It's Not Really About Markets

What do many communists and many advocates of laissez-faire capitalism share in common? Both claim that their ideologies have never been given a fair shake, both claim that their ideologies are based upon immutable laws of either historical progress or human behavior, both reject ‘real world’ examples that supposedly show the error of their views, and both believe that only their ideological visions will lead to a future worth living in.

The existence and prosperity of Western Europe, Japan, and the United States in the post-war period are proof that state-managed development alongside various degrees of economic freedom can lead to a high standard of living, or at least co-exist with it. All of the “Asian Tigers” went through decades of heavy state involvement in the economy, and not long after liberalization began in earnest, suffered a major financial catastrophe.

None of these societies are perfect,  but none of them, good or bad, have existed as “free markets”. They have existed as mixed economies, with some performing quite well during periods of heavy state involvement in the economy.

If historical experience shows that a society can indeed exist, function, and prosper without adhering to the letter of liberal market orthodoxy, why do its advocates insist that anyone who disagrees with them is “unscientific”? The burden of proof is not – or should not be – upon myself or anyone else who is skeptical of the claims made by laissez-faire proponents. The burden is on those making the claims. If history is the great laboratory where ideas are tested, accepted, and rejected, then laissez-faire can only exist as utopian idea, perhaps one that has functioned in pockets here and there, but certainly not to the point where entire societies can claim the label.

Or, it can exist as a theoretical model in textbooks. That would give it a scientific air, but it certainly doesn’t entitle its proponents to insist that they alone are the bearers of economic truth. For what it is worth, I have more respect for Murray Rothbard, who believed that the case for free markets had to be a moral one, than those who continue to try and shove a supposedly irrefutable, unfalsifiable, pseudo-scientific model down my throat.

In saying this, I actually do not mean to reject either the utility or morality of markets. “Free markets within limits”, as Pius XI said, are good. As a proponent of a more cooperative economy, I do not reject but embrace market activity; cooperatives, as much as traditional firms, must compete in a market place and satisfy the demands of consumers. To me the choice has never been between the existence of markets, and the non-existence of markets.

The choice, rather, is between economic democracy and oligarchy, between political democracy and plutocracy. In the 21st century it is unconscionable that, while over a billion people go hungry, a handful of individuals should have insanely vast quantities of wealth. Whether or not the redistribution of that wealth would solve the problem (it would certainly help) is one matter; the disproportionate power it accords to a small minority is a brake on human progress, and, if the Bible’s 300 passages concerning the poor are to be taken seriously, an abomination in the eyes of God.

The democratization of the economy and the decentralization of wealth, alongside and not opposed to a healthy degree of economic freedom, is what I believe has the best chance of leading to prosperity for all, in America, and around the world. It will put an end to class conflict, at least in the classical sense of proletarian versus capitalist – the need for unions, the cost of labor disputes, and all of the other nasty fallout from that conflict will wither away. A far more healthy relationship between cooperative firms and the communities they operate in will develop, a relationship which transcends that between buyer and seller, producer and consumer. The worker/owner, no longer identifying either as a worker or an owner, will come to identify more as a citizen and a member of the community. Democratic practices in the places we work will lead to a healthier political democracy, hopefully something more than the 2 or 4 year ritual many people participate in today.

The best part is that unlike theoretical models in textbooks, such communities do exist in the world. The only problem is that there aren’t enough of them, and that, in the end, is only a problem of ignorance and the will. Unlike the immutable laws of physics, we can remedy both. Catholics should be the vanguard of this social transformation. Instead of constantly arguing, “well, the social teaching doesn’t say I can’t do that”, we should be discovering what that social teaching asks of us. That is how the Mondragon, the world’s most successful cooperative ever to exist, got its start. One man, one priest, decided to take the ideas he found in a Papal encyclical and make them real in the world. There is absolutely no reason this can’t happen again, one hundred times, one thousand times, until society gradually comes to reflect the Catholic social vision.

31 Responses to It's Not Really About Markets

  • Blackadder says:

    Joe,

    You’re attacking a straw man here. Advocates of free markets don’t claim that a society cannot prosper if it deviates from free market principles. What they say is that a society will tend to do better if it adheres to these principles than if it does not.

