If, as a nation, you are already at the leading edge of knowledge, culture and industry, and if the right conditions come together and give you a sudden upward lift that is unprecedented in scope and intensity, you will most likely experience a renaissance that will prompt you to score spectacular advances in all fields of human development. For centuries after that, you will create and build signposts that will forever bear testimony to your accomplishments and speak of your contribution to world Civilization.
Your growth up to the time of the renaissance will have been a natural organic growth, and the construct of your culture will have been a solid one as a result. The renaissance itself will have happened as a consequence of the advances made up to the time that it appeared; and when it takes hold and solidifies, its effect will be felt throughout the culture of which it will soon become an integral part. In due course the renaissance will help the culture to crystallize into a construct that will come to be recognized as a full fledged civilization. In fact, this has been the historical record of the European nations in the cycle that began in the Middle Ages and culminated with the Renaissance that bloomed to become Western Civilization, a force that took on the dominant civilizations of the time and overwhelmed them.
If, on the other hand, time has passed you by and you find yourself to be underdeveloped compared to the other nations despite what you may have accomplished in the past, you have much work to do to rise again and take your place under the sun. For one thing, you can provoke a long march toward an artificial renaissance aimed at catching up with those ahead of you. And to succeed in this, you will have to implement a plan that will allow you to make advances in every field of human endeavor and thus rise to a great height one step at a time.
Indeed, if you were underdeveloped by the time the Twentieth Century had come around, it is likely that you have provoked an artificial renaissance already. But let it be known that the growth you may have simulated was by no means an organic one. Unless you succeeded in closely mimicking the organic growth of the developed nations, your own development will have been less than perfect and would have created mismatches that resonated throughout the culture and spilled over to the rest of the world. In fact, this has been the case with most of the developing nations in Asia, the Middle East, North Africa and South America where they experienced bouts of fits and starts as they ironed out their mismatches.
Despite all of that, however, the worldwide situation remained manageable till such time that the unintended consequence appeared out of nowhere to remind us that we cannot predict the march of history before things happen. And what happened was that the advanced nations, known collectively as the West, woke up one day to realize that by using a quirk of the economic system created by them, the developing nations were putting them out of business one trade at a time. And this is the situation in which we find ourselves today, a situation that has implications serious enough to cry out for attention. The predicament in which we are is real because the world has been flattened by modern technology and because everyone’s interest has become intertwined with everyone else’s interest. To paraphrase the metaphors and to mix them, we find ourselves in the same boat ready to sail together or drown separately.
And this interdependence is what exploded the economic crisis of the year 2008; an event that some people had predicted but no one had imagined would be this severe and this widespread. Luckily, the central bankers in the West had learned the lesson of eight decades previous to that and they succeeded in stabilizing their economies. They pulled away from the precipice that would have taken them down a second great depression while the other economies of the world managed to come back to life in record time.
So then, where do we go from here? The short answer is that the world economy needs to be overhauled and that everyone needs to get on with their moment of renaissance. The developing nations know what they must do and they are doing it. If anything, they tend to go overboard doing the right thing and they should be told politely but firmly that they need to restrain themselves when challenging the Western economies which are still fragile. As for the latter, the European part of those economies had begun a program of sustained growth before the crisis; and they may have to modify it in order to continue muddling through till the developing nations develop enough to stop throwing cheap goods at them.
The hard core problem that remains is the United States of America. This is a nation that has existed in a perpetual cycle of renaissance due to its history. First, the Natives were slaughtered and their wealth looted; a lucrative business by any measure except the moral one. Then, slave labor and capital were brought to America to fuel the agrarian economy. Then, immigration caused by famine elsewhere in the world brought skilled labor and new capital to build the infrastructure of the modern industrial economy. Then the great wars of Europe brought in more capital along with the entrepreneurs, scientists and thinkers of all kind that catapulted the country to the status of a superpower, rivaled for a period by the Soviet Union then by no one.
It was this history that sustained America’s uninterrupted growth throughout the centuries. However, the growth was a useful development in many ways but useless and dangerous in a few other ways; and this is what planted the seeds for America’s current woes. Indeed, no longer is there a native population to slaughter and to loot. What is left of these people is an impoverished group sitting on a land that hides very little in mineral resources. Also, no longer are slaves brought into the country to pick cotton or to man the sweat shops where the cotton and the other fibers are made into garments. And no longer are there skilled laborers or highly educated individuals desperate to go to America by the boat load as it used to be. If anything, there is a reverse brain drain which takes people back to their countries of origin where they see better opportunities to raise a family.
And while the population of those who do things in America is diminishing, the population of those who do little or nothing is increasing. These are the youngsters who live and loiter in the inner cities; those who have little or no education, no skill, no job history and no hope of ever joining the regular economy. Aside from this group, there are the people who already committed more than their share in the realm of crime. They sit in the jails of the nation looked after by the state at a very high cost to the taxpayers. It is therefore clear that America’s moment of renaissance will have to touch on all these areas simultaneously or there will be no renaissance in that country. And this would be a serious occurrence given that the rest of the world is moving toward a global arrangement where everyone will have a place under the sun.
What should America do?
It has been said that America’s political genius comes to the fore at election time because the people always choose the mix of candidates that suits the moment from among those who run for office. If this is true, then the election of Mr. Barack Obama as President must have had a purpose, and the message of the people must be that the biracial community organizer they have elected holds the key to America’s salvation.
If so, what this man should do for America is take the big risk and plunge into a multi-layered plan that will embrace renaissance in all its elements. The plan will have a long term objective requiring a mid term objective to be completed which, in turn, will require a short term objective to move forward. The work will proceed at all levels simultaneously and make visible progress on a weekly if not daily basis. It will be a massive project that will start immediately and take as much as a generation to complete. And it will be a project that the whole nation will be happy to rally around and be a part of.
The President will start the ball rolling with a prime time address to the nation in which he will make the following points:
1 - We shall build a society in which our wellbeing will no longer depend on the importation of geniuses, hard working or well motivated people from abroad to fuel our economy. Our own schools will produce such geniuses and our society will provide the reason to motivate them.
2 - We shall accomplish all this by repealing the government subsidies that build bridges to nowhere and factories that turn wholesome food into fuels that harm the environment and ruin the economy. We shall also refrain from getting involved in costly and deadly foreign adventures. And we shall use the money saved to implement the programs which will encourage the development of a local talent that can imagine a sustainable economy and can build it from scratch.
3 - Because the repeal of a subsidy always hurts the state and the district to which it was going, we will make sure that every state will gain as much as it loses. In fact, we shall ask the senators, the house representatives and the governor of every state to participate in the decisions that will determine how the old should be phased out and the new phase in.
4 - We shall continue to adhere to the principle of free trade with foreign nations, and to the principle of a minimum wage at home but we shall take another look at both so as to refine them and make them work better for everyone.
5 - With regard to free trade, we no longer subscribe to the winner-take-all quirk that some people worship as an economic philosophy. On the contrary, we consider it essential that every nation be given the right to protect certain sectors of its economy up to a negotiated level so as to safeguard national security or to maintain the cohesion of its people. We believe that the level ought to be 30% of the goods and services that the nation consumes in a given sector but this level is negotiable. We shall discuss these ideas with the rest of the world and see to it that they are adopted. And the good news is that this system will replace the practice of gaming the current set-up which everyone knows does not work and tries to get around.
