The first lecture in the series Foucault calls Security, Territory and Population is primarily a discussion of security. Instead of a definition, Foucault gives two sets of examples. The first group involves penal statutes. In the simplest case, there is a prohibited practice (you shall not steal) and a punishment (amputation). In the second, the disciplinary case, the prohibition and the punishment are present, but in a more complex context, including a system of supervisions, inspections and checks to identify the likelihood that a person will commit a crime; and instead of a spectacular punishment like amputation or banishment, there are incarceration and efforts at transforming the person. In the third case, the first two remain in place, but we add a supervisory regime of statistics and other efforts to understand the problem created by the prohibited practice and to set up mechanisms that are cost-effective in trying to keep the prohibited acts at a tolerable level with cost-benefit analysis and other constructs.
The second set of examples concerns illness. In the Middle Ages, leprosy was dealt with using a strict protocol of separation. A bit later, the Plague was treated with a robust series of quarantines, inspections and other regulatory steps to prevent spread. In the third case, there is smallpox, treated with inoculations, so that the crucial questions are the effectiveness of the vaccine, the modes of insuring widespread inoculation, and other more formal statistical understandings.
Even without a formal definition of security we see the general outline: prevention of certain kinds of harm through concerted action. Protection of the public from preventable harms is an important role of the sovereign, and almost everyone would agree it is a proper role. The goal is accomplished through exercise of power, including both overt violence in the case of some punishments, or the separation of the diseased in the first case and by teaching and correction in the disciplinary case. In the third and contemporary example, there is a widespread effort to understand the mechanisms of prevention and a more disciplined effort by government to achieve its goals, complete with measurements of both the steps taken and the results achieved.
Foucault then takes up a Seventeenth Century text describing the proper layout of a town. The design should accommodate the things that provide security as well. The streets should allow for circulation both of human and commercial traffic, and should allow for good air circulation to prevent miasmas. Of course to some extent this ease of circulation will benefit rioters and thieves, so that sets up the need to adjust to enable good policing. From this Foucault draws the lesson that the crucial thing is to provide a “milieu” which is conducive to pleasant and secure lives for all citizens. That lesson expands to a view of governing. The goal of the sovereign is to organize things in a way that is conducive to security.
The nature of the people taken as a whole changes in the three cases. In the first, the individual is an object of action. In the criminal case, the punishment serves as a warning to the rest of the population, but that is a side effect. In the second case, the individual becomes a participant in the disciplinary process. The goal is to persuade the criminal to become a decent member of society. In the third, the entire population becomes the subject of study, enabling the sovereign to design an entire system so that society can function in safety.
In the same way, in the case of leprosy, the point is simply to segregate the sick person from the rest to achieve security for the healthy. In the second, the goal is separation, but the people separated are carefully watched and given what care is possible, including food and shelter and medical care, in the hope that they might safely return to society. In the third, the goal is to figure out the best ways to insure safety through treatment in advance.
In each of these cases we can observe the some of the elements of power in action. In the first cases, there is direct and forceful action. In the second, there is a recognition that the individual has some capacity to improve enough to warrant return to society. In the third, there is a more subtle approach in which such things as costs and benefits are considered, and the government tries to minimize the value of bad or evil actions, and to increase the chances that the individual will see no reason to harm others.
The idea of territory comes up briefly. In every case, the sovereign exercises authority within a defined territory There are spaces in the territory devoted to the outcast in the first case. In the second case, those spaces become more differentiated, but they remain spaces of segregation. In the third, those spaces remain, but they are not the focus. Instead, the overall layouts become the focus of thought and action; some spaces are still spaces of segregation, but other controlled spaces are more open.
Foucault doesn’t see the three cases as successive iterations. In each group, the first and second steps remain as the third evolves, and in the actual settings, there are elements of all three present in each of the cases.
In general, we can see the idea that Foucault wants to discuss, the genesis of the idea that humans are a species that can be studied, and that the results of those studies can be put to work as elements of mechanisms of power to shape the behaviors of humans in a social setting.
