I’m always a little befuddled by economics, as what seems to be apparent never is by the time the eggheads are done discussing it. Some things stick in my head, and no amount of lecturing from the right wing on “Econ 101” will dislodge them.

This is very, very basic. It’s where I’m at. I haven’t read Adam Smith, but did read Milton Friedman way back when, and struggled through Econ 101, 102 and 103 in college, though I hated it. (It seemed as though nothing tied in to the way the world really worked, though I surely didn’t understand well how it worked.) Oh, and I recently read a book, The New Golden Age, by Ravi Batra, but that seemed more crystal ball stuff than bonehead econ. What I know about econ I have picked up over the years – certain things that seem true stick with me, things that don’t make sense don’t stick with me.

Here are the things that stick in my head and will not dislodge:

Labor is the source of all wealth. Wall Street has gone broke playing with funny money – financial products that don’t in and of themselves create wealth. They allocate money, often putting it where it can do the most good. That’s an important function, but not wealth creation. Only labor creates wealth.

There are many types of labor, and many new tools for labor to use in the creative process, and creative people have done wonders in opening up the world and making labor more efficient and productive. Bill Gates and Steve Jobs deserve every penny of their wealth, but it’s still about labor. In the end, we convert natural resources to commodities, and commodities to products. If you follow natural resources, you’ll see them work their way through the economy with value added at many points … by labor. That’s wealth creation.

Before I am ambushed, investment is critically important in enabling labor. Capital is stored wealth created by labor. It constantly needs to be recycled, but does not in and of itself create wealth.

Demand drives the economy. Wages drive demand. Since 1980, we’ve concentrated on supply, and have concentrated tax breaks in the top brackets thinking that they would invest and create products. Labor productivity has increased since 1980, but wages have not kept up with productivity. Consequently, demand has suffered. To keep up, consumers tapped credit lines, and borrowed on their houses to boot, draining their best form of savings. Now many of them are tapped out. More supply won’t help us now. We need workers earning wages to recover.

I guess I’m a demand-sider.

Most business people are short-sighted, and cannot see that if workers don’t prosper, there aren’t enough consumers to buy their products. The Big Three bailout should be a no-brainer.

High marginal tax rates don’t hurt, might even help. The gospel according to the right wing is that the private sector is the wealth-creation machine, and that taxes are only a drag on that machine. Ergo, higher taxes yield slower growth. The problem with their theory is that we experienced steady and stable growth (fewer bubbles) in the period 1940-1980, when marginal rates were very high – as high as 90% on the equivalent of income over $3 million. They don’t explain that.

Here’s how we did it: 1) We tax wealthy people at high rates, but encourage them to avoid high marginal rates by making certain tax-favored investments – tax free bonds, intangible drilling costs, for example. We also gave them an investment tax credit if they bought and held equipment. Secondly, we double-taxed dividends from corporations, which encouraged investors to leave capital in companies, cashing out with capital gains (often taxed at favorable rates) instead. In a way, it was an industrial policy.

It all seemed to work. We had a thriving domestic economy with a strong manufacturing base. It’s heresy, I know, but higher taxes drive investment. Re-investment of wealth, coupled with high wages, make a healthy economy.

Since the era of tax cuts, we have had periods of growth, but tax cuts are often followed by bubbles. We are currently in the ebb phase of the Reagan era and all it has given us – tapped out savings, monstrous debt, outsourcing, a shrinking middle class, increased poverty, and extremes of wealth. We were better off in 1979 than now.

Did I just say that high marginal tax rates prevent bubbles and boom and bust? I think I did.

There’s nothing wrong with protecting markets. South Korea is often mentioned as a poster child for capitalism, and it is indeed a wealthy country. It’s has also been protectionist during its growth phase. Likewise Japan – there would be no Toyota without Japanese protectionism. The United States, throughout history, had very high tariffs, which allowed our domestic industries to grow. We should allow the same for Mexico, Central and South America – allow them to protect and grow their own industry, and then when they are healthy and on an even keel with us, drop those barriers. As it is, free trade between us and developing countries merely allows us to have cheap resources while we export American jobs. That’s a bad thing. (Free trade between developed countries seems to work quite well.)

