[saymaListserv] Fwd: The Quaker Economist, Letter 126

Sun Jul 10 14:37:02 EDT 2005

Dear Friends,  This is especially for those of 
you who were interested in the last issue of The 
Quaker Economist which I sent out.  Jack responds 
here to many of the questions that issue raised. 
Also read the response letters at the bottom of 
the issue (way down below).  This time they are 
really interesting and worth reading.  For me the 
most insightful ones were on the minimum wage pro 
and con, and on natural gas and politics in 
Bolivia.  Best Regards,  Janet Minshall

Mailing-List: contact tqe-help at quaker.org; run by ezmlm
Date: Sat, 09 Jul 2005 11:37:33 -0600
Subject: The Quaker Economist, Letter 126
From: Loren Cobb <cobb at aetheling.com>
To: <tqe at quaker.org>

THE QUAKER ECONOMIST

Letter 126

Editor's Note: This letter is also available on the web:

   http://tqe.quaker.org/2005/TQE126-EN-Leadings2.html

We have had so many responses to TQE #125 on "Leadings" that it
seemed appropriate to dedicate an entire letter to Jack's reply.
Thanks to all of you who responded! A quick reminder: if you want
your reply to be published in the online edition of TQE, then send
it to tqe-comment at quaker.org. Any email that is sent directly to
Jack will be considered private, and not for publication. -- LC

    COMMENTARY ON "LEADINGS"

       by Jack Powelson

Dear Friends,

I sent TQE #125 on "Leadings" to Friends who attended the Inter-
Mountain Yearly Meeting (IMYM), and have had several replies. Many
spoke of the IMYM plenary speaker as "inspiring" or "forceful."
After reading her talk I didn't see it that way. Probably I should
have attended it, but an emergency called me away (I was visiting
my wife in the hospital; she's okay now).

Several Friends agreed with my thinking, and I appreciate your
support. Over the years I have been so lambasted  by Friends
because I do not see eye to eye with them on many economic matters,
that I have often thought of leaving Quakers. One Friend said she
was saddened by Friends being just as closed-minded and arbitrary
as those they criticize. President Bush and unprogrammed Friends
are very much alike. Both feel they have direct word from God and
see no reason to analyze further. I stick around because I strongly
believe in the Inner Light and Friends' worship.

Some Friends have told me I am an "arrogant know-it-all." I have
been aware for years that Friends have thought of me this way.
But all I want is for Friends to think before they take actions as
Friends on economic matters. To me, it matters not whether they
are "right" or "left" politically. If we find we all think alike
(except on war, cruelty, etc.), we must question our spirituality.

One Friend sent a list of articles, some by economists, who favor
increased minimum wages. There is a simple "law" in economics: if
the price of any good increases, people buy less of it, or
occasionally the same amount. (Exceptions are made for inferior
goods, but they are not relevant here.) Many economists have
challenged this law, trying to prove it wrong. Usually they act
on ideological lines, and their research is biased. For example,
an argument by two Princeton economists was cited by the Clinton
administration to justify higher minimum wages. A bevy of other
economists wrote why their research was biased. But that is not
the basic question for Friends.

Two basic questions confront Friends:

1. When economists disagree, how do Friends choose between them?

2. Should Friends lobby for a law forcing small businesses - even
    a single one - to close down, and its workers to quit?

In the case of (2), many economists say, "Yes, it is for the
greater good," and many do not. Do we Quakers say Yes? Do all
of us? Is a higher minimum wage some Quaker principle, like
the Inner Light? The FCNL has come out in favor of higher
minimum wages, and a petition to Congress was circulated in
my Meeting in favor. So, is this part of Quaker dogma? When
I joined Quakers sixty years ago, I was told we have no dogma.

What kind of arguments sway me? Those that tell me my facts
Are wrong or how I have reasoned improperly. I have been known
To change my mind - indeed, many times. I was even a socialist
Before I had studied economics: I met and admired socialist
Norman Thomas and was friends with his brother Evan. At Harvard
I studied economics two years under a socialist, Paul Sweezy,
but I did not realize he was a socialist until after I had
graduated. He taught me economics, not socialism.

One reader said that my message sounded like the "old capitalist
line" again, but he did not say what was wrong with that.
Another pointed out that a professor in Bolivia disagreed with
me about natural gas in his country. But I am not swayed by
where a person is from unless he presents correct facts and a
rational argument. Incidentally, I was a university professor
myself in Bolivia for one year. One reply told me that the
keynote speaker at IMYM had said we should "see that of God"
in Bush and his team. Of course. But why not John Kerry and
Ted Kennedy?

