The Equanimist

Thought on Incentive Misalignment and Currency Mismanagement

Posted in Uncategorized by equanimist on December 4, 2015

Of course, what’s good for companies is not necessarily good for a society. The drug industry provides a perfect example. By introducing drugs that treat (but do not cure) illnesses, while charging exorbitant fees for same, pharmaceutical giants sap productivity from other areas both by permitting chronic illness and by siphoning money off of the economy—money which could be used to other purposes but cannot be used to two purposes simultaneously. This is good for a drug company’s bottom line, and it runs against society’s interests. In the same way, giant cable companies (which somehow offer less than Netflix for multiples of the price,) HMOs, energy monopolies, diamond miners, and so on, wring outsized profits out of average people and hinder expansion by taking money from other projects.

Progress over the last century has been extraordinary compared with prior technological advancement. Still, because we are paying far more for goods and services than can be justified by either ingenuity (value-added) or total labor input, and because money (currency) velocity drives innovation (when total currency reasonably reflects discreet units of actualized-, future-, and value-added potential of some society), one must wonder: how many decades behind are we because we allow greed to divert and keep money from worthy projects?

It is not that some people don’t need “greater” incentives than others. It is not that we should not indulge this need to wring productivity from them. It is that we should act to restrain same wherever we can. Further, it is not that many people are not particularly useful and should not be paid living wages to perform tasks that do not require much skill or training. It is that we should make the best use of them we can. For example, it might be a waste to put so many in charge of micro-managing doctors and denying coverage. It might be better to use same to facilitate productive business activities.

We currently fail to address these kinds of wasted productivity. Among needed changes, incentives should be focused to reward solutions and increased productivity over manipulation and marketing. Further, detrimentally high salaries and bloated administrative costs should be dis-incentivized.

Tyranny is the problem not the answer to violence

Posted in Uncategorized by equanimist on October 7, 2015

Something that the media doesn’t report. Homicides and crimes comitted with guns have dropped precipitously in the past 22 years. We are as safe as we were 5 decades ago. And the correlation is now thought to be with demographics–not “gun control” which was applied in just patches of the country–though the decline occurred nationwide. [EDIT: the following links are about as true now as they were in 2013. They’ve just been hanging around.]
http://www.npr.org/sections/thetwo-way/2013/05/07/181998015/rate-of-u-s-gun-violence-has-fallen-since-1993-study-says
http://www.pewsocialtrends.org/2013/05/07/gun-homicide-rate-down-49-since-1993-peak-public-unaware/

If you are concerned with what is a low rate of crime relative to the US past then the solution to the problem is not to impose draconian measures that give away individual rights so that maybe we’ll be safer–safer while we are trampled by vested interests undermining our way of life! [And if you think that’s a crazy idea without precedent in US history read up on the very real plot to overthrow FDR foiled by Major General Smedley Darlington Butler.]

As Ben Franklin had it, “Those who would give up essential Liberty, to purchase a little temporary Safety, deserve neither Liberty nor Safety.” And like a fool and his money they would soon be parted!

Something I have never heard: He came from a loving family. He was well fed. The people in his life were supportive and respectful. He had a good, secure job and friends. He had time and money to pursue his interests. His healthcare needs were met. Then he just started killing people.

Demand that everybody be fed. Change perceptions around parenting. Stop marginalizing people. Stop belittling their beliefs. Just stop bullying them all together. Demand investment in quality public education. Stop unneeded stresses. Reject the enslavement of debt. Unionize. Demand higher pay. Demand congress act against outsourcing. The list goes on and on. But don’t fall prey to the specious argument that guns cause violence. Vlad the Impaler did just fine.

EU friction due to overemphasis on personal responsibility and cultural irrelevance

Posted in Uncategorized by equanimist on July 15, 2012

Blame being better tool not inherent—useful to adjust behavior but never more than physical fact (i.e., amoral) same ought never be more important than limits to which adjustment can be pushed. That is, I can effect so much change in others with the psychological technology available to me but I cannot effect more; and to the extent that I get caught up in personal responsibility (the individual mandate) beyond my capability I limit satisfaction when/to the extent that same derives from stability.

More to the point. Europeans make the same mistake that different cultures make when dealing with one another: Europeans do not share the same values and goals (as increasingly US Americans do not). If the goal of good government is highest possible civil obedience then government must account for these cultural differences (ideally individual differences!)

For example, when Germans look at Greeks it is not to the common good to look with a moral reference but with a realistic reference: Greeks, like Germans, are who they are—not whatever Germans think Greeks should be. And continued insistence that Greeks be Germans threatens the EU.

Consideration of Current Global Policy within a Context of Sustainability

Posted in Uncategorized by equanimist on June 24, 2011

Note:  I did this series of cartoons quite a while ago and did not intend to publish them as such.  That said, within a context of current events, the brief outline presented here is good food for thought.  So I’ve put words to them… Expect exploration of these issues in pieces to come.

Many with whom I interact seem to think that a dollar is some kind of a static instrument.  They seem to think that the number of US-controlled US dollars at a given time must equal the number of US dollars necessary to cover every US debt; and that same must do so now or we’re in serious trouble.  This is just not so.  A dollar is not static.  It’s good for more than one exchange.  And debt isn’t all due now.