6 - This done, we shall call on private enterprise to come up with concrete plans for every state of the union whereby the hard core unemployed among the young will be housed, educated, employed, supervised and paid the wage of an apprentice. This will be less than the minimum wage and will remain in effect until such time the candidate is ready to join the regular economy. These people will be making the cheap goods we now import from abroad such as textiles, leather goods, furniture, souvenirs, building material, toys, appliances, electronics and so on.
7 - Perhaps as many as ten million youngsters living in the inner cities will benefit from this plan. It will be a massive job to build the facilities that will house them, educate them and employ them; and it will be a massive job to recruit the professionals who will stand by them where they will be lodged, educated, trained and put to work.
8 - A similar program will be implemented in parallel so as to achieve the same result with the people who are incarcerated. These people will be paid a wage that ranges between the current prison pay and that of apprentice. Some of the money will be kept in trust so that when they leave jail, they will have money to start them in life. With this and with a basic education, a skill and a job history, they will be less prone to recidivate.
9 - Perhaps as many as two million people now incarcerated will benefit from the plan because it will steer them away from crime and shepherd them toward a wholesome life. And this too will be a massive undertaking to pull off.
10 - Both plans will begin immediately and may have to go on for a generation. They will stimulate the regular economy right away because private business will be called upon to realize them. Because the money to fund them will come from the elimination of the subsidies now wasted on useless projects, the material benefit to the economy will be enormous while the cost will be minimal. As for the moral benefit to society, it will be incalculable when you consider the effect that they will have on the current generation and future ones.
11 – In addition to that, the products that these people will be making will replace what we import from abroad, a fact that will help our balance of payment. And there is one more thing that should fire up your imagination. The labor force working in American manufacturing today barely reaches the 20 million mark; and it is on the shoulders of these people that our 14 trillion dollar economy rests. If we add 10 million more skilled and semi-skilled workers to this force, think of what the economy will look like.
12 - With these two plans, we launch our renaissance. The Chinese whose population is 4 times the size of ours have managed to pull 500 million people out of backwardness and push them into modernity. We should be able to do the same with 10 or 12 million of our people. And the result to the nation will be the complete transformation of our society. This was the mandate given to us by the last election as I understand it, and I urge every one of you to find a way to participate in this long term national project.
Wednesday, November 25, 2009
Thursday, November 19, 2009
A Senate Of Jekylls And Of Hydes
The US House of Representatives has passed a bill that should extend health care coverage to most Americans, and the US Senate is about to debate its own version. If the Senate bill passes and if reconciled with the House version, America will have given itself the document by which to join the civilized world. Like their counterparts in the advanced nations, most Americans will at last be covered with a blanket of security. And this will happen not because there is an incentive to looking after one’s own people but because it is the right thing to do. However, despite the fact that this much is at stake, the battle in the Senate will not be an easy one because this is not a chamber of Saints but a chamber of Jekylls and of Hydes. What transpired during the debates that unfolded, first in the country at large then in the House of Representatives, says that we are in for quite a show.
If you followed those debates you could not have missed the arguments that were made by prominent people such as the multitude of current legislators, the handful of former officials and the swarm of talking heads that staked out some truly astonishing positions. In general, these people were not the least bit shy to say it suits them fine to let 15% of the population go without health coverage so that the money saved may be spent on research and development to make health care better for the remaining 85% who now enjoy what they said was the best health care system in the world. These people and their talking heads deliberately avoided saying that America has the best coverage because they knew this was demonstrably false, so they said America has the best system because they could point to a handful of medical centers of excellence that are among the best in the world. What the talking heads failed to mention, however, was that such centers are not the exclusive domain of America but that they exist everywhere in the developed world as well as in some emerging nations where Americans increasingly go to get treatment.
Be that as it may, the question to ask at this stage is this: Have some people in America decided there are a trade-off and a choice to be made here? If so, have they chosen what amounts to a Robin Hood in reverse? When pressed to answer these questions, the people who previously staked out astonishing positions now go round and round unable to say anything that makes sense. And when you dig deep into what came out their pen and out the generator of their sound bites, you find them to be saying that because the centers of excellence cater to the rich, a coverage that is universal will take away this privilege from the poor fellows. Someone will then ask in utter puzzlement: what poor fellows? And the brazen answer will come back: the poor rich fellows, you see. Amazed and flabbergasted, you will dig deeper into the matter only to discover that the brouhaha was instigated by the insurance companies because they stand to loose business by losing not a captive audience given that very few listen to them, but a captive population because the one thing from which no one can escape is an illness, especially a catastrophic one afflicting you or a member of your family. You are in the grip of the insurance companies and they want you there without a public option to set you free or give you the least bit of hope because they feed on your misery and that of your loved ones.
In essence then, what these people use as an excuse to further the interests of the insurance companies is the argument that the centers of medical excellence are financed with the money that would go to cover the people now living without coverage. And should the coverage be extended to everyone via something like a public option, money will be diverted away from the centers, an idea they oppose because it runs contrary to the dogma to which they adhere. This is the dogma that says some people must make do with less or do with nothing at all so that a handful of people may have more, and more of the best. This is the essence of the capitalist ideal as they see it, one that the rest of the world sees as peculiar only to America, one that was derided as being Cowboy Capitalism.
To an outside observer like myself living in Canada and truly enjoying one of the best universal coverage on the planet, I look at these arguments with amazement and wonder what happened to these Americans. Over the past half century, I saw America go into spasms of every kind but they all meant to separate the issues so as to look at each one of them in isolation and come to understand it better. But what seems to happen now is that every issue is melded into a nebulous master narrative that says: If you are against this or against that, you are against the whole. And since we are whole and nobody else is, if you are not with us half-heartedly you are against us wholeheartedly. Not only that, you are also at war against us which puts us at war against you. But if you want to switch sides and be with us, be advised that your marching order for the day is to oppose universal coverage and to fight it tooth and nail.
To me, this means America has gone back to the business of eating from the cake of its own Benign Neglect. But this time the country is doing it with a twist that is different from anything I have seen before and so I ask: What are these people up to now? To answer the question I first observe that benign neglect is not new to America. The term was borrowed from British history by the late Senator Patrick Moynihan who suggested to then President Richard Nixon that America adopt a policy of benign neglect toward the African American segment of the population. But after all these years, it became increasingly clear to me that the word benign was injected in the term for the sole purpose of making the neglect look like a misunderstanding. I make this judgment based on my assessment of Moynihan’s conduct and I conclude that the real intent of benign neglect was more malicious than it was innocent.
How malicious was that? Well, things get a bit complicated here because I can only explain a deliberate misunderstanding by discussing another misunderstanding that was not deliberate but were, in fact, innocent. Like I said, it is going to get complicated so please bear with me. Most people believe that the phrase “Let them eat cake” means “Let them go to hell” when in reality it was meant to convey the opposite. This is how the story goes: Long ago, France ran out of food, and famine was beginning to set in. When told that the people had no bread, the Princess in charge uttered what comes naturally to someone living in a palace. Normally, the discourse would go something like this: We’ll just have to eat cake till the servants are done baking the bread. And this was the spirit in which the Princess said “Let them eat cake”. Legend has it that Marie Antoinette was the Princess who uttered the phrase and if anything, that woman lived up to her reputation in that she demonstrated how little she understood the difficult times through which her country was passing.