Over the sixty years I have been a Quaker, I have heard many
times about "love" and "that of God." I am waiting for some
Quaker to say that "that of God" in Bush means we should
understand his reasons for going to war in Iraq (what are they,
truly?) and respect them because he is a creature of God, even
though we disagree on both facts and interpretations.

One Friend thought that maquiladora workers were exploited in
Mexico, but his only reason was that they do not earn wages as
high as in the United States. Unfortunately, they can't earn
those wages in Mexico, and they cannot legally cross the border.
So firms jump the border legally and hire them in Mexico.
Actually, on average maquiladoras pay higher wages than other
employers in the rest of Mexico. I believe there should be more
maquiladoras, not fewer. As a matter of fact, firms are going
more to China now, and the Mexican government is not happy over
this.

That same Friend thought workers should be paid a "living wage."
(How could they "live" otherwise?) But a "living wage" is relative
to wages of middle-class American families today. There is only
one way to raise real wages: train workers so they become more
productive.

Over the centuries US and European workers have lived on less
than the real minimum wage today, and so do workers today in
the less developed world. A "living wage" higher than market
wages is just like a minimum wage: it causes unemployment,
bankrupts small businesses, and it starts an inflation that
leaves workers where they were before.

One Friend at IMYM chastised himself for not "listening" to
the kids in a talent night Bush-bashing play. For ten years
I conducted seminars (in Spanish) with Marxist students all
over Latin America (Argentina to Mexico), with whom I mostly
disagreed. I listened to them, but over time I decided they
were wrong, in both facts and interpretations. Having only 24
hours per day I wanted to diversify my listening, so I spent
time with other philosophies.

Two kinds of principles seem to be adopted by unprogrammed
Friends. One is that a set of practices is morally wrong. This
includes war, torture, and beating children (or anyone). I
agree with these. Others include economic matters such as
minimum wage and social security. In each case, Friends might
consider whether God leads others elsewhere, e.g., the American
President or Muslim rebels. Let us make Friends our spiritual
base and lobby through secular organizations.

Peace to all of you.

Your friend, Jack Powelson

================================================================

READERS' COMMENTS on TQE #125 -- Leadings

So nice to know that thinking like "an economist" has such easy
answers, and, obviously no debate among economists. If you really
want us to be thinkers, it might be useful to present a variety of
thinking about solutions and various possibilities. (On a personal
note: So happy that your wife is better. Must have been a stressful
beginning to Inter-Mountain Meeting.)

- Barbara Seidel, Gwynedd Monthly Meeting.

Outstanding letter! Thank you for summarizing these issues so
succinctly. I hope to jump-start an economics discussion with my
sister by sending your letter to her. Thanks again for your efforts
with TQE. Glad to hear Robin's doing better now, too.

- Jennifer Mukhtiar, Minneapolis, MN (formerly Jennifer Miller of
the Salt Lake Monthly Meeting).

Thanks for this "pocket powelson" synopsis of economic issues.
These are complex topics for me to absorb and you do a good job
of making them understandable. One of the reasons I have been drawn
to these ideas is my association with 3 successive work placements
in the printing industry. Each placement was with a company run by
entrepreneurs who built the company from the ground up. They were
successful enterprises because the owners worked long hours and
took great (but intelligent) risks to provide trustworthy products
for their customers. They also paid their workers well which
supported their business goals.

This has led me to see that one of the true causes of wealth in
a society is the "ambitious" entrepreneur. Not a figure whom most
Quakers that I know feel comfortable with, but perhaps one which
we should be seeking ways to support, both here and abroad.

- Rich Ailes, Middletown Monthly Meeting, Lima, PA.

1.  You are 110% right that an international bankruptcy court is
a better way out for highly indebted poor countries, than "debt
forgiveness".

2.  However, there also should be provision for writing down
individual loans, or re-setting lending rates, where projects
have no performed as appraised; and ex-post interest rates prove
to be usurious.

3.  Billions of dollars have been lent by the World Bank on the
basis of project appraisal documents projecting great rates of
return, which have not materialized. Is this ethically the
responsibility of the lender or the borrower? With its claim to
technical excellence the World Bank clearly cannot claim ignorance.
The Bank knew the regimes to which it was lending, and at any time
could cancel a loan due to non-fulfilment of lending conditions.
Clearly the World Bank would claim (and rightly) to have more
experienced and qualified technical staff than the borrowing
countries. Surely it is the Bank, not the country to which we
should turn to pay for failed investments? And, indeed the much
heralded "poor country debt forgiveness" is a bail out of the World
Bank and other multilateral aid agencies. None of the "forgiven"
money will actually flow to poor countries, much less the poor
(Bob Geldorf and others notwithstanding).

