"Between a Rock and a Hard Place"

We often find ourselves in situations in which we have to make difficult choices where not only the outcome is uncertain but our principles may need to be compromised. Looking at these options from the outside, especially one dimensionally, the correct choice may seem obvious especially in the context of a different familial, cultural and religious perspective and even there the situation becomes more gray as one looks deeper.

I saw a movie a few years ago where the hero, played by Ben Kingsley, took a sick son to a hospital and because of the lack insurance, the administrator did not admit him and a doctor and nurse would not look at him but told them to go to a different hospital where uninsured people would be tended to. On the way to the hospital the son died. Ben’s character went home, got a gun, returned to the hospital and shot the secretary, nurse and doctor. He surrendered to the police and was assigned a lawyer who wants him to plead insanity. He refused. During a consultation the lawyer said, “it is hard to do the right thing”. To this Ben’s character replied, “it is hard to see what the right thing is but once we see it, its hard not to do it.”

With people falling on hard times during this recession there has been criticism of the long term unemployed in that they would rather collect unemployment than get a lesser paying job. On the surface this looks like a reasonable criticism but let me paint a scenario where it may not be so obvious. Let’s say a man with a wife and two small kids loses a job. He collects $500 per week in unemployment benefits and is out looking for work and finds a jobs at $400 per week. He has a difficult choice to make and the degree of difficulty will depend on a whole range of cultural issues. From a shallow perspective of someone who comes from a culture where honor is a strong attribute, the choice is obvious. Get a job.

One can look at this differently. Doing the honorable thing and retaining ones dignity is a selfish act. It satisfies the individual’s ego and personal needs at the expense of the well-being of the family. The family is better off with $500 per week than with $400. The man is between a rock and a hard place. He has a social obligation to provide the best care he can for his children and on the other hand he wants to retain his dignity and there is no way he can do both. (Of course there are arguments that will say he can get several jobs but if there are no jobs where will he get them) or he can steal. Nevertheless the choices are difficult. Ironically, maybe the move in Congress to not further extend unemployment payments would eliminate the choice and possible make it easier on the man but certainly not on the children.

Above I alluded to the cultural influence on the perception of honor.
A good extreme example of this is the legendary war between the Hatfields and McCoys in the Ozarks nearly one hundred years ago. The feud started over ownership of a hog with a member of one family killing a member of the other. Honor dictated that the killing be avenged. The feud continued for more than a decade anding with the deaths of 10 people. All in the name of honor.
This feud prompted a study about honor and the cultures influencing it. Both the Hatfields and McCoys were of Scots-Irish ancestry where honor has a very high priority so within that culture their behavior was not totally irrational. The study further indicated that in the rural South honor has a stronger position than in the urban North. To prove this point they tested young men by exposing them to personal insults and measuring the points at which they were ready to fight. In the news these days one also hears about “honor” killings of women in backward predominantly Islamic counties. The women by some action reviled by tradition have tainted the family name, dishonoring the family and to regain their dignity the family kills the woman. This is generally attributed to Islam but as the acts of the Hatfields and McCoys were not driven by religion but by culture so is the case of those “honor” killings.

Another example of a difficult decision was used in a lecture on Islam presented by Professor John Swanson of the American University of Cairo. The context was a discussion on the cutting off of the hand of a person convicted of theft. The professor pointed out that severing a hand was an infrequent occurrence and gave an example of how a case might evolve.
A farmer’s well runs dry and he cannot irrigate his field and his family is starting to starve. He asks a neighbor for permission to use some of his water but the neighbor refuses. The man is between a rock and a hard place. The Qur-an prohibits theft but also requires that a man care for his family. The farmer can’t meet both requirements and has to make a hard choice. He needs to brake one or the other law. So he steals water in the night, is caught and brought in front of a Sharia court. If the jurist is wise and experienced he would understand the dilemma and set the man free, fine the neighbor because he has an obligation to help his needy neighbor which he did not and furthermore the court would chastise the local government because it also to care for its needy.

In business, a person highly valued is the “no nonsense” person capable of making “hard” decisions. These hard decisions seldom affect them but can be catastrophic for those subordinate to them. They are decisions to terminate employment, freeze salaries, reduce benefits, change vendors etc. These decisions seldom, if ever, affect the well-being of the individual manager or their families but always someone else. The ability to make “hard” decisions is almost a prerequisite for a job in top management. In fact the decisions may or may not be hard at all depending on the background and character of the individual making them. If they see their staff not as fellow humans but just as resources to advance their agendas, the decision is not hard at all and there is no sleep lost. If, on the other hand, the humanity of the subordinates and the pain they will suffer is recognized, these decisions are indeed very hard. My guess is that those who have climbed the ladder to the highest positions in very large organization, because they have not crumbled from the weight of these decisions, must view people just as another resource.


I realize that the above may be oversimplifications but the point is that we often are faced with choices that are difficult. How difficult a given choice may be depends a lot on our individual backgrounds and environment. Often even we ourselves do not fully understand the underlying conflicts driven by believes, circumstances and cultures. These are the choices that cause sleepless nights and give us indigestion if not more serious health problems. The greater difficulty is seeing what the “right” thing to do is and the stress comes from facing two paths neither of which is a “right” one.

“Poor Can’t Create Jobs”

I just finished watching “Spitzer & Parker”, a daily political talk show on CNN. (The Spitzer part is Elliot Spitzer the infamous former Governor of NY). A guest on the show was Mary Matalin a Republican spokesperson and strategist. They were discussing the pending extension of the so-called Bush tax cut and Mary hit one of my open nerve endings. One of the things I find most annoying is the notion that the wealthy are the “job creators” and as such should be appreciated and coddled. Mary added salt to my open wound by saying, and I quote, “nobody ever got a job from a poor person”. I counted to ten and rushed to the computer before I cooled off too much. (I spent the weekend in a hospital with a touch of pneumonia and either because of the infection or the antibiotics I get a bit irritable and emotional. I will blame my outburst on this.)

Today I was at Walmart and saw many shoppers very few of whom looking like anything but “poor people”. I wonder how many jobs there would be if all of them went away. If jobs would go away if they are not there, does that mean that they created the jobs? By shopping there they are creating jobs and if more have money to spend there they create more jobs. The “job creators” could pump as much money into Walmart as they want, but without the people in the store shopping there would be no people working. I imagine among the crowd of shoppers were even some individuals collecting unemployment or even on welfare. Does that mean that people on welfare can create jobs? Hmmm. I drove by McDonald’s and didn’t see many BMWs and Mercedes, or even one Cadillac, for that matter, parked in the lot. I wonder if “poor people” are also creating jobs there?

The whole debate about the tax increase on income over $250,000 which would occur if the “Bush” cuts are not extended, from the conservative side, is argued that increasing taxes on incomes over $250,000 will slow the recovery. In my opinion, they really don’t believe that. The right truly feels that the success of the country is attributable to the people in power and they should be rewarded, as they were by Republicans, with a tax cut during the Bush administration and not “penalized” as they would be if the tax cut is allowed to expire.

I wanted to test my logic so I did a little quick arithmetic:
Let’s say an individual or enterprise has earnings of say $500,000, for example. And this represents 5% gain or profit. (That is not unreasonable given the current circumstances.) For this they needed to have an enterprise revenues or investments of $10,000,000. The 3% increase would not apply to the first $250,000 and at 3% on the remaining $250,000 would result in an increase of $7,500. Mind you, that’s $7,500 on $10,000,000. If they have no deductions, the taxes at 39%, on $500,000 will be $195,000 and that $7,500 would be in the noise and certainly in the noise when compared to the $10,000,000.
I cannot believe that it is an amount that would alter anyone’s investment decision. Even if it did, with their Republican champions screaming about how bad the increase would be for the economy and the Country, would they, if not as good patriots but as good businessmen stick with the original investment and not let the tiny amount drive the Country further into debt, prolong the recession, and if their champions are right, injure them financially?

