Saturday, March 15, 2014

(Mis)Understanding Buddhism and Poverty

The UC Berkeley News Center has an article up now on the university's new course on "Buddhist Economics."  While I welcome any addition to the economics course curriculum that addresses the intersection of economics and ethics, I think the limitation of the course to Buddhism is somewhat faddish and needlessly limiting.

That aside, I also found some curious sentiments being expressed by the course's instructor, one Claire Brown.  Professor Brown has apparently been studying Buddhism (whatever we take that to mean) for six years.  Despite the fact that Prof. Brown is teaching a course on Buddhism and Economics, she does not seem to have actually understood the issues that arise.  Perhaps it is a defect of the journalism and Brown's views have been somehow misrepresented, but I find this unlikely since the views that Brown appears to hold are quite common among Western Buddhists (and liberals generally).

Take this quote that appears directly after the Don't Spend, Be Happy subhead which lays out a number of cogent (and potent) questions that Buddhist thought poses for economic theory and practice:
“In the traditional economic model, it makes sense to go shopping if you are feeling pain, because buying things makes you feel better,” Brown wrote in her class syllabus. “Yet, we know from experience that consuming more does not relieve pain. What if we lived in a society that did not put consumption at its center? What if we follow instead the Buddhist mandate to minimize suffering, and are driven by compassion rather than desire?”
This is a hopeful start; Prof. Brown is, in my opinion, asking the right questions here.  But a throw-away line that ends the article makes me think that she might not have figured out what the solutions to these questions might look like.

Brown assured her students that Buddhist economics wouldn’t require a vow of poverty. “Buddha tried to live in poverty for seven years,” but “it didn’t work,” she said.
Uh…actually the historical Buddha tried extreme asceticism and wrote that off as a blind alley. Asceticism: as in bodily mortification, extended fasting, etc. After Buddha gave up that route (still a popular one on the Indian sub-continent, btw) and adopted the “middle-path,” he and his disciples still spent time every day begging for alms: even in ancient India, that was a sure sign of poverty.

Here’s the thing: if you consume only that which you actually need, restrain yourself from activities that harm other life, and devote your life to easing the suffering of others, you will necessarily be considered poor. You will have given your excess wealth away to those poorer than you, your dwelling will be simple, your lifestyle spare. Not because you’re an ascetic, but because you have your priorities in line.

Buddhism is appealing to Americans largely, I think, because it doesn’t seem to demand any material sacrifice on the practitioner’s part. Americans like Buddhism because they’ve (mis)interpreted its message to be it’s ok to have lots of stuff, just so long as you aren’t attached to it.

For instance, there is a Marriott Hotel heiress living not 50 miles from me that has gained the title of “Lama Tsomo,” despite being a multi-billionaire (I’m looking at you, Linda). Supposedly, she’s trying to become a bodhisattva, whose mission on earth is to end the suffering of all sentient beings. Apparently, however, no one has hipped her to the fact that her 4.1 billion dollars could ease a whole lot of suffering, if only she could find the strength to let it go. But no, she prefers to teach meditation classes since, you know, all suffering is psychological and you just need to be detached and whatnot. Convenient, that.

Western Buddhism’s focus on personal non-attachment and psychological ‘growth’ all too often turns into a “blame the victim” mindset. What’s that you say? You’ve just been laid-off from your job and diagnosed with cancer? You don’t know where your next meal is coming from and you can’t afford to see a doctor? You should try meditation and detachment: nothing is good or bad but thinking makes it so. Your suffering is all in your mind!  Don't blame the government or their corporate overlords for your misery, it's just your karma, embrace it…..which is way easier than actually trying to help someone improve their situation. Also it makes you feel superior, since you’re so much more wiser than those suffering sots.

The problem, of course, isn’t with Buddhism, but rather with academics like Brown who try to sugar-coat it for Western consumption, although I assume they do this unwittingly.

The deal with any religion is this: if you take it seriously as the most important thing in your life, you won’t worry about material possessions and you won’t need to take a vow of poverty. Prioritizing your spiritual development will make it easy to not notice, or care, if you become officially poor. As material wealth is not your goal, so too its absence will not be defeat. But Buddhists like Brown think that you can have your cake and eat it too: the material wealth as well as the (mostly BS) non-attachment to it.

The facts of the matter are that if you are not attached to wealth, wealth will not attach itself to you. If you prioritize your spiritual development, this will not cause you consternation.