4.  If the World Bank is to be allowed to lend to countries
Whose debt has been written off, it should be under a new lending
instrument where some of the risk of project failure is born by
the Bank.

5.  You might be interested in my paper "The World Bank and
Poverty: Cause or Cure?", in which I show that poor borrowing
policies by the Bank lead to developing countries having to
repay $60 billion more (in US dollars) than they borrowed (in
US dollars). For decades the Bank had a policy of minimizing
the interest rate at which it borrowed, with the "no brainer"
result that it borrowed currencies that the markets (rightly)
expected to appreciate in value. And, as usual, the market
turned out to be right. Sixty billion dollars later the Bank
ow pursues a more sophisticated borrowing strategy.

- Wilfred Candler, Annapolis Friends Meeting.

In the late 17th and early 18th centure, Friends were severely
discriminated against through governmental action. The professions
of the time were also discriminatory. Freinds were barred from
being doctors, professors, lawyers, and many other lucrative and
emerging middle class occupations. Thus many were led to pursue
commerce. Living their faith, they were good employers and
concerned citizens, as well as much more honest than many of their
peers in business. These very practices created great opportunity
for many, and generated wealth and higher overall standards of
education, health and other measures.

Today many Friends are led to enter the very professions that had
historically been closed. Few are engaged in commerce or industry.
Lacking the first-hand knowledge and experience of applied economics
(that is, running an enterprise and creating employment and
opportunity), many of our Friends are called to support policies
based on their intent rather than on their practical outcome.
Thus our continued need to engage in the conversation and educate
ourselves. But I do not want to engage in that conversation if I
am expected to make arguments both for and against open markets
and free trade. Proclaiming and educating regarding the overall
benefit of pursuing these policies in a balanced institutional
framework is a leading for me.

- Christopher Viavant, Utah Information Systems Project Director,
Wasatch Homeless Health Care, Inc.

As a large investor in the bonds of poor countries, I favor the
establishment of an international bankruptcy court. Such a court
would have powers similar to bankruptcy courts in the developed
world.  For example, the court would make sure that all creditors
are treated fairly in a debt restructuring, and not allow some
debt holders to do much better than others. (Currently, governement
and multilateral creditors demand better payment terms from debtors
than private sector creditors do. The IMF in particluar insists on
getting paid in full, even though legally its claims are not senior
to anyone else's.)

Such a court would also need the power to prevent fraudulent
conveyance of sovereign assets to politically favored parties,
and it would need the power to make sure that the sovereign doesn't
throw too much money away on financially imprudent welfare, pension
and medical care schemes.

The probability of such a court coming into existence is zero.
No debtor country would agree to be bound by its rulings, and
no favored creditor would either.

- Tom Cooper, Lincoln, MA.

Am I getting a fundamentalist economic course here? Every item in
TQE #125 sounds like an apologist for the corporate Robber Baron
which is the main cause of today's Global economic inequality (and
many more say that they are the root cause for the Bushwhacked Evil
Empire's imperialist ventures since 9-11). I hope to see sounder
economic lessons here in the future! Peace, Aloha and forward to
a new Collaborative & Collective future World.

- Danny Li.

Editor's Note: TQE #99, entitled "How I learned economics," tells
the story of how Jack Powelson learned the economics lessons to
which you object. I encourage you to read that story, and perhaps
others in Jack's series of memoirs on his experiences as a
consultant to Latin American governments.

- Loren

Your comment on Bolivian natural gas does not seem to square with
the statement quoted below from an economics professor living and
working in Bolivia. You say the gas is newly discovered, he says
that it was privatised in the 1990's. That makes it between 15 and
5 years ago.  When you say 'newly discovered,' do you mean last
year or 10 years ago? Of course I don't know whether Professor
Teran is any more qualified to speak on this issue than yourself.
No doubt you know more about him than I do.  However, having
introduced the subject in TQE #125 I would be most grateful if
you would print and pass comment on Professor Teran's  letter to
the New York Times for my benefit and for all other readers of TQE.

- Eric Walker,  Ipswich Quaker Meeting, UK.

---------------------------
Statement by Prof. Roberto Fernando Terán, Dept of Economics,
University of San Simón, Cochabamba, Bolivia:

The Times' coverage of the Bolivian debate over gas and oil
(Bolivia Epitomizes Fight for Natural Resources, May 23, 2005)
oversimplifies the issues and leaves readers with the false
impression that there are not solid reasons behind the popular
demand for nationalization.

Why are social movements calling for Bolivia to take back control
Of its gas and oil?

