Depoliticisisng economics

[Julio Huato <juliohuato@xxxxxxxxx>]

> CB: What are some of the key aspects of current bourgeois
> economic thought that can contribute to persuading the vast
> majority of people to want to change society from
> capitalist organzation to socialist organization ?

My hope is that young people, attracted to the radical tradition of
Marxism, much more lucid than us, get curious and excited enough about
the challenge posed by today's economic theory to work on filling the
obvious gaps in the critical project I outlined in my previous
posting.  Why assume that the burden of the proof falls in he who
claims that there is relevant material in bourgeois economics?  Isn't
it more natural to presume that sterility from too much inbreeding
within an ever splintering and shrinking intellectual pool -- and not
exposure to ideological contamination from outside views -- is the
higher risk today?

If in the last 50 years, Marxists had achieved a higher rate of
historical success, then there would at least be a good excuse not to
get off the beaten path.  But given our record, shouldn't we be less
cautious, intellectually speaking?  Not to underestimate their local
gains and potential global impact, but what people in poor countries
can do to build socialism remains extremely constrained by their
technological possibilities.  That cannot be altered in the short run.
 And, for the most part, the divorce from the actual class struggle,
which -- according to Perry Anderson -- characterized Western Marxism
in the 1970s or 1980s (when there was still a Soviet bloc!), remains a
stubborn fact.  In this light, Marxists have nothing to lose, but the
insular dogmas that enslave them.  Even those organically or
propagandistically connected to the unions in the U.S., whatever the
intellectual stock they've been tapping in the last decades, their
organizations have lost much ground.  So even they -- one can presume
-- would have more to gain than to lose.

Your question is important in an immediate political sense.  How can
we build anything if we don't persuade people that socialism makes
sense?  But in the realm of political immediacy, action comes first --
motivated by compelling need.  The word and the idea follow.  Yet
ultimately, it's not just a matter of having persuasive arguments or
even winning the next political battle.  It's a matter of being able
to build sustainable social structures, which boils down to building
relations that have a better -- more stable, more robust -- shot at
history (where, like in natural evolution, not always "the better"
wins, but *only* has a higher *probability* of winning).  That's why I
find Michael Lebowitz's question ("what do you find in it to help us
understand what's necessary to go beyond capital?") to be most
relevant.

I will, however, address your question.  For reasons too long to
summarize here, I have no qualms against framing our arguments in
terms familiar to modern economists -- and to lay people who have been
exposed to economics 101 or to typical economic reasoning one way or
another.  I believe I once posted a note on PEN-L saying that the
necessity of communism could be framed using the usual economic
arguments of "market failure": "macro" failures (as in unemployment
and other "coordination" failures) and "micro" failures like
externalities and, more particularly, public-goods kind of
externalities.  We can show that those market failures are not alien
to the basic premise of capitalism: social inequality.  So, to answer
your question directly, there are *many* aspects of current bourgeois
economics that would come in handy.

Consider externalities.  The basic idea is this: modern economics
admits that *external* benefits and costs (benefits and costs not
incorporated into prices haggled out by markets) distort the choices
made by people and businesses and redound in aggregate inefficiencies.
 In that case, at least in principle, collective action can improve
upon the market outcome.  Under certain, not terribly heroic
conditions, collective action *will* improve upon the market outcome. 
So there's grounds for people to experiment with collective action in
trying to correct "market failures."  While at first sight this may
seem too modest -- too Bernsteinian -- the arguments can be plausibly
carried over to a point where capitalism doesn't stand the chance of
merely reforming itself.

Are externalities (and the inefficiencies that result from them) a
minor problem in modern capitalist societies?  Not really. 
Externalities are very pervasive and socially costly.  Leftists
usually point to the case of environmental externalities.  Our
argument can be strengthened significantly by pointing out that the
rational way to look at environmental dangers is not by focusing on
the mere probability of global disasters happening, but on the
*expected welfare loss* (the sum of the probabilities times the
outcomes under each state of nature).  The consequences of not
insuring ourselves against the worst case scenario are enormous.  But
the essence of this argument is not new.  Neither is it new to refer
to social externalities.  Here, the usual allusion is to the familiar
fact that capitalist life generates as a regular byproduct (with huge
external costs for society) very screwed-up individuals (not to
mention death and ruin).  And in each of these cases, one can argue
reasonably that these externalities tend to *grow explosively*.

As compelling as these arguments are, we can also illustrate this by
pointing to another instance that people usually ignore.  It's the
"vicious" case of externalities in the so-called "public-good"
problem.  In this case, the externality can be increasingly costly to
internalize unless we jettison markets and private ownership.

A "public good" in economics is such that it is non-rivalrous,
non-saturable, and non-excludable.  Needless to say, there are degrees
of rivalry, saturation, and excludability.  Rivalry means that if I
eat an apple, then you cannot eat it.  A non-rivalrous good is, for
example, the Pythagoras Theorem: you can use it and I can use it, at
once if need be.  Moreover, it doesn't need to become less useful to
others after we use it.

Saturation (a peculiar instance of rivalry, if you think about it),
which typifies the case of "semi-public" goods, means that only a
finite number of consumers can use a good simultaneously (e.g., a
road, a park).  After a point there'll be a traffic jam, people
standing in line, etc. so we need some way to ration it and prices
formed via markets can do that job somehow (perhaps not in a "fair"
way, but at least somewhat "efficiently" in the sense of reaching a
point where improving the wellbeing of one would require hurting
another). Excludability means the ability of the holder of a good to
exclude others from using it without her consent (perhaps a consent
mediated by some form of compensation).

