Friday, August 8, 2014

I'll Definitely Need a Shower

Continuing on my non economics posts I do something I never thought Id do;  read an Ann Coulter column and find MUCH to agree with!  I try to avoid reading Ann since she rarely does real analysis. She simply peruses a situation, finds the inevitable easy target of her ire, snarkily points out  to us how this situation was only caused because the world inhabited by the subject has become too liberal and thus was completely avoidable with the right ideology.  You are encouraged to have zero empathy for the left wing poisoned rube, just contempt or at best exasperation.  "That idiot should have known!!" is the unstated opinion.  Throw in a little godless "evil" and you have the Ann Coulter recipe for a critique column.

I decided to read her because while at work last night (I can blame it on the fatigue we health care workers feel from time to time near the end of a long call) a coworker brought up Ebola and suggested to all that we read Anns take on the issue.  Knowing how this guy rolls and Anns modus operandi I initially thought "Yeah right! That will be the LAST person I read on this"  but my curiosity got the best of me.  I read the column this morning.

I can honestly say that Ann and I were very close to having similar views on a couple things.  That either makes her more intelligent than I thought ........ or myself much dumber, likely the latter. I think the focus of her criticism is valid, I just think she blames the wrong things for it.


I want to reprint her column and interject my comments where I think she goes off the rails. My comments will be in bold;


EBOLA DOC'S CONDITION DOWNGRADED TO IDIOTIC

"I wonder how the Ebola doctor feels now that his humanitarian trip has cost a Christian charity much more than any services he rendered. 

What was the point?

Whatever good Dr. Kent Brantly did in Liberia has now been overwhelmed by the more than $2 million already paid by the Christian charities Samaritan's Purse and SIM USA just to fly him and his nurse home in separate Gulfstream jets, specially equipped with medical tents, and to care for them at one of America's premier hospitals. (This trip may be the first real-world demonstration of the economics of Obamacare.) 


So you start off by trying to make the guy feel guilty for doing something his "faith" is telling him is the right thing to do.  Thing is its not just HIS faith. The overwhelming majority of people think that physicians going to third world countries in efforts to improve living conditions with very simple acts (we aren't talking about doing complicated heart or brain surgery) is one of THE most selfless and honorable things to do.  The ONLY way you can reduce it to some absurdity is by bringing in some financial cost element, which was incomplete btw because you made no attempt to put a number to what his efforts may have been worth.  Of course there is no way to value the work those people do which is why we don't have private funding of it, they can't figure their "profit margins".  So just rattle off a number with 6 zeros after it and declare it an automatic loss. And a mention of Obamacare within the first 100 words!!  Good job Brownie!  Hook em early and and get the cheap laughs Ann!



There's little danger of an Ebola plague breaking loose from the treatment of these two Americans at the Emory University Hospital. But why do we have to deal with this at all?


Why did Dr. Brantly have to go to Africa? The very first "risk factor" listed by the Mayo Clinic for Ebola -- an incurable disease with a 90 percent fatality rate -- is: "Travel to Africa."


Can't anyone serve Christ in America anymore? 

These are actually all valid points.  Thank you for at least not buying into the hysteria of an Ebola plague outbreak.  As a member of a Baptist church that does international missions (as well as local) I think we send way too many rosy cheeked and pollyannaish people off to these foreign lands with little clue how much danger we are sending them to.  As someone who has been to a couple places and been around a missional church I have a different take as to the source of this trend though.  

Within Southern Baptist faith you have the SBC (conservative) and CBF (less conservative).
 The churches have money (and our tax laws really encourage church goers to give.... not bad in and of itself) and like to spend it on big things like trips to Africa, India, Romania.....
The youth get all amped up and its a working vacation/summer trip complete with T shirts and local missions are secondary, they do not have the wow factor.  The SBC has a huge international presence and much of its work is in simply trying to find converts.  The international poor are less savvy than the American poor so they can be rounded up, have huge revivals where many get converted and the trip is a success.  Its hard to do that here, because 1) many of our needy are already part of a church and don't want to hear your conversion speech or 2) they were part of a church and now reject religion (especially from privileged white kids) for good reason

No -- because we're doing just fine. America, the most powerful, influential nation on Earth, is merely in a pitched battle for its soul. 


