Musings of a woperchild

The Merits of Meritocracy

2010-06-17T23:09:00.003-05:00

I remembered seeing a while back a statement that the United States has among the lowest rates of economic mobility of any industrialized nation. But for the longest time I could not find the reference nor the original source. Well, today I found an article that, if it is not the source of the original quote, it well could be. The economic mobility project, www.economicmobility.org, has published a number of reports on class mobility within the United States. Among them is some data comparing the United States to a number of other industrialized countries, mostly European. We are bested by seven other nations. The only other nation with a slightly more rigid class (caste?) system is

Great Britain

. On the other hand, many of the countries that are more meritocratic are markedly so. Canada has more than twice the mobility. Denmark, the highest on the list, is more than three times the American rate.

http://www.economicmobility.org/assets/pdfs/EMP_American_Dream_F3.pdf

Now some of the true equalizers among us would ask if that is such a bad ranking for the United States. They might argue that a society in which everyone is all about jostling to get one step ahead in the rat race isn’t the healthiest society. And while I might agree with that on some level, it is also observed in the same report that the historical levels of inequality in the United States are higher than they have been in many generations. So combining the two implies that the rich are getting drastically richer, and that for the most part, they are the same families who were already rich for the past couple generations. That does not sound at all equal or fair. The rat race may not be the highest priority in life, but the race should at least be a fair one where every rat has a fighting chance.

One interesting thing about this information is that it seems to be very strong evidence against the conventional conservative wisdom that a strong state (strong welfare state, strong regulatory state, high tax state) encourages dependency and squashes entrepreneurialism. If that were the case, then Scandinavian countries ought to be languishing in a backwater of class inertia, not multiple times more economically mobile than the good ole’ land of red, white and blue opportunity.* Correlation is not causation, of course, but one might be tempted to infer that a welfare state may actually help people actualize their potential and move to a different economic plane than their parents.

So, if our goal is to create a meritocratic economic system with a much higher level of equality of opportunity than our current one (which presumably would lead to a higher level of mobility because economic outcomes would be more authentically tied to effort), should we just beef up our welfare state? In some ways, yes. If people have their basic needs met then there is much more room to focus on more advanced impulses. Classic Maslow. But I’d rather have the economy do the work of providing stable, engaging, productive work and means of subsistence for its citizens. There’s always going to be some stigma associated with any forms of economic assistance, whether that’s deserved or not. (I see our welfare state as a failing of capitalism. Our economy should be able to provide enough living wage jobs for our citizenry and not to have to rely on government subsidies to keep the workforce alive by propping up poverty-wage or non-existent jobs. That’s the moral failing I see far more grievous than any “bad choices” on the part of the recipients of such assistance.) And there’s always going to be some sacrifice in dignity and autonomy when people ask for assistance. I don’t expect our public ideologies to change so dramatically that there will be huge turnarounds on those issues any time soon. If we as a society feel we are “giving” money to people who haven’t “earned” it, then we will feel entitled to intrude upon, judge, order around, and otherwise be disrespectful of the people we are “giving” to. So isn’t there a better way than that?

Even more importantly, how much human potential is being wasted by people spending significant portions of their lives struggling within a social service system rather than following their passions and putting their energy to productive uses?? Why as a society can’t we find better ways to tap into that human power and creativity and resilience?

I wish I knew of a better way. But clearly in a system where money makes money, those who start with it are going to be at an unfathomably big advantage. Something must be done to make the race more fair for the rats. Capitalism seems to be built to serve the needs of capital, and left uninterrupted it seems to create concentrations of capital (and thereby power). Those concentrations make the ideals of mutual benefit within the marketplace and equality of opportunity start to seem a bit shallow. And clearly, shallow is they are.

* Now, this isn’t to say that European countries don’t have some pretty significant economic problems right now. But didn’t the U.S. just shoot ourselves (and the rest of the world) in the foot with our free-wheeling, unfettered entrepreneurial investment creations??

Sawhill, Isabel and Morton, John. Economic Mobility: Is the American Dream Alive and Well? http://www.economicmobility.org/assets/pdfs/PEW_EMP_AMERICAN_DREAM.pdf Accessed June 17, 2010.

What do you know?

2010-05-23T09:54:00.001-05:00

Here’s a quick exercise. First of all, imagine a typical Twin Cities suburban resident. Probably white, definitely middle class, probably with a family with two incomes. Now write down at least 10 things that this person “knows” about the Northside of Minneapolis. Please don’t censor the list; go ahead and include things that may be stereotypes or have racist or classist assumptions. (It’s usually the knowledge that we don’t want to acknowledge that is the most important to look at.)

10)

Consider the list. Do you know these things to be true? Not true? Partially true? Or do you not really know?

Now make a list of 10 things that you “know” about the Northside.

10)

Then consider your list. Where does that knowledge come from? Is it based on first hand experience? Professional training? Political beliefs? Is your knowledge influenced by the stereotypes that society at large has about the Northside?

Now specifically think about what you “know” needs to be done to improve life on the Northside.

10)

Where does that knowledge come from? Is it based on first hand experience? Professional training? Political beliefs? Is your knowledge influenced by stereotypes that society at large has about the Northside?

Knowledge is something our society trusts an awful lot (think about how much time and money we spend on education). But sometimes it’s a blind trust and we would wise to step back from our knowledge for a while to gain some perspective on it. In the Zen Buddhist tradition, this is described as living in a state of Unknowing. Bernie Glassman is founder of the Zen Peacemaker Order, a group of people committed to Zen Buddhist religious practice and active peacemaking in the world at large. Glassman says:

“When we live in a state of knowing, rather than unknowing, we’re living in a fixed state of being where we can’t experience the endless unfolding of life, one thing after another. Things happen anyway—nothing ever remains the same—but our notions of what should happen block us from seeing what actually does happen. We get upset because our expectations aren’t met. When we can let go of them we are in accord with things as they arise.

…This [unknowing] is very, very hard. Many of our members have spent years doing social action and have extensive knowledge in community development, ecology and the environment, education, the business world, psychology, social work, medicine, or the arts. In the past they believed that the way to become more effective was to know more. But when they join the Zen Peacemaker Order they train in unknowing, in unlearning all their previous conditioning and preconceptions about how to make peace… We help them develop the openness to see things as they are.”

Glassman later clarifies that living in a state of Unknowing doesn’t mean discarding all of our knowledge. But it does mean discarding our certainty that our knowledge is complete, or that our knowledge applies to whatever situation we have in front of us at the moment. Instead, living in a state of Unknowing means being open to experiencing what is in front of us at the moment, and then, and only then, determining if what we know can help us respond to the situation.

Stepping back from our knowledge can be especially important for allies. By definition, we allies are involving ourselves in things we don’t have complete knowledge about. We haven’t lived on the Northside. So our knowledge is a mixture of observation, things learned in relationship with Northside residents, preconceived beliefs, and stereotypes. Our development as allies should involve a constant openness to ideas or ways of doing things that may not fit our usual patterns and expectations. We must be open to being wrong, being confused, to having our judgments challenged. In short, we must be open to not knowing.

Father Wresinski, a French priest who founded an international movement to eradicate poverty, once said, “[Poverty] forces us to stay as we are—men and women to whom the poor can say, ‘You can do all you want but you will never be able to understand because you haven’t experienced what we are going through.’ If they couldn’t say that to us, we wouldn’t be forced to give them the right to speak… The volunteers and the allies have the task of transmitting what has been witnessed. However, we cannot transmit what we have not really taken in; we have to take time to reflect and internalize real experiences if we are to convince other people. Otherwise, very soon, we will lead another struggle, and it will be our own. Then the poor would be merely the objects of our combat; they would no longer be combatants or masters of their own cause.” As allies, recognizing what we don’t know helps remind us that we do not own the struggle, but are allies to the cause.

Sometimes situations arise that give us no choice but to face our own unknowing. When we stand at a peace vigil for a young person whose life has been extinguished much too soon, we can’t avoid being confronted with all that we don’t know about violence and its tragedies. But when we let go of our knowledge, we open ourselves to thinking creatively, and responding authentically to the world out of our instinctive compassion and hope.

