A Philosopher's Blog

Philosophical Essays on Many Subjects

Economic

Bubbling

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Official photographic portrait of US President...
Get this man a bubble! (Photo credit: Wikipedia)

While many corporations are doing great, the economy is still in fairly rough shape. As is to be expected, the two political parties are busily forging their rhetorical weapons for the 2012 election and claiming that only their ideological points can save the day. For example, the stock Republican line is that cutting taxes and removing regulations will save the day. The Democrats counter with what one would expect from the Democrats.

While politicians can obviously impact the economy (see, for example, prohibition) by their decisions, it is reasonable to consider whether or not specific proposals would have a positive impact (or any impact at all). Consider, for example, taxes. As noted above, the stock Republican line is that we need to cut taxes to grow business to get the economy going. There are, of course, some obvious problems with this view.

First, there have been periods of prosperity with higher taxes, such as during the Clinton area. This indicates that the impact of tax cuts is somewhat limited. Second, taxes are rather low now. Despite the rhetoric to the contrary, Obama has been largely following the Bush strategy of lowering taxes. As the Republics delight in claiming, unemployment is still high and the economy (aside from the top corporations) is still limping. Third, thanks to loopholes and the ways the laws are written, the very wealthy and corporations are able to pay remarkably low (sometimes no) taxes. If low taxes were the true engine of recovery, we should be doing amazingly well. As such, cutting our way to prosperity doesn’t seem any more likely to work than trying to tax and spend our way out of it. So, what would save the day? Turning back to history, three interesting potential solutions  present themselves.

First off, there is war. Winning one seems to have really helped us after WWII. Of course, there are some problems with this option. We are, obviously enough, at war and it does not seem to be getting us out of the hole. Also, what really helped out after WWII was that our competition had been bombed into rubble. So, unless we are willing to bomb our competition, war does not seem like it will get us out this time.

As a second option, there is a new frontier. It can be a “new” land rich with resources or technological innovation(s) that change the world. Unfortunately, all the land seems to have been grabbed up (requiring option one if we want to get it). We could try space or the deep sea, but we lack the technology to really exploit those environments-at least for now. As far as the technology goes, some might point out that we have Facebook. While that made some billionaires and millionaires, it wasn’t enough-mainly because it might not actually be a real frontier, but is probably part of a bubble. So, unless someone is assembling a warp drive in their garage, we are still stuck with a slow climb out of the recession. Unless, of course, we can take advantage of the third option.

As a third possibility, there is the bubble. Looking back, it seems what saves us (then dooms us) is the bubble. In the 1980s we had the Savings and Loan Bubble (better known as the S&L crisis). The economy grew with the bubble and then burst with the bubble. We struggled along until 1995 with the beginning of the dot-com bubble. This bubble expanded until about 2000 and then burst. Pets.com was the mascot of this bubble-the company went from having its sock puppet being interviewed by People to vanishing in a puff of $300 million in lost investments. After the dot-com bubble, the geniuses in finance gave us a massive housing (and finance) bubble that expanded the world economy until it burst, almost taking down the world. We are still cleaning up that burst bubble.

As is to be be expected, the presidents and politicians presiding over the rises love to take credit for them. However,  the main connection between policy and the bubble expansion seems to be that there are policies that allow people to act in ways that will ultimately cause the bubble to burst. For example, the policies governing housing and finance allowed the bubble to grow via financial wizardry and deceit. Since the growth was largely illusory, it was hardly a shock that the bubble burst under the very same policies that allowed it to grow.

In some cases, it is like a situation in which a parent allows the kids to feast on sugar and junk rather than good food. While they will run around madly for a while, this cannot be sustained on sugar and they will crash. Likewise for the economy. In some cases, it is like adults gorging on sugar-they should know better, but they do it anyway. And then some of them are shocked when the vomiting begins. There are some signs that we are bubbling again.  For example, there is the Facebook economy that seems to have bubbled up nicely and housing seems to be inflating a bit again.  Once we get the next bubble inflated, someone (Obama or Romney) will take credit for getting is back to the good times. Then the bubble will burst and we’ll go through yet another round of proposed solutions. But all we really need is another bubble. Then another. Then another. Fortunately, the bubble residue can be like coral-sometimes it provides a solid foundation upon which something can live.

