Despite the tremendous costs in life, limb, and treasure can it rationally be claimed that wars are sometimes worth it? Some would answer with a resounding no. Jeannette Rankin (1880-1973) R-MT who was the first woman elected to the U.S. House of Representatives voted against United States participation in WWI and for good measure was the only member of congress to vote against the USA entering WWII. Would you believe it – she was a pacifist. Her modern day equivalents are not so much true pacifists as they are simply philosophically opposed to whatever actions are taken by Republican administrations, especially if headed by G.W. Bush.
What are the attitudes of people, in particular voters, concerning going to war and once at war, staying the course until the war is either won or lost? I would maintain that putatively everybody loves a winner and conversely loathes a loser. In August 1864 just three months before the presidential election, Lincoln said that unless something changed he was not only going to be beaten, but beaten badly. After more than three years of war and with horrendous casualties the people of the North were war weary with no end of the war in sight. Small wonder that Lincoln was so pessimistic about his reelection chances. In fact Lincoln wrote out a plan to attempt to save the Union to be implemented between the time of the election (1st Tuesday of November) and the inauguration of the new president (then the 4th of March 1865). As Lincoln said, the new president (former Union Armies commander, George McClellan) would have secured the election on conditions such that he could not possibly save the Union after the election. It is instructive that Lincoln sealed his plan in an envelope and had all of his cabinet sign the envelope without reading it. The men in Lincoln’s cabinet, Sec. of State, Wm. Seward (later, in 1867, he was stupidly derided with the appellation of “Seward’s Folly” for being instrumental in the purchase of Alaska from Russia. We need more such ‘foolish’ people in government); Sec. of Treas., Salmon Chase; Sec. of War, Edwin Stanton; Sec. of the Navy, Gideon Wells; Attn. Gen., Edward Bates; Postmaster Gen., Montgomery Blair; Sec. of Interior, John Usher initially all thought they would do better as president than Lincoln, but by 1864 realized how mistaken they were and by this time had so much confidence in Lincoln that they would sign off on an important presidential document without reading it.
Things changed, of course, with the taking of Atlanta by Gen. Sherman, the destruction of the Confederate breadbasket, the Shenandoah Valley by Gen. Sheridan, and the conquest of Mobile Bay by Adm. Farragut. With the fortunes of war now firmly on the side of the North, Lincoln swept to an electoral landslide winning 212 out of 233 electoral votes and a 400,000 popular vote margin (equivalent to 4,000,000 today). As I said, everybody loves a winner. N’est-ce pas?
Woodrow Wilson ran for reelection in 1916 on the slogan “He kept us out of war.” With Wilson reelected the United States did enter the war in 1917, but American troops fought for only about 15 months and suffered 116,500 deaths vs. 405,000 in WWII and 620,000 in the Civil War so there was not sufficient time for the general public to recoil from the slaughter of this most unnecessary and bloody war. Of all the wars in the 19th, 20th, and 21st centuries, certainly the ones the USA fought in, the First World War was the one which had the least excuse to have been undertaken not only by the United States, but especially by the European nations. It is not just the carnage the war wrought, but it was a major causative factor of WWII.
Once Germany, Italy, and Japan launched their military expansionism, the Allied countries led by Great Britain and the United States had no other option than responding with their own military might. From the Allied nations standpoint the Second World War was a necessity. The alternative was to have been conquered and subjugated.
While there was some opposition in this country to the Spanish-American War (April – August 1898) it was minor at most. Why? We won. And the war was of a very short duration. Nevertheless, consider the ethical and moral factors. The United States committed unjustified military aggression against Spain forcing them out of Cuba, the Philippines, Guam, and Puerto Rico. One can make a case that Spain was a colonial power who had no moral imperative to occupy those lands, yet who appointed the USA as the international sheriff?
The casus belli for the conflict was flawed – either deliberately wrong or mistakenly wrong. The battleship USS Maine blew up in Havana harbor and the cause was attributed to sabotage by the Spanish. In fact it was poor ship design. Owing to heightened tension between Spain and the United States the fires for the ship’s boilers while the ship was waiting in the harbor were never banked so as to be ready to get underway in a minimum of time. This resulted in the single bulkhead separating the boilers from the powder compartment where the powder for the ship’s guns was stored (the poor design) overheating, thereby setting off the powder.
Initially President Wm. McKinley resisted a military solution, choosing diplomacy to try to force concessions from Spain towards Cuba. After the Maine blew up killing 260 seamen, McKinley capitulated to public pressure by endorsing a declaration of war against Spain by congress on April 25, 1898.
The Mexican-American War of 1846-48 generally had high approval in the United States. Not only did American generals Winfield Scott and Zachary Taylor (he was elected president in 1848) win all of their important battles, but there was a mood in the country at that time of ‘Manifest Destiny’ – the belief in the inevitable territorial expansion of the United States in North America. The USA gained over ½ million square miles as a result of the war. One can argue whether this war and the resulting acquisition of territory were just. One might also hold that given the millions of Mexicans who have illegally enter this country to find jobs and entrepreneurial opportunities, perhaps the USA should have taken over all of Mexico at that time.
Not everyone agreed back then that the war was necessary and proper. A first term Whig congressman from Illinois made a speech on the floor of the House of Representatives strongly condemning not only the war, but Democrat president James Polk as well. He was Abraham Lincoln. One and a half decades later Lincoln would receive his own harsh criticism for leading the country into war. Isn’t there a cliché about “what goes around…….?”
Can the Korean War be defended without paralogistic argument? How about the Vietnam War? The First Iraq War, the Afghanistan War, the Second Iraq War? I can absolutely guarantee there is wide disagreement by the public as to how these questions would be answered even if some respond in the negative, ispe dixit. The war against the Taliban & al-Qaeda in Afghanistan after 9/11 clearly has the highest approval rating and the fewest number of dissenters with perhaps the Vietnam War the least popular. There is a commonality among these conflicts. The ones which were won or appear to be going well are the most popular. The United States lost the Vietnam War – not on the battlefield, but we lost. The Korean War was stalemated. Neither was popular. The popularity of the current wars in Iraq and Afghanistan will be determined by their final resolution. If the results ending up being beneficial for the United States then their approval is assured and naturally if their outcomes are detrimental to the interests of the USA, unpopular. Yes, I am saying the moral aspects of these wars are not the determinate of their acceptance by the general population of our country. That is my claim even if I can not assert it apodictically.
I am reminded of the dialogue in the movie Unforgiven between the characters of the old gunfighter played by Clint Eastwood and the sadistic sheriff played by Gene Hackman. Eastwood is about to dispatch Hackman to the ‘undiscovered country from whose bourn no traveler returns’ with a bullet from a Spenser carbine (invented during the Civil War). Hackman says “I don’t deserve this.” Eastwood responds, “Deservin’ got nuthin’ to do with it.” Similarly the popularity of war is largely independent of moral concerns, but rests on the outcome. It is not just from the likes of Shakespeare, Alexander Pope, or even Eric Hoffer where insightful apothegmatic philosophy can be found.
Friday, July 27, 2007
Friday, July 20, 2007
THE MYTH OF SOCIAL INSECURITY 26
With the Social Security debate now coming to the foreground in the New Year (it has not been particularly deep in the background for some years now) it is time for me to weigh in on this issue in my perhaps mistaken, but certainly non conventional style. One person who will not be discussing SS as an elected member of congress is the former Congressional House Speaker, former House Minority Leader, 2004 Democratic primary presidential candidate, and now private citizen as the 109th congress convened in January 2005, namely Little Dickey Gephardt of Missouri. He had an inexplicable, even strange way of calling it, “Soc Security.” Why did he call it that? Was it a way to economize his words? Being a Democrat, economy of any thing associated with the government is unlikely. I just observed it - I can’t explain it. As a private citizen perhaps Gephardt should try to cajole Linda Daschle, the 2nd wife of Tom Daschle and Miss Kansas of 1978, to leave her highly paid job as a lobbyist in the US House of Representatives for the law firm of Baker, Donelson, Bearman & Coldwell and replace her. Ex-Senator Tom (Puff) Daschle, praise Allah, was ousted from the senate by John Thune R-SD. Linda Daschle’s influence must be greatly diminished given that her nexus to congress has now been severed. Alternately, Gephardt may want to join Fannie Mae now that both former Clinton administration members Franklin Raines resigned under pressure as chairman & CEO and former Attorney General Janet Reno’s ex-henchwoman and 9/11 Commission member Jamie Gorelick quietly slipped out as vice-chairman in the face of a $9 billion restatement of earnings. Lower earnings of course, but then what are a few billions among friends?
