Seems increasingly like the race for 19th Century social inequality is on! Interesting reads by Henry C.K. Liu and a story in the LA Times about the Governator's plans to dismantle the state's Temporary Aid to Needy Families system.


From the LA Times:

Gov. Arnold Schwarzenegger on Tuesday sent lawmakers his plan to trim more than $5 billion in spending by dismantling or drastically curtailing state programs that provide Californians with healthcare, higher education, welfare, parks, AIDS treatment and counseling, prisoner rehabilitation and other services.

I know that many people will read this and think, "Good, make the shiftless welfare queens work for a living like everyone else!!!" Of course, even before the reforms of national welfare programs in 1996, which have essentially made life as a 'welfare queen' financially impossible, and time-limited to 5 years of total support across one's adult life, trying to eke out a living on welfare supports was always a miserable thing and practiced by a tiny few.

The greater concern is that now it is the very low wage workers that are losing their work in the housing collapse who need these supports as short term unemployment, for those even eligible to access such supports, runs out. Schwarzenegger is essentially promising emiseration as his 'solution' to the fiscal crisis, for a generation and more. If the Democratic majority legislature goes along with this, God help us, this state is going to end up looking like much of the rest of Latin America, little oases of comfort and wealth, surrounded by teeming masses huddled in shanty towns along the urban perimeter.

And so it goes for all the attempts to rescue the financial industry by the world's central bankers, Liu writes,

Central bankers are savvy enough to know that while they can create money, they cannot create wealth. To bind money to wealth, central bankers must fight inflation as if it were a financial plague. But the first law of growth economics states that to create wealth through growth, some inflation needs to be tolerated.

The solution then is to make the working poor pay for the pain of inflation by giving the rich a bigger share of the monetized wealth created via inflation, so that the loss of purchasing power from inflation is mostly borne by the low-wage working poor and not by the owners of capital, the monetary value of which is protected from inflation through low wages. Thus the working poor loses in both boom times and bust times.

Inflation is deemed benign by monetarism as long as wages rise at a slower pace than asset prices. The monetarist iron law of wages worked in the industrial age, with the resultant excess capacity absorbed by conspicuous consumption of the moneyed class, although it eventually heralded in the age of revolutions. But the iron law of wages no longer works in the post-industrial age in which growth can only come from mass demand management because overcapacity has grown beyond the ability of conspicuous consumption of a few to absorb in an economic democracy.

That has been the basic problem of the global economy for the past three decades. Low wages even in boom times have landed the world in its current sorry state of overcapacity masked by unsustainable demand created by a debt bubble that finally imploded in July 2007. The whole world is now producing goods and services made by low-wage workers who cannot afford to buy what they make except by taking on debt on which they eventually will default because their low income cannot service it.

So, the plan, such as it is it to try and 'save' the global economy by driving ever more wealth into the coffers of the wealthy. Yet, all the money creation plans in process cannot and will not create new wealth. This means that the wealthy must take wealth from the 99% masses (yea, that's you and me too!) in order to see any personal wealth increase. And, it is the poorest among us who feel this the most immediately, and the most painfully. In this light, Schwarzenegger's 'plan' to balance the budget on the backs of the poor, while protecting the interests of his friends in the Oligarchy makes total, if misguided, sense.

Where does this end up, exactly where is ended in the middle to late 19th century,

The monetarist iron law of wages worked in the industrial age, with the resultant excess capacity absorbed by conspicuous consumption of the moneyed class, although it eventually heralded in the age of revolutions." (Henry C.K.Liu)

Only this time, Paris Hilton's conspicuous consumption is not enough,

But the iron law of wages no longer works in the post-industrial age in which growth can only come from mass demand management because overcapacity has grown beyond the ability of conspicuous consumption of a few to absorb in an economic democracy. (Henry C.K. Liu)

And with that in mind, there is this little nuggett, also from the LA Times,

Like everybody else in his farming village, Zhan Changchun used to get around on a bicycle. This month, the 29-year-old walked into a local dealership, pulled out $7,300 in cash from his leather satchel and drove away with the family's first car: a seven-seat micro-minivan that's jointly produced by China's Wuling and General Motors.

The Zhans drained their life savings and borrowed from relatives, bold moves in a slowing economy. But they couldn't resist a slew of government incentives: a 50% sales tax reduction, elimination of hundreds of dollars in road maintenance fees, plus the biggest of them all, a 10% rebate for rural residents buying vehicles with engines smaller than 1.3 liters.

It's all part of Beijing's "Send Automobiles to the Countryside" campaign, an effort to speed rural development and boost domestic consumption at a time when foreign demand for China's manufacturing exports is slumping. The government is also giving people in the countryside rebates for buying refrigerators and other appliances. ...

I love it when the theory of the day is so easily exemplified in the news of the day, don't you?

Random Bits April 6, 2009

Economic Vignettes

Selling eggs door to door. A man came to the door today while I was at work and spoke to my wife. He was selling new doorbell face covers and offering installations for $65.00. Apparently, he was peddling quite a collection. I imagine brass suns or little carriage houses. My thought was this was a little like selling eggs during the depression. When there is no work, people get creative.

Minimum wages and non-profits. Two graduating students drove up to UCLA for a big "job fair" from SUA. Dressed to the nines, hoping to convey professionalism. Spoke to one in the coffee shop on campus just after they had returned. [Definite worry over an uncertain future etched in her face]. She did not want to return home and live with the family again, though she said it might be OK for a while ... Most firms were not hiring full-time but looking for interns for volunteers. Seems the minimum starting wage in this sector starts at zero. A few public sector divisions were hiring, the Federal Government needs new agents for all sorts of new work in an imploding national economy.

Students not ready ... seek lifelong learning as solution to failures of education. This report belongs in the "irony bin." Seems a colleague was meeting with some recent grads on a recent trip to the east coast. Wanted to get the low down on strength and weaknesses in their SUA experience. One student wished that formal logic was emphasized more or that he had been able to take more econ. He decided to work on his own to develop both. So, in pursuing additional learning on his own, the college succeeded by failing in the most satisfying way for an educator like me. "Give a man a fish and ..."

There are no homunculi running the system. I assigned a couple of pages from John Gray's collection, Straw Dogs, for my CORE 200 class this week. I wanted to discuss the possibility of the illusory self with the students after reading Nietzsche and Sartre last week (each building their ideas on the idea of the self as center of individual will and action). I like the selections because they deal with the illusion of central control in systems that actually have none (i.e., ants, termites, markets, human cognition). Gray writes (p. 72),

The notion that our lives are guided by a humonculus -- an inner person driving our behavior -- arises from our ability to view ourselves from the outside. We project a self into our actions because by doing so we can account for the way they seem to hang together. The continuities we find are frequently imaginary, but when they are real it is not because anyone put them there. Our behavior displays a good deal of order, but it does not come about through any inner person ordering it.

Gray quotes R A Brooks at length:

Just as there is no central representation there is no central system. Each activity connects perception and action directly. It is only the observer of the creature who imputes a central representation or central control. The creature itself has none: it is a collection of competing behaviors. Out of the local chaos of their interactions there emerges, in the eye of the observer, a coherent pattern of behavior.

Is this not also possible for systems like the "economy" or "nation"?