Tuesday, January 1, 2013

The Price of Civilization

    This book had a profound influence on my understanding of the liberal perspective concerning several key issues that plague humanity.  Namely, universal health care, poverty and education.  I expected Jeffrey Sachs's book to be one of obtuse liberal rhetoric, perhaps like Raj Patel's The Value of Nothing, I thought he might suggest something similar to protein food rations to help solve food distributions.
    On the five core ideas of mixed capitalism:

  • Markets are reasonably efficient institutions for allocating society's scarce economic resources and lead to high productivity and average living standards
  • Efficiency, however, does not guarantee fairness in the allocation of incomes
  • Fairness requires the government to redistribute income among the citizenry, especially from the richest members of the society to the poorest and most vulnerable members
  • Markets systematically under provide certain "public goods" such as infrastructure, environmental regulation, education and scientific research, whose adequate supply depends on the government
  • The market economy is prone to financial instability, which can be alleviated through active government policies, including financial regulation and well-directed monetary and fiscal policies
    "That year, Ronald Reagan won the presidency on a platform of rolling back the role of government.  Across the Atlantic, the UK's new prime minister, Margaret Thatcher, stood the same.  Together, Reagan and Thatcher launched a rollback of government the likes of which had not been seen in decades...
    The main effect of the Reagan Revolution, however, was not the specific polices but a new antipathy to the role of government, a new disdain for the poor who depended on government for income support, and a new invitation to the rich to shed their moral responsibilities to the rest of society.  Reagan helped plan the notions that society could benefit most not by insisting on the civic virtue of the wealthy, but by cutting their tax rates and thereby unleashing their entrepreneurial zeal."
    "In modern scientific terms, the invisible hand of the marketplace is called a self-organizing system.  A highly complex and productive system can create an orderly division of labor-- and benefit for the entire population-- through the self-interested actions of the individual actors of the system.  There is thus no need for a central power to move the society's resources here and there."
    "The war on Poverty had its most lasting effect on two groups, the elderly and African Americans. Medicare and the expansion of Social Security effectively ended the persistent high poverty among those over sixty-five.  In 1959, the elderly poverty rate stood at 35.2 percent; it fell to 25.3 percent by 1969 and just 9.7 percent by 2007.  African American poverty rates fell from 55.1 percent in 1959 to 32.2 percent in 1969 and 24.5 percent in 2007.
    One more crucial factor made possible the source in social programs during the period of the 1960s:  the availability of existing government revenues to pay for them.  Up until the mid 1960s: politicians could enact new social programs without having to raise taxes as a share of national income for a simple but powerful reason:  the federal tax system that emerged from World War II and the Korean War was able to collect 18 percent to 19 percent of GDP in revenues and therefore to support a roughly equivalent level of spending; as defense spending declined after the Korean War, non-defense spending had room to expand."
    "At the aggregate level the Reagan Revolution did not shrink the federal public administration, but it did...stop it from expanding.  The federal civilian bureaucracy had 2,109,000 full-time-equivalent civilian employees in 1981.  the same in 1998, and nearly the same over the next twenty years, with an expected 2,101,000 full-time equivalent civilian employees in 2011.
    In terms of taxation, total federal revenues as a share of national income in 2007 stood at 19.6 percent of GDP, slightly lower than the 21.7 percent of GDP in 2007, down slightly from 14.8 percent of GDP in 1980.
    The larger shift from Reagan onward was across the categories of domestic spending...discretionary civilian spending declined from 5.2 percent of GDP in 1980 to around 3.6 percent of GDP in 2007.  mandatory spending, mainly transfer programs to individuals such as Medicare, Medicaid, Social Security, and veterans' benefits, grew slightly from 9.6 percent of GDP in 1980 to around 10.4 percent of GDP in 2007.  Thus the Reagan Revolution set into motion a squeeze on government investments in areas such as education, infrastructure, energy, science and technology, and other productivity enhancing areas, while leaving mostly untouched growth of transfer to individuals for health care and retirement."
    "The notion that the private provision of public services will automatically deliver more value for money than the direct government provision of services is built on a series of confusions.  Most of the services in question are public goods, so that private competition is inherently lacking, Government outsource is therefore tantamount to converting a public monopoly to a private monopoly, with no competition regarding the quality of services.  Nor does the free-market ideology acknowledge the pervasive abuses of the contracting process.  Contractors are often selected fraudulently as the result of bribes or on political grounds in return for campaign contributions.  Congress routinely pays for expensive weapons systems that are opposed by the Pentagon, because local military contractors win the political backing of their congressional delegations."
    "One of the greatest and most interesting confusions involves the real burdens and benefits of federal taxes and transfers.  The red states of the Sunbelt tend to be the great opponents of federal taxation and spending, no doubt partly the legacy of southern resentment of federal rule.  The residents of these states generally don't realize, however, that they are the leading net beneficiaries of today's federal taxes and transfers.  The millionaires and billionaires live in blue states...and their income taxes support the medicaid, disability, and highway programs of red state residents."
    "The main reason for America's majoritarian character is the electoral system for congress.  Members of congress are elected in single-member districts according to the "first-past-the-post" (FPTP) principle, meaning that the candidate with the plurality of votes is the winner of the congressional seat.  The losing party of parties win no representation at all.  The FPTP tends to produce a small number of major parties, perhaps just two, a principle known in political science as Duverger's Law.  Smaller parties are trampled in first-past-the-post elections."
    On the mindful society...one needs mindfulness of:

