How ‘Competitiveness’ Became One of the Great Unquestioned Virtues of Modern Culture

How did mounting inequality succeed in proving culturally and politically attractive for as long as it did?

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Will Davies

Widening economic inequality is the academic topic du jour, but the trend of growing wealth and income disparity has been underway for several decades. How did mounting inequality succeed in proving culturally and politically attractive for as long as it did?

The years since the banking meltdown of 2008 have witnessed a dawning awareness, that our model of capitalism is not simply producing widening inequality, but is apparently governed by the interests of a tiny minority of the population. The post-crisis period has spawned its own sociological category – ‘the 1%’ – and recently delivered its first work of grand economic theory, in Thomas Piketty’s Capital in the Twenty-first Century, a book dedicated to understanding why inequality keeps on growing.

What seems to be provoking the most outrage right now is not inequality as such, which has, after all, been rising in the UK (give or take Tony Blair’s second term) since 1979, but the sense that the economic game is now being rigged. If we can put our outrage to one side for a second, this poses a couple of questions, for those interested in the sociology of legitimation. Firstly, how did mounting inequality succeed in proving culturally and politically attractive for as long as it did? And secondly, how and why has that model of justification now broken down?

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In some ways, the concept of inequality is unhelpful here. There has rarely been a political or business leader who has stood up and publicly said, “society needs more inequality”. And yet, most of the policies and regulations which have driven inequality since the 1970s have been publicly known. Although it is tempting to look back and feel duped by the pre-2008 era, it was relatively clear what was going on, and how it was being justified. But rather than speak in terms of generating more inequality, policy-makers have always favoured another term, which effectively comes to the same thing: competitiveness.

My book, The Limits of Neoliberalism: Sovereignty, Authority & The Logic of Competition, is an attempt to understand the ways in which political authority has been reconfigured in terms of the promotion of competitiveness. Competitiveness is an interesting concept, and an interesting principle on which to base social and economic institutions. When we view situations as ‘competitions’, we are assuming that participants have some vaguely equal opportunity at the outset. But we are also assuming that they are striving for maximum inequality at the conclusion. To demand ‘competitiveness’ is to demand that people prove themselves relative to one other.

It struck me, when I began my Sociology PhD on which the book is based, that competitiveness had become one of the great unquestioned virtues of contemporary culture, especially in the UK. We celebrate London because it is a competitive world city; we worship sportsmen for having won; we turn on our televisions and watch contestants competitively cooking against each other. In TV shows such as the Dragons Den or sporting contests such as the Premier League, the division between competitive entertainment and capitalism dissolves altogether. Why would it be remotely surprising, to discover that a society in which competitiveness was a supreme moral and cultural virtue, should also be one which generates increasing levels of inequality?

Unless one wants to descend into biological reductionism, the question then has to be posed: how did this state of affairs come about? To answer this, we need to turn firstly to the roots of neoliberal thinking in the 1930s. For Friedrich Hayek in London, the ordoliberals in Freiburg and Henry Simons in Chicago, competition wasn’t just one feature of a market amongst many. It was the fundamental reason why markets were politically desirable, because it conserved the uncertainty of the future. What united all forms of totalitarianism and planning, according to Hayek, was that they refused to tolerate competition. And hence a neoliberal state would be defined first and foremost as one which used its sovereign powers to defend competitive processes, using anti-trust law and other instruments.

One way of understanding neoliberalism, as Foucault has best highlighted, is as the extension of competitive principles into all walks of life, with the force of the state behind them. Sovereign power does not recede, and nor is it replaced by ‘governance’; it is reconfigured in such a way that society becomes a form of ‘game’, which produces winners and losers. My aim in The Limits of Neoliberalism is to understand some of the ways in which this comes about.

In particular, I examine how the Chicago School Law and Economics tradition achieved an overhaul (and drastic shrinkage) in the role of market regulation. And I look at how Michael Porter’s theory of ‘national competitiveness’ led to a new form of policy orientation, as the search for competitive advantage. Both of these processes have their intellectual roots in the post-War period, but achieved significant political influence from the late 1970s onwards. They are, if you like, major components of neoliberalism.

By studying these intellectual traditions, it becomes possible to see how an entire moral and philosophical worldview has developed, which assumes that inequalities are both a fair and an exciting outcome of a capitalist process which is overseen by political authorities. In that respect, the state is a constant accomplice of rising inequality, although corporations, their managers and shareholders, were the obvious beneficiaries. Drawing on the work of Luc Boltanski, I suggest that we need to understand how competition, competitiveness and, ultimately, inequality are rendered justifiable and acceptable – otherwise their sustained presence in public and private life appears simply inexplicable.

And yet, this approach also helps us to understand what exactly has broken down over recent years, which I would argue is the following: At a key moment in the history of neoliberal thought, its advocates shifted from defending markets as competitive arenas amongst many, to viewing society-as-a-whole as one big competitive arena. Under the latter model, there is no distinction between arenas of politics, economics and society. To convert money into political power, or into legal muscle, or into media influence, or into educational advantage, is justifiable, within this more brutal, capitalist model of neoliberalism. The problem that we now know as the ‘1%’ is, as has been argued of America recently, a problem of oligarchy.

