Garth's Politics Blog

The Pathetic Nature of Terrorism

2011-07-25T20:19:00.000-07:00

If, as the word implies, the goal of terrorists is to inspire terror, especially terror of such a proportion that it actually causes us to change our behavior, then they have failed, and failed dismally.

A person can only be said to be committing terrorism if they are able to embody this ideal, that is to participate in some sort of campaign against civilians that is of such a magnitude that it actually does cause them to live in terror and to change their way of life as a result. If this is the case, then we should not be so eager to use the word "terrorist" because it implies the existence of such a campaign. In reality, these campaigns are sad, weak, and ineffective. Their participants are all similarly deluded, whether they are blowing themselves up, opening fire on civilians, or doing some other sort of stupid activity. Thus, we should not be calling these participants "terrorists" but rather "wanna be terrorists".

The reality of effective terrorism is that it must arise through a power vacuum that rarely exists in the developed world. Terrorism is really a story of radical groups operating in failed states, oppressive dictators, and of course western corporate sponsorship of violent groups that oppose the peaceful organization of labor. Therefore, our response to and use of the term "Terrorism" shows the lack of understanding that the Average westerner has of conditions outside of the West.

Following the 9/11/2001 "terrorist" attack in New York, President Bush and other western political leaders exploited this lack of knowledge to create the modern ideological "war on terror". This is nothing but a meaningless show, a quixotic pursuit of only the small and insignificant outgrowths of (manifestly ineffective) anti-western violence amid the sea of power struggle in underdeveloped regions where terrorism of all types actually occurs. The objective of preventing terror in these regions is, in fact, a noble goal, but it will only prevent violence against the West if it is true that a properly organized and empowered government in such a region would be a western ally - something that is not likely considering the history of western involvement in such regions. In this context, the western policy goal of promoting democracy in these regions is not itself misguided, but the stated political goal of preventing attacks against the West is certainly a lie.

Of course, the means by which democracy is allegedly being promoted in these regions is not a means of bringing about democracy at all. Here, a mix of sinister motive and pure ignorance reigns. The motive is sinister in the sense that wherever popular sentiment is anti-western, a true democratic process cannot be allowed to occur, because then anti-western leaders will be elected. The motive is ignorant in the sense that the western leaders are generally ignorant of the actual economic, legal, and social conditions that must be cultivated in order to bring about a prosperous society. President Bush was the exemplar of both the sinister motive and pure ignorance.

Rhetorically, the language that terrorism is wrong is a pointless endeavor because terrorism arises from a political conflict. The very nature of political conflicts is for individuals to hide factual disagreements behind ideological positions. These ideological positions involve accusations of injustice. Thus, arbitrary ideological disagreements prevent, in general, the comparison of ethical positions in a way that allows disputes to be resolved.

The only meaningful way to fight terrorism with rhetoric is to characterize it as pathetic and ineffective. This will dissuade individuals from participating because they will feel it is an inefficient use of resources, and seek alternative means of bringing about their policy goals. Conversely, the more wildly overstated the magnitude of a terrorist incident is, the more media attention it receives, and the more disproportionate the western response, the greater the likelihood that some other idiot will take up arms against the West.

A little sketch of the beginnings of proper philosophic thought

2011-07-01T13:43:00.000-07:00

From a distance, the playground sounds reach the ear as an ecstatic whispering. As the person approaches, these sounds flow apart to become the shouts of children, myriad shuffles of motion, wind blowing across grass, and the low, deep hum of adult conversation.

Distributed in their respective zones, the denizens have segregated themselves by activity. About the very perimeter there can be found dogs. One is squatting down to shit while its owner waits with a scowl, no doubt uncomfortable with being observed. Another runs in J shaped intercept patterns, zealously retrieving the ball that is thrown by its patient master. In a sunny but secluded space, just inside this perimeter, one finds alluringly toned men and women sunbathing. They are young, old, nearly naked, fully clothed, happy to be seen, unhappy to be seen, indifferent. Moving now toward the heart of the space, here are the games and the children. Some play on the equipment. Others buzz in endless squiggles as they pursue the soccer ball. Little groups of children quietly or boisterously discuss their plans in the shade of the great fur trees. One solitary boy sits against a concrete wall, whining to his mother who listens with concern that may or may not be genuine. Here one finds that encircling these groups of children and sprinkled throughout are adults: parents and caregivers of various types, older siblings and babysitters.

Categories puff into being as the mind searches for eloquent words. The truth is there but it can never be anywhere but where it is, it can never have a form other than itself. Those particulars which become the exemplars on which we base categories can never be identical to ideas in the mind, words on the lip, or the abstract workings of a step-wise mechanical process.

The observer speaks from memory, but those who listen must then speak from their imaginations. Deep in the consciousness there are these little things - impressions of the world - that are a more primordial form of imagination which springs up in the moment of observation. But for the reader there are no impressions of the particular moment at the particular place that I have observed. And so even if by some luck every detail he contemplates is filled in exactly as it was, the reader will only have recreated those things which he has contemplated. But contemplation itself is limited in ways that experience is not, and it extends in dimensions that have never yet been experienced.

Philosophy can now be considered. If description, prediction, and all the other measurable ways of analyzing the narratives of people are to be refined, all such refinement must be based on the comparison of the narratives of observers with those of listeners. Because this is a question of the quality of the imagination itself, Philosophy is an effort to improve imagination. But this means that we must define improvement, and so we must have some sentimental agreement as to what ways of imagining are superior. Thus it will never be possible to proceed from first principles in the way that the philosophers of old have done. It should be obvious, in any event, that philosophy cannot exist outside of the particular cultural tradition from which the consciousnesses of its practitioners are constructed. To note: consciousness can only be constructed from things which are not consciousness, or it cannot be constructed at all.

An entitlement model of unemployment

2011-05-09T00:56:00.000-07:00

When some of the pool of desiring laborers stands idle this can only be due to inadequacy of available employment opportunities for those laborers. This is, in turn, due to a persistent decline in total jobs required for production to meet the current level of consumption, which is identical to the total consumption motivation generated by the wages paid in those jobs.

The model cannot approximate consumption as a function only of total earnings, because savings equate with spending only so far as capital accumulation occurs; further savings have no stimulative value. Capital accumulation stops at a certain threshold determined by existing available technology and the cost of labor inputs, ie wages. Further savings has no real effect on the economy.

Another possible factor in the relationship between wages and consumption is total imports and exports. Imported goods replace goods that would be produced domestically and slightly reduce price levels. Exported goods are additional produced goods that are not then consumed locally, and so represent a slight increase in the price level. The issue of currency exchange appears here, and since the value of accumulated currency depends on goods available in that currency, exports also tend to decrease the cost of imports, while imports decrease the value of exports.

Taking these elements together, we have:

Consumption = Wages * (1 - wage saving rate - wage deduction rate) + Profits * (1 - profit saving rate - profit deduction rate) + min(Capital replacement + New capital accumulation, Wages * wage saving rate + Profits * profit saving rate)

Total economic payments are as follows:

Payments = wages + profits = Consumption + Domestic Government Spending - Imports + Exports

Assume that all employed people receive wages. For this purpose, and elsewhere in the model, count self-employment profits from small enterprises as wages. Then people employed can be calculated as follows:

Employment = wages / average wage

We can now start plugging the model around and we get:

wages = Consumption + Domestic Government Spending - Imports + Exports - profits <=>

wages = Wages * (1 - wage saving rate - wage deduction rate) + Profits * (1 - profit saving rate - profit deduction rate) + min(Capital replacement + New capital accumulation, Wages * wage saving rate + Profits * profit saving rate) + Domestic Government Spending - Imports + Exports - profits

Which has two cases based on the minimum condition:

A. Excess savings exist:

Wages = [Capital replacement + New capital accumulation + Domestic Government Spending - Imports + Exports - Profits * (Profit saving rate + Profit deduction rate)] / (wage saving rate + wage deduction rate)

B. Savings shortage:

Wages = [Domestic Government Spending - Imports + Exports - Profits * Profit deduction rate] / wage deduction rate

Since Employment * Average wage = wages, we can stop here and use as our data the statistics that comprise the relationship with wages, then transform them into the final employment estimates. This can then be modeled econometrically.

We will analyze the range 2001-2009 in the United States, and assume that all years fall into category A. First, a two variable model that compares just the most significant 2 variables, Government Spending and Private saved or deducted profits, which I call "profit holdings".

This is a decent result. The R-squared value is 0.946, but the degrees of freedom is only 6. Government Spending is very strongly positively correlated with wages, and profit holdings are strongly discorrelated: as corporate profits increase, ceteris paribus, one can expect wages to decrease.

One can note the oscillation of the estimator above and below the trend lines for employment and wages. That is because employment and wages actually endogenously affect each other in a mutually moderating fashion: worker layoffs compete with wage cuts and worker hirings compete with wage increases in the marketplace. The estimators do not incorporate this trade off and so tend to over-estimate economic changes. That is, however, a good thing. It shows that even as growth occurs, an underlying dynamic can develop that is destructive. Autocorrelation is not controlled for here.

An estimate was also run with imports and exports included, to examine the claim that trade policies have had a detrimental effect on employment levels. This model is unable to establish a significant effect from either of those factors. It can be argued, though, that a larger range of dates is necessary, and different variable transformations utilized in order to allow perception of the worker replacement dynamic that is hypothesized. This regression did not make those transformations and is based on only 9 data points. Since the alternative, 4 variable model leaves only 4 degrees of freedom while increasing the R-squared value to 0.97, the 2 variable model is preferable from the perspective of statistical robustness.

An ethical assessment of occupational hazard level agreements in hero class operations

2011-03-19T14:00:00.000-07:00

First, what is a hero class? Well, there are specific job functions that allow a person to be viewed as heroic by virtue of their daily activities within that job function. Typically, these are privileged classes in the sense that workers within them are viewed as being better, in some way, than the typical member of the society. In western societies these classes are the Firefighters, Police, Paramedics, Doctors, and Military Personnel.

Why these classes are viewed as being particularly heroic is largely a narrative question. We have narratives throughout our social experience that enforce the heroism of these types of worker. These narratives contain the logic that these individuals are engaged in professions where they contribute to the good of the society in some way. However, this logic applies to a far greater class of worker than just these classes, so there must be additional, less manifest criteria. In any event, these categories of worker comprise a class that will from here be called the hero class.

A note on the analysis that appears below: The terminology used may appear to be imprecise. It is not explicitly connected to any particular ethical theory. It is my view that the terms used can be internalized to a given ethical system such that they make sense within that system. This will work for a large number of ethical systems. Whereas my language often suggests a consequentialist framework, it may be recast as deontological analysis by agreed upon replacement mechanisms that replace object values with rule arrangements.

How much greater is the value of the life of a hero than that of other classes of person? Certainly, the value of a hero is treated as being much greater than that of a criminal. For instance, if a law enforcement official suspects any degree of danger to his person, he can usually justify the summary execution of a criminal. This is the basis of the ethical justification for killing of criminals extrajudicially.

Foreign nationals are valued depending on their occupation and nationality. Generally speaking, Foreign military personnel and police officers are not given heroic distinction at all. Additionally, peasants, blue collar workers, the unemployed, day laborers, and non-professional white collar workers (basic civilians) are viewed as less valuable than professionals, businessmen, capitalists, and academics (prestige civilians). Peoples from countries outside of the United States, Europe, or the British Commonwealth (western) are also generally viewed as less valuable.

Thus, in order to preserve the life of a single hero, as many as one hundred civilians can be killed or allowed to die, provided that they are basic civilians from non-western countries. In this scheme, a prestige civilian is probably worth about 10 basic civilians, and a western civilian is probably worth about 10 non-western civilians. An empirical study could elucidate this ratio.

How did this arrangement come about? There are three aspects to it: first, the power of unions bargaining for occupational safety standards for these classes of peoples leads to restrictions on activities in times of crisis. Secondly, political leaders often perceive that allowing deaths of many heroes will be politically unprofitable, so they will make decisions that prioritize the lives of heroes. Third, the casualties among less valuable classes of people are heavily discounted in various ways.

On the first point, unions are successful in their attempts to secure benefits for the worker classes they represent largely as a result of the political dynamic in place. Hero classes generally receive a favorable political dynamic, so the interests of their unions become more successfully advanced than that of other workers represented under collective bargaining. Safety is typically a highly valued concern for these classes. Thus, the result is the establishment of procedures that reduce hazard levels. While not a deliberate trade off between the lives of non-heroes and heroes, it is this in effect because efficacy, and therefore net life-savings, becomes a secondary criterion to safety at least some of the time.

On the second point, Political leaders recognize the importance of preserving the lives of heroes, in part because some of the blame for hero deaths ultimately falls upon them. When heroes die, it carries extra poignancy to a society that idolizes them. Additionally, politicians seek to appease their unions, lobbyists, and advocates. Specifically, in the industrial supply for these industries, it is more profitable to utilize advanced technology, often on the basis of preserving hero life, and politicians will follow the money in this regard. Additionally, popular sentiment is more likely to follow stories of individuals or small numbers of people than large, statistical quantities. Popular sentiment also views the lives of typical people as being nearly worthless - this is the basis of our attitude toward strangers.

Regarding the third point, while the death of many people might carry a larger absolute number, people do not register these deaths in the same way because of various discounting mechanisms. First, media is often not present in the decision making of heroes. Thus, information on what actually happens is frequently unavailable. Secondly, people have a tendency to deny that heroes' decision making or operational pattern of action can actually be anything but ideal. Thus, the view that heroes (not necessarily at the individual level but through their institutions) can make a calculation that puts their lives above those of who they are saving is a source of cognitive dissonance for the average person, who will therefore avoid conscious consideration of the problem.

Turning now to the question of what hero institutions should strive to achieve, consider that as an alternative to this actual, unequal value arrangement, there was an ideal in which all human life is treated as being of equal value.

Under such an arrangement, one must consider relative effects on human action. Thus, the policy of police to less often shoot criminals might encourage them to become more confrontational on average, or less likely to flee from police. However, much sociological work suggests that this is of limited effect. Similarly, military interventions would probably not suffer from significantly increased resistance if military actions were made less brutal. In this regard, it is important to count accurately, since some of the changed effect comes from differences in immediate conditions, which should not be included, as the question is whether the net quantity of such decisions increases, not how they individually pay out.

Within a given operation, there are logistical constraints. The death of a hero prevents their presence at a later time in the operation. In this regard, two types of operation can be distinguished.

In an emergency operation, attrition is important because replacement cannot occur within a sufficiently brief scope, so that each death hinders efforts through to the remainder of the operation. Thus, in this case, the initial assessment of operation length and frequency of life-saving trade-off should help determine the degree of risk that the hero should initially undertake. As the operation approaches its conclusion, the hero should gradually be exposed to greater risk, until such point that the expected value is maximized with no risk avoidance premium at the termination of the operation.

In an operation that is planned in advance, arrangements can be made to replace any hero that is killed. Thus, the expected value should be maximized throughout, with no risk avoidance premium at all.

Expected value is maximized in terms of net human life. Thus, for the hero that has no risk avoidance premium, operational possibilities should be ranked based on expected lives saved - expected lives lost. A hero must be indifferent between his own death and that of another person. The risk premium is simply an additional value that is placed on the life of the hero, thus the calculation when there is a risk premium takes the form of expected lives saved - expected lives lost - risk premium * risk of hero death.

In conclusion, let an operation that has a net gain of human lives be considered good. Let an operation that has a net loss of human lives be considered evil. When the perspective is set such that the status quo is the current operational framework, operations are then defined as changes to policies and corresponding changes to lives saved or lost.

It is clear that policies that allow police to shoot people with near impunity, or allow militaries to bomb civilians in pursuit of political goals are evil. The resistance, even by unions (such as police unions) to policies aimed at increasing accountability of heroes, are policies that enforce the unequal valuation of lives between heroes and non-heroes. The honoring of military personnel who have committed atrocities in foreign states similarly enforces this inequality. Even the use of the term "hero" to describe activities that in any other light would be horrific is testament to the relativity and self-serving nature of our popular thinking regarding good and evil.

Good Business, Bad Business

2011-02-22T22:15:00.000-08:00

Denote the concept of a rule as a general term for everything from guidelines to laws, encompassing all of our sentiments regarding morality.

In a system where the rules are set by an outside (divine) authority, the rules themselves define the totality of goodness or badness. This can be proven by contradiction; suppose that someone did something bad (or good). If there was no rule to determine that it was bad, how could it be bad?

In a system where the rules are set by a human process that is internal to the society in which the rules exist, the rule set cannot be entirely stipulated or communicated throughout the society; regardless of whether it is agreed upon, individuals are only given a part of it and forced to infer the remainder. If we take this inference to be the basis of individual differences in ethics, we are, in a sense, arguing against the individual proclivity to have ethical originality. Nevertheless, this seems to manifestly be the case. Those who have more dissident ethical views are typically those who for some reason formed strong completions based on small subsets and then came to conclude that the remainder of society's opinion of the rules were invalid due to the resultant discrepancies. Typically this happens early in life.

The above description posits that rules begin at the level of the whole society and are disseminated to individuals through acculturation. Then it cannot be that the rules are merely the confluence or agreements, mediated by political processes, of individual ethical positions; rather they are the expression, by the politically dominant, of a mixture between their own vision of the complete rule set and modifications, including intentional omission of those rules which are in some way disadvantageous to them. For example, money talks in politics.

The concerned intellectual responds by pointing out these flaws and omissions, ideally by demonstrating clear and simple contradictions or recalcitrant data. The politically dominant, often having hired unscrupulous intellectuals of their own, seek to undermine, in whatever way is most effective, the potency of the concerned intellectual's message.

There is also an important function served by rules, namely that of the just social order. Under a rule set that is ideal, the basic physiological, social and emotional needs of the people are best fulfilled. Many arguments support this idea but it would be onerous to argue for it here; a detailed argument is given by Rawls in A Theory of Justice. There may be no single ideal, but within a single ideal the utility of stability typically makes movement to a different ideal undesirable.

Define a business as a collection of individuals that is marked by internal political relations that lead it to have coherent profit-seeking behavior and a hierarchical command structure. Typically the business has political interests insofar as proposed and existing rules have a significant effect on either the business itself or some political faction within the business. Since it has a hierarchical command structure, only certain factions within the business are able to express their political views through the business. Thus, the business organizes the labor of many political factions toward the ends of its leadership.

This political participation has its ethical expression in ubiquitous and blatant manipulations of the rules. Having not experienced more than a tiny portion of the unfairness within a given rule set firsthand, the typical member of the society will object to only a tiny portion of the behavior of businesses and a tiny portion of the rules. However, the many tacitly accepted modifications of the rules will, over time, create a divergence from the just social order. The individual whose interests are not coincident with those of business will not necessarily realize that the rules have become increasingly unfair to him. Instead he may perceive an arbitrary aspect of the rule set as vulgar or oppressive due to the interaction of his many rule completions, some of which involve the acceptance of manipulations or omissions.

Within a typical society, the lions' share of profit and corresponding sinister political manipulation come not from each business in an equal share, but from a small portion of businesses. These businesses are not necessarily the largest (so long as profit is not used as the yardstick). What makes these businesses different is the modus operandi of subversion through rule manipulation. Not always is the conduct of such businesses illegal, but typically there are many illegal activities taking place within these businesses, hidden behind a veil of secrecy and plausible deniability. Typically these businesses are monopolies or parts of cartels; or they control majority market shares within consumer and/or supply chain markets. In part, it is the freedom from the persistent pressure of competition that allows the accumulation of profits in sufficient quantity to corrupt the political process. However, perfect competition is an unbearable state for the typical business, and so it is no wonder that it is so rare.

Because of the power of business that result from their profits, and the myriad incentives to manipulate rules to jeopardize society in general, the political goals of businesses should be viewed with extreme skepticism. Within the political structure, the vast majority must be united against the small factions who control businesses. Great care must be taken, in particular, to ensure the fairness of competition between businesses, because it is often arguments related to this unfairness that become the basis for profound regulatory blunders.

If, on the other hand, the political effort to maintain skepticism toward the political goals of businesses fails, the political environment rapidly deteriorates. Instead of having a system in which the rules are more or less fair and a small amount of effort is needed to maintain that fairness, the system becomes one in which the rules are more or less unfair and those seeking to restore fairness must resort to extreme philosophic extrapolation in order to even visualize what a fair rule set might be. In such a situation, social reformers become pitted against each other because the proper ideal is unclear.

In order to resolve this conflict among social reformers, a robust traditional character must be cultivated within societies. This character must combine expressions that appeal to each relevant political faction. Within the traditional character, artistic and philosophic expressions, particularly hero stories read to children, must be developed that serve as a common language of ethical discussion. Small ethical fragments, enforced by celebrated art, become the basis for effective political discourse by the masses.

Businesses will seek to disrupt this character. However, it is not difficult at all to engender a persistent cultural belief that businesses are not cool.

I think that this musing has some relevance to present day America.

Defending Gay Marriage by valuing Equality

2010-10-11T05:12:00.001-07:00

Here's a video on marriage equality

As I see it, a person can come up with rather silly "discrimination" arguments. But just because they follow the same form doesn't mean they have any merit:

Pretend the following holds:

1. "Banning men from womens' restrooms does not discriminate against men because they still have the same right to use mens' restrooms as anyone else".

IF AND ONLY IF

2. "Banning Mexicans from breathing air does not discriminate against Mexicans because they can still breathe water"

Clearly these two arguments have no relation to each other. Do we really have to choose between genocide and unisex restrooms?

But what about Gays who want to marry each other and have hot gay sex?

I post this because the concept of discrimination is problematic because we need to do two things:
1. Pick a well defined protected class
2. Have some standard of minimum harm

Instead of being generally frustrated, I'll give this one a shot using equality instead, something "easier" than discrimination. Its hard to precisely formulate what you mean when you say equality, and there will always be technical objections raised to arguments, even when these objections clearly come from a very cynical position within the debate.

Lets start with a simple definition of inequality (state of being unequal): Denying a thing to one person while it is provided to another. We can then define equality: if a situation is not one of inequality, it is a situation of equality. "Rights" are just a type of "thing" that can be equal or unequal. Now, you need to be talking about something that can be measured or else you can't apply this criterion at all. So I can't say that I'm equal to you unless we are comparing something, for instance the length of our toenails or right to trial by a jury of our peers.

You might start by arguing that two unmarried people have the right to consensually wed, regardless of genital type. Technically though, that isn't an argument for equality of the individual but equality of the pair. For me, this is a fine and dandy way of looking at it but I think it is somewhat unorthodox and in conflict with the fundamentally individual way we tend to look at rights.

So, what if we try to frame it as the rights of individuals? Here's how I see it:

Some Jerks say "Gays and straights have an equal right to marry because everyone has the right to marry a person of the opposite genitalia". However, this is like saying that F(A) = F(B) because F()=F(). If the function was not dependent on its inputs, that is to say you could determine F(X) without knowing if X=A or X=B, then yes it would be an equal standard, but of course it isn't.

Here's what the law says:
Men can marry women but not other men.
Women can marry men but not other women.
If I say "Who can person X marry" you can't answer yet, because you have to ask:
"Is person X a man or a woman?"

So at the very least, men and women do not have the same right to marry.
At this point we can't say that the situation is equal or unequal because I haven't also assumed that these two situations are of equal value. There is a nagging question though: Is the right to marry a man equal to the right to marry a woman?

Here's another argument that should shed some light on that point:
Suppose a racist southern town in the 1950s devised a means of discriminating against its black population. They pass an ordinance that reads:
White citizens may only use the public transit system that operates in the western half of the city.
Black citizens may only use the public transit system that operates in the eastern half of the city.

Even supposing that these two systems were perfectly equal, that the public transit usage rate was the same for whites and blacks, etc., discrimination still occurs. Whites who live, work, or play on the eastern half of the city would suffer an equal harm to the blacks who live, work, or play on the western half of the city. The discrimination still exists, regardless of whether it exists in an equal pair with some other discrimination! This situation could be a huge inconvenience for both blacks and whites, and it is clearly wrong.

Returning to the issue of Gay Marriage: Just as in the above example, some men are harmed by not being allowed to marry other men; and some women are harmed by not being allowed to marry other women. Gays aren't the *only* group harmed here, for instance two male friends might wish to get married just to get better financial aid status. But gays are definitely the most harmed group.

How can this be put into words as an explicit "helper" principle for equality? Doing so is always dangerous. I like this one (flawed though it is):

"Inequality under a given criterion between any two groups is unjust and can only be tolerated for the purpose of promoting equality under a higher criterion, and only when this is the best proven method"

Of course, a situation doesn't have to be unequal to be wrong. Imagine if there was an 11th commandment: "Thou shalt not use insulin". How would diabetics feel? They are being treated equally, right?

It is no secret that America continues to treat gays as second class citizens for reasons that have nothing to do with logic.

Unpleasant questions, Migration, Wealth, Secession, and the Common Good

2010-06-22T11:34:00.000-07:00

Think out loud last week was about immigration rules in America, particularly the controversy surrounding Arizona's immigration law. As I lay in bed listening, I got to thinking about the underlying policy of immigration and emigration, the limits of liberal education, and how the many smaller issues that came to light throughout the discussion linked back to the philosophy that our Nation's laws are ostensibly based on. Although everyone agreed that reform was needed, there were essentially two visions of what the reform should be. One group put forward rather persuasive arguments that the large influx of new immigrants was undermining the bargaining power of workers in America and by the numbers this influx can account for all of the unemployment in America today. The other group essentially argued that we are all immigrants and that it is wrong to separate out the immigrants of yesterday from the immigrants of today. These arguments aren't mutually exclusive, and neither side really argued against what the other group said. It seemed that the commentators on each side approached a dark space within the rhetoric, a collection of unutterable assumptions underlying the worldview of the opposition, and chose to remain safely in the light rather than venture into new, dangerous territory.

Without dwelling on the implications of this behavior on the theory of progress through dialectic, this debate highlighted a clear deficiency in the liberal educational experience. Although the typical collegiate is bombarded with a few ideas from a smattering of philosophers and given many tools for justifying whatever opinion he or she might personally fancy, there is little effort made to confront the ideas of the student in a way that highlights systematic inadequacy and encourages the synthesis of new ideas and structured application of theory. Instead, the individual finds himself with many different ideas at his disposal that are mere instruments of justification, rendering the ideas of philosophy nothing more than tools to be used ad hoc to justify whatever decision the student fancies. In this way, the liberal experience functions as a preparation for corporate office culture because it deliberately deconstructs many of the individual's natural tools of moral decision making rather than integrating the philosophy into those notions. Thus, the individual is torn between a philosophy for which he or she has a poor understanding and his or her natural sense of fairness that has been stunted and alienated. Such an individual comes to experience the world from a state of permanent immaturity. When acting with authority, he or she tends to be unnecessarily cruel; when responding to authority, he or she tends to experience a much higher level of stress.

To illustrate, consider a thought experiment that one of my teachers used in a writing class that I took. In this experiment, a ship is sinking, and there is not enough space on the life boats to accept everyone. The question is then to determine who among the remaining passengers shall be saved. There are young people, old people, child prodigies, retards, lepers, etc. We each made our list and recorded our reasoning. The teacher then had a few of us present our views on the matter. After listening patiently to our presentations hinging on random dice rolls, who is first in line, and of course measures of the value of individuals based on characteristics, our teacher told us that the only ethical thing to do was to refuse to participate in the thought experiment entirely. I disagreed, and continue to disagree, and this is the core of my objection to the liberal educational program. My teacher had conflated two very similar but different things: the political impression of an action, and the moral impact of an action.

Anyone who we believe to be a good person has certain traits. Such a person respects diversity, cares for the less fortunate, shows kindness and compassion, etc. Our perception of the person as such comes from a relatively small data set. We typically only know of a few actions a person has taken that are good or bad. Additionally, we tend to see things in a self-centered way, so that our friends become good people because they have done thing that are good from our perspective, such as helping us to get a job over other people, hanging out with us rather than other people, and sharing with us rather than other people. I call this phenomenon - our impression of a person based on a relatively small data set, biased by our ideas of allegiance - our political impression. Therefore, when a person does something that strikes us as not being good, it doesn't necessarily mean that it is a bad action or that he or she is a bad person, even if we individually come to believe that it is so. He or she has left a bad political impression, but more investigation must be done to determine if the action is truly bad or if the person is truly bad.

Because it is highly likely that people actually can't be good or bad, and in the interest of brevity, I'll focus from here out on just actions. The political impression of an action is one thing, and it is an aspect of our individual perceptions. The actual moral impact of an action must be an object that does not depend on individual perceptions - we are striving to perceive an actual object that is ultimately constructable from a log of physical events (by "actual object" I don't mean something having physical substance, I just mean a collection of traits, eg. a doorway, a karate kick, to give $10, a collision, the color red).

So we can immediately approach the question in two ways - either we can have a paradigm of actions that are good and actions that are bad, match the action up to that paradigm and immediately label it, or we can have a valuation of world states in which the action occurs and in which some alternative occurs, and label the action as good iff the world state that results is the more valuable one. We want our approach to eventually solve the problem, and a little bit of thinking tends to reveal situations in which both approaches must be blended in order to arrive at the truth. But we can't pretend to have solved a problem by refusing to address it, nor can we act as if it is unsolvable simply because we haven't solved it.

Western philosophy is horribly tainted by Christian sentimentalism. When a group of firemen race toward a burning building only to find several people outside dying of smoke inhalation, knowing that several others remain inside, they may be faced with a choice: save those who have already escaped or try to rescue more from inside. The political impression of either choice cannot be bad, but the moral question is not necessarily neutral. It certainly isn't neutral for the author of the firefighter's training manual. Here, even when weighing lives equally, points of equivalence must arise. If nobody asks whether the life of an elderly man should be saved before the life of a child, whether a convicted felon should be saved before a Nobel Laureate, whether a healthy person should be left to die while a sick person is saved, nobody will know if the right thing was done. The christian answer seems to be to pray, that is to say to leave the decision to fate. But fate is not just.

This is all stated merely to argue that even though unpleasant questions may arise during philosophic discussions this is not an indication that the discussion has gone down the wrong track. Rather, this tends to mean that that these questions must be asked - a person who purports to have a solution must answer them. A person who doesn't offer solutions is not necessarily unwelcome in the discussion, but those who offer solutions deserve the highest honors, even if those proposals end up being flawed. The discussion must always be about finding solution, not just meandering talk.

Democratic decision making functions best when it is the most localized. That doesn't mean that the best decisions are made at the local level - but that when the democratic process does work correctly, it puts the decision in the hands of those who are affected by the problem. Of course, the process requires some level of dedication to the common good to be of use at all, and a real debate must occur. We tend to see this very little nowadays. This is probably symptomatic of the fact that modern states are so large that individual opinion really end up mattering very little, even for people like the President. It is only natural that people stop caring about the common good when their opinion seems irrelevant in the first place.

Nevertheless, as a democratic country, the United States gives each citizen a vote and collectively the citizens are sovereign from the laws of other countries. Even though our control is imperceptible at the individual level, collectively we control the destiny of our country. We determine the economic regulations that in turn create specific incentives that lead to specific business configurations. Collectively, the people's preferences, knowledge, and beliefs, in combination with the system of economic regulations, history, and institutions of business represent the object known as the economy. This economy, being the result of repeated democratic decisions reaching back into the past, is ultimately sovereign from other economies. This sovereignty is necessary if we are to exercise democratic control over the economy.

Other economies, existing within other sovereign states, are similarly free to determine their own compositions. As a result of different events in their history, some economies experience significantly lower standards of living than our economy does. So it might seem that accepting people from these other economies to come live within the United States is a good policy. But allowing this free exchange of peoples actually deals significant harm to the ability of the people to regulate the economy.

Immigration to this country has always imposed the greatest weight upon the poorest. The first immigrants to this country drove the indigenous peoples off of their ancestral lands, "spoiling the world" for them. So naturally I take the statement that "you should be for immigration because you are an immigrant" with a grain of salt. Regardless of my specific heritage, looking at the problem objectively it is clear that immigrants tend to inflict real harm to those whose economies they migrate to. While a new immigrant to our country might not have the right to take land away from us as we did from the Indians, they instead compete for jobs, and to a lesser degree, social services. There was a time (about 40 years ago now) when a young, middle class person like me could work in a factory producing the goods we consume, work in a field tending the crops we eat, or work in a kitchen washing dishes or the like. But nowadays it is not simply that we don't want to do this work, but that the wage for such jobs has been artificially depressed as a direct result of an influx of unskilled laborers as a result of a broken immigration policy and porous borders. For the wealthy and the educated elite, in fact for any member of our society who has a secure, white collar job, or even some secure blue collar jobs, these immigrants pose no danger - they are not in line to receive public welfare service or applying for jobs that take unskilled labor. In fact, these classes of our society benefit from unregulated immigration because there is a marginal lowering of prices that results from reduced labor costs.

The core of the problem is that resources are limited, meaning that only a certain maximum quantity of goods and services can be provided within our society at any particular time. Furthermore, the level of exploitation of resources is far below the theoretical maximum because environmentally harmful infrastructure must be built upon any natural resource that is to be exploited, or the resource itself is environmentally valuable. Thus, there is an environmental cost associated with any particular standard of living. Ultimately, too, these resources will one day be depleted. Our country has prudently decided to pursue meaningful environmental policies. These are predicated on controlled growth and a limited material standard of living. Inviting millions of additional people to this country means that either A) they will starve or B) they will receive some resources, either through additional environmental destruction or through competition - meaning reduced welfare for those already here.

The problem cannot be solved simply through increased welfare and raises to minimum wage. As more services make available to the poorest, and the more friendly we are toward immigration, the greater the incentive becomes to immigrate to this country. There are more than enough poor people in this world to overwhelm the limited resources that are available to the United States to feed, house, educate, and employ them, at least in our current economic configuration of market capitalism with debt-issue balanced budgets.

All of this drives me to ask whether the right of emigration - the right to leave one's country - truly is a fundamental human right. It is enumerated within the UN's Universal Declaration of Human Rights, so according to one authority it is fundamental. But as I have written before, it is problematic without a right to immigrate anywhere. I prefer the stance that the right to become a refugee and the right to amnesty are fundamental - but that there is no right to leave without first being seriously oppressed or under threat. Poverty alone cannot suffice. Certainly, being wealthy, gifted, or ambitious is also not a valid reason.

Wealth is only ownable by an individual because the laws of the state to which that individual is a citizen confer the privilege of ownership to the objects of property that are considered to have a wealth value. It certainly follows that an individual cannot take wealth from one country to another except by the consent of both governments. Whenever such a transfer is considered, the governments must ask whether the common good is served by allowing this exchange. The movement of currency from one state to another alters the market conditions in both states. As immigrants arrive in the United States, they bring currency with them that is exchanged for dollars, reducing the quantity of dollars held by the country from which they came and in turn encouraging imports from that country to the U.S. Prices are also bid up in the U.S. and down in that country. This price disparity exacerbates the inequality between nations. So it seems that a prudent policy is to heavily tax the movement of wealth between nations.

Finally, emigration can be seen as a special case of secession. If secession is disallowed, so ought be emigration. When a group of people secede from a nation, they declare themselves and certain of their property holdings to no longer fall under the jurisdiction of their former State. Secession generally disallowed by states because it poses significant problems to the process of law. Emigration is merely the movement outside of the geographic boundaries in which the state operates. That is, it accomplishes the aims of secession but only for the individual. However, individuals can still emigrate en masse, in which case emigration ceases to be the harmless, low level phenomenon that it was. Furthermore, the state's interest in controlling a person's behavior do not cease simply due to a person being in a specifc geographic place. This is particularly true if the person in question is, say, an unscrupulous industrialist intent of thwarting environmental regulators. So, individuals have no more right to emigrate than they have the right to secede, that is to say, they have no such right.

If emigration is not allowed, immigration cannot be allowed. Thus, there is no case to be made that a fundamental right to immigration exists.

