Category: Economics

Relationship between Productivity, Wages, and Stock Market Valuations (and Racism, Xenophobia, Wars)

At the very end, I’ll come full circle to explain the connection with productivity, wages, and stock markets valuations.

Federal reserve has three tools for influencing money supply:

  1. Setting interest rates
  2. Open market operations (Issuing treasury bonds)
  3. Setting reserve requirements

Explanation:

  1. By lowering interest rates it’s cheaper to borrow money and less lucrative to save
  2. By issuing/buying back treasuring bonds on the open market they effectively inject money into the economy. The Federal Reserve doesn’t have the money: they create money by adding to their balance sheet. They buy the bonds to increase money supply, or issue bonds to shrink money supply.
  3. Increasing/decreasing reserve requirements impacts what percentage of the banks holdings it can reinvest, which has a money multiplier effect in the economy.

It’s important to make the implications of this as simplistic as possible. As Confucius said: Life is really simple, but we insist on making it complicated.

The Federal Reserve has a few goals, but most important is to stimulate economic growth.

To do this, it uses monetary policy to manipulate liquidity (access to capital) as a driving force in investment and therefore economic growth.

So it makes money more or less expensive to borrow.

Borrowed money that’s being invested doesn’t guarantee it’s being invested in valuable assets.

Two of the biggest areas where money gets invested is:

  1. Money Lending (banking)
  2. Stock market

Explanation:

  1. Banks lend money to people who don’t have it. Student debt. Credit card debt. Home debt. Car debt. Personal debt has skyrocketed.
  2. The stock market is seen as an indicator of a healthy economy. It is not. If you have cheap money, the collective investors buying stocks on the open market will drive up stock prices well beyond their true value. But if the stock gains outpace the cost to borrow or invest other places, it’ll continue to be the focus institutional investors.

10% of the US population own 85% of the stock market value.

This is in spite of employers moving from company pension funds to 401k.

The stock market overvaluation essentially resets every 10-15 years with a market wake up and contraction in liquidity, resulting in anyone operating unprofitably [ie over leveraged] going broke or bankrupt, causing a recession as well as a massive wealth distribution from anyone barely getting by to those with more than enough.

The bankers and lenders know and see it coming and get out early. Everyone else panics and gets out late with all their gains erased.

Why do we need a credit card to survive? Why is everyone is debt?

Apart of the federal reserves goals for economic growth is:

  1. Ensure full employment
  2. Control inflation

When the federal reserve buys bonds it increases the inflation rate. And vice versa.

According to the Philips curve, when inflation is high, unemployment is low, and vice versa (Philips 1958).

When unemployment is high, there is a surplus of labor.

When there is a surplus of labor, wage bargaining power is low. As in, if there are a lot of people lined up for a job, they can’t negotiate their wage. Beggars can’t be choosers.

When there is a shortage of labor, workers can negotiate higher wages: labor has wage barraging power.

The federal reserve prevents full employment, however, by maintaining a target inflation rate of 2%.

The baked in assumption is that full employment is bad, because this will lead to runaway inflation.

However, the Philips curve only describes this relationship in the short term. In the long term, there is zero relationship between employment and inflation, because employment is strongly tied to social factors like education, innovation, and frictional, cyclical, and structural unemployment due to various market demands.

The federal reserve actively manipulates money supply to ensure that there is 3.5-4.5% unemployment rate.

The lower the unemployment rate, the more wage bargaining power.

The higher the unemployment rate, the less wage bargaining power.

The more wage bargaining power, the more workers get paid, the more they spend, the more economic output.

By preventing full employment, the Fed ensures business owners (wealthy) have all bargaining power, and keep all surplus profits.

This results in a labor force that is barely surviving on a living wage.

The result is that consumers save less, and rely on credit/ debt to maintain a more and more expensive lifestyle, or keeping up with the Jones’s.

The reality is that there are plenty of case studies and countries that have less than 1% unemployment, where workers have excellent wages due to wage bargaining power, and there is no runaway inflation. Japan and Germany being the two notable examples. China not far behind.

Full circle:

1. How does productivity increase but wages do not? (Wage stagnation)

When productivity increases and wages do not, there is a simple explanation:

Workers do not have wage bargaining power.

i.e. they are being exploited, producing far more value (profits) than they are being paid for.

2. Where does all this profit go?

The “property owners” (companies, assets, stocks, land) purchase more and more assets with this surplus income. Notably, they invest in the stock market. All these excess profits drive up stock market prices, even though stock prices do not reflect actual value.

But where else do they put their money? Surely they don’t pay laborers what they’re worth. But if laborers aren’t being paid a living wage, how can they spend and consume and generate economic activity and growth? Debt. The wealthy owners lend money back to the laborers. This perpetuates the cycle of enslavement.

Of course, this is a historical phenomenon. The relationship between the capitalists and laborers— the haves and have-nots, master and slave, bourgeoisie and proletariat— is easy to observe throughout history, but always seems impossible to notice as it’s happening.

The inevitable consequence of this inequality manifesting in its extreme is social unrest and overall societal degradation.

When the population speaks up about deteriorating conditions, the “ruling class” (capitalists or property owners and politicians or gatekeepers) employ a timeless strategy: Blame the “other”.

This “other” is any minority group other than the ruling class. This includes minorities, immigrants, foreign countries, climate, and other scape goats. This phenomenon repeats itself throughout history in the most predictable way.

Political leaders, chosen by the ownership class, convince the working populous that the source of their problems is not at home with their leaders, but because of those who have different values and beliefs, who look and act different. The source of all society’s ills are those who are “different”.

This inevitably leads to racism, xenophobia, endless wars, harsh immigration policy, loss of human rights, and persecution of anyone not in line with the self-righteous national identity being promoted.

What do you think?

What key determinants are responsible for a graduate’s starting wages?

The following is a report I compiled with two friends to determine which factors had the greatest impact on a college graduate’s starting wages. Though the calculations are sound, the report has not been edited for grammatical errors or clarity. Our data was based on publications from 2010.

Continue reading “What key determinants are responsible for a graduate’s starting wages?”

Small Spaces: Real Estate and Consumption

The American public is broke and overworked. People will no longer be buying homes like they once did. Instead, they’ll be be living in smaller homes or renting. Data shows that asking rent for vacant rent units has steadily risen over the years due to a shortage of rentals. Investors with the capital will buy the surplus homes and rent them out to capitalize on the growing demand for cheaper, more affordable housing. Given the low rates, one should consider buying and renting homes now.

Because renters own less automobiles than their home owning counterparts, urban areas will increase in popularity as walking and riding bikes becomes a more affordable way of travel. This means more frequent shopping outings. In addition, small living spaces means less consumption. People will no longer have the available space to store their goods. Those who downsize will seek storage centers. Given wage stagnation, the next generation of workers will probably be consuming much less than their parents. This will have negative impacts on our economy.

