Bivens via Libdem: “Sixty percent of the current shortfall (in Social Security) would be eliminated by a reversal of two adverse economic trends that have emerged since 1983: sluggish growth in average (real) wages and erosion of the tax base due to rapid growth in the inequality of earnings.”
From JTO
Glenn of Brisbane is correct (and Libdem) with his admonition that we have become trapped in a set of ideas that make up classical economics, propagated by academic theoreticians and used by the 1%, through their influence over the political system, to gain more and more control over the economy and the labor force.
There are two documentaries worth watching. One is “Inside Job” narrated by Matt Damon about the recent financial crisis. It goes through most of what you know, but then delves into the role of academic economists who popularize these ideas at the nations prominent business schools, and do consulting work for the financial industry, where their students go to work, then move in and out
of the government At high levels to influence policy, then back to industry and academia.
Another is “the Forewarning” about the collapse of the $1.25 trillion hedge fund Long Term Capital Management in 1998. LTCM had as advisers two economists from Stanford and Harvard who had shared a Nobel prize for their work in options pricing; I.e., derivatives. LTCM had a risk model based on this theoretical work that it claimed would defeat risk in its investment portfolio. Well, like the engineer of the Titanic, they just didn’t figure on the collapse of the Russian economy after the Yeltsin revolt and when it went down, Greenspan as Fed Chair called Clinton and rushed a huge bailout through Congress to stabilize the financial system – banks, insurance companies, investment banks- they were all going down and the credit markets virtually froze as this problem got worked out. This documentary ends with a short interview with one of the economists in his home in San Francisco, where he displays his Nobel prize on his bookshelf.
Then there is one I watched yesterday called “Shock Doctrine” based on a book by Naomi Klein. While this is a little left wing edgy for my taste, it does trace the theories of classical economist Milton Friedman, based on the work of Austrian economist Friedrich Hayek, through major political events of the past 30 years, including the Chilean and Argentine military coups in the early 1970′s, the Thatcher and Reagan elections 1979-80;, the Rumsfeld initiative to privatize military functions after 9/11. The thesis is that capitalists will seize on political crises (“shock”) to impose stronger free market reforms for the purposes of consolidating wealth among the investor class. While this is, again, a little left of my own taste, I look at Romney running for president and that is exactly what I see him doing, so I cannot say she is wrong.
Growing inequality is a problem, but the fact remains that the creation of wealth in society is done much more rapidly and efficiently under capitalism. We are all wealthier even with the extreme wealth at the top-the poor today are “wealthier” than the poor of several decades ago (food, air conditioning, cell phones, plumbing, etc).
Do I really need to point to examples of countries to illustrate that the government trying to run the economy does not end well?
You are right Doubtful. It is certainly true that market-based economies generate wealth more rapidly than centrally planned economies, and that this wealth benefits all members of the society. Milton Friedman popularized this assessment in the 1970′s with a PBS series “Free to Choose”, which compared the growth patterns in developing countries with centrally planned versus market oriented economies. 30 years later, the results are in as Argentina, Chile, Brazil, Malaysia, Indonesia, China, India, all have growth rates that the western industrialized countries envy.
But just think about where these countries are coming from. China is a huge country with 40% of the world’s population so a virtually infinite supply of cheap labor which they have used to capture a manufacturing base. And while they have introduced some very successful market-oriented reforms, this is still a strongly centrLly planned economy with little political freedom. India adopted a soviet style development model which did not work well and starting 20 years ago grDually adopted market oriented reforms which, along with a plentiful cheap labor supply, have generated wealth. Malysia and Indonesia have struggled through post colonial political, ethnic and religious tensions but have accomplished much of the same result. And Chile, Argentina and Brazil, after experimenting with more socialist approaches, have benefited from market oriented reforms. But the caveat in many of the cases is the harsh military dictatorships that these countries endured while getting there, in addition to their evolution in the direction of market oriented reforms from a centrally planned starting point.
So I would say we don’t have to choose between “Socialism” and “Capitalism”. We can choose a system that maintains the entrepreneurial and wealth creation benefits of a market based economy, but with a regulatory system around it that protects the environment, worker safety, health care, pensions/savings, unemployment insurance, etc. And that is where I believe the Republicans, with their “Market Fundamentalism” belief system, have simply gone off the deep end.
Unfortunately the regulatory system gets staffed by the same people who currently work for the DMV, its just more complicated. Think about that next time you register a car.
Greed, unfortunately, drives much of human behavior. Regulation is required. That regulation must be funded so that there are a sufficient number of “inspectors” to effectively keep the greed under control.
So what are you saying – we should not have banking or insurance regulation? Environmental, clean water or clean air laws? Mine safety regulations? Safety regulations for oil tankers or off shore rigs? Child labor laws? Border Patrol? Fire safety/building codes?
I would say, as an example, that the bank regulatory system worked quite well and provided confidence throughout the system until it was dismantled in stages beginning in the late 1970,s and it has been one disaster after another since – all at taxpayers expense. Just think about the taxpayer cost of the S&L debacle – the most expensive single program in U.S. History after WWII and the total historic cost of the Social Security system. And the recent crisis makes that look like pocket change. I would say it’s worth regulating the system to avoid these costs.
