Posts Tagged ‘private property’

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The dystopia of the American healthcare system certainly invites a utopian response—a ruthless criticism as well as a vision of an alternative.

As I showed last week, the left-wing response involves a critique of the conditions and consequences of the capitalist organization of U.S. healthcare and the fashioning of a radical alternative. Single-payer, which uses tax revenues to finance the purchase of adequate healthcare services for everyone, is one possibility. On top of that, it is necessary to expand the diversity of healthcare providers, which would include more democratic, cooperative or worker-owned healthcare enterprises.

That’s how activists, educators, and policymakers informed by heterodox economics can begin to rethink the U.S. healthcare system. What about mainstream economics?

Given the persistent attacks on and attempts to replace Obamacare by Republican legislators—against a “government takeover” of healthcare in the name of “free markets”—one would expect mainstream economists to provide a theoretical justification based on their usual utopianism—of an efficient allocation of scarce resources in an economy characterized by private property and individual decisions in unregulated markets.

However, as it turns out, they can’t. And that’s all because of Kenneth Arrow.

Consider, for example, the 2017 New York Times column by Greg Mankiw.

In Econ 101, students learn that market economies allocate scarce resources based on the forces of supply and demand. In most markets, producers decide how much to offer for sale as they try to maximize profit, and consumers decide how much to buy as they try to achieve the best standard of living they can. Prices adjust to bring supply and demand into balance. Things often work out well, with little role left for government. Hence, Adam Smith’s vaunted “invisible hand.”

Yet the magic of the free market sometimes fails us when it comes to health care.

Mankiw, who is known to celebrate free markets in everything, is forced to allow for an exception when it comes to healthcare. (Fellow mainstream economist John Cochrane, in a sharp riposte, argued that “For once, I think Greg got it wrong.”)

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The reason is because, back in 1963, future Nobel Laureate Arrow published “Uncertainty and the Welfare Economics of Medical Care.” Mankiw’s column (and the longer treatment for his textbook [pdf]) is basically a restatement of the issues raised by Arrow over a half century ago.

According to Arrow, healthcare is characterized by a set of “special features,” all of which stem from the “prevalence of uncertainty.” These include the following:

  • an irregular, unpredictable demand for medical care
  • an element of trust in the relationship between patient and provider
  • considerable uncertainty as to the quality of the healthcare provided as well as asymmetry of knowledge concerning that quality
  • a restricted supply (e.g., because of licensing)
  • a combination of price discrimination (e.g., between the insured and uninsured) and price-fixing

In consequence, the healthcare industry cannot be expected to operate along the lines of, or to deliver the same results as, the canonical neoclassical model of perfect competition.

Thus, Arrow concludes,

It is the general social consensus, clearly, that the laissez-faire solution for medicine is intolerable. . .

The logic and limitations of ideal competitive behavior under uncertainty force us to recognize the incomplete description of reality supplied by the impersonal price system.

Neither Arrow nor Mankiw suggests what the alternative is. But it’s clear that, from the perspective of mainstream economics, healthcare cannot be shoehorned into the neoclassical model of perfect competition they use to analyze all other commodities and markets. What we can say is their theory of the economics of healthcare leaves open the possibility of considerable extra-market intervention and regulation.

Healthcare is where the utopianism of neoclassical economics fails.

But then we can ask, where does that utopianism not fail? Why should it hold any better when it comes to other capitalist commodities, such as labor power, money, and land? And, if it does not, then neither the modes of analysis nor the policy conclusions that are central to mainstream economics retain any validity.

In my opinion, that’s why the issue of utopia and healthcare is so important.

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Mark Tansey, “Duet” (2004)

There are plenty of reasons why contemporary libertarians might want to read Karl Marx—and at least one reason why they wouldn’t.

Chris Dillow suggests libertarians “would be surprised by a lot of Marx” and offers three reasons why they should read him.

One is that Marx saw economics as a historical process.

One implication of this for libertarians is that they must ask: what material economic basis would make our ideas more popular? I’d argue that one such basis is greater equality, as this would diminish demands for statist regulation.

A second is Marx’s view of the relationship between property rights and technical progress.

This might speak to our current secular stagnation. Why are productivity growth and capital spending so weak? Might one reason be that the fear of future losses from competition is deterring investment? Or that excessively tight intellectual property laws are restricting innovation? Marx poses the question: how should property rights alter to foster growth? This surely should interest libertarians.

The third reason lies in Marx’s attitudes about the expansion of the realm of freedom.

Marx’s main gripe with capitalism wasn’t so much that it was unfair but that it thwarted our freedom to develop our human potential. Work, instead of being a source of self-expression, is oppressive and alienating under capitalism.

According to Dillow, libertarians should read Marx because, in all three cases, he poses some questions to them that should sharpen their thinking.

I agree.* But, as I explained back in 2012, there’s at least one reason why Marx would infuriate libertarian readers—because of their sense of the right of private individuals to do what they like on and with their property.

