Economics, and the Greek Tragedy

July 1, 2015

We’re watching a tragedy unfold in Greece right now, and no one can do anything to head it off. It’s going to have to run its dreary course, creating suffering for most Greeks and death for a few.
Yes, it’s that bad. As politicians and bankers try to work out something, anything, Greeks cannot withdraw enough money daily to live. Companies cannot pay their employees. Customers can’t buy goods. A Greek man being interviewed on television confessed that he hadn’t eaten in two days.
For the elderly and the ill, it’s worse. Their pensions have been systematically cut. Taxes on food are absurdly high by our standards, in excess of 20%. ‘Capital flight’ has been going on for some time as wealthy Greeks moved their money beyond the reach of government tax collectors.
The reason for all of this is simple: Greece has not been in control of her own economy since the country joined the nations using the euro. The euro is controlled by the European Central Bank, which acts in a fashion similar to the US Federal Reserve system.
There are implications for the US in all this. We’re part of a financial system that is  interconnected. Goods flow almost interrupted from nation to nation and finance flows with them. This is getting worse. It’s good for the financialists, that free flow of capital, but it’s dangerous for the rest of us. That flow of capital is not restrained. It goes to where the most profit is to be made, creating booms in economies, but inevitably it goes too far, creating busts. The system is unbalanced.
But no one, no entity, is responsible for the ‘system’. There’s no one to say ‘Stop!’ So Greece now finds herself starved of capital and the Greek people find themselves literally starving, in a world of plenty.
Because it’s all about profit, you see. Earn profits, you can invest those and put the money to work for you. You can earn even more profits. Eventually, you can occupy yourself not in producing value for others but in managing your money. You too can become a capitalist.
What’s forgotten in all this is that capitalism also carries risk. It’s called ‘risk capital’ for a reason. European bankers forgot that. They loaned money to a government, then forced that government into economic depression in an attempt to get the investment (and the high profits from the associated risk) back. Which cause the economy of Greece to shrink even further, leading to a kind of economic death spiral. That is the Greek tragedy.
There’s a place for capitalism in a modern economy. But economies must have balance. There must be private enterprise. There must be socialism, and also social support systems.
And someone, or some agency, must exercise control. We’ve lost control of our system. Capitalism has become financialism, where the capital pool is an industry in itself, divorced from creating more wealth for the system as a whole. This is done through banks and investment agencies and insurance companies, which in turn have grown to the point that they’re ‘too big to fail’. Allowing the system to fail crashes the conomy of the world, it’s just that simple. Because the fortunes of all of us are tied to capitalism, and capitalism isnt’ subject to any controls, including those of the market. There is collusion, not competition. The system itself drives it further and further, the oscillations between economic increase and contraction become ever greater, nations loan money to each other (expecting, of course, to profit thereby), and the whole house of cards totters.
So what’s the solution? In my view, it’s balance. Nations must exeercise balance, and by doing so they balance the system as a whole. They do this by judicious infusions of capital into their own economy, something Greece can’t do because their capital comes from the European Central Bank, which Greeks don’t control. So Greece has been starved for capital; business can’t borrow, can’t expand. Workers get laid off. Pensions to the elderly and sick are cut. The system contracts. Capital fluctuations at the top are followed by hunger, illness, and death at the bottom.
The cure for this system is to start at the top. Break up the too-big entities. That includes not only financial but multinational corporations. This allows portions of the system to be reduced to manageable size, and market forces may finally, through actual competition, make the system stronger. If one of those smaller entities goes bankrupt, let it. The system can survive that, where it could not survive the collapse of a national economy.
Reinstate controls. We had those once, but capitalism bought politicians who in turn allowed the growth of the companies to behemoth size. They became too big to fail. We allowed companies to buy up weaker competitors, reducing competition.
And somehow we were taught to fear direct investment by government in their economy. That’s socialism, evil. Government must always act throught a bank and a private company, paying them a profit to do what has to be done. Government can’t hire people to build roads, that’s socialism. Government must instead hire contractors, and the hiring of such brings with it corruption. That corruption is a form of competition in itself. Your company can deliver a better product cheaper, or it can bribe the people who make decisions. That latter course is most profitable, so that web of corruption spreads, despite laws to the contrary.
This principle is ignored by theorists, but it’s there. Far better to simply decide that a task must be done, replace a bridge perhaps; hire supervisors/architects/managers/workers and get it done. That injects capital directly into the system, which means it’s a form of socialism.
We need to understand that an economy that contains socialism as well as private enterprise and capitalism, including regulated capitalism, is the only way to have a balanced economy.
And until we get that balanced economy, we’ll watch economic tragedy continue. Greece is the current victim of unrestrained capitalism, but it won’t be the last.