About 15,000 people are murdered in the U.S. every year. More than 38,000 die of drug overdoses, half of them from prescription drugs. More than 40 percent of babies are born out of wedlock. Despite the runaway success of "midnight basketball," a healthy chunk of those children go on to murder other children, rape grandmothers, bury little girls alive -- and then eat a sandwich. A power-mad president has thrown approximately 10 percent of all Americans off their health insurance -- the rest of you to come! All our elite cultural institutions laugh at virginity and celebrate promiscuity. 


So no, there's nothing for a Christian to do here. 

Wrong!  There is plenty to do.... they just don't want to do it since its not as sexy and being a true ambassador for Christ is really hard work.  You don't get the converts every day.  You don't get to chalk up a win every time you go to meet some recently homeless person where they are, instead of where you would like them to be.  See, modern conservative Christians are capitalists in mindset and its killing Christs work. They make the investments in Africa, Asia East Europe where there aren't many Christians and can offer a little something for two weeks to these people, get them to say "Yes, I take Jesus Christ as my lord and savior" and leave, feeling like they got big returns on their investment.  Here, they go to a place where the needy are and they might get slapped if they try and get them to recite something as they get their favor,  so they don't make the investment.  The only return they seek is a pledge by a desperate person.  Of course American poor aren't as desperate as those other places (which really chaps the ass of Coulterites) thanks to many of our New Deal and Great Society programs.

If Dr. Brantly had practiced at Cedars-Sinai hospital in Los Angeles and turned one single Hollywood power-broker to Christ, he would have done more good for the entire world than anything he could accomplish in a century spent in Liberia. Ebola kills only the body; the virus of spiritual bankruptcy and moral decadence spread by so many Hollywood movies infects the world.



If he had provided health care for the uninsured editors, writers, videographers and pundits in Gotham and managed to open one set of eyes, he would have done more good than marinating himself in medieval diseases of the Third World. 

Ahhhh, so its the rich that need conversion!!   On this I would heartily agree Ann but remember who is the party of the rich. Its not just Hollywood that needs saving, banks, energy company CEOs and health insurance behemoths could use a dose of Christ as well.   I wonder why you don't include any of them?
And.... Im curious Ann,  what good is converting a power broker form Hollywood to Christ? Is it so they will produce more movies like "God is Not Dead" that use the absolute worst traits of various atheists and roll them into one villain "professor" at a liberal university.
BTW, what is a medieval disease and why is it less worthy of study than some modern one like human induced MRSA or VRE?
Of course, if Brantly had evangelized in New York City or Los Angeles, The New York Times would get upset and accuse him of anti-Semitism, until he swore -- as the pope did -- that you don't have to be a Christian to go to heaven. Evangelize in Liberia, and the Times' Nicholas Kristof will be totally impressed. 


Which explains why American Christians go on "mission trips" to disease-ridden cesspools. They're tired of fighting the culture war in the U.S., tired of being called homophobes, racists, sexists and bigots. So they slink off to Third World countries, away from American culture to do good works, forgetting that the first rule of life on a riverbank is that any good that one attempts downstream is quickly overtaken by what happens upstream. 

Actually Ann your "explanation" is pretty pathetic. How can conservative Christians be tired of fighting a culture war THEY invented!? Its not the left that makes these issues a ballot initiative. If your tired of being called racist, homophobic, bigoted and sexist maybe you could clue your guys into trying to actually talk about something other than how to deport millions of immigrants, how to keep women from using contraception, that gay is a communicable disease and the "unAmericanism" of the president.  We all know the code Ann.... just saying unAmerican doesn't change what is driving you nuts..... taking orders from a black guy!

America is the most consequential nation on Earth, and in desperate need of God at the moment. If America falls, it will be a thousand years of darkness for the entire planet. 


Not only that, but it's our country. Your country is like your family. We're supposed to take care of our own first. The same Bible that commands us to "go ye into all the world and preach the Gospel" also says: "For there will never cease to be poor in the land. Therefore I command you, 'You shall open wide your hand to your brother, to the needy and to the poor, in your land.'" 

