Monday, November 25, 2013

Wisdom from Aristide's "Eyes of the Heart"

pg 36 of Jean-Bertrand Aristide, Eyes of the Heart: Seeking a Path for the Poor in the Age of Globalization. Common Courage Press, 2000.

Do not confuse democracy with the holding of elections every four or five years. Elections are the exam, testing the health of our system. Voter participation is the grade. But school is in session every day. Only the day-to-day participation of the people at all levels of governance can breath life into democracy and create the possibility for people to play a significant role in shaping the state and the society that they want.

Auntie Greed: maybe this is a nice point to emphasize about the November 24 referendum vote in Switzerland. The youth wing of the JUSO had proposed and won more than 100,000 signatures to a petition. That led to a referendum on a proposal that the top pay within any Swiss company be held to no more than 12 times the pay of the lowest wage earner in the same company. If the measure would have passed, then executive pay would have been lowered for those companies, and lowest wages in those companies would have been raised to allow the top executives to earn greater amounts.

The referendum failed with 35 yea vote to 65 no vote margin. Remember now, Aristide said the vote was merely the grade. The fact that Swiss citizens are engaged with the issues demonstrates the true power of their democracy. Salute to the Swiss and their attempts (there have been other ballot measures) to raise questions about inequality of pay scales.

My opinion is that such a ratio based policy on pay scales would not have worked. If the Swiss would have passed the measure and executed the letter of the resulting laws, then companies would have exited the country and conducted their business under more favorable laws. That is a crucial point I have been making about corporations and businesses. They are not citizens. They are not bound to any location or nation. They are only bound to profits and the good of their owners/stock holders. Switzerland would have lost out if the measure would have succeeded on the ballot.

Also, nothing would have prevented a company wanting inordinate pay for their top executives to end up subcontracting a great deal of their business. That would be a pretty simple model for a company to operate. A bank could contract each of its branch locations to some pseudo firms. The top earners of those sub-contractors could only receive the maximum pay of 12 times the lowest paid bank teller. But the true bank would get to set it's executive pay at some higher level because it would no longer employ those underpaid tellers.

What I hope the Swiss leaders and the rest of the world appreciates is that the democratic systems are working, and the voices of those who are hurt by the current level of inequality are being heard. As their voices join together under some common mantras, they will organize and find solutions that fit the needs of the many countries around the world.

All my best,
Auntie Greed

Friday, November 8, 2013

     The book "Eyes of the Heart" was published in the year 2000 with the controversial Jean-Bertrand Aristide as the author. He ends Chapter One: A Crisis in Faith in this way:

     "Behind this crisis of dollars there is a human crisis: among the poor, immeasurable human suffering; among the others, the powerful, the policy makers, a poverty of spirit which has made a religion of the market and its invisible hand. A crisis of imagination so profound that the only measure of value is profit, the only measure of human progress is economic growth.

     "We have not reached the consensus that to eat is a basic human right. this is an ethical crisis. This is a crisis of faith.

     "Global capitalism becomes a machine devouring our planet. The little finger, the men and women of the poorest 20%, are reduced to cogs in this machine, the bottom rung in global production, valued only as cheap labor, otherwise altogether disposable. The machine cannot and does not measure their suffering. The machine also does not measure the suffering of our planet. Every second an area the size of a soccer field is deforested. this fact alone should be mobilizing men and women to protect their most basic interest -- oxygen. But the machine overwhelms us. . . ."

     I agree with him and wish that I could make many of the same points in my arguments for an individual income cap.

     Behind the economic turbulence there are other factors, other measurements we should be addressing. (First we would have to notice them.) Too many of the scholars and pundits are concentrating on the financial economy as the priority and hoping that other issues render their own solutions once the prosperous times return. My concentration is on limiting greed. My highest expectation though is that we humans will then recall how much we value so many other aspects of humanity (community, arts, leisure, wellness, family, etc.) once the profits and the excessive wealth are capped.

     As Aristide points out, the worshipping of the excessively wealthy, the aspiring to have what they have, the competition for status (Veblen) among those wealthy, has wrenched the spirit out of so many well-to-do people that they are not noticing their roles in turning up the suffering on the poverty stricken. Not only do the poor own nothing, they also have no opportunities in their futures because the richest people are drawing more and more of the value and the finances and the wealth to themselves.

     Let us shake off this money worship by limiting the income of individuals. Once a person earns 10 million Euros in a year's time, have that person walk away from the table and give others chances to earn better incomes. Then we could move towards recognizing all those things that are more valuable than profits, more valuable than individual greed. And we can measure the happiness indices, we can live upon some more humane indices in addition to our economic growth.

