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Enough With Hobbes And Rousseau

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Introduction and Index. This post is updated with other stuff I think is interesting.

The Dawn Of Everything by David Graeber and David Wengrow asks us to think about whether our society is the culmination of the development of human societies, and whether it’s the only one that can possibly work in a technological age.

In Chapter 1 they tell us that they initially set out to contribute to the growing debate about inequality by examining advances in archaeology and anthropology to see what they tell us about the origins of inequality. They concluded that this was not a good plan.

They start by explaining the prevailing view of the the history of human societies. One is that of Thomas Hobbes, set out his his book Leviathan, written in 1651. The other comes from Jean-Jacques Rousseau in an essay, Discourse on the Origin and the Foundation of Inequality Among Mankind, written in 1754.

Hobbes seems to start with the proposition that humans are basically selfish and brutish, and argues that we can only live decently under an authoritarian system. Rousseau seems to start with the proposition that humans were once good but have fallen from grace, a secular version of the story told by Christian Bible’s Book of Genesis. Rousseau then offers the progression of human society from foragers to bands to tribes to cities to states.

Both of these writings are speculations, thought experiments, or personal prejudices, utterly without evidentiary support. Hobbes was writing during the English Civil War, a serious crisis that the authors suggest influenced his view that humans are aggressive jerks. Rousseau wrote his essay for entry in a contest with a cash prize. It was meant not as an historical account but as a thought experiment, a speculative account. The question was set because the issue became salient in part through what the authors call the “indigenous critique” which they take up in detail in Chapter 2.

As the reader can probably detect from our tone, we don’t much like the choice between these two alternatives. Our objections can be classified into three broad categories. As accounts of the general course of human history, they:

1. simply aren’t true;

2. have dire political implications;

3. make the past needlessly dull.

This book is an attempt to begin to tell another, more hopeful and more interesting story; one which, at the same time, takes better account of what the last few decades of research have taught us. P. 3.

The first point is a major thread of the book. As to the second, on the Hobbesian view the best we can hope for is an authoritarian government with power to force decent behavior as defined by the Leader. Rousseau’s fall from grace theory says that we’re stuck, and can’t hope for much change. With respect to out-of-control inequality, either view means we aren’t going to get any change that the rich don’t like.

In the discussion of these first two points, we are introduced to some of the main themes that recur throughout the book.

1. It’s only in the last 300 years that Western thinkers have considered inequality a serious problem. Before that time, almost everyone just accepted rigid class structures as the will of the Almighty. It’s telling that the most common meaning of the term is economic inequality. We rarely discuss the other inequalities that beset our society such as power, participation in decision-making, the right to have one’s interests considered in decision-making, and the way these are distributed by race, sex, creed and class to name some of the obvious.

2. Some people can and do convert material wealth into political power, or as the authors sometimes put it, the power to push other people around.

3. The quality of life in modern civilization isn’t all that great. We get our first taste of this argument, as the authors ask whether Western civilization actually made life better for everyone. Here’s one data point from a paper by J. N. Heard: The Assimilation of Captives on the American Frontier in the Eighteenth and Nineteenth Centuries,

The colonial history of North and South America is full of accounts of settlers, captured or adopted by indigenous societies, being given the choice of where they wished to stay and almost invariably choosing to stay with the latter. P. 19.

Benjamin Franklin agreed! P. 20.

Returning to the third point, the standard account of the history of human societies says that there is a natural and inexorable progression from band to tribe to city to our current apogee of hierarchy, state violence, and jacking up the price of life-saving drugs. Western cultures are founded on the idea that market exchange is the most important aspect of human character when it comes to organizing societies. If we dump that notion we can imagine all sorts of possible organizations of society that would be more interesting. Here’s a taste.

