Economic Ignorance

The Change Express machine at the local bank says that if you are an account holder, they will convert your change to bills at no charge. But if you aren't an account holder, you'll have to pay 10% of the transaction. When Lillian read that she said, "Wow, that sucks! Why do they take 10% just because you don't have an account. I mean, it's YOUR money, right?"

Taxpayer Rule

I've sometimes thought that election day should be held on April 15th rather than the first Tuesday in November so that people have it fresh in their minds that they pay for services from the government and can vote accordingly. But undoubtedly some political scholar would say this is a bad idea because (for example) we don't want elections to be about how much we pay in taxes or we don't want to elect someone just because he or she promises to reduce spending more than everyone else.

Wage Stagnation and Increased Purchase Power

I consider myself an armchair economist so what I am about to say might be missing something but I will summarize what I understand to be two sides to an issue.

We know that wages or income have been largely stagnant for most Americans since the mid-1970s. That is, when we take the incomes of Americans 40 years ago and adjust it for inflation, there has not been any improvement. There are a number of things to account for in this statistic and while I can't go into the reasons here, I will say that generally I believe it is true; despite an increase in productivity and increases in GDP since 1975, the average worker is not bringing home more money today than 40 years ago. (I say 'he' because it appears that the glass ceiling notwithstanding, women's income has risen on average since then. But of course the gender pay gap is still quite common and unfairness in pay between the sexes has not been adequately dealt with.)

Allocation of Housing

Many people today see an unfair distribution of wealth and income more easily than ever before. According to most statistics, wealth has not been this polarized in the U.S. since 1929.

I don't know if the average American can suggest a reasonable remedy, though. Simple confiscation of wealth from the top 1% of income earners and redistributing it to the rest of us is just not going to be practical. Even if we taxed the highest incomes at 90%, the revenue from those increased tax receipts would not be divided equitably, we can assume.

I'm afraid that although people have a legitimate gripe in the disparities in wealth, we all have bought into this system of distribution at least in part. For example, almost none of us believe that there should be an absolute cap on income. That is, a law saying that all income above $XXX,000 will be confiscated by the government will not be popular when personal liberty is concerned.

One piece of evidence to support this buy-in to the current system of wealth distribution is housing. The U.S. (and any metropolitan area) has a large stock of housing--some of it desirable and some not very desirable. In the Washington, D.C. metro area, for example, there are beautiful homes along the Potomac river in Great Falls, Virginia, Georgetown in Washington or in the neighborhood called Potomac in Montgomery County, Maryland. These homes often cost upwards of several million dollars.

By contrast there are homes in poorer sections of the metro area which sell for less than $100,000. Some might be in a neighborhood with a lot of foreclosures or boarded up properties, or an area with poor schools, crime and litter.

In any case, almost all of us realize that the good, the average and the poor quality housing stock is distributed among the population according to certain circumstances--namely income. If you can afford it, you can buy a house in Georgetown. If not, you have to look elsewhere. Few of us dispute that--if we want to live in a million dollar home, we need to have a lot of money.

Utopians (and perhaps Communist hangers-on) might argue that this limited commodity (housing) should be shared equally among us and that perhaps residences should rotate among people, giving all of us a chance to live in Potomac or Great Falls while others are sent to public housing or blighted neighborhoods.

But even the poorest among us believes that the only reasonable way to move to Potomac is if you are rich. It is foolish to expect anyone to voluntarily give up that home (as none of us would do if we were the occupants) in the interest of sharing with our community.

So in that narrow sense, despite rising anger at disparity in wealth these days, few of us dispute that the most desirable homes should be distributed (or re-distributed) by anything but the ability to pay.

Adjustable Taxes on Investment Income and Sales

When we in the democratic capitalist countries want to encourage or discourage certain behaviors we use either taxes or subsidies to influence peoples' choices. Smoking is one example, another is borrowing money to purchase a home. The former is discouraged by being taxed, the latter is encouraged by means of a tax break or subsidy.

But we Americans are going to have to revise our tax code if we intend to stave off fiscal insolvency in the near future. Below is an idea that may take some revision but seems like it would be a step in the right direction.

Self Driving Cars

Whether called "driverless cars" or "robo-cars" the, "auto" mobiles are coming. And although like all new technologies they will bring with them a new set of yet unknown problems, they are being developed  to solve an existing set of problems most of us would like to eliminate.

There has been a lot written about robotic cars and the reader can spend an afternoon reading about the success of, for example the Google car.

While a completely machine-driven vehicle is not on the market today, there are several developments in recent years where sensors and microprocessors already adjust the operation of a vehicle without the driver knowing about it. Anti-lock brakes is one example, as is the parking-assist feature that uses a rear-bumper sensor and other automation technologies.