Student debt has risen exponentially over the years, with the government accruing the most nonrevolving student debt.  Seeing as how the government is already struggling to make ends meet, this isn’t a good sign. If the debt bubble pops, the government will have a mess on its hands, but due to laws that prevent defaults on student loans, most of the damage will occur with the borrowers and severely constrain their consumption.  Wage stagnation, coupled with rising debt, specifically student and credit debt, will lead to declines in aggregate consumption.

On a side note: does effort increase as financial rewards decrease? That makes me think there is method to all this madness: maybe increasing taxes isn’t so bad for the national economy? Maybe wage stagnation isn’t so bad for the economy after all? After all, despite decades of stagnating wages, productivity has continued rising. I recall economist David Levine who argues in favor of the “income effect” resulting from higher taxes or, more exactly, the   propensity to work longer and harder because they are receiving less. But that’s another discussion. Moving on…

As the baby boomer generation exits the work force during the next few years, so too will their consumption on normal goods and services due to more diligent saving. Instead they will consume more health care services. This will increase the growth of the health care industry. They will also see financial advisory and wealth management services, leading to increases in the finance industry. Also, retirement (or over-60) community real estate will experience a surge in demand.

 

US Bank Runs and Economic Policy

What if the US suddenly lost its position as the worlds reserve currency? A run on the US dollar will cause economic stagflation: as the dollar value falls the exchange rate will depreciate, causing inflation to increase and raising business costs which will lead to layoffs/ increased unemployment. Because current US domestic demand is driven by the borrowing of substantial foreign investment, available loanable funds will decrease, borrowing will constrain, and US demand and aggregate output will fall, consequently leading to financial market collapse and economic decline. Because of a large trade deficit, a depreciating exchange rate will cause inflation to subsequently rise as more dollars are needed to buy less, increasing the cost of imports. Unemployment will increase as consumption falls. The government will need to print money to maintain consumption, which will further devalue the dollar and cause runaway inflation.

In addition to being the world’s reserve currency due to historical US political and economic stability, foreign investors are attracted to the developed financial markets offering high liquidity. Large foreign capital accumulation can be costly as sterilization can cause the return on reserves to drop lower than the interest paid on issued bonds. Foreign investors with much government bonds will demand higher interest rates and start targeting other investments, such as debt, due to their relatively low risk, high liquidity, and steady returns. High foreign investment appreciates the exchange rate, increases a trade deficit, and may lead to an over-valuation of currency.

Suppose the US economy is operating under “normal conditions”— assuming 2.7% inflation, 5.8% unemployment, 3.8% economic growth. Which policy is more effective, fiscal or monetary? The Fed operates under the legal mandate to ensure stable growth and full employment. If these are the measures of “effective”, monetary policy should be more effective because it causes “immediate changes” in the money supply and interest rates, immediately combating inflation. If there are supply shocks, monetary policy best stabilizes prices. Under the assumption of the Taylor Rule, monetary policy achieves its goals by adjusting target inflation rates and federal funds/ discount rate with tools such as open market operations and quantitative easing which alter the money supply. Under rational expectations, if the Fed announces higher inflation in the future, consumption should increase now and unemployment decreases. Because consumers are not rational and prices are sticky, changes in the money supply do not immediately impact the consumption, so there is a multi-month lag in response. However, a zero-bound funds rate has the same effect as a contractionary supply shocks, so while it may stimulate consumption, it may be detrimental to welfare.

Fiscal policy requires legislation and implementation which takes time to impact the economy. Taxes will not respond quickly enough to a supply shocks, and subsidies not not evenly distribute the benefits due to crowding.

Also, despite decreases in prime rates and large denominated CD rates, credit card rates are very sticky and do not respond accordingly due to habit forming consumption. If an economy possess much revolving credit that drives consumption, monetary policy may not be most effective for increasing welfare, but instead benefit lenders.

 

American Inequality

A Case for Economic Equity and Long-Term Growth (Draft)

Abstract

Macroeconomic policy issues, as well as the theoretical assumptions underpinning their conclusions, must be considered within a political Liberalism framework that ensures and upholds the democratic values of freedom and equality inherent to the constitution. The complexity of economic development requires a holistic empirical approach that accounts for the historical, political, sociological, and business factors contributing to the makeup of society when crafting and recommending economic policy.

For this paper we will assume that economic growth is the aim for society. Inequality is a product of increased bargaining power resulting from increasingly powerful institutions in the business, financial, and governmental sectors (Kumhof 2011; Barnhizer 2004; Argyres 1999). Research has repeatedly confirmed growing inequality globally and domestically (Hisnanick 2011). Inequality, manifested as widening income and wealth disparity, contributes to domestic and global account imbalances, consumer debt, and economic stagflation, i.e. inflation and unemployment (Kumhof 2012; Rajan 2012). In addition, inequality is linked to key social variables such as political stability, civil unrest, democratization, education attainment, health and longevity, and crime rates (Thorbecke 2002). Greater economic equality always results in greater long run economic prosperity for the whole. (Wilkinson 2009)

The thesis explored in this paper is that bargaining power inequalities causally contribute to economic and socioeconomic inequality due to path dependency, organizational inertia, and habit formation. Bargaining power inequalities increase proportionally with capital accumulation, concentration, and centralization. This paper will show that the restoration of equal bargaining power will rectify financial and labor market imperfections and spur economic growth. In addition, this paper argues that US economic growth over the past several decades has been vastly overestimated due to increases in financialization.

Executive Summary

In order to determine the best policy for rectifying inequality and spurring economic growth, this essay provides an overview of current economic and socioeconomic conditions within the US and abroad, identifies problems within those conditions, and details the contributing historical economic policies that shaped them. It then examines the systemic causal mechanisms contributing to current US economic conditions, present potential policy solutions that seek to address these underlying causal mechanisms, and lastly interpret and rank their theoretical effectiveness. This paper addresses the following areas:

Continue reading “American Inequality”

Inequality Research References

“The budget should be balanced, the treasury should be refilled, public debt should be reduced, the arrogance of officialdom should be tempered and controlled, and the assistance to foreign lands should be curtailed lest Rome become bankrupt. People must again learn to work, instead of living on public assistance.”
– Marcus Tullius Cicero, 55 B.C.

Historical Economic Policy and its Effect

Continue reading “Inequality Research References”

The Coming Collapse of the House of Cards: Tech, Education, Health

I just read the article titled Disruptions: With No Revenue, an Illusion of Value that discusses the overvaluation of tech companies. 

This article is so intuitive, yet so refreshing. It’s incredible that people aren’t discussing another eminent collapse.

Let’s talk about money and value.

Money represents a denominated value; it represents purchasing power. What does it mean to be worth something? It must possess utility, and that utility must be great enough, must possess enough value, that you would be willing to trade something else you value equally for it.  But what if the value of what money is representing is actually valueless?  What happens when the value attached to the dollar don’t reflect the value attached to the object? What happens when the dollar is worth significantly more than the object? You simply won’t exchange your money for the object, and suddenly it’s value decreases and disappears.

