The Soul of an Academic

Here is a profound quote from The Sisters by Vikenty V. Veresaev, that I think gets to the core of an idealistic academic:

We were going to work together, but somehow neither of us were inclined to. We decided to have a drink. Nurka brought a bottle of port wine. We drank it, and lay down on the bed. I began to "preach" to her. I said there is no such thing as love. There are only sexual needs. She looked at me sadly with her innocent blue eyes; it hurt her to listen to me. She dreams of a "pure" love. I laughed at her and said: "Rubbish! Can a Komsomolka be such an idealist?"

I suddenly remembered and struck my forehead:

"The synopsis! I'd forgotten all about it!"

I sat down at the table and wrote out the synopsis for the lecture.

The next evening came. ... My speech poured out, vivid and unhesitating. I laid down the economic basis, passed to materialism, and so on and so on. ... The young folk were impressed; they're thirsting to be shown the path to the new life. And this is what I longed to say in the concluding words: "Listen all of you! I haven't been speaking seriously, I was making fun of you, I wrote out the synopsis of my speech when I was drunk. It was very easy because there was nothing of mine in it. I have only repeated what others have written before. I have no ideas of my own any more than you have. Tear up your notes and lets begin from the beginning; lets find the way to the new life with our own brains."

I wanted to go home alone, but I had to go with some of the others, and we argued on the way. I got heated trying to prove something, and when I reached home my heart was very heavy and I even cried into my pillow when everyone else in the room was asleep. It appears that, in order to be a charlatan, you must have a great sadness in your soul.

That about sums everything about academia up that I know.

What Socialists Mean by Capitalism

I'm currently reading Le Grand and Estrin's book Market Socialism.

I have often complained that socialists misunderstand the market. Sometimes they do. Sometimes they understand it better than most conventional economists. Sometimes the most hard core Marxist will come so close to understanding the libertarian view - like Bukharin for instance.

Le Grand and Estrin did seem to understand markets in the introduction - at least as well as many "mainstream" economists.

Then an amazing passage occurred.

In this passage, these proponents of Market Socialism revealed that they distinguished "capitalism" from "liberalism" -- their use of "capitalism" was not synonymous with markets, but was distinguished from laissez-faire free market libertarianism. They still preferred market socialism to liberalism, but the complaints against capitalism are not complaints against free markets per se, but against a certain form of market system, which they call capitalism, but which arguably is really corporatism or crony capitalism.

Capitalism places the economic power in the hands of capital and its owners. Traditional socialism gives power exclusively to labour: the dictatorship of the proletariat, preferably exercised through a centralized authority. And the "New Right"--actually better characterized as traditional liberalism-- claims to locate power in the hands of the individual--particularly the individual citizen and consumer.

This is very interesting. Of course, I have argued this and heard whiff of this in socialist literature before, when they argue that the "ideal" of free markets is not possible, that concentration is delivering power into a few hands (a la Bukharin & Lenin, based on Marx), and so on, implying that it would be different if free markets did exist. Similarly, Lange's market socialist model was based on the use of state power to create a perfect market-- implying that if markets were less monopolized then they would be OK. But this is still a unique passage. Given this characterization,

In the following, replace "capitalism" with "corporatism" in your mind. It continues a bit below:

Full blooded capitalism is unattractive because it exploits labour through its monopoly of employment and because it exploits consumers through monopolizing goods markets. Traditional socialism expropriates capital and subordinates the interests of consumers to the interests of the workers. Indeed, with its penchant for centralization, it is far from clear that even the workers are properly taken care of. Liberalism puts people's livelihoods and their savings at the mercy of consumer taste and fashion; its emphasis on the narrow rights of individuals jeopardizes the collective activities of the community and hence the community itself.

What is needed is a model of society where power is more evenly distributed between these groups; where the interests of owners of capital, of workers, and of consumers are all taken into account with none taking automatic priority.

This struck me as fascinating. Now, I don't personally see how the group which liberalism represents - everyone - needs to be supplemented with the groups favored in corporatism and in socialism, which are partial. Nor that the interests of some "community" of individuals must be represented. In a free market (liberalism) such a group can form and defend itself, since all the individuals are protected by the system. But, the authors seem to believe that protection of each person, without protection of groups, leads to a loss of community-ness. Perhaps.

The fact that socialists have directed their main fight against corporatism this whole time and not against the free market is a critical point that we would do well to remember - and to make clear the distinction as often as possible. We have hardly tasted true liberalism, and socialists have tended not to start with models. In general, they, being people sympathetic to socialism and hence a softer sort of person, saw injustices in the world and began there. Seeing injustices, and seeing the market used by those with power and money, they blamed capitalists and they blamed the market. They did analyze different kinds of market societies, but they threaded them together in a dialectical historical account.

Market socialists are able to distinguish corporatism from liberalism. Starting there, the arguments are much easier to defeat. As above, sometimes it just boils down to "with liberalism, you lose the sense of community." There are some good books on how that isn't the case - that the opposite is true. When the state encroaches, as through welfare programs, it replaces community. In fact, the authors themselves cite "protection from the family" as a key feature of the welfare state (p. 21).