I’m not yet at a point where I can put my economic theories in book form – when I am, I will approach Marvel Comics.

Bill Maher’s movie Religulous had a brief stay here in Bozeman, and I and a few others had a good laugh. It’s meant to be funny, but Maher is very serious in making fun of religious people.

Maher was raised by a Catholic father and a Jewish mother. (His first confession: “Bless me father for I have sinned. This is my first confession…. and this is my attorney, Mr. Coen.) His father eventually left the church over the birth control issue, but his reaction was much the same as mine when I left the church in 1988 – “Free at last!” Sunday services were very boring, and ruined a day that should otherwise be devoted to football, picnics and the mountains.

Maher paints with a broad brush, lumping together Scientologists and Jews, Catholics and Muslims, evangelicals and normal people. He doesn’t understand how normal and mentally healthy people can cling to strange beliefs like virgin births and secret friends.

I’ve wrestled with that too. For myself, the beliefs were implanted in my fragile young brain from infancy forward, along with the notion that if I gave them up, I would burn in hell. That’s a pretty high hurdle to jump, but jump it I did. Most don’t. Religious faith is shielded from reality by that incredible scam – people are inculcated from youth forward that religious belief is not only necessary, but that lack of walking away from it is fatal.

That’s most of us, I think. Imagine a wolf-boy – a kid raised by wolves all by himself coming to the revelation that a man who (might have) lived 2000 years ago was born of a virgin and should be his personal secret friend. It is only by societal custom that these strange ancient beliefs are handed down.

There’s another handle that religion had on us – it is the notion that without it, we will not be good people. Not so – goodness precedes the bible and religion. All societies have laws against theft, murder, incest and adultery. The bible merely gathered them (and a whole boatload of other really weird stuff) in one place. Without the bible, we’d still have the precepts. They come from within us. They are probably the result of our evolutionary need to survive. Intra-species carnage is not conducive to our long term prospects.

So what’s the big deal about religion? We’re weird, not always rational. Religion provides comfort in times of pain and loss, and makes a very complicated and uncertain existence simple and certain. It’s mostly a good thing. Since abandoning it, I’ve spent too much time resenting the way they invaded my young brain, took control of me before I had the ability to resist them. I forgive. I started out doing the same thing to my kids, and stopped. They’re OK now, my kids – none of them are believers, but they are good people.

So my only hangup with religion at this point is the political one – certain people in our society are not content to live their own lives by their own precepts, and leave the rest of us alone. No – they want all of us under their thumb. The beating heart at the center of the political fundamentalist Christian movement is abortion. If it were to go away, so would they. But they are also hosing us with their other beliefs on homosexuality, oppression of women and end times. All of that is dangerous to the body politic.

It is in that sense that I find religion to be a negative in our lives. These people and their strange behaviors ebb and flow, and will eventually ebb once more. But for the time being, they are really a pain in the ass, and a threat to our basic freedoms.

Oh yeah – one other small matter: If religions did not indoctrinate youth before they reached the age of reason, there would be no religion. Their very survival depends on abuse of children.

From the Onion:

KANSAS CITY, MO—President Bush sustained serious head injuries, massive internal bleeding, and a broken left leg Monday morning after being accidentally dragged behind the presidential motorcade for a period of 15 minutes. According to Secret Service spokesman Ed Donovan, Bush’s necktie became caught in the trunk of the motorcade’s second vehicle at 4:13 p.m., shortly before the driver accelerated. The president was dragged down 175th Street for 26 blocks and through four stoplights, leaving a trail of blood more than a mile long. Upon hearing shouts emanating from behind his vehicle, the driver abruptly applied the brakes, causing the third car in the motorcade to run over the president’s left leg at a speed of approximately 25 miles per hour. President Bush is resting comfortably in Bethesda Naval Hospital.

