libertarian economics

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Not Friedman!

While I was checking the inner debates the Republicans are having about health care I came across this quote [in an article written by Tierney Sneed in TPM] from Representative David Brat, an extreme right winger:

“When it comes to how much you want to park in the HSAs for providing catastrophic care, that, when it comes, to the safety net, we have to find the Milton Friedman way of doing that,” Brat said. “The Price bill would do tax credits. I am not a fan of those because it keeps the federal government in the center of that.”

My heart sank.

Milton Friedman? Really.

His version of economics is simply an ideology cloaked in clever language. And it is profoundly anti-democratic.

Friedman’s stalwart libertarianism led him to develop an economics that started, unscientifically, with a built-in bias against communal action. This meant that anything the government did was, a priori, damaging to the magic that Friedman was desperate to ascribe to the workings of something he, and most economists, call markets.

Markets, you see, are wonderlands that always and inevitably lead to efficient outcomes. And it is no good any starry eyed liberal tinkering with those outcomes. They are magically correct. By correct we mean that they cannot be improved upon. Economists have this vice like attachment to certain core beliefs. One of those is that, if left unfettered, markets will zero in on an allocation of stuff that can never be improved, especially by meddlesome governments.

The way you get to this particular promised land is by letting the great forces of supply and demand batter away at individual preferences and budgets until all the trading and so on ends with no one able to make another trade without such a trade making someone else worse off. It sounds wonderful. Now to make this all work we have to believe in magic. We have to suspend our intelligence and imagine a world where everyone knows exactly what everyone else is doing, where no one cheats, where everyone is marvelously rational, where they don’t suddenly change their minds, where they can calculate at the speed of light, absorb vast amounts of data, and always — yes always — arrive at precisely that combination of stuff they wanted. Within the constraints of their budget of course.

The distribution of stuff in this fantasy world is not an issue to libertarians like Friedman. It is always deserved. It is always morally right. This leads the libertarians to have to argue that the distribution of original privilege and opportunity is equally deserved. They don’t care about egalitarian opportunity: what they are concerned with is the rationality of what people do with what they begin with — no matter how poor they are. Poverty is the individual’s fault.

Poverty, some of them argue, is relative anyway. Aren’t we all better off than our forbears? Yes of course we are. So, they argue, we ought not quibble about the distribution of wealth. Yes, we have poor people, but so what? They have lots of stuff our ancestors didn’t have. So quiet down and stop whining about redistribution.

Anyway, as Friedman argues, markets are never ever wrong. And markets can always fix any temporary problems: all those clever and rational consumers will punish bad companies and reward good ones, so we don’t need to regulate.

And so on.

It’s fantasy stuff. It’s patently absurd as a description of the real world. It is plainly ridiculous when you examine the contortions necessary to make it all work out the way Friedman says it does — he famously argued that we ought worry about the absurdity of the inputs to his reasoning we ought only focus on the veracity of the outputs. Naturally those outputs “proved” the efficacy of markets.

So, with this all swirling in my head I hope you can understand why my heart sank when I read that a member of Congress actually wants to build the real world in the image of the Friedman fantasy. It’s all simply ideology. It is an attempt to provide intellectual rigor to an anti-social policy outcome.

Beware of Friedman! He was an ideologue first and foremost.  His so-called economics were, in truth, a political agenda. Quoting him approvingly marks you as anti-democratic because he valued market efficiency over and above any other social outcome no matter how repressive the political process needed to be to arrive at that efficiency.

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Republican Disarray?

I already mentioned today the current mess the Republicans find themselves in. What I didn’t highlight in that post was that the mess marks not the end, but, to borrow a phrase from Churchill, only the beginning of the end of the rightist radical movement.

Part of the reason for the radical right’s astonishing success over the last four decades is that the so-called centrists in both major parties hid from its true agenda.

The right-of-center centrists thought that the radicals were a fervent yet malleable small group whose obvious energy could be channelled along lines the establishment-right could set out. In other words the revolutionaries could be managed as a kind of storm trooper elite force to get out in front of the old guard and raise sufficient hell for the centrists to glide in after and then go about their centrist business.

