Economics

The Resource Curse

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Taking a break from social justice issues that have populated this blog in recent months, I want to draw attention to economics, specifically something called the “resource curse”.  It’s a bit of a counter-intuitive phenomena where discovery or development of a valued resource or commodity adversely affects the national economy.  Typically, development of new resources is fantastic for the economy but there are exceptions.  The rise of the United States is in some ways the development and exploitation of new resources such as minerals, crops, timber, and various other industries including and especially the US’s own vast carbon based energy deposits.    What has made the American story, and many such stories, a success is the ability of the American economy to reinvest the profits from the sale of resources back into the economy.  More importantly, it allows America to import goods from abroad.

There are two reasons that the development of a resource might detrimental to an economy. In the eponymous Dutch disease case, the exploitation of a large field of Natural Gas increased the value of the Dutch currency.  The Dutch Guilder became expensive enough that it hampered their domestic manufacturing base.   Dutch Disease might have possibly been avoided if the profits from the Natural Gas had been able to circulate more efficiently through the Netherlands increasing the domestic consumer base enough to support their manufacturing base.

In other places of the world, like Nigeria and many of the Middle Eastern countries, too much of the national resources are put into developing a single commodity. Because the wealth is so highly concentrated, the benefits do not get distributed to the rest of the country. Even if they are, commodity fluctuations can still be highly toxic to an economy so reliant on a single resource. Since the infrastructure, social spending, and other sectors of the economy are sacrificed or ignored to develop a single lucrative resource, the economy declines over time as market fluctuations take their toll. For example, in Louisiana in the 80s went through something very similar.

Other countries such as Norway, UAE, or the state of Alaska, have taken great pains to translate the wealth gained from oil and turn it into real wealth for its citizens. The United Arab Eremites for example, uses their oil wealth to diversify their economy. Dubai has been tuned into a world class tourist destination, and the city is a hub for business, trade, and commerce. Should the oil run out or prices drop precipitously, the economy should still be broad enough to thrive. In Norway, the profits from oil and gas are managed by the government and are used to fund an generous social programs, giving Norwegians one of the highest standards of living in the world. The fund for these programs is large enough to withstand market volatility without compromising the standard of living. Alaska is genius in its simplicity. The state just cuts a check to each of it’s citizens for a portion of the proceeds as well as funding basic infrastructure.

There are healthy and unhealthy ways of managing resources. Perhaps one of the most toxic methods is evident in our own backyards. Rural Appalachia. As the coal mines fail and energy production moves to cleaner and less costly fuel, the mining towns are slowly dying. They’ve turned their frustration and despair into anger at the government which they see as a meddlesome outsider. Instead of developing a new economic bases, they want to double down on a failing strategy. In many ways, Texas resembles a petrol dictatorship with the wealth generated by the oil revenues concentrated in the hands of a few while funding for education, healthcare, infrastructure, and economic expansion are highly curtailed. Texas is already supported by the Federal government despite its oil wealth and with the precipitous decline in oil and gas, people are worried how Texas will weather the current economic climate.

The United States can be thought of like a complex corporation with a highly diversified portfolio and managed board of directors picked by shareholders. The company grows by reinvesting profits from its various divisions back into the company to develop a deeper or better product base. However, if the company becomes over-leveraged or the portfolio in one of its divisions becomes too concentrated the shareholders will suffer. It might be understandable for shareholders to demand high dividends for their investment but not at the cost of failing to invest in a diversified portfolio.

A country is not like a business. It’s a metaphor, but a good one. The US has never faced a competitive environment like today’s global economy. During our rise to power, the industrialized world had been devastated by 30 years of brutal warfare. Now there are dozens of sophisticated economies and dozens of developing economies able to provide free labor. It’s a time for innovation and investment. The US faces a serious risk of running into it’s own version of the resource curse. There are solutions but we won’t find them resting on our laurels and listening to our iPhones.

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Reverse Racism

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One of the most difficult things about discussing race in America is, like most things, a certain ambiguity of language. Race, for example, has no biological basis. To divide people based on genetic lineage is absurd and legal strictures based on this division become hopelessly convoluted before they breakdown altogether. Rather, race is a group with a certain social, cultural, historical, and economic commonality. It’s as much a choice for the individual as it is an imposition by larger societal forces. It no surprise then any discussion is going to complicated. Which is fine, so long as the discussion remains complicated and nuanced. It’s tempting to simplify, but reductive reasoning is one of the most significant problems in this discussion. In fact, it’s this tendency to narrow the collective experience of people that is, in many ways, so devastating and dehumanizing.

