E-101, Economics for Those Who Missed It - Let's Prehend
Let's Prehend
A Manual of Human Ecology and Culture Design

E-101, Economics for Those Who Missed It

Humorists, citizens, and even some academics, agree that economics is a profession devoted to the obfuscation of economic (ecological) relationships. One way to see through this is to visualize the flow of goods and services - who gets what. Milk may be bought at the store, but ultimately it comes from a cow. Ask where our worldly goods and services come from and how we[ Let's leave ambiguous who "WE" is.] get them. Ask what we produce and serve.

As many economists and most ecologists point out, the usual methods of accounting and distort objective economic values. Common economics focuses on maximizing profits in the narrowest and often short-range context, externalizing the costs of natural and human degradations. Economist Robert *Repetto points out the need for more responsible economics and urges the United Nations to expand and promote their SNA, System of National Accounts. Objectivist economics is obliged to look at the total picture, to evaluate and diagnose economic matters in terms of the broadest human and ecological values. But first let's take a look at common economic terms and mechanisms.

TERMS

Wealth comes from resources, production, and capital. This may look like a definition, but as objectivists we must insist it is only a description, "you know". Definitions imply a narrow and fixated image, not a dynamic expansive model.

Much of life's value, air, sunshine, family, trees and flowers, were not economic wealth - they were `free'. The Compulsion to the Abstract Life and is associated Abstract Economic Life ended the "free lunch".[ "There is no free lunch" is a folk saying that asserts nothing is free, and if it looks that way, it's a con. Beneath this saying is increasing `commoditization', making formerly non-cost items, such as clean water and air, into commodities that must be paid for. The essays SUSTAINABLE LUXURY, PROGRESSIVE STAGNATION and others point out that as ecovillages develop, the money economy contracts, commoditization reverses.] Imagine this evolution from organic to abstract economic life in its extreme, leaving the Garden of Eden and moving to New York City. This process has been called "Commoditization", bringing previous non-economic values into the money economy as commodities.

People produce, they specialize, make different things, and trade them. As society becomes more complex, up the E chart of economic evolution, p.?, more people shift from production into managing and trading, higher levels of i on an E chart of economic systems. Making shoes evolved from home to factory where the process shows up as an increase in the GDP, regardless of efficiency or cultural concerns.

Wealth that is eaten or used up is referred to as consumer goods. Wealth that us used as tools and machinery to produce more wealth is called capital. The better tools and the more capital people have, the more wealth can be produced. Money under the mattress is wealth, money in the stock market casino is called capital because it began as investment of wealth in capital.

Productivity measures how much value can be produced by a worker for a given expense. The more wealth produced for the lowest wage, the higher the productivity. Productivity usually depends more on the worker's tools than on the worker's efforts or incentives. The effectiveness of tools is advancing exponentially. Workers' skill and incentive is a problem for personnel management. As the technology evolves, more wealth is produced with better machines and lower skilled workers. However advance machines such as robots might replace a $20 per hour worker more readily than a $2. per hour worker. Thus Mexican auto manufacturing is almost as technically advanced as plants in US, but worker productivity is about eight times greater.

As usual, we are obliged to make a distinction between common productivity measured in money and Objective Productivity measured by quality if life parameters.

Money is both the common symbol for wealth and its common measure. The price of any item is the crossing of the supply-demand curves: If more people want it, the price goes up. If there's too much of a good thing, the price goes down. Unfortunately, market price, MP is a highly manipulated phenomenon, often removed from the objective measure of wealth and value by many stages of manipulations and distortions. Call it the abstract Supply-Demand Price, SDP. For example, the demand for gasoline is `inelastic' so that large increases by free-market pricers has only slight effect on the amount of gasoline bought.

In discussing economic value, it is often helpful to distinguish between market price and objective price. Libertarians point out that in their pure image of an unfettered market economy, price regains its integrity as measure of value. They may also assert that OP could be measured by SD price as if the market were `pure'. They do not usually include long term depletion and environmental damage, nor the ISEW (p.118) quality of life issues, because they are HOGs. (p.281)

But matching price to objective cost requires more than a decrease in government interference, though that may help. For example, the price of petroleum benefits from a US subsidy of perhaps $15 billion by one analyst. Another estimates that if gasoline contained the cost of the Iraq war it would cost over $15 per gallon. OC of a barrel of petroleum from the Persian Gulf wells is about $1, but $18 from the wild North Sea oil rigs.

Because there is no free market, and never can be, healing the dissociation between price and objective cost is unlikely to occur without considerable guidance, culture design applied to economics, as described in NEW ECONOMIC POLICY, NEP, p.308.