Marie Antoinette did not commit a deliberate act of malice but was the victim of an innocent misunderstanding created by her inability to grasp the complexity of the situation. However, given her stature and her privilege, this is not how the utterance sounded at the time or how it survived to this day. In fact, the utterance is now taken to mean “Let them go to hell” which is exactly what Benign Neglect was meant to convey by the late Senator and by those who wore his mantle after his passing. But whether we have here a case of let them eat cake or a case of benign neglect, most people see it as a case of the mask dropping to reveal an aspect of American reality no one thought existed. Hence, let it be known that we are witnessing the unfolding of a twist in American history that is gradually revealing the uniqueness of our time. It is that the neglect is no longer directed against the African American segment of the population or against any one ethnic group but is directed against anyone that may be unfortunate enough to fall between the cracks of this imperfect system.
Beyond all of this, there is an aspect of culture and society that needs to be clarified. What is puzzling is that a situation such as the one described above should be associated with the American people who are thought to be among the most generous in the world. These people donate as much as a quarter of a trillion dollars every year to various causes in societies near and far yet they fight ferociously to deny life saving medical coverage to a good chunk of their own society. They say with a straight face that they lead this fight because it will cost too much to cover everyone when the reality is that the money required to cover the uninsured will amount to less than what they donate. So why are these people the way they are? Is it because charity is tax deductible while health coverage is not? Is this the only reason?
This may be one reason. After all, incentives dispersed by the government greatly influence the decisions that people make every day. But there could be another reason too. It could be that the Americans are ruled by the power of the same old dogma which also says it is a sin for government to distribute the wealth of a nation. As hard as it is to understand this self-contradictory argument, it gets harder still when we assess the oddity of a situation where the people who adhere to a dogma that is this harsh can also be this charitable.
When someone exhibits this kind of split personality, the stereotype that comes to mind is that of Robert Stevenson’s novel Dr. Jekyll and Mr. Hyde. This is the story of a medicine man who produces a substance which allows him to switch back and forth from being a helpful doctor to being a hurtful drifter. The story serves as a metaphor reflecting an America that is a kind of Dr. Jekyll without borders who heals people around the globe. But the story also reflects an America that is a kind of Mr. Hyde who deliberately abandons his people to benign neglect as they hunger for a medical coverage they can depend on. What a modern horror story this is!
The double image of America does not reassure the nations of the world as to the trustworthiness of that country. Consequently, this image must be changed, and the US Senate has the opportunity to do just that. In fact, the Senate can bring back the image of an America that the world used to love and respect. It can do that by morphing the current image into that of a Dr. Jekyll minus the associated shadow of Mr. Hyde. While I have no illusions about a Senate that is made of individual Jekylls and individual Hydes, I am convinced that the upcoming debate on health care will tell the world whether the Senate as a whole is closer to being a Dr. Jekyll or a Mr. Hyde. And the way in which the world will come to view the Senate will be the way in which the world will eventually come to see America as a nation.
So go ahead, Senators, do your thing and show the world what you are made of -- what America is made of. Say yes to your people and the world will believe in your generosity. Say no to your people and the world will see you as the incestuous father who will do anything to look saintly in the eyes of his neighbors but then rapes his own children when no one is there to witness the horror.
If you followed those debates you could not have missed the arguments that were made by prominent people such as the multitude of current legislators, the handful of former officials and the swarm of talking heads that staked out some truly astonishing positions. In general, these people were not the least bit shy to say it suits them fine to let 15% of the population go without health coverage so that the money saved may be spent on research and development to make health care better for the remaining 85% who now enjoy what they said was the best health care system in the world. These people and their talking heads deliberately avoided saying that America has the best coverage because they knew this was demonstrably false, so they said America has the best system because they could point to a handful of medical centers of excellence that are among the best in the world. What the talking heads failed to mention, however, was that such centers are not the exclusive domain of America but that they exist everywhere in the developed world as well as in some emerging nations where Americans increasingly go to get treatment.
Be that as it may, the question to ask at this stage is this: Have some people in America decided there are a trade-off and a choice to be made here? If so, have they chosen what amounts to a Robin Hood in reverse? When pressed to answer these questions, the people who previously staked out astonishing positions now go round and round unable to say anything that makes sense. And when you dig deep into what came out their pen and out the generator of their sound bites, you find them to be saying that because the centers of excellence cater to the rich, a coverage that is universal will take away this privilege from the poor fellows. Someone will then ask in utter puzzlement: what poor fellows? And the brazen answer will come back: the poor rich fellows, you see. Amazed and flabbergasted, you will dig deeper into the matter only to discover that the brouhaha was instigated by the insurance companies because they stand to loose business by losing not a captive audience given that very few listen to them, but a captive population because the one thing from which no one can escape is an illness, especially a catastrophic one afflicting you or a member of your family. You are in the grip of the insurance companies and they want you there without a public option to set you free or give you the least bit of hope because they feed on your misery and that of your loved ones.
In essence then, what these people use as an excuse to further the interests of the insurance companies is the argument that the centers of medical excellence are financed with the money that would go to cover the people now living without coverage. And should the coverage be extended to everyone via something like a public option, money will be diverted away from the centers, an idea they oppose because it runs contrary to the dogma to which they adhere. This is the dogma that says some people must make do with less or do with nothing at all so that a handful of people may have more, and more of the best. This is the essence of the capitalist ideal as they see it, one that the rest of the world sees as peculiar only to America, one that was derided as being Cowboy Capitalism.
To an outside observer like myself living in Canada and truly enjoying one of the best universal coverage on the planet, I look at these arguments with amazement and wonder what happened to these Americans. Over the past half century, I saw America go into spasms of every kind but they all meant to separate the issues so as to look at each one of them in isolation and come to understand it better. But what seems to happen now is that every issue is melded into a nebulous master narrative that says: If you are against this or against that, you are against the whole. And since we are whole and nobody else is, if you are not with us half-heartedly you are against us wholeheartedly. Not only that, you are also at war against us which puts us at war against you. But if you want to switch sides and be with us, be advised that your marching order for the day is to oppose universal coverage and to fight it tooth and nail.
To me, this means America has gone back to the business of eating from the cake of its own Benign Neglect. But this time the country is doing it with a twist that is different from anything I have seen before and so I ask: What are these people up to now? To answer the question I first observe that benign neglect is not new to America. The term was borrowed from British history by the late Senator Patrick Moynihan who suggested to then President Richard Nixon that America adopt a policy of benign neglect toward the African American segment of the population. But after all these years, it became increasingly clear to me that the word benign was injected in the term for the sole purpose of making the neglect look like a misunderstanding. I make this judgment based on my assessment of Moynihan’s conduct and I conclude that the real intent of benign neglect was more malicious than it was innocent.
