Bill Mitchell — The rise of the “private government”

I have always found it odd (read totally inconsistent) that people rail against government intervention as if it is a blight on our freedom, but ignore the ‘governance’ of workplaces by capital, who seek every way possible to destroy our freedom and initiative unless it is serving to advance their bottom line. We ignore the benefits of collective goods and laws that protect us, but turn a blind eye to the on-going, minute-by-minute, repression in the workplace. I was reminded of this again as I was reading a new book that came out in May 2017 – Private Government: How Employers Rule Our Lives (and Why We Don’t Talk About It) – by American philosopher Elizabeth Anderson. She studies that way in which corporate America serves in effect as a “private government” minutely and vicariously controlling our daily working lives yet many of us still accept the construction that this is the ‘free market’ operating. It is when the word ‘free’ loses all meaning. I especially like her use of the term “private government” to reinforce the hypocrisy of the elites and the inconsistency of those (workers included) who call for small ‘government’ as if that is the exemplar of freedom.

This is what happens when economic liberalism is equated with liberalism. Then economic liberalism is prioritized institutionally over social and political liberalism, and the result is illiberal. This is one of the internal contradictions of liberalism that are also called paradoxes of liberalism.

Whose freedom?

Bill Mitchell – billy blog
The rise of the “private government”
Bill Mitchell | Professor in Economics and Director of the Centre of Full Employment and Equity (CofFEE), at University of Newcastle, NSW, Australia

John T. Harvey — Scoring President Trump’s Economics

Although we don’t talk about it much, capitalism is fundamentally about power and who should wield it. The general idea is that it should be diffused among all the average folks in society. We don’t want particular firms or individuals accumulating power because then the economy is run for them and not us. Implicit in all this is the idea that the average person is important and has rights. That probably sounds familiar and, indeed, there is a reason why the language is so similar in the Declaration of Independence (1776), the French Declaration of the Rights of Man and of the Citizen (1789), and Adam Smith’s Wealth of Nations (1776). All were a product of the political, social, and intellectual revolution wherein the focal point became the individual. Individuals should be allowed to make their own choices and shape their own future.

Whether or not capitalism is really capable of this is a point of controversy. Regardless, there is no question that it is philosophically committed to breaking power into tiny packets and preventing elites from taking over. If the latter does occur, then the positive outcomes we associate with capitalism are no longer guaranteed. They become increasingly unlikely because we can’t trust that those elites will really act in our best interest. With respect to businesses, for example, Adam Smith wrote,

People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices.

What I am getting at here is that rejuvenating the middle class is not just about jobs. It’s also part of a larger project aimed at wresting power away from economic and political elites and returning it to Americans. The latter appears to be what the President means by “draining the swamp” and I totally agree. This was a key part of both his and Bernie Sanders’ campaigns and it must be a priority lest we lose forever the opportunity to reverse this trend.

With that in mind, I have reviewed a number of President Trump’s policies asking generally, “Does this drain the swamp by empowering the average American?”

Balancing economic and political liberalism — reconciling capitalism and representative democracy in a republic.

Forbes — Pragmatic Economics

Scoring President Trump’s Economics

John T. Harvey | Professor of Economics, Texas Christian University

Branko Milanovic — Will social democracy return? A review of Offer and Söderberg

Avner Offer and Gabriel Söderberg (“The Nobel factor: the prize in economics, social democracy and the market turn”) look at the strange death of social democracy at the hands of market liberalism. That death was accelerated by the role of the Nobel prize in economics that conferred to economics an allure of science and that was used to much greater profit by neoliberal economists to push for their version of economic policies.

Offer and Söderberg define social democracy as a continuation of Enlightenment: from equality before God to equality before law, to equality between men and women and races, to equality of entitlements between citizens. Since each citizen goes through periods of dependency (as a child, as a mother, as unemployed, or as an old person) when he/she cannot earn an income, he has to depend on transfers from the working age population. This life-cycle pattern is shared by all, and thus society, in a form of social insurance, sets a system that provides redistribution from the earners to the dependents.

