Against Max Sawicky!

by Henry on December 1, 2017

Max Sawicky has a piece in Jacobin, giving grief to Brink Lindsey and Steve Teles’ new book on rent seeking, The Captured Economy, and arguing that Dean Baker’s work presents a “left-facing” response to rent-seeking, while Lindsey and Teles’ book, instead, is “right facing.” It’s a little awkward to wade into this fight, since I’ve been around long enough that I’m friendly with Max, Brink and Steve (and, for that matter, Dean), but I think that Max is basically wrong. What Lindsey and Teles are doing, as Max says, is to set out their pitch for liberaltarianism, a fusion of liberalism and libertarianism that John Q. has written about here in the past. But even if liberaltarianism isn’t, and shouldn’t be mistaken for e.g. social democracy, it’s much more congenial to useful argument with the left than Max allows, or than old-style libertarianism ever was.

First, Max’s claim that Baker’s critique of rent-seeking is definitely to the left, while Lindsey-Teles is definitely to the right. That depends on what your definitions of left and right are. Baker is, more than anything else, a neo-classical economist who takes neo-classical intellectual commitments seriously and honestly. That does, indeed, provide a basis for some very sharp criticism of the right, and indeed of the economics profession’s penchant for calling for free markets for values of thee that include e.g. fast-food workers, but not for values of me that include high-earning professionals such as economists themselves. While economists go after some market distortions and forms of rent seeking, they are strongly disinclined to go after others. The logic of perfectly competitive markets is, when looked at closely, a sound basis for a specific critique of power, which focuses on the ways in which market participants (including those who tend to get excluded from the usual calumniations of public choicers) use their privileged position to insulate themselves from competition.

Yet it isn’t the only such basis. What is interesting – and potentially important – about liberaltarianism is that it is specifically, deliberately and sharply looking to distinguish itself from standard issue libertarianism’s trust in markets and distrust of democracy. I certainly don’t agree with everything that Will Wilkinson and Jacob Levy are writing for the Niskanen center. In important ways, their values depart from my own. Yet I think that their overall project – of reformulating classical liberalism so that it embraces and starts from an acceptance of democracy – is intellectually crucial. A few years ago, libertarians looked to make common cause around a purportedly kinder and softer “bleeding heart” libertarianism, which included both democratic pluralists like Levy and pugnacious anti-democrats like Jason Brennan. Now, Levy and Wilkinson are striking out on their own, and explicitly distancing themselves from the anti-democratic tendencies within libertarianism.

This, I think, is where the Lindsey and Teles book is coming from. It’s more hesitant on inequality than I’d like. But it goes some distance to specifically distinguish between the kinds of ‘upwardly mobile’ rent-seeking that are really egregious, and the more benign forms of rent-seeking that we saw after the New Deal, which distributed more of the rents sideward and downwards. In their words:

Although regulations can redistribute downward and sideways as well as upward, there has been a clear shift toward more upward redistribution in recent decades. At the same time that other economic, social, and political developments have been widening the gap between rich and poor, regulatory policy has amplified those underlying inegalitarian trends.

Consider the situation in the middle decades of the twentieth century, when income inequality was falling. The post– New Deal economic order was rife with government- created rents, but they tended to redistribute downward or sideways. The minimum wage was relatively high and roughly three- quarters of the country’s blue- collar workers belonged to unions. Strict immigration controls propped up wages of less- skilled native- born workers. … even with policies that favored big business, some significant fraction of the gains was passed through to the working class in the form of higher pay.

Since the 1970s, by contrast, a whole host of developments unrelated to rent- seeking have united to widen pay and wealth gaps and to boost the economic returns that accrue to the very rich. Consider the wide range of factors implicated in the growing economic divide between the highly skilled (or, roughly speaking, the college educated) and everybody else. … The factors contributing to outsized gains at the very top are similarly diverse. They include the rise of “winner- take- all” markets produced by information technology’s network effects as well as globalization’s expansion of relevant market size; a huge run- up in stock prices; continuing growth in the size of big corporations (which has helped to fuel rising CEO pay); and a big drop in the top income tax rate (which has facilitated the use of high compensation as a strategy for attracting top managers, professionals, and executives).

Their argument here is pretty clear – that rent seeking is far more tolerable when it distributes rents sideways and downwards than when (as now) it distributes rents up, sharply increasing inequality.

These arguments gain greater political force when combined with Lindsey and Teles’ political arguments. L-T’s book differs sharply from traditional left neo-liberalism in its emphasis on democracy, and organized political conflict, as the only way to combat the upward redistribution of money to elites.

There is no route to a competitive economy except through finding a way to a more deliberative politics. As we will argue in Chapter 7, rent-seeking is most successful when politics is least deliberative. Political deliberation is not a matter of being more genteel and polite. True political deliberation, in fact, requires political conflict. Even a relatively small amount of conflict, generated by a modest amount of organization, can produce enough deliberation to eat away at the political power of the advantaged. Only when both sides to an economic question are represented in the political sphere, and when the side of those who pay the costs of regressive regulation can force a dispute to the political surface, is true deliberation on the merits possible.

Put these two claims together – that rent-seeking is much less problematic when it distributes rents sideways or downwards, and that fighting back against the power of the advantaged requires political organization – and you have a strong argument for unions, based on non-traditional-left foundations (I’ve asked them about this, and they have both agreed that support for the role of unions is an implication of their argument). Acemoglu and Robinson spell out a similar argument more explicitly in an aside that I don’t think they’ve written up more formally (I’d love to see it if I’m wrong).

Our basic argument is simple: the extant political equilibrium may not be independent of the market failure; indeed it may critically rest upon it. Faced with a trade union exercising monopoly power and raising the wages of its members, most economists would advocate removing or limiting the union’s ability to exercise this monopoly power, and this is certainly the right policy in some circumstances. But unions do not just influence the way the labor market functions; they also have important implications for the political system. Historically, unions have played a key role in the creation of democracy in many parts of the world, particularly in Western Europe; they have founded, funded and supported political parties, such as the Labour Party in Britain or the Social Democratic parties of Scandinavia, which have had large impacts on public policy and on the extent of taxation and income redistribution, often balancing the political power of established business interests and political elites. Because the higher wages that unions generate for their members are one of the main reasons why people join unions, reducing their market power is likely to foster de-unionization. But this may, by further strengthening groups and interests that were already dominant in society, also change the political equilibrium in a direction involving greater efficiency losses. This case illustrates a more general conclusion, which is the heart of our argument: even when it is possible, removing a market failure need not improve the allocation of resources because of its impact on future political equilibria.

