TPM Cafe is hosting a roundtable on economist James Galbraith's new book The Predator State: How Conservatives Abandoned the Free Market and Why Liberals Should Too. Here's a bit from Galbraith's introductory post:
The judicial coup of December 2000 that installed Bush and Cheney brought back some of Reagan's men and his most extreme policies -- tax cuts for the wealthy, big increases in military spending, aggressive deregulation. But it didn't bring back the ideas. Instead, it became clear that Bush and Cheney had no real ideas, no larger public justification. They cut taxes to enrich their supporters. For the same reason, they outsourced to Blackwater and Halliburton and pursued military pipe dreams like Missile Defense. They were willing to have the government spend like a drunken sailor in 2003/4 to boost the economy before the election. They placed lobbyists in charge of the regulators, representing, in every case, the most extreme anti-regulation perspective. (Not so long ago, Bush's financial regulators showed up at a press conference with a chainsaw.) Under Bush and Cheney, oil and gas, drug companies and defense contractors, insurers and usurers control the government of the United States, and it does what they want. This is the predator state.
...
Of course, we have very different views of where to go from here. Reagan abandoned the free market in practice, and Bush abandoned it in theory. Why? Because it is a useless, romantic concept, with minimal real world application. In the world of arcane technologies, structured financial derivatives and a precarious global atmosphere, decentralized markets and "supply-and-demand" decide very little, and "market discipline" is a contradiction in terms The job of discipline belongs to governments. And they must act not only on behalf of today's citizens but of all those yet to come - of those who need clean food and water, of those who need safe cars, appliances and workplaces, and of those will be around the low countries when the ice caps melt. Dealing with problems means thinking ahead, from an independent, forward-looking point of view. This is called planning. It means providing stable, predictable rules for the private sector. This is called setting standards. And in the present international economic climate, it means giving the rest of the world a reason to finance the continuing prosperity of the United States.
The Predator State criticizes conservative economics, but that's not the big point. My argument is directed largely at liberals. And especially at those liberals who remain transfixed by the "logic" of markets, by the faded political clout of the Reagan rhetoric, and by the idea that respectability requires continuous genuflection at the shrines of the Chicago School. It is these mental habits that we, who are liberals, must break. The Predator State is aimed at the notion that the liberal formula should be "making markets work."
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Comments View as Flat
Sean Casten Posted 12:54 am
12 Aug 2008
These are dangerous ideas
Because they confuse markets with profits. It's lazy liberal thinking, but the kind that has really nasty consequences. When the government protects banks from failure and lets them hold onto their profits (see: Fannie Mae), that's not a free market. When the government uses taxpayer money to maintain the solvency of otherwise bankrupt companies (see: California bailout of PG&E after the CA power crisis), that's not a free market either. In both cases, we have confused the presence of profits with the existence of a free market, and it's worth remembering exactly what a competitive market means from Economics 101:
- No barriers to entry
- No barriers to exit
- Price transparency
- No individual company can independently affect price.
It is of course impossible to attain this theory in reality. Any capital intensive business has innate barriers to entry since it is so expensive to get into the business. (for example, if you wanted to get into the ethylene business tomorrow, you'd have the small problem of having to build an ethylene plant first.) Prices are never fully transparent, and Nobel prizes have been won by folks who pointed out that technological progress essentially proceeds because businesses know that the first one to own a new technology can earn additional profits before the rest of the market catches up. Some markets are predisposed to a few large producers by the nature of their scale, each of whom have the ability to affect price. But the biggest problem is that no business wants to be in a competitive market and works hard to ensure that their market isn't competitive (at least for their competitors).So does this mean we throw up our hands and quibble about whether we have to choose between socialism and a kleptocracy? No - although that is essentially the issue as Galbraith has framed it. Much better to demand that government maintain an oversight to ensure that we are always striving for that free-market ideal. So we create the SEC to protect against insider trading, and maintain price transparency. We create anti-trust enforcers to keep an eye out for collusion and make sure that mergers don't consolidate too much market power in any one company. We create and maintain a robust set of bankruptcy courts to ensure that failed businesses can fail (and that those who run failed businesses can get back on their feet thereafter, lest their lack of long-term options create a barrier to exit).
Those paradigms need to be maintained vigorously, for it will always been in the interest of the for-profit business community to control those levers of power. But just because it is in their interest doesn't mean that government cannot maintain control, and for much of the US' history, government has maintained control. Yes, we had our robber barrons in the 20s and we took corrective actions. Many of those corrective actions have since been rolled back (for example, the Glass-Stegall act that ushered in the latest wave of banking consolidations), and a very strong case can be made that those protections ought to be re-established and more put in their place to address the problems raised by the current pendulum swing towards corporate interests and away from competitive market interests.
But to argue that the current crises are a sign of a free market failure is to totally mis-use the term. If it's simply sloppy writing, then Galbraith is being lazy. If it's a conscious choice to manipulate language to further socialist agendas, it's malevolent. But in all cases, it is dangerous.
In other words, the stuff I said here.
