Friedman in the News

On February 25, 2010, there was an article on the New York Times website, “As India Sells Assets, political Tensions Rise”. India’s government is overburdened with debt, and the country’s troubled financial position is a direct result of too many state-owned operations. In the last ten months India has raised 3.5 billion dollars by selling off pieces of state-run companies in order to finance development projects like schools, roads, and hospitals that will aid the country’s long-term growth and development. Economists have urged India to sustain this trend or accelerate it, but there are doubts as to whether that can be accomplished. A reason for this is that political parties, partners in the country’s coalition government, and unions that represent state-owned operations oppose the privatization of the public companies. As the article states, “These companies became the backbone of political patronage, providing, for example, relatively secure and high-paying jobs to members of powerful unions. As a result, India’s leaders have found it hard to let go of the companies” (NY Times). Currently, the government owns 473 companies worth 500 billion dollars, representing about 45 percent of India’s GDP. “Economists’ arguments [supporting privatization] have taken on added weight because India’s efforts to bolster growth and reduce endemic poverty are running up against daunting fiscal realities. With government debt already at 80 percent of G.D.P., policy makers cannot easily borrow more money without significantly driving up interest rates and making it more difficult for the private sector to borrow”(NY Times).
A major problem is that 90 percent of the country’s debt is owed to its own people. India has also raised public-sector wages and increased spending on social programs and subsidies, which has led to a 15 percent increase in inflation over the last year alone. India’s policy makers have begun to assert that in order to raise enough money to advance health care, education, and infrastructure, scores of currently state-owned companies need to be privatized immediately rather than simply selling minority stakes in these companies. As Vijay Kelkar, chairman of India’s Finance Commission said, “‘We have to think about the end game, which is privatization, where the government fully gets out of the picture’” (NY Times).
Milton Friedman would consider India’s current financial situation a debacle; one that has been directly caused by a government that is too centralized and enormously involved with the country’s economy. Furthermore, the idea that these state-owned companies are the backbone of political patronage supports his argument that government intervention in the economy strips the greater amount of the country’s people of their total freedom. In this case, secure and high-paying jobs go directly to powerful union leaders; which, in turn, eliminates competition in the marketplace and inhibits total freedom. Friedman’s discussion of the nationalized mail-carrying system in the United States in “Capitalism and Freedom” is analogous to India’s current situation, where competition in the marketplace is not allowed, leading to rampant inefficiency and wastefulness. Friedman would argue that the over-nationalization of India’s economy is why the country finds itself in such a precarious financial and political position today, and that the restriction on the people of the country’s total freedom is due to the fact that the marketplace is not free. Because a free market does not exist, it cannot provide a check or balance for the government, and when government is allowed to grow unchecked, it becomes a mess – a Frankenstein.
However, at least in our reading, Friedman never discusses the fact that a government has the potential to realize that it is severely impeding the development of its country. In India’s case, the situation has become so bad that the government has realized that if it wants to improve the lives of its people, it must privatize its industries. The privatization will help the government pay its debts, most of which are owed to the people anyway, as well as raise money to improve the lives of those who live there. There is no doubt that Friedman would advocate the privatization of everything, and I think he would get a kick out of India’s government admitting that the nationalization of the country’s industries was a colossal mistake; one that can only be fixed by India’s government ceding some its power through privatization, giving into a freer market managed by a freer people.

