A visit from St. Marx

From Existential Comics

Chamberlain inequality

In Anarchy, State, and Utopia, noted anarchist/libertarian philosopher Robert Nozick argues that patterned distributions of income necessarily violate the principle of free exchange. Nozick supposes that there is some "patterned" distribution of income, i.e. some distribution that is objectively determinable. For example the notion of strict equality of income I've been writing about is certainly objectively determinable: I do not need to examine people's subjective preferences to determine what their incomes are, just the number of hours they actually work. He then supposes that a large number of people subjectively choose to freely pay Wilt Chamberlain (a famous basketball player of the 1960s) some money. Assuming enough people freely choose to do so, then Chamberlain will have much more money than the patterned distribution mandates. Thus, the patterned distribution forbids people from making choices that seem unproblematic.

There are a number of possible responses to Nozick's problem. The most obvious (but perhaps least intellectually satisfying) is to declare it a pseudo-problem, akin to the Omelas problem: the problem contradicts our moral intuition only because it makes deeply counterfactual assumptions about the world, but our moral intuitions are shaped by how the world actually is. Why would anyone want to just give Wilt Chamberlain money? Remember, almost all people who have very high incomes due to fame (athletes, musicians, actors, etc.) are embedded in industries that are paradigmatic of market failure. Even if there might be some good reasons for market failures, sports, popular music, movies, television, etc. are oligopolies and monopsonies, very far away from the perfect competition that is the core of the moral justification for capitalism. In our current system, the basis of our moral intuitions about economics, people don't freely choose to just give people like Chamberlain money, they "freely" choose to exchange their money for a good in a monopoly-controlled market; we cannot easily conclude that, absent these monopolies, they would choose to just part with their money (their share of the social product) out of benevolence or admiration.

Although the choice seems implausible, it is not impossible that people really would choose to voluntarily give their money away to admirable strangers. Thus, another resolution to Nozick's problem is to simply relax the pattern. The patterned distribution sets boundaries on the distribution of income, but permits deviations within those boundaries. Hence, my construction of nearly strict equality, which permits deviations from equality that satisfy certain criteria: deviations (1) are completely voluntary, (2) cannot accumulate, and (3) self-correct in the long run.

With certain boundaries, Nozick's problem fits neatly into these criteria. First, if people freely choose to give someone money (not as a condition of exchange), then doing so clearly fulfills condition (1). Second, a prohibition against absentee ownership means that even if Chamberlain did receive a lot more money than most people, he would have to spend it, which would eventually return the distribution to equality; Chamberlain could not use the extra money to secure lasting economic privilege.

The third criterion is more difficult to satisfy. On the one hand, if people really were willing to give someone like Chamberlain money, then people are going to want to do the same thing; removing the barriers to competition that are manifestly present in modern society will tend to reduce "Chamberlain inequality" over time. However, top quality "superstar" athletes (and popular musicians and actors) seem extremely rare: I don't think the NBA is limiting the number of superstar athletes, and people seem to derive a lot of pleasure in watching the very best ply certain trades. No matter how much money we give to "superstars," by definition there can be only a few.

But notice here that "superstars" violate the fundamental capitalist paradigm that high prices serve as a signal to incentivize entry and return a market to perfect competition: we cannot have a perfectly competitive market in "superstars," however much money we give them.

I suspect that in practice, Chamberlain inequality will persist the longest, and perhaps forever. Still, if we at least enforce absolute freedom (i.e. people do not exchange but give superstars money), and prevent accumulation and absentee ownership, we could tolerate Chamberlain inequality for a long time without terrible consequences.

Why education does not fix poverty

Why Education Does Not Fix Poverty:

1. [H]anding out more high school and college diplomas doesn't magically create more good-paying jobs
2. [H]aving more education does not necessarily increase people's productive capacity
3. [P]overty is really about non-working people: children, elderly, disabled, students, carers, and the unemployed

Garbage and gravitas

Garbage and Gravitas: Ayn Rand was a melodramatist of the moral life: the battle is between the producer and the moochers, and it must end in life or death.

The chief conflict in Rand’s novels, then, is not between the individual and the masses. It is between the demigod-creator and all those unproductive elements of society—the intellectuals, bureaucrats and middlemen—that stand between him and the masses. Aesthetically, this makes for kitsch; politically, it bends toward fascism.

Nearly strict equality

Strict equality can be achieved only in a world of abundance, a world where everyone can have all the ordinary material things they want, and we allocate extraordinary things (trips to Alpha Centauri) by democratic means. But, lacking a world of abundance, I advocate nearly strict equality.

Nearly strict equality starts with strict equality: everyone receives exactly the same hourly wage, and contributes exactly the same absolute amount of labor to the common good (i.e. pays a flat tax*). That people can choose to work a different number of hours is not considered a deviation from strict equality: it is merely a particular trade-off between consuming leisure and consuming the physical social output.

