Political Economy

Paul Krugman has an interesting piece in which he argues that huge disparities in incomes undermine the dignity of the worst-paid workers. This sentence struck me most:

we live in the age of the angry billionaire, furious if anyone should suggest that his wealth doesn’t entitle him to acclamation as well as luxury.

On that topic, I’m inviting all American billionaires to attend a talk at the Stanford Center for Ethics in Society on Thursday where I will be arguing that the billionaire has a duty not to be rich. [If you’re not a billionaire, you’re equally welcome.] I think there are a couple of good arguments to give for this view, including arguments along the line that Chris wrote here recently. I’ve presented these arguments before to British, Dutch and mixed European audiences, and am curious whether the reactions of Americans will be different.

I’m prepared to be surprised. Even more so given a scene that happened on Sunday at a plantation in Louisiana that I visited, after a great tour in which I learnt a lot about the horrible conditions under which slaves had been working so that the plantation owners could build their wealth:

Me [asking a sales person in the plantation shop]: “How much should I tip the tour guide? What is the custom?”
Sales person: “Whatever you feel like.”
Me: “But I have no idea. I live in a country where we don’t tip anyone.”
Sales person: “Really? That’s not a good idea!”
Me: “We don’t tip because we pay decent wages.”
Sales person (with voice raised) “But that is socialism!”

Now if even an ordinary American, working on a former slavery plantation where he is every day reminded of a past of exploitation and gross violations of human dignity, believes that ‘decent wages’ implies ‘socialism’, then I start to understand that Krugman faces an uphill battle generating a reasonable debate about income inequality and human dignity. Let’s just hope that my encounter at the plantation wasn’t representative for the range of categories in which people are thinking.

In the UK the press and commentariat have been in a huff about Labour’s proposal to levy income tax at 50% on incomes above £150,000. This is supposedly “anti-business” and “sends the wrong signal”, despite the fact that the top rate was higher under Thatcher. Much noise also about the danger that “wealth creators” (whoever they are) may leave and go off to other jurisdictions, concern unaffected by the fact that lots of other countries tax those on high incomes at a steeper rate. All of this is to be expected of course, as is the fact that journalists, who, when spouting right-wing guff, claim to be “reflecting” the views of their readers, continue to spout it when those readers disagree, as in this case.
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“Paul Krugman yesterday:”:http://krugman.blogs.nytimes.com/2013/12/12/tpp/

I’ve been getting a fair bit of correspondence wondering why I haven’t written about the negotiations for a Trans Pacific Partnership, which many of my correspondents and commenters regard as something both immense and sinister. The answer is that I’ve been having a hard time figuring out why this deal is especially important. … The big talk about TPP isn’t that silly. But my starting point for things like this is that most conventional barriers to trade — tariffs, import quotas, and so on — are already quite low, so that it’s hard to get big effects out of lowering them still further. The deal currently being negotiated involves only 12 countries, several of which already have free trade agreements with each other. It’s roughly, though not exactly, the TPP11 scenario analyzed by Petri et al (pdf). They’re pro-TPP, and in general pro-liberalization, yet even so they can’t get big estimates of gains from that scenario — only around 0.1 percent of GDP. And that’s with a model that includes a lot of non-standard effects.

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Pope Francis’s new Apostolic Exhortation, [Evangelii Gaudium](http://www.vatican.va/holy_father/francesco/apost_exhortations/documents/papa-francesco_esortazione-ap_20131124_evangelii-gaudium_en.html), has been getting some attention today, mostly thanks to its reiteration of some long-standing Catholic doctrine on social justice and the market. So, here is a quiz to see whether you can distinguish statements by Pope Francis from statements by Karl Marx. I figured someone was likely to do this anyway, so why not be first to the market? It’s fair to say that the Pope and Karl Marx differ significantly on numerous points of theory as well as on what people asking questions at job talks refer to as the policy implications of their views. So I don’t think this quiz is very hard. At the same time, I sort of hope it will be picked up, stripped of this introductory paragraph, and circulated as evidence that the Pope and Marx agree on pretty much everything.

