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Poverty Alleviation: An Aim Of Islamic Economics – economic

Poverty is treated as WMD (weapon of mass destruction) of modern world. Eradication of it bears very importance. The economic systems like capitalism and communism have presented number of instruments for the alleviation of the poverty from the world. But, these extreme ideologies failed to satisfy the need of the people. Private ownership of property, laissez-faire policy of capitalism and class war, dialectical materialism, state ownership of property of communism didn’t touch the real cause of poverty. This situation necessitates seeking the possibilities of Islamic economics in alleviating poverty. The aim of poverty alleviation can be attained, in an Islamic Economic system through reducing the inequality. It never means attaining equality but equity and justice in the income and wealth distribution. Islam eliminates the absolute inequality which arises from unequal distribution of income, but relative inequality emerges from equitable distribution of income and wealth.

First part of this article has given a small introduction to both conventional economics and Islamic economics. Then it provides a picture of poverty of current world and Islamic perspective of poverty. Then Islamic economics instruments to alleviate poverty such as zakat, sadaqa, qard hasan, ganima, khums, fay, jizya, mudaraba, musharaka, prohibition of interest, abolition of extravaganza, prohibition of speculation and hoarding have been mentioned in briefly. Influence of Islamic economic instruments on marginal propensity to consume, multiplier, price investment and production have been dealt with.

The books and articles I referred for this article are Dr. Dr.Sabahuddin Azmi’s Islamic Economics, S. M. Hasanuzzaman’s Economic function of an Islamic state (The early experience), Towards understanding the economic system of Islam written by Dr.P Ibrahim and Introduction to the economic system by Moulavi.M.V.Saleem.

Introduction

Nobody can undermine the importance of economics which is a social science that studies the production, distribution, trade and consumption of goods and services. This very importance of economics resulted in emergence of different economic systems in the world and all of those economic systems claim that they will fetch economic welfare. Those dominating and prominent economic system’s failure to accomplish economic justice, prosperity, the eradiation of the inequality and poverty make necessary an alternative economic system which can successfully make a starvation free and poverty free world.

Definition of Economics

Social scientists have developed various definitions of economics. Lionel Robinson’s scarcity definition of economics is most accepted amongst them. According to Robinson “economics is a science which studies human behavior as a relationship between ends and scarce means which have alternative uses” This definition is based on two points which are scarcity of resources and the never ending needs. But in reality former is a myth. The survey conducted by UNO shows that are enough resources for 20000 million people on earth we have only 6000 million people on earth residing now. Latter point ‘never ending needs’ is also incorrect as the desire and greed of the man is unlimited but the need is countable and controllable.

Definition of Islamic Economics

As a system of life Islam has not left any area of human life without guidance. Whether it is spiritual, individual, social, economical or political Islam gives clear cut guidelines. By considering the economic guidelines of Islamic sources, Islamic economists have developed plethora of definitions. Derivation of each definition of Islamic economics is based on guidance given in the basic sources of Islamic shariah which are Quran and hadith.

According to Yusuf Ibrahim, professor of Islamic economics, Qatar University “Islamic economics is a science studying the guidance of the human behavior towards the use of resources to satisfy the needs”. This definition is based upon the following facts.

1. The resources are enough for satisfying the needs.

2. But the resources should be protected from the waste, and improper use.

3. The human behavior towards the resources should be controlled by divine injunctions.

4. Only legal needs, needs that build life on the earth, should be satisfied.

5. Illegal needs (desires), which destroy life on earth, should not be satisfied; they are never ending and never satisfied.

Islamic economic system, a normative economic system, has been built upon certain fundamental Islamic philosophies. According to Quranic teachings real and absolute ownership of the wealth belongs to the creator of the same, Almighty God. Quran says “To Allah belongs to everything in the sky and on the earth” (2:284).Role of the man is considered as trustee who is to manage the trust, i.e. wealth according to the directives of the real owner; God. Quran clearly states “And spend of that where of hath made you trustees” (57:7). So man has been granted

conditioned and limited ownership.

Another Islamic philosophy is universal brotherhood and equality of men as their creator is one and parents are same. Hence distinction based on color, caste, creed, races do not suffer at any cost. This concept induces the people for cooperation and participation in their all efforts instead of cheating, exploiting and making fraud each other. Another aspect of Islamic philosophy is the faith in the Day of Judgment after death. In the life after death man is accountable for his deeds on earth. The implication of this faith is that economic choices one makes in world are to be judged according to the norms Allah has laid down.

These are the revolutionary points which differentiate Islamic economics from the liberal, capitalistic, imperialistic, mainstream, usurious economic system and communist, class war, state dictatorship economic system. Islam constructs a just world on the spirit of everlasting divine concepts. Poverty

Evil of any economy is poverty. The presence of begging hands in an economy pulls that economy into decades back. Poverty midst plenty is the challenge faced in the modern world. Impact of the poverty cannot confine into starvation only, but poor people, apart from starvation, suffering limited income which leads to inaccessibility of good education it disables them for challenging careers which requires number of years long education. Absence of nutritious food results in more child morality among deprived sections. Since limited access for information and knowledge those are prevented from market and opportunities.

Every country and international organizations like World Trade Organization, World Bank and Asian Development Bank hard work to construct the countries and world on the foots of self sufficiency respectively. Mission of the World Bank is described as global poverty reduction and improvement of living standards. General Council of UN has declared October 17 as International day for the eradication of poverty. It shows how seriously they took poverty as a problem

But, it is wondering that out of 6.1 billion world population more than 1 billion are finding their livelihood in less than $ 1 per day and almost 3 billion on less than $ 2 per day. You might be provoked that 74% of total income of world is shared by the 20% of the elite class of the world. It is heartening you that there are countries whose national income is less $ 800 and morality of below five years age children is about 26%.It is worrying that 110 million primary school age children are out of school and 60 percent of them are girls. . Poverty and Islamic Economics

Below Poverty Line (BPL) fixes in Islamic economics system on the basis of ownership of nisab, which limit makes one eligible for the payment of zakat Whosoever wealth on or over the nisab is responsible for the payment of zakat. Those wealth is below nisab are zakat recipients and they are treated as poor. Hence, in Islamic economics, the size of deprived come under BPL will be large. Starvation and inaccessibility of food, shelter, cloths and education could not suffer in an Islamic economy which aims human falah, i.e. human welfare. It does not support any economic instrument that leads to the deprivation of the man. Since poverty emerges in an economy as a result of various causes so wiping out of these causes is primarily important.

