Archive for the ‘economics’ Category

You Didn’t See That Trump Voter Coming.

November 15, 2016

This place has changed for good
Your economic theory said it would
It’s hard for us to understand
We can’t give up our jobs the way we should

“We Work the Black Seam” – Sting

__________

You didn’t see him. He blindsided you. You didn’t catch a glimpse of him out of the corner of your eye. You couldn’t feel his presence every time you traveled past the shadowlands of the Rust Belt, or through those rural counties you had to tolerate while you drove to some place where the sun still shines. You couldn’t hear his heavy breathing, seething at the realities that were descending upon his disintegrating existence.

You didn’t notice that Trump voter, that 50-year-old former tool-and-die maker with 25 years of experience.

That 50-something tool-and-die maker knows how to cut metal to a thousandth of an inch, knows how to set up a job blindfolded. His job was taken over by some kid who is the victim of a dysfunctional education system, willing to take half the salary; little matter his inexperience cut productivity of the position in half.

Or more likely, that tool-and-die maker saw his job shipped overseas, all in the name of free trade and globalization. The tool-and-die makers in Southeast Asia work for a fifth of what that American tool-and-die maker earned. Why should that American keep his job, unless he’s willing to accept a fifth of what he made last year?

You were hoping that tool-and-die maker would simply drop into a deep crevice somewhere, and he was supposed to accept life in that crevice, because that was the way of “free trade,” of “globalization.”

In fact, “free trade” has little to do with the trade of goods, and more to do with American corporations finding overseas sources of the lowest-cost labor. But the tool-and-die maker hears the phrase “free trade,” and his hatred of this misnomer grows, exponentially.

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The Tyranny of Debt

May 7, 2015

“(T)he United States waged a long war upon the ground, that governments are instituted to secure, and not to bestow, the freedom of property.” John Taylor, Construction Construed and Constitutions Vindicated, (1820), Sec. 1.

“To live securely happily and independently is the end and effect of liberty… All men are animated by the passion of acquiring and defending property, because property is the best support of that independency, so passionately desired by all men… as happiness is the effect of independency, and independency the effect of property; so certain property is the effect of liberty alone, and can only be secured by the laws of liberty; laws which are made by consent, and cannot be repealed without it.” Thomas Gordon, Cato’s Letters, No 68, (1721).

 

Against Exploitation

“Private property is the bulwark protecting the individual against exploitation by others,” Herman E. Daly wrote in Beyond Growth. “A property owner has an independent livelihood and need not accept whatever conditions of employment are offered.”

Indeed, Daly taps into the very essence of private property with these sentiments. If there is one single element of Marxism that presses the hardest against the individual’s freedoms, it is the question of property. While it is true that in a perfect world – wherein everyone’s sincerity of altruism would be above question – a society based on communal property may indeed be a workable framework.

But this is not a perfect world, and as sure as the sun rises in the east, there will always be those individuals who would eye the control of communal property as a means to power. In fact, we find in history that state control of property defines every major establishment of communism in the world. And while contemporary Marxists will contend the communism of the USSR and China does not represent “real” Marxism, it is fair to level these criticisms against Marxism until such time its followers show us a society in possession of a complete sincerity of altruism.

It is for this reason, and others, that the tenant of private property continues to hold in free societies, at least for the foreseeable future. But there is another insidious threat to private property, one that Daly did not recognize in his statement above (but does so elsewhere in his works), and that threat is indebtedness.

The Big Lie

Today, “free” societies everywhere are populated with a large number of home and property owners, but only a small percentage outright own this property lien free. Almost all of it has been purchased with the help of a mortgage. And within this reality rests The Big Lie, that is, we live on the illusion that we are “homeowners.” Yet, unless we hold title to our property lien free, it is very difficult to align this illusion with reality. And so, to tap Daly’s passage again, encumbered homeowners are forced to “accept whatever conditions of employment are offered.” (more…)

Profit Maximization is Self Annihilation

April 21, 2015

“Some states (i.e., nations – ed.) have lost their liberty by particular accidents: But this calamity is generally owing to the decay of virtue. A people is travelling fast to destruction, when individuals consider their interests as distinct from those of the public.” – John Dickinson, Letters of a Pennsylvania Farmer, 1768

 

Profit maximization is self annihilation or, PM = SA in economese, should one feel the need to mathematize the phenomenon, but profit maximization first emerged not of mathematical modeling, or validated by empirical evidence, but by commentary that tickled the vice of greed.

