Sunday, November 16, 2008

Five More Thoughts: Socialism! Edition

I hate writing about economics. For one part, I'm a little dull on the subject (for multiple meanings of the word), and I distrust my opinions, which are too strong for their own good. My overheated skepticism is stoked by both the repeated assertion that the subject is as hard (harder!) than the physical sciences (even without all that "data" stuff), and the continued indignity of working in the corporate world and discovering the limitations of my human capital. But the worst part about these redundant screeds is that they're unpopular. It's not like I can hold them in--sometimes I release my inner babblings to paper because I have to.

My opinions here come primarily from the hastily scribbled objections to Charles Wheelan's easy book, Naked Economics. A favorable review is forthcoming, and while I agree with the usual Capitalist concepts as fine rules of thumb regarding the way the world works, I can't let go those few important places where the model looks like it's way the hell off, kept that way, it sometimes seems, for the purposes of semantic purity. One or two points are belated replies to other people's comments here and there. I fluffed the exercise up to five heretical, but not terribly original, thoughts. I'll try to remember to cite.

1. Why Don't They Use a Grand Unified Theory?

These deviations from fiscal orthodoxy worry me because they make me sound like a dirty Commie Socialist. Horrors. In the early part of Wheelan's book, he goes through the bad standup comic routine I've come to expect from any survey of western economics: Capitalism is all like this [nods soberly and pats his chest] and Communism is all like this, yo [drags knuckles on the ground and shrieks in a Russian accent]. Capitalism, we're told, allocates resources efficiently by price mechanisms, whereas Communism sorts them by diktat, which, of course is bad because it's Communism. But I'm not even sure there's really a difference of kind here.

Here's one problem: Capitalism also tends to allocate resources by decree. Get enough success in a capitalist system, and you can engineer the information available, engineer the alternatives available, and stick people with your product. Consumers don't purchase KFC because it's better, and not just because it's the more predictable alternative: we do so because it's presence is obvious, because it's low cost per calorie, and because our decisions are warped by the pervasive advertising of the PepsiCo. The thing about branding and marketing isn't just that it provides valuable information (as suggested in the Stiglitz chapter, which may or may not represent Stiglitz's theory accurately), it's that it supplies false information. Successful businesses suppress alternatives if they can, in order to engineer the landscape. We don't make choices, necessarily, to optimize our utility. We make choices from among the ones that are given to us.

The market, Wheelan says, is like gravity, and that's approximately how I think of it too. But that's just telling us the direction things roll and how quickly. It's the study of how human behavior responds to that downhill force generated by compulsively producing stuff, but that doesn't really say much about the governing philosophical "isms" at play. That would be more about the shape of the hill, which is controlled to an extent by the government, but also by captains of industry. There are little divots to the left and the right that the system can roll into on its way down the slope, and stay there until it's bumped out. There are banks to fall off of as well.

"Economics," of the sort they award Nobel prizes for anyway, appears to have been written by Capitalists to describe our rules, and if Wheelan (who writes for The Economist) fits in modern European-style Socialist into the theory too, Communism is still an adversarial outsider. That doesn't seem right. It's not as if "economists" pit themselves against some insane, slavering, equivalent Commie discipline. China doesn't have the exceptional awesomeness of the west, but it certainly has an economy.

2. Business and Government: Why Pretend It's an Exchange?

I'll add (again) that the extreme end states of successful Capitalism and Communism seem to look the same anyway, consisting of a poorer and badly controlled stratum that allocates resources in the textbook ways, combined with a behemoth of power that directs the overall drift of the thing, more or less, and concentrates most of the wealth to its chiefs. If China needed to develop the former to get there and the U.S. had to develop the latter, then, you know, whatever.

I'll certainly accept Wheelan's (paraphrasing Gary Becker's) point that small interests that can spread the cost over a large population will be the most effective at lobbying. His examples get as large as farm subsidies, as if the politicians were shopping for midwestern constituents, but it's a little more insidious than that. It's not just that business bargains with power, and it's not just that government economic policy affects industry and people in strange ways. To a large extent, big business is power; representing employees much like the republic represents citizens, and with about as many temptations and as much abuse. Agribusiness is huge not just thanks to the outright subsidies to get Iowans' vote (because really, how hard is that?); it's also huge because the green revolution was based on cheap fossil fuels. Government happily distributes the external costs of the oil-based economy (wars, highway infrastructure, and emissions), which allows those corn calories to be dirt cheap to produce. This low price, with it's deferred and obligatory tax support, influences the rest of us to eat the stuff. Flooding the market with cheap, crappy food is a tyranny of sorts.

But did profitable corn products give agribusiness big influence in Washington, or did their political influence make the market carry their product to near exclusion of everything else? Does the distinction really matter? There's a difference between economic and political will, but it's along a continuum, and the agents are many of the same people. To Becker's point, power is the small, moneymaking interest group that keeps soaking the rest of us. Corn's maybe not the ideal example here, although oil's a painfully clear one lately. Banking is another obvious seat of shared power. BTC News threw up a great old Harper's article about similar banking stimuli offered up during the Great Depression, the captains of industry were too big to fail then too. Military procurement is the example closest to me. I often work with prime DoD contractors, and even in the R&D world, it's a fuzzy line as to who's directing policy to whom.