Limited income, unequal distribution of income and wealth, misdistribution of resources, regional disparities, unemployment, social injustice, and decreased investments …etc are some of the obstacles in the way of attainment of self-sufficiency and welfare. Islam considers the fulfillment of basic needs of every member of society is economic, moral as well as religious obligation of the ruler. List of the basic goods extends from traditional food, clothing and shelter to seasonal clothing, personal attendant to disabled person, and expenditure on marriage of poor and expenditure on entire family of poor, which are intensified by scholars from time to time and likely to extend the list time to time for the welfare of the citizen. Islamic economic system introduces a bunch of divinely guided instruments which bring to an end of poverty and build poverty less world.

Islamic Economic Instruments to eliminate poverty

It is advised to Muslim citizens in an Islamic county, as the part of believe, to practice certain things in their life, some of them are compulsory nature and the rest are voluntary nature. The practice of these will have vast economic implications apart from the reward of God. Non Muslim citizens also have to make certain compulsory payments, which have economic impacts, as the part of their citizenship in the Islamic country. Compulsory duties and agreements of citizens are governed by the Islamic country and violation of any part would not suffer Islamic state. In addition to these functions there are other things the Islamic state has to carry out similar to any nation does for the welfare of citizens. Both positive and negative measures have recommended by Islam for wiping out the reason of poverty.

Positive Measures

There are numerous Islamic orders and injunction to perform certain things which have immense influence on economies justice, prosperity and growth. Important divine injunctions amongst them and their influence upon the economy are briefed below.

Zakat

Zakat is the yearly obligation of wealthy Muslims to poor and it is the share of have-nots in the property and wealth of the rich. Quran commends “establish worship and pay the poor his due (zakat) and obey the messenger”. Technically we can call it as spiritual tax. It is imposed on those forms of wealth which have the capacity to grow in value or otherwise produce further, is having the custody of whole year and have exceed a certain minimum value called ‘nisab’. Quran has stated the eight specific heads for the distribution of zakat. Due to the divine spirit for the performance of zakat, chances for evasion are less. The imposition of zakat on idle wealth urges the owners for the productive and profitable employment of idle wealth which increases the wealth of economy and again the share of zakat.

Donations

Sadaqa is the one of the voluntary economic instrument. No limit and eligibility criteria for performing contributions to needy. It can be divert, apart from the eight heads mentioned for the distribution of zakat, to any needy. and it will strengthen what economic implications emerged by zakat.

Qard hasan

It is an arrangement of interest free loans for unproductive purposes or for the needy to meet the expenses like hospital expenses, home expenses and education expenses etc which are do not make any earnings. So it is not able to charge any material benefit, like profit share, from qurd hasan. These are provided as the part of kindness to human beings. In an Islamic economy individuals and institutions like Islamic banks will offer this type of loans expecting the reward of Allah. Availability of qard hasan reduces the financial burdens like interest, of deprived.

Profit and loss sharing

Islam formulates profit and loss sharing as the tool of trade contracts instesd of interest. The motivation behind it is the cooperation amongst the people. In profit sharing there are different types of financing such as mudaraba (profit and loss sharing) and musharaka (participation) …etc Mudaraba is the agreement between both capital owner and entrepreneur to share the profit arises from the business and in case of loss capital owner’s capital reduces and entrepreneur’s time and effort loose. Musharaka is the agreement to share profit and loss where all contributors participate in management of business. Both mudaraba and musharaka help the people, who have inadequacy of capital, to engage in business, production and contribute their share into the welfare nation and earn for their own.

Ganima (war booty), Khums (one fifth) and Fay

Ganima is the property Muslims seize from the enemy. Four fifth of the ganima is divided among the fighting army and one fifth (khums) of the entire ganima move to state fund, which is earmarked for the special beneficiaries mentioned in Quran. Fay is the property receives from the enemy without actual fighting. This source of state revenue is generalized for the common good of the entire population and public welfare.

Kharaj (Land- Tax)

Land-Tax, a source of revenue of state, is the levy imposed on land produce. This is actually the rent for the use of value of agricultural land. The rate of kharaj and method of collection can be declared by state from time to time as there is no direction of Quran and tradition of prophet in this regard.

Jizya (Poll tax)

Jizya (poll-tax) imposed on the non-Muslim citizens of Islamic country for securing their wealth, property and lives from damage. It helps them to contribute their skill, talent, health, wealth and property for the prosperity of the country

Waqf (Endowment)

Waqf (endowment) is regular source of revenue which is earmarked and dedicated fund of Muslim for supporting charitable and welfare activities State ownership on uncultivated land: Any economic instrument that hinders productivity is harmful to economies prosperous. According to Islamic shariah, if a land is remained uncultivated three consecutive years lead to moving of ownership of that land from current owner to other who is ready for cultivate the land and produce. Prophet (pbuh) said “The original rights of ownership in land are God’s and the prophets and then yours afterwards. But he who revives any dead land acquires the right of ownership to it”. There is an another institution, iqta, boost the circulation and tax revenue of the state by transferring the uncultivated/dead land to someone in return for ushr or khraj.

Combined ownership of natural resources:

Individual ownership of natural resources like fire, water, pasture and salt are restricted by the Islamic shariah. People have combined ownership in these natural resources which should be accessible to anyone. This rule allow anyone to use the benefit derives from the natural goods and ensure that nobody is away from the natural goods which are easy to get to without any hard work.. List of natural goods, in addition to mentioned goods, can be extended into more goods in time to time. Prophet (pbuh) said “people are joint owners in water, pasture and fire”. There are other sources of revenues like property of deceased with no legal heir, lost and found with no claimants and additional taxations.

Negative Measures

There are some prohibitions of God which has influence on the economies prosperity and welfare of every men of country. Prohibition of interest Interest, whatever form, has been contemned by Allah and His messenger. Quran says “Allah has permitted trade and hath prohibited riba” (interest). Islam doesn’t support interest but profit and loss sharing. Every financial transactions of Islamic economy should be free of Interest. But absence of interest in an Islamic economy doesn’t create any hindrance to prosperity but flourish the prosperity.

