Sugar, Central America, CAFTA and Economics

I am writing “Scheider’s Simplifed Rules for Economics”. The product would be similar to my “Rules for Life”, or my “Rules for Managers”, or even “Rules for Politicians”.

This economics stuff fascinates me, and I am sure that there is a way to simplify the mess and make it comprehensible – but it is taking longer than I want. And my document keeps growing!

Our local paper recently had a nice short piece on sugar subsidies. Instead of a total overview of economics – why not a story at a time? No one is going to read a long thing on “economics” anyway.  This piece in the Wisconsin State Journal is very well done, nice and short, and makes all the key points. SugarSubsidy yields a bitter harvest  I just want to add a bit of framing to it.

When CAFTA was originally proposed, the ONLY benefit that economists in Central America could identify for that region was about 140 added jobs in the sugar industry. Sugar is one of the things that Central America can produce more cheaply than the US. After CAFTA was passed, the sugar industry lobbied our fearless elected leaders to provide them a subsidy. End of the benefit for Central America.

The American farmer can produce rice and corn and beans more cheaply than anyone can in Central America, ship them there, and still sell them for less than the local producers. But sugar – not so.

The way trade works is that when someone can do it better or more cheaply than you can – you should buy it from them. That increases our wealth – all of our wealth. Of course, there may be some people doing this for a living – and this causes a modest disruption in their lives. But for the good of the whole, and to grow wealth for all of us, you should focus those people on doing something else. Help them grow corn, or figure out how to get energy from wind. Subsidizing something that can be done more cheaply elsewhere is called “destroying” wealth.

Any time we restrict trade like this, we all pay for it – all of us – including the people in Central America, or Africa, or elsewhere on the planet. Most directly, of course, you and I in this country are paying a lot more for sugar - $3.5 Billion per year. I would have preferred to have put that money into research into better anything that would help grow the economy and facilitate wealth creation – not wealth destruction. We would have gotten more miles out of subsiding college educations for all of the displaced workers and their kids! And it would also have rewarded those Central American farmers for their productivity.

Do you see how this works? Yes, it costs us something in jobs, yes we need to adapt to that – but NOT doing that would put us back to subsidizing pin manufacturers, or buggy whip makers, or cotton spinning. With that approach, we would all still be farming, just as 97% of us did when this country was founded. Now we can feed the world with 0.7% of us actually farming. With that approach, all of your clothing and fancy gadgets would also cost you a small fortune, because virtually all of them are made elsewhere – increasing OUR wealth. ALL of us.

We are, after all, all in this together. Thank you, Red Green.
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N.B. As my good friend Pat Patten pointed out to me after this was posted, we cannot actually feed the world - we cannot even actually feed ourselves - but you get the point. The American farmer is amazingly productive - which generates wealth for ALL of us.

Conscious Capitalism

I’ve been laboring along here in this blog with issues relating to economic development, and also touching on economics issues. Along the way, I have also been reading a lot about economics. It seems complicated enough – there are all these different schools, and all these economists who never seem to agree with each other. As Harry Truman famously said, I want a one armed economist. They keep saying, on the one hand, and then, on the other hand!  http://www.iwise.com/tFhbr

But as you read more broadly, it becomes clear that there really are some simple things that make up our economic system. I keep thinking it should be possible to reduce this “economics of capitalism” to a few simple concepts that we could teach in grade school, that would help overcome the erroneous ideas most of us are walking around with, which lead to lousy decisions. The lousy decisions happen on a personal level, and most importantly, on the global and national level. Our fearless elected officials are not immune to the errors of the common man in this arena, any more than they are in any other arena. We have lots of lousy economics preconceptions driving national policy all the time.

Along the way, I have found some excellent books and authors that have greatly simplified the ideas of economics for me. The history is almost fun to read in the right light. It is amazing how we got to where we are. And the principles that underlie our economic world do appear to be amenable to human understanding. I’m working on my own “10 rules of economics” – but the publication of that will have to wait a bit.

But I just stumbled on an interview with the CEO of Whole Foods – John Mackay. The company always impressed me, but his ideas are even more impressive. You can watch the video here, and there is also a transcript:
   http://bigthink.com/videos/four-principles-for-successful-conscious-capitalism

What follows is an attempt to reduce his words to an outline format. It helps me to understand it better, and it might also help you. If nothing else, it might persuade you to listen to the talk.

Principles of Conscious Capitalism

He asks us to become aware (conscious) of the principles that support the Capitalistic system. It is not a “free market free for all”, where anything goes, and the strong prevail while the weak perish. Without some basic principles, supported by laws and custom, we have no capitalistic system. You can see the effect in countries that do not support one or more of these principles. Their economies tend to suffer compared to others.

1 The Right to Own Property. Our system is built on this basic principle. People can own property, they can own wealth. It is one of the prime motivators of our system for creating wealth.
2.      The Right to Trade. We must be able to exchange property, or labor, for other property. We enhance wealth by means of trade. The more we can trade, the greater wealth we can create overall. Restrictions on trade restrict our wealth creation. There are short term problems with free trade, and we often resist it because of that. For example, we enact laws which restrict trade in order to try to preserve jobs. But that is really short sided and self defeating. He is right there, but he would need to explain that a bit more to get general acceptance.
3.      The Rule of Law. Just and predictable laws are a basic requirement for any society, but they are especially important in the capitalistic world. They support the basic process of wealth creation.

Personally, I would add my favorite mantra to these basic principles, but he includes it in the next section: “We are all in this together”.

Principles of a Conscious Business

Given the basics of a stable economic system, the next thing is to understand or be conscious of is how a business really works.

1. 1.      A Business Has a Transcendent Purpose. I like the way he does this. No human lives just to eat or breathe. We do need to eat and breathe – but that is not what life is about. Just so, a business does not exist just to make money, or to maximize profits. That is not a HUMAN goal. If making money is the whole deal, then we have a real problem. The purpose of a doctor, or lawyer, or teacher, is not to make money. The profession has a purpose, a goal in society to fulfill. Just so, any business has to fulfill a role in its society. And of course, it has to make money, or at least break even. But that is NOT its PURPOSE! 
2. 2.      A Business Has Many Interdependent Stakeholders. These are its customers, employees, investors, communities, suppliers, etc. There are other, more remote stakeholders as well – unions, government, the world economy, the environment, etc. And they are all interdependent. Focusing on just one of them is not enough. The win / win business model is to seek to maximize the benefits to ALL stakeholders. This is my "we are all in this together". When one of us benefits, the others do as well. When one is hurting, the rest of us pay the price as well. Some are more remote, some nearer - but we are all interconnected in this economic reality. 
3. 3.      A Business Has Servant Leadership. The leaders of an organization are not there to maximize their own personal gain – but the return of all of the stakeholders. They are there to serve the enterprise, not themselves. That is what higher purpose is about. That is what enables a complex, interdependent society to thrive.
4. 4.      A Business Must Create a Culture that supports these principles. All of this does not happen by itself, or by accident. This conscious culture provides the background and the structures that support the higher business purpose.
   

And what do you think?

Poverty, Development and the Future - Garment Industry

Planet Money on Cotton and T-Shirts

OK, I give up. I know that what I write here will have minimal effect on poverty and development opportunities around the world. But sometimes, I come across things that I simply MUST share. This is one. NPR's Planet Money just published a series of videos and articles on how T-shirts are made. It is simply amazing.  You HAVE to watch it, and read the notes.

13 workers in a single cotton farm in the US, generate enough cotton to make 9.4 million T-shirts. That is an amazing story of US productivity. But it is much more than that as we learn where that cotton goes. Watch the videos, but also read the details, please.  Follow the 5 links to see the whole Planet Money story.
 http://apps.npr.org/tshirt/#/title

Planet Money funded this research by selling the T-Shirts! Push the "Begin" button and watch the video. Then read the bit below the video - it has some amazing information. Then - go to the next one. The series follows the cotton from the farm, through all the steps making it into yarn and then t-shirts. There is good and bad - but all thought provoking.

Watch it, read it, and then come back here, please.  Or read this and then go watch it - whatever works.

My thoughts:

The People Part of This is the Best
I hope you watched that part. If not, go back and check it out. You will recall that thousands of workers were killed not long ago when a garment factory in Bangladesh collapsed. And thousands of workers in Nicaragua travel many miles a day for this same kind of opportunity.

