The Material Power of Ideas and Knowledge

by Henry on January 22, 2019

Attention conservation notice: long (nearly 5,000 words long) essay on the economic power of ideas. To its credit, the questions discussed are plausibly important. To its detriment, the arguments are less arguments than gestures, and the structure is decidedly baggy.

For the last couple of weeks, I’ve been wanting to write a response to Aaron Major’s (paywalled) article on ideas and economic power for Catalyst. Now there’s a second piece by Jeremy Adelman in Aeon on Thomas Piketty and Adam Tooze. I think they’re both wrong, but in different ways. Major’s piece suggests that economic ideas don’t really matter very much – it’s the economic base, not the superstructure that’s doing the work. Adelman, in contrast, think that ideas are super important – he just thinks that Piketty and Tooze have ones that are leading us in the wrong direction.

These arguments come from radically different places, but they have one thing in common. They both substantially underestimate the role that ideas have played in getting us to where we are on the left, and what they they’re likely to do for us in the near future.

Before the argument proper, something that ought to be obvious, but may not be to everyone. That I disagree with both writers is emphatically not to say that their writing is useless. We’re living in a good intellectual moment for the left, despite, and perhaps in part because of, the shitty material conditions. The reason I’ve been itching to respond to Major is because it’s an important argument to get going – and the flourishing of new small magazines and websites on the left that permits this kind of argument is something joyous and wondrous to behold. And another caveat: I’ve a dog in this fight. I’ve written on ideas and economics in the past. I also have a collaborative project with Mark Blyth, who’s the main person that Major is picking a fight with, which has been hanging around in our Dropbox folders for the last couple of years, but may still sometime see the light of day.

Do ideas matter?

Major argues that they don’t matter nearly as much as you might think. This means that a lot of recent work focusing on economic ideas leads us in the wrong direction.

And yet, though motivated by a genuine concern for the damage that neoliberalism has done, building a critique of neoliberalism through an idea-centered framework is both politically disarming and reinforces pernicious aspects of the neoliberal project. One of the recurring points that emerges from a close reading of idea-centered accounts of political and economic change is that the materialist social context — the structure of social divisions formed along economic lines and the way power is distributed across those divisions — exerts a great deal of influence over both the content of ideas as well as their relative influence. The neoliberal political-economic agenda, like others before it, advances through a favorable balance of social forces while simultaneously trying to obscure the role that power and material advantage plays in its success. If the strength and resilience of the elitist, pro-capital, and dehumanizing policies and practices that are often summarized as “neoliberal” is reduced to, or primarily explained as, the impact of ideas, and those ideas are not grounded in the balance of material forces that gives them shape and influence, then one can easily walk away with the impression that the solution to neoliberalism is found in intellectual debate and critique, and not what is really needed: political mobilization.

Here, in particular, he focuses on the work of Mark Blyth:

 

Mark Blyth’s Great Transformations helped spur the recent surge in idea-centered political economy and so serves as a useful starting point for this discussion. Like other political economists, Blyth argues that transitions from one political-economic era to another are caused by deep, punctuated crisis. However, whereas realist political science imagines perfectly rational actors approaching a crisis like any other problem to be solved, Blyth questions this basic premise. Political actors are not rational, he argues, but rather rely on prevailing norms and ideas to serve as a kind of “instruction sheet” that they follow. During moments of crisis, dominant models of economic management fail, leaving political actors grasping for some way of understanding the nature of the problems that they face and means to address them. This opens the door to once-sidelined experts and intellectuals to chart a new path forward by writing a new, workable instruction sheet.

Major respects what Blyth is doing – but thinks it is nonetheless misconceived.

 

To make a strong ideational argument stick, it is not enough to show that some ideas mattered for some social or policy change. Rather, one has to be able to support two additional claims. First, that the formation, circulation, and debate over different policy ideas can be explained independent of other material forces. Materialist political economy, from which Blyth is trying to break, does not deny that economic policymaking has an important ideational component of the sort that Blyth describes, but it also insists that material social factors play a powerful agenda-setting role, limiting the scope of policy debate. Second, a strong ideational argument needs to be able to explain why one set of ideas beat out other, competing ideas in purely ideational terms. A strong ideational argument suggests that the victory of one idea over another can be explained by the character of the idea itself, not by the power or position of the actors who champion it. … Great Transformations falters on both counts. … What Blyth’s account … reveals, though he never addresses it explicitly, is that the ideas that framed early New Deal policy innovations were themselves shaped by the structures of US industry and agriculture and the strength of competing economic classes. It is because US labor was organized and militant that the Roosevelt administration sought an economic program that would forge an alliance with the working class. The political capacity of social classes not only affected which policies worked, and which policies failed — it also affected how policies were crafted and which ones were advanced. …Blyth’s more recent Austerity: History of a Dangerous Idea is marred by the same analytical unevenness … the book is hamstrung by the insistence that the story of austerity can be told as a history of ideas. … Taken as a whole, Blyth’s work points to a critical challenge that scholars have faced in trying to make idea-centered arguments for political and economic change stick, and that is explainingidea selection. Rarely does anything of historical significance happen without heated debate, and the turn to neoliberalism is no exception. Margaret Thatcher may have successfully exported her pithy, dismissive “There Is No Alternative,” but her numerous opponents begged to differ. Sides are formed, measures are proposed, and rationalizations are given. But who wins? Blyth’s own accounts of major policy change highlights critical moments in times of crisis when state elites were grappling with competing ideas, but neither Great Transformations nor Austerity can really explain why some ideas went on to shape policy and others found their way into the dustbin of history.

If ideas matter, whose ideas are the right ones?

Jeremy Adelman’s take is very different. He believes that ideas (or, to use his own term, ‘narratives) can play an important role in politics. The problem is that the ideas that the left provide, are the wrong ones. We need more Hirschman.

Our big narratives were once capable of more nuance than the pendular swing from euphoria to dysphoria. For every 18th-century Enlightenment story of hope, there was a shadow of decline; in the 19th century, liberals had to joust with conservative and radical prophets of demise. Some even saw crisis as an opportunity. Influenced by Karl Marx, the Austrian economist Joseph Schumpeter in 1942 made a virtue out of ruin. There could be something creative about bringing down tired old institutions. The late German-born economist Albert O Hirschman thought of disequilibria as a potential source of new thinking. In 1981, he distinguished between two types of crisis: the kind that disintegrates societies and sends members scrambling for the exits, and what he called an ‘integrative crisis’, one in which people together imagine new ways forward. Witnessing the catastrophes of the Great War and the rise of fascism in Europe imparted to Schumpeter and Hirschman a certain style. In spite of the horror and gloom of the 1930s, the Second World War had also prompted the hope that crises could be righted and societies could pull out of tailspins.

and less Piketty and Tooze.

The end of the Cold War in 1989 marked a break in the storytelling habits of global integration. Without rivalry from the East or challenges from the South, the big narratives of progress got flattened around a single plot. Talk of a new world economy gave way to the Washington Consensus; socialist integration lost its age-old appeal. … the power of flat-world storytelling asphyxiated the nay-sayers. That is, until a financial crisis, the spectacle of crumbling glaciers and scenes of an Arab Spring gone horribly awry ended the triumphalist bender. Suddenly, the euphoric style gave way to a chorus of dysphoria. …Now, even the most sophisticated stories about capitalism and democracy see the two as threatening to part ways. The French economist Thomas Piketty’s Capital in the Twenty-First Century (2013) put the spotlight on the vice of inequality and slow growth. … Crashed: How a Decade of Financial Crises Changed the World (2018) by the British historian Adam Tooze also leaves a sinking feeling: the 2008 crisis couldn’t even fail right! Instead, it left the world awash in more debt and concentrated economic power. Piketty and Tooze didn’t set out to explain how humanity climbed onto the doomsday treadmill. They do, however, contribute to a gathering impression of a new normal, one in which disaster becomes the default, and unequal, sluggish growth – the rule.The final section of Piketty’s book details feasible correctives to market fundamentalism. Despite the progressive vacuum that handed governments around the world to Right-wing nativists, Piketty’s discussion of possible reforms didn’t generate much discussion. If Schumpeter’s work pointed to crises as opportunities for movement and progress, Tooze tells the story of an establishment refusing to learn from the crisis it made. The real failure then of that financial mayhem was that its makers couldn’t see how their heroic story of decontrolled Homo pecuniaria was responsible for the crisis – and instead compelled bystanders and taxpayers to pay the price.

The result is that the nationalists are winning.

Piketty and Tooze are right about structural features of inequality and how the makers of catastrophe became its beneficiaries. But we also need to see how the consensus of catastrophe that straddles the ideological spectrum – but grows more dire and menacing as one approaches the extremes – favours the politics of the strong man glaring down the nation-doubters. The alternative is not to be wistful about flat-world narratives that find solace in technical panaceas and market fundamentalisms; the last thing we need is a return to the comforts of lean-in fairy tales that rely on facile responses to a complicated world. To learn from collapses and extinctions, and prevent more of them, we need to recover our command over complex storytelling, to think of tensions instead of incompatibilities, to allow choices and alternatives, mixtures and ambiguities, instability and learning, to counter the false certainties of the abyss.

Ideas and the new left

Obviously, Major and Adelman are coming from very different places. Major’s approach is closer to that of classical Marxism – to focus on the intellectual debate is to miss the actual power dynamics. Adelman instead seems to suggest that storytelling plays a crucial, and perhaps even determinative role in shaping economic politics. Yet each is a different reason for intense skepticism about the role of ideas currently floating around the left. Major would think that they are primarily a reflection of underlying material conditions, while for Adelman, they are leading us onto a path of gloom and structural pessimism.

One way to think about whether ideas matter is to look at the resurgence of the left that Major and others are part of. As already noted, I’m mostly on Blyth’s side on the question of whether ideas are important, although my loose work-in-progress with him is intended to address some of the deficiencies that Major identifies (we are pushing to develop a “materialist account of how economic knowledge is changed or transmitted,” looking at the specific networks through which ideas spread, and the role that power relations can play in diffusion). What I think Major misses is that coalition formation – which as he notes is at the core of Blyth’s argument – is playing a crucial role in the development of the modern American left, and that ideas are playing a key role in shaping that coalition, just as Blyth would argue.

More specifically: the new American left is specifically associated with ideas such as Abolish ICE, the Green New Deal, and a 70% tax for the super rich. But what is notable about these ideas is not that they are wonkish and programmatic. They aren’t intended to provide policy makers with a detailed list of all the things that need to be done to accomplish a specific set of generally desirable objectives. Instead, they have been crafted (I suspect pretty deliberately, though as always with these things, not as part of a grand master plan but as strategies that might or might not work) to build coalitions.