After all, we have been told repeatedly as we slipped ever rightward that America is, at heart, a centrist nation. Which may be true, but is irrelevant when the revolutionary tide is sweeping us all along with it. Who knows where the center is in such a storm?

The left-of-center centrists were even more befuddled. They mistook the huge cloud of radical dust as a sign that the entire country was shifting to the right, so, in an act of self-preservation, they decided they too had to shift right. Thus we landed with Clinton whose economic policies resemble those of a Republican from the 1960’s – or earlier – more than they do a Democrat.

Meanwhile the media, shy of being tarred as biased, pushed a relentless line that the rise in radicalism was symmetric and that both extreme wings, right as well as left, were moving away from the beleaguered center. It became the media’s role, given this trope, to locate an act of extremism on the left every time they came across one on the right. Except there weren’t any. So they made them up, or they vastly exaggerated those they could find in order to persuade the public of the media’s ‘balanced’ reporting.

Except balanced reporting would have blown the whistle on the rise of rightist extremism. It would have exposed the anti-democratic agenda hidden behind the smooth and alluring words. It would have revealed the radical nature of the program and its dramatic re-balancing of American  society to favor the few at the expense of the many.

Now we learn how extreme the extremists have become and how they have gained such a grip on the Republican party that a civil war has broken out within its ranks. And the centrists are aghast. They are asking how this all happened. How, they ponder out aloud, did the radicals garner so much power? Weren’t they supposed to act as a front for the establishment, and not as an independent power?

The clearest sign of how the centrists completely misread the situation is the rise and fall of Jeb Bush. He was the darling of the centrists. He was the establishment favorite. But the radicals hated him for exactly that reason. Jeb! cannot be trusted. He’s in the pocket of big business. And big business is getting really sacred it can no longer control the extremists. So Jeb! is the enemy of his own shock troops. The storm troopers have turned against their own. Having tasted power they want more.

Which ought not surprise anyone. But apparently it does. Especially the centrists who make a career out of appearing so level headed and sensible.

I think it’s the arrogance of centrists that has upended their sensibilities so strongly. They imagined themselves immune to the falsity of radical thought. They had, they told us all, found that path along which they would guide the nation, if only we would all comply, toward a happy future. That happy future happened to fulfill their own goals, but since they were centrist goals they were assumed to be good goals. Good, that is, because they were untainted by the sniff of extremist ideas. They were good, old fashioned, compromise laden and thus hard wrought, goals. Sensible goals. The kind of goals that would keep the great ship of state afloat and on course to an endless American future matching the myths of old.

This was always rubbish.

The monoculture of the centrists, its deference to the past, and its denial of the dynamism of the radicals, gave it no chance. The revolutionaries, armed with libertarian economics and business school tricks, swept to power. The center kept shifting as it tried to resist the storm, but all it could do was to absorb aspects of the extremism. The plutocrats crept in behind the smoke screen and twisted the economy to their advantage. They imagined they could buy the game and stall it perpetually in their favor.

Not so.

The radicals continued to sweep forward. They actually believe in the revolution whereas the plutocrats simply wanted to use it as cover for their own regime change. Now that the revolution is out of control the plutocrats stand to lose: they no longer set the agenda. The far right does. Or should I say the even-further right? So we arrive at the current amazing scene: Republican civil war. The revolutionaries attacking their own sponsors.

So many Republican blue-bloods have fallen already – Boehner, McCarthy, Cantor, and Bush in just the past year. That’s a whole generation of current or future leadership overcome by the backlash from the monster of its own making. The House has become not just unruly, but entirely inept and neutered as an agent of government. The Republican party is now incapable of governance. Indeed the radicals are so vexed over supposed government oppression that they don’t want to govern even if they have power. They cannot agree on an agenda. They are anti-establishment to such a degree that even after they have seized the center of of power they refuse to use it. They simply want to tear it down.

There is nothing conservative in this moment. Nothing. It is the very antithesis of conservatism.

Meanwhile the Democrats look on bemused. Their own shift to the right, all that Clintonian triangulation, is now exposed as a fraudulent abandonment of principle rendered unnecessary by events. They too look ineffective as they try to take shelter amid the storm. They too have their own shock troops emerging from the shadows. They too now face an internal battle as the old guard struggles to maintain relevance in our radicalized world. All the blood shed over Obamacare is now seen as an attempt to install a conservative rather than a progressive program. All those who fell in its defense now feel a distaste: they were betrayed by centrist sentiments. Or, rather, they betrayed themselves by not fighting for a more progressive agenda.

