Thursday, September 08, 2016

Captain Goodhope is dead. Long live General Malaise!

I first came across the idea of "social contract" in graduate school.  "Aha!"  I realized that my teenage infatuations with various anti-social political elements were nothing but a result of my frustrations with the existing atrocious social contract and a desire to contribute to rewriting it.

In recent years, as the global economic geography began to tear up the fabric of the fabled middle-class life in America, I started yelling again my frustrations with the political system that was seemingly uninterested in rewriting the social contract.  Of course, nobody listens to me.

The frustrations got worse when the political faces for the rewriting came in the form of Bernie Sanders and the fascist!  Major Buzzkill got promoted to General Malaise ;)

The next best thing then is to wallow in excellent company.  Like with Laura Tyson and Anu Madgavkar.
The consequences of such failures are far-reaching. Stagnating or falling real incomes do not just act as a brake on consumption demand and GDP growth; they also fuel social and political discontent, as citizens lose confidence in existing economic structures.
Yep. And, unlike me, those two are awesomely qualified people to say that.
MGI surveys in France, the United Kingdom, and the US have found that people whose incomes are not growing, and who do not anticipate an improvement, tend to view trade and immigration much more negatively than those who are experiencing or foresee gains. The Brexit vote in the UK and bipartisan opposition to trade agreements in the US are clear signs of this.
In case you are wondering about MGI: It ain't any socialist think-tank!  McKinsey Global Institute is as pro-capitalist as it can get, as I am sure this guy would attest to.

Another expert--this time a male, for a change--who is a columnist at another pro-capitalist publication, The Economist, also states the same ideas, using different words:
I think we are headed for a really important era in economic history. The Industrial Revolution is a pretty good guide of what that will look like. There will have to be a societal negotiation for how to share the gains from growth. That process will be long and drawn out. It will involve intense ideological conflict, and history suggests that a lot will go wrong.
A lot will go wrong?  Looks like I have company in the buzzkill department ;)
 Bernie Sanders and Donald Trump are two sides of the beginning of this social evolution. Bernie is pushing along the direction of, "let’s distribute more." Trump is pushing along a related direction which is, "let’s exclude others who are not like us."
I tell ya, misery loves (excellent) company!

So, what kind of challenging political/ideological issues can we expect in the near future?
What comes next would be higher wage subsidies and in-kind benefits, like tuition-free college or subsidized health care. But it’s coming, and the debate will be: If we’re going to pay people to do work that isn’t necessary, who do we let into the system? Who is allowed to benefit?
If only we the people could talk about all these as responsible adults.  Oh well, democracy ain't perfect!


Anne in Salem said...

I had to look up social contract. I don't understand what social contract, as defined by Wikipedia, has to do with income stagnation and inequality.

Wages are stagnant because the government is forcing businesses to spend money on useless medical insurance, sick pay, etc. Even the cheapest medical insurance plan is equivalent to a 1% raise. A plan that is anything more than minimal essential coverage is equivalent to a 5% raise. Sick leave is another 2% raise. There's an 8% raise not happening in cash. There are more regulations coming down the pike that will cost businesses more and more and benefit workers less and less. When we rolled out our Obamacare medical plan, most workers said they'd rather have the money than the insurance.

Mandating higher wages through increasing minimum wage will help somewhat, but only if businesses manage to stay afloat. This will disproportionately hurt younger, less skilled, less educated workers because they will be the ones first let go when owners have to choose between paying an inexperienced teenager and paying a more experienced, more knowledgeable older worker $13/hr.

"A lot will go wrong" because the government will tax and regulate many businesses into insolvency. And then where will the workers be? In the unemployment line, collecting food stamps, and burdening emergency rooms and hospital budgets. Get the government out of business!

Ramesh said...

Nothing in this post is killing off Captain Goodhope. Sure there is the problem. What makes you so despondent that we will not arrive at an acceptable compromise. We have to go through the antics of the loony left and the rabid right - a few years of experience with either of them will convince the electorate not to commit suicide for a generation. And a middle ground will emerge.

One of those rare occasions when I disagree with Anne. The lack of medical insurance for millions and the absolutely crippling medical costs if you are unfortunate enough to fall sick is one of your greatest weaknesses as a nation. Nobody likes insurance and people will opt for cash if possible because they don't think illness will strike them. But when it does, what will we do - the option seems to be to leave them to die or that state picking up the cost in ER. Either way seems to be an inferior option.

You are right in bemoaning the additional costs that it puts on businesses. But that is because your medical costs are absolutely insane. Everything about the economics of the American health care system completely astounds any non American. Nowhere else in the world are costs so high. The solution, I would suggest, is to cut costs and not remove insurance.

Just to give you a sense of the problem. The average cost of a cataract surgery in the US is $3542 per eye. It is $400 in India. And I am comparing the same level of medical standards.

Sriram Khé said...

Social contract is more than mere healthcare or wages. The social contract is also how we decide how to deal with homelessness to public schooling to ... One of my favorites on this, a kind of a thought experiment, has been well animated in this short video:

By writing that "a middle ground will emerge" you are being consistent in your optimism. Pro-business people, I have often noticed, are way more optimistic. Makes sense--you would not put your money down for greater returns tomorrow unless you are optimistic. Or a gambler ;)

In reading the tea leaves, I am not as optimistic as you are. We will have to live it out and see who is wrong.

A minor note on the cataract stuff. A 70-plus woman in the way extended family in Chennai recently went in for her cataract surgery. Half way through, her eye started bleeding like crazy and, yep, she is now blind. Years ago, when my father had his cataract surgery, there was a mishap that has rendered vision in one eye permanently blurry. These two are from the upper economic class, and there is no recourse--no lawsuits against the medical malpractice. I would bet that medical malpractice in India is atrocious. Of course, people like Anne claim that costs in the US are high because of ambulance-chasing lawyers. I will any day prefer activists or mercenaries fighting on behalf of the victims.

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