Prohibition of speculative instruments

Instruments which don’t have any advantage to real economy such as futures and option are not permitted in Islamic economy. Stock market instruments like day trading, marginal trading are prohibited, either. Absence of these instruments in the economy reduces speculation which is harm to the entire economy. Implications

The implementation of shariah guidelines we discussed above in an economy lead to number of positive fruits which make the state free from every form of poverty. Increased redistribution of income and wealth will result in, when the people perform the religious obligations like zakat, donation, waqf, inheritances, fithr zakat and kaffarath etc… It leads to flow of wealth and money from rich to poor. Thus the concentration and accumulation of wealth in a few hands come down. Poor and needy spend approximately eighty percent of their earnings to fulfill their basic needs. Economically Marginal Propensity to Consume (MPC) of the poor is larger than middle and high class. A large portion of whatever comes into handy of poor will flow to economy for consumption of basic goods; it lead to more demand for primary goods and then it result in the increased production of basic goods. It is difficult to restrict luxurious consumption and production completely by law and force. But the increased rate of redistribution of wealth and income increase the demand for basic goods and decrease the demand for luxurious goods. Automatically it reduces the utilization of resources for the production of luxuries. Consequently, natural resources use for the production of basic goods and for the benefit of public welfare This increased redistribution of wealth to poor enables them to get the accessibility of good education and nutritious food. Increased knowledge and skills help the poor to get good jobs and earn. This raises the entire poor family and dependence to heights. In turn, increase of income more than a certain limit make them capable for performing zakat and other voluntary donations for the sake of the benefit of have-nots. Rise in the redistribution help to reduce the gap between haves and have-nots and bring economic justice to all citizens.

Increased MPC of poor as the redistribution of income results in more multiplier effect in economy that fuels more income to the overall income of economy that help the poor section of people to raise their per capita income and living standards.

According to Professor Keynes, investment depends on two variables which are current rare of interest and the marginal efficiency of capital or expected profit rate. Investment would take place only if the expected rate of profit exceeds of interest. Due to the absence of interest, in an Islamic economy, only the size of expected rate of profit of profit will be the determinant of investment.

Speculative motive of money and liquidity theory of money will have no place in an interest free economy which reduces investment. But the presence of only expected rate of profit will result in investments, even in low rate of expected rate of profit to increase their principle amount and to avoid the deterioration of principal through zakat. The increased investment raises the production, employment, wages and overall national income of economy. It flows wealth to poor and raises their economic status.

Fisher’s quantity theory which states that quantity of money affects the price and value of money. It means that increase in the supply of money will proportionately increase the price in economy but the output will not increase. But in the case of Islamic economy money should not be supplied without making increase in the output. The central bank and commercial banks of Islamic state increase the money supply through making investment contracts on the basis of profit and loss sharing. So every flow of money into economy results in output growth without making proportionate hike in price. It is helpful to the poor to get need things at reasonable price

Conclusion

Way of eliminating poverty in Islamic economy is simple. Faith in the oneness of God (tawheed) motivates to the performance of zakat and profit and loss sharing and avoiding interest and extravaganza. Increased redistribution and productivity are the outcome of these instruments which helps finally to attain alleviation of poverty. *-*-*-*-THE END*-*-*-*

Writer’s Address& Phone Number:

Nabeel.K.N

92 Mimson House

L T Marg, Mumbai

India

Ph.022-2347 2118

Email.nabeel_kn@rediffmail.com

Research and Markets (http://www.researchandmarkets.com/research/89690e/redeeming_economic) has announced the addition of the “Redeeming Economics: Rediscovering the Missing Element” book to their offering.

Economics is primed for a revolution, says respected economic forecaster John D. Mueller. To make this leap forward will require looking backward, for as Redeeming Economics reveals, the most important element of economic theory has been ignored for more than two centuries.

Since the great Adam Smith tore down this pillar of economic thought, economic theory has had no way to account for a fundamental aspect of human experience: the social relationships that define us, the loves (and hates) that motivate and distinguish us as persons. In trying to reduce human behavior to mere exchanges, modern economists have lost sight of how these essential motivations are expressed: as gifts (or their opposite, crimes). Mueller makes economics whole again, masterfully reapplying economic thought as articulated by Aristotle, Augustine, and Aquinas.

Contrarian and compelling, Redeeming Economics covers everything from unemployment, to inflation, to the economics of parenthood, to the greatest geopolitical challenge facing the United States, to flaws in the mega-bestseller Freakonomics, to the author’s illuminating exchange with the controversial philosopher Peter Singer.

Key Topics Covered:

Contents

Introduction: Rediscovering the Missing Element in Economics

Part 1: The Birth, Death, and Resurrection of Economics

Chapter 1: Smithology and Its Discontents

Chapter 2: Scholastic Economics (c. 1250-1776)

Chapter 3: Classical Economics (1776-1871)

Chapter 4: Neoclassical Economics (1871-c. 2000)

Chapter 5: Neo-Scholastic Economics (c. 2000-)

Part 2: Personal Economy

Chapter 6: The Mother’s Problem and Augustine’s Solution

Chapter 7: The Success and Failure of Neoclassical Economics

Chapter 8: An Empirical Test: Fatherhood and Homicide

Chapter 9: The Moral Implications of Scarcity: The Good Samaritan Paradigm

Part 3: Domestic Economy

Chapter 10: Marriage, the First Natural Bond of Human Society

Chapter 11: Why Do Parents Give Children Existence, Rearing, and Instruction?

Chapter 12: How Neo-Scholastic Economics Explains Our Life Earnings and Spending

Part 4: Political Economy

Chapter 13: Saving America’s Infant Industry

Chapter 14: The Theory of American Public Choice

Chapter 15: Injustice in Exchange: Unemployment

Chapter 16: Injustice in Exchange: Inflation

Part 5: Divine Economy

Chapter 17: The Three Worldviews

For more information visit http://www.researchandmarkets.com/research/89690e/redeeming_economic

Despite India’s rapid economic growth, why are more and more women opting out of the workforce?

A recent study casts light on this important and potentially worrying development in the Indian labor market. “Gender Diversity Benchmark for Asia 2011” by Community Business surveyed 21 large multinational companies in six countries in Asia — China, Hong Kong, India, Japan, Malaysia and Singapore — to see how women are doing at junior, middle and senior levels of management.

