Politics v. Economics, ctd

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Mark of New Jersey

Mark is a Founding Editor of The League of Ordinary Gentlemen, the predecessor of Ordinary Times.

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  1. Avatar nadezhda
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    Thanks for the pointer to FLG’s response to my and others’ comments. I came in to the middle of a conversation, and I see from his response where some of our views actually coincide. My bad. I should have done a closer reading on his capital controls discussion before I fired off the howitzers.

    However, I nonetheless think there’s a good deal of ideology (whether you want to call it normative or not) embedded in his “positive” claims about markets and “regulation” with which I strongly disagree. So my comment on your earlier post still holds to the extent I addressed the reason why you quoted FLG.

    You observed: FLG has put forth a separate time horizons theory about the difference between politics and economics, which I think provides a useful way of thinking about markets vs. politics. As you’ll see from my comment on your post, I think it’s potentially a rather pernicious way of thinking about markets and politics since it oversimplifies how markets really work and sets up a set of false dichotomies (as well as replicating some unhelpful stereotypes about what supposedly motivates “progressives”) .

    That is not to suggest, however, that the interaction between politics and economics isn’t important. But we won’t understand either if we insist on artificially segregating them, rather than teasing out how specific elements interact within the intertwined and inseparable complex that is governments-and-markets. Let’s bring back Political Economy!Report

    • Avatar James Hanley in reply to nadezhda
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      Let’s bring back Political Economy!

      Out of curiousity, are you familiar with public choice theory? It’s probably the most active approach in political economy today (which shows that political economy hasn’t gone away, so doesn’t need to be “brought back). And while public choice theorists do tend to focus specifically on “teasing out how specific elements interact” between governments and markets, they almost unanimously would agree that politics and economics have different time horizons. I don’t see that the two ideas are contradictory at all–indeed some of those interactions are clearly a consequence, or are shaped by, the different time horizons. There’s really nothing pernicious there–it’s just a recognition of an empirical reality that is one of the factors shaping the interactions.

      Heck, my kids and I are an “intertwined and inseparable complex,” where “specific elements interact,” but one of the most distinctive features of our family complex is how different their time horizons are from mine.Report

      • Avatar nadezhda in reply to James Hanley
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        LOL! Though depending on how young your kids are, I’d wager that “life-expectancy” doesn’t equal “time horizon” as part of their decision-making calculus.

        Yes, I’m familiar with Public Choice. And I think it has produced lots of very valuable insights which I’ve taken on board as almost axiomatic. But that’s not what I meant by Political Economy, of which Public Choice would be a narrow subset with its focus on activities and players in the more formal “public sector” that we identify with “government” of the modern state.

        By Political Economy I mean the broader view of how rule sets are established and enforced that determine (1) what gets produced, traded, financed, etc., (2) how, (3) by whom, and (4) who gets the goodies. From that view, “government” isn’t set up in opposition to “markets:” it’s just one (potentially very powerful) means among many by which an economic system is ordered and one (potentially very important) economic player in that system. (Caveat — an “order” isn’t necessarily orderly; it can be dysfunctional and even produce chaos.) So, for example, we can examine the political economy of feudalism, even though there’s not much we’d recognize as “government” or “market”.

        It’s true that Public Choice can be an approach to Political Economy — Mancur Olson used it to great effect in The Rise and Decline of Nations. But it’s been associated more typically with “political science” as a useful tool for understanding the workings of Western democracies and the modern bureaucratic state. What is usually being analyzed is a “government,” typically in its constituent parts, like legislatures or bureaucracy, and processes, like voting or lobbying. Analytically, this “government” is seen as something that acts or is acted upon, distinguished from those “non-governmental” actors who try to influence or escape the “government” qua actor. Consequently, the very framing of the questions Public Choice is often employed to examine sets up a government/non-government (or for economic policies, government/market) dichotomy. Very useful for analysis, and it maps on to reality fairly well when the subject we want to analyze is “government”.

