Stumbling and Mumbling

"A great deal of ruin"

“There is a great deal of ruin in a nation” wrote Adam Smith in 1777, suggesting (possibly) that countries can cope with poor policies. These are wise words, in many contexts.

Take for example, the NAO’s claim that there is “likely to be considerable amounts of fraud and error” in the government’s furlough scheme and the Resolution Foundation’s estimate that the government has paid around £1.3bn to self-employed workers who in fact suffered no loss of income. No doubt this is sub-optimal, an element of ruin. But this is not in itself a decisive objection to the schemes. It was essential that people hit by the lockdown got quick support. And as the old saying goes: “Good, fast, cheap: choose two.” In choosing “fast”, the government sacrificed a little “cheap”. It incurred some ruin. But this, I think, was a reasonable choice*.

 To take another example, Tory MP Ben Bradley has claimed that free school meals vouchers are “effectively” a handout to a crack den and brothel. Even if this is true – and the evidence for it is less than overwhelming – so what? It is impossible, except at colossal administrative cost, to target help to the deserving poor and only the deserving poor. The question is what ruin do we want to incur – that of some help going to crack dealers, or that of some children going hungry? Many of us would prefer to err on the side of the former – and in an imperfect world we must err.

Economic policy entails trade-offs – a fact which holds even if there is no binding constraint (yet) upon government borrowing. For example, a small welfare state might incentivize people to find work, but it also imposes greater cyclical risk upon workers and indeed businesses. Or a vibrant market economy entails economic and social instability. We cannot avoid some element of ruin. Sometimes, we must choose which type of ruin to incur.

There’s another form of ruin – ignorance. Michael Story and Stuart Ritchie describe how experts were initially wrong about Covid-19, for example in resisting the use of masks and calls for an early lockdown. Again, though, this form of ruin is inevitable: the world is complex and unknowable. We must choose which errors to make, what ruin to incur. Where we might justifiably blame the experts is not so much for being wrong but for exaggerating their knowledge.

And where knowledge is unobtainable – as it often is about the future - optimization is futile. We can only satisfice – which entails (with hindsight) waste, or ruin.

All this applies to policy-making. But it is not just states that contain a great deal of ruin. So too does the private sector – as anybody who has worked in it will know. Nick Bloom and John Van Reenen have shown (pdf) that in all countries there is “a long tail of extremely badly managed firms.” Competition does not eliminate inefficiency. Ruin remains.

This is not just because there are all sorts of obstacles to strong effective competition such as excess regulation or rent-seeking. Even where competition is strong and incentives to succeed are sharp, people fall short of optimality. We know this from the economics of sport. NFL teams have punted too much (pdf) on fourth downs; ice hockey teams don’t replace their goalminders often enough when they are trailing; and golfers don’t put as much focus (pdf) into birdie putts as par ones.

Markets are a great technology. But they are not the devices for achieving optimizing that simple-minded Econ101 tells us.

We must not, however, think that ruin is necessarily a bad thing. It’s not. There’s a trade-off between optimization and resiliency. Redundancy (ruin) can give us the flexibility to respond to crises**. Had the NHS had more beds and doctors before Covid struck, it would have coped better – but at the expense of “wasting tax-payers’ money” in normal times. As João Ferreira do Amaral wrote (pdf):

There is I think a good case for keeping a system flexible to cope with surprise even if this mean more uncertainty and less efficiency.

There is, though, another form of ruin, of imperfection – the trivial fact that there are so many idiots in the world. It’s tempting to try to engage with these. But often wrong. As Tim Harford has shown, myth-busting often doesn’t work. Mill was wrong: wrong opinions do not “gradually yield to fact and argument.” In many cases – where the opinions are those of obscure cranks – we should just ignore them. Haters are gonna hate and twats are gonna twat.

Not only is it better for the level of debate if we recognise that there is a great deal of ruin in a nation, but it’s probably also better for our mental health as well.

* In fact, it also sacrificed some good. The RF points out that lots of hard-hit self-employed got nothing. For me, this is a less forgivable error.

** The converse is also true: in 2008 banks went bust because of their "optimized" portfolios. 

The economic base of culture wars

The long boom of the post-war period gave us trades union militancy, “women’s lib”, the Black Panthers, the gay rights movement and the legalization of abortion and homosexuality. Our recent stagnation has given us Trump and Brexit – and of course the economic crisis of the 1930s yielded much worse.

Which is another way of saying what Ben Friedman wrote in The Moral Consequences of Economic Growth – that economic growth gives us liberalism and demands for equality whilst stagnation and regress give us political reaction.

This, I fear, helps explain something that is otherwise odd – that the Tory party has pretty much renounced economics. As Stian Westlake has said, “the Tories, both in government and more generally, seem to have stopped talking and thinking about economics.” Evidence for this is of course abundant. We see it in reports that Sunak is worried about government debt despite the fact that the Bank of England is buying it and gilt yields are negative; in the failure to address the fact that job creation has plummeted; in Johnson’s “fuck business” remark; and in the reckless pursuit of Brexit.

The traditional party of capital no longer has much interest in capitalism – and indeed, as David Edgerton has said, has lost its links with much of capital.

