Category: Economics

I just read the most absurd article on CNN, by Richard Vedder, about “how to slash college costs”. In short, the author proposes the following ways to cut costs: 1) 3-year degrees, 2) allow online courses to count at all universities, 3) cut staffing by 40%, and 4) create an equivalence test, and 5) give student loan authority over to private business (cut out government). I have to say, not knowing someone at all, I couldn’t hate a guy more from what he’s written in a single page.

As one commenter wrote: “This guy has proposed nothing, not a single thing to reduce costs.. but has suggested plenty of ways to lower the quality of education.”

What follows are a few observations about our education system.

1) The cost of college education has risen 498% since 1985. Yet basic consumer inflation has increased only 114% since then. That is a jump of over 4x in costs. (Higher Education Tuition versus Medical Care/Home Price/and Consumer Prices)

2) The quality of education has NOT increased over that same period – in fact, based on current trends, it has decreased.. The United States now ranks 17th in science, 25th in math, and 14th in reading. (World education rankings)

3) Costs have also NOT gone up because of increases in faculty or staff salaries. In fact, faculty salaries have risen by only 6% since 1992, and in the past few years they have actually dropped due to furloughs and cuts. Thus, increased teaching expenses are not the reason for 4x cost increases. (2001-2002 Salaries Report)

4) The real reason for cost increases to students is that state funding has dropped between 35% and 50%! in only 10 years (since 2000) depending on the state. In 1990, states funded 79% of a students education. That is down to 39% now. (UC California Budget)

5) The cost per prison inmate in California is now $47,000/year. The amount of state funding per student is currently $7,000/year, down from $14,000/year.. Over 6x more is spent per prison inmate than to fund student education in this state.

6) Revenue at both public and private schools is increasing due to tuition and fees paid by students. (Trends in College Spending 1998-2008)

What does this data tells us about cutting college costs? 

There is no desire by governments, institutions, administrators, or banks to do so!.. In fact, the opposite trend is found. This is currently a source of wealth creation for these elite groups — at the cost of general education across the country. As shown, the quality of education is not going up, but its costs definitely are! And this is occurring much faster now than in the past.. This is, by every definition, the new economic bubble. 

The goal is the same as it is for health care and housing… Separation of the elite, wealthy class from the rest of the more impoverished public. The average student will no longer be able to afford a college education even if they desire one, or will remain in debt for the rest of their lives. However, the wealth can afford to send their children to the private schools they manage.

What does this suggest for the future? The overall outcome is a nation with a large, rapidly growing gap between the wealthy and the average person in knowledge, experience and skills. Those who already have money, or take on the huge debt, will enter the already competitive workforce for professional and highly skilled jobs. Those who don’t are being forced into an equivalent situation as low-income workers in other nations. Our nation is being silently divided by wealthy and ability.

The most valuable thing that we can learn – right now – is to understand this process. To understand not only that college is becoming much more costly, but why it is. This new educational burden is not due to inflation, or changes in quality, but simply greed. Understand this and you will be able to make wiser decisions about education.. Decide if you really want or need a college for your area of interest. Don’t go to college just because it’s the next thing to do. Have a clear, completely planned 20-year picture of total cost, total debt, and expected costs which is not created by your financial aid office.. Examine very carefully if job growth in your field is expected, and what the current employment rates and salaries are. 

I’ve found that fighting for justice and change is useless against the powerful and greedy. This is not a fight which will be won with picketing, rallies, and demands. The new elite class is too smart for this — we can shout all we like; freedom of speech is a guaranteed right, and while a few activists may have encounters with the police — the net result is that, all this time, invisible conmen and politicians will continue to raise prices.

What we can do, however, is be very careful not to hand over the human capital, or raw cash, they seek in the first place.

As with health care and housing, just like buying a car, the best education is one which has the highest quality versus cost. The wealthy class will tell you that “education is priceless”, just as they will tell you that “health is priceless”. We are tricked into buying into the now-outdated American dream that everything should be within reach. Freedom is not a guarantee, for the simple reason that this goes against everything we know about the realities of life – freedom is by definition an ideal, and while important to dream about, the reality is also that no individual can be free in the context of a society — life is a balance of goals and realities. Other countries already know that actual cost must also be a factor in health and education. Thus Canada has one of the highest quality-to-cost ratios in health care. South Korea has a very high quality-to-cost in education.

The only reason the such an abusive system of tuition increases was able to gain traction is America is that parents and students are largely uninformed about the true, lifetime costs of education both in terms of debt and quality in job placement.. The schools are not going to inform you – it is their job not to.. When we become self-informed, we become free to make good choices.

 

 

 

 

 

 

 

 

As a supporter of Occupy Wall Street, I would like to ask a simple question: How long should we ‘occupy’ the streets of our major cities? Next year? Indefinitely? Some may say, “We will be here as long as it takes!” As long as it takes for what? This immediately raises the issue of what the OWS demands are. What I hope to point out is, having demands are an essential part of a final resolution. Otherwise, we will simply be here forever.

Consider this another way: Occupy Wall Street is not about freedom of speech. Our free speech rights ensure the right to speak publicly on any topic.

Ultimately, the wealthy WANT to make the Occupy Wall Street movement about speech. Why? Because it detracts from the real issue: wealth. If protesters complain the police aren’t allowing them to camp in the park, if the police try to remove them, there are no real demands – we are revisiting speech. If protesters are pushed around, sprayed, they aren’t making any real demands – we are fighting for speech. By making this about speech the wealthy allow for the protesters themselves to avoid finding solutions and making concrete demands to eliminate wall street corruption.