Ideally a dollar gets passed on indefinitely.  In Fig. 1, a person spends a $100.  This either buys something or pays down some debt.  The person from whom s/he bought that thing then buys something from somebody else or pays the money out to cover some debt or a wage.  The recipient does likewise…  The same $100 bill gets passed from hand to hand, over and over again…  Assume that the first person in the picture is paying down debt and the second person in the picture is paying down debt and the third person is paying down some debt…  Then the same $100 is put toward debt owed by many people.   Of course, in real life, people tend to keep some portion of the dollars that they receive as in Fig. 2 (below).

In Fig. 2, we see what quickly happens to a hundred dollars when it is spent and ten percent is saved or siphoned off of the economy.  Two things jump out at me when I look at this: 1) $100 becomes $73 pretty quickly; and 2) $100 covers $271 in the first three transactions.

I’m going to hold off on 1) and take 2) first.  Again, dollars aren’t static.  A dollar gets recycled over and over again.  So, if three people are in varying amounts of debt and that debt totals $271, a hundred dollars passed from one guy to the next might actually suffice to make everybody even.

Further, dollars don’t get passed around once or twice but again and again.  Assuming that everybody in a chain gets a certain percentage of each transaction, and that the percentage does not change over some period, then income goes up as money gets passed along the chain more quickly.  On the other hand, assuming a steady money supply over the same period, to the degree that saving siphons money off of the economy or people are added to the economy, there’s less money to pass from hand to hand, and incomes must go down.

In Fig. 3, it’s clear: when one guy saves a lot off the top there’s a lot less left to be passed around even if subsequent savers save only 10% each.

Now imagine twice as many people sharing the same amount—imagine that the first hundred dollars must be changed for two fifties to split between two guys.  Even in the Fig. 2 scenario, the second guy in the transaction chain would only get $45 instead of $90.  So, if the number of people served by some supply of money doubles and productivity increases with population growth and there’s no shortage of resources then it is possible and reasonable to double the supply of money in order to furnish enough money for everybody.

But there exists another important reason to increase the money supply: productivity increase that outpaces expanding population.  We’re not on a gold standard or a silver standard or any kind of commodity standard anymore.  Money, instead, represents discrete fractions of actualized human potential (adjusted for instantaneous estimation of growth of same).

In Fig. 4, a guy makes a widget.  In Fig. 5, a guy makes six widgets.  What happens if there isn’t enough money out there to buy six widgets at the going rate?  Either prices must come down, or five guys are put out of work [even if we were to think of other uses for them, since we haven’t increased money supply, we can’t pay them.]

Let’s suppose that we can’t think of anything for them to do other than make widgets, and we can’t simply increase money supply because raw materials are too expensive to justify based on our society’s productivity or because use of those materials is not sustainable (which is really the same thing said differently).  Then we’ve got to accept lower standards of living, or we’ve got too many people.  As China’s population problem and the results of “One-Child Policy” clearly demonstrate, it’s hard to get people to stop having babies.

Since you can’t just kill people who won’t stop doin’ it, and because we haven’t had a good pandemic in ages—since we don’t have any other natural predators—war may be the answer.

War puts people (temporarily) to work.

A ‘good’ war rouses the rabble.

But, perhaps most importantly, war leaves devastation in its wake, and war kills people. The end result of a World War can be like starting over—as long as nobody drops too many nuclear bombs.

The problem with laissez-faire (the chief problem with modern interpretations of representative democracy)

Posted in Uncategorized by equanimist on October 31, 2010

Compromise is the result of a fight between opposing forces.

           Imagine two boxes that contain agendas. They’re butted up one against the other. On either side of the boxes is a guy. The two guys push the boxes toward each other with all their might. If, on a level playing field, both guys are equally strong and equally good at pushing then when they push the boxes directly at one another the boxes don’t move, as in Fig. 1, panel A.

            That’s more or less fine when the status quo is working because, if they’re the only two guys on the playing field, the fight itself doesn’t change things.

            As illustrated in panels B and C, one guy’s often “stronger”. At one time or another, the boxes move to the left or right. If we assume that the boxes always come back to the middle, this is a kind of dynamic equilibrium. But,

            1. These two guys aren’t the only ones pushing on the boxes.

            2. The fight takes time and resources that could be put to better use.

            3. Nature will favor change.

            4. No democratic law or set of laws governing specific actions can possibly ensure indefinite dynamic equilibrium.

            In order to maintain the status quo the two boxes must hold equally opposing positions on every political issue. Nothing can “fly under the radar” or “come at an odd angle” because the system is not designed to oppose the force behind the “odd” issue.

            In Fig. 1, panels D and E we see the boxes in two dimensions. With “no” (i.e., very weak) opposing force on top of the boxes, a sudden strong force from below pushes the boxes right off the scale as in E. But this is still overly simplistic. The boxes float freely, and lots of people are pushing on them from all angles.

            In Fig. 2 at left, the boxes are transformed to a shell (not pictured) against which forces act from the inside and the outside and in all directions. Shown is a cross section of forces (the center slice of a prickly ball).

            Even when every force is adequately checked by an opposing force, in a laissez-faire world substantial time and resources must be devoted to constant struggle to maintain the status quo. This is good if there isn’t anything better to be done because it’s generally better to employ somebody than not. It’s a big waste if there’s better work to do, like innovating. But, even when we allow that it is a fine allocation of resources, every force cannot be so balanced because it’s just not possible to anticipate every socioeconomic force and counter same with a ready, opposing force.