ENERGY

Consider the production of electricity: wind power, with a mix of solar, hydro, geothermal, and other sustainable sources, would be cheaper in the long run, perhaps even in the short run.[ Ample sources are constantly published on this subject: *WORLDWATCH INSTITUTE, especially their March 99 article RISING WIND, by Christopher *Flavin, *ROCKY MOUNTAIN INSTITUTE, and many others.] Yet, under contemporary conditions of complex corruption and elaborate subsidies, coal, oil, and nuclear power appears less expensive.

Expect continued technical efficiencies. For example, a Netherlands firm has figured out how to change coal into hydrogen with a loss of only half its energy instead of the current 70%. Better yet, the carbon dioxide does not add to the atmosphere if it is pumped into the ocean, where most of it ends up anyway. The Norwegian carbon tax obliges the North Sea oil firms to extract the carbon dioxide that makes up one third of the natural gas and pump it deep into the ocean.[ See Capturing Greenhouse Gasses in the February 2000 issue of Scientific American Magazine.]]

Imagine how objective cost could be calculated: The objective cost is calculated from the labor, materials, level of technology, etc. In contrast the common cost is heavily influenced by subtle subsidies, tax write-offs, government-assumed liabilities, loan guarantees, publicly funded infrastructure, etc. Nuclear power subsidies have declined somewhat, exposing their exorbitant economic costs and grotesque ecological costs. Perhaps the glamorous image and entertainment value of big centralized nukes, as well as the profits promoted by the big corporation lobbyists makes this macho-power the mode of the day. Sustainable systems seem somehow sissy.

ECOTAX

Also, common cost does not take into consideration the external costs, those costs which do not show up in the price. External costs include the immediate and long-term damage to the human and natural ecosystem: the destruction of community, hazards of work and commuting, pollution, greenhouse effect, etc. Obviously it would be a simple matter to add a tax to bring the price of a commodity or service up to its objective cost. Ernest *Callenbach and others call this an ECOTAX. Temporarily, such a simple use of applied culture design runs counter to the lobby-run legislature, and the system in general.[ Paul *Hawkins, in his book THE *ECOLOGY OF COMMERCE, sets forth this ecotax system in great detail, very gently of course.]

INCOME DISTRIBUTION

If people save their surplus, then invest it in capital equipment and resources, they tend to become richer, like squirrels collecting nuts for the winter. If they spend more than they take in, they become poorer.

Obviously it is easier for the rich than for the poor to accumulate wealth, though even the poorest are free to save and invest. But obviously, on a level battlefield, the "rich become richer and the poor become poorer". The rich squeeze the poor, not just for personal or family gain, but out of the deeper tribal loyalties of class and caste. Rarely is this a conscious process, it is simply and adjustment to the system. In our culture, people avoid thinking about socio-economic distinctions, except perhaps to disparage the less fortunate. References to class and caste are frowned upon as disloyal or even as Marxist. This essential dissociation between rich and poor touches the root of personal and social dissociation, the root conflict, DMS, of any complex system.

Psychologically, the greater the disparity of wealth, the less the identification and sympathy. Fortunately this trend is alleviated by patterns of charity and forgiveness, in every heart and culture. Politically, the classes dissociate and reintegrate in the dynamic change. Ideologically, rationalization is always at the ready to explain any particular position. Psychoanalytically, the WARRIOR ETHIC, WE, has been expressed: "Their degradation enhances our self-esteem", p.242.

Some so-called `conservatives' argue that rich do the most saving, investing, and managing, that builds the economy and creates the goods and services that make everyone richer. This is accurate only in the sense of narrow price and value but not in terms of objective costs. The ecosystem cannot afford market capitalism, the degradation of the human and natural ecosystem must be taken into the calculation for an objective view. The present task is to develop a more ecological system, sustaining and enhancing human life and culture and its supporting natural ecosystem.

ECONOMIC GROWTH

The world is getting richer faster. Because of the rapidly evolving technology and the accumulation of capital wealth, more wealth is being produced than ever before, and the rate is also increasing. Economic development of the `developing nations' is advancing at a fantastic rate, as any investment counselor or World Bank official can detail. This growth is so successful that all the needs of mankind can be met, a luxurious life for all is at the ready with no degradation of the environment. Technically, it's an easy problem, easier than putting a man on the moon. Economically it requires holistic planning and allocation of human and natural resources - "Smart Growth". Politically it looks totally impossible. But it must be done eventually, unless the life-boat ethic wins out and the poor increasingly perish in *Malthusian impoverishment.[ T. R. *Malthus An Essay on the Principle of Population, 1798.] For advanced analysis, see Carrying capaciaty reconsiderd: From Malthus' population theory to cultural carrying capacity. in *ECOLOGICAL ECONOMICS December 1999.

