Category Archives: Politics

Them That Has, Gets

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A well-known French economist, Thomas Piketty, has written a big book called Capital in the Twenty-First Century. It’s getting a lot of attention, because Piketty is an expert on wealth and income and he’s reached a disturbing conclusion: 

Modern economic growth and the diffusion of knowledge have allowed us to avoid the Marxist apocalypse, but we have not modified the deep structures of capital and inequality – or in any case not as much as one might have imagined in the optimistic decades following World War II.

When the rate of return on capital exceeds the rate of growth on output and income, as it did in the nineteenth century and seems likely to do again in the twenty-first, capitalism automatically generates arbitrary and extreme inequalities that radically undermine the meritocratic values on which democratic societies are based [1]. 

In other words, those relatively happy years in the 20th century, during which economic inequality declined in the developed world, was an aberration, the result of special circumstances. Global capitalism is now returning to its normal state: an extended Gilded Age in which the rich get richer, workers struggle, inequality grows and democracy suffers. It’s not a pretty picture, but it’s based on a great deal of historical data.

Piketty argues that “there are ways democracy can regain control over capitalism and insure that the general interest takes precedence over private interests” (for example, by instituting a tax on wealth), but that’s not going to be easy, since capitalists are so good at screwing with democracy.

They buy up and consolidate media outlets, make the majority of campaign contributions, hire armies of lawyers and lobbyists, fund political action committees, support “think tanks”, pay for advertising campaigns on “the issues” and keep the “revolving door” between government and business revolving. All of which contributes to low taxes on high incomes, minimal taxes on capital gains and large estates, corporations being treated as “people”, feeble campaign finance laws, weak labor unions, political gridlock, vote suppression, voter apathy and lots of average citizens thinking that the accumulation of vast wealth by a tiny minority is inevitable and/or good for the majority. 

If you’d like to read more about Capital in the Twenty-First Century, including some skeptical comments, take a look at this New Yorker article by John Cassidy. If you want to feel even more depressed, pissed off or motivated to work toward political reform, check out Paul Krugman’s less skeptical “Wealth Over Work” column at the New York Times.

Being Paid What You’re Worth

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Robert Reich is an economist who was Secretary of Labor in the 90s and is now a Professor of Public Policy at UC Berkeley. He’s also a blogger who knows what he’s talking about (unlike some of us). I doubt he would mind this extended quote from RobertReich.org:

“Paid-what-you’re-worth” is a dangerous myth.

Fifty years ago, when General Motors was the largest employer in America, the typical GM worker got paid $35 an hour in today’s dollars. Today, America’s largest employer is Walmart, and the typical Walmart workers earns $8.80 an hour.

Does this mean the typical GM employee a half-century ago was worth four times what today’s typical Walmart employee is worth? Not at all. Yes, that GM worker helped produce cars rather than retail sales. But he wasn’t much better educated or even that much more productive. He often hadn’t graduated from high school. And he worked on a slow-moving assembly line. Today’s Walmart worker is surrounded by digital gadgets — mobile inventory controls, instant checkout devices, retail search engines — making him or her quite productive.

The real difference is the GM worker a half-century ago had a strong union behind him that summoned the collective bargaining power of all autoworkers to get a substantial share of company revenues for its members. And because more than a third of workers across America belonged to a labor union, the bargains those unions struck with employers raised the wages and benefits of non-unionized workers as well. Non-union firms knew they’d be unionized if they didn’t come close to matching the union contracts.

Today’s Walmart workers don’t have a union to negotiate a better deal. They’re on their own. And because fewer than 7 percent of today’s private-sector workers are unionized, non-union employers across America don’t have to match union contracts. This puts unionized firms at a competitive disadvantage. The result has been a race to the bottom.

By the same token, today’s CEOs don’t rake in 300 times the pay of average workers because they’re “worth” it. They get these humongous pay packages because they appoint the compensation committees on their boards that decide executive pay. Or their boards don’t want to be seen by investors as having hired a “second-string” CEO who’s paid less than the CEOs of their major competitors. Either way, the result has been a race to the top.