We’re so foolish –

Effective today, July 24, 2008, the federal minimum wage for covered nonexempt employees is $6.55. The federal minimum wage provisions are contained in the Fair Labor Standards Act (FLSA).

One of the jobs of the Federal Reserve is to keep worker insecurity high. People who are worried about losing their jobs aren’t likely to demand better pay. In fact, worker insecurity puts downward pressure on wages. In the low-wage sector, that downward pressure is ever-present, as there is usually a pool of unemployed workers to take the place of those who are currently working. Therefore, the woman cleaning your office building and the field worker straining over rows of strawberries are chained to the yoke, and have no hope of a better life.

For them, the only protection afforded comes from government in the form of minimum wage laws. Conservatives, who preach the religion of unfettered markets, despise minimum wage laws. They think the market ought to be left to its own in all areas, and that every market outcome, no matter how unpleasant, is the right outcome. To enforce a minimum wage, they say, is to create distortion, and that distortion will manifest in other ways, like loss of jobs as employers cut back, and in rising prices for basic goods that creates inflation, making goods and services more expensive work workers and thereby offsetting any gains in minimum wage.

The problem is, it doesn’t work that way, never has, never will. In the real world, the market easily absorbs minimum wage increases, as workers were probably underpaid anyway, so employers don’t cut back. Conservatives cannot offer up one laboratory where minimum wages have cause increases in prices or increased joblessness. Quite the opposite. Absent data, they merely pontificate on theory.

At the base of conservatives’ concern is the belief that labor costs need to be controlled, and that market forces, aided by the Fed, ought to be the sole determinant. They show no such inclination to control other costs – rent and food and energy are constantly increasing, yet there is no effort to rein in those costs. We merely have to adapt. But with labor, increasing costs are scary, and Wall Street has heart palpitations with every increase in employment numbers.

Minimum wage laws truly benefit the little guy, and every worker up the line gets a bump when MW goes up. Rising wages is a good thing – more money for the working and middle classes is a positive outcome. If it’s a zero sum game, then we’re spreading the wealth by allowing workers to keep more of the wealth their labor creates. But if low-wage earners turn around and spend their new-found wealth on the basics of life, the money comes back to us in multiples.

If every conservative who preached to us about minimum wage had to live for one week on it, they would very quickly set it at $20 and index it to inflation. They are truly out of touch.

We had a tiny little debate on minimum wage over at Craig’s mtpolitics.net. It didn’t amount to much, but I ran across the following argument, posted by David, who runs a blog called Better Living Through Blogging :

My answer to the minimum-wage idjits: if increasing the minimum-wage to $6.15 per hour is good, then surely increasing it to $25 per hour is better. And by that logic, increasing it to, say, $100 per hour would be GREAT!

Right?

Oh, but that’s not what you meant? That’s not reasonable?

Well then what makes your figure of $6.15 per hour (or any other mandated wage) reasonable?

It’s an easy argument to answer – living costs exceed wages provided by a $5.15 per hour wage. Low-wage workers are disadvantaged in many ways, one of which is that there are, in many markets, a surplus of them. When that happens, downward pressure is exerted on wages, and people wind up working not for $5.15 per hour, but $4.00 per hour, $3.00, $2.00 – David likes to run his argument out to extremes, so let’s take an extreme case – $1.50 per day, as in places like Vietnam, where they make Nike sneakers.

In other words, there’s no correlation between living costs and wages paid low-skilled workers. The wage they can earn in a surplus labor market is too low to live on. That class of people experiences daily something that most of us are immune to – the free market. It’s not a pretty thing.

So, given the ugliness of market outcomes, we as a society elect to step in and set an arbitrary standard – there shall be no wage less than $6.15 per hour in the state of Montana. We didn’t say $25 or $100 per hour because a minimum wage that high would be absurd. That’s a strawman argument. We said $6.15 because we can easily absorb such a low minimum. In fact, we could do better. The people who worked so hard to get the wage passed surely knew that even $6.15 was not high enough, but politics is the art of the doable.

