David Simon on Capitalism and Inequality

I confess- I’ve only watched one episode of The Wire, and I found the muffled dialogue difficult to follow. Someday, I will come back to the series. Nonetheless, I’m familiar enough with David Simon that I know he has a lot of valuable analysis to offer on our economy. An interview of his with Bill Moyers is reprinted in Guernica. A key point of this interview is the validity and value-add of fiction as a lens and medium for social analysis:

One of the themes of The Wire really was that statistics will always lie. Statistics can be made to say anything. You show me anything that depicts institutional progress in America…

There are about 749 different shows, dramas and comedies, on television right now. Seven hundred and forty-eight of them are about the America that I inhabit, that you inhabit, that most of the viewing public, I guess, inhabits. There was only one about the other America.

He has a lot to say about how our economy is structured, and those whom it leaves behind:

The people most affected by [the drug war] are black and brown and poor. It’s the abandoned inner cores of our urban areas. As we said before, economically, we don’t need those people; the American economy doesn’t need them. So as long as they stay in their ghettos and they only kill each other, we’re willing to pay for a police presence to keep them out of our America. And to let them fight over scraps, which is what the drug war, effectively, is. Since we basically have become a market-based culture, that’s what we know, and it’s what’s led us to this sad denouement. I think we’re going to follow market-based logic right to the bitter end…

You start talking about a social compact between the people at the bottom of the pyramid and the people at the top, and people look at you and say, “Are you talking about sharing wealth?” Listen, capitalism is the only engine credible enough to generate mass wealth. I think it’s imperfect, but we’re stuck with it. And thank God we have that in the toolbox. But if you don’t manage it in some way that incorporates all of society, if everybody’s not benefiting on some level and you don’t have a sense of shared purpose, national purpose, then it’s just a pyramid scheme. Who’s standing on top of whose throat?

…a lot of the people who end up voting for that kind of laissez-faire market policy are people who get creamed by it…

We’re in an era when you don’t need as much mass labor; we are not a manufacturing base. People who built stuff, their lives had some meaning and value because the factories were open. You don’t need them anymore. Unions and working people are completely abandoned by this economic culture, and, you know, that’s heartbreaking to me…

And I actually think that’s the only time when change is possible, when people are actually threatened to the core, and enough people are threatened to the core that they just won’t take it anymore…

In Haymarket, they were fighting for the eight-hour workday. It sounded radical at the time, but it’s basically a dignity-of-life issue…as long as they placate enough people, as long as they throw enough scraps from the table that enough people get a little bit to eat, I just don’t see a change coming…

I couldn’t have conceived of something as grandiose as the mortgage bubble, when you finally look at what caused that, and the sheer greed and the stupidity of that pyramid scheme. We didn’t know it was as corrosive as it was. We didn’t know it was rotted out that much. But we knew there was something rotten in the core. And we knew it from what we were looking at, in terms of Baltimore, and how Baltimore addressed its problems.

Much of the misery caused by our economic system is borne out of sight, in areas where only the disenfranchised are. As Simon points out, we aren’t yet at the point where the economic situation seems like life and death and people are willing to consider alternatives to how we’ve structured our economy. How large does the permanent underclass need to become before a tipping point is reached?

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Earth Day Musing- Clean Energy, Local and Global

David Roberts at Grist has a post about underground environmentalism in East Germany. The whole thing is interesting, but his conclusion is the really important part:

First, what happened to industry under GDR is what happens when decisions are controlled by a small group of people, usually people who own — or have financial or political ties to those who own — the means of production. The focus inevitably turns to rapid growth, gigantism, pollution, and profits. The poor and defenseless (a large class in the GDR) have no voice and so they suffer while a small group benefits. Those who profit always claim to be acting in the public interest, but given a real choice, the public puts a far higher premium on health and safety.

Now, here in America we don’t live under a communist dictatorship. So that’s good. But if there’s one sector of our economy that comes closest to socialism, it’s energy. Decisions are made by a small group of owners, regulators, and politicians; there’s nothing approximating a free market and very little in the way of public participation.

Sure enough, the results tend toward the big, dirty, and hostile to regulatory constraints. This kind of centralization and gigantism has become so familiar to us in energy that we scarcely notice it. We have become accustomed to thinking of our future in terms of ever-rising demand and ever-larger power plants (despite the recent failures of that approach).

But when communities own their own means of energy production, when they live next to it, they are willing to pay extra and consume more conscientiously in exchange for cleanliness. Something new is happening in Germany now: Of all the country’s renewable energy, just 4 percent is owned by the four big utilities. The remaining 96 percent is owned by private households, small municipal utilities, rural and energy cooperatives, and people’s wind parks.