*Wait, what? A flat tax? A flat tax coupled with absolute wage equality is not regressive.

Nearly strict equality permits deviations from strict equality that (1) are completely voluntary, (2) cannot accumulate, and (3) self-correct in the long run.

If all jobs pay the same hourly wage, then it is possible that given free choices, people will resist doing some jobs that they find less desirable than others. There are structural ways to allocate people to jobs, but by far the easiest way to convince people to do undesirable jobs without complaint is to simply pay them more. Note that under nearly strict equality, pay differentials are not proportional to social status; indeed, "low-status" jobs would probably pay more.

Structurally, we can separate jobs into three categories:

1. Highly desirable jobs: the supply of candidates exceeds the social demand for the work
2. Ordinary jobs: the supply of candidates is just about equal to the social demand
3. Undesirable jobs: demand exceeds supply

For highly desirable jobs, we create an effective quota: limit entry to those jobs, so that the actual supply at the equality wage matches demand. We must, of course, have a democratic way of limiting entry, but I take a truly democratic form of government for granted. Since the point is to restrict excess supply, limiting entry will not produce monopolistic pricing.

For undesirable jobs, we could just say, "Well, you have to have some job, and all the desirable and ordinary jobs are taken, so here's your shovel, go clean out the sewer." But such a system would, I think, create resentment; more importantly, it would, I think, enable a strong structural "force" creating a permanent underclass of people (e.g. "untouchables"/dalits) who are forced to take these undesirable jobs. Such a force would be absolutely incompatible with communism.

Instead, we create a fourth category: "default" jobs. These default jobs are low-skilled, low-intensity, low-status, and relatively unproductive: jobs such as sweeping streets or delivering newspapers. Basically, these are jobs where a person can show up, pretend to work, and make a living. These jobs would probably have limited hours, enough so that people can live decently and pay their taxes, but not so much that they could ever have a lot of stuff. These jobs really exist first to just support the hard-core stoners and slackers (it's cheaper to just buy them off than to try to oppress them into working hard: prisons are expensive). Second, these jobs provide those who have ambitions to highly desirable jobs that are not amenable to pre-qualification, such as musician or actor; people can work these default jobs, and do whatever it takes to become recognized in their chosen field. Many will fail — by design — but they will not starve or freeze.

Most importantly, however, default jobs make accepting undesirable jobs completely voluntary. Given this pool of "default" workers, we then (democratically) increase the hourly pay of undesirable jobs until enough people from the default category voluntarily accept those jobs. Thus, this differential in pay becomes completely voluntary: no one will starve or die because they refuse to clean sewers or mine coal.

To prevent accumulation, first, we deprecate savings in favor of credit. You can put money in the bank, but there's no interest on saved money (except under special circumstances), so differential income does not accumulate into privileged wealth.

Second, we implement progressive taxation for those making above the equality hourly wage: the more you earn per hour, the greater the proportion of your pay that is collected in taxes. This essentially raises the price to consumers for undesirable work. (Because undesirable jobs are completely voluntary, it is the after-tax wage that encourages people to accept these jobs.) We then have a structural incentive to make those jobs less undesirable, probably by automation, which fulfills the third criterion: long-term self-correction.

I will address the "Wilt Chamberlain" argument in my next post.

Strict equality and marginalism

As far as I can tell, the best alternative to (nearly) strict equality of income is marginal productivity theory: each person should receive the social permission to consume socially produced goods and services in proportion to his or her marginal productivity. People who are very productive at the margin receive more of the social product; people who are not very productive should receive less.

Of course, arguing against one alternative among many is not much of an argument for a position, but knocking down the best alternative offers better support.

It's notable that Mankiw makes a deontic moral argument for marginalism rather than a utilitarian or pragmatic argument. I suppose he must, because the utilitarian argument looks pretty bad.

What do we mean by the marginal product? Generally speaking, the marginal product of something is the productivity of adding one more of that something; if we model production as a continuous function, the marginal product is the slope (partial derivative) of that something's contribution to production.

One problem, then, is that for an individual competitive firm, wages are exogenous: nothing the firm can do can affect wages. Thus the firm hires labor until the wage of the last worker exactly equals his or her contribution to production. At the level of the individual firm, therefore, the causality is exactly the reverse of the marginalist story: people are not paid according to their marginal productivity; the firm employs people until their marginal productivity equals their pay. If the prevailing wage were to exogenously increase or decrease, the marginal product of labor would still, at each individual firm, be equal to the wage.

