Is the US Government Stupid, Corrupt or Incompetent?

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When I review my own thinking about Globalization, using that term very loosely, and the various issues that it raises, I keep coming back to the same question.

It goes something like this. There is no doubt to anyone who has studied economics that many of the negative issues of Globalization, as discussed in other posts on this blog, were predictable in broad outline. And there is no doubt to anyone who examines the evidence that our government enabled Globalization but did not put in place any of the sorts of programs that would help Americans who were likely to be impoverished by these policies find a new way to make a living. Nor was there any attempt by our government to address the increasing income inequality that would be the natural result of their policies. Furthermore, the record is clear that while many economists went public with the likely implications of these policies, they were apparently ignored, but even more important, our leaders did not discuss these implications with the American people. We also have to contend with the evidence that Washington is (maybe was) completely unaware of the vast anger and distress that these policies caused until it was shoved in their face, and even then I think they were blindsided and do not really acknowledge the issues even today. (See for example the incredibly stupid and egregious defense of the deceptive undemployment index in the New Yorker, reference to be provided eventually).

So I propose to you that this leads us to ask the following questions.

Was our government completely stupid, incompetent, and unaware of the implications of their policies? Or were they deliberately following a policy that was going to destroy the lives of millions of Americans to increase the profits of the rich? A third possibility might be that they were aware of the implications, but simply failed to take the corrective actions that would be necessary to attempt to ameliorate the distress caused.

The reason I keep coming back to this question is as follows. If they were merely stupid, then they are not competent to be running our government, and we should have no hope for the future. If they were cavalier about the well-being of so many Americans, then we should not expect that to change and should have no hope for the future.

Either way, the conclusion is that our government is fucked, is dangerous to the people, and that there is no hope for the future.

None of this will make the least bit of sense to you unless you understand how well understood the issues and controversies of “free trade” aka “globalization” are. None of this is new. It goes back to the 19^th century and the dawn of modern economics as we know it.

A Concise Discussion of the Role of Our Government in the Economic Distress of Americans

This is an attempt to be as concise as possible about an issue that is very complex.

Probably if you are interested in the history of globalization in economic thought and for some reason could care about what I think on the topic, you should read the more lengthy discourse which can be located here.

For those of you who want the Cliff notes version, read on.

Many people in this country are aware of serious economic distress among some of our citizens, even though the nature of that distress, and the number of people affected, is controversial.

Many of my friends have trouble believing that our politicians and government would knowingly take actions that would damage the economic well being of many Americans, but they should not be so surprised. "The greatest good for the greatest number" is used to justify many policies that are sure to be bad for some people even if they are, hopefully, good for others.

Ultimately, understanding the structural issues of the economy that has been put in place over the last 20 plus years is going to take more time than most people are willing to devote to the topic. Ultimately if you are going to understand the situation, you are going to have to read a lot more than just this post which can at best point you in what is hopefully the right direction..

As I studied the history and theory behind Globalization, several questions presented themselves. If, as it appeared, that these policies resulted in the economic distress of millions of Americans, to what extent did the US Government pursue these policies knowing full well that this was going to destroy the economic well being of millions of Americans?  The second question, presuming that they did know this was going to be one of the likely results, to what extent did the government put in place policies and programs to help these Americans find new ways to make a living and ease the transition? Finally, whatever the answers to the first two questions may be, to what extent would our government expect Americans to benefit from these policies, and who would they benefit?

Each of the following statements could have pages, even volumes, of discussion to support them.

1. The issues around the economic policies that go under the name of “globalization” or “free trade” are not new, but have been discussed and debated since the 19^th century by some of the most important economists in the history of political economy, including Ricardo, Hume, and Marx.  It is in fact one of the central issues of political economy of that century.

2. In other words, although the extent of the impact of “globalization” is larger because of new technologies, there is excellent and relevant theoretical work and empirical case studies on the topic and the debate goes back a long way.  Therefore, there is no possible excuse of ignorance.  These policies are alleged to have certain important positive economic effects, but they are also very well known for having certain negative effects as well. 

3. “If all the economists in the world were laid end to end, they would still not reach a conclusion”. (Attributed to G. B. Shaw).

