Edward Hadas

An American, a Frenchman and a physicist were talking about some unusual weather. “It was twice as hot this afternoon as this morning”, said the American, “the temperature went up from 40 to 80 degrees.” The Frenchman interjected: “That’s in Fahrenheit. In Celsius, it was six times hotter.” The physicist was scornful. “On the only really scientific measure, the Kelvin scale, the increase was a piffling 5 percent.”

Who’s right? Well, all the measures are accurate and it certainly was hotter. But no single ratio – whether twice, six times or 5 percent – captures just how much hotter it actually felt. The feeling of hotness, like the feelings of pain or anger, cannot be measured with genuine precision.

It is the same for the feeling of prosperity – any measure will be arbitrary and quite possibly misleading. Consider gross domestic product, the most common index of economic success. GDP is the sum of spending on everything in the economy, from shoes to shoe-shines, from cars to child care. In comparing countries with each other or over time, GDP is usually adjusted for inflation to calculate what is ambitiously called “real GDP”. It is then often divided by the population, creating “real GDP per person”. This is usually measured in “constant dollars” and, for 2011 in the United States, becomes $43,149 of 2005 dollars.

Economists recognise that GDP is far from perfect. In 2009, a French government commission suggested that it should be augmented by measures of the distribution of wealth, environmental sustainability and “quality of life”. The Human Development Index, which is widely used by the United Nations, combines GDP with life expectancy and years of schooling.

These modifications are welcome, but they fail to correct GDP’s main weakness – that is what might be called the fallacy of precision. The human meaning of prosperity simply cannot be reduced to numbers. Supposedly exact measures generally confuse more than they illuminate.

My rejection of quantification is anathema to most economists, who fancy themselves to be hard scientists. It also goes against utilitarianism, economists’ favourite philosophy, which claims all decisions can be reduced to numerical comparisons.

But consider an example: real GDP per person in the United States is up 103 percent since 1971. That sounds basically right: overall, Americans are substantially richer than they were four decades ago. The improvements include a 12 percent increase in life expectancy at birth, the shift from clunky black-and-white to sleek colour television and the introduction of the Internet into more than 70 percent of households. The gains far outweigh the losses, such as a 26 percent fall in the number of highway miles per resident.

The exact number, though, is a fiction. There is no way to assign a weight to each of the gains and losses, and no reason to assume that GDP, which measures the inflation-adjusted price of the various goods and services, is a particularly meaningful summation.

Happiness economists try to dodge the problem by looking for a measurable and meaningful number in people’s feelings. They claim subjective satisfaction can be counted up, simply by asking people to rate their happiness on a scale of, say, 1 to 5. The approach has many problems, one of which is that it doesn’t make any sense to say happiness has increased by, say, 12 percent.

Emotions just don’t work that way. George may love his current girlfriend more than his ex, but it’s only a figure of speech to say he loves her twice as much. Similarly, it makes no sense to say we are twice as happy as our parents or 12 percent happier than we were a half a decade ago.

GDP and similar measures can be quite helpful rough indicators, especially for poor countries. For example, the Chinese government aims at 8 percent annual real GDP increase – that rate creates jobs without putting excessive strain on society. But the authorities in Beijing should be careful, for the precision is spurious. Sometime soon, the right GDP growth number will be lower. And when China gets rich enough, no measure of wealth will provide much insight.

Look at the International Monetary Fund’s calculation that GDP per person was 27 percent lower in France than in the United States in 2011. The exactitude is ridiculous and the basic conclusion, that Americans are substantially richer than French people, is silly. The countries are both rich and modern, just in somewhat different, incommensurate ways. France has cheaper medical care, longer holidays and better mass transit and bakeries. The United States has bigger houses and more cars per person.

Numbers are seductive, so economists, politicians and pundits tend to fret over every tenth of a percentage point of GDP. But it is easy to exaggerate the importance of incremental changes in measures of this sort. It would be better to stop striving for precision. Or at least to cut back by 92.4 percent.

Nothing stimulates anti-capitalist feelings like large sums of money changing hands in the hope of huge profits. A recent example: the prospect that Facebook could be worth some $100 billion to its shareholders. The website’s users might prefer less advertising and a lower valuation. But no one asked them. This inspired my Reuters colleague Paul Smalera to suggest that Facebook go co-op. Smalera won’t get his way, but he’s right to wonder whether the hunt for shareholder profits makes the world a better place.

In modern economies, most companies are supposed to be run for the benefit of the providers of equity capital, the shareholders, considered co-owners. Cooperatives and mutuals are owned by and supposed to be run for different groups: customers (the Cooperative Wholesale Society in the UK and American credit unions), suppliers (Sunkist citrus growers in the United States) or workers (the Mondragon group of companies in Spain and the UK retailer John Lewis).

The original thinking behind almost all these organisation was idealistic, even utopian: greedy capitalists had polluted the economy. Their exclusion would help promote the best aspects of human nature.

