Trifecta

by John Quiggin on January 16, 2013

If there were still magazine stands, I’d be all over them today. Three pieces of mine have (coincidentally) come out on in the last day or so, in fairly disparate publications

  • In Aeon (a new British “digital magazine of ideas and culture, publishing an original essay every weekday”), I have a followup to my first essay there, which argued the case for a Keynesian utopia, with a drastic reduction in market working hours. In my follow-up, I look at the environmental sustainability of the idea. The tagline for the essay “For the first time in history we could end poverty while protecting the global environment. But do we have the will? ”

While I’m plugging my own work, I thought some readers might be interested in this paper on financial liberalisation and asset bubbles, written in the leadup to the global financial crisis. There’s not much I would change now, and it’s still a pretty good summary of how I think about the financial bubble that created the crisis. The linked working paper version is from 2004, and it eventually appeared in the Journal of Economic Issues, the main journal of the institutionalists who carry on the tradition started by Veblen and Commons in early C20. Not surprisingly, given this obscure outlet, it hasn’t had a lot of attention.

{ 49 comments }

1

rf 01.16.13 at 8:18 pm

One bit I’m confused on, in the Jacobin piece you argue:

“A prerequisite for any positive program is a comprehensive attack on the power of financial markets, including the breakup of all “too big to fail” institutions….”

But in the National Interest:

“It is true that such actions would bring an end to the financial system as we know it today. To bring the system back under control it would be necessary to break up the big global banks, and in particular to separate retail and investment banking. But this would do no more than restore the situation that prevailed before the financial deregulation policies of the 1980s and 1990s, policies that have produced nothing but disaster.”

From (the little) I’ve read on this topic views seem to be mixed on whether breaking up the big banks would have any meaningful positive effect. What’s the solution here if even breaking up the too big to fail banks and separating retail and investment banking is only reliving ‘policies that have produced nothing but disaster’?

(NB: I haven’t read the second Aeon piece yet or the 2004 article so if it’s in there feel free to just point towards that. Also if this has been covered before, I’m misreading the point etc)

2

Tim Worstall 01.16.13 at 8:25 pm

Ahem:

“Sadly, the greater speed and range available with external combustion engines appealed to buyers,”

It’s an internal combustion engine, ICE.

“More strikingly, standards issued by President Barack Obama’s Administration last year require an improvement to 54.5 mpg for new cars by 2025. These requirements mean cost increases for car manufacturers, but they are clearly achievable with current technology. So, once the entire car fleet meets this standard (say around 2035), the fuel used to travel a given distance will be something like 40 per cent of the current level.”

Yes but…..Jevons.

“Even with current technology, it would be perfectly possible to replace the existing energy system with a combination of wind and solar, backed up by hydro-electric and a limited amount of gas to handle fluctuations in demand.”

The engineering is more complex than that. It’s the battery, the storage, of the renewable power that is the problem. I assume that it will be solved through hydrogen. That it will be solved I have no doubt at all.

“As I argued in my earlier essay, even a modest redistribution of global wealth towards the poorest people would allow rapid progress towards”

This is exactly what is happening right now. Rich world economic growth is around zero. Global economic growth is 5% or so. Why is everyone complaining so about what is desired?

“The residents of a Keynesian utopia might be happy to live as the post-human and pampered Eloi do in HG Wells’s The Time Machine, while ignoring the Morlock grunts toiling out of sight.”

Sorry, yes, you do explain that.

“a return to the social democratic project of decommodification, and, in particular, a drastic reduction in the average hours of market work required of people.”

Something of a problem there. It’s unconvincing that there is a “requirement” rather than a desire for hours of market work. And linking it with decommidification makes it worse. Things which are commodities can be traded rather than pproduced by home production. The division of labour (which that decommodification is arguing against) and the subsequent specialisation leads to the more efficient use of labour. More is produced for any hour or hours of labour.

The net effect of which is that for any given standard of living commodity labour, specialising, will produce that standard through less collective labour. And the opposite is also true. For any given amount of labour being expended the more of it that is specialised and traded will lead to a higher (physical) standard of living.