How malicious was that? Well, things get a bit complicated here because I can only explain a deliberate misunderstanding by discussing another misunderstanding that was not deliberate but were, in fact, innocent. Like I said, it is going to get complicated so please bear with me. Most people believe that the phrase “Let them eat cake” means “Let them go to hell” when in reality it was meant to convey the opposite. This is how the story goes: Long ago, France ran out of food, and famine was beginning to set in. When told that the people had no bread, the Princess in charge uttered what comes naturally to someone living in a palace. Normally, the discourse would go something like this: We’ll just have to eat cake till the servants are done baking the bread. And this was the spirit in which the Princess said “Let them eat cake”. Legend has it that Marie Antoinette was the Princess who uttered the phrase and if anything, that woman lived up to her reputation in that she demonstrated how little she understood the difficult times through which her country was passing.
Marie Antoinette did not commit a deliberate act of malice but was the victim of an innocent misunderstanding created by her inability to grasp the complexity of the situation. However, given her stature and her privilege, this is not how the utterance sounded at the time or how it survived to this day. In fact, the utterance is now taken to mean “Let them go to hell” which is exactly what Benign Neglect was meant to convey by the late Senator and by those who wore his mantle after his passing. But whether we have here a case of let them eat cake or a case of benign neglect, most people see it as a case of the mask dropping to reveal an aspect of American reality no one thought existed. Hence, let it be known that we are witnessing the unfolding of a twist in American history that is gradually revealing the uniqueness of our time. It is that the neglect is no longer directed against the African American segment of the population or against any one ethnic group but is directed against anyone that may be unfortunate enough to fall between the cracks of this imperfect system.
Beyond all of this, there is an aspect of culture and society that needs to be clarified. What is puzzling is that a situation such as the one described above should be associated with the American people who are thought to be among the most generous in the world. These people donate as much as a quarter of a trillion dollars every year to various causes in societies near and far yet they fight ferociously to deny life saving medical coverage to a good chunk of their own society. They say with a straight face that they lead this fight because it will cost too much to cover everyone when the reality is that the money required to cover the uninsured will amount to less than what they donate. So why are these people the way they are? Is it because charity is tax deductible while health coverage is not? Is this the only reason?
This may be one reason. After all, incentives dispersed by the government greatly influence the decisions that people make every day. But there could be another reason too. It could be that the Americans are ruled by the power of the same old dogma which also says it is a sin for government to distribute the wealth of a nation. As hard as it is to understand this self-contradictory argument, it gets harder still when we assess the oddity of a situation where the people who adhere to a dogma that is this harsh can also be this charitable.
When someone exhibits this kind of split personality, the stereotype that comes to mind is that of Robert Stevenson’s novel Dr. Jekyll and Mr. Hyde. This is the story of a medicine man who produces a substance which allows him to switch back and forth from being a helpful doctor to being a hurtful drifter. The story serves as a metaphor reflecting an America that is a kind of Dr. Jekyll without borders who heals people around the globe. But the story also reflects an America that is a kind of Mr. Hyde who deliberately abandons his people to benign neglect as they hunger for a medical coverage they can depend on. What a modern horror story this is!
The double image of America does not reassure the nations of the world as to the trustworthiness of that country. Consequently, this image must be changed, and the US Senate has the opportunity to do just that. In fact, the Senate can bring back the image of an America that the world used to love and respect. It can do that by morphing the current image into that of a Dr. Jekyll minus the associated shadow of Mr. Hyde. While I have no illusions about a Senate that is made of individual Jekylls and individual Hydes, I am convinced that the upcoming debate on health care will tell the world whether the Senate as a whole is closer to being a Dr. Jekyll or a Mr. Hyde. And the way in which the world will come to view the Senate will be the way in which the world will eventually come to see America as a nation.
So go ahead, Senators, do your thing and show the world what you are made of -- what America is made of. Say yes to your people and the world will believe in your generosity. Say no to your people and the world will see you as the incestuous father who will do anything to look saintly in the eyes of his neighbors but then rapes his own children when no one is there to witness the horror.
Wednesday, November 11, 2009
The Joys Of Electro-Economics
Ideas an American President should mull over on his way to China.
A great deal of the knowledge I have acquired in economics happened because I decided one day to compare the flow of money inside an economic set-up of which I knew very little with the flow of electrons inside an electronic circuit of which I knew quite a bit. Thus began my passion to twin the set-up of one with the circuit of the other and decipher the mysteries of economics by analyzing the equations of electronics. And I must admit I still find the exercise to be pure joy every time I dip into it.
Interestingly enough, the comparison also helps to clarify the misconceptions that arise in both fields. For example, the misconception that students of electronics envisage most frequently before they get into the course concerns the concept of amplification. Likewise, the misconception that laymen envisage most frequently in economics concerns the multiplier effect. And when we compare amplification with the multiplier effect, we see how closely the two concepts parallel each other.
Most students begin the course believing that to amplify means to take a small bundle of energy and make it big. Because this is a false notion that has the potential to create serious trouble later on, the teacher must erase it from the mind of the students early on and thus eliminate the source of a big headache down the road. And the best way to do this is to replace the notion with the correct definition of amplification using a visual example.
Here is how I used to do it. I would ask the students to count the number of light bulbs in the classroom and multiply by the wattage of each bulb so as to find the total consumption of energy. Let us say they find it to be 1,500 watts which is the equivalent of 2 horsepower. I tell them that an athlete pedaling a stationary bicycle attached to an electric generator produces about 100 watts of electricity. This means it would take 15 athletes to generate enough electricity to light up this classroom. I then ask the students to guess how much energy a single finger can generate and they correctly guess 1 watt or less.
I now walk to the light switch and use my finger to flick it up and down a few times so as to flicker the lights on and off. I explain that with 1 watt of finger power, I was able to control 1,500 watts of light. And I underscore that this is a demonstration of the concept of amplification. I further explain that I was able to do this amplification not because my finger generated the energy of 15 people or 2 horses but because the hydroelectric company supplied this energy and that my finger only controlled or modulated the flickering of the light. The lesson to be learned here is that electronic gadgets need an outside source of power such as a battery or a wall socket to feed them and do the work they are expected to do. This supply is separate from the small power that modulates it inside the gadget. The two powers remain separate at all time; and even though we call the outcome of the operation amplification, the small power does not transform into the larger power. In more general terms, it also means that no small bundle of energy can ever be turned into a large bundle – so say the unbreakable laws of Thermodynamics.
This brings us to the Power Law. The power (W) in electricity is measured in watts, and it is made of two parts. There is the current (I) which is measured in amperes, and there is the potential (V) which is measured in volts. The product of the two yields the power as expressed by the equation:
W = I x V
We now draw a parallel between the power law of electricity and the GDP law of economics. We make the Money supply the analogue of the current and call it (M). We make the Velocity of money the analogue of the voltage and call it (V). It turns out that the GDP is the product of the Money supply and the Velocity of money as expressed by the equation:
GDP = M x V
Notice the resemblance between those two equations. The GDP being equal to the quantity of Money multiplied by its Velocity, we see that we can increase the GDP by increasing M or increasing V. However, the Central Bank and the Treasury of a country control the money supply and they are usually reluctant to increase it because the move can lead to inflation. This leaves the velocity of money as the only tool by which to grow the GDP safely. But the trouble here is that for some reason, the people sometimes prefer to maintain their economic activity at a low level or even decrease it. In doing this, they slow down the velocity of money; and there seems to be very little we can do to counter that. Or is there?
