Friday, May 16, 2014

Peter Dorman — The Two Inequalities


In the wake of Piketty, “inequality” is in. But it comes marinated in confusion.
There is really only one inequality that is significant, and it is not economic, although its root in modern society are heavily influenced by economic asymmetries. The only actual inequality is political, as in, "We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable Rights...."

 This states that no one is privileged over another politically or legally. It does not question or deny social and economic asymmetry in status and wealth. The equality guaranteed by liberal democracy as government of the people, by the people and for the people is political and not economic. Poltical and legal equality are simple to define and not difficult to achieve, if and only if government is truly of the people, for the people and by the people, even if there are social and economic asymmetries in status and wealth. However, these must not lead to institutional power that creates political and legal privilege.

The question is whether any conditions result in institutional power that entails political or legal privilege. Economic asymmetry seems to do just that, and this is the actual problem that needs to be address in a liberal democracy since it threatens the basis of liberal democracy.

If this were addressed effectively, economic asymmetries would take care of themselves since they depend on asymmetrical institutional power and the economic rent that power imbalance leading to political and legal privilege generates. Externality is also form of rent.

Of course there is is also economic power. However, on a level playing field this can be dealt with politically in a liberal democracy.  Then the level of economics asymmetry is up to the electorate in that they have the political power to address it through economic policy, legislation, and regulation.

Unless institutional power and power asymmetry is addressed, it will not be possible to address economic asymmetries effectively and efficiently other than temporarily, in that a power structure will remain in place to mitigate and then reverse reform.

The issue is that neoliberalism is a political theory that is incompatible with liberal democracy because its assumption of methodological individualism based on ontological individualism is used in a purely economic context that ignores institutional power, resulting in not only social and economic asymmetry but also political privilege. Unless political liberalism is placed above economic liberalism, money and machines will continue to dominate over people, since that is the way the capitalism is structured as a system that favors capital formation.

 Piketty's work shows that in this sense, capitalism is working exactly as it is supposed to. As capital formation increases so does wealth asymmetry and along with it political power and privilege.

Econospeak
The Two Inequalities
Peter Dorman | Professor of Economics, Evergreen State College.

No comments: