Adam Smith and distributive justice
Many libertarians are sceptical about the idea of social justice, citing Hayek's argument that social justice is a mirage. Indeed, recently David Friedman had a debate with Jason Brennan, John Tomasi and Matt Zwolinski of the Bleeding Heart Libertarians blog over whether the concept even had a clear meaning. My own view is that social justice is just justice writ large, with particular focus on distributive issues like equality, priority and sufficiency.
Many classical liberals were deeply interested in questions of distributive justice, including Adam Smith, who made his name as a moral philosopher, and often focused on the damaging effects mercantilist and other interventionist policies had on the worse-off. Barry Stocker has recently posted the text of three very interesting talks he gave in Istanbul on the subject of Smith and distributive justice. Stocker highlights the ways in which Smith laid the blame for unjust distributions of society's goods at the state's door:
The cause [of unjust distributions] is largely the activity of the state rather than the results of markets being left free of state legislation and government schemes. Smith sees injustice as resulting from collaboration between merchants in the same sector, but sees this as more the consequence of state intervention than of free commerce. The state enabling, encouraging and even requiring enterprises to form corporate bodies (such as local chambers of commerce in Britain) in the same sector is the biggest reason for merchants conspiring against the public. That is the source of the famous quotation about merchants conspiring against the public, though that quotation is often used to support demands for increased state regulation.
And Stocker also highlights how Smith's concern for social justice did not translate into calls for redistribution; he believed that a good overall institutional structure would generate desirable distributional outcomes:
One of the problems with Smith commentary is that admirable scholars and political theory thinkers, like Rasmussen and Fleischacker, who are disposed favourably to a theory of redistributive justice see it in those elements of Smith which express a wish for distributive justice. There is distributive justice in Smith in the sense that he favours the distribution that emerges from freedom in economic activities, and in the state measures he favours to benefit the poor rather than the rich. However, that is not the same as the kind of belief in a predetermined pattern of distribution of justice which Rawlsians, or egalitarian liberal favour, at the extreme a completely flat distribution as argued for by G.A. Cohen and which is in the basic assumptions of Habermas‘ thought on norms, ethics, and discourse.
Globalization drives cultural diversity
Donald Boudreaux recently reposted this 2010 essay on the impact of globalization on culture. Globalization is not about 'just stuff', he says, it's about increasing diversity by allowing different parts of different cultures to mix:
A century ago, there were no internationally franchised restaurants in Paris, France or, for that matter, in Paris, Texas. A century ago, residents of neither Omaha, Nebraska nor Birmingham, England could find sushi restaurants near their homes; today, sushi restaurants are all over the Western world. A century ago, blue jeans were not the international fashion that they are today. A century ago, the typical man's business suit worn by New York lawyers and London bankers was not widely worn in Africa and Asia, as it is today. In many ways, global commerce has indeed made the world more homogeneous.
But look more closely. While the differences between Paris, France and Paris, Texas are fewer than they were in the past, the cultural richness of each of these places today is far greater than it was just a few years ago. For a resident of Paris, Texas, circa 2010, the richness of the cultural smorgasbord available to him or her right at home is vast. A Texan can stay in town and dine on Vietnamese, Italian, or Greek food—or on barbeque. A Texan can listen to German symphonic music or medieval chants or Irish dance music or Edith Piaf—or country and western. A Texan can buy French neckties, English raincoats, and Italian scarves—and cowboy boots. Likewise a Parisian can choose croissants or New-York-style bagels. A mere century ago—even thirty years ago—the cultural diversity of both places was much less than it is today.
It's easy to be annoyed at the 'touristification' of a place like Thailand, but what that really means is more people get to experience somewhere they would only be able to imagine visiting fifty years ago. Perhaps it's no coincidence that this complaint usually comes from the people who can most easily afford foreign holidays and expensive exotic meals in their home cities. I'm tempted to say that they should check their privilege.
Boudreaux's piece is worth reading in full.
