thoughtfulFirst, an economy is a circulation system. It can use a variety of things as its "circulation fluid," such as hours or salt or money. Every circulation system has an optimum fluid volume and flow rate; it also has a minimum and maximum for each of those things which define the boundaries of its functionality. Close to those, it functions less well; beyond them, it breaks down.
If the volume and/or flow rate should fall too low, the system slows to a halt. It doesn't have enough to keep going at all. This can happen if the circulation fluid leaks out of the system entirely, or if a partial rupture makes it leak inward and pool somewhere that just sloshes around without circulating right.
If the volume and/or flow rate should rise too high, the system can overheat or explode. It has so much that it ceases to function properly. This can happen if the whole system experiences extreme heat or pressure, or it can happen if just one area does.
In a money economy, the government has to figure out how much money to print. If there is not enough money in circulation, then it isn't very effective for maintaining the flow rate of exchanges in the economy. If there is too much money in circulation, then it causes inflation to rise out of control, which is a high-pressure problem. Presumably there is a formula (or a set of formulas) that economists and rulers can use to figure out a suitable amount: so-and-so many people plus whatever other variables require thus-and-such amount of money in the economy.
With all of that in mind, it seems prudent to consider how much of the money is in a given place at a given time. It has to flow in order for the economy to function, so if some areas have too much or not enough, that's going to cause problems as described above. For example, people: there should be an optimum amount of money per individual, bounded by a minimum and a maximum.
The minimum should be the amount needed to meet basic needs: food, water, clothing, shelter (including utilities), and health care. So far, America has a poverty level and a minimum wage, but neither of those accurately reflects how much a person really needs. Some more accurate and thorough count is needed. When there is no mininum amount of money per person, then it is possible for people to go without having their basic needs met. This is a problem because a society that doesn't meet the basic needs of its members is likely to collapse and be replaced by something else, and because the flow rate of an economy will slow and then stop if people do not have enough money to exchange for what they need.
The maximum should have something to do with the fact that, if some people accrue too much money, that will drop other people below the minimum; and that if too many people fall below the minimum and rise above the maximum, the flow rate will stutter and then collapse. When there is no maximum, as is the case now, then some people gather so much money that the imbalance destabilizes the economy. This happens for three reasons: 1) While some of a rich person's money may circulate as investments, much of it can get tied up in solid assets such as mansions or jewelry, thus causing a substantial amount of pool outside of circulation. 2) While some of a rich person's money may return to the economy as wages for their employees, a vast amount is still under one person's control at any given time, which means that money is not available for someone else's use at that time, which eventually means that there is not enough money left in active circulation for everyone to have the minimum needed for personal survival and economic function. 3) A rich person has so much disposable income that it's possible to outcompete other buyers, which causes severe problems if rich people decide to buy up large amounts of basic necessities. This has recently happened in several regards, as when real estate speculation contributed to the housing bubble that left many ordinary families unable to afford a place to live; and when speculation buying of corn due to interest in biofuels pushed the price of this staple food beyond what poor people could pay. Big spikes in inflation of necessities can cause the economy to falter or fail.
One way to observe that a minimum and maximum would be useful for maintaining economic flow is to examine the actual distribution of money:
In the United States, wealth is highly concentrated in a relatively few hands. As of 2004, the top 1% of households (the upper class) owned 34.3% of all privately held wealth, and the next 19% (the managerial, professional, and small business stratum) had 50.3%, which means that just 20% of the people owned a remarkable 85%, leaving only 15% of the wealth for the bottom 80% (wage and salary workers). In terms of financial wealth (total net worth minus the value of one's home), the top 1% of households had an even greater share: 42.2%. Table 1 and Figure 1 present further details drawn from the careful work of economist Edward N. Wolff at New York University (2007).
Consider that a small number of people hold a large majority of the money, while the majority of people have to share a much smaller amount of money. So some people are over the functional maximum, while others are below the functional minimum. There is only so much money in an economy, and if it pools rather than flowing, then that amounts to an internal system leak. When there is too much circulation fluid in one place and not enough in others, the flow rate falters, and the system crashes. Beyond a certain point, the wider the gap, the less functional the system.
Looking at America right now, we can observe the following signs of social and economic system dysfunction:
* Many people cannot afford enough food to eat, particularly for a healthy diet. This number is increasing rapidly; it includes not only long-term sufferers but many new ones who have never had this problem before. America makes no universal guarantee that people will have access to food, let alone enough food or healthy food. There are some programs to provide discounted or free food, which is better than nothing, but they are a patchwork rather than a system. This means that numerous people do not enjoy an adequate diet, which impairs their ability to function both in society and in the economy; plus it tends to cause or exacerbate health problems, an additional expense. There is enough food to go around, but America chooses to distribute it unequally.