The orthodox arguments concerning whether to implement major changes in Social Security and if so what kinds of changes generally go something like this: (1) there is no need to do anything now because it will be solvent until circa 2042 or until 2018 if one counts when it is estimated that outflows will first exceed inflows. (2) The system will eventually go broke so the sooner changes are made to lengthen the solvency period, the less painful the fix will be. (3) What ever is done to change the system, privatizing any part of it should not be considered as that will cost X trillion of dollars over Y number of years (some say $2 trillion over 10 years, but then there are people who believe the earth is flat and even deny that men have walked on the moon, so there you are). In addition to some others, National Public Radio’s moderate liberal Mara Liasson allowed as how anyone who would invest any part of their SS in a private account would be gambling because there is no guarantee their investment would not go south. Of course there is no certainty that the earth will not be hit by another comet or asteroid tomorrow as that which may have extinguished the dinosaurs 65 million years ago or the entire world will be not be enveloped in a giant tsunami the day after tomorrow. I would not bet a large amount of money on these scenarios and so would recommend that Ms. Liasson stick to politics and not make irrational statements on a subject she clearly knows little about. Given the long term performance of the equity markets and the proposed built-in safeguards and restraints of the investment vehicles the returns for private SS investors are about as sure a bet as the sun rising in the east each morning. Would you or Mara like to bet me against that? (4) The best way to restore confidence that younger SS contributors will be permitted to collect benefits upon their retirement is to privatize a significant part of the program on a voluntary basis. (5) In the long term the only way to keep the system solvent is a combination of increasing the ages of eligibility, decreasing the payments to retirees, and increasing the contributions by working people given that the ratio of worker to recipient will changed from 16 to 1 in the past to, oh say, 1 to 16 respectively in the future. Can everyone say, spell, and cogitate the word bleak?
One myth which needs to pass from the scene in order to raise the level of rational discourse is to forget about the “Lock Box” concept concerning Social Security or other government receipts. Even the term seems to have disappeared from the political lexicon in recent years. The last time I heard it was in the 2000 presidential campaign where the angry Algore went down to defeat still insisting that under his administration there would be a “Lock Box” for SS monies that would be inviolable from siphoning off for other government programs. Poor Al was always easily confused. Remember when he couldn’t decide whether to take the advice of one Ms. Naomi Wolff and assume the guise of an Alpha Male dressed in earth tones or stick to his boring nature dressed in conventional dark business suits? He ended up fatally combining his drab demeanor with a harsh and accusatory stump speech delivery which as an incumbent Vice-President against all odds of a still thriving economy and non-militarily active milieu managed to lose a close election which he should have won going away. The Fates were kind to the American people that time.
I do not get all exercised because money is not set aside in what is called a “Social Security Trust Fund” the way many commentators do for reasons discussed below. That does not mean I do not favor privatizing at least part if not all of Social Security savings, on a voluntary basis of course, because I do. Not only will this be income retirees can count on receiving, but it will almost certainly be more than that paid out from the “public” sector funds. Thomas Sowell concluded a January 20, 2005 article by stating, “No matter how much money you have paid into Social Security over the years, and no matter what you were promised when you paid it, the government always has the option to pay you back only what future politicians decide they can afford, given all the other things they might prefer to spend the money on.”
“Owning your own private pension plan means that those who owe you have to pay you what they promised. It also means that if you die without ever using it, you can leave it to your family, instead of having the government keep the money.”
Forget all of the above Social Security folderol (excepting the wise counsel of Thomas Sowell) which I am sure y’all have heard from various and diverse pundits in the past few years. Mostly these opinions are recycled over and over apparently without any original positions to input into the cauldron of bold new ideas.
Social Security is a program of the federal government which makes it different from state, municipal, corporate, or private financing. Only the federal government can legally create money and one of the major functions of the federal government is to regulate the money supply. In addition to manipulating several interest rates, the federal government is so dominant in this country’s overall financial and social structure that the welfare of its people is intimately tied to government policies. Therein lays the regulating mechanism for the purchasing power of our money and by extension to Social Security. What does that mean? Allow me to explain.
As a practical matter the federal government does not have a fixed and limited amount of money to spend on individual programs such as Social Security, Medicare, etc. As a consequence there will not come a time when no more money is available to distribute to SS recipients as calculated by how much in receipts are coming in from current SS contributors. This is an important point which should be differentiated from the orthodox acceptance of the balance of SS receipts and payouts, but one which must not be over interpreted. Clearly the economy is not immunized from suffering dire consequences caused by the federal government dispensing vast and uncompensated quantities of money.
In additional to redistributing wealth, another important purpose of federal taxes, with individual income taxes being a prime source, is to remove monies from the economy so as to alleviate the problem of having too much money chasing too few goods and services, i.e. inflation. It therefore follows that payouts in SS will have to be compensated by a diminution in the supply of money. But it does not matter whether this money comes from SS receipts or other forms of taxes. This is not some fanciful hypothesis I originated but rather is the theory of the 1930’s to 1970’s economist, Dr. Abba Lerner, who in 1959 - 1965 taught economics at Michigan State University and at that time was as respected and almost as well known as economist and later Nobel Prize winner Dr. Milton Friedman. According to Prof. Lerner, except for relatively minor taxes e.g., the so called ‘sin’ taxes - tax on alcohol and tobacco to discourage consumption, there are two reasons for federal taxes: (1) To redistribute income and (2) take money out of circulation to keep too many dollars from chasing too few goods and services - in other words to keep inflation under control (see Everybody’s Business: A Re-examination of Current Assumptions in Economics and Public Policy by Abba P. Lerner).
The other side of this federal equation is expenditures. Compensating for SS payouts could also be accomplished, in part or in whole, by decreasing other federal spending such as for social programs, the military, corporate welfare, or even, God forbid, by genuinely decreasing the size of the federal government which both Democrat and Republican politicians are not wont to do. However, like the animals of George Orwell’s Animal Farm, all expenditures are equal - except some are more equal than others. There is the question of efficiency of money spent as well as perceived need and political expediency. These are issues which would have to be balanced by the reality, need, and political clout of retirees.
At this time congressional Democrats and even a few Republicans seem intent on obstructing any and every change to Social Security being contemplated by the Bush administration for what appear to be impurely political reasons. I predict they will either come to an acceptable, to most Republicans, compromise or they will be estopped in their obstructionist tactics considering their previously declared claim for SS reform.
There are those who say that Medicare is a bigger unfunded government liability than Social Security and therefore a larger looming problem. I am reminded that during the American Civil War when the “Trent Affair” threatened to engulf the country in a war with Great Britain, Abraham Lincoln tamping down the fires of conflict told his cabinet, “Gentlemen, one war at a time.”