  • self: personal moderation to escape mass consumerism
  • work: the balancing of work and leisure
  • knowledge: the cultivation of education
  • others: the exercise of compassion and cooperation
  • nature: the conservation of the world's ecosystems
  • future: the responsibility to save for the future
  • politics: the cultivation of public deliberation and shared values for collective action through political institutions
  • world: the acceptance of diversity as a path to peace.
    "First, buy experiences instead of things...Second...use our incomes to help others instead of ourselves, because as hyper social animals, "almost anything we do to improve our connections with others tends to improve our happiness as well." Third, buy many small pleasures instead of a few big ones...Fourth, buy less overpriced insurance, because we adjust better to adverse shocks then we suppose.  Fifth, pay now and consume later...Sixth, be attentive to the details of a purchase, since they may disproportionately affect the happiness of the experience.  Seventh, beware of too much comparison shopping, since I can focus our attention on unimportant distinctions.  Eighth, listen to others about what can bring happiness.
         "So, let us not be blind to our differences-- but let us also direct attention to our common interests and to means by which those differences can be resolved.  And if we cannot end now our differences, at least we can help make the world safe for diversity.  For, in the final analysis, our most basic common link is that we all inhabit this small planet.  We all breathe the same air.  We all cherish our children's future.  And we are all mortal" 
-John F. Kennedy
On goals and targets

