Showing posts with label economics. Show all posts
Showing posts with label economics. Show all posts

Thursday, August 2, 2012

China: A Potential Superpower
This is a layman’s big picture analysis of China’s power status.

It was brought upon by a throw away comment from a friend who, in mentioning that the US and China have each been getting the most medals, noted that it is funny how "superpowers compete through the Olympics."

China, however, only has the potential to be a superpower, as do some other nations, such as Japan and India. The following explains why.

There are at least three areas in which a superpower must be globally formidable: military, economic and political.

Economy

China’s economy is large and expanding rapidly. While this rate of growth cannot endure forever, it is already placing it as the second largest economy in the world. It has fingers in every continent. It has an abundance of resources, and an abundance of the three fundamental aspects of an economy: land, labor and capital (though the latter is not as guaranteed for them as some other economies, as immense capital generation has its own set of constraints).

There are some powerful differences between China and the two superpowers of the last century, however. China’s economy is dominated by exports. It cannot survive without them, because, like any export-driven economy, its own people cannot consume all of its surplus. It literally must export or shrink. This is not a problem for the US, and was not a problem for the Soviets. A superpower’s economy cannot be so constrained and limited in scope. China is currently working to alter this, but it will take time, and will be difficult under the current global economic climate.

Military
Now, combine this critical conundrum of China’s economy to the current state of the oceans. The US navy dominates the world’s oceans to a degree unseen in the history of the world. Global trade is literally contingent upon the US navy’s permission. In a war against China, the US navy could catastrophically shut down their export-dominated economy by eliminating critical sea travel. In a hypothetical WWIII with the Soviets, this would not have been possible, as they were far more self-sufficient than China currently is. For historical precedent: the real unsung heroes of the Pacific War were the US submarines which destroyed Japan’s economy and its ability to continue the war beyond a certain point. China has no counterstrike to this, or similar tactic to use on America, despite many Americans' fears that China "owns all our debt."

Any power that has this sort of disadvantage should probably not be considered a superpower yet. There is a reason China has recently focused so heavily on their navy. They know their problem and want to rectify it. But it will take time (blue water navies with significant power projection take more than a generation to produce).

Military analysts believe that the US could prevent China from invading and conquering Taiwan, a tiny island right next door. China could certainly invade and dominate adjacent, small, continental nations - but this is well within the ability of a regional power, which is what China is.

China cannot militarily dominate significant nations at significant distances. The US has consistently done this since becoming a superpower; the Soviets consistently did so as well. The bottom line is that China’s military, despite its fearsome size, simply does not have the capabilities that the military of a superpower has.

Political
China’s political clout is heavy in some areas of the world. But, its own neighborhood is fraught with nations that have the ability to constrain it. By contrast, no nation in the entire western hemisphere can ultimately constrain the determined political goals of the US – nor could the nations surrounding the USSR.

The USSR had a great many lesser powers that it had dominated militarily, and then pretended were in an alliance with them, called the Warsaw Pact. The only real comparison of this to China is its relationship with N. Korea. Though China could attempt to create its own version of a Warsaw Pact, it is far from it, and there are significant barriers to its potentiality. For example, Japan and India would move to prevent this – and their aggregate opposition would probably be enough. There were never two countries (or six or eight or twenty) in Russia’s neighborhood which could have prevented Soviet domination of Eastern Europe.

China wants to, but simply doesn't have the sort of world class political clout that an actual superpower wields.

Monday, March 12, 2012

Killing citizens, 5% GDP, and hating Walmart

Obama targeting US citizens?
A friend of mine recently told me that Obama should be impeached because of the drone attack which he signed off to kill a US citizen named al-Awlaki in 2010. Al-Awlaki was a fairly senior member of Al Qaeda in the Arabian Peninsula (AQAP). My friend’s argument was essentially that no US citizen should be deprived of due process. My retort was that the question must first be answered if this is war, or a matter of law enforcement and criminal prosecution.

A reasonable person could accept Obama's and Eric Holder's position, without feeling like it leads to a slippery slope in which the government can begin to preclude due process in a variety of cases. Obviously that's the implicit worry that a reasonable person would have about this situation - a worry that I don't share because of the following reasons:

The president, by directing the armed forces during war, is authorizing those armed forces to kill all senior al Qaeda members. If this task is successfully executed by the armed forces, this has the same result, regarding al-Awlaki, as him being specifically targeted. (Because either way this US citizen would not have the right to a trial, etc.) In other words, the fact that he was specifically selected as a target is irrelevant in practice.

