What’s Wrong with the World

Fascinating post. I think it might help me to understand better where you're coming from.

Must think about it.

Quote: "…the disjunction between ideology and reality…"

In other words, given enough time, the U.S. will eventually look somewhat like Haiti, where: (1) There is no middle class worth speaking of, (2) there are lots of very poor, and (3) there is a tiny minority of Ultra-rich elite living up on the hill (or out of the country) in their guarded communities surrounded by razor wire and guys with machine guns.

we could sacrifice the ideological illusions of the establishment to the well-being of our people and the greater stability of our representative institutions

Maximos:
This seems like the route to take. It also seems like a huge and intricate undertaking. Are you able to provide any glimpses into the nuts and bolts of the implementation of such an agenda? That is, of what would the "well-being of our people" consist, once the ideological reforms had been instituted? Do you contemplate some form of legislated levelling?

My father, now retired (actually, he lost his job in the early 90's recession and just retired thereafter), was a wood finisher. He had graduated only from high school, and not with very good grades, either. He has never learned how to type or drive. He can read but writes only with great difficulty. He was a very good wood finisher and supported a family of four on his salary. More, his salary paid for two children's tuition at Christian schools in Chicago. We had very little left over but managed. I doubt that would be possible now, but of course I don't actually know whether wood finishing jobs have been outsourced and/or are paying a good deal less in real wages than they did in the 1970's. I only guess it.

Shorter Maximos: "some people are smart, and these smart people seem to make more and more money; some people are dumb and these people don't make as much money".

Our modern economy still has plenty of opportunity for those whose only skill is manual labor -- why else would all those Mexicans be pouring over the border if not for a chance to use their labor here in America! I think Maximos (and Rod) are confusing a lot of different concepts:

1) Inequality (which I agree is rising) vs. absolute standard of living (which I maintain is also rising). I know that Maximos is worried about inequality leading the masses to rise up and revolt, but I believe that as long as life keeps improving for those at the bottom (and the middle) we'll all be O.K.

2) Inequality is driven by more than I.Q. Movie stars, good salesmen, professional athletes, people with an entrepreneurial bent -- they all continue to do well and in some cases (e.g. Oprah) they do better than the so-called cognitive elite. The free market allows people with different talents to thrive and achieve their potential. Restricting people's opportunities does the opposite.

3) Here is a classic piece of conservative wisdom -- life is not fair: http://www.latimes.com/news/opinion/la-op-orourke4-2008may04,0,6539887.story. I always thought it was our liberal/leftist friends who didn't like the natural order and wanted to transform society through the heavy hand of the state to make life "more fair" for those on the bottom?

4) Allowing human intelligence opportunity to apply itself to solving the world's problems (which is basically what a free market and free trade allows us to do) has produced the most amazing advances in technology and human flourishing the world has ever known. And you object to all this flourishing because...some dolt who used to barely just manage to graduate high-school and get a factory job paying $15/hour can now only get a service industry job paying $10/hour, which thanks to Wal-Mart, high finance, and free trade still allows him to live better than he would have back in the good old days making $15/hour?

I agree with Rod that we should all face up to reality and stop forcing people like Ms. L into college (or college courses) for which they are unprepared. But this has been a classic conservative criticism of affirmative action, declining academic standards, social-promotions in high-school, etc. since liberals cooked up these ideas in the first place.

"The basis of all excellence is truth: he that professes love ought to feel its power."
Johnson: Cowley (Lives of the Poets)

Great synthesis, Maximos. One of the most significant problems seems to me to be that we can't face reality because we are de-facto materialists, and reality interpreted through materialism is Nazi. What I worry about is, as you say, reality's inevitable self-assertion: it will occur, and all we can change is how we are ourselves prepared to deal with it.

I think Maximos (and Rod) are confusing a lot of different concepts...

And I am of the considered opinion that Mr. Singer and other apologists for global democratic capitalism are in the midst of a blinkered refusal to contemplate their intersections.

Inequality (which I agree is rising) vs. absolute standard of living (which I maintain is also rising).

This is a meaningless measurement, for two reasons: first, real income, as adjusted for inflation, has either declined over the past two generation, or risen, at most, by some tens of cents; second, the increases in the costs of housing, energy, and health care have outpaced whatever income gains may have been realized (under the most optimistic metrics); third, many of those absolute gains are attributed to the secondary effects of arbitrage (ie. cheap Chinese crap at Wal-Mart), although arbitrage itself results in an imbalance of payments, the compensation for which is, on the macro-level, deficit spending and increasing debt burdens, and, on the micro-level, the expansion of consumer credit - neither of which is sustainable beyond the medium-term, as the entire process results in a net outflow of wealth, either present or future, or both. The expansion of consumer credit merely results in a net flow of wealth upward to the financial establishment.

as long as life keeps improving for those at the bottom (and the middle) we'll all be O.K.

Life cannot continuously improve for those at the bottom, and in the middle, as this is mathematically impossible under conditions of globalized labour competition; the projection of continuous advancement is predicated upon a bundle of unsupported assumptions, ranging from the Lake Wobegon fallacy to the conflation of maximal systemic efficiency with the maximization of social benefits to all parties. All will not be OK if and when America's social stratification more nearly resembles that of a Latin American, African, or Asian kleptocracy, which is the direction of the trendlines.

Inequality is driven by more than I.Q.

Tell it to Joe Average, who is possesses neither the skills to succeed as a professional athlete, nor the personal characteristics requisite for success in media. Neither does he possess the personality of a successful salesman, hawking wares produced by the Joe Averages of the Third World.