### Questions!

> *1.* In a similar way, by raising dreams of an inexhaustible market and by fostering false speculations, the present treaty may prepare a new crisis at the very moment when the market of the world is but slowly recovering from the recent universal shock.

> *2.* … society needs to be cured of a sickness which is weakening and frustrating it, and which can only lead to new crises.

> *3.* In this play of forces, poverty senses a beneficent power more humane than human power. The arbitrary action of privileged individuals is replaced … Just as it is not fitting for the rich to lay claim to alms distributed in the street, so it is also in regard to these alms of nature.

> *4.* Yet we desire even more than this; our dream soars higher. We are not simply talking about ensuring nourishment or a “dignified sustenance” for all people … for it is through free, creative, participatory and mutually supportive labour that human beings express and enhance the dignity of their lives.

> *5.* … the limitless possibilities for consumption and distraction offered by contemporary society. This leads to a kind of alienation at every level, for a society becomes alienated when its forms of social organization, production and consumption make it more difficult … to establish solidarity between people.

> *6.* Today everything comes under the laws of competition and the survival of the fittest, where the powerful feed upon the powerless. As a consequence, masses of people find themselves excluded and marginalized: without work, without possibilities, without any means of escape.

> *7.* In this system, which tends to devour everything which stands in the way of increased profits, whatever is fragile … is defenseless before the interests of a deified market, which becomes the only rule.

> *8.* Inequality eventually engenders a violence which recourse to arms cannot and never will be able to resolve. … Some simply content themselves with blaming the poor and the poorer countries themselves for their troubles; indulging in unwarranted generalizations, they claim that the solution is an “education” that would tranquilize them, making them tame and harmless.

> *9.* The worldwide crisis affecting finance and the economy lays bare their imbalances and, above all, their lack of real concern for human beings; man is reduced to one of his needs alone: consumption.

> *10.* Solidarity is a spontaneous reaction by those who recognize that the social function of property and the universal destination of goods are realities which come before private property.

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The term “the taxpayer” is playing an increasing role in British public debate, often introduced, seemingly, as an apparently neutral synonym for “the public” whilst really being no such thing. The term is endlessly repeated by BBC interviewers asking “tough questions” of politicians and civil servants and it seems as if none of them either notices or is willing to question the ideological assumptions and tacit theory of legitimacy that lie behind the term.

Point 1. In a state that at least markets itself as a democracy, the principle ought to be that the state is answerable to the electorate. Pretty much everyone in the electorate pays taxes (VAT at least) but the key idea is not that the state is answerable to them because they pay for it, but rather because it is a non-voluntary entity that claims authority over them and subjects them to its laws. Whether they are “net contributors” to the public purse is neither here nor there. People who pay in more than they receive – such as the mythical “taxpayer” – have no special claim to extra influence.

Point 2. The “taxpayer” idea is being used in very harmful ways to deprive many ordinary people of their basic human rights, including the right to marry and form a family with a partner of their choice. (In the UK, the government asked an advisory committee to calculate the income levels at which families of various sizes would not be net beneficiaries of the tax-and-transfer regime in order to rule that people who failed to meet that income threshold would not have the right to have their foreign spouse live with them in the country.)

Point 3. The “taxpayer” idea claims that only those who pay more in taxes than they receive in benefits make “a contribution”. But that’s nonsense. Many poorly paid people make a contribution through work that they ought to be paid more for. The fact that they are underpaid and exploited shouldn’t be held against the many many people who, for example, keep our public and health services running. Many people who are not “economically active” make a contribution to society as parents, carers or in many other ways. And those unable to make a contribution because of age or disability: they have the same right to a say as anybody else.

The “taxpayer” trope is a pernicious ideological assault on the very idea of equal citizenship. It is elitist and exclusionary and promulgates a false theory of the state according to which government belongs to the propertied. No it doesn’t: it belongs to its citizens, rich and poor, old and young.

For a while I have been working on a paper on democracy, expert knowledge, and economics as a moral science. [The financial crisis plays a role in the motivation of the paper, but the arguments I’m advancing turn out to be only contingently related to the crisis]. One thing I argue is that, given its direct and indirect influence on policy making and for reasons of democratic accountability, economics should become much more aware of the values it (implicitly or explicitly) endorses. Those values are embedded in some of the basis concepts used but also in some of the assumptions in the theory-building.