US Farming Productivity is Amazing
Not just cotton, but virtually everything. And much of it comes from mechanization and from genetically modified seeds. Virtually all cotton is GMO. And the quality is very high and very consistent.

US Manufacturing Needs Help
You may have noticed that all of the big cotton machines have either German or Japanese names. The tractors on the farm might have been US made - not sure. But not much else was.

Government Agricultural Subsidies Seem Crazy
And you will also note that the cotton industry is subsidized, just as is most of US agriculture. I have a very good friend who is a farmer. He is also amazingly productive. But I really doubt that this amazingly productive part of our economy needs government support to compete with the rest of the world. The rest of the world does it too - but that is no excuse. But  . . . that's another whole story. I would spend the money on research for new industries, new ideas, which see below.

It could be worse.
As noted in the piece, the US was about here in the early 1900s. The minimum wage helped solve some of the problems. We had lots of women working in terrible conditions for a meager living. Bangladesh factories are terrible - but they are better than no work, no added income. Columbia's are a clear step up. All of that used to be done here - until the cost of labor went up.

Race to the Bottom
I thought it was interesting that Jockey does not think that there is another part of the world that can make the garments any cheaper! And the current cost of the labor in a $12 shirt is only about $1. So they may be able to raise their wages and not lose the business. But . . . I would bet a dollar that parts of Africa will eventually get some of this. All they need is a bit more education, and a more stable political world. We can bemoan the low wages, but that is not likely to change until the poorest of the poor are making a living wage. That will change everything. We really are ALL in this together. Our consumer economy is constrained and helped by the poorest of the poor.

There is Hope
Watch the last segment. Look at the people who work in this world. We were there too - we can all do better.

Ultimately - NO labor, NO Wages.
As the cost of producing T-shirts does eventually go up - what is the next logical step? That garment factory is not the major cost of the T-shirt. But even so, the wage will eventually rise. The other parts are already highly automated: the cotton, the shipping, the cloth making. Those things are about as automated as they can get - albeit I am sure there will be more improvements. What would it take to build an intelligent gadget that could cut and sew and assemble T-shirts without a single human hand involved? I am quite sure that the technology is very doable at this very moment. It is just waiting for the cost of production to rise to the point that the shirts can be made completely by machines. Lots of T-shirts - but very few people able to buy them!

The Solution?
I don't have one.  But I do have some thoughts.

I think we have to get past the idea that the wealth which we generate can only be shared by those who invest their capital or labor to produce it. Eventually, our automation, our ingenuity, our productivity will reach the point where there will not be enough jobs to go around. We will still create the wealth, the products - but very few people will be able to buy them. We have to let go of the idea that participation in our wealth generating engine has to be based on employment. The wealth that our world creates really does belong to ALL of us - not just those fortunate enough to get the education, the job, or to live in a stable society where things actually work.

But we still want a competitive, capitalistic based economy. We still want the best and the brightest to to generate wealth, to solve the problems of health and disease, and to create new engineering, etc. As they continue to do this, we are all enriched - so let's keep motivating them.

BUT . . . let us also create the mechanisms needed to really SHARE that wealth. We need better education, we need arts, we need scientific research, we need people to be able to buy food and clothing and gadgets! A guaranteed minimum income seems to me to be the natural outcome. This year, Switzerland is voting on a measure to guarantee $2,800 / month to every citizen. They plan to pay for it by reducing government programs for the poor. Both progressive and conservative politicians support it, but for different reasons. Imagine that!
 http://hereandnow.wbur.org/2013/11/27/swiss-guaranteed-income

A minimum basic income has been supported over the years by both the left and the right. See here for a bit more history of the idea and current programs. http://www.basicincome.org/bien/index.html.

This is not a pipe dream - we will eventually realize it.

What do you think?

Culture – Economics – Development – Psychology – Sociology – Behavioral Economics

Culture – Economics – Development – Psychology – Sociology – Behavioral Economics

Introduction 
OK – if that doesn’t drive the Google search engine crazy, nothing will. If you have been following along here at all, you would know by now that I am fascinated by all of the topics above. A few years ago, I did a little piece on how the culture of a nation affects its economic development.
 http://carlscheider.blogspot.com/2011/01/culture-and-developing-nations.html

I continue to pursue this topic, because, much to my utter amazement, everyone does NOT agree with this thesis – that culture, or better, the way people think about the world, has any effect at all on their prospects for economic development.  The biggest problem is that people are generally using the word “culture” as a large, very inclusive concept including history, dance, food, language, etc.  When I am using it in terms of its impact on economic development, I am speaking of the “world view” that one carries around in one’s head as a part of one’s cultural heritage.  Simply by failing to make this distinction, folks get lost in this discussion. For clarity, for the future, when I am talking about “culture” and economic development, I will use the term “culture or world view”.

There are a multitude of examples where the failure to make this distinction utterly confuses the discussion.  I refer to this article by Amartya Sen from 2010.  He is a Nobel Prize winning economist, and he is describing the utter failure of this “grand” theory of development as influenced by culture.  Culture and Development by Amartya Sen:
http://info.worldbank.org/etools/docs/voddocs/354/688/sen_tokyo.pdf.

The Sen article is from 2000, so it may be a bit dated. Generally I like the way Dr. Sen thinks.  His book Development as Freedom is an excellent exposition of how a good social infrastructure supports development. In that book, he also explores in depth the real human benefits that come with economic freedom, far beyond our propensity to acquire more things. BUT it appears to me that he really fails to grasp the real power of culture. He tends to equate culture with the broader concept of dance, religion and history of a people – not to HOW people think. How we view life governs what we do in a very powerful way. That “how” is formed by our history and language and other cultural components, but it is itself the key thing. And it does not change easily. If we want to deal with people immersed in a cultural world view, we will be a lot more successful if we understand that world view and work within it. Trying to change theirs to ours is a recipe for failure. Most economists and sociologists and the like do not GET it. Most do not understand just how powerful the world view is. So I continue to pursue the idea and search for additional proof.

A similar “misconception” of the idea of culture and development is found in this larger summary of the literature:  http://www.unesco.or.kr/eng/front/programmes/links/6_CultureandDevelopment.pdf

Well, I have found a few more things that indicate to me that this is the right way to think about this stuff, thank you very much.  That is the purpose of this entry.

Research and the Convergence of Ideas via the Internet
This is a bit of a digression.  If you want to see the new research, just skip ahead.

This search for interesting things on culture and development is greatly facilitated these days thanks to some tools available on the Internet. One in particular has proven to be very useful – Zite. It’s an “APP”, available on iPhone and Android. You prime it a bit, and it goes off and finds information that it thinks will be of interest to you. You score the articles it finds – thumbs up or thumbs down. It notes that, stuffs it into its Bayesian probability engine, and next time, it presents things that are closer to your interests. It is a highly personalized daily magazine! It’s just like Pandora – the personalized radio station. You tell Pandora if you like a song or not, it notes the attributes of that song and adds it to your profile. It then searches for things with similar characteristics. It’s a big Bayesian probability engine. Google’s translation engine is the same. It was primed with as many translations as they could find, and it just runs the probabilities. It works pretty well.

When I was in graduate school and later in law school, ALL research was done the hard way. I went to libraries, explored printed magazines and books and indexes. If it was not printed on paper, I would never see it. In a few instances, I found a reference to an unpublished work – someone’s doctoral dissertation on a topic – and I could order a printed copy of that – at no small expense. But today, ALMOST everything is available on line. And there is this wonderful probability analysis available so I do not have to actually look at all this stuff. As I find things that are related to my interests, they conspire together to push more things at me.

I think this holds out great prospects for the advancement of human kind. In the past, some ONE person might know ONE important thing – but it was extremely hard to relate that thing to everything else we know. Now – it happens all the time.

A Google Opportunity
I am still amazed that Google has not jumped on this with both feet. The Google eReader service used to gather together all of the feeds to which I subscribe. (I use Feedly these days). But it did not let me score the articles which I choose to read. Zite does that, and goes beyond my subscriptions to find new sources. It frequently serves up something that was just published a few hours ago.

Books – limited availability
There is also the problem that a lot of really good information is in books – and they are NOT searchable. Authors have to make a living, so the books cannot simply be available for free. BUT, if the contents were searchable, we could find things we might be willing to buy. I know Google is working on that, but the publishers are still resisting. For the moment, I have to depend on reviews or summaries of books and unpublished papers. This has given me a whole library of books that I am going to read eventually. I am trying to return the favor by posting comments that point to books that I have read with enough detail that someone else can find the key ideas.