The ironic pairing: Globalization and Deficit Terrorism

2010-05-17T13:56:00.000-07:00

Globalization - here used synonymously with "free trade" - punishes countries which pay their workers too much. It lets a flood of cheaply manufactured goods into wealthy countries' markets - and these goods are cheaper precisely because of the difference in wages. In other words, each portion of wage in the importing country can capture more than an equal portion of wage in the exporter country.

Since wages are typically paid in national currencies, this effect sees its expression in currency exchange rates. Since currency can only be used to purchase goods within an economy, a nation that imports more than it exports will, ceteris paribus, find that over time its currency will decrease in value relative to those of nations that export more than they import. However, this measure of value is only meaningful if incomes and currency circulation patterns are also taken into account. The simple measure of literal exchange doesn't tell the full story of the value of a currency. If an hours' labor earned worker A 1000 yuan that were each worth 0.25 dollars, while worker B slaved for a pittance of 10 dollars per hour, can one really say that the yuan is a "weaker" currency?

For the typically encountered modern situation where one large consuming nation is served by several satellite nations that function as producers, any additional money entering the hands of an investor will tend to be invested in a satellite nation if it is invested in production and a few other outsourceable functions, and invested in the importer nation for purposes like distribution and retailing. Therefore, a true currency supply expansion, distributed uniformly (such as through tax relief) in an importing country would in part be transmitted to foreign countries and in part into the local economy. This ratio is determined by the nature of the goods that are intended to be produced and by incentive structures that apply to these goods. Thus, such a currency supply expansion will increase the wealth of both the importer and the exporter nation.

However, this effect is moderated - and can even be supplanted completely - by rent-seeking behavior. If wealthy individuals are able to cartelize or monopolize any stream of consumer necessities, acts of currency issuance instead lead to a near seamless increase in the costs of those necessities until the effect of the currency issuance is absorbed. If labor markets are sufficiently slack to keep workers from bargaining effectively, the system will essentially remain as it was, except that the price of goods in the importing country will rise or fall relative to each other, depending on the nature of the rent-seeking. If, on the other hand, labor markets are tight (and not necessarily because of low unemployment but also possibly because of a shortage of qualified workers) inflation will occur as the workers demand greater wages to counter the increase in cost of living and these wages motivate increases in prices. But here it is worth noting that price increases and wage increases in pair do sometimes serve a beneficial equalizing function in the society, if the worst off see these wage increases.

Anti-deficit hysteria hinges on value of currency as expressed not in the wages of workers but in exchange rates. But this means that nations which refuse to devalue their currency through deficit spending are essentially capitulating on trade deficits, agreeing to continue exporting industry and jobs. The sensible policy - indeed what appears to be the strategic equilibrium - is to have every nation locked in a currency devaluation race. Such a race would proceed until full employment was reached.

This strategy will doubtless lead to inflation, especially since workers who depend on cheap imports to maintain a low cost of living will see these imports increase in price due to the inferior exchange rate. However, this inflation should be moderated by the reduction of profits collected by the outsourced companies. The inflation is also beneficial in the sense that it forces workers to bargain for higher wages and undermines the total profits of the wealthy, delaying the rent-seeking behavior that would otherwise lead to increases in the value of real estate and other owner-income-stream-type assets. The inflation is necessary to stimulate the growth of local industry in the importer country - from the perspective of the entrepreneur, inflation has the same effect that tariffs would, except that the upward price trend will tend to make investment more favorable in the long term than tariffs would, especially since tariffs can be much more effectively countered by foreign government policies than currency devaluations.

Therefore, the pairing of Globalization with deficit terrorism is particularly odd. On the one hand, nations are expected to put up no resistance to the exporting of jobs overseas. On the other, expansions of money supply are criticized as irresponsible, even though such expansions would correct the imbalance caused by the strategy of globalization. In fairness, as has been noted before, government borrowing from wealthy investors doesn't really expand the money supply. However, it does effectively increase the money in circulation , but with a much more mild effect than non-parity currency issue. But in their economic ignorance, most deficit terrorists are blind to the actual workings of the money supply anyway. What we should never forgive them for is their willingness to blindly repeat political talking points as if they represent real analysis.

The role of bank capital scarcity on inflation

2010-05-10T21:01:00.000-07:00

Increases in interest rates due to bank capital scarcity cannot generally lead to increases in prices, because interest rates are the arbiters of general employment levels which in turn control demand for goods. However, changes in interest rates can precipitate changes to market structure that cause increases in the cost of goods in individual markets, or occasionally precipitate both unemployment and inflation, given that economic growth within a region is sufficiently robust or the general population is sufficiently wealthy. To illustrate, begin with the following example of a single firm within a single industry.

Imperial Widgets (IW) is a widget factory facing capital replacement costs due to depreciation. The company is not profitable (zero net profit) and has no liquid assets that can be sold to finance such a purchase. Therefore, the company must take a loan to cover these replacement costs or cease operations. Supposing that IW takes such loans on a rolling basis and therefore faces similar monthly payments (without loss of generality) in each term.

Further, suppose that IW is making its price and quantity production decisions in a competent fashion, that is to say it is maximizing (or attempting to maximize) its profits. It expects an increase in price charged to lead to a decrease in sales sufficiently large to reduce profits and a decrease in price charged to similarly lead to an insufficiently higher volume of sales; additionally it is not likely to sell additional units produced, the marginal cost of production equals the marginal revenue, or IW is already producing at capacity. In other words, IW's profits would decline were it to maintain current capital stocks but change its price and/or quantity of production.

Now, suppose that interest rates increase. As IW considers its replacement schedule for depreciating capital, it realizes that it faces a change to its cost curve that could alter its price and quantity decisions. Depending on the capital objects to be replaced, IW may either curtail production and increase prices, or simply operate at a loss. In the first case, IW is likely to only obtain a partial replacement of capital, thus it is borrowing less. In the second case, IW is likely to finance these losses, causing an increase in borrowing.

The distribution between these two decisions across all firms is connected in a mutually causative way with the economic trend. At the macro level, some firms will move in one direction and some firms will move in the other, but a third option looms in the shadows. Here, long term expectations become significant - do firms that are operating at a loss hold out for better days or close shop? In any event, employment declines so long as at least one firm either cuts production or goes out of business.

The model case from here on will depend on market structure. It is virtually impossible to conceive of a monopoly enterprise that is not in the first place profitable, so we can focus instead on competitive and near-competitive markets. Within such a market some firms will be facing slightly higher cost curves and others slightly lower curves, but all firms will charge very similar prices for the same good, therefore some firms will be slightly profitable or have liquid asset reserves and some will be operating at a slight loss or have a deficiency in liquid asset reserves. When interest rates increase, some firms will face untenable finance positions and close. Therefore, interest rate increases can cause the breakdown of competitive market structures and lead to monopoly, cartel, or other degenerate market structures. This in turn allows the individual market to come to a higher price equilibrium due to the diminished competition within the market. This higher price equilibrium is generally accompanied by lower output.

However, if similar effects occur across too many markets at the same time, the reduction in employment level and wages that accompanies such restructuring leads to decreases in demand for goods through both revision of consumer budgets and increased incentives to save. In such a situation, the prices charged for goods must decrease as output declines, because prices follow a cost curve that is non-horizontal (due not just to the initial assumption of high interest rates and capital scarcity but also to the reduction in wages). A reduced output level must in turn exert downward pressure on interest rates.

Another under-appreciated aspect of this problem is the role that investment decisions play in the availability of capital to banks. Bank loans are a class of investment that competes with direct investment in corporations. During boom times, the increase of direct investment in corporations is a source of the very capital scarcity that leads to market consolidations as described above. However, during more stagnant economic times, companies cannot raise capital as easily because of the greater risk associated with direct investment. This means that capital is being held in bank accounts, implying a capital surplus - so interest rates should tend to fall as economic conditions deteriorate.

Economies go into crisis when prospects for direct investment become so bleak that essentially no direct investment occurs. Here, individuals will even settle for no interest and keep money in the bank, waiting for better times. These better times are caused by exogenous effects - technologies, government stimulus, and resource discoveries.

In contrast, economies also go into crisis when too few dollars are available for loans. If spending is sufficiently robust, investors will be unwilling to leave any money sitting. Capital for short term adjustments becomes too expensive for firms, and they are forced to curtail production. During times of especially strong demand, this can lead to prices increasing even as unemployment increases. Ultimately, the ability to spend is actually a function of wealth and not of income. Among other things, this explains the enigmatic "stagflation" of the 1970s.

In a previous post I have described these two contrasting situations as "disincentive" and "shortage". It is "shortage" that most closely corresponds with bank capital scarcity scenarios particularly the enigma of stagflation.

It is worth addressing whether such an effect - stagflation - can occur in a less developed country (I cringe and the imperialist heritage of this term. Is it conceptually much different than "less civilized" or "barbarian"?) due to the same forces as in a developed one. Here, banking and capital sources are primarily externally located. This is crucial, because it implies that any growth or decline in local demand will only have a marginal effect on the investing economy. These export economies do not get the benefit of profit capture or control, because the investors are not members of the economy itself and do not have a stake in the local community. It is the destabilization that the interests of the foreign investor bring to the political process that repeatedly dooms efforts at growth and social justice within a developing country. Generally, both loans and direct investment will always be available or unavailable in parity to the developing nation. It is not some economic law - but the political conditions of our time - that leads to suffering throughout the world.

Firefox Double Crashing

2010-05-05T20:23:00.000-07:00

Dear firefox feedback,

Firefox is a very predictable product. If something causes it to crash, that same thing will cause it to crash again. Please forgive me for not sounding sophisticated here, but I don't have the statistics that your techie people have access to. This is because firefox is a computer program. It responds in a predictable fashion to the data that is fed into it.

The crash recovery option is designed to store, apparently in cached form rather than reloading them, all of the pages that were being viewed at the time of a crash. In 99.99% of situations, this means that when firefox is restarted, it simply crashes again. I reported this as a bug and was shut down:

https://bugzilla.mozilla.org/show_bug.cgi?id=506883

Apparently, having a product that crashes a second time after every crash is not a bug but a feature.

So, at the very least, I would like to have an option to turn this "feature" off. I know from searching support that I can go to some internal settings page to fix the problem - and I have. But for everyone else out there who is a loyal firefox user and might not know about this fix, I am asking you and the other tech people to do two things:

1. Come up with a crash recovery procedure that works in a meaningful way.
2. Include an option in preferences that can be checked to disable this feature.

On the first point,

I suggest storing any form data and URLs and simply saving them to a text file in the event of crash. Naturally you can exclude credit card and password info. Then, on recovery, firefox should simply display these contents in a form that makes them easy to copy and paste.

Especially in crashes, your current standard is really unrealistic. Paul Oshannessy said "I'll say that the common case, people just want Firefox to start back up and figure it out on its own. They don't want to be shown this potentially confusing page after Firefox crashes - they want it to 'just work'."

But it doesn't "just work". Common sense indicates that it won't. Programs can't just start back up after crashes with no data loss, because as soon as the program executes that same line of code a second time, the same result occurs! In the case of web content, crashes are the result of errors in the generation of webpage scripts or firefox's interpretation of the contents of those scripts. If firefox doesn't ask the servers that generated the pages to re-generate them, it will simply run the same scripts on those pages that caused the original crash, and because firefox is such a nice and stable product, it will crash again! But even re-generating pages will still cause a lot of crashes, almost as many as loading the cashed pages. What you find, and this is very much CS315, is that each time you strip away a layer of data, that is step back from the most recent page, the fewer crashes there are, until you find the only way to really prevent any crash is to not reload the offending page at all.

That gets back to the comment of the poor user that Paul shut down: Why not let the user choose which tabs to restore on the first restart?

On the second point,

I suggest you make it so that whatever Crash Recovery "solution" you end up implementing, you make it easy to turn off so that grouchy people like me can avoid going batshit insane. Make this an advanced option. That way average users who have no functional literacy won't go bumbling into that option, accidentally turn it off, and subsequently leave nasty messages demanding to know why their firefox doesn't double crash anymore.

Also, I would suggest that you take the time to figure out whose idea this was, because you might want to take future ideas by this same person with a grain of salt. As a general rule, clever marketing comes after the product - it should never motivate the creation of the product itself, unless you intend to defraud consumers.

Thank you. I feel better now.

The Business Cycle - another explanation

2010-05-02T21:15:00.000-07:00

At a given time t, the total production within an economy is distributed according to payments made by purchasers. Calling the sum of these payments the dollar expression of production, the corresponding goods expression of purchases is the total production expressed as a very large goods bundle. Neither term implies actual value. The only determinant of actual value is a detailed analysis of the goods bundle itself by experts who can evaluate the total social benefit of each good. For sake of simplicity, services provided are also considered part of production. The term "goods" will refer to both goods and services.

Alongside the acts of production are speculative sales. Speculation is defined as "ownership for the purpose other than use or consumption". An object, such as an ox, could be purchased simultaneously for production (use of the ox for plowing), speculation (sell if prices reach a certain level) or consumption (eat if food is not available). Similarly, homes are purchased for both use (to live in) and for resale (under the assumption that property prices will rise). The holding of money, such as in a savings account, or any other asset, is also an act of speculation. The act of holding is, essentially, "exchange with oneself". The sum of production purchases and speculative purchases at time t is the entirety of economic exchange at that time period. Furthermore, the total supply of money within an economy therefore participates in exchange in each time period.

Suppose that the supply of money within an economy increases at a rate greater than the total level of production. Then it must follow that speculation within that economy increases. Similarly, if production booms at a greater rate than expansion of the money supply, the number of speculative exchanges must decrease. Here, "level of production" refers to actual production and not production capacity, while "money supply" refers to actual currency in circulation and bank accounts (m1). It is premature at this juncture to make policy recommendations, because increases in the money supply can be made in a variety of ways, some of which can spur increased production in excess of the increase in money supply.

In any market, some individuals will have large, speculative holdings, and will hereafter be referred to as "wealthy". What conditions must persist over time for these speculative holdings to diminish? Similarly, what conditions must persist for these holdings to increase? Which of the two scenarios are more likely?

These questions are answered by looking at the essential choice that the wealthy have in the investment of their money. Either they invest in a productive enterprise by purchasing capital for use by that enterprise, or they invest in speculative enterprise by purchasing assets that they believe will appreciate in value. The act of simply holding onto money is tantamount to saying that all other investments are inferior, i.e. that money will increase in value.

In a situation where the economy is rapidly expanding, speculative holding tends to fall behind productive investment in terms of profit levels. Therefore, the wealthy can be expected to reduce their speculative holdings during such periods, instead investing in capital. Conversely, the wealthy will tend to withdraw capital and invest in speculative holdings during economic downturns. Despite the use of the term "Speculation" to describe non-productive investments of money, it is speculation that gives more stable (lower risk) returns to the investor, at least with respect to general market trends. Part of this risk equation is the magnification of economic events at the level of production relative to the level of simple wealth holding. The wealthy will obtain peak wealth levels by switching to speculation at the exact point of market reversal. This ensures that even as wages fall for workers, the prices of goods and rental costs do not fall proportionately (due to decreases in number of suppliers and increases in speculation in land). Thus, workers are impoverished and must consume less, leading to a decrease in prices of all speculative assets and eventually uniform deflation. This process of decay continues without any theoretical bottom, however in practice governments change policies, new technologies are developed, or wars and revolutions occur. In a broad sense, the wealthy class will only diminish in wealth concentration as a result of unexpected losses, which are correlated with changes in the direction of the general economic trend - the frequency of which principally depends on government action, as described below.

Two key features of modern economies are the dependence of the vast majority on the market for their subsistence and the use of fiat monetary systems. Historically, two different factors moderated the inescapable spiral described above: 1. The agrarian economic system, and 2. The precious metal economies. These two had particular synergies, such as feudal patterns of land ownership and the "free market" expansion of currency supplies which served to reverse economic trends. However, these counterbalances have now been totally removed from our present economies. Instead, we have a government system in which a fiat money system is implemented in a dishonest way where national governments essentially pretend to be bound by invisible rules which force them to maintain a fairly limited expansion to actual currency supplies. Furthermore, political leaders tend to know little to nothing about the economy, and of course there are virtually no academics who can honestly claim to know much more. It is therefore an operation of pure chance that brings a modern society out of economic slump.

Ironically, the cycles of growth and collapse are initiated by an underappreciated phenomenon called saturation. In a "goods saturation" collapse scenario, additional wages cannot motivate increased purchasing. Wage workers instead become speculators, accelerating any pyramidal effects already occurring within the economy. In a "speculation saturation" growth scenario, available speculative assets suffer from a relative deflation in value due to vastly overinflated prices and widespread cost of living inflation. Investors have no choice but to invest in industry in order to preserve their wealth.

A prescription for our own economy in this situation follows from the identification of our stage within this crisis: we are currently facing a non-inflationary collapse of production capacity. It is a slow moving crisis that in many ways began in the 1980s. To address it, we must devise a way to destabilize the prices of fixed assets like real estate and bonds. A rather painless way to do this is simply to reduce their opportunity cost, that is, to expand the money supply through giveaways as part of social welfare programs. The additional spending that such policies would engender would make productive investment more profitable than mere speculation, and the economic trend could be reversed.

Laziness in economy: minimizing employment

2010-04-06T06:06:00.000-07:00

When a human being sets to work on a task, he is compelled to complete that task in an efficient manner. In conceptualizing the task, he will have in mind some standard of quality, and go about the task with the goal of achieving that standard with the minimal expense of thought, time, resources, and muscular exertion that his expertise and available technology will allow, that is to say, to conserve effort. Typically the final result is somewhat below the standard of quality originally envisioned, but such results are tolerated by both the individual and society. This process, endlessly repeated through all the endeavors of human day-to-day life, is evidence of a governing principle of laziness that is more intimate and real, more potent in human events than any alleged "rationality" could ever be.

Here, the notion of laziness as a governing force does not imply a psychological or moral defect in the individual. Though the term technically refers only to the urge to shirk one's duties, laziness can also be seen as a pervasive force that expresses itself throughout our economic reality as a potent psychological drive to minimize effort. While a person who shirks an important duty is often punished by society, a person who does unnecessary work is often punishing himself. Even as those among us who work harder than the average win our praise and gain various types of prestige, they find themselves stressed, malnourished, culturally deprived, drug addicted, and even psychologically disturbed or physically injured. Laziness can be seen as a countervailing force, pushing back against desires to achieve and resisting unreasonable requests. Moreover, laziness is not the negative of effort, as it seems to play a role in the direction of effort. It is laziness that so often compels us to devise more efficient means in our day to day life.

Laziness is unfairly villainized within common discourse. Western society seems to retain ideas of work ethic that have their origins in feudal peasant agriculture. In such times, all work was of utmost importance. Each additional hour of labor either fulfilled a basic need or settled an obligation to a lord who dominated his vassals. Among the lowly peasants, there was never a need for each individual to independently judge others - the slackers would be dealt with systematically. However, among the more affluent, it was always possible to fake things in such a way that it brought harm and detriment to others. All social classes (distinct or arbitrarily divided) are lifted on a sea of secrets and conspiracies, by a political process. Rules are both protective and restrictive. As a person rises toward a position of power, additional burdens manifest themselves through the absence of these rules: the fledgling rule-maker discovers there are rules for making rules. In its essence, human power always flows from the consent of others to one's authority within an organized structure, that is to say, from unanimous consent of those who immediately receive orders. This consent is based primarily on evidence of ability to act in various capacities that illustrate the consent of others. It seems that all things that an individual seeks to acquire become objects not merely in themselves but symbols of the ability of that individual to acquire things, that is to say to obtain consent. Competition for acquisition sometimes develops over time, gaining conceptual depth and its own lexicon even as it remains fluid and somewhat undefined. Concepts of fashion and entertainment are examples of such competitive processes. Even though there is no wrong in losing such a competition, the losers must recognize the power of the winners, and in doing so, some agendas are advanced ahead of others. Moreover, the stakes can be very high: loyalty is itself a cardinal virtue (crimes such as treason come to mind), but in a broader sense loyalty to a cause is just one of many expressions of the authoritative consent required to further any ethical goal. Because of the limitations of the human mind and the limited flow of information, evaluations of the actual effect of any command passed down from an authority is typically exceedingly difficult or impossible for the average citizen. That is to say, our moral theory is subject to profound manipulation. It allows political processes controlled entirely by others to determine arbitrary tasks that we have a duty to complete. This in turn leads to a common perception of laziness that is based on the individual completion of these arbitrary tasks - and stacks endless obligations onto the psychology of the morally conscious individual. As an inevitable aspect of political reality, a profound skepticism of these obligations has likely been instilled into human nature - but ironically this skepticism is not expressed as a skeptic might express it. Though a skeptic might object by voicing technical objections to aspects of theory or illustrating absurd conclusions, he has still been captured by the structure, made to participate in its evolution. The only reprieve for the individual from these endless obligations is to focus on those concrete needs and wants in his immediate sphere - those things he can verify with his own eyes and address with his own hands. But as a person advances within society or as a society advances within a population, individuals find themselves more remote from both from suffering and from the means to address suffering.

In response to this dissonance, there is a great struggle within the discourse of a society, played out both on the public sphere and within the consciousness of participants and observers, to label factional allies (including the self) and enemies with politically charged descriptive terminology that imply various motives and behavioral tendencies. Within this context, the individual is compelled to labor. Even his freedom to pursue various leisure activities is in fact heavily structured: those things which individuals pursue for personal enjoyment within any society are invariably things which identify them with an immediate social group that wields some degree of political power and a more distant network of allegiances and animosities - consciously or unconsciously, an individual obtains dual purpose from his leisure. Indeed, all people have a secret and private set of vices that are publicly unmentionable, but in their own way these follow the same rules. It is questionable whether leisure itself is a motivating factor, or if some other psychological drive motivates the action, with the enjoyment of the activity being an internal aspect of some external, symbolic display. A motivational spectrum develops for the purpose of judging others, couched in a variety of explanatory terminologies, having both a negative aspect and a positive one. A person who does not labor enough can either be lazy (economics or business), of poor character (religion or philosophy) or mentally unhealthy (psychology). A learned person in any of these fields is less likely to emphasize such a concrete and real application of theory - he knows that the overwhelming lesson of education is the realization of how little is actually known in any of these disciplines. These terms and thinking techniques, rather than being illuminating of the problem, are rhetorical devices "painted over" the underlying logic of work ethic inherited from the agrarian peasantry. Ironically, the political act of judging laziness has lived on in (and is just one of many examples of) pedestrian misconceptions of academic discourse which preserve political devices that are detrimental to social welfare.

First, consider the negative aspect of this spectrum, expressed as various political acts harmful to the individual. The threat of these acts is ever present, as the typical member of a society sees their wrath visited on strangers, friends, coworkers, bosses, and subordinates. The fear, disgust, and stress that this induces forms a negative motivational spectrum that drives the members of a society to work hard, to present themselves as if they have done more work than they actually have, and to demonstrate their own allegiance to such values by joining in the ridicule and punishment of shirkers.

The positive motivational aspect, though superficially less harmful, shares many of the worst features with the negative. Here, the glittering jewels of recognition, promotion, and reward shimmer in the distance. The individual finds that recognition from unimportant individuals is easy to obtain, however it is problematic because it is typically meaningless and in a technical sense, false. As a result, he finds this recognition unsatisfying and thereby cultivates a torturous ambition, or he constructs a false belief that the recognition does have a deep meaning and thereby falsely elevates himself and the person who has recognized him beyond the position that the actual merit of his actions would normally imply. Within the relativistic soup of social reality, individuals will at times come to see the absence of punishment as reward, or the absence of reward as punishment. The only clear delineation between the two is in the mind of the authority responsible for declaring who will receive what. Promotion, properly speaking, is a type of reward but one implying potential rather than achievement. Therefore, its converse is also implied: a person passed up for a promotion is a person with less potential.

Over the ages, those who do work have applied their ingenuity to the tasks at hand, bringing about new ways of doing things (technologies) that reduce the load of work required for the completion of individual tasks. The effect of this development has been twofold: first, the individual finds that rather than being required to do less labor, the new technology is used to justify a higher level of production from each individual; secondly that as new technologies are developed, the complexity of production and therefore the hierarchical authority required to undertake each endeavor increases.

The cause of the first effect is the negotiating imbalance between the firms who offer the wages, and the workers, who provide the labor. It is not easy to summarize exactly why this persistent imbalance exists. In a deep and remote sense, the division of labor between the proletariat and capitalist class evolved from the division of labor between the lord and peasant. If the economy is seen as a dynamical system, could there simply be no force in effect to correct the initial imbalance, which has persisted like a standing wave to the present day? The proximate causes seem decidedly less satisfying but much more actionable: first, because there are many laborers, in persistent surplus and fewer firms; second, because firms are well informed relative to workers; third, because firms have the power to wait while workers must meet their immediate needs; fourth, because firms have political power. In the middle, there are revealing points, possibly the keys to the whole question: first, that the flow of currency through an economy is effectively constrained by the actions of the peak wealth accumulators, who desire to make money, meaning that the net flow is from the economy to them; second, that physical land and other essential resources of production are typically wholly partitioned in an unequal fashion, with firms investing to produce goods only when additional resource rights acquisition is unprofitable; third that worker budgets can never purchase the entire product of their own labor, thus only the constant increase in production from each worker can pay the rents associated with food, shelter, courtship, child raising, and everyday life.

The cause of the second effect is the basic nature of technology itself. Each element of a technology occupies a part of the human mind. The human mind is finite, thus, as technology developed, a threshold was reached beyond which a single mind could no longer contain all of the understanding required for technological processes. Those who share the process of understanding inherently engage in a political struggle for control of the means of production. In times when technology was simple, hierarchies could also be simple, but nowadays sophisticated management techniques are necessary.

The question of economic management is often posed as a question of how to increase production, raise the "standard of living", and limit unemployment. It is becoming clear that the unchecked desire to produce is destructive to the environment. Unexamined metrics that show increases in standard of living have also failed to correlate with individual happiness. Could it also be the case that increased employment can also be without benefit, or even harmful to the individual and the society?

Intuitively, the force of laziness indicates that there is a spectrum of employment within which an optimal point or region exists for a given level of production (unless production is measured poorly). Work has several dimensions: first, what type of work is being done; second, how are working hours distributed through the worker pool; third, how enjoyable is work for each worker?

The first question relates to appropriate levels of production and correct measurement of standards of living that reflects real quality of life. This question has been voluminously explored at www.stiglitz-sen-fitoussi.fr and I will not devote much time to it here. The answers to questions about where production ought be directed are clear. If society has the capacity to produce sufficient food that nobody goes hungry, ought society do so? If society has the capacity to build and organize cities in a way that everyone can live in the type of community they enjoy, ought society do so? If society can implement policies to protect the natural environment without harming its citizens, ought it do so? And, if the accumulation of property, patent rights, capital, and political power becomes injurious to the public good, ought the society vigorously pursue measures to correct such imbalance?

The third question relates to the inherent hierarchy of work. While some jobs are not enjoyable, others are. Concepts like the "career"might be satisfying for professionals, but other, more flexible concepts of work duties might better serve blue collar workers who work in a factory and repeat the same motion mindlessly for 40 hours a week. Civic education does not need to stop after high school - blue collar workers could have rotations and exchange programs to break up the monotony of life and to add perspective and pride to their role in industry.

The second question relates to the utilization of technology - if production is constrained to only production that increases quality of life, then there is no guarantee - in fact there is evidence against the idea - that there will be sufficient demand to provide employment at current standards of working hours for all. Thus, work must be partitioned between individuals in some way. When compared to the previous two answers, this one is by far the most radical. Yet it is the most provable of all three, and the most easily addressed by public policy.

Creating institutions to enforce a fair division of work is preferable to creation of a welfare state. In the broadest possible terms, the most general analysis possible creates three categories of possible work policy for a society. The first category are the societies that do not enforce a fair division of labor or provide unemployment services. In this system, the persistently unemployed depend on the charity of private groups in order to survive. This grizzly state of affairs is surely bad for the society as a whole, as there is little, if any, marginal benefit to those who do work and those without it suffer tremendously. The second category are the societies that do not enforce fair labor division but do provide unemployment services. These economies are divided into two overlapping classes: the middle and upper classes (hereafter called just upper class) who work hard, make significantly more than the minimum wage, and are engaged in investment and savings; and the lower class who may work hard but make close to the minimum wage, are moving frequently from one job to the other, depend on unemployment, and have either building debt or a lack of coherent investment and savings strategy. These two classes overlap because some investments always fail, some households have bad money management, and because of luck. Here, the extra labor hours that the upper class work relative to the poor generate some amount of extra wages. The poor, who are persistently unemployed and depend on social services, absorb some of these wages through the costs of their social programs being paid through progressive taxes that are visited on the upper classes. Thus, the situation is unfair to both the upper class, who must to some degree labor without compensation, and to the lower class who must go without work and the opportunities for advancement and life enrichment that work offers. The third option, the division of labor between all individuals in a society, with no long term unemployment compensation necessary, is the preferred policy. In this system, a limit on each individual's working hours is strictly enforced. For instance, the work week can be defined (such as it is now) to be only, say, 40 hours in a week. But no individual would be exempt from this. For example, if a scientist wants to work 60 hours a week on his research, he must be compensated as if he worked 20 hours of overtime, that is, paid 1.75 times his normal salary. Therefore, Universities whose policy it is to work their scientists more than 40 hours a week would be encouraged to hire more of them. This policy would then be coupled with a definition of the workweek that could be reduced based on unemployment trends. Very roughly speaking, to correct for 10% unemployment, the work week need only be reduced 10%, provided that a means exists to ensure that salaried individuals also work 10% less. This system is superior because no wealth transfer is necessary between the upper and lower class. Thus, the labor and compensation are brought into harmony.

In order to bring about an economic system focused on the fair division of labor, the ideas of work ethic that have been inherited from ancient times must be challenged. The matrix of insidious concepts that are tied to the work ethic ideal mean that this debate will be played out in numerous academic topics that seem entirely unrelated to the ideal of work ethic. But when the underlying assumptions of academic theories are laid out in detail, so often the most innocuous and basic things turn out to be incredibly complex, hiding places for endless preconceived notions. Social sciences have in general strayed too far from philosophy, and philosophy has strayed too far from its own roots. In physics, it took over 1000 years for the basic ideas such as motion and inertia to root before Isaac Newton was able to introduce his core concepts in an almost entirely philosophic work, the Principia Mathematica. If social science is to follow natural science, it must focus for some time more on the building blocks, both in experiment and in discourse. This essay has been illustrative, in part, of the simple solutions that emerge to vexing social problems when the building blocks are examined in detail.

Measuring and aggregating incentives to work

2010-03-15T14:22:00.000-07:00

In The Affluent Society, Galbraith asks whether it is the products of most laborer's work or the wages paid to them that have a greater positive social impact. By a strict Pareto analysis where market value is the only measure of worth, it must be the case that the product of the labor is more valuable. Rather than solving the problem, such a result is more of an example of absurdity, casting doubt on the Pareto Optimality concept.

The question can actually be broadened, as it has been by contemporary economists. Professor Randall Wray of UMKC looks at a variety of factors that workers gain from working rather than sitting idle, and argues that the social costs of unemployment are actually grossly underrated. Rather than utilize his analysis, which is not holistic enough for my tastes, I want to develop my own system for estimating the value of employment for the laborer.

Borrowing again and elaborating on arguments developed in The Affluent Society, Generally speaking, a worker will labor for some combination of the following reasons:

1. Pecuniary Compensation (wage, salary, bonuses)
2. Ideology (feelings of the righteousness, charity or necessity of his actions)
3. Fear (punishment awaits those that do not work)
4. Personal Education (Development of skills or specialized knowledge)
5. Conveyance of Status (The worker gains some status that is valuable, such as being considered "experienced" or being considered a brave or good person)
6. Leisure (The task is the preferred alternative to boredom)

Without this broad set of motivating factors, it becomes impossible to understand why some activities become ones that individuals pay for and others become ones that individuals desire to be paid for. These may be negative or positive.

An economy is actually a dynamical system, and so there are two more general considerations. First, that the relative value of each of these factors to an individual will be evaluated by that individual on the basis of net gains/losses from the individual's current position. Secondly, that a set of filters exist which limit the potential applicant pool for any given position. Once again, speaking generally, they are as follows:

1. Status (holding specific titles or claims to experience)
2. Education (having certain skills or knowledge)
3. Geographic proximity (worker and firm must be within a certain radius)
4. Cultural Conformity (being part of a sufficiently similar cultural group, in particular having a common language)
5. Search success (the firm or worker must search each other out and will not always find all matches)
6. Miscellaneous Hiring Filters (personality tests, interview "impressions", arbitrary limits to considered applicants, etc.)

These are not numerical values. They are subsets. The space that is the intersection of all of these constraints contains all the potential qualified applicants. Ideally, firms will then evaluate potential applicants within this space, and perform a cost-benefit analysis, ultimately hiring individuals who promise the greatest positive impact on the firm given their requested wage. But, to capture a real approximation of firm behavior in this respect requires an understanding of the internal politics of firms and empirical data for theories of internal politics to analyze.

The existence of so many constraints on worker pools harms the ability of firms and workers to to find matches that would work well for them. It is appalling, for instance, that so many individuals would happily work as CEOs or Doctors but are effectively prohibited from pursuing such careers. This has led, in once case, to vastly overinflated wages, and in the other case, to shortage.

Regardless of the cause, it is clear that the empirical state of the economy is far from ideal. Not only are many individuals who seek labor not finding it, but many tasks which would be highly enjoyable to a large sector of the population, such as philanthropic work, is not available to individuals. Finally, many people work extremely hard only to make enough for bare survival. Given our natural resource position, this can be due only to gluts in worker pools. Nobody should work only out of fear of poverty, homelessness, or starvation.

Pigouvian taxes and subsidies

2010-03-11T14:04:00.000-08:00

There is a theory in economics that an effective way to reduce the incidence of a bad behavior is to place a tax on it. The reasoning goes that this tax increases the cost of the behavior, thus by the law of supply and demand, the quantity demanded decreases. The use of taxes for the purpose of balancing out externality costs is referred to as a Pigouvian tax.

The implementation of these strategies in the real world tests both the entire regulatory framework and the economic theories. This naturally complicates things - are failures the result of the theory being wrong or merely due to flaws in implementation? Many public policies that seem to have great promise may actually be nothing more than the fiscal equivalent of building a levee on this mile of the river: flooding is prevented here but made worse downstream.

I have been approached on multiple occasions by bicycle advocates who have suggested that better bike policies and funding for bicycles can best be brought about through a campaign against car usage. The reasoning goes that by not funding more roads and by increasing taxes on gasoline, the "cost" of driving increases. By the Pigouvian reasoning, this will lead - nay, force - people to pursue alternative transportation options.

There is certainly some marginal effect, but it will not follow a uniform curve. This marginal effect will be a function of the attractiveness of alternatives, and these alternatives can be quite varied. The temptation is to be lazy, and to assume that some intersection of continuous curves defines the demand functions, meaning that each incremental cost increase of driving would have a similar, incremental decrease in driving. This, of course, is not the whole story, because the reality of the situation depends on the discrete decisions that are made. A small increase may not be enough to actually push a different transportation option into the top spot - people are actually quite uniform in their transportation situations and the biking/public transit system tends to have a more or less uniform cost. Furthermore, an additional "hump" that represents the force of habit may block people from changing habits for savings that are insignificant.

Therefore, there is a threshold below which only an insignificant portion of drivers would bother changing their plans. Above this threshold, a large number of drivers would seek to change their plans. And so, the question now arises, "What is the value of incremental driving disincentives both below and above the key threshold?"

Below the threshold, taxes on gasoline and congestion promoting policies amount to little more than regressive taxes. That is to say, the cost is passed through the drivers. Rather than changing their driving habits, it merely leads them to have less wealth available to purchase other goods in the economy. Owing to the dependence of many goods on gasoline transport, these taxes may also be expressed in the cost of goods.

