“Dealing” in Politics and Economics

A major conceit in modern economics, at least since Edgeworth, underscored by this article is the almost willful disregard for the distributional aspects of economic activity.  International trade, specialization, and technological change are typically viewed through the rose-colored glasses of the possibility of Pareto improvement, that is their potential ability for raising the well-being of all the participants in the economic process, NOT whether they actually do.  Seen through this prism, problems such as inequality, literally, make no sense at all.

Where politics and economics meet, however, questions of distribution and production cannot be separated.  In an Edgeworth-esque universe, the textile workers and workshop owners would enjoy mutual veto power over whether the newfangled  machinery would be adopted:  in order to take advantage of the productivity advantage of the machinery, the owners would commit to compensating the workers at least as much as they earned before as precondition for substituting capital for the labor, so to speak.  In practice, this is rarely the case:  the owners simply substitutes the capital for the labor and fires the labor, or threaten to substitute the capital for the labor and force the labor to work cheaper than the price of the machine.  If, however, the owners sought to negotiate instead, there is every reason to expect that the labor should seek to extract as much of the surplus generated from the machinery for themselves as possible.

The bottom line is that there is a zero-sum dimension to every game, even those involving potential positive sums.  As it were, there is no guarantee, with application of unequal bargaining power, potentially positive sum games should lead to positive sum games necessarily.  After all, expropriating surpluses, whether from workers or from consumers, is often easier than creating genuine improvements in productivity.  On the other hand, building and sustaining actual positive sum games, even when the possibility exists, is not easy.  This is the real substance of good, virtuous politics.  It requires an ability to commit to making acceptably equitable divisions credibly, for all parties involved.  This, in turn, demands creation and maintenance of institutions that, quite literally, all the parties to the game can believe in.  Dirty tricks in rigging the game in favor of the agenda setters is the last thing in the universe that can foster this trust in the long run.

This is not a new problem for political science:  Stephen Krasner had famously written about bargaining at the Pareto frontier as the core of the “political problem,” where finding new, mutually agreeable possibilities are rare.  However, this illustrates yet another problem with the way this challenge has been approached:  we are having a crisis of trust not because we are approaching the Pareto frontier, but in spite of the great surpluses.  The times of great politico-economic upheavals, mid-19th century that gave birth to Marxist theories, the early 20th century that led to the world wars, and apparently, the early 21st century that gave us these interesting times, are not times of scarcity but periods of plenty, where new technologies are producing vast surpluses that should have opened a vast array of possibilities for coordination, not bargaining, to use the lingo adopted by Krasner.  Instead, we saw the players who gained in bargaining leverage retrenching and their opponents adopt the rhetoric of the zero sum game, with the resulting conflict between them threatening to destroy the surpluses themselves that they were attempting to divide.

If anything, Donald Trump actually understands the problem of the distribution better than Adam Davidson does:  the attempt to coordinate the division of the spoils fails because the state is weak and is unable to force the parties in dispute to commit to a compromise.  As I noted earlier, successful authoritarians are characterized by a fairer, if rather ham-handed, distribution of the spoils in their societies.  The “democrats” who challenge them successfully are those who can, on the strength of their numbers and organization, who seek to keep all the spoils for themselves and give nothing to the minorities and the potentially marginalized.  Davidson’s article actually recognizes this without noticing the irony.

I have little expectation that, based on his performances so far, Trump will turn out to be an actual successful authoritarian.  “Successful” authoritarian regimes are built on the backs of an army of competent bureaucrats who manage the immense machinery of redistribution, like the old Soviet Union, or a rigid social norms that dictate the appropriate social stations of its members and the corresponding assignment of the loot, like the Medieval Europe–especially the old Polish-Lithuanian Commonwealth–or feudal Japan.  Obviously, these are not societies one should aspire to emulate:  the enforced “equality” leads to stagnation.  As it were, Trump reminds me of a Mussolini or Hugo Chavez, a showman rather than a leader.

Of course, one reason Trump, Chavez, or any other revolutionary authoritarian emerged was because capitalism and democracy too become too institutionalized and ossified in its workings.  The insiders rig and retain the goodies only for themselves and their friends, with limited possibility, if any, for those not part of the machinery to challenge it.  In this sense, they become a caricatured mirror image of the “egalitarian” authoritarian societies. The conceit of the Polish-Lithuanian Commonwealth was that all the szlachta, the nobility, were equal, and this equality, in the end, was built on the backs of the peasants who were permanently exploited to provide the resources necessary.  The conceit of the modern democracy is that to the winner belong the spoils–and the winners rig the institutions to ensure that they keep winning so that they can permanently exploit the losers.  Much the way feudal or authoritarian equality is subverted by the class division, democracy is subverted by institutionalization–without the chance for the bottom rail to go on top with some frequency, without a pinch of Arrovian chaos, democracy is unstable.

Thus, Trump is leading the Ukrainian peasants to burn the Polish knights’ castles.  We also know that most of these revolts did not succeed, until the Tsar sent his armies to help the peasants crush the knights–after the Commonwealth fell.  Much the way the peasants were reviled as embodiment of Tsarist tyranny and oppression of Polish liberties by the knights’ descendants, Trump is seen as an enemy of all that is decent.

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One thought on ““Dealing” in Politics and Economics

  1. frozengarlic March 22, 2016 / 6:35 am

    A couple of thoughts. One important element in this crisis of trust involves labor unions. Labor unions are the most important institution with the capacity to ensure that some of those gains are shared between capital and labor. Unfortunately, unions are slowly being strangled to death in the USA. Part of this is due to a mismatch in unions and productive sectors. There is not nearly as much surplus value being produced in, say, the auto industry as in the tech industry. However, just as much of the crisis is due to politics. If politicians empowered unions in the 1930s and 1940s to play the role of workers’ advocates, they have systematically disempowered unions in the past few decades.

    The other thought is that we continually underestimate the transformative effect of WWII on domestic American politics. It not only redistributed wealth much more evenly, it also produced a more consensus oriented politics. I have a strong notion that the ideals of non-partisanship in the 1950s and 1960s in foreign policy, TV news, SCOTUS confirmations, etc owed a strong debt to the idea that the entire country had to work together in a nonpartisan fashion to defeat Japan and Germany. As the unusual sense of togetherness from WWII fades, American society becomes more like 19th century Europe or 1970s Latin America, in which the wealthy see more in common with the elites from other countries than with the ordinary people of their own country. There is, thus, less of an inclination among the rich that they “should” share any wealth with the rest of society.

    Like

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