Review: Capital in the Twenty-First Century

Capital in the Twenty-First Century by Thomas Piketty

My rating: 4 of 5 stars

In any case, truly democratic debate cannot proceed without reliable statistics.

For such a hefty book, so full of charts and case studies, the contents of Capital in the Twenty-First Century can be summarized with surprising brevity. Here it goes:

For as long as we have reliable records, market economies have produced huge disparities in income and wealth. The simple reason for this is that private wealth has consistently grown several times faster than the economy; furthermore, the bigger your fortune, the faster it grows. As a result, in the 18th and 19th centuries, inequality was high and consistently grew: most of the population owned nothing or close to nothing, and a small propertied class accumulated vast generational wealth. This trend was only reversed by the cataclysms of the 20th century—the World Wars and Great Depression—as well as the resultant government policies, such as social security and progressive taxes. But all signs indicate that the general pattern is re-emerging, and we are reverting to levels of inequality not seen since the Belle Epoque.

This is a relatively simple story, but Piketty goes to great lengths to prove it. Indeed, the value of this book consists in its wealth of data rather than any seismic theoretical insights. Piketty is an artist on graph paper; and with a few simple dots and lines he cuts to the heart of the matter. The large time scales help us to see things invisible in the present moment. For example, while some economists have thought that the ratio of income going to labor and capital was quite stable, Piketty shows that it fluctuates through time and space. Seen in this way, the economy ceases to be a static entity following fixed rules, but something all too human—responding to government policy, cultural developments, and historical accidents.

Given the title of this book, comparisons to Marx are inevitable. Piketty himself begins with a short historical overview of the thinkers he considers his predecessors, with Marx given due credit. Piketty even concurs with the basic Marxian logic—that capitalism inevitably leads to a crisis of accumulation, with the capitalists siphoning off more and more resources until none are left for the rest of the population (with revolution inevitable). If we have avoided such a crisis, says Piketty, it is because Marx based his analysis on a static economy, not a growing one. The twentieth century was exceptional, not only because of its many calamities, but also because it saw enormous rates of economic growth, which also helped to offset the basic logic of capitalist accumulation. Growth rates have significantly slowed in this century.

In summarizing Piketty this way, I fear that I am not doing justice to his appeal. This book is at its most enjoyable when Piketty is at his most empirical—when he is taking the reader through historical trends and case studies. This is extremely refreshing in an economist. I often complain that economics, as a discipline, is needlessly theoretical, getting lost in abstruse debates about how certain variables affect one another, rather than focusing on observable data. Piketty explicitly rejects this style of economics, and puts forward his own method of historical research. This has many advantages. For one, it makes the book far easier to understand, since Piketty’s point is always grounded in a set of facts. What is more, this way of doing economics can be integrated with other disciplines, like history or sociology, rather than existing apart in its own theoretical realm. For example, Piketty often has occasion to bring up the novels of Jane Austen and Honoré de Balzac to illustrate his points.

Well, if Piketty is even approximately correct, then we are left in a rather uncomfortable situation. As Piketty repeatedly notes, vast inequality leads to political instability and the undermining of democratic government, as the super-wealthy are able to accumulate ever-larger influence. So what should we do about it? Here, the difference in temperament between Marx and Piketty is especially apparent. Instead of advocating for any kind of revolution, Piketty puts forward the decidedly wonkish solution of a global tax on wealth. The proposed tax would be progressive (only significantly taxing large fortunes) and would extend throughout the world, so that the rich could not simply hide their money in tax havens. Yet as Piketty himself notes, this solution is nearly as utopian as the Proletariat Revolution, so I am not sure where that leaves us.

As much as I enjoyed and appreciated this book, nowadays it is somewhat difficult to see why it became so wildly popular and influential. This had more to do with the historical moment in which it was published than the book itself, I suspect. The world was still reeling from the shock of the 2008 crash, and the public was just coming to grips with the scale and ramifications of inequality. Specifically, while most people tend to think of inequality in terms of income—partly, because most people do not have much wealth to speak of—Piketty’s emphasis on wealth, specifically generational wealth, added another dimension to the debate. Piketty evidently succeeded in getting his message across, since I did not find anything in this book shocking. Now we all know about inequality.

While I am no economist, it does seem clear to me that Piketty’s argument has several weak points. For one, his narrow focus on income and wealth distributions lead him to ignore other important factors—most notably, for me, unemployment rates. Further, the major inequality that Piketty identifies—that wealth grows faster than the economy, or r > g—could have used more theoretical elaboration. I wonder: How can private wealth grow so much faster than the economy, if it is a major component of the economy? At one point, Piketty argues that the super rich can afford to hire the best investors and financial consultants; but from what I understand, professional investors do not, on the whole, outperform index funds (which grow along with the economy). Clearly, there is much for professional economists to argue about here.

Whatever its flaws, Capital in the Twenty-First Century is an ambitious and compelling book that made a lasting and valuable contribution to political debate. Piketty may be no Marx; but for a man who loves charts and graphs, he is oddly compelling.

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Review: The Deficit Myth

The Deficit Myth: Modern Monetary Theory and the Birth of the People’s Economy by Stephanie Kelton

My rating: 3 of 5 stars

Deficits can be used for good or evil.

Robert Skidelsky, in his enormous biography of Keynes, remarks that economics today occupies the same situation as theology did in the Middle Ages—as a complex a priori logic that can be used to reach any number of contradictory conclusions. The more I read in the subject, the more I agree with him. To be taken seriously in politics means being able to use this logic. And yet, despite the seemingly scientific nature of this language, we seem hardly better able to pinpoint the nature of economic reality than the scholastics were able to count the angels.

I am exaggerating, of course. But I am a little distressed to find that, according to Stephanie Kelton, most economists and politicians—who already disagree with one another—are still fundamentally wrong about money, taxes, fiscal policy, and government debt. Here is another perspective to add to the mix: Modern Monetary Theory, or MMT.

Kelton begins the book by taking a page right out of David Graeber’s history of debt. Money was not invented, as so often supposed, to solve the problems of a barter economy. Instead, money and taxes go hand in hand. The argument goes like this: If you introduce a currency into a fully functioning credit economy (where people just keep track of what is owed to one another), then there is little reason why people would adopt it. But if you institute a tax payable only in this currency, and threaten punishment for non-payment, then suddenly everyone must find a way to acquire the new currency, and this means doing some work for the state.

In other words, governments introduced taxes, not to collect money (which it was producing anyway) but to compel work. And Kelton argues that this is still true today: that governments do not depend on taxes. She uses the example of a scorekeeper in a board game. The scorekeeper adds and subtracts points for other players, but they are never in need of points for themselves. Points are simply willed into existence whenever needed. Kelton argues that the US government (and other governments with what she calls “monetary sovereignty”) is in essentially the same position with regard to the US dollar. Since we use a fiat currency, any number of dollars can be willed into existence. Thus, the government does not depend on tax revenue, any more than a scorekeeper must subtract points from other players in order to stay afloat. In short, we do not have to worry about the deficit, since government debt is nothing like the debt you or I may have.