Cycles in Nature, Politics and Religion

We generally don’t think of our lives in terms of cycles except those related to tides and seasons. With the exception of the celestial cycles, we live in the present, rue the past and hope for the future. The world, however, behaves cyclically in many ways. We mortal creatures are born, mature, age and die. The length of the cycles varies greatly. The human cycle in this day and age in the industrialized world is about 80 years long but a millennium ago it was half that. An insect’s cycle, on the other hand is less than one year. The Roman Empire rose and fell. Governments go through cycles, some long, some short with some ending gradually while others come to abrupt ends. The British Empire had a life cycle of several centuries and is still in the process of a very gradual decline. The Mongol Empire started by Genghis Khan, conquered much of the civilized world and lasted a few generations until the black plague sent them back to retire quietly in Mongolia. The Aztec Empire came to an abrupt end at the hand of a small number of superiorly armed Spaniards. The Inca Society disappeared into the jungles for reasons yet unknown. The Soviet Union rose and fell in mere decades. Its demise, though abrupt, was not violent. Our countries position in the world will also fade some day. Will our decline be orderly as was the Brits and take centuries or will it end abruptly in a violent war. Will we hold our position another ten, one hundred or one thousand years? The answers will, to a great extent, be determined by the skill of our leaders and our wisdom in selecting them.
I read or heard somewhere years ago that, unlike the specific cases cited above there are general cycles in governance. These are continuous. A monarchy evolves into a democracy which leads eventually to anarchy. To restore order requires a tyrannical regime and as order is restored, the powers in place continue ruling and become a monarchy. The cycle repeats. The Soviet Union is an example of a very quick cycle lasting only one lifetime. The monarchy was overthrown followed by a very brief attempt at democracy. Russia fell into anarchy bringing in Lenin followed by one of the most tyrannical leaders in history, Stalin. Order was restored and, though not a traditional monarchy with kings and crowns but one with a strong ruling class was established. Their control lasted till the fall of the Berlin Wall. It is not clear to me where Russia is in its cycle now. In a few decades since the collapse of the Soviet Union it may have gone through the democracy, anarchy stage, has passed the tyranny stage and is sliding into a monarchy under Putin.
The big question since man has had the ability to reason is how did we come to be and how will we end? The followers of the God of Abraham (Jews, Christians and Muslims) have a narrative that has man starting with Adam and Eve and ending at some point. Many, if not most, in the industrialized world believe man has evolved over many millions of years much as was described by Darwin. Much of Fundamentalist Christendom, on the other hand, believe that man literally started in Eden a few thousand years ago and unlike their kin, envision a full cycle from beginning to end. They believe that the end is near and if the Anti-Christ is not already here, he will be soon leading us into an Armageddon and in the Rapture.
The Hindus believe that there is a very long cycle within which are numerous minor cycles. Intellectually it makes sense to me. (If I am not mistaken, we are currently just beginning the downward slide). After all we have the rises and falls of empires, the comings and goings of ice ages and the beginnings and ends of species and beliefs. The large cycle could be the appearances and disappearances of “intelligent” beings.
All of the above was really only my excuse to segue into one of my favorite stories. A Sage in India (I believe it was The Buddha) was once asked how long this major cycle called a Culpa, really is. His response went something like this: Imagine a dove carrying a silk scarf in its beak drags it over the peak of the Himalayas once every hundred years. A Culpa is the amount of time it will take the dove to wear away the mountain. The thing I like about this measure of time is that it is finite, giving a real sense of a very, very long time. Unlike terms like eons, endless or infinite everyone hearing the story comes away with a similar sense of this time. In fact an engineer with nothing better to do with his life, could calculate a reasonable estimate. They would figure out the mass and consequently the number of molecules currently in the Himalayas. They will need to determine the average length of the dove’s trip as the mountain erodes, calculate the number of molecules the scarf moves as it glides over the surface and finally project the number of years.
So we have hundreds of narratives with many theories about the cycle governing our existence on Earth from the several thousand to the answer the calculation above would yield. Unfortunately many of us are absolutely convinced that our belief in the cycle of man is the right one but the probability is very high that none of us may even be close.

Slavery - Free Markets Unfettered

There is strong disagreement as to whether the Free Market needs any guidance, how much and if so, from whom. The right tends to think that there should be little guidance and it should come from the business world with the Libertarians believing it should have none because left to its own devices the market will resolve all problems. The liberals, on the other hand are sensitive to the collateral damage resulting from unencumbered market activities and feel that government needs to guide the market to minimize the damage done to the people selling labor. People bringing their labor to the market are generally the ones suffering most from the dynamics of the markets. Both sides profess to be in favor of a free market and indeed, to a degree they both are.

The free market works. It basically is a system wherein goods, services and labor are exchanged on a global scale. In theory it works on the principle that in commerce, pursuit of individual self-interest collectively results in benefits to the overall society. We tend to speak of free markets, democracy, socialism, monarchy, etc. as if they were like systems. It’s like mixing apples and oranges or better yet apples and pomegranate juice. Free market capitalism is an economic system whereas a democracy is a system of governing. One can have a totalitarian system of government that works on free market economic principles. The market, in and of itself, has nothing inherent in it driving for the betterment of society. The fact that it does is strictly coincidental. Adam Smith in the Wealth of Nations, refers to the force that serves the general good as the “invisible hand”. T
Unlike business whose quest is individual benefit, the role of a government, whether it does it well or for that matter at all, is to ensure that its population prospers. In commerce, one of its key role is keeping the market free and ensuring that the self-interest of individuals translate into benefit for society.

I firmly believe that for the free markets to work for the well and benefit, not only the individual but an entire population, it must have some level of regulation from somewhere and that somewhere is the government. Furthermore, I believe that the market unfettered will not only fail the betterment of society but will collapse. The challenge is to provide it just enough guidance. Too much and it will not function and too little it will choke. I would like to use slavery as an example of damage done to society when a free market is unrestricted and show how long it takes to recover. To this day, the damage done to a society by slavery, driven by market forces, has not as yet been completely mended.

During the 17th century North America was settled by Europeans funded with money from European corporations looking to extract raw materials from the “New World” and create markets for commodities manufactured in their countries. (The Plymouth Plantation was such an enterprise.) There was plenty of land to be taken at low to no cost from the Natives. The land in the North, though good, was not suited for large agro-businesses and could be farmed by family members with occasional assistance from outside labor. The land in the South, on the other hand, was plentiful and fertile and the weather ideal for large plantations. The problem was that to fully realize these advantages it took much more labor than was available in a family. The people who acquired the land through their European Governments couldn’t hire enough laborers nor could they get enough indentured servants working off their debt from Europe, to realize the full potential of their enterprises. The promise of slave labor became very appealing.

Slaves were not brought here to save on labor costs. In fact the wages paid to “free” labor at that time were not much above what it cost a family to eat and have a roof over their heads and even though slaves were not paid, they had to be bought, fed and housed. The problem was availability of labor in the South, not the cost. Slavery solved this. Driven by self-interest, the plantation owners come up with a working solution to maximize their profits. In that sense the market worked. Even the unintended benefit to the society as a whole was realized if you don’t count the population of African origin brought into this country as slave though they represented a large percentage of the total population in the young country. The slave traders were also free marketers. They recognized a demand in the market (slaves), raised capitol to fund the transatlantic journey, kidnapped a bunch of people from Africa and made a whole lot of money doing it. The governments of Europe interfered with slave trade in their respective countries, finding the enslavement of human beings immoral and outlawed slavery. Europe had plenty of labor so slavery was of no great financial benefit to them anyway. On this continent, however, the commerce created through the labor of slaves was a huge part of the economy and a strong contributor to its success. Thus it was allowed in the New World. After gaining independence, our government could have and should have interceded on the basis of the Constitution. After all the founders wrote in the Declaration of Independence “We hold these truths to be self evident, that all men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are Life, liberty and the pursuit of Happiness.” The stakes were very high and the “powers that be” having strong influence in politics as they always do, did not allow this principle to come into play when it came to slavery. Adam Smith’s “invisible hand”, though it worked for the majority, fell asleep for society as a whole. It needed some guidance.

So people kidnapped in Africa were brought to the Colonies, bought and sold and forced to labor for their masters. Not only did the government not de-legitimize slavery, laws were passed to ensure their continued servitude. Their culture was destroyed and the family structure devastated. The meaning of head of a household became diluted and the slave owners or their minions made the decision regarding the well being, to the extent there was any, of families. Lost were any relationships with how hard one toiled and how well one lived. Yes, there were varying degrees of “magnanimity” among slave owners but under any circumstances a slave was still a slave.

After a while, people, including church going ones in the South, started questioning the morality of slavery and the plantation owners were faced with a populist move to eliminate it. This created a business dilemma. Being good businessmen and driven by self-interest they found a solution. We humans tend to tolerate mistreatment if the mistreated are though to be members of another species, not ours. For example, the Germans during the Second World War treated Western European prisoners of war in relative humane ways consistent with the customs of war at the time. However, they had convinced themselves that Eastern Europeans, on the other hand, were subhuman and thus perpetrated all kinds of atrocities in Poland and Russia that were not seen in France or Holland. Realizing this, the plantation owners launched a propaganda campaign to dehumanize the Africans and thus stem the moralizing on the part of people of conscience. They painted the Africans as ignorant, incapable of anything but rudimentary learning, child-like and lazy, lacking any virtues and just barely fit to the tasks plantation owners assigned them. In fact, they tried to convince people that the slave owners were doing the slaves a favor by housing and feeding them. This propaganda was so effective, that to this day there are still pockets, particularly in the South, where the propaganda originated and was focused, that still believe this dribble.

It took a couple of centuries and a civil war to end slavery and another near century to allow African Americans to vote, ride in the front of a buss and drink from the same water fountain as Whites. Unlike European immigrants who easily integrated into our society, former slaves could not until very recently. The effectiveness of the propaganda and their strong distinction from the Europeans majority by virtue of their colour, essentially confined them to all Black communities. Not only had their culture been destroyed, because of their isolation, they could not benefit from assimilation into the existing culture that was the conglomeration of the better parts of all the other cultures brought into this country.

Even with intervention, it took hundreds of years to reach the current state. Though greatly improved, there is still damage uncorrected. Attempts to try to mitigate the long lasting effects of slavery introduces by the progressives were not met with popular support. One such project was Affirmative Action that gives an advantage to African Americans in employment and education. The argument against such policies is that now that we are indeed equal we all have an equal chance. Slavery is a long gone thing now and, though the slaves were indeed taken advantage of, the African American population today is not. If you want to take something away from someone, take it away from those that benefited from slavery, families of plantation owners. Furthermore, families of new immigrants did not benefit from slavery so why should they be required to pay retribution?

The fact of the matter is that the majority of the population benefited then and is still benefiting from slavery. The availability of slave labor created commerce that spawned many enterprises unrelated to farming. It helped created a nation with a strong economy, allowing it to continue as a vibrant democracy (except for slaves) and grow in power and prestige. People immigrating to this country today do so because of this evolution. Their success is in part a result of the slaves work. On the other hand, slavery and the propaganda justifying it along with the laws that encouraged and enforced segregation, has greatly disadvantaged descendants of slaves and these effects still lingers to this day..

