Theo's Theories

This should have been at the top of the list because it underlies all other problems but it is far more difficult to quantify than the three issues I listed first and I was reluctant to start within something that may seem too subjective.

We are witnessing a breakdown of communities, families, institutions, and in general an increased emphasis on "everyone for himself/herself." While it is customary to lament the breakdown of the nuclear family that is not the worst problem. Families with two parents working long hours to attain luxury goods while paying scant attention to their children are in worse trouble than many single parent families. The constant barrage of advertising encouraging people to stretch themselves to the limit to acquire material goods is worse than any totalitarian brainwashing.

Nearly fifty years ago J. K. Galbraith wrote the book The Affluent Society where he pointed out a major weakness of the consumer society. Individuals could be well off but the commons, education, public transportation, environment, etc. were neglected. The neglect of the commons encourages people to look after their own narrow interests, thus feeding a vicious cycle. For example, if public transportation is poor, some people will abandon it and start driving to work. This will reduce the number of riders and therefore the income of public transportation which in turn will reduce the quality of service even further leading more people to abandon the service.

In addition, there has been an increasing polarization in the views of the public (there have been several articles in the press on this issue, often in terms of "red" versus "blue" states). The polarization is usually expressed in a Manichaean view of the world: a struggle of good versus evil. Policies are either very good or very bad. Unfortunately the world is quite complex and a simplistic view of good versus evil is too naive. This world view should be contrasted with the Japanese view that places great importance on balance. (I have already referred to Japan in favorable terms in earlier postings. This does not mean that I consider it a model society, only that they deal with certain issues in a better way than we do.)

Clearly, different segments of society have different interests (for example labor versus employers) and it is necessary to balance such interests. There is no magic formula for finding the proper equilibrium and the best we can hope is to avoid large deviations in favor of one group or another. This seems to be happening in several countries where power alternates between right-of-center and left-of-center parties. This is certainly the case in Western Europe, Canada, and Japan. It was also the case in the United States until the mid sixties. Then the Goldwater candidacy came up with the slogan that he was "A Choice, not an Echo." It was true that until then (at least since Roosevelt) that there was little difference between the Democrats and the Republicans, one favoring slightly the unions, the other favoring slightly business. Alternating between two parties with platforms that did not differ drastically was good for stability and changing those in power limited corruption.

Goldwater's defeat seemed to encourage the left and the late sixties and early seventies witness the excesses of the left. This in turn produced a reaction by the right and we were well on our way to polarization. For example, the left start pushing for the removal of any mention of God in state sanctioned activities and the right started pushing for teaching biology in accordance with the Bible. We have the strange phenomenon that some courts are dealing with lawsuits requiring the removal of the word God from various public statements while other courts deal with lawsuits requesting (in effect) that biology be taught in accordance with the Bible. If I read a story describing a "mythical" country where both things were happening I would find it far fetched. Unfortunately, it happens in our country.

Electoral campaigns seem to be dominated by what are mainly personal issues rather than the serious problems (economy, energy, education) that our country is facing. Because the real problems are difficult and hard to explain in sound bytes politicians (of both parties) prefer to focus on marginal issues.

The topic is endless, but I will close the discussion here and return to specific issues. keep in mind though that many of the specific problems are manifestions of the breakdown of our human relations.

Today a news item from BBC appears to further reinforce my view that there are a lot of other things we should worry before we start worrying about Iran. (Not that we should forget about it altogether.) But I will start chronologically on how I reached that view.

The May 2006 issue of COMMENTARY (a "neocon" magazine) had an article by Edward N. Luttwak "Three Reasons Not to Bomb Iran—Yet". (The author is not opposed to bombing in principle.) The first reason the article offers is that by bombing we will alienate the majority of Iranians who are oppressed by the current regime. This is quite a strong reason but someone could argue that Iranians may still love us even after we kill a lot of them during the bombing. However there is no such "escape" from Luttwak's arguments on the other two reasons and I quote them below with my own comments following.

"There is a second good reason not to act precipitously. In essence, we should not bomb Iran because the worst of its leaders positively want to be bombed—and are doing their level best to bring that about."

Indeed it seems that Ahmadinejad is deliberately pushing for a confrontation, as means of diverting the attention of his people from their misery. Otherwise there is no rational explanation for advertising the existence of the "hidden" program. I remember any time the economy would sour in Greece or Turkey, there would be a "national" crisis, often a dispute of some forsaken rock in the Aegean. (And those you who have read 1984 will remember the comments about constant war.)

"There is a third reason, too. The effort to build nuclear weapons started more than three decades ago, yet the regime is still years away from producing a bomb. ... What undermines confidence in Ahmadinejad’s opinion is his rather expansive way with the facts, including his repeated assertion that the centrifuge technology was developed by Iranians in Iran and is “the proud achievement of the Iranian nation”—somehow overlooking the 99.99 percent of it that was purchased from A.Q. Khan."

