Is Capitalism "Courting Long-Term Disaster"?

This indictment of capitalism and call for the rich to share more with the poor seems a bit overwrought:

Overselling capitalism, by  Benjamin R. Barber, Commentary, LA Times: The Crisis in subprime mortgages betrays a deeper predicament facing consumer capitalism triumphant: The "Protestant ethos" of hard work and deferred gratification has been replaced by an infantilist ethos of easy credit and impulsive consumption that puts democracy and the market system at risk.

Capitalism's core virtue is that it marries altruism and self-interest. ... Doing good for others turns out to entail doing well for yourself. Capitalism's success, however, has meant that core wants in the developed world are now mostly met and that too many goods are now chasing too few needs. Yet capitalism requires us to "need" all that it produces in order to survive. So it busies itself manufacturing needs for the wealthy while ignoring the wants of the truly needy. Global inequality means that while the wealthy have too few needs, the needy have too little wealth.

Capitalism is stymied, courting long-term disaster. We still work hard, but only so that we can pay and play. In order to turn reluctant consumers with few unsatisfied core needs into permanent shoppers, producers must dumb down consumers, shape their wants, take over their life worlds, encourage impulse buying, cultivate shopoholism and invent new needs. At the same time, they empower kids as shoppers by legitimizing their unformed tastes and mercurial wants and detaching them from their gatekeeper mothers and fathers and teachers and pastors. The kids include toddlers who recognize brand logos before they can talk and commodity-minded baby Einsteins who learn to shop before they can walk.

Consumerism needs this infantilist ethos because it favors laxity and leisure over discipline and denial, values childish impetuosity and juvenile narcissism over adult order and enlightened self-interest, and prefers consumption-directed play to spontaneous recreation. The ethos feeds a private-market logic ("What I want is what society needs!") and combats the public logic fashioned by democracy ("What society needs is what I want to want!").

This is capitalism's all-too-logical way of solving the problem of too many goods chasing too few needs. It makes consuming ubiquitous and omnipresent, turning shopping into an addiction facilitated by easy credit. ...

When we see politics permeate every sector of life, we call it totalitarianism. When religion rules all, we call it theocracy. But when commerce dominates everything, we call it liberty. Can we redirect capitalism to its proper end: the satisfaction of real human needs? Well, why not?

The world teems with elemental wants and is peopled by billions who are needy. They do not need iPods, but they do need potable water, not colas but inexpensive medicines, not MTV but their ABCs. They need mortgages they can afford, not funny-money easy credit.

To serve such needs, however, capitalism must once again learn to defer profits and empower the needy as customers. Entrepreneurs wanted! With micro-credit, villagers can construct hand pumps and water filters from the clay under their feet. Pharmaceutical companies ought to be thinking about how to sell inexpensive retro-virals to Africans with HIV instead of pushing Botox to the "forever young" customers they are trying to manufacture here. And parents can refuse to relinquish their gatekeeping roles and let marketers know they won't allow their kids to be targeted anymore.

To do this, we will require the assistance of democratic institutions and an adult ethos. Public citizens must be restored to their proper place as masters of their private choices. To sustain itself, capitalism will once again have to respond to real needs instead of trying to fabricate synthetic ones — or risk consuming itself.

The idea that the wealthy might not consume enough to prevent recessions ("the wealthy have too few needs") is at the heart of the debate between Malthus and Say in the early 1800s over the source and possibility of "gluts."

Malthus believed that lavish ("unproductive") consumption by wealthy landlords was needed to offset excess saving by the capitalists. He argued that saving would be too high because capitalists would not spend all that they earned, and therefore that demand for goods would be too low causing a recession (a "glut" of goods as they piled up in shops with nobody to buy them).

Thus, Malthus provided a defense of conspicuous consumption by the wealthy. The wealthy landlords needed to be encouraged to spend as much as possible to avoid having the economy slip into a recession. His solution was to redistribute income to the landlords through the corn laws, and the landlords would spend the extra income on unproductive consumption taking up the slack in demand. J.B. Say's response to Malthus, of course, was Say's Law: Recessions, i.e. gluts, are impossible because supply creates its own demand. The act of producing a good always produces the demand needed to consume it.

Malthus' worry that the wealthy might not consume enough is essentially the worry that saving will exceed investment. But this cannot persist. If savings exceeds investment, interest rates will fall causing investment to increase and saving to decrease until the savings and investment balance is restored.

Keynes would explain later how the process of equating saving and investment through movements in the interest rate could go awry causing the economy to get stuck in a recession, and how shocks to demand through government expenditures could help to solve the problem, but the point is that outside of Keynes' (and other) exceptions there is no need to encourage spending artificially, the system will adjust to resolve imbalances between output and expenditures.

I think it's reasonable to question our current savings and consumption mix, many believe that our current savings rate is too low to be sustainable and that a correction is in our future. But I don't think the reason for the imbalance is some fundamental change in human nature from several decades ago when the savings rate was much higher, i.e. that all of a sudden "hard work and deferred gratification has been replaced by an infantilist ethos of easy credit and impulsive consumption that puts democracy and the market system at risk."

Saving didn't fall because we suddenly decided to party rather than work or because we forgot the value of a penny saved. There are fundamental economic forces at work generating these changes, low interest rates, high saving rates in other parts of the world relative to attractive investment opportunities, the forces of globalization, and so on. Those forces are what we need to understand in order to construct effective policies to facilitate changes in consumption and saving patterns worldwide and unwind global imbalances with a minimum of economic disruption.

As to our treatment of the less fortunate, the other point of the essay, there I think the author has a point. We could do a lot better. Of course, exactly how to lift the poor out of poverty is the source of endless debate - see Sachs versus Easterly - but no doubt we could and should do more. However, the hope expressed in the essay that pharmaceutical companies and others will "defer profits" to provide cheap drugs, etc. to developing countries is wishful thinking. If we want these companies to help, they will have to be given the economic incentive to do so and that requires working withing the bounds of capitalism, not hoping for something different to take its place, or for some sudden change in human nature to fundamentally change our altruistic behavior.

Comments

[DRR]

The "Protestant ethos"

Good fricken riddance.

says...

awesome post.

[bakho]

Is the problem capitalism? Or is the problem lax banking and credit laws? Credit is so enormously profitable that banks can afford to send me 50 credit card applications a week. Banking laws have been rewritten so it is difficult to stiff the creditors. Politicians are only too happy to write legislation favorable to finance industry in return for large campaign contributions. We are back to the era when workers make too little we "owe their soul to the company store". The modern company store is the credit card industry.

[Callahan]

Ah, the good ol days. Man are they gone.

Don't expect them to return any time soon.

[reason]

The problem is and always has been the confusion of means and ends. The market is very good about picking the best means, but is totally amoral about the ends. Some people then try to make the circular argument that the ends are whatever helps the means.

I also am wary of arguments about the social value of persuasive advertising. I would prefer an economy that emphasised quality over quantity. But I agknowledge that a part of that is just snobbishness. It is the son of the middle class finding the tastes of the nouveau riche vulgar.

But if modern society does have its internal contradictions, it lies in two or three other places than what this article highlights. For instance:
1. The requirement for increasing specialization AND increasing flexibility. Basically, people are rewarded for being specialists but that automatically creates a vested interest in using that speciality even when it is no longer needed.
2. The requirement for stable communities and families to raise the next generation, and the forces of dissolution from increasing individualisation.
3. The need for constant growth to pay off accumulated debts, and the need to preserve shrinking natural resource stocks.

[Bruce Webb]

Puhlease!

FHA and VA underwriting standards got out of balance with real risk/reward in a bubble housing market. The financial sector responded with a new range of products. The market shows some signs of moving risk/reward back to what FHA and VA underwriting standards assume and people offering that range of products suddenly find themselves out of work.

OOH Armageddon!! It is kind of astonishing when people who preach markets and insist that supply demand curves operate just go to pieces when the market moves the set point on the curve.

Sub-prime lending exploited a market opening. Lots of people got into houses, lots of people made lots of money writing loans. It seems that that opening has now closed, either permanently or temporarily and no the process has not been painless. People will lose houses. People, in fact lots of people in the financial services sector, will lose jobs. But lets not get hysterical.

[reason]

Bruce Webb..
are you cross threaded?

[anne]

Curiously, last I noticed Bono was being knighted while William Easterly was far too "burdened" learning the lessons of colonialism from the feets of Rudyard Kipling to be bothered to care. The only debate is among those for whom caring is too much. Yuch.

[anne]

The finest attorney general New York may ever have had, by the way, was Eliot Spitzer, who was devoted to consumer protection and splendid at it at a time when other supposedly protective agencies were not to be found. Balance in markets is essential, and not necessarily provided in any way by markets as such. Say, smoking.

[baileyman]

Take a look at an income statement. You have revenues, less expense makes net. Global revenue as understood by the guy owning the income statement is partly a process of transferring public goods onto his income statement. The expense is partly a process of transferring his cost to the public. His ability to succeed at this is helped by people's ignorance that this is what he's doing, and hindered by knowledge.