This kind of attention to politics (and to the benign consequences of certain apparent inefficiencies) is hard to get to from the basis of pure neo-classical theory. When Max concludes:

And yet the competitive market model of the economy from which rent-seeking theory derives continues to be used as a foundational point of reference. In general, it means a market with maximum ease of entry and exit for suppliers and an absence of labor combination. Since this mythical construct is far from a normative ideal, it’s also limited as an analytical device.

The liberaltarian view acknowledges market deficiencies of interest to progressives but applies questionable weights to them and neglects more potent remedies. The Left has better answers — most of which our evanescent libertarians would reject. Rather than indulge the back-sliding tendencies of Democrats, the more logical course is to pry liberals away from their anti-state nostrums and their faith in the chimera of virginal, competitive markets.

I think that he is getting it exactly wrong. What is valuable about Baker’s work is exactly that it pushes this account of the market as realm of maximum ease of entry and exit as far as it can be pushed, and shows that this can lead to surprisingly radical conclusions. What is important, in contrast, about Lindsey and Teles’ book is precisely that it starts to move libertarians and moderates away from the “chimera of virginal, competitive markets” and towards a proper interest in democracy, and the necessity of political conflict between organized interests.

Again, it’s not likely that Lindsey and Teles will end up on the social democratic left (though they may likely end up in a place where they can find common cause on many issues). What they are doing (and Levy and Wilkinson too, if I get them all right), is to show how one can draw strong defenses of democracy, and of organizing to push back against power inequalities on the basis of classical liberal foundations.

Corey’s new edition of The Reactionary Mind is just out, as John Holbo has written. It has a lovely new chapter on the contrasts between Edward Burke and Adam Smith. What makes the chapter wonderful is two things. First, that it uses imaginative sympathy to get inside Burke’s head in the same way that Rick Perlstein did for Goldwaterites in Before the Storm, playing out his mixed feelings of anger and wounded pride towards the establishment that he looks to defend. Second, that by implication it draws out a different possible path for classical liberalism. If Burke ended up eliding the value of the laborer, in order to defend the virtue of markets, Smith expresses a clear and real regard for the value of labor, the personal worth of the laborer, and a sincere indignation at the ways in which the rich and powerful combine to do them down. The liberaltarians associated the Niskanen Center look to me to be trying to trying to revive the spirit of Smith, and to create a classical liberalism that doesn’t elide the politics of markets as libertarianism tends to do. That’s worth encouraging.

{ 28 comments }

1

Max Sawicky 12.02.17 at 5:40 pm

“Liberaltarianism” is a sideshow, not a credo

Most people love attention, me no less than anyone, so I’m happy to respond to my learned friend Henry Farrell’s challenge here at CT. He is at pains to defend the new book, “The Captured Economy,” by our mutual friend Steven Teles and Brink Lindsey, from my critique in Jacobin. (Rather than rehash my arguments in the review, I suggest readers go through it first if they want to better understand what follows here.)

The object of the book is to map a new territory of cooperation between left and right, for the sake of traditional progressive goals. In pursuit of this political project, a new philosophy is offered, summed up by the term “liberaltarianism,” and further described as “anti-state egalitarianism.”

Let me say that in principle I have no objection to couplings of strange bedfellows in progressive causes, and my record proves it. Back in the early days of blogs, I launched a left-right blog known as “Stand Down” to campaign against the U.S. invasion of Iraq. I assembled luminaries from the world of blogging, including Markos Moulitsas (Daily Kos), Duncan Black (“Atrios,” of Eschaton), Tom Tomorrow, Julian Sanchez (Notes from the Lounge), Radley Balko (The Agitator), and Jim Henley (Unqualified Offerings), among many others.

More recently I’ve been pleased to see left-right initiatives towards “auditing the Fed” and mildly encouraged by some of Senator Rand Paul’s bloviations against U.S. imperialism.

My difference with the ambition of the Lindsey-Teles (LT) book is that these are tactical gambits, not the stuff of some new political philosophy that should command broad acclaim or a position of prominence in the Left’s agenda.

But LT do offer interesting and useful targets for the left that might actually garner support from the Right. What’s really in play here, by the way, does not fit most ideas of right and left. LT’s right is libertarians, and for the left, their sad example is Cass Sunstein. LT’s “left” is really Obama-style centrists, though LT and Henry try to claim the imprimatur of Dean Baker’s work, exemplified by Rigged.

The crown jewel of LT’s appeal is the increasing proliferation of economic rents accruing to the very wealthy over recent decades. Piketty is name-checked, though rents play no part in Piketty’s account. Incomes of the rich founded on useless economic activity are certainly a tempting target for the left. LT and Henry suggest rents are at the root of the historic growth in inequality.

Unfortunately for Henry’s argument, if you’re traveling with Dean Baker, among others, the increase in inequality in the U.S. is not a story of rents received by asset owners. As Dean explains in “Rigged,” it resulted from increasing inequality in labor compensation. LT’s leading cases of rent-seeking – financial deregulation, occupational licensing, intellectual property, and the restriction of urban housing supply due to rent control and zoning – only overlap rents received in the form of high wage and salary to a partial extent.

In contrast, an overriding factor in the growing inequality of labor income, for some the most important one, is something unappetizing for the liberaltarian menu: the withering of trade unionism and industrial action. Few factors run more against the grain of nostrums of competitive markets.

Making a point for trade unionism, Henry breaks a lance for Galbraith’s idea of countervailing power, also invoked by LT. Now I love me some JKG, always have, but from where I sit this defense, welcome though it has always been, comes from a stance of liberal noblesse oblige, an appeal to fellow elites. No self-respecting left would defend unions as a mere device for Labor to strike some kind of unsatisfactory balance with Capital. It’s the posture of a benevolent elite. For the time being we will take what we can get, but for the future what we on the Left want is no gods, no masters.

