Friday, August 20, 2010

Fiscal conservatism (again!)

One view of fiscal conservatism is that it entails that we should spend our money wisely, especially with a sharp eye on the future. At the individual level, this is a meaningful debate: there are a lot of people (myself included, sadly) who tend to spend money foolishly, without much regard for the future. To a certain extent, however, especially in a relatively abundant economy such as that in the United States, saving money now to spend in the future is a trade with people who want to spend money now. Pretty much everything that gets produced today must get consumed today by someone or it will be wasted; savings is a matter of relative, not absolute, consumption.

At the political and whole-economy level, though, there really isn't much of a debate about whether we should run our government wisely or foolishly; the debate is about what sort of spending is wise or foolish. We cannot "save" at the whole-economy level: our choices are only to (a) consume or (b) invest to make tomorrow's production more efficient.

The individual habit of saving just doesn't translate to whole-economy thinking, since there is nothing for the whole economy to relate to. National economies do have relations in an international context, but the relations in international economics are very different from individuals in a nation, and international economics are becoming very closely integrated in the the 21st century global economy. Powerful nations such as the US and China as well as international bodies such as the European Union simply cannot afford to let an international economy just emerge from nations acting in their individual national interest.

Every society must necessarily address certain questions. How do we allocate our productive surplus between investment and consumption? How do we allocate investment between different candidate projects? How do we allocate consumption between different individuals and classes of individuals?

Unlike things such as the price of a given commodity relative to other commodities, beyond a certain point (a point reached at the latest in the middle of the 19th century and perhaps much earlier) there are no objectively correct answers to these questions that can emerge from an essentially non-teleological process such as a market. The answers to these questions are rather "baked into" the social institutions and social constructions that create the economic context in which our day-to-day markets function. However a society happens to be organized, the specific details of its organization directly answer these questions; if we want specific answers these questions, we must set up our social institutions to answer them in that way. We can't set up our social institutions to allow the objectively correct answers to these questions to emerge because there aren't objectively correct answers to these questions.

Which brings us, at long last, to Laura's comment, where she says, "[T]rue fiscal conservatism has nothing to do with social issues. It's more about free trade*, lower taxes, and limited government involvement."

*There are two senses of "free trade" that seem appropriate here. There's free trade in an international context, which is a specialized question outside the scope of this article. I'll interpret free trade here in a domestic context, which seems to suggest (especially juxtaposed with lower taxes and limited government) deprecating and limiting government regulations and other involvement with specific micro-economic decisions.

This description represents the tip of the iceberg, there are many underlying ideas that most people just don't think about. In one sense, who doesn't want lower taxes? In much the same sense, who doesn't want to save money? But of course anyone can save money by living poorly, yet most people who advocate "fiscal conservatism" live moderately well (and good for them): they're certainly not eating the minimum amount of the cheapest food, living in the smallest and cheapest housing that will afford only not freezing to death, etc.. We all want to live a good life, and that entails actually consuming stuff, and what is consumed must, of course, be produced. Our goal is not to consume as little as possible, but rather to consume as much as possible as efficiently as possible.

All of the measures that Laura suggests tend to (at an abstract level) answer our societal questions in a particular way. Specifically, they structure our answers to satisfy the wants and needs of the owners of capital over the wants and needs of the non-capital-owning workers. By definition, workers cannot effectively exercise economic power; if they are going to exert power at all, they must exert democratic power. Fiscal conservatism as Laura describes it minimizes democratic control over the answers in favor of private control.

Just having private control of capital answers the high level allocation questions even more specifically. Private ownership of capital allocates investment in activities that will benefit the individual owners of the capital being allocated. Activities with a general benefit that's too evenly spread out, abstract, or too-easily susceptible to "free riding" do not benefit the individual owners of capital and tend to be deprecated.

In our modern economy, capital, especially finance capital, is the essential bottleneck of production. In any free market economy, resources gravitate to the bottlenecks. Free markets have an awesome power to address physical bottlenecks, such as a shortage of oil or trees. This "gravitation" automatically adjusts the whole economy in more-or-less equilibrium to all the bottlenecks without having to analytically solve computationally intractable problems. Even better, throwing a lot of labor time at bottlenecks in an evolutionary environment generates novel ways of actually eliminating them, by finding alternative ways of fulfilling the underlying need or of supplying the needed resource. Gravitating labor time towards these physical bottlenecks has an overall negative feedback effect.

When the bottleneck is social, however, the free market still causes labor time to gravitate to the bottleneck, but that gravitation often has a purely positive feedback effect. Labor time that gravitates to most social bottlenecks enhances the power and prestige of those people "sitting on" the social bottleneck, which allows them more power to narrow rather than widen the bottleneck. Thus we can see that private ownership of finance capital, a purely social construct, makes access to finance capital narrower rather than broader, and allocates all consumption not strictly necessary for the maintenance of life itself to the "owners" of finance capital.

I was specifically referring to these effects when I said, "'[F]iscal conservatism' means using the social constructions around money [i.e. finance capital] to bring about conservative social values, especially preserving and enhancing the status of the ruling class and maintaining the subordination of the working class."

Of course, there are answers to the "big" economic questions that are poorly solved by democratic means and are much more efficiently solved by private means. It's nonsense to put the price of bread to a vote: There is an objectively correct answer to how much a loaf of bread should cost, because there's an objectively correct answer to how much labor it takes to produce a loaf of bread, and the price must, one way or another, represent the cost of production. We can no more vote on what the price of bread ought to be than we can on what the gravitational content ought to be. The best we can do is vote on how that price is allocated.

The point of all of this is that we really can't just create an economic system that will automatically answer the big economic questions in the same way that we can create an economic system that will automatically answer the "little" economic questions, such as the price of bread. Our economic system doesn't generate the answers; our economic system is the answer.

There are even deeper relationships between our economic system and what appear to be purely "social" issues, issues that don't appear at first glance to have any sort of economic impact, such as racism, sexism, and even secularism and religion. I'll discuss these relationships in a later essay.

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