  1. Raise Employment and the quality of Work life
    1. Reduce unemployment to 5 percent by 2015
    2. Improve governance of CEO compensation
    3. Guarantee paid maternity and paternity leave in all firms of a hundred employees or above
  2. Improve the Quality of and Access to Education
    1. Raise the share of twenty-five to twenty-nine-year-olds with a  bachelors degree to 50 percent by 2020
    2. Raise the U.S. ranking in global test scores to within the top five in all categories, reading, science and mathematics
  3. Reduce Poverty
    1. Cut the national poverty rate to 7 percent by 2020, half of the 2010 rate
    2. Reduce the share of America's children growing up in poverty to below 10 percent by 2020
  4. Avoid Environmental Catastrophe
    1. Reduce America's greenhouse gas emissions from 2005 to 2020 by at least 17 percent
    2. Endure that low-carbon energy supplies account for at least 30 percent of U.S> power generation by 2020 and 40 percent by 2030
    3. Have a 5 million electric vehicles on the road by 2020
  5. Balance the Federal Budget
    1. Reduce the budget deficit to below 2 percent of GDP by 2015
    2. Eliminate the budget deficit by 2020
    3. Stabilize government health care outlays at 10 percent GDP
  6. Improve Governance
    1. Provide public financing for all federal elections
    2. Limit corporate financing of campaigns and lobbyists
    3. End the revolving door
    4. Consider constitutional amendments on term length and limits
  7. National Security
    1. Ed the military occupations of Iraq and Afghanistan
    2. Re balance the outlays on defense, diplomacy, and development
    3. Create by 2012 a national security strategy in line with National Intelligence Council's Global Trends 2025
  8. Raise America's Happiness and Life Satisfactions
    1. Establish national metrics for life satisfaction
    2. Raise life expectancy to at least eight years
    3. Move from twenty-second to top five in least corrupt countries
    "It is easy to lose sight of the ultimate purpose of economic policy: the life satisfaction of the population.  That ultimate goal should be unassailable for a country founded precisely to defend the inalienable right to the pursuit of happiness.  Yet not only do we miss myriad opportunities to promote happiness through our collective undertakings, we even miss the opportunities to measure happiness so that we can gauge how we are doing as a nation.  Our fixation on GDP/GNP crowds out our attention to more important indicators."
    "There are three main sources of federal revenues.  Roughly 8 percent or so of GDP in 2015 will come from personal income taxes, around 6.3 percent will come from payroll taxes for social security and Medicare, and 2.2 percent from the corporate tax.  The rest, around 1.5 percent, will come from a  variety of excise and other taxes.
    Under current law Social Security will account for around 5 percent of GDP.  On current trends, health care spending will account for around 6 percent.  The mandatory spending, such as unemployment insurance, disability pay and the Earned Income Tax Credit will account for another 2 percent.  Military outlays will absorb 4 percent, and interest payments on the publicly held government debt will amount to around 3 percent.  I assume that discretionary civilian spending will account to around 4 percent of GDP... In total, therefore a reasonable baseline...puts total spending at around 24 percent of GDP.
    The single most important point about this accounting is the following:  The budget baseline revenue of around 18 percent of GDP will not even cover mandatory spending (13 percent) plus military ((4 percent) plus interest on the debt (3 percent).  This means that on the baseline, all civilian discretionary spending, and then some would have to be paid for with borrowed money.
  Take away is-- the nation needs to find 6%.
    "The public believes that means-tested spending is mainly in the form of welfare payments for the (undeserving) poor.  That is simply not true.  Medicaid (health care for the poor) constitutes the largest of means-tested programs, 60 percent of the total and equal to around 2 percent of GDP.  There is no broad public support for ending health care for the poor.  Food stamps constitutes the next largest program, roughly 0.5 percent of GDP.  Here again, there is no public outcry to take food off the table of the poor.  The third program is the Earned income Tax Credit, which rebates taxes to poor working families.  It s widely regarded as an important incentive to work for the poor.  It constitutes around 0.3 percent of GDP.
    Finally comes the welfare program that has been most contentious for decades: aid to poor families with dependent children.  Welfare...makes up only 3.5 percent of the means-tested programs and just 0.1 percent of GDP.
    The upshot is that we could eliminate foreign aid, earmarks, and welfare payments in the TAN program entirely, and the combined effect would be to save just 0.5 percent of GDP out of a structural deficit of 5 to 6 percent of GDP.  Unless we are willing to slash Social Security, Medicare, Medicaid, veteran's benefits or food stamps to the bone, we have to look elsewhere to close the deficit.
    "The deficit commission assumed that total spending and revenues could settle at 21 percent of GDP.  I did so because it utterly neglected the need for existing, much less new, civilian spending in key areas such as infrastructure, education, training, and R&D.  It is relatively easy to balance the budget if one presumes that new kinds of public spending are not needed.  Yet that is no way to pay for civilization.
    On tax solutions...
    New York State, for example, levies a transfer tax on the sale of stock shares of a mere $0.01 to $0.05 per share, depending on the share price.  The small tax collects around $15 billion per year.  Under the pressure of Wall Street lobby, however, the New York State government has, since 1981, been rebating the revenues right back to the brokerage firms.
    A final option, one that will likely be adopted sometime in the coming decade, is to introduce a value-added tax...
    The upshot is the following: Perhaps 4 percent of extra GDP could be collected as of 2015 mainly by taxing the rich (2 percent), tightening corporate taxation (1 percent), strengthening tax enforcement (0,5 to 1 percent), taxing financial transactions, and taxing carbon emissions (0.5 percent).  Introducing a VAT would raise even more revenues and could be phased in over several years."
    "The fourth and greatest area of challenge, implicated in all of the first three, is managing diversity.  This challenge seems to be humanity's hardest task of all.  The great religions all preach universal brotherhood of humanity, but they all simultaneously warn against the perfidy of the nonbeliever, the "other," the heathen.  This duality-- the capacity both to cooperate and to segregate--probably has its roots in the deepest recesses of our psyches.  It most likely reflects, after all, the deepest evolutionary forces that have shaped our species: the urge to care for our young and our in-group and the need to defend our young and our turf from other clans...
    The challenge of diversity will be front and center of every policy and crises, domestic and international, in the decades ahead.  We have arrived at a global society, but with the clannish instincts inherited from the tropical savanna.  Or, as E.O. Wilson put it inimitably in his foreword to my book Common Wealth,"We exist in a bizarre combination of Stone Age emotions, medieval beliefs, and god-like technology.  That, in a nutshell, is how we have lurched into the early twenty-first century."  

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