Sociology and Psychology and Economics and Geography – a journey
The problem with the scientific method is that it tends to divide and conquer, but it rarely integrates. To get a doctorate, you focus on one small area, and end up knowing more about that than anyone else on the planet. It’s like climbing this big mountain, and when you get to the top, you look up and realize that you are just at the top of a tiny foothill, and the whole of human knowledge is that mountain range ahead of you. When you do research, you focus on a small area so that you can really understand it well. But that has a tendency to myopia. It is hard to step back and see the big picture, and how your area of expertise relates to other fields.

For example, a number of years ago, I had the good fortune to stumble on a series of books which led me to On Human Nature by Edward O. Wilson. He is a biologist, famed for his studies of ants. His book is a work in Socio-Biology, a nice integration of the two. He uses his biological knowledge to identify traits in humans that he believes are rooted in our biology by evolution. Things like – we are hierarchical, social, we like strong leaders, we are black and white thinkers, etc. I found those things fascinating to help understand just how people operate.

Then I had the good fortune to travel to Africa, and meet some people who pushed me to read Guns, Germs and Steel by Jared Diamond. He is a geographer. The book explains how parts of the world developed differently based on the availability of small grains, animals that could be made beasts of burden, etc. The African experience also pushed me to research “culture” a bit more, and I stumbled on Cultures and Organizations, by Geert Hofstede – a sociologist. This led me to Harrison, Culture Matters, and other works. These people are sociologists for the most part, but they have discovered that the inner workings of human brains, or our culture or world view, influences the way our world of economics and politics works.  Did you ever wonder why Latin America’s experience with democracy is so different than that of the US or Western Europe?  And if you think the Arab states are going to be free market democracies any time soon, I have news for you.

More recently, I happened on Thinking, Fast and Slow by Daniel Kahneman, a psychologist! He won the Nobel Prize in Economics for explaining how people really make economic decisions! This has moved economics as a science from purely abstract theories, to an experimental approach that studies how people really do make decisions. It’s called behavioral economics. This goes hand in glove with a fine little book, Poor Economics which is really a sociological / behavioral economics look at poverty in developing nations!

Back to Psychology
If you are still following along here, I have found yet another integration (thank you Zite), from the field of psychology. This study makes it VERY clear that people raised in different cultures really do think very differently. The authors of this study do not draw any conclusions with respect to their economic systems or forms of government – but the implications are pretty clear to me.

This work summarizes many psychological experiments across different cultures – after the pattern of Kahneman’s book, Thinking, Fast and Slow. It concludes that our thinking and decision making varies widely across different cultures. You can find a summary article on the research here: http://www.psmag.com/magazines/pacific-standard-cover-story/joe-henrich-weird-ultimatum-game-shaking-up-psychology-economics-53135/ (Ethan Waters).

The entire study can be found here: http://www.psmag.com/magazines/pacific-standard-cover-story/joe-henrich-weird-ultimatum-game-shaking-up-psychology-economics-53135/. I do not recommend reading this – it is long and scientific, you know.  The summary cited above is a lot more readable.

The primary point of this paper is that while most psychological research is done with Western graduate students, it turns out that these subjects are “WEIRD” – Western Educated Industrialized Rich and Democratic. These attributes are fairly rare in the rest of the world. Most of human kind do not work this way at all, yet most psychological research tries to draw absolute rules about behavior from this small pool.

For myself, the key thing is that culture, or world view, changes the way people make decisions – decisions about what to buy, how to make a business deal, what is fair, ethical, etc.  I am not making this up.  People from different cultures have very different results.  If your language has a distinct future tense, you tend to save more. See this PDF paper:
  http://www.anderson.ucla.edu/faculty/keith.chen/papers/LanguageWorkingPaper.pdf

Your native tongue tends to influence a LOT of things about how you think about the world. A popular SF author, Ian M. Banks, envisioned a very advanced human culture into the distant future, called “The Culture”. One of the key things this society did was to create a completely new language. They consider any “evolved” language to be dangerous, fraught with emotions and irrational perspectives. I think he is on to something. For some detailed discussion of this, see: The Player of Games.

If you are raised in the US, you are more tolerant of risks than almost anyone else on the planet. You also think you are in charge of the planet, but that is a different problem.  We tend to think that our understanding of “fairness” is a universal truth.  But that is simply not the case.  Other peoples see fairness as a very different problem.  They are much more community oriented than our individualistic or competitive approach to the problem.

The authors provide some nice balance in terms of the “good and bad” about culture. Most people, including people in other cultures, assume that people from this “weird” culture have a positive advantage when it comes to economic and social development. It does appear that there are parts of this particular world view that are well adapted to democracy and market based economics. But there are other parts of this Western culture that are seriously deprived when compared to other cultures.

• "In their paper the trio pointed out cross-cultural studies that suggest that the “weird” Western mind is the most self-aggrandizing and egotistical on the planet: we are more likely to promote ourselves as individuals versus advancing as a group. WEIRD minds are also more analytic, possessing the tendency to telescope in on an object of interest rather than understanding that object in the context of what is around it. "
  "The WEIRD mind also appears to be unique in terms of how it comes to understand and interact with the natural world. Studies show that Western urban children grow up so closed off in man-made environments that their brains never form a deep or complex connection to the natural world." (Ethan Waters)

I love it –westerners are the ones with the “weird” way of looking at things.

Insights
This approach has some great insights, such as:

• "Henrich suggests that his research about fairness might first be applied to anyone working in international relations or development. People are not “plug and play,” as he puts it, and you cannot expect to drop a Western court system or form of government into another culture and expect it to work as it does back home. Those trying to use economic incentives to encourage sustainable land use will similarly need to understand local notions of fairness to have any chance of influencing behavior in predictable ways." (Ethan Waters)

I would certainly agree. Another great insight:

• "Markus and Kitayama suggested that different cultures foster strikingly different views of the self, particularly along one axis: some cultures regard the self as independent from others; others see the self as interdependent. The interdependent self—which is more the norm in East Asian countries, including Japan and China—connects itself with others in a social group and favors social harmony over self-expression. The independent self—which is most prominent in America—focuses on individual attributes and preferences and thinks of the self as existing apart from the group". (Ethan Waters)

Community Based Development
At this point, you are saying – “So What!”

These authors have used specific experiments that clearly document how people think differently. So it turns out I am not making this up, as Dave Berry would say! What is not clear is just how this impacts economics or politics. The key insight is that one cannot simply import your own culture’s system of incentives or checks and balances and expect it to work someplace else. The only viable approach is to work within the culture, with the people, and help them discover what it is that they can accomplish that will work for their world. That would be called community based development, I believe. For which, see this older post: http://carlscheider.blogspot.com/2011/12/community-based-development.html

Thanks for reading this far. I doubt many of you did, but  . . . that’s part of life and clearly my major problem. Too darned many words.
Take care. Now if I can just get Amartya Sehn to read this. I wonder if he has a Google search on his name like I do?

Inequality - AGAIN

Did you ever have one of those periods where everything seems to come together on one idea? I've been sitting here in the North Woods of Wisc., reading and perusing the Internet. I've come across some very interesting things about inequality in our society. You might also find them of interest. These are TED talks, but I have found that the YouTube version is a bit more consistent - and the commercials less annoying!

The Disparity Problem is BAD
This first talk, by a Canadian, Chrystia Freeland, explains how great the inequality is these days. The top 1% have bunches of stuff, mostly, it seems, at the expense of the bottom 10 to 20% and the rest of us in the middle class.  We are growing wealth and productivity - but that wealth is NOT being spread about. It is captured by the very top. She makes the point very well.

   http://youtu.be/d6NKdnZvdoo

She also talks about the risk of instability in our society if this is not addressed.

But We Can Fix it

She closes with some words about what we might do to correct this problem. Taxation, investment, etc. But the key thing she is looking for is a major social innovation.  We solved these problems once - after the industrial revolution - although it took us 100 years and the pits of the Great Depression. We need to do it again! Hopefully we will get to it before the wheels totally come off this time.

