The Natural State

March 2, 2012 at 11:09 am (By Amba)

Promoting this from the comments on the last post—it's an idea I've wanted to inject into the political conversation for ages. It seems to me this is a vital notion and ought to be common knowledge. It helps a great deal in thinking clearly about economics and politics.

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realpc said,

March 2, 2012 at 6:38 am

1. The best way to make things fair is to allow competition. The problems we have right now are partly because Wall Street and the US government work together, instead of being in competition. So there is nothing to prevent them from being corrupt.

2. mockturtle said,

   March 2, 2012 at 10:46 am

   The problems we have right now are partly because Wall Street and the US government work together, instead of being in competition.

   Yep!

3. amba (Annie Gottlieb) said,

   March 2, 2012 at 11:02 am

   Double yep!

   Although I don't think the government, by definition, can compete. In practice, that would turn into controlling/regulating. That's the only kind of adversarial relationship it seems government and private enterprise can have. And deregulation or regulation loopholes then become one kind of favor the government has to sell.

   This idea seems really important to me: Nobel Prize-winning economist Douglass North on "the Natural State." North says "limited-access" social orders, which we would see as cronyism (capitalist or otherwise) and the monopolizing of power by self-perpetuating elites, seem to be the natural way for large societies to organize themselves, and "open-access" social orders, which allow access by merit and are protected by competition, are a rare achievement. Once you grasp this idea, it becomes very clear how an open society is always tending to almost gravitationally revert back to the natural state. Once you see that inertial trend at work in our own society, you see what amazing tools the founding fathers gave us to fight it, but you also see how much vigilance and ingenuity must be employed in using those institutions to keep open access pried open as the heavy door keeps falling shut.

Capitalism: The Loyal Opposition

February 28, 2012 at 12:27 pm (By Amba)

Interesting interview with economist Richard Wolff in The Sun magazine. His prescriptions are predictable, but his diagnosis is startling. Even if you do not favor direct government employment of the unemployed, or taxing the rich and corporations at 1960 rates, as Wolff seems to — ain't gonna happen, so forget about it — he makes some strong points that are hard to answer about the particular ways wealth has been transferred upward.

He talks about how for the first time, after about 1970, there was no labor shortage (because of automation, offshoring, and women in the workplace), so employers no longer had to raise wages to retain workers, while workers had to work longer and harder—and yes, go deep into debt—to maintain or increase their standard of living. Result: productivity and profits increased, but the ones who were doing the producing didn't share in the proceeds.

it's been the best thirty years that employers in this country have ever had. More product was being produced, but employers didn't have to pay workers more.

[The interviewer points out that we in the U.S. equate capitalism with freedom]

Yes, employers are free, in this system, to stop raising workers' wages. But their exercise of that freedom has deprived the mass of Americans of a rising standard of living to accompany their rising productivity. Employers have kept all the benefits of the productivity increase in the form of profits [which were attributed to the genius of executives]. So one sector of our free economy has deprived another sector of its due.

This too was interesting, on deficits:

Then the government turns around and borrows money. It borrows from foreign governments, but also from banks, insurance companies, large corporations, and rich individuals who purchase Treasury bills, notes, bonds, and securities. In effect corporations and the rich can not only keep more tax dollars; they can then turn around and loan the money they kept to the government and earn interest on it. The interest that must be paid to them comes either from taxes levied upon the mass of Americans or from the savings the government achieves by cutting its payrolls and programs.

I'd love it if you would read and discuss this.  I'd love it even more if you did not assume I'm endorsing most of what Wolff says.  I don't favor his prescription, but I did find these two points of diagnosis startling.  You know I am economically naïve, and these points may have been obvious to most of you.  But go ahead, try to explain them away.

You will say that entrepreneurs are rewarded with profit for risking capital and providing products, services, and work opportunities for others. I'm with you so far.  But squeezing ever more work out of fewer employees for the same or less real pay, stressing workers and families to the breaking point?  Mind you, Wolff is also critical of the overconsumption and overindebtedness of the average American family — yet that, too, has been one of the engines driving profits until recently.  Moral disapproval of that behavior from those who've encouraged it and profited from it . . . well, it smells a little.

Can we conceive of a system that would encourage and reward productivity, not just extort and exploit it? And how could that come about (could it?) without empowering the government as enforcer?