The textbook example in the philosophy of economics literature to illustrate the insufficiently acknowledged value-ladenness of economics is the notion of Pareto efficiency, also known as ‘the Pareto criterion’. Yet time and time again (for me most recently two days ago at a seminar in Oxford) I encounter economists (scholars or students) who fail to see why endorsing Pareto efficiency is not value-neutral, or why there are good reasons why one would not endorse the Pareto-criterion. Here’s an example in print of a very influential economist: Gregory Mankiw.
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I thank John S. Ahlquist and Margaret Levi (hereafter A/L) for their response, “With Fortresses Like These …” to my essay in Democracy, “Fortress Unionism.” I had an odd feeling reading and rereading their essay. I though its bark was far worse than its bite. A/L warn that my strategy is “doomed”, and rests on “dangerous assumptions.” Unions are already doing what I advocate, and they are thus headed down “the drain.” Yet, given their final set of suggestions, it seems as if we really don’t have much to disagree about at all.  When all is said and done, A/L ignore most of my proposals before agreeing with others.

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As Chris’s post below suggests, Crooked Timber is a kind of anarchist collective (albeit in ways not appreciated by David Graeber …), which reflects a variety of views. We’ve also tried over the years to encourage argument between different views (mostly on the left). In that spirit, we’re publishing a short and vigorous back and forth on the future of unions. A few weeks ago, Rich Yeselson wrote a piece defending what he called “Fortress Unionism” for “Democracy”:http://www.democracyjournal.org/29/fortress-unionism.php?page=all (PDF version “here”:http://www.democracyjournal.org/pdf/29/fortress_unionism.pdf). John Ahlquist and Margaret Levi, have written a “response”:https://crookedtimber.org/2013/07/09/with-fortresses-like-these/ to Rich’s original piece; Rich has in turn “responded”:https://crookedtimber.org/2013/07/09/hortatory-uplift-is-not-a-plan/ to the response. For those who prefer to read in printed form, here’s a PDF of the argument.

Rich Yeselson is a writer, all-round public intellectual and former labor organizer. He has contributed to Crooked Timber book seminars in the past

John Ahlquist is Trice Family Faculty Scholar and Associate Professor of political science at the University of Wisconsin—Madison. Margaret Levi is Jere L. Bachrach Professor of International Studies at the University of Washington and Chair in Politics at the United States Studies Centre at the University of Sydney. Their book _In the Interests of Others: Organizations & Social Activism_ will be published by Princeton University Press later this year.

You can see this point made in somewhat more detail here.

[My reflections on Britain since the Seventies](https://crookedtimber.org/2013/04/10/britain-since-the-seventies-impressionistic-thoughts/) the other day partly depended on a narrative about social mobility that has become part of the political culture, repeated by the likes of Tony Blair and Gordon Brown and recycled by journalists and commentators. In brief: it is the conventional wisdom. That story is basically that Britain enjoyed a lot of social mobility between the Second World War and the 1970s, but that this has closed down since. It is an orthodoxy that can, and has, been put in the service of both left and right. The left can claim that neoliberalism results in a less fluid society than the postwar welfare state did; the right can go on about how the left, by abolishing the grammar schools, have locked the talented poor out of the elite. And New Labour, with its mantra of education, education, education, argued that more spending on schools and wider access to higher education could unfreeze the barriers to mobility. (Senior university administrators, hungry for funds, have also been keen to promote the notion that higher education is a social solvent.)
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The 1970s have been in my mind over the past few days, not only for the obvious reason, but also because I visited the Glam exhibition at Tate Liverpool last weekend. Not only were the seventies the final decade of an electrical-chemical epoch that stretched back to the late nineteenth-century, they were also the time when the sexual and political experimentation of the 1960s and a sense of being part of a cosmopolitan world order became something for the masses, for the working class, and when the old social order started to dissolve. In the experience of many people, the sixties happened in the seventies, as it were.