The free market allows people with different talents to thrive and achieve their potential. Restricting people's opportunities does the opposite.

Uh, yeah, whatever. The free market obviates the possibility that millions of average Americans will thrive and realize their latent potentialities, inasmuch as the economic processes in which they might excel have been outsourced, and many of those that remain flooded with low-wage insourced labour. It is a greater restriction of their opportunities in life to be compelled to compete with Chinese slave-labour, or Mexican illegal labour, than it would be a restriction of the opportunities of the cognitive elite, were, say, immigration flows to be reversed, outsourcing to be ended, and hedge funds to be reined in. The America which existed prior to the economic revolutions of the Seventies and Eighties did not suffer for the want of opportunities for the cognitive elite; unless, of course, they are said to suffer when they are able to earn only ten times as much as a blue-collar labourer, as opposed to one-hundred times or more. Poor, suffering dears!

I always thought it was our liberal/leftist friends who didn't like the natural order and wanted to transform society through the heavy hand of the state to make life "more fair" for those on the bottom?

This entire line of critique presupposes what is here made explicit, namely, that those opposed to globalization are ranging themselves against something natural. Nevertheless, as I never grow weary of repeating, the economic order is not natural, but artifactual, both in its foundations, as upheld by political society, and in its details, as established by millions of decisions, public and private, concerning the configuration of its particulars. One cannot interfere with a non-existent nature.

Advocates of globalization and largely-untrammeled neoliberalism in economics are inheritors of an idea found among some classical political economists, according to which the optimal economic order is one in which each individual will rise, or fall, just as high, or just as far, as his native endowments will enable, in a social order characterized by an all-encompassing market discipline. It is, when translated into practice, an ideology which conflates what 'is', according to its logics, with what is 'just'; morever, it is more than a little redolent of the attitude of the unjust ruler, who, identifying his office and his person, lords his power over the masses - he, after all, is entitled, by virtue of who he is and what he has accomplished, and so are those he rules. The law, in its sovereign majesty, permits each to assume his position according his nature - and here, we are not so far from Nietzsche's ubermensch/untermensch dualism, or Aristotle's distinction between aristocrats-by-nature and slaves-by-nature. The point, therefore, is that the socio-economic order of global democratic capitalism valorizes but one conception of merit, one sort of meritocracy, when in reality there are many such forms which must be balanced, by prudence, if a society is to be just. Man is more than his personal market outcomes, and this fact must be reflected in the treatment he is accorded by his society. Either the tensions and inequalities of any society are cushioned by ethical norms, religious doctrines, prudential considerations, and sheer self-limitation on the part of elites, or we have naturalized a set of contingencies, proclaiming in the process an entire implicit theology, ranging from human nature to theodicy (a subject which concerned some of the political economists, as well).

In closing, while it is certainly true that life is not fair, somehow, in the rhetoric of advocates of our present economic order, this only ever functions as an admonition to the poor, the stupid, the weak, and the less-fortunate generally to shut up and take whatever their alleged betters permit them; the elites are never counseled that life is not fair, that their advantages are not fair, or at least that not all of them are fair, even though unfairness cuts both ways in life. Joe Average deserves his crappy Wal-Mart job, and must endure life's unfairness all at once; indeed, it would be unfair for him to expect more. Joe Elite, on the contrary, deserves every increment of success, and must experience only life's recognition of his merit, but must never endure the alleged unfairness of surrendering the opportunity for the next increment. It would be unfair for Joe Average to expect more, and unfair for Joe Elite to take less. This very partiality (and inconsistency, as Joe both deserves his lot, and is told that life is unfair when he questions its justice, the implication being that he might deserve better, but should shut up and take it) is a trace of the origins and animating passions of this strand of political economy.

Do you contemplate some form of legislated levelling?

Generally stated, I am supportive of a diversity of measures which would amount, not to leveling, but to an augmentation of opportunities for the average, and a (self) limitation of the absolute advantages available to the elite (the only means by which such measures could be implemented would entail such self-limitation: the elites must accede to democratic pressures, when they could with greater ease, perhaps, simply become more overtly authoritarian); the object is not to attempt the impossible, namely the negation of inequalities, inherited and social, but to mitigate and channel both inequalities and their effects, as the expression of any range of outcomes only transpires within a social order - something artifactual, constructed. The broad outlines have been limned throughout this discussion, as well as those that have preceded it.

the elites must accede to democratic pressures

Is there any historical precedent for this, or any reason to believe that those with the advantage would be likely to relinquish any part of that advantage at their own expense?

when they could with greater ease, perhaps, simply become more overtly authoritarian

Isn't this far more likely, and, in fact, already very much in the works?

Is there any historical precedent for this...

Merely the ambiguous ones of the first half of the Twentieth Century, by which the power of economic elites was restrained... by the growth of the power of political elites... who have more less merged with the economic elites in our own time.

...or any reason to believe that those with the advantage would be likely to relinquish any part of that advantage at their own expense?

Since this is a question of probabilities, and not political ethics, no, there really isn't much of a reason. They would have to be pressured severely enough to perceive that the deal they'd receive by compromising with the people would be better than the deal the people would compel them to accept in the event of resistance. Then again, we aren't capable of mustering the requisite form, or degree, of resistance; hence...

Isn't this far more likely, and, in fact, already very much in the works?

Yes, I regard the probability of a diminution of representative government as being higher than that of reform; the intransigence of the elite on certain questions, on which they are opposed by supermajorities of the people, hints as much.

