Occupy Wall Street and Capitalism

One of the reasons I've let this blog fall silent is that I feel I ought to explain my political beliefs before I comment on certain topics so people know where I stand, and to lay out a case for my impartiality and objectivity. But there is so much ignorant analysis of the Occupy Wall Street protests, I feel compelled to comment on them. Let me simply state that I consider myself Progressive. That is, I believe that there is always a way to make our country work better. Often that involves a stronger government, but just as often it involves trimming government, weakening the government, or exploring alternatives when the government isn't doing things efficiently. Perhaps my political position can be summed up concisely by stating that I think Obama is the best president we've had since Bush 41.

The biggest criticism I've heard of Occupy Wall Street is that many of the protestors are politically ignorant, naive, or incoherent. That anyone would make this criticism shows just how confused we've become about how a democracy works. They're protestors, not academics or politicians or bureaucrats or *gulp* members of the media. Their job isn't to come up with policies to cure our country's ills or even to necessarily be able to coherently define those ills. Their job is to protest and draw attention to a topic.

What has made me sad is how badly and uniformly pundits and purported journalists have failed to do their job and have made the Occupy Wall Street protests necessary. The problems our country is facing is economics 101, stuff I studied in high school, and I've yet to see these so-called experts, including many people with doctoral degrees in economics, even get close to the underlying problem in their analysis.

First, a little background. Free markets are good. We like free markets because they encourage competition. We like competition because it provides us with cheaper goods, it forces companies to innovate, and it generally makes our society more productive. There's a huge problem with free markets, though, one recognized by the father of capitalism himself, Adam Smith: Monoplies.

The logical end point of all free markets is a monopoly, a situation in which one company controls all of a certain product. That is the goal of every company, to either buy all of its competition or to drive them out of the market. Famous monopolies or near-monopolies include Standard Oil Trust, AT&T and Microsoft. Monopolies are very, very bad. When they exist, there is no competition in a given market any more. There is no incentive for a monopolistic company to price it's goods fairly or to innovate. It is almost impossible for a monopoly to fail or go out of business. The government is empowered to break-up monopolies because they can be so toxic to the well-being of our economy.

Related to the monopoly is the oligopoly, a situation in which a small number of businesses dominate a market. I'd give an example, but almost every commodity market in modern-day America is an oligopoly. From soft drinks to energy to car manufacturers to airlines to banks to cell phone carriers to software companies, our modern economic landscape is dominated by either oligopolies or monopolies. Oligopolies aren't necessarily bad, but they often lead to the same problems as monopolies. Those problems are poor price competition, failure to innovate, and companies becoming so entrenched they can't do anything dumb enough to fail. Beginning to sound familiar, right?

Thus the first half of our economic troubles can be summed up by two words: Monopoly and Oligopoly. How often have you heard those on the news lately? Pundits aren't entirely wrong when they talk about companies that are too big to fail being a problem. But that's really only identifying a single symptom of a deeper disease, and their mis-diagnosis explains why they uniformly have almost nothing productive to say about what might be done to fix the problem. Oligopolies and monopolies aren't only problems because the government sometimes has to bail them out, they're problems because they stifle innovation, overprice goods, and inhibit creative destruction (among other things). The later problems are far more dangerous than the first, especially if the government is able to negotiate favorable bailout terms in which most of the bailout funds are re-cupped (which is what happened in 2008).

More analysis to follow.

Inevitable Expenses

Over at the New York Times, Bruce Bartlett has a column on tax burdens across developed countries. His chart shows rather clearly that the US has pretty much the lowest tax burden in the developed world (depending on whether you consider Turkey, Chile and Mexico, the only nations with lower burdens, part of the developed world or not).

He goes on to talk about how, while we all know that death and taxes are inescapable, paying for our health care is also inescapable. In Europe, of course, taxes pay for the lion's share of the health care, while here that is only true for the poor and elderly. The rest of us pay personally, whether directly or in the form of lower salaries. If you combine both of these inescapable costs, our tax+health care burden in United States rises to very near the average for the countries that are part of the Organization for Economic Co-operation and Development (O.E.C.D.).

But why stop there? There is one other major service that many European countries provide that we normally pay for here in the United States: education. Those that attend college in the United States pay a steep price that can run into six figures for a degree, while in Denmark, for instance, not only is post-secondary education free, but many students also receive a stipend to help with living expenses. And while a whole society benefits if higher education is more readily available, not only because the better educated generally earn more money and pay more taxes, I think that in many European countries the less educated also directly benefit.