This first lecture seems fairly simple, but it illustrates the value of a formal statement of an issue. Simply by arranging things in order and providing well-chosen examples, we can start thinking about our current situation in a more organized way. Here are two of the ideas this lecture sparked for me.
1. Consider the first case, the law, the punishment. In this case, the individual confronts an impervious system that punishes those who transgress, without mercy or consideration of circumstances. From the standpoint of the system, there are no human beings with their own motivations and problems. There is only the fact: the rules were broken and the breaker was captured by the system. Perhaps this is the neoliberal vision: the individual confronts the market which renders judgments devoid of mercy or consideration of circumstances. The state is more or less indifferent to the outcome.
2. In order for case three to work, the people in charge have to get it right most of the time, and be flexible enough to change when they get it wrong. In addition, in our system, we require the assent of the population to the governing structure, by which I mean the aggregate of the public and private actors who create the milieu in which we live. That hasn’t been happening. To take Foucault’s example, look at vaccinations. There was a consensus about the value of these projects, a consensus created by the combined efforts of health care professionals, scientists, schools and government education projects, including frequently direct statements by the President and other political leaders. When the anti-vaxxers got traction, that consensus was undermined, and now we see the possibility of serious outbreaks of once-suppressed diseases. In the same way, Congress refuses to fund Zika research. The part of the milieu that protected us from infectious diseases has broken down in fits of individualism. By exalting the individual at the expense of society, we have allowed the ignorant and the silly the ability to disrupt the security of all of us.
After months of telling Bernie Sanders to drop out, the political chatterers are finally understanding one reason he did not do so: to maintain leverage over things like the party platform. After the platform was finalized yesterday, Bernie declared victory.
Pressed by supporters of U.S. Sen. Bernie Sanders, Democratic Party platform writers meeting this weekend in Orlando, Florida, adopted a progressive agenda that underscores the need for bold action on climate change, addresses criminal justice reform and calls for doubling the federal minimum wage.
“We have made enormous strides,” Sanders said. “Thanks to the millions of people across the country who got involved in the political process – many for the first time – we now have the most progressive platform in the history of the Democratic Party.”
The Platform Committee also adopted an amendment focused on criminal justice reform which calls for an investigation by the Department of Justice to investigate all shootings involving police officers.
The platform that will be submitted at the Democratic National Convention later this month in Philadelphia also would support Congress putting a price on carbon and methane to discourage continued use of fossil fuels that are causing severe climate change. The platform also says lawmakers must consider the impact on the climate in all federal decisions and invest heavily in wind and solar power rather than natural gas.
Delegates allied with Hillary Clinton’s and Sanders’ campaigns also passed amendments to fight for a $15 federal minimum wage tied to inflation, urged passage of progressive immigration reform and called for legalization of marijuana.
There were three issues, however, where Sanders’ delegates lost: opposition to Israeli settlements, a ban on fracking, and opposition to the Trans-Pacific Partnership.
The first two make sense: after all, those policy positions match Hillary’s stated position (though the US is supposed to be opposed to illegal settlements), so rejecting Sanders’ amendments equated to backing the nominee instead. That’s the way it’s supposed to work.
But Hillary, of course, claimed to oppose the TPP during the primary, even if that claim was always sketchy coming as it did as she worked so hard to negotiate the crappy deal as Secretary of State. So the mealy-mouthed language in the platform about protecting workers — akin to the same language in the Colombia Trade Deal that did squat to protect workers — is more notable.
As is the idiotic opinion expressed by this person, described by Robert Reich as an acquaintance from the Clinton White House.
ACQUAINTANCE: “Don’t you think your blog post from last night was a bit harsh?”
ME: “Not at all. The Democratic Party is shooting itself in the foot by not officially opposing the Trans Pacific Partnership.”
[They talk about how the Democrats are supporting this to back the President.]
ME: “But it’s terrible policy. And it’s awful politics. It gives Trump a battering ram. Obama won’t be president in six months. Why risk it?”