One thing I've been pondering off and on lately is that free market principles address what should happen within a given economic system, but they don't define what is included in "the system." So, for example, suppose one went all von Miseian and even had a commodity-backed currency. Well, that currency would be U.S. currency. Ours. It would be the currency of our country, backed by gold or whatever in our own government's vaults. That would seem to argue that the economic "system" involved was that of our own country. In other words, questions like which workers should be regarded as all part of the same economic system, what countries the money is flowing from and to, whom we are trading with, and so forth, would seem not really to be addressed directly by free market principles but rather would seem to set up the framework within free market principles operate. Rather like physics. Within a given physical system, you can tell what will and won't happen. But if you start introducing energy from outside the system or draining energy from the system, you have to write new equations to take that into account. It won't just keep operating as if nothing had happened.

I hope that isn't just incoherent. I suppose what I'm getting at is that absolutely unregulated or un-tariffed free trade among all countries isn't, or isn't obviously, in itself a free market principle. Neither is the unregulated movement of workers across borders.

Then again, we aren't capable of mustering the requisite form, or degree, of resistance;

Thank God for that.

Lydia, that is perfectly coherent; I find the analogy instructive.

Thank God for that.

Why? Our incapacity is not His work; I'm dubious of the notion that He desires our postmodern neo-feudalism.

It seems to me that, with reference to the "free market," the word "system" is a misnomer. It is not a system, but a process which is entering a stage of eating its young.
What is needed is a system.

Our modern economy still has plenty of opportunity for those whose only skill is manual labor -- why else would all those Mexicans be pouring over the border if not for a chance to use their labor here in America!

Working as a janitor or in a fast-food place is not the same as skilled manual labor or craftsmanship...

Maximos says that he doubts Joe Average's standard of living has gone up since the 70s. I doubt it has gone down. The reasons for my doubt? First and foremost, even assuming a static income over time, the question concerning the "standard of living" say between 1988 and 2008 should be:

"Would you rather have this bundle of products that maximizes your well-being today given your budget or that bundle of products that maximized your well-being 20 years ago given your budget then?"

Thanks to our dynamic economy and the many goods and services (not just "cheap Chinese crap") you can purchase at a place like Wal-Mart, not to mention all the new goods and services available today that weren't available 20 years ago (just think of the improvements and advances made to dishwashers and microwaves, to name a couple of common household goods). An economist has even tabulated the good Wal-Mart has done for lower income Americans:

http://www.americanprogress.org/kf/walmart_progressive.pdf

And here is a quick item on consumption gains for the middle-class since 2001:

http://www.cato.org/pub_display.php?pub_id=7773

Second, many critics of rising income inequality ignore income mobility and/or the productivity gains of skilled labor, which can produce more innovation and new products and services that can be used by Americans at all income levels. See this

http://www.american.com/archive/2007/may-june-magazine-contents/the-upside-of-income-inequality/

and this:

http://econlog.econlib.org/archives/2003/06/the_poor_get_ri.html

and this:

http://econlog.econlib.org/archives/2006/12/shifty_statisti.html

and this:

http://www.cato.org/pub_display.php?pub_id=8764

for more information.

Then Maximos made me giggle:

"Life cannot continuously improve for those at the bottom, and in the middle, as this is mathematically impossible under conditions of globalized labour competition; the projection of continuous advancement is predicated upon a bundle of unsupported assumptions, ranging from the Lake Wobegon fallacy to the conflation of maximal systemic efficiency with the maximization of social benefits to all parties."

Maximos, allow me to introduce you to David Riccardo. He would like to explain comparative advantage to you. And I suggest you contact the Economics Nobel Prize committee right away with your proof that it is "mathematically impossible" for international trade to continue to produce gains in standards of living for the poor and middle-class as I'm sure they are interested in your ground-breaking theory that will upend the past 200+ years of economic consensus.

It is also strange that Maximos and other paleo critics of free trade spend so much time thinking about this subject when the ultimate force for "creative destruction" is the logic of the market itself. As I think I mentioned in a previous post, it seems strange to me to worry about the loss of a job to an overseas factory when millions of jobs have been lost over the years to competition and innovation (e.g. where are the tears for the ditch-diggers, the gas light operators, the horse and buggy industry, etc.)

Finally there is this:

"Nevertheless, as I never grow weary of repeating, the economic order is not natural, but artifactual, both in its foundations, as upheld by political society, and in its details, as established by millions of decisions, public and private, concerning the configuration of its particulars."

It seems very strange indeed to maintain that both private property and the voluntary system of property exchange which we call the free market, is somehow "artifactual". There is no king forcing people to trade with one another. I agree that some of the details are a matter of reasonable debate and can vary from society to society. But again, how is it un-natural to allow people to trade with one another based on their respective skills and needs? I would certainly agree with the notion that a society has an obligation to help those in need (e.g. someone born with severe birth defects) but this obligation depends on our collective sense of what constitutes a proper "need" and more importantly, for most of the examples you would use of someone in need (i.e. someone who is just not very smart) I would argue that there are better ways of helping these individuals than using the heavy hand of the state to mess up with the natural, voluntary exchange of goods and services. For example, if you don't like the wages paid to low-skilled individuals, why not subsidize those wages? Economists will tell you it is more efficient and will do less damage to the normal price signals of the market. We already do this with the Earned Income Tax Credit which has done a lot of good for low-income families.

Lydia,

I would also suggest you familiarize yourself with the concept of comparative advantage, made famous by the brilliant Riccardo, but also supported by the last 200+ years of economic theory and research. In short, it is a free market principal that "absolutely unregulated or un-tariffed free trade among all countries" will produce gains in welfare for the "Average Joe" above and beyond any sort of regulation and/or tariff regime. I'd also like you to meet my "friends" Representative Hawley and Senator Smoot, who would undoubtly get along with Maximos.