Getting back to free markets; market forces have worked and when it came to slavery in the Americas, it allowed for the creation of great wealth. The commercial possibilities were so large that it was allowed to function without any intervention until the Civil War. Self-interest was successful and the “invisible hand” worked for the majority of the population’s benefited. But without a “guiding hand” there was great collateral damage done to a significant portion of our population and to the moral fiber of our Nation. It has taken over one hundred years to recover and we still have some way to go

Parenting

Last night I saw a clip of Sarah Palin addressing a School in Ohio (it may have been Pennsylvania) to which she brought 250 cookies to distribute to the children. Supposedly a school board somewhere in Ohio had restricted the number of sweets served to their kids. Sarah wanted to make the point that it is not the Governments business but the parents what the kids eat. It turned out that, in fact, the school board she referred did not restrict sweets but recommended that healthy foods also be made available for snacks. But I digress.

I have a strong conviction that children are an asset or liability to an entire community and not the “property” or sole responsibility of the parents. (I discussed this point of view in the post on education). It is interesting that prior to the birth, the left feels that the fate of the fetus is in the hands of the mother whereas the right feels it is in the hands of the government. As soon as the child is born, the tables turn and the right feels that the parents are solely responsible for the child and at the extreme its schooling, whereas the left feels that, particularly in schooling, there is a role for government in the child’s well being. The degree of control of a parent over the child, or for that matter the family varies with the level of development in a society. In Japan, during the feudal era, the head of the household, the man, had total control of the family and by law had the right to kill any member without consequence. In current primitive societies, heads of the family also have, absolute, though not lethal control.

Currently there are laws that prohibit the extreme, overt irresponsibility of parents. I don’t believe anyone on either side of the isle has a problem with laws that prevent cruelty and lethal neglect. These laws are examples of government interference in private affairs currently in place. How far should a government go to ensure that society benefits from the lives that are brought into it. A child is born and either blessed or cursed with great of lousy parents. To further complicate matters the great of lousy parents were also children once themselves and either blessed or cursed with parents. Is, and should, the fate of the child be strictly in the hands of the parent? Is there a role the government can play to improve the odds for success of every individual? There is no question that parents are essential to the well being of a child. Even totally dysfunctional parents, though they diminish probability of success, are probably better than most institutions.

Government already intercedes on behalf of children by providing mandatory public education and in cases where children are undernourished, food along with some protection. Can. or should it do more. There is a feeling, particularly on the right, that government can’t do anything right. Or should we just allow a child to suffer the “luck of the draw” and become either an asset or a drain on society. Obesity, for example, is a health problem for the individual and a huge expense for society. It is not only a familial problem, but also a societal one. Should we wait until the Free Markets figure out an advantage for business in heaving a healthier society, leave it to parents to properly feed and teach discipline to their kids, or can the government intercede and pass laws such as was done in San Francisco where “Happy Meals”, and others fast foods marketed to children, need to have a minimum nutritional value? I don’t know. There are many good arguments on either side. Not the least is the degree to which we should allow the government to interfere in our lives. I believe driving a motorcycle without a helmet should be someone’s choice. Though it costs a great deal to society, if they don’t value their life and well being, so be it. But a child cannot make that choice.

Efficiency and Unemployment

Around 35 years ago I attended a seminar presented by Deming, the father of statistical quality control and a major contributor to Japans technological resurgence in the middle of last century. He commented on automation saying that the only times automation is justified is when there is a shortage of labor or where the mechanical motions create a superior product. His argument was that if there is no shortage of labor then automation puts workers into the unemployment lines and they have to be paid anyway.

Last week we elected a conservative House and moved the Senate more to the right. They made promises of austerity and fiscal responsibility promising to cut non-defense discretionary spending by 22%. The Democrats, not to be outdone, will most likely focus on cutting the defense budget. I believe that during a severe and potentially protracted recession, both are dangerous.

Whenever there is an economic slowdown enterprises take the opportunity to streamline their operations, thus improving efficiency. This is natural. Companies with shrinking demands, have the need to lower costs and more time available to focus on improving operations along with a workforce more willing to work harder which in better times it might not. So what happens is that, with excess labor already in the market because of the slowdown, this improvement puts more people into the pool of unemployed. To further aggravate the situation, the politicians react to voters concern about the cost of government and promise to cut costs by cutting programs, eliminating waste and improving efficiency. All these, if successful, further increase unemployment whether directly by cutting staff or indirectly by reducing consumption of material which still boils down to cutting labor somewhere.

We have gotten out of previous economic downturns by waiting things out until demand picks up and the pool of unemployed starts shrinking. We also have been blessed with a slow and somewhat ineffective Congress. So by the time they get around to really cutting costs and reducing waste (improving efficiency) as promised, the recession is over and things are back to normal. The potential risk I see is that this downturn is more severe and different than previous ones and with both parties starting to campaign for the 2012 elections and the electorate drifting to the right, they will have the vigor and the time to start fulfilling their promises before we are out of the hole and extend the period before recovery or even worsen the situation driving us into a depression.

If the number of unemployed rises dramatically for whatever reason, we will be faced with a few choices. Ignore them and face the threat of civil unrest and possibility of either an extreme left of right wing tyrannical dictatorship or we can help them by raising taxes on those not struggling as much or borrowing and printing money. Another option, if the demand for private sector goods and services does not improve quickly, create demand for labor through government intervention and though it sounds counterintuitive, allow the waste and inefficiency to continue until there is strong evidence of an impending recovery. Someone working at 50% efficiency will still be contributing more than they will on the unemployment or bread line. The private sector, driven by self-interest cannot ignore waste but a government working for the common good can.

Something that is even a harder sell relates to the defense budget. The above arguments also hold true for defense. If there was a sudden peace and all troops came home and were demobilized and we stopped producing armaments, not only the troops, but the workers in the defense industries would enter the already surplus labor pool, greatly expanding the ranks of the unemployed. Though we want to reduce and eliminate the casualties of war as soon as practical, during a downturn, reducing military activities will add to and prolong the economic downturn. Maybe we can reduce the fighting but not military activity until we are back on our feet.

“Big Republican gains presage a nasty period of gridlock for Obama” says the November 6th issue of The Economist. In the final analysis, the electorate, unwittingly may have done the right thing by seating a congress that will ensure a complete grid lock, making it impossible to do anything of any consequence when it comes to eliminating waste and cutting costs and maybe only work together on less contentious and more important issues that address the structural readjustment necessary like education, energy, macroeconomics and our relationship with and economic pressure from the rest of the world.

Globalization, Free Markets and the Plight of the US Middle Class

Over the last three decade, though the average earning of the US population has been going up the middle class has at best stayed stagnant. There have been more trinkets to buy, more pressure to buy them and less money to buy them with. I don’t know to what extent the growth in credit is attributable to this but I can’t help think that at least to some extent it has. The promise of a better future for the middle class has been shattered. This stagnation has been aggravated by the fact that, the already wealthy have been getting wealthier and since material well-being is relative, the middle class in that sense has been moving backward. In the 50s, at the height of prosperity for the middle class in America, a family with the man of the house working in a “blue collar” job could live comfortably, send their kids to college and, if really frugal, have a small cottage on a lake. To do the same today it takes both the man and woman working and to get the cottage on a lake, it takes two professional incomes. Though politicians have been assigning the blame to each other and reciting talking points, I believe the real cause is a structural and natural consequence of the Free Market at work.

The size of the middle class in the industrialized west, if not shrinking has at best stagnated. Worldwide, however, there has been a significant growth of the middle class along with its buying power. So on a global scale the Free Market has been working for the benefit of society. To reiterate the basic concept behind Free Market Capitalism, the quest for self-interest on the part of individuals, collectively leads to benefit for society. In this case that is what is happening on a global scale. In their quest for maximum gains, businesses have been drawn to regions of lowest cost labor. Support services are moving to India and manufacturing to China. We also see this in this Country. New automobile plants, to avoid wages and benefits derived through union activities in the North, are appearing in the South where, though wages are lower than in the North, they are still better than other wages in the South. The South gains the North looses. When the Free Market works uninterrupted, as discussed in a previous posting, it knows no borders, communities, religions, ethnicities, religions or races. With the exception of the near total meltdown of the financial system, the free market is working well from a global perspective, the middle class is growing, commodity prices are going down and global buying power up and the corporations and their owners in the West as well as the East are growing in size and wealth.

The problem, however, is that from a local, regional and national perspective of the West’s middle class, things are getting worse and the question comes down to whether, how and when do we get back to growing it. Now that the financial system’s bleeding has stopped, the Liaises-fair Free Marketers are content to let the markets sort things out. Riches derived from the East are of no less than value than riches derived from the West. So as long as there are riches there is no need to change. The Market will sort things out. The question is how long will it take, what will be the local effect and the resulting collateral damage.

Is globalization a zero-sum game? For someone to win will someone else have to lose? In other words, will the market increase the wealth of the poor nations at the expense of the rich? Believing prosperity to be a zero-sum game, governments historically have interfered with the market forces through tariffs or other trade restrictions trying to force the use of local resources at either the cost of higher prices to the consumers or profits to the enterprises or both and thus starting trade wars often leading to shooting wars.

Free marketers claim that this migration of jobs is a natural consequence of a free economy and it does not have to be a zero-sum game. I believe the current administration agrees. We have gone through such cycles in the past. An industry starts, faces growing demand and creates opportunities for others to enter. Competition increases, prices drop and there begins a drive to lower costs. The textile industry started in England then moved to New England, then the South and now to all parts of Asia. When computers were invented in Silicon Valley and expanded to the East Coast, some of the old textile mills having stood empty for decades began housing the likes of Digital and Wang and now stand empty again as the manufacturing has moved to Asia.

The world is changing rapidly. Technologies advance faster every year. Financial centers move. Balance of power shifts, all this at an accelerating pace. During these dynamic times it is increasingly important that the markets, guided toward the benefit of our society as a whole, remain free. We need better government that understands the global issues and ensures that the paths to our success as a country and in particular our middle class thrives. In the meantime our electorate is becoming increasingly conservative, wanting to protect what it has if not go back to a time when it felt it had more. The danger is that politicians, in their quest for reelection will succumb to the parochial populist movements and steer a course for “instant gratification” and negate the possibility for maintaining our leadership in the world.