ACQ: “They don’t see much of a risk. Most Americans don’t know or care about the TPP.”
ME: “But they know big corporations are running economic policy. They think the whole system is corrupt. Believe me, Trump will use this against Hillary.”
ACQ: “He can’t. She’s inoculated. She’s come out against the TPP.”
ME: “But it’s her delegates who voted not to oppose it in the Democratic platform. Her fingerprints are all over this thing.”
Trump may not have many articulated policy positions, but his stance against TPP has been consistent and (unsurprisingly loud). Reich is right: to the extent that platforms mean anything at all, this will be used by Trump to pitch Democrats as sell-outs to American workers.
And the notion that voters won’t react against TPP is insulting. Sure, they may not know how specifically bad TPP is, but workers do know that NAFTA sucked. And Trump is certainly capable of equating the two.
Whoever this person is, by nature of being a Hillary advisor, he or she is supposed to be a technocratic elite. But this is idiotic, both from a policy and a political perspective.
A little Prince to make the painful repetition a little easier to take.
By repetition I mean what’s happening in Puerto Rico compared to what has already happened in Michigan.
Some of Michigan’s most financially distressed cities were forced to accept emergency managers, supplanting the cities’ democratically elected officials. Under state law, EMs were the sole point of power and authority for administration until the cities were deemed financially viable. We all know how that turned out; in Flint’s case, ten people died from Legionnaire’s disease and roughly 8000 kids will pay for the incompetence of the emergency management scheme for the rest of their lives due to the permanent effects of lead poisoning. The incompetence is further magnified by governmental bodies’ failure to do the right thing to completion, while continuing to milk the city and state of more money to no effect.
Witness the state attorney general Bill Schuette now asking for $3.4 million to investigate what can already be easily seen in records released to date. The assessments made so far have been equally wrong — like Schuette’s office suing two consulting firms when documentation clearly shows outright stupidity in contract management or malfeasance on the part of government was the real problem. And none of Flint’s water problems would have happened had not the city been forced off Detroit’s water by the state treasurer’s office, which rejected a last-minute offer far cheaper than construction of the new Karegnondi water line. Seeing this doesn’t need millions of dollars, only ethics.
Puerto Rico — with a population smaller than Los Angeles in an area a little smaller than Connecticut — is now undergoing a similar loss of democracy for similar reasons of financial distress. The territory is $73 billion in debt caused in no small part by suffocating federal policies. The U.S. Senate just voted to supplant Puerto Rico’s elected officials’ authority with a team of managers. They had too little democracy as it was before this schema, not having the same kind of representation that the fifty states have; many of the financial limitations Puerto Rico faces have been directly related to the territory’s inability to regulate commerce.
The economic hitmen have won. Now the vultures descend.
The galling part is this approach is called PROMESA (Puerto Rico Oversight, Management, and Economic Stability Act) — a promise. Brace yourselves, Puerto Ricans, at least they’ve warned you. Que Dios tenga misericordia porque los buitres no lo hará.
I’ve got a bunch of stray cats and dogs here that didn’t fit under any theme so far this week. In other words, there wasn’t much repetition. Make of them what you will.
Thank goodness tomorrow is Friday and I can indulge in a little jazz. See you then.
All that is gold does not glitter; not all those who wander are lost.
— excerpt, The Lord of the Rings by J. R. R. Tolkien
It’s a lovely summer day here, cool and dry. Perfect to go walkabout, which I will do straight away after this post.
Makers making, takers taking
A-brisket, a Brexit
Follow-up: Facebook effery
Looks like Facebook’s thrown in the towel on users’ privacy altogether, opening personal profiles in a way that precludes anonymous browsing. Makes the flip-flop on users’ location look even more sketchy. (I can’t tell you anymore about this from personal experience because I gave up on Facebook several years ago.)
Happy hump day!