Does that mean that the government can just spend infinite money? No, Kelton says: though the deficit is not a problem, inflation may be. Too much government spending may lead to too many dollars chasing too few resources, which can cause prices to rise. Does that mean that taxes are unnecessary? Also no, according to Kelton, since, apart from compelling work, taxes perform at least two important functions. First, they remove money from circulating, thus decreasing inflationary pressure; and second, they reduce inequality, which leads to a healthier society. Yet if the government cannot spend infinitely, and if we still do need to tax, then what are we doing wrong?

To answer that, Kelton next turns her attention to unemployment. Kelton notes that unemployment is built into our economy, largely via the policies of the Federal Reserve. The Fed aims for an arbitrary level of unemployment (say, 3%) which it considers the “natural” rate. Going below this natural rate would, it is feared, cause inflation to kick in, since demand would outpace supply. But this “natural” rate is little more than a guess, Kelton argues. Even when unemployment has been very low in recent years, inflation has remained low. Indeed, in this argument Kelton seems to have been prescient, since just in August the Fed decided to change its policy of lifting interest rates once employment hits a certain level, thus paving the way for more sustained employment growth.

But Kelton has a fairly dim view of the prospects of using monetary policy to govern the economy. Instead, she thinks that unemployment should be directly eliminated using a Federal Jobs Guarantee. This is the main policy proposal of the book, and Kelton spends a good deal of time selling it. The advantages are compelling. Most obviously, unemployment is bad for people and communities, so it would be highly desirable to get rid of it. And a jobs guarantee would give workers more bargaining power, since the wage floor would rise (the jobs would pay a living wage) and the threat of losing work and health insurance would be eliminated.

Still, I admit that I was not convinced. For one, even according to MMT’s own premises, the huge increase in aggregate demand—caused by increased federal spending, eliminating unemployment, and increasing wages across the board—could cause inflation. Kelton does not really address this potential pitfall.

On a more practical level, I also have trouble imagining the logistics. Kelton describes a program that can employ anyone, anywhere, in socially meaningful jobs. But there is not necessarily the right amount of meaningful work in any given location, nor do the unemployed necessarily have the skills necessary to do this work (and re-training has its limits). I think that a substantial amount of make-work is inevitable in such a scheme. Furthermore, I can hardly contemplate the enormous bureaucracy that would be needed to administer such a program. It seems there would be just as many people making jobs as people needing jobs made for them.

The job guarantee’s major policy rival, universal basic income (UBI), has none of these practical challenges (though of course it could cause inflation, too), since it is merely paid via the IRS. Admittedly, jobs do provide social and psychological benefits that an income does not. But Kelton does not discuss UBI at all, which I thought disappointing.

At this point, the reader may be forgiven for wondering what is so new about MMT. After all, Paul Krugman—an orthodox Keynesian economist critical of MMT—has been writing for years about the mistake of thinking of the federal budget like a household budget, and the desirability of federal deficits in times of recession. The difference, so far as I understand it, brings us into dangerously wonky territory. Krugman avers that when we near full employment, a large deficit may require higher interest rates in order to avoid inflation. Kelton counters that our assumptions that low interest rates boost spending, and higher interest rates constrict spending, are actually incorrect. In other words, Krugman thinks that monetary policy can partly compensate for fiscal policy, while Kelton thinks that monetary policy is not particularly useful.

I have little to add to this, other than to remark that I can never understand why these disputes—like theology—always take the form of high theoretical debates from first principles. It strikes me that the impact of monetary policy is an empirical question that could be answered with a careful look at the historical record. But what do I know?

Well, I have done my best to elucidate this sacred mystery, but I ought to evaluate the book. Like many readers, I found the writing in this book extremely grating. The tone was somewhere between a salesperson and a televangelist—promising instant enlightenment and easy solutions—which immediately put me on edge. In fairness, when Kelton is not selling MMT but explaining it, the book can be quite fascinating. But Kelton’s insistence on treating MMT as blindingly true, and its enemies as either blinkered traditionalists or deceptive politicians, was not charming or effective. And the amount of repetition could even be condescending. By the time I reached the end, I really could not stand to hear another iteration of the central tenets of MMT. I got it the first couple times.

Whatever the flaws of the book, and whether or not MMT is an accurate picture of how the economy works, it at least makes you think about how the deficit is treated in public discourse. Anyone who reads the news cannot help but notice that the swelling deficit is only invoked when we have to pay for, say, healthcare or infrastructure; but, somehow, when tax cuts to the wealthy or defense spending are on the table, nobody seems to worry. Even if the deficit presents more of a problem than Kelton believes, it is obvious that, if anything is worth going into debt for, it is programs that benefit the public, rather than bombs or yachts. I hope that followers of Keynes, MMT, Thomas Aquinas, and William of Ockham can at least agree with that.

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Review: The House of Morgan

The House of Morgan: An American Banking Dynasty and the Rise of Modern Finance by Ron Chernow

My rating: 4 of 5 stars

When I picked up this book, I assumed it was a biography of the two famous John Pierpont Morgans. But this is far more; indeed it is a true history of the Morgan bank, though admittedly with heavy emphasis on the biographies of the key figures. Given that this history spans over a century and includes a huge number of players, politics, and policies, the fact that Chernow could put out such a polished book in two and a half years is a testament to his skill as a writer and researcher.

The book is most colorful in its beginning and slowly fades into the dullness of contemporary reality. The Bank of Morgan began with the 19th century financier George Peabody, a sort of Dickensian miser turned philanthropist. Lacking a son, Peabody passed on his business to Junius Spencer Morgan, another personality of a bygone age, who managed to combined pious moralizing with strict business. His son, Pierpont, is by far the most colorful character in this panorama. A rabid art collector, an amateur archeologist, and an inveterate womanizer with a swollen nose and an enormous yacht, Pierpont was a central figure in the American economy of his age.

His son, “Jack,” though resembling Pierpont physically, was a far more mild-mannered sort of banker. His life is mostly lacking in racy and romantic stories (except for the time he was shot by a would-be assassin). The Morgan line mostly fizzles off after Jack; but there are many other Morgan bankers to take note of. The most important was undoubtedly Thomas Lamont. Chernow tracks Lamont’s strange journey from the cosmopolitan advocate of the League of Nations to an apologist for Italian fascism and Japanese aggression. It appears wide culture and smooth manners do not immunize one from ugly politics.

