Economics grew out of philosophy.  Early economists were usually men of financial substance with a philosophical and scientific education.  Many could write in Latin as easily as English or whatever their native language.  But morality always played a large role in their thinking.

Not so much today.  Economics has produced the concepts of marginal utility, various classroom equivalences, efficiencies, comparative advantage.  The new commandments.  A so-called science now, our economics.  Darwinian in the sense that economics will describe human activity as Darwin did:  Economics describes human activity as Darwin does nature’s process of weeding out the weak to promote the strong. 

The problem with all this is that we become forgetful of our own weaknesses.  We ignore our remaining ignorance.  And without moral guidance as substitute for what we do not yet know or understand, we often produce misery, unfairness and a callousness that mocks our humanity.

Consider what we face as we pursue science.   From the book ‘Happy Accidents, Serendipity in Modern Medical Breakthroughs’ by Morton A. Meyers, M.D.

“There are more than  ten thousand billion cells in the human body.  In most tissues, cells are continually dying and being replaced, and control of the equilibrium is critical in maintaining the normal architecture.  The complex biological blueprints for the behaviour of cells are controlled by their genes.  Humans have 20,000 to 25,000 distinct individual genes, and genetic information is carried in DNA molecules.  The human genome is estimated to include 3.08 billion units of DNA.  The complexity of what the cell’s machinery can generate is indicated by the fact that a few thousand genes can make trillions of combinations of proteins.  Cells multiply ten million billion times during the course of each human lifetime.  Mutations, random changes in the design of a gene’s DNA structure, occur constantly, because there is an intrinsic error rate when DNA is copied.  In extreme errors, the cell will self-destruct; otherwise, the aberrant cell survives.”

Faced with this complexity, this amount of unknown, a moral compass is absolutely necessary. Norbert Wiener, in his book “Invention: The Care and Feeding of Ideas,” put it this way.  The approach is not “How can I solve this problem?” but “Now that I have come to a result, what problem have I solved?”

If economics describes a price drop, that is a result.  But not so easy to answer is the question ’what problem have I solved?’  And the assumed corollary question, ‘what problem might I have created?’  The ‘benefit’ of a drop in price might be obvious.  But what if this ‘benefit’ generates another result:  Unemployment? 

How do you insert morality here?  Unemployment vs a more affordable product.  Economics, in its current form, assumes those unemployed will eventually find employment elsewhere through various methods.  And morality charges us with helping them in that transition. 

But what if the unemployment is massive?  Unwieldy.  What if our moral sense requires us to spend billions of dollars over several years helping those who have become unemployed?  Was the original result of a lower price sufficient to shoulder the huge costs of dealing with the unemployment created?   And with so many people unemployed is it true that ‘more’ people could afford the cheaper product(s)?

And so on.  These considerations, both in economics and in science, will be with us as long as we’re here.  And as life is as complicated as Meyers describes above then what basic moral guides do we embed in all these endeavors?

One must be that we do not produce misery for people uninvolved in our research or experimentation.   Examples of the misery we can produce without this moral guide are too numerous to mention.  Thalidomide and Love Canal come easily to mind.  Thalidomide was widely sold without proper vetting.  Love Canal is the result of blithly ignoring what misery can be caused by polluting our natural environment.

Widespread unemployment is a misery we regularly create by too easily claiming ‘results’ as benefits.  Offshoring manufacturing to regions where products can be made cheaper, often simply because of cheaper labor, create the misery of domestic unemployment.   Financial ‘innovation’ that gives ‘results’ of more home ownership may create too much debt and encourage too much leverage which produces the additional ‘result’ of economic collapse.

The industrialization of agriculture, which produces the ‘result’ of less expensive food, can also produce a destruction of food diversity and the production of toxic food and huge swaths of ‘dead zones’ in our seas caused by the use of artificial fertilizers.  Our weakened moral compass can too easily be overwhelmed by our new-found economic ‘commandments.’

With our new economics, unbound by moral sentiments, we’ve seen a steady decline in the living standards of the majority of working men and women in the United States.  Called an ‘income shift,’ a larger and larger proportion of the nation’s income has steadily landed in the laps of fewer and fewer people atop the income scale.  