 

Disparity Correlates Negatively to Health and Wellbeing in the Society

The other talk is even more interesting. This fellow, Richard Wilkenson, uses data - statistics - to show that societies with large income disparities have worse health, higher murder rates, etc., Income inequality is divisive and corrosive. It threatens the stability of the society.

 http://youtu.be/cZ7LzE3u7Bw

Some surprises in there.

The speaker starts with the surprising fact that income inequality ACROSS nations by GNP does not correlate with any human health factors. But within a nation, income inequality correlates very closely with every measure of human health and social well being.  Even more surprising, it does not seem to matter HOW a society gets to a lower income disparity. Norway does it through taxation, and Japan in a totally different fashion. Both have the benefits of a healthier society in all categories. The speaker cites 200 different studies.

At the end of this talk, he makes the point that I have been wont to repeat - we are all in this together. In a society with great income disparity, the folks at the very top, the very richest, suffer as well. They are less healthy than the comparable level in a society with a lower level of disparity.

He makes a conjecture as to the causation - the stress of the society, the class structure, the lack of respect drives the health and behavior. I think he is on to something there. The frustration of the American Dream denied is a big problem in our world. We are healthier and better off where that disparity is not so obvious.

I know it's a lot of stuff. Let me know what you think.

Inequality is a Choice - Joseph Stiglitz

This is an interesting article by Joseph Stiglitz.

http://opinionator.blogs.nytimes.com/2013/10/13/inequality-is-a-choice/?ref=opinion&_r=0

If you are not familiar with the author, he is a world renowned economist –  Noble prize winner, and one of the founders of the approach called “behavioral economics”.
 https://en.wikipedia.org/wiki/Joseph_Stiglitz
My point, he is a wise and learned fellow among economists, and we would do well to pay attention to what he says.

I have been reading a bit in economics of late. If you have been following along here at all, you would know that I tend to think that economic disparity is the result of our cultural mindset – our world view. Dr. Stiglitz differs on that. In this little piece, he makes it clear that a large part of our economic disparity comes from the actions of our government. Given that our form of government is drawn from our cultural world view – that makes some sense. But  . . . the problem is that the once champion world view that dominates the US culture, seems to have led us to a situation where our government is now inhibiting wealth creation, and fostering rent seeking. Our sense of “individualism” has finally triumphed over our “commonality”, and we are heading down the path to increased poverty comparable to that of many developing nations.

I have despaired of changing world views, but there is no reason we can’t change our government. We have to get back to the sense of commonality, the common good. And let go of this protection of the richest and most powerful.

As he points out in this article, although income inequality had been falling around the globe and in the US, that trend has stopped and reversed. The US, in particular, is leading a new wave of greater and greater income inequality. In virtually all developed nations – there are a few exceptions – income inequality has grown enormously, with the top 10% benefiting immensely, and the bottom 10% become even worse off. Global poverty and US poverty is growing.

Some would argue that the trend is automatic. They would say it is the result of globalization and free movement of capital and services. But Stiglitz points out that it is the result of conscious choices of our government. In the US, it is the result of tax breaks for the rich, easing of regulations on the financial sector, and the lack of adequate investment in our education and health care infrastructure. This inequality is eroding our democratic system. It is the root cause of our “recession” – the lack of investment, and the lack of disposable income in our middle class. And the touted “austerity” programs are only making the problem worse.

American “rent seeking” has gone global. That is where those who can seek to benefit by manipulating the system, by getting a larger share, not by making the system work better, or the pie larger – truly growing wealth. Avoiding taxes is one modest example – as even the best and brightest do in major ways. Apple’s tax avoidance is legendary. While they benefit enormously from government programs which create the technology they use, they pay as little as possible in taxes, using all the tax avoidance schemes created by our fearless leaders.

The worst outcome is the poverty of our children. In the US, 1 in 4 children live in poverty. In Spain and Greece, it is 1 in 6. In Australia, Britain and Canada, 1 in 10. We are a disgrace among developed nations!

Bottom line – we have chosen this path, and the outcome will not be a place where any of us want to live – even those at the top. As Red Green says, we are all in this together. If we do not increase our investment in ourselves, the few rich at the top will have to find someplace else to live. They won’t like it here anymore than the rest of us.

Doing Good by Doing Business

This blog entry is pretty interesting, when we are talking about the developing world.
http://bigthink.com/design-for-good/should-businesses-make-money-from-poor-people

Don't let the title throw you off. It makes perfect sense to try to make money from and with the people of developing countries, instead of just giving them things.  The author cites a number of fine examples.

Make Money WITH People
If you think about it, any good business makes money WITH its customers, not at their expense. Selling something is not a one way street. The buyer clearly expects to gain some advantage from the purchase. It is also much more difficult to make money with people in developing countries, rather than to just GIVE them things. Most foundations and enterprises trying to be of assistance do not have the time and resources and talent to actually help people create a market or an economy.

For example, there is a local organization that assisted people in Haiti for years by drilling wells, and importing and installing the equipment needed to operate those wells. This article describes an alternative way to help people do their own wells, creating a whole industry that is self perpetuating, and benefits a lot more people. There is some appropriate technology involved, but the method of going about it is also creative.

Share The Wealth
When I visit Teustepe, Nicaragua, I am always struck by how much the people in this small town gain from just trading with each other. One person makes tortillas, another freezes popsicles, another bakes cakes, one runs a bakery, and another operates the grinding mill for corn. The town is really an agricultural center, and the real wealth created there comes from the produce of the area's farmers. But it is spread around by the industriousness and trade among the population. Our economic life is just like that. I spent years as a manager of information systems for a large insurance company. I told myself that insurance enabled commerce and home ownership, so it was a beneficial service. BUT - it did NOT actually generate wealth. The vast majority of us are just greasing the wheels of wealth creation - doctors, lawyers, teachers, retail, etc. The wealth creation comes from farming, mining, timber, energy production. Those are facilitated by manufacturing, transportation, clothing, distribution, etc. All of us used to farm, now less than 1% actually create that wealth, but we all benefit from it. We are all in this together.

In the article cited, the farmer is the basic wealth creator in the well situation. If the farmer can grow more crop more easily and more cheaply, then every one benefits. The people who manufacture the well mechanism, the ones who train people how to install it,and the ones who actually put them in the ground, are all benefitting from the increased product of the farmer. And the thing is pretty self perpetuating. They will be selling these until every small farmer on the planet has access to one. A similar argument can be built around fertilizer and mechanical aids to farming. Don't give them away - help people figure out how to make them and sell them more cheaply. Grow the market.

African Productivity and Potential - Higher than you thought

This post follows a bit on the other one about African infrastructure. A study of the existing businesses finds that African ones do MUCH better than other areas, BUT FOR the debilitating effects of the lack of infrastructure. The researchers indicate that African entrepreneurs would outperform others IF their infrastructure were similar.

Worth a read: African Entrepreneurs great but for.

"A revised roster shows that Africa leads in total factor productivity (the gold standard for firm-level performance in academic research), sales growth, labor productivity and labor productivity growth, among other variables. They also added adjustments for regional conditions like bribery, tenacity of regimes to stay in power, predilection for armed conflict, ethnic fractionalization, difficulty firing unsuitable workers and a sizeable "informal" business sector that doesn't report bottom lines."

Which clearly goes along with the idea that the lack of supportive infrastructure has a tremendous negative impact on development and freedom. People in Africa have to work even harder to get anywhere. With the resources of that continent, they should be a dominant force on the planet. Their problems? How about this list:

• Bribery at every step.
• Ethnic and religious factions fighting - often with weapons.
• Government control, trying to stay in power, remove threats.
• "Protective" but restrictive tariffs and labor laws.
• Courts and police that do not function.
• The lack of titled ownership of real property.
• No credit infrastructure.
• Poor transportation infrastructure.
• Poor communications infrastructure.

But, with all of that, the authors are hopeful. Cell phones are literally changing everything. That is why there are cell phones all over the Serengeti, even though there is no electrical service! A phone is extremely useful for business at every level, so the providers deliver service even with no local power source. And the ethnic differences may indeed be the source of greater creativity.

There is always hope. How do we help in that world? Or can we? At least we are not trying to change the way people think. That seems like a much more difficult process. Even so, the way they think, their "world view" can drive what is acceptable in terms of social change. I doubt that the Arab countries will actually embrace real democracy in any meaningful form any time soon. Hopefully the bulk of Africa is not stuck in that mold.

