Some thoughts on... Fiddling with Fire

From 5^th grade, I remember a history lesson about Emperor Nero playing his beloved fiddle while the Great Fire of Romeburned through the country in 64 CE.  I recall thinking to myself why would anyone not want to help if their nation was burning?

 

In my Principles of Economics class, we discuss a basic trade-off in economic decision-making – between efficiency and equity.  Efficiency is when all goods are allocated to their most valuable use minimizing waste. An efficient allocation could be where one individual holds all the wealth of a country and everyone else has a dollar.  Open markets are very good at creating an efficient outcome.  Equity (different from equality) is a concept of fairness.  Society, via government, has the responsibility to sometimes re-allocate an efficient outcome to create more equity. 

 

The basic social contract of western democracies, especially in the US, inherently incorporates both efficiency and equity.  If individuals work and study hard, they can pull themselves up to the upper-echelons of society.  Hard-working individuals will prosper and everyone should have a shot at the American Dream.

 

Since the 1980’s, policies have tilted economic rules towards greater efficiency – for example deregulating industries, lowering trade barriers – creating greater wealth so that more people could achieve the dream.  Through global movements of products and finance, we now manufacture shirts cheaper in Bangladesh, gather rare- Earth minerals from Sierra Leone and make investments in Mongolia.  As a global society we now are the richest we have ever been, but this has come at three major costs.

 

First, Thomas Piketty has described how income inequity in capitalist democracies has increased over the past half century and is reaching levels similar to the 1800’s in France and England. Comparable to historic periods, the people not benefiting from global progress are asking that the social contract be re-written indicating this level of income inequity as unsustainable.

 

Second, different from past eras, even those who have benefited from the systemic inequity, are unhappy as well.  Although beneficiaries of the system have merited their earnings according to the social contract, they are also working harder in terms of brute hours than the middle class on average, and are receiving most of their income by working. This is in stark contrast to the elites of bygone eras who were part of the “leisure class” and gathered more of their income as inheritance. Daniel Markovits at Yale has called this a meritocracy trap. 

 

Finally, even though the nation overall is wealthier, it is harder to move from becoming poor to rich.  The American Dream is becoming unattainable in the US.   As several economic studies indicate the US is 27^th in the world for social mobility, the US is at the lowest level of social mobility for the past 150 years, and children’s chances of earning more than their parents has been declining.

The social contract that we have carefully constructed over 250 years is being consumed by inequity, while Covid-19 and unemployment are feeding the flames. 

 

Even if Federal leadership may ignore the blaze, what is our personal responsibility in putting out the fire?  I am a) rethinking what companies to support – do I really need to save $5 by buying products produced more cheaply b) which non-profit organizations I am supporting, and c) which candidates we are endorsing.  Mala’s colleagues at the IMF collected these free or low-cost resources describing how to discuss inequity with children.

 

To address this situation of inequity, leadership matters.  When we allow the social contract to be burned – we lose tolerance, forgiveness, charity, community.  But even more important we may actually lose the democracy the contract is built on.

 

Please do forward any interesting articles you are reading.

Some thoughts on... Seeing the Horizon

As we approach graduation week for many students, I was speaking with a Columbia colleague about her family.  She was worried about her father who was working in a hospital.  But because of the reduced pollution, while he was driving to work these days he could actually see the horizon.

Covid-19 has forced us to isolate and to be more alone, and to be more reflective.  But could it also take a pandemic to make us notice the expansive, beauty of the world around us?

Individually, we all have moments of personal introspection – when we fall sick, when a family members dies, when we accomplish a life goal.  At these points, we are more open to possibilities.  We reconsider life decisions.  We rouse to see a world of opportunity outside of the narrow lanes in which we live.  Sometimes we act on this promising set of alternatives – exercise more, spend time with loved ones, change careers.  Sometimes we don’t.

These moments of global rousing are less common and happen every few decades -  the moon landing, 9/11. We could view them as an opportunity to rethink our societal options.  Similar to personal introspection, we can’t reverse the course of what is happening, i.e., turn back the clock on the virus.  Instead we can commit to making changes. 

Perhaps this bout of global rousing will provide collective clarity on our options going forward.  Here are three thorny issues I am thinking about – feeding hungry people despite a glut in food production, ensuring people are allowed to vote in the upcoming US elections, protecting economically vulnerable communities. 

Usually it’s darkest right before the dawn – and at that point you can see the horizon most clearly.

Please do forward any interesting articles you are reading.

Some thoughts on… Championing Goliath

With a ~5% contraction of US GDP in the first three months of the year, we are beginning to quantify the fallout from mismanagement of Covid-19. Reflecting on the economic news, I was reminded of the story of David versus Goliath from the Bible.

In the tale, a smaller hero (David) takes down a heavily-armored, larger opponent (Goliath) using a sling-shot and 5 stones from the nearby river.  Our global culture lauds David for his bravery. The original old-testament legend is retold in the Koran, Goliath is Jalut (جالوت) in Arabic, and has been spun in every world culture – a valiant group of rebels fight a behemoth, a strong mother takes on a large company, a young wizard in school vanquishes a dark force.

As opposed to conventional wisdom, in the case of Covid-19, I am supporting Goliath in two different analogous cases.

The first analogy is more straightforward. Covid-19 is the small entity taking on a larger organism (the human race) and initially winning. In this case, I am of course rooting for humanity to triumph over virus.

The second analogy, is a little more textured.  The social and economic advancement that society has achieved over the past 50 years has been remarkable.  We have vastly improved food supplies; reduced maternal mortality by about 200,000 deaths per year and increased life expectancy by about 15 years.  We have also moved about a billion people out of poverty. 

All these benefits have come with a relentless push toward achievement, advancement, and growth in the economic system, but the cost has been on the planet.  As we have scaled up economic activity, we have also increased environmental degradation.  In some ways, our activities could be considered a virus attacking the larger planet.

By advancing the goal of economic improvement, we have sidelined the goal of environmental security.  The pandemic’s initial spread is a result of our encroachment on wildlife, overutilization of natural resources, and construction of an international economic system.  We are reducing forested habitats, selling wildlife as food, and then transmitting disease through a globally-connected transportation system.

In this second analogy, where the Planet is the larger entity and the ever-expanding economic system is the virus, I am in many ways rooting for Goliath again.  It is ironic, that Covid-19, a microscopic element, can stall the strongest economies in the world and by doing so may save Mother Nature.

Natural viruses are smart.  They cannot completely kill off their hosts, as they will not have a place to live.  Sometimes viruses take a pause between major bouts of infection.  In a similar fashion, maybe what is best for humans and the globe is not to relentlessly keep increasing our economic activity.  Maybe we also need to pause our economic growth or at the least re-think it. Sometimes standing still is the best move you can make.  As for both of these cases, I am rallying for Goliath.