Question now for David, who put forth the argument above. The standard conservative response to a higher minimum wage – to any minimum at all, is that there’s no such thing as a free lunch – that whatever we gain in wages we lose in the number of people employed. Minimum wage has been raised in many states over the years while the Federal Government has dallied. Please, if you would, David, give an example of a state where minimum wage increased and employment in the low-wage sector decreased.

Clock’s running. Tick tock tick tock …..

There’s talk now of a higher mandated minimum of over $7.00 per hour coming out of Washington in the wake of the election landslide. It’s a good wedge issue, and if Bush were to veto it, his approval ratings would plummet. (Just kidding.) But Democrats have an opportunity here to do something that will truly help their supposed base. Let’s hope they have it in them.

Years ago I read an article so stimulating that I copied it and filed it – “Five and a Half Utopias” by physicist Steven Weinberg. In it, he disputes our tendency to idealize our human pursuits, and specifically disassembles five utopian ideals – bad thought habits, I suppose. They are 1)free markets, 2) rule by the best and brightest, 3) religious, 4) green, and 5) technological utopias. (The “half” utopia is one that he himself idealizes, the Civilized Egalitarian Capitalist Utopia.)

I insert below part one, the free market utopia, as we seem to spend so much time going around about it here. The entire article is equally riveting.

Here’s Weinberg:

Free Market Utopia

Government barriers to free enterprise disappear. Governments lose most of their functions, serving only to punish crimes, enforce contracts, and provide national defense. Freed of artificial restraints, the world becomes industrialized and prosperous.

THIS style of utopia has the advantage of not depending on any assumed improvements in human nature, but that doesn’t mean we have to like it. If only for the sake of argument, let’s say that something (productivity? gross national product? Pareto efficiency?) is maximized by free markets. Whatever it is, we still have to decide for ourselves whether this is what we want to be maximized.

One thing that is clearly not maximized by free markets is equality. I am talking not about that pale substitute for equality known as equality of opportunity but about equality itself. Whatever purposes may be served by rewarding the talented, I have never understood why untalented people deserve less of the world’s good things than other people. It is hard to see how equality can be promoted, and a safety net provided for those who would otherwise fall out of the bottom of the economy, unless there is government interference in free markets.

Not everyone has put a high value on equality. Plato did not have much use for it, especially after the Athenian democracy condemned his hero, Socrates. He explained the rigid stratification of his Republic by comparing society to the human soul: the guardians are the rational part; the soldiers are the spirited part; and the peasants and artisans are the baser parts. I don’t know whether he was more interested in the self as a metaphor for the state or the state as a metaphor for the self, but at any rate such silly analogies continued for two millennia to comfort the comfortable.

In the course of time the dream of equality grew to become an emotional driving force behind utopian thinking. When English peasants and artisans rebelled against feudalism in 1381, their slogan was the couplet preached by John Ball at Blackheath: “When Adam delved, and Eve span, who was then the gentleman?” The French Revolution adopted the goal of equality along with liberty and fraternity; Louis-Philippe-Joseph, duc d’Orl�ans, wishing to gain favor with the Jacobins, changed his name to Philippe-Egalit�. (Neither his new name nor his vote for the execution of Louis XVI saved the duke from the Terror, and he joined the King and thousands of other Frenchmen in the equality of the guillotine.) The central aim of the socialists and anarchists of the nineteenth and twentieth centuries was to end the unequal distribution of wealth. Bellamy followed Looking Backward with a sequel titled simply Equality. It is a cruel joke of history that in the twentieth century the passion for equality has been used to justify communist states in which everyone was reduced to an equality of poverty. Everyone, that is, except for a small number of politicians and celebrities and their families, who alone had access to good housing, good food, and good medicine. Egalitarianism is perhaps the aspect of utopian thinking that has been most discredited by the failure of communism. These days anyone who urges a more equal distribution of wealth is likely to be charged with trying to revive the class struggle.