How does market liberalism solves the life-cycle problem? By positing that everyone is a free agent with his endowments of capital and labor. When he cannot work, he uses the proceeds from his capital (assuming of course that he originally either inherited or saved enough wealth to have a capital). It is not a “society” in a true sense of the word, but a group of “agents” who manage own income over the life-cycle. Since returns are to one’s ownership of labor and capital and there is no redistribution, it is a “just world” society where one gets back what he has put in, and where income inequality is never an issue—precisely because income is exactly proportional to one’s contributions.

These are indeed two different views of the world. As Offer and Söderberg write, social democratic view was extremely successful empirically but was not theoretically worked out much by economists. The neoliberal view has exactly the reverse characteristics: empirically it was not much of a success (look at private pension schemes in Chile), but economists have extensively worked on it theoretically…

The difference between social democracy and market liberalism can be summarized as a difference in approach.

Market liberalism assumes methodological individualism based on ontological individualism, so that economics can be pursued as an autonomous discipline.

Social democracy assumes that individuals are embedded in social systems, one aspect of which is economic.

Perhaps the most telling difference is that market liberalism assumes that efficiency and economic growth are the chief criteria of economics. Economic" has come to mean efficient.

Social democracy, being based on systems thinking, posits that overall effectiveness of the system in accomplishing its social, political and economic goals is of a higher priority than economic growth and economic efficiency, and that economic efficiency must be brought into balance with systemic resilience.

A chief problem with theoretical economics based on the methodological choices of market liberalism is that the necessity for restrictive assumptions makes much of the theory inappropriate for informing policy.

A second issue is that market liberalism does not consider policy goals but assumes that market efficiency leads to systemic optimization in all major respects, which goes illogically beyond the assumptions and data.

Social democracy begins with desired outcomes and seeks to achieve those outcomes based on historical experience and evidence provided by data as well as social, political and economic theory.

The question of return implies that the answer is historical. History is dialectical, proceeding experimentally and adapting to emergence. There is no categorical "end of history." While history does not repeat itself it does rhyme in the sense that experiment draws on experience.

The dialectical nature of both experience and history is that when one position is posited, its complement, although excluded, is necessarily included as a potential. As anomalies arise with a particular view, since no view is can be a comprehensive account owing to emergence, the complement is called forth as opposing views. The human experiment is never complete.

For example, market liberalism is a political stance that equate political liberalism with economic liberalism.

Social democracy views economic liberalism as only one aspect of liberalism along with social and political liberalism. The challenge is to harmonize this trifecta by acknowledging its paradoxes as they arise and transcending them by innovating the system.

The rest of the post examines how an interest elite intentionally conflated economic liberalism with political liberalism., for example, through by establishing the "Nobel prize in economics."

Milanovic then posits what he views as the four major challenges to the return of social democracy.

I view such challenges to the return of social democracy as it formerly existed as examples of emergence. The next stage of the experiment will not be a return to the past but rather drawing on the past while innovating in order to surpass the deficiencies of the present approach.

MMT speaks to this economically and socially in terms of macroeconomic theory and policy formulation based on the fiscal space that the current monetary system provides to address overcapacity owning to demand deficiency in a market-based world.

These, and perhaps a few other, elements seem to me to imply that a return to the Golden Age of social democracy is unlikely to happen. On the other hand, there is a realization of inadequacy of the neoliberal model that bequeathed a huge crisis (which did not turn into another Great Depression precisely because the key rules of neoliberalism were abandoned in order to save the system). As many times in history, we are now at the point where neither of the two established doctrines seems to provide reasonable answers to today’s issues. That leaves the field open to new thinking and experimentation.