I agree with JTO, however would it not be worth considering some of the western European and Scandinavian countries as models for economic success and happiness? I add “happiness” because quality of life is, or at least should be, an important indicator quality of life. And isn’t quality of life what we should be striving for? I always find it interesting that some of the more regulated democracies are consistently rated as being “happier”. Having visited many of those places, it comes as no surprise. Certainly they have broader safety nets, better healthcare and education, and earlier retirement. The pace of life is also slower, family life more important, and overall, there appears to be much less stress. More joie de vivre!
In America, our form of capitalism-crony capitalism- breeds a culture of extreme stress and economic fragility. The worker/consumer is easily exploited, marginal success comes at great personal sacrifice, stress induced illness/depression/obesity is rampant, the majority of people (~70%) “hate” their jobs, and wealth is often very labile-easy come, easy go.
So yes, market based economies generate more wealth, but that wealth is centered in the hands of a very few, while the trickle down is just that, a trickle. Ayn Rand fans like to make the claim that capitalism has raised the standard of living more than any other economic system in the history of civilization. They believe that by loosening or eliminating all regulation the free market will somehow create a wonderful utopia for all. Of course, while Ms. Rand forgot to mention greed (and in her declining years readily accepted social security and medicare), it must be remembered that loose regulations are what has led to many of the problems with capitalism- depressions, recessions, environmental pollution, child labor, worker exploitation, etc. It has only been through regulations, often gained by revolt and worker unionization (certainly not benevolent employers), that workers (who created the wealth, afterall) have gained some measure of happiness (living wages, vacation time, sick time, 5 day work weak, labor laws, healthcare, social security).
So looking at the big picture, perhaps we could all throw up our arms and make the claim that capitalism is the best we can do, but I don’t believe it. Wage slavery and exploitation of our human and natural resources in order to preserve “growth” is just plain wrong. I believe that this system, often propagated by perpetual war, has caused great harm to humans and great harm to our earth in ways more profound than simply the obvious. Look around. Look at the mess we have made of this beautiful earth and the sick culture that has stemmed from it. Tell me that this is a right way to live.
You are right LibDem, capitalism doe not account for many social benefits and cost outside the narrow paradigm of economic growth. You will be interested to read the report of the Commission on Measurement of Economic Performance and Social Progress, or the Stiglitz Commission.
Joseph Stiglitz is a professor of economics at Columbia University, former head of Clinton’s CEA, former head of policy development at the World Bank, where he was unceremoniously fired for publicly objecting to IMF-imposed austerity measures in developing countries. His objection was to the “Shock Therapy” that had been imposed as a regimen for reform of third world economies , effectively reducing already poor countries to destitution based on free market economic theories better suited for advanced western industrialized countries. This experience led him to write “Globalization and Its Discontents” recommending recognition of the need to develop institutions first and then protective policies for nurturing of industries in developing countries.
The CMEPSP/Stiglitz Commission was organized by President Sarkozy of France to expand the definition of quality of life beyond measurement of GDP and income growth, and account for other social performance measures such
as environmental standards, healthcare, education, political liberty, etc. If the goal can be thought of differently, then policymakers can make adjustments to proposed policies to account for these non-economic factors. We will see.
JTO-
Thank you. I found the pdf of the Stiglitz Commission and read chapter 2- Conceptual Approaches to Measuring Quality of Life.
It is encouraging that quality of life issues were formally addressed. Certainly these issues are often viewed as tangential to more measurable economic factors such as gdp, however I personally believe that they should carry as much weight. Sadly, they are rarely a part of the news cycle-political media narrative. Perhaps for a good reason. What alluded me in raising this issue is the subjective nature of happiness and the subsequent limitations this poses in working it into policy creation. For some a six pack of beer and a red sox game on TV is sufficient. Regardless, I think the report addressed some of the factors which are important to me- education, health, political voice, economic security-employment, environmental conditions.
Per the report:
“These measures, while not replacing conventional economic
indicators, provide an opportunity to enrich policy discussions and to inform people’s view of the conditions of the communities in which they live; today, they have the potential to move from research to standard statistical practice.”
This statement speaks to my original point. The recommendations provided by the commission offers some degree of optimism only in the sense that they were discussed. Whether of not they will ever move into a broader public policy discussion remains, of course, uncertain.
You summed it up nicely: “We will see.”
(Not going to hold my breath waiting).
LibDem – I would definitely advise against your holding your breath; as you can see the overwhelming majority of WFD’s responses are medical emergencies not fires leading to certain cost/effectiveness questions regarding their equipment purchases that they should at least attempt to answer, and we do not want to add to their burden by having you collapse from oxygen deprivation caused by hope-infused public policy desires, in which case, as with Newcomers recent ROTFLMAO, or whatever it was, I would be blamed for its incitement by referring you to the CMEPSP.
But I digress.
I do remember a spate of articles about measures of happiness in various countries with, as I remember, northern European countries scoring high. …(see JTO’s new article. Admin).
Happiness, I think, presupposes that you have the wherewithal to meet your needs. After that, what gives you pleasure is partly determined by your experiences. For some, a six pack of beer and a good game to watch on tv is fine. For others, it’s a weekend trip to Las Vegas.
I can’t speak to a weekend in Vegas because I have never had an interest in going there. But I would challenge anyone to spend an afternoon at Fenway, have a beer and a hot dog, and not be happy!