Let Them Eat Cake

Thus said Marie Antoinette (or the words are accredited to her) during the French Revolution.  It is the cited as the height of insensitivity.  While Paris was burning around her she assumed that the ordinary citizen had access to the delicacies that were afforded only to the rich.  Completely out of touch.  She paid with her head.  Why these thoughts at the time that we are ushering in a New Year?

I saw a very moving piece of the plight of the impoverished middle class in America.  You can see the segment at: http://www.pbs.org/newshour/bb/business/july-dec11/poverty_12-30.html.  The piece does not examine the plight of street people but focuses on ordinary people (and some extraordinary people) who have fallen on hard times due to the recent economic implosions in the United States.  We meet a mother with two master degrees who had to go to the food bank to feed her children.  We meet people who have given up trying to find a job and who will probably never work again.  These are middle class folk who have been caught up in an economic storm that is as cataclysmic today as the French Revolution was for its time.  The selling point for the American way of life was the American Dream.  This was supposed to mean that everyone had a fair chance at an eduction, could find a job for life, could have and support a family and could look forward to a reasonable retirement.  All gone.  They say that the American economy is coming back.  Don't believe it.

In Canada we know the meaning of "two solitudes".  They are called solitudes, I suppose, because we have two groups who operate within their own spheres of influence that don't interact.  It works for awhile but when meaningful interaction is required there is little or no means by which it can occur.  When reasonable people can't speak they often resort to violence to make their point. The FLQ in Quebec is a good example.  When the French aristocracy could not empathize with the common folk the matter was resolved by revolution.  In countries where there was a reasonable chain of communication between classes (such as England) change was gradual but peaceful.  What does this have to do with the poor in America?  Or Canada for that matter?

Being a citizen in a country implies a social contract.  This is a mutually exchanged set of promises between the state and the citizen that assures a reasonable existence for the individual.  In Canada the social contract includes a social safety net that everyone takes for granted--as they should.  This is what they bought into when they agreed to be citizens--by birth or otherwise.  In the United States the social contract always included the American Dream.  Take away that aspect and you have a significant default of the social contract.  In Canada, no matter who is to blame, there is a significant default in our social contract with our aboriginal people.  In both cases we have groups of people shouting to other groups of people, neither of which hear each other.  In the Middle East you have a similar phenomenon.  Where this lapse of communication persists long enough one group decides that no amount of shouting will get them heard.  So the shouting escalates to violence.  We have seen it among our aboriginal people and we have seen it in the Arab Spring.  And we will see it in America.

The 99% Occupy (fill in the blank) movement was a poor beginning at trying to create a meaningful dialogue between the aristocrats and politicians on the one hand and the middle class.  Seen as latter day hippies no one took that movement seriously.  However, the Arab Spring movement has not gone unnoticed in the United States. Recently a 100,000 name petition (on Facebook) was presented to Verizon over a $2 charge.  The charge was removed. The wake up call has been made.  Is anyone listening.

The rupture in the American social contract is fundamental.  There is an almost complete disconnect between the people that govern the nation and those who would be governed.  Within that disconnect there is a level of ingenuousness by the governing class that would make Marie Antoinette proud.  Within the disconnect on the electorate is a disquieting feeling that the only thing that politicians do is feather their own nest.  If the disconnect continues history has shown us that violence soon follows.

In the case of the Canadian aboriginal people there are those that argue that no amount of money can rescue aboriginals from themselves.  However, Canada entered into a social contract with aboriginals and has consistently failed to live up to its promises.  The result has been inaction by successive governments, wholesale fraud by some aboriginal leaders and, for the rank and file poverty that would make Palestinian refugee camp look like paradise.  The aboriginals can, and will, raise hell.  But will the politicians respond?  Is there a fundamental disconnect between these two groups that can only be resolved by violence.  In the US there has been better resolution of aboriginal problems.  We could learn from them.

So, as the New Year comes upon us it is a time to reflect on what our role will be in upholding our social contract.  Will be be part of the population that never votes?  Will we be part of the population that does not urge his or her political representative to "do the right thing?".  Will we be the part of the population that turns his or her back on the less fortunate? Will we say, in modern terms, "let them eat cake".

I wish you a healthy and serene happy New Year.

Bernie.

A Ship of Fools--The Republican Presidential Wannabes.

