Obligations

June 14, 2020

by Steve Stofka

Here’s a question that comes up in our public discourse. What obligation does Jeff Bezos, CEO of Amazon, have to the workers at the company? Amazon is a public company as well. What about the obligation to shareholders of the company’s stock? What obligation does Mr. Bezos have to the personal capital – money, knowledge, time and risk – that he has invested in the company?

Mr. Bezos is one of a number of people who have helped engineer an extraordinary transition into today’s digital age. Bill Gates, the founder of Microsoft, is another example familiar to readers. Both men have donated billions of their wealth to charity and public causes, including health care and climate change.

Each month these titans of technology implicitly send many of us a dividend check. We receive the dividend whether we own Amazon or Microsoft stock. The dividend is not included in government survey data because it is hard to quantify. The dividend is our time and time is money.

To understand this analysis, let’s step into an alternate reality, one familiar to older readers. Payments are done with cash and checks. Few merchants accept credit cards. Checks take 5-7 days to clear. There is no mail-in banking or electronic deposits. There are no picture IDs. We have stepped into a reality that looks like 1980.

This world is rocked with a global pandemic. Congress passes a relief and stimulus bill that provides money to each adult in the country. We all wait for our pandemic stimulus checks. People steal the checks out of the mailboxes of people with common last names like Smith, Sullivan and Gonzalez. If the thief does not share that last name, they can sell the check to underground brokers who will find someone with that exact name. 

Once we receive our stimulus checks, we go to the bank and stand in a long line. We always bring something to read or a crossword puzzle to pass the time while we wait. We are practiced at waiting.

If we have a checking or savings account, we can deposit the stimulus check but not cash it unless we already have the money in our account to cover the amount. We cannot spend the funds until the government check clears in 5-7 days. 

After 3 days we start calling the bank to see if the funds are available. The teller is polite but no it hasn’t cleared yet.  After a few more days it clears and we can write a check to pay our rent but there is a late fee. Some us went to a paycheck store and cashed our check after showing 2 forms of ID. Some will take a utility bill as one form of ID. They charge a fat fee as well.

Most of us enjoy the convenience of modern banking and payment services without paying much attention. Little of that time saving convenience is captured in government surveys.  How much time do we save every month? 4 hours? 8 hours? What is that convenience worth? That’s our technology dividend.

Let’s do another common task in our imaginary world – send an email. We need to return a form and we want a record of our communication so we don’t use the phone. We go down to the public library, where the librarian faxes a scan of our paper (Borth, 2020). If we have a message but not a form, we can go to the telegraph office and they will send the message to another telegraph office where the recipient can pick it up.

Since we are nearby, let’s go to the Post Office to get stamps. A fifteen minute wait but we are practiced at waiting. Once we are done at the Post Office, the office supply store is just two blocks away. We need some new typewriter ribbon. Our essay for school is due next Monday and typed papers get a ½ grade bonus. Oh yeah, we want some typewriter ink erasers and a box of paper. The total is a half day’s pay for a person working at minimum wage.

The post office, library and office store are all closed by 5 or 6 P.M. and are not open on weekends, so we take some time off from work to get all this stuff done. Either we call in sick and take the whole day off or fake being sick after lunch and take the afternoon off.

The grocery store closes at 6 PM on weekdays, too late to do shopping after work. It is closed on Sundays, so we do our shopping on Saturday. There are long waits at the cashier but we are practiced at waiting.

All of this inconvenience took time. An average wage in 1980 was almost $7 an hour, about $22 in today’s purchasing power (BLS, n.d.). How much is my technological dividend each month? Let’s make the math easy and call it $100, almost 5 hours of time saving each month.

Let’s return to our question of obligation, but ask it of ourselves – do we have an obligation to donate our technological dividend each month? This could be in the form of time or money. Decades ago utility companies in New York State charged urban customers higher rates to subsidize rural customers living in areas where providing service was more expensive. “We are part of a larger community. We share the burden,” my mother replied to my complaint that this was unfair. How many of us have that sense of community?  

We are far better at recognizing the obligations of others than our own. We are more comfortable discussing the duties of others. In the Sermon on the Mount, Jesus spoke of the human tendency to notice the speck in another’s eye and disregard the splinter in our own eye. That was 2000 years ago. In the past two decades, we have seen many changes in our daily lives but the essential qualities of our nature have changed little in two millennia.

2500 years ago, the Greek philosopher Plato asked what are our obligations. We are still working on the answer. Plato, give us just a few more centuries and we’ll get back to you on that.

