plutocracy

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The Paradox of People

Yesterday I stirred up a certain curiosity as to why I had lumped Peter Drucker into the same bag as both von Mises and Hayek.

Well, simply put, the three of them, along with Karl Popper and Joesph Schumpeter, had an enormous, even oversized, impact on modern economics. Yes economics. Let’s not fall into the same trap as economists do when they, with a sweep of their hands, dismiss business theory as not an aspect of economics. Of course it is. After all if business is not an aspect of the economy, what is?

In any case, the general point is that there is a distinct Austrian flavor to modern economic/business theory that can be traced back to the work of that group. More importantly, the influence of that group, particularly Hayek, was to emphasize the terrors and the tyranny of socialism to a degree that precludes social democracy as well. In the hands of their various followers that emphasis became exaggerated eventually emerging as doctrinaire anti-government theory.

We thus end up with a profound ideological stance as we enter economic thought: anything the government does almost invariably dilutes or pollutes the so-called perfection of the market. So deeply is this stance accepted that most economists fail to realize its political import: that the democratic expression of the people’s will through their elected representatives is viewed negatively automatically in economic thinking. What economists are saying is that the people are entirely rational in their economic dealings, thus producing the perfection of markets, but are irrational in their political dealings thus mucking up that same perfection. The contradiction is exquisite. The paradox unresolved.

This paradox of people sits as testimony to the gulf between what would be a holistic social science and the much more limited study of allocation and/or choice that economics has opened up for itself. Since it is my belief that economies are first and foremost social phenomenon and are thus enmeshed in the political, institutional, cultural, and historical milieu of general social activity, the limitations of economics and its ability to discuss real economies is rather glaring. In fact it can’t contribute much at all other than its over-developed enquiry into choice under a highly restrictive set of assumptions which seem entirely designed to eliminate any connection to the larger milieu just referenced.

The emergence of the of the paradox of people can be traced, substantially, back to the personal biases and histories of the group of Austrians I mentioned yesterday. Let me give you a lengthy quote from Tony Judt on the topic:

“… We live in the long shadow of a debate with which most people are unfamiliar. If we ask who exercised the greatest influence over contemporary Anglophone economic thought, five foreign-born thinkers spring to mind: Ludwig von Mises, Friedrich Hayek, Joseph Schumpeter, Karl Popper, and Peter Drucker. The first two were the outstanding “grandfathers” of the Chicago School of free-market macroeconomics. Schumpeter is best known for his enthusiastic description of the “creative destructive” powers of capitalism, Popper for his defense of the “open society” and his theory of totalitarianism. As for Drucker, his writings on management exercised enormous influence over the theory and practice of business in the prosperous decades of the postwar boom. … All were forced into exile … and all — Hayek in particular — were to cast their writings and teachings in the shadow of the central question of their lifetime: Why had liberal society collapsed and given away — at least in the Austrian case — to Fascism? Their answer: the unsuccessful attempts of the (Marxist) left to introduce into post-1918 Austria state-directed planning, municipally owned services, and collectivized economic activity and not only proven delusionary, but had led directly to a counterattack.” — “What is Living and What is Dead in Social Democracy?” Tony Judt, a public lecture at NYU, October 2009

A long shadow indeed.

Judt is correct. Much of modern economics thought, indeed much of the underpinnings of neoliberalism generally, is directly attributable to the lifetime experiences of a small group of emigre Austrian thinkers who managed to exert an outsized influence. Why? because their fears fit well within those of the postwar West: the dark cloud of Marxist authoritarianism hanging over the West during the early Cold War years made the Austrian experience appear a lot more relevant than it is.

And, as I have already said, one consequence is that modern economics has no theory of government that is democratic. It assumes tyranny from the outset. It dresses this as tampering with “freedom”. With freedom exclusively expressed as the kind of libertarianism advocated by the likes of Milton Friedman.

I make no apology for agreeing with Judt on this issue. Hayek and the others built considerable theories based on their personal, albeit profound, experiences of tyranny. They made the error of transferring the ills of far-left Marxist politics onto all forms of social action. They became blind to the subtleties of democracy, and especially blind to the crucial role democracy plays in balancing or mitigating against capitalism. Instead, in various ways, they preferred to believe that impersonal individual action could somehow accrete into perfect collective action as expressed through a market. Moreover such expression was always preferable to any other expression including, for example, that through the ballot box.