What if someone told you that a company was worth a billion dollars, but you actually believed it was worth nothing? I think of Instagram, Facebook, Twitter, Groupon. How do these companies generate revenues?  How much value are people willing to give up to use these services?

The problem is speculative valuation. The question of whether these tech companies will actually deliver the advertising dollars is still out. A valuation is only as good as its assumptions. Valuations based on discounted cash flows rest on some limited tentative assumptions, specifically: basing projections that the past will be like the future, variable discretionary capital expenditures, as well as the uncertainty of discount rates and growth rates. What if the market suddenly decides that companies like Instagram are no longer “cool” and stop using the product? What’s going to happen to that billion dollar valuation?

The tech industry is experiencing a speculative bubble, similar to the one witnessed preceding the real estate bust and the resulting financial crisis. What is the real value of information technology? I know it increases efficiency, it provides us with superficial pleasure as we peruse the internet, look at Facebook pictures, and the like, but what happens when we no longer derive value from these things? What happens when suddenly Instagram is no longer cool? The value will disappear along with everyone’s money.

I also believe that the education system, specifically higher education, is experiencing a boom and will eventually bust. What is the real value of going to college? You accrue massive debt that you can’t ever escape, your income is increased marginally, and there’s no guarantee you’ll get a job. What happens when people simply decide that the price tag isn’t worth it, they don’t want the loans, they don’t think college is worth it? The value disappears.

What other industries are suddenly thriving? Health care? Is health care an over valued industry?

As this article mentions, and I believe and have said for a long time, that our economy’s worth is built on distorted valuations. The financial industry is over 21% of our economy. That’s right: twenty-one percent. What value are they actually producing? Financialization leads to decreased real asset investment, so I argue they produce no value. Instead, financialization increases speculation, risky investment, decreases private savings, and increases debt, among other things.

Our economy is a house of cards. Where is the real value?  What things possess real utility? When shit hits the fan and people have no more money, no more surplus income, no more savings: what will they be spending their money on? What good or services will people include to satisfy their necessary consumption for sustenance?  Will people prefer to spend their money on services or goods? I suspect real-asset goods. Is technology a good or service? It is intellectual capital, but does it possess any tangible value? No.  If people are broke, you think they’ll spend money to use Instagram? I bet not. And what if Instagram decided to use advertising? And what if those people are so broke that they don’t buy what they advertiser is offering? Why would a company advertise with Instagram, or Twitter, or Facebook, or similar companies?

Service industries are the result of past increases in productivity that lead to equal distributions of rising income which created a larger middle class; this middle class created a demand for services that were previously only available to the upper class; but as income distribution widens and wealth accumulates at the top while everyone else gets poorer, people will not be able to afford services. They won’t spend money on luxury goods. They won’t go out for dinner as much anymore.

But this will only occur when people can no longer borrow on credit. At present, debt is solely responsible for our sustained domestic demand and aggregate output over the years. Financial liberalization (cheaper borrowing through regulation) has allowed consumption to remain relatively stable as real wages stagnanted and inflation rose.

Only when lenders can no longer extend credit will our country experience massive stagflation (high inflation, high unemployment), eventually leading to a massive economic collapse.  We may be witnessing the beginning of such a stagflationary period.

How can someone prepare for a bubble collapse? Where should they invest their money? Commodities? How can someone bet against the market? Which goods will be in higher demand as incomes continue to drop and inequality worsens?

I’ll be posting a massive paper on inequality within the next few days and I’ll elaborate in depth on how  inefficiencies within various channels lead to economic inequalities that reduce socioeconomic equity and decrease economic growth.

Labor Unions: Thoughts

Capitalism functions because of exploitation. You can’t make profit without a level of exploitation, i.e. labor must be compensated less than the value that the work produced to yield profits. The degree of profits yielded in proportion to the value produced is a good indication of whether exploitation is occurring. If you look at profits, productivity, and real wages, you’ll see that severe inequalities exist.

I use the word “exploitation” because it doesn’t sugar coat the reality of what’s going on: unequal bargaining power leads to income, wealth, and opportunity inequalities. Unions exist to restore bargaining power from the management/ absentee ownership. It’s when unions possess greater bargaining power than their employers that inefficiencies arise.  The decline in unions is a major reason why inequalities have risen over the years.

The US works more than any other country. We have the least vacation days of any other industrialized/ OECD nation. We have the least paid vacation days. I don’t think it’s fair to compare inequalities between developed and undeveloped nation. It’s all relative. So you think we have it pretty good in the US, that $7,25 isn’t too bad? You are forgetting that $7.25 is meaningless without a context, i.e. the cost of living, CPI/ inflation has continued rising despite stagnating wages making it increasingly difficult to save and live comfortably, especially for those in the lowest income brackets. Poverty levels are artificially low due to the credit boom– which, since its bust, has led to increasing poverty levels. The Gini coefficient has rising consistently since the 70’s, which I attribute to the coinage act of 72/ introduction of fiat currency which instituted federal monetary policy.

Also, the vast majority of worker representation has been the direct result of union organization. People should appreciate the value of unions and why they’ve been vital to our progress. You can thank unions for: the 40-hour work week, overtime pay, vacation pay, sick days, workers compensation and a living wage. Union decline is mostly do to corporations becoming increasingly ideologically opposed to them: It’s all about shareholder profits.

As resources become monetized and increasingly scarce through the process of capital accumulation, concentration, and centralization, there will be an inevitable rise in exploitation and inequality. US economic data points to this trend. After looking at history, throughout all civilizations, you’ll see that man’s natural tendency is to exploit as a consequence of his natural will to power/ dominate. I do not think any nation, especially the US, is immune to this tendency. Slavery is very real. We might not have chattel slavery, but with increasing debt levels and the passing of recent laws preventing the option of bankruptcy, I would argue that we are experiencing the rise of a certain “bonded slavery”. Choosing your wage contract is just an illusion of freedom if someone still owns your labor income. Allowing workers to choose which job they’re best at allows for the efficient allocation of labor. (Recent legislation just made it legal to deduct outstanding debt from paychecks before you receive it)

All I’m saying is that, contrary to what a few politicians spout off, unions are actually a good thing for democracy, equality, and economic progress. Maybe they don’t make us as competitive abroad, but we’re importers, not exporters anyway (International current account imbalances is a separate issue). Ensuring that our labor force is receiving equal and fair distributions of income/ wealth maintains consumption, drives domestic demand, and fuels economic progress. Income inequality and disparate levels of capital accumulation increases financialization, decreases real asset investment, and hampers long term economic growth– and could potentially lead to economic stagflation, which many argue we are seeing the beginnings of.

