Wednesday, April 25, 2012

The Economy and the Good Life

Time to step back slightly. What does this discussion of Aquinas and Democracy and Legitimacy mean for this blog's questions? What do they mean for turning our economy away from deep crises and towards a new phase of growth?

Well, we need a renewed sense of what "the good life" is. It may not be identical for everyone. But there can be a certain family resemblance or clustering. After all, dogs come in all shapes and sizes, from Newfoundlands to chihuahuas to poodles to terriers. But it is still meaningful to talk about the category "dog" and the species "dog" in hard scientific terms. And no-one is going to mistake a dog for a cat or a canary or a Sequoia tree. There is more agreement on what the good life is than we generally recognize.

That is not to say we need a return to medieval Catholic theology or Athenian direct democracy, either. But it does mean we have to ask what makes people flourish, rather than see them as just abstract choosers. We need an aim for the economy, not just an ideology that firing of arrows in unspecified directions will inevitably be a good thing.

Freedom is not simply freedom to choose, or negative freedom in Berlin's sense (see the link here to his famous essay "Two Concepts of Liberty"). That strips away too much of what we know about what gives meaning or purpose or direction to life. Libertarianism is a self-contained and consistent point of view. But it doesn't work.

Freedom is not just a matter of choice. It is freedom to be fully who you really are. It is about developing capacity and character. It is a matter of the kind of choices you make, judged in larger perspective, and helping peope to make better choices. It is not the act or procedure of choice that matters so much as whether you make the right choices and the outcomes of choice.

It is not just freedom from, in Berlin's terms. It is freedom or liberty to.

Yet that has to be positive liberty in a way which develops each individual, not some concept of the "general will" or dialectical materialism or other abstract political ends. Our suspicion of people who advocate single ends or single perfect utopian visions is usually justified. Berlin is wholly right when he says good things sometimes conflict. Neither freedom nor happiness are monistic - just one simple metric, one simple thing.

Instead, you need to balance different ends, to judge what the right thing to do is in particular concrete situations.

It is a little easier to agree about admirable qualities or virtues in people than ultimate ends. What we admire in others clusters together. There is a family resemblance. We have an inherent sense of balance in the concept, which goes all the way back to Aristotle's doctrine of the mean.

The trouble is our current economy is still largely set up to see us as abstract choosers. That is the consequence of two hundred years of liberalism in the broad sense.

Money and trade has been a fabulously productive tool over the centuries. Indeed, the impersonal nature of money and exchange is in many ways the key to the modern world, as Douglass North argues. But it is entirely value-neutral.

Value neutral , but legitimate. Our economic system generally produces outcomes which most people see as broadly legitimate, with reasonably fair rewards for skills and efforts, alhough politics increasingly revolves around the "fairness' of those outcomes at the margin.

People might disagree on how much tax "the 1%" should pay or what their "fair share" might be. But it is largely an argument about a few percentage points here and there. And our current economic system in the US is certainly better than alternatives like central planning or corporatist corruption, like in contemporary Greece.

And that is why we find it so hard to imagine alternatives when we see the economy evolving beyond its twentieth century form. How can we legitimately reward people or allocate status and respect and wealth in society? Every other way of doing it seems worse.

It used to be just a question of birth. You were born a noble or a serf or a king, and that was mostly that. Or it was a question of religious revelation. Or of conquest, or honor,

Then we evolved the market economy, which broke old privileges, for the better. It provided a system of incentives which was positive sum, which rewarded initiative and talent and growth. It was flexible It allowed the talented to rise.

Fortunately modern capitalist economies are much better at giving people the opportunity to realize their talents than most previous systems, where most often you were a serf or agricultural laborer whether you liked it or not. That is much of the explanation of the staggering success of capitalism in the last two hundred years. Resources could be allocated to their best use. Talents could be used.

Yes, it was the market that did that. But it was also largely the right incentives connected to the market- systems of law, education, norms and values, as development economics as increasingly recognized.

But if our economy gives people the incentive to develop their talents or productivelty cooperate, it is mostly indirect, as a highly desirable side-effect to the evolution of the labor market or government programs. What we mostly do is allocate income.

And we have a problem if our system of legitimate rewards, ie earned income connected to the labor market, faces a structural contraction in the labor market and huge downward pressure on prices in other material goods. Income may not be correlated with talent or effort or skill, not because of class differences or social divisions, but because of the evolution of the economy towards goods and services that are either near-free or not easily to break into sellable chunks.

Our incentives are still essentially monetary, and only secondarily to develop talents and skills and purpose. And if the exchange economy is faltering as material goods become abundant, then those incentives don't work well any more. There is a potential short circuit.

So we have to look more deeply at how those incentives came to be, and how they are connected to the good life. How do we incentivize good behavior and developing talents and productive cooperation if our main system of incentives, market exchange, is starting to become outdated? What do we do if people can't earn much through exchanging their labor for money in the marketplace because we have become so efficient, and if our incremental needs for the good life - more relationships, purpose, connectedness - aren't easily rivalrous, or excludable - i.e. monetizable?


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