In the early chapters of the book, Thorstein Veblen describes industrial productive methods and the changes they require of workers. In Chapter 9, he describes the effect of those changes on the workers and on businessmen who own the factories. In general, the businessmen become more attached to a system of thought based on natural rights. Natural rights law, especially as related to ownership and property, is the basis for their control of the productive sector; and it gives them the tools they use to continue that domination. Natural rights ideas were formulated in a much earlier era, when the dominant mode of production was the individual fabricator, the individual handicraft worker. Natural law was embedded in the entire social fabric, Church, State, and community. These institutions remained strong in the early part of the industrial age, up to 1904 when Veblen wrote.
Veblen says that factory workers were moving away from the natural law ideas, which, after all, were a metaphysical formulation, grounded in the social structures of an earlier day and an earlier system of production. Their lives were now ruled by gauges and measurements, by cause and effect. This is the form of inquiry behind the development of the sciences which drove the technology of the machine age. It tends to undercut the traditional forms of thought that underlie the conventional thinking of the businessmen, forms which Veblen calls metaphysical.
Veblen says that this newer kind of thinking led the working classes to lose respect the natural rights forms of thinking, and specifically for property rights and the individual ownership of industrial property. In turn, this helped the working class to see itself differently, as expressed in the trade union movement, and in socialist and even anarchist thinking. For the most part, he thought that the trade union movement would reinforce the business interests by making only those demands necessitated by the changes that the industrial process made in the lives of the workers. They sought standardized wages and regular hours and other accommodations necessary to make their lives more pleasant, and did not carry the ideas of cause and effect or the indifference to property rights to their logical extreme as socialist theory would. He adds a long and unfriendly discussion of socialism.
When he gets back to the cultural changes, one of the issues he identifies is changes in domestic relations. The traditional family becomes a less spiritually important institution.
What appears to be in jeopardy, should the socialistic defection gain ground, is the headship of the male in the household economy. The family, as it has come down from the medieval past, under the shelter of the church, is of a patriarchal constitution, at least in theory. The man has been vested with discretionary control in domestic affairs.
As the discussion continues, it becomes apparent that the driving force isn’t socialist theory, but real changes in the possible ways to live created by the machine age. It isn’t just the family, it’s the Church, and even patriotism that are called into question. Mere formal or conventional justifications do not suffice for people of any class whose thought processes are governed by theories grounded in cause and effect.
The machine technology is a mechanical or material process, and requires the attention to be centred upon this process and the exigencies of the process. In such a process no one factor stands out as unequivocally the efficient cause in the case, whose personal character, so to speak, is transfused into the product, and to whose workings the rest of the complex of causes are related only as subsidiary or conditioning circumstances. … The process is always complex; always a delicately balanced interplay of forces that work blindly, insensibly, heedlessly; in which any appreciable deviation may forthwith count in a cumulative manner, the further consequences of which stand in no organic relation to the purpose for which the process has been set going. The prime efficient cause falls, relatively, into the background and yields precedence to the process as the point of technological interest.
Veblen said that this was happening to the greatest extent in the large industrial towns, and less so in the smaller towns and the countryside. Veblen is obviously interested in the culture of the workers; he ignores the conventional thinking of the businessman, and focuses on cultural changes in the vastly larger class of working people. Veblen thought that cultural growth in the machine age would be “… of a skeptical, matter-of-fact complexion, materialistic, unmoral, unpatriotic, undevout.”
In Chapter 10, Veblen takes up the future of the businesses. He thinks they will collapse because they become “fiscal ways and means”, subservient to a militaristic state which itself will collapse under the pressures of war. That didn’t happen.
As it turned out Veblen was more or less right that there were changes in the working classes in the larger industrial towns, and less so in the rest of the country. He ignored the Grange Movement and a good bit of the populist revolution on the farms, though. Even so, that was enough change to produce the New Deal and a highly efficient war machine in WWII, and a strong working class throughout the 50s and early 60s. By that time, socialism was wiped out in the US, and the union movement began to deteriorate. The war industry picked up strength first under Kennedy and LBJ, and then at higher levels beginning with Reagan, the second of his predictions began to seem more plausible. But it won’t be counteracted by an organized and strong working class, because there isn’t one.