Jeff,

My apologies for the delayed posting of your comment. I did not realize that it had been flagged by the system, for some mysterious reason, until I went to put up a new post this evening.

Perhaps I'll have some thoughts on it, on the morrow.

...for some mysterious reason...

I think it has to do with how many links are in the comment. Every time I post a comment with several links it gets flagged for moderation; though as a W4 contributor I can log in and approve it myself.

Yeah, Jeff, I'm no fan of Smoot-Hawley, that's for sure.

And I understand your point about the Average Joe. My concern (which I may flesh out in another post) is first and foremost with the issues concerning legal systems and interaction with countries and people that do not share our approaches and legal assumptions, assumptions that are themselves necessary for the flourishing of the free market. (Stuff like equality before the law, honest law enforcement, respect for persons and property, and so forth.) These concerns are most strongly relevant to the immigration issue, but indirectly it seems to me they could also be relevant to the issue of multinationals with no special loyalty to America or even to American ideals. My central example of this latter problem is Yahoo or Google or whoever it was turning over dissidents in communist countries to the bad guys for enforcement of their anti-democracy laws.

Later!

My position on the growth or contraction of average incomes since the early Seventies is a bit more nuanced than an expression of doubt. The statistical data vary, depending upon the sources and the methodologies employed, with some analyses suggesting an inflation-adjusted decline, and others suggesting an exceedingly modest increase. As I've indicated in some recent posts on political economy, I'm delighted to concede the modest increases. However, those figures don't account for inflation-adjusted increases in the costs of many goods and/or commodities, and so I find them to be neither here nor there in terms of informational value. Beyond that, and beyond even the endless manipulability of statistical data, such data provide snapshots of either a moment in time, or of one aspect of a complex, highly differentiated set of developments in political economy. The economic shocks of the Seventies onward kicked the ladder out from under vast swathes of the middle and working classes, a loss that has been compensated by a combination of factors, ranging from the expansion of financial services and consumer credit, to 'retraining' for employment in the so-called new economy, to the alleged benefits of cheap Chinese crap (because, yes, most of the new consumer electronics are produced in China, even if three members of the cognitive elite designed them in America; the reason for the frequent recourse, on the part of free-trade enthusiasts, to the arbitrage benefits of this de-industrialization are manifest: income gains have been weak, at best, but this has been offset by declines in prices for consumer goods, made possible by the same process that... makes income gains weak).

This, however, is the problem with all the statistical data: the process is not sustainable, as folks as diverse as James Fallows, Jim Manzi, and the editors of Foreign Affairs have acknowledged in recent years; whatever the present status of the globalization process, it does portend a leveling downward for vast numbers of those not numbered among the cognitive elite - and this combined cognitive/economic/political stratification is the outcome with which I am concerned. Income mobility is increasingly contingent upon cognitive endowment, as is skilled employment generally, excepting the statistical anomalies called 'professional athletes', and so forth. That the products of such skilled positions might be diffused throughout the population is really beside the point (though it does sound a bit like a type of socio-economic seigniorage), inasmuch as the issue is not one of consumer goods, but of economic and political stratification along cognitive lines, and what this portends for our republican form of government. The argument from consumer goods sounds a bit like "Bread and Circuses" to me.

That brings us round to the question of comparative advantage and Mr. Ricardo. A common argument among apologists for our present system of political economy is that America has a comparative advantage in high-value-added services & etc., while China has a comparative advantage in labour-intensive manufacturing. But this argument simply misses the point concerning the privileging of the cognitive elite, and the gradual leveling for the non-elite: America qua America has no such comparative advantage, only certain Americans, under certain conditions have it, and the frontiers of this discussion have been moved beyond the question of the advantages and disadvantages of trade, to a finer-grained analysis of who benefits, and who does not, and under what circumstances and conditions. Foreign Affairs published an essay two years ago, in which it was argued that the effects of this global economic revolution will be as disruptive as the industrial revolution itself. Jim Manzi has taken the reins of the problem, as I've discussed previously, and postulated education as the remedy. When MIT-educated Manzi comes up with education as the solution, you know that this is a wicked hard problem, because a reliance on education flies in the face of too much science. People might not approve of the science, but facts, as they say, are stubborn things. James Fallows suggests that there really isn't anything that can be done, other than to follow the inevitabilities out to the tether of an entirely different world.

On a more general level, the applicability of a comparative advantage analysis to America's present predicament is dubious. Comparative advantage presupposes the relative immobility of capital and factors of production generally, and a close balance of trade between nations pursuing those advantages. A classical illustration of the principle would be that old England specialized in the production of wool, or small manufactures, while sunny Portugal specialized in the production of wines & etc. Setting aside the fact that comparative advantage was thus also associated with unchangeable natural factors of geography and climate, it is manifest that the development of a comparative advantage requires that capital and other production factors be left in the country that ostensibly possesses the advantage, otherwise the advantage could never be developed in the first instance; if English improvers could raise sheep more cheaply in Portugal, they would, and England would have no advantage whatsoever. This condition no longer obtains, and in its place, there remains only a (transitory) absolute advantage, as capital and productive mobility, increasingly inclusive of some high-value-added services, can be moved about the globe in pursuit of a maximized utilitarian advantage. Moreover, a nation cannot develop any sort of comparative advantage over the long-term if it runs persistent imbalances of trade; in the first place, such imbalances suggest the absence of an advantage, a maladaptive economic state; in the second place, debt is not an advantage, except perhaps to the financial sector, and then, only so long as interest rates are kept low, and in then end, someone else owns you, and then it cannot be your comparative advantage at all.