Henry says, with the benefit of private assurances from LT, that unionism is in keeping with the thrust of their argument. Rent-seeking that promotes equality is better than other types that do not. But unionism is vulnerable to the same arguments they deploy against occupational licensure or rent control or zoning, all cases where the distributional implications are either contestable, limited, or mitigated by other considerations.

The more interesting political element in all this, noted by Henry, is the new trend in libertarian thought coming out of Brink Lindsey’s shop, the Niskanen Center. I too find interesting where Jacob Levy and Will Wilkinson, and others of this new ilk have been going. Perhaps the fact that the U.S. left is in close competition with Democratic centrists explains my bias towards the Teles half of the collaboration. Cass Sunstein indeed!

Space for my review precluded my sympathy for another theme in LT, the importance of democratic deliberation. Rents die in the sunlight. Here as well I found useful discussion. Unfortunately, the past couple of weeks in Washington, D.C. may have rendered this focus a political non-starter, and perhaps even a handicap.

We have already witnessed the shenanigans that made possible the enthronement of Trump’s first Supreme Court nominee. Now for the sake of their ruthless advance of a monumentally perverse, rent-choked tax reform, the Republican Party has abandoned all norms of democratic deliberation, not to say elementary human decency, to an unprecedented extent. It takes two to deliberate, democratically. To pretend otherwise amounts to unilateral political disarmament. You can’t fight malicious distributional policy with appeals to process. Henry and LT neglect the possibility that it will be necessary to fight fire with fire. Bernie Sanders understands that.

If liberaltarians want to tail the burgeoning progressive movements in the U.S., they can be welcomed. But the tail is not going to wag the dog.

2

bruce wilder 12.02.17 at 8:34 pm

There is a long intellectual and ideological history here. The super-encapsulated version is that neoclassical economics was born in the Marginal Revolution, an attempt to overturn the obsession of classical economics with economic rent and the associated moralized implications for income distribution and replace that obsession with a new obsession, the critical importance of the marginal to economic choice in (perfectly) competitive markets, packaged together with a new moralizing conclusion: that the competitive market result — every factor receiving its marginal product — was morally right and ideally efficient.

The classical economists were mostly Whiggish enthusiasts for progress under the established order of commercial and industrial capitalism, but their analyses of economic rent were subversive of the political order dominated by a landed aristocracy or a corrupting capitalism of robber barons. Whether it was Malthus worrying over the fate of the wage-earning class, or Ricardo attacking the Corn Laws, or Marx or Henry George, the moral status of the rentier was pretty clear.

Economics as an academic profession emerged with the advent of neoclassical economics, but something else also eventually happened that would have immense importance: the Chicago School came to completely dominate neoclassical economics. The Chicago School elaborated the Idea of The Market Economy as a general self-regulating emergent system with greater sophistication than any of its academic competitors and, more importantly, claimed the methodological heights, very aggressively defining the terms and frames of political debate on op-ed pages while more parochially defining what constituted rigor in publishable research.

In the latter half of the 20th century the Chicago School contributed several great streams to economic perspectives on government policy. One was the movement led by Milton Friedman, who played a prominent role as public intellectual in defining the terms of debate between centre-left and centre-right and in discrediting Keynesianism in the popular imagination. Another was the new financial economics and related ideas about corporate governance, best known for oft-ridiculed “efficient markets hypothesis” and intellectual backing for “greed is good” as an ideology of corporate business governance. And, a third, led by Gordon Tullock and James M Buchanan, was the Public Choice movement. It was this last movement that gave us “rent-seeking” as a universal pejorative.

It is a clever rhetorical move to use “rent-seeking” as a pejorative. Makes the speaker sound like a good guy, railing against vested interests and corrupt power. I am not so sure that this rhetorical usefulness was not just a curtain drawn across darker purposes. There’s no deep analysis of “rent-seeking” in neoclassical economics; the whole point of neoclassical economics is to obscure morally objectionable aspects of income distribution and put political questions relevant to income distribution into child-safe containers that cannot be pried open by amateur hands.

There was real genius at work in Public Choice. I cannot help but admire the work of, say, Mancur Olson or James M Buchanan, but I wonder, especially in the case of the latter, whether he was not in fact often busy engineering a politics dominated by the very wealthy and powerful business corporations.

Having gone down the rabbit hole into neoliberal wonderland with the various strands of the Chicago School, I think we ought to be more skeptical about the value of accepting any premise of neoclassical economics. Do we not now know where this is going? I read this bit from the OP and shake my head:

The logic of perfectly competitive markets is, when looked at closely, a sound basis for a specific critique of power, which focuses on the ways in which market participants (including those who tend to get excluded from the usual calumniations of public choicers) use their privileged position to insulate themselves from competition.

That simply isn’t true. A perfectly competitive market is one in which it is assumed that no participant behaves strategically: no one games the rules, no one anticipates the reactions of other players, enough is known to act and everything that is known is known to everyone. There’s definitely an analytic usefulness to thinking through the meaning of concepts of cost, value and equilibrium under such simplifying assumptions. But, really, where’s the politics? Looking closely, where can there be politics, under an assumption that no one behaves strategically?

And, as a practical matter, how could such an impossible “ideal” be brought about? It is almost as if selective removal of the levers of political power to enhance the domination of capitalist owners and the grift of their helpers was the goal all along.

I am going to suggest, with respect, that the Econ 101 notion of the perfectly competitive market as an ideal of efficiency, is one of those child-safe containers. Once any political conflict is put inside its conceptual confines, there can be no real danger to domination under the established order.

Neoclassical economics is nothing if not an effective b.s. machine. A Matthew Yglesias can swallow it whole and generate columns on how licensing barbers is oppressive rent-seeking and enlightened policy would . . . . what? usher in the utopia of $9 haircuts? Is it not fairly obvious misdirection to have one’s critical capacities channeled by such an ideology? Are Brink Lindsey and Steve Teles not engaged in much of the same?

It is true that an actual master of neoclassical economics like Dean Baker or Joseph Stiglitz or our own JQ can do better than Yglesias and I probably should not pick on him, but my point is that these ideas have to be popularized and validated to be politically effective and let loose in the wild, they just seem to be self-neutering, pulling levers that are not connected to the actual machinery of the real political economy (or like the neoliberal recommendation to redistribute the market-efficient outcomes dictated by the Market God, after tax — no lever and no pull).

