The Disappearing Invisible Hand or The Shortcomings of Free-Market Capitalism
I approach this topic in fear and with trepidation. I am fearful of provoking those with whom I disagree and of the chance that I may unconsciously transmit misconceptions and faulty presumptions that may lead some astray. I fear my ignorance and naïveté, my idealism and my stubbornness, but I also feel it necessary to communicate to you my thoughts regarding the state of the world, specifically as it relates to economics. I hold no academic positions, have no degrees in the fields pertaining to such a discourse, and little experience in anything economical, but no matter. In fact, as a newcomer to the frightful reality we call adulthood, I may be able to offer a unique perspective. I hope that what I write not be taken as political invective against specific groups, or governments, but rather that the following short analysis provoke a discussion about the values we hold dear, the consequences of our actions, and the purpose of it all.
I will begin with a short review of Thomas Piketty’s important report on economic inequality, followed by a more general analysis of the problem at hand.
Thomas Piketty, a middle-aged French economist, published a startling book in 2013 called Capital in the Twenty-First Century. While it may not seem too breathtaking from just the title, his work, described as “revolutionary” by Paul Krugman in the New York Review of Books, is an important entrance into the world of economic analysis of social inequalities. By delving through mountains of data gathered through painstaking research, Piketty succeeds in giving us an idea of what the world’s economy looked like from as far back as before the French Revolution. He does this through analyzing records of estate/property and income taxes and any information about GDPs of individual countries (mostly the U.K., France, the U.S. and Germany), national incomes, debts, and much more. What he finds surely startles the reader: Following the development of the agricultural and industrial revolutions, the already heavily-landed aristocratic minority gained much in terms of power and wealth. In what he calls the “society of the rentiers” (i.e. someone who accumulates much capital and rents to the less fortunate, for more profit), the upper middle class and small minorities of such a stratified society received the bulk of the profits of the 19th century. In enlightened French style, Piketty makes use of examples taken from Balzac (Père Goriot) and Austen (Pride and Prejudice) which clearly portray some of the characters as lacking nothing, living off of public bonds (with small but steady rates of return), while the masses wither on the side. While industry and agriculture changed much in the late 18th century and throughout the 19th century (aka the period known as “La Belle Époque”), the majority of the population saw a much smaller gain from such progress, as they more or less shifted from laborious agricultural jobs to working long hours for meager pay in the factories. That changed, though, toward the end of the 19th century. Marxism began to usurp some of the power of the factory owners (or owners of capital) through syndication and strikes. Higher wages, coupled with governmental regulations banning the atrocities of child labor and dangerous occupations, meant that less of the money went straight to the pockets of the capitalists, but rather was spread more universally, however thinly, to the proletariat masses.
This slow trend toward more equality took up sudden steam starting with World War I. Much property was damaged in the war, but more significantly, many of the countries built up significant debt on account of the war. As a result, in an unprecedented move (at least since the time of Napoleon), the governments began to print more money and issue more bonds, driving inflation upward. This resulted in a deflation of existing capital value (especially since much of it was in government bonds). That, combined with the shock of the Great Depression, the loss of foreign incomes (i.e. colonies), and more government intervention (taxes for social programs) and oversight, significantly reduced the inequality of wealth accumulated by the rich. In fact, the rate of inequality continued to decline until the mid-1970s, but picked up again and now nears the rates once observed on the eve of World War I. For the moment, most of the inequality is manifest in the extravagant salaries of the rich, but it is not inconceivable that higher incomes will eventually translate into higher accumulations of capital (e.g. real estate, financial assets, stocks, and bonds).
I hope that was detailed enough to satisfy those with an economic leaning, while not too boring for those less interested. In short, the state of today's inequality has returned to pre-World War I levels, our policy makers have apparently ignored much of the past century’s warning signs and have reverted back to less satisfactory economic policies (personal/corporate tax breaks for the rich, fewer entitlements for the poor, leading to a highly segregated and stratified society). Piketty criticizes what he calls the new “Belle Époque” (or what Krugman calls the “New Gilded Age”) and advises that governments take more responsibility on economic matters. He calls for taxes on inherited wealth and more transparency when it comes to such things as inflated salaries, predatory lending, etc. He warns that increasing inequality must have destabilizing effects on the individual and world economies, and on the government itself. While he easily points out the problem, we don’t find out what the ideal society might look like. He contends that some inequality will most probably exist in any society, but argues that today’s situation appears to be unsustainable (especially since it is getting more stratified).
[caption id="attachment_5759" align="aligncenter" width="700"]
The computer Watson wins at Jeopardy. Computers like him threaten many jobs with obsolescence.[/caption]
Now, in theoretical terms, I would like to introduce you to some of the ideas that may, in effect, give us the best understanding of what a just society may look like. With that, what better place to start than the Pentateuch!
“And you shall sanctify the fiftieth year, and you shall proclaim liberty throughout the land for all its inhabitants — it shall be a Jubilee for you, and you shall return, each man to his possession, and each man to his family… And the land shall not be sold forever — for the land is Mine, for you are strangers and sojourners with Me” (Leviticus 25:10, 23).
