Category Archives: Economics

Who’s On First? Private Property or Competition?

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David Brin trained as a scientist, has written science fiction and consults with the government and corporations regarding what will happen next. He’s not an economist, but he’s written an interesting little article about right-wing ideology. It’s called “Stop Using Adam Smith and Friedrich Hayek to Support Your Political Ideology: The Irony of Faith in Blind Markets”. 

Brin cites John Robb, an author, “military analyst” and entrepreneur, as a big influence on his thinking. Robb isn’t an economist either, but here are a couple of paragraphs from his blog: 

The only way to manage an economy as complex as [ours] is to allow massively parallel decision making.  A huge number of economically empowered people making small decisions, that in aggregate, are able to process more data, get better data (by being closer to the problem), and apply more brainpower to weighing alternatives than any centralized decision making group.

In other words, central planning cannot cope with the economies of developed nations in the modern world. We need the Invisible Hand of the market. Yet: 

…an extreme concentration of wealth at the center of our market economy has led to a form of central planning.   The concentration of wealth is now in so few hands and is so extreme in degree, that the combined liquid financial power of all of those not in this small group is inconsequential to determining the direction of the economy.  As a result, we now have the equivalent of centralized planning in global marketplaces.  A few thousand extremely wealthy people making decisions on the allocation of our collective wealth.  The result was inevitable:  gross misallocation [of resources] across all facets of the private economy. 

Getting back to Brin, he argues that:

….across 4,000 years we’ve seen that whenever a small group of men become powerful enough to control an economy and command-allocate its resources, they will do so according to biased perceptions, in-group delusions and fatally limited knowledge. Whether they do the normal oligarchic thing—cheating for self-interest—or else sincerely try to “allocate for the good of all,” they will generally do it badly.

So what’s the solution? Brin says it’s competition: “the most creative force in the universe”: 

By dividing and separating power and—more importantly—empowering the majority with education, health, rights and knowledge, we enabled vast numbers of people to participate in markets, democracy and science. This has had twin effects, never seen in earlier cultures.

  1. It means everybody can find out when a person stumbles onto something cool, better or right, even if that person came from a poor background.
  2. It allows us to hold each other accountable for things that are wrong, worse or uncool, even when the bad idea comes at us from someone mighty.

…cutting through countless foolish notions that held sway for millennia—like the assumption that your potential is predetermined by who your father was—while unleashing creativity, knowledge, freedom, and positive-sum wealth to a degree that surpassed all other societies, combined.

Even the most worrisome outcomes of success, like overpopulation, wealth stratification and environmental degradation, come accompanied by good news— the fact that so many of us are aware, involved, reciprocally critical, and eager to innovate better ways.

Some have argued that cooperation has contributed just as much to human progress as competition has, but putting that issue aside, Brin arrives at his major point: the people who call themselves “conservatives” and claim to revere thinkers like Adam Smith and Friedrich Hayek, both of whom extolled the benefits of a competitive market, don’t really believe in competition:

The problem is that it’s all lip service on the right! Those who most loudly proclaim Faith In Blind Markets … are generally also those proclaiming idolatry of private property as a pure, platonic essence, a tenet to be clutched with religious tenacity, as it was in feudal societies. Obdurate, they refuse to see that they are conflating two very different things.

Private property—as Adam Smith made clear—is a means for encouraging the thing he really wanted: fair and open competition….But anyone who actually reads Adam Smith also knows that he went on and on about that “fair and open” part! Especially how excessive disparities of wealth and income destroy competition…. When today’s libertarians praise the creative power of competition, then ignore the unlimited [worship of property] that poisoned it across the ages, we are witnessing historical myopia and dogmatic illogic, of staggering magnitude….

But in rejecting one set of knowledge-limited meddlers—100,000 civil servants—libertarians and conservatives seem bent on ignoring market manipulation by 5,000 or so aristocratic golf buddies, who appoint each other to company boards in order to vote each other titanic “compensation packages” while trading insider information and conspiring together to eliminate competition. Lords who are not subject to inherent limits, like each bureaucrat must face, or rules of disclosure or accountability. Lords who (whether it is legal or not) collude and share the same delusions….