The cycle of innovation starting in the West and in particular in the US, maturity and then migration has worked but can it continue? Will the markets alone support this cycle or is there a role for government to play and if so what is this role. The conservative on the extreme right, represent the “small business” and are working to get legislation to advantage small business while the liberal left pushes for legislation supporting labor. The innovation unfortunately does not come from the small business represented by the Chamber of Commerce; the restaurant owner, beautician shop the plumbing contractor, insurance and real estate broker or the family farmer, nor does it come from the labor unions, banker or broker on Wall Street. It comes from an area that is not represented by either party; the universities and research laboratories in large corporations.

The conservative right is suspicious of the “elite”, the intelligent, the educated the newly rich and particularly the government while the left is leery of the wealthy. But, like it or not, our ability to get our middle class growing again and restoring the American dream depends on these. Government has a very important role to play. There is a difference between the Free Market on aggregate and the individual participants in the market. They are at odds. Whereas the market is pushing to lower profits, the participants look to maximize profits and in so doing try to get around the market wherever possible. An important role of government is to block their paths around the markets thus keeping markets indeed free. The markets by their very nature are global and another key role of the government is to make sure that in all the moving and shaking created by the markets, their constituencies are not disadvantaged. This applies to the national, regional as well as local governments.

Our federal government has contributed greatly to the aforementioned cycle. It has supported research at both the universities and in industry through various programs. It has provided for the education of our young. Much of the innovation, such as the semiconductor and the Internet, has come from development funded for defense. When I was running our Company, in applying for federal funds for development projects supporting defense or space, a key question asked was potential commercialization and without a strong argument for commercialization the probability of funding was greatly diminished. (Recent advances in diapers have come from the NASA space program where much engineering went into developing better urine disposal systems for female astronauts.) Its immigration policies have encouraged migration to the United States from all over the world. The father of our space program was a German Scientist. The government has passed antitrust legislation to prevent the formation of monopolies, which would eliminate competition that drives the need for innovation. It has intervened on behalf of local industries when other governments have tried to circumvent the Free Market through currency manipulation or tariffs. As the world, along with all its technologies, changes so does the role of government, its size and cost. The job of government and its associated cost is minimal in a primitive society. The larger and more advanced a society, the greater the complexity of interactions and thus the greater the benefit from and cost of government.

I hear a lot of rhetoric about “too much government” but none about the proper role of government. I believe that the Free Market does indeed work and coincidently does benefit society as a whole but it does so given that the forces that keep the various self interests from circumventing the market are kept in check. I heard someone say the other day that the Republicans are on the side of business and the Democrats on the side of government. I don’t believe that’s a valid categorization. A cynical way to look at this may be that the Republicans want a government that helps business avoid a Free Market while the Democrats want a government that facilitates labor’s quest to find a way around it. Our society, however, needs a government that keeps the markets free and puts roadblocks in the way of everyone who wants to circumvent them. Whoever promises to “keep jobs from going overseas” essentially is offering some path around a free market. My fear is that an irrational quest to minimize the size of the government without understanding its proper role, will diminish, if not destroy our participation in free markets. We will have stronger paths created for business around the markets during the Republican reigns and greater paths around the market for labor during the Democrats reign. These paths will continue to grow. I also fear that during the diminution of the government’s role funding of development through the military, industry and academia will be reduced. There is talk on the far right of eliminating the Department of Education and either privatizing or turning education over to regional politicians. There is a real danger that we will wind up with not only over 50% of the population in one state not realizing that Hawaii is a State and the President a citizen but 50% of the country. Not only will we not have the manpower to support the required technologies with the ability to innovate but one that will be open to misinformation and manipulation through the mass media by whoever is vying for power.

The hallmark of a third world country is the relative small size of the middle class and the very large gap between the small number of very rich and the large number of very poor. Can we stem the tide pushing us in this direction and what are the obstacles we must overcome? “Patriots” shouting about America’s exceptionallism overlook an area where we have been truly outstanding, our ability to attract and integrate foreigners and their cultures into our society. If innovation is one of the keys to our continued success, and I believe that it is, then we need to continue, if not accelerate, this integration. Frans Johansson in his book the Medici Effect points out that creativity leading to innovation comes when a situation is viewed from different perspectives, disciplines and experiences. Innovation often comes from either an individual schooled in a variety of discipline, exposed to different cultures and having worked in different fields or from teams of individuals with the same variety of experiences. The continuous influx of new points of views has contributed to our innovation and our success. The danger we now face is that, with the xenophobia on the extreme right manifest in the Islamophobia and all the anti immigrant rhetoric, we will strongly discourage if not prevent emigration. We will become a homogeneous society likes of India and China and lose our only long-term advantage, our ability to differentiate through innovation.

Another danger, though I believe or at least hope it is a remote one, is that as the wealth of an ever-shrinking group of individuals grows disproportionately, so does their power and their ability to influence policies that then allow them to gain even more power and wealth. If this is allowed to happen we will slip from a true democracy into an oligarchic regime and become a nation not to dissimilar to many South American Countries where a handful of families essentially rule the nation. Part of the government’s responsibility is keeping markets free and in doing this it had to prevent the situation where a small minority has all the wealth and power and uses this to control the government. The way it has achieved this is by imposing taxes on the transfer of wealth from generation to generation and thus hopefully weakening what would otherwise become powerful dynasties. The threat to the reestablishment of the middle class comes from the right’s assertion that the wealthy are the “job creators” and builders of the nation and heavy tax burdens on them will endanger us all. (If I were a descendent of the Chinese and Irish who died building our railroads or Mohawks building our skyscrapers or slaves working the plantations and all others who not only have toiled but died in the process of building this great nation, not to mention lost their lives defending it, I would not so readily concede the credit for our success to the providers of capitol, though I might be persuaded to share it.) The current mood in the country is fiscal conservatism, which I believe translates into less spending on the needy and lower taxes for the wealthy. The theory is that as the rich get richer everyone benefits because there are jobs created in the process. This has not been born out in the decade sine the last tax cut. The poor got poorer, the rich richer and the middle class still stagnated. I believe if the Right’s goal is uncompromisingly realized, it will accelerate the widening of the gap between the very poor and very wealthy, stifle free markets and accelerate our slide into oligarchy.

Globalization does not have to be a zero-sum game but it needs intervention from a strong, well functioning government driven, not by ideology nor populism, but by the recognition that our country’s true success depends on the state of our middle class and drives to restore it.

Fear

Last night I watched the “Rally to Restore Sanity and/or Fear” on CSPAN. This was essentially a comedy show at the National Plaza attended by about 200,000 and hosted by John Stewart with heavy involvement from Steven Colbert. The central theme was a spoof contest between fear and sanity, and it made me think about something I either heard or read from an ancient Hindu writing about the role of a leader. It basically said that the role of leadership is to make the polity fearless. With so much fear mongering going on today particularly on the right, wouldn’t it be nice if in the next presidential election someone come forward on a platform of eliminating fear.

Many fears are real. In some neighborhoods people are afraid to walk the streets at night while in others kids have to be escorted or take long, roundabout routes to get to school and then be afraid of either being beaten up or shot even there. Fear of being mugged, your home invaded, your identity stolen. There is fear of becoming sick and loosing ones home and having to declare bankruptcy. Fear among all who work for a wage, however large or small, that they will lose their job and, not only the income but also the respect of their family and friends. People running a business are afraid of loosing customers and not being able to pay the bills and the wealthy fear the markets collapsing and loosing their fortunes while the homeless fear not having a place to bed down for the night and an empty stomach. There is fear of racial, gender, ethnic and religious discrimination.

We are afraid of being attacked by terrorists from outside or political extremists from the inside. There is the fear that the thousands of nuclear warheads that were once pointed at us by the Soviet Union will once again return to the same direction and the growing power, both economical and military of China with its billion plus population. Many are afraid of getting embroiled in another war started by North Korea, Iran or Israel. The world will run out of fossil fuel. The climate is changing and the seas will rise and the growing zone will shrink bringing on hunger, war and many other calamities. And there is the fear (or maybe joy) among some Christian fundamentalist that we are in the era of Armageddon.

Then there are more socio-political fears. There is the fear that at some point in time, the majority of the population in the US will no longer be white, that we may lose the right to bear arms, be able to go to the church of our choice and there is the fear of becoming a fundamentalist Christian theocracy, be overrun by Muslims or become a nation of atheists. There is fear that our judiciary will fall under Sharia law and that, Jews will take over the economy and poor African Americans will invade their white neighbors. Many fear too much regulation while others fear liaises-fair Capitalism. Some people are afraid that we are heading toward Socialism or even Communism while others are convinced we are on a dangerous path to becoming a Hitler like fascist state. There are fears that we are too soft in our foreign policy while others fear that Neocon imperialism will strangle us. The middle class fears not being able to providing a better life for children and the homeless not having a place to bed down for the night. Many fear that we are drifting away from the “real” America and others that we are not changing fast enough to keep up with the technological, political and economic changes in the world.

Though I have listed many fears, I could go on for several more pages and still only scratch the surface. Among the fears are well though out and also the totally irrational ones. There are fears that have a high probability of coming to fruition while others, though maybe real and theoretically possible, don’t stand a “snowball’s chance in hell” of being realized. The fears originate from both ends of the political spectrum and many transcend politics, with the underlying causes often understood and sometimes even the solutions. The challenge is to find a leader who can alleviate these fears by promoting policies in the case where the fears are real and of consequence to our society, communicate their absurdity in the case where they are only imagined and putting them in the proper perspective in terms of probability in the case where they are real but insignificant.

