Price of Civilization Ch 2-3 Review

Chapter 2: Prosperity Lost

Doubt

• 2/3 of Americans are dissatisfied with the way things are going

• 72% describe the federal government as a special interest group that only cares about itself

• This doubt extends past the Gov’t, into corporations, labor unions, media, banks, etc.

• Root cause is political and economic cynicism

Satisfaction

• Partly because of the social, economic, and political doubt, more and more Americans are not satisfied with their life.

• Even as GDP has increased, satisfaction has remained stagnant.

• Many psychologists write about the Hedonic Treadmill, saying that happiness and satisfaction will inevitable default back to normal.

Jobs and Savings

• Sachs writes a lot about growing income inequality and how these pains are not being felt evenly through the economy

• Personal savings steadily grew after WW2, started falling in the 80’s until the financial crisis of 2008 in which people learned to start saving money again.

• The decrease in personal savings is believe to have contributed to the magnitude of the 08 crisis.

Infrastructure

• The combined lack of personal and federal savings contributes to the decline if funds available for domestic investment to build infrastructue

• China, which saves 54% of their income nationally, is constantly improving and expanding their infrastructure .

• The American Society of Civil Engineers (ASCE) rated our infrastructure as “poor” or a D grade.

Intellectual and Human Capital

• We are losing intellectual and technological leadership to China and other countries in areas such as renewable energy and stem cell research.

• He writes that the quality of our labor force is and has been steadily declining. We can see this is worker productivity and education.

• We see this decline is both primary education performance and how many students complete their college degrees.

The Divided Workplace

• He revisits the idea of income inequality here by documenting the exponential increase in CEO pay versus that of the average worker.

• At the start of 1970’s the top 100 CEOs were paid on average 40 times more than the average worker. In 2000, that difference had increase to 1000 times more.

The Divided Workplace (cont.)

• The median earnings of male full-time workers actually peaked in 1973.

• As earnings have declined, so has job satisfaction.

The New Gilded Age

• First Gilded Age happened in the 1870’s to the 1920’s

• Excessively gaudy upper class and growing inequality

Even more Inequality

• Really likes to hammer in that poor people are really poor and rich people are really, really rich.

• Top 1% enjoys a higher net worth than the bottom 90%.

• Causes top to look down with disdain

Retracing our steps

• Problems only seem insoluble because we are used to not getting anything done

• Cooperating on an honest basis is key to getting things done

Chapter 3: The Free-Market Fallacy

Aims of an Economy

• Efficiency• Fairness• Sustainability• Government and business play complimentary

roles• Since the 1980’s the government has been

ignoring effective economic policy and just parroting slogans

Paul Samuelson

• Economic genius at MIT• 1940-1970 was the Age of

Paul Sameulson• Provided the majority of

economic underpinnings for mixed economies after WW2, namely the United States and Europe

Paul Samuelson (Cont.)

• 5 core ideas of modern capitalism1. Markets are efficient institutions for allocating

scare economic resources2. Efficiency =/= fairness3. Fairness requires government redistribution4. Markets underprovide public goods ie. Education,

transportation, environmental regulation. Adequate supply depends on the Gov’t.

5. Market is prone to instability which can be mitigate with the proper government regulations.

Great Stagflation• The Bretton Woods dollar exchange collapsed

in 1971.• US delinked its currency to the gold• IN 1973-74, oil exporting countries sharply

raised oil prices

Mixed Economy

• Government must step forward when supply and demand stop functioning properly

• This is because supply and demand is what sustains and regulates a free market economy

• “Market Equilibrium” is when the system is balanced

Governments are Needed

• Again, free markets will not provide public goods, such as highways, that they need to function.

• “Corrective pricing” such as carbon or polluting taxes

• Scientific research• Inside information

Fairness

• Refers to the distribution of income and well-being

• Also no preferential treatment by the government

The Libertarian Extreme

• Small percent of Americans reject idea of fairness

• Believe the only ethical value is liberty• Views it as extremist, elitist ideology

Achieving the Triple Bottom Line

• Free market isn’t enough• To achieve all three goals simultaneously,

again, a balance is needed.• Societies must care for their poor

Finding Balance

• Finding the right balance between market liberty and government reg. has been debated for “generations”

• The policies needed ought to be circumstantially determined