Or the third way of saying the same thing. Decommodification will simply mean that in order to maintain (physical) standards of living then more household labour will have to be expended than market labour is reduced. You can, of course, insist that household labour is in some manner “better”, more enjoyable or, as the phrase goes, not commodified. But that ain’t the way people seem to act.

“HSBC, the largest bank in the United Kingdom, was found to have engaged in systematic money laundering on behalf of drug dealers, tax evaders and dictatorial governments.”

Nooo, not so much. They were found guilty of not running a good enough verification system to show that they were not laundering money. They breached the checking regulations.

“To bring the system back under control it would be necessary to break up the big global banks, and in particular to separate retail and investment banking.”

Might, just, be worth having a look at the Spanish banking system. You know, the one that was local, run in “the interests of the community”, not for profit, no shareholders, division between investment and retail banking, all those good things.

Still went bust of course.

3

AcademicLurker 01.16.13 at 8:37 pm

And, at The National Interest, a piece with the self-explanatory title, Will Banks Finally Be Brought to Heel?

Does the entire article consist of “Not a chance.”?

4

Andrew B. Lee 01.16.13 at 9:56 pm

Hey Prof. Quiggin, do you consider yourself an “old” institutionalist, or influenced by them (if so, how much?)?

Your Wikipedia page seems to categorize you as “Keynesian,” though that’s a bit vague as well (which one – Post, Neo, New?), so I’m assuming you weren’t responsible for that Wikipedia label.

5

dsquared 01.16.13 at 10:16 pm

They were found guilty of not running a good enough verification system to show that they were not laundering money.

“Found guilty” only technically true because the prosecutors specifically refused to bring the criminal charges of money laundering. But they were, per the Senate report, found to have actively taken part in money laundering for the Mexican drug gangs, and they settled with OFAC over Iran.

6

John Quiggin 01.16.13 at 10:51 pm

@ DD, thanks. I was careful to write “found to have engaged” in the original, precisely because HSBC was also found to be beyond the reach of criminal law.

@Andrew I currently fancy the label “New Old Keynesian”, but I don’t actually use it (more on this sometime, I hope). IIRC, correctly the page had “New Keynesian” and I removed the “New”. I like a lot of the work done by institutionalists, and have contributed to their journal a couple of times, but I don’t think there’s much to be gained by walling yourself of as a separate school of thought, which they tend to do.

7

Hidari 01.17.13 at 5:34 am

@ Tim Worstall
if you are desperate to defend HSBC surely a better and more `libertarian` response would be, so what? So what if HSBC facilitates drug selling? What is wrong with drug selling? And what is wrong with helping Iran bust American sanctions? The real problem with the HSBC prosecution (as Matt Tabibi has pointed out) is that it shows clearly the total utter farce that the `war on drugs` has become.

8

Ensigne Pudoris 01.17.13 at 5:44 am

I’m glad to know that an institutionalist journal exists at all. It strikes me as tragic that this school of thought, so vibrant in the 20s, was more or less lost altogether following the macroeconomic revolution (which itself might have benefited from engagement with institutionalists, as well as with more Marxian thinkers like Kalecki).

9

Shane Harris 01.17.13 at 6:23 am

There is a magazine stand just down the street from me in Los Angeles.

10

John Quiggin 01.17.13 at 10:27 am

@Shane Am I all over it? :-) Sadly, the places I publish are almost exclusively digital, so I doubt it.

11

Lake 01.17.13 at 10:53 am

@ Tim Worstall – re. ICE. I missed that one – thanks for pointing it out. Fixed now.

12

Pete 01.17.13 at 11:04 am

Your Keynsian utopia fails to mention one of the main things that people work hard to afford: housing?

13

ajay 01.17.13 at 12:49 pm

Yeah, Tim, HSBC actually advised people on how to set up their payment instructions so they wouldn’t show up to OFAC. That’s actively colluding in sanctions evasion – not just not having a good enough checking system.

Rich world economic growth is around zero. Global economic growth is 5% or so.

That’s not “redistribution”.

