« Inequality, non-linearities & growth | Main | Is democratic Keynesianism possible? »

January 31, 2015


Peter K.

The social democratic option works we know. There were rising living standards in the post-war years however this gave way in the Reagan-Thatcher-Mitterand years (and in reality before that in smaller ways).

Now I think of Piketty and inequality and the political economic cycle where inequality was high in the 1920s and you get mismanagement by elite which results in mass unemployment, depression and war. Then you get the Great Reset and Great Compression after that where inequality is reduced and growth is high. Now we're back to square one where Kalecki holds. But things are still in play and China is bring a lot of its people out of poverty.

Is social democracy robust enough not to always give way to the Piketty political economic cycle of increased inequality where r > g?


«There were rising living standards in the post-war years however this gave way in the Reagan-Thatcher-Mitterand years (and in reality before that in smaller ways).»

There were some huge factors that worked towards the "Great Compression":

* Very cheap oil, generating a colossal labour surplus, which made it easier for the elites to share it with the "loser" classes.

* The existence of hot and cold wars against fascism first and soviet communism later, which motivated the elites to share some prosperity with the "loser" classes to motivate the home front and thus reduce the rise of a fifth column.

Both of the above factors resulted in a significant rise in income for most of the working class, who then became petty rentier property speculators creating a new brand of "Sierra man" politics, that is the largely unprecedented situation where a large number of voters think that they are "insiders" (aka "incumbents" aka "upstairs").

Also in many countries like the UK the rise of the working class into the petty rentier class in specific areas like the UK South East was accompanied by the precipitous fall of much of the middle class and the entire working class into pauperization in other specific areas like the UK North.

This meant that in first-past-the-post systems those areas were effectively spontaneously gerrymandered into really safe seats for one party of another; plus there was a large degree of self gerrymandering by the newly enriched petty rentier middle classes as they moved in massive numbers into homogeneous suburban enclaves, leaving behind also more homogeneous poor areas.

This has made marginal seats rarer and the swing voters in them far more important and thus raised considerably the temptation to buy their votes with massive handouts; in particular as both parties realized that the functional distribution of income is largely determined by government policy, and thus buying very generously the votes of swing voters in marginal seats can result in them winning power and thus delivering large upgrades to the living standards of their core constituencies.

Note: while it is swing voters in marginal constituencies that matter as to winning *national* elections, it is the core constituencies *within each party* that largely elect each party's leadership. So each party leader needs to win both internal and national elections, even if the voters of the core constituencies are irrelevant to winning national elections as they are in safe seats.

Jacques René Giguère

"Leftists believe that capitalism overproduce pollution." Oh where are thou my Pigou when I try to explain that taxes on pollution were once the epitome of capitalist conservatism...

Luis Enrique

At other moments you point out that it would be macro efficient to leave some people unemployed rather than harras them into jobs. Add on frictional unemployment and some social democratic systems have come pretty close to full employment. Although personally I don't see why not add job guarantee to that.


«taxes on pollution were once the epitome of capitalist conservatism»

Hahahahahahahaha! That's so funny. perhaps that was when "conservativism" meant protecting the hunting grounds of large landowners from pollution by mine and iron works.

But "capitalist conservativism" really means protecting the interests of owners of property, and that includes protecting their profiting from every kind of externality they can enjoy, or spending a lot of government money to create externalities that property owners can profit from. "Capitalist conservativism is all about privatizing profits to property owners and socializing their losses to workers.

Thus Pigouvian taxes have been transformed as the last weak call for "leftie" fairness.


Something fundamental here - is the 'long term' the same as a succession of 'short terms'. Does superposition apply to economic policies - do the effects of policies add together even approximately linearly. Is the difficulty a property of economics qua economics or a property of those who administer and implement economics.

The NHS has been running for 60+ years but we seem to go through the same crises and errors time after time. Similarly the education of the young has been going for thousands of years but in the UK at least we cannot settle on a satisfactory method. Can the administration really be that hard?

Deviation From The Mean

I reject out of hand the idea that Marxists are only interested in the Macro efficiency and not the Micro efficiency. Capitalists employ a whole army of people to maintain their class dominance etc. The market does not translate into reflecting peoples wants, endless amounts of speculative production are in built into the logic of the system. There are a host of unproductive jobs taken from the subjective point of view of the working class etc.

The critique of capitalism is an all encompassing critique. But it requires a subjective agency to change things.

So we can claim that capitalism is this that or the other but we have to persuade people of these things.

Peter Dorman

I think there is immense micro inefficiency in capitalism, but I'm not at all a representative leftwing or socialist thinker.

The two biggest sources of inefficiency are hierarchy in the service of capitalist control of production and the absence of a rational mechanism for coping with multiple equilibria and hysteresis.

The first is about the exercise of control on the part of those who have supplied funding to enterprises over all other contributors. If economists would read more management literature they might have a greater appreciation for this.

The second is that markets do well in bringing society closer to an optimum within the historically given "zone of attraction" (between saddle points), but they don't give us the tools to redirect the future away from the past by moving to a different zone.

It should be obvious the neither shortcoming lends itself to solution by detailed central planning. The first requires a greater shift toward stakeholder legal/financial forms of enterprise, the second toward strategic public interventions targeting the particular interaction effects that generate the multiple equilibrium (eg skill formation/industrial structure or the various geographical interactions). That second task is best understood in the framework of adaptive management of complex evolving systems.

A very short statement of a very long argument.

It should be added that a primary source of inefficiency in capitalism that makes it difficult to do the things that ought to be done at micro and macro levels is the excessive power of the capitalist class (those who own and/or control the bulk of society's financial wealth). There's a tweak for just about any other flaw, but this one is harder to get around.

Luis Enrique

"micro inefficiency in capitalism"

as opposed to what? The question is, which system has the least micro inefficiency, not whether we are able to point at things we consider to be inefficient about capitalism

Deviation From The Mean

"The question is, which system has the least micro inefficiency, not whether we are able to point at things we consider to be inefficient about capitalism"

We cannot make that judgement unless we point to the things we consider to be inefficient about capitalism, as it is, up to a point, a subjective evaluation. And it is one question among others. For example we may conclude that a socialist system is more micro efficient but that capitalism creates more wealth or vice versa etc etc.

For socialists the big critique of capitalism can be summarised as follows:

It is a system built on exploitation.

It is an anarchic system that cannot control the massive productive forces it brings forth.

The comments to this entry are closed.

blogs I like

Blog powered by Typepad