The founding text of twentieth-century ethnography, Bronisław Malinowski’s 1922 Argonauts of the Western Pacific, describes how in the ‘kula chain’ of the Massim Islands off Papua New Guinea, men would undertake daring expeditions across dangerous seas in outrigger canoes, just in order to exchange precious heirloom arm-shells and necklaces for each other (each of the most important ones has its own name, and history of former owners) – only to hold it briefly, then pass it on again to a different expedition from another island. Heirloom treasures circle the island chain eternally, crossing hundreds of miles of ocean, arm-shells and necklaces in opposite directions. To an outsider, it seems senseless. To the men of the Massim it was the ultimate adventure, and nothing could be more important than to spread one’s name, in this fashion, to places one had never seen. P. 22-2.

That’s just cool.

Discussion

1. The discussion of inequality in Chapter 1 reminds me of the work of the philosopher Elizabeth Anderson which I discussed in this series. Anderson identifies several forms of equality that go beyond mere material measures. She help us see why material equality is an inadequate measure of equality. In short, we are much more than merely homo economicus. We want more from life than piles of stuff.

In my series on the work of Pierre Bourdieu I discuss his ideas about how dominant class reproduces itself. If the dominant class has the ability to convert material wealth into political and social power, we can see that the dominant class can use its material capital to push people into working really hard to preserve the wealth of the rich, to increase it, and to remove restraints on the use of wealth and power.

2. John Maynard Keynes agrees with Graeber and Wengrow that material wealth is the primary organizing principle in current social arrangements. This is from his 1926 essay On The End Of Laissez-Faire, which I discuss here in another context. Here’s a link to the essay. Section V is particularly relevant.

In Europe, or at least in some parts of Europe – but not, I think, in the United States of America – there is a latent reaction, somewhat widespread, against basing society to the extent that we do upon fostering, encouraging, and protecting the money-motives of individuals. A preference for arranging our affairs in such a way as to appeal to the money-motive as little as possible, rather than as much as possible, ….

Maybe we should think about whether we’d like to reduce the role of the money-motive in our lives. We can’t do it alone. But if all of us were to decide to do that, our lives might be more interesting.

The Ugly Results Of Inequality

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Posts in this series. This post is updated from time to time with additional resources.

In the last two posts in this series I looked at the the way unequal freedom and hierarchies of social relationships play out in the US. In this post I address two ugly consequences of those inequalities.

Anger and Hostility

Most people have a good idea of where they are in the social hierarchies described by Elizabeth Anderson in her paper Equality, those I discussed in previous posts in this series. They know who dominates them, who holds them in high or low esteem, and whether their opinions about their best interests influence decisions affecting them. They live their lives in these webs of influence and social relations, and they respond emotionally and practically.

I don’t think people have very clear ideas about freedom. Everyone understands negative freedom, because they constantly confront it. But I doubt people think about their positive freedom, the range of opportunities they can reasonably enjoy. If they do, they certainly don’t think they have any chance of changing that range. [1]

Freedom from domination is even less well understood. For people of color and most poor white people, domination is normal. That isn’t so obvious to most non-poor white people. I don’t know, but I’d guess working people don’t think of their employer as dominating them. I’d guess most people think this is perfectly normal, the natural operation of the job market. This is the view Anderson attacks in her book Private Government.

As we learned from Pierre Bourdieu, the dominant class arranges things so that both the dominant and the subservient classes think everything is normal, that one class should dominate and the rest should be subservient, and that everything is just fine. But today it’s hard to sustain that illusion.

The public at large is fully aware of their lack of freedoms available only to the dominant class. Too many of us are faced with the limitations imposed by the negative freedom of others, dominated, and lacking in realistic opportunities for human flourishing. People know they are low in all social hierarchies, they feel it in their bones. They are aware that the dominant class holds them in contempt, and controls their lives. This breeds anger and hostility.