The wider historical arc of Chernow’s book gave me a bit of nostalgia. We begin with bankers in top hats and stiff collars, guzzling port wine and sucking on cigars. (Pierpont was a heavy drinker and smoker, and believed that exercise was unhealthy.) These bankers relied on charisma and relationships as much as they did on any technical understanding. The early House of Morgan was paternalistic towards its employees and stressed an esprit de corps—the importance of banking tradition over personal egos. This sleepy world of respectable bankers gives way, in the late twentieth century, to the high-octane world of trading, where highly trained employees work twelve-hour days trying to beat one another in an enormous casino.

The activities of the bankers also change markedly in this history. While nobody would argue that Pierpont was saintly or altruistic, his main activities consisted of reorganizing industrial companies to make them more productive and effective. This is a great contrast with the bankers of the 1980s, who are mainly concentrated on speculative activities and hostile takeovers which seem to have very little to do with work of real value.

Of course, my impressions of this history are colored by the fact that I know relatively little about finance and thus at times had trouble following the business side of things. Chernow, for his part, is typically vague when it comes to any technical details; his preferred style is to focus on individuals and their foibles. This was a bit frustrating, since I felt that I could have learned more had Chernow simply included more in the way of explanation.

But, as it stands, this is an extremely readable and compelling history of one of America’s most important banks. Things have changed since the publication of this book. Morgan Stanley is still going strong, though J.P. Morgan mainly serves as a brand used by Chase bank, and Morgan, Grenfell & Co. does not even exist as a name anymore. Even 23 Wall Street, the iconic home to this iconic bank, now sits empty and unused, apparently owned by a shadowy billionaire who is reportedly sitting in a Chinese jail. Such is the fate of all great empires.

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Review: A Brief History of Neoliberaism

A Brief History of Neoliberalism by David Harvey

My rating: 4 of 5 stars

It is one thing to maintain, for example, that my health-care status is my personal choice and responsibility, but quite another when the only way I can satisfy my needs in the market is through paying exorbitant premiums to inefficient, gargantuan, highly bureaucratized but also highly profitable insurance companies.

Neoliberalism is a term that is often thrown about; and yet, like socialism and capitalism, I often feel that I do not quite know what it means. Its common definition—the preference for free trade and free markets—did not seem to distinguish it from capitalism itself, as I understood the term, which made me wonder why neoliberalism was so controversial and hated.

Harvey’s book goes a long way in answering this question. The best way to understand neoliberalism may be historical. After the end of the Second World War, governments were dominated by Keynesian policies—that is, the use of taxation and spending (if necessary, deficit-spending) to control boom and bust cycles. But in the 1970s the Keynesian consensus broke down as a result of stagflation: low growth combined with high inflation. The failure of Keynesian policies to get the economy out of its rut led, eventually, to the embrace of quite a different governing philosophy: neoliberalism.

This has many intellectual components. Neoliberals are—at least in theory—opposed to fiscal policies as a way of fighting economic ups and downs. (In practice, this means that governments must adopt austerity measures in order to keep their budgets balanced in an economic downturn.) In fact, neoliberals are quite generally anti-government, at least in their rhetoric. They favor privatization, deregulation, low taxes, and low tariffs. The central idea is simple and, on its face, compelling. Prices communicate market information far better than a government can manage; individuals understand their own needs better than the government; and the profit motive is the great driver of general prosperity.

Yet what (ostensibly) began as a great liberation of sovereign individuals and all of their creative genius became, instead, an economic transfer from the poor to the rich. The evidence, by now, is clear that neoliberalization did not jump-start the economy. Growth has never recovered its pre-1970s levels; and economists now admit that they simply do not know how to make an economy grow. But as growth slowed, and wages stagnated for most mere mortals, the rich, richer, and richest made off with ever-increasing slices of the economic pie. Inequality reached such stark levels not seen since the 1920s. Harvey contends that this was not a mere byproduct of the economic philosophy, but one of its primary goals.

If the rhetoric of neoliberalism were, indeed, true—if the government was merely “getting out of the way,” and letting the market do its magic—then claims of nefarious intent would perhaps be unfounded. But as Harvey points out, the neoliberal state is no mere bystander. On the contrary, state power is quite necessary to the operation of neoliberal policies.

Most obviously, if property rights and contracts are sacrosanct, then there must be enforcement—violent if necessary—of those rights. In practice, this also means that there is a double standard between debtors and lenders. In a neoliberal state, the debtor has all the responsibility not to take out a loan that they cannot pay back; and there is very little protection if they do take such a loan. Meanwhile, there is no similar responsibility on behalf of the lender not to lend irresponsibly (as the 2008 financial crash proved); and if the lender does so, the state sanctions any draconian measures necessary to extract repayment.

The state also actively subsidizes the wealthy, both directly and indirectly. It directly subsidizes companies through (among other things) bailouts. The mortgage tax deduction is essentially a handout to the rich—as well as a spur to high-end housing construction. It puts up legal impediments to labor organizations and strikes.

And the indirect subsidies are many. If a community is devasted by a free trade deal, the state deals with the social fallout (often through mass incarceration, in the US). If the housing market leaves many homeless, then the state steps in to enforce eviction notices and provide homeless shelters. If medical insurance is out of reach to many, then the state provides public healthcare and emergency rooms. And this is only to speak domestically. Harvey documents many cases when the IMF and World Bank pressured developing countries to adopt neoliberal policies, and then demanded repayment of loans even if it meant impoverishing their populations.

In sum, the neoliberal state is not a mere onlooker, enforcing class-neutral rights and ensuring a fair game is played without cheating. On the contrary, the neoliberal state serves to provide welfare to the rich while enforcing brutal ‘capitalism’ on the poor.

Yet Harvey is not only valuable in his catalogue of neoliberal hypocrisies. Many of the most interesting parts of this book, I found, were Harvey’s reflections on how neoliberalism has transformed the culture. His contention is that the 1960s era emphasis on personal liberty has led to a kind of atomization of society. As more and more people are convinced that the government is evil or at least useless, people seek different forms of community. This can take many forms: religiousness, political populism (which Harvey predicts), or, for the progressively minded, NGOs. Indeed, one can see the rise in NGO activity as a kind of tacit defeat by the left, as they have yielded the possibility of democratic, governmental action, and instead turned to privately owned organizations run by elites.

More broadly, the embrace of a radically individualist philosophy makes political organization difficult. How can you politically unite people behind the idea that the government is the problem? Few forces have been able to transcend this limitation, most notably nationalism—giving birth to neoliberalism’s ugly cousin, neoconservatism. Other collective bonds—such as race, gender, or sexuality—do not have the widespread pull of nationalism, which Harvey believes gives the left a chronic disadvantage.

