What You Should Think About This Economic Crisis

October 7, 2008

“The Chinese use two brush strokes to write the word ‘crisis.’  One brush stroke stands for danger; the other for opportunity.  In a crisis — be aware of the danger, but recognize the opportunity.”

–John F. Kennedy

Frenzies of risky speculation on an increasingly popular Wall Street left much of the nation heavily invested in dishonest schemes. Woefully lax regulations on credit resulted in unsustainable debt loads for many American households and businesses.  Ecological insensitivity in the hunger for economic growth raised the specter of an environmental catastrophe likely to unfold. Years of jingoistic proclamations coming from Republicans in the White House overpowered alarms raised by economic realists.  All the while, the federal government engaged in unprecedented deficit spending.

In hindsight, it is not so surprising that The Great Depression followed from the situation in the United States almost eighty years ago.  With any sort of working sight at all, it should be obvious that so many striking parallels exist between then and now.  Though global warming is a wild card compared to the Dust Bowl; we still have the very same Wall Street, the very same Republican Party, and disturbingly similar problems with every level of debt. It would be nice to think that wise national leadership could spare us such a dark chapter in future history.  It would be foolish to deny that national leadership up to now has spared us none of the crucial precursor conditions.

In the early 20th century, automation displaced many forms of labor.  Even myriad skilled trades were rendered obsolete by refinements to industrial processes.  While making it more and more difficult for American workers to find opportunity, this trend made it relatively easy for wealthy American investors to turn small fortunes into great fortunes.  Karl Marx predicted rising economic tensions would bring about political revolutions in which ownership of the means of production would be broadly distributed among workers.  Instead, a peaceful transition of power paved the way for comparatively modest upheavals like Social Security and the Tennessee Valley Authority.

The situation today is different more in style than in substance.  Instead of growing pains caused by the rise of workplace automation, the 21st century U.S. faces challenges related to the rise of free trade.  Competition not only poses threats to high wages for many forms of productive endeavor in the United States, but American business operations are lured abroad by lax environmental standards, inhumane workplace safety standards, government hostility toward labor unions, etc.  As with the roaring 20s, the 80s and 90s saw mounting pressure on all layers of the economy except the top.  Replacing American workers, be it with foreigners or machines, has always tended to enrich those initially rich enough to bankroll the change.

Of course it is ultimately a good thing that handcrafting is no longer part of the process of manufacturing for many basic products.  I suspect, from a multigenerational perspective, abandoning protectionist trade policies will also tend to promote overall prosperity.  Yet even if one grants that global free trade is desirable (or merely inevitable,) there remains no sensible reason to ignore the suffering, losses, and inefficiencies that are side effects of the transition.

For all his failings, Karl Marx did a much better job articulating facts and predicting future events than any of his most prominent critics.  Legitimized by everything up to and including a string of Nobel Prizes, the Chicago School of economics offered the promise of a different path.  To greater or lesser degrees, their economic dignitaries advocated tax cuts, business deregulation, and trade liberalization based on the idea that enriching the already rich would cause opportunity to spill down on those Americans who are not heirs to a corporate fief.  These thinkers’ apparent intellectual heft gave credence to theories that justified all manner of irresponsible plutocratic policies.

In fairness, most of those Nobel Laureates did not endorse trickle-down economics in its entirety.  Most of them also understood Marxism as a legitimate and useful theoretical perspective.  Still, they and their students were all too willing to associate strong academic credentials with ideas and analysis that never deserved more respect than the ravings of bombastic partisan pundits.  This highly effective smoke screen provided cover for a wide range of downright destructive behaviors by investment professionals and corporate executives.  So long as people believed the cover story about “job creation,” what was actually happening could remain concealed.

The media was almost entirely unhelpful in this regard. What began as partisan propaganda festered into an almost universal tendency toward Pollyanna economics.  Every surge on Wall Street was a triumphant achievement of capitalism.  Every dip was a ballyhooed buying opportunity.  Ridiculous fantasies, like the idea that reducing already reasonable rates of taxation on large personal incomes would somehow actually increase the amount of revenue collected to fund the government, were almost never exposed to appropriate criticism.

Legitimate financial analysts became less popular than talking heads willing to characterize every situation as an economic boom sure to be followed by an even more wonderful economic boom.  The audience for honest informed voices dwindled dramatically.  Public officials also got into the act, spinning false narratives about the successes of voodoo economics even as some of its biggest failures were being repackaged and resold in transactions increasingly arcane yet entirely unhelpful.

This shuffling of paper concealed fundamental problems with our national economy.  It also facilitated the bloating of our financial sector into a true abomination.  There are many ways an economic parasite can draw a comfortable lifelong salary.  Yet no others offer such astronomical paydays.  Investment bankers took bonus after bonus after bonus for work product that lacked any identifiable connection to the creation of real value.  Even many local mortgage brokers enjoyed premium compensation for the decidedly unproductive act of encouraging aspiring homeowners to borrow far beyond their means of repayment.