To study what motivates people to engage in economic activity at one level or another, we examine Ohm’s law in electricity and see if we can draw a parallel between it and Economics. Ohm’s Law is written like this:
V = I x R
Voltage = Current x Resistance
This is the Resistance of the circuit to conduct electrons.
Its analogue in economics would be this:
V = M x K
Velocity = Money supply x Keenness
This is the Keenness of the people to spend money.
Note that even though Resistance and Keenness are opposites in the vernacular of every day speech, they are interchangeable in mathematics depending on the value that is taken by the variable K. For example, K in this context can be one of three things. It can be (a) greater than 1 thus indicating that the people are keen to spend money or (b) equal to 1 thus indicating that the people are neutral about spending money or (c) less than 1 thus indicating that the people are not keen to spend money. This last part means that the people resist the idea of spending money which is analogous to a circuit that resists conducting electrons. As for the value of K, it can be determined by creating an index that tracks same store sales and other such indicators.
We see from the last equation that the velocity of money (V) can be made to increase by increasing the money supply (M) or increasing the keenness of the people to spend (K). However, having determined previously that increasing the money supply can cause inflation; we try to avoid doing that and we work on K alone. To put things succinctly, Keenness increases the Velocity of money which grows the GDP without increasing the Money supply that tends to create inflation. Neat, isn’t it! But how do we increase the keenness of the people to spend?
To do that, we make use of the amplifier/multiplier effect. In electronics, we use the vacuum tube or the transistor to amplify. These are sophisticated switches that do not need a finger to turn on and off but need a small signal at the input to do that. This signal modulates the large power that is taken from the wall socket or is supplied by a battery. Once modulated, the large power appears at the output as an amplified version of the small input signal. Now, every amplifier has a factor by which it amplifies, and we use the Greek letter Beta to represent this value. In the function of the amplifier, we find that the power at the output (Po) is equal to the power at the input (Pi) multiplied by Beta, and we express all this with the following equation:
Po = Pi x Beta
But where do you find the Beta of economics? Well, I define this Beta in two parts (1) having the ability to motivate people to engage in economic activities and (2) giving the people the financial means to engage in such activities. Indeed, a healthy level of economic activity is generated when the people are presented with a product or a service they want, and when they have the money to buy it with or at least have access to reasonable credit. Usually, the invention of a new product or the creation of a new service starts the ball rolling in this direction. Thus, innovation and the trust that creditors have in their borrowers are responsible for causing the increase in economic activity and they are what gives Beta a high value.
But we must be careful how we interpret what we see here by being aware of the following: The growth in GDP does not happen because we create something out of nothing; it happens when we produce what the buyers want at a price they can afford. The mistake that people make at times is that they rely on past accomplishments to splurge now in the belief that they are not paying a price for what they get. This leads to the formation of bubbles and to economic crises at which point the people realize they were not amplifying something small into something big but were living off the accomplishments of their ancestors and off the future toil of their descendants.
The second mistake that people make is that they neglect to take full advantage of the multiplier effect. They seem to forget that even though they cannot transform something small into something big, they can modulate what is already there and make it work better. To do this, they need to take stock of the material resources and the human capital they have, assess their own potential to innovate and get into the business of adding value to that which is valueless or has a small value. They can do this by gaining confidence in their own abilities and by restoring the trust they used to have in each other. This done, they will start taking risk again and gladly extend credit to each other. The result will be that every dollar anyone of them borrows from the bank will be matched by several dollars worth of credit they will extend to each other. And this is the multiplier effect that will cause the GDP to grow beyond the nominal value of the money borrowed from the bank, thus giving the economy a higher rate of growth without causing inflation.
But what exactly is the potential to innovate? To innovate does not necessarily mean to invent something that no one has seen before. It can be something that your economy never had or maybe had it once then lost to competition. When you bring this thing back to your consumers, you will have innovated because the result to your economy will be the same as inventing something completely new. In fact, what is urgently needed in America today is the availability of American-made goods that people are accustomed to buying at discount stores and the low end types. These would be the durable and non-durable goods that sell at a reasonable price. The American people spend a good part of their disposable income on such goods which are now imported from abroad. And what the people do not do is stay up at night to fantasize about innovations they wish their fellow Americans would produce when they cannot even imagine what these things would look like. What they fantasize about are jobs that the old industries might create to offer them one at a salary that will allow them to buy what they produce.
In conclusion, what the government spends to encourage the invention of futuristic products is a waste of public money. Instead, the government should encourage the revival of the old industries that will produce what the people want now. But if the government still wants to dabble in the business of innovation, it should bear in mind that only the loafers who know how to live off government handouts will get their hands on this money. As for the nerds who come up with real and useful innovations, they do not go after government money because they do not need it, and if they did, they would not know how to get it out of a government bureaucracy. Instead, the nerds rely on the venture capitalists who have the wherewithal to look for new ideas and the incentive to separate the worthy from the unworthy.
Given that productive nerds are who they are because they do not waste their time learning how to live off the government handouts or how to protect themselves against the scheming loafers, what they need from the government are rules with teeth that will protect them from the loafers who will get the subsidies from the government then whip up schemes to steal their ideas too. This practice is widespread, it is sickening and it must come to an end.
Do the right thing, America, and you’ll restore your old industrial glory; chase a useless dream and you’ll construct a fool’s paradise. So says Electro-Economics to which I say amen.
A great deal of the knowledge I have acquired in economics happened because I decided one day to compare the flow of money inside an economic set-up of which I knew very little with the flow of electrons inside an electronic circuit of which I knew quite a bit. Thus began my passion to twin the set-up of one with the circuit of the other and decipher the mysteries of economics by analyzing the equations of electronics. And I must admit I still find the exercise to be pure joy every time I dip into it.
Interestingly enough, the comparison also helps to clarify the misconceptions that arise in both fields. For example, the misconception that students of electronics envisage most frequently before they get into the course concerns the concept of amplification. Likewise, the misconception that laymen envisage most frequently in economics concerns the multiplier effect. And when we compare amplification with the multiplier effect, we see how closely the two concepts parallel each other.
Most students begin the course believing that to amplify means to take a small bundle of energy and make it big. Because this is a false notion that has the potential to create serious trouble later on, the teacher must erase it from the mind of the students early on and thus eliminate the source of a big headache down the road. And the best way to do this is to replace the notion with the correct definition of amplification using a visual example.
Here is how I used to do it. I would ask the students to count the number of light bulbs in the classroom and multiply by the wattage of each bulb so as to find the total consumption of energy. Let us say they find it to be 1,500 watts which is the equivalent of 2 horsepower. I tell them that an athlete pedaling a stationary bicycle attached to an electric generator produces about 100 watts of electricity. This means it would take 15 athletes to generate enough electricity to light up this classroom. I then ask the students to guess how much energy a single finger can generate and they correctly guess 1 watt or less.
I now walk to the light switch and use my finger to flick it up and down a few times so as to flicker the lights on and off. I explain that with 1 watt of finger power, I was able to control 1,500 watts of light. And I underscore that this is a demonstration of the concept of amplification. I further explain that I was able to do this amplification not because my finger generated the energy of 15 people or 2 horses but because the hydroelectric company supplied this energy and that my finger only controlled or modulated the flickering of the light. The lesson to be learned here is that electronic gadgets need an outside source of power such as a battery or a wall socket to feed them and do the work they are expected to do. This supply is separate from the small power that modulates it inside the gadget. The two powers remain separate at all time; and even though we call the outcome of the operation amplification, the small power does not transform into the larger power. In more general terms, it also means that no small bundle of energy can ever be turned into a large bundle – so say the unbreakable laws of Thermodynamics.