Sources:

Glassman, Bernie (1998). Bearing Witness: A Zen Master's Lessons in Making Peace. Bell Tower, NY, NY.

Anouil, Gilles (2002). The Poor Are the Church: A Conversation With Father Joseph Wresinski, Founder of the Fourth World Movement. Twenty-Third, New London, CT.

Would-be graduation speech

2010-04-01T19:13:00.001-05:00

Here is the graduation speech that I "auditioned" to give to my classmates at Macalester College. But I didn't get picked, so this speech never got spoke. I'm not bitter about it (you did a great job Rachel!!), but I still really like what I would have said, so I'm saying it here. And since it's about hope, it seems kind of obnoxiously ironic to post it on April Fool's Day. ;) I mean what I say about hope, though, no fooling!

Hello my fellow graduates of 2005, faculty, staff, family and friends. I am very grateful for the opportunity to speak with you today, and I would like to use it to share with you a quote that has been important to me. I read this a couple of years ago in the Utne Reader magazine, another venerable Twin cities institution. The article was an interview with Tony Kushner, who you may know as the writer of the play Angels in America, which was recently made into an HBO movie. The interviewer asked Kushner where he draws his hope from. And this was his response:

You don’t look at it [hope, that is] as a feeling state; you look at it as an ethical obligation. You look at it as the thing that you generate in yourself by recognizing that despair is a luxury. Not for everyone. Some people are really burdened by life, either because of chemicals in their brains or terrible personal circumstances or social circumstances that make despair inescapable. But most people in this country aren’t. And since most of us aren’t, we have an ethical obligation to look for hope and find it. It isn’t easy, but that doesn’t mean it isn’t there. In fact, if it were easy, it would be less valuable. It’s like the Jewish search for God. One of the Talmudic ideas for why it’s so hard is that you create its value by the difficulty of the search. We all do it. That’s what our struggle is. We wouldn’t get out of bed otherwise.

When I first read that, I had a ‘hmm” experience. Hmm! Incidentally, that is one of the highest praises I think one can give to a piece of art. “Hmm” means something has startled you, snapped you out of chewing your mental cud. We college students are very adept at information grazing, just sort of mindlessly stuffing it in. But every once in a while, something suddenly tastes different, new, and it catches our attention. It’s something to chew on, as they say. And this quote definitely earned a “hmm.” It stuck around in my head for months until eventually I had to dig the magazine out from the mountain of junk mail on my coffee table and copy down the passage for my quote board.

I think the quote impacted me so because it totally reframed the debate. Hope as an ethical obligation. I’d thought about ethical obligations before. Some rather banal, like I have an ethical obligation to brush my teeth so I don’t waste all that money my parents spent on braces. And others rather profound, like I have an ethical obligation to promote justice in the world, in whatever ways I can. But hope. Hope I’d seen as sort of the limiting factor in all of this. You work as hard as you can toward meeting your ethical obligations, as long as you have hope. But hope is fragile, fickle; it becomes a liability of sorts. If it unexpectedly runs dry, you and your ethical obligations are out of luck. You have no choice but to give up and retreat to cynicism.

But Kushner flipped that all around for me. After reading that quote, I realized that hope is much more than just something else you need to get the project done, like paperclips or a fax machine. No, hope is the project. Hope is what we work toward, because in and of itself, it is transformative. Jim Wallis, who spoke here at Mac a couple of months ago, said, “Hope is believing in spite of the evidence, and then watching the evidence change.” Hope is what gets us out of bed in the morning, and hope is what changes the world.

So what does that mean for us here today? It means we have a project as we go out into the world to nurture hope in ourselves and to create environments that nurture hope in others. Do we have adequate preparation for this project? I’m not sure. We’ve been told time and time again what a good education this institution provides, ever since that first recruitment letter arrived in our mailboxes, up until today. And it’s true! Attending Macalester is a unique privilege, one that we’ve been lucky enough to have. The things we’ve learned here, the people we’ve met here have given us many skills to do amazing things in this world. But other skills, things like generating hope, are much less tangible. They don’t show up well on a syllabus. They’re hard to teach, and hard to learn. But they are the most important. I’m far less interested in our potential to be doctors, lawyers, presidents, whatever, than our potential to be decent, hopeful human beings. That is truly our project, whether we’re doctors or lawyers or teachers or business people or store clerks or pizza delivery guys. That’s our project as friends, as partners, as parents. It’s our project as citizens of our respective countries. And if we can complete our project, and learn to be hopeful, we will have accomplished something great.

I’m not going to tell you what to hope for, because that would be presumptuous. Nor am I going to tell you how to find your hope, because unfortunately I don’t know. I will simply tell you to believe that the value is made by the difficulty of the search. Have hope, spread hope, and if all else fails, brush your teeth.

Thank you for a great four years, and congratulations!

Tea Parties with Aristocrats (or not)

2010-03-20T16:34:00.005-05:00

I have never understood how somebody who isn't rich could support conservative economic principles. I've always been baffled by the fact that people who work so hard to keep their families just barely above water could be supporters of the "free market." How could it not be blindingly obvious that the free market is a tremendous bully that doles out foreclosures to some and mulitple, multi-million dollar palaces to others? How could any human being be so superior to others that they deserve that kind of extravagance? How could any human being be so inferior to others that they deserve that kind of marginalization? And how could so many Americans not see through that?

I assumed that the only way this could have happened was that conservative politics roped people in with "social" issues, things like abortion or gay rights to which people had strong emotional and religious connections. Then the conservatives put their economic policies in the fine print and asked Americans to sign on the dotted line with assurances that the rest was just technical details. Call it the predatory lending style of political consensus building.

But the tea party furor doesn't really support my theory. Here is what appears to be a grassroots movement of hard-line conservatism that is animated precisely by economic issues.* These people have read the fine print, and they love it! So what gives?

Reading Politics of Inequality has given me perhaps a little more intellectual sympathy for the right wingers. Michael Thompson talks about how the fundamental impulse of the American Revolution was a rejection of European feudal society. America was going to be this bold new experiment in democracy. It was supposed to be the antithesis of aristocracy and entrenched political/social/economic power. This was a country of free individuals able to pursue their own destinies as individuals and as a new society. And this was a republic built on contracts, freely entered into: a social contract with the state, and economic contracts between individuals. Contracts meant choice and control and fluidity, as opposed to systems built on feudal obligations and encrusted tradition.

In some contexts, these ideas from our founding fathers (and mothers) make me feel gosh darn patriotic. When discussing political rights, I am as heartily anti-aristocratic as the next American. Birth should not determine one's right to participate in the political process. Where I begin to take issue is the assumption that our economic system guarantees a similar level of freedom and access. I don't believe that it does, or ever did. However, I can see how the anti-aristocratic sentiment could spill over into the economic sphere and rally people's support for "free" markets. There could be some people out there who feel that government attempts to intervene in the economic system amount to state interference in those private contracts we hold so dear. And if the government seems like some external, alien force run by disconnected elites arbitrarily impinging on your freedoms and taking your hard-earned property... well, that sounds alarmingly like an aristocracy. In this particular instance it happens to be an aristocracy that claims to have the common good of the public as its chief interest, but that's rhetoric that I don't even always buy into.

So it makes good sense that the tea party people have derived even their very name from an event of the earliest days of our republic's founding. They are hearkening back to a very fundamental American ideal of individual liberty against entrenched elitism. I still disagree with them quite intensely, but at least I can see a little more common ground. Although I heard a suggestion on the radio this morning that if we really want people to come together to discuss ideas and work out their grievances that we should have a beer party to lift people's spirits a little more than tea. Gotta say, I kinda like that idea!

*At the same time, liberals, in an effort to shore up an eroding economy, are looking more pro-business than I ever recollect seeing. But that's a topic for a different day. Actually, I already wrote about that. http://woperchild.blogspot.com/2009/06/perverse-production-incentives-and.html

Thompson, Michael. The Politics of Inequality: A Political History of the Idea of Inequality in America. New York: Columbia U, 2007.

The Radicalism of Adam Smith??