After all, our education system consistently ranks as one of the worst in the developed world. It's no secret that while our university system is outstanding, our public K-12 system is in such a shambles that in many areas of the country almost everyone who can afford it sends their children to private schools. And in our current economic downturn, school budgets and teachers' jobs are being cut at unprecedented rates in many states. I know that part of the failure on this level is simply inefficient spending, especially on pensions and on tenured ineffective teachers, but a lot also has to do with the fact that we're not willing to pay for our best and brightest to become teachers, as they do in countries with the best K-12 systems like Singapore and Finland.

I don't think anyone can calculate the combined out-of-pocket expenses and lost opportunity cost our educational system engenders. But I'm absolutely certain that if we could somehow calculate and tabulate it as we have for health care costs, we would find that the education+health care+taxes trio of inevitable expenses born by our citizenry is comparatively much higher than in the chart above.

And if you don't think education is an inevitable expense, try thinking about what would happen if we stopped investing in it altogether.

The point is, whatever some people would have you believe, the overall tax burden is irrelevant. The only thing that matters is how efficiently a country divides its resources. Certain things the government does better, and certain things private enterprise does better.

Torture is Wrong (It's Effectiveness is Irrelevant)

Torture has been a hot topic lately. But a disturbingly large portion of the dialogue has been about whether or not it works, whether or not using torture is in the best interests of our country. This article in the Atlantic is a great example of this trend.

Arguments about utility are dangerous things though. Torture is wrong. Full stop. It has no place in a civilized society. Full stop. End of discussion, or at least so it should be.

Otherwise, if we're really going to consider the utility of immoral acts, we can't stop at torture. What about murder? Sure, killing people is wrong, but what if it's useful? It's hard to doubt that America would be a more efficient place if, instead of paying to imprison inmates, we just executed the lot. Maybe we should put together commissions, as well, to determine if it might not be more efficient to round up all those people living on the public dole and see if, at the very least, we couldn't send them to an island somewhere to fend for themselves. I hear Australia is nice this time of year.

Torture is morally wrong. Anyone who employs it is a reprehensible, disgusting war criminal no better than Saddam Hussein. That a sizable portion of the country thinks that the possibility of torturing people should be a topic of debate shows how close we are to undoing the bonds of civilization that hold us together. There are few greater ironies in the world than that torture's supporters in this country are often the same who profess to be concerned about America's moral degredation.

Scott Adams and the Education Complexity Shift

Scott Adams, the comic strip writer behind Dilbert, recently had an editorial in the WSJ and a follow-up blog post about something he calls the Education Complexity Shift. You can read the blog post here.

Now, I think he's wrong on several counts,  but the most important is crystallized by this sentence:

But if you compare teaching history with, for example, teaching a kid how to compare complicated financial alternatives, I'd always choose the skill that has the most practical value. 

Education has become increasingly concerned with things of "practical value". Where to find meaning in life, how to lead a rich and full life, and the difference between right and wrong will never have this so-called practical value. But from what I've seen, our world doesn't suffer from too few people trying to compare complicated financial alternatives (thank you Lehman Brothers, AIG, and most recently the people in the GE tax division) but from too few people trying to do what is best for their country and for their fellow citizens. That is what happens when you let science and progress define the terms of the debate on the merits of a liberal arts education. (And yes, the name of this blog is no mistake.) Specifically, I'm thinking of the way that modern-day Republicans are more intent on making Democrats look bad than on helping our economy grow again, but I also think there's a sense of entitlement in this country that is very disturbing, perhaps best characterized by this example.

But I think Adams is also wrong on a wider level, and it's obvious when he tries to talk about why education used to be important two hundred years ago:

you needed to make school artificially complicated to stretch a student's mind. Once a student's mind was expanded, stressed, stretched and challenged, it became a powerful tool when released back into the relatively simple "real world."

Even back then, the world was by no means simple. Morality and spirituality (and even politics) are the most complicated subjects known to man, and nothing about that has changed in the last two hundred years. That is why a solid education was and remains irreplaceable. But it has also been my experience that the real world is what is simple and it is school that is complex. In the jobs I've had, true, I have had to use many complex software and hardware packages that the schools I attended never had the money to purchase or train me on. But once I learned them, usually in about six months, I was done. I had mastered the job. Like planning the most efficient trip by plane, there was little about those packages that a child couldn't learn. In school, on the other hand, every six months I was freshly presented with a new set of four or five potentially very different classes which were attempts to study different aspects of reality in all its gory detail, dealing with situations both practical and impractical, but absolutely covering a much wider and more complex array of phenomenon than I would ever encounter in my jobs.

Now, I would agree that often in a modern university teachers are more interested in doing research than in teaching and often students don't take advantage of the opportunities for self-improvement presented to them. But these flaws are only going to get worse if people focus only on practical benefits.