A Response to Carl Schramm’s “By Forgetting Its Proud Economic History, Syracuse Loses Its Future” Three Years Later

For those seeking to read the article and similar articles by Dr. Schramm first please see the following link: http://www.forbes.com/sites/carlschramm/2013/02/26/by-forgetting-its-proud-economic-history-syracuse-loses-its-future/#439eba577525

Downtown Syracuse

Downtown Syracuse NY, taken from modern day Clinton Square where the Erie Canal once ran through.

Generally I tend to focus my writing on national or international economic conditions but as a native Syracusan, Syracuse University alum, and now PhD student, I felt I had to add to this debate no matter how old. University Professor Dr. Carl Schramm has written a number of articles regarding Syracuse and city economic plans in general to which I would like to respond.

Firstly, for those who believe I am writing merely to defend Syracuse and all of its nostalgia, you will be sadly mistaken. There are a number of parasitic problems, both economic and social, that are undeniable and which must be addressed. Much of the original backlash centered around counter arguments to Dr. Schramm’s assessment of the city’s social and economic status. On the contrary, I actually happen to agree with a number of his evaluations. I also happen to agree, from a high-level perspective, that these problems must be “self owned”, and that indigenous entrepreneurial activity serves an important role in the solution set.

That being said, the political economic direction suggested and public policy philosophy offered appear chained to a flawed economic ideology made popular some 35 years ago and which remains unproven until today.

In fact, while we agree on some aspects of the problems and solutions, my primary motive for writing this article is to offer a substantially different methodology to cultivate entrepreneurial activity, and economic and political philosophy to overcome the challenges the city is currently facing.

One element of Dr. Schramm’s investigation which cannot be ignored is that Syracuse and its economy do not operate in an isolated bubble from the rest of the World. We cannot hastily conclude that any downturn is the sole result of actions taken within the community. The reason similar situations can be noticed throughout the country is because of national and international economic effects which strongly helped to catalyze this trend. While past and present local leaders were in no doubt partly responsible and will be required to take the lead on revitalizing the area, it is both unfair and misleading to suggest that the responsibility of the economic decline lies solely upon their shoulders.

In the follow up article “Syracuse Can Rise Again, But Only If The Entrepreneurs Return”  Schramm claims that “… Because of the tax and regulatory environment — and no one can avert his or her eyes to the comparative disadvantage this presents — few migrating firms will find the city attractive.” This is a very broad assertion with little to no empirical backing. Different tax structures: corporate taxes, self employment taxes, payroll taxes, real estate taxes, income taxes, etc. are likely to all affect entrepreneurial activity differently. The same can be said of regulations: environmental, infrastructure, finance, human resource, business formation, etc. Many of these factors have not been fundamentally proven to have a correlation to entrepreneurial activity let alone  be proven to be the primary motivator. If the broad claim that any regulation and any tax had an all but certain substantial negative impact then Silicon Valley, one of the highest taxed and regulated parts of the country, would not be the entrepreneurial engine that it is today.

Later in the article it is stated that “Government’s most effective role is to encourage with economic signals such as reducing local regulatory burdens (licensing, zoning and inspections), lowering property taxes, providing grace periods from labor law that might not be applicable to start-up businesses, and providing only the infrastructure that emerging businesses, not imaginary “ideal” businesses, need. Simply, “backing off” is likely a more effective strategy than trying to force economic growth according to some expert’s playbook.” When discussing the government’s economic role, let us not forget that governments are burdened with a very broad set of responsibilities and tasks. Laws, regulations, and taxes are not in themselves bad concepts by any means. In fact, theoretically they should be put in place because they contribute to the overall public good. In some instances however, the strife with government actions is surely justified.  While the results of NY’s Buffalo Billion remain to be seen, taking into account all NYS incentives received and the revised job outlook provided by Solar City, the project is set to result in ~$1.4Million/job created. This is hardly what a rational individual would consider an efficient use of tax payer funds, but by no means is the project representative of all government actions or an indication that government is inherently obstructive or nefarious.

The notion that the best that government can do is to reduce regulations, cut taxes (an implicitly cut services) and then hope for the best, today remains an unfounded fallacy made famous primarily in the 1980’s. Many will of course object to this assertion and will undoubtedly rebut with poignancy by highlighting some particular time period or location as proof of this philosophy’s legitimacy. I would like to remind readers however that while pointing to a counterexample can be enough to disprove a claim, it is not in itself enough to prove a theory or in fact prove causality. To truly prove causality is all together a different animal as any academic or researcher will attest. This requires profound insight and necessitates substantial evidence linking economic conditions to the outcome they’ve produced. Simply citing their coexistence within the same society and time period is no more a proof of causality than is linking breast cancer to traffic accidents.

In a subsequent but related article “It’s Time For City Planners To Adapt A New Model” Dr. Schramm speaks of city planners not considering the most important metrics such as: poverty ratio, city population, or the costs of public services. I very much agree with him that cities cannot create an effective strategic plan without considering their main goals, objectives and governing philosophy and it would be rash to do so. That said, Dr. Schramm provides no true underlying philosophical goals for society in his confutation of city planning strategies other than to suggest a vague notion of prosperity, by no means a well-established and objective measure.

In contrast, I offer readers the Society Success Metrics outlined in my article “GDP vs. True Societal Success” where the goals and metrics extend beyond pure economic growth to more fundamental and intrinsic objectives. Taking these measures into account, one can begin to utilize peer reviewed research, as it was intended, to guide the decisions and proposals for government to enact thus providing a substantially increased likelihood of achieving those targets.

As an example of this philosophy in action, if one were to set goals for the city’s education system, they would be wise to consider the existing research and best practices available through education journals (such as AERA) or alternative educational systems such as the Finnish National Educational System. Clearly local governments are handicapped in their authority to make decisions on this subject, but the perspective for improvement is nevertheless valid however small the potential impact may be. Before anyone jumps to any conclusions on cost by the way, in 2012 according to the National Center for Education Statistics Finland spent $9,353/student and the US spent $11,732/student, while Finland’s students are both healthier and perform better in just about every measurable way.