Here’s the “good” news, such as it is. The percentage of women in the companies’ workforce is of a similar magnitude to the national female labor-force participation rate in each country. In India, just under 25% of the total workforce in the companies surveyed are women, a bit below the national female labor-force participation ratio of 29% as measured in 2010. The top performer was China, with comparable statistics of 46% and 50%, respectively.

Women are best represented at the junior level, less so at the middle level and are least represented at the senior level, which is consistent with trends in developing and developed countries.

But here’s the bad news: India’s the worst performer in terms of the percentage of women at the junior and middle levels; China and Hong Kong are the best performers. At the senior level, India performs slightly better than Japan, but far below Malaysia, the top performer.

Another potentially disturbing finding is that India is unique in having the biggest percentage of women dropping out of the workforce, known as the “leaking pipeline,” between the junior and middle levels. In other countries, the biggest drop-off takes place between the middle and senior levels. The earlier the drop-off occurs, the smaller the base of people who could move up the ranks, and therefore the fewer women there will be in senior positions.

At the junior level, women comprise just under 29% of the workforce in these companies in India, which drops off to just under 15% at the middle level, an attrition rate of almost 50%, and to under 10% of the workforce at the senior level. Whichever way you look at it, India fares poorly in the results of this study.

These results are not outliers but in line with several recent reports which document a decline in women’s labor-force participation in India, which is at its lowest since 1993-94.

In the wider context, employment creation in India has been stagnant altogether, and the labor force has shrunk as discouraged workers — both men and women — have withdrawn from the workforce. Strikingly, between 2004-05 and 2009-10, less than a million new jobs were created despite the nation’s rapid economic expansion.

India may be unique among developing countries in featuring this U.S.-style “jobless growth.” Of course, these statistics do not capture work in the informal sector or unpaid work, such as at home, which is estimated to use a large proportion of women’s time in India.

At a basic level, poor continuation rates by women in corporate India reflect the low national female labor-force participation ratio. Digging deeper, Harvard economics professor Claudia Goldin famously argued that women’s participation in the workforce follows a U-shaped pattern. She originally had in mind the U.S., but the concept has been widely applied even to developing countries. Women’s participation first falls and then rises with income, according to this theory.

In the case of women working for multinationals, one reason for the falling part of the “U” may be that in two-earner families, enough income is being earned by the male partner. As female workers face the transition to middle management, with the additional time and responsibilities involved, a significant number decide to drop out of the workforce altogether to focus on household responsibilities. Their partner’s income provides the necessary financial cushion.

Women face the additional pressure of “daughterly guilt” — the family and social pressure to take care of elderly parents or in-laws. In India, domestic help and extended family typically help with child care and institutional options for elder care are considered culturally unacceptable. So the benefits of child care for a mother are often largely negated by the burdens of elder care.

However, at the very highest levels of management, career-minded women who’ve stuck around respond to the incentives that the higher income and greater responsibilities afford, which accounts for the rising part of the “U”. Taken together, this would seem to suggest that India indeed fits the Prof. Goldin’s U-shaped pattern.

And the reason it seems to be more pronounced in India than elsewhere in Asia may reflect the extent to which cultural patterns, and the associated societal pressures on women, are more engrained here than elsewhere, or at least one of the co-authors of the Community Business study believes.

As Prof. Goldin has rightly noted, “gender equality and economic development share a synchronous existence,” which is to suggest that they go hand-in-hand.

The presence of such a leaky pipeline in India suggests a failure of gender equality, in particular when one considers that India fares so much more poorly than the other countries in the study. It might just be that at India’s current level of economic development, which is yet to catch up to China’s let alone wealthy developed countries, the forces of economic and social change that will empower women have yet to be fully unleashed. Rupa Subramanya Dehejia writes Economics Journal for India Real Time. You may follow her on Twitter @RupaSubramanya.

DUMMERSTON, Vt. — Most Americans suspect that the so-called recovery after the economic collapse of 2007-09 has been uneven at best.

The reality is even worse, according to “The ‘Jobless and Wageless Recovery’ From the Great Recession of 2007-2009,” a recently released study done by a team of economists at Northeastern University in Boston.

The authors of the study, Andrew Sum, Ishwar Khatiwada, Joseph McLaughlin and Sheila Palma, tracked the nation’s income since the official end of the recession in June 2009. They found that between the second quarter of 2009, when the recovery began, and the fourth quarter of 2010, national income rose by $528 billion, with $464 billion of that growth going to pretax corporate profits, while just $7 billion went to aggregate wages and salaries, after accounting for inflation.

In other words, corporate profits accounted for 88 percent of the growth in real national income during that time period, while aggregate wages and salaries accounted for just over 1 percent of that growth.

According to the study, “The only major beneficiaries of the recovery have been corporate profits and the stock market and its shareholders.”

The study called that $27 billion loss in aggregate wages and salaries during the seven quarters after the recovery began “the first ever such decline in any post-World War II recovery,” and that it “unprecedented” for American workers to receive such a tiny share of national income growth during a recovery.

But these numbers represent the culmination of three decades of stagnant wage growth for workers, and huge increases in corporate profits.

Don’t look to Washington to change this state of affairs.

The ongoing obsession with the deficit is taking priority over the 25 million Americans that are either unemployed, underemployed or given up looking for work.

Part of the reason why this number is so high is because business refuse to hire more workers. It is far more profitable to squeeze more work out of your remaining employees, or to just send the jobs overseas.

This accounts for much of the obscenely high corporate profits chronicled in Northeastern University’s study.

The other part of the equation is that government and public policy makers have failed to do their jobs, and put way too much faith in the “free market” theory that low taxation and deregulation would lead to prosperity for all.

They forget that our nation created a relatively affluent middle class only through intervention by the government by building a strong infrastructure for economic growth — highways, airports, schools, research programs, a safe banking system.

This was done with a progressive tax structure that helped pay for these priorities, and also discouraged the accumulation of massive wealth. During the 1950s, the top income-earners paid a tax rate of 91 percent, compared with 35 percent today.

It was government policy developed in the years after the Great Depression and World War II that created and maintain a degree of egalitarianism within the U.S. political-economic system that had not existed before. And while the system was not perfect, and not every American shared in the postwar prosperity, our nation created a middle class that was the envy of the world.