Yet all is far from lost.  The very same know-nothings now producing news items that warn of a potential new depression jumped off the “everything is peachy” bandwagon no earlier than a year ago.  In fact, many came to recognize these dire straits only after a period of vocal uncertainty.  “Economics is for the experts,” was the cry of reporters and pundits ranging from the most astute to the most clueless.  Certainly the discipline has some legitimate technical depth, but the same could be said of diplomacy or warfare.  Should the media shrug and avoid deep coverage of those subjects as well?

If not, then there are some sources of hope to include in all that coverage.  Artificially low interest rates, underregulated capital markets, and an entrepreneur’s wet dream of a tax environment have conspired to prop up many unsound businesses.  In the years ahead, efficiency, productivity, and even employment should tend to rise as so many overdue reckonings occur.  Human and natural resources will be liberated from unhealthy situations.  The result would be a flood of real opportunities for newer and better businesses to emerge.

If public attention remains strong, fair and effective regulatory schemes could alleviate all manner of harms not only in the realm of financial services, but across the gamut of business practices.  While three agonizing years passed between the October 1929 stock market crash and Franklin Roosevelt’s first Presidential victory, George W. Bush’s successor will be selected within weeks of the current freefall in capital markets.  Also, the same modern information technology that contributed so much to the past decade of irresponsible speculation now offers swift command and control methods to institutional leaders working to mitigate the damage.

For the title of this piece, I simply referred to “this economic crisis” because it would be premature to put a name to the ongoing phenomenon.  Whether we are facing a full scale depression or at the bottom of a short-lived economic shock, it is sound advice for almost all Americans to suggest generating conventional income deserves more time and attention than generating income through the pursuit of capital gains. With any best case that stops short of fantasy or fluke, market investments are merely icing on the cake of wealth that was already conserved.

On the other hand, this very month may be the ideal time to embark on the pursuit of capital gains.  Claptrap about buying opportunities after every little dip of the past few years deters many investors from recognizing the real buying opportunities apparent today.  If a full economic depression awaits us, selections from the menu of mainstream investments are all unlikely to fair well.  However, if today’s supersensitive markets respond swiftly to new ideas and new leadership, investors getting started today will likely find themselves making gains right alongside those who have been building portfolios and/or home equity since Bill Clinton left the White House.

My personal opinion is that capital markets and home values will start trending soundly upward again at some point in 2009.  No honest analyst can claim certainty.  Yet the enormity of the corruption is already reflected by appropriately enormous losses.  Perhaps the best parting note I can offer on this subject is another tidbit of ancient wisdom — measure twice, cut once.


What You Should Think About Population Growth

November 21, 2007

“Nobody gets there anymore. It’s too crowded.”

–Yogi Berra

Relentless defense of unsubstantiated optimism is bad behavior that rarely seems to draw the sort of criticism it deserves. On the other hand, relentless defense of unsubstantiated pessimism is also bad behavior, if amply criticized. People who are at their best crusading to raise awareness of serious problems live in times when there is no shortage of serious problems being met with inadequate public response. That makes it all the stranger that some should choose instead to disengage from reality and spread doom and gloom for its own sake.

Fear of global overpopulation may be as old as the first suspicions that the world is round. Yet as a widespread preoccupation it seems to have emerged from the role bad math and worse pontification played in adding “Malthusian” to the vocabularies of educated people. The old argument was simple enough — population was expanding geometrically while food supply was not. Therefore, “humanity is doomed!!!!!”

The math was lousy because it presumed neither increased demand for food nor increased capacity for human intellect could bring about changes in the nature of agricultural growth. Yet that shoddy thinking amounts of a relatively minor blunder compared to the alarmist conclusions Thomas Malthus et al. reached. Even the best apologists for this sort of work still seem to begin with the assumption that a human being is some sort of despicable entity inclined far more toward destructive acts than creative acts.

Presumably these general misanthropes are not bereft of affection for friends and family. Yet somehow those good feelings fail to translate into a broader goodwill. Even if any other signs of affection should be lacking, clearly their own ideas generate great amounts of it. Somehow this fondness for the mental processes of one human fails to extend into a fondness for an entire species populated by people inclined to think as freely as social context will permit. This combination of intellectual vanity and contempt for “the masses” is evident even today.

Rather than the racism and classism of Victorian England, it seems to be fueled by a political divide. I have no objection to characterizing ignorant people as ignorant. To do so is more correct than to do otherwise. I even have little objection to characterizing ignorant people as stupid. Though crude and pejorative, that approach is not necessarily misleading. However, to suggest that people lacking a certain degree of ecological or political savvy are not fit to live is profoundly unethical as well as profoundly misleading.