This means that in order to be consistent regarding the imperative of applying due process to all US citizens in all possible situations, one must necessarily argue that the armed forces must specifically avoid killing him in any combat, since they are aware of his existence.Of course this is impractical for many reasons, not the least because they may not always be aware they are shooting at al-Awlaki during a particular firefight. And this is why it matters whether this is war or not. But even if it were not impractical and US forces could be certain to avoid killing him (a very dubious and theoretical proposition, remember), it still brings up a constitutional dilemma. The conundrum is this:

The constitution authorizes the president to direct the armed forces in war. Warfare is conducted against groups of people (whether nations or, in this case, terrorist organizations). Waging war entails killing combatants of that enemy group indiscriminately. Therefore, by waging war the president is implicitly authorized to kill individual members of that group. As stated above, it doesn't matter whether this authorization is specific or general. It happened to be specific.

On the other hand, all US citizens must also be given the right to a speedy trial and a jury by their peers, etc.

Which part of the constitution is more important?

My answer is that warfare is clearly different from criminal prosecution and therefore operates under a different set of rules. Due process is irrelevant in this situation.

But there’s another answer that meets both specifications. According to my friend, someone who does not live in the US, and actively fights against it, would be in effect giving up his citizenship. This should end the question too, since al-Awlaki absolutely meets these conditions.

5 percent GDP growth
Larry Kudlow recently said we have a post-war GDP growth average of 4.6 percent. Last year I was ridiculed by friends because I said with the right president and Congress we can have 5 percent. I said this because one of the GOP candidates (of back then, someone not in the race anymore) said that we must have 5 percent GDP growth for the next ten years. I understand that is not easy to do – but if we’ve almost averaged this for the past 60 years, why should it be hard? Because we’re in a recession? Well, that will soon change, and I think that was the point of the candidate. In any case, I wish one of our leading presidential candidates would again say, “it’s time for America to have 5 percent GDP growth!”

Economies are built upon four principle things: land, labor, capital and innovation. America has more useable land than any other nation, or nearly so. It has an extremely low relative population density, in any case. We are replete with a large labor pool and have a tradition of immigration to increase it over time – plus we have a higher birth rate than almost every other developed nation. We are consistently flush with capital, and unlike Europe and many other places, we rely less on banks to fund new enterprises, and entrepreneurs have more diverse options for getting their businesses going. And finally, not only has America driven the technological progress of the previous century, but we are by no means becoming a second rate engine of innovation. The big picture seems to show that America has the potential for high GDP growth. So, why is it so hard to believe that with the right leadership we can’t have it?

Disliking Walmart
A lot of people dislike Walmart. I don’t. A few years ago they started the whole generic prescription for 4 dollars, some for 10 dollars, making millions of person’s lives easier to get needed medication at extremely low prices. Every other major pharmacy followed suit. At the time a friend who dislikes Walmart said “they were just reacting to market forces, don’t praise them for that.” Well, no other major pharmacy did this, so even if they were merely “reacting to market forces,” they didn’t have to do this (on the other hand, all the other pharmacies clearly followed suit so they wouldn’t lose all their business to Walmart). But medication, I would imagine, is a pretty inelastic commodity relatively speaking. You either need it or you don’t, and price change isn’t going to affect demand drastically. Sure, Walmart probably make this price change to snatch up a larger share of the pharmaceutical market, but I don’t care about motives – I care about how it affects me as a consumer! No business is an exercise in altruistic philanthropy. I only care that it provides service for me that I want at a low price. And they led the way in doing this.

If you can only think of businesses as good for altruistic reasons, then what about this:
I remember five years or so when they donated an equal amount of land to the federal government for conservation to all the land of every retail and corporate real estate that Walmart owned. Essentially, they doubled the amount of land they owned, and then donated half of it for national and state parks and wilderness preserves. There’s no possible way this could give them enough tax breaks to offset this plan (otherwise wouldn’t lots of other businesses do it too?). They weren’t praised for it, even by many environmentalists as I recall at the time! I like businesses that do things like this.

