Bandage on Symptons

The Baltimore Sun’s October 16, 2008 headline read “20-YEAR LIFE GAP SEPARATE CITY'S POOREST, WEALTHY" and disclosed the life span difference between residents of Hollins Market and Roland Park in Baltimore. The article went on to say that “at the extreme, the difference in mortality rates between some neighborhoods is as wide as the disparity in life expectancy between the United States and a Third World nation such as Burma.”

The disparity is shameful, but of much greater concern are the solutions discussed: public health initiatives, homicide prevention, increasing public housing, lifestyle changes and social sensitivity, among others. These solutions are more like bandages on symptoms than cures to a fundamental illness. What is done to remedy a problem must be based on causes, not symptoms.

Tucked in the article itself is an insight into the cause of the life expectancy disparity: “life expectancy tends to rise with median income..For every increase of $10,000 in a neighborhood's median household income, residents lived 3.4 years longer.” Income disparities are the cause of life expectancy disparities. Since the cause of the disparity is economic, the elimination of life expectancy disparities is economic.

Real solutions therefore require increased capital, small business development, banking and financial infrastructure, recirculation of capital, and jobs. This approach would work in Burma, and Hollins Market as well.

THE DEATH OF WALL STREET: THE CAUSE, NOT THE SOLUTION

Wall Street - as with many government, quasi-government, and much of the social and financial infrastructure - is dead. Any system which cannot respond, purposively, to its environment is not alive, and cannot respond no matter what stimuli.

The principal purpose of Wall Street was to mobilize and allocate capital for business enterprise. The nature of the economy has shifted from industry to services and government. Unlike an industrial economy, output of a services and government-based economy is hard to measure. Hence the productivity of capital becomes an enigma with no measures that can be directly linked to output, effect and efficiency of a business.

In reaction to this new reality, most government, quasi government and financial systems have increased regulation focused on eliminating abuses, cheats and possible fraudulent behavior as measurement of productivity. When this happens, systems die, purposively, because the focus becomes more on the process than the purpose: New Orleans, homeland security, efforts to eliminate poverty and economically empower the poor and minorities, efforts to save Wall Street etc. All of these efforts fail to achieve their purpose because the arteries of these systems are clogged with red tape, paper work, rules, regulations, sub optimization, duplication, and the left hand not knowing what the right hand is doing. The point is, purposive focus is displaced with regulatory activities. In the absence of hard goals and output measures, systems die of their own lack of purposive focus.

The only way to save Wall Street - and prevent this crisis from recurring - is to redefine what its goals are in the expansion of capital to meet future needs. If such definition had been made, mortgages would never have been viewed as securities to be traded and speculated on Wall Street. It would have been clear that the highest purpose of a mortgage is to facilitate home ownership; widespread home ownership then fosters demand for capital to produce housing, not vice versa.