I have said it many times in comments before, but there are very few actual markets in our actual political economy, a system that is mostly organized by and around bureaucratic hierarchies. There’s a lot to be said about that, including smart things said by economists, but they are never going to become dominant in the popular political discourse if we keep prattling on about a non-existent market economy, just because the Koch Brothers are paying someone to start yet another such pointless conversation. (Which may be why they are paying, just like they sponsor Nova on Public Television so we never have to hear too much about global warming.)

One smart thing that can be said about the organization of the economy by private enterprise employing bureaucracy is that it requires that business enterprise secures sources of economic rent. All business enterprise is importantly rent-seeking rather than “profit-maximizing” (a conceptually impossible behavior when examined closely). It would be useful if “rent-seeking” could be seen as normal — since it is, in fact, universal — and public policy could be re-conceptualized as using economic rents generated by deliberate public policy to structure the economy in benign ways. Economic rent has to return to our conceptual apparatus, if the political is to return to political economy. That’s not likely to happen until we become a lot more resistant to the siren song of neoclassical economics and non-starter ideals such as “perfectly competitive markets”.

Still, I find Henry’s optimistic take on Brink Lindsey’s and Steve Teles’ new book, cheering, because it sounds like the theory of the Second Best and economic structure might be making a political comeback.

3

Max B Sawicky 12.02.17 at 10:45 pm

Lot of good stuff in #3. I just want to say that Olson was always at pains to deny any connection between the results of a competitive market and social justice. I had him for micro in grad school (U-Md). He would say that the just dessert view of payments for marginal products went out in the early 20th Century. It might have for him, but like Bruce I am skeptical about its passing in the broader profession.

4

ccc 12.02.17 at 10:51 pm

Has any proponent of “liberaltarianism” specified clearly somewhere the fundamental normative elements of the view?

5

john c. halasz 12.02.17 at 11:39 pm

“The Nation” recently published an article by Lindsey and Teles (why?) that claimed among other things that too high housing prices were caused by local zoning regulations, (an old libertarian bug-bear).

tl;dr, but here’s a link to an article effectively shredding such claims made elsewhere in a more academic formalized way:

https://www.dissentmagazine.org/online_articles/hsieh-moretti-affordable-housing-free-market-fantasy

6

Cian 12.03.17 at 3:54 am

I’d add to that excellent dissent magazine analysis that one of the biggest influences on prices is access to credit. Increasing the amount that homeowners can borrow is a time honored way to increase house prices. Also an excellent way in the long run to increase rent capture by the FIRE sectors.

7

ph 12.03.17 at 4:15 am

My first reactions reading Henry’s piece – were positive. Henry’s lively prose helps, I’m pleased to see some evolution in the positions of Brink and Will, and I’d like to think more people are willing to selectively make common cause with sometimes opponents on certain issues. My take away, however, was ‘not a chance’ for the reasons concisely described by BW in @3, and because the principal actors currently holding the (purse) strings have practically no reason to upset the status quo. I was, however, particularly pleased by BW’s

‘It would be useful if “rent-seeking” could be seen as normal — since it is, in fact, universal — and public policy could be re-conceptualized as using economic rents generated by deliberate public policy to structure the economy in benign ways.’

Convincing the majority (people not making 6 figures) that we lack the wit, the imagination, the resolve, and the willingness to work together is literally the only shackle binding us in voluntary servitude. I’m quite content to work with people I find objectionable, bigoted, and uninformed on issues where we are working to advance our shared economic interests.

Our elites are dedicated to ensuring those earning less than six figures never find common economic ground. Combine Sanders progressives with moderates on the right and we get an economic populism that at least works better. How many other choices do we have?

8

David Weman 12.03.17 at 7:49 am

Bruce Wilder’s comment here is a tour de force.

9

Lee A. Arnold 12.03.17 at 10:58 am

Bruce Wildere #3: “a conceptually impossible behavior when examined closely”

A good intellectual exercise for these authors would be to write three brief abstract definitions: of 1. “capital” (including physical, financial, and human), of 2. “institution” (including business firm, government, and labor union), and of 3. “rent-seeking” (in every possible form). Write each abstract definition as a succinct paragraph. After writing these abstract definitions, then describe to us how the definitions are distinct from one another.

We could also add 4. “platform” (as any sort of efficiency-making arrangement of information or matter-energy, but particularly of electronic information enabling further transactions).

10

Z 12.03.17 at 11:10 am

A very interesting discussion, thank you Henry.

What [Lindsey, Teles, Levy and Wilkinson] are doing is to show how one can draw strong defenses of democracy, and of organizing to push back against power inequalities on the basis of classical liberal foundations.

Well, as Henry writes, that’s indeed worth encouraging but still I wonder: aren’t they maybe a bit late to the party? I mean, I could argue that “defending democracy and organizing to push back against power inequalities on the basis of classical liberal foundations” sounds pretty much like Marx’s program in The Capital and claim that they are precisely 150 years late (by the way, when do we read the CT seminar on Roberts’s Marx’s Inferno, it already has an enthusiastic blurb by one CT blogger after all?), but even if we take for granted (as I do) that we should understand classical liberalism, Marx’s contribution, the marginalist and Hayekian analysis as well as the fact that this latter counterpoint is mainly the West last credible intellectual effort to oppose social democracy (in the broad sense of a democratic State managing a heavily regulated mixed economy as well as a consequential system of social protection), well, we are still discussing ideas which are 70 years old.

To be specific, in 2017, I would think it has become clear that the level of entrenched inequalities (not only economic inequalities, but also political and as I have mentioned here a couple times educative inequalities) is incompatible with democracy safe in a very formal and essentially meaningless understanding of that word. So people have to chose – inequality or democracy – and I really don’t think that tweaking a couple of licensing systems or applying slightly more rigorously the market critique of rent-seeking is nearly enough in terms of social change to countervail the rising and arguably unprecedented concentration of power (Piketty’s style in the case of wealth, but note that an r>g kind of argument certainly applies in the current distribution of educative capital as well).

‘It would be useful if “rent-seeking” could be seen as normal — since it is, in fact, universal — and public policy could be re-conceptualized as using economic rents generated by deliberate public policy to structure the economy in benign ways.’

