Wednesday, March 2, 2011

Are the Rich Doing the World a Service?

Right wing theory is that free markets are best for economic growth. Especially when it comes to capital, when you allow the money to flow freely it can quickly find an efficient use. For instance if an entrepreneur develops a new product that is superior to the competition we need capital to flow towards that product quickly because when the superior displaces the inferior the whole world ends up being a better place. And the entrepreneur gets rich as do the investors. As we all know in the case of hedge fund managers they can get staggeringly rich. But so what? If this makes everyone better off, what's the problem?

And so what if this staggering wealth caused inequality to grow? If one individual in a group of 100 suddenly becomes extremely rich, this doesn't in itself harm the other 99. If their standard of living is still the same, or perhaps has gone up a bit, then there's no problem. Being rich isn't in itself bad.

As always I think the key in exposing right wing error is to look to the real world facts as opposed to the plausible sounding theories. Can we do that in this case? Maybe to some degree.

Capital flows became much more free after 1971 when Nixon dismantled the Bretton-Woods financial framework, which placed restrictions on capital movement. What might be informative is looking at economic growth before and after that event. I thought I'd try looking at GDP. I know GDP isn't necessarily a great measure. If you build a bridge then blow it up and rebuild it that induces a higher GDP than if you'd just left it alone. But, granting the limitations of this measure I'm not sure of a better measure, so let's look and just see what it tells us.

And maybe I'm just not good with Google, but I was actually having a hard time finding the data and plots that I was looking for. So what I present here are my own plots in Excel which are based on data from here. Below is a plot of Real GDP by year from 1950 to today. You can click all of these graphs to enlarge them by the way.

That's a pretty choppy graph, so I thought I'd make another plot showing the 3 year moving average. So for the data point at 2009 you are looking at the average of 2007-2009. Below is that plot.

Since about the mid-70's we've seen a huge expansion in income and wealth between the rich and poor. Maybe that's acceptable if we also experience a huge economic growth rate. But are we seeing that? I don't see it in these graphs. Let me break out the data into a few different categories. Here it is by presidential administration.

AdministrationYearGrowth Rate
Bush II2001-20082.08%
Bush I1989-19922.15%

By decade:


By policy:

PolicyGrowth Rate
Before Bretton Woods (1950-1971)4.09%
After Bretton Woods (1972-2010)2.88%
Before Deregulation (1950-1980)3.83%
After Deregulation (1981-2010)2.79%

Hedge fund managers are making billions of dollars in a year. That's the price you pay for amazing growth. But as we look at the data it doesn't appear it is panning out. If anything not only are we expanding the gap between rich and poor, in fact we don't even have the growth to show for it. That's pretty astounding. The more regulated world is more egalitarian AND higher growth.

Well OK. The right wing is sometimes recognizing this. The low tax, low regulated, financialized world in fact has reduced growth AND created inequality, but you know what? That's just in the US. Our loss is a gain for poor foreigners in third world countries. Are we to deprive the poor in foreign countries of a decent life for the benefit of a handful of Americans? We're just so good that we can't allow that. We want to pull the poor Chinese up into the middle class. You racist progressives obviously have a problem with the poor in other countries improving their lives. We're doing it for them. We just have such big hearts. That seems to be HP's position as he appeals to this article. Here's an excerpt HP cites approvingly.
The good news—and the bad news—for America is that the nation’s own super-elite is rapidly adjusting to this more global perspective. The U.S.-based CEO of one of the world’s largest hedge funds told me that his firm’s investment committee often discusses the question of who wins and who loses in today’s economy. In a recent internal debate, he said, one of his senior colleagues had argued that the hollowing-out of the American middle class didn’t really matter. “His point was that if the transformation of the world economy lifts four people in China and India out of poverty and into the middle class, and meanwhile means one American drops out of the middle class, that’s not such a bad trade,” the CEO recalled.
The overall article is actually not bad. The author talks about the human tendency to rationalize and she points out questions with regards to whether or not these people are in fact pulling the poor up out of misery. For instance here is a citation from the article.
Critiques of the super-elite are becoming more common even at gatherings of the super-elite. At a Wall Street Journal conference in December 2009, Paul Volcker, the legendary former head of the Federal Reserve, argued that Wall Street’s claims of wealth creation were without any real basis. “I wish someone,” he said, “would give me one shred of neutral evidence that financial innovation has led to economic growth—one shred of evidence.”
My thoughts exactly. It's not enough to say that many in China are doing better. The world economy is almost always improving. The question is, what is the rate of economic growth. Is this system that we presently have, which creates many billionaires on Wall St and expands the gap between the rich and poor, actually retarding growth that would otherwise be there in a more regulated setup? Because for every China there's a Mexico, Haiti, or even a US, the latter of course not poor, but not growing at the rates they were before and suffering increases in inequality.

Economist Brad DeLong has made efforts to determine world wide production as measured by Gross Word Product. The date he presents is available here. I took that data and made another plot of growth, once again starting at 1950. Here it is.