Abolish ICE, for example, was in part crafted to define ICE and to make it toxic. Equally though, it was likely intended to create a sharp dividing line within Democratic party politics, forcing politicians who would otherwise have been tempted to fudge their position to get off the fence. It was never clear precisely what abolishing ICE meant in practice. Getting rid of internal immigration raids in general? Subordinating ICE to the rule of law, sort of, by integrating it into the DOJ? But asking for policy specificity is asking the wrong question, By casting broad opposition to ICE as a make-or-break issue, the slogan reshaped the coalitional dynamics within the Democratic party, making it substantially harder for centrist Democrats to prevaricate, and pulling the debate within the Democratic party significantly to the left.

The Green New Deal is similarly broad. As David Roberts describes it:

the exact details of the GND remain to be worked out, but the broad thrust is fairly simple. It refers, in the loosest sense, to a massive program of investments in clean-energy jobs and infrastructure, meant to transform not just the energy sector, but the entire economy. It is meant both to decarbonize the economy and to make it fairer and more just. But the policy is only part of the picture. Just as striking are the politics, which seem to have tapped into an enormous, untapped demand for climate ambition.

Again, as Roberts is suggesting, the driving force of a Green New Deal is not to provide thousands of pages of detailed reports about how to implement a new deal that is green. It’s supposed to build a coalition, and start to fracture the blocking counter-coalition. The policy can come later – the politics comes first.

Finally, and most recently, the proposal that Alexandra Ocasio-Cortez has made for a 70% marginal tax rate should also be read in terms of coalitional politics. There have been various spluttering and indignant responses that the base rate is very often less important than the loopholes, that what matters is income from investments and so on. All of these criticisms are undoubtedly correct – but also largely irrelevant. What Ocasio-Cortez is doing is not putting forward a bill, but introducing an idea into the policy debate that appeared (and still appears to some) to be crazy and impossible, and to shape a new political coalition around it.

Major is absolutely right to argue that the fight over ideas is heavily skewed by wealth and power. But his argument tends to overlook the ways in which ideas do play a key role in building coalitions. The possible coalitions that are coming into focus are to a very significant degree a product of the specific ideas that they are being mobilized around.

The idea of the Green New Deal obviously points towards a coalition between people frightened about global warming, and people motivated by inequality, and willing to have a government spend large amounts of money to rectify it. But it isn’t the only plausible or possible coalition – with different ideas, different coalitions would, and still might, emerge. As Major says, neo-liberalism didn’t spring fully armed from the foreheads of Friedrich Hayek and Milton Friedman. It was to a very significant degree the product of the business coalitions that took Hayek and Friedman’s ideas up. But again, had the motivating ideas of the entrepreneurs been different, the coalitions that emerged would have been different too. I take this as one of the lessons of Slobodian’s book, which Major rightly talks a lot about. Ideas don’t emerge in a vacuum, but they interact with policy processes in messy and complicated ways, creating policy coalitions that can’t simply be read from a set of structural economic constraints.

So in short, it seems to me to be hard to understand the new American left without paying attention to ideas, and in particular to the ways that the ideas are shaping coalitional dynamics. Ideational entrepreneurs such as Sean McElwee and Alexandria Ocasio-Cortez are playing a very important role in shaping the coalitions that are emerging, and if different figures, with different ideas were there, the coalitions that would emerge would be different, or that they might not emerge at all. Furthermore, I think both of them are playing a sharp game where they are using other people’s intellectual capital to their advantage. As I discuss below, there are many economists who think that high marginal tax rates are plausibly a very good idea. That makes it much easier for Ocasio-Cortez to push her 70% proposal – and to get it taken seriously – than would otherwise be the case. The game of ideas may be rigged as Major argues, but sometimes you can win even in rigged games.

And besides it’s fun to suggest that Sean McElwee may be the Friedrich Hayek or Walter Lippmann of our times, if only to provoke and annoy both Sean’s fans, and Hayek’s.

Ideas and big structures

Adelman in contrast, thinks that ideas and narratives are super important, but that we want different ones than the left is providing. Specifically, he suggests that both Piketty and Tooze give us dystopian futures in which nothing could change. I think he’s wrong here. This misunderstands what Piketty and Tooze have written, and how their work has been taken up.

The weakest part of Adelman’s essay is his suggestion that Piketty provides a “dysphoric” account of world politics. As he has to note, Piketty does indeed identify “feasible correctives” to the trends he identifies. It would hardly be Piketty’s fault if these correctives were not what people had chosen to pay attention to in his book. But Adelman both underestimates what Piketty is doing, and misses how Piketty’s work (in collaboration with Saez, Zucman and others) is having practical consequences. There is a very real sense in which Piketty’s entire book is a bet – that revealing the structures of inequality will help build the politics to correct it. To recapitulate an argument from our colloquium with Piketty a couple of years ago:

Piketty is an economist, but his contribution is better understood in sociological terms. … We live in a technocratic age, which among other things means that the kinds of knowledge that appeal to technocrats, such as high quality statistical data, are likely to appear legitimate in ways that other kinds of knowledge are not. Piketty and his colleagues have engaged in slow, patient work, the boring of hard boards, building high quality data sets that appear to confound the previous technocratic wisdom that we didn’t need to worry about inequality. This makes a vast and important social phenomenon, that might otherwise have been partly obscured, visible, salient and socially undeniable. … [this] helps explain Piketty’s policy prescriptions, some of which are proposed not so much to solve the problem of inequality, as to help generate the kinds of politics that might solve the problem. Piketty’s entire project could be seen as a bet – that generating increased knowledge about the actual shape of inequality will help generate the kinds of politics that can successfully address inequality. His careful gathering of data and his ingenious search for proxies where data is available (e.g. using publicly visible data on the performance of university endowments as a proxy for the returns to capital available to the merely ordinarily rich and the super rich) all try to cast light on what was invisible and occluded. So too do his policy proposals.

These ideas, and the knowledge they have generated are among the enabling conditions for Ocasio-Cortez’s proposal for a 70% marginal tax rate on people earning more than $10 million a year. The work that Atkinson, Piketty, Saez and others did to show the radical redistribution at the top of the income distribution did indeed make visible what was before occluded. Ocasio-Cortez’s proposal is reminiscent of earlier arguments by Piketty, Saez and Stantcheva, as well as other economists suggesting that high marginal tax rates are entirely feasible. Not only are Piketty’s and his colleagues’ arguments not dysphoric – but they are contributing to a practical and important agenda for economic and political reform. And these economists are looking to keep contributing to this agenda. Saez and Zucman argue in the New York Times today that:

Alexandria Ocasio-Cortez has kick-started a much-needed debate about taxes. … But that’s not the fundamental reason higher top marginal income tax rates are desirable. Their root justification is not about collecting revenue. It is about regulating inequality and the market economy. It is also about safeguarding democracy against oligarchy. … But that’s not the fundamental reason higher top marginal income tax rates are desirable. Their root justification is not about collecting revenue. It is about regulating inequality and the market economy. It is also about safeguarding democracy against oligarchy. … Progressive income taxation cannot solve all our injustices. But if history is any guide, it can help stir the country in the right direction, closer to Japan and farther from Putin’s Russia. Democracy or plutocracy: That is, fundamentally, what top tax rates are about.

You may, of course, disagree with this diagnosis – but it seems squarely aimed at confronting the problems of our current politics and economy rather than treating them as an inevitable plunge downwards into stasis and dystopia.

A similar case could be made for Tooze’s book (which is very, very good). Tooze is indeed looking to diagnose the politics of the crash, and he does indeed argue that the people who worked against it failed to learn the lessons that they ought to have. But that is only one part of his argument.

Another is to spur financial historians (and others) to better figure out the complexities of the international financial system, so as to properly understand both the forces that led to the crisis, and to better understand the politics that we need to respond to it. He doesn’t merely argue that the Establishment learned nothing. Instead, he’s trying to start mapping out a global architecture that no-one – including the Establishment – understands particularly well. The birth of the Eurodollar system; the creation of a financial governance regime in which the US Fed became an effective global backstop; the backwash of macroprudential systems for democracy in Eastern Europe. The message that we are supposed to take from his account is not that there is Nothing to Be Done – but that we’d better start to map out what is going on before we start deciding what our options are. The strong implication of his work is the need for a better, more intelligent, but globally focused left, rather than one that thinks it can retreat back to the nation state (this is surely at least one of the motivations for his acidulous running battle with Wolfgang Streeck).

In that light, this remarkable essay from a couple of days ago deserves further attention. Tooze’s concern is precisely with the question of how to tell a politically useful story about the economic crisis and the forces that produced it. He worries in passing that his own account wasn’t “dirty” enough, but also makes it clear that we need to understand the structures of the world economy.

One can flout Hayek by delving into the depths of governmental machinery as Brett does so brilliantly. One can strip the magic from capitalism (entzaubern) by exposing its seamier side and the sheer grubbiness of deal-making. But we also need to defy Hayek’s insistence that the economy cannot be represented or made calculable, his Bilderverbot (the Mosaic ban on graven images). For all their many inadequacies, we must cling to the macro- in macroeconomics and macrofinance. If what we are after is an understanding of the complex forces driving the uneven and combined development of the global economy, there is no alternative.

In other words, his project is not dissimilar from Piketty’s (and closer yet to Gabriel Zucman’s inquiry into the global politics of tax havens). It’s an effort to render visible what has been occulted, and (although he doesn’t state this explicitly), to use this new knowledge to build a better politics.

Adelman’s complaint is that both Piketty and Tooze fail to provide “complex storytelling, to think of tensions instead of incompatibilities, to allow choices and alternatives, mixtures and ambiguities, instability and learning, to counter the false certainties of the abyss.” Leaving aside the question of whether ambiguities and complexities are inherently good things, I just don’t think that it’s true that either Piketty or Tooze fail to pay attention to the tension between constraining structures and what can be done. Indeed, some version of that tension is the main force that animates their books. Both, furthermore, are laying a bet on the value of generating knowledge and ideas as a path towards a better politics. It’s clear that there’s a political movement that is making practical use of Piketty’s ideas. There isn’t one yet that is trying to really grapple with the macro-forces that Tooze is trying to identify. But it wasn’t at all clear three or four years ago that there would be a groundswell for a 70% marginal tax rate in the US either.

Ideas and politics

As it said on the label, this is a baggy essay, which tries to argue against two different takes on ideas, more because they are both currently on my mind than because they are organically connected. But there is an underlying if mostly implicit theory of the unsatisfactory relationship between knowledge, ideas and political efficacy beneath it.

On the one hand, academic knowledge can indeed matter to politics – but only when it is taken up and transformed by political actors. Thus, for example, the work that Piketty and others did on inequality may help to spur political change, but it will do so only if the idea that it has been transformed into spurs the formation of an effective coalition. We don’t know if it will – but we can be sure that if it does, that the coalition will form around an idea that will be far cruder (simple ideas are easier to rally around) and vaguer (imprecision helps broaden the coalition) than the knowledge that it builds upon.