Unequal distribution of material goods

The interests of the dominant class have controlled our political discourse, but the level of control has increased dramatically during the last 50 years. The result is historically high inequality in material wealth. In my view, the ultimate cause is neoliberal ideology, which is supported by both political parties. It drives the government to abandon the interests of the majority in favor of unregulated capitalism. [2] I think that underlying the neoliberal ideology is an economic theory, neoclassical economics, which is based on the hypothesis of marginal utility, which in turn is based on utilitarianism. [3]

One good example of the way utilitarianism creates norms is set out in this post. The theory of marginal utility is used to show that wages, rents, and returns to capital are balanced in accordance with a natural law, and everything works out justly. In the real world, this is nonsense, but lots of people believe it even today. The post also shows that other outcomes are possible.

In the real world, it’s a simple fact: the rich arrange the rules of the economy to benefit themselves at the expense of the lives, health and income of the rest of us. See, e.g., this detailed discussion of the manipulation of the “market” by the insulin cartel.

A Toxic Combination

As these inequalities increased and became apparent to the least observant after the Great Crash, the dominant class refused to allow any changes to the system that made them rich. Instead, they and their allies became even more vociferous in deflecting the blame from the dominant class to groups of people in the subservient class, immigrants, the poor, people of color, academics, activists, the left, scientists, liberals, and professionals. Their demagogues have inflamed a large group of people. History teaches us that there is always a substantial group that can be counted on to respond to that kind of rhetoric with anger, fear, and occasionally violence. [4]

The claim that they are responsible for the problems facing society seems preposterous to the targeted groups, especially academics, scientists and liberals. They see themselves as supporting a good society, one in which there is more freedom and equality. None of the targeted groups have a good way to engage with what they see as idiocy. Their responses seem patronizing, or defensive, or angry, or morally unmoored.

Right-wing authoritarian demagoguery cannot be tamed by counter-rhetoric or by PR fixes. It appeals to something deeper than rational argument. I hope it can be effectively countered by appeals to morals and values, coupled with actions to show that things can be better. I believe that the values Anderson discusses and the morality they represent are the basis for that battle.

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[1] For a general look at this, see my discussion of Pierre Bourdieu’s concept of habitus. See also Jennifer Silva’s book Coming Up Short. This paper by Silva and Sarah Corse investigates factors that explain how some working class young people are able to drive themselves through to college.

[2] I arrived at this conclusion after a long course of reading and writing. You can find it on my author page, which is linked to my name above. For a summary, see this post.

[3] I give a brief description under the subhead Modern Monetary Theory here. You can find more by searching on Jevons at this site.

[4] See, for example, The Origins of Totalitarianism by Hannah Arendt, especially the discussion of anti-Semitism. See also Karl Polanyi, The Great Transformation. I discuss these books at length in earlier series, indexed here and here.

Inequality Of Freedom

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Posts in this series. This post is updated from time to time with additional resources.

I have updated the Index linked above with a brief description of the end of Chapter 2 and the remaining four chapters of Elizabeth Anderson’s Private Government. As I note there, two of the comments are disappointing: the commenters largely ignore Anderson’s views of freedom and equality as they relate to the workplace, choosing to argue that workers don’t really care about these issues, or are satisfied with the current arrangement or that corporations don’t actually trammel on workers. This seems remarkably short-sighted in light of recent resurgence of worker actions, such as the GM strike and the Chicago Teachers Strike. In the GM case, the union won the end of the two-track wage system. The Chicago Teachers strike was notable in the solidarity among the teachers and the other employees of the school system, and the parents and the kids (shout-out to my daughter’s family!).

Anderson’s definitions of freedom and equality give us a completely different way to analyze our society. Disparities in both have created the material inequality that is wrecking our society. I begin by looking at these disparities in practice. Recall that in Anderson’s terms freedom can mean negative freedom, positive freedom or freedom from domination.* Inequality refers to differences in social relationships: differences in standing, authority and esteem. I don’t know how to quantify these categories, so let’s look at them again and ask where different people stand. In each case, as a general matter, minorities have less freedom and less equality in each of the six categories, in some cases, substantially less.