Unfortunately fear has become an effective political weapon. The “fear mitigating” leader cannot be an ideolog. Solutions to different problems will most likely be based on different ideological principles. Solutions to how to make the streets safer will be different from how to make us more competitive in the Global Marketplace. Answers to improving the life, realizing dreams and protecting property probably require a touch of Libertarianism, Socialism and bits from everything in between. The “sacred cows” should be the elimination of the fear, the constitution and not the ideology behind the method. If such a leader can rise (I doubt they can by the 2012 election if ever given the complexity of our society and our current political system) not only the country but the world, given our leadership position in it, would be a better place for everyone to live.

Businessmen as Politicians

Getting close to the midterm elections, with all the political adds on TV in recent weeks, I’ve noticed that many aspirants cite their experience as operators of small businesses as a qualification for politics. Even Barney Franks in one of his adds mentions that his family owned a small business which he took charge of for a short while after his father died. I started to wonder if indeed the experience gained as a businessman (I use man in this case to include woman) truly is relevant to public service and have concluded that not only is it not relevant, it may in fact be detrimental to a position representing a population.

As I pointed out in a previous posting on Free Market Capitalism, the system works (and I do believe it does) because in the quest for self interest, coincidentally the society as a whole benefits. The success of a business is measured by the degree self interest is maximized not by how well society is served. In the stock markets, the price of a companies stock increases whenever there is an announcement of impending labor cuts because lower labor means lower costs and lower costs mean greater profits. So when an aspiring politician claims that they were successful businessmen, they in essence are saying they figured out how to bring greatest benefit to themselves. (Though I consider non-owner operators of businesses as administrators, in the common parlance businessmen is also applied to them so in this discussion that’s fine and we can think of their goal as bringing the greatest value to the owners.)

At the ground level the businessman, if successful, has figured out how to get the most for the least out of all of their associations. The highest price from their customers, the lowest price from their suppliers, the lowest rent, the cheapest labor. There is nothing wrong with this because that is how the system works. The output of the endeavor is singular, very focused and clear. It is profit, and there is only one beneficiary to be concerned with, either themselves or their employer in the case of outside owners. In public office, on the other hand there is the need to balance and maximize the benefits to a very diverse constituency with varied interests. A thing we often forget is that the role of a politician is to represent the entire population within their realm of responsibility, those who voted for them and agree with their ideology and those who didn’t. They should to be sensitive to the needs of business to maintain profits, of labor to have jobs and make a reasonable living, of the disenfranchised, the old and the sick, the needs to educate the young, protect lives and property and do this all within the guidelines set by the Constitution and prevailing local laws.

The businessman, on the one hand, has a singular goal and needs to understand the exterior forces in play as they move toward one goal while the politician needs to not only understand the exterior forces but also all the nuanced need of their diverse constituencies. Whereas there is only the need to balance the application of resources for businessman, there is the additional need to balance the benefits to the entire community. Unfortunately most politicians don’t do this well, if at all. They take the easy route and focus on one constituency, be it business, a minority, labor, women, the downtrodden, etc. The job of balancing all the varied needs is difficult and requires a great amount of skill and I feel the business experience with its singular focus is antithetical to the balance required at the output end. Having only focused on profit with no need to ever balance the output they have no experience and there is no indication that success with one is indicative of a skill set required in the other. In fact I believe the skills may in fact be totally different.

House of Worship

Last week I was a guest at a wedding in RI. The ceremony took place at a Catholic church, St. Mary’s in Bristol, and I was struck by its beauty. I had a chance to visit a number of cathedrals and churches in Italy, France and Germany and found this church to be on the par with the best and more beautiful then most.

While there I started thinking about criticism I’ve heard over the years about gilded houses of worship in impoverished neighborhoods, particularly in the third world. (I must admit I was a mild critic myself.) However, sitting in this splendid place I started to change my position. I imagined a person struggling all day coming home to an earthen floored, one room home with the only ornaments being pictures cut out of a magazine and maybe a religious symbol or shrine. And I thought about what a pleasure it must be on that one day a week when they are able to sit and relax in the splendor of such a place. I want to think that there is a sense of not only belonging to a community but ownership. This is their place. This is an extension of their home. It is the formal living room where they gather with their friends and the more humble the home the greater the significance of this great house.

Another though rattling around in my brain while admiring the architecture, color and stained glass was that this building must have given a great amount of joy to the designers, artisans and builders of this a magnificent structure. I imagine that the official justification for such opulence, particularly in the face of poverty, is that it represents respect for and a desire to properly worship ones God. I suspect God isn’t impressed easily and tolerates this because it enriches what would otherwise be drab and gray lives of the parishioners as well as the builders.

Optimism for America’s Future

I was watching a month old video of CNN’s Global Public Square hosted by Fareed Zakaria. (it’s the Sept 12 program which can be downloaded for free) He convened a panel consisting of Kathleen Parker, a nationally syndicated columnist and co-host of a CNN talk show, Bernard Henri Levi, a French philosopher, Dan Senor of the Council on Foreign Affairs and Christia Freeland, a Global Editor at Large for Roiters. They were discussing the news of the week and got into a debate on the Tea Party. I believe the consensus was that the lower middle class feels threatened and the Tea Party is the response to their fears. These threats range from the irrational that a Muslim population of less than 1% will somehow impose Sheria Law on all the population of the US to real discomfort with the fact that at some future date the majority of the population of the United States will no longer be white and that the middle class, not only in the US but also in Europe, is now having to compete with a billion people from the emerging economies. I believe this last fear is very rational. Whereas globalization has improved the condition of the educated and wealthy and has had minimal impact on the lesser paid workers in service jobs that cannot be outsourced, many of the higher paid, less value added jobs have gone overseas and may not return.

The world has changed dramatically and we need to recalibrate and figure out how we will continue to succeed in this new setting. Bernard Henri Levi pointed out that the United States has faced great challenges in the past citing the 1930s and 60s as examples and has found its way and he, a Frenchman, was confident that it will again. He said (and I paraphrase) that what is going on in our country is a National brainstorming session where ideas are presented, discussed and a path forward determined and that in any good brainstorming session you must have on the table a full gamete of ideas ranging from the ridiculous to the sublime. He was very confident that as we have done in the past, we will find the right path again.

I tend to agree with him and feel confident that the rhetoric about “second amendment (the right to bear arms) remedies” and against Muslims is just at one extreme end of ideas in this National brainstorming session. In fact, if I allow myself to get really optimistic, I think that the fact that we can have such a debate, in the long run may strengthen our democracy as we will have considered all alternatives, including the ridiculous and have chosen the path that will not only lead to continued success, but is consistent with the fundamental principles that have made ours a great nation.

Islamophobia Continued

Tonight I watched a debate on Bloomberg Television. The two sides argued whether Islam is a religion of peace. The side arguing that it is not won. My disappointment came not from the outcome but from the debate. I wonder if there could have been a debate on whether, Catholicism is a religion of pedophilia, Judaism a religion of greed, Hinduism is a religion of socio-economic discrimination or whether atheists are immoral or African Americans lazy. Certainly within all group there are sexually depraved, greedy, bigoted, immoral and lazy people as there are extremely violent ones. In today’s environment it is OK to have “frank” discussions about Islam in a national forum but I doubt whether the same could be had about any other group.

Obama's Religiosity

The other night I tuned into the end of a discussion on CSPAN hosted by a Catholic Priest. I have seen him on TV before and think he hosts a Catholic program. His guests were a young Rabbi, Alec Baldwin’s Born-Again Christian brothers and a journalist covering religion. At the point I tuned in they were discussing whether our President was a Christian. (Being a Muslim, I would love to have heard him say that he is indeed a Christian but if he were a Muslim or a Mormon or a Jew, how would he be a lesser president. Unfortunately, though brave, that would have fed the extreme right and alienated a large segment of our country and destroyed any chances for reelection, but I digress.)
There were two points that resonated with me. The first raised by the journalist was that President Obama, while a candidate, said in an interview that though he chose a Christian path, he believes that there are many paths to god. Believing that the only path to heaven is through Jesus Christ, the Christian Fundamentalists take this as a un-Christian position. I believe that this is a debate the fundamentalists pushing for a Christian Theocracy in America are having with the segment of our population trying to maintain a secular country. This has led to much of the vitriolic sentiment toward him from the right. Though I agree with his position, I can understand the logic if one is the keeper of the absolute truth and believes that the only true path is through Christ. Hmmm; that sounds familiar, a bit like the position of Muslim fundamentalists, believing that their path is the only true one and wanting to create Islamic Theocracies.
The other point, a totally irrational one, was made by Mr. Baldwin. He believes that because the President, as his first act, signed some kind of legislation, which somehow supported abortion somewhere outside the country. Thus with abortion being prohibited in the Bible, he said, the President cannot claim to be a Christian. The Priest asked where in the Bible does it speak about abortion, in response to which Baldwin cited the prohibition against taking innocent lives. I am surprised no one challenged him. Maybe it was because the show was coming to an end. If one extends his argument then none of the pro-choice people can claim to be Christians. What about President Bush and other Presidents who have sent us into wars where masses of innocents are killed? Are they not Christians? What about the soldier who, when noticing sniper fire from a large tenement building in Iraq, bombards the entire building with large artillery rounds surly destroying many innocents including children? Is that not taking innocent life? Is he not a Christian? What kind of an example would God have been setting for us when he caused the death of every first born in Egypt during the period of Exodus. Were these children and for that matter their parents, not innocent and not responsible for the deeds of the Pharos who, after all, they didn’t even elect?