Racism at the moment has two working definitions. One definition of racism is a narrow form of bigotry. Which is to say, it is racist to discriminate against an individual or groups because of their race. This might manifest as hateful words and actions, criminal activity targeting a group, denying people products, services, access to goods, neighborhoods, etc.

There is a second and perhaps more important definition of racism. It an economic, social, and political system designed to benefit one group above that of another. The starkest example of this kind of racism was apartheid in South Africa but it is endemic at every level in every country, even this one, perhaps especially this one.

One of the great frustrations of minorities trying to tackle racism and discrimination in America, is the charge of Reverse Racism. You hear this often, especially in regard to programs or institutions designed to rectify centuries of abuse, neglect, and discrimination. For example, some schools and scholarship programs exist to help black people obtain a high quality education. Since these programs do not help white people get an education, one might say this is “Reverse Racism”, which is, of course, ridiculous. These kinds of programs exist to merely ameliorate the inequality endemic in the educational system as it exists today. So no. There’s no such thing as a “Black racist” because they can not benefit from a system that marginalizes them regardless of how successful that person might be. Oprah and President Obama are outliers and do not demonstrate the absence of discrimination or inequality.

Even if you go by the simpler definition that “racism” is merely a subset of bigoted behavior or attitude, what prejudice majority groups experience (individually or collectively) in their lives is trivial compared to what a person of color might experience. Which is not to suggest that we should condone prejudicial behavior from anyone, only that as a white person I can bear this “burden” of tolerance. (I use the word “burden” ironically, obviously)

However, in so much as reverse racism does not exist, minorities want it to.  Whatever shape or form their demands for equality may take, it will require shifting time, energy, attention, and resources from the groups which currently possess them.  It may be justified in the grand scheme of things.  It may be moral and ethical and idealistic, but minorities and liberals must do much better than “in the name of social justice”.  As we talk to those who have the money and the resources, what incentives are there for this shifting of emphasis?  Why is it in the interest of white male America to do more than merely placate everyone else just enough to avoid civil disruption?

Whether Reverse Racism exists or not is completely beside the point (and yes I realize how ridiculous that sounds). Liberals are going to have to find a way to address the subject seriously or the movement will stutter and stall…. basically like it’s been doing the last 30 years.  Surely this can not be that difficult?

Angel investing

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No matter how genius your idea is, or how lucrative it’s potential, success will never be measured as a function of labor. How could it? How do you measure the labor investment of a good idea? Watts? Joules? Calories, British Thermal Units? Do you count the man hours spent at the cocktail/beer/pizza/video game party that generated the good idea?

The point of the Capitalist system is to make it possible for you to bring your idea to profitable fruition. But before that happens you are a drain on society. It’s true. You wear clothes you didn’t make. You eat food you didn’t grow and live in a house you didn’t make. You are a parasite. This is how we all start out. As the ultimate users.

In order for you to be successful you need someone else’s money. Often it’s a bank but, generally, in the case of start ups, it’s an angel investor, one of the flavors of venture capitalism. Someone will come by and shower you with millions of dollars on the hope you become profitable.

So congratulations. You got your seed money. Now you’d better run. Run like never before because you’ve officially began your cash burn. You will burn that cash until it’s gone. Hopefully by the time it disappears you’ve turned a profit and your company has a life of its own. It’s become self-sustaining and productive.

So why did the angel invest with you? Was it altruism or philanthropy? No. And we don’t pretend it was such. It was a cold-hearted and cynical ploy dedicated to obtain wealth. And we’re glad they did it too.

Giving someone the resources they need to succeed is not about “fairness” or “justice” or “compassion”. It’s not something people do because they are moved by plight or circumstance, or because they want to make the world a better place. They do it, in the case of business, because of enlightened self interest.

It’s easy to think of the poor as users and losers. Sometimes that’s fair. Sometimes it isn’t. The point is that it doesn’t matter. Everyone starts out as a parasite, even if it’s just you attached to the uterine lining of your mothers womb draining her physical resources. The concept of the angel investor goes to giving to others based on profit motive. When we think politics or social policy the profit motive is still there but it’s less direct. Some folks never get their angel. The never get to a place of self-sustaining profitability. However it would be the height of arrogance just to castigate others for what we see as their failings rather than as an investment opportunity. It’s why we take the high road and the long view. Because wealth creation can’t happen without it. Unless you can create a self sustaining and profitable individual it represents a net loss for our society as unrealized gain.