This brings us to the Power Law. The power (W) in electricity is measured in watts, and it is made of two parts. There is the current (I) which is measured in amperes, and there is the potential (V) which is measured in volts. The product of the two yields the power as expressed by the equation:
W = I x V
We now draw a parallel between the power law of electricity and the GDP law of economics. We make the Money supply the analogue of the current and call it (M). We make the Velocity of money the analogue of the voltage and call it (V). It turns out that the GDP is the product of the Money supply and the Velocity of money as expressed by the equation:
GDP = M x V
Notice the resemblance between those two equations. The GDP being equal to the quantity of Money multiplied by its Velocity, we see that we can increase the GDP by increasing M or increasing V. However, the Central Bank and the Treasury of a country control the money supply and they are usually reluctant to increase it because the move can lead to inflation. This leaves the velocity of money as the only tool by which to grow the GDP safely. But the trouble here is that for some reason, the people sometimes prefer to maintain their economic activity at a low level or even decrease it. In doing this, they slow down the velocity of money; and there seems to be very little we can do to counter that. Or is there?
To study what motivates people to engage in economic activity at one level or another, we examine Ohm’s law in electricity and see if we can draw a parallel between it and Economics. Ohm’s Law is written like this:
V = I x R
Voltage = Current x Resistance
This is the Resistance of the circuit to conduct electrons.
Its analogue in economics would be this:
V = M x K
Velocity = Money supply x Keenness
This is the Keenness of the people to spend money.
Note that even though Resistance and Keenness are opposites in the vernacular of every day speech, they are interchangeable in mathematics depending on the value that is taken by the variable K. For example, K in this context can be one of three things. It can be (a) greater than 1 thus indicating that the people are keen to spend money or (b) equal to 1 thus indicating that the people are neutral about spending money or (c) less than 1 thus indicating that the people are not keen to spend money. This last part means that the people resist the idea of spending money which is analogous to a circuit that resists conducting electrons. As for the value of K, it can be determined by creating an index that tracks same store sales and other such indicators.
We see from the last equation that the velocity of money (V) can be made to increase by increasing the money supply (M) or increasing the keenness of the people to spend (K). However, having determined previously that increasing the money supply can cause inflation; we try to avoid doing that and we work on K alone. To put things succinctly, Keenness increases the Velocity of money which grows the GDP without increasing the Money supply that tends to create inflation. Neat, isn’t it! But how do we increase the keenness of the people to spend?
To do that, we make use of the amplifier/multiplier effect. In electronics, we use the vacuum tube or the transistor to amplify. These are sophisticated switches that do not need a finger to turn on and off but need a small signal at the input to do that. This signal modulates the large power that is taken from the wall socket or is supplied by a battery. Once modulated, the large power appears at the output as an amplified version of the small input signal. Now, every amplifier has a factor by which it amplifies, and we use the Greek letter Beta to represent this value. In the function of the amplifier, we find that the power at the output (Po) is equal to the power at the input (Pi) multiplied by Beta, and we express all this with the following equation:
Po = Pi x Beta
But where do you find the Beta of economics? Well, I define this Beta in two parts (1) having the ability to motivate people to engage in economic activities and (2) giving the people the financial means to engage in such activities. Indeed, a healthy level of economic activity is generated when the people are presented with a product or a service they want, and when they have the money to buy it with or at least have access to reasonable credit. Usually, the invention of a new product or the creation of a new service starts the ball rolling in this direction. Thus, innovation and the trust that creditors have in their borrowers are responsible for causing the increase in economic activity and they are what gives Beta a high value.
But we must be careful how we interpret what we see here by being aware of the following: The growth in GDP does not happen because we create something out of nothing; it happens when we produce what the buyers want at a price they can afford. The mistake that people make at times is that they rely on past accomplishments to splurge now in the belief that they are not paying a price for what they get. This leads to the formation of bubbles and to economic crises at which point the people realize they were not amplifying something small into something big but were living off the accomplishments of their ancestors and off the future toil of their descendants.
The second mistake that people make is that they neglect to take full advantage of the multiplier effect. They seem to forget that even though they cannot transform something small into something big, they can modulate what is already there and make it work better. To do this, they need to take stock of the material resources and the human capital they have, assess their own potential to innovate and get into the business of adding value to that which is valueless or has a small value. They can do this by gaining confidence in their own abilities and by restoring the trust they used to have in each other. This done, they will start taking risk again and gladly extend credit to each other. The result will be that every dollar anyone of them borrows from the bank will be matched by several dollars worth of credit they will extend to each other. And this is the multiplier effect that will cause the GDP to grow beyond the nominal value of the money borrowed from the bank, thus giving the economy a higher rate of growth without causing inflation.
But what exactly is the potential to innovate? To innovate does not necessarily mean to invent something that no one has seen before. It can be something that your economy never had or maybe had it once then lost to competition. When you bring this thing back to your consumers, you will have innovated because the result to your economy will be the same as inventing something completely new. In fact, what is urgently needed in America today is the availability of American-made goods that people are accustomed to buying at discount stores and the low end types. These would be the durable and non-durable goods that sell at a reasonable price. The American people spend a good part of their disposable income on such goods which are now imported from abroad. And what the people do not do is stay up at night to fantasize about innovations they wish their fellow Americans would produce when they cannot even imagine what these things would look like. What they fantasize about are jobs that the old industries might create to offer them one at a salary that will allow them to buy what they produce.
In conclusion, what the government spends to encourage the invention of futuristic products is a waste of public money. Instead, the government should encourage the revival of the old industries that will produce what the people want now. But if the government still wants to dabble in the business of innovation, it should bear in mind that only the loafers who know how to live off government handouts will get their hands on this money. As for the nerds who come up with real and useful innovations, they do not go after government money because they do not need it, and if they did, they would not know how to get it out of a government bureaucracy. Instead, the nerds rely on the venture capitalists who have the wherewithal to look for new ideas and the incentive to separate the worthy from the unworthy.
Given that productive nerds are who they are because they do not waste their time learning how to live off the government handouts or how to protect themselves against the scheming loafers, what they need from the government are rules with teeth that will protect them from the loafers who will get the subsidies from the government then whip up schemes to steal their ideas too. This practice is widespread, it is sickening and it must come to an end.
Do the right thing, America, and you’ll restore your old industrial glory; chase a useless dream and you’ll construct a fool’s paradise. So says Electro-Economics to which I say amen.
Thursday, November 5, 2009
She Taught Me The Best Economics
There is talk in America these days about the wisdom of including a public option in a healthcare bill that is being considered for the nation. The concern centers on the impact that such option will have on the capitalist system. Well, the following example may shed some light on the subject and perhaps clarify a few points.