That seems an excellent point and it "rings a bell". I recall from my service in the Greek Army (almost 50 years ago) how the modern technology given by the U.S. was abused and misused. I forget the numbers, but often only 10% or less of the equipment would be functional.

Today's BBC article seems to give further evidence in favor of Luttwak's third argument.

"Western diplomatic sources told the BBC the material used in Iran's recent uranium enrichment experiments probably came from materials supplied (by China) in 1991. That was before China joined the Non-Proliferation Treaty, and before it was bound by its export controls. "

In short, it may be many years (if ever) before the Iran nuclear threat is real. In the meantime other factors may damage our country far more seriously.

I am listing Energy Conservation as the third major problem facing our country, after Income Disparity and the Failures of American Industry (I have explained why I think that the first two are connected). I started this list in response to comments about threats to our country from "foreign enemies". My position is that we face internal problems that are far more than threatening than any external threat (see my first post on 5/12/06).

There is a lot of talk about the energy crisis but no action. The predictions about the availability of oil run from the catastrophic (the world will run out of oil in 30-50 years, the position in American Theocracy) to the dismal (we will not run out of oil but it will become increasingly more expensive, the position of The Economist). Alternative sources of energy are overrated. Some cannot be produced without some consumption of energy (ethanol, hydrogen cells). Others pose safety issues (nuclear energy), environmental issues (wind mills), or have inherent limitations (energy from solar panels is not available on cloudy days). Yes, we should pursue all these alternatives but it looks unlikely that they could replace oil. The one source of clean and abundant energy, hydrogen fusion (the source of the energy of the sun), is still the subject of research and it is unclear whether it will ever become feasible. The only answer is conservation but nothing significant is done in that direction. It seems that the political will to implement simple measures (taxing "gas-guzzlers", subsidizing hybrids, subsidizing public transportation, etc) is lacking. By ignoring the problem we face a serious economical squeeze in the future. I have not discussed global warming because there are even more pressing reasons to reduce our consumption of fossil fuels.

One of the worst wasters of energy are short airplane trips. From an energy conservation viewpoint a plane trip from New York to Washington or Boston is criminal. A plane burns enormous amounts of fuel during take off and for a short trip this is not amortized over the distance. Trains are far more energy efficient and modern trains traveling in excess of 100 mph (as they do in Japan and Europe) offer travel times close to those of air travel. Even though a plane may travel five times faster than a modern train, the higher waiting times and trips to distant airports add at least three hours to a plane trip as compared to a train trip (two hours on departure and one hour on arrival). A back of the envelop calculation shows that the break even point time-wise is about 400 miles. Therefore, taking a modern train rather than a plane for a trip under 400 miles does not add to the travel time. And of course it saves a lot of oil. Keep in mind that the power plans that supply power to the trains can burn low quality fuels or use alternative energy sources such as hydro-electric power.

Someone may say that that improving train lines costs money and energy. True but we seem to have no trouble finding resources for building more airports! These days there is talk about building a fourth airport in the New York area because air traffic is overwhelming the existing three airports. Here is an alternative solution: (1) Reduce the number of (or even eliminate) flights to Boston or Washington. This will ease air traffic considerably; (2) Use for the funds to upgrade the train lines to these two cities rather than build a fourth airport.

Here is a plan that could save a lot of oil in the long run and produce a lot of industrial and construction jobs in the short run. Build high speed (120 mph and up) lines between urban centers that are within 500 miles. New York-Washington (that will probably be the easier because the existing Metroliner track is pretty decent); New York-Boston; Chicago-Detroit; San Francisco-Los Angeles; etc. Then tax heavily flights between such cities. If the Japanese, French, Germans, and others can do it, why not us?

Of course, while such a plan makes good engineering and economic sense, it is going to face huge opposition from the oil, auto, and airline industries so politically is a pipe dream. This is why I list energy conservation as a serious socio-political problem. Technical solutions are not that hard.

We often read that American companies got into trouble because of high labor costs and the push of unions for more and benefits. The fact is that American industry was in good shape 40 years ago when union membership stood at about 60% of the labor force but it is in bad shape now when union membership has declined to about 10% of the labor force. (The percentages may not be entirely accurate, but the figure I give are at least close to the true ones.)

Like many other people I drive a Japanese car made in Ohio. The last American car I drove was quite a lemon. Clearly, American workers can build high quality cars under the right management. The auto industry not failed to come up with high quality cars, they also were quite late in producing small cars. Why is that Japanese companies were first with the fuel efficient hybrid cars?