But if the wage is exogenous to the individual firm, how is it set? Well, capitalism is very careful (with a notable exception, finally corrected, in the last half of the twentieth century) to ensure that most people's wages are set in a perfectly competitive market. In a perfectly competitive market, prices fall to costs, i.e. the cost of labor power, i.e. the cost of minimal subsistence. Only political reasons, not economic reasons, push some wages above subsistence in the long run. (In the short run, demand for a new specialty, such as computer programming, can race ahead of supply, allowing specialists oligopoly pricing, but after ten or twenty years, supply will eventually catch up.)

Thus, marginalism entails that most people should receive subsistence wages; not because most people can produce only that much, but because we will hire labor until the last person hired produces that much. And they produce that much not because of their personal characteristics, but because the firm has made a choice between labor and capital based on the exogenous subsistence wage. I can't imagine that anyone would consider these circumstances "fair."

What about the capitalist? Even allowing the polite fiction that capital (machines, trucks, buildings) produce anything at all, the capitalist himself produces nothing; he just sits around owning things. Even if the marginal product of capital is equal to the wage, an individual capitalist, unlike a worker, can own an unlimited amount of capital. Moreover, the more capital a capitalist owns, the more he can acquire, so capital ownership, absent political limits, is self-concentrating. And, concentrated enough, the capitalist can enjoy monopoly pricing, exogenously setting the price of capital. And again, firms will choose just enough capital so that the marginal product of capital is equal to its price.

So, yes, everyone receives his or her marginal product, but the decision about what that marginal product should be is not economically but socially determined; it has nothing to do with any individual's characteristics or capabilities. Fair? I think not.

What about the millionaire CEO? Is he paid his marginal product? If so, if the marginal product of a CEO really is in the eight figures, then bog-standard economic theory tells us we should be producing a lot more CEOs. We should be producing so many CEOs that the last one we hire produces the subsistence wage. If the CEOs we have are really producing tens of millions of dollars per year, we should experience an enormous boost in productivity by vastly expanding the number of CEOs.

Heh. Not gonna happen. Even if it's true that each CEO really is directly responsible for tens of millions of dollars of productivity (they're not), the fact that we have politically limited the supply of CEOs is why their marginal productivity is so high. And, of course, a CEO's marginal productivity is not really that high; they are pseudo-capitalists, paid not for their productivity but their social status.

Fundamentally, the problem with marginal productivity theory is that marginal productivity is politically determined; marginal productivity precedes wages and prices of capital.

There are, of course, limits on these prices. There is a physical limit as to how far real wages can fall, there are political pressures keeping wages above mud huts and just enough food to avoid starvation, and given some politically determined wage, there are high and low limits on the marginal productivity of capital. However, within those limits, marginalism entails that most people should live as poorly as possible, and that a small few should live as wealthily as possible, regardless of the individuals' characteristics, and regardless of the potential productive forces of society. Marginalism moves us away from the shared goal of abundance.

Another way of looking at it is that yes, it is a matter of economic necessity that everyone does in fact receive his or her marginal productivity; however, within physical limits, we are free to set marginal productivity. And if we are free to set it, we are free to set it such that everyone's marginal productivity is nearly equal. As productivity increases, equality tends to increase, until we really do have abundance and absolute income equality, i.e. as much as everyone wants.

Capitalism's mysterious triumph

Capitalism's Mysterious Triumph: "Communism failed because of an inability to provide a sustaining reason for existance; only under crisis could it work."

Krugman has some real insights, which any good communist should study. However, he looks only on the more pleasant aspects of capitalism; but the ugliness of capitalism is just as much a cause of its "triumph."

More on strict equality

It seems pretty clear that our economic goal is to have economic abundance, where everyone can have as much ordinary stuff as they want; by definition, we would then have strict equality of income. We do not, of course, presently actually have economic abundance, so at best this form of strict equality lies in the future. What of today, then? First, does the present level of economic inequality per se help or hinder progress towards a goal of abundance? Second, should we address economic problems other than inequality, perhaps using inequality as a diagnostic or measure of success, or should we address economic inequality directly?

We do not have a world of abundance, but we do presently have (or are very close to) a world of "plenty": a world where everyone can have enough to avoid the most obvious kinds of physical and social suffering, such as malnutrition or starvation, homelessness, treatable death and disease, undereducation, and barriers to ordinary civic participation. Moreover, everyone can have the "necessities," and we will still have enough social surplus to continue expanding the forces of production. We know we presently have a world of plenty simply because all economic crises of modern capitalism are crises of overproduction. Overproduction is possible only in a world of plenty.* Given that we do in fact have plenty, we have to talk about the morality and practicality of how we distribute it.

*If you don't buy this claim, let me know, and I'll write about it elsewhere.