The obvious response to this dilemma is to make recourse to the old triad of new economy/skills/education, suggesting that our comparative advantage obtains there; this merely recapitulates the debate about stratification and leveling, and evades the issue of the skilled/educated positions that can, and will, be outsourced or insourced. In a globalized economy, absolute advantages overshadow what comparative advantages still obtain, or wait to be claimed.

Finally, on the subject of the artifactuality of any system of political economy, no society ever has, or ever could, permitted 'economic laws' to operate in a direct and unmediated fashion, unmediated, that is, by cultural and religious norms, legal architectures, and limitations upon the operation of market logics. We isolate many things from the market, and rightly so. The idea of artifactuality is that all facets of political economy are elaborated in and through a matrix of limiting and enabling conditions, something on which I believe we actually agree, since we both acknowledge that details are up for debate, and cultural norms of 'need' come into play. What we're disputing is the nature of those 'details', and how they should be reflected in law - which is why I'd oppose straightforward income subsidies, as they increase overt dependency. Moreover, market price signals are only transmitted in the matrix of societal norms, of different types; there obtain no pure, unmediated, absolute price signals. Market norms will either be structured so that price signals are transmitted in an environment where lower-skilled workers can earn a more dignified wage, or they will be transmitted in an environment where the costs of subsidizing them via taxes will be factored into their costs of employment (The wealthy, since they bear the majority of the tax burden, paying crap wages and then taxing themselves to compensate the people they pay crap wages.) This is not to argue that the EITC is a poor policy instrument, merely that I see no necessity of expanding it, when there are other policy instruments, instruments which would have other, more salutary cultural and economic effects.

Lydia,

I share your concerns, which are actually central to some of Maximos' arguments -- there is more to life than markets. I agree wholeheartedly and share your disgust at our multinationals colluding with oppressive governments. I also stray from the libertarian orthodoxy on immigration, because it seems obvious to me that allowing people from foreign countries to live in U.S. communities involves all sorts of externalities that get wished away by most libertarians.

Maximos,

Thanks for saving my post...I thought that perhaps I had made a mistake so it is good to know that I should expect a delay when I include links. And speaking of links, I started working on a revised post last night, under the assumption that my original masterpiece was lost in cyberspace, and I came across two more good (quick) blog posts on why you have to be careful interpreting statistics on income mobility:

http://powerlineblog.com/archives/010732.php

(family structure over time changes)*

and why rising prices for energy and commodities need to be adjusted for inflation (just like you would adjust income figures for inflation):

http://mjperry.blogspot.com/2008/05/gas-at-historical-highs-not-even-close.html

Cheers,

- Jeff

* In this humble neo-con's opinion, it is the U.S. family that ALL conservatives should focus their energy on and figure out how we can reverse the trends in out-of-wedlock childbirths and single men and women deciding never to get married. Strengthen marriage and two-parent families first, and many of the economic ills in America basically go away.

In this humble neo-con's opinion, it is the U.S. family that ALL conservatives should focus their energy on and figure out how we can reverse the trends in out-of-wedlock childbirths and single men and women deciding never to get married. Strengthen marriage and two-parent families first, and many of the economic ills in America basically go away.

I concur, up to a point, in this. Many, though not all, economic ills would be mitigated somewhat by a strengthening of the family. And you all can predict what I'd say about the availability of decent employment, paying decent wages, being supportive of marriage - so I won't say it.

Maximos,

Our latest exchange has been useful to me, because it suggests that at least you remain open to the idea that there are economic facts on the ground, so to speak, and if I can set you straight on the facts, you might come around to the "neo-liberal globalism" position (or whatever evil name you like to use for someone who thinks that free-trade is good and the heavy hand of state regulation is generally bad).

So let's start with what look to me like statements of "fact":

"The economic shocks of the Seventies onward kicked the ladder out from under vast swathes of the middle and working classes, a loss that has been compensated by a combination of factors, ranging from the expansion of financial services and consumer credit, to 'retraining' for employment in the so-called new economy, to the alleged benefits of cheap Chinese crap"

1) Right away, I'd ask you to quantify what you mean by "kicked the ladder out from under"...does that mean people lost their jobs and had to find a new job? But this happens all the time in a working market economy through innovation and competition (i.e. horse and buggy industry replaced by the auto industry, etc.), and in a dynamic economy like the U.S., people find new jobs (in fact, unemployment is at historic lows since the early years of Reagan and remains lower than many advanced industrial countries (latest OECD data show Australia, Austria, Denmark, Japan, Korea, Netherlands, New Zealand, Norway and Switzerland with a lower rate). So perhaps you mean the new jobs aren't as good as the old jobs? But then we are back to debating income data, which you just admitted is a complicated and complex story. Hardly the stuff of "kicked the ladder out from under".

2) Next we move to "vast swathes of the middle and working classes". Do you have data to back up your claim of "vast swathes"? Making such a claim suggests that the U.S. middle and working class has suffered job losses of enormous scale since the early 80s, but the employment data doesn't back up your claim. So I'd need to know more about how you come to the conclusion that "vast swathes" of the middle/working class lost their jobs or couldn't find a comparable new job.

