Archive for the ‘economics’ Category

Creating Wealth

August 3, 2015

Can I register my disapproval of a phrase that crops up in business stories more and more? It’s “creating wealth,” as a description of what entrepreneurs (and business people generally) do. As in this story from The Guardian: “Creating Wealth: how artists can become inventive entrepreneurs.” Or an interview with New Orleans mayor Mitch Landrieu, headlined, “Is specialized job training the key to creating wealth in New Orleans?” Or a recent story in The New York Times: “But if Mr. Modi is serious about creating wealth from India’s waste….”

There are some points in favor of the phrase: it emphasizes the creativity of capitalism, and it’s usefully generic, on the level of phrases like “building the economy.”

What I disapprove of, however, is its emphasis on wealth as the end product of business, instead of useful products and services. Granted that some people in business don’t care what they do so long as it makes them rich. But that is typically an attitude of people in non-creative service industries, like much of finance. It is what rentiers and speculators do. It makes some people rich by making other people poor.

If you want to be an entrepreneur, I doubt it serves you well to focus any large share of your attention on getting rich. You want to focus on a specific product or service that will make you rich by providing a concrete good. This is the business of entrepreneurs: creating Uber, creating the iPod, creating Amazon.

To focus on “creating wealth” is the King Midas mistake. You think you get rich by magically turning things into gold, but you discover that if the whole world is gold, you become desperately poor. Focus on useful products and services, and you may become rich; focus on becoming rich, and we may (societally) become impoverished.

So artists who want to get rich should focus on becoming better artists better serving art lovers; New Orleans should focus on streamlining business formation and providing good education and creating safer streets; Mr. Modi should focus on effective recycling policies. That’s the creativity of capitalism; wealth is a byproduct.


Are We Doomed?

June 24, 2015

My two favorite columnists, David Brooks and Ross Douthat, have now weighed in on Pope Francis’s encyclical on the environment, here and here. While both give Francis high marks for bravely tackling the subject, and both appreciate his wonderful personal qualities, neither one of them sees the encyclical very favorably.

Brooks approaches it more practically, noting that “Francis doesn’t seem to have practical strategies for a fallen world.” He’s consistently against any market-driven innovation and any technological advance. There’s no acknowledgement that market-driven economic growth (as in China and India) and technological advance (as in crops that grow more food) have led to a huge diminishing in world poverty and hunger in the developing world, and to environmental improvements in the developed world. Brooks concludes: “The innocence of the dove has to be accompanied by the wisdom of the serpent — the awareness that programs based on the purity of the heart backfire; the irony that the best social programs harvest the low but steady motivations of people as they actually are.”

I agree with that, but I thought Douthat’s comments were more penetrating. Douthat divides social commentators between “dynamists and catastrophists.” Dynamists recognize severe problems but have moderate hope that human society is capable of innovative solutions. They “see 21st-century modernity as a basically successful society.” Catastrophists are sure the world is going to hell in a handbasket, and nothing can stop it. They are “united in believing that current arrangements are foredoomed, and that only a true revolution can save us.”

These two are more rhetorical style and temperament than developed philosophy. You can find both liberals and conservatives on both sides. Living in Sonoma County, I often encounter liberals who see utter ruin just ahead: to the environment, to the economy, to education, to democracy. And being an evangelical Christian, I often encounter conservatives who also see utter ruin just ahead: to the family, to traditional values like love of country, to freedom of religion (or any other kind of freedom.)

Dynamists of the left believe in the power of governmental and technocratic solutions, while dynamists of the right believe in the power of market arrangements.

According to Douthat, Francis is a catastrophist. He sees nothing but ruin ahead for God’s creation, given our current political and economic relations.

As I say, I catastrophism is a rhetorical style, beloved of the prophets. Such doomsday verbiage captures the attention and the imagination. It may help motivate people to take global warming seriously, before it is too late. That, I feel sure, is Francis’ intent, and I suspect he is willing to pass by nuanced discussion of economics in favor of getting his message across. He is a preacher by nature and calling, it seems.