Of course, some inequality is inevitable. Everyone knows that only a few people can be concert violinists, factory managers, or major-league pitchers. In revolutionary France the ideal of equality soon gave way to the carri�re ouverte aux talents. It was said that each soldier in Napoleon’s army carried a marshal’s baton in his knapsack, but no one expected that many soldiers would get to use it. For my part, I would fight against any proposal to be less selective in choosing graduate students and research associates for the physics department in which I work. But the inequalities of title and fame and authority that follow inexorably from inequalities of talent provide powerful spurs to ambition. Is it really necessary to add gross inequalities of wealth to these other incentives?

This issue cannot be judged on purely economic grounds. Economists tell us that inequality of compensation fulfills important economic functions: just as unequal prices for different foods help in allocating agricultural resources to produce what people want to eat, so unequal rewards for labor and for capital can help in directing people into jobs, and their money into investments, of the greatest economic value. The difference between these various inequalities is that in themselves, the relative prices of wheat and rye are of no importance; they only serve the economic function of helping to adjust production and resources. But whatever its economic effects, gross inequality in wealth is itself a social evil, which poisons life for millions.

Those who grew up in comfortable circumstances often have trouble understanding this. They call any effort to reduce inequality “the politics of envy.” The best place for the well-to-do to get some feeling for the damage done by inequality may be American literature, perhaps because America led the world in making wealth the chief determinant of class. This damage is poignantly described in the novels of Theodore Dreiser, who grew up poor during the Gilded Age, when inequality of wealth in America was at its height. Or think of Willa Cather’s story “Paul’s Case.” The hopeless longing of the boy Paul for the life of the rich drives him to give up his whole dreary life for a few days of luxury.

Another thing that is manifestly not maximized by free markets is civilization. By “civilization” I mean not just art museums and grand opera but the whole range of public and private goods that are there not merely to help keep us alive but to add quality to our lives. Everyone can make his or her own list; for me, civilization includes classical-music radio stations and the look of lovely old cities. It does not include telemarketing or Las Vegas. Civilization is elitist; only occasionally does it match the public taste, and for this reason it cannot prosper if not supported by individual sacrifices or government action, whether in the form of subsidy, regulation, or tax policy.

The aspect of civilization that concerns me professionally is basic scientific research, like the search for the fundamental laws of nature or for the origins of the universe or of life — research that cannot be justified by foreseeable economic benefits. Along with all the good things that have come from the opening of free-market economies in Eastern Europe, we have seen the devastation in those countries of scientific establishments that cannot turn a profit. In the United States the opening of the telephone industry to free-market forces has led to the almost complete dismantling of pure science at the Bell Laboratories, formerly among the world’s leading private scientific-research facilities.

It might be worthwhile to let equality and civilization take their chances in the free market if in return we could expect that the withering of government would serve as a guarantee against oppression. But that is an illusion. For many Americans the danger of tyranny lies not in government but in employers or insurance companies or health-maintenance organizations, from which we need government to protect us. To say that any worker is free to escape an oppressive employer by getting a different job is about as realistic as to say that any citizen is free to escape an oppressive government by emigrating.

From another section of the piece, on a utopian vision he supports, the Civilized Egalitarian Capitalist Utopia:

We are in the process of giving up our best weapon against inequality: the graduated income tax, levied on all forms of income and supplemented by taxes on legacies. A steeply graduated income tax, if accompanied by generous allowances for the deduction of charitable contributions, has another virtue: it amounts to a public subsidy for museums, symphony orchestras, hospitals, universities, research laboratories, and charities of all sorts, without putting them under the control of government. Oddly, the deductibility of charitable contributions has been attacked in whole or in part by conservatives like Steve Forbes and Herbert Stein, even though it has been a peculiarly American way of achieving government support for the values of civilization without increasing government power.

Anyway, I found the piece to be fascinating, in January of 2000 in Atlantic Magazine, and now. And if you have taken the time to read this far, here’s a reward for your troubles – a 74 minute discussion between Weinberg and biologist Richard Dawkins on just about everything. (It’s a Google video – I hope you don’t have to be logged in to Google to view it.)