2010-03-02T12:36:00.000-06:00

I have thought for a while (at the very least since reading The Divine Right of Capital by Marjorie Kelly) that a true revolution of the economic system to one that is more just will take an ideological shift as significant as the shift from monarchy to democracy. So I’ve thought sometimes that some of those classical texts about individual political liberties (Locke and Mill and all the others) could be well translated into a fight for individual economic liberty. But apparently, there may be a lot less translation necessary because those writers explicitly addressed economic liberty. Politics of Inequality by Michael Thompson traces the theme of economic inequality in the writings of political theorists throughout American history. He finds that there has been a consistent, if outnumbered, sect among the theologians of American democracy who have argued that severe inequality is no only a problem morally, but also a threat to the success and stability of our democratic system. They saw that government had a responsibility, therefore, to address inequality in order to protect and sustain itself. Economics was seen as a tool to maintain a healthy state, not the other way around. Pretty cool!

Now my one hesitancy with this book is whether it puts some of these classical theorists a bit ahead of their time. So for instance, it quotes a couple fun passages of Adam Smith about how laboring people should be treated fairly, and about how the political systems tends toward protecting the interests of the rich and so forth. However, as Thompson himself points out, the radicalism in Smith’s day (about the same time this country was being founded) was about an emerging middle class defending its own right to enjoy the fruits of its trading labor, since that new mercantile class was becoming a more and more prominent part of what had previously been a static, rigid, aristocratic agricultural economic system. There had always been traders, but they had been more or less on the fringe, since most economies were extremely local and self-sufficient. But as technology improved and trading became both more possible and more enticing, and as the money system loosened up, here came the capitalists. So Smith’s radicalism was about fighting for this emerging group to be recognized as a legitimate part of society, and in fact a contributing class of society. And, of course, that is still the archetypal hero of capitalism—the small scale entrepreneur.

But even as Smith saw the capitalist class breaking through the futsy aristocracies of old, he certainly wasn’t imagining any sort of socialist paradise where prosperity was shared by all. He saw the majority of people belonging to the laboring classes who, in a mature economy, would earn wages not too far above subsistence level. Now, as a matter of morality and political stability, he may have argued occasionally for the laboring classes to receive at least the bare minimum of human dignity (he was against slavery as an example). But he never imagined that his system of “perfect liberty” would give them any substantial levels of economic opportunity.

And should he have? He was already pushing the envelope, or at least describing how the envelope had already been pushed in a more cogent summary than anyone had achieved before. So can we cut him a little slack for being a product of his times? I’m willing to do that. But that means, as Robert Heilbroner points out in his introduction to excerpts from Wealth of Nations, that then we have to take his more radical sounding tidbits with a grain of salt. We have to realize that he could say what may sound now like radial socialist propaganda, but he could say that without being very inflammatory precisely because he never would have imagined that there could ever be a marked reorganization of society to benefit the laboring classes. So he could talk about how oppressive the wealthy class is not as an argument to overthrow them, but as a plea to the wealthy class to moderate their oppression. He just took it for granted that they would always be in a position to be severely oppressive if they so chose.

So then for Thompson to claim that there’s been this deep strain of interest in economic equality throughout Western and American thought seems a bit of a stretch. Are we talking about real radical equality here, or are we talking about a desire on the part of wealthy people to mollify the underlings enough so they don’t make trouble? Because if it’s the latter, undertaken by wealthy classes whose bottom line interest was preserving their own wealth and power from disturbances, then they don’t get a whole lot of credit for wanting “equality” in my book. When you say that inequality is at heart a political issue because it creates inequities in power, than the just position is to be defending individual liberty (of all individuals) against abuses of economic or political power, not conceding just enough to maintain the security and influence of the powerful. So while that doesn’t necessarily have to mean equality of outcome, it does need to mean equality of something. Not just a bare minimum of human dignity.

Thompson, Michael J. The Politics of Inequality: A Political History of the Idea of Economic Inequality in America. New York: Columbia, 2007.

Smith, Adam. Wealth of Nations, An Inquiry into the Nature and Causes of the. In Heilbroner, Robert (Ed.) The Essential Adam Smith. New York: W.W. Norton, 1996.

My definition of an ally (to people living in poverty)

2010-02-21T21:21:00.001-06:00

Essential definition:

An ally is a person who has not experienced long-term poverty, but actively seeks to partner with those who are experiencing or have experienced long-term poverty in order to end it. An ally develops personal, responsible, and mutually beneficial relationships with people who have experienced long-term poverty. These relationships are not necessarily friendships, but are at least respectful working relationships bound together by a common goal of ending poverty.

Essential to MY definition:

An ally supports the self-determination and self-efficacy of groups and individuals who have experienced long-term poverty, and as much as possible tries not to exert power over their decision making.

Secondary to the definition (definition of a GOOD ally):

An ally takes active responsibility for his or her own learning about classism and other forms of oppression in society. An ally tries to learn as much as possible directly from communities that have experienced poverty (allowing them to speak in their own words rather than through middle class “expert” conduits), but does not passively wait to be “educated.”

An ally believes that poverty is caused, at least in part, by systemic inequalities within our social/economic/political system, and is not solely the result of individual behaviors. An ally may work on assisting individuals, but understands that truly ending poverty will require adjustments to the system in which we are all a part.

An ally understands and takes responsibility for his/her own participation in an unjust social system which grants him/her privileges solely by virtue of his/her economic status. An ally does not deny privilege, neither believing that privilege does not exist, nor that he or she has erased their personal privilege by lifestyle choices. An ally may decide to make lifestyle choices to contribute less to oppression, but privilege is always there by virtue of personal histories and being a member of society. An ally accepts this, and is not paralyzed by guilt over inescapable privilege, but seeks to use privilege responsibly to expand access to all.

Money mulitpliers and economic parasites

2010-02-20T17:23:00.000-06:00

One of the fathers of modern day economics, David Ricardo, was not a big fan of landlords.* He believed that they were an unfortunate drain on a productive economy. They were only involved in the economy by virtue of their ownership of land, which of course was (is) a necessary factor of production. So, as recompense for their ownership, a landlord charged rent to anyone who wanted to produce something that originated from the land. In Ricardo’s view, this was a drain on the overall economy and was unjust because the landlords did nothing productive—they simply sat idly on their ownership and profited from it.

In the modern era, land was privatized so long ago (at least in the Western industrialized world) that resentment has dimmed against its owners for unjustly privatizing what had been commonly owned. And these days, agriculture is increasingly concentrated in the hands of a few large corporations that direct the entire process of production of food and other natural goods. So a class of idle landlords, remnants from a feudal era, have been replaced with a class of agricultural industrialists distinguishable from other industrialists only by the sector of their activities.

But the general principle of an idle class of owners may still be very relevant to the modern era. In today’s economy, the scarce factor of production for industry appears to be credit. Money. Financing. And that, of course, has to be borrowed in one manner or another from somewhere.

I must admit that I find finance and banking absolutely baffling. Even the relatively simple concept of a money multiplier seems baffling. If I put my $100 in a bank, they’ll lend out $80 of it. Now, I believe I have $100 to spend, and someone else just got a loan so she has $80 to spend. Now the economy magically has $180 in it. And this continues ad inifinitum because that person with $80 will put it in her bank (or spend it and the seller of goods will put the $80 in his bank) so that bank can lend out another $64 of it. Now the economy has $244 to play with. Crazy!

Now this only works because the bank knows from experience that only about 20% of the people who have deposits in the bank are going to come in on any particular day and ask for their money (or people will only request 20% of their deposits on any given day—same difference). If we want more, we’re out of luck, at least until we appeal to the FDIC. Because the rest of our collective money is gone, out working in someone else’s interest.

The stock market is an even more baffling manifestation of the same concept. If I put my $100 in the stock market instead of a bank, I’m going to expect that when I’m ready to take it out, my investment will be worth more than I originally put in because someone somewhere will be willing to pay more for my stock, based on the assumption of still further growth. So if I see that my stock purchase of $100 is valued at $150, I will feel as though I have $150 dollars in my possession. Just like the magical bank example, money has mysteriously grown from nothing. And like the magical bank example, this only works when more people want in to the market than want out. If too many people try to simultaneously cash in on their earnings, the market will collapse and those earnings (and much of the original investment) will disappear.