GDP and GWP does not tell the whole story. But where is the evidence that globalization is better than the alternative? It's true that many in China and India are much better off. But in India for every new millionaire, how many suicides are there? In Mexico NAFTA has helped produce one of the richest humans alive. But also a country that descends into chaos with violence due to poverty.

Some rich are doing the world a service. People like Steve Jobs bring innovations that change many lives. But as far as the Wall St billionaires, I see no evidence that we owe them a debt of gratitude, as some right wingers seem to think.


Darf Ferrara said...

Just a small correction, standard price theory (I assume that's what you mean by right wing theory) doesn't claim that free markets are best for economic growth, rather they allow for the optimal allocation. The difference is one between a static and dynamic understanding. Those that claim that free markets are best for growth are arguing from analogy at best. The truth is that no one really knows what the formula for growth is. I'll quote William Easterly

Theoretical breakthroughs in the late 1980s by Paul Romer (now at Stanford) and by Nobel laureate Robert Lucas helped inspire a remarkable effort by economists to find in the empirical data which factors reliably lead to growth. Yet hundreds of research articles later, we wound up at a surprising end point: we don’t know.

In 2003, Arnold Harberger, a free- market economist from the University of Chicago, observed that “there aren’t too many policies that we can say with certainty…affect growth.” A year later, a group of famous economists (including some on the liberal end of the spectrum like Paul Krugman and Joseph Stiglitz) produced something called the Barcelona Development Agenda that announced: “There is no single set of policies that can be guaranteed to ignite sustained growth.” And in 2007, the dean of growth research, Nobel laureate Robert Solow, said: “In real life it is very hard to move the permanent growth rate; and when it happens…the source can be a bit mysterious even after the fact.”

I certainly agree that many bankers don't deserve their huge salaries. If their job is to allocate capital well, then we can tell by the thousands of empty houses and millions of unemployed that they've done a poor job, ex post.

HispanicPundit said...

First of all, I'm really glad that you have come back to within the fold of economics. Arguing outside the bounds of economics is a non-starter for me so its refreshing to see that you are keeping the debate within reasonable realms.

With that said, let me approach this a different way. You write:

It's not enough to say that many in China are doing better. The world economy is almost always improving.

But this is a whole different animal Jon. The reduction in world poverty isn't following anything like the trajectory it has historically followed. Its a reduction in poverty at an unprecedented level. See this TedTalk to see what I am talking about. As the video shows, world inequality has been drastically reducing just as US inequality has been increasing.

So the question is: given that world inequality has been decreasing as USA inequality has been increasing, assuming there is a connection between the two (and its reasonable to assume there is), which economic model would you find superior? Model a), which leads to large economic growth for the United States, low USA inequality, but also little wealth spread to the rest of the world, or Model b), which leads to low economic growth for the United States, high USA inequality, but also alot of wealth spread to the rest of the world? I'm truly curious.

Jon said...

I agree with that, Darf. But my sense from HP is that the expanding inequality is a necessary consequence of globalization, and globalization is tied to certain free market policies. We can see the inequality. Where are the benefits? If we can't know that they are there why have policies that expand inequality? What's the up side?

HP there's no doubt that things have gotten better in the world by many important measures. But what I'm curious to understand is, why have financialization? Why have a system that rewards what is done on Wall St, which only came about through that financialization? Why have the deregulation? I'd think the point is to make the world better economically than having an alternative framework. But where is the evidence that it is better?

Simply pointing to the fact that life got better is not an answer. Life got enormously better in Stalinist Russia. That's not proof that he has the best framework. The question is, how does his framework perform against an alternative.

Also it was interesting to learn from your article that the TED talks are part of the plutocratic conference circuit. They should be expected to promote ideas that serve the interests of their clientele, namely by trumpeting the virtues of globalization even if in fact they are doing more harm than good. The guests are the very people that benefit the most from the status quo. So I watched this again for the third time with this in mind. "Look at how Vietnam at this point gives up central planning and moves to a market economy." But there's no change in the rate on the graph. And I wonder what he means by that.

I also watched with interest the inequality graphs. The OECD nations should have the expanding inequality since 1970, right? In the US you have 23% of the income in the hands of the top 1% vs 10% in 1980. But there wasn't much change visible to me. According to Chrystia Freeland, the author of the article you referred to, we should be seeing expansion here. Why aren't we?

The problem may be that the data is too limited. He shows reduced inequality for some parts of Asia, but that's about it. Why are you saying world inequality is decreasing? That's not clear from the TED talk. You can also go to and explore the data yourself. I plotted the Gini index with time. Kind of tough to see that inequality is reducing, though the data is limited. I also plotted share of income for the bottom 10% and top 10%. If anything these show that worldwide inequality is expanding, though once again the data seems limited.

So before I answer your question which treats world wide inequality reduction as a given under the present model, tell me why you think world wide inequality is decreasing.

Darf Ferrara said...