            Forces will come at odd angles. Forces will deform the shape of the shell. Individuals will conceive “creative” solutions to “problems” posed by specific laws with which they must comply. They will undermine the principle to benefit themselves. And, a laissez-faire democratic system (a system legislating only specific actions) predicated on the outcome of this constant war between individuals and governance cannot ensure that the system always returns to some original shape.

            While the dueling forces in Fig. 2 are drawn as more or less equal in magnitude, alignment and time for the sake of simplicity, these forces actually vary in magnitude, focus, and application relative to place-of-society on the ideological continuum (more generally, time).

            Let us suppose that we establish laws right now that require (under present circumstances) that the elastic system (our shell) always rebound to conform to some current ideal. We cannot possibly anticipate every action—every drive to change the shape that our socioeconomic system takes.

            Imagine now that the two guys in Fig. 1 represent battle at some pair of opposing arrow heads in Fig. 2. What if one guy gains “the upper hand”? He distorts the shape of the shell, of course.

            Assume that the first change is small—that the result of the contest is slight deformation of the shape of the shell. The small change will or won’t prove beneficial over some time frame.

            It isn’t hard to imagine that a change, which will lead to turmoil, might seem beneficial to all parties over some relatively short time frame. When then ought we to expect more of the good medicine? Is it reasonable to assume that we will hold off making additional changes until we’ve determined that there is no downside? Certainly, there is no guaranty. In a cascade of adoption, similar changes might be made, and these might prove beneficial over a short term. The system is “permanently” deformed to favor some different shape.

            Laissez-faire democracy is inherently vulnerable to socioeconomic mores: it changes and continues to change in accordance with perceived “best practices” until it takes a new shape. Laissez-faire democracy is opposed to the status quo.

            Some will say that inherent instability drives successful innovation. And, it may in some cases. But, it need not. It can drive us backward, sideways or asunder.

            The problem, then, is to reconcile maximal individual freedom with an immutable framework. I believe that the US Declaration of Independence, Constitution and Bill of Rights were a modern attempt to do so—to reconcile inherent flaws of representative democracy with stability. Yet we have in past and may stand again on the brink of failure. Why?

            US Law is misinterpreted, or it is without overarching principles.

(more…)

Housekeeping

Posted in Uncategorized by equanimist on October 29, 2010

While I continue to work on a new post that will go up on this page, I’ve been posting at the Dog-Meat-Home Companion page… Ideally, the Equanimist is not just this page but consists of the Equanimist, Dog-Meat-Home Companion, News Blog and Not a Joiner–each of which has its own flavor. I just don’t know how to bundle them all into a single front page more like a newspaper. So, for those of you who are looking for updates, and I see that some people keep checking back, you might check out the other pages!

Working Hypothesis (re So-Far Failed Attempt at Greater-US Market/Foreign Middle-Classification)

Posted in Economics, Economy, Public Policy, Socioeconomy by equanimist on September 25, 2010
When money represents discrete fractions of actualized human potential adjusted for an instantaneous estimation of future productivity increase, to account for net outflow of money as the US trade deficit ballooned in a continual expansion of the US-dollar denominated market, more US dollars were necessary to fuel the “greater-US” market without either disrupting the US socioeconomy or experiencing dramatic domestic deflation.

Money supply then would have to grow at the rate of productive population within the greater-US market (i.e., the domestic and foreign USD-denominated markets) adjusted for (an extremely near-term estimate of) productivity gains made by same (so to maintain full employment absent deflation).

Logically, attempts to ever-expand the greater-US market would require some still-greater money supply. [Indeed, for as long as the US pursues a policy of “creating middle classes” money supply expansion should outstrip labor population growth multiplied by the estimation of instantaneous productivity growth within the greater-US market by some instantaneous estimation of the rate of current expansion.]

The Federal Reserve would furnish money sufficient to the task. But, it wouldn’t get used to the purpose.

Fig. 1, Closed blue triangles and closed green squares represent M2 and M1, respectively. Closed red circles and open blue triangles represent the bottom 90% of US earners and the top 1% of US earners, respectively. Data sources: M1 & M2, Federal Reserve (link); wage data, Piketty and Saez, TabFig2008.xls (link). M1 & M2 are plotted in billions; incomes are plotted in hundreds of 2008 US dollars for the sake of scale. (Click on graph to see full-sized image, which will open in another tab.)

Because US workers were already highly paid relative to poor foreign workers, we would not expect US middle-class incomes to grow much as a result of greater-US market expansion (unless the creation/expansion of a greater-US market were to enhance productivity gains). And, as is clear in Fig. 1, US workers’ incomes remained relatively flat over the time period. But, if money were being used to purpose (i.e., to promote development of foreign middle classes) then we would not expect to see a rise in top-tier US incomes. But, we do.

From approximately 1982, the top 1% of US earners saw increases that roughly corresponded to the increase in M2.

Perhaps, in attempting to expand the greater-US market in rapid fashion while erecting no backstop against domestic disruption, we wanted something that we shouldn’t have expected:

In order to keep the US market competitive, poor foreign wages-per-capita would have had to rapidly approach US middle-class wages minus cost of transport (i.e., grow at a rate unsupported by the foreign-labor-pool-to-foreign-labor-demand ratio). Otherwise, poor foreigners would always out-compete US counterparts on a purely-cost basis.