If you are ideologically opposed to unions, I would like to ask that you explore how unions have been instrumental in improving our economic development and our standard of living as a nation and consider reevaluating your position. They are incredibly important for our long term economic growth. This is a nice read from a non-partisan think tank: Why Unions are Good for the American Economy

You must understand the real utility of unions. Yes, work conditions have improved, I agree. That’s not why I believe they’re so important nowadays (after all, if I worked as a slave making nothing, but the conditions of my job were exquisite, I would still argue there were serious problems). I’m discussing why unions are important for ensuring that increases in income distribution mirror increases in productivity. One of the most important roles of unions is ensuring fair wages. This is why I believe they are important: restoring and equalizing bargaining power.

Yes, there have been massive changes within the labor markets from industrial to technology, but that doesn’t explain why wage inequalities have risen, and why it’s not due to decreases in unions (decreases in collective bargaining power) and increases in corporate/ management bargaining power. Federal monetary policy is a major reason for contributing to this bargaining power inequality. By establishing an arbitrary target inflation rate (NAIRU is bull and the Taylor rule is empirically bogus) and avoiding full employment, they create a surplus of labor which in turn decreases employee wage contract bargaining power that would otherwise increase their wage compensation to fair levels (and eliminate wage stagflation).

Why are individuals leaving unions? I would ask myself, why would they leave when they have better pay and benefits? This doesn’t seem rational. As I mentioned before, corporations make it incredibly difficult to join a union. They’ll import labor from somewhere else in the country before they’ll accede to union demands. It’s simply not advantageous to join a union when you could risk losing your job (especially when unemployment is high/ artificially inflated– they could simply hire someone else).

Politics (and the role of lobbying) play a very significant role for this decline.

Another article detailing how politics have reverses the role of collective bargaining, and how that has negatively impacted income distributions and growth.

Here is a study showing that decreases in unionization are responsible for a third to a fifth of all increases in inequality.

This study shows that unions have a direct positive impact on labor’s share of income, with the decline of unions responsible for about 29% of decreased wages.

Why have wage inequalities has risen over the past decades?

There can be serious problems with unions. I’m not arguing dysfunction can arise. Teacher unions have grown so large and powerful that no realistic progress can be made. It’s silly. I watched Waiting for Superman and it was appalling, but it’s a system that serious serious overhaul. But collective bargaining power is an important feature for preserving equity within the US.

Domestic and Global Inequality

Just read the paper Unequal = Indebted by Michael Kumof of the IMF.

It’s a short paper highlighting some of inequality’s effects. Take specific look at the commentary on China’s growing current account surplus. Contrary to popular belief, inequality has been rising just as quickly over there. The reason they aren’t in debt is because of their inefficient financial markets, in contrast to the US hyper efficient financial markets. They save more, despite making less and less, because there aren’t developed financial markets that provide banking services. This excess surplus travels to the US and fuels the debt investment driving our consumption and domestic demand. This type of behavior is driving global current account imbalances.

Democracy and Wealth: Athenian America

The Athenian democracy operated politically and economically as an aristocratic slave owning society. In order to be a citizen you must be male and of Athenian descent, but more importantly, you must possess capital, or tangible assets, usually land, but other times a horse was a sufficient indicator. Business and economy functioned among households, where each home was a corporation with women providing children for labor, but more importantly to inherit the capital assets and business. Slaves and the very poor non-Athenians were the laborers and looked at as nothing more than expensive tools, much like a plow or hammer or, for a more contemporary example, a car, which can serve various functions maintaining the business and household. Most interesting is that Athenian citizens universally considered wage labor to be the most debasing form of work, primarily because of its repetitive mechanical nature which requires no thought. In Ancient Greece it was unthinkable for any self-respecting citizen to ever work for an hourly wage. That was reserved exclusively for the slaves and xenos. Honorable means of income included rent, investment activities, and growing the business, whether it was in manufacturing or mining or crafts.

Some thousand years later John Locke purposed a treatise on government and politics with the sole aim of facilitating human self-preservation. For Locke, the most important and only worthwhile goal of the government was to ensure that property was parceled out and protected fairly among citizens. Locke believed that man’s naturally ordained rights were a healthy life, liberty, and property, all of which were essential for the pursuit of self-preservation. The right to property was a significant aspect to securing the other provisions that aided in self-preservation. Property, or more specifically capital assets, allowed man to retain value and worth, provided him a means of subsistence, and a means of attaining happiness by laboring his land in order to increase his value.

Capital assets, such as land or other hard assets of value, were a fundamental role to being an autonomous, equal, and free member of society throughout history. I ask myself,  what is the current state of the US economy and society, and how do we compare and stand up with the values and realizations that past thinkers and societies valued as paramount to liberalism, that of liberty, autonomy, and equality, that facilitate and ensure self-preservation?

I look around at society and I see many problems: inequality, concentration and centralization of wealth, wild financial speculation or “irrational exubrence” in investment markets, debt and credit, poverty, stagflation, corruption among politicians working for corporations and financial institutions, corporate person-hood that robs individuals of representational power and dignity, and many more. What is the cause of these problems? While I believe the questions and their inquiry are philosophical, the explanation, in my mind, is purely economical, or exists within the realm of political economy.  After all, economics is the study of human interactions within the various ecologies that sustain them. This includes every facet of the human condition, as well as environmental and sociological externalities and considerations.

Unlike many economists, my premises are philosophical and existentially rooted in a singular force that guides and shapes all decisions. This force is the will-to-power. I’ll elaborate more on the nature of this often wildly misunderstood concept at a later time.  But first it’s important to explore some assumptions contained in the prevailing macroeconomic theories, specifically the mainstream economics of Keynes, Friedman, and other monetarists.

I’ll need to explore their basic assumptions in value-theory, decision making and preference theory and their relation to various consumption theories (such as conspicuous, necessary, etc), money, supply and demand, labor markets and employment, wages rates, prices, institutions, investment and saving, economic development and growth, business cycles, the nature of competition and competitive markets, capital accumulation and its role in capital concentration and centralization towards inequality formation, entrepreneurism and technological innovation, government fiscal policies and taxation structures, monetary policies and inflation, banks and financial intermediaries, the wealthy and more. I will also explore assumptions contained within neo-classical and contemporary theories such as ceteris paribus (as well as the associated equilibrium states, atomistic and neo-platonistic conjectures and their ideal, representative variables), real balances and the Real-balance effect, the purchasing power of money, Say’s law, the Fisher effect, the nature of inflation, the liquidity-preference theory and liquidity trap, and the nature of aggregate supply and aggregate demand.

I also want to explore the how we conceive and view the role of various entities and nature of contexts, such as imperfect competitive markets (such as monopolies, duopolies, oligarchies and the like), short-run and long-run outcomes, propaganda and advertising, product differentiation, the affluent society, institutional powers and their countervailing powers, and others.

Lastly, I will examine the methodology for justifying and legitimizing these various claims by looking at various paradigms or frameworks such as those characteristic of empiricism and analyticism, and how they factor into an array scientific and non-scientific traditions like those of historicism, psychology, sociology, biological evolution, and even physics and the metaphysical reflections of phenomenology and its dialectical method.