Underlying it is the problem that there are no longer any external, separate or higher principles to appeal to, through which oligarchs might be challenged. Legitimate powers need other powers through which their legitimacy can be tested; this is the basic principle on which the separation of executive, legislature and judiciary is based. The same thing holds true with respect to economic power, but this is what has been lost.

Regulators, accountants, tax collectors, lawyers, public institutions, have been drawn into the economic contest, and become available to buy. To use the sort of sporting metaphor much-loved by business leaders; it’s as if the top football team has bought not only the best coaches, physios and facilities, but also bought the referee and the journalists as well. The bodies responsible for judging economic competition have lost all authority, which leaves the dream of ‘meritocracy’ or a ‘level playing field’ (crucial ideals within the neoliberal imaginary) in tatters. Politically speaking, this is as much a failure of legitimation as it is a problem of spiralling material inequality.

The result is a condition that I term ‘contingent neoliberalism’, contingent in the sense that it no longer operates with any spirit of fairness or inclusiveness. The priority is simply to prop it up at all costs. If people are irrational, then nudge them. If banks don’t lend money, then inflate their balance sheets through artificial means. If a currency is no longer taken seriously, political leaders must repeatedly guarantee it as a sovereign priority. If people protest, buy a water canon. This is a system whose own conditions are constantly falling apart, and which governments must do constant repair work on.

The outrage with the ‘1%’ (and, more accurately, with the 0.1%), the sense that even the rich are scarcely benefiting, is to be welcomed. It is also overdue. For several years, we have operated with a cultural and moral worldview which finds value only in ‘winners’. Our cities must be ‘world-leading’ to matter. Universities must be ‘excellent’, or else they dwindle. This is a philosophy which condemns the majority of spaces, people and organizations to the status of ‘losers’. It also seems entirely unable to live up to its own meritocratic ideal any longer. The discovery that, if you cut a ‘winner’ enough slack, eventually they’ll try to close down the game once and for all, should throw our obsession with competitiveness into question. And then we can consider how else to find value in things, other than their being ‘better’ than something else.

Originally published here.

2016 July 24

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  • Jan de Jonge

    I think that with the neoliberal view we have made the transformation from a “society having a market to a society being a market” (see Sandel, What money can’t buy, p10)

  • stevelaudig

    I may be presenting a naive view here, so be it and I don’t claim “expertise” in how it works out. But limited liability, by definition, is a subsidy delivered to an actor [ the LLC] by the legal order. It is a subsidy that isn’t recognized and isn’t discussed much and when discussed is defended. The costs of limits to liability [like all immunities] are borne, involuntarily by the harmed parties. The “faux” profits from prior years are not “clawbackable”. A corporation make jillions in years 1-10, distributes the take to the owners. Loses half-jillions in years 11-13, and bankrupts distributing the losses to those “foolish” enough to contract with the LLC. This is the dark heart. I will gladly take instruction on the matter. LLCs mine value out of society leaving only superfund sites.

    • Good point about the LLC. It is one of several *structural* unfairnesses that negate any potential for a level playing field. But I think the “Prime Mover” of *structural* unfairness is that one industry, banking (both central and commercial), can create money from nothing, while all others must *earn* money by supplying a product or service. How in the world will the industry that can create money not end up using that cash flow to dominate business, markets, law, government agencies and their regulators, legislatures, judiciaries, etc etc, and even entire countries, as has been clearly proven of late. Until we unravel the system at these types of basic levels and rectify the *structural* situations, the notion of a level playing field is fantasy no matter how many great books get written about it. The playing field is severely tilted and warped, with the loose change and much more flowing toward a very small group that, like a criminal enterprise, takes a “cut” of everything and makes us all pay for the “protection” they provide.

      • Your analogy to a criminal enterprise is appropriate. Not sure who coined it, but I’ve been using “Bankster” when referring to the boys on Wall Street. They committed fraud against the world, yet received no punishment. Their shareholders paid the price and the “government” allowed them to write off the fines to shelter future income. As indicated, the individuals received no punishment. Nothing.

        Now, in my little world, I read a Busted section in our newspaper revealing the 8-10 year sentences people get for writing bad checks or forging their names to steal money from others. We get a mug shot of these thieves in the paper for all to see.

        How can a society justify this behavior? It cannot, unless there is a whole bunch of accomplices involved?

        This ties back to the story Will so eloquently pointed out. The “coaches and referees have been purchased” by the Banksters, so they get a pass.

        Not sure what it will take for Americans to wake up…maybe four years of Donald Trump & Mike Pence, or the Koch brothers, running this country. But even our academic institutions are selling out their integrity and principles for money, and the takers have been very willing to step in to take advantage. It will get worse before it gets better.

        • Swami

          Because you are just making up the fraud charges. If they committed fraud and can be convicted by a jury and judge, then I certainly hope they rot in jail. Sadly, in most cases they were not doing anything fraudulent. Indeed they were often specifically following the absurd regulations requiring them to give poorly secured loans to politically favorable clients and then handing that loan off to government insured agencies.

