The Equanimist

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.

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Foray into the post-787-Billion-Dollar-Stimulus-Plan World

Posted in Economy, National Security, Socioeconomy by equanimist on February 14, 2009

In 2007 “people” (increasingly) stopped making mortgage payments, and, by the end of the year, the economy was entering recession. So, before the US had lost 3.6 million jobs, there wasn’t enough money cycling through the economy to drive it. Thus, it stands to reason, the US need not only replace 3.6 million jobs lost but do more (the status quo wasn’t working).

Beyond the obvious (i.e., the US must jumpstart its economy – to overcome inertia) the US must create jobs that pay better than those lost (income was insufficient even to support the economy). Will the $787,000,000,000US plan do that? Does it replace with “money-cycling-through-the-economy” all of the money that would be cycling through the economy had not those jobs been lost plus “more-money” that was clearly necessary but not being provided?

US GDP is presently contracting at about 4% per annum (or more; the Philly Fed recently predicted 5.2% contraction in the first quarter of 2009). If we assume that every single penny in the package will add to GDP (and, by definition, that does not appear to be the case) then, $787 billion USD kicking in over three years is about $262 billion USD per annum – less than 2% of US GDP. (US GDP is approx. equal to $14 trillion USD). Right now, the US needs an annualized rate of GDP-subsidy equivalent to approx. $560 billion USD (or more); that is, baring further losses, losses sustained in Q4 2008 and expected in Q1 2009 should require about $280 billion US. This bill does not provide that sum in all of 2009 much less immediately. So, less than providing enough money to overcome inertia, this package does not even seem to meet the failed status quo.

In the near term, this bill may stop the US socioeconomy from falling off a cliff – keeping people from starving, for example. But, it should not be expected to stimulate (jumpstart) the economy.

If you took my advice and bought gold at the end of October 2008 (≤$750US/oz.), you’ve made money on your investment by now. You might sell it or you might not. Can the price of gold continue to go up? That depends upon factors some of which are shrouded in mystery.

Gold is – obviously – something that an individual or organization can sell to raise cash, so, I expected that the price would come down for a while longer before it rebounded. That notwithstanding (and I do think that there should be a dip) there is good reason to suspect that the price of gold will continue to rise: (1) gold has been a very good investment at almost every time in the last 10 years; (2) gold has held its value even over the last year; (3) in inflation-adjusted terms gold is still very cheap relative to its peak in the early 1980s; and (4) it is either a very misleading advertisement or the US mint is hawking gold – suggesting that the price could go to $2000 per ounce.

More importantly, brace for the worst… The US is not magic. The US is not great because it is the US. Rather, the US has been great because US citizens made it so. Should the topmost tier fail to recognize the error of its ways and make restitution then two strong possibilities present, either (1) the US people will calmly and coolly accept dramatically diminished status and standard of living, or, (2) US citizens will not rest and, as is the wont expressed by immigrants hereunto, will re-wrest power. The US government is preparing for the latter.

Response to Global Trends 2025, Part II: Clean Is Good (Formerly "Green Is Good")

Posted in Corrections, National Security, Political Economy, Public Policy, Socioeconomy by equanimist on December 18, 2008

Global climate change hasn’t gone on holiday because the US is staring down the barrel of a financial gun. There remains no doubt that the world is warming, and, there is vanishingly little room to speculate that human activity is not to blame (at least in some part). According to the Intergovernmental Panel on Climate Change (IPCC) Climate Change 2007: Synthesis Report:

Global atmospheric concentrations of CO2, CH4 and N2O have increased markedly as a result of human activities since 1750 and… in 2005 [concentrations of CO2 and CH4] exceeded by far the natural range over the last 650,000 years. Global increases in CO2 concentrations are due primarily to fossil fuel use, with land-use change providing another significant but smaller contribution… There is very high confidence [equal to or greater than 9 in 10 chance] that the global average net effect of human activities since 1750 has been one of warming…

The report continues, relatively small changes are already baked into the system. But don’t let small numeric values fool you. We can be quite confident that these same small changes (less than 1 or 2 degrees Celsius) will put tens or hundreds of millions under “increased water stress”, while negatively impacting food production, increasing risk and damage of flooding, and adversely affecting human health (pps. 50-52). Again, the consequences of changes that cannot be avoided do not bode well for the future. The effects of continued unmitigated global climate change could be catastrophic.