This rapidly accumulated wealth can be more or less efficiently invested - or consumed - or wasted.

Capital markets are crucial and inherent in any economic system. Obviously the investor, whether private, institutional, collective or government, strives for maximum return, plus a correction factor for various corruptions. The international capital market has become a world casino. Various Global financial crises, such as SE Asia in the 90s are a boon to those who buy everything up cheap and hire the increasing numbers of unemployed for even less. Billionaires such as George *Soros are eager and able to stabilize the Global Economy with questionable results. Those who do serious investments look toward maximum return and lobby for continuance and increase of that return. As in any complex system, the profit-driven minor systems have a dynamic of their own, and a compulsion to abstract, to intensify and contract.

Economic growth does not necessarily compel the degradation of the natural or the human ecology, even though such degradation is everywhere evident as pollution, homelessness and low-intensity warfare. This dissociation between economy and ecology is called "ecopathology". Examples are everywhere, but remedies are constantly put forth by the Greens and others. Once the problems of ecopathology are faced, the highest quality of life can support the greatest ecological harmony.

CAPITALISM AND SOCIALISM

Capitalism refers to the ownership of capital by private parties, whereas socialism describes collective ownership. Such a classic distinction is difficult to pin to the real world. For example, capitalist stock ownership is often in the hands of retirement funds and insurance companies, usually considered collective. In contrast, government agencies occasionally borrow from private sources to invest in private firms.

The rationalist gets lost in definition, while the objectivist works to refine description. One approach is to describe the democratization of capital: collective capital is controlled through a political or social system, one vote for each citizen; whereas private capital is free of such control, having one vote for each share. The measure of such democratization might be the distribution of goods, or perhaps the input of the citizens. But neither collective nor private ownership can save the planet from nuclear holocaust or environmental destruction.

Unfortunately, if citizens are asked democratically what they want, they overwhelmingly say "more!". Without leadership and organization they will express their insecurity by taking what they see as immediate gains, or decreased losses, rather than taking a longer-range point of view. Gorby calls this "economic populism".[ Mikhail *Gorbachev, Soviet Leader deposed in 1991, promoter of glasnos (the opening of opinion), and *PERISTROIKA (his book), the restructuring of institutions. See also Lewin, Moshe THE DRIVE AND DRIFT OF A SUPERSTATE New Press, 368 pages $30. (Reviewed in the San Francisco Chronicle BOOK REVIEW by Les K. Adler, Professor of History in the Hutchins School at Sonoma State University.) Also by the author: THE MAKING OF THE SOVIET SYSTEM, THE GORBACHEV PHENOMENON... "Perhaps the most controversial portion of Lewin's book, a radical downward revision of Stalin's forced-labor system and scope of Stalinist terror, is, strangely enough, not properly included in the text at all, but tucked away in the appendix. "Relying on the latest Russian studies, drawn from recently opened secret Soviet archives, Lewin challenges what he describes as the wildly exaggerated figures cited by Robert Conquest in his 1968 book THE GREAT TERROR and Russian authors such as Roy Medvedev and Alexander Solzhenitsyn, who placed the victims of Stalinist repression in the tens of millions. "No apologist for Stalinist crimes, Lewin explains this revision by saying that `... Both the sense of horror and the historical task of handling this horror...is not diminished just because the relevant numbers are smaller than those dreamed up by people with fertile imaginations.'"] Another difference is the spoken intent in a socialist system: one can earn only through work, not by investment. Investment is collective, owned together and managed through a complex of politically based organizations. In a capitalist mode, money is distributed to the owner of the capital, making it possible, even common, for very large numbers of people to receive income without regard to their work.

The idea of work itself becomes distorted: work is described as making money, not producing or servicing. The accumulation of capital equipment displaces labor and lowers its value on the marketplace. The capitalist has the position of the warrior who maintains free access to tribute long after the victory, as described in WORK, p.284. Even the high-level producers such as engineers and managers get a smaller portion of their income from their labor, perhaps more from their capital. The owners get richer and the producers get poorer.

UNEMPLOYMENT

Thus in a capitalist system an increasing portion of the population can be unemployed because they receive their income from their capital rather than their labor. The majority of unemployed are wealthy and live comfortably on their investments playing golf and writing books. Being unemployed can be a severe psychological burden and many are driven to idleness and alcoholism.

However, a sizeable number of unemployed have no capital, are quite poor, and are often quite distressed. It might be noted that the wealthy ELBYs (p.315) occasionally suffer even more than the poor from unemployment because their education and culture has raised their expectations but has made them more helpless and dependent.

