Thursday, August 27, 2009

A Zombie Idea that Refuses to Die

This week, Nobel Prize winning economist Paul Krugman’s op-ed piece in the New York Times is a must read.

In the article, Krugman expresses his dismay concerning how the public debate surrounding the public option for health insurance in the US is being vilified for purely ideological reasons. In short, according to the cant: government intervention is always bad, and leaving the private sector to its own devices is always good.

Given the performance of the US economy during the application of Reaganomics (1980 – 2007) -- a seven fold increase in revenues for the top 1% of earners while the median income level increased by a modest 22%, the worst recession since the Great Depression, and the astronomical debt load the US has taken on to first fuel its economic growth and to then prevent the economy from collapsing -- you would think that laissez-faire would be dead.

Krugman reasons that the Zombie like existence of the mindset is linked to the inability of the American financial elite to let go of its cash cow. There is some truth in his assertion, but I believe that the root of the problem lies much deeper.

Unlike the evolution of evidence-based decision making in the public health sector, economic policy making in North America is still in the thrall of faith-based belief. From the evidence-based perspective, the collapse of the American economy is a serious anomaly that demands that the theoretical foundations of the world-view be re-evaluated, but from the faith-based perspective it is wholly sufficient to simply believe in the fundamentals.

In many ways, this is also very characteristic of the public debate regarding climate change and peak oil. On the one hand, there is a large body of scientific evidence pointing out to the dangers of climate change and to the continued depletion of fossil fuel reserves. On the other hand, there are the doubters who simply refuse to believe that we need to change our ways.

Essentially, these are two vastly different epistemological approaches that have been with us for the last 2500 years, one that deals with the life hereafter, the other with life in the here and now.

The inability to reconcile these two approaches was largely responsible for the bloodbath of the twentieth century and is placing us in dire straits as we approach the end of the first decade of the twenty-first.

In my next post, I’ll begin to examine the tension between the two camps.

Sunday, August 23, 2009

Everybody Knows

Everybody knows that the dice are loaded
Everybody rolls with their fingers crossed
Everybody knows that the war is over
Everybody knows the good guys lost
Everybody knows the fight was fixed
The poor stay poor, the rich get rich
Thats how it goes
Everybody knows

Leonard Cohen (Everybody Knows)

One thing everbody should know is to what degree the benefits of economic growth in North America are distributed disproportionally. That way when politicians speak about the economy, we are fully aware about their intentions and the consequences of their proposed actions.

For example, for the last thirty years we have been led to believe that policies that lead to ever higher levels of economic growth are beneficial to the national interest.

Recent studies, however, raise serious doubts if this is indeed the case, especially for the vast majority of the population. In fact, once we take into consideration the effects of increasing levels of income inequality upon the health of the population, leaving aside the environmental consequences for the moment, we should have serious doubts about pursuing continued economic growth as the means to lead us to the promised land.

Economists Emmanuel Saez and Thomas Piketty, in their recently updated article, Striking it Richer: the Evolution of Top Incomes in the United States, demonstrate the effects of the implementation of free market economic policies in the US on income distribution. What you might not know is the extent to which the rich got richer. For example, from 2002 to 2007, average real family incomes grew by 3.0% annually but 65% of that growth accrued to the top 1% while only 35% of that growth accrued to the bottom 99% of US families.

The other thing you should know is how the disproportional increase in real family incomes affects health outcomes for the population. As could be expected, the implementation of neo-liberal economic policies brought about disproportional health benefits to the very well-off.

Elise Gould notes, while life expectancy has grown across the United States between 1980 and 2000, the degree to which people live longer has become increasingly connected to their socio-economic status. The Chart compares life expectancy by socio-economic decile of the most well-off to the least well-off.

In 1980, those with the highest socio-economic status had a life expectancy 2.8 years higher than those with the lowest status (75.8 versus 73.0 years, respectively). By 2000, that gap had grown: those in the top decile had attained a life expectancy of 79.2 years—4.5 years more than those in the bottom decile.

One might respond that as long as the lot of the poor improves, we should not be concerned with the unequal distribution of real benefits. This is where the question ceases to be simply economic and becomes very political. Even if all the boats may rise, albeit unevenly, during a period of economic expansion, the unequal distribution of wealth exacerbates existing social problems to such an extent as to call into question whether or not continued economic growth is called for.

Once a certain threshold of revenue per capita is attained, the benefits of increasing revenue with regard to the health portrait of a nation begin to level off. For the developed countries that have long passed this threshold, the pattern of the relative distribution of wealth becomes a more important indicator of the overall health of the population than the absolute wealth of the nation.

This suggests that with regard to how we manage our political economy in Canada, the reduction of income disparities should take precedent over continued economic growth.

In the next few posts, I will turn my attention to the evidence concerning income distribution.

Thursday, August 20, 2009

The Invisible Hand Dropped the Ball

Champagne toasts are in order this fall. It has been twenty years since the fall of the Berlin Wall and the ideological collapse of communism. Some ten years preceding the fall, Czech playwright, Vaclav Havel, had penned a seminal essay, The Power of the Powerless, in which he outlined the dynamics of living within an ideological lie and what was required to break away in order to live within the truth. Essentially, it was the collective refusal of the population within Eastern Europe to perpetuate the system and the refusal of the elites, as well as those who were governed, to go along with the systemic lies that allowed millions to break out from their ideological prisons and to set out on a new collective path.

Twenty years is simply a blink of an eye from the perspective of world history. Yet, this year, with the tabling of the first Obama budget, we witnessed the collapse of the second ideological pillar left standing in the post-war ruins, free market capitalism.

