Economics: What might work, what should work, what has worked (command v. open market)

[The Anti-Targ]

8 minutes ago, The Marquis de Leech said:

I get the feeling that history will be kinder to Muldoon than it is to Lange. Which is not to defend what went on between 1975 and 1984, or its implementation, but some of the stuff feels ahead of its time.

Only unkind to Lange to the extent that he was pretty much beaten into submission by Prebble and Douglas. If Lange had had his way there would have been fewer asset sales and a gentler pace of economic reform, I think. Ironically The Muldoon govt will probably be most fondly remembered for it's nigh on socialist / interventionist big govt stuff (i.e. more lefty Labour-like things), and the '84-'90 Labour govt will be maligned for it's capitalist, deregulatory free-market policies. But the real destruction of the neo-liberal economic policies happened in the Bolger/Shipley years where they dialed Rogernomics up to 11 completely untempered by any sympathy or compassion for the working class, which was always there in the Lange govt even in the back of Douglas and Prebble's minds (until they lost their minds and went all ACT on everyone's asses). Which is how Rogernomics became Ruthanasia.

[OldGimletEye]

I think I'll put this way. I'm open to Marxist analysis of political economy.

But, I'm much less enthusiastic about standard Marxist solutions to problems.

[Gorn]

7 hours ago, Iskaral Putsch said:

History has proven several times that plucky individuals do not retain the opportunity to start business and receive capital.  There is no communist system yet that could avoid the venal avarice of human nature.  A system of patronage emerges and the bureaucrats become powerful and wealthy, jealously hoarding their privilege.  I don’t know why the hard left keeps assuming away human nature.  Venezuela has a system similar to Felice’s description and look how that turned out  

On the other hand, I share the widespread frustration with the past decade of tacit collusion by capital/corporations to depress wages to expand profits, which goes back even further in mercantilist countries like Germany, Japan and China under indirect govt policy like labor reforms or currency mgmt: they all depress household spending power to maximize employment.  There is enough fear that a few will lose their jobs that the majority accept lower real wages.

That needs to be addressed but turning to communism is like using a chainsaw to trim a hangnail. 

While true to some extent, there is also risk in going too far in the "humans are all greedy bastards" direction. Adam Smith was wrong to attribute all human behavior in an economic system to greed and selfishness. When you analyze real-life examples, you will find many other factors which influence people - genuine altruism, patriotism, pressure to conform to society, work ethic, religious beliefs, fear of legal punishment, etc. A good manager or politician can find ways to stimulate aspects of human nature other than greed.

I remember reading a good example of this - if people were truly governed merely by "venal avarice of human nature", the logical thing to do when using taxi in a large city would be to run away without paying the fare, because the risk of any punishment for this behavior is very small. The fact is that vast majority of people choose not to do this.

[OldGimletEye]

Just now, Gorn said:

While true to some extent, there is also risk in going too far in the "humans are all greedy bastards" direction. Adam Smith was wrong to attribute all human behavior in an economic system to greed and selfishness. When you analyze real-life examples, you will find many other factors which influence people - genuine altruism, patriotism, pressure to conform to society, work ethic, religious beliefs, fear of legal punishment, etc. A good manager or politician can find ways to stimulate aspects of human nature other than greed.

Let me just add.

The Adam Smith “invisible hand” argument finds it’s modern expression the Arrow-Debreu (or Walsrasian) model of competitive equilibrium.

And what I have to say about it, is basically,it’s a piece of trash.

It as at the heart of Robert Lucas RBC type models which basically says markets always clear and people on average have correct price expectations. Nobody in their right mind ought to believe this. And it should have been heavily discredited during Volcker’s tenure at the FED.

But yet, it still hung around. And that’s why you had people like Casey Mulligan writing nonsense in the op ed pieces in the Wall Street Journal for years, trying to blame the ACA, unemployment insurance, food stamps, or whatever for the length of the GFC. Because in the RBC set up Mulligan and his fellow travelers work in, a high state of persistent unemployment isnt’ possible. And there is really nothing for the government to do.

[SeanF]

1 hour ago, Gorn said:

While true to some extent, there is also risk in going too far in the "humans are all greedy bastards" direction. Adam Smith was wrong to attribute all human behavior in an economic system to greed and selfishness. When you analyze real-life examples, you will find many other factors which influence people - genuine altruism, patriotism, pressure to conform to society, work ethic, religious beliefs, fear of legal punishment, etc. A good manager or politician can find ways to stimulate aspects of human nature other than greed.