Like several commenters already, I liked Bruce Wilder’s comment 6. I wanted to note that Bourdieu has a sophisticated discussion of economy precisely along these lines in Les structures sociales de l’économie (well, except he uses his more technical tool of field-specific capital in place of the notion of rent).

11

TM 12.03.17 at 6:07 pm

“Combine Sanders progressives with moderates on the right and we get an economic populism that at least works better.”

Yikes, how many years has that guy you spent living under a rock?

12

nastywoman 12.03.17 at 7:38 pm

For anybody who has to take ”rent-seeking” literally – like ”the rent” a landlord wants in California compared to the rent a landlord in a lot of European countries can get from a ”renter” I would like to ask a questions -(especially being familiar with Dean Baker never giving an answer to the question why in the US homeland ”the rent” in all the ”desirable places” is so damn high – compared to a lot of desirable places in Europe)
Like – for example – all the friends of mine who are renting in California a one bedroom pay about 30 to 40 percent more than our friends who rent the same type of apartment in Italy, France and Germany.

Why is that?
Because Mr. Baker is more to the left than Max Sawicky??!

Or does Mr. Baker own his ”Shelter”?

13

Peter T 12.03.17 at 11:40 pm

I’m increasingly of the mind that little of our existing political thought (including economics) is at all relevant to our situation. Sure, inequality of all sorts is a major problem, but it’s a purely human concern. Darwin’s lesson, that we are just another species on the tangled bank of life, has yet to be absorbed, but the consequences of ignoring it on a global scale (as we have frequently ignored it locally in the past) are happening now.

We currently mostly talk about climate change as a technical economic problem (transition to renewables quickly, problem solved). Throw in CO2 drawdown, invasive species, topsoil loss, habitat loss, diversity loss, excess water usage, nitrogen overload, depletion of marine life. Address all these seriously, and we are looking at a very different economic and political system – one which might – for illustrative purposes – trade less, rule large areas out of bounds for economic use, eschew large-scale farming, treat clear-felling as a violent crime. Whatever it does, it will not be humanocentric, but pantheistic. What political models can we draw upon?

14

Z 12.04.17 at 9:37 am

Peter T @14 As we all know, or should know, and as your list

climate change, CO2 drawdown, invasive species, topsoil loss, habitat loss, diversity loss, excess water usage, nitrogen overload, depletion of marine life.

helpfully recalls, environmental destruction is an existential threat, if not for the human species, certainly for human civilization as we know it. We also all know, or should know, that, as a mean of coordination, free markets based on property rights of the kind we know are deplorably inadequate to provide collective solutions to the environmental challenge. The only other decision mechanism which we have reasons to believe could be efficient is democratic deliberation and democratic coordination. To decide on the concrete implementation of the measures required, a very high degree of cohesion will be required of democratic societies.

This is why I take a somewhat meta-approach on your assertion

Sure, inequality of all sorts is a major problem, but it’s a purely human concern.

Whether inequality is a major problem in and on itself (a point on which I think political and philosophical opinions may, or at least do, differ), I think it is beyond dispute that at their current level, inequalities preclude any collective solution of the kind we require. Seen through this perspective, inequality, in the current context and at the current level, is not purely a human concern and has catastrophic consequences, even if seen as good on itself. It is the major block stopping us from stopping environmental destruction (call this the reverse Naomi Klein thesis if you wish).

15

Jason Weidner 12.04.17 at 2:30 pm

Bruce Wilder, could you elaborate more on this?

“All business enterprise is importantly rent-seeking rather than “profit-maximizing” (a conceptually impossible behavior when examined closely).”

16

bruce wilder 12.04.17 at 4:09 pm

Max B Sawicky: “Olson was always at pains to deny any connection between the results of a competitive market and social justice. . . . He would say that the just dessert view of payments for marginal products went out in the early 20th Century. It might have for him, but like Bruce I am skeptical about its passing in the broader profession.”

MRDA (Mandy Rice-Davies Applies). Or some corollary at least.

The denial that competitive market outcomes are “in some sense” just is entirely conventional among economists. I heard much the same assertion from various teachers. The just desert view of the marginal product theory of wages and other factor (capital!) incomes was denied by John Bates Clark himself and he can thus be credited as one of the originators of the denial as well as the claim. The now rote denial is the basis for the neoliberal formula that proposes policy to “enhance” market efficiency and then achieve ideals of social justice afterwards, “after tax” with redistribution — as I pointed out above, a classic example of an economist’s theory of politics: no lever and no pull.

No economist wants to own up to being a model for Doctor Pangloss and thus an apt figure of ridicule. The Chicago School solved that problem by proposing an elaborate analytic theory of how an idealized market economy would work as a system while acknowledging that the theory was counterfactual: the real, institutional economy was messy and imperfect, but we could “gain insight” about the actual economy and how to improve it by mastering the logic of the Platonic Ideal, while forgoing intercourse with the confusing and contradictory illusion outside the Cave. What economists will own belief in is in the tenets of the textbook theory, well-lit by the light of axiomatic deductive logic, but what they presume and imply in their ideological rhetoric is lost in the shadows of those tenets.

17

alfredlordbleep 12.04.17 at 5:20 pm

Worth an aside
Caught my eye in the Will Wilkinson piece linked above:

And they’re going to get those tax cuts come hell or high water. Right now, it looks for the world the GOP is planning to run up the deficit so that budget rules that automatically reduce entitlement spending kick in. Neat trick! It’s a way to cut Medicare with tax cuts. If congressional Republicans don’t ultimately manage to pass huge tax cuts for rich people on the back of major reductions in entitlement spending, it’s not going to be because they didn’t try.

[emphasis added]

This the first reference I’ve seen to what should be enlivening the populace from sea to shining sea. (At least two of us had noted the obvious)

Instead, say, Ezra Klein in Vox is typical with his moral of debt hypocrisy:

They should imagine their process, their rules, their blithe dismissal of debt and deficits and arithmetic and process, applied to the vast suite of social democratic spending that today’s Democratic Party wants. They should imagine how tinny, how hypocritical, how cynical they will sound when they complain.”

