilling for all of us.

Wealth gaps rise to record highs between whites, blacks and Hispanics – Global Public Square - CNN.com Blogs

Stop me if you've heard this one...

A republican administration is in the White House as well as in control of both houses of Congress. The administration is almost solely focused on economic development. It has instituted changes in tax policies which overwhelmingly favor the top sliver of society. It is actively encouraging business corporations to become bigger and more powerful. All of this has resulted in an explosively growing gap between the rich and the rest of the country. The newest economic developments are exploited mercilessly in a wildly speculative real estate bubble. Appointments to federal government leadership posts are based on party loyalty rather than competence and experience resulting in agencies headed up by glad-handing hacks. Anyone who opposes any of these policies is castigated as but a step from treason and this was all done through communication media owned and controlled by the party in power. Finally they institute aggressive changes in voting legislation and political boundaries to ensure the continuation of their power. These policies and operations resulted in an economic depression that began to develop as the succeeding administration which Democrat took office.

This sounds like the eight years of the G. W. Bush administration but, in fact, is a description of the four year administration of Republican Benjamin Harrison from 1888-1892. The Republican party of that period was in close partnership with business especially the trusts that controlled vast areas of the american economy through concerted price fixing and market division. The economic policy that the Cleveland administration was so dedicated to as a solution to all economic problems was not a continuing reduction of taxes, especially those on the rich, as was the Bush administration but rather a comprehensive system of high tariffs that allowed the trusts to operate without any effective competition. This resulted in prices for all consumer goods being higher than would have been the case with competition and in huge profits for those who owned or controlled the trusts. This meant that the income and wealth gap accelerated. The Republicans ignored all demands for tariff reform since they were convinced that increasing wealth at the top would "trickle down" (a term they didn't use but which would emerge in another Republican administration in the 1980's) to everyone else, or at least to those who were motivated to work. This, of course didn't work even for those who were able to work but it especially was a disastrous policy for African Americans in the South, Native Americans in the West, and for most of the newly arriving immigrants who seemed so not very American to the white males in power.

Even though Heather Cox Richardson does not draw these parallels in her recent book, Wounded Knee: Party Politics and the Road to an American Massacre, any reader cannot help but notice that the picture she paints is a recurring one for American politics. "The Harrison administration has wrongly been buried in obscurity, for its effect were far-reaching. Its aggressive use of rhetoric, disseminated by its own media, had frightening repercussions for voting rights. Its rosy promises for the West--and the subsequent need to make those promises come true--spelled disaster for the western landscape. Its focus on economic development doomed the Sioux to poverty, and its manipulation of the electoral map changed the dynamics of politics."

This is a fascinating study of the way in which national politics impacted the lives and caused the deaths of the Sioux people of what is now South Dakota. As one reads of the incompetence and bald political decisions of the Indian agents appointed by the Harrison administration, one can only think of those famous words: "You're doing a heck of a job, Brownie."

If you interested, here is a link to the Amazon listing for the book; I highly recommend it. http://www.amazon.com/Wounded-Knee-Politics-American-Massacre/dp/B004LQ0G6C/ref=sr_1_2?s=books&ie=UTF8&qid=1300368966&sr=1-2