14

JohnTh 01.17.13 at 1:06 pm

Having read the JohnQ piece on bringing the banks to heel I have to say that I am even less convinced that he is that anything will change, largely because I can’t understand how bankers, especially as individuals, exert the influence they apparently do. Under any obvious political calculus for Western politicians, pushing prosecutors to go after lots and lots of banking scalps would have been wildly popular in any of the last 4 years, but it’s not happened, even though it would also have helped curb all these bad behaviours. (Having worked with quite a few corporate leaders I feel confident in saying that they worry less about laws that could fine their companies billions than about laws that would put them personally in prison for a couple of years e.g. Sarbanes-Oxley).

Also, I don’t quite understand how various US and UK figures attacking UBS (a Swiss bank) proves that banks will be brought to heel – surely having a go at foreign banks is common enough thing? If they were getting heated about a US or UK bank that might prove something…

15

ajay 01.17.13 at 1:34 pm

UBS is a Swiss bank but it has very large operations in the UK and the US. It’s also well-connected; Phil Gramm, for example.

16

ragweed 01.17.13 at 3:45 pm

“Yes but…..Jevons.”

Jevons has not held up so well on a number of fronts – the reaction he saw seems to have been specific to the dynamics of coal and industrialization in the UK. For one thing he was not observing the more efficient use of a resource whose production was limited and increasing in price, which is likely to be the case with oil. Backlash effects are real, but they are overstated and rarely invalidate the efficiency gains.

More to the point here – there is empirical evidence that drivers do not increase their miles driven after switching to a Prius or other high-efficiency vehicles.

17

Barry 01.17.13 at 4:56 pm

Too bad that Aaron Schwartz didn’t get those prosecutors.

Then again, I guess ‘If you can’t afford the bribe, you’ve got to do the time’.

18

pjm 01.17.13 at 5:18 pm

JQ, re market socialism, etc, how do you feel about the perspective of Alec Nove?

19

hix 01.17.13 at 8:27 pm

Tax evasion via Swiss banks is still very much socially acepted by large parts of the population and almost the entire elite in Germany. If people get caught on rare ocassion, they usually face no criminal charges at all. If they do, no one ever ends up in prison. The Suiss themself would never think about doing anything for a second anyway. So i dont see anything happening to the UBS core business anytime soon. They can get out of the US tax evasion market which was never important to them anyway.

20

Bill Barnes 01.18.13 at 4:57 am

John,

My reaction to your two Aeon pieces is, as you might expect, that you are wildly optimistic and unrealistic. I assume we’ll get into this in the Envisioning Real Utopias symposium, so for now I’ll just say: (1) To say that massive transformations are technically possible is not at all to say that such are socio-economically feasible in the world that exists, or in any reasonably likely near-term future. And the lack of feasibility is not just a product of the strength of political opposition. It is also a product of the sheer magnitude, complexity, and cost of the tasks involved in such transformation, entirely aside from the difficulty of overcoming the political obstacles. Your position is akin to saying, were it not for the political opposition, it would be no problen to produce 30 years of sustained, focused national effort on the order of what Britain and the U.S. mobilized during the five years from 1940 to 45 (including multiple Manhatten Projects). (2) You ignore the fact that because of what is already baked in, and now unavoidable, in terms of climate change, this massive effort at technological, social and economic innovation and transformation must be carried on in the face of increasing, unremitting world-wide natural and human disasters, huge dislocations and costs, widespread state failure.

Your claim that despite all the foregoing, the utopia you outline is well within reach is hard to take seriously.

Bill Barnes

21

Matt 01.18.13 at 5:00 am

I really liked your Aeon article. Like Tim I think you skipped the last big piece of the renewable energy puzzle — storage — but overall I found it well informed and inspiring. Too much writing about economic trends and the future unconvincingly projects current trends to envision the future as Today, Only More So. So the optimistic school thinks that the Dow industrial average will hit 30000 in a few years and hunger will be eradicated by a magic rising tide of markets. The pessimistic school thinks you should trade in your car for a horse and guns in preparation for Peak Oilpocalypse. Neither of these schools pictures people doing things together in the future; for optimists that’s irrelevant and for pessimists other people are just dangers that you need to keep from taking your stuff until they die off.