In relation to entrepreneurship, one policy concept which has proven to have a definitive and positive correlation to entrepreneurial activity is education. Government can be supportive of entrepreneurial activity through  entrepreneurship coaching and education programs, R&D support systems, social capital (i.e. networks),  etc.  KCSourelink in partnership with the University of Missouri has offered a “resource rail” specifically laying out various trajectories and resources available to entrepreneurs through their local community. As I have no intention of turning what is already a lengthy article into a manifesto however, I’ll keep any further explicit suggestions of pragmatism for another day.

The key takeaway here is to recognize not solely the limitations of government but the power of government as well. More so, that impact does not necessarily have to be negative or obstructive. There are proven methods and best practices which can be taken from other regions, nations, and especially from research which can be implemented and tried in Syracuse as well. If we are in fact going to try and stimulate entrepreneurial activity, does it not then follow to have a bit of an entrepreneurial mindset with our creation and trial of policy? One can never claim to have a silver bullet to success by any measure, but utilizing reasoned and proven methods appears to me a far more effective strategy than going to the casino and rolling the dice.

References:

Schramm, Carl. “Syracuse Can Rise Again, But Only If The Entrepreneurs Return.” Forbes. Forbes Magazine, 4 Mar. 2013. Web

Schramm, Carl. “By Forgetting Its Proud Economic History, Syracuse Loses Its Future.” Forbes. Forbes Magazine, 26 Feb. 2013. Web.

Schramm, Carl. “It’s Time For City Planners To Adapt A New Model.”Forbes. Forbes Magazine, 14 May 2013. Web.

KCSOURCELINK RESOURCE RAIL. Digital image. KCSource. KCSource, n.d. Web.

Cope, Jason, and Luke Pittaway. “Entrepreneurship Education A Systematic Review of the Evidence.” International Small Business Journal 25 (2007): 479-510. Web.
American Educational Research Association. AERA, n.d. Web. 08 June 2016.
“Education System.” Oph.fi/. The Finnish National Board of Education, n.d. Web. 08 June 2016.
“Gross Domestic Product per Capita and Public and Private Education Expenditures per Full-time-equivalent (FTE) Student, by Level of Education and Country: Selected Years, 2005 through 2012.” National Center for Education Statistics. NCES.ed.gov, n.d. Web.
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World Economic Forum Recap & Review

Courtesy of the World Economic Forum Twitter account

The 2016 World Economic Forum (wef) Annual Meeting took place this year in Davos Switzerland where the overall theme this year was “Mastering the Fourth Industrial Revolution”. The fourth industrial revolution is one of “cyber-physical systems”, which is largely characterized by automation, driver-less cars, artificial intelligence, big data, etc. While these technological advances will have and are already beginning to have a profound impact on our society and economy, of major concern simply put is the pending labor economic shift like none we’ve ever seen before.

While there were many additional topics of discussion from Greece to China, to food and cancer, adding those to this article would create one far too broad and redundant for a single blog post. A few of the relevant panels concerning labor economics within the fourth industrial revolution included: “A World without work?“, “Creating 75 Million Entrepreneurs: Is this Possible?“, “The Future of Growth: Technology-Driven, Human-Centred“, and “Educating the Masters of the Fourth Industrial Revolution

Effectively what’s at stake is the future of jobs (i.e. labor) in the World economy. A collaborative study by Oxford University economics and computer scientist researchers predicts that “According to our estimates, about 47
percent of total US employment is at risk.” (Frey et. al 2013) Technological advancement in the past has made previous jobs obsolete and the economy was somewhat able to adapt with higher and lower skill service sector work. The fear is that the new wave of automation may bring about an environment where the scale of work obsolescence is so vast that high skill, high education, white collar jobs even in the service sector will also be at risk. We have seen computer replacement of jobs creep further and further into the workplace including professions such as journalism, financial services, psychiatry, law, driver-less vehicles, marketing, etc. and the uncertain future of how large this can extend is still being hotly debated.

From the mood in the room and various perspectives on the topic, we can see that this economic symposium  will not simply be one of pragmatic solutions but perhaps more similarly reflect the debate about Climate Change, taking different shapes in various regions of the World. Most leaders of developed European countries appear to at least be willing to discuss public solutions to the problem including thoughts on a guaranteed minimum income. In the United States, and much of the developing World including China and India, the discussion appears to be emerging more into one of denial, clinging to old and antiquated systems, and intense conflict between those who (in the short term) stand to benefit and those who do not. Many academics however, including very highly esteemed economists such as Economics Nobel Laureate Dr. Christopher Pissarides, have similarly gone the way of the European community while those who serve to benefit from increased wealth concentration at the top willing to accept the possibility of job loss, are more likely to summon the traditional pure capitalist solutions : innovation and entrepreneurship.

Much like Climate Change, a massive transformation to our economy is coming and it is up to this generation to decide how it looks. While this change will progress over many decades, the important thing is focus the debate on solutions rather than on denial. We must summon the courage to face this head on and decide on the best solutions, public, private, or other to act on.

References:

Autor, David H. “Why are there still so many jobs? the history and future of workplace automation.” The Journal of Economic Perspectives 29.3 (2015): 3-30.

Frey, Carl Benedikt, and Michael A. Osborne. “The future of employment: how susceptible are jobs to computerisation.” Retrieved September 7 (2013): 2013.

The Theory of the Firm: If Economics & Entrepreneurship Would Converse

Richard Stallman is largely considered the "founder" of open source software.

Richard Stallman is largely considered the “founder” of open source software. “Richard Matthew Stallman. Digital image. Wikipedia.org. Wikipedia Foundation Inc., n.d. Web.”

Given my background, I very often tend to straddle the line between economics and entrepreneurial literature. Even if one had little to no background in either field however, it requires relatively little thought or observation to discover how married at the hip these two fields truly are. Indeed in entry level microeconomics courses  we are taught about the theory of the firm. Various definitions of this exist and it has certainly evolved overtime of course. Interpretations range from such austere neoclassical concepts as “that firms exist and make decisions purely to maximize profits (or shareholder wealth)” to more modern ideas which add to that concepts of long and short term aims, corporate responsibility, innovation, etc. though most of those are found in industrial organization or business oriented scholarship.