As Douthat suggests, however, there are other possible outcomes that could make Francis ultimately look as foolish as Paul Ehrlich and his population bomb. “It’s possible to believe that climate change is happening while doubting that it makes ‘the present world system … certainly unsustainable,’ as the pope suggests. Perhaps we’ll face a series of chronic but manageable problems instead; perhaps ‘radical change’ can, in fact, be persistently postponed.” Or perhaps we will settle into stagnation, unable to deal with our threats, but also unable to triumph over them.

“In that case,” writes Douthat, “the deep critique our civilization deserves will have to be advanced without the threat of imminent destruction. The arguments in ‘Laudato Si’ ‘ will still resonate, but they will have to be structured around a different peril: Not a fear that the particular evils of our age can’t last, but the fear that actually, they can.”

As I read the Bible, stagnation is not the main threat to worry about. Neither is ecological destruction, significant as it certainly is. I find the Bible offering no hint whether environmental degradation will destroy us in the end or not. I do find a clear warning that our sin—our selfishness, self-worship, arrogance, lack of concern for our neighbor, refusal to care for the poor and to steward God’s beautiful world—will lead us to be judged and found wanting by our creator. That catastrophism requires a different kind of analysis—not one based on our environmental survival, but on our standing before a God of love and power.

The Unexpected Results of Global Warming

April 3, 2015

Let’s not argue about whether 98% of climate scientists are correct in predicting global warming. Assume for the moment that they are right and that at least some of their catastrophic predictions will come true. What will be the result?

I don’t mean economically or ecologically. There will be hard facts—sea levels, temperatures, storms—that will play out, and we human beings will make our responses. We will build sea walls, move away from the coast, migrate from hot areas, change our crop rotation, and so on. We will do our best to cope with change, often in surprising and unpredictable ways. Who knows just how successful we will be?

As I imagine it, however, one change will be almost certain. There will necessarily be a change toward revering science. If and when those predictions come true, scientists will gain a lot of credit. They predicted it, and we ignored it.

These days, appreciation of science is mixed up with a great deal of skepticism and even hostility, from people on all sides of the political spectrum. Lefties tend to despise GMO foods, anything with man-made chemicals, and sometimes vaccines. Righties fight to deny evolution and global warming. All sides include people who believe instinctively that alternative medicine (diets, supplements, naturopathic medicines) is better and safer than what scientific medicine recommends.

Most of these are small-scale issues, and the consequences of getting them right or wrong is hard to measure. With global warming, though, something really huge is at stake. We are making a global gamble that science is wrong. We’re letting skepticism about science have the decisive word. It will take some time to see how that gamble works out, but my guess is that our grandchildren will ask us, “How could you sit by and make no serious attempt to arrest climate change? Didn’t you listen to what the scientists said?”

Our grandchildren will grow up believing in science much more than we do. They will be a lot less tolerant of the science skepticism that animates so many people today.

There’s always this reversal after a national failure. The failure to address the Depression led to the New Deal and the government-enmeshed economy. The failure to face Hitler early led to the lasting popularity of the military-industrial complex after WWII. And the failure to address climate change will lead, I expect, to an era where science rules.

Whether that is a good thing is another matter.

Sociopolitical sin

June 11, 2014

In a recent NYTimes column summarizing conservative policy proposals, David Brooks comments that “conservatives should not be naive about sin.” He doesn’t explain what he means, but in the context it seems fairly clear. Reform conservatives emphasize deregulation and decentralization. According to Brooks they should beware of new unregulated power networks–“Wall Street, Washington, big agriculture, big energy, big universities — … dominated by interlocking elites who create self-serving arrangements for themselves.”

Brooks isn’t talking about sin as an offense against God–the classic way for religious people to think of it. He is talking about sin as a sociological phenomenon. It’s the pernicious tendency among human beings to make arrangements that favor their own interests at the expense of others, and to do it in a (perhaps unconsciously) devious way that hides its selfishness under a cloud of pragmatic, good-of-society rhetoric. Sin as a sociopolitical reality is endlessly creative.