On the other, for closely connected reasons it is very hard to say in advance what knowledge will matter to politics, and how it will matter. Most notoriously, a rigid account of the inexorability of structure can be adapted into theories of revolution and radical change. Complaining that a particular set of academic arguments only reinforces our sense of political helplessness is probably not (unless it is a very crude set of arguments indeed) a good basis for critique, since the uses to which it may be put by astute political actors may be unexpected, in ways that escape your pessimistic interpretation. In any event many, and even most good academic arguments can be read in multiple politically contradictory ways. Really good ideas rarely map onto politics in simple or straightforward ways (another reason why they have to be simplified to be made effective).

[lightly updated and typos fixed]

{ 45 comments }

1

Lee A. Arnold 01.22.19 at 8:41 pm

In pursuance of knowledge that ought to matter to politics, I am constructing a video playlist that is meant to play automatically as a single continuous story, as if each one were a single cut in a longer movie. Not sure anyone has done that before but anyway… Here are the first nine. The first few are necessarily introductory but I think that by the latest one you may be able to see where it is going. I am a little hesitant to publish them now but some reactions may help me to polish it up. The individual videos may be switched out as I polish them or make emendations, but the playlist link itself will be stable.

2

Donald A. Coffin 01.22.19 at 8:47 pm

I’ve just started reading this essay, and I’ll get back to it in a moment. But I interrupred my reading to quote the closing lines of J.M. Keynes in The General Theory of Employment, Interest, and Money, lines that have been variously taped or pinned to the wall over my desk since I was in grad school nearly 50 years ago:

“But apart from this contemporary mood, the ideas of economists and political philosophers, both when they are right and when they are wrong, are more powerful than is commonly understood. Indeed the world is ruled by little else. Practical men, who believe themselves to be quite exempt from any intellectual influences, are usually the slaves of some defunct economist. Madmen in authority, who hear voices in the air, are distilling their frenzy from some academic scribbler of a few years back. I am sure that the power of vested interests is vastly exaggerated compared with the gradual encroachment of ideas. Not, indeed, immediately, but after a certain interval; for in the field of economic and political philosophy there are not many who are influenced by new theories after they are twenty-five or thirty years of age, so that the ideas which civil servants and politicians and even agitators apply to current events are not likely to be the newest. But, soon or late, it is ideas, not vested interests, which are dangerous for good or evil.”

3

alfredlordbleep 01.22.19 at 11:39 pm

Lee A. Arnold’s @1 is very useful. I have been interested in the power of visualization and politics for a long time—from political cartoons and animation to using television/video for something like its full power.

Somebody like John Holbo, for instance, seems a natural for deploying political cartoons to blow up the status quo. In a beneficial way, of course. (to be continued)

4

likbez 01.23.19 at 6:50 am

I would also say ideas like people age and gradually become irrelevant no matter how strongly they are propelled by the power of the state and MSM. When neoliberalism became the object of jokes, it is clear that its time has passed.

Neoliberal ideology experienced a severe crisis in 2007 and was by-and-large discredited.
But Neoliberalism as a social system is resilient and can continue to exist for some time even after ideology itself was discredited. Probably 30-50 years, if we think that neoliberalism is a perverted flavor of Trotskyism (Financial elite of all countries unite; Permanent neoliberal revolution until the global victory of neoliberalism) and Bolshevism lasted 50 years after the crisis of its ideology in early 60th.

so I think that neoliberalism entered its “zombie phase.” It became more bloodthirsty, aggressive (look at Trump) and even managed to stage revenge in Argentina and Brasil deposing less neoliberal governments with hardcore neoliberal.

But ideas age and die like people and in 2019 the ideas of neoliberalism are essentially dead. So now it is clinging by the pure power of propaganda and coercion. That is the road to nowhere, and I expect this neoliberalism position in the USA will be further undermined by-elections of 2020. Maybe tax regime will start to change to byte top 1%, and maybe there is be local and quickly suppressed insurrections/strikes, like in France; I do not know. But with the level of inequality intact, the cracks might widen.

Degeneration of the neoliberal elite (Trump, Pelosi, Schumer, Pompeo, etc.) is another obvious problem. Filters work in such a way that capable (and this potentially dangerous to the system) people are eliminated at early stages of political selection. That might s danger for the USA is not so distant future as a viable, cohesive society and currently, the Congress really reminds Soviet Politburo. Bunch on Mayberry Machiavelli.

At least in Australia politicians started openly discuss alternatives. Here in the USA, there is dead silence. That means that the Congress is a part of the problem, not a part of the solution.

Another problem is with the level of militarism in the USA society. The size of MIC is a huge problem and like cancer is curable only by surgical means. The fact that politicians are arguing about 5 billion wall which is something like one percent of F35 program cost ( https://www.bloomberg.com/news/articles/2017-07-10/f-35-program-costs-jump-to-406-billion-in-new-pentagon-estimate )

At this point, people stop to trust both politicians and MSM re-defining them as “fake news” which means the crisis of legitimacy of the neoliberal elite. And I think that the USA either reached this point or is very close.

That’s why the US neoliberal elite decided to cement the cracks in the neoliberal ideological façade via Russophobia in best neo-McCarthyism fashion. The idea is to define the common enemy and mobilizing the society against it, leaving internal frictions on the “day after.” But it looks like neoliberalism which Sheldon Wolin defined as “inverted totalities” is bad on mass mobilization. It no longer can produce slogans or politician that can ignite common people. Obama was a fake. So is Trump.

And Russiagate gambit produced some unwanted to neoliberals externalities like the society attention to intelligence-driven machinations and their role as a political force under neoliberalism. Including the role on British intelligence services.

5

Z 01.23.19 at 1:45 pm

Seen from my favored perspective on human cognition and political practice (Deweyan pragmatism, maybe), ideas are not solely or in fact even mainly produced within the confines of academic research or on the pages of the few specialized publications that constitute the “intellectual debate”; they are the by-products of the free enquiries and experiments of all individuals in the society. Likewise, seen from my favored perspective on domination and social division (Chomskyan and Bourdieusian genetic structuralism, maybe), the “structure of social divisions formed along economic lines and the way power is distributed across those divisions” include divisions formed by the unequal distribution of intellectual capital, and so in particular the unequal access to the diffusion of one’s own ideas, positions, analyses…

So I side fully with Major, ” elitist, pro-capital policies and practices” will not be defeated by arguments, nothing ever is, but by the organization and incorporation of the experiences of those who oppose them, a by-product of which will be the production of academic ideas and even more frequently the sudden popular success of academic ideas that resonate with the experiences being politically expressed (currently, the devastating social effect of inequalities – but also transhumanism at the other end of the spectrum), and that’s why AOC is so important. But as I’m personally convinced that the ultimate source of the progressive switch to “elitist, pro-capital policies and practices” is a change in the relative progress of education among different groups, I’m also quite wary of narrowly materialist accounts, if material is understood to exclude educative capital.

So I think that explicit ideas do not matter much, as their effects are swamped by deep divisions in the society, but these deep divisions (at least currently, but I think that’s true more generally historically) are themselves ultimately divisions in education, so divisions in ideas and knowledge, in some sense. Perhaps the oppositions of the post should not be thought as such, in the end.

6

Swami 01.23.19 at 2:58 pm

@likbez #4

Can you, or someone else explain how neoliberalism has been discredited? Any review of global welfare trends reveals historically unprecedented gains in income, welfare, health, and most importantly, escape from severe poverty. Heck, even global inequality is dropping if that means anything.

I am not sure what barometer you are using to declare it discredited, or perhaps not sure how you are defining neoliberalism. What is clear to me is that the state of humanity has never been better than today, and that the rate of improvement in the past 30 to 40 years has never been close to this fast.

Are we talking past each other?

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Lee A. Arnold 01.23.19 at 9:56 pm

alfredlordbleep #3, Thanks for your comment. I think the challenge is to provide an integrated understanding of natural and social processes that gives a positive direction into the future. It is really a matter of forming an image.

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mpowell 01.23.19 at 10:30 pm

One of the main takeaways for me is that trying to figure out how politics happens is really hard – and probably actually impossibly hard. For me it’s not so much that I think someone like Major is actually wrong, it’s more that if you read these arguments and think about the way the world works, I feel like only reasonable answer is that it is simply unknowable at a significant level. But certain things do work. Certain political coalitions and movements are successful. Certain policies work better than others. You can take this with a grain of salt because as part of this conversation I am more of a neoliberal than a leftist, but I think some policies will work much better or worse than others. Your movement needs good slogans and coalition-forming ideas to get into power to start policy-making. But once you are policy-making, you need good ideas or things will fall apart. In most democratic regime, I don’t think bad leftist economic policy-making will last long (and really, how much would you want it to?)

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John Quiggin 01.24.19 at 9:21 am

Swami @6 The problem is that most of the growth has taken place in China, where policies are much further from neoliberalism than those of any OECD country. By contrast, in the OECD, the outcomes of neoliberalism have been pretty miserable.

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Z 01.24.19 at 4:56 pm

Swami @6 Can you, or someone else explain how neoliberalism has been discredited?

Empirically, that seems like an easy question to settle for your own satisfaction. An idea is discredited when some people used to believe in it, and now don’t anymore. So to find out if neoliberalism has been discredited, you should look for the presence or absence of significant events indicating that some people used to believe in neoliberal candidates and policies, and now don’t anymore; people who apparently favored neoliberal candidates and policies in the past, and that now make choices not typically describe as such. Anything comes to mind?

Any review of global welfare trends reveals historically unprecedented gains in income, welfare, health, and most importantly, escape from severe poverty.

Any serious such review will try to evaluate which part of these gains are due to which factors, and the elephant in the room here is the rise of educational achievements in China and India. Controlling for that effect means in first approximation looking at countries which adopted neoliberal (or relatively more neoliberal) policies without simultaneously experiencing a spectacular rise in primary, secondary and higher education. For these countries, the record of neoliberalism is usually remarkable only in its capacity to increase inequalities.

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Swami 01.24.19 at 5:12 pm

John @9

Growth rates globally are up, and it is in the most neoliberal (those embracing relatively free markets?) which have grown the most, and those most resistant to free markets have performed the worse. The stand out successes include India, SE Asia and China.

Here are growth rates since 1995 and projected growth rates by nation for total GDP and per capita.

https://www.theguardian.com/global-development/datablog/2012/nov/09/developing-economies-overtake-west-2050-oecd-forecasts

If I was to characterize the larger historic trend it would be that there was rapid growth within “westernized” states up until about 30 years ago, at which time, the “neoliberal” idea caught on in many parts of the developing world. We see faster growth rates than ever in these areas, with continued growth of around 1.5% in the developed states. Thus we see broader growth, wider distributed, and improving income equality globally.

