Strange Economic Bedfellows
We live in strange times. In the last week, I have encountered a couple of articles that gave me pause about the state of the debate about capitalism—at least for a moment. If you had told me a few weeks ago that I would be eagerly reading articles that make important points about capitalism, I would accept that with some interest mixed with some hesitation. If you added that the articles in question featured insights of a member of Congress who proudly claims membership in the Democratic Socialists of America and a Nobel Prize winning economist with firm roots in New Keynesianism and Behavioral Economics, I’d probably have been gobsmacked at the thought. As I said, these are strange times.
The first piece details a recent interview with Representative Alexandria Ocasio-Cortez. I’ll admit, I was drawn in by a link to the piece that featured her statements that “free markets are not the same thing as capitalism” and that capitalism “is not a redeemable system for us.” Intrigued, I watched the interview, hoping against hope that the first statement might have been representative of some realization that cronyism and corporatism are not equivalent to capitalism properly understood. Some dear readers might think I had a better chance at winning the Powerball drawing. I did not and still do not, of course, expect Rep. Ocasio-Cortez to experience a sudden conversion to a rights-supporting defender of free markets. Instead, I am simply attuned to the broader debate about capitalism on the rare chance that real issues come up—in this case, perhaps the question of ending government involvement in business was on the table.
The interview opened with a glimmer of promise. “When we toss out these big words, capitalism, socialism,” Rep. Ocasio-Cortez noted, “they get sensationalized. And people translate them into meaning things that perhaps they don't mean.” Exactly! There it was, the tiniest scintilla of a proper framing of the issue. Let’s dig in and ask not what capitalism means in the hyperbolic and distorted sense, but in its purest terms. What followed, alas, was exactly the kind of blinkered confusion of concepts and theories that, deep down, I fully expected.
There were two points that came up, despite the distortions and ideological posturing, that are worth at least some comment. By defining capitalism “at its core” as “the absolute pursuit of profit at all human, environmental, and social cost,” Ocasio-Cortez shows us the first hint at the intellectual stakes she has set. Setting up the absolutism of profit-seeking against other clearly moral values (after all, who doesn’t value humanity?), her rhetorical ploy here aims to condemn business activity as such. There is a vacuous tinge to the way that “profit” is used here, as if it were an undefinable dirty word that we’re just supposed to know is evil. But what exactly does it mean to pursue a profit? Leaving aside more technical economic or accounting definitions, at its simplest, “to profit” means to create new values. At its base, the idea of “profit” is a fundamental way of distinguishing between the kinds of human action that diminish our total wealth and those that increase it. To borrow from Bastiat, using a hammer to smash and destroy your house is not profitable, using it to make a new piece of furniture that enables you to have a place to sit for years to come is profitable. Profit is growing, developing, and flourishing for humans, without it we would stagnate and quickly exhaust our means of survival. Profit is progress. Life is motion and standing still—i.e., existing without pursuing profit and the expansion of one’s resources—means either death or dependency.
Ms. Ocasio-Cortez comes in for a fair share of criticism and likely even more trolling and unproductive mocking. Though I certainly think that the conceptual attack on “profit” is the ultimate philosophic corruption behind the Representative’s patently silly juxtaposition of “absolute profit seeking” with “human values,” I seriously doubt that she embraces those ideas in their purest form. What is happening, I think, is that she is clinging to ideas about alternate forms of business arrangement—she mentions Senator Elizabeth Warren’s proposal to have worker representation on corporate boards and later mentions worker cooperatives—that she believes are morally superior to existing arrangements and which she is impatient to see succeed.
The evidence for my suspicion is strewn about through the rest of the interview. She uses the word “control” twelve times in the space of two brief answers that barely exceed four hundred words. What of this “control”? This is the real issue, hidden as it were in plain sight. Her opposition to capitalism, really, comes down to the fact that some people control resources, companies, and businesses, and she prefers that other people do so. This hits at the core issue, which is always a moral one.
The unasked question behind the discussion of who controls anything in a free society is whether they do so by right or not. Does the person or corporation that “controls” resources actually have a legitimate rights-respecting property right in those resources? Or does the “control” over the “core assets of production” derive from government favors and preferential gifts to connected insiders, or businesses who benefit from government barriers to entry in the form of antitrust enforcement and regulatory capture? Do the businesses that allegedly “control” our labor in fact have rights-respecting, voluntary contractual relationships with us? Or do we work in a marketplace that is conditioned, shaped, and determined by tens of thousands of regulations that stand between employer and employee and dictate compliance to government edicts? Are the unionized workplaces championed by Rep. Ocasio-Cortez achieved through voluntary consent on both sides of the bargain? Or does the government prohibit the free choice of how to bargain and impose its scheme on both employee and employer under threat of criminal sanction?
The logical endpoint of her argument in the interview is the idea that the government must change the rules, must compel action in favor of the types of control that she favors. Despite her boast about how many worker cooperatives exist in her Bronx district, she clearly wants more. Like Sen. Warren, she hopes to use the levers of power to compel worker representation on corporate boards whether it is chosen or not. I have only personally skimmed the surface of the deep empirical debate on the question of whether corporate entities and their workers benefit from such board arrangements, but I know for sure that this is a question that should be left to the free choice of the individuals involved, not one mandated by law.