Why the neoclassical (read as ~ pre-WWI) ideas are rarely accepted in their unbridled form probably should come as no surprise. Few theories that old in any field of scholarship are still accepted in their pure form today. The story of how that came to be is largely attributed to the works of John Maynard Keynes (1883 – 1946) and his post WWI economic proposals. More to the point, observation of how firms’ behavior are beginning to evolve today (key word = evolve) often runs in stark contrast to many of today’s well-accepted theories of firm behavior let alone those of old.

While the definition of “entrepreneurship” is fairly contested even within the field of research, if we consider entrepreneurship in the context of scholarship as at least incorporating the study of how individuals and firms innovate and evolve in the marketplace, then it has the potential to offer key insights into the theory of the firm. What is missing from the conversation in economics, though it is beginning to foster more discussion in entrepreneurial fields, are the behavioral changes and corresponding firm/entrepreneur motivations which stand almost as a 4th dimension to the 3D world of neoclassical thought.

If we accept the traditional theories as a universal truth, then what on Earth causes any entrepreneur to form a Benefit Corporation or B-Corp? Who in their right mind would take the time to create Wikipedia, let alone Wikileaks? What interest does homo economicus or a wealth maximizing firm have to create Bitcoin?  How can open source software, which provides a crystal clear opportunity for profit generation, possibly exist in a free market? Speak with almost any entrepreneur in renewable energy and the words “profit” or “wealth” are rarely uttered while “climate change” and other socially oriented value concepts dominate the conversation. Why do so many local microbreweries and cafes which are axiomatically in competition with one-another,  assist each other in forming their businesses? Why do some business owners, with little to no market incentive to do so, purposefully locate their manufacturing to more costly, higher wage, countries? How do companies on Kickstarter generate such activity? Why would health clinics form in the developing world which charge affluent customers for medical services then turn around those profits to provide free health care to the poor? While some may find ways to argue their place in traditional economic theories, in truth these ideas mesh with neoclassical economics no more than Noah’s Ark meshes with Geology. As is seen time and time again throughout history, rather than simply observe these phenomena those that feel they challenge established theory instead very poorly try to explain them using conventional wisdom.

So what does this imply exactly? The answer to that, is probably the most exciting takeaway one can get from reading research literature or blog posts for that matter. We simply do not know yet. How cool is that!? These concepts continue to evolve into our modern economy and economists, entrepreneurial scholars, and other academics are yet to fully analyze and understand them, let alone model them. Keep an eye on the forefront of economic research because while most people today emphasize sovereign debt, China’s inward shift, oil prices, and automotive sales, in the coming decades, I believe this field of economic research will begin to change the way we view and operate within the economy altogether.

GDP vs. True Societal Success

GDP Definition

Gross Domestic Product (GDP for short) for those unfamiliar or just wondering about the specifics of its use, is the “The monetary value of all the finished goods and services produced within a country’s borders in a specific time period, though GDP is usually calculated on an annual basis.” Mathematically:

GDP = C + G + I + NX

Where “C” is equal to all private consumption, or consumer spending, in a nation’s economy, “G” is the sum of government spending, “I” is the sum of all the country’s businesses spending on capital, and “NX” is the nation’s total net exports, calculated as total exports minus total imports. (NX = Exports – Imports)”

GDP is seen as a macroeconomic indicator, a performance metric if you will used to compare total activity in a nation’s economy over time. You’ll often hear GDP figures in news report for this reason as its often the most salient indicator used by economists, the finance industry, politicians, etc. to judge the “health” of the economy.

Historical use of GDP

Like so many aspects of US culture and political policy, GDP, or Gross National Product (GNP) as what was used then, is largely a carry over of prewar and WWII era America. Not until Black Tuesday was our government ever in such a need to constantly measure the health and growth status of the national economy. The nation needed to get back on its feet from the depression meanwhile transitioning itself into a well oiled war machine to fight off our enemies in Europe. GNP offered the most comprehensive and effective way to measure our economic resurgence and defer resources to the war effort abroad.

Post Keynesian economic expansion and WWII, GNP was suddenly found to be fantastic comparative tool with the Soviet Union, which itself utilized Gross Social Product and Total Gross Output of Industries, until 1988 when it formally adopted the compilation of GNP statistics. Not until 1991 was GNP out-shined by GDP, which then took great international prominence during the 90’s economic boom.

Overall, GDP and GNP have played an instrumental role in our economy since the 1930’s. The creation of such a powerful and salient metric at economists and policy makers disposal, proved to really bring about an econometric revolution. While economic policy is nevertheless highly politicized, GDP was a profound catalyst in establishing the highly analyzed and quantitatively measured world of economics we now live in. In the 1950’s GDP “led to the development of official ‘input–output’ tables, capital stock estimates, and more detailed local personal income estimates. In the 1970s, accelerating inflation prompted the introduction of new measures of prices and inflation-adjusted output. In the 1980s, the internationalization of trade in services led to an expansion of this component into the calculation of national income.” (AtKisson 2013) We now have a greater ability to analyze the results of policy changes rather than theorize and fall back on political rhetoric to defend positions. It is arguably one of the more important economic advances in history.

The use of GDP however, is not without its negative consequences or sweeping assumptions of course. Economic discussions and analysis in the media rarely include the various subcultures and divisions of labor. We now focus on “producers” and”consumers” which many argue has lead substantially to the largely materialistic culture of today. It has also encouraged an economic trend dubbed by President Eisenhower as the “Military Industrial Complex”, where a substantial portion of the economy is now dependent upon military spending.  There is a profusion of discussion relating to the dangers of an over-reliance on GDP and its short coming.  Of greater relevance here is that GDP makes an inherent and somewhat audacious assumption that consumption is the true driver of prosperity. Is this necessarily the case however?

GDP vs. Happiness

As wonderful as GDP has proven historically speaking to demonstrate economic health,  let us not forget that much like any other aspect of human civilization (culture, social acceptance, technology, etc.) , our economy has likewise evolved and should now serve a higher purpose. The original intent of an economy was to serve as an organized system of exchanges and divisions of labor which individuals contributed to and drew resources from to provide for their basic human needs. As Adam Smith, author of An Inquiry into the Nature and Causes of the Wealth of Nations, once said “It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own self-interest.”