1. Negative Freedom, or freedom from interference. This refers to the ability of a person to use the force of law to protect their actions or their property. This is the only freedom economists, especially neoliberal economists, consider relevant to their practice. It’s clear that rich people have the most negative freedom. They have lots of property, and the right to bar others from using it. Their wealth gives them a very broad scope of actions, for example travel, general consumption, and political action. As we go down the wealth scale, property and the range of possible actions drops. Among the lowest income groups, there is little property, and thus little negative freedom, and the scope of actions is much more limited, especially because they are easily excluded from all except public property.

Wealthy people enjoy negative freedom created for their benefit. They can join exclusive clubs that keep the rest of us out so they can play at golf, shoot skeet, eat among their wealth peers, and gamble. They go to exclusive parties, where private security guards keep the rest of us away. They have their own airport terminals at our public airports for their private jets and helicopters. That too declines as we move down the wealth scale.

Of course, we all have some negative freedoms. For example, we can all own guns, and in many places carry them with us. No one can stop us from using those guns to “stand out ground” in some states. That means that for some people the consequence of negative freedom is death or injury by gun, interfering with their right to life, liberty and the pursuit of happiness.

2. Positive Freedom, or range of opportunities. There is almost no limit to the opportunities available to the rich. As we move down the wealth incline, opportunities gradually decline. Consider the different educations the rich have had, compared to the educations of the less well off, and working class and poor people. Think about the jobs available to those who can stumble out of elite private schools with degrees, compared to those with good grades at state universities. Then think about the working class kids trying to get decent training at for-profit trade schools, which load them up with student debt.

One way to measure positive freedom is social mobility. Here’s a comprehensive study by Raj Chetty and his colleagues of social mobility in the US. Here’s one of the charts in that study, showing relative social mobility estimating the probability that a child born to parents in the lowest quintile of income will attain an income in the top quintile compared to such chances in other countries.**

Here’s another chart from Chetty, showing the likelihood that a child will exceed the income of her parents. This chart is especially depressing, because we used to think that this was proof of the excellence of the US economy.

Note that the y-axis on this chart is shortened by dropping out the bottom 40%.

This more difficult study calculates IGE:

The most widely used measure of intergenerational economic mobility is intergenerational income elasticity (IGE), a coefficient obtained via a regression model that captures the statistical connection between parents’ income and their children’s income in later life.

They apply it across the income distribution, trying to estimate the effect of parental income on their children’s incomes. Here’s how they describe their results:

We estimate an IGE value for the pooled sample of 0.47 at the mean of the income distribution, which is in line with the literature. More importantly, we observe a U-shaped pattern in the parental income influence on children’s income. Thus, IGE is highest at the lower quantiles of the distribution (0.6 at the 5th to 20th percentiles), falls to a minimum of around 0.38 at the 70th percentile, and then increases again up to almost 0.5 at the 90th to 95th percentiles.

Loosely, this means that most kids whose parents are in the top and bottom quintiles of income are likely to remain in those quintiles, while more kids in the middle three quintiles may move up or down.*** If this is right, poorer kids have the least positive freedom, and middle class kids have more, but have a good chance of falling in social mobility, and rich kids have the most positive freedom, and are protected from failure.

3. Freedom From Domination. The more money one has, the more free one is from domination by others. At the top of the wealth scale people are generally free from domination, and through their influence in the political system, they avoid much restrictive legislation and benefit from favorable legislation.**** Wealthy people often escape accountability for actions that would incarcerate others, or result in civil damages. For example, after the Great Crash for an obvious example: not only did Wall Streeters avoid criminal exposure for causing the Great Crash, they got to keep almost all of the money.

As Anderson documents in her book, average working people don’t have that kind of freedom from domination in the work place; although employers vary in their use or abuse of that power. In other aspects of their private lives, they are able to avoid domination if they are white. That’s less true of people of color, who are easily singled out for hassling by law enforcement, security personnel in private spaces, and others with local authority.