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Jon Rynn Posted 1:03 am
12 Aug 2008
Sean, you're not that far apart from Galbraith
As often happens in these kinds of discussions, certain words get thrown around, red flags go up. people start charging. I'm sure Galbraith would agree with much of what you said, and give him some time on TPM to make clear what he's talking about. You basically said that there have been huge market failures and that the government needs to regulate certain things much more than they do now.
The differences will come when it gets down to the brass tacks of what particular policies we're talking about. Galbraith has talked about planning, for instance. I think some planning would be a great idea, and even there we might agree more than you think, "planning" is one of those red flags. But if memory serves, Galbraith's actual "plan" for "plans" was pretty mild. I would like to see 1 trillion dollars annually allocated to a "plan" to transform the American economy, which I think is way beyond what Galbraith is currently talking about. So at this point, I think thou protest too much, or however you conjugate Elizabethan English.
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amazingdrx Posted 1:15 am
12 Aug 2008
Shades of the "trustbuster"
Kind of ironic. "Free" markets, declared unfree by the hero theoretician of corporate libertarianism?
It seems he is calling for re-regulation.
Is JKG reading the blog? Hmmm...
Hilarious.
Now watch those deluded by the rhetoric about "free" market efficiency over the Reagan revolution years reaction. Will they turn on the godfather of the "free" market?
Put this in your think tank and zoom around the track oh mighty corportate feudalist boosters and apologists. Vrooom..sputer..cough..choke.. hehehey.
http://amazngdrx.blogharbor.com/blog John Schneider, Northern Wisconsin
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MAD MAC Posted 1:49 am
12 Aug 2008
As soon as I read the first line:
"The judicial coup of December 2000 that installed Bush and Cheney"
I stopped reading. Another intellectual dwarf I don't have time for.
Victory in Pattani
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gmobus Posted 2:31 am
12 Aug 2008
Beyond mere markets
Gus Speth's new book, "The Bridge at the Edge of the World: Capitalism, the Environment, and Crossing from Crisis to Sustainability" tackles, among other things like growth, the basic form of capitalism itself. Our working model of what a democratic/market-based governance of society is in serious need of review and revision. What once worked in an empty world (Herman Daly's phrase) is destructive in a full world. And we've filled up the world.
I have been writing recently (see entry from July 20) about a very different framework for understanding the economy and governance issues. The framework is from general systems science, hierarchical control theory for complex adaptive systems. Markets are part of the operations level exchange mechanisms that, in an ideal situation, work through cooperative means. But since the ideal is never found in nature, markets require many different forms of regulatory interventions to keep the whole system working toward the ideal. Such regulation is the job of the coordination level in the hierarchy. In our current model of governance that generally means government agencies.
We have been evolving toward an integrated system over the years since mankind first invented agriculture and communities larger than 500 people. We haven't reached the level of integration that one finds, say, in an organism (metabolism in a cell is a most excellent model of an integrated hierarchical control system). But it seems clear to me that that is where we are heading.
It is a hard concept to get your head around if you are ingrained with the status quo models (i.e. neoclassical economics and representative democracy). But if you can start to accept the idea that we continue to evolve both the systems in which we are embedded and in our understanding of those systems, then there is hope.
Question Everything
George
George Mobus, Associate Professor, Institute of Technology, University of Washington Tacoma, and Professional Student for Life
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gmobus Posted 2:48 am
12 Aug 2008
PS
Along the lines of an economic system based on cooperation and coordination vs. competition and overt greed, there is an interesting article by David Brooks in the NYT Opinion section today.
He notes the contrast between Western individualistic society and the Chinese (Eastern) collectivist society and talks about the fact that a booming economy need not be based on the ideology of the former. For me, the kinds of psychological aspects that he mentions is reinforcement for some of the ideas I raise in my blog articles.
George Mobus, Associate Professor, Institute of Technology, University of Washington Tacoma, and Professional Student for Life
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BILL HANNAHAN Posted 2:53 am
12 Aug 2008
These are dangerous ideas
Well said Sean.
The government's job is to promote regulations that keep the playing field as level and free as possible, not pick winners and losers.
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Jon Rynn Posted 3:01 am
12 Aug 2008
George, ecosystems might be better level
than the organism level. There is actually a fair amount of theorizing in the Catholic tradition on the idea of society as being "organic", that is, the different parts are functional parts of a whole (not organic in the sense of no pesticides, obviously). But the level of hierarchy after the organism is the ecosystem. We haven't even made it to managing society like ecosystems are managed -- when they are managed well -- much less at an organismic level, which is probably asking for much more hierarchy than is possible or needed. I think if we try a stewardship approach, that might at least get us to a sustainable ecosystem type of functioning.
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Sean Casten Posted 3:02 am
12 Aug 2008
Jon
I'm hugely far apart from anyone who claims that the free market is:
or who argues that structured financial products, decentralized markets and supply and demand "decide little" and that some the world would be better if we replaced all that messy market stuff with a central planner, since only governments can take long-term discipline into account because only they can be independent...
Those philosophies are downright Marxist. Which is where the danger doth arise.