Unlike the bank example, no one has any responsibility to pay anything back, however. In the case of the stock market, I am in a sense “loaning” my $100 to a company for its responsible use in the course of doing its business. But unlike that $80 loan that the bank made based on my deposit, the money I shared with the business never has to be paid back. Rather than expecting the loanee to eventually pay me back (with some interest as recompense for my willingness to part with my money for a while), I am expecting that I will be able to recoup my investment by passing it along to someone else.

I can understand the concepts simply enough, but it just strikes me as fishy, because it feels as though these magical multipliers are unaccounted for in the elementary parts of economics where everything is about goods and services and economies actually produces stuff rather than just figures on paper. There are these nice, neat little models in the book that show circular flow between businesses and individuals.** Consumer spending becomes business income when we buy firms’ goods and services. Businesses then use that money to purchase the things they need, the raw materials, labor, etc. that they use. From whom do they purchase these things? From individuals who own them, of course, so we’re back where we started. Even business profits go to the individuals who own the business—outright or as stockholders. So now individuals have more money for consumer spending, which becomes business income, which businesses use to buy the things they need, and the oceans evaporate and form clouds, which rain and water falls back to earth, where it collects in rivers and runs out to the oceans, where it evaporates and forms clouds which rain and water falls back to the earth… In economics or climatology, it’s a nice little model well suited to fourth grader diagrams. But it’s a closed system, where money is finite like the number of H₂O molecules on this planet. And that doesn’t jive well with magical multipliers. Unlike water, money apparently is not permanent and finite. It is not constantly moving through this neat little diagramable system of purchase of goods and services and factors of production. It occasionally gets diverted into shadowy underground reservoirs where it inscrutably reproduces itself and bubbles back into the economy through untraceable springs.

Then, the question becomes, how could one incorporate these reservoirs into our neat little diagram? And what is the overall effect? Are we at a net creating value for the economy, as measurable in the actual goods and services and labor we are able to produce/employ (since these concrete things make up standard of living, and as such matter much more to the common person than abstract figures on paper)? Or, like rent to a landlord, are we diverting money out of the productive parts of the economy to simply reward idle ownership? Since the systems of bank multipliers and stock transferability only work when a majority of the population leaves their deposits/investments untouched, wouldn’t it seem as though we might be better off keeping our money above ground?

These are some pretty huge questions that probably require a more sophisticated knowledge of the financial system and macroeconomics in general than I have to answer. If anyone has figured it out, please tell me. I will simply leave it at: I’m suspicious. Having seen the recent devastation of the reservoir caving in (in the form of the financial crisis of confidence that sparked the recession), I wonder if the financial system is truly a life giving part of our economy, or a parasitical aspect that we all put up with because occasionally we are rewarded with our own little allowance of blood money. If so, like all parasites, we unwittingly run the risk of killing our host, or at the very least, sapping its vitality to a point that benefits no one. Let’s hope we’re smarter than that.

*Heilbroner, Robert. The Worldly Philosophers: The lives, times and ideas of the great economic thinkers. Rev. 7^th Ed. New York: Simon & Schuster, 1999.

**Downey, Matthew. Contemporary’s Economics. Chicago: McGraw Hill Wright, 2007

My allyship project

2010-01-20T21:13:00.000-06:00

I am currently undertaking a project to study what it means to be an ally to people living in poverty. I've been meaning to do this for quite a while, but I am now finally getting around to it. I am doing this by reading about allyship, and by interviewing people who are allies or who have worked with allies. I'm planning to post stuff here as I develop it so that the wider world can see it (since I know you're reading, wider world) and, more importantly, so that people I've interviewed can check out what I'm writing and make sure I'm not misrepresenting them terribly.

I am not sure what the final outcome of this project may be. It could end up being a training curriculum. It could end up being a book. It could end up going no farther than the blog you're looking at right now. I'm not really sure. But regardless of how developed it gets, I hope that at least I will gain some insight by it, since I would like to flatter myself be believing that I am a committed ally.

Consumers: Diving the economy or swept up in the business cycle?

2009-10-25T16:08:00.004-05:00

Economics textbooks have all kinds of concepts that make consumers sound really important. They talk about aggregate demand curves, and consumer price indices, and disposable personal income, etc., etc. They talk about supply and demand with a reverence befitting a couple of cosmic powers. Indeed, to some extent, the laws of supply and demand are so cosmically obvious they must be true. Consumers differentiate between various products competing for their attention and their dollars, and determine of which products they want more and which fewer. It’s a pretty efficient way to decide the allocation of effort and resources.

However, once you add the element of time, supply and demand starts to look like much more of a consequence of economic trends than an antecedent of them. I remember, at the beginning of the current recession, starting to hear news reports of the “Global Financial Crisis.” Sounded scary. But also sounded a little ridiculous. It was like hearing tornado sirens go off when there’s not a cloud in the sky. In such a situation, since I don’t happen to be equipped with my own personal meteorological radar system, I, average everyday tornado fodder, have to decide whether to trust the experts’ warnings of impending doom or to trust my own common sense appraisal of the situation. Unfortunately, in the case of the Global Financial Crisis, the meteorologists were right. Impending doom was on the way even though the sky was blue.

My point in belaboring this metaphor is that I and presumably all the other average consumers out there who don’t have our own sensitive prediction models or devices were the last ones to know that something seriously nasty was headed our way. We were happily spending and borrowing and spending and borrowing like nothing at all was going on. But something was going on. And soon the effects started getting a little more obvious. Soon we knew people who were being laid off. Soon our retirement accounts weren’t looking so peachy. Soon a neighborhood business shut its doors. And then, when the sky was distinctly darker and the trees had started creaking, we realized it was definitely time to do something. And what does one do in a tornado? Well, one either takes a video of it on their camera-phone in an attempt at YouTube stardom, or one hides in a hole. And that’s what people did. They started hiding from the economic whirlwind, and stopped spending and borrowing and spending and borrowing. Then supply and demand showed up and became the justification for businesses to scale back production, which cost jobs, which gave people less to spend, which scaled back production…

To return to the very beginning of this blog and of the economics textbook, we learned that the basic economic questions are about goods and services. What, how and for whom will we produce goods and services (p. 17)? But if that is truly the center of our economic system, why is it that the production of goods or services can be so dictated by financial forces so totally beyond the scope of the average everyday consumer of goods and services? Isn’t the consumers’ interest in stuff, the aggregate demand of an economy, a fairly stable thing? And yet somehow we end up with a business cycle that everyone regards as inevitable as warm and cold fronts. The cycles move in and drastically affect families’ economic outlooks, while they sit huddled in their basements waiting out the storm. Something seems very off to me. It sure feels like I, as a consumer, am much more like tornado fodder than I am a cosmic force. Why?

Downey, Matthew. Contemporary’s Economics. Chicago: McGraw Hill Wright, 2007.

Life Story on a Car Ride Through North Minneapolis

2009-10-03T11:55:00.003-05:00

It ain't us if it ain't tough.
It ain't right if it ain't rough.
his grandpa told him.
That stuck with me, he says.

It ain't us if it ain't tough.
It ain't right if it ain't rough.
his grandpa said in an Arkansas drawl.
From a town smaller than a Minneapolis ghetto.
A town, he complains, that don't even have useless billboards to look at.
Just fields.
Fields that make him claustrophobic in their emptiness.

He went back down there 'cause Grandma was sick.
Real sick.
Until Auntie told her, You raised nine kids and you're going to let a little cancer get you down?
(He only counts six aunties and uncles, but doubtless at least three more had found their way from somewhere. Kids know love (and food) when they see it, even in Arkansas.)
Auntie told her, You raised nine kids and you're going to let a little cancer get you down?
So Grandma got up.
Apparently she knew that
It ain't us if it ain't tough.
It ain't right if it ain't rough.

But he wants to buy his wife a truck.

We pass a women in the rain.
She's got an umbrella but she's soaking wet.
'Cause the umbrella's draped over the stroller
so all you can see are little pink Velcro shoes bouncing happily under their cozy canopy.
Bouncing happily while mama's feet
walk and walk
pushing the stroller
getting wetter and wetter
to their destination.
He doesn't want his wife roughin' it like that.
Toughin' it like that.
He'll take the rough and the tough.
He's not afraid to work hard and get dirty
if it means he can buy his wife that truck.
He wants his kids bouncing happily under a cozy canopy of steel girders and airbags.
All things precious to him tucked for safekeeping in a fortress on wheels.