It’s not as though this steady shift wasn’t noticed.  It’s been remarked upon for decades, and it’s been pointed out such an income shift occurred in the mid to late 1920s, just prior to the Great Depression.  But there was no moral sentiment available to re-direct income down, not up, the income ladder.  The understandings learned from the Great Depression were eventually forgotten under the onslaught of economic ‘science’ that preached various efficiencies and then conflated those results as unalloyed ‘benefits.’

In a very complicated world that we very imperfectly comprehend, strong moral sentiments, a strong moral compass, is necessary to avoid producing huge amounts of misery on the innocent.  Unfortunately, we may no longer have the modern equivalent of those original economists.  They were as much philosophers as scientists and their ideas contained embedded, well understood moral arguments.

We need them back.

While lots of people, mostly Republicans, publicly wail about the deficit created by the ‘wasteful’ spending of  Democrats it might be a good idea to see what is causing the deficits.

As it turns out someone named Justin Fox (editorial director of Harvard Business Review) did just that in a very brief article published by Reuters.

Macroeconomics is the study of national economies but in today’s globally intertwined world maybe there should be a Megamacroeconomics field of economic study.

Right now the United States and most of Europe, the so-called ‘developed’ economies, are struggling.   Growth is non-existent.  Unemployment is high and a lot of capital remains idle.  Economic recession grips both sides of the North Atlantic.  In short, there isn’t enough demand for what can be produced.

By contrast the developing countries of the Far East barely skipped a beat economically and continue to enjoy robust growth rates.   Much of what is produced by manufacturers in these countries is bought by other regions of the world, primarily the United States and Europe.  These countries have followed an export model for growth. 

Obviously this model may not be sustainable, at least at the rates of the past 20 years or so, if the North Atlantic countries cannot continue being the major customers.  Demand will not keep up and the problems of recession could spread back into the Far East.

So where’s the new demand going to come from?  Considering the relative size of the two major Far East countries, China and India, this is where the new demand may arise.

China contains 1.34 billion people.  India is not far behind with 1.89 billion people.  These two countries hold almost 37% of the world’s population.  The United States, with 310 million people or 4.52% of the world’s population, cannot continue to be the ‘buyer of last resort’ forever.

If demand and production are to come close to equilibrium, on a world wide basis, the higher demand needed will have to come from the Far East.

But in order for this demand to increase enough, China and India must recycle more of their income to larger numbers of their populations.  The two countries house hundreds of millions of citizens who are barely surviving.  Huge income disparities remain to be closed.  If they are closed, then by dint of their sheer size, demand from these countries could  match productive capacity.  A new, higher equilibrium could be achieved.

Or can it be achieved?  Bringing 500 or 600 million people into relative prosperity may not be possible simply because of resource constraints.  Whether it’s oil, or minerals used to produce just about everything including food, it’s an open question that there’s anywhere near enough of these materials to satisfy such a huge boost in demand.

Who knows?  We need some megamacro economists to gain insight here.

Efficiency, as currently defined, essentially means that one can produce something with ‘less.’  The most common measure of efficiency is the price of the product.  If the quality and availability of product can be maintained, or even improved, at a lower price then that’s efficiency at work.

OK, simple enough so far.  Now let’s apply this definition to an important input into production: Labor.  Efficiency could, and often does, equate to using less labor.  This efficiency often arises due to innovation in machinery.  New machines can crank out whatever with fewer laborers involved.  Technology innovation can eliminate labor in much the same way.

Economic theory assumes that new jobs are created as well.  New machinery, or technology, doesn’t create itself.  It takes labor to produce these innovations.  But what if the number of new jobs created is less than the number of old jobs eliminated?  Does a strict adherence to efficiency create idle labor, which by definition is ‘inefficient?’ 

And thus the dilemma about efficiency.  Today in the United States there’s relatively high unemployment.  The official figure is 9.7%.  But the ‘real’ idleness in the labor force, by most professional measurements, is closer to 17%.   Yet in contrast efficiency measures for private corporations are at all time highs!  Corporations balance sheets are laden with cash, in part because the corporations eliminated many jobs and learned how to make increased profits even in a recession.    But by many measures corporations having so much cash is inefficient.  It’s just sitting on the balance sheet and is not being re-invested in capital improvements.  More dilemma?