          The people first and foremost who should be tarred and feathered are the politicians, regulators and such who designed this Rube Goldberg device of absurd incentives.

          Don’t get me wrong. I completely agree that corporate officers who committed fraud should be arrested. But realistically it was the wackos designing this absurd regulation who should be committed.

    • John M Legge

      You and Adam Smith both:

      “Joint stock companies, established by Royal Charter or by Act of Parliament, differ in several respects, not only from regulated companies, but from private copartneries.

      First, in a private copartnery, no partner, without the consent of the company, can transfer his share to another person, or introduce a new member into the company. Each member, however, may, upon proper warning, withdraw from the copartnery, and demand payment from them of his share of the common stock. In a joint stock company, on the contrary, no member can demand payment of his share from the company; but each member can, without their consent, transfer his share to another person, and thereby introduce a new member. The value of a share in a joint stock is always the price which it will bring in the market; and this may be either greater or less, in any proportion, than the sum which its owner stands credited for in the stock of the company.

      Secondly, in a private copartnery, each partner is bound for the debts contracted by the company to the whole extent of his fortune. In a joint stock company, on the contrary, each partner is bound only to the extent of his share.
      The trade of a joint stock company is always managed by a court of directors. This court, indeed, is frequently subject, in many respects, to the control of a general court of proprietors. But the greater part of those proprietors seldom pretend to understand anything of the business of the company, and when the spirit of faction happens not to prevail among them, give themselves no trouble about it, but receive contentedly such half-yearly or yearly dividend as the directors think proper to make to them. This total exemption from trouble and from risk, beyond a limited sum, encourages many people to become adventurers in joint stock companies, who would, upon no account, hazard their fortunes in any private copartnery. Such companies, therefore, commonly draw to themselves much greater stocks than any private copartnery can boast of . . . . The directors of such companies, however, being the managers rather of other people’s money than of their own, it cannot well be expected that they should watch over it with the same anxious vigilance with which the partners in a private copartnery frequently watch over their own. Like the stewards of a rich man, they are apt to consider attention to small matters as not for their master’s honor, and very easily give themselves a dispensation from having it. Negligence and profusion, therefore, must always prevail, more or less, in the management of the affairs of such a company.” (Book V, Ch 1, pt 3)
      Smith, at least in this quote, does not forecast the degree to which negligence and profusion would be joined by venality, corruption and fraud.
      Mainstream and neoliberal economists avoid considering the inherent problems with limited liability by assuming them away. Friedman called stockholders “owners”, erasing the difference between a limited liability company and a partnership. Mainstreamers assume perfect foresight, so it is impossible for creditors to lose though bankruptcy, at least in their models.

    • Rory Short

      This situation is something that I have had an uncomfortable feeling about for years but never really stopped to think, “Why am I uncomfortable?”

      I think the reason is because the quintessential healthy economic event is the satisfactory completion of an exchange of goods and/or services between two parties. That is to say party A receives from party B item IB whilst party B receives from party A item IA and parties A & B are both completely satisfied with the outcome of the exchange, i.e. they each simultaneously complete zero sum games with one and other.

      Satisfactory economic exchanges are essential for the continuation of healthy human existence and quintessential economic events set the basic condition for a healthy economy. What is this condition? It is that no party should experience any loss of value through the exchange, i.e. A’s gain must be exactly matched by B’s gain.

      The creation of limited companies opens the door to legal entities, i.e. limited companies, that flout this condition with impunity. There’s the problem!

  • benleet

    Klepto-renumeration, a term coined by George Monbiot, is at the heart of the problem. I favor a tax on wealth, on financial assets, and a high marginal income tax rate of 90% on income over $1 million a year. Also tax preference to worker-managed corporations, and a maximum personal income level. Also a restructuring of corporate charters to include stakeholders on corporate boards. The most important problem is public acceptance. At last finding it’s becoming unacceptable because many people are struggling, and we are missing our potential. Maybe the society is the victim of the economy. Recently, 7.18.16, published a finding that in the U.S. the lower-earning 90% since 1980 had virtually no average income increase, the top 0.1% increased income by 149% from 1.6 million to 4.0 million. The income ratio is 1 to 117. I write the blog Economics Without Greed,

    • Swami

      Median incomes are up 44-62% over roughly the same period per the much more rational assumptions of the Mineapolis Fed.

      You have to adjust the numbers properly for household size, inflation and such.

      Globally the numbers are even more impressive and meaningful (increases are more important when you started impoverished). I can link you to them if your Google is broken. See my comment above. Incomes, health, longevity, freedom, tolerance, happiness, literacy, education, and so on are unimaginably higher now globally than in prior eras. The system is all interconnected.

      I suggest a tax on people foolish enough to think they can sit in their arm chair and master plan how the most succesful global society in the history of mankind should be redesigned. I would start at 101% and go up from there.