    To use an analogy: medical evidence shows that smoking is bad for your health. Does the fact that people don’t die immediately on having their first cigarette refute this finding? Of course not. Nor does the fact that you can find examples of people who lived a long time despite having smoked mean that medical opinion on the subject is worthless or unscientific.

  • Joe Hargrave says:

    “What they say is that a society will tend to do better if it adheres to these principles than if it does not.”

    That is what some of them say – others look at you as if you walked out of a medieval history book if you dare to presume to challenge the wisdom of market orthodoxy.

    “medical evidence shows that smoking is bad for your health. Does the fact that people don’t die immediately on having their first cigarette refute this finding? Of course not.”

    Ok, when or where has a society “died” because it didn’t adhere to neoliberal market orthodoxy? It is something you will never be able to demonstrate sufficiently.

    “Nor does the fact that you can find examples of people who lived a long time despite having smoked mean that medical opinion on the subject is worthless or unscientific.”

    What happens when virtually all of the examples show the opposite of what the alleged scientists claim, and few, if any, to support the claim?

    No, a few examples of people who lived a long time in spite of their smoking would not make the allegedly scientific claim worthless. But if only a few people ever died from smoking, we might question the extent to which it actually affects our health, and we certainly wouldn’t stand for attempts to berate us into submission to a “scientific” opinion that has no bearing on what happens to us in reality.

  • Two thoughts:

    1) Free markets and lack of government involvement are not necessarily the same thing. Government interventions such as tariffs, subsidies, and regulations as to what people are allowed to sell and to whom — all of those tend to be “violations” of the free market. However, the government owning large portions of industry (as has been the case in Singapore, which is by most standards one of the most free market developed nations) does not necessarily mean that markets aren’t free, though many of the same people who are in favor of free markets are also against government intervention more generally — often for similar reasons.

    2) While it’s true that all specific situations in history involve some degree of restriction of markets (and although free market advocates disagree on what controls are necessary, it is generally agreed that free markets only work well with certain controls, such as the enforcement of contracts, in place) what people are generally talking about when referring to the scientific nature of market-based economics is that a proper understanding of market forces allows one to make very good predictions of what will happen in a given situation. I’m not talking major societal predictions, here, but a predictions of how people will respond to various situations. (Keep in mind, a “market” is basically the sum of lot of people making buy/don’t buy or sell/don’t sell decisions. It’s a means of gathering information through large numbers of individual decisions.) In this sense, market economics is not an ideology in the sense that Marxism is — it’s simply an understanding of how large groups of people tend to respond to stimuli, which allows practitioners to make fairly good predictions most of the time (assuming that they have a knowledge of the relevant factors.)

  • Joe Hargrave says:

    “what people are generally talking about when referring to the scientific nature of market-based economics is that a proper understanding of market forces allows one to make very good predictions of what will happen in a given situation”

    Is that all? If that were all it was, I wouldn’t have a problem with it.

    But clearly that is not enough for some people; they believe that policy ought to be subordinated to this “science”.

    It is one thing to make use of economic science when you run a business (which I am all for), and another when you run a government.

    And you still have to account for periods of historical development where the state played a larger, not a lesser role, and still managed to preside over growing, vibrant economies.

  • Blackadder says:

    What happens when virtually all of the examples show the opposite of what the alleged scientists claim, and few, if any, to support the claim?

    If it were the case that countries tended to do worse the more they adhered to free market principles, then this would be a serious argument against what you call “market orthodoxy.” However this is not in fact what we find. If you look at some measure of adherence to free market principles, such as the Index of Economic Freedom, you find that there is a fairly strong correlation between the level of economic freedom in a country and its overall prosperity.

    To take your Asian example, the so-called Asian tigers may not have had perfect economic freedom, but they had significantly more economic freedom than other Asian countries that grew either slowly or not at all. Not only that, but if you compare the Asian tigers to each other, you find that the ones who had more economic freedom grew faster and farther than those with less economic freedom. Not only that, but if you look at individual countries, you find several examples where growth either started or took off after the economies were further liberalized.

  • Joe Hargrave says:

    “If you look at some measure of adherence to free market principles, such as the Index of Economic Freedom, you find that there is a fairly strong correlation between the level of economic freedom in a country and its overall prosperity.”

    First of all, I see nothing here about ‘overall prosperity’ – only a rank for economic freedom. Are Ireland and New Zealand really in the top 10 as far as prosperity and living standards go?