Or consider the issue of offshoring capital in order to take advantage of lower labor costs.  Even if the offshore facilities are not as ‘efficient’ compared to facilities in higher labor cost locations, as measured by the number of employees for example, the lower labor costs outweighs the loss in efficiency.   So in this particular case a strict measurement of efficiency needs to be modified.  Much lower labor input costs can be more important than the use of the latest innovations in machinery and technology.  Some argue that these lower labor costs, even if more people are needed to produce the product, are an important form of efficiency.   And of course, if the latest technology and machinery can be installed and operated efficiently by much cheaper labor, then the efficiency model need not be re-considered.  It still holds in its pure form.

These two examples often occur together in the modern world.  To build a modern production facility in a low labor cost location where no more labor is required than that needed in the higher labor cost location, equates to the modern definition of ‘efficiency.’ 

The dilemma is that in the modern world this model of efficiency is producing huge inefficiencies along the way.  And those inefficiencies are represented in two ways:  High unemployment and degradation of wages overall.    These two inefficiencies dampen demand, in other words.  New jobs are not being created in quantities anywhere near enough to counter the old jobs destroyed.  And at the same time the new jobs aren’t being paid wages high enough to replace those wages lost.

These inefficiencies are also creating a number of other unintended consequences.  The one where private capital is funneled into fewer and fewer hands, as one example of consequence, can destabilize entire countries and challenge the rule of law in many important ways. 

So there are many conflicts.  More than one dilemma.  What can anyone do?

One thing that could be done is to acknowledge the issue of wages and employment.  If official policy is to protect jobs and wages, then policies that explicitly do this need to be installed and enforced.  Education needs and support for families that must move physically in order to gain new employment should be installed, for two examples.

Direct subsidies to legacy industries, or to new job creating industries, are two more methods of addressing imbalances created by innovation.  Capital controls protecting domestic investment should be considered.

Fair trade agreements should consider not only the respective needs for foreign materials and production, but also  the respective needs for high employment rates and livable wages.  

In brief, domestic needs for strong employment and wages should be on even par with all other considerations by all participants.    These tools may not result in the most ‘efficient’ use of capital as measured in today’s economics, but they may result in much more resilient and stable economies.  There will always be wealth and there will always be poverty, but there will be a more fair disbursement of both.

It can be argued, and it is here at Triple Crisis, that the ultimate global economic problem is under-consumption due to labor being underpaid.  

International commerce today is characterized by relatively free movement of money, capital and goods.   But one type of capital isn’t very free to move: Labor.  The result is that fims can move capital into countries with low labor costs and thus compete more effectively in the global arena.

The net result of this fact of life is that there’s more productive capacity in the world than there is capacity to consume.  This gap between production and demand has shown up most visibly in the United States and Europe where debt piled up, and in the developing countries where savings piled up.

The ultimate cure is to boost labor incomes (wages) in both cases but most especially in those countries where export growth far exceeds domestic consumption growth.     China is the poster child here, but not the only one.  Two other countries, Germany and Japan, have the same dynamic as China:  Export growth rates far above consumption growth rates.   It can be argued that once you back out the share of imports contained in Chinese products, Germany and Japan enjoy larger trade surpluses in the United States market than does China.

If these three countries were able to boost domestic wages, and thus domestic demand, then the global gap between  consumption and production would decrease substantially.  For the United States the issue is not so much lack of consumption, it’s the 30 year income shift from labor to the wealthier classes.  This shift resulted in over indebtedness by labor and the middle class which relies more on domestic labor consumption than do large multi-national corporations.

But understanding the imbalance doesn’t easily lead to solving the imbalance.  How do you get China, Japan and Germany to raise domestic wages and therefore domestic consumption?  How do you get the United States to stop, or even reverse, the three decade old shift of income from labor up to the top tier of the income pyramid?

Any way you address this problem, the underlying reality is that the top tier of the pyramid stands to lose some of their gains in all four countries.   And the top income tier always, always, holds considerable influence over their country’s policies.  Recycling a larger share of GDP to labor and the middle class may be ultimately good for all income tiers (because it increases the size of the economic pie), but try explaining that to the top tier from which the share is recycled.

