Economics, Politics, and Religion: Social Justice

garysick:

I recent months, we have had some strong views expressed, by people who have real knowledge of the situation, about the potential consequences of a military strike by Israel and/or the United States against Iran’s nuclear infrastructure. Former Mossad head Meir Dagan says it is “The stupidest…

Dozens of U.S. spies are rounded up in Lebanon and Iran.  This is a major blow to the US (and the CIA).  Let’s see how this affects US and Israeli program against Iran’s nuclear weapons and Hezbollah’s operations in the Middle East.

The U.S. has been going through an economic malaise for over 4 years—so too have other countries.  While we seem to be on a positive trajectory, it is unlikely that we will return to our long-term natural rate of unemployment of around 4 percent in the next 2 years, at least.  Both the federal government and the Federal Reserve have been struggling to bring down the unemployment rate.  Congress seems incapable of adopting ANY policy measure to steer this country in SOME direction, while the Fed seems to have run out of policy options to further exercise its mandate of reducing unemployment (and maintaining inflation).  However, let’s assume that a miracle happens tomorrow and that we have a political agreement in Congress, the EU crisis is resolved, the stock of existing homes matches the number of buyers, and that all bad loans are resolved.  Will the economy return to its long-term natural unemployment rate?  Based on the media reports, this would seem likely. I am less convinced.

In the wake of financial crisis, the economic mantra of the Bush and Obama governments has been that the US cannot be the global consumer of goods.  As other countries benefit from the American market, they too should open their doors to American goods.  From the surface of it, this sounds like a logical and a common-sense idea: American trade deficit goes down by means of our increase in exports; manufacturing jobs increase; a semblance of financial, manufacturing, and service industries is struck; and the world is a happier place.

However, this argument fundamentally rests on the idea of competitive advantage.  If the US is going to give up some industries, then it must make up for those lost industries by exporting others.  Since the US does really well in high-end technology, we want other countries to ease restrictions on our imports from this industry.  Undoubtedly, this will increase our exports, but what does this mean for the labor structure of our economy?

The push towards a more technologically oriented economy has significant implications for the capital-labor relationship.  Based on economic theory, this technological growth shouldn’t only make us more competitive, but it should also increase the wages of our workers based on the increase in prices that would result in an upward shift in the aggregate-demand in the short-run, based on the lower prices of goods, and an increase in aggregate-supply based on the lower cost of production.  Since technological growth is faster—exponential—than the growth of the population (hence of labor, over a range of time)—linear—this should also increase the real wage of the labor (the median wage).  While I am not a Washington insider, I assume this is the theory propounded to rationalize the export oriented policy that the government is pushing.

There is an interesting conundrum that seems to take place as a result of technological growth.  Improvements in technology reduce the marginal cost of production and hence, increase efficiency per labor.  This in result requires fewer numbers of laborers to produce the same number of goods.  The only way to grow labor at the rate of technology is if aggregate demand or supply would adjust at the same rate as technology.  Since, technological growth is never negative and seems to be exponential (as compared to increases in AD or AS), it outpaces growth in aggregate demand or aggregate supply. Assuming, the growth rate of labor is pretty much constant, increases in aggregate demand and/or supply won’t be high enough to increase the demand for the labor force.

The solution posed by the Obama administration (and many other administrations before his) is that we must train the economically displaced so that they can adjust to the advances and changes in technological progress.  However, based on the above reasoning, if technological progress constantly outpaces any resulting shifts in the total demand and supply of goods, there will always be residual unemployed labor, regardless of the skill-set of the average labor force.  Furthermore, over time, this unemployment rate will only increase since the nature of technological growth is much faster than changes in shifts in total demand and supply of goods.

I do not mean to suggest that humans will be replaced by machines in the long-run. Instead, I hope to highlight the gap between the total need of labor vis-à-vis aggregate demand and supply, and technological growth.  In order to maintain the minimum natural rate of unemployment, the solution is that a laborer works fewer hours per laborer: i.e. the average work week is reduced.  Since technological improvements increases labor efficiency, an average worker can do the same amount of work in less time than before.  Why is it that the production factors of the economy are so dramatically changing, but the labor-entrepreneur contract has remained the same since the late 19th century (8 hours work-day movement)?