I'll post more on this book, maybe later today even.

update: I forgot to mention: Marxists describe the "crises" of centralizing capitalism, the movement from more to less competition, and consolidation into fewer hands. If capitalism is seen as rent-seeking driven corporatism, this makes sense. As rent-seeking drives policy, it necessarily does concentrate power into fewer hands, and also creates recurring crises (business cycles). As an example, consider how fixhousingfirst.com is calling for new increased low-income housing policies for its constituency, despite the fact that it was likely these policies which drove the housing bubble and caused the current crisis.

Update 2: I will also post more on this another time-- I would like to consider Marx and Bukharin's arguments in particular against "capitalism" as they may be estimated from a public choice perspective, as against corporatism (or mercantilism). It is possible that some Austrians have already done this - as it seems many Austrians see that Marx was really arguing against crony capitalism and not free markets - but probably not enough.

Then this can be tied together with the later market socialism literature and analysis. Marx was wrong with his labor theory of value, but perhaps right with his concentration, crises and ultimate end in planning (if he was studying the rent-seeking society); market socialists like Lange were wrong with their perfect competition models, but right in some of their understandings of the benefit of prices and competition. Very recent market socialists (like those above, and like Stiglitz) have greater understanding of many of the Austrian points than conventional economists. Perhaps bringing together all the good understandings of these various socialists could be useful in contributing to new, better models, and to a greater understanding of interventionism.

A Taste of the Control Inherent in Planning

Hayek said "Economic control is not merely control of a sector of human life which can be separated from the rest; it is the control of the means for all our ends."

This is very true, and key to understanding why the experiments with socialism have inevitably led to totalitarian dictatorships. It is also critical to remember when we little by little feed government power, the power to control our economic lives, and hence our lives in toto.

A fascinating reminder of what economic control truly means comes from the excellent - truly golden - book The Soviet Economic System: A Legal Analysis. Especially those of you who enjoy law and economics both, and "libertarian theory" on Leviathan and freedom, should check it out.

So, here Ioffe and Maggs here are discussing ownership in the Soviet Union, and describing the rights of the state firms, who possess "operative administration" rights, but are not owners. The state is the legal owner, and they investigate whether it can also be considered the de facto owner. They also consider what it means that "the state" is the owner -- of course, it turns out to mean that the Politburo and Secretary are the real owners. In any case, here they are describing the actual rights of the firm. It turns out that some of the restrictions on "possession, use and disposition" which apply to those holding only "operative administration" include strict limitations to use the property for planned purposes only and not to "sell postcards if you are a pharmacy," and that all money must reside in "funds" to be used for specific activities - investment, purchases, wages, depreciation, etc. The state bank which holds the funds ensures that the seller and buyer in any exchange both have the appropriate rights and use the appropriate funds, etc. And then here is the golden paragraph:

An examination of the legal provisions established for goods produced, goods which are the result of production rather than a fund for production, is useful for a full comprehension of the operative administration exercised by a producing entity. In this case, the rightholder has the rights of possession and disposition, but not the right of use. To use its own product, the economic entity must transfer the requisite portion of it from goods produced to production or other funds. If the goods produced are subject to planned distribution, then, in order to acquire its own product, the producer must be included in the plan of distribution issued by the planning agencies. Violations of this rule lead to legal sanctions. If the goods produced are excluded from planned distribution, then, in order to acquire its own product, the producer must have adequate resources in a monetary fund that may be employed for such an acquisition, and when part of the entity's product becomes a part of its fund of physical goods, the price of the product thus obtained must be deducted from the appropriate monetary fund and added to the amount of gain resulting from the sale of the product.

Yes. If you want to use some of the paper that your paper factory makes, you must be part of the planned distribution. Even if the distribution of paper is not being planned out - miraculously - this year, then you must sell the paper to yourself within the guidelines of the use of your monetary funds and adjust your balance sheet to reflect that you fulfilled output and simply sold to yourself some amount of the paper, which you were able to pay for out of your budget for purchases.

Now, I suppose that many firms do this kind of accounting anyway - to ensure that they are not being wasteful. However, the key thing to note here is who is in charge of all of this: the state. And "violations are subject to legal sanctions." This is entirely another kind of "accounting" when this is taken to heart.

The Real Danger of World Government

(Cross-posted at Heritage)

Even more than rent-seeking and government expansion here at home, the greatest danger of a left-leaning Obama administration may be the danger of capitulation to a new world government.

In the past, “One World Government” has been seen as a rallying cry of a fringe group, not something that many in the mainstream would either fear or desire. But, suddenly today it is on the lips of world leaders. The recent financial crisis is being blamed on a lack of world government.

The Financial Times reports:

Jacques Attali, an adviser to President Nicolas Sarkozy of France, argues that: “Global governance is just a euphemism for global government.” As far as he is concerned, some form of global government cannot come too soon. Mr Attali believes that the “core of the international financial crisis is that we have global financial markets and no global rule of law”.