But my main thoughts, concerning Britain at any rate, have been about social division, and about some oddly paradoxical features of British life before Thatcher. There’s a very real sense in which postwar British society was very sharply divided. On the one hand, it was possible to be born in an NHS hospital, to grow up on a council estate, to attend a state school, to work in a nationalised industry and, eventually (people hoped), to retire on a decent state pension, living entirely within a socialised system co-managed by the state and a powerful Labour movement. On the other, there were people who shared the experience of the NHS but with whom the commonality stopped there: they were privately educated, lived in an owner-occupied house and worked in the private sector. These were two alternate moral universes governed by their own sets of assumptions and inhabited by people with quite different outlooks. Both were powerful disciplinary orders. The working class society had one set of assumptions – welfarist, communitarian, but strongly gendered and somewhat intolerant of sexual “deviance”; middle-class society had another, expressed at public (that is, private) schools through institutions like compulsory Anglican chapel. Inside the private-sector world, at least, there was a powerful sense of resentment towards Labour, expressed in slogans about “managers right to manage” and so on that later found expression in some of the sadism of the Thatcher era towards the working-class communities that were being destroyed. Present too, at least in the more paranoid ramblings of those who contemplated coups against Labour, was the idea that that the parallel socialised order represented a kind of incipient Soviet alternative-in-waiting that might one day swallow them up.
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Ray Fisman and Tim Sullivan (who I know a little and like) are blogging about their recent book on organization management, _The Org_ (“Powells”:http://www.powells.com/partner/29956/biblio/9780446571593?p_ti, “Amazon”:http://www.amazon.com/gp/product/0446571598/ref=as_li_ss_tl?ie=UTF8&camp=1789&creative=390957&creativeASIN=0446571598&linkCode=as2&tag=henryfarrell-20) over at “OrgTheory.net”:http://www.orgtheory.net at the moment. It’s both a very good book and an excellent introduction to a particular style of thinking about organizations. The book starts with Ronald Coase’s insights about the relative benefits of contract and hierarchy, and goes from there. Much of the book is devoted to showing how these insights travel across a wide variety of different contexts – Baltimore policing (building on “Peter Moskos’ sociology”:https://crookedtimber.org/2009/07/21/discretion-and-arrest-power/), Christian preaching and the like. Much of the book is also devoted to explaining why apparently frustrating aspects of organizations have a rationale, and may even be the best way of accomplishing something or somethings, given the complex and multiple needs, internal incentive problems and so on. More succinctly, the book sets out to show how the world that Dilbert inhabits may not be the best of all possible worlds, but is better than we realize at first glance, and actually less dysfunctional than the obvious alternatives. It provides a lot of detail and case study to back up this basic claim. And it is in an entirely different league of intelligent argument from other books aimed at business readers.

All this said, I tend to view organizations from a different perspective than the authors, one which didn’t really get any sustained attention in the book. Fisman and Sullivan build on two major traditions in organization and management – one stemming from Frederick Taylor, and the other from Chester Barnard. Taylor emphasized the value of overt incentives, monitoring and information in achieving organizational efficiencies. Barnard emphasized the benefits of fuzzier notions of corporate culture, in creating a more diffuse, but likely valuable set of benefits in interactions between workers and management. Fisman and Sullivan start off with a Coaseian version of Taylor’s arguments, but weave in some Barnardian arguments about the benefits of corporate culture as the book progresses. A good organization is one with clear, well designed incentives, _and_ with a culture of trust.

