Posts Tagged ‘Adam Smith’

The Worst Problem: The Most Imminent Danger

June 23, 2019

Of all the issues raised in Douglas Rushkoff’s book “TEAM HUMAN,” which is the worst; which constitutes the most imminent danger. Although HM would argue that global warming is the most imminent danger, economics presents a possible existential threat. Adam Smith was aware of the dangers presented by large corporations and stressed that regulations would be necessary to keep them from destroying the marketplace. There are regulations, but one can readily question whether they are adequate and can anticipate future problems.

In 1969 the CEO of a typical company made about 20 times the salary of the average worker. Currently, CEOs make 271 times the salary of the average worker.

The following statistics are taken from “Resisting the siren song of ‘modern monetary theory” by Heather Boushel in the 21 April 2019 issue of the Washington Post. “Between 1979 and 2015, after accounting for taxes and transfers, Americans in the middle 60% of the income spectrum saw their incomes rise by 46%, while those in the top 20% saw their incomes rise by nearly 103%. High inequality is associated with less upward mobility and with the capture of politics by elites.”

What is more important and more worrisome is accumulated wealth. This problem was discussed in the post The Piketty Insight on the Accelerating Wealth Gap. In the United States in 2010, the top 1% had 35.4% of the wealth. In 2010, the top 5% had 63% of the wealth; and the top 20% had 88.9% of the wealth. That left the bottom 80% with 11.1% of the wealth. So what is being lost? The freedom that wealth can buy, and the power that wealth can buy. Technically, we may still have one person, one vote (but given the menacing Electoral College, not for Presidential elections). But the effect of one person on elections has gone way down.

It is important to appreciate the difference between inherited money and earned money, and more importantly the distinction between inherited money and earned money. Earned money is earned and deserved. Inherited money is not earned and creates a wealthy class analogous to royalty. Presumably the United States broke away from England and its royalty to form a society of equal citizens. This inherited wealth destroys this goal of equality.

It is important to note exceptions. Perhaps the most famous exception is the most successful capitalist, Warren Buffet. He does not believe in inherited wealth. Similarly the most successful entrepreneurs, Bill and Melinda Gates, do not believe in inherited weather. They have created the Gates Foundation, which uses the techniques of operations research to maximized the effectiveness of their giving. Both Buffet and the Gates regard inherited wealth as being unhealthy for their children. It also needs to be mentioned that there are billionaires pledging to give away significant portions of their wealth.

But unfortunately, these people are the exception. Greed seems to be the governing principle for the remainder. One wonders, how many billions does a billionaire need? For too many the answer appears to be infinity. They use their wealth as a measure of their success, and, according to their calculus, how they rank against the rest of humanity.

Corporations need to grow continually and at ever higher rates. This creates the treadmill or rat race that just gets worse. Add to this effect of automation and the loss of future jobs, which will likely exacerbate the problem.

In the past politicians would promise jobs and expect voters to grovel at their feet, even those these jobs would damage further the environment.

We need to stop or get off this treadmill, or we shall eventually, and perhaps, shortly, reach disaster.

© Douglas Griffith and healthymemory.wordpress.com, 2019. Unauthorized use and/or duplication of this material without express and written permission from this blog’s author and/or owner is strictly prohibited. Excerpts and links may be used, provided that full and clear credit is given to Douglas Griffith and healthymemory.wordpress.com with appropriate and specific direction to the original content.

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Economics

June 17, 2019

This is the seventh post based on a new book by Douglas Rushkoff titled “TEAM HUMAN.” The title of this post is identical to the title of the seventh section of this book.
Rushkoff writes, “What we now think of capitalism was born in the late Middle Ages, in the midst of a period of organic economic growth. Soldiers had just returned from the Crusades, having opened up new trade routes and bringing back innovations from foreign lands. One of them, from the Moorish bazaar, was the concept of ‘market money.’”

Prior to this time, European markets operated mostly through the direct exchange of goods, that is, barter, Gold coins were too scarce and valuable to spend on bread. Anyone who did have gold hoarded it. Market money let regular people sell their goods to each other. It was often issued in the morning, and then cashed in at the close of trading. Each unit of currency could represent a loaf of bread or a head of lettuce, and would be used by the seller of those items as a way of priming the pump for the day’s trade. The baker could go out early and buy the things he needed, using coupons good for a loaf of bread. Those coupons would slowly make their way back to the baker, who would exchange them for loaves of bread. This was an economy geared for the velocity of money, not the hoarding of capital. It distributed wealth so well that many former peasants rose to become the new merchant middle class. They worked for themselves, fewer days per week, with greater profits, and in better health than Europeans had ever enjoyed and as Rushkoff notes would not enjoy again for many centuries.