Global Inequality
Will social democracy return? A review of Offer and Söderberg
Branko Milanovic | Visiting Presidential Professor at City University of New York Graduate Center and senior scholar at the Luxembourg Income Study (LIS), and formerly lead economist in the World Bank's research department and senior associate at Carnegie Endowment for International Peace

Julia Ruiz Pozuelo, Amy Slipowitz, Guillermo Valeting — Democracy does not cause growth

Growth is the result of economic liberalism. Democracy is about social and political liberalism rather than economic liberalism.

There is a tradeoff between growth and fairness. 

Economic liberalism promotes growth, while social and political liberalism promote fairness and reciprocity.

Capitalism as an expression of economic liberalism is antithetical to democracy as the basis for social and political liberalism.

Achieving grown and fairness requires optimization of goals based on opposing values. Maximizing growth leads to a decline of fairness and reciprocity social and politically, which now goes by the term "inequality."

Vox.eu
Democracy does not cause growth
Julia Ruiz Pozuelo, Amy Slipowitz, Guillermo Valeting
ht Mark Thoma at Economist's View

David F. Ruccio — Capitalism vs. democracy

I have been arguing for some time on this blog that contemporary capitalism faces a profound legitimacy crisis. It has failed to deliver on its promises, and therefore is being calling into question.
As it turns out, Martin Wolf, the chief economics commentator at the Financial Times, has also sounded a warning about the ongoing legitimacy crisis. But for him it’s a bit different. The problem, as he sees it, is the tension between democracy and capitalism.…

Or as I have put it, economic liberalism under capitalism and political liberalism understood as some form of democracy are incompatible — although some forms are more compatible than others. The more reliance on the assumption that market forces lead to social optimization through spontaneous natural order, the less compatible economic liberalism is with democracy as government of, by and for the people.

Neoliberalism is rule by a social, political and economic elite through state capture under representative democracy. There is an illusion of political liberalism even though the political reality is a struggle among several factions of the elite without meaningful representation of the public at large.

Occasional Links & Commentary
Capitalism vs. democracy
David F. Ruccio | Professor of Economics, University of Notre Dame

John Keane — Capitalism and Democracy

Like I've been saying, capitalism and democracy are antithetical. This is equivalent to saying "economic liberalism" and "political liberalism"  in place of "capitalism" and "democracy."

The only way that economic liberalism and political liberalism have been compatible historically is in bourgeois liberalism, in which only the bourgeoisie (ownership) class) are considered to count.

According to defenders of the ‘free market’, more than a few of whom are dogmatic market fundamentalists, political democracy is an unwanted parasite on the body of economic growth. Democracy whips up unrealistic public passions and fantasies. It distorts and paralyses the spirit and substance of rational calculations upon which markets functionally depend; understood as government based on majority rule, democracy is said to be profoundly at odds with free competition, individual liberty and the rule of law. What is therefore required is ‘democratic pessimism’ and (Friedrich von Hayek’s famous thesis) the restriction of majority-rule democracy in favour of ‘austerity’ (cutbacks and restructuring of state spending) and limited constitutional government (‘demarchy’ ) whose job is to protect and nurture ‘free markets’ protected by the rule of law.

Other scholars, political commentators, policy makers and politicians stake out the contrary view. They maintain that since markets are never ‘naturally’ free but always, in one way or another, the creature of laws and governing institutions, market failures and market ‘externalities’ require political correction. Well-designed political interventions that draw democratic strength from popular consent are needed to redistribute income and wealth, to repair environmental damage caused by markets and to breathe new life into the old ideals of equality, freedom and solidarity of citizens.…

The Conversation
Capitalism and Democracy [part one]
John Keane | Professor of Politics, University of Sydney

Mark Leonard — The Rise of Demotic Democracy in Europe

"Demotic democracy" is a euphemism for "rule of the rabble," demos meaning "people" in Greek.

This is the worst nightmare of the elite and the basis of conservatism as the principle that some are better than others.

Obviously, the elite will marshall all means available to counter the rise of the rabble, which threatens the end of their privilege.