    That aside, if there is this correlation, then why do we hear nothing but ceaseless complaining from some quarters about how little economic freedom there is in America, or in Western Europe, with all of its “socialism”?

    If a European style welfare-state like Denmark, with an 80% unionization rate, universal healthcare, various nationalized industries, and labor oriented political parties, is considered to be more and not less ‘economically free’, then I suppose there is a point to be made here.

    But that certainly isn’t what the typical advocate of laissez-faire that I run across in day to day encounters on the blogosphere or in real life has to say.

    And I will say, once again, that there are deep cultural and historical factors in these tiny Asian city states that – at best – would undermine any claim to universality of the application of these principles. I would say the same about Denmark and Sweden with regards to social democracy. Nothing is universally applicable.

  • j. christian says:

    Joe,

    I think there are some people who try to elevate the science of economics in the way you describe, but in my experience it’s not a very popular idea. I remember hearing Milton Friedman speak in my freshman dorm, and he basically argued that free markets would solve almost every policy problem. Libertarian thought often has the underlying belief that the rigorous mathematical foundation of economics leads to certain, inevitable facts about how people should organize their lives. Few others subscribe to this view, although the ones who do are a vocal minority.

    I’ve studied a lot of theoretical economics in my time, and I would say that it has utility (ha ha) beyond simply business management. It is primarily a social/behavioral science, much like psychology. No one would ever argue that psychology should exclusively determine public policy, and most thoughtful economists admit that economics alone should not rule policy. But it does serve as an important tool in analyzing some types of policy issues.

    I think that people hear about “laws” of supply and demand and think that economists believe these things are physical laws like in Newtonian mechanics. They’re not, but human behavior and human nature have certain timeless characteristics. If you can state with relative certainty that most people in most times and places would rather be given an apple than poked in the eye with a stick, then you already understand the basic axioms that underly economic theory. I think you’re attacking the wrong thing, although I’ve heard plenty of Catholics take this route. Alasdair MacIntyre had some interesting critiques of social sciences, but ultimately I think it’s all barking up the wrong tree.

  • Blackadder says:

    First of all, I see nothing here about ‘overall prosperity’ – only a rank for economic freedom. Are Ireland and New Zealand really in the top 10 as far as prosperity and living standards go?

    I was assuming that you had a general sense of where different countries stood in terms of prosperity. If you want something more precise, here is a list of countries by GDP (PPP) per capita. According to the 2007 World Bank listing, Ireland ranks 5th and New Zealand 26th out of 169 countries.

    if there is this correlation, then why do we hear nothing but ceaseless complaining from some quarters about how little economic freedom there is in America, or in Western Europe, with all of its “socialism”?

    It’s called hyperbole.

  • Joe Hargrave says:

    J,

    “If you can state with relative certainty that most people in most times and places would rather be given an apple than poked in the eye with a stick, then you already understand the basic axioms that underly economic theory.”

    Then that just makes it trivial.

    There may be some timeless characteristics, as you say, but when we are talking about whole systems, what “works” and what doesn’t, culture plays more of a role than anything else. That is why Denmark can have a social-democratic welfare state and Hong Kong can have something closer to laissez-faire and both can end up with some of the highest living standards in the world.

    What I reject are the following claims:

    1) That economics is a finished debate; ‘science’ has discovered x, y and z and disagreement is on the level of rejecting a heliocentrism.

    2) That the “invisible hand” necessarily leads to greater prosperity and that government intervention necessarily leads to catastrophe.

    3) That individual or corporate economic liberty can never be regulated for the common good BEYOND the mere prevention and punishment of force and fraud.

    4) That “economic growth” and the proliferation of material goods is always preferable to other moral and cultural considerations.

  • Joe Hargrave says:

    “It’s called hyperbole.”

    Tell them that, then! It seems that there is almost nothing but hyperbole on this score.

    So, let me get this straight, then – to call Denmark “socialist” is hyperbole? Is that it? “Economic freedom” as you understand it is compatible with 4/5 of the workforce in unions, universal healthcare, and nationalized industry?

  • But clearly that is not enough for some people; they believe that policy ought to be subordinated to this “science”.

    It is one thing to make use of economic science when you run a business (which I am all for), and another when you run a government.