If for no better reason than we are playing a far riskier game than Russian roulette, clean is good.

“But,” you say, “It [R&D] is a huge economic burden. I don’t live in Africa. What do I care if Africans die of thirst? And, I can afford healthcare. Besides, this global warming might be good for US farmers, for a while anyway.” Right you are. But, here’s why you should care anyway.

(1) Addiction to oil is bloody expensive. According to T. Boone Pickens’s Pickens Plan the US currently imports nearly 70% of the oil it uses at a cost of about $700,000,000,000US per annum and will spend about $10,000,000,000,000US (ten trillion USD) on foreign oil over the next ten years. These numbers aren’t strictly accurate since the bottom fell out from under the oil market. At $49 a barrel, it’s about $263,000,000,000 per annum. But, barring total worldwide economic collapse, $49 per bbl. may not last. [Saudi Oil Minister Ali al-Naimi recently indicated that oil has a “fair” price of about $75 per bbl., so, OPEC may move to cut production. (Am I missing something? Isn’t $49 the fair price, the market price? $75 is the price after market manipulation!) And $75 per bbl. is down from June when $100 per bbl. seemed reasonable to the Kuwaiti finance minister.] So barring disaster, with no further interruption and at relatively “flat” reserve estimates over the mid-term, oil ought be expected to fluctuate between $49 and $150 per bbl.

In perspective, US GDP is presently valued at approximately $14.4 trillion. So, at $263 billion, the US annually spends about 1.8% of GDP on foreign oil; at $100 per bbl., that figure rises to about 3.7%; and, at $150 per bbl., that’s nearly 5.6% of GDP! Even if oil settles back down into the twenty dollar range, at $25 per bbl., the US will continue to pay nearly 1% of GDP (about $130,000,000,000 per annum) on foreign oil, a foreign tax on US productivity paid not by big US corporations alone but individual US citizens.

(2) And do not be deceived, the Saudis do not and will not show the US any special treatment. Sure, their king likes to hold hands with ours but, they’re not partners. Case in point, according to Gulf News, “Saudi Arabia’s King Abdullah Bin Abdul Aziz [recently] stressed that Saudi Arabia and other Gulf states did not and will not give any amount of money to the US for that purpose [i.e., the financial crisis].” Translation, The US is dependent upon disinterested foreign oil producers for continued national security.

Why do we stand for it? Why do we continue to lay prostrate at the feet of despots like Abdullah Bin Abdul Aziz? Well, as T. Boone points out, we only import 14,700,000 bbl. of oil every day. The other 6,300,000 bbl. come from US fossil-fuel magnates who collect another nearly 0.8% of GDP at a rate of only $49/bbl. and as much as 2.4% of GDP at $150/bbl.!

It should be clear, (3) energy production must go green and whoever holds the means of producing clean energy will be future king, and, it should be self-apparent that (4) real or imagined depletion of limited resources creates real potential for inter-regional and international conflicts. Wind farming, solar cell, fuel cell, hydroelectric and hydrothermal technologies will ensure continued US hegemony and will make “free-”market capitalists big bucks. But, the US procrastinates. Procrastination provides opportunity for technological powerhouses (e.g., Japan, Germany and Korea) and motivated states (e.g., United Arab Emirates and other Europeans) to gain the upper-hand and, further, runs the risk that money and means run dry in the interim.

According to the CIA’s World Factbook US foreign debt currently ranks number one in the world at $12,250,000,000,000 while US current account balance ranks dead last at $ -731,200,000,000. In a crisis of confidence (not unlike the current financial crisis) might there come a time when these extravagant Joneses get a knock at the door from debt collectors? Will the US find a new foreign securitizer? The answer seems a stern, “No.”

Will the US kowtow to some foreign superpower in the way that Europeans now kowtow to Russia? When Abdullah grabs George’s hand is it in friendship, or is he really telling the world, “George is my bitch.” How will these debts be paid?

Still, the US controls extraordinary means of production and a vibrant, albeit decimated, scientific community. There remains the possibility that the US can rally and rise to the occasion, as it has done throughout its history. But, it’s a closing window of opportunity. With jobs rapidly disappearing, manufacturers facing bankruptcy, no plan to tackle staggering imbalances, and rapidly gaining technological rivals, the US will either create jobs, secure manufacturers’ viability and aggressively develop future technologies or be eclipsed by foreign rivals.

For these reasons, it must be “unthinkable” that US policymakers do not reinvest in infrastructure now. A clean revolution offers fundamental solutions to all of these problems. And, if it costs even a trillion dollars in investment capital this small sacrifice will pay for itself in less than ten years at one tenth the estimated cost of foreign oil over the same period.

Response to Global Trends 2025, Part I: Country at a Crossroads

Posted in *HIGHLIGHTS, National Security, Politics, Public Policy, Socioeconomy by equanimist on November 26, 2008

US technological and strategic advantages are not insuperable and, the US has lost luster (if not real ground). To retain (or regain) global standing, US “elites” must voluntarily or US stewards must demand that they take aggressive proactive roles developing innovations that will assure continued great power status or be willing to (1) leave successive generations a weaker and increasingly less relevant US, (2) experience real declines in domestic standards of living and (3) leave the US and its allies prone to a hostile multi-polar world wherein destruction might be mutually assured and success might be mutually precluded. Will the US rise to the challenges of 21st century leadership?

First on a long to-do list is an overdue green revolution. The world wants power to fuel rising standards of living. Fossil fuels will be insufficient to supply demand (esp. within a context of global climate change). Whoever develops cost-effective low-impact energy solutions to meet ever increasing energy needs will wield extraordinary power in a new middle-class world. Alternatively, it seems only reasonable to assume that emerging-power energy requirements will significantly raise the possibility of international conflict.

Second, significant overtures ought be made to bring China and Russia into the Western fold. Western powers ought not appease these rising Eastern powers and, there is no sense in antagonism. (Does Poland need missile defense, for example? Should not a meaningful US umbrella suffice?) Western civilization is not a cult of democracy but a democratic solution to the problem of good governance. Is there no room in the West for liberalization on different tracks? Is there no possibility that we might learn something new? We are not so young or so unstable that we cannot stand a little competition. Parallel development of effective governance strategies ought not be viewed with fear but with healthy skepticism. China, in particular, does seem to be following a liberalization strategy and, as such, may be seen to approach Western-style socialized democracy vis-a-vis democratized socialism.

Third, while excessive nationalism is generally insupportable and counterproductive, the US is clearly spread too thin. More care must be taken that globalization is not a race to the bottom. Global Trends warns against some vague “protectionism” that might be better described as isolationism (and xenophobia?) That the US cannot recoil from the world does not admit that the US can afford the consequences of too liberal foreign policies. A balance must be found between the national and global interest.

Fourth, the US must reinvest in infrastructure (to include human capital). Among themes that recur in Global Trends, the US despite extraordinary natural, intellectual, cultural and technological resources is losing ground. The implication is US infrastructure is failing for lack of maintenance. The Ayn Rand model of Greenspan’s “free-”market capitalism is failing. Too liberal market policies have resulted in nearly four decades of radical redistribution of wealth on the one hand and decelerating pace of US innovation on the other. For as long as US stewards continue to indulge libertarian market fantasies and refuse to make hard choices, US infrastructure will deteriorate because self-interested individuals cannot be counted upon to make consistently wise strategic decisions. Isn’t that why we adopt governance over anarchy in the first place? Complacency and profit taking (profiteering?) have left the US vulnerable and pose real danger to US standing.