Links, etc:

June 24, 2015

In response to a reader’s comment, herewith a link to my books on Amazon.

http://www.amazon.com/Jack-L-Knapp/e/B00K35MWNA/ref=sr_ntt_srch_lnk_1?qid=1429376991&sr=1-1

The suggestion came after a comment I made on Mad Genius Club. It’s a blog intended for readers and particularly writers of fiction. You might want to stop by and check it out.

Facebook, and Censorship

June 8, 2015

I’ve begun sending Facebook messages of complaint.
Have you tried to share something and been told “Sorry, this feature isn’t available right now,”?
I’ve seen it twice this morning. The first ‘controversial’ subject was a post describing how Charles Darwin was a geologist before he made the discoveries that led to his Origin of Species book. The second said that Bernie Sanders was less than 10 points behind Hillary Clinton in a recent poll.
By refusing to allow me to share the articles, Facebook has managed to impose censorship on my right to express a belief that runs counter to that held by religious fundamentalists and to express my support for Bernie Sanders. I also mentioned that Hillary wouldn’t get my vote if she refuses to stop straddling issues and express an opinion I can support. I don’t vote for parties, I vote for candidates based on issues; it’s why I’m an Independent.
While Facebook is a private company, they’ve become so dominant that what they do transcends that ownership. Like a newspaper, FB has responsibilities, and at the moment the way they exercise those responsibilities denies my rights to freedom of religious belief and freedom of political speech, through censorship.
Why would an essay about Charles Darwin reflect on religion? It mentions that his discoveries (others had made similar discoveries before Darwin) counter the opinion of Bishop James Ussher that the Earth was only some 4000 years old. Why would this be controversial? In most western nations, this is conventional belief. Only in America is there controversy, because fundamentalists not only believe in Biblical literacy but also in interpretations by churchmen.
If you’re a fundamentalist and you’re pondering this, consider that other churchmen denied the discoveries of Galileo. They placed him under house arrest and he lived out the rest of his life under that restriction. Churchmen also burned Joan of Arc…you may have heard of her…for heresy. I will only mention, but without dwelling on it, that churchmen in general have established an unviable record in modern times.
But according to Facebook, Darwin is controversial.
Pointing out that Bernie Sanders is closing in on Hillary Clinton is controversial.
IMO, censorship by Facebook is more worthy of controversy.

Philosophy, and Economics

June 4, 2015

I find it interesting to consider academic expertise, in economics as in most other disciplines.
Academics study the past as a general rule, examining the thoughts of those considered to be seminal thinkers. By the time they do, they already have fixed ideas about any number of things. Since they study under the direction of a perceived expert, that person will inevitably color their thinking. If the professor rejects Marx, for example, chances are the student will too. A few professors are more interested in developing thinking skills, but not all.
The result seems clear to me.
How many modern academics are themselves seminal thinkers? Is it not more common that they study and perhaps contrast, compare, and at most combine? How many will depart from orthodoxy?
I take a different approach; I examine a number of thinkers from the past, but also those currently writing. I look at Joseph Stiglitz, Paul Krugman, and Ha Joon Chang, among others, and find interesting points in their work that seem pertinent to me.
But in the end I find my own approach, that a mixed economy is to be preferred over any single approach. All have some merit, if applied rigorously, but such application is never ‘pure’.
For example, the supposed benefits from competition vanish as soon as an economic organization grows large enough. International trade is supposed to be beneficial…but there’s no such thing as ‘free trade’, because trade is never between equals. Government intervention is supposed to be bad, but without it, the system cannot endure. And so it goes.