4. Although the positive impact of globalization on the world economy is very much debatable, what is not debated are the likely negative, local results. These results include, using my own terminology, first order and second order effects. A first order effect is when an industry goes overseas and people lose employment. A second order effect is when a community suffers because of the lost income of its citizens and the impact on the local businesses, on the lost tax income, and on the social implications of unemployment and its effect on the unemployed and their families.

5. To use one case study, an industry which had spent $500 million a year to get certain services done locally, finds that by spending $450 million overseas, they can get the same work done and save $50 million. This is seen as good because the company has made $50 million more profit, all else being equal. But the community as a whole now has much more unemployment, and the local community no longer has that $500 million circulating.

6. Therefore, whether or not the company is more profitable, it is very arguable that our society as a whole is certainly not better off. But whether you agree with this or not, it is hard to disagree that these policies were as certain as one can be in economics to cause hardship for those who are to be unemployed and the communities they live in. Although one might not be able to predict exactly which industries and communities will be hit the hardest, one can certainly predict that many will be and in fact you may be able to predict very well which ones and to what extent with a little study.

7. But if the company is more profitable, don't we all benefit? No, because in this country, most of the wealth is owned by few of the people. We have all heard different numbers, but for the sake of discussion I am going to use a more moderate estimate, and say that 75% of the wealth is owned by 10% of the population. Therefore, any benefit of this policy will go to the 10% or so that already owns the wealth, and none of the benefit will accrue to the local community, or people, workers, etc.

8, So the first question is answered. The US Government supported and enabled a structural transformation to the economy which was known to (extremely likely to) economically disadvantage workers and their communities in our country. Maybe not all workers and communities, but certainly many of them.

9. The situation is made worse by other government policies as well. I will mention three. The first is that the H2B visa program is famous throughout the world as being used by companies to help them take work from local communities and outsource/offshore the work to other countries. The second is that the US Government has failed to use its power to counteract various subsidies put in place by other countries to benefit certain industries at the expense of the American industry and its workers. The third is that the US Government deliberately and explicitly does not measure real unemployment in this country and disingenuously therefore discusses unemployment in terms that they know understate the real situation.

10. Finally, given that the US Government knew the likely effect of their policies, what steps have they taken to retrain the worker into new industries, and to support them and their families while they go through this wrenching dislocation. The answer to that is also clear and unambiguous, we have done nothing to support these people. Not one thing.

Therefore, did the US Government pursue economic policies that were as certain as one can be about such things to cause great economic hardship to working Americans? Yes. Did they do anything to help ameliorate or compensate those workers for the hardship they experienced and are still experiencing? No. And one more question, were the beneficiaries of these policies guaranteed to be people who were already wealthy? Yes.

There is another side to this story, which has to do with the economic theory of growth in a globalized economy. By no means is this theory universally accepted, but even if it was it says nothing about the people whose livelihoods were destroyed by these policies, and this negative impact of the policies are extremely well understood and predictable.

A proper post on this topic should contain at least one page of references to supporting documentation, and maybe that will be added later.

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Thomas Piketty and the New Celebrity Economics

You know that things are going to hell in a handbasket when Economists become cultural heroes. When America, the ultimate anti-intellectual state, starts reading and discussing economics, then that is all the evidence you need that things must be bad, really bad.

For decades even centuries, the only economist that Americans needed was Adam Smith and a Cliff Notes for The Wealth of Nations.  But now not even Adam Smith is proof against revisionist Economics.

And Piketty has been particularly vicious and non traditional.  Looking for any evidence that the free market results in increased wealth for everyone, he discovered that, whoopsie, there was no evidence.  You mean that all that crap about capitalism and the free market has no evidence to support it? Thats a bummer, dont you think?

See
http://www.theguardian.com/books/2014/apr/13/occupy-right-capitalism-failed-world-french-economist-thomas-piketty

The Cost of Retraining Workers in the 3D Industry

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[In this post, we discuss what I am calling Strategy 2, which is that the disenfranchised worker attempts to leave the industry he has trained for and worked in by retraining him or her self by getting an advanced degree in a different subject at the university.   In a previous post, we discussed the out-of-pocket costs of Strategy 1, which is to try to persevere in the field he or she has worked in by staying current and attending various conferences.  You can find that discussion here.]