      You don’t understand the nature of the system, you don’t have a clue how well it is working overall, you are confused on which parts work well and which parts need repair. In brief you are like a medieval doctor who “cures” an infection with blood letting, hot coals on the feet, and the powder ground from the skull of a dead man blown up the patients nose. In case you miss my point, it is that the above Doctor is really more a part of the problem than the solution.

      • benleet

        That Minneapolis Fed report is very interesting. It’s a dynamic complicated issue and this is a helpful report. Calling me a witch doctor or whatever is not helpful, but thank you anyhow. This cited report was published in 2008, why haven’t more economists cited it as the correct interpretation? There is an abundance of economists who work full-time on these issues, and this is a lone voice, albeit a very intelligent and important voice. He contradicts the CBO, the, the Census and the BEA. He has goods points to consider though. He doesn’t dispute that per capita disposable income has risen by 80%, and now it’s 88%, and his “median” is lower by about half. During the period 1946 to 1976 all income sectors grew with the productivity rate, and then it stopped. If we were interested in creating a society of shared prosperity we would try to replicate that ’46 to ’76 record. I get the sense that you would rather throw mud balls than deeply analyze the issue. Most Americans have a sense that the very wealthy have an unfair advantage, see the Pew survey — it’s 65% to 31% — and they are angry and seeking change. Quote: “A substantial majority of Americans – 65% – say the economic system in this country “unfairly favors powerful interests.” Fewer than half as many (31%) say the system “is generally fair to most Americans.”

        • Swami

          I wasn’t calling you a witch doctor, I was comparing you to doctors of pre modern medicine (more than a few hundred years ago) who attempted to treat complex systems they don’t understand and how this can, and often did, lead to prescriptions which cause more harm than gain. European royalty were treated as such (with skull powder and hot coals) by supposed doctors of the 17th C. We have progressed nicely in medicine. Economics — not so much.

          Note that you were the one who, in the opening line of your comment, accused people of being thieves and then followed up by promptly recommending that we take from them. So let’s be real clear. You are recommending we take property from someone — that we intentionally harm them.

          The tried and true formula for doing so throughout history has always been to demonize the targeted group and then sweep in and “redistribute.” In 1938 it was “Jews”, in 2016 it is the “kleptocracy-remunerating 1%”. New names, new targets, new rationalizations, same old motivation.

          Join me in not being part of the problem this time around. Let us agree that we don’t want to do more harm and that before we take from someone or restrict their freedom that we need an extremely high burden of proof that they are the ones harming others.

          This study isn’t a lone voice. Every study which considers the changing demographics of households (smaller size and fewer marriages), the changing nature of compensation (to expensive benefits), the influx of thirty five million immigrants (who enter at the bottom pulling down median and mean even as massively improving their status ), the effects of lower taxes and greater transfers (often in kind and specifically excluded), and the shift toward more retirees (with the aging of the workforce) comes to the same conclusion. Median incomes are up, and are higher in the US than just about any where else (higher than any other large diverse nation). consumption trends are substantially richer (average appliances, vacations, house size and amenities, etc).

          Granted the rate of improvement is lower than in some prior eras, but that is another topic, and was addressed in part by my comment to the author above.

          So, do we agree that most people in the US are better than in prior eras, and are substantially better than just about anywhere else (our poor are easily in the top decile globally)?

          “He doesn’t dispute that per capita disposable income has risen by 80%, and now it’s 88%, and his “median” is lower by about half. During the period 1946 to 1976 all income sectors grew with the productivity rate, and then it stopped. If we were interested in creating a society of shared prosperity we would try to replicate that ’46 to ’76 record.”

          Again, read my above long comment to the author. No, we would NOT try to force prior trends on the current market. This is exactly what I mean by trying to cure the patient without any grasp of the system. Markets are complex adaptive systems where prices, profits and wages are both signals and incentives. Anyone not knowing this should not be making recommendations. The system is saying that unskilled labor is less scarce relative to skilled labor, capital, and entrepreneurial ideas. Rewards are going up in the relatively scarce factors and down in the factor which saw one billion (unskilled) souls enter the global network.

          This disparity in improvement isn’t best viewed as a problem which needs fixing. The market is the SOLUTION, which creates incentives and signals for movement into skilled labor (get a good pragmatic education and move from unskilled to skilled), and for capital and entrepreneurs to find innovative ways to capitalize upon the surplus of unskilled humans. Over time, if allowed to work, the system is attracted toward the solution which raises standards of living for all. It is working. It has been working. And it will continue to work if you don’t throw in any monkey wrenches (like taking all the capital and negating the higher returns to skill and innovation).

          “Most Americans have a sense that the very wealthy have an unfair advantage, see the Pew survey — it’s 65% to 31% — and they are angry and seeking change. Quote: “A substantial majority of Americans – 65% – say the economic system in this country “unfairly favors powerful interests.” Fewer than half as many (31%) say the system “is generally fair to most Americans.””

          Great point!

          The economic system in this and every other country does favor powerful interests. And I agree that this is a bad thing. But “powerful interests” isn’t any more synonymous with the “one percent” than it was with “Jews” in 1938 Germany. Powerful interests includes cotton farmers guaranteed returns by congress, it includes Congress, it includes the government service workers in California and Illinois who sold their votes for great retirement packages which were never actually funded by taxpayers, it includes the media, and it includes doctors and plumbers who get to restrict the supply of competition (making their skills more scarce), and so on.