The story is essentially the same above the threshold as well: those who are still driving with high taxes on driving are unlikely to change their behavior simply because driving starts to have a slightly higher cost.

The real effect occurs at the threshold, where the variable is actually sensitive. This is the only area where a case can actually be made that the pigouvian incentive concept is a good idea, because here the tax actually does bring about a reduction in the unwanted behavior. Here, the supply of the chosen alternative goods must be sufficiently flexible to absorb the relatively rapid change in habits that the cost increases bring about. But are public transit and bike networks actually capable of making these sudden changes? Not really. Here again, even at the threshold, the consumers will find they are unable to switch because the existing bike infrastructure is insufficient and the existing mass transit system is already operating at capacity.

A similar argument can be made for subsidies of public transit and bicycle infrastructure: they will be underutilized and fail cost/benefit tests without a complimentary policy of increasing the cost associated with existing behavior.

So, it is sensible to propose a steep tax, and to cut back severely on existing vehicle infrastructure, such that the effect is sufficient to bring incentives across the threshold, only if a comprehensive expansion of public transit and bicycle infrastructure is also implemented in parity.

In reality, the issue of cost pass-through is present in every tax and subsidy scheme. It can have a variety of unintended consequences. Generally, cost driven changes in consumer behavior come in the form of regressive policies. Care should be taken by well intentioned reformers to take the two steps outlined here: first, to find any thresholds in the discrete consumption bundles of actual goods; and second, to find and assess the role of potential bottlenecks in the desired new behavior pattern.

Additionally, there are two more potential problems in the basic implementation of such systems.

First, the shift in behaviors as a result of increasing costs may be unpredictable. Could increases in driving cost drive a portion of people to simply never leave their houses, instead becoming Television and Internet addicts? Could toxic waste disposal fees, instead of leading to reductions in toxic manufacturing processes, lead to the marketing of building material mixtures that contain these toxins (so that they do not need to be disposed)? The regulatory framework, as well as the nature of the goods in question, are the determinants of such results. Thus, taxes may need to be imposed on a large number of goods, and subsidies or other supply expansions may need to be effected on a similar scale.

Secondly, the political cost may be great. A politician in anything but a safe district would have to be incompetent to back a gasoline tax. Even safe politicians may want to vote against a gas tax simply to preserve the stream of automobile lobby dollars. At some point, advocates for social and environmental justice will need to assess the political realities. Though it is a difficult task, compromise will be necessary in all environmental agendas. For real political change, a great deal of consensus, log rolling, and popular awareness are essential.

In conclusion, there are four prerequisites for the use of a pigouvian tax/subsidy scheme:
1. Discrete understanding of the supply/demand for the goods to be taxed and subsidized in terms of the consumption bundles of the consumer demographics.
2. Ability of policies to simultaneously cross both the demand threshold for the good that is to be suppressed and any necessary subsidy to supply of the substitute good.
3. Adequate regulatory structure to ensure that new consumer behavior will actually be as planned. This may require a comprehensive set of many taxes and many subsidies across a large number of goods.
4. A strong political position for the elected officials responsible for the policies that bring about 1-3, as well as an electorate that is highly sympathetic with the cause that such policies represent.

Duties

2010-02-24T18:28:00.000-08:00

Ultimately, ethical imperatives must be absolute in nature. That is to say, it is invalid to use a relative measure to determine the morality of an action, unless that relative measure is used as an inference to some absolute state of affairs.

Suppose a person were to assert that "college students have a duty to get good grades". This imperative would be invalid if grades were rated on a curve such that some students must get bad grades. However, many people actually intend this statement merely as a surrogate for the statement that "college students should study hard and learn the materials to the best of their ability", with the assumption that some will inevitably not study hard and be the same students who do poorly.

Additionally, the assertion that "only the best alternative among good alternatives is morally acceptable" is nonsensical, as it represents a double evaluation. If an alternative can be seen as good, then it cannot follow that it is also not good. Typically, examples that fit this definition suffer from a lack of sufficient parsing, stringing together series of actions into a single object. It may actually be possible to define actions in such a way that better alternatives do not exist, by looking at each decision point as a separate action in which only one choice is the good one.

Trade: Dangers and instabilities

2010-02-22T11:26:00.000-08:00

The political and media game in the midst of this Second Great Depression is sadly fixated on real estate and banking. Certainly, these sectors have played a role in the collapse that we have experienced, but it is wrong to attribute the full force and persistence of our malaise on just these sectors. At the very core of the economic problem, it is not currencies that are to blame. Balances of income and expenditure between various regions of the globe and sectors of the economy are what actually determine things like unemployment rates and other numbers of political importance. Additionally, the degree of achievable prosperity is constrained by the rate at which key natural resources are exploited. These two determinants of economic outcomes are aspects of economic geography and market structure.

A firm that follows a neoclassical business strategy will seek to maximize production efficiency by minimizing costs per dollar value of finished goods. Such profit maximizing philosophies are clearly the norm among large scale businesses. This model takes both workers and consumers as essentially being factors of production. The final product of the firm, in the mind of the firm's owner, is not the product for sale but the income stream that firm profits bring to him.

This maximization is best achieved through locating of factories where the necessary natural resources can be plentifully obtained and where costs of labor are low. The degree to which real estate costs affect this calculation seems to be minimal, in part because low cost of labor tends to correlate with low cost of real estate. Delivery of natural resources to the factory and a means of moving finished goods to port are the required infrastructure developments and these are also expressed in the production cost. Low shipping and transport costs (primarily the low cost of shipping on large tanker ships) make the possible market for goods global in scope, making distance to consumer largely irrelevant in all cases except for goods that are perishable. Therefore, manufacturing for non-perishable goods will tend to be concentrated where costs of production are lowest.

Regions that offer ideal locations are invariably those that have both persistent poverty and a well organized government capable of and interested in providing the necessary infrastructure to the factory. The goods produced will be sold on a global scale, directly to nations which are not ideal locations for new factories.

All factories eventually become depreciated to the point of needing to be shut down. Therefore, new economic growth is not a prerequisite for the relocation of these factories to more optimal regions. Rather, over time, industry in general will naturally move into those regions.

Firms in these factories' host countries will have revenue in the goods importing country's currency, but pay their workers in the local currency. Therefore, they must exchange most of the imported currency for local currency. With a floating exchange rate, this is merely the sale of that currency on the market. The imported currency's value is equal to that of the goods it can purchase - that is the value of manufactured goods offered by the goods-importing country.

If a simple system of comparative advantage emerged from this relationship, two effects would result. First, the goods-importing country would experience relatively fewer working hours and relatively lower prices for goods when compared to wages (higher standard of living) than the exporting country. Secondly, over time the exporting country's higher level of savings and lower unemployment would reduce poverty to the point that wages would be bid up, while the importing country's lower (or negative) level of savings and higher unemployment would cause wages to be bid down, effectively leading to a trend toward equilibrium (or, more likely, an equilibrium-centered oscillation) and a progressive reduction in the level of wage differences between the two countries.

This simple system of comparative advantage is complicated by three factors. New technology that is developed will tend to dramatically slow the trend toward equilibrium. Shifting balances of trade with other countries will create chaotic effects that contribute a high degree of uncertainty to the analysis of eventual effect. Finally, changes in output levels will alter the purchasing power of consumers in both countries and lead to a non-unique equilibrium.

New technologies that are available tend to originate through the research of wealthy countries that have the resources to spend on comprehensive education systems and research funding. These technologies become a market good that is exported from the goods-importing countries and slow the rate of convergence toward the equilibrium described above. This effect has the following characteristics: first, firms must save up or receive loans in order to make the costly technology purchases and implement them. This leads to a financial market that mediates (with occasional speculation bubbles) the collection of currency in the goods-importing country's denomination. Firms are unlikely to take loans in their local currency and attempt to then save up imported currency because this time consuming process has a large opportunity cost and may involve costly interest payments as well.

These new technologies will bring about three types of improvement for the firm that implements them: 1. Labor usage reduction; 2. Natural resource usage reduction; 3. Greater market share. For this reason, new technologies can accelerate the rate at which markets become monopolized, and can actually lead to lower levels of employment within markets.

Additionally, this process will affect both economies in different ways at the macro level. For the goods-importing country, the tech industry will sustain higher levels of employment. This will sustain higher goods importation rates for longer. For the goods-exporting country, the higher rates of market monopolization and lower employment levels that technologies bring will actually slow the rate of poverty reduction. Thus, the trend toward equilibrium is slowed by technology. Both of these factors, however, will eventually dissipate unless new technologies are introduced at a constant rate, or if a technology development industry develops in the exporter country. Because new technologies are actually developed erratically, markets will tend to spurt toward equilibrium, then stall, then spurt again, rather than moving smoothly. This can lead to oscillatory effects that prevent the existence of steady states.

The comparative advantage equilibrium is further complicated by the effects of the comparative advantage of other countries. If natural resource costs increase, or if exports to another sector increase or decrease, the labor and natural resource markets will transmit these effects throughout the market, affecting the balance of trade between all trading partners. The demonstration of oscillatory effects in complex equilibrium systems is a topic of high mathematical sophistication, but oscillating reactions have been discovered in chemistry, a discipline in which the units are approximately 21 orders of magnitude finer and therefore statistically better behaved than an economy.

Finally, the simple model is inaccurate in part because drops in exports, caused either by a loss of relative currency value of the importing nation or a drop in incomes due to higher unemployment, typically leads to an increase in unemployment or decreases in wages in the exporting country. This effect implies that increases in measured comparative advantage can lead directly to a diminished economic outcome.

Taking these things into consideration, where does our current economic position fit into this model? Likely, the United States and most of Europe have survived the past decade only by taking a technology provider role. As China and India and other major exporters develop science and technology programs of their own, what we have to offer in exchange for the constant stream of cheap goods becomes increasingly limited. The uses for US dollars correspondingly diminishes. Most likely for geopolitical reasons, the Chinese government has artificially stimulated demand for US dollars by buying US treasury debts. This has lessened the loss to Chinese manufacturing to some degree. Similar activity by other exporter countries all over the world, concerned with preventing collapse of their industries, has propped up the exchange values of importer country currencies. This has, in turn, prevented oil prices from going up. Ultimately, though, these measures will reach their limit. This is not unlike the catastrophic collapse of the globalized markets in the first great depression, but in our case, the supply of oil is not as plentiful nor can it be readily expanded, making the situation dire.

The root cause of this problem is really the false steady state model that seems to dominate economic thought. This model typically takes aggregates as stable objects and firms as permanent fixtures. In reality, firms are not permanent fixtures. Rather, they have a finite but indeterminate lifespan. Employment results from specific tasks that are undertaken by the firm during its lifespan. The natural trend in economies is toward wealth concentrations and high productivity. This inevitably leads to low employment and low quality of life. This is where the "equilibrium" rests. In truth, there is no guarantee that a job will last for the 30 years that our tradition defines as a career. Nor is there a guarantee that a person will be able to live off of the wage they are paid. Nor is there a guarantee that housing will exist for each citizen. And amid all of these human concerns, the environment will be exploited to the point of complete destruction, permanently reducing the possible quality of life for all future generations, over and over again.

In order to lift the masses out of squalor, a government must be able to occupy a strong negotiating position. The guarantee of high employment is not really possible unless productivity is artificially reduced, a deliberate endorsement of waste. However, high quality of life is possible through rigorous efforts at wealth redistribution and rules limiting working hours (such as shorter work weeks). But regardless of the solution proposed, the actual production of goods cannot occur outside of the jurisdiction of the government, so that reasonable regulations can be imposed. For this reason, and this reason alone, foreign trade ought be severely confined. But if a thinking person looks in detail at its actual effect, it is also clear that it is undesirable for other reasons.

The Infatuation with Elegance

2010-02-11T22:57:00.000-08:00

Economics, as an institution, is one that has tended to have an infatuation with elegance, a notion that simple solutions will emerge from the proper approach, and that the layman's instinct to roll up his sleeves and fixate on minutae is a sign of simplemindedness. This tendency is most pronounced in the political gestures made by the prestigious minds at the forefront of the modern day's many schools of economic thought. They propose that an economy can be improved by some radical change to monetary policy, by a restructuring of the tax system, or by general policies of laissez-faire. Ironically, it takes but the smallest bit of critical thought to dispel this illusion, and to reveal the incredible complexity necessary in even the most rudimentary of public policies. It is not that these minds have an inability or unwillingness to think critically; rather, their very academic careers depend upon their continued championing of the school of thought to which their thesis represents an oath of allegiance.

Wealth is taken often to mean the total monetary value of an individual's assets. If this is the case, then the distribution of wealth alone can hardly be taken as an indicator of the general quality of life. Let us use a simple example, that of the production of bread, from overwintered wheat grains ready to be sown in the spring, to the point of consumption at the table. It is clear that one must look at details: what portion is the cost of a loaf of bread of a laborer's daily wage, and is this state of affairs inclined, without further intervention, to improve or to become more severe, threatening the laborer with starvation? Here again, it is not enough to simply look at the possible, to assess the amount of labor spent in baking the loaf - though a certain level of productivity is necessary for a given quality of life it is not a sufficient condition. Productivity gains can in theory be distributed in any way the firm owner wants between price reductions, cuts in number of labor hours, and expansions of the production level. If any part of the supply chain cannot expand to meet increased demand for its factor goods, prices will not tend to fall and output will not tend to increase, thus unemployment becomes inevitable. In some situations, prices may also rise.

It is also not the case that the combination of different industries, each with a certain level of complexity, is confined by a law of interrelation that limits the total effect to some predictable bounds. Though it is true that as new industries are added, complimentary pairing can arise that compensate for some supply issues, a survey of major economies today reveals a few "bottleneck" resources that can each prevent a smooth expansion of supply levels in every industry. Few industries can go without gasoline in the distribution of goods. Nor can industries go without at least one of electricity, water, fertile land, available real estate, healthy ecosystems, or a general public willing to be fleeced.

One must ask, what about technological advancement? But here, the general trend of history indicates that technology is correlated with increases in resource consumption rather than reductions. In any event, a fundamentally unpredictable thing such as technology cannot make the supply of essential goods more predictable. If, in theory, the economy can become predominantly information oriented, and a permanent, abundant supply of electricity can be secured, the massive production and replacement of electronic gadgets would remain a source of both uncertainty and toxic waste.

We can now turn to the specific limits of monetary measures in the prediction of economic conditions. The welfare of person A is wholly uncorrelated with the wealth of person B, so long as person A and person B consume the same goods and negotiate for the same prices on these goods. In fact, if person B has a great deal of wealth, he may even get a better deal on some goods than person A, simply because his wealth will open doors for him. Inevitably, though, person B will not consume the same goods that person A does, nor will he negotiate for the same prices.

If one charts the flow of money within an economy, one will find that it is constantly flowing from individuals to businesses, then from businesses to banks, and from banks back into businesses, who return a portion of it to individuals in their wages. Assume that times are prosperous and every sector is flourishing. Here, a few inequalities generally apply. Businesses must collect more from individuals (revenue) than they give out in wages and loan payments (we may leave out business to business transactions such as costs of services and utilities, as we are looking at businesses in aggregate; furthermore wages includes dividend payouts). Similarly, banks must collect more in loan payments than they give out in new loans and wages. Investors must collect more in dividends than they pay in loan payments. Finally, individual incomes (wages) must exceed loan payments and payments to businesses if individuals are to become more wealthy.

This is described symbolically as follows

I.Business > W.Business + L.Businesses
I.Banks > N.Loans + W.Banks
W.Business + W.Banks > I.Business + L.Individuals

Additionally, Loan payments by businesses plus loan payments by individuals is the sum of bank income. Thus,

I.Banks = L.Businesses + L.Individuals

But can this linear system be satisfied with positive values? Let us check:

Start by subbing out I.Banks:

I.Business > W.Business + L.Businesses
L.Businesses + L.Individuals > N.Loans + W.Banks

=> I.Business - W.Business > L.Business
L.Business > N.Loans + W.Banks - L.Individuals
=> I.Business - W.Business > N.Loans + W.Banks - L.Individuals (1)

Furthermore:
W.Business + W.Banks > I.Business + L.Individuals
is equivalent to:
W.Banks - L.Individual > I.Business - W.Business (2)

(1) composed with (2) gives:
=> W.Banks - L.Individual > N.Loans + W.Banks - L.Individual

Which is equivalent to:
0 > N. Loans

Thus, the system cannot be all positive. In particular, new loan issues must be negative! In the real world, businesses and individuals actually accept new loans to offset various costs, meaning that many operate at a loss, hedging on better times ahead. However, these inequalities indicate that some sector is always going to lose out.

Indeed, these inequalities indicate that loans are being paid back in times of prosperity, such that eventually the banking system withers away and ceases to exist. Perhaps the banking system is a structural object, never intended to occupy a central place in economic life, but present only due to the persistent imperfections in the market. It is likely, then, that prosperity can be better insured through a policy of tight regulation of banking, and perhaps its confinement to single state charters or being an entirely government run enterprise.

Returning to the nice consumer pair A and B, what types of goods is the person B inclined to purchase? B will purchase the following:

Similar basic necessities to A
Real estate - B will bid up real estate that A is considering purchasing and lead to higher rental rates if A is renting
Land for its natural resources (This will benefit A if it expands economic growth, harm A if it causes environmental damage or the reverse if purchased for sake of squatting or conservation).
Luxury goods that do not appreciably increase B's quality of life but may compete for scarce resources and/or get A a better job.
Political favors, generally to give B an unfair advantage in the market place
Charitable donations
Investments in existing businesses (various effects, from good things like reduction of banking to bad things like monopolization)
New starting businesses

This last point, though, warrants some expansion. If a society has a coherent standard of civic virtue, B may develop his business for the sake of having a business. If he has ties to his community he may be content to run without a profit or with little profit (honest competition) simply because he will be cognizant of the benefits he is giving to the community. However, if the structure of industries is generally too concentrated (e.g. in megacorporations, box stores, etc.), B may not have any such opportunities. Furthermore, the society may be organized in such a way that genuine communities may be impossible (e.g. sprawling suburbs with no coherent design) or his culture may spend disproportionate amounts of time engaged in antisocial behavior (e.g. watching television or blogging).

Of course, having large amounts of money is different than having a high income. Assume the money supply in an economy expands in the following fashion: the dollars are distributed in an equal fraction to each member of the economy. Then any person who makes X more than the average income must have a total of Q individuals who make Y less than the average, such that X = Y*Q. In fact, net income within the economy (changes in dollar wealth) is equal only to the total amount of new money added to the money supply. Thus, unless prices drop as income becomes concentrated, the quality of life of those at the bottom tends to fall.

So on and so on, myriad details form a web of economic exchanges that has many dimensions and caveats. The interdisciplinary nature of proper analysis in this field ensures that those who focus primarily on mathematical models will not grasp the nuances necessary to make accurate predictions.

Value theories

2010-01-30T12:35:00.000-08:00

Historically, currency had its value pegged to the value of the collateral that backed the currency. Thus, a paper bill was typically representative of some quantity of specie (precious metals or coins made of precious metal) held in a bank. Much of early economic theory was dedicated to the justification and promotion of this fact. Thus, the idea arose that the value of a unit of currency was based on what it represented - be it a share of a valuable object, a quantity of labor, etc. Thus, the argument goes, an expansion in currency available leads inevitably to a decrease in its value, as more units of currency exist for each unit of the backing object.

This classical line of reasoning has been hard to shake despite the fact that it was never justified in a scientific way. Observations that people think of currency in this way is evidence only of a body of beliefs, not a revelation of universal law. Moreover, currency and the specie that backs it are both currencies of sort. Many thinkers make the (rather sad) error of believing that a block of precious metal has value in and of itself. Precious metals are not used for anything other than as wealth holding assets, and it has always been the common belief in their value - arbitrarily decided by historical events - and nothing more, that creates the value itself.

The false theory of currency value as proportion of backing object value results from two big mistakes in the classical line of reasoning relating to currency value.

1. The classical line of reasoning ignores the possibility of underutilized resources.
2. The classical line of reasoning ignores the fundamental role that uncertainty plays in currency value.

Both of these points are made by Keynes in his General Theory, but I would like to expand on them here in my own direction. Incidentally, both of these are tied to a fundamental problem in economics: the failure of equilibrium models to rigorously represent equilibria as related rates.

First, the case of underutilized resources can be directly highlighted by a few examples:

Suppose that a king wishes to expand his treasury, and devises a brilliant strategy for quickly growing his gold-mining industry. He prints new bills of currency, backed by no matching specie, and enters into contracts with mining firms whereby they will provide him with a portion of the specie that they find, such that it directly matches the quantity needed to back the currency issued. Assuming that the results of the venture meet the king's expected value and that there is a high unemployment rate, how will this affect the value of the currency?

Looking first at time of initial issuance - one can expect demand to rise for machinery and chemicals used in the mining process. This change will then ripple into the spending habits of the producers of these components. The increased revenue of these "component firms" will, due to the assumption of surplus labor, primarily become increased plant capacity and profits for the firm owners. These owners will bid up investments of various types (including real estate), and may spend marginally more on luxury goods.

Having a larger paid labor pool will also have an effect - laborers may increase their food consumption, primarily by demanding greater food variety, but for the most part, increased income will be spent on goods and services. Landlords will see lower vacancy rates as laborers cohabitate less, prompting an increase in rental rates.

Generally, an increase in prices across the board represents a decrease in the value of the currency. However, in the case of currency issue, these increases are the response of suppliers to the increase in quantity demand. In many cases, the supply of a good is sufficiently elastic that only the quantity produced increases. In only a few situations is there a bottleneck such that the supply of a given good cannot increase easily, and it is in this case that a price increase will occur.

To calculate the initial stimulus effect of such an action by a Government, an economist should ask two things: 1)Are the natural resources that will see increased demand readily available for use? 2)Is the economy significantly below full employment? If the answer to both of these questions is "yes", then the vast majority of the quantity demand increase will be expressed in terms of increased output. If the answer to either question is "no", the vast majority of quantity demand increase will be expressed in terms of increased prices.

Next, let us turn to the point when the mining firms begin to transfer precious metals back into the King's treasury. It is hard to see how this could have any effect whatsoever. Other than the labor utilized for the actual movement, inspection, storage, and safeguarding of the specie, no actual changes take place. The King now simply has more of a valuable asset, which is kept out of circulation, and which he will be able to use to meet future obligations if necessary.

Theories that predominated during the time when currency was directly backed by assets most likely had a profound effect on the decisions of the speculative class. When exchange rates were fixed, speculation often surrounded the values of currencies. In any speculative atmosphere, the ideas and decisions of the herd were the primary determinant of changes in prices paid by speculators. Therefore, so long as a sufficient portion of speculators believed in a given economic rule, the market would behave in a way that allowed economists to draw statistical evidence for that rule from the market. The egoes of the wealthy had a further impact on the development of the discipline, in that they believed their own wealth stemmed not from the collective effect of an otherwise arbitrary belief, but from actual knowledge. It is the wealthy that control University endowments, and they want the world to know that they are people of virtue.

Uncertainty also plays a key role in currency value. I invite the reader to imagine an economy in which individuals do not have uncertainty. Note that risk should be treated as a type of uncertainty. The cognition of an individual who does not have uncertainty is really omniscience. Such a person does not respond in a nash equilibrium fashion because he is able to coordinate with others effortlessly. Furthermore, the psychological predisposition of the individual toward equality would be an overriding factor in his economic relationships. Specialized knowledge disappears, and thus workers are no longer differentiable from each other. The only (economically significant) differences between individuals in such a scheme is their preferences and their property.

This thought experiment highlights another aspect of economic life that is seldom mentioned: its ethical connotation as revealed by our impressions. I invite the reader to contemplate the following examples:

A convicted murderer (about whose guilt there is no doubt) is released from prison due to a legal error by the prosecution. He purchases a lottery ticket and wins the jackpot, becoming a multimillionaire.
A woman who works hard her entire life, saving a small amount of money from each paycheck, invests her money in a mutual fund that loses more than half of its value in the course of a year.
A man witnesses a stranger help a blind person across a busy intersection and buys him a drink.
A student who earns straight A's has her allowance increased.
The city council passes a tax increase that affects only a single business owner.
The city council passes a tax increase that includes an exemption that only a single business owner can take advantage of.

If these examples awaken any feelings of righteousness or outrage, it is because our economic life is inseparable from our ethical impulses. In fact, the motivation of individuals cannot be expressed only through self-interest. We care not just about our absolute gains but about the effect our actions have on others and on the society as a whole. We value our own success relative to the success of others.

Considering our ethical impluses and our way of evaluating our own economic position, a society of omnipotent individuals will have a certain political equilibrium. Currency will not be necessary because the actions of each individual will be known to all. Each person will understand the full configuration space of individual action combinations and their consequences. Labor would be divided between individuals only on the basis of their preferences. Nobody would want to see the basic needs of others go unmet, and will balance this desire against selfish interests. Labor could not be divided between workers and management because management is completely unnecessary - the only possibility is the existence of a capitalist class who own the means of production, but even this is unlikely given that these capitalists would face perfectly coordinated resistance by the rest of the society and collective bargaining by their workers.

Individuals also have foreknowledge of all their future consumption needs. Therefore, individuals would be able to enter into contracts with each other for the direct exchange of goods between current and future dates. For example, I may work in a machine shop for an hour, with the understanding that this earns me a loaf of bread from the baker. The baker would understand how this settles some contract he is involved in, or establishes a future compensation for him.

Currency is really an effort at approximation of this system of contracts. Approximation is necessary because of the incompleteness of individual knowledge. This incompleteness is synonymous with uncertainty. Uncertainty has three principal effects:

1) The use of risks and estimates
2) Creation of search costs that establish a value for information.
3) Existence of liquidity

Returning now to an example of a theoretical "normal human" economy, if the total quantity of currency in circulation is X, during any given time period somewhat less than every unit in X (X-a) will change hands at least once. Of the exchanges that take place, some will be at a price that has not been actively reevaluated. When reevaluations do take place, the price-setter must generally plan for a price that will not need to be raised (or lowered) again for some time, meaning the change will be in greater proportion than what is initially required, and often will occur later than expected. In other words, price changes and rebalances do not freely propagate across economies, but actually move at a certain estimable rate. Furthermore, price changes may not be made at all if the cost threshold for change and accompanying discounting rate of the costs are not met. Therefore, even if the economy is at capacity when the currency supply is changed, the question is not merely by how much but for whom the change is taking place.

A tax can be seen as a transfer of currency from one group to another. It is paired with government services that are funded by the tax, and these services are, in turn, expressible as monetary savings for the individuals who benefit from these services. Often, the Government can provide services more optimally than the private sector. We may, in accordance with our ethical prerogatives, denote certain services as providing a greater contribution to quality of life than others. So long as tax policy shifts the balance of goods and services provided toward those that provide a greater benefit to quality of life, it is justified.

Returning to the concept of the money supply in contrast to the effective money supply, suppose that the money supply is expanded or contracted in some fashion. The economic effect of this change is wholly dependent on who receives the currency. Let us rank the individuals within a society based on (1) their propensity to spend an additional dollar received and (2) their propensity to take each dollar reduction in income from spending rather than savings. These two variables are bound to have some degree of covariance, but that is beside the point. Imagine a scale going from zero (will not spend) to one (will spend) for these measures. Then each individual will occupy a point on this scale. Savings are only reintegrated into the economy as loans. Thus, private debt is a function of the total level of savings. Payments on debt lead to income concentrations in the hands of debt holders. Thus, either price levels must fall, income levels must increase, or debt levels must increase for individuals to maintain their consumption levels over time. When left alone, the trend seems to be toward a glut of savings in the hands of the ultra rich, a lack of viable investments, and a inevitable drop in the price and employment level.

An injection of additional currency targeted to the least likely to consume will lead only to an increase in loan issuance. If the loans market is saturated, it will lead to a direct increase in savings and no overall change in the economy (X and a increase in parity).

An injection of additional currency targeted to the most likely to consume will lead to an increase in consumption levels. This will mean that the effective quantity of money has directly increased. Prices may rise, but they will not rise in a greater portion than income, as this additional currency is first expressed through income. However, the added currency will eventually reach the hands of those least likely to consume and it will "fall out" of the market in this fashion (X increases but a stays constant).

A tax placed on those least likely to consume will lead to a decrease in loan issuance, or to no change if the loans market is saturated. The direct decrease in savings will precipitate no change to the actual economy because the effective supply of money has not been changed (X and a decrease in parity)

A tax placed on those most likely to consume will lead to a direct contraction in the economy. It will precipitate a reduction in the effective money supply and would be very harmful to the economy (X decreases but a stays constant).

For the reasons just outlined, the policy of the US government of backing its deficit spending with bond issues is silly (actually I think of it as grand theft of taxpayer dollars). The government can simply issue additional quantities of currency and should not be concerned with balancing its books. Rather, it should pay attention to the macroeconomic effect of its actions and work to bring unemployment down.

The Opinion game - variations on a voting game

2010-01-28T14:30:00.000-08:00

In my own personal throwback to the 1970's, when these kind of things were all the rage, I have thought up a game, with a few variations, that I believe can be of use in the modeling of opinions formed by groups.

This game is played with one player. There is a stack of identically backed tiles, each having a color on the reverse side, one of m possible colors. In each round, a new tile is revealed, and the player must pick a color.

They are awarded points on the following basis:
+1 point if they pick a color that is shown on the greatest number of tiles revealed thus far
-4 points if they changed their color from last round (no penalty for this in the first round)

Naturally, the behavior of the player will depend on the distribution of tiles. If the tiles are chosen ahead of time from an equally distributed lot, they will behave differently than if each tile's color is an independent random event.

Because the analysis is easier when each tile is independent, I will focus on this case. If there are 2 possible colors - say red and blue - the minimum number of rounds that must pass before a rational player has an incentive to change his or her opinion is 8. This follows from the following argument and example (WOLOG):

We may limit ourselves to the simple case where one red tile is revealed then all blue tiles after that.
It never makes sense to change one's mind within four rounds of the last round
If red is behind by p tiles, the total expected payout of changing is derivable from the binomial distribution as follows: let n be the number of rounds remaining; the payout is a function of the path traveled to the final distribution. There are 2^n paths; we care about the difference between this outcome and the continuation of the red choice, thus equality of red and blue tiles is worth 0. Each path decomposes into previously calculated paths.

The shortest game in which switching makes sense is as follows:
Round 1:
Red tile revealed
Pick red

Round 2:
Blue tile revealed
Pick red (tied numbers; the "change cost" can be avoided)

Round 3:
Blue tile revealed
Pick red (at this point nine more rounds must be played for the expected value of changing to exceed 0)

Round 4:
Blue tile revealed
Pick blue (at this point, only 4 more rounds must be played for this choice to pay off)

Rounds 5 - 8:
regardless of tile revealed, player picks blue (see assertion 2)

Conclusions -

Studies of communication tend to emphasize the "deeply entrenched" nature of our opinions. This game confirms that if there is a social cost to changing an individual's opinion (such as alienation from your like-minded bretheren), a very large preponderance of evidence may be necessary to counterbalance this loss. Considering our number of choices in daily life, and the marginal benefits (if any) that abstract knowledge poses for the individual, it is no wonder that people tend to believe crazy things.

Availability of capital - modeling aggregate investment levels

2010-01-27T15:16:00.000-08:00

Given persistent payments on business investment I and loans (at interest) L, aggregate fixed costs F, quantity sold Q, expected revenue per unit R, and per-unit cost V, profit in time period t is:

profit(t) = (R-V)Q - F - L - I

Ceteris Paribus, a business that shows profit could in theory pay down its loans and buy back its stock over time, increasing long run profits. Such a business could also continually fail to meet profit expectations, in which case expenses will be paid in left to right order. One can expect investors to receive dividends or other benefits only if a surplus reaches them. Thus, they are in the highest risk position. One can also expect corporations in particular to generally be unable to pay down investments, instead maintaining constant investment levels and paying out dividends in lieu of buying back, as this is a more lucrative path for the controlling shareholders to take.

A start-up will have a risk position that is a point within the bounded range between the maximum expected profit and minimum expected profit (negative being loss) that determines interest rates and total loan credit available. A business proposal does not give an incentive to the prospector (for purposes of this essay the prospector will be the person who creates the business proposal) to safeguard investments or loans received. Rather, the prospector's primary incentive is his own desire to attract the investment, meaning he is interested in making a convincing argument regarding the business venture. The prospector enters into negotiations with investors and banks in which he will make an argument regarding his risk position within the minimum-maximum range.

Similarly, any business looking to either expand operations or replace depreciated equipment may have need for temporary capital. The same process will take place, but in models featuring incomplete information, more complete information than in the prospector case should be assumed.

This negotiation is best modeled by empirical data. In a theoretical sense, such a negotiation is irresolvable due to it being empty of a priori content. Games or market models that may be superficially similar show similarity only insofar as they make assumptions about the players that are grounded in empirical reasoning.

The risk position is dilated or contracted when aggregate demand changes. An economic decline will generally shift the minimum expectation down slightly and the maximum expectation down greatly. Similarly an economic recovery will shift the minimum up slightly and the maximum up greatly. Typically, the level of aggregate demand is a significant determinant of the risk position of any business. This in turn determines the results of negotiations and the aggregate investment level. The loan offerings available to a business will also change based on the state of the economy. Generally, loans are more secure during economic downturns due to their lower risk position than investments, and will expand less during upswings due to bank attitudes regarding speculation - meaning they will generally have a higher price than investors during good times and a lower price than investors during bad times.

The distribution of business financing between investments and loans will also depend on the interest rates offered on loans. Businesses and prospects will each have both a credit rating (which partially determines loan offerings) and a risk position (which partially determines investment offerings). Thus, businesses can be divided into three categories:

Businesses which attract loans at a lower interest than investments
Businesses which attract loans and investments at the same interest
Businesses which attract investments at a lower interest than loans

An important psychological factor comes into play in this distribution: the desire of investors and businessmen to maintain various degrees of control over businesses. For this reason, loans and other indirect investment mechanisms will have some edge over the introduction of new investors who could conceivably interfere with existing leadership structures. This means that even in boom times where there are many investors, institutions will still feature loans as a significant part of their portfolio.

Looking specifically at economic downturns, on the supply side investors will generally move assets into "safe" financial instruments. This will reduce the potential investor pool, driving up the price of each investment (in the form of dividend payouts). Therefore, loans will become a greater portion of business portfolios - meaning more businesses will be in category 1. This is accompanied by an increase in interest rates that is somewhere in between previous term interest rates and the new price of investment. Generally businesses become saddled with higher costs and less repayment flexibility during recessions.

Economic conditions may also prevail in which speculative investment increases in real estate, commodities, and other factors of production. This has the effect of driving up other aspects of business cost. Ceteris paribus, this forces businesses to seek additional investment, loans, or curtail operations. In fact, general decreases in prices seem to reach real estate last - meaning that real estate proportionally increases in cost during recession periods even as it shows no net increase in investments. Such changes bring about a long-term shift in the profit functions of businesses and force a decrease in hiring.

Arguably, it is these two effects which have the largest role in explaining the business cycle. Before venturing on, it is worth reviewing a key concept described in a previous blog entry regarding the distribution of money between the financial and real parts of the economy. Ignoring possible increases in the money supply, even if divided in a totally arbitrary fashion, it is clear that a two sector economy will have a relationship in which one sector gains money only as another loses it. If one takes the position, as I do, that loans do not actually increase the money supply, the following points will hold true.

Economies display a certain degree of stability. This stability is the result of the stimulus effect of incidental profits and losses. Within any given time period, some businesses will fail and investors will lose their money. However, so long as these failures are not interpreted by investors (or economists!) as a sign of changes in aggregate demand, average investor behavior will not change. These incidental losses must exist to balance against the unexpected successes (incidental profits) of other investors. Each time such an event occurs, aggregate demand is either stimulated beyond its equilibrium (in the case of incidental losses) or drawn below equilibrium (in the case of incidental profits). This follows from analysis of the relative stimulus effect of dollars in the financial relative to the real sector: since a failing business must by definition inject net dollars into the hands of noninvestors and a profitable one must do the opposite.