In sum, I would like to combine understanding from all these aspects to produce a sound, organically rooted, evolutionary paradigm for political economy existing, if at all possible, under the pretext of political philosophy’s liberalism, like that found in the US constitution.

I’m so excited I’m trembling. My mind is brewing with enthusiasm. I feel like I can see through the noise, the static, perfect problems. I don’t know what the solution is, but I need to articulate the fundamental problems first. My next post will elaborate on the current issues and problems I observe within our country and explain why they exist. Specifically, I will expound on why our fatally flawed economic paradigms are only contributing to these problems.

 

Part I: Commentary on “Adam Carolla explains the OWS Generation”

My motivation for this post arose out of the hoopla I perceived concerning the wisdom attributed to Adam Corolla’s unreflective rant regarding the OWS movement. For the sake of open discussion, I’m going to disagree with some of his premise. I’ll summarize and reply to the two primary premises underlying his arguments in two separate posts.

You can view his rant here.

Argument 1: The 1% own 50% of the wealth. The 99% expect the 1% to pay for them. Carolla believes that the 1%  deservedly earn 50% of the wealth because they have worked harder than the 99%. Because the 1% pay 50% of the taxes, the 99% are lazy and ungrateful, leech off the wealthy tax dollars, and should work harder to increase their share.

My response to argument 1:
The 1% have not earned their 50% of the wealth, so to speak. Possessing wealth does not mean that it was earned “morally”, in the sense that you can earn wealth by exploiting people, which I maintain to be the case, or you can inherit it, in which case it is not earned at all. Furthermore, if the 99% had more of the wealth, they would be paying a greater percentage in taxes. It is not as though the 1% are charitably paying taxes. They pay the portion of taxes they due because of the current graduated tax structure which requires people with greater income to pay more taxes, which I should mention has decreased significantly in recent years.

Continue reading “Part I: Commentary on “Adam Carolla explains the OWS Generation””

Part II: Commentary on “Adam Carolla explains the OWS Generation”

My motivation for this post arose out of the hoopla I perceived concerning the wisdom attributed to Adam Corolla’s unreflective rant regarding the OWS movement. For the sake of open discussion, I’m going to disagree with some of his premise. I’ll summarize and reply to the two primary premises underlying his arguments in two separate posts.

You can view his rant here.

Argument 2:
The OWS movement typifies a society that is self-entitled and narcissistic which has caused envy and shame when they compare themselves to the 1%. Corolla believes this self-entitlement is a result of a society that glorifies being average and treats every individual as special despite their work-ethic and achievements.

Response to Argument 2:
Disregarding the economic reality of potential inequalities, I believe that the denigrating qualities typifying society which Corolla has attributed to the OWS movement are the natural corollary of what happens when the 1% dominates and possesses so much of the power as incarnated in accumulated capital and influence.  In this light the 1% is directly responsible for the values– attitudes and expectations– directing and justifying their behaviors.

Continue reading “Part II: Commentary on “Adam Carolla explains the OWS Generation””

Evidence Review: Cost Effective Policies for Improving Health and Longevity in America: Education and Maternal-Fetal Nutrition 
Barker-Hypothesis Policies

Introduction
Cardiovascular disease, type II diabetes, and other obesity related health complications are among the top killers of American adults today. As these illnesses have grown increasingly more prevalent over the years they have taken the lead as the greatest contributors to rising health care costs. The aim of this paper is to identify how these diseases develop and address ways for preventing the onset of  chronic illness in order to improve health and longevity as a means of potentially curbing the rising cost of U.S. health care. Citing strong evidence, I posit that the single-most significant factor for improving national health is the proper maternal nutrition during the critical intrauterine, neonatal, and postnatal periods of child development. Additionally, I hypothesize that while maternal education programs may result in positive changes to a mother’s diet during her pregnancy period, it is the cost, availability and ease of access to quality nutritional foods which are tied to a country’s cultural lifestyles, and individuals’ socioeconomic class that primarily influences the success of this education policy.

Continue reading “Evidence Review: Cost Effective Policies for Improving Health and Longevity in America: Education and Maternal-Fetal Nutrition 
Barker-Hypothesis Policies”

City Specialization: The Growth of Nashville’s Health Care Industry

Economic Report on Nashville’s Health Care Industry

I. Introduction
What is this report about?
This report will summarize the growing importance of the health care industry at large as well as within the Davidson County- Nashville area. We will begin by providing an overview of the health care industry by examining broad cultural trends and detailing recent US political and economic events that have contributed to health care industry growth. We will then focus in on the health care industry specific to Nashville, discussing its current scope and trends, and highlighting its particular importance to the city. Continue reading “City Specialization: The Growth of Nashville’s Health Care Industry”

Reflexivity

I’ve always been fascinated by the concept of reflexivity. What is reflexivity? It is the bidirectional relationship of a subject as both a participant (manipulative function) and observer (cognitive function) between “cause and effect”. As an observer I watch a fire burn; as a participant I add fuel to the fire or stifle its flame: my beliefs about the observed fire, if it is growing or dwindling, influence how I engage with it.  Maybe a more accurate example relates to prices: my current willingness to buy a good is influenced by the price I observe and, in turn, the act of buying drives up demand which increases the price and influences my price observations, affecting my future willingness to buy (I’ll work on a clearer example).

While I’m fascinated with the sociological implications, I’m even more fascinated with how these implications manifest within economic decision making. I really need to investigate and read up on behavioral economics more thoroughly.

I’ve been aware of the concept of reflexivity for quite awhile but only recently has it perked my interest in the context of economics and finance. Before that my understanding was confined to the psychological decision making aspects. What really brought these two together was my recent interest in how mass speculation affects the market place. Two books cultivated this interest, specifically “A Short History of Financial Euphoria” and “The Big Short”.

So reflexivity. Karl Popper introduced this idea into social theory, and social theory and economics, as you can imagine, are intimately linked. George Soros, a pupil of Popper, really capitalized on the utility of synthesizing and applying the two concepts to finance. That’s where I want to continue my study.

There are three areas of study that fascinate me at the moment: Evolutionary Economics, Reflexivity and Social Theory, and Disequilibrium States (more specifically, the process of creative destruction as coined by Schumpeter).  I’d really like to apply some philosophy and social theory to economics and come up with a qualitative economic system that capitalizes on the current short comings of neoclassical thought and market structures. Soros has done it, but I’d like to master his ideas and continue progressing with them. There’s gotta be some piece of the puzzle, or pie, that I can really develop and utilize for gain. I found this lil’ power point to be a helpful introduction to some of Soro’s ideas. My next readings will involve the works of Karl Popper (Philosophy of Science), Robert Schiller (Behavioral Economics), George Soros (Reflexivity), and Hyman Minsky (Disequilibrium States).