     In his second paragraph, Aristide names a crisis in faith. A crisis in faith is when one does not believe in a proposal, is doubtful about some aspect of the future. Societies do not see food for all as a basic human right, comparable to the right we all have to free speech, or the right to practice our religions without persecution. We individuals may not have faith that there will be enough food for "my own family" if all people are promised food. That is a crisis of faith. My argument is then that the excessively wealthy and those who wish to emulate them, will grab up all they can (expressing their greed) to protect their own families (or their individual futures). They will take financial advantage over others to express that individual greed. If we can cap that greed, and if our economic systems can keep growing under the conditions of capped individual incomes, then we may grow in our faith, grow in our confidence that the world can feed all people, that all people can be provided for without threatening the futures of anyone who contributes. I hope more people can give consideration to these ideas and raise their faith.

     There is wide agreement on the points of his third paragraph. The laborers are thought to be disposable. Any workplace lay off is judged simply on the balance sheets and profit calculations -- hardly ever in humane ways. Meanwhile those unemployed are powerless against the machines of capitalism and of nation-wide politics. As the working poor watch the mistreatment of the unemployed, they are simply relieved that they were able to hold on a little longer. They too are powerless against the machine. And we do not value our natural resources, our held-in-common societal resources while our focus remains on the dollars, Euros, Yen, Reals, etc.

     I hope to clearly state my eleven points in such a way that the crisis in faith can be remedied, turned around.

Thursday, February 7, 2013

Capillary Action in micro-economics

Trickle Down Economic Stimulation can be declared dead. The “Capillary Action” on value creation and financial gain that occurs in every business eliminates any chance for economic stimulation in Trickle Down theories.

Trickle Down Economic Stimulation suggests that if tax breaks are given to established business owners, then their investments in the communities and business and in increasing payrolls will allow the value of those tax breaks to trickle down to the citizens who are at lower income levels of the economy, of the community and of the state. The problem is that established businesses are successful in drawing all that value back up into the owners’ controls (discretion, management). The citizens at lower income levels do not see appreciable increases in their well-being. My illustration begins with a stalk of celery.

You might recall Capillary Action from a second-grader’s science project. A cut stalk of celery is placed in a dish of colored water. Over time the color of the water and the water itself flows up hill into the celery and its leaves. (Yes, water is flowing up hill!!) This process is nicely explained at the webpage.

“Capillary action is important for moving water (and all of the things that are dissolved in it) around. It is defined as the movement of water within the spaces of a porous material due to the forces of adhesion, cohesion, and surface tension.

“Capillary action occurs because water is sticky, thanks to the forces of cohesion (water molecules like to stay close together) and adhesion (water molecules are attracted and stick to other substances). Adhesion of water to the walls of a vessel will cause an upward force on the liquid at the edges and result in a meniscus, which turns upward. The surface tension acts to hold the surface intact. Capillary action occurs when the adhesion to the walls is stronger than the cohesive forces between the liquid molecules. The height to which capillary action will take water in a uniform circular tube . . . is limited by surface tension and, of course, gravity.

“Plants and trees couldn't thrive without capillary action. Plants put down roots into the soil, which are capable of carrying water from the soil up into the plant. Water, which contains dissolved nutrients, gets inside the roots and starts climbing up the plant tissue. As water molecule #1 starts climbing, it pulls along water molecule #2, which, of course, is dragging water molecule #3, and so on.”

All businesses in our market economy do a similar thing with value creation (as the water) and financial gain (the color of money).

For instance, a fast food franchise owner invests in real estate, in a license from the national franchise chain, in the supplies, equipment and food, along with other tangibles. The owner builds a business (analogously a stalk of celery). Employees are then hired to take all these tangibles (inputs and capital) and to create value for the business. Labor creates value -- this is a widely understood principle of economics. So the minimum wage front-counter staff conduct the business with the customers, and while these individuals are paid (let’s say) nine dollars per hour they might on average be creating for the business 15 dollars of value per hour.

If any employee is not creating more value than what is received in wages or salary, then that employee needs to be eliminated, fired. No business can survive if employees are creating less value for the business than their paychecks.

So in our example, the lowest paid employees could be creating six dollars per hour in value above the hourly wages they are paid. If not into their paychecks, where does that $6 in value go? Part of this excess value pays for the inputs and capital that allowed the employee to create any value at all. Beyond this, for a business to succeed some value must also translate into reserves for the health of the business (possibly future maintenance of equipment and business expansion), and some of the value must translate into profits. In a sense then the excess value is “flowing up hill” to the owner who decides how to manage any marginal profit.