The orthodox arguments concerning whether to implement major changes in Social Security and if so what kinds of changes generally go something like this: (1) there is no need to do anything now because it will be solvent until circa 2042 or until 2018 if one counts when it is estimated that outflows will first exceed inflows. (2) The system will eventually go broke so the sooner changes are made to lengthen the solvency period, the less painful the fix will be. (3) What ever is done to change the system, privatizing any part of it should not be considered as that will cost X trillion of dollars over Y number of years (some say $2 trillion over 10 years, but then there are people who believe the earth is flat and even deny that men have walked on the moon, so there you are). In addition to some others, National Public Radio’s moderate liberal Mara Liasson allowed as how anyone who would invest any part of their SS in a private account would be gambling because there is no guarantee their investment would not go south. Of course there is no certainty that the earth will not be hit by another comet or asteroid tomorrow as that which may have extinguished the dinosaurs 65 million years ago or the entire world will be not be enveloped in a giant tsunami the day after tomorrow. I would not bet a large amount of money on these scenarios and so would recommend that Ms. Liasson stick to politics and not make irrational statements on a subject she clearly knows little about. Given the long term performance of the equity markets and the proposed built-in safeguards and restraints of the investment vehicles the returns for private SS investors are about as sure a bet as the sun rising in the east each morning. Would you or Mara like to bet me against that? (4) The best way to restore confidence that younger SS contributors will be permitted to collect benefits upon their retirement is to privatize a significant part of the program on a voluntary basis. (5) In the long term the only way to keep the system solvent is a combination of increasing the ages of eligibility, decreasing the payments to retirees, and increasing the contributions by working people given that the ratio of worker to recipient will changed from 16 to 1 in the past to, oh say, 1 to 16 respectively in the future. Can everyone say, spell, and cogitate the word bleak?
One myth which needs to pass from the scene in order to raise the level of rational discourse is to forget about the “Lock Box” concept concerning Social Security or other government receipts. Even the term seems to have disappeared from the political lexicon in recent years. The last time I heard it was in the 2000 presidential campaign where the angry Algore went down to defeat still insisting that under his administration there would be a “Lock Box” for SS monies that would be inviolable from siphoning off for other government programs. Poor Al was always easily confused. Remember when he couldn’t decide whether to take the advice of one Ms. Naomi Wolff and assume the guise of an Alpha Male dressed in earth tones or stick to his boring nature dressed in conventional dark business suits? He ended up fatally combining his drab demeanor with a harsh and accusatory stump speech delivery which as an incumbent Vice-President against all odds of a still thriving economy and non-militarily active milieu managed to lose a close election which he should have won going away. The Fates were kind to the American people that time.
I do not get all exercised because money is not set aside in what is called a “Social Security Trust Fund” the way many commentators do for reasons discussed below. That does not mean I do not favor privatizing at least part if not all of Social Security savings, on a voluntary basis of course, because I do. Not only will this be income retirees can count on receiving, but it will almost certainly be more than that paid out from the “public” sector funds. Thomas Sowell concluded a January 20, 2005 article by stating, “No matter how much money you have paid into Social Security over the years, and no matter what you were promised when you paid it, the government always has the option to pay you back only what future politicians decide they can afford, given all the other things they might prefer to spend the money on.”
“Owning your own private pension plan means that those who owe you have to pay you what they promised. It also means that if you die without ever using it, you can leave it to your family, instead of having the government keep the money.”
Forget all of the above Social Security folderol (excepting the wise counsel of Thomas Sowell) which I am sure y’all have heard from various and diverse pundits in the past few years. Mostly these opinions are recycled over and over apparently without any original positions to input into the cauldron of bold new ideas.
Social Security is a program of the federal government which makes it different from state, municipal, corporate, or private financing. Only the federal government can legally create money and one of the major functions of the federal government is to regulate the money supply. In addition to manipulating several interest rates, the federal government is so dominant in this country’s overall financial and social structure that the welfare of its people is intimately tied to government policies. Therein lays the regulating mechanism for the purchasing power of our money and by extension to Social Security. What does that mean? Allow me to explain.
As a practical matter the federal government does not have a fixed and limited amount of money to spend on individual programs such as Social Security, Medicare, etc. As a consequence there will not come a time when no more money is available to distribute to SS recipients as calculated by how much in receipts are coming in from current SS contributors. This is an important point which should be differentiated from the orthodox acceptance of the balance of SS receipts and payouts, but one which must not be over interpreted. Clearly the economy is not immunized from suffering dire consequences caused by the federal government dispensing vast and uncompensated quantities of money.
In additional to redistributing wealth, another important purpose of federal taxes, with individual income taxes being a prime source, is to remove monies from the economy so as to alleviate the problem of having too much money chasing too few goods and services, i.e. inflation. It therefore follows that payouts in SS will have to be compensated by a diminution in the supply of money. But it does not matter whether this money comes from SS receipts or other forms of taxes. This is not some fanciful hypothesis I originated but rather is the theory of the 1930’s to 1970’s economist, Dr. Abba Lerner, who in 1959 - 1965 taught economics at Michigan State University and at that time was as respected and almost as well known as economist and later Nobel Prize winner Dr. Milton Friedman. According to Prof. Lerner, except for relatively minor taxes e.g., the so called ‘sin’ taxes - tax on alcohol and tobacco to discourage consumption, there are two reasons for federal taxes: (1) To redistribute income and (2) take money out of circulation to keep too many dollars from chasing too few goods and services - in other words to keep inflation under control (see Everybody’s Business: A Re-examination of Current Assumptions in Economics and Public Policy by Abba P. Lerner).
The other side of this federal equation is expenditures. Compensating for SS payouts could also be accomplished, in part or in whole, by decreasing other federal spending such as for social programs, the military, corporate welfare, or even, God forbid, by genuinely decreasing the size of the federal government which both Democrat and Republican politicians are not wont to do. However, like the animals of George Orwell’s Animal Farm, all expenditures are equal - except some are more equal than others. There is the question of efficiency of money spent as well as perceived need and political expediency. These are issues which would have to be balanced by the reality, need, and political clout of retirees.
At this time congressional Democrats and even a few Republicans seem intent on obstructing any and every change to Social Security being contemplated by the Bush administration for what appear to be impurely political reasons. I predict they will either come to an acceptable, to most Republicans, compromise or they will be estopped in their obstructionist tactics considering their previously declared claim for SS reform.
There are those who say that Medicare is a bigger unfunded government liability than Social Security and therefore a larger looming problem. I am reminded that during the American Civil War when the “Trent Affair” threatened to engulf the country in a war with Great Britain, Abraham Lincoln tamping down the fires of conflict told his cabinet, “Gentlemen, one war at a time.”
Friday, July 13, 2007
CHRISTIANS AND MUSLIMS 25
There was a lawsuit in a London, England court room concerning plagiarism and copyright infringement. Was that an interesting story? Not particularly, but what is worth writing about is the content of the suit. You see, this was about two books – The Holy Blood, and the Holy Grail by Michael Baigert and Richard Leigh and The Da Vinci Code by Dan Brown. Additionally there was a movie which was in theaters in May 2006 based on The Da Vinci Code book which has sold 40,000,000 worldwide to date.
The central theme of both books and the movie is that Jesus, yes Jesus, the son of God, fathered a child with Mary Magdalene and an ultra secret organization called the Priory of Sion has concealed and protected the bloodline of Him which exists even today. I do not classify myself an especially ardent Christian, yet I find this postulation extremely offensive. How much more must the millions of highly devout and fervent Christians around the world feel the obloquy caused by the lese majesty and calumny heaped upon their religion?
There has been some criticism and complains about The Da Vinci Code book and was more when the movie came out, yet there has not been worldwide rioting, murder, and mayhem (don’t get ahead of me here – wait for the following paragraph). I understand why not in secular Europe where fewer than 10% of the people find themselves in church on Sundays. It seems only the young unhinged anarchists and Luddites in Europe feel passionate about anything. Perhaps that explains why most European countries have a less than replacement fertility rate. Yet how about the Christians in the Americas, Africa, and Asia?