Project Syndicate
The Rise of Demotic Democracy in Europe
Mark Leonard | Director of the European Council on Foreign Relations

Don Quijones — Tsipras Stunner: Creditors Said “There Is No Point In Holding Elections” In Bailed Out Countries

Perhaps it is only fitting that democracy officially dies in the country in which it was born, a country which is about to very clearly demonstrate to the rest of the world that in this day and age, banks have infinitely more power and leverage that “sovereign” nations.

I would not call it "fitting" but rather "ironic".

As I keep saying, economic liberalism, whether neoliberalism or ordoliberalism, is incompatible with political liberalism, that is, democracy and popular sovereignty.

Raging Bull-Shit
Tsipras Stunner: Creditors Said “There Is No Point In Holding Elections” In Bailed Out Countries
Don Quijones

Open Democracy: Friedrich Hayek: in defence of dictatorship

Hayek intended his writings to serve as a wake-up call to defenders of liberalism. When such defenders took actions in support of private property, Hayek was unashamed in his support for them.

Of course, Hayek would argue that this was just the defense of (economic) liberalism against the tyranny of the majority of democracy, even though democracy based on popular sovereignty is the foundation of political liberalism.

Another paradox of liberalism.

In his influential article The Principles of a Liberal Social Order published in 1966, at the high point of Euro-American Keynesianism, Hayek outlined the relationship between liberalism and democracy. He makes a strong normative case for the primacy of the former, and the potential elimination of the latter. The article also outlines the needs for very strict limits on the parameters of electoral democracy in ‘normal’ (non-dictatorial) times.

Hayek begins by contrasting two traditions of liberalism. The first, his favoured one, emerged in the England of the Old Whigs from the mid to late seventeenth century and was fortified by the theories of Edmund Burke, John Locke and Adam Smith. The second was a continental European product elaborated theoretically by writers such as Voltaire and Rousseau.

The first tradition of liberalism is “inseparable from the institution of private property”. It has its roots in human nature. It is superior to any form of centralized state planning...

It:

“[D]erives from the discovery of a self-generating or spontaneous order in social affairs…an order which made it possible to utilize the knowledge and skill of all members of society to a much greater extent than would be possible in any order created by central direction…” (Hayek, 1966).

It “arose from the desire to extend and generalize the beneficial effects which unexpectedly had followed on the limitations placed on the power of government"....

For Hayek, the second, continental tradition of liberalism advanced by writers such as Voltaire and Rousseau points in a fundamentally different direction. There is a straight line from it, to what he labels, the totalitarian politics of the French revolution and modern socialism. Through democratic practice, this tradition attempts to subordinate society to a set of political/normative objectives. Under such conditions, individuals are no longer free to do as they please, and certainly not free to use (or even own) their property in ways they see fit. Hayek argued that this tradition of liberalism “has in effect become democratism rather than liberalism and, demanding unlimited powers of the majority, has become essentially anti-liberal”.

There is is in black and white in his own words. Economics liberalism (capitalism) and political liberalism (democracy) are antithetical. It doesn't get much clearer than that.

Oh wait, elsewhere Hayek wrote:

In another letter to The Times entitled “the dangers to personal liberty”, he endorsed Thatcher whilst restating his claim that the marketplace is “indispensable for individual freedom” while the ballot box “is not”.

Who needs free elections anyway?

Selwyn sees the result as: 

... an erosion of democracy is occurring under the guidance of elected politicians across many of the advanced capitalist countries.

I suggest that the work of Friedrich Hayek is part and parcel of conservative neoliberal 'common sense'. His ideas justify the erosion of democracy under capitalism in defence of private property.

I would say not only an erosion of democracy but also of national sovereignty, along with an onslaught against civil rights, constitutional liberties, and human rights. In short, neoliberalism is in reality a neo-feudalism of a transnational power elite. The liberal revolution of the Enlightenment set about to do away with the remnants of feudalism at the time, and now they're baaack!

