ECONOMICS 101

   THIS IS THE FIRST IN A SERIES OF POSTS ABOUT THE FAILURE OF THE US ECONOMY, the failure to create an economy meeting the expectations of a rational society.  

Introductory economics courses emphasize how economies decide to allocate the society's resources:  do we produce guns or butter?  Supply and demand curves illustrate how the interaction,  and factors that modify them.  The supply of goods and services is decided by the society, which may reflect the demand curve,  but some are independent, as in military spending in peacetime.  The demand for goods and services differs throughout the society,  and a hierarchy of needs alters what different economic classes demand,  and the supply.  Theses and research papers are written to address special cases.  Economists avoid value discussions, claiming the principles are “value neutral” so true whatever the values of the society in they apply.  Yet economic studies may favor one value system over another, and are adopted as “correct” by the political group that is most likely to benefit from the plan.  The idea of optimizing decisions for the entire society is a political, not economic, issue, but the data to measure this requires an different approach to economics. The economic questions for a society (country): 
    1) Is there an “equitable” dispersal of goods and services?
    2) Are the available resources used efficiently?
    3) Is the production of goods and services “stable”, in the sense that disruptions of production or consumption do not result in major failures in 1) and 2)?    (To this might be added another goal based on the extensive development of globalization:)
    4) Is the production of goods and services efficiently integrated into broader global markets?

These metrics for evaluating the operation of an economy,  are not consistently achieved by the American economy, for most of its history.  The American economy, a “regulated” capitalist economy, is unable to fulfill those simple objectives.  Why?

    1) Capitalism is based on return on investment, ROI.  The rewards of the  society are dispersed based on how capital is invested.  It might seem that investing would favor those activities most likely to provide a significant return,  and that these would benefit the overall society.  But this is generally not the case. Predicting the likely return of investment requires knowledge of future demand an inherently risky problem.  So efforts are made to limit this risk by reducing competition, and choosing modes of investment like financial manipulations in which risk can be managed directly.  None of these adjustments are responsive to an "equitable distribution".
    2) Efficient use of resources does not occur because of the competition for consumer access.  A new neighborhood will have several supermarkets, gas stations, and other providers.  The excess building results occurs when companies seek entry into the region.  The ones that fail waste investment and create “dead” stores that must be repurposed.  This is often taken as proof that capitalism is efficient,  emphasizing the re-purposing and ignoring the losses of inefficiency of initial investment.  This has been accelerated by the recent transition to online marketing and sales.

This problem of waste in fair competition is managed by oligarchy. In development of American business from the “golden age” of the early 1900s to now,  achieving competitive advantage by monopoly has always motivated business.  Strong anti-trust laws emerging after the crash in the 1920s prevent some of this, but were weakened in the 1980-90s.  Once monopoly is achieved the society pays far more than what would be needed for the good or service and competitors are undermined and eliminated,  but this does not lead to reduced waste but instead to elevated prices when there is no optional alternative supply.   Capitalism attempts to lower the costs of business in every way possible and this means limiting labor costs where possible in the current competitive labor market.  At times  it creates labor “sweat shops” with poor return on labor for the worker and eventually demand for unionization and government regulation.  While efficient in using labor resources,  this interferes with achieving goal #1) equitable distribution of resources.    

    3) Every introductory economic textbook explains “business cycles” as an inevitable feature of capitalism.  The uncertainty in investment and inherent risk predicts failures in businesses, but it does not predict that these must be correlated and occur in cycles.   The “Chicago School” explains these cycles as variations in the “cost of money” or interest rate.  When the rate is low,  starting new ventures or expanding is less costly and more businesses attempt it.  The demand on money raises the “cost” (interest rate) and eventually the multiple businesses don’t all succeed resulting in defaults and losses,  and the rate falls.  This explanation does not take into account several external factors that have impacted over the last 100 years.  Technology innovation drives business expansion and exaggerated valuations, seen in the railroad boom of the 1870s,  the radio boom of the 1920s,  the computer hardware boom of the 1990s,  and the “internet” boom of the 2012s.  Each is a real advance in technology overvalued by a public seeking to “strike it rich” creating transient exaggerated values, "tulipmania"  (along with some fake businesses that exploit this).   The 2008 crash was the result of an intentional effort on the part of a government-financial industry partnership to create a false stimulus in the economy by driving the housing market beyond the capacity of buyers to afford houses,  with falsely valued mortgages,  and secondary insured collateral to cover this fake stimulus.  The collapse brought down Lehman Brothers,  and triggered a major contraction.  In 2020, another sort of contraction is occurring due to the collapse of consumption in certain industries related to the covid pandemic.  This is another test of whether an economic system can manage the external destabilizing challenge of an event.  And the crypto-currency collapse is another result.