Today however, an economy is more than a system of production and consumption but rather, a way of organizing a society itself whereby government plays an important role as a check on markets and to serve the needs which markets cannot (creating and enforcing laws for instance). In today’s world, we expect more than to simply have our lower level physiological needs met. We strive for ideas even higher up the chain of Maslow’s Hierarchy. This is where GDP has its short fall as I think was summarized well by then Presidential candidate Robert Kennedy’s remarks at the University of Kansas on March 18 1968.

Just as in any form of management, it’s important we as a society step back every once in a while and examine ourselves, our current path, and the ways in which manage ourselves chiefly our government and our economy. Pertaining to the later, how does our current economic system perform relative to many consider the only goal of life which is itself not a means to an end, happiness?

“And of this nature Happiness is mostly thought to be, for this we choose always for its own sake, and never with a view to anything further: whereas honor, pleasure, intellect, in fact every excellence we choose for their own sakes, it is true, but we choose them also with a view to happiness, conceiving that through their instrumentality we shall be happy: but no man chooses happiness with a view to them, nor in fact with a view to any other thing whatsoever.” – Aristotle

There have been a number of attempts in recent years to represent GDP vs. Happiness (or some metric designed to capture happiness/life satisfaction). Many of the most credible of these findings tend to illustrate fairly minimal correlations compared to what many economists expect. In 2011, the US was by far the worlds largest economy by GDP yet ranked 31st in the Quality of Life Index (QLI), and 29th in Mercer’s Quality of Living Survey. Even the Economist has demonstrated a fairly minimal relationship. Their results went as far as to gauge Mean Life Satisfaction versus GDP per capita at PPP (Purchase Power Parity). Only until plots are done in logarithmic scale does it approach anything near liner which by definition would indicate an exponential relationship between the two.

The Economist. Rep. The Economist Newspaper, 25 Nov. 2010. Web. 13 July 2015.

The Economist. Rep. The Economist Newspaper, 25 Nov. 2010. Web. 13 July 2015.

Although there are certain arguments to be made to the contrary and disputes are inevitable in any social scientific discussion, GDP as the reigning global economic indicator still stands despite its many critics. This then begs the question, if the relationship, while certainly present, appears fairly weak between the two, perhaps our idea of success should strive to be more comprehensive?

Social Success Metrics

The small Southeast Asian nation of Bhutan thinks so. In 1972 they actually went so far as to implement a new measure called Gross National Happiness (GNH), which still carries forward to this day, albeit with a few revisions. While my colleague Griffin Kearney and I felt GNH represents a fantastic starting point, it leaves much to be desired from a free market, democratic, and analytical perspective to truly serve well as a comprehensive indicator.

In keeping with these mathematical and philosophical constructs and as part of a greater research proposal we’ve been developing, spawned 6 key social success metric concepts, each design to represent a specific scope of societal success.

  • Wealth
  • Health
  • Safety/Security
  • Social Capital
  • Education
  • Freedom

Inspired by the Legatum Prosperity Index, it is our intent to develop a more concise grouping of economic based metrics designed to be analyzed by economic researchers and policy makers as a set. The individual metrics will themselves be made of indicating measures that have already been fairly well established in their respective fields. It is our intention that the inherent propinquity of the grouping of these metrics will inspire unique affiliations and a more cohesive societal aim. Keep tuned for developments on the specifics of these metrics on the My Current Research page.

While there is much still to be discovered about the best individual metrics best suited for this grouping, the methodology behind the grouping itself still stand. Much like the grouping of Maxwell’s equations, the foundation of each of these metrics is by and large well established independently but conceivably, when put into a greater, high-order context, they can have new meanings, interpretations, and inspire a greater connectivity. If it is our life’s aim to be: wealthy, healthy, safe, socially prosperous, educated, and free, perhaps that should be the new measure by which we judge ourselves then.

 

 

References:

  • “Gross Domestic Product (GDP) Definition | Investopedia.” Investopedia. N.p., 19 Nov. 2003. Web. 13 July 2015.
  • AtKisson, Alan. “Chapter 1 The History of GDP: From Crisis to Crisis.” Gross Domestic Problem : The Politics behind the World’s Most Powerful Number. N.p.: Zed, 2013. N. pag. Print.
  • Burton, Neel. “Aristotle on Happiness.” Psychology Today. N.p., n.d. Web. 13 July 2015.
  • “Money Can’t Buy Happiness – or Can It?” The Economist. The Economist Newspaper, 30 Nov. 2010. Web. 13 July 2015.
  • “Money and Happiness.” The Economist. The Economist Newspaper, 25 Nov. 2010. Web. 13 July 2015.
  • Rothkopf, David J. “Redefining the Meaning of No. 1.” The New York Times. The New York Times, 08 Oct. 2011. Web. 13 July 2015.
  • Frey, Bruno S. Happiness: A Revolution in Economics. Cambridge, MA: MIT, 2008. Print.
  • “The 2014 Legatum Prosperity Index.” Prosperity Index 2014. The Legatum Institute Foundation, n.d. Web. 31 May 2015. http://www.prosperity.com/#!/explore-data?opts=2Ekxmx-UmA2y1

The True Purpose of “Paternalism”

What is “Paternalism”?

Words carry preconceived definitions. While the word “Paternalism” is often related to restrictions in freedom, though in economic discussions, paternalism generally synonymous with government policy. In a broad definition, it can also include any policy put into place by a choice architect or any individual or organization in an authoritarian or influential position. Phone companies offer a tremendous example here. It is in their power to determine what the default data sharing options are in customer contracts or how discouragingly complex to make a customer service process, in both instances, substantially influencing consumer behavior. For the purposes of this discussion however, we will narrow the scope to purely those policies which can be controlled by  a government entity or legislative body. Private companies are primarily profit driven and carry a variety  of additional relationship complexities which would themselves demand a doctoral dissertation let alone a blog post.