The Old Whig antipathy to popular democracy on the one hand, and support for private property rights on the other, stands at the core of Hayek’s political philosophy. From this starting point he theoretically de-links liberalism and democracy. This move is designed to a) explain how liberalism can exist without democracy, and b) to limit, significantly, democratic influence over a liberal private property based market order.

Hayek’s advocacy for negative freedoms over positive freedoms logically limits democratic content. If governments want to guarantee a liberal market order then they must guarantee negative but not positive freedoms. By default then, they are precluded from implementing widespread social programmes designed, for example, to redistribute wealth, power and property towards the poor. These policies would necessitate imposing obligations upon society in order to pursue a designated outcome. Such actions, according to Hayek, represent the first steps towards totalitarianism. Liberal freedoms would be undermined as society is forced to submit to an 'artificial' (i.e. planned) overarching objective, as opposed to benefitting from the free play of the natural, spontaneous market order....

Hayek points to how governments, driven by democratic and other rationales (such as economic planning), were undermining the potential benefits of the spontaneous market order.

Spontaneous market order is, of course, the basis of neoclassical economics and also Austrian economics:  Spontaneous natural order arising from laws of nature like the law of supply and demand regulating the operation of market forces results in Pareto equilibrium as long institutions do not interfere, with the chief interfering institution being government and its legal apparatus based on positive law rather than the laws of nature. Evidence for the assumption about spontaneous order, please.

Good history lesson about liberalism and also a good summary of Hayek's argument. Hayek held that liberalism is about freedom from government interference in private matters, especially involving private property. This is the English version of liberalism elaborated by Burke, Locke and Adam Smith, for example. It holds that the liberalism is essentially freedom from constraint. Continental liberalism held that liberalism as not only about freedom from (unreasonable) constraint but also freedom to choose freely and responsibly with respect to the equal rights of others, and freedom for self-determination.

The problem of economic liberalism relative to social and political liberalism is that the former prioritizes property over people while the latter makes people more important than property. The very term "capitalism" means that capital is prioritized, while socialism signifies that the people as a whole are prioritized rather than any class and vested interests are not privileged.

Open Democracy
Friedrich Hayek: in defence of dictatorship

Benjamin Selwin

Peter Radford — Liberty To Do What?

Peter Redford further exports the observation of Dani Roderik and Sharun Mukand about conflict among types of rights being endemic to liberalism. They write:

Liberal democracy rests on three distinct sets of rights: property rights, political rights, and civil rights. The first set of rights protects owners and investors from expropriation. The second ensures that groups that win electoral contests can assume power and choose policies to their liking – provided these policies do not violate the other two sets of rights. Finally, civil rights guarantee equal treatment before the law and equal access to public services such as education.

Property rights and political rights both have powerful beneficiaries. Property rights are of interest primarily to the elite – owners and investors. They may be comparatively few in number, but they can mobilize material resources if they do not get their way. They can take their money elsewhere, or choose not to invest – imposing substantial costs on the rest of society.

Political rights are of interest primarily to the organized masses – the working class or ethnic majority, depending on the structure and cleavages in society. Members of the majority may be comparatively poor, but they have numbers on their side. They can threaten the elite with uprisings and expropriation.
The main beneficiaries of civil rights, by contrast, are typically minorities that possess neither wealth nor numbers....

Theories that purport to explain the historical origins of democracy have overlooked this asymmetry among claimants for different types of rights.

This accords with Radford's observation:

How many times do we come across, in this avid nation of ours, some foolish comment that our social policies must not restrict commerce? How many times do we hear some politician arguing that we must become more business friendly? We scarcely can move an inch without tripping over someone cajoling us with fears that limitations on liberty are actually limitations on prosperity. As if prosperous was purely an arithmetic reference and had no qualitative content.

This is Condorcet’s fear alive and well. We seem to have reduced liberty to some small prop for the making of profit. Liberty is simply, in this ghostly shadow of what it once was, a veil behind which profits can be amassed without reference to the fabric of society as whole. And certainly without reference to any larger interest than that of the individual, or individuals, engaged in making that profit.

