The Illusive Panacea of Meritocracy

Ever wonder why certain people hate Socialism? Probably not. Ever wonder why certain people hate capitalism? Probably not. Have you ever heard the complaint that those systems are unfair? Of course. Okay, so none of this is earth shattering, but there is a common thread that creates disdain? It is the idea of "deserving."

Since the time we were five years old our parents, teachers, storybooks, literary pieces, the movies we watched and our interactions with friends in the school yard all centered around "getting what one deserved." Why do we form lines? It's not because it is the best system for each person individually regardless of their place in the line, but it compliments a system of agreed upon fairness. We believe that first come, first served is fair. That those who are first shall be served first because their timeliness shall be rewarded. They deserve it.

We just as easily could have created a system where the tallest person in line shall always go first. The problem is that if someone is really short they could be waiting for a really long time. They could theoretically be helped after people that arrived much later than them but made the line before they were helped. That just wouldn't be fair would it? The tall people didn't do anything to deserve to be helped first. In fact a system like that would become hard to enforce as short people would be likely to opt out of lines all together and base who is served next on other criteria such as violence, intimidation or "cutsies."

In fact, allowing someone to benefit for something they had no control over would be deemed in the same family as dumb luck. That sure isn't a flattering statement. Luck is receiving something by chance, something one doesn't deserve. Undeserved achievement is so unflattering that one of its recipients may say "better lucky than good," or even more austencious "people create their own luck" to deflect the resulting stigma.

So we have been taught esoteric concepts such as karma, what goes around comes around and someday we all get what we deserve. Is it true? In socialism, their is a tremendous tendency for "free riderism," where individuals can get something they do not deserve. This absolutely burns many who feel like they are getting exactly what they deserve and nothing more. How dare someone get something they don't deserve? In fact, many people are so concerned with who deserves what, that they really don't care if they are getting more than they deserve so long as no one else is. That wouldn't be fair.

In capitalism, often times people condition wealth or monetary success with how deserving the person who possess it. Self made millionaires are far higher regarded than those who inherited money. Those with inherited wealth must "do something" to make a name for themselves or else they are seen as a waste. Smart people stay poor and dumb people rich all the time. While this is not a correlation that we see to be common, it is also not an isolated incident. We all sleep better when the good ones, who deserve it, have good things happen to them. Too bad that this system isn't as correlated as we expect?

Many of the wealthy are born wealthy. They are literally starting the game ahead in the score. Some get lucky and some unlucky. At times, good "deserving" people lose wealth, jobs and stature. At times, people of poor quality gain wealth and prosperity. The reason; capitalism doesn't judge, it rewards much like the polls for an election. When a person exchanges dollars for a good, service or opportunity it is given instead of that dollar being given to another for a good, service or opportunity. It's literally voting with money. It's democracy for commerce, the winner attracts the most dollars. As such, popularity, appearance, timing, feasibility, communicability, connections, access to markets, marketing, perception and momentum are usually the factors with the most magnetic effect with dollars.

Sometimes, that recipient is also a deserving person who worked hard, showed brilliance, was ambitious and withstood great obstacles to achieve. We love these stories because like being first in line, this person used what is generally available to all to succeed- they deserved it. Sometimes, the person got very lucky and was in the right place at the right time. Not bad, but we condition their success. Sometimes, the recipient didm't earn the money used, committed none of the brain power, and achieved on the back of others. Just like the tall people and the free riders, these people are scorned. The deserved, the lucky and the undeserving all get the same result in the accumulation of societal claim checks (or currency), but we don't have the same feeling.

That is why the meritocracy looks so great. In a meritocracy everyone gets exactly what one deserves. However, who is to decide what we deserve? How do we create such a system? What criteria would we use? I guess the root of our frustrations are easy to identify, but beyond our ability to rectify. The humerous part is how something so inherent in our nature is so difficult to attain.

