Sunday, May 05, 2019

Historical materialism and the calculation problem

Over at A Trivial Knot, the socialism dicussion has turned to the calculation problem and the problem of incentives. I think looking too closely at mechanisms and analytic optimality is at best a red herring.

The economic calculation problem is intractable. Given a sufficiently complex economy, it is not possible in real time to determine even approximately the optimal production, distribution, and consumption of tradable goods and services. Worse yet, even if we have a well-defined and universally agreed-upon objective function, we can tell which of two outcomes is better or worse, but we cannot tell which of two outcomes is "closer to" or "farther away from" the optimum — it is not necessarily the case that the better outcome is closer to the optimum. As any student of calculus knows, a local maximum might be far away from the global maximum.

The calculation problem is intractable even given an objective function; the calculation problem becomes completely irrelevant if we do not have such an objective function, when, as Hayek asserts, "society cannot agree on its most basic ends."

But chasing such an intractable, ill-defined optimum is a fool's errand. People and societies do not actually agree upon some ideal outcome and then define, calculate, and then implement the means to achieve that outcome. What we really do is resolve immediate, concrete conflicts in specific contingent, historical, material contexts. Individuals do this, societies do this, and both an individual and a society is just the accumulated outcomes of all the conflicts thus resolved. It might be fun to speculate on some theoretical ideal and invent castles in the air to exemplify that ideal, and there's no harm and perhaps some value to doing so. But actual social change over time necessarily becomes dominated by the resolution of real conflicts.

The fundamental problem with capitalism is not its mechanisms — money, the price system, the profit motive, income and wealth inequality — and the solution is not some alternative mechanisms — social credit, central planning, the altruistic motive, enforced equality. Solving the fundamental problems will certainly entail new sets of mechanisms, but the specific mechanisms are not the real issue.

We get closer to the fundamental problem of capitalism by observing that rich people make all the important decisions, influenced only slightly if at all by the general welfare. Naturally, their first priority is always that they retain decision-making power.

Closer still, rich people took over decision-making power because 18th and 19th century industrialization favored rich people making decisions. The wealthy capitalists were able to resolve conflicts that the feudal/monarchical ruling class of that era was unable to resolve.

We know from empirical evidence, e.g. the Great Depression and the Global Financial Crisis, that the capitalist class is unable to resolve certain conflicts within capitalism. The professional-managerial class (PMC) temporarily took over decision-making power because the economic conditions of mid-20th century financial capitalism favored them making decisions. The PMC was able to resolve conflicts that the capitalist class was unable to resolve. The PMC did not, however, decisively resolve those conflicts in the same way the capitalists were able to decisively resolve the conflicts of feudalism, and their own inability to resolve conflicts led to a capitalist resurgence.

Now we face a new set of conflicts, conflicts that neither the PMC nor the capitalist class seem able to address, including but not limited to global warming, wealth and income inequality, the precarious economic state of the working and lower professional classes which seems destined to descend into outright immiseration.

Assuming humanity does not simply become extinct, we will resolve these conflicts, because we must. The specific way we resolve these conflicts, the institutions we adapt or create to systematize these resolutions, and the historically contingent path we take to a systematic resolution, will be our future society.

I want to emphasize that we (should) resist capitalism not because we do not want capitalist resolutions to these conflicts, but because capitalists cannot resolve these conflicts and still remain capitalists. (And if the capitalists can resolve these conflicts, they had better get busy, because their time is running out.)

The issue is not what we might do a 1000 years from now in a communist utopia. The question is what we do today to solve the conflicts of today. Theory is useful, but only insofar as it informs our resolutions of today's conflicts, and how we use the resolutions to advance the cause of human liberty.

Some specific advice, seems warranted. Modern Monetary Theory is interesting not because it is some groundbreaking revolution in economic thought (it's not, but that's OK; even Marx was just a "third-rate Ricardian"), but because it brings front and center a truth economists push to the background and that capitalists must fight with every fiber of their beings to deny, that money is a creation of the people, it belongs to the people, and it is a tool for the people — not the capitalists — to get what they want. Nobody can have everything, and very little is obtainable without effort, but there is a vast difference between "we cannot have this or that," and "with sufficient effort, we can have it."

We can, for more concrete examples, have the Green New Deal, Medicare for All, zero involuntary unemployment etc. We will have to work for it, just like we have to work for everything. Indeed, the idea that we can have these things for "free" is not only untrue, but undermines these programs. Hence the assertion that these are "free" comes from opponents, not supporters. All supporters say is that they are possible, which they are. As Stephanie Kelton says, "If it's technically feasible, it's financially feasible."

Money is just the social permission to act. When opponents complain that we cannot afford this or that, they are saying that those who presently have the money forbid us from working for it. And our response must be, "Fuck you. We don't need your permission." The only question is when we will develop the will and power to take what we need; eventually we must, if only out of desperate immiseration.

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