          Sure some of the one percent have gotten their deserts improperly. So have some of the 99%. And I ask you to join me in not allowing them to do so any more. But oddly, the recipe is the exact opposite of what the author above recommends. It isn’t for less competition, it is for more competition according to the basic liberal rule of law.

          Let us make the system more fair. But fairness is in no way synonymous with equality of results regardless of effort or contribution. Indeed, everyone would find that extremely unfair.

          • benleet

            I appreciate your thinking, but I persist in disagreeing. An excerpt from the essay: “society becomes a form of ‘game’, which produces winners and losers”. This is the outcome of a market-is-supreme approach to social structuring. Life becomes centered on this “game”. But society, life, mores, ethics is much nobler than “games”. We have hearts that insist on compassion. The market is not the solution, it is a fallible tool for society. During the 1930s capitalism destructed, and it was kept viable only by ignoring the market is right always approach. Marriner Eccles, then head of the Federal Reserve, described the problem as analogous to a poker game, and when the losers were no longer worthy of credit, the game was over. That was his 1951 memoir description of the causes of the Great Depression. People in the 1930s refused to terminate their lives conveniently just because of market failure. Robert Kuttner has written a book titled “Debtors’ Prison” a very thorough review of the economy leading to the 2008 debacle, and I’m part way through it. Those resources of the rich are not untouchable when the debtors default. Restructuring of loans means that both sides take losses. I’m suggesting that approach with my sweeping “answers”. A financial transaction tax is law in many advanced countries today, the U.S. should have one too. It’s almost analogous to a direct tax on financial wealth, which is as legal as any other tax, we do have a property tax in the US. The 1% now earn (if you want to call it that) 22% of all income, the lower-earning 55% earn 16.2%, see my blog for references. Wealth distribution is even more uneven. Most humans view this as not a sensible distribution, I think they view it as a mortal social disease — we will screw too many innocent lives under these conditions. OK. We’ve had enough of this conversation. I realize views do not change much due to a free expression, but it’s always good to have the uttering, the outering of dissenting views.

          • Swami

            “I appreciate your thinking, but I persist in disagreeing. An excerpt from the essay: “society becomes a form of ‘game’, which produces winners and losers”. This is the outcome of a market-is-supreme approach to social structuring. Life becomes centered on this “game”. But society, life, mores, ethics is much nobler than “games”.

            Like I said, you and the author simply do not comprehend the nature of markets. In the slightest. Markets are decentralized systems of property conventions which use specialization and exchange to allow people to cooperate into a network of voluntary problem solving. Markets are billion plus person networks of decentralized voluntary cooperation. The role of competition is specifically and institutionally restrained to competing to cooperate voluntarily to mutual advantage. It is, in evolutionary terms, the selection mechanism, and every successful system needs an effective selection system.

            I don’t have the time or inclination to teach you the basics of economics, but I strongly recommend you (and the author) learn about the topic before spouting off (writing a blog) on coercive recommendations. Hence my reference to the danger of ignorant doctors (they clearly fail to “do no harm”)

            Take a look at history and see what living standards, well being, health, freedom, opportunity, tolerance, education lifespan, and happiness looked like prior to the innovating problem solving abilities of free markets. Are you oblivious to the horrible conditions of people before 1776?

            Don’t get me wrong, markets are not sufficient. The great enrichment of past 250 years is due to changes to a liberal mindset, along with the trio of liberal institutions which go with it — science, open access democracy, and free enterprise. The three institutions and the necessary framework/mindset of liberal enlightenment self amplify each other. And yes, each is an institutional problem solving system within its particular domain (each optimized to a particular range of problems and each with distinct competitive selection mechanisms).

            Your comment that life is more than a game is a diversion. What informed person believes that free enterprise is a game? Or that structured institutional competition devolves into just a game? I have been studying the nature of cooperation and competition for over two decades, and I assure you that the author does not have a clue what he is talking about. He comes across like a child arguing over how the stork brings babies in an otherwise serious discussion on reproduction.

            “During the 1930s capitalism destructed, and it was kept viable only by ignoring the market is right always approach. Marriner Eccles, then head of the Federal Reserve, described the problem as analogous to a poker game, and when the losers were no longer worthy of credit, the game was over. That was his 1951 memoir description of the causes of the Great Depression. People in the 1930s refused to terminate their lives conveniently just because of market failure.”

            So, one of the guys running the bureaucracy which helped cause, extend and amplify the depression writes a book blaming others and you believe him? Are you not aware of the following causes of the Great Depression?

            It was stoked by reckless credit expansion of the Federal Reserve from 1924 to 1929. The Fed reversed course in 1929 after equities had quadrupled. A typical recession began in 1930.

            Smoot Hawley Tariff of 1930 set off a global chain reaction of protectionism, causing global collapse in imports and exports. Farmers in America, dependent upon exports saw prices collapse. This caused bankruptcy and loan defaults which took down the rural banks. Lending dried up and banks went belly up.