How long should we occupy the streets? Until they let us stay on the streets indefinitely? Let’s not forget the whole purpose of the movement is wealth disparity. But what can we reasonably demand? Certainly, as others point out, the right to a job is not a civil right – the government cannot guarantee jobs. As one writer said, “I knew a girl who dropped six figures in loans for a degree in Women’s Studies, and now complains she can’t find a job. What did she expect? That it would be easy?”

We have to accept that times are changing, globally. A freely available study, “Research on Future Skill Demands”, by the National Research Council (2008), reports that by 2030 up to 60% of our current workforce could be displaced by technology. Manufacturing has already seen a 40% decline in the past 5 years. Can we reasonably demand that jobs are created in –your- area of expertise?

Others claim that we have a right to a share of our country’s wealthy. This is not a reasonable civil right, either. The vast majority of the world is 20x worse off that even the poorest American. Most people in the world have no access to public toilets or clean water. Can we really expect the wealthy to give us a share of America’s money based solely on the idea that we deserve it? The American middle class may have labored hard, only to have the economy drop out, but as a commenter said “You were paid for your work. Your employer has no other obligations to you. You’re welcome to get another job.” The world is changing. Instead of pointing fingers, the question should be, what specific things were done which –should be- illegal?

How long should we occupy the streets? I suggest the answer is actually quite clear. We are unified because of very specific things: bank bailouts, foreclosure, and wall street greed. But we can’t make laws against greed itself. What kind of laws can we demand?

Here are three to start with:
1) Lobbying should be illegal.. The constitution introduced lobbying as means to advocate for the public. Now, the primary use of lobbying is the opposite – it is an advocation against the public interest. We must demand specific reform to lobbying, perhaps outlawing it altogether.

2) It should be illegal for CEOs of major companies to serve on government regulatory bodies in the same field. Some examples are the FDA (Food and Drug Administration), NCI (National Cancer Institute), DOE (Department of Energy), and EPA (Environmental Protection Agency) other. How can a group of people regulate an industry with whom it has a hidden financial interest?

3) Congress must be legally required to pass national debt reform, or be forced out of office. The process of perpetually delaying hard decisions must end.

The Occupy Wall Street movement must remain focused on the goal and not allow media attention to distract us from these specific demands. If we make Occupy Wall Street about freedom of speech our goals will never be met. This type of movement becomes a perpetual, never ending occupation of our cities – hardly the kind of future we hope for. The fundamental purpose of protests is to insist on change.

Living in other countries can provide a lot of perspective on life. This past year I have lived in Copehagen, Denmark, a country with the highest happiness index in the world. Lately, I was trying to understand why its index is so high. On the issues of wealth and economic status, the US and Denmark are similar. One claim is that Denmark has a state supported health system, yet the Danish pay 45% in taxes, whereas in the US one pays for ones’ own medical expenses, so ultimately the cost is similar. Education is one key area, since children’s education is also state supported, but ultimately this comes from high taxes in Denmark as well. The climate is similar, perhaps even harsher in Denmark. Cost of living is actually higher. So what is it?

I’ve come to realize that it is the social model of living which is the cause. What does this mean? It means, quite simply, that people look out for one another – in individual lives, in family, work, and in government – to a greater extent than the US. I actually believe the Danish government has less control over the people than the US, even though republicans in the US would say any government regulation is socialist. The point is, a social society is not necessarily “socialist”. The later term is a throwback to economic models of centralized wealth (e.g. communism). A 50% tax is high, but there are also more or less wealthy Danish individuals, and the country trades in a free market like any other nation. A social model of living simply means that governments, people, companies look out for each other – both in life and in legal terms. This adds a feeling of stability which allows one to feel calm, centered in life.

In the US, the concept of capitalism is adopted to such an extent – especially legally, in business and government, but also individually – that one is in constant fear about what others will do to you. And it is justified. People have no moral qualms about literally stealing from others. Take the US Government Debt issue. The wealth class of the Republican party has essentially told the US people — directly and openly — it is willing to force a default on US debt, or greatly compromise our nation, in order to secure their own private wealth. The message? “We are screwing you. Deal with it.”

Such practices are not limited to government. In an extreme capitalist society, there are always extremists, and they will ruin it for the others. Consider hydrofracking in Pennsylvania and New York. The idea is to force high pressure water into underground rocks, causing deep rock beds to crack and release natural gas. It destroys aquifers, causes seepage, and does other unknown damage. Its a bad idea. Period. (See other sites for details). But in a capitalist market, there are people who are willing and ready to engage in this morally wrong behavior toward others. And the laws will either allow it, or be circumvented to permit it. In the US, the right to individual success trumps social responsibility.

And this is the whole cause of the dilema, unhappiness. One lives in fear that at any moment, some lunatic in politics will cause a default, some lunatic in medicine will place his or her paycheck above their responsibility to the patient, some lunatic in an insurance company will screw with you. Someone may try to rob your house. The lack of social stability is the root of unhappiness in the US – its cause is a decline of moral responsibility to society, incorrectly justified in the right to individual happiness.

So what are some solutions? Having experienced these declining conditions for the past twenty years, I must admit I am not optimistic on a national scale. Our public debate (media), our dialog, our approach to life, does not suggest people are ready to calm down, to relax and settle social issues rationally and with the correct amount of intelligence, focus, and humanity. Especially among those in power.

What can I do if I am an American?
The first thing, I have found, is to realize two things. First, being born American is not actually that great, it is a disadvantage in many respects. One can suffer these issues of social isolation, fear, and even psychological imbalance ones’ whole life due simply to a lack of feeling socially secure with other Americans. Second, its not your fault. I did not choose to be born American, no more than a person in Zimbabwe choose it. One has little or no support for health and nutrition, the other has little or no support for society well being. Which is worse to struggle with? Keep in mind that lack of social well being is not abstract, it means quite literally there are people who want to, and will, make you suffer so they can make a profit. They may not take the food physically out of your hand, but using policy, politics and law, they ultimately will accomplish the same thing for their own benefit. This is the consequence of a ungoverned free market – what we now have.