Areas like China which did indeed grow the most also liberized (“neoliberalized”?) the most.

To summarize, I see neoliberalism as being resoundingly proven during this era, and I challenge anyone familiar with long term historic growth rates to repudiate this (note long term historic per capita growth rates for the past ten thousand years prior to liberalism average zero).

Perhaps we are talking past each other though. I find “neoliberalism” is often a word substituted for “things about capitalism which I dislike.” I am defining the term as the shift from command economies toward freer markets with relatively more freedom to compete and cooperate in a decentralized manner using private property and capital and some kind of rule of law.

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a. y. mous 01.24.19 at 5:33 pm

Thank you Henry. This discussion is much needed, and not just in the Anglophone countries. Lots of comments and thoughts, but will have to reflect much more.

My immediate reaction is that, energy is not addressed at all in your essay, but growth is. And I mean, physical energy. “Labour” is far too a generic label for this, IMO. Inequality today, is not just of results, but also of efforts. Ideas do not help much, if capacities of implementation are lacking
.
Lee A. Arnold @1 is a beautiful attempt at visualizing flows. Even so, Lee, in your graphics, while the size of the BLOCK ARROW showing more effort increases, to show MORE WORK, the size of the agent (animal, bird, human, etc) does not decrease, correspondingly, to show LESS ENERGY AVAILABLE. Consequently, eating (consumption) is not a replenishment, but merely a choice. That is wrong.

A framework and a calculus needs to be formulated to at least define, if not attempt to solve the problem, stated as “the rich get richer, the richer they get”

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LFC 01.24.19 at 8:35 pm

@swami
Inequality between countries is down but inequality within many countries is up. Just the other day Oxfam put out a report on this, I believe. Your remarks seem to ignore this point. Also if China had pursued a more equity-oriented growth path it could probably have reduced poverty even more than it has.

S. Moyn’s recent book Not Enough, though I disagree with certain aspects of its argument, is worth a look in connection w all this.

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Lee A. Arnold 01.24.19 at 8:55 pm

a. y. mous #12: “the size of the agent (animal, bird, human, etc) does not decrease, correspondingly, to show LESS ENERGY AVAILABLE.”

Thanks. In later videos a storehouse will open inside the agent to show that the available energy has been decreased. Usually temporarily: in most cases it can be replenished and a further video will show that this is part of an OPEN system, meaning that new things and flows can come in from outside of the picture, such as solar energy. And of course the flows go out, too: the waste sinks go somewhere, and tracing that is becoming urgent because some of them (e.g CO2) affect the environment. (A very important part of the new epistemology is to teach that we are in open systems and subsystems; rarely are they closed.) In addition to showing “more work” it will show “improved work”, i.e. greater return with the same (or less) work energy expended — improved by dexterity, proximity, or new technology.

I plan to make this sequence prove that:

1.  The Precautionary Principle to protect wilderness and climate is logically necessary. 

2.  We can have a future of high tech and high energy with harmless waste products.

3.  The industrial economy has become capable of producing overabundance at the same time as the market economy imposes scarcity and increases inequality.  Yet at the same time, markets are good for some kinds of innovation.  While we sort this out, the assurance of basic human needs via government monopsony that engages private producers and suppliers is an evolutionary step in the correct direction.

4.  Focused institutions to protect people and environment are a proper consequence of the way in which we necessarily think about organization.

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Collin Street 01.24.19 at 9:09 pm

By contrast, in the OECD, the outcomes of neoliberalism have been pretty miserable.

Why, it’s almost as if the destination were determined by direction of motion rather than direction of rotation of the motion vector.

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Lee A. Arnold 01.24.19 at 9:22 pm

Swami #11: “We see faster growth rates than ever in these areas, with continued growth of around 1.5% in the developed states.”

I think what we have seen is HIGH growth rates in developing places that needed gross material industrial development, infrastructure, and housing. However in the already developed countries, the move into the post-industrial economy of services, infrastructure replacement, financialization and winner-take-all infotech has seen LOWER growth rates overall. The use of markets has been helpful to developing countries, but markets are not causing high growth rates in the developed post-industrial world. There are several reasons for this. The question is what to do about it, and more “neoliberalism”, whichever of its 3 or 4 definitions you use, does not seem to be the answer, not least because it comes with large doses of credit-fueled consumption and its elites are creatively and intellectually not up to the task. To go beyond GDP growth rates to the more encompassing measures of welfare and quality of life, it’s pretty clear that the happiest developed countries draw clear limits to neoliberalism.

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John Quiggin 01.25.19 at 8:55 am

Swami, are you seriously claiming that China has more free markets than, say, the US? I don’t think so.

The only sensible interpretation of your claim is that those who have moved most in the direction of free markets, and away from central planning, have done best. But if you combine that with the observation that the shift hasn’t gone at all well in countries where the starting point wasn’t central planning, you reach the conclusion that we would be better off somewhere in between (say, social democracy), or different altogether.

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Swami 01.25.19 at 7:39 pm

John @17

Of course my comment was that China has liberalized relative to their past. And who is arguing against a mixed economy (I assume this is what you mean by social democracy)?

The argument was my pushing back against some strange meme that neoliberalism has been discredited. The only way this makes sense is if by neoliberalism one really means anarchocapitalism. If that is what we mean, then we should use That term, but of course there has been no historic trend toward anarchocapitalism has there?

I challenged the group tribal marker that neoliberalism has discredited itself. I can argue strongly that it has proven itself resoundingly well. Those countries liberalizing economically have been the net beneficiaries against the various states who failed to liberalize. Global poverty down by one billion human souls. Please let that fact sink in. One billion kids and parents out of debilitating poverty caused by the prior rejection of liberalism or the adoption of soul crushing follies of socialism. The neoliberal revolution has been the greatest advance in human prosperity since the IR.

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Swami 01.25.19 at 7:59 pm

Lee @16

Wow, where do I start….

First, growth rates of 1.5% are nothing to sneeze at. These are outrageously better than the historic average of 0.0%, and are enough to double incomes every two generations and increase prosperity by more than quadruple every century. Second, the growth rates per capita everywhere were only made possible by the liberal institutional changes starting around 1776. See the IR, the modern miracle. And the gains are not even mostly economic. They also play out in lifespan, health, retirement, education, freedom, equality of opportunity, childhood mortality reductions etc.

Please support your statement that places with neoliberal institutions (which you still might want to actually define, I still think this site uses it for “poopy capitalism”) have performed worse than those which rejected it. And define what rejecting it looks like too. If the US is the poster child for neoliberalism, then it doesn’t help your case in the slightest, as AIC is higher here than anywhere in the world, and the technology, the entrepreneurial innovation, the science and the institutional leadership of the past 40 years has disproportionately come from here. I already linked per capita growth rates, I could also link employment, share of significant medical patents, and reference Apple, Microsoft, Google, Amazon, Walmart and the other brilliant capitalistic innovations improving our lives (and billions of others) over the past thirty years.

Please do link to your chart which shows the inverse correlation between happiness and subjective well being and neoliberalism (which again I have been asking for YOU GUYS to define, and which you refuse to). I really suspect it is just a big boys version of the boogie man. It sounds all sophisticated and “economicy.” But it just comes out in usage as a way of labeling people who don’t belong to the tribe.

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Swami 01.25.19 at 8:03 pm

LFC @ 13

Why would anyone care if within state inequality increased or not? Are you assuming income inequality is a measure of fairness or something? It isn’t. I can expand if you have an open mind. Inequality of outcome is a necessary part of economic growth, it acts as the signal and incentive to markets, and anyone suggesting inequality of outcome is intrinsically unfair is horribly mistaken.

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Lee A. Arnold 01.26.19 at 2:07 am

Swami #19: “where do I start”

Neoliberalism has been variously defined in long, well-established literatures as:

1. A specific intellectual group movement — The historical group movement of certain intellectuals (including Hayek) who called themselves “neoliberals” since early in the 20th Century and formed the Mont Pelerin Society to promote their specific ideas and concerns publicly (as per three book-length studies, one edited by Mirowski & Plehwe, one written by Angus Burgin, and the latest written by Quinn Slobodian).

2. A political program hiding behind a philosophical theory — The promotion of state protection of the market system including efforts to diminish redistributive programs, with the attempted justification being the rather passé epistemological theory (per Hayek) that markets will outperform other arrangements because of the “knowledge problem”.

3. A specific public-policy era — The large set of government policy initiatives pushed along by rent-seeking private business using think tanks and lobbyists, to privatize government and marketize the provision of government goods and services, which began with Thatcher-Reagan and continued through the “third way” of Blair-Clinton right up to the present.

4. A supra-political emergence — The international financial system’s emergence into a rootless “superstate” that protects its interests by any policy means necessary within all the various jurisdictions. This conception is closely allied to the identification of a global “plutocratic insurgency” studied as a security threat by some military war college professors.

Obviously there are threads and overlaps among these definitions, so you might start by learning the ropes and defining your usage of this multifarious word very, very clearly. And do so in every new discussion which engages it.

Note that three things neoliberalism IS NOT are: Classical liberalism (i.e., it is NOT the liberal institutional changes that began in early modernism), nor is it the simple idea of markets, nor the complex system of private capitalism.

Another thing neoliberalism IS NOT is the “mixed economy” that uses private capitalism along with very strong welfare states to provide goods and services which markets cannot.

And the mixed economy is pretty much responsible for almost all of the good things you cite. Your scattershot citation of facts and figures won’t do. The US, in attempting to be a model of neoliberalism (pick any one of the four definitions), is turning into a slow train wreck. Everybody in the US does not have access to timely and affordable health care. There are around 30 countries in the OECD with lower infant mortality rates than the US. The market system is not solving the climate externality fast enough. GDP growth rates in the US are no better on average than growth rates in the northern European welfare states, where opinion polls regularly find the happiest citizens. The voluminous literature on the disjuncture between consumption statistics and psychological well-being goes back to the 1950’s. The “brilliant capitalistic innovation” of the Apple iPhone depended upon: GPS, lithium-ion batteries, cellular technology, touch-screen and LCD displays, and internet connectivity, ALL OF WHICH were publicly funded and in some cases developed by government agencies (see Hacker and Pierson, citing Mazzucato) — definitely NOT a good case for neoliberalism.

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LFC 01.27.19 at 4:47 pm

Swami @20
I view high levels of within-country inequality as, in general, normatively unacceptable, politically retrograde, and economically unnecessary (or in some cases actually harmful). Conventional marginal-productivity theory cannot explain (or justify) why, for example, top execs in the US make tens of thousands per hour — actually it cannot explain much of anything.