In my mind and I believe in many others, the cartoons which ridiculed and imprecated the prophet Mohammed were no difference in substance as applied to Islam from the aforementioned books and movie as referenced to Christianity. What then accounts for the difference in reactions of Christians and Muslims? A Muslim might say that if Christians do not defend their religion then that is their problem not ours. I suppose, for Muslims, issuing fatwas (fatwi plural?) willy-nilly, calling for the deaths of every Tom, Dick, and Harry even remotely connected to the cartoons, once again calling for the death of Salmon Rushdie now that he is being knighted by Queen Elizabeth II of Great Britain, and the now ever so tiresome mob marches through the streets burning flags and shouting death to Israel, America, Denmark, etc. qualify as normal defenses of their faith. Rational people would disagree. Does it mean then that Muslims are irrational fanatics? Christians are flaccid and craven? Or Christians are tolerant and kindly? And Muslims are simply mawkish and emotionally immature? One thing can be stated with reasonable certainty: There is and has long been, as written about by octogenarian Islamic specialist, the British Bernard Lewis (he reads the Koran in the original Arabic), a continent wide chasm in the general philosophy, religious, social, governmental, and world outlook of Muslims and Christians.
The central theme of both books and the movie is that Jesus, yes Jesus, the son of God, fathered a child with Mary Magdalene and an ultra secret organization called the Priory of Sion has concealed and protected the bloodline of Him which exists even today. I do not classify myself an especially ardent Christian, yet I find this postulation extremely offensive. How much more must the millions of highly devout and fervent Christians around the world feel the obloquy caused by the lese majesty and calumny heaped upon their religion?
There has been some criticism and complains about The Da Vinci Code book and was more when the movie came out, yet there has not been worldwide rioting, murder, and mayhem (don’t get ahead of me here – wait for the following paragraph). I understand why not in secular Europe where fewer than 10% of the people find themselves in church on Sundays. It seems only the young unhinged anarchists and Luddites in Europe feel passionate about anything. Perhaps that explains why most European countries have a less than replacement fertility rate. Yet how about the Christians in the Americas, Africa, and Asia?
In my mind and I believe in many others, the cartoons which ridiculed and imprecated the prophet Mohammed were no difference in substance as applied to Islam from the aforementioned books and movie as referenced to Christianity. What then accounts for the difference in reactions of Christians and Muslims? A Muslim might say that if Christians do not defend their religion then that is their problem not ours. I suppose, for Muslims, issuing fatwas (fatwi plural?) willy-nilly, calling for the deaths of every Tom, Dick, and Harry even remotely connected to the cartoons, once again calling for the death of Salmon Rushdie now that he is being knighted by Queen Elizabeth II of Great Britain, and the now ever so tiresome mob marches through the streets burning flags and shouting death to Israel, America, Denmark, etc. qualify as normal defenses of their faith. Rational people would disagree. Does it mean then that Muslims are irrational fanatics? Christians are flaccid and craven? Or Christians are tolerant and kindly? And Muslims are simply mawkish and emotionally immature? One thing can be stated with reasonable certainty: There is and has long been, as written about by octogenarian Islamic specialist, the British Bernard Lewis (he reads the Koran in the original Arabic), a continent wide chasm in the general philosophy, religious, social, governmental, and world outlook of Muslims and Christians.
Friday, July 6, 2007
THE MISUNDERSTOOD AMERICAN ECONOMY 24
All of the meaningful jobs in this country are being outsourced to places such as India, mainland China, Taiwan, etc. Our manufacturing sector is diminishing faster than our waistlines are expanding. We will soon be left with only service jobs – hamburger flipping and the like. Real wages for the average family are going down, not up. Our economy is stagnating and the American Dream has become a nightmare for most folks.
If people believe the above dreck (What a wonderfully appropriate slang word which means worthless, junk, trash - and it is derived from the Yiddish word threkkr meaning excrement.) then they have been getting too much of their ‘information’ from such sources as the New York Times, Los Angeles Times, Washington Post, ABC, CBS, CNN, NBC, and, as it turns out, the Sunday supplement, PARADE magazine. The Washington D.C. presidential press corps would be proud of them for believing such nonsense.
I apologize up front for the length of this article, but there is simply too much information to cover by using fewer words while trying to be both informative and entertaining. Many of the data are derived from the book MYTHS OF RICH AND POOR: Why We are Better off than We Think by W. Michael Cox and Richard Alm. Michael Cox was the Senior Vice President and Chief Economist at the Federal Reserve Bank in Dallas and Richard Alm was business reporter for the Dallas Morning News so both are well credentialed.
Hourly wages rose an average annual 2%, adjusted for inflation, between 1953 and 1973. For the next 5 years wages were flat, and then fell by an average 0.7% per year through 1996. Case closed right? Living standards have been declining since 1973, apodictically. Well, not so fast. There is more to the story – much more.
A better indicator of how well Americans are doing is consumption, not a proxy such as wages or salaries. The statistics on consumption clearly reveal that Americans are better off now than at any time in history. No one doubts that Americans are better off materially, perhaps not spiritually, today than 100 years ago when people lived without electricity, telephones, refrigerators, indoor plumbing, automobiles, and disease fighting antibiotics among other things. How much better off are we than people were 30 years ago in the 1970’s? Consider this partial list from the Cox & Alm book:
ITEM 1970 Mid - 1990’s
Avg. size of new home (sq. ft.) 1500 2150
New homes w/central heat and A/C 34.0% 81.0%
Homes lacking a telephone 13.0% 6.3%
Households with computer 0.0% 41.0%
Households with no vehicle 20.4% 7.9%
Households with two or more vehicles 29.3% 61.9%
Households with color TV 34.0% 97.9%
Households with two or more TV’s 30.7% 72.8%
Households with cable TV 6.3% 63.4%
Households with answering machine 0.0% 6.5%
Households with cordless telephone 0.0% 66.0%
Households with computer printer 0.0% 38.0%
Households with CD player 0.0% 49.0%
Households with cellular telephone 0.0% 34.0%
Households with clothes washer 62.1% 83.2%
Households with clothes dryer 44.6% 75.0%
Households with a microwave <1% 89.5%
Households with outdoors gas grill <5% 28.5%
Households with frost-free refrigerator <25% 86.8%
Mean household net worth $86,095 $216,843
Median household net worth $27,938 $59,398
Additionally fewer than ½ the homes built in 1970 had two or more bathrooms; by 1997 nine out of ten did. In 1970 58% of new homes included garages – by 1997 87% of new homes had them. The garages like the homes have gotten bigger. In 1997 ¾ of the garages had space for two or more automobiles compared with a little more than 1/3 in the early 1970’s.
More up-to-date data on housing (the Cox and Alm book was published in 1999) are that in 1973 the median home had 1660 sq. ft. while in 2005 it was 2412 sq. ft. In 1973 23% of homes had 4+ bedrooms, in 2005 it was 37%; in 1973 12% had 3+ bathrooms, in 2005 24% did; in 1973 44% had fireplaces, in 2005 there were 55% of homes with fireplaces.
Americans are enjoying more luxuries than ever too. Adjusted for inflation, the average spent on jewelry and watches more than doubled from 1970 to 1996. On average 11 gallons of bottled water were consumed per person per year in 1996, up from one gallon in 1970. American spending on services has risen 83 % since the early 1970’s. Included are health clubs, financial advisors, landscapers, caterers, pest-control companies, dry cleaners, car detailing shops, and hundreds of other businesses that entertain, pamper, and save us time. Per capita donations to charities, adjusted for inflation, rose from $402 a year in 1970 to $569 a year in 1996. We eat out more often too. Adjusted for inflation and a growing population, spending on restaurant meals is up 45% from the early 1970’s to the middle 1990’s. We travel more often and to more exotic places. On a per capita basis, average annual miles on commercial flights have more than tripled in the past 25 years and we take nine times as many cruises. Per capita spending on overseas travel and tourism is nearly three times what it was in the 1970’s. In terms of consumption Americans are much better off now than in the 1970’s.
As queried ironically by Cox and Alm, Americans could be paying for a fin-de-siécle spending spree by depleting their assets. Yet this is not borne out by the data. The above list shows that U.S.A. households had inflation adjusted average net worth of $216,843 in 1995 compared to $86,095 in 1970 and half of American families had a net worth of at least $59,398 in 1995, more than double the median net worth in 1970. As a proportion of net financial assets, average consumer debt in 1997 was approximately what it was in 1970 at roughly 5%.