22

Tim Worstall 01.18.13 at 9:33 am

“Rich world economic growth is around zero. Global economic growth is 5% or so.

That’s not “redistribution”.”

Haws the same desirable effect though. The poor are becoming richer (Yay!) and also relatively richer. Which is what redistribution was meant to achieve, no?

Or is there some joy at taking stuff away from people which this solution doesn’t include?

23

ajay 01.18.13 at 10:01 am

Tax evasion via Swiss banks is still very much socially acepted by large parts of the population and almost the entire elite in Germany. If people get caught on rare ocassion, they usually face no criminal charges at all. If they do, no one ever ends up in prison.

True, though some people end up in psychiatric hospitals – via the Yorkshire Ranter, the extraordinary story of Gustl Mollath, who claimed that his ex-wife (who worked at HVB) was involved in money-laundering, and as a result was declared legally nuts (to use a technical term) and locked up.

http://www.guardian.co.uk/world/2012/nov/28/gustl-mollath-hsv-claims-fraud

24

Uncle Kvetch 01.18.13 at 5:03 pm

Haws the same desirable effect though. The poor are becoming richer (Yay!) and also relatively richer. Which is what redistribution was meant to achieve, no?

If the fruits of economic growth in the poor countries are accruing exclusively to those countries’ elites, then no, “the poor” are not becoming richer.

25

Tim Wilkinson 01.19.13 at 10:36 am

I can’t understand how bankers, especially as individuals, exert the influence they apparently do. Under any obvious political calculus for Western politicians, pushing prosecutors to go after lots and lots of banking scalps would have been wildly popular in any of the last 4 years, but it’s not happened

1. generic money -> power mechanisms (from illegal activity such as bribes, through legalised corruption e.g. patronage, to various ‘legitimate’ use of corrupt institutions such as ability to buy more skilled, ruthless and attritional legal representation, PR, etc).

2. regardless of what the electorate might prefer, they can in the end only choose the lesser evil from the menu of options they are offered. Politicians have that ‘bounded competition’ thing going where none of the major parties will (be the first to) touch certain things like breaking the financial system, and this is common knowledge. Actually it’s so entrenched and internalised, it’s more like a taboo. I recall feeling both disappointed and entirely unsurprised when Gordon Brown failed to fully nationalise a bank or two when for a brief moment he appeared to have the chance.

3. given that There is No Alternative to finance capitalism, banks as a group have the rest of us by the short and curlies

4. bankers and financiers are among those at the top table of Western Capitalism. For example they meet with senior (and select up-and-coming) politicians, spooks, media moguls and senior journos, other major business figures, etc etc at the annual Bilderberg conference. But that can only be mentioned with an apologetic snigger (another taboo), as comedian Charlie Skelton, the only Bilderberg reporter I know of in the MSM, has been known to complain. Apparently they just play golf, or mumble…tinfoil hat, or something. (NB it’s only thanks to ‘tinfoil hatters’ that some of the layers of secrecy have been peeled away – it’s not that long ago that even its existence was unacknowledged by VSPs.)

5 Bankers and banks also have a (very) bounded competition thing going on – in the UK, for example, the British Bankers Association speaks for them all with one voice, and bank spokespersons have been known to say without apparent embarrassment, things like ‘no-one wants to start a price war’ – by which they mean seriously compete (the latter need not even be conspiracy, just standard oligopolistic interated-Prisoners’ dilemma coordination. But there surely is explicit cooperation on strategic matters too. I Remember when Northern Rock popped up in the UK it actually looked for a while like it was engaging in some real competition, but needing a lot of accumulated wealth was an effective, if delayed, barrier to entry – and I’m sure the big banks were not exactly heartbroken when they found they had no choice but to cut off its credit.

These factors are of course all related.