Don't hate the players, hate the game
I usually agree with Mark Littlewood, Director-General of the IEA, so I was surprised by his piece in the Mail on Sunday this weekend. Mark proposes a public register of everyone claiming benefits of any kind – pensions, disability living allowance, jobseeker’s allowance, and so on. This strikes me as a very bad idea indeed.
Mark’s aim is to increase public awareness of benefits claimants who are receiving much more in benefits than most people would think reasonable. This, he hopes, will increase the public’s appetite for welfare cuts. Actually, I think people overestimate how much money individual people on benefits get, but the proposals are undesirable for other reasons.
Mark says that “This wouldn’t be a matter of ‘naming and shaming’ anyone. After all, if you are legally entitled to a particular benefit, what is there to be ashamed about? Anyone ashamed to claim money from the State maybe shouldn’t be claiming it.”
In my experience, most unemployed people are profoundly ashamed of being unemployed. Removing their privacy, exposing them to gossiping neighbours and their children to bullying classmates, will just make that even worse.
And Jobseeker’s Allowance only accounts for a small proportion of the welfare budget. These proposals would also include people on disability benefits for socially stigmatized mental illnesses and physical disabilities that they would like to keep private.
Mark says that Britons “are far too reasonable to start taking up pitchforks and burning torches and assaulting imagined benefit cheats.” I am less sure. This is, of course, the same country that saw a paediatrician being hounded by vandals who confused the word “paediatrician” with “paedophile”.
These proposals would humiliate people on benefits and rob them of their privacy. They don’t deserve it. Many (probably most) of them are dependent on welfare because of the state itself, and it is senseless to make their lives even more difficult instead of tackling the real causes of their poverty.
If you think that unemployment is largely caused by government mismanagement of the economy, it makes no sense to humiliate people for being out of work. If you think that government welfare has crowded out private charity, you shouldn’t blame people forced to rely on government disability benefits. If you blame planning regulations for the high cost of housing, you should focus on those regulations before you cut off the money that mitigates the problem for a few poor people.
I wish the only problem today was the government’s unwillingness to cut spending. In fact, that spending usually exists to relieve much bigger problems that can’t be found on the Treasury balance sheet. Often, those problems are state-made.
To me, this is one of the key messages that ‘bleeding heart’ libertarians need to get across to other free marketeers. Cutting back the state is a bit like a game of Jenga – if you blithely pull away the supports that people rely on before you take away the causes of that reliance, you’ll only end up making things worse.
The rise and fall of the Gold Standard
George Selgin, prominent monetary theorist and blogger at Freebanking.org, who recently gave an excellent talk at the ASI on "good deflation", wrote a history of the gold standard in the USA, explaining that there is no one narrative or theme throughout the history, with the fortunes of gold rising and falling with the times. While he pokes holes in some of the common garden arguments against a return to gold he also has his own reasons for distrusting a new regime founded on the yellow metal:
The claim that the real price of gold has become too volatile to allow that metal to be relied upon as a standard, for example, overlooks the extent to which gold’s price depends on the demand for private gold hoards, which has become both very great and very volatile precisely because of the uncertainty that fiat money regimes have inspired. The claim also overlooks the tendency for a metal’s price to become more stable as it becomes more widely adopted as a monetary standard.
Nor is it the case that there is not enough gold in the United States to support a new gold standard. According to Lawrence White, the Treasury’s gold stock, assuming that it is indeed what the Treasury itself claims, would at an official gold price of $1,600 per troy ounce be worth almost 20 percent of 2012 M1, making for “a more than healthy reserve ratio by historical standards.”
There are, however, some more compelling reasons for doubting that a return to gold would prove worthwhile. One is the prospect that any restoration of the convertibility of dollars into gold might be so disruptive that the short-run costs of the reform would outweigh any long-run gains it might bring. A second compelling reason has to do with the specific disadvantage of a unilateral return to gold. Here, once again, it must be recalled that the historical gold standard that is remembered as having performed so well was an international gold standard, and that the advantages in question were to a large extent advantages due to belonging to a very large monetary network.
Finally and perhaps most importantly, it is more doubtful than ever before that any government-sponsored and -administered gold standard would be sufficiently credible to either be spared from or to withstand redemption runs.