* Many people cannot afford a place to live. This number is increasing rapidly as foreclosures sweep across the nation, and the people with money are actively using their power to thwart actions that would help keep middle- and lower-income people in their homes. America makes no universal guarantee that people will have a place to live, or to sleep, or even to stand. If you are not paying money for the privilege, you don't have a right to be there; even public businesses tend to drive away people who don't look like they have money to spend. There are some shelters and public housing options, but they were vastly overwhelmed by the number of people in need, even before the recent large surge. Being homeless is a severe threat to survival not just because of direct risks like exposure, but because it cuts people off from many other service options. It also exacerbates most physical and mental health problems. Just providing secure housing would tremendously reduce human misery and socioeconomic expenses, but it is not done. There is enough shelter to go around, but America chooses to distribute it unequally.
* Many people cannot afford health care. This number is increasing rapidly as unemployment severs whole families from employer-provided health insurance. However, it has been a severe problem for some time, because health care is priced at institutional rates but widely sold to individuals. Because large-group buyers such as the government, insurance companies, and large businesses have driven inflation to stellar heights, individuals who cannot make their way into a group, or who are ejected from a group, or who are victims of a group that purports to cover this expense for them but then refuses to do so, are simply priced out of the market. Since few people are willing to lie down and die, many wind up in emergency rooms without the money to pay for their care; the expense then goes to the hospital, a cause of many hospital closures, which lowers everyone's access to health care; or is passed upward to the government and thus to society as a whole. However, many sub-fatal illnesses and injuries do go without treatment. This raises the overall quotient of human misery, which contributes to mishaps and violence; and contributes to the spread of diseases which could be contained if we bothered to do so. America has the capacity to provide adequate health care for its citizens, but chooses not to do that.
In general, it is not considered permissible to kill people directly, but killing them or shortening their lives indirectly is business as usual. That's what happens when basic survival needs are not guaranteed, but rather are considered privileges to be purchased with money, and access to money or paid labor is also not guaranteed. The Constitution does specify "life" as an inalienable right, but sadly neglected to protect things necessary for life as part of that.
In order to keep an economy going, there must be enough money and it must be distributed such that people can exchange it for what they need. If we want to have a functioning economy, we're going to have to fix the things that cause it to break down. Otherwise, all this "stimulus" stuff is like pouring fluid into a car's radiator without fixing the leak that's causing it to need extra water. Ten or twenty minutes later, you have to pull over and do it again -- and if you run out of water, that car is going nowhere. That means we need to find some way of ensuring that everyone has at least enough money to live on.
In order to have a healthy society, it must be able to meet the basic needs of its members. Otherwise, people resort to increasingly troublesome means to get their needs met; and when people can't meet their needs, the resulting human wreckage causes problems that affect society as a whole, not just the hapless victims. When a social system is not meeting people's needs, it becomes vulnerable to competition from other systems that promise better results; some people become increasingly prone to try anything else, while others become even more desperately attached to the familiar system, which causes a rise in tension that can lead to widespread violence. So if we want a healthy society, we need to find ways of mending the connections that hold us together AS a society; this "every man for himself" nonsense has got to stop, or that is all we'll be left with -- a collection of individuals squabbling over scraps.
When deciding whether you support or oppose a given piece of legislation, or a custom, or a business or charity or whatever -- consider what effect it will have on the system. What we have right now is not working. Will what you're considering make matters better or worse? Will it help stabilize the flow rate in the economy? Will it help build and strengthen connections between people?
May 3 2009, 18:32:18 UTC 12 years ago
May 3 2009, 21:05:22 UTC 12 years ago Edited: May 3 2009, 21:05:59 UTC
We're certainly in agreement here. Not surprisingly, I think this would be a great place for charities and foundations to step in, by offering their services to people in need and strengthening connections between nonprofit professionals, their volunteers, and the people they're assisting. Unfortunately, lots of charities and foundations lost big in the stock market bust, too (surplus funds are often invested to take care of a variety of future needs). To make matters even worse, some lost millions more to Bernie Madoff's giant Ponzi scheme. (For example, "the American Civil Liberties Union stands to lose more than $1.5-million over the next few years that had been pledged by the Picower and JEHT Foundations [two foundations forced to close due to losing money invested with Madoff]. The lost pledges are small relative to the charity's more than $100-million budget, but the losses come at a time when the charity is already grappling with declining gifts from others, and a pension plan that is not fully financed, according to Anthony D. Romero, its executive director" [Chronicle of Philanthropy, 1/15/09].)
So there's only so much the government, foundations, and charities can do right now. It's time for a greater number of individuals to come forward and do what they can to help. What's the old quote? "We must all hang together, or assuredly we shall all hang separately?"
