Imagine a world where 10% of the population can produce everything needed by everyone on the planet.
Now imagine that you are sent to rule this planet as a benevolent dictator.
Scenario (1):
When you arrive you find that 90% have the people have the enslaved the other 10%, forcing the minority to work, while the majority take it easy and live off what the minority produces.
You immediately call a meeting of all the people. "This isn't fair! Nine out of ten people are living off the backs of the few that are doing all the work!"
The non-workers respond: "The workers get exactly the same share that the non-workers get, share and share alike. And there's not enough work to keep everyone busy; SOMEBODY has to do the work. And this is the system we've worked out."
You're the (benevolent) dictator. What do you do?
Scenario (2):
When you arrive you find that although 10% of the people are producing enough to support everyone on the planet at a comfortable level, what they produce isn't supporting everyone at a comfortable level. The workers live luxuriously in walled cities, with every comfort and convenience they can imagine. Outside the walls 70% of the planet's population lives in unemployed poverty. The remaining 20% are employed in the cities at low wages, serving the productive 10%.
You immediately call a meeting of the leaders of the productive 10%. You say, "This doesn't seem right! Have you seen conditions outside your walls?"
The productive 10% reply: "There's nothing wrong with our system. We're the ones doing all the work! We have a right to consume what we produce. Most of the people outside the walls don't do anything. Why should we support them? The fact that the 70% can survive at all is mostly due to the fact that we employ the 20% in our restaurants and shops. If it weren't for us, the 90% would starve! It's unfair for you to suggest that what we produce should be taken from us and given to people who aren't producing anything.
You're the (benevolent) dictator. What do you do?
Scenario (3):
When you arrive you find that 10% of the people are producing enough to support everyone on the planet at a comfortable level, and those 10% are living at a comfortable level, but the other 90% are split into two distinct groups: 87% live in dire poverty, but the remaining 3% live in great luxury.
You call a meeting of the rich 3%: "What's going on here? Why are you so wealthy when 87% of the population is impoverished?"
The rich 3% explain: "The only reason that 10% of the population can produce so much is that our parents and grandparents were clever and inventive and industrious. They developed techniques and machines and organizations that increase productivity immensely. There's nothing special about the 10% who are now working, and we can prove it! We can fire any of them at any time, and replace them with someone from the impoverished 87% without any trouble at all! It's our machines that do the work. Our grandparents and parents sacrificed a lot to develop these machines for the benefit of us, their children. We deserve the things our families' machines produce. The 10% are lucky to be working at all. And the 87% aren't doing anything; they don't deserve anything. If any of them want something, they should be like our grandparents and create a machine that is as productive as our machines. They're free to do that anytime they wish. But bear in mind: if they want to play in the big leagues, they better come prepared to play! Productivity is the name of the game, and we're the most productive people in history! That's why 10% of the people can produce so much, and that's why we deserve every dollar we earn from our factories. It's not our job to help competitors."
You're the (benevolent) dictator. What do you do?
Friday, October 7, 2011
Wednesday, October 5, 2011
Economic growth and more jobs aren't always good for the nation
There's an incorrect assumption that economic growth and more jobs are always good for the nation. Here's a simple counter-example:
The majority of people in the U.S. are overweight or obese. Clearly many people eat too much, and too much of the wrong things. But think of the impact of this overeating on economic growth and job creation: Overconsumption of food means we have to create more food; creation of more food means more jobs. Obesity has negative health effects: more injuries, more heart problems, more diabetes, and more complications when treating illnesses and injuries. This requires more people in the healthcare industry: more jobs! So over-eating results in economic growth and job-creation while at the same time reducing the overall health of the nation.
If we had a choice between between
One explanation for choice (a) is that we shouldn't be a 'nanny state': if people are foolish enough to make bad decisions, we don't have any business telling them they're wrong. (We literally 'have business' resulting from their foolish choices!) The free market says that everyone should be free to make their own choices. The problem is that in our example, encouraging people to make bad decisions is good for the economy. Is that what we want to do?
