Thursday, April 17, 2014

Sandwichman — Ants at the Piketty Picnic: What's Wrong with "Inequality"?


Sandwichman follows up on Peter Radford.
Why do people want to get rich? Sure, they want nice stuff, but more fundamentally they want to be freed from the coercive everyday insecurity of being poor. How do the wealthy stay rich and get even richer? They use the political power that their wealth accords to keep the game rigged in their favor....
Inequality is a positive fact; coercion is a normative claim. So let's all talk about inequality as if it has nothing to do with coercion. Let's not talk about the elephant in the room. What elephant?
So what's wrong with "inequality"? Framing the debate to be about "inequality" misses the point that the real problem is coercion.
Democracy gives the less well off the power to coerce the wealthy into sharing the wealth  — if they use it. The rich use their social, political and economic power to prevent this, in effect coercing the less well off to remain so.

One of the key arguments is that a rising tide lifts all boats. Another is meritocracy and just deserts. Both are based on unreasonable assumptions as heterodox economic analysis shows as well as analysis of social and political thinkers and social scientists.

Capitalism results in accumulation of capital at the top unless policy is brought to bear to prevent this.

Econospeak
Ants at the Piketty Picnic: What's Wrong with "Inequality"?
Sandwichman


16 comments:

Anonymous said...

There will always be coercion. The only issue is who coerces whom and how the means of coercion are distributed. Inequality is fundamental here, because wealth = power, and the distribution of wealth corresponds to the distribution of power.

A democratic society is one in which the control over the rule of law and the means of coercing people to obey the laws - i.e. government - is distributed as equally as possible, with robust and comprehensive institutions for broad participation in decision-making, and for effective political action taken against rogues, predators and exploiters.

Anonymous said...

The course of human history shows the choice is rule or be ruled. Americans of this generation have to determine whether they have the stomach to fight a political war for broad democratic control over the commanding heights of the global economy and political power order, or if they prefer to be serfs and lose themselves in insipid fantasies about a world with no rules, no power, no inconvenience, no sacrifice, no hard work, no exchange, no debt and no enemies.

The romantic American cult of unbounded individual liberty is identical to the cult of bovine servitude.

circuit said...

"One of the key arguments is that a rising tide lifts all boats."

The reasons Keynesians of the 50s and 60s used to say the "rising tide" metaphor is because in their view when growth picks up, people in general become more generous, more sensitive to the plight of others and more willing to accept re-distributive policies. Even today, most studies have shown that this is a sensible position. Many believe they meant it as a strict, general rule to suggest that growth automatically leads to greater equity, which doesn't seem to be the case. All that to say is that it's not only the heterodoxy who understand the challenges of trying to combine growth with equity. (Of course, there are economists who are totally repulsed by any of this stuff but that's another issue)

circuit said...

Just to follow-up. I would say it is the political class that is very different. Today, the people who run the show are myopic and stupid.

Tom Hickey said...

"A rising tide lifts all boats" is true — as far as it goes. Even Marx agreed that the capitalism of his day was an advance over feudalism, and at the same time he pointed out the defects. However, an analogy pushed too far breaks down.

The rising tide analogy misused not only to justify a system that could be improved upon greatly but also to advocate "tickle down" supply side economics as being necessarily implied by growth as increasing per capita GDP. However, this says nothing about distribution. Prosperity is includes distribution.

Whether one accepts Marx's solutions, he did get important parts of the narrative right, in particular the sociology of class-based power struggles. Non-Marxist sociologists have followed Marx in this and gone on to show more empirically what Marx had brought to the fore about class, power, and institutional arrangements.

Conversely, economics after Marx can be seen as a reaction to Marx, and a reaction so severe that it delegitimized reference to any of the important points that Marx brought up, especially class and power.

Secondly, neoclassical economics was also a reaction to the centrality of economic rents in classical economics.

Take away institutional analysis, consideration of class and power, and ignore economic rents and there isn't much left. At that point, economics becomes just made up.

See the Solow quote at Lars's place yesterday about the Ramsey model.

Microfoundations and the Ramsey model — hardly worthy of grown-ups

Actually, Frank Ramsey constructed that model as part of an argument against central planning in opposition to the socialism of the time. This was huge concern for the Western elite socially, politically and economically post-Marx and especially with the rise of Soviet communism. That reaction still dominates conventional economics, even through the USSR has disappeared into history. Interestingly though, the propaganda is that Putin is bent on resurrecting the USSR, so this is still very much in play.

Bullish_Bear said...

Capitalism results in accumulation of capital at the top unless policy is brought to bear to prevent this.

Does that not exist in every economic system?

With socialism and communism, doesn't the capital at the top become even larger and is accumulated by even fewer people than in capitalism?