The problem is not that government doesn't have a role to look after the public good, and on that point I'm sure we do agree. The problem is that governments are no less fallible than markets, but without the self-correction. A responsible government uses free markets as a tool to meet social ends. An irresponsible one either throws out market principles in the name of corporate profiteering (see: Bush/Cheney) or throws out market principles in the name of enlightened central planners (see: Marx). The former is greedy and the latter is idealistic, but both are irresponsible, and the description of the book posted above sure looks a lot like the latter.
(And yeah, while I'm willing to give him the benefit of the doubt, my own red-flags go up when I see someone using language that is so appealing to the worst of the left and so toxic to the free market crowd. Red meat is clearly being thrown, and I would be surprised if it wasn't being thrown with intent.)
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amazingdrx Posted 3:03 am
12 Aug 2008
Good points
China has a national oil company, like the national oil company of iraq, Venezuala, or mexico it can set the price of oil based products at whatever level the government specifies, regardless of profit.
Sacrifice for the collective is built into the economy. Right in the cost of products.
How about we reign in "free" market corruption and go on good old FDR style rationing? A wartime economy demands sacrifice. So build it in to the system. Only so many hours/kwhs of power per day. Only so many gallons of gas per week. Energy price inflation would quickly be stabilized with lower demand.
What would JKG say to that, semi-socialist economic controls. Rationing. Setting prices is going too far. And stopping others from price fixing ought to proceed through treaty.
Cooperate on saving energy in wartime, that's patriotic sacrifice that most people would not mind. As they did during WW2. Keep that sacrifice fair with rationing.
http://amazngdrx.blogharbor.com/blog John Schneider, Northern Wisconsin
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gmobus Posted 3:56 am
12 Aug 2008
Jon, I think ecosystems need to be seen as...
the meta-system that embeds the human social system.
In metabolism we see a model of high degree of cooperation and coordination regulation. Homeostasis and autopoiesis are very good models of a sustainable steady-state system. I suspect that is what the human system needs to move toward.
The ecosystem is much more complex than the human social system, even with our cultures and technologies. This is because we are already a part of the ecosystem (an aggressive part!) Also, the Earth taken as a whole involves many different living and non-living systems components that are inherently in competition. Evolution on the scale of the world as a whole is still operating on competition as a main factor in selection.
The human system is in competition with all the other natural systems but we have transcended the natural feedbacks that would ensure the kinds of balanced competition that operates among all other species. In order for humanity to achieve a self-management (self-imposed constraints on growth, flow through, etc.), so as to achieve our own balance with the rest of nature, we need to develop subsystems that are more cooperative or regulated so as to maintain coordination. We are going to have to fit into the Ecos, not subjugate it.
So, just as proto-cells evolved toward internal cooperative processes and regulation by autopoietic structures so as to become self-sustaining even while cells competed with one another, our human social system needs to find this kind of steady-state internal functioning.
Right now, under the beliefs in competition (as a means for improving the products and services) and markets and capitalism are compelling us to continue to do things that are ultimately unsustainable. This model has served its evolutionary purpose. We got wealth. But now that we do we need new models of operations. And that is going to be tough on so many people who are deeply invested in the old models. We've seen that kind of response in these comments!
George
George Mobus, Associate Professor, Institute of Technology, University of Washington Tacoma, and Professional Student for Life
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Jason D Scorse Posted 4:17 am
12 Aug 2008
I second what Sean says too....
obviously Galbraith needs the polemics to sell the book and by now it is clear that the Bush Administration's style of economic governance has little to do with free markets and more to do with cronyism and corporate give aways, but no reason to go over the top.
In the Obama administration (with adults back in charge) I'm sure we will see a return to sensible regulation, coupled with greater transparency, and markets will once again do what they do best-- produce wealth and innovation, while the government sets parameters that reflect the public good.
We need to focus on the root causes of problems. www.voicesofreason.info.
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Jon Rynn Posted 4:55 am
12 Aug 2008
Ack! Navigating frameworks...
...Sean and Jason, I still think that when you get down to what he proposes, it won't sound so "terrible". We shall see. I can see that you're definitely taken with his all-encompassing critique of the "market", but really, critiques don't matter if there's no alternative (the history of part of the "left" in a nutshell). You can critique all you want, if people don't have an alternative to switch to, it doesn't matter.
Now, as to whether the whole market system should be thrown out, first of all, it's possible (but impossible to predict with confidence) that if we don't do some form of national planning now -- at least in my trillion dollar range -- and we bend over backwards not to pick winners, then I'm afraid those strategies might fail, and if it becomes a real awful emergency, then you're looking at a real World War II governmental intervention, in which the governmental budget was about 1/3 of GDP.