Terrorism

There is a lot of ambiguity around what is "terrorism". The word is generally too broadly applied. Acts of war strike terror in the hearts of the civilian population but would not be considered terrorism. Rebellions against an occupier such as our own revolution, or the Hungarian uprising against the Soviet Union are not considered acts of terrorism. However, the Mau-Mau uprising against the Brits in Kenya and the Palestinian uprising against Israel, on the other hand, in our part of the world, are. The actions of the IRA against England are certainly viewed by the British as terrorism but I suspect there are elements of the US population of Irish ancestry who do not. Whether an act is terrorism or not must depend and whose side one is on. Use of the term terrorism is a political ploy meant to stir emotions that winds up leading to confusion and prolonging conflicts unnecessarily.

I believe the terrorism is most appropriately applied in cases where acts of war are perpetrated on a population that is not in a state of war. (There are international legal definitions of what constitutes an act of war. Some of them like massing troops along someone’s border and blockading a country, are not commonly thought of as acts of war by the general public.) By that definition, on September 11th we were not at war. The same can be said of the Spanish train bombings, the bombings in Bali and others throughout the world where the countries were not at war with the assailants and therefore are indeed acts of terrorism.

As to the current "war on terror"; though there is indeed a threat, the term “war” magnifies it. Also the declaration of a "war on terror" by the previous administration now identifies us as a combatant nation and maybe in the minds of some radicals justifies acts of war against us. The fact that we have not had any attacks since 9/11 on our soil suggests that the threat, though real, may be overstated.

An act of war is an expensive proposition both in resources and human lives. During the "cold war" with the Soviets, part of the game was to make the other guy spend money. We would develop a weapons system and the Soviets then would need to develop a system to counter it. If we spent $100,000,000 to develop one and the Soviets spent $90,000,000 to counter it, they won. If they had to spend $110,000,000, we won. We finally bankrupted them. We have spent a trillion dollars on the war in Iraq, and if indeed it is part of a "war on terror", then we are spending 1 trillion against our foe's several hundred million. This is unsustainable. If we are to continue with the "war on terror", we need to figure out some different way that puts our budget closer to a few billion instead of a trillion or somehow get the enemy to need to spend a lot more.

What can we do so everyone can take a peaceful breath? First I think we need to step back and better understand the nature of the conflicts. Who is the enemy? We have thrown so many groups into the terrorism kettle, I think we are confusing ourselves. Though Hamas, The IRA, The Basque Separatists, Hezbollah, the Taliban and Al-Qaida all kill innocent people, as do civilized countries engaged in a war, (the German killing of ¼ of the population of Bialorus, the Russian destruction of Berlin, our fire bombing of Tokyo and atom bombing of Hiroshima and Nagasaki, and Israel’s attacks on Gaza to name a few) the aims and strategies of these groups are very different and need to be considered separately. The Taliban, IRA, Hamas all have local agendas whereas Al-Qaida has global aims. We need to understand their agenda and for those who indeed threaten us, develop a strategy to destroy them. When I say understand them, I don't mean to understand the rationale behind their actions, because as was the case with the Red Army Faction in Germany in the middle part of last century or al-Qaida, the ideologies are so radical that they defy logic, but better understand how they organize, propagandize, finance etc.
If we properly segregate and analyze the “terrorists” (the CIA probably is doing that but the politicians ignore them), the group may be much smaller than we think and instead of considering and elevating them to a position of combatants in a war, we may conclude that they are criminals and pursue them as such. In the long run, crime prevention may be more effective and much cheaper in both lives and money than war.

Education

Years ago a neighbor made a comment to the affect that since our kids are grown, why should we have to pay to educate children of others. I would like to think that the question does not reflect a common point of view but following are my thoughts on the topic. The question is aimed at public education and may boil down to why should the general population pay for something that is of benefit to an individual or a family and is of no consequence to the community?
Jonas Salk, the inventor of the vaccine that eliminated polio was not a relative of the masses that were spared the pain of the dreaded disease. Charles Manson was not the son of the Tates whose daughter he and the gang he led murdered so brutally in the 60s. The society as a whole benefits or suffers from the actions of other people’s children and thus it is to the benefit of everyone that we produce the “best”. In the industrialized world where we do not rely on our children to care for us in old age, the major benefit derived by the family of a well educated child comes down to “bragging rights”.
Though there are many factors that go into the quality of our next generation, education is certainly one of them. Public education was first came into being in China during the reign of Kublai Khan, the Mongol conqueror. It was introduced in England hundreds of years ago when the general population won the right to vote. It occurred to the powers to be that if they were going to have a democracy where everyone voted for the government that will run the country the population needs to have at least the ability to read and write so as to be somewhat informed. I have found that a lot of political nonsense stems not from the fact that the population in some areas is stupid but that it is uninformed. There was a pole conducted in one of the Carolinas recently where one of the questions was whether Hawaii is a State. More than 40 or 50% of the population and more than 60% of Republicans said it was not. Given that understanding, it is not totally irrational than to say that the President, born in Hawaii, is not a citizen. With today’s easy access to information one would think people would be better informed. I guess the issue is quality and not quantity of information. Unfortunately, most swords cut both ways and politicians often use the abundant channels of communication available to intentionally misinform their constituencies to advance their own cause.
The current administration has spent a significant amount of time talking about education. In fact last week I saw the president at a “back yard” meeting in Ohio where, when asked about our economic future, he reiterated the point that with advances in technology, a society will need a better and more technically educated workforce to compete. He also pointed out that whereas a decade ago we were first in people graduating from college, we are now twelfth. I believe he is correct in his assertion. Things that were done by brute force more and more are done using technologically advanced tools and methods and the nature of the workforce will need to be better educated going forward. Besides better educated, I believe the workforce will also need to be smarter.
In my experience educated does not necessarily mean smart though there is some correlation. Education, however, is used as an indicator that the probability is higher that someone is smart in the case of someone educated than not and the higher the education the higher the probability. Therefore we need to make sure that we have all of our “smart” young people available for the demands of the new economy. If we are depriving the poorest of our population the opportunity for a good education, we will decrease the number of people we can pick from for those tasks demanding the best thinking abilities.
I would like to use a sports analogy to clarify this point. Say I want to build the best basketball team in the world. Very great height or agility are strong assets in Basketball. Let’s suppose that the only kids I have to choose from are the inner city and rural kids who have not much else to do summers but play basketball. I am missing out on a great number of youths who are both tall and agile from the more affluent community because they never get seriously involved with basketball. Instead of being able to select a team of the tallest and most agile players from the entire population I am restricted to selecting from only a portion of the population and the team I put together will be inferior to one I could have had were I able to include the affluent in my selection of players.
In the same fashion by not providing a good K-12 education to the inner city and rural kids, they don’t go on to college. Since a degree is the stamp of approval for intelligence, They will never get into the pool of “smart” people needed for future economic success, thus decreasing the probability of our continued economic leadership. The gap between the wealthy and poor is widening with the population of poor growing disproportionately. If K-12 education continues as it is and college becomes more costly, with especially advanced degrees available only to the wealthiest, we will be playing with a team selected from an ever-shrinking portion of our population. (I don’t buy the argument that the wealthiest are also genetically superior so the pool of smarts is in that group anyway. At best the bell curve is shifted slightly if at all) Thus with education also the key credential for positions of leadership, we will diminish the strengths of our leaders and thus our great nation.

Taxes, Stimulus & The Broken Window Fallacy

A couple of days ago I received an e-mail from a friend directing me to a video snippet entitled “the broken window fallacy”. Its story line is that a hooligan throws a brick through a baker’s window and the baker has the glass replaced. The glassier replacing the glass now has a job and can buy more grain from the farmer who can use this money to buy something else etc., etc. Following that argument more hooligans doing more damage would be even a better economic stimulus. On the other hand, if the baker did not have to replace the window he would buy a suit from the tailor who would spend his money on produce thus also providing money to the farmer. In the later case, however, society would have gained a suit whereas in the former it was a zero-sum game with the farmer’s gain being offset by the baker’s loss. The snippet ends by reminding the viewer that to pay for a stimulus or a war, money is taken from people in the form of taxes thus reducing the amount spent and causing the loss of jobs.

I found the choice of a hooligan throwing the brick as a comparison to stimulus a very interesting if not too subliminal a political message. The economic argument could just as well have been made using, say, a limb from a tree broken by a storm breaking the window. The logic would work just as well without introducing political bias. But I guess it is hard not to make political hay given an opportunity when there is an underlying agenda to an argument. That’s the case for most of us (including myself).

If I got the gist of the message right, it is an argument for cutting taxes to increase business and get the economy out of a terrible slump instead of pumping money in through public works. In the current economic downturn there have been several tax cuts under the previous administration and one under the current one which did not turn into spending (a new suit for the baker) but resulted in increased savings (good stuff but not simulative). The examples in this video were at a level of consumer. There is a similar argument on behalf of the investor that increased taxes on the wealthy, through repeal of the “Bush tax cuts” will stifle investment and thus prevent a recovery. This is the current dialog.
There is an assumption here I think that money collected in taxes somehow is removed from the economy. The fact is quite the opposite. Government has a propensity for spending as conservatives rightly point out so the taxes go back out into the public in one form or another facilitating commerce. One can argue whether it is spent in a most productive way but it is spent. To put another spin on the snippet in the case of a stimulus going to the glassier, the money gets to the farmer in either case. The question is does the $30 dollars to repair the window move from the baker’s pocket and get to the farmer through the government or does it go to the farmer through the baker. The same $30 dollars gets to the farmer either way.
The “broken window fallacy” puts defense spending into the same bucket as the stimulus (must be a Libertarian cite) but the same can be said for money spent on defense. It is used to pay soldiers who or their families use it so buy stuff. (even overseas it is used in military stores to buy goods available at home). The making of uniforms, armament and munitions employ people in well paying manufacturing jobs. Much of foreign aid is military with the recipients using the moneys to buy weapons made in our factories.
Other foreign aid spending, though small, still leaves a significant portion of the money in the US economy. I saw Bill Clinton addressing a philanthropic convention where he related a story about the government donating $100 million to feed the hungry of a third world country. $75 million of the $100 went to US consultants paid to figure out how to distribute the food. He mentioned that that was not a criticism of the Bush administration because he suspects the same went on in his. At some level, as with the case of the window that didn’t brake, money was made available to businessmen that could be invested in job creation. The government spends the taxes. The question is to whom does the money go and will they spend it in a way that improves society?

