Why we do good?

 
In our dealings with each other, human beings make assumptions about what others are interested in, what they will react to. We need to have some ideas of how we can get others to respond to our needs and desires. Say, we live in the same apartment building and you like to play your music really loud at 3 AM. How can I make you be quiet in the middle of the night? I could come upstairs at 3 AM with my assault rifle and threaten or actually shoot you. I could come upstairs with a plate of cookies hoping that that will make you turn the music down. I could come and ask you what I could do for you so that you would let me sleep.

Human beings have different theories about this. Some people believe that all relationships are about power and violence is an effective way of being powerful. Some believe, on the other hand, that being kind and generous will persuade others to be kind in their turn. Then there are the believers in social life as a grand bargain. You will choose to do what I want if I give you something in return.

Different people are inclined to different theories about human interactions. It is a common belief that if you want something from someone else you have to pay them in some way to get what you want. People will only work if they get paid – that's a piece of common wisdom. With that goes the opinion that we value only things we pay for. But this bit of common sense is very incomplete. Men and women who believe strongly that everyone needs to get paid in order to work, still spend many hours generously playing with their children or caring for their elderly parents. They never notice how their actions are not consistent with their beliefs about human interactions. Their belief that everyone needs to get paid for working, is modified by the other belief that some things should be given without payment. Different human beings have different rights. Children are entitled to loving care. The elderly, the parents that raised you with considerable effort, are now entitled to have as comfortable an old age as possible.

Between conservatives and people on the left of the political spectrum there are disagreements of what sorts of things our fellow citizens are entitled to without working for them. Most Americans, left or right, believe that everyone should work and should contribute to the society. (Some of us believe that work should be fulfilling, but that is definitely a minority opinion.) But there is considerable disagreement as to how much everyone needs to work in order to have a reasonably comfortable life.

We all agree that children should not have to work and should receive good care without paying for that care. There is widespread agreement that children are entitled to a secondary education to age 18. There is disagreement as to whether they should pay for their college education or whether it should be available free of charge to anyone who wants it and is qualified. Children should have enough to eat. They should have a clean and comfortable space to live. Most agree that children are entitled to health care without payment. When we come to adults disagreements are more serious. What are homeless people, who have no jobs, entitled to? Should those of us with some money pay for health care for the poor or should they simply work longer hours to earn their keep as you and I earn ours? Should taxpayers pay the rent for people who are unable to pay for their own apartment? The poor have done nothing for me, why should I help them?

The obvious answer is: your children have done nothing for you either. Your infants eat and sleep and soil their diapers. But you take care of them anyway. To that you reply: "that is different." But whether it really is different and in what way is a matter of permanent controversy. Some rewards should be earned, we tend to agree and others we receive without making any effort or earning the rewards we get. What belongs in each category is open to serious disagreement.

These reflections lead up to another question. It being the end of another year, I am inundated with requests for charitable contributions. My Congressman promises to change the balance of Democrats and Republicans in Congress in the new year if I give him five dollars. Well meaning Americans offer to get justice for Palestinians if I send money to their specific non-profit. Some other organization will help country folk in India or in Africa to dig wells or build schools for their children.

Should I respond to all these requests even though I know the promises are extravagant? My car is fifteen years old and shows its age. I can keep my money and buy a new car and look more respectable when I drive down the street, not to mention be more comfortable. What reasons do I have for giving my money to others, however well-meaning their efforts might be, rather than spending it on myself? I earned this money. I worked for it. I should be allowed to enjoy it.

I have no problem supporting my Congressman. He provides faithful and reliable service and, given our political system, I need to pay for the possibility of retaining him in his job. He works for me. I pay him. But what right do Palestinians have to ask me for money? What have they ever done for me? Every so often they attack my Jewish brothers and sisters in Israel. Why in the world should I pay for wells or schools in places I have no connection to, places I would not even be able to find on a map. When I am old and in need of help will these country people come and feed me, or help me to the bathroom? Fat chance.

How I decide these quandaries depends very much on how I think human beings function in relation to each other. If I believe that most human transactions are bargains of one sort or another, where you do something for me and I reward you for that, I will not give any money to dig wells in India or in Africa. If I believe, on the other hand, that all human beings are entitled to decent lives including a source of potable water, I might put off buying a new car and send some money in this nonprofit that deals with water problems in faraway places.
How can we settle this disagreement?

We could try to take the easy way out and say that everyone should follow their best wisdom and leave this controversy unresolved. But we need some sort of accord when it comes to passing legislation and deciding what amount of public monies will be used to care for the indigent, the sick and the old. We could try to persuade those who are reluctant to spend taxpayer money on charity of one sort or another by accusing them of being racist, of violating the supreme maxim of Judeo-Christian morality, love your neighbor as you love yourself. We could ask our opponents what sort of world they would want to live in. Would they not prefer a world of little suffering as possible? They would respond by opting for a just world where people are rewarded for their efforts, not allowed to be lazy and of indulgent. Efforts at persuasion are not promising.

