Saturday, January 16, 2021

On "Capitalism, Alone": On the occasion of Greek-language publication

 -If, as you say, capitalism is a system without an opponent, was Fukuyama right when he spoke of the “end of history”?

 Not really, because for Francis Fukuyama the end of history implied the domination of  liberal capitalism throughout the world. This is not what we observe. On the contrary, we note many forms of political organization, not just one. What I call “political capitalism” (as exemplified by China, Vietnam Singapore etc.). is one such non-liberal political form. But even with regard to capitalism, its current domination, which is both geographically and in terms of our system of values incontestable, should always be seen as a historical development, and never as a “terminus” of our  history.

 

-According to your interpretation, communism has fulfilled its role and is a system that belongs to the past and not to the future. Were the regimes of existing socialism communist? Only the Stalinists claim so. Today you will hardly find a Marxist who supports such a thing. On the contrary, many consider that the "existent" was the defamation of the socialist ideal.

I think that this is a very wrong view. Whether “the really existing socialism” was 100% compatible with Marx cannot be taken as a criterion whereby we judge whether it was “socialism” or not. There is no doubt that its essential characteristics, non-private ownership of the means of production and centralization of economic decisions, were fully in accord with traditional, including Marx’s, conception of socialism. Furthermore, we do not deny that today’s capitalism is “capitalism” even if some libertarians or even Friedmanites might not think so because of (say) too strong role of the state, existence of trade unions or high taxes. Such absolutely “pure” theoretical constructs, whether we speak of capitalism, socialism or feudalism have never existed. Likewise, we do not dispute that some societies are predominantly Christian even if they do not follow to the letter the tenets of the religion. Thus, “really existing socialism” was indeed socialism.

 

-You argue that the countries that have adopted the model of social democracy - one of the three of modern capitalism as you say - have succeeded in achieving levels of prosperity and political freedom unprecedented in human history. So can we say that this is still the solution to the problems facing societies today?

Yes, they have indeed done so in terms of economic prosperity, political freedom, and social mobility This is still a very good system—but I do argue that it was a system “constructed” for a world of homogeneous nation-state and of limited capital and labor flows. With much greater movements of capital and labor, the welfare state, which is the key part of social democratic capitalism, is under heightened pressure. Mobile  capital can leave if taxes are too high, and mobile (foreign) labor can move in. Loss of capital weakens the ability to fund the welfare state, while inflow of foreign labor reduces cultural homogeneity that was at the origin of the welfare state.

 

-What we see today is a turn of the “liberal capitalism”, which is becoming more and more authoritarian and moving closer to “political capitalism”, or closer to what some analysts call “capitalism with Chinese characteristics”. What do you think about it?

Yes, this is happening in some countries. But the crucial questions will be whether political capitalism would be able generate higher rates of economic growth than liberal capitalism. If so, it will eventually tend to dominate, either because other nations will also want to grow faster and might imitate some of technocratic features of political capitalism, or because the relative power of the countries of political capitalism will increase. This is, I think, in the background of the current US-China trade war: an ideological battle waged on the terrain of economic growth.

 

-How do you think that the present situation with the pandemic of corona virus  will affect democracy and social justice in general?

I think that it might lead countries toward reassessing (increasing) the role of the state in public services such as health care and education. First neoliberalism and then austerity policies have practically gutted many public services of people and instruments. Health care and education  began to be regarded like any other business activity. But they are not, because they have huge externalities: without heathy and educated population there is no economic activity and growth, and without fully healthy population even economic growth of a few is meaningless. This is why health and education cannot be managed the way we manage ordinary business: we cannot treat hospitals like hotels whose objective is to optimize the number of beds and patients. That approach is responsible for health providers becoming in many cases overwhelmed during this crisis and not able to save lives.


- Climate change is now perhaps the most important parameter in the evolution of human societies. Can economists in their theories ignore it or behave as if it does not even exist?

Of course, economists must address climate change. But they should do so using the traditional economic instruments of taxation and subsidies, taxing activities and products that contribute to emissions, and subsidizing their more ecologically-friendly alternatives. The arguments in favor of degrowth do not acknowledge these realities. Their proponents believe that the world can stop growing, but do not want to accept that this is possible only if either some 10-15% of the world population that lives in abject poverty stays poor forever, or if the rich world cuts its income by at least a third. Neither of these two options is desirable or indeed feasible, and this is why degrowth ideologues are wrong.

Tuesday, January 12, 2021

L’éducation idéologique

I believe that everyone can remember the turning points in their ideological and political evolution: these are moments when the entire world of ideas and preconceptions one has built over the years crumbles.  

I thought of three such events. I remember them with utmost clarity.

I.