Despite this progressive tax structure, businesses were profitable because the average American could now afford to buy consumer goods, own homes and enjoy some pleasures of life that once had been reserved only for the rich.

But those days are just a pleasant memory for many Americans. Those of us who still have jobs work longer hours for less pay and fewer benefits. The glories of the free market meant corporations were free to ship jobs to nations with cheap labor and low regulation.

Three decades of demonizing government have resulted in brainwashing millions of Americans into thinking that government is the enemy and that only a totally unfettered economic system with low taxes and no regulation can create economic growth.

Since adoption of this nonsensical economic approach during the Reagan years, we have seen that the only people who have made out are the already wealthy, and the corporations.

The chances of seeing a re-energized and democratized federal government fighting for average citizens against the greed of the wealthy elites are almost nil. In Washington today, few speak of the need for economic stimulus or the return of progressive taxation. Instead, all we hear is of the need to cut government spending while reducing taxes for the wealthy even further.

Austerity for working American and, more money for the elites is the message we’re seeing and hearing in the news. Few question the utter failure of the theories of Ayn Rand and Milton Friedman to deliver a broadly shared prosperity for Americans.

All this comes down to the failure of Democrats and progressives to make a political issue of how the right has consciously and successfully gutted the policies that created the shared prosperity of the 1950s and 1960s in favor of policies that redistributed wealth upward.

In the coming weeks, this message has to get out. A country where nearly all the income growth goes to a favored few cannot survive. A country with elected officials willing to cut health care, education, food assistance and retirement benefits so that the haves can have even more cannot survive. A country that refuses to put the common good ahead of private gain cannot endure.

Quite simply, the future of our nation rests upon a return to a very simple principle. In the words of populist Jim Hightower, “Everybody does better when everybody does better.”

AR Chief of Correspondents Randolph T. Holhut has been a journalist in New England for more than 30 years. He edited “The George Seldes Reader” (Barricade Books). He can be reached at randyholhut@yahoo.com.

With interest rates hovering near record lows, many Canadians may be considering the purchase of a home. And in the current interest rate environment, now more than ever home buyers are grappling with the age-old question of whether to choose a fixed or variable rate mortgage.

“With short-term rates now likely to stay at very low levels, and long-term rates testing record lows, whether to lock into a longer-term fixed mortgage rate or choose a variable rate continues to be a hot-button issue among home buyers,” says Benjamin Reitzes, Senior Economist, BMO Economics.

Historically, research shows that there is little debate as to which has been the better option for homebuyers. Typically, borrowers save money by staying in variable products, and riding the rollercoaster of fluctuating rates. In fact, since 1975 the cost-effective route for borrowers was to stay variable 83 per cent of the time. And while the spread between 5-year fixed mortgage rates and variable rates has fallen from the all-time high hit in mid-2010, it remains historically elevated.

But before declaring a hands-down winner, Mr. Reitzes points out that there are a number of important points to consider:  

–  We have been in a long-term declining rate environment, almost without a break, since the early 1980s.
–  The Bank of Canada’s policy rate is extremely low, so there’s limited further downside for variable rates.
–  Fixed rates were advantageous during only two recent periods-through the late 1970s and briefly in the late 1980s; in both cases, ahead of a period of rising interest rates, which is likely the case in 2012 and beyond.

The Case for Staying Fixed

A fixed rate mortgage can mitigate a number of risks. While inflation hasn’t been a big issue in Canada, averaging 2 per cent since 1991, there is the risk of a flare-up at some point down the road. This could force the Bank of Canada to raise interest rates aggressively, increasing variable mortgage rates but leaving fixed rates unscathed. Fixed rates are also attractive in the current environment as short-term rates are already extremely low. Considering the likely upward trend in interest rates (similar to the late 1970s and 1980s), this may be a period when a fixed rate turns out to be the superior choice. Finally, it provides certainty, and that certainty is worth something to many.

The Case for Going Variable

The advantage to a variable rate mortgage is that it has been less costly than its fixed rate counterpart over time, with only a few of occasions where a variable rate was less favourable. Furthermore, tame inflation, along with an uncertain global economic outlook and the Federal Reserve holding U.S. rates near-zero through 2013, point to the Bank keeping rates steady well into 2012. There is also risk to locking in, as fixed rates could fall if the economy underperforms. And lastly, even as rates finally start to rise, buyers and homeowners can always lock into a fixed rate at a later date.

The Verdict: The decision really does depend on the individual. For first time home buyers or those without financial flexibility that would run into difficulty from a pronounced upswing in interest rates, the small extra cost for peace of mind may be a price worth paying. Our interest rate outlook projects a modest benefit to choosing a fixed rate. However, given the historical advantage of going variable, and the many downside risks plaguing the global economic landscape, the variable rate option remains extremely attractive-but it’s a much closer call than usual.

Katie Archdekin, Head of Mortgage Products, BMO Bank of Montreal, suggests that regardless of whether home buyers choose a fixed or variable rate, they should stress-test their mortgage in advance to make sure any potential increase in interest rates are manageable. “While low interest rates can provide opportunities for home buyers, it’s best that Canadians think long term when planning to buy a home,” said Ms. Archdekin.

She adds that based on the average household income in Canada, a typical new home buyer uses just over one-third of their average household disposable income to service their housing costs today, in line with historical norms.

Currently, BMO Bank of Montreal offers a five-year fixed low rate mortgage at a current posted rate of 3.79 per cent. The product also offers a 25 year amortization, which can save homeowners thousands of dollars in interest costs over the life of the mortgage.

FedEx Corp. Latest from The Business Journals High bids to delay GTCC’s Cameron CampusProposed high school sparks debate about industrial land useFedEx launching new ad campaign during NFL season opener Follow this company chief economist and vice president Gene Huang has been elected president of the National Association of Business Economics.

Huang, who served as the organization’s vice president over the past year, will begin his tenure as president Sept. 13, following NABE’s annual meeting in Dallas.

He joined FedEx (NYSE: FDX) in 1999 and leads a team that focuses on corporate economics, enterprise risks, strategic affairs and the tracking and monitoring of all industries and countries FedEx serves.

NABE is a professional association for business economists and those who use economics in the workplace.