I remember reading a good example of this - if people were truly governed merely by "venal avarice of human nature", the logical thing to do when using taxi in a large city would be to run away without paying the fare, because the risk of any punishment for this behavior is very small. The fact is that vast majority of people choose not to do this.

In fairness, I don't think Adam Smith did believe that greed and self-interest were, or ought to be, the only motivators of human beings.  

[SeanF]

15 hours ago, maarsen said:

Just like in 2008?

Back in the 70s a Canadian politician, David Lewis, had  phrase that should be in the lexicon. 'Corporate welfare bums'.

In the UK at least, shareholders in banks like Northern Rock and HBOS had the value of their shareholdings wiped out.

[SeanF]

On ‎7‎/‎15‎/‎2018 at 6:00 AM, OldGimletEye said:

I know.

But, still don't think you've come up with a compelling set of institutions that would ensure this capital would be distributed efficiently.

I'm not exactly opposed to the idea, but this is something people on the left have to think deeply and hard about, if it's not to be screwed up and create the worst of both worlds, which is poor growth and deep inequality. As others have rightly pointed out, the government taking over all control of capital isn't a panacea for reducing inequality. Instead of capitalist trying to grab up all the good shit for themselves, you end up heaving a bureaucratic elite (or their friends) grabbing up all the good shit for themselves. If your not extremely careful, you end up creating a situation where you can't tell the pigs from the men.

It seems to me to be a solution in search of a problem.  The social market economy works a good deal better than the various alternatives that have been tried.

[Ser Scot A Ellison]

2 hours ago, OldGimletEye said:

I think I'll put this way. I'm open to Marxist analysis of political economy.

But, I'm much less enthusiastic about standard Marxist solutions to problems.

Exactly, Marxist criticism of capitalism is extremely cogent and direct.  Marxist solutions to the problems it points out are much less so.

[The Marquis de Leech]

1 hour ago, Scott de Montevideo! said:

Exactly, Marxist criticism of capitalism is extremely cogent and direct.  Marxist solutions to the problems it points out are much less so.

That's because Marx himself was a descriptive philosopher, not a prescriptive one. 

[Ser Scot A Ellison]

2 minutes ago, The Marquis de Leech said:

That's because Marx himself was a descriptive philosopher, not a prescriptive one. 

I think the same is true of Adam Smith.  He wasn’t advocating capitalism.  He was, largely, describing what it is.

[The Marquis de Leech]

7 hours ago, The Anti-Targ said:

Only unkind to Lange to the extent that he was pretty much beaten into submission by Prebble and Douglas. If Lange had had his way there would have been fewer asset sales and a gentler pace of economic reform, I think. Ironically The Muldoon govt will probably be most fondly remembered for it's nigh on socialist / interventionist big govt stuff (i.e. more lefty Labour-like things), and the '84-'90 Labour govt will be maligned for it's capitalist, deregulatory free-market policies. But the real destruction of the neo-liberal economic policies happened in the Bolger/Shipley years where they dialed Rogernomics up to 11 completely untempered by any sympathy or compassion for the working class, which was always there in the Lange govt even in the back of Douglas and Prebble's minds (until they lost their minds and went all ACT on everyone's asses). Which is how Rogernomics became Ruthanasia.

Mostly agreed. People forget that the Fourth Labour Government re-introduced compulsory unionism, increased the minimum wage, and dramatically increased social welfare spending, even while it was laying people off.

As for the 1990s... Bolger was in the same boat as Lange. He wasn't a fundie nut. In fact, he sacked Richardson when he could, basically ending the revolution in 1993. The thing to remember about old-school Nats is that they actually hated privatisation as much as the Left did - their issue was the unions, not state ownership.

We can thank Winston Peters in 1996 for getting rid of CHEs (remember them?).

[The Marquis de Leech]

Having met Roger Douglas a couple of times (yes, really), the thing to remember about him is that he was completely sincere. He genuinely believed (and still does) that he was helping people. He's just batshit crazy.

Prebble on the other hand was (and is) an ideological thug.

[Ser Scot A Ellison]

1 hour ago, The Marquis de Leech said:

Having met Roger Douglas a couple of times (yes, really), the thing to remember about him is that he was completely sincere. He genuinely believed (and still does) that he was helping people. He's just batshit crazy.

Prebble on the other hand was (and is) an ideological thug.

What did he do?

[The Marquis de Leech]

Just now, Scott de Montevideo! said:

What did he do?

