"Angels can fly because they take themselves lightly." – G. K. Chesterton

Archive for the ‘Economics’ Category

The return

I’ve been absent from this blog for almost three months.  Much has happened during that time.  General David Petraeus gave us a good, old-fashioned sex scandal.  Congress took us to the brink of the “fiscal cliff”, then reached a deal to raise taxes a small amount on a small number of people.  I read a lot of books.  Some movies came out in theaters, which I ignored.  A relative of mine had surgery and another entered a long-term therapy program.  Winter weather in Virginia was unusually mild, though the Northeast got pummeled.  The Pope stepped down.  And today, a mere two months after the aversion of the fiscal cliff, we are at the start of the next financial doomsday: “the sequester”.

The deal is this.  Nineteen months ago, there was showdown in Washington.  Congressional Republicans demanded budget cuts and refused to raise the debt ceiling without them.  President Obama at first insisted that he wouldn’t accept cuts without tax hikes, which the GOP naturally opposed.  The final deal was as follows: Congress voted to raise the debt ceiling along with a guarantee that one of two things would happen.  Either the parties would agrees to cuts totaling about a trillion dollars over the next decade, or else there would be across-the-board cuts to every discretionary government program.

In November of 2011, the “supercommittee” tasked with finding a compromise failed to approve anything, so the across-the-board cuts became the only option.  Originally they were scheduled for Jan. 1 of this year along with the expiration of George W. Bush’s massive tax cuts–that was the “fiscal cliff”.  The President and Congress agreed on a tax deal, while the spending cuts were delayed until March 1–now.  This time no compromise appeared to save the day and now the cuts are going into effect.

Some predict disaster.  On one front, the President and his allies say that drastic cutbacks will hit social services, leading to everything from longer lines at airports to criminals being released from prison.  On the opposite side, Republicans insist that the military will be gutted.  Here in my humble corner of the nation, I predict not much will happen.

First of all, there are no actual cuts to the government.  Federal spending will increase this year, and next year, and the year after.  The sequester only slightly reduced the rate at which federal spending is going up.  Almost all federal programs are bloated and could afford a small reduction in budget without many consequences.  The Department of Defense does not actually defend the United States.  It attacks other countries and sucks up money via useless pork-barrel projects.  The less money it has, the better off we all are.

So I say: Sequester away!

What I’m Reading: I. O. U. S. A.

I. O. U. S. A. has a complicated historyFirst there was a book called Empire of Debt.  That inspired a documentary called I. O. U. S. A.  Then the movie-makers felt the need for a book based on the movie.  Hence we have the book I. O. U. S. A.

In the introduction, the filmmakers acknowledge the difficulty of making a movie about the national debt, a topic synonymous with boredom for most people.  Yet they also try to emphasize that to them, the topic is very important.  Our national debt is huge and getting bigger and has the potential to bring catastrophe to the nation.  Hence they made the documentary and later the book.  The result is a work that at once serves as a good introduction to the problem and an explanation of why the problem probably won’t be solved.

On the first point, the book gives a clear summary of the debt problem for economic novices.  The authors walk us through a series of fundamental points. (1) The United States government, like almost all modern governments, spends more money than it takes in, and thus has a debt. (2) We finance our debt by selling bonds to investors, and promising to pay a certain annual interest rate on those bonds. (3) Thus we are entirely dependent on a group of investors willing to hold our bonds for the interest rates that we’re willing to offer. (4) When national debts get too big, the investors get skittish about their interest payments and start to dump the bonds.  Once this happens, it starts a downward cycle that leads to national insolvency and economic disaster.

All of this ought to be common knowledge.  It’s a tribute to the lousiness of our national education system that many people don’t even understand what government bonds are or how we pay for our national debt.

From there the book proceeds to chapters on our “four deficits”.  Besides the national deficit, there’s the trade deficit, the savings deficit, and the leadership deficit.  These chapters are also laid out with admirable simplicity and clarity, yet the long-term consequences if we don’t deal with them are not neglected.  The book wraps up with a series of interviews with major financial players such as Warren Buffet, Paul Volcker, and alan Greenspan.

So that’s the good part of I. O. U. S. A.  What’s the bad part?  The bad part is that the authors never escape the boredom trap.  They offer thunderous declarations about how important the topic is and how we can’t afford to ignore it, yet their respondes smack very much of politics-as-usual.  For example, in the opening chapter we get this: the Comptroller General “has totaled up the government’s income liabilities and future obligations and concluded that our current standard of living is unsustainable unless some drastic action is taken”.  Yet two pages later we learn of the same individual’s response: “he hosts a series of luncheons and civic meetings around the country, which he’s dubbed the Fiscal Wake-Up Tour.”