As nice as it would be if we could "design" the market to achieve a switch to carbon-free electricity and oil-free transportation, we could certainly plan such a switch, and as bad as it would turn out, it would turn out, that is, we'd get the job done. So in a way, the burden of proof is on market advocates, it seems to me. The governmental alternative is there -- although frankly, I don't know that anyone's really taken a shot at it (I took a small shot at it here)
As for governments getting it just as bad as markets, here's the big difference (something Chomsky has pointed out, you'll be thrilled to know): governmental planning in a democracy is, well, democratic, that is, the public participates, and no plan would be implemented unless there was a solid majority behind it. In a market system, we have to hope that our "betters", that is, for the most part the CEO's of the top 200 corporations or so, make the right decisions because market forces (however "desgined") force them, against their will, to make the right decisions. I'm not saying it can't be done, but it needs to be compared to the alternative. And that's were you have me (Galbraith), really, because the planning alternative really needs to be fleshed out.
And just to repeat because it often needs to be repeated: I'm not talking about repealing the market, far from it, I'm talking about constructing a system that encourages the long-term flourishing of the market. Let the market do what the market does best, and let the government do what the market screws up. Obviously, we have to debate the dividing line.
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amazingdrx Posted 5:15 am
12 Aug 2008
Safety valve
How about a rationing plan as a safety valve in case of war or storm related oil shortage? That kicks in at a certain price or a certain supply/demand mismatch level.
Couple this with a release of oil from the reserve only for domestic consum,ption, at a reduced price. Maybe the pre-emergency price, or some price between the rising "free" market price and the reserve price.
That would tend to stave off the effects of speculation on citizens dependent on oil who can't hedge their risk. the government would hedge it for us. With the rationing/reserve plan.
Is that too much interference in "free' markets? In a world where most oil consuming nations like china set internal prices no. It is economic insurance.
Control demand to stabilize price.
http://amazngdrx.blogharbor.com/blog John Schneider, Northern Wisconsin
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Jon Rynn Posted 5:25 am
12 Aug 2008
Amazin' ==
As Colin Wright has pointed out here from time to time, there will probably come a time when rationing in oil will have to take place, just because the planet won't be producing "enough", and also if, God forbid, there is a global consensus to reduce oil (and carbon) use in a socially equal manner, than everyone should have the same energy "ration" -- the point of teqs.net
You could extend that to other things too, I suppose, although rationing goes against the free market in incomes and consumption preferences, I believe, because rationing gives everyone an equal income in something (egad!), and also is basically making somebody consume something they might not really be interested in. It would probably lead to secondary markets because of that.
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amazingdrx Posted 5:34 am
12 Aug 2008
Secondary markets
No doubt a black narket would form as it did during WW2. But by setting a reduction goal, that maybe the black market would cut into a bit, total national consumption could be reduced.
People would go to bikes and mass transit and plugin hybrids. That would get around rationing.
http://amazngdrx.blogharbor.com/blog John Schneider, Northern Wisconsin
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Sean Casten Posted 5:40 am
12 Aug 2008
Jon
Couple points:
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Jason D Scorse Posted 5:44 am
12 Aug 2008
Jon....let me be clear
I absolutely think that there is both room for and a good case for very large scale government intervention in the marketplace- in fact, it's what I study and often advocate. A carbon tax is a huge intervention as is a cap and trade.
I also think that a huge Manhattan Project for alternative energy is a good idea. Even better perhaps, a national electricity grid.
All I'm opposing is the government micro-managing and getting into really stupid things like ethanol subsidies and all subsidies for specific types of technologies- fund the basic R&D, give prizes, grants, even support the infrastructure, put a price on carbon and other greenhouse gases, but DO NOT pour tons of money into one type of specific technology over the other- that's all.
We need to focus on the root causes of problems. www.voicesofreason.info.
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Wolverine Posted 6:23 am
12 Aug 2008
Free Market Doesn't Protect The Earth
Notice that the free marketers here have not made one claim that their models do anything positive for the environment, nor could they. A government shouldn't pick "winners"? That's just propaganda code for opposing regulation. How would you like it if someone sold your kid tainted candy that killed him or her?
No, the environmental point of view, which is what we're supposed to be talking about here, is that environmentally harmful behaviors and products should be prohibited, or at least greatly restricted by government regulation. If you guys want to advocate your free market garbage in a vacuum that excludes the natural environment, why don't you go to some other website?
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Jason D Scorse Posted 6:31 am
12 Aug 2008
So Wolverine....
you should be prohibited from eating meat, turning on your light, getting in a car, or buying plastic?
Seems like your anti-democratic rhteoric perfectly suits your authoritarian prescriptions.
These threads are supposed to be for serious discussion so if you can't handle that don't contribute. Nuff said.
We need to focus on the root causes of problems. www.voicesofreason.info.
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Sean Casten Posted 6:33 am
12 Aug 2008
...and ovens aren't edible, Wolverine
But that doesn't mean that they aren't a useful tool to have if you want to eat.
Don't confuse a difference of opinion with respect to tactics with any disagreement about goals. I think if you review the things that Jason and I have posted here, you'll find we're both quite passionate about environmental responsibility. The question at hand is whether markets are a useful tool towards environmental ends, and more directly whether that is better or worse than top-down governmental oversight.
And bear in mind that top-down government models have a pretty lousy track record when it comes to environmental protection. (Check out the air in Beijing, or the soil quality around Chernobyl if you disagree.)
