Conservative arguments for radical ideas

In my previous post, I used a rhetorical device which I think leftists should copy. This is that we should use conventional, orthodox economics to reach radical conclusions.

The point here is that we don’t persuade people by telling them that their worldview is wrong and by demanding that they change the ideas of a lifetime. We are more likely to succeed by showing them that their ideas are consistent with things they might not have considered.

Here are some examples of what I mean.

 - Fiscal policy. We don’t need MMT to argue for a significant fiscal loosening. Simple maths tells us that we can run big deficits and still see government debt fall as a share of GDP when real interest rates are negative, as they now are. And as Simon has said for years, the idea that we should use fiscal expansion when nominal interest rates are near zero is orthodox economics.

 - The efficient market hypothesis. You don’t need heterodox economics to show that this is wrong. Instead, you can point out that the first test of the EMH’s corollary, the CAPM, found it to be false. That was conducted by those high priests of orthodoxy, Myron Scholes, Fischer Black and Michael Jensen. Their finding that defensive stocks do better than they should has been corroborated many times. And the other great challenge to the EMH – the out-performance of momentum (pdf) stocks – was first noted in that most conventional of publications, the Journal of Finance.

 - Worker ownership. This sounds like a radical idea. But it’s not – and not just because law and accountancy practices are routinely owned by their workers. One inspiration for it comes from Hayek’s important point, that central planning is impossible because economic knowledge is fragmentary and dispersed. Worker control, more than hierarchy, can mobilize such knowledge. Hayek’s key insight – “you don’t know what you are doing” – is a challenge to top-down managers.

 - Rents. The idea that landlords’ high rents are killing high streets and choking off economic growth might seem radical. But it’s not. It was one of the many brilliant insights of David Ricardo, the man revered by orthodox economists for discovering, among other things, the theory of comparative advantage.

 - The falling rate of profit. This idea (which is true) is of course associated with Marx, because it predicts that capitalism will become increasingly stagnant and crisis-prone. But again, it’s not uniquely Marxian. The idea that diminishing returns would lead to a stationary state was, again, Ricardo’s.

What I’m suggesting here is, of course, nothing new: I pray each night that I will never have an original idea. All these are versions of an immanent critique – showing that existing conventional ideas aren’t necessarily as internally consistent as one might think, and might instead have radical implications.

This, I suspect was what Marx was doing when he argued that whilst the labour market looked like “a very Eden of the innate rights of man” things change when we go behind the factory door:

The can perceive a change in the physiognomy of our dramatis personae. He, who before was the money-owner, now strides in front as capitalist; the possessor of labour-power follows as his labourer. The one with an air of importance, smirking, intent on business; the other, timid and holding back, like one who is bringing his own hide to market and has nothing to expect but — a hiding.

Enlightenment ideas such as “Freedom, Equality, Property and Bentham”, Marx showed,  were not as compatible with capitalism as their advocates thought – something which remains true today.

Now, you might object that we need to do more than show merely that radical ideas are in fact quite compatible with conventional economics, and that we need to challenge it more. I agree: in particular, mainstream economics does a poor job of explaining inequality and exploitation.

However, if there is one thing we have learned in recent years, surely, it is that telling the truth does not always win arguments.

Comments

[Davy Jones]

Absolutely. Because when campaigning during the election, I had people throwing the capital asset pricing model in my face as a main reason why they weren't voting Labour.

OK, I'm being a teeensy bit facetious, but, Chris, do you really think that the above points (some of which are well made) were influential on why people didn't vote Labour? If that's the calibre of debate on the doorstep round your neck of the woods, I'm extremely jealous.

[Sogsay]

DavyJones - I dont think this is the point being made here though? Years ago I had lecturer who said (in Glaswegian) "if you want people to change - you have to start from where they are - doesnt work the other way round" - it was simply and tersley put truth that has been corroborated many times over 15 years as probation officer. Liberals often make the mistake of thinking everyone would be like them if only they could see the way, today's Right better understand and ruthlessly exploit innate prejudice and resentments. Like it or not we are at present a (at least) right of centre population. We can wait for more favourable demographics or we can construct arguments which begin in peoples intuition but end in a radical policy. I thought labour manifesto on land ownership was a start in that direction.

[georgesdelatour]

Worker ownership. I’m fine with it in principle, but there are problems.

1). Imagine you’re setting up a new coffee shop in your town. You advertise for baristas. When people come to apply for the job, you offer them two choices: (1) an hourly wage, or (2) no wages, but a share of the profits - which means no money at all if the business fails. I suspect virtually everyone will choose (1), because they need a predictable income, and because they’re risk averse. Even if (2) means they’ll get to have a voice in decisions about what types of coffee you sell etc, they may not go for it, because that will mean them giving over even more time to the business after hours. The canniest may even realise that, at least for the first few months, the employees on a wage will probably be taking home more money than the business owner.

2). Sometimes the best way to grow a firm (or save a failing firm) is to radically transform what it does. I think people’s innate conservatism and risk aversion may make it harder to effect these radical transformations in a business structured like a Mondragon-style co-op. The second Steve Jobs period at Apple was characterised by a whole series of innovative products which didn’t initially seem like a natural fit for a computer company - iPods, iPhones etc. I just can’t imagine these products ever coming out - certainly not in the sleek, desirable form they did - if every Apple employee got to vote on them.

3) The idea that every worker employed on a product can have valuable ideas about that product probably applies best to smaller, localised firms. But at the level of giant operations involving massive global supply chains, I’m not sure it applies at all. If your factory in Shenzhen merely makes a component to be fitted inside another component to be fitted inside a final product you never actually see in your factory, how much wisdom will you actually have to impart?

[Robert S Mitchell]

If markets are not efficient, isn't inflation arbitrary because prices are noisy, as Fischer Black said in "Noise"? If prices are not provably efficient, why are central banks manipulating interest rates? Why not print money and index everything to neutralize arbitrary, noisy, psychological inflation?

[georgesdelatour]

The phrase “falling rate of profit” sounds like the proclamation of a Second Law of Thermodynamics for all profitability of all imaginable commercial activity. The inexorable heat-death-of-the-universe of all commerce is heading straight at us like the K-T asteroid. And, just as that asteroid doomed the dinosaurs, the heat-death of profit will doom capitalism.

But what I’m seeing is something far less apocalyptic. Basically, it’s hard to enter a mature market and make amazing profits in it. If I decide to become a pig farmer, it’ll be hard for me to achieve Apple or Alphabet level profits from it. Even if I come up with some marginal productivity improvements in pig farming, my rival pig farmers will quickly emulate my methods, forcing down my profits.

But if I create new products which effectively create new markets - as Apple and Alphabet did - then I can make some serious money.

In other words, the real problem isn’t declining profitability, it’s declining innovation.

[Diogenes]

Georges, don't expect a Marxist to have the slightest understanding of what you are saying. A philosophy stuck in the early 19th century, which has refused to evolve, cannot accept Alibaba or Amazon