I was in high school in Belgium during the Vietnam war. The whole atmosphere, from the school to newspapers, was suffused with anti-imperialism, and condemnation of the war. Being against the war not only seemed so normal that I had hard time imagining people who would be in favor of it, but, being a good young Marxistant, I assumed that the only people who could support killings of thousands of Vietnamese peasants must have been those who had an interest in the continuation of the carnage, namely capitalist financiers and the US ruling class.

The new, young and smart English teacher in our high school decided that we would learn English better if she would bring every week an issue of The Time or Newsweek magazine to read in class. It was a great success. She would then give the issue to a different student every week to take home and read. One time I was lucky to be given the magazine.  On the way back home, I opened it and saw a big photograph of Nixon visiting either Chicago or Detroit, and being greeted by hundreds of construction workers sitting on the scaffoldings, waving small American flags, cheering and supporting Nixon’s Vietnam policy. For a while I could not believe what I saw. I must have spent an hour or more (my walk back from school to home was about 40 minutes, and I was almost always walking alone), scrutinizing the picture: was it staged, were these people real workers or perhaps CIA operatives placed there to wave the flags? I thought of all these possibilities, very pleasing to my ideological beliefs, but still could not fully accept them. It did seem, as the article claimed, that Nixon’s reception was genuine and that the American working class was in favor of the war. I could not understand how that ideological “impossibility” could have happened. I was not able –a 17 year-old—to answer that question, but it remained like a big unresolved issue for a long time in my life. I was at the time of my first ideological doubts.

II.

In the 1980s the political situation in Yugoslavia was getting steadily worse, the recriminations between the republics more vociferous, the nationalist expressions of sentiment which in the past would be considered “hate speech” and drive the perpetrators to jail, were now commonly and openly voiced. Yet I believed that these were the bad residues of the tumultuous past and of the older generation, many of whom were supporters or collaborators of various Fascist factions. But surely, the young generation I thought –the youth being, by definition, progressive, anti-nationalist, anti-religious etc.—would be different.

With that view  in mind, I asked one day my older friend’s son, who was then in high school (probably of the same age as I was at the time of my first ideological epiphany with American workers), if his school classmates saw through these expressions of Serbian nationalist megalomania and stood for ethnic equality. So I asked him how other students thought of the Albanian issue, and how they believed it may be solved.

Oh, --he replied nonchalantly—we are all in favor of killing Albanians. And solving the problem once forever. 

III.  

A decade later I lived through the entire period of US hyperpower in Washington: the sole global power attacked, in short order, Panama, Serbia, Afghanistan, Iraq and Libya. I was aware of compete dissonance between reality and the way it was presented in the US media, having worked for the World Bank in transition countries in the 1990s, and especially in Russia. One of the reasons for my book “Income, inequality, and poverty during the transition to market economy” was precisely to leave a factual proof, to document in one place, what happened to poverty, inequality and destruction during the so-called “transition”. I am still very proud of that book, even if it is rarely cited.

I regarded the excesses of American hyperpower to be due to the military-industrial complex and Republican latter-day imperialists. I was not particularly interested in American domestic politics and thought that Democrats had, on the whole, little to do with the renascent imperialism. All of my friends were Democrats and they were sensible and nice people. In 2003, when the war on Iraq was launched I was at the Carnegie Endowment for International Peace, where –in consonance with its name—almost everybody was sincerely pained by what was about to transpire. I happened to be sitting in the office of a highly regarded and influential person who was brought almost to despair by Colin Powell’s fake UN testimony that paved the way to the aggression (and which was playing on TV live at the same time while I was sitting in that office).

So that was my view of liberals when a decade later I was invited to join an email list of relatively influential democratic media persons discussing current affairs. My first foray was based precisely on that assumption: that they were nice anti-imperialist people who cared about peace and the rest of the world. In no time  was I entirely disabused. With a high-level casuistry (since they were very intelligent and well-educated) they defended, and advocated, the most  destructive and murderous policies.

When today I heard of the title of Pankaj Mishra’s new book “Bland Fanatics” I was immediately gripped by its title. These were the people I was dealing with then! They were boring and lived in comfortable suburban homes. They penned most poisonous articles that would lead to the deaths of thousands while sipping Starbucks coffee and glancing from time to time at their daily “to-do” lists left in the morning by their spouse: “pick up the laundry”, “buy the spaghetti”, “call Jim to repair the AC”….Excitedly they would rush to wrap up their writings, reveling in more airstrikes, finishing the last paragraph perhaps too abruptly. For they had to pick up children from school. At four o’clock.