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Swami 01.27.19 at 6:07 pm

LFC @22

I view current levels of modern developed-state inequality of income to be necessary for prosperity. Inequality of outcomes acts as both the signal and the incentive to change and adapt to conditions, to pursue better solutions, new innovations and superior forms of cooperation. Absent inequality of outcome, there is insufficient incentive to make effort, take risks, question convention, invest in the future, abandon inefficiency, question authority and delay immediate consumption. Inequality is “economically necessary.” Absolutely.

I am sure there are inefficiencies in how income is set with CEO’s and even more inefficiencies in how pro athletes are paid (which even though substantially higher than CEO’s is oddly rarely mentioned by progressives). But in general I would trust a market to establish fairer wages based on marginal productivity over whatever a central planning board would do.

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Swami 01.27.19 at 7:23 pm

Lee @21

Thanks for the detailed reply. To be honest I am quite familiar with the term, and was asking YOU guys to define it for pragmatic reasons.

Your definition makes my point better than a hundred comments written by me could. The term is intentionally fuzzy so that it ranges from a mundane philosophical defense of free markets, objections to socialism or state central planning, objections to redistribution, efforts toward efficient regulation and privatization efforts, rent seeking and cronyism, and even an evil global financial cabal you refer to as a “plutocratic insurgency.”

What you have done is packaged anything and anyone which disagrees with your defined economic/political preferences and given it a label that allow you to to collectively “discredit” it via a rhetorical sleight of hand. You package those who disagree legitimately due to differing opinions or value preferences with people who are clearly trying to exploit others (rent seekers and the cabal of corrupt finacial oligarchy).

Let me show you how it works. Let’s say that I label anyone who favors anything other than libertarian anarchy as “PINKOES.” Then anyone endorsing taxes, public goods and safety nets, communism and Nazi ideology can be packaged as a pinko, by definition. I can then state that “pinkoism” was resoundingly “discredited” during the 20th C. I could even establish a website of anarchist libertarians where we get together and do a circle jerk diatribe against discredited pinko ideology. We could all laugh at the silly pinkoes and feel superior about ourselves. How grand.

Another way to frame your use of neoliberalism is known as a Motte and Bailey argument. It combines a narrow and mundane reading (valuing freedom and open markets) with a nefarious segment. This allows a group of like minded individuals to dismiss the entire philosophy by being general. The use of neoliberal on this cite fits the Motte and Bailey to a tee. It leads to sloppy thinking and tribalistic group think.

Your final paragraph is a mess. I have never argued against a mixed economy, nor would I. Honestly I am not sure why you assume I would. Every successful modern nation uses a blend of free markets, science and representative government. I consider them the three institutional legs of prosperity.

You then go on to suggesting I can choose any definition of the four, but you then pivot to a definition of mixed economy is the opposite of neoliberalism. No it isn’t. One can push for privatization, and push against some types of public goods and certain forms of government control and redistribution and still be in favor of a mixed economy. The details are on how it is mixed. But in reality, you are rhetorically dismissing those who reject your particular mix. Bad form.

You go on to ramble about how US growth rates are no higher than Uropean welfare states, seemingly unaware that you are arguing against yourself. Basic economic literacy reveals that the lead economy usually has lower growth compared to catch up economies who can draft on the institutional and technological innovations of the leader. The fact that the US (supposedly more neoliberal?) is both wealthier, has larger social safety nets on average, and STILL grows just as fast as most of the catch up states of Europe, only undermines your argument.

You then make passing reference to the strongest, largest, wealthiest. Most dynamic economy in the history of humanity as being a “train wreck.” If virtually every indicator of human well being is at or above historic trends, and in some cases by orders of magnitude (education, median income, minimum tier income) then I have to question your knowledge of history, your familiarity with modern conditions and possibly even your value system.

I am quite familiar with most of what has been published on income, happiness and SWB. In general, happiness and SWB goes up with income, with freedom, with religious belief and with opportunity. I asked you to link to the connection between NEOLIBERALISM and happiness/SWB. If the term means an evil oligarchy of financial rent seekers exploiting everyone for their personal aggrandizement, then I agree. But that isn’t what you are really arguing is it?

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Mat Weldon 01.27.19 at 8:51 pm

Speaking of really good ideas that dont map cleanly onto politics, how about Hans Rosling and family’s Factfulness. This book is still reverberating around my head, but politically I can’t decide which side it dresses on, as tailors used to say.

That could mean that Factfulness should be considered a sacred neutral ground, but equally it could mean that it’s up for grabs. I don’t particularly like that idea. There’s a real risk, though, that the ideas in the book will be co-opted by neoliberals.

There’s a challenge in the book to any politics of the left based on a premise of protecting workers in any one country from the effects of globalisation because a subtext of the book is that internationally more people benefit from globalisation than lose out. I think you allude to this in your comment about globally-focussed politics.

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Paul Davis 01.27.19 at 9:33 pm

Swami @ 23: this seems like a purely faith-based assertion. You “view current levels of modern developed-state inequality of income to be necessary”, but you have very little evidence to back up this view.

There are alternative perspectives on human psychology and economic behaviour that do not support your “view”. Alfie Kohn’s books, starting with “Punished by Rewards” posits entirely different mechanisms for providing human incentive, for example. Your committment to the idea that the only think that can motivate humans to: “make effort, take risks, question convention, invest in the future, abandon inefficiency, question authority and delay immediate consumption” is touching, but fundamentally is just a restatement of the capitalist credo, not a proof of its correction.

Your suggestion that there is truly any kind of (free) market that determines company officer compensation is laughable. There has been substantial research on the overlaps between board compositions and hiring processes that make it clear that the entire system is closer to a cabal than a (free) market. And not just that: it is equally clear that the justification for this type of income inequality is based on a very particular interpretation of “value” (as in “the value created by the CEO”) that in turn is built around a highly individualistic concept of success and “how things happen”. The concept that without CEO XXX, company YYY just could not have succeeded as they did is a article of faith in the justification for capitalism, but is unproven, and unsupported. It is also likely false: luck plays a huge role in determining success in the marketplace,one that we consistently downplay because it conflicts with capitalist credo (e.g. “if you work hard, you can make it” rather than “if you’re lucky, and you work hard, you might make it”).

There may be a subset of the population that enjoys the competition that capitalism forces its participants into, but psychology is strong suggestive that this isn’t true for the broader population. Creating a system designed to cater to the sociopathic desires of a minority is cruel, and ill-conceived. People in the broaders sense like collaboration. They like cooperation. They don’t need to win to make something worthwhile.

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Lee A. Arnold 01.28.19 at 12:38 am

Swami #24, What is your definition of “neoliberalism”?

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Swami 01.28.19 at 5:29 pm

Lee @27

I thought I made it clear. It is an intentionally broad rhetorical term which can be applied to all four categories as described in your earlier comment. This effectively makes it a weasel word, used not for clarity of thought but for rhetorical dismissal of views outside of the tribe.

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Swami 01.28.19 at 6:33 pm

Paul @26

I probably could have worded my sentence on current levels of inequality a bit better. To clarify, my argument is that INEQUALITY OF OUTCOME is necessary for markets to work, as it provides a signal, an incentive and feedback necessary to make the complex adaptive system of markets function. My reference to current levels was an attempt at implying that the range of outcome inequality we see in mixed economies such as Canada, Sweden and the US seems within the workable range (based upon their historically impressive performance). My main point though is that inequality is necessary and good for the reasons listed. I am sure “optimal” levels of outcome inequality is contextual, and depends greatly on one’s values and priorities.

I am well aware that there are many other types of incentive systems, used within markets and outside of markets. Science, for example, uses prestige and credit. Amateur sports uses points and scores. Markets do use varying (unequal) monetary rewards, and when Mr Kohn shows us the global decentralized network which works better than our current system at cooperative market based human problem solving without monetary incentives, then I will pay attention. Of course, he just substitutes unequal income and wealth for other types of inequality with differing pros and cons. In the meantime, I think the reasonable interpretation is that inequality of outcome in income serves an important purpose in human flourishing.

I would rather not get into a debate on CEO salaries. My comment was that I admitted they were set inefficiently today, though probably more efficiently than the even higher compensated pro athletes. CEOs at least make complex decisions affecting millions of lives and of global significance. Athletes throw balls. Me thinks your fixation and outrage is another tribal marker.

Your comment on luck reveals a foundational misunderstanding of market based compensation. Wages or returns do not have to (and usually don’t) reflect “merit.” What they need to reflect is subjective value adjusted for scarcity. Of course working hard is insufficient. One needs to work harder and smarter at delivering goods and services valued by others. Certainly luck plays a major factor as it does in any complex endeavor (politics, science, sports, entertainment) but one of the essential roles of inequality of outcomes is to justify risk taking and experimentation to offset the odds. One invests millions in capital and or works 75 hours per day for the possible outsized reward of striking it rich. Inequality of outcome is the engine of any competitive system.

The bit of psychology in your final paragraph is even further off the mark. Something you need to understand is that markets use constructive competition to get people to compete to cooperate better. When an owner hires a fry cook at his fast food restaurant, he interviews applicants and chooses the one who would in his opinion be the best at serving customers by performing the job. The incentive system includes hiring those with desirable skills and abilities (thus incentivizing cooperative and socially productive skills and abilities), and a variable compensation system which rewards more hours, better performance, initiative etc.

There are many occupations, that once qualified to enter, have relatively low levels of competition and variability of compensation. Many just want to punch the clock and get paid. Capitalism offers millions of jobs tailors-fit to this type of worker. It sounds like what you need.

You then pivot from competing to sociopathy. They are not the same things and one can promote competition and inequality of outcome as good things without embracing sociopathy.

Your final sentence is just as misguided. A system can offer rewards and incentives and variable outcomes and be aimed at cooperation. Market-based activity is positive sum, mutually beneficial cooperation. The competition and incentive structure is properly aimed at relatively rewarding better, smarter, higher valued forms of consumer satisfaction.

Yes, if you want to go into the business of cutting lawns with nail clippers, then you will “lose” with lose meaning nobody will pay for your service. You will make zero. The system is telling you that nobody finds your offer for cooperative problem solving worthwhile. That isnt a weakness in the system it is the value of it.

And in terms of actual empirical results, if winning is measured in lifespan, freedom, opportunity, education, income and quality of life and subjective well being then one would have to be a complete fool to argue against modern societies which use markets as one part of their institutional panoply. Life in pre-market based economies sucked for pretty much everyone. It sucked a lot. Big picture is that we are collectively winning and markets (and market inequality of outcome) plays an important role in our collective win. And non market systems such as safety nets fill in where markets don’t.

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Jerry Vinokurov 01.28.19 at 7:03 pm

I view current levels of modern developed-state inequality of income to be necessary for prosperity.

Why?

Inequality of outcomes acts as both the signal and the incentive to change and adapt to conditions, to pursue better solutions, new innovations and superior forms of cooperation.