Absent extraordinary wage increases in poor-labor countries (and in the face of anemic foreign demand for their own goods and services—the result of low wages relative to the cost of the goods that they produce), the US (and parts of Europe) would have to consume the excess supply or give up creating foreign middle classes. Of course, as much as was prudent, US-made goods and services could be replaced with foreign-made. US jobs would be slashed en masse at every opportunity. Fear of the prospect of unrest would (generally) make that temporary. Still, the average unemployment rate in the US has crept ever higher in the post-war era.

Fig. 2, US Unemployment Rate by Year, from Jan 1948 thru Aug 2010. Data source: Bureau of Labor Statistics (link). Black line is a linear regression calculated by Microsoft Excel. (Click on graph for full-sized image.)

Needing domestic jobs but unwilling to pay foreign workers enough to buy the goods that they’d produced; or charge US consumers less for goods and services than the market would bear (i.e., produce domestic goods at a loss and foreign goods at a profit); or lavish cash (so-called “profits”) on the US population, US stewards had to find some way to effect purchase of the surplus goods produced.

In the absence of real money to purchase excess goods, credit could be furnished US people.

Fig. 3, Consumer Credit Expansion. Open red diamonds represent yearly consumer credit. Closed blue triangles and open black circles represent M2 and M1, respectively. Closed green squares represent M1 + consumer credit. All numbers in billions. Data source: Federal Reserve (link). (Click on graph for full-sized image.)

 
That is, it seems that money might have been loaned, instead of given, to “average” US people in order to purchase the surplus goods—or money was siphoned off at every opportunity instead of perpetually circulated (depending upon your perspective). [It seems difficult to imagine how smart people expected this to work.]
 
As of now, credit associated with “excess” production/consumption (which became a way of life) must still be repaid but bottom 90% incomes have not risen to meet the burden.
 
More pointedly, it seems the world economy is dependent upon vanishing credit to purchase surplus goods despite plenty of fiat money for the purpose because top-tier earners have irrationally siphoned needed currency off the greater-US market.
 
Absent meaningful change, the greater-US market will fail. Non-western middle classes will not develop. Global stability will continue to elude. And, even the fate of the US market is uncertain.

Invest in US

Posted in Economics, Economy, Political Economy, Politics, Public Policy, Socioeconomy by equanimist on August 16, 2010

I

Where do stewards who hoard currency (incentivization to put people to productive work) think that average people are going to get money?

Where do average people get money? Can they print it?

How does flow and use of money (economic engine) work? Can socioeconomy (presently) function without some kind of currency actively cycling through it?

The single most pressing issue facing the US remains a lack of US jobs—as opposed to unemployment, which concept is clouded by unemployment insurance: jobless aren’t exactly unemployed for so long as they receive money from the government to pay bills but in a sort of limbo between employment and unemployment.

While fundamental causes of hoarded currency may include utter lack of perception/understanding of socioeconomic principles (including civic responsibility and patriotism as same apply to the wider world) combined with inability among people vying for acceptance (and conditioned to think one way or another) to “put two and two together and get four” on their own when they are being told it is ten, the proximal cause of unemployment is hoarded (misused) currency. This can and must be quickly addressed.

II

Currency (so-called “paper money” measured in dollars and cents) is not commodity but tool. That US people were able to produce with credit (pseudo-currency) more than they could afford with circulating (real) currency is testament to the fact that there is not enough real currency circulating through the economy.

The US did not furnish too many jobs. US people did not live beyond their means, but credit to supplement available incentivization provides evidence of irrational distribution of paper money, which is disproportionately concentrated in the hands of a few who do not use it.

Lack of current in currency can be the result of a confluence of factors including too-high pay packages at the top combined with too-low investment by top earners and businesses, too-low taxes on top earners and wealthy businesses, too-low wages at the bottom, and too-high prices for goods and services (in this case, the direct result of pull from the top as evidenced by increasingly unequal wages).

That the modern steward class would sooner allow US infrastructure to decay than make currency available is testament to a radical change in attitude of US stewardship that took place over several decades.

III

Why does it bother currency-hoarders that US masses buy the very iPods and PS3s and HD TVs that keep them entertained (and otherwise oblivious to a changing power structure)? Surely it must bother them because they are not doling out the money with which to make future purchases, or, they are but they are not including enough to meet other expenses.

Why does it bother them that average US people are well educated in order to be more productive, better-quality servants? Surely it must bother them because they and their representatives have cut and continue to cut education spending. Isn’t high pay supposed to attract the best and the brightest? Aren’t small class sizes supposed to lead to better-educated students? Hasn’t the US system suffered by most metrics?

Why does it bother these hoarders that average people can afford their own homes? Surely, average people must live some place.

Past US stewards (i.e., our progenitors) might have been thrilled by the extraordinary accomplishments that we made as a society. Yet, their children revolted against the socioeconomy that made these possible. The “greatest generation”, spoiled (perhaps) by two terrible wars, bred a generation (the current steward class) that is preponderantly fearful, callous and avaricious beyond reason. These compulsive people are committed to a “zero-sum-game”, “tough-love” vision of life incompatible with civil society because it undermines systems that civilize.

Modern US stewards take indiscriminately from people whom they see as adversaries (i.e., everybody else) in order to hoard, while they would undermine with an army of lawyers and lobbyists the institutions that make possible US socioeconomy and gamble that US middle class will accept the change passively.