            Austria and Germany stopped making foreign payments and froze American credits

            The Hoover admin pushed for price controls and increased public spending while blaming business. Tax rates at state and federal level were DOUBLED in middle of a depression — the largest increase in history.

            Roosevelt ignored antitrust laws, implemented laws against hiring below an arbitrary wage and banned youth labor.

            The government began destroying crops and paying farmers not to farm (paid by even more taxes!)

            The NLRA empowered unions to force fellow workers to join unions, leading to strikes, slow downs and lower productivity and economic activity

            The SEC restricted the freedom of investors to exchange stocks and bonds.

            The administration promoted an anti business environment which suppressed comfort in investment and confidence.

            How can you take a recession caused in great part by the Fed, which was perverted into a global depression by bad government responses into a failure of markets?

            “A financial transaction tax is law in many advanced countries today, the U.S. should have one too. It’s almost analogous to a direct tax on financial wealth, which is as legal as any other tax, we do have a property tax in the US.”

            I support the ability of people to agree via democratic process to agree to taxes. I also support the ability of doctors to practice medicine. The problem is when people ignorant of economics and history pushing poorly thought out cures which make the problem worse. The Great Depression was one example, and 80 years later you still misunderstand it. The author similarly misdiagnoses the Financial Recession of 2009, which was also caused and amplified by bad “doctors”. Biology and economics are both disciplines dealing with complex adaptive systems, and people with little understanding but good intentions should stay out of interfering with both.

            “The 1% now earn (if you want to call it that) 22% of all income, the lower-earning 55% earn 16.2%”

            The very fact that you present this number and think it makes your case reveals your broken framing of the issue. Again, a market is a system where wages, prices and profits act as a signal and as incentive. The system is signaling and incentivizing education, skill, capital opportunities and entrepreneurial change. It is saying to everyone we need more of this and thus the returns and profits and wages will go up until the system begins to balance out. On the reverse side it is saying unskilled labor is less in demand.

            I am not silly enough to suggest that some of the wealthy are not getting their incomes inappropriately. Cheating, fraud, cronyism, and theft do exist and should be prevented. But as I wrote previously, the issue isn’t with the wealthy, it is with exploitation itself, and exploitation isn’t solely a property of the wealthy.

            By the way, the wealthy pay even higher shares of income taxes. The top ten percent pay out 45% of income taxes, the highest in the industrial world. The sad fact is that the bottom half of Americans are free riding more on the top than vice versa. I have no issue with this in moderation, as it is how I would design a society and tax system behind a veil. But it bears noting.

            “Wealth distribution is even more uneven. Most humans view this as not a sensible distribution, I think they view it as a mortal social disease — we will screw too many inn ocent lives under these conditions.”

            Yes, and a bum with a quarter in his pocket is wealthier than the bottom quarter of Americans. The shock of these statements is a factor of human inability to grasp the role of combining positive with negative numbers, a misunderstanding of the longer term benefits of debt, combined with a version of the zero sum fallacy.

            It isn’t a “distribution” except in a mathematical sense. It is an emergent outcome of positive sum wealth creation in a complex system which has led to the unprecedented ENRICHMENT of even the poor in free enterprise systems. The poor lead longer, healthier lives with better living conditions than the Dukes and Earls of non market societies.

            Gates and Jobs and Walton made billions contributing to this enrichment. That isn’t a problem it is the system doing what it is supposed to do. As a result median incomes are at least 2900% higher than they would be absent such a wondrous system

            You continue to misunderstand and mis-frame the miraculous contributions of markets to billions of people. You are trying to throw sand in the system which led to our birth, our material comfort and even the computers we use to argue over the Internet on.

            I admit that I am absolutely befuddled how so many people can maintain such absurd and detrimental ideas. You are trying to destroy the world and you are patting yourself on the back while doing so. Astounding.

  • Swami

    It is rare to read such a factually incorrect and rhetorically confused piece as this.

    Let me set the record straight for anyone who still cares about truth and human progress.

    1). Global prosperity is higher — by a wide margin — than any time in the history of the human race, and it is accelerating as fast or faster than ever before. A billion souls out of extreme poverty in the past generation alone. Substantial and unprecedented global Increases in freedom, literacy, health, lifespan, democracy,happiness, freedom, tolerance and subjective well being. How can anyone take the recent global trends and spin it into a crisis of neoliberal competition run amuck? How can you say not even the rich are benefiting when it is clear that billions are benefitting? Are you just assuming the readers of this article are ignorant enough to believe you?

    2). Income inequality has increased in developed nations due in great part to the simple reason that a billion people previously prevented from participating in global markets finally got a fair and just chance to participate (China and such). Much to the chagrin of Sociology majors in developed nations who regularly thought socialism was the cats meow despite the poverty, lack of freedom and millions of deaths.

    These new entrants tended to be less skilled, thus holding down the global rate of increase in wages for unskilled labor (see supply and demand), while increasing demand for the more scarce skilled and highly educated labor and capital. This is pretty simple economics, and both explains most of the trend in within-nation inequality (as clarified below) and indicates that the problem may well be set to resolve itself via market adjustments (the billion are already integrated) IF ALLOWED TO via free market adjustment mechanisms (which depend upon competition). .