Harvey’s solution to this (unsurprisingly, given that he is a Marxist) is to make class, once again, a basis of political mobilization. It is only when workers collectively reform the society that the rich can be defeated. Unfortunately, the two economic crises that have transpired since this book was published have yet to make that happen. Nevertheless, I think this is a valuable and incisive book about one of our era’s most distinctive features.

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Review: Good Economics for Hard Times

Good Economics for Hard Times: Better Answers to Our Biggest Problems by Abhijit V. Banerjee

My rating: 4 of 5 stars

Economics is too important to be left to economists.

After listening to a series of lectures on introductory economics, I was struck by the degree to which the basic logic of supply and demand was used to make sweeping pronouncements about human behavior and economic policy. The lecturer, starting from the premise that supply and demand is inexorable, would rule out certain policies as working against the market, while promoting those he considered ‘market-friendly.’ But rarely did he stop to actually examine a case study to see how these theories played out, leaving me with the impression of a wholly a priori logic.

The central thrust of this book is that a priori logic cannot be trusted. The economy is complex and unpredictable, so the best way to understand it is through historical case studies and randomized control trials. The authors find that, when we examine the economy in such a way, many of our intuitions about how the it works or will respond to certain policies are wrong. Indeed, though this could hardly be called a revolutionary book—its tone is engaging but mostly academic—the two authors, Banerjee and Duflo, reach quite heterodox conclusions.

One basic economic argument used against permissive immigration policies is that the increased supply of cheap labor will inevitably drive down wages, thus hurting native workers. The logic is simple but it does not hold up under the evidence. In case study after case study, immigration is shown to be either economically neutral or beneficial to native workers. Indeed, ironically—and contrary to what Trump and his ilk may say—low-skill immigrants are better for native workers than highly skilled ones, because they often take jobs that native workers do not want—jobs requiring little communication and much labor. Native workers may even benefit by being promoted to managerial roles. A multilingual immigrant doctor actually competes more directly with native workers than a monolingual immigrant fruit picker.

Perhaps you can see that the above supply and demand argument against immigration is simplistic, since immigrants, apart from increasing the labor supply, also increase demand for goods. Indeed, most professional economists are decidedly in favor of migration. Workers have much to gain from moving to where their skills will be most highly rewarded; and businesses would gain from having good workers. But here the economists’ logic is shown to have its own flaw. Real workers are actually quite averse to migration. Banerjee and Duflo show that, even when a better job may just require move from the country to the city, most will simply not go. There is a large amount of inertia built into real people’s lives—the pull of family, friends, and familiarity—which works against even obviously beneficial moves.

This is not the only way that the real economy is (in economic parlance) ‘sticky.’ Though economists imagine a world of workers ready to move and re-train, of companies willing to fire and hire, banks that drop bad investments and jump on promising new ones, firms willing to relocate to new countries with cheaper labor, new businesses popping up and inefficient ones disappearing—in a word, a dynamic world governed by shifting supply and demand—the real world is consistently stickier than this logic suggests. This seems particularly true in the developing world—the authors’ main area of study—where they found that efficient and inefficient businesses coexisted, where bad-selling product lines were retained, where banks merely rubber stamped loan applications from existing clients, and where people do not migrate for work, or even take the work that is available locally.

Inhabitants of planet earth will likely not be surprised by all this. But the upshot, the authors argue, is that free trade does not deliver all that it promises. Now, the logic of free trade is simple and compelling, grounded in the law of Comparative Advantage put forward by David Ricardo. Simply put, this law states that we all will benefit from trade, since we can all specialize in what we are comparatively better at doing.

But the logic has not exactly played out as hoped. Though touted as a way of propelling developing nations out of poverty, in practice free trade policies have a mixed record. The authors use the example of India, which transitioned from a highly-regulated economy with high tariffs to a free market with low tariffs in the 1990s. The result of this transition was hardly the economic wonder that some economists could have predicted. In many places, wages actually went down rather than up, and in subsequent years much of the economic growth has simply gone to the country’s rich. This is not to say that the results of economic liberalization were all bad, only that it was hardly the panacea that free-market advocates promised.

The consequences for rich nations, like the United States, have also been mixed. While most economic transitions involve winners and losers, the shock of free trade has benefited those who were already ‘winning,’ and hurt those who were already ‘losing.’ In other words, while the big cities full of college-educated workers have grown richer, the arrival of cheap goods—mostly from China—has ravaged many blue-collar communities.

Admittedly, the theory of Comparative Advantage does predict that free trade will temporarily hurt some workers who are forced to compete with cheaper goods from abroad. But the belief in economic adaptability (not to mention the political will to help assuage the problem) was overly optimistic.

Even when jobs disappear, workers do not move. Many simply go on disability and leave the workforce entirely. In short, workers are sticky. Not only that, but the United States has been very bad at redistributing the gains of free trade in the form of worker retraining and extended unemployment. No wonder that many in the country are skeptical of the benefits. However, the authors are careful to note that the solution to this problem is not to impose new tariffs on China. This will only create further economic harm in other sectors (like agriculture) without remedying the harm already done. What is needed, the authors argue, are generous government programs to either re-train displaced workers, or to subsidize industries that are being driven out of business.

This leads us to the longest and most theoretical chapter in this book, that on growth. The argument is fairly dry but the conclusion the authors reach is striking: we do not know what makes economies grow. The greatest years of economic growth were between the end of WWII and the 1970s. This was also a time dominated by Keynesian economics, which led many to give Keynes the credit for this economic miracle. But the magic wore off with the coming of stagflation, which the Keynesian seemed powerless to stave off. This crisis brought the managed economy into discredit, and ushered in the neoliberal revolution, where deregulation, lower taxation, and free trade were seen as the best tools to rejuvenate the economy. Unfortunately, that did not work, either, and growth has never picked up to pre 1970s levels.

Instead, what has grown since the neoliberal turn has been inequality. Rather than stimulate the economy into mad activity, these policies have merely directed what modest economic growth there has been to the much-maligned top 1%. And their political influence has grown right along with their fortunes, which only reinforces the government’s tendency to embrace these sorts of ‘business-friendly’ policies.

As usual, the economic logic used to argue in favor of these policies—that lower taxes on the rich will spur greater activity—is supported by a priori logic rather than actual evidence. But the evidence does not bear it out. People work just as hard whether they are being taxed at 30% or 70%, or not at all, as demonstrated by a series of tax holidays in Switzerland. The notion that high salaries reflect employee value (which supply and demand would predict) is also not supported, as demonstrated by the remarkably high wages paid to those who manage stock portfolios, which consistently underperform against index funds—meaning that the wages are essentially a rent for holding onto money. (And since the high salaries in finance influence salary negotiations in other industries, this increases salaries across the board.)