I have watched, with some morbid fascination, many presidential run ups in the United States.  Never, have I seen such an unqualified bunch of fools that pretend to present themselves as qualified to govern the United States of America.  An admission:  I am probably to the left of the most left US Democrat.  That being said I can't imagine that the designation of a candidate from the current bunch could present a "close vote" for the incumbent.  From candidates that want Congress to be a part time job, to those who would ship more than 10 million undocumented residents home--or put them into an interment camp, to those who would have the Supreme Court Justices justify a decision in a public forum, to those who would bleed the country dry before they would agree to any tax increase, the current range of candidates go from deranged to ingenious to outright stupid.  It might be comical but it is at least likely that one of these jokers could become President of the United States.  I have, for the life to me, tried to understand how such a crew could be considered a candidate for such a pivotal job.  Here are some thoughts.

From the beginnings of the Obama presidency the Republicans have tried to isolate him.  With great success.  He had campaigned on the idea of inclusiveness and bipartisanship politics.  It was never to be.  I would like to think that the Republican response to him had little to do with colour but I am not so sure of that.  Obama reached out during the healthcare legislative process and gave up his most prized provision--on the public option where an insured could go to a government agency when all else failed him--and was slapped in the face.  The legislation passed without a single Republican vote.  Because he believed in inclusiveness President Obama left the business of Congress to Congress.  He was not an overly proactive President.  In return Congress--even those in his own party--marginalized him.  He is seen by the right as a socialist and by the left as having moved too far to the right.  So, he is again marginalized.  His strength with the uncommitted voter has eroded so much that barely half the electorate see him as having done a good job as President.  That is not to say that the uncommitted voter will vote Republican with the current bunch of crazies but it will be an uphill battle for the Obama constituency to win them over.  Fool me once, shame on you; fool me twice shame on me.  The marginalization of the President has had the effect of making him fair game with even the most outlandish of candidates.

The American electorate is thoroughly confused.  The President, while giving billions to the banks, is seen as not having helped the man on main street.  True, President Obama inherited much of the economic mess he's in but he wanted the job and, as second prize, got it.  The job creation part of the job was put on the burner and should have been addressed when he had a majority in both houses.  Now the job creation legislation is bound to fail: any job creation legislation will be seen as a "victory" for President Obama. The plight of those who have lost their homes has not been helped by a government that would not let the market decide the value of mortgage investments being held by the bank.  Accordingly the banks would not write down their mortgage investments in hope that a government rescue was on their way.  Not writing down their investments directly affected the homeowner who could not restructure or write down his loan.  It is generally acknowledged that small business creates jobs faster than large business.  Small business needs credit for inventory, financing of accounts receivable, etc.  The local banks were not lending. Whatever the bailout money did for the banks it did not increase local lending.  Therefore local business was not hiring.  What should have been apparent was that job creation--not healthcare-was job one.  Any government help to create jobs has an immediate return on payroll deductions; the unemployed to not pay taxes.  The seemingly abandonment of the man on main street has worked to the benefit of the Republicans. Small government, states rights, low taxes fall on fertile ears when the man on the street is under fire from all sides.

Extremism and stupidity begets more extremism and stupidity.  Rather than stand "above the crowd", each candidate is in a race to the bottom.  Take the issue of healthcare reform.  Mitt Romney instituted healthcare reform in Massachusetts some years ago.  The program is still in force and echoes, in many respects, the federal legislation that was to follow.  Romney is being tarred with this today.  He had to admit that his support of healthcare was a "mistake".  The candidates position on foreign policy is laughable.  Ron Paul could not identify many of the countries under siege today let alone formulate a policy with respect to them.  Given that government is one of the largest employers in the land severe reduction of government will create massive unemployment.  No one has attacked the dismal state of education in the US. If Republicans are pro business explain their position on free trade?  In short, if the stakes were not so high, the present bunch would be comedic. I could go on.

What we are seeing is an entire failure of government--at least at the federal level.  The President has been rendered fairly ineffectual.  He squandered his political capital on non essential legislation (when compared to job creation).  Congress can't get beyond sound bites.  Entrench positions are so deep so that essential legislation is frustrated.  The electorate does not know where to turn.  So they turn to a bunch of clowns with easy answers.  It will be interesting to see who can sound a wake up call to the American electorate.  For wake up they will.  What they do, as awake, may have some disturbing results.  Let's see.

Bernie.