Stay bubbly, my friends.

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MWF Posting Schedule

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Thanks to the budget cuts, I face summer unemployment, a lower salary and an increased workload. As such, I need to devote far more time to activities that generate revenue. While I enjoy writing this blog, it generates $0.00 for me per year. As might be imagined, I can make far more spending my free time writing professionally for money.

I did consider simply stopping this blog, but I do enjoy it. As such, I will try switching to a MWF posting schedule rather than my usual seven posts per week. If I am forced to let my blog end, I will be sure to have a final post noting that, rather than simply fading away.

In any case, I will still be active on the Talking Philosophy Blog, although I think that WTP is probably still banned from the site.

 

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Can Everyone be Wealthy?

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Emma Goldman
Emma Goldman (the tattoo, not the person)

It is sometimes asked whether or not everyone can be wealthy. This depends, obviously enough, on what is meant by “wealthy.” Determining what “wealthy” means requires sorting out the nature of wealth.

As might be imagined, there is a fair amount of debate about the true nature of  personal wealth.  While this oversimplifies things, a fairly standard view of wealth is that it consists of the net economic value of a person’s assets minus their liabilities. To be a bit more specific, these assets typically include possessions (cars, guns, art, computers, books, appliances, and so on), monetary resources (cash, for example) and capital resources. Not everyone buys into the stock view, of course. For example, Emma Goldman claimed that “real wealth consists in things of utility and beauty, in things that help to create strong, beautiful bodies and surroundings inspiring to live in. But if man is doomed to wind cotton around a spool, or dig coal, or build roads for thirty years of his life, there can be no talk of wealth.” As another example, some thinkers include non-economic goods (such as knowledge) within the realm of wealth. To keep thing simple and within our current economic system, I will limit the discussion to the “stock” account of wealth (that is, economic assets).

In our current economic system, it is obviously not the case that everyone is wealthy. When this fact is brought up, some folks like to claim that even the poor of today are wealthier than the wealthy of the past. In some ways, this is true. After all, the typically poor person in North America or the United Kingdom has possessions that not even the greatest pharaoh or Caesar possessed (such as a microwave oven). In many other ways, this is not true. After all, a wealthy noble of the past would have land, structures, gold, art, and so on that would make him a wealthy man even today. Also, there is the obvious fact that there are poor people today who are as poor as the poorest people in human history in that they possess just the tatters on their backs and just enough food to not die (at least for the moment). In any case, the fact that the sum total of wealth of humanity is greater now than in the past (even taking into account that there are so many more of us) does not tell us much beyond that (such as whether the current distribution is just or whether we can all be wealthy or not).

Getting back to the main subject, what needs to be determined is what is meant by “wealthy.” As noted above, I am limiting my discussion to economic wealth, but a bit more needs to be said.

In some ways, wealth can be seen as being analogous to height. A person has height if they have any vertical measurement at all. Likewise, a person has wealth if she has any economic assets in excess of her liabilities. This could be as little as a single penny or as much as billions of dollars. Obviously, everyone could (in theory) have wealth, just as everyone can have height. But, of course, a person is not wealthy just because s/he has wealth, no more than a person is tall simply because s/he has height. On the other side, lacking wealth is described as being destitute and lacking height is described as being short.

Continuing the analogy, being wealthy or wealthier  can be seen as analogous to being tall or taller. Being tall means having more height than average  and being taller than another means having more height than that person. Likewise being wealthy would seem to mean having more wealth than average and being wealthier than another means having more wealth than that person. If this view is correct, then we cannot all be wealthy anymore than we can all be tall. Obviously, we could all have the same height or the same wealth, but the terms “tall” and “wealthy” would have no application in these cases. As such, we cannot all be wealthy-if we had the same amount of wealth, then no one would be wealthy.

It could be contended that being wealthy is not a matter of comparison to the wealth of other people, but rather a matter of having economic assets that meet a specified level. Depending on how that level was specified, then everyone could (in theory) be wealthy. Of course, the question of whether or not such a level should be considered wealthy or not would be a matter of debate.

It might be contended that focusing on whether or not everyone can be wealthy is not as important (or interesting) as the question of whether or not everyone can be well-off in the sense of having adequate resources for a healthy and meaningful existence. This is, of course, a subject for another time.

