HAITI: A FRESH START

POOR Haiti:

We've all known for some time that Haiti's economical statistics are very frightening. And now a super massive 7.0 magnitude natural earthquake disaster that has basically destroyed the small country makes these figures even scarier to evaluate. This is no laughing matter (seriously). According to the Latin Business Chronicle, Haiti is ranked as the poorest country in the entire Western Hemisphere (FYI: that means out of one half of the ENTIRE GLOBE…this is EXTREMELY BAD people.)

The Facts:

To illustrate the severity of Haiti's current situation, we must look at the (grim, pre-earthquake) figures provided by the U. S. Central Intelligence Agency. Haiti's total reported population for 2008 was 9,780,064 people (just so you know how small this is, compare it to Los Angeles' total pop. for 2008 of 9,862,049 people!) Statistics show, that out of that total population, the unemployment rate is 80%. (No, sadly this is not a typo, nor an exaggeration…but wait that's not all!) Out of the total population, the available labor force is only around 4,000,000 people and 70% of them do not have "formal employment" (whatever that's supposed to mean).

Taking the above figures into consideration, in addition to Haiti's reputation for having an unstable social climate rampant with illegal drug trade (thugs running wild), very poor infrastructure (crappy buildings and shot roads) and a government overly dependent on raising international donations to sustain itself (pushing any chance of social reform wayyyy to the back of the line), this type of natural disaster is THE LAST THING they needed…….

(or is it???)

The Issue:

The question we are faced with (being face-to-face with a natural disaster and all…) is whether such a devastating earthquake striking Haiti and causing its subpar socio-economical climate to finally collapse will actually evoke an eventual positive reform? (In the words of a not-so-Caucasian United States President…CHANGE!)

Touchy...Touchy!:

(Aside from religious beliefs regarding "the afterlife"…) At first glance, it may seem unfathomable that any event causing fatalities can be viewed in a positive light. Before we continue, I must provide a disclaimer: the following discussion is applicable strictly when referring to the long-term effects of rebuilding efforts and the reconstruction of an inflicted location. (Please don't hurt me:::holds arms up to block punches:: LOL). However, I digress, (<-- I've always wanted to say that! Haha), moving forward.

A Classical-Necessary-Evil:

Economist Joseph Schumpeter defined the classical economic theory of Creative Destruction as "a process of industrial mutation that incessantly revolutionizes the economic structure from within, incessantly destroying the old one, incessantly creating a new one." To gain a thorough understanding of his proposed theory (or maybe even confuse you even more LOL) we will examine this excerpt found here from Schumpeter's famous book published in 1942 which popularized Creative Destruction:

"Capitalism, then, is by nature a form or method of economic change and not only never is, but never can be stationary. And this evolutionary character of the capitalist process is not merely due to the fact that economic life goes on in a social and natural environment which changes and by its change alters the data of economic action; this fact is important and these changes (wars, revolutions and so on) often condition industrial change, but they are not its prime movers. Nor is this evolutionary character due to a quasi-automatic increase in population and capital or to the vagaries of monetary systems, of which exactly the same thing holds true. The fundamental impulse that sets and keeps the capitalist engine in motion comes from the new consumers, goods, the new methods of production or transportation, the new markets, the new forms of industrial organization that capitalist enterprise creates."

-Capitalism, Socialism and Democracy (New York: Harper, 1975) [orig. pub. 1942], pp. 82

(Plain English for those of you who didn't quite catch that: "Out with the Old & In with the New"…make sense? Good! LOL)

This economic theory can be a very controversial and widely-debated hot topic (sounds like an episode of The View, yea?… just with a bunch of nerds instead of old women. LOL) requiring both sides to show empirical analyses (or lack thereof) to support their position.