Owners prefer lower labor costs, but laborers prefer higher wages. The unemployed poor are a great advantage to the owners and a disadvantage to the workers, who are not only under threat of unemployment but are in wage competition with the reservoir of desperate poor. As a result adversarial rather than the collective relationships are fostered. A pseudo-psychology of work arises: workers work harder under anxiety incentives as `free competition' and open shop. The work ethic is replaced with the job ethic.

Contrasting with this stressful scene is the tradition of Deming,[ W. Edwards *Deming was the pioneer of quality control to enhance production, especially important to advancing technology and its complexity.] the American industrial sociologist whose ideas were put into practice first in Japan. These healthy personnel policies actually improve worker morale through participation in quality circles, added job security and loyalty, etc.[ Many sources continue the Deming tradition, from QUALITY OR ELSE, The Revolution in World Business by Lloyd *Dobyns and Clare Crawford-Mason onward.]

To make matters worse, an entrepreneurial ethic proliferates. The drive for profit expands beyond personal to become institutional. This mode dominates both historically and personally. Top personnel take roles as servants or gamblers. Whether the entrepreneur's aggressive competition to amass wealth or the staffer's diligent loyalty, the result is the same: accumulation of money as the symbol of power, not just wealth. Even for MBAs[ MBA is the university degree, Master of Business Administration, the traditional educational route to management, or at least to make a bundle.] this distinction between entrepreneur and clerks (CGMs, p.248) becomes clouded. The individual's psychodynamics varies from the deep satisfaction of meaningful participation to the exaltation of the victor over the vanquished, a D scale measure.

One can argue that this is the highest form of man, but according to D chart analysis, it's up left, intense but dissociated, a mode of life unhealthy for the entrepreneur, the staff, the workers, the unemployed, and the whole culture.

Objectivists need the relief of humor as much as anyone, and are neither discouraged nor hardened by the favorite quotation: "Under Capitalism, man exploits man, whereas under Socialism, it's the other way around."

DEPRESSION

A related problem is the surplus of product and a shortage of money, threatening a collapse of prices and consequent depression. The solution by classic *Keynesian theory is to increase the money supply. This fiscal and economic management can be done in many ways, usually by government actions: In general, print money and give it away by: reducing taxes and borrowing money, thus adding to the money in circulation; paying money to the military-industrial complex to produce goods which are used only for military entertainment and do not flood the depressed market; lowering interest rates, etc., to encourage credit expansion; paying farmers to produce food, then putting it in storage and letting it rot or destroying it; allowing government secured savings and loan companies (S&Ls) and banks to lend money, then letting it default; embargoing some oil producers to hold up the price of oil; cutting the capital gains tax or lowering taxes on the rich, allowing money to trickle down to the poorer classes as *Galbraith's "effluent of the affluent".It looks as if such economic stimulations always cause larger deficits, but that is not necessarily so. It only turns out that way because the legislators who make these decisions are beholden to the interest groups who support their campaigns. It is possible to have it both ways: to stimulate the economy and not increase the debt. One way is to take money from the low multipliers and give it to the high multipliers. For example, build labor-intensive communities and gardens rather than capital-intensive missiles. Thus each dollar so transferred multiplies much more, because it circulates around the economy many more times before it is siphoned off as profit by those people and institutions too wealthy to spend it further. If this method were carefully used there would be both full employment and stable prices. Perhaps the jobs so created could better serve the public good, as the Civilian Conservation Corps did during the Great Depression.

DEBT AND DEFICIT, DAD

"Why should we taxpayers have to pay for it, let the government pay for it."

That statement may not be a silly as it sounds. Much of the government's money comes from the sale of treasury bills, notes, and bonds. The Reagan debt results from this preference for borrowing rather than taxing. The Bush tax increase began to cut this deficit and the accidents of history have lead to a budget surplus. Not accidents exactly. Wealth has continued to accumulate and concentrate. Labor costs continue to drop. Third World resources and labor continue to cheapen.

From the viewpoint of those who finance DAD, it's better to loan money by buying T bills and bonds rather than pay taxes. After all, our nation is not a collective - the debt is owed to those (with their families and funds) who bought bonds by those who didn't.

The Reagan deficit was running as high as $4 per person per day. If a family saves and invests $3 or $4 per day per person, it come out even. Otherwise, They are spending about $1000 per year per person more than they're earning.

The federal debt itself, about $20,000 per person, depending on how you count it, is owed to all those who hold the T bills and bonds. If a family has $20,000 per person in savings and investments, they come out even. The interest earned just about pays the interest on the debt paid as taxes, maybe.