Douglas or Prebble?

[Ser Scot A Ellison]

Just now, The Marquis de Leech said:

Douglas or Prebble?

Douglas 

[The Marquis de Leech]

Just now, Scott de Montevideo! said:

Douglas 

Minister of Broadcasting in the 1972-1975 Labour Government. He gave us a second television channel.

More seriously, he was Minister of Finance 1984-1988 in the 1984-1990 Labour Government. He was responsible for massive deregulation, tax cuts, the floating of the dollar, the ending of subsidies, and the restructuring of the economy in a more market-based direction. Think Thatcherism, but under Labour. 

Contrary to folk memory, Douglas did not play a significant role in the major privatisations of the era - that was mostly after the Prime Minister sacked him in December 1988. Nor did he cut social welfare.

[The Marquis de Leech]

Douglas was working on a flat tax, but Lange killed that off via telling the media directly that the Government was having a cup of tea, and a break from further reforms. Douglas was not amused.

[Iskaral Pust]

9 hours ago, Gorn said:

While true to some extent, there is also risk in going too far in the "humans are all greedy bastards" direction. Adam Smith was wrong to attribute all human behavior in an economic system to greed and selfishness. When you analyze real-life examples, you will find many other factors which influence people - genuine altruism, patriotism, pressure to conform to society, work ethic, religious beliefs, fear of legal punishment, etc. A good manager or politician can find ways to stimulate aspects of human nature other than greed.

To be clear, I was not citing avarice as support for the invisible hand.  I was using that as an unfortunate reason why any state-controlled economy will devolve into patronage and corruption.  Once individuals are given power over capital/wealth with no competition or accountability to keep them honest (and competition is the one that really matters), they have historically always fallen prey to selfish exploitation of their power.  Human nature cannot resist.

I keep mentioning Venezuala or Cuba, but look at any of the many Peronist governments in the last half century, or military coups, or look at South Africa or Zimbabwe or most of Africa.  They were all populist socialists who nationalized capital and key industries on behalf of "the people" -- throwing aside the evil imperialists/capitalists --  while allowing the proletariat to retain low level capitalist behavior like wages, small business, consumer markets, etc.  this is pretty much exactly what Felice has proposed.  And all of them were crippled and looted by patronage and corruption.  All of them.  You don't need to go to full blown communism to destroy an economy and plunge a society into chaos.

I get frustrated that most people do not realize just how fragile and unusual are the social-political-economic structures of the Western liberal democracies.  The majority of countries are not able to achieve or sustain this balance of strong institutions, rule of law and democratic participation, even though they can see exactly how it can be done and are desirous of the situation.  Even knowing what to do and wanting to do it, most countries cannot actually do it.  Advocating that we voluntarily depart from this most successful model and move to one of the most failed models just seems like madness.

[felice]

2 hours ago, Iskaral Pust said:

Once individuals are given power over capital/wealth with no competition or accountability to keep them honest (and competition is the one that really matters), they have historically always fallen prey to selfish exploitation of their power.

How is that worse than what we've got now, where the private owners of wealth don't event need to pretend to care about anything other than their own interests?

I'm suggesting putting a large number of accountable public servants in control of capital, and to the extent competition really is necessary, we can require them to compete with each other. And I don't think anyone has commented on the subsidised crowdfunding model, where the decisions are entirely up to the general public and no individual has significant power over allocation.

 

[Iskaral Pust]

33 minutes ago, felice said:

How is that worse than what we've got now, where the private owners of wealth don't event need to pretend to care about anything other than their own interests?

I'm suggesting putting a large number of accountable public servants in control of capital, and to the extent competition really is necessary, we can require them to compete with each other. And I don't think anyone has commented on the subsidised crowdfunding model, where the decisions are entirely up to the general public and no individual has significant power over allocation.

 

Because today we have many owners of wealth, and many more can source that wealth (entrepreneurs, start-ups, etc) so the worst, most wasteful ideas will be competed away and the good ideas will see new competition enter to improve the idea, add price competition or just another choice.

Public servants won't be accountable.  The voting public doesn't have the expertise, patience or time horizon to evaluate their performance.  Any competition they enter will be to secure persistent power, e.g. pandering to the base, pork barrel spending in their constituency, supporting the party dogma, etc, rather than improving the investment of capital. 

I'm confident in saying this because it has been proven over a very long time period over a wide variety of regions, cultures and levels of government.  This isn't a new idea, it has been tried many times.  It keeps failing for the same reason.