Unfortunately there’s a bit of a somebody-else’s-problem field around this kind of stuff, at least as far as going into any detail is concerned. Professional Journos are afraid of the tinfoil stigma, while academics tend to see it either as too obvious to bother with or too far fetched to look into. In particular, it’s too specific for sociologists, not sufficiently formalisable for polsci-ists or public choice theorists, too current and too light on official documents for historians, too contingent for pol philosophers, too much like hard work for critical theorists, etc.

—–

Thanks to ajay – and via him Yorksranter – for the Mollath story, which I’d missed.

26

Tim Wilkinson 01.19.13 at 10:40 am

+ just to clear up some more points raised by Tim Worstall:

A. ‘Jevons’ – yes (if USians really could contrive to spend more time in their cars than they do already) but…taxes, not expanding the road system, improving public transport, etc.: In the US, car fuel use would drop to 20 per cent of current levels simply by adopting the 2025 fuel efficiency standards and halving the distances travelled – no ‘but Jevons’ there.

B. Storage: this remark fails to address JQ’s proposal, which clearly states that fluctuations in wind and solar (to which I’d add wave) would be dealt with by use of hydroelectric and gas as backups (I’d add the always-on methods of tide and geothermal to the mix in the near future).

G. ‘unconvincing that there is a “requirement” rather than a desire for hours of market work’ – maybe in the alternative universe TW inhabits, where poverty doesn’t count as constraining choice and everyone freely negotiates their own employment contracts, this is indeed unconvincing. Back here in w0, I’m convinced.

D. ‘The division of labour (which that decommodification is arguing against) and the subsequent specialisation leads to the more efficient use of labour’ (etc)

Except this is not a discussion of how hippyish a Nozickean utopia we want, but of the social democratic project. As the article had already explained – clearly enough, one would have thought, even for those who would not normally countenance anything other than libertarian-style economic relations – ‘decommodification’ here means:

Schooling, medical treatment, housing, retirement, leisure, child care, subsistence itself, but most importantly, wage-labor: these were to be gradually removed from the sphere of market pressure, transformed from goods requiring money, or articles bought and sold on the basis of supply and demand, into social rights and objects of democratic decision

E. JQ: “To bring the system back under control it would be necessary to break up the big global banks, and in particular to separate retail and investment banking.”

TW: ‘the Spanish banking system…went bust’ – JQ says ‘necessary’, not ‘sufficient’, so regardless of the detailed facts, this is not capable of being a counterexample.

27

Tim Wilkinson 01.19.13 at 10:43 am

(I meant to cut the bit about Northern Rock as it was based on vague impressions and certainly not adequate knowledge.)

28

guthrie 01.19.13 at 12:31 pm

The other problem with charcging bankers with anything, at least here in the UK, is that it isn’t a crime to be hideously inctompetent at your job. And it doesn’t seem that any of them woke up one morning thinking “Hey, if I crash the global economy and put lots of people out of work, I’ll make lots of money”.

29

novakant 01.19.13 at 1:10 pm

And what is wrong with helping Iran bust American sanctions?

I’ll be happy to hear your defense of sanctions against Iran, but I consider them a crime against humanity – not that this would be HSBC’s primary concern.

30

Bill Barnes 01.19.13 at 4:07 pm

“The other problem with charcging bankers with anything, at least here in the UK, is that it isn’t a crime to be hideously inctompetent at your job. And it doesn’t seem that any of them woke up one morning thinking “Hey, if I crash the global economy and put lots of people out of work, I’ll make lots of money”.”

Don’t know about the UK, but in the US there’s criminal negligence and criminal fraud, and criminal conspiracy to evade federal law and regulation, and in the past bankers (e.g. Charles Keating) have gone to jail for such. Take a look at the film “Inside Job.” Many high level Wall Street figures could have been prosecuted.

31

Joshua Holmes 01.19.13 at 7:44 pm

Reduced working hours made sense when workers were more or less interchangeable. One lug nut turn is as good as another. Now that a lot of work has shifted to offices, it’s a lot harder to reduce working hours. Knowledge is a lot more specialized. Having three people share the same knowledge and do the same job at the same time is a lot harder to coordinate and get answers from: worker 1 does something wrong in an urgent matter but isn’t in the office today. Worker 2 is only in the office 3 hours today and hasn’t worked on the matter, has to figure out what worker 1 did wrong. And then you have the problem of meetings. I think the coordination problems would be extremely tough. (Menial service jobs would work fine, though.)