    4) Understanding the economy from the perspective of one country is no longer adequate.  The free transfer of goods,  services, and information across national boundaries makes the idea of a closed economy incorrect.  What does an effective role in the global economy look like and how should it be measured?  The current US idea that it is the “dominant” economy and can manipulate others is incorrect, in the process of failing, and weakening the US role in the broader economy.  The competition between countries try to draw investment from outside bringing capital for development into the country.  They try to draw capital by exporting more in $$ than they import.  This gives a favorable balance of payments and increases the relative strength of the currency compared to other currencies,  but that makes export goods more expensive and tends to equalize the effect.  Many corporations in the modern world are “multinational” and how they report their income  affects their tax and other liabilities to the countries in which they are located.  This confuses the economic national boundaries.  Is Apple an American company?  Much of its sales are in China,  and much of its manufacturing is done outside of US.  It reports income for much of the world in EU countries with lower income taxes.  Where is the “real” Apple located?  Natural resources including foods grown, and material commodities like oil and mined substances are local to the country in which they reside.  But their trade may be managed by companies that grow or extract them,  which are not located in the country of extraction.  Whose oil is it?  Few everyday Americans recognize the extent of the globalization of the economy.
What values should guide the economic regulation of a country? 
A The economy should produce sufficient goods and services to sustain all the population.  Everyone should have enough food to avoid starvation,  adequate clothing, and housing to avoid injury of exposure to elements, and facilitate protecting a family (if desired).  It might include basic healthcare and some non working time for recreation.  How the material goods are distributed, and what productive work is required to access them must be specified.  The term “economic inequality” indicates that in the US this goal is asymmetric:  significant numbers of the population who do not have adequate food,  clothing, or housing.  Many others live in  marginal security which any change in life circumstances will disrupt.
B The Country must decide if other values beyond economic ones are important.  These might include preservation of environmental features, opportunities for recreation and other social activities,  distribution of education across the population, etc.  Most of these other values have an “opportunity cost” that reduces the available capital to the society as a whole.  The US system of valuations is suggested as:
*Recreation activities including sports, gambling, hospitality travel, and alcohol consumption are major economic industries with high valuation. 
*The consumption of disposable consumer goods like stylized clothing, shoes, and music etc. are an important driver of the economy.  They are marketed as essential to defining personal identity of the user,  although they are mass produced and therefore actually not personal at all.  Their rapid loss of value after purchase creates an enormous burden of trash waste for the society. 

***Non-material values in the society are minimal:  Religion is an important value for a minority of the population,  but is closely linked to financial success.  Tradition, old styles and standards, exists in limited parts of New England.  Cultural interests are increasingly too expensive for most to afford,  and the educational experience that would prepare readers, viewers, and listeners is not provided.  

*The emphasis is on the experience of audio-visual media as primary recreation,  along with electronic competitive gaming is supported for its economic value, while creative audio-visual production is not distributed to the creative artists as the digital distributors take most for themselves.

*Preserving the natural environment is a conflicted value with a small group committed to this,  pitted against the majority who wish to exploit the environment for economic gain.

