erikars: (Default)
The AIG fiasco makes it clear how most people don't grok the difference between millions and billions and trillions. Yes, it is annoying, terribly annoying, that AIG is giving out bonuses with bailout money. Even more annoying that they are giving the money to people who helped caused the company's problems.

But let's get a little perspective here. I keep reading news articles saying that the company is giving out millions in bonuses out of the billions they received as if this were the primary use of the bailout money. $165 million on $30 billion is like $5.50 on $1000. This is like buying a latte and a lotto ticket when you have to borrow to pay the rent. This behavior is symptomatic of larger problems, but it is certainly not what we should waste our time focusing on.

ETA: Just to make sure it is absolutely clear. I do not think that AIG should be excused for these actions. However, I do think that the media is treating this irresponsibly by making it front page, top headline news instead of page A3 news. There are more important things to report on. Think about it this way, "AIG uses 0.55% of its bailout money for bonuses" would not be a front page headline; still worth investigating, but not front page.
erikars: (Default)
This is true for so much more than food:
The value of relationship marketing is that it allows many kinds of information besides prices to travel up and down the food chain: stories as well as number, qualities as well as quantities, values rather than "value." And as soon as that happens people begin to make different kinds of buying decisions, motivated by criteria other than prices. - The Omnivore's Dilemma
erikars: (Default)
I am starting to think that I do not have any faith in our economic system. Not capitalism, but capitalism coupled tightly with growth at all costs. Our industrial system of production is so efficient that products can saturate the market quickly. But growth is the only measure of success, so companies must convince people they need more (2 cars! 3 cars! a TV in every room!) or they must obsolete the original product through low quality manufacturing or coming out with new versions that show no innovation (but come in this year's hot color!).

Companies try to maximize revenue, but they also try to minimize costs. Make the process more efficient. Keep wage growth as small as possible. Use lower cost (and often lower quality) materials and processes. What this leads to is an economy which demands that people making less money buy more stuff, and that leads to the culture of debt that helped get us into our current economic debt.

At some level, this is the same dilemma Americans face with respect to food consumption. We have evolved in an environment of scarcity, where it made sense to take advantage of plenty. Consume as many calories as are available. Make as much money as possible. Acquire as many status raising goods as you can (or cannot) afford. Fundamentally, humans are not creatures who are good at imposing voluntary limits on themselves, whether by limiting the size of cities to make them sustainable or not taking that extra serving of french fries.

I don't know how to solve these problems. I am neither a psychologist nor an economist. However, I can think of a starter list of issues that should be addressed.

Our first problem is thinking that ever increasing debt is a way to achieve sustainable growth. Debt used wisely allows people to start businesses, buy homes, and attend college. It can give opportunities to those who would not otherwise have those opportunities. However, we have become a people dependent on debt to get by from month to month. This means that our level of spending, the level of spending businesses depend upon to grow, is unsustainable. Eventually debt must be paid off, and that brings this house of cards down.

Second, businesses feel they must grow because of investor pressure. Wall Street's ideal is that that owning stock in a company is a way to make money, not a way to own part of that company. The distinction here is one of attitude rather than mechanism (although the mechanism encourages certain values). Wall Street's attitude is that all stock holders want is to maximize profit (our regulation system reflects this). An ownership attitude would balance the desire to maximize profit with the desire to own a company run consistently with other non-monetary values. This is theoretically possible now, but it is difficult with stock publicly traded in a system wants to maximize profit and growth.

Finally, our economic system lacks flexibility. Our current economic system is set up to make it difficult to deviate from the normal full time job (or multiple jobs) with little vacation and pay varying from unfair to generous some of which you must spend on a car and are expected to eventually spend on a badly designed, overpriced home. For some people, this is a good choice, and that is great.

To opt out of all or part of this system takes dedication and effort and is really only a choice available to the reasonably affluent. Many companies do not allow employees to take additional unpaid vacation. Living outside the heart of the city without a car is nearly impossible. Working part time often requires a career change (and often giving up the idea of having a "career" at all). Iowa farmers who want to grow anything other than corn and soybeans have no where to sell their goods. If is inefficient to allow every choice to everyone, but it is also inefficient to make everyone fit into such a limited number of life roles. Society is a monoculture, and monocultures are rarely healthy.