Thoughts
May 3 2009, 21:18:15 UTC 12 years ago
I agree that such nongovernment organizations are very helpful.
>>Unfortunately, lots of charities and foundations lost big in the stock market bust, too (surplus funds are often invested to take care of a variety of future needs).<<
Yes, and there's another drawback too: they're a patchwork. It's too hard for people in need to find the right services. There's no consistency, no "go here if you need help" place that's the same everywhere. Many places don't have all the services needed, or enough of the ones they have to cover the demand. That's the kind of situation that requires either a government, or another agency big enough that it can handle the same kind of scope.
>> So there's only so much the government, foundations, and charities can do right now. It's time for a greater number of individuals to come forward and do what they can to help. What's the old quote? "We must all hang together, or assuredly we shall all hang separately?" <<
I think that individuals can help, but that it's going to take collective action to recreate enough of a social safety net nationwide so that people don't fall through the cracks.
May 3 2009, 23:02:12 UTC 12 years ago
Mmm, that's not entirely true; there are larger nonprofits that do the same types of work all across the country, such as the United Way, the American Red Cross, the Salvation Army, or Goodwill Industries. However, I think your "patchwork" analogy does apply to the smaller state and local charities. It's definitely a drawback when people in need can't easily find the organization(s) which would help them the most. Yet on the third hand, I believe that local nonprofits which focus on the problems specific to their areas shouldn't be forced to change their focus. After all, the problems of an inner-city population and a small fishing community aren't going to be the same. What they should work on is better awareness of all of the nonprofits in their area, so that everyone knows who can do what. Also, better communication wouldn't hurt, either. ;)
I think that individuals can help, but that it's going to take collective action to recreate enough of a social safety net nationwide so that people don't fall through the cracks.
Truly, but what is it going to take to get those individuals to come forward in the first place, so we can all band together and act? (This is something I'm asking myself, too, since I'm also in favor of getting more people involved. It's just going to take me longer to think of some suggestions, though, knowing how my mind works!)
Ideas?
Hmm...
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Re: Hmm...
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Re: Hmm...
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Thoughts
12 years ago
The $30,000 Solution
May 3 2009, 22:20:18 UTC 12 years ago Edited: May 3 2009, 22:20:57 UTC
I wonder if you have run across Robert Schutz's book "The $30,000 Solution". He saw the the same set of problems you're documenting so clearly here and proposed a special sort of guaranteed annual income as a solution back in 1996. I don't agree with him on everything, but I like his way of analyzing the situation. Bob Swann, of the Institute for Community Economics, reviewed the book when it was published (http://www.context.org/MEDIA/Schutz.htm). Unfortunately it is not available as an e-book, but there are plenty of copies in circulation.
Maybe we should be using some kind of foresight to solve the problems in a systematic way rather than trying to build a patchwork of institutions to heal up the wounds after the fact. Why not make some assumptions about the expected earning power of people over a lifetime, given the proper level of health care, nutrition, shelter and education, and provide the minimum needed to achieve those necessary levels as a kind of "advance"? Most people would then have the "working capital" to buy and maintain their own "means of production" so they would probably never fall below the income level that triggers the guaranteed annual income.
I hope you can get around to writing about these things again soon.
Re: The $30,000 Solution
May 4 2009, 02:24:12 UTC 12 years ago
I haven't read that one, but I've read some other material that suggests something similar. I think the idea has potential. As mentioned elsewhere, I like the citizen's dividend better.
>> Maybe we should be using some kind of foresight to solve the problems in a systematic way rather than trying to build a patchwork of institutions to heal up the wounds after the fact. <<
That sounds like a good idea.
>> Why not make some assumptions about the expected earning power of people over a lifetime, given the proper level of health care, nutrition, shelter and education, and provide the minimum needed to achieve those necessary levels as a kind of "advance"? <<
I can think of one challenge: whose earning power? Do you pay black people less than white people since they're probably going to earn less? Do you pay women 74% of what you pay men? People would rant about discrimination. Do you average all the levels? Some people would then get paid more than their earning power, and others less; the latter would likely protest.
>> Most people would then have the "working capital" to buy and maintain their own "means of production" so they would probably never fall below the income level that triggers the guaranteed annual income. <<
Maybe, but they would still need access to a good job market or other sources of income, otherwise the handout wouldn't help long-term. It would be better than nothing, but not necessarily sufficient. What we need is a system that keeps as many people as possible productive, yet still provides for those in need.
May 3 2009, 23:39:46 UTC 12 years ago
You analysis is interesting but the analogy is not perfect as greater efficiencies can improve our material well being without effecting the monetary supply (look what a $1000 buys for a computer now compared to ten years ago). Additionally, those in the wealthiest brackets are not usually sitting on their money but investing it to make more money, these investment creates jobs, goods and technological advancement as well as the occasional market distortion.