Read the whole thing.
Health inequality isn't all caused by income inequality
Chris Snowden has picked up on something that has long been a bugbear of mine. I shouted about it back when the Marmot Review on health inequality came out. It simple isn't true that all health inequality is as a result of income inequality: but that was the stance that the Review took.
Poor health will likely lead to low incomes, for example (reverse causation)
Absolutely: there are two effects going on. Getting some ghastly chronic disease in your 40s is obviously going to make you poorer in your 60s than if uyou'd been able to continue your meteoric rise up the career ladder to glory and a CEO's paycheque. I have no doubt that income inequality leads to some health inequality: I'd be surprised to find rich children suffering from vitamin deficiencies for example (assuming that Mother doesn't try all of the Mail's diet advice on her anklebiters) for example. But it's also true that health inequality leads to income inequality.
There's another effect going on as well. We're annually reminded (when the figures come out) about the geography of health inequality too. Men in Manchester or Glasgow die younger than those in Eastbourne for example. But again we're not being told a very important part of the story: people do move around you know. So it isn't true that someone born in Glasgow is destined for an early death: rather, it's those who don't climb the ladder up out of the slums who are. And the reason that lives are so long in Eastbourne or other retirement hotspots is that people only move to them when they are indeed retiring. And age expectations at 65 are very much higher than expected life span at birth. Simply because you've already survived, by definition, all of the things that were going to kill you before you got to 65.
Along with Snowden I tend to think that there are certain sets of statistics that are deliberately misrepresented in order to lead to a desired political conclusion. And those on health and age at death inequality are two sets of them.
The costs of regulation and why we're not creating enough jobs
We all know that regulation has benefits. We all also know that regulation has costs. The usual political mantra is that the costs are minimal while the benefits are huge. That may not in fact be true:
Regulation’s overall effect on output’s growth rate is negative and substantial. Federal regulations added over the past fifty years have reduced real output growth by about two percentage points on average over the period 1949-2005. That reduction in the growth rate has led to an accumulated reduction in GDP of about $38.8 trillion as of the end of 2011. That is, GDP at the end of 2011 would have been $53.9 trillion instead of $15.1 trillion if regulation had remained at its 1949 level.
It's worth thinking about that for a moment. Each individual American, the society as a whole, would be three times richer than they are if there had not been that explosion of regulation of the economy since WWII. That sort of increase in wealth buys quite a lot of people harmed by the lack of regulation.
But it's possible to use this to explain a disturbing feature of today's problems as well:
Why the change? The arguments rooted in technological developments sound like this: "Technologies like the Web, artificial intelligence, big data, and improved analytics—all made possible by the ever increasing availability of cheap computing power and storage capacity—are automating many routine tasks. Countless traditional white-collar jobs, such as many in the post office and in customer service, have disappeared. W. Brian Arthur, a visiting researcher at the Xerox Palo Alto Research Center’s intelligence systems lab and a former economics professor at Stanford University, calls it the “autonomous economy.” It’s far more subtle than the idea of robots and automation doing human jobs, he says: it involves “digital processes talking to other digital processes and creating new processes,” enabling us to do many things with fewer people and making yet other human jobs obsolete.
It has always been true that technological advance destroys jobs. But it has also always been true that technological advance creates other jobs as well. There's a worry that this isn't happening in the current economy. And that first paper gives us a clue as to why. There's simply too much regulation. If the economy were three times larger than it currently is then I do rather doubt that there would be much unemployment. And even if we take their numbers as being a tad fantastical, their basic point is obviously sound. Regulation restricts economic growth. It's economic growth that produces jobs. We're not creating enough jobs thus we've not got enough growth (and do recall, growth must be above labour productivity growth for there to be any expansion in employment) and over regulation is at least a part of that problem.
So let's hang the bureaucrats in order to get the unemployed back to work.
Check your fallacies
The latest game on the left is called "check your privilege," and if you make any point about others perhaps less advantaged than you, you are given to understand that you cannot really comment objectively, given your advantage.