Paradoxically, the stability described above can only be maintained in an economy where there is a great deal of uncertainty among investors. Typically, the stability itself will lead to the perception of greater certainty as investors look to specific examples as test cases (regardless of the actual significance of these tests) and investors will turn toward a new strategy. It is extremely unlikely that investors will allow the economy to move toward a higher aggregate demand position through their own changes, as this would entail, in the short term, a higher risk position in the context of an average expected investment profit that is close to zero in the long term. In the event that mistakes are made and investors make bad investments, the immediate stimulus effect may roll the economy over to a new equilibrium. If mistakes are not made, investors will precipitate a recession because the opening time periods of the recession will promise them the largest profits. It is likely that some increased investment has occurred in commodities and real estate, further deteriorating the risk position of businesses.

Economic recoveries (and the prevention of recessions) generally occur through a combination of four factors:

Increased spending by Governments
Collapse of commodity and real estate markets
Significant expansions in the dollars available to the poorest (perhaps through welfare or other deficit income transfers).
An exogenous increase in the propensity to spend by consumers

Each of these, in sufficient magnitude, will produce a stimulus that has the potential to push the economy back to a new equilibrium.

Taxonomy of Incentives and Production; Optimization

2010-01-19T14:14:00.000-08:00

Each good or service provided by an economy has its own means of production, marketing, and consumption. These differences are not rooted in government policy or market structures, but rather in the physical realities of the natural resources, available technologies, and cultural paradigms involved. If one were to compose a list of all the different types seen in these three categories, one could then describe each good or service according to which of the types are present. The means by which a good or service is consumed is an important aspect of consumer demand and helps to make consumption patterns predictable, e.g. the correlation between cigarette and alcohol consumption. Furthermore, the characteristic given by the combination of means within each category partially determines the incentive structure that predicts the behavior of the business leaders controlling the production and marketing of the goods or services, e.g. the prevalence of beer commercials and absence of gasoline commercials. Therefore, the particular quirks of each product constitute an extra-market force that can be corrected by government policy, irrespective of concerns relating to market structure and externalities. It is worth noting that in this capacity, it is not the individual preference but the individual benefit with which the economic analysis is maximally concerned, and that even when benefits accrue to the individual, there is nothing to suggest that costs are passed exclusively to individuals in practice.

Production is described by a capitalization rate, which is the portion of the cost of production of each unit of finished good that depreciation of the capital assets consumes. The remainder of the cost of production is labor cost. Capitalization will come from natural resources, factor goods, and machinery.

Marketing is described by three cost categories: advertising, distribution, and pricing. Advertising is a direct cost calculated to stimulate demand at a given price level; distribution is mostly correlated with the inclusion or exclusion of various geographic markets; pricing costs are costs incurred through coupons, promotions, sales, and other temporary price variations designed to stimulate demand or reduce inventory levels.

Consumption is described by probable aggregate goods consumption bundles given household budget levels. This is further divided by demographic. For each good at a particular price with a particular marketing and production strategy, there is a predicted consumption level (a mean with a standard deviation) and covariance with each other good available or changes to budget levels. In practice, the predicted consumption levels for each good are empirically determined. Accepted business practices and rules of thumb dominate over any "assumption of rationality" and so none is needed.

Businesses attempt to maximize profits by coordinating both production and marketing strategies. Businesses are constrained from an absolute realization of efficiency by limits to their own strategic abilities. Many choices made by a business are probabilistic in nature, meaning that as a business approaches its maximum profit level, the probability of moving closer to maximum profits decreases. Thus, the uncertainties of the production and marketing of any given good create an efficiency ceiling for the business. Furthermore, businesses typically have steeper cost discounting curves than either the "firm as a sovereign entity" would have or the society at large would agree on (in fact, it is arguable that society does not discount future costs at all).

In order to realize the true scale of the possible improvements to quality of life, the behavior of consumers must be described in such a way that it becomes possible to criticize it. A model such as a revealed preference model is not sufficiently rich in its psychological descriptors to be of service in this capacity. For this purpose, I would rather develop a marginal benefit impact for each consumed good. Underlying such a measure would be the assumption that rather than measuring individual welfare relative to no consumption, the more common concern is the effect of changes when measured relative to existing consumption levels. There would be no assumption of self-rationality; we merely observe that individuals tend to pick goods that benefit them, but that these are not always optimal choices nor are individuals aware of every possible budget composition available to them. The actual values used would be based on health and lifestyle data and sociological studies.

Optimization across these categories takes the following form:

1. marginal benefit - marginal cost = net gain

2. predicted consumption level * effective price - distribution costs - advertising costs - capitalization costs - labor costs = business profits

3. business profits are maximized when the marginal business profit is zero; but since the function is multidimensional we must also calculate the Jacobian to assure ourselves that we are in fact viewing a global maximum (rather than, for instance, a saddle point). In general, this situation shows the failure of automatic market correction because the under(or maybe even over)supply of financing to businesses can lead to inefficient capitalization ratios. High(or low) advertising and distribution costs can also affect the general level of sales of the entire business.

4. Even when the situation exists that all externalities and market structure inefficiencies are properly counterbalanced by regulation, two situations will tend to exist in the market provision of any good: 1. The marginal benefit will be less than the individual's perceived marginal benefit. This follows from the effects of advertising and the incompleteness of individual strategies. 2. The marginal costs will be greater than strictly necessary because businesses cannot realize maximum efficiency levels and have steeper future discounting curves.

5. If marginal benefits are well known, government policy can be organized around changing the various cost and incentive structures affecting businesses and individuals to push them toward decisions that maximize marginal benefits. Generally, this means 1. Ensuring adequate capital flow to emerging or expanding businesses. 2. Ensuring media diversity and access so that all types of business that seek to advertise have the opportunity to. 3. Planning local, regional, national, and international infrastructure to ensure that markets are accessible to distributors at a low cost. 4. Relatively high educational subsidies to promote competence within organizations and to ensure that individuals have adequate self knowledge to build good consumption bundles in the first place.

It is worth noting that this only looks at the individual business and consumer. It does not consider externalities or market structure issues (e.g. monopolies). Public goods and various types of Government activity are also justified by the existence of these situations. In particular, wealth redistribution and monetary policy are crucial functions of Government.

It is also worth noting that existing Government policies do not always reflect solutions to problems, but can often be problems in themselves. The best way to put the policy recommendations that follow from a principled economic analysis is not "regulation" or "deregulation" but "reregulation" as many problems exist on both sides of the issue.

General Nature of Economic Model Dependency Schema

2010-01-13T16:15:00.000-08:00

Following on the heels of my previous post, this essay will classify the different types of economic predictions and trace them back to their source data by following the paths that this data takes through the models (dependency scheme). In keeping with this approach, the objective of this study is to evaluate the degree to which various assumptions play roles in the actual conclusions observed within a given model. Once the structure of the model is understood it can be critiqued as being more or less scientific on the basis of the criteria described in my previous post: correspondence between model elements and observed reality, the degree to which it addresses the original questions of its scope, and the degree to which it behaves as a way of observing through the creation of structure of reality theories.

Below is a schematic depicting the dependencies for a classical economic model.

Three important observations can be made:

Wages do not alter commodity demand in this model, as decreases in wages mean increases in profits (not separated schematically), which in turn increases in other factors. Similarly for wage increases. This is an example of the type of troublesome details that seem unavoidable in models built this way.
This model, though predicated on the use of calculus as maximization, does not feature equilibrium in the sense of related rates. Thus, the model is "always in equilibrium", with equilibrium being nothing more than the (assumed unique and extant) solution to a linear system of constraints.
Exogenous factors disturb a key point in the system - commodity demand, which feeds both the aggregate supply and the aggregate demand side of the equilibrium. Unless some means is devised ad hoc for bounding or predicting these exogenous factors, the predictive power of the model is compromised.

Generally, similar criticisms can be made of other economic models.

The key scope question asked by macroeconomics is How do changes in Government policy affect the parts of the economy? This question, in turn, spawns the following questions: How are the parts of the economy best described in terms of their functional relationships? And, What effects are economically relevant when reviewing or proposing policy changes? In addition, the first question can be pushed back to encompass brainstorming by asking What changes are occuring in the economy under the status quo? And What policies should be implemented to address changes in the economy?

Rather than addressing the question of whether a model matches observations as a whole, it is important to ask whether this model matches the behavior of its component groups. Generally, one should ask how the component groups behave when analyzed in this model, then examine the behavior of individuals and firms based on historical records and experimental data. Having fewer variables involved reduces the effect of exogenous factors. Additionally, without such analytic separation, progress is rendered impossible when particular errors cannot be identified because the solution space is too large to practically check them all.

Next a system of accumulation and exhaustion rates must be formulated to allow the model to have equilibrium generated not by constraint but by the equality of countervailing rates. This introduces the temporal element to the equations, and allows the direct description of economic trends, growth, etc. When these things are directly described, they may be directly compared to observations.

Finally, the development of metrics must go beyond mere measures of aggregate production. Single index values are not acceptable because many ethical systems are predicated on deontological standards such as minimums, rights, duties, and social orders. These must be integrated into the economic variables in such a way as to preserve their original meaning, and this requires knowledge of both the relevant philosophy and the economic model. It is important that this development be scientific, because in this way it can remain based on observations, allowing critique not merely of the economic methods but the philosophic ones as well.

"Measuring" the effect of Stimulus

2010-01-12T10:49:00.000-08:00

The AP recently wrote what can only be called a hit piece targeting the Obama administration that alleged that the stimulus has not created any jobs. This is the result of a study conducted by the AP and reviewed by "independent economists at five universities". Unfortunately, the study itself, which the AP quotes in its own article, does not seem to be available for review by the general public. This is troubling, because the study is certainly methodologically flawed. The claim that the stimulus has not been effective, which is what many readers will take from this article, is not one that an economist can make in good faith.

The claim is suspect for three reasons.

First, the study seems to make a serious error in counting of jobs. A key hint comes from a quote by Emory University Economist Thomas Smith, who reviewed the study:

"As a policy tool for creating jobs, this doesn't seem to have much bite. In terms of creating jobs, it doesn't seem like it's created very many. It may well be employing lots of people but those two things are very different."

Most likely, this study is counting "jobs" as the secondary stimulus effects, or ripples in the private sector created by the public spending. This type of counting is wrong. In terms of stability and growth, there is no functional difference between a job in the private and public sector. The difference is at the level of the firm, meaning that expanding the public sector undermines efficiency at the firm level, assuming that firms function more efficiently than government. Workers who are employed by the government do not spend less or create less demand for production materials than private employees.

Suppose that a law were passed that had the effect of taking $40,000 annually from the single richest person and using it to hire a single laborer - then so long as there is not a shortage of laborers, the number of jobs in the economy is increased by 1. One might here ask whether that wealthy individual will now be deprived of capital that he could use to hire an employee. But two conditions must be met before the wealthy individual will fund such a job - he must have the capital and there must be sufficient demand for the product. In our economic situation, as in most economic situations, the second effect is certainly dominating over the first. In keeping with this analysis, a $20 billion dollar stimulus could be expected to create 500,000 jobs if it was raised totally from taxes. However, in the case of this stimulus plan, the stimulus comes from government issued debts, which are held as safe assets by banks, meaning that they are sold on the market only to wealthy individuals who do not have a better investment option (such as going into business). This makes the stimulus much less likely to trigger capital shortages by potential investors. Certainly, though, there are mitigations, such as disbursement costs that make the initial effect somewhat less. So, this number could be trimmed further, maybe even cut in half, but it is still not zero. If it is not a large enough number, then it is evidence, as many economists have argued, not for abandoning the stimulus concept but for making a much larger stimulus - on the order of $800 billion or so, which is about what the total stimulus adds up to. That is the opposite spin from what many people got from the article.

Secondly, there are persistent questions that need to be asked about the measurement of economic variables. Since many things in the Economy are in constant flux, and since the Economy itself is unpredictable, it is not possible to separate the variables involved without depending on one's economic models. In other words, economics can only ever compare reality to the theoretical. It cannot create or observe any experimental controls. The very term ceteris paribus is a transition to the theoretical.

Many economists sadly use a neoclassical model that posits the economy in a constant trend toward an equilibrium labor employment that is set by a unique equilibrium given by the labor market. Even the Oregon State's official economists use such a model, and as soon as the economy started to go downhill, this model predicted a recovery. In fact, I have seen one rather hilarious graph which shows a series of three predictions, each made two months apart, that doggedly showed the same upward trend in the coming months, each being wrong.

We have known that such a model is wrong since Keynes wrote the General Theory. Though the assumptions, first formulated by Ricardo, about the way labor behaves were almost certainly wrong, Keynes also pointed out that the classical model was based on circular logic. But just to add perspective to this issue, Keynes' primary academic opponent in the General Theory was Pigou, who pioneered many aspects of welfare economics and advocated for subsidies to correct market failures. I highly doubt that were Pigou alive today, he would advocate against government intervention in our economy.

In other words, without knowing if things were going to get better or get worse without the stimulus, it is impossible to tell with any accuracy how many jobs the stimulus created. If one uses a classical model, one is likely to predict a recovery too soon and therefore underestimate the effect. Even finding the stimulus ineffective does not endorse inaction.

Third, the very small nature of the stimulus studied in this article makes it harder to measure. For reasons not explained, this study looked only at a small part of Obama's total stimulus package. In an economy with 300 million people and GDP in the trillions, the aggregate employment effect of a $20 billion disbursement at the national level is going to be rather diluted.

Furthermore, this measure was offset directly by State Governments cutting their budgets. Here in Oregon, we were smart and knew that gutting the State budget would only make our economic situation worse. Even so, we may be forced into such a situation, and we could even lose our super-majorities in the legislature. The tax increases that Oregon passed are really a good option for our economy, but you would never learn this by reading what newspapers like the Oregonian have published. Referring to the disastrous way that budget cuts by Herbert Hoover exacerbated the great depression, Paul Krugman warned of the state legislatures becoming "Fifty Herbert Hoovers".

Sadly, the media remains a pawn of business interests. This manipulative relationship is formed in part by the inability of journalists to see through the economic deceptions created by conservative economists. The best way to describe such economists is ironically through their own language of regulatory capture. I would say that these people have been captured by corporate interests. With their help, corporations can expand their grasp, to capture the media. We must work diligently to build our own information networks for political and economic information, because the evidence is mounting that advertising-based media cannot be trusted.

Some Philosophy of Science

2010-01-04T13:31:00.000-08:00

This post is my exploration of various concepts and standards in the philosophy of science. The purpose of the exploration is to define clear criteria for the inclusion and exclusion of various approaches within economics as being scientific. Unfortunately, the existing literature and philosophy dealing with what science is are crude and unhelpful for a variety of reasons. The many myths about the scientific or nonscientific nature of particular arguments or models within economics are probably due to this deficit. Thus, it must be addressed if the discipline is to obtain practical clarity and a real public policy vision.

In particular, This is intended to be an exploration of the essence of the science, the science itself, rather than its practical application. The definitions given of what science is, such as in Thomas Kuhn's Structure of Scientific Revolutions do not generally make this distinction, often blending the institutions of science with the science itself. Generally, there may be a vast number of institutions and rituals surrounding a particular practice of science that are not part of the science itself. To the degree that these things are necessary for the science to exist, there must be some requirement - a property of the science itself - that creates this necessity.

The essential, classifying property of science is that science is a way of observing. The development of sciences is really the development of different ways to observe phenomena. When a conscious being observes a phenomenon, it initiates a mental process whereby it assigns a meaning to what was observed. The theories of science are particular techniques for assigning these meanings.

The type of technique that is created for the purpose of assigning meanings is what I'll call the structure of reality theory. This theory defines and creates the objects used by the observer of a given phenomenon in his explanation of that phenomenon. This is typically a partial replacement of whatever other intentionality might exist for the phenomenon, but I can't say that there aren't cases of pure augmentation. Science isn't the only thing that creates structure of reality theories; rather these theories are, in my schema, an essential component of all human understanding. Their totality provides a cover for the domain of object definitions in the thought process itself. As a dynamical system, the thought process is always drawing from this domain of object definitions to create the objects of thought corresponding to observed phenomena, memory, and mere imagination. The thought process is apparently also capable of making changes to these structure of reality theories based on the qualities of the objects of thought that are created, and of communication to other individuals (and to itself) of a fragmentary form of both objects and structures. In this way, the system evolves and the thought process of the individual changes.

Science is differentiated from other methods of creating structure of reality theories in that science attempts to base its structure of reality theories on only observed phenomena and formal logic. Properly speaking, this is impossible, as phenomena are not accessible to the consciousness prior to their interpretation into objects. Once the object is created, it has already been processed by the structure of reality theory in which imagination, memory, and communications from other consciousnesses may have exerted significant influence. Remembered or communicated objects trace their origins back to either imagined or observed phenomena. Therefore, to establish a record of pure observation, science needs a way to systematically exclude imagined phenomena and any phenomena of unverified origin.

Science is also differentiated from other methods because it seeks a specific explanatory telos. In more general terms, this means that each science has a defined end-point at which it is fully understood. It poses a finite set of questions, which, when answered completely, would constitute a complete structure of reality theory that cannot be improved to better answer these questions. At first glance, this might seem to be nothing more than a descriptive property, but it has a key function to the development of the science itself. When we talk or think about reality, we tend to forget that each topic to which we turn our attention has its own collection of concepts, defined in relation to each other, that collectively constitute the topic. These are an expression of the structure of reality theory that we have with respect to that topic. The science must have an origin, and this origin is in the criticism of objects that arise through a less scientific structure of reality theory.

Neither of these are unique to science. Rather, sciences are the ways of knowing that exhibit both of these characteristics.

Wealth and the State of Nature

2009-12-31T14:38:00.000-08:00

The traditional beginnings of a philosophical treatise on topics in government features a section in which a thought experiment is carried out in order to justify later assertions regarding the social order. This "state of nature" experiment determines which issues will be of primary concern to the treatise at hand. In more modern times it is called by different names, but it seems necessary in one form or another. It provides a focal question or set of questions which the philosopher can then answer, allowing him to transform his work from exposition into argumentation.

The essential question in economics relate to wealth. If and only if levels of wealth are sufficient are economic concerns abated. Failures of economy are always confined to insufficiencies of total production and failures of adequate distribution. The consequences of this failure are deficits of wealth.

If economic regulation is seen as a part of the function of government, it is possible for a state of nature based argument to spawn policy suggestions. As one would expect, economic ramifications are presented by virtually every political philosophy. For some, such as Marx, economic considerations dominate all others. In other words, the production and distribution of wealth is a legitimate concern of the individual in the state of nature, whatever these terms mean.

In order to better understand wealth, visualize the society most adversarial to it. Imagine a communal society having no formal currency or meaningful accumulations of persistent goods, no agreements on ownership of property or rights to land or its use. More precisely, this is is a society where differences in the individuals' physical and mental capacity and social standing are the only measures of these individuals' wealth. Goods acquired are consumed rapidly. Well being is describable only in terms of quality of food, sexual prowess (in the sense of having desirable sexual roles), and amicable social relations within the society. Wealth is thus the descriptor for the situation in which a greater or more secure stream of these goods flows toward a particular individual or group. Furthermore wealth has two other properties that will become important later in this discussion: it may have a conspicuous aspect but it is not bound to be conspicuously presented; and wealth need not be deliberately pursued or even understood in order for an individual to have it or accumulate it.

The philosophers at the base of the economic tradition have typically emphasized the state of nature as being one in which freedom reigns in a more or less unrestricted sense. The function of the state of nature within a philosophy was to serve as some basic state in which man's true nature is clear, or in which action could be analyzed in some pure sense to draw out a basic concept (e.g. Locke's concept of property through labor). The conditions described were not typically representative of any existing cultures, nor were the availability of various resources accurately represented. This - in and of itself - is not problematic because the state of nature is merely a thought experiment, after all. What makes these descriptions problematic is that they don't genuinely escape the culture from which they are conceived: they are given an essence of freedom and assumptions of motivation that are artificially copied from the motivational framework of the author into the thought experiment. The point need not be labored that such a beginning will eventually misguide the entire discipline built upon it.

Individual motivations generally take a highly cultural character. This is a point not easily grasped by philosophy, even eastern philosophies that ostensibly place less emphasis on the individual. The motivation for even selfish acts that we engage in alone is part of a conscious stream the primary function of which is to monitor and develop our social position. To posit humans outside of culture is to separate them from a part of themselves, being that a significant portion of our neurological wiring is dedicated to the perception of others, and that any state of affairs in which this wiring is engaged will have a cultural character. There is no basis that defines what types of interactions are noncultural, nor can the actions of an individual in isolation be seen as natural. Our observations of thought process and motivation all come from within our cultural paradigm. Therefore there is no cause to believe that an individual outside of society will have any particular pattern of thought, or a pattern of thought at all.

Freedom is an object of contrast. It is definable in part because its absence is possible. Supposing a person were living in a state of nature, he would not be any more (or less) free from the laws of nature than any of us. This person would have no cause to define or experience freedom unless he engaged with other individuals who were capable of limiting it. However, in the course of interaction, culture develops, and whatever division comes to exist between individuals is immediately subjected to the very cultural concepts that the state of nature is supposedly filtering out.

Locke gives an example of a person who picks an apple, and who therefore has the apple now as his property. Were another individual present, that individual would have a relationship with the apple-picker that is cultural in nature. It would not be possible to discount cultural considerations offhand, because they might very well define the apple in a way that made it not property of the apple-picker. Conversely, if there were not another individual present, the concept of property is meaningless because it cannot be contrasted with any idea of "not property". The "individual" that Locke has envisioned, having no claim to a thought process or any notions of freedom, can't be viewed as anything but a creature artificially inserted from Locke's own cultural realm, robotically acting out a set of instructions it does not in any way understand.

John Rawls defines the Orginal Position as a thought experiment in which people are separated from their knowledge of their own identity within the society, forcing them to weigh the risk of poverty against the rewards of opulence. In this more modern approach, the culture of the individuals and indeed the very thought processes of the automatons into which the individuals are injected remain and may be subjected to criticism. This thought experiment is far superior to Locke's because it does not rest on an artificial notion of the individual. However, it does rest on an artificial notion of wealth. Since wealth is merely a culturally defined property of individuals, this is a less serious problem.

With the proper lumping, all wealth can be placed into two categories. The first category is connected to the productive talents and abilities of the individual. This is not merely their skills, but their traits that make them interesting or uninteresting to the other members of the society (physical traits like attractiveness, gender, age, etc.). The second category is connected to the standing within the society that the individual has - through money, connections, caste, marriage, legal conveyances, etc. The wealth is not these objects, for instance the money itself, but what it can bring on demand. In other words, wealth is the capacity to bring a thing on demand, and it is talents and privilege that tend to do so (and don't forget that in this schema, pecuniary wealth is merely a privilege).

Returning to the state of nature question, the proper way to begin a description of the state of nature, with regard to economic questions, is to posit a situation where a person has no wealth. This is obviously not possible, as the person must have some talent or ability that can be used to some avail. Nevertheless, this schema is still very useful, as it shows immediately that wealth, in some fashion or other, is needed merely to secure more wealth. It also captures the fate of a human in the "state of nature": starvation, hypothermia, death by exposure, possibly being eaten by a wild animal or perhaps being killed by the actions of another human. At an even more primitive level, a person in a state of nature must not merely be deprived of his ability to survive but of his very ability to enjoy his remaining days. Surely, this is a form of wealth. A person need not have much to enjoy the natural beauty of the earth. This beauty is the most fundamental form of wealth, and all people posessing any of the five senses can demand it at any time.

To measure wealth, in one way or another, is to create a criterion for valuing some demands above others, for the ranking of distributions of privilege (note that educational training, although increasing skills that can't be transferred, is still a privilege in this schema. This is not an altogether accurate description but in the end it will not affect the conclusion). Wealth cannot be measured in any other way. To value only dollars is to value dollar demands and no other demand types. A person in any kind of society obviously has wealth in some form or another. Even a very small group of people, having nobody else to depend on, is capable of survival and even happiness. So long as there are a fair number of hearty women and fertile men, it is possible for this group to survive indefinitely, provided that the natural world continues to supply the necessary resources.

The other aspect of wealth is the existence of resources to which society can apply labor and technology in order to meet demands. The presence of these resources depends on 1) the development and use of technology and 2) the ecology of the environment in which the individual is situated. Together, these two concerns encapsulate the strategy for maximizing the total wealth of a society, at least prior to a more detailed consideration of distributions.

The development of technology is not dependent on any particular or regular factors. It is often erroneously asserted that technological development depends in some way on savings or investment. This is an unsatisfactory and overly abstract, nonmechanistic answer. The real mechanism that motivates technology is the provision of resources to those both interested and capable of developing technologies, and there are myriad ways to allocate resources in this way. In any event, there is a level of privilege that must be assigned to the scientist or the tinkerer to allow him to dedicate a portion of his time to his passions and to make requests for the necessary resources.

Technology is not merely instruments or machines, but the means of using these machines. It is internalized in individuals to a great degree. In truth, the pursuit of knowledge itself is a technology that has unlocked what is best described as "new ways of thinking." Technology should rightfully have a high priority in the valuing of demands - meaning that societal configurations that invest more in technology are generally higher in the ranking of privilege distributions. Technology is also the social structure, institutions, and various public goods that have undergone increasingly beneficial metamorphoses from one age to the next.

Ecological science, itself a product of the pursuit of knowledge as a technology, must be vigorously applied to any question of economic impact. For instance, even if he is starving, a hunter should not be allowed to shoot the last of a species of animal. Ample ecological evidence supports the thesis that species extinction impoverishes future generations. There are many types of ecological damage other than biodiversity loss, but their effect is always to impoverish. The problem is never monetary in nature; it is in changes to the types of demands that future people can make. In fact, it is folly to measure ecological damage in dollars, because the ecological damage hasn't changed the money supply in any way! It merely diminishes what is available for us to enjoy. It follows that distributions of privilege that preserve the natural world to a high degree will also tend to be favored. Preventing every extinction is not possible, of course.

Turning now to the question of distribution of wealth within a society, we can venture back to our minimal wealth village. Supposing that a calamity of some kind struck, and a shortage of food were to suddenly materialize. Would the person who does some other craft without producing food of his own, instead trading for it, be one of the first to be fed, or would he be lucky to be fed at all? It seems that in this case, absent some privilege that allows him to take the bread from the hands of his fellow villager, he would have no means of obtaining food. In other words, there is an order of importance to production. The goods most important are those necessary to survival. Those least important are the ones we can do without. This in turn imposes an order of importance to privileges: those that can be used to obtain the most important resources are the most important. Finally, the importance of each thing is always dependent on context and the subjective tastes of the individual. However, this dependence on subjective taste becomes stronger only as one progresses away from the necessities: all people have similar physical and emotional needs.

The arrangements of labor that are common in my culture are really agglomerations of privileges. Many people who are highly paid are doing work that others would do for very little pecuniary compensation. Furthermore, as Galbraith noted in The Affluent Society, we value our pay much more than we value the products that we produce at our jobs. But, he hasn't quite pierced deeply enough. When the actual material needs of the society can be provided through a small amount of labor, in which the labor itself is not distributed equally through the society, there must be a system of privileges in place to entice the few to work for the welfare of the many. Our society takes two approaches: taxation and consumerism. Marx suggested land reform. This, of course, would undermine our very beneficial economies of scale.

Taxation is a form of coercion when seen in this light. It is justified by the existence of life enriching public goods that game theory has definitively demonstrated cannot be effectively provided by the private sector. In particular, we have benefitted from those that enhance our level of technology and safeguard our environment, ensuring a high level of production in the future. Even so, it is a necessary evil.

Consumerism is a blight. It serves few purposes. Its historical source was conspicuous consumption and the confusion of happiness with luxury. It is perpetuated by ignorance, for a person who consumes heavily must be ignorant of cause and effect. In no way does a person who watches a movie rather than volunteering at a soup kitchen benefit themself. In fact, I would go so far to say that a person who dedicates themself to selfless acts is happier than a selfish consumer. In fact, a person's intake of consumer goods, in a purely maximizing fashion, would be minimal, only enough to allow him or her to appear "normal". He or she would be better off saving the rest. This critique applies sufficient force to argue against consumerism on the basis that it is a mental disease, even as its environmental impacts pause within my pen.

If political debates center around taxation, I support them. That is because the trade off is typically between taxation and consumerism. Americans are not on the verge of starvation (though that could change in 2010...)

But there is an alternative to either taxation or consumerism, and it centers on our culture. Marx was not altogether wrong in his utopian vision. In a sense, he hearkened back to the time of the peasantry in Europe. In those otherwise grim conditions, humans toiled in a way that brought them together. Without trinkets and salesmen to corrupt them, without the financial markets and sophisticated business models to swindle them, they each led a diverse life that exercised every part of the human instinct, just as the life of a hunter-gatherer might. When we walked the path of technology, we were enamoured with the noncontroversial and therefore the nonpolitical, and so our ability to regulate our own creation fell behind our ability to produce. But, now I feel the pendulum has swung back the other way. It is time to truly assess what we are capable of.

What I speak of is a cultural unification of sorts. It is not at all what Marx planned. It is the replacement of consumer goods with local crafts. It is the use of and evolution of art as currency, as a thing of value, and as a meaningful pursuit. It is the wholesale endorsement of science. Our precious class of farmers and laborers should be paid very well, so that there will be no shortage of them. After all, they are the most important members of the society. Working hours will not be long. The rest of us will live frugally, surviving through our arts and through the public system of welfare, but we will make the world rich with philosophy, political activism, art, and literature. The government will be within our control, as we are the ones available to work for it. And its main function will be to ensure that everyone's basic needs are met.

This vision is not inevitable. It is, however, possible, and more equitable than any government existing today.

Myth and fact in antibiotic resistant bacteria

2009-12-29T10:44:00.001-08:00

Following the big expose on drug resistant bacteria posted by MSNBC today, I'd like to outline the probable distribution of causes of resistant strain evolution between the broad categories of physician over-prescription, informal antibiotic use by individuals, and agricultural feed-mixing. The most serious form of resistance is the multiple antibiotic resistance, which generally means the infection is untreatable. Individual drug resistances, though dangerous, are not so serious, and so the causes of the two types should be distinguished.

Resistance arises through the presence of random genetic mutants. Typically the mutant genes confer resistance by encoding for a slightly different enzyme shape for an enzyme needed in the absorption of the antibiotic. Resistance is conferred between different strains of bacteria through the processes of plasmid exchange and bacterial transformation. Generally, this leads to an evolutionary selection process for bacteria where the possibility of genetic exchange with similar bacteria moderates the factors influencing individual, genetically identical colonies.

Before venturing further into this topic, let us refine the parameters by which resistance is measured, to dispell some common misperceptions. The natural selection model implies that bacteria do not respond to antibiotics by reactively evolving defenses, but rather have these defenses before exposure (and are therefore selected for) or do not have such defenses (and are therefore selected against). Furthermore, bacteria face constant pressure from immune systems when invading a host. Therefore, the antibiotics don't need to (and most certainly aren't) completely effective in the sense of killing all the bacteria. All the antibiotics need to do to be effective is kill off a large enough percentage of the bacteria to allow the body's immune system to gain the upper hand.

When people take antibiotics as prescribed, they suddenly introduce them in large quantities. There simply is not enough time for the entire evolutionary process to occur. It follows that the evolutionary process can't realistically happen during a particular infection in a person. Thus, there are two scenarios where a person can suffer from an antibiotic resistant infection.

1. The person is infected with a strain that is entirely resistant to the given antibiotic
2. The person is infected with a strain where the resistance is not prevalent, but has a similar, begnin strain posessing accessible resistance-conferring DNA. This DNA is assimilated into the infecting strain in significant quantities prior to the application of antibiotics.

This second scenario is unlikely for two reasons. First, though the bacteria that cause infections are similar to bacteria found on the human body, they generally occupy different parts of the body. Thus, they will not come into frequent contact. Secondly, there is no selection pressure in the individual to lead begnin strains to have such resistance meaning that the resistance must by chance be given by a mutant and that the mutant will have some other mechanism that propagated the DNA across the colony. This same mechanism would then need to be effective at introducing the resistance DNA into the invader.

If antibiotics are taken in an irresponsible manner, it is possible for them to be introduced in insufficient quantities to constitute a spike, or to be taken frequently enough to represent a more regular selection pressure.

In these cases, the majority of individuals do not end up in the hospital, dying. So we can reasonably assume that they have recovered from their infections. It is likely that the infection has been passed on in some cases, but passing the infection on after antibiotic use is not altogether too likely, because even improper antibiotic use does dramatically reduce the incidence of bacteria, making a person much less contagious. Even though such an event is rare, it is feasible for it to promote one or another particular mutants. But, unless multiple antibiotic resistance is conferred by a single mutation, it could only occur through a long series of such improper exposures, something that seems impossible, considering that even when exposure occurs it does not guarantee that resistance genes are present.

However, if antibiotics are applied in constant, low doses to an entire population of creatures, this is tantamount to effecting an environmental change. Populations of bacteria are continuously being introduced to an environment where antibiotics are present, and the selection pressure is in the "just right" range where it overrides the force of random mutations but is not strong enough to destroy entire populations before adaptation can occur.

In particular, the constant presence of the antibiotics makes it more likely that transferrable resistances are developed. Various strains may each have one or two antibiotic resistances, but multiple resistance would represent several mutations that would surely compromise the viability of the bacteria in the absence of the antibiotics. Though I have read nothing that supports this idea experimentally, I believe that Multiple Resistances are in fact expressed as plasmids or some other transferrable DNA that is exchanged through bacteria populations as a cooperative survival strategy. In this way, no members of the populace must exhibit all the resistances at any one time, but all the various genetic material is associated with every resistance in aggregate, guaranteeing the survival of the genes against the antibiotics.

Regardless of the characteristics of multiple resistance, it is agreed and established that there must be constant selection pressure for bacteria to maintain resistance over the long term, especially multiple resistances, because it reduces their viability when antibiotics are absent. Multiple resistance can only be the result of a constant regime of multiple antibiotics, either simultaneously or in series, something done only in agriculture.

For each multiply resistant strain, there are many less broadly resistant strains that constitute the genetic pool from which the multiply resistant strains develop. Multiple resistance must arise in a combination of the following ways:

1. Series mutation of strains, with each mutation conferring additional resistance.
2. DNA exchange through environmental cohabitation of different strains
~~3. Bacteria that becomes supersaiyan~~

The temporal requirements of the first case are only met in an agricultural environment with constant antibiotic use. The second case is less likely in humans (who have relatively good hygeine) than it is in animals, particularly ones raised in filthy conditions. Open sores, lack of space in which to engage in instinctive cleaning, and a maximally fattening, hormone enhanced diet all combine to compromise the immune system and blur the line between environment and host. This is an ideal breeding environment for all types of infectious bacteria. It is also a decidedly unnatural environment where many selection pressures are reduced, replaced by antibiotics.

The final question is how often and in what way are resistant strains passed from animals to people. This is a much more empirical question, requiring knowledge of the sanitary practice of slaughterhouses and the like. But even in our enlightened society we know that there are people all around us that work with raw meat on a regular basis. If the plasmids or other transferrable DNA is preserved in the meat that we eat, these resistances could pass into us, waiting for the unlikely exchange with a nonresistant strain, leading to a random and otherwise difficult to explain pattern of resistance appearing.

It is also possible that small amounts of the antibiotics are simply passed into people who eat meat, making us each a walking training camp for bacterial resistance. This would mean that over and above all the analysis provided thus far, agricultural use of antibiotics creates a selection pressure in individual meat eaters that requires no exposure to the resistant strains that develop in livestock.

