Altruism and Politics

"Altruism ( /ˈæltruːɪzəm/) is selfless concern for the welfare of others. It is a traditional virtue in many cultures, and a core aspect of various religious traditions, though the concept of 'others' toward whom concern should be directed can vary among religions. Altruism is the opposite of selfishness." - Wikipedia

Altruism is central to the teachings of Jesus as recorded in the synoptic gospels (Matthew, Mark, Luke and John) and central to early Christian practices as recorded in the Acts of the Apostles and the epistles of Paul. Altruism is also central to Judaism.

The wealthy and powerful have never believed in altruism. Historically, they claimed immunity due to some variation of divine will. But usually the wealthy and powerful have been big on altruism by ordinary people.

Then along came science.

In the second half of the nineteenth and the early twentieth centuries, the wealthy welcomed Darwin's theory of natural selection as expounded by certain popularizers ("survival of the fittest"). Social Darwinism was seen as providing scientific justification for why it was meet and proper for wealthy "robber barons" to have accumulated so much wealth. The 1929 crash of Wall Street rather tarnished this claim.

Ayn Rand to the rescue.

Rand (born Alisa Zinov'yevna Rosenbaum in Russia in 1905), was an atheist novelist, playwright and philosopher who immigrated to the United States in 1926. A 1924 graduate of Petrograd State University in Petrograd, Russia (later Leningrad and now St. Petersburg), she developed a following in this country for her ideas, expressed in two novels and a series of "philosophical" writings.

In short, Rand's philosophy inveighed against altruism and in favor of "rational egoism," i.e. selfishness. She has many followers, prominently including Congressman Ron Paul, Senator Rand Paul, former chairman of the Fed Alan Greenspan, and more recently most adherents of the Libertarian Party and the Tea Party movement. Her particular talent was in "her ability to turn upside down traditional hierarchies and recast the wealthy, the talented, and the powerful as the oppressed."

The wealthy and powerful responded by adopting her right-wing romantic fantasies as their own, and pursuing them as a political program. Here. in their admiring view, was an intellectual underpinning to replace Darwinism as a justification for their wealth.

Perfection

"If the world was perfect, it wouldn't be."

Yogi Berra

No Shutdown, But We Still Have a Problem

The good news is that we apparently won't have a government shutdown (at least as of 10:39 p.m. April 8, 2011).

The bad news is that the result is a reduction in government spending.

The worse news is that the deal is based on a lie - that the Great Recession and resulting unemployment resulted from budget deficits and national debt. The assurances that reducing spending will bring back prosperity is worse than a lie. It is a destructive lie.

Reduced spending has the potential to bring our very weak recovery to a screeching halt and initiate a new round of economic decline.

I don't like to sound pessimistic. Under normal circumstances, the budget wrangling would be very important, but not dangerous.

After all, the key issue of any political dispute is "who benefits" and "who pays?"

That is the heart of politics. And it affects everyone's welfare.

Where were the deficit hawks when Reagan and Bush I quadrupled the national debt? Where were they when Bill Clinton left behind a budget surplus and a plan to pay off that debt within a decade?

Were they not listening when Dick Cheney asserted that "Reagan proved that deficits don't matter."

Actually, no Democrat believes that deficits don't matter. It is just that there is a time to cut expenditures and a time to spend more.

If we want jobs, now is the time to spend more.

When the economy recovers, we need to reduce both public and private debt.

Euro vs. the Dollar

My graduate professor of international economics, George N. Halm, used to illustrate the phenomenon of runaway inflation (hyperinflation) by telling what life was like when he was a teenager in Germany after World War I.

Professor Halm's mother, a widow, lived on a government pension. Each category of pension was paid on a different day of the week, with widows coming on Friday. By Friday, the value of the pension, which was set on Monday, had dropped out of sight. Even so, he hopped on his bicycle, collected his mother's pension at the pension office and raced around town buying as many household necessities as he could before the value of the money dropped too much farther. The operative principal was to spend the money before it disappeared.

How could shopkeepers know how much to charge? They created an informal price index system. For example, the price of a haircut was indexed to the price of breakfast rolls each morning.

Clearly it was impossible to live that way, and understandably Germans remain paranoid about inflation.

