"When the accumulation of wealth is no longer of high social importance, there will be great changes in the code of morals.
We shall be able to rid ourselves of many of the pseudo-moral principles which have hag-ridden us for two hundred years, by which we have exalted some of the most distasteful of human qualities into the position of the highest virtues"

( JM Keynes, "Economic Possibilities for our Granchildren" 1930 )

Thursday, April 12, 2012

Lethal Markets

From "The Economist"
JAMES CARVILLE, an advisor to Bill Clinton, famously once said he would like to be reincarnated as the bond market, because then "you can intimidate everybody". The European Union now has a huge rescue fund in place for member countries that come under attack from the bond vigilantes, and is working on plans to replace this with a permanent mechanism. Spain, a big, indebted euro member often thought of as a potential target for market vigilantism, is now straining to set its finances straight and avoid a roughing-up.”

In the Spanish case it seems that Mr. Carville´s description fell short of real life. The recent austerity plans put as a reaction to the markets´ demands are not only intimidating but could fall into the category of “Lethal”

First of all, lets see the relation between the intimidating monster and the policies policies. The evolution of the austerity policies adopted by Spain´s government can be followed through the evolution of the “Spread” ( i.e. the difference between the German and the Spanish Bond.

And in a more close perspective we can see that since the BCE ceased to buy Spanish paper the Spread went up

As expected Spain´s Government Pavlovian style reaction to the recent spike was immediate: The government unleashed an additional austerity cut of 10 billion € (approximately 1% out of GDP) announced last weekend. For those not familiar with Spain´s budget this is a COMPLEMENTARY measure beyond the cut pack included in the 2012 budget. The main victims of the actual measures are Health and Education budgets, which in relative terms sum up to app. 10% of their actual budget framework. I will deal in this blog only with the Health component, hoping that the cuts in Education effect did not yield , yet, the expected outcome of endless illiterates unable to read or understand this short note …. 

How the cut will be performed? The official version is that the cuts will be concentrated in rationalization measures (which by themselves, rationalization is always welcomed … ) but such rational raises two main questions

1. What is the margin of rationalization? To what extent the system is inefficient? ( I will remind my loyal readers the famous story told about the farmer that reduced his horse daily ration by half every day until the horse one day died of hunger …)?

2. If the cut is not only about rationalization but real cuts, what is the expected consequence in terms of human lives?

The first question can be answered by comparing the Health expenditures of different countries, in that case with countries with a similar level of income for the period 1960-2009 ( in real terms ) and contextualizing the figure with life expectancy at birth

(Source OECD Statistics “Health Expenditure and Financing” /capita, US$ at 2000 PPP rates, own elaboration of the data)

As can be seen from the above graph, Spain ( Red circles) Public Health System is able to generate one of the highest Life Expectancy rates among developed countries with fewer money than other countries (in 2009 at app.1600 USD/ Capita . In other words, it seems that the Spanish Health system is already rather lean so it would be more than probable that any cut in expenses is expected to hurt the flesh and bones, not the nonexistent of the system. Question 1answered.

So what could be the impact in human terms? In order to deal with this question I´ve run a simple linear regression between “Expenditures” and “Life expectancy” (50 observations between 1960 and 2009). The results indicate a high correlation between the magnitudes (above 90%) which means in practical terms that an increase/ reduction of 160 USD implies a lower Life Expectancy by ap. 7 months up to 1.3 year ( depending on the statistical tool used) , for the sake of the debate let´s take the one year figure as reference . Answer to question 2.

Final remark: We limited our analysis to Life Expectancy terms but bear in mind that Health is not just mere “quantity” but “quality” as well. Therefore a cut in Health Expenditures may affect not only the shortening of our lives but a poorer quality of service (for example, suffering for months from pains before having the opportunity to see a surgeon or a specialist … something becoming very common in Spain)

Conclusion : In comparison to the data presented above, Carville´s observation looks as a subtle understatement, when European countries like Spain are obliged to adopt policies literally lethal for their citizens. Therefore  the evaluation of the market "Diktats" exceeds the sphere of "Economics" and become  a matter to be handled in the arena of moral principles .