It’s quite an old game. Marxists used to call it "sociology of knowledge", but the rules were similar. All of your opinions were alleged to be only the product of your class interest, and could therefore be discounted. If you advocated market economics and classical liberalism, for example, this was simply an expression of your class interest as a member of the bourgeoisie. It has the advantage that the intellectual content of your views can be ignored. Opponents do not have to argue with what you say; since it represents only your class interest it can be ignored. There is an exception. One group is sufficiently detached from the class system that their views have objective import. These are the Marxist intellectuals, of course.
The fallacies in "check your privilege" are straightforward and easy to identify, though Herbert Marcuse (remember him?) would no doubt have dismissed them as part of "bourgeois logic." First is the argumentum ad hominem In which what is said is discounted, not because of any flaw or fault in its argument, but because of something pertaining to the arguer. It is not the substance or sense of what is said that is being criticized, but the status of the person putting it forward. The fallacy lies in the fact that the argument itself is not addressed, but irrelevant material is considered in its place.
The second fallacy is the genetic fallacy. Despite the name this has nothing to do with Darwin or Mendel, but involves a dislike of where an argument comes from. People are less inclined to accept views from those they dislike, whatever the merits of the actual views. The mistake is to suppose that the source of an argument affects its validity. A common meme is to assume that eventually someone will associate one side of an argument with Adolf Hitler, but it is still committed if you think that the views of rich white males can be discounted because of the three categories of those holding them.
Other fallacies are touched on, but all belong to the category of informal fallacies of relevance (intrusion), and represent considering that qualities pertaining to the arguer somehow undermine and diminish the argument. They don't. In its latest form it is simply an anti-intellectual way of doing down what the other side is saying without facing the difficulty of considering their argument.
A Hayekian argument for equality of wealth
According to Friedrich Hayek, star of interwar economics, and recently star of two excellent rap battles with his contemporary John Maynard Keynes, the type of equality that matters is equality before the law. Equality before the law—and not equality of opportunity, outcome or anything else—is absolutely central to his political philosophy. But I think his economic work, particularly his crowning achievement, "The Use of Knowledge in Society" (cited a mere 9,496 times), points to the importance of a different kind of equality.
In "The Use of Knowledge in Society" and in earlier work in the socialist calculation debate Hayek shows that scientific knowledge isn't the totality of knowledge in society. In fact, a much bigger body of knowledge—information about peculiarities of time and place and preferences—is dispersed extremely widely across individuals. The only effective way of using this knowledge is a market system. Market participants act on the information embedded in different prices, and in doing so send yet more information back in other prices. But each participants learns only what she needs to know.
The market system Hayek envisions is a great practical means of organising society to achieve high social welfare. The flaw with this system is that participants with more money get to send stronger signals than others.
Markets measure how intensely we want things much more accurately than most democratic systems, because individuals have to bid against others for desirable goods or services. But this breaks down if individuals lack equal wealth. Ten pounds spent by a pauper is likely to represent a much more intense preference than that same £10 spent by a billionaire, a millionaire, or even the average middle class homeowner. However, producers will treat these £10s the same, and the economy will be skewed towards satisfying wealthier people's preferences.
Actually, it's not as simple as that. One feature of the market system is that people get rewarded with more money income (and potentially wealth) if they choose less leisure, or a riskier or less satisfying job. These sorts of inequalities, even if they produce wealth inequalities, would not subvert the system. These individuals have paid for their higher wealth with lower utility in work—and extra wealth merely evens out the overall extent to which the economic system is tilted to their advantage.
But endowments of talent or wealth through better upbringing, genetic advantage or inheritance do subvert the system, and undermine Hayek's argument for the efficiency and rationality of the market order by counting some people's preferences as more than one.
Now, by no means am I saying it's easy to disentangle these "good" sources of unequal wealth from the "bad" sources, or even that we ought to try to do so, and then even out endowments. But I do think that the effect inequality of wealth has on the market functions as a strong—and Hayekian—reason to desire a flatter distribution.
