Wednesday, December 21, 2011
what if the further development of technology and globalization undermines the middle class and makes it impossible for more than a minority of citizens in an advanced society to achieve middle-class status?
There are already abundant signs that such a phase of development has begun.
the deeper reason a broad-based populist left has failed to materialize is an intellectual one. It has been several decades since anyone on the left has been able to articulate, first, a coherent analysis of what happens to the structure of advanced societies as they undergo economic change and, second, a realistic agenda that has any hope of protecting a middle-class society.
The main trends in left-wing thought in the last two generations have been, frankly, disastrous as either conceptual frameworks or tools for mobilization.
Imagine, for a moment, an obscure scribbler today in a garret somewhere trying to outline an ideology of the future that could provide a realistic path toward a world with healthy middle-class societies and robust democracies. What would that ideology look like?
It would have to have at least two components, political and economic. Politically, the new ideology would need to reassert the supremacy of democratic politics over economics and legitimate anew government as an expression of the public interest. But the agenda it put forward to protect middle-class life could not simply rely on the existing mechanisms of the welfare state. The ideology would need to somehow redesign the public sector, freeing it from its dependence on existing stakeholders and using new, technology-empowered approaches to delivering services. It would have to argue forthrightly for more redistribution and present a realistic route to ending interest groups’ domination of politics.
Economically, the ideology could not begin with a denunciation of capitalism as such, as if old-fashioned socialism were still a viable alternative. It is more the variety of capitalism that is at stake and the degree to which governments should help societies adjust to change. Globalization need be seen not as an inexorable fact of life but rather as a challenge and an opportunity that must be carefully controlled politically. The new ideology would not see markets as an end in themselves; instead, it would value global trade and investment to the extent that they contributed to a flourishing middle class, not just to greater aggregate national wealth.
The existing state of Economics is a barrier.
It is not possible to get to that point, however, without providing a serious and sustained critique of much of the edifice of modern neoclassical economics, beginning with fundamental assumptions such as the sovereignty of individual preferences and that aggregate income is an accurate measure of national well-being. This critique would have to note that people’s incomes do not necessarily represent their true contributions to society. It would have to go further, however, and recognize that even if labor markets were efficient, the natural distribution of talents is not necessarily fair and that individuals are not sovereign entities but beings heavily shaped by their surrounding societies.
I think there is a lot to agree with here. First, he stresses the importance of the position of the middle class as a foundation for broader democracy. The fundamental democratic challenge is to protect the middle class.
Second, I agree the the left has been intellectually moribund. It clings to the older socialist welfarism vision in economics, while devoting its energies to social liberalism. It is extraordinary that as Europe is wrenched by economic crisis and cuts, almost every left-wing government on the continent has been dumped by the electorate.
If left-wingers cannot make progress when there is mass unemployment, voters see their income plunging and they blame the crisis on rich bankers, the future for the left is bleak. Instead of protecting the middle class, the left has focused on protecting minorities.
The proposition that people's incomes do not necessarily reflect their "contribution to society" is also a fundamental question for discussion, leading off in many different directions. "Contribution to society" is a contested issue, to say the least. For me, this is where liberalism as political theory goes off the rails, as it can provide no answer to that question. If the state is neutral and all lifestyles are equally worthy of respect (except the 1%, at least those who do not donate to Democrats), then there can be no measure of contribution to society. There can be no reasonable discussion of incentives or behavior.
If he criticizes the left, he also (less explicitly) offers many challenges to Republicans. He favors reform of government, not necessarily shrinking it. He wants to "legitimate anew" government as an expression of the public interest ( although he does not say how.)
He does not believe market outcomes are necessarily desirable or good. He does not see individuals as wholly autonomous, or the distribution of talents as fair.
He also questions whether aggregate income is a good measure of national well-being. And that of course is easy to answer - clearly not.
Sometimes the most important thing is to identify the important questions. The future of the middle class is a very politically potent, resonant way to talk about the problems we confront. It is tailor-made for election campaigns in 2012.
But it's striking he has little to say about solutions. So many major thinkers and academics have little to say about that.
So I also love the image of the scribbler in the garrett (or coffee shop) thinking about the future of ideology.
Saturday, December 17, 2011
The Prime Minister said that faith helped people to "have a moral code" and that it was correct to pass judgment on others. "Those who advocate secular neutrality in order to avoid passing judgment on the behaviour of others, fail to grasp the consequences of that neutrality, or the role that faith can play in helping people to have a moral code," he said.
Tuesday, December 13, 2011
The trauma we’re experiencing right now resembles the trauma we experienced 80 years ago, during the Great Depression, and it has been brought on by an analogous set of circumstances. Then, as now, we faced a breakdown of the banking system. But then, as now, the breakdown of the banking system was in part a consequence of deeper problems. Even if we correctly respond to the trauma—the failures of the financial sector—it will take a decade or more to achieve full recoveryFixing the banking system isn't enough, he argues.