And for good reason: today, market failures abound and the global economy is still in recession; partial nationalization of key financial institutions in the United States and the European Union has occurred; and huge economic stimulus programs have been implemented, engendering a previously unimaginable scale of government deficits. Without question, the invisible hand dropped the ball.

However, now that the economic pendulum has knocked over the unwavering belief in the sanctity of our political economy, will we follow precedent and stop living within the lies perpetuated by our own system and seek to live within the truth, or will we, once the damage has been contained and the worst is over, return to the comfort of directing our collective lives by the dictates of what are essentially dead ideas?

Striking parallels arise when we look back and compare our present situation with that of Eastern Europe some thirty years ago. In both situations, a ruling elite exploited a docile population, a notion captured well by the old soviet adage: "within capitalism, man exploits his fellow man; within socialism, it is the other away around."

In the former Eastern Bloc, Havel’s green grocer mindlessly placed his “workers of the world unite” sign in his store window; while in today’s global recession, equally mindless journalists and politicians exhort their fellow citizens “to shop until they drop.”

Twenty years ago, the West ridiculed the inefficiency of central planning by pointing to the mountains of pairless left boots, yet today in the United States millions of houses remain unoccupied, boarded up, while millions remain homeless.

Unfortunately, it is much easier to detect the nature of the lie when easily comparable alternatives exist. Thirty years ago, the dissidents from the Eastern Bloc could look to the West and see the material wealth and unparalleled growth in personal freedom of its citizens and then subsequently juxtapose one system against the other. Moreover, the coercive measures employed by the police states to keep its citizens in line, notably absent in the West, suggested the ruling elite exercised its power as a result of a rapport of force rather than a willing transfer of power from the masses.

From today’s perspective, however, there is a notable absence of ideological alternatives to the rampant conspicuous consumption that underlies free market capitalism. As a result, for less inquisitive minds, it has become the natural order. Its utilization of seduction rather than coercion as its modus operandi suggests a democratic legitimacy that pushes substantive critical analysis towards the periphery.

Nevertheless, for the last thirty years our political economy has been kept in place by a series of lies that, for the most part, have been circulated by our political and business class and have gone unquestioned by the masses as they went about living their lives.

The biggest lie is the one that asserts that as the market economy grows, all boats rise on the same tide. The economy in question is not the real local economy in which people live and where people have some sense of the qualitative well being of their collective existence, but the fictive economy of aggregated statistical economic data that does not distinguish between productive or destructive economic activities, lumping them all together and labeling the ensemble as the Gross Domestic Product (GDP). Indeed, politicians, the business class and the media have become obsessed with making sure that the entire population buys into the belief that the perpetual growth of the GDP is a sacred trust, the nation’s manifest destiny. As taught, it’s as if the GDP turns us into pack animals hitched to a wagon, managed by government with a whip, trying to make the wagon reach the highest possible elevation.

Conversely, scant attention has been paid to the recent empirical data that demonstrates across the OECD that for the majority of the population the growth of the fictive economy does not translate into greater material wealth. Instead, the top of the top (the richest one percent of the population) receives the lion’s share of the newly created wealth while little of the leftovers trickle down to the masses down below.

The second and more dangerous lie is the belief that economic growth is best ensured by letting markets, in particular, financial markets self-regulate. This is the economic dogma put forward by Milton Freidman, Alan Greenspan, Margaret Thatcher, Ronald Reagan, etc. that has informed economic policy for the last thirty years.

Essentially, according to the cant, government regulation of markets impairs their performance and impedes economic growth. Consequently, left to themselves, guided by the invisible hand, free markets will increase economic growth and the wealth of the nation as private greed translates into public good.

Unfortunately, the faithful repeatedly fail to give proper consideration to the propensity of markets to collapse and the often catastrophic results that such events engender in the real economy. They underestimated the propensity of certain individuals to engage in unscrupulous behavior and its systemic consequences. No where is this more evident than in the recent collapse of global financial markets and the subsequent economic upheaval it has brought about.

Twenty years after the fall of the Berlin Wall, let us celebrate by burying ideology altogether and by moving forward an agenda that gives justice to the complexity of the one world that we all inhabit.

Wednesday, August 19, 2009

Welcome to the Disgruntled Democrat's Blog

As the name of the Blog suggests, there is something amiss in Canada. Specifically, although we have appropriated the word democracy to describe our political system, we do not live in a democracy.

To be more precise, we are ruled by an elected oligarchy.

Almost without exception, during a provincial or federal election the electorate transfers its capacity to make its collective decisions to a minority that assumes the power of a majority as a result of a systemic distortion of the popular vote.

In short, private gain trumps the common good because our political institutions were designed to bring about this result. Consequently, the well-being of the general population suffers in order to enrich a small minority.

My focus will be the political economy in the US, Canada, Quebec, and the region where I live, the Outaouais. My approach is evidence-based, which will inevitably entail the examination of empirical studies comparing various political and economic variables.

As much as I can, I will attempt to be non-partisan and forego ideological debate. That being said, based on the existing evidence, I cannot help but take strong positions on climate change, the depletion of natural resources, and the unequal distribution of wealth. As well, I will have much to say about our institutional practices and the controlling myths that prevent us from breaking free from our colonial past.

Feel free to participate in a civil exchange of ideas, and I will do my best to provide you with thought-provoking texts that will hopefully serve as a point of departure for your own exploration of the ideas expressed in this Blog.