But why was the government always a source of tyranny for these thinkers?

Because once instantiated it becomes a self interested agent with goals of its own that are not wholly those of the voters. Government by the people for the people thus becomes government by an agent of the people for the people, introducing along the way all the issues of agency that economists love to wrestle with. Since economics has no theory of politics within it, other than the Hayekian version, it has great difficulty squaring the economic and political motivations of the people. Indeed it doesn’t really try.

What we end up with is a modern economics that not only harkens back to its roots as an effort to wrest the economic sphere away from post-medieval monarchic interference, but also is now infused with a deeply anti-democratic vision built on the more recent conflicts inside the decaying Hapsburg Empire and its immediate successor state.

For anyone advocating democracy that’s a pretty potent one-two punch. Until economics incorporates a modern post-marxist theory of politics it will always appear to be resolutely opposed to the popular will. This is despite its purported advocacy of radical individualism accumulated into the collective known as the market.

The paradox of people lives on. With an Austrian twist no less.

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Trump, Denial and The End of Normal

Shocking is an understatement. Donald Trump is unfit for public office, be it town clerk or president of the US. He’s an unbalanced egomaniac. He’s a racist. He’s an immature misogynist. He’s many other awful things. Presidential, he is not.

How did we get here?

Failure. But a particular kind of failure. Failure dressed as success. A success so sweeping and deep that we hardly recognize the extent of the change that it wrought. Naturally I am speaking of the victory of neoliberal thought. Perhaps you were thinking of something else.

For a brief moment after World War II, for a generation and a bit, the western world basked in a quiescence of steady growth, political solidarity, industrial calm, and rising living standards. That much of this was an illusion, or rather a reflection of the prior chaos of the spasmodic ending of the elongated nineteenth century, we ignored. Instead we imagined that a new normal had emerged. Economic depressions had been defeated. Western Europe had settled its ancient scores. And America had emerged as a beacon of democratic freedom, albeit one willing to exert quasi-imperial tendencies in its foreign dealings. Compared with the authoritarian alternative of the Marxist east, America’s heavy hand was tolerable for a generation able to recall the terrors of 1914 through 1945.

This period, though, was bound to end. Within its fabric was an unrest bound to tear at the fragility of the apparent unity.

That unrest was the desire of many to return to the chaos of a more unfettered way of life. They disliked the growing tendency of post-war governments to intrude into spheres of life and activities that previously had been private domains. They especially regarded such intrusions as obstacles to personal enrichment.

They questioned social democracy as if it were Marxist authoritarianism. They asked: Where was the private incentive? Where was the opportunity? What was the intellectual footing upon which those intrusions stood? And: were those footings not insecure against the tide of uncertainty best dealt with by private initiative?

The rebellion, when it finally burst into open life, swept away the temporary stability of that generation and a bit. And like all movements recapturing some imagined version of a glorious past it was even more radical than the original. It preached ideas producing an ever growing insecurity, constantly accelerating change, wrenching social re-aligments, and loss of opportunity for anyone incapable of being the kind of calculating insensitive and morally ambiguous trooper in its corporate divisions.

At its core the rebellion has one theme: liberty. A return to an idealized version of liberty such as that taught by the likes of Hayek and his most potent student Milton Friedman. Others, like von Mises, Peter Drucker, as well as Hayek were members of what the essayist Tony Judt so eloquently called the Austrian cabal. They all grew up within the fetid declining years of the old Hapsburg Empire. They all misunderstood the causes of that decline. They all witnessed the horror of demagoguery of Hitler. They all feared the repression of Marxism, Lenin and Stalin. So they all overcompensated.

Their error, as they built the intellectual features of neoliberalism, was to mistake democracy as a form of socialism. In this they echoed the fears of their intellectual ancestors. The founders of the American republic were just as fearful of the people. The phrase “we the people” refers to a select few: those entitled to participate. It does not refer to the vast mass who were thought unfit to participate.