So far, no government appears to be very successful in this regard.  But if the underlying problem is lack of consumption (demand) then it will continue if the dynamic is not changed.

Former Clinton Secretary of Labor, and economist, Robert Reich has written a marvelous article on his blog explaining the political storm that spawned our current economic storm, and continues to keep us from doing what we need to do to recover from our Great Recession.  It’s called a Plutocracy.  And it is decidedly non-Democratic.

“It’s a perfect storm. And I’m not talking about the impending dangers facing Democrats. I’m talking about the dangers facing our democracy.

First, income in America is now more concentrated in fewer hands than it’s been in 80 years. Almost a quarter of total income generated in the United States is going to the top 1 percent of Americans.

The top one-tenth of one percent of Americans now earn as much as the bottom 120 million of us.

Who are these people? With the exception of a few entrepreneurs like Bill Gates, they’re top executives of big corporations and Wall Street, hedge-fund managers, and private equity managers. They include the Koch brothers, whose wealth increased by billions last year, and who are now funding tea party candidates across the nation.

Which gets us to the second part of the perfect storm. A relatively few Americans are buying our democracy as never before. And they’re doing it completely in secret.

Hundreds of millions of dollars are pouring into advertisements for and against candidates  — without a trace of where the dollars are coming from. They’re laundered through a handful of groups. Fred Maleck, whom you may remember as deputy director of Richard Nixon’s notorious Committee to Reelect the President (dubbed Creep in the Watergate scandal), is running one of them. Republican operative Karl Rove runs another. The U.S. Chamber of Commerce, a third.

The Supreme Court’s Citizens United vs. the Federal Election Commission made it possible. The Federal Election Commission says only 32 percent of groups paying for election ads are disclosing the names of their donors. By comparison, in the 2006 midterm, 97 percent disclosed; in 2008, almost half disclosed.

We’re back to the late 19th century when the lackeys of robber barons literally deposited sacks of cash on the desks of friendly legislators. The public never knew who was bribing whom.

Just before it recessed the House passed a bill that would require that the names of all such donors be publicly disclosed. But it couldn’t get through the Senate. Every Republican voted against it. (To see how far the GOP has come, nearly ten years ago campaign disclosure was supported by 48 of 54 Republican senators.)

Here’s the third part of the perfect storm. Most Americans are in trouble. Their jobs, incomes, savings, and even homes are on the line. They need a government that’s working for them, not for the privileged and the powerful.

Yet their state and local taxes are rising. And their services are being cut. Teachers and firefighters are being laid off. The roads and bridges they count on are crumbling, pipelines are leaking, schools are dilapidated, and public libraries are being shut.

There’s no jobs bill to speak of. No WPA to hire those who can’t find jobs in the private sector. Unemployment insurance doesn’t reach half of the unemployed. 

Washington says nothing can be done. There’s no money left.

No money? The marginal income tax rate on the very rich is the lowest it’s been in more than 80 years. Under President Dwight Eisenhower (who no one would have accused of being a radical) it was 91 percent. Now it’s 36 percent. Congress is even fighting over whether to end the temporary Bush tax cut for the rich and return them to the Clinton top tax of 39 percent.

Much of the income of the highest earners is treated as capital gains, anyway — subject to a 15 percent tax. The typical hedge-fund and private-equity manager paid only 17 percent last year. Their earnings were not exactly modest. The top 15 hedge-fund managers earned an average of $1 billion.

Congress won’t even return to the estate tax in place during the Clinton administration – which applied only to those in the top 2 percent of incomes.

It won’t limit the tax deductions of the very rich, which include interest payments on multi-million dollar mortgages. (Yet Wall Street refuses to allow homeowners who can’t meet mortgage payments to include their primary residence in personal bankruptcy.)

There’s plenty of money to help stranded Americans, just not the political will to raise it. And at the rate secret money is flooding our political system, even less political will in the future.

The perfect storm: An unprecedented concentration of income and wealth at the top; a record amount of secret money flooding our democracy; and a public becoming increasingly angry and cynical about a government that’s raising its taxes, reducing its services, and unable to get it back to work.

We’re losing our democracy to a different system. It’s called plutocracy.”