Showing posts with label inequality. Show all posts
Showing posts with label inequality. Show all posts

Friday, April 8, 2011

Both capitalism and democracy claim to maximize individuals’ freedom—capitalism in the economy and democracy in politics.  In spite of this superficial commonality, Henry Brands points out that democracy “depends on equality, capitalism on inequality. Citizens in a democracy come to the public square with one vote each; participants in a capitalist economy arrive at the marketplace with unequal talents and resources and leave the marketplace with unequal rewards.” (1) In fact, a capitalist economy cannot operate without inequality. According to Brands, “The differing talents and resources of individuals are recruited and sorted by the differential rewards, which reinforce the original differences.” (2)

Analysis:

It is difficult to concurrently embrace democratic equality and capitalistic inequalities because they have qualitatively different sources, at least theoretically speaking. Whereas Jefferson's democratic equality is based in natural rights that do not depend on being recognized by a government (a notion from John Locke), Adam Smith's capitalism is based on human nature. Whereas natural rights are based in what it means to be human as a self-aware being of a rational and sentimental nature, Smith's human nature is based on self-interest, which in turn is based on the instinct of self-preservation. Even though economic considerations may lead us to conclude that people are unequally able to preserve themselves, Thomas Hobbes argued that a basic equality exists in self-preservation because any person can be killed in his or her sleep.  In other words, none of us is immuned from the possibility of being killed.  However, this basic condition of equality seems very remote next to the inequalities that are enabled by differential wealth. Such differences in wealth may well be more than reinforced by capitalism.

Does capitalism reinforce the original differences in talent and resources by merely reflecting them, or does the system multiply them? For example, if a capitalist invests the surplus gained from her talents or resources to gain still more, are the original differences merely reinforced? A series of profitable decisions, for example, may display a multiplier effect. Furthermore, if the capitalist uses her surplus to restrict other capitalists from being able to exercise their talents and resources (e.g., cornering the market), is not more involved than reinforcement?

In terms of the impact on democracy of the widening inequalities of capitalism, the “one citizen, one vote” dictum may become a chimera. For instance, historically, employers and unions in New York pressured their employees/members to vote a certain way. It was not unheard of for candidates to buy votes outright. More subtly, the imprint of corporate interests can perhaps be discerned not only in the “third party” political advertisements, but also through surrogates whether in office or the media.  For instance, a health insurance company lobbyist revealed in 2010 that the “death panels” line thought to be sourced in Sarah Palin had actually come from the lobby in an effort to kill the public option in health care reform. Such an option was not in the interest of the concentrations of capital known as insurance companies.

In short, the exaggerated inequalities that come with the denouement of capitalism, particularly in its mature stage, compromise or even extirpate the basis of equality in democracy.  That is to say, greater and greater inequality monetarily puts a republic at risk. Indeed, the corporate form itself may be inherently antithetical to republican ideals.

Click to add a question or comment on equality in democracy amid income inequality.


1.      Henry W. Brands, American Colossus: The Triumph of Capitalism 1865-1900 (New York: Doubleday, 2010), p. 5.
2.      Ibid.


Tuesday, March 22, 2011

According to USA Today, by mid-March in 2011 the World Bank’s food index had soared 29% from its level just the previous January and was a mere 3% below its 2008 peak. From March in 2010, Corn had increased 52%, sugar, 60%, soybeans, 41%, and wheat 24 percent.  The paper reports that the surge in food prices had many causes, including 1) rising population, which means increased demand for food, 2) speculators, who bid up commodity prices to artificial heights unrelated to supply, 3) soaring oil prices, which increase resource costs to the farmers and transporters, 4) trade policies, which become restrictive when shortages arise within a country (increasing the price on the world market), and, ironically, 5) improved standards of living in emerging nations, as new middle class consumers buy more meat. Of all of these factors, I contend that the rising population is the most fundamental, followed up by the related factor of oil.

A few months into 2011, the world's population stood at 6.8 billion, more than double the three billion in 1960. For a person of 50 years, the world's population had doubled in his or her lifetime. Thomas Malthus, the early 19th-century scholar who proposed that eventually, the world population would exceed the Earth’s ability to feed everyone, has been consistently ignored as India and China in particular have continued to grow in population at unsustainable rates (especially India--China having a quasi-one-child policy that has moderated its increase). Dan Seiver, a financial economist at San Diego State University, points to the green revolution as still being implemented in parts of the world; he is thus not yet ready to concede that the Mathusian thesis has arrived. However, he discounts the relatively high population growth rate; the increased efficiency or yield from the continued dissemination of "green" technology would have very great to outweigh the fixed (and in fact constricting) constraint of the world’s fertile land area that is used to grow food. In fact, according to the World Bank’s Hassan Zaman, the percentage of the U.S. corn crop that was used to make ethanol went from 31% in 2008 to more than 40% projected in the 2010-2011 growing season. While it is true that unlike the supply of oil in the ground, the land is being consumed, it can indeed be overused if it is not allowed to lie fallow, for example, to rest for a growing season. As the growing population exerts more and more pressure on the land to produce more and more, the land, like a horse pushed too far on a long journey on a hot August day, will tire and slow down. This would tend to happen just as the world needs each agricultural acre more. Therefore, if we as a species are unwise and expedient now in how we manage our land, our descendants will pay for our selfishness later.