    I think the sense in which people will be accusing you of being “unscientific” as regards to polity, and shaping policy around “economic laws” will be when they disagree with you (this is the generic third person you, not necessarily Joe Hargrave) as to the likely results of a policy which is suggested based on their understanding of economic laws.

    So for instance, say that you say you’re going to pass a law setting the minimum wage at $10/hr for workers ages aged 16-21 and $20/hr for workers 22+, and requiring that all companies employ at least 90% full time workers. A free marketer might argue that any claim that this would benefit low skill workers was unscientific, and argue that if your aim was to help low skill workers you should do no such thing.

  • Joe Hargrave says:

    “A free marketer might argue that any claim that this would benefit low skill workers was unscientific, and argue that if your aim was to help low skill workers you should do no such thing.”

    This only leads to the next problem, though: what about the other guys? You know, those other guys with degrees in economics, who work at places like the Economic Policy Institute, and who don’t share the same views?

    There is always some other factor that someone else is pointing to in these debates. Economist A says x causes y. Economist B then says that really, z causes x. Economist C comes along and saws it is w that causes x and z. And so on, ad infinitum.

    Can you honestly say that which of these guys you believe doesn’t have more to do with your values than empirical data?

  • Can you honestly say that which of these guys you believe doesn’t have more to do with your values than empirical data?

    Well, some things are more controversial than others. You’d probably get 80-90% of economics to agree that setting a $20/hr minimum wage would hurt low skilled workers and raise unemployment. But obviously, there are disagreements as to where such a thing kicks in. Lots of economists would say it would be fine to raise it a dollar or two.

    Heck, even in hard science there are huge differences on what “science says”. Not just between outsiders and insiders (there are many who claim there’s little evidence for evolution, though I think they’re way wrong) but also internally. Any discussion of string theory often devolves into physicist smack talk.

  • Blackadder says:

    So, let me get this straight, then – to call Denmark “socialist” is hyperbole? Is that it? “Economic freedom” as you understand it is compatible with 4/5 of the workforce in unions, universal healthcare, and nationalized industry?

    I don’t know what nationalized industries you have in mind (perhaps you could enlighten me), but it’s certainly possible for a non-socialist country to have universal health care. Both Singapore and Hong Kong, for example, have universal health care, and it would certainly be hyperbole to call those countries socialist. And as for the unions, what matters in terms of economic freedom is not the level of union membership but the level of labor freedom. On that score, Denmark ranks higher than the U.S. (in fact, I’m pretty sure it ranks #1).

  • Joe Hargrave says:

    My computer is dying a slow, painful death from some sort of malware at the moment.

    You may all have to carry on without me indefinitely. Please do consider what I said in the second half of the post as well as the first half…

  • j. christian says:

    Joe,

    It’s clear to me that you’re confusing the micro and macro aspects of economics. Of course the axioms are “trivial” — that’s the foundation! I’m not talking about grand systems of economic organization — I’m talking about the behavioral models that explain why people choose the things they do. Theoretical models can be built progressively on top of those axioms, and there might be disagreement about which models explain reality best, but that doesn’t make it unscientific.

    And Darwin hit on a good point: There are lots of things in economics that generally aren’t debated much. Greg Mankiw had a link on his blog to one such survey of economists that showed quite a bit of agreement on some basic policy issues.

  • Blackadder says:

    Well, some things are more controversial than others. You’d probably get 80-90% of economics to agree that setting a $20/hr minimum wage would hurt low skilled workers and raise unemployment.

    According to a 2007 survey, nearly three quarters of labor economists thought that raising the minimum wage to around $8/hr would raise unemployment. If the question was whether raising the minimum wage to $20/hr would have this effect, I would imagine agreement would be at around 100%.

  • My computer is dying a slow, painful death from some sort of malware at the moment.

    If reformatting is your only option, you might try installing a good desktop installation of Linux. It’s free (though for commercial distributions you have to pay for the disks — maybe $10-30), it tends to be immune to viruses and malware, and it’s also developed according to a communitarian model which requires that those who make changes share them with all other developers.

  • Joe Hargrave says:

    DC,

    I think I may do that.

    BA,

    Well, “nationalized industry” might have been the wrong phrase – Denmark doesn’t quite follow the same model as other countries – but there are a number of public corporations in which the Danish government owns a substantial number of shares, or even all the shares (which, I would tend to think, makes it a nationalized industry, but whatever).