When the data that you look at shows that life got enormously better in Stalinist Russia, doesn't that point to something wrong with the measurements? How do you compare increases in the production of steel that may never be used productively versus 10 million Ukrainian dead and the fear that most of the population lived under?

Jon said...

The measurements have their limitations. For instance the prosperity of the US doesn't add in the fact that something like 4 million died in Indochina as a consequence of our system during the Vietnam War, or the fact that the CIA is imposing dictatorships on behalf of companies like ITT and BP throughout the world.

BTW, I don't think your 10 million figure is right. 4 is closer. States are violent institutions and they are everywhere. But I'm measuring economic progress by things like reduced child mortality, increased income. These are the measures you see in the TED talk. Is there a better measure we should use?

HispanicPundit said...

Let me clear some things up from the beginning, since there is some confusion. First, I actually do share the view that financial institutions are bloated and serve a very limited purpose - far smaller than their share of revenue and talent would lead you to believe.

In fact, I came out in favor of a "finance tax" largely because this last round of bail outs lead me to believe that bailouts are inevitable going forward, and a special tax on these institutions is the only way to reduce the likelihood of another crisis and get some of our money back now. So I am not some shrill for the financial sector. Remember Jon, I am conservative, not libertarian. I am not dogmatic about these things and while am generally free market, I take it on a case-by-case basis.

But its important not to equate "income inequality" with "growth in the financial sector". The two are not the same. Income inequality has also increased because of people like the founders of Google, Microsoft, or authors like the author of Harry Potter, or movie stars and sports players, etc. Its these people I have largely in mind when I think of income inequality rising.

Second, this drastic reduction in world inequality (and it really is drastic), is largely related to our deregulation, free-trade, and general 'free market'. You see this especially with countries opening up their borders, like the East Asian Tigers (with Hong Kong both demonstrating near textbook capitalism and experiencing the fastest alleviation of poverty in the history of man), and now you are seeing it with India and China. Nobody would dispute, for example, that India and China's growth is due to, in large part, our free trade, deregulation and general free market policies.

Third, while TedTalk the event may be elitist, I don't think its data, or more specifically its talks, has come under serious suspicion. Even so, the information provided in the TedTalk I linked to above all comes from the UN. And as a long time supporter of the UN, I hope you take their data to be objective.

Remember, he is not talking about internal inequality levels, atleast not mostly. What he is referring to is world inequality - the difference in wealth now between the worlds richest and the worlds poorest. Because the poor sector has been shrinking so much, world inequality has been reducing. To say this another way, I am not - nor is the TedTalk - arguing that GINI levels within countries across the world are shrinking, what we are arguing is that if the world as a whole was a country, its global GINI would be shrinking. It's a subtle but fundamental difference.

Darf Ferrara said...

Reductions in child mortality is a pretty good measure to use, since we all agree that that is a good thing, but it is limited to learning about nutrition and medical advances mostly. Length of life is a good measure, but again it doesn't measure quality of life either. Monetary measures are so flawed as to be virtually meaningless. Is $100 dollars of value created better than a day off to relax? The answer is obviously, it depends. Some people would rather have the money, others the time off. One contributes to increased GDP, the other doesn't, so it's impossible to measure how much happiness is increased by looking at those types of numbers.

My opinion is that there may not be better numbers to use, but empirical numbers will never be convincing in a complicated world. Constructing models that show that limiting capital flows allocates resouces better than other models would be more convincing.

Jon said...

HP, let's make sure we are understanding each other. If you take the US as a whole and India as a whole you find that the gap in wealth between them is decreasing. So GDP/capita in the US and GDP/capita in India is converging. You're saying that this is happening and that's great.

But within India it very well could be that inequality is expanding. So that GDP/capita could be increasing because a tiny minority is absorbing huge wealth, but the vast bulk of the population could see flat or even declining standards of living. We could have child malnutrition on the rise, # of people in poverty on the rise, and yet GDP/capita could increase because of the large gains made by a wealthy elite within India.

Would you agree with this assessment?

HispanicPundit said...

Were almost there. First paragraph, YES.

Second paragraph, almost, I am saying that poverty is also reducing but it could be at a slower rate than wealth at the top is increasing. Get me?

So I am making two arguments: A) even within say India and China, aggregate poverty is reducing. B) However, inequality may still be increasing (the rich getting richer faster than the poor getting richer).

Keep in mind that this doesn't exclude some sectors becoming poorer. If you point to some farmers having a tougher time under China's economic changes, I wouldn't consider it evidence against my claim - even if it's completely accurate. You would expect that farming would have a difficult time in a country that is moving towards industrialization. What I am arguing is that for every poor farmer that suffers, there are more poor farmers who prospered by say, moving to the city and benefiting from growing wages.