In 1970, Milton Friedman wrote an article for The New York Times, “The Social Responsibility of Business is to Increase Profits.”

And with that commentary, Friedman kicked off one of the most singularly damaging ideologies that would go on to send the global economy over a cliff.

In this writing, Friedman argued for the singular focus of business to be profits. This myopic view of business endeavors completely ignored the negative externalities that could unfold from such a concentration and, being an economist, Friedman should have understood the concept of negative externalities.

No doubt he did, but only in areas of economic theory that supported his ideology. That’s the beauty of neoclassical economic theory, the orthodox teachings of most economic departments today: With its mathematical elegance and a priori thinking, one can make neoclassical economic theories say anything one wants. For the uninitiated, such theories appear “scientific” thanks to the abstruse mathematics. And while the mathematics provides a patina of science, in fact neoclassical economic theories are diametrically opposed to sound scientific endeavor, as a conclusion is assumed before a hypothesis is empirically tested.

And that is exactly what Friedman does in this perennial favorite of C-suite management: he assumes the conclusion, otherwise known as “begging the question.”

Ignored in his argument is that a singular, obsessive focus on profits completely discounts the reality that profits are a means to an end, not an end unto itself.

The ultimate goal of business – yes, and even economics – is social welfare. Business and economic institutions reside in a society to serve the needs of that society’s individuals, its citizens.

For those in the audience who are thinking, “Uh oh, here comes the corporate social responsibility speech,” or for the lesser minds who enjoy clinging to hyperbole, a case for “socialism,” guess again.

A singular focus on profit maximization not only destroys markets, an economy or other macroeconomic entities, it also destroys that other twin-obsession to profits, “shareholder value.”

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Globalization’s Mausoleums: The Former Factories of the Rust Belt

April 8, 2015

At any street corner the feeling of absurdity can strike any man in the face. – Albert Camus

 

 

The story that follows isn’t unique to this Rust Belt city.

It has occurred, over and over, across the Rust Belt – across the U.S. – for the past 35 years.

What’s amazing is it is still unfolding.

What’s even more amazing is how complacent everyone has remained.

About the loss of jobs.

About the weak or non-existent development efforts for local economies.

About how the U.S. will sink into serfdom, not by the threats of socialism (as Hayek suggested)…

…but by the reality of our apathy, our denial, or our ignorance.

I simply wanted to commit this story to writing, as a way to preserve it, in case anyone ever asks, “What happened?”

That is, if there is anyone left who cares enough in the future to ask.

No one is asking now. [1]

Globalization’s Mausoleums

The spirits of past General Electric workers reside here.

Bldg Demolition

This is one of the buildings currently under demolition at General Electric’s Broadway campus in Fort Wayne, Indiana. To the right is an opening where another GE building, of similar size, once stood.

Last year, GE closed down a testing lab, the last operation of any kind on the campus. It employed some 28 people at the end.

At its height, General Electric employed over 10,000 employees in Fort Wayne; almost all were well-paying jobs.

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Decentralizing economies.

December 3, 2014

Over Thanksgiving break, a vandal scrawled the following graffiti across an exterior wall at Indiana University’s Kelley School of Business:

“Fuck Capitalism.”

It may be a convenience for a graffiti artist to use “capitalism” as a monolithic term – just as “socialism,” “communism” or “anarchism” are treated in the same fashion – but it is indeed small minded to maintain this monolithic treatment within serious discussions. There is – surprise – more than one type of capitalism, and the time to discuss the alternatives has arrived, now.

The attempt to erase the "Fuck Capitalism" sentiment, added to the Kelley School of Business in November 2014, was in vain.

The attempt to erase the “Fuck Capitalism” sentiment, added to the Kelley School of Business in November 2014, was in vain.

The arguments against (centralized) capitalism are numerous, and the examples of the dysfunctional nature of centralized capitalism – as it has emerged over the past couple of centuries – are readily found. But I remain supportive of (decentralized) capitalism because I believe there is something intrinsic in the nature of humanity that desires recognition for one’s efforts.

Sadly, this “recognition” has been translated by centralized capitalism to mean one’s salary, but that is a very empty translation. We can live in trendy neighborhoods, drive expensive vehicles and join the exclusive clubs but at the end of our lives, on our deathbeds, we realize we were just another anonymous gnat on the ass of the universe. The world, at large, does not know us, appreciate us, or can even comprehend what in the hell we actually accomplished while manipulating spreadsheets on our computer monitors. Centralized capitalism – with the exception of the very few – renders us anonymous, insignificant, and isolated.