So the disarray may be more than Republican. It might be more general.

If so: good. A realignment away from the failed Reagan/Clinton/Bush center is a healthy thing.

Is this, then, the beginning of the end for rightist radicalism? Will a leftwing version emerge to rebalance our politics?

I hope so. But I have no clue.

 

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Let’s All Blame Capitalism

Well, actually let’s not.

Just as much as I decry single minded adherence to what I have called the binary vision of our world, as in markets are great, the state is bad, I also object to laying all the blame for our multitude of ills at the feet of capitalism. Simple answers to complicated questions always raise my suspicions. I suspect that the truth is somewhat more nuanced.

Take poverty for example. Is it really true that capitalism is the root cause of poverty? No. It is not.

What do we mean by poverty anyway? Relative poverty, as in some distribution of incomes and wealth? Or absolute poverty, as in an inability to provide sufficient sustenance to support life?

Theses are quite different things.

The libertarians are naturally inclined to look at what we can call the long view of poverty. Many more people live above the basic support level than ever before. To argue the contrary is to delve into special pleading and to redefine the issue in a prejudicial way. There is no doubt that we, in our part of the world, live a far more prosperous life than any of our ancestors. The great surge of invention unleashed after the Enlightenment and then applied after the Industrial Revolution has driven the average person’s lifestyle to gaudy levels undreamed about even a mere two hundred or so years ago. That is an extraordinary achievement.

And achievement of whom?

The people who benefitted most from driving the change. Most of whom qualify to be called capitalists.

Left wingers who deny this are always left stumbling about and creating oddball utopian visions in order to debunk the progress that basic free market economies have produced. They introduce things like our alienation from our previous self sufficiency. As if that was a nirvana from which our ancestors would not have wanted to escape. Endless hours tilling land with primitive technology. A constant threat of starvation because of dependence on weather. Awful living conditions and disease prone lives that were more squalor than haven.

Sign me up for alienation.

I doubt my ancestors – the servant class in an aristocratic backwater in England – would mind the oppression of modernity at all. In fact I know my grandmother embraced it. So do I. Cleaning stables so some aristocrat can go play polo is not my cup of tea. But that’s what her husband did. She looked after the fireplaces so the duke could keep warm.

No. My family was liberated by the Industrial Revolution. Capitalism, if that’s what we describe the basic economic  model of the past two hundred years of so, has done me proud.

But.

The leftists are right if they change the subject to today and quit the old nonsense. We have a problem with the distribution of the modern cornucopia.

Another but …

This modern problem is not a failure of capitalism. It is a failure of democracy.

I can hear you groaning.

The problem with the binary worldview held by both libertarians and leftists [Marxists in particular] is that it ignores the emergence in the past hundred years of something called democracy. Allow me to introduce you to it!

The political domain becomes a lot more complicated when we introduce the notion of self-governance. Even if the system is not ideal – as I am no doubt many of you are dying to tell me – it is far more progressive than one party, autocratic, military, or any other type of rule.

Why is it more complicated?

Because the people now have a foot in two camps. They work and trade in the economic camp. They vote and self-govern in the political camp. So even if economists don’t like the notion of political economy the real world now does.

So the distribution of income is as much political as it is an economic problem. People can vote to get a bigger share of the national pie. Which is what happened with social programs the world over. And which is also why libertarians with their binary view dislike those programs.

I have been flippant. The deeper issue is this:

At the onset of the great leap forward back in the 1700’s the concepts and ideas that support both the modern right and the modern left were conflated. They were very fuzzy. The great thinkers of that era were still struggling to sort them all out. Balibar calls it “equaliberty” for exactly this reason.

So the founding fathers of the US could prattle on about how egalitarian their new nation was even while ignoring slavery, the plight of women, and the lack of voting rights for the majority. Liberty, to them, was a very sparsely defined idea. It extended to  very few. In fact, apart from their lack of hereditary status, the founding fathers were to a whole lot different from the more enlightened [a relative term if ever there is one] European aristocrats they so despised.