Think about it this way: lets say we are discussing whether to allow, for the first time, foreign companies to sell cars in the United States. Of course you would expect the new presence of Toyota and Honda to have a negative affect on the workers of Ford, GM and Chrysler. But you wouldn't conclude that because the workers of Ford, GM and Chrysler suffer under such a free trade agreement, that the agreement is bad for the United States. You would also have to include the benefits enjoyed by the consumers, the quality, the competition, the savings, and the jobs they produced in your overall net calculations.

HispanicPundit said...

Btw, here is another independent study that finds the same thing that the TedTalk argued. See study details here.

Jon said...

OK, we agree on the first point. Per capita GDP is converging between rich and poor nations. That's to be expected. Recall that after WWII the US had half the world's wealth and only 6% of the population. You get regression towards the mean.

But this is the crux of the matter. What about what you say at point B? You say the rich within India are getting richer (I agree) but the poor are as well. Remember that it's not just about the poor getting richer. The poor get richer in most systems, as in Stalinist Russia. Are they getting richer at a faster rate then they would on an alternative framework?

Or for that matter are you sure they are actually getting richer? According to a close Indian friend of mine his perception is that this is not true. He's from a very rural part of India, but basically through a lot of hard work, a lot of intelligence, and some luck he simply pulled himself out. He's a bit of a celebrity in his home town. I mean, it's a real back water. He says that if he were to guess he'd say that maybe 5% of the population is really benefiting a lot from the present economic framework, but the poor from where he's from are getting more and more poor. He says just putting food on the table is about all they can manage. When he hears people talk about India taking jobs from us he just laughs. They are so far behind and in many parts falling further still that he just can't imagine. That's just his perception and he says the data is poor. Up until the 60's they didn't keep close enough track of birth certifications, so they don't know a lot of things.

So this is the key item. You ask me if things are worth it given that inequality is falling worldwide. I don't know that it is. In Gaza you have an extremely rich opulent minority. Basically an Arab facade that runs the place, but with Israeli muscle in the background ready to sweep in and show who's the boss if necessary. You put locals in charge and they lord it over their weaker cousins. That's not an ideal situation and not a justification for neoliberal economics in my view, despite the fact that GDP/person is rising.

Here we are in the US with rising inequality and slow growth and your position seems to be that it's worth it because of the benefits it brings to the third world. We look to the third world. Rising inequality. A tiny opulent minority lording it over the poor. Kind of like what's happening here. And if anything looking world wide we've actually slowed growth with neoliberalism if anything. Slower growth, more inequality in the States, all to impose slower growth and rising inequality overseas. It looks to me like a non-ideal situation is being imposed on the US in order to likewise impose a non-ideal situation on the third world. Now, I agree with Darf. Understanding economic growth is very difficult. But there's certainly no justification for saying neoliberalism has benefited the globe as a whole. So why should we retain it when we know for certain it's causing problems here?

HispanicPundit said...

No justification Jon??? Really??? What more can I show? I linked to a TedTalk that discusses UN data. I linked to a study from two very prestigious University sources (MIT and Columbia). What have you shown? Some story from a friend of yours and other anecdotal information. It seems to me that the person with "no justification" is YOU.

Even a cursory view of history supports my claim. Look at poverty rates in East Asia before the 1970's and 1960's. The area was considered poorer than Africa, in many ways. Today, you have Hong Kong, Japan, South Korea, Taiwan all far from being poor - certainly nothing on the scale of Africa. So they went from one of the poorest regions in the world to one of the richest regions in the world. That's a huge change. Thats a historical fact Jon.

In other words, this discussion is completely one sided with me providing all the proof and you just refusing to admit it. What more can I do? You dont provide contrary evidence. Certainly not objective verifiable contrary evidence. Your response is some suicide statistics and a few stories from close friends. I mean, if thats our level of discussion, I give up.

But here, let me pose the question a different way. Lets assume, arguendo, that everything I have been arguing is in fact true: world inequality has been reducing while USA inequality has been increasing. Under those assumptions, answer my question: Model A or Model B? You know my answer.

Jon said...

Hold on a sec. I didn't see your last response when I posted my response. Let me look it over.

Jon said...

As I mentioned before with regards to the TED talk, the data he offered on income distribution is questionable. I didn't say it was wrong. I just thought it looked unexpected. But the source is good. I agree on that. When I go to the data itself from gapminder I find that the data on inequality is very limited. Since I was limited and I didn't see anything coming from you I asked my Indian friend. I'm not saying his anecdote is proof of my position. I'm just sharing information since we don't have much to go on.

Looking closely at it from your link part of the explanation for me, in other words the reason I thought it wasn't making sense, is now clear. It's a log scale. I'm having difficulty making sense of the lower graphs for that reason. A rising narrow peak means reduced inequality. That's good. On the other hand as you look to the far right you see with time # of super wealthy going up a lot. Notice that from 1990 to 2006 the # of people on $1/day is unchanged. I'm not sure what to make of it. I'd like to see the raw data and plot it linearly.

But I think the Gini Index, which is your top graph, is telling the story. Inter-country inequality is dropping. On that we both agree. Per capita GDP is converging between India and the US. But what about inequality within India and the US? It's up.