Worse, modern US stewards fail to understand the risk—that we are what we are—not what we would wish to be. If US stewards act like Mexican, Indian or Chinese (or pre-war US) stewards then, all else being equal, they’ll recreate Mexico, India or China (or pre-war America). Consider, for example, Mexico is so fantastic that its citizens streamed across the US-Mexican border at great personal risk to be illegal immigrants and all that that entails.

There is nothing in the last few hundred years of western history that suggests that average western people will suffer degradation indefinitely while their stewards enjoy ever-increasing wealth. The result of wealth consolidation and deficient current then, instead of safety, is likely to be ruin (preceded only by volatility and risk).

IV

Consolidated wealth must be wound down to a sustainable level and invested at home.

It is no longer enough to stimulate US demand. US people must spend more on US goods and services or jobs won’t come back. To that end, average US people need more real money to spend and strong incentives to spend it domestically. Further, it will not be enough to furnish more credit for the purpose: this crisis is predicated upon credit in place of currency.

The Credit Gamble [which seems something like, “If we (a minority of stewards) make credit available and show what it can do then the broader steward class (the same that has been consolidating money) will be forced to pay when the rent comes due because average people will be unable to do so”], this gamble did not pay off.

Modern US “stewards” do not tend to see themselves as such but see themselves as adversaries of average people and popular government: aristocrats. These aristocrats see only how fat their wallets get, and, thinking that they are successful just as long at they make more money to hoard, they continue to siphon the lifeblood (fiat currency) off our socioeconomic system.

Doubling down would be foolish.

V

To suggest or, worse, believe that people who have and businesses that have consolidated wealth will spend (in an “uncertain environment”) more than they make (that is, that they will suddenly spend down their savings to reinvigorate the US economy) because their taxes are lowered is absurd and would not be worthy of consideration except that it is suggested by those who view success in terms of hoarded currency and their surrogates.

If the US did not attract business sufficient to employ US people and jobs were vanishing for that reason then tax cuts could be used to attract business and restore jobs. But business attraction is not now relevant to US job creation.

There are plenty of businesses headquartered and/or doing business in the US. Despite tax cuts, it will remain cheaper to produce goods and services in China and India and Mexico. Believing the bottom line the single most important function of business, US businesses will continue to outsource absent some incentive to produce goods and services in the US. The “savings” that outsourcing yields will continue to go to a small few who have steadily awarded themselves higher pay and severance packages at the expense of “working” people absent some force acting against them. And, jobs will not come back as the result of tax cuts.

Instead, taxes should be raised substantially on top earners. Further, tax law should be modified to tax extraordinary wealth that is not invested in projects that put people to work. Using this money to create US jobs will begin to make up the slack in currency circulation without devaluing the dollar.

Obviously, it is difficult for elected US officials, increasingly pageant winners and right-hand men—not stewards per se, to distribute money to the middle class, which will spend it wisely (just so long as they spend it domestically). But, the US government must also pressure wealthy businesses to expand domestically and pay more in wages (in a deflationary environment) and simultaneously take money from same wealthy businesses (i.e., stewards who own/manage same) to distribute to US middle class.

[One might argue that businesspeople borrowed from future growth to buoy their own incomes: by beggaring their countryman and leaving same laden with debt, while packing away the higher yield of outsourcing—not putting it to use abroad to create foreign middle classes or distributing it at home to sustain their own way of life but always “leaving it to others” to do these things, these businesspeople ensured that the US would lose jobs, spend down its capital, accumulate debt and ultimately collapse like a house of cards when the cheap money stopped flowing.]

VI

High taxes, however, are not sufficient solution.

The wake of a staggering Chinese trade surplus and Buy Chinese incentives (borrowed, perhaps, from decades-long success of “Buy American” programs) provide another opportunity to institute an Invest in US program. Unfortunately, it will be a harder sell than it was a few years ago when inferior products seemed a plague, but it should look the same:

1.) All containers entering US ports should be thoroughly inspected. Inspection costs should be paid by the importers themselves—not US middle class.

It must be within a country’s purview to verify that contents of shipping containers are as listed and meet well-defined standards; and, if one genuinely wants to stop crimes including everything from trafficking in guns and human slaves to terrorism, it is a wise policy.

Moreover, it would remove an artificially low barrier to outsourcing and perforce make same more expensive absent tariffs. Special relationships with countries whose standards, wages and security mirror our own should be recreated.

2.) Illegal immigration should be stanched. While not as big a population as that of China or India (or China and India combined) the illegal population represents a substantial group that will work for extremely low wages and, as such, negatively impact wage growth.

While the US is and should remain a melting pot, a society is not likely to absorb a group twenty-times its size and maintain the status quo.

Let us be quite clear, while there are US policies that have done disservice, the sum total US policies have done great service to US people and foreign people all over the world.

Adding, in too rapid fashion, too many people of any nationality, religion or ethnicity that do not support core US principles threatens the US socioeconomy because it is likely to tip the balance away from core positions.

3.) Insourcing should be dramatically curtailed. Our institutions have not expanded to include more than 6 billion people vying for positions. In order to rebuild US capital, US positions must be substantially limited to US citizens.

The US cannot employ, educate, feed and etc. the whole world. The US can employ, educate and feed some foreign people and lead by example.

4.) Taxes should be raised on corporations and wealthy; and, in the meantime, money should be printed to replace credit and invested in projects with long term benefit, esp. infrastructure, education, defense and clean-energy technologies.