The Need: Externalities

Many  economists will state that the need for any form of paternalism stems from the fact free markets carry innate inefficiencies at satisfying individuals needs. While there is an absolute cornucopia of research which attempts to substantiate this claim, one can also argue this effect is secondary to an often disregarded primary concern.

Although it is likely impossible to comprehensively define what a “good” individual choice is, it is frequently possible within a specific context, to establish a reasonable argument for what is a “good” choice for society. In other words, an individual’s preference is inherently idiosyncratic and not up for much if any debate, while in general, it is easier, though often still difficult, to discern what the best choice for society is. For instance, one can generally say it is better for society if people chose healthier food options, though what an individual determines to be their personal food choice is entirely subjective.

This juxtaposition of individual and social value is a topic of discussion which traces its roots within economics back to Adam Smith or even earlier. Theoretically, in a free market system needs are defined by individuals and the motivations of firms are directed at solving those needs to derive profit. As such, it is well documented that the needs of the whole do not necessarily equal to the sum of the needs of it’s parts. Value as defined by individuals and value as defined for society, are two often overlapping but not necessarily entirely equal constructs. There are many illegal products which would otherwise be available for sale to individuals through the free market had they not dire consequences for society at large. Narcotics, or military grade weapons for example. It is the existence of these types of discrepancies between individual and social value that I argue is really the primary driving need for paternalism.

“Externalities” is the key word of this discussion. The unavoidable consequential effects of one party’s actions on another. Second hand smoke or an accident due to drunk driving are particularly salient examples for those unfamiliar with the term. While these examples represent individual externalities, (the effect of one individual’s actions on another), social externalities (the effect of one individual or a group of individuals actions on society) are far less conducive to traditional forms of government regulation.

A Real World Example

So why is this so important to discuss? Well so far in order to preserve a more comprehensive scope, the discussion has been largely abstract in nature. To answer that question and bring us into a more everyday tangible context, let us explore how social externalities take place at a high level within the food industry.

As anyone will notice when they grocery shop today, attempting to consume a truly healthy and beneficial diet can be extremely difficult. The structure of the food industry in the US makes it inherently expensive and difficult to know which foods are truly healthy and further, to actually find and then choose those foods at the store.  As a result, two major social externalities are created:

  1. It becomes difficult to locate and expensive to buy healthy food options. What is healthy, becomes secondary to what profitable foods can be marketed as “healthy” by food producers, creating an intense veil of confusion and deception for consumers.  If you have doubts, according to the FDA’s vague definition, even food containing MSG can be labeled “natural”. Supply feeds demand and demand drives supply, crowding out and otherwise making it difficult for healthy food options to achieve the economies of scale and market competitiveness necessary for most consumers to regularly adopt.
  2. As is inherent to any healthcare system, public or private, single payer or free-market based, those that are healthy, heavily subsidize the costs of those that are less so. In areas where individual choice has played little to no role, this is not of relevance to our current discussion on externalities. However, if one individual choses to to consume a heavy cheeseburger diet for 40 years then develops obesity linked illnesses, it is ultimately those who have chosen not to consume that food who subsidize the long-term healthcare costs of doing so through insurance policy payments, disability claims, etc.

Why is Paternalism the Solution?

While this concept is itself highly politicized and controversial, I would argue this largely stems not from an ideological opposition to paternalism as a concept, but from either a misunderstanding or misuse of how the powers paternalism grants are to be employed. Irrespective of one’s political viewpoint, the fact remains that paternalism is uniquely positioned in our society to play the role of check and balance against the free market. The polarizing political consequence this concept creates could be far more neutral if the ideas of paternalism were focused on areas where individual and social externalities exist, and subsequently framed as such. Motorcycle helmet laws for instance might be far better accepted if the regulations and incentives were focused on protecting younger passengers or others motorists against the externalities rather than on the motorcyclists themselves. In a free market and free society, choices that affect the individual and only the individual, are theirs to make. Choices that begin to create externalities however, are subject to debate.

Why argue for parternalism here? Because it is precisely in those instances where paternalism is most effective. Externalities create an implicit competition between an individual’s needs and society’s needs, especially in areas where those needs are diametrically opposed. Freedom is good but externalities demonstrate areas where freedom can be abused to the individual benefit but to the detriment of the public. Paternalism is not a tool to be used to dictate how we think others should behave but to be used as a check on externalities caused by that behavior which may have adverse effects on others in the society.

 

Thinking Middle or Thinking Mathematically?

Sweishness 2

Thinking “Middle”

Slide1.jpg

Thinking “Mathematically”

 

 

 

 

 

 

 

I have to give Dr. Jordan Ellenberg the credit for this example from his wonderful new book How Not to be Wrong.  What Ellenberg poses is a fantastic bit of, in essence mathematical philosophy, which illustrates a perfect example of what this blog is all about, objectivity, logic, and critical thinking. The idea of simply associating “good” or “bad” to ideas even subconsciously, is an extremely dangerous way of thinking. “Dangerous” in this case meaning it’s very easy to make a mistake or assume a position on the surface one would otherwise later find they disagree with.

The typical political mindset is represented by the graph to the left. “Swedishness” in this instance referring essentially to liberalism. The graph is constructed arbitrarily for someone who associates themselves politically conservative but would represent the inverse for someone who associates more liberally. Regardless, this would illustrate a “less government is good so even less must be better” ideology. Well clearly this purely linear relationship to government would never hold true otherwise, the most effective way of doing things would be to eliminate government all together, declare Marshall law, and god speed to those without an AR-15. Conversely, a lock-down Marxist dictatorship never works either, as evident by numerous government overthrows throughout human history.

At this point, I’d like to state once again, that most of partisanship is no way an indication of how anyone necessarily consciously believes. Most of what we’re talking about here is how partisanship is largely illustrated by subconscious behavior and actions. In fact, once one does give an issue some thought, positions are more thoroughly vetted and openly discussed, the vast majority of Americans true beliefs rarely fall into either partisan category.