18

L2P 12.04.17 at 9:21 pm

“Rent-seeking is most successful when politics is least deliberative.”

This sounds like the work of somebody who’s never really worked in politics.

There’s a vast number of “hidden” regulations, no doubt. But zoning, for instance? In what sense is that “less successful” when it’s “less deliberative?” Isn’t the very existence of the highly-visible zoning boards in places like Los Angeles and New York pretty clear evidence that “deliberation” isn’t at all relevant?

Or professional licensing? Look at Campos’s blog, for heaven’s sake. There’s no lack of “visibility” in “deliberations” over law practices. The issue is LACK OF EFFING POWER to make changes, because wealth simply dominates the process.

It sounds like this is away to avoid dealing with the real issue (domination of politics by money) by focusing on the irrelevant (“deliberation”).

19

Z 12.05.17 at 12:24 am

Two additional points.

First, from the OP

Baker is […] a neo-classical economist who takes neo-classical intellectual commitments seriously and honestly. […] The logic of perfectly competitive markets is […] a sound basis for a specific critique of power […]What is valuable about Baker’s work is exactly that it pushes this account of the market as realm of maximum ease of entry and exit as far as it can be pushed, and shows that this can lead to surprisingly radical conclusions.

Is this characterization of Baker really correct, though? In the part of his work known to me (e.g The conservative nanny state and the little I have read of Rigged), he starts with remarking that the theoretical statement “Conservative want free markets solutions” should be amended to “Conservative want free markets solutions for other people, and the nanny state for them” at which point the discussion can move in various directions – should progressives want free markets for nobody? for everybody? should it depend? on what? – and it seems to me clear from the conclusions of both his books that his own answer is (to quote him) “the free market is an incredibly powerful force [that should be harnessed] in ways that produce desirable social outcomes […] but there is no policy-free option out there”, conservatives have used it to get them richer, progressives should learn to use it to improve the lives of the poor. That seems correctly quite in line with Max Sawicky’s recommendation “to pry liberals away from their […] faith in the chimera of virginal, competitive markets”.

Second, I’m struck by the resonance between this post and Harrys recent one. There, commenter ccc links to a piece by Mike Konczal which concludes with “At this point we’ve had enough diagnoses how meritocracy reinforces itself, creates an elite detached from and even hostile towards the rest of society, and how it pervades society with a notion of merit that leaves many people behind. Yet […] almost all of the attacks end by prescribing small tweaks to make meritocracy work ever more efficiently. We see a system’s flaws at its core, and we recommend more SAT tutoring classes to paper over it.”

I feel about the same about what I read of Lindsey and Teles’s proposals (this is second-hand so probably unfair). I see the core flaws of an economic system with an inexorably trend towards unsustainable inequalities, and I read about occupational licensing.

20

nastywoman 12.05.17 at 4:14 am

”Is this characterization of Baker really correct, though?”
In the part of his work known to the readers of his blog posts – Mr. Baker lately likes to stress – over and over – the point that there is ”no free market for copy and patent rights” and thusly seems to imply that there is no ”free” market at all – which let US come back back to the real – and not at all theoretical equation why ”rents” in the US are so much higher than (almost) everywhere else.
And as nobody came up with the answer to my question let me answer it myself as I have this ”rentier” in my family who currently makes a lot of dough with the lots of luxury apartments and houses he owns in California – and he is NOLibertarian whatever type – NO – he is a very left leaning and pretty crazy dude – who says:
Why shouldn’t I ”zock” (aka ”gamble”) with rent in teh Casino -(aka ”our homeland”) and be far – far more ”decent” and ”social” in Germany – if the rules of the game in my homeland is ”zocking” -(gambling) and in Europe it’s being a decent and ”social conscious citizen” -(or you can’t show your face in the local ”Lokal”…)

21

bruce wilder 12.05.17 at 4:34 pm

Jason Weidner @ 16

Of course I can elaborate. I am unsure what would be helpful to you.

Profit-maximization is an analytic construct used in the theory of market price under perfect competition to define the production function and thus distinguish allocational efficiency from what might be called technical efficiency. It gets exported to common use where it is an undefined synonym for greed. Economists often do not see how impossible it is to operationalize.

Rent-seeking, by contrast, can be quite local and concrete. I can confidently say that all business is rent-seeking, because all business makes commitments in the form of dedicated sunk-cost investments and fixed costs of operation. Any return earned on a dedicated sunk-cost investment is by definition an economic rent.

In the analytic theory of the production function, the problems of management and engineering for control of production processes are put aside. Systems of control dominate actual business activity though, and things are usually arranged so that owned resources “receive” the residual income. In common-sense terms, a business will tend to manage things so that the resources it owns are well and fully utilized.

That’s a very brief sketch, and so maybe doesn’t make a lot of sense. It is hard to be brief without having a better sense of your priors.

22

nastywoman 12.05.17 at 11:16 pm

AND as Mr. Sawicky said so well:
”But the tail is not going to wag the dog” – as ”the dog” has slowly found out that one can’t have ”Rent Seeking” the way it’s done in ”the homeland” – BE-cause it just leads to too many young Americans sleeping on their parents sofas and then – thanks god becoming Berniebros -(and hopeful NOT Trumpish F…faces) – and that’s the thing – if even them Germans already have realized that EVERYTHING has to be done to avoid that Berlin becomes the same unpayable city than SF – NYC or London – and if in Berlin that type of realization is realized by the so called left an right alike – what sense does it really make trying to figure out if it’s more ore less some ”libertarian” thing – or not…?

23

JBL 12.06.17 at 12:09 am

Perhaps delete comment 1, which is just link-spam? Done, good catch

24

steven t johnson 12.06.17 at 1:51 pm

It’s something of a shock to discover that I too am against Max Sawicky. Something is always wrong on the internet but sometimes the puzzle of explaining why is more entertaining than sudoku. But, perhaps the kinds of wrong at Jacobin (jacobinrag should be a more popular nickname!) should be criticized more often.

To start, so far as “liberaltarianism” goes, if liberals and libertarians can’t get together on fighting drug laws and imperialist wars, then they’re never going to get together on anything less important. I think it is painfully obvious that neither liberalism nor libertarianism are reform projects at all. Liberaltarianism is pretty obviously a proposal for a common grift. It’s not clear who’s supposed to be shilling for whom, but why ordinary decent people should care is a mystery to me.