'Tis the Season

For most of my life I have been confronted by the Chanukah vs Christmas paradox.  When I was young, Chanukah was a lesser holiday celebrated by eating latkes (potato pancakes fried in oil) and lighting the candles each night.  The fact that this was the "festival of lights" or the "festival of freedom" was lost on me.  We received Chanukah "gelt" (money) with the stipulation that half was to be given to the poor--in our house a blue box given to us by the Jewish National Fund.  Proceeds went to Israel--then another nebulous concept (until 1948 that is).  The "gelt" was never more than 50 cents--a princely sum when you could buy a chocolate bar for 10 cents.  Of course, only 25 cents got to stick in my hands.  No one gave opulent gifts and no one expected them.  First, my family was not in the financial position to give opulent gifts and, second, that was not the style of the day.  Christmas, on the other hand, was important to our family business.  Much of our retail business was conducted in the Christmas season.  Gifts were purchased and the hyper commercialization of Christmas was yet to come.  However, we were culturally exposed:  we all sang carols at school (and recited the Lord's prayer every morning) without complaint.  Religious (or non-religous) pluralism was yet to come.  As Jews my parents had always been the lesser part of a dominant culture and Canada was not much different from Russia in that regard.  For our family (and many other Jews) Easter was the dangerous holiday:  the crucifixion of Christ was then firmly fixed on the heads of Jews and the Catholic church made no effort to stem the anti-semitism that was already adrift in the community.  But Christmas was always relatively benign for the security of the Jews in Ottawa.  Everyone that worked for our family was Catholic and my parents made sure that there was a little extra in the pay envelope (everyone was paid in cash) for the Christmas season.  There were no Christmas parties and, for the most part, employees were happy to be employed and my family was happy that there was enough business to pay their salaries and have a bit left over for profit.

Even as a youngster I was aware that the inter-religious problems that Jews faced were rarely generated by non-Jews.  They were generated by the Church--mostly the Catholic church.  Most of the non-Jews that I knew were, if not tolerant toward Jews, living in a symbiotic relationship with the Jews of our community.  Everyone knew the boundaries.  There many stores to which Jews did not apply for work.  The banks did not generally employ Jews.  Nor did the insurance companies.  There were quotas in the universities for the enrolment of Jews.  Nonetheless Jews excelled.  For the children of Jewish immigrant families to get ahead it was necessary to get better grades just to be on a level educational playing field with our non-Jewish neighbours.  Thankfully many of these walls came down and the educational and business relationships became more ecumenical.  But for many non Jews, Jews were, at best a mysterious cult and at worst were Christ killers.  I have American friends who attended university in the 1950s only to be asked by Christian "friends" where their horns were.

Chanukah and Christmas and Kwanza are now more ecumenical.  Not to say that there is religious harmony but Christmas trees and Chanukah lamps stand side by side in your favourite mall.  Chanukah has become a sort of Jewish Christmas in that children expect gifts on each of the 8 days while Christian kids are envious of the stretched out Jewish holiday.  What has happened, for good or for ill, is that much of the religious content of these holidays has been largely striped away.  I do not want to go back to my youth because Chanukah was not as major a holiday as it has become.  I do not want to go back to my youth when Christmas was more divisive than it is today.  It seems that time has somewhat healed over these differences.

To my Jewish friends and family, a happy Chanukah.  To my non Jewish friends, a Merry Christmas.  I do not subscribed to the generic "happy holiday" generic greeting.  To all, a Happy New Year.

Bernie.

With A Pinch of Salt

I am an unabashed economic history freak.  I recently heard two lectures that brought back fond memories of my university days.  If you are interested, you can hear the lectures by going to www.cbc.ca/ideas.  You can scroll down to the salt lectures and hear the nitty gritty for yourself.  But what about salt that's so intriguing?

Until the industrial revolution and beyond, salt was the common currency of commerce.  Cities were founded near salt supplies (the "wich" in Norwich or Sandwich stands for salt).  Armies were paid in salt.  City states killed and went to war over salt.  At one time salt, weight for weight, was more expensive than gold.  This was because salt had many uses that went well beyond cooking.  Before refrigeration, salt was the only means by which food could be preserved.  Therefore, cod caught outside Britain could be preserved for sale in, for example, Venice.  Salt was the main curative for battle injuries.  Armies without salt soon had soldiers whose wounds quickly turned gangrenous.

We forget that in each era there is a key element that drives economies.  Over time the key element becomes less important.  Salt became less essential with the discovery of antiseptics and ice retention (well before refrigeration).  But during its highest currency salt was an essential element of commerce.  The lack of salt meant that you had to trade for it.  And because of it, for the most part, trade became the foundation for wealth--instead of landholdings.  When trade overcame landholdings as a wealth creator landholding were soon traded to create wealth.  Adam Smith knew this only too well.