So, then my friend argues that Walmart forces vendors to lower their prices (if you can sell to Walmart, you’re gold as a vendor, so it’s in their interest to give Walmart a great price). But by forcing vendors to lower their prices, it encourages lower product quality. (My friend has an uncle who owns a company which actually sells a nice quality product to Walmart – but is constantly having to lower its quality to meet Walmart’s low price demand). However, while I would feel bad for the vendor if he were my uncle too, isn’t the vendor just a business like Walmart? Why should the average consumer feel empathy for him? You see, from the consumer’s point of view, if Walmart has low quality products, then the consumer can go to another store to buy higher quality products at higher prices! That’s what I do – I don’t buy everything at Walmart because some things are lower quality there. And that’s fine. If Walmart sold things of better quality they couldn’t sell things at their low prices. This is all just economic common sense. I’m glad I have the option of going to different stores with different products. It is our competitive market which allows this freedom for the consumer. Why should Walmart get some kind of special blame for anything? They are a good store that sells products commensurate to their prices. And that’s all they are. Stop hating! It’s unamerican!

Tuesday, June 8, 2010

The Energy of the Future

I knew that solar energy is the most efficient source of energy (since it's powered by fusion, after all), but I wanted to know more after I talked a few days ago with a friend who believes that nuclear power and super batteries are the way of the future. I wish we had way more nuclear plants - they're super cheap (in energy production costs) and super green. But we don’t. And I’m sure batteries will become better over time, but batteries do not generate energy.

Anyway, I found the following from the US Department of Defense's 2007 study called "Space-Based Power as an Opportunity for Strategic Security" -

"The magnitude of the looming energy and environmental problems is significant enough to warrant consideration of all options, to include revisiting a concept called Space Based Solar Power (SBSP) first invented in the United States almost 40 years ago. The basic idea is very straightforward: place very large solar arrays into continuously and intensely sunlit Earth orbit (1,366 watts/m2) , collect gigawatts of electrical energy, electromagnetically beam it to Earth, and receive it on the surface for use either as baseload power via direct connection to the existing electrical grid, conversion into manufactured synthetic hydrocarbon fuels, or as low‐intensity broadcast power beamed directly to consumers. A single kilometer‐wide band of geosynchronous earth orbit experiences enough solar flux in one year to nearly equal the amount of energy contained within all known recoverable conventional oil reserves on Earth today. This amount of energy indicates that there is enormous potential for energy security, economic development, improved environmental stewardship, advancement of general space faring, and overall national security for those nations who construct and possess a SBSP capability."

I knew that orbiting solar panels would have vastly more efficient energy-gathering power, but I didn't know it was this much! Read the section I put in bold again. I don't know exactly how much energy is estimated to be contained in all known recoverable conventional oil reserves, but it's certainly more than a decade’s worth of world energy consumption (and it’s probably well more than two or three times that – 20 to 30 years). So, this sentence in bold, if accurate, is saying that a panel (or set of panels) just one kilometer wide in space would produce at least ten times more power in a year than the entire world consumes in a year!
Solar energy, gathered from orbit really is better than any alternative.

We already have the technology to launch and maintain satellites in space. We already have photovoltaic cells (solar energy gathering technology). The only thing we cannot yet do is beam energy in the form of electromagnetic waves. I have no idea how long that might take to have.

But, for the sake of argument, let’s pretend that we can beam energy to earth, but we cannot put in orbit panels effective enough to capture all of the energy that the sun is outputting. Let’s say that our kilometer wide panel can only capture a mere one percent of the sun’s energy beaming onto it. That would mean that it is capturing at least ten percent of the world’s energy consumption for one year (since the sun’s output per year is equal to at least ten years of world energy consumption). So far so good. Since the US consumes about a quarter of the world’s energy (last time I checked), then this kilometer wide panel (or set of panels) in orbit could produce each year more than one third of the energy consumed by the entire United States! The impact would be staggering – and remember, this would be for a solar panel that is only gathering one percent of the sun’s output, which I would imagine is a very inefficient, poorly designed solar panel.

However…there is an economic barrier to this project since satellites cost billions of dollars (and this was my friend’s principal argument against orbiting solar panels). But a cost-benefit analysis is obviously in favor of doing this! The entire world's energy supply being met and exceeded by only a few dozen satellites could only outweigh any conceivable cost.