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Wealth

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2006-01-28 Pu money
Pu Money

WTP made the following comment:

Mike, I will ask again…If, as you assert, the amount of wealth is constant and we are all fighting over the pieces of a finite pie…There are more people alive today than ever before and they are all wealthier than those in the relative hierarchic economic layers of the past. Where did this extra wealth come from? Once we get through that perhaps we can discuss: Where does wealth come from? How is it created?

I assured him that I would answer these questions, so here it goes.

One rather important matter is what is meant by “wealth.” After all, this is a normative (value) term and tends to be a matter of considerable dispute. For example, does wealth include only physical and economic property in the strictest sense, or should it also include other things of value, such as knowledge? However, to keep it simple I will go with a fairly stock account of wealth and take it to refer to items of economic value in a fairly limited sense. As such, wealth would consist of such things as valuable natural resources (oil, gold, silver, wood, water, land, and so on), capital resources, money, and physical possessions (such as guns, cars, works of art, computers, books, and such).

The amount of wealth is not constant and I do not believe that I ever claimed it was constant. Rather, my point has been that wealth seems to be a zero-sum game. That is, at any given moment, there is a finite amount of wealth and any increase in my wealth would entail a decrease in the wealth available to or possessed by another. For example, the land I own is land others do not own, thus reducing the wealth available to others (if only by a miniscule amount).

The sum total of wealth can, obviously increase. To use an obvious example, there are far more houses now than ever before. As far as where they came from, they were obviously built by people using material resources that have presumably been around since the beginning (matter & energy after all, change form but cannot be created nor destroyed-at least on some accounts).

You are right that people alive today are, in general, more wealthy than their counterparts in the past. It is also true that poorer people today are relatively wealthier than people who would have been considered wealthy in the past. One factor in this change is that advances in technology and the rise of a consumer economy mean that people have access to far more things and, of course, there is a significant motivation to sell people said things.

In terms of where the extra wealth has come from,  giving a complete picture would require several books. However, I can briefly discuss some major causes.

First, there is the development of new technology. As noted above, one impact of this is that it provides more stuff to own (and hence more wealth relative to the past). Today, for example, I have a plethora of things my ancestors did not, such as a phone, a truck, lights, a Kindle, a modem, a router, a laptop, a flashlight, a fridge and so on. Another impact is that workers become more efficient (or can be replaced). So, instead of having to make things like a bow, spear, and clothing with great personal labor, weapons and other items can be mass produced by machinery-hence there will be more stuff for less effort, thus allowing an increase in wealth.

Second, there was the development of new financial systems which allow the “creation” of wealth by various means (some of which seem to be rather destabilizing to the general economy) such as investing, credit default swapping, junk bonds, corporate raiding and so on. A more complicated and larger economic system allows for there to be more monetary wealth-although this sometimes seems to be “creating” wealth out of nothing.

As far as where wealth itself comes from, that depends on the specific sort of wealth you are talking about.

Material wealth obviously originated in the creation/origin of the universe (that is where the stuff comes from). Once we had the earth and people, people could start acquiring material goods like land and resources. These resources can be made more valuable by the addition of labor, thus creating wealth. They can also be made more valuable by other means, such as creating scarcity and controlling pricing. These material goods can be acquired in various ways, fair and foul. The classic method is, of course, conquest.

Given that the earth is finite, the material wealth is also finite, thus creating a zero-sum game. To use an obvious example, any land I own is less land that other people can own. Everyone could, of course, be fairly well off. After all, a finite amount of wealth divided among a finite number of people could still allow for people to have a fairly robust amount of stuff. Obviously, however, this is not the sort of world we live in: very few people have most of the stuff.

Monetary wealth is obviously a social construct: we made up the financial game and the “creation” of wealth depends on the sort of game being played at any given time. For example, some folks “created” wealth by clever repackaging of toxic assets. Other people “create” wealth by working and investing their money (which is supposed to give them more money). In many ways, this is “fictional” wealth in that we are literally just making this stuff up and its value depends entirely on how far we are willing to all play make-believe. Yes, I play the game-it is a convenient way to handle exchanges in some ways. But, I always remember that it is just a game we are playing (I work, I get some paper, I hand the paper to someone and they give me an apple).

