Friday, May 29, 2015

Diamond - Collapse

The good news of Jared Diamond’s Collapse (2011) is that no generation in human history has had more information available to it about how other societies and cultures failed to meet the crises of their days. The bad news is that leaders in societies across time and culture have often sought only to make sure that their elites or family were the last to survive while the broader society faltered and ultimately collapsed. Daimond’s hope, and I assume ours as well, is that contemporary societies will recognize the challenges we face and deal with them in ways that protect us all.

Diamond identified eight factors that placed societies at risk over history; deforestation and habitat destruction, soil problems, water management problems, overhunting, overfishing, effects of introduced species on native species, human population growth, and increased per-capita impact of people. The weight of each of these variables has varied across the cultures he analyzed but the pattern of past collapses has generally involved population growth that led to intensified focus on food production, expanded farming that became increasingly unproductive, and continuing pursuit of unsustainable practices that ultimately destroyed the living conditions required to support the population. Some societies dwindled and died where they were while others moved on to another place to begin the cycle all over.

To these eight natural conditions, Diamond added several new factors that he asserts are impacting current societies – human caused climate change, buildup of toxic chemicals in the environment, energy shortages, and full human utilization of all the photosynthetic capacity of the planet. The human complicators include the presence of hostile neighbors, decreased support from previously friendly neighbors, and the response of the society to the problems it has encountered. Diamond noted both societies that have negotiated difficult circumstances and survived as well as other societies that did not.

At the core of most of the societal failures there has been a conflict in values – either conflict among sub-groups within a society or conflict between what was valued and the reality that those values did not work. The latter dynamic has been particularly interesting in the examples of European societies that failed because they did not heed and respect native cultures they encountered as they expanded their reach throughout the world. The ability to recognize the value tension, and adjust as necessary was the key to success. The challenge that has never loomed so ominously before is that previous societies could fail and only their populations suffered the consequence. In today’s world, the potential for failure has moved to a much grander scale – even when one society attempts to shift its own failures to another society, the shifts are only temporary solutions that eventually wreak havoc for all. The other crushing reality is that first-world economies have already overutilized resources and damaged the natural environment and now are trying to push more austere consumption off on developing economies; those in these other places see the hypocrisy of encouraging restraint when they, themselves, were unwilling to change their ways to reduce the negative impact on our shared eco-system.

The bottom line is that the complications we face around the globe require leadership – and a particularly courageous kind. The leadership required to negotiate the conditions that have caused other societies over history to collapse will anticipate growing problems and will take bold steps to address the problems before they reach catastrophic levels. As Diamond says, “Such leaders expose themselves to criticism or ridicule for acting before it becomes obvious to everyone that some action is necessary.” This kind of leadership is essential if we are to avoid the reality that conflicts across contemporary societies may well result in very unpleasant outcomes “such as warfare, genocide, starvation, disease epidemics, and collapses of societies.”

Friday, May 22, 2015

OECD report confirms world-wide economic inequality

Confirming the sentiment of my previous posts about economic inequality primarily in the U.S.A., OECD's new report on world-wide economic inequality is sobering. This report, coupled with the analyses of economists who have already rung the alarm bell, identifies the countries where inequality has grown most dramatically even in the face of the 2008+ world recession. The richest have only grown richer and this poses a significant threat to the world's economies. Economies stagnate from those with the greatest wealth holding and growing their own net worth while middle class citizens would stimulate economic vitality by actively using their resources to purchase products and services.

Tuesday, May 12, 2015

Stiglitz - The Price of Inequality

Joseph Stiglizt paints a picture that many do not want to see, particularly those in the U.S.A. In The Price of Inequality (2013) he admits that it was hard to acknowledge “that the United States was no longer the land of opportunity portrayed by Horatio Alger stories of ‘rags to riches.’” One of the most important points of his book was that the blaming and framing for individual advantage that has become so much a part of the American debate has to stop. In its place we need a substantive conversations informed by “self-interest properly understood” (Alexis de Tocqueville) that has the potential to return U.S. economic policy to one that serves many, rather than the few. Before offering some reflections, no personal indictment is intended to anyone – I’m a humanist trying to understand economics and, more importantly, attempting to find ways to devise an economy that can serve all people more equitably.

The parallels between the Gilded Age of the late 19th and early 20th century and what is now occurring at the beginning of the 21st century is striking. The statement, “America’s concentration of wealth at the top was a result of rent seeking – including monopoly profits and the excessive compensation of some CEOs and, especially, that of the financial sector” is applicable across both times. Think of the names of the Gilded Age – Carnegie, Vanderbilt, Frick, Morgan, Rockefeller – and now those of the 21st century – Buffet, Walton, Gates, Trump… Using one example, the Waltons who are heirs to the Walmart empire control 69.7 billion dollars of wealth, equivalent to the total wealth of the bottom 30% of the entire U.S. economy. And what does Walmart do? It purchases and moves products made by others and makes them widely available at below market prices (sometimes) because of economy of scale. Walmart adds nothing to the general welfare of society and creates no innovation or advancement – it’s only a broker of the sweat and effort of others.

Rent seeking is extracting a natural resource or controlling access to a service or product that shifts wealth simply by taking it away from others. No contribution is made through innovation or the provision of any product or service. Countries that have abundant natural resources have classic rent seeking economies that gain access to their resources at prices and with terms that are lower than fair market value. The question about the rent-seeking economies is who owns these resources, especially when their extraction creates other impacts that create costs that are then laid at the feet of the public.
What happens among some of those with extreme wealth is that they credit their success to themselves, not recognizing the free gift of generations ahead of them, the opportunities of education and work they were accorded, and the infrastructure of a government and society that makes innovation and commerce possible. When this generational and public gift remains unrecognized, it becomes a sort of corporate welfare that no one acknowledges. “When the oil industry pushes for more offshore drilling and simultaneously pushes for laws that free companies from the full consequences of an oil spill, it is, in effect, asking for a public subsidy.” Beyond the financial costs associated with rent seeking, the greatest cost may be the “erosion of our sense of identity in which fair play, equality of opportunity, and a sense of community are so important.”

Ronald Reagan started the repositioning of the U.S. economy when he reduced taxation at the highest levels from 70% to 28% under the premise that the benefit to the rich would trickle down to the lower economic strata of citizens. The extreme inequality that is derived from the Reagan era, contradicting the trickle-down idea, has created a parallel and dysfunctional divide in the politics of the current generation. Those who have obtained great wealth are now able to more easily buy politician’s votes through campaign support, a dynamic that creates misinformation campaigns to manipulate the middle and lower class into thinking that maintaining an unrestricted economy that benefits the wealthy is in the interest of common citizens.

The solution that Stiglitz recommends is dramatic – focus “on community rather than simply on self-interest – both community as a means to prosperity and as a goal in its own right.” Return to an achievement model of income determination, one based on rewarding in income those who make the greatest contribution to society. Then reverse the government’s fiscal position by raising taxes at the top to reasonable levels, cut out corporate welfare and subsidies, increase taxes for corporations that don’t invest and create jobs in the U.S., impose taxes/charges on polluters, stop natural resource give aways, cut military waste, don’t overpay through government procurement (whether it’s a drug company or a defense contractor). Then invest in infrastructure, education and technology that will establish the base for growth in the future.

While these measures may seem draconian to some, they are likely in everyone’s best interest – even those with extreme wealth. The growing economic divisions among us all are dangerous because they result in hopelessness for some (resignation to poverty), unrest among others (public protest and violence), and complacency for those who do not recognize that economic disparity is one of the greatest dangers we face in terms of political and military conflicts around the world.