So as I understand it, it would be like this. Suppose every country became exactly like Haiti. Very poor, highly unequal. Inter country per capita GDP would be exactly the same, so what is your inter-country Gini index? A perfect O. But what about within countries? That's up. Within Haiti is a highly unequal distribution of income. That's the measure that matters to me with regards to inequality. But as I understand your criteria for success everyone becoming exactly like Haiti is success. I say it's failure.

HispanicPundit said...

Except for the fact that the floor is rising considerably. Again: Hong Kong, Taiwan, Japan, South KOrea, etc. and on and on.

But forget about the data for now: arguendo, which economic model would you prefer?

Jon said...

Yes, I would take Model B if these are my only alternatives. And the way you frame the question is exactly right. The issue is alternatives.

So even showing that inequality is reducing is not sufficient for you to establish that the neoliberal model is preferred. And it's certainly not enough to show that neoliberal has been in place while growth has occurred in various places, such as S Korea, Japan, etc. What if an alternative system produced more growth AND that growth was more egalitarian? That's my belief. I agree with Volker. There's no evidence that our financialized framework has been responsible for more growth. There's no question that it has expanded inequality in the US. You could never conclude that it's produced more economic growth worldwide or in the US. Given that the US has unquestionably been harmed and there's no evidence that the world has gained, the rational conclusion is that neoliberalism is not preferable to a regulated worldwide economic framework like what was established with Bretton Woods.

Jon said...

And no, the rising of the floor changes nothing. I keep saying the same thing over and over. The floor rose in Stalinist Russia. That doesn't prove anything. At what rate would the floor rise on an alternative system? I expect it to rise for all. But to rise faster is better.

HispanicPundit said...

It's not our financial system that made them wealthier - or I should say, not primarily.

But it is our general neoliberal policies. Free trade with the United States, competition, and general market oriented changes all contributed to their wealth.

Regarding the rising of the floor, again, I'm talking about DRASTIC rise in the floor. South Korea before 1970's vs South Korea after 1990's. Japan before 1970's vs Japan after 1990's. Taiwan before 1970's vs Taiwan after 1990's. Hong Kong before 1970's vs Hong Kong after 1990's. These are not just your typical "everything gets better with time", these are drastic, giant, leaps in standard of living.

I think I have proved my point. The readers of this dialog can decide who presented the better evidence. :-)

Jon said...

Really? You think you've proved something. Japan, South Korea, Hong Kong, Tawan, before the 70's and after the 90's.

OK. Copy and paste this link in a browser then hit play and have a look at them.

So we're supposed to look before 1970 and after 1990. What are we supposed to see that proves your point that neoliberalism is superior to the alternative?

Darf Ferrara said...

You ask why we should follow neoliberal policies when the data doesn't show that it maximizes growth. Given that no one really knows what policies will maximize growth, and the data seems to muddy the discussion more than it helps, the next best thing might be to improve the allocation of existing resources. I don't know exactly what you mean by neo-liberal policies, so I will give the reasons for a private property system. When individual private property rights are clearly defined it allows for individuals to trade that which they own, and by doing so they improve the position of both trading partners. This is shown by the principle of revealed preference. If the one of the parties trading didn't think that their position was improved, then they would not have made the trade. The reason that "free trade" is supported between countries is that there is no moral difference between two individuals freely trading in the same country and two individuals freely trading from two different countries. That private property rights do a pretty good job of allocating resources is a substantial argument, but it can be found in standard economics textbooks. Thinking about how to define property is just as complicated, but a good introduction can be found here

HispanicPundit said...

Maybe 1960 is a better starting point - but certainly you can see it by the 70's...a strong positive slope in the upward direction.

The East Asian Tigers growth miracle (the debate is in WHY the growth happened - not IF the growth happened) is such standard economics Jon that I just want to give up explaining it to you. Seriously dude. I'm not trying to be elitest here but it's like having a debate over global warming: if you dont believe global warming even exists, it can be frustrating.

See here, here(pdf), and here for example for what google shows. But dont take my word for it. Google for yourself.

Jon said...

Darf, I won't argue with your point that we don't know what causes growth. The point of the post here is partially a response to the arguments from HP, which are to the effect that though we are seeing negative consequences in the US due to neoliberalism this on net is good because of the overall growth that results world wide. My point is looking to the data we can't draw that conclusion. It's more rational to think that growth is retarded by neoliberalism, but even that can't be known with confidence. So given that, why support neoliberalism? The negative effects are indisputable (suffering in the US). The positive effects are invisible.

You seem to be saying that since we can't measure the next best thing is to offer a theoretical framework that you think sounds most plausible even though it really can't be tested. Is that correct?

Of course I haven't read the book you link to, but what apparently sounds plausible to you does not sound plausible to me.