Marx, in chapter 6 of volume 1 of Capital, presents an analysis of private power to which libertarians are—and, I suspect, always will be—blind:

This sphere that we are deserting, within whose boundaries the sale and purchase of labour-power goes on, is in fact a very Eden of the innate rights of man. There alone rule Freedom, Equality, Property and Bentham. Freedom, because both buyer and seller of a commodity, say of labour-power, are constrained only by their own free will. They contract as free agents, and the agreement they come to, is but the form in which they give legal expression to their common will. Equality, because each enters into relation with the other, as with a simple owner of commodities, and they exchange equivalent for equivalent. Property, because each disposes only of what is his own. And Bentham, because each looks only to himself. The only force that brings them together and puts them in relation with each other, is the selfishness, the gain and the private interests of each. Each looks to himself only, and no one troubles himself about the rest, and just because they do so, do they all, in accordance with the pre-established harmony of things, or under the auspices of an all-shrewd providence, work together to their mutual advantage, for the common weal and in the interest of all.

On leaving this sphere of simple circulation or of exchange of commodities, which furnishes the “Free-trader Vulgaris” with his views and ideas, and with the standard by which he judges a society based on capital and wages, we think we 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.

 

*Although I can’t agree with Dillow’s suggestion that readers should start volume 1 of Capital at chapter 10, and turn to the first nine chapters last. In my view, readers should begin with the first three chapters, on the commodity, where Marx presents the initial steps in his critique of political economy. In fact, every time I teach Capital, I run the risk of rushing through the remaining material precisely because I find so much to present to contemporary students about commodities and markets in that first section.

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There’s no doubt, after the crash of 2007-08, students—including those in middle schools—could use more economics education.

Unfortunately, they’re not getting it. They’re just being exposed to propaganda.

“What is the basic economic problem all societies face?” April Higgins asks her sixth-grade class.

Ava Watson, raises her hand: “Scarcity.”

The teacher asks for a definition and the class responds, in unison: “People have unlimited wants but limited resources.”

Not bad for a bunch of sixth-graders.

What April Higgins is engaged in is not economics education. It’s just neoclassical economics.

You see, there is no single “economic problem.” It all depends on which theory we’re looking at. According to neoclassical economists, all societies in all places and times have faced the same problem: scarcity. And, of course, private property and markets are their proposed solution.

But that’s not the economic problem as defined by Keynesians (how to analyze and use the visible hand of government to get out of less-than-full-employment equilibria) or Marxists (how is the surplus produced, appropriated, and distributed and how can exploitation be eliminated) or many other schools of thought.

The fact is, middle-school economics education (like high-school, undergraduate, and graduate economics education) is dominated by one school of thought, one approach among many, that is presented as “economics.” In the singular.

And that’s because it’s run by the Council for Economic Education and stipulated, in some instances, by government decree:

The Texas education code states that economics must be taught with an emphasis on the free market system and its benefits.

Economics education, at any level, means exposing students to and having them grapple with the assumptions and consequences of different economic theories and systems. Focusing only on one approach and system—neoclassical economic theory and capitalism—is just propaganda.

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The Wall Street Journal is absolutely right: Pope Francis acknowledges the scientific consensus concerning the human/social origins of climate change and argues there is “an urgent need” for policies designed to cut carbon emissions and switch to renewable sources of energy.

But the pope goes further by weaving his signature theme of economic justice and his vehement criticism of capitalism throughout the encyclical.

What the pope does is build on the central economic themes of the apostolic exhortation Evangelii Gaudium, and then extend them to the issue of the natural environment, especially the causes and consequences of climate change. The result is a radical critique of contemporary capitalism.

There are many aspects of the 183-page Laudato Si’ I simply cannot discuss here.* What I want to do in this post is highlight some of the specifically economic themes of the papal encyclical that was officially released yesterday.

Many news stories have already highlighted the pope’s rejection of carbon emission trading as a solution to the problem of climate change:

The strategy of buying and selling “carbon credits” can lead to a new form of speculation which would not help reduce the emission of polluting gases worldwide. This system seems to provide a quick and easy solution under the guise of a certain commitment to the environment, but in no way does it allow for the radical change which present circumstances require. Rather, it may simply become a ploy which permits maintaining the excessive consumption of some countries and sectors. (126)

But there is a great deal more in the economics of Laudato Si’.