I like the optimism of the green anti-poverty world, but the numbers are hard to square: France uses about 0.3 barrels of oil per person per day. Scale that to 9 billion, and you get 2.7 billion barrels a day, about 30 times current oil production. In a world of 80 million barrels of day production, slightly higher than right now, 8 billion people can only use 1/100th of a barrel apiece: about 1.5 liters. That would mean a drastic reduction in the First World standards of living, even among relatively efficient oil users. Good luck running on that platform.

32

Joshua Holmes 01.19.13 at 7:49 pm

Oh hell, I got my decimals wrong in the second paragraph. France actually uses about 0.03 barrels per person per day. Much more feasible.

33

Matt 01.19.13 at 9:47 pm

Oh hell, I got my decimals wrong in the second paragraph. France actually uses about 0.03 barrels per person per day. Much more feasible.

Also note that oil consumption is only a crude proxy for development or wealth. The Bahamas consume nearly 3 times as much oil as the United Kingdom, per capita, but the UK has 20% higher GDP per capita. The high oil consumption in the Bahamas is due in large part to their great and very expensive diesel use for electrical production. None of that oil is produced domestically. High oil consumption is actually a drag on the standard of living and balance of trade. It is similar to Hawaii in this regard, which has very high oil consumption among US states due to diesel electricity, but is seeing rapid uptake of solar power for the same reason.

34

Tim Wilkinson 01.20.13 at 9:42 am

Now that a lot of work has shifted to offices, it’s a lot harder to reduce working hours…I think the coordination problems would be extremely tough.

There is something in this, but much less than you suggest. A lot of the perceived problem arises from the fact that job roles are designed around a particular standard working week; hence ‘three people sharing the same job’. There’s no particular reason to think that labour is only naturally divided into 40-hours a week packages.

At about 5pm every Friday, office workers abandon their posts for about 60 hours (more than a third of the week) during which time no tasks ‘urgent’ or otherwise are performed. (Urgency of tasks is most often determined by deadlines imposed by -planners- managers based on the standard way of allocating an scheduling work.) If the coordination problems really are that significant, one solution would be to make a three day weekend the standard. (Urgent tasks don’t arise because there’s no-one around to generate them). Or if that risks leaving naturally-occurring urgent tasks undone for too long, have a midweek break on Wednesdays.

Note too that workstations are deserted during the evening and overnight without noticeable ill-effects (appalling ill-effects might be observed if one gets one’s counterfactual engione out and calculates the opportunity costs, but no-one has to pay opportunity costs, so who cares?) Reducing the length of the working day wouldn’t seem to introduce any coordination problems.

35

Peter T 01.20.13 at 12:05 pm

“One lug nut turn is as good as another.” This could only be said by someone who has never ever turned a lug nut .

36

Mao Cheng Ji 01.20.13 at 1:43 pm

Hey, that’s what division of labor is all about.

The way it works these days: maybe you don’t need a full-time accountant or email admin, so you outsource these jobs to service providers who hires 10 of them to take care of 50 clients. And at this point, whether your service provider has 10 them working 40 hrs/week, or 14 working 30 hrs/week, it doesn’t really matter.

37

nemi 01.20.13 at 8:56 pm

“The Light on the Hill”

Wouldn’t it be better to be constructive rather than critical? Your objections seem to be rather trivial.
1: do not nationalize. Buy as things are sold at a pace that seem appropriate. Sweden had such a policy proposal once, but the social democrats lost the vote.
2: Once again, don’t nationalize. If people don’t want to sell, or think that they can create a bigger payoff by keeping the ownership private, let them. Buy when they want to sell.
3: Giving the CEO the same salary as they presently have would be one of many options for a company where the workers owned the equity – but I do not think it would be the outcome. And if it was – well – it would be because the workers now realized that the CEO in fact did a amazing job.