Wealthy people have the ability to dominate many others simply by virtue of their wealth. Among the great middle, there are some opportunities for domination, both in the workplace and to a lesser extent in other private groups, The poorer one is, the fewer opportunities there are to dominate others.*****

I’ll take up social hierarchies in the next post.
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* These terms are discussed in earlier posts in this series. See the Index at the top of this post.

** In 2017, the top of the lowest quintile was $24,000, and the bottom of the top quintile was $127,000. Note the use of income as a proxy for social mobility. Education is often studied as a proxy, with similar and expected results. Education may measure an important aspect of human flourishing not captured by income studies.

*** This material is complicated, largely because of the use of statistical techniques I’m not familiar with, and I am wary of it because it so closely matches what I would expect, creating a risk of confirmation bias.

**** Here’s a discussion of the Gilens and Page study of the legislative preferences of the rich.

***** I exclude families, where men can get away with domination.

Freedom And Inequality: Introduction and Index

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Posts in this series:
Freedom and Inequality: Introduction and Index
Freedom and Inequality: Freedom From Domination Part I
Freedom and Equality: Freedom From Domination Part 2
Freedom and Equality: Relational Equality Against Social Hierarchies
Freedom And Equality: More On Equality.
Freedom and Equality: Anderson Against Libertarianism
Freedom And Equality: In The Workplace
A Primer On Pragmatism: Method
A Primer on Pragmatism: Truth
A Primer On Pragmatism: Applications
Egalitarianism And Markets
Private Government By Corporations
Inequality And Freedom
Inequality In Social Relations

Introduction

This will be a series of discussions of freedom and inequality, based on works by Elizabeth Anderson, Chair of the Philosophy Department at the University of Michigan. I first heard about Anderson in this New Yorker article by Nathan Heller. Anderson explores the meaning of freedom and equality, especially in the context of work, the economy and the politics of both. Until recently, the dominant ideas were those of conservatives and libertarians, people like Milton Friedman, Friedrich Hayek, and neoliberals of both parties.

The New Yorker article says that historically everyone thought that freedom and equality are at odds: exercise of freedom would naturally lead to increasing inequality. Political domination is a natural consequence of increasing inequality. If that is true, how can democracy survive? Anderson questions the view that freedom and equality are in conflict. The relevance of this idea to our current political environment is obvious. Republicans champion inequality as an exercise of freedom, and neoliberal democrats agree, but argue that some restraints on freedom must exist to prevent too much inequality. We need a new structure to step outside this duality and protect our democracy.

Again historically, people thought of freedom in two ways: negative freedom, that is, freedom from interference, and positive freedom, the range of options available to people. Anderson adds a third idea, freedom from domination. As we saw in the series on Ellen Meiksins Wood, one major Marxist criticism of capitalism is domination of the worker by the capitalist, aided by the state.* We saw in Pierre Bourdieu a detailed study of the way dominance is embedded in social relations.** We have also seen Michel Foucault’s view of power, an idea closely related to domination. I’ll discuss the concept of freedom from domination in this series.

From the New Yorker article:

As the students listened, [Anderson] sketched out the entry-level idea that one basic way to expand equality is by expanding the range of valued fields within a society. Unlike a hardscrabble peasant community of yore in which the only skill that anyone cared about might be agricultural prowess, a society with many valued arenas lets individuals who are good at art or storytelling or sports or making people laugh receive a bit of love.

I’m particularly fond of this idea. I made a living practicing law, and on the side, I did a lot of chorus singing, mostly classical and opera. I made room in my life for voice lessons and the unending rehearsals and performances that dominate the life of the singer. I used to say that among lawyers I was one of the best singers, which seems to me to be what this quote is saying.

The New Yorker article says that one of the major influences for Anderson is pragmatism, the distinctly American philosophy, generated by Charles Peirce, Oliver Wendell Holmes, and William James. It’s leading exponent in the 20th Century was John Dewey.*** A central idea of pragmatism is the definition of “truth”:

To a pragmatist, “truth” is an instrumental and contingent state; a claim is true for now if, by all tests, it works for now.