The Float: What does it truly mean to be a service based economy

Often times folks speak about the United States being a service based economy as a matter of fact and a simple meaningless truism.  While it is a fact that the United States is currently a service based economy, it certainly shouldn't be stated as an acceptable matter of fact.  This is not something to glaze over.  It is an unacceptable reality of decades of laziness that has lead our country to essentially zero growth since the early nineties.   

That's right zero growth.  Look at the value of any meaningful item (and by meaningful I mean substantial durables or assets).  Cars, homes, land and commercial real estate has made no meaningful appreciation.  No three percent per annum, in fact, the value of these are completely flat with the exception of a mountainous spike caused by monetary policy.  Believe it or not, after all the fury, we have made no progress.  How could this be?  Shouldn't our holdings at least have kept pace with the monstrous inflation we experienced up until 2007?

The answer is yes it should have, but no it didn't.  What the media, the government and economists don't want to tell you is that the "global economy" has stagnated our country.  The promise that every generation shall be better than the last is in jeopardy because policy makers don't understand that while globalization is wonderful for corporate profits in the short run, it devastates that same economy in the near term and eventually cripples a nation.  In the short run, exporting jobs to another country causes a company's cost of labor to decrease and even after the paying of shipping costs creates a larger margin for that company.  Those profits are usually invested by the company in new product or corporate investment vehicles that generate more profit for shareholders.  Certainly a desirable result.

Sometimes, a company will even pass along a share of the savings from the labor to the consumer, although this rarely happens as prices generally never fall regardless of where a product is produced.  A funny side note is that many Americans believe corporations pass on the savings from producing items out of the United States despite CPI figures clearly stating cost savings do not result in price reductions.  That said, greater profits derived from cheap outside labor does create greater profits that lead to higher stock prices, shareholder dividends, and greater CEO compensation.  Certainly a logical result.

The problem is that the behavior is short sighted.  It is the equivalent of killing a sheep for its wool.  Over time, the benefit of the exportation of labor gets piled into very few players in the economy.  The failure of a significant portion of the population to purchase anything due to nonavailability of substantive work leads to steep and severe recessions.  To remedy the recessions the government creates lax monetary policy to subsidize the inability of its citizens to function in the market as consumers.  This creates a vast number of service sector jobs centered around finance, sales, distribution, and logistics.  

Now the big problem comes.  The money from the lax standards purchases all it can and because the population does not create, build, develop or manufacture anything there are no jobs of substance that can continue to function.  The country stops buying at the current levels and the ripple effect literally shatters the economy shattering price levels back to pre-lax monetary policy levels.  Its all float, and that's what no one understands.

If all we do is sell to each other without any substantive jobs, there is no true production in our economy.  We cannot fall back on making diapers, toothpaste, clothing or pens.  If we were building these items, then those jobs would carry the service industry jobs through downturns and lead to the general increase in standard of living of all members of the country.  As population grows, those substantive jobs would grow in numbers and they would not be lost simply because the economy slows.  These jobs might slow, but not vanish.

The float is how Americans currently make a living.  They don't even truly sell anything.  Here it is in a nutshell: Joe American grabs his catalogue of foreign manufactured widgets and agrees tp sell them to Sam American for $10 a piece.  Once the order is placed Joe puts his order in and purchases those widgets for $5 a piece.   Joe isn't selling anything, just pushing through a meaningless profit margin.  Worse yet, as more players enter Joe's business his profits erode.  Since Joe has no power to innovate he will simply have to cut back on his standard of living to continue in his business- thus reducing the standard of living of everyone else that Joe interacts with.

 

Now, Joe paid for those widgets on  a line of credit from Clueless Bank of USA.  That's the float. Joe American and Clueless Bank of USA are on the seas of uncertainty.  Contract or not, if Sam American cannot pay because of a failure in his service based business, mostly because the "Joes" of society aren't buying from Sam because they have reduced spending due to the increased competition now in the "pushing profits" business, Joe is stuck paying interest.  If he cannot pay the principal or resell the widget Joe will default on the loan.  Clueless Bank of USA takes the loss which affects its ability to lend, creating a scenario which multiplies and duplicates itself by the cessation of credit lines to people similar to Joe American.