The problem today is the so-called real economy. It’s a problem rooted in the kinds of jobs we have, the kind we need, and the kind we’re losing, and rooted as well in the kind of workers we want and the kind we don’t know what to do with. The real economy has been in a state of wrenching transition for decades, and its dislocations have never been squarely faced. A crisis of the real economy lies behind the Long Slump, just as it lay behind the Great Depression.The problem is his suggested cures are all standard liberal nostrums. He may be a Nobel-winning economist, but his ideas at least in this case lack imagination. Huge new government spending programs for "investment" and higher taxes. More money for education, more money to help the states to close budget shortfalls.
In other words, more money flowing to public service unions that reliably fund Democrats and boost their pensions at the expense of public services.
I agree when he argues we need more money spent on infrastructure. That, at least, is genuine 'investment'. But it has to be sensible investment, not pork.
"Today we are moving from manufacturing to a service economy.", he says. No, we're not. We're moving from a service economy to something which lies beyond an service economy. He doesn't get that the problem is actually deeper than he concedes. And THAT's the problem.
Monday, December 12, 2011
Today, however, men are unemployed, and the cause, Mansfield believes, is modernity, which relies on technology more than duty to satisfy our needs and protect us from trouble. The economy's productivity and the government's programs provide the baseline level of safety and security. Security, says Mansfield, is the "very antithesis of manliness." There's the rub. Today's rescue mission is not men jumping from helicopters. It's the Allstate man, or woman, handling your insurance claim. "The entire enterprise of modernity could be understood as a project to keep manliness unemployed."
Agree with it or not, it's an interesting illustration of how changes in the economy and technology can cause much deeper change in social structures - and these have their own consequences.
Monday, December 5, 2011
I'm discussing Douglass North's book Understanding Economic Change. We've looked at uncertainty, institutions and incentives, the dynamics of change, and political transaction costs.
But of course at the heart of economic change is knowledge.
It is the growth of knowledge about how to get things done that has been the central phenomenon of economic evolution. The greater the specialization and division of labor in a society the more dispersed is the knowledge in a society and the more resources must be devoted to integrating that dispersed knowledge.
The integration of this specialized knowledge with low costs of transacting requires more than an effective price system. Institutions and organizations were necessary to supplement the price system where externalities, information asymmetries, and free rider problems had to be overcome. The increasingly dispersed knowledge of modern societies requires a complex structure of institutions and organizations to integrate and apply that knowledge. The implication is fundamental to this study: The growth of knowledge is dependent on complementary institutions which will facilitate and encourage such growth and there is nothing automatic about such development.
Growth has been generated when the economy has provided institutional incentives to undertake productivity-raising activities such as the Dutch undertook. Decline has resulted from disincentives to engage in productive activity as a consequence of centralized political control of the economy and monopoly privileges. The failures vastly exceed the successes.
On one level, that is obvious, as most major ideas in the social sciences are.
Limits to our understanding and limits to change
A mixture of formal institutions, informal institutions, and their enforcement characteristics defines institutional performance; and while the formal institutions may be altered by fiat, the informal institutions are not amenable to deliberate short-run change and the enforcement characteristics are only very imperfectly subject to deliberate control. The reason should be clear from the foregoing chapters. We are continually altering our environment in new ways (and there are also non-manmade alterations), and there is no guarantee that we will understand correctly the changes in the environment, develop the appropriate institutions, and implement policies to solve the new problems we will face.
We tend to get it wrong when the accumulated experiences and beliefs derived from the past do not provide a correct guide to future decision making.
Understanding the cultural heritage of a society is a necessary condition for making “doable” change. We must have not only a clear understanding of the belief structure underlying the existing institutions but also margins at which the belief system may be amenable to changes that will make possible the implementation of more productive institutions.
The ideal economic model comprises a set of economic institutions that provide incentives for individuals and organizations to engage in productive activity.
The contrast between the institutions and beliefs geared to confronting the uncertainties of the physical environment and those constructed to confront the human environment is the key to understanding the process of change.
Economists have themselves displayed a good deal of ambiguity on the subject, largely proceeding as though uncertainty was an unusual condition and therefore the usual condition, certainty, could warrant the elegant mathematical modeling that characterizes formal economics. But uncertainty is not an unusual condition; it has been the underlying condition responsible for the evolving structure of human organization thioughout history and pre-history.
An ergodic economy is one in which the fundamental underlying structure of the economy is constant and therefore timeless. But the world we live in is non-ergodic—a world of continuous novel change; and comprehending the world that is evolving entails new theory, or at least modification of that which we possess. In consequence, there is no implication that we “have it right” despite the awesome advances in science which have enormously reduced uncertainty about the physical environment.