The political process must manage the economic decisions of A) and B).  Regulation of economic activity occurs at the private and government level.  Private companies have significant freedom to specify the work parameters of employees,  compensation, and other factors in the delivery of services.  These are generally regulated by competition between local entities,  or national competition in the case of airlines, etc.  The role of the state and federal governments in requiring private entities to abide by specific restrictions (think, non-pollution) is variable and strong influence is exerted by large corporations to limit this role of governments.  The orderly function of a society demands some structure of rules/laws which specifies individual relationships.   Although great emphasis is placed on the police in preventing theft, robbery and burglary,  the total amounts of these crimes is trivial compared to the massive fraudulent “white collar” crimes of the last several decades.  This represents a fundamental failure to manage the distribution of goods and services.

Future posts will suggest alternatives to our current dilemma.

THE FRAGMENTATION OF AMERICAN SOCIETY

   In November there will be an important national election.  A two party democracy has the challenge of coordinating important issues differently than a parliamentary one.  Parliamentary democracies have specific issue parties which must align after the vote to create a parliamentary majority and support a prime minister.  The coalitions are decided by politicians after the voters have selected party weighting.  In the US two party format, the issues must be distributed across the parties before the voting and the voters choose candidates by the overlap of issues in each party.  There are advantages and disadvantages to both.  Examining the current differences in values across the society shows some important guides to the coming election:

Feminism vs Patriarchy:  The #metoo movement has not sustained a strong political influence,  and although female candidates are being identified as "important",  the idea that women are exploited by men is not accepted across the society.  Most recently deVos made the identification of sexual harassment more difficult in educational settings.  The Right is strongly patriarchal, with a significant female component that supports patriarchy.

Racism vs racial equality: The US has never resolved its origins in exploiting minorities or killing them off for access to their lands.  The recent riots over policing echo issues in the Obama administration,  and this issue for African-americans is now center stage, but for Hispanics it is less clear,  and also for various Asian-American groups.  The reality that whites will be a population minority by 2035 makes it urgent to suppress the voting capacity of these groups ASAP, or be outvoted soon.  This is a defining issue of the Right, and it has roots that go back to the authors of the constitution, to the secession of the slave states in the civil war,  and numerous anti-asian laws in the history of the Western states.  Cloaked in the language of "racism" it is more about the loss of white political control.

Values of Christian religion vs a-religious views: The Christian values of preserving life, anti-abortion, the primacy of heterosexual marriage,  and a reinterpreted 10 commandments are challenged by accusations of hypocrisy, personal reinterpretation,  and the corruption of values within the churches,  and by political compromises.  This is complicated by the reactivation of old Christian-Moslem and Christian-Jew antipathies.

Unregulated capitalism vs economic equality: There is every evidence that unregulated capitalism leads to economic exploitation, economic inequality, monopolies, and cartel oligarchies.  This was demonstrated in the 1900-1920s era of "mogul" capitalism in the US,  which led to the dramatic market collapse of 1929.  Similar problems were observed in other developed capitalist economies.  WW2 led to European expansion of social welfare elements and the increased role of labor,  while in the US this was eventually undermined,  and by the 1980s less regulation of capitalism led to the 1999 and 2008 recessions,  and controls put in at that time have been removed by political influence,  and economic inequality in the US has dramatically increased.

Environmental preservation vs economic exploitation of the environment: Although much of the environmental position seems to be about "extinction" or other hot button focus,  the core issue is how much the environment should be utilized for economic activities and how much it should be preserved in a relatively "wild" unexploited state.  Industrial interests advocate having no limits on their impact on the environment,  and the deterioration of the world's environments is a clear result.  It is not clear how much this can be reversed,  and what the impact would be on human economic function as a result.

Heterosexual identity vs gender diversity: There is evidence that gender diversity in multiple forms in multiple cultures has always existed.  The Judeo-Christian-Islamic traditions strongly prohibit non heterosexual unions and persecuted those who practice these acts.  This has been challenged since the 1950s and world wide an increased tolerance of gender diversity has accompanied the weakening of control of the society by traditional religions.

Libertarian freedom vs Rule of Law:  The essential basis of any society is the "social contract",  the agreement to relinquish certain individual autonomy for the direction of the social group.  This boundary is fluid,  and the "bill of rights" of the constitution of US represented the explicit expansion of individual rights not specified in the constitution.  The recent evolution of these issues in US is ironic:  while Libertarians decry the power of the Federal government and seek to weaken the DC influence,  the current POTUS attempts to expand HIS authority in disregard of any constitutional checks.  And congress has not been able to challenge this.