If everyone has jobs like Joe  American the economy is literally a string of dominoes with the tipping of the first domino leading to all of them falling in line.  This situation cannot sustain itself.  Can everyone see what is missing?  The creation of a good.  That's right a substantive business that literally performs a real function.  Turning plastic into containers or textiles into clothing.  These jobs are a necessity.  Someone must build the widget and when credit is extended to a company that builds widgets, at very least that bank has the widgets, machinery, real estate and assets necessary to build those widgets as collateral.  Further, that bank has the security of knowing that widgets must be made,  and if the business it loans to fails, someone must come and take their place to satisfy the citizens need for widgets.  This places a stability under the value for the companies assets.  Moreover, the workers at the widget factory create stability in the market for consumer goods and services as they are still working due to the demand for widgets.

In the case of the servicer, he has no purpose.  Anyone can sell the widgets.  Further, there is no meaningful collateral for the widgets especially because the bank's basis of $5 per unit is not the true cost, it is the true cost plus foreigner's profit plus shipping.  The bank is buried going into the transaction.  Moreover, we have no steady worker to buffer the loss of consumption during slowdowns in the economy.

From Rome to Great Britain, no great empire has sustained itself once it has engaged in free and directionless trade with foreign countries.  While it is true that trade empowers both parties with greater production and utility than could have been achieved without trade, economists never distinguish how that benefit breaks down between the parties.  In the case of super power and non industrialized country, the benefits are skewed dramatically in favor of the non industrialized country.  In the long run, the small gains of the industrialized country are significantly smaller than the gains of simply producing the goods unilaterally.  History has taught us this lesson with every great empire losing its stature subsequent to succumbing to mercantalists tendencies to trade away its production capacity.  

Trading allows the weaker country to gain relative strength against the stronger country.  Eventually that strength grows to bargaining power which leads to greater wealth.  Wealth leads to ambitions, and in time the smaller country shall be formidable companion with its own voice and identity.  Should that identity differ from the once greater trading partner the once strong empire shall find it has created a security; as well as, financial threat to itself.  If it continues the weaker party shall gain, not only identity but the will to oppose the stronger.

Like my good friend always said when we played bones, "Not all money is good money."  

2009 and the Cry for Statesmanship

Beginning today, one will be able to find insight and logical deliberation about current events from the standpoint of a scholarly analysis based in good old fashioned common sense. My perspective shall always be in the spirit of government and policy in favor of the greatest common good and a general spirit of Mills' "Utilitarianism" as a general formula for grading the acts of individuals as well as society as a whole.

As an American, I will not apologize for taking stances that best suit Americans. I will not be ashamed of America being the most powerful nation on the earth, nor shall I ever suggest a course of action that would diminish that title. The ever growing in popularity stance of degrading the American Empire and the opinion of those people that America should be ashamed of its power and prowess in statehood shall find no comfort in my opinions. Whether one believes human rights, morality, equality, corporate profits, markets or just general fairness are ends to be sought before the power and position of the United States of America as a country, my answer is simply no. For no good or concept can be achieved by the power of the United States if the United States is without the sufficient power to achieve or defend such a good or concept.

Americans must realize that achieving any end, from creating a world market for goods to world peace, cannot be achieved in spite of the general power and prowess of America to enforce its will. In other words, a powerful America can impose peace, solve starvation or stem genocide, but an America that is riddled with a dissent of those who put such ends before the power of the vehicle necessary to achieve those goals, reduce the chance of successfully achieving any end.

Over the next year, I will logically write about the importance of statesmanship before any cause, and how government and its citizens should support such an end. I will not hamstring that end by restricting certain means that may be contradictory to the end goal of America's power in the world, a peaceful and abundant humanity. I shall always pursue a course of action that favors Americans and an America that is strong enough to effectively pursue any goal its society should deem imperative for itself and the world as a whole.