ALL ORGANIZED ACTIVITY by humans entails a structure to define the “way the game is played,” whether it is a sporting activity or the working of an economy. That structure is made up of institutions—formal rules, informal norms, and their enforcement characteristics.
That institutional framework consists of the political structure that specifies the way we develop and aggregate political choices, the property rights structure that defines the formal economic incentives, and the social structure—norms and conventions—that defines the informal incentives in the economy.
The formal economic rules are broadly speaking property rights defining ownership, use, rights to income, and alienability of resources and assets as expressed in laws and regulations. There is an immense literature on this subject; there is less on the way informal constraints influence economic performance.
Institutions are the rules of the game, organizations are the players; it is the interaction between the two that shapes institutional change
It is easier to change formal rules than informal norms and constraints, however.Historically, institutional change has altered the pay-off to cooperative activity (the legal enforcement of contracts, for example), increased the incentive to invent and innovate (patent laws), altered the pay-off to investing in human capital (the development of institutions to integrate the distributed knowledge of complex economies), and lowered transaction costs in markets (the creation of a judicial system that lowers the costs of contract enforcement).
History and Change
Institutional change is typically incremental and is path dependent. It is incremental because large-scale change will create too many opponents among existing organizations that will be harmed and therefore oppose such change. Revolutionary change will only occur in the case of gridlock among competing organizations which thwarts the ability of organizations to capture gains from trade.
Institutional constraints cumulate through time, and the culture of a society is the cumulative structure of rules and norms (and beliefs) that we inherit from the past that shape our present and influence our future. Institutions change, usually incrementally, as political and economic entrepreneurs perceive new opportunities or react to new threats affecting their well-being. Institutional change can result from change in the formal rules, the informal norms, or the enforcement of either of these.
Adaptive EfficiencySo we are constrained by the past, by our existing institutions and skills and beliefs. But we must also constantly adapt to the future. So the other main theme in the book is the importance of adaptive efficiency. Our institutions and environment are always changing, and incentive systems must change too.
Adaptive efficiency—the kind of efficiency that has characterized the United States and western Europe—entails a set of institutions that readily adapt to the shocks, disturbances, and ubiquitous uncertainty that characterize every society over time. Conformity can be costly in a world of uncertainty. In the long run it produces stagnation and decay as humans confront ever new challenges in a non-ergodic world that requires innovative institutional creation because no one can know the right path to survival. Therefore, institutional diversity that allows for a range of choices is a superior survival trait, as Hayek has reminded us.
Problems posed by the transition of a belief system from one constructed to deal with the physical environment to one constructed to confront the complex problems of the human environment are at the core of the problems of economic development. There is nothing automatic about such a transition being successful.
The shift from personal to impersonal exchange has produced just such a stumbling block both historically and in the contemporary world. Personal exchange relies on reciprocity, repeat dealings, and the kind of informal norms that tend to evolve from strong reciprocity relationships. Impersonal exchange requires the development of economic and political institutions that alter the pay-offs in exchange to reward cooperative behavior.
Adaptive efficiency entails an institutional structure that in the face of the ubiquitous uncertainties of a non-ergodic world will flexibly try various alternatives to deal with novel problems that continue to emerge over time. In turn this institutional structure entails a belief structure that will encourage and permit experimentation and equally will wipe out failures. The Soviet Union represented the very antithesis of such an approach.
The best recipe for confronting such novel situations is the one that Hayek put forth many years ago and that has been the source of U.S. material success, which is the maintenance of institutions that permit trial and error experiments to occur. Such a structure entails not only a variety of institutions and organizations so that alternative policies can be tried but also effective means of eliminating unsuccessful solutions.
Competition forces organizations to continually invest in skills and knowledge to survive. The kinds of skills and knowledge individuals and their organizations acquire will shape evolving perceptions about opportunities and hence choices that will incrementally alter institutions.
Politics and Transaction Costs
Imperfect models of the complex environment that the politician (and constituent) is attempting to order, institutional inability to get credible commitment between principal and agent (voter and legislator, legislator and policy implementer), the high cost of information, and the negligible payoff to the individual constituent of acquiring information all conspire to make political markets inherently imperfect.
Bargaining strength and the incidence of transaction costs are not the same in the polity as in the economy, otherwise it would not be worthwhile for groups to shift the issues to the political arena. Thus the selection process is one in which the high transaction cost items gravitate to the polity. Madison’s insightful views about the inherent nature of the political process as described in Federalist Paper no. 10—in effect he maintained that polities tend to be captured by special interests and used by them for their own advantage at the expense of the general public and that this was a universal dilemma of polities throughout history—are as pertinent today as they were two centuries ago.