Back when there were virgin lands available, the transfer of goods to the private income statement was high. Opportunities have decreased, but through creation of new assets (copyright, pollution credits, etc.) Transfer continues. Long term it must decline.

Similarly, it used to be much easier to externalize costs, but the size of the dumping grounds is decreasing. Eventually the dumps must close, as perhaps climate change teaches.

Net is in a long term squeeze.

The internet along with increasing urbanization and education should long term reduce ignorance. Politically, then, since people become more aware, the opportunity to extend the public transfer of assets and dumping of expense should be in decline.

I'm guessing this may prove an intractable capitalism problem.

[ken melvin]

Twaddle.

[anne]

By the way, as climate change seemingly benefits the temperate climates and developed countries who have for generations contributed most to climate change use wealth to compensate for adverse effects, what do the Rudyard Kipling followers tell us is the obligation we have to, say, Malawi which has contributed not a fig to climate change?

[anne]

Imagine William Easterly has given us permission and better a reason to be as selfish as we can possibly be, all for the good of those we are selfish to, so we pay attention to the modern and unredeemable Scroogep; unredeemable because this Scrooge is beyond being visited by ghosts.

[Bruce Webb]

Reason to me: "are you cross threaded?"
More omni-threaded:

'They need mortgages they can afford, not funny-money easy credit.'

Sub-prime hysteria is breaking out everywhere, including this piece. I am pretty much feeling like the one legged guy trying to stamp out the forest fire.

There is an attempt to sell the predation/ignorance argument on sub-prime with the rather odd insistance that the predators and the ignorami are on both sides of the equation. Sub-prime was in fact a rational response to the market as it existed in 2003-2004, underwriting standards that existed then were out of touch with risk/reward. The market reacted. Now it is adjusting. This is not "Capitalism "Courting Long-Term Disaster?" it is Markets 101.

I am cynical as the next guy, probably more so than most, but this Ben-Barberism fluttering of hands is not going to move the ball. Capitalists are not the enemy of Workers, but they are the competitors. We all want more pie, its just that workers would like a more equitable distribution of pie slices.

[evagrius]

I think you're all missing the point of the article.

If basic needs are met, which they are for a large part of the developed world, then what is left for the economy to do?

It's this question the author is addressing. So far, I haven't seen anyone come up with a refutation.

[reason]

Bruce Webb,
I think he took an old article and changed the first sentence.

[Lafayette]

Public citizens must be restored to their proper place as masters of their private choices.

In a simplistic rendition of the Protestant ethic, which I hear more about in the US than in Europe, the sole bit of wisdom in this piece is noted above.

When citizens think that voting every so often is sufficient for them to take full advantage of democracy, then reality inevitably sets in to show them how sorely mistaken they can be.

Democracy, like any institution, can be manipulated if let it be. There is really no excuse for letting representatives managing our lives so significantly. The idea of a republic was born in a time when geography was a constraining factor, since distances were long and tedious to overcome. In the democracy of Athens, where it was first employed, everyone voted on everything.

The Swiss are the most democratic of peoples, meaning they support the burden of delving into the details of issues because they will be called upon to vote them up or down by means of a referendum – and they’ve doing this for more than a century and a half. They vote in referendums ten, fifteen even 20 times a year. But, at least their voice is heard collectively and not as translated by their legislative representatives.

So, democracy, like anything else that is important to us, requires an effort or it is worth nothing. Which is why we can throw it away so easily by either not voting or voting foolishly and by the latter is meant unknowingly.

We owe ourselves and, more so, we owe our families to vote knowingly, with a reasoned opinion based upon information that is simple, straightforward and easily obtainable. Above all, it should not be manipulative like TV commercials applying to the more base instincts of humans.

And, politicians owe citizens a lot as well. It is wrong to think that, if it cost a bundle of their money to get elected, then the power that comes with the job belongs to them. They purchased nothing, so nothing could be further from the truth for anybody genuinely wanting to serve their nation, meaning its citizens.

Where did it all go wrong, go wrong, go wrong …

[kharris]

"Capitalism's core virtue is that it marries altruism and self-interest."

When it started out like this, I had a feeling we were getting a mini-manifesto. This is a complete misunderstanding of the notion that good is done through self-interest. The definition of "altruism" in my dictionary has nothing to do with what Smith described.

Start with twaddle, carry on with twaddle.

Bakho, as usual, seems to have a decent view into some of the actual problems. The lesson we seen avid to unlearn is that capitalism works great, as long as we keep it well regulated. Saying "no" to the rich and the ambitious is a great thing.

[ken melvin]

Lending is our biggest and best industry. Without it we'd have no economy at all.

[Bruce Webb]

"If basic needs are met, which they are for a large part of the developed world, then what is left for the economy to do?"

Define "basic needs". Does that include ability to post to the internet? Or not? And if not why not?

I can make the argument that having access to 400 channels of satellite radio and being able to text all my friends is just friviolity and being able to summon emergency help via a cell phone by dialing 911 is important. And not have much problem. But as you ramp up your communication needs it starts getting more problematic. As a kid I never, ever got hungry to the point that I had no access to food. That problem was solved. Did my mom have any way in the world of knowing where I was or how to contact me on a typical Saturday? Nope, I was playing in the hills. And if I fell and broke a leg I was pretty much reliant on having a friend along or a stranger walking by.

Was I lacking 'basic needs'? Well moms would probably disagree. You don't 'need' running water or indoor plumbing. My great-grandparents were prosperous farmers with both a farm-house and a house in town and didn't have either in either. And didn't have a radio.

While Eva can post to the Internet.

Who bells the cat on 'basic needs"?

[kharris]

"seem avid to unlearn" not "seen" sheesh.

[Lafayette]

kh: "Saying "no" to the rich and the ambitious is a great thing."

Next time you see one of those “things” please take a picture of it. The species hasn’t been seen in America for such a long period of time.

I thought it was extinct ...

[evagrius]

You all are still not understanding what he's arguing.

Reflect a bit on your own consumerism. How much of the stuff you've bought in the last week have you really, really needed?

This includes food since so much of that is processed or pre-cooked/ prepared.

You're all focusing on the abstract when he's pointing to the concrete.
Do your kids really need MP3 players, or separate TV's, or etc; etc;?

[robertdfeinman]

No pundit wants to discuss the fact that the underlying assumption of capitalism has a flaw. Capitalism assumes that one can borrow now, use the capital more "productively" and then pay back the loan with interest in the future. To do this requires growth. For the past several centuries this growth has been based upon exploiting natural resources (for free).

This era is now coming to a close. The finiteness of our planet is starting to be noticed. Today the NY Times has a front page story on chronic water shortages in the Southwest. The oil drum blog has a story on looming problems with natural gas supplies. I could list a dozen more of the same nature.

It is time to start discussing what a society which isn't predicated on unlimited growth would look like. This is not as hard as it sounds, we have plenty of examples to study. For most of the history of the human race societies lived in a quasi-steady-state economy. Whatever the natural environment could supply in a renewable manner was what the people consumed. If population increased too much, starvation or ecological damage resulted and the population fell. Even today we see this in "subsistence" communities.

I've mentioned before the few economists discussing this topic, but for those who missed it Herman Daly is a good place to start:
Steady State Economics
Sustainable Development
Feasta Lecture

You can also read some of the papers of his former colleague Robert Costanza:
Gund Institute

While these articles detail the problems with growth, they don't delve into what changes would be needed in our economic model.

If I may be a bit immodest here is a short essay of mine discussing what a post-capitalist society might look like:

Planning for a No-Growth Economy

To cut to the chase, things like "the power of compound interest" no longer work.

[evagrius]

Bruce Webb;

You could go to one of those parts of the world where they don't have the "basic needs" to find out the definition.

Your grandparents lived in Heaven as far as some current people are concerned.

No. I don't "need" the 'Net. It's there and I use it but I don't need it. It's a luxury.

[eightnine2718281828mu5]

---
the system will adjust to resolve imbalances between output and expenditures.
---

I prefer my o/e balance with a side-order of full employment and rising median wages.

Based on a sample size of one (the guy living under my local overpass) public polling indicates that the citizenry probably won't be weeping tears of joy that balance between output and expenditures has been achieved.

[Eric Hansen]

The US savings rate is incredibly low. I wonder what the world savings rate is at? Since the economies of globalized countries are so interdependent and liquid does it matter if the US savings/investment ratio is off? Perhaps as long as the world-wide savings/investment mix is in balance everything is okay. Maybe someone with some insight could expound.

[Bruce Webb]

Eva, the article is calling for Saint Francis without defining the line between charity and dangerous sainthood/insanity.

I have my opinions on Saint Francis. I also own a lot more computers and have more high speed internet connections than I need. I could live in a lot smaller house, I could get along without the simpler pleasures, hell I could save hundreds by buying my booze by the bottle instead of by the drink. And yes then I could turn around and give all that to the poor.