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Jon Rynn Posted 6:54 am
12 Aug 2008
Sean, you political scientist you!
You're bringing me back to my first days in political science. "Pluralism", the subject of the New Yorker essay, was the dominant theory, or framework, of "American government", one of the main subfields of political science, for much of the post-World War II period. In fact, it probably still is. Another important scholar of that era, Schnattschneider (yes, that's the spelling), wrote a wonderful piece about the process of the passage of the Smoot-HawleyAact, Smoot and Hawley being the two 1930s fellows exhibited by Al Gore in his famous debate with Ross Perot about NAFTA. Their "Act" raised tariffs to around 50%, and was an orgy of "interest group" politics.
So another important political scientists, Theodore Lowi, in 1964 came up with this categorization, quoting from Wikipedia:
So of course, everyone fulminates against "pork barrel politics", but as the New Yorker article points out, that's politics. But there are other kinds of politics, as Lowi pointed out. In fact, I will still hang tenaciously to a fourth, which I would call "government investment". Now, usually it's partly "pork barrel", since someone gains from investment, but I'm thinking of the Interstate Highway System, which involved lots of interests (and was marketed as needed for national security to boot). And somehow, one of the most corrupt political machines in history, the New York City government around the turn of the 19th to 20 centuries, built the NYC subway system.
So "vision" is possible, even within "corrupt" governmental systems. And by the way, if pluralism is OK, then ethanol is perfectly understandable -- and might even be seen as necessary, in order to log roll ethanol-pushers into backing wind and solar.
The big critique of pluralism, it seems to me, if I remember correctly, was that it often was presented as if people were never oppressed or exploited, that power could not be gathered in great force and be used for great damage -- in the "pluralist" world, lots of competitive forces were working against each other, sort of canceling each other out.
Markets certainly aren't more democratic than a democratic political system -- money talks, and there are great concentrations of economic power, which translate into concentrations of political power, another problem that pluralism had trouble explaining. Thus, the idea of anti-trust, and of tearing down the power, say, of big multinational corporations, because that would decrease their political power.
To get back to George's points a little, I think we can, as a country and as a species, try to figure out how to construct a better society, and that discussion should include which technologies to use, because humans are technological creatures. That may ocassionally lead to conclusions about which technologies are better than others -- wind and solar are better than coal, for instance. What that means is a "collective", in the good sense, conscious understanding of how the society works and how to make it better. And that can coexist very nicely with all of the other forms of politics and economics.
I don't know that that's "micro-managing", as Jason says, I think it's more setting a direction, and letting the market decide how to go in that direction -- but it could easily be picking technologies, such as the feed-in tariffs in Europe. I think you'd have to be against all of the "winner picking" that has occurred in the last 100 years -- mortgage exemptions, the interstate highway system, tax breaks, etc -- I don't know how you put Humpty-dumpty back together again, now that whole sets of technology have had a 100 year advantage, it's sort of unfair to say that the new ones, that by the way we need in order to save the biosphere, have to all of a sudden make do with a competitive marketplace. Is it too late for that?
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Jon Rynn Posted 6:57 am
12 Aug 2008
See, I'm protecting you guys...
...from the wolverines of the world (pun intended)! If we don't solve this with some governmental direction, it'll get much more heavy handed (see, this is why it's good to have people more radical than you, you look more "reasonable").
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Sean Casten Posted 7:11 am
12 Aug 2008
Jon
To be clear, I'm not arguing that pluralism is better - simply that it seems to be a better characterization of the way democracy works. The egalitarian in me would like to believe that Mr. Smith has just as much of a chance in Washington as Mr. Byrd. The realist in me knows otherwise.
(But thanks for the poli sci digressions!)
Re: markets and democratic systems, my point wasn't that more $ don't have more market power than few $, but rather that - if you accept pluralism as a better description of reality - then one necessarily concludes that all votes are not truly equal. By contrast in a market system, all dollars are equal. That's not to say that $100 isn't worth 100 times as much as $1 - simply that all dollars are equal. When people decide not to buy the crap GM is putting on the road, GM loses. By contrast, if candidate X is pursuing policies under which the majority is worse off but candidate X has garnered the support of key interest groups, the public good of the majority can be trampled and candidate X still wins.
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GreyFlcn Posted 7:43 am
12 Aug 2008
In short
"Open Markets" would be a more correct term.
i.e. Low trade barrier, and general barriers to market entry.
Or "Competitive Markets" with "Level Playing Fields". Since that incorporates both "Unsubsidized Markets" and "Equally Subsidized Markets".
But in general:
Markets are for determining:
* Prices
* Methods
Governments are for determining:
- Regulations/Restrictions
- Oversight
- Ensuring that Damages are paid for
* Penalties/Incentives
_
Bottom Line
_____
Markets are simply highly efficient means of finding the Path of Least Resistance, and dealing with Scarcity.
Just like a PowerSaw, Markets are a wonderful and powerful tool. However when you have no control over it, a lot of damage can be done.
-David Ahlport
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Jon Rynn Posted 7:44 am
12 Aug 2008
I think you're saying...