Soro’s provides a brief introduction to his concept of reflexivity in his book The Age of Fallibility:

”On the one hand, we seek to understand our situation. I call this the cognitive function. On the other hand, we seek to make an impact on the world. I call this the participating function. The two functions work in opposite directions and they can interfere with each other. The cognitive function seeks to improve our understanding. The participating function seeks to improve our position in the world. If the two functions operated independently of each other, they could in theory serve their purpose perfectly well. If reality were independently given our views could correspond to reality. And if our decisions were based on knowledge, the outcomes would correspond to our expectations. But that is not the case because the two functions intersect, and where they intersect they may interfere with each other. I have given the interference a name: reflexivity. . . .”

Here’s a video where Soro’s goes further in depth with his thoughts on reflexivity titled The New Paradigm for Financial Markets.

http://mitworld.mit.edu/flash/player/Main.swf?host=cp58255.edgefcs.net&flv=mitw-01094-sloan-econ-soros-financial-mkts-28oct2008&preview=http://mitworld.mit.edu//uploads/mitw01094sloaneconsorosfinancialmkts28oct2008.jpg

 

Why I think this concept is so interesting is that it incorporates a multitude of qualitative cognitive functions as well as mechanisms that result from enculturation and socialization that guide choice and action.

All that aside, today I read an amazing article on evolutionary economics titled Evolutionary Economics and the Extension of Evolution to the Economy. I’d recommend the read if nothing else but to expand your knowledge on the promising subject of evolutionary economics.

More thoughts later.

I’m never sold on one person’s theory or another’s. My aim is always to understand and synthesize them all into my own unique perspective that I can successfully apply.

Thoughts on Reflexivity

I’ve always been fascinated by the concept of reflexivity. What is reflexivity? It is the bidirectional relationship of a subject as both a participant (manipulative function) and observer (cognitive function) between “cause and effect”. As an observer I watch a fire burn; as a participant I add fuel to the fire or stifle its flame: my beliefs about the observed fire, if it is growing or dwindling, influence how I engage with it.  Maybe a more accurate example relates to prices: my current willingness to buy a good is influenced by the price I observe and, in turn, the act of buying drives up demand which increases the price and influences my price observations, affecting my future willingness to buy (I’ll work on a clearer example).

While I’m fascinated with the sociological implications, I’m even more fascinated with how these implications manifest within economic decision making. I really need to investigate and read up on behavioral economics more thoroughly.

I’ve been aware of the concept of reflexivity for quite awhile but only recently has it perked my interest in the context of economics and finance. Before that my understanding was confined to the psychological decision making aspects. What really brought these two together was my recent interest in how mass speculation affects the market place. Two books cultivated this interest, specifically “A Short History of Financial Euphoria” and “The Big Short”.

Karl Popper introduced the idea of reflexivity into social theory, and social theory and economics, as you can imagine, are intimately linked. George Soros, a pupil of Popper, really capitalized on the utility of synthesizing and applying the two concepts to finance. That’s where I want to continue my study.

There are three areas of study that fascinate me at the moment: Evolutionary Economics, Reflexivity and Social Theory, and Disequilibrium States (more specifically, the process of creative destruction as coined by Schumpeter).  I’d really like to apply some philosophy and social theory to economics and come up with a qualitative economic system that capitalizes on the current short comings of neoclassical thought and market structures. Soros has done it, but I’d like to master his ideas and continue progressing with them. There’s gotta be some piece of the puzzle, or pie, that I can really develop and utilize for gain. I found this lil’ power point to be a helpful introduction to some of Soro’s ideas. My next readings will involve the works of Karl Popper (Philosophy of Science), Robert Schiller (Behavioral Economics), George Soros (Reflexivity), and Hyman Minsky (Disequilibrium States).

Soro’s provides a brief introduction to his concept of reflexivity in his book The Age of Fallibility:

”On the one hand, we seek to understand our situation. I call this the cognitive function. On the other hand, we seek to make an impact on the world. I call this the participating function. The two functions work in opposite directions and they can interfere with each other. The cognitive function seeks to improve our understanding. The participating function seeks to improve our position in the world. If the two functions operated independently of each other, they could in theory serve their purpose perfectly well. If reality were independently given our views could correspond to reality. And if our decisions were based on knowledge, the outcomes would correspond to our expectations. But that is not the case because the two functions intersect, and where they intersect they may interfere with each other. I have given the interference a name: reflexivity. . . .”

Here’s a video where Soro’s goes further in depth with his thoughts on reflexivity titled The New Paradigm for Financial Markets.

 

Why I think this concept is so interesting is that it incorporates a multitude of qualitative cognitive functions as well as mechanisms that result from enculturation and socialization that guide choice and action.

All that aside, today I read an amazing article on evolutionary economics titled Evolutionary Economics and the Extension of Evolution to the Economy. I’d recommend the read if nothing else but to expand your knowledge on the promising subject of evolutionary economics.

More thoughts later.

I’m never sold on one person’s theory or another’s. My aim is always to understand and synthesize them all into my own unique perspective that I can successfully apply.

Evolutionary Economics: Organic Analysis of Economic Growth

Abstract: This essay explores whether it is possible or desirable for present-day economic theory to incorporate biological or evolutionary insights of the type suggested by Alfred Marshall but not fully embraced by him.

If the study of economics is to function as a progressive system that guides and explains the behaviors of men as free and creative agents, it is necessary to examine the study in an open and dynamic way that emphasizes the growth of knowledge and qualitative factors as the prevailing force of change and progress.  Early on Marshall (2009) discovered the inherent error with rational mechanistic economic systems when he said “economics, like biology, deals with matter, of which the inner nature and constitution, as well as the outer form, are constantly changing” (p. 637). Whether Marshall knew it or not, the problem between statical and biological theories is fundamentally a philosophical one. This essay will explore this problem, delineate its philosophical roots, and build a case in favor of evolutionary economics.

The central thesis of this essay argues that neoclassical economic models operate in the outdated modernist paradigm that utilize rational closed systems which are, as a result, authoritarian and unsustainable with respects to free market innovation and evolution. The argument presented here is that economic models need to shift away from quantitative measures emphasizing ideal equilibrium states and towards a post-modern conception that accounts for freedom and change. In this way economics will reflect nature accurately, i.e. men are individual and free agents acting interdependently within an evolving economic landscape. This will provide holistic and sustainable model for interpreting progress by individuating agents according to inevitable qualitative changes within an economic system.

Continue reading “Evolutionary Economics: Organic Analysis of Economic Growth”

Thoughts on Evolutionary Economics: Organic Models of Economic Growth

‘Progress’ or ‘evolution,’ industrial and social, is not mere increase and decrease. It is organic growth, chastened and confined and occasionally reversed by decay of innumerable factors, each of which influences and is influenced by those around it; and every such mutual influence varies with the stages which the respective factors have already reached in their growth. In this vital respect all sciences of life are akin to one another, and are unlike physical sciences. And therefore in the later stages of economics, when we are approaching nearly to the conditions of life, biological analogies are to be preferred to mechanical, other things being equal. (Alfred Marshall 1898: 42-3)

Examine the Thesis: Economic models must not be closed. Rational models are not reflective of nature as a function of change and therefore time. The creative and adaptive enterprises of men cause rational economic models to become outdated in the long run. Rational economic models are suitable for short run analysis but can not make accurate long run predictions.