The amount of antibiotics used in agriculture is very large. The amount of meat eaten by Americans is equally large. On the basis of the description of these mechanisms alone, it seems likely that Agricultural use of antibiotics is the dominant cause of all antibiotic resistances. The comparable possibility of prescription and informal antibiotic use causing any resistance to develop is very low, given the mechanisms involved.

Why is it then that first there was a long and vigorous campaign to get people to use fewer antibiotics, before any attention was paid to the agricultural practices? Is the industrial capture of biological science simply this far progressed?

Comments on meaning in language

2009-12-19T19:19:00.000-08:00

Our very social fabric is composed of the network of commitments and agreements by which culture is given forceful authority in our daily life. These commitments and agreements are sacrosanct objects which typically exist in a latent form that shields them from criticism, known in detail by small groups of specialists whose knowledge asymmetry serves to cement them against change. Our conscious awareness of culture exists within our cognition not of the present or past but of the future, as it interacts with and defines our planned course of action.

The philosopher and the revolutionary should not forget, however, that despite the grand vistas of social theory, most of which focus on some or other aspect of the rational design of societies, the world in which we live is very much the product of a mindless process that lacks telos, namely evolution. Evolution expresses itself through every dynasty; it is not a phenomenon restricted to genetics. A perfect illustration of the failure of rationality-based descriptors is in the simple act of commitment.

Supposing Alex asks Beth to do some action. Beth then responds with the assurance "I will". In common usage, this phrase amounts to a pledge that entails some level of commitment to the course of action under discussion. It represents an agreement between Alex and Beth as to some future action by Beth. Commonly, "I will" is said with different words: "OK", "You betcha", "For sure", "A'ight", etc.

The agreement describes a future event. When presented with choices, Beth will choose a course of action that fulfills her agreement. The state of affairs can be characterized in one of two ways.

1) Beth has free will. Therefore her choice is free and she cannot meaningfully commit to or predict her future action. Since the statement is a prediction of a future action, it becomes meaningless.

2) Beth does not have free will. Therefore she has no choice, so she cannot choose to do a particular thing. Since the statement is a declaration of a particular choice, it becomes meaningless.

A nonsensical statement is completely devoid of meaningful content. Philosopher Robert Solokowski ranks these statements below false statements (he feels that semantics are the basis of meaning). He gives an example: "My cat is a filibuster" as being something that cannot even be evaluated as false. In a processing sense, what this and other nonsensical statements do is simply feed data from one function into another function that normally takes a different data class.

Similarly, "I will" seems to contain data from two mutually exclusive worldviews, free will and determinism. Therefore, it is a nonsensical statement. Furthermore, this argument holds without loss of generality for any commitment by any individual within a society. This is symptomatic of a grave error in certain approaches to social theory that seek to describe activities in terms of rational telos.

Of course, people in their daily lives are only troubled by the difficulties of theory insofar as political leaders attempt to use theories to solve real world problems.

It is likely, and perhaps best, that the scientist (or the scientific philosopher) will need to abandon the futile search for meaning in and through language and settle for a more structural and functional understanding of our culture. This example, at least, indicates to me that languages are a great deal more subtle and abstract than commonly believed, and that our philosophy is grossly inadequate and probably best developed not through analysis within historically established modes of thought but through the collaborative and experimental development of completely new ways of thinking.

Measures of the availability of money

2009-12-18T11:59:00.000-08:00

It remains important for the development of the money cycle framework for the relative scarcity of money from the perspective of individual actors to be described. The meaning of various measures relating to this scarcity and the relationship between individual perspectives must be flushed out. In turn, this will allow, among other things, the use of empirical tools to establish the position of a given economy and to assess the relative effectiveness of various policy tools in practice.

It is tempting to immediately equate money with the objects that would be acquired through it, to value a currency only on the basis of what it can be exchanged for. However, a functioning currency that has value as an object of exchange acquires additional value as the desired object of others. In other words, individuals will acquire a currency even without having a clear set of objects that they desire to acquire through the spending of that currency. In fact, currency can take value as a collector's object, just as any trinket might, that fluctuates as a cultural object independent of its value in exchange for the typical goods bundles purchased by consumers. Therefore, the value of money is as much a cultural object as it is an economic one, and it is dangerous to make adjustments to 'real' currency value in the formulation of economic theories.

As described previously, money moves through the economy along many paths and capillaries connected together in a complex lattice that has no single central gateway of exchange. The availability of money to any point within the economy can be described as the flow at that point. While it is possible that an individual may horde cash received, the great bulk of received income is placed in accounts, that is transferred to the financial services sector. Typically, the bulk of this income is then paid out again in the form of payments for various goods and services through the period between paychecks, with little or no surplus and even deficits from time to time. Income constrains spending; it is the natural constraint in this formula. Velocity of money is a misleading term, as this essay will show that it is not the number of linkages so much as the quantity of movement that determines the amount of flow.

Assume an economy had a single, central bank. All the accounts in the economy are administered by this bank. All accumulations of money in accounts at this bank will be the result of business profits and individual savings.

If the availability of money is limited to positive account values, such that a person who has no money available is unable to take any loans for the purpose of further withdrawals, a shortage can only occur if the total cash withdrawals comes to exceed what is deposited into the bank. This is impossible if printed cash is kept on hand for every supposed dollar in existence. Note that this situation only makes sense when bank overhead costs are considered zero. Furthermore, under such a limitation, increasingly large quantities of currency will come to remain within the bank as individual savings and business profits. The dollars available will need to be stretched further and further, leading to deflation. It is not the fact that this currency takes any particular form, but that a greater portion of economic activity, when measured in goods production and exchange, must make do with a smaller portion of the actual dollars within the economy. I'll call this phenomenon the currency shortage.

When loans are allowed with a given reserve level, a bank's total obligation in demand accounts (those that can be withdrawn as cash) comes to exceed the actual quantity of cash held by that bank. Assuming that the loans are made without interest, the total amount in loans will be repaid over their course, with each term payment being a reassociation of dollars loaned with dollars pledged to accounts. Though the reserve requirement generally allows a series of progressively smaller loans to spawn from each initial loan, the repayment of these loans ultimately follow the same rule, since there is still an initial actual deposit serving as the seed for all later activity. An individual repaying a loan will typically have a lower level of consumption than one free of debt. The economic effect of the loan is therefore the creation of an initial jump in demand for goods, followed by a suppressed demand as repayment occurs. If economic activity is to remain at the same levels, it must therefore occur at lower prices over time or with a constantly increasing level of average debt.

Now, assume that bank overhead costs are not zero, the bank will secure an income stream from the collections taken on loan interest. Assuming that interest rates merely cover operating costs, total interest collected in each term will therefore be offset by the total paid, with any savings by bank employees being the expression of "profits". This generally represents a steepening of the effect described above.

In other words, the rate of accumulation of wealth must be offset by the government creation of additional currency. If this currency is given to banks in one form or another, it will manifest through the creation of loans, which can only function to extend the amount of consumer debt that the economy can sustain.

The above is written under the assumption that bankruptcies and defaults do not occur. In situations where debt is not repayed by borrower, the bank has a proportional diminishment in profits, meaning a certain level of default will only serve to limit the rate of accumulation and therefore delay instability in currency supply. In the long run, the bank will adjust down their level of borrowing either through increases in interest rates or avoiding of lending to risky buyers, accelerating the rate of accumulation again and leading to monetary shortages faster. A sudden spike in default rates can also bring about a rapid money shortage as the bank becomes unable to cover these losses except through tapping into reserve funds, forcing the bank to suddenly curtail lending. If such an event has a large enough impact, the bank could be unable to meet demand deposit obligations. As this type of crisis is not the topic of this essay, I'll leave the details of such a situation to another time, and probably a different model.

The existence of several banks rather than a single central bank complicates matters in certain ways. It becomes possible for one bank to loan to another bank. This allows for patterns of default to spread from one bank to another. Generally speaking, the risk of local shortages becomes greater as the number of banks proliferate. The network of banks means that money is constantly bouncing from one bank's accounts to another's. However, the specter of poor managment at a central bank leads me to believe that a network of properly regulated small banks is a superior method of organizing a banking industry. Having many banks does not impact the smooth flow of electronic transactions except when one or another bank behaves with deliberate belligerence.

In any event, this model of money availability indicates that the essential relationship is not between total money and prices but between the concentration of wealth and prices. Therefore, the equation that MV = PQ could probably best be reimagined to replace the quantity V with something else. On the basis of this and my previous blog posts, I would recommend V be a value between 0 and 1, expressing the portion of money "positioned to be spent".

The effect of loans in my alternative money supply model

2009-12-17T12:47:00.000-08:00

As outlined in the previous post, the flow of money through the economy has a complex structure that can be described as two large cycles with a limited number of flows between the two. That description is obviously a simple one, and in this and possibly later posts I will flesh this idea out with more detailed descriptions of phenomena occurring within these cycles. This post will focus on loans made to wage earners.

Consumers typically hold their wealth in bank accounts. The bank accounts are highly secure, allowing the consumer to claim with certainty that the money they have deposited will remain available to them unless it is spent, even though the bank will loan out the vast majority of its deposits. A bank with a large pool of depositors combines the statistical predictability of withdrawals, FDIC insurance, and simple rules limiting withdrawal to ensure that sufficient funds are always on hand to to meet the withdrawal demands. Moreover, Federal rules require an even larger reserve be kept than what banks would probably prefer.

Of any given paycheck received by a wage earner, that wage earner is likely to deposit the majority of the check at the beginning of the month. By the end of the month, the wage earner will have spent most of what was earned, perhaps even all or more than what was earned. Thus, the wage earner who deposits money seems to treat this money as part of his "budget" for goods in that time frame. Other individuals who receive a portion of the original paycheck are likely to deal with the same or a different bank and deposit what was just withdrawn. As the aggregate of all banking activity is large, this creates a space in which banks and their clients interact in a way that is best described as the rearrangement of funds from one account to another.

Those funds which are deposited are available to the bank to lend out to other entities for various purposes. The way the loan interacts with the rest of the money supply depends on what the loan is spent on, but all loans also have common properties. It should be noted that because of the certainty of withdrawal outlined above, funds used to create loans do not alter the behavior of the many small consumer accounts from which the loan money is drawn. The money in the account may not actually be there, but because of the certainty described above, the consumer acts as if the money is still there.

All loans alter the behavior of the individuals receiving them in two key ways. First, it allows large purchases to occur in the absence of large savings accounts. Therefore, the demand for these goods is increased by the existence of loans. These demand increases will tend to increase prices as well, especially in markets that are naturally scarce (such as real estate). Second, loans have a repayment requirement, which places a long term debt burden on the borrower. This burden is expressed through a reduction in available income. As these loans are taken by consumers, the drag that repayment creates on purchasing power reduces G (see my previous post for a definition of G).

Loans can be differentiated into two categories based on the type of good that was purchased with the loan. A purchase of real property with money from a bank represents an injection from one part of the financial services sector to another. A purchase of some consumer good or capital equipment represents an injection from the financial services sector into the wage sector. When loans are available for these purchases, they also occur earlier and with greater frequency.

Take LC as loans for capital or large consumer purchases, G as the change in flow from the financial services sector to the wage sector, and IL as the total of payments on loans outstanding. In a given time period the following relationship holds:

LC = IL + G

Absent is the amount in loans for purchasing of real estate, LR. Because this quantity of money does not cross sector, it is not represented. However, the volume of these loans still contribute to the interest paid function.

A salient question is then to ask the question: Under what conditions is LC greater than IL?

For sake of simplicity, I'll treat each loan as a fixed interest rate (i) loan with the same number of total payments (n) and not compound interest. In a given period, t, the new obligations for repayment are given as (1 + i)(LC + LR). Thus, assuming for accounting purposes that the first payment is taken immediately, we can see the total obligations represented by IR as the sum of term payments on all loans still outstanding:

[1 + i(t)] * [LC(t) + LR(t)] / n + [1 + i(t-1)] * [LC(t-1) + LR(t-1)] / n + ... + [1 + i(t-n+1)] * [LC(t-n+1) + LR(t-n+1)] / n = IL

(This function counts from 0 to n-1, but I could just as easily set it up to be from 1 to n. At this juncture I haven't found any compelling reason for either).

The two factors that determine whether IL is greater than LC are the rate of growth of total loans and the ratio of LC to LR. At any given loan growth rate, there exists a corresponding ratio of LC to LR that gives IL = LC. From this point, if LC/LR increases, LC exceeds IL; if LC/LR decreases, IL exceeds LC. Similarly, a higher rate of loan growth will push LC above IL.

In order to conjecture as to the extent that loans are beneficial to the society, the above results can be analyzed in the context of the business disincentive/shortage spectrum outlined previously. Loans only contribute to G so long as the quantity of lending is increasing. Even when the lending quantity is increasing, G can be negative when the LC/LR ratio is low. Therefore, in a system experiencing shortage, LR should be encouraged and/or the quantity of lending should be decreased or braked. Similarly, in a system experiencing disincentive, LC should be encouraged and/or the quantity of lending should be increased or accelerated.

Money Cycle

2009-12-16T11:13:00.000-08:00

Among the many "laws" of Economics, the one standard that transcends all others in its unshakable nature is the law relating levels of market exchange to the flow of money: MV=PQ; this constraint relates two rates of flow to each other - one is the quantity of money (M) and total velocity (V, the number of times it changes hands), while the other is the average price of goods (P) and the quantity of goods exchanged (Q). The equation holds true, in part, because it requires a commitment of good faith from those who test it: That they will dutifully take into account advance deliveries and payments and count the supply of money in a certain way. The equation also holds true in part because it is directly derived from a simpler assumption: The collection of data related to this equation requires first that the total dollar value of all goods sold within a given period be estimated, which I'll label Y. Y then becomes both the products MV and PQ, with any advance or late payments considered minimal, and the various types of credit and currency treated as equivalent. Being nothing more than two parallel decompositions of the same equation Y = Y, the equation MV = PQ becomes nothing more than a truism.

The four variables, M, V, P, and Q bear a nominal connotation that can betray the casual observer of the economic discipline. If one imagines that the prices and quantity of goods exchanged are restricted to services of value and material goods, the equation becomes an object that relates monetary policy to economic output. Unfortunately, this cannot be the case, as financial objects, when exchanged on the market, no doubt increase the flow of money but contribute to P and Q only by being treated as an element of Q. Similarly, increases in GDP come as a result of the inclusion of traded financial assets.

It is possible to visualize the flow of money within the economy by tracking a uniformly distributed sample of dollars (from real cash, accounts, and credit). Though I am not aware of such a study, it is likely to reveal that many paths of various length and velocity are followed. Unlike a real river, the paths of these dollars will require a third dimension, as some cross above or below each other, splitting off and joining up in complex patterns.

Individual incomes will each be a small trickle from the large revenue stream of the employer firm. Each paycheck will be split into several streams, but only over the course of the time period from one paycheck to the next. Paychecks will first have taxes and union dues siphoned off. Next, rents, mortgage payments, and car payments take a huge draft that will vary from most of what remains down to about 1/6th. All the rest will go out in tiny disbursements for various consumer products, services, and financial products.

The stream of taxes will be paid out by Government to Government employees and contractors, but will first be placed into a receiving account. The stream of rental and mortgage incomes will be processed by property management firms and banks before being returned to investors. The stream of other goods and services will largely be paid out to employees and other businesses, with investors taking a cut from some profitable firms but not others. In the case of large businesses, the upper-level management will often receive very large compensation packages. These packages will be wage-type streams but are worth noting because they have atypical size and compositions.

Though much money swirls about in the wage cycle, moving from one wage earner's hands to the next, some dollars from this cycle are pulled into a different area, the financial products sector. This sector is similar in composition to the wage cycle sector but has invert composition - a small amount of the money exchanged is channeled into wage streams, while the remainder is moved from one financial product to the next. Presumably, these financial products represent investments in the non-financial service sector - investments in capital equipment and advance wage payments. However, the financial products can also be composed of other financial products and real estate, both objects which do not channel the dollars back into the wage cycle. Thus, the degree to which dollars are channeled back to the wage cycle depends on the distribution of financial-services dollar flow between the two channels of either production (capital equipment and wages) and finance (financial services and real estate).

There seems to be a relationship, of sorts, between the production level of the society and the interplay between the wage and financial service cycles. Let G be the net increase (or decrease) in dollars flowing into the wage cycle. Then if R is the part of rent and mortgage payments flowing into the financial services sector, S is the part of consumer spending entering the financial services sector (e.g. through the purchase of financial products), C is the part of financial services dollar flow that goes toward capital equipment purchases, and W is is the part of financial services dollar flow that goes toward wages, we have:

R + S + G = C + W

Broadly speaking, there are five sources of G:

1. The increase in worker spending on things other than R or S, as a result of either increases in wages or the extension of credit.

2. The decrease in R (lowered rents and mortgage payments).

3. The decrease in S (less investment in financial services).

4. The increase in C (more capital equipment, which is generally built and produced by wage workers).

5. The increase in W (direct conversion of financial service dollars to paychecks).

This G is not a representation of economic growth. It is merely an expression of nominal dollar balance. Growth is more intimately related to investment levels in C and W, which are dependent on the existence of consumer demand that can only exist while consumers have the necessary surpluses in their budgets. G expresses the change in these surpluses. In the absence of regulatory response, too much flow toward financial services pushes consumer budgets down too far, disincentivizing the financial services sector to invest in C or W (disincentive). Conversely, too much flow toward wages deprives the financial services sector of the capital it needs to make effective investments in new machinery and skilled workers (shortage). Thus, there is a difficult balance between the financial services cycles and the wage cycles that tends to fall farther out of balance rather than move toward an equilibrium - it is a repulsive fixed point.

The initial or casual regulatory response would depend on the proper reading of the indicators of whether disincentive or shortage is occuring. The disincentive condition is indicated by a high degree of concentration of wealth. The shortage condition is indicated by a highly equal distribution of wealth. However, if faith was placed in the theory, it could be used to track the accumulations through the measurement of G over time to constantly preserve the balance even when outward symptoms had not started to manifest.

Policies that regulate this relationship can take many forms.

Most straightforward would be a tax that simply redistributed earnings from the wealthy to the poor. Such a system, however, would necessitate that the economy remain on the disincentive side of the distribution. A fixed point would be reached in this zone, so long as the tax is not too severe. If such a policy were implemented when the economy was in shortage, it would simply make matters worse.

A tax used to purchase real estate and invest in financial services would allow an economy that is in the range of shortage to reach a fixed point in that range. However, such a policy would be ineffective when the economy is in disincentive.

A minimum wage, depending on what portion of workers are affected and how high the wage is, pushes the economy toward the shortage direction. The minimum wage is not neutral from the investor perspective because it makes wage and capital investments less attractive relative to real estate and financial investments. However, it is beneficial in the disincentive range so long as the increases in worker pay give a sufficient increase in demand for products to counteract that decrease.

Goldstone vs. HR867.EH

2009-12-14T12:39:00.000-08:00

I'm saddened by the circumstances behind the condemnation of the Goldstone Report, because these condemnations amount to the suppression of information. The report is a very well developed and conducted investigation that gives us a snapshot of current events in Palestine. Rather than recognizing the value of this report as a source of information, the House of Representatives (and the Obama Administration) have condemned it merely because it is associated with political forces that clash with some of our country's more hawkish foreign policy goals. If we had endorsed the report, it would have given credibility to the UN's efforts to establish an accurate record of the human rights violations committed by the various groups operating in and around the Occupied Territories.

The reasoning behind the strategy of suppression of facts is not explicitly stated anywhere, so one can only guess ath the justification. I understand that Israel is our ally, but that does not justify our shielding them from scrutiny. Nor does the House of Representatives offer any rationale for the suppression of the wealth of information the Goldstone Report offers about the complexities of Palestinian Politics and the relative involvement of various terrorist groups in particular events.

HR867:

Whereas the resolution pre-judged the outcome of its investigation, by one-sidedly mandating the `fact-finding mission' to `investigate all violations of international human rights law and International Humanitarian Law by * * * Israel, against the Palestinian people * * * particularly in the occupied Gaza Strip, due to the current aggression'

Goldstone (p. 11):

11. To implement its mandate, the Mission determined that it was required to consider any actions by all parties that might have constituted violations of international human rights law or international humanitarian law. The mandate also required it to review related actions in the entire Occupied Palestinian Territory and Israel.

HR867:

Whereas the mandate of the `fact-finding mission' makes no mention of the relentless rocket and mortar attacks, which numbered in the thousands and spanned a period of eight years, by Hamas and other violent militant groups in Gaza against civilian targets in Israel, that necessitated Israel's defensive measures

Goldstone (p. 31, 79-80):

103. Palestinian armed groups have launched about 8000 rockets and mortars into southern Israel since 2001 (Chapter XIII).
...
257. Palestinian armed groups fired rockets and mortars into Israel throughout November 2008. According to Israeli sources, 125 rockets were fired into Israel during November 2008 (compared to one in October) and 68 mortars shells were fired (also compared to one in October).(133)
...
259. Rocket and mortar fire by Palestinian armed groups continued unabated throughout December 2008.(136) According to Israeli sources, 71 rockets and 59 mortars were fired into Israel between 1 and 18 December.(137)

HR867:

Whereas the report repeatedly made sweeping and unsubstantiated determinations that the Israeli military had deliberately attacked civilians during Operation Cast Lead

Goldstone (p. 15):

43. The Mission investigated eleven incidents in which Israeli forces launched direct attacks against civilians with lethal outcome (Chapter XI). The cases examined in this part of the report are, with one exception, all cases in which the facts indicate no justifiable military objective pursued by the attack. The first two incidents are attacks against houses in the Samouni neighbourhood south of Gaza City, including the shelling of a house in which Palestinian civilians had been forced to assemble by the Israeli forces. The following group of seven incidents concern the shooting of civilians while they were trying to leave their homes to walk to a safer place, waving white flags and, in some of the cases, following an injunction from the Israeli forces to do so. The facts gathered by the Mission indicate that all the attacks occurred under circumstances in which the Israeli forces were in control of the area and had previously entered into contact with or at least observed the persons they subsequently attacked, so that they must have been aware of their civilian status. In the majority of these incidents, the consequences of the Israeli attacks against civilians were aggravated by their subsequent refusal to allow the evacuation of the wounded or to permit access to ambulances.

These cases are each investigated in detail in section XI of the report (p. 198)

But, even beyond this, the House Resolution makes no mention of the vast majority of the report's contents. Israel and to a lesser degree various factions within Palestine have destroyed the economy and quality of life of Palestine, creating a humanitarian crisis.

Goldstone (p. 17-19):

50. The Mission investigated several incidents involving the destruction of industrial
infrastructure, food production, water installations, sewage treatment and housing (Chapter XIII). Already at the beginning of the military operations, the Al Bader flour mill was the only flour mill in the Gaza Strip still operating. The flour mill was hit by a series of air strikes on 9 January 2009 after several false warnings had been issued on previous days. The Mission finds that its destruction had no military justification. The nature of the strikes, in particular the precise targeting of crucial machinery, suggests that the intention was to disable the factory in terms of its productive capacity. From the facts it ascertained, the Mission finds that there has been a violation of the grave breaches provisions of the Fourth Geneva Convention. Unlawful and wanton destruction which is not justified by military necessity amounts to a war crime. The Mission also finds that the destruction of the mill was carried out for the purposes of denying sustenance to the civilian population, which is a violation of customary international law and may constitute a war crime. The strike on the flour mill further constitutes a violation of human rights provisions regarding the right to adequate food and means of subsistence.

51. The chicken farms of Mr. Sameh Sawafeary in the Zeitoun neighbourhood south of Gaza City reportedly supplied over 10 per cent of the Gaza egg market. Armoured bulldozers of the Israeli forces systematically flattened the chicken coops, killing all 31,000 chickens inside, and destroyed the plant and material necessary for the business. The Mission concludes that this was a deliberate act of wanton destruction not justified by any military necessity and draws the same legal conclusions as in the case of the destruction of the flour mill.

52. Israeli forces also carried out a strike against a wall of one of the raw sewage lagoons of the Gaza Waste Water Treatment Plant, which caused the outflow of more than 200,000 cubic metres of raw sewage into neighbouring farmland. The circumstances of the strike on the lagoon suggest that it was deliberate and premeditated. The Namar Wells complex in Jabalya consisted of two water wells, pumping machines, a generator, fuel storage, a reservoir chlorination unit, buildings and related equipment. All were destroyed by multiple air strikes on the first day of the Israeli aerial attack. The Mission considers it unlikely that a target the size of the Namar Wells could have been hit by multiple strikes in error. It found no grounds to suggest that there was any military advantage to be had by hitting the wells and noted that there was no suggestion that Palestinian armed groups had used the wells for any purpose. Considering that the right to drinking water is part of the right to adequate food, the Mission makes the same legal findings as in the case of the Al Bader flour mill.

53. During its visits to the Gaza Strip, the Mission witnessed the extent of the destruction of residential housing caused by air strikes, mortar and artillery shelling, missile strikes, the operation of bulldozers and demolition charges. In some cases, residential neighbourhoods were subjected to air-launched bombing and to intensive shelling apparently in the context of the advance of Israeli ground forces. In other cases, the facts gathered by the Mission strongly suggest that the destruction of housing was carried out in the absence of any link to combat engagements with Palestinian armed groups or any other effective contribution to military action. Combining the results of its own fact finding on the ground with UNOSAT imagery and the published testimonies of Israeli soldiers, the Mission concludes that, in addition to the extensive destruction of housing for so-called “operational necessity” during their advance, the Israeli forces engaged in another wave of systematic destruction of civilian buildings during the last three days of their presence in Gaza, aware of the imminence of withdrawal. The conduct of the Israeli forces in this respect violated the principle of distinction between civilian and military objects and amounted to the grave breach of “extensive destruction … of property, not justified by military necessity and carried out unlawfully and wantonly”. Israeli forces further violated the right to adequate housing of the families concerned.

54. The attacks on industrial facilities, food production and water infrastructure investigated by the Mission are part of a broader pattern of destruction, which includes the destruction of the only cement packaging plant in Gaza (the Atta Abu Jubbah plant), the Abu Eida factories for ready-mix concrete, further chicken farms and the Al Wadia Group’s foods and drinks factories. The facts ascertained by the Mission indicate that there was a deliberate and systematic policy on the part of the Israeli armed forces to target industrial sites and water installations.

Beyond that, the rhetoric of the House Resolution is stilted, to say the least. Check out this gem:

HR867:

Whereas, notwithstanding a great body of evidence that Hamas and other violent Islamist groups committed war crimes by using civilians and civilian institutions, such as mosques, schools, and hospitals, as shields, the report repeatedly downplayed or cast doubt upon that claim;
Whereas in one notable instance, the report stated that it did not consider the admission of a Hamas official that Hamas often `created a human shield of women, children, the elderly and the mujahideen, against [the Israeli military]' specifically to `constitute evidence that Hamas forced Palestinian civilians to shield military objectives against attack.'

If these civilians are being used unwillingly as shields, then we could say they were forced. Unfortunately for the most part they aren't being forced. They just happen to be where the militants choose to attack from. There is a broad base of support for the militants. If Israel cared at all about the lives of these civilians, they wouldn't use such indiscriminate forms of retaliation. Protecting the lives of Israeli soldiers at the cost of lives of Palestinian civilians is only justifiable as part of a regime that treats Palestinians as less than human. Soldiers and Police are not a noble caste more deserving of life than others. Therefore, they are not justified to indiscriminately kill merely to maximize the chance of preserving their own lives. But this observation and its competitors in the arena of justification for deadly force are really beside the point.

An Israeli counter-strikes arriving minutes or hours after the rockets have been fired by the militants can't hope to strike the actual perpetrators. Any impartial analysis should see this as nothing more than a reprisal. When all the evidence is considered, it is clear that Israel thinks of Palestinians as nothing more than animals. Without the international community's watchful gaze, these animals would be exterminated.

If anything, Goldstone's report is biased against the Palestinian people. Goldstone had to work with what was available. He addresses these concerns in his discussion of Obligation to take Feasible Precautions.

Moving on...

HR867:

Whereas even though Israel is a vibrant democracy with a vigorous and free press, the report of the `fact-finding mission' erroneously asserts that `actions of the Israeli government * * * have contributed significantly to a political climate in which dissent with the government and its actions * * * is not tolerated';

Goldstone (p. 6, 35, 65, 482, 489):

8. The Mission repeatedly sought to obtain the cooperation of the Government of Israel. After numerous attempts had failed, the Mission sought and obtained the assistance of the Government of Egypt to enable it to enter the Gaza Strip through the Rafah crossing.

116. The Government of Israel imposed a ban on media access to Gaza following 5 November 2008. Further, access was denied to human rights organizations and the ban continues for some international and Israeli organizations. The Mission can find no justifiable reason for this denial of access. The presence of journalists and international human rights monitors aides the investigation and wide public reporting of the conduct of the parties to the conflict and their presence can inhibit misconduct. The Mission observes that Israel, in its actions against political activists, NGOs and the media, has attempted to reduce public scrutiny of its conduct both during its military operations in Gaza and the consequences that these operations had for the residents of Gaza, possibly seeking to prevent investigation and public reporting thereon.

207. The two-tiered civil status under Israeli law, favouring “Jewish nationals” (le’om yehudi) over persons holding Israeli citizenship (ezrahut), has been a subject of concern under the International Covenant on Economic, Social and Cultural Rights, particularly those forms of discrimination carried out through Israel’s parastatal agencies (World Zionist Organization/Jewish Agency, Jewish National Fund and their affiliates), which dominate land use, housing and development.(59) The Committee on Economic, Social and Cultural Rights also has recognized that Israel’s application of a “Jewish nationality” distinct from Israeli citizenship institutionalizes discrimination that disadvantages all Palestinians, in particular, refugees.(60)

1755. The Mission received reports of 20 prominent activists and political figures within the Palestinian community being called in for interrogation by the Shabak and being questioned about their political activities.(1106) It has also received reports of younger political activists having been taken for interview and asked to collaborate with the Israeli authorities. In the case of student activists, the offer of collaboration was accompanied by the threat of arrest or of future difficulties in continuing their studies.(1107)

1784. To date, Amnesty International, Human Rights Watch and B’Tselem have been denied access to Gaza to collect data for their independent investigations into allegation of war crimes committed by both the Israeli forces and Palestinian armed groups.

Hamas is the closest thing to a legitimate government of Palestine. Civilians, terrorists, and militant palestinians alike are opposed to Israeli occupation. Since they have no democratic rights to vote as equal citizens of Israel, the only alternative is for them to form their own government. That government's attitude toward foreign powers is not a factor in its legitimacy.

In order to understand the context of various claims and to see what crimes are really being alleged, one must assume some stance of impartiality. There are basically two options: either recognize the Palestinans as deserving equal rights in the nation of Israel or recognize them as having the same claim to legitimate government that Israel does, having a national will that stands on equal footing with the goals of the Israeli state. Israel has no more right to destroy that Government in response to terrorist incidents than Hamas - or any other militant group - has the right to destroy the Government of Israel in response to Israel's terroristic activity.

Overall, this report has been a good read, although somewhat too exhaustive at times to be much of a casual romp.

Ethical Goals of Government

2009-11-13T21:29:00.000-08:00

Government is an entity the existence of which can only be justified on an ethical basis. More precisely, some argument must be made either in a consequentialist sense or in a deontological schema, to argue that a given government should exist. It is not an entity with any epistemological difficulties - none deny its existence as a physical object, or seek a metaphysical essence that defines it in accordance with profound deterministic laws. In fact, government seems to have inalienable presense. It is not in absolute question except among the minority who argue that it is possible for it to not exist. Instead, the argument for government is an argument for a particular kind of government as compared to another.

That being said, the argument for government is inseparable from the nature of the government. Since any government is nothing more than structural relationships and human personalities, these factors at a given point in history, real or theoretical, shape the argument, ruling out some forms of Government and making others more appealing. Because it is so human, Government ends up being more than what is official, inseparable from the society it is embedded in and responding in part to the political power of unofficial individuals and organizations.

From the available alternatives for making ethical evaluation as given at the outset, the deontological schema does not seem sufficient. In the absence of profound religious belief, it is hard to imagine a set of dictates that form the transcendental rules needed to make evaluations of government on a deontological basis. The process oriented arguments such as arguments for democracy, the use of principles like the categorical imperative or the veil of ignorance are not sufficient because though they define criteria for evaluating governments in terms of the means by which decisions are made, there is still another step of logical immediacy that must be taken by whomever is tasked with the decision. This step is to turn the deontological principle into a consequentialist policy goal so that policy consequences can be evaluated as either in accordance or dischordance with the governing principle.

The consequence value of anything that can be evaluated ethically is the sum of all future possibilities multiplied by their probability. Though the metric by which consequences are valued against each other need not be known absolutely, if consequences are to be ranked against each other, the entirety of the consequence space, when assigned values in the chosen metric, must be bounded. This is because any given consequence that gives more than zero probability to any unbounded point would cause the future possibilities sum for its corresponding region to diverge.

Ethical evaluations are a property of actions. Anything that is evaluated ethically must be turned into a bundle of actions. Thus, to judge an individual, that person must be reduced to their action history and or future; to judge a policy or even a government as a whole, is to reduce each policy to a bundle of action predictions. Since the action bundle abandons its source prior to evaluation, any two governments are essentially evaluated by the same underlying criteria.

So, if possible governments are to be ranked against each other for purposes of determining public policy, this amounts to ranking policies against each other. In turn, the policies are evaluated based on the action bundles that they contain. Action bundles are evaluated based on consequence values that in turn define policy goals. Thus, governments are ranked against each other according to the degree to which they achieve the defined policy goals.

Therefore, a government considering new laws is not constrained by the spirit of its existing laws. Existing laws are valuable as objects to be reverse engineered in an effort to determine previous policy goals and improve the consequence value functions. However, existing laws are not deontological principles constraining government legislation. Rights as defined by government do not create, of themselves, arguments against legislation that would curtail them. Tiered legal systems, such as those with constitutional procedure restrictions, exert force through their restrictions on policies and action bundles, not through any alteration to the consequence value function.

This confusion is felt throughout contemporary government systems, in which the policy goal itself is often erroneously defined down in scope to meet available resources. When government sets about to address some social issue, such as poverty, it is best to declare the total level of need, prior to the determination of how much of that need can be addressed. In this way, it is easy to evaluate the policy trade-offs of providing more resources to a given program.

As mentioned above, many aspects of government are informal. The Government in the United States has a responsibility - just as sacred as its guarantee of freedom of the press - to ensure that mass starvation does not occur. However, this responsibility is left entirely to privately operating farmers, with some level of regulation. Such arrangements are typical for many sectors of the US economy. When such a sector is confronted by its own inadequacy according to some policy goal such as an unmet level of need, the Government has more than simply the right to intervene in that sector of the private market, but an obligation to do so. These "private markets" are merely delegations of control by government, to achieve policy goals of that government in an efficient manner.

The history of economic consensus in the academic discipline is entirely radical in nature. Those who are convinced that the free market is superior are, by and large, relying on ridiculous metrics. In actuality, the radical position has won not through demonstration of superior benefit, but through the disproof of fantastical harms arising from proposed types of market intervention by government. For instance, were the government to provide 1000 meals for the needy, it would be the duty of the opponent of such a policy to argue that moral equivalent of more than 1000 hungry mouths will be deprived through such an action. The same holds true for all manner of comparable criteria or interrelations of different values. Those that fear nebulous reductions of efficiency or freedom through such a trade off are guilty of a certain kind of vanity, the roots of which can probably be traced to dystopian novels.