But it is all too convenient for people to draw a line right above their level of consumption and insist that everyone above that needs to sacrifice. Which is what Barber is implicitly doing here. Each of us could feed a lot of kids in Africa by redirecting the cost of our internet connections. Yet I don't expect a lot of regulars here to be going silent on that account.

You don't have to be religious to understand the message within "cast the first stone" and "mote and beam". We are all economic sinners in the global context.

says...

robertdfeinman:

Capitalism assumes that one can borrow now, use the capital more "productively" and then pay back the loan with interest in the future.

This is wrong. There is no peculiar reason why real interest rates can't be zero or negative: it all depends on the degree of time preference (the difference in value between present and future goods) and availability of investment opportunities.

Capitalism does have a problem with overexploitation of natural resources (in the absence of proper regulation) but this has to do with lack of viable markets, not any sort of "requirement for growth". If anything, low rates of time preference are conducive to economic growth as well as conservation of properly traded natural resources, such as oil or gold.

[calmo]

>50% in China, Eric, but that is not the entire world where the major consumer is still America and that savings rate is negative, the import of which is that it cannot continue indefinitely...just the very thing to inflame the hearts of economists everywhere.
Me, I (exercising very short attention span on poorly constructed ideology theatre) am busy trying to kindle something out of this bit:But I [Mark} don't think the reason for the imbalance is some fundamental change in human nature from several decades ago when the savings rate was much higher, i.e. that all of a sudden "hard work and deferred gratification has been replaced by an infantilist ethos of easy credit and impulsive consumption that puts democracy and the market system at risk." "infantilist" I would replace with "adolescent" and beef up the generalization that this shift did occur over a generation (re-specifying that "all of a sudden") where marketing forces drove home the point that you could afford it, you deserve it, you are so beautiful and undeniable... Human nature may not have changed, but the forces marketing it did --for the benefit of a declining few who had no such negative savings issues.

[Bruce Webb]

"This era is now coming to a close. The finiteness of our planet is starting to be noticed."

Funny I seem to remember noticing that back when Garrett Hardin published Tragedy of the Commons back in 1977.

Yes it is all real. But none of it is "new" or "starting". The stark reality is that the course we were on in the 1960's was unsustainable, if unchecked the world would be in horrible straits by the 1990's. You could ask the guys at the Club of Rome.

Well we changed course, the world is almost unbelievably transformed since then. Of course we are faced with huge challenges, if Dick Cheney has his way Ant-fricking-artica is going to meltdown and they will routinely route freightors through the Artic Sea. On the other hand the Bald Eagle is not vanishing from the face of the planet.

Look Progress with a capital P isn't inevitable, I am neither a Marxist or Rebecca of Sunnybrook Farms, but these problems have solutions. Sighing over finitiy isn't getting us very far, nor is the freaking over peaking that has characterized most of our discourse over oil or any other resource over the last forty years.

75% of this planet is covered in water. And we have a Sun pretty much guaranteed to be delivering plenty of power for the next billion years or so. Yes it is scary that glaciers are retreating and disappearing, that the ice caps are melting, that the Southwest is facing a prolonged period of drought.

But people need to get a grip. I went through a multi-year episode of water rationing in the SF Bay Area in the mid-seventies, It was even worse for my family over in Marin County. Believe me fairways going brown around Phoenix and fountains being turned off on the grounds of the statehouse are not the end of the world.

Of course we can't afford to take our eye off the ball. That doesn't mean we have to conclude that we are just overpowered by that fastball. Maybe some people are just now recognizing finite limits. But please save the "era is now coming to a close" stuff, some people have been predicting Armageddon since pretty much forever. I woke up this morning okay.

[anne]

Eric, I am thinking about the problem of private savings again but think this a minimal issue within the broader issue of how public funds are being allocated here as with an absence of general health care and low or minimal cost public colleges-universities.

[kthomas]

Bruce, if I were President (or Decider), you'd be one of my top econ. advisors. No doubt.

[Bruce Wilder]

"If savings exceeds investment, interest rates will fall causing investment to increase and saving to decrease until the savings and investment balance is restored."

Excuse me, while my Keynesian head explodes.

The recent article about Schumpeter reminds that one of the few things Schumpeter and Keynes agreed upon is that the normal state of the world is one in which there is a surplus of money and financial assets available to support investment spending. It is not the "glut" of goods alone, which is perpetually threatening to send capitalism spinning out of control, but the glut of money and marketable financial assets, combined with speculative inventories and offers of real goods and services.

Interest rates are not about equating savings and investment in the present; interest rates are about managing the value of money through time. Wealth in the present is not accumulated savings, but the present value of expected future cash flows from assets, and, as such, is subject to gyrations.

Total spending and total income in the present moment are not equilibrated; they are an identity. But, through time, total spending in the next moment is not conditioned in any way on income in any particular past moment; contrary to Say, the total of goods and services on offer is not an equilibrating mechanism -- many markets do not clear.

Inventories and waste on the real side, and money and marketable financial assets on the money side mean 1.) that there are, at best, only very weak forces bringing the economy toward an equilibrium exhausting the utilization of available resoures, and 2.) the economy is subject to shocks (transitory strong forces), which will take the economy away from equilibrium states, that fully utilize resources.

It is certainly possible to construct any number of interesting arguments, suggesting that changes in the distribution of wealth -- involving changes in the present valuation of expected future income from assets -- might make the economy more vulnerable to shocks.

It is not possible to rescue an economics, which fails to see that Say's Law is a fallacy.

[paine]

barber is a pompous ass
always has been
his notions as wacked as kropotkins
but where k has wolves in his country
b has only goats

at any rate
his op ed gave me the greatest pleasure

one of the beauties of thought
is its invisableness
if like threads
you could see a train of thoughts snarling and knotting itself up
despite its claims of a perfect weave
and after laughing
you'd very quickly
move on
to more orderly waevers

but alas
the confident Barbers OF THIS WORLD
can get away with

" IT "

SINCE THE TREADS ARE INVISIBLE
FOLKS CAN BE LURED BY THE IMPORTANT BUSY
SOUND OF THE LOOM IN MOTION...

---------

btw

mark on the other hand
makes his end notes
into a nice tight consistent weave

whether you like the pattern he's making
or not

[voltaire]

As a libertarian, I'll say don't confuse what is going on today with capitalism...which it isn't. CB's have monopoly control over the most important price there is: interest. As the interest rate is distorted so are all the markets. What we have today is globally socialism, planned economies at there finest. Capitalism starting dying in the United States with the birth of the Fed in 1913, and was offically killed off by Nixon in 1971.

[paine]

seems to me
any Rx for social change ought to come
with how to instructions otherwise its a pipe dream

among nice features is no need to change
the constraints mother nature
has provide/cursed us with

so either this social change must be doable
with existing human components
or a plausible human head modification program
oughta to be laid out

as with most show off visionaries
Barber is long on jeremiah
and short on moses

his

"defer more
chew longer
eat smaller pieces .."

like his magisterial book
of the mid 80's
'strong smelling democracy'
and its
" power up our education in citizen ship "

his bs
comes off
like Homers pal
saying over the power plant intercom

"work harder...that is all "

[bumble]

If savings exceeds investment, interest rates will fall causing investment to increase and saving to decrease until the savings and investment balance is restored.

..high saving rates in other parts of the world relative to attractive investment opportunities,

High savings? savings glut?

Doesn't conditions now indicate that high earners have incomes due to rents created by govt. intervention?

That means unequal terms of economic transaction, where the high earner can demand more for his produce from the opposite party in the transaction( because of patents, rents, monopolies, limited competition by regulation etc).

Normally this unequal terms would be limited by the ability of the opposite party to pay. One cannot pay more than one produces. But when the opposite party can take on infinite debt, these unequal terms can go on.

Production is going on well, the high earner (saver) gets paid by the opposite party(spender) as the spender takes on debt to pay the saver - Saver has savings, spender has debt.

The high earner/producer's surplus (producer surplus) results in large savings by the high earner, which cannot be invested attractively. Because investment is equivalent to creating more productive assets, and hence more production.

But more production will not happen for the high priced products. Because of patents monopolies and and other sort of market rigging. So prices will not come down because spenders ability to take on debt will not allow prices to be limited by paying ability, and ant-competitive practices by savers will prevent increased production from keeping prices in check.

More immigration for high priced professions, less of patent, royalties and other riggings. That will raise the living standard at the bottom, reduce inequality, and get rid of the savings glut.

[paine]

VOLTAIRE

YOU ARE LIKE A DRINK OF AMBROSIA

[paine]

barber boils down to

if citizens did more direct governing
there would be less need for indirect governing
with all its enjoined back stage
hocus pocus and rube rolling

thank you for pointing that out
professor

in fact
if none of us
had any use or need
for THE STATE
at all

we'd all be even better off

right voltaire

and if capitalism ceases to be captialism
when markets fail
when firms gain pricing power
when gubmints can be bent by rent seekers
or money is not a commodity just like logs
or or
then capitalism real pure capitalism
can't be blamed
for any system like we got today

right volty

[realpc]

I agree with Mark Thoma this time. While it is true that Americans in general seem a little infantile in their need to buy every new gadget that comes out, well that's human nature, isn't it? Some people like to invent new things, and others want to have them. And some of these things are pretty nice to have.

