We don’t know yet who’s responsible for the despicable and cowardly bombs at yesterday’s Boston Marathon. But I look at the date and the location, and I can’t help but wonder: April 15 is tax day, Boston was the site of the famous tea party. It wouldn’t surprise me at all if this doesn’t turn out to be the work of some anti-tax or anti-government nut job.
Time will tell. In the meantime, we mourn the lives of those lost and hope for a complete and speedy recovery for those injured.
We are taught since grade school that society rewards some people more than others, because their work is harder or more valuable. A doctor earns more than a dishwasher, because doctors save lives. Plus, anybody can wash dishes, but it take years of study to become a doctor. This oxymoronic notion – that economic inequality is fair – becomes so ingrained that few people really question it. In fact, we are taught that people who advocate economic equality are evil and dangerous. We call them communists and more lately socialists.
But does this really explain why doctors earn more than dishwashers? Most plastic surgeons don’t save lives or even heal their patients. And what explains why some doctors earn more than others? The average family practitioner does a lot more good for society as a whole than a Park Avenue surgeon specializing in nose jobs and tummy tucks, but earns a fraction of what the surgeon makes.
In truth, a whole array of complex economic factors, more than societal values, determine what people earn. When we say that complex economic factors determine what people earn, we are really saying that the economic system values certain types of skills more than others. I suspect the “value to society” explanation is a rationalization, an after the fact socially acceptable explanation for something that is otherwise hard to justify. Why does this matter? It matters because the economy is shaped by laws. In a democracy, the legislators theoretically enact laws that benefit their constituents, but in order for this to work properly, the constituents must understand how laws affect their lives.
To illustrate the point, let’s imagine that society valued one’s contribution according to how skilled a chess player he or she was. Most people do not play chess, or play it poorly. I would estimate that about ten percent of the population can play a game without making a complete mess of things, and about one percent play it moderately well. Exceptional players are a tiny percent of the population. In other words, if wealth were distributed according to the ability to play chess, it would pretty much resemble the way wealth is currently distributed.
Distributing wealth according to how well one plays chess, however, is a really bad idea. While I like chess and think it’s a great exercise for the mind, there is absolutely no reason why somebody’s economic circumstances should depend on the game. That’s completely arbitrary, or, as younger people are fond of saying these days, totally “random.” But it is not that much different from the exaggerated value we currently put on financial skills. Finance is a lot like a game of chess. Finance doesn’t make anything or provide any necessary service. It largely consists of rearranging pools of money and taking a cut in the process. Not that much different from moving chess pieces on a board. At the end of the day, however, in chess and in finance, you end up with pretty much what you started with.
So why are financial skills valued so much? Pretty much because, over the past 35 years or so, there has been a steady changing of laws so that what people do with money is rewarded more than what people do with their hands (as in manufacturing) or their time (as in services, except financial “services.”)
Let’s take credit cards as an example. Time was most states had laws which set a max on the amount of interest a credit card company could charge, usually in the range of 9 to 12 percent. Then the Supreme Court decided that a bank could charge whatever interest rate was legal in the state where the “lending decision” was made. This changed the law, and as a result all the major banks sought out states that removed the limit on credit card interest rates. Did you ever notice that your credit cards are all issued out of South Dakota or Delaware? That’s because those states have very loose laws, or no laws at all, concerning credit cards.
These two changes in the law – first the Supreme Court decision and then the laws passed by several states to remove limits on credit card interest rates – have resulted in a huge flow of new money from consumers to the banks. How much money? There are more than 150 million credit card holders in the United States, and the average interest rate for all credit cards is around 14 percent. That means that a significant percentage of credit card holders pay more than 14 percent. If 50 million credit card holders pay 20 percent on an average balance of $5,000, that is 250 billion in debt. The different between 20 percent and 12 percent (which was a common interest rate cap before the changes in the laws) is 8 percent, and 8 percent of 250 billion is a tidy 20 billion a year in additional interest.
Many people are extremely ignorant in the field of finance. They tend to do poorly with credit cards. Not that it’s easy to decipher the average credit card disclosure statement, in fact, they are completely unintelligible as a rule. But it’s all legal, and they are all designed to maximize profits for the financial institutions at the expense of the customer. Is this fair? Should it be legal? The argument of the credit card companies is that credit cards provide relatively easy credit for consumers enabling them to make purchases that would otherwise be out of their reach. There is always somebody talking about “personal responsibility” and “freedom” and that it’s not the government’s job to protect people against their own bad decisions. (Unless of course it’s the giant banks that are “too big to fail” that make the bad decisions, in which case it’s a matter of national urgency.)
These arguments really miss the point. The point is that we reward people who are more adept at understanding finance and we punish those who are less. Financial skills, however, have no particular merit in and of themselves, and there is no reason we need to structure our economy to create this division of winners and losers. It makes no more sense than distributing wealth according to one’s chess skills.