Decentralized capitalism holds the potential to render us valuable, as being significant, as holding meaning… within a local community, within a local economy. I may be nothing more than the village butcher, baker or candlestick maker, but I provide an invaluable service to the local residents of my neighborhood or village. I am recognized for my work, and the value I bring to a community. Such recognition, value and sense of dignity cannot be bought with a paycheck. (more…)

The Economic Metaphors of ‘All is Lost’

March 6, 2014

Now that the hub-bub of the Oscars is over, it’s an appropriate time to examine the metaphor-laden film, All is Lost. It was nominated for an Academy Award in sound editing (but ultimately taken by Gravity), but received little attention during Oscar season. I believe the economic metaphors were recognized by the elites, and they weren’t very interested in promoting All is Lost any more than necessary.

I must provide a spoiler alert, although the film is one of those “have-to-see-it” experiences. Having read summaries before seeing All is Lost, I held some trepidation about the film, wondering if a single cast member with a dialogue-less script (there is a short voice-over at the beginning) could really pull it off.

It works. As I said, you have to see it for yourself to believe such a sparse premise can keep your attention.

However, I do not plan to undertake a scene-by-scene analysis here. The broader strokes are discussed. I’ll leave it to the viewer to fill in the gaps. And forgive me if some of the descriptions show my lack of understanding the nomenclature. Having hailed from the Midwest doesn’t lend itself to a very full education of maritime knowledge.

The economic overtures are already at a start when we learn All is Lost was written and directed by J.C. Chandor, who garnered an Academy Award nomination for best original screenplay for Margin Call, an excellent film on Wall Street’s role in the Global Financial Crisis.

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The Evil of Asymmetrical Information

December 3, 2013

I find it interesting that during the Global Financial Crisis, banks, the Federal Reserve, Congress and government-sponsored enterprises (GSEs) such as Fannie Mae and Freddie Mac implicitly blamed borrowers for the mortgage-default debacle by their actions, such as the Fed’s preference for helping lenders rather than homeowners, Freddie Mac betting against the homeowners and banks pressing the Fed to curb borrowers’ rights. Yet, when it came time to consider new regulatory action to prevent future mortgage debacles, the Fed wanted to strip homeowners of their right to fight foreclosures, and the only legislation with teeth came in the form of tougher scrutiny for borrowers, not banks.

What was, and continues to be, missing is a means to disseminate full disclosure of what, exactly, the home buyer is signing. That bright, shiny home is too much of a temptation, and all rational thinking goes out the door. Papers are pushed across the table, everyone is grinning, pens go to work signing, and keys are handed over. A new homeowner is born, and the poor son-of-a-bitch hasn’t a clue as to what he or she just signed.

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The Destruction from Local Tax Abatements

December 19, 2012

A great new post over at Bacon’s Rebellion looking at the problem of tax abatements and tax incentives for the purposes of local economic development. Randy Salzman wraps the issue of tax abatements around the required rise in property values required to cover the losses realized in tax abatements. This, in turn, directly affects the funding of school systems, roads and highways, parks and recreation facilities, etc., etc.

The Catch 22 of Growth | Bacon’s Rebellion.

Money in Politics – Innovation and Employment Suffers

December 10, 2012

After the Federal government’s debt-ceiling debacle in the summer of 2011, I posted a very brief white paper outlining some suggested reforms, aimed at reducing the massive dysfunctionality that seems to have taken root in D.C. One of those suggestions involved campaign financing:

“All organizations, profit or non-profit, should be banned from donating to campaigns; only individuals should be permitted to donate to campaigns, $1,000 maximum per individual per year.”

I was simply interested in returning good governance, and my proposal stemmed from a realistic assessment of the Supreme Court’s Citizens United decision: If we cannot take exception with corporations’ right to free speech – based on a legally thin contention of a corporation’s personhood – then we should simply ban all organizations from donating money. While this proposal will take out the good along with the bad organizations, this should allow it to withstand legal challenges, since all organizations are banned equally. This proposal will serve two purposes; 1) remove a major source of money from the U.S. political system along with its corrupting influence and 2) drastically decrease the cost of funding campaigns, thus allowing more third-party candidates to mount credible campaigns, and keep our elected officials back at their desk, doing their jobs rather than spending most of their time raising money. The latter, of course, operates under the assumption that extravagant campaigns will disappear, and so will the need for large war chests. (more…)


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