To put it simply, the enterprise which can put up the first orbiting solar panel could be the world's first trillionaire! Hydrocarbons (and nuclear power plants) would become obsolete (at least as soon as we can manufacture every machine to be electrical) and we would never want for energy - and eventually, no nation on earth would want for energy, as soon as the infrastructure to procure the transmissions from space are in place in a given nation.

It sounds too good to be true, but then again, so was nuclear energy. However, orbiting solar panels won't have the whole radiation/meltdown thing, or the nuclear bomb baggage. So once orbiting solar panels begin, they probably won't ever decline like nuclear power did.

The study also says:
"NASA and DOE have collectively spent $80M over the last three decades in sporadic efforts studying this concept (by comparison, the U.S. Government has spent approximately $21B over the last 50 years continuously pursuing nuclear fusion)."

Cold fusion would grant unimaginable levels of energy - like one fusion plant could power the entire world's energy needs for centuries. But the technology is way more complicated than nuclear fission plants; plus it is apparently impossible to achieve (according to most physicists since the 90’s).

So what are we talking about here?

While both cold fusion and orbiting solar panels would eradicate all of our current energy problems while simultaneously destroying the global warming problem, only the orbiting solar panels are economically realistic and technologically feasible. And despite this, for every dollar spent by the US govt. on orbiting solar panels, $262.50 have been spent on a pipe dream that has no real chance of going anywhere. (Here’s the math - 21 billion is equal to 21,000 million – so we’re essentially comparing, in dollar terms, a ratio of 2100 to 8 or 262.5 to 1).

As soon as the US government starts to actually fund this effort, like it funded the nuclear power stuff in the 30's and 40's, there might be a revolution in energy! I hope so.

Wednesday, April 28, 2010

Democracy, Freedom and the Equal Distribution of Resources

It would take a far larger work than an essay to analyze the relationship between political and economic systems. This essay is limited to two connected theses regarding that complicated relationship. The first is that democracy is the best political system because it provides more freedom to more people than any other political system. Inherent in this proposition is that freedom is what actually matters. The second is a critique of Robert Dahl’s assessment of the relationship between democracy and free market capitalism. Dahl describes a potential problem existing between free market capitalism and democracy. He explains that the unequal distribution of resources generated by the free market can limit the democratic potential in a nation or system. While this is an important, well argued critique, it is only part of the picture. He does not contend with some inherent implications of his argument. One implication is that, by contrast, an equal distribution of resources would not limit democratic potential. But, in fact, the equal distribution of resources could also limit democratic potential by limiting freedom. In only arguing that an unequal distribution of resources can limit democratic potential, when in fact both an equal and an unequal distribution can potentially do so, Dahl paints a conceptually myopic portrait of the relationship between the free market and democracy. Dahl additionally offers no explanations as to how the unequal distribution of resources might enhance democratic potential by enhancing freedom. Dahl needs to expand his critique so that he does not seem partial about the relationship between the free market and democracy. It would be outside the scope of this essay to provide all concievable answers to these questions; several possibilities are presented.

Democracy is the most worthwhile political system for a nation state. This is because it provides more freedom to more people than any other plausible political system. Democracy and freedom are not synonyms. They are certainly related, but they are distinct concepts. The value of democracy hinges primarily on its capacity to grant freedom, not on any intrinsic virtue. If another system provided more freedom than democracy, that system would be more desirable. Such a political system is difficult to conceive, however. Democracy is likely not only the best currently available, but the best that is plausible.

Robert Dahl, in his book On Democracy asks the question, “why should we believe that democracy is a better way of governing the state than any nondemocratic alternative?” [Dahl 45]. His elegant answer comprises ten points, or “desirable consequences” of democracy -
1. Avoiding tyranny [Dahl 45]
2. Essential rights
3. General freedom
4. Self determination
5. Moral autonomy
6. Human development
7. Protecting essential personal interests
8. Political equality
9. Peace-seeking
10. Prosperity
These features have a common theme. Nearly every consequence is directly related to the concept of freedom. The following is a less specific, general way of expressing each of these same “desirable consequences.”
1. Freedom from oppression
2. Freedom from oppression
3. Freedom
4. Freedom to choose for oneself
5. Freedom of conscience
6. Human development
7. Freedom from oppression
8. Freedom from oppression
9. Freedom from wars
10. Freedom from poverty
The final two points are expressed slightly facetiously. Expressing peace and prosperity as facets of freedom is to conflate the three concepts. They are all three related and interconnected, but it is outside the scope of this paper to explore their relationship. Nevertheless, a people mired in poverty or conflict is hardly freer than a people which is not. Without exploring every qualification, in general it can be assumed that peace and prosperity are types of freedom (or can be reasonably included in a broad definition of it).