Many say that once the market is saturated with autonomous vehicles, there will be a reduction in personal ownership of cars in favor of hiring them on demand. After all, a fleet of robot vehicles could easily contain the technology to drive themselves to a person's home when he calls for one via computer. After taking the passenger to the directed location, the vehicle would leave the scene and park itself (perhaps with other idle vehicles) so as to take up as little surface street/lot area as possible.

The system of robots for hire would have a number of ramifications, many of which no doubt I have not thought of yet. But one of them would be to ultimately reduce the competitive nature of car ownership that seems to have dominated the auto culture since the 1950s.

The commodification of cars as suggested by automated cars-for-hire has implications for the physical care and condition that private ownership has in the past addressed. For example, what happens when a renter of these auto-mobiles on demand uses one and leaves trash strewn about the interior or otherwise stains and leaves the interior dirty? The anonymity of the usage of this kind of automobile means that people might be more likely to leave their empties or not clean up after themselves like they would in a public place such as a  bus or subway car staffed by the mass transit operator.

For this reason it may be that driverless cars that we don't own but rather hire on demand will have to look a lot different from the comfortable compartments we know today. For example, they will likely  not have cloth seats but rather hard plastic seats and floors in much the same way that many subway and bus systems.

Like the technological change to sports officiating (see other post) the new driverless cars are certainly feasible within a short time but the test will be whether the public and government (law enforcement, etc.) will accept them. I'm afraid that a lot of people are emotionally attached to owning their own car, one with comfortable cloth seats and carpets and that are bigger, faster and shinier than their neighbors'. This may be the primary obstacle to adoption.

The Effectiveness of Deficit or Stimulus Spending

Conventional wisdom holds that an industrialized nation facing an economic slide should spend government funds to get money into the hands of those who can spend it on goods and services. This in turn puts other workers back on the payroll and creates a virtuous cycle. This idea is attributed to John Maynard Keynes, although it was undoubtedly bandied about by earlier theorists (just as the idea of evolutionary biology was considered by scientists earlier than Charles Darwin).

Deficit spending worked well in the 1930s but it was actually wartime production (financed by deficit) that ended the Great Depression more than domestic works projects. But if the economic stimulus helped during that period, unfortunately the effectiveness of this kind of measure has been diluted in subsequent recessions. It was used in the early 1980s, the early 1990s and the early 2000s with dubious success. The United States pulled out of each of those recessions but the degree to which we can attribute the recovery to deficit spending is questionable. 

However having said that, I must admit that it is one of very few tools available to government to get us out of the current predicament. The others are so ludicrous that I mention them only to demonstrated the inevitability of the Keynesian approach: printing money and soaking the rich.

The former would only exchange one problem for another. The second is also a non-starter since the rich run our country. I should point out that president Obama advocates increasing taxes on the wealthy and although I agree with his position, the increased income for the Treasury wouldn’t come close to solving our fiscal deficit.

New Business Model

Much of my professional life over the past 5 years has been in studying the changes to the way that scholarly publishers do business and collect revenue. I don't have time to go into detail now, but will only say that it is inevitable that the service which academic journals provide will soon be paid for by a different group than has done so in the past. We call it a "new business model," and it basically means that author-scientists benefit more from these journals than reader-scientists and that therefore the costs will shift from library subscribers to manuscript submission or publication fees.

I can't help but think about a new business model that the American political establishment chooses to ignore. It goes like this: every American president, member of Congress and most other elected officials see one of their primary duties as the creation of jobs or at least of economic conditions that favor increased production and growth which would favor a greater number of employment opportunities. But what this ignores is that increased economic production and growth necessarily means greater consumption but nobody will say this out loud.

The reason is that consumption, although used as an economic term, has negative connotations. Consumerism is bad, we've learned in the past few decades both because it generally means an increase in consumption of natural resources or in a psycho-social degradation of the society we became so proud of in the mid-20th century. Producing more goods and services means that more of the earth will be plowed, mined, resurfaced or paved and that more automobiles, airplanes and ships will burn more fossil fuels and deposit more residue in our air and oceans ultimately affecting the ability of our earth to sustain us 7 billion.

But nobody wants to say that.

The old business model has our elected officials falling all over themselves to get a certain industry or corporation to move operations to the home jurisdiction. Some years ago the state of Maryland extended all sorts of perks and incentives to  the Marriott Corporation to convince them to keep their headquarters in Montgomery County rather than moving across the Potomac river to Fairfax, Virginia.

This kind of thing happens everywhere and although most of us citizens generally object to the notion of giving tax breaks or building roads and infrastructure purely for these mammoth corporations, we as workers generally like it when it happens specifically to us. We rail against corrupt politicians who will only vote on a sensible piece of legislation if it contains a provision for some government spending or economic development in his or her legislative district. But if we happen to live in that district--and we need a job--we tend to soften our opposition.