Saturday, February 22, 2014

De-Coding Economic Propaganda

Raising the minimum wage is in the news again, and with it, lots of economists disagreeing  about what the effects will be.  For every study showing a minor negative effect on employment, another is presented another showing a minor positive effect.  Into the fray has stepped the Employment Policies Institute (EPI) with a dedicated website devoted to educating people about the horror that raising the minimum wage will apparently be.

The top of the website displays a picture of Bill Gates with the caption "why isn't the President listening to this guy?"--not a good start.  Reading further, it only gets worse:

Employees that earn the minimum wage tend to be young, and work in businesses that keep a few cents of each sales dollar after expenses. When the minimum wage goes up, these employers are forced to either pass costs on to consumers in the form of higher prices, or cut costs elsewhere–leading to less full-service and more customer self-service. As a result, fewer hours and jobs are available for less-skilled and less-experienced employees.
Many businesses that pay at or near minimum wage do, actually, have decent profit margins and claiming that increasing wages "forces" businesses to pass on the costs to consumers or reduce staffing is simply ridiculous.  A business could also reduce pay-levels of upper management, decrease dividend payouts, stop buying back their own stock, etc.  The framing also seems worded to encourage the reader to think of a small business, when in fact most people work for large corporations, who are sitting on mountains of cash right now, btw.
Minimum wage increases do not help reduce poverty. Award winning research looked at states that raised their minimum wage between 2003 and 2007 and found no evidence to suggest these higher minimum wages reduced poverty rates. While the few employees who earn a wage increase might benefit from a wage hike, those that lose their job are noticeably worse off.
Notice that it is not mentioned which award this research won or who was giving it out.  And then, of course, winning an award (even a prestigious one that you would feel comfortable mentioning by name) doesn't guarantee the accuracy of your work.  Barack O'bomba, for example, received a Nobel Peace I think you see my point.

And as Prof. Sprigs discusses at 6:58 in the video below, studies of the effects of minimum wage have by-and-large either shown no effect or little effect on employment; sometimes that minor effect is positive and sometimes it's negative.  Often, it is statistically insignificant.  Which is what you would expect when looking for the effect of a single variable in a complex, densely inter-twingled system like our economy.
Employees who start at the minimum wage aren’t stuck there. Research found that the majority of employees who start at the minimum wage, move to a higher wage in their first year on the job.
Again, they don't say specifically what research they are referring to, nor do they provide a link to it so that a reader can consider it on its own merits.  It's also worth keeping in mind that most economic "research" was calling for smooth sailing into the indefinite future...right up until the entire financial system imploded.  One should always take economic research with a grain of salt--numbers are easy to manipulate, and perfectly legitimate mathematical operations can provide you with totally illegitimate conclusions.  The numbers, as my old college adviser used to say, never speak for themselves.

Also, having extensive experience in the low-wage sector, I can give you a little hint for understanding that last claim about most workers moving to a higher wage within a year.  Some years back I got a job as a nursing-home housekeeper.  Starting wage--$7.25/hr.  My raise after six months of, by all accounts, stellar job performance--$0.10/hr. 

Just an educated guess here, but I bet the research this website is referring to would claim that my extra dime per hour was "moving to a higher wage."

Here is a much more realistic discussion of the likely effects of raising the minimum wage:

Friday, February 14, 2014

A simple model of monetary stimulus

When the Federal Reserve decides that it wants to increase the amount of currency in circulation, in order to stimulate the economy, its method of accomplishing this is to buy securities from its “primary dealer” banks (normally US Treasury bonds, and recently MBS or mortgage-backed securities). This has the effect of increasing the cash reserves of those banks, who are expected to then lend it out into the economy. In short, whenever new currency is created, it is first used to purchase assets from a private bank, which will then, it is hoped, lend it out into the economy for productive purposes.

This method of economic stimulus, however, has the paradoxical and quite harmful effect of concentrating wealth in the financial sector while depriving the real economy (i.e. the people and businesses that actually make things) of income. The simple reason for this is that all loans made by a bank must be repaid with interest. To the extent that a loan is not entirely repaid, there will generally be a forfeiture of property to the bank to cover their financial losses. In spite of the occasional bad loan, the net effect of adding currency to the economy through interest-bearing loans is to transfer financial assets from real-economy actors to financial-sector actors. A simple model will make plain why this is the case.