PS: Wren-Lewis at “Manly macro” recently had a post on market socialism – even if he never used that term:
http://mainlymacro.blogspot.se/2013/01/the-long-run-government-debt-target.html

38

JW Mason 01.20.13 at 9:32 pm

I agree with all John Q.’s criticisms of the Jacobin market socialism piece.

39

nemi 01.20.13 at 9:58 pm

“I agree with all John Q.’s criticisms of the Jacobin market socialism piece.”

Would you object to Wren-Lewis negative debt target as well?

40

Matt McIrvin 01.20.13 at 10:16 pm

Now that a lot of work has shifted to offices, it’s a lot harder to reduce working hours.

And yet companies have no trouble laying off office workers in gigantic numbers, and telling the remaining employees to work harder to pick up the slack. Somehow lump-of-labor is only a fallacy when it goes the other way.

41

John Quiggin 01.21.13 at 2:59 am

“Giving the CEO the same salary as they presently have would be one of many options for a company where the workers owned the equity “

I didn’t read Ackerman as proposing this. He wants public ownership, and his implicit argument is that the publicly owned banks should operate much as private banks do now, but with the public getting the profit.

In any case, I don’t think worker ownership would help a lot for institutions like investment banks. If an investment bank contracted out all its HR and similar functions, it could easily consist almost exclusively of workers on 100k+, whose interests would not be aligned with those of the public in general.

42

ajay 01.21.13 at 1:13 pm

In any case, I don’t think worker ownership would help a lot for institutions like investment banks. If an investment bank contracted out all its HR and similar functions, it could easily consist almost exclusively of workers on 100k+, whose interests would not be aligned with those of the public in general.

This reminds me of the debate around moving IBs from partnerships to listed companies, which was widely thought (at the time and subsequently) to have been a Bad Thing for risk policy reasons.

43

JW Mason 01.21.13 at 3:32 pm

Would you object to Wren-Lewis negative debt target as well?

No; but that’s answering a very different question.

*If* we start from the existing capitalist economy, and ask whether state ownership of financial assets should be added to the tools the state has to exercise claims on the private economy, then sure, there are contexts where that might make sense. For instance, if private demand is such that the economy is at full employment with a balanced budget, but financial stability would benefit from increasing the share of public debt on private balance sheets, then having the state issue new debt in order to buy private assets could make sense. (Think of this as precautionary QE.) I don’t think it’s a big addition to the existing tax and regulatory options, but it’s worth exploring.

But if you are starting from where Seth is, and asking whether the goals of socialism could be substantially achieved by transferring ownership of financial assets to the state (or quasi-state entities like public banks) while otherwise preserving the private economy as it currently exists, then the answer is clearly No. It’s the subordination of social life to the logic of profit maximization that defines capitalism, and that socialism opposes, not the particular identity of the profit recipients.

44

JW Mason 01.21.13 at 3:45 pm

I don’t think worker ownership would help a lot for institutions like investment banks.

Right. As Ajay sort of points out, for most of their history investment banks (like law firms, advertising agencies, architecture firms, and many other thoroughly capitalist enterprises) *have* been employee-owned.

One of the main problems with market socialist schemes like Seth’s is that they assume that the things that are objectionable about capitalism happen because the bosses are evil or stupid. It’s not really consistent to say, as Seth does, that when “firms buy and sell in the market, their performance can be rationally judged,” and then to suggest that a worker-owned firm operating in the same market could be run on much more egalitarian lines. Wages, working conditions, etc., are one of the things — one of the main things!– that the market is “rationally judging”. If tomorrow the Waltons got together and decided to turn ownership of Walmart over to its employees, they could not simply turn all Walmart jobs into good living-wage jobs with benefits, job security, advancement options, etc. — or if they did the “rational judgement of the market” would be swift and negative, as some other big-box store ate Wal-Mart’s lunch.

The problem is applying the logic of markets to all of human life, not the exact people who exercise ownership claims. I mean, what’s the Jacobin piece have to say to the Chicago teachers, or the public employees in Wisconsin? Their enterprises already are publicly owned. Does that mean that socialists have no interest in their fights for more autonomy and security in their jobs?