Unfortunately, the US has become like an emotionally imbalanced teenager. There is a sense of pride followed by a rise of power and self-narcisism leading to a critical, dangerous moment, followed by a crash and release. In the later reflection some lessons are learned but ultimately the cycle will occur again as another person, group, political party, or generation fills that same role. How we teach our children to deal with life, with media, with television and culture – it matters.

How can I protect myself, how can I live a happy life?
The best answer I’ve found for this is to find points of stability in ones’ life. This starts by realizing that, as an American, almost everything you own or have is non-stable. Certainly credit cards, loans, mortgage, stocks, are unstable. Pay these back as quickly as possible. Even things like education, work and children are non-stable. Did you know the last US Debt Ceiling bill eliminates subsidized loans for graduate students? These are loans whose interest rates are not charged while you are in school. All graduate students will now be charged interest during their entire time in school, in addition to the 35% or more rise in tuition experienced in some states. This does not mean you should avoid school, just be clear you understand the real costs of your education, your student loan obligations, and how likely you are to repay them given your career choices. Stability does not mean avoidance of debt, it means responsible, calculated debt.

In the US, people who have more than you will make your life harder. The way to escape this situation is either to find your own sense of stability, or to try another country. In the past, protests were one way to combat this. Protests now are a comedic reference to real protests of past generations, because they are nothing more that pep rallies – few are willing to put their own personal lives at stake for an abstract fight. It is only when we realize, as a society, that justifying personal wealth at the expense of moral social obligations is equivalent to violence, that such efforts will be worth while. Enough people must be at personal, physical risk, for a protest to be effective for real change.

Stability comes from things which are both tangible and intangible, which are difficult for others to affect. Family is one, but notice that having children can create a sense of concern for the future. A house is a symbol of stability, and a grounding point, assuming you own it outright. The best advice to give is: Being American means you must be ready to buffet and respond to the emotional ups-and-downs of the childish, often disasterous, moral decisions of others. Do Americans deserve a better, more responbile government? Yes. Can we demand it? Yes. Are we like to get it based on current views of the individual? Not necessarily.

The best one can hope for is to live a life in which the turmoils, troubles, and disasters of politics and the financial markets are witnessed from a distance. This can be difficult when their decisions affect your job, house, expenses, or other lifestyle aspects personally. The challenge is to perpetually find new stable points. To seek ways to have control over your own destiny, and to do so without harming others. Pay off debts. Get an education, but be prepared for student loans. Buy a house, but only if you know you will live in, be present there, and make it a home indefinitely. Work a job, but be aware that the value of your job may change dramatically in any year. No careers have lifetime guarantees. Have a backup plan. The most unique American quality is the ability to adapt, change, and overcome circumstances. The way to find stability, for an American, is to realize that ones’ ability to rise to any challenge, to resolve it, allows us to continue. It is not as safe or perhaps friendly as having a community and government you know you can trust, it is just a different social model.

From the 1980s onward, great increases in wealth created by the founding generations of this country allowed a growing number of their children to live without effort — that is, devoid of any real personal effort. For a while, life was easy, too easy. Devoid of any sense of emotional responsibility to others, or sense of moral responsibility to make sure ones happiness does not come at another’s expense. Many of these people now control our schools, our companies and our government. Our country is in need of help. But since adults are no longer children, in general those who openly act against the good of the nation, who do not think about how their greed affects the balance of a community or an entire nation, must be replaced.

I personally wish that the US had a stronger moral and social foundation (no, not socialist). Legally and politically, everything points toward an increasing gap between wealthy and poor. Either the wealthy, or their children, ultimately calm down and accept the value to the nation of being open and generous, or the poor are willing to give their lives (quite literally, nothing less is strong enough) to force them to. Nothing less can stop the pattern of emotional ups-and-downs that result from greed at the expense of others.

Is it possible to live outside this emotional cycle. Yes, there are many places in the world to live. Each one is quite unique. None is perfect, of course, but it is a matter of personal choice which social model you choose to live under. Whichever society you live in, it is a personal choice to act kindly and responsible toward others, to use only what you need, to evaluate the impact of your choices on others, and to live within ones means.

Over the past twenty years, one gets the impression that the American dreams of a clean, renewable energy future have been slowly whittled away. Two decades ago, solar cells were still relatively new and held a lot of promise. This was at a time before the Chernobyl and Three Mile Island nuclear disasters, so the American production of nuclear power still reflected a positive outlook on fission power. The transition can be observed very directly as a leveling off in the number of new power plants [http://en.wikipedia.org/wiki/File:Fig_9-2_Nuclear_Power_Plant_Operations.jpg]. For many years, it was also believed that ethanol and other crops could, eventually, with better processes, achieve a cost and efficieny as good as gasoline.

Many of these alternative are now understood to be temporary solutions at best. In an now famous website on peak oil, Life After the Oil Crisis (LATOC), Matt Savinar provides a clear, consise description of how dependent the world is on oil. He shows that nearly all alternative energies are short term solutions at best. This is primarily because of the huge amounts of global energy currently consumed, around 35 Terawatts per year, almost entirely produced from oil. To equal this, it would require nearly 10,000 nuclear power plants, or every inch of California covered in solar cells. Even nuclear, solar, wind and biofuels combined could not match the current energy use of oil.