These reflections recall us to reality. After a season of sending each other cards calling for peace, calling for goodwill towards all men and women, we need to remind ourselves that this goodwill is actually in short supply. Love of their neighbor is not valued by all. Advocates for a world where everything needs to be paid for ridicule proponents of neighborly love as "bleeding heart liberals."

Welcome to 2018.

Can the Free Market Save the Planet?

Can the Free Market Save the Planet ?

This week 192 nations are meeting in Copenhagen, Denmark for a world climate summit. The task is to come to some international agreements for all nations to reduce their CO2 emissions. Failure to do so will raise the temperature around the globe, melt the ice caps at either poles, cause serious droughts over large areas which will bring with them famines due to food shortages. Increased CO2 in the atmosphere is a health hazard producing more children and adults suffering from asthma. The world is facing a series of major problems. Something needs to be done.

It is clear what that is: we need to reduce the amount of a number of gases—CO2 is only one of them--released into the atmosphere. This needs to be done by regulating emissions of factories, refineries, automobiles, airplanes, as well as land fills, stockyards and chicken hatcheries. We need to produce less of these noxious gases by reducing the activities that produce them. That is clear, very simple, but obviously very difficult to do.

Well, you will be happy to hear, that this financial geniuses who bought us the dot.com bubble in the 1990s and the sub prime mortgage bubble last year, have now developed a way of making it much easier to reduce pollution and to clean up the environment. It is called “carbon trading” or more popularly “cap and trade.”

It seems like a wonderful project. The government of any given country sets limits to permissible pollution and over the years those limits become lower and lower. In this way pollution will be reduced substantially over a number of years. That is the “cap” part of “cap and trade.” The trading part seems similarly simple. The government gives different industries permits to produce a certain amount of pollution. If a company succeeds in reducing air pollution levels below required levels, they will not use up all their pollution permits and they can then sell those permits to someone else who has trouble meeting the expected limits of pollution. Since companies, so the story goes, make money selling their permits they have an incentive to lower their pollution below required levels. They also have an incentive to invent new, cheaper ways of reducing pollution because that will allow them to sell extra pollution permits and spend less money reducing pollution than their permits are worth. Once again everyone wins.

The trouble with that scheme is that it does not work. It has been tried for a number of years in Europe. There the companies who received free pollution permits from the government made out like bandits; pollution has not gone down but gas and other energy prices have gone up. The European cap and trade scheme turns out to be a boondoggle – good for polluters; bad for everyone else.

We can understand how that happens once we find out how people get pollution permits. In Europe, and also in the US, the government gives away a pollution permits free to certain industries. The government gives polluting industries the right to discharge noxious gases into the air for free. It is as if the government gave away broadcasting frequencies, or mining rights, or significant portions of public lands to private companies who were cronies of the government. The air into which CO2 is discharged belongs to all of us, but the government gives away for nothing the right to foul this air. In Europe, governments furious lobbied by industry, overestimated how many pollution permits should be given away. Industries had more permits than they needed to continue polluting as they had been and still could make extra money selling extra permits. At the same time, they claimed that lowering pollution was expensive--even though they did very little lowering--and passed extra cost on to consumers. The whole process was blatantly corrupt.

According to the Wall Street Journal “According to European Commission figures, emissions from the 27 member [European] states rose by 1.9% in the first three years of the regime. Following criticism, the caps for the period to 2012 were reduced for the majority of member states, but only to a little lower than actual emissions in 2005, and the evidence is that the recession is having a much more direct impact on emissions than the trading scheme (incidentally putting a lot of low-priced permits on the market)..”

There are other ways of getting pollution permits and they too undermine cap and trade. One can obtain pollution permits by what is called an “offset.” Planting trees is one offset because trees absorb CO2. Here is how this works: a company acquires a large tract of forest, bulldozes the trees in order to plant palm trees for palm oil production. The company is not penalized for bulldozing the forest but then applies for a carbon offset for planting palm trees. It can then sell these permits and make some money. But total carbon emissions have not been reduced.

Sometimes pollution is reduced due to declining industrial activity. In the 1990s the Russian economy was in total chaos. Industrial activity declined precipitously and Russia now has a bunch of pollution permits which it can sell. The same is happening in the United States where the current economic crisis has slowed down production and thus has given various companies pollution permits which they could get without cleaning up their industries or doing anything to combat global warming.

In this way pollution permits can be gained easily without doing anything. It cheapens pollution permits and that makes it easy for other companies to avoid cleaning up their production because they can just buy some reasonably cheap pollution permits.

But sometimes cap and trade seems to work. In the US we have had a cap and trade scheme to lower SO2 emissions--the source of acid rain. By all accounts that program has succeeded in lowering overall SO2 emissions from power plants in the US. But this success conceals one of the serious problems of cap and trade programs. They allow plants that lower their emissions more than required to sell some pollution permits to other plants that have difficulties lowering their emissions to required levels. Thus some plants may well increase their emissions as long as countrywide emissions go down.