A strange picture emerges from all this, a picture of an economic policy—at least in the United States—that is entirely divorced from reality. We wring our hands about immigration at a time when immigration is not going up, and even though immigrants pose no credible economic or cultural threat. We argue about tariffs but not about how to actually help those hurt by free trade policies. We cut taxes and deregulate businesses in the name of growth that never appears. Meanwhile, automation is likely to make many of these problems that much worse, and we persist in putting off any action related to the looming climate crisis.

The current pandemic—and concomitant economic crisis—has only put this magical thinking into high relief. Perhaps the best thing to call it is free-market fundamentalism: the belief that the economy, acting on its own, will sort out all of our problems—from poverty to pandemic—without any government aid. Strangely, it is a faith held most ardently by those who see the least evidence for it: people who have been hit by the economic dislocation of free trade. Indeed, at just the time when inequality is rising, we have embraced a kind of social Darwinism that treats the economic pecking order as a perfect reflection of personal merit. This mentality, resting upon the assumption of an imagined economic mobility (which is even lower in the US than in the European Union), justifies both extreme poverty and extreme wealth, since both are ‘deserved.’ To the extent that anyone is held responsible for the situations, it is either outsiders like immigrants or minorities, or the government—not the wealthy.

As Manny has suggested, the situation is rather reminiscent of the USSR in its final years. In both cases we have an economic philosophy based on a priori logic rather than evidence, and believed on the same grounds. As this philosophy fails to deliver, the country’s elites still do not publicly renounce it, but instead only increase their displays of fervor. Rather, entirely irrelevant factors—immigrants, minorities, nefarious citizens—are used to explain the lack of prosperity. Meanwhile, the rich line their already deep pockets while spouting the old egalitarian slogans. The result is a society gripped by nihilism, wherein the old ideals become barely-disguised lies by corrupt and incompetent leaders, and anger and hopelessness descend upon a country that senses it is going in the wrong direction but does not understand why.

This may seem rather hyperbolic. But when you consider how bad things have gotten in the United States in the short time since the publication of this book, when it was already quite bad, then perhaps you can see the justification.

If our economic logic is often misguided, and our policies either useless or worse, what do the authors suggest? Here is where I thought that the book was mostly lacking. Banerjee and Duflo are extremely heterodox when criticizing conventional economics, but are not nearly so bold in proposing solutions. Their general point, however, is that we ought to shift our focus away from trying to grow the economy—since we do not know how to do that anyway—and towards most justly distributing the resources we have now. High tax rates on the rich will help curb inequality without reducing effective incentives. Coordinated efforts between countries can help to reduce tax dodging, and enforcing anti-trust legislation will help curb corporate power.

The authors have a fairly nuanced view of basic income. They think that basic income schemes work well in developing countries, where the poorest are mostly working a variety of temporary or seasonal jobs. But they do not think UBI would work in developed countries, because people have come to rely on jobs not only for income but for structure and even meaning in their lives. In studies, people who stop working do not tend to increase time socializing, or volunteering, or on hobbies; instead, most people end up just watching a lot of television—which does not increase happiness or well-being. This is why the authors prefer significantly stronger unemployment support—helping workers to retrain and relocate.

This seemed somewhat timid to me. But perhaps it is misguided to seek bold, sweeping solutions from authors who insist on hewing to trial, experiment, and evidence. Hard-headed economists, the authors do not promise miracles. Yet if you are looking for a probing and insightful look at many of our current economic woes—now only exacerbated by the coronavirus recession—then this book is quite an excellent place to start. The most pressing point is that our economical problems have political solutions. As usual, the only thing we need is the political will to start acting.

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Review: John Maynard Keynes (a Biography)

John Maynard Keynes: 1883-1946: Economist, Philosopher, Statesman by Robert Skidelsky

My rating: 4 of 5 stars

Keynes’s paradox, which few could grasp and which many would find unacceptable today if expressed in ordinary language, is that horrendous events may have trivial causes, and easy remedies.

This is an ambitious and impressive biography of one of the most influential men of the last century. Robert Skidelsky was a pure historian before turning his attention to economics; and in this book he attempts to do justice to Keynes’s moment in history as well as his ideas. It does not make for light reading. After trying to read Keynes’s own General Theory and finding many parts of it impenetrable, I hoped that Skidelsky’s book would provide a gentler introduction to Keynes’s ideas. But this this book is not economics for dummies.

The hardest going sections were not, however, the bits devoted to economic theory, but the detailed reports of negotiations and plans undertaken by Keynes in his many official capacities. Here is just an example:

Keynes’s main effort to get the Stablization Fund to put on the clothes of the Clearing Union was his proposal to monetise unitas. The crucial structural difference between the Clearing Bank and the Stabilization Fund set-ups was that in the Keynes Plan member central banks banked with the central banks. Member central banks would subscribe their quotas to the Fund’s account…

And so on. Probably there are a fair number of readers who could follow this sort of writing with interest, but at the moment I am not one of them.

It would be seriously unfair, however, to suggest that the whole of the book is like this. Many parts are quite entertaining. The beginning years are especially so, when Keynes was in Cambridge and then a member of the famed Bloomsbury Group. I was surprised and amused at the open homosexuality of Keynes’s milieu, and the fluidity of his sexual life. Of more lasting interest, of course, is the intellectual climate in which the young economist was growing up. Skidelsky is wonderful when it comes to intellectual history, and he able shows how the circulating theories shaped Keynes’s attitudes for the rest of his life. I would not have guessed, for example, that Keynes was so deeply influenced by G.E. Moore’s Principia Ethica.

Skidelsky is also very skilled in his ability to trace the growth of Keynes’s major intellectual theories. He does this by pairing the influence of the historical moment with the inner machinations of Keynes’s mind, showing how the economist used, adapted, and discarded the economic orthodoxy he inherited when faced with the Great Depression. The chapter on the General Theory—Keyne’s most important book—is lucid and will greatly aid my further understanding of macro-economics. Thus, in the most essential task of a Keynes’s biography, Skidelsky undoubtedly succeeded.

Apart from the dryness and density of some sections of the book—mostly concentrated in the last chapters, when Keynes was heavily involved in planning for the post-WWII economy—the book has other flaws. The most notable, for me, was probably a consequence of Skidelsky’s intellectual seriousness. That is, he is so focused on Keynes’s ideas that Keynes himself can be left behind. Strangely, though one learns a great deal about Keynes, one seldom feels that one has “met” him. The economist’s personality remains rather vague and distant.

It would be generous to call this biography a page-turner. But Keynes is perhaps not the ideal subject for a readable biography. As Skidelsky repeatedly notes, Keynes was born into privilege and remained there the rest of his life. He was a thoroughbred member of the Establishment. Thus there is no spectacle of a struggling underdog or of rags to riches. Further, much of Keynes’s influence and activity resided in the intricacies of trade arrangements, exchange rates, currency valuations, and so on. He can come across as a hyper-competent civil servant.