Clearly the Torah does not allow for too much accumulation of capital. Every 50 years the Jubilee comes along and snatches up all of one’s achuzah, or capital (whether it be human or real-estate), and returns it to its rightful owner. In fact, the purpose of this commandment is exactly to counteract any accumulation of wealth that may occur over the period between Jubilees. All shares in Eretz Yisrael are meant to be equal, and thus by divine edict must remain so. In addition to the Jubilee, tithes for the Kohanites and Levites (who don’t own real-estate) and charity for the poor are all central to the Torah’s idea of social equality. They don’t preclude the immediate accumulation of wealth, but reinforce the notion that God retains possession of all land and that human claims of ownership are meaningless (“for the land is Mine”).
In a slightly different direction, some of the more famous social philosophers have advocated for equitable use of land and natural resources. New Rochelle resident Thomas Paine, famous for writing “Common Sense” (1776), a pamphlet promoting self-rule and democratic government that sparked the American Revolution, also printed a pamphlet entitled “Agrarian Justice” (1797). In this work, he provocatively states: “There could be no such thing as landed property originally. Man did not make the earth, and, though he had a natural right to occupy it, he had no right to locate as his property in perpetuity any part of it.”
In contrast to the European system of private landed property, he sees in the Native American concept of shared ownership a model for a more just society. He advocates for a tax on landed people to pay for the needs of the poor “To create a national fund, out of which there shall be paid to every person, when arrived at the age of twenty-one years, the sum of… as a compensation in part, for the loss of his or her natural inheritance, by the introduction of the system of landed property.” This is called a Universal Basic Income, a highly controversial policy that guarantees a minimum monthly allowance for all citizens. While only a few such programs actually exist today, many governments are contemplating instituting more of them (notably Finland). One example of such a program operates in Alaska, where all residents receive around $1,200 every year (much less than Paine’s sum) in dividends from the oil extracted from public lands.
Other like-minded philosophers include Marx (Das Kapital), Charles Comte (Traité de la propriété), and Pierre Proudhon (“property is theft”). However one goes about it, most of us have come to accept the institution of private property with caveats. Some, many of them communists, call for the complete annihilation of private property, while some call for little regulation and truly free markets. While I do not have the space nor interest in involving myself in the philosophical confrontation such opinions entail, I may assert that for most of us private property is a given, just as long as it doesn’t get out of hand. John Locke, an advocate of the “social contract,” may have argued that unjust economics would be untenable, just as tyranny and other forms of injustice violate the contract. I hope it is clear to most of us that injustice of any sort is intolerable and should be remedied.
The question then resides in the purpose of society and its evaluation of work. To most of us, work defines us. What do you do? Vos machst du? How are you doing? If we would not do, if we would only idle by, we would surely shrivel and cease to be. We surely must always be doing something! The problem facing today’s generation, though, throws a wrench in this line of thinking. We have come a long way since the Agricultural Revolution of the 18th century, and today only 1% of all labor is devoted to agriculture/food production! It appears that God’s curse to Adam, “the land shall be cursed for you, you shall eat of it in sorrow for all the days of your life” (Genesis 3:17) has lost its oomph. America has stockpiles of food, and most people in the developed world have never experienced a food shortage. In the past, the curse transformed into “a curse of the assembly line,” but nowadays even that is in decline. In 2014, industrial occupations (manufacturing, mining, etc.) accounted for only 12.7% (and falling) of all labor. Most other sectors have picked up the extra workers, but even the “services” sector now strains under the overabundance of job-seekers. Many college graduates are seeking low-paying jobs, jobs never considered adequate for a college grad, and are contributing to degree inflation. Nowadays you must have a degree, or else face rejection for menial tasks such as office courier or file clerk! With the advent of Artificial Intelligence, many other positions are under threat and economists are at a loss as to what the future will look like. We call the phenomenon “technological unemployment,” and it dates back to the original Luddites of the early 19th century. When industry began to automate, people feared the loss of jobs that technology would bring, but many didn’t understand the full societal implications of such a dramatic change in the economy. In “Economic Possibilities for our Grandchildren” (1930), John Maynard Keynes, the renowned economist, explores the challenges that we face today. He argues that we must change our outlook in order to fully enjoy the benefits of modern technology:
“If… we look into the past-we find that the economic problem, the struggle for subsistence, always has been hitherto the primary, most pressing problem of the human race… if the economic problem is solved, mankind will be deprived of its traditional purpose. […] Yet I think with dread of the readjustment of the habits and instincts of the ordinary man, bred into him for countless generations… Must we not expect a general “nervous breakdown”? […] Thus for the first time since his creation man will be faced with his real, his permanent problem-how to use his freedom… how to occupy the leisure… to live wisely and agreeably and well. […] For many ages to come the old Adam will be so strong in us that everybody will need to do some work if he is to be contented.[…] When the accumulation of wealth is no longer of high social importance, there will be great changes in the code of morals […] We shall be able to afford to dare to assess the money-motive at its true value. The love of money... will be recognized for what it is, a somewhat disgusting morbidity.”
He concludes with a prescription: “I set us free, therefore, to return to some of the most sure and certain principles of religion and traditional virtue.”
Time is running out. The clock ticks and the “dread” pervades us with feelings of lack of purpose and meaning. Subsistence is no longer the driver of society, nor should it be. We are blessed to live in times of material abundance, but society needs purpose, and, as a nice Jew once put it: “the times, they are a-changin’.”
--
“All the nations you have made will come and worship before you, Lord; they will bring glory to your name” (Psalms 86:9).