The real issue concerns distribution of resources. All the people employed to overfeed and care for the overfed 'qualify' to be part of the economy. The overfed pay their wages, if they can. If the overfed can't pay their wages, then the rest of us end up doing so. It would be more efficient for the overfed to eat less, and simply pay the overfeeders, healthcare professionals, and caretakers for doing nothing. But if the overfeeders, healthcare professionals, and caretakers weren't doing anything, how would we distinguish them other people who aren't employed? In effect, we're paying people (including some highly trained healthcare professionals) to do 'busy work', at the cost of our nation's overall health. This is foolish.
I'm not saying that alternatives are obvious, or than any alternative system must be superior to what we have now. What I am saying is that alternatives should be imagined and considered.
The assumption that economic growth and more jobs are always good for the nation is incorrect. Our focus needs to be on doing what is good for our nation (and the world). This is not the same thing as promoting economic growth and job creation, despite what economic leaders want you to believe (and probably believe themselves).
- (a) employing people to produce extra food, and to take care of people suffering from overconsumption of food, and
- (b) having a healthier population, and eliminating all the work involved in overfeeding and caring for the overfed,
The real issue concerns distribution of resources. All the people employed to overfeed and care for the overfed 'qualify' to be part of the economy. The overfed pay their wages, if they can. If the overfed can't pay their wages, then the rest of us end up doing so. It would be more efficient for the overfed to eat less, and simply pay the overfeeders, healthcare professionals, and caretakers for doing nothing. But if the overfeeders, healthcare professionals, and caretakers weren't doing anything, how would we distinguish them other people who aren't employed? In effect, we're paying people (including some highly trained healthcare professionals) to do 'busy work', at the cost of our nation's overall health. This is foolish.
The assumption that economic growth and more jobs are always good for the nation is incorrect. Our focus needs to be on doing what is good for our nation (and the world). This is not the same thing as promoting economic growth and job creation, despite what economic leaders want you to believe (and probably believe themselves).
Thursday, September 29, 2011
The economy isn't everything
A lot of attention is paid to growth of the economy. When the economy grows, people celebrate. Economic growth means more jobs and increased prosperity. So many people, especially policy-makers, pay a great deal of attention to economic growth. They use it as a measure of the economic health of the nation. And perhaps it is. But perhaps the economic health of the nation is not necessarily the same as the well-being of the nation.
Sometimes we assume that "the economy" includes everything important that people do in our country. That's a bad assumption. It's possible for things to occur outside the economy, and they do. We need to remember that. The assumption that the economy is everything can get us into trouble, and can make us overlook possible ways to get out of trouble.
A simple example of activity outside the economy is the making my bed in the morning. Nobody pays me to do it. When I make my own bed I have absolutely no impact on the national economy.
So what? Why does it matter that making my bed is outside the economy? Here's the answer: One way the economy grows is by pulling activities that are outside the economy into the economy. So economic growth doesn't necessarily improve our well-being!
Here's an absurd example: Suppose I make a deal with my neighbor, Joe, that I'll pay him five dollars a day to make my bed, and he'll pay me five dollars a day to make his bed. And assume that 100 million American households make the same deal with their neighbors. Overnight, the U.S. economy would grow by $500 million per day. Instant economic growth! 100 million new part-time jobs would be created! But we wouldn't be any better off. The same number of beds would be being made. No one would have any extra money. All we would have done would have been to pull activities that had been outside the economy into the economy. This would help the economy, but it wouldn't help us.
In recent generations many activities that used to be outside the economy have been drawn into it. Two-income families used to be the exception; now they're the norm. Much of the work done by 'stay-at-home moms' was outside the economy; now households pay others to cook for them (restaurants and convenience foods) and to take care of their kids. This is neither bad nor good. And that's the point. We assume that economic growth is vitally important. But it doesn't have to be. The possibility exists for the economy to shrink without negatively affecting our national well-being. An activity doesn't necessarily disappear because it leaves the economy. We need to remember this, especially in light of sustained high unemployment rates. We shouldn't assume that people don't and can't do anything unless they have a job.
Sometimes we assume that "the economy" includes everything important that people do in our country. That's a bad assumption. It's possible for things to occur outside the economy, and they do. We need to remember that. The assumption that the economy is everything can get us into trouble, and can make us overlook possible ways to get out of trouble.
A simple example of activity outside the economy is the making my bed in the morning. Nobody pays me to do it. When I make my own bed I have absolutely no impact on the national economy.