Where there is power and money–and where isn’t there?–sin will abound.

Conservatives have aptly criticized liberals for being naive about sin–for example, by assuming that people are poor strictly because of discrimination or lack of opportunity, and not their own folly or sloth. They are right that government programs become a safe harbor for sinners, because the programs tend to be insulated from the suspicious minds that capitalists bring to their own endeavors. (Capitalists have always suspected that their workers are lazy and dishonest–perhaps projecting their own character–and therefore set up controls and incentives to keep them working for the company. But in government, it’s not in any particular individual’s interest to stop the cheaters. And by the way, this applies just as much to doctors who work Medicare and farmers who haul in ag subsidies, as it does to people on welfare.)

Sin, however, finds destructive opportunities in all social arrangements. And woe be to the policy proponent who believes that some preferred social arrangement will magically eliminate the problem of sin.

The doctrine of sin, understood sociopolitically, will keep us from undue optimism. When someone proposes that the whole problem is X, and that the world would become rosy if we simply did Y, those with a robust understanding of sin will smile and sigh. It doesn’t matter whether X is government, or Wall Street, or gun-toting individualism, or teacher tenure, or broken families. It doesn’t matter whether Y is deregulation, or a carbon tax, or eliminating the income tax, or a higher minimum wage. Whatever the analysis and whatever the proposal, our human ability to game the system for our own benefit, and at the expense of others, is almost boundless.

Sin is not, of course, the only thing. There are also many reasons for hope. But sin must be taken into account, not only for the other guy’s ideas, but for your own.

The Wealth of Presidents

March 13, 2012

I got this from Chris Blattman’s blog. If you’re interested in Majority World poverty and development, he’s an engaging and very interesting source. Check it out.

The net worth of all 43 U.S. presidents collectively – from Washington to Obama – totals $2.7 billion.

…The net worth of individual African presidents from banditry: Abacha (Nigeria), $5 billion; al-Bashir (Sudan), $7 bn; Babangida (Nigeria), $8 bn; Mobutu (Zaire, now Congo DR), over $10 bn; Mubarak (Egypt), over $40 bn; Khaddafi (Libya), over $60 bn.

According to Nigeria’s former president, Olusegun Obasanjo, corrupt African leaders have stolen at least $140 billion from their people in the decades since independence


As If We Really Believed

February 15, 2012

Sylvia and John Ronsvalle publish meticulous, hand-crafted annual reports on the state of church giving. They study charitable giving statistics, and follow denominational reports assiduously. Their latest report is over 200 pages, full of charts and graphs. It makes for depressing reading.

Here’s the bottom line: church members give less than ever, as a percentage of income. The trend has been downward since 1968, when church members gave, on average, 3.11% of their income to charitable causes. The latest data, for 2009, shows they gave 2.38%.

If you take seriously Jesus’ words that where your treasure is, there will your heart be also, those numbers hurt.

The worst news, according to the Ronsvalles, is the decline in what they call “benevolences.” Benevolences are the part of the church budget that goes to help people outside the church—missions, whether foreign or local, whether oriented toward preaching or economic aid. “Benevolences,” measured as a percentage of income, is half what it used to be–.34% versus .66% in 1968.

The situation seems bleak for all churches, regardless of theology or tradition.

The Ronsvalles see a retreat from engagement with the world, and a lack of seriousness. As a spur to the imagination, this year’s report includes information about the 16 countries making “no progress” in reducing under-5 child deaths—a major Millennium Development Goal. Of these 16 countries, ten are majority Christian, with an average of 85% self-identified Christians. Why don’t American Christians get serious in helping those countries reduce their child mortality? The Ronsvalles’ very rough estimates suggest it could be done quite easily.