Professor Reich doesn’t say anything about the effects of globalization in this post, but it’s obviously a factor. Our economic bottom isn’t in West Virginia or Mississippi anymore, it’s in Guatemala and Bangladesh. Even so, a strong labor movement would help slow down the race to the bottom and to the top.

There’s a question worth asking, however: Would it be better from an ethical point of view if workers in places like Guatemala were paid more at the cost of American workers being paid less? In other words, are we in rich countries automatically entitled to a better standard of living than people in poor countries? After all, for a worker in Guatemala, our race to the bottom is his or her race to the middle. If work can be performed just as well but more cheaply in Guatemala, why should it be performed in California?

I don’t know the answer to that question. Although it’s clear we should slow down the race to the very top (it’s gotten completely ridiculous), I’m not sure what should be done for the rest of us. Maybe the answer is to provide a reasonable minimum income for those of us in the rich countries, while doing more to improve the lives of those at the bottom. 

Update:

For example, as suggested here:  Considering a No-Strings-Attached Basic Income for All Americans

Libertarianism Again

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While writing about libertarianism a few weeks ago, I came across a 2011 article at Slate by Stephen Metcalf called “The Liberty Scam”. Its subtitle is “Why even Robert Nozick, the philosophical father of libertarianism, gave up on the movement he inspired”. Having finally gotten around to reading it, I highly recommend the article if you’ve ever considered yourself an economic libertarian or tried to argue with one. Or if you have an interest in politics or the recent history of ideas.

Metcalf points out that modern, generally right-wing economic libertarianism relies on a very selective view of capitalism. In particular, Nozick’s famous Wilt Chamberlain argument equates all economic activity with the special case of an extremely talented basketball player who can negotiate a stratospheric salary. Nozick claimed that someone like Wilt Chamberlain should be able to negotiate whatever salary the market will bear, and that forcing Chamberlain to pay taxes in order to benefit other people is forced labor (“Need a gardener allocate his services to those lawns which need him most?”). The rest of us, presumably, are a lot like Wilt Chamberlain.

After demolishing the Chamberlain argument and briefly explaining why Nozick came to appreciate that society is more than a random collection of individuals, Metcalf tries to explain why someone as thoughtful as Robert Nozick would make the arguments he did. Metcalf’s theory is that in 1970, when Nozick published Anarchy, State and Utopia, America and places like Harvard had benefited from decades of enormous government investment:

The GI Bill was on its way to investing more in education grants, business loans, and home loans than all previous New Deal programs combined. By 1954, with the Cold War in full swing, the U.S. government was spending 20 times what it had spent on research before the war.

As a result, members of the academic elite, including Harvard professors, were sharing in the general economic prosperity, even if their salaries hadn’t matched Wilt Chamberlain’s. Unfortunately for their bank accounts, however, tax rates were much higher than today. In 1969, when Nozick was writing his classic book, the highest federal tax rate was 77%, almost twice what it is now. It’s no wonder that Nozick saw virtue in a political ideology that considers taxation beyond the bare minimum a kind of theft:

By allowing for the enormous rise in (relative) income and prestige of the upper white collar professions, Keynesianism created the very blind spot by which professionals turned against Keynesianism…. Many upper-white-collar professionals convinced themselves their pre-eminence was not an accident of history or the product of negotiated protections from the marketplace but the result of their own unique mental talents fetching high prices in a free market for labor. Just this cocktail of vanity and delusion helped Nozick edge out [the liberal philosophy of John] Rawls in the marketplace of ideas, making Anarchy a surprise best-seller. It helped make Ronald Reagan president five years later. So it was the public good that killed off the public good.

One day the tide will turn (maybe). In the meantime, I was going to sum up with that well-known quote to the effect that we in the modern world are ignorantly walking in the footsteps of some obscure academic of the past, but couldn’t find the damn quotation (clearly, search engines haven’t got artificial intelligence quite yet). So I decided to go with a remark attributed, probably incorrectly, to Abraham Lincoln:

The philosophy of the schoolroom in one generation will be the philosophy of government in the next.