The question should be : Are we ready to live in a society that exchanges "financial stability" or "credibility" with its hardest coin,  the lives of its citizens??? I personally prefer longer lives even if that implies poorer banks or lower paychecks for top executives. How to do it? If the thug of the neighbourhood, the "market", speaks "Intimidationish", the citizenship should learn how to handle that Newspeak of determination and firmness . I can guarantee you that Mr. Carvell monster could become much less intimidating that it appears. It´s a matter of social choice.  

Saturday, April 7, 2012

Post Passover Thoughts - Does it matter who built the Pyramids ?

The Jewish Passover ceremony (by far my favorite ) has one and sole purpose: To retell and transmit the story of the Exodus of the People of Israel from Egypt that took place some 3000 years ago. The ancient sages defined that principle from the very beginning of the Haggadah ( the "textbook" of the ceremony) in the following way:  

“Even if all of us were wise, all of us understanding, all of us knowing the Torah, we would still be obligated to discuss the exodus from Egypt; and everyone who discusses the exodus from Egypt at length is praiseworthy”. ( From the Haggadah)

Many people understand the above principle mainly through its culinary aspect, with a special emphasis on “The more, the better”...  generally turning the celebration into a mere and succulent  feast accompanied with a robotic manual called "Haggadah" ...a sort of  "Read and Eat". However, I personally understand my ancestors´ advice as a challenge, an invitation to an active reflection beyond the traditional texts. Therefore , even a modest post with a modern political economic flavor should deserve to be seen as part of the “Seder”.

And now, to the content ( developed from a post I wrote two years ago)  

Some two years ago, the press announced a surprising archaeological discovery in Egypt: Under the surface and nearby the famous Giza Pyramids archaeologists discovered a few graves which contained the rests of  people which ,apparently, took part in the process of building the local pyramids (app. 2400 BCE).

“….These tombs were built beside the king’s pyramid, which indicates that these people were not by any means slaves. If they were slaves, they would not have been able to build their tombs beside their king’s…” said Dr. Hawass (Secretary General of the Egyptian Supreme Council of Antiquities). Source : “Egypt tombs suggest free men built pyramids, not slaves” http://news.bbc.co.uk/2/hi/8451538.stm January 2010

I am not archaeologist, but common sense should tell us that deriving important conclusions about ancient labor relationships from just a few graves is a bit too early. For example , isn´t it possible that out of the millions slaves involved in the construction of the monuments, a few “lottery winners”,were allowed to enjoy an eternal life close to the royalty?. Who knows ? However, that was a side note about the conclusion since the main interesting issue related to the Pyramids lies in another place.

On my humble opinion, the legal status of thousands of human beings that spent 30 years of their lives (Herodotus) carving, shipping and piling millions of heavy stones underneath the Egyptian burning sun is a secondary issue. Any dispute concerning the legal status of the builders cannot hide the pervert and twisted nature of the Pyramids (you can call it Cathedrals, Palaces, Coliseums, Temples etc.) , i.e. the waste of human work and lives for useless ends.

First, let´s see the figures to get an idea: The Giza Pyramid is a 2.5 million block pile (2.5 ton/block) which required the physical work of 10,000 people (Herodotus wrote 100,000) for 30 years. ...just for one Pyramid ….and remember that the Egyptian soil is covered with Pyramids, Tombs, Temples, etc.

That army of workers had to be fed; someone had to supply cloth , tools, infrastructure and other means, and all of it in exchange for nothing : In the economic sense of the word, the Pyramids lack from any intrinsic value. The only possible source for food and materials for the huge army of workers was the surplus the Nile valley originated beyond subsistence which was funneled through coercive means mixed with a good dose of religion and property rights) to the mouths of the workers/slaves.