In theory, there could be an infinite amount of money (not physical currency, of course). However, simply creating more money will not actually create more wealth-it would mainly just result in inflation. As such, money is also effectively a finite resource and the more I have, the less there is available for others (in a practical sense).

Thus, wealth is effectively finite and we are in a zero sum game.

 

 

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Capsizing the Ship of State

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The Revelation of St John: 4. The Four Riders ...
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One perk of being a professor is that I get a chance to talk to experts in other fields about various issues. Recently I was discussing the matter of income inequality in America in the context of both historical empires and recent events in the Middle East.

No doubt some folks will accuse me of being a “professional leftist” or engaging in “class warfare” by discussing such matters. However, I will show that my goal is not to cause class warfare but rather to argue how it can be avoided. My motivations are grounded both in morality and patriotism.

Income inequality in America has increased significantly since the middle of the 1970s. Those Americans in the lower 80% have seen a reduction in their share of the big economic pie. In stark contrast, the top 1% has seen its slice expand over 120%. Now the top 10% of Americans earn roughly 75% of all the income. As such, 90% of Americans only get 25% of the pie. As is often said, the rich get richer and the poor get poorer.

Not surprisingly, some folks will argue that this is a good thing or at least fair. People can speak about trickle down economics and claim that the rich earned their income. I will not argue any of this here. Rather, I will focus on the consequences of this concentration of wealth.

While there are many factors that lead to the fall of empires, there are at least two that are directly linked to income disparities. The first is that the disparity in income is harmful to the general body of society. To use an analogy, society is very much like a human body (which is nicely illustrated by the cover of Hobbes’ Leviathan). It has various parts that make it up and these parts have varying degrees of importance. However, all need resources to survive. In the case of the body, if some organs receive the vast majority of the resources while the others do not receive enough, then those parts of the body will weaken, wither away or even die. In some cases, such as with fat, this is fine and even desirable. However, in other cases this can be very bad indeed and lead to the death of the whole. The same applies to the political body: its parts need enough resources to survive otherwise this can spell the death of the body.

Assuming this is correct, it follows that extreme income inequality is actually a threat to the entire society. Even if the extremely rich argue that they earn every cent, this does not change the fact that such concentration of wealth can prove to be rather harmful.

One obvious reply is that it is not the concentration of wealth that is the big worry. Rather, the worry is that the other parts of the body have enough resources to keep going. As such, there could be great inequality in income while the body as a whole does well.

This is, of course, a reasonable reply. Obviously enough, we are currently in a situation of massive inequality, yet the body as a whole certainly seems healthy enough. No doubt the Romans said the same thing. However, this does not entail that the inequality is not harmful nor does it entail that inequality can continue to grow without leading to harms to the political body as a whole.

Some might suspect that I will call for a redistribution of wealth and are ready to lash me with the whip of socialism. However, I do not advocate forced distribution of wealth via socialistic means. Rather, what is needed is a more equitable tax system and an economy that is more open to competition. Currently the state often serves the needs of the established wealthy very well and protects them. This leads, as it always has, to an ever increasing concentration of wealth. This is not due to a “free market”, but largely due to a market that is manipulated by politicians who are guided by those who hold this wealth. See, for example, the state of Wisconsin.

A second factor is that citizens need to believe (correctly or incorrectly) that they have a stake in society. When citizens believe they no longer have a stake or something to gain, they tend to “check out” of society. This can begin with simply electing not to vote and can end in actual rebellion.

Income, obviously enough, plays a significant role in this belief. True, propaganda can be used to convince people that they have a stake in society and people can also believe they have a stake based on factors other than income. However, income is still an important factor as shown by the situation in the Middle East.

The countries in the Middle East that have been rocked by revolution have many factors in common. One of these is that that wealth is highly concentrated.  Others include the fact that unemployment was high and opportunities where low. Naturally, the repressive nature of the states is also a critical factor. However, the economic inequality has clearly been a major driving force.

Interestingly enough, the folks at Fox News, such as Glenn Beck,  have claimed that the events in the Middle East are comparable to the protests in Wisconsin. Interestingly enough, Beck was right to make the comparison. The people in the Middle East realized that the system was favoring a small, wealthy minority and had little or nothing to offer the majority. Hence, they checked out of the system and rebelled. In the case of Wisconsin, people are seeing that the state government is beholding to the Koch brothers and is intent of serving the interests of the wealthy minority at the expense of the many. Hence, people are protesting. Obviously, the Middle East is a far more extreme situation, but many of the core causes are the same.