It should go without saying: Infrastructure makes every daily pursuit possible. Safe neighborhoods, reliable power lines, running water, driveable roads, sound bridges and so on and so forth are indispensable to civil society and high productivity. Of course, to the extent that these suffer civil society and productivity must also suffer.

But, civil society and productivity also suffer when children are poorly socialized and educated. Successive generations must be taught the core principles, techniques and skills—the wisdom upon which success is predicated or be all but guaranteed a darker tomorrow.

History makes clear that the world is navigating treacherous waters. And, the US is in a weakened state. Cuts in defense spending could not be timed more inappropriately than now. While new bombers and manned aircraft might be put on hold, the US would be foolish to divert money from myriad technologies as diverse as unmanned aerial vehicles and energy production that will ensure US hegemony.

The US cannot stand up for freedom and democracy and lie prostrate at the feet of foreign despots. Clean, cheap energy technologies sufficient to US demand will ensure our independence, while creating hundreds of thousands of jobs and products to export. Stewards should hasten such technological advances while putting people back to work.

VII

The positions outlined here are in keeping with a long US history of independence, freedom and equality under a strong central government.

Make no mistake, while it is indeed possible that the US has changed so that we will welcome socialism or peaceably abide poverty and starvation it seems unlikely.

Fundamental change no more exotic or painful than restoration of flow of currency can change the tide. If we hope to avoid the real dangers on our present course, we will make the change.

There is no magic place where money doesn’t flow but people prosper.

A Short Note on the Primary Superiority of Fiat Currency-based Socioeconomics to Commodity-based Socioeconomics

Posted in *HIGHLIGHTS, Economics, Economy, Philosophy, Socioeconomy by equanimist on June 10, 2010

Work is not used to put people to money (so long as “excess” of any product can be created) but money is used to put people to work.

Fiat currency is not a commodity but a tool. That it can be used as currency of actualized human potential is its primary virtue. Otherwise, we might as well use something like gold, which may tend to approximate (but is no) ideal fixed-quantity commodity.

As has been demonstrated time and again, there is an extremely acquisitive and (very nearly) equally thrifty minority who will part with what they’ve got “over their dead bodies”.

Still, there is a human potential greater than the relatively small portion of currency that this de facto steward class makes available to effect productivity and, otherwise, peace and prosperity.

Fiat currency takes control of this natural tyranny putting people to work (and, otherwise, keeping others from it). The work people do (and, otherwise, the work that they don’t do) makes our lives better.

Fiat currency representing the work that has been done and approximating, at any given instant, that which can be done by same population with improved technology in future accomplishes in this way what commodities cannot: stabilization as the result of primarily peaceful transitions—a modulation (i.e., minimization) in amplitude of cyclical socioeconomic transitions between peace and war, if you will.

Commodity-based socioeconomics, on the other hand, must include physical reclamation of actual assets for redistribution or debt (forgiven cyclically) in place of fiat currency! That entails a lot of dead bodies, as has been demonstrated.

Part III.C. Regarding US Unemployment

1. ‘The proof is in the pudding’

Relatively-high, steady unemployment is not compatible with civil society when a relatively acquisitive, motivated people confront social programs that only reinforce hardship and success.

Now, it appears that there are more US Americans who would work than there are US jobs to do. This is not the case. The US people need challenging, satisfying work now more than ever because they are “on edge” and strapped for cash. Moreover, innovation will be product of a lot of hard work.

Notwithstanding that recent “boom” times were characterized by relatively high US unemployment (see Fig. 1 below for data on the US Unemployment Rate since 1948) there must be work for the unemployed to do.

2.

Human-capacity utilization is being slashed instead. It would appear that the steward class does not see high employment as a responsibility of US stewardship. US pundits wonder aloud, who’s at fault for high unemployment?

Many so-called conservatives cry, “People refuse to work! Fat, lazy, beer-drinking, out-of workers – socialists living on the fat of the land are the problem. It’s un-American.”

The left is flabbergasted. “Now, now… It’s the corporate fat cats,” they tell the middle class, as if they had taken vows of poverty. “It’s CEOs and corporate lobbyists, who laze about smoke-filled rooms, while you build America.”

3. ‘Finger-pointing’ (AKA, Proximal cause)

Of course, an individual must be incentivized and make a choice to work. Individuals do not incentivize themselves. Who is responsible to incentivize workers? Are they doing that or not?

Data on US income inequality clearly show diverging pay scales of small-and-shrinking proportion at the bottom and large-and-growing proportion at the top. That is, it looks like the topmost tier is and has been consolidating wealth and removing some portion of monetary incentives for decades.

Further, relatively “high-paying” (middle-class) jobs are disappearing to foreign nations where they can be done more cheaply. In place of such jobs, so-called “McJobs” have appeared. Many find such work neither satisfying nor worthwhile.

But, now, all jobs are coming under the axe as stewards and managers ‘restructure’ to ‘maximize efficiencies and profits’.

These data strongly suggest that US workers are and have been losing battles for middle-class wages and satisfying jobs. Individuals within the steward class that makes policy and those under them, who manage finance and companies, and those under them, who manage divisions, and so forth must be accountable because stewards create jobs, set pay scales, hire and fire.

However, in that stewards want to live a little bit better than they have at any instant (e.g., now) are they not just like their compatriots? They’re just a little better at getting what they want.

