The problem with Economists

I see 2 main problems with economists.

Amoral Science

One problem is that their field, like any other science, is amoral.  It is concerned with understanding how things work, but it won't tell you what is right and what is wrong.  This helps us understand cause and effect without bias, leading to more reliable knowledge, but doesn't tell us what to do.

Neutrality is important when acquiring knowledge, but the application of knowledge requires extreme prejudice and bias.  We need to decide what is right and what is wrong and actively support one side or the other.

Esoteric Shit

Economists study a lot of stuff, and it's stuff that is important in their field, but it takes true mastery to recognize the manifestation of simple principles in complex models.  This means while things may have complicated explanations they have simple explanations as well that are no less true.

If you read an earlier post I made, I talked about how in physics, analyzing the path of a projectile can be pretty complicated.  However, the most important information in many scenarios can be expressed with a simple, intuitive statement: "What goes up, must come down."

It's important that economists learn express their most important ideas in terms of simple principles, because they need to be able to engage with the public and policymakers on a level playing field.  We need many people actively involved in creating and negotiating our policies, including people without relevant advanced degrees.  If we can't make valid arguments about economic policies, then we are stuck with whatever the PhDs decide to tell us.

I like to think about the political and economic tumult in this country as a simple problem manifested on a grand scale.  The problem is this: who should take responsibility for what, and what will they do about it?  In a sense, it's simply a large scale version of what college roommates might experience trying to live together in an apartment.  Each person has different ideas of what needs to be done and how to do it, but each person needs to participate as well.  Sometimes there isn't a wrong way or a right way, but differing ideas create conflict anyway.

I  was trying to read Krugman's blog, he seems a smart fellow.  What am I saying?  He is smart and well qualified.  The little I could understand, he explains well with sound thinking.  He's a PhD in econ, and I'm an math undergrad dropout.

So what do I take issue with?

Krugman has the right answers if you want to understand how the federal gov't can take responsibility for our financial problems and fix them.  We need people like him.  The federal gov't can play an important role in how the economy functions.

What I am more interested in is what individuals can and need to do.  He's in the right position to do his job, and I'm in the right position to do mine.

One thought experiment that I use when reading economic shit is this: If people were immortal, and only consumed stuff for pleasure, how would that change this economic analysis?  In many cases it would not.  Measuring production and consumption usually doesn't care what or why.

Converting the words of people like Krugman about interest rates and quantitative easing into real world terms of mouths and food is a tricky exercise.  From reading his blog I'm convinced that he cares about the real world effects of economic policy and is willing to take a moral stand on issues.  I respect him even when I disagree.

Did minimum wage play a role in the 2008 financial crisis?

Have you ever set a goal that was too ambitious?  Perhaps the goal itself was not too ambitious, but you were overcommitted and underprepared.  You were going to be completely dedicated to changing your diet, or learning that language or fixing your budget.

The first week or so it might go great, while it's on the forefront of your mind, but then it gets harder.  You start to compromise or resent the expectations you created for yourself.  After a couple weeks, or maybe a month, or maybe more, you say "fuck it" and in a blaze of glory you burn down everything you were building.  Freedom, in the form of a box of donuts, never felt so good.

I don't have to tell you that people sometimes fail to keep their new years resolutions.  What is it about resolutions that look so good on paper, but are so hard to follow through with in reality?

People do keep their resolutions, all the time.  It is possible.  One thing it takes is maturity.  You have to set accurate expectations.  Your goal can be ambitious, but your expectations for the amount of effort and impact need to be accurate.  Change always requires sacrifice, it requires maturity to understand what that means.

Resolution keeping requires more zen and less zeal.  It requires patience and persistence more than it requires passion.  Most of all, it requires an accurate understanding of your true priorities.  If a competing interest is more important to you, your resolution may get compromised to pursue that other priority.

Wait, didn't you say that this post was about minimum wage and the 2008 financial crisis?

That's what I'm trying to tell you, that's exactly what I've been talking about.