The idealism has not borne rich fruit. Co-ops and mutually owned enterprises (another name for this type of organisation) do not play a big role in the industrial economy. In the United States, the 100 largest employee-owned companies now account for only 0.5 percent of all workers, according to data from the National Center for Employee Ownership. Mutuality is doing less badly elsewhere – the largest dairy in India is a cooperative – but around the world, the movement’s boosters are losing their power.

The idealism and the lack of success are related. Cooperatives were designed without much thought about what would happen when managers and workers lose their initial energy and enthusiasm. Outside oversight was scanty. The founders promoted corporate cultures which became more complacent than collaborative. Managers were weak, and companies stagnated.

Yet the limited success of the cooperative movement does not equate to a resounding triumph for its ideological opposite – the shareholder value cult. If profits were all that mattered for the economy, then more than a quarter of all American workers would not be employed by enterprises that function, often quite well, without profit motive – 17 percent by governments and another 11 percent by private, not-for-profit, organisations.

Indeed, something like the cooperative spirit can thrive within profit-seeking companies. Workers think more about doing a good job for their team, and for their customers, and don’t obsess about the bottom line. They may behave this way for unselfish reasons. But self-interest can also make them focus on the opinion of bosses, who like teamwork, more than on returns to shareholders.

So neither cooperatives nor shareholders hold the secret to modern economic success. Profits for shareholders are less important than either their enemies or their fans would like to believe.

But shareholders do matter. Facebook is a case in point. Without the ability to raise money from outsiders, the company wouldn’t have developed so fast. Without the discipline provided by the search for profits, its workers could have spent too much time developing user-friendly features, for example, at the risk of leaving the website clever but broke.

Still, Smalera has a point. Exaggerated profit maximisation has made social networking less social. Facebook founder Mark Zuckerberg seems to be aware of the danger of too much profit-seeking. Like many media magnates before him, he will take super voting-rights, in his case to ensure the company stays loyal to its “social mission – to make the world more open and connected”.

A more cooperative corporate structure might be preferable to the trust-Zuckerberg arrangement. But the need for less aggressive shareholders is greater in finance than it is in media. Mutuality is the most natural structure for banks and insurers. Since their funds come directly from depositors, they don’t need to raise capital from outside shareholders. Arbitrating the conflicting desires of savers and borrowers should be enough to keep management busy, honest and efficient. As recently as three decades ago the financial system in Europe was mostly not-for-profit, and mutuals also played a major role in the United States.

Promoters of demutualisation said private shareholders would bring capital and discipline, but there was no good reason to change the old structures. Indeed, the introduction of the culture of profits into formerly mutual institutions was a significant contributor to the recent financial crisis. Such banks proved easy prey to the schemes of greedy schemers.

In organising the economy, greedy schemers and utopian dreamers are not the only alternatives. Like well-run government agencies and prudent shareholder-owned companies, well-designed cooperatives can be efficient servants of the common good. Hard-headed bankers and regulators should catch on.

The financial markets rejoiced last week because the U.S. unemployment rate fell to 8.3 percent in January, 0.8 percentage points lower than a year earlier. Back in the real world, the gain looks less impressive. The proportion of the adult American population with a job has hardly changed since January 2011 – it is up from 58.4 to 58.5 percent. That number peaked in 2000 at 64.4 percent.

The decline in American so-called “participation rate” is a serious economic problem. Many blame the cyclical downturn or inadequate GDP growth, but they are too focussed on output. The real issue is input: the supply and the need for labour. This is not just an issue for the United States. But the current shortage of jobs in most rich countries is the latest leg of a long race between technological forces that lead to job destruction and socio-economic forces which provide new kinds of employment.

Over the last two centuries, the contest has been fairly even. The labour savings in field, factory and home have been nothing short of amazing. Imagine that today’s technology and labour skills were available when Adam Smith wrote The Wealth of Nations in 1776. If people today worked as many hours a week as they did then, and for as many years of their lives, and if they consumed roughly the same quantity of goods and services, the unemployment rate would more like 70 than 8 percent.

But the forces of job creation have been equally amazing. The work has been spread out. People work less – they have weekends and holidays off, and more years of education and retirement. They also consume much more, and this creates employment. And although rampant consumerism raises some ethical questions, increased leisure and consumption constitutes basically good news.

There have been periods both of labour shortages and excess unemployment, but up to now balance has always been restored. We are now in a new period of imbalance in rich countries. The job-destructive forces of technology have pulled ahead of the rebalancing mechanisms. That should be interpreted as a call for action on jobs.

Luddite calls to stop or reverse technological progress provide no answer. Even if mobile phones and the Internet destroy more jobs than they create – no one really knows – they certainly do much more good than harm. And every job lost in a dangerous mine or on a boring assembly line is a gain for humanity.