So what? Why does it matter that making my bed is outside the economy? Here's the answer: One way the economy grows is by pulling activities that are outside the economy into the economy. So economic growth doesn't necessarily improve our well-being!
Here's an absurd example: Suppose I make a deal with my neighbor, Joe, that I'll pay him five dollars a day to make my bed, and he'll pay me five dollars a day to make his bed. And assume that 100 million American households make the same deal with their neighbors. Overnight, the U.S. economy would grow by $500 million per day. Instant economic growth! 100 million new part-time jobs would be created! But we wouldn't be any better off. The same number of beds would be being made. No one would have any extra money. All we would have done would have been to pull activities that had been outside the economy into the economy. This would help the economy, but it wouldn't help us.
In recent generations many activities that used to be outside the economy have been drawn into it. Two-income families used to be the exception; now they're the norm. Much of the work done by 'stay-at-home moms' was outside the economy; now households pay others to cook for them (restaurants and convenience foods) and to take care of their kids. This is neither bad nor good. And that's the point. We assume that economic growth is vitally important. But it doesn't have to be. The possibility exists for the economy to shrink without negatively affecting our national well-being. An activity doesn't necessarily disappear because it leaves the economy. We need to remember this, especially in light of sustained high unemployment rates. We shouldn't assume that people don't and can't do anything unless they have a job.
Monday, September 12, 2011
Comparing Federal Budget to a Household
The following letter to the editor appeared the San Antonio newspaper recently. I think the letter-writer had a good point, but overlooked something, too. Here's the letter, followed by my response:
Harold Estep's letter (The'Smith Family', 9/3/11) that puts the federal budget in terms of a family budget is helpful and apt. A family spending $38,200 a year while earning $21,700 DOES need to cut spending dramatically. But it would be stupid for the parents to say "it's unfair to ask us to work any harder: after all, we're bringing in $21,700, and the children aren't bringing home a thing! We can save a lot of money by dumping the kids and Grandma and moving to a tiny apartment."
We shouldn't expect the parents to suddenly start earning an extra $16,500 a year. But we also shouldn't assume that all $16,500 of their expenses are unnecessary. There's a middle ground somewhere: less spending AND more income. At the federal level, we need a committment to balancing the budget, not a committment to 'no new taxes.' Mr. Estep is right: we DO need major cuts in spending. But that's not the entire solution."
"I want to provide some interesting information regarding the federal budget.
At the end of June, the government's income was $2.17 trillion. The budget was $3.82 trillion. New debt was $1.65 trillion. National debt was $14.27 trillion and recent budget cuts ($38.5 billion) totaled about 1 percent of the budget.Here's my (unpublished) comment on Mr. Estep's letter:
Now, let's take the above figures, cut off nine zeros and apply the results to a fictitious clan called the “Smith family.”
Total annual income of the Smith family is $21,700.
The amount of money the Smith family spent is $38,200.
The amount of new debt added to the Smiths' credit card is $16,500.
The outstanding balance on their credit card is now $142,710 and the amount they cut from the family budget was $385.
Do you know any family that would cut $385 from its budget in order to solve $16,500 in deficit spending? America's economic situation becomes more frightening with each passing day.
Harold Estep"
Harold Estep's letter (The'Smith Family', 9/3/11) that puts the federal budget in terms of a family budget is helpful and apt. A family spending $38,200 a year while earning $21,700 DOES need to cut spending dramatically. But it would be stupid for the parents to say "it's unfair to ask us to work any harder: after all, we're bringing in $21,700, and the children aren't bringing home a thing! We can save a lot of money by dumping the kids and Grandma and moving to a tiny apartment."
We shouldn't expect the parents to suddenly start earning an extra $16,500 a year. But we also shouldn't assume that all $16,500 of their expenses are unnecessary. There's a middle ground somewhere: less spending AND more income. At the federal level, we need a committment to balancing the budget, not a committment to 'no new taxes.' Mr. Estep is right: we DO need major cuts in spending. But that's not the entire solution."
Wednesday, August 10, 2011
We must make do with less
We've been living beyond our means, both as a nation and as individuals. But our public discourse ignores this fact as we search for solutions that allow us to continue to live beyond our means. Living beyond our means is a major cause of our problems; it can't be part of the solution.