    Its good to know that you don’t associate universal healthcare with a reign of economic tyranny, then. I’ll count on not hearing your voice as a part of that chorus when it finally happens.

    It’s good to know too that neither you or the AEI considers none of these policy goals of the Danish government to be at odds with ‘economic freedom’ either:

    “The Government’s priorities are:
    • First, public investment must help secure the future framework of the welfare society. We need to secure a framework for providing adequate welfare services so that we can meet the new challenges and needs that Denmark will be facing in the future.
    • Second, Denmark must make strategic investments that can help secure the basis for our affluence, which is the backbone of our welfare society.
    • Third, we must ensure that everything built is properly maintained. This applies to roads as well as to schools, hospitals, kindergartens and other public buildings. We are in a position to protect our investments and ensure that buildings and facilities remain in good condition and function properly”

    http://www.fm.dk/db/filarkiv/3749/future2001.pdf

    Because, you know, in properly “conservative” circles in the US, this is all socialism, this would all be denounced as economic tyranny, especially if/when Obama tries to do it. Someone should show them the AEI report.

    Or maybe someone should craft a definition of economic freedom that has meaning. Or maybe people ought to stop making spurious associations and consider historical and cultural factors as well. No, I don’t expect to see Lybia or Bolivia on the list of prosperous or free countries. I might expect to see them on a list of countries that have a history of being imperially dominated, of having their economies and governments subject to manipulation by foreign powers, of political instability, coups, overthrows.

  • Joe Hargrave says:

    J Christian,

    I’m aware of the difference between micro and marco. What did I say to indicate otherwise?

    Disagreement may not make something “unscientific” but it doesn’t entitle one to claim the mantle of scientific certainty either. How do you decide which scientist to believe? Isn’t it funny that a lot of conservatives choose to believe the scientists who say there is no global warming, or that human activity doesn’t contribute to it, while “liberals” believe those who say the opposite? Isn’t funny how each side typically has its own set of scientists lined up behind it to say whatever it is they need said?

    I do not oppose scientific research. I oppose its introduction into the political realm as a “debate stopper”, especially when two sides of any given issue can find ‘experts’ to say whatever they need to them to say. Sure we can present the published findings of scientists to inform our opinion. But to use it as a political weapon, as often happens in these debates, is simply absurd.

    What happens in society is the result of human will, free will, and our moral consciences. We may be bound by the laws of physics, but we are never bound by any such laws of economics. Human behavior is a function of culture as much as it is biology; that is indeed why mainstream Western economic thought can’t well explain societies where individualism has not developed as a cultural norm, and why attempts to impose economic models in regions of the third world based on those individualist assumptions have lead to unrest and social discord.

    We have the freedom and the creativity to fashion economic systems that AREN’T premised on homo economicus. The assumptions about man formulated by classical economics are assumptions about Western man in one period of history only.

  • Blackadder says:

    It’s good to know too that neither you or the AEI considers none of these policy goals of the Danish government to be at odds with ‘economic freedom’ either:

    First, I think the Index of Economic Freedom is put out by Heritage, not AEI (perhaps AEI has some role that isn’t readily apparent).

    Second, to say that Denmark ranks 8th in terms of overall economic freedom is not to say that it is the perfect embodiment of of economic freedom, or that nothing it does is objectionable from Heritage’s or my point of view. You seem sometimes to tend towards a kind of all or nothing thinking. A country is either 100% free or not free at all; if a policy doesn’t reduce people to starvation then it can’t be said to have a negative effect, and so forth.

    Third, I think that our discussions on these subjects would be more productive if you didn’t just cut and paste stuff from random websites as a response.

  • jacksmith says:

    AMERICA’S NATIONAL HEALTHCARE EMERGENCY!

    It’s official. America and the World are now in a GLOBAL PANDEMIC. A World EPIDEMIC with potential catastrophic consequences for ALL of the American people. The first PANDEMIC in 41 years. And WE THE PEOPLE OF THE UNITED STATES will have to face this PANDEMIC with the 37th worst quality of healthcare in the developed World.

    STAND READY AMERICA TO SEIZE CONTROL OF YOUR NATIONAL HEALTHCARE SYSTEM.

    We spend over twice as much of our GDP on healthcare as any other country in the World. And Individual American spend about ten times as much out of pocket on healthcare as any other people in the World. All because of GREED! And the PRIVATE FOR PROFIT healthcare system in America.