But many jobs could be created if the economic arrangements were more favourable. For example, the United States has dilapidated highways and an army of unemployed construction workers, but it has not been able to match the two. Such stalemates in the labour system can be broken, although rarely without changes in taxes, benefits, wage laws and training arrangements. But it worked for Germany. Thanks largely to some tinkering with the unemployment rules, its participation rate is higher now than in 2000.

Tinkering may be enough to get employment back in balance, but jobs could also be created in areas long seen to be of marginal importance, or no importance at all. This idea goes against the professional grain of most economists. Adam Smith wrote disapprovingly of “unproductive” labour and his followers have cheered whenever workers use less effort to produce more.

But economists have an inadequate understanding of what is really productive. They ignore the reality that many jobs in a modern economy are useless – or close to it. The vast bureaucracies of government, finance, and marketing employ many people who add to GDP but whose work does little or nothing to make life better.

Pointless jobs could be created by making the tax code more complicated, by requiring teachers to do more paperwork, by developing new financial instruments. The possibilities are endless. If these ideas fail, we could emulate some of the bad habits of the past masters of full employment, Soviet-style communists. They excelled at wasted effort.

But there is a better way. And that is to rethink the value of jobs that economists have traditionally considered useless. Take a look at Smith’s collection of “frivolous professions”. He includes “churchmen, lawyers, physicians, men of letters of all kinds; players, buffoons, musicians, opera-singers and opera-dancers”.

Arguably, most of these bring spiritual richness to life while lawyers – in theory at least – make the world a fairer place. So let’s have more of them (well, maybe not more lawyers), and more employment in similar professions. Let’s have more people in the caring professions too, improving the lives of children, the old and the troubled.

A desirable shift in employment needs change in social attitudes and some technical ingenuity. But the recent fall in participation rates should be considered an opportunity. We could make the economy more genuinely productive and society more humane.

President Barack Obama thinks taxes can help the government achieve a precise policy objective. In last week’s State of the Union address he outlined a complex set of tax adjustments  to discourage companies from moving American jobs to foreign parts.  In the same speech, Obama also suggested that taxes can be made simple and clear:  “No side issues.  No drama”, he said. He applied that description to the extension of the cut in the U.S. payroll tax rate. It was followed by pushing for “common sense” on a minimum tax rate for the rich. “Washington should stop subsidizing millionaires”, the president said.

The rhetoric may not be entirely contradictory, but it points in quite different directions. If the tax code is written to reflect particular concerns, whether of the government or of influential taxpayers (and non-payers), it will never be simple. And if simplicity is the guiding principle, it is hard to understand why the president wants to add to a U.S. law which already has 9834 sections. 

The current president is not the first person to dream of improving a complex, arbitrary, inefficient and unjust tax system. On the contrary, the history of taxes in every country is replete with efforts at reform, although they come along far less often than desperate measures to squeeze more money out of unwilling subjects. Governments’ consistent need for more revenue and the governed’s equally consistent reluctance to pay helps explain why reformers find progress so difficult.

Obama’s inability to support simple tax principles for even the length of a single speech suggests another reason: irresistible temptation. Politicians love to give favours, to redress particular wrongs, to promote special rights. Obama and other would-be tax-reformers are more likely to succeed if they base their proposals on principles which are both idealistic and pragmatic.

First, the primary goal of tax systems should be justice. In one sense, that’s obvious; injustice has few defenders. But in discussion of taxes, justice is often sacrificed for expediency or the pursuit of efficiency.  This results in exemptions for important cases or special measures that promote  good causes — say home ownership or American jobs.

How does this fit with the principle of tax justice? In our social market economies, taxes should primarily serve the social side of the system. A just tax system will follow what Pope Benedict XVI called the “logic of public obligation”. He says that the compulsion of the law should be used to support the social fabric by making people do what they would want to do voluntarily — if they were perfectly good. Taxes should help but not pamper the poor and discipline but not break the rich.

This principle of justice will not end all arguments about tax policy. It can be used to argue for flat or rising tax rates; for levying taxes predominantly on wages or on prices; and for countless other arrangements. But if those who write the tax rules keep to this principle, the tax system is more likely to be just.

A second goal of tax systems should be to prefer imperfection to complexity. In this convoluted world, even a basically fair tax system will be unjust to some people. But additional rules designed to help the maltreated almost inevitably have unintended consequences. A common effect is the creation of loopholes through which the privileged quickly move, managing to pay less tax than they would otherwise. If a Save American Jobs tax benefit becomes law, companies will undoubtedly go through contortions to show they qualify. Obama would be more likely to do good if he dropped his own tax contortions to focus on simplicity. 

Third, taxes should not be used to guide social policy. Taxes are too crude and indirect to be effective for that. If bosses are paid too much, it is better to pay them less than to tax them more. If ordinary wages are too low to support families, raise the pay rather than cut the taxes. If governments want to subsidise investment, culture or some other public good, they should do so with grants rather than tax breaks.