Why is this stuff so complicated?  People - what can you do with them? Heck, we can't get our government to do almost anything these days - good or bad. What's the likelihood we are going to come up with a better system?

Your thoughts?

The "Right" Kind of Development "Project" - Trash into Cash

If you have been following along here, I have been somewhat engaged in working with an "initiative" in Nicaragua to "help" a couple of communities there with their "development". Those words are in parenthesis because the "normal" meaning generally attached to them is sometimes less than helpful.

What I mean is, when people come from the First World to "help" in the developing world, they generally adopt a somewhat standard approach. The basic model, repeated thousands of times, is to bring resources like money and people from the developed country, and build, or make, or do something TO or FOR the residents in the other country. On occasion, people take another step and do things WITH the residents, which is a tad better. That is the normal mental model which we North Americans and Europeans typically carry around about "helping" the developing world.

And "development" normally means economic development. I would like to think that it can be any kind of development - cultural, artistic, education, wealth - all are included. And I think the ultimate development needed is really a world view change, which basically empowers all of human life and potential.

Not A Mission
People ask me all the time - is this a mission? "Mission" is problematic because it implies some religious motive or content. I generally travel under the auspices of my church, but we are not converting anyone. We are not trying to change anyone's religion, or even make it better. We really do not care if the people we are visiting with have any religion at all. I have found that they people in Nicaragua are, generally speaking, a lot more religious than I am.

Not a Project
So then they ask - what kind of "project" is it. Well - it is not really a project We are not building anything, teaching anything, serving anything, curing anything. The projects I have seen have generally been OK things - people build homes, they feed kids, they fix body parts - stuff like that. Good things to do - but they all come with a price. The price is that the recipients of this project learn a very profound lesson from these efforts. They learn that all good things - wealth and help and food and the like, seem to come from outside - from the North, from the rich people who are generous enough to share their stuff. They get some good things - a new building, some computers, etc. - but the people from the Noreth generally leave - after a short or long time - and things revert to normal.

My church actually used that model for a number of years. We did good things. We donated a roof for the local baseball stadium. We bought some cows so the kids could have more milk. We sent typewriters and helped set up a small commercial school to teach people to type, so they could apply for the few jobs that required this rare skill. Quite a few people benefited, but then that stopped, and the basic reality returned to normal. And the lesson was learned - good things come from outside, from those with "all the wealth."

Wealth As Limited
The "world view" underlying this approach is that "wealth" is somehow limited. We, the Northerners, have a lot, so we need to share it with those who do not have as much. We tend to think that way, and we have persuaded our friends in Nicaragua of the same world view. In fact, wealth of all kinds is something we create, and we can all create it, North, South, East and West. It comes from hard work, and creativity, and resources, supported by some basic infrastructure like courts and laws. The prevailing world view also generally thinks of "wealth" as being money or the equivalent. That is too limiting - important, but limiting.

Accompaniment Model
Our church has moved from that model to one of "accompaniment". We live with our friends, we love them, we spend time with them, we learn what their lives are like, and where they are going with things. We want to help them, but now we put the whole thing into much more of a partnership. What can WE do - all of us together? What do WE need? What can each of us contribute to this? Where are WE going?

Often enough, given the above paradigm, they ask us to build or do something for them. But we are both trying to learn another model. From the North, we have ideas and we want to encourage and teach and learn - all of the above. We are not the source of all wisdom, but we do have some experience and ideas, and we think we could help. But we do NOT want to be the ones running the show. We want to understand deeply that "we are all in this together", and it is up to all of us to contribute here. And we understand that they have ideas and resources and efforts, that we need to learn and understand.

As a good friend of mine pointed out to me, we are trying to adopt the Lao Tsu quote: "A leader is best when people barely know he exists, when his work is done, his aim fulfilled, they will say: we did it ourselves."  (http://www.brainyquote.com/quotes/authors/l/lao_tzu.html)

But How?
The problem is that it is somewhat difficult to get all the parts of this up and moving. It is much easier to send money, or to build a wall, set up a school - almost anything. We do not even have a good way to talk about this.

For example: this is not "empowerment". That word kind of implies that our friends in Nicaragua are dis-empowered, or unable to do things without help, or similar ideas. We know that is not true. They are very capable adults, who are living very successful personal lives, with a considerable amount of joy about their lives. Their income level may be 10% of ours, and they would clearly like it to improve it, but even that is not the ultimate goal.

And this is not a small loan program. We actually have funded a loan program, which they manage completely on their own. This is a good thing, and they own it and manage it well. It definitely helps, simply because the whole infrastructure of credit and loans does not exist in their world. Our sister community of 25,000 people does not have a single bank in town. They need to travel to the provincial capital to open a banking account. And they need to pay the bank for the privilege. If they want to make some capital investment, be it in a small business, or just to buy an appliance, they need to save the entire amount, in an economic situation that continually wants to drain all their resources. The small loan program works like an enforced savings account. They agree to pay it back, and with the support of their entire community, they do pay it back, so that the program can continue. This is a good thing to do - but it is definitely NOT an ultimate solution to the problem. They need a bank, they need a credit infrastructure so that they can get a loan at a reasonable rate in order to be able to create wealth themselves.

Wealth / Value is Something We Create
I am fundamentally persuaded that the key thing here is to persuade ourselves and our friends in Nicaragua, that wealth, or value is something we create. It is virtually unlimited. Sometimes we need an up front investment, or bright idea, or a push, or a lesson in how something works - but we can create wealth or value. I tend to say "wealth", which would push most of us to think "money" or "currency". But I really mean "value" or "benefit" - be it credit, joy, music, love, meaning, education - whatever gives a person fulfillment and joy in life.  We create that - it is not something limited.

Examples
Perhaps the best way to understand this is simply to find some good examples. A few years ago I did a bit of research on "projects" in Nicaragua. You can see that here:
   http://carlscheider.blogspot.com/2011/11/projects-and-sustainable-development.html
Those projects did produce real benefits, and sustainable ones the endured long after the initial investment was ended.

Trash to Wealth Example
There is another major example from India that I found very insightful. This was in the NY Times the other day, from a journalist who regularly contributes to a really fine blog they maintain on "fixing" things around the planet. And the article is full of details of the work required to make this work. Needless to say, it is not a quick fix.

The Times piece is here: http://opinionator.blogs.nytimes.com/2013/06/12/out-of-indias-trash-heaps-more-than-a-shred-of-dignity/?smid=fb-share. If this disappears, let me know and I can send you a copy of the article. The blog is here: http://opinionator.blogs.nytimes.com/category/fixes/. You can subscribe to it - use RSS and Feedly - it works slick.

The Problem - trash is valuable at some level.
The problem described in this article is one found around the world. There is a huge trash dump in Managua, Nicaragua - one of the largest in Central America. There are a lot of people who make their living by harvesting things from the dump that can be turned into cash in some way or other. It is a terrible job - dirty, dangerous, with very little real income. I have seen this dump and several others. And I have seen some attempts to ameliorate the problem in small ways - but nothing on a scale like the article cited.

For example, there is a small community of women in Tipitapa Nicaragua, who collect trash from the dump, and turn it into jewelry and fashion accessories. These are beautiful products, and I have purchased them for family and friends - but it feels like "make work". The products are nice and all - but they are from recycled trash, and the income level is not very good. AND - the dump is always there. Is there any other way to deal with this problem?

The Solution - organize the workers - make a deal with government.
The ultimate solution to this problem in India lay in organizing the workers themselves. It literally took years to get the workers to even attend meetings, and to think that they might be able to make a change. They ultimately formed a coop, and got a contract with the region's government. This coop contracted to handle ALL of the city's waste, at a considerable savings to the government, and to also recycle the more valuable parts of it as profit to the workers. Organic matter is composted, and non recyclable things are sent to the centralized incinerator. Interestingly enough, candy wrappers are considered non recyclable, while they are one of the primary components used for the jewelry in Tipitapa, cited above.

In this Indian town of 6 million people, the trash pickers are actually recycling 50% of the plastics, as compared to the standard recycling rate in the US which is 8%. The waste pickers cost the city 6 cents per household, whereas the truck hauled waste costs were 40 to 50 cents. They save the city 2 to 3 million dollars per year. Their capital costs are lower - push carts vs trucks and gasoline. Combining the household fees and the resale of the trash, the waste pickers' income has increased two to three times.