'Cause things happen out there.
And he's got the dent in his skull to prove it.
See, he had a lot on his mind that day.
He'd just donated so he had some money and the baby needed Pampers and he needed something to eat and he had a job interview so he was cutting across the street to get home to his wife to get her the Pampers money and

BAM!

Stay with me! Stay with me!

Hmm. Ambulance. Well, at least I'm in good hands...

C'mon now, stay with me!

But he doesn't like to dwell on the past.
It was rough but it didn't kill him.
Ran up 10K in chiropractic bills after he called 1-800-PAIN but he's ok now.
Cause after all,
It ain't us if it ain't tough.
It ain't right if it ain't rough.

The Bruise

2009-09-28T21:01:00.002-05:00

Poverty is...
...the bruise on Amber's arm.
Pulsating, purple.
Vivid and violent.
Snaking its way from the front to the back,
torn up capillaries like trees after a tornado.
A massive bruise that makes you wince
and wonder, "how..."

Poverty is a bruise so public and alarming
that perfect strangers on a bus offer Amber phone numbers to safe houses
and encouragement to leave him.
If only she could.
Because this abuser leaves bruises on her flesh,
and slices worry lines into her sweet young face.
He denies her dinner.
And breakfast.
And lunch.
Til she's at the point of fainting.
(You know, those days when there's no more in the pot after the babies have eaten.)
Yes, this abuser's a mean son of a b**ch.
But there's not a restraining order in the world to keep this one at bay.

See, poverty has found his way into her veins.
In through the puncture wound
out of which the plasma flows
when the money's low.
Lifeblood flowing with a generosity that's both beautiful and terrifying
to someone who's used to her veins
(and her wallet)
being contained, predictable, private.
Poverty wormed its way in and spread like a pandemic,
branding her body as a member of its herd.

Poverty is the bruise on Amber's arm.
Pulsating.
Purple.
Vivid.
Violent.

Slavery and the Modern Welfare State

2009-09-28T20:31:00.006-05:00

So I’m currently reading A People’s History of Poverty in America by Stephen Pimpare. Pimpare asserts that if we define the welfare state to be any government approved and government enforced system for providing (to some extent) for people’s basic needs, then in the United States we have to consider slavery to be one of our first systems of social welfare.¹ This is a pretty provocative idea, at least for a social welfare history wonk like myself. Most social policy histories start with the Progressive Era, move into the New Deal, and then continue to chart the growth and reforms of the welfare state from there.* The convenient thing about that approach is that it gets to start with good news: the moral righteousness and overall awesomeness of Jane Addams and her crew of settlement house reformers and muckrakers. According to this version of history, all social welfare has sprung forth from her saintly benediction, so we see social welfare as a benevolent and moral institution. Any abuses that have occurred, any indignities suffered by the recipients of our benevolence, can easily be explained away as the fault of miserly politicians or a few bad apples among social policy practitioners.

However, when we consider the welfare state in this country to have included slavery, then we have to realize that the Mr. Hyde side of the welfare state has always been there, infiltrating the Dr. Jekyll half we like to think about. Mr. Hyde has economic interests in maintaining a pool of low cost (in slavery’s case, virtually no cost) labor. Mr. Hyde has all kinds of pseudo-scientific justifications for why poor people and black people, and heaven-help-me poor and black people are inferior, unindustrious, and incapable of their own care. Mr. Hyde denies people freedom to control their own lives, their own families, their own work, in many cases their own bodies, but calls them ungrateful when they aren’t sufficiently humbled by all they have received. Mr. Hyde employs a sector of overseers and bounty hunters to make sure his “clients” follow the rules, and Mr. Hyde has vicious punishments waiting if they don’t.

It is unnervingly easy to draw parallels between the welfare institution of slavery and the welfare institution of Temporary Assistance for Needy Families in which I work every day. This is not to say that those parallels aren’t grossly exaggerated. They are exaggerated. To say that the modern welfare state is like slavery would be an unfair assessment of the progress of the last century and a half, as well as a severe understatement of the horrors of slavery. Nonetheless, it is undeniable that there are aspects of control and coercion in the modern welfare state. Today’s system is, as it was then, ultimately managed by powerful people with powerful economic interests. As much as egalitarian practitioners may try to avoid it, today’s system is influenced by racist and classist assumptions, or (less malevolent but equally problematic) simple ignorance of the true experience of, causes for and implications of living in poverty. And today’s system certainly employs an army of people who make a living by monitoring the behavior of this era’s “grateful” beneficiaries of their services.

Does any of this mean we need a Declaration of Emancipation from the welfare state? Certainly not. Having a welfare state, albeit a flawed system, is better than a system of callous indifference based on a euphemistic rhetoric of individualism. But it is critical for practitioners, and especially reformers, to realize that the evils of the welfare state have not always simply been the result of a few wayward miscreants, nor have they always been simply due to a lack of resources or capacity. Rather, there have always been injustices woven right into the fabric of any kind of safety net we have ever constructed. Welfare benefits have never truly been something-for-nothing. There have always been costs in dignity, privacy and choice. The only differences have been that the severity has vacillated with changing times and changing political administrations. This is crucial to understand, because denial has never done much to combat injustice. The sooner we recognize that Mr. Hyde has always been a part of us, the sooner we can figure out how to confront him.

*I re-read my unfortunately rather dusty textbook from my social policy course ² to see if its account of history conforms to the norm of starting with St. Jane [Addams] and moving on from there. In actuality, the history chapter does devote four pages to pre-Progressive era United States history. And while it mentions slavery, it focuses on the impact of the English Elizabethan Poor Laws in shaping U.S. policy. It states that “the Elizabethan Poor Laws were not applicable to slaves, who had no legal claim to social welfare support.” So, the book’s perspective seems to be that from a social welfare perspective, one of the innumerable injustices of slavery was that it excluded slaves from the social welfare state. That, of course, is a far cry from slavery being considered one of the institutions of the welfare state.

Oh, and the picture at the beginning of the history chapter is of St. Jane reading to children.

1. Pimpare, Steven. (2008). A People’s History of Poverty in America. New Press: New York.

2. Segal, Elizabeth and Brzuzy, Stephanie. (1998). Social Welfare Policy, Programs, and Practice. F.E. Peacock: Itasca, IL.

Tax Policy and the Purpose of a House

2009-07-23T16:56:00.002-05:00

As much as possible, the tax code shouldn’t bias investment decisions. As it is, the tax code is too heavily weighted in favor of housing… Congress should level the investment playing field by treating capital gains on real estate, stocks, bonds and other assets the same… Doing so would also reduce the incentive for speculative investment in real estate and remove some disincentive to investing in the stock market. My guess is that investors would shift more of their money into Corporate America, especially innovative companies that create the wealth of the future (p. 214).

Upon the initial reading of my economics textbook, the above passage first convinced me that I might have something to say in response to the BusinessWeek perspective on the world. The article complained that the Taxpayer Relief Act of 1997, by eliminating capital gains taxes on real estate profits (under certain circumstances), promoted speculation within the housing market and lead to unsustainable gains in housing costs, which have now lead to a whole host of other economic troubles. This seems to me an extremely narrow vision of the world. First of all, this article ignores the large proportion of the American populace who don’t have any spare wealth to invest in real estate or any other form of investment. Then there’s the even larger proportion of the American populace whose home is their only investment. I would imagine, although I can’t say that I’ve ever spoken with him about this personally, that Bill Clinton was aiming the tax code much more at that middle class voting block than at the small percentage of folks making a fortune from real estate flipping. If that’s the case, then the merits of the Taxpayer Act can certainly be debated, but they must be debated by considering a much wider sphere of influence and possible consequences. People don’t just buy houses to resell them. They buy them to live in, because human beings need shelter. Obvious stuff, but it leads to a different set of questions when evaluating housing policy. Did the tax benefits increase the stock of homes? How about the affordability of those homes? Did it allow people to move up to a better house than they might otherwise have been able to afford, leaving their previous residence available for someone else? Did it create jobs for homebuilders? And, to be fair, how did it affect the likelihood of speculation and price inflation within the housing market?