    I am sure there are other contributing reasons to inequality of outcome as well, such as the traps of poorly designed safety nets and, more importantly, regulatory sclerosis reducing the creation of new businesses, branches, investments, products and ideas (usually again by restricting competition)

    3). The referenced financial meltdown was a byproduct of cronyism and regulatory insanity. The financial industry was as massively and stupidly regulated as any industry this side of US health care. Heck, they were requiring lenders to give virtually unsecured loans to favored political classes (racially “privileged,” poor, democratic voters) and then allowing them to pass the risk on to the US government backed agencies. To blame this on “neoliberalism” is to simply redefine neoliberalism as “anything about capitalism and modern democratic societies which I dislike”. That isn’t what neoliberalism is, and anyone writing a book on the subject should both know this and honestly reveal this.

    4). Piketty’s theory has been nearly universally rejected by qualified economists. Check out the IGM experts panel and their opinion on his nonsense. This is pretty much as close to a unanimous put down as any in economics.

    5). The author is simply clueless when it comes to competition. The role of competition in free enterprise is specifically to encourage people to compete to cooperate. Let me repeat for emphasis. It is competition to cooperate better in the creation of value and the solving of problems.

    I can compete with other consumers for a good, with other prospective employees for a job, with other producers for a sale, with other investors for an investment and so on. Economics, properly constructed involves voluntary win/win interactions — in other words acts of mutual cooperation with expected mutual gain. Thus economic cooperation is intrinsically prone to being positive sum. The competition is to incentivize more positive sum interactions.

    Is this so hard to see? I compete with other boot makers to build the best boot at the best price in the eyes of the consumer. This dynamic is what avoids exploitation, as the boot buyer is free to go to competing producers. The same positive dynamic applies to employees and employers and so on. We compete to cooperate better. If you kill off the competition you destroy the dynamic and betterment process of the system, a process with a two hundred year track record of unbelievable success. Would you want to work for an employer who had no competition for employees? Would you expect him to treat you fairly? Would you have any idea what fair is or what your skills are worth (read Hayek’s knowledge problem).

    The way scoundrels bias the game and destroy the market is to eliminate competition/entry/exit. The game is then rigged, when those with PRIVILEGE use power and coercion to prevent others from playing the game or offering to cooperate better. How can anyone write an honest book about economics when this simple truth escapes them? Has the author never heard of rent seeking?

    As a last comment on competition, the author suggests that competition creates a world of losers. No it doesn’t. Not if the competition is structured in a constructive way. Scientists compete to discover knowledge useful to humanity. Athletes and performers compete to entertain better. Universities compete to improve their education. Politicians compete to serve citizens better. It is CONSTRUCTIVE COMPETITION (there is of course types of destructive competition, and I would agree these are bad)

    6). Similarly, the author appears hopelessly befuddled on the general issue of inequality. I strongly suggest he explore how equality and fairness are being defined. Those seeking to deceive usually leave it undefined and hope others don’t think about it too hard. Let me shine some light on the issue.

    There is:
    A. There is equal results regardless of contribution or effort (this is the most simplistic, even childish understanding. Young toddlers and Capuchin monkeys can grasp this concept).
    B. There is equal to need (Marxism’s rallying cry)
    C. There is equal to effort (such as equal pay per hour)
    D. There equal to status or position (captain gets double share of pirate booty based on position)
    E. There is equal to contribution (the most cognitively advanced form of equality — rewards commensurate with what others’ value it at. Seen in market pricing, commissions, etc)
    F. Finally, there is the all important rule egalitarianism, or equal rules for all with no regards to equality of outcome. (Sports is a good example)

    These six types or forms of equality and fairness necessarily and by definition often specifically contradict each other. It is unlikely, for example, that you can get rule egalitarianism, equality according to contribution and equality regardless of results at the same time. Few good sports games end up perfectly tied, but they should have equal rules applied to all.

    When pundits from the left scream about inequality they usually make a vague nod toward A. Equality regardless of contribution (annual income regardless of hours worked, quality of work, social desirability of the work, or even whether working at all for example). They just assume this version of inequality is bad, even if it counters rule egalitarianism, contribution equal to rewards or whatever. Thus they effectively promote a brand of unfairness in the guise of equality.

    But reasonable people don’t want to see those not trying or those contributing diddly squat receiving anything remotely lose to equal shares. Indeed, we find it morally repugnant that those working harder in more socially beneficial capacities receive equal rewards. It would be seen as punishing and grossly UNFAIR. Any society which did this would be undermining all incentives to try hard, to take risks, to apply creativity or to so much as seek to please others. See socialism for how it works out. It is in the history books, along with all the accolades from the same people of the far left (often with sociology PHDs) now trying to bamboozle us on poorly defined inequality.