So we’ve got luncheons.  We’ve got civic meetings.  And we’re calling it by the hair-raising, pulse-pounding name of “the Fiscal Wake-Up Tour”.  What’s next?  Founding a committeee?  Perhaps even creating a task force?  The national debt certainly is a huge problem.  It’s too big to be solved by the current political system.  If the problem is to be solved, we need some innovative approach to bringing it to public attention.  This book does not offer that.

Do I Really Hate Economics

Last year I wrote a couple of posts on my hatred of economics.  I haven’t written much on the topic since then, as the presidential election has grabbed more of my attention.  Just a few days ago, a commenter challenged me to consider whether I truly hate economics, or just certain schools of thought within the field.  I’ve considered the question, but rest assured: I still hate economics.

Of course, at some times I’ve expressed some liking for certain types of economics.  My previous post is about Biblical economics.  I’ve had high praise for E. F. Schumacher’s book Small is Beautiful: Economics as if People Mattered.  But the things that I like are so far outside the mainstream that most people wouldn’t even identify them as economics.  The type of economic thinking that actually influences our nation and most others is entirely loathsome to me.

The major economic debate right now concerns government spending.  Broadly speaking, President Obama and the Democrats offer a federal budget that grows by several trillion dollars over the next decade or so.  The Republicans prefer a proposal from Congressman Paul Ryan that also adds trillions of dollars to the budget, but fewer trillions than the Democratic proposal.  There were already several major fights about the budget last year.  Several more are shaping up for this year and the years ahead.  The details vary but the centerpiece is the same.  The Democratic plans always involve higher taxes on the wealthy and slightly more spending on education and other Democratic priorities.  The Republican plans never involve tax hikes and always involve a bit more for the military and other Republican priorities.  But both parties agree on the majority of government spending for the near term.  Both agree that we’ll have an enormous military, nearly ten times larger than that of any other country.  Both agree on hundreds of billions of dollars for transportation, agriculture, and other departments, money that mostly ends up financing wealthy individuals and corporations.

The debate is not really about spending.  The debate is about “growth”.  You can pick up almost any newspaper and magazine or turn on any news channel and see the talking heads arguing about growth.  Each side insists that their policies will produce growth while the other side’s policies won’t.  Each side points to individual incidents that supposedly support them.  Greece imposed austerity measures and unemployment got worse.  California has high taxes and suffered an economic disaster.

Neither side ever asks the question of whether growth is always good, or what type of growth we should aim for.  There are many types of growth.  Growth is Gross Domestic Product (GDP) is the most commonly used one, but there’s also growth in jobs, manufacturing, home construction, and countless other things.  What both the Democratic and Republican talking heads agree on is that growth in any of these areas is always good.  If we manufacture more stuff this month than last month, that’s a “positive reading”.  If we build more houses this year than last year, it can only be good.

A sensible economic policy would start with the question of what we want?  Do we always want growth?  Should we always want growth?  Is manufacturing more junk necessarily good for us?  Will more houses always be a good thing?  Over the past decade we built far too many houses and, as a result, the housing sector entered a tailspin that wrecked first our economy and then much of the world’s.  Few people would deny this, yet we see no mainstream economist suggesting that we revise our approach to growth.

If we were, as a society, to shift from loathsome economics to human economics, we’d start by broadening our aims.  We would consider all the consequences of growth in a particular sector.  We would consider how manufacturing affects the environment, supplies of limited resources, and the social structure as well as how it affects the amount of stuff we have.  We would consider the age-old question of whether owning more stuff actually makes people happier.  We would consider how any policy actually affects human well-being in its entirety rather than just how it affects narrow economic definitions.  Then there would be less reason to hate economics.

Biblical Economics

The first minister I ever met after converting to Christianity often made fun of books with titles like The Seven biblical Principles for a Happy Marriage.  He would hold up a copy of the Bible and thumb through the pages while challenging anyone to find him a happy marriage in these pages.  The point was funny but also sound.  We should not try to pretend that the Bible directly addresses modern issues that it actually doesn’t address, and we shouldn’t try to cram our favorite mottos and messages into Biblical stories if they aren’t actually there.

There’s a similar problem with trying to find any financial advice in the Bible.  The Bible was written thousands of years before modern economic systems existed, and hence it does not directly address modern economics.  It does, however, contain stories, songs, prayers and sermons whose principles are valid across the ages, and with that in mind we may look for hints of what direction we should move in.