Huang’s list of professional accomplishments is long. From a company press release:

“He chairs the Economic Advisory Committee of the Council on Competitiveness. He is a member of the Bretton Woods Committee, the Blue Chip Consensus Panel, the Wall Street Economic Panel, BusinessWeek Magazine’s Business Outlook Panel, and ABC News’s Economic Panel. He is also an elected member of the Conference of Business Economists (which he served as chairman from 2009-2010), the National Business Economic Issues Council, the European Council of Economists, and the Harvard Industrial Economists Group. The author of two books on business economics and many articles published in economic and policy journals, he is an honored professor at the School of Management at Fudan University in Shanghai, China. A former NABE director, he is currently on the board of the NABE Foundation. He received his MA from Yale University and his PhD from the University of Pennsylvania. He also holds a law degree from Fudan University.”

We live in a time of high anxiety. Despite the world’s unprecedented total wealth, there is vast insecurity, unrest, and dissatisfaction. In the United States, a large majority of Americans believe that the country is “on the wrong track”. Pessimism has soared. The same is true in many other places.

Against this backdrop, the time has come to reconsider the basic sources of happiness in our economic life. The relentless pursuit of higher income is leading to unprecedented inequality and anxiety, rather than to greater happiness and life satisfaction. Economic progress is important and can greatly improve the quality of life, but only if it is pursued in line with other goals.

In this respect, the Himalayan Kingdom of Bhutan has been leading the way. Forty years ago, Bhutan’s fourth king, young and newly installed, made a remarkable choice: Bhutan should pursue “gross national happiness” (GNH) rather than gross national product. Since then, the country has been experimenting with an alternative, holistic approach to development that emphasises not only economic growth, but also culture, mental health, compassion, and community.

Dozens of experts recently gathered in Bhutan’s capital, Thimphu, to take stock of the country’s record. I was co-host with Bhutan’s prime minister, Jigme Thinley, a leader in sustainable development and a great champion of the concept of “GNH”. We assembled in the wake of a declaration in July by the United Nations General Assembly calling on countries to examine how national policies can promote happiness in their societies.

All who gathered in Thimphu agreed on the importance of pursuing happiness rather than pursuing national income. The question we examined is how to achieve happiness in a world that is characterised by rapid urbanisation, mass media, global capitalism, and environmental degradation. How can our economic life be re-ordered to recreate a sense of community, trust, and environmental sustainability?

Here are some of the initial conclusions. First, we should not denigrate the value of economic progress. When people are hungry, deprived of basic needs such as clean water, health care, and education, and without meaningful employment, they suffer. Economic development that alleviates poverty is a vital step in boosting happiness.

Second, relentless pursuit of GNP to the exclusion of other goals is also no path to happiness. In the US, GNP has risen sharply in the past 40 years, but happiness has not. Instead, single-minded pursuit of GNP has led to great inequalities of wealth and power, fueled the growth of a vast underclass, trapped millions of children in poverty, and caused serious environmental degradation.

Third, happiness is achieved through a balanced approach to life by both individuals and societies. As individuals, we are unhappy if we are denied our basic material needs, but we are also unhappy if the pursuit of higher incomes replaces our focus on family, friends, community, compassion, and maintaining internal balance. As a society, it is one thing to organise economic policies to keep living standards on the rise, but quite another to subordinate all of society’s values to the pursuit of profit.

Yet politics in the US has increasingly allowed corporate profits to dominate all other aspirations: fairness, justice, trust, physical and mental health, and environmental sustainability. Corporate campaign contributions increasingly undermine the democratic process, with the blessing of the US Supreme Court.

Fourth, global capitalism presents many direct threats to happiness. It is destroying the natural environment through climate change and other kinds of pollution, while a relentless stream of oil-industry propaganda keeps many people ignorant of this. It is weakening social trust and mental stability, with the prevalence of clinical depression apparently on the rise. The mass media have become outlets for corporate “messaging”, much of it overtly anti-scientific, and Americans suffer from an increasing range of consumer addictions.

Consider how the fast-food industry uses oils, fats, sugar, and other addictive ingredients to create an unhealthy dependency on foods that contribute to obesity. One-third of all Americans are now obese. The rest of the world will eventually follow unless countries restrict dangerous corporate practices, including advertising unhealthy and addictive foods to young children.

The problem is not just foods. Mass advertising is contributing to many other consumer addictions that imply large public-health costs, including excessive TV watching, gambling, drug use, cigarette smoking, and alcoholism.

Fifth, to promote happiness, we must identify the many factors other than GNP that can raise or lower society’s well-being. Most countries invest to measure GNP, but spend little to identify the sources of poor health (like fast foods and excessive TV watching), declining social trust, and environmental degradation. Once we understand these factors, we can act. 

The mad pursuit of corporate profits is threatening us all. To be sure, we should support economic growth and development, but only in a broader context: one that promotes environmental sustainability and the values of compassion and honesty that are required for social trust. The search for happiness should not be confined to the beautiful mountain kingdom of Bhutan.

Jeffrey D. Sachs is Professor of Economics and Director of the Earth Institute at Columbia University. He is also Special Adviser to United Nations Secretary-General on the Millennium Development Goals.

The signature weapon of the 9/11 Era is lethal, easily concealable and maddeningly easy to construct. But the greatest danger from the improvised explosive device — what ensures its endurance far from the battlefields of Iraq and Afghanistan — lies in how cheap it is.

The improvised explosive device, or IED, isn’t a bomb. It’s a category of bombs, and within that category, insurgent MacGyvers construct makeshift bombs from whatever they have at hand. The Iraqi insurgency often relied on looted stockpiles of artillery shells or mines, juryrigged together and detonated from a cellphone. In Afghanistan, insurgents can’t similarly rely on abandoned weapons depots for their explosives, so they construct bombs using ammonium nitrate fertilizer, detonated by a fuse or using wooden plates that complete a hidden circuit when a soldier inadvertently steps on it. Insurgent allies in the security services of states like Iran or Pakistan add more sophisticated bomb ingredients or aid with logistics.

The common theme: all the ingredients for the bombs are inexpensive enough to remain in mass production, even when the U.S. attacks an insurgency’s revenue stream. And they’re vastly cheaper than the vehicles they destroy, the gear used to find them, and the troops they maim and kill.