So your opinion is that no one would innovate or pursue any improvements or cooperate in any way absent pecuniary motive? What degree of income inequality is necessary for this magical innovation sauce to be made? If, rather than the astronomical wealth of a Bezos, one could attain the slightly-less-than-astronomical-but-still-quite-substantial wealth of a… well-compensated lawyer, that would kill all innovation in our world, do you think?

Absent inequality of outcome, there is insufficient incentive to make effort, take risks, question convention, invest in the future, abandon inefficiency, question authority and delay immediate consumption. Inequality is “economically necessary.” Absolutely.

It must be weird to live in a world of automatons and not actual human beings.

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Lee A. Arnold 01.28.19 at 7:38 pm

Swami #28, No, the definitions of “neoliberalism” most in use, which are listed in #21, all have an obvious common thread, which is a preference for policies to privatize and marketize beyond previous social arrangements, not just command economies. You jumped in at #6 and decided that this should be redefined so you could defend it. But what you are defending is classical liberalism. Although there again, you have got some of your points wrong.

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Lee A. Arnold 01.28.19 at 11:07 pm

Swami #24: “You go on to ramble about how US growth rates are no higher than Uropean welfare states, seemingly unaware that you are arguing against yourself. Basic economic literacy reveals that the lead economy usually has lower growth compared to catch up economies who can draft on the institutional and technological innovations of the leader. The fact that the US (supposedly more neoliberal?) is both wealthier, has larger social safety nets on average, and STILL grows just as fast as most of the catch up states of Europe, only undermines your argument.”

No and no. This makes two factual mistakes: 1. the northern European welfare states are not playing catch-up, they are highly developed (and with higher social spending per capita than the US, and higher quality-of-life indicators overall). 2. “Basic economic literacy” starts with Adam Smith chapters 1,2,3: whereby the US, by having a much more extensive domestic market, ought to have much more division of labor (chapter 3) and by having more division of labor, it should have more improvements and innovations (chapter 1) — and therefore, the US should have MUCH higher growth. So the question is, Why doesn’t it?

To ask the question another way: Why has globalization and technological unemployment been met in the United States with a resurgence of closed-door (and ultimately self-defeating) nationalism, instead of being met with new innovations to create new marketable goods and services, and incidentally getting all the people back into long-term, well-paying jobs? (Do not mistake the cyclical expansion since 2010 for a long-term trend.)

The there are your interpretive mistakes. Once again, my question was not about the virtues of liberalism for developing countries emerging from poverty and destitution. And not about the historical lesson that liberal capitalism increased growth over the last 350 years or so. Very few people in comments here, or anywhere in the Western world, would dispute these things. Yet you insist that they are disputed. Most of the audience here is WAY ahead of you.

My questions remain, instead: Why are the mature developed countries slowing down in the standard accountings of growth? and, Why haven’t increased privatization, deregulation, tax cuts etc. re-accelerated the growth engines? — while at the same time in most of the developed countries the pressure is on to reduce fiscal outlays, and in the US for example the result has been increased top-end inequality, falling rate of business start-ups, more expensive higher education, still underfunded infrastructure, still no universal health coverage, etc.? This is not about the last 350 years, it is about the last 50 years. (Though it is a bit concerning when you look at it in the context of the last 350 years.) These are the specific questions I asked in #16 and implied at the end of #21 — and which you have not addressed. Since this causes you to “question [my] knowledge, [my] familiarity with modern conditions and possibly even [my] value system” then I question your basic reading comprehension skills.

Indeed your comment #24 also mistakes my list of the present usages of “neoliberalism” to be a biased interpretation that reveals my “economic/political preferences”. Are you an overgrown twelve-year-old? You have no idea of my preferences. And this has nothing to do with “rhetorically dismissing those who would reject [my] particular mix”. It’s just the ways the word is mostly used in contemporary thought, and these are far from “fuzzy” as you write, and they all point in the same policy direction. Accordingly, those people who insist that what is needed right now in the slowing, mature economies is still more privatization and getting government “out of the way”, and who work to effect those policies, need a group name, and, going by the most common usages of the word at the present time, their name is “neoliberal”. And it doesn’t work. I apologize if you just crawled out of a musky tribal closet and this usage upsets you.

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Jerry Vinokurov 01.29.19 at 1:26 am

Who can forget such glorious innovations of the last few decades as “inventing incomprehensible financial instruments that nearly sank the global economy” or “packaging a drug in a slightly different delivery mechanism in order to obtain a patent extension?” Oh, and also JavaScript. Truly, we would be lost without these amazing advances.

The very idea that innovation only occurs because it’s being driven by inequality is so deeply absurd and mistaken that it’s hardly possible to have a productive conversation with someone who genuinely believes this.

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Paul Davis 01.29.19 at 4:34 am

Swami @29 there are so many glib simplifications here that I’m not going to attempt to tackle all of them, or even most of them.

You originally posited that inequality of outcome was necessary to incentivize innovation, but have now pivoted to

it provides a signal, an incentive and feedback necessary to make the complex adaptive system of markets function

which is an entirely different claim.

You write:

Something you need to understand is that markets use constructive competition to get people to compete to cooperate better.

and go on to provide a hiring example to support this claim. To write this in an age when we are poised to see automation steadily replace human labor in field after field is almost delusional. Capital views labor as an expense, and seeks to minimize it. The restaurant owner is not interested in hiring a person; they have a task they need completed to (at least) a satisfactory level (from the perspective of their customers). If that can be done by a person, so be it, but if it can be done cheaper by something other than a person, even better. There is no pressure within capitalism to counter this tendency to view labor as a cost, and hence it is absurd to regard capitalism as being concerned with promoting cooperation between people. If a capitalist could organize an entire corporation without people, they would do so, with great enthusiam.

You routinely confuse entrepenurialism, capitalism and markets. None of the three are inherently related to the others, and any of the three can exist without any of the others, or with one, or both of the others. Markets in which buyers control the prices (or more precisely, buyers and sellers negotiate prices) go back to the Arabic world around the first century or before (the Romans, who mostly used cost-plus accounting, were said to be amazed by them). Capitalism is a description of how given some human effort that combines capital, ideas and labor, the rewards (and losses) are distributed (specifically, in a way that favors the capitalist). Entrepeneurial economies and societies are not required to be either market-based nor capitalist, but rather free of government, cultural and religious forces that prevent the formation of new economic entities and the exploration of new ideas.

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Z 01.29.19 at 6:44 am

Lee A. Arnold Most of the audience here is WAY ahead of you.
Jerry Vinokurov it’s hardly possible to have a productive conversation with someone who genuinely believes this

I agree with these statements and in fact, I think they hint at a reasonable answer to Swami’s question “Can you, or someone else explain how neoliberalism has been discredited?”. 20 years ago, it seems to me we would have felt compelled to engage with Swami’s points. Nowadays it feels quite pointless, as it is hard to imagine what additional evidence could be produced that is not common knowledge already.

Amusingly, I imagine that arguments about neoliberalism in the late 2010 ressemble what must have been arguments about Stalinism in the 1960. “Can you, or someone else explain how Stalinism has been discredited? It defeated Nazi Germany. Please let that fact sink in. It sent the first man to space. It may well expand yet, and rule the largest and most populous countries on Earth for an additional 20 years etc” and the same joke about the dissident handing over blank leaflets seem to apply (interrogated by the KGB on why she’s handing blank sheets of papers, she gestures around and asks “What else is there to say that they don’t know?”).

I’d rather hear a bit more about Henry’s ideas.

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Swami 01.29.19 at 6:05 pm

Jerry@30

No, my opinion is not that “no one” would innovate or pursue coopearation absent variable pecuniary rewards. My opinion, as your snippet revealed, is that within markets it works as as a valuable signal, incentive and feedback mechanism. It isn’t the only one.

You are trying to win an argument, by straw manning a reasonable position into a silly absolute of “no one” and of “killing all” and “automatons”. Bad form. Please deal with what I am saying, not an extreme hyper version of it which is easier to debate.

My position was stated earlier that the levels of inequality of income as experienced in Sweden, Canada and the US all seem to be within the range of modern succesful societies. See what I wrote above in the opening P of @29 so I don’t have to repeat myself. All three have some variant of progressive taxation and all three allow and encourage wide variations in inequality where top athletes, top CEOs, entrepreneurs and such can make millions or billions, and those doing zero economic service for others make zero. Certainly reasonable people can argue that the redistribution system should be more progressive and lower (like in the US) or more uniform and higher (like Sweden), but the various models all seem to be in the effective range as defined in my prior comment.

The important long term goal though is not some odd fixation on equality of outcome among dissimilar contributions, it is in long term dynamic growth in human welfare. To the extent a billionaire can be encouraged to put in more time, effort, creativity, investment and to delay consumption by engaging in innovative activities and or win/win economic transactions, then I believe the system should do so. If this means Bezos or Jobs or Oprah or Walton or Curry become even richer, then it would be a very, very good thing, for not just them, but humanity in general.

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Swami 01.29.19 at 6:26 pm

Lee@31,

Yeah, I get it, please reread my comment. My point is that when you group evil financial cabals of oligarchs with privatizing air traffic controllers (for example) then you are just using sloppy thinking to dismiss anyone who opposes the group consensus. We didn’t need the last two centuries to teach us the threats of rent seeking cabals. But that in absolutely no way proves that, for example, all efforts to promote private markets, and or resist redistribution and central command are “discredited”. They aren’t, any more than heroin addiction “discredits” caffeine drinking (because they are all drugs).

Let me repeat my central argument. The last 40 years has seen both a movement toward expanded use of markets and a historically unprecedented improvement in global welfare, specifically in those places most open to the market based institutions. If we define neoliberalism as you did in number 4 (a hidden financial oligarchy) then you would be right in saying this discredits neoliberalism. If we define it as the thinking of Hayek and Friedman (#1) , then it has resoundingly supported neoliberalism.

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Swami 01.29.19 at 7:35 pm

Lee@34

There is extensive literature on the concepts of lead and catch up economies. I can link you to some of it if you are interested. The gist of it is that certain states or industries take the lead in creating the technologies and pioneering the institutions of economic growth which others draft on. The consensus is that the Dutch led until the 18th C, at which time the British took the lead, later being passed by the US (and briefly Germany in some industries). Think the financial products (Netherlands), the first IR (Britain), freedom to incorporate, the American factory system, and Silicon Valley (the US). The lead economies work differently than drafting or catch ups. The leader needs different incentive systems , different institutional dynamics with substantially more emphasis on innovation, experimentation, figurative arms races, creative destruction and so forth. Catch up growth is much easier and requires different institutions, incentives and strategies.

What you see is that economic growth tends to be delayed (obviously) in the catch up economies but faster and easier (as someone else already blazed a trail for others to follow). However, as the followers catch up, they slow down as they do not have the creativity, investment, R&D, risk taking and incentive systems to take the lead and blaze their own trail. This is exactly what we see in Europe, Japan and recently China and the developing states. Those that adopt the power of market institutions catch up to the lead economies.