Alfred Marshall and the Growth of Wealth: A Short Microeconomic Analysis of Wealth Accumulation

Alfred Marshall was a pioneer in economics, even by today’s standards. In 1890 he published Principles of Economics which, compiled from years of study and contemplation, proved to be his magnum opus on economic thought. The work was so fastidiously compiled that it served as a standard in which all economic thought over the next century would respectfully consider. This essay will delve into the concept and history of the growth in wealth. A brief outline of Marshall’s descriptive analysis of wealth accumulation will provide a basic framework that can be used for comparing Marshall’s thoughts to that of other economists.

Continue reading “Alfred Marshall and the Growth of Wealth: A Short Microeconomic Analysis of Wealth Accumulation”

Schumpeter and Creative Destruction: The Process of Market Innovation in Capitalist Societies

Schumpeter and Creative Destruction:
The Process of Market Innovation in Capitalist Societies

Joseph Schumpeter was a 20th century Austrian economist who taught at Harvard for several years upon coming to the US. While much of his work was overshadowed by his contemporary Keynes, he made important contributions to macroeconomic theory by developing dynamic models of market change. His work described the nature of market innovation within capitalist societies and emphasized the role of less quantitative measures such as sociology as a major factor for economic development. Much of his inspiration was drawn from the economists Marx and Weber who favored dynamic sociological backgrounds, as well as Walrus from whom he borrowed the concept of the entrepreneur. Despite his emphasis on social factors, however, Schumpeter was one of the leading econometric economists of his day.

In 1942 Schumpeter published Capitalism, Socialism, and Democracy. In this work lies the theory of creative destruction, one of his most notable contributions. Originally a term coined by Marx, Schumpeter employed the “creative destruction” to mean the “process of industrial mutation that incessantly revolutionizes the economic structure from within, incessantly destroying the old one, incessantly creating a new one”. He wrote that the concerns of capitalism were less about how existing structures were administered and maintained and more about how these structures are destroyed and created. Entrepreneurs, he says, are the sole facilitators of innovation and invention that bring about these structural and market changes in economic systems.

Schumpeter placed much focus on equilibrium and the role of entrepreneurs to facilitate change within an economy. According to Schumpeter, an economy in equilibrium produces products for future consumers who are consuming their present products, and consumers consume products of past producers in a circular flow based on past experience. The expectations and cycles are essentially contained with no new production functions allowing for changes. The entrepreneur operates outside the system and introduces changes to the production function that allow for the creation of new wealth and destruction of the old- hence the term, creative destruction.

In Schumpeter’s analysis, entrepreneurs are the sole agents of change and responsible for the destruction and construction of new markets and wealth within a society. It is the sheer acts of will and leadership, rather than intellect, which characterize the entrepreneur and secure economic progress through successful innovation.

According to Schumpeter, capitalist societies did not operate in a the static circular flow, or equilibrium, proposed by Weber where the production function is invariant and preexisting factors of production are combined according to the technology at hand mechanically. Market activity is much more dynamic and changing. It is the Entrepreneurs who operate as a nonentity outside of this equilibrium and force new combinations of factors that disturb the circular flow as a means of innovative development. Rather than changing the quantity of factors to change the quantity of products produced, this disturbance creates market disequilibrium as their innovative contributions change the form of the production function. This change in production function form introduces new and higher quality commodities which destroys old wealth and creates new wealth.

Financial Euphoria & Its Speculative Ruin

The recent financial and economic crisis is yet again the result of the same speculative orgy that happened not twenty years prior in the 1987 market crash. When the dust settled, the same inimical features culpably appear as reason for the disaster. As happened so many times in history, there was intense speculation that was fueled by misplaced faith in the lenders and rich. The association with intelligence and money contributed to a speculative boom that lead individuals to risks and over extend their confidence and credit. In addition, financiers at large investment banking companies were hailed for their seemingly innovative, yet unoriginal, practices of leveraging debt through financial instruments taking the forms of derivatives, securities and ARM’s (adjustable rate mortgages).

In the 90’s the US government passed a series of policies allowing home buyers to more easily secure mortgages through government backed debt. As more and more people began buying homes, housing values began to increase all over the countries. In attractive states such as Florida and Nevada, housing prices near tripled their original value. Lending companies began to underwrite mortgages well under standards to meet the demand and soon began pushing sub-prime loans onto home buyers. Many unworthy home buyers maintained poor credit, or bought multiple homes with hopes of flipping the home on speculation that its value will continue appreciating.

The speculative housing mania fostered the creation of massive MDS (mortgage backed securities) and subsequently CDO’s (collateralized debt obligations) which allowed shadow banking systems and credit markets to flourish while operating with little or no oversight. These and other “financial innovations”, nothing more repackaged debt being attractively marketed to meet investor demands, resulted in growing specious debt being incorrectly valued and over leveraged.

To hedge against risk, investors unloaded securities through CDS’s (credit default swaps) to mitigate against potential loss. These CDS’s allowed for more speculation as investors could basis trade on CDS spreads. As more and more loans defaulted, packaged MDS and CDO’s became riddled with unknown risk value and were dubbed toxic. These derivatives soon became worthless as panic stricken investors began selling bonds.

The banks bought these mortgage backed securities with the thought that, being backed by actual homes, they were fairly risk free. They predicted that the home values would sustain and that they could simply turn around and sell the properties at these high prices to compensate for any defaulted debt. In 2006 the crisis was set in motion when the housing bubble began to deflate as economic pressures forced home buyers to walk out on loans, leaving a wake of severely overvalued and ‘toxic’ securities in its path.

Major financial institutions, deemed credible and near prophetic with their steady gains, capitalized on the public’s gullibility for getting rich quick, as well as their short term memory of the financial crash just twenty years prior. These lending and banking institutions were thought to be “too big to fail” and garnered the pollyanna support of investors all over the world. As the housing market evaluations increased so too did the financial and banking markets in exponential disproportion.

In addition, individuals hailed as innovative financial frontiersman possessed the reputations that granted the support of willful and ignorant investors of all over. Such financiers included once NASDAQ chairman Bernard Madoff who masterminded a reminiscent Ponzi scheme that would rob investors of more than $60 billion. Hedge funds and the wealthy elite all over the world became victims of his vacuous enterprise.

As in all major financial disasters to date, the subsequent crash caused a sudden and permanent drop in US wealth as more than a quarter of wealth evaporated from their coffers. A decrease in consumption lead to an increase in unemployment above fourteen percent and the annualized rate of decline in US GDP reached closed to fifteen percent.

