Collective Conscious

Full con­ver­sa­tion here. My bit (quotes from him are bold):

Eco­nom­ics is not a moral­ity tale. False. Joan Robin­son, refer­ring to cap­i­tal­ist apol­o­gists like Schum­peter: “It was the task of the econ­o­mist to jus­tify the ways of Mam­mon to man .… It is the bur­den of the econ­o­mists, not to tell us what to do, but show why what we are doing any­way is in accord with proper prin­ci­ples.” The mere fact that we can have this dis­cus­sion, with you claim­ing that a cer­tain course of action or a cer­tain set of invest­ments is ‘right’, means that you also think the cor­re­spond­ing eco­nomic pro­duc­tions and allo­ca­tions have a moral weight to them, that the win­ners and losers in your pre­ferred scheme are ‘deserv­ing’ of what they receive. In other words, eco­nom­ics is a moral­ity tale, and we have dif­fer­ent ideas of a happy ending.

No one’s being “pun­ished.” If not, what is hap­pen­ing to those  mal­in­vestors who you would like to see bank­rupted even though they can be saved?

It’s sim­ply an acknowl­edge­ment that in order for mar­kets to clear and resources to begin to be directed effi­ciently again… Here’s your morality-​​tale happy end­ing: ‘effi­ciency’. Define it; defend it. What does it mean for a mar­ket to be effi­cient, and why is that desirable?

the state should not step in to assist. The state is extra-​​market and is not a part of it. It’s an alien inter­ven­tion, in other words. The same could be said of police inter­ven­tion in any sort of vio­lent crime. The ques­tion remains: why let awful things hap­pen to peo­ple who you are respon­si­ble for protecting?

I’m not indif­fer­ent to the level of employ­ment, but it’s not the biggest fac­tor. Pro­duc­tion is. Full employ­ment is not an end, only a means to full pro­duc­tion. Per­haps this is our most fun­da­men­tal dis­agree­ment. As Rawls wrote in A The­ory of Jus­tice (1971), you would reject an out­come that pro­duced the max­i­mum pos­si­ble amount if that out­put was allo­cated to a sin­gle per­son, wouldn’t you? And since that is true, then you are forced to admit that we always face a trade­off between increased ine­gal­i­tar­ian out­put, and dimin­ished, but more morally palat­able out­comes. We can argue about where we want the bal­ance, but you can­not be so silly as to claim that the output-​​maximizing posi­tion is always the most socially desir­able. We have moral con­cep­tions of fair­ness, and our eco­nom­ics must be dri­ven by them.

a pol­icy of suf­fer­ing is a pol­icy of con­tin­ual boom/​bust that the Fed cre­ates. Now you’re being an ide­o­logue. The Fed is not respon­si­ble for the boom/​bust cycle; reces­sions were far more com­mon and far more destruc­tive before the devel­op­ment of mod­ern cen­tral bank­ing. Just read Kindleberger’s Manias, Pan­ics, and Crashes for a dozen empir­i­cal examples.

a pol­icy of suf­fer­ing is a pol­icy of infla­tion that destroys sav­ings and the mid­dle class. But if, on the whole, middle-​​class sav­ings have been neg­a­tive (ie mas­sive con­sumer bor­row­ing), then infla­tion actu­ally cre­ates sav­ings and helps the mid­dle class. See Mike Konz­cal on the ‘bal­ance sheet reces­sion’ for the facts that back this up. This is where we are, and this is what we need.

a pol­icy of suf­fer­ing is govt and union imposed wage rates that price out large sec­tions of the work­force. In many sec­tors, wage increases can actu­ally cause an increase in employ­ment. This is backed up by basic monop­son­is­tic analysis: http://goo.gl/jz2Az. In addi­tion, wage increases can cause a net dis­tri­b­u­tional shift from cap­i­tal to labor, even if they reduce the level of employ­ment in that sec­tor; this can also be a good thing.

The Aus­tri­ans see mal­in­vest­ment as invest­ment that was made under cer­tain con­di­tions (low inter­est rates, attrac­tive govt con­tracts) that dis­torts the nat­ural cap­i­tal struc­ture that would pre­vail in an unham­pered mar­ket. Again, this is your morality-​​play bit. Why is the ‘nat­ural’ cap­i­tal struc­ture any bet­ter than an alter­na­tive I could pro­pose and enact, and what makes it ‘nat­ural’ any­way? The dis­tri­b­u­tion of resources was cer­tainly not nat­ural; quite a bit of wealth was con­fis­cated, stolen, redis­trib­uted, etc. in the past; to my mind, there is no ‘nat­ural’ — only bet­ter and worse, right and wrong. Why not work to make an econ­omy in our own image, to our own desires, rather than be fanat­ics to a market-​​theology?

Entre­pre­neurs invest in cap­i­tal goods that reflect the tastes and time pref­er­ence of soci­ety and prices act as infor­ma­tion sig­nals to guide entre­pre­neurs to the cor­rect path. False. Entre­pre­neurs invest in goods that pro­vide finan­cial returns to them, with lit­tle or no regard for soci­ety. We know all about neg­a­tive exter­nal­i­ties and pub­lic goods, and we know that entre­pre­neurs have zero social con­science when it comes to these things, and we know that price sig­nals are use­less there too. So man­age­ment and reg­u­la­tion is essential.

What would the econ­omy look like with­out any govt inter­ven­tion? Nasty, brutish, short? No mil­i­tary pro­tec­tion? No polic­ing? — not to even begin with proper social insur­ance programs.

As to your full employ­ment point, you real­ize that these peo­ple and these cap­i­tal goods that are unem­ployed are unem­ployed for a rea­son, right? Obvi­ously, entre­pre­neurs could employ what­ever cap­i­tal goods they have to what­ever pur­pose for the sake of “employ­ment,” but they choose not to. That’s exactly right. And how can you argue that a person’s out­put is lit­er­ally not worth hav­ing? Let­ting that labor go to waste is an unac­cept­able loss to soci­ety, and if our ‘entre­pre­neurs’ don’t care about other people’s well-​​being (and I’m not say­ing they should), who will? Because employ­ment is an end in itself; labor has value to peo­ple beyond what they get paid for it; labor-​​spoilage is pure dead­weight loss — and so we had bet­ter not let unem­ploy­ment hap­pen when we have the tools to avoid it.