  

Saturday, January 9, 2021

The Excellent Empire or the Prison of the Peoples? A review of Pieter Judson's “The Habsburg Empire: A New History”

 Writing a history of the Habsburg Empire from the Napoleonic wars to the dissolution of the Empire must be one of the most daunting tasks for a historian.  The variety of institutional and political arrangements, interacted with a bewildering multitude of social classes and nationalities that were in a state of permanent incipient conflict among themselves or with the Viennese center, makes such histories either too dull, as they become chronicles of events, or courting superficiality as they need to drop out a number of relevant developments to concentrate on a few they deem crucial.

Pieter Judson’s new “The Habsburg Empire: A New History” belongs to the latter  group. Judson decides to go for a revisionist tack where the second half of the 19th century is argued to have been both economically and socially successful for the Empire. The Empire moreover is not considered too different (in its complexity) from other continental powers like Spain or France. Judson mentions, for example, several times that in 1863, one-fourth of the French population could not speak French. And then, the most contentious part, that the Empire might have found a way to create a sustainable federalist structure. I will concentrate, in this review, on the last point.

Judson needs to address two big issues here. First, why were nations that composed the Empire chronically unsatisfied, and why were institutional arrangements, reacting to this, in a state of a permanent flux? And second, why did the Empire ultimately dissolve, to the apparent delight of most, including the Austrians? For the latter, Judson blames the unreasonable harshness of the military dictatorship that took place at the onset of the Great War, as if that military dictatorship, which Judson acknowledges was much more hysterical and brutal  than in any other belligerent nation, could be considered in isolation from the nationality and social questions that plagued the Empire before the war.

However, the most important part of the book is whether the constitutional arrangements after 1867 in the Austrian part of the Empire (the Hungarian part was ruled much less inclusively by a narrow band of hidebound gentry) were sustainable. Judson’s main hypotheses are all made clear on two pages  (pp. 272-3) of a 500-page long book: “What made..the Austrian half of the dual monarchy unique... was not so much its ethnic make-up but rather the legal and administrative structures it developed to manage questions of linguistic and religious difference”. And, “[n]ationalist conflict was not an inevitable result of multilingual quality of Austrian and Hungarian societies but was the product of institutions…A political program that demands legal, social, and institutional rights for speakers of one of those languages would…encourage the people in a locality to see themselves and others largely in terms of language-based categories.”

It is those institutional arrangements that emphasized linguistic and ethnic diversity that, according to Judson, deepened ethnic cleavages and in the end broke the back of the Monarchy. Had the unifying and liberal bourgeoisie that tended to regard such differences with indifference and disdain prevailed, economic growth would have flattened out inequalities  between peasants and regional urban bourgeoisies, and then between different regions, from Bukovina and Galicia to Bohemia and Upper Austria. An economically vibrant precursor to the European Union would have been created, under a benevolent monarchical rule.

Why it did not happen was due to political agitation by nationalist politicians that found spreading nationalism a convenient way both to fight their own regional nobilities and acquire political power which, in the era of mass politics and increasing democratization in the Austrian lands (with the full male franchise introduced in 1907, that is, eleven years before Britain) was the way to power.

Judson thus sets the race between capitalist economic development on the one hand, and nationalist emancipation on the other. Had economic development been sufficiently strong to outpace nationalist demagogues the Austrian part of the monarchy might have found a durable solution for holding restless nationalities together.

This is not an unreasonable supposition. Economic development is often the glue that binds nations. “Material advantages will prove much stronger force for binding the peoples of the different crownlands” wrote a Viennese paper, quoted by Judson, in 1850. But two things must give us pause before we accept Judson’s institutionalist and economic arguments. First, the chicken-and-egg problem. The monarchy had to devise ever more complicated institutional fixes to preserve itself exactly because of national complaints. Thus institutional  responses cannot be blamed for creating the nationalities problem if they just reacted to something that already existed there. Second, it is economic growth and educational progress (notably in literacy) that created the nationalist intelligentsias and nationalist politicians whom Judson sees as responsible for sowing the seeds of dissension.

 Here we encounter the following problem: keeping the monarchy poor and uneducated could, in the short-run, reduce political problems, as Habsburgs surely knew how to negotiate and bargain with local nobilities. But in the medium term, it doomed monarchy to political irrelevance in Europe. To save itself from such a fate, the monarchy unleashed the forces of economic and educational progress, but that “created” nationalities and mass politics which then required new ethnic-based institutional framework. That framework eventually broke the country apart.

This was the key dilemma that the Habsburgs were unable to solve, and that Judson sidesteps. But the Habsburgs were not the only ones that failed here. The fact that the successor states of the monarchy, Czechoslovakia and Yugoslavia, and further East, Poland and the Soviet Union, showed themselves unable to solve the same problem should have made Judson think twice about his explanation.