There is one American company that I am quite familiar with (Symbol Technologies) and this company's stock trades now at less than a third of its high, has undergone several management changes in the last five years, there have been significant layoffs, and several of its executives are under indictment. The company had already moved its production facilities to Mexico before its troubles started. Its remaining labor force is not unionized. What actually happen is that the company refused to make serious investments in new products because they wanted to cut down costs, so the stock price would rise and the upper management would make more money from their options. (The actual situation was a bit more complex, see http://www.theopavlidis.com/technology/symbol_story.htm.) In short, by maximizing the current profits the management undermined the long term health of the company.

Managers of companies do not always try to create wealth. They often prefer to take it from others (both employees and stockholders). The excuse that the ills of the American Industry are due to its high labor costs seems lame to me.

In the last several years we have seen several companies fail, some spectacularly (Enron, World Com) are less so. Some going through bankruptcy proceedings (several airlines and an auto parts manufacturer), others through painful restructuring (including two major Long Island companies, Symbol Technologies and Computer Associates). Bell Labs that used to be the pride of American technology and where many of inventions that led to the Computer era initiated, is not only a shadow of its former self but it is also about to be acquired by a French company. Xerox PARC, the other laboratory that led to the Computer era barely exists. Where are future innovations in technology are going to come from? Maybe from the Academia Sinica in Beijing. Many American icons, RCA, Pan Am, TWA, AT&T have disappeared. Are General Motors and Ford going to be next?

I believe there is a connection between the income discrepancy discussed in No. 1 and the company failures. Two factors: As I already pointed in No. 1, when income is accumulated by the super rich it is not likely to be spent in consumer goods but rather in exotic purchases. Money taken from the middle class is taken away from the consumer market.

A second factor is that business executives have been adopting a particular selfish attitude trying to maximize their own income at the expense of the well of the companies. It is not only the executives of Enron and World Com who abused the interests of their shareholders (many of them pension funds) and their employees. So did several others although to a lesser degree that kept them on the right side of the law (but on the wrong side of ethics). I have detailed elsewhere the story of Symbol Technologies. The greed and mismanagement there were not limited to those who broke the law.

What has happened in the last 50 years or so is the so-called people's capitalism. Individuals do not own major parts of companies any longer. Instead the managers supposedly work for the mass of the stockholders. Unfortunately, this is not far from the Soviet model where the "people" "owned" everything and the managers worked for the "people." As a result managers do not care about the long term well being of the company and look only for what is best for them. (The parallels between the Soviet and the modern capitalists systems were pointed out by J. K. Galbraith in his book The New Industrial State.)

By manipulating the stock price they increase their income to astronomical levels (through options, etc) and let the companies crumble. Such irresponsible greed has led to the demise of companies as well as the downgrading of industrial labs. How can we counteract this tendency? Make the managers have a stake in the long term health of the company. I have read several ideas about how this can be done, mainly by allowing managers to cash stock options only in the far future. But of course the current managerial crowd objects to such measures. It will make them work to earn their money.

It is interesting to compare the apparent prosperity of the American economy with the apparent stagnation of the Japanese economy. American companies slashed costs by large layoffs while moving operations out of the country without concern about the fate of their employees. In contrast, Japanese companies avoided large layoffs. Economic stagnation was a small price to pay for keeping social stability.

This brings up the issue of balance. People like to think in simple terms of good and bad and the news media encourage them to do so. We hear talk that free markets (used to be known as capitalism) are good or that fighting poverty (used to be known as communism/socialism) is good. In reality pure capitalism and pure socialism are both bad. I recall some maxims: "capitalism is based on greed and socialism on envy" (both deadly sins) or "Under capitalism, man exploits man. Under communism, it's just the opposite." (Attributed to J. K. Galbraith in Quotations Space.) Or “Under capitalism man exploits man; under socialism the reverse is true” (Claimed to be a Polish proverb in Think Exist.) The modern experience suggests that regulated free markets are a better alternative to either extreme. Clearly, the government should regulate only some part of the economic activity but should not have control over the economy. The key question is what would be the extent of the regulation, neither 0 or 100% are acceptable answers.

What I believe is happening that the relaxing of government regulation that started in the Reagan era, not only contributed to the income inequality, it also contributed to the destruction of companies. Consider two ways of earning an income of $1 million a year. One by managing a company of 10,000 people, the other by earning it in stock market trading. (While some conservative economists argue that the latter also creates jobs, I prefer to look at the immediate impact.) In the former there is an increase in overall wealth of the society, in the latter there is only traffic in wealth, part of which "sticks in the hands of the carrier."

Kevin Phillips makes a big issue in American Theocracy of the shift of the economy from manufacturing to financial services. On page 274 it displays a diagram from Baron's that is shown below (produced by redrawing the original - it is not an exact reproduction.

The similarity between this diagram and that shown in part 1 is remarkable. The peaks do not occur in the same year. In the above figure they occur a few years later than in the figure of part 1.

This may have been a bit rambling, but what I am trying to say is that replacing industrial activity by financial manipulation is not only risky in its own, it also contributes to increasing the income inequality.