Imagine that we have an economy composed of three sectors: the productive sector (real economy), the financial sector (banks), and the government sector. We can imagine the productive sector as itself composed of households and businesses, with currency circulating continually between the two: households buy goods and services from businesses who, in turn, pay wages back to households.

Now, let us suppose that the productive sector of the economy has a monthly GDP of $1000. This means that every month, businesses pay households $1000 in wages which households then spend at businesses, providing the businesses with the revenue to pay out in wages at the beginning of the next monthly cycle. For simplicity, we assume that households spend all of their income every month and that businesses use all revenue for wages. Essentially, in our model businesses and households are simply passing $1000 back and forth between themselves.

Now let's suppose that the population of our economy grows and additional households are created. In the absence of any action from the government (which is the only sector that can add additional currency to the productive sector), the income per household in the productive sector must necessarily decline. If we previously had 10 households receiving $100 a piece per month, and now we have 11 households, each household will now only receive $90.90 per month. If the government desires to maintain wage levels at $100 per month, it will need to add an additional $100 to the amount of currency currently circulating in the productive sector.

In order to do this, the government gives $100 to the financial sector to lend into the economy. Assuming the bank lends the entire amount into the economy, in the month that the government increases the amount of currency, the GDP of the economy will increase by $100 to $1100 (as households borrow and spend the $100 into circulation), providing enough currency for each household to once again receive $100 per month. However, his return to normalcy is short-lived.

Assuming that all loans get repaid, with interest at the beginning of the next monthly cycle, during the next month the GDP of our little economy will have to decrease by $110 (assuming 10% monthly interest, for ease of calculation), in order to repay the $100 principal plus $10 in interest. This means that at the start of the following cycle, the amount of currency will be once again too low to allow incomes to remain at $100 per month. Only now, the situation will be worse than before the government's “monetary stimulus,” since the economy's real GDP will have gone from $1000 to $1100 to $990, giving an average household salary of $90—90 cents less than before the currency increase.  The apparent surge in economic activity and household prosperity is followed quickly by decline for households and businesses alike.

Now, the only way for the household sector to maintain it's level of income and consumption is to once again borrow from the financial sector. Only now, instead of borrowing $100, households must borrow $110 in total from the financial sector to maintain their income levels (which, remember, are determined by levels of spending; businesses can't pay wages to households until households first buy from them). This, of course, only further worsens the problem as $121 must now be repaid to the financial sector at the beginning of the following cycle, leaving only enough money left in the real economy to provide households with a $79.90 monthly average salary.

It should be easy enough to understand why it is that an economic stimulus program that depends on private banks lending new currency into the real economy at interest is a self-defeating and perverse policy choice (unless, of course, one happens to work in the financial sector). The only way to add wealth to the household sector through lending would be to offer the loans at a negative interest rate: that is, loan $100 and only require $90 back. In the above example the government would give the financial sector $1000 to loan into the economy at a negative 10% interest rate, leaving an extra $100 in the economy after the loans had been repaid.

If the goal of monetary stimulus is to increase the average household wage, negative interest loans make far more sense than positive interest loans. Positive interest loans, in fact, make no sense at all.

Friday, February 7, 2014

A brief history of social uplift in Montana...

The first successful uplift movement in Montana was conceived and accomplished by the Vigilantes. Crude in plan and rude in perfomance, there was an uprising which destroyed the last doubt in lawless minds with respect to the efficiency of government “of the people, by the people, for the people”. It demonstrated that absence of law afforded no excuse for crime and gave security to life and property without increase of taxation. In some of the valleys where the Vigilantes rode, less than half a century ago, land now has a market value of as much as one thousand dollars per acre for orchard home uses, but the most profitable crop which ever hung from Montana trees was in the gruesome forms of dead outlaws. Then and there was implanted a respect for the penalties of wrong-doing and a regard for the rights of others which has endured against the insidious influence of wholesale corruption and the most subtle encroachments upon the powers of government, to the present time. It is today more dangerous in the state of Montana to steal a horse than to loot a bank or to bribe a legislative majority, chiefly because the Vigilantes failed to furnish a precedent in justice for bank-looting and legislative corruption as they did for horse thieving; while later administrators of justice, in the approved manner of courts, have regarded precedent and form and ceremony above the purpose of the law and the effect of justice.