Take Fred Koch. Here's a guy that developed a superior oil refining process. So what happens? Private property owners are the best judge of their own preferences. And what do they prefer? Status quo. They have a whole system of wealth generation that depends on excluding the Koch improvements. So they destroy him. So yes, their investment in lawyers is in their own best interest. And Fred tried to fight, but ultimately didn't own enough property to resist them fully. So the world is deprived of the efficiency gains he would have generated.

But of course we weren't because he was able to travel to a place where such developments could be protected from the ravages of the free market. The same kind of protections of course brought us the internet, computers, lasers, commercial aviation, etc. These are all key developments that came about within a system that violates the dictates of price theory as I understand it.

You might say that on your view you don't have patents, so the ownership class could have just stolen Fred Koch's development. You could talk about a theoretical, stateless society and how that would have been a better scenario. But here's what I don't think you are grasping. Presently private concentrations of wealth don't want a stateless society. They want huge government. Specifically government that serves their needs, not the needs of the general population.

Big government is what they want, but government has a weakness. It is susceptible to public pressure, and hence is a threat to their profits. So the trick is to demonize government while expanding it.

I've made this point before. You can have an academic seminar on price theory and how in a stateless world it would work. But if you want to move from a world of theory to practice, in other words if you really want to advocate on behalf of changes that actually make the world better, you have to sketch a path showing how we go from point A to point B. As you know I might agree that a stateless society is preferred. But what policies would you support to get us there? If you go with liberterian style cut government regulation, move towards neoliberalism, you end up with an increased government size. It's basically the Bush world. Larger government in service to power. Smaller government in service to the general population. You back off government resistance to corporations and ultimately they grow the government. It seems to me that what I would imagine you would suggest for actual changes would move things in a direction opposite of what you would want.

That is, if you disagree with the policy changes I would suggest. On the other hand maybe you don't.

Darf Ferrara said...

I'm wouldn't claim that there is no information in the growth numbers, but the amount of information is so limited that it might be worthless for what you want to do. You and HP certainly don't agree about the numbers as it stands, and you agree that the numbers (GDP) is only a proxy for what you would really like to measure, which is overall utility increase distribution. You add another layer of complexity by trying to determine what is a causal variable in determining both growth rates and income distribution. I think you would acknowledge that there are myriad variables that you ignore in doing this data analysis. You seem to want to lump "neoliberal policies" into one basket. There are many policies that are neoliberal. These include limiting trade restrictions, and monetary policy, as well as some other policies. There are ways to study these policies that give a more clear picture of causation. For example, to study the effects of free trade policies, you would try to analyze the statistics in situation where there are as few moving variables as possible, and look at the results. Even when you have situations where there are only a few variables the data can still be tricky to analyze, and in any case the goal is to compare the results to some predictive model.

When you give the case of Koch, the relevant issue is how should property rights be defined for intellectual property. This is probably harder to define property rights for IP than it is for physical property, but patent law is an attempt at allowing for the known benefits of property rights to work for ideas. The basic idea is that people should be allowed the freedom to improve their own condition, while giving everyone the right incentive to promote positive externalities. I personally don't think that our current law does a very good job, and neither do you. The question I would ask is, what would you replace it with? The reason I think that IP law should be abolished is legion, but some of the reasons include legislative capture, the speed of technological progress, and the cost of enforcement. If you would like to know how to get to a better system than where we are with patents, I would say that reducing the length of patents is a good start. Another change that would be an improvement would be to change from a first to invent system to a first to file system. There are several other "market" solutions that have been discussed, including an auctions system for patents. All of them assume that there exist governments to enforce property rights. The goal is to define property rights by governments in the right way.

Jon said...

Patent law is a perfect example of the problems with the system you advocate. Why do we have such onerous IP laws? Corporations want them. The big screw the world over policy related to patents that I know is NAFTA. This extended patent protections throughout the entirety of North America, which really harms the poor in Latin America. Why did NAFTA pass? Because what matters is not the beliefs of the public, since the large majority of Americans opposed it, and I assume even larger majorities in foreign North American states opposed it. But it passes anyway because our government is only responsive to the wealthy class.

If we had democracy we wouldn't have NAFTA and we wouldn't have extended these patent provisions that you recognize as problematic. So yes, I agree with you in the problem you've identified. The question is, what is the strategy for changing it? You support the Citizens United ruling, which takes the caps off of campaign contributions from corporations. There's no reason to expect anything other than precisely what we see. Patent protection enhances short term profits at the expense of long term growth. Corporations will lobby to extend such things. Democracy would pull in the opposite direction.

As I see it stemming corporate influence is the only way to bring about changes in patent law, like the ones you would support.

Darf Ferrara said...

I'm not sure what your position is now w/ respect to patents. Do you think patents should exist but shouldn't be extended or that they shouldn't exist? Do you think it's worthwhile to discuss what an ideal system of law would be with respect to patents?

