Common-sense political economics

November 17, 2011

On the two-month anniversary of Occupy Wall Street, I am re-posting some older essays I have written that pertain to this movement. I strongly endorse the OWS policy of not taking any specific position. I think it makes sense to simply point out what I call confiscatory inequality. That is to say, that Marxists (and Levellers before them) were extreme in wanting to force equal distribution, but neoliberal free-marketeers are equally extreme in advocating deregulation and the consequent hyper-concentration of wealth into so few hands that it damages the economy as a whole, and the welfare of the vast majority of society.

Free-marketeers like to ignore what Adam Smith argued: that you need an effective regulatory government and an effective judiciary to maintain a market economy. If there were no government, there would be no currency, and thus no market. This is standard economic theory from Locke through Smith (1776), Ricardo (1811), and even Marshall (1890); this is the standard theory argued today by Amartya Sen (1999), Paul Krugman, and Robert Reich (2010). They want economic growth. They want top-earners to become rich; it is an effective incentive. What they do not want is to unbalance wealth-distribution to the point that it damages economic growth, as has happened since 2007. Is this “redistribution”? No; what is a fair wage? If an individual is ‘freely negotiating the contract to sell their labor services’ to Wal-Mart during a job interview, are they really free to negotiate higher or lower? Is Wal-Mart a ‘wage-taker’ in most markets? No, it is a geographic monopoly in many regions and therefore a wage-setter. So if Wal-Mart (and every other large corporation) can compel workers to receive less compensation for their labor, then those workers are being underpaid.

We don’t need redistribution. What 99% of us need is fair payment for our labor.

That does not mean equalization. That does not mean income for not working (only the rich get that through capital gains on investments). But it does mean being able to earn a livelihood for a family. It does mean that the prevailing wages and costs of living, in any region, need to be justly balanced. If people work hard, especially for others in jobs that customers value, they should be making a living wage. Any system that does not result in such a condition is morally bankrupt and unjust, regardless of whether it is legal. Since elites have been the primary authors of laws and regulations since at least Hammurabi and Asoka, we may reasonably assume that laws tend to be written to benefit them. Any correlation between legality on the one hand, and justice and morality on the other, is indirect at best.

The general consensus among Occupy Wall Street protesters is, increasingly, a general opposition to capitalism. Here I show my age and disagree: there are many forms of capitalism, from Scandinavia to Southeast Asia to brutal forms of mafija-capitalism in former-communist countries. When extremist free-marketeers declare that there is only one form of capitalism, and that it has to be deregulated, they are equally unrealistic. Whatever the label, I reiterate the litmus-test: inequality should be permitted so that workaholics can earn more and generate more wealth; but regular households must be able to earn a living.

And a few more policy recommendations:

  1. The right of private contract should be protected, but just as a corporation is a collective-bargainer, workers should have the same right of collective bargaining.
  2. The purpose of the corporation as an entity is to mitigate individual risk to make possible enterprises that benefit the society. If an enterprise does not benefit the society, its corporate charter should be annulled.
  3. Corporations are not people. They should have no protections as ‘citizens.’ Their members can act as citizens; if both the members and the entity as a whole are granted citizenship-rights, that is double-representation.
  4. Since unregulated markets tend towards monopoly, there is no such thing as a free market. It is too simplistic a term. If we want market competition, then markets must be regulated to prevent monopolism and anti-competitive cartels. If an activity needs to operate as a monopoly (the postal system, for example), then it should be a publicly regulated enterprise, even if it is partially or entirely privately owned.

None of this is rocket science. All of these ideas have been argued by economists before; indeed some of these arguments are more than two hundred years old. This might be considered a ‘mainline’ or ‘orthodox’ argument for a market-based political economy. What is radical, and dangerous, is the argument to remove regulation and destroy the wealth of this society. Deregulation of mortgage-lending and banking after 1999 led to the mortgage-crisis of 2007, and thus the financial panic of September 2008. Deregulation of Savings & Loans in the early 1980s led to the S&L crisis. Deregulation of investing in the 1920s led to the Depression. What amazes me is that any public figure can keep a straight face and propose that more deregulation could actually be helpful.


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