Minimum wage is like a new year's resolution for the entire country.  Okay guys, everybody is going to earn at least $10.50 next year.  $10.50 is reasonable, it's not too ambitious, and it's very important.  We should make it a priority.  Business owners and employers, employees, all of you, big or small, successful or struggling, let's make this your #1 priority.  We'll even offer to help guarantee you have enough incentive!  If you don't meet that resolution, we take you to court and shut you down.

Let's rewind.  It's 2007 and the federal minimum wage has been $5.15.  Over the next couple years it gets bumped up to $6.55 and then $7.25.

But did this bump cause the financial crisis?  Claiming that would be a classic case of post hoc ergo procter hoc (I've been watching me some west wing).  Just because the crisis happened right after the bump, does not mean that the bump caused the crisis.  In fact, I think that in this case it is evidence that the bump did not directly cause the crisis.  The mechanisms that triggered the crisis were already in full swing when the bump happened.  At most the bump was straw on the proverbial camel's back.

So why am I entertaining the notion that minimum wage was an important factor in the crisis?

Subprime loans.  Subprime loans.  Subprime loans were a massive trojan horse for an army of irresponsible financial practices, metrics and mathematics that obfuscated risk instead of clarifying it.  I would encourage you to watch the TARP documentary by PBS frontline for all the nitty gritty details.

Suffice it to say that our most trusted, beloved institutions, the stewards of our dollars, were hiding their messes instead of cleaning them up.

But the pretext for these shenanigans was subprime loans.

Before the crisis there was a big push for home ownership.  Politicians, public servants, and activists were pushing to give everyone the opportunity to experience the American dream in the form of home ownership.

Financial instutions responded by expanding their lending practices.

What does this have to do with minimum wage?

Only this: minimum wage is a politically backed guarantee for better lifestyle.

I think the existence of minimum wage is one thing that may have made it risky to lend to poor people in the first place.

Minimum wage places strict constraints on what people can do to earn a living and it's especially limiting to the poor or disadvantaged people.  If you have ever gone looking for a minimum wage job you know that they suck.  The bosses don't treat you that well, they have lots of turnover, the people who take those jobs tend to less reliable.

Some people interpret this as a sign that minimum wage is not high enough, but I think it's really a sign that minimum wage is very limiting.

New workers and disadvantaged workers need opportunities that fit them well.  Not all these opportunities will pay great, but they give these individuals opportunities to be beneficial to an employer, to understand how the workplace works, and to understand their job needs and priorities.

If people have a positive experience working, they will increase their experience and value to their current employer and potential employers.  I think a lot of those who struggle have negative experiences with employment.  They become frustrated and disillusioned.  Can we blame them?  Most of the low wage jobs out there suck.  They are thankless and soul sucking.  They involve activities like stuffing cheap plastic toys from china into bags with unhealthy meals for kids.  I mean who wants to do that?  Fuck that.

If we want to help improve the lives of low wage workers, we need abundant opportunities doing important and rewarding things.  Politicians love talking about adding jobs to the economy.  They talk about jobs as if we should be grateful just to have one.  We have started thinking like there should be a 1 to 1 relationship between jobs and people.  That for every one person there should be one job.

Let me tell you, that is not nearly enough.  Having only 1 job available for every 1 person in an economy has a name.  That name is slavery.  If you don't have lots of options, you have no freedom.

One job per person is not enough.  We need 10 available jobs per person, or 100 available jobs per person or 1,000 available jobs per person.  We need real market choice for what we do to earn a living!

When people don't have real choice they don't have freedom.  They become frustrated and unreliable.  They become targets for well intentioned home ownership campaigns.  When they get told they should sign this loan to get a better life, they do it, even when the conditions are shit.  When someone has been kicked around and shitted on, something like that can seem like a lifeline.

Minimum wage affects jobs well above its payscale.  It creates a universal fear of failure from the bottom to the top, because we all know what the bottom looks like and it's not good.

But the bottom doesn't have to be ugly.  The bottom doesn't have to be feared and shunned.  We can be poor but free.  And when we are free, we are free to become rich.  We can choose our own priorities and we can make our own new year resolutions.