How then to explain the seeming antilogy, without falling into a paralogistic trap, that while real wages declined by nearly 15% from the 1970’s to the 1990’s the living standards for Americans increased significantly by all measurements? A straightforward alternative to real wages is inflation adjusted per capita personal income. Its virtue is that it captures all sources of income – not just wages but interest, dividends, rent, and profits. The statistics on real wages suffer a glaring omission: fringe benefits. Over the past quarter of a century, as tax rates grew steeper and incomes rose, the country witnessed a surge in non-wage benefits. Another factor in increased prosperity not measured by wages is that there are many more small entrepreneurs now than three decades ago or so. In fact much of the hiring is now done by small businesses with work forces of fewer than a dozen to a few hundred employees. Not all of the small enterprises are successful of course, but many are and people with an entrepreneurial spirit are not easily dissuaded, trying again in the same business or a different one after initially failing.
In the view of most people on the political left, the rich get all of the breaks, take advantage of, or otherwise benefit at the expense of the poor. I would like to offer a contrary interpretation. In nurturing infant industries and product lines, the rich pay most of the new industries’ early fixed costs – including research, plant and equipment, and market development. According to Cox and Alm, a three minute telephone call from New York to San Francisco cost $20.70 when first available in 1915. A three minute coast-to-coast call cost less than 50 cents in 1997.
Without the rich, fewer new goods and services would find their way to the rest of us. Over the years wealthy Americans financed the emergence of the automobile, airplane travel, color television sets, computers, and many other products now readily available to the masses in America. As goods and services filter down to the less affluent, prices more nearly reflect companies’ variable cost, including labor and raw materials. The ratio of fixed to variable costs differs from one product to another. That dichotomy helps to explain why some goods and services show quick, steep price reductions, while others go through the process more gradually. Big declines usually occur when fixed costs are high – computers, electronics, pharmaceuticals, for example. Where fixed costs are not overwhelming, companies start out charging prices closer to variable cost. The low-fixed-cost pattern fits food and personal services.
The critics of capitalism fret that the economy works to the benefit of the wealthy at the expense of the poor. Nothing could be more wrong. Economic progress actually emerges from a system of price discrimination – against the wealthy not the masses. Still not empathetic toward the rich – neither am I, yet I am biased towards the truth, wherever it leads.
Remember when……when the economy of the Land of the Rising Sun (Japan) rising from the ashes of WWII like the proverbial Phoenix was considered by the middle of the 1980’s to be an unstoppable juggernaut? The Japanese were going to own the entire world according to some alarmists at that time. They even bought Rockefeller Center in New York City for heaven sake. That’s sake (sāk) not sake (säkē), although I’m sure they had a large amount of that too. Something seemed to go a bit wrong before total ownership eventuated. The vaunted co-operation and putative synergy between corporations and the Japanese government, so trumpeted by the West’s socialist leaning economists and journalists, lost its economic magic. The Japanese economy went into a funk for the next 15 years or so, only recovering a bit in the 21st century. And they ended up selling Rockefeller Center along with other properties.
The tocsins of today tout the quondam Red Menace, mainland China, as the next industrial giant that will dominate the world economically. These people seem unfamiliar with the philosopher, George Santayana: “People who do not know history are deemed to repeat its mistakes.” Not withstanding the extremely low probability that China will be the lone superpower in the next half century, the forecast of Ben J. Wattenberg in his 2004 book Fewer, does not sound irrational when he claims that by 2050 there may be three economic super powers in the world: The United States, China, and India. China, however, is facing major problems in the next several decades, not the least will be a growing demand from the increasingly prosperous middle and upper classes for more social and political freedom. There is also the looming quandary from the current ratio of 150/100 boys to girls being allowed to be born. One can imagine the social turmoil and dissatisfaction which will result in a generation from now. The nimiety of young Chinese men can not be rectified by all becoming interior decorators or hairdressers.
An example given by Cox and Alm of the static nature of jobs and professions in the past are the surnames of families: Farmer, Hunter, Fisher, Fowler, Archer, Wheeler, Dyer, Gardner, Glover, Carter, Hooper, Shoemaker, Taylor, Carter, Crocker, Cook, Carpenter, Baker, Weaver, Miner, Mason, Miller, Sawyer, Collier, Chandler, Porter, Planter, Potter, Shepherd, Shearer, Spinner, Fuller, Wright, and Smith. Nobody today is named Charley Computer, Tammy Telephone, or Harold Harddrive except in a failed attempt at levity. Some of the professions were unknown when people now were born and new professions will arise when the next generation comes of age. All of which is a way of saying that with our modern rapidly evolving economy there are bound to be dislocations in the labor market effecting tens of thousands, if not hundreds of thousands of people with layoffs each year and the necessity of retraining. It is temporarily tough on the people being laid off, or downsized if you will, but would it be preferable if the job market and therefore the economy were as static as it was in the past? A good example of an economic success and dynamic job market is Wal-Mart. In his 2006 book, The Wal-Mart Effect, Charles Fishman details how 90% of Americans live within 15 miles of a Wal-Mart and over 50% are within 5 miles. Wal-Mart which was founded in 1962 by Sam Walton, the same year as Kmart and Target, now sells approximately ¼ of all the groceries, apparel, and pharmaceuticals in the United States. There are more than 4000 Wal-Mart stores in the USA (almost 5000 worldwide) with 1.3 million employees. Astonishingly about 650,000 or ½ of the employees quit each year thereby causing Wal-Mart to have to hire 12,500 new employees each week just to stay even. One would think that it would be a sound financial decision for Wal-Mart to reduce the expense of hiring and training by attempting to retain more of its employees with more generous salaries and benefits. Wal-Mart may very well double in size in the next ten years, but the growth will have to come from overseas because how many more stores would be economically profitable for Wal-Mart to build here? Mainland China has about 45 Wal-Mart stores and India zero. As you can well imagine Wal-Mart is lobbying these countries heavily to increase market share in China and get established in India. Incidentally although Fishman declares that it is a morally neutral position for corporations, unknown to most people Wal-Mart is the largest contributor to charity in gross amount of all businesses in this country.
In a capitalistic economy, people, whether individually or in groups called companies or corporations, act on the powerful motive of making oneself better off economically. Call it the profit motive, self-interest, or pejoratively, greed; it is what make the economy tick. Through relentless turmoil, the economy re-creates itself, shifting labor resources to where they are needed, replacing old jobs with new ones. A descriptive shorthand term for this process used by Cox and Alm is “the churn.” Whereas the expression “downsizing” focuses solely on the discomfiture side of economic change, the image of the churn captures the whole process – the jobs that are created as well as the ones lost. The churn isn’t new. Through out history each generation of jobs has given way to the next although at a slower pace in the past than now. And there has always been resistance to this change because of the jobs lost. There is a letter reproduced in the Cox and Alm book which illustrates this point. The complainant, the governor of New York, was beseeching the president of the United States to protect the canal system from the newfangled mode of conveyance, the railroads. He claimed captains, cooks, drivers, hostlers, repairmen, and tenders would be left without a means of livelihood, not to mention the numerous farmers employed in growing hay for the horses; additionally boat builders would suffer and tow-line, whip and harness makers would be left destitute. Another point he made, apparently seriously, was that canal boats were absolutely essential to the “defence” [sic] of the United States. Further he wrote that “railroad carriages are pulled at the enormous speed of 15 miles per hour by ‘engines’ which, in addition to endangering life and limb of passengers, roar and snort their way through the countryside, setting fire to crops, scaring the livestock and frightening women and children.” This letter was written to President Andrew Jackson by Governor Martin Van Buren in 1829. No, I did not make this up or exaggerate it – it is on page 134 of the Cox and Alm book. The problems envisioned by Van Buren seem comical now, but the joke is on us – these are the same types of concerns in modern dress that people come up with now. Not in this book but in a 2006 book titled Martin Van Buren by Edward L. Widmer and as a matter of interest, Martin Van Buren of Kinderhook in upstate New York went on to become the 8th president of the United States from 1836-40. He was the vice-president in the second term of Andrew Jackson from 1832-36 and was the last vice-president to become president, without having filled the job before being elected to it before George H.W. Bush did so in 1988-92 (Theodore Roosevelt, Calvin Coolidge, Harry Truman, and Lyndon Johnson were vice-presidents who were elected president, but were sitting presidents when elected, having assumed the office after the elected presidents died or were assassinated – McKinley [Roosevelt]; Warren Harding [Calvin Coolidge]; Franklin Roosevelt [Harry Truman]; John Kennedy [Lyndon Johnson]). Van Buren was the only president of the United States who’s first learned language was not English (it was Dutch). Having been defeated for reelection by William Henry Harrison, Van Buren toured the country in 1842 becoming the first politician to do so, in an unsuccessful bid to win the next election. After leaving Chicago (he was the first president or ex-president to visit that city) his carriage broke down so he was put up overnight with a family near Springfield, Illinois. In order to entertain a former president of the United States the family summoned a young lawyer who lived near by. Van Buren and the young man stayed up until the early hours telling each other stories. Van Buren later wrote that he laughed until his sides hurt at the stories of his companion. That young lawyer was Abraham Lincoln. Much later a reporter for the San Francisco Chronicle wanted to write an advice column, but was told by the editor that her name was ‘too ethnic’ – meaning too Jewish. She took the surname of a former president and titled her byline: Abigail Van Buren. The irony is that Van Buren was considered an ethnic name in his time.