    And while all this is going on, some members of congress seem mostly concern about how to protect the corporate PROFITS! of our GREED DRIVEN, PRIVATE FOR PROFIT NATIONAL DISGRACE. A PRIVATE FOR PROFIT DISGRACE that is in fact, totally valueless to the public health. And a detriment to national security, public safety, and the public health.

    Progressive democrats and others should stand firm in their demand for a robust public option for all Americans, with all of the minimum requirements progressive democrats demanded. If congress can not pass a robust public option with at least 51 votes and all robust minimum requirements, congress should immediately move to scrap healthcare reform and demand that President Obama declare a state of NATIONAL HEALTHCARE EMERGENCY! Seizing and replacing all PRIVATE FOR PROFIT health insurance plans with the immediate implementation of National Healthcare for all Americans under the provisions of HR676 (A Single-payer National Healthcare Plan For All).

    Coverage can begin immediately through our current medicare system. With immediate expansion through recruitment of displaced workers from the canceled private sector insurance industry. Funding can also begin immediately by substitution of payroll deductions for private insurance plans with payroll deductions for the national healthcare plan. This is what the vast majority of the American people want. And this is what all objective experts unanimously agree would be the best, and most cost effective for the American people and our economy.

    In Mexico on average people who received medical care for A-H1N1 (Swine Flu) with in 3 days survived. People who did not receive medical care until 7 days or more died. This has been the same results in the US. But 50 million Americans don’t even have any healthcare coverage. And at least 200 million of you with insurance could not get in to see your private insurance plans doctors in 2 or 3 days, even if your life depended on it. WHICH IT DOES!

    Contact congress and your representatives NOW! AND SPREAD THE WORD!

    God Bless You

    Jacksmith – WORKING CLASS

  • j. christian says:

    Joe,

    I really have to disagree with your statement about the assumptions of classical economics being historically contingent. Can you tell me when and where in history people have preferred lower wages to higher wages for the same work? You might think that this is “trivial,” but then again so are most axioms in most fields, right?

    Blackadder and Darwin have already pointed out where there is a general consensus among economists. Those weren’t just the theories, mind you — those were actual economic policies with a great deal of agreement.

    There is a distinction between the basic principles and models, and the more complex issue of policy prescriptions. You’re conflating the two when you say that you reject it as a finished debate. Well, much of it *is* finished, but apparently at a level you deem “trivial.” It’s not really trivial, though when it can be used and built upon to develop other models and theories. But in doing so, there is more room for error and disagreement by degree. That’s why you see economists differing on policy issues — raising the minimum wage, for example, is almost certain to cause *some* unemployment, but many economists believe that the effect is small and the benefits outweigh the costs for marginal increases. They disagree not on the direction of the effect, which is pretty solidly determined by economic theory, but on the magnitude. Besides, policy certainly does have moral dimensions beyond the economic efficiency arguments.

    That’s why I say you’re conflating things. You’re talking about whole economic systems — you say so when you refer to our creativity to fashion such systems — not about the underlying mathematics. It’s not trivial at all; it’s one tool among many to determine what the best course of action is. Frankly, I’m surprised that someone who is so often touting economic democracy doesn’t have a better understanding of classical economics to understand how it actually supports a more “democratic” economic system! Where does classical economics state that oligopoly and monopoly are more efficient forms of organization? The whole point of competitive markets is that producers and consumers are distributed and don’t exert undue power over one another… You can’t get much more democratic than that.

  • Joe Hargrave says:

    BA,

    If the country ranked number 8 on the list put together by the people who share your definition of economic freedom is objectionable to you, then it is not me who is insisting on an “all or nothing” approach.

    It is the “all or nothing” attitude that I am in fact criticizing. If you don’t have that attitude – if you are not among those who declare that government involvement in the economy to any substantial degree, beyond mere contract enforcement and other guarantees of negative liberty, must be rejected on the grounds of ‘economic science’, then we have no dispute.

    I don’t claim that such people don’t exist. I don’t claim to be addressing such people, in my original post or subsequent replies. You accuse me of making a strawman – maybe you ought to recognize that there are plenty of people in the political arena who actually do make the arguments I am criticizing. Again, if you are not among them, then why are we arguing?