The invasion of the economic lexicon and way of thinking into domains where it has absolutely no right being is to blame for this diminution of our liberty. Or at least the severe limits placed on our understanding of what liberty means.

Then Redford asks how this happened:

Which is why we ought to search for the causes of this distortion: where did the idea of liberty get so reduced? 

The answer, I suggest for our purposes, sits squarely within the libertarian screeds that pour forth from Chicago.

This may be true for the contemporary version of neoliberalism, but this version of liberalism actually began with classical liberalism of John Locke, Adam Smith, Jean-Baptiste Say, Frédéric Bastiat, and David Ricardo, for example. This was a bourgeois liberalism.

So Thomas Jefferson could write the famous words of the Declaration, "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, that among these are Life, Liberty and the pursuit of Happiness," without perceiving any contradiction as a slave-holder.

The Radford Free Press
Liberty To Do What?
Peter Radford

Magpie — Keynes and Hayek: Yin and Yang

Keynes and the Fabian "social democrats" (as Commenter 2 would have) were indeed elitists. Commenter 2 is right on that. Paul Samuelson, for instance, also said that Keynes (like Bertrand Russell) "was an elitist exponent of the middle classes" (see here)

In that sense, Keynes and the Fabian socialists were no different from "Hayek et al".

Whatever differences Hayek and Keynes had in a number of areas (and I am not implying these differences were unimportant), they both shared something fundamental: a belief that there is a natural order to society, a social hierarchy.

It just so happens that in said hierarchy, they and their peers were at the top; and the rest of us at the bottom. For them, that's how things are and that's how they should be.

Theirs is a hard job, but someone's got to do it...

Magpie's Asymmetric Warfare
Keynes and Hayek: Yin and Yang
Magpie

Dirk Ehnts — Rebuilding Capitalism

What is in danger today is our liberty. Our liberty to control our fate as the people, who are ruled by and for the people in a democratic system. If we are to retake that liberty, we need to rebuild the institutions of capitalism to make them fit our needs.

Read it at econoblog101
Rebuilding Capitalism
by Dirk Ehnts | research assistant at the chair for international economic relations at University of Oldenburg, Germany

Political disobedience v. civil disobedience — there's a big difference

Our language has not yet caught up with the political phenomenon that is emerging in Zuccotti Park and spreading across the nation, though it is clear that a political paradigm shift is taking place before our very eyes. It’s time to begin to name and in naming, to better understand this moment. So let me propose some words: “political disobedience.”

Occupy Wall Street is best understood, I would suggest, as a new form of what could be called “political disobedience,” as opposed to civil disobedience, that fundamentally rejects the political and ideological landscape that we inherited from the Cold War.

Civil disobedience accepted the legitimacy of political institutions, but resisted the moral authority of resulting laws. Political disobedience, by contrast, resists the very way in which we are governed: it resists the structure of partisan politics, the demand for policy reforms, the call for party identification, and the very ideologies that dominated the post-War period.

Read the rest at The New York Times Opinion

Occupy Wall Street’s ‘Political Disobedience’

by Bernard E. Harcourt, chair of the political science department and professor of law at The University of Chicago and author of “The Illusion of Free Markets: Punishment and the Myth of Natural Order.”
(h/t Kevin Fathi via email)

This is an important article for understanding what is going on now worldwide. This is a refusal to participate in existing institutions, rejecting them as immoral and rapacious. "Occupy Wall Street" suggests that the focus is financial and economic. However, Harcourt argues that it is more comprehensive than that, encompassing major social, political and economic institutions. In this sense the protests can be seen as the next step in the expansion of political liberalism, that is, further integration of liberty, equality, and solidarity.

It also answers Slavoj Zizek's harsh criticism of the European rioters, “opposition to the system can no longer articulate itself in the form of a realistic alternative, or even as a utopian project, but can only take the shape of a meaningless outburst,” Harcourt shows why he thinks that this entirely misses the point because it is trapped in what the protestors call "old thinking."