“It seems appropriate,” the Ronsvalles write, “to empower Christians living in the U.S. in the 21st century to produce fruit in keeping with their professed faith…. Current church structures have broad communication and delivery channels that could be used to lead toward mobilization of church members to help the least. To date, however, the leadership has not organized to strengthen and encourage Christians to act on their potential for helping the least at the same level they would if they really believed they were helping Jesus himself.” [p. 142]

A Liberal and Conservative Mash-up

January 24, 2012

David Brooks has a good column in today’s NYT on the way social breakdowns—in marriage and family and education—interact with global economic change. He shares the story of a young woman who, though tough and hard-working, loses out on a good education because of her family problems and an early pregnancy. She’s stuck, unable to advance because she doesn’t have the education she needs. Raising a child alone holds her back. Taxing the rich won’t help her; neither will cutting taxes on the rich and deregulating the economy. Both Democratic and Republican policy prescriptions seem to miss her situation, and to miss the American economy and its actual issues.

Brooks says we need bold action to strengthen families and support education, so that the whole population—not just an educated elite—can compete in a globalized economy. He says we also need a revamped, lean tax-and-regulatory system so that business can compete globally. “This agenda is libertarian in the capitalist sector and activist in the human capital sector.”

Two caveats. First, taxes aren’t about punishment, but about allocating resources. We’ve cut taxes for the rich so that they pay at the lowest rates in modern history. Nudging that back a bit isn’t the second coming of Robespierre. It can help provide some of those family and educational supports that people need. The money has to come from somewhere.

And second, it’s not clear that American business is in trouble because of excessive taxes and regulation. There are problems, certainly, but right now we’re digging out of a hole enabled by under-regulation. “Libertarian in the capitalist sector” sometimes produces disaster—just as often, I would say, as does “activism in the human capital sector.” Deregulation and simplification of taxes have to be done right—and there are plenty of capitalist forces, throwing lots of bribes in Washington, who want to bend the rules in their favor.

That said, I agree with the thrust of Brooks’ piece. I doubt the government is ever very good at industrial policy, advancing “green jobs” or whatever. I want the government to set the rules—including a carbon tax—and let the forces of capitalism find the preferred way.

The government is really the only way, however, to provide good social services including education for the less-than-elite. This is not just do-gooding; it helps bring economic opportunity to people who will work hard and play by the rules. This too has to be done right. But when it is, that is good for us all.

Thomas Jefferson, the Original Tea Partier

December 8, 2011

I admit it’s a stretch. Attempts to claim the Founding Fathers for some modern position are always dubious. Nevertheless, in reading American Sphinx, Joseph Ellis’ biography of Thomas Jefferson, I saw it clearly: Jefferson was the original Tea Partier.

Like today’s Tea Partiers, Jefferson loved grand words like “liberty” and “democracy,” but only gave himself and his allies credit for understanding them. Like the Tea Partiers, he saw those who differed from him (John Adams, Alexander Hamilton, and even George Washington) as scoundrels eager to sell out the American people. Most of all, like the Tea Partiers he hated federal taxes and feared the federal government’s power. Jefferson was the original “small government” man.

He despised the American Constitution. His difference on this point with the Tea Party is ironic. Jefferson had been in Paris when the Constitution was written. He regarded it as a betrayal of the American Revolution because it strengthened the federal government. Those who had remained in America knew that a “states’ rights government” didn’t work—that’s why they wrote a new constitution, to bring the states into a single union. Jefferson never understood this. I’m not sure Tea Partiers do either—they wouldn’t heap reverence on the Constitution if they grasped its fundamental goal of restricting states’ rights.

Jefferson became President in 1800, after a very nasty campaign. He found himself in an anomalous position: head of a government he didn’t believe in. Ellis writes that his driving ambition was to downsize government, and he largely succeeded. By stopping expenditures on the military and eliminating taxation on ordinary citizens, he managed to make the federal government all but invisible. He stopped investment in roads and canals and cut staff in all departments.  He strove hard to eliminate the national debt, and at first seemed likely to succeed,

Freed from taxes and regulation, the economy thrived.

Jefferson was wildly popular in his first term, not so much in his second term. When Britain and France went back to war, it turned out that “small government” had made American shipping vulnerable. Jefferson had all but disbanded the Navy, so British and French vessels could kidnap American merchant sailors and appropriate cargo at will. Jefferson countered by closing down all trade. It was a bad miscalculation. The embargo was massively disregarded, and federal agents who tried to enforce it became “big government” very quickly. (Consider the parallel to today’s border patrols and “war on drugs.”) When the economy tanked, Jefferson lost his popularity very quickly. It’s amazing how Americans will turn against a president who presides over an economic downturn.

America’s experience with Jefferson’s Tea Party suggests that real events tend to confound ideology from whichever side. Tea-party government can work, to a point—it’s certainly not the end of life as we know it. Jefferson’s first term confirmed that. But no formula for governing works well under all conditions. Small government is great, except when it isn’t so great—as it wasn’t in Jefferson’s second term.

Our current political polarization, in which both sides think they have all the answers, their opponents are villains, and the fate of the nation depends on winning the next election, sheds much more heat than light.

Annals of Government Regulation

November 21, 2011

Or, Have I heard this before?

Surely there never was such fragile china-ware as that of which the [manufacturers] of Coketown were made. Handle them never so lightly, and they fell to pieces with such ease that you might suspect them of having been flawed before. They were ruined, when they were required to send laboring children to school; they were ruined, when inspectors were appointed to look into their works; they were ruined, when such inspectors considered it doubtful whether they were quite justified in chopping people up with their machinery; they were utterly undone, when it was hinted that perhaps they need not always make quite so much smoke. … Whenever a Coketowner felt he was ill-used—that is to say, whenever he was not left entirely alone, and it was proposed to hold him accountable for the consequences of any of his acts—he was sure to come out with the awful menace, that he would “sooner pitch his property into the Atlantic.” This had terrified the Home Secretary within an inch of his life, on several occasions.

However, the Coketowners were so patriotic after all, that they never had pitched their property into the Atlantic yet, but, on the contrary, had been kind enough to take mighty good care of it. So there it was, in the haze yonder; and it increased and multiplied.

–from Hard Times, by Charles Dickens, 1854

The Fate of the Middle Class

August 16, 2011

The latest Atlantic Magazine has a very informative article on the demise of the middle class in America. (“Can the Middle Class Be Saved?” by Don Peck.) Recently I’ve read lots of statistics about how the rich are getting richer and the rest of us declining, but this analysis is a lot broader and deeper. The trends are linked not only to income but to marriage and divorce rates, to cohabitation, and (very strongly) to education levels.

(I’ve written about this before, here, and in other postings.)

The Atlantic article is long, but well worth your time. The issues are probed deeply. The prescriptions are not so convincing, unfortunately.

Here are a few quotations:

“Since 1993, more than half of the nation’s income growth has been captured by the top 1 percent of earners, and the gains have grown larger over time: from 2002 to 2007, out of every three dollars of national income growth, the top 1 percent of earners captured two. Nearly 2 million people started college in 2002—1,630 of them at Harvard—but among them only Mark Zuckerberg is worth more than $10 billion today; the rise of the super-elite is not a product of educational differences.”

“”By the 2000s, the percentage [of moderately educated couples, with a high school diploma but no college degree] in ‘very happy marriages’—identical to that of college graduates in the 1970s—was also nearing that of high-school dropouts. Between 2006 and 2008, among moderately educated women, 44 percent of all births occurred outside marriage, not far off the rate (54 percent) among high-school dropouts; among college-educated women, that proportion was just 6 percent.”

“Thirty-nine percent of children born to parents in the top fifth of earners stayed in that same bracket as adults. Likewise, 42 percent of those whose parents were in the bottom fifth remained there themselves. Only 6 percent reached the top fifth; rags-to-riches stories were extremely rare.”