In order to reverse the degradation of our natural resources, we have not to prohibit certain consumer behaviors or undertake a concerted and long-term campaign of public service announcements trying to change behavior. Rather we need to price a livable earth with all its components (clean air and water or undisturbed forests, for example) so that any economic products that detract from those components have to bear the cost. Therefore the price of most everything would go up and we would consume less. Our earth would be more livable, but our personal "standards of living" (as defined narrowly in popular culture) would decline.

Such a new business model is inevitable if we want to avoid a biological catastrophe.

But nobody wants to say that.

Except maybe Al Gore.

Product Competition and U.S. Politics

I have been thinking in recent years about marketing consumer goods and politics. My theory says that competing products on the consumer marketplace which are most similar and which differ very little in quality or substance are the very products that are marketed most aggressively. Ad campaigns for things like soft drinks, local auto dealerships or domestic beers for example are presented in a way to make the consumer believe that one of these products is far superior and beyond comparison to the other product of its type. Coke and Pepsi come to mind. They are practically indistinguishable from one another, made of largely identical ingredients. Yet based on the intensity of their marketing efforts, either company would have us believe that the other product tastes radically different and is entirely inferior.

There is no shortage of examples of this. Auto dealerships for example are merciless on the local news broadcasts of most major metropolitan areas. To hear them tell it, buying a Toyota at ABC dealer is a recipe for disaster and you're going to save hundreds if not thousands at XYZ Toyota showroom on the other side of town. But the truth is both businesses are working from the same supplier and paying the same price to the manufacturer. Their labor market and overhead are nearly identical, being in the same metro area so there can't be any discernible difference between the price you get at one rather than the other besides a difference based on random chance.

And there are other products whose peddlers spend what must be tens of millions a year to get us to buy a different brand but nearly identical product. The truth is, these extensively and incessantly marketed goods are extremely limited in the variety of choice they can offer the consumer. In addition to centralization and uniform manufacturing processes, there are state regulations on what can and cannot go into a product, what it can be called, etc. that force competitors to offer a product under different brands that are essentially no different from one another.

But perhaps the most exaggerated example is with American politics. In recent years the Democratic and Republican parties have been trying to sell themselves to voters as radically different in their philosophies and budget priorities and attitudes toward everything from health care to crime and immigration.

But the truth is, rhetoric aside neither of them has instituted any policies that are much different from the other. Neither of them, for example will drastically reduce entitlement spending. They may quibble about miniscule government spending on the margins such as educational or job training programs but these arguments are meaningless when viewed against the real threat to American fiscal health: Social Security and the Medicare/Medicaid programs.

As an example, welfare payments to the poor were curtailed under Democratic president, Bill Clinton. Conversely, medicare payments were expanded under Republican, George W. Bush. Yet both the Democratic and Republican parties would have you believe that only the opposing party would do something like that.

Both parties have their outliers, of course. But I suspect that if we took a random sample of legislation and asked American voters to identify which party sponsored or initiated the law, very few of us could (beyond blind chance) determine whether it was a Democrat or a Republican who was behind the bill. Yet they would have us believe that like Coke and Pepsi, the difference between themselves and those across the aisle is night and day.

I call politics the most exaggerated example, less because one person's policies exactly replicates another, but more due to the lengths to which these people will go to distinguish themselves from others whose policies might differ slightly but which in the end support the status quo.

Shift of Allegiance from State to Corporation

I have written about the corporate takeover of our lives but ought to elaborate here. For more information, see the book with the B-Movie title, "When Corporations Rule the World" by David Korten.

We owe support and allegiance less and less to our government and more and more to corporations. Most Americans today know much more about consumption than citizenship.

Among other things is our attitude toward the central collection of personal information. Many of us resist vehemently a national database run by the government of information such as our names, addresses, habits, political affiliations, employers, income, debts, preferences for books and movies, etc. It reminds us of George Orwell's novel, "1984."

But while we resist the collection and maintenance of a file or dossier on our personal lives by government for fear of a dictatorial state, we actively participate in this data collection when we create online identities. In other words, we don't seem to care that Amazon.com collects this information or that EquiFax does. At least, it doesn't stop us from buying products online or participating in the system that allows this data to be accumulated and maintained.

I read a book recently (Life, Inc.) which had a variation on the Toynbee quote that I posted earlier (http://historicalaccident.blogspot.com/2008/09/title-explanation.html) . This one went something like this:

in the past 500 years, since the inception of state-chartered corporations, people have gone from subjects to citizens, from citizens to workers and most recently, from workers to consumers.

In the 1940s and 50s, the United States experienced a wave of paranoia due to anti-communist sentiments in Washington. A U.S. Senator held hearings recklessly accusing public figures of being communist sympathizers and it ruined several careers. It was common in those days to call a communist an enemy of the state.