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It’s been interesting to follow the progress of Daron Acemoglu and James Robinson over the last few years, from what I suspect (but don’t know – happy to be corrected) was a right-leaning centrism to a set of vigorous arguments about the pernicious consequences of inequality. This is perhaps comparable to Keynes, who was never a full-on lefty, but instead a liberal interested in saving capitalism from itself. Now, via JW Mason on Twitter, I see they have a “new paper”:http://economics.mit.edu/files/8741 arguing that economists need what “some of us would call”:http://vserver1.cscs.lsa.umich.edu/~crshalizi/weblog/778.html a theory of politics, and that if they developed one, they’d see why unions were often well worth any deadweight cost.

bq. In this essay, we argue not only that economic advice will ignore politics at its peril but also that there are systematic forces that sometimes turn good economics into bad
politics, with the latter unfortunately often trumping the economic good. Of course, we are not claiming that economic advice should shy away from identifying market failures
and creative solutions to them, nor are we suggesting a blanket bias away from good economic policy. Rather, our argument is that economic analysis needs to identify, theoretically and empirically, conditions under which politics and economics run into conflict, and then evaluate policy proposals taking this conflict and the potential backlashes it creates into account.

bq. Our basic argument is simple: the extant political equilibrium may not be independent of the market failure; indeed it may critically rest upon it. Faced with a trade union exercising monopoly power and raising the wages of its members, most economists would advocate removing or limiting the union’s ability to exercise this monopoly power, and this is certainly the right policy in some circumstances. But unions do not just influence the way the labor market functions; they also have important implications for the political system. Historically, unions have played a key role in the creation of democracy in many parts of the world, particularly in Western Europe; they have founded, funded and supported political parties, such as the Labour Party in Britain or the Social Democratic parties of Scandinavia, which have had large impacts on public policy and on the extent of taxation and income redistribution, often balancing the political power of established business interests and political elites.

bq. Because the higher wages that unions generate for their members are one of the main reasons why people join unions, reducing their market power is likely to foster de-unionization. But this may, by further strengthening groups and interests that were already dominant in society, also change the political equilibrium in a direction involving greater efficiency losses. This case illustrates a more general conclusion, which is the heart of our argument: even when it is possible, removing a market failure need not improve the allocation of resources because of its impact on future political equilibria. To understand whether it is likely to do so, one must look at the political consequences of a policy: it is not sufficient to just focus on the economic costs and benefits.

It would be nice to see more economists starting to think about the world in this way. It would be even nicer to see this paper having some influence on the numerous technocratic pundits who have unconsciously absorbed economists’ way of thinking about policy problems.

The current issue of the online journal Intereconomics features stories about the politics of adjustment in Greece, Ireland, Spain, Italy, and Portugal. Aidan Regan and I contributed the article about Ireland. Each paper outlines the measures that have been taken in recent years, and the major challenges each country now faces. All five countries share many common features of course, including the difficulty of keeping on track with deficit reduction targets in the context of no growth and truly awful unemployment figures. But the challenges discussed by authors are quite varied too: in Greece, for example, it’s governance problems that are highlighted; in Portugal and Italy, productive capacity and export performance; in Spain, problems over sustaining the revenue base of the state.

In Ireland’s case, we outline the ongoing problems involved in trying to reduce the large government deficit. We also note that the legacy of the financial crisis complicates Ireland’s recovery strategy. The government has staked a great deal on getting some relief on a portion of the deficit and debt issues that arise from recapitalizing the banks. What the government is looking for at the moment is not a debt restructuring or a default by this or any other name, but a rescheduling of a portion of the costs of unwinding the full liabilities of the now-defunct Anglo Irish Bank. From the Irish point of view, the ECB has given mixed signals on this: positive indications about the design of the ESM in June 2012, but in September, a statement that was construed by UCD Professor of Economics Karl Whelan as ‘Germany to Spain and Ireland: Drop Dead’.

Yet the backroom diplomacy continued, and the government certainly seemed to that that an agreement would be possible before the next critical deadline for Ireland of 31 March. Right now though, things are not looking so good. There are fears that, as in other areas of crisis management, there is a tendency for EU decision-makers to pull back from new commitments unless crisis is staring them straight in the face. ‘They are under-performing again’, a senior EU official said in December. Even as Germany reported a downturn in economic activity earlier this month, José Manuel Barroso said that ‘the existential threat against the euro has essentially been overcome’. Well, that’s alright then.

For all that, the game is not over yet in Ireland’s negotiations with the ECB. The Irish Congress of Trade Unions has taken up the case too. With the call to ‘Lift the Burden: Jobs not Debt‘, it’s calling for protests on 9 February. We’ll wait and see.