Subjugation in the Modern Economy

What is subjugation?

The word subjugation comes from the same roots as the word subject.

When I hear the word subject, it makes me think of peasants in a fairytale kingdom.  Many fairytales describe a benevolent king and queen and a kingdom of loyal subjects.  Sometimes I suspect that fairytale stories may be propaganda created to promote medieval systems of government.  Fairy tales often present an idealized version of monarchy, where everyone is happy playing their specific role in the kingdom.  Most likely, these stories weren't actually created for propaganda purposes, they merely reflect the ideas people had about government at that time. The stories we tell reflect the way that we see the world.

Like so many other words, the words subjugation and propaganda have strong negative connotations.  These negative connotations come from, in part, the potential for abuse.  Propaganda is associated with corrupt political systems, including Nazi germany, where it was used to help citizens ignore the abuse and murder of millions of people.  Subjugation is associated with slavery, a condition which millions of people have experienced, where their basic freedoms and human dignity were denied them.

Not all propaganda is bad, and not all subjugation is slavery.  Propaganda is merely self promotion by political or governmental entities, subjugation is any enduring relationship where one person has authority and the other party is subservient.  Naziism and slavery are extreme examples of each.

As many fairy tales are eager to point out, subjugation does not always completely strip human dignity or remove all human rights.  Authoritative governments sometimes allow their subjects to retain a great degree of individual freedom and self-determination.  However, what may have been an ideal government hundreds of years ago is not necessarily excusable today.  No form of subjugation, no matter how mild, is acceptable.  Modern government needs to help protect and respect all human rights.  Not all potential freedoms are human rights, but rights include everything needed to preserve an individual's freedom of conscience, expression, and self-determination.   Some forms of subjugation may not rob people of all their rights, but subjugation always takes away at least one or two basic human rights.  

In the modern world, subjugation definitely exists.  This includes extreme and deplorable examples of subjugation.  There are still people living in slavery.  Practices such as human trafficking and sex trafficking still happen in the world we live in.  We should do what we can to become educated about these issues and be willing to go to extreme lengths to end these practices and apprehend those involved.

There are also less extreme examples of subjugation and abuse that need to change.  The most prevelant form of subjugation in the modern world is economic subjugation.  Our economic systems greatly benefit some people while others struggle to survive, sometimes unsuccessfully.  Contrary to what most people would suggest, I believe that the vast majority of people in economically advanced contries, especially the middle class, participate in practices that lead to the economic subjugation of others.

The super-rich may be guilty, but the medium rich are guilty as well.  This includes every middle class person in the first world.

Identifying Economic Subjugation

Before we can fix the conditions of economic subjugation, we must identify where and why subjugation exist.  More importantly, we must identify our role in the process and what we can do to change.

How can I tell if I am subjugating other people?  How can I tell if I am reducing the economic freedom of another person and forcing them to become subservient?

I have a test I would like to propose.

This test is not perfect, and if anyone has a better test, I would love to hear it.  This test has specific weaknesses, some of which I will explain.

The subjugation test: "Do you help produce basic necessities?"

In order to survive, there are a few basic necessities that every human being absolutely needs.  We cannot live without food and water.  Shelter is an important tool for survival because it protects us from the elements.  Shelter also allows us to create a protected area to ensure the safety of ourselves and our loved ones.  Clothing, like shelter, is important for protection from elements.

These are the basic necessities: water, food, shelter, clothing.

There are a lot of other important things, many of which may contribute to survival.  But these are absolute prerequisites.  If you hope to survive, these things are absolutely necessary.  While other goods and services may be useful, they are not required in all survival situations.

The subjugation test is a simple question: Are you involved in the production of basic human necessities?  Everyone needs these items to survive, everyone consumes these items.  If you aren't doing anything to help produce these survival items, then someone else is doing that for you.  Are the people who produce your basic necessities getting fair value in return?

