Distribution and Redistribution

Welcome friends!

I was taking a few moments the other day to register an opinion on a news website comment page and I ventured to mention what I consider an interesting distributional issue raised by recent technological developments including e-commerce and automation.  (Yes, I sometimes enjoy mixing it up a bit with the conservative trolls and comment botskies.  Hey, everyone needs a good laugh now and then.)  My general point was productive technology in the past may have generated a demand for a relatively large number of workers, which was great because a large number of workers with disposable cash means robust demand and hence economic growth.  In contrast, recent technological change has tended to concentrate wealth in particular sectors, such as IT and technology more generally, and more than that to specific people, the owners and CEOs of certain dominant companies in those sectors.  Basically technological development seems to be helping us devolve into a nation split between a rather small number of zillionaires and a very great number of impoverished fry cooks.  (The ever increasing domination of our political process by the wealthy elite probably plays a role as well but I’m determined to not discuss Mr. Trump this week in honor of his impending inauguration.)  So is that just fine because fate in the form of the almighty marketplace has ordained it?  Or should we do something to mix it up?  Should we think of some way to spread the output of our productive machine around a bit?  Make work for some people?  Pay some people more than a market wage?  Don’t get all angry now.  I never said I have the answers.  Just thinking out loud.  Anyway, as one might expect if one has ever ventured into such places I was immediately set upon by an army of conservative trolls incensed at my use of the word “distribution,” which I suspect they translated in their minds to the version more familiar to conservative ears “re-distribution,” which like “socialism” is something they’ve been trained since childhood to rage against.  One of the specific charges lobbed in my direction was that I apparently supported picking the pockets of hard-working billionaires to facilitate poor wastrels sitting on their assess doing nothing all day.  Another was that I had a nerve talking about other people’s money as though I had anything to do with it.  Being familiar with the dispassionate discussion of distributional and other economic issues from my days at the academy I was rather taken aback.  I’ve said for a long time on this blog I think one of our great weaknesses as a society is our inability to calmly and rationally discuss distributional issues and here was that exact problem not only rearing its ugly head but trying to take a big bite out of my backside.  So this time I thought I’d backtrack a bit and just go over some basics about distributional issues broadly conceived.

All economic systems function in part as distributional systems.  That is to say, they not only bring people together to co-operate on making things but they provide some mechanism by which those things are then distributed to people to use.  Even if we determined to not make a distributional system we’d still have one.  It’s called the guy with the gun economic system.  I think many places around the world actually use that system.  Fortunately given today’s political and economic rhetoric we don’t really have to decide whether to make one or not.  We’ve got one.  And it didn’t fall from the sky one day or rise up from the center of the earth.  We made it the old fashioned way through the crafting and enforcing of laws.  Remember Adam Smith and that lot?  They were writing the way they did because at that time they still had to convince some other people of the value of certain types of market arrangements.  The rudimentary market systems of Mr. Smith’s day were supplemented and hedged about by remnants of the old feudal system, which basically involved the king and other nobles and I suppose the church as well appropriating things at sword point more or less and then assigning it to their minions this way or that.  Some people liked it that way.  Not everyone was on board with the sort of market institutions we have today.  Someone had to make the case.  Anyway, it seems many people must have eventually found the case persuasive because market systems obviously became more and more dominant.  Of course, we subsequently learned market systems work best when regulated and supplemented in various ways by purposeful interventions of democratic government leading to the mixed system one finds in most places today but that’s neither here nor there for this post.  And yes guys with guns enforce our system but at least it’s something we’ve agreed upon the democratic way.

I’m pointing this out right now because I think many conservatives are prone to a certain distortion of perception in which supporting the status quo distributional system is thought to raise a fundamentally different set of issues from arguing for changes in the status quo distributional system even though the two sets of issues are entirely the same.  In other words, the conservatives incensed I would presume to pronounce upon distributional issues apparently did not recognize that they themselves are implicitly doing exactly the same thing, the only difference being I implied the possibility of supporting a distributional system other than the one we have now while they support the current one.  I suspect this is related to a common misperception of the conclusions of neoclassical economic theory I’ve alluded to a number of times over the years: the peculiar notion one is being neutral between two Pareto optimal market results if one uses their supposed equivalence to argue in effect one should stay at one or the other.  The true implication of an inability to compare such outcomes would of course be agnosticism with respect to staying at one or moving to the other.  Pretending it implies staying at one because one has no reason to move to the other seems quite similar to me to the notion we can avoid the issues associated with distributional systems by just sticking with the one we have and not discussing changing it.  In the language I’ve used in many other posts: resolving interpersonal conflicts of desires is going to happen one way or the other as long as humans live together in a society.  It doesn’t disappear if no one talks about it.