You claim that there isn't any way to make the changes that I've stated becauase corporations oppose those changes. If that is the case, then there is no way to make the changes that you advocate either because corporations will oppose them. How do you get beyond that? You can't claim that "democracy" is the answer, because if corporations oppose democracy then it will never happen, according to you. And even if change was possible, it wouldn't be democracy, because I've shown you that there isn't any such thing as the will of the people.

Jon said...

The kind of policies you support tend to strengthen the corporate hand in government and lead directly to the strong patent laws that we have. And yes, I agree with you on patents. I think they should be eliminated.

So for instance you support the Citizens United ruling. You don't oppose corporate lobbying generally. I support the opposite. On my side if we weaken corporate influence and strengthen democratic influence we can reverse these policies that you oppose.

Darf Ferrara said...

You claim that prohibiting funding for corporations would strenthen democratic influence. I doubt that this is true in general, and it isn't true in quite a few particular cases of which I'm aware. How public institutions work and what influences them are in the domain of public choice theory. If you would like to know more about this field, Tyler Cowen offered a reading list here

Jon said...

But do you agree that the problem is that our governments respond to corporate demands first and the public second?

Do you also agree that the strengthening of the patent laws with regards to NAFTA was done at the behest of the corporate world over the desires of the general public?

And if you don't think reducing corporate money from Washington would help, what would you suggest?

Jon said...

Do you think these corporate lobbyists are wasting their $1.2 million salary on Chris Dodd? In other words this corporate lobbying, which according to Greenwald below leads to the conclusion that "only the very wealthy businesses can afford Senators and Congressman" is a pointless exercise?

Darf Ferrara said...

I've said before that I don't believe that there is a public will in general, so I don't know how to answer the first question.

As far as I remember, the opposition to NAFTA was due to fear of losing manufacturing jobs, not IP law. I would be interested to see polling data that showed people thought about patent law when evaluating NAFTA. I can believe that certain corporations influence the evolution of patent law, but probably the majority of people believe that patent law is both legitimate and helpful.

The most helpful thing to do would be to reduce the size of the allocative portion of the government. At the same time, the judicial system needs to be maintained and stengthened. Many of the changes could depend on geography and other things.

And I understand that lobbyists gain influence with the money they spend, but if my tax dollars are confiscated then it makes no difference to me whether it's given to a corporation or to some random guy.

Jon said...

How are you defining public will?

I say there are policies favored by a majority of Americans. Do you say that's not true?

I see you describing policies you prefer, but I'm not seeing a strategy for achieving them. Since the corporate sector doesn't want to reduce the allocation portion of government and our government is very responsive to their wants you can talk about how you'd like it to change, but if you don't offer a strategy for changing it I don't see the point.

It makes no difference to you how your confiscated taxes are allocated? So whether they are given to Wall St billionaires or public school teachers makes no difference? Or maybe giving it to terrorists? Makes no difference?

Darf Ferrara said...

It is absolutely not true that there are policies favored by a majority of Americans. You might show a poll that shows a majority for one position over another, but translating that into policy is not possible. There are an infinite number of policies that aren't considered in those polls, and even if a handful are considered it is unlikely that there will be any majority.

Would it make a difference if your tax money was given to Bill Gates, the wealthiest man in the world, a man who has pledged to give most of his money away in a way that doesn't depend on what the will of the majority of the American people is, and by most accounts is using his money pretty efficiently, or else given to a person who makes 10k a year working at Hardys, uses half the money he earns on drugs and beats his wife and kids? In this case I would rather have Bill take it. Who gets my money is independant of the wealth of the reciepient. At a moral level, I don't see a big difference though. It isn't like most of our tax money would ever be allocated to people that are low on the hierarchy of needs.

The way things ultimately change in America is through the electoral process. So the way to positive change is by electing people that endorse freedom. The path to doing that is educating individuals and politicians about the value of freedom, and using methods to increase the electoral power of freedom loving people. But it's hard.

Jon said...

So when polls show that 81% of Americans favor raising taxes on millionaires in order to resolve the financial crisis in Wisconsin you say that it is not true that a majority of Americans favor this policy?

Darf Ferrara said...

Raise taxes on the rich isn't a policy, it's a slogan. That doesn't say which taxes should be raised, what level of income is rich, or what the rates should be. Cheeseheads had an opportunity to choose a basket of policies last year in a poll that mattered called an election, and they chose Scott Walker.

Jon said...

What if we asked them if they supported raising taxes on millionaires by increasing the top marginal rate to 60%? And the majority agreed. Would you still say that this is not a policy supported by a majority of Americans if 81% said they supported it? Because there is all kinds of polling data on support for policies even if you don't think that question qualifies.

Darf Ferrara said...

If the questions is: If Americans are given exactly two options for tax policies to implement, will there be a majority that favors one of those policies, then the answer is obviously yes. If the question is:Do a majority of Americans agree on a set of tax policies, then the answer is, less obviously, no.

Jon said...

I don't see the relevance of the fact that there are many different ways to raise taxes on millionaires. There are also many different ways to cut compensation to teachers. What we see though is that our government implements policies that are among the infinite number preferred by corporations and not among the infinite number preferred by the majority of people.