We seem to be lurching from one crisis created by the elites to the next crisis created by the elites. We could use some ballast.
Hunger and fear are the only realities in dog life: an empty stomach makes a fierce dog.
— excerpt, personal journal of Capt. Robert Falcon Scott
This short film by Aaron Dunleavy was inspired by his childhood in Blackburn, Lancashire UK. The script was improvised and cast using locals.
All districts in Lancashire voted Leave during last week’s Brexit referendum, with 65% of Blackburn voters supporting Leave.
Worth noting an article in Lancashire Telegraph about an Aldi’s store under construction. Aldi’s is a German-owned grocery store chain; have to wonder if construction will be completed.
Brexit botch bits
Waiting around watching the court for good or ill until this morning is kind of like waiting for Shark Week — hey, it IS Shark Week! What a coincidence!
Promises to be a busy week ahead. Stay tuned!
After the shock, denial, horror, anger, and grief of death, there’s always the second line. Seems fitting today in the wake of Brexit to observe the passing of an ideal — a United Kingdom, in harmony with its European neighbors and allies — that we have a second line.
You’re probably familiar with the imagery of the second line, a New Orleans tradition in which a jazz band plays for a funeral procession after the mourners have buried the dead. The history of the second line isn’t clear in no small part because it originated among the African diaspora and the creole community, whose cultural history is poorly documented because of race. The second line was the other face of death — the celebration of the departed’s arrival at better world beyond the reach of the living. Over the last hundred years, the second line became a community event not confined to funeral processions alone. Sunday afternoons revolved around street parties centered on the local Social Aid and Pleasure Clubs and Benevolent Societies from which many brass jazz bands emerged as a part of the services offered through their co-op funeral insurance.
The video embedded here is more of a traditional blues dirge among second line tunes, but it might be played before or after the funeral. This video, however, shares music with true second line spirit, recorded as an observation of the passing year. And this second line following the funeral of Ernest “Doc” Watson is the definitive example.
Best jazz I can do post-Brexit referendum.
Legal and other la-la
That’s a wrap on a particularly grueling week. Have a nice weekend.
Not an European scholar or sage. Have tried to pay attention to the Brexit question across the pond, but unsure how well I have done so. Generally, however, it has struck me that, given real problems either way for the Brits, the best choice was to stay in the EU.
Really, there was a definitive majority to join then, so what is the plan now?
Tell me why the secrets have disappeared
cover up the traces of wasted years,
the traces of wasted years
build it up
alibies for the damned
don’t ever reveal your plan.
So, what is the plan now for the always diminished, but oh so egotistically adventurous Brits, given they are woefully short on empire and hegemonic power? Oh so much like the terminally behind the queue United States?
Isn’t that a lesson the US ought not heed? If not decades ago, maybe finally now?
The UK may be leaving the collective, but do they really have an exit plan? The number of modalities in which they simply cannot have a great and immediate plan are too number to plow through.
There is no easy exit. Despite the vote in the UK. Germany and France make it clear this is not easy.
Lock it up,
standing behind closed doors
give it up,
no hiding place anymore
The value of the British pound and stock prices in Asia plummeted as financial markets absorbed the news.
I don’t know how it is going to be in the UK going forward. But if the vote is what it looks, the Brexit has definitively occurred, the only question now is what happens.
On the whole, pretty scary proposition, and the effort to get there seems much like the brain dead Trumpian movement afoot here in the States; i.e. shortsighted, uninformed and stupid. Hope I am wrong.
But here we all are, on both sides of the pond, looking inordinately stupid and shortsighted.
The world is being consumed by Trumpalos and Juggalos.
There is no exit.
[If you don’t know this band in the video featured, you should. They are The Angels, and this song is perfectly prescient for today even if from long ago.]