The aristocracy disliked this egalitarian development. When the peasants became self-sufficient, feudal lords lost their ability to extract value from them. Rushkoff notes that these wealthy families hadn’t created value in centuries, so they needed to change the rules of business to set this rising tide of wealth as well as their own demise.

So the aristocracy came up with two main innovations. The chartered monopoly was the first. It made it illegal for anyone to do business in a sector without an official charter from the king. So if you were not the king’s selected shoemaker, you had to close your business and become an employee of someone who was. Rushkoff writes, “The American Revolution was chiefly a response to such monopoly control by the British East India India Company. Colonists were free to grow cotton but forbidden from turning it into fabric or selling it to anyone but the company.” Clearly the colonists were being exploited. The East India Company transported the cotton back to England, where it was made into fabric, then shipped back to American and sold to the colonists. This monopoly charter was the progenitor of the modern corporation.

Central currency was the other main innovation. Market money was declared illegal; its use was punishable by death. People who wanted to transact had to borrow money from the central treasury, at interest. This allowed the aristocracy, who had money, to make money simply by lending it. Local markets collapsed. Money which had been a utility to promote the exchange of goods, instead became a way of extracting value from commerce.
Rushkoff writes, “That growth mandate remains with us today. Corporations must grow in order to pay back their investors. The companies themselves are just the conduits through which the operating system of central currency can execute its extraction routines. With each new round of growth, more money and value is delivered up from the real world of people and resources to those who have the monopoly on capital, That’s why it’s called capitalism.”

Rushkoff continues, “But corporations are not people. They are abstract, and can scale up infinitely to meet the demands of the debt-based economy. People can only work so hard or consume so much before we reach our limits, We are still part of the organic world, and subject to the laws of nature. Corporations know no such bounds, making them an awful lot like the digital technologies they are developing and inhabiting.”

Continuing further, “The pioneering philosopher of the political economy, Adam Smith, was well aware of the abstract nature of corporations—particularly large ones—and stressed that regulations would be necessary to keep them from destroying the marketplace, He argued that there are three factors of production, which must all be recognized as equally important: the land, on which we grow crops or extract resources; the labor, who till the soil or manufacture the goods; and, finally, the capital—either the money invested or the tools and machines purchased. He worried that in an abstract growth-based economy, the priorities of the capital would quickly overtake the other two, and that this, in turn, would begin to favor the largest corporate players over the local, human-scaled enterprises that fuel any real economy.”

Capital can keep growing, unlike land and humans. Moreover, it has to, because a growth-based economy always requires more money. And capital accomplishes this miracle growth by continually abstracting itself. If investors don’t want to wait three months for a stock to increase in value they can use a derivative—an abstraction—to purchase the future stock now. Should that that not be enough temporal compression, one can purchase a derivative of that derivative, and so on. Today, derivatives trading outpaces trading of real stocks. The New York Stock Exchange was actually purchased by its derivatives exchange in 2013. So the stock exchange, which is itself an abstraction of the real marketplace of goods and services, was purchased by its own abstraction.

In 1960, the CEO of a typical company made about 20 times as much as its average worker. Today, CEOs make 271 times the salary of the average worker. They probably would like to take less and share with their workers, but they don’t know how to give up the wealth safely. Thomas Jefferson once described the paradox of wanting to free his slaves but fearing their retribution if he did, “it’s like holding a wolf by the ear.”

Rushkoff ends this section as follows, “So with the blessings of much of the science industry and its collaborating futurists, corporations press on, accelerating civilization under the false premise that because things are looking better for the wealthiest beneficiaries, they must be better for everyone. Progress is good, they say. Any potential impediment to the frictionless ascent of technological and economic scale, such as the cost of labor, the limits of a particular market, the constraints of the planet, ethical misgivings, or human frailty—must be eliminated. The models would all work if only there weren’t people in the way. That’s why capitalism’s true believers are seeking someone,or better something, to do their bidding with greater intelligence and less empathy than humans.”

The Invisible Hand

February 18, 2019

It is likely that this title appears strange to the reader. It is hoped that it will become clear later in the post. HM has become quite depressed due to not only Trump and his followers, but also the lack of caring that many conservatives show for their fellow humans. As has been mentioned in many previous posts, the United States is the only advanced country that does not have single payer government health insurance for all its people. In polls of general welfare and happiness the United States does not fare especially well. Michael Moore produced a valuable film titled “Where to Invade Next” that summarized the different ways that countries deal with their problems. They are definitely superior to the United States where a large tax cut is given the rich, increasing the national debt, and then used as an excuse to cut the few benefits American citizens have.