But by its very nature, cap and trade has no effect to lower emissions of gases that are harmful to the people living near a power plant. SO2 is one of these gases. It causes asthma and other lung diseases to people living near the source of emissions. Since cap and trade only addresses overall levels of emissions it is compatible with increased emissions in some plants, thereby affecting populations living near the power plant. From the point of view of public health, cap and trade is a failure.

Why are governments, including our own, fully supporting cap and trade schemes? For the same reason that most of the bailout money went to save the big financial traders and banks who were behind the current economic crisis, while ordinary Americans who lost their houses and jobs receive very little help. The large financial houses have a hammerlock on the government; they get what they want because they have an army of lobbyists to make sure that they are first at the public trough. Cap and trade is obviously good for traders while, once again, ordinary citizens and future generations do not get what they need. But that is unfortunately not a big surprise. Even the Wall Street Journal, the voice of large business in the US, admits that “When push comes to shove, governments will always protect their national champions. The German government, for example, negotiated an easing of planned caps on emissions from cars to the advantage of manufacturers of higher-powered cars such as Mercedes-Benz and Porsche."

Regulating the Markets

Last week, Sen. McCain came out in favor of regulating financial markets. That is a departure from traditional Republican orthodoxy that is truly astonishing. For 100 years or more, Republicans and many Democrats have told us that markets are "self-regulating." It does not matter what market you are talking about -- market for consumer goods, for machinery, for finance capital such as bank loans or mortgages -- sooner or later supply will meet demand and prices will reach a reasonable level. Markets do not need government regulation; on the contrary economic problems are caused by government regulation.

But now this orthodoxy has been given up by almost everyone who has trumpeted it for many years including the White House and Republican stalwarts like Sen. McCain. The new orthodoxy is that we must return to a law (adopted during the Great Depression after 1929 and abolished under Pres. Clinton) that separated ordinary banks from investment banks. Ordinary banks are where you deposit your paycheck, maybe open a savings account, and borrow money to buy a house or a car. Investment banks do not do any of that; they operate with large sums of investment funds and, frankly, gamble with those funds trying to make money. For a while everybody wins and then, as is happening currently, the bottom drops out and many people lose. (The CEO’s of bankrupt investment houses walk off with $200 million for their old age.) But we are now being told that all of this could be avoided if only we do not allow ordinary banks to gamble in the way of investment and if, secondly, we kept a closer eye on the investment banks’ gambling.

Not surprisingly, that oversimplifies our problem. In the last 40 years there have been regular government bailouts of private businesses -- the Pennsylvania Railroad in 1970, the Franklin National Bank and New York City in 1975, Chrysler in 1980, the Savings and Loan Banks in 1990, the airline industry in 2002, and now one investment bank after another to the tune of close to $1 trillion.

It is clearly not true that in all these different cases the problem was a confusion of ordinary and investment banking. Many of the bailouts occurred when ordinary and investment banks were still distinct. Our economic system has pervasive problems which our experts and legislators still do not want to recognize.

Here is just one of them. In a capitalist system everyone pursues his or her private interest and the "unseen hand" of the market is supposed to assure us that the outcome will be the best for all of us. You look after what's good for you; I look after myself and you and I and everyone else will be better off. Let's look at that.

Suppose you have a small business. You manufacture specialty paints. Your business does okay but your profit margin is small. Then, one day, you have an inspiration. You see that the cost of disposing of your waste, much of it hazardous, is significant. So you begin dumping your waste in the woods, save the money of proper disposal and increase your profit. That is clearly a good strategy for you but if everybody did this, the Earth would soon become unlivable from all the pollution. The market is not going to make that problem go away. What is good for the individual often is bad if practiced by everyone.

One more example: another way of raising your profit margin is to lower wages. Since your business is small you may even take on a few illegal immigrants and pay them less than minimum wage. The government is never going to check a small business like yours..

This strategy too will increase your profits and be good for you. If all enterprises follow the same policy the large majority of the population would have a lot less money at their disposal. Demand for ordinary consumption goods would fall and some businesses would go broke and the economy would go into a recession, if not worse. Policies that significantly decrease consumer demand are not good for the economy even though they may be very good for individual enterprises.

There is no reason to think that capitalist markets regulate themselves. Capitalist enterprises must be carefully supervised so that they do not adopt policies that are harmful to the economy as a whole.

The current crisis is the result of the religious faith in the self-regulating market -- a faith that has no support in actual fact. It is supported only by the self interest of capitalist enterprisers who do not want to be limited in the ways they make money, even if their methods are in the short or in the long run bad for consumers or the country as a whole.

This blatant self-interest of the pundits associated with business is still at work when they try to tell us that we just need to restore a one law that separates ordinary from investment banks and then everything will be fine. Unless the government takes a firm hand to protect us against capitalists, we will never be fine.

But since the capitalists own the government, for instance because they pay for the presidential of campaigns of Obama and McCain, we are bound to hear misleading diagnoses of our present problems. Ordinary citizens and voters should not believe everything they're told.