Rational Philosophy

On the recession, real or imagined, chronic problems that beset the nation, and the celebration of taste and art in a great cup of coffee.

With all that’s been written about the current economic crisis, be it mountain or molehill, it’s been surprisingly (or perhaps unsurprisingly) difficult to get to the bottom of the situation. I can’t escape the impression that the economy moves according to forces too complex for anyone to fully or reliably understand. The wisdom of hindsight abounds, but those still willing to predict what comes next sound more like doom-mongers or soothsayers than thoughtful, commanding economic theorists and commentators.

The Times has a piece that hints at some concrete economic indicators: According to David Rosenberg, a Merrill Lynch economist, the stock market is overvalued by 10 percent relative to corporate earnings and interest rates. And, judging by historic norms (by comparison to salaries and rents,) house prices are overvalued by 30 percent across much of Florida, California and the Southwest and about 20 percent in the Northeast. More about the rationality of these indicators later.

Bob Herbert points to a more urgent matter than the economy, if we judge urgency by the degree of current and long term impact. Bob’s gloomy picture of the shameful state of schools in South Carolina stands as a sad example of the disparity between the haves and the have nots, and, because the poor conditions in South Carolina seem to relate to entrenched and systematic racism, the vast distance between the kind of country we want to believe we live in, and the kind of country we do live in. Talking about a school he happened upon, former South Carolina commerce secretary, Charles Way, says he couldn’t really believe his eyes. “It was the most deplorable building condition that I’ve ever seen in my life. How the hell somebody could teach in an environment like that is really just beyond me.” (Ben Tillman to the right, infamous racist, prominently honored at the SC statehouse.)

A school text book had a volume with the title: “One day man will land on the moon.”

Another dispiriting story reveals that the United States ranks at the bottom of the Group of 8 industrialized nations and 39th among 149 countries for its environmental performance. The United States contributes a quarter of the new releases of greenhouse gas emissions globally.

And how do I reconcile the current economic woes, the chronic, unaddressed problems facing the nation’s poor and its minorities, and the environmental disaster underway with my glee at reading about a $20,000 coffee maker?

I love coffee. I buy premium roasted beans from small companies. I grind them right before I brew. And I take great care to try to get the brew just right. So, the story about the lengths to which coffee houses will go to brew a great cup of coffee drew me in. It made me want to go downtown to Cafe Grumpy’s so that I can try a cup of coffee from an $11,000 coffee maker…

Back to the economic indicators of stock value relative to corporate earnings and interest rates, and house values relative to salaries and rents. Even if we take the calculation on trust, can we agree that these constitue reliable, rational economic indicators? I think not. As the world changes so economic norms change.

Judging stock valuation by earnings and interest rates perhaps works reasonably well over a short time period, but can it be applied consistently, without modification, over a long time period? Here’s one example of why I’m dubious. Technological innovation and the surge in importance of the Internet gives more reason to expect future innovation and technological growth now than ten or fifteen years ago. Isn’t it then appropriate to value companies, in general, somewhat higher than we would have valued them ten to fifteen years ago, because we expect future earnings to be higher?

And the model for judging house values by comparison to salaries and rents must surely change over time, too. As more people squeeze into urban and suburban areas, the relative value of land and space may increase more rapidly than salaries (that are affected by things other than land and space). Also, raw materials for building houses have changed in relative cost, building regulations have changed the way houses are built and what they cost to build, and the skill-sets of the laborers have changed… How can the model work without modification from one period of time to the next?

I’m still ruminating on how I can be so thrilled about a great cup of coffee when the state of South Carolina, for one, discriminates against minorities by so woefully neglecting their education. From a philosophical perspective I understand that I’m not the master of my desires, and that when living in society we need to grapple with our own desires and needs as well of those of others. Ideally I know I should balance my own interests with those of people around me. Which doesn’t necessarily mean disavowing my love of coffee.

If we’re to try to get the balance right, we need more exposure to the problems in our society. The increased public attention given to global warming has finally begun to have an impact on the way we live and the choices we make. We need more exposure to the lingering problems of racism, too. I agree with Bob Herbert that our politicians should be addressing matters of racisim rather than dancing around them.