For a reason I cannot explain, I took interest in what is sometimes called the science of economics at an early age. I started formulating theories in my teens which I thought were big secrets that no one knew anything about. Then something happened that hit me in two contradictory ways at the same time. I discovered from reading books that my secrets were no secret at all because other people had discovered them before I was born. This had the effect of elating me and saddening at the same time. I was elated because the discovery told me I was on the right track, but I was saddened because I realized that I was not the first to entertain those ideas. No matter; I continued to think about the subject and to formulate new theories but now, I checked to see if someone had gone there before me. At times I hoped I would find that someone was there thus confirming that I was walking in the footsteps of some historical figure. At other times, however, I hoped to discover that no one had been there thus making me the holder of a great big secret. Like they say: Go figure! But remember, I was only a kid so don’t hold it against me whatever you figure.
All the while, I had an insatiable appetite to learn something new about everything, a habit I maintained throughout my life. Thus, even after I started working, I took formal courses in one subject or another or I learned from books on my own. My life was truly one of continuous learning but with all the passion I had for Economics, this was the one subject in which I never took a formal course. For a long time, I tried not to think about the reason why I stayed away from taking a course in Economics when it was so obvious I liked the subject very much. I then came up with the theory that I was afraid to meet a bad teacher who would make me hate the subject; and there may have been some truth to that. But there could also have been another reason; it could be that deep down, I thought I knew the subject so well I did not need a lesson. After all, I was taking lots of math courses, something that gave me tools to crunch the numbers and manipulate the equations, and I was taking lots of physics courses, something that gave me models of electronic circuitry by which to analogize the flow of money in what I came to visualize as economic circuits. Like they say, all you have to do to see the truth is to follow the money. And the money was flowing like electrons obeying the same sort of laws as Ohm’s Law, the Power Law and the laws of amplification.
Alas, this manifestation of self confidence was shaken one day when a woman taught me a lesson in economics I could not have learned in school, gathered from reading books or deduced by the power of reasoning because experience alone could do what she did. By now you must be guessing this is a long story that requires a flashback to the beginning, and you would be correct. So let me start from when I retired from teaching and launched a small newspaper in a town just outside the Canadian city of Toronto.
For most of its history this town had one newspaper dominating the market and tolerating no competition. Over the years, several people started a rival newspaper but were destroyed by the ruthless behavior of the family that owned the existing newspaper, and I was warned by those who enjoyed reading my column that I shall be forced out sooner or later. To understand this part, you must know that the town newspaper was affiliated with the biggest publishing corporation in the country, a relationship that gave it enormous clout. The family that owned the town newspaper used that clout to bend everyone to its will including the town council and the managers in charge of the local offices of the federal and provincial governments. But more importantly, the family had in its pocket the people who bought advertising space for the big companies whether they were local companies or out of town ones.
Because the money I earned came from selling advertising, I was at the mercy of that other newspaper. At times I managed to get big retailers such as the car dealerships to advertise with me but most of my income came from the small stores that did not bother to advertise anywhere before my coming to town. And the reason why they did not advertise was that they were never approached by a media salesperson. In fact, the owners of the dominant newspaper could not care less about the small stores until I launched my paper at which time they hired salespeople to counter what I was doing. These people traced my steps, going behind me and visiting the stores every time one of them placed an ad in my paper. And they made them deals “they could not refuse” in every mafia sense that this phrase connotes.
First, they offered the stores bigger ads for less money if they dropped me. When this did not work, they resorted to other activities, some of which were downright criminal such as making threats, engaging in blackmail, mounting conspiracies and so on. And all of this was known to the police and to the politicians at the municipal, provincial and federal levels but no one discussed it openly or did anything to put an end to it. In fact, these people who were the government and were responsible for the maintenance of law and order were afraid to even talk at length about the subject. They treated the matter as a reality we must all live with, and they tried to talk me into learning how to get along. They had a weird notion as to what journalism was about and I could not accept it.
Still, not everyone in town was frightened. One store that regularly advertised in my paper was situated in a strip mall and was owned by an attractive young woman. When things were quiet during certain hours of the day, the other store owners in the same mall would go to her store, stand there and have a chat. This was a good time for me to go see her as well because I could, in a single trip, sell her an ad and sell two or three more to the other store owners.
After running her ads, I would invoice her as I did everyone else and would receive her check almost immediately. The other advertisers in the mall would also pay me fairly quickly as opposed to most other clients who took at least a month to pay. One day I was greatly surprised when I received an envelop from her containing more than a check. In fact, the check itself was a surprise in that it was double the amount. And with it came my own invoice with a scribbled note at the bottom of it saying: “Please send another invoice with the right amount.”
My immediate reaction was to pick up the phone to call the woman but I froze before dialing. I thought for a moment what she was trying to say to me but my brain could not generate one sensible idea. I quickly dismissed the possibility that she may have a romantic interest in me because there are better ways to communicate such sentiment. Besides, she had more eligible candidates than me, including a husband that seemed better suited to her age. I put down the phone without dialing and went to see her instead.
When I got there she explained that she knew what was going on in this wretched town. She could see that some of the stores which used to advertise in my paper do so no more. She knew I lost them not because the ads failed to generate sales but because of the pressure that the other paper was putting on them. She got several visits herself from someone representing that other paper as did all the stores in the mall. To make a long story short, she wanted to keep me in business as long as possible because it pays her to do so. And she was going to put her money where her mouth was, hence the big check that she sent to me.
I thanked her for her confidence in my paper but she quickly snapped back that there was more to it than the sales I was generating for her. Surprised, I asked “like what?” She said that as long as she was advertising with me, the other paper will give her bigger and bigger ads at a lower and lower price. She was now getting half a page, four color ads for the price of a business card, two-color ads. Thus, she felt she owed me some of the money she was saving. And because she wanted this thing to go on for as long as possible, she was going to do her part to keep me in business. She could not promise that the other stores in the mall will do the same thing but at least, they will not cut me off despite the savage pressure that was heaped on them. She reflected for a moment then added they just don’t know how to take advantage of the situation like she does. With a smirk on her face, she leaned over the counter and pretended to whisper to me that no one will object if I raised my prices a little. She winked and nodded as if to say I must not tell anyone this was her idea.
The lesson I learned from this woman was that people will navigate between fear and greed using all the talent and the abilities they possess to take full advantage of a given situation. They will want their business to survive and will try to maximize their profit by playing one competitor against the other. If necessary, they will subsidize one competitor to keep the other honest, and will stop the subsidy when it ceases to deliver. And no book or classroom could have taught me this lesson which I regard as being in the best tradition of the capitalist system.
Applying this lesson to the question of including a public option in a healthcare plan, I expect to see the same sort of scenario play itself out. That is, the public option will stand as the competitor that will keep the insurance companies honest. But the moment the people will determine that holding the feet of the insurance companies to the fire is costing them more than it saves them, they will opt out of it and go with the insurance companies. This will be a decision for them to make and for the insurance companies to earn. And the conclusion I derive from this example is that to include a public option in a healthcare plan is to do things in the best tradition of the capitalist system. Any concern about this point should be seen as baseless.
Now, let me say a word about the attractive woman at the mall. She got pregnant and sold the store because she wanted to be free to raise a family. I am sure that she and her husband are now raising a wonderful family. As for my paper, I lasted in the business longer than anyone had anticipated, and folded when I reached the retirement age I had set for myself. The trek was brutal but was worth it.
