Tuesday, February 15, 2011

Micro, macro, money and politics

Microeconims "The study of economics one firm at a time," according to my economics instructor — forms the basis of most people's economic intuitions. In microeconomics, money is itself an intrinsically limited resource, a resource the allocation of which always directly entails an opportunity cost. I have only so many dollar bills in my wallet, only so much money in the bank; To spend money on one thing always entails not spending it on something else.

In macroeconomics, the study of an economy as a whole, money is no longer itself a limited resource. It is possible to have "too little money" in the economy as a whole, causing a liquidity crisis [read with caution], but "running out of money" is completely different from running out something real, such as labor, arable land, food, iron, coal or the like. Having too little money is not the same as running out of money; if we have too little money it's easy enough to print more. Theoretically, it's just as easy to make money disappear; it's a lot more difficult, though, to make it disappear fairly. Hence most economic regulators (governments, central banks, etc.) prefer to inflate money, which has a similar macroeconomic effect as destroying dollar bills while keeping prices stable.

It's illogical, therefore, to object to macroeconomic decisions on the basis of money itself. It would be obviously illogical to say that we can't build a skyscraper because it will use up too many inches. It's just as illogical to say that we can't have universal health care, or social security, or teachers, police, firemen, good roads, etc. because we don't have enough money. There are good reasons to set limits on these things, but a shortage of actual money is not one of them. In macro, the question is not the micro question of how to spend our limited amount of money. The question is: How do we want to use our real resources (labor, land, food, etc.)? Money becomes a tool — perhaps the best cognitive tool ever invented since the spoken word; much more important than literacy — to make these choices.

The macroeconomic question is how we allocate our real resources, and all resources fundamentally come down to human labor. If there isn't enough arable land, we can spend labor on irrigation, fertilization and cleanup to to make more. If there's not enough oil we can spend labor to drill for more or process the sources we already have. If there's not enough land in San Francisco, we can hire a bunch of construction workers to build taller buildings. If we feel we have a shortage of four-leaf clovers, we could send a million people into fields to hunt for them. We do have a limited supply of labor: There are only so many people and so many hours in the day. But the only macroeconomic opportunity cost worth talking about is the opportunity cost of using labor for one purpose or another.

Right now, the opportunity cost of using more labor is zero. We have tens of millions of people literally sitting around doing nothing. These people are not comatose, hooked up to life-support. They can work, and they want to work. Saying we can't afford Social Security, or Obamacare, or better education, or better roads, or more policemen simply makes no sense. Labor is wasted if not used; you might as well say you can't afford to eat dinner even though you have a refrigerator full of food that will spoil tomorrow. Not only can we afford any of those things, we can afford all of those things. The labor force participation rate is 64.2%: We could afford half again as much as we currently have.

Why would anyone ever tell us we can't afford anything right now? It's not even that we don't have enough money. There's a trillion dollars sitting around in bank reserves that no one is using. There are prominent people (cough Rand Paul cough) who are telling us we can't afford things just because they're stupid, and they're telling a population with a woefully inadequate economic education what the people think they want to hear. But there are a lot of economists, businessmen and politicians who ought to know better, who at some level almost certainly do know better.

There can be only one reason they are telling us we can't "afford" things: because they do not believe the people deserve things. We do not deserve old-age pensions. We do not deserve basic health care. We do not deserve teachers, police officers, firefighters, safe and well-constructed roads. We do not even deserve jobs, the fundamental means of sustenance in a capitalist economy. Millions of people are, to take this estimation to its logical conclusion, fit for nothing better than Soylent Green.

If you have privilege, i.e. power over other people, you will inevitably have contempt for them. You must convince yourself you have power over them because they are intrinsically inferior. The only counter to this contempt is noblesse oblige (literally the obligation of the nobility), but any study of history shows that noblesse oblige is unstable and quickly degenerates into unqualified, total contempt. When the people have some control over their own lives, they will inevitably want more. When they have some prosperity, some dignity, they will want more; sooner rather than later the ruling class du jour can no longer justify their rule. The vigorous ruling class will and must do anything to maintain its rule. No lie is too monstrous, no violence too extreme, no oppression or exploitation too egregious. A ruling class falls only when when it loses its stomach for atrocity, through weakness, excess or sentimentality.

The capitalist ruling class has been systematically eliminating its sentimentality, the sentimentality that caused them to retreat in favor of the professional-managerial class who ruled successfully for three decades (whose own sentimentality has already fatally weakened their rule). They have been convincing themselves that Ayn Rand's utter, absolute and ineluctable contempt for the common people is ethical and just. We will have Soylent Green thrust upon us, not from poverty but from wealth.

1 comment:

  1. Larry, another good article. I wish I were as good as you. Please keep up the good work.

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