Bringing the production of energy closer to its consumption is one way to rationalize the externalities unseen in everyday life. This idea can be applied to many spheres, especially labor. The only weakness is that communities need to be well-organized and somewhat well-resourced to take the first step in owning their energy production. This financial reality necessitates policies from the top that also encourage social costs to be recognized personally.

Of course, when one looks to policy, there is a wide debate. For example, a recent NBER paper received some attention. The authors use common integrated assessment models, and find a central value of $21 per ton of CO2 emissions. Another paper, by two heterodox economists, criticize the IAMs used in this paper, because of heavy discounting and aggressive assumptions about how damages fall across countries. Indeed, they cite a UK study yielding $83 as the central value, 4x as high as the more mainstream value.

I’m not going to belabor the nuances of mainstream versus heterodox approaches to valuing carbon; the clear takeaway is that assumptions vary widely and matter greatly.

In absence of the consensus and political will needed to implement policies reflecting the true social cost of carbon (on which I tend to side with Ackerman and Stanton), one needs local action like that described by Roberts. Energy purchasing cooperatives are one example of ordinary citizens taking more ownership over their consumption. However, localizing and owning the production of energy, which is easier with renewables like solar and wind, is a definite pathway to sustainability. Local alternatives can also pave the way for broader acceptance of the true costs of dirty energy. Ultimately, we will need the local and global to align for a sustainable energy future.

Happy Earth Day!

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A Divine Economy

Marquette University theologian Stephen Long describes a “theological economics” in his book, Divine Economy: Theology and the Market (2000). He does this in a particularly useful way, by providing a taxonomy of theological approaches to understanding the economy (see this review by Josh Sweeden).

First is the “dominant tradition,” which includes writers who use a “Weberian strategy” and a utilitarian ethics to justify capitalism, on grounds of personal liberty – this group includes writers such as Michael Novak and Dennis McCann. Opposed to the dominant tradition is the “emergent tradition,” which uses the same framework to oppose capitalism; this group includes Gustavo Gutierrez and Rosemary Radford Ruether. This group provides a critique of the dominant tradition, but is still founded on the same grounds as the dominant tradition, namely, scarcity (that is, the analogia libertatis).

A third group, the “residual tradition,” provides a more substantive alternative by stepping outside of the framework used by both the dominant and emergent traditions. This residual tradition draws heavily on St. Thomas Aquinas, and also includes writers such as Alasdair MacIntrye and John Milbank. This tradition denies the is/ought distinction that the other two traditions make. And this is theological economics. According to Sweeden, “Rather than being defined by scarcity, consumerism, and utility, theological economics are defined by abundance and gift.”

It seems to me that third tradition is aiming to embed ethics back in to economics, arguing that economics can never really be dislodged from the moral philosophy in which it was founded. This is a notion that meets with hostile resistance from the economics profession. But nothing worthwhile is ever easy.

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Capitalization–>Deadweight Loss

[source]

The Banksy quote above made me think of the financial sector, which because of its strong monetary capitalization, captures a disproportionate share of human capital and uses it to little societal benefit. I had never thought of this parallel with the advertising industry, but it’s a good analogy for how capital creates sectors that ultimately drain real wealth from society.

Of course, one could also argue that our current labor underutilization is similarly problematic, and it is- what’s more debatable is whether that is a cyclical or secular trend.

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“Neither egoism nor altruism without the market”

The blog Sleepykid posts an essay from a 2007 issue of Harper’s, by David Graeber, an anthropologist. I found the following section striking:

PROPOSITION I: NEITHER EGOISM NOR ALTRUISM IS A NATURAL URGE; THEY IN FACT ARISE IN RELATION TO EACH OTHER AND NEITHER WOULD BE CONCEIVABLE WITHOUT THE MARKET

First of all, I should make clear that I do not believe that either egoism or altruism is somehow inherent in human nature. Human motives are rarely that simple. Rather, egoism and altruism are ideas we have about human nature. Historically, one has tended to arise in response to the other…