By making this error Hayek and his ilk debauched liberalism. No: they tore it in two. They ripped away any references to equality or the dignity of community, leaving only the much rawer individuality to stand alone as a beacon of freedom. This primitive liberalism was then packaged as economic and political theory to stand against any attempts to leaven it with those lost, yet appropriate, features of mature liberalism.

So that’s how we arrived here.

The consequences of the neoliberal rebellion are all around us. Trump. Brett. La Pen. Haider. Berlusconi. The people’s reaction to insecurity, austerity, globalization, deregulation, and the decay of social cohesion wrought by the single minded pursuit of the individual ideal.

With respect to Brexit, let me quote at length from Jonathan Freedland’s essay in the New York review of Books:

“There is an overlap here with those white working-class voters in the US who are backing Donald Trump. In both cases, they are often people who once enjoyed secure, relatively well-paid work and who have seen their jobs, and their factories, shipped eastward. Working low-status jobs on zero-hours contracts, they live in places that have been hollowed out and left behind … While London and other major cities gleam and sparkle with investment and regeneration, many of these English towns — post-mining, post-industrial, post-their-best — are still reeling from the Thatcher-era policy of privatization, which saw the state shut down industries it had once propped up. They have grown derelict. In each wave of change — Thatcherism, globalization, automatization [sic] — they have lost out.

It meant that the Remain campaign’s central argument — that Brexit risked Britain’s prosperity — cut no ice with these voters, because they had no prosperity to risk.”

A little later Freedland quotes a Conservative minister, Michael Gove, as saying:

“I think people in this country have had enough of experts.”

And that’s also why we are where we are.

The experts blew it.

The elite. The center. The experts.

They are the people who brought us rising inequality, globalization, shareholder value, austerity, infrastructure neglect, rotting schools, dilapidated cities, insecurity in retirement, health, and personal finances, stagnant wages, and all the other ailments of an economy and society run solely in the name of private profit.

Worse still: those experts are scarcely attached to democracy because they, like Hayek and his confreres, believe that popular will is akin to a chaos imposed by an unwashed undereducated mob. Those experts believe that they alone understand the so-called “national interest”.

But why is it in the national interest for almost half the population to live perilously close to poverty?

As it turns out, that fleeting glimpse of normal back in the immediate post-war years was no illusion. It was simply a threat to the old establishment and to big business. It was a democratic moment that had to be ended not extended. It had to be ended so profits could be made as they had back in the Golden Era. So ended it was.

Which is why we are where we are.

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Spot The Crisis

We hear it all the time. It is a relentless drum beat on the left. Capitalism, we are told, is in crisis. This crisis is manifested in all sorts of ways. We – meaning those of us on the left – need to prepare. We need to counter attack. We need to seize this moment and retrieve from the mess whatever we can. Democracy, in various forms depending on who is writing, is our way forward. Only through democracy can we save society from the crisis in capitalism.

Really?

Where, exactly is this crisis?

This occurs to me because at the same time leftist writers are proclaiming the existence of crisis they are often, simultaneously, proclaiming the ever increasing divide in social inequality as defined by income or wealth. Capitalists are doing quite nicely I would imagine if these concerns over inequality are correct. Which they are.

So, where, exactly, is this crisis?

If capitalists are taking and ever increasing share of the national income, if they are accumulating an ever increasing proportion of the national wealth, and if they have managed to wrestle effective control of the ship of state from the majority of ordinary folks, how can they be in crisis? I would argue that things look pretty dandy if you’re one of them.

There is no crisis in capitalism if you are a capitalist. You’re on a winning roll. You are loving life.

It’s the rest of us that have a problem. We are the ones mired in crisis. We don’t have a crisis of capitalism. We have a crisis because of capitalism. That’s a big difference.

Capitalists, of course, being driven solely by their ability to accumulate riches, are probably complaining even though they are rolling in money. That’s who they are. That’s why they succeed. They are single minded. They exist for wealth. They measure themselves by their wealth. They adopt any and all stratagems to accumulate more. They oppose bitterly and stubbornly anything that slows their accumulation of wealth down. And, as we all know, they will twist rules, cheat, and generally cause mayhem to get their way.