For conservatives who recognize we’ve already created a distributional system and the same general sort of issues are raised by retaining it or changing it the next level of concern is the potential ethical issues associated with changing it and in particular how unfair it would be to change the rules in the middle of the game so to speak.  I certainly get that argument.  Imagine one based one’s life on the desire to become phenomenally rich and possibly made some awkward decisions and difficult tradeoffs along the way only to find later in life someone decided the distributional system was a little out of whack and slapped a great whopping tax on you at least ostensibly to spread things around a bit?  I imagine you’d be rather annoyed.  Seems like something we’d all like to avoid.  But the problem is we’re always in the middle of the game for someone.  And I really doubt the wisdom of painting ourselves into a corner by saying the inevitable implication is we can never revisit the issue again.  When we developed our current system we changed the rules in the middle of the game for the old nobility or someone anyway.  And I mean let’s face it, we change laws all the time.  Some or perhaps many of those changes have financial consequences for at least some people.  The only thing different about the scenario I just mentioned is maybe it has a relatively larger effect on one’s finances than some other changes.  It’s not really a difference in kind.  But I do think if ever we agreed upon any such changes we could try to find some way to do whatever it was gradually and with the least amount of sudden economic dislocation and ill will as possible.  Anyway, we’re nowhere near that point now so I suppose little reason to get into the detail of how one would actually ameliorate the shock of adjusting a distributional system.

Having set that aside let me just say a few words about this notion that changing the distributional system in some way, the dreaded (by conservatives) re-distribution, means taking money from hard working productive people and giving it to people who prefer to sit on their asses all day long doing nothing.  This I think sums up pretty well a common conservative take on why anyone would discuss these issues but it is all a bit of a straw man isn’t it?  Our current system is already set up to allow rich people to sit on their asses all day doing nothing and yet earn a heck of a lot more money than many hard working productive people.  Yes, I hate to get all awkward about it but once one gets a certain amount of money one can invest it, have the earnings taxed at a much lower rate than an equivalent amount of earnings generated the old fashioned way, and do quite well for oneself.  In some cases getting the money in the first case may involve some respectable level of effort but honestly I don’t know if it really adds up to the lifetime of work some less financially fortunate people put in.  I’m not arguing it’s illegitimate.  Not in this post anyway.  I’m just saying I think it’s pretty clear our current system is rewarding some things beyond “hard work” and “not sitting on one’s ass.”  Let’s have an example.  Say I write a successful blog and make a few million dollars.  (I’m partial to counterfactual thought exercises.  If you’re a realist and just can’t think that way just say I write a bit of code or whatever.)  I then proceed to sit on my ass doing nothing the rest of my life and live quite nicely on the returns from my investments.  As I just suggested I’m perfectly fine if you have an argument of why that makes sense but if it involves the notion that overall I worked harder than let’s say my elderly neighbor who’s been getting up at six in the morning the past fifty years to work in the old salt mines I’m bound to say I’m not sure you’re speaking in earnest.  And in my example at least I did something myself at some point in my life.  Conservatives in the US have long desired and are now in a position to do away with the estate tax (that would be the death tax in their own parlance) so increasingly the rich person sitting on his or her ass making more money by doing nothing than working people will be in that position because he or she had the good sense to be born to wealthy parents rather than anything he or she may have once added to the world.