Even today, when we operate outside the domain of the market or of religion, very few of our actions could be said to be motivated by anything so simple as untrammeled greed or utterly selfless generosity. When we are dealing not with strangers but with friends, relatives, or enemies, a much more complicated set of motivations will generally come into play: envy, solidarity, pride, self-destructive grief, loyalty, romantic obsession, resentment, spite, shame, conviviality, the anticipation of shared enjoyment, the desire to show up a rival, and so on, These are the motivations impelling the major dramas of our lives that great novelists like Tolstoy and Dostoevsky immortalize but that social theorists, for some reason, tend to ignore, if one travels to parts of the world where money and markets do not exist–say, to certain parts of New Guinea or Amazonia–such complicated webs of motivation are precisely what one still finds. In societies based around small communities, where almost everyone is either a friend, a relative, or an enemy of everyone else, the languages spoken tend even to lack words that correspond to “self-interest” or “altruism” but include very subtle vocabularies for describing envy, solidarity, pride, and the like. Their economic dealings with one another likewise tend to he based on much more subtle principles. Anthropologists have created a vast literature to try to fathom the dynamics of these apparently exotic “gift economies,” but if it seems odd to us to see, for instance, important men conniving with their cousins to finagle vast wealth, which they then present as gifts to bitter enemies in order to publicly humiliate them, it is because we are so used to operating inside impersonal markets that it never occurs to us to think how we would act if we had an economic system in which we treated people based on how we actually felt about them.

The sentence in bold particularly resonates with me. I feel like I’ve written this same thing before, but no matter. I think a lot of neoclassical economists have a creation story that starts, “in the beginning there were markets and market-oriented people.” This attitude has become the norm, and thus any activity that deviates from it is considered extra-normal. Behaviors that are altruistic or charitable are considered to be less economic in character. But what is an economy, if not a confluence of decisions on how to allocate resources, and the social substrate that binds these decisions together? If alternative economies arise, one would naturally expect behavior to change, because we are not simply hard-wired to behave as we do in a market economy.

It’s good to keep these alternative interpretations in mind as we think about what our economy is and what it could be.

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A request

I used to have the impression that most anyone who did not do or study heterodox economics was hostile to it. What I am now finding to be the case is that most people don’t even know that heterodox economics exists. This is especially true among graduate students, and new PhDs and young scholars. It is not necessarily the case that they are opposed to using diverse frameworks to understand economic activity. It is quite simply that they had never even heard of any other way to do economics. Terms such as “feminist economics” literally has no meaning to them, despite that fact that there is a Feminist Economics peer-reviewed journal published by Routledge.

And, of course, the tools they have been taught to use are the “traditional” tools. It’s not that they are opposed to using other models – just simply that they had not even thought about another way to model the economy. And under pressure to finish a high quality job market paper or publish more journal articles, they stick to what they know best.

I don’t think everyone needs to specialize in heterodox economics, or align themselves with one particular school of thought. But certainly economists could only gain from knowing about the various economic methodologies and being able to converse and debate and think across the boundaries. This underscores the importance of events such as the 2011 International Confederation of Associations for Pluralism in Economics (ICAPE) conference, “Re-thinking economics in a time of economic distress.”

In addition, it has led me to consider a new challenge – how to introduce pluralism to those being trained in traditional economic theories and tools. The biggest problem is that graduate students are way too busy with their coursework, research, and work to have time to seriously consider heterodox ideas – once again, school gets in the way of learning.

Which leads me to my question: if you could recommend just one resource (book, article, film, person, blog, etc.) that makes a convincing argument for pluralism in economics to a graduate student or young scholar, which would it be?

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Central Tenets of Capitalism Disproved

via The Onion [ht:cr]:

Upending more than two centuries of free-market theory, leading economists across the globe announced Thursday that the fundamental principles of capitalism had been “irrefutably disproved” by the continued existence of the designer fruit-basket company Edible Arrangements.

According to experts, the Connecticut-based franchise, which arranges skewered pieces of fruit into displays vaguely resembling floral bouquets, has defied all modern economic models, expanding continuously for the past decade despite its complete lack of any discernible consumer appeal.

“In theory, the market should have done away with Edible Arrangements long ago,” said American Economic Association president Orley Ashenfelter, who added that one of the crucial assumptions of capitalism is the idea that businesses producing undesired goods or services will fail. “That’s how it’s supposed to work. Yet somehow, despite offering no product of any worth whatsoever, this company not only makes payroll every week, but also generates strong profits.”

 

 

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“Racism, extreme materialism, and militarism”

Just as MLK arrived in Memphis 43 years ago today to support his often overlooked work for social justice, he gave a landmark speech in his equally overlooked work for peace. At the Riverside Church in New York City, King spoke prophetically against the Vietnam war. He also demonstrated in this speech, better than in any other, how civil rights, economic justice, and peace are linked goals. Here are some excerpts, first on his reason for speaking out:

Over the past two years, as I have moved to break the betrayal of my own silences and to speak from the burnings of my own heart, as I have called for radical departures from the destruction of Vietnam, many persons have questioned me about the wisdom of my path. At the heart of their concerns this query has often loomed large and loud: “Why are you speaking about the war, Dr. King?” “Why are you joining the voices of dissent?” “Peace and civil rights don’t mix,” they say. “Aren’t you hurting the cause of your people,” they ask? And when I hear them, though I often understand the source of their concern, I am nevertheless greatly saddened