If Egypt could generate such enormous surplus, why wasn´t it applied  in “real” and useful ends? For example,  improving the infrastructure of the country, modernizing its irrigation system.….or alternatively, why not to finance the development of science ? Or upgrading the medical services for a population whose life expectancy was about 35 for men and 30 for women, a society that reaching adulthood was a challenge by itself as one-third of the kids just couldn´t make it and died in infancy? And don´t tell me they couldn´t do it : If they were able to develop amazing mummification techniques, they could probably improve  the overall state of medicine. All those bothering questions make me define the pyramids construction as a “perversion”.

Are the perversions of the ancient Egypt still among us? The British economist Lord Keynes in his "General Theory" observed that in the context of involuntary unemployment

 “…Pyramid-building, earthquakes, even wars may serve to increase wealth, if the education of our statesmen on the principles of the classical economics stands in the way of anything better…”. p. 129).

This generally misunderstood... (people claim that Keynes was in favor of pyramids....) and deeply sarcastic comment is trying to tell us that pyramids (or wars…) become “solutions” to unemployment when the rulers are dumb enough to stick into their education or "Classical Economics " pack instead of an open mindedness Lord Keynes advocated for. With all the humility, I would like to remind to our readers that ancient Egyptians were not very familiar with “Classical Economics”, and Eaton is  a modern British institution, not an Egyptian one …. Therefore the common denominator between “Now and Then” should be looked after in a different place than just education or economy.

So, my conclusion is that the “real thing that stands in the way of anything better” is simple as the raison d'etre of any ruling class: to maintain, the RELATIVE distribution of incomes, wealth and power. Lord Keynes may have told us us in a  subtle and British way that it´s all about power (and I add exploitation), not only an education obstacle. For example to regard “war” or "earthquake" as a way to increase “wealth” sounds like a bad joke unless you interpret it in the ruling class way: The misery of a whole society (war = destruction) is a mean to increase Wealth of the few ( and in the case of the Pyramids also to symbolize the rule of the few over the rest).

If we understand that in the broader way,Pyramids had the same task as Wars or Earthquakes : the tool and the symbol which transmits a clear message toward the rest of  mortals: You are here, in this world, only to serve , fight or die for us. Therefore, it really doesn´t matter if the workers were forced as “slaves” or as “free workers” to take part in the perversion called Pyramids. They just sweat for the eternal lives of the others.  

True, Pharaohs´ pretensions were radically perverse since they had in mind  not only to maintain his superior status among his contemporaries but also to preserve his status forever ( and the evidence is that we are dealing with a monument built 3000 years ago.... ) . However, since the principles of classical “pyramidal economics” are still among us, I can easily find a lot of “Modern Pyramids” – beginning with Cathedrals, Armies, Brands, Luxury products, the celebrity industry etc… all of them function as a mean to soak the surplus but also to create the symbols of the superiority of a minority .The choice, as Keynes pointed , between "Wars, Earthquakes or Pyramids " and " Anything better " is still, on my humble opinion, very relevant for our modern times, regardless the nominal status of our working force, call it "Slaves", "Wage Workers" or whatever.

A final comment or the opening of a new debate . According to the biblical sources,

"And the Egyptians made the children of Israel to serve with rigour." ( Exodus 1 :13)  

As you can notice, that literal phrase ( Sorry , I am not familiar with the exegesis) that does not indicate the legal status of the working force. Therefore it could fit into the recent archaeological findings . Eureka?
Alternatively , Perhaps , the legal status of the workers was not very important in the eyes of the ancient "worker/slaves"?  (as a matter of fact, Moses did not demand from Pharaoh to end slavery but to leave country .....  and in the beginning he just asks for 3 days of vacations.... )

Perhaps, these humble and  poor ancestors  understood with their intuition that the line between ”Slavery” and “Free Worker” is blurrier than we, the sophisticated modern citizens tend to think?