For what is very obvious in the history of Central and Eastern Europe of the past two centuries is that all humanly possible political arrangements—centralized monarchy, decentralized monarchy, federalized monarchy, democratic state, dictatorial state, centralized republic, decentralized republic, feudal economy, capitalist economy, socialist economy—were all tried—and they all failed. Czechoslovakia and Yugoslavia collapsed at the first whiff of  international tensions and wars (in 1938-41 and then again 1989-92); Poland was structurally unstable through the inter-War years as Poles, Ukrainians and Jews vied for influence; the Soviet Union self-destructed in 1989-1992.     

Judson does in his Epilogue rightly point out that all of the countries that succeeded the Habsburg Monarchy replicated its problems, but he fails to draw the conclusion from the multitude of institutional solutions they tried, from 1918 to 1989, that it does not seem to have been a fixable problem.

It seems, with historical hindsight, that only the creation of more or less pure nation-states (which, with the exception of Bosnia, has been the product of the latest set of national revolutions) is consistent with cold peace in Eastern and Central  Europe. These are restless nations that, it seems, could find their peace only when left to their own devices, and freed from the distraction of inter-ethnic local politics.

 

 

Note: This is already a long enough review that I did not want to engage with a surprising omission of Habsburg foreign policy in Judson’s book. The numerous wars into which the Empire, more of less gratuitously careened (civil war in/with Hungary in 1848 that was “solved” only thanks to Russian intervention, then anti-Russian Crimean war mobilization in 1852-3, war with the Piedmont and France in 1859, support for Prussia against Denmark re. Schleswig-Holstein, then war with the self-same Prussia in 1866, annexation of Bosnia in 1908, and finally the World War in 1914) are treated as if they were so many falls of the meteorites and not revealing the deeply contradictory nature of the Empire. Moreover, wars' effects on domestic politics are left undiscussed: the 1867 agreement with Hungary was precipitated by the 1866 defeat against Prussia etc. Prussia is mentioned only four times in a book of more than 500 pages.   

Saturday, December 26, 2020

On "Capitalism, Alone": A conversation

This is the text of the interview given to Sega Newspaper at the occasion of the publication of “Capitalism, Alone” in Bulgarian. The text in Bulgarian is here.

  

1. How do you think the fact that you grew up in Yugoslavia and received your doctorate in the Belgrade University has affected your worldview and your work?

I think it affected me mostly through Yugoslavia non-aligned foreign policy. Among other things that were ideologically motivated and were taught in school was also the emphasis on non-alignment, namely on anti-imperialism and anti-hegemony (which was a shorthand for the Soviet Union). This opened up our minds and interest towards non-European parts of the world. It might not have produced the same effect on everyone, but even in my teenage years I was very political and very “Tiermondiste”. I often regret that the same attitude is not, as far as I know, present now in the schools in Serbia and in the rest of the former Yugoslavia. Eurocentrism, in the form of the European Union, is dominant now and is stifling other interests.

2. You are most famous for your work on income inequality. How does "Capitalism, Alone" – with its broader scope – fit into it?

You are right that “Capitalism, Alone” is much broader and more political. It is a combination of my long-standing interest and work on income inequality with my also longer-term (but less visible) interest in Marxism, the meaning of communism, and global issues (as I partly explained in the previous question). So for me it was nothing new, it was just a natural evolution. “Capitalism, Alone” was very easy to write. But for many who did not know much about my interest in broader political and social issues it came as a novelty.

Let me also say that any important work on inequality has to go together with social and political analysis. Piketty I think illustrates that very well.


3. One of the main points of your book is that the global domination of capitalism has led us to a new "schism" – between the liberal capitalism of the West and the political capitalism, best exemplified by China. What sets them apart?

In very general terms, history set them apart. This is one of the reasons why in my book I do not simply contrast US and China; many other books do just that. I try, in the first part of the chapter on political capitalism and China (which may also be one of the most important parts of the book) to explain the genesis of China’s political capitalism by defining what I think was the global historical role of communism.

Or more abstractly, what I think sets liberal and political capitalisms apart is the fact that human history is too rich and complicated to accommodate only one political system. We may all, as the dominion of capitalism shows, understand the language of profit and financial gain, but I do not think that we would ever have exactly the same attitude towards political power. 


4. Where do you think the Balkans are situated in the global economy and in the light of the division between the liberal and the political capitalism? Is the region doomed to be always chasing behind and always late?

The Balkans were historically a periphery. They were that during  the Roman Empire, Byzantium, the Ottoman Empire, the Industrial Revolution and today. I do not think that this is likely to  change. But there are many peripheries in the world, and often, by looking at the center from a different angle, the periphery can illuminate and see things that the center overlooks. The Balkans are at the intersection of Western Europe, Mediterranean civilization, and the Muslim world. These are significant advantages, if one knows how to use them well. Also, being a periphery does not mean that one cannot become rich. Surely, Australia and New Zealand are historically and today, the periphery too, but they are rich.