Out of Chaos Comes Order:

Since its inception, Creative Destruction theory has been evaluated & proven for natural disasters occurring many years ago. It has also been successfully used in forecasting recent events of natural disasters similar to that of Haiti. These events included The Alaskan Earthquake of 1964, Hurricane Andrew in Florida of 1992, the Chinese Sichuan Province earthquake of May 2008 (among many others)…with Hurricane Katrina of 2005 as the one exception to the group (so many residents left the area, because government aid was slow to arrive and with insurance payouts so low, the area did not experience an economic renewal) all of which events are explained in this NY Times Article. A quote from that same article provides us with an interesting perspective of natural disasters and their varying effects:

"In the case of climatic disasters like hurricanes and cyclones, as opposed to earthquakes and volcanic eruptions, the more the better, Skidmore and Toya found. Nations with more climatic disasters grew faster over the long run than the less disaster-prone. Why only climatic disasters? The authors suggest that, as we have gotten better at forecasting weather, its human costs have been easier to mitigate than with geological disasters. Those still take us by surprise." 

(Haiti's recent quake is definitely a testament to this. AMEN?)

Wrapping things up, let's turn to our favorite economist for advice once again...

WHAT WOULD ADAM SMITH DO?

A quote from an article found at wired.com best illustrates the intersection of Adam Smith's "Invisible Hand Theory" & Joseph Schumpeter's "Creative Destruction":

"[Adam] Smith was a conceptual breakthrough for Europe, but he didn't say much about bone-jarring technological shifts or the crucial role of entrepreneurship."It's not difficult to be for Adam Smith and Joseph Schumpeter at the same time," maintains House majority leader Dick Armey. "The market must clean itself out by taking resources away from the losers, so it creatively destroys the losing companies and reallocates resources to the winning companies. That's really what's going on."

(Let us all say a prayer that Haiti's citizens receive adequate assistance and resources required for a "Creative RECONSTRUCTION" allowing them a swift recovery, coming out on top as TRUE WINNERS!)

Well...what DO you know???

“I am a most unhappy man. I have unwittingly ruined my country. A great industrial nation is controlled by its system of credit. Our system of credit is concentrated. The growth of the nation, therefore, and all our activities are in the hands of a few men. We have come to be one of the worst ruled, one of the most completely controlled and dominated Governments in the civilized world - no longer a Government by free opinion, no longer a Government by conviction and the vote of the majority, but a Government by the opinion and duress of a small group of dominant men.”

- President Woodrow Wilson (regret for his role in creating the Federal Reserve System)

Do you know why your former president of the United States is (allegedly) apologizing for his role in creating the Federal Reserve in the above quote?

Do you even know what the Federal Reserve actually does?

Do you know the origin of the currency you spend, save and work hard for everyday?

Do you know what the bank does with that hard earned money when you deposit it??

Are you tired of me asking you so many damn questions? LOL

Well, good…because that means you are ready for some answers! And you deserve them my friend...

Since you (obviously) didn't pay attention while you were in school (oh, that's right...they don't teach anything about financial literacy in school to kids!), I STRONGLY suggest you (and everyone else you know for that matter) take 47-minutes out of your day to watch this entire 5-part YouTube series titled "Money as Debt".  I guarantee this information on the classical economic establishment of monetary policy, trade of currency, and the history of debt & interest will change the way you see those green pieces of paper you toil and slave away for day-after-day… you will also leave this site with an understanding of whose REALLY to blame for the current economic mess.

BIG BUSINESS - Then & Now

The Evolution of Small to Large:

We’re all aware of how booming Small Business sectors of capitalistic countries have traditionally accounted largely for a society’s socio-economical growth. Here in the U.S., the living standards (poor eating habits, gas guzzling SUV’s, overpriced designer clothes), we enjoy today would not be as accessible be it not for the volume of the small-scale innovation that lead to huge ideas, technological advancements, and employment opportunities created, affording Americans to (hoard), I mean consume the goods and services we covet on a daily basis (you know, the crap you just bought off that infomercial). Over time, consumers in a free market economy demanded more convenience (7-elevens on every corner) and affordability (buy one snuggie get one free bogus incentives you always fall for), forcing the smaller less efficient firms to evolve – (merge or die), resulting in the monopolistic type firms we now refer to as “big business”. (That in addition to the fact small businesses can’t survive just because they think a computer and a desk gives them the right to compete with billion dollar organizations!) LOL (NOTE: This obviously excludes massage parlors, nail shops and if you live in LA, medical marijuana clinics...dude.)