During the 1800’s, as industrialization disrupted traditional lifestyles, late thinkers started to rise those muddled ideas apart. They saw liberty as something different from equality. Indeed they created a great divide that we still struggle with.

Liberty and equality are in conflict. And their modern manifestations are thus the source of argument. Liberty, and its economic version engine that libertarians interpret as the ‘free marketplace’, undergirds such things as private property and ultimately capitalism. It is built around incentive and wealth. It is divisive simply because different people have different abilities to respond to those incentives. And if rewards flow freely – as they do in a society based on liberty – then the distribution of incomes and wealth will inevitably be unequal.

The negative social consequences of capitalism – what the leftists identify as its oppressive and distorting effects – stirred up a reaction. But that reaction did not replace capitalism, it merely constrained it, by elevating people into the governance of the societies being distorted. The Marxist road to nirvana was blocked by an alternative logic of history. People wanted to be part of the great leap forward, but not stop it. Mitigation rather than elimination and replacement became the driver of modern politics. Hence the emergence of democracy as we know it subsequent to industrialization.

So as the original and muddled ideas were crystalized they separated into two conflicting streams that need to be balanced if we are to benefit from them both.

And, unfortunately, we cannot achieve that balance as long as the two sides, our libertarian and Marxist friends, insist on re-hashing arguments from the old days.

For instance is we all blame capitalism for the ills of poverty we miss its role in getting us to where we are. And if we simply laud its ability to generate wealth and prosperity, we miss our need to mitigate its downsides.

I realize its fun to be ideologically committed, and that a binary worldview make life simpler, but we need to get beyond that divide. The problem with modern democracy is that it isn’t a pure system. It isn’t socialist and it isn’t libertarian. It’s the ugly middle way no one wants to defend. But defend it we must if we want to preserve the prosperity capitalism has bestowed upon us, and yet enforce restraints on liberty to ensure a more equal distribution of that prosperity – and to prevent further degradation of our environment.

So is capitalism to blame for all our ills?

Yes. And. No.

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Libertarian Economics

 

Economics is contextual. At its inception this context was the struggle for power as entrepreneurial and landowner citizens tried to wriggle free of the impress of ages old monarchical rule. As political freedoms steadily grew and different societies obtained an ability to critique their rulers and as they managed to change the institutional set up in which their economies were embedded the study of economics became a coherent field of enquiry.

This early economics was almost invariably an attempt to demonstrate why it was that monarchs ought to interfere less in the workings of the economy. Such interference was seen as arbitrary and inefficient, whereas the operation of the entrepreneurs and landowners was seen as obeying ‘natural laws’ that would, inevitably, produce better outcomes than those obtaining under state rule.

The market versus state conflict was thus built into classical economic thought from the beginning. Indeed much of the original impetus for economic theorizing was precisely to ‘prove’ the efficacy of markets.

Thus economics has within it a deep tradition of articulating one side of an argument. It is a tradition that resonates strongly today. That one side of the argument is easily detected in the views of libertarian economists – there are very many – who seem to begin their work with an end in mind. That end being a proof of market efficacy.

This is why classical economics and its modern variants are willing to adopt a variety of assumptions that appear to drive towards only one conclusion. It is why so many economists find it difficult to find a role for government in their models. It is certainly why in recent decades the old Keynesian governmental role is so commonly ridiculed.

In many ways modern economics has a predictable air to it: the outcome that markets are so efficacious is based not on empirical work, but on a careful choice of starting assumptions designed to allow that outcome to emerge ‘naturally’. Friedman was hinting at this when he argued that nonsensical assumptions were of no consequence as long as the outcome was ‘correct’.

Modern microeconomics is an example: it is carefully prepared and cleverly constructed to ensure that market outcomes – when markets are left to their own devices – arrive at social outcomes that cannot be bettered. That in order to do this economists have had to resort to adopting a model of human behavior not found in the real world is little mentioned. And when awkward realities do intrude they are usually ignored – as, for instance, with the celebrated questions asked by Ronald Coase and the existence of the firm.