Because we do have enough that no one has to materially suffer, then it is a moral evil to allow anyone to suffer from material deprivation. This position is not a matter of argument: either we have this moral opinion or we don't. I'm going to proceed under the assumption that we do. (It's notable that people who seem to hold the alternative moral opinion seem to hide that opinion.) If we are going to both ensure that everyone has these necessities and account for people's consumption, then regardless of any other considerations, we must ensure that everyone has sufficient income to afford the necessities. We can, of course, do other things — e.g. improve education, equalize access to capital, ensure appropriate political and economic socialization — but we must also simply ensure that people have enough income to buy what they need. Criminality is beyond the scope of this post and topic, but we already at least pretend to offer even the worst criminals these basic necessities; how can we refuse them to law-abiding citizens? Clearly, to the extent that we share this moral vision, we must address income inequality directly.

Of course, setting a floor on income is not strict income equality. However, the need for an income floor requires that income inequality become an issue we need to address directly, neither irrelevant nor merely diagnostic. Sometimes we need to stick the camel's nose in the tent: if we accept an income floor, it becomes more politically feasible to continue to equalize income and wealth. Opponents might, seize normalization of strict equality as an argument against an income floor. But this argument presupposes the absolute good of income inequality, a presupposition that I do not think can be justified. The goal of strict equality is not some Procrustean bed of drab sameness; the goal is a society of material abundance. To be against strict equality in principle is to be against material abundance.

Strict equality: A world of abundance

Consider an "ideal" (in the sense of theoretically "perfect") world, a world of abundance, a world where everyone has as much ordinary stuff as they want; if someone wants something extraordinary, we would have some democratic process to decide if they should get it. This ideal world has perfect equality of income: everyone has the same demand on the social product — at least the ordinary product — as everyone else, i.e. as much as they want. There are some technical and philosophical problems: we would have to ensure we didn't have over- or under-population, and a lot of people might choose to sit around doing nothing, but I think it would be a stretch to find a specifically ethical problem with such a society. We would have to say that there is enough physical stuff that people can have as much as they want, but it is good that we deny some people what they want.* Why would we do that?

*I am excluding wanting "bad" things, e.g. wanting slaves or the enforced subordination of other people.

Contrast the above ideal world with ideal capitalism. Ignoring the considerable philosophical and practical problems with free markets, what happens with capitalism when we have a lot of stuff?

By ideal capitalism, I mean a political-economic system with the following characteristics. First, all markets for all commodities are perfect: there are perfectly competitive markets for all commodities (no monopolies, monopsonies, or oligarchies), free entry and exit in the production of all commodities, no externalities in the production or consumption of all commodities, and everyone has perfect information about all prices, costs, and benefits. Second labor power is a commodity with a perfect market. Third, capital, whether in its direct physical form as machines, buildings, etc. or its indirect, financial, form as a demand on the product produced by physical capital, is privately, individually owned.

Note that capital is not a commodity-by-definition above. Capital cannot be a commodity-by-definition; if it were, then no one would have a demand on the surplus social product (the amount of production in excess of the needs of survival and reproduction): there would not be any market at all for the social surplus, and we would produce only as much as everyone needed to survive and reproduce.

I'll discuss later the question of whether capitalism is or is not (it's not) a pragmatic way to grow society's productive forces to the point where there is enough stuff that people can just have what they want. I want to ask here whether or not ideal capitalism is compatible with a world of abundance.

The problem of labor is sufficient to show that capitalism is not compatible with abundance. Either there is labor or there is not (all production is by capital). If there is labor, and labor power is a commodity with a perfect market, then the price of labor power is equal to its marginal cost. Furthermore, competition ensures that the marginal cost would be as low as possible. Thus, people who labor would receive for their labor just enough to survive and reproduce. Even if there were enough that everyone could have as much as they want, people who labor would not have as much as they want.

Furthermore, there is no opportunity for people who labor to acquire capital. If they received enough for their labor to acquire capital, then the price of labor power would be above its marginal cost, and we would conclude that the market for labor power was imperfect.

If there were no labor, if all production is only by physical capital, then the private ownership of capital becomes the problem. If capital is privately owned, then an individual's consumption is limited by the amount of capital they own. Again, there is enough (or the potential to produce enough) that everyone can have as much as they want, but some people's consumption is limited by what is nothing more than an arbitrary social convention. If we were to redistribute the social ownership of capital, we would not have private ownership.

Thus, regardless of its utility as an intermediate mode of production, capitalism cannot be a universal mode of production. This result should not be surprising: capitalism is a social response to scarcity, specifically scarcity of capital. We should not expect it to be robust to abundance.

We could relax the assumptions of capitalism, perhaps specifically the assumption of labor power as a commodity. And, of course, at some point we must relax them, unless we want to deliberately impose scarcity just to keep the system intact.

In later posts, I'll take up the issue of capitalism as an intermediate mode of production, and why it begins to fail far short of an abundance of production.

$70,000 minimum wage

Here's What Really Happened at That Company That Set a $70,000 Minimum Wage

Dan Price decided to pay all 120 employees at least $70,000. Grown men cried. Profits soared. Then things got really crazy.