In a quick counting, 9 out of 10 of the very reasons democracy is desirable deal directly with freedom. The 6th point, human development, is expressed eloquently in terms related to freedom by Dahl. The potential for human development in a society includes “…the scope within which adults can act to protect their own interests…take responsibility for important decisions, and engage freely with others in a search for the best decision” [Dahl 56]. Apparently Dahl’s explanation for why human development is a desirable trait of democracy is because, like every other consequence of democracy, it provides freedom.

For Dahl, democracy’s capacity to grant freedom is its great virtue. It is therefore quite reasonable to argue that, in sum, the reason democracy is desirable is because it provides more freedom than any other political system.

In dealing with abstracts, rather than practical application, a qualification must be included. A political system (or non-system) which provides an individual with complete freedom to act as he or she wishes is undesirable. Indeed, this system would fail at its fundament, because such a system could only provide complete freedom to a single individual, not everyone. As soon as the first individual to exercise his “complete freedom” to steal another’s car or burn down another’s house, the system has failed by allowing one individual’s “freedom” to impinge on another’s.
What is desirable then, is not the intractible concept of complete freedom for every individual. The question is utilitarian and becomes ‘which system will provide the most freedom for the most individuals?’ Democracy is that system.

Having explained that democracy is the best political system because of its vast freedom-granting potential, Dahl notes that it “has existed only in countries with predominantly market-capitalist economies” [Dahl 166, emphasis in original]. However, he warns, there are reasons as to why free market capitalism does not “favor” democracy [Dahl 173]. He explains that “because of inequalities in political resources [generated by the free market], some citizens gain significantly more influence than others over the government’s policies, decisions and actions” [Dahl 178]. Put in a less theoretical presentation, Dahl is saying that a person or organization such as a lobby with a lot of money (or some other powerful political resources) could buy off or pressure a law-maker or could directly persuade the voters themselves.

Suppose a rich person buys all the newspapers (or some other communications media). That person will naturally have more influence over voters than everybody else who cannot decide what is said in that particular communications media. This appears to limit the democratic potential, as Dahl asserts. The implied solution seems to be that wealth and political resources be distributed evenly among all individuals so that no single person is wealthy enough to own all the newspapers.

It is not so simple. Now imagine a system where all political resources and wealth are distributed evenly. Why could not a group of individuals – with the right to associate freely – combine their personal resources to influence the other voters? What if they combine their resources to purchase all the newspapers which, in the other scenario, were owned by a single individual? This group, composed of people who are otherwise political and economic equals, now have more political resources than a random citizen of the electorate. The unequal distribution of wealth generated by the free market cannot be blamed for this particular inequality of political resources, because the individuals of the organization each have no more wealth than anyone else. Yet the result and the effect on democracy would be the same in either scenario.

For the first scenario, the solution seems to be to distribute wealth evenly so that no single person would have the means to own all the newspapers. For the second, however, how could the combined means of many people to buy all the newspapers be taken away? That is, after all, the current state of all publicly owned media, whether newspapers or otherwise. The most plausible solution is to completely socialize the communications media such that every citizen owns an equal portion. However, if all the people collectively owned the newspapers, we have only created a solution with its own new problem. The newspaper media would become essentially state-controlled (millions of owners could not participate in the functioning of the media, so the state would be the natural director and manager).

State-controlled media, even in an otherwise completely democratic society, would contradict one of the requirements for a democracy. Dahl explains that “alternative sources of information [must] actually exist that are not under the control of the government” for a large-scale democracy to function properly [Dahl 86]. It is extremely easy to find examples of why state-run (or controlled) media is detrimental to freedom and incompatible with democracy, from the former Soviet Union to modern day China.