Fourth, vigilance. From the tax exemptions of monasteries in medieval Europe and 11th century China to the “carried interest” of today’s private equity managers, the powerful have always twisted tax rules to their advantage. They should be held in check. More pertinently, since lawmakers are usually representatives of the elite, they should hold themselves in check.

In that respect, President Obama deserves praise for admitting that it’s “not right” when “I get a tax break I don’t need”. If his Democratic followers and Republican opponents showed some of the same humility, a better U.S. tax system might become more than an idle dream.

Capitalism is the name people give to the way the modern economy is arranged. Now that Communism has been discredited as an economic system, there seems to be no real alternative. But the word is misleading.

A capitalist analysis of any economic issue starts with capital, both physical capital – factories and land – and financial – shares and bonds. It is associated with free and competitive markets for goods and labour.  And capitalism has come to designate a system where private property is the norm, with any exception needing some sort of justification. Capitalist analysis usually treats governments and unions as economic interlopers, and ignores the broader society.

That perspective is too narrow. Capital and markets are only two parts of the complex modern economic system. People don’t only matter because they bring their labour to the owners of capital – as in the original, 19^th century definition of capitalism. And governments over the years have become regulators and keepers of the monetary order. Moreover, the economy is so closely integrated with modern society that no clear border separates the two. Social forces – such as the thirst for technological innovation, the work ethic and other moral values – play a fundamental part and influence the workings of the purely “capitalist” system.

A limited analysis often leads to unnecessarily grim prognoses. Think back to the 1960s, when environmental pollution was first identified as a serious problem. Many observers, enthusiastic capitalists among them, thought that the capitalist system couldn’t deal simultaneously with environmental goals and the search for profits. Economic disruptions were predicted. But changes in the law, technology, corporate priorities and cultural values combined to bring about a remarkable success in reducing noxious emissions, without noticeable harm to prosperity or profits.  The system found a way to price externalities without endangering itself.

Half a century later, people, including enthusiastic capitalists, are again wondering whether the system can survive. Now they cite the long financial crisis, or issues such as the exorbitant privileges of the very rich. They are not wrong to be concerned. If the economy were simply or primarily capitalist, either of these problems could well be lethal. After all, neither factory nor financial capital can be expected to allocate income and wealth justly. And the financial system could be too wounded to heal itself.

But the separation of the rich from the rest in some countries isn’t basically a failure of either capitalism or free markets. At bottom, it is a sign of inadequate social solidarity. The more direct causes, from politicians and regulators’ complacency to society’s general indifference regarding corporate pay, are more social than economic problems. The solutions – new rules, taxes, and behavior – will have little to do with the functioning of the core capitalist system.

Similarly, the financial disorder may look like a crisis of capitalism, but its causes and cures are political and moral. Financial markets have failed because politicians tried to give citizens more wealth than they have earned, bankers forgot the common good, governments refused to live within their means and investors’ greed was celebrated rather than restrained. No solution limited to the technical operations of the financial system can work for long, unless it is a reflection of changed political and moral attitudes.

Words are not everything, but the unquestioned identification of the modern economy as “capitalist” tends to constrain economic arguments. The debate is almost completely stifled when hyper-capitalists assume that any impediments to free markets are regrettable signs of  “market failure”. That dismisses most of the economy – from the government’s 40 per cent share of GDP to the 90 percent of the workforce employed in meritocratic bureaucracies. But the capitalist obsession also limits the insight of economists friendlier to government intervention and more skeptical about free markets. They tend to downplay social values and ethical analysis.

A new name for the modern economy might encourage a broader approach. Something bland might work – the business, or the industrial economy. I prefer a title that has a bit of spin on it. Acronyms are fashionable; perhaps it is time to introduce the BCRINCF economy — bureaucratic, competitive, regulated, innovative, collaborative and financial. But that’s a mouthful.

I suggest the “social market economy”. The term was coined in Germany after the Second World War to show that capitalism could be combined with a strong government presence, workers participation in company boards and an extended social safety net. The combination is still apt, as each of the two words captures something essential. “Market” takes in capital, competition and the eager striving for improvement. “Social” pays tribute to the human element and the need for economic activity to serve the common, social good. It is appropriate that social comes first in the title, because the modern economy is a largely a construction by and for the whole community. If it had been merely capitalist, it would not have lasted this long.

The cruise industry demonstrates much of what works well in the industrial economy. The debacle of the Costa Concordia – 11 people confirmed dead and at least 23 missing, and a financial loss of as much as $1 billion – shows some of the ways that the economy can malfunction.

The loss of life from the accident off the Italian coast is tragic, and the loss of money is remarkably large for a business that has global annual revenues of around $34 billion, according to Cruise Market Watch. That is not a big business by global standards; airline revenues, as calculated by the International Air Transport Association, are 17 times larger.