This effort required 14 years, and the organization of 6,000 workers. There are not many social help agencies with that kind of long term perspective and resources!

Sustainable
This is clearly a sustainable solution for the near term. The trash pickers are earning a livable income, and they provide a valuable service to the community. For the moment.

Concerns
There are, of course, some concerns about this downstream. This is a service contract with the city - and can be canceled at any time, given a change in the city government. That is part of the nature of a competitive economic world. There are some examples cited in the article where trash pickers have had contracts for decades in Peru. That is a hopeful sign.

Longer Term?
The other concern, not cited in the article, is that this is a low tech solution which is working just fine at the moment. It uses the abundant cheap labor, organizing it to solve a real problem. As the level of the local economy changes, and as local entrepreneurs come to understand the opportunity here, I would predict that someone will eventually figure out a way to do this faster, better, cheaper, by combining large trucks and the recycling / resale opportunity. In the town where I live, recycling is mandatory, and it is big business. It may take longer in developing worlds, where the credit required to create such an enterprise is not as available as cheap labor. But that is likely a decade or more away.

Some might argue that it would be good government policy to restrict competition here to maintain opportunities for "entry level" work opportunities. I think that would be akin to trying to maintain the family farm in the face of the enormous productivity gains of agribusiness in the U.S. I know many people would argue in favor of that, but it is an expensive governmental policy that has little return in fact. It may feel good that we are maintaining the healthy family farms where people run their own lives, but that is an image of a time long past. We do not subsidize pin makers or button makers any more, although we did for a long time. Putting public resources, tax income, into maintaining a labor intensive mode of operation is ultimately pouring money down the drain. It does NOT create wealth - it destroys it. Economics 101.

Conclusion
I am excited by the prospect of an organized effort to raise the standard of living of trash pickers and similar folk. It is clearly limited to the world of developing economies. It also requires an enormous amount of effort, and the full participation of the local government entity - not an easy feat in any economy, but doubly perilous in one that has much more frequent problems of influence and corruption.

Ultimately, all labor intensive work will likely become noncompetitive - but that will take a few more decades in the best of worlds. This solution is fine for the moment. However, I cannot imagine many social help organizations with the will to undertake a 14 year effort of this nature.

Your thoughts?

Development in Africa - and infrastructure / "culture"

If you have been reading here at all, you should know that I am persuaded that the large difference between developed and developing nations lies at least part in the "cultural" or "world view" differences.

BUT - it is clearly a complex problem. In an article about Africa, the author is very clear that the legal infrastructure of land ownership is a major problem for African development. This is certainly for agriculture - which is pretty much the basis for any solid level of developed society.

You can find the article here:  Maximizing Africa's Agriculture.  Part of the problem is that most of Africa's farmers are women, and women cannot legally hold title to land in many societies. Another part is that only a 10 percent of African land is actually titled or registered in such a way that one can even claim ownership.

In one instance I am aware of, the government of Tanzania dedicated a part of the Serengeti, the historic home of the Maasai tribe, to an Arab hunting ground. Of course, some money changed hands in the course of this. The Maasai are barely farmers, but the little farming they do is severely restricted by the government, so as not to interfere with tourism and the like.

So, besides a favorable world view, it is also essential to development that the social infrastructure be consistent and supportive. As Amartya Sen has clearly shown, humans will prosper, provided we have some basic "freedoms" - a stable, supportive government infrastructure is one of them. And that depends largely on a world view that finds such an infrastructure important to create and maintain. Where the world view is top down - the top is in charge and the rest of us depend on it - that infrastructure is unlikely. Corruption, failure of the legal system, no land ownership system, all work against our innate ability to prosper.

Prior to the invention of agriculture, land was NOT owned by anyone. You used it, you moved on, no one complained. With agriculture, it became important to own that piece of dirt that you used to maintain your livelihood. And MOST of us were farmers - we fed ourselves and sold a bit for other things we could not make. We also settled down, and needed a place to call home. Now, in the U.S., less than one per cent of us actually farm. Yet our amazing agriculture productivity is one of the major sources of our wealth and prosperity.

And, once again, given that we know this, how the heck do we change it? My biggest fear is that the "world view" that underlies the amazing creativity and productivity of the U.S. is gradually being worn down by our individualistic, selfish approach to sharing the wealth. We are so divided now that we cannot do the simplest thing in our infrastructure to foster growth and freedom in our society.

One of the most recent efforts at a bi-partisan law was to restrict the ability of NSA to spy on all of us. Now, who would not support that?  Well, a bipartisan group supports it, and another opposes it. The opposition includes the Speaker of the House and the President. With those two agin it, it ain't going anywhere - ever. We are giving up freedoms for security - the same thing happened during the civil war and the World War II. But those wars ended and we got back to normal. The current war is never going to end.

Canadians do better. Scandinavians do better. Baah.

Your thoughts?

How To Fix the Economy - Share the Wealth

I've been reading about economics a bit - the history, the various schools of thought, etc.  One thing is clear - it is pretty complicated.  AND - it is hardly a science.  I see the beginnings of something like a science - ideas tested with actual experiments.  But right now, it is mostly a war of words and opinions - a lot like religion!  People get religious about their economic solutions, and there is no way to have a rational discussion about it all.

I happened to read two articles about minimum wage which gave me the classic juxtaposition between opposing views.  The first one is by Henry Blodgett, and you can find it here:
http://www.businessinsider.com/how-to-fix-the-economy-in-one-simple-chart-2012-8
Mr. Blodgett is a former investment analyst.  He is more a journalist than an economist, but he writes fairly knowledgeably about economics and investments.

Share the Wealth to Generate Consumers
His idea is pretty simple.  Our economy is primarily a consumer one - that means people buy things they really do not need.  And they don't do that if they don't feel they have adequate wealth.  Of late, the real incomes of the middle class and lower have been declining.  But the wealth retained by corporations is growing rapidly.  Companies are making money, storing up profits, and the workers are not.  He sees the problem with a simple solution - with a lot of charts to back him up.  Corporations should pay more, and have less profit.  He says Henry Ford understood that.  He paid this workers enough that they could buy one of the cars they were making.  He did not have to do that - there was not much competition for that work force - but he did.  It was his investment in the rest of us.  He made a bit less profit on each car, but the economy boomed.

The problem here is, how does this come to pass?  He closes the article  on a wish and a prayer, as it were, with a call for companies to pay more.  But there are powerful incentives in our system for a company to make as much profit as possible - and no incentive to pay their employees a living wage.  It is like the environment.  How do we get one paper mill on the Charles River to stop polluting, if that is going to cost that firm more money?  The others will compete on price and drive them out of business.  The only way to do that is to mandate environmental protections, so that they all have an equal requirement.

How does one encourage employers to pay a living wage?  Raise the minimum wage laws?  Establish some legal guideline for the worth of positions based on their complexity or training, or productivity?  It sounds like a good idea, but tough to make it happen!  We have tremendous wealth in this country.  Companies like Apple are sitting on hordes of cash - not investing it because of uncertainties.  How do we encourage them to invest in the rest of us?  Apple doesn't need to encourage more buyers - they can sell all the gadgets they make at huge markups.

Minimum Wage a Bad Idea?
On the other side of this, I also read an article by the Mises Institute on how ridiculous it is to think that we can mandate a minimum wage, or adjust wages in any other way than by the free market.  The article is here: http://mises.org/daily/6121/The-Effect-of-WageRate-Interventions.

They publish a kind of ongoing course in the Austrian School of Economics.  If you are not familiar with this school of economics, they are pretty much absolute libertarians.  Let the market do its work, with the minimum possible human intervention.  Ron Paul is a proponent of this school, and most Republicans give it some form of lip service. It is as though God created the free market and we should not meddle with it.

This article argues that it is impossible to legislate wage rates.  The market determines wage rates - what people are willing to pay for a good or service, and what wages people are willing to work to obtain.  If you get into this mode of thinking, it is pretty seductive.  People will eventually figure out what something is worth.  If we intervene with legislation we just mess up the efficient working of the market.

There are a few problems with that approach.  There never has been a free market.  We have managed and regulated markets since the King established the East Indian Trading Company to get some income from all of that trade.  And trade groups and industries have been "fixing" prices and wages for centuries.  That is why we have things called "anti-trust" laws and labor laws.  They have been somewhat neglected in the recent decades, but they clearly had a salutary effect on the market.