4. ‘The meat of the matter’ (AKA, Distal cause)

What an individual feels and believes and can accomplish for itself has steadily gained importance in the western world, esp. the US. Now, it appears that the individual matters more than societal concerns, of which we admit fewer and fewer over time. The result is a new west where, much like the old west, it’s every man for himself. A middle-class democracy cannot exist indefinitely in such a state.

Some examples stand out from the pack. Bernard Madoff and Allen Stanford clearly take first and second place, respectively. Others fade into the woodwork. If, for example, we assume that Ben Bernanke had compelling evidence to suggest that the Merrill deal must go through and pressed Ken Lewis to make the deal, does it matter if Mr. Bernanke did what he believed was best for the country in pressing Mr. Lewis to complete the deal? It must! Can Mr. Bernanke have violated US law if he did what a preponderance of evidence suggested was best for the country despite the fact that a relatively small group of risk takers suffered a financial setback, or, he might have violated the terms of an imperfect law? Which is more important, an individual or the country? The country or the law?

The good of a country does not change over time. Our understanding of it does, and so, our laws change to better approximate the national interest because a country’s laws exist first and foremost to effect the national interest! As such, absent foreseeable, avoidable and/or greater wrong, it hardly seems an act can violate law if it is reasonable, appears the best of alternatives and is intended to effect national prosperity.

Yet, secular, self-centered individuals now want and believe that they can do whatever they like within the law without repercussion (because “it’s a free country”, virtually everything not specifically addressed by current law). The law is become sacrosanct. The law is become an offensive weapon.

This may be par for the course among third-world ruling classes, but, it cannot work within the context of a middle-class democracy precisely because it obviates the possibility of a middle class: When one societal group is so inclined, capable of outmaneuvering another group and consistently allowed to take advantage of same, the long term result must be oppression or eradication of the weaker group, here, the US middle class.

Approaching an extreme in the US, when a plurality of individuals threatens civil society, self-centered and selfish individuals give only cursory thought to others – rarely more than is absolutely necessary – and, generally, persuade themselves of the rightness and goodness of their own interests: freewill, as a philosophy, does not allow the possibility of responsibility for actions that do not violate the law but only actions that violate the law. Believing thus absolves law-abiding individuals of guilt and, in so doing, sets in motion a positive and pleasurable feedback loop. Moreover (in free countries like the US) coupled, extreme visions of freewill and individuality effectually subvert the justice system: laws addressing specific actions cannot possibly foresee infinitely-diverse bad actions, and, because we do not admit an enforceable “spirit of the law”, bad actors are free to act unless there’s a law that prevents them from doing so.

When bad actors act in the self-interests described, while they fight to keep the law off their bad actions and achieve success as a result, they attract and make converts of others.

The result is a socioeconomy so corrupt that is does not see itself as corrupt. Corruption is become business as usual. And, rising unemployment over time (as illustrated below) is just a symptom.

Fig. 1, Unemployment Rate 1948 Jan – 2009 Aug, based on unemployment rate data by month over a period 1948 Jan thru 2009 Aug obtained from the Bureau of Labor Statistics. Red line is linear regression calculated by Microsoft Excel. Upper (green) and lower (yellow) brackets highlight amplitude of swings.

The unemployment rate has clearly trended up over this time period (from approx. 5% to approx. 6.3% – a rise of approx. 25% in the portion of the population that is unemployed at any instant). More disturbing, however, is the change in unemployment-cycle amplitude in the postwar period, illustrated by the brackets. The highs and lows seem to be diverging. But, finally, the troughs are getting higher. During “boom” times US unemployment is staying higher.

5. The positive feedback loop in action

I can make more money if I pay less. I want to make more money because I want and believe that I deserve more. Nobody is stopping me from employing fewer people. And, I can employ them at a lower rate.

Since I don’t believe that I have any responsibility to employ people, and, I have no responsibility to my fellow countrymen, I will find ways to increase productivity with fewer workers and pay them less.

…I have done so, and, I have kept more money. I live a slightly more lavish lifestyle and have consolidated more wealth. But, I know I can live a more lavish lifestyle and consolidate more wealth if I can further increase worker productivity while keeping money in my pocket. Moreover, I can pay even less if I outsource relatively “high-paying”, middle-class jobs to “business-friendly” nations.

I will invest in technologies that eliminate the worker and outsource middle-class jobs to lower-class countries where I will pay middle-class workers according to lower-class rates.

…Success!

Other people see what I am doing. They are impressed. And, they do it, too.

The unemployment rate ticks ever up. Some hypothesize that the natural unemployment rate might not be even 5% but something higher. And, so forth and so on.

Of course, the principles that underlie this logic extend beyond employment to all facets of human endeavor.

6. A curious justification: human rights

While the justification described may be sufficient to have set the loop in motion, still, present justification for actions that negatively impact the domestic socioeconomy jibe nicely with “progressive-”liberal ideology. Specifically, so-called “bleeding hearts” would put an end to injustice in the world. Irrespective merit-of-the argument, the argument supports substantial US investment in foreign countries: it takes a lot of money to elevate a poor population from poverty into the middle class.

Will to furnish that money never existed in the US steward class. (The same people have used profits of outsourcing and insourcing to pay themselves more.) Yet, the plan was clearly lucrative over the short term.