At this point, you may want to make arguments about trade and division of labor.  These are great tools, and I think we should use them.  However, I want to suggest that unless you can account for the origins of your basic necessities, there is a good chance that people are being taken advantage of somewhere along the way.

Why this assumption? Why do I just assume that some people aren't getting fair value in return?

My assumption is based on human nature.  Human nature is a pretty consistent thing.  When someone is struggling to survive, the first thing that they care about is basic human necessities.  They won't care about anything else until their basic necessities are met.  Specifically, that person doesn't care about whatever goods or services you are providing to the economy.  But their work goes to serve your basic necessities.  

Somehow the value isn't coming full cirlce.  They are working for you, but you are not working for them.  That is the definition of subjugation.

Until every able-bodied person has reasonable opportunities to participate in the production of basic necessities, there is enormous potential for economic abuse.  How does this abuse occur?  Anyone in an economically secure position will use the necessities of others as leverage to get a better deal on the things they want.  So long as some people are struggling to secure basic necessities, everyone else in an economy, not just those with great wealth or power, will take advantage of the disadvantaged people.  When people are disadvantaged, everyone else in a marketplace will unconsciously take advantage of them.

When people are disadvantaged, everyone else in a marketplace will unconsciously take advantage of them.

Ideally, the best way for disadvantaged people to secure basic necessities is by participating in the production of basic necessities.  Access to the production of necessities is just as important as access the necessities themselves.  This is the only way to scale the jobs available to match the needs of the economically disadvantaged.

Access to the production of necessities is just as important as access the necessities themselves.

Should the economically disadvantaged be working in call centers?  Should they be washing dishes in restraunts?  Should they be cleaning corporate office buildings?  Should they be landscaping corporate properties and cleaning hotel rooms?

If they want to do this kind of work, they should be able to do these things.  But the one thing that all these jobs have in common is that they are providing goods and services that they themselves can't afford.  This sounds like economic subjugation to me.  At this point it's not about specialization or comparitive advantage.  At this point some people are the servants and some people are the masters.

In order to remedy this, the economically disadvantaged should always have numerous options to be more directly involved in the production of their own basic necessities.  These opportunities should be available to everyone, rich or poor, to help create the basic necessities that they rely on to survive from day to day.

These opportunities should be available naturally without relying on the creation of specific governmental programs to create these opportunities by mandate.  However, the government could play an important role by spearheading research and experiments that would shed light on how economics and government affect the availability of these kinds of opportunities.

Weaknesses of this test

As I mentioned before, this test is not perfect.  Specifically, it can be hard to distinguish between economic cooperation, such as trade and specialization of labor, and economic subjugation. 

Economic cooperation is where people take on different roles based on what they are good at and what they prefer to do.  Economic subjugation is where some people control or manipulate the choices that are available to other people for the latter's benefit.

What makes it tricky is that economic cooperation and economic subjugation often look the same on the surface.  What people do for a living doesn't automatically tell us whether they are being subjugated or not.

But the point I want to make is that the availability of different kinds of work can be a strong indicator of subjugation when the markets are being manipulated.

Specifically, jobs producing useful and essential things should be readily available.  Furthermore, the amount people earn doing these jobs should be roughly proportional to the amount they create.

There is a important tradeoff invovled that we need to be aware of.  This is the tradeoff involving infrastructure, productivity, and profit shares.  More infrastructure (factories, supply chains, expensive tools and machines) helps make people more productive, but at the same time, when that infrastructure is owned by someone else, the individual worker gets a smaller share of the profits.

For example, when you work in a factory making shoes, you make a lot more shoes than you would working alone, but when you work alone you get 100% of the profit.

The optimal scenario probably involves something in the middle.  Individuals should have the flexibility to determine whether they work for a big corporation, whether they work for themselves, or whether they do something in between.  They should also have enough flexibility to work on things that they feel are important, that provide real benefit for themselves or others.

When this is not the case, something is definitely wrong.

Relevant Links

http://strikemag.org/bullshit-jobs/

http://www.theguardian.com/lifeandstyle/2013/sep/07/column-change-life-bullshit-job