We need to scale back. We need to accept the fact that we can't solve our problems without changing the way we live. Resources we've been consuming need to be redirected toward creating jobs for one another and paying off previously incurred debts, both public and private. This redirection of resources will appear as higher prices and/or higher taxes. We'll have less left over, and therefore less "stuff".
The good news is that we don't need nearly as much stuff as we've been consuming. Current levels of consumption aren't necessary for happiness; if they were, our great grandparents would have killed themselves before they had time to reproduce. We can be happy with less. But no one is willing to speak the truth.
The fear is that reducing consumption will make jobs disappear, and this will make the economic situation worse. But this doesn't have to be true. Reduced consumption doesn't have to mean reduced spending. Part of the solution (at least for the U.S.) is for people to be willing to pay higher prices for goods created by American jobs, even when cheaper products are available from foreign sources. In effect, this is voluntary inflation, which is better than the involuntary inflation we will experience if we don't take action to resolve our current problems.
We need to scale back. We need to accept the fact that we can't solve our problems without changing the way we live. Resources we've been consuming need to be redirected toward creating jobs for one another and paying off previously incurred debts, both public and private. This redirection of resources will appear as higher prices and/or higher taxes. We'll have less left over, and therefore less "stuff".
The good news is that we don't need nearly as much stuff as we've been consuming. Current levels of consumption aren't necessary for happiness; if they were, our great grandparents would have killed themselves before they had time to reproduce. We can be happy with less. But no one is willing to speak the truth.
The fear is that reducing consumption will make jobs disappear, and this will make the economic situation worse. But this doesn't have to be true. Reduced consumption doesn't have to mean reduced spending. Part of the solution (at least for the U.S.) is for people to be willing to pay higher prices for goods created by American jobs, even when cheaper products are available from foreign sources. In effect, this is voluntary inflation, which is better than the involuntary inflation we will experience if we don't take action to resolve our current problems.
Saturday, July 30, 2011
Debt crisis: neither "side" reflects my views
The whole debt-limit crisis debate in Washington off target. Clearly the debt-limit needs to be raised. Going to a balanced budget cold-turkey without defaulting on our debts would require massive and immediate termination of tens of thousands of government jobs and/or reduction of payments to retirees and others currently receiving benefits. Direct and indirect job losses would reduce tax receipts. Reduced revenues would require further immediate reductions in government spending, and the economy would spiral downward at exactly the same time that the safety net disappeared.
A significant portion of our economy is based on government spending. I'm not saying this is a good thing. But it is a fact. Government spending directly supports large numbers of jobs. Government benefit payments indirectly support an even larger number of jobs, because the money retirees receive gets spent, one way or another, and some of this spending supports jobs.
Republicans leaders know this. They're not saying they won't raise the debt ceiling; they are only using the debt ceiling as leverage in their fight against government spending. Even the balanced-budget amendment they propose would not go into effect until the fifth fiscal year after it is ratified.
There is no question that the Democrats also want to raise the debt ceiling.
So neither major party is saying the debt-ceiling shouldn't be raised. But the country is facing a very real crisis because the debt-ceiling hasn't been raised. The two parties are playing a game of chicken; each wants the other to back down in order to avoid a tragedy that would be far worse than either's plan. And the public is being asked to choose sides. After all, the obvious way to avoid catastrophe is for one side or the other to win. And if neither side can win, the next best thing for the nation, supposedly, is a compromise.
The press is racheting up the pressure on government leaders with stories warning the public about how the debt-ceiling impass could negatively affect citizens through higher interest rates and delayed or reduced benefits payments.
But the real story is how all this affects our nation's credit rating. If our credit rating goes down we'll have a harder time borrowing money to fund our deficit and a harder time refinancing the $14 Trillion debt we've already incurred. This 'harder time' will be reflected in higher interest rates for the government, which will increase the deficit even more. And that's exactly what we don't need.
The Republicans are correct that we can't afford to keep spending at the same rate as we've been spending. The Democrats are correct that we need to increase the debt-ceiling enough to get past the current crisis and not have the threat of the crisis returning in just a few months. We've got to do something about the deficit, but risking the negative effects of not paying our bills is shooting ourselves in the foot.