By merely reducing our average work day by .5 hours (7.5 hours), the U.S. economy can add 70 million daily work hours, which equals roughly 9 million new jobs (employment figures based on Nov, 2011 DLS). Obviously, this is a very simple and a naive calculation; however, the point here is to highlight the drastic effect a small reduction in daily work hour can have on the whole economy.  Economic growth should lead to a better lifestyle, no?  After all, it is economic theory that suggests that higher incomes lead to a better quality of life.

It seems problematic that instead of having a dialogue about working less, there seems to be a pattern of increasing work-hours per laborer and increasing the retirement age of our workers (for example, attacks on public unions and suggestions for increasing the retirement age to save Social Security).  Improper management of social security is not an excuse for increasing minimum retirement age.

Over the last 30 plus years, the only way we have been able to mask the unemployment rate, I argue, is that provisioning of historically very, very high credit lines to the labor force.  Since the real-wage has gone down, credit has been used to substitute the gap between what wages ought to be and the actual wages (based on the growth of the real GDP over time).  It is this provisioning of credit that has led to the increases in aggregate demand needed for growth in the GDP.

While I don’t have data to support this argument, my experience and knowledge of high-tech and high paying and technical service industry has shown me that workers in these industries work a lot more than the an average work week.  If we are going to shift to an even more technologically driven society, then, merely training more workers in technical fields is not going to solve our economic woes.  There also has to be a shift in how we view work. 

Reducing the average work week will provide more people with higher paying jobs (as a result of the reduction in work hours of those currently employed) and raise the real wages of these people.  This may not only lead to a more equal society, but also one that does not need to mask its high standard of living by credit.

(Source: yousuf)

This is an absolutely great article that outlines the current challenges that conservatism faces in the U.S., both ideologically and strategically, and why and how it must comes to terms with those challenges in order to ensure that it prospers and survives in the future.  This is an honest article that outlines the myths, the truths, and the shortcomings of modern conservatism.

This New York Times article is a good example of how the economy stays slow.  While I am not sure about some of the numbers presented in the article; nonetheless, it does a good job of showing how short term changes or adaptions (call it whatever) in consumer behavior have chain effects throughout the economy.

There are two ways to look at the findings of this article, I guess.  One could look at it and say, “See, things will be fine.  Its just a matter of time.”  I read the article and say, “Yes, the economy will get better.  However, do we want to go back to the same pattern of consumer behavior as before?”  When do we start having the discussion about what ought to be future make-up of our consumer economy?

Absolutely, a must read!  A collection of articles, interviews, and materials on Islamic demography by none other than the best of online news media, The Browser.

Why do we procrastinate?  A very interesting question.

A short while ago, The Chronicle Review, published a great article on the role of Larry Summers in the doing-of-the-financial-disaster.  Above all, the article raises a very important question: who are these people that are solving our financial and economic problems and where do they come from?  PBS, Frontline, also did a documentary, called “Frontline: The Warning,” about how Timothy Geithner, Larry Summers, and Mr. Greenspan subverted and emotionally abused Brooksely Born, who was the head of CFTC during Clinton’s era, from regulating Over the Counter Commodities (OTC).  Yes, the culprit of the financial meltdown.

I have been studying social sciences for the last five plus years.  It fascinates me that among all of the theories that western theorists have propounded to come to terms with social phenomenon, morality seems to be a systematic misnomer, especially among academic liberals.  For the societal ills, some fault our institutions, such as education, for not developing and nurturing the human agency, while others blame the inefficient and corrupt economic and political systems.  However, no modern school of thought holds morality as the key differentiating factor in explaining inter-societal variations.  For example, is US morally superior to China, or Pakistan for that matter.  The funny thing is that most westerners believe such an exposition; however, academics or most politicians don’t use morality to justify their national superiority.  My question is: does morality determine superior political and economic systems, or the other way around?  Regardless of the answer to the previous question, why is there such an aversion to using morality as a base for inter-societal comparisons?  Why aren’t there a set of heuristics to deal with such a question so that we avoid dogma and trivial academic pursuits?

garysick:

Today U.S. hiker/hostage Sarah Shourd left Iran on a chartered plane for Oman. She had spent more than a year in an Iranian prison, much of it effectively in solitary confinement. There are several reasons for her release:

• She is ill. She has a lump in her breast and precancerous cervical…