        Now, as for the “time horizon” matter. Because so many of the exercises in which Public Choice is employed deal with processes oriented around political “events” (an election or series of elections; the development and passage or failure of legislation, etc.) the “politics” dimension is by definition a potential change or variable within a discrete time frame as against an “economics” dimension that’s either assumed to hold constant or changes as a result of “politics”. So in that type of analysis, yes, politics is “short-term” and economics is “long-term”.

        My point, however, is that a government/market opposition doesn’t map very well onto reality when we want to understand political economy. That’s because the government/market dichotomy implicitly assumes that there’s a market with a (long-term) life of its own into which (short-term) government activity can only be “interference”.

        However, markets not only employ but, in effect, embody rule sets — especially the case with financial markets, where the very “things” being transacted are creatures of, and have no reality independent of, legal rules and standard market practices. Most of the rules that make it possible for modern markets to operate are governmentally-supplied, or are market-supplied rules that take the legal/regulatory (including judiciary) system as their starting point.

        To use a software analogy, the rule sets form the operating system on which individual market apps (institutions, products, markets) depend. And the time-horizon of the operating system is far more long-term than the time horizon of the apps. As individual players are constantly developing new apps in search of profits, they rely heavily on the time-consistent predictability of the “operating system”.

        To extend my analogy further (perhaps beyond the breaking point) — what we’ve seen in the past few years in the global financial system is that the apps (many of which were hard-core porn with a bunch of Flash technology) have been crashing the operating system to the point where it’s hardly functioning. And to extend the analogy further, the government doesn’t just supply core parts of the OS, it also develops and markets apps (e.g. garden-variety Treasury debt management, the Fed’s daily Open Market Ops, its emergency lending facilities, QE1 and 2, etc.; and on the fiscal side, tax deductions and credits that privilege certain types of financial assets or activities over others, etc.). So, an analysis based on government/market opposition confuses the OS (both government and market-supplied rules) with apps (both government and market-developed and sold institutions, products, etc).

        We’re now having a bunch of battles over how to update the global financial OS and which apps shouldn’t be allowed to run, given their propensity for crashing even an updated OS. And making it more complicated to reach agreement, we’re in the midst of a further battle, epitomized by this week’s Irish-EU debacle, over who bears the cost of all the previous crashes and who’s going to pay for transitioning to an updated OS and rewritten apps. Right now, it’s hard to see how we get to where we need to go from where we are today.

        A similar process happened in the Great Depression, and the battle over what changes needed to be made in the operating system, and which apps would be allowed to run on the updated operating system, resulted in Glass-Steagall, the FDIC, etc. We proceeded for decades with only modest incremental changes to the OS. By the time we revoked Glass-Steagall, it had already been pretty well dismantled in a number of specific areas, so the final step wasn’t seen as a whole new version of the OS. In retrospect, however, the amount of gradual change from OS 1.0 (1930s) to OS 2.0 (1990s) was huge.

        We should have learned from the financial crises of the ’70s and ’80s that the OS was buggy and missing some core elements necessary for the OS to run apps — not just new but old apps — without crashing. Instead, we seemed to think the only problem was we weren’t letting software developers invent new apps. So without fully appreciating what we were doing, we went from a heavily patched-up but functioning XP to Vista. And at the same time, we opened up the system to any and all app developers, provided them inadequate API, let them write code that willy-nilly virally modified the OS, and helped them market their buggy virus-infected apps to unsophisticated users around the globe. Steve Jobs would never have allowed such a situation to develop on his watch!

        [Though it’s been decades since I read Rise and Decline of Nations, it occurs to me that my picture is somewhat Olson-esque, in its tale of the inertia of institutional arrangements that eventually produces huge gaps between the type and scale of problems that need addressing and out-dated institutional capacity, as well as the problem of path-dependency. I do think Olson would disagree with assigning “long-term” to economics (in any sense other than long durée) and “short-term” to politics, since at the heart of his story is the failure of politics, trapped in older power relations, to make institutional adaptations required by economic change. Here’s hoping that reconstructing a functioning financial system won’t require a Dresden or Hiroshima-style global economic and political meltdown to create the ashes on which a new financial system will arise.]