Then, once we have resettled our perspective to realize that most homeowners who may have benefited from the tax policy were not speculators trying to merely cash in on a profitable investment, we have to ask how much influence was truly wielded by the few who were. Although I do find it plausible that certain investors may have made some clear calculations and decided to invest in real estate due to the particulars of this bit of tax policy, I find it quite implausible that these people could have had such a profound impact. Could those few speculators have really set off the forest fire that swept through the housing market? Or was it more like a thousand campfires of individual homeowners hoping to get in on the heat?

And that leads me to the issue of the susceptibility of any kind of investment market to bubbles and panics and all sorts of other changes in elevation that are much more fun on a roller coaster ride than they are in an economy. But I’ve already grumbled about just how fishy the whole stock market seems to me, so I suppose I’ll just let that rant go for today. I’ll just get back to reading tax code and plotting my next investment strategy.

Christopher Farrell. A Housing Boom Built on Folly. in Downey, Matthew. Contemporary’s Economics. Chicago: McGraw Hill Wright, 2007

GDP and the Measure of a Good Economy

2009-07-20T12:58:00.004-05:00

Chapter 12 is entitled “Measuring Economic Performance. (p.185)” It begins by describing Gross Domestic Product (GDP)—a measure of the total goods and services produced in a country in one year. What do we think of this measure?

Many people have lodged many criticisms at GDP. I don’t know the details to judge the merit of their arguments, but they often include something about what is or isn’t counted toward the total productivity of the nation. For instance, many tasks that have been traditionally performed by women such as childcare, food preparation, and community work haven’t been monetized (or at least not as readily) as tasks traditionally performed by men. So work performed in the home has no value, even while the same work performed for strangers could have value. Other arguments center on whether the goods or services produced really contribute to quality of life. For instance, the production of weapons and other items in our vast military budget count toward GDP. But what do they provide for the nation’s quality of life?

But if we step back even further, using GDP as the measure of an economy’s “performance” implies that what we really want an economy to do is produce stuff. Goods and services. Is that really the primary function of an economy? Certainly it is important. And I will admit that I have always had the privilege of living in a society (and a social class within that society) where the ill effects of too much stuff are more obvious than the ill effects of too little stuff. I have never had to stand in a bread line, or wait in a gas line, or really experience a shortage of anything at all. So I probably do take production for granted to some extent.

Even so, aren’t there other things we want an economy to do? If all of us worked in factories producing stuff that only a couple families got to use, would that be a “performing” economy? Does distribution matter? How about employment, for that matter, another way of getting at the same issue? Don’t we want our economy’s performance to be tied somehow to the percentage of our citizenry that is able to earn their living? Later in chapter 12, employment numbers are described as coincident economic indicators (p. 199). Indicators of what? What is this ephemeral “economy” that employment is “indicating?” Isn’t employment the outcome, rather than just a subordinate indicator to some primary economy?

Of course, economists rarely just use one value to describe an entire economy. That would be like trying to describe a climate with only the rainfall totals. But it is worth considering whether our go-to economic indicators truly reflect what we as economic agents really want from our economy. Do we want stuff? Perhaps even distribution of resources? Or would we prefer stratification? How about weighing stability versus mobility? Do we want quality of life and is that measured in dollars? Do we want everyone’s needs met, or do we want rough and tumble individualism? There are many different options for what constitutes a high-performing economy, based on many different economic value systems. So measuring the economic climate requires a full meteorological bag of tricks.

Downey, Matthew. Contemporary’s Economics. Chicago: McGraw Hill Wright, 2007.

Warren Buffet: The Greatest Capitalist??*

2009-07-14T12:30:00.001-05:00

Apparently, corporations constitute 19.9% of all American businesses, but account for 88.8% of all sales and 71.4% of all profits (p. 135).* Those are some pretty astounding numbers. Small businesses, considered such a lifeblood of the American way of life, bring in just over 10% of all sales, and less than 30% of all profits. A relatively small number of mega-corps bring in all the rest.

The book describes a crucial difference between the profit earning potential of corporations versus simpler forms of small businesses as the corporation’s seemingly unlimited capacity to raise capital (p. 131). A sole proprietorship is limited by the collateral of its owner as to what money financial institutions are likely to invest. Corporations, by contrast, get to sell ownership shares (ownership without any resulting liability, somehow) directly to whoever wants to purchase them. From there, the corporation gets to keep reinvesting the money virtually infinitely without paying any interest. Sure, there is the theoretical obligation to pay dividends to shareholders. But many companies eternally delay this step, convincing shareholders that the money is better re-invested in the company (or the CEO’s end-of-year bonus) than spent on dividends. And shareholders are usually untroubled with this explanation, because they have more potential to make money in the future by selling their shares of a highly valued corporation than they ever would have received in dividends anyway. (This of course presumes that the corporation continues to be highly valued by the market, and that there is somebody out there with enough capital to purchase the current owner’s shares.)

Does this seem to anyone else like a wink-wink, nudge-nudge house of cards system? If I invest in some shares of a company, all I have really purchased is the hope that down the line somebody else will want my little scrap of paper with hope written on it. That’s the only risk I’ve taken. My likelihood of making money seems to rely more on the winds of public sentiment than actual business performance, so perhaps it’s fitting that my action, my “ownership,” has very little impact on the performance of the corporation I “own,” anyway. And unless I’m purchasing initial public offerings, I’m not even contributing any actual money to the corporation.** So why is this considered the most capitalist of capitalist endeavors? Why is Warren Buffet, who as far as I know is not responsible for producing anything beyond books describing how to be like him, considered the Greatest Capitalist?

I know stock and bond markets are old, pre-dating Adam Smith, pre-dating capitalism itself. I’d like to know more about the history. If this house of cards truly is a flimsy but surviving relic of our aristocratic and mercantile past, why is it held up as the most modern and advanced element of post-industrial, globalized capitalism? Why do we continue to accept this system so susceptible to human frailties like panic, so exclusive in its beneficiaries, so myopically focused only on short term gain, and so obsessively good at creating massive, virtually stateless profit machines that are understood by no one and answerable to even fewer people?

* "It may seem a bit odd that Warren Buffett, one of the greatest capitalists the world has ever seen, resides firmly in the liberal camp when it comes to tax policy. (p. 181) Janjigian, Vahan. Even Buffett Isn't Perfect: What You Can--and Can't--Learn from the World's Greatest Investor. New York: Portfolio, 2008.

** Interestingly enough, the discrepancy between 88.8% of all sales and 71.4% of all profits would seem to indicate that corporations are dollar for dollar less profitable than sole proprietorships or partnerships.

*** Admittedly, my purchase might indirectly benefit the company by indicating demand for its shares and faith in its profit-making potential, which could then increase its capacity to attract capital. But that’s just another layer of wink-wink nudge-nudge.

Downey, Matthew. Contemporary’s Economics. Chicago: McGraw Hill Wright, 2007.

Price Floors Versus Equilibrium and Implications for Globalization

2009-07-05T12:00:00.001-05:00

“Is the minimum wage, then, a bad idea? Economists agree that it is not as efficient as a wage set by supply and demand, but some maintain that not all economic decisions should be based on efficiency. They favor a minimum wage because it raises the incomes of poor people. Others believe that a minimum wage actually increases the number of unemployed people because employers do not hire as many workers. Still other economists believe that a minimum wage has little meaning in the real world, because it is often lower than the lowest wage paid in many parts of the country. (p.92)”

Prices, for labor as well as everything else, tend to fall toward an equilibrium price based on interaction between supply and demand. If supply is too high, if there is a surplus of goods relative to demand, then prices will tend to fall in order to increase demand. Producers will eventually cut production so that the surpluses do not continue. On the other hand, if supply is too low, if there is a shortage of goods that people want, then prices will tend to increase, which will prompt existing producers to make more product, or will entice additional producers into the market. Production increases, and prices will return to equilibrium.