45

nemi 01.21.13 at 8:32 pm

” It’s the subordination of social life to the logic of profit maximization that defines capitalism, and that socialism opposes, not the particular identity of the profit recipients.”

Not for me. For me, economic socialism = worker control. Whether that is combined with democracy or dictatorship, a planned or a market economy, etc., is important questions but orthogonal to the capitalism/socialism dimension. If firms are controlled by the workers, and they choose to maximize profit, I am okay with that – but of course they wouldn’t, unless profit max = utility max, which never applies.

And simply being part of a group that together make the important decisions concerning the place where you spend most of your life will probably change people in very significant ways as well.

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nemi 01.21.13 at 8:45 pm

PS: I.e. shouldn’t socialism be about the distribution of power (and most importantly, economic power) rather than about what they choose to do with that power?

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john c. halasz 01.21.13 at 8:51 pm

JWM @44:

Umm… if Walmart increased its U.S. workers wages by $5000 per capita, then that would cost it $7 billion, compared to $15.7 billion in net profit. If rather than foregoing profits, it would raise prices, then assuming 70% of revenues are U.S.-derived, that would require about a 2.2% across-the-board rise in prices. That’s hardly a revolutionary proposition, but it also wouldn’t amount to competing retailers eating Walmart’s lunch. More like blunting Walmart’s capacity to eat its competitors’ lunch. (Just another proleptic remark about economists abstraction from the actual specific details of business practices, let alone ignoring the specific mechanisms of rent-extraction).

More generally, measures of productive surpluses are still required, if profits are to be replaced as a prima facie measure of productive efficiencies, as too distortive and exploitative. The real distributable surplus product is the total product minus that portion of it that is used up in the process of its production, and under capitalism, it is divided up in inverse proportion between profits and wages. (Of course, that abstracts from the role of money and finance, which one can’t quite do, and there are other payment streams such as interest, taxes, rents, etc. though those could simply be put down on the side of profits. And the conceptual reduction is still too static). But it is only a small further tweak of abstraction/reduction to say that the surplus product, whatever the procedures and criteria for investment and distribution, must be divided in inverse proportion between that part that goes for current consumption, “wages”, and that part which goes to the replacement or improvement of the technical means-of-production, “capital”, for future production. And needless to say, the problems of the realization of long-run productive investment and of inter-sectorally balanced re-production remain, together with cyclical dynamics, in any advanced “mode of production” involving an extensive division of labor and technical specialization, with the productive efficiencies and thus “standards of living” that they afford, (as well as, more roust and flexible sustainability and the realization of human potentials and responsibilities). But there is no prior reason why the exercise of institutional and policy imagination can’t arrive at plausible proposals. (I might add as a task the development of multiple indexes of resource utilization, human and natural, beyond strictly monetary measures, to get at questions of “value”, as opposed to nominal prices, which mainstream economists through mathematical abstraction attribute entirely to the “magic” of markets).

It might be nice work, if you can get it.

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Chris Warren 01.22.13 at 1:33 am

nemi

You are right in one aspect – socialism opposes the capitalist identification of profit recipients and socialism is not restricted to countering some vague ” subordination of social life to the logic of profit maximization”.

However what is done with “power” is just as important as the distribution of power.

Your point that:

If firms are controlled by the workers, and they choose to maximize profit, I am okay with that

needs to be assessed based on the nature of that profit. Anyone can profit from their own labour, but there is no right to profit by expropriating income from others. This is the differentia specifica of capitalism w.r.t. socialism.

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ajay 01.22.13 at 10:41 am

As Ajay sort of points out, for most of their history investment banks (like law firms, advertising agencies, architecture firms, and many other thoroughly capitalist enterprises) *have* been employee-owned.

Well, they’ve been partnerships. Might be worth making a distinction between that and true employee ownership. A law firm has non-owner employees; John Lewis, which is owned by all its employees, does not.

I think dsquared had a piece on this (now locked) pointing out which sectors in the UK are still dominated by partnerships – anything involving not much capital and a lot of reputation. The best example was undertakers.

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