In the 35 years I ran the company I spoke to about 50 different organizations interested in acquiring the enterprise. They ranged from venture capitalists, private equity enterprises and large public companies. These were all people looking to make an investment. It is interesting that not one of them ever asked how much tax we pay. I wonder if that suggests that how much taxes may not be an important consideration in their investment decision. However, every single one asked about where the customers are going to come from and how are we going maintain their demand along with what advantages can we create and maintain over others in our industry.

Expecting that my experience can be applied to other businesses, I can’t imagine a restaurateur hiring another chef or waitress without customers lined up at their door regardless of how low the tax rate is. Nor can I imagine, because the tax rate is too high, them not hiring when they are turning customers away. An appropriate influx of money into an economy creates more customers. I also cannot imagine an investor forgoing an opportunity for increasing profits regardless of how much of it they have to give up to taxes. More profit is always better. The tax increase, though fought vehemently before the fact, after the fact becomes just another reality and as long as all in an industry pay the same rate, none are advantaged and life goes on. Aha! What about international competition? Don’t taxes make one less competitive? Competition from lower wage countries creates competition and lowers profits, often to the point where there are no profits. Profits are taxed and enterprises struggling for survival from fierce competition or an economic downturn have no profits and thus no concern for taxes on them.

I realize the above is an oversimplification and does not go into all the nuances of hidden taxes and taxes, such as employment taxes, which reduce the profit and are part of the expense of struggling, as well as profitable businesses. An enterprise buying a commodity that it will transform and resell, does not pay a sales tax on that commodity. When arguments are made on the full amount of taxes paid, they often and correctly point out that included in the price, beside the cost of producing the item, is the profit and tax paid on the profit it generates and this goes on multiple times as things are bough, transformed, sold, bought, transformed, etc., etc. The taxes I have most often herd debated however, are the income, estate and capital gains taxes. This discussion is focused on these in particular because they are coming up for a vote soon.

One can further pick at the window example. For instance, there is a difference
between the glassier, out of work, buying bread and a backer still in business buying a new suit. But I digress. That gets into a whole other discussion. Who should get what and what, if any, is government’s role in that decision. In the spirit of oversimplification, I offer the following, also an oversimplification and open to many complex discussions. If I made $100 profit and paid $30 in taxes, but now have to pay $40, what is left is $60 in my pocket instead of $70. However, if I can make $110 in profit, though I now keep only $66 whereas I would have kept $77 before, I have a $66 profit that is still $6 better than a $60 one. The only reason I would not take an opportunity to make a larger profit from an investment is that I could invest the same money and get more profit from something else. Even there, if the amount I give up to taxes remains the same, taxes do not enter into that decision.

Patriotism

When I was stationed in North Eastern France in the 1960s, during my service as an enlisted man in the Army, several friends and I were in Luxemburg one evening. We were sitting in a sidewalk café, one of many that surrounded a small park in the middle of which was a gazebo where a band was playing. At one point in the evening the band struck up the Stars Spangled Banner and everyone sitting in the various cafes stood up. It was the 4th of July and we were most likely the only Americans in the area. My eyes welled up and as I beamed with pride.
I always considered myself a patriot. I enlisted in the Army and volunteered for service in Vietnam. I have always taken pride in the accomplishments of our great country. However, when I saw some of the flag waving and heard the rhetoric of members of groups calling themselves patriots, I started questioning my own patriotism because my feelings were so far removed from theirs. I started wondering if they indeed are patriots, then how can I be. Then, somewhere along the way I heard a distinction made between two different kinds of patriotism, “ethnic” and “inclusive”. I was relieved to find that I was no less patriotic than I had thought of myself but just not an ethnic patriot.
In the simplest terms, Inclusive patriotism considers anyone a citizen of a nation, regardless of race, religion or ethnicity a legitimate and equal members of the nation. Ethnic nationalism on the other hand, views one particular group as being more legitimate than another. I believe that the various vocal patriotic movements attribute legitimacy to different groupings. Some believe that we are a Christian Nation (a young Southern Islamaphobe, when confronted with a comparison of Islam to Catholicism, responded that Catholics are not Christian), others a nation of European descendents, others an Anglo-Saxon and some still stick to the notion of a white nation. Though the outward agenda of the Tea Party are less government and lower taxes, I believe deep down inside many pine for return to an era when they perceive their group was the Country and everyone else and outsider. I don’t think that most patriots at the Tea Party rallies recognize that the patriot draped in the flag standing next to them is imagining a different country than they and in that country they may be outsiders.

Illegal Immigration

Most acknowledge that illegal immigration is an issue of National concern, however, as yet there have not been any reasonable solutions suggested that are both practical and humane. Some argue that the economy (in normal times at least) needs the work force provided by illegal immigrants. Others point out the strain placed on communities providing social services to them. There is also concern that the logistics of rounding up and deporting many millions of people would be impractical. However, with the hours of dialog I have heard, very little is said about the enterprises who hire illegal aliens thus providing the incentive to breach our borders. And there are many more arguments on both the Right and Left. I propose a program that might mitigate many of the concerns on both sides of the isle.
One problem is that there are many enterprises that employ illegal immigrants at below local wages creating unfair competition for local labor and a strong incentive to come into the US. A major requirement for this or any program to work is a stiff penalty for hiring illegal workers. This would, if enforced, curb the strong desire to come here. Without this we cannot build walls tall enough to keep people out.
The issue of what to do with the millions of illegal immigrants already here is more complex in that deportation is impractical and amnesty is unfair. I propose that we temporarily establish a category for workers who are here illegally. There would be a defined period during which they must apply for a Special Work Permit (Let’s call it a Blue Card). Anyone with a criminal record would not be eligible. This Blue Card would be issued only during this time and only to those who are already here, not to any arriving illegally in the future.
Employers would be allowed to hire anyone who is a US citizen, or an immigrant with a green or blue card or any other legal Work Permit. All laws regarding wages and working conditions would apply to all. Workers with a Blue Card and their dependants could live as any other legal residents as long as they have a valid Blue Card. Beside the normal taxes imposed on all residents of the Country, they would pay an additional tax or penalty. I anticipate that criminalizing employment of illegal workers would increase wages of jobs currently filled by illegal workers. Therefore, after the penalty, their wages would be at about the level they currently are. In a sense, the penalty would be shared by the former employers of illegal aliens, in that they now would need to pay competitive wages, and the formerly illegal immigrants.
Workers with Blue Cards and their immediate families would be eligible to receive all services available to any legal resident as long as they are in possession of the Card. To keep the Permit, they would need to be employed and paying taxes and penalties. In the event they lose a job, there would be a reasonable period of time for the immigrants to find a new one. Should they not find new employment in this period, they would lose the Blue Card and need to leave the country on their own or be deported. If they leave, they would not lose their position in line for legal emigration.
Workers with a Blue Card could apply for permanent residency and go into the same line as others in their country of origin applying for legal entry into the Country. However, if they are deported for any reason, they would lose their right to ever return to the US.
This program is not perfect but I believe it can be implemented. Some issues would be survival of companies that hire labor below rate and the added burden on businesses collecting the penalties. Another problem would be devising a method for identifying and deporting the illegal immigrants without a Blue Cards. Regardless of which program is implemented, there will be many hurdles to cross but I believe that with the program I propose, they will be much lower and less costly and more just.

Free Market Capitalism - A Thumbnail Sketch

Several months ago I tuned into an interview of Michael Steel, Chairman of the Republican National Committee, in which he contrasted the Democrats and Republicans as Democrats looking to Government for solutions while the Republicans look to business. This may be true but it points out that there is a general misunderstanding of the roles of Government and business in a Free Market Capitalist System and for that matter a lack of understanding of free markets. The subject is very complex and people have spent their lives studying and writing about it. I am going to be presumptuous and try to relate my layman’s understanding of the Free Market System. My insight, though at best amateur, is based on 30 years experience as a CEO of a Manufacturing Company, almost 70 years of living in various socio- economic circumstances, books, magazines, broadcasts and a series of lectures entitled “Thinking about Capitalism” by Professor Jerry Z. Muller of The Catholic University of America.
We have been trading commodities in markets since recorded time. Most things were grown or produced for family consumption. To meet the family needs large varieties were grown in small quantity. About a millennium ago people found that they could produce things much more economically if they grew or produced fewer things but in larger quantities. To make this strategy effective there needed to be a place to bring ones surplus and trade it for another’s. As time went on more and more items were traded and new markets created. In the 17th century, the Dutch East India Company was formed to trade luxury commodities acquired by various means, some pretty brutal, from faraway lands. The undertaking was very expensive and required capitol from numerous sources. This created a new market where individuals could provide capitol to ventures in exchange for a share in the anticipated profits. The industrial revolution with its division of labor, created a need for ever more manufacturing workers and labor became another item brought to market. Prior to that and well into the 19th century in Russia, most workers were either slaves or serfs under the control of landowners.