But today that label would have to be revised. Given that the U.S. Congress and the White House of either party feels that it is their job to keep America employed, the stock market rising and corporations earning a profit, they would likely consider any threat to those efforts anti-American. But today we have a growing simplicity movement which advocates consuming less among other things. And policy makers in Washington, although they may not admit it openly, would consider the voluntary simplicity movement an enemy of the state in that its end result is to reduce consumption and therefore production, employment and investment.

So it will probably become clear in a short time to everyone that we owe our allegiance not to the U.S. government but to the U.S. industrial state which provides us with much more than Uncle Sam does.

Alternative Advertising

Advertising is one of my pet-hates, primarily because so many ads seem to treat the viewer/reader as an idiot. Automobiles with names like 'The Magnum' or the 'XKE325' apparently try to appeal to the base emotions that might be more abundant in a nine year old than a grown man.

Of course there are some television commercials which are innovative and humorous, but unfortunately after the first 200-300 views, anything gets rather old.

And some ads are aimed not at buyers of a certain product or service, but at a different audience.

Potential employees is one example. Several years ago Wal Mart ran a television ad that featured several senior-citizen employees who spoke about the variety of activity in their particular Wal Mart and that you never knew what you were going to see at a Wal Mart. The ad didn't mention any of the products or prices or discounts but really featured the working life of a retired and presumably part-time Wal Mart greeter or cashier. It seemed to me at the time that the object of the commercial was not to get people to come in to buy stuff but to get people to come in and apply for a job.

And they were particularly targeting the elderly, part-time, bored, newly retired types who might find it a way to spice things up if they spent 12-20 hours a week earning an hourly wage down at the local outlet. I can only guess that Wal Mart likes these senior citizen, part time workers since they do not require health insurance since the law does not require health coverage for part-timers and that presumably those older than 62 qualify for medicare at some level.


Other advertisements are directed at cultivating investment in a particular company. These tend to be for products or services that don't have a retail market or that appear in media aimed at an adult audience for whom the product might not be appropriate.

Still others feature a corporation's good works and citizenship by highlighting charitable activities and such. Nothing mentioned about the product or the sale or benefits of buying their wares. Only that we're good guys for helping out the disadvantaged in your community or for our activities to restore environmental quality, etc.

In the area of public policy, particularly in the Washington D.C. area there are ads which run during the political commentary Sunday fare by large corporations trolling for government contracts or legislation to protect a certain company's business model. Northrop Grumman and Archer Daniels Midland come most immediately to mind. Almost nobody watching any television show is going to buy a fighter jet except someone who holds a high position at the Pentagon or who reviews military procurement in Congress.

It is said that taxes are an economic inefficiency because that money would be better allocated in the hands of consumers or the private sector generally; governments do just about everything less efficiently than consumers or private enterprise. If that's true I would say the same thing about expenditures on advertisements. Embedded in the price of every product or service, along with the raw materials, labor, insurance, licensing, delivery, warehousing and such is the cost of marketing the thing. And it seems that more and more resources are devoted to this attempt at persuasion which is widely recognized as deception. I'd say that's an inefficient allocation of capital.

Limits of Charity

Living in the city, I see quite a few homeless people spending days, weeks, months and even years on the street. As I walk to my office I pass several homeless men, many of whom have been on the same street corner for several years. But in my daily movement throughout my urban environment I also pass many others who I have never seen and will probably never see again.

Like many others, I feel guilty when I avert my eyes or shake my head and silently look at them asking me for a handout. In recent years I have felt more and more charitable but not towards these people. I leave large tips lately, not for excellent service but after I think for a few minutes about the life of the person serving me, their economic status and uncertainty and their obvious desire to have more in their life than the job they have serving me. I have also noticed myself giving more and more to strangers in other spheres as well. But unfortunately the homeless get very little from me.

Why? Well I have thought about it a good deal. If I were to stop and speak to the street beggar I might say that I can give him some money without suffering any perceptible hardship--I have a bank account full of money, after all. And not only can I give him a dime or quarter today, but I could probably give a dollar every day for the remainder of my working life and I wouldn't suffer for it.

But should I? And if I gave a dime or a dollar every day to one gentleman panhandler, which would it be? Why choose one over another?

This may be fuel for the argument that instead of individual, ad-hoc charity, we ought to all pool our money and give it to either the government or to a non-profit to be used in some form of assistance for the poor. Then we wouldn't have to make these decisions on how much, how often and to whom. And further, we can assume that non-profits at least know something about helping the poor get back on their feet and they would channel the money to its most favorable use, eliminating any danger of someone buying liquor or drugs with the coins he saves up.

I brought up this question one time with a man who asked me for money on the street one day. I don't remember exact details but I did say to him that I see half a dozen homeless men every day and that I could give them all my money if I wanted to, but should I? And if not, when? His answer was that I should give when I feel like it, when I feel charitable. I guess he was saying that charity is an emotional decision, not a rational one.