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Notes:

Photo by Tingey Injury Law Firm on Unsplash

BLS (n.d.) Average Hourly Earnings of Production and Nonsupervisory Employees, Total Private, FRED Series AHETPI. Federal Reserve. Retrieved from https://fred.stlouisfed.org/series/AHETPI

Borth, D. E. (2020, February 18). Fax. Encyclopedia Britannica. Retrieved from https://www.britannica.com/technology/fax

Capitalism and Politics

February 21, 2016

Capitalism

Growing income inequality, and extreme disparities of wealth in a capitalist economy prompted this 2013 speech by David Simon, the writer of the HBO series “The Wire.”  Mr. Simon attributes the plight of an economic underclass to thirty years of unrestrained capitalism.

Simon confuses capitalism with politics. When the politicians and agencies in Washington amass ever more power and draw corporate lobbying money to Washington, that’s politics, not capitalism.  When taxpayers bail out big banks for making stupid bets, that is politics, not capitalism.  When large companies like Archer Daniels Midland and Exxon receive generous subsidies from taxpayers, that is politics, not capitalism.

Cronyism contaminates whatever political or economic system it infects, be it capitalism, socialism, communism or fascism.  Cronyism and factions have infected every human society from the Assyrians of 4500 years ago to the present.  Knowing how destructive these twin human traits were, James Madison, chief constructor of the U.S. Constitution, crafted a system of checks and balances to provide a legal boxing ring for the various factions to punch it out.

Simon sees the economy as a Manichean battle between capital and labor, a model first proposed by Marx.  The battle is more accurately described as a triangle of capital, labor and political power.  Capital and labor are the two productive components of the economy, vying for legal favors from politicians. Capital and labor must push and shove for a more advantageous place in a courtier’s line before the political princes and princesses, kings and queens in the capitols of the world.

With much of the productive capacity of the world weakened or destroyed by World War 2, most of the world’s capital flowed to the U.S., which became the economic engine of the world.  With little global competition, workers in the U.S. had strong bargaining power, able to win pay packages of $200,000 (in 2015 dollars) to install parts on an assembly line.  Public labor unions flexed their legal bargaining and striking power to win pension packages that paid them almost full salary for the rest of their lives.

With few challenges from the rest of the world, management at U.S. companies became undisciplined, unfocused and uncompetitive.  The big three automobile manufacturers influenced politicians who passed tariffs which protected the vehicles produced by those manufacturers.  Tariffs on imported pickups and cargo vans still insulate domestic manufacturers from competion.  Like the automobile manufacturers, aerospace companies like Lockheed cracked under the weight of inept business planning and execution.  The demands of their labor force added to the strains.  Crippled by chronic cronyism, New York slid into bankruptcy and sought a bailout from the Federal government.

In the 1950s and 60s, I grew up in a union family, in a union neighborhood in New York City.  I accepted the nepotism and bribery in the union shops where I worked.  They were a fact of life along with housing segregation and sex discrimination.  The building trades were riddled with union cronyism and “tips” to building inspectors. Repeated strikes by city workers made daily life unpleasant.  Trash piled up in the streets, mass transit didn’t work and it could take an entire day at City Hall to renew a driver’s license.

In the 1960s and 70s, whole sections of New York, Chicago, Detroit and Philadelphia were unsafe to walk in, to live in or to work in. Folks like radio and TV host Tom Hartmann and Senator Bernie Sanders find it convenient to leave out some history when they talk about the 60s and early 70s as a benchmark of fairness for working people.

In the 1970s, the problems of the past two decades were brought to a head by the oil embargo, the recession of 1973-74, wage and price controls, the Watergate scandal, and rising inflation that would near 10% by decade’s end.  In 1971, Lockheed was bailed out by the U.S. government, a precedent that would be followed by others in the coming decades.

As European countries continued to rebuild their manufacturing and financial capacities, Japanese manufacturers took advantage of a new technology, transistors, to build smaller and less expensive electronic TVs and radios.  Their automobiles posed a weak but growing challenge to the dominance of U.S. manufacturers. In 1979, the three cronies of U.S. capitalism – organized labor, capital and politics – renewed their pact when Congress bailed out the automobile manufacturer Chrysler.

In the 1980s, the financial industry, the “bookies” of capitalism, began a decades long courtship of politicians in Washington, competing with organized labor and capital for political favors. The decade began with back to back recessions, 8 – 10% interest paid on savings accounts, 9 – 10% mortgages (a deal!),  and small business loans at 14% (secured), or 21% (unsecured) interest rates.  Small business owners worked extra hard  to compensate for the high interest rates paid on business loans.