Libertarians seem to think that we are all in this together in a communitarian kind of way, and the best outcome will automatically occur if each person selfishly pursues their own personal good.  But that really doesn't work!  Those folks have lived in these northern climes way too long.  In most of the world, everyone is out to get some of yours, not to help you.  Northern climates have a bit more of a common goal focus - but it is not universal by any means.

Make the Market Rational
Humans are intelligent. We are not blind adherents to any law of economics.  We do not need to descend to the lowest common denominator.  We can exercise intelligent control over some portions of our competition for goods and services. We have eliminated child labor and slavery for the most part, which were extremely efficient market mechanisms for producing goods at low cost.  We should also establish a livable minimum wage. We will all pay for it, just as we are all paying for the lack of those cheap child laborers. But the price is worth it. If someone is working a 40 hour week, they should make enough to live on - period.

Jobs Disappearing
As our levels of automation increase, it is also highly likely that the actual number of jobs will eventually decline. When all garment manufacturing is being done by that completely automated factory next to the cotton field, what becomes of those entry level jobs? We still generate the wealth, but how do we share it with the general populace so that they can actually BUY the things they produce?

We could, of course, shift gears entirely and tax ourselves to pay people to do really USEFUL things for us - not just to create gadgets and trinkets. That sounds like a wonderful idea - and the Scandinavians might be able to pull if off. They do seem to think that we are all in this together - thank you Red Green.

Face to Face Democracy

This is an old document (1996) that has been on my web site for some time. BUT - I am dismantling the website - so I thought I would post it here for posterity, or some such. We invented this thing called democracy - and it sucks, to put it mildly. It's time we fixed it.

The Current State of Affairs
The current form of government utilized in these United States and most parts of the world is a model drawn on the landed aristocracy of the early American Colonies, and the British experience with landed gentry.  Ladies and gentlemen, times have changed.

The current system has some serious drawbacks.  To enumerate a few:

1. Elected officials, pejoratively labeled as politicians, spend an inordinate amount of time and money and energy trying to get elected and stay elected, so that they can accomplish something.  Running for a congressional seat every two years is tremendously distracting from the job at hand.

2. The popular vote is popular, but it is not very well informed.  Most people have very little time and energy for government and politics.  The net is some horrendous results of popular elections.  In my own town, we had a candidate come within 16 votes of a city council seat, although she had moved out of the city and ceased being a legal candidate several months before the election.  She was on the ballot, and she had an obviously female name in a crowd of male candidates.  No one with any idea of the issues and candidates would possibly have voted for her -- yet half of the electorate did. People vote at the polls based on names -- a scary idea at best.
Another candidate at the state level won her party's primary for attorney general, although she was not an attorney and completely unqualified for the position.  Her own party disowned her candidacy.  At the state level, she garnered over 30% of the vote based on a female, Scandinavian sounding name!

3. We have had elected officials in major state offices, that were not well mentally.  They sounded OK for a few minutes of door to door conversation, but any prolonged discussion with them always went off into never / never land.  Anyone that met them, or read any serious commentary about them would have known in five minutes that you could barely trust them to find their way home, let alone run state government.

4. Sound bytes and simple slogans are what sell.  We have not had a simple issue in government since the revolution.  When I was running for local office, people would regularly want a 30 second description of my position on a controversial topic -- they were never happy when I said it was not quite that simple!  This is not the way to get elected.

5. Our major parties are at war -- not at government.  In order to get elected, they characterize each other as the enemy, the forces of evil, the beast to be defeated.  In fact, often enough they both have decent ideas, which they should talk about and negotiate over.  If they felt free to negotiate, to spend time to come up with a creative alternative that would solve our problems, we would be much better served.  In place of creative thinking, we have warfare. They can't even talk to each other lest it be seen as caving in.  They can't express understanding and concern for the other view, lest they be seen as wishy-washy, waffling, not strong. In our state government, they do not even SIT next to each other!  Give me a break.

This is nonsense.  We aren't asking them to arm wrestle over issues -- we're asking them to come up with some very creative answers to some very difficult questions.  Today it is winner take all, and kill the loser.  We all need to live here together, and we will never all agree.  Let's move to something that's closer to similar instead of drawing everything as black and white.

6. Voters are NOT rational. The book, Thinking Fast and Slow describes an experiment, where subjects are shown pictures of the candidates for actual political offices, and asked to name the winner. They are 70% accurate just by looking at the picture. What wins? A square jaw and confident smile. Pardon me, but this is NUTS!

We can probably list another 20 things broken with the system -- how on earth does one fix it?

What Can We Do?
First of all, there's no natural law of democracy.  We made this up, it's trial and error. We should try to improve it, not just put up with it.  We, the people, are in charge of this system.  Let's 'fess up that it is broken, and let's fix it.

While it is essential to democracy that the electorate know and feel that they have a say in their government, this participation does not have to be structured as it is now.  Today most officials are directly elected by popular vote.  We have abandoned this model for many of our courts, and for most of our professional government service staff.  We recognize that we simply could not survive if those people were amateurs and subject to change every 2 years.

Why not move to an indirect democracy?  We could lay down some simple principles, and try a number of pilots at city, county and state legislative levels and find a practical mix that works.  Here are a few basics to my mind:

Executive Officers Directly Elected - NOT!
I originally thought we could continue to elect the chief executive officer directly, as in the president, governor, and mayor. But in light of our recent history and the current occupant of the oval office, that does not look like a great idea. The same problems as cited above can easily give us a dundering idiot for our fearless leader. We need some other way to encourage a true leader to step forward and be recognized. The Prime Minister, Parliamentary model has some potential. The idea of electing electors - the original US model for naming the President - looks to be as good as any. At a minimum, we get one more level where an independent decision by a thoughtful group might result.

The other alternative would be to make it much easier to remove a leader, given a majority of elected officials agree. Our current impeachment process at the federal level is less than clear.

Given most of our government structures, it's not too dangerous if we get a marginal person in here on occasion.  The legislative branch can remove them, and they generally need cooperation from the legislative to make any significant change.  But the leadership role is significant.  They are our royalty, our rallying point, our spokesperson.

I'd like to remove the partisan politics from this over time, but I don't see a good way to do that now. If we fix the legislative one, perhaps this will follow.

Legislative elected through Electoral Panels
For the legislative branch, adopt the following principles:

1. Maintain the basic structure of city council, county board, state legislature, U.S. Congress.  I don't have an opinion about bicameral or not -- I tend to think it is a waste of time and energy at the state level, but it offers some safeguards at the national level.

2. Establish intermediary bodies from the local neighborhood up to the congressional district whose sole purpose is to discuss, advise, and elect the people at the next level up. Make the groups such that people only vote for someone that they actually know. This implies that the electoral body for any given person has to be fairly small. I think 30 would work -- I'm sure 500 would not. They should be able to regularly get together in a room and discuss things. I would like to see the elected official able to poll this group on their opinion, and argue and discuss differences with them. This also implies that the elected person from any electoral body has to originally be from that body. I say originally, because we need to keep them insulated from lower layers -- see below.

We would have neighborhood precincts (a bit smaller than today, I think, but perhaps not), that would each elect one candidate for the next level electorate.  Depending on the size of the city, these people would elect the council, or they would elect another body one level up in large cities.  This might be a few levels in really large cities, but that's their problem.  Most of us know our mayor on sight and can talk to that person if we want to.  Let them divide the cities up if they're unworkable.  In fact, at a small group size of 100, and a city of 1 million would have 10,000 primary groups or neighborhoods that would elect 100 "electors".  For a city of 6 million, they would end up with 600 electors, and that would call for another, intermediate electoral body.

At the county level, the same groups that elect the city legislators elect another electoral panel or panels that name the county representatives.  With primary groups sized at 100, up to 50 million voters can be represented by no more than 3 layers of "electors".  Counties and cities are the worst problems, given their variable size.

A third group of electoral panels names the state legislators.  A fourth group is responsible for the congressional district.  These districts tend to be a standard size, and may continue to cut across cities and counties.  This electoral panel is only one layer deep -- the neighborhoods and the electors, even for U.S. Congress.