Regardless of whichever, if any, camp that one falls into politically, after this further discussion takes place there’s the clear indication that linearity is just simply not representative of the way nature works. Nature is a constant battle for balance, equilibrium, and homeostasis. Too much or too little of anything can be dangerous and retrogressive. The reality of  nature is represented by thinking Mathermatically, and that make sense doesn’t it? Is that not in essence the purpose of math in the first place, to relate our actions and understanding of how the world works through a common language?

The key difference here is finding the distinction within the vast overlap between thinking Middle and thinking Mathematically. Thinking in the Middle means finding a compromise within each side’s position. It’s labeling energy policy as “Energy Security” rather than “Sustainability”, it’s advocating for “economic growth” rather than “responsible economic policy”. Thinking Mathematically is about turning a blind eye to the very concept of political bias in order to be fully objective, to be empirical in one’s approach, to question one’s results and assumptions, to place the logic for societal freedom over the avarice of personal preference. To think Mathematically requires that one starts with no preconceived notions of outcomes, without grouping one’s self into a particular predetermined mindset or group. It requires the we, as a society, as a community, as an ecosystem, define the very basic collective goals and shared values we have for our lives and then build policy on an objective basis from that foundation. Discussion, debate, conversation is to be encouraged, ill-supported rhetoric and hidden agendas are not.

The reason I bring all of this up is that, because so much of the bias and partisan underpinnings occur purely on the surface as mentioned earlier, much of these through processes therefore occur as a result of subconscious thought. Most advocates of political bipartisanship however, struggle because while they acknowledge this trend, they fail to recognize the implications of what that actually entails. They tend to instead fall into the category of thinking Middle. Their ideas, while well intentioned, tread along the linear portrayal of Sweedishness hoping to land the debate somewhere in the middle. They succumb to the current structural reality of partisan two party politics, praying that finding compromise, even if its largely unproductive, will at least pass some kind of legislation over gridlock.

Thinking in the Middle is one thing, but thinking, openly, objectively, logically, thinking Mathematically, that’s something else.

Our Economy, the last possible improvement?

It is quite often a struggle to explain this concept, not just to the layman of economic theory but also to very intelligent people by modern standards. Constantly being surrounded by entrepreneurship, it’s the norm for my colleagues an I to cheer on any entrepreneurial endeavors, and to a majority extent rightly so, but to do so blindly is also dangerous from a broader context. Our current economic system, apart from being fairly short term in focus, is aspires the severely vast majority of the time towards serving almost purely individual needs and how an individual (i.e. customer) defines “value”. There are many exceptions to that rule, a concept that Amartya Sen has rightly been a great champion of, but the reason much of economic theory and research is so useful is because homo economicus does hold true for upwards of 90% of the time perhaps. Don’t hold me to that number, I state it simply to express the gravity of the accuracy of homo economicus’ assumptions on our current economic system. For example, “Do I want almonds or cashews, a Ford or a Honda?” Etc.

The blanket assumption within that concept however, is that the definition of “value” from a societal standpoint is on the flip side, too often left out of the picture completely.

To illustrate this using a quite clearly defined example, let’s start with two extreme cases most people will probably agree on. The first is one of a nonprofit that clearly adds value to our society, The Water Project. http://thewaterproject.org/poverty

I don’t mean to hitch my metaphorical ride to their wagon of course. Any organization whose genuine mission is simply to improve the standard of living in poverty-stricken areas of the World will still serve as a valid example. Regardless, The Water Project’s vision is, and I quote directly from their website, to provide “… sustainable water projects to communities in sub-Saharan Africa who suffer needlessly from a lack of access to clean water and proper sanitation.” There is no legitimate questioning to the fact that clean water is an essential part of life and is a clear, no pun intended, added value to both the individuals and their society. However, this is an organization like many other non-profits with similar goals, almost completely driven by donations. By homo economicus terms, there may be indirect benefits but certainly no direct exchange to create “economic value” by those definitions. All revenue of the organization is not derived from the exchange of products or services. In other words, we have a system by which organizations such as this, despite their best efforts to have an enormously positive impact on society, can often struggle to sustain themselves economically nevertheless.

On the flip side, human traffickers, and narcotics & arms dealers can be some of the wealthiest individuals on the planet. By homoeconomicus standards, there’s clearly market “value” to be had otherwise there would be no financial transactions taking place. From a societal standpoint however, there’s obviously a negative and adverse impact from these industries. They cause horrendous detriment to families, individuals, our health care system, our labor markets, social services, and the list goes on. All the while, the simple that fact the market exists to such an extent is clear proof that it meets the standards of pure homo economicus.

I do of course concede however that these examples both represent the extreme ends of the spectrum. They are the low hanging fruit if you will, but the fact our current systems of free market and government are clearly failing, and have failed for centuries, to have a meaningful systemic impact to solve these issues, should be all the proof we need to recognize that more must be done. As Henry David Thoreau once said in “Resistance to Civil Government” 1849:

“Is a democracy, such as we know it, the last improvement possible in government? Is it not possible to take a step further towards recognizing and organizing the rights of man?”

Can we not and should we not also think similarly of Capitalism and the Free Market? To acknowledge their imperfections is not in anyway to encourage socialism or communism as many critics will likely say, it’s simply the recognition that “Our democracy is the people’s democracy, and it can be as great as a people can be but it’s also as fallible as people are.” – George Takei (attributed to his father: Takekuma “Norman” Takei) Our economy is one created by people, born with the same human error in us all. While the input from many can help to limit the system’s imperfections, we cannot and should not assume that it is a perfect system with no possible revisions to be made. We should view our economic system as well as our system of government to have an asymptotic relationship with an “ideal” i.e. “perfect” system, continuously improving over time but never quite reaching perfect, as we know that is impossible. As such, it is in the best interests of all human beings, rich, poor, black, white, gay, straight, male, female, etc. that we question the assumptions of our current economic system and work to continuously revise it toward our ultimate goal which is to define “value” to include both the value to the individual as well as taking into account the value to society.

Think about the incredible ramifications to be had from such a perspective. Right now, our only check to instances where personal value may conflict with societal value is through government regulatory bodies such as: OSHA, the EPA, DOH, etc. Clearly these serve a purpose to society, thus the reason for their existence. Having healthy work environments and standards for food quality add enormous societal value on a larger, long-term scale, but the system in place for doing so through government regulation is not only inefficient, but ineffective in many cases.