There are some Balkan countries that seem today to be rather close to political capitalism. I have in mind Turkey, Montenegro, and Serbia. But note that I do not establish a hierarchy such as believing that political capitalism is inferior to liberal capitalism in all domains.  There are circumstances where it can do better than liberal capitalism.


5. Your book "Capitalism, Alone" came out just as the world was about to learn about the coronavirus. After all that followed, if the book was about to be released tomorrow, would you add or change something  to it?

No, would not except possibly in one area. I was quite critical about the feasibility of Universal Basic Income in rich countries. I still believe the arguments I gave in “Capitalism, Alone”. But I do recognize that in emergency conditions like the ones we experience today, having a stable guaranteed income for the entire population (even if it is rather low) would be helpful and would dispense with  the need to make constant political decisions about new wage-support packages. The automatism of the Universal Basic Income would be an advantage.



6. In your book you assert that the so-called “carrying capacity of the earth” is a fallacy. Do you really think that there is no danger of  the modern capitalism leading us to a massive planetary ecologic crisis?

I am what is called a “techno-optimist”. I believe that with a right combination of incentives and “punishments”, subsidies and taxes, we can curb pollution and CO2 emissions and change the dominant technology to be much more ecologically friendly. So I do not think that anything other than the usual economic tools is needed. The question is whether there would be sufficient political support to enact such policies.

7. In one of your latest articles you called Trump "the Ultimate Triumph of Neoliberalism". How could you summarize your assessment of his presidency?

If you define” neoliberalism” to be a ideology where commercialization of all activities, including politics, is legitimate, then Trump is a perfect and full embodiment of that view. He regards political office as any other job where the job-holder’s main interest (and duty) is to maximize own income. Indeed, he behaved as the President of the United States as he behaved as the head of the Trump conglomerate. He made money. He treated citizens as his employees. It is in that sense that he is the triumph of neoliberalism.

I think that many people who fail to see that aspect are bound to misunderstand his presidency by using terms that do not apply to it (“fascist”, “populist” etc.)


8. You expressed your mistrust with the so called "return to normalcy" in the USA, popular now that the Trump era is coming to an end. Why?

I think that Biden might wish to return to “normalcy”, understood as a Clinton-Obama type of government. But one has to realize that such presidencies, especially under Clinton, were synonymous with the roll-back of the welfare state, decline of the middle class, and rising economic and political power of the top 1 percent. This in turn would bring back the very conditions that have given rise to Trump. A much cleaner break with the past is, I think,  necessary. But the issue is whether the new administration will be willing to do it and perhaps even more whether the Congress would let it do it. American presidents, looked on from abroad, seem like elected kings because their power in some foreign policy aspects is indeed great. But in domestic policies they are much more constrained. So I am not very optimistic.   

 

Monday, December 14, 2020

Impatience: a deep cause of Western failure in handling the pandemic?

 In  October 2019, Johns Hopkins University and the Economist Intelligence Unit published the  Global Epidemic Preparedness Report (Global Health Security Report). Never was a report on an important global topic better timed. And never was it more wrong.

The report argued that the best prepared countries are the following three: the US (in reality, the covid outcome, as of mid-December 2020, was almost 1000 deaths per million), UK (the same), and the Netherlands (almost 600). Vietnam was ranked No. 50 (while its current covid fatalities per million are 0.4), China was ranked 51st (covid fatalities are 3 per million), Japan was ranked 21st (20). Indonesia (deaths: 69 per million) and Italy (almost 1100 deaths per million) were ranked the same; Singapore (5 deaths per million) and Ireland (428 deaths per million) were ranked next to each other. People who were presumably most qualified to figure out how to be best prepared for a pandemic have colossally failed.

Their mistake confirms how unexpected and difficult it is to explain the debacle of Western countries (where I include not only the US and Europe, but also Russia and Latin America) in the handling of the pandemic. There was no shortage of possible explanations produced ever since the failure became obvious: incompetent governments (especially Trump), administrative confusion, “civil liberties”, initial underestimation of the danger, dependence on imports of PPE…The debate will continue for years. To use a military analogy: the covid debacle is like the French debacle in 1940. If one looks at any objective criteria (number of soldiers, quality of equipment, mobilization effort), the French defeat should have never happened. Similarly, if one looks at the objective criteria regarding covid, as the October report indeed did, the death rates in the US, Italy or UK are simply impossible to explain: neither by the number of doctors or nurses per capita, by health expenditure, by the education level of the population, by total income, by quality of hospitals…

The failure is most starkly seen when contrasted with East Asian countries which, whether democratic or authoritarian, have had outcomes that are not moderately but several orders of magnitude superior to those of Western countries. How was this possible? People have argued that it might be due to Asian countries’ prior exposure to epidemics like SARS, or Asian collectivism as opposed to Western individualism.