The United States has not run a foreign trade surplus since the Nixon administration which has caused much hand wringing among people who are prone to that sort of thing. Over the years we have had large trade deficits with Japan and now even larger ones with China. Do we have cause for concern? The short answer is no. Here’s why: (1.) The deficit reflects only merchandise trade, not services. In 1997 the nation’s positive balance in services was almost $88 billion and has been positive ever year since. (2.) According to Cox and Alm the trade deficit is a red herring (I would not have used a cliché that goes back to the Truman administration). The trade deficit and capital surplus are two sides of the same coin. Other countries’ surpluses earn them dollars to purchase more of our services and invest in America. If we don’t buy from foreigners, they can’t buy from us and invest with us. The long-running furor of the merchandise-trade deficit can be turned on its head. What it really signifies is that the United States remains the best place to invest – by a large margin. Again according to Cox and Alm, in the mid 1990’s direct investment from overseas in the United States was more than double that in any other country. Japan’s trade surpluses reflect the opposite. The Japanese economy, where profits and interest rates are low and prices are high, hasn’t been a good place to invest. (3.) When corporations set up manufacturing plants and service and distribution centers outside their original countries, as many do - the so-called multi-nationals, then how can imports and exports be meaningfully differentiated?
The Sunday supplement PARADE magazine ran a front page story on April 23, 2006 questioning whether the American Dream was still possible. The first clue that the story was a politically correct bit of propaganda was the three families shown on the cover. There was an Anglo childless couple, another Anglo family sans father, and a black family with father intact. If a black family had been shown without a father present you know that, to use a synecdoche, the magazine would have been accused of perpetrating racial stereotypes, yet the probability of a black family missing a father is much greater than a white family. Some of the claims in the article bear scrutiny: (1.) “The real median [the number above and below this figure being equal] household income declined 3% from 2000 to 2004.” (2.) “The percentage of households earning $25,000 to $99,999 shrank 1.5% from 2000 to 2004.” (3.) “Credit –card debt is at an all-time high, averaging $9,312 per household.” (4.) “The average cost per year of a public school college (in state) is $12,127, a 25% increase since 2001.”
(1.) & (2.) Three years of the five chosen years (2000-20004) were severe corrections in the equity markets after the “irrational” share price appreciations in the 1990’s as expressed by Federal Reserve Chairman, Allen Greenspan at that time. In fact, the tech heavy NASDAQ declined from over 5000 to under 2000 from 2000 to 2002. (3.) The credit-card debt amount although high is not corrected for inflation so the comparison is meaningless. (4.) Costs for education are certainly going up faster than inflation, still people are not helpless in dealing with it as is implied by the article. Every state has a program where parents can pay into it either as a lump sum or over a number of years in advance to cover future college costs for their children thereby locking in inflation protected prices. Many states even have reciprocal agreements with other states that cover costs for out-of-state students.
Three of the four families quoted in the article believe the American Dream is out of reach for them, yet in a survey of “more than 2200 Americans” 80% say that the American Dream is still possible. The families profiled are not representative of the broader sampling and do you think that was inadvertent?
Cox and Alm quote Ralph Waldo Emerson’s maxim: “Build a better mouse trap and the world will beat a path to your door” and point out the fallacy in it, mistaking what customers want. “People don’t want better mousetraps, they want dead mice. People don’t want cars, trains, airplanes, boats, or bicycles – they want transportation from one place to another; they don’t want daily newspapers, magazines, TV news channels, or the internet – they want information; they don’t want records, tapes, or CD’s – they want music. Our needs and wants are insatiable, but the ways of realizing them are limited only by our ingenuity and imagination. In a dynamic economy there’s a relentless quest for new, better, or cheaper ways to give people what they want.” The reason free enterprise economies outperform command economies such as socialistic or communistic ones is that consumers determine what will be produced or supplied for the market not bureaucrats. Yet there are unceasing calls for government to intercede in the supply and demand marketplace to the detriment of both consumers and producers. The battle continues.
If people believe the above dreck (What a wonderfully appropriate slang word which means worthless, junk, trash - and it is derived from the Yiddish word threkkr meaning excrement.) then they have been getting too much of their ‘information’ from such sources as the New York Times, Los Angeles Times, Washington Post, ABC, CBS, CNN, NBC, and, as it turns out, the Sunday supplement, PARADE magazine. The Washington D.C. presidential press corps would be proud of them for believing such nonsense.
I apologize up front for the length of this article, but there is simply too much information to cover by using fewer words while trying to be both informative and entertaining. Many of the data are derived from the book MYTHS OF RICH AND POOR: Why We are Better off than We Think by W. Michael Cox and Richard Alm. Michael Cox was the Senior Vice President and Chief Economist at the Federal Reserve Bank in Dallas and Richard Alm was business reporter for the Dallas Morning News so both are well credentialed.
Hourly wages rose an average annual 2%, adjusted for inflation, between 1953 and 1973. For the next 5 years wages were flat, and then fell by an average 0.7% per year through 1996. Case closed right? Living standards have been declining since 1973, apodictically. Well, not so fast. There is more to the story – much more.
A better indicator of how well Americans are doing is consumption, not a proxy such as wages or salaries. The statistics on consumption clearly reveal that Americans are better off now than at any time in history. No one doubts that Americans are better off materially, perhaps not spiritually, today than 100 years ago when people lived without electricity, telephones, refrigerators, indoor plumbing, automobiles, and disease fighting antibiotics among other things. How much better off are we than people were 30 years ago in the 1970’s? Consider this partial list from the Cox & Alm book:
ITEM 1970 Mid - 1990’s
Avg. size of new home (sq. ft.) 1500 2150
New homes w/central heat and A/C 34.0% 81.0%
Homes lacking a telephone 13.0% 6.3%
Households with computer 0.0% 41.0%
Households with no vehicle 20.4% 7.9%
Households with two or more vehicles 29.3% 61.9%
Households with color TV 34.0% 97.9%
Households with two or more TV’s 30.7% 72.8%
Households with cable TV 6.3% 63.4%
Households with answering machine 0.0% 6.5%
Households with cordless telephone 0.0% 66.0%
Households with computer printer 0.0% 38.0%
Households with CD player 0.0% 49.0%
Households with cellular telephone 0.0% 34.0%
Households with clothes washer 62.1% 83.2%
Households with clothes dryer 44.6% 75.0%
Households with a microwave <1% 89.5%
Households with outdoors gas grill <5% 28.5%
Households with frost-free refrigerator <25% 86.8%
Mean household net worth $86,095 $216,843
Median household net worth $27,938 $59,398
Additionally fewer than ½ the homes built in 1970 had two or more bathrooms; by 1997 nine out of ten did. In 1970 58% of new homes included garages – by 1997 87% of new homes had them. The garages like the homes have gotten bigger. In 1997 ¾ of the garages had space for two or more automobiles compared with a little more than 1/3 in the early 1970’s.