A few days after seeing that interview with its alluring but ultimately false hope of a real debate, imagine my double surprise at seeing, first, that a New York Times opinion piece was titled “Inflation is Not a Simple Story About Corporate Greed” and, second, that it was penned by New Keynesian Robert Shiller. I’ve been tracking the curious path of the debate about inflation for a while now, and this headline was too enticing to pass up despite my reluctance to believe it would be any good. Once again, I hoped against hope that Shiller might make the simple observation that greed long predated capitalism and has been more or less constant through history, and as such, assigning it unique causative agency in this particular episode of inflation would be naïve and overdetermined. After all, if greed causes inflation, what accounts for periods of deflation or price stability? Even the most anti-greed theorists have not yet (to my knowledge) developed fancial theories of cyclical greed.
If Shiller had taken on the simple task of refuting the over-simplistic assignation of greed as the cause of inflation, that would have been truly surprising. Again, maybe I should play the Lotto instead of thinking that the tempest of our times would make strange economic bedfellows into quasi-allies, let alone even interesting interlocutors. Instead, they revert to type and double-down on the folly of their own arguments.
Instead of examining the arguments about whether wage demands and pricing choices are actually rooted in “greed” or in rational calculations about market positions, Shiller shifts the debate to his favored home turf—economic perception and public opinion. In addition to being a New Keynesian, he is also firmly committed to behavioral economics—which he and George Akerloff claim explains “how the economy really works.” I’ve written about this hamfisted attempt by economists to shoehorn poorly understood psychological research into economic modeling before. Suffice it to say that it adds up to the claim that intractable human irrationality matters more than intentional choice.
In the Times piece, though, Shiller focuses mostly on the history of the idea of a wage-price spiral—alleging that what matters is not facts or statistics, but the perception of them. “Feeding fears of a wage-price spiral can be dangerous,” he notes, “especially if Americans view it as something that might continue indefinitely. Once lawmakers, business leaders and consumers come to believe the spiral has really taken hold, that belief can amplify long-term inflation expectations.” Consider what this means in practice. Shiller believes that if Americans “come to believe” that something is happening in the economy (no doubt due to some ineluctable and mentally irresistible media-driven narrative), they will be overtaken by that perception and begin to act on it, thereby creating the very phenomenon that was only a moment ago just a fictive narrative. There is, in this scenario, no apparent possibility that those same economic actors could revise their assumptions, change their perceptions, check their perceptions against hard facts, investigate dispassionately the real factors at play, or, I don’t know, perhaps just not automatically buy into a detached-from-the-facts narrative.
Given this threat of letting our imaginations create the very reality we fear, what does Shiller suggest? In a passage rich with condescension, he advises that “it would be better if Americans let the Fed do its job, calming down and refusing to buy into these fears.” To be sure, a diverse array of economic analysts acknowledge that frenzied market transactions driven more by emotion than reason can temporarily create havoc until cooler heads prevail. Many of the best analysts even understand that asset “bubbles” or emotion-fueled dislocations can only persist when government interventions and controls interrupt the price signaling and information providing mechanism called the market process. The real solution to irrational market behavior, to the extent it exists, is to counsel cool reflection and to encourage people to check their beliefs against reality, to gather more data, and to act with a long-term, principled approach—not to scream “trust the experts!” particularly when those experts (The Federal Reserve) have such a horrific track record. Yet Shiller cannot help his own professional elitism when he notes that he has in fact studied the public’s perception of inflation’s effects against those of professional economists and found the public susceptible to “conspiratorial” thinking.
There is one gem in the otherwise tiresome piece that I want to highlight. The first half of what Shiller writes is something I can wholeheartedly endorse, the second half is a window into the corrupt moral assumptions behind his schtick. He writes: “Inflation is a problem of some importance and a problem with a moral dimension. We owe it to all the owners of U.S. government debt—future generations—that we don’t erode the value of the dollar too much with inflation.” Inflation indeed is, as I noted back in November, a moral issue. Yet framing the problem as a question about what we owe future generations and characterizing the issue as being one of degree—“erod[ing] the value of the dollar too much”—Shiller lays bare that he has already assented to a system of government dictates and forced expropriation of wealth and economic value by one group of Americans against another without their consent. How about, instead of devising a scale of what is or is not too much of a burden to transfer to future generations (what gives anyone that right to begin with?!?), we commit ourselves to stopping all erosion of the value of the dollar by government fiat? How about we return the right of individuals to choose freely their monetary arrangements based on objective values and not empty government promises?
In the end, I still think it’s important to hear what is being said and discussed by such obvious critics of capitalism as Alexandria Ocasio-Cortez and Robert Shiller. We need to remind ourselves that these are not mere questions of economics, but are instead deeply moral stances that must be met with a moral clarity and principled convictions that match them. Nothing less will keep us from getting into bed with some very strange fellows indeed.