What would an economics for the left look like? It seems to me that it requires two things. First, it needs an economic theory derived from a close observation of the way the US economy actually behaves, and which creates a framework in which society can choose its goals and implement them effectively and as efficiently as possible. Second, it requires a leftist program, one clearly differentiable from the program of the conservatives and neoliberals which has so miserably failed millions of us, and one that people can understand and can see how it would make for a better world.
At the beginning of the 20th Century, the productive sector was dominated by a small group of capitalists who were primarily industrialists and financiers. Their control was secured by both federal and state governments in the name of protecting property rights and preventing Socialism. The interests of the rest of the people were for the most part ignored by the government. On the rare occasions when some piece of protective legislation was passed the courts struck it down. When a strike threatened the profits of the capitalists, the courts were quick to legitimate the use of force by governments. Eventually there was a small but effective Socialist Party. The capitalists responded by conflating Socialism with Anarchism and Communism, leading to the Palmer Raids, the jailing of the Socialist leader Eugene Debs, and other actions to crush all opposition to the dominant capitalist ideology.
Socialism came back in a milder form during the Depression, leading to the New Deal under FDR. Many of the major changes were made possible by fear of the Communists, particularly their support of the rights of African-Americans. That fear became stronger during WWII, and the Democrats purged Socialists from their party, starting with Henry Wallace, and the labor unions purged every last Communist and Socialist after the War. That left economics to a temporarily chastened breed of capitalists. By the 1950s there was no effective left opposition to capitalism. What C. Wright Mills called the Capitalist Celebration took over all economic discourse, and with no opposition, it was easy for a new breed of capitalists to push for the Gilded Age form of capitalism which we now call Neoliberalism.
The economic theory underlying this ideology had its roots in the 19th Century. William Stanley Jevons, one of the inventors of the theory of marginal utility and one of the first people to use the mathematical method in economics, wrote in The Theory of Political Economy, § 1.29 (1871).
I wish to say a few words, in this place, upon the relation of Economics to Moral Science. The theory which follows is entirely based on a calculus of pleasure and pain; and the object of Economics is to maximise happiness by purchasing pleasure, as it were, at the lowest cost of pain.
At the very core of neoclassical economics there is a moral judgment about humans and their behavior. Mainstream economics retains that core, and adds a number of other moral judgments. We are selfish utility maximizing creatures, we are purely rational creatures, able to make complex calculations about our utility on the fly. We are rewarded by the market for our skills, so that failure is our own fault, and success is due to our excellence. Economists use terms like moral hazard, and those preaching austerity claim that recessions and depressions are the result of our moral failures and we must be punished for those failures. Citizens acting through government neither can nor should do anything to make things better. Only the free market can save us.
A sensible leftist economic theory would not be grounded in an archaic philosophical theory about the nature of humanity or the nature of individual humans. It should to the maximum extent possible be non-judgmental about humans, and it should be as impervious as possible to the addition of moral overtones. We should look for a descriptive theory based on close observation of the way things work. Modern Money Theory is certainly a model for this kind of theory. Here’s how L. Randall Wray describes it in Modern Money Theory: A Primer on Macroeconomics for Sovereign Monetary Systems, §7.10:
On one level, the MMT approach is descriptive: it explains how a sovereign currency works. When we talk about government spending by keystrokes and argue that the issuer of a sovereign currency cannot run out of them, that is descriptive. When we say that sovereign governments do not borrow their own currency, that is descriptive. Our classification of bond sales as part of monetary policy, to help the central bank hit its interest rate target, is also descriptive. And finally, when we argue that a floating exchange rate provides the most domestic policy space, that is also descriptive.
Functional finance then provides a framework for prescriptive policy.
Any respectable economic theory should lend itself to either side as a plausible framework for solving society’s problems. Here’s what Wray says about that:
However, I also believe that most of the tenets of MMT can be adopted by anyone. It does not bother me if some simply want to use the descriptive part of MMT without agreeing with the policy prescriptions. The description provides a framework for policymaking. But there is room for disagreement over what government should do. Once we understand that affordability is not an issue for a sovereign currency-issuing government, then questions about what government should do become paramount. And we can disagree on those. (Emphasis in original.)