Education and advancement vs "street smarts":  The educated elite were a tiny minority of the country before WW2,  but after the war the corporate economy encouraged education,  and education became highly correlated with economic advancement.   This value has been exploited economically by for-profit colleges,  student loan creditors, and other methods and has resulted in deterioration of education quality, impoverishment of ambitious students,  and a future burden on the economy which it cannot sustain.  There is a need for education reform that links it use to the ongoing intellectual needs of an advanced technical society.

There is a very clear linkage across these values for the Right:  Patriarchy, Christian religious values, control of minority voting, and unlimited capitalism have become linked in this political system.  This is true despite the reality that the POTUS does not embody almost any of these features!


For the Left the linkage is not so clear: Feminism,  racial equality, economic equality, environmentalism, gender diversity, and the use of national laws are not obviously linked,  though the Obama administration managed to coordinate they to some degree.  

The recent division of the country over Covid-19 reveals another split:  The  younger generation of Right and Left were less impacted by the health consequences than the economic consequences,  revealing a cultural split between youth and elder generation, which was typical of the 1960s social unrest.

The current demonstrations about police violence against African-americans demonstrates the developing coalition of especially younger groups against racial discrimination and the use of the police authority to maintain society conformity.  The large number of non African-american protestors and the recognition in some places that the police process must be reformed are indications of change.

In Jan 2020,  my  blog identified the following issues for the country:
Human resource issues:  Immigration, healthcare, housing, financial opportunity, education, minority rights(diversity).  
Social consensus: Cultural values and gender identity, regional diversity
Material economic: stable economy not based on disposable consumer goods, environmental concerns
International relations and globalism
Political integrity and the exposure of graft in politics in Washington esp

Most of these are identified in the current blog as issues splitting the country. 
The availability of social media should provide a broad channel for communication and discussion of these issues but instead has silo-ed the country into self-affirming information portals that distort information to support personal views.  This must be resisted if a meaningful change process can occur.  Otherwise the country will swing back and forth to unstable extremes and collapse.

JOAN DIDION AND CA DREAMING

I picked up a book of Joan Didion's writings. She is arguably  the  great contemporary CA writer though she no longer lives in CA. Her short piece "notes from a native daughter", "letter from Los Angeles", and her "goodbye to all that" about being young and hopeful in New York in the 60s, are very powerful personal statements. She is able to bring herself to writing so a reader feels her presence more believably than almost any one else. "Notes from a native daughter" about being from Sacramento lifts a veil from the OZ of the golden state. Ken Starr is right to express his history as the history of a "dream".  For outsiders looking in, California is a projected fantasy.  But growing up there was a different matter.

The other night I watched two "road" movies: the last bit of Ford's "Grapes of Wrath", which seems horribly dated and talky, but in which Fonda is totally believable, and the harsh black and white seems exactly right to capture the harsh times in which the people lived. "Bound for Glory" about Woody Guthrie is another view of the migration of the30s. The two captured that hopeful second migration of the Okies who struggled to get to the "California where every man has a job, and gets everything he wants", a second migration after the first covered wagons of Didion's ancestors.  The Okies came swarming to Southern California in the 1930's imagining it was the Eden of their dreams, only to find themselves blocked at the borders by the previous generations of immigrants, who were aware of  the limited opportunities, and did not welcome competition. Didion's description of Sacramento includes impatience with the economic invasion of post war immigrants, who were not "settlers" and did not understand what they had been through. The 3rd migration, after the WWII, in the 1950s, overran Sacramento, along with the rest of CA, usurping the homesteads of Didion's family and neighbors, and replacing it with a less personal mall/chain store/subdivision world that would eventually invade the rest of America.   