Ideas are tools, and the truth value of a tool is related to its usefulness. This description of truth throws off centuries of effort to find a fixed point of certainty in the world. It opens the possibility of finding our way through social and individual problems not by reference to some prior version of the truth, but by our own best understandings of our own social reality. I do not currently plan on a formal discussion of this description of truth, and will content myself with pointing it out in passing. But I share that view, and I think it is apparent in much of my thinking and writing.

Reading philosophy papers is difficult for a lay reader like me. Most are presented as arguments with one or more other philosophers. This is not necessarily a good way for a layman to get a positive statement of the views of the author, especially when there are many papers and many arguments. The New Yorker article seems to be a good introduction to the themes Anderson addresses.

Finding these academic papers online is harder than finding the books I’ve been writing about. I am fortunate to have access to a university’s online library, and I can’t find all of Anderson’s work there; I have no idea if readers can find the material I’m reading through their own public libraries, though I hope so. I’ll be giving the best links I can find, for what that’s worth. And as always, I’ll try to separate Anderson’s thinking and that of the authors she discusses separate from my own views.

I’ll update this post with links to all the posts in this series. Thanks for reading.

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* Here’s an example. The index to these posts is here.

** See for example this post.

*** Lewis Menand’s The Metaphysical Club is an engaging account of the first three and their friends. Here’s a good introduction to the thought of John Dewey. Richard Rorty considered himself an heir to Dewey. For a fascinating discussion of the nature of truth in pragmatist thought, see Philosophy and Social Hope by Richard Rorty, Ch. 2. It’s worth the effort.

Brief Description of the conclusion of Chapter 2 and Chapters 3-7 of Elizabeth Anderson’s Private Government

Chapter 2 of Elizabeth Anderson’s Private Government ends with several plausible ways of dealing with the lack of freedom and equality* in the workplace. These are:

1. Exit: the employee can quit and find other work.
2. The Rule of Law: we could have a statutory scheme favorable to the freedom of working people.
3. Substantial “constitutional” rights: we could force corporate structures to allow greater worker freedom.
4. Voice: workers could be given greater rights to participate is making decisions about working conditions, as through unions or board positions, modeled by German codetermination in the form of board seats and Worker Councils.

The next four chapters are brief responses to Anderson’s argument. Ann Hughes offers deeper discussion of the history of dissenters such as the Levellers, which was helpful in understanding some of the history David Bromwich discusses the evolution of business away from the egalitarian ideals of the dissidents. Niko Kolodny suggests that being bossed around isn’t that big a deal. Tyler Cowan represents the neoliberal view, that loss of freedom in Anderson’s sense has to be balanced against the gains, and besides, businesses won’t abuse workers much. Anderson deals with the replies in Chapter 7.

I think the comments are interesting, but somehow less than satisfying. Anderson is talking about concepts of freedom and equality that are foreign to most of us. The reply of Tyler Cowan seems utterly unaware that freedom and equality are social goods, valuable in themselves for human flourishing. These benefits are simply irrelevant to economic efficiency, the traditional goal driving libertarian econmics. Kolodny is sympathetic to Anderson’s egalitarianism, but does not recognize these benefits either. Bromwich takes a more philosophical approach founded on Polanyi’s view that labor, money and land are fictitious commodities. But he offers little in the way of an alternative treatment of the turn away from egalitarianism on the left, and nothing suggesting what can be done.

Anderson’s replies are helpful, but she does not return to the fundamental definitions of freedom and equality. She simply takes the replies on their own terms and responds in the same terms. That is disappointing. I’ll offer my own thoughts in this series.

Additional Resources

1. Achieving Our Country by Richard Rorty. Anderson identifies as a pragmatist, and so does Rorty. He is controversial on a number of grounds, but I have learned a great deal from this and other works by Rorty. This is a short book, not theoretical and easy to read. It is an impassioned defense of small-d democracy as described by John Dewey and Walt Whitman. It counsels against despair of that ironic spectator variety of leftism, and argues for an agressive hopeful politics of the left.