Marx in the News

On February 7, 2010, there was an article on The New York Times website titled “To Survive, Dairy Farmers Go Co-op”. The article is about a man named Sam Simon, an orthopedic surgeon who made an odd career switch in 2005; he founded a dairy co-op called Hudson Valley Fresh. Eight other dairy farmers joined the co-op in order to avoid the milk processing and pricing system that was dominant in the industry by marketing and distributing their milk on their own. The co-op is nonprofit and it sells premium-quality milk with no artificial hormones. To cut down on transportation costs, the co-op markets its milk within an 80-mile radius and believes people will pay more for a higher quality product that is locally produced. The farmers are paid a price for their milk that is based solely on their cost of production rather than a fixed commodity price; this is the difference between breaking even and losing money. Most small dairy farmers cannot compete on their own, as evidenced by the decline in dairies in Dutchess County from 275 in the 1970s to only 26 currently. According to Simon, “‘The question for dairy farmers is: How are you going to survive? You’re not going to survive milking 60 cows and competing with a 30,000-cow herd out West. So you either give up or you try something different. This is something different’” (NY Times Online).

The ethical issues in question, with respect to Marx, seem to be if one receives a price based solely on his or her cost of production, is that person receiving the benefits of their labor as well as the value of the capital that is being labored on? In addition, is this a way to circumvent the estranged labor that is rampant in the capitalist system? In other words, does this type of system serve to de-alienate one’s labor from one’s self? And, if so, should this type of co-op structure be the dominant economic model in the world today?

I think Marx would agree that Hudson Valley Fresh, the co-op established to circumnavigate the processing and pricing system in the dairy industry, does return all of the value the dairy farmers have added to their capital through their labor. However, because their costs of production are so high, the money they receive for their labor is still just enough to survive; these dairy farmers are not seeing any sort of significant increase in their discretionary income, but they are receiving enough to maintain both a decent life and their current employment.

Because the co-op has effectively eliminated the intermediaries in the dairy industry, the dairy farmers are no longer forced into a situation where they must devalue their own labor in order to survive. Therefore, they are able to produce at a price of their choice and are guaranteed to receive at least that amount in return, any profit above their prices of production is split according to how much milk each farmer contributed to the co-op because the co-op itself does not make any money. Therefore, these farmers are receiving a return on their labor. In other words, their labor is worth something to them. Since this system seems to allow one to benefit from his or her own labor, I believe Marx would agree that the dairy farmers have found a way to de-alienate their labor from themselves. The farmers are now no longer estranged from the product of their labor, the activity of their labor, or their ‘species being’.

Should this, or could this be the dominant economic model in our world today? I do not know, although in theory it sounds somewhat plausible and somewhat not. It seems that Hudson Valley Fresh has found a niche market for their product, one that is absolutely necessary for their co-op to remain sustainable, although that niche market is obviously much smaller than the market of all the people who are milk drinkers. If most people were willing to pay much more for something they could get somewhere else at a much cheaper price, I think this could work. However, I do not necessarily believe that that is the case. Furthermore, while I believe that people would be happy simply sustaining their own lives, if given the choice, most people would seek out opportunities for profit. As this economic model does not necessarily provide much in the way of profit, I think it is probably unappealing to most people who are familiar with capitalism. I think if there were some way to institute this it could work; but, in order to do it, all facets of everyday life for everyone would necessarily need to be changed (for example: laws and liability issues, government, education, even the way people think). For the above reasons, I see a world economic system based solely on this type of model as a sort of utopian ideal rather than a real option.

Can Adding Value Become a Disservice?

On January 28, 2010, there was an article on The Chicago Tribune’s website about a small Alaskan village that is appealing a dismissal of a lawsuit it brought against two dozen oil, power, and coal companies, including Exxon Mobil Corporation and BP PLC. Kivalina, the city that is appealing the dismissal of their lawsuit, is a village of less than 400 people, and is built on an 8-mile barrier reef that is 635 miles northwest of Anchorage. Sea ice, which used to protect the village, is now forming later and melting sooner because of higher temperatures. As a result, Kivalina is unprotected from fall and winter storm waves that now destroy the coast and threaten the livelihood of its people. The village is eroding, and claims that these companies are to blame for the climate change that is now endangering the community. Furthermore, the plaintiffs are seeking damages of 400 million dollars, the cost to relocate the town two miles southeast of its current location. The city of Kivalina filed the suit in federal court in 2008, but it was dismissed on the grounds that the point in question hinged on whether anyone could truly demonstrate the ‘causal effect’ of global warming as an injury. The town is appealing that the decision and dismissal were incorrect, citing official reports by the U.S. Army Corps of Engineers that have documented the damage to Kivalina because of global warming.