3) Then you (grudingly) acknowledge the gains that these same "vast swathes" have made while getting the "ladder" kicked out from under them. But these gains are either real or they aren't real. Which is it? Is it really terrible that a one-time union factory worker has to be retrained to become a union truck-driver (to name one "blue-collar" growth industry). Or be retrained to use more advanced machinery? We still make lots of stuff in the U.S. and thanks to free trade, we sell this stuff all over the world (e.g. http://www.cat.com/cda/layout?m=8703&x=7) Would you deny these workers the chance to build high-quality equipment and sell it to the Chinese? And the cheap consumer goods you continue to mock and decry includes a lot more than just Chinese electronics (and besides, weren't all you declinists bemoaning all the Japanese electronics we were buying in the 80s). I have been a happy consumer for many years of cheap, put them together yourself, bookshelves I purchase at Target and are made in Malaysia. No doubt some American master craftsman could make sturdier and better looking shelves for my book collection, but my books are in the basement and I didn't want to spend the money on fancy bookshelves. So I resent the fact that you want to prevent me from buying cheap Malaysian products, which are quite useful in the Singer household. As for consumer credit, as with all material goods and services, some people will abuse a product and some will use it responsibly. I suggest you turn to this classic by Jeremy Bentham called "Defence of Usuary": http://www.econlib.org/LIBRARY/Bentham/bnthUs.html In an earlier thread about high-finance, it was proposed that perhaps the government should tighten asset requirements for credit. I'm not sure if that is a good idea or not, but I'd be willing to haggle over the details of some regulation to protect the overall integrity and freedom of the financiers to offer us their products if that would make you happy.

"...whatever the present status of the globalization process, it does portend a leveling downward for vast numbers of those not numbered among the cognitive elite - and this combined cognitive/economic/political stratification is the outcome with which I am concerned...Income mobility is increasingly contingent upon cognitive endowment, as is skilled employment generally, excepting the statistical anomalies called 'professional athletes', and so forth."

1) I'm in general agreement that there are increasing returns to education and professional employment, and these returns can and do drive income mobility; but I still maintain that there is a lot more to success in America than cognitive endowment. I meet lots of hard-working, successful businessmen who aren't particularly smart -- but they have an entrepreneurial talent and work very hard.

2) Second, we will have to agree to disagree about the importance of getting rich. I'm just not too worried about income inequality, as long as those on the bottom enjoy equality before the law and enjoy a high standard of living. Yes, I'll never be part of the jet-set and enjoy a second home in Aspen, but who cares? I already live like a king compared to 2/3 of the rest of the global population and consider myself very, very lucky to be born in America.

3) I don't agree that the success of the cognitive elite has to come at the expense of the "Average Joe"...this sees capitalism and free-markets as a zero-sum game, which many years of economic experience has shown not to be true. There need not be any "leveling downward" and if there is, I still say why not provide help directly to those in need instead of mucking up the price mechanisms of the market.

"Comparative advantage presupposes the relative immobility of capital and factors of production generally, and a close balance of trade between nations pursuing those advantages. A classical illustration of the principle would be that old England specialized in the production of wool, or small manufactures, while sunny Portugal specialized in the production of wines & etc."

1) Comparative advantage does not presuppose anything, other than the fact that some nations with be better than others at providing certain goods and services. And the example you give is an example of the absolute advantage that one nation might have over another in providing a good or service. What comparative advantage says is that even if England were better than Portugal at making wool AND wine, England would still be better off from trade if they focused on making whatever it is they are more efficient at and trade with another country that could make whatever it is they are best at.

2) Again, looking at the facts, whenever nations are allowed to trade with one another (more or less freely) they both benefit. Have our living standard gone up since the 70s? Check. Have China's? Check. Q.E.D.

"Moreover, a nation cannot develop any sort of comparative advantage over the long-term if it runs persistent imbalances of trade; in the first place, such imbalances suggest the absence of an advantage, a maladaptive economic state; in the second place, debt is not an advantage, except perhaps to the financial sector, and then, only so long as interest rates are kept low, and in then end, someone else owns you, and then it cannot be your comparative advantage at all."

1) I would once again suggest you contact the Nobel Prize committee, as this novel theory will upend 200+ years of economic orthodoxy.

2) Debt is an advantage, as long as it represents investment in capital. I agree that not all debt is financing smart capital investments, but if foreigners are foolish enough to finance our bad spending habits, who am I to complain.

3) But of course, foreigners are not stupid. These foreigners want a good return on their investment. Otherwise they wouldn't do business with the U.S. You continue to forget the power of the VOLUNTARY exchange of goods and services. So I will leave you with one of my favorite writers of letters to the editor, Don Boudreaux, who also happens to be the chair of the Economics department of George Mason University (i.e. he's one of those Masonite libertarians you love to hate, but who have all the facts on their side). This was a letter he wrote to Forbes about our trade deficit, which is a magazine you would think should know better:

http://cafehayek.typepad.com/hayek/2008/03/i-heart-america.html

"...you all can predict what I'd say about the availability of decent employment, paying decent wages, being supportive of marriage"

1) This is a classic Democratic (and more broadly speaking liberal) talking point -- if only you conservatives/Republicans would provide a good job for those poor Black/Hispanic men (who are primarily the fathers of the Black/Hispanic women who are having the most children out of wedlock) then they would be willing to settle down and be providers to their children.

2) While I do believe people respond to economic incentives, the story above just doesn't make sense to me and it seems to remove the element of moral agency from people. In other words, even of those men didn't want to work at McDonald's because the job didn't pay a "dignified wage" (whatever that might be...and how will king Maximos determine which jobs have to pay this dignified wage?...isn't there such a thing as a first job for a teenager or a part-time job for a student?) they still shouldn't be knocking up young women before getting married. And those women shouldn't allow themselves to get knocked up!

3) And this story doesn't explain the trend within the cognitive elite (i.e. those paid very well) to postpone or avoid marriage and childrearing. This article details this trend among men: http://www.city-journal.org/2008/18_1_single_young_men.html and this phenomenon represents moral decisions that have little to do with economic incentives.