3. Why are Collective Costs Considered Inefficient?

Speaking of the Great Depression, the staunch capitalist (at least the sort of smug little shit that follows the Megan McArdle's blog, e.g. this one, linked via) believes that FDR's federal resource allocation was axiomatically ineffective (Socialism: bad), and that it took the war to haul our ass out of that hole. Official Libertarians are supposed to make grudging exceptions for the collective need defense, but war is also something that the government is good at allocating resources for. The government has excelled at directing resources to killing people at least since the Industrial fucking Revolution. It's not called Socialism, but it's not like invading Afghanistan is some choice I made to maximize my personal utility either.

The lesson I take here is that a free market is good at allocating some resources, and maybe most resources. It's good for optimizing the price of eggs or cars or whatever. On the other hand, the collective is more efficient for a handful of things. It's certainly better at violence, but can the power of the economic state be harvested for good too? (Or at least something other than killing people?)

One of Megan's pet glibertarians sassily made the point (in the context of auto bailouts) that it doesn't matter how health insurance is allocated, because, like, someone still has to pay for it. Yeah, the money has to come from somewhere, but why cluster up the costs so that they take away from labor, which (a) are mostly the consumers of autos, and (b) makes them uncompetitive against foreign markets, which is, at a minimum, a dick move to the working class. If you accept that insurance models are a rational way to distribute health risks among some group (aren't businesses collectives too? fucking communists), then embiggening the pool is the obvious improvement. For universal health care, we collectively trade some economic drag on the general economy for freeing up some of the constraints on the poor bastards who are in the working world (not, Dr. Becker would note, a small group). It sounds logical, but does socialization allocate the costs effectively in practice? Well, judging by the rest of the First World, it beats the hell out of the half-socialized measure of private insurance.

4. Am I Better Off Than My Parents?

Wheelan throws around some amazing statistics in his book. Chickens cost eleven times as many hours worked in 1919 vs. 1997; the GDP per capita has doubled from 1970 to 2000. And, of course, poor people now can afford more consumer electronics.

Based on the limited pool of everyone I have ever met, the best indicator of financial success is still parents' financial success, or spouse's. There are impressive exceptions: it's wonderful that bootstrapping to the top is possible (and who doesn't respect the effort?), and polluting your life down to the gutter isn't off the table either, but the landscape of opportunities hasn't improved too much. (Well, not for white guys.) The idea that everyone can get their college degree, command productivity (usually while not actually producing much), and get ahead is oversold. Food's cheaper now than when my parents were my age (and the stuff that isn't cheaper is better), but that's not the whole of the cost of living. Energy is expensive, and so is housing. When my wife and I bought a house, we dropped a similar portion of my income into a mortgage as my father did at the same age, but unlike Dad, I have a PhD and our family has two earners. We're in about the same place, but it took a lot more investment in (presumed) human capital to get my family there. (Presumed: I think my job is less worthwhile than the skilled labor Dad did in the industrial sector, but if I followed the old man's path, it's unlikely I could have afforded this hovel at all.) If we add medical care into the mix, then it doesn't look like we're doing well at all, but we can do more with medicine these days. I probably need to wait another 25 years before those advancements really improve my (by then less vigorous) standard of living, however.

(The big increase in the average living standard over those 30 years has got to be information technology. Life before all these integrated communications sounds like the Dark Ages, and I'd hate to go back. I remain unimpressed, however, by economists and pundits measuring me up to my parents' television.)

For GDP to have really doubled per capita, then it's likely that a lot is being lost in the averaging. I'm aware that inequality has increased over that stretch, although I don't know if the measurements match wages and cost of living very accurately (and anyway, this isn't a hard science), but I could be swayed here with some data. It's not like that has improved since Wheelan wrote his book: wages, famously enough, have been stagnant since 2003 (and to compensate, credit has been bizarrely easy) while executive pay has skyrocketed that much more, a situation which would increase GDP per capita, and I suspect has.

5. "Scarcity" is Bullshit, Right?

As we all increase our human capital--the stuff we train ourselves to do--then the idea is that the whole economy grows, because everyone can do more fabulous shit. We movers and shakers will discover demand by making more exciting things with rented capital until some fraction of them is discovered to be wanted, and the economy grows overall and on average as more net production activity is added to it.

Now, I don't actually think "scarcity" is bullshit (it describes a condition where resources are more or less scarce is all), but that growing pie thing only goes so far. You can't go on producing things that aren't valuable, and there's some saturation point where even new, exciting, scarce things aren't really that important. Educating one of the local dimwits, SnollyG says the economy is demand-driven, and I agree. I prefer the phrase "demand-limited" actually, describing that when production is cheap, you can only productively make things when people want to consume them. (It's easy enough to imagine a supply-limited economy too, and it's no doubt been the more common historical mode.) In the U.S., we have a glut of supply of capital, which, absent sufficient demand, is so desperate to try to find the new thing, that it chases every spark, from housing, to the internet, to shady financial instruments, to the university system, investing futilely into the glut of human capital we're also suffering, pushing out ever more MBAs.