~Jere C. Murphy; The Comical History of Montana: A Serious Story for Free People (1912)

Saturday, February 1, 2014

The History of Absentee Bosses in Montana

I’ve been reading A Comical History of Montana: A Serious Story for Free People, by Jere C. Murphy (pub. 1912). Here is what Murphy had to say about the situation in Montana at that time, after describing how all of the mines, reduction works, public utilities, courts and politicians of “the Treasure State” were brought under monopoly control:
All this by the power of lawless corporate combination and the thimble-rigging of high finance, exercised by absentee bosses who have gained possession of this inestimable wealth and control of these stupendous influences without honest investment, honest purpose, or honest accounting whatsoever.
Who are these absentee bosses?
The constitute a small group among the conspicuous confidence operators of Wall Street.
How did they get this enormous wealth and these tremendous powers?
They bought some of it from the owners of the property and some of it from law-makers and other officials employed by the public.
Where did they get the money?
That, also, they got from the public.
What did the public get?
The public got watered stock in a generously assorted variety of mining, smelting, water power and public utility companies.
Do the operators pay dividends on these watered stocks?
Only when it suits their convenience and promotes their efforts to unload more watered stocks.
The more things change...

Saturday, November 2, 2013

Cooperatives Counteract Contemporary Caste System.

The Western democratic-capitalist system that is now extending its reach to every corner of the globe is often presented, by its apologists, as a humanitarian advance over earlier social systems1. Unlike, for instance, the Hindu caste system or the European feudal system, democratic-capitalism allows for the social mobility of individuals. The (at least theoretic) ability of people to effect their own social status is claimed to be a major advance in equality over earlier systems of hereditary status determination.

However, our democratic-capitalist system has more in common with the systems that it has replaced than its proponents would like to admit. Let us take the Hindu caste system as an example and see if we can't tease out some of these deep similarities.

Traditionally, Hindu society was divided into four castes2, each with a particular role to fill in society. These castes are:
  • Brahmin—the priestly caste, responsible for performing religious rituals and perpetuating religious thought.
  • Kshatriya—the warrior and kingly caste, responsible for all military matters and for the administration/rule of society.
  • Vaishya—originally farmers and cattle-raisers, but now normally associated with trade and money-lending
  • Shudra—the working class; their traditional duty is described as serving the other three castes.

In our contemporary democratic-capitalist system, we also have brahmins and kshatriyas, vaishyas and shudras. The names have changed but much else has remained the same. Our contemporary brahmins are the academics and lawyers, those who are given the task of abstract thought and of aligning human action with abstract principle (concepts of “justice” and “equality” having taken the place of “divine will” and statutory law replacing ritual and doctrinal texts). Our kshatriyas are the political class: elected politicians and appointed administrators of the civil service. Vaishyas have been replaced by businessmen and women, bankers and financiers. And our equivalent of the shudra caste, of course, is the working class; which is to say, most of us.

Just as in the old Hindu caste system, our present social system prescribes and proscribes particular types of behavior for each class of people. While the rules regarding what types of activity are permitted to each social class are not made as explicit in our system as they were in the old caste system, they are, nonetheless, there3.

Specifically, only the top three groups are allowed to think. The bottom group, the workers, are not permitted to think but only to act. Of course, this proscription on thought is rarely spelled out so bluntly, but that is message that is given over and over again by the media and society in general: only the thinking of “experts” holds any weight.

Working class people are not expected to have their own thoughts about philosophic or academic topics; if anything, they are expected to parrot the pronouncements of respectable academics and professional intellectuals. In order for a person's intellectual pursuits and conclusions to be taken seriously, they must have a string of fancy letters behind their name. The plumber or baker who holds forth on intellectual topics is roundly ignored, if not laughed out of the room. Legitimacy is reserved for those of the intellectual, academic class.

Working class people are also not expected to have political ideas...unless, of course, they coincide with the reigning ideology of respectable politicians4. And working class people are definitely not encouraged to have ideas about how to run a business or a bank. Only the managers and owners of business enterprises are considered to be up to that task.

This is why the co-op movement, therefore, poses an existential threat to the current system on multiple levels. The co-op movement undermines academic economics by placing cooperation instead competition at the heart of it's economic model. It undermines the political class by expanding democracy and democratic practice to everyday life, instead of confining it to biannual elections, as the politicians would have us do (if people experience real democracy at work, they might start demanding it in other areas too!). And the co-op movement directly undermines businesspeople by implementing alternative management and ownership arrangements that eliminate the need for outside owners, investors and managers.