If someone wants to promote discipline and self-restraint, they are free to go right ahead. And the great majority will ignore them, and are free to ignore them.

I'm sure there are many Americans now days who are more interested in helping the poor all over the world then in enjoying themselves. And that is nice of them. But some would argue that the best way to fight world poverty is to start a successful business and create jobs, not micro-loans or affordable drugs.

And in the long run, sadly enough, increasing prosperity will be our ultimate downfall. It's true that civilizations are destroyed by their virtues.

I am amused when people worry about decreasing auto emissions, to stop global warming. If you decrease emissions 20% in 10 years, what good will that do? The population will just increase to make up the difference.

And just wait until world poverty has been defeated and we have billions of prosperous citizens driving hybrids, high on Prozac, buying everything in sight. What will happen to the ozone layer then?

Progressives DO NOT SEE the contradictions in their dreams.

[donna]

Progressives see contradictions, that's why they are progressive. They want to do something to deal with the contradictions before they become fatal.

Global warming is a real problem, sorry. How about we deal with it, instead of laughing it off?

Capitalism is neither a problem or a solution, it is a system of creating and selling goods. Are there needs it isn't meeting? Of course. I have needs and wants that aren't met, like having sustainable housing and decent public transportation. Instead our society goes for sprawl, McMansions, and SUVs. It isn't what I want, but it's certainly what other people think they want. Funny how it doesn't seem to make them very happy, though.

[Lafayette]

evg: "Do your kids really need MP3 players, or separate TV's, or etc; etc;?"

This sort of statement implies that there is a "standard" of consumerism somewhere. Is it maintained by the government or an institution?

If people want junk, that is their business. If they cannot afford it, that is an economists business. If a company seeks to obtain / market it at the lowest cost, that is good business.

It is useless to question the motivations of consumers, who can pursue satisfaction in complete freedom - which is a fundamental precept of our democracy.

NB: Notwithstanding the fact that I am in complete agreement with your premise. America is a wasteful society, consuming in a Pavlovian manner and without conscience. And, I see Europeans doing the same, if they only had as much disposable income.

[Lafayette]

reason: The market is very good about picking the best means, but is totally amoral about the ends.

As well it should be. Any alternative is a dictatorial country.

You cannot legislate either morals or good taste. You can try to inculcate them. That is a matter not only of education but of the media, which can be used as an effective tool for communicating the necessary values.

My observation of the public channels stateside is that they make a good effort, but could still learn a lot from European media in the art of communicating cultural values of worth. Hollywood will address only the least common denominator in search of profits. It gives people what they want, with no concern for teaching them what they should want.

[realpc]

"Global warming is a real problem, sorry. How about we deal with it, instead of laughing it off?"

Donna,

Any progress dealing with global warming will be offset by progress in dealing with world poverty. You just can't have it both ways. I know it isn't funny, but I can't help being amused by how often this obvious problem is ignored. Do you think there will be a happy prosperous world running on windmills?

Population has to stop growing, and so does Westernization. We can't go backwards, but we can stop racing forward like maniacs.

Of course, we won't stop racing forward. We are a progressive civilization, progressing ourselves off the edge of a cliff.

[James Killus]

Thanks to Bruce Wilder, who noted that falling interests rates do not automatically imply increased investment, also known as "Ah yes, the long investment boom that Japan has known for the last decade and a half."

What is seldom noted is the tension that might be called "productive vs transfer payment investments." If I write a song that entertains and sells a lot of CDs, that might be considered productive. However, if I lobby Congress and get a song that was out of copyright back into copyright, with my owning it, is that productive?

How about if I lend money to the Federal Government so someone can build a cruise missile and someone else uses it to blow up a building in Falusia? Now I have a claim on future taxes collected by the IRS, but the cruise missile (and the building) are now gone. I doubt that anyone received sufficient entertainment value from this to offset the expense, but I'll still get my money, won't I?

The most lucrative investment in pre-revolutionary France was to pay to become a "tax farmer." And look how well that turned out.

says...

realpc:

Any progress dealing with global warming will be offset by progress in dealing with world poverty. You just can't have it both ways. I know it isn't funny, but I can't help being amused by how often this obvious problem is ignored. Do you think there will be a happy prosperous world running on windmills?

What's wrong with that? This is not a matter of problem solving, it's about of doing your best with what you have. A 19th century lifestyle is both clearly sustainable and quite prosperous by 3rd world standards.

Population has to stop growing, and so does Westernization.

"Westernization" and economic development is the best known cure against runaway population growth. The escape from the Malthusian trap was already underway in 1776 when Adam Smith wrote The Wealth of Nations.

[realpc]

"Westernization" and economic development is the best known cure against runaway population growth.

Maybe. That is our only hope. But there are already hundreds of millions of poor Chinese and Africans who can't wait to start driving.

[robertdfeinman]

Just because Malthus and some neo-Malthusians got things wrong in the past doesn't mean that bumping into real limits in the future isn't a strong possibility. One cannot argue by analogy.

The residents of New Orleans (or their representatives) also argued by analogy - the levees have worked so far, and where are they now?

Two things have to happen at the same time, the west has to learn to live with less consumption and an aging (and declining) population, and the developing world has to both boost the standard of living of the poorest while avoiding the overconsumption model of the west and also avoiding overpopulation.

As I've said before, there are few thinking about how to do this in a practical way. What we get are empty phrases like "smart growth" and denial.

I'm guessing that all the optimists ignored the links I provided. Reality is just so unpleasant when one lives in a world of one's own making...

[anne]

Thank you, Robert.

The problems are complex but that is what science is all about, solving complex problems, when there is a political consensus that the problems in question must be solved. Energy production has costs, including windmills, and the costs can be at least somewhat hidden before technology implementation.

[Lafayette]

Reading this thread, one understands quickly why just the discussion of economic matters is a dismal undertaking.

Never mind the science, which must be even worse.

says...

Two things have to happen at the same time, the west has to learn to live with less consumption and an aging (and declining) population, and the developing world has to both boost the standard of living of the poorest while avoiding the overconsumption model of the west

This is pretty much what one would expect to happen as the poorest countries start to develop economically. The one requirement is that resource limits be properly reflected within the economic system, either by regulation or market-based approaches. The results may be unpleasant, but at least they will be reliably achieved. Freaking out and looking for command-and-control, managerial solutions ("what's the proper level of consumption?") will get you nowhere.

[ken melvin]

I seem to recall and admonishment or two to consume and keep the economy going. Up they got and went shopping and now you tell us it's bad.

[realpc]

"The problems are complex but that is what science is all about, solving complex problems"

Anne, science is not an infinite fountain of wisdom and answers. Yes, I know that is the progressive/humannist myth. But there are some things science has proven to be good at, other areas where it completely fails.

Science is a method for understanding and technology is the application of understanding. This has produced amazing rseults in mechanical and electrical engineering. The assumption is that, if people are smart enough to build all these amazing machines, we must be smart enough to apply science and technology to solve our social, psychological, and medical problems ... eventually.

Some medical problems have been solved, but most have not. Social and psychological problems are a completely different story. None of our progress in these areas can be attributed to science. No one has ever figured out how to design or control a social system.

Human societies obey the same kind of laws as the societies of other social animals. These laws are programmed into us, and our conscious control is very limited. That's why free entreprise works better than socialism -- it depends more on natural laws and instincts than on conscious planning and control.

But free enterprise, and nature, don't really care if we evolve ourselves into a corner. It's happened many times before -- every species eventually becomes extinct, and every civilization eventually ends.

Maybe we can prolong the existence of Western civilization by using our cleverness somehow. But it won't be nearly as easy as it looks. Not that it looks easy, even to progressives. But it will be much, much harder and more complicated than you seem to imagine.

The essential political division currently is between people who want to use human intelligence to solve social problems (progressives) and those who want to leave it up to nature and/or god (conservatives).

The two sides cannot understand each other at all. Progressives don't see why conservatives distrust human nature and human intelligence, and conservatives don't see why progressives do trust it.

[anne]

Yes; I understand, but these last years conservatives have done all they can to subvert any efforts to live in harmony with the environment. From endangered species to climate change, we are passing through a conservatively destructive period; thoughly destructive to an extent I would never have expected.

[anne]

We have essentially had conservative industrial officials in agency on agency whose task was to subvert every enviornmental gain that had so painstakingly been made these years. No; I am not even being angry now, just reflecting on how destructive this period has been. A federal judge will limit degradation of national parks, while this Republican Administration will at once set about rewriting park rules to go round the judge's ruling.

Imagine, the Republican Part should be the inheritors of the environmental legacy of Teddy Roosevelt.