To your last sentence Ill just add ... "Only if they admit to Christ as their lord and savior"

Right there in Texas, near where Dr. Brantly left his wife and children to fly to Liberia and get Ebola, is one of the poorest counties in the nation, Zavala County -- where he wouldn't have risked making his wife a widow and his children fatherless. 


But serving the needy in some deadbeat town in Texas wouldn't have been "heroic." We wouldn't hear all the superlatives about Dr. Brantly's "unusual drive to help the less fortunate" or his membership in the "Gold Humanism Honor Society." Leaving his family behind in Texas to help the poor 6,000 miles away -- that's the ticket. 

You are right, I made a similar point earlier.  Glad we can agree.

Today's Christians are aces at sacrifice, amazing at serving others, but strangely timid for people who have been given eternal life. They need to buck up, serve their own country, and remind themselves every day of Christ's words: "If the world hates you, know that it has hated me before it hated you." 


There may be no reason for panic about the Ebola doctor, but there is reason for annoyance at Christian narcissism. 

I have to finish with a disagreement and agreement   They are not aces at sacrifice.  Most American Christians are sacrificing nothing. They are hands down THE wealthiest demographic on the planet.... and I am part of them.  We think we are sacrificing when we pay our taxes and bitch about the guy in the trailer "having some skin in the game".  His entire body is in the game. We put a toe or an elbow and claim we have given up everything

But yes we should very annoyed at Christian narcissism........ look in the mirror Ann and you'll find some.


Wednesday, July 16, 2014

Something Besides Economics?

Having been preoccupied with economics and monetary matters for the better part of four years now, I am going to post on something I actually intended to say a lot about when I first imagined my blog....... religion.   My interest in religion is mostly in how bad a job most religion does in actually helping people with their big questions in life.

Religion has become just another sports team for people to blindly support and defend. Few actually think about what any of their "sacred" texts say and how they may have been edited over the years to say what they say.  The assumptions of all religions are that their baseline facts are the right ones to start with, not the other guys'.  Religions all operate with a "model" in mind and their recommendations follow from there.  As I finish these first two paragraphs I am struck by how I could just as easily substitute the word  economics or economists for religion and not have to change any other words. Its all a belief system and Ive grown weary of economists and HOW they go about defending their belief systems. They are not seeking truth, they just want to win. Many Pastors and Priests are the same way.

In an Alternet article, http://www.alternet.org/belief/how-non-believers-can-counter-annoying-religious-dogma-life-without-god-meaningless,  the author makes a very interesting statement;

"I don't have a sacred text, or beliefs that I wish to place beyond challenge or mockery. None of my positions are beyond argument. I will change them, if persuaded. My dislike of dogma and my respect (as opposed to "respect") for rational debate doesn't make me weak. Indeed, I hold that the very contingency of my positions are at the core of their ethical force. If you can't point to a line in a book, or the dictates of a religious hierarchy to justify your opinions, then you have to own them yourself. You are fully responsible, and that is, in its own way, as radical and disruptive as submitting to the will of the divine."

The part about owning your own statements and not hiding them behind some line in a text word of some dead "authority" is an important one I think. I hear too many "Christians" say and do reprehensible things and then try and dismiss themselves from responsibility by saying "Its not me saying this, its Revelations 2:16 5-9"  As if to add, "... just take it up with that dead author if you don't like it."

I cannot call myself atheist, I am more of a comfortable agnostic.  I have no wish to be certain one way or the other. I know there will be no proof either way in my lifetime.... or ever.  "Proof" comes from humans....... fallible humans, so we will never prove or disprove a God.  I like having these questions to ask, I just despise the way most people want to actually discuss their answers.  I will be happy moving in many directions on this issue as my life unfolds.   When I see most of the staged debates between atheists and Christians however, I do find myself siding with the atheists most of the time.  I just think too many Christians, humans for that matter, are really uncomfortable with uncertainty and end making all kinds of ridiculous systems to convince themselves there is something that they can be certain about that isn't death or taxes.