Still, they overdo it. A modest amount of inflation allows price adjustments without triggering deflation. Because of the way the Euro zone was established, the interest rate for the zone is set by the European Central Bank, which is essentially the German Central Bank. They are about to raise the interest rate in the Euro Zone to make sure there is zero inflation in Germany, despite the high probability that this will destroy economic activity in several smaller countries.

It will also place added pressure on the US economy by, among other things, driving up the international price of oil.

Shutdown?

As of today (April 7, 2011), it looks like we are bound to have a government shutdown.

According to the polls, most Americans recognize that it is the Republicans in the House of Representatives, many of whom have never served in public office before at any level of government, who are driving toward this train wreck.

My concern is not just the adverse effect of a shutdown on my personal situation (my US Navy retirement check is likely to be delayed, and possibly my Social Security check), but more importantly the damage it will do to the economy.

In fact, I am disappointed that no one is explaining that any reduction in government spending is likely to bring our weak recovery to a halt and might even start another downward spiral.

The reason is that we are in a liquidity trap. I have explained this phenomenon before.

If I were of a mind to believe in conspiracies rather than mere incompetence, I would suspect the Republicans in Congress intend to wreck the economy and blame the president.

Cheney: "Reagan Proved Deficits Don't Matter"

How soon we forget.

Seven years ago, conservative think tanks and Vice President Cheney were arguing that deficits have no adverse effects on the economy.

Their arguments are summarized here in a 2004 Washington Post article.

What has changed?

For one thing, the real estate bubble collapsed in 2007, nearly bringing the economy to its knees.

For another, we now have a Democrat in the White House for Republicans to blame.

Why the Government Must Increase Spending

Managing the Federal Budget is not like managing a household budget.

Managing a state, municipal or county budget is more like managing a household budget, but none of these entities has either the responsibility or the capability of controlling the national economy.

The bottom line: given our current state of the economy, reducing federal expenditures will reduce jobs and bring the present weak recovery to a screeching halt.

Why is this so?

The federal government has two principal means of managing the economy:
a. Monetary policy, which is the responsibility of the Federal Reserve System (the Fed) and;
b. Fiscal policy, which is the purview of the elected political leadership.

It is the Fed that controls the level of economic activity by managing the money supply, mostly through indirect controls of short term interest rates and open market operations. If they are concerned about inflation, they work to contract the money supply by increasing interest rates. If the economy is weak, they attempt to stimulate economic activity by decreasing short-term interest rates, which have the greatest influence on commercial activity.

It has been the case for some time that short term interest rates have been essentially zero. That means the Fed is out of ammunition. When the short-term interest rate is zero, it cannot be lowered. Further increases in the money supply will be ineffective in stimulating economic activity.

A possible way to stimulate economic activity is to increase exports. That would likely require a substantial depreciation in the value of the dollar against major trading currencies. The Fed's only tool to affect the exchange rate would be to lower the interest rate. With a zero interest rate, that won't work, either. The other factor inhibiting exports is that our major trading partners are in the same boat as we are.

That leaves monetary policy. In other words, federal expenditures. We have no choice, unless the object is to further wreck the American economy. The only thing that has kept the economy from falling into a death spiral leading to another Great Depression is the safety net put in place in the aftermath of that catastrophe.

Unemployment insurance, for example, is not just of benefit to the recently unemployed - it makes sure laid off workers can continue to purchase the necessities of life. It is a subsidy to WalMart, Food Lion, Sears, and countless property owners who continue to be paid rent.

Food stamps, Medicaid, Medicare and other "entitlements" fall in the same category.

We would have more options for dealing with the situation had we not quadrupled our national debt under Reagan and Bush I and further increased it under Bush II.

We can't put that toothpaste back in the tube, but we need to foresee the consequences of doing what the Congress seems hell-bent on doing.

There is a name for the situation we are in. Economists call it a "liquidity trap."

Liquidity traps are rare. The first one we encountered was during the Great Depression. Recently, in the 1990's, Japan experienced a liquidity trap.

Gauti Eggertsson, an economist with the New York Federal Reserve Bank, has written a recent research paper reviewing the modern understanding of a liquidity trap. The paper (here) is highly technical. It even uses calculus formulas to make several points.

Don't be put off by the calculus. It is still worth reading.

Spring Has Sprung

Spring has finally arrived. How do I know for sure? Last Friday I watched the opening day game between the Washington Nationals and the Atlanta Braves.

Opening Day of Major League Baseball is a better guide to Spring than the vernal equinox.