As I've mentioned to Jeff, I've been recently reading some hard-core pro-gold standard economics material, written for kids, for my daughter's economics home school credit next year. (It's put out by a group called Bluestocking Press.)

Am I correct in thinking that the use of a commodity-backed currency makes trade deficits a bigger deal? This is something I'm inferring very indirectly from some of the material, and I'm not sure I'm right. But it's looking that way to me. I used to shrug off trade deficits, but thinking about what it might mean if China ended up with all the gold and the U.S. with all the tea (or Christmas ornaments and panda socks) has made me realize that this issue perhaps seems minor only from the perspective of a country with fiat currency. (The scenario I just sketched is, of course, deliberately exaggerated.)

Deficits and imbalances are always consequential at some level, even in a fiat-currency based economic system; consumption must be paid for by the production of some tradeable goods and services, and the very fact that it is not is productive of a deficit. (Pun not intended.) Debt may be advantageous, in certain circumstances, as when it is employed to increase capital, productive improvements, and so forth; when it is employed, as American debt principally is, to finance consumption far in excess of production, it is unsustainable in the long-term. In other words, American debt burdens are largely infecund, as we are not employing them in order to augment our productive capacity; we are essentially borrowing from the world in order to buy from the world, thus augmenting the capital and productivity of our creditors. Even the Chinese, who have profited from this arrangement, are under no illusions that it can be perpetuated indefinitely.

This is perhaps more perilous in a gold-based economic system, but even in a fiat-currency based system, debt still has its attendant risks - off at the margins, the threat of default, inflation, and economic contraction. The threat in a gold-based system would be a deflationary collapse. But a collapse and contraction is still a collapse and contraction; the rest is detail.

Mr. Singer:

The free market promises to increase aggregate well being. It promises nothing to anyone in particular, and the net effect of accelerating globalization is for the world to converge on third-world standards of living, with a relative few globe-spanning haves, and a few billion fungible have-nots who produce nothing of great value for lack of education and intelligence, and are remunerated accordingly. It's enough to make a decent person a socialist.

In this humble neo-con's opinion, it is the U.S. family that ALL conservatives should focus their energy on and figure out how we can reverse the trends in out-of-wedlock childbirths and single men and women deciding never to get married. Strengthen marriage and two-parent families first, and many of the economic ills in America basically go away.

Let me suggest that to do that, we would need to roll back the legal and social revolutions of feminism, no-fault divorce, and sexual liberation, then do something to restore the ability of the average man to earn enough money to support a family in comfort and, perhaps more importantly these days, safety and order. The old ways of doing things had their drawbacks, too, of course, as the revolutionaries still remind us (if the bad old days didn't exist, they'd have to invent them). As you might guess from my tone, I don't think this is remotely likely to happen, not least because of the whole-hearted acceptance of these revolutions by most of the American right. Absent the restoration of the bad old regressive values that supported it, the one-income nuclear family has a future chiefly as a status good for the well-to-do and the reactionary. Welcome to the future.

I wasn't thinking so much of debt as just of trade imbalance. I realize these might come together, but as far as I can tell they needn't. For example, I guess (perhaps incorrectly) that when England became worried about its trade imbalance with China im the 19th c. and started smuggling opium to China to try to right the imbalance, the issue wasn't that England was in debt in the ordinary sense of the word but just simply that England was on a silver standard and China was getting, by getting English money, title to England's silver stocks in return for tea. The tea would be consumed and gone, while obviously the silver wouldn't. Only China would have an uncomfortable amount of it, if the Chinese claimed silver for their pounds.

I'd ask you to quantify what you mean by "kicked the ladder out from under...

I've already explained the sense in which 'ladders have been kicked away', in my earlier essay on this theme.

Making such a claim suggests that the U.S. middle and working class has suffered job losses of enormous scale since the early 80s...

No. It is an observation concerning the altered nature of employment, and an extrapolation of the consequences of this epochal shift.

But these gains are either real or they aren't real.

We've been round this issue multiple times: the data are conflicting, and I'm willing to concede the exceedingly modest gains that some studies purport to demonstrate, arguing simultaneously, with many others, that these gains will prove ephemeral in the medium-to-long-term, for entrenched structural reasons. The argument is not that global democratic capitalism fails universally in its utilitarian objective of raising aggregate prosperity, but rather that, under the particular conditions and constraints of American culture and political economy, whatever gains may be generated will not perdure. Aggregate prosperity may be optimized, while the fortunes of vast numbers may decline both relatively and absolutely, over time. As Cyrus observes, systemically, no one in particular is guaranteed anything; the only structural guarantee is that increasing rewards will accrue to a narrow cognitive elite.

So I resent the fact that you want to prevent me from buying cheap Malaysian products, which are quite useful in the Singer household.

And American craftsmen resent the fact that you would prefer to save a few dollars, as opposed to making a purchase that secures for them a dignified life plying the skills with which their Creator endowed them. This is not so much a debate over various quantifications of aggregate utility, as it is a debate over the ethical norms by which the disputes of conflicting 'resentments' will be adjudicated.

As for consumer credit...

I'm cognizant of Bentham, and find myself unimpressed. Debt, as a mode of servitude, more or less explicit as contingent upon circumstances, must be warranted by something more substantial than claims of utility or preference satisfaction; it must be justified by its fecundity, by its contribution to the increase of productive activity, whereas debt financed consumption is naught but a claim upon future earnings.

there is a lot more to success in America than cognitive endowment.

No one gainsays it. Nevertheless, those ranged along the left half of the bell curve are not entrepreneurial material, and in an economy which privileges cognitive endowment, this is a problem of political economy.