This, however, is a feature not a bug. If economic stagnation promotes populism and reaction – and history shows that it does – then a lack of growth actually serves Tory interests, because it will further bolster social conservatism. In politics, failure can sometimes work better than success. There can be positive feedback loops.

For this to work, though, requires that the culture war shifts onto fronts beyond Brexit. Hence concocted rows about the last night of the proms or the teaching of critical race theory.

This is not to say that the Tories are smart enough to be deliberately pursuing this strategy. Politics is sometimes like natural selection in biology, where the environment selects in favour of some random unintended mutations. The Tories’ lack of interest in economics is one such selected-for mutation.

Nor is it to deny that some sections of capital do benefit from stagnation. Those with close connections to government profit from outsourcing and from political favours. And the low interest rates that are the product of stagnation enrich rentiers (pdf). The more progressive sections of capital, however suffer – such as exporters who’ll be clobbered by red tape or innovators who are hindered by weak demand and an unavailability of finance (cheap money needn't mean plentiful credit). Stagnation favours those who’d otherwise suffer from creative destruction and hurts those who’d otherwise gain.

It is silly to pretend that Brexit is the result of a few disaster capitalists seeking to profit from hardship. It is the case, however, that such hardship can benefit social conservatives, spivs and rentiers.

All this is a way of saying that the left must be in favour of economic growth – albeit as green as possible. The great thing about growth isn’t that it makes us richer so much as that it promotes tolerance and egalitarianism. (Using “economicky words” also promotes an image of serious technocracy, and there might be a gap in the political marketplace for this.)

This is not a left-right matter. Yes, the left might rightly point to the need for expansionary fiscal policy, a national investment bank, more worker ownership or community wealth-building. But the right might say it’s a case for Labour being pro-business. And they’d have a point. New Labour made the mistake of equating being pro-business with being pro-boss. But this needn’t be the case. Being pro-business entails helping small business get access to finance, and shifting the tax base from profits to land.

All this, though, means something else. And it’s something I’m not comfortable saying. It means the left must be very wary of getting involved in culture wars. Of course, it is morally right to assert the case for equal rights for minorities and women (BLM and MeToo are not just leftist causes but libertarian ones) and we must resist the historic tendency of many white male leftists to prioritise economic issues over others. But such fights are ones the Tories want, so the left must pick them carefully. We must heed the advice of Sun Tzu. “He will win who knows when to fight and when not to fight” he said. “Do not swallow bait offered by the enemy.” Sometimes, there’s a distinction between what is morally right and what is tactically right.

Stealing "libertarianism"

What exactly is libertarianism? I ask because of something Janash Ganesh says about Trump:

His populism tends more to the libertarian than the repressive. The mask-spurning, the cavalier gatherings, the call to not let the virus “dominate”: it is personal freedom to which the president has shown a heedless attachment.

Now, the notion that Trump is a libertarian will come as news to the families of George Floyd or Breonna Taylor or the 829 other people killed by the American police this year. It'll also come as news to the tens of thousands of people imprisoned for trivial offences. A true libertarian would surely be more troubled by these horrific denials of freedom than they would by wearing masks.

The misuse of the word "libertarian" is however not confined to Janan's description of Trump. We see a similar thing in the UK. Opponents of enforced mask-wearing are described as libertarians. And yet one of the most prominent of these - Tory MP Desmond Swayne for example - has voted against the legalization of cannabis and has failed to oppose the bill to permit the security services to break the law. What sort of libertarian is so angry about enforced mask-wearing, but so relaxed about other, greater, infringements of liberty?

The obverse of this is also a puzzle. It is mostly leftists who oppose the Covert Human Intelligence Sources (Criminal Conduct) Bill, favour cannabis legalization, are most vocal in support of Black Lives Matter: "defund the police" is a purely libertarian slogan. By any logic, it is these who should be called libertarians, not the likes of Trump or Swayne.

What's going on?

We should, I think, regard Trump and Swayne not as libertarians but as something different. What they are doing is not asserting liberty so much as denying the existence of collective action problems. Sometimes, what each individual wants to do is bad for all individuals. Not wearing masks is one such example. We'd all rather not wear them, but without them the risk of catching and spreading Covid is greater. Wearing masks thus imposes mild discomfort upon us for a greater benefit. Maskphobics such as Trump and Swayne reject this. They think their desires should over-ride others' benefit. This is not so much libertarianism as solipsistic narcissism.

Of course, this is a bastardized form of libertarianism. Better libertarians and liberals - such as Hayek - have argued for liberty and free markets precisely because they promote the collective good.

What it is instead is conservatism. One strand of Tory thinking in recent years has been the denial of collective action problems. Supporters of fiscal austerity, for example, failed to see that if enough people try to save, the results are self-defeating. Policies to make work pay might incentivize any individual to move from welfare to work, but if there aren't enough jobs these individual desires for work cannot all be fulfilled. Hostility to masks is just the latest manifestation of this denial.