I don’t think an academic is prepared to step outside the bounds. His career, his life’s work, is tied up in his thinking.
I own to some of the same rigidity of thought, but for a different reason. I have a mature, maybe even overly mature, philosophy that encompasses not only economics but also politics, government, international relations, and much much more.
There are few new tricks for this old dog to learn…and no desire at all to roll over and play dead.

Weather and Climate; some good news, maybe

June 1, 2015

A team of scientists, analyzing trends in Atlantic temperatures, has published their results in Nature.
A phenomenon called the Atlantic Multidecadal Oscillation, called the AMO for obvious reasons, seems to be entering a cool phase. This cycle lasts tens of years, so there’s not a lot of data to go on. Still, when the atlantic enters this cooler phase, it generates weather changes. Britain has less summer rain. The Sahel region of North Africa has droughts. The US Midwest has fewer droughts and they tend to be shorter. There are fewer hurricanes; reasonable, since hurricanes begin off the coast of Africa, gain strength from the warmer waters of the mid-Atlantic, then come ashore somewhere in the Americas. Hurricanes are essentially heat-transfer mechanisms that take surface heat and move it to the upper atmosphere, where some of it is radiated away into space. The Pacific Coast states, particularly Washington and Oregon, get more rainfall.
I found a summary of this report in The Conversation, a publication I recommend to everyone. It’s free, is emailed daily, and it usually concentrates on international matters of interest, as opposed to the US news industry which concentrates far too much on the US. We are engaged with the nations of the world, after all; it behooves us to know something about what’s going on elsewhere.
The good news is that this analysis offers a prediction we can check later, and it’s one more tool scientists can use to better understand weather and climate.

Economics, and Criticism of David Ricardo’s Theories

May 20, 2015

This first appeared in a conversation on Facebook. My correspondent is a professor of economics who is also the author of a textbook on that subject. He favors Free Trade, and cites the theories of David Ricardo. The following is my reply:

I consider the following criticisms of Ricardo’s ideas, which seem germane to me. Note that I came up with my own criticism independently, based on my analysis of current conditions in the US.
“As Joan Robinson subsequently pointed out in reality following an opening of free trade with England, Portugal endured centuries of economic underdevelopment: “the imposition of free trade on Portugal killed off a promising textile industry and left her with a slow-growing export market for wine, while for England, exports of cotton cloth led to accumulation, mechanisation and the whole spiralling growth of the industrial revolution”. Robinson argued that Ricardo’s example required that economies were in static equilibrium positions with full employment and that there could not be a trade deficit or a trade surplus. These conditions, she wrote, were not relevant to the real world. She also argued that Ricardo’s theory did not take into account that some countries may be at different levels of development and that this raised the prospect of ‘unequal exchange’ which might hamper a country’s development, as we saw in the case of Portugal.[16]”
“The development economist Ha-Joon Chang challenges the argument that free trade benefits every country:
Ricardo’s theory is absolutely right—within its narrow confines. His theory correctly says that, accepting their current levels of technology as given, it is better for countries to specialize in things that they are relatively better at. One cannot argue with that. His theory fails when a country wants to acquire more advanced technologies—that is, when it wants to develop its economy. It takes time and experience to absorb new technologies, so technologically backward producers need a period of protection from international competition during this period of learning. Such protection is costly, because the country is giving up the chance to import better and cheaper products. However, it is a price that has to be paid if it wants to develop advanced industries. Ricardo’s theory is, thus seen, for those who accept the status quo but not for those who want to change it.[20]”
Ha-Joon Chang’s comment implies stasis in economics, which may an analytical ideal but is rarely if ever seen in the real world. Natural conditions change, market needs change, labor influences change, rates of exchange change, political influence changes, international relationships change. Some of the changes cannot be predicted, nor can they be prevented.
Instead of free trade, I advocate a mix of free trade, but with critical national industries protected. Note the part about international relationships; simply put, handing our manufacturing sector over to foreigners who might be friendly today, less so tomorrow, is dangerous. It’s not manpower that wins wars now, it’s technology and equipment. Note how readily the IS militants, even though outnumbered, manage to kick the butts of Iraqi government forces. Technology takes time; manufacturing complex systems, then training people to use them effectively, can take years. Handing a capability over to benefit a few in the short run is madness in the long run. Stability is not guaranteed.
I also suggest that part of a mature economy must be turned inward instead of outward. To this end I believe making socialism part of the national mix, in which the government becomes the employer of last resort in a downturn. I advocate Quantitative Easing not to protect banks but to strengthen the nation by investing in infrastructure. Note that China is using her temporary advantage in balance of trade to do just that.
Bottom line: I think that overall Ricardo was wrong, and that overreliance on his theories now is economically damaging and dangerous from a security standpoint.