What’s my point?  Pretty much the same as always I suppose.  I think we should be able to talk about distributional issues objectively and dispassionately and get past the knee jerk keep your hands off my stack Jack conservative mentality.  We’re going to be in for a bumpy ride if we can’t even manage that.  I’ve discussed how I feel about our current distributional system in the past and I’m not sure there’s much point of going over it again just now but the short version is I don’t think it’s all it’s sometimes cracked up to be.  Here are a few random thoughts on the subject.  There’s no mechanism in a market system to automatically ensure sufficient jobs let alone good jobs for the available population of prospective workers.  The distribution system I’d like to see would provide people willing and able to work and contribute to do well enough.  Yes, we need incentives to encourage people to go the extra mile or get into things they would otherwise not be inclined to get into but we probably don’t need to go overboard in that area.  Not sure we need to reward people being born to wealthy parents.  We should find a way to ensure the development of labor saving technology improves everyone’s lives and if that technology means some people lose their jobs we should do something about it and help them out in some way.  If we find our population is suddenly out of whack with the demand for labor we should do something until we get back to some sensible equilibrium.  I don’t think we just tell people they’re superfluous and maybe they’d like to go somewhere and drop dead.  The population is to me a separate issue we would then have to address in some way if that proves to be a problem.  In short, we shouldn’t just accept whatever happens on the market as though it were the result of some natural law we can neither assess nor alter.  Markets are meant to serve us; we’re not meant to serve markets.  But it’s fine with me if you have other notions.  Let’s talk about it.  Because you know not talking about problems has never yet made them go away.  They just fester in silence until funny things happen.  And I don’t meant ha ha funny.  Let’s not let the all too pervasive greed and egotism of the human race be our downfall.

American Conservatism and Nazism: The Economic Dimension

Welcome friends!

I suppose you may have noticed the flurry of articles comparing the political movement of our president-elect Donald Trump and his conservative Republican Party to that of Adolph Hitler and his Nazi Party so many years ago in early twentieth-century Germany?  I suspect it’s probably rather difficult to avoid noticing certain similarities.  Of course conservatives themselves have been preemptively calling their political opponents fascists and Nazis for some time now so I suspect some people must assume it’s all a bit of tit for tat but I really don’t think so.  I thought this time out I’d discuss yet another point of similarity this time involving economic ideas.

If you’re interested in history at all you may recall the little mustachioed monster of fame originally rose to power in Germany the conventional democratic way.  Yes, like vampires of film he only managed to wreak his havoc after having been duly invited in.  Of course in his case the havoc didn’t literally involve sucking blood but rather dismantling the democratic institutions of the nation and going on to murder millions of his countrymen and various other people besides.  By all accounts the initial impetus for his rise was a rather severe economic depression and the inevitable social divisions and in particular racial divisions the economic meltdown and social instability dredged up from the darkness of ages past.

In this context I think it’s important to realize one of the great and abiding mysteries for economic conservatives everywhere is why they don’t always do as well as they feel they ought to do under free markets.  It’s not much of a mystery or issue for liberals and leftists who believe markets don’t always perform that well anyway, which is to say markets can break down and exhibit instability, many types of markets have undesirable characteristics and results (monopolies, monopsonies, oligopolies, oligopsonies), certain common conditions render even gold-standard perfectly competitive markets problematic (externalities, information and other power asymmetries), and markets of any description do not necessarily do a very good job distributing goods and services to the people one might think should have them under any particular theory of social justice.  No, the problem for liberals and leftists is the relatively straightforward although obviously still quite daunting issue of how to fix the problems with markets to make things turn out better.

Conservatives are in a different mental place altogether.  They accept the free market as a panacea for all the material and distributional issues a society may face so if problems remain despite the presence of an apparently free market that’s really a rather remarkable state of affairs.  The primary way conservatives have historically attempted to explain this great mystery is that yes, market systems are inherently flawless and fantastic and so on, but someone is “rigging” the market behind the scenes as it were to make it not work out right.  Sabotage or I suppose as conservatives might say sabatoogie.  For Hitler and the Nazis the shadowy culprit was international Jewry.  One can imagine this wasn’t the most difficult sell in the world at that time and place given the rather obvious otherness of Jewish people in the context of self-adoring European nationalists and racists, the troubled history of Jewish people in Europe since the Middle Ages, and more prosaically the fact some Jewish people had managed to do pretty well for themselves under the prevailing market system.  Make no mistake about it.  Although the Nazis fashioned themselves “socialists” and talked a lot about collectives in certain cultural and military contexts when it came to economic matters they were pretty much conventional economic conservatives.  They didn’t challenge the economic elite of the nation and in return the economic elite of the nation didn’t challenge them.  They were all about keeping labor in line and leftist labor agitators out.  Their goal was an unholy merging of big business, (undemocratic) government, and the military machine.  Hitler won the support of most of the upper classes in the Germany of the day because he basically represented a potential money making opportunity for them.  Obviously it didn’t end too well.  Can’t do much with smoking rubble and a big pile of corpses.  But by the time they figured out which way the wind was blowing there wasn’t a whole lot they could do about it.