The starting point in the immigration debate
At the Telegraph, Conservative MP Gavin Barwell says what for many Conservatives is the unsayable: that immigration is great for the economy:
Last week, the Organisation for Economic Co-operation & Development published a report which showed that immigration makes a positive contribution to the public finances of many countries, including the UK. Yes, you read that right: migrants in the UK pay more in tax than they consume in public services (that’s not true of every migrant of course, but collectively they make a net contribution). Without them, we would have to make further cuts to public services or pay higher taxes or both. . . .
We have to find a way to earn a living in an increasingly competitive world. Allowing the best and the brightest from around the world to come and study and work here can help us do that. So yes let’s make sure we have control of our borders, yes let’s tackle abuse, yes let’s talk about how many people and who we should allow to move here – but don’t let’s delude ourselves that immigration is always bad news.
And that's the point. The one point I disagree with Barwell on is when he says that "nobody is claiming immigration significantly increases" GDP per capita. Well, I am. Letting immigrants locate in rich countries deepens the potential division of labour: hiring a Tanzanian accountant to look after my firm's finances instead of doing them myself frees me up to focus on whatever I'm best at.
That minor quibble aside, I'm delighted that Mr Barwell has decided to be brave about immigration policy. While there are legitimate debates to be had about access to public services and social cohesion, the starting-point in any discussion about restricting immigration should be that restrictions make us poorer.
Austrian Business Cycles and Neutral Money
The proponents of Austrian Business Cycle Theory (ABCT) are often very critical of the diagnosis offered by monetarism: that sharp and substantial contractions in the money supply are the cause of major recessions. Rather, according to ABCT, a recession is a painful medicine curing the disease monetary policy already caused, as Professor Jesús Huerta de Soto, Spain’s leading Austrian economist, explains:
"[Money] is always injected into the economy in a sequential manner and at various specific points…..only certain people will be the first to receive the new monetary units and have the chance to purchase new goods and services at prices not yet affected by monetary growth….which can only lead to changes in society’s entire structure of relative prices." (Money, Bank Credit, and Economic Cycles, p. 533)
The argument here is that money isn’t neutral, that is, changes in it’s quantity affects peoples’ behaviour as price changes aren’t uniform. If money were perfectly neutral; doubling the quantity of money would cause all prices and wages to instantly double and people would go about their lives exactly as they would otherwise. When money isn’t neutral the failure of prices to adjust ubiquitously sends the wrong signals to entrepreneurs, creating mal-investment (capital allocated according to misleading price signals) and a following period of correction/recession. That’s ABCT in a nutshell.
So far, so good. However, Austrians like Soto seem to contradict themselves in their criticism of the aforementioned monetarist diagnosis:
"Attributing crises to a monetary contraction is like attributing measles to the fever and rash which accompany it." (Money, Bank Credit, and Economic Cycles, p. 527)
According to this criticism, monetarists have confused cause and effect; monetary contractions don’t cause recessions, recessions cause monetary contractions. It’s as if Soto is claiming that any sharp contraction in the money supply, even if we accept the premise that it was caused by the recession, had no further effect on the economy - that any sharp monetary contraction is neutral.
If ABCT aims to explain recessions whilst denying monetarism it must state, then, that money isn’t neutral and also neutral. Even more problematic is the apparent claim that money is far from neutral on the way up when growing at a fairly steady rate, but neutral on the way down when declining rapidly. Anyone worried about money supply growth prior to the crisis should also be worried about the fact it tanked in 2008. Soto joins Mises, Rothbard, Schlichter, and perhaps Hayek on the list of popular Austrians who are especially critical of monetarism.
On the other hand, some economists who identify as Austrians, such as Professor Steve Horwitz of St Lawrence University, have accepted some broad form of monetarism. Horwitz goes so far as to suggest that ABCT doesn’t explain every recession, and is only a theory of unsustainable boom. This clearly departs from the classical ABCT which did seek to explain all recessions and is very specific in it’s explanation thereof. And though I mostly agree with Horwitz’s interpretation, it can’t be labelled ABCT, because a theory of unsustainable boom is only a theory for half the cycle. So it leaves the question: can we create a version of ABCT which is consistent in its treatment of money throughout the cycle?