More up-to-date data on housing (the Cox and Alm book was published in 1999) are that in 1973 the median home had 1660 sq. ft. while in 2005 it was 2412 sq. ft. In 1973 23% of homes had 4+ bedrooms, in 2005 it was 37%; in 1973 12% had 3+ bathrooms, in 2005 24% did; in 1973 44% had fireplaces, in 2005 there were 55% of homes with fireplaces.
Americans are enjoying more luxuries than ever too. Adjusted for inflation, the average spent on jewelry and watches more than doubled from 1970 to 1996. On average 11 gallons of bottled water were consumed per person per year in 1996, up from one gallon in 1970. American spending on services has risen 83 % since the early 1970’s. Included are health clubs, financial advisors, landscapers, caterers, pest-control companies, dry cleaners, car detailing shops, and hundreds of other businesses that entertain, pamper, and save us time. Per capita donations to charities, adjusted for inflation, rose from $402 a year in 1970 to $569 a year in 1996. We eat out more often too. Adjusted for inflation and a growing population, spending on restaurant meals is up 45% from the early 1970’s to the middle 1990’s. We travel more often and to more exotic places. On a per capita basis, average annual miles on commercial flights have more than tripled in the past 25 years and we take nine times as many cruises. Per capita spending on overseas travel and tourism is nearly three times what it was in the 1970’s. In terms of consumption Americans are much better off now than in the 1970’s.
As queried ironically by Cox and Alm, Americans could be paying for a fin-de-siécle spending spree by depleting their assets. Yet this is not borne out by the data. The above list shows that U.S.A. households had inflation adjusted average net worth of $216,843 in 1995 compared to $86,095 in 1970 and half of American families had a net worth of at least $59,398 in 1995, more than double the median net worth in 1970. As a proportion of net financial assets, average consumer debt in 1997 was approximately what it was in 1970 at roughly 5%.
How then to explain the seeming antilogy, without falling into a paralogistic trap, that while real wages declined by nearly 15% from the 1970’s to the 1990’s the living standards for Americans increased significantly by all measurements? A straightforward alternative to real wages is inflation adjusted per capita personal income. Its virtue is that it captures all sources of income – not just wages but interest, dividends, rent, and profits. The statistics on real wages suffer a glaring omission: fringe benefits. Over the past quarter of a century, as tax rates grew steeper and incomes rose, the country witnessed a surge in non-wage benefits. Another factor in increased prosperity not measured by wages is that there are many more small entrepreneurs now than three decades ago or so. In fact much of the hiring is now done by small businesses with work forces of fewer than a dozen to a few hundred employees. Not all of the small enterprises are successful of course, but many are and people with an entrepreneurial spirit are not easily dissuaded, trying again in the same business or a different one after initially failing.
In the view of most people on the political left, the rich get all of the breaks, take advantage of, or otherwise benefit at the expense of the poor. I would like to offer a contrary interpretation. In nurturing infant industries and product lines, the rich pay most of the new industries’ early fixed costs – including research, plant and equipment, and market development. According to Cox and Alm, a three minute telephone call from New York to San Francisco cost $20.70 when first available in 1915. A three minute coast-to-coast call cost less than 50 cents in 1997.
Without the rich, fewer new goods and services would find their way to the rest of us. Over the years wealthy Americans financed the emergence of the automobile, airplane travel, color television sets, computers, and many other products now readily available to the masses in America. As goods and services filter down to the less affluent, prices more nearly reflect companies’ variable cost, including labor and raw materials. The ratio of fixed to variable costs differs from one product to another. That dichotomy helps to explain why some goods and services show quick, steep price reductions, while others go through the process more gradually. Big declines usually occur when fixed costs are high – computers, electronics, pharmaceuticals, for example. Where fixed costs are not overwhelming, companies start out charging prices closer to variable cost. The low-fixed-cost pattern fits food and personal services.
The critics of capitalism fret that the economy works to the benefit of the wealthy at the expense of the poor. Nothing could be more wrong. Economic progress actually emerges from a system of price discrimination – against the wealthy not the masses. Still not empathetic toward the rich – neither am I, yet I am biased towards the truth, wherever it leads.
Remember when……when the economy of the Land of the Rising Sun (Japan) rising from the ashes of WWII like the proverbial Phoenix was considered by the middle of the 1980’s to be an unstoppable juggernaut? The Japanese were going to own the entire world according to some alarmists at that time. They even bought Rockefeller Center in New York City for heaven sake. That’s sake (sāk) not sake (säkē), although I’m sure they had a large amount of that too. Something seemed to go a bit wrong before total ownership eventuated. The vaunted co-operation and putative synergy between corporations and the Japanese government, so trumpeted by the West’s socialist leaning economists and journalists, lost its economic magic. The Japanese economy went into a funk for the next 15 years or so, only recovering a bit in the 21st century. And they ended up selling Rockefeller Center along with other properties.
The tocsins of today tout the quondam Red Menace, mainland China, as the next industrial giant that will dominate the world economically. These people seem unfamiliar with the philosopher, George Santayana: “People who do not know history are deemed to repeat its mistakes.” Not withstanding the extremely low probability that China will be the lone superpower in the next half century, the forecast of Ben J. Wattenberg in his 2004 book Fewer, does not sound irrational when he claims that by 2050 there may be three economic super powers in the world: The United States, China, and India. China, however, is facing major problems in the next several decades, not the least will be a growing demand from the increasingly prosperous middle and upper classes for more social and political freedom. There is also the looming quandary from the current ratio of 150/100 boys to girls being allowed to be born. One can imagine the social turmoil and dissatisfaction which will result in a generation from now. The nimiety of young Chinese men can not be rectified by all becoming interior decorators or hairdressers.
An example given by Cox and Alm of the static nature of jobs and professions in the past are the surnames of families: Farmer, Hunter, Fisher, Fowler, Archer, Wheeler, Dyer, Gardner, Glover, Carter, Hooper, Shoemaker, Taylor, Carter, Crocker, Cook, Carpenter, Baker, Weaver, Miner, Mason, Miller, Sawyer, Collier, Chandler, Porter, Planter, Potter, Shepherd, Shearer, Spinner, Fuller, Wright, and Smith. Nobody today is named Charley Computer, Tammy Telephone, or Harold Harddrive except in a failed attempt at levity. Some of the professions were unknown when people now were born and new professions will arise when the next generation comes of age. All of which is a way of saying that with our modern rapidly evolving economy there are bound to be dislocations in the labor market effecting tens of thousands, if not hundreds of thousands of people with layoffs each year and the necessity of retraining. It is temporarily tough on the people being laid off, or downsized if you will, but would it be preferable if the job market and therefore the economy were as static as it was in the past? A good example of an economic success and dynamic job market is Wal-Mart. In his 2006 book, The Wal-Mart Effect, Charles Fishman details how 90% of Americans live within 15 miles of a Wal-Mart and over 50% are within 5 miles. Wal-Mart which was founded in 1962 by Sam Walton, the same year as Kmart and Target, now sells approximately ¼ of all the groceries, apparel, and pharmaceuticals in the United States. There are more than 4000 Wal-Mart stores in the USA (almost 5000 worldwide) with 1.3 million employees. Astonishingly about 650,000 or ½ of the employees quit each year thereby causing Wal-Mart to have to hire 12,500 new employees each week just to stay even. One would think that it would be a sound financial decision for Wal-Mart to reduce the expense of hiring and training by attempting to retain more of its employees with more generous salaries and benefits. Wal-Mart may very well double in size in the next ten years, but the growth will have to come from overseas because how many more stores would be economically profitable for Wal-Mart to build here? Mainland China has about 45 Wal-Mart stores and India zero. As you can well imagine Wal-Mart is lobbying these countries heavily to increase market share in China and get established in India. Incidentally although Fishman declares that it is a morally neutral position for corporations, unknown to most people Wal-Mart is the largest contributor to charity in gross amount of all businesses in this country.