It's possible for an elector to be named to more than one of these trees, but that may generate serious problems with participation at the next level up.  I'd start these off disallowing participation in more than one.  That would also allow up to 4 members of every group of 100 at the neighborhood level to serve on an electoral panel up one layer -- giving most people with an interest the ability to represent their neighborhood. In my experience, a normal precinct generates 25 active caucus participants in most election years!

3. When someone from an electoral panel is elected to go higher, they are replaced by a new election at their neighborhood.  They are no longer their neighborhood's representative, but the representative of the electoral panel that named them. You might think it would make sense to have them all participate at 2 levels. It would cut down on the need for formal communications. But some members are clearly going to be members at 2 or 3 levels, and they cannot function as members of that many groups.

4. Set normal terms at the 4 year level, staggered every year for different layers and the city, county, state, and U.S., so that only a quarter of an electoral panel could be replaced every year.  That would keep some continuity and guarantee some independence.

5. In place of term limits, authorize the electoral body for each person to be able to recall that person at any time by a formal recall vote of a very large majority of the group -- perhaps three fourths, naming a replacement from their membership.  This would keep each level responsible to their electoral body.

The actual elected legislator can only be recalled by the group that elected that person.

Potential Benefits
What might this accomplish?  A number of hopeful things:

Regular political discussions or town meetings should flourish.  Everyone would have an opportunity, probably once a month, to get together with the representative they elected to the panel or to the actual legislature to discuss issues, ideas, concerns.

Thoughtful decision-making is possible.  The legislators could actually talk with their electoral panel.  They might explore difficult issues, explain complex matters, ask for a show of hands or an e-mail vote from their constituents.  I would be disappointed if they simply acted on the basis of that vote -- I would prefer that they use their good judgment and act independently of the group.

No election campaigns.  If you regularly meet with 100 folks, or the 25 who show up, your major problem in getting elected at the grass roots level would be to generate interest in those who do not normally attend the meetings!  This would be good, not bad, and you should be able to bear an expense like that with minimal fund raising.

Political parties might remain.  They would still work for the executive branch, and they could rally people around ideas and movements -- but they would have no power to dictate candidates.

Elected officials might work together.  They no longer need to play to the masses -- just to the 100 people that they meet with monthly.  They might work with their "colleagues" to come up with truly creative ideas to resolve our differences, instead of waging war.

Copyright Carl Scheider, 2013, 2019 - changes to CEO election process.

Thinking, Fast and Slow - a book report

Some interesting ideas from Thinking, Fast and Slow by Daniel Kahneman.

I was visiting with some friends the other day, and because of the conversation, I felt morally obliged to introduce them to this book:  Thinking, Fast and Slow by Daniel Kahneman.  I would be negligent if I did not also point the few readers of this blog in the same direction.

This is a VERY interesting book. I learned more from it than any I have read of late.  I actually created a “cheat sheet” of the main ideas to help me remember them.  Let me give you a bit of an overview of the contents, to entice you to read it.  

Overview

The author of this book is a psychologist, who has been researching how we make decisions for decades. He won the Nobel Prize for economics for his explanation into how humans really make economic decisions. The basic insight is that we are barely rational. Most of our decisions are from our gut, our instinct. He calls that our “fast brain”. We react to things quickly, and instinctually, because evolution tuned us to do that as a survival mechanism. For really complex problems we do engage our “slow brain”, but it is a lot of work, we can’t do it when we are tired, or have been thinking a lot, or are hungry, etc.  The book is full of experiments that give great insight into how we actually make decisions.

Why is this a big deal?  Because most people are making economic and political decisions that affect ALL of us from their gut instinct, not from any rational argument or thinking. And the result is what you might expect – this is not a rational way to deal with our economic and political reality.

Here are a couple of short hand examples, just to entice you to read the whole book.

1.      Election prediction.  People were shown two pictures of candidates running for a political office, and asked which one won.  They guessed the winner correctly in 70% of the cases, by just looking at the pictures for a fraction of a second. The winners tend to have a strong chin and a confident smile.

2.      Libertarian Economics. The Austrian School of economics, or the Libertarians (think Mises, Ayn Rand and Ron Paul) are working on the premise that humans make rational, economic decisions. We should, therefore, let them make decisions that are free from other constraints as much as possible. It’s called the free market. In fact, most economists are working on the same premise. But humans are not really rational about their economic decisions. We are persuaded by fears, prejudices, recent history, misinformation and outright lies much more than by any rational argument. Any policy based on these abstract theoretical economic theories is doomed to failure.

3.      Investments. We have something called an illusion of understanding or expertise. If I know a lot about a topic, I am persuaded that I make good decisions in that realm. Facts will not persuade me otherwise. In the investment world, it becomes the “illusion of stock picking skill”. In fact, based on mountains of statistical evidence, everyone is absolutely wretched about identifying good investments, or predicting any future event, because our rational thinking is so clouded by this illusion.  Based on one chapter of this book, I dropped my “advisor” approach to managing my investments with a broker, saving myself several thousand dollars per year in fees. I adopted a low cost approach, and feel much more comfortable about my investment strategy. This is not really news to anyone – it is a purely random walk, a dart throw – you name it.

4.      Cognitive Ease.  If we have heard something before, even if we knew it was a lie or wrong at that time, we are much more predisposed to believe it the next time we hear it. I think our political candidates understand this one all too well.

That should be enough to entice you to read the book.  Trust me on this.  Remember, I’m pulling for you.  We’re all in this together.

Update:  2015.07.31
Just to entice you further, here's a nice summary of some of the key ideas in this book, complete with illustrations of the cartoon type - you might find it equally interesting.
https://blog.bufferapp.com/thinking-mistakes-8-common-mistakes-in-how-we-think-and-how-to-avoid-them

Language Savings Rates Thinking and Economic Development

Culture and Economics
If you have been reading along here, you realize that I am smitten by the idea that our culture, or better, how we think, has a lot to do with the economic differences among countries.  My best summary of this is back a few years - you can read it here: http://carlscheider.blogspot.com/2011/01/culture-and-developing-nations.html

I just had some additional insights along those lines which are very interesting.

Language Savings Rates
This is a TED talk by a Chinese researcher which correlates the language one speaks with savings rates. You can find it here.  http://blog.ted.com/2013/02/19/5-examples-of-how-the-languages-we-speak-can-affect-the-way-we-think/

You will find the TED talk there, as well as some additional information which this researcher has discovered - which is all quite amazing.

The speaker notes that in Chinese, he has to provide a lot more information just to identify his uncle. "The language requires that you denote the side the uncle is on, whether he’s related by marriage or birth and, if it’s your father’s brother, whether he’s older or younger."

 He also notes that in Chinese, there is no real "future" tense. With some global research, he discovered that languages with a future tense correlate with a higher savings rate!  He can actually compare comparable people in the same country who speak different languages - say Flemish and Dutch speakers in Belgium - and the language with the future tense has a higher savings rate.

The same effect is found in similar "future" things - like smoking, obesity, health choices, use of condoms, etc.

I had seen this effect once before in a story about a class in international relations.  The author Geert Hofstede mentions it in his book, Cultures and Organizations. In these sessions, almost everyone spoke both English and French. When the instructors conducted the class in English, the working groups quickly got into practical solutions. When they conducted it in French, the groups would talk forever, and rarely get to practical things. I find my own brain goes to a different place when I am speaking French, or another language.  Your native tongue will influence you, but it does not prevail when you are speaking a different one.  Interesting.

Causality
He notes that Spanish and Japanese tend to say things like, "The lamp was broken".  In English, people tend to say, "Joe broke the lamp". For the Spanish and Japanese speakers, they may not actually remember WHO broke it - that is not the significant thing.  Their criminal justice system also tends to focus on repairing the damage, rather than punishing the perpetrator - which is the focus of the English criminal justice system.

What to do with this
He holds out some hope that these "constraints" on people can be "overcome".  I am not quite sure how that works.  These are not 'good' or 'bad' things - they are simply things - traits of a culture or language.  They change very slowly.  I guess if you bring them to people's attention, then they can work harder to overcome them when they become a problem.  For example, here in MN we have a "victim's advocate" role for our court system, so we do not forget the need to make the victim whole.  I am not quite sure how you enforce saving rates or healthy behavior, but that would certainly be a fruitful area for research.  Daniel Kannehman advocates something similar for making decisions, since our "fast brain" tends to overwhelm our rational thinking.  We could teach these things in gradeschool, along with reading and math.  This is how humans think, at least in this culture and language.