Throughout the encyclical, the pope highlights the relationship between climate change and the “economy of exclusion,” particularly the way the continued deterioration in the natural (and, he doesn’t overlook, social) environment affects the poorest, most vulnerable people on the planet.** Here are two examples:

Many of the poor live in areas particularly affected by phenomena related to warming, and their means of subsistence are largely dependent on natural reserves and eco-systemic services such as agriculture, fishing and forestry. They have no other financial activities or resources which can enable them to adapt to climate change or to face natural disasters, and their access to social services and protection is very limited. (20)

And

One particularly serious problem is the quality of water available to the poor. Every day, unsafe water results in many deaths and the spread of water-related diseases, including those caused by microorganisms and chemical substances. Dysentery and cholera, linked to inadequate hygiene and water supplies, are a significant cause of suffering and of infant mortality. (23)

Not surprisingly, this leads to his reiteration of the preferential option for the poor:

In the present condition of global society, where injustices abound and growing numbers of people are deprived of basic human rights and considered expendable, the principle of the common good immediately becomes, logically and inevitably, a summons to solidarity and a preferential option for the poorest of our brothers and sisters. . .We need only look around us to see that, today, this option is in fact an ethical imperative essential for effectively attaining the common good. (117)

And that’s the other side of the focus on the poor: the idea that the natural environment is part of the common good.

Human ecology is inseparable from the notion of the common good, a central and unifying principle of social ethics. The common good is “the sum of those conditions of social life which allow social groups and their individual members relatively thorough and ready access to their own fulfilment [sic]” (116).

So, if it is clear that climate change is a pressing issue, especially for the poor and most vulnerable, what stands in the way of effectively dealing with the problem? Here the pope extends his economic analysis to identify the interests and ideas that represent obstacles to both thinking about and finding appropriate solutions to climate change.

The pope, for example, cites those who stand in the way of making real change:

Many of those who possess more resources and economic or political power seem mostly to be concerned with masking the problems or concealing their symptoms, simply making efforts to reduce some of the negative impacts of climate change. (21)

In the meantime, economic powers continue to justify the current global system where priority tends to be given to speculation and the pursuit of financial gain, which fail to take the context into account, let alone the effects on human dignity and the natural environment. (41)

He also challenges responses that benefit only a tiny minority:

Even as the quality of available water is constantly diminishing, in some places there is a growing tendency, despite its scarcity, to privatize this resource, turning it into a commodity subject to the laws of the market. (23)

In some places, rural and urban alike, the privatization of certain spaces has restricted people’s access to places of particular beauty. . .Frequently, we find beautiful and carefully manicured green spaces in so-called “safer” areas of cities, but not in the more hidden areas where the disposable of society live. (31-32)

In the end, of course, the pope has to confront the problems of profits, markets, and private property.

This is what he writes about profits:

The economy accepts every advance in technology with a view to profit, without concern for its potentially negative impact on human beings. Finance overwhelms the real economy. The lessons of the global financial crisis have not been assimilated, and we are learning all too slowly the lessons of environmental deterioration. (81)

Here he is on markets:

Once more, we need to reject a magical conception of the market, which would suggest that problems can be solved simply by an increase in the profits of companies or individuals. Is it realistic to hope that those who are obsessed with maximizing profits will stop to reflect on the environmental damage which they will leave behind for future generations? Where profits alone count, there can be no thinking about the rhythms of na- ture, its phases of decay and regeneration, or the complexity of ecosystems which may be gravely upset by human intervention. Moreover, biodiversity is considered at most a deposit of economic resources available for exploitation, with no serious thought for the real value of things, their significance for persons and cultures, or the concerns and needs of the poor. (139)

And then on private property:

The principle of the subordination of private property to the universal destination of goods, and thus the right of everyone to their use, is a golden rule of social conduct and “the first principle of the whole ethical and social order”. The Christian tradition has never recognized the right to private property as absolute or inviolable, and has stressed the social purpose of all forms of private property. (69)

Finally, it has been noted that the pope doesn’t offer much in the way of concrete proposals to solve the problem of climate change. But he does mention a number of times the positive effects of a particularly noncapitalist form of economic organization: cooperatives.

Liberation from the dominant technocratic paradigm does in fact happen sometimes, for example, when cooperatives of small producers adopt less polluting means of production, and opt for a non-consumerist model of life, recreation and community. (84)

And

In some places, cooperatives are being developed to exploit renewable sources of energy which ensure local self-sufficiency and even the sale of surplus energy. This simple example shows that, while the existing world order proves powerless to assume its responsibilities, local individuals and groups can make a real difference. (131)

Throughout the encyclical, the pope could not have stated things more clearly: the “maximization of profits” is destroying the natural environment, the “poor, the weak, and the vulnerable” are most at risk of pollution and climate change, and “halfway measures” simply won’t work.

No wonder the Wall Street Journal is concerned about the pope’s “vehement criticism of capitalism throughout the encyclical.” Many more people might actually come to believe him.

 

*What I found particularly interesting, in addition to the themes I write about here, are the pope’s criticisms of modern (scientistic) epistemology and the hyper-individualist (neoliberal) subject.

**To be clear, the pope is not just referring to the people in rich and poor countries: “There are not just winners and losers among countries, but within poorer countries themselves” (129). And, he might have added, within rich countries.