Now imagine an economic system where the market forces vis-à-vis the definition of “value”, the very fundamentals of the system, take into account many of elements these regulatory bodies control. It suddenly becomes to the economic benefit of both consumers and providers to have a healthy work environment for employees, to take food quality into account, to consider impact on climate change. If you think that’s currently the case on a mass scale, please consider how many of our products are produced in East Asia with lower labor costs and labor regulations. More to the point, this concept enables a system whereby the entrepreneurs behind The Water Project become multimillionaires and the drug lords go broke. A system of significantly reduced government regulations and oversight, not simply to reduce “costs” but because much of their oversight become obsolete or redundant now that it is has been incorporated into the very fundamentals of market forces to the benefit of all consumers and producers.

Sure this all seems a bit abstract, and admittedly it is in 2014, but the vision is now there, the concept is appealing and importantly it is plausible. It’s the road from where we are now, to a system where these principles hold true that remains unclear, that still hangs in the balance within the unknowns of implementation. That however, I declare today, as my life’s goal. Perhaps I will not live to see the day where this vision becomes the reality of the norm, but if I make it possible so that the history books may cite my work in the contribution to that establishment, even through the work of others, I will have considered my life a successful one.

My Comment to the FCC

The FCC has opened itself up to comment regarding the pending legislation over Internet Neutrality. Please let your voice be heard and send in your comments here: http://www.fcc.gov/comments

Here was the comment I submitted for those interested”

“The purpose of any government oversight of markets is quite simply to insure open and fair competition in the best interest of our society. However, allowing network provides to create a fast lane for large corporations who can afford it by no means meets this definition. The beauty of the internet is in the speed with which is provides options to otherwise inaccessible content. It allows two people whom would otherwise never cross paths to connect. It provides a platform for entrepreneurs to reach a wide audience and distribute their innovations which add real value to our society and jobs to our labor market. It is the 21st century communications network that has separated this generation of humans from the past and represents a transition in the way we view the world. We suddenly realize how connected we all are, that we are all one species, that someone on the other side of the globe is little more than a click away from having a discussion with. Allowing for this legislation to create a fast lane is the equivalent of an iron curtain upon all that makes the internet the wonderful medium that it is. It transitions this evolutionary technological achievement into little more than a 24/7 infomercial for large corporations to bully their way into digital monopolies. It completely discriminates the possibility of the next Facebook, the next Amazon, Google, YouTube, Spotify, Paypal etc. from ever becoming a reality. We’ve had a legitimate internet for little more than 2 decades and we’re just getting started to discover the possibilities that await. Let’s not deter those seeking to climb Everest from ever strapping on a pair of hiking boots.”

The Balance of Capitalism

Debate over economic structures has ranged on since the brink of monetary development over bartering. Often mixed with political integration and upheaval, no subject of human debate beyond religion has ever caused such controversy, violence, and war.  Only within the past quarter century has Capitalism begun to truly win out and become the dominant economic force across the Globe. The purpose of this post however is not to callously drive blows of criticism upon the Capitalist Theory without proper justification or suggestions for improvement. A discussion over the superior rationale surrounding Capitalism fundamentals (basis for the value of money, definition of “need” etc.), although an incredible passion of mine is also beyond the scope of what we’re talking about here.

The purpose of this post is to open discussion, about the balance of our capitalist structure surrounding those key elements of our societal infrastructure so integral and touching so many aspects of our lives even a slight swing or alteration can have extreme consequences. Industries that have become so ingrained they are now essentially vital for our society to maintain a reasonable standard of living. These are elements such as: Residence, Food Supply, Education, Defense, Health Care, Communications Networks, Energy, Space Exploration, and Transportation. The delicacy of these topics has historically had far more significance then other industries and subject areas. Few people invested in the concept of Capitalism question whether the: manufacturing of consumer goods, consulting, entertainment, and hospitality industries would better serve the public in private or public hands. The Affordable Care Act, Internet Neutrality, Outsourcing of Space research to private companies, Defense Contractors, the Utility Grid Structure, these industries however, are all intense areas of focus in the private – public debate.

The Limits of The Economy

Before diving in too deep or stepping on any toes, lets lay a logical baseline of more universal agreement. Like almost all aspects of life, too much or too extreme of anything often bares negative consequences. Drink too much or too little water, work too hard or too lackadaisical, bad things happen. We’ve all experienced that. Balance, equilibrium, homeostasis, are all fundamental principals of nature. A constant ecological battle for the perfect middle ground. Applying this same concept to our discussion, clearly the extremities of Capitalism would also have negative consequences as discussed in Michael Sandel’s book “What Money Can’t Buy” As an example, Mr. Sandel discusses with Stephen Colbert about the potential free market application to things such as citizenship or politics. Should an American be able to sell their vote or even their citizenship? http://www.justiceharvard.org/2012/05/michael-sandel-the-colbert-report-video/

Mr. Sandel in this case illustrates not only a prime example, but also provides wonderful insight into of the limits of the Free Market System. Still, the vast majority of our society would likely concur, there is logically speaking, clear and sever consequences of breaching the logical limits of the free market. Selling votes or quite literally selling get out of jail free cards would  bring society to its knees with chaos. Billionaire drug lords free to steal and murder with no true consequences. If we look beyond these types of extreme example though, what if we were to look at a more mainstream concept? Does it make sense to higher defense contractors or privatize the health care system?

To answer these questions, let’s pose 4 questions, and the resulting answers will help define how said industry would best be handled. We’ll call these the Questions of Capitalism.

  1. Do customers enter the market voluntarily? (ex. Being robbed vs. buying a lawnmower or having a heart attack vs. buying cable TV)
  2. Do customers have alternative, choice, or market competition (ex. is there a monopoly?)
  3. Does the market have reasonable price sensitivity (ex. is there any reasonable correlation between price and demand?)
  4. Do incentives align with the industry and firm’s mission, vision, and purpose in society? In other words, does the drive for short term or long term profits corrupt the firm’s ability to fulfill its societal purpose? (ex. does the strive for wealth force a hospital towards a path that’s isn’t in the absolute best interest of patients?)