I contend that it is in our interest as a species to see that our population size is managed toward a steady state rather than as a maximizing variable (i.e., schizogenic). In fact, we have a right and obligation as one body to see that our various limbs are coordinated such that none engages in hypertrophy. That is to say, the whole has the right to protect its viability by arresting excessive growth in one of the parts. That much of the world's population growth takes place in the developing world does not mean that this right, or obligation, of the world is somehow a plot by the developed countries to oppress the poorer countries. In fact, much of the pain of the higher food prices is in the developing world rather than in the industrialized countries, so it is in the interest of the developing countries to accede to the world’s demand that their population growth be stopped.

While the effect of higher food prices is modest in the developed world, 50% or more of a family budget goes toward food in many emerging markets. American consumers spend about 9% of their income on food, and another 3% for dining out. The difference is not because food is more expensive in the developing world; rather, the percentage is so high because the typical income there is so low. “For many people who spend two-thirds or three-quarters of their income on food, even small price increases disrupt normal routine,” says Hassan Zaman, lead economist for the World Bank in poverty reduction and equity. “They start sacrificing non-food items, such as clothing, and then start eating less.” Indeed, the rising cost of food has been one factor in the protests in the Middle East that were not so pristinely "pro-democracy" as the media represented. 

USA Today reports, for example, that "(w)hen Mohamed Bouazizi set fire to himself in Tunisia in December [of 2010], it wasn’t because he was yearning to vote. It was because he couldn’t feed his family and police had confiscated the fruits and vegetables he was trying to sell." Although perhaps not focused on gaining a vote, however, Bouazizi had had enough of police-state tyranny so his protest was not merely economic. Perhaps the economic, at least when it manifests in vast inequalities supported by an infrastructure tilted by powerful vested interests rather than by a differential in talent and effort, is inherently political.

In short, developing countries should be amenable to population control even if the directives come from international organizations. Such countries should not resist the world acting as one body just because much of correction needed for sustainable human living on Earth would take place in the developing countries.  We as a species can no longer afford to be petty or partisan with such matters as concern our species' continued existence. If the world does not act as one mind over its body and engage in some much needed weight-control, the patient will grow too big and soon die of a heart attack. In the end, it is not a developed/developing contest, but, rather, a decision for all of us: are we to continue growing like a virus or are we better than that?  If we continue to refuse to take responsibility for our species as a whole, perhaps the cock roach will deserve to survive us.

It is ironic that we vaunt ourselves as being made in the image of God while our species refuses to step up to the plate even to manage itself so it can survive. Many of the world's religions teach us to submit to something greater--to something wholly other. It is more difficult, it would seem, for us to submit to the good of our species as a whole, even as we as a species run up against the semi-permeable membranes that delimit us on our planet in so many ways.

I contend that we are getting closer Malthus’ "the threshold point." Future population growth (and the added consumption, such as of food and energy, that is inevitable with such growth) could have dramatic implications for human life. The previous growth did not have such implications, at least  with respect to the world as a whole, so that growth was qualitatively different than that which we shall face if we continue to add billions to the global human population.  This qualitative distinction is precisely what we as a species have been having such a difficult time in grasping. To the chagrin of financial chartists, who try to divine stock movements in the future based on past trends, what was the case yesterday may not be the case tomorrow anymore. We got hits of this when the global financial system almost collapsed in September of 2008 and the Japanese nuclear plant almost had a meltdown in March of 2011. There being no financial market or no Japan would have been a wake-up call to us all concerning the assumptions we all implicitly make about there being a tomorrow like today. The sun may rise again, but we may not be around to watch it. Being made in God’s image does not guarantee us a seat. To grasp this vital point requires moving one's eyes from the rising prices on the shelves at our favorite local grocery store to consider the big picture with respect to the human race on planet Earth.  To act on this point requires significant reform of international organizations, such that they would be more than the sum of their parts.

If coordination between countries such as through the U.N. is not sufficient to arrest growth in the worst offenders, a transfer of a degree of sovereignty adequate for the tasks needed to avert reaching the threshold point beyond which the Earth can no longer support the human race is needed. This is particularly true if the worst offenders do not have the political will to correct themselves even if doing so is in their own interests. All too often, continuing in the status quo is too convenient to be resisted with enough energy to reverse the entropy even if correction is urgently needed. Lest the fear of a world government or federation enable the insufficient coordination to be presumed as the best we can do, the governmental sovereignty that is transferred should be accompanied with a design of checks and balances such that political consolidation does not occur. This is not, in other words, an argument for one world government. Rather, it is an observation that the human race as a species as reached a point where the species itself needs manage itself with respect to the planet as a constraint. Otherwise, the continued viability of our species will be in jeopardy. The fear of nuclear war during the last half of the twentieth century was just the dawning of this recognition. The question now is whether we act on our new awareness and situation with respect to the Earth.