But why would anybody call this "libertarianism"? It's because rightists have stolen the word. What they mean by freedom is the freedom for rich white men to oppress and exploit others. Which is why they hate wearing masks. It denies them the privilege of acting how they damn well please to the detriment of others, and so undermines their place at the top of hierarchies. This is why Cold Warriors opposed the USSR whilst supporting Pinochet, apartheid and the criminalization of homosexuality. As Corey Robin wrote:

When the libertarian looks out upon society, he does not see isolated individuals; he sees private, often hierarchical, groups, where a father governs his family and an owner his employees.

Whether the word "libertarian" can be reclaimed for more proper purposes is, however, not clear.

On feudal exploitation

“We have abolished capitalism in Poland. Now we must abolish feudalism.” So said Michal Kalecki in the 60s. I suspect that western economies today face a similar task, as feudalism is still rife.

By this, I don’t mean merely that we have the high inequality and low social mobility that characterised feudalism, nor that immigration controls are a form of feudalism in that they ensure that one’s life chances are determined at birth.

Instead, I’m thinking of modes of exploitation.

We must distinguish between capitalist exploitation as Marx understood it and feudal exploitation. The former is an economic phenomenon, arising from capital’s greater economic power over labour. The labour market, thought Marx, was “a very Eden of the innate rights of man. There alone rule Freedom, Equality, Property and Bentham.” Such apparent liberal equality facilitated and disguised exploitation and oppression.

Feudal exploitation, by contrast, is more obvious. Markets play no role in it. Instead, as Ellen Meiksins Wood wrote:

When surplus labour has been appropriated by exploiters, it has been done by what Marx called “extra-economic” means- that is, by means of direct coercion, exercised by landlords or states employing their superior force, their privileged access to military, political and judicial power. (The Origin of Capitalism, p95-96)

Exploitation of this form is still widespread – perhaps increasingly so.

Why, for example, was Dido Harding put in charge of Test and Trace? It’s not because market competition showed her to be the most competent, but because she has achieved the modern equivalent of winning the favour of the king. She’s exploiting political not economic power. As indeed, might be many other outsourcers.

Another form of feudal exploitation is simply buying political favour, as when property developers gave money to the Tory party just before Robert Jenrick changed planning regulations to their advantage.

Yet another expression of privileged access to political and judicial power is what Robert Kuttner and Katherine Stone call “a one-way seizure of private power and law by elites”. As Martin Wolf says:

The activities of companies, as lobbyists, funders of research and donors, play a decisive role in creating the rules of the political game…Corporations are not players of the game, playing according to rules set by others. They play the game according to rules they largely set themselves.

Pharmaceutical companies, for example, have in effect legalized opiate trading; banks have ensured they operate on low capital requirements, thus profiting themselves at the expense of greater risk for the rest of us. And firms generally use restrictive patent law to increase their profits.

And then there has been the use of the state to directly strengthen capital to the detriment of labour, by weakening trades unions or pursuing austerity policies. As Lance Taylor says of wage repression, “something other than the market is at work here – like power relations.”

Indeed, we can think of neoliberalism not as a simple assertion of free markets but rather as the use of the state to increase the power of bosses.

Marx famously said that “the executive of the modern state is nothing but a committee for managing the common affairs of the whole bourgeoisie.” He failed to add that this management would often be done not in a way unique to liberal democratic capitalism but in a manner which pre-capitalist monarchs might recognise.

On top of all this, there are hybrid forms of exploitation, wherein power derived from the market is exercised in quasi-political ways – as we see in the rise of guard labour, in the use of technologies such as  CCTV to control labour, or in surveillance capitalism.

But there’s something else. Another distinction between capitalist and feudal exploitation is that the former drives up productivity as capitals compete to intensify their use of labour whereas the latter occurs without much change in technical efficiency.

The stagnant labour productivity we’ve seen in the last decade is, in this sense, a feature of feudal exploitation, not capitalist.

The relation between modern feudalism and stagnation is perhaps both cause and effect. On the one hand, incumbents’ use of political power has suppressed competition and dynamism – a process described by Brink Lindsey and Steven Teles in The Captured Economy and Thomas Philippon in The Great Reversal. Also, feudal-type power relations in the workplace demotivate workers and detract from productivity. On the other hand, though, feudal exploitation can be the result of stagnation. If it’s so hard to raise productivity, why bother? Why not simply seek wealth extraction rather than wealth creation?

All this, however, brings us to a problem. In the UK (and indeed in many western economies other than the US) wage and profit shares of GDP haven’t changed much for decades. Before Q2’s Covid-induced rise, labour’s share was much the same as it was in the early 80s. And the profit share was the same as in the early 60s*. This means that if – as is likely - feudal exploitation has increased since the 1970s, it is at the expense of capitalist exploitation.

Which leads us to some nice paradoxes. From this point of view post-war social democratic economies with their institutions of countervailing power were more capitalist than are today’s economies, insofar as they delivered capitalist rather than feudal exploitation. And Thatcher was (in effect if not in intention) not so much a capitalist revolutionary as a feudalist counter-revolutionary. And it means that it is perhaps social democrats who want to restrain corporate political power who are more capitalist than are those who defend our current inequalities.

* The numbers in my chart don’t sum to 100 as I’ve excluded other incomes such as those of the self-employed, rents and taxes.