Society, and the Judicial System

May 17, 2015

I’ve been commenting about the decision to execute Tsarnaev for his part in the Boston Bombing case. I’ve read other comments about Charles Manson and similar ones that have to do with a different aspect of our system: correction, or punishment?
My first post was about society’s responsibility to remove a danger to society. This time I’ll look at a different aspect: punishment, or correction?
‘Punishment’; what’s the purpose? Think about it for a moment.
We punish children. Why? Consider that too.
Is it done to correct a person’s behavior, or is it a kind of societal revenge? Manson and Tsarnaev harmed our society, so we must have vengeance? Neither will be, probably cannot be, ‘corrected’. They’re a danger to the rest of us.
The main problem with correction is that we don’t have a way to ensure that it happens. Prison doesn’t do it. Far too many come out worse than they went in. Death won’t do it, because the person executed is permanently removed, not ‘corrected’. Society is safer, but that’s it.
Those who favor the death penalty believe that it provides both revenge and conditioned avoidance, in that it will frighten others from doing what got the convicted one executed.
I don’t see that working. Are there fewer crimes in Texas? That’s the state with the most executions, yet murders and crimes of violence still happen there.
How about long years in prison? A judge was convicted recently of selling people, including children, to a private prison company to be locked up. He got 28 years behind bars. If he survives, he’ll be an old man when he gets out. Will this encourage others not to become corrupted? Will he be ‘corrected’? To what end? Can he become a productive member of society when he gets out?
This same question applies to anyone who is incarcerated.
The number of people in prison or awaiting execution in the US tells me something different: our society has failed, is failing.
Too many of our people are exploited, hopeless. They see no better future ahead, just work, be exploited by the neo-nobility until they finally die. And their children will fare no better. They rebel.
To me, the cause of our societal problem is uncontrolled capitalism and corruption. There’s more to it than that, but it’s where the rot starts. Religion plays a part too, as does a kind of faux patriotism. Taken all together, it’s an unholy mix.
It’s a failure. We can do better. And we should. We must, or it will only get worse.
While you’re muttering ‘communist!’ at me, think about sports.
Football and basketball are good examples.
“If you ain’t cheatin’, you ain’t tryin’.” Ever heard that?
The New Orleans Saints put a bounty on opposing players. Cheating. The coach got a year’s suspension, now he’s back. Tom Brady is facing suspension for cheating, but it won’t be a heavy one. Why? Both men are draws, moneymakers. And professional sports is about money, not sportsmanship. Basketball? Even notice why it takes so long to finish the final few seconds of a close game? Deliberate fouls, deliberate breaking the rules. Cheating. Two or three free throws, no problem. Fifteen yards penalty for deliberate cheating, holding a defenseman or a wide receiver, no problem. If you ain’t cheatin’ you ain’t tryin’.
And oh, the uproar when ‘fans’ hear that their team is moving to another city! More false patriotism, in a sense.
My team right or wrong is pretty similar to my country right or wrong. We never seem to ask why we shouldn’t make both right instead of blindly supporting their wrongs.
Back to ‘justice’. How do we ‘correct’ early offenders? The judge scolds them, gives them ‘probation’. Over and over again. It’s expensive to lock someone up, you see. And they have no money to pay fines. As for the economic conditions that caused them to act out, nothing is said about that. Nothing will be done in Baltimore or Ferguson, either. Rioters will be scolded, most will be released, maybe a few policemen will get fired, nothing changes.
And unless we force it to happen, nothing will change.
Oh, and that youthful offender? Probation, probation, a short lock-up in a juvenile prison (maybe), until he grows up…then lock him up forever.
Or execute him.
After all, he got due process. Right?