The US has been the primary market leader in many (most?) new industries for over a century. Take a look at market capitalization numbers of new start ups in the US vs Europe. It is like comparing an elephant to a mouse. Take a look at scientific inventions, ground breaking (as opposed to incremental) patents, institutional innovation. IBM, Microsoft, Google, Apple and a dozen other lead firms who have revolutionized the globe start in a narrow range of places, but once they create the breakthroughs the rest of the world drafts on their innovation (not a bad strategy btw).

Employment rates are in general higher in the US than Europe. Median standard of living and average wages as measured by AIC is substantially, almost absurdly, higher. Rates of new firm start up are higher, as is rate of creative destruction, new billionaires. What actually needs explaining is why the catch up economies are doing so bad at catching up of late. Until you get your facts straight, and understand the difference between lead and catch-up growth, the world will never make sense. I won’t hold my breath.

“Why are the mature developed countries slowing down in the standard accountings of growth?”

I agree that growth rates are lower in developed countries over the past 40 years, though higher globally and in developing countries. The explanations for the slower developed nation growth rates include the following:
1) lower population growth and an aging population
2) temporary extraordinary growth of production capacity in the newly emergent billion person Chinese market (ending a previous developed world privilege of half the world living under anti capitalist regimes). Capital logically pursued higher returns to the benefit of global humanity (and a poor person gains a lot more from an income gain than a richer person).
3). A big recession in 2008 (iow “timing’)
4) a shift from measurable economic growth in rival physical goods to unmeasurable growth in non rival, free and virtual goods (a hundred billion free emessages per day replacing ten million 50cent physical letters.
5) the impacts of bureaucratic sclerosis as regulations, rent seeking and privilege maintenance as prior market leaders use the state to interfere with creative destruction and new growth
6) Lower returns over time to R&D as easier ideas are discovered, leading to only harder ideas being left
7) The debilitating effects of safety nets being abused or having negative side effects which discourage work, marriage, relocation and so forth.
8). High property values in growth sectors and locations caused by various forces including rent seeking to discourage relocation from low income and growth areas to high income and growth areas (such as the Bay Area).
9). Mathematical headwinds of fewer workers per house due to smaller households and lower and later marriage rates (substantially reducing per HH gains via demographics).
10). Large increases in net immigration (which was at a low in the fast per capita growth 60s). Immigrants have the odd effect of increasing actual real world growth rates while lowering statistical pc growth rates as forty million lower income people show up in the statistics. This acts as a huge statistical (not real) headwind.

There is a lot of debate on these factors, their relative impacts and such, nd there are others. I think they all play at least some role. The point being that a one dimensional model of neoliberalism defining growth rates misses all these factors. Further I would add that I do not believe average total tax rates ARE down from 40 years ago in MOST developed nations. I am 100% sure that regulatory burden is up dramatically overall in developed nations.

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Swami 01.29.19 at 7:54 pm

Paul,

Nothing in my comment implies that hiring a person is the only way to solve the problem, which is basically providing food to a consumer. The last 200 years has seen a steady amplification of labor with capital investment, technology and new ideas. It is called working smarter and is greatly responsible for the increase in living standards of the Modern Breakthrough.

I certainly agree that capitalism, markets and free markets can all get separate definitions and that conflating the three can lead to problems. Kind of like conflating the definitions of neoliberalism. We should follow your advice and be more careful in both cases.

40

Swami 01.29.19 at 7:58 pm

Z,

Try to keep up rather than pulling the conversation back three days. Which version of neoliberalism was discredited? The nafarious rent seeking oligarch version, or the believers in less (as opposed to more) state interference version?

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Lee A. Arnold 01.30.19 at 2:33 pm

Swami #38, Wouldn’t the northern european social democracies be “catching up” to many US innovations by receiving them as finished tradables, rather than growing their own domestic industries (and GDP) to provide them?

Your list of the possible drags on growth that have been theorized on chalkboards is perhaps more useful, although “the debilitating effects of safety nets” may be less than the debilitating effects of academic tenure. This list finally gets us back to my comment at #16, to which you once took great exception, but now, you appear almost ready to agree that more neoliberalism will not solve them (presumably even neoliberalism defined in Hayek and Friedman’s lights). I applaud your analytical comprehensiveness though you missed a few big ones, such as monopolies, path dependencies, and environmental constraints. I think it might be helpful to consider a synthesis that puts some items on the list into broader perspectives.

The developed economies have grown into great complexity, more interconnections, more crowding, and geographic limits. That makes it predictable beforehand that there must be, and will be, slower population growth, more regulation, bigger safety nets, less relocation. Regulation can work like a non-rival good to provide unmeasurable growth in positive externalities, or else to provide unmeasurable savings from negative externalities — particularly useful in the arenas of quality of life and environment.

Secondly, human cognition is limited. At the same time as there is more complexity and interconnectedness, the negative externalities from more complications and interconnections are not well met, partly because individuals are, simply, limited in the amount of time there is to have thoughts about it. It’s a most basic problem, now coming to the foreground. Individual cognitive limitation is not the same thing as bounded rationality, cognitive bias, or motivated cognition — although these are frequently mustered by individuals in wrong attempts to overcome the basic limitation (not least, by economists, sadly).

Once upon a time, it was believed that individual cognitive limitation was compensated by the use of price markets: Hayek’s extension upon Walras, that you didn’t need to know everything, (nor could a government calculate everything), you only needed to use money in markets, and the whole system by individual marginal calculations would get to the best outcome (ignoring distribution of course). There were already problems in realizing this theory because of the categories of market failure. But the market system even without market failures still won’t solve many knowledge problems beyond simple supply and demand — while the great plenitude of the system successfully masked our individual cognitive limitations until this era.

Individual cognitive limitation underlies several points in your list, but particularly the domestic producers’ inability to continue to strongly innovate domestically during globalization, despite very low interest rates on borrowing. We can’t blame this entirely on investors chasing cheap labor and big markets in China. And the “low-hanging fruit” meme (“harder ideas” vs. “easier ideas”) is a re-description, not an explanation. If people are unable to come up with ideas to be productive domestically, that poses a big and continuing problem in the future for specialization and trade involving developed economies: a danger to “capital’s logical pursuit of higher returns to the benefit of global humanity”: a danger, in less crusading and fatuous prose, to economic growth and political stability. Convergence will require a lot more redistributive compensation to the losers from trade, if the compensation via new jobs from domestic market growth will not be created so readily as before, despite the leveling of incomes.

At the same time, on the demand side, individual cognitive limitation is also manifested in consumer satiety. Modern life has assumed a standard material shape that needs less renovation, and now telecoms, internet and social media have successfully filled the remaining hours in the day. And fulfilled remaining preferences. We really don’t have the time to desire much more.

However, the mechanism of the liberal market system depends a great deal upon the textbook premises that people are infinitely creative (in monetizable productions) and that human wants are infinite (to buy them). Without these, the whole show might slow down — while it is still required to give financial returns. The financial sector could shrink in response, but in fact it has been fattening for over 50 years on credit and mortgages, and the deregulation to keep this girth afloat has led to more frequent financial crises and then a crash and bailout, demoralizing everybody. So there is not merely the big 2008 recession to consider: financialization should be added to your list of explanations of slower growth rates in developed countries.

At the same time as these unfortunate trends have been growing, something entirely salutary has been happening too. Industrial capitalism has been so successful at increasing returns that it can shed the costs of labor while it produces all necessary goods and services to the point of satiety for everyone — i.e. there is no real scarcity of necessities any more, except for a very few things (most notably, land or real estate). Yet the market mechanism still requires the LOGIC of scarcity: it uses money, which effectuates each single transaction by the logic of scarcity and decreasing returns, to allocate goods and to judge human effort.

(Worse for labor and incomes, AI promises to make humans unnecessary for all sorts of rote inductive intellectual tasks in the same way that machines obsolesced a lot of muscle labor. This may take out half of the white collar class, for starters. AI ought to create new kinds of jobs for humans, but then these jobs may not be long-lasting or plentiful. Again, satiety of goods and services, vs. scarcity of jobs.)

So: 1. complexity and crowding vs. human cognitive limitation; at the same time as: 2. satiety vs. enforced scarcity and delaborization. = Slow growth in a nutshell.

To conclude, the problem in the advanced world goes well beyond the simple academic list of drags-on-growth that has few (or no) neoliberal solutions. We are up against formal cognitive limitations as well as old psychological habits, while we cause real goods and services to be artificially scarce and we put people in pain, when really we can already produce enough for all. As I asked in #16 (to which you didn’t know where to start) the question is, what to do about it? Perhaps subtler minds such as Keynes and Schumpeter (and, I imagine, a lot of observers before them in the 19th Century) were correct, and market capitalism will be an historically limited passage, because its own success leads to contradictions that put it out of business, and turn it into some other kind of system, who knows what.

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Jerry Vinokurov 01.31.19 at 3:31 am

@Swami:

You are trying to win an argument, by straw manning a reasonable position into a silly absolute of “no one” and of “killing all” and “automatons”. Bad form. Please deal with what I am saying, not an extreme hyper version of it which is easier to debate.

Allow me to refresh your memory:

I view current levels of modern developed-state inequality of income to be necessary for prosperity. Inequality of outcomes acts as both the signal and the incentive to change and adapt to conditions, to pursue better solutions, new innovations and superior forms of cooperation. Absent inequality of outcome, there is insufficient incentive to make effort, take risks, question convention, invest in the future, abandon inefficiency, question authority and delay immediate consumption. Inequality is “economically necessary.” Absolutely.

Emphasis mine. When someone says that “absent X, Y will not happen,” I take them at their word as arguing that, indeed, for Y to happen X is necessary. If you would like to retreat from the quite self-evidently absolute argument that you yourself have made, that is your prerogative, but it is not incumbent upon me to pretend that you didn’t say the thing you said.

The important long term goal though is not some odd fixation on equality of outcome among dissimilar contributions, it is in long term dynamic growth in human welfare. To the extent a billionaire can be encouraged to put in more time, effort, creativity, investment and to delay consumption by engaging in innovative activities and or win/win economic transactions, then I believe the system should do so.

You ask that your actual argument be addressed, but your argument is impossibly glib. You’ve already baked in the assumption that encouraging a billionaire to put more time, effort, etc. into “innovation” (a thing you have not defined) will promote “dynamic growth in human welfare.” But of course whether that is true is actually what’s under discussion here; it is not at all obvious that it is true, and I would argue that in many cases it is actively false. Many of the things that you can make a billion dollars saying or doing are not things that actually contribute anything meaningful to human welfare. Inventing a slightly new way to package a drug so that you can avoid having it go out of patent protection is a good example because it explicitly diverts resources from genuine innovation (better drugs) into an “innovation” that has absolutely no benefit beyond lining the pockets of the CEO and shareholders. Likewise, over the last two decades, the growth of the financial sector has attracted many people who originally wanted to work in the sciences (the quant caves of Wall Street are full of physicists and mathematicians). I suppose you could argue that it is indeed somehow more beneficial for those people to be devising a slightly lower-latency trading algorithm than it would be for them to be working on genuinely new technologies or using their skills to solve important problems, but if you’re going to do that I expect you to bring the receipts. I predict you will not.