So sure, some might prefer that the top marginal rate is 60% and others might prefer it is 61%. What 81% of the population agree on is that it should increase some amount to resolve the budget crisis. What many in the corporate world agree on (probably not all of them) is that teacher compensation cuts should be implemented. There are different ways to do it. Those are details. But in the end they are still getting what they want.

That's why as a strategy I support reducing the influence of corporations and increasing the influence of the public. You say reducing money in Washington wouldn't do the trick. You say we need to educate people. But the government is not responsive to people. It's responsive to corporations. That's why I think your strategy wouldn't work. The people have preferences already and they are not being implemented. You can change them to where their preferences would align with yours. Even then, since government is not responsive to people, it wouldn't matter. They wouldn't respond to the preferences of people because we already know they don't respond to preferences of people.

Darf Ferrara said...
This comment has been removed by the author.
Darf Ferrara said...

The relevance is the difference between a slogan and a policy. If, given any policy, a poll can be conducted that shows that a different policy is preferred by the majority, then what is the policy that should be enacted? There is no way to choose a policy based on polls that will reflect the "will of the people" as you define it.

Claiming that the government only works for corporations is not true. Ron Paul and the tea party, who you disparage, did manage to get Audit the Fed in the public attention, and will likely reduce federal spending. None of these things are supported by corporations. It can be done. But if the changes you propose aren't likely to do it.

Jon said...

I don't see that you responded to what I wrote.

But let's try another example. The poll question was "Do you support the invasion of Iraq without UN authorization but with the support of a major ally." The polls show the public opposes 52 to 39%. So if you are a Senator would you say that there's no way of knowing what the majority of Americans want you to do?

Darf Ferrara said...

Is your question, will a senator know how his constituency would prefer for him to vote on any issue related to the invasion of Iraq given that particular poll?

Jon said...

You can answer that one if you like.

Or you could make the Senator a President if that helps.

Darf Ferrara said...

I'll assume senator. I would say, no. There are at least three reasons. The first is that the poll could be in error. In this case, this isn't a serious objection, because the poll isn't especially close. The second reason is that many of the votes senators make are strategic. They will vote in a way that violates their immediate preference in order that their ultimate goal is reached. As an extreme example, suppose a bill was introduced that allowed for an invasion of Iraq, but only if thermonuclear weapons were used on Iraq first. Since everyone knows that the president would never use these weapons, voting for this measure would ensure that an invasion wouldn't take place. This is a silly example, but this type of strategic voting goes on all the time. Third, this poll doesn't give information about how the population feels about going to war without authorization, but getting extended unemployment benefits as well, or not going to war, but losing funding for a state highway. Logrolling is a reality of politics, and without knowledge of the trades that will be offered to various coalition members for their votes, and how voters would react to them, the single poll result you offered doesn't give complete information about how a senator should vote to reflect his constituency.

Jon said...

I doubt you apply these arguments in your life. It's as if you are among a group of people that want to go out to eat. One is vegetarian, one wants steak, another a buffet, another bbq. You have no idea what to do so you just go to the hardware store. I doubt you live your life that. But that's the life of a Senator as you portray it.

There are unknowns. Are the polls perfect? Are trade-offs being considered? What precise policy among the millions that are generally preferred by the public should be implemented? But despite those unknowns our government seems to figure out the corporate preferred preference and implement it. And so we have NAFTA and IP rights that you oppose. I think Senators could figure out with some level of confidence what their constituents want. Not 100% confidence. But I think if you were to place a bet about what the public preference are you'd know where to put your money, depending on what state you were from.

Darf Ferrara said...

You seem to not engage with the points I make at all. Logrolling is a method that is used by congresspersons to generate policies that will impress their constituents the most. Strategic voting is constantly used. Given these realities, and the fact that they have been analyzed extensively, simply attributing policies to corporate influence seems naive.

Jon said...

I don't engage when a point is not in dispute. Logrolling happens. Strategic voting happens. The judgments we make though are based upon our best guesses. We do that all day long in every other matter. We make choices every day without perfect knowledge.

Do you think you cannot know what the military industrial complex would want with regards to the war in Iraq? Polls are imperfect. Strategic voting might provide a better alternative for them. You don't know the precise level of warfare they would want. Too much might exceed present capacity. Does this mean we are totally at sea and have no idea how they would prefer us to vote when it comes time to vote authorizing a war in Iraq?

When everyone is hungry but they have different preferences about what to eat, do you really not know what to do? Does it make just as much sense to go to a hardware store as it does to go to a Mexican restaurant given the variant preferences I expressed last time?

Darf Ferrara said...

These issues matter far more than you are willing to admit. In the war analogy, 40% want to go chinese, 60% want to go mexican. The chinese offer 15% of the mexicans an extra fortune cookie if they do chinese. Now 55% want to go chinese. Relative strength of preference matters. And that's why I had chinese food for lunch.