For a reason I cannot explain, I took interest in what is sometimes called the science of economics at an early age. I started formulating theories in my teens which I thought were big secrets that no one knew anything about. Then something happened that hit me in two contradictory ways at the same time. I discovered from reading books that my secrets were no secret at all because other people had discovered them before I was born. This had the effect of elating me and saddening at the same time. I was elated because the discovery told me I was on the right track, but I was saddened because I realized that I was not the first to entertain those ideas. No matter; I continued to think about the subject and to formulate new theories but now, I checked to see if someone had gone there before me. At times I hoped I would find that someone was there thus confirming that I was walking in the footsteps of some historical figure. At other times, however, I hoped to discover that no one had been there thus making me the holder of a great big secret. Like they say: Go figure! But remember, I was only a kid so don’t hold it against me whatever you figure.
All the while, I had an insatiable appetite to learn something new about everything, a habit I maintained throughout my life. Thus, even after I started working, I took formal courses in one subject or another or I learned from books on my own. My life was truly one of continuous learning but with all the passion I had for Economics, this was the one subject in which I never took a formal course. For a long time, I tried not to think about the reason why I stayed away from taking a course in Economics when it was so obvious I liked the subject very much. I then came up with the theory that I was afraid to meet a bad teacher who would make me hate the subject; and there may have been some truth to that. But there could also have been another reason; it could be that deep down, I thought I knew the subject so well I did not need a lesson. After all, I was taking lots of math courses, something that gave me tools to crunch the numbers and manipulate the equations, and I was taking lots of physics courses, something that gave me models of electronic circuitry by which to analogize the flow of money in what I came to visualize as economic circuits. Like they say, all you have to do to see the truth is to follow the money. And the money was flowing like electrons obeying the same sort of laws as Ohm’s Law, the Power Law and the laws of amplification.
Alas, this manifestation of self confidence was shaken one day when a woman taught me a lesson in economics I could not have learned in school, gathered from reading books or deduced by the power of reasoning because experience alone could do what she did. By now you must be guessing this is a long story that requires a flashback to the beginning, and you would be correct. So let me start from when I retired from teaching and launched a small newspaper in a town just outside the Canadian city of Toronto.
For most of its history this town had one newspaper dominating the market and tolerating no competition. Over the years, several people started a rival newspaper but were destroyed by the ruthless behavior of the family that owned the existing newspaper, and I was warned by those who enjoyed reading my column that I shall be forced out sooner or later. To understand this part, you must know that the town newspaper was affiliated with the biggest publishing corporation in the country, a relationship that gave it enormous clout. The family that owned the town newspaper used that clout to bend everyone to its will including the town council and the managers in charge of the local offices of the federal and provincial governments. But more importantly, the family had in its pocket the people who bought advertising space for the big companies whether they were local companies or out of town ones.
Because the money I earned came from selling advertising, I was at the mercy of that other newspaper. At times I managed to get big retailers such as the car dealerships to advertise with me but most of my income came from the small stores that did not bother to advertise anywhere before my coming to town. And the reason why they did not advertise was that they were never approached by a media salesperson. In fact, the owners of the dominant newspaper could not care less about the small stores until I launched my paper at which time they hired salespeople to counter what I was doing. These people traced my steps, going behind me and visiting the stores every time one of them placed an ad in my paper. And they made them deals “they could not refuse” in every mafia sense that this phrase connotes.
First, they offered the stores bigger ads for less money if they dropped me. When this did not work, they resorted to other activities, some of which were downright criminal such as making threats, engaging in blackmail, mounting conspiracies and so on. And all of this was known to the police and to the politicians at the municipal, provincial and federal levels but no one discussed it openly or did anything to put an end to it. In fact, these people who were the government and were responsible for the maintenance of law and order were afraid to even talk at length about the subject. They treated the matter as a reality we must all live with, and they tried to talk me into learning how to get along. They had a weird notion as to what journalism was about and I could not accept it.
Still, not everyone in town was frightened. One store that regularly advertised in my paper was situated in a strip mall and was owned by an attractive young woman. When things were quiet during certain hours of the day, the other store owners in the same mall would go to her store, stand there and have a chat. This was a good time for me to go see her as well because I could, in a single trip, sell her an ad and sell two or three more to the other store owners.
After running her ads, I would invoice her as I did everyone else and would receive her check almost immediately. The other advertisers in the mall would also pay me fairly quickly as opposed to most other clients who took at least a month to pay. One day I was greatly surprised when I received an envelop from her containing more than a check. In fact, the check itself was a surprise in that it was double the amount. And with it came my own invoice with a scribbled note at the bottom of it saying: “Please send another invoice with the right amount.”
My immediate reaction was to pick up the phone to call the woman but I froze before dialing. I thought for a moment what she was trying to say to me but my brain could not generate one sensible idea. I quickly dismissed the possibility that she may have a romantic interest in me because there are better ways to communicate such sentiment. Besides, she had more eligible candidates than me, including a husband that seemed better suited to her age. I put down the phone without dialing and went to see her instead.
When I got there she explained that she knew what was going on in this wretched town. She could see that some of the stores which used to advertise in my paper do so no more. She knew I lost them not because the ads failed to generate sales but because of the pressure that the other paper was putting on them. She got several visits herself from someone representing that other paper as did all the stores in the mall. To make a long story short, she wanted to keep me in business as long as possible because it pays her to do so. And she was going to put her money where her mouth was, hence the big check that she sent to me.
I thanked her for her confidence in my paper but she quickly snapped back that there was more to it than the sales I was generating for her. Surprised, I asked “like what?” She said that as long as she was advertising with me, the other paper will give her bigger and bigger ads at a lower and lower price. She was now getting half a page, four color ads for the price of a business card, two-color ads. Thus, she felt she owed me some of the money she was saving. And because she wanted this thing to go on for as long as possible, she was going to do her part to keep me in business. She could not promise that the other stores in the mall will do the same thing but at least, they will not cut me off despite the savage pressure that was heaped on them. She reflected for a moment then added they just don’t know how to take advantage of the situation like she does. With a smirk on her face, she leaned over the counter and pretended to whisper to me that no one will object if I raised my prices a little. She winked and nodded as if to say I must not tell anyone this was her idea.
The lesson I learned from this woman was that people will navigate between fear and greed using all the talent and the abilities they possess to take full advantage of a given situation. They will want their business to survive and will try to maximize their profit by playing one competitor against the other. If necessary, they will subsidize one competitor to keep the other honest, and will stop the subsidy when it ceases to deliver. And no book or classroom could have taught me this lesson which I regard as being in the best tradition of the capitalist system.
Applying this lesson to the question of including a public option in a healthcare plan, I expect to see the same sort of scenario play itself out. That is, the public option will stand as the competitor that will keep the insurance companies honest. But the moment the people will determine that holding the feet of the insurance companies to the fire is costing them more than it saves them, they will opt out of it and go with the insurance companies. This will be a decision for them to make and for the insurance companies to earn. And the conclusion I derive from this example is that to include a public option in a healthcare plan is to do things in the best tradition of the capitalist system. Any concern about this point should be seen as baseless.
Now, let me say a word about the attractive woman at the mall. She got pregnant and sold the store because she wanted to be free to raise a family. I am sure that she and her husband are now raising a wonderful family. As for my paper, I lasted in the business longer than anyone had anticipated, and folded when I reached the retirement age I had set for myself. The trek was brutal but was worth it.
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