I believe that recessions are not just financial ups and downs. They reflect a deeper insecurity in the future of a nation, caused by an earlier period of boom which was not founded in reality. The lending market failed due to poor lending practices which were not based on the realities of human behavior. At the end of a crash, there is a point where one questions the basic premises the system. It is a time of re-evaluation, reflection.

We are presently at a point of redefining the American way. As Matt Savinar points out, conservation rather than consumption will be an important part of this. Already, people are shifting toward smaller, efficient cars and away from SUVs. But I think there is a much bigger shift that must take place.

The question is: What do we do now? I mean, practically, what does the American worker do now? Many of the industries which were formerly held in the US are now present in other countries. Pittsburg, PA for example, was once the world center for steel production. Now, steel has shifted to China. Many other markets, not only raw materials but most manufacturing, have shift to other countries.

I’ve heard many Americans complain about these lost industries. However, this should not come as a suprise. The reason is that the exporting of heavy industry is implicit in the American dream. A hard worker, in a steel mill, worked so that his/her children could go to college and avoid having to work in a steel mill. Even if the parents wanted their child to work in the mill, the child would often see a better life in science, computing and non-labor intensive careers. Over the past fifty years, we have intentionally shifted from a labor economy to a service economy.

At present, even the white collar, professional jobs are now being outsourced overseas. The computer industry is finding workers in India and China. Yet this too should come as no suprise. China has been a labor workforce for the past thirty years itself. In an interesting interview with a Chinese CEO, it was asked: “Aren’t the Chinese people interested in the kinds of labor-intensive jobs the United States can bring to them?”. This is the classical American view of China, that we shift industries to China that we are unwilling or uninterested in doing ourselves. However, the answer from China is now: “No. We don’t want the labor jobs any more, we want the high quality life of the service jobs too.” China sees the benefits of a service-based economy and like all post-industrialized nations, seeks to eventually eliminate intensive manual labor from its workforce. While China stil has a very high labor force, it also has one of the fastest growing middle classes in the world.

So, to summarize thus far. The world is consuming oil like crazy, and especially the United States (consuming 25% of total oil production). The US is heavily dependent on foreign oil, and there is a general understanding now that classical alternative energies such as nuclear, solar, wind, and biofuels are at best temporary solutions. So there are no easy alternative energies, and the jobs which would allow us to spend money on oil have mostly been shifted overseas. This is especially true of labor intensive jobs but now increasinly professional jobs as well.

What is America to do? The view presented by Matt Savinar is that things will get much worse. Gasoline may jump by 10x, reaching $30/gal, at which point the US food distribution network will fail since it is largely based on trucking. People will be unable to get food, and will resort to looting. Savinar suggests there may eventually be positive aspects, such as increasing dependence on community, self-reliance, and conservation. I tend to agree that a return to local, self-sustaining communities would be nice, but eventually life must continue to expand, even if it is only conceptually.

Thus, I prefer a different outlook. Consider that in the early 1900s the population of the United States was growing rapidly, yet solutions to food distribution, travel, and infrastructure we essentially unsolved. Rather than follow traditional methods, innovators created the steam engine, railroads, the assembly line, and much more. But it was not easy. It required huge amounts of manual labor, the Industrial age. Our parents and grandparents who built this era ultimately wanted a better future for their children, so they sent us to college while many of them did not. In addition, the Industry age made the United States a wealthy nation. As a result of these two things, my generation (post 1970s) is much more accustomed to things being easier. We don’t have to work as hard physically, we’ve inherited more wealth, and we now have an infrastructure that automatically provides many of our needs very cheaply. How much easier is it now, than in 1910, to get food, water, and shelter? Now, combine this with Rock-n-Roll (and all the genres that followed), which I love but which basically says you can do whatever you want, and you have a recipe for a society which strongly believes it can consume indefinitly and very little responsibility.

Its a natural outcome of what our grandparents struggled so hard for, that we wouldn’t have to work as hard. Our culture has now shifted to the opposite extreme, except that we’re now finding this cannot be sustained. The markets crash, oil pours into the Gulf, banks fail, and the infrastucture our grandparents built is eroding – and we don’t know how to fix it. A supurb example of this is the US Government’s involvement in the BP Oil Spill, remarkable because the US Government, largely responsible for building this nation, currently doesn’t have the physical ability to deal with the practical problems of an oil leak 5000 feet underwater, and must resort to an independent company. NASA is another example, where it is now viewed that independent contractors can build in-orbit vehicles to supply people and resources to space more cheaply than the government can.

In the early 1900s, American innovation built the world it wanted to see. The same opportunity is presented to us now. Except that now we have a much better picture of what that world could be. It cannot be too labor intensive, as it was for our grandparents, because then we don’t want to do it at all, and find or force others to do it. It cannot be too casual or easy either, or we loose the ability to fix our own problems. We also know the form our future labors must take, as the central problem is our energy dependence.

I believe some of these solutions are becoming apparent now. Did you know the US Government currently spends 50%, thats half, of its entire alternative energy solutions budget on the National Ignition Facility? The NIF receives the same amount as solar, wind, biofuel and nuclear combined. Why? Because in the past decade many barriers to fusion that we thought would make it impossible have been overcome. In the year 2010, for the first time a laser system may achieve the pressure needed to fuse a tiny pellet of deuterium (hydrogen) to ignite a reaction that currently takes place only in the sun, resulting in temperature of 7,000,000 degrees F, and an 11 Kiloton output, and more importantly producing more energy than it takes in. Full scale experiments are starting for the first time this year. Fusion, unlike fission, is magnitudes safer because it cannot start a chain reaction. If the fuel supply is stopped, the reaction stops. If successful, this form of fusion can provide enough energy for the next 4000 years, not just the next 40.