[realpc]

Yes, I agree that conservatives like to ignore nature, to care only about one species, our own. That may be the Christian influence -- god made us rulers over nature.

So, interestingly, I disagree with both progressives and conservatives on almost the same point. Progressives idolize human intelligence, and conservatives promote the human domination of nature.

I think we should respect nature, not exactly for the same reasons as progressives. I think nature is much smarter and much more powerful than we are. We can learn from it. And it can destroy is whenever it feels like it.

As you suggest, conservatives used to care about the natural environment. Somehow things have turned around, as they usual do.

[anne]

No; I would argue that there is a tradition of conservatism that is deeply attached to natural stewardship and environmentalism, and there is increasingly vocal concern by religious leaders about the environment. We need to encourage so much more.

[anne]

http://www.nytimes.com/2006/09/10/books/review/Scully.t.html

September 10, 2006

God Is Green
By MATTHEW SCULLY

In the academic habitat of evolutionary scientists, religious sympathies are weeded out over time, and the fittest survive to pass along their traits through haughty books and lectures examining the "delusion" and purely biological origins of faith. So when an eminent evolutionary biologist breaks from the pack to address religious folk in warm and respectful terms, this is what's known in the field as "punctuated" change — a sudden and, in this case, pleasant variation.

There is good reason for the friendlier tone, explains Edward O. Wilson in this engaging and gracious book. A renowned entomologist and Harvard professor emeritus, Wilson has warned for years, in books like "The Future of Life" (2002), of global warming, mass extinction and other troubles of humanity's own making. But these works were addressed largely to fellow environmentalists, and that approach will get you only so far.

More out of habit than considered judgment, Wilson believes, many religious people and especially conservative Christians tend to brush off environmental causes as liberal alarmism, vaguely subversive, and in any case no concern of theirs. Wilson's book is a polite but firm challenge to this mind-set, seeking to ally religion and science — "the two most powerful forces in the world today" — in an ethic of "honorable" self-restraint toward the natural world.

In learned and congenial prose (I understand now how a book called "The Ants" could win a Pulitzer Prize), Wilson casts his appeal as a letter to an imaginary Baptist minister from the South. As a boy in Alabama, Wilson recalls, he too "answered the altar call," and though today a "secular humanist" he proposes to the pastor that as gentlemen and Southerners they lay aside principled disagreements about evolution and intelligent design. We do not need to answer or agree upon every mystery of the universe to confront problems that are, by any account, serious and urgent. Some will see in the natural world a divine creation, and the Lord of Life who makes nothing in vain. Enough for others "living Nature," every plant or animal a "masterpiece of biology," as Wilson writes. "Does this difference in worldview separate us in all things?" he asks. "It does not. ... Let us see, then, if we can, and you are willing, to meet on the near side of metaphysics in order to deal with the real world we share."

Looking around the real world, we find "the rest of life" vanishing. Half of all species — from the glorious tigers and elephants to the lowlier "little things that run the world" — could be gone forever by the century's end, leaving only the genetic codes that wildlife biologists have stored away....

[anne]

http://www.nytimes.com/2002/02/17/books/chapters/0217-1st-wilson.html?ex=1157947200&en=62a77ccfa48ceb84&ei=5070

February 17, 2002

'The Future of Life'
By EDWARD O. WILSON

The totality of life, known as the biosphere to scientists and creation to theologians, is a membrane of organisms wrapped around Earth so thin it cannot be seen edgewise from a space shuttle, yet so internally complex that most species composing it remain undiscovered. The membrane is seamless. From Everest's peak to the floor of the Mariana Trench, creatures of one kind or another inhabit virtually every square inch of the planetary surface. They obey the fundamental principle of biological geography, that wherever there is liquid water, organic molecules, and an energy source, there is life. Given the near-universality of organic materials and energy of some kind or other, water is the deciding element on planet Earth. It may be no more than a transient film on grains of sand, it may never see sunlight, it may be boiling hot or supercooled, but there will be some kind of organism living in or upon it. Even if nothing alive is visible to the naked eye, single cells of microorganisms will be growing and reproducing there, or at least dormant and awaiting the arrival of liquid water to kick them back into activity.

An extreme example is the McMurdo Dry Valleys of Antarctica, whose soils are the coldest, driest, and most nutritionally deficient in the world. On first inspection the habitat seems as sterile as a cabinet of autoclaved glassware. In 1903, Robert F. Scott, the first to explore the region, wrote, "We have seen no living thing, not even a moss or lichen; all that we did find, far inland among the moraine heaps, was the skeleton of a Weddell seal, and how that came there is beyond guessing." On all of Earth the McMurdo Dry Valleys most resemble the rubbled plains of Mars.

But the trained eye, aided by a microscope, sees otherwise....

[anne]

There is to me no inherent conflict, no necessary conflict between between traditional conservatives and liberals over conservancy. Somehow, there has come to be a conflict now and I do not understand why other than a philosophical bent that can turn conservatism as in the 1920s to simple servants of business interests as though removed from a frame of natural responsibility. Why though?

Little remember is that the New Deal began a period of intense conservancy of nature. Franklin Roosevelt was an environmentalist as Teddy was.

[anne]

These coming days, I will read to the conservation movements of the New Deal. I remember clearly Roosevelt speaking to environmental conserns over the years, and of course there was a fearsome reason in the dust bowl period. But, how did Roosevelt come by environmental concern? Where did the advice come from?

Brad DeLong ironically showed a list recently of dangerous books of the last century, of course there was "Silent Spring" near the head of the list. But, Rachel Carson begins the modern national consciousness of ecology.

[gordon]

We have all heard Barber-style rants about the "dumbed-down" consumer before. Here's another psychological view (or maybe just psycho!)

"Wow, the Earth's resources are running out because of unsustainable use. I better get rich and accumulate as much as possible so I can survive the inevitable collapse! ...Wow, my (and everybody else's) desperate accumulation has worsened the rate of exploitation of resources, the collapse is closer! I better accumulate even harder because there is less time...!"

And so on in an ever more desperate spiral.

[anne]

There is no reason for melodrama, I agree, because if we frame issues enviornmentally there is drama everywhere. Will there be wild elephants in a decade? Can we really understand living beyond wild elephants? I do not know, but I imagine none of us care to think of such a possibility though the possibility is entirely real.

[anne]

http://www.palemale.com/december272006.html

Bald Eagle Carrying Striped Bass
Central Park and Fifth Avenue, New York City.

Think of the years of work that it took to make such a glorious sight possible. What is the value of having come again to a time when a bald eagle might carry a striped bass along Fifth Avenue? This is no accident, however, and might not have been and might not be again. What is the value? What the cultural significance or what the religious significance, if we would have it so?

[dd]

It's not capitalism that is the problem; but unrestrained corporatism and that is easily remedied as the bounty of incorporation (unlimited profits and limitied shareholder liability) is a legal fiction that is subject to reconstruction no different from tax law or any other law. If there is to be any meaningful change then incorporation laws are the starting point.

[anne]

DD is clever, and I will ask my legal type sister about such changes in corporate legal codes. I am struck however by what New York Attorney General Eliot Spitzer was able to accomplish under current law.

[anne]

We are in so much trouble, however, so darn much trouble. Now, we are to find out the directors of student aid at selected colleges, expensive as heck colleges, have steered students to loan companies in which they had financial interests. There have been rumors of this for a while, but I completely dismissed the notion. Where has the story come from? The New york Attorney General office.

[anne]

RealPC, I find no inherent conflict in perspectives in thinking through a moral-cultural basis of environmentalism. The conflict has come about in terms of business power imbalances that we have not properly attended to and that in the long run are even likely in the interest of business. American vehicle manufacturers have after all long been their own enemies in resisting conservation or even safety objectives.

[dale]

"Capitalism's core virtue is that it marries altruism and self-interest. ... Doing good for others turns out to entail doing well for yourself."

That would read better as "It is often said that Capitalism's core virtue is..." As written above it seems highly contestable. Assuming away the very heart of the ongoing critique of capitalism.

[gordon]

Trying to mind-meld with people who show indifference towards global warming and resource depletion can be fun, in a grisly sort of way...

"Oh, no! The world is getting too hot and resources are getting depleted! But wait! Country A (the foreigners) are likely to be slightly worse affected than Country B (my country), though both will be worse off in absolute terms. Hooray! Let's have more global warming and resource depletion; though we'll all be worse off, they'll be slightly more worse off than me!"

There is a sort of ghastly rationality in both this and my previous mind-meld; you don't need to assume Barber's "dumbing-down" or "infantile" sorts of irrationality to explain indifference to environmental catastrophe.

[cm]

"We still work hard, but only so that we can pay and play."

There may be merit to this in some aggregate sense, but from an individual perspective, it appears to increasingly become a game of "work hard or work not at all" (for pay that is). I have not too rarely heard the sentiment expressed that people thought they work (are worked?) far too hard, usually in the way of excessive hours not excessive or hazardous physical exertion (with stress perhaps coming more from frustration than hectic rush), and they would prefer more reasonable schedules to leave time for more fulfilling pursuits.