A way to think of the Free Market System is to contrast it to one using central planning as was the case in the Soviet Union before its collapse a few decades ago. This collapse has pretty much invalidated Central Planning and even China is moving to free markets. (It is important to point out that free markets do not imply democracy. Neither China nor Singapore is a democracy but both, with Singapore with the freest markets, are practice free market economics. However there are no democracies that do not employ Free Market Systems.) In central planning, the planner, most often the Government, develops a plan (in the case of the Soviets it was a 5 year plan) and based on that plan decides how much of what to produce and when and at what price to sell it. The Free Market System, on the other hand, assumes that understanding what, how much, when and at what price is far too complex an undertaking and a more efficient way to achieve this is to allow the markets to guide these decisions with individuals and enterprises, motivated by self interest, determining what and how much to make and at what price to sell it.
The System counts on the individual self-interest resulting in a collective good for society. The actions of individuals and enterprises are not expected to be, nor indeed are, altruistic. The goal is to maximize the benefit to the individual and in a Capitalist system to the owners of an enterprise. The term capitalist indicates that ownership of the means of production is private instead of in the hands of the Government. One of the many broad societal benefits is the reduction in price. As the demand for a good or service increases and supply dwindles, prices go up and new enterprises come to life to meet this demand. This new competition brings down prices making more and more products and services available to a broader range of society. An example often cited is that of silk stockings, where they were once available to only the wealthiest ladies, with competition created through a Free Market System, they were made available to the “girls working in factories”.
At a point, equilibrium is reached when the prices start approaching the costs (perfect competition). The natural forces want to drive a market toward perfect competition bringing down prices but reducing profits. A way of increasing or maintaining profit, which is also beneficial to society, is to differentiate. The more differentiated a product or service the greater the opportunity for larger gains. This quest for differentiation leads to innovation by providing new, better and cheaper products and services. Another benefit (my favorite) of free markets is the creation of markets for more and more individual characteristics, skills and talents. There is now a market for large men in pro football, tall men in basketball, pretty women in modeling and news casting, antisocial individuals in computer programming (sorry computer fanatics), insecure people in the theater, and attention deficit disordered ons in upper management. As time goes by more and more markets will arise for what are now considered useless attributes or even shortcomings. The system works and the economic success of the United States proves it.
Other ways of maximizing profits, however, actually work against the general good. Some of these are driving wages down, eliminating competition through unethical means such as predatory pricing, conspiring to fix prices, and creating monopolies. Often actions that benefit the individual or enterprise like those leading to pollution, are also detrimental to society. A single small firm may not do any damage but the effect of large numbers of polluters can be devastating. I liken this to a family using antibacterial soaps. It is very good for the family in that it will decrease the number of ailments. However the overuse of antibacterial soaps broadly by a society leads to an evolution of new and increasingly more difficult to defeat bacteria which is bad for society and ultimately the family in question.
Following is an excerpt from Professor Muller’s notes regarding Adam Smith’s thoughts. Adam Smith is highly regarded by today’s business community though the fact that he was a Moral Philosopher and in his later years worked as a public servant, embarrasses many conservatives.
“Adam Smith (1723-1790) began his career as a Professor of Moral Philosophy, and he took his moral concerns into his study of what he called “commercial society” and the new science of political economy. The goal of the market economy, as Smith conceived of it, was to make possible ongoing rise in the standard of living of the vast majority of the population. In The Wealth of Nations (1776), he laid out a model that explained how a competitive market channeled self-interest in socially beneficial directions. It did so by making commodities available at cheaper prices, affordable by ever-broader portions of the population. This is the famous “invisible hand” – a metaphor for institutional arrangements that channel self-interest toward socially desirable outcomes.”
Today there is a lot of chatter about “too much Government”, “too little Government”, etc. At an intellectual level, the question should be whether the markets can indeed regulate themselves and what if any is the role and the size of Government in a Free Market Capitalist Society. Unfortunately, politics does not operate on an intellectual level. Following is another excerpt from Professor Muller’s notes regarding Adam Smith’s thoughts.
“Smith thought that commercial society had the potential of making people not only better off materially, but also of improving their character. It had a propensity to promote certain positive character traits, such as industriousness and probity (honesty). It held out the possibility of a society in which most people would be more self-controlled, prudent, and free. That was no small achievement. Under the right institutional conditions, a capitalist society could make people better, as well as better off. But where the rule of law was lacking – or where there was inequality before the law, as in the case of slavery or of colonial companies- commerce could lead to immoral outcomes.”
There are a number of broad categories of markets; a market for goods and services, a market for labor and one for capital. In each of these you have buyers and sellers. The providers of goods and services, besides buying other goods also buy labor. Because the higher their cost, the lower the profits, the buyers want to keep the cost of materials and labor as low as possible. The providers of labor, on the other hand, also for self serving reasons want to get the best price for their labor. The capital markets are more complex in that almost everyone in the industrialized world today is both providing and consuming capital. When a worker puts their savings in a bank they are in fact providing capitol and when they borrow, they consume capitol. Enterprises borrow money and exchange equity for capitol and uses profits to invest in means for increasing profits. An individual taking out a loan against their credit card or a mortgage is consuming capital as is an enterprise that borrows money from a bank or sells shares to an investor.
In general when people think of individuals selling labor they think of the factory worker. However the CEO, unless they are the owner of an enterprise, sells his labor as do the athletes or actors earning millions. Maybe it is better to think of labor as falling into two broad categories; workers and professionals. In fact the law treats the two groups differently. I don’t know if it is because workers are considered inferior or union activity, but laws are passed to protect them that do not apply to professionals. I also suspect that the general public does not think of professionals as selling labor and tend to lump them in with business people.
The sellers of goods and services should also be segmented. There are the owner operated businesses and the businesses that are owned by a diverse group of individuals through stocks in the enterprise. Generally small businesses fall into the owner operated enterprises and are thought of as entrepreneurial while large enterprises not operated by owners, though generally considered entrepreneurial, are in fact bureaucracies run by administrators. The person with a one man plumbing business, a farmer, restaurant owner a partner in a law office a doctor with their own practice all are entrepreneurs while the CEO of a multi-billion public corporation, a doctor working in a hospital, a corporate lawyer, a plumber working for someone, a policeman and a farm hand are all selling their labor. A case in point is the recent California Republican primaries won by Meg Whitman and Carly Fiorina. Both are painted with the same brush but Meg was the founder of e-Bey and thus an entrepreneur while Carly was the CEO of Hewlett Packard, an administrator, and not a particularly good one at that. (She was fired by the Board)
Getting back to Michael Steel, I don’t believe his comparison of government and business is valid. The government, however good or bad, large or small has as it responsibility the well being of the society which has put it into office. Leaders of business on the other hand are there to maximize benefit to themselves or in the case of administrators, to the owners and occasionally to other constituencies and any benefit derived by the society is strictly coincidental. The Markets are constantly attacked from both the left and the right, each vying for legislation to advantage their constituencies, the sellers and buyers of labor. When properly reigned in, the free market has proven to serve the general good effectively, certainly more so than the competing systems. Yes, Democrats look to the Government. Republicans however, don’t look to business but to the modern equivalent of aristocracy. The free market, unfettered, has no morals, respects no communities, and constantly innovates and destroys. It supports self-interest in whatever fashion and by whatever means. It is innovative and this innovation, often led by intellectuals and the “newly moneyed” has historically been considered a threat to the existing institutions. The responsibility for conserving them fell to the aristocrats in the early stages and their equivalent today. Following is another excerpt from Professor Muller’s notes.
Edmund Burke (1729-1797) offered a conservative analysis of the hazards posed by some forms of capitalism to the politics and culture of an already commercialized society. As a member of Parliament, he became the leading critic of the British East India Company. He argued that the company’s agents, in search of gain and unrestrained by the inherited culture of England, were riding roughshod over traditional Indian society. Burke then applied this analysis to the French Revolution in “Reflections on the Revolution in France” (1790), his seminal work of conservative thought. He argued that the revolution was propelled into dangerous radicalism by a combination of radical intellectuals and newly rich entrepreneurs who were oriented toward risk and failed to appreciate the existing institutions and their society.
The conservatives want to preserve the institutions, customs and mores but the free market with its innovation is always assailing these. Innovation is threatening in that its outcome is unpredictable and intellectuals who studied, discussed and encouraged change were suspect from the very earliest times. At the onset of Free Market Capitalism, the task of reigning in this innovation and the intellectuals promoting them was left to the aristocracy. It was up to them to preserve the institutions and mores. Here, where we have no aristocracy, that role is relegated to the old moneyed gentry who, to preserve their advantage preserve the institutions. In Burkes eyes the restraints must come from the “inherited culture” (aristocracy) and not the law (government).
Most swords have two sharp edges. There is a downside to all the innovation facilitated by free markets. As new things arise, old things die. As enterprises and industries are supplanted by competition or technology, in the wake they leave behind people in great distress. The slave labor that created a tremendous agricultural and great wealth to plantation owners in the south left behind a large population without means, a lost culture and tremendous obstacles to integration into society. Competition from abroad (remember that markets, if free, know no borders) devastated the textile and shoe industries leaving hundreds of thousands (it may be millions) unemployed. In the current times more and more well paying manufacturing jobs are being lost and there are new jobs emerging requiring totally different skills often paying lower wages. I was watching proceedings of an American Enterprise Institute, a conservative think tank and I heard Arthur Brooks, the speaker use a term I had not heard before when referring to the bottom of the socio-economic ladder, “free riders”. I believe that this suggests that these people through their choice, are along for the ride without contributing. When thinking back to the days of slavery, I wonder if the slaves or the masters were the free riders.
Republicans, being conservative want to restrain the market by conserving the existing institutions and providing an advantage in the market to the new aristocracy on whom they rely to maintain the “inherited culture”. Democrats look to Government, through its policies and laws to provide this restraint and to make sure that the damage done to the people at the bottom by the displacement caused by innovation is contained. Bothe in their way trying to make sure that the markets work for the general good, one for the good of community, the other for the good of society. I am not critical of self interest when properly guided. The System works. But we need to keep in mind that any societal benefit derived through business is strictly coincidental. In fact I suspect that any CEO of a public company who makes a decision to advance the public good at the expense of profits or future growth would keep a few law firms in business fighting suits by shareholders.