Determining just how expensive they are is difficult, owing to all of the different components in the bombs. But according to the Pentagon’s bomb squad, the average cost of an IED is just a few hundred bucks, pocket change to a well-funded insurgency. Worse, over time, the average cost of the cheapo IEDs have dropped from $1,125 in 2006 to $265 in 2009. A killing machine, in other words, costs less than a 32-gig iPhone.

Dollar figures for the bombs are hard to come by — it’s not like there’s a Consumer Reports for black-market mines —  but the Joint Improvised Explosive Device Defeat Organization, known as JIEDDO, shared some estimates with Danger Room about how much Afghanistan’s bombs cost. Those estimates, publicly released for the first time, will have to serve as a proxy for the costs of the weapons worldwide.

The most plentiful types of bomb from 2009 — the most recent available figures for the myriad types of bombs — were, unsurprisingly, the cheapest. On average, a “victim-operated” bomb — one set to explode when its target or a civilian inadvertently sets it off — cost a mere $265. (That seems remarkably high for bombs that can be as simple as a bunch of fertilizer chemicals, wires and a pressure plate made out of two blocks of wood, but that’s what JIEDDO says.) Those types of bombs accounted for 57.9 percent of homemade bomb incidents in 2009. The next most plentiful category of bomb, those set off with command wires leading from the device, also cost $265 on average in 2009, accounting for another 23.8 percent of attacks.

As the bombs get more difficult to construct or operate, the costs rise. Bombs activated with a remote detonator like a cellphone cost a mere $345 and accounted for a surprisingly small — 12.6 percent — of attacks, perhaps owing to the U.S.’ hard-won ability to jam the detonator signal. (One would imagine the major cost component is the cellphone.) For insurgents to turn a car into a bomb or convince someone to kill himself during a detonation — or both — the cost shoots up into the thousands: $10,032 for a suicide bomber; $15,320 for a car bomb; nearly 19 grand to drive a car bomb. All together, those relatively expensive attack methods accounted for fewer than six percent of bomb attacks in 2009.

Most of those bombs have gotten cheaper to produce. In 2006, victim-operated IEDs cost an average of $1,125. Command-wire bombs were $1,266. Remote detonation bombs? The same. And as the costs dropped, victim-operated and command-wire detonated bombs skyrocketed. Back in 2006, they accounted for merely 21.3 percent and a piddling 1.9 percent of all bomb attacks, respectively.

But the sophisticated bombs have gotten more expensive. Car bombs cost $1,675 on average in 2006 — which seems absurdly low, given the cost of one involves acquiring and then tricking out a car. And the going rate on suicide bombers appears to have risen, from $5,966 in 2006 to nearly double that in 2009. Accordingly, both accounted for over 16 percent of IED attacks in ‘06. And JIEDDO says it has preliminary reporting indicating that suicide bombers cost $30,000 as of January.

It’s also worth mentioning that the number of IEDs in Afghanistan has mushroomed: from 1,952 in 2006 to 5,616 in 2009. All told, since the Afghanistan war began, homemade bombs have killed 719 U.S. troops and wounded 7,448.

JIEDDO provided a lot of caveats to accompany its stats. “Data on IED costs and component prices are extremely rare and is difficult to come by,” explains spokeswoman Irene Smith. “There are inconsistencies in collection, definitions, and reporting. Single source, uncorroborated reporting is common. There is no readily available open source data on black market prices or supplies of components or initiators.” JIEDDO didn’t have available cost estimates for IEDs in Iraq.

But homemade bombs have proliferated far, far beyond Iraq and Afghanistan. JIEDDO’s 2010 recent annual report records an average of 260 IED attacks every month (.PDF) outside of the warzones in 2010. So far in 2011, there are upwards of 550 IED attacks beyond Iraq and Afghanistan every month. On Tuesday, Nigerian officials discovered a homemade bomb factory near Abuja; on Wednesday, a bomb stuffed into a briefcase killed 11 people and wounded 79 more in New Dehli.

And if the most common types of homemade bombs cost a couple hundred bucks to produce, the U.S.’ measures to stop them — robots, optics, flying sensors — are orders of magnitude more expensive. Explosive ordnance detection teams in Afghanistan use a small robot called a “Devil Pup” to locate IEDs. JIEDDO has paid $35 million for the 300 mini-robots — a little over $116,000 per ‘bot, which can buy about 440 victim-operated bombs.

In late July, JIEDDO announced it would provide another $12 million worth of sensors and jammers to detect and stop IEDs. It’s all part of a counter-IED effort that’s cost at least $19 billion since 2004, even as IEDs have proliferated globally.

JIEDDO also contends that comparing the cost of a particular sensor or jammer to the cost of an IED is an inexact science, since some equipment is used for training and never sent to a frontline unit. And there are lots of variables involved in determining how much a typical IED attack costs the U.S.: do you count a soldier’s life by how much the Defense Department pays him?

That may be true — even if it seems self-serving for JIEDDO to make the point. But it also underscores that the improvised explosive device is a weapon of mass economic destruction, and its proliferation won’t stop until either its costs rise or the costs of counter-bomb methods drop substantially.

So far, it’s not going so well. Efforts to stop the importation of ammonium nitrate fertilizer from Pakistan into Afghanistan, for instance, have stalled. A truck driver named Ali Jan recently told the Associated Press it’s worth it to him to haul the fertilizer across the border. His take? $20.

Photos: Flickr/JIEDDO

Spencer Ackerman is Danger Room’s senior reporter, based out of Washington, D.C., covering weapons of doom and the strategies they’re used to implement.
Follow @attackerman and @dangerroom on Twitter.

Will Wilkinson points to an interview with the Yale professor George Loewenstein—whose work lies at the border of economics and psychology—in which Loewenstein argues that the much-ballyhooed “behavioral economics” has become a crutch for timid politicians:

I’ve come to the view that behavioral economics solutions are often being used as a substitute for more fundamental efforts. British Prime Minister David Cameron is a big fan of behavioral economics and gave a talk in which he said, “The best way to get someone to cut their electricity bill is to show them their own spending, to show them what their neighbors are spending, and then show them what an energy-conscious neighbor is spending.”