Every intelligent person knows, of course, that the Book of Genesis is a worthless collection of old fairy tales that no one can take seriously anymore; I’ve heard internet users say so scores of times.  I’m not here to comment on the validity of that assertion.  In chapter 41 of Genesis, Pharoah has two dreams and asks for someone to interpret them.  Joseph is brought from prison and explains the meaning of the dreams: there will be seven years of abundance, followed by seven years of famine.  Joseph then advises Pharoah to store up grain from the good years so that his people will have plenty to eat during the lean years that follow.  This proves to be a good advice, though again I offer no commentary on whether the Book of Genesis contains anything worthwhile for modern readers.

The United States of today is in a position similar to the Egypt of four thousand years ago.  We are a wealthy, powerful nation with plenty for ourselves and the might to intimidate every nation around us.  We have also had a time of abundance.  From roughly 1983 to 2007, we have experienced the greatest prosperity of any nation in world history.  So did the nations of western Europe and other first-world nations.

Now what did we do with that amazing prosperity?  One who wasn’t in touch with events might think that we’d take advantage of it by putting ourselves on a solid future.  Surely we would pay down our debts, repair crumbling infrastructure, build up schools and other institutions that would guarantee our future.

Of course we didn’t do any such thing.  Our governments (federal, state, and local) squandered its surpluses on uselss foreign wars, corporate handouts, and jacking up spending in any area you’d care to name.  Corporations bid it all on short-term schemes and  “bubbles”.  Individuals went hog-wild on massive houses, SUVs, HD TVs and other junk that they couldn’t afford.  Not only did we spend all the fruits of our prosperity, we even took out massive loans to finance even more binge spending.

Then 2008 came, and the first bills started to come due.  They are still coming due today.  They will be coming due for a long time to come, and almost everyone in the western world will eventually have to put up with a lower standard of living than what we were used to.

If we had collectively approached fiscal decisions in the way that Joseph recommended to Pharoah, thinks might have gone differently.

Republicans are full of gas

This continues from my previous post.  To summarize, President Obama has done a great many things wrong; raising gas prices is not one of those things.  Gas prices are determined on a worldwide market by supply and demand.  President Obama cannot make global demand go down, nor can he make global supply go up.  Therefore nothing President Obama could do would change the price at the pump, at least not by very much.

“But wait!” I hear the Republicans say.  “President Obama can increase the global supply!  All he has to do is cut all those government regulations and soon we’ll be able to drill all the oil we want.”  Sounds superficially convincing.  There are regulations on oil drilling, regulation does often prevent commodity production and send prices upwards.  So the Republicans have been proved right after all.

Or have they?  To answer that, we’ll need some numbers.  (All easily verifiable from the latest CIA World Fact Book or countless other sources.)

Worldwide, humanity produces and uses about 88 millions barrels of oil per day.  Of that number, the United States uses about 15 million barrels per day.  Slightly less than half that much is pumped in the US itself, while the rest we import.  That works out to importing about 3 billion barrels per year.  for the past 30 years, our oil consumption has risen steadily while our production has fallen steadily, regardless of who’s been in the White House.  Thus we’ve ended up importing more and more.

Could we actually produce enough to meet our own needs?  The Republicans are sure that we could.  They often toss around a figure of 1.4 trillion barrels reading to be pumped in the United States.  On the other hand, the CIA World Fact Book gives a somewhat smaller figure: 20 billion barrels of proven reserves.  If the first figure is correct, we could easily produce enough for ourselves for centuries to come and have plenty left over.  If the second figure is correct, then it’s a fairly trivial amount.  It would satisfy our own needs for only three or four years, after which we’d run out and be right back to importing at high costs from wonderful countries like Saudi Arabia and Venezuela.

So it all comes down to which figure is correct.  And here’s the rub: the two figures are measuring completely different things.  The CIA’s figure measures the amount of actual petroleum that we’re sure is in the ground and accesible.  The figure that Republicans toss around on their message boards–who knows where they got it–supposedly summarizes all existing oil in the United States.  That includes not only liquid petroleum but also tar sands and shale oil.

But alas, just because oil exists doesn’t mean that we can turn it into gas at the pump.  First of all, some of it exists in hard-to-get places, buried under miles of rock or miles of water or both.  Drilling into those places is sometimes impossible, always expensive, and always risky.  Things like this can happen:

(It wasn’t called “Deepwater Horizons” for nothing.)