I would like to propose another deeper cause of the debacle. It is a soft cause. It is a speculation. It cannot be proven empirically. It has never been measured and perhaps it is impossible to measure with any degree of exactness. That explanation is impatience.

When one looks at Western countries’ reaction to the pandemic, one is struck by its stop-and-go character. Lockdown measures were imposed, often reluctantly, in the Spring when the epidemic seemed to be at the peak, just to be released as soon as there was an improvement. The improvement was perceived by the public as the end of the epidemic. The governments were happy to participate in that self-deception. Then, in the Fall, the epidemic came back with vengeance, and again the tough measures were imposed half-heartedly, under pressure, and with the (already once-chastened) hope that they could be rescinded for the holidays.  

Why did not governments and the public go from the beginning for strong measures whose objective would not have been merely to “flatten the curve” but to either eradicate the virus or drive it out to such an extent, as it was done in East Asia, so that only sporadic bursts might remain? Those flare ups could be dealt again using drastic measures as in June when Beijing closed its largest open market, supplying several million people, after a few cases of covid were linked to it.

The public, and thus I think, the governments were unwilling to take the East Asian approach to the pandemic because of a culture of impatience, of desire to quickly solve all problems, to bear only very limited costs. That delusion however did not work with covid.

I think that impatience can be related to ideologies and corresponding policies that have erected economic success, ideally achieved as fast as possible (“make a quick buck”), as the most worthy objective in one’s life. It is reflected in the role that financialization had in the UK and the United States at first, but then spread elsewhere. Unlike a slow and patient effort to build things, financialization often relies on “tricks”, as shown before and during the 2007-08 financial meltdown. Its main driving force is cleverness and speed, not endurance and constancy. We crave quick success and what is quicker than becoming rich through a financial manipulation?

Impatience is also seen in huge household indebtedness, especially in the United States. A median-income household in Thailand and China saves almost a third of its income. A much richer median-income household in the United States often has negative savings. This is entirely unexpected from an economic point of view: richer households are supposed to save more (as percentage of their income and of course in absolute amounts).

Dissaving is just another way of saying that today’s consumption is vastly preferred  to tomorrow’s. This in turn shows what economists call “pure time preference”—a preference for now as such, even when one can fully account for the uncertainty about the future. Between two equally certain consumptions, one today, another tomorrow, people seem to much prefer today’s. Pure time preference is nothing else but impatience.

Kafka in his Diaries writes that there are two cardinal vices from which all others vices derive: impatience and laziness. But since laziness springs from impatience, he writes, there is really only one: impatience. Perhaps it is time to look at it.

Wednesday, December 9, 2020

Portrait of the philosopher as a young man: the first volume of Michael Heinrich’s biography of Marx

 

 Michael Heinrich’s projected biography of Marx that is supposed to consist of four volumes is an extraordinary ambitious undertaking. Only the first volume “Karl Marx and the Birth of Modern Society” has been published so far. It covers the years before Marx’s birth (because it deals with his parents) and goes up to his doctoral dissertation done in 1841, when he was 23.

The biography is extraordinary ambitious for three reasons.

First, Heinrich’s work is so detailed that it seems that almost nothing that Marx or his correspondents have written had escaped his attention. He is, of course, helped in this by the enormous collections of MEGA and MEW that were publishing for years everything from Marx’s youthful poems to his enormous reading notes. (As Heinrich writes, Marx’s surviving reading notes, that he started making when he was around 17, comprise 40 volumes!).

Second, Heinrich seems to have read closely all the previous biographies of Marx and is often very severe in his judgment, especially of the two recent ones by Gareth Steedman Jones (“Greatness and Illusion”) and Jonathan Sterber (“A Nineteenth Century Life”). As Heinrich points out, the problem is that many biographers rely on what earlier biographers have written (Franz Mehring’s Marx biography written in 1918 was especially influential)  and they simply copy things without checking. For Heinrich, this would not do—so in a number of cases he takes earlier biographers to task for being compilers of the copy-and-paste type rather than researchers.

Finally, and most impressively, Heinrich’s objective is to explain Marx’s lifelong intellectual journey This means that for a person with such vast interests and voracious intellectual appetite like Marx, Heinrich needs to provide intellectual history of “everything” from German Romantic poetry to Prussian state ideology to philosophy of religion to post-Aristotelian Greek philosophy (and this in book 1 only). One shudders to think of the enormity of the task in the next three volumes. Thus, the book begins increasingly to look more like the intellectual and political history of the 19th century Western Europe and Prussia than a biography of Marx.