2. Podcasts of the Partially Examined Life. This is a philosophy discussion group of some guys who planned to make a living at philosophy but thought better of it, as they say in their introduction. There are two that I think are of interest here. First there is a three part series including an interview with Elizabeth Anderson, Episode 199. There are several episodes devoted to Richard Rorty, listed here. I have listened to the first episode on Achieving our Country, Episode 157, and plan to listen to the rest.

3. In the posts on equality Anderson lays out egalitarian arguments against social hierarchies. For a counterpoint, Episode 157 of the podcast Partially Examined life discusses the Analects of Confucius. The second part is an effort to understand the justification for Chinese hierarchy. Confucius and his school are still influential in China today,and the discussion is a nice counterpoint to the very American ideas of Anderson and the pragmatists.

4. Elizabeth Andersonn wrote a book applying some of her ideas to the world of work. Private Government. Here’s a review in The New Yorker.

5. The Partially Examined Life discusses Peirce and James on Pragmatism in episodes 20 and 22. I have listened to the free part of Episode 20 and plan to listen to the rest.

N. Gregory Mankiw Tries to Discredit Piketty

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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.

An Auspiciously Timed Republican Meltdown

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The Republican party is in a bit of a meltdown in response to the leak of Mitt’s comments about the 47% of the country he disdains. Some–mostly the pundits not facing voters in November–are embracing his claim that Democrats are moochers (ignoring that a lot of the seniors, poorer service members, and Red State working poor are actually Republican voters). Others–especially those on the ballot in November–are attacking Mitt for being such a cad.

I’m most fascinated by the Weekly Standard’s John McCormack’s attack on Mitt’s purported misunderstanding of conservatism.

The same kind of person who says, “Forty-seven percent of Americans pay no income tax. So our message of low taxes doesn’t connect…. So my job is not to worry about those people. I’ll never convince them that they should take personal responsibility and care for their lives.”

These appear to be the words of somebody who doesn’t understand American conservatism and its relationship to the American idea. Conservatives don’t believe in economic determinism. Conservatives know–and explain why–their economic policies will help the poor, as well as senior citizens, working families, and our troops who pay no income taxes. Conservatives realize that the Republican party is not the party of people who want to be rich, it’s the party of people who want to be free.

[snip]

But in an interview this afternoon, he conceded yet again that his tax policies won’t appeal to half the country. “I’m talking about a perspective of individuals who I’m not likely to get to support me,” Romney told Neil Cavuto on Fox News. “I recognize that those people who are not paying income tax are going to say, gosh, this provision that Mitt keeps talking about, lowering income taxes, that’s not going to be real attractive to them.”

The strange thing is that Romney’s tax plan isn’t actually aimed at lowering taxes. It’s a revenue neutral plan that is designed to spur growth–and create jobs–by lowering rates and reducing or eliminating tax loopholes. Maybe it’s a hard plan to sell, but I’ve watched Paul Ryan persuasively makethe case to skeptical constituents that taxreform would grow the economy and create a fairer tax code.

McCormack takes Romney to task for saying out loud the poor won’t benefit from “tax reform” and blathers about how “freedom” will “spur growth.” He takes Mitt to task because he’s not as convincing as Ryan when he claims cutting taxes further will benefit everyone.

The meltdown is so delicious because Republicans don’t seem to know whether to abandon the myth that has driven the Republican Party for the last 50 years or not.

And because the Congressional Research Service just came out with analysis that it is, in fact, a myth.

Income tax rates have been at the center of recent policy debates over taxes. Some policymakers have argued that raising tax rates, especially on higher income taxpayers, to increase tax revenues is part of the solution for long-term debt reduction.

[snip]

Other recent budget and deficit reduction proposals would reduce tax rates.