...that the market has a self-correcting mechanism...it's somewhat "automatic", whereas the political system does not. Actually, the political system in a democracy has the very important self-correction mechanism of elections, although the self-correction is by no means automatic...so it's important to put a constraint on government so that it doesn't run amok, while the market won't -- although the market can also run amok, say in monopolization, or financial bubbles. (and by the way, a major problem in political science is, not so much the minority dominating the majority, but the majority dominating the minority).
In practice, I think that there is a mixture of all of these threads, depending on the country or region. For instance, in Sweden the big business, big labor, and government leaders all sit down together and reach a consensus on things like wage levels. Unfortunately, the "correction" to a political system often comes when the society has been so weakened that it is vulnerable to takeover by another power. In other words, it is more like a classic ecosystem correction, the species, or political system, dies. On the other hand, an economic system that only corrects when a bubble bursts can also go down the tubes.
Unfortunately, the level of discourse on the best political/economic model is pretty low. There hasn't been a lot of fleshing out of what different political/economic models would look like. The "left" hasn't been good about this, preferring to simply critique the right, and the right has gotten more and more detached from reality in pursuit of a mythical "pure market". Galbraith's father, John Kenneth Galbraith, famously put forward the idea of "countervailing power", that is, government (and unions) would serve to counteract the negative effects of large corporations. That is pretty much were we are -- unless his son advocates more planning, which I am doing. But this also should include a local aspect, in order to decentralize power -- but then, politics at a local level can be pretty bad too.
So my answer right now is, I don't have an answer. But I'm glad Galbraith is bringing up the issue, so that we can look at all of the possibilities.
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Jon Rynn Posted 7:47 am
12 Aug 2008
Actually, Grey
I'm saying that governments can be good for determining the direction a society should go, and in providing the funds and sometimes management to go in that direction. Governments aren't simply devices to control the market or companies -- they also have a pro-active role to play. But as Sean points out, because of their power they can wreak a lot of havoc, so handle with care.
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Jason D Scorse Posted 7:50 am
12 Aug 2008
GreyFlcn beat me to it....
I think we need to scrap the notion of 'free' markets entirely since it's completely misunderstood and abused.
How about simply a market-based economy? I don't think that is too controversial. Then we can argue about the limitations and parameters but the essential character of markets allocating resources is maintained.
We need to focus on the root causes of problems. www.voicesofreason.info.
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Jon Rynn Posted 8:03 am
12 Aug 2008
Sounds good to me, Jason
I think Galbraith was arguing against the "perfect markets" type of thinking anyway, and he's clearly talking about a market-based economy, as am I...let me try this one, it's like saying Yellowstone Park is pretty "wild", and the overwhelming majority of actions in the park (except the tourists) are wild, but if the Park Service needs to fix something in order for the ecosystem to maintain itself -- say, by reintroducing wolves -- then it will study the problem carefully, take action, and stay out of the way as much as possible. In other words, the system is "wild-based", we argue about how best to manage it.
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GreyFlcn Posted 8:04 am
12 Aug 2008
Well true
What I think you're referring to are examples where the "Public Good" significantly outweighs the "Private Good".
Or where the risk of a Return on Investment, and the Rate of Return may be too slow, risky, and large for private business to provide that good/service.
Flu vaccines, Education, Infrastructure, and R&D are good examples.
Where the benefit to the private individual is significantly smaller than the benefit to society as a whole. And as such, it makes sense to subsidize and lower the price of that good/service to match it's public benefit.
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Another category is for ares which cannot be privatized, such as deep sea fishing, or air quality.
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If anything, another argument might be made about Deficit Spending not necessarily being "evil", however when it is used, it should be used on things that will achieve a return on investment.
(i.e. Not Entitlements, or Wars)
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What I was mainly referring to is that I think that competitive bidding to private contractors for Government projects is a good idea.
Even in the area of R&D, Government could still act as if they were a Venture Capital fund.
(Although I would agree, University research, and Endowments are where you get a lot of R&D from)
-David Ahlport
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GreyFlcn Posted 8:12 am
12 Aug 2008
That conitation doesn't work.
Nah I think you'd need to add a clarifier.
Otherwise the default assumption would be "Free" Markets. Since as Lakoff mentions, Republicans have been very effective at getting their concept-models out into society. And not-so-much for the Dems.
What we need to emphasize is that markets NEED regulation. Since markets are "Path of Least Resistance" machines.
Just because a Path is Efficient doesn't mean it's Ideal.
For instance, the most Efficient way for a Tank to drive to a location is to plow straight through a row of houses.
Although it's not that sexy, I think the argument is that we need "Regulated Markets".
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I think we still need some concept-modeling and word smithing to come up with something that correctly expresses that sentiment.
-David Ahlport
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Sean Casten Posted 8:48 am
12 Aug 2008
Jon: re self-correction
You've got 90% of my point, but there's a wrinkle. Schumpter got markets right when he wrote about the waves of creative destruction that grow net societal value even as they destroy. Sony builds a betamax factory, and their capital is destroyed when the markets run to VHS. Then the VHS factory investor's capital is destroyed when the markets turn to DVDs.