Above all else they hate sharing. Sharing, you see, just isn’t the way you accumulate wealth. Sharing is a limp and pathetic idea adopted only by losers who aren’t tough enough to win. Capitalists aren’t losers, so they don’t share. Which is why they cannot abide redistribution. If there’s one thing that will rally a group of capitalists and stop them tearing away at each other, it’s the prospect of a democratically designed effort to redistribute their hard-earned and righteously amassed wealth.

Which is why capitalists despise democracy. And it is why they constantly propagate the idea that social programs supported by redistribution are a kind of leeching or inefficiency imposed on the sleek capitalist machine that will, inevitably, slow growth down and eventually undercut our ability to pay for them.  They toss the word ‘entitlement’ about as a nasty epithet – as being entitled wasn’t as aspect of citizenship.

Anyway: back to the non-existent crisis. Ben Tarnoff reminded me of it in his article in the Guardian titled: “Donald Trump, Peter Thiel and the death of democracy”. Here’s the paragraphs that caught my eye:

This may sound like dystopian science fiction, but it’s also a perfectly reasonable political objective for someone of Thiel’s class position. It’s easy for liberals to dismiss Thiel as a “comic-book villain”, but this caricature obscures the fact that Thiel is a sophisticated thinker – and a perceptive one. His central observation, that American capitalism is facing a crisis, is unquestionably correct.

The past four decades of economic data make that crisis clear. Since the 1970s, the US economy has enjoyed far lower levels of growth than it did during its midcentury golden age. From 1920 to 1970, real per-capita GDP grew by a staggering 2.41% a year on average. From 1970 to 2014 it slowed considerably, to 1.77%. The slowdown in labor productivity has been even starker.

Thiel is acutely aware of these numbers. He is, in fact, obsessed with economic stagnation. Over the long term, stagnation doesn’t just threaten capitalism by limiting growth; it also runs the risk of turning people against capitalism, as their wages and living standards deteriorate. This is already happening, as the popularity of the Bernie Sanders campaign made clear. A Harvard survey from April found that a majority of millennials now say they reject capitalism; a third say they support socialism. The precise meaning of this poll is arguable, but it’s clear that young Americans, who make less money than their parents did at their age and have higher rates of poverty and unemployment, are moving left.

It’s safe to assume that Thiel is paying attention. The next American electorate will be more nonwhite, more working-class, and more leftwing. And they’re likely to demand more democracy, not less – not only from the political system, but from the economic system as well. That sets them on a collision course with elites like Thiel.

Note the key words: “… His central observation, that American capitalism is facing a crisis, is unquestionably correct.”

Unquestionably correct?

Despite all the empirical evidence that the share of capital of our total wealth is rising beyond its historical norms? How, exactly is this a “crisis”?

Well, as it turns out, it is crisis for capitalists like Thiel only in the sense that their greed demands more and that sharing is somehow morally wrong.

Now my point is simple: we ought to stop this old fashioned repetition of the notion that there is a crisis in capitalism. There isn’t. Capitalists are dong very well. Indeed if they weren’t we wouldn’t be talking about them. No. Not at all. The crisis Ben Tarnoff is trying to get at, and I think he is a good example of the problem we have in describing it, is one of democracy.

We have a crisis of democracy.

Capitalism is rampant and on a successful run. People like Thiel are complaining because they feel entitled to more and are concerned that a resurgence in democracy would hamper their ability to accumulate even greater riches. Tarnoff says this quite clearly in his article. What he ought to have emphasized more is that capitalists want to take advantage of our currently weakened democratic state to consolidate their position. In other words they want to kick democracy while it’s in the gutter. Framing this conflict as a crisis for capitalism is both antiquated and misleading. If we are to rally the people to fight back, they need to know why they are fighting. It is our loss of democracy that provides the rallying cry. Who cares about capitalists?

One last thing: tossing around GDP numbers spanning decades and pointing to the slowdown in growth as a crisis for capitalists also muddies the waters. It is a problem for all of us. Growth is what allows us to allocate more resources to things we like without having to resort to force or politically difficult argument. So slower growth is a problem for democracy too. More to the point: we need growth to be sustainable and not environmentally toxic, so making growth a purely capitalist issue sidelines democrats from needing to engage the topic constructively and leads too many left of center thinkers to view growth as a negative.