Did you know that there is now a solar cell which can be made from toothpaste and jelly? And its cheaper than silicon solar cells, while producing a similar amount of electricity? While traditional silicon solar cells have been around for fifty years, in 2001, the Dye-Sensitized Solar Cell was invented by Michael Gratzel based on observations of how plants perform photosynthesis. The result is a solar cell which is cheap, efficient, and can produce electricity even in low or ambient light. The solar cells are even transparent and can be embedded in glass so that building windows can generate electricity for the building. They are simple enough to make that high school kits are available to build Dye-Sensitized Solar Cells from scratch as class projects. More importantly, the invention is so new that industry has only just started to mass produce them.

We currently conceptualize our dilemma with oil at the center and all these alternative fuels on the periphery, struggling with the giant. We must shift our view. We must not just imagine, but see “alternative” energies at the center of our vision. Stop calling them alternative. We must be able to say: Our primary energy source is the sun. The way in which the energy problems are solved, like NIF and Dye-Sensitized Cells, are very likely to surprise us completely because they will be ingenious inventions.

Then what do we do, what is the new labor of the average person? Its good to have smart scientists, but we need people at every level. We simply need to learn again how to completely replace our infrastructure with new inventions. To mass produce dye solar cells (DSSC) is not so difficult, but to replace every building in the US with dye solar cell windows IS difficult. It has been very difficult to generate the laser power needed for nuclear fission in NIF, but this is mostly a scientific problem. A much more difficult problem is how to restructure our society to build the hundreds of laser fission-based plants that are needed to replace our oil dependence.

After the next hundred years, I can imagine two scenarios. The first possibility is that we don’t learn how to replace our fuel-based energy dependence. In this case we enter Matt Savinar’s version of the world with highly localized, self-reliant communities, resulting in major worldwide food shortages and likely a huge population reduction. The second possibility is that we replace our fuel-based civilization with a fission-based civilization. In this case, we have enough energy to sustain the world population for 4000 years, and this allows us to expand human kind to all the planets and to the stars. Which outcome you favor really depends a lot on what you think is the purpose of being human.

I want to emphasize this is not science fiction. This is happening now. We are soon reaching the world limits of population for a fuel-based civilization, and we are on the brink of entering the next phase. Whether or not we take this path depends on how well we integrate the lessons from the labors our parents and grandparents, and take the steps necessary to see our new source of global energy. While politics will play a part, this is not primarily a political responsibility since the effort needed to shift our infrastructure is too large even for a responsible government (and our partisan government isnt that). Each individual must be able to imagine their own future without oil.

Ayn Rand makes the case that capitalism is the only “objective system of values” (Capitalism: The Unknown Ideal). She distinguishes between three types of social systems: 1) Intrinsic theories – ones in which the ‘good’ is inherent in some things and ideas, which she equates with many religions. These systems are inherently unjust because someone who believes themselves right has no trouble in forcing others to their will. 2) Subjective theories – in which their is neither ‘good’ nor ‘evil’, but that each person may define value for him or herself. She argues that in such systems, individuals would also have no trouble in forcing others toward their will since they would feel righteously motivated by their actions. 3) Objectivism – in which the only good is an evaluation of the rational standard of value of a thing based on the facts. She equates objectivism with a rational, non-personal, basis for a social system.

In Ayn Rand’s view, objectivism is the only theory of value compatible with captialism.

“The objective theory of values is the only moral theory incompatible with rule by force. Capitalism is the only system based implicitly on an objective theory of values. The free market represents the social application of an objective theory of value.”

“In the free market, all prices, wages, and profits are determined – not by the arbitrary whim of the rich or the poor, not by anyone’s ‘greed’ or by anyone’s need – but by the law of supply and demand. A man can grow rich only if he is able to offer better values – better products or services, at a lower price – than others are able to offer.”

According to Ayn Rand, economic problems in the United States are caused by a corrupt application of these ideal principles. That is, she argues that government regulation under the Sherman Act (1890) which established anti-trust to break up monopolies, was a turning point in which the ‘free market’ was manipulated and regulated by the government – a responsibility it should never have had. In her view, the sole purpose of government is to act as “the only legalized use of physical force” to break up internal (civil) and external (foreign) disputes, and that its should have no role in economic markets.

We might begin a discussion by noticing that her concept of an ideal capitalism relies on an ideal democracy as its starting point. The purpose of government, as set down in the Bill of Rights, establishes its role as the only legalized use of force (law and judgement) on the reasoned principle that men in conflict should be arbitrated by a third party, thus removing physical disputes to a central legal power. However, Ayn Rand also extends the principle of rational basis in fact to economic markets. She argues that capitalism had achieved civil rights and freedom of speech, but in fact it was the terms of democracy that did so. Michael Moore notes in his documentary, Capitalism: A Love Story, that the US Constitution makes no mention of economy and trade in the applications of basic rights.

Today, the concept of capitalism is being increasingly questioned, with socialism increasingly favored by the young (35% socialism, 33% capitalism, 32% other, according to Michael Moore). If we are to make solid arguments against capitalism, we should be able to do so on first principles, by examining its weaknesses and problems in relations to our assumptions. Several of these incorrect assumptions can be found in Ayn Rand.

Here are a few of these incorrect assumptions about capitalism:

1. That prices,wages and profits are determined by supply and demand in a free market, and not by greed – This assumes that supply and demand operate freely in all markets. However, in necessity goods markets, such as housing and health care, the demand does not decrease. Therefore, the supplier has a market advantage and may continue to increase prices.