By directing an agency to limit services through revisions of the very definition of need is to obfuscate the very goal that justifies the existence of that agency. The goals of Government should be to meet everyone's basic needs, to have no unpleasant labor, to provide for the safety of all, to ensure the total preservation of the environment, to further education among all members of society, etc. This is the only way to see the trade offs behind policy proposals for what they truly are. To decry such metrics as Utopian is simply an admission of a lack of understanding of the process of thought itself. To argue that taxation is theft is to invite ridicule. To say that the Government cannot afford to provide a service is merely to say that this service is on the margin and therefore the least important of all things on which money is currently being spent in the entirety of the society, a situation that almost never occurs in substantive policy discussions.

For sake of clarity, I'll now describe a few of the most effective policies for our current malaise.

1) Curtailment of the workweek. This policy is effective for reducing unemployment. Reduction to the workweek creates an incentive for employers to increase the number of employees. This of course represents a loss of income to existing workers, but it reduces the unemployment rate. Clearly it is better to have jobs for those without them than to have more money for those who already have jobs, so from an ethical standpoint this is an excellent policy. Furthermore, when France reduced its workweek, it actually had the effect of reducing the budget deficit as well, because it took so many people off of the unemployment rolls.

2) Lowering (not raising) the retirement age. Many, many individuals who are currently working in their 60s should be allowed to retire with the full benefits. A significant portion of these people have spent much more than 25 years of their lives working. Not only do they deserve a break, but younger people deserve to take the reins. Such a policy will help to alleviate so many social problems, it is really a shame that congress cannot find the money for such a program.

3) Free State undergraduate college with equivalent vouchers for private institutions. Once again, the crippling effect that the buildup of college debt has had on consumer spending and the quality of life of younger Americans should justify the creation of a free college system. The money for it could come from rich.

When a politician argues that there is no funding left in the budget, he does not realize the meanings of what he speaks. When he speaks to the populace, both speaker and audience proceed under the medieval notion that money is so tight that none is left to go around, that all of society is going without any luxury, that outcomes cannot be improved. None of these individuals know the first shred of economics. Their pride will not allow them to admit this when pressed, but in the end they cannot escape their own unclear train of thought. How else is such deference toward wealth in the face of chronic poverty to be explained?

Expectation theory and the ethics of exchange

2009-11-08T12:13:00.000-08:00

In his General Theory of Employment, Money and Interest (Harcourt & Brace, 1964), Keynes described the relationship between the actions of market actors, taken based on their knowledge of nominal data and ability to reason rationally, and the economic results of these actions, as being mediated by a system of expectations. The expectation represents the inevitable planning process that any actor must engage in some time before the market transactions themselves, thus allowing for uncertainty to be represented as the market's deviation from these expectations.

Properly speaking, Keynes distinguishes between "short term", dealing with the degree of utilization of existing capital, and "long term", dealing with the purchase or development of new capital (p 47). These terms can at times be misleading - a "short term" expectation can take quite a while to be realized. When evaluated in a purely rational way, long term expectations are almost always based on knowledge that is "very slight and often negligible" (p 149).

In my experience of the typical attitudes that individuals take toward economic realities, among the many unexamined vistas of everyday life, is the belief in some conceptual ethics of the exchange. It is typically assumed that the comparative value of that which each party acquires from the market in a given transaction gives a certain ethical character to that transaction. This ethical character is a function of six (3 pairs of 2) variables: some calculation of value of goods received by each party, an assessment of the character and social function of each party, and an assessment of the method by which the transaction was undertaken that describes a set of actions both parties should undertake. A transaction is generally ethical if it meets two criteria that are composed from these variables.

First, a transaction is either fair or unfair depending on whether what is exchanged is distributed in proper accord with the social function and character of the participants. This is the fairness criterion. For instance, society would typically frown on a million dollar gift to a convicted murderer. Similarly, society condemns the shortsightedness of its own collective past, when great men such as Van Gogh and Poe were forced to live in poverty, this being the result of market failures whereby their genius went unrecognized and unrewarded.

Secondly, a transaction is either proper or improper depending on whether the transaction itself is undertaken in accordance with agreed upon rituals and methodologies. This is the propriety criterion. These rituals and methods are practically designed to ensure that formal (legal) and informal (customary) rules of procedure are followed. Generally, these are justified through a philosophic appeal to principles such as rights, duties, and virtues, but for numerous reasons it is probably better to treat the propriety criterion as a cultural object rather than a philosophic absolute. Most participants do not have a rigorous or conscious formulation of these principles and the realization of such principles depends on arbitrary rituals designed to prevent all manner of trickery. An example of an improper transaction that is otherwise fair might be a starving person stealing bread from a supermarket that throws some quantity of unsold bread loaves away at the end of each day. The propriety of economic transactions is an interesting matter, but I will not take it up further in this essay.

Though the analysis so far has already delved far beyond what the typical person thinks in conscious ethical evaluation, I feel that this captures the essence of what the typical person thinks intuitively when making ethical evaluations. Typically, when a person is asked to give reasons for their judgment, it will fall into one of these two criteria, based on the variables given. That my assessment is complete and accurate is of critical importance because I must now critique this system and draw a criticism of economic metrics from it; thus any weakness in the above will bias the conclusion.

Expectation in fact plays a crucial role in the formation of these ethical attitudes about our economic life. Speaking in general and imprecise terms, all accumulations of wealth (credits) are the result of agreements that goods and services will be provided to the wealth holders at some later date. Similarly, accumulations of debt are agreements that goods and services will be provided by the debtors at some later date. Here, I am not using these two terms in the exact conventional sense because even transactions taken in positive money terms can have these factors present. This might seem counter intuitive, but I will show that credit and debt as commonly understood - contracts between individuals with explicit terms - is in fact just one of many credit-debt arrangements that exist in the typical economy. Since most transactions in an economy feature money as one of the goods exchanged, and because goods-for-goods exchange is a less interesting case than goods-for-money, from this point forward the essay will focus on goods-for-money exchanges. The fairness of a transaction is determined by the expectation of future value of the goods produced or acquired relative to the future value of money received in exchange. Generally, when a person receives money as part of an agreement, he expects that money to have a certain value; however, nobody is bound to honor that money at the given value at the future date of spending.

This whole idea, rather labyrinthine in nature, can be illustrated by a thought experiment that shows two things: 1) that the quantity of a currency does influence its value; 2) that natural ethical assumptions cannot be separated from economic realities.

Suppose the economy features just two individuals, person A and person B. They have an economy of sorts where person A gives pieces of scrip to person B in exchange for goods (G) provided by person B. Without G, these individuals will starve; person B, in addition to offering some of these goods up for trade, produces enough G for himself. Given that person A has quantity Q of scrip, what price, in scrip, should person B demand in exchange for G?

In part, this thought experiment depends on the history of the economy. If, for instance, person A accumulated this scrip from person B over a period of 10 years prior to the start of the thought experiment through a reversal of the current roles, one might wish to set the payment such that it will take another 10 years for the scrip to be exhausted. Alternatively, suppose that person A accumulated this scrip while caring for a sick and dying person C. But now that person C has passed away, is it morally acceptable for person A to receive nothing in exchange for his efforts? In any case, the number of units of scrip is insignificant; only the portion of Q demanded counts.

This experiment is essentially ethical in nature. There is no other way to resolve the system except ethically. In fact, the scrip (money) only has value as an ethical tool to track (account for) the relative economic contributions of the participants. The social status and character of the individuals is significant. Supposing person A is Hitler, maybe it is best to let him starve (I can't believe I just said this)? Typically, though, it is clearly wrong to exclude person A on the basis that "scrip is arbitrary and worthless". From this, I deduce that person A has a economic right to participate. In time period zero, he must receive G for scrip even if scrip is worthless and he is expected to bootstrap tomorrow. Assuming that there is no other production source for G than what is controlled by B, it seems there is no option but to allow A to share access to the production source.

An economy with more that two people is really no different from this one. It only appears different because there is a proliferation of goods and people, creating many alternatives for each possible situation, and making the calculation of fairness more complex. Essentially, though, the situation remains that every type of money (scrip), gets its value from the desire of others to labor in order to obtain it. Furthermore, the dictates of fairness can compel a person to adjust their habits: spend more or less, labor more or less, or ask for a different wage. It falls upon the government to ensure that these adjustments take place, because having a large economy does not ensure that a fair market comes about.

Before continuing, it is worth describing labor as it is used here, and what its product is for those involved. Typically, the laborer produces some good for a customer and receives a wage in nominal money. This money is usually converted immediately to goods that cover the cost of living of the laborer and his family. Thus, the laborer works with an expectation of the value of his wage. The wage is only valuable insofar as it is capable of being exchanged for the goods that the laborer expects to purchase. But the laborer cannot do any more than expect that he will be able to use his surplus in this fashion because he has negligible control over the availability of goods and their prices.

Rather than being an endless bounty of goods at smoothly increasing prices, the market is truly a discrete bundle of goods, the composition of which is relatively inflexible at any specific time. Over a series of expectation periods, the market adjusts in a fashion that can be described as "supply and demand" but within any given period, supply cannot adjust production levels at all. A manager may increase prices on a suddenly popular item in an effort to capture more profits, but he cannot magically make his factory larger. The typical arrangement is for only a portion of the total money to come to market at any given time period and exchange for the total quantity of new production. Though all dollars up to the spending threshold are worth a given amount, each dollar beyond that is only expected to have some value for future consumption. The actual value of this currency cannot be included in the current calculations of credit and debit because for the vast majority of this money it is really not possible for it to be spent - current production levels cannot absorb it and thus it is worthless in the current period. This is of tantamount importance for the nominal credits accumulated by workers. If, for instance, every worker had some credit and decided simultaneously to use their credits as substitutes for work, these credits would be worthless because only other laborers could complete that work. But we know that there must be a credit-debt pair created for each wage unit, or that wage unit is worthless, and the typical expectation is that it is not. The quantity of wages given out in the economy is very large, and there is no coordinated effort to ensure that all of this accounting balances out; faith is placed instead in the market.

Therefore, in the creation of both credits and debts there is typically the absence of systematic agreements as to when these services will be rendered, principally because the majority of savings will continue to be saved, allowing for smooth changes in consumption that the production level can adjust to. Furthermore, there is usually the absence of the explicit statement of conjunction: if a person is said to have credit, someone else must have debt. This is truly a statement of expectation, since the imprecise nature of credit and debt mean that individuals are both 1) looking at personal future consumption and labor rather than the present; and 2) depending on economic conditions to allow them to either acquire a sufficient level of goods or provide a sufficient level of labor value.

Note also that in order for this system to maintain clarity, credit and debt must pass through and cancel out. Pass through describes the notion that when A, who has a unit of credit from B, acquires a unit of debt to C, that unit of credit passes to C, such that now B has a unit of debt to C. Cancel out means that if as a result of pass through a person can be said to owe to himself, that unit of debt is canceled. The important corollary here is that at any given time, debtors only owe creditors.

Note also that individuals have a psychological drive to accumulate money to a certain point. This is due to the desire to have economic status, security, and provide for retirement. I shall call this the threshold of comfort. In one sense, it is wrong for people to be uncomfortable, but in the way it is used here it means only that the individual has an active drive to earn money in excess of what he spends.

The most counter-intuitive aspect of this model is the existence of these credit-debt pairs in an economy where all the members may hold positive quantities of money. In order to understand this, suppose that the money system was one that depended in the vast majority of transactions on specie - literal coins or paper money - rather than checks, bills of exchange, etc. Furthermore, assume that the quantity of this specie is constant. Even in this system, the "effective" supply of money is not constant. The velocity of the money (the rate it moves through the economy) will determine the incomes of each member and their consumption level. However, in this system, the only way to save any money is to remove it from circulation. Thus, any individuals who are creditors in this system will have accumulated currency beyond their threshold of comfort, and any individuals who are debtors will have injected currency into the system from their initial store of currency beyond their point of comfort, or who started at a low level and have not yet reached an acceptable level of comfort. Because the initial state of the system features a positive quantity of money, and because this money is associated with individuals, the credit-debt system reflects changes in specie level from some initial position. The quantities of specie held by each person gain their value from the existence of individuals willing to work to earn that specie. In order for this to occur, some individuals must be below their threshold of comfort.

Rather than further diverging into a complex discussion of money, it is probably best to simply summarize the way this is represented in more typical money markets. Since money supply is increasing steadily in most economies, money is somewhat easier to acquire. Therefore many people feel they are better off. This does good things for psychological reasons, and it prevents the economic harms that result from too little or too much savings.

There are two general situations which fail the fairness criterion that individuals may freely achieve through an unregulated market.

The first is overaccumulation, the acquisition of an unusually large amount of savings by a portion of the population. Though conditions vary from one economy to another, there is always a threshold beyond which the mere accumulation of wealth by one group will hurt other groups. As individuals become involved in market activity, they essentially enter into agreements that whatever debts are created can be paid back. Unbounded accumulation is a tacit violation of this agreement. Recall that as shown above, credit must correspond to debt, and debt can only be paid off through exchange of the products of labor for wealth. Thus, the "free market" as a social structure allows individuals to shirk their responsibility to allow others to participate.

The second is the debt trap, as seen everywhere in America these days. In this situation, a group of individuals end up acquiring literal debts and are then denied the participation opportunities that would allow them to pay down these debts. Those who have truly been wronged are those who expected to be able to pay these debts off, but either through misunderstanding of the terms of debt acquisition or through a lack of economic opportunity found that their expectations were wrong. This situation risks moral hazard for social policies that might be designed to correct it, because some people could truly be irresponsible about this, but not attempting to address the issue seems like throwing the baby out with the bath water.

The call for regulation then follows along several strands:

It is not merely enough to ensure that a person is adequately compensated for his labor today. It is necessary to also ensure that the economic state tomorrow is such that he will receive his due when he spends what he has earned. In particular, he wants to be able to live comfortably off of his earnings at a time when he can no longer work. For this reason, a system like social security is brilliant. It would be impossible, following from the uncertain nature of nominal accounts, to ensure that future prices and production levels will be sufficient to allow a person to live off of his savings in retirement, regardless of the arbitrary savings level that is designated "sufficient". In a more general sense, the government is responsible for ensuring that the economy maintains some level of stability, and everyone expects the economy to be stable.

Taxation and wealth redistribution seem like the most straightforward alternatives by which individuals can be pulled out of debt traps and pushed down from positions of overaccumulation. Taxes on total assets are the best kind. It is not how much a person earns in any given period that mark them as overaccumulative, but their total position. Furthermore, many individuals are involved in economic schemes that depend on high wealth levels to secure unreasonable incomes. In keeping with the credit-debt theory, such schemes are nothing but impoverishments for everyone else. Aside from the necessary financial regulations, the best way to diffuse such schemes is to use wealth taxes to counteract such accumulations.

It seems that our economic reality ought be determined almost completely by human psychology. To look at economic objects and ask "what kind of thing is this?", to pierce to the semantic veil, is to reveal that ultimately an economic rule is a description of a human psychological bias. There is no other way to describe the choices we make as part of our efforts to produce and distribute goods, and because of the arbitrary points of determination that the above model takes, it is one that accommodates, to a great degree, our particular desire for fairness that must not be denied. It is a truth that has confronted the philosopher.

Plutonomy, and the bliss cycle

2009-10-16T23:32:00.000-07:00

This morning, Economist Andrew Jackson posted to the Progressive Economic Forum a brief article about the idea of Plutonomy. This is defined as an increase in spending resulting from extreme concentration of wealth.
He writes:

The core of the argument is that countries which have shown an extreme concentration of income and wealth at the very top of the distribution - the US, Canada and the UK are the examples - also have, as a result, very low national savings rates.

The Citigroup report itself argues that it is high spending by the wealthiest that drives this low savings rate, as the wealthiest acquire larger debts to support their lifestyles. But Jackson cites economic studies that seem to contradict this: A Goldman Sachs (why is this the best sauce?) report that the wealthiest actually have an 11% savings rate (while the Average American doesn't have a positive savings rate).

Jackson goes on to argue that it is the Keynesian view (n.b - It isn't really something Keynes thought up but an older idea) that the savings rate increases with wealth, and that the low savings rate of countries with high wealth stratification (US, UK, Canada) "would seem to be at odds" with this. He then asks:

So the question is - what are the implications of hyper income inequality for aggregate consumption and savings?

By way of answering this question, a discussion of measurements and implications is warranted before discussion of broader theoretical questions.

There is no contradiction here between the savings theory and the low rate of savings in stratified economies. A careful assessment of the definitions involved reveals that the entire discussion is one of apples and oranges. The theory of savings is not a relative income theory. It does not argue that those who are at the top save more by virtue of their position, but rather by their income relative to the cost of living. Thus, measuring stratification alone does not provide an argument for some level of savings. Aggregate consumption can increase without reducing savings in aggregate, so long as all the new consumption comes from economic growth. The same holds true for aggregate savings, and for decreases in consumption or savings during recession. The savings rate may change while holding one of the variables fixed.

In particular, this is relevant in the USA, where real wages have been on the decline. If we posit a cost of living in the United States that has gone up moderately over the decades, and then concentrate all the gains in GDP in the hands of the few, it becomes clear how the average savings level can decline. The increased savings of the relatively small class of the wealthy could very easily be eclipsed by the decreased savings of the very large class who are now saving much less due to declining real income.

No modern theory argues that savings habits are uniquely determined by income. There are always a variety of factors. Government inducements to save (such as tax credits or penalties), lending and investment regulations, cultural attitudes, market conditions, etc. all play a part in determining the savings rate of a society. These factors are not uniform either - they can be different for the wealthy than the poor. The U.S. has particular inducements to invest, reinvest, purchase property, etc. written all over in its tax code, so it is logical to see a lower level of savings here. Also, these three nations are toward the more capitalist end of the economic spectrum when compared to other westernized nations, adding another factor of differentiation: savings is also a function of economic security, which is arguably in a long term crisis in these countries (savings is a rate, thus it is more strongly correlated with gains in economic security and vice versa due to fewer social safety nets in more laissez-faire economies).

There is also the question of what constitutes savings - it seems that a proper definition of savings will include long term appreciating assets purchased with loans as savings. A middle class person's house is that person's net worth. (S)he is clearly saving by paying money toward the home loan. But, when measuring consumer debt and savings rates, mortgage debt counts against savings.

So, from an experimental/empirical perspective the problems of measurement make the question difficult to answer given the typical methods of economic measurement. It is not so much that these measurements are inadequate, but that they are conceived from a perspective that is too limited in time, context, and incidental economic conditions. Thus, the methods of measure fail to achieve the universality that is necessary for them to be used for analysis outside of the evidence from which they were conceived. They are objects which only exist "in situ" but depend too much on unexamined assumptions to ever exist as general metrics. This is itself evidence of the limits that our naive doxic modalities place on the development of nondynamic social sciences. We suffer acutely from this in the United States because our idea of tradition in the political sphere is skeptical and static.

The question, of course, can still be answered in a theoretical sense even when the facts are elusive. Unfortunately this theoretical issue requires a critique of the concept of productivity that illustrates the economic trade-offs that technology poses. The final result of the critique will show that productivity gains cannot be expected to drive economic growth beyond a certain threshold. For sake of brevity, I will not include natural resource limitations or negative externalities like pollution or anomie. When general economic growth stops, the owners of the firms will continue to grow their own incomes through the same process of productivity increase, only now the result is no longer positive for the economy as a whole, meaning a period of stratification begins. Eventually the owners will also begin to lose money, and a period of random behavior follows. Hyper-income inequality only occurs during these last two periods, and it is relieved only by programs of wealth redistribution or failures of massive asset classes owned by the wealthy. The consumption and spending behavior of the masses during these two periods depends on the presence and efficacy of various social programs. The implication of hyper-income inequality to aggregate consumption and savings patterns is therefore not causative, but rather a symptomatic relationship.

Since income is a portion of the value of production, with the total income equal to total cost, the principal question of income distribution seems to be the distribution of the income from each unit sold. The individual cannot maintain the same level of income at the same level of productivity if his share of the unit price declines. From a single-firm perspective, the individuals employed may still have increasing incomes so long as the gains from increased productivity are distributed between workers and owners. The lot of the many does not improve when productivity gains are not matched by incremental increases in wages. Prices may fall, but price decreases cannot make up the difference beyond small shifts. A person's bills, rent and car payment will not decrease, nor can services not subject to productivity gains become more affordable. A steady increase of wages in parity with productivity gains is appealing, in part because it satisfies the basic definition of sharing that we learn in Kindergarten.

However, if one analyzes productivity gains from a macroeconomic perspective, this amelioration proves insufficient. Assume a market that perfectly clears. Now, consider that one additional good is produced in that market through a productivity gain. This event must necessarily lead to one of three changes:

The good is sold at listed price and so aggregate savings decrease.
Prices decrease, stimulating demand to sell that one additional good.
The good goes unsold (or is expected to not sell and therefore never produced).

Whenever Case 1 occurs, savings decrease by the simple fact that this money would be all savings were it not spent on the purchase. If a different purchase was preempted in order for this purchase to occur, this contributes only to case 2 or 3 in the market for the other good. Case 3 can happen frequently in the short run, but in the long run it occurs only after the exhaustion of case 2. The price decreases, as described above, do not endlessly benefit the economy, as the increasing relative cost of services that cannot be automated eventually exhausts the balancing effect of these decreases. Furthermore, price decreases and the accumulation of unsold inventories create incentives to disinvest from the industry. Though the argument is not yet complete, for sake of clarity at this point the equilibrium production level for that industry has increased slightly and moved toward a lower price. The proportion of decrease in price will depend on the degree of competition in the industry - the single firm has an incentive to push for price decreases in order to capture a greater portion of the market, but in oligopolistic or monopolistic settings there is little or no incentive to lower prices, respectively. Prices, in any event, are not important for the discussion at hand, being significant only in their changing of consumption habits which all do the same things, relative to my conclusions, anyway.

To a certain degree, we are assuming that the gains in productivity are shared with the workers. This implies that the additional profits from production will produce a demand stimulus. However, this demand stimulus is limited to less than the revenue gain of the firm (because the remainder of increased revenue must go toward the owner). This quantity is also reduced by any decreases in price. The demand stimulus is therefore always insufficient to absorb the higher quantity of goods - therefore savings decrease and/or other parts of the market experience reduced sales.

Through various mechanisms the profits of the owner become investments into industry. The degree to which these new investments become sources of economic growth depends on the existence of new or possible industries which would compete favorably for consumer dollars with the existing industry. For our purposes, these industries pay wages but do not produce any competing goods yet - they are "start ups". In combination with the other sources of stimulus thus far, we have an equation (in dollars):

Increase in wages + reductions in savings + reductions in sales of other goods + wages from new industry = increase in sales of a given good.

Here I will posit a few constraints in the form of bliss points toward which consumers trend. Consumers have a "variety of goods" bliss point which determines the degree to which new industries will eventually succeed. Consumers have a "total goods" bliss point which determines that eventually the equation trends toward "Reductions in sales of other goods = Increase in sales of a given good", i.e. good substitution. When wages increase, increases tend to affect less than the entire workforce, and so create increases in savings that in turn cause a drag on sales increases. So long as the entirety of productivity gains express themselves through wage increases and new industries, these constraints will eventually come into full effect.

The corresponding situation when sales of a given good are not increasing is given by the same equation. We simply set the right side to zero or a negative. In this situation, gains in productivity lead only to decreases in the total labor utilized on a particular good, and possibly increases in other goods production, wages from new industry, or savings.

Eventually, however, the aggregate of all of these markets for particular goods will "zero out" (with balanced levels of increase and decrease typical of any equilibrium situation). Thus, economic growth is culturally limited by the bliss points - the accepted level and variety of consumption within the society. Therefore, the transformation toward a consumer culture is necessary as part of the package of long term economic growth. However, such a culture is not necessarily a more pleasant one to live in; and it is likely that there is a limit to any possible bliss point in terms of quantity and variety. Thus, the first stage of "growth" comes to an end.

The onset of stagnation gives rise to (and is accelerated by) the accumulation of wealth by the richest classes. Wealth becomes concentrated at the stagnation point because from this point forward, productivity gains lead to no further economic growth, and thus there is no sales growth to divide between worker and owner. The entirety of the productivity gain is thus expressed through the cost saving, i.e. the reduction in labor utilization. Thus, the productivity gain leads only to profits. These profits will see limited expression through new goods that have narrow or nonexistent profit windows. This is the second stage, the "stagnation" period.

This can only occur if the tax rates on the wealthiest classes actually permit the unlimited concentration of wealth. Where tax rates are progressive, they can slow this process, but can't really halt it. Only where there is no incentive whatsoever to acquire wealth beyond a certain point (either a 100% threshold on income tax or a wealth tax that creates an effective maximum wealth) will this process not occur.

In any event, the lack of meaningful investment opportunities for the newly accumulated profits leads the wealthy to behave erratically after some time has passed within the stagnation period. All manner of investment schemes will be invented in the vain hope of providing some means of profit. A stiff competition will arise that drives competitors to many tricks in an effort to gain advantages over each other without resorting to the horrors of the price war. This is the "erratic" stage.

In most economic situations (and I am still speaking theoretically here, even though this is virtually a statement of obvious fact), the system of competition is not perfect or "pure". Typically, the producers have a certain degree of agreement between each other on production levels. A complex system of laws always accompanies economies for the purpose of enforcing against unfair trade practices and other abuses. Systems also exist to protect workers and consumers. The economy is therefore managed synthetically or "by design". During the worst of times, blame is passed around like a hot potato and it is no wonder that systems of prediction break down - they were based on what politicians, corporations, and other power players wanted people to believe but they were never the whole truth. Of course, the people involved in these simplifications do not have a total awareness of what they have done, and so are somewhat helpless when real objectivity is needed. Ergo, amok.

At this juncture the various economic stages can be expressed as the growth stage, the stagnation stage, and the erratic stage. The cycle is allowed to repeat as a new generation rises up with a new set of consumerist indoctrinations, allowing the entire system to achieve a higher degree of consumption. It is not a business cycle, but a bliss cycle. The driving factor is the revolution in consumer purchasing patters enabled by the development of higher degrees of dependence on material objects for quality of life. In particular, the ideas that are lost in this material transformation are self-sufficiency, charisma, and spirituality. It is also worth noting that as these things develop, new levels of productivity are realized, creating "better" goods than what was available before. But are they really "better"?

The loss of self-sufficiency is the loss of knowledge and skill in daily crafts, routines, and handiwork, and the dependence on various material objects that cannot be readily produced by the individual or immediate community. The person becomes dependent on distant parts of the economy for his very existence. A person cannot survive in much of America without a car, and this dependence on automobiles ensures a much higher level of total economic output than what we would otherwise have. But the individual cannot produce his own food, clothing, grooming products, bedding, housing, or virtually any other thing in the modern economy. Therefore, these must all be purchased. This is a major source of growth.

The loss of charisma is the loss of the appreciation of other humans in our daily lives. It is the loss of free or inexpensive means of entertainment rooted in the appreciation of the beauty of other humans. Storytelling is replaced by live theater. Live theater is replaced by books, radio, eventually movies and television. Even the idea of beauty is replaced: it is no longer a particular girl or boy in the village, town, or city, but the digitally retouched famous person. Ideas discussed between individuals are instead only read about (and ultimately become politically irrelevant) because now individuals perceive each other as being stupid or ignorant in comparison with the polished and vetted non-fiction media that is marketed to every demographic. A person cannot be free without drugs or alcohol. A person cannot make love without condoms, birth control, batteries of tests, their own apartment, fantasies, etc. And there is no time for (annoying) children in the careers of busy professionals. This includes what one might think of as mass media, but it is not caused by any particular actor or institution.

When speaking of a loss of spirituality, it is easy to step on toes. So I will be brief in this regard: the way that people live today is one in which they are utterly unaware of their own effect on the world and are disinvested from their own feeling of potency. So long as the individual depends on external, market sources for self esteem, he is hopelessly committed to spending.

These transformations are brought about through the collective effect of the marketing efforts of the producers of the various products that become integrated into our material existence. The individual marketing firms use advertising, product placements, promotions, salesmen, etc. to increase sales of their particular products, but the collective effect is the transformation of social values and norms and the increased susceptibility of the general populace to any and all new products or technologies. Utilizing hooks that draw the individual into the belief that the purchase is necessary is the essential means by which the prospect is turned into the sale. In so doing, the marketing force constantly convinces the individual of his or her own insufficiency.

In connection with the thesis proper, the very presence of hyper-stratification is evidence of economic mismanagement. It only occurs through the accumulation of wealth by the richest for which no similar accumulation occurs in other classes. It takes a unique political sphere for this to even come about. Welcome to America.

Solutions

2009-10-13T13:08:00.000-07:00

People are judged most severely for what they think when they try to offer solutions to problems. Both the common man and politicians are discouraged from offering solutions because of this. Unfortunately, with a complex problem that requires lots of data sources, it is basically impossible to get it totally right on the first go. The first people to attempt to solve the problem are therefore the sacrificial lambs to the innovators who come after them and steal the glory with a more or less correct solution. Nobody wants to be that first guy, and so problems go unsolved.

In many scientific spheres, there is an attitude of development and documentation that ensure that people receive their due. The system in place is much more encouraging of speculation, and of course because scientists are an elite club, they always give each others' ideas more deference. Hence, natural science has developed splendidly, while social science, dependent on systems where individual expertise is always in doubt, can never build off the theories of those who came before.

The proper role of insurance in healthcare

2009-10-09T11:21:00.000-07:00

After reading the two part healthcare articles by L. Randall Wray over at Economic Perspectives from Kansas City, I found that my squishy brains was churning with thoughts regarding his argument that we are utilizing insurance too much in the provision of healthcare. What is the proper role of insurance in healthcare?

1. Healthcare and Insurance

The issue can be elucidated by taking two analytical steps. First, pretend that healthcare services are classical or "typical" services and posit what properties they have that differentiate them from the norm. From these properties comes the justification to treat healthcare services as being different from other services. Of course, the degree of regulation that a person expects to exist for the economy in general can muddle this analysis, and it is likely that many important properties of healthcare services will actually be present in other classes of service. The second step is then to determine how well insurance provide various functions of healthcare.

In the past I have asserted that the healthcare problem is a public contracting problem. This is true because healthcare services are much like services provided by private contractors to the government. Public contract services are paid for by a public agency but provided by private entities. Often, these companies are one of a few firms that can fill the contract, and so the contracting agency may have few options. Similarly with healthcare. For people who actually receive healthcare through the government or paid for by the government, their healthcare really is a public contract. Although healthcare is not always paid for by the government in the United States, the public pays into health insurance pools which are then administered by insurance companies. A person is often limited in his/her healthcare options by where he/she works. Even where healthcare is purchased on the market by private citizens, few have the understanding or sophistication to see how the policy will actually play out for them, and so competitive regulation is absent and the decision is essentially arbitrary. For people who develop medical conditions and are unable to switch providers, these folks are locked into a public contract situation where their insurer can often make arbitrary changes to the contract. In public-private contracting, the government, and therefore the public, is in danger of being harmed by companies that use manipulative business and accounting techniques to undermine the level of service that they provide for their own profit. Similarly, a person or group of people entering an agreement with an insurance company are in danger of being harmed by the fine print of their contract, negotiations made by their employer on their behalf, and "pre-existing conditions". In order to ensure that private entities are providing efficient and quality services, the key questions and the place that most of the work must be done is in the oversight of the private contractors.

But healthcare through an insurance model is really a question of double contracting. First, insurance companies enter into contracts with the general public. Then, these companies turn around and enter into contracts with health service providers. For government provided healthcare, there are services provided through the Veterans Administration or Military, where the government actually provides the service, and there are services like medicaid that contract with healthcare providers, just as insurance companies do.

But healthcare is not really a uniform service. It is often tacitly assumed that people have no real preference beyond "the best quality available" in choosing their healthcare service provider. This, however, isn't true. Some people will prefer a more friendly doctor or one with a more professional demeanor. Some people believe in alternative medicines. One healthcare economist has compared this to people's taste in restaurants, though this may be a stretch. People primarily want consistency and accuracy from their doctors. Data compiled in hospital mortality rates clearly show that some surgical teams are much better than others. The public is not allowed to know which hospital they are more likely to die at, or which doctors are most likely to misdiagnose their condition at the clinic. Faith is placed in the doctors that they are all trying their best, and that is enough for even the most free-market voices in the public debate on the issue.

It is not clear that the public would do the right thing with hospital quality of care information, were it aggregated by a nonprofit or government agency and made available to them, but a good argument can be made that it would. At the very least, it might cause services at better rated hospitals to be bid up in price, and services at not-so-good hospitals to fall in price. Very rarely, this would create a situation where those who couldn't afford to go to the nicer hospital instead go to the alternative hospital and experience a reduced health outcome or even death as a result. This is only a very small harm. Hospitals, however, would experience a much stronger incentive to provide quality care, because the prestige of the institution and its management would be at stake. Here there would actually be a rarity in business: an accepted philosophy for what a quality service actually is combined with public concern sufficient to motivate action. It might happen that hospitals that serve poorer communities would suffer an even greater reduction in health outcomes than what currently exists, but how do we separate our new knowledge from the effect of knowing? There is also a deeper, philosophic argument for why this information should be available. Public disclosure is a necessity in free societies.

Enter the insurance company. The insurance company will not insure patient care. Though it does have the sophistication and means to determine, to some degree, the quality of service provided by each medical provider, even while keeping the general public from knowing. However, they only have a limited interest in preserving patient health, insofar as preserving the health of the patient will maximize the future difference between premiums collected and costs of services paid out. This makes them unlikely to act on such knowledge. The insurance company also has no interest in limiting costs that it can pass directly to patients. As an actuarial institution, the insurer has an incentive to limit payouts on the patient's behalf, passing as many costs to the patient as possible. The insurer that is unable to do this will instead seek to negotiate for lower costs of service from the provider, but the items of negotiation do not necessarily correspond to the profit margin of the service, and hence can lead to strange gamesmanship between providers and insurers that undermines quality of service. In short, it would be difficult, if not impossible, to create a system where insurance companies act on behalf of their patients. The relationship is naturally one of adversarial negotiation. The insurance company is really meant to address the financial aspect of the situation, specifically providing large short term payments that individuals cannot afford.

One can expect the average individual to pay much more to insurance companies than he receives in benefits. Theoretically, this is the only way such companies can exist, as they must pay for their own employees as well as turn a profit for their investors with an income stream that is only premiums. In practice, however, insurers negotiate steep discounts on service costs from health providers. Therefore, insurance can lead to reduced costs for the average consumer. This is at least partially a result of information availability to consumers, specifically the nondisclosure of provider quality. This factor seems to be a source of abuse as well, as insurers do not necessarily act as agents of their policy holders. To complicate matters, these contracts are not subject to uniform standards of disclosure. Even so, the insurer maintains some level of negotiating leverage with health providers by being able to route its policy holders toward less expensive hospitals. It is not quality of care that matters so much as price, but the downward pressure this exerts on healthcare costs is probably significant.

Here it is worth noting that the presence of strategically placed regulations and oversight requirements can be very powerful in forcing insurance companies into the proper negotiations with providers instead of allowing them to gouge consumers. This seems to be a significant part of the current Democrats' healthcare reform strategy. As is usual in politics, the people who proposed a solution were criticized harshly and in ways that had little to do with the facts. Where insurance is providing services it reasonably should, the addition of sensible regulations will lead to a very efficient outcome that can be called a "solution". In cases where insurance really has no business, this change is not really going to solve problems so much as suppress bad outcomes, requiring constant regulatory adjustment and fixes to cover loopholes and tricks, and a high degree of efficiency will not be achieved.

It is also worth asking, if only for theoretical reasons, what criteria a person can use to select an insurance company. Often times a person will pick insurer based on cost alone. In other situations the individual will know that they are more likely to use one or another service, and pick an insurer that has good coverage of that particular health service. Distance also becomes a factor, and sometimes people will ask their friends about quality as well. All of these are valid criteria, and so long as free markets work in general, there is no reason to believe that individuals cannot pick insurance plans that work for them, so long as there is some minimal quality of contract that insurers provide, i.e. so long as the government pursues reasonable regulation of the insurance business practices.