First, the contracts that gave Bolivia's gas and oil to foreign
energy companies in the 1990s are unconstitutional because they
were never approved by the Bolivian Congress, as required by law.
Second, those same corruption-driven privatization deals gave away,
to foreign companies, proven gas and oil reserves worth more than
$11 billion. Third, before privatization, nearly half of the
revenues coming into the Bolivian treasury came from the publicly-
owned gas and oil industry. Today the foreign oil companies that
have replaced that public ownership are contributing less than
ten percent and much of that is passed on to Bolivian consumers.

In Bolivia the cost of producing and transporting a barrel of oil
is approximately $7. Yet Bolivians are being forced to pay world
market prices for our own oil, currently $48 per barrel.

Like any other country, we in Bolivia do not want to sell our gas
and oil in raw form at bargain prices. Countries reap the real
economic benefits from their gas and oil when they industrialize
domestically and sell it as processed products - gasoline,
plastic, electricity, etc. Foreign oil companies want to keep
Bolivia, South America's poorest nation, from doing that.

Why would the people of any nation with severe unemployment
and a lack of economic opportunity willingly accept such an
arrangement? It should be no surprise that millions of Bolivians
are not willing to accept the give away of the nation's oil and
gas.
---------------------------

Editor's Reply: Jack was referring specifically to the natural gas
discoveries of 2002 (see TQE #85). For the record, however, Bolivia
began producing natural gas in 1960, and exporting it in 1975.
Exploration for natural gas has been in progress since at least
1950, if not earlier. New reserves are added to the Bolivian
estimated total every year, as new fields are discovered and old
fields are resurveyed using improved methods. Reserves increased
from 33 billion cubic meters in 1988 to 1.5 trillion in 2005, a
growth rate of better than 25% per year for 17 years. The current
debate in Bolivia was triggered by this overall increase, and by
speculation that the ultimate amount of recoverable natural gas
is likely very much higher than proven reserves known today.

There is no question that most if not all of the Bolivian
government's negotiations with private industry over the entire
last century have had a striking lack of transparency, and post-hoc
evidence of massive corruption and embezzlement. Given this abysmal
record, it is not surprising that Bolivians deeply distrust private
industry, their central government, and capitalism generally. In
My personal opinion, nothing will improve until the systemic and
structural causes of corruption are corrected. Without a professional
civil service and judicial system, insulated from political and
financial influence, no part of Bolivian government will function
as intended, no matter which political party is in power. The fate
of Bolivian natural gas is merely the latest consequence of this
insidious pattern.

- Loren

Dear Jack: You got a lot off your chest in TQE #125, but I found
your discussion incomplete on three items.

Minimum wage. Your free-market fundamentalist views and conclusions
ignore the way real wage markets work. When minimum wage increases
force employers to increase wages to their low paid employees,
They respond by hiring better educated, more qualified employees
to replace their least qualified workers, and try to increase
productivity per worker based on their better qualifications.
I find the economic incentives of minimum wages - to get more
education and be better qualified for higher paying jobs, and
to increase productivity of the firm - to be beneficial from
the viewpoint of the economy as a whole. Any resulting drop
in employment can be partially offset by increases in aggregate
demand in the economy. Modest increases in minimum wages, such
as those we have had in the past few decades, have little
macroeconomic effect on labor markets, but do help to improve
wage situations in backwaters where poorly educated people are
exploited. Some Princeton economists studied what happened to
fast food employment in New Jersey and Pennsylvania, when New
Jersey raised its minimum wage and Pennsylvania did not. They
found little or no effects on employment in the two states.

Defaults and bankrupcy in international debt. I think your
readers should know that Anne Krueger, after she was named
Deputy Managing Director of the IMF several years ago, proposed
in some detail a mechanism for declaring bankrupcy on sovereign
debt. It was given careful consideration by financiers and
economists but ultimately did not receive much support; instead
new sovereign debt issues now contain clauses making them
easier to modify for a 'workout' if default threatens.

Multinational corporations. I doubt that your critics will be
convinced that MNCs pay top wages out of the goodness of their
hearts! They are transferring new technology from developed
countries requiring fewer but well qualified workers. It is
often very costly and difficult to adapt new technology to a
lower priced labor market, so the corporations must hire off
the top of the labor market in the developing country to get
the reliable skilled workers they must have to make their
technology work.

- William G. Rhoads, Germantown (PA) Monthly Meeting.
================================================================
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>-  Loren Cobb, Boulder (CO) Friends Meeting, Editor.
>-  Chuck Fager, Director, Quaker House, Fayetteville, NC.
>-  Virginia Flagg, San Diego (CA) Friends Meeting.
>-  Valerie Ireland, Boulder (CO) Friends Meeting.
>-  Jack Powelson, Boulder (CO) Meeting of Friends.
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