Still, the cruise trade is large and familiar enough to provide an illuminating microcosm of the modern economy at work.

The industry started with a little entrepreneurial imagination – Ted Arison, who founded Concordia’s owner, Carnival Corporation, in 1972, believed that there was a mass market for cruises. He was right about this little corner of the consumer culture – cruises are now a popular luxury. Affluence is what now animates the industry – cruise customers must have ample amounts of both money and leisure time.

But the idea would not have borne fruit without technological ingenuity – ever larger ships with ever more luxurious features for customers. Investors willing to take risks were also necessary: Carnival and its rivals had to raise money to build ships that did not have a guaranteed market.

Finally, although it rings hollow right now, strong regulation has helped keep the list of cruising accidents short, with almost no deaths. Even taking the Concordia into account, this sort of sailing is much safer than flying. Put it all together, and you get an industry that has increased its passenger count at a fairly steady 8 percent annual rate for two decades.

That sounds good, but something went badly wrong with the Costa Concordia. On the surface, the problem was nothing more than human error. The captain seems to have sailed too close to land, breaking the rules and overruling the technology.

But basic rules are almost never broken in a well-designed industrial process, and when accidents do happen, there should be recovery systems to minimize the damage.

So look further. Engineers may eventually decide that giant cruise ships need more safety features or even that the whole design is faulty. If that’s the final judgement, it will be hard not to think that entrepreneurial enthusiasm got out of hand. Imagination and innovation are crucial ingredients of modern prosperity, but heedless expansion and experimentation are not.

The cruise industry may be right that its technological model is up to snuff. The failures in the human system are harder to deny. True, it’s too early to say the captain was definitely at fault, and if he was, to decide whether his flouting of the rules was typical or tolerated. But it is clear that the evacuation of the Concordia was poorly managed. Panic could have been avoided if the large crew – one crew member for every three passengers – had been calm and well-trained. A safety drill for passengers, which was supposedly mandatory but apparently skipped, would also have helped.

Look still further. The carelessness on one ship can be traced to the pressures on the whole of Carnival to perform. No, top management didn’t simply sacrifice safety for the sake of profits. Micky Arison, Ted’s son and Carnival’s current chief executive, knew perfectly well that a serious accident would cost much more than any penny-pinching on safety could gain.

The pressure is more subtle. It is built into the economic logic of this fast-growing and competitive industry. Any company that doesn’t build enough ships will soon have an old fleet and can quickly become an also-ran. Carnival, which has a market share of close to 50 percent, is particularly eager to stay on top. But it is easier and faster to build new ships, even ones that cost hundreds of millions of dollars, than to create the sort of instinctive reflexes in the personnel that can prevent stupid accidents and ensure intelligent responses in a crisis.

Once the expensive ships are built, it is punitively expensive not to put them out to sea filled with paying passengers, even if the quality of the staff leaves something to be desired. So unless something is done to alleviate the competitive pressure to run full speed ahead, the people will almost inevitably be the weakest link in the enterprise.

One remedy is for regulators to require more rigorous training. But it would be better if the companies themselves took on the moral responsibility. They could agree to slow expansion until the human capital can catch up with the physical. If bad publicity from the Concordia disaster sparks such a commitment to the common good, then the deaths and damage will not have been completely in vain.

PHOTO: A view of the Costa Concordia cruise ship that ran aground off the west coast of Italy, January 18, 2012. Italian divers suspended their search of the capsized cruise liner after the vessel shifted slightly on its resting place near the Tuscan island of Giglio, officials said on Wednesday. REUTERS/ Max Rossi

“It’s the economy, stupid.” The words date from Bill Clinton’s 1992 presidential campaign, but the basic idea that political shifts are the visible manifestations of hidden economic developments was first articulated by Karl Marx, who wrote before the word “economy” had its current meaning. When he declared, in 1848, that “The history of all hitherto existing society is the history of class struggles,” the notion was truly revolutionary. It has become a commonplace. Pundits ferret out economic causes for everything, politicians strive to present voters with economic good news, and careful studies show that economic trends influence elections.

Like most often-repeated generalizations (“Germans are orderly” or “an army marches on its stomach”) the claim that politics is fundamentally about economics has some truth to it. But I think pundits, politicians and voters would all benefit from a bit of revisionism. It’s not always the economy, and when it is, politicians cannot do much about it in a hurry.

Start with the expert commentators. I’m thinking of the people who confidently declare that the Arab Spring was caused by the increased cost of food. Or the ones who explain the poor performance of Vladimir Putin’s party in the recent Russian parliamentary election as a reflection of stagnating average incomes. The invasion of Iraq? It was the oil, stupid. The rise of anti-immigrant parties in Europe? Look no further than the job market.

Such claims cannot be disproved, since they concern motivations which are unknown to the actors themselves. I may “think” that I want to get rid of a kleptocratic government or that I’m uncomfortable with the president’s autocratic tendencies, but I’m just being, well, stupid. Idealism and xenophobia are mere covers for a calculation, possibly erroneous, of economic self-interest.