There was another side to Keynes, however, which is quite a bit more attractive. As already mentioned, he was a member of the Bloomsbury Group—friends with Lytton Strachey and Virginia Woolf—and deeply valued all of the arts. He spent a great deal of time and money supporting his painter friends, and was heavily involved in the world of ballet and theater through his wife. In spite of his great practical gifts and his flair for finance, Keynes was not a crass materialist and consistently thought that the good life required more than ready cash.

Politically speaking, Keynes appears to have not been particularly ideological. He could not be readily assimilable into the Right or the Left, and instead preached a “middle way” based largely on competence rather than values. As Skidelsky notes, “Keynes was moved to wrath not so much by a ‘fiery passion for justice and equality’, as by ‘an impatience with how badly society was managed’.” This is not an altogether winsome quality, I think; though it does have a certain appeal—a world of ultra-efficient technocrats resolving problems without partisan bickering.

Indeed, as Skidelsky notes, this was largely the promise of the Keynesian Revolution, which more or less collapsed in the 1970s. In the final section of the book Skidelsky includes an even-handed evaluation of the successes and failures of Keynes’s ideas in practice. Certainly I am not qualfied to judge myself. But I do think that, as we look another depression in the face, we will be thinking an awful lot more about Keynes in the coming months.

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Quotes & Commentary #69: Keynes

It is astonishing what foolish things one can temporarily believe if one thinks too long alone, particularly in economics (along with the other moral sciences), where it is often impossible to bring one’s ideas to a conclusive test either formal or experimental.

—John Maynard Keynes

I have been thinking a lot about Keynes lately, and not only because I am reading a massive biography of his life. Keynes is one of those perennial thinkers whom we can never seem to escape. He exerted enormous influence during his lifetime and dominated economic thought and policy for thirty years after his death. Then, as inevitably happened, the Keynesian orthodoxy became too successful for its own good. His ideas came to be taken for granted, and his innovations became the conventional wisdom that the cleverest economists of the next generation came to reject. This ushered in the age of Neoliberalism—with Margeret Thatcher, Ronald Reagen, and Milton Friedman as the great standard-bearers—and the decline in Keynesian thought.

And yet, whenever there is a serious problem with the economy, everyone instinctively returns to Keynes. It was he who most convincingly analyzed the sources of economic recession and depression, and then plotted a way out of it. He was writing, after all, in the wake of the Great Depression.

To oversimplify the basic idea of Keynes’s analysis, it is this: High unemployment leads to a lack of demand, and a lack of demand can push financial systems beyond the breaking point. Put another way, the economy can be envisioned as an enormously complex machine that is composed of millions of cogs. Some cogs are small, some are large, and all are connected—either proximally or distantly. If one small cog stops working, then it may cause some local disturbances, but the whole machine can continue to chug along. But if too many cogs fail at the same time, the machine can come to a grinding halt.

As the coronavirus shuts down huge sections of the economy, this is exactly the scenario we are facing. Waiters, bartenders, actors, musicians, taxi drivers, factory workers—so many people face lay-offs and unemployment as businesses prepare to shut down. Besides this, if we are locked into our homes, then there are now far fewer places where people can spend their money, even if they have money to spend. It is inevitable that some people will not be able to afford rent, that some businesses will go under, and that much of the money that is available to circulate will remain unused in bank accounts. People are not going to be buying houses, or cars, or dogs, or much of anything in the coming weeks (besides toilet paper, of course).

Now, in a capitalist economy, anyone’s problem is also my problem, since buying and spending are so intimately related. The money you spend eventually becomes the money I receive, and vice versa. Thus, if there is a increase in unemployment (limiting the money you receive), an increase in bankruptcies (limiting the money the banks receive), and a decrease in spending (limiting the money I receive), then we have a recipe for serious economic contraction. A wave of bankruptcies inevitably puts pressure on banks; and if banks begin to collapse, then we are in grave trouble. Whether or not we like to admit it, banks provide an essential service in the economy, one which we all rely on. To return to my crude cog analogy, the banks are some of the biggest cogs of all; and if they stop turning, nothing else can move.

Keynes’s solution to this dilemma was essentially to use the government’s almost limitless ability to borrow money, and inject as much cash into the economy as possible. In other words, the idea is to stimulate demand, so that people can continue to spend money. It is an idea that has been criticized by so-called ‘responsible’ people for generations. Can the government really afford to go into so much debt during a recession? Can such artificial measures actually prop up an ailing economy? Can we tolerate such a huge degree of government involvement in a liberal society?

Republicans—and to a lesser extent, even Democrats—have been sharply critical of Keynesian economics over the years. When Obama wanted a stimulus package for the 2008 financial crisis, he faced endless opposition and criticism from the Republican party. And now that we are facing an economic crisis on a comparable scale, the Republicans are turning without hesitation to Keynes: hundreds of billions in stimulus, and even resorting to mailing checks to every American. One could hardly imagine a more straightforwardly Keynesian solution than this. Keynes had this to say about how the government could deal with a recession:

If the Treasury were to fill old bottles with banknotes, bury them at suitable depths in disused coalmines which are then filled up to the surface with town rubbish, and leave it to private enterprise on well-tried principles of laissez-faire to dig the notes up again (the right to do so being obtained, of course, by tendering for leases of the note-bearing territory), there need be no more unemployment and, with the help of the repercussions the real income of the community, and its capital wealth also, would probably become a good deal greater than it actually is. It would, indeed, be more sensible to build houses and the like; but if there are political and practical difficulties in the way of this, the above would be better than nothing.

This is the closest that Keynes got to the notion of simply giving people money. Paying people for absolutely useless work is better than nothing, since at least then people are being paid; and if they are being paid, they can spend their money; and if they spend their money, I can get paid; and so on. If this were a different kind of crisis—a kind where we did not have to practice social distancing—then perhaps we could imagine large-scale infrastructure projects as a way of combating recession. But now, we must resort to the even more radical idea of paying Americans to do nothing. Maybe Andrew Yang’s notion of a universal basic income is not so far after all?

Well, here is where I must warn my readers (all three of you) that I am really quite clueless when it comes to economics, so everything written here must be read in that spirit of ignorance. However, I think that Keynes’s quote is also quite relevant for non-economic reasons. As so often true in economics, we are facing an entirely novel situation. This is a crisis without precedent, and that means that all of our ideas of how to cope with the crisis are untested. The closest historical precedent to the coronavirus is the 1918 flu pandemic; and yet there are important differences between both the disease and the historical situation. We are thus operating without ‘conclusive tests,’ in Keynes’s words, of our ideas. It remains to be seen which country’s approach will be the wisest.