Actually this post is a follow up to the post titled “Would Adam Smith Be a Conservative Today?” in the series of posts on Linguistics and Cognitive Science in the Pursuit of Civil Discourse. Another relevant post is “The Strict Father Model.” This model was developed by George Lakoff, assisted by two conservative Christian linguists in the formulation of a model to facilitate an understanding of how conservatives think. They are strongly influenced by the concept of an invisible hand developed by Adam Smith, the author of “The Wealth of Nations,” the full title being ‘An Inquiry into the Nature and Causes of the Wealth of Nations (1776).” This is one of the most influential books every written as it formulated the ideas of capitalism and free trade. This book was a major contributor to economics and, indeed, the wealth of nations. If someone remembers anything from this book or anything about Adam Smith it is most likely “invisible hand.” The basic concept here is that there is something that works like an invisible hand that guides the flow of money to where it is most needed. And this definitely does seem to be the case. Unfortunately, some conservatives take this to mean that this invisible hand will address the needs of the people. Some even come to the conclusion that the poor and needy have not exerted enough effort or this invisible hand would have worked for them. So it is their problem, not a social problem.

Although “The Wealth of Nations” is Adam Smith’s most famous and influential work, he did not regard it as his best work. He had published “Theory of Moral Sentiments” in 1759, which he regarded as his most important work. “The Wealth of Nations” was published in 1776. Smith returned to working on “ The Theory of Moral Sentiments” until his death in 1790. It appears that he thought that he still needed to finish.The term “invisible hand” appears only once in each of these books. Clearly Smith did not overwork this term, although scholars and his followers have.

It is also quite obvious that Smith did not think that “invisible hand” would meet many needs of the people. Smith thought that empathy, understanding, and the well-being of our fellow humans is paramount. Although the term likely did not exist in Smith’s day, HM thinks that he was advocating mindfulness, meaning that humans needed to relate to their fellow humans in terms of their emotions and needs. There is a need to be mindful of our fellow humans. It is also clear that were Smith alive today, he would most certainly be a progressive and not a conservative.

Much more information can be found on both Adam Smith and his books on the Wikipedia. Kindle versions of each book for less than $1 are available from amazon.com.

© Douglas Griffith and healthymemory.wordpress.com, 2019. Unauthorized use and/or duplication of this material without express and written permission from this blog’s author and/or owner is strictly prohibited. Excerpts and links may be used, provided that full and clear credit is given to Douglas Griffith and healthymemory.wordpress.com with appropriate and specific direction to the original content.

Would Adam Smith Be a Conservative Today?

December 10, 2018

This is the tenth post in the series Linguistics and Cognitive Science in the Pursuit of Civil Discourse. Conservatives seem to regard Adam Smith as an excuse for not caring about their fellow humans. That invisible hand takes care of everything. By focusing exclusively on one’s own self interest, everything works out for the best.

Indeed Adam Smith’s capitalism was a gigantic advancement in thinking at that time and did increase the welfare of many. However, Adam Smith was a social philosopher preoccupied with the welfare of humanity. Although he is famed for his “Wealth of Nations,” Smith believed his book “The Theory of Moral Sentiments” to be the superior work. He continued making extensive revisions until his death.

There are many reasons to believe that were Adam Smith alive today he would be painfully aware of the problems of capitalism and would be proposing ideas to make corrections to benefit the public welfare. He would be interested in neuroscience to see what potential benefits it held for public welfare. And he might well have read Lakoff and be using frames in his arguments.

There is every reason that he would be a progressive developing and actively pursing progressive goals.

© Douglas Griffith and healthymemory.wordpress.com, 2018. Unauthorized use and/or duplication of this material without express and written permission from this blog’s author and/or owner is strictly prohibited. Excerpts and links may be used, provided that full and clear credit is given to Douglas Griffith and healthymemory.wordpress.com with appropriate and specific direction to the original content.

The Strict Father Model

December 3, 2018

This is the third post in the series “Linguistics and Cognitive Science in the Pursuit of Civil Discourse.”

Lakoff took the various positions on the conservative side and on the progressive side and came up with two different models of the family: a strict father family and a nurturant parent family. He presented his views at a linguistic convention. At the convention there were two members of the Christian Coalition who were linguists and good friends of his. He thought they were excellent linguists, but did not agree with their politics. They took Lakoff aside at a party afterward and said, “Well this strict father model of the family, it’s close, but not quire right. We’ll help you get the details .” They referred Lakoff to James Dobson and his book, regarded by many conservatives as a classic, “Dare to Discipline.” After reading this book he refined his model as follows:

“The strict father model begins with a set of assumptions: The world is a dangerous place, and it always will be, because there is evil out there in the world. The world is also difficult because it is competitive. There will always be winners and losers. There is an absolute right and an absolute wrong. Children are born bad, in the sense that they just want to do what feels good, not what is right. Therefore they have to be made good.