Both rivalry and saturation are "technical" problems.  They depend on
nature and/or technological possibilities.  But, clearly,
excludability is a *social-relations* kind of problem.  Simply put,
excludability is the notion of (economic) ownership used in political
economy and Marxism, but viewed -- not in a binary scale -- but in a
continuum.  This way of looking at ownership is helpful, because there
are different degrees of effective or economic ownership.  Laws may
say X, but the ability to enforce X is a different thing.  Ultimately,
that ability depends on costs net of benefits (or vice versa).  As a
rule and given time, societies won't survive if they keep wasting
resources trying to enforce absurd laws, instead of just giving up on
enforcing them or repealing them altogether.

The reason why non-rivalry, non-saturation, and non-excludability are
bundled together in the concept of public goods is that -- as it's
easy to see -- rival goods are less costly to exclude or appropriate. 
Oranges are easy to exclude.  But cable companies have a hard time
preventing people from using their signal for free.  Or look at the
P2P case.  More generally, what class of goods has this horrible trait
of being non-rivalrous and increasingly costly (sometimes
impossibly-costly) to exclude?  As you may have anticipated, yes, ones
and zeros, data, information, knowledge, science, technology, etc. --
a large and *explosively growing* chunk of human culture.  And that
type of goods, all goods that can -- in principle -- be digitized, are
booming as a proportion of total human output.  Just look around, even
goods that would seem to be pure rivalrous stuff, like a "plain"
apple, do nowadays "embody" (require) a huge fraction of
ones-and-zeros-producing labor time.  And as we speak that fraction is
growing exponentially.

If you think about it for a second, Marx's (and Engels' in, say,
Anti-Duhring) idea of the conflict between the increasingly social
character of production and the private nature of capitalist ownership
reappears here very neatly.  What did Marx mean by the "increasingly
social character of production"?  He meant that modern production
involves a growing interdependence among producers.  I'd push it
further (although Marx's notion of social production is much more
general than we usually think) and say that modern social life
involves a growing interdependence among people.  And, more so when
you take into account luck, it becomes virtually impossible to tell
exactly where *your* honest contribution to social production ends and
*mine* begins, where *your* safety and wellbeing ends and *mine*
begins, etc.

Markets cannot mediate this complex interdependence but in a very
wasteful way.  So private ownership becomes an increasingly narrow
basis for organizing a modern economy and society.  That is what this
argument of externalities really leads to.  Too much interdependence
of the kind that markets and private ownership *cannot* handle
efficiently -- too costly for markets to handle.  And, as Marx (and
Engels) anticipated, this interdependence is *growing* under
capitalism, given the technological dynamism induced by the profit
motive.  QED

(In principle, the total cost of public-cost externalities left to
markets to handle are measurable with the tools of welfare economics. 
These empirical arguments are extremely persuasive.  Just consider
that, out of all the stuff discussed in the economists' Boston
meeting, the news story that got most resonance was Stiglitz and
Bilmes' estimate of the cost of the Iraq war.)

Talking about Stiglitz, I could also -- quickly -- mention the
information-asymmetry argument.  The gist of this story is that the
markets-work-best theorems are based inter alia on the assumption of
perfect information, but in real economies information is imperfect
and costly.  And, when one party in the transaction can know more
about a good (and today's goods are increasingly complex, in a sense
that boggles people's minds) than the other, then markets tend to
unravel or simply won't exist or will require public action to
survive.  Such situation leads to all sorts of systematic
inefficiencies (waste of human welfare or, if you prefer, waste of
human labor/life).

Issues of initial distributional equity are usually pushed aside,
although there's a lot in the recent economic literature that puts
equity squarely back at the center of economic analysis.  (Besides the
field of "informational imperfections," this stuff can be found under
the rubric of "incentives," "principal/agent problem," and "optimal
contracts," but I could also mention tons of literature in "growth
economics.")  So, the economic case for capitalism reduces itself to
the claim that capitalism can do a better job at maximizing welfare. 
Or, if you prefer, that it can do a better job at putting human labor
time to its most productive uses (in the sense of welfare-producing)
than any other viable alternative.  While we may laugh at this, most
people seem to *believe* this very firmly.  After the collapse of the
Soviet Union, it seems to be *taken for granted* by most people in the
world who have had a chance to think about it.

While we can make the case that the problems of informational
asymmetry are also pervasive and growing to the point of, eventually,
making markets (and private ownership) brutally inefficient in
comparison to even the most modestly conceived socialism, I think that
-- if one reduces the info-asymmetry argument ad absurdum -- the
ability to acquire and process information boils down to initial
wealth (economic power or, in more proper Marxist terms, capital).  So
it really comes down to a deeper asymmetry: the asymmetry in the
initial distribution of wealth.  And the basis of capitalism is
ultimately that tiny distributional quirk: the skewed "distribution of
the ownership over the objective and subjective conditions of
production."  Take that away and capitalism is no more, even if
markets survive for a longer while.

That is, IMHO, in terms of its *immediate* political explosiveness,
the strongest argument
one can make against capitalism: in the face of huge inequalities, any
mechanism by which people negotiate their interests (or, as economists
like to put it, any algorithm by which people aggregate their
individual choices), be it "free markets" or "democratic" political
processes, are shams -- they only enable (and perhaps disguise,
legitimize ideologically) the abuse of the weak by the powerful. 
Nowadays, most inequality is international, the average income in rich
and poor countries is more far apart than the average income of the
rich and the poor in particular countries, so no wonder the struggle
against imperialism is at the forefront.  But locally or globally,
this argument is dynamite.  It appeals to our most basic sense of
fairness.  It can be clearly shown that markets -- like "democracies"
-- when not subverted or at least under reasonable pressure by the
organized direct producers, are GIGO devices where the outcome is
predetermined by the initial conditions: Garbage In, Garbage Out.

Best,

Julio