In the meantime, Keynes is an example for us to follow: an intellectual who responded to a historical crisis with both ingenuity and rigor. Let us hope there are many more like him.

Review: Economics (Great Courses)

Economics by Timothy Taylor

My rating: 4 of 5 stars

Economics is one subject that causes me perpetual unease. Everybody cares about the economy, of course, and everybody argues about how it should be structured and managed. Imposing terminology is thrown around, graphs and statistics are wheeled out, and yet the situation always seems quite unclear to me. So I was pleased when Timothy Taylor framed his lectures, not as the gospel truth of economics, but as an introduction to the language of economics. Learning this language is essential if you would like to take part in this endless societal argument.

Considering the restraints of time and of format, I think that Taylor deserves praise for these lectures. In 18 hours, he manages to cover all of the major topics of micro- and macro-economics—supply and demand, price curves, government regulation, fiscal policy, etc.—in an accessible but not overly simplistic style. Further, Taylor is an engaging speaker whose enthusiasm for a potentially dreary subject helps to alleviate the dryness. Someone has got to get excited about interest rates, I suppose.

A major shortcoming of these lectures is that they were recorded in 2005, just before the enormous financial crash. Surely, a new edition is called for. Considering how much time has passed, however, I think that these lectures have held up remarkably well. For the most part, the major disagreements and issues in economics do not seem to have changed very much. Everything is here—healthcare costs, financial crashes, trade wars, deficits—which is probably not a reason to celebrate.

If Taylor can be criticized, I think it should be for inserting too many of his own views into these lectures. Some degree of editorializing is inevitable in any academic course, I think. But Taylor is quite an opinionated guide, and never hesitates to advocate for his pet policies. Admittedly this did make the lectures more interesting at times; but it also undermined Taylor’s insistence that economics is merely a way of thinking rather than a specific doctrine. To the contrary, these lectures contain very specific presumptions about and prescriptions for a successful society (hint: it is all about a free market).

Speaking more generally, it is frustrating for me the degree to which the social sciences inhabit parallel worlds. Not only do anthropology, psychology, and economics study different sorts of phenomena, but they make very different assumptions about human behavior—which often contradict one another. I was acutely aware of this while listening to these lectures, since I was concurrently reading psychologist Daniel Kahneman’s Thinking, Fast and Slow, which argues that the rational agent model of economic actors is fundamentally flawed. Meanwhile, my brother is reading anthropologist David Graebner’s book about the many different (non-capitalist) ways that economic activity has been carried out throughout time and across space.

Compared to psychology and anthropology, economics can seem worrisomely abstract to me—too content to rest its conclusions on untested assumptions and a priori principles. In these lectures, for example, I would have appreciated more case studies of historical examples in lieu of theoretical explanations. This would have illustrated the concepts’ usefulness far more effectively, I think.

But I am drifting off topic. As a painless introduction to economics, these lectures do an admirable job. It is a fascinating discipline with much to teach us. I am glad to have a break for now, though. A dismal science indeed.

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Review: The Theory of the Leisure Class

The Theory of the Leisure Class by Thorstein Veblen

My rating: 3 of 5 stars

… it is only necessary that the scholar should be able to put in evidence some learning which is conventionally recognized as evidence of wasted time; and the classics lend themselves with great facility to this use.

This is a difficult book to evaluate, since Veblen simultaneously gets so much right and so much wrong.

Everyone is already familiar with the book’s central concept, conspicuous consumption: the spending of money on useless goods and services in order to enhance one’s social standing. Veblen gave this concept a name and perhaps its most classic exposition, yet the idea had already been around for a long time. We can see a perfect expression of this phenomenon, for example, in Moliere’s Le Bourgeois gentilhomme, which features a vulgar businessman attempting to attain the cultural trappings of the hereditary leisure class—dancing, fencing, music, philosophy—and failing, of course, since he had spent most of his life working.

Veblen was writing in the Gilded Age, the era of Vanderbilts and Morgans and Goulds, so he had plenty of examples of ostentatious display to choose from. The best parts of this book read as a straightforward satire on the degraded taste of the superrich. Veblen restricts himself to certain facets of the life of leisure, such as the pursuit of sport—hunting, horse-racing, football—noting that these expensive and time-consuming activities are often justified as instilling positive moral qualities, even though they arguably only promote craftiness and cruelty (two features Veblen finds characteristic of the leisure class).

Fashion gets an extended treatment, of course, being the most obvious example of conspicuous consumption: expensive and delicate clothes, of dubious aesthetic merit, designed to make any sort of labor manifestly impossible. Veblen also focuses on vicarious leisure: how wealth is displayed, not only by allowing the wealthy man to avoid work, but also to allow his wife and even his servants to be inactive (thus the elaborate, impractical costumes of the lackeys). Veblen extends his analysis to the church, seeing priests in their vestments as the liveried servants of God, who must remain conspicuously inactive in order to properly convey God’s magnificence.

Yet it does not require a first-rate mind in order to see examples of conspicuous consumption nearly everywhere. Grass lawns are popular precisely because they are expensive and difficult to maintain. High-class restaurants use exotic ingredients and rococo preparations; but does the food taste any better? Romantic love is communicated with costly jewelry, and the ritual of matrimony must likewise be robed in expense. The human body itself conforms to this tendency to display. Whereas in the past it was desirable to be plump, since this showed an ability to afford food, nowadays we like to be thin, since junk food is cheap and time to exercise is a luxury.
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Indeed, you might say that today conspicuous leisure has become conspicuous anti-leisure. Silicon Valley entrepreneurs pride themselves on working long hours, wearing minimalist clothes, and eating artificial super foods that provide nutrients without pleasure. Now that most of the things Veblen satirized are widely available the only option is to scorn them.

Anyone must admit that Veblen’s account does have a great deal of truth. At the same time, as a general theory of the economy and society, it is extremely limited. For one, the theory is not always borne out in practice. John D. Rockefeller, possibly the richest man in history, had a puritan disdain for fashion, art, and flashy mansions. More generally, Veblen’s account is laden with a moral evaluation which is difficult to accept. Though Veblen professes to be a neutral observer of economic life, it is clear that he finds the lifestyle of the upper classes to be frivolous and wasteful.

At first glance this may seem justifiable, until one realizes that Veblen considers virtually everything beyond industrial work to be wasteful. As the opening quote shows, Veblen even considers the reading of classics to be a mere trapping of the upper class—a flagrantly useless exercise—which is especially ironic, since Veblen’s own work is nowadays considered to be classic and is read for that reason. To my mind, virtually everything enjoyable in life, even Veblen’s work itself, falls within Veblen’s economic definition of “waste” and would thus classify as conspicuous consumption.