Click to Add a Comment or Question (or View Posted Comments) on food prices and global population growth.

Source: http://www.usatoday.com/money/industries/food/2011-03-17-food-costs-world-hunger.htm

Wednesday, February 2, 2011

Despite the weak U.S. economy, 2010 could be the second most profitable for New York City's securities industry, and the average bonus may top last year's because so many bankers and brokers have been laid off. Wall Street earned $21.4 billion during the first three quarters of 2010. The prior year's record of $61.4 billion was fueled by the bailout by the U.S. Government. Wall Street paid out $20.3 billion in bonuses on the $61.4 billion in profits. According to New York City Comptroller John Liu, "The astounding recovery of financial firm profitability in 2009 has been followed by a mixed year in 2010, yet total compensation in the industry is expected to be up modestly once year-end bonuses are paid," Meanwhile, Goldman Sachs’ Chief Executive Officer Lloyd C. Blankfein and his top deputies will collect about $111.3 million in stock in January, 2011, in a delayed payoff from 2009 and their record-setting 2007 bonuses, according to a Bloomberg News report. Within a year after the bonuses were approved, Goldman Sachs took $10 billion from the U.S. Treasury, converted to a bank and was borrowing as much as $35.4 billion a day from Federal Reserve emergency programs, Bloomberg reported, adding that in 2010 the firm paid $550 million to settle U.S. regulators’ fraud charges related to a mortgage-security the company sold in 2007.

Analysis:
Three points come to mind from this report from MSNBC.  First, the disjunction between Wall Street and Main Street means that any recovery underway in 2010 was not uniform through the U.S. economy. In other words, the "jobless" recovery did not hurt bonuses in the financial sector.  Secondly, the dictum that the fraudulant must inevitably pay is effectively countered by the example of Goldman Sachs.  Blankfein testified before Sen. Levin's Investigations committee that Goldman Sachs had merely been a market-maker even as the bank had traded on its own books to short against the mortgage derivatives even as it was selling them to its clients. In other words, the bank was profiting both ways even as it was contributing to the financial crisis.  After an infusion of government cash, the bank has made off quite well. Lest I be accused of envy, it is the unfairness involved that has inspired this post. Lastly, the positive impact of the bank bailout on the industry (and its bonuses) can be distinguished from the lack of help from the U.S. Government to the millions of homeowners who have lost their homes.  I say "homes" rather than houses to extentuate the point that foreclosure extolls rather severe costs in addition to the financial kind. I distinguish the luxuriating bankers from the plight of the foreclosed in order to point to Barak Obama's priority. His chief economic advisor until the end of 2010, Larry Summers (whose high school economics teacher is one of my mother's cousins), had been involved in obstructing efforts to regulate derivatives in 1998 (Summers was one of Rubin's deputies in Treasury under Clinton at the time).  Furthermore, Tim Geitner, Obama's Treasury Secretary, had been appointed as President of the New York Federal Reserve by a board with the urging of Citibank).  In other words, Obama's leanings toward Wall Street can be understood both from the directionality of the bailout and whom he has appointed. We should not really be surprised that the big banks and their employees whom the banks have not let go came back to vigor so quickly while the general recovery has been jobless.  Those who have, get more, while those who don't have, remain stuck.  The impact on the viability of our republics can not be good. Increasing inequality exascerbated by government policy cannot but render us even more a plutocracy (i.e., rule by the wealthy). To reply that any effort to tamper with this increasing inequality threatens property rights and economic liberty ignores the disparate impact of government policy (e.g., the bank bailout) on the wealthy. Moreover, when economic inequality threatens the viability of representative democracy, that democracy has a right to correct that which threatens it. One might call the policy-driven inequality a systemic risk that cannot be allowed to continue to exist without threatening the viability of the system. To put it plainly, a person does not have the right to riches if they risk the entire system coming down or even being compromised.  An absolute right to property, like an absolutist conception of sovereignty, is simply irresponsible and ultimately selfish. The 2010 bonuses coming out of Wall Street so soon after the crisis of 2008 and the subsequent bailout suggest that the extent of economic inequality in the U.S. is neither an accident nor natural.

FYI: If any of this post is significant enough to be logged in memory and reflected on later, it might be that the bank bonuses occurred during a jobless "recovery." This juxtaposition is in itself indicative of something troubling going on.

Source: http://www.msnbc.msn.com/id/40681578/ns/business-stocks_and_economy/%22%3Ehttp://www.msnbc.msn.com/id/40681578/ns/business-stocks_and_economy/%3C/a%3E%3C/p

 

blogger templates | Make Money Online