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Notes to Myself

First.

With respect to my summer reading.

I have always been fascinated by information. Its role in the economy; its nature; and its effect on our institutions. Equally I am usually horrified by the abuse information gets in economic theory. To me asymmetries of information are the reason economies exist. They are the cause of need, of exchange, and, at a more pragmatic level of profit. Thus creating, protecting, and maintain asymmetries of information are the lifeblood of business. Which makes most microeconomics a mockery of reality. Especially any micro that presumes information to be either freely or equably available.

You cannot understand an economy without first understanding information.

But not information in the sense of physics so much as information in the sense of biology. Evolution, the origins of life, the subsequent trajectory of everything since that origin are all the story of information traveling through time. We ourselves, and hence everything we have created including economies, are manifestations of that process.

In which regard I want to note the following quote:

“Genomes do not predict the future but recall the past: they reflect the exigencies of history” – Nick Lane, “What is Life?” p. 23

Of course my thoughts went here:

“Economies do not predict the future but recall the past: they reflect the exigencies of history”

How true. The information that is encoded in today’s economy contains the instructions for tomorrow’s. But the exact instantiation of that code is subject to the vagaries of the environment, of error, of emergent novelty, and of many other forces that make that instantiation unique.

In such a context the traditional subjects of economic theory, even the so-called forces of supply and demand, are secondary causes of what will appear as tomorrow’s economy. The primary cause is the interaction of the code and its environment as modified, but not superseded by, those secondary causes.

To understand the code and its travel through time is to understand an economy. Perhaps economics is only part of that overall understanding.

Second:

With respect to an upcoming speech. Two comments I have made – to friends – recently:

“The challenges of the future are how to make growth compatible with environmental safety, how to return to an equable (fair) society, how to reduce class privilege, how to balance social change with our historical legacy, and how to re-capture a sense of security.”

“Meanwhile, one point I want to make clear: I think economic security is essential if society is to navigate through social upheaval safely. Your example of the 1960’s is a good one. Economic security broke down in the 1970’s [mainly due to resource cost inflation, i.e. oil] and produced an extraordinarily conservative reaction manifested by Reagan and then Clinton both abandoning the platform of the New Deal. We are stuck in the economic mire as a result – a proper Keynesian reaction to 2008 would have moved us markedly forward from where we are now.

In other words the intellectual reaction to the 1970’s was an error now so well entrenched throughout our elite thought – and hence policy making – that we cannot break free and recapture security until the elite itself is overturned. And, with respect to your favorite social phenomenon, our cultural elite is also culpable: it is either cynically out to exploit society for personal enrichment, stuck re-cycling out of date leftist critiques, or deeply engrossed in important but yet marginal issues – issues that leave the majority out.

If, for instance, you want a colonial, holocaust, or slave-owning history to be truly written into a nation’s textbooks and its self-knowledge, then you cannot lambast today’s generation as if they caused the problem. They manifestly did not. They weren’t present. Blame, revenge, the call for reparations and so on merely create resentment amongst the very group you want to educate. They create a barrier not an entry way. Look at the deterioration of race relations in the US. It is appalling. Our textbooks refuse to include the real history. Our children grow up ignorant. The loss of economic opportunity aggravates base feelings. So the combination of ignorance and insecurity ends up making matters worse.

A healthy economy, one where opportunity is both real and abundant, where education is available and rewarded, where privilege is reduced to a minimum, where prosperity is fairly shared by all involved in creating it, and where the weak, young, sick, elderly and poor are not subjected to puritanical abuse and thus abandoned, supports a society capable of adapting to its history and of writing a better future.

The great social and economic thinkers of the past were reflecting on the passage of society from its agricultural base to a newer and what seemed disorienting industrial base. Those ideas need to be adapted or replaced as we move from an industrial base into what appears to be an experiential or service oriented base.

It is exciting to try to contribute to that process.”

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Brexit 2

Like many people I am still trying to digest the lunacy of Brexit. I say lunacy because retreat from European integration is, in my opinion, a regression towards the pettiness of nationalism that we can ill afford at a time of ever increasing technologically driven proximity to one another.