Christianity, and Fakes

May 14, 2015

Christianity is more than simply declaring “I am a Christian.” The religion is based on source documents, most of which are readily available for everyone to read.
Any argument there?
Those source documents prescribe a system of behavior and a code of morals. Those things are not ‘optional’. You really can’t cherry-pick among them. You can’t stand up and declare that someone is a traitor and he should be killed (that has happened several times, sometimes by preachers, yesterday by someone who claimed John McCain was a traitor and should be killed.
If you can’t accept “Thou shall not kill”, you’re neither Christian nor Jew (Jews rely on the Torah, which includes Exodus, one of two places the Ten Commandments are found).
But Christianity is based largely on the New Testament. “Turn the other cheek”; ever heard that one? If your idea of Christianity involves carrying a pistol, you’re a disciple of the NRA, not of Christ. Guns enable people to kill with the squeeze of a trigger, which is incompatible with that first Commandment.
There are other parts of the code that pinch, too. Accumulation of personal wealth, for example. Feeding the hungry; you no longer need rely on loaves and fishes, grocery stores and restaurants work pretty well. As do contributing to charities, food banks, and soup kitchens for the homeless.
If you can look at a homeless man and not love your brother as yourself, you’re not a Christian.
Get the idea?
I’ve never met a real Christian. Mother Teresa came pretty close. But she’s gone now. We may never see her like again.
Public claims and posting articles such as the one in the beginning only underscore the reality: if you speak but don’t act, you’re living a lie.
I don’t depend on exhortations from preachers in expensive suits who drive expensive cars to tell me how to act. Whether atheist or religious, that ‘golden rule’ is still a pretty good guide to behavior. I suspect that I, an atheist, come closer to living that rule than most of the self-identified ‘Christians’.

Private Education, and Why Our System Is Failing

May 12, 2015

A recent discussion with two online friends caused me to reflect on education.
I’m a product of a small public high school (in Leesville, Louisiana) and a small university (University of Texas-El Paso). Most Americans share a similar background. The system worked for us, back then, but it doesn’t work nearly so well now.
And none of the proposed fixes have made a bit of difference.
Students are stressed; teachers are stressed; some, lacking any other solution, cheat. Even school boards cheat (EPISD, for one, the district I once worked for; the cheating happened several years after I retired, and it was done at the district-administration level; teachers had no input into what happened).
My friends, who have a libertarian philosophy, feel that the solution to our education mess is the free-market approach. I don’t agree. Such a system has several major flaws.
The first one is simple: there’s no law against opening your own school. Go ahead, invest the money, hire the teachers, apply for certification, and invite people to bring their children. Collect a fee for services and just like that, you’re off and running.
Until you go broke. And you are very likely to do so during your first year.
There are such schools, and many have been around for a century. Excellent schools; the nation’s wealthiest citizens send their children to such.
And that’s the problem; such schools are only for the wealthy. They cost roughly what a university education costs. Ordinary Americans can’t afford them.
The private/charter schools, instead of offering their product in a free-market system where competition would result in excellence, neatly bypass competition by collecting not from customers but from government. In so doing, they siphon off needed money from public schools.
So why can’t public schools compete?
Actually, they do. Note that I graduated from a public school, as did my sons and grandsons.
But public schools must do things private schools don’t.
They provide transportation to those that need it. Simple solution to busing, instead of huge schools that draw students from wide areas, keep schools small and locate them where students can walk to school or be brought by parents. The larger schools are thought to be more efficient, but when you add in costs of transportation, plus the reduced education outcomes, I question whether large schools really are more efficient.
The other thing that differentiates public schools from private schools is government control. Schools are no longer about education; they’re about social engineering, about inclusion, about lawsuits. Some of these are positive, and it may be that all of these trends are positive in the long run; but they’re expensive. And that’s the failure of the American school system in a nutshell.
Testing only proves what many already knew: we’re not producing the level of education among graduates that we once did.
Schools are about funding; the rule is, live within the budget. It’s the ‘business’ approach.
But kids don’t fit into the column of figures. Some require more services, whether adaptive services such as ramps for physically handicapped, to smaller classes (more teachers; expensive) or resource-intensive classes for the educationally handicapped.
If there’s an advantage to the private-industry school, that is where it’s to be found. As a private company, such schools can avoid much of the governmental/judicial mandates that, however well intentioned, don’t come with funding.
In a rational system, trained professionals would assess the funding needs and come up with a budget. This would be presented to the school board or other authority, much as departments of the government do . Instead, it’s much more the top-down approach: here’s the money and this is what you must do, and you’re forbidden to make changes by dropping programs or dropping expensive students because you don’t have enough money.
There’s another hidden corollary to this: unproductive and misbehaving students.
The budget is based on a cost-per-student basis, and if student enrollment increases the budget is increased. But if students are habitually truant, schools lose money. This means that if students violate rules, they aren’t expelled; they’re sent to an alternative school, set up to deal with such. If students cannot or will not benefit from attendance at a public school, they’re still kept there, because doing so brings in money.
Private schools don’t operate that way. Those schools I mentioned in the beginning, the ones that wealthy people send their kids to? They had a different solution. If you misbehave, for example bring a weapon to school, you’re expelled. If you refuse to do the work, you’re dismissed. If you are so disruptive that other students can’t learn, you’re expelled. Parents quickly become involved, because having paid considerable amounts of money to those private schools, they don’t want their children expelled.
One final comment about those private, for-profit charter schools: if they don’t produce, they go bankrupt. Good economics, bad sociology. What happens to the students who were enrolled? If you’re a factory making widgets, you can send the ones that don’t pass inspection back and have them fixed. Kids aren’t widgets; they have a narrow time-frame where education either takes place or it doesn’t. Subsequent efforts at adult remedial education  can help, but it can’t fix what went wrong during those formative years.
I don’t know that there’s a solution. We elect officials, and as soon as they take office they become magically expert in everything. The urge to stick a finger in and stir things up is overwhelming. So they do.
And the system gets stirred up, but somehow it’s not better. Short of a total redesign, I don’t see improvement taking place.