        Now, Public Choice is a terrific tool for understanding the politics of the current battles — the dysfunctional dynamics of (not) achieving agreement on how to update the OS and how to determine which apps will be allowed to run on the updated system. But since Public Choice most often analytically posits a “government” (i.e. Apple) that acts upon, and in turn is acted upon, something separate called the “market” (i.e. developers), it rather naturally sets “regulation” against the “market”.

        That artificial but useful analytical divide is, however, actively unhelpful in understanding the content of the rule sets which are being fought over when it comes to how the OS and apps interact and what needs to be done to bring the OS and apps back into a new working order. “Regulation versus the market” doesn’t map onto that reality, and the artificial dichotomy makes it all too easy, without malice aforethought, to unconsciously slip a bunch of “normative” assumptions into an inadequate “positive” analysis.

        FLG’s organizing principle of the tension between (short-term) politics and (long-term) economics overlooks key pieces of the picture that display a quite different functional division of institutional structures and a different time-frame dynamic. It also makes it too easy to ignore Pogo’s lesson, of which Public Choice often reminds us, that we have met the enemy and he is us.Report

  2. Avatar Fear and Loathing in Georgetown
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    nadezhda:

    I think it’s a difference in approaches. My take, economics and politics in tension, is more of a theoretical approach. Somebody like Locke explains how private property and markets can evolve and exist in the absence of government. And I find that approach useful for describing the interaction between markets and politics.

    Your approach, as it seems to me, is that’s great, FLG. But here in the real world in which we live markets don’t generally exist in some vacuum without government. Therefore, it’s better to assume government and markets will be intertwined and proceed from there.

    Perhaps those are normative assumptions on each of our parts, if I’m reading you correctly, but I like to think of them more a differing approaches to the same problem.Report

    • Avatar nadezhda in reply to Fear and Loathing in Georgetown
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      FLG —

      I hope my reply above to James Hanley (re the advantages and pitfalls of using Public Choice-style theories for political economy) is also responsive to your view of our competing analytical models. As you’ll see from my reply, I don’t think it’s quite as simple as “theoretical” versus “real world”. I also tried to address the “time horizons” question.

      However, your comment on Locke got me doing some further musing. So just for fun, here are some thoughts somewhat relevant to choosing and using analytical models, taking Locke’s “Property” (which is splendid) in his Two Treatises as a text. I’m going to work from memory so it may be a bit sloppy.

      Anyhow, let’s think about some of the reasons why Locke probably chose to invent a model that extracted government from his picture of society. Why did he hypothesize a state of benevolent social organization that, prior to the establishment of government, recognized the institution of property and property rights? As you’d probably expect me to say, I don’t think he was primarily concerned with segregating the domains of politics and economics, either practically or analytically. Rather, in writing the 2 Treatises, he had a complicated agenda that had both immediate and longer-term objectives.

      To briefly rehearse the history. Locke wrote the 2 Treatises about a decade before he published them, in 1690 after the Glorious Revolution. The occasion of Locke’s writing the 2 Treatises was the intense conflict between the two political factions, Whigs and Tories, that were then emerging in the late 1670s. Their conflict at the time focused especially on attempts by the Whigs, led by Locke’s employer (1st Earl of Shaftesbury), to force Charles II to exclude his Catholic brother, James, Duke of York, from the succession. But the Exclusion Crisis was just one part of a wider politico-theological conflict over the nature of sovereignty that disinterred all the debates of the Civil War and Interregnum that the Restoration was supposed to have peacefully laid to rest.

      So Locke’s near-term objective, to support Shaftesbury’s raw-knuckled politics, was (1) to provide grounds for the assertion by Parliament of its rights to determine who would be king (or at least to define the manner and criteria of selection) and (2) to support the broader Whig assault on what they viewed as Charles II’s moves toward “arbitrary government and Popery”, especially as Charles II employed the royal prerogative. (Shades of his father’s fatal flaw, in Whig eyes.)