In the case of “selling” labor, the supply is controlled by the willingness of people to enter the labor market, and demand by the willingness of employers to employ them. So if you imagine a particular job, say toothbrush salesperson, (although the same mechanisms would apply to the “average wage” across the whole economy), you can imagine a supply schedule. At a certain salary, say $20,000 a year, there may be 10 people who would be willing to travel around the city visiting dentists and pitching toothbrushes. Now, if the toothbrush manufacturer were offering $80,000 a year for dental health crusaders, they would probably get a lot more applicants. Of course, at $80,000, the toothbrush people couldn’t afford nearly as large a toothbrush sales force as they could at $20,000 a person, so the demand schedule would show an inverse relationship. Larger the salary, the fewer people employed.

Now the textbook shows a pretty little picture like this one. You can easily see where the equilibrium price ought to be, where the two lines cross. Simple right? *

Now the fun starts if there is a price floor—a minimum price that must be observed regardless of market conditions. The minimum wage is an example of a price floor. The price floor boosts the price above the pretty little equilibrium, so then you end up with a graph that looks more like this:
The second graph shows the ugly green gap between the supply of labor and the demand of labor—representing all the people who would be willing to work but who can’t get jobs because the employers can’t afford to pay them at the higher than equilibrium wage floor. That ugly green gap is the compassionate conservative’s explanation for why the minimum wage is a bad thing. It creates unemployment. The conservatives pose a conundrum to minimum wage advocates: Which would you prefer? More people with lower paying jobs, or more people with no jobs at all?

The book quotes “other economists” as saying that the minimum wage is somewhat of a moot point. And it may be true that most American workers are already paid well above minimum wage, in which case the ugly green gap isn’t worth much consideration because it is either nonexistent or negligibly small. However, if this is true, it is not because the equilibrium price for labor for American companies has risen. Instead, I am quite confident that the equilibrium price of labor has fallen dramatically, for the simple reason that American companies are not just paying American workers anymore. Free trade policies and ever more efficient transportation have ushered in the era of globalization, which has meant that on our pretty little labor supply and demand graph, the supply line has shifted massively to the right, bringing the equilibrium price dramatically down. A global context is thus crucial to the consideration of labor dynamics. Businesses certainly look at labor decisions that way. Shouldn’t macroeconomics as well?

From a global perspective, we can begin to see the other side of the minimum wage argument. Many countries around the world have posed the minimum wage conundrum, and have decided (or had it decided for them) that they prefer more people with lower paying jobs. And is that the right choice? GDPs have certainly risen in some countries. And global sweatshop scandals have led to international pressure for at least basic worker’s protections. But some economists have argued that countries can get stuck in a poverty trap. Without spare income for investment, without imports to balance out exports (which leads to a devalued currency), and without adequate human or technological capital (which tends to get “brain drained” away to more advanced economies with more opportunity), workers in poor countries spend their meager incomes before they’ve earned them, and the economy never gets to a point of self sustaining growth. Sounds like a cycle of dependency on a macroeconomic scale that could be quite similar to that on a microeconomic scale of families at the bottom of the economic ladder in “developed” countries. Would a global minimum wage break the cycle? Or would it just cut developing countries out of any economic activity whatsoever?

Thus we see that the old minimum wage conundrum now can be recast as an interrogation of globalization itself. The minimum wage has always been a fascinating policy argument, either on practical or purely philosophical/ethical grounds. In either mode of argument, however, these days it is crucial to consider a global context.

* The supply and demand curve of labor is a model, so it is by definition a simplified version of reality. But even just considering the behavior of labor supply and demand themselves (leaving alone all the other factors that could influence supply and demand and price for labor), I imagine the graph would be a bit more simplistic. Labor supply is not a very elastic factor, because most people can’t simply decide not to work. So the quantity of available labor is likely to stay quite high, even at low wages, because people have to work for something. Similarly, as the price of labor goes up, the quantity demanded will decrease at an accelerating rate, as incentives to replace labor with technology or other means increase. So I imagine a supply and demand curve would look more like this:

Downey, Matthew. Contemporary’s Economics. Chicago: McGraw Hill Wright, 2007.

"Perverse" Production Incentives and Liberal Laissez-Faire??

2009-06-28T11:51:00.000-05:00

The book contains an article from Business Week claiming that most government incentives are perverse—propping up inefficiencies that the market in all its wisdom would have eliminated long ago, and therefore dragging down productivity and limiting prosperity for everyone. The author bemoans that a crop subsidy may keep “the family farm alive, but [it] reduces the incentive to raise the yield per acre, thus increasing the price of food for everyone. (p. 75)” Further, the government not only imposes such an insidious effect on food prices, but then it actively discourages the productivity gains that somehow manage to occur in other sectors, by taxing the consequent increases in profitability. If only government could realize that is has everything bass ackwards, reverse course and start rewarding productivity, then “overall, real wealth would expand, and our society would become more vibrant. (p. 75)”

My initial response is, “Duh!” Of course government actions don’t reward productivity; they aren’t intended to! Increasing productivity is not government’s job. Government’s job is to look out for those euphemistically defined “negative externalities” that the business realm produces, things like the demise of the family farm. Now, whether saving the family farm is a worthy object of public policy is a matter for debate beyond my realm of expertise, but the intention seems obvious enough. Those who have implemented the policy feel that the social value of preserving the farming way of life is worth the decline in productivity. Everyone knows that mega-corporate farms are more efficient. But efficiency is not the only thing that makes society “more vibrant.”

This issue of the role of government in either tempering or spurring business growth relates to a concept I’ve been thinking about as I’ve watched the current government’s frantic response to an economy in a serious recession. On a number of recent occasions (bailouts for auto manufacturers in particular) I’ve been surprised by the tacit belief in trickle-down economics implied by the Democrats’ arguments. For the sake of the employees and Main Street we have to bail out the employers and Wall Street. Really? I would have expected leftists to let the bigwigs take the fall, and provide an ample safety net for anyone else taken down with them. The sight of the head of a union, the CEO of a mega-corporation and the Democratic committee chair sitting in a room more-or-less agreeing to a particular course of action seemed rather bizarre to me. Was anyone else a little nonplussed?

Examining my incredulity, I realized that to a certain extent I’ve always thought of leftists as more laissez-faire than the conservatives, ironically enough. I thought leftists shared my position that increasing productivity is not the government’s job. That, instead, government’s role is to look out for those things to which the market does not tend well—poor people, the environment, schoolchildren, etc. By implication, then, if the government is not responsible for productivity and economic growth, it must be because business is able to take care of itself. Even to take care of itself well enough to absorb some productivity drains in the name of social welfare, environmental protection, or education. I always assumed that if there were corporate favors to be doled out, they would come from the other side of the aisle, although always carefully shielded by a rhetoric of government detachment.

Was I wrong? Now, I realize my characterization of Democrats shows a certain naiveté about the pervasiveness of corporate influence in governmental affairs. But what I observed during that hearing, when UAW, GM and Congress were happily rub-a-dub-dub in the same bailout tub, was beyond shady campaign-contribution influence buying. Democrats weren’t even pretending that they didn’t want to act in the service of a multi-billion dollar multi-national. Was it always this way? Or is this some neo-liberal reversal? Was there a time (I’m imagining about 1912—Progressive Era heyday) when progressives really were as laissez-faire as I’ve always thought, and eager to do what they could to drain the corporate/conservative rub-a-dub tub?

Greg Blonder. Policy That Rewards Productivity. in Downey, Matthew. Contemporary’s Economics. Chicago: McGraw Hill Wright, 2007.

The Law of Diminishing Marginal Returns and Affluence

2009-06-21T11:50:00.002-05:00

The Law of Diminishing Marginal Returns says that as people use more of a product or service, the satisfaction they get from each additional purchase declines. This is used to explain why demand for a product goes down as the price goes up. At a high price, I may be willing to buy a product once, but my return (satisfaction) from a repeat purchase will be too small to make me willing to pay that high price a second time. If I paid $30 for a steak dinner, I’m unlikely to order another even if I’m still hungry. However, at a lower price, the return from a repeat purchase will still be great enough to make a second or even a third purchase worth it. If I’ve only paid $4 for a Big Mac value meal, if I’m still hungry I might just go through the drive through again. So, across a whole economy, there will be many more Big Macs sold than steak dinners. Makes sense.