Lets examine the real costs to society of unemployment, especially unemployment that is caused by foreign subsidies that damage industries in other countries particularly our country, since that is what we have in the train wreck that is computer animation, that foreign subsidy thing.

A friend who believes in the free market says that those who got screwed by foreign government subsidies are worthless garbage who lost out on the “free market” and deserved what they got.  How an industry that has been devastated by foreign subsidies could be confused with a free market, I do not know. Besides, we have never really had much of a free market in this country, at least not for the rich. You know what they say, its socialism for the rich but the free market for the rest of us.  

Since employment in this industry in this country was severely impacted by these subsidies, and since our government failed to act, presumably at the request of the studios although again no one really knows, nevertheless we can calculate what it will cost to retrain these workers into another field.

But how many workers were displaced?   No one knows the numbers, so far as I know, and no one cares to know as far as I can tell.   But we can look at a few indicators and make our own rough estimates.   I am going to guess that the peak employment in this country for computer animation in the service of visual effects and animation was roughly in the years 1997 - 2004 or so.   If we look at employment then and compare it to now we will get a rough estimate of the change.

R&H goes from 600-1000 people to zero, Sony Pictures Imageworks which used to have over 1,000 people working has moved production to Vancouver.   Digital Domain which used to also be over 1,000 people I think are down to a few hundred.   ILM which was over 2,000 at one point is now about 500 according to one estimate of someone currently working there.    Dreamworks Feature Animation laid off 1,000 people in S. California and then closed their N. California office.   At this point we are nearing 5,000 people.

Now some of these people have in fact found employment overseas.   And some of these people, I do not know how many, will be able to slide into other careers with only some disruption.   Some will be able to work for Google, some for Facebook, and some will get married and have families while their spouse works. I think that it is mostly the mid-level and senior people who have specialized in computer animation and spent over a decade in that field who will especially suffer.  I do not know the numbers but I am going to guess here for the purposes of this post, 2,500 people.  I hope this number is conservative.

Unfortunately most of these people live in California which is very expensive, and many of them have significant others or families that they are supporting.   I estimate a minimum monthly expense of roughly $4,000 which breaks down to $2,000 for rent, $1,000 for utilities and food, $1,000 for car payment, insurance and everything else.  I realize that outside of California these rates might seem exorbitant.  But it costs a lot of money to rent in LA and SF and you don't get much for your money.  At least in NYC, you are living in NY, goddamnit, but not in LA and SF where it is merely expensive without returning any value that I can see.  And you need a car out here.  Those who do not drive will not be permitted to play.

There are several paths one might take to create a new career, but one of them, and the only one I am going to price here is to go to a university and get an advanced degree.   That will take 3-5 years and cost roughly $30,000 per year.  One might get a masters degree in computer science, or get an MFA in Art and look at teaching.

Thus if we estimate 2,500 people for three years getting an advanced degree then we get 2,500 * (48,000 + 30,000) = 195 million per year for three years or just under 600 million in total, adjusted for interest, net present value and what have you.

It goes without saying that the family goes off health insurance unless the school provides some, and I am not sure what the policy is for students with families.  It goes without saying that the kids get the substandard public education we give to our worker-swine, they don't deserve the elite education of private schools. Also that unemployment insurance, should they receive any and I never have in spite of what the law says or what is taken from my salary, is a pathetic joke and does not amount to much.

Now you may not care about these people and you may object to retraining them on theoretical grounds. You may believe that these people deserve to have their lives destroyed. But I disagree, I do not think they deserve to have their lives destroyed. I think that the society that failed to protect their jobs through greed or malfeasance has the duty to retrain them. That is what I think.

But even if you do not agree with me, then at least I hope we can agree that the people who made a commitment to this field, many of them at the urging of respectable organizations like SIGGRAPH, will now have costs they must bear in order to get into a different field in mid-career.  And those costs, paid for by the individuals affected, come to not less than $600 million over three years.  At least. My point is that there are real costs to society of failing to deal with this issue and of training too many people (or whatever we did) for this field.

The good news is that this money is easy to get. The studios have made much more money than this using the subsidies and making product based on the technology which we invented and was then shipped overseas to take advantage of slave labor and subsidies. So they have plenty of money. Have them pay. That would be only fair and I am sure that they will be happy to do so.