John Locke believes that people achieve ‘the good life’ through labor. This labor, and the industriousness associated with it, benefits all humankind because it adds value to the land. One takes a wasteful thing, cultivates it, and therefore adds productivity and value. The ethical issue in question then, with respect to Locke, seems to be the following: If labor is the measure of a virtuous life because it adds value to what once was waste, and benefits humankind through this increased productivity, what do we say about labor when it also seems to do humanity a disservice - one that could quite possibly negate our ability as a species to survive, let alone live a virtuous life?

Now I have mulled this over, and it is hard to determine what Locke’s stance on this issue would or might be. Given that global warming is a crisis – a very real one – that is probably something he never could have imagined, let alone considered while writing his treatise on economics and private property, I have decided he would have evaluated it from a somewhat utilitarian perspective. In other words, he would weigh both the positive and negative effects of whatever labor was being undertaken, evaluate the ‘net effect’, and determine how to proceed. Now if a better option came along, one that added more net value, this would obviously be a better option for him.

Now I know I have taken some liberties in trying to determine what Locke’s stance on this issue would be. Obviously Locke would not endorse any labor that threatened our existence as a species; which, in all honesty, is almost every activity we humans perform. However, Locke would probably advocate laboring with regard to developing a solution for global warming – labor that would unquestionably provide value for humankind. One of the reasons I came to this conclusion is that there are apparently some very real solutions to global warming because of a discipline called geoengineering, deliberately influencing and manipulating the Earth’s climate to counteract the effects of global warming and greenhouse gas emissions. This may sound farfetched, but world leaders are actively investigating this idea and doing more than just considering it as part of a solution. (Some of these ideas were documented in a 2007 British documentary called “Five Ways to Save the World”.)

Yet, it is still a very interesting question with regard to Locke and the ethical disposition that underwrites his economic theory, so at this point I will leave it up for debate…

Aristotle in the News

On December 16^th, there was an article on the New York Times website about saving for retirement, namely through employer-provided plans like the 401(k). The 401(k) is named after a section of the tax code, and it is a defined-contribution plan in which one makes regular contributions into an account that one owns. Most companies now offer employees some type of 401(k) option in lieu of pension plans, and have begun phasing out pensions as well as other benefit plans due to their enormous costs. The 401(k) allows the employee to make all investment decisions, usually features some type of employer contribution match, and offers numerous tax advantages.

With respect to Aristotle, the ethical issue in question seems to be the following: if one wishes to live well, in this case during retirement, when all other forms of income have ceased to exist but bills continue to pile up, is it still unethical to invest? In other words, is making money from money unethical if it is the only way to secure future benefits from necessaries for survival such as food, water, shelter, etc.?

Aristotle would argue that this falls under the category of usury, and that 401(k) s, or any other type of monetary investing for that matter, is a twisted perversion aimed only at acquiring more wealth. However, Aristotle would agree that life should be lived well. In other words, the happy medium between living too poorly or too well would be living just right, and that therefore this would be more representative of a virtuous life.

In essence, Aristotle’s philosophical theory regarding household management, and the inherent legitimacy or illegitimacy with regard to the art of acquisition and artificial art of acquisition that it spawns, seems to provide no good answer when it comes to the question of planning for retirement through investing. Investing seems to the only real avenue for making money well into retirement, and therefore the only real option when it comes to securing the necessaries in any individual’s household. Because his theory only seems to complicate this issue, it leaves me wondering a few things. In this case, is usury still a fetishistic perversion? And if it is, how could one hope to secure a virtuous life when all other income has been curtailed? And is there any room for Aristotle’s theory regarding economics in the world today?