2. Where health insurance works

The types of health service paid for by insurance companies are nicely described by Professor Wray, and I will briefly summarize them, then assess whether they are best provided by insurance companies, the government, or individuals.

Insurance companies cover random, catastrophic health events. These include physical accidents and injuries caused by others, outbreaks of disease, and some other non-chronic conditions. As long as these health events conform to solid actuarial standards, and there are proper government regulations to constitute a "second best equilibrium" where insurers compete for quality of service and financially incentivize people against risky behavior, this type of healthcare is well provided by the insurers. These catastrophic events will, of course, visit individuals more or less frequently and at greater or lesser cost along demographic factors which a person does not have control over - age, gender, geographic location, occupation, specific health conditions, etc. Here, regulations requiring insurers to offer the same rates to all these different demographics would only lead insurers to compete to control the "choicest" demographics. In fact, they will do this anyway, but much less desperately. To a certain degree, risky behavior cannot be separated from the demographics, because insurers are limited in the information that they can obtain. If the question is one of equality, there is no reason that the burden of equalization should fall on the insurance company (For instance, if the cost of being female is just higher in our society than it is for being male, a subsidy could be used to ensure that women are not made poorer than men on average as a result). Health insurance works in this case, and it is very similar to what one sees in car insurance or any other type of insurance.

Insurance companies cover routine care. Here, the individual will express the greatest preference for variety of care. Some individuals are best served through home visits. Others seek alternative medicines. Still others will not be bothered to take any steps toward routine care whatsoever. Though the majority may still come to regular check-ups with traditional doctors, individuals will express a variety of preferences in this regard. In this market, it really doesn't make sense for insurance companies to be involved. What is really needed is consumer advocate groups who can rate care providers along the lines of price, quality of service, sanitary standards, etc. Insurance companies cannot be trusted to do this consistently, as they are not agents of their policy holders and don't really care about quality of service. However, in this situation, insurers who provide catastrophic coverage can look to personal health records and give lower premiums to those who show evidence of actively working to preserve their own health. Because of its low price, routine care is not well provided by insurers, and the price-negotiating effect is less likely to reduce costs for consumers. If the goal is to make it affordable for all people to receive routine care, subsidies should be introduced to make it affordable for everyone, or perhaps the issue of poverty should simply be addressed separately.

Insurance companies cover the cost of chronic conditions. Here, the unlucky insurer ends up trapped in a situation where they are paying large sums of money for a long and indeterminate period. The money is spent on expensive medical techniques, drugs, and hospital stays that would be much more expensive if paid out of pocket. This is probably the porkiest part of the entire system. Here, the power of insurance companies to negotiate prices down is probably the strongest, but also where the greatest tension arises between insured and insurer. Here is where people are denied coverage because of preexisting conditions, where fine print costs families their savings, where secret deals fleece the consumer, and where the vast majority of healthcare costs are incurred. The problem with this is that here there is no actuarial element - a person has a condition and there is no risk against which the person is insured. Here, a person needs a health advocate who gets people together in groups and negotiates with the healthcare provider on their behalf. This really shouldn't be an insurance company.

To summarize: Health Insurance should cover only actuarially appropriate health risks and should not be used to pay for routine checkups or long term care.

3. Solutions

The issues that most critically need to be addressed are the costs associated with chronic conditions, the transition from catastrophic event to chronic payment, workplace-funded healthcare, general regulation, and standards of disclosure. These are really issues in healthcare and not insurance. Where insurance should not be involved, the structure of a system that does not utilize it is sketched out.

A. Chronic conditions

Because of the great disparity in costs associated with the cost of chronic conditions, the way that this aspect of the healthcare problem is managed will essentially determine the success of the entire system. There are really three groups of chronic conditions: those associated with old age, those associated with poor health choices, and those that the individual is not at fault for.

Chronic conditions associated with old age for the most part fall under medicare in our current system, so I won't dwell on these issues much longer, except to say that medicare should probably phase in sooner for most people. The effects of aging become pretty clear by the time someone is 55. From now on, my discussion will focus on chronic conditions caused by poor health choices and events outside of a person's control.

Medicaid and other programs that provide medical services to the poorest of the poor should also be expanded to provide these services in a complete and consistent manner. Unless a person is in such a group, there is no reason to expect their healthcare to be free, and so everyone else will have to pay, even if only a little bit.

In order to control costs and ensure quality of service, people with chronic conditions need a union, not an insurer. A "Health Union" would be an organization that geniunely represents the interests of its members. Those who don't have chronic conditions don't have a reason to pay dues or be members, and they shouldn't. Those who do have chronic conditions would pay to hire a collective bargaining team to lower costs for them. Unions, as fundamentally democratic and not-for-profit entities, have the potential to maximize both the cost savings and the quality of care for their members, and they won't hesitate to fight for their members in court. If conservatives get all pissed off about the term "health union", they could be called "health advocacy associations" or even "HMO"s.

If costs are still too high after bargaining, which they most certainly will be, these costs would need to be subsidized. The best way to structure this subsidy would be to preserve a portion of the individual incentive to shop for lower costs while covering the bulk of the expense from the supply side. Something like 60-99% of the cost of procedures would be paid by the subsidy. Individuals who cannot afford to purchase their medicine even under these conditions would ideally also qualify for medicaid. Where there are cases of individuals not being able to afford care, it is really a case for expanding medicaid, not a case for universal coverage.

Funding for subsidies related to poor health choices would come from taxes on products that contribute to those choices. This is already the standard for cigarettes and lung cancer. This philosophy should be expanded to include all products in the proportional degree of their contribution. For instance, soda contributes to type II diabetes, and therefore it and other sugar sources should be taxed appropriately. Motorcycles and Automobiles lead to traumatic brain injuries, and therefore they should pay a tax to help cover the cost of these injuries. Alcohol, of course, would be taxed heavily. Individuals should pay for their own health choices, but I can think of no other way to bring this about. Making individuals pay for their own chronic care only at the time of providing the health service is impossible. If these taxes are not levied, most people will not be paying the "real cost" of the products they consume. This is the most fair alternative I could think of, and it will reduce costs in the long term as well.

Funding for subsidies stemming from no fault on the part of the individual must come from the government. We have a long and compassionate tradition in this country of providing for people who have disabilities. We believe in a level playing field from which everyone has the same opportunities for success. If this creed is more than words, it must be put into action in a way that allows those with chronic conditions to live without crippling medical debts. This is a general fund issue, just as education, human services, and national defense are. Any one of us could wake up tomorrow and find that something has gone horribly wrong with our body. Just as the government protects us from Al-Quaida, it should protect us from the financial ruin associated with such a situation. If the cost is high, we should accept a higher deficit or raise taxes in whatever way is fair.

B. From catastrophic to chronic

The transition between catastrophic care and chronic care is worth addressing here because I have assigned one function - catastrophic health coverage - to insurers while reserving chronic care price negotiations to health unions and government agencies that set subsidies. Insurers will want to reclassify people as receiving chronic care at an early stage, while the legislatures crafting budgets will want to keep individuals in the catastrophic coverage stage as long as possible so that they can then reroute general fund dollars to their own pet programs.

There is no simple argument for when the transition should occur. Insurers may be able to set this threshold in a reasonable manner, preventing any formal legal definition from stipulating an exact time frame. There are reasonable bounds: post operative care should be covered as part of the definition of covering the cost of an operation; catastrophic coverage that pays for an emergency surgery to battle an invasive tumor should not be required to cover a person's chemotherapy for the rest of their life.

Whenever the transition happens, it will be crucial to prevent any disruption of care. For this reason, a person should receive both advanced notice and expert counseling that informs them of the financial effects of the transition and their options. Because chronic care is directly subsidized, even if disruptions do occur, a person who pays out of pocket rather than through a health union would not usually pay significantly more. When (s)he does pay significantly more, it is an incentive for both the individual to join the health union and the government to improve the transition, because the government would pay more in subsidy as well.

C. Workplace funded healthcare

Workplace funded healthcare is not so much of a horrible mistake as Professor Wray contends. Because workers spend a disproportionate part of their lives at work, and because occupational hazards can lead to many catastrophic events and chronic conditions, it is really a prudent public policy to make businesses financially responsible for the health of their workers. The problem is that businesses must pay for a huge variety of events that they aren't responsible for at all. Many businesses cover the entire family of the worker, even though the worker's family never sets foot on the factory floor.

There is a specific class of care that businesses should be responsible for. Though the majority of businesses these days aren't the dangerous factories of yore, safety hazards still exist at all businesses. When a person is injured on the job, the company should be required to pay for the catastrophic treatment and subsequent chronic care. This does not necessitate an insurance policy unless the business is small, but it is possible that businesses will purchase policies to cover financial costs merely to outsource the administration details. In this situation, the worker is made more remote from the insurer. For this reason, a strict and narrow standard should be used: individuals should purchase their own catastrophic coverage which covers all non-workplace related health calamities; businesses purchase coverage which covers their cost of paying for medical expenses that result from workplace accidents or chronic ailments.

If a business has a practice that results in 20% of its workers developing back injuries due to repetitive strain, the business should pay the cost of this care. Even if this means that the business has to charge more for its products, society isn't paying the real cost of production unless it pays this extra. If this contributes to other countries outcompeting the United States, one must ask if tariffs really don't make sense. After all, these foreign countries dotted with sweat shops aren't making their own businesses pay the real cost of production, and so they don't deserve this competitive advantage. Businesses, of course, will have an incentive to treat their workers well when they have to pay for injuries. When they don't, they won't.

As a final note on this issue, the practice of using temporary employees and independent contractors must be regulated and disincentivized. A company that contracts with a third party to bring workers into its own factory or production process should be required to treat these individuals as its own employees. There are far too many abuses that manifest under the alternatives.

D. General Regulations

Regulations take the form of rules that determine what is acceptable and allowed. They also form the groundwork from which individuals make decisions in the context of market competition. Regulations can improve health outcomes mainly through information sharing requirements and intercompatibility rules.

Healthcare, being a complex process of coordination, negotiation, and expertise-dependent decision making, is prone to the development of proprietary architectures. The role of the government in this situation is to spare the consumer from the horrors of learning a separate system for each different clinic or hospital that (s)he visits. Because of the way that businesses operate, often they will not see an individual incentive to change their system to conform to those of other businesses, but massive improvements in efficiency can be realized through standardizations. The creation of standard forms and intercompatibility rules should have very strong positive impacts on efficiency.

Many things that need to be required or regulated may already be so. A person's health record should be available to be transferred in total from one provider to another. Privacy rules should be uniform and strict.

Insurance must be prevented from worming out of commitments. Customers need a credible belief that they are actually buying something. This is especially true if the government plans to force individuals to purchase catastrophic coverage.

E. Disclosure and Oversight

I return now to the topic of disclosure, as it was mentioned at the beginning of this essay.

Disclosure is the keystone of any effective partnership between public and private. The necessity of disclosure is absolute. Without knowing what all health companies are doing with the money they earn, it is not possible to know if services are being provided efficiently. Similarly, insurance companies can conspire to gouge consumers if their profit margin is not public knowledge. The main obstacle to disclosure requirements are several arguments against them, which I must now turn to.

Some will argue that disclosure requirements harm firms by forcing them to share proprietary information or trade secrets. However, there shouldn't be these kind of things in healthcare. If a company has a way to do something better or more efficiently, it is that company's duty to share it.

Others will argue that there is a high cost associated with creating and maintaining the records needed for disclosure requirements to be met. However, these records should be kept by the company even in the absence of them being required to publicly disclose them. Should a hospital keep track of the success rate of its operations? Probably. If there is any credible argument to be made that businesses strive to provide quality of service, these same businesses should be measuring the quality of the services they provide.

4. In conclusion

So long as healthcare is provided entirely through an insurance system or a centralized "single payer", incentives to select for true quality of service at an affordable price will be muted. Real savings are best realized through a sober dissection of the healthcare question. Insurance has its role in catastrophic care. Markets and consumer choice are key to routine and preventive care. Chronic care must be treated as a different beast entirely. The government's role in Medicare and Medicaid should be expanded.

There are many many details behind each and every generalization I have made here. Much of what can be realized will depend on the work that is done to craft accurate payment schedules, savvy negotiation of prices, and work through the details. These details must equal the whole: I am writing with the expectation that good faith is followed. This is always the case, with any statement of what must be done. Arguments that what I have imagined cannot be done are welcome.

After writing most of this, I noticed that a soda tax has been proposed. This is an excellent idea.

The definition of 'work'

2009-10-05T09:49:00.000-07:00

I would like to construct a better definition of work that is broad enough to engage a more general philosophic view.

Work is the object of labor - workers labor only because there is work to do. In the market setting, whenever there is work to do, this implies an expectation of profit. Even in the short term case of unprofitable firms, labor is only contracted under expectations that losses are thereby reduced. Thus, profit as used in this essay is only a relative quantity, a "net gain". In short: labor implies work; work implies profit. Throughout the essay, work and labor will be used almost interchangeably: work IS labor in the sense that there is always much work to be done but we tend to be oblivious to the vast majority of it because we do not perceive anyone actually intending to do it.

If work is to be a well defined aspect of our economic life, then it cannot be defined such that the same action taken by two different people is work for one of them and not work for the other. Although this distinction - the subjective division between work and leisure - underpins much of the early philosophy of economics, it suffers from several flaws. The first is that meaningless service exchanges look better from the perspective of common metrics such as "unemployment". For example, suppose two unemployed people decide to work for each other by buying each others' groceries. In this way, they are each performing a service for someone else and getting paid for it. Thus, one might suppose that this is work, but that buying groceries for oneself is not. Secondly, a person might enjoy doing something that others consider to be work, or a person might not enjoy doing some action that he or she is in some way compelled to do without pay because it is considered to not be work. Therefore, the idea of the desirability of any activity is a hidden, subjective, and informally classified determinant of economic variables - it is a source of error.

Accepting the above gives a very broad definition of work: work becomes virtually all human activity. The distinction between voluntary action and pecuniary actions, which was never well adhered to in economic theory anyway, disappears. Work can be defined as all human activity except those functions that another person literally cannot do for a person. For example, although I may feed you, I may not eat for you; although I may change channels for you I cannot watch TV for you. In certain cases the distinction is subtle - a person may gather information for themselves or have it reported to them, but the act of learning and internalizing is not delegable, and therefore not work. One can make distinctions in work based on telos: Is it work for oneself, for "pleasure", etc. or for an organization or for society in general? The problematic aspect of this type of distinction making is that it is not always clear what constitutes what, nor does the individual always have a clear idea of their own causes of action. The substitute person need not be a real and identified other who will step forth to act - (s)he is a theoretical person who could step into one's role and complete the task. Additionally, work is a separation of action from authorship. Workers do literally sign away their rights to their own creations when they work in a creative capacity for a corporation. More fundamentally, anything that one can conceive of as being an activity someone else could do is an activity of which a person cannot also claim himself author, and so anything truly authentic or unique is not definable as work. Here, the distinction is between general action and details.

If economics is to be a predictive discipline, it must make every effort to maximize the degree to which it predicts future economic activity. Continuing with the assumption that work is any human activity that another person could complete in your stead, the basic premise that work implies profit must either be abandoned or profit must be defined to include nonpecuniary goals. The latter assumption seems to be more straightforward and elegant, and for purposes of descriptive brevity, this is how it will be defined throughout the essay. More precisely, profit is the direct achievement of personal ends or the achievement of ends on which some personal goal is contingent. The theory is not violated when a person's goal in life is to make as much money as possible, nor is it violated when a person's goal in life is to smoke as much weed as possible. Here I note again that in practice individuals act on expectations of profit.

That offers of work are often treated as implying profit on the part of the firm is a particularly troubling assertion. In this, the "firm" is created as a mystical entity, where in fact it is a collection of individuals. Furthermore, the profits of the firm are collectively the property of the investors and creditors. The balance sheet shows this to be true. To say that a firm owns property is to assign total ownership to one group - the investors and creditors - and then to assign some other level of ownership to the firm itself. Therefore, the firm does not own itself, and cannot claim its own profits; it becomes nonsensical then to assume it is interested in achieving profit. A person who takes an offer of work receives money in exchange for some activity. This is labor in the classical sense, and it work in time and effort. A person who spends money in exchange for some goods or services has been offered work as well - it is work in selecting and exchanging. Even a person who is watching television is working by viewing advertisements. An author depends on the work of his or her readers. All of these are work in the broader sense, and all of them are acts of labor. One might object that these are different kinds of transactions, one being a spending of wages for goods and the other being the production of goods for wages. Here, though, one must ask what the significance of this distinction is: limiting work to work for money forces us to treat volunteering as not being work, or the work of a student as not being work.

The appeal to a framework of division between needs and wants does not help the matter. When a teenager goes to the mall to buy designer clothes, we do not treat this as work, even if the teenager feels that he needs these clothes in order to fit in with his peers. When a person takes on a second job simply because he wants to save up money, we do treat this as work, with or without appealing to a theory of necessity. Furthermore, we encounter many difficulties if we attempt to make more formal definitions. Does a person need to be literate? Does a person need adequate nutrition or is malnourishment simply an unpleasant part of life, like boredom? The first instinct is to introduce a rights framework, but then one has effectively abandoned wants and needs. Rights, of course, suffer similarly: to introduce the individual right to be nourished is too weak of a demand to actually ensure nourishment.

Returning now to the idea itself - that work is any human activity that another person could complete in a person's stead - the benefits of this definition are numerous. Many problems are clarified.

1. Ensuring that there is enough work becomes a meaningless endeavor. The real objective becomes to ensure that social goals are achieved.

Economists use measures like "unemployment" to gauge the health of the economic system. This definition and its common use strongly imply work to be a good thing. Although intuitively we often feel that work is a bad thing (just as we might curse when we spill a glass of milk rather than saying "hurray! Some work to do!") we just as often enjoy work: we may enjoy shopping, cooking a meal, or even arguing on the internet. As outlined above, it is silly to distinguish between work and play on the basis of some subjective sense of enjoyment or dread because work is the path to the achievement of personal goals, not the actual goals themselves.

The real problem with people not working is that they may be unable to provide for themselves in the long run. Their quality of life is compromised. This is an ethical judgment, just as any preference for some level of employment is ultimately ethical, whether based on Pareto optimums or some other economic pseudoethics or on a philosophic theory of ethics.

When society decides that it wants to address unemployment, it is a mistake to try to create work. In reality, everyone is always employed, and so the question is whether to change their actions so that they are more profitable. This may require a mix of mandates, training, subsidies, and assistance programs. What the society should do is find work that is not being done and entice people to do it. Here, individual goals are scrutinized on the basis of their importance. Avoiding starvation is relatively more important than buying another toy. In our present society, there is no shortage of work to be done that is very valuable to everyone. Our goal of preventing climate change could motivate us to build more wind power generators. Our goal of preventing homelessness could motivate us to produce low cost housing. Our goal of westernizing the world could motivate us to teach or volunteer in impoverished countries.

When there is no work that is not being done that that society feels is worth doing, the alternative is to either change the division of labor between individuals or to create a class of people who do not work. America has categorically rejected the second option - we do not want to create a dole. The goal, however, is to ensure that everyone has a minimum quality of life, and this means they must have the income to support that quality of life or receive services as a charity.

2. Individuals will tend to minimize work along profit isoquants.

In a more technical sense, work is a collection of activities to the achievement of profit. I have not yet created a metric for measuring quantity of work, but any such definition will feature a balance of criteria such as time, effort, physical hardship, etc. that detract from an individual's profit. There will be situations where optimizations exist, and it is reasonable to expect individuals to take actions to optimize work (i.e. do less work per unit time, but still be considered "working" throughout that time). Nobody wants to be Sisyphus, rolling a boulder up a hill only to have it roll back down over and over again. A person who is working is always accomplishing something in his own mind.

3. People are always working. Consumer behavior is explained in the same way that worker behavior is.

A person who is doing an "enjoyable" activity that is not classically categorized as work is engaged in a profit-seeking process just as a worker or manager is. Take, for instance, the person shopping at the mall for new clothes. The profits come from ideas of achievements of fashion. The person is directly experiencing joy through social pressures that tell them this is how to behave and through the experience of feeling closer to the goals of looking good. Perhaps the person is achieving the direct goal of simply going out and shopping, possibly with friends.

Even a person who is loitering on the street or sitting around bored is working toward goals. The person is "killing time" or "hanging out" or one of many descriptors that indicate that this is the way by which they are looking forward to future profit. Such a person is not choosing against any better thing he or she could be doing, he is valuing these as less valuable than simply waiting. There is no room in this model for people to choose against what they value - a person chooses by valuing.

4. Work is locked into the political world - denying that some work is work is political disempowerment of some workers.

That some functions in our society are prestigious, there is no doubt. That this makes others shameful is a proposition that positive thinkers might decry. Nevertheless, it is true. An unemployed person is not engaged in a prestigious function, and most people are ashamed to be unemployed. In fact, the first question a person asks upon meeting someone else is usually "What do you do for a living?"

Without taking a broad definition of work, the prestige system becomes locked into the economic theory. It is a dangerous politicization to define things along the lines of pecuniary profit. Economies get distorted by economics, particularly when the economic theory ends up arguing that those who participate in certain ways are not merely "more valuable" than others, but not producing value at all! This type of result must be avoided, even if it is an abuse of the economic theory. It is reflected in the treatment of homemakers as not part of the economy and the deligitimization of this profession has had ripple effects - it seems that the basic skills of parenting are no longer passed on and exchanged to the necessary degree. However, when various types of excluded work are compared to included work, it becomes clear that many sources of pecuniary profit have questionable social value. Does the world need car salesmen more than it needs good parents?

Work is connected to the fundamental expression of the human as a social animal. As thinkers and as competitors, we create a variety of illusions by which we attempt to monopolize resources for ourselves. Much of our political activity is a part of this competition. The social sciences are plagued by the problems that this introduces. I have summarized the attitude toward work as "prestige based" but it is probably more complex.

In conclusion, the concept of work can be broadly defined in a way that reduces the complexity and theoretical difficulties of economic work. In so doing, economics comes to a different understanding of the value of work that individuals do rather than the tacit and abused conclusions that are reached through a classical approach.

Economics is wrong to incorporate what are really engineering concerns (limiting data input in order to achieve a result through simplified calculations) into the foundational theory. The nature of the data containment structure must be broad enough to contain all possible data. From there, theories can be tested through the development of engineered applications. This proper course will require a stern reevaluation of much of economic philosophy. This essay is really only the tip of the iceberg.

The causes of war, intervention, and nonproliferation

2009-09-25T17:00:00.000-07:00

After hearing some outrage from western countries following the discovery of a secret uranium enrichment facility in Iran, I wanted to add my own brief comments on the topic. This issue is really an aspect of the larger question of how best to regulate the domestic affairs of foreign countries. The stakes, however, are higher -- because the severe threat that nuclear weapons pose is not a danger to peace but to human life and the Earth's environment. The problem with the debate as it has progressed is that when we focus on answering the question at hand, we forget the way our previous decisions have restricted us, and we forget that the question should not merely be answered for expediency today, but considered as a permanent change that charts the course of our intellectual life as well as our future history. In this essay, I offer a mix of multilateralism, development assistance, and military force retraining to chart a path toward constructive techniques of intervention as a viable alternative to the wanton destruction that marks almost all of America's interventions over the past 60 years.

Wars develop through a process of escalation. Countries' leaders do not wake up in the morning and say "I would like to invade our neighbors today". Rather, the situation develops over time, and a history of animosity must exist to justify the conflict. In Democratic states, there is a dynamic tension between the Leaders and the People that conditions leaders not to start unnecessary wars, even though in practice they may not need explicit authorization. Even the Second Gulf War was not completely arbitrary or capricious, because Bush invented a context of preventive war, a context that Congressional Republicans quickly parroted and which Democrats generally acquiesced to. Had Bush simply issued secret orders, he would have betrayed his own party and violated traditions of the political process in an embarrassing fashion. In totalitarian states, where dictators lack the popular strength and justification of action that a democratically elected leader would have, an arbitrary order to commence military action is much more likely to meet with mutiny. Regardless of whether the order is followed, the reputation and power of the dictator is damaged by such capricious behavior. Thus, in every case, while it is possible for a war to begin for no reason, it is really never in the interest of the leaders to pursue such a war, even if they were to have some private reason for doing so. Wars of manifest aggression are exceedingly rare and possibly nonexistent. There is always some context that both sides will provide to argue that they were acting defensively.

Escalation is required. Politically it takes the form of threats and demands that go unmet, diplomatic failures, disputes over treaty and trade terms, and other general failures of normal relations. Military mobilization and planning is also usually required prior to any actual fighting. Logistical efforts are made in an attempt to reorient forces toward the possible threat, with both sides arguing that they are acting defensively.

During this time, the coordination between the media and the Government is necessarily increased. Part of the very definition of journalistic professional conduct, as it is defined in America and most other countries that have developed schools of journalism, is that Leaders should be portrayed in a certain light at the time of crisis. Since "crisis" is a subjective framing of events, the media must defer to the government's framing. For the individual journalist, it is not really an issue of being a traitor, but rather of being perceived as deluded, incompetent, or wrong. As such, large, image conscious media organizations cannot afford to enter into an argument in which they may be proven wrong or seen a unpatriotic because there is little to gain in terms of ratings and advertisements while at the same time there is much to lose.

In any event, the entire scale of escalation and conflict can vary dramatically, but the character of the dispute is different from that of the conflict. Conflicts can resolve quickly or become quagmires that last through decades, but once they are started there tends to be political pressures to continue. Disputes between nations are more complex and may go on for long periods, but require intermittent political investment. Political leaders must constantly search for new content to inject into the debate, to portray either progress toward resolution or escalation toward conflict. Absent a conflict, the dispute is usually settled on the basis of possession - however things currently are becomes the starting point of negotiations, and the political conditions at home mean that neither party can give concessions beyond a certain threshold. In direct representation, where the two parties are simply negotiating with each other, this threshold precludes concessions that would be politically embarrassing for either party (absent the situation where one nation is poised to annihilate the other without retaliation, such as the gobbling up of Indian satellite states...) As a matter of historical example, Chamberlain's acts of appeasement toward Hitler were only political possibilities for him because the territory under negotiation was not part of England. As a second example, the development of the State of Israel has progressed over the decades to the point that there is severe, appalling apartheid. Any negotiations to create two states are at this point empty of content that the two parties can agree on.

Proliferation really has two components. From the strategic perspective, nuclear weapons pose the threat of devastating retaliation, and from the tactical perspective they are capable of inflicting particularly high casualty rates. The context of Nuclear conflict, as I have previously alluded to, is not really much different from conventional conflict. The only distinguishing feature is that the level of destruction is much higher, thereby practically eliminating the likelihood of any conflict happening at all. If all that this ensured was that western countries become less likely to engage in spurious conflicts, there would be no meaningful argument against countries developing nuclear weapons.

From the western perspective there arises the complaint that nations acquiring nuclear technology are now a greater threat than they once were, and that the rise of nuclear states undermines the ability of western nations to be the "global police". Although this perspective can be criticized as self-centered, the statement is essentially true. The question of whether the United States and NATO really should be the world's primary police force is really a separate question from whether individual nations should take actions that amount to a resistance of this somewhat self-declared world order. To bridge the gap requires a separate argument on rights of resistance. Allowing western powers the privilege of taking direct intervention actions into the domestic affairs of foreign countries is really a part of the global police role as it is defined, particularly by the United States.

This aspect of the global police role is defensible on the basis of analogy to interpersonal relations. The argument proceeds from the proposition that individual faults should be corrected, and at times the source of those faults can be confronted in cultural attitudes and what has been described as "backwardness". The crimes of nations are the result of decisions taken by leaders who either have defects in their own moral character or are spurned on by other political forces, all of which have individual personalities behind them who outwardly espouse certain cultural perspectives. Most faults in individuals come from personal absorption of collective attitudes, and from the perspective of the individual these forces are as immutable as stone, even more so when indefinite, inexpressible in common or expert language, or logically inconsistent. The mind does not usually allow the individual to sink deep enough within himself to reach the essence of such forces, and so he does not believe that his options are restricted or his perspective transformed.

It is a great folly of thought for a person to believe that there is virtue in not correcting the faults of others. A cruel or manipulative person is not designated as such merely because he chooses to interact in a certain way, but by his intention. The intention, of course, restricts the means of interaction. Thus the action taken often reveals the intention in practice; it is an error of oversimplification to confuse the two. The impression that one should not inform others of their faults comes from man's political instinct, not his moral one. It is a quirk of our culture and possibly humans in general that they do not like to be corrected. Indeed, there are far too many cruel or ignorant people dispensing mean or false advice, meaning that earnestly offered advice can sometimes be taken as an insult. Furthermore, people stake their pride in their beliefs and always prefer to change them privately, or not at all. Among the ethical duties of pluralism is the obligation to separate the activities of every culture into virtues and vices, and to encourage the virtues in others in accordance with their culture, while discouraging the vices. To not do so is to draw arbitrary lines between cultures, when in truth no two people have the same culture. Without having a means of judging other cultures, one can apply morality to nobody else, and possibly not to oneself (I could continue, for there is much to say about cultural life and substantive discourse between cultures, but I must return to the topic at hand).

The nation, as a collection of people, displays these same characteristics in aggregate. The laws and institutions of the state can furthermore be judged by their own systematic standards, usually in a much more thorough fashion than any person or action. Therefore it is possible to identify nations caught up in corruption, without equality for minorities, with economic engines that stratify wealth and destroy the environment, and with generally backwards views. Here, I have identified the entire world, and rightly so, because every nation in the world is as of yet still at the stage where it deserves to be intervened with and not yet at the stage of becoming a nation that does the intervening. Certainly, there are prescriptions for change, but we need not describe these yet; the surgery is only necessary for the wound that will not heal on its own. Let us be sure of our diagnosis.

The role that the Western Powers have assumed is not one that results from moral superiority but merely from military superiority. Some of the aspects of this statement are well understood: there is the providential belief in might makes right, the profiteering by business in its many terrible incarnations, and the many nagging questions about the way the global police image is used politically. Other aspects have been neglected in the all-too disingenuous foreign policy debate: the duty to intervene that comes from having power in the first place, the nuances of action that reveal the intentions of leaders, and most importantly the combined effect of the many little things of life that are so different for the global police nations than they are for the nations that usually experience interventions. There are many problems that come directly from the imagining of action as simple moral choices when nothing can be further from the truth.

There are two primary obstacles to the improvement of conditions in any nation. The first obstacle is the isometric force of the political sphere. There is an idea that world leaders have a great variety of different views of things, that there is a great debate about what we should have and how we should live. In truth, this is an illusion. World leaders never speak in sufficient specifics to allow such a debate to actually occur. There is no one voice or force of a nation or even of the state. In truth, the political forces of a state engage in a complex and constant struggle, of which any state policy or action is the result. These forces, through the desire to condemn one another for immediate gains, hold each other in stasis. The state is unable to change its values or its emphasis, it is unable to enact meaningful changes because the marginal effect of doing so is negative for each individual politician. Such is the case in the most functional democracy or the most abhorrent tyranny. Tyrants who are not bothered by political concerns either have no true power or are quickly deposed. In reference to this effect, the idea of isometric force describes how the removal of one corrupt group catapults other corrupt interests into power.

Here, the perception of corruption should be carefully examined. In nations where corrupt individuals rise to power, there must be some function or force in place that encourages and promotes corruption. The typical member of society, from whom all great men are drawn up and transformed, is exposed to the attitudes of political corruption and is usually caught up in it tacitly, directly, or in futile resistance as he rises in power. Since we have all gained power between birth and adulthood, we have all experienced corruption. It is a defining part of western political life, to the point that taking corruption into account in one's plans is nearly identical to taking the politics of the situation into account. Political corruption's motive forces are greed, guilty pleasure, threat, and intellectual corruption. In the intellectual sphere, corruption is the harmful altering of intellectual discourse. It shares its motive force with political corruption, but the arguments that corrupt the discourse have their dual origin in deliberate argument for purposes other than the furthering of the truth and the incidental argument made by the intellectual whose strength of thought exceeds his clarity of thought. In every day life corruption expresses itself in the way that individuals evaluate the prospects of each other, the perception of kindness and benefit, and the degree to which desires and tendencies are either embraced or shamed.

The second obstacle is the lack of technical knowledge, and it is brought about specifically through intellectual corruption. Here in America, there is far too little consensus in the specific sphere of economics, and few things have more benefited the brokers of power. Discord expresses itself through an economic timidity that borders on ideological stasis. It leads to many bad policies, and of course muddles entirely the debate on how we should assist the developing world. Generally, peoples around the world have far too much of a selfish ideology -- they feel, though the message is cloaked in other terms, that the measure of their life should be how much better they are than average, and of course we see the corrupt source of this ideology so much better in others than in ourselves. Ironically, this view does not make its posessors any happier; all evidence indicates it is strictly less rewarding than an altruistic attitude toward life. People are forced by political concerns to exemplify the cultural archetypes. "A man who acts successful is more likely to succeed". There are, of course, many many bad practices of all types, from genital mutilation and arranged marriage to traditional medicine and astrology, that occupy a spectrum on which many of our cherished traditions also fall. Many wouldn't dare tell those who are close to them, those who they have shared memories with, that the very context of these memories is caught up in practices rooted in corruption. It is a political concern that confines us to criticism of strangers. The root of this very perspective is the continued assault on the coherence of philosophy, social science, and economics. The distillation of common strands shows a radical divergence between action and theory, but this is brushed over and obscured by a few strategically placed misperceptions.

The only way to help the vast majority of people on the globe is to give them the tools to improve their own lives -- and these tools are, in my view, the following: modern science, engineering, technology and tools; access to birth control; an enlightened teaching of economics, history, and philosophy (I say enlightened because these disciplines in particular are plagued by meritless perspectives); land and resource control reform to correct initial disparities; and transitional assistance to help nations develop their own robust institutions of justice, welfare, and information exchange. It is no wonder, looking at this, that our interventions have so often failed. Our militaries were never equipped to do these things, and we have so often selected politicians who are proudly ignorant of philosophy and history.

Returning now to the escalation of dispute model, let us synthesize this with the political concerns and psychology as I have described it. The greatest force of persuasion comes from allies. The western nations must be willing to diversify their public images, so that some of them are allies with every nation, so that all nations have western interests that they hold dear. During this process, technology and resources as described above must be combined with trading status and prestige for cooperative leaders. This is a strictly positive process -- there is no meaningful concept of punishment for a sovereign nation. Here we have faltered too often by punishing, but we have also confused pro-business with pro-west, a sad and novel example of regulatory capture. The positive alliance method is the most important means not only of effecting change but of diffusing conflict, because a western power is less likely to attack the ally of an ally.

If this mechanism fails, a process of non-military deterrence must be in force. In this situation, the image of a world government is a critical component of the legitimacy of the entire deterrence mechanism. For this reason, the United Nations is an important force, but it must be conservative in its acts of censure, and should pursue different types of actions than it currently employs. But before discussing these measures, some minor details of international law should be cleared up.

The first thing to note is that the right to emigrate is meaningless for those who are most in need of it. A wealthy person can escape any country with ease while a poor person will likely have no other country that will take them. To add to the problem with this disparity, the wealthy members of a society exacerbate the failure of a state by fleeing it. Measures should be in place to force these individuals to contribute to the security and prosperity of their own country; i.e. we should generally not allow individuals to emigrate, and when we do allow it, they should forfeit any excess wealth. Now, nations should happily engage in emigration and exchange policies, and these should not disrupt the justified flow of economies. However, we should not allow individuals to leave countries whose regimes they disagree with for political reasons, and take their wealth with them, and in fact from time to time the only way to save a country at all is to force the educated class to stay there. The right to emigrate should not exist as a human right; requiring nations to allow emigration seems to be a strange nominalism in the first place.