    Don’t get me wrong, I am not arguing for one version of equality at the exclusion of all others. They all serve a role, and a mature, honest and intelligent discussion would deal with the trade offs of managing and balancing them to the betterment of society. Liberal societies which began to prosper and advance in the last two hundred years placed strong emphasis though on rule egalitarianism and equality commensurate with contribution.

    I have gone on long enough for a blog comment, but if you are following along so far, I think I have adequately refuted the framework underlying the author’s article. He doesn’t understand economics, world trends, cooperation, competition, liberalism, progress or equality. As such, everything else he spouts is nonsense. If he is interested, I will gladly expand on any of these points. My guess is he will just look for a more gullible audience for his propaganda.

    • jayrayspicer

      Swami, your every response on this site demonstrates the magnificent set of blinders you are wearing. You seem oblivious to the difference between capitalism and industrialization.

      Industrialization, including specialization of labor and automation, is the driver of economic prosperity that you continue to sing the praises of. Adam Smith’s pin factory works just fine without capitalism. Capitalism, mercantilism, socialism, fascism, and communism are just different ways of organizing industrialization. All of them clearly work, though some obviously work better and more fairly than others. The official economies of the Soviet Union and Nazi Germany produced plenty of tanks, bombers, munitions, consumer goods, infrastructure, and so on. Both of those alternatives to socialist-capitalist organization of industrialization raised millions from subsistence living to more secure economic footings. Neither of them succeeded by any of these measures as well as the heavily regulated and taxed socialist-capitalist economy of the United States. Yet you persist in ascribing all of the advantages of industrialization to only capitalism. And that’s not to mention that the Industrial Revolution started and operated for 200 years under mercantilism, raising the global standard of living the while.

      Nobody on this site is arguing for anything more than a better understanding of capitalist economics that would give us a better shot at managing our economies to the betterment of all. Nobody here is an adherent of any of the other isms, except insofar as capitalism has only ever been successfully practiced in socialist environments. Not command economies like communism and fascism, but socialist economies, in which the government makes certain requirements of capitalism. Not determining outcomes, but setting and refereeing the rules of the game, and ensuring certain minimum levels of access and opportunity. Unfettered capitalism has never been seen. It’s unlikely that it would work as well as you seem to think it would.

      Why? Well for starters, let’s talk about inequality. I know you think this is an important and required element of a successful economic order. And to an extent, I agree with that. On the other hand, it can clearly go too far, and it clearly has gone too far as of the early 21st Century.

      The profit motive leads to competition. Competition leads to winners and losers. It also leads to profit. Profit leads to retained earnings. Differential retained earnings from the winning firm to the second-place firm is analogous to the winner of a footrace being allowed to start the next footrace ahead of his competitor by the margin he won the last race. To an extent, this incentive is needed in order to promote economic expansion. But at some point, this advantage at the beginning of the next race becomes overwhelming and anticompetitive. This is the point at which economic inequality begins to retard, rather than promote, economic activity. It is laughable to speak of competition when your competitor has billions of dollars more in the bank than you do. It is laughable to speak of giant corporations being taken down by smaller, nimbler “competitors”. This doesn’t happen. Giant corporations don’t fall to competition. They fall to internal inefficiency and complacency.

      You seem to think that it is folly to question neoclassical economics, based solely on what you incorrectly think to be its track record. You seem to think that the very idea of managing an economy is murderous villainy, or at best grossly and dangerously misguided. This is hard to credit, considering that all economies have always been managed to some degree in order to shape outcomes more in line with societal goals, and that absent such management, economies always revert to some form of feudalism with no protections for individuals. Some things matter more than being able to shop cheaply at Walmart.

      Worst of all, you seem unwilling to even entertain the notion that the foundational assumptions of neoclassical economics are cartoonishly and obviously erroneous, which invalidates any conclusions drawn therefrom. Humans are clearly not rational economic actors, even on average, even when they try their hardest to be. Humans are clearly insufficiently aware to have all the data they need to make optimal economic decisions. The Dunning-Krueger effect explains why some people think themselves capable of making rationally optimal economic decisions, but everybody else understands the impossibility of omniscience. It’s bizarre that neoclassical economists not only failed to notice this impossibility, but rationalized it away entirely as a simplifying assumption. When your simplifying assumptions require impossibilities, your discipline is utterly lost, and its conclusions thoroughly useless. It’s as though the entire edifice of neoclassical economics is built upon the foundation of a divide-by-zero error.

  • When genes compete, the strong survive. When they cooperate, they become DNA and cells. When cells compete, the strong survive and reproduce, until they die. When they cooperate, they create tissues. When tissues compete, the stong survive and grow. When they cooperate, they create limbs and organs. When limbs and organs compete, the strong and useful survive. When they cooperate, they create organ systems and bodies. When bodies compete, the strong survive and reproduce and evolve. When bodies cooperate they create families and communities. When communities compete, the strong survive. When bodies, minds, spirits and communities compete, the strong survive. When they cooperate they create cities, religions, and countries. When countries compete, the strong survive. When they cooperate, the create international states.

    At each level, competition is important, but the only way to the next level is cooperation. Competition and cooperation are both necessary. So is balance.
    To your health, tracy
    Founder, Healthicine