The vast proportion of the actual inequality in our society has nothing at all to do with innovations or incentives or anything of that sort, for the simple reason that no single human being could ever possibly do the kind of work that would merit making them a billionaire. Jeff Bezos certainly had an idea of building an online marketplace but he was neither the first person to have that idea nor the one who actually made it happen; the people who did make it happen are the engineers who worked for Amazon. The inequality is instead engineered into the system by allowing people who control the capital to use it to acquire even more capital, without running any actual risks of the kind that might exist in some idealized market system. When Eddie Lampert engineered a wholesale looting of Sears and the destruction of the livelihoods of thousands of workers, it was not in the service of some notion of economic efficiency but rather in the service of his own bottom line. That’s a kind of incentive, I’ll give you that much, but it’s an incentive to banditry, not to the kind of undertaking that results in a genuine win/win.

Ultimately the problem of economic inequality is not just an abstract problem of one number being bigger than another number, but of quite real power differentials. If only the billionaires did not attempt to use their billions to influence society, we might be able to ignore them, but that’s not how the game is played. It’s played by creating a base of power from which one then extends tendrils that influence the very structures of the markets themselves (because, of course, markets are merely just whatever structures of economic exchange are in place). That means, among other things: legislation that undermines labor unions and worker autonomy, a relaxation of regulations for favored projects or industries, predatory pricing intended to drive competitors out of business, and so on. The list of such practices can be extended indefinitely as can the list of examples of their application; suffice to say that no company of even moderately large size has failed to engage in them repeatedly, to say nothing of behemoths like Amazon or Facebook or Walmart or Apple. Because there is no idealized market underneath the structure of these power relations: the power relations are just the thing itself, and anyone who tells you differently is either lying to you or to themselves. It’s not a coincidence that e.g. the charter school movement is led primarily by billionaires whose very straightforward aim is the complete destruction of teachers’ unions and privatization of public education, or that the same people are constantly engaged in an ever-escalating battle of loophole optimization in the pursuit of tax evasion. That’s why this:

the impacts of bureaucratic sclerosis as regulations, rent seeking and privilege maintenance as prior market leaders use the state to interfere with creative destruction and new growth

is just cliche. There isn’t some kind of idealized “creative destruction” waiting to be realized of only “sclerotic regulations” would be done away with because there is no actually neat separation between “market” and “state” and there never has been or will be.

That’s why income inequality actually matters and why your meaningless bromides about incentives are just entirely beside the point. The incentives exist, but they are just the incentives to make money as such; they are not incentive to innovate or to do anything that is particularly socially useful.

Ah, but you did also tip your hand here:

The debilitating effects of safety nets being abused or having negative side effects which discourage work, marriage, relocation and so forth.

If your analysis of contemporary American politics is that the safety net is too generous, then I believe we have found that most mythical creature: the Howard Schultz voter. I’m sure his platform of “always being nice to billionaires without whom we might lack such incredible civilizational glories as a business that sells coffee” is right up your alley.

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Swami 01.31.19 at 5:53 pm

Jerry,

“Insufficient incentive” is not a synonym for zero or no incentive. I did not say nor do I believe that absent inequality of monetary outcomes there would be no incentives. I said there would be insufficient incentive.

“Many of the things that you can make a billion dollars saying or doing are not things that actually contribute anything meaningful to human welfare.”

This is true, though not insightful. Not all the ways I can make $10 actually contribute to net human welfare either. But this is an argument for institutions which help reward and direct economic activities in more pro social direction, not an argument against billionaires (who control vast amounts of capital) from contributing their initiative and resources from the process.

“…no single human being could ever possibly do the kind of work that would merit making them a billionaire.”

You are framing it wrong. Markets are not about merit. They are about rewarding contributions to fellow humans according to the values of the participants as adjusted by supply and demand. If an individual creates billions of value to others via their musical skills, athletic performance or entrepreneurial ideas then the system rewards them.

The system is (admittedly imperfectly) rewarding someone to create the idea and someone to organize the “building of an online marketplace.” Lots of people worked on it, and some got rich. Others didn’t, but contributed to the process in their pursuit of wealth. The out-sized gains are themselves part of the incentive to take the risk, invest the time and capital and put in the work. The engineers also made it happen and were necessary, as were millions of suppliers to the process. Each got rewarded along the way, or (in the case of capital and entrepreneurs) took a risk in the pursuit of the idea. Consumers were the ultimate net beneficiaries, though millions of investors and workers gained along the way. On net, prosperity was enhanced because of the problem solving process of creating better, faster, cheaper, smarter supply chains.

“If only the billionaires did not attempt to use their billions to influence society, we might be able to ignore them…”

Lots of people attempt to use their power to influence society (and in both goods and bad ways. See the Federalist Papers no. 51). The wealthy are not the only, nor the biggest threat. I will even say that in any fair system that they need to have power to influence society, otherwise, being a minority themselves, they would themselves be immediately exploited by the majority or other powerful minorities (see Socialism). This would eliminated any incentive to become wealthy, and would undermine market effectiveness, leading to a horrible outcome.

I will also add that a billionaire who is at risk of being exploited by others is probably more dangerous than a multi-billionaire with the security to preserve and build on her wealth. The reason is because the best defense is a good offense, and in a zero sum game, the billionaires incentives would be to do whatever is necessary to grab and keep more slices of pie rather than to grow the pie.

And that is where prosperity really comes from — people, including entrepreneurs and billionaires — growing the pie.

“….there is no actually neat separation between “market” and “state” and there never has been or will be.”

Of course not. But there are ineffective regulations, public goods and destructive market interactions. A more effective system would minimize the destructive, net value destroying effects while promoting the value creating effects. It is a complex, dynamic learning process. A process of never ending discovery.

“If your analysis of contemporary American politics is that the safety net is too generous…”

I have no idea what you are rambling on about. Yes, I believe safety nets can be improved to be more efficient and to have fewer negative side effects as partially elaborated in my comment. Does any reasonable person actually disagree?

44

Swami 01.31.19 at 6:04 pm

Lee,

“Wouldn’t the northern european social democracies be “catching up” to many US innovations by receiving them as finished tradables, rather than growing their own domestic industries (and GDP) to provide them?”

They can trade for products which the leader creates, and/or adopt a fast follower strategy.

“This list finally gets us back to my comment at #16, to which you once took great exception, but now, you appear almost ready to agree that more neoliberalism will not solve them…”

I was initially taking exception to the view that neoliberalism was the explanation for slower developed nation growth and thus was discredited. It is not the explanation for lower growth, and nothing in my answer suggests that when defined narrowly as “any opposition to the expansion of the public sphere” that this is the necessary change to increase growth rates. If it is defined as “prohibiting cartels, oligarchies and rent seeking” then I would agree it is necessary that it be opposed. Thus my push back on the term. It can be both correct and incorrect depending on which definition we use, and this confusion is intentional on the part of those using it so they can dismiss reasonable opposition to their recommendations by unfairly packaging it in with nefarious definitions.

“Regulation can work like a non-rival good to provide unmeasurable growth in positive externalities, or else to provide unmeasurable savings from negative externalities — particularly useful in the arenas of quality of life and environment.”

Of course it can and does. It can also be used for cronyism, rent seeking, bureaucratic largesse, change resistance, and the privileging of incumbents. I offer no argument against regulation per se, I believe it is as necessary as inequality and freedom. My argument is against bad regulation, it is for less bad regulation and for the elimination of bad regulation. Consider it an argument for parsimony, efficiency and optimality, not eliminating regulation.

I would love to engage in a separate thread on what to do about lower developed-nation growth rates and on how to increase growth, but it may take us off into all kinds of weeds on a thread which has long since died out. You make many good points, but I will say that I am not totally convinced growth rates globally even are slowing longer term, as much as they are shifting into more virtual categories which are incapable of being measured well in standard economics. (Honestly I am unsure).

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Lee A. Arnold 02.01.19 at 1:22 pm

Swami #44: “necessary as inequality and freedom”

No, inequality is certainly not as necessary as freedom — and inequality finally may not be necessary at all.

Inequality was a political condition of the human race for millennia, and then it was used as an economic condition by the price market system for around 350 years until now, to help spur industrial innovation to overcome scarcity. But that is no cause to believe that inequality is necessary for the future, for example if scarcity is quickly being banished, if the new forms of economic growth are in unmeasurable virtual categories such as infotech amenities and quality of life, and if production and distribution are more efficiently achieved by monopolies and winner-take-all markets.

We appear to be entering a new era when the price market system’s underlying justifications for inequality (because: scarcity, and because: better human effort) are being rapidly demolished. (This is in advance of the likelihood that in the very near future, AI may give everyone access to overwhelming general ratiocinative capabilities, effectively leveling all brain power, while medical advances may cure all diseases and turn us all into Einsteins and Mozarts.) Yet at the same time as the justifications for inequality are being demolished, financial inequality is increasing in the developed countries, especially in the US.

That’s why I was concerned about GDP growth above, not because I think it’s particularly interesting, or the only thing, or the most important thing (far from it, in all three cases) but because the “coin of the realm” is still money, and people can be terribly harmed by the lack of it of course, and this contributes to social instability and hatred as we see. GDP growth slathers over the increasing inequality and makes it politically less volatile, temporarily.

To take merely one possible indication: If the northern (or northwest) european social democracies are not true catchup economies because they are mature specialized industrialized systems that simply trade for the new innovations, but the US does NOT have a greater average rate of GDP growth than they do, despite being a larger, more diverse and vibrant market system, then this may point to a problem with the market system itself in mature developed economies. The US could be the harbinger.

Perhaps increased financial inequality is a culprit: complexity’s negative network externalities (crowding; extra costs and fees) are less well dealt with by people at the wrong end of financial inequality when they have a setback, leading to the further tragedy of not getting back on their feet. Thus, growth slowdown. So we might add inequality to the list of possible causes for the GDP growth slowdown in mature developed economies.

I think there is a danger in assuming that because something has worked before, and because it ties into a comforting and self-justifying psychology, that therefore it will remain true. Economics started out as a branch of moral philosophy, then it became “political economy”, and now it is a bunch of people mentally stuck in loops of analytical subroutines, while believing that the price market system, scarcity and inequality are eternal human conditions that must be obeyed. It could start to do us harm.

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