As for the tar sands and shale oil, it’s quite expensive to get oil out of those sources too, and once it’s out it’s costly to refine the stuff, much more costly than refining liquid petroleum.  As a result it’s often not cost-effective to get it at all.  Moreover, as gas prices go up, the cost of building and running the huge mining projects that make the stuff also go up, and in fact several large oil-production projects have been cancelled because the oil necessary to build them is too expensive.

Lastly, there is this little issue called “the environment”.  To get gas out of shale, we must use a process called “hydraulic fracturing”, or “fracking” for short.  And what are the environmental effects of fracking?

With hydrofracking, a well can produce over a million gallons of wastewater that is often laced with highly corrosive salts, carcinogens such as benzene and radioactive elements such as radium, all of which can occur naturally thousands of feet underground. Other carcinogenic materials can be added to the wastewater by the chemicals used in the hydrofracking itself.

While the existence of the toxic wastes has been reported, thousands of internal documents obtained by The New York Times from the Environmental Protection Agency, state regulators and drillers show that the dangers to the environment and health are greater than previously understood.

The documents reveal that the wastewater, which is sometimes hauled to sewage plants not designed to treat it and then discharged into rivers that supply drinking water, contains radioactivity at levels higher than previously known and far higher than the level that federal regulators say is safe for these treatment plants to handle.


Gas prices

Gas prices in my next of the woods are about $3.60 per gallon.  The national average is slightly higher, or so my sources tell me.  As always happens when prices go up, Republican pundits are in overdrive, trying to blame this on President Obama. Cute little graphics showing that the price of gasoline has risen from about $1.80 per gallon to its current level during Obama’s Presidency are popping up on every conservative blog and website you’d care to name.  Message board posters are getting into the act by the dozen.  It’s a curious phenomenon, that while the President has done so many things wrong, the Republican mob attacks him for something that’s totally unrelated to anything he’s done.

Indeed, it wasn’t so long ago that Repubicans typically expressed belief in the free market.  Producers of a product offer it at a certain price, and customers may choose to buy it or not.  When more customers want to buy it the producers raise their price to get more money.  When there’s less of the product available, customers are willing to pay more to ensure that they get enough.  These two forces, supply and demand, determine the price of the product.

Right now, gas prices are rising because of supply and demand.  On the demand side, hundreds of millions of people in places like China and India, who formerly moved around on bicycles or donkeys or even (gasp!) on foot, are now able to afford cars, and thus they need gasoline.  This means higher demand.  On the supply side, deposits of petroleum are running dry in many places.  While a few new deposits have been found recently, they’re not much in global terms, so worldwide production has been close to flat for years:

Combine these two effects and what do you get?  Higher prices, of course.

(The subject continues here.)

Day 26: A book that changed your opinion about something

Near the end of my second year of graduate school, Chesterton’s book Orthodoxy converted me to Christianity.  I was naturally eager to read more Chesterton.  What’s Wrong with the World was among the next Chesterton books that I read.  (It’s also, incidentally, the first book that I read entirely online.)  Of all the books I’ve ever read, this one has the clearest and most self-explanatory title.  It is, indeed, about what is wrong with the world.

Fundamentally there are two fields in human experience: the individual field and the social field.  Many great observers of humanity have one well-known book in each field.  Augustine covered the individual field in the Confessions and the social field in The City of God.  Aristotle had the Nicomachean Ethics and the Politics.  Chesterton covered individual issues in OrthodoxyWhat’s Wrong with the World covers social issues.

Bluntly what’s wrong with the world is that people these days care about institutions rather than humans.  Capitalists have decided that we must have big businesses.  They judge all policies, programs, and ideas by whether or not those things benefit big business.  Socialists care about big government, and likewise judge all things by their relation to big government.  Neither side puts human beings first.  In the century since Chesterton wrote these books, both sides have fiddled with the details but the underlying message that we must have either big business or big government remains the same, and still drives almost all punditry and political campaigns.

A right and reasonable approach would put human beings first.  It would begin with ordinary, individual human beings.  It would have a strong awareness of their wants and needs, the characteristics, their strengths, and their weaknesses.  It would then build a set of philosophical, political, and economic thought based on what is good for humanity.  It would not try to change humanity to meet the needs of any dogma, but would instead craft the dogma around the needs of the humans.  This book explains how we might do that.  As always, the best introduction is a sample:

A book of modern social inquiry has a shape that is somewhat sharply defined. It begins as a rule with an analysis, with statistics, tables of population, decrease of crime among Congregationalists, growth of hysteria among policemen, and similar ascertained facts; it ends with a chapter that is generally called “The Remedy.” It is almost wholly due to this careful, solid, and scientific method that “The Remedy” is never found. For this scheme of medical question and answer is a blunder; the first great blunder of sociology.  It is always called stating the disease before we find the cure.  But it is the whole definition and dignity of man that in social matters we must actually find the cure before we find the disease .

