Monday, August 13, 2007


Weekly Parshas Blogging

Parshas Re'eh, among other things, reiterates the laws of the Sabbatical year with an emphasis on the cancellation of debts.

We are constantly told, by both liberals and conservatives, that we, as a society and as individuals, live beyond our means. But at an individual level, what does that really mean? If individuals make an average of $40,000 a year and spend an average of $41,000 a year, where does that extra $1000 go?

You may say the correction question is "where does it come from?" and answer it with "the banks". Which is, in a sense, true: we are, as is becoming more and more obvious, a debtor nation. But that really doesn't get to the root of the issue. If each individual spends $x over the course of a year (or whatever period) on goods and services, so that in total we spend collectively $X, but each individual only makes $y over the course of a year, so that in total we make $Y < $X, somehow, in total $X - $Y is spent on goods and services but doesn't end up in the pockets of those who provide goods and services, those who invest in the businesses providing those goods and services, etc. So where does this money go?

We cannot all be living beyond our means. I know that "zero sum thinking" is anathema to :"serious economic thinkers", but speaking as a physical chemistry type, there is a first law: there must be some sum to which things add up. Money cannot disappear, can it? So to whom is that $X - $Y disappearing? Call me a commie, but if people producing all those goods and services are living beyond their means to buy those goods and services, the issue is not that people are literally living beyond their means -- i.e. they consume more than they produce -- but that they are living beyond their means is a matter of an economic fiction, but one from which some people, in fact, must be benefiting!

What does this have to do with this last week's parsha? Well, imagine it this way. Supposing we had a Sabbatical year. Supposing we had even a Jubilee year. We'd all be debt free, have some land, etc. And then we'd go to work, and some of us would make more money and some of us would make less money. But at the very beginning of things, everybody could only spend money to buy goods and services commensurate with however much they produced. If $X were spent, therefore, in total everyone would earn $X. Money would stop disappearing.

Perhaps this is the reason of the Sabbatical and Jubilee years? Right now, we suffer from a liquidity crisis. So much money has "disappeared", we've got collectively nothing to spend. What could happen now? Money might itself become so valuable, deflation will occur, but that'll just make matters worse as the $x - $y we owe on average will now be all the more of a bite out of our finances. Which'll cause the money to "disappear" faster, which is how depressions happen. But if we just were to be able to force things to add up every so often, then liquidity crises wouldn't happen, would they?

But of course, something deeper is going on in the Torah portion: redistribution of wealth, though justifiable on callously pragmatic grounds or through an appeal to divine command, is given another edge. The korbanos are not all sacrifices, but, as we learn in this past week's parsha, many of them are essentially big BBQ parties in which all share a festive meal.

When people, right and even left, complain about (predatory lenders egging on) people living beyond their means, there is an element of "how dare those poor people consume so much?" to the complaints. But what is that $X - $Y spent on? Food, rent, maybe an occasional luxury. But by in large, as Deutero-Isaiah wisely points out: why spend money on that which does not satisfy? The $X - $Y is largely spent on that which does satisfy. But when it "disappears", it ends up effectively getting spent on that which does not satisfy by those into whose pockets it disappears. If it were spent on food, etc., it would go back into the system and not disappear.

But in spending it in a joyous festive meal, all who are thirsty can buy food without money. Or with money they earn through production. Money becomes merely a symbol of the production and not something which can disappear. I know my thoughts are not fully coherent yet, but I think that there might be yet another layer to the "spiritual materialism" of both the Deuteronomist and Deutero-Isaiah. Another layer we need to figure out soon and heed before too much money disappears and we end up being thirsty and having no money to spend even on that which satisfies.

Update: one class of people who produce more than they consume and hence you'd think might be a sink for money are those 'furriners' at the other end of our trade deficit. 'Cept the reason we buy so many foreign goods is because they are cheaper ... correcting our trade imbalance thus would likely leave us all more in debt (as we have to spend even more money to achieve even a modest standard of living) even as we collectively would likely easily produce enough to satisfy ourselves if we purchased without money and only purchased that which satisfied, following the advice of Deutero-Isaiah.

OTOH, there is a class of people who are acting as a sink for money -- i.e. they produce goods and services we purchase but don't return that money back to the economy: middle class landowners saving for retirement. Housing is not liquid and landowners in a housing bubble might purchase new housing and trap a whole bunch of money in property (an argument for some form of Jubilee year to liquify, so to speak, property? again, the Bible has some good ideas for solutions to our woes, but alas, those most likely to propose "Biblical" solutions are too obsessed with teh hawt sex and only care about what they think the Bible has to say regarding that subject to the exclusion of everything else!).

Moreover, people saving for retirement are producing goods and services, which we are buying with our $X, but they only bring, with their purchases, the amount of money that can pay us back for our labor up to $Y < $X. Ideally, of course, the money that is saved in banks, invested in the stock market, etc., goes back into circulation as loans, advances of capital to companies, etc.

But with low interest rates, few people are placing money in banks (which is a whole 'nother direction -- part of the reason for the subprime mortgage market is there is a lot of demand for capital, but regular banks are undercapitalized -- plus they don't make economically smart decisions due to prejudice, etc ... so much for markets providing freedom and allieviating prejudices -- so they don't have the money to lend, etc.). And most of the money invested in the stock market is invested in ponzi schemes buying already established securities. And to the extent that a massive $X - $Y influx of new money comes into the stock market, all it does is influence the market to respond to the demand for securities in ways that are not necessarily socially beneficial: the new securities offered fuel IPO bubbles like the tech bubble, demand for income stocks causes companies to try and squeeze out additional profits via lay-offs, etc.

In general, while profit is a motivator and investment in the market provides the capital on which our economy runs, these things are like inefficiency in a heat engine -- the second law says that without them things won't run, but they are inefficiencies ... sinks for money nonetheless. And by having so many people investing so much, there is too much money (energy) entering into the $X - $Y black hole as "heat".

In the debate about privatizing Social Security, few people discussed the fact that what we need is less rather than more investment. I suspect even the founders of Social Security did not appreciate its economic role in preventing depressions by lessening the need of a population that increasingly has a longer expected retirement time (due to people being able to live longer after retirement) to tie up money in less than liquid savings or "heat" producing investments. We do have enough productivity, I reckon, to take care of our elderly. Perhaps what we need to shore up capitalism is another New Deal/Great Society dose of social welfare programs? By beefing up Social Security so people don't have to "save" so much for retirement, there will be less money removed from the economy by people producing but not consuming commensurate with their production? And the extra production required to feed those whom our society has told not to save so much in order to keep our economy liquid? Perhaps if the market cannot generate the supply, we can have New Deal government works project to generate the goods and services required for them to buy food without money ...

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