One of the interesting side notes of salt crunch (pun intended) was that Queen Elizabeth I declared that her nation had become too dependent on salt and had to find other means to achieve the ends that salt served.  Sound familiar?  Think of oil.  The discovery of oil as a commercial driver is one of the prime drivers of economies in the 20th century and beyond.  But history tells us that when a resource becomes overly scarce or when the dependance on a resource creates vulnerability for some countries, this resource will be replaced by something that levels the playing field.  This is happening before our eyes.  Most western nations recognize that their dependence on oil makes them vulnerable to unstable countries like Saudi Arabia and Venezuela.  So we are going to solar power, nuclear power, wind power most of which do not require oil.  In the 22nd century many will regard oil as we now regard salt.  As a curiosity.

Bernie.

The New Bourgoise

I admit to being a junkie of historical economics.  I believe that there is nothing new under the sun when it comes to economic activity.  There are new processes and new innovations but there is much to be learned from the South Sea Bubble as it relates to the great mortgage meltdown.  Enter Deirdre McClosky a much venerated economist that held sway for may years at the University of Chicago in the United States.  To make it a bit more interesting (if not relevant) is that Deirdre started life as Donald and underwent a sex change.  Her recent interview on the CBC program Ideas (you can download it free of charge from either iTunes or the CBC) is a must-hear for those who are even remotely interested in how the world is changing (in economic terms) but is much the same as it was in the 1700s and 1800s.

I have often subscribed to the view that the cataclysmic events of the British industrial revolution fundamentally changed the world as they new it at the time.  According to McClosky this is because innovation became a generality accepted reality rather than what it was previously:  any change was bad.  According to McClosky this acceptance was an "accident".  My position was that it was no accident.  In Britain, second sons (who would not inherit the family fortune) went into business.  Also, the rise of Protestantism freed workers from the burdens of the church and advanced the notion that each man was his own person (rather than a person owned by the local gentry or the church). The rise of real property concepts in Britain was key to economic development as was the rise of personal property such as intellectual property.  Wealth was not longer measured in land but in money capital.

Whatever it was, the changes that were brought about were, as I said, cataclysmic.  Wealth was created by innovation, manufacture and trade.  Factories brought workers in from the farm.  The farm had to become more efficient to feed all of the mouths that were now in factories and hence agricultural innovation. Yes, people worked at starvation wages in factories but innovation came through organized labor and unions.  Innovation moved workers from horse and buggy to the automobile. Space exploration led directly to semi conductors which, in turn, revolutionized everyday life with consumer goods and computers.  Economies have gone through cataclysmic changes before and they will do so again. In fact, they are going through a fundamental changes today.  And change, as we know, is painful.

What does this have to do with economic circumstances today? McClosky posits that innovation in the past innovation was found in northwestern Europe. Because of fundamental sociological changes in Britain, the revolution in France, the revolution in the United States, the ability of the common man to innovate became a prime mover in both economic, political and social terms.  Where it has effected society most is in labor terms.  Each cataclysmic event has had a negative effect on labor.  Because each innovative change has brought with it  labor efficiency.  Therefore fewer labor units were needed to sustain economic activity.  As agribusiness took hold it took less people to work the farm and workers were displaced into the cities.  These displaced workers had to be retained to work in higher value jobs.  Many found work as auto workers.  The semi conductor revolution let to a high level of automation:  many auto workers were displaced by robots that did the welding and other tasks more accurately than humans and without the burdens of labor unions.  Those displaced workers took jobs in other industries where labor had not yet been dealt an efficiency blow.

This economic phenominon can be seen in its stark reality in China and India.  Politics aside, both those economies have embraced innovation to the extent that they threaten the "more advanced" economies such as the US, Japan and Europe.  The world, in the words of Thomas Friedman, has gotten a lot flatter.

The key spoke in the wheel is education and training.  If there are going to be periodic wholesale dislocations of labor then labor will have to be constantly retained to meet the new reality.  Because there is a surplus of labor that will work menial jobs for low wages (Africa is the next India) the developed world will have to create workers who do higher value jobs.  While the US has been innovator-in-chief for more than 200 years its world position is being threatened by its seemingly inability to educate its masses so as to get them ready for new jobs that will be recreated by the most recent dislocation. Unlike McClosky who is a diehard free marketeer, I believe that this is where government can and should play a role.  Previous dislocations of labor have sometimes meant lost generations who never found work.  Western economies can no longer support unemployable workers.  They just don't have enough tax strength.

We live in interesting times.  We will survive the present cataclysm.  But only if our politicians are far sighted and understand the forces that they are dealing with.  Fat chance.

Bernie.