Well-functioning markets require government, but not just any government will do. There must be institutions that limit the government from preying on the market.
Order and Disorder
Disorder increases uncertainty because rights and privileges of individuals and organizations are up for grabs, implying disruption of existing exchange relationships in both political and economic markets; and conformity disappears as a result of disintegration of norms and/ or change in enforcement. Disorder can result from changes which lead to a reduction of coercive enforcement of rules or from the weakening of norms of cooperation, which induces organizations to attempt radical changes in the rules of the game. One kind of change is an event that dislodges the old mechanisms that provided credible commitment in society without providing adequate substitutes.
Sunday, December 4, 2011
The managerial system of corporate organization was like a lumbering giant, a powerful producer able to turn out a large volume of standardized goods but lacking the flexibility to make the kind of rapid changes necessary to adjust to sudden fluctuations in the domestic or global market. (p94).
In the information era, "time" is the critical commodity, and corporations bogged down by old-fashioned hierarchical management schemes cannot hope to make decisions fast enough to keep up with the flow of information that requires resolution. (p101)
Most people would find it difficult to imagine a society in which the market sector and government play less of a role in day-to-day affairs. These two institutional forces have come to so dominate every aspect of our lives that we forget how limited their role was in the life of our society just one hundred years ago. Corporations and nation-states are, after all, creatures of the industrial era. ...Now, however, that the commercial and public sectors are no longer capable of securing some of the fundamental needs of the people the public has little choice but to begin looking out for itself, once again, by reestablishing viable communities as a buffer against both the impersonal forces of the global market and increasingly weak and incompetent central governing authorities. (p238)
Community service is a revolutionary alternative to tradtional forms of labor. Unlike slavery, serfdom and wage labor, it is neither coerced or reduced to a fidiuciary relationship.. It is an act entered into willingly and often without expectation of material gain. In this sense, it is more akin to the ancient economics of gift-giving.
Nothing, in my view more deserves attention than the intellectual and moral associations in America... In democratic countries, knowledge of how to combine is the mother of all other forms of knowledge; on its progress depends that of all the others.
finding an alternative to formal work in the marketplace is the critical task ahead for every nation on earth. Preparing for a post-market era will require far greater attention to the building up of the thrid sector and the renewal of community life.. The end of work could spell a death sentence for civilization as we have come to know it. The end of work could also signal the beginning of a great social transformation, a rebirth of the human spirit. The future lies in our hands. (p291,293)
Saturday, December 3, 2011
Thursday, December 1, 2011
For the whole of the modern era, people's worth has been measured by the market value of their labor. Now that the commodity value of human labor is becoming increasingly tangential and irrelevant in an ever more automated world, new ways of defining human worth and social relationships will need to be explored.
The history of an idea
Ironically, the closer we come to the technologival fruition of the utopian dream, the more dystopian the future itself appears. That's because the forces of the marketplace continue to generate production and profit, with little thought of generating additional leisure for the millions of working people whose labor is being displaced.
Tuesday, November 29, 2011
Monday, November 28, 2011
Saturday, November 26, 2011
In the old days — before Social Security, welfare and mediciaid - poverty-caused illnesses killed off or incapacitated some of the people who could not find jobs. Even earlier, some nations sold their surplus workers as slaves, while the European countries could send them to the colonies. In addition, wars were once labor-intensive enterprises that absorbed the surplus temporarily, and sufficient numbers of those serving in the infantry and on warships were killed or seriously enough injured so that they could not add to the peacetime labor surplus.
The old ways of reducing surplus labor are, however, disappearing. Decades of medical and public health advances, as well as Medicare and Medicaid, have reduced the number of poverty-related deaths. The Iraq and Afghanistan wars have left many more service members injured than killed.
Add to this the cost of imprisoning "dark-skinned men for actual and invented offenses".
Sigh. This really is the old left. Capitalism, he argues, will continue to eliminate as many or more jobs than it creates. So what is the solution?
In other words, traditional liberalism, but even more so. Job-sharing and industrial policy. Hiring more unionized teachers.
America will have to finally get serious about preserving and creating jobs — and on a larger, and more lasting, scale than Roosevelt’s New Deal. Private enterprise and government will have to think in terms of industrial policy, and one that emphasizes labor-intensive economic growth and innovation. Reducing class sizes in all public schools to 15 or fewer would require a great many new teachers even as it would raise the quality of education.
In the long run, reducing working time — perhaps to as low as 30 hours a week, with the lost income made up by unemployment compensation — would lead to a modest increase in jobs, through work sharing. New taxes on income and wealth are unavoidable, as are special taxes on the capital-intensive part of the economy. Policies that are now seemingly utopian will have to be tried as well, and today’s polarized and increasingly corporate-run democracy will have to be turned into a truly representative one.
That world has passed as well.