I am a new "migrant" to CA.  I came with dreams to be close to family which was realized, and be part of the film industry which was not.  It is not an easy place to retire. The housing costs are high, and the scattered development makes you very dependent on cars in a place where this can be very frustrating. (Driving in LA is a whole other story.) The weather is often pleasant, though not quite as lovely as the promotions. Some very wealthy people retire to LA and enjoy its charms buoyed up by their affluence, and it has been that way since its origins. But most come with less, and struggle to find their place in a city which embodies the exaggeration of rich and poor for longer than the rest of the US.  There is a mental transformation that each immigrant to California must go through after arriving. The "dreams of California" must be replaced by the realities of sustaining oneself in a difficult environment. At one time, the challenges were a lack of water, and limited opportunities. Agriculture, oil, movie, aviation, military and real estate booms brought prosperity, over development, and the challenges of modern California: an overpopulated, economically declining state the size of most countries trying to find its economic balance. As always, the poor suffer most, and the middle class have less coherence as they try desperately to ascend to the 1% to have more influence. And even the 1% have little influence in a place where the 0.1% are in great supply.  There is great natural beauty here, and significant cultural experiences. But surviving economically has always been difficult, and is no easier today, though the challenges are different. The "old timers" who managed to survive understand: if you have not struggled to survive here, you are not really a Californian, just a "California dreamer".

America's Kristallnacht

Recent events have motivated me to present my opinion on three things are going on in this country at the same time.  If the public is not careful,  the result can be terrible:

 
1) The covid-19 pandemic has crippled much of the economy especially of the lower middle class of all races,  and killed a disproportionate number of African Americans, while many young white Americans are not experiencing a major illness and are frustrated by the barriers put up in the society. 

2) a Minneapolis police officer,  with a long record of disciplinary problems,  killed a black man in the line of duty whom he worked with,  and probably had a beef with in another setting.  This triggered a particularly negative image of police/black relations and activated protests that were also aimed at the president’s racist taunts over months.

3) Exploiting this, unknown groups have systematically arranged looting of various locations in major cities,  and set up staged fires and “civil disobedience” carefully orchestrated for the media,  who are only too happy to run this footage with angry headlines.  

Who are the protestors and who are the looters?  Most of the protests in cities other than Minneapolis where police charged them,  have been peaceful and easily dispersed.  This was true of the first few days in LA as well.     If we look at the coordination and planning of the looting,  it is clear that, at least in LA,  it is targeted: carried out rapidly away from police focused on demonstrations,  and evaporating when police arrive.  These are thefts,  and they are targeted to locations with movable goods.  We see images of young black and white males carrying out boxes of t-shirts, etc.  What will they do with them?  Who would benefit from this?  Are poor young men doing this to get  money?   Do they care that they are disrupting the the protest?  Who is paying them?  Black groups do not benefit from the image of blacks as criminals. Are right wing groups creating the diversion to discredit the protests and make it seem that blacks are out of control and the police must do whatever they can?  If you want to know who is organizing the looting,  look at who benefits.  

 
    At the white house,  and again in Minneapolis police cars or other objects were set on fire, but never associated with the actual message of the protest.  The media are mesmerized by videos of the fires and keep attention on them instead of the message.  This is the failure of the media to present the full understanding of the situation,  preferring the dramatic images that capture more eyeballs.  This plays into the right wing agenda, even media that oppose it!  America, is this your “kristallnacht”,  the moment when the right creates disorder to prove that the country must be taken over and democracy suspended?  If we are not careful,  the US will drift from “banana republic” to fascist state.  The president is not favored to be re-elected, and this police killing has mobilized the black community against him.  Can the right manipulate the media to reverse the message? 
   Black Lives Matter organizers affirm that they have directed the protests to areas of high economic value white businesses,  like Macys in NYC,  and Santa Monica in LA.  It is a clear statement that rich whites will care more about economic attack in their favored world than about black businesses burning,  or about black deaths.  It is a sad truth that attacking Luis Vuitton is a major crisis while the deaths of black teens and children are not. 
   We are seeing more white youths demonstrating with blacks this time.  What has changed?  The economic future of young white men and women is starting to deteriorate in the way that African Americans have suffered for generations.  Suddenly economic suppression is a reality for much of the society.  And opiate addiction not far behind.  Which side will capture the narrative and direct the future of the society?  Only time will tell.