What is needed in this kind of a world is a strong, strict father who can

*protect the family in the dangerous world.
*support the family in the difficult world, and
*teach his children right from wrong. “

There is an emphasis on physical punishment. The rationale behind physical punishment is they learn not to do it again. That means that they will develop internal discipline to keep themselves from doing wrong, so that in the future they will be obedient and act morally. Without such punishment, the world will go to hell. There will be no morality.”

“Such internal discipline has a secondary effect. It is what is required for success in the difficult, competitive world. That is, if people are disciplined and pursue their self-interest in this land of opportunity, they will become prosperous and self-reliant. Thus, the strict father model links morality with prosperity. The same discipline you need to be moral is what allows you to prosper. The link is individual responsibility and the pursuit of self-interest. Given opportunity, individual responsibility and discipline, pursuing your self-interest should you enable you to prosper.”

“Dobson was very clear about the connection between the strict father worldview and free market capitalism. The link is the morality of self-interest, which is the conservative version of Adam Smith’s view of capitalism. Adam Smith said that if everyone pursues their own profit, then the profit of all will be maximized by the invisible hand—that is, by nature, just naturally. Go about pursuing your own profit, and you are helping everyone. This is linked to a general metaphor that views well-being as wealth.”

The Wellbeing of Nations: Meaning, Motive and Measurement

August 26, 2015

This excellent text is by two researchers in England, Paul Allin and David J. Hand.  It is written in the spirit of Adam Smith’s An Inquiry into the Nature and Causes of the Wealth of Nations, which is usually abbreviated as The Wealth of Nations.  Smith is commonly regarded as the father of capitalism.  Although this is true, he is misrepresented by many politicians.  Smith was concerned with increasing the wellbeing of nations and their inhabitants.  Smith wrote an earlier book titled The Theory of Moral Sentiments.  He argued that moral sense was based on mutual sympathy, a term best captured today with the concept of empathy.   Smith advocated progressive taxation, in which the wealthier paid a higher percentage of their income to taxes than the poor.  Often politicians argue for a “flat tax”  for simplifying the tax code.  Progressive taxation is not responsible for the complexity of the tax code, but the many specific benefits and costs written into the tax code are.  The Gini coefficient is an index of the spread of wealth in an economy.  And healthier economies require that wealth be distributed among the citizens of a country.  As one Texan put it, “Money is like manure; it’s no good unless it is spread around.”

The authors note, “It looks as if the capitalist business model has evolved over the centuries into one that relies on population growth and expects economic growth.”  Clearly, this is a model for ultimate disaster.  There is no doubt that capitalism has been a success, but it is time for fine-tuning.  There have been several healthy memory blog posts wondering what has become of all the leisure time that was promised to be available today.  When I was a child few mothers worked.  Today, everybody works, and for longer hours.  Why?  John Maynard Keynes envisaged a time in which increased leisure time would enhance the quality of life for all.  Why has that time not arrived?

I believe that if Adam Smith were alive today he would have joined Allin and Hand in authoring The Wellbeing of Nations, or would have written his own complementary volume.  The starting point for this  volume is that Gross Domestic Product (GDP), although important, should not be the primary metric for economies.  Previous healthy memory blog posts had described the metric of Gross National Happiness (GNH).  Although this is a promising start, the problem is quite complicated.  It requires a variety of disciplines such as the social sciences and statistics that had either not yet developed or were still in the early stages of development when Adam Smith lived.

Although I am praising this work, I am not recommending that you read it.  It is technical and complicated.  For most of us understanding that this is a problem that needs to be addressed and is being addressed is enough.  However, if you are interested in the topic and are willing to expend the effort, this is an excellent text that cites many references and resources.

I do not mean to imply that a the solution to this problem will be easy.  One must always be aware of the dangers of unintended consequences.  When a psychologist who won a Nobel Prize in Economics, Daniel Kahneman, was asked about the speed of research and progress in this area, his advice was that it be slow and reversible.  That is, provisions should be made so that any mistakes could be easily reversed.
As the immediately preceding blog post, the Automation of Journalism suggested, many skilled jobs might disappear.  Now the disappearance of jobs could be good, if they resulted in increased leisure time where people could enjoy themselves and pursue their interests.  However, if significant proportions of the population become alienated, there will be trouble indeed.  As was mentioned at the outset, capitalism is in need of fine tuning.

© Douglas Griffith and healthymemory.wordpress.com, 2015. Unauthorized use and/or duplication of this material without express and written permission from this blog’s author and/or owner is strictly prohibited. Excerpts and links may be used, provided that full and clear credit is given to Douglas Griffith and healthymemory.wordpress.com with appropriate and specific direction to the original content.