The thing is, Sawicky studiously avoids this rather obvious start. The phrase “damning with faint praise” is well known, but perhaps “praising with faint damns” should be. Sawicky is like someone criticizing a bank robber’s spelling and grammar in the note he hands the teller. He seems to be a competent thinker, surely he knows what he’s doing here.

Then there’s the specific occasion of this piece, the publication of a book by Lindsey and Teles. Now it seems to me (not an original thought) that it is indeed true that all the informal fallacies are errors in valid arguments. The genetic fallacy is supposed to be dismissal of an argument by (lack of) virtue of its source. The thing is, if the source has a reputation of dishonesty, it is not in my view a fallacious argument. And so much for Lindsey of the Cato Institute.

There is Teles of course. Teles I associate with a book called The Rise of the Conservative Legal Movement. It’s true that this book doesn’t have a long record like the Cato Institute. But, really, anyone who believes the conservative legal movement was ever down has suspect judgment. And by the way, there is even in the title an implication that the conservative legal movement of today is something new, free of the bad features of the old, defeated conservative legal movement have been burned away in the furnace of defeat. I gather Teles’s history is much approved by conservative legal movers. How could this be surprising, rather than suspect?

Then there’s Max Sawicky’s acceptance of the terms of debate, particularly in the notion of “rent-seeking.” Sawicky happens to mention quite a few forms of economic activity that count as rent-seeking, except of course buying land and erecting buildings and collecting rents. There some blather about rent-seeking starting with a market imperfection. Actual rents seem to me to start with the fact that they aren’t making any more land. Nature has granted the owners of land, whether topsoil or minerals or mere location, a monopoly.

If rent-seeking is taking advantage of a market imperfection, then this natural monopoly must be one. That the limited size of the planet enters economics as an imperfection of an ideal to me is a powerful suggestion that there is an astonishingly other-worldly cast to economic thought. But as noted before, rent-seeking as an economic sin does not include seeking actual rents. I can only conclude this is because Sawicky et al. know perfectly well that rent is a use of property, but property is not deemed a market imperfection. Whether this idea is leftist is the reader’s call.

Personally I would think that if one wanted to use the term rent-seeking in any sensible way that it should mostly be reserved to things that one can actually rent out, or take to the bank and use as collateral, or sell, all the things you do to make a profit, in order to leave it all to an heir. Obviously things like trademarks, copyrights and patents as well as land can be treated in this fashion. As their example shows, including legal monopolies as well as natural monopolies, is therefore a reasonable extension of the term.

But Sawicky tells us “Manipulating tax rules, subsidizing industries, and setting protectionist restrictions on imports are all examples of rent-seeking.” Subsidies and protection may indeed count as rent-seeking. As it happens, they may also promote capital formation, albeit in private hands, with long term benefits to the people as a whole. Or they may not, depending on the vicissitudes of capitalist economy and partisan politics/clientelage. It’s not perfectly clear that rent-seeking that leads to economic development is an evil.

As for manipulation of tax rules…look, a progressive or graduated income tax is manipulation of tax rules. No, it is not good enough to just blast “rent-seeking.” A pejorative is not an analysis. Sawicky concedes far too much ground to this prejudicial nonsense. My thought is that the true market imperfection is unregulated monopoly, which is so far as I can tell the very opposite of what economists howling against rent-seeking believe. I can’t tell whether, or why, Sawicky would disagree! Regulation of monopolies can do harm, of course. But so can any sharp-edged tool. Yet the world has not found it possible to dispense with saws and scalpels and lathes.

Sawicky all writes, “So too are trade unions, minimum wage legislation, rent control, and in-kind benefits to the poor, such as food stamps.” If a collective bargaining contract constitutes a market imperfection, then liberaltarians are enemies, not welcome allies if they know their place (which appears to be Sawicky’s real point.) Minimum wage, rent control, in-kind benefits are effectively price controls. One may argue that price controls are inherently evil because they interfere with the workings of the market. But that position would also make liberaltarians enemies not junior partners. One might argue that price controls are inherently limited in their effectiveness, but that’s a left criticism in my opinion, not one of Sawicky’s.

Sawicky continues “The appeal of this focus on rent-seeking stems from the notorious rise in inequality and the stagnation of economic growth. Presumably, the former is of interest to the Left, while the latter is of interest to the Right. (Of course, there is left support for economic growth, but it’s conditional.)” There was recently a book, called The Great Leveller, which surveyed inequality through history as best the author could, and what lessened it. As pretty much everyone might expect, the conclusion was that pretty much the only thing that really did the trick was either societal collapse of one sort or another, where everybody got leveled, or revolution.

Now the thing about being a socialist, like Jacobin, as opposed to being an evil communist, is that you don’t really believe in that nasty revolution stuff. I say that the only thing worse than a revolution is not having one, but that’s me. Sawicky’s is saying we might be interested in an ineffective policy? I can’t think of any good reason for that.
The notion that rent-seeking has impeded growth is I think dubious. Sawicky agrees, which is gratifying, though I think he could have been more upfront about how shady the whole idea is.

But it’s Sawicky’s idea that it was the Right that is interested in growth and the Left that is interested in equality that was the intolerably wrong thing on the internet. Growth is never an interest of the Right. Profits are the interest of the Right. Restricting growth to profitable enterprises is almost the definition of a Right in an industrial economy. (See Xi Jin-ping.) Growth, an increase in consumption for all people, is always a Left desideratum. . Even with his qualification Sawicky tacitly, wrongly, endorses the false idea the Right is interested in growth.

On the contrary, it is the Right that is interested in inequality, in more of it, more inequality in property, in income, in power. It is the Left that wants growth. The so-called Leftist who wants inequality reduced (though not significantly) but doesn’t really want growth wants to reform the system. I think the Left attitude toward growth is that you don’t define growth by the standards of the owners, that it includes the environment for all people, that it includes cultural amenities, that the inequality of ownership of property in the means of production is a barrier to growth, not the prerequisite. But that’s me.