But it is the pundits who are being simple-minded, if not devious. Most of the leaders of the Arab revolts had prospered under the old regimes, and the recent elections in Tunisia and Egypt have been won by parties with a clear religious agenda but only vague economic plans. When protesters say they thirst for justice and when voters indicate they desire holiness, there is no good reason to think their stated views hide a more ignoble reality. An excessive focus on economic issues makes the pundits unreliable guides. They should remember that economic issues are sometimes crucial in people’s lives, but more often not.

Politicians do need to worry about the economy, if only because government spending in the G7 group of rich countries was equal to 45 percent of GDP in 2011, according to the OECD. The political decisions on how those sums will be extracted and spent – not to mentions the laws and regulations that shape the private economy – are crucial for the economy and important for the nation.

Politicians too often exercise their economic responsibilities in an irresponsible way. It takes years for policies that encourage investment, innovation and employment to bear fruit, but leaders often focus on creating enough good news to win the next election. That often leads them to increase fiscal deficits. These may seem painless for a while, but eventually politicians have to choose between fiscal austerity, which makes them unpopular right now, and continued fiscal recklessness, which will wreck the economy quite soon. Greek and Italian politicians were not up to making the choice. The best they could manage was an agreement to let non-political, technocratic governments introduce sensible but painful policies.

There is a better way. Politicians should stop trying to work economic magic. That means they should admit — publicly and loudly — that the only sustainable way to produce desirable statistics on incomes and unemployment in any month is to have made the right decisions many years ago. Consistent and sensible economic policy is the best support for durable prosperity.

Of course, politicians behave the way they do largely because voters seem to demand it. The American political debate is particularly disheartening to anyone with a minimal knowledge of economics. The nation’s combination of high fiscal deficits, stimulative monetary policy and a persistent trade deficit is an invitation for disaster, but neither Democrats nor Republicans are willing to admit it. They are following polls and focus groups, which tell them recklessness is all right.

The irony is great. If politicians were willing to teach and voters to learn, governments could put their economic houses in order. Of course, the transition would be much easier if politicians had not spent decades putting off virtuous behavior until after the next election, but in a rich country such as the United States the pain of getting policy right would still be modest, especially in comparison to the woes that will come whenever foreigners stop funding the government. Then it really will be the economy, thanks to some remarkable – and avoidable – stupidity.

PHOTO: Workers place construction chains at the Karl Marx sculpture of the Marx-Engels monument in Berlin, September 8, 2010. REUTERS/Tobias Schwarz

By Edward Hadas

The opinions expressed are his own.

Ah, the curse of materialism. The true spirit of Christmas has been obliterated by a landslide of gifts. The crass commercialism which surrounds the experience of holiday shopping, not to mention the returns and post-Christmas sales, has turned this joyous holiday into little more than an exaltation of the worst aspects of our modern consumerist economy.

Or so it is often said. But is the complaint fair? It’s certainly true that the exchange of gifts on a large scale is a relatively new feature of Christmas festivities. In the 1840s, Charles Dickens has the Spirit of Christmas Present take the miser Ebenezer Scrooge to witness joyous celebrations of the feast. Food, drink and good cheer are in abundant supply, but there are no presents.

In the 1880s, hand-made gifts were making the day special for many American children. By the 1920s, a more commercial spirit had triumphed in the land of mass production and the factory-made Christmas was already causing complaints about inappropriate gifts. According to historian William Waits, some businessmen felt a little queasy about advertisements for such supposedly ideal Christmas gifts as a can of paint, a cooperative apartment, potatoes and floor wax.

Waits notes that Santa Claus had starred in many seasonal advertisements. He plausibly interprets this as a sign of discomfort with the invasion of the cash nexus into a holiday which was then still considered predominantly religious. The desire to make people buy things and the search for profit seemed to fit poorly with the poor infant of Bethlehem. But the reworked Saint Nicolas took gifts out of the marketplace. In Waits’ words, Santa “did not use money and was not engaged in making profit…. His gargantuan giveaway was antithetical to pecuniary self-interest and its only reward was the satisfaction of making recipients happy.”

The jovial generosity in the North Pole workshop can certainly be interpreted as no more than a feeble attempt to escape the dark reality of “pecuniary self-interest” (aka greed). There is no question that Christmas is now a big business. Holiday presents account for about 0.6 percent of U.S. GDP, based on spending intentions reported in a Gallup survey. Producers and retailers alike cannot easily separate the spirit of the season from the call of the cash register.

Not that Christmas greed can always be measured in dollars and cents. Few people are as bold as the British girl who threatened Santa that a failure to deliver on her wish-list would drive her to “hunt down your reindeer, cook them and serve their meat to homeless people on Christmas day”. But parents and other gift-givers will recognise the sentiment. Recipients’ high expectations can turn the exchange of presents into something like extortion.