Now, it should be incandescently clear that no one who has any concern for the integrity and life of America today can ignore the present war. If America’s soul becomes totally poisoned, part of the autopsy must read: Vietnam. It can never be saved so long as it destroys the deepest hopes of men the world over…

And, importantly, King shows how this issue is connected with the long term project for a stronger society:

The war in Vietnam is but a symptom of a far deeper malady within the American spirit, and if we ignore this sobering reality…and if we ignore this sobering reality, we will find ourselves organizing “clergy and laymen concerned” committees for the next generation. They will be concerned about Guatemala — Guatemala and Peru. They will be concerned about Thailand and Cambodia. They will be concerned about Mozambique and South Africa. We will be marching for these and a dozen other names and attending rallies without end, unless there is a significant and profound change in American life and policy…

I am convinced that if we are to get on the right side of the world revolution, we as a nation must undergo a radical revolution of values. We must rapidly begin…we must rapidly begin the shift from a thing-oriented society to a person-oriented society. When machines and computers, profit motives and property rights, are considered more important than people, the giant triplets of racism, extreme materialism, and militarism are incapable of being conquered.

A true revolution of values will soon cause us to question the fairness and justice of many of our past and present policies. With righteous indignation, it will look across the seas and see individual capitalists of the West investing huge sums of money in Asia, Africa, and South America, only to take the profits out with no concern for the social betterment of the countries, and say, “This is not just.” It will look at our alliance with the landed gentry of South America and say, “This is not just.” The Western arrogance of feeling that it has everything to teach others and nothing to learn from them is not just…

Our only hope today lies in our ability to recapture the revolutionary spirit and go out into a sometimes hostile world declaring eternal hostility to poverty, racism, and militarism…

As I was reflecting on some of these excerpts in church today (the speech was highlighted during the sermon, along with a blessing of the “Martin from Birmingham” mural), I was reminded of how activists and advocates tend to focus on very narrow fields in the broader fight. It makes sense- health care policy is very different from foreign policy, and an understanding of civil rights law is very different from an understanding of antitrust law. There is a need for specialization. I do worry, though, that we pour our energies into whatever our issue happens to be, and merely cheerlead and vote based on the others.

King was urging us to see the linkages among these issues, and I think that spirit needs to be realized again among those who work for justice of all kinds. I was struck once when a seasoned community organizer I met said that King’s effectiveness waned when he lost focus and started talking about Vietnam. I didn’t know to challenge him at the time, but I now realize that King was the prophetic voice we needed to cohere a common voice. Sadly, his life’s work ended with an untimely death. Who will be that prophetic voice as we face times of increased war and economic injustice?

 

 

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Our tortured state

It is no longer surprising to see just how bold economists can be in research topics. This time, it is Baliga and Ely’s game-theoretic model of torture, as a principle-agent game, with the expressed hope of determining policy implications. The abstract provides a good summary of the paper, which finds that detaining suspects indefinitely is of no advantage over detaining them for a limited period of time. The model is based on the “ticking time-bomb” scenario, with a suspect who may or may not know the location of the bomb. How effective is torture to extract information?

Any model necessarily assumes philosophical, methodological, and ethical perspectives (consciously or not). Catholic Social Thought argues that torture is a violation of human dignity. Dr. Sam Wells expresses a similar perspective when he writes that “Torture is not simply about eliciting information, but degrading the body to dominate mind and spirit as well.” A response to torture based on these moral grounds objects to the degradation of human dignity endured by the victim. Freedom from torture is at the core of our nation’s values. Yet economics is only concerned with cost/benefit calculation; the discourses of economics and ethics are incommensurable.

The agents in a game theoretic model are cold, calculating, rational individuals. It’s hard look back at the many instances of torture in all of history, including the infamous incidents on behalf of the US during the past decade, and see rational, calculating individuals trying to elicit information or similar rational agents trying to keep information secret. Torture is about breaking down a person at the core. There seems to be very little cost-benefit analysis, and loads of emotion, passion, rage, humiliation, degradation, despair. It is hard to fit these in the principle-agent model.

The model of course also cannot include larger spillover effects, about how illegal torture methods used on suspected terrorists will foster stronger resentment towards the United States, counterproductive to goals towards international peace. In the end, the model seems so abstracted from reality and pretending to be value-free that one must question its usefulness. It seems that in many cases, game theorists are similar to chess players: given a set of rules, we have to figure out the optimal “strategy,” given that the opponent wants to defeat you. Within the framework of game theory, it is hard to dispute the results that they find. My question is, why are they all playing chess?

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