Occasionally, and not too often (could be dangerous to admit it), I have heard willingness to take a (mostly proportional) pay cut in exchange for shorter hours, with the even rarer offering that asking for/pursuing more accomodating work load is expected to be a career limiting move, to the point of being branded as unambitious or even a loafer.

The occurrence and intensity of such deliberations appears to be inversely correlated with how fulfilling the paid work is perceived to be, and with the leisure ratio. And of course this refers to a circle of rather well-paid people for whom letting go of a few percent salary does not entail downgrading food choices or accomodations.

[cm]

evagrius: I still need my daily food, even when it usually doesn't go as far as becoming desperately hungry. The same applies to various degrees of processing or fanciness -- I still need to eat. Absence of a desperately perceived need does not indicate absence of the need as such.

[cm]

One practical aspect, or perhaps largely rationale, of products/services being offered at various degrees of fanciness is price discrimination, and that price discrimination works both ways. If fancier goods were not available, there is a good chance basic goods would command a higher price, in relative terms.

[cm]

And that not just on the side of sales, but also production.

[realpc]

"American vehicle manufacturers have after all long been their own enemies in resisting conservation or even safety objectives."

I don't think it's fair to blame the manufacturers. Americans have choices and they choose the biggest gas-wasters available. They also choose to drive constantly and obsessively. And I bet you would not find any difference between conservatives and progressives in driving habits or vehicle size.

[anne]

American vehicle makers have of course fought any and every possible measure these last 25 years that would have added to efficiency or safety, and fought successfully these last 20 years so that vehicle mileage now is where it was 20 years ago. The fight was successful enough all allow for tax subsidies for the least efficient of vehicles.

[Lafayette]

evg: “Reflect a bit on your own consumerism. How much of the stuff you've bought in the last week have you really, really needed?”

Good question, which brings us back to Maslow’s hierarchy of needs.

If you look at the pyramid, its very lowest levels are matters of physiological subsistence: breathing, food, water, sex, sleep, homeostasis, excretion. We cannot live without these functions. (Yes, even, sex is a need; which in this context is meant for procreation and not just pleasure. Maslow hadn’t thought of test-tube babies.)

In Maslow's hierarchy of levels above that of physiological, one encounters needs that become increasingly more discretionary. That is, we chose to want them, or not, as a function of our perceived need.

In fact, beyond physiological needs, all further needs are perceived needs, influenced less by nature than by nurture (meaning upbringing, education, and environment as an influence on or determinant of personality).

[anne]

The "conservative" problem has nothing to do with the way in which people conduct personal affairs in a more or less conservative manner, but everything to do with what has been a growing and increasingly adament and unrelenting anti-environmental stance by political conservatives. I cannot imagine an Administration could be more environmentally insensitive than this Administration, an Administration backed completely by what was a Republican Congress.

Yesterday, yet another appointment of an anti-environmental activist, Susan E. Dudley, was made by George Bush, taking advantage of the absence of Congress.

[real person from the real world]

Bakho says:
"Is the problem capitalism? Or is the problem lax banking and credit laws? Credit is so enormously profitable that banks can afford to send me 50 credit card applications a week. Banking laws have been rewritten so it is difficult to stiff the creditors. Politicians are only too happy to write legislation favorable to finance industry in return for large campaign contributions. We are back to the era when workers make too little we "owe their soul to the company store". The modern company store is the credit card industry. "

ALl of you who yap continually about the environment. I like air and trees as much as any of you, I have asthma and heart problems, but all I know is that my aging car with 123k miles has to limp into a station to have the exhaust tested, and I cannot afford to fix the air on it, while I see people in big SUVs and Lexuses all over the place. Meanwhile gas and home heating goes sky high, and I cannot afford a new furnace to replace my 20+ corroded one. If I go to the bank to save I get next to nothing on a money market. If I go to the stock market, all I can afford is some overprice mutual fund with fees, and the stock market is a roller coaster. I have to use credit to buy what my income doesn't allow, and that is NOT luxuries.... MEANWHILE, credit card companies can charge up to 32%

Capitalism seems to apeal to the basest instincts we have. In the 1600s and 1700s, the puritans might have a merchant who overcharged whipped. Today, the whole idea is to get the suckers to overpay, and prices are based on charging whatever the market will bear, not on reasonable costs. If you cannot make the costs, and your income is low, you are the prey.

[real person from the real world]

Oh, and check out the NY Times today. Seems like the companies lending to students did kickbacks to the financial counselors at the schools to promote their products. Sounds like undue influence, maybe even corruption to me.... Education, Inc. gouges US Citzens, while the gov't subsidizes foreign students. Big business imports workers vetted thru companies in their own countries, and which often provide subsidized health care for their people, something the US seems to be loath to do.

[anne]

Right thread:

Notice by the way, that among the awful appointments made by George Bush yesterday was the appointment of Andrew Biggs who wishes to destroy Social Security to be, you could have guessed, the Deputy Social Security Commissioner. Always trust this impossible Republican Administration to be as destructive of social well-being as possible.

So, we have an anti-environment and an anti-Social Security appointment in a day, not to mention a third appointment as a reward for attemting to discredit John Kerry. All in a day's work.

[wjd123]

Emile Durkheim believed that there were as many human natures as there were societies. He went on to say that "Human nature is not a single reality that one can find in nature" That it is "a construct of the human mind and an arbitrary construct at that: for we have absolutely no means of saying what it consists of, how it is constituted, or where it begins and ends." The Evolution of Educational Thought

If Durkheim is fundamentally right about human nature than economic man in one society isn't necessarily the same as economic man in another society even if both societies are capitalistic and democratic. A different hieraracy of values or different social needs would greatly effect the nature of economic man.

Schools may indoctrinate us one way, the church another, and capitalism, as consumerism, yet another. Which has the greatest propaganda machine and which can get to us the soonest are important questions on the shaping of society and ergo the shaping of what in a particular context we call human nature.

Also social interests and individual interests aren't the same since they sometime conflict. So individuals acting in their individual interests are not always acting in the social interest. Mr Barber shows the difference when he defines consumerism as the ethos that feeds private-market logic as "What I want is what society needs!" opposed to a public logic as "What society needs is what I want to want!"

If you asked the man on the street what the purpose of business is he would say to make a profit. If you then ask him what the ultimate purpose of business is he would still say the same, to make a profit. Mr. Barber evidently believes that the ultimate purpose of business is to serve the needs of society and of course receive compensation for it. I believe he is right because this way of thinking doesn't allow capitalism to serve its interest at the expense of social interests. Ultimately social interests come first. Business can be regulated by the government to keep society from harm and business can be compelled to see that the interests of society are served: for instance, war production coming before consumer production during World War II.

I believe that Mr. Barber has a legitimate concern about capitalism indoctrinating for its own needs at the expense of social needs. And although I enjoyed reading Mr. Thoma's remarks I believed his comments about the equilibrium point between savings and interests rates begged the question of economic man and social man in so far as its not a question of economic laws but the indoctrination and values of economic man.

Even if economic man didn't "suddenly decided to party rather than work or...forgot the value of a penny saved" that doesn't mean that other considerations haven't leap-froged over them or morphed into something else: for instance the Protestant ethic of hard work was originally motivated by a belief that success was a sign of God's favor. That is hardly the motivation to succeed today.

Granted that there is a necessity imposed by economic laws on economic man but it is not a necessity that applies to a singular human nature per se. And that seems to me to have consequences for effecting sound global principles.

[Lafayette]

From the Economist (17th March): Family Capitalism: An American study concluded that 6% by number and 8% by capitalisation of quoted companies in America had dual-class (NB: differentiation of voting rights) shares in 2002. Only two-thirds of large European companies rigorously apply the principle that one share should command one vote, according to a Belgian study in 2005.

Some of the best known companies use dual-class shares. The Ford family may no longer own the company - it has a slender 3.75% if the shares - but nobody can doubt who is in control.

It is senseless to think that workers (meaning everybody who works for a publicly quoted company) will have their fair share of the profits pie if their "property rights" are not respected. There must be a restructuring of voting weights on the Board, with personnel representatives given the right to sit there as well.

I submit that nothing can be accomplished to rectify the unbalance in income equitability until company personnel exercise their property rights as owners. To do so, they must be stockholders of the company.

Personnel compensation in the form of shares could have dual-class voting privilege, just as it seems executive members of the Board have. This would right the balance of power at the Board level - particularly the rule that Board members who are also members of top management be limited to a distinct minority and that outside members be the majority.

This would give personnel voting rights on the Board and a say in the running of the company with associated responsibilities such as a commitment to objectives, just like other corporate players.

Their overview of Board discussions/decisions would reduce management manipulations of compensation, helping to correct the huge imbalance known today where stock options are the sole prerogative of selected corporate staff. It would help also to reduce the corruption that has festered at the Board level, of which only the tip of the iceberg has been seen in American courts recently.