We need a paradigm shift. Government policies and individual choices act as a catalyst to this process, but ultimately it is the change in attitude, not any particular action, that will cause the large scale changes that are necessary to get ourselves out of this mess.
erikars: (Default)
Worldchanging presents some interesting data the real decrease in the standard of living of most Americans. I find the article interesting, but I disagree with the author's conclusion that what we need is aid for low- and middle- income individuals and legal caps on carbon emissions.

We should not use aid to solve this problem because this problem spans a wide income range. Aid is not the solution to what is really a systemic problem in our society; it is a bandage. Caps on carbon emissions are not a solution to the problem of decreasing spending power (although the investments spurred by such caps are likely part of the long term solution). I suppose you could say that aid is too short term a solution and legal caps are too long term a solution.

I do not know what the best solution is. It may have elements of aid and legal caps on carbon emissions. Aid for the truly needy is fine (I support welfare, just not as a way of life). Laws that will spur long term investment are worth looking into. Raising the minimum wage might help. But it seems that solving this problem will involve many more components, the most fundamental of which is a change in the attitude of employers which makes them realize that they have a moral obligation to look after the livelihood of their employees, and a change in the attitude of investors which makes them realize that they should hold a company responsible for more than just profit. (The negative consequences of seeing investing as a way to make money rather than as a way to have part ownership in a business could fill an essay I am not qualified to write.) Fundamentally, the problem is that money and goods are seen as more important than people and changing that attitude is a necessary condition for long term equity and prosperity.
erikars: (Default)
Articles about proposed changes to the bailout scare me. The way the changes are reported makes it sound like their only purpose it to make the bailout more attractive to those who did not vote for it. The articles give the impression that these people have no idea what they are doing and are not even engaging in substantial analysis to see what may be effective. I hope they are, but in a financial market that is hanging on every word of these developments, even the impression of incompetence is dangerous.
erikars: (Default)
Finished Common Wealth: Economics for a Crowded Planet by Jeffrey D. Sachs. This book describes why general prosperity is a good thing, how the changing global environmental and demographic situations changes the traditional story with respect to prosperity, and ideas for how general global prosperity might be achieved.

Sachs argues that the 20th and 21st centuries will see the end of American and European economic dominance. This is largely due to the fact that the population is increasing much more quickly in the rest of the world than in the U.S. and Europe and the standard of living is improving in (most) of those countries much more quickly than it is in the U.S. Even though most of the world is unlikely to meet the standards of living in the developed countries for many years, the sheer number of people in countries with growing populations and growing economies will cause their total economic output and consumption to vastly exceed that of the developed countries.

Sachs also points out the danger of excessively large population growth coupled with fast economic growth. As the population of the world increases, we will stress our environmental resources more and more. This pressure is a danger to global security, especially as economies become more intertwined (think about the rising prices of oil and grains).

However, we (being the developed world) cannot just tell the developing world to stop developing. For one thing, we do not have the power to enforce such a demand. For another, it would just be wrong and hypocritical for us to forbid others from trying to reach the standard of living we enjoy (or even from trying to reach a standard of living that allows for basic food, shelter, and security needs).

So that is the depressing part. Sachs also goes into detail on some solutions. I will not detail them here (the book is 300 pages, and I am already over 300 words). In brief, we need to 1. figure out sustainable systems for energy, land, and resource use (climate change increases the need, but is not the only reason for it). 2. Stabilize the global population at about 8 billion by voluntary reduction of fertility rates (part of this is decreasing child mortality rates). 3. End extreme poverty and increase economic security in rich countries (because, even as income is increasing, personal economic security is decreasing). 4. Revitalize global co-operation in solving these global scale problems.

I am very stupid about these sorts of things in general. I would love for someone more versed in these types of issues to read the book and give their opinion on it. But given that, I found it a very interesting and educational read.
erikars: (Default)
Via No Impact Man I found The Story of Stuff. This is a little cartoon/talk on how stuff is produced, consumed, and disposed of. It does not tell the whole story; the video does not address any advantages of the consumption system, slight as it might be, and it does not provide a full plan of the consequences of changing the system (the rest of the website might address this; I didn't check). However, the video is much more fact filled and persuasive than most pieces deriding or defending or current ways of consumption.

It is a bit long (~20min?), but good. Watch it!


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Erika RS

May 2012

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