But this is needed to understand the evolution of Marx’s thinking. While these intellectual movements are in most biographies dismissed in a couple of paragraphs, or at best in a page or two, in Heinrich they are of essays-like lengths. For example, parts of Hegel’s philosophy, the split into the “Young Hegelians” and “Old Hegelians’ (the traditional split of whose accuracy Heinrich is not fully convinced), the philosophy of religion derived from Hegel and the various  theological battles within Prussian Protestantism and between Protestantism and Catholicism are discussed at some 40-50 pages. Add to that the political implications of these seemingly abstruse and turgid metaphysical arguments, and we are in the thicket of the intellectual-political history of Prussia after the 1830 French Revolution and the dynastic succession in Prussia herself. Karl Marx hardly makes an appearance in these pages—but the objective is clear: we cannot understand Marx’s writings without understanding the discussions he was engaged in at the time.

Depending on one’s intellectual taste, some of these ideological currents may be of more or less interest: is one more interested in German poetic romanticism, folk tales, brothers Grimm, Heine, or in Hegel’s Phenomenology of Spirit, “natural theology”, and the various interpretations of the Old and New Testament?  Other than giving to the reader the idea of the breadth of Heinrich’s coverage I will not discuss any of these intellectual movements simply because my knowledge of them is inadequate.

So I would focus on two things which have to do with Marx’s life and intellectual evolution.

Marx’s father (Heinrich) plays an important and admirable role. His treatment of precocious and somewhat egotistic (as the father mentions twice) Karl as an equal, with whom at an early age he is engaged in many intellectual discussions, is exemplary. There are very few as supportive and generous fathers. Equally impressive are father’s leniency and patience (despite a couple of small conflicts) toward Karl during his studies in Bonn and Berlin, when Karl at times wrote home infrequently, took only the classes that he was interested in (“If you have leisure…I shall be glad if you could draw up for me a concise plan of positive legal studies that you will have gone through the year”; p. 201), and kept on spending significant amounts of money. At one point, Karl’s expenses amounted to ½ of Heinrich Marx’s not inconsiderable lawyerly income (p. 216). (Heinrich Marx was one of Trier’s top lawyers).  

The situation for Heinrich Marx became even more fraught because Karl was engaged, at first secretly and then openly, to the daughter (Jenny von Westphalen) of a close family friend.  She was four years older (big age difference in those days), her commitment to Karl was serious (she broke off the previous engagement), and she placed her full trust into a 21-year old who went to study in a big city, while she stayed at her parental home (women were not admitted to universities).

Not surprisingly somewhat fearful Heinrich Marx writes to his son: “She is devoted to you body and soul and you must never forget it; at her age she is making a sacrifice that ordinary girls would certainly not be capable of” (p. 198). Obviously had Karl changed his mind, the likelihood of Jenny, despite her good family connection, of finding another suitable husband –whom in principle she also needed to love—at the age of 27 would have been severely diminished.

There is only one point where I thought one could have a slightly different interpretation that Heinrich. In explaining Marx’s evolution from his Abitur (17 years old) to poetry-writing to his “conversion” to philosophy, Heinrich, unlike other authors, draws a straight line. While other biographers think that Marx abandoned poetry simply because he realized that he was not a good poet, Heinrich has an alternative explanation.

In his Abitur essay Marx sees the ideal future occupation for a young man (like himself) as contributing to the happiness of others: “Man’s nature is so constituted that he can attain his perfection only by working for the perfection, for the good, of his fellow-men. If he works only for himself he may perhaps become a famous man of learning, a great sage, an excellent poet, but he can never be a perfect, truly great man” (p. 107). Heinrich thinks that Marx original interest in poetry was propelled by the same desire: making the world better through artistic creation. But as he realized that this falls short of transforming people’s lives, he gradually transited towards the more serious field of philosophy.

I wonder however if Heinrich, despite Marx’s undoubtful brilliance, overestimates consistency of thinking in a 17- or 18-year old. It could be that Karl picked up poetry for the same reason that many young people at that age have an urge to express themselves in romantic terms, especially if they fall in love and feel the need to send tokens of their admiration  to their beloved (as Marx did by  repeatedly sending his poems to Jenny). It may not have had much to do with betterment of humankind.

Around the same time, in his first two years of Berlin studies, Marx was influenced  by a famous legal scholar Eduard Gans who as a liberal was the main opponent of the ultra-conservative legalist Friedrich Carl von Savigny. A couple of sentences from Gans, contrasting historical roles of the haves and the have-nots, read like excerpts from “The Communist Manifesto”. Heinrich accepts Gans role in Marx’s evolution, but dismisses its “lasting influence” (p. 172). However, it is noticeable, although Heinrich does not mention it, that among the list of classes taken by Marx in Berlin, apparently the only professor whose classes he took twice (Criminal Law and Prussian Law) is Gans. In addition, these were the only classes where his grade  was “exceptionally diligent” (pp. 170; 211).