With time, it would also have a profound impact on income equity.

[Lafayette]

wjd: “I believe ... this way of thinking doesn't allow capitalism to serve its interest at the expense of social interests. “

This is a good point.

Capitalism is not the diametric opposite of socialism. European societies that tax heavily have allowed capitalist corporate cash cows to flourish, as long as they gave milk to the state that was redistributed for bona fide social purposes.

This meant that “excess profits” went to the state and not to a select few who had ownership rights in terms of stock holdings.

America, for whatever historical reason, advanced the claim that taxing profits “constrained” the corporation’s ability to generate employment. The European experience showed that this was not necessarily the case. (Where Europe got it wrong was not in taking too much of the cash-cow’s milk, but wasting it uselessly. Europe recognizes, for instance, that its investment levels in R&D have been woefully inadequate.)

Capitalism and socialism can coexist. What cannot exist is a capitalism (that generates extreme income inequality) without a healthy portion of social fairness.

[real person from the real world]

ABOVE: " (indivifuals and collective groups)...acting in their individual interests are not always acting in the social interest."

TOO TRUE.

Layfette, this idea of worker on the board, co-management you talk about.... very European, but in countries that use it, like Germany, my understanding is that it stymies jobs and causes a range of problems, ranging from not being able to buy groceries on Sunday, to not being able to let problematic people be fired (altho problematic may be subject to interpretation where a union is concerned).

Unfettered Captialism, unleashes all sorts of cut throat activities. Decades back, before Gov't put a stop to these activities, Sinclair Lewis exposed dirty and dangerour meat packing, green wall paper was sold that had arsenic in it, tainted food was commonly sold, all in the greedy reach for profits.

Today, market-based pricing means pricing geared toward what the sucker can pay. Ony negative publicity holds the worse abuses back, and companies are quickly learning how to spin that....

As for open market based pricing.... My foreign IT employer carefully weighs each client's likelihood to ante up.... he'll take a very minimal cut in profit to get in, but if the client is not vigilant.... watch out! And he has his network of buddies that can help.

Part of globalization is that some of these 3rd World entrepreneurs bring back the sharp dealing practices that the staid cozy US homeland based businesses have not benn used to since the Gilded Age. Well, the Raptors have been let loose.

Can we put the raptor back in his egg? unlikely.... we need to learn some hard tactics of our own that mean protecting our interests in a fair way, comparable to how other countries do.... otherwise promoting free-for-all unfettered capitalism will destroy itself and the US thru greed.

[Lafayette]

rpfrw: “but in countries that use it, like Germany, my understanding is that it stymies jobs and causes a range of problems, ranging from not being able to buy groceries on Sunday, to not being able to let problematic people be fired (altho problematic may be subject to interpretation where a union is concerned). “

Minor inconveniences.

The major benefit is that it lets personnel representation into the Board room. “Where you sit is where you stand" … in a company. This leads to a lessening of the us-them divide since the unions know exactly what revenues/investments the company is making and there are no shocking midnight plant shutdown announcements. Even dislocations have to be negotiated before announcement.

Everything is negotiated in a “gentlemanly” fashion. After all, both have common interests in the company succeeding. This measure was enacted in the 1960s or 70s by a Social Democrat government (as I recall) and I presume it more or less works - even if personnel representation is in the minority. Of course, neither does it really hamper German companies where families have a predominant interest in the company. It didn’t stop Pieche of Porsche from just taking over Volkswagen recently.

BTW, not being able to buy groceries on Sunday is a matter of unions prevailing upon the state not to change existing Sunday-closure laws. Where permitted elsewhere in Europe, retailers are racking up 30% additional sales on Sundays … so it is a matter of myopic business interest. Unemployment in Germany is around 8 or 9%, but we can't have anyone working on Sunday. The wrath of God might smite them with lightening, I imagine.

rpfrw: “Unfettered Captialism, unleashes all sorts of cut throat activities. “

Only if you let. And, America is one of the countries in which business has been least regulated.

There is some goodness in being unregulated in that Europe was just the opposite. It is presently suffering from an ossified work environment. (Anecdote: I remember, on a visit to my company’s office in Munich, of wanting to pick up a lamp to move it one floor up. A union worker doing the removal went into an epileptic fit accusing me of taking bread out of the mouth of his children, or some such …)

A company has a duty to be a dynamic participant in a market, but often management doesn't know where they trespass the line in pursuit of quarterly objectives that favor their stock-options.

So, yes, there is what you talk about … unfettered capitalism on the rampage. I feel strongly that such happens because people let it happen. Unions are much weaker in the US because Americans do not sense the force that solidarity brings to the bargaining table … until it's too late. This can only be changed by giving labor not only overview of the decision-making process, but motivating them by rewards for performance in precisely the same way as management.

But, it ain't gonna happen unless the government passes the legislation to make it happen. So, I wouldn't want to be hanging in a tree waiting for it. : ^ (

[real person from the real world]

Hi Layfette, if you read this.... Don't you think the rock star mentality for upper managment has a lot to do with it? I recall hearing that in Japan - greatly feared for its maufacturing prowess in the 80s - the execs are paid a percentage of what the low guy on the floor gets, and the rest of advantage of being in management consisted in PERKS like golf club memberships (there ain't much land on an Island). Now Japan is no longer the country that can say "no" to the US, while US corp execs are making millions in bonuses.

And is it only taxes to bring fairness? What about charging prices that have no relation to R&D or costs to develop and make a product? The same drug from a Canadian pharmacy costs a lot less than from a US pharmacy. If you want to buy from Microsoft, you pay thru the nose, and the buy to rent is getting worse started by the posterboy for wealth in control of everything and everybody, Mr. Billy Gates. He is the main reason we import so many foreign IT people, while our own IT people languish.... Yet, if you say anything about pricing based on marketing or some of these practices, you are some how insane because the ones in control think they have every right to gouge someone else for as much as possible, as freely and often as they want.

[Lafayette]

rpfrw: while US corp execs are making millions in bonuses.

Yes, average executive salary was up 12% on the year to about 2.2 megabucks. Their stock-option remunerations where up 50%.

Tough life at the top, huh?

And is it only taxes to bring fairness? What about charging prices that have no relation to R&D or costs to develop and make a product?

Sorry, but I was talking about fairness in both income and wealth.

You’re talking about “what the market will bear”. Taxes can’t help there.

Besides, the relationship between R&D costs and market price is not calculable in advance, the former being somewhat random.

If you want to buy from Microsoft, you pay thru the nose

I don’t want to buy from MS. I have to, because they have what is called a “natural monopoly”, built originally from natural market forces. (CP/M and Apple were not able to impose themselves upon the market.) As I said, I think in one of these forums, that it is a shame that MS’s abuse of market dominance was not met with a sanction of the individuals involved, Balmer and Gates. Even a token fine of $5M each would have been symbolic of the crime committed. These jerks cannot even admit that they committed a crime, so they have no remorse – which is typically the judicial qualification for a court’s mercy.

It would have made for a salutary message to others who perpetrate the same crime, namely, abuse of market dominance to impose their products at their prices.

Americans think their judicial system is like Perry Mason, truth always wins out. Only on a Hollywood film stage. It is more like the Supreme Court decision that allowed lead-head access to the White House - a blind mystery.

[cm]

Lafayette: "Unemployment in Germany is around 8 or 9%, but we can't have anyone working on Sunday."

Two points on this:

First, the (implied) argument that extending business hours will create proportionately more aggregate jobs does not appear to hold much water. Even now, not all stores are availing themselves of the extended weekday hours. There is simply not enough aggregate business, or as some say in Germany, at the end of the money there is too much month left. And when one store can get more business, another store may have to let somebody go. There is some additional business on the weekend fro those who can't or won't shop during the week, but no way it's 30%, and to some extent it takes away from the week. (And when I say business I mean paying customers, not window shoppers and bargain hunters.) The typical way of accommodating that is to thin out staffing on weekday evenings, and ask more staff to come in on the weekend.

Which leads to the second point, protection of "work-life balance" (which of course doesn't mean the same to everybody, i.e. "your work, my life") has to be legislated. Today businesses have to request, document, and obtain an exception from regulators to let people work on the weekend (and when exceptions get numerous the regulators may actually want to verify what is going on). Even so, in my previous job I was asked to come in on some weekends when there were "urgencies" (that is, somebody wanted to avert the embarrassment of blowing the project schedule). Absent that requirement, I may perhaps have been expected to come any and every weekend.

[Lafayette]

cm: "First, the (implied) argument that extending business hours will create proportionately more aggregate jobs does not appear to hold much water."

Either you do not understand or you are refusing to understand. Wherever in place, Sunday retailing has increased demand.

Now, whether that demand is met by China or Europe, I don't know, but it does create (at least in retailing) more jobs. I suspect that the overall benefit is to European and less so to Chinese employment.

Furthermore, take a look at the correlation between hours worked and unemployment. Nice fit if there ever was one – the more hours worked, the less are long-term unemployment figures.