Hence, at last, the supreme irony.  Those who claim most-fervent dedication to the guiding principle of our Enlightenment: competition, reciprocal accountability and enterprise—our neighbors who call themselves conservative or libertarian—have been talked into conflating that principle with something entirely different. Idolatry of private wealth, sacred and limitless. A dogmatic-religious devotion that reaches its culmination in the hypnotic cantos of Ayn Rand. Or in the Norquist pledge to cut taxes on the rich under all circumstances—during war or peace, in fat years or lean—without limit and despite the failure of any Supply Side predictions ever, ever, ever coming true.

An idolatry that leads, inevitably to the ruination of all competition and restoration of the traditional human social order that ruled our ancestors going back to cuneiform tablets — Feudalism. 

As Paul Krugman has often pointed out, it’s not the 1% that’s the problem. It’s more like the 0.001% (Brin’s “golf buddies” and their ilk around the world) whose vast wealth makes them modern-day aristocrats. It’s also those who Krugman called “enablers” in today’s column – the minions who spread the “private property is sacred” and “government destroys liberty” gospel. If these so-called “conservatives” were true to the spirit of Adam Smith, they’d celebrate “mass education, civil rights, child nutrition and national infrastructure etc.”, which Brin mentions, as well as antitrust enforcement, workers’ rights and environmental protection, all of which have “empowered greater numbers of citizens to join the fair and open process of Smithian competition”.

PS – Brin’s article is on a site called Evonomics: The Next Revolution in Economics. It’s worth visiting.

Clinton and Krugman on Trump and Workers

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As you might expect, Hillary Clinton’s campaign site has a lot of policy proposals. By my count, the “Issues” page has thirty-two topics you can click on to see what she wants to do as President. (Oddly, the only issues listed are domestic. There’s no page for foreign policy.)

Among the issues are “Fixing America’s Infrastructure”, “Labor and Workers’ Rights” and “Workforce Skills and Job Training”, but the one that I was especially interested in was “Manufacturing”. If you click on it, you’ll see that Clinton offers some sensible suggestions to increase manufacturing jobs in this country. However, it’s highly unlikely America will ever be the manufacturing powerhouse it used to be. Yesterday’s column by Paul Krugman explains why and also explains why Trump is no friend of working people, despite his tough talk on trade:

There’s no question that rising imports, especially from China, have reduced the number of manufacturing jobs in America…. My own back-of-the-envelope calculation suggests that completely eliminating the U.S. trade deficit in manufactured goods would add about two million manufacturing jobs.

But America is a big place, and total employment exceeds 140 million. Shifting two million workers back into manufacturing would raise that sector’s share of employment back from around 10 percent to around 11.5 percent. To get some perspective: in 1979, on the eve of the great surge in inequality, manufacturing accounted for more than 20 percent of employment. In the 1960s it was more than 25 percent…Trumponomics wouldn’t come close to bringing the old days back.

No matter what we do on trade, America is going to be mainly a service economy for the foreseeable future. If we want to be a middle-class nation, we need policies that give service-sector workers the essentials of a middle-class life. This means guaranteed health insurance — Obamacare brought insurance to 20 million Americans, but Republicans want to repeal it and also take Medicare away from millions. It means the right of workers to organize and bargain for better wages — which all Republicans oppose. It means adequate support in retirement from Social Security — which Democrats want to expand, but Republicans want to cut and privatize.

….And it should go without saying that a populist agenda won’t be possible if we’re also pushing through a Trump-style tax plan, which would offer the top 1 percent huge tax cuts and add trillions to the national debt.

Sorry, but adding a bit of China-bashing to a fundamentally anti-labor agenda does no more to make you a friend of workers than eating a taco bowl does to make you a friend of Latinos.