But the Republican idea that low taxes are part of the solution to our deficit problem is ridiculous. And yet the Democrats seem to have ceded this issue. President Obama caved to this unreasonable position back in January when he agreed to extend the Bush tax cuts to everyone. And neither the Democrats or the Republicans include any tax increases in their plans.
Neither side has a reasonable position. And the public is being encouraged to think selfishly about themselves, rather than our nation, when they consider the issue.
I can't support any of these positions. We need to raise the debt ceiling now. We need to cut spending as soon as possible. And we need to raise taxes so we can start down the road back to a budget surplus so we can get our debt down to a reasonable level.
A significant portion of our economy is based on government spending. I'm not saying this is a good thing. But it is a fact. Government spending directly supports large numbers of jobs. Government benefit payments indirectly support an even larger number of jobs, because the money retirees receive gets spent, one way or another, and some of this spending supports jobs.
Republicans leaders know this. They're not saying they won't raise the debt ceiling; they are only using the debt ceiling as leverage in their fight against government spending. Even the balanced-budget amendment they propose would not go into effect until the fifth fiscal year after it is ratified.
There is no question that the Democrats also want to raise the debt ceiling.
So neither major party is saying the debt-ceiling shouldn't be raised. But the country is facing a very real crisis because the debt-ceiling hasn't been raised. The two parties are playing a game of chicken; each wants the other to back down in order to avoid a tragedy that would be far worse than either's plan. And the public is being asked to choose sides. After all, the obvious way to avoid catastrophe is for one side or the other to win. And if neither side can win, the next best thing for the nation, supposedly, is a compromise.
The press is racheting up the pressure on government leaders with stories warning the public about how the debt-ceiling impass could negatively affect citizens through higher interest rates and delayed or reduced benefits payments.
But the real story is how all this affects our nation's credit rating. If our credit rating goes down we'll have a harder time borrowing money to fund our deficit and a harder time refinancing the $14 Trillion debt we've already incurred. This 'harder time' will be reflected in higher interest rates for the government, which will increase the deficit even more. And that's exactly what we don't need.
The Republicans are correct that we can't afford to keep spending at the same rate as we've been spending. The Democrats are correct that we need to increase the debt-ceiling enough to get past the current crisis and not have the threat of the crisis returning in just a few months. We've got to do something about the deficit, but risking the negative effects of not paying our bills is shooting ourselves in the foot.
But the Republican idea that low taxes are part of the solution to our deficit problem is ridiculous. And yet the Democrats seem to have ceded this issue. President Obama caved to this unreasonable position back in January when he agreed to extend the Bush tax cuts to everyone. And neither the Democrats or the Republicans include any tax increases in their plans.
Neither side has a reasonable position. And the public is being encouraged to think selfishly about themselves, rather than our nation, when they consider the issue.
I can't support any of these positions. We need to raise the debt ceiling now. We need to cut spending as soon as possible. And we need to raise taxes so we can start down the road back to a budget surplus so we can get our debt down to a reasonable level.
Friday, July 29, 2011
Nation in distress
My wife and I are flying the U.S. flag in our yard upside down. As you may know, flying the flag upside down is a distress signal. We feel our country is in deep trouble, and the deadlock in Washington has brought everything to a crisis stage. The interest rate we pay on our $14 Trillion debt is based on our government's high credit rating. If that credit rating drops (due to failure to pay its bills, defaulting on some of its debt, and/or failing to deal with the huge deficit) the interest on the debt will shoot up and cause the deficit to increase even more. But we've got gridlock in Washington that puts our credit rating in jeopardy.
The nation's motto is E Pluribus Unum (Out of Many, One) But we don't see many prominent people working for unity now.
Megan and I love our country, and we're worried about her. Thus the 'distress' signal in yard. We hope others will join us in this symbolic gesture showing frustration with our elected representatives (in both the Legislative and Executive branches of goverment) inability to work together to resolve this looming fiscal crisis.
The nation's motto is E Pluribus Unum (Out of Many, One) But we don't see many prominent people working for unity now.
Megan and I love our country, and we're worried about her. Thus the 'distress' signal in yard. We hope others will join us in this symbolic gesture showing frustration with our elected representatives (in both the Legislative and Executive branches of goverment) inability to work together to resolve this looming fiscal crisis.
Subscribe to:
Posts (Atom)