One is looking forward to the other three volumes. If they are like the first, it will be an incredible “tour de force” since Heinrich will have to cover everything  from philosophy to political science to political economy to agricultural techniques to military strategy to anarchism—and indeed the political history of the 19th century Europe and the world. A gigantic undertaking that only very few people in the world can bring to fruition.

Marx was one of them. But he failed to write his autobiography.

Tuesday, December 1, 2020

Basic difference between wage inequality and income inequality studies

 I recently wrote in the anticipation of the arguments I will make in my forthcoming book that the period 1970-2000 was extraordinary barren in Western economic studies of inequality. It was similarly empty as regards inequality studies in communist economies. Only in Latin America was the situation different.

Some people objected to this by pointing to a significant number of wage inequalities papers produced in the US and elsewhere. There are indeed many them.  There is also a very successful book by Claudia Goldin and Lawrence Katz  “The race between education and technology” that takes its cue from Tinbergen’s 1970s writing on the education premium and his expectation that the premium to college education would go down to zero due to a high supply of university-educated people. It is not my topic here to discuss why this did not happen, or rather why the opposite, the increase in returns to education, occurred in the United States and elsewhere. What I want to show is that studies of wage inequality cannot be taken as equivalent to what we ideally expect from the work on income inequality. There are two reasons for this: technical and ideological.

Let me start with the technical. When we observe, for example, an increase in wage inequality and calculate all relevant statistics, whether it is driven by increased wage inequality among women or men, Blacks or Whites, more educated or less educated, we still know nothing about household formation. It could be that high-wage workers marry low-wage workers or the reverse. Or that they marry capital-owners or the unemployed or people outside the labor force. Or that many wage-earners do not partner at all. Each of these possibilities has significant and very different implications; yet they are, by the very nature of the topic, entirely unaddressed. The units in wage inequalities studies are different from units in income inequality studies: individual workers vs. households (I will explain below why this is of crucial importance).

Additionally, wage studies leave out large chunks of what makes inequality: they leave out “income without work” which comes from property (dividends, interest, rents), capital gains and losses, and the entire system of redistribution through direct taxation and government cash and in-kind transfers (e.g. Social Security benefits and SNAP, formerly known as food stamps, in the United States). They also leave out self-employment income, home consumption (i.e. own produced and consumed goods and services), and imputed income from housing, all items of crucial importance in middle-income countries. Wage inequality studies are even of lesser relevance for poor countries where formal wages often represent 1/3  of total income.  

In other words, wage inequality studies deal with the distribution of income from one factor of production (labor) among wage-earners—which is indeed important—but ignores everything else: (1) the other factors of production, capital and land, which because of their concentration among the rich are often the most important determinant of inequality, (2) the entire system of government redistribution, (3) self-employment income and home consumption, and (4)  family formation.

But the principal problem is that they miss why we care about inequality in the first place. Inequality is created and reproduced at the level of household not at the level of individual wage-earner. It is total household income, adjusted for the number of individuals, that makes families rich, poor, or middle class and imparts them corresponding values. The socialization is done within households not within (whatever it may mean) individual wage-earners. It is the processes of mating, household formation, as well as contribution of other sources of income that create rich or poor households, social classes, and most importantly, by differentiating opportunities at birth, allow for the reproduction of social inequities.

We study inequality because we care about social classes and their ability to transmit advantages across generations and create self-sustaining “aristocracies”. The concern with returns to schooling is surely one of the issues, but far from the most important. (The importance of wage studies is greatest in matters such as union premium or determination of CEO pay.)  People who care about inequality are equally concerned about social factors that make access to education uneven as about the fact that the returns to schooling may go up.  

Wage inequality studies belong to the area of labor economics. It is an important, but subsidiarity, field to inequality studies. Their position is similar to that of wage studies as affected by trade. The latter belong to trade economics, not to inequality studies.

Conflating studies of wages, whether from labor or trade economics, with studies of inequality is not only inaccurate. It displays a profound incomprehension of why we care about inequality and what is the real objective of such work: figuring out the fundamental determinants of class structure and its effects on politics, behavior and values, and transmission of such characteristics across generations.

Tony Atkinson in his 1975 “The Economics of Inequality” did not survey Tinbergen's wage inequality work. In his 1997 review article, he wrote: “It is indeed striking how much the recent discussion has focused exclusively on wage differentials and not asked whether such differences are associated with [income] inequality” (Economic Journal, 1997, p. 311).  Rawls likewise thought that while inequality has to be limited both in terms of capital and labor incomes, the key concern ought to be with inequality of overall income and household-driven reproduction of such inequality.

It is important that the logic and the objectives of inequality studies be correctly understood. Such studies are at the intersection of economics, politics and sociology, and perhaps anthropology.  Not understanding it correctly is likely to lead to many mistakes.