Another point to be made is that economic sanctions are an abomination. These should not be used. They harden a subject people against the international community. I hardly need to say more.

Lastly, all nations that enter the United Nations should be required to meet certain basic requirements or be expelled. One of these should be to allow a constant UN presence of civilian observers. These observers will oversee the process of the courts, media, elections, and other indicators of the vitality of a country. The United States should allow these as well, and I believe they could be used to ensure that more police officers who are involved in cases of police brutality or excessive force are jailed. Another basic requirement should be an environmental commitment, since nonhuman life matters too.

The means of deterrence should be to pursue several soft forces against the isometric balance in the target country. Positive results are not expected. The only goal is to hurt ones political opponents without in any way overstepping the bounds of sovereignty. Famous people and world leaders should speak out in favor of specific positive reforms that may be on the table in the domestic sphere and speak out against opponents. The principal consumer nations should impose tariffs that specifically target the income sources of those who are responsible for crimes. Though it might also be possible to pursue internal political manipulations through espionage, this option is both unpopular among the populace and prone to failures where a pro-business leader is elected rather than a pro-democracy one. It is risky, because it may tarnish the all-important image of the progressive world leader.

Here, carefully selected rhetoric can prevent countries from being able to start down the path of escalation. This is crucial, because political forces can sometimes push countries toward unnecessary conflict. Even so, virtually any action taken can be spun by the language of national pride and sovereignty. The purpose of deterrence is really to prevent further cases, not to convince leaders to backtrack, because they will rarely do this. Politics is too public a sphere, there is too much shame in making mistakes, and there is no way to return to a state of privacy where the leader can rethink his actions objectively. It is also important to be patient. Simply because a leader can spin things in the immediate aftermath does not mean that his strength will not be undermined in the long run.

Unfortunately, in some cases escalation occurs or there is immediate action is necessary to stop a grave crime or some other compelling reason. In this case, intervention is justified, but only by nations that meet certain criteria, and only for specific purposes. Although a nation may have good intentions in intervening, it is not always properly equipped to do so. Especially in cases where the society itself will be remade, the task cannot fall to a regime that shows clear signs of intellectual depravity (George W. Bush is a case in point). The intervention is an injection, an exposure to cultural attitudes. When the power structure of a country is changed, the culture will change with it, and so it is no wonder then that America in particular has spread its own brand of corruption around the globe.

The nation that has earned its right to intervene is one designated as such by the international community. It must have a military with a specific training, philosophy, and equipment. It must enter special treaties with the international community to have any war crimes investigated and acted upon by the international body. It must be a nation of exemplary development itself. Finally, it must draft up a specific resolution of action that lists the objectives of intervention and clear goals. This document must also stipulate an action and withdrawal timetable; reparations to the host country if it is left in worse shape after the intervention; and it must carefully define the means by which such assessments are made. This document will be approved by the international community before military action can commence and be subject to revision only through that body in a process of formal amendment.

The military force of a nation interested in domestic interventions must be constituted such that it is capable of responding to humanitarian crises. Rather than emphasizing destructive technologies, it should be a military with the capability to rapidly rebuild and restore order in secured conflict areas. The philosophy should be less oriented toward protecting each individual soldier as toward demonstrating the commitment of the invading country toward the welfare of the conquered. As such, every effort should be made to capture and try insurrectionists, to preserve civilian lives, and to protect economic life. This means that large, expensive weapons systems will have little to no use after the initial invasion.

If we do not accept these changes and imperatives, I cannot see how we can carry the moral high ground in our actions. We will be nothing but imperialist plunderers, wearing the robes of providence. We will indeed be pursuing a "crusade" as Bush so eloquently stated about Iraq. We have long been greater fools than we believed.

The essence of nonproliferation is international stability. This essence is rooted in the realities of leadership. The dominant character of the third world dictator is a mild isolationism and a desire to obtain security for his own county while amassing personal wealth. Even as world leaders take the moral high ground against these individuals, they must accept the reality that these "petty dictators" represent peoples who have suffered much greater hardships and injustice through the historical events of colonialism and the cold war than they have from their own leader. There are a few notable exceptions (Consider North Korea - the conventional wisdom is that Kim Jong Il is responsible for starving his own people, however food aid from the US was scaled down from 700,000 tons annually in 1999 to just 40,000 tons in 2004. It is really unclear whether the lack of agricultural self-sufficiency is intentional or the result of incompetence and poor environmental policy).

The isolationism of leaders can often be interrupted by disputes that escalate to international conflicts. In these situations, the probable winner is likely to condemn U.N. intervention much more vocally than the expected loser. This is all the more reason for the U.N to have a presence in all countries and to function as a central body that connects the world to itself. Internationalism must have a track record of success, it must become something that the people believe in, but once it is, even despots will come to believe in its decisions. If the international courts functioned properly, they would make all nations equal, and this is a powerful draw for these despots. However, bringing such a world about often feels like hubris against hubris (or exception to exceptionalism?).

Among neighbors, the concensus seems to be that we would rather not point cannons at each other through our windows. When nations arm, it is often a symmetric response to the actions of others. Similarly with nuclear weapons. This is why any sane leader makes disarmament the cornerstone of the nuclear strategy. Certainly, though, some leaders are a bit erratic, and we fear their rash orders. What could they do in times of crisis?

For the west, the very problem with the development of Nuclear Weapons on the part of Iran has more to do with our history of escalation against them than their relative depravity or backwardness. Just as Bush handed Obama a wrecked economy and two unwinnable wars, so also did he hand him a poorly developed policy of saber rattling toward Iran. Even a talented statesman such as him will not be able to approach the burdens I have outlined here. I wish him luck.

A brief roadmap toward a better economy

2009-09-23T11:40:00.000-07:00

The general consensus in economic circles is that as the economy becomes more technologically sophisticated, the productivity of each worker will increase. Therefore, the aggregate level of demand must also increase if it is to absorb these increases in production without decreases in employment. This is understood, and the erstwhile politically expedient approach is to manipulate currency and allow the free promotion of corporatist advertisements and consumer ideologies in an effort to stimulate demand further.

However, stimulating the tastes of the individual may not be possible or desirable. Evidence suggests that individual consumption is not truly unlimited - we reach a bliss point beyond which our total consumption does not increase our happiness and beyond which we will not consume unless in a mental state of derangement. Furthermore, theoretical limits begin to come into play: the budget of actual time to consume is limited - production of increasingly luxury goods and trivial services also cannot meaningfully absorb the excess production; the marginal value of public goods and shared services begins to skyrocket after a certain point; wealth concentrations may run ahead of wealth creation, preventing demand from being able to keep up, thereby causing a failure of self-correction due to market withdrawal of firms rather than selling at a loss; and the spurious nature of fashion undermines the ability of producers to consistently serve at a level of adequate efficiency. The desirability of even pursuing such a strategy is really rather questionable: do we want to exhaust the earth's resources, work our people to the bone, and critically pollute ecosystems simply to avoid a paradigm shift? Are we setting the economy up for cruel boom-bust cycles, and are we critically undermining the opportunities available for young people to meaningfully interact with their society? If so, we should admit that we are forced to the paradigm shift option, that we should move away from a free-market dominated model and start to see markets as nothing more than essential efficiency seeking and accountability preserving components of a modern system of governance (in truth, this is what they always were, and we have simply been participating in an economic cult of sorts).

I begin with the economy of modern woes: excessive consumerism and persistent high unemployment; anomie and a public sphere in which the average citizen is either not at all engaged or marginalized. Assume that for the sake of environmental preservation that we desire to limit the rate of resource extraction with a goal of eventually living in a more-or-less sustainable fashion. Then it follows that there are only two options at the policy level to address this disparity:

Decrease the amount of work done by each worker
Sustain the employment levels through public works programs

Obviously the latter of these options is the more politically palatable. Quixotically, this is the option that is the most expensive and should therefore in theory be the most difficult to implement politically. However, the idea that Americans should share work is so foreign to their consciousness and so counter factual to their perceived universe, model of ethics, and workaholic habits that it seems that there is no hope of ever actually reducing our level of production per worker in a controlled way - the only politically palatable option seems to be to allow the economic busts to occur.

Fortunately, we do not have to launch into the first option until the second has become well enshrined in our consciousness. Given the horrific pattern of American urban and suburban development, institutional erosion, and neglect of scientific programs over the past 64 years, there are more than enough Government jobs waiting to be funded:

Jobs in civil engineering, urban studies and design, sustainable practices research, and infrastructure planning to help turn our cities and suburban areas into livable spaces in which individuals no longer require cars to do basic tasks like buy groceries and get to work. Everyone agrees that we cannot achieve sustainability without actually reorganizing the structure of our cities. This is such a mammoth undertaking that planning for it must begin now, and in fact new channels of action should be created because the processes for approval and change are just too slow to accommodate real progress.
Jobs in our neglected institutions, particularly the judicial and legislative branches of government, the revenue service (because there are so many tax cheats that each new revenue employee actually earns money for the state), government policy advisors and researchers, Human Services, education, and so many other little places where we are letting our society fall apart. These services increase the quality of life of the citizens and also reduce the unemployment level, making them win-win political propositions. The only way they lose is when the lies of business people are believed by the general public. The business people should be confronted when their credibility is weakest - when we are in economic crisis.
Jobs in the academic world and the arts, where we should have rotating positions for every Ph.D to spend time without curricula or research requirements, simply to allow them time to think and develop philosophy or reflect on current events. Everyone who wishes to obtain a Ph.D should have the chance to attend graduate school and write a thesis - and these should be judged by blind panels of visiting scholars on their merits, transforming them into something other than the political products that they so often are today. Higher education should not limit itself to being a servant of politics and business, it should be a vibrant and politically influential institution, and we should stop pretending that some of us are "not smart enough to have good ideas". Musicians and artists should receive support from the state, and programs like Concerts in the Park should become national standards.

As these jobs gradually expand to absorb the excess demand, we will have a period that is remarkably similar to the economic boom of the 90's. At the end of this period, projects of public works and development will complete. We will then be living in a very functional society with sustainable, livable communities and a much higher standard of living for the masses than they experience today. Even the wealthiest will have a higher standard of living because there will be many more opportunities to become popular in their community and participate in events, philanthropy and a great many things that simply cannot be provided by the free market alone.

This is the point when we must execute the most radical paradigm shift. We must begin to curtail the large bureaucracy of urban development and design (job group 1) and bring it to a maintenance level regime. This will help to ensure, among other things, that useless and wasteful projects do not occur. As we dismantle the large bureaucracy, we must absorb these employees into (2), (3), and the private sector. This will necessitate a modest decrease in the work week and possibly a lowering of the retirement age so that companies will hire these workers.

The economic development pattern, as evidenced by history and surely what we shall also see in the future, is one where technology and fashion work hand in hand to supplant existing regimes. The technological aspects of changes are of increasing complexity and therefore require greater and greater commitments by government to plan these changes. Our current economy is mired in its state because of the unwillingness of Democracies the world over to engage in the coordinated planning effort within their own legislative bodies, ie. they cannot work together.

We should either elect leaders who have a vision of a sustainable future, are not petty or prone to infighting, and who are not beholden to corrupt business interests who oppose change, or resign ourselves to the strife, environmental destruction, and the needless human suffering that is the mark of all ideological backwardness. I fear the thought of bequeathing to my grandchildren a world where many beautiful plants and animals are extinct, where we kill indiscriminately, and where we all work ourselves to the bone only to receive the pittance that will pay our debts and buy meaningless trinkets at Christmas time.

My vision of what is possible is not Utopian - I do not declare it the best or perfect. But the escape from ideology that this vision requires makes it less susceptible to catastrophic failures or the rise of totalitarianism when compared to our current system and where its probable trajectory would take us. It is, really, common sense: when there is unemployment, create jobs doing what needs to be done. When there is nothing to be done, do not work. These are subtle truths of economics that none can deny. They are self-evident, and we should act sensibly, starting today.

A brief critique of property rights

2009-09-16T03:46:00.000-07:00

Each and every one of us was born into this world where every bit of property, every grain of sand, every sheaf of wheat, is already claimed as the property of another person. We are literally dependent on their good will to survive. Following the logic of rights to its conclusion means that these "original owners" are collectively entitled to determine who lives and who dies among all who come after them.

Comments on the proposed PPS High School System Redesign

2009-09-08T11:01:00.000-07:00

This is my response to the Thinkoutloud program on the proposed High School System Redesign. I don't believe the case for abolishing the transfer system has been made adequately.

You can read about it here:
http://www.pps.k12.or.us/depts/communications/hs_system/
http://www.opb.org/thinkoutloud/shows/school-equity/

First - As a caller has already pointed out, it is impossible for every school to offer every opportunity. Attempting to provide "every opportunity at every school" will lead to situations where multiple schools each have a few students interested in a particular program but that program exists at none of them, where under the current system that could be provided at one school and those students could attend there.

Thinking a bit deeper, one sees the self-motivation behind the Education System's desire to end transfers and provide every opportunity at every school. Because we lose the comparative advantage of varied curriculae from school to school, the entire system loses efficiency. The resulting shortages will help to make a case for diverting more funding to Education.

Secondly - It is not difficult to make school funding work under a transfer system - even with the current system of funding. Even as this show's guest speaker talks about how the current system doesn't work, the truth is that no realistic attempt was ever made to make the transfer system work.

All that needs to be done is for more of each school's (proportional) funding to be fixed based on the facility size, meaning less money moves from one school to another when a student transfers.

This will have two benefits: First, this increases the per student funding at a school that has students moving away from it, thereby allowing the quality of programs to increase at that school. Similarly, the quality of programs at schools that become packed with students will decrease. An equilibrium is created from this shifting, and we will have achieved a natural equalization mechanism that is not subject to political manipulation by the ambitions of State Agencies. Secondly, the transfer between schools provides important, direct evidence of the relative quality of one or another school. This will force the very good schools to admit that they are overfunded. If we want equalization in education it means the nicest schools will have to get crappier, or more money will have to be injected into the system. There is no other alternative. How about decreasing funding for Lincoln and Lake Oswego in order to increase funding for Jefferson and Grant? Already I can hear the rich (oh, I'm sorry, "middle class") kids moaning. Only a quasi-market approach like what I have suggested here will overcome the rhetorical trump card of liberal urban wealth.

Finally, just to comment on some random things:

* The idea that bussing kids around the city is wasteful to the environment is really an unfair argument. When we are talking about the inner city schools, they aren't really that far away from each other in the first place, high school students can take the public busses, and most kids are within biking distance of their school. Plus, schools have a lot of incredibly environmentally wasteful practices, such as the emphasis on paper handouts instead of textbooks, the use of pre-made foods for the lunch program, the locating of new schools on the edges of town, etc. Picking one of them out like this is dubious at best.

* In order to implement this no-transfer system, a political battle will take place over where permanent funding is allocated. This battle will be political, and I have no doubt that the worst schools will come out of it underfunded. These schools don't have parents who are rich lawyers giving $1000 political contributions.

* What the system really needs is a move toward much more localized schools. The education system needs to become more adaptable to situations and more vigilant, with the resources to snap up choice real estate and have compromise building designs so that space can be utilized even when it is not ideal. This is a ways off, but most people I have spoken to agree we should move away from the large high-school model and toward smaller, more local schools that are anchors in the community. But moving toward a uniform curriculum will mean that schools can't be shrunk down, effectively blocking Oregon from moving in that direction.

* We should not sacrifice a few white students as the crucible to ethnic diversity in schools. From everything I have read, the black student body at schools that have a very small population of white students subject these students to the most horriffic racism. These white students are subjected to violence or the threat of violence on a daily basis, and they face constant harassment. White girls are even accused of being racist when theydecline the many dates and propositions they recieve from the black males at those schools.

In conclusion, I feel that we should give the transfer system a fair chance by making realistic attempts to get it to work. This will mean some schools have funding reduced, and that is simply how it needs to be. Sometimes in politics, it is bad to give the people what they want, but here there seems to be very little reason to proceed with this plan to end school transfers. Thank you for reading.

Nerd Rage

2009-09-04T03:40:00.000-07:00

Growing up, I never thought of myself as a nerd. This is mostly because I am tall, didn't have severe acne, and never was into any of those godawful sci-fi television shows. But I did like reading philosophy, Kurt Vonnegut, and leftist literature. I also got into gaming. I played Counterstrike, Starcraft, DOTA, World of Warcraft, etc. In college, I got into Anime and Manga, which I still read for enjoyment today. Now, I do a lot of board gaming. Perhaps the nerd meter is rising. Perhaps I was always a nerd because I taught myself how to do computer programming in 7th grade?

I guess that even though I never called myself a nerd, other people might have called me a nerd. Maybe I'm a nerd just because I don't watch or play any sports. Somewhere during my time growing up, I think a new definition of nerd kicked in and now everyone is a nerd, nerds are cool, and people with genuine interests in esoteric things are part of some nameless class of uncool people.

Well, I've got news for you: those people are nerds. A nerd is not a fashionably dressed, tall person who has good interpersonal skills and just happens to wear glasses. That's a hipster. The class president, outside of blockbuster hollywood moves, is not a nerd no matter how bookish she looks.

Maybe at its very core, nerdiness is a fascination with the real and imaginary workings of objects outside of the bounds of the social - the social world being our duties and obligations to each other and society, and the resulting system we use to judge each other on so many levels.

Ok, so that's a nerd, and you know a nerd because he tells you all about something that you perceive as being completely irrelevant. Before this whole new definition came around, nerds didn't call each other nerds, and popular kids called plenty of people who weren't nerds.. nerds! This is the same thing that happens when people call me a fag when they see me riding my bike. We are not about to change the definition of what a "fag" is so that I can be a proud faggot riding my bike around to save the Earth (and for your information I support gay rights without being gay myself).

So how did this happen to the nerds? It was a coup d' etat by the popular kids. A change in the winds of fashion blew them into the world of Firefly, Harry Potter, Twilight, and other shamefully marketed shit. But unfortunately, when the popular kids arrived in the world of the nerds, they usurped them. They didn't try to learn from them - instead they defined them out of existence.That's why I won't call myself a nerd. The word doesn't mean anything anymore.

A one paragraph summary of Ecology

2009-08-21T22:53:00.001-07:00

The ecological splendor of the natural world came about through the repetition of a single theme: A resource that increases in abundance increases the fecundity of organisms that survive well within the environment under such abundance. These organisms then reduce the level of resource abundance through their own abundance, but create (or become) resources in the process. The degree to which this repetitive system stabilizes is directly proportional to the sensitivity of response and the number and variety of such systematic interactions, both of which increase with the biodiversity of the ecosystem. Generally speaking, only loop-shaped (and multi-looped) relationships trend toward a stable equilibrium, because A) The absence of closed loops (eg the arctic hare and fox) leaves the last species (in this case the fox) with only resource exhaustion as a check, seen as a repeating wave running from the beginning to the end of the chain (or sometimes from the end to the beginning); and B) Closed loops repeatedly transmit population imbalances back to the original resource species, creating a type of “surplus parity” in which standing reserves of resources come to exist within ecosystems, allowing incidental increases in constituent population levels to be smoothed out (initial consumption boost = residual increase in resource surplus).

Economic Analysis of Drug Research and the 12 year protection provision

2009-07-31T22:55:00.000-07:00

In the course of crafting economic analysis of research/innovation markets, economists often make serious errors of the following kind: failure to investigate incentives in detail; failure to set a valid bar of comparison; mischaracterization of the market itself; and failure to account for the dynamic institutional relationships between researchers and the firms that become their direct clients. Such is the case with the most recent inclusion of a 12 year data exclusivity rule for new biotechnology drugs in the new House Healthcare Package, HR 3200.

Background

My starting point for research into this topic is Proper Duration of Data Exclusivity for Generic Biologics by Economist Alex M. Brill of the American Enterprise Institute.

The most important observations relating to HR 3200 are the following:

1. The drugs in question are cutting edge biologics, an important but quite small segment of the pharma market. They are estimated, by 2012, to have a total global market of $6 billion. The 2008 revenue of the pharmaceutical industry as a whole is more than $600 billion, with a high concentration of revenues and profits in a few drugs: Lipitor (Cholesterol - $14.3 billion), Advair/Seretide (Asthma - $6.1 billion), and Plavix/Iscover (Thrombotic events - $6 billion). Source: Wikpedia

2. As a corrolary to (1), if a political tradeoff that leads to a diminished economic result for the small biologics segment also secures an improved result for the larger non-biologic segment, the sheer difference in scale makes a net benefit very likely. Furthermore, HR 3200 does contain such provisions: A ban on schemes where generic manufactureres recieve payoffs from brand manufacturers in exchange for delaying generic production (backed by the FTC) , and drug price controls (pg 787-797 ; tenative about what this will look like and what its real effect will be). So, political concerns may render the economic analysis moot.

3. Data exclusivity rules differ from patent protections in the following way: Both can effectively grant monopoly status to a drug manufacturer for a period of many years, but patent protection is granted at the time of filing, before the trial period of the drug, and only patent protection can be challenged in courts. The current patent protection lasts 20 years, of which only a portion can typically be used for monopoly production. In comparison, the entire period of data exclusivity is given to monopoly production, without similar uncertainties of legal challenge (Brill, 7). For this reason, any calculation of profitability under a patent scheme should hold a fortiori for data exclusivity.

4. Brill's paper proceeds with a break-even analysis, reaching a conclusion that the break-even point is 9 years for a 7 year data exclusivity window. His paper is largely a response to a paper written earlier in 2008 by Grabowski that did similar analysis, but concluded that the break-even point is between 12.9 and 16.2 years, given a different set of exclusivity assumptions.

My response:

How did we get locked into a debate on the level of innovation? Are we tacitly assuming that the essential question is how to maximize dollar profits associated with innovation?

Specifically, I'm posing this question because this attitude places all of the incentive to innovate into the dollar profit category, which is pure fantasy. Aside from dollar profits, innovation carries a mystique that implies prestige, free press coverage, political clout, and a place in the history books. Even were there no rules or laws in place granting temporary monopoly, there would still be a strong motivation for companies to innovate. Though it is convenient to express the motivations of a company as dollar profits, it is actually a misapplication of theory to associate dollar profits with the firm motivational concept of profit. Firms are motivated to maximize a profit function that takes a set of objectives as input and associates each one with an approximate dollar value. Not all of them need be sources of future literal dollar profit - doing so takes significant cultural factors out of the economic function.

Much innovation is done by nonprofit or educational institutions, hereafter referred to as non-corporate research. In their case, prestige is the single significant motivating factor, and monopoly production power has no bearing on this prestige.

If we further assume that high healthcare costs have no drag effect on the economy, and that innovation is our goal, we will still reach the same policy conclusion as Brill or Grabowski. Whenever the dollar profit incentive declines, the total quantity of research will necessarily decline - because lower corporate profits mean a downward income distribution and lower tax receipts, which in turn mean less funding for non-corporate research. Therefore, we should choose a degree of monopolization that helps guarantee against potential losses in order to encourage innovation.

However, we can take a different approach and say that some potential innovation should be sacrificed for lower drug costs. In this case, considering that drug costs are about 10% of the healthcare system's costs, and given that 69% of all perscriptions are generic, and that generic sales are 20% of all sales ($58.5 of $286.5 billion), we can compute the generic savings. First, if none of these drugs were generic, the total cost of medications would be $735.5 billion (257% cost). If all brand name drugs were replaced by generics today, the total cost of all medications would be 84.8 billion (30% cost). Roughly speaking, were we to reduce the monopoly protections by 50% in America, we would save 35%.

Of course, this is the exact type of trade that is considered immoral in the American ethic. It is a trade away of innovation, therefore a trade away of potential life saving future treatments. Suddenly the policy maker is choosing between dollars and human lives. But there is a lingering quality of life question - how many more people could afford medications, how many more people could avoid financial hardship under such a regime?

If we posit that the economy in general will do better when all healthcare costs are lower, we can still include a variety of attitudes toward protective monopoly. Though the direct, analytical impact of reducing noncompete periods is negative on innovation, a comprehensive policy which significantly reduces healthcare costs could still feature this and very easily be positive to innovation, provided it helps build a sufficiently stronger economy. Higher tax revenues could then be put toward publicly funded research. In effect, our attitude toward healthcare as a whole shifts the balance of research between public and private - a good national healthcare system would put research squarely into the universities rather than private companies, a result that is both good and bad.

I will not join the chorus of voices who denounce the waste and trickery associated with corporate research. The degree to which corporations get away with bad stuff is not a result of any manichean scheme where the corporations themselves are bad. Our society has a class of people who are raised with a goal of making profit - these are the business people, who graduate from business schools and do not have the time nor the obligation to study social justice. It is a failure of regulation when companies get away with bad things. Private research does offer many nice benefits to our society, but we can't look the other way or give them excessive powers of privacy.

Where a non-corporate researcher can get away with essentially doing nothing for decades, the private researcher is more likely to be brought to account by the very profit-oriented business people that are absent from the academic sphere. But while the corporate researcher can develop a drug that is substantially identical to his previous drug and be paid handsomely for it, the non-corporate researcher will hear the ridicule of his critical thinking and prestige-oriented colleagues. This dynamic is the central question in the character of drug innovation in America. At least in this sector of healthcare, and I suspect in others as well, it reveals the case that we have a failure primarily of oversight, both in academic and corporate research. The nature of common abuses is different in both systems, but these abuses are there.

For publicly funded research, there should be funding for pure science and also funding for development of medicine, but it is wrong to systematically dedicate money earmarked for medicine to research that only furthers pure science. Admittedly, the distinction between science for science's sake and for the public good is nuanced and at times difficult. When agencies review and approve grants, agency policy can have severe impacts on the nature of research and the careers of individual researchers. Congress and the relevant agency branches should work to ensure that it is the public good that is served before science. As backwards and anti-scientific as that sounds, it is a reflection of the importance of social welfare as a separate value from the furtherment of science. For the most part, funding will serve many laboratories that contribute to both. When making the tough calls, though, the goal should be to provide money to laboratories that promise realistic benefits to the public before laboratories that only promise to explore possibilities. Separarate funding should be dedicated to the furthering of science! Defrrauding the public is not a prerequisite for stable funding of science!

For corporate research, the key is oversight. Corporations that engage in a variety of unscrupulous practices do so because they know they can get away with it. By a permutation of Gresham's law, this becomes the industry standard over time. It is better to nip these trends in the bud. Laws about information exclusivity need to be formulated so that they cannot be gamed by skilled businesses. All studies of effectiveness should be public, and companies should be required to market their most effective drugs. This is the only way to prevent companies from rolling out drugs, especially biologics, of progressive efficacy in a series rather than simply immediately marketing their most effective one. It is clear where the public good is in this case.

As far as drug costs are concerned, one should ask who the highest paid employee of your local supermarket is. You will find that it is the pharmacist. He is paid well because the drug markup is huge. It is often even larger for generics. As economies become more localized under new city design regimes, the oligopolies of nearby stores may have even more opportunity to pursue these markups. As we embrace changes to healthcare, we might become less interested in small drug price differences between nearby stores, giving license for further markups. For these reasons, it seems to me that regulation at this stage will be essential as well.

In conclusion

The future of American healthcare is probably not going to be much different from healthcare in America today. We will take corrective action only when the system itself is threatened (as it is right now) but we will maintain the same essential character for our healthcare system. The uniquely high costs and waste inherent in the system might be eliminated incrementially but definitely not all at once, even though it is possible to do it all at once with a leap of faith.

No matter how one chooses to restrict generics in the drug market, the effects of such a rule cannot be particularly significant to the general cost problem. I have outlined a variety of ways to address the problem without changing the length of exclusivity periods. Both public and private funding structures for research should be improved. General healthcare reform should consider costs because of their economic and quality of life impact. Other parts of the distribution and production structure should be analyzed, and cost control measures at the retail level should be considered. This alone may allow us to realize a 35% cost reduction, the same as if we took away all dollar incentive for private research.

And if you are curious, because no news agency published the bill number, here is the horse's mouth:

http://energycommerce.house.gov/
HR 3200

Too many Gates

2009-07-22T12:25:00.001-07:00

So we have the Bill Gates, Microsoft Overlord:

And now we have the Robert Gates, Military Overlord:

Finally we have the Henry Louis Gates, Harvard Professor arrested for trying to break into his own house:

Postponing new content

2009-03-14T20:52:00.000-07:00

I've decided to put off adding new content to this blog until after session is over. Legislative Aides are not allowed to have blogs and I don't want to bring anything negative to anybody. Sadly, this means that I effectively have my political voice completely taken away. I hope that one day America will be a different place where the freedom of speech is better protected.

Rolling Reconnect - what it was.

2009-02-18T00:11:00.000-08:00

House Bill 2157 ended rolling reconnect and decoupled Oregon from the bonus depreciation business tax break. What more is there to understand? Ok, just kidding. Probably the most laughably incomprehensible lobbying hand out ever was circulated earlier this month by an economics think-tank for the floor vote on the bill. You can read that exact same article here: http://www.ocpp.org/cgi-bin/display.cgi?page=iss20090128stop

I'll try to give you a better description. First, I'll attempt to define some things clearly:

Depreciation: basically the amount that a businesses' machinery, buildings, and other assets lose value every year. Businesses keep records of this as part of their accounting. They have to use formulas that are set by the government, cause the government doesn't want anybody to have any fun.

Tax Credit: a reduction in total tax liability, often expressed as a downward revision in taxable income. In the case of a business, how that business writes its books can give it depreciation tax credits. So, how it does its accounting, and therefore its depreciation calculation, directly affects its taxable income. This is why the IRS audits businesses from time to time, and why the government is all up in businesses' grills.

Some legislators or lobbyists (nobody I worked for was directly involved in this) figured out that the federal stimulus might contain extra tax credits for businesses based on federal formulas for depreciation. The problem was that the fed wasn't just writing it as a tax credit, but actually declaring that these businesses could claim "extra" depreciation. Oregon, by law, used the federal depreciation standard - we were 'automatically coupled to bonus depreciation' to borrow language from the OCPP. Therefore businesses that got a federal tax credit for depreciation would get a second, bonus state depreciation credit. Thus, the federal stimulus would lead to a state level budget shortfall.

So, 2157 ended that, meaning that the businesses only got the federal credit, not the state one too. Oregon businesses must now track depreciation separately for both the federal and state level if the fed chooses to pass a bonus depreciation allowance.

Hope that helps....

Ban Escalators

2009-02-10T18:16:00.000-08:00

Today, a little girl had her hand mangled in an escalator at a JC Penney in Anchorage.

Some will assert about this story that it was irresponsible for the mother to leave her child unattended. Others will point their fingers at JC Penney for failing to install modern safety features on the escalator. What I ask is a more profound question.

Why does something such as an escalator even exist? It seems that it is a trade where we expend resources producing a machine that uses power and is dangerous in exchange for the convenience of not having to expend quite as many calories going up and down staircases. Malls use escalators to force patrons to walk past more products and storefronts in search of the one going in the desired direction. Which of these 'benefits' are quantifiable as things that have improved our quality of life? To me, this is just another sad nail in the coffin of the revealed preference model.

Are we serious in our desire to promote a safe, energy efficient society? If so, we should embrace a future where there are no escalators.

Laffer, Revisited

2009-01-04T19:45:00.000-08:00

Today, out of boredom, I made a rough, category and assumption driven laffer-type model designed as a kind of test for the future development of my ideas. My goal was to do a careful and component driven model of the Laffer Curve, which uses assumptions of both incentive and savings/investment interaction to predict a threshold beyond which increases in nominal tax rates will reduce revenues. This is not a growth model; it is an equilibrium model. Time is therefore not a factor in the model. We cannot accept arguments regarding the rate of economic growth, inflation, etc.

Every dollar spent is split between savings and demand. Savings is the variety of ways that the dollar is retained for later. This may be a variety of things, ranging from pure investment to stashing, to what amounts to demand increases.

Demand is the ways that money leaves the hands of the individual. Demand has three components: taxes, autonomous spending, and consumer spending.

Returning to the income equation, we have the following: 1 = S + D ; Which when D is analyzed for its savings component gives S + D(S + D(S + D(.... = S + SD + SD^2 + SD^3... which is easily verified to equal 1.

From this we can make an incentive hypothesis. Laffer made one, because without it there would be no Laffer curve. His is simple, and it says that as the tax rate increases, the incentive to produce wealth decreases. Incomes will decrease and therefore so also will marginal tax revenue, creating a parabola. There is a significant problem here, that as tax rates increase we do not know whether incentives will decrease uniformly. It seems to me that they will not, and various criticisms of the Laffer curve simply shift the peak out of symmetry, usually toward the higher tax end.

The meat of my version of this model is to assume that individuals are ambivalent between money spent autonomously and money taken as taxes. Furthermore, diminishment of income should spurn compensatory increases in wages, which would drive up prices, and lead to a certain forced reduction in real autonomous spending. Finally, we assume, as Laffer did, that when incentives are zero, production is zero. There is nothing wrong with the claim, but it is probably impossible to bring such a situation about. In fact, if you consider that the economic models take all of our desires into account, some of us will be raving nationalists and work out of altruism which cannot be effectively taxed to zero. This impossibility opens the door to discontinuity in the graph as tax rates become higher.

I intend to make a model that also explores a second criticism (in a certain sense). We postulate that changing the tax rate changes consumer spending but does not change autonomous spending. Depending on the savings level, the increase in taxes will mostly be taken out of savings, or mostly be taken out of spending, with the equilibrium savings rate being a function of the tax rate. The foreign components are leaks of money out of the economy, making them another key aspect of what the maximum will be. Even though the US savings rate is like 0% I'm going to pretend we have a savings rate of 4%. As a function of the tax rate, the savings rate will decline to zero more or less asymptotically.

So, to start my model, first i find the tax rate. We know that total government revenues for 2006 (a good data year) were 2.2 tril, and the GDP that year was 13.1 tril, giving an effective tax rate of 16.6%. Because the data I can get for autonomous spending includes some uber-right wing assumptions, I'm going to go with what I was looking at when I lived alone. Mine was about 43% of my income (I'm not including taxes in this!), meaning 43 cents out of every dollar went to food, bills, and rent. If I add in my student loans (which I am paying now but were still in their grace period the last time I was employed), the number jumps even higher!

Next, I denote four component demands, each being a function of different variables. These demands have a stimulus effect on the economy that is a constant calculated from econometric data. Dt, the tax generated demand, will be demand generated by government programs. We can expect this to be the highest; one study found that every dollar spent on government programs produces 1.4 times as much stimulus as a dollar spent in the private sector. We know private sector spending, thanks to my handy calculation taken from my own expenses, is divided up about evenly between autonomous and free spending. I will assume that free spending has twice the stimulus effect of autonomous spending. From this, we deduce that autonomous spending would have a constant of about 2/3 and free spending would have a constant of about 4/3. Finally, domestic investment will be a function of savings and will have a constant of 0.9, which is a number I just made up.

Percentage change in the four component demands creates a relative scaling of the GNP. Hence, if the total Dt+Da+Dc+Di were to increase by 10%, the GNP would increase by 10%. This is then multiplied by the linear decrease in output produced by consumption decreases. This is the roughest part of the model, and I would have to do a lot of research to come up with something better.

Finally, everything is multiplied together to get a relative change in revenue, with 100% being our current situation.

So, how does my graph compare to Laffer's?

It is worth noting that the maximum here at 54% is not the nominal tax rate of 54%, or the top tax bracket being at 54%. This is the total of all revenues divided by the GNP. This doesn't have any impact on tax equity; in fact I am tacitly assuming something like a flat tax, and the number might be higher than 54% if most of the income is collected from the rich. So, at the very least, we could double our tax rate in America and expect to gain about 75% more revenue. We can also boldly pursue a much more progressive tax code.

My personal hunch is that if we could reduce autonomous spending in the real economy, it would be a huge economic boost. My favorite plan for this is government land purchases. Ideally, the government could be our landlord. That's one of the biggest disconnects between democracy conceived and implemented. If we control the government, shouldn't it be in control of something?