  • Joe Hargrave says:

    J Christian,

    “Can you tell me when and where in history people have preferred lower wages to higher wages for the same work?”

    No, but I can tell you of times in history when governments played a larger role in the economy than many of the people who proclaim that, on scientific grounds, such a role leads to disaster when it in fact did not. I can also tell you of times in history where the assumptions of classical economics did not exist at all and society managed to continue functioning – such as the Middle Ages, when Christian morality placed limits on what people could do in the marketplace.

    Finally what I mean by economic democracy is workers having greater shares of ownership and authority in the workplace, greater accountability of firms to society beyond merely satisfying consumer demand in the pursuit of profit, and hopefully, in the future, greater direct democratic participation in the direction that the economy takes.

  • I can also tell you of times in history where the assumptions of classical economics did not exist at all and society managed to continue functioning – such as the Middle Ages, when Christian morality placed limits on what people could do in the marketplace.

    I think this explanation doesn’t really do much justice to either the middle ages or classical economics. Certainly, you didn’t see modern economic/political institutions in the middle ages, but the same sorts of economic laws applied. If too much of a good was produced, the price dropped and producers suffered. Indeed, one of the whole points of the guild system was to keep too many goods from being produced by skilled craftsmen in order to keep prices high.

    With the fumbles in trying to set up market economies in developing countries — or in former communist bloc countries — the problem is not so much that the laws of economics don’t apply (indeed, the laws of economics do a great job of describing the sorts of black markets that spring up in failed nations) but that people tried to set up whole economies quickly and inorganically because they were convinced it was simple to do. In a sense, this is a very contra-market thing to do, at least working with a Hayekian view of markets in which a market is a way of martially large quantities of knowledge no one person could have. In this sense, jumping in an artificially setting up a market economy suddenly is going to create all sorts of chaos, because people don’t have the kind of knowledge that serve as inputs, not the cultural institutions that make smooth economic functioning possible.

    Really, there are two things that are different here: the question of whether markets should be regulated or left free, and the question of whether the government should own or run various services. As you point out, a lot of things are government run in countries like Denmark that are mainly private here. Generally, free market types aren’t going to want to go in that direction, out of suspicion of the government putting the market off kilter. On the other hand, European countries including Denmark and Sweden have recently privatized or considered privatizing an increasing number of services that we automatically consider government territory such as air traffic controllers, ports, roads, garbage collection, mail, etc.

  • The thing that is flexible, though, I guess, is what you do with what economics tells you.

    Economics can predict pretty clearly that if the weavers guild sets product caps and quality targets and only allows a certain number of weavers in London at a time, that the price of cloth will remain high enough to assure all the weavers a good living. That’s great if you are a weaver or if you can afford their products, but perhaps less good if you can’t and so can only afford second hand clothes or homespun.

    What to do, at a policy level, with the fact that limiting supply will keep prices and wages up is a matter of policy, morality, etc. But the economic prediction that limiting supply will keep prices up (while allowing free competition will bring prices down) is pretty well set and non-negotiable.

    The moral and political question is: Whose interest should in out, the craftsmen or their customers and those who might want to be craftsmen but are kept out by the guild’s quotas. That one economics can’t answer.

  • Joe Hargrave says:

    Ok Darwin,

    Here’s the thing – I don’t dispute supply and demand, or the effects of competition on price, though plenty of other things affect it as well, such as the political struggle between workers and bosses for a bigger share of the pie (which is another problem with economic ‘science’ – its complete abstraction from political realities).

    Frankly it is not so much the laws of “the market” that I have a problem with, but what seems to be a subset of those “laws” – the notion that only the promise of massive profits beyond anything a person would need to life in comfort and dignity can possibly make an economy function.

    An economy comprised of firms where ownership and hence wealth was more evenly distributed could and would still be a ‘market economy’ and I wouldn’t object to it in the slightest. What I object to is the idea of self-interest taken to maddening levels, so that vast personal fortunes and oligarchy/autocracy in the majority of businesses are justified as the bitter medicine society must swallow if it wants to have anything resembling respectable living conditions.

  • Joe Hargrave says:

    For everyone,

    I’ve been using someone else’s laptop and I may not have access as much as I’d like.

    Suffice to say, there are some communication gaps between us, but I don’t think we actually disagree that much.