Think of it this way. Wealth is built from being building things. Houses, cars, bits of code, whatever. If you have a large group of people failing to live up to their economic potential then we lose out on capturing a part of the wealth they generate. This is how civilization works. People working together for mutual benefit and enlightened self interest. The real world however has created a maldistribution of resources that is ultimately self-limiting unless we can shatter the bottle necks. In that sense we’ll need an angel investor. Lots.

I hate tipping!

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How much do we tip these days anyway? Now the tipping convention is what? 25% or 30% more? Less? I don’t know and servers are getting paid like 3.00$-hr? I hate tipping. I really do. It’s achieved this weird pseudo-capitalistic and obscene moral dimensions that I’m finding actively stressful. I don’t know if tipping has changed over the years or if my Dad was just hopelessly out of touch, but when I was a child being needlessly difficult and poorly behaved like all children at restaurants he told me you tipped 10% to convey to the waitress or waiter your appreciation for good service. It was a really good moral lesson about being generous if you could afford it (and even if you can’t as they continuously demonstrated even to this day). It was also about expressing gratitude. Being the kind of person that appreciates services small and large and recognition the so-called “little people” were important and deserving of respect.

My parents were big fans of moral lessons.

I’m not pining for the “good ol’ days” of easily summarized lessons I just despise the notion that employers would try to disguise the true cost of the meal. Look, I get great service when I go the doctors office but I don’t tip the phlebotomist for a fantastic job getting blood out of my veins because I assume he’s a well paid professional. Same with the receptionist at a corporate office, the check out guy at the grocery store, and all the many many people that make this a well run society (mostly) not because people do not deserve it but because there’s a time and place for gratitude and a time and place to get out of the way so the next ten customers can check out and go home.

I have no idea how to fix labor inequality or the inherent discontinuity of tipping some people and not others.

I’m happy to pay servers what they deserve for their service but I’m flummoxed by this notion that I should sit there and figure out what that should be. My mechanic doesn’t present me with a bill that reads, “you know, whatever you think would be good. Appreciate it”. And hey if you want to go that route for restaurants that’s fine too. Send me an itemized bill for parts, labor and taxes that’s fine. We can even itemize it further so we can see exactly how the employee/employer tax contributions, FICA, Medicare, insurance, and other expenses work, and the overhead can be divided up according to administrative costs, rent/mortgage, debt service, utilities, maintenance. And so on.

Or you can just figure all that yourself and send me a bill so I can pay it and get on with my life knowing I can be generous to another living soul without worrying that I’ve somehow short changed them.

Libertarian case for government safety nets

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There’s no simple definition for Libertarianism (or any political party) but one might call it, the belief that the government should be no bigger than necessary to secure the rights and freedoms listed in the constitution. There’s more to it naturally but I think it’s a pretty good summation for a single sentence. How this philosophy is acted upon specifically varies from person to person and I have no interest in putting together an exhaustive list of Libertarian flavors. The point being that with no wish to offend anyone we’re still talking about painting a picture with very broad strokes here.

I think we can also say that Libertarians are also very concerned with economic freedom which can be reduced in a number of ways. Unwise banking practices can reduce the value of money, government taxes, an intriguing theory called ‘opportunity cost’, a burdensome regulatory environment, debt and deficits, and a sundry list of ways governments can degrade the financial health of the country and impede personal financial growth and freedom. Now each of these things can and should be debated but in a very broad sense these are some of the things a libertarian believes with, I’m sure, very few exceptions. Now to say the government shouldn’t interfere in the lives of individuals is not to say a government shouldn’t exist. Libertarians are very pro-government in many cases. They believe in a strong military for example so long as it’s main function is to secure American borders from external threats. They’re very fond of law enforcement, our system of justice, laws that keep people from infringing on the rights of others. And this is something I feel is worth emphasizing. Preventing your rights from being trampled is the fundamental goal of libertarians whether we’re talking about simple theft (which can usually be handled locally) or from exploitation of large companies or most especially from the government.

Typically Libertarians frown strenuously on government-sponsored social safety nets. They have their reasons but it generally boils down to, first, its expensive and, secondly, it’s beyond the purview of the federal government. I want to challenge both those assumptions.
First off poverty carries with a couple of costs especially in the way of healthcare and law enforcement. I suppose we could let the very poor die but we don’t for two reasons. It’s morally repugnant, and because death forever removes that person as a societal resource. When we provide basic services to the homeless we find their financial cost to the city falls dramatically.