The fallacy is one of the fifty fallacies that come from the modern madness for biological or bodily metaphors. It is convenient to speak of the Social Organism, just as it is convenient to speak of the British Lion. But Britain is no more an organism than Britain is a lion. The moment we begin to give a nation the unity and simplicity of an animal, we begin to think wildly.  Because every man is a biped, fifty men are not a centipede.  This has produced, for instance, the gaping absurdity of perpetually talking about “young nations” and “dying nations,” as if a nation had a fixed and physical span of life.  Thus people will say that Spain has entered a final senility; they might as well say that Spain is losing all her teeth.  Or people will say that Canada should soon produce a literature; which is like saying that Canada must soon grow a new moustache.  Nations consist of people; the first generation may be decrepit, or the ten thousandth may be vigorous.  Similar applications of the fallacy are made by those who see in the increasing size of national possessions, a simple increase in wisdom and stature, and in favor with God and man.  These people, indeed, even fall short in subtlety of the parallel of a human body. They do not even ask whether an empire is growing taller in its youth, or only growing fatter in its old age.  But of all the instances of error arising from this physical fancy, the worst is that we have before us: the habit of exhaustively describing a social sickness, and then propounding a social drug.

Now we do talk first about the disease in cases of bodily breakdown; and that for an excellent reason. Because, though there may be doubt about the way in which the body broke down, there is no doubt at all about the shape in which it should be built up again. No doctor proposes to produce a new kind of man, with a new arrangement of eyes or limbs.  The hospital, by necessity, may send a man home with one leg less: but it will not (in a creative rapture) send him home with one leg extra. Medical science is content with the normal human body, and only seeks to restore it.

But social science is by no means always content with the normal human soul; it has all sorts of fancy souls for sale. Man as a social idealist will say “I am tired of being a Puritan; I want to be a Pagan,” or “Beyond this dark probation of Individualism I see the shining paradise of Collectivism.” Now in bodily ills there is none of this difference about the ultimate ideal.  The patient may or may not want quinine; but he certainly wants health No one says “I am tired of this headache; I want some toothache,” or “The only thing for this Russian influenza is a few German measles,” or “Through this dark probation of catarrh I see the shining paradise of rheumatism.” But exactly the whole difficulty in our public problems is that some men are aiming at cures which other men would regard as worse maladies; are offering ultimate conditions as states of health which others would uncompromisingly call states of disease. Mr. Belloc once said that he would no more part with the idea of property than with his teeth; yet to Mr. Bernard Shaw property is not a tooth, but a toothache.  Lord Milner has sincerely attempted to introduce German efficiency; and many of us would as soon welcome German measles.  Dr. Saleeby would honestly like to have Eugenics; but I would rather have rheumatics.

This is the arresting and dominant fact about modern social discussion; that the quarrel is not merely about the difficulties, but about the aim. We agree about the evil; it is about the good that we should tear each other’s eyes cut.  We all admit that a lazy aristocracy is a bad thing.  We should not by any means all admit that an active aristocracy would be a good thing. We all feel angry with an irreligious priesthood; but some of us would go mad with disgust at a really religious one.  Everyone is indignant if our army is weak, including the people who would be even more indignant if it were strong.  The social case is exactly the opposite of the medical case.  We do not disagree, like doctors, about the precise nature of the illness, while agreeing about the nature of health.  On the contrary, we all agree that England is unhealthy, but half of us would not look at her in what the other half would call blooming health . Public abuses are so prominent and pestilent that they sweep all generous people into a sort of fictitious unanimity.  We forget that, while we agree about the abuses of things, we should differ very much about the uses of them.  Mr. Cadbury and I would agree about the bad public house.  It would be precisely in front of the good public-house that our painful personal fracas would occur.

I maintain, therefore, that the common sociological method is quite useless: that of first dissecting abject poverty or cataloguing prostitution. We all dislike abject poverty; but it might be another business if we began to discuss independent and dignified poverty. We all disapprove of prostitution; but we do not all approve of purity. The only way to discuss the social evil is to get at once to the social ideal.  We can all see the national madness; but what is national sanity?  I have called this book “What Is Wrong with the World?” and the upshot of the title can be easily and clearly stated.  What is wrong is that we do not ask what is right.

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