Why these questions in particular, why are they of significance? In the same way anti-trust laws protect from corporate interests overpowering those of the general consuming public to within a reasonable extent, these questions can help to decide how an industry deemed to be integral to our current quality of life, would best be structured. In other words, should it be run solely of, or to within certain constraints of, non-profits? Should it be government run but open to private competition? Should it be solely privately held within a limited range of regulation as the free market proves to best serve the public interest? Objectively, analytically, and from the mindset of critically thinking about these issues without bias, what best suits our society’s needs?

I’m not going to pretend to be an expect on the intricacies particular to each of the elements noted earlier (Residence, Food Supply, Education, Defense, Health Care, Communications Networks, Energy, Space Exploration, and Transportation) and as such, in the interest of time and accurate information, I won’t delve into the specifics of each. That said however, the Questions of Capitalism are conceptually and logically general without conflict or bias to any one elemental industry. They are based simply to create a fair system which is most beneficial to society as a whole. They can be applied to the specifics of any industry, and particularly, those considered to be the vital elements. So let’s take a look at a few examples.

Screen Shot 2014-05-19 at 1.13.13 PM

Percent Change in Bankruptcy Filings, 2011 to 2012. Digital image. uscourts.gov. Administrative Office of the U.S. Courts on Behalf of the Federal Judiciary. Web. 19 May 2014.

The Health Care Example

According to Forbes and a study done at Harvard University, in 2010, 62% of all personal bankruptcy filings were due to medical expenses. Keeping in mind by the way that 78% of those 62% had some form of health insurance, this clearly indicates a fundamental flaw in the system. A very large cause for this financial epidemic was covered far better than I could have ever hoped to approach by Steven Brill in his Time’s article “Bitter Pill: Why Medical Bills are Killing Us.”

What is fundamentally wrong here, what rules does this system seem to break? How about the first one for a kick off? Do “customers”, better known as patients in this case, enter the market by choice? Perhaps an argument could be made for yes but a better one can certainly be made for no. Health Care in modern times is for all intense and purposes a human necessity. No one in 2014 throws their hand up in the air says “oh well!” when the person next to them has a heart attack or is shot etc. You call 911 and go to the emergency room. In other words, no, no one enters the market voluntarily in the same way one would enter the market for a refrigerator.

What about the second question, do patients have any alternatives or choices? Few if any statistics are published on this but I think its a fair assumption to say the very vast majority of stroke patients or stabbing victims take the time to peruse their options for emergency room care before going to the hospital. Let’s even take the example of a non-emergency situation where maybe you are interested in taking the time to choose your physician. Well, if you are one of the 42.6million Americans said to be living in rural counties, how many hospitals capable of taking care of your needs do you have within a reasonable distance of you, maybe one, two if you’re very lucky? This isn’t your neighborhood coffee shop we’re talking about, serious resources and skill sets and needed here. In other words chances are no, the average patient has few if any alternatives, though please feel free to contact me if you have contrary examples and I’ll be happy to publish a follow up.

Alright so how about the third question, is there reasonable price sensitivity? Well as discussed in the first answer we know the effect on demand due to price is slim to nil since customers don’t generally enter the health care market by choice. So how much do prices fluctuate, and based on what? Brill’s article details very well the absurdity of how these services are priced, but who then decides how much you as the patient actually has to pay? For the most part that’s certainly not you. That battle is usually left up to your doctor’s office and insurance company to fight out. What about price equivalency? While the care one person receives from a doctor is theoretically equivalent to the care another receives for the same services, how those costs are outlayed to each patient can be completely different. On top of that, how one person pays could in fact effect how much another has to pay quite easily. Because Health Care is a necessity, no one is turned away meaning many patients may in fact walk away without actually paying the provider a dime. Say a drug addict enters an emergency room in an attempt to score a fix, well chances are they leave without any form of payment yet the enormity of the costs associated with the visit, whether justified or not, are still incurred and passed on to paying individuals instead.

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And if you think those economics are screwy, how about the ones behind the scenes, hospital suppliers, medical equipment manufactures, pharmaceutical companies, etc. So lets look at the fourth question here, incentives. Not to be misinferred as a money hating hippy here but let’s get real, is it really in the public interest to structure industry incentives towards developing treatments, rather than cures, for illnesses? Can we objectively say its beneficial for our society to take a reactionary approach with over medication rather then to simply work with physicians to incentivize and employ a healthier life style and diet? See Forks over Knives if you’re really interested in a life changing health decision. Again, don’t get me wrong here. How any individual chooses to live their life within the confines of the law is the barest essence of freedom, but I’m not talking about laws limiting consumer choice, redistribution of wealth, or anything of the sort. Simply put, do we as community of human beings choose to collectively incentivze an expensive, immoral, and unbalanced health care system structure or proactively, logically, and critically discuss on an open forum how to restructure ourselves for the genuine benefit of us all?

Sure enough there are a few assumptions here and I’m not going to pretend all of these examples are the norm, but the fact is they exist. Whether or not its company policy or the CEOs will admit it, the system is nonetheless structured in such a way as to allow for these inefficiencies and adverse societal effects to occur.  I challenge you all to continue the conversation here, to discuss, and challenge the status quo. The United States and its people have built themselves into a reputation as world leaders across so many aspects of life and society. Let us continue that pursuit and question our content with these scenarios:

 CT SCAN (HEAD)  APPENDECTOMY  CORONARY BYPASS

ARGENTINA        $78            $1,030        $9,319
AUSTRALIA       $254            $4,926       $38,891
CANADA          $122            $5,606       $40,954
CHILE           $184            $5,509       $20,505
FRANCE          $141            $3,164       $16,140
GERMANY         $272            $3,093       $16,578
INDIA            $43              $254        $4,525
SPAIN           $123            $2,615       $17,908
SWITZERLAND     $319            $5,840       $25,486
U.S.            $510           $13,003       $67,583
Average cost, 2011
 Brill, Steven. “Bitter Pill: Why Medical Bills Are Killing Us.” TIME Magazine 4 Mar. 2013: 16-55. Print.