Hmm...
May 4 2009, 02:13:26 UTC 12 years ago
Not necessarily. That is one option; I'm not sure it's the best. There are others. One that appeals to me is a citizen's dividend: money paid to each person out of funds collected for the use of public lands or resources such as air and water. If a carbon cap-and-trade system is implemented by selling limited permits to companies, and the proceeds are distributed equally to individuals, that's a citizen's dividend. A related idea is paying countries NOT to exploit their resources, such as not cutting down forests; that money could also be distributed to individuals as a dividend.
>> You analysis is interesting but the analogy is not perfect as greater efficiencies can improve our material well being without effecting the monetary supply (look what a $1000 buys for a computer now compared to ten years ago). <<
I have made some mention, here and elsewhere, of utilizing resources and people in ways that require little or no cash exchange. Increases in efficiency are especially desirable. The problem is, America is so obsessed with money that people usually fail to consider any other options. I'd like to find ways of encouraging more people to explore those options.
>> Additionally, those in the wealthiest brackets are not usually sitting on their money but investing it to make more money, these investment creates jobs, goods and technological advancement as well as the occasional market distortion. <<
Most wealthy people do invest money, since investment is a leading cause of wealth. It is important that they invest. However: 1) They are not obligated to invest money, nor are they obligated to invest or spend it in productive ways. They might creat jobs and goods; they might also fritter it away on gambling or other activities of minimal contribution. Many of the jobs taken and created by the wealthy are not really productive in the sense of creating products or delivering life-important services such as medical care: they're about diddling money around. 2) At the same time they are spending or investing money, wealthy people are also making money. Making more than they spend is how they get wealthier; that money is theirs to control, not someone else's. When they are doing that, they are taking up more than their fair share of the total available wealth, which means that other people are getting less than their fair share; and if that gap gets wide enough, it causes the economy to break down. That's bad for everyone.
I don't think it's necessary (or even possible, perhaps) for everyone to have exactly the same amount of money. I do think there's a range of money which is reasonable for individuals to have, and when too many people have less or more than that, it causes problems such as we see now. Sometimes the numbers of people outside the range are small enough for society to ignore; other times, like now, the numbers build up so that they impact the activities of others and the economy as a whole. Plus they do conspicuous embarrassing things like build tent cities.
Re: Hmm...
May 4 2009, 02:51:34 UTC 12 years ago
Money is an efficient way to move around resources,so much easier than, say, chickens. And we have the Freecycle movement and various groups that barter. The great thing about a free society is that we can work out alternate solutions.
I am not sure how much money in our society is simply a zero sum game (i.e. if I have more, you have less), it seems more fluid than that.
Re: Hmm...
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Re: Hmm...
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May 4 2009, 00:16:59 UTC 12 years ago
May 4 2009, 03:46:15 UTC 12 years ago
Just a thought.
Hmm...
May 4 2009, 04:02:03 UTC 12 years ago
But they aren't as safe as they think they are. No amount of money can keep them from getting cancer, for instance; and they breathe the same air as everyone else, inhabit the same polluted environment. If an entire economy ceases to function, then even the rich eventually suffer. And no matter how good your defenses are, they will not protect you if a country devolves into barbarism and many thousands of people think you are to blame, whether you are or not.
Numerous artifacts are relics of social collapse. Rich people would take their money, jewelry, etc. and bury those things in a box or an urn or something. Many of them never came back for their treasures. Casualties of war? Mob violence? Famine? Plague? It varies, but the end result is the same: they weren't as safe as they thought they were. They were rich and powerful, and they were severed from their comforts all the same. Troves from the collapse of the Roman Empire are particularly well known. Empires do fall. And the have-nots pretty consistently tend to take it out on the haves, who never seem to see it coming. Guess they slept through history class.
May 4 2009, 15:54:03 UTC 12 years ago
Hmm...
May 4 2009, 22:06:51 UTC 12 years ago
*ponder* Various different large-scale socioeconomic systems have been tried, and so far, they all seem to run aground on different problems. It's as if we're exploring all the options in pure form first, learning what each does well and poorly. I just hope we can learn how to put the pieces together so that we can enjoy some benefits of each while using others to counterbalance and minimize the drawbacks.
I think that shutting down the global economy and civilization completely, forever, would do more harm than good. So we need to find a healthier replacement for our current approach, which sadly resembles that of the cancer cell. (Which, now that I think of it, may be another reason for the massive spike in cancer rates, alongside rampant toxin exposure and assault on the environment.)
Re: Hmm...
May 5 2009, 10:00:24 UTC 12 years ago
Even distribution would mean that we would all share a standard of living that might make Americans feel like trailer park trash, but people from Bangladesh would feel like royalty...
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Re: Hmm...
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