This bias in economics reached its apogee with the notion that modern macroeconomics ought to be constructed atop micro foundations. This would thus assure the market solution would flow through to models of entire economies and thus squeeze the state out. This was necessary in order to undo the work of Keynes who had the temerity to see a permanent role for government and who thus was an apostate in the eyes of the libertarians.

The libertarian worldview thus infects economics thoroughly. And it also means that much of economics is not scientific in the sense that it tries to understand aspects of reality, but is rather ideological in that it tries to advocate a particular way of organizing society.

So libertarian economics is idealistic. It posits a world as it ought to be. It argues a great deal of ‘if only the markets were free’ and has no interest in opening up space for other institutions to play mediatory roles. It is an analog to Marxist thought which has its own teleological drive and idealistic outcomes. Neither are studies of reality. They are critiques. Both are stories with happy endings if only we all submit to their rules.

A critical missing context in both libertarian and Marxist economics is the emergence subsequent to their origins of modern democracy. The modern state that libertarians so decry is a parallel expression of the very ‘agents’ that they model as being so tirelessly self-interested and rational in their economic lives. Yet when these ‘agents’ change coats and become ‘citizens’ they make fools of themselves and vote for all sorts of state activity the libertarians detest.

How can this be?

How can people-as-agents contradict people-as-citizens? Especially when both sets of people are identical.

The problem is, I argue, that libertarians live in the past. They imagine a wonderland of simple production, simple relationships, and simple rules. Causes and effects are easily connected in such a world. They can be easily modeled. Tracing an efficacious curve in such a world is relatively easy. And, yes, the libertarian vision fits quite well with it.

But it is not a modern world. Modes of production have changed. Logistics are different. Distances have collapsed due to better communication. The division of labor has separated us all from our more self-sustaining past. And we are now self-governing. The state, to paraphrase Louis XIV, is us. So the libertarian world is outdated and it is especially not a democratic world where people have two ways to mediate economic outcomes: one through their transacting relationships, another through the ballot box.

Keynes, in his confrontation with Hayek in the 1930’s, recognized this. His response was to attempt to build a theory that accommodated democratic wishes: you cannot have extreme adjustments and massive unemployment without threatening political unrest. So, in order to protect the market driven engine of growth we have to mitigate its apparent occasional extreme outcomes. Our best option for such mitigation is through then state. The mass of the people in their democratic role will demand this mitigation. After all few will benefit from the extreme rewards on offer in a free market, but many can, and do, suffer the extreme penalties from those occasional breakdowns that history tells us markets go through periodically.

Hayek, in contrast was so beset with fears of repressive state interference – his childhood had been spent watching the decline of the Hapsburg lineage and the emergence of fascism – that he found himself forced to argue that even well intentioned state intervention was less efficacious than the most extreme market outcome.

Hayek’s classic work on the role of knowledge in the economy is his attempt to demonstrate this latter point. Since knowledge is so dispersed, and since it is only revealed locally, no central player can accumulate sufficient knowledge to out perform the outcomes generated by a decentralized marketplace. Lange’s counterargument that this exact same set of conditions can be used to justify a socialist economy has, unfortunately, been lost or ignored in the decades since.

My point here is simply this: economics began its life as either a defense or a critique of the emerging industrial economy. It was adjusted in the 1930’s to account for democracy. But this adjustment was rejected by libertarians whose worldview was offended by any economic outcome being subjected to political input. As the libertarian view regained dominance in economics it implied that the profession drifted away from democracy too. It is this latter drift that has made it so difficult for many economists to embrace inequality as a topic worthy of study. It is also this drift that makes many economists so tone deaf to the real world social outcomes of unfettered markets. Creative destruction is still destruction. The system may re-emerge healthier, but the human cost along the way is also real. Accounting for it sits outside the libertarian agenda. Besides our modern economy is not much like that being observed by the founders of economics. It isn’t even much like that of the 1930’s.

Are we sure economics ought to be invariant even while the economy itself evolves so radically?

This libertarian drift is also the reason that we see so many economist give attribution to the market for all sorts of social and political changes. In their narrow and binary world where the only agency is situated either in a market or in a state, they are forced to go to extremes. They give themselves no choice. They have to suggest that progress can only come from free market activity. After all, in their eyes, the state can only be negative.

Even if the state embodies the wishes of ‘we the people’.