Thursday, May 26, 2016

David F. Ruccio — Letting capitalism off the hook

The mainstream argument is that capitalism is not at fault for the growing social and political unrest because capitalism is economic and economics is concerned with the circular flow of production (supply), distribution (markets), and consumption (demand). Distribution is the outcome of the interaction of supply and demand in markets. This outcome is meritocratic because marginalism, and everyone receives their just deserts based on contribution.

Therefore, inequality, which is distributive, is the result of economic laws based on market forces. Since this is meritocratic, dissatisfaction with distributional effects is the result of class envy by the less capable. Therefore, it is psychological rather than economic, based on false morality rather than scientific understanding.

So the people at the bottom should just get over it.

The trouble with the argument is that it assumes microfoundations based methodological individualism (separate agents acting independently), economic optimization (homo economicus* rather than homo socialis**), equilibrium due to market forces (absence of asymmetries resulting in economic rents). 

Distribution is very much economic, and it is based on economic rent extraction ("exploitation") rather than merit. 

Misrepresenting this is the basis of the neoliberal claim that there is no alternative to unregulated markets and privatization of public assets. 

So, no, capitalism can’t be let off the hook. It perpetuates the conditions it claims to address. And even though economic and political elites want to believe otherwise, holding firm to the notion that people should be satisfied with current economic arrangements, recent developments in the United States and Europe suggest they’re not.
Occasional Links & Commentary
Letting capitalism off the hook
David F. Ruccio | Professor of Economics, University of Notre Dame

See also

Protest of the day

"The natives are getting restless."

* Homo economicus is a mythical beast that always acts rationally to maximize utility in terms of a given preference set, choosing one basket of goods over another in terms of that preference set.

** Homo socialis is a realistic human being whose action is not only complex but also social, that is, mutual influenced, systemic and memetic, that is, embedded in a social, political and economic system, with preferences that are not only economic but social, political, ethical, spiritual, religious, etc. Home socialis is subject to both animal spirits and angelic spirits, sometime acting out of narrow self-interest and sometime altruistically. Moreover, homo socialism is not purely rational for several reasons. First, homo socialism is a cognitive-affective-volitional being that operates only in terms of rigorous analysis but also intuition, cognitive affect biases, and normative values the guide behavior. These values are not perfectly consistent, so there is volitional conflict. In addition, being embedded in a social group, there are many influences — cultural, institutional, and mimetic — on homo socialis. Hence, homo socialis does not consistently act independently of others or separate from the social group and social system, so that methodological individualism does not hold other than a weak sense.


Andrew Anderson said...

"Therefore, inequality, which is distributive, is the result of economic laws based on market forces. Since this is meritocratic, dissatisfaction with distributional effects is the result of class envy by the less capable. "

How can we have a meritocracy with government-subsidized private credit creation since those with equity (perhaps merely inherited equity) are automatically deemed "creditworthy" of what is essentially the public's credit and not the private sector's?

Where's the merit in government subsidized wealth?

Anonymous said...

Self-interest is good when it maintains a healthy body, emotions and mind; and good relations with others. Social-interest is good when it maintains human dignity, peace and prosperity. Very easy to understand. Materialism is the pursuit of what is on the outside (not a problem in itself), but when at the expense of respect, dignity, love of humanity and for one’s self, everyone’s best interests are sacrificed. The challenge for humanity is to become more human, not less. To rise above selfishness and greed - one by one.

But there is another dimension besides self-interest and social-interest. One might call this homo-iwannabecontentus (hi)! In terms of human existence, this engine drives the other two.

On average, we get around seventy laps around the sun. What do you want? Do you even know, or are you a conditioned being, blindly following the formulas of this world? Not making any value judgements; just asking the question.

Every day we travel up to 40,000km as the earth revolves, and every year 940,000,000km in orbit around the sun; the milky way spins at 270km/sec. taking 200,000,000 years to complete a rotation, and the whole structure probably orbits something else; is going somewhere else. You might have some plans but the universe also has some plans for you.

‘Oh, I want a house, three kids, a beautiful wife, a dog, and a good job with prospects – then I will be content’.
‘Oh, I want not to be a beggar on the street, but to live like the King in his palace – then I will be content’.
‘Oh, I want to dominate Russia and China, beat them all up and take everything they have, and rule the world – then I will be content’.
‘Daddy, daddy – I want that toy. Then I will be content’.
‘I want to discover the smallest particle, that can and cannot exist at some point, or everywhere – then I will be content’.
‘I want to shine on the world’s stage – then I will be content’.
‘I don’t want to die – then I will be content’.
‘I want to be happy – then I will be content’.

Ergo, homo-iwannabecontentus.

Somewhere in the future, on one of those laps around the sun, I swear, I will be content. Even though the only moment I can experience is Now. :-)!