Krugman kind of makes my point.

http://www.zerohedge.com/news/2014-04-17/krugman-who-paid-25000month-study-inequality-says-nobody-wants-us-become-cuba

He states, "Nobody Wants Us To Become Cuba".

Tom Hickey said...

With socialism and communism, doesn't the capital at the top become even larger and is accumulated by even fewer people than in capitalism?

Under capitalism, the means of production are privately owned and profit and asset appreciation belong to the owners. Unless ownership of the means of production is widely distributed, the gains accumulate at the top.

Under communism that is only public ownership of the means of production. In the USSR, communism was "not yet" achieved since the state had not withered away by the time the USSR collapsed. I guess they would say it was still the period of the dictatorship of the proletariat, really the dictatorship of the Communist Party. The dictatorship got to allocate the benefits and distribution was skewed to the top. China is still under the dictatorship of the Communist Party, the top of which enjoys the privilege of position and power, and the system is notoriously corrupt.

There are different types of socialism. Strictly defined, there is only public ownership of the means of production. All proceeds go to advancing public purpose. More loosely, workers own the means of production and they decide consensually on distribution.

There have been attempts at socialism on a limited scale, e.g., Mondragon, but I am unaware of a modern socialist state having existed to date. The closest has been mixed economies. Interestingly, Sweden instituted a mixed economy and the Gini coefficient was low during that period. Since liberalizing, the Gini coefficient has been steadily rising. The Swedish model is over.

Under both communism and socialism if gains accrue at the top of power structure, it's not actually communism or socialism at all but rather capture of the state similar to plutocracy under capitalism.

Bullish_Bear said...

Tom,

Thank you for the response.

I guess they would say it was still the period of the dictatorship of the proletariat, really the dictatorship of the Communist Party. The dictatorship got to allocate the benefits and distribution was skewed to the top. China is still under the dictatorship of the Communist Party, the top of which enjoys the privilege of position and power, and the system is notoriously corrupt.

Under both communism and socialism if gains accrue at the top of power structure, it's not actually communism or socialism at all but rather capture of the state similar to plutocracy under capitalism.

That is exactly my point. Under communism and socialism it seems they have all become a dictatorship or a plutocracy throughout history. IMHO, the reason this always happens is because humans are inherently greedy and competitive. If humans are inherently competitive, how can communism or socialism ever work. It seem under communism and socialism that there ends up being a .000000001% wealthy class and an extremely poor labor class with the labor class having zero hope of ever becoming .000000001% class. On the other hand, under capitalism there is a 1% wealthy class, a middle class and a poor class and anyone can get into the 1% class.

Is this not the case?

Bullish_Bear said...

My point is that IMHO pure communism or socialism are simply unattainable and impossible to be maintained over time due to the human nature of competitiveness.

Looking forward to your response.

Bullish_Bear said...

Just take a look at unions in the the US for example. Do the gains not accrue at the top?

http://www.washingtontimes.com/news/2013/jan/10/labor-union-bosses-salaries-put-big-in-big-labor/?page=all

There can be riches in standing up for the working class: The Boilermakers union president earned $506,000, plus hundreds of thousands of dollars more for travel expenses, while the Laborers union president made $441,000. The Transportation Communications Union leader made $300,000, bumped up to $750,000 with business expenses.
Patrick W. Flynn makes $435,000 a year in his capacity as treasurer of a 13,600-member Teamsters union local, and the $30,000 in business expenses he collects on top of costs associated with carrying out his duties around Mokena, Ill., approach that of a typical worker’s entire salary.

Bullish_Bear said...

Sorry for the multiple post.

It just seems to me that so many liberals paint capitalism as inherently evil. However, historically, communism and socialism in generally have been so much worse.

So, if a similar situation happens in all three systems, is it the system or the people in the system?

circuit said...

Good comments, Tom.

This is a really nice way of putting it:

"Take away institutional analysis, consideration of class and power, and ignore economic rents and there isn't much left. At that point, economics becomes just made up."

Totally made up.

About the DSGE stuff, Solow is obviously right. What's crazy is that these people criticized old keynesian models (that looked at components of supply and demand) for being devoid of microfoundations. Elsewhere Solow explains that this is false:

"You know, there is something a little ludicrous in the belief that microfoundations for macroeconomics were invented some time in the 1970s. If you read Keynes's General Theory or Pigou's Employment and Equilibrium (or many lesser works) you will see that they are full of informal microfoundations. Every author tries to make his behavioral assumptions plausible by talking about the way that groups or ordinary economic agents might be expected to act...But you can recall Keynes's argument that the marginal propensity to consume should be between zero and one, or his discussion about whether the marginal efficiency of investment should be sensitive to current output or should depend primarily on "the state of long-term expectations". Those are microfoundations."

Tom Hickey said...

Is this not the case?

So far, this is true historically.

I have been saying that reversing this pattern will require a shift in the collective level of consciousness toward greater universality. This has been the teaching of the wise throughout recorded history that appears ubiquitously. It also seems true as we peer into the mists of prehistory. By the time it is recorded, the teaching is already well-developed and widespread.

The fundamental teaching is that existence is one and manifests as the appearance of many, like the ocean and its waves. The atomistic aspect is the bubbles of the waves in this analogy, and the waves and currents are the different levels of manifestation of diversity united in the solitary ocean.

The wise are those who have realized the unity underlying diversity. While this can be stated conceptually, it must be realized experientially in order to own it. This is fundamentally what spirituality is about and this teaching lies at the core of all wisdom traditions including religions. Science has progressed in this direction also in the quest for a unified theory that explains "everything."

It's happening.

Bullish_Bear said...

I have been saying that reversing this pattern will require a shift in the collective level of consciousness toward greater universality.

If that doesn't happen, what is the best economic system? I would argue that it is actually capitalism that is better for everyone due to the reasons mentioned above.

Furthermore, IMHO I think the shift of consciousness that you referred to is just too great. It seems to me what you are talking about is a world in which people no longer wanted the bigger nicer house, more expensive car, expensive watches or for men the prettier wife. Maybe I am too pessimistic but I just can't imagine that occurring. Therefore, even if a society setup up pure socialism or communism with the best intentions in mind, I think that they will always evolve into a dictatorship or plutocracy. Furthermore, it seems rational to argue that if communism or socialism is setup before this unlikely shift of consciousness that it is actually worse for the majority of people.

Tom Hickey said...

If we think in terms of ideals, we are essentialists rather than pragmatists. History develops pragmatically. Explanation and justification come later.

History never produces "the best system" in the abstract but the system that the level of collective consciousness of the era supports in various regions and these compete for dominance at the interfaces. There is always dynamic tension and testing boundaries.

Pragmatic thinking is critical and contextual rather than essentialistic or idealistic. It is iterative and incremental rather than attempting to create an end product directly without exploring and testing alternatives. It is dialectical rather than categorical.

Biologists, especially evolutionary biologists, have described the how the natural process works organically and ecologically. Human behavior and development is similar if more complex owing to the human brain and nervous system and its capabilities. But humans are part of nature and develop through natural processes.

We cannot know beforehand what the future will bring but only peer into the mists through past and present experience and reflection on it. What we can do is critique the past and present and therefore determine what we do not want to happen in the future as well as what we want to achieve.

Communism and socialism have been exhaustively critiqued in the West but capitalism not so much, at least to the degree that most are aware. That is now beginning to happen and what was previously off the table until very recently is now coming to the fore as politically correct. Actually, there is huge body of literature critiquing capitalism and the rationale justifying it, of which most people remain unaware. That is now surfacing too.

Occupy was correct operationally to critique and not propose. We are in a further development of that stage, which has a way to go. They also realized that the objective was not a manifesto but rather raising group consciousness and through the media raising collective consciousness. Which is why TPTB sought to demonize it and brutally suppressed it before it could get legs. However, that was a temporary setback since Occupy was a manifestation of a shift in collective consciousness that is taking place.

There are proposals for revising or overhauling the status quo that have been offered and they will surface, too. New proposals will be forthcoming. It will be a feast for publishers. The Road to Serfdom may have been hot lately but look for The Great Transformation to start gaining ground, as well as John Kenneth Galbraith's The Great Society. Institutionalism will be back. Before the crisis hardly anyone was aware of Minsky.

MMT is partly a critique and partly a proposal from a POV, but largely within the current framework. While it is radical enough to bring significant change, it is traditional enough to be practical in current context.

The one thing we can be reasonably sure about given historical development is that the pendulum swings both ways periodically. The pendulum swing of capitalism seems to be approaching the end of a swing and the time is approaching for the direction to reverse.

This may not be the end of capitalism, and I doubt it will be, but it will be the end of neoliberalism as a failed experiment. Neoliberals will protest that neoliberalism was never actually instituted but the consensus is growing that the public doesn't want to wait to find out the ultimate outcome. The direction is not promising.

Rather than seeking for labels we need to be thinking in terms of what we do and do not want. What the outcome eventually turns out to be will reveal the level of collective consciousness at that time by the cultural and institutional shift, including the shift in the universe of discourse.

Tom Hickey said...

BTW, Krugman is being groomed as the front man on addressing inequality economically. Also pay attention to Joseph Stiglitz and Jamie Galbraith.

Politically the name leaders are Elizabeth Warren and Bernie Sanders.

Socially, Pope Francis is way out in front.

Of course there will be other stars rising, and we will be watching for them and reporting on them.