Class In America

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Nancy Isenberg, a history professor at Louisiana State, identifies five myths about class in America. Instead of listing the myths, I’ll turn them around and present the corresponding truths: 

  1. The working class isn’t mostly white and male
  2. Most Americans notice class differences
  3. America has less class mobility than other developed countries
  4. Talent and hard work make it easy to rise above your class
  5. Racial oppression is more serious than class oppression

My favorite paragraph:

Class power takes many forms. Its enduring force, its ability to project hatred toward the lower classes, was best summed up by two presidents 175 years apart. In 1790, then-Vice President John Adams argued that Americans not only scrambled to get ahead; they needed someone to disparage. “There must be one, indeed, who is the last and lowest of the human species,” he wrote. Lyndon Johnson came to the same conclusion in explaining the racism of poor whites: “If you can convince the lowest white man he’s better than the best colored man, he won’t notice you’re picking his pocket. Hell, give him somebody to look down on, and he’ll empty his pockets for you.”

Getting Rich with Government Assistance

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[From “The Amazing Career of a Pioneer Capitalist” by Martha Howell, a review of The Richest Man Who Ever Lived by Greg Steinmetz:]

If [16th century Dutch merchant Jacob Fugger] was not the “first capitalist,” the story of his life perfectly exemplifies sixteenth-century capitalism and suggests a fundamental truth about many more forms of capitalism, one that was so monstrously embodied by the Dutch East India Company: wealth is won and preserved with the support of a state that is, in turn, dependent on the riches accumulated by the few who excel in commerce.

In some periods, at some moments of technological history, the riches are typically extracted from ever more efficient production, invariably aided by ruthless exploitation of human labor and natural resources. In others the wealth comes principally from control of supplies, manipulation of demand, and management of distribution networks. But always the merchants grow rich because state power protects them or looks away when the time is right—and does so because in a world where commerce reigns, neither the state nor a powerful merchant class can exist without the other. We have Steinmetz’s book to thank not just for telling Fugger’s story so well but also for showing us how the partnership between state and commerce worked in the earliest days of European capitalism.

[And until this day. The rest is at New York Review of Books.]

Neoliberalism Is New Liberalism In Name Only

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It’s possible neoliberalism would be easier to fight if more people knew what it is. As things are now, only academics and certain print journalists use the term. It’s not a word you’ll hear on television. Instead, we hear of conservatism (which is a misnomer, since modern “conservatives” have become so radical) and free-market capitalism (which sounds redundant, but isn’t what Adam Smith favored). 

The term was invented in the 1930s in response to government efforts to combat the Great Depression. Certain European thinkers feared that liberal policies like Franklin Roosevelt’s New Deal would eventually lead to a collectivist, authoritarian form of socialism that would trample on everyone’s freedom (except the freedom of politicians and bureaucrats to interfere with other people’s lives). Hence, they saw a need for a new kind of liberalism, one that would take liberty more seriously, especially when it came to economics.

These critics of liberalism saw this need despite the fact that liberalism got its name because liberals were champions of individual liberty (for example, as propounded in the Bill of Rights), as well as a vibrant market economy (albeit an economy that was properly regulated). The neoliberals held that liberals were much too eager to apply governmental solutions to the world’s problems.  

Jump ahead forty years and we get Ronald Reagan announcing:

The economic ills we suffer have come upon us over several decades…. we, as Americans, have the capacity now, as we have had in the past, to do whatever needs to be done to preserve this last and greatest bastion of freedom. In this present crisis, government is not the solution to our problem; government is the problem.

And Margaret Thatcher explaining: 

I think we have gone through a period when too many children and people have been given to understand “I have a problem, it is the Government’s job to cope with it!” … and so they are casting their problems on society and who is society? There is no such thing! There are individual men and women and there are families and no government can do anything except through people and people look to themselves first… There is no such thing as society. There is a living tapestry of men and women and … the quality of our lives will depend upon how much each of us is prepared to take responsibility for ourselves and each of us is prepared to turn round and help by our own efforts those who are unfortunate.