Much of Sawicky’s article is rebutting some of the crazier claims of Lindsey/Teles, and highlighting their strategic omissions. This part is fairly good. (I would add that tenure is a form of licensing; that licensing of physicians forgets the large number of foreign physicians plus the massive growth of other licenses such as physicians’ assistants, nurse practitioners and midwives; that licensing of lawyers does not have any perceptible effect on determining the income of lawyers, which seems to be determined in much the same way as the income of clergymen; that the price of commercial real estate must be a factor in housing prices, not just rent control.)

The really horrifying thing about Sawicky’s deep seated reformist, i.e., capitulationist, ideas is that they are so typical of Jacobin. To be fair to him personally, but severe on Jacobin, his is one of the better articles! On the very same page, as of writing, where Sawicky’s follow up is posted we see an article asking “Why Do So Many Leftists Defend Robert Mugabe?” I doubt this is a fact, for one thing. But the article starts off by flatly denying that Mugabe was a revolutionary. Of course Mugabe was a revolutionary, a figure in the defeat of the English colonial empire in Zimbabwe.

And although the article denies he was a socialist revolutionary, of course he was. The thing is, like Jacobin, his socialism does not really include the overthrow of capitalism. Actually the notion buried in there is that either bourgeois democracy will lead to Jacobin’s parody of socialism, barring the evil men like Mugabe. Or perhaps Africans are just held to a stricter standard. Then of course the article continues to attack China, in support of Western imperialism. Mugabe wasn’t much, but Mnangagwa is manifestly worse. The author of this tripe apparently knows this, but selectively blackening Mugabe serves at this moment to support Western imperialism. Sawicky’s few good points are nothing by comparison to stuff like this.

25

nastywoman 12.06.17 at 5:48 pm

”I say that the only thing worse than a revolution is not having one, but that’s me.”

– not only you – but also all these really ”great Americans” with those red hats.
And did you miss that ”revolution” – and if you didn’t – will you also put the sign:

Protect me from what I want –

above your computer?

26

alfredlordbleep 12.06.17 at 5:57 pm

@20
California landlords, at least those who got in at the right times, aren’t really “gambling” in a “casino”. Per L2P @18 “domination of politics by money” is truer here. (The gamble is, of course, some very large event that takes “everybody” with it)

California Proposition 8 was originally proposed for the benefit of owner-occupied housing but was piggishly fought by commercial interests to the triumph of Prop 13 and the abiding love of landlords. This “abatement” of property taxes applies across the board while rent control is very local, if at all. Furthermore, commercial interests have ever after played games with what is a transfer of title (what is a sale) to block reassessment at current market valuations (in Ca. usually higher:-) ).

As for ”the homeland” if n****woman’s family tension (family feud?) reaches a break—
this just in:
Thoughts into Action
Lenin is an obvious example of a revolutionary offspring from a wealthy family. Even so perhaps Liudmila Volkenstein or Vera Figner (1842-1952), both Russian revolutionaries hailing from wealthy aristocratic families, are better models. The latter seems to be an inspiration for Oscar Wilde’s first play, Vera or The Nihilists (1883). (For CT purposes, n****woman, you are now dubbed a Baroness, if not a Bolshevik—just kidding)

27

nastywoman 12.06.17 at 11:04 pm

@26
– and I always thought that gambling with real estate was invented in California? –
(and Nevada) –
BE-cause where else could you have seen a ”flipping winning” of 30 to 40 percent in just one year -(before the collapse of 2008) – and that’s what I meant – while besides in Spain – Ireland and London – the joy for gambling with apartments and houses wasn’t as customery in countries where ”the people” consider their ”shelters” more of a… shelter one shouldn’t gamble with – and that’s what I meant – as in ”the homeland” rents lately tend to consume a lot more than the ”once upon a time” civil 30 percent an average American had to spend for his ”shelter” -(and could afford) – and as in the real desirable places (California) some rents approach 50 to 60 percent of a renters – or a whole family income – that’s for sure going to be the next ”terrible thing” we will have overlooked – and so I always tell the landlords in my family try to be decent people and NOT greedy a…holes – but what can we say for the future if such a…holery will give America another Greed is Great Superboom?

28

steven t johnson 12.07.17 at 2:26 pm

Max Sawicky’s enabler Bhaskar Sunkara via a falsified history of the tragic Bolshevik Revolution has confirmed Jacobin’s commitment to Kautsky and Martov in preference to Communism. (And in favor of the likes of Morris Hillquit, Victor Berger, Norman Thomas and Michael Harrington, though diplomacy—and ignorance?—forbids making this clear.) Although Kautsky and Martov died ignoble failures, justly ignored by all, men whose ideals were gone with the wind, like “Gone With the Wind,” there’s nothing enough nostalgia can’t save, with sufficient dishonesty, therefore, Sunkara!

I thought it particularly notable that Sawicky’s great error about the anti-growth “Left” he espouses in lieu of the Left, emerges in one of Sunkara’s sleazier ploys. Sunkara falsely posits that NEP could have been fixed by concessions to the peasantry, deliberately ignoring the fact that those modest concessions would have restricted growth. He does this so he can pretend that Stalin started all the evil doings.*

I don’t know whether Sunkara thinks Hitler was a response to Stalinism, so, no Stalin, therefore no Hitler. Or whether Sunkara thinks that it was only Hitler who would have started WWII, though one wonders where WWI could possibly have come from, that it was Hitler who invented the drang nach Osten. But I’m pretty sure that, like China Mieville, Sunkara sees the defeat of the German Revolution as a bullet dodged. The rightists have never forgiven Stalin for Hitler’s defeat.

If one imagines NEP continuing in some fashion, yet providing a foe to Hitler (unlike the UK, France and the US,) then one imagines something like Deng. Deng, who launched a pointless war against Vietnam to curry favor with the West, and its banks. Sunkara is an enemy of China, so again, he is the kind of Sawicky “Left” who doesn’t support growth. Of course, Sunkara/Jacobin support market socialism. This might seem to be a conundrum until you remember that Sunkara and Jacobin are just loons with illusions about bourgeois democracy slowly reforming into true socialism.

*Sunkara also tacitly assumes that the periodic famines that assailed Russia should have been instantly abolished on November 7, 1917, because. And that there wasn’t any drought or famine, regardless of natural history, because like all rightists, Sunkara/Jacobin believe that all famines are made by socialists.

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