But, the financial crisis was not caused by a lack of international regulation. Financial crises in the past have tended to occur more due to intervention than due to lack of regulation, and each of the banks that failed in this crisis was regulated by at least one country. Monetary policy was a major cause of the 1929 stock market crash and is implicated in just about every other crash.

In addition to dangerous monetary policy, one of the underlying causes of the Asian financial crisis of the late 1990s was government industrial policy, “As part of their industrial policy, governments have directed funds toward favored industries at low rates of interest… This leads to excess lending to the companies that are well-connected and who may have bought influence with government officials.”

This is the same kind of corruption and rent-seeking we’ve been seeing back here at home, with Fannie Mae and Freddie Mac, and in other areas of government. Extensive government reach into markets is what causes crashes and recessions – not a lack of even more expansive government reach.

These leaders want not only to abandon capitalism as we know it, but they want to force these ideas upon all countries by regulating companies at the international level. This kind of anti-market world governance would not make peace more likely, nor would it make free trade more possible or financial crises less frequent.

The Social Will

From the comparative physical impotency of man in his natural state, and from his inability to invent, make and use, unaided by his fellows, all the tools he needs to multiply his power of motion in the degree required for his safety and welfare, comes the social state, in which the tool is necessarily a social organ; social in its origin, social in its growth, social in its purpose, social in its incorporation of natural forces which of right belong to all; set in motion by human muscles, for the good of the social body, under the direction of the social will.

The common good, the will of the people, the drive of mankind. The people have spoken, it is an increase in social welfare, the "individuals as a whole" prefer it.

When we come together, are we stronger or weaker? Or rather, does collective purpose exist- and if so, when? Certainly "united we stand" in the short term can work; but just as clearly, imagining that we as a people have some aggregated preference is dangerous at best.

Sentimental Economics

I am finally reading Caplan's Myth of The Rational Voter. I feel like I've read 90% of it online already, but as usual Caplan has me agreeing and disagreeing within a given moment. Somehow balancing brilliant and vacuous on the head of a pin.

In any case, it got me thinking. Why is it - and a million people have asked this question, its nothing new - that humanity is so drawn to ideologies like socialism?

While a materialist like Sasha might argue that politicians and voters choose policies they believe to be in their own material self-interest, the desire for socialism seems not to be materialistic. True, for the political entrepreneur it is a good materialistic choice, but not for the masses. And, yet many don't seem to care. Utopian socialists did not expect it to bring wealth, and many cling to the ideology even after seeing the poverty it can bring. The staying power of the desire for socialism is amazing- people do not want to give up the sentimental ideology underlying this economic system.

Caplan argues that belief is a normal good - people are willing to spend money on it; they will give up material wealth for the chance to hold their beliefs. Even if the belief is wrong, and this costs the adherent, he will spend money to maintain the belief in the face of contrary evidence. Okay, but why do people want to believe in socialism? Why, for example, would they be willing to spend a huge amount of money on it - potentially giving up half or even 90% of their future personal wealth?

One thing is that it is probably quite recent that we have realized just what must be given up. Caplan points out that, while the average voter underestimates the ability of markets to perform well, even the average economist underestimates this ability as compared with government - they overestimate government. And, if we step back to earlier centuries, if we underestimated the market we might not realize how amazingly prosperous we could be in the long run, using markets. So, even if we properly estimated government (which surely we did not), we might still underestimate markets to a great enough extent that we would not see the full opportunity cost of giving them up.

Still, what draws people to socialism and keeps them entranced? Many have called it a religion, and this is true. But it isn't simply a religion because people want to believe in it, and don't care about facts. It is more than that- socialism itself plays the role of a religion particularly well.

And this is really the crux of it. The same drive that calls people to seek out God draws people to socialism. The self separates a person from others, the separation from God, as many see it, or from the womb. People long to reunite, and look for it in true love, religion, spirituality, drugs, sex, music, and so on.

The reason for this is an interesting question in itself- I tend to think that it must be biological (except when I am feeling spiritual, in which case I have an irrational explanation), and is part of the same emotional drive that compels us to want to procreate. This is very important especially today when kids are expensive and useless (you can't even send them out into the field to till wheat until they are, what, 18?) But it is also at the core of who we are. What would life be without this drive? It is a drive for life, for love and for greater purpose.

There is a longing to be one with the universe, to come home to a Greater Self or soul, so as to end the eternal loneliness of the isolated self. And, better than any other political ideology, socialism offers this.

It isn't just a uniting movement, like some nationalist ideology, and it isn't just a cold planned order. Socialism offers the coming together of all people, united in a collective desire, acting as one. All people on Earth coming together for a common purpose, to better the common good. No more isolation, no more struggle on your own, no more separation from God. Together, we can achieve anything, and you won't be alone. All good is in socialism, because it is made by all people for the good of all people.

How could you not be entranced?