I know and have met some of the best people around at my church or surrounding church activities. There are many religiously motivated authors or speakers I get great joy in reading or hearing.  Religion has motivated many people to do outstanding things but as an institution I think religion is a negative force.  It is not uniting people it is reinforcing divisions.  

Wow, I guess I did end up talking about economics after all.








Tuesday, December 10, 2013

Sycophants and Henchmen

Classifying economists is becoming quite a challenge these days. Austrians, classicals, neo classicals, keynesians, new keynesians, monetarists, post keynesians, market monetarists and now new monetarists.  I have two classifications. Sycophant or Henchmen

When I read an oped by an economist these days they usually are trying to make the non economist believe one of two things.
One;  they want you to believe that the people who are on top of the world calling the shots and determining much of your economic fate, are hardworking smart guys who know what is best and have studied these things like finance and the economics and if you just don't tax them too much or make them follow too many rules, they'll make the world you inhabit with them a more livable place and you'll be happier. These are the sycophants

Two; they want you to believe that "There is no alternative"  this is how its going to be while they are in charge so get used to it. These are the henchmen.

Either  belief you come away with is fine with the guys running the economy.

Wednesday, November 27, 2013

Taking on Krugman

This is one of the most conceited things I can do probably, but I'm doing it anyway. Im going to challenge Mr Krugman (and Joseph Stiglitz) on an economics matter. Ive never taken an econ class and he's a Nobel winner but I still believe he can be wrong...... dead wrong,  on some matters.  He would probably admit as much but not here, on the matter Im going to discuss, likely.

Krugman and Stiglitz (another Nobel winner) were having another public dispute about our current economic "crisis".  I use air quotes because no one in Washington is treating this like an actual crisis. They call it such when they are appealing to voters in front of cameras but I see no interest in treating this crisis. Anyhoo, their disagreement is around the idea that inequality in income distribution is responsible for the lackluster recovery. Stiglitz believes it is, Krugman is having none of it.  Its not so much that he disagrees that gets me its the reason he gives, and I see no evidence that Stiglitz even begins  to have a way to challenge his objection. Pauls response to Stiglitzs' claim is that he sees no evidence that the upper class are under consuming at present.   Well, of course they aren't.  Thats not a claim that should be being made by those who believe that distribution matters in these income things. If thats what Mr Stiglitz is implying then thats just  silly.  The maldistribution of income isn't a cause of whats wrong today...........its a RESULT!!  Everything we have done the last 30-40 years is whats wrong and this wide disparity is the evidence at the end of it all (and I do think its the end, not to be too apocalyptic).  And by doing what we have always done we will stay right here.  There is no mechanism within the "market" to reverse or change this.

Where we go wrong is in thinking of our system like a poker game or anything else where we willingly participate and pay and make bets (choices) and we see how we fare at the end of the night. However we end up is supposedly  determined by how well we estimated potential disasters and avoided them, how well we foresaw great opportunity and took a risk on it.  Thats a nice sounding story but its laughably untrue. Using that analogy we look at one guy with almost all the chips, and the game slowing down because the other nine guys can't even pay an ante and start offering "solutions" like;  "Hey lets make the ante only half a chip".... Okay but this will only extend the pain for the losers. They can always be outbid and pushed out of games because they can't call anymore. Another one is "Those other guys can just borrow form the leader",  riiiiiight, that will last only so long as well, as the chips required just to pay back the interest will drive others out of the game.  You really can't borrow your way out of this when you have no increased income prospects. "Someone can just give everyone more chips" is another solution heard. This is the best of the three but the most politically difficult to pull off in an environment where everyone misunderstands their chips and how they get value.  Too many people think this would devalue their current stock of chips too much, especially the guy with almost all of them but if they realize that playing the game IS the point not tallying up your chips, they might get past this.

None of those solutions though will really make up for the fact that we just need to play a different game

Thursday, October 31, 2013

How Do You Spend if There is No Money?