The Problem:

The discussion today, seriously, is whether small businesses are sustainable in a capitalistic world of “corporatocracy” (<- this is where you Google the wiki definition), where big businesses are considered to have almost absolute power of consumer purchases via their government relationships… and why are they allowed to utilize such blatant practices during economic turmoil where small business growth and competition are vital to economic recovery?

Fact or Fiction?

With strong financial backing from private & public offerings to investors, (you’re familiar with Bank of Madoff, yes?), large companies have easy access to capital, the main advantage they have over small businesses, gaining greater market share. How do capital and market share equate to power you ask? Simple... (duhh) Spend one day watching political news segments and you’ll hear mention of fully-funded lobbyists groups with big business interests as an utmost priority. Thus, the public has in inherent implication of bureaucracy aiding and abetting big business interests. But who’s really to blame for this common day practice??? (Osama Bin Laden maybe?)

Here is a classical economical outlook on this issue found at the Ludwig Von Mises Institute Literature database:

“Bureaucratic management as such is not an evil. It is the only method available for the administration of the proper affairs of government. The public servants would become irresponsible despots if they were not obliged to behave in the conduct of the affairs entrusted them precisely in the way the authorities, the office holders elected by the people, order them to behave. But bureaucratism turns into a nuisance if it invades the conduct of profit-seeking business and induces it to substitute the business principle "serve the customer" for the bureaucratic principle "comply with the regulations and instructions."

What makes big business adopt in some regards bureaucratic methods is not its size but the policies practiced today of government interference with business. As conditions are today it is more profitable for a concern to be on good personal terms with men in the various government agencies that are harassing business than to improve the services it renders to the consumers. The main problem for many enterprises is how to avoid as much as possible the animosity of officeholders. Men who for some reasons are not popular with the ruling party are considered unfit to manage the affairs of a company. Former employees of government agencies are hired by business, not on account of their abilities but on account of their connections.

The boards of directors find it necessary to spend large sums out of the shareholders' property for purposes that have no relation to the company's business and do not yield anything for it but popularity with the administration and the party in power. In considering changes in production and marketing, the first question is often: "How will this move affect our "public relations'?" Big business is fully aware of the fact that the authorities have the power to harm it by proceeding further in the discriminatory methods of taxation and in many other regards. Big business is the main target in the undisguised war that government is waging against private enterprise.”

- Small & Big Business - Paper presented at the 1961 (Turin, Italy) meeting of the Mont P?lerin Society.

Though the above excerpt eloquently makes the same arguments as those held by classical economists Max Weber, Robert Michels, Karl Marx and Michel Crozier (a bunch of dead smart guys) that bureaucracy was essential to the role of efficient management of big business under proper conditions, it also exposes who’s really to blame for this historical practice we call lobbying today: government officials (surprise...NOT!). What once was a system intended to efficiently ensure compliance for big business under Classical Management Theory evolved into government corruption. Basically, the government fat cats were the ones who ran the show, dictating the benefits and/or penalties (bogus PR media coverage, tax hikes, and maybe afterschool detention lol) should big business not fall in line and allocate the payroll to include certain individuals.

In conclusion, we look to our favorite economist for advice:

WHAT WOULD ADAM SMITH DO?

Even though Adam Smith would be proud capitalism reached the heights of Wal-Mart, he would never have expected to see the day when “the snake oil salesmen” have their products sold on a mass-scale with the help of the government. Meaning that, as much as small businesses aspire to flourish during economic turmoil and create quality products, survival will be extremely difficult because of competition with cheap (and extremely useless)products consumers demand (continue to waste money on) and their limited marketing budgets (lack of money for government payoffs!).

“The proposal of any new law or regulation which comes from [businessmen], ought always to be listened to with great precaution, and ought never to be adopted till after having been long and carefully examined, not only with the most scrupulous, but with the most suspicious attention. It comes from an order of men, whose interest is never exactly the same with that of the public, who have generally an interest to deceive and even to oppress the public, and who accordingly have, upon many occasions, both deceived and oppressed it.”

- Adam Smith, An Inquiry into the Nature and Cause of the Wealth of Nations,

vol. 1, pt. xi, p.10 (1776)