Clearly, this theory is meant to apply to repeat purchases of a single item, or at least purchases within a class of items that are roughly comparable. And, presumably, choices made in one sphere of consumption – say fast food consumption – would not be expected to grossly effect choices made in another sphere of consumption – say entertainment electronics. The number of Big Macs I ate today, and the diminishing marginal returns that I got for each additional Big Mac, should not have much of an effect on my willingness to pay for a big screen TV.

Or does it? If we consider categories of consumption that are different but not as different as fast food consumption versus entertainment electronics, there in fact may be a relationship. Let’s take clothing consumption and gift item consumption (by which I mean all those commemorative knick-knacks languishing in the dark corners of closets across America). Now, on immediate consideration, my demand for t-shirts would seem to be fairly independent from my demand for piña colada scented candles. But both t-shirts and piña colada scented candles are things that people buy in malls or other shopping venues where they go to shop for entertainment. And when people “go shopping” for entertainment, they usually aren’t searching for particular items, or even classes of items. What they are consuming is in large part the experience of consuming—an entertainment “service” of sorts which comes with “goods” as a bonus. What we have then is that consumption of consumer goods has a return (a level of satisfaction) above and beyond the value of the good itself—the entertainment return.

That entertainment return must be subject to the eternal law of diminishing returns, right? If I have already been shopping for most of the day and I have spent $200 on clothing, I am going to be much less likely to go into that gift store, spend a half an hour more on my feet, just to spend $15 more on that adorable little porcelain kitten for Grandma. Now the value of the good may not have changed. That porcelain kitten may be just as perfect for Grandma now as it was this morning when I entered the mall. And I may be just as willing to spend $15 on Grandma’s happiness now as I was this morning. What has diminished is the return I’m getting from the service of the shopping mall—the shopping entertainment experience. I’ve already spent $200 for the previous six hours of the shopping entertainment experience, and I don’t really want to spend $15 for an additional half an hour of porcelain knick-knack browsing bliss.

This example shows how the Law of Diminishing Marginal Returns could, in fact, apply not just to a particular item being purchased at one particular time, but could apply to overall household consumption across time. Theoretically, a household could reach a point where additional consumer goods could potentially bring satisfaction, but the diminishing marginal returns of the experience of acquiring them, storing them, cleaning them, insuring them, fixing them, building a bigger house to hold them…. starts to eat away at demand. Could it be that the spiritual ills of materialism and “affluenza” are built right into the fundamental laws of supply and demand? What does this mean, then, for an economy that is built on ever further and faster growth, which is built on ever more extensive and extravagant consumer spending?

Downey, Matthew. Contemporary’s Economics. Chicago: McGraw Hill Wright, 2007.

The Basic Economic Questions and the Meaning of Scarcity

2009-06-03T21:56:00.007-05:00

“An economic system consists of all of the ways a nation or society uses limited resources to satisfy its people’s unlimited wants and needs. Scarcity forces nations to make tough choices. As a result, every country has to answer three basic economic questions: What goods and services will be produced? How will those goods and services be produced? For whom will they be produced? (p. 17)”

I have heard faith leaders working to end poverty say repeatedly that they come from a religiously based, philosophical assumption of abundance. God provides abundantly for God’s people. Certainly abundantly enough to meet the basic needs of all people, even if not to provide for every want. “Now to [God], who by the power at work within us is able to accomplish abundantly far more than we can ask or imagine, to [God] be glory” (Ephesians 3:20-21).

I never realized just how radical this was until reading about the economically based, philosophical assumption of scarcity that pervades the very opening lines of an introductory economics text. Abundance, as espoused by the divinely inspired anti-poverty activists, is directly contrary to the philosophical foundation of economics! Now that’s sounding pretty radical!

Economics assumes scarcity. And scarcity teaches us that there is never enough to go around; we are always confronted with “tough choices.” Scarcity teaches the sanctity of private property. If there is never enough to go around, every person had better hold tightly to what they’ve got. Scarcity teaches judgment. Any person who is not judged to be contributing to our collective (and paradoxically individual at the same time) war against scarcity deserves nothing.

But if we assume abundance, that there is always more than enough to go around, then there is no need for punitive or blaming economic/social systems. There’s only need for sharing and love and other religion-y virtues. An assumption of abundance dramatically changes the answers to the “three basic economic questions.” What goods and services will be produced? At least enough to meet everyone’s basic needs. How will those goods and services be produced? Equitably and with dignity. For whom will they be produced? For all of God’s creation, of course.

Now, there are plenty of ways to rationalize the scarcity worldview. Scarcity can make us ambitious, industrious, creative. Individual interest in private gain creates Adam Smith’s mysterious and miraculous “invisible hand” which has molded a system of efficiency and prosperity, not to mention cooperation and interdependency beyond that seen in any utopian society supposedly guided by principles of “sharing and love.” Even God would know better than to spoil creation by providing too abundantly, right?

So scarcity makes us punitive, but it makes us productive. Abundance makes us sympathetic, but it makes us sluggish. In what, then, should we trust? In an invisible God or in an invisible hand? Are good things scarce, or are they abundant, and which would we actually prefer?

Perhaps the crux of our confusion is in yet another assumption. To return to the introductory declaration of our introductory economics text: “An economic system consists of all of the ways a nation or society uses limited resources to satisfy its people’s unlimited wants and needs.” Unlimited wants and needs. Any parent can tell you that wants and needs are two fantastically different things. To satisfy a child’s every want is a) impossible and b) not very good for the mental health of either child or parent. But to satisfy a child’s every need is a) hopefully possible and b) fundamental to being a parent. In social law, we recognize a distinction between want and need, and call it criminal when parents don’t provide the latter for their children. So why wouldn’t economics make the same distinction? “Unlimited” really only applies to wants. Needs are pretty darn stable, limited by biology and broad, slow to adapt social conditions. (Admittedly, no one needed electricity before the grid was invented, but we have much less need today for candle wax and fire wood!) So if needs are limited, then abundance is possible. Our insatiable wants, however, will always require ingenuity, ambition and effort.

The hard, cold fact is that abundance does exist to cover needs. There are enough square feet and enough calories to adequately house and feed everyone in this country.* Couldn’t we loosen our grip on the scarcity doctrine enough to recognize this abundance and make basic needs a human right? The methods, of course, can and should be fiercely debated—redistribution, social control on industry, some more creative options we haven’t thought of yet… But if God is working through us to accomplish abundantly far more than we can even ask or imagine, can’t we imagine this?

*There’s enough food to feed everyone in the world!

Downey, Matthew. Contemporary’s Economics. Chicago: McGraw Hill Wright, 2007.

Finally Econ 101

2009-06-03T21:31:00.003-05:00

So my latest project has been reading an introductory high school level economics textbook. I had so many friends in college tell me I needed to take economics, and four years later I'm finally taking their advice, on my own terms. I'm hoping that at this point, my study of the subject will be improved by a little more experience hearing from and working with the people who are left out of our current economic system. Better B.S. detectors as it were.

So, my posts here will be my reactions to what I'm reading. Some of my puzzlements may just be a result of a very shallow understanding of the subject. But hopefully some of them will also reflect a critical examination of a field with enormous importance in the world today.

My very own blog!

2009-05-31T17:39:00.001-05:00

Hello world! Welcome to one woperchild's random thoughts and reflections.

First issue to address, predictably, is what is a woperchild? Someone explained this term to me in college. A devoted feminist somewhere was trying to come up with a non-gendered noun to describe herself. Woman wasn't satisfactory on account of the "man" in it, suggesting that a woman was somehow a derivative of a man. (Very biblical, huh?) So she tried woperson. But that has "son" in it, also gendered male. So she went for woperchild. Perfectly non-gendered, and to me anyway, perfectly hilarious. The lengths some people will go.

So here I'm intending to post things I've written, reflections on things I'm reading, maybe an occasional recipe or picture. My husband and I are both pretty terrible at remembering to take pictures, so those might be rare. But, since I have been out of school for four years, I no longer have any Doctors of Philosophy being paid to read what I write, so I'm going to have to hope for the benevolence of friends and strangers to give my words an audience. Hopefully you're in the mood to waste some time.