It is this self-correction that governments lack. Eisenhower pursues an atoms-for-peace program and 50 years later we are still massively subsidizing the nuclear power industry with no easy way to change paths. Laws are passed to fund mass-transit from gasoline taxes and we end up with the goofy story last week where we might have to raid the mass-transit fund to pay for highway maintenance that is falling with VMT. And of course, there are plenty of humorous examples of laws that never get repealed from the books, like Washington state's $10,000 fine on anyone who shoots a bigfoot.
The last one is just silly, but the broader ones are much more problematic. Even when government does a perfect job at picking winners, they do a terrible job at responding to changes that would otherwise turn past-declared winners into losers. It's like taking a vote in 1969 and then finding 30 years later that - circumstances, health and participating teams notwithstanding - Joe Namath keeps winning the Superbowl MVP.
And note that this is true even in the idealistic, non-pluralistic version of democracy, because you only get to vote on things that are on the ballot and - for the most part - voters are much more attuned to losses than gains. If I'm the beneficiary of government largesse, no matter how out-dated it may be, I know exactly what I have to lose if it is eliminated. On the other hand, if I am a potential beneficiary of a market that reallocates capital in my favor once government largesse X is eliminated, how would I even know? This creates an innate conservative bias (in the sense of preserving the status quo) in electoral processes that market forces are immune from.
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Wolverine Posted 9:00 am
12 Aug 2008
Freedom, Responsibility, & Authoritarianism
Jason,
Your point of view smacks of libertarianism, which is nothing but immature demands to do whatever one pleases, the environment and others be damned. People are only entitled to freedoms for which they take full responsibility. This American crap about "freedom" is ludicrous, immature, and selfish.
Sean,
There's nothing in this thread about the environment, it's all about economics. I totally disagree that the subject is "whether markets are a useful tool towards environmental ends, and more directly whether that is better or worse than top-down governmental oversight." Perhaps that was what it was intended to be, but it's just a boring economic discussion.
And come on, using China and the Soviet Union as examples of top down environmental regulation? Since when did anyone ever running those countries care about the environment?
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gmobus Posted 9:12 am
12 Aug 2008
Wise social governance
I've just finished posting the last installment in a five-part series on a framework for wise governance. That framework is the systems theoretic model of hierarchical control (or cybernetics if the word control make you squeamish and envision dictatorships). I present the case that hierarchical control systems evolve naturally in complex dynamic systems tending toward a steady-state dynamic (you know - sustainable). It has marked the origin of life (homeostasis in autocatalytic processes), the evolution of cells (autopoiesis and mobility), the evolution of brains, and the evolution of social organization.
But in the latter case it is still in process of evolving, so to speak.
Societies need two things; energy flow through to maintain life and governance of that flow through (including material flows) to maintain humanist values (ethics, etc.) The flow through, work that gets done to maintain humanist values, and distribution of the wealth gained is mediated by market mechanisms, but this is not the only mechanism for governance. Governments have existed and evolved to act like the autopoietic structures in a living system, to coordinate larger scale processes when the market alone cannot suffice. Simple time lags and complex, obscure work processes that obfuscate information (needed for any market to work well) are a substantial part of why modern markets can never be adequate mechanisms.
Finally, mankind has to learn to get along with the rest of the Ecos. We aren't doing a great job now. That implies that we need to strategically manage ourselves in ways that current governments and markets can never do.
It's a whole different way of looking at political economy in some ways, but actually not if you see the patterns of hierarchical governance that have evolved in fits and starts over man's history.
For what it is worth:
Question Everything
George Mobus, Associate Professor, Institute of Technology, University of Washington Tacoma, and Professional Student for Life
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GreyFlcn Posted 10:08 am
12 Aug 2008
Sounds familiar
Or to quote everyone's favorite sociopath :P
-David Ahlport
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Jason D Scorse Posted 11:03 am
12 Aug 2008
Libertarianism?
Actually, I am most definitely a social libertarian and proud of it. I believe in individual liberty and the government minding its business and not butting into people's personal lives.
As to socio-economic policy, if you think I'm a libertarian you haven't paid attention to anything that I've written on Grist for the past 2+ years.
We need to focus on the root causes of problems. www.voicesofreason.info.
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Sean Casten Posted 11:09 am
12 Aug 2008
Great quote, GreyFlcn
One of my favorite short versions of that from inside the beltway:
"Losers cry louder than winners cheer"
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Jon Rynn Posted 11:22 am
12 Aug 2008
Grey, you nailed it!
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Sean Casten Posted 11:37 am
12 Aug 2008
And for what it's worth...
Kuhn noted that the sciences suffer from something of the same bias towards the status quo in his whole theory of paradigm shifts, when he noted that a part of what sustains an existing paradigm is that everyone finds facts to fit the old theory until the exceptions overwhelm and the theory topples. This is directly analagous to the Macchiavelli quote, in the sense that the status quo tends to maintain an innate barrier to exit (to try and tie many posts in this thread together!) much longer than it otherwise would.