Its a nonsensical question on the surface isnt it? Trained economists won't think so though as they are used to looking at things with money out of the picture............. or so they say.  As a guy who has really jumped with both feet into the econ/finance pond the last five or six years, I feel I am reasonably well versed in what economists are talking about when they speak or write, yet I must say I dont think Ive really ever heard the title question addressed.  Is spending unique to a monetary economy?  Is spending just trading but using a paper/electronic proxy as one of the traded items? I think spending IS unique to a monetary economy and its NOT simply a trade of a different sort than we are used to thinking about.  In fact, Ill go as far as to say that I dont think we would see the world the way it is now if there wasnt money. I am not just referring to the way money has made our transactions easier and greases the wheels of our economic lives but that in fact its moneys design that has created the 1% and the 99%. Additionally its the spending of one side which is the accumulation for the other side. The sides arent 50/50 though.  There is a small segment receiving the spending ultimately.

This is not meant to be some conspiracy theory about Bilderbergs and Jewish bankers running the world but simply a statement about how it must be when we create and use money the way we have for most of our human existence. There must be, according to the rules of our money creation a natural tendency for all the money to end up in few hands. It will happen this way unless some outside force stops it and legislates a different outcome. In a monetary economy we will always tend towards monopoly I believe because once you are the creditor/accumulator that relationship holds in virtually every transaction you take on. All modern (and even through history it is argued, persuasively I think) money systems are credit based AND privately controlled (and in modern times more govt regulated) via banks.  Money gets created out of credit relationships. One side accumulates and another side spends. One half of the relationship creates a debt for the other half.  The debt is repayed WITH INTEREST which means the repay-or ends up giving more money back to the creditor than he borrowed.  Now, what he borrowed may in fact allow him to create much more than he previously could so paying the interest just comes out of his surplus, but if it doesnt allow that, the interest eats away at his net worth. Lets try thinking about lending/borrowing for interest without money.  In other words lets try it in the world that neoclassical economists say we inhabit, one where money is "just" a neutral veil over what is really happening.  Whats being borrowed and what is interest? Are you lending me your talents? Your knowledge? Your backhoe?  It might be any of those three. And what do I repay with? My gratitude? My fealty? My daughter?  A simple "Ill give you four ears of corn today and you give me five later when your field gets productive again"does not describe the mechanics of borrowing in our modern monetary economy.  The borrowers of today are using bank credit, not someone elses extra stuff. Even the concept of giving back more ears of corn than you borrowed at a later date would have obvious limitations. Using  physical goods and services as the means of payment makes it obvious to both sides that there would be limits to what you could expect to be repaid but with money ........... just add some zeros!

The concept of saving is quite easy to understand without money.  You decide to hold onto something you have and use it at a later date.  Maybe its something to eat that you've learned how to preserve maybe its a tool that you have made a little sturdier so it will last multiple growing seasons.  The concept of investment is even conceptualize-able.  I give some of my efforts to your project. I do it both to help you AND to help me. I know that if you are my neighbor, I have a better neighborhood when you are better off. There are tangible reasons to invest my time and efforts. By investing some of the food Ive saved to keep your family alive through the winter means you'll be around and strong in the spring when I might need you too,  plus you wont build up resentment and try and burn my place down or kill my cattle. Consumption is easy. Its the eating of my saved grains, the wearing out of my tools, the sitting in my chair. The consumption of something previously saved or created is basic and in fact the reason most things were created was for consumption either now or later.  These concepts were around even before we invented money and are basic to economics. But understanding spending, I believe,  is more difficult in a non monetary economy. Spending is an act of giving up something. Its draining. We even use the word "spent" to describe when we are worn out and have nothing left. In a non monetary world there is investment, saving, consumption and trading.  There is no spending.

Thinking of spending as  trades is incomplete in my view.  When I trade I am not objectively better off. I might be subjectively better off but I had to give up something of equal value for the trade to take place. Maybe I didnt want it any more but it still had value to someone.  Yes, I got what I wanted and so did my partner, supposedly, but we havent elevated one of us above the other.  So how, in a world where someone has to give up something of equal value to get something else,  could we get to a situation like today where so many have so little?  In todays economy, many spend down while few accumulate up.  These arent trades or swaps, they are loaded transactions that one must do and the other is doing..... for a price. The price is often not the price to own but just the price to continue using. Its the price of staying in the game.