In addition to cost of caring for people on the extreme edge of poverty, we have, and this is a real accounting issue, the cost of an underperforming asset. From a strictly utilitarian perspective (though certainly not from a moral or humanitarian one), a poor person who remains forever poor does not contribute to the economic health of the country. (I stress poor people should not be thought of as commodities. I merely want to discuss the economics of social stratification). Indeed, socially mobile or not, people do make contributions to your personal individual freedoms. Keeping institutional barriers in place represents a miscarriage of justice to the poor or sick and simultaneously a limitation on the financial freedom of every person in the country. Lost productive capacity is not only inhuman on multiple levels, it’s also very costly, especially in the long run. This cost must be born by every member of our society and as such reduces economic freedom. Further not only is increasing economic mobility good for them, good for the economy but it has a synergistic effect. The more people able to become upwardly mobile the easier it becomes for everyone.

Let’s talk about that miscarriage of justice. Normally we think of injustice as an active construct. (for example an armed robber stealing from you would be an “active” injustice). This is probably what keeps most libertarians passive when confronting social ills and dysfunction because injustice can also be a passive. For example poor access to reliable healthcare, education, transportation, water, housing, internet, and infrastructure are barriers to economic mobility. Not only does it reduce their freedoms, it is also an independent harm to the individuals. Harm the state is duty bound to prevent or redress.

Justice does not distinguish between passive harm and active harm to an individual. I do. It’s an artificial distinction on my part. Even if pursuing justice was not a goal for libertarians as it manifestly is, or securing economic liberty for others, being silent in the face of social and economic injustice represents run counter to ones own personal economic and political freedoms.

Race Language pt 2: The Dictionary

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The language of race is still in its infancy.  That may sound odd.  Does racism need a language?  It does.  Every serious field of study over time develops a highly specific lexicon.  Social justice will need one.  Perhaps it already has and I just don’t know what it is.  When it comes to social sciences I am an admitted amateur.  However, as a lay-person there are a couple of methods I’ve heard activists use to try to describe the experience of minorities.  I’ve listened to music spanning genres, I’ve heard some of the poetry, read some of the books, I try to keep an eye out for prominent minority journalists, and of course non-white comedians (also a lot of white comedians but that’s not really germane to the point here).  But as a white person I can’t use that language.  Take a black comedian for example.  Their pithy insights on racial issues are often profound, but its purely in one direction.  I can’t say those things.  I wouldn’t even if someone let me.  But this is the only race language that many, if not most, white people have heard.  In terms of crafting a narrative, this language is second to none.  However, it does nothing to foster dialogue between disparate groups.  The assumption inherent to cultural immersion, is that if someone can engage with the various cultural elements long enough, then they will begin to understand that culture both as a collection of individuals and as a group and this in turn will defeat racism.  This is one of the reasons that cultural appropriation is such a sin.  Further, not only has this assumption shown to be false, we’ve doubled down on it with a kind of collective immersion that has proven to be doubly ineffective.

For long term social change, a new language must be had.  It must be exceedingly precise, verifiable, and transmissible.  The fundamental failing of the current language is that is largely dependent on one’s subjective personal perspective.   I’m sorry to say, we’re talking about math.  It’s not enough that policies like Stop&Frisk are racist.  It’s not enough that people are harassed and inconvenienced, it’s not enough that it’s a miscarriage of justice.  It’s that the searches of black men outnumber black men by at least 2:1.  It’s when you can show that the government of Ferguson has a 90% white police force in a predominately black neighborhood and have been using racially biased citations to fund the city government then you have a basis for social change.  Or It’s the racial biases in sentencing laws.  These and other examples are the numbers promoting social change.

But let’s talk about White social change.  Do white people sing songs, go on marches, read poetry, write books?  Sure.  And I’d argue that this has been as effective for White people as it’s been for Black people.  It’s tempting to believe that the Whites are in power as a result it’s their policies.  There may be some truth to that but That’s an incredibly simplistic view.  White social change got its start in the 60s too, only it started with think tanks.  Organizations dedicated to finding mathematical justification for the issues of the day.  These think tanks are effective for several reasons.  One, their very well funded.  Secondly, they produce a data  set that supports their favored policies.  Thirdly, they they promote specific policy objectives.  Fourthly, they are fundamentally based on self-interest.