Considering this, the challenge would be to somehow separate “legitimate” taste from those degraded by the influence of conspicuous wealth. This is easy enough in extreme cases (such as the Vanderbilt family mansions or anything touched by Trump’s brand) but it becomes far trickier in others. To pick just one example, Shakespeare certainly considered financial gain as much as pure literary art when he composed his plays; and this may well have improved them.

Veblen’s hard line between the economically useful or wasteful is mirrored in his hard line between the industrious class and the pecuniary class. The former are the productive workers, the latter are the gaudy managers, businessmen, traders, and captains of industry who exploit these laborers to support a life of luxury. But this dichotomy is likewise difficult to justify. While a great deal of the “work” performed by this upper class can legitimately be called useless and exploitative, it seems difficult to accept that all management and financial activity is socially useless. Further, as often noted, Veblen’s analysis presupposes that there is a finite amount of resources to be divided. He does not take into account the growth of the economy (which is spurred by consumption, “wasteful” or not).

Putting all this aside, it must be said that many aspects of Veblen’s analysis have aged poorly. Veblen was concerned with making his analysis “scientific,” which for him meant using the evolutionary language of Darwin or Herbert Spencer. While his intellectual versatility is admirable, Veblen’s talk of “archaic” or “barbaric” traits or human “types” sounds both unconvincing and even alarming to modern ears.

I should also mention that I found the book to be surprisingly turgid. Though C. Wright Mills, in his excellent introduction, singles out Veblen’s prose for its quality, I generally found Veblen’s writing to be dense and unmusical. Here is a typical passage:

As between the various habits, or habitual modes and directions of expression, which go to make up an individual’s standard of living, there is an appreciable difference in point of persistence under counteracting circumstances and in point of the degree of imperativeness with which the discharge seeks a given direction.

In the last analysis, then, this book stands as the classic exposition of a useful concept. At the same time, the theory is overly simple, and ensconced in too many outdated ideas, to be fully accepted. Read this book if you find the leisure to do so.

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Quotes & Commentary #49: Orwell

All left-wing parties in the highly industrialized parties are at-bottom a sham, because they make it their business to fight against something they do not really wish to destroy. They have internationalist aims, and at the same time they struggle to keep up a standard of life with which those aims are incompatible.

—George Orwell, A Collection of Essays

Yesterday I wrote an essay trying to answer this question: What’s the right thing to do in morally compromising circumstances? This is one of the oldest and most vexing questions of human existence; and there’s no way I’m going to crack this nut in one blog post. That’s why I’m writing another one.

As George Orwell points out, this question isn’t confined to any one sphere of our lives, but confronts us every day, in manifold and invisible ways. When we go to the grocery store, when we buy a shirt, when we download a song, when we get the latest model of smartphone, we are supporting business practices that are largely hidden from us, but which may be morally repulsive.

What is life like for the factory workers who made my computer? What are the conditions for the animals whose meat I eat? Where does the material from my jeans come from, how is it processed, who are the workers who make it? For all I know, I may be patronizing exploitative, abusive, oppressive, and otherwise unethical businesses—and, the more I consider it, the more it seems likely that I do.

Unethical business practices aside, there is the simple fact of inequality. On the left we spend a lot of time criticizing the vast wealth inequality that exists within the United States; and yet we do not often stop to realize how much wealthier are most of us than people elsewhere. Is the first situation unjust, and the second not? Is it right that some countries are wealthier than others? And if not, can we logically desire our present standard of life while maintaining our political ideals?

To the extent that opponents of inequality are immersed in a global economy—and we are, all of us—they are participating in a system whose consequences they find morally wrong. But how can you rebel against a global paradigm? You can try to minimize your damage. You can try to patronize businesses who have more humane business practices. You can become a vegan and buy second-hand clothes.

And yet, it is simply impossible—logistically, just from lack of time and resources—to be absolutely sure of the consequences of all your actions in a system so vast and so complex. It would be a full-time job to be a perfectly conscientious consumer. You can’t personally investigate each factory or tour each farm. You can’t know everything about the company you work for, the bank you store your money in, the supermarkets you buy your food from.

This is the enigma of being immersed in an ethically compromising system. To a certain extent, resist or not, you become complicit in a social system you did not design and whose consequences you don’t approve of. It is one of the tragic but unavoidable facts of human life that good people can still do bad things, simply by being immersed in a bad social system. An economy of saints can still sin.

In economics this has a technical name: the fallacy of composition. This is the fallacy of extrapolating from the qualities of the parts to the qualities of the whole. A nation full of penny-pinchers may still be in debt. A nation full of expert job-seekers may still have high unemployment. Morally, this means a nation of good people may yet do evil.

The question, for me, is this: Where do we draw the line separating the culpability of the individual from the culpability of the system? To illustrate this, let me take two extreme examples.

Since teaching, as a profession, tends to attract idealistic and left-wing people, I think many teachers, old and young, think that the educational system in the United States is deeply flawed. The standardized tests, the inequality between school districts, the way that we evaluate kids and impart knowledge—many aspects of the system seem unfair and ineffective.

And yet, I think very few people would condemn the teachers who continue to work within this system, even if the system tends to reproduce inequality. We naturally blame the policy-makers and not the teachers, who are only doing their best in compromising circumstances.

Take the opposite extreme: soldiers working in a concentration camp. Now, it is clear that these soldiers were not personally responsible for creating the camp, and were following the orders of their superiors. Like the teachers, they are immersed in a situation they did not design, in a system with morally reprehensible results. (Obviously, the results of a concentration camp are incomparably worse than even the most flawed school system.)

In this situation, I’d wager that most of us would maintain that the soldiers had some responsibility and, at the very least, some of the blame. That is, we do not simply blame the system, but blame the individuals who took part in it. The whole situation is so totally, fundamentally, indisputably unacceptable that there are no extenuating circumstances, no deferment of guilt.

Now, there is obviously a very big difference between a system that is (ostensibly at least) designed to reduce inequality and provide education, and a system that is designed to kill people by the thousands and millions. As a result, in both of these situations, the moral verdict seems relatively clear: the noble aims of the first system excuse its flaws, while the horrid aims of the second system condemn its participants.

The problem, for most of us, is that we so often find ourselves in between these two extremes (although, admittedly closer to the case of teachers than Nazi soldiers, I hope). But where exactly do we draw the line? Where does our responsibility—as participants in a system—begin? And in what circumstances are we morally excused by being immersed in a flawed system?

The more I think about it, the more I am led to the conclusion that being alive requires some ethical compromise. In this regard, I often think of something Joseph Campbell said: “You yourself are participating in the evil, or you are not alive. Whatever you do is evil for somebody. This is one of the ironies of the whole creation.”

And this quote, I think, is where I have to stop for now, since it brings me to another Quotes & Commentary.

Lotz in Translation

Saving the world—one long, pretentious blog post at a time.

Tag: economics