Spending as consumption doesnt work either because in a non monetary economy, when I consume no one else gets anything. I'm simply consuming my own stuff that I saved.  In a monetary economy when I spend my "numbers" go down and someone elses go up.  They get better off according to our scorekeeping system. Now, we all know that the scorekeeping system does not tell the whole story, but it tells a very important part of the story. Its why we developed it. To tell a different story. To see who has the most. To see who wins.

In a monetary economy I think of spending as something that happens when someone decides not to save money anymore.  Thats all it is. Its anti-saving of money.  Any decision not to save IS spending so if you look where all the lack of savings are thats where you find where the spending is. Conversely wherever you find savings growing there is no spending.  If you look at the charts a great number of people are doing spending while a very few are just collecting their spending, doing no net spending of their own.  Within this framework of course spending includes investment because investment is an act of not saving as well. We just call it investment when it is used for something other than paying off an old loan, consuming something for yourself today or buying a piece of art or jewelry.  Come to think of it, many people, maybe even some economists, do call buying a piece of jewelry or art investment. Or even an old share of stock or an old bond.  This is actually just reforming your savings.  A perfectly fine thing to do in a free society, but encouraging that activity is not what we need today. We need investment spending and I think it needs to come from different places than the spending is now coming from. Its been coming from these places the last 30+ years and we've ended up here. No one really likes it here, so I hear, so to go somewhere else maybe we need some new spenders.

Thursday, January 31, 2013

Daddy, where does a middle class come from?

Income distribution is starting to crop up everywhere now (shout out to OWS folks.....thanks!!!).  All the big boys are talking about it.... Krugman, DeLong, Stiglitz, Shipman.  It is an important topic. One of the ways you can tell its an important topic is that TPTB  dont want to talk about it.  They want to simply dismiss it as whining by the losers in our current system.

What the talk is really about, it seems to me,  is how do we get back a true middle class? I'm sure there are different ways to define middle class and certainly many of us who are truly upper class by income division would self identify as middle class. They (we) see middle class as a value system as much as an income division. So first off I shall define what I am calling middle class.

Middle class folks are those who need to work for their primary source of income ( and WISH to..... this is the "values" part) but their work does not NEED  to be over 60 hours a week to make ends meet and have some left over for retirement.  If you are living off interest payments, daddys work, 20 hours of work a week or your 60 hours pays you enough that you can pay cash for your house in one year with your savings..... you are NOT middle class.  This is not an exhaustive list I gave.  There are additional ways to not qualify for middle class. Ultimately middle class is the group of people who are not one financial setback away from poverty.  They have a significant cushion that doesnt involve counting on family to completely change what they were doing to get you back on your feet.

To step back a little though, the idea of classes is not even universally accepted. On the assumption that classes are a useful way of understanding our society and its economic stratification, it must be said that the whole notion of classes points out that a relative station in life is something we think about.  Im working from the idea that absolute wealth is less important than relative wealth.  This is why taxation is not really of importance to wealth because as long as everyone who makes what you do is taxed as you are no one will climb up or fall down a position because of tax levels.  If Im the richest guy after taxes, it makes no difference whether thats a 1000$ a year or a million a year. As the richest guy I will have access to most in a market based monetary economy.  This should start to demonstrate, in addition,  why distribution matters. If I have 1000$ and no one else has more than 100$ I have way more access than anyone else to dollar priced goods. So station in life matters, in fact I would argue, it's ALL that matters.

It seems that in America we dont like comparing ourselves to other Americans financially.  Its sort of a taboo here.  Dont talk about what you make or anyone else.  And when you do, dont sound like you begrudge any one else their due share. We like to think we are all the same here.That we dont suffer from class envy here like other places.  Its the class envy that leads to socialism/communism.  Thats why I think these distribution arguments tend to be dismissed.  In America, it seems its just the size of the American Pie that matters, not who gets to eat how much.