I mean, these financial bubbles keep happening because we have more capital than consumers, right? And it looks like our economic ball is rolling into a sink, as money and government ease the concentration of capital around a small number of investors, who can only do so much with it. Shouldn't that cash be heading back down to workers--to consumers--to get out of this demand-limited situation? By this reasoning, it looks like large inequality helps to create asset bubbles, and I think that sounds plausible.

So how about that bonus already, eh boss?


Ben There said...

I enjoyed reading this and you echoed some of my same thoughts on the subject.

One I especially like was this:

Get enough success in a capitalist system, and you can engineer the information available, engineer the alternatives available, and stick people with your product.

One of the fundamental assumptions of economics is that consumers have valid information and then make logical/rational decisions based on that valid data (with the implied objective of maximizing use of their limited resources). But isn’t there example after example that would debunk this assumption? You mention a good one here but there are many others. Think of the tobacco industry. Also – assuming that consumers act rationally is a stretch. We act emotionally, not rationally.

Another gem:

It's not called Socialism, but it's not like invading Afghanistan is some choice I made to maximize my personal utility either.

This was a funny line but I appreciate the question you followed up with about whether or not the power of the economic state can be utilized for something positive (as opposed to mass killing). I would submit that yes it can, and healthcare would probably be one such area.

Good post. Our economic system has served us relatively well but I wonder what improvements could be made if we could truly analyze the situation objectively and get over the all pervasive ideological bias.

Keifus said...

Big Food and highways is something I wrote about a while ago, and was fairly comfortable thinking about here. I get on this subject every once in a while, like a broken record (or maybe a stopped clock), and the suggestion to avoid the post was well considered.

(Looks like IOZ made a similar, but pithier, point about your George Will column. He's a much better writer than I am, certainly when it comes to this sort of thing. His commenters add that it was a good ol' series of land grabs that got this free market train rolling in the first place. A bit hard to refute, that point.)

Joseph Stiglitz won a Nobel prize for discussing how economic choices are made under a context of assymetric information. I don't really know the exact scope of his work, though, and as I said, I'm not clear whether that includes or extends easily to deliberately false or deliberately limited information (like tobacco).

Yeah, and all but the most doctrinaire admit that some collective social needs need to be met by a government of some kind. And sometimes (rarely), it seems to work better that way too. The nature of insurance is communist, frankly, even though the care itself isn't. And socialized insurance works in the places it's installed better than private insurance works here.


catnapping said...

since a democratic government is made up by, of, and for the people...why do people balk at the idea of the government meeting our needs.

We are the government. It seems to me that in a household where money is say that the household is meeting our that's a bad irrational.

If as a community, we pool our resources, and then pay for those things we need to survive as a community, then we succeed.

If everyone in our community needs food, shelter, security, and health, then our budget should take care of that.

That model...of "communism" in the USSR and BS. That's not communism. My god. Only 3% of the population in USSR "belonged" to the "communist party." HUH? That's not a communal system.

I've come to detest capitalism. I find it contrived. It was invented to make a few men very rich. It works like some ponzi...pyramid thing...we cannot keep producing a larger base. We cannot keep whelping more brats to feed the system. We cannot keep on using up the resources on this planet, at the expense of the planet.

Capitalism fosters isolation. Individualism - One Each - for god sake, don't anyone share...cuz if everyone isn't buying something, then we all sink!

That's just not how human beings are wired.

Yeah. I'm ranting and rambling. sorry.

Keifus said...

Scale and context matters so much, doesn't it? Towns seem far better with basic political representation. As you've noted (and it's occurred to me too), families tend toward communist.

I think we have to admit that state communism has been a tremendous clusterfuck for the people living it. We're bad sharers at that scale, not great planners, and we're still schemers and opportunists as much as anything else. Our species loves it some authoritay too. The capitalists have argued that theirs (ours) is a less-bad system for a long time, closer to how people actually act, and I suppose I roughly agree, but, well, just how less bad is looking more than ever like a matter of debate.

I don't seem to have the time I want to for posting (and reading) lately. Still want to chalk up a review of Wheelan's book and if I can manage in time for thanksgiving, a long-planned tangent that addresses some of the contrivances. (can't agree on Ponzi scheme.) After that, it's Machiavelli.

booby-breasted flyer said...

what fun is ranting if you're going to be so reasonable? ♥

Keifus said...

Well, I think you can take capitalism as a good cover for a power and money grab just like Communism or religion--I don't think the argument that Communism breeds tyranny is unique to communism.

I think capitalism was invented to explain human behavior and why some groups succeeded and some didn't. Which has been a helpful cover at times. (A little beyond my reading, but I don't intend to let that stop me.)

Rant away, I say.

hipparchia said...

i, otoh, love it when you write about economics. thanks.

Keifus said...

And I love it when you stop by, Hip. Thanks.

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