2. That monopolies represent the greatest value to the people – Ayn Rand argues that the ‘monopoly’ is a reflection of the best value of a producer, capable of such a high degree of ‘goods’ that it was able to successfully win over all its competitors. However, this fails to acknowledge that many monopolies found their success through ethically questionable practices.

3. That economic production can increase indefinitely – The issue of unlimited wealth does not appear in the principles of a free market, yet it must be addressed since such an idea is theoretically impossible, and devastating in practice. The problem of indefinite wealth generally translates into unbounded abuse of natural resources, since this is the true source of wealth. Capitalism is largely responsible for many of the environmental abuses in the world.

4. That social systems and economic systems cannot be separated – In an ideal world, capitalism would provide an economic structure while democracy would provide the social structure. In practice, however, the wealthy leverage the social structures to increase their competitive edge in the market. This appears most obviously in the lobbying of politicians for policy, and the outright control of government influence by wealthy banks.

One might argue (such as Ayn Rand), that we have not yet achieved an ideal ‘free market’, and if we were able to do so then capitalism would provide the benefits it promises – an equal balance of wealth according to supply and demand. However, it is precisely its practical limitations which makes an “ideal” capitalism poor in reality. Any economic system must, if it is to be at all useful, take into account its the practical limitations of men if it is to be applicable.

Consider another economic system, that of communism. Ideal communism is the basic principle of the ‘common good’: that each member of society contribute to the common good according to his or her ability, and receives according to his or her need. Notice that this is primarily an economic law, it states how wealth flows in a society. However, in order for it to be accomplished, there must be some centralized state to which the ‘common good’ may be collected. This state is responsible for the collection of the products of society, and also its distribution. Pure communism was never tried in reality, as the December Revolt (1925) which created the Soviet Union was represented by several different movements (the February Revolution to overthrow government, and the Soviets to represent the working people). In practice, the flow of labor for the common good went into the control of the power of the state.

In both capitalism and communism, we see an idealized economic system leading to economic disaster. Although there were many other differences, one primary difference between the United States and the Soviet union was the presence of democracy, which established a principle of equal rights and civil law. It is with democracy alone that we should attribute our success with human rights. The US Consitution makes no mention of capitalism.

And unlike what Ayn Rand would have us believe, it does not necessarily follow that a set of rational principles for human law would apply just as well to a system for human wealth. The primary reason among these is that civil law is established for rights for which any human being would expect to be treated equaly. We can naturally expect a law against men killing another man, since we expect no one else to harm us. If a women is denied a job, we would expect her to be treated equally as there is no fundamental difference between men and women on the basis of labor.

However, we cannot say that the work of all individuals is equal. We cannot reasonably expect that the wealth of each individual is equal since their labor, and contributions are not equal. It is see as unfair that a man who produces nothing benefits greatly, as it is that a man who contributes much gets nothing. Thus in civil theory, as the basis of democracy, we can reason the concept of civil rights. In economic theory, we cannot reason a set of laws which brings about an equality of wealth (communism). Nor can we establish a system of free trade which brings about a proper assignment of wealth by supply and demand (capitalism), since in practice the imbalance of wealth creates an unfair social structure.

This might suggest a simple solution: We use democracy as our social structure, and we find an economic theory that works. Unfortunately, the problem is not so simple. Consider the current structure of China. It is possibly best described as a semi-free economic market, in a semi-socialist state. However, in order for a free market to prosper, it must allow freedom of speech (a basic civil right) since free speech is necessary for technological and knowledge innovation. In order to innovate, knowledge must flow freely. Thus, the economics of capitalism encourages a social structure of democracy because it requires freedom of speech to operate properly. This is, I believe, the key issue which China faces currently (how to ‘captialize’ without becoming democratic). Notice, however, that capitalism does not require the right to equality labor, or to women’s rights. We often mistakenly associate capitalism with democratic principles, but just because captialism encourages some civil rights, it does not mean that it requires all of them. The only way to ensure civil rights is through an explicit democracy. However, a democracy does not determine an economic structure.

We might reduce the problem to a simple experiment: Does the right to happiness include a guarantee to a certain amount of wealth? Franklin Roosevelt addressed this just upon leaving office, where he proposed an Economic Bill of Rights, which included:
– The right to a useful and remunerative job
– The right to earn enough to provide adequate food and clothing
– The right to home and property
– The right to adequate medical care
– The right to an education

Consider the right to home and property. What does it mean if I choose to live in a rural part of the country which is unsettled, with the government required to provide this right? Or the right to an education? It is not difficult to argue that a government should provide a communal source for each of these rights, since the only way to ensure these is to require a central state which can distribute and regulate them. Housing could be made a right, if the government centralized and regulated the price and location of homes. Notice that this is not in conflict with democracy, only with capitalism. In effect, what Franklin Roosevelt was arguing for was a more socialist form of government.

The central problem of our time will be to find a compatible compromise between capitalism and socialism. A completely capitalist economy is unworkable, as it places the power for necessity goods in the hands of the wealthy. A completely socialist economic is also unworkable, as it distributes the wealth of individuals evenly without concern for their differences in contribution and aptitude.

I believe a compromise might exist at the boundary of necessity goods. Notice that nearly all of Franklin Roosevelt’s items in the Economic Bill of Rights are necessity goods: shelter, food, clothing, education. Naturally, he was establishing a principle of economic rights based on fundamental need, while civil rights are based on life and human equality.

A central problem that America now faces is that – on a basic ideological level for many people – can be found in making no distinction between democracy and capitalism. In light of the economic collapse, this creates a paradox. How could a system which is democratic, which brought civil rights and freedom of speech, lead to such a poor and corrupt economic situation? The refuge of many is to step back even further, to turn to religion as a basis for value, yet this takes a step backward from democracy by not using reason to establish basic civil rights. The resolution to the large problem can be found by observing that democracy and capitalism are not one thing, but two: the first is a social system, the latter an economic system.