 What has become obvious to me is the idea that middle classes dont just occur in market based monetary economies.   They must be created by some force bigger than the biggest market participants. Left to their own, monetary economies would eventually all come to resemble the banana republics, where great wealth is held by a few and everyone is basically a servant. It is not inherent in the nature of capitalist economies for a large middle class to exist without govt intervention. You cant find a country with a strong middle class and not find one where the govt has interceded to "make" that middle class possible.  Minimum wage laws, labor unions, paid time off, sick leave..... all these things are middle class creating ideas. And none of these have happened anywhere in the history of our planet without a govt, acting on behalf of people who do not own the means of production, insisting on  and enforcing said ideas. Without them bosses would take more and more away in wages and benefits to support their bottom profit line.   The natural trend is for a few large players to end up  with huge numbers of little players toiling away for them.  This arises because power usually works this way, and money is power in a capitalist economy.  Power never willingly gives up anything, it is only forced to.  Once a capitalist gains market share, the power it creates tends to multiply not recede.

Unless you think a middle class is not something to be concerned about, then income distribution should be a focus of policy.  Im not as concerned about the over saving of the 1% as distribution skews upwards, Im concerned about the increased costs to everyone else as their income share shrinks and their need for credit increases.  Credit is expensive.  More expensive than cash.  The extreme in distribution is making life way more expensive for far too many people.  It has to change.  Only we, through our collective will of govt can do that.  The market sees no point in it.

Monday, January 21, 2013

Why Income Inequality Matters; The Toxicity of Debt

Paul Krugman and Joseph Stiglitz are having a bit of a disagreement.  Joseph is citing income inequalities as holding back our recovery. Paul disagrees. He wants to agree and thinks he makes some good points but cant jump on board totally.  Paul cites some graphs of savings rates in his NYT column  and suggests that there is little evidence that the rich are underconsuming.

I dont think the underconsumption is from the rich. Its from the non rich who are losing incomes TO the rich.  I think Paul is making the wrong assumption about where the underconsumption is coming from. He seems to think that distribution doesnt matter much. As long as total income to the economy is the same demand will be the same. I think he's mistaken. I think he's mistaken because he dismisses the toxicity of debt

Let me offer an analogy to our economy using something I understand well, our cardiovascular system.

Lets think of the flow of money like the flow of blood through our body. Acid, a normal byproduct of cellular function is like debt. Healthy cells are getting the blood they need and are able to get their waste products, acid, removed.  But a cell that is either demanding too much or is in an area that is under perfused, runs the risk of accumulating acids to the point of toxicity and cellular death.

We have about 6 liters of blood in our body and it gets pumped around at  anywhere between 3 liters minute to 15 liters a minute.  There is a natural hierarchy of perfusion within the body.  The brain, and kidneys alone receive over half of our cardiac output in normal conditions. So while at any given time over half the blood in our bodies is going through brain and kidneys, the rest of the bodies needs must be maintained or their debt (acid) will build up and not just kill that tissue but the whole body.  In times when the heart is either incapable to meet the needs (failure) or the needs of the tissue are just too great (infection or vigorous exercise) acids build up.  As long as inflows are met, acid wont reach toxic levels but if not sickness or death is imminent.

Incomes are what keeps consumers healthy. Debts are a normal part of our modern capitalist system as well and as long as the flow of incomes meets debt service their is no problem.  But we want growth, and our banks encourage growth by taking on more debt. They want more people taking on more debt. These debts must be cleared or they will reach toxic levels and freeze the system.  They freeze it in two ways 1) They stop getting paid or 2) They are the ONLY thing getting paid.  As I said earlier, incomes are what keep consumers healthy and even if total incomes stay close to the same, if that total is only being distributed between 30% less of the consumer force, their debts become toxic and affect the whole system. Banks fail and businesses lose customers.

When 30%, I imagine its even more than this now, of your potential consumer base is only getting enough income to barely service old debts, these debts hurt everyone. They become a systemic problem not just a personal problem. The rest of the people cannot nor will not increase their debt levels enough to offset this reduction.

Distribution of flows matter.  There are healthy distributions and un healthy distributions