When we talk about even relatively positive things the only effective means will be through a specific context.  Like gentrification.  In most places this is a wonderful thing.  Property values go up, cities prosper, services and opportunities expand.  It’s a genuinely wonderful thing.  So why are minorities upset? Because it’s only minority neighborhoods that fall within a certain percent of diversity (less than 35% black).  And because local laws make development and expanding housing and transportation difficult (You can’t make more housing available, you can only make it more expensive).  It’s a policy that actively marginalizes minority groups by pushing them into underdeveloped parts of the town, which, under normal circumstances, would undergo a cycle of development except an institutional bias against risk taking from conservatives, and anti-exploitation efforts from liberals make development a difficult prospect.  It’s probably not intentional, it’s probably the culmination of different power brokers looking after their own interests that generate a racial disparity.  But if you want to change it, then you have to have the numbers to back it up, and you have to have specific policies to address it, and you have to have an argument why including poor families and minority groups are beneficial for everyone.

I look forward to the day when moral questions will win out over questions of self-interest, but we have not arrived there yet.  Activists use the language of social justice.  They passionately talk about fairness, justice, feelings and story.  It resonates with the human heart like nothing else can.  But when you compare that to my own selfishness, it’s a losing argument.  I, and most people, have no problem with the cognitive dissonance of being moved by the plight of racism in America while at the same time being comfortable doing nothing about it.  Consider Ferguson.  When militarized police starting burning down the town of Ferguson, it caught the nation’s attention.  Why? Because a black kid got shot?  No.  I wish that was true.  That should be true. I wish as a society we cared about that kind of selfless inequality.  But it was because it was manifestly apparent that this kind of response could have far reaching implications.  A smart activist group might point out that if they can brutalize and harass people of color, they can harass and brutalize anyone with impunity.  And indeed that case has been made and made effectively.

Specific language, math language and large data sets, specific policy objectives, and enlightened self-interest.  This is the language of social change.  This is the kind of language we need to use to discuss race.  At the moment, the way race is discussed actively precludes anyone not part of that specific minority group and that needs to change.

The insufficiency of moral outrage

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Something caught my attention this week and it deserved a note. It was Equal Pay Day. In case you missed it this year was full of spectacular political drama. Democrats tried to drum up some justified outrage over an important cause, and Republicans tried desperately not to look like enormous asses on the issue and failed miserably. But we’ve been there, we’ve seen that bit before. The evilness of the Republican Party is more than this blog can handle without a lot of foaming at the mouth and enough *headdesk* for a bloody concussion.  However, if all you want is to make points at the expense of Republicans then congratulations, Equal Pay Day has been a tremendous success, but all the moral outraging at this issue is not enough.

Let’s start with the moral outrage.  Who are we mad at?  I mean specifically.  The rhetoric does little more than pit men against women.  Which not only isn’t true, but it’s poor politics. I know I’m not discriminating against women.  The worst you could say about me is that I’m passively tolerating a patriarchal hierarchy that is refusing to deal with institutional barriers to parity.  Mostly because my time and energy are spent in other places, and secondly because I have no idea how to fix the problem.  Neither does anyone else.

The number that is trotted out at these things is 77.  That’s 77 cents that a woman makes for every dollar of male income.  It’s a good number.  It’s even an accurate number as far as such things go.  But that number lacks context.  If you add up every dollar that every woman in the country makes and compare it to every dollar a man makes it’s true, 77c.  And so every woman goes around demanding “equal pay for equal work”.  It’s a good number and a great slogan.  There’s even a bill in congress that Republicans are obstructing called “The Equal Pay Act”.  Here’s the problem, generally speaking, women aren’t doing equal work as men.  Women loose a tremendous amount of time from their careers to their families.  If you account for that time, experience, education, and other factors, the pay disparity virtually disappears.  Let’s say a woman loses 5 years of work to raise a family.  She’s going to permanently loose 5 years of prime economic activity.  That economic loss isn’t just issue for women, that’s an issue for everyone.  It’ll have a huge long term financial impact for her and her family and by extension, the rest of the economy.  The second thing that happens is they loose 5 years of experience.  Finally, the loss of economic productivity and experience is directly harmful to the economy, and by the economy I mean me personally.  Now it’s not that women’s aligned groups aren’t talking about this, but when they do, they do a terrible job at making a case for economic advantage.  They almost always put it in terms of how outraged everyone should be.  And people should be outraged; it’s just idiotic politics.