Economics: Crashes, Recoveries, and Recent History

May 8, 2015

I keep seeing the denials. Whenever good economic news comes out of Washington, some claim it’s propaganda, that it’s all lies by Obama.
As if a president has time to collect the data, to analyze economic trends.
Yesterday I got involved in a discussion with a man who doesn’t believe statistics such as what was reported today, that America enjoyed fairly-healthy job growth last quarter.
But I also see signs on doors, Help Wanted. Look around, you’ll see those too. Go on, look for yourself. Are those signs lies?
Stores close, Others open. It’s part of the cycle. Long term trends are different.
Unless you PERSONALLY have access to all the data, you’re believing someone else’s report. And all those reports, including mine, are based on second-hand information. They’re no more than opinion, in other words. My opinion? I base it on evidence, not solely on government reports.
Those reports some are so quick to doubt are read by a bunch of nervous traders. The stock market…looked at that lately? It reflects the nation’s economic health very closely, and there’s a lot of our economic history to be read there. Companies that are publicly traded must file quarterly reports. They must report changes in their work force, up or down, whether their earnings will meet expectations, things like that.
Don’t like the government reports? Just watch the stock market. Traders know. They have to, or they lose their ass.
Now go back and look at long term market trends. Look at what happened during the last years of the Bush II presidency and what has happened since.
The market almost crashed. Banks almost went bankrupt, the entire financial house of cards almost fell. Bush and his supporters bailed out those same big banks and insurance companies with gigantic gifts of public money.
This is history. It’s not opinion. It happened. The economy sank into the Great Bush Recession. OK, that’s my name for it; I want to remind people of what happened and who was in charge at the time.
You can find the reports, and some of you will even remember when these events took place, now that I’ve reminded you.
No bailouts under Obama. Instead, rising employment. More consumer confidence. The stock market rise has reflected that. The nervous traders settled down and paid more for stocks, because they expected the values of traded companies to go up. That has continued since Obama became president.
Evidence, not opinion.
I call it the Great Obama Recovery, because I want people to remember who was in charge of this part of our economy history too.
Loved Bush II, hate Obama? OK. Personally, I’ve got issues with both of them. But I try not to let that blind me to facts. I look at the evidence.
Government reports, and also what the stock market is doing. That market reflects our economic history, for those who are willing to look at long-term results.