Several Social Security tax increases were passed, taking an every bigger bite out of paychecks and profits.  A lot of us muttered about taxes.  There were 10 to 15 tax brackets, none of them indexed for inflation so that most of a raise or some occasional overtime went to Uncle Sam.    For decades, fat cats had been using tax dodges – legally – to escape taxes.

Sensing a growing discontent among voters at the unfairness of the tax system, politicians deliberated for several years before passing a tax reform bill in 1986.  Although tax rates were reduced for the wealthy, they lost many of their tax shelters.  Any change impacts both the incompetent and the dishonest, but especially exposes those who are both incompetent and dishonest.  The loss of tax shelters revealed a large network of scams in the financial and real estate industries that ignited the Savings and Loan Crisis of the late 1980s and early 1990s.

Declining union membership coupled with the growing political influence of the financial industry meant that unions could no longer afford to keep up with capital in the scuffle for treats from Washington.  Politicians protest that they too are victims of the “pay to play” system of American politics but efforts to enact a system of public financing of elections have been unsuccessful.  Why?  Because the system fattens the wallets of too many politicians.  If a few do lose their gerrymandered seats, they often find jobs lobbying the very politicians who replaced them.

The task of politicians and partisans of both major parties is to first craft the problem. Is the problem 1) greedy capitalists, 2) the immoral redistribution of income, 3) an overabundance of regulation that is stifling business growth, 4) income inequality, 5) too much power concentrated in the Federal Government, 6) too much money in politics, 7) too much taxes, 8) too little taxes, 9) ineffective or inadequate Federal regulation?  Pick one, or pick several. Make up your own.  The problem is that people can not agree on the problems, much less the solutions.

The essence of capitalism is that it has one metric – the return on capital which directs the flow of capital.To the champions of capitalism, this simplicity of feedback is the virtue of capitalism.  To the detractors of capitalism, this primitive mechanism is a bane.  Socialist and communist planners insist that an elite can direct a society’s capital for the greatest good.  They offer a top-down approach in contrast to the bottom-up solution design that a capitalist system offers.  Because capitalism does not present a unified solution for a society’s problems, some people reach for socialist and communist solutions presented by the few only to find that those solutions benefit mostly the few.

East vs West

In an op-ed in the Financial Times 12/28/09 the economist, Niall Ferguson, climbed on a tall mountain and looked back on the past 500 years.  He listed 6 key traits that have given the west an edge over the east in these past five centuries: “the capitalist enterprise, the scientific method, a legal and political system based on private property rights and individual freedom, traditional imperialism, the consumer society and what Weber probably misnamed the ‘Protestant ethic of work and capital accumulation as ends in themselves.'”

The Commons

Several hundreds of years before Adam Smith wrote his seminal work “The Wealth of Nations” (full text ), England wrestled with the Problem of the Commons, which is the title of a book by Gordon Marshall.

“The use of commons (publicly available land on which farmers graze their cattle) becomes a problem when one such farmer reasons that he or she can expand his or her herd since this small addition to the total stock will contribute little harm to the available pasture. However, if other farmers reason likewise, these incremental additions to the stock using the land lead to overgrazing and thus the destruction of the resource itself. In other words, if each individual in this situation rationally pursues his or her own short-term interest while disregarding others similarly pursuing theirs, then the long-run consequence is that everyone loses their share in the collective resource.” (GORDON MARSHALL. “Problem of the Commons.” A Dictionary of Sociology. 1998. Encyclopedia.com. 23 Sep. 2009)

Communism and other forms of collectivism try to solve this thorny problem by eliminating one of the sources of the conflict, private property. In an ideal form, free market capitalism denies the existence of the commons, thereby eliminating the other source of the problem.

Between those two extremes lie various attempts to form societies to manage, not solve, this enduring struggle, allowing the two competing interests of private and public to wrestle.

Capitalism Vote

In November, the BBC released a survey of almost 30,000 people around the world about their views of capitalism. Twenty years after the fall of the Berlin Wall and the much vaunted “victory” of capitalism, those responding to the survey had mixed reviews of free market capitalism. That might not surprise many in the U.S., but what does surprise is that only 25% of respondents in the U.S. thought that capitalism was working well.

Over half of those surveyed thought that regulation and reform could help solve capitalism’s problems. Two thirds of respondents wanted governments to take a greater role in redistributing wealth.