I'm just not too worried about income inequality...

I get it. As long as the law, in its solemn majesty, permits both the plutocrat and the pauper to sleep beneath the bridge, all will be well. Nevertheless, inequality is productive of a diversity of disorders inimical to the health of a republic, and, as I have intimated, we are already observing the foreshocks of those disorders.

There need not be any "leveling downward" and if there is, I still say why not provide help directly to those in need instead of mucking up the price mechanisms of the market.

It has been the veritable attempt to instantiate a ideological figment, an acultural notion of the price mechanism as existing outside and beyond particular moral and cultural claims, that has engendered downward leveling; the reason for eschewing direct political compensation for the inequitable consequences of the price mechanism is that such compensation would preserve the fiction of an amoral realm of experience, the injustices of which are remedied, not by doing justice, but by technocratic tinkering.

Comparative advantage does not presuppose anything...

Of course, comparative advantage does presuppose what I've predicated of it; a nation will either possess some degree of advantage in some economic endeavour, or, at a minimum, less of a disadvantage in some endeavour than in any other, and the theory counsels that the nation then concentrate upon that category of economic activity. Classically, these advantages were associated with particular factors of production, situated in particular places; we may contemplate an hypothetical in which Portugal was advantaged over England in both the production of sheep and the production of wine, and in which England was less disadvantaged in the former than in the latter, and so should have concentrated upon it, but are still discussing relatively immobile factors. When the objects of production are industrial or post-industrial, however, the nature of the case is altered, since such factors as these are readily transferable about the globe. In other words, the factors themselves have been drained of their specificity; entire manufacturing operations, and a decent number of cognitive-service operations, can be moved about the globe, because the very notion of a production factor has been abstracted from its cultural and political preconditions; there remain only capital and labour, and the counsel of the slightly-revised theory of comparative advantage will be that capital-rich nations like the U.S. should concentrate upon high-value applications of capital, while permitting labour-rich foreign nations to concentrate upon manufacturing. In other words, comparative advantage has been reduced to arbitrage; from a theory which accounted for the gains from trade between nations with differing levels of indigenous technological/natural development, we have derived a theory which postulates aggregate gains from arbitrage. The classical theory is predicated upon technological differences between nations; the contemporary theory is predicated upon the mobility of technology between nations with differing relative endowments of capital and labour. Certainly, there is a line of descent; but these are different things, as different as I am from my grandfather.

Of course, a typical response will attempt to elide the distinction between phases of the theory by arguing that America now possesses a comparative advantage in the production and provision of high-value-added services; this, however, both discloses the reductionism of the theory itself, namely, that the economy of a nation is explained primarily in terms of a "few simple things" in which it is said to possess an advantage internationally, whereas an economy must be diversified, and presupposes an untenable - this is the gravamen of the argument - fungibility of the productive factor of labour, which is assumed to be unproblematically mobile across economic activities. And this, given certain unalterable realities, is simply not consonant with the facts of the matter; it is merely the economists', the libertarians', the neoconservatives', version of the myth of the plasticity and malleability of human nature and the human person. Human beings are not, either morally, physically, or metaphysically, infinitely fungible factors of production; education cannot alter this reality; and that is why the increasing marketization of heritable traits is a conundrum for both political economy and republican governance.

As regards debt, we will have to agree to disagree; the creditor and the debtor are not fungible, and aggregate economic statistics cannot substitute for an appreciation of the relationship between the two. Even when foreign capital flows into America for productive purposes, if it is not compensated for by a comparable degree of American production, it will be compensated by increasing indebtedness in the short term, and increasing foreign ownership of American production factors beyond the short term. From the perspective of aggregate economic productivity, this is a nonissue; however, aggregate economic utility may obscure any number of more substantive considerations, which can neither be reduced to, nor expressed as, utility functions.

Finally, as regards marriage and dignified employment, I presuppose nothing which intimates that man is a moral automaton; I assume only what is manifest, namely, that financial difficulties and struggles are one of the principal causes of marital discord. The proposal that public policy, political economy, and business practice aim to provide dignified wages is merely a proposal that the conditions of possibility be created for those willing to avail themselves of them.

"And American craftsmen resent the fact that you would prefer to save a few dollars, as opposed to making a purchase that secures for them a dignified life plying the skills with which their Creator endowed them. This is not so much a debate over various quantifications of aggregate utility, as it is a debate over the ethical norms by which the disputes of conflicting 'resentments' will be adjudicated."

Ay, there's the rub, because as I keep pointing out to you -- there is no end to the potential claims that could be made by one group or another disadvantaged by capitalism. I'm sure the horse and buggy workers resented Henry Ford, I'm sure the cast iron stove people resented the shift to steel ovens, etc., etc. You end up with economic stagnation and a serious drag on innovation. Here is a good ethical norm (assuming we are talking about a good or service that is not inherently evil, e.g. prostitution): if an economic trade is made voluntarily (and there are no other market failures involved, like a monopoly) then that trade is ethical. Forcing me to make certain trades is unethical (and ultimately harmful economically). Discuss amongst yourselves and let's not forget, although you continue to ignore this fact, that the U.S. sells lots and lots of stuff to foreigners who will resent the fact that we no longer are willing to buy their goods and services -- trade war anyone?

The history of political economy, especially over the past 200 or so years, is the history of mankind adapting to all sorts of economic and technological change. Nothing is stopping the American craftsman from plying their skills -- they just need to find a niche in which their skills are valued and get busy (e.g. plenty of rich folks like to pay for quality and are happy to never set foot in a Target Store).