In a few minutes from now (sometime in the past when you read this), the NCAA will announce “severe” punishment for the Penn State football program, because the school, including “Saint” Joe Paterno covered up the child molesting activities of an assistance coach. The NCAA can punish Penn State all it wants, but it is not going to solve anything. What they will offer, no matter how “draconian,” is simply a fake solution. The problem here is not what happened at Penn State. That is a symptom. The problem (big surprise) is that the huge influence of money in College sports, especially football, has distorted and corrupted the entire system.
Shortly before he was canned, Paterno renegotiated his contract. In return for shortening (yes, that’s right) his contract by one year, Paterno demanded, and got, a package worth over $5 Million, including the use of Penn State’s private aircraft for him and his family for 25 years. (You might ask why a state college even has a private airplane). Seriously? $5 Million? A football coach? A tax payer supported college?
What the NCAA needs to do is set some rules about the flow of money. Here’s an idea. Why not limit the pay of the football coach to the average salary paid to a tenured professor at the college? Why isn’t that good enough? If that pay is sufficient to attract quality professors (believe me, earning a Ph.D. is a lot more difficult than getting a coaching license. O wait, there are no requirements to be a coach) then it should be good enough to get coaching talent.
At if not? So what. College sports is all about building character. I love college football, the kids will play their hearts out whether you pay the coach a million dollars or something a lot less than that. In the meantime, let’s be clear what college is all about — an education.
I will miss the end of the Republican primary debates. Almost nothing compares in terms of raw entertainment value.
The only problem is that these are supposedly serious political events, not competition to Jersey Shore. I try to forget this fact, because it is just so damn depressing. Really, this is the best the country can summon up to be one of the two candidates for President?
Let’s consider the debate in South Carolina last night. We know that this is a critical primary, because the infotainment media has told us so. “Can Mitt Romney be stopped?” an announcer asks in a deep, ominous tone, as if we were watching a show about invading aliens. Well, maybe we are, come to think about it.
But it only makes sense that South Carolina should have a pivotal role in selecting the candidates for national office. After all, with four and a half million people, it represents almost a full 1.5 percent of the country’s population. It’s also an economic powerhouse, ranking 39th out of 50 states in per capita income. Of course we want the good people of South Carolina telling the rest of us who we get to vote for as President.
It would be appropriate to begin this paragraph with something like “I noticed something strange while watching the debate.” It would also be redundant, tautological. The whole thing was strange. From beginning to end. Alright, I didn’t watch it until the end, but I didn’t have to. I know it was strange.
From time to time the camera panned the audience. I paid close attention, sometimes stopping the DVR just to get a good look. Who are these people, I wanted to know, who took the trouble to get dressed up and sit through this whole awful affair. Not just sit through it, but apparently enjoy it, not in the same ironic way that I did, but enjoy it because they approved and believed the ridiculous nonsense that emitted from the oral cavities of the clowns on the stage.
And here is what I noticed. With one or two exceptions, they were all White. South Carolina is about a third Black. According to my research, only three or four states have a higher percentage of African Americans. Think about this. These men propose to lead this country, and yet, the message that they have, what they stand for, is of no interest and has no relevance to the African American community. How can that be? To me, that is a very telling sign.
I’m still fascinated by Michele Bachmann commandeering a communist slogan in her stump speech. The thing is, the slogan made sense when the communists used it, but it makes no sense coming out of Bachmann’s mouth. No surprise there.
The slogan, reduced to its simplest terms is “if you don’t work, starve.” Yes, I know, it’s understood that this refers to the able bodied, not the infirm, but that’s not my point. My point is that the slogan made sense for the communists, because they were actually offering the opportunity for the able bodied to work. What the communists were saying was this: “We (“society”) have the food, and if you want some, you have to do some work. There’s lots of work to be done, you just pitch in and do your share of the work, and you will be given food.”
Capitalism, which Bachmann endorses, does no such thing. A certain level of unemployment is built into capitalism. Capitalism needs unemployment, because if employment ever reached 100 percent, the cost of labor would be prohibitively high. Most economists agree that unemployment can never fall below 4 or 5 percent in a capitalist society. At that point, the cost of labor increases to the point that employers stop hiring.
So think about what it means when a capitalist says “if you don’t work, you don’t get to eat.” It’s like musical chairs, there are more people than chairs. Same thing in a capitalist society: there are more people than jobs. So when a capitalist, like Bachmann, says: “if you don’t work, you starve,” she really means “some of you are going to starve.”
Seen in this light, it’s infinitely better to live in a communist society than a capitalist one, because at least the communists will offer you the job.
Of course, all of this assumes that Michele Bachmann is really serious and also understands what she is saying. In reality, she’s just a clownish politician. Michele Bachmann understands economics about as well as my dog understands algebra. What’s scary is not the level of Bachmann’s ignorance, but that the slogan has appeal to some of the knuckle draggers who would vote for her. There are a lot of people who would let the unemployed starve, who believe that people are in a bad way because of their own laziness or some other fault for which they now deserve punishment. That is scary, and the fact that an ostensibly mainstream politician would pander to them is a sad commentary on the state that we are in.