It’s easy to identify a left program for the economy. We simply pick up where Franklin Delano Roosevelt left us, with his Second Bill of Rights. This is from his State of the Union Address, January 11, 1944.
We have come to a clear realization of the fact that true individual freedom cannot exist without economic security and independence. “Necessitous men are not free men.” People who are hungry and out of a job are the stuff of which dictatorships are made.
In our day these economic truths have become accepted as self-evident. We have accepted, so to speak, a second Bill of Rights under which a new basis of security and prosperity can be established for all regardless of station, race, or creed.
Among these are:
The right to a useful and remunerative job in the industries or shops or farms or mines of the Nation;
The right to earn enough to provide adequate food and clothing and recreation;
The right of every farmer to raise and sell his products at a return which will give him and his family a decent living;
The right of every businessman, large and small, to trade in an atmosphere of freedom from unfair competition and domination by monopolies at home or abroad;
The right of every family to a decent home;
The right to adequate medical care and the opportunity to achieve and enjoy good health;
The right to adequate protection from the economic fears of old age, sickness, accident, and unemployment;
The right to a good education.
All of these rights spell security. And after this war is won we must be prepared to move forward, in the implementation of these rights, to new goals of human happiness and well-being.
If it was good enough for FDR, and an inspiration for Bernie Sanders, it’s good enough for me.
It’s time to start thinking about an overarching program for the left, one that enables us to respond to the lives people are living right now. The economy is just one of the issues important to the left, but it sets the framework of permitted solutions to the many other problems we have. In future posts, I plan to take up these issues in more detail.
In this paper, titled Yes, r > g. So What?. N. Gregory Mankiw tries to show that Thomas Piketty is wrong that if r > g wealth will accumulate in the hands of a tiny number of rich people. It’s short and easy on the math, perhaps because it was part of a symposium rather than a stand-alone paper. For comparison, take a look at this by Piketty and Gabriel Zucman, which requires more than a passing familiarity with math. It seems unlikely that Mankiw had read this paper before he cranked out his, because Piketty addresses the issues Mankiw raises.
Mankiw makes three arguments. First, he says we need to have r > g. Second, he claims that the generational changes and taxation will prevent dynastic wealth. Third, he disagrees with Piketty’s solution which is a wealth tax. Let’s take them in turn.
1. The idea that r, the rate of return to capital, is greater than g, the rate of growth of the economy, is common in mainstream economic theory.
If the rate of return is less than the growth rate, the economy has accumulated an excessive amount of capital. In this dynamically inefficient situation, all generations can be made better off by reducing the economy’s saving rate. From this perspective, we should be reassured that we live in a world in which r > g because it means we have not left any dynamic Pareto improvements unexploited.
Mankiw’s standard is whether the economy can produce Pareto Improvements, meaning an improvement in the wealth of one or more people that doesn’t reduce the wealth anyone else. Mankiw simply ignores the fact that fabulous wealth carries with it the ability to influence the political process to extract more wealth, which is what Piketty says. Surely Mankiw isn’t arguing that won’t happen, because it does. Take, for example, the pharmaceutical industry where the business model is to increase prices with no additional benefit to anyone.
Then look at his cure. How exactly will the bottom 60% benefit by saving less? They won’t, because they are barely saving. They cannot come up with $400 to fix a car. Most of the rest wouldn’t be able to save less; they need to save for retirement, and to pay what their kids can’t make in this rotten economy. What Mankiw means is that the very top, the .1%, would have to spend a lot more, But what are they going to buy? Expensive trips on private jets? Van Gogh paintings? That isn’t going to help the economy or make anyone’s life better. The fact is that this argument points directly to the need to hike taxes on the idle money of the rich.
2. Mankiw’s second argument is an effort to show that taxes and generational changes will decrease dynastic wealth. Mankiw doesn’t confront the detailed argument Piketty makes on those very points. I introduce it here, and link to the detailed argument for those interested. Instead, Mankiw offers a simple model that proves his point, and could be understood by anyone who read his introduction to economics textbook; for typographical reasons, subscripts are not used for cw and ck
To oversimplify a bit, let’s just focus on this economy’s steady state. Using mostly conventional notation, it is described by the following equations.