    I only meant to address a group of people who have been real enough in my experience, who invoke “science” as a way of putting an end to discussions about economic issues and ridiculing anyone (including the highest authorities in the Catholic Church) who dares to deviate.

    No one here has ever done that, and I don’t think I claimed that anyone here did. If anything I said intimated that I was accusing anyone here, I apologize.

  • j. christian says:

    “which is another problem with economic ‘science’ — its complete abstraction from political realities.”

    Well, I have a problem with politics that abstract from economic realities. If more people would at least have a basic understanding of the non-negotiable aspects of economic theory, we might actually get somewhere.

    All disciplines abstract from reality to some degree. I mean, it’s not like med students studying anatomy are somehow denying the dignity of the human person because they’re studying a body like it’s a piece of meat. That’s science — tinker with one thing while holding all else constant. “All models are bad; some models are useful” as the saying goes.

    “…who invoke ‘science’ as a way of putting an end to discussions about economic issues…”

    I said before that I think it’s a small (but vocal) group of people who have this kind of ideology when it comes to economics. There are some people who are dogmatic about it, that’s for sure. But to return to my anatomy analogy: if one were arguing for some kind of medical treatment based on a belief that blood flows through the lymphatic system and not the vascular one, it wouldn’t matter how well-intentioned or even how “correct” the analysis was — it would sound grossly ignorant. And a lot of economic policy arguments end up sounding that way because there’s no basic understanding of how market forces actually work. There might be a grain of truth to it, but better to master the reasoning behind that truth.

  • Gusto says:

    The classical reason why we study Economics is because resources (land, labor and capital) are scarce. So society has to come up with a system for allocating those scarce resources. At the two opposing extremes we find Capitalism and Marxism. Capitalist argue that the allocation problem is best solved by the market –meaning the consumers not the corporations- and Marxist argue that it is best solved by the government –meaning a faceless bureaucrat.

    As measured in GDP per capita 1) the United States of America, the most Capitalist country in the world, is the richest country in the world (or there are no Marxist countries among the top 10 richest countries); and 2) the most Communist countries in the world are the poorest (Cuba and North Korea). China and India are not the exception but the proof of the direct relationship between economic liberty and economic growth, as soon as they started making Capitalist oriented economic reforms their economies started to grow.

    The middle of the road Swedes or other European Marxist oriented (call them Socialist if you want to be PC) countries prove nothing unless you could conduct an experiment and substantially change their allocation decisions. The fact that government healthcare works in some countries (and not in others) proves nothing. Under government provided healthcare the government decides how much of the country’s resources are devoted to healthcare. The market could have allocated more resources or less resources there is no way of knowing. Under the Marxist allocation a government official decides; under Capitalism the consumer decides (scare scenario: government officials bent on saving money could decide that forced euthanasia at a certain age is a good thing because it saves money and no amount of Catholic ‘respect for life” will change that).

    In practice no country is at the true extreme of Capitalism or Marxism and by using just one measure such as degree of unionization one runs the risk of missing the full picture. Even the United States, as close as we are to Capitalism, has whole economic sectors basically controlled by the government: education and pensions (Social Security) come to mind. There may be countries were the pension system is private (Chile) but have yet to achieve the degree of economic freedom the US enjoys.

    You are right: it’s not really about markets. The true question is not whether we should be Capitalists or Marxists; it’s whether we will ask the government or the market to solve the next problem. Today we want to reform healthcare and only those that want more government intervention are being heard. Who is proposing more power to the consumer? I want to control my healthcare decisions and demand to be allowed to bring my Catholic morality into those decisions. Sadly, nobody is representing me.

    Your quest is very powerful (congratulations). I started my own journey as an enlightened Socialist who believed that a benevolent government could/should make society better; the more I see government in action the less I like its decisions. Is there anything worse than the Post Office or the DMV? Yes, welfare: in the name of helping the poor welfare has destroyed the inner city family. Wal-Mart has done more for the poor (by bringing down prices and employing millions of people) than any government program.

    A final note on your understanding of the Gospel commandment to love the poor I comment only because I have myself struggled with the other side of the coin: the countless Bible stories about the difficulties of being rich and getting to heaven. I do not recall a passage that recommends that our works of mercy should be done through the government. I prefer to think that if I am ever rewarded by His Grace and my cup runs over I have the obligation to love the poor. In the meantime I ask for the strength and wisdom to give like the widow.

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