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Jon Rynn Posted 11:48 am
12 Aug 2008
Sean, you're describing "sclerosis"
The great late economist Mancur Olson used the organizing idea of sclerosis for his book, "The risse and decline of nations". Now, part of this, of course, is because corporations and whole industries weave their webs by using government to maintain themselves. And the biggest piece of sclerosis is the military-industrial complex, an institution that libertarians and progressives share in wishing it would be cut down to size.
Or look at national health care, or lack of national health insurance. That's something the government should be doing, but isn't because first, the American Medical association successfully killed it, and second, the huge private health insurance industry stands in the way of what is clearly a more efficient system.
Oligopolies, even without government support, can be horribly difficult to dislodge. Just look at the U.S. auto industry, which got stuck on big cars in the 1960s and still can't give up -- and there was also the case of the highway lobby, another example of sclerosis, killing a very efficient public transit system.
Of course, oil/coal/utilities are standing in the way of good global warming legislation. We've dealt with Big Ag over and over. All of these oligopolies do what they are "supposed to do", they look after the profits of the shareholders. As long as that's their overriding (seemingl only) goal, then the only argument for not interfering for the benefit of society, is that the market is able to constrain oligopolists, and the oligopolists are more productive and innovative without interference. But because profit is the be all and end all -- and I'm not,repeat, not saying that that is bad -- the government must be a steward, and intervene where the public "good" is being made bad.
This to some extent gets to George's point, which is to ask, How much conscious planning must be done to steer (cybernetic is from the verb "to steer") society in the "right" direction? And how do we figure out what is the "right" direction? now we get back to pluralism vs. a larger conception of the public good.
We have a quandary now (and if Wolverine is still reading, I hope this gets more interesting) because, whereas before we could simply watch the market and the interest groups fight it out and see what happens, now we have a deal killer -- the entire ecological basis for economic wealth is in trouble. Governments and markets are both to blame, it doesn't really matter which is worse. Sure, picking winners, or categories of winners, could lead us down a less efficient path,could build up constituencies and eventual sclerosis, but I think we should consider the idea that because we are in such big trouble, we will have to take some chances.
Wolverine -- part of the problem we're having here is that so many progressives and environmentalists consider economics discussions to be boring. So now we're stuck -- speaking of sclerosis -- with one dominant, overpowering economic framework, neoclassical economics. I was a friend to a person who I think was one of the best economists of the post WWII period, Seymour Melman, but he and the people he came up with did not offer an alternative to neoclassical economics. So now Galbraith is doing his best to start the process. George is giving it a try, so am I, join on in!
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Jon Rynn Posted 11:50 am
12 Aug 2008
yeah, agree about Kuhn
and one of the reasons I like Kuhn's work so much is that he shows that without a better alternative, the reigning framework (paradigm) will not be overthrown. Creative destruction only works with the "Creative".
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Sean Casten Posted 12:01 pm
12 Aug 2008
Jon
I don't think this is necessarily cause for fatalism. Markets - of the free and competitive variety - are a wonderfully powerful tool for governments to use for all sorts of ends. You're right to note that the interests of shareholders create pressures away from free & competitive, but that simply highlights & helps define the role of government.
To the extent that sclerosis exists then, it is largely because the government has failed in it's role. Don't blame the business for seeking profits - but do blame the government that confuses profits for markets.
As I put it here, if you're sitting at a poker table and find that your opponent is holding 5 aces and the dealer keeps winking at him... don't waste your time yelling at the guy with the aces. He's playing to win just like you are. The problem is the dealer. So too with regulators who throw pork at businesses. The business isn't the problem.
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Jon Rynn Posted 12:35 pm
12 Aug 2008
Well then, maybe we can agree
that if the government is in that critical a role, the population has to be very involved in the electoral and legislative process. You get the republic you work for, or however the wise man put it.
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Colin Wright Posted 4:47 pm
12 Aug 2008
Great educational discussion, guys!
And Jon, did you catch the economy-as-ecosystem metaphor in the original Galbraith piece?
I know. Probably not how you use the metaphor! ;)
In any case, I hope everyone gets to read Galbraith's take on what the "market" actually is, as well as the comments and book reviews at TPM. I may have to consider buying it!
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amazingdrx Posted 5:01 pm
12 Aug 2008
Great idea
"How about simply a market-based economy?"
Just change the name from "free" markets, to a "market based economy".
No problem, someone tell JKG to shut his cake hole. He's over the top. Hehey.
http://amazngdrx.blogharbor.com/blog John Schneider, Northern Wisconsin
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amazingdrx Posted 5:25 pm
12 Aug 2008
Fair and free markets
'The Predator State is aimed at the notion that the liberal formula should be "making markets work."'
Real free and fair markets need protection from insider manipulation and monopoly. Without that markets do not respond to the fundamental law of supply and demand. It's just that simple.
Just what Teddy Roosevelt knew and just what many have been trying hard to explain, against the arguments of "experts" in the field who have insisted that hardly anything is wrong at all with the present state of deregulation.
http://amazngdrx.blogharbor.com/blog John Schneider, Northern Wisconsin
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