Currently, most Americans have good reasons to stay checked in, even though many people do not vote. However, the concentration of wealth and the economic situation means that more people will have less reason to stay checked in. The pundits at Fox, the forces behind much of the Tea Party and others are doing their best to keep people convinced that corporate greed and selfishness are virtues and are in the best interest of the people. They are also working overtime to brand any suggestions that the inequality is a problem as “class warfare” or socialism. Some people do buy into this propaganda. Hence, you see lower income people rushing to defend corporations, the rich, and the free market despite the fact that the system ensures that they will remain in the lower classes. It is indeed a brilliant trick to get such people to passionately defend the rich and rail against those who would do things to make the situation of the middle and lower classes better. However, as Lincoln said, one cannot fool all the people all the time.

I do not, of course, see the solution to the problem in socialism. Rather, what is needed is a means to ensure that the good aspects of capitalism remain in play while ensuring that the concentration of wealth does not reach the point where too many people are checking out. At that point, as has been seen throughout history, a society collapses, is conquered or falls into rebellion. I do not want to see any of these happen here, hence I believe that income inequality must be addressed.

Interestingly enough, the really rich also have an interest in an adequate distribution of income After all, they need a society around them to provide stability, order, products for them to consume and people to work for them. Presumably some of the rich also have a sense of patriotism and community as well. As such, it would seem that everyone has a good reason to ensure that the concentration of wealth does not hit the tipping point.

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Tax Cuts & Spending Cuts

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Various Federal Reserve Notes, c.1995. Only th...
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Interestingly enough, Obama was recently taking some flack from the left. The gist of the criticism is that the wealthy are enjoying breaks while social programs are being cut in the new budget.  One cut that has been getting a fair amount of media attention is the program that helps folks out with heating costs (a program has been cast as more of a help for business than for the poor folks it is supposed to assist). While Obama has been pushing to end the tax cuts, there is still considerable push to keep them in place.

The problem, as some left leaning folks see it, is that it seems somehow wrong for the wealthy to keep more of their money while the recipients of social programs will be getting less. Presumably these left leaning folks believe that the wealthy should pay more so that the beneficiaries of these programs can continue to receive their government largess.

Laying aside the specific cuts (tax and social spending), this is a rather interesting matter. The folks on the left do have a reasonable point, given their value system: letting the wealthy keep more while the lest well off do with less seems to be a moral error. Naturally, other folks will see it a bit differently.

While I am sympathetic to this view, it is well worth noting that the wealthy are, in a real sense, not being given anything by being “allowed” to keep more of their money. Rather, they simply are having less taken from them. The folks who normally receive shall be getting less. While it is tempting to some to link these two in some sort of ethical bondage, it also seems reasonable to split them apart. That is, rather than simply consider whether it is just for the wealthy to keep more of their income while others receive less largess, each should be evaluated on its own. To be specific, one issue is whether or not the wealthy are entitled to retain more of their income. The second issue is whether those benefiting from the programs have a right to continue to receive support at the previous levels. To use a specific example, when folks in the media discuss the government support for winter heating, they make a point of noting that this seems to actually benefit the companies more than the the intended recipients of the support. Of course, the point seems to be that there are laws against turning peoples’ heat off in the winter, so this is still a matter that is subject to reasonable debate.

Naturally, it might turn out that these matters are, in fact, linked. After all, it could be argued that if those whose benefits will be cut actually have a right to keep them, then perhaps the wealthy would thus be obligated to hand over more of their income to fund the programs.

To use an analogy, imagine that two people are at a store. Sally has more than enough money to pay for her purchases while Sam does not. While it would be very nice of Sally to help out Sam, it does not seem that he has  a right to expect her to support him with her money. Unless, perhaps, the purchases are essential for his survival and he simply cannot earn enough through his own efforts. In that case, it could be argued that Sally has an obligation to help Sam. Kant has just such an argument about helping others.

This is, of course, just another instance of the classic moral problem of what we owe to others.

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