The concept of the “free market” is being increasingly used by the Right as an argument for unregulated interest rates, reduction in taxes, free market health care, and deregulation of industry. Their central point is that we don’t want big government to interfere with company business, and the reason is that – in the end – the market will balance itself out naturally.

I would like to question this idealized notion of the “free market”.

A “free market” sounds like a good idea. It sounds good, and is ever-present in political speech. America is all about freedom. But what does “free market” mean? The ideal concept of free markets is the basis of capitalism – the idea that supply and demand will ultimately balance one another. The concept of the “free market” also reflects an idealized mathematical notion of how people behave, in that the emergent prices are a natural a “push and pull” of supply and demand. In economic theory this is called “perfect competition”, because it occurs only when there are a large number of customers and a large number of suppliers in a market for goods which are optional purchases. (http://en.wikipedia.org/wiki/Perfect_competition). In a perfectly competitive market, the ideals of a free market essentially exist. This was the economic theory of the 1960s to 1980s.

Whats happening now? The current trend in economics observes that big markets rarely operate in this perfect competition – because human beings are conscious of markets, they seek profits, they shut out competitors, and they corner markets. Consider any large industry, such as movie studios for example. In a “free market”, competitors would potentially appear to fill any niche, and the public would have access to a wide variety at a range of costs – the ideal of perfect competition. In reality, only six studios receive 90% of American film revenues. (http://en.wikipedia.org/wiki/Oligopoly#Examples). This means that you, as a consumer, are effectively not offered a choice. You get to see only the movies that big studios produce and distribute (newer markets, such as online viewing, replace this but their market share is minimal compared to the big six). How is this possible? These six studios work together, they corner the film market, and they control the distribution of their product to theatres. Just try as an independent film maker to get a film shown at a national theatre chain. In reality, due to corporations, most US markets are not “free markets”, they are oliopolies.

I am particularly interested in oliopolies of necessity goods, things which people need to survive such as housing, utilities, and health care. Specifically, what happens when an oliopoly market exists for a necessity good such as health care? By the way, the reason I focus on necessity goods is due to Elizabeth Warren’s Collapse of the Middle Class. All things being equal, the average American will cut costs in flexible items like food, clothing and appliances because these are adjustable. The things that cannot be cut are inflexible necessities such as health care, housing and basic utilities.

In any oliopoly, unlike a free market, a few companies control the majority of the market. This can be seen in music, film, wireless phones, publishing, banking, housing, and health care. The common industry trend in modern capitalism is not the “free market”, it is the oliopoly. When a few companies control a market, they can set the prices however they like. Without regulation, these few companies will work together to fix high prices, increasing profits for all of them. If the product is a necessity item, such as health care, the consumer has no choice but to purchase it (i.e. not free). Consider a hospital visit. Do you have a choice of which hospital you will be taken to? Usually not. Do you have a choice of the costs for that hospital? Usually not, since nearly all hospitals have exceptionally high costs (see my other article on The Hidden Costs of Health Care).

Thus, we must first accept that a “free market” is not the baseline reality of American capitalism today: it is an oliopoly over necessity goods. What happens when a country is driven by oliopoly markets that exists in multiple industries for these necessity goods?

Necessity goods are, by definition, things people cannot do without. Thus, the average consumer has no choice but to go into debt. Since the oliopoly markets (wealth companies) control the production of these necessity items, they can set high prices despite peoples’ inability to pay. We see this exact thing taking place right now. Inidividual Americans going into debt over housing, over health care, and over debt itself (credit cards).

We might then return to the original claim, that the “free market” will correct itself. Since we know that free markets are a myth, we must ask instead if oliopoly markets over necessity goods are self-correcting? That is, the Right claims that over time, the current markets will set the proper ratio of supply and demand, stabilizing prices. Although America is demonstrably not a free market, we can ask if the markets we do have – these oliopolies – are self-correcting?

Self-correction would mean that at some point in the future, prices return to acceptable levels. However, the definition of an oliopoly is that a few companies control the production and prices of necessary goods. Since they are necessary, the consumer demand is fixed at a high level, so these companies are guaranteed no drop in demand. As demand remains high, and competitors are shut out by the large controlling companies, prices can remain high.

The end result to the average consumer is that they are forced into debt. As the prices for necessity items remain high, this debt is likely to increase no matter how hard they work. Since the oliopoly companies have shut out competitors, it is difficult for the entrepreneur to create new business to compete with these. Thus, the individual consumer is in perpetual debt, never able to fully repay it, and locked into a labor situation where they must work to repay on-going debt. Perhaps they acquire a dream job, one that pays well enough to erase some of this debt, but it only continues so long as the job is available, and so long as there is no medical emergency, so long as both mother and father make a decent income, and so long as interest and mortgage rates don’t climb.

What is the best word to describe this situation? Clearly, it is not “free”. A more suitable word is slavery. Once described as possibly the only system capable of true freedom, a capitalist system which consists of oliopoloy markets over necessity goods is effectively a form of modern slavery. Our current system is a non-ideal capitalism in which the working class has no choice but to be perpetually in debt to the wealthy. While other freedoms may exist, such as civil rights, and free speech, which are hard won outcomes of the capitalist ideal, the current capitalist oliopoly is a type of debt-slavery. I say a type of slavery, what do i mean?

Consider the Britannica encyclopediae definition of slavery: “Slaves can be held against their will from the time of their capture, purchase or birth, and deprived of the right to leave, to refuse to work, or to demand wages.”