      Foreign policy was the most obvious arena for conflict between Charles and the House of Commons, which controlled the purse-strings. But Charles was also suspected of being a bit too fond of his cousin Louis XIV’s model, with its attempts to centralize and rationalize political and religious authority and extend the monarch’s influence into numerous areas of society and culture. It’s only in retrospect, however, that the Two Treatises seem tailor-made for justifying the more radical Glorious Revolution of a decade later which overthrew the monarch.

      Locke’s primary target, and the focus of the 1st Treatise, was the theory of absolute “divine right” monarchy of Filmer’s Patriarcha, which though written earlier in the century had found new popularity in the context of the raging political battles. Filmer’s was an extreme version of the doctrine of passive obedience preached constantly by the Anglican clergy in nearly every parish of England from May 1660 onwards, especially but not exclusively on the anniversary of the exemplary martyrdom of Charles I.

      Filmer grounded his assertion of the absolute sovereignty of kings on Genesis — God’s grant of the right of rulership to Adam. Not only was Adam a God-designed and mandated patriarchal model for all humankind’s future politico-social relations. Today’s kings were actual heirs of Adam’s divinely-granted rights of absolute dominion who could trace their sovereign rights (which were interests transferred by inheritance) directly back to the first man.

      So according to Filmer, government, property, and the rights of absolute sovereignty of kings were coeval direct creations by God at the origin of humankind. And accordingly, God’s law, which obligated complete obedience to divinely-endowed absolute sovereigns, preceded society.

      In the text of “Property” that you linked to, Locke doesn’t fight Filmer by rubbishing Genesis as a just-so story. Rather, he reads Genesis in a radically different manner. For his purposes, which require that government and sovereignty are human constructs, not divine, Locke needs for society to be prior to government. So he takes up the cudgels of theological jurisprudence — please note, this is all as much juridical as political or economic — and focuses on the part of the creation story where Adam is given dominion over the earth and its creatures. And like a good natural lawyer well-schooled in Latin, he distinguishes between the general, undifferentiated dominion of use or enjoyment shared by Adam’s successors from the process, which Locke elaborately describes, by which “property” becomes differentiated and recognized via the fruits of labor and then effectively institutionalized as part of the customs and practice that organize society. It’s only after a society with acknowledged property rights has emerged that we can reach Locke’s stage of government formation, where the (conditional) right to rule, and reciprocal obligation to obey, is established by social contract.

      Accordingly, under Locke’s just-so biblical story supported by anthropological appeals to what was then known of Native Americans, Property becomes for Locke a natural right, but not a God-originated right in Filmer’s sense. Rather, it’s “endowed by the Creator” in the sense that it’s derived from how God created human nature, which is what determines how humans relate to one another as social and rational animals. Accordingly, Locke’s Property only gradually emerges in society, and it is necessarily prior to the development of contract or government. Sovereignty, human-defined “law,” and the magistracy of rulers who deliver justice arise as totally human constructs only as men agree to form a government.

      So by extracting government from Filmer’s Genesis story and, while retaining the biblical narrative, placing government after the creation of society and Property, Locke’s theological jurisprudence puts paid to “divine right” nonsense. But he’s still left with an opponent he doesn’t address directly, as he did with Filmer, but who is just as dangerous.

      Hobbes’ Leviathan State is also an absolutist ruler, though the State can be a monarchy or republic. Hobbes’ ideas could be used not just to support Charles I’s claims to personal rule but to justify the “Parliamentary dictatorship” of the Commonwealth or Cromwell’s increasingly absolutist rule as Protector.