As the past has revealed, the aftermath of the crash caused a blind hunt to find and persecute the blameworthy. Everyone from the banks to the investors to the fed chairman and even the president of the US has been subject to scrutiny and called out for not predicting and preventing such an event. While regulation policies and reform measures followed, there was almost predictably no talk to the wide spread delusion and mania persistent throughout society which allowed for such a disaster to take place. Little blame was placed on the mass insanity of those who gullibly entrusted their money to “intelligent investors” of the financial community. Nor was their criticism of the baseless free-enterprise attitudes that the market is a perfect and neutral force absolved from external influences and inherent errors.

Those held responsible, mostly investment bankers and hedge fun managers, found their integrity and confidence completely ruined. As seen in the past, some fled in light of the impending crash, cashing out and leaving with their pockets full before they were apprehended as the cause. Many others, broken and shamed, thought suicide was the more appropriate measure for reconciling their guilt.

In the end euphoric speculation was the crux of the financial disaster as the masses became entranced with the seemingly boundless increases in the market. Vacuous financial innovations that leveraged risky debt were fabricated to promote and continue the growth. Those jumping on the bandwagon only fueled and reinforced the delusion. Caught up in the euphoric mood, many sage and perspicacious people overlooked the risks and the inevitable end that was to come.

Fundamental America

This is what a paper written in 1 hour and 20 minutes looks like.

Fundamental America: Free for a Price

Examining the paradoxes of social inequalities within the scope of democratic sentiments

Inherent Paradoxes

            Two hundred and thirty years ago the American people declared their independence from tyrannical autocratic rule. The founders synthesized the enduring democratic rights and truths of the greatest philosophers that ever lived. Despite this, democracy was reserved for a margin of people and out of reach from the vast majority. Since our countries conception, great advances have been made to refine what democracy is and establish who has the right to contribute their voice. Major movements in women’s suffrage and later slavery and African American rights were milestones that helped shape the seemingly exclusive ideal of democracy. Currently America faces several fronts that challenge the legitimacy of our current democracy.

Social Inequalities

            In our readings in Signs of Life in the USA, authors Sonia Maasik and Jack Solomon address a variety of paradoxes that exist within our American culture in chapter six, American Paradox. No paradox is more controversial and relevant than America’s simultaneous declaration of universal human freedom and equality and its long history of racism. This paradox addresses the tip of the iceberg of much larger paradox illustrating an advertised freedom that was not intended to be free.

Historical inequalities

            Examining our American roots we can see that our puritanical Christian forefathers desired a society of their own, free from autocratic dictation. They envisioned this society for the United States. As time went on, these puritanical sentiments persisted and found their way into our legislation. Because their ideals subjugated the rights of women and African Americans, they were prevented from voicing themselves for the first half of American history. Only after massive opposition and generations of change have these become matters of the past.

Xenophobia of Middle Easterners

            In our current culture racism seems to be localized to extreme fringe groups. Popular culture has seen women take center stage on political issues, and African Americans dominate multiple industries from entertainment to sports. However, social inequalities are still alive and well, and although racism may be withering, xenophobia continues to blossom with every generation. Most recently our country has been in multiple wars and with every war is an accompanying fear. Middle easterners have been the target of these fears as our government denounced radical Muslims and extremists from the middle east of reeking havoc world wide. While the atrocious crimes were committed by radical sects, the language used to single them out has effectively caused a mass hysteria directed towards the Middle East as a whole. Ignorant Americans forget that the numbers of such extremists are next to nothing.

Xenophobia of Illegal Immigrants

            Another xenophobia gripping our nation is that of illegal immigration. The news of illegal immigrants storming our borders, scaling walls, digging tunnels, enduring deserts and dangers has America in a panic. While Americans national security has been called into question, another issue of economic security has been the focus of most news. Illegal immigrants are publicized as taking hard working tax paying American’s jobs. In light of our economic decline, this has been the spotlight of most Americans concern. To compound the issue further, America’s war on drugs is now directly battling the major trafficking of illegal drugs through our southern Mexican border.

Social Inequality of Homosexuality

            The last social inequality that challenges the fabric of our constitution and agitates the ethical and moral minds of America is the issue of homosexuality. It seems it would be an inevitable topic given our ‘free’ country was founded by puritanical Christians. While the issue of homosexuality has made much headway in popular culture and open acceptance the past two decades, it has only recently been challenging the roots of America. Proposition 8 and the issue of same sex marriage has been the most widely publicized debate on the issue.

Examining the Paradoxes

            Why are these paradoxical? While some might look at these issues and produce valid concerns for their legitimacy, they overlook the very foundations of America. This land, whatever the founder’s initial intent, was established as a haven for the persecuted, a home for those underfoot, those whose rights were molested or stripped. Social inequalities serve to destabilize the creed of freedom. To remove one man his rights would be to undermine the rights of all men. This, however, is what America has done throughout its history as it has attempted to reserve democracy to a select few.

Reserved Freedoms

            These examples illustrate a major flaw in America’s declaration of freedom and equality: where the line of freedom is drawn. While we hold our relativistic and tolerant values supreme, we are terribly protective and afraid of anybody watering this down and wavering from these values.  In the case of illegal immigration, most would think that America, of all places, would be the most receptive and lax about this process. Considering that there are no true natives other than the Indians, we should embrace the people who venture here to exercise their rights. The truth is that earning your citizenship and freedom in America is an arduous test of patience that many people simply do not have the time to pass.

Paradoxes: Generational Entrapment

            Democracy is defined as a government by the people; a form of government in which the supreme power is retained and directly exercised by the people. These people make up the common people and dictate the governing rule through the legislative and judiciary process. However, problems arise when one generation’s laws improperly reflect the current generation. As the generation of one common people phases out, another phases in, often met in opposition to outdated traditions and beliefs that made their way in legislation. These tendencies create obstacles for progress, as is seen throughout American history with landowners only being able to vote, women’s rights, and African American rights.

Defining a Free Democracy

             Another paradox that exists within these paradoxes is that of a free democracy itself. Any form of government is a form of control. Whether that control is derived from single or multiple sources detracts from that fact that there is a degree of freedom is forfeited. In a democracy this power is derived from the common people, the populous. This causes difficulties among those who compose a margin of the population or any minority with fringe beliefs and philosophies.

Conclusion

            Overcoming these paradoxes will be the result of overcoming an inherent part of the human nature: fear, specifically the unknown. That includes all unfamiliarity extending to foreigners, homosexuality, or just change in general. While I would love to say these inequalities have all but disappeared with the advent of the mass media, internet, and other mediums of communication that break down the one sided walls of ignorance, the truth is they remain an enduring part of our culture.  Though America once related with the tired huddled masses in Emma Lazarus’s words on the statue of liberty, we have grown alien to these feelings and are less empathetic to those who need it most.