I am not arguing that debt is physical slavery. Americans are free to move around, free to change jobs, and free to refuse work. What the average American currently cannot escape is debt. The American dream of being an innovator, of rising on ones merits to pursue a dream, is increasingly difficult when the majority of ones’ time must be spent working a job so that debts can be repaid, and when large companies control the market on businesses one might wish to pursue. Interest rates on necessity items ensure that for many Americans this debt will rise over time. And this debt continues to rise as necessity goods are priced and controlled by a wealthy oliopoly. This is not physical slavery per se, it is debt-slavery.

Without control or regulation, health care will remain at a fixed high cost, since these companies have no reason to lower them, and there is no market-corrective mechanism to change their behavior. The concept of the “free market” is a myth carried over from the early days of captialism, and it no longer reflects the present situation. Currently, necessity-goods markets in capitalism are a mechanism for the wealthy to exert a form of debt slavery over the poor. Lets stop using the term “free market” when arguing against regulatory policies intended to help the American public. It’s going to be very difficult for our country as a whole to compete in international market if we continue to cripple the American middle class. For those who still hold to some market idealism, you are welcome to explain by what mechanism a hospital will be ‘naturally’ caused by the market to reduce its rates to less than $2000 per day?

I was at a University of California (UC) rally today, March 4th, in Santa Barbara, as a graduate student, where there was a record turnout for this campus; over 500 people showed up to protest a 35% student tuition hike and 10% pay cuts to faculty. A significant turnout for a campus protest.

The protesters gave a number of largely expected speeches: “We won’t stand for tuition hikes!”, and “Let us send the UC Administration a clear message that we won’t put up with this!”. Unlike rallies in the past, people were genuinely frustrated that tuition would go up by 35%, effectively pricing education out of range from many students. The number of students was the unique aspect, for a campus that is relatively quite there was genuine frustration over tuition hikes.

What was the university response? The Chancellor drafted a message, read at the rally itself (by someone else): “We are dedicated to finding solutions that meet the educational needs of all students.” – essentially a write-off. The police were present and casually observing. All in all, it had the feeling of a casual theme party, with some serious causes at heart (more so than past events), ending in a sense of accomplishment that a rally this large had even taken place at all.

So what was missing? Dedication to serious change. The reason civil disobedience was so effective in the 1960s was because students were willing to physically disrupt services, even go to jail, for causes that affect them so deeply. The one thing that was not raised even once at this rather large rally (for its location) was a call to civil disobedience, the specifics of what is necessary to actually force changed, as opposed to just having a party to talk about it. The basic nature of any civil unrest is: you have to be willing disrupt services if you want real change. What effect does a signature sheet of 300, 500, 10000 names have on a politician? I would argue none, especially University administrators which are less visible than public figures. This is easily evidenced by Jim Bunnings blockage of unemployment benefits. Despite support from a bipartisan majority in both the senate and house he was able to block a major unemployment bill. Politicians aren’t held accountable to public majority. Nor will the UC Administration or State of California really even blink at a name sheet of protestors.

So, I am asking for open comments below: Despite issues which genuinely affect Americans, the public, and students – Why don’t we see more civil disobedience? The excuse that people don’t care is not really valid since, as this rally shows, people do increasingly care during a recession – enough so that they’re willing to rally in large numbers. I’m ask for comments below: Despite widespread bankruptcy, clearly bad government and state policies: Why do you think Americans aren’t willing to engage in real civil disobedience, that is disrupting institutions/companies beyond merely meeting for rallies? Clearly its called for, since over and over again, the needs of the middle class are being pushed aside by corporate interests: 1) The banking bailout was paid for by American taxes, 2) Bipartisanship has repeatedly blocked real health care reform, 3) States are dramatically cutting education costs, 4) Health insurance companies continue to burn americans, 5) Banks aren’t showing new loan fluidity for home owners, etc.

Open comments below: Why aren’t Americans willing to actively disrupt the system as they did in the 1960s? (Remember: Not caring is not sufficient, as current trends show people do care about the issues.)

FOLLOW UP (March 9th):

After writing this article, I observed that protests throughout the country numbered in the hundreds of thousands on campuses across the US. At UC Berkeley and the University of Minnesota, in particular, student protesters went as far as blocking interstate traffic in protest of rising tuition. Thus, while Santa Barbara did not observe any civil disobedience, there was some taking place in other parts of the country.

As one commentor mentioned: “I would be interested to know what kinds of civil disobedience would be actually productive of change.” This makes a major point, I think. I am not an advocate of civil disobedience for its own sake. Civil disobedience does not imply violence. It must be designed to serve a particular purpose. It follows that violence accomplishes nothing as well as there are many other forms of civil disobedience which are more productive.

Thus, a proper question would be: What forms of civil disobedience would force educational institutions to reconsider tuition hikes? The answer, I believe, is that it is necessary to disrupt educational services themselves: the operations of institutional administrations. This is why I find the blockage of interstates somewhat disorganized – the disruption of traffic does nothing to the educational institutions that we wish to affect. The state itself, as a much bigger entity, is only minimally affected by a temporary disruption of traffic which it can more easily restore with physical force.

Hosting sit-ins in the buildings of educational administrations is likely to be much more effective. This was recently the strategy taken here at UCSB when the first round of tuition hikes was announced, and around 50 students organized a sit-in in the administrative offices. The result was that, on the second day, police arrived and demanded that “students remove themselves to a different location or face arrest.” The following day, the student body had relocated. This shows that several things are needed for civil disobedience to be successful: 1) a clear plan for civil disobedience, focused specifically on the institution one wishes to change, 2) sufficient numbers of people to make disruption effective, and 3) the will to follow through.