Indeed, there is some evidence that people respond to this kind of peer pressure. (For a summary, see this piece, by me.) But Loewenstein says that fundamental economic precepts still should get their due:

showing someone their neighbor’s bill is not the best way to get them to cut their own bill. The best way is to charge an amount that reflects the true cost of the electricity, including social costs from importing oil, pollution, climate change, and so on. Behavioral economics has a lot of great insights to contribute to public policy, but it will be unfortunate if it substitutes [for?] tried- and-true approaches involving taxes and regulation.

For Yale’s Irving Fisher, inventor of the Rolodex and America’s economic oracle, the madness of World War I was epitomized by his daughter Margaret’s descent into insanity after her fiancé was drafted. When a bizarre surgery touted as a miracle cure killed her, Fisher saw Margaret as another of the war’s senseless casualties, and rededicated himself to finding remedies for the nation’s economic and other ills.

Fisher was convinced that the loss of so many lives and the blighting of so many more would lead to a greater public commitment to protecting and extending life. He co-authored a guide to healthy living, “How to Live,” that sold 15 million copies. He championed the cause of “national vitality” by promoting, among other causes, the League of Nations, Prohibition, eugenics, environmental conservation, limits on immigration, civil rights for African Americans and, notably, national health insurance.

But perhaps his most lasting contribution to the nation’s vitality was his role in the development of an “economics of the whole,” or macroeconomics.

Trained in mathematics and natural sciences during the Progressive Era, the Connecticut Yankee and preacher’s son had gravitated to economics out of a desire for “more contact with the living age.” Initially inclined to believe that all attempts to interfere in markets did more harm than good, Fisher lost his faith in strict laissez faire in the course of a successful battle with tuberculosis, the disease that had killed his father. Overcoming TB convinced him that nations as well as individuals need no longer let nature take its course. When markets failed, as they did in financial panics, intervention might improve the outcome.

By the Panic of 1907, Fisher had concluded that most extreme fluctuations in economic activity resulted from monetary disturbances. He had identified too much money as the source of inflationary booms, too little as the source of deflationary depressions.

By tracing seemingly unrelated economic pathologies to a single variable, money, he had identified a potential cure: Stabilize the value of money — that is, avoid inflation or deflation — and so stabilize economic activity. This was a cure that government, which issues money and determines its value, could dispense.

The acute economic disorders that erupted after the war made monetary reform Fisher’s Holy Grail. Bubbles, panics, hyperinflations and depressions were not acts of nature, and could not be left to nature’s whims without jeopardizing the future of free markets and democracy.

After the steep but brief recession of 1920-21, the rest of the Twenties were golden. Three downturns in the decade were so brief and shallow that most Americans weren’t aware of them. The newly created Federal Reserve seemed to confirm Fisher’s theory that avoiding inflation and deflation would prevent wild swings. His personal fortunes had flourished. By the time he turned 60 in 1929, Fisher was a director at Remington Rand, an investor in a half dozen start-ups and the head of a successful forecasting service. When he addressed a group of business executives in mid-October of that year, he told them confidently that stock prices had reached “what looks like a permanently high plateau.”

Shortly thereafter, the stock market crashed and the entire U.S. financial sector began collapsing like a house of cards. In the following months, when Fisher’s ideas and energy were most needed, he had lost not only his fortune, but his credibility.

His over-optimism had made him a figure of ridicule. The media skewered him for “always insisting that all was well and talking of prosperity, a new era and increased efficiency of production.” His proposals for repairing the damage were sound, and have become conventional wisdom today. But then no one was listening anymore. His son recalled hearing two strangers on a train say of his father, “Gosh, he’s supposed to know all the answers, and look how he got burned.”

Fisher’s unlikely ally in promoting international debt relief and managed money instead of strict adherence to the gold standard was John Maynard Keynes, now a City speculator, part time Cambridge don, and bon vivant who is said to have quipped on his deathbed that his only regret in life was not drinking more champagne.

World War I had also focused Keynes’s attention on the systemic forces that caused growth to proceed in bursts interrupted by slumps. Like Fisher, he had argued that economic and financial interdependence were the sine qua non of the prewar prosperity and that political stability required both victors and vanquished to cooperate to stabilize currencies and revive trade and lending. And like Fisher he was convinced that governments could no longer leave extreme inflation and unemployment to cure themselves.

Keynes, too, was blindsided by the 1929 crash. The damage to his personal finances was so great that he was forced to put some of his beloved Impressionist paintings up for sale. Fortunately there were no takers. Keynes was able to recoup his losses within a few years by scooping up depressed U.S. bank stocks in 1936 and hanging on to them when the market collapsed again in 1937.

Keynes sounded the most optimistic when things looked bleakest. While others were proclaiming the end of the West, Keynes used his newspaper columns, radio talks and newsreel interviews to promote monetary stimulus to fight the slump. He reassured all those who were, as the historian Arnold Toynbee observed, “seriously contemplating and frankly discussing the possibility that the Western system of society might break down and cease to work.”

Instead, Keynes told his readers, the economy was suffering from a mechanical breakdown – “starter trouble,” as he blithely put it in one column — for which there was a (relatively) easy fix. Falling prices made it impossible for farmers and businesses to cover their costs, so they were forced to cut back, which made prices fall even further. All the government had to do was to pump up the money supply until prices started rising again, reversing the deflation.

Keynes’s advice wasn’t followed either. When too little, too late monetary policy failed to arrest the Great Depression, Keynes struck out in a new direction. In 1934, at a meeting in New York, Keynes gave a paper arguing that under certain conditions cheap money would not prevent unemployment from persisting in a free market. The economy could stagnate unless government stimulated private investment and consumption with tax cuts and public works. The paper was a preview of “The General Theory of Employment, Interest and Money,” which appeared two years later.

Fisher and Keynes suffered the fate of many innovators. The conviction required to adopt their unorthodox advice simply didn’t exist when it might have prevented the Depression from becoming “great.” But for Keynes there would be one more chance when World War II broke out — and memories of the failure to promote economic recovery in 1919 made Winston Churchill and Franklin D. Roosevelt determined to do better than last time.

(Sylvia Nasar, a former New York Times economics reporter and the author of “A Beautiful Mind,” teaches journalism at Columbia University. This is the fourth in a five-part excerpt of her new book, “Grand Pursuit: The Story of Economic Genius,” to be published by Simon & Schuster on Sept. 13.) . To contact the writer of this article: Sylvia Nasar at szn1@columbia.edu.