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On economic expansion, the fear and actuality of recession, and global warming.

Top stories today dwell on the economy: “U.S. Markets Open With Steep Fall,” “Fed Cuts Rate 0.75% and Stocks Swing,” “Bank of America Profit Plummets.” The president’s confirmation last week that he would support a stimulus package didn’t seem to raise anyone’s level of optimism. All this fear of economic recession has me wondering about the much-touted virtue of economic expansion. As stocks tumble, losses post, and job markets shrink there’s an underlying presumption that growth is good, that higher economic value is good. But, if I understand this correctly, economic growth typically means higher consumption driving higher production. The exact mechanism of a stimulus package will be debated, but all seem to agree on a formula that supports economic growth by creating incentives for consumption and production.

The nagging question this raises for me is whether we should be thinking about economic growth in isolation from other important factors, such as global warming. I understand that at the most fundamental level a sharp recession means unemployment with associated misery and suffering; it seems entirely rational and appropriate to ward of an extended economic depression. What I’m curious about is whether economic growth is intrinsically good for the world.

People work for money and use that money to buy goods and services. In large part these these goods and services consume natural resources such as raw materials, power and water. If the economy grows, therefore, we’re consuming more natural resources.

(Even the so-called “virtuous circle” of macroeconomic expansion by which an innovation leads to reduced costs and a corresponding increase in consumption, demands increased consumption of natural resources, unless the innovation reduces consumption of natural resources without generating a higher level of product consumption. A great counter-example of this is the length of time it’s taken to bring more efficient, longer lasting light bulbs to market. A great innovation from a natural resource perspective, but until recently, lousy from an economic perspective — the higher cost and lower profits inhibited the innovation from taking hold for a very long time.)

This is all incredibly obvious, and of course global warming has brought focus to the consumption of natural resources, particularly as the economies of third world countries grow and they become more industrialized, but what about economic growth in general? What about the seeming inevitable equation between growth and consumption? Can we really think about them separately?

I realize that I’m raising questions that are to some extent naive. Consumers consume what they want to consume. So, as with more efficient light-bulbs, influencing production should really begin with an influence on consumers. This is why raising awareness of global warming, disappearing species, and environmental protection plays such an important part in determining the future of the planet. But it strikes me that there can also be important governmental and economic influences on production and consumption, too.

This leaves me with two questions:

1. Is there a good balance between the size and health of the economy and the welfare of the planet?

2. At this time of threatened recession, and in general, does the government have an opportunity to stimulate “green” growth rather than “gray” growth?

In contemplating an answer to the first question, I’m thinking of something quite controversial: When considering the welfare of the planet we live on and feed off, consumption beyond that required for our health, sustenance and shelter is superfluous. If we use resources to make our lives easier or more comfortable we should be prepared to anwer for the consequences of such excess consumption. The size and health of the economy and the welfare of the planet already exist in an imbalance (in developed areas). Shouldn’t we be constantly measuring the degree of that imbalance and trying to keep it steady or falling? Isn’t a “green index” an essential economic measure?

This leads to an answer to the second question: If we were to develop a measure or index for our overconsumption, it would push us to develop strategies for stimulating the economy in ways that helped keep the index steady or falling. Why stimulate the economy indiscriminately? Why not disproportionately stimulate “green” sections of the economy?

If the government is good for anything, let it be good for good things, things that help society and the world.

On a cautionary note, if governments don’t do it, corporations will, and not always to the benefit of society. Is it beneficial to the world that Microsoft has pledged cash for technology training in the developing world? On the face of it, the investment seems noble enough. But Microsoft of course will be training the developing world to use Microsoft systems. Bill Gates is not one of the wealthiest individuals in the world for no reason. And despite Gates’ incredible focus on philanthropy, does his generosity and selfless distribution of a good part of his wealth justify retrospectively the profits that Microsoft has reaped from the unbridled growth in computer systems (much of which has been completely unnecessary — if Windows 95 had been a better quality operating system we wouldn’t have needed Windows 98, Windows ME, Windows XP, and Windows Vista…)

 

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