Jobs were moved overseas, and, money that would have lined US-middle-class pockets went with them. This would have been fine and could have been sufficient to raise many poor foreigners out of poverty if it had been temporary. But, wages of poor foreign workers did not rapidly approach US-middle-class wages, and, adequate foreign demand would not develop. (It seems plausible that many foreign populations are generally less acquisitive than the US population and will, as such, tolerate a low standard of living that US people will not. Further, foreign workers who might pressure foreign stewards routinely migrate to the US leaving a vanishingly motivated people behind. Thus, foreign stewards might easily fail to see the benefit of higher domestic standards of living.)

While outsourcing and insourcing effectively grew the US workforce out of all proportion to the number of available US jobs and the same globalization replaced US workers with cheaper foreign workers, US-middle-class income continued to decline. Moreover, the goods that the US middle class consumed and the services with which it was furnished originated overseas with greater frequency. This further diminished US capacity for demand.

When the US middle class could no longer afford the effort to spread US-middle-class democracy in a hostile world, US stewards doubled down. In order to pay for the plan in the face of diverging pay scales, rising US unemployment and relatively weak foreign demand, the bankrupt US middle class was furnished credit that US consumers were eager to use. But, now the plan must work because there was never any hope that US-middle-class people could repay the staggering debt they would accrue if foreign wages did not rise to US-middle-class levels, and, outsourced jobs never “returned” home. Further, the US steward class was ill-prepared to cover its losses and never intended to do so.

We now know it was a bad bet. The US middle-class could not prop up poor foreigners whose steward classes would not adapt to the demands of progressive-liberal US ambitions. The US middle class was gambled into servitude.

But, the US people didn’t “come to America” to be poor, indentured servants. Just the opposite. “No taxation without representation!” they cry. “Live free or die!” The US has always attracted relatively acquisitive and extremely motivated people who are looking for a “better” life, revolutionaries. Moreover, many tens or hundreds of millions of US Americans have already lived some version of the “American dream”. Taken together, these facts strongly suggest that the US middle class, without anyplace to go, will revolt.

It must be time to retrench.

7. Solution to the example, unemployment (AKA, “It’s past time to get tough”)

The US steward class must cover its losses and, then, institute the changes that must be made in order to regain standing in the world and maintain a vibrant civil society:

(1) (a) Raise minimum wage for all those emancipated and/or adult US individuals to some “relatively-high”, middle-class level (based not on a USD amount but some fraction of the upper wage); and (b) guarantee unemployment benefits (at some significantly lower, “poverty” rate) to every citizen whose household income is below the minimum-wage figure per capita.

(2) Guarantee health coverage to every US American.

(3) (a) Stop trade with countries that refuse to adopt similar policies; (b) severely limit immigration from same; and (c) prevent domestic entities and other entities based in trading-partner countries from outsourcing services to and developing products in non-trading-partner countries.

8. How it works

The unemployed cannot pay their own unemployment benefits, let alone medical bills. And, under this plan, there is significant benefit to work. Still, the plan is ineffectual if US business entities can get visas for cheap labor and employ cheap labor abroad. So, the law must be reformed to stanch the flood of cheap foreign labor.

Thus, under this plan, US employers are effectively compelled to employ every emancipated or adult US citizen and end the deadly trend to mass poverty that results when the steward class does not rightly estimate its relationship to a civil, acquisitive and motivated middle class. At the same time, the unemployed have strong incentive to work to stay out of poverty.

Which is better for the employer: an employee who does nothing and gets paid, or an employee who adds to net income?

Domestic employers will bend over backward attempting to make money off of those whom they have to pay (i.e., US Americans) and the number of US jobs will expand out of proportion to the number of US workers. Otherwise, US companies might (1) move to the third world, where they need not pay or (2) regress (i.e., forfeit high quality of life). In the event that more than a very few choose (1) they’ll have either to change the third world, or, as in (2) they won’t live well because demand for their goods will be much lower and, as a result, their incomes will drop substantially while they will face a hostile population in relatively wild lands. That is, there isn’t enough room at the top tier of the third world to absorb a mass exodus of top-tier first-worlders, and, it seems unlikely that the steward class would choose to recreate the third world at home.

For the same reason that companies will not relocate en masse, the US people will find it better to enjoy the comforts that a little work brings. It appeals to virtually everybody to work for “something better” because it’s human nature (as will be explored in some later part).

In any case, the US will retain advantages that it has always had: diverse, creative, motivated US people working within the framework of the US constitution and (now centuries-old) institutions. While restored domestic-demand capacity will grow the socioeconomy, the kind of work that US people have done historically will breed continued innovation and further progress.

That this plan is good for every US American and the citizens of all US trading partners is self-apparent. But, further, it is good for citizens of our non-trading partners because it provides the strongest incentive to make progress on issues that plague these countries (e.g., income inequality and human rights). They will have no choice but to commit to change or squander US investment. Now that these countries have experienced growth and higher living standards associated with US-middle-class investment, it should be hard to go back to the old ways.

A sliver of a slice of US American and foreign stewards will understand that it means an end to tyranny and, because they cannot see how that benefits them (either because they actually cannot understand or because it flies in the face of the supreme belief that their interests are more important than their nations’) the plan will not suffice to persuade them that the next phase in the evolution of civil society will afford a higher quality of life for all.

They will fight it tooth and nail – not because it’s a bad plan (bad for the US and US-trading partners) but because it is a good plan that is good for the US, US-trading partners and the world; and, to their way of thinking (which equates personal benefit with personal wealth) that’s bad for them.