In other words, government is inherently bad, except for the military and the police, which, unfortunately, are necessary to keep the world safe and profitable for free enterprise. Furthermore, if you can’t succeed in a highly competitive marketplace, you might possibly get assistance from your family or a private charity. If you’re weak or desperate enough to need help from the government, you’re a loser. 

The Guardian has an article by George Monbiot that does a good job explaining neoliberalism and its ill effects. His summary: 

Neoliberalism sees competition as the defining characteristic of human relations. It redefines citizens as consumers, whose democratic choices are best exercised by buying and selling, a process that rewards merit and punishes inefficiency. It maintains that “the market” delivers benefits that could never be achieved by planning.

Attempts to limit competition are treated as inimical to liberty. Tax and regulation should be minimised, public services should be privatised. The organisation of labour and collective bargaining by trade unions are portrayed as market distortions that impede the formation of a natural hierarchy of winners and losers. Inequality is recast as virtuous: a reward for utility and a generator of wealth, which trickles down to enrich everyone. Efforts to create a more equal society are both counterproductive and morally corrosive. The market ensures that everyone gets what they deserve.

Monbiot concludes that the left and the center need a new “framework of economic thought”, but one that recognizes the effect of continuous growth on the environment:

… it’s not enough to oppose a broken system. A coherent alternative has to be proposed. For Labour, the Democrats and the wider left, the central task should be to develop an economic Apollo programme, a conscious attempt to design a new system, tailored to the demands of the 21st century.

Perhaps being clear about what neoliberalism is and how it’s changed our lives is the first step toward developing that alternative.

Meanwhile, Michael Lind argues in the New York Times that “Trumpism and Clintonism are the future”. He thinks Trump’s success is further evidence that the Republican Party will become more populist and less friendly to the rich and powerful (less “country club” and more “country and western”), although he doesn’t explain how right-wing billionaires and corporate executives will react if the Republican Party became less supportive of their interests.

On the Democratic side, Lind thinks Hillary Clinton will govern further to the left than Bill Clinton did. That seems obvious, given her own tendencies and the fact that the Democratic Party as a whole has become more liberal in the last twenty years. But Lind doesn’t see a wave of support for democratic socialism, even the socialism lite that Sanders claims to represent:

… notwithstanding the enthusiasm of the young for Bernie Sanders, the major tension [for the Democrats] is not between Mr. Sanders and Hillary Clinton. It is between Hillary Clinton and the legacy of Bill Clinton…. it is likely that the future of the Democrats will be Clintonism — Hillary Clintonism, that is, a slightly more progressive version of neoliberalism freed of the strategic concessions to white working-class voters associated with Bill Clintonism.

Lind’s view is that the white working-class, especially the men, will be quite at home in the new Republican Party, so the Democrats won’t even try to appeal to those voters. If that happens, it’s not clear how far left the Democrats will go. But calling Hillary Clintonism “a slightly more progressive version of neoliberalism” than what Bill Clinton practiced is a big mistake. Bill Clinton didn’t govern as a neoliberal. It’s true he said “the era of Big Government is over”, but he didn’t govern like Reagan or Thatcher. Labeling Hillary Clinton as a neoliberal makes even less sense.

If you think Hillary Clinton is just another neoliberal who thinks like Reagan did that government is the problem, not the solution, read the interview she gave to the New York Daily News editorial board this month (unlike the corresponding interview Bernie Sanders, it isn’t short on details, which is one reason the Daily News endorsed her for President last week).

Not many neoliberals would use the word “excited” when referring to plans to invest more in the nation’s infrastructure, upgrade the nation’s electrical grid, create a National Infrastructure Bank and use federal money to help make college debt-free for low-income and middle-class students. Clinton comes out strongly for government policies that will reduce the prison population and help prevent another financial crisis, among other worthy, liberal goals.

The domestic policy agenda she presents in that interview is not a neoliberal one by any stretch of the imagination. It’s a progressive agenda consistent with the ideals of today’s Democratic Party. It’s the agenda of someone who believes government can do a great deal to make ordinary people’s lives better. If anything, Clinton is too optimistic about what government can accomplish, given how many real neoliberals she’ll have to deal with.