The co-operative movement is the working class daring to think for itself, and that thought has the potential to upset many powerful vested interests. We shouldn't be surprised, then, when the powers-that-be push back against this dangerous idea. Witness the hamstringing of health insurance co-operatives by Obamacare (as detailed in a recent Washington Post article here) as well as the current push in Congress to revoke credit unions' tax-exempt status. When those at the bottom of society's hierarchy begin to encroach on what have been the sole prerogatives of those further up the ladder, those at the top can be expected to do whatever they can to stop that encroachment.

Despite their best efforts, however, the encroachment shall continue.

There is one other caste that we must not forget to mention: the Dalits, or 'untouchables5.” In India, until recently, these people were utterly shunned, confined to live in slums and to perform only the most dirty and demeaning work.

Our Dalits, our 'untouchables', are the homeless. The homeless also are not allowed to think, to theorize, to organize. They are there to remind us shudras that there is always another rung further down the ladder that we could be pushed to. They are there to make us grateful for our place in the scheme of things, lowly though it may be. But just as the existence of an 'untouchable' caste is the shame of the Hindu caste system, and evidence of its corruption and moral vacuity, so the existence of homeless women and men, homeless children and homeless families is the proof that our system is similarly corrupted and morally vacuous.

The caste system in Hinduism has been officially abandoned, although it maintains its hold on many minds. Similarly, our current democratic capitalist system must also ultimately be abandoned. Abandoned for what? For a society that places democracy and cooperation at the center of its ideology and its daily life, instead of wealth accumulation and competition.

1. It might well be argued that our current social system is neither democratic nor, strictly speaking, capitalist. However, lacking better terminology I will refer in this essay to our present social system by the misnomer favored by its proponents.
2. There is much debate about how the caste system actually functioned at various times and places on the Indian subcontinent. Here I present an admittedly simplified version. A summary of the debate can be found here.
3. That the pre- and proscriptions for each class are not made explicit in our society only makes them more pernicious, as they are harder to identify and therefore to resist.
4. Practically an oxymoron these days, it seems like.
5. Historically, the Dalits are a late addition to the caste system and are not mentioned in the classical texts.

Thursday, September 26, 2013

Problems with Business Ethics Discourse

I just had my attention drawn to this recent paper by Michael Luca and Georios Zervas, of Harvard B-school and Boston U, respectively, about review fraud on The conclusions of the authors are rather curious to me and appear to display a deep misunderstanding of ethics and what exactly they are.

 Fake It Till You Make It: Reputation, Competition and Yelp Review Fraud
As crowdsourced information becomes increasingly prevalent, so do incentives for businesses to game the system. In this paper, we have empirically analyzed review fraud on the popular review website Yelp - both documenting the problem and investigating the conditions under which it is most likely to occur. We show that the problem is widespread - nearly one out of fi ve reviews marked as fake, by Yelp's algorithm. These reviews tend to be more extreme than other reviews, and are written by reviewers with less established reputations.
Our findings suggest that unethical decision making is a function of incentives, rather than of unethical businesses. Organizations are more likely to game the system when they are facing increased competition and when they have poor or less established reputations. For managers, policymakers, and even end-users investigating review fraud, this sheds light on the situations where reviews are most likely to be fraudulent. More generally, this casts light on the economic incentives that lead organizations to violate ethical norms. [emphasis added]
I find the first sentence of their concluding paragraph extremely problematic. First off, what could possibly be meant by "unethical businesses"? A business is a legal structure, a set of relations, i.e. an abstract entity. A business does not make decisions, actual flesh-and-blood people do. An owner or manager makes a decision "on behalf" of the business, but it is still the owner or manager who has made the decision and who is ethically culpable for it. Confusing agency in this way is indicative of the sloppy use of language and poor philosophic reasoning in economics generally.

 Secondly, the existence of incentives to engage in unethical actions does nothing to remove ethical culpability from the agent who engages in those actions. Sure, a restaurateur facing stiff competition has an incentive to leave negative reviews for his competitors, but he also has an incentive to fire bomb their establishments. In neither case does the existence of incentives mitigate the unethical nature of the act. If ethics is to mean anything, it must mean acting on the basis of something other than individual incentives (whether financial, social, etc.).

All businesses have an incentive to game the system in whatever way they can (in this case, leaving fake reviews on Yelp), but only some of them actually do it. The people who choose not to game the system, despite the presence of incentives to do so, are the ones we call "ethical". A person who chooses to game the system and violate the trust of others because of those incentives is someone we call "unethical."

No wonder the state of "business ethics" is in such a shambles: the "experts" don't even know what ethics means.