(1) cw = w + τ k
(2) ck = (r − τ − g)nk
(3) r = f ′(k)
(4) w = f(k) − rk
(5) g = σ(r − τ − ρ),
where cw is consumption of each worker, ck is the consumption of each capitalist, w is the wage, r is the (before-tax) rate of return on capital, k is the capital stock per worker, n is the number of workers per capitalist (so nk is the capital stock per capitalist), f(k) is the production function for output (net of depreciation), g is the rate of labor-augmenting technological change and thus the steady-state growth rate, σ is the capitalists’ intertemporal elasticity of substitution, and ρ is the capitalists’ rate of time preference. Equation (1) says that workers consume their wages plus what is transferred by the government. Equation (2) says that capitalists consume the return on their capital after paying taxes and saving enough to maintain the steady-state ratio of capital to effective workers. Equation (3) says that capital earns its marginal product. Equation (4) says that workers are paid what is left after capital is compensated. Equation (5) is derived from the capitalists’ Euler equation; it relates the growth rate of capitalist’s consumption (which is g in steady state) to the after-tax rate of return.
Note that we didn’t get a definition of the symbol τ, which in conventional notation means taxes. As we learn a couple of paragraphs down, Mankiw means not general taxes, but taxes on returns to capital. As he tells us, all the money from taxes is consumed by the workers (equation (1)), that is, the total amount of taxes on capital is transferred directly, in the form of grants or indirectly in the form of services, to wage-earners and none of it is consumed by the capitalists. in the real world, capitalists consume a great deal of the expenditure on taxes, whether the taxes are on capital or income or otherwise. Obviously we need to put a non-trivial number into equation (2) to show that capitalists consume a portion of the taxes, and make an appropriate modification to equation (1) if we want this model to make minimal contact with the real world.
Mankiw says that in this model, there is no steady increase in inequality.
In this economy, even though r > g, there is no “endless inegalitarian spiral.” Instead, there is a steady-state level of inequality. (Optimizing capitalists consume enough to prevent their wealth from growing faster than labor income.)
This outcome was baked into the model with equation (2). If instead, we assume the same equations, but add a non-trivial number to equation (2), then the capitalist accumulates that non-trivial amount each year, and wealth inequality increases naturally even in his steady-state economy.
Also baked into this model is the remarkable idea that “capital earns its marginal product” and the rest of the money is paid out in wages. That’s just so far from reality that it makes the whole exercise pointless. But it enables Mankiw to justify rejecting Piketty’s recommendation of high wealth taxes. Mankiw explains that if the government wants to protect capital, it pushes the tax on capital into negative numbers, and the capitalists will push wages to subsistence level. But,
Taxing capital and transferring the proceeds to workers reduces the steady-state consumption of both workers and capitalists, but it impoverishes the capitalists at a faster rate.
Taxing returns to capital hurts everyone in this model. Of course, if capitalists are taxed at the rate of their actual consumption of tax receipts, the non-trivial amount that should be added to equation (2), then you would get Mankiw’s desired outcome of a non-increasing inequality. Or you could go a bit higher, and start reducing inequality without resort to his suggestion of a consumption tax.
Mankiw’s sterile model doesn’t explain the facts documented by Piketty and his colleagues, but it does demonstrate nicely the state of mainstream economics. Obviously the American Economic Association wanted a paper from Mankiw challenging Piketty, no matter its quality. Mankiw is an established figure, and thus the beneficiary of the social structure of the field described by Marion Fourcade and her colleagues in the section of this paper headed Inequality Within, p. 96,
Second, we document the pronounced hierarchy that exists within the discipline, especially in comparison with other social sciences. The authority exerted by the field’s most powerful players, which fosters both intellectual cohesiveness and the active management of the discipline’s internal affairs, has few equivalents elsewhere.