In a capitalistic economy, people, whether individually or in groups called companies or corporations, act on the powerful motive of making oneself better off economically. Call it the profit motive, self-interest, or pejoratively, greed; it is what make the economy tick. Through relentless turmoil, the economy re-creates itself, shifting labor resources to where they are needed, replacing old jobs with new ones. A descriptive shorthand term for this process used by Cox and Alm is “the churn.” Whereas the expression “downsizing” focuses solely on the discomfiture side of economic change, the image of the churn captures the whole process – the jobs that are created as well as the ones lost. The churn isn’t new. Through out history each generation of jobs has given way to the next although at a slower pace in the past than now. And there has always been resistance to this change because of the jobs lost. There is a letter reproduced in the Cox and Alm book which illustrates this point. The complainant, the governor of New York, was beseeching the president of the United States to protect the canal system from the newfangled mode of conveyance, the railroads. He claimed captains, cooks, drivers, hostlers, repairmen, and tenders would be left without a means of livelihood, not to mention the numerous farmers employed in growing hay for the horses; additionally boat builders would suffer and tow-line, whip and harness makers would be left destitute. Another point he made, apparently seriously, was that canal boats were absolutely essential to the “defence” [sic] of the United States. Further he wrote that “railroad carriages are pulled at the enormous speed of 15 miles per hour by ‘engines’ which, in addition to endangering life and limb of passengers, roar and snort their way through the countryside, setting fire to crops, scaring the livestock and frightening women and children.” This letter was written to President Andrew Jackson by Governor Martin Van Buren in 1829. No, I did not make this up or exaggerate it – it is on page 134 of the Cox and Alm book. The problems envisioned by Van Buren seem comical now, but the joke is on us – these are the same types of concerns in modern dress that people come up with now. Not in this book but in a 2006 book titled Martin Van Buren by Edward L. Widmer and as a matter of interest, Martin Van Buren of Kinderhook in upstate New York went on to become the 8th president of the United States from 1836-40. He was the vice-president in the second term of Andrew Jackson from 1832-36 and was the last vice-president to become president, without having filled the job before being elected to it before George H.W. Bush did so in 1988-92 (Theodore Roosevelt, Calvin Coolidge, Harry Truman, and Lyndon Johnson were vice-presidents who were elected president, but were sitting presidents when elected, having assumed the office after the elected presidents died or were assassinated – McKinley [Roosevelt]; Warren Harding [Calvin Coolidge]; Franklin Roosevelt [Harry Truman]; John Kennedy [Lyndon Johnson]). Van Buren was the only president of the United States who’s first learned language was not English (it was Dutch). Having been defeated for reelection by William Henry Harrison, Van Buren toured the country in 1842 becoming the first politician to do so, in an unsuccessful bid to win the next election. After leaving Chicago (he was the first president or ex-president to visit that city) his carriage broke down so he was put up overnight with a family near Springfield, Illinois. In order to entertain a former president of the United States the family summoned a young lawyer who lived near by. Van Buren and the young man stayed up until the early hours telling each other stories. Van Buren later wrote that he laughed until his sides hurt at the stories of his companion. That young lawyer was Abraham Lincoln. Much later a reporter for the San Francisco Chronicle wanted to write an advice column, but was told by the editor that her name was ‘too ethnic’ – meaning too Jewish. She took the surname of a former president and titled her byline: Abigail Van Buren. The irony is that Van Buren was considered an ethnic name in his time.
The United States has not run a foreign trade surplus since the Nixon administration which has caused much hand wringing among people who are prone to that sort of thing. Over the years we have had large trade deficits with Japan and now even larger ones with China. Do we have cause for concern? The short answer is no. Here’s why: (1.) The deficit reflects only merchandise trade, not services. In 1997 the nation’s positive balance in services was almost $88 billion and has been positive ever year since. (2.) According to Cox and Alm the trade deficit is a red herring (I would not have used a cliché that goes back to the Truman administration). The trade deficit and capital surplus are two sides of the same coin. Other countries’ surpluses earn them dollars to purchase more of our services and invest in America. If we don’t buy from foreigners, they can’t buy from us and invest with us. The long-running furor of the merchandise-trade deficit can be turned on its head. What it really signifies is that the United States remains the best place to invest – by a large margin. Again according to Cox and Alm, in the mid 1990’s direct investment from overseas in the United States was more than double that in any other country. Japan’s trade surpluses reflect the opposite. The Japanese economy, where profits and interest rates are low and prices are high, hasn’t been a good place to invest. (3.) When corporations set up manufacturing plants and service and distribution centers outside their original countries, as many do - the so-called multi-nationals, then how can imports and exports be meaningfully differentiated?
The Sunday supplement PARADE magazine ran a front page story on April 23, 2006 questioning whether the American Dream was still possible. The first clue that the story was a politically correct bit of propaganda was the three families shown on the cover. There was an Anglo childless couple, another Anglo family sans father, and a black family with father intact. If a black family had been shown without a father present you know that, to use a synecdoche, the magazine would have been accused of perpetrating racial stereotypes, yet the probability of a black family missing a father is much greater than a white family. Some of the claims in the article bear scrutiny: (1.) “The real median [the number above and below this figure being equal] household income declined 3% from 2000 to 2004.” (2.) “The percentage of households earning $25,000 to $99,999 shrank 1.5% from 2000 to 2004.” (3.) “Credit –card debt is at an all-time high, averaging $9,312 per household.” (4.) “The average cost per year of a public school college (in state) is $12,127, a 25% increase since 2001.”
(1.) & (2.) Three years of the five chosen years (2000-20004) were severe corrections in the equity markets after the “irrational” share price appreciations in the 1990’s as expressed by Federal Reserve Chairman, Allen Greenspan at that time. In fact, the tech heavy NASDAQ declined from over 5000 to under 2000 from 2000 to 2002. (3.) The credit-card debt amount although high is not corrected for inflation so the comparison is meaningless. (4.) Costs for education are certainly going up faster than inflation, still people are not helpless in dealing with it as is implied by the article. Every state has a program where parents can pay into it either as a lump sum or over a number of years in advance to cover future college costs for their children thereby locking in inflation protected prices. Many states even have reciprocal agreements with other states that cover costs for out-of-state students.
Three of the four families quoted in the article believe the American Dream is out of reach for them, yet in a survey of “more than 2200 Americans” 80% say that the American Dream is still possible. The families profiled are not representative of the broader sampling and do you think that was inadvertent?
Cox and Alm quote Ralph Waldo Emerson’s maxim: “Build a better mouse trap and the world will beat a path to your door” and point out the fallacy in it, mistaking what customers want. “People don’t want better mousetraps, they want dead mice. People don’t want cars, trains, airplanes, boats, or bicycles – they want transportation from one place to another; they don’t want daily newspapers, magazines, TV news channels, or the internet – they want information; they don’t want records, tapes, or CD’s – they want music. Our needs and wants are insatiable, but the ways of realizing them are limited only by our ingenuity and imagination. In a dynamic economy there’s a relentless quest for new, better, or cheaper ways to give people what they want.” The reason free enterprise economies outperform command economies such as socialistic or communistic ones is that consumers determine what will be produced or supplied for the market not bureaucrats. Yet there are unceasing calls for government to intercede in the supply and demand marketplace to the detriment of both consumers and producers. The battle continues.
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