Some families have been so repulsed by the grasping and the commercial spirit that they have vowed to boycott the holiday completely. Others try to simplify. I know one which has reduced the exchange of gifts to the barest minimum — each family member gives $100 in cash to every other.

Such Scrooge-like approaches miss the good side of Christmas giving. The holiday can be considered the annual highlight of an industrial version of what anthropologists call a gift-culture. Gifts are useful and easily understood tokens of emotional and social life. The obligatory nature of many gifts (“I have to get something nice for auntie”) does not necessarily make the offering insincere (“That’s so kind of you to think of me”). On the contrary, when the gift-culture works well, love and duty reinforce one another.

At its best, the contemporary Christmas gift-culture does have something of a Santa-effect. The harsh logic of prices and markets gives way to the generous logic of love and the anonymous products of mass assembly lines are transformed into personalised tokens of affection and esteem. Even the seasonal excesses spring from good intentions. Christmas presents can show that there is a spirit more powerful than the mean techniques of monetary calculation.

The Christmas culture deserves neither condemnation nor enthusiastic endorsement, for it is both a generous celebration of abundance and a distasteful materialist greed-fest. The noble and the base are inextricably mixed. Christmas makes shopping close to something like holiness, but it also brings out some of the worst aspects of consumerism — the blind desire for ever more stuff, the desperate search for bargains and the restless ambition to show status through nice things.

The best aspects of Christmas are undermined–and the worst are amplified — by the weakness of any gift-culture, the limited ability of material things to represent the immaterial. No quantity of generosity can prove that the gift-giver is truly socially superior to the recipient. And nothing found in a shopping mall or on a retailer’s website will truly show the extent of our love.

Photo: A visitor lights a candle at the Church of the Nativity, the site revered as the birthplace of Jesus, in the West Bank town of Bethlehem December 19, 2011, ahead of Christmas. REUTERS/Darren Whiteside

Something has gone wrong with global warming. It’s not that the world has stopped heating up. It’s that the anti-warming political movement, which seemed almost unstoppable when the Intergovernmental Panel on Climate Change won the 2007 Nobel Peace Prize, has stalled.

Last week’s United Nations climate change conference in Durban ended with little more than an agreement to talk some more about what to do next. Even that was too much for Canada, which has just said no to emission-reduction targets. The activists blame recalcitrant governments and many commentators blame economic distractions. They are probably both right, but I think the activists’ own approach bears much of the responsibility.

While only experts can judge the strength of the scientific evidence for man-made climate change, no technical knowledge is required to be troubled by the way the activists present their case. The willingness to describe knowledgeable opponents as “deniers,” a word previously used only for fantasists about Nazi atrocities, suggests a very unscientific attitude.

The “Climategate” emails show scientists so passionate about their beliefs that they are unwilling to brook opposition. Fervor seems to have led to overconfidence. The status of the claim that recent years have been by far the warmest in a millennium has been downgraded from certain in 2001 to likely or mistaken (depending on the expert consulted).

The activists’ excess of passion and certainly has led them to a dogmatic conviction that a radical policy — rapid and sharp reductions in carbon dioxide emissions — is required to save the world. Since industrial economies cannot yet function without using large amounts of energy generated by burning carbon, the anti-carbon prescription equates to a campaign against prosperity — tough on rich countries (too tough for Canada to bear) and practically a sentence of economic stagnation for poor ones.

Such draconian measures only make sense if global warming is exactly what devout affirmers say it is — hazardous, accelerating, man-made and about to go non-linear (science-talk for catastrophic). Otherwise, a more moderate strategy makes sense. We should work on energy conservation (good in any case), increase research on carbon-neutral technologies and build up industrial production and prosperity in poor countries so they will be better able to marshal technological forces against the problems which global warming may eventually cause.

Why do activists show so little interest in such a sensible compromise? I blame the sorcerer’s apprentice. In the 1797 poem by J W Goethe (familiar from in the Walt Disney film Fantasia), this clever student is able to invoke — but not control — the magical-technological ability to turn a broom into a water-carrying machine. The man-made global warming activists tell a less poetic version of the same story. It goes like this: we have learned how to use the energy stored in the earth to serve our purposes, but do not know the spell which keeps the unleashed energy from destroying us — and we have no equivalent to the poem’s old master to rescue us from our carbon folly. Halfway countermeasures are likely to replicate the apprentice’s effort to stop the broom by splitting it with an axe — he ended up with two brooms and twice the trouble. Under the circumstance, moderation would be madness.

Durban is history, but the debate on global warming can still be calmed down. Activists need to admit that both their scientific analyses and their policy recommendations have been under the spell of this sorcerer’s apprentice-model. Rather than telling a simple tale of good (themselves) and evil (unresponsive industry and anyone who disagrees with them), they should accept that possible man-made climate change is a complex topic which deserves dispassionate study. True, delay might prove dangerous, but so too might hasty action. Besides, in practice, the activists’ current approach has been tried and found wanting.