[snip]

Advocates of lower tax rates argue that reduced rates would increase economic growth, increase saving and investment, and boost productivity (increase the economic pie). Proponents of higher tax rates argue that higher tax revenues are necessary for debt reduction, that tax rates on the rich are too low (i.e., they violate the Buffett rule), and that higher tax rates on the rich would moderate increasing income inequality (change how the economic pie is distributed). This report attempts to clarify whether or not there is an association between the tax rates of the highest income taxpayers and economic growth.

[snip]

Throughout the late-1940s and 1950s, the top marginal tax rate was typically above 90%; today it is 35%. Additionally, the top capital gains tax rate was 25% in the 1950s and 1960s, 35% in the 1970s; today it is 15%. The real GDP growth rate averaged 4.2% and real per capita GDP increased annually by 2.4% in the 1950s. In the 2000s, the average real GDP growth rate was 1.7% and real per capita GDP increased annually by less than 1%. There is not conclusive evidence, however, to substantiate a clear relationship between the 65-year steady reduction in the top tax rates and economic growth. Analysis of such data suggests the reduction in the top tax rates have had little association with saving, investment, or productivity growth. However, the top tax rate reductions appear to be associated with the increasing concentration of income at the top of the income distribution. [my emphasis]

Thus, at precisely the moment when Republicans are beating up on Mitt for suggesting–even if inadvertently–that the poor have no self-interest in his tax cuts for the rich, the non-partisan CRS comes out and shows that, in fact, they do not (and have not, for two generations).

It remains to be seen whether any political entity will push this point home (indeed, one of the tax cut plans that CRS says would lead to more inequality is the President’s own Catfood Commission plan).

But Republicans don’t appear to know how to respond to Mitt speaking the truth, admitting that the poor have no interest in seeing rich people like him get further tax cuts, and speaking the truth in such a snotty disdain.

Our (We) Working Class Pundits

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Digby has a righteous rant about a discussion between Wolf Blitzer, Mary Matalin, and Paul Begala in which they revealed their utter divorce from the reality lived by most Americans as they discuss whether the $172,000 Robert Gibbs made as Press Secretary was a sacrifice. Here’s a taste:

According to these guys [Robert Gibbs’] job is right up there with curing cancer for sheer importance to the future of mankind.

Look, you can’t blame these two. They are both glugging from the same taxpayer trough half the time and have a big investment in believing that what they do is so special and so unique that they are just a little bit better than lesser people who toil at less exalted labor.

And evidently, they truly believe regular people don’t eat lunch at their desks and work long hours and have huge responsibilities. Or if they do, they are in very important jobs like media and investment banking where people are paid what they are “worth.”

You ought to read the whole thing.

I just wanted to add two things.

First, in the discussion, Matalin argues that, when you work at the White House “you really do work three shifts a day. You work 24 hours a day.” In response to which Begala elaborates,

The President’s trying to make a point here — he’s not trying to say that 172 thousand dollars a year is not a good paycheck. But compared to what the guy could be making… And, as Mary points out, if it’s a hourly wage, then Gibbs is probably making about fifty cents an hour. [my emphasis]

If Gibbs’ $172,000 annual salary were broken down into hourly salary, Begala says, with the assumption that he was working 24 hours a day 365 days a year,  then his hourly wage “is probably … about fifty cents an hour.”

Ahem.

There are 8,760 hours in a 24/7 year. Gibbs’ $172,000 salary for those 8,760 hours would work out to be $19.63 an hour. For someone working 40 hours a week, 50 weeks a year, that works out to be a yearly salary of $39,260. Which for household salaries–not individuals–falls in the middle quintile of yearly income in this country, and less than $3,000 less than what Wolf says is the “mean” salary in this country (he actually means “median” and he may be using just full time workers).

Gibbs needs a break, Obama says, and Begala and Matalin agree, because even assuming he’s been working 24/7, he’s been working as hard for the same money as half the country. So we should feel sorry for him.

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