The personal income tax itself is only the largest share of the governments income. IRS studies show that this complex system adds about $.60 worth of accounting costs for every dollar it collects. This $.60 is like a surcharge, an extra burden rarely noticed. Tax accounting costs are accepted as patriotic duty, or out of fear. Many small tax payers pay extra out of fear of being audited. This resembles extortion, money paid out of fear. Fear keeps people in line and makes the money go 'round.

GLOBAL ECONOMY, GE

Trade beyond the immediate community is probably older than the human race. Even primates are seen to trade favors with out-groups. But as humanity has evolved and technology advanced, the entire globe is increasingly integrated as a giant economy. Keeping the globe open to investment is the essential foreign policy of the United States and other First World G7 nations.

Following our tremendous victory in World War III, the United states bought up large portions of the world economy, owning perhaps half of global wealth. Currently the United States owns about a quarter. Another half is owned by Europe and Japan. The wealthy of the Third World own the rest, with a barely measurable portion of the earth's bounty barely supporting the life of most of humanity.

Nations that resist GE investment were called communist imperialists, even though their profits from such economic cooperations were negligible. It seems that the Soviets didn't understand that the high life style of the `Free World', didn't come from `capitalism', but from `imperialism'- their term for overseas investments.

In strange contrast to the usual images, Soviet living standards (the median, not the average) approached the First World's - with miniscule foreign investment. A CIA study in the 1980s estimated this high standard of living based on food, clothing, shelter, medical care, education and culture in general, but the study was withdrawn from common circulation and this author is obliged not to specify it.[ Senator Daniel Patrick *Moynahan, reported that two years before the wall came down, CIA reported that East Germany was richer than West Germany in GDP per capita - probably the median, not the mean, since East's GINI was lower. Mr. Moynahan mentions Kevin *Phillips book on the polarization of wealth. Jayne Bryant *Quinn's work on "A guaranteed income", and Richard *Nixon's proposal, FAP - Family Assistance Plan. Interview on Charley Rose around January 21, 1994.] The idea of `empire' as an oppressive relationship between the `imperial power' and the `colonies' might be quantified by comparing their living standards - easier than comparing quality of life. By that measure the Soviet Union was not an empire because the contrast in wealth was much less than in the `Free World'. But World Bank President *Wolfensohn worries that the `developing nations' have increasing poverty for their majority, in spite of the great wealth of their elite's, which raises the average. Current real data is available from the United Nations and even from the CIA's *WORLD FACT BOOKS, on the web.

At the end of the 20th century the Soviet Union is long gone. Their income distribution curve has changed from one of the flattest in the world to one of the steepest, from lowest GINI to highest. Much of the former wealth has been transferred to Western banks. Internal production has dropped more than half. Life expectancy in Russia in 1999 is around 58 years, comparable to the despairing Central African nations. Thousands of wealthy Russians have left for warmer climes. A tenth of vacationers in the French Riviera are big-spending Russians. The Russian situation does not look stable. As one babushka said, "It will take the party twenty years to straighten out this mess." But that was several years ago.

The United States is touted as the world's greatest debtor nation. It is doubtful that the US as a whole is spending more than it's earning. The imbalance of payments stays high. But this net import of goods does not match the phenomenal growth of U. S. investments in the Third World. The image that the United States is a debtor nation denies this rapid increase in overseas investments and profits. The Commerce Department is obliged by law to count overseas investments only by their `initial amount' - imagine what that does to the value of United Fruit - Conquita. Not-to-worry - the CIA has excellent and objective information, which this author is obliged not to disclose, except for a few crumbs on our CIA WORLD FACT BOOK and web site. The fact is that most of the debt is carried not by foreigners but by US citizens and institutions who invest what they save from low taxes and lucrative foreign developments. "It's your kids that owe my kids."

Notice the distorted image of America as a `collective, we', in contrast to the actuality that private owners carry the bonds but the collective government owes the debt. This unconscious expression of tribal patriotic loyalty is soundly based from our evolutionary heritage, but inappropriately applied to MAC's GE (Modern Abstract Culture's Global Economy, p 95, 183, 280, 289. Deficit financing is a transfer of wealth to the wealthy from the future, whoever.

Economics can serve the quality of life rather than remain an apologetic indulgence in adversarial abstract culture. The valuable and healthy direction is to bring economic costs into line with ecological costs, moving quickly toward an ecologically secure biosphere. This means the growth of ecologically sustainable, high-tech communities. With a decline and reform of tax and regulation, a less adversarial and more organic culture will grow and heal itself.

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