A call for more careful study is not a counsel of despair. Rather, it is a call for aid from one of the most effective power-groups in the contemporary economy: scientists and engineers working together with politically sensitive regulators. Consider the dark arts of aviation, mobile phone technology and nuclear power (now there’s something with a sorcerer’s apprentice-feel). In all these domains, knowledge has been advancing steadily, accidents are rare and well grounded criticism has helped to make the technologies safer and more acceptable.

Indeed, in the modern economy this technical-regulatory complex — undramatic committees meeting in unbeautiful offices — plays the heroic role of the master sorcerer. It does not permit wild experiments and it eventually changes old practices when new evidence comes along. If climate change is to be taken seriously, the IPCC and UN conferences need to have less madness and more method.

By Edward Hadas
The opinions expressed are his own.

Americans are both the fattest people in the world and the biggest spenders on health care. Both those facts can be traced, at least in part, to a common attitude.

First a few numbers. The latest global handbook from the Organization for Economic Co-operation and Development (OECD) shows that 34 percent of Americans are obese by the criteria of the World Health Organization. In health care spending, the United States leads with 17 percent of GDP. In both categories, U.S. numbers are almost twice as high as the average numbers of OECD members.

The extra fat accounts for only a small portion of the extra American spending on health care. Researchers recently estimated that the medical expenses caused by obesity, which is connected to problems such as high blood pressure, heart disease and diabetes, amounted to $147 billion in 2008. That number suggests that even if Americans were no fatter than the OECD average, they would only spend 3 percent less on health care than they do now.

I believe there is a more significant connection between the obesity problem and the amount Americans spend on health care than these numbers suggest. Both the choice to eat too much and the choice to pay up for almost everything labelled “medical expense” are spawned by an attitude which can be called health willfulness. The United States leads the world in this attitude, but it, along with obesity and health care spending, is probably on the rise almost everywhere. It helps explain why spending on health care increased from 4 to 10 percent of GDP since 1960 for the entire OECD.

Health willfulness is the belief that it is my right to decide what to do with my body. If I want to eat without concern for my health, so be it. When it comes to health care, I expect the modern medical system to satisfy my desires, whether for help in getting slim again or for heroic efforts to prolong my life. Money should not matter.

The attitude fits with the modern culture’s enthusiasm for individualism and consumer choice, but it has some unattractive consequences. The damage caused by a willful approach to eating is plain to see. The damage caused by willful health care is harder to see because it can be obscured by the sensitivity of life and death matters. Is it not better to favor life, whatever the cost? But the willful approach to medical care has made the American system sickly. Too much is spent on care that pleases vain or desperate patients and family members, without doing much for health. As much as one-third of total spending is dedicated to care during the last year of life.

There would be less to complain about if the high cost of these willful choices were born only by those who make them. But direct payments from patients account for only 12 percent of the total medical spending in the United States. The rest of the funding comes from society as a whole, through plans run either by governments or by heavily regulated insurers. In effect, health willfulness is usually an individual’s decision about how to spend everyone’s money.

The socialization of medical costs has much going for it. Both the mixed American and European systems and the more monolithic British arrangement provide the poor with care they could not otherwise afford. Socialization also spreads the burden of expensive treatments over a lifetime and the costs of sickness over well and sick alike. But the combination of medical socialization with health care individualism has increased total health spending and created involuntary subsidies from those who chose fewer interventions to those who choose more. In most rich countries, both the economy and justice would now be served by a partial de-socialization of health care.

How to do it? One approach is already standard practice in many American and European arrangements — make patients pay part of the cost. These plans would be more effective and just if the fees were calibrated to incomes, so rich and poor people felt the same economic pain. (Speeding fines are set this way in Finland.) Another approach is to allow people to opt out of the socialization of costs for selected treatments. They could choose an insurance plan which excludes, for example, serious operations for people over 80 or treatments for cancer which add less than one year to life expectancy. The frugal would pay less and get less. Alternatively, the standard health insurance policy could cover less than it currently does. Higher priced policies would be available so the most willful could still satisfy their health care desires.

The practical details of medical de-socialization — setting prices and dealing with late changes of mind — are tricky. But it’s worth a try. We’re more careful about expensive things when we have to pay for them out of our own pocket.

Photos, top to bottom: A cheeseburger is pictured at a Five Guys restaurant in Washington May 26, 2010. REUTERS/Yuri Gripas; A passenger waits for a delayed flight at Heathrow airport’s terminal four in London August 12, 2006. As healthcare costs in such heavyweight nations as the United States and heavy-smoking locations as Dundee keep rising, and as governments move to cut huge budget deficits, hundreds of local authorities, employers and health insurers – even the occasional former investment banker – are dabbling with health incentive schemes. REUTERS/Toby Melville