And where is Europe in the comparative list? Make an effort and guess …

None of this is rocket-science. These facts have been known for years. The problem is that, regardless of the facts, Europeans are intransigent in accepting the reality that if you don't work you don't create wealth and if you don't create wealth there is less of it to share.

They've been living in the protectionist cocoon of the Common Market behind tariff barriers that started coming down ten years ago ... but Europeans are only beginning to understand the tragic consequences of living beyond their means.

And, I blame particularly the Germans who had seen the failure of communism right on their doorstep. They should have known better and started reducing their statism a long time ago. (Instead, they voted for that knucklehead Schroeder who blew them a raspberry as he scampered of to Switzerland to take up his cushy six-figure job handed to him on a plater by his chum Vladimir.)

Duh .......

[real person from the real world]

Comment on Layfette:
"....the relationship between R&D costs and market price is not calculable in advance, the former being somewhat random."
I would assume, most products are sold AFTER the R&D, altho R&D is ongoing, there should be come clear agreement on basic costs (salaries of the employees doing the research) and you project something reasonable for beyond that. Sure, some costs are unknowns, but so sometimes is demand for a product. Too much, and you have a run up by retailers, not the original sellers. Too little, and the Retailers have a big sale. It would seem to be the retailers taking the risk, and if you have price competition, it should be there.... more retailers selling it, some will sell at a lower price. However, in MS case, it sets a price, and polices it ruthlessly. Piracy includes people selling a copy sold originally for a Dell computer (where the OS is tied in to the BIOS), or the right to sell excess OEM copies of the software, with a algorithm generated key. If you want a copy of an obsolete OS, like win 98, you still pay the same bucks as for XP. You are trapped. The only people that get a break are direct retail customers - companies like Dell who buy in vast volume. Yeah.... MS is a BIG monopoly, but everyone admires their right to demand whatever price they want to gouge out of people.

[real person from the real world]

A reasonable cost on a product might ease the desparate scramble that is escalating the salaries of people who companies hire, that must be able to "hit the ground running" or the race is lost. IT is a part of the high salary inequity. I see people getting $80K up thru $150k, altho that is a pittance compared to the CEO pay you see. And, not to knock these people, who are hard working individuals and decent people, but a lot of them are former Visa Slaves, who got Green Cards. NOT US Citizens with a middle class life style going down the toilet. We get people vetted thru entry level over seas where gov't often also supplies medical coverage, while here in the US, there are few entry level jobs and we have a gouging Education, Inc., and Gov't subsidizing of Foreign Students, AND NO HEALTH BENEFITS for so many of our citizens born here.

[evagrius]

So.....the notion of a Sabbath, a day or period when one is exempt from the mundane and banal necessity of
work and purchasing and dealing and calculation is somehow anathema?

This is exactly what Barber is pointing to.
How trivial human existence is if it only consists in working, calculating, buying, selling. How trivial human being is.

Traditional societies knew better. That's why, when one looks at how they manage time, one finds a huge number of days dedicated to not working. Instead, they celebrated being humans who have a purpose higher than buying and selling.

[calmo]

But unfettered Capitalism (unfettered socialism is just unimaginably bad) did in these traditional societies, repositories of all that is non-trivial and worth denoting "human nature"? (that would be social frolicking without the slightest interest in developing social contacts)
I liked wid123's piece, too, citing Durkheim and the sociological perspective (about which I know zippo).
This (whatever) might be your view of human nature but that says nothing about mine...which is why when I go exploring and discovering new and 'empty'lands, I carry adequate guns and ammunition.
You figure Marx has made too large an impression on me?

[cm]

Lafayette: Side note, I'm tiring of your "make the effort" innuendo, but here we go anyway. I'm not disputing that unmet "demand" (i.e. people who want stuff and services) is there. I also understand multiplier effects -- when the mall is open on the weekend, people who will come to shop will (maybe) have a coffee and a snack, boosting the revenue of some cafe.

But, why do we need 1-euro jobs in the service sector (1/hr wage, grossed up by a Dept. of Labor subsidy) in Germany so that businesses finally can hire people? Perhaps your arithmetic of additional jobs for additional business doesn't work when employers have to pay people "real" living wages? All the recent expansion of business hours has interestingly coincided with introduction of a below-living-wage sector and unemployment benefit cuts. If this is the only way it works, then thank you very much. Those are not jobs, but occupational therapy converting unemployment to fake employment. The argument goes, "bring people back to the labor market". What labor market please, when those dead-end jobs have to be brought into existence just because there are no "real" jobs?

In fact, you can argue the subsidized low-wage sector is effectively a state-run temp agency renting people out to businesses at below cost. Now there's some socialism for you.

[BiJian Feng]

It seems a bit elitist to say that service jobs are so crappy that people are better off not having them. Don't you think that should be left up to the individual? If someone thinks it's not worth his time, then he won't take the job and the employer will have to raise the wage to attract employees. The same elitism can be found here in the US with our politicians who are obsessed with keeping Wal-Mart from opening new stores. In one city (forgot which), when Wal-Mart did finally open, there were several times more applicants than jobs available, showing that people did want to work for Wal-Mart wages.

The system whereby the State assigns someone a job at a "fair wage" is a proven failure. Capitalism is imperfect, but it's the best we've got. More specifically, the market based system seems to be the best we can come up with.

As people have noted, the market breaks down when monopolies appear, which is why I'm for anti-trust laws. Competition is the engine that drives capitalism, without it, capitalism can't work.

I also don't see why labor should have a seat on the board of directors. Labor can protect their interests by unionizing and acting in concert. The company will have to take labor into account when making decisions based on that alone. Only shareholders should have a vote, the US corporate system is much better than the European one where politics seem to override what is in the best interests of the company. As for CEO pay, most managers are paid reasonably given their importance and the value they generate for shareholders. Problems occur because shareholders don't have control of the corporation like they should. The solution is to strengthen shareholder rights, then you'll see fewer golden parachutes and other abuses, though top CEOs will still get what they ask for (just like top athletes).

The notion that capitalist countries exploit workers is ridiculous. Why would so many people risk their lives and break the law to immigrate to the United States if that were the case? Do they build cardboard boats and leave their families behind just so that they can be "exploited"? No, the answer has to be because they see better wages and more opportunities in America than their failed socialist countries. Socialism and communism are the systems that truly exploit workers and people. Rhetoric aside, when the chips are down and it's life or death, people choose capitalism hands down.

[Lafayette]

BF: "The notion that capitalist countries exploit workers is ridiculous. Why would so many people risk their lives and break the law to immigrate to the United States if that were the case?"

Because between starvation and risking your life to better yourself, the choice is obvious.

Duh ......

[Lafayette]

BF: "Rhetoric aside, when the chips are down and it's life or death, people choose capitalism hands down."

Or, is it "Hands up!"?

Come to Europe, and I'll show you a third way. Neither starvation communism nor predatory capitalism.

People formulate choices, if (1) they are informed of the options, (2) debate openly the consequences and (3) have the courage to chose by voting and (3) assume the consequences of their choices.

Either the above, or you put on a pathetic media circus that elects "representatives" to a legislature and ... then bitch/moan that they (and legislative gridlock) are screwing it all up.

Look at the construct of the American congress in terms of net personal worth. Do you really, really expect the average Congressman to know what percentage of income represents the price of a downtown bus ticket? Or, the cost of a mortgage (in terms of average income) of a house in a rural community?

They could care less ... they are off solving far more urgent problems with their friends on K-street.

Only "participative democracy" can solve the problem of legislative misrepresentation. Prepare people to vote in referendums on matters that determine their lives and they will "grow into" the responsibility for doing so. Instead of being led about by the nose.

Americas founding fathers took a cue from Montesquieu (French social philosopher of the Enlightenment and worth reading) about the separation of powers. Obsessed by the powers concentrated in the royalty and especially the fact that those powers could be so easily abused/manipulated, he conceived of a balance of power between the legislative and executive branches of government. Not a bad idea.

Fast forward two hundred years - it has become evident that the use of referendums (in not all matters but especially those that have a predominant importance) is a further check / balance on both legislative AND executive powers.

It has worked for over a 150 years in Switzerland. It has worked for more than 250 at town hall meetings throughout America.

Vox populi is the base foundation of a functioning democracy.

NB: One would be amazed how politicians stop the petty bickering and get their act together when they realize that if they cannot, then a public referendum will decide.

[cm]

BiJian Feng: I'm not being elitist. One basic tenet of the whole "job growth at any price" rhetoric is that jobs, any jobs, are the sole guarantors of sustained aggregate welfare. But the jobs that are actually created and peddled are paying wages, after deducting expenses, substantially below the supposed living standard they provide, or even have to be subsidized by government programs in order to bridge the gap between what business is prepared to pay and effectively what the legislative has determined to be a minimally viable income.

I'm not saying no decent person should take those jobs, but I'm not accepting arguments that have such a large gap with reality.