Having said that I am astonished at the foolish and narrow minded reaction I am seeing from the usual suspects amongst our intelligentsia, media, and the political and corporate elite. Those latter two are hard to distinguish nowadays.

One of my favorite examples of such narrow mindedness is Thomas Friedman of the New York Times. For many years he has been an unabashed cheerleader of all things technological, global, and connected. He regularly tosses those, and related, concepts around with narry a thought to the extraordinary and wrenching consequences they are having on the everyday lives of those of our fellow citizens who less fortunate than we are and are not as readily adaptable to the vicissitudes of modern connected life.

Frankly I am tired of homilies from the elite about society needing more education. Really? Then provide it.

I am tired of commentaries about the need to protect workers from the losses caused by trade or globalization. Really? Then provide it.

I am fed up with lectures about the need to encourage entrepreneurs in technology who seem all to make significant fortunes by reducing the lives of their fellow citizens. Capital flows, as is its wont, to any potential fountain of profit, why do we need to provide incentives over and beyond those of the market?

I am even more fed up with those in our elite who apparently just realized that the economic policies of neoliberalism have produced massive dislocation and inequality. Really? Where were you all these years? Davos? Who cares about Davos? No one.

How about the central bankers who ‘target 2% inflation’. They routinely underperform. They have missed that target on the downside for years. Yet they are still employed. How come? Why do we routinely reward the failures of our elite, but punish those of the regular folk?

I could go on, but it is pointless.

It is a basic principle of stable democratic government that the elite ought govern from the center. The center ideologically in order to spread the political net the widest. The center intellectually in order to incorporate the maximum current thinking. And the center culturally in order to provide the broadest appeal to all parts of society. Government ought, in other words, be pragmatically constructed to protect and honor the wishes of the majority whilst not trampling too often on those of the minority.

So much is, I think, obvious.

But what is now just as obvious is that the center is broken. It was the center that, post Reagan and Thatcher, invested fully in neoliberal economic and political theory. It was the center that sold our citizens on the magic of markets and on the evils of government. It was the center that constructed endless excuses for the protection of capital and yet the exposure of labor to the great forces of change. It was the center that told us to integrate the ancient traditions of Europe into a new technocratic ‘modern’ version, thus shedding centuries of cultural identity in a few years of bureaucratic haste. And it was the center that allowed itself to become inextricably muddled up with corporatist thinking. This center is continuous across the western world. It is comprised of academics, politicians, journalists, capitalists, business leaders, and professionals of all sorts. It is cosmopolitan and comfortable with change. Why? Because it benefits from that change.

So it advocates change. It encourages change. It worships at the alter of innovation. It toss the Schumpterian phrase ‘creative destruction’ about as an abstract rallying cry at every opportunity. And it has become a self referential and self congratulatory clique bestride the western world ever more detached from the ‘lesser classes’ who, in the eyes of the elite, just don’t understand the inevitability of it all.

It isn’t just the European adventure that appears to have failed. It is the American Reagan/Clinton project that has failed too. Too much change too fast. Or too much change with a callous disregard for the consequences.

Back to Friedman. Here’s a quote from his latest piece in the New York Times:

“We have globalized trade and manufacturing, and we have introduced robots and artificial intelligence systems, far faster than we have designed the social safety nets, trade surge protectors and educational advancement options that would allow people caught in this transition to have the time, space and tools to thrive. It’s left a lot of people dizzy and dislocated.”

Damn right. And whose fault is that?

Not the people, that’s for sure. Look in the mirror Friedman. Stop being a shill for technological change, globalization, and all that stuff. Start being an advocate for your fellow citizens. Stop lecturing us on how we need to re-educate ourselves or get used to our jobs going to China. Start explaining how we compensate for those lost jobs.

In short: stop looking down. Start walking around. It is the center that is broken. No wonder the extremes are winning. They’re the ones with ideas.

I agree that a new era is dawning, if we want to preserve our democracy then we need to make sure our elite governs on behalf of all of us. All of us. Not just big business and the wealthy.

We need new ideas. We need to get rid of old ideas. We don’t need any more breathless descriptions of what’s going on. We need solutions to what’s going on.

Now.

Before it’s too late.

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