Thursday, December 03, 2015

Three views of economics

I recently took a class based on David Korten’s Change the Story, Change the Future.  I would call his view of economics as pessimistic and his solution as overly optimistic.  I would also say that his book was repetitive; he could have put his message in about ten pages.

He thinks that if we have a “living economy for a living earth” that life will be so much better for everybody.  My thought is that it ain’t going to happen.

He envisions us living in small communities that rely on local resources.  We will have more public transit and trains for travel between communities.  Instead of flying between continents we will take ships.  Oh, yes, we will be connected by high-speed internet.

First, I don’t think most of us want to live on local resources.  We want our bananas, coffee, and chocolate: none of these can be grown locally without lots of well-insulated greenhouses.  And will every local community have access to sufficient glass for these greenhouses?

Second, we will need large corporations to provide the steel for the rails, build the trains, provide the fuel or electric power to drive them, and provide the Internet.  But he repeatedly dismisses large corporations and their “corporate robots”.

Third, by having ships instead of planes, he will deprive many of visiting other continents.  If a ship takes four days to cross the Atlantic, then a vacationer would use up over a week getting to Europe and back.  I wonder how soon a four- or five-week vacation would be available to most Americans.

A more realistic bit of optimism is provided by No Ordinary Disruption by Richard Dobbs, James Manyika, and Jonathan Woetzel.  It is subtitled “The Four Global Forces Breaking All The Trends”.  These trends are urbanization, accelerating technological change, an aging world, and greater global connections.

More and more people want to live in large cities, not on farms, small villages, or even exurban developments.  They want to be in large cities where there are more opportunities for work and leisure.  China, once a land of peasants has several mega-cities and dozens of cities with populations of 250,000 or more.  Many people whose parents were peasants now have middle-class jobs.

If you are over thirty, you can remember when cell phones were not ubiquitous.  Now even farmers in Africa have them.  Now even grandmas can’t do without their cell phones.  They have more computing power in their purses than I had on mainframes in the early 70s.  If you are over fifty, you may remember when 256KB was high-speed Internet.  Now many areas have 100GB Internet.  Given the U.S. with its quasi-monopoly of telecommunications, is it any wonder that large cities in other countries are growing faster than in the U.S.?

As more and more of us live longer, we are seeing retirement age later, more health-care costs, and higher pension costs.  The number of workers that can support these trends is becoming a decreasing portion of the populace.

The greater global connections are helping in the urbanization on all the continents.  An idea created in one country can spread to another country almost overnight.  eBay went world-wide and soon imitators sprang up.  A former school teacher, Jack Ma, started Alibaba which is now dominant in China and elsewhere.  Global connections are helping money move around faster, sometimes just for increased profit, sometimes for a greater good.  Reliance Communications of India was able to get three billion dollars from several Chinese banks, at interest rates significantly lower than they could from Indian banks.

Korten writes negatively about economists, basing this on the thoughts of some long dead economists and possibly Milton Friedman.  Many often misquote Friedman.  Paraphrasing him, he wrote “The only purpose of a corporation is to provide profits to its shareholders, within the law.”  That last part is ignored by the self-serving who want to increase their own power. 

This gets us to the third book, Saving Capitalism by Robert Reich.  Reich is one of the many economists that Korten doesn’t even consider, like Paul Krugman, Thomas Piketty, and John Maynard Keynes.

Robert Reich rephrases Friedman with “Capitalism, alas, depends on trust.”  If a car company produces cars with defects because it costs too much money fix it, will they lose money in the long run because they have lost the trust of potential customers?

Many large corporations have become untrustworthy but hide their sins by blaming the government.  Reich points out that the purpose of government is to regulate the market so that it is fair to all.  Remember the constitutional purpose to “regulate commerce”?  The actuality is that large corporations are now regulating government in their own interests.

These interests seem to be getting themselves bigger and bigger shares of the “pie”.  To do so, they hire legions of lawyers and lobbyists to sway members of Congress, state legislatures, and the regulators.  They also “bribe” these government employees by hinting at corporate jobs after they leave government.

These interests also are controlling the terms of many political discussions.  They complain about government regulations, but they work hard to make the regulations favorable to themselves.  Have you really read the “Terms of Agreement” for which you clicked “Agree”?  Some of these agreements are longer than this article.  We don’t bother.  But if we do have a complaint, most of these agreements state that our complaint will be settled by binding arbitration.  Guess who will select the arbitrator?

Oops!  I’ve run out of space.  I recommend you read both No Ordinary Disruption and Saving Capitalism.  Then be sure to vote next year.

This was also posted in the Reader Weekly, 2015-12-02 at