Before elaborating on factual problems caused by this sort of discourse, it is only fair to dismantle the underlying fiction. Many different factors drive population growth. At this point in history, the data is fairly solid holding that birth rates actually tend to be low in societies where effective educational policy marginalizes religious interference in family planning while effective retirement security policy eliminates the perceived economic need to raise many children.

Insofar as it is a reality at all, it makes no sense to take a long view of overpopulation. In a span of one or two generations, political and economic reforms that have already occurred in many nations can create conditions where internal population growth is minimal or even negative. This would involve facilitating strong economic growth in presently underdeveloped regions of the world, but it is downright myopic to argue that such development must entail making ecological mistakes of the same type or magnitude other societies made in less-informed times.

Too often, discussion of our planet’s capacity to support human life rests on the assumption that the negative environmental impact of that life is a fixed value. Clearly this is not the case. Yet establishing this involves establishing to what extent environmental impact is acceptable. Clearly there is no reason to anticipate that the activities of a modern civilization could become ecologically neutral without substantial change. If we possess enough sanity to stand against voluntary human extinction, then by extension we ought also possess the means to support some sensible compromises.

Building an unbroken fence along the entire length of the U.S.-Mexico border would have a serious ecological impact. Animal migrations across that line would be impeded, opportunistic species (e.g. rats) could spread and displace wildlife as they benefit from the structure and support services required for its maintenance. Yet all in all, the damage would probably not exceed that caused by the construction and upkeep of the Interstate Highway System. For a tremendous amount of economic support, cultural exchange, security enhancement etc. it seems like the level of damage is acceptable. On the other hand. increasing profits for human traffickers and self-satisfaction among xenophobes hardly seems like justification to do so much damage.

To persuade others against supporting a border fence, the ecological argument is almost certain to be ineffective. People who might be concerned about wildlife destruction are less likely to act on that concern when they are still afflicted with false concerns about immigration (or false beliefs about the effectiveness of walls as international problem-solving tools.) By the same token, an apocalyptic approach to environmental advocacy will tend to fall on deaf ears. Rather than stirring up emotions with exaggerated tales of doom and gloom, much better compromises can be forged through focus on relevant realities.

I compare highways and border fences because ultimately leaving a better world to future generations requires a keen sense of selectivity in tolerance for environmental distress. Humanity without industry is simply not a reasonable option. “Zero footprint” industry, while an admirable ideal, remains an impractical pursuit. Yet having no regard for resource depletion, declining biodiversity, industrial emissions, et al. also manages to be unreasonable and impractical.

Those enamored with modern day Malthusian thinking would do well to recognize that the “soft approach” of moderating population through political and economic reforms is proven viable. Hardships such as plague or warfare historically do not so much resolve Malthusian “problems” as they turn back the clock briefly. In the absence of stable secure prosperity, fear of the future conspires with lack of education to make large families commonplace. In many nations where the social order reflects modern values, large families occur as the result of a rare personal choice. Reproductive restraint and the will to exercise it are not at all incompatible with widespread human happiness.

By engaging with that reality it then becomes easier to avoid a “ships passing in the night” phenomenon when dealing with resistance raised against sound environmental policies. Industrialists and their passionate cheerleaders cannot be expected to make compromises based on the kind of warped thinking that leads to a “humanity is doomed!!!!!” conclusion. While the worst of dollar-worshipers are themselves so far detached from reality that no compromises could be expected, most proponents of robust economic growth are not misguided in any absolute way. Avoiding hyperbole about what is at stake may inspire some to recognize real risks and show support for really sensible initiatives.

Promoting a particular sort of development in underdeveloped regions of the world is part of a sensible response, but so to is drawing lines between economic activity that is genuinely useful and economic activity that is useless or even counterproductive. Developing a polio vaccine put a serious dent in the sales of iron lungs, but is any society better off for greater levels of paralysis simply to support the iron lung industry? So many human needs could be fulfilled at present or even superior levels with alternate methods that consume fewer resources or generate less work. In the end we must ask ourselves, should we define our economy by what improves the quality of our lives, or should we define the quality of our lives by what improves our economy?

Resolving the tension between environmentalists and economic conservatives is not about building consensus for a better tomorrow — that consensus already exists. Building consensus about the definition of a better tomorrow is the real challenge here. A national effort to update metrics and modernize industrial practices could simultaneously serve the agenda of those consumed by desire for greater prosperity and accommodate the concerns of those fearful of ecological crises. Yet the first step in reaching this middle ground involves embracing reality. Those who dwell on neo-Malthusian scenarios retard themselves from the beginning just as surely as their counterparts locked into false narratives of ecological optimism.