Then, what is the solution to our problem? There can neither be an inequality of wealth, nor an equality of wealth in which the right to associate freely is protected, nor can there be state-controlled media. The solution would likely be government regulation (anti-trust laws or some other kind of protection) such that neither the rich man nor the group can control all the newspapers (provided that the law does not infringe their right to associate freely). But an analysis of the best solution is outside the scope of this essay. The salient point is that the solution does not inform us on whether we should allow for an inequality of wealth (scenario of the rich man) or an equality of wealth (scenario of the group). In other words, both the free market and a system which grants equality of wealth can experience a limit on democracy – a limit which is identical for practical purposes.

The implication of Dahl’s critique can be carried further. For example, how could it be reasonably enforced that wealth be distributed equally? Assume there exists an economic system in which every person’s income equals every other person, regardless of his or her job or position. This does not ensure an equality of wealth unless everyone spends his or her money the same. If person A chooses to save her money and person B chooses to spend all of it, then person A will end up with more wealth. If laws are enacted to ensure that all income is spent in the same fashion, then the society borders on the creepy, highly undesirable world of Big Brother. Ensuring an equality of political resources can potentially limit freedom, rather than produce freedom. Dahl is silent on this, though he would certainly oppose such laws.

Dahl is equally silent on how an inequality of resources can actually generate or preserve freedom. In contrast to some of the potential limits a full equality of wealth might have on individual freedom, there are ways in which the inequality of wealth can be a boon to freedom. For example, if wealth were distributed evenly, one would have the difficult time of finding agreement between many, many others (as described in the second scenario about the communications media) in order to disseminate knowledge and ideas. This would be a much simpler task in the free market. According to the economist Milton Friedman, “In a capitalist society, it is only necessary to convince a few wealthy people to get funds to launch any idea, however strange, and there are many such persons, many independent foci of support” [Friedman 17]. A man is therefore freer to propagate ideas and to convince others of their soundness. This greater ability to disseminate ideas is an expansion of freedom, not a restriction of it. This potential benefit to freedom, and therefore to the basis for a democratic system, is the obverse of Dahl’s critique that the free market allows some political influences to be stronger than others. Dahl is completely silent on this side of the issue.

There are other ways the unequal distribution of resources relates to freedom, which Dahl fails to mention, or mentions them very indirectly. Three of Dahl’s ten reasons why democracy is the best system, as stated previously, are “protecting essential personal interests,” “self determination” and “human development.” In describing these points, Dahl says “you will surely want to exercise some control over the factors that determine whether and to what extent you can satisfy your wants – some freedom of choice, an opportunity to shape your life in accordance with your own goals” [Dahl 52]. Imagine a person, no matter how determined she is, no matter what lengths she goes to develop her mental capacities and her skills and natural proficiencies, finds that she can never attain an increase in wealth. She is limited by the sum total of wealth, which is distributed perfectly evenly throughout a society. She is less free than someone who, by the fruits of her perseverance, labor and talents, will actually reap the financial consequences of her actions. She is not free to act to “protect [her] own interests” and therefore to experience the “human development” and “self-determination.” that are desirable consequences of democracy [Dahl 56]. Dahl is silent on this aspect of the relationship between protecting one’s personal interests and the unequal distribution of wealth in the free market. Much (though certainly not all) of the inequality of wealth generated by the free market is the result of individual choices, made freely by individuals. Since the consequence of inequality of resources within the free market can be the result of the economic freedom that the free market grants to individuals, to deprive the system of the ability to generate an inequality of resources would be to limit freedom. And freedom is the desirable fruit of democracy.

The relationship between free market capitalism and democracy is complicated. Dahl’s critique can be summed up as ‘while democracy creates political equality, the free market can limit that political equality.’ This is an insufficient representation of the relationship between democracy and the free market, however. Democracy also creates individual freedom, and the free market can help to generate and ensure that individual freedom. The facet of the free market that Dahl specifically says can limit democratic potential – the unequal distribution of resources – is a facet of the free market that can help to preserve freedom. Yet Dahl presents only one side of this particular issue. Regarding the unequal distribution of resources, he exclusively explains that it is detrimental to democracy. If democracy really is all about freedom, as Dahl argues in the first place, then he should expand his critique of the free market to include how it can also protect that freedom.

Works Cited
Dahl, Robert A. On Democracy. New Haven: Yale University Press, 1998.
Friedman, Milton. Capitalism and Freedom. Chicago: University of Chicago Press, 1982.