Here in the USA we have a roughly similar sort of dynamic going on right now.  Conservatives have been talking up the magic of the marketplace as they have been these past two centuries or so but as was the case in Germany in the early twentieth century some workers just aren’t doing all that well financially.  Liberals are trying to explain why that might be the case in terms of technological change and the rise of more effective international competition and more generally just trying to get people to think realistically about the distributional issues associated with market systems but of course conservatives aren’t having it.  They’re too busy looking for the scoundrels who have been rigging the markets to make them not function as they should.  They know it can’t be the economic elite or captains of industry because under conservative philosophy those are the people responsible for all good things in the world and the most deserving of our respect.  It must be someone else.  You can tell they have something like this on their minds because they’re always talking about taking the country back from someone.  But who?  And how did they get hold of the country in the first place?

I suppose a few American conservatives accept the traditional antisemitic line endorsed by the Nazis but not very many.  We just don’t have the history for that sort of thing to really take root.  We didn’t have medieval pogroms or Christian crusades.  We have lots of immigrants from all over the place and always have had.  We like to talk about religious freedom.  Some nativist groups have gotten on that wagon over the years including the neo-Nazis and KKK but it’s a bit of a hard sell for the man in the street.  No, in an American context the much more tempting and satisfying scapegoats are the so-called “black” people, the descendants of the slaves the old-timers kidnapped and brought over to work in their fields and who did a lot to build the country into what it is today.  That despicable but surprisingly long-lasting labor and social arrangement generated a type of social cancer that has proven quite difficult to eradicate or sometimes simply to contain: racism.  According to this theme markets are not working properly because our darker hued compatriots and possibly their illegal immigrant allies (and misguided liberals of course) have captured the government and are using it to wreck markets and funnel resources to the undeserving.  As I’ve noted before the story doesn’t entirely make sense to me according to the available facts because poor “black” people have been doing just as badly as poor “white” people and I think even a little worse and most illegal immigrants are struggling economically as well.  But I suppose the theory is that even though they’re trying to wreck markets and funnel resources to themselves they must not be very good at it because all they’ve managed to do in practice is wreck markets.  So in the eyes of conservatives the solution to our problems is to take the political system back from the people who have captured it, “black” people and their foreign allies, and put it back under the control of people who understand how the market is meant to work and will presumably not mess with it: rich old “white” people.  They would like to find a permanent solution and are forever thinking of ways to limit and shrink democratic government and correspondingly expand the power of the autocratic economic elite but they can only do so much at one time.

Of course, one must admit our conservatives are not nearly as bad as their historical counterparts.  No one has suggested carting anyone off to death camps in the countryside.  Not yet anyway.  I would find that reassuring were it not for the fact we’re not really comparing apples to apples.  Germany in the era of the Nazis went from the social turmoil of a lost war through an epic economic depression to the upheaval of total war.  One supposes these conditions must have had some influence on the complete moral meltdown we all remember today.  Here in the USA we’re having it relatively easy right now.  We have some economic problems that are particularly acute in some areas of the country but overall we’re not doing so badly.  We have some ongoing military conflicts but not really anything beyond what is more or less normal for us these days.  We’re basically on a pretty even keel right now and yet the person the American public chose as their president was Donald Trump. One can’t help but wonder if Germany in the 1930s had been doing as well as we are today would Hitler and his party of dimwitted goons have gotten anywhere near the reins of government.  Or would they have spent their lives railing against the system in some Bavarian beer hall?  Or flip it around.  Let’s say Trump’s economic incompetence and anti-regulatory zeal unleashes a major 1930s style depression.  People in the so-called “heartland” are out of work.  They’re going hungry.  They’re fearful for the future.  What will their philosophy suggest was the cause of the calamity and what do you suppose they will see as the solution?  Or let’s say a major war breaks out.  I mean a big one.  Nuclear.  Biological.  It’s us against them and our backs are against the wall.  But who is us anyway?  Does it include the people conservatives formerly suspected of attempting to steal the country from them?  Will we need to come up with a final solution to the enemy within?

Let’s not let our arrogance get the better of us here.  We’re not immune to the forces that blighted Germany in the not so distant past.  History can repeat itself and will unless we fight tooth and nail to make sure it doesn’t.  All pepped up and ready to argue with all your might against the ignorant and destructive forces Mr. Trump has ridden to political power and clearly plans to nourish and encourage the next four years?  Ready to stand up for our American way of life and our shared values of democracy, reason, kindness, and humanity?  Good.  Let’s meet the new year head on and fight the noble fight together.