Imagine now that a second tier of employees who are paid a little better should be creating larger flows of value for the business. Imagine a tier of low-level managers paid even better and producing even greater flows of value for the business. Plus a higher tier of managers could be producing greater and greater flows of value. And the business owner may be then profiting from all of this value creation. Then again, as a franchise, the owner will need to share profits “up hill” with the national chain. So by this example, we see that Capillary Action is drawing value creation and financial gain to the apex of each business across the whole of the economy.

Economic stimulation by Trickle Down methods supposes that if business owners are provided tax incentives and tax breaks, then they will invest more and hire more people and by these investments and hires the economy over all will be strengthened. Yet we can see that the Capillary Action works counter to any Trickle Down effect. For every drop of value that may Trickle Down, the owners are highly likely to absorb it back up their businesses, since the Capillary Action is constantly at work while growth in investment and hiring are not constant. Those on the lower part of the ladders are not having their financial situations improved. They are more accurately enabling the businesses to better absorb any value creation, or the abilities of the lower paid employees allow the businesses to better absorb any “trickle down.”

Under this model of the micro-economy, what is more suitable for improving more people’s financial situations is to enable more people to become owners. If the numbers of businesses are increasing in the economy with owners seeing success by Capillary Action, then those extra numbers of owners will have their financial situations improve. How can the social systems and government create structures and supports that better allow lower earning employees to take the risks involved in starting more businesses? Does the Affordable Care Act and its vision for a Health Insurance Exchange address some risks that have prevented people from opening new businesses?

If former employees are becoming owners, then businesses may realize a tightened market in the labor pool and move to pay greater amounts to attract employees who can create value for the businesses. Then could employees too see improvements in their financial situations.

Finally, we may come to realize that Job Creators are not the business owners. Successful business owners have incentives to keep their number of employees at a level that fits the business opportunities. Business owners should not be creating more jobs simply because of tax breaks or tax incentives. They will likely create more jobs once demand increases. So the Job Creator in a market economy is actually Heightened Consumer Demand, which becomes all the easier to envision when more people’s financial situations are improving. With more business owners achieving improved financial situations and with employees seeing their financial situations improving, then all of those improvements can feed into Heightened Consumer Demand and will grow the market. Trickle Down Stimulation does not exist in a business model where Capillary Action in constantly drawing value up.

All my best,
Auntie Greed

Tuesday, January 29, 2013

Reaction to Oxfam themes and recommendations

Conversations are where we go exploring. From Davos, Sweden, this month a conference offered pronouncements about the world economy (Global Risk report pdf). In response Oxfam issued its reaction The cost of inequality: how wealth and income extremes hurt us all as a 5-page briefing.

Their themes are spot on! They cry out against conditions in line with my own concerns. My view is that they want to nibble at the edges of the problems rather than seeking full prevention of the problems in the future. They are suggesting measured responses at one place and then at another, over one policy issue and then at another. What must be regulated is the greed. If the greed is not regulated, then the innovations that greed inspires will simply circumvent any policy changes they propose.

Quoting from the Oxfam Brief:
"Free public services are crucial to levelling the playing field. In countries like Sweden, knowing
that if you get sick or that you will receive good treatment regardless of your income, is one of the greatest achievements and the greatest equalisers of the modern world. Knowing that if you lose your job, or fall on hard times, there is a safety net to help you and your family, is also key to tackling inequality. Similarly, access to good quality education for all is a huge weapon against inequality.
"Finally, regulation and taxation play a critical role in reining in extreme wealth and inequality.
Limits to bonuses, or to how much people can earn as a multiple of the earnings of the lowest
paid, limits to interest rates, limits to capital accumulation are all only recently-abandoned policy instruments that can be revived. Progressive taxation that redistributes wealth from the rich to the poor is essential, . . . ."

Each of the gains from these policy changes will be short lived in every Western-style democracy as long a the powerfully rich see these changes as stifling their abilities to profit and draw up their economic advantages. Free services will become "separate yet unequal" then some times done away with for being without worth; healthcare promises can skew the market place's demand and price setting mechanisms, safety nets and education systems have been dismantles time and time again. Finally tax policies have been set to progressive intentions in the past and then redirected gradually and strategically to favor the powerfully rich.

My idea is to put a limit on individual income per year. If we can have 80 percent of people in democracies agree on this regulation, then the fix is permanent. Enforcement will take some doing and nations will need to be vigilent, but we could under such a system agree to the limit and prevent the problems caused by excessive inequality.

All my best,
Auntie Greed