But while writing the previous paragraph, a key word popped into my head, namely, “scribbler”, which is the term John Maynard Keynes used when he wrote The General Theory of Employment, Interest and Money, 35 years before Robert Nozick wrote Anarchy, State and Utopia:

The ideas of economists and political philosophers, both when they are right and when they are wrong are more powerful than is commonly understood. Indeed, the world is ruled by little else. Practical men, who believe themselves to be quite exempt from any intellectual influences, are usually slaves of some defunct economist. Madmen in authority, who hear voices in the air, are distilling their frenzy from some academic scribbler of a few years back….Sooner or later, it is ideas, not vested interests, which are dangerous for good or evil.

Analyzing Barack Obama

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With less than three years remaining in his second term, President Obama has had three major accomplishments: he moved America closer to universal healthcare; he guided the country through the final months of the 2007-2009 financial crisis, keeping the American automobile industry functioning in the process; and he kept the White House out of Republican hands. He also cut the federal deficit by more than 50% — from 9.8% of Gross Domestic Product at the end of 2009 to 4.1% at the end of 2013 — but since it’s a bad idea to reduce the federal deficit when the economy is weak, that doesn’t really qualify as an accomplishment.

Clearly, the rabid Republican opposition in Congress has made it difficult for Obama to accomplish more, but it’s reasonable to ask whether a more gifted politician could have done better. In an article from TomDispatch reprinted at Salon, David Bromwich argues that Obama has accomplished too little because he views himself as “something like a benevolent monarch — a king in a mixed constitutional system, where the duties of the crown are largely ceremonial”.

According to Bromwich, Obama thinks that merely stating his preferences, calmly and eloquently, should be enough to lead the country away from polarization toward rational compromise, without his having to get his hands dirty making deals and confronting the opposition. It should work in the White House because it’s always worked before:

Extreme caution marked all of Obama’s early actions in public life….The law journal editor without a published article, the lawyer without a well-known case to his credit, the law professor whose learning was agreeably presented without a distinctive sense of his position on the large issues, the state senator with a minimal record of yes or no votes, and the U.S. senator who between 2005 and 2008 refrained from committing himself as the author of a single piece of significant legislation: this was the candidate who became president in January 2009.

It’s a good analysis, although it might be difficult to read if you’ve ever been one of the President’s big fans. I didn’t have that problem, because back in 2008, I voted for Hillary.

(Whether she lives up to her promise, we’ll probably find out starting in 2017.)

Blogging Made Very, Very Easy (Political Economy Edition)

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I could just quote Paul Krugman. With appropriate attribution, of course:

But how can the effects of redistribution on growth be benign? Doesn’t generous aid to the poor reduce their incentive to work? Don’t taxes on the rich reduce their incentive to get even richer? Yes and yes — but incentives aren’t the only things that matter. Resources matter too — and in a highly unequal society, many people don’t have them.

Think, in particular, about the ever-popular slogan that we should seek equality of opportunity, not equality of outcomes. That may sound good to people with no idea what life is like for tens of millions of Americans; but for those with any reality sense, it’s a cruel joke. Almost 40 percent of American children live in poverty or near-poverty. Do you really think they have the same access to education and jobs as the children of the affluent?

… This isn’t just bad for those unlucky enough to be born to the wrong parents; it represents a huge and growing waste of human potential — a waste that surely acts as a powerful if invisible drag on economic growth.

Now, I don’t want to claim that addressing income inequality would help everyone. The very affluent would lose more from higher taxes than they gained from better economic growth. But it’s pretty clear that taking on inequality would be good, not just for the poor, but for the middle class….

In short, what’s good for the 1 percent isn’t good for America. And we don’t have to keep living in a new Gilded Age if we don’t want to.

One of the comments at the Times website suggested we should stop talking about equality and talk about fairness instead. When we talk about equality, the right-wing response is “but people aren’t all the same  — what you want to do is punish success”. That’s not true but it’s a clever response. The natural response to talking about fairness is “life isn’t fair”. No, but we could and should make it more fair than it is. Not just for ethical reasons, but, as Krugman points out, for pragmatic reasons as well.