      The Leviathan’s absolutist logic relies, not on Genesis, but on an assessment of human nature that explains the creation of government as a response to fear of man’s short, brutish life in the state of nature. Hobbes assumes (with some justification, considering the Wars of Religion, Thirty Years War and the English Civil War) that men are subject to a compelling motivation to contract for the protection of the State by granting the State absolute sovereignty. The timing of how the social contract is made and how many steps are required to create an absolute obligation of obedience gets a bit tricky to follow, and as I understand it, Hobbes changed his mind over some details of his just-so story. But his basic scheme is that, in the state of nature, the only natural right (God-given if you believe Hobbes wasn’t an atheist) is to self-preservation. For Hobbes, all further “rights” (property, contract, etc) can only be established by a human law-giver, which is the sovereign created via the social contract. Men’s rights are, therefore, effectively conditional in that they remain subject to the absolute authority and will of the sovereign which they created by contract and which they unconditionally promised to obey. (The only right which men retain vis a vis the State is the fundamental “natural right” of self-preservation — which leads Hobbes to the rather peculiar stipulation, for one of absolutist bent, that men have the right to attempt to escape capital punishment which has been imposed by the sovereign, even when in accordance with law and due process. It also gives wiggle room for resistance theory, but that’s for another discussion.)

      Locke has to demolish Hobbes’ absolutist logic. So he first and foremost must challenge the “fear factor” which is the psycho-sociological basis of Hobbes’ absolutism. Among other examples, Locke again uses his North American anthropology to explain why society, prior to the social contract that forms government, isn’t simply a state of fear and personal uncertainty and overwhelming anxiety. And crucially, Locke locates the creation of “natural” rights to Property in pre-government society. So Locke’s just-so story gives something meaningful to bargain on both “sides” of the contract — the subject promises to obey the sovereign as long as the sovereign lives up to its side of the bargain to protect life, liberty and property. The subject’s rights aren’t created by the sovereign, and the sovereign’s rights, which are created by contract, aren’t absolute but conditional.

      Locke has now produced a coherent theoretical system, based on observable human behavior, which dismantles the abstract arguments for absolutism — both Filmer’s politico-theological model and Hobbes’ psycho-sociological model. And if that’s all Locke had to worry about, he could leave his tale of a benevolent pre-government social order as an abstract model that’s not historically particular but is useful analytically.

      In his chapter on “Property,” he seems on the face of things to do just that. It’s clear that his model of pre-government society, if it ever existed in English history, is lost in the mist of time. In the expanding world of the 17thC, England’s economic system of property, production, trade and money depends on a complex system of government and laws. Locke isn’t claiming that his theoretical extraction of government from a well-ordered system of property is applicable to England of the 17thC or terribly useful for understanding England’s political economy. Except, that is, as his model demonstrates why both Filmer’s and Hobbes’ absolutist theories are mistaken, and that England’s monarchs are legally limited, not absolute, sovereigns whose recent flirtations with unilateral Colbertism can be legitimately challenged by their subjects as being beyond the royal prerogative.

      But Locke has another longer-term, or at least a somewhat less immediate agenda. On behalf of Shaftesbury and a group of “godly” colonialists, he’s been trying to come to grips with designing a constitutional and legal system for the Carolina colonies. And central to any such system is the issue of property claims of colonists vis a vis the Native Americans. From whence do colonists’ property rights derive? From the Crown’s patents? But then where do the Crown’s rights come from — from conquest, a broadly-recognized source of legal property rights? But it’s the colonists’ inexorable expansionism that’s “conquering” the lands of North America. Not the Crown itself. And much of the conquest (though far from all) isn’t by physical conquest that destroys the Native American occupants or imposes colonial rule by force. It’s by bringing land into productive use. Property emerges by the colonists’ labor! It’s not government that has established property rights. Those rights precede government, which is appealed to merely for the purpose of securing and protecting those rights.

      So Locke isn’t writing only a just-so story in which, for analytical purposes, he hypothesizes the ahistorical operation of a society with property rights but no government. He’s also got an actual, real life problem in mind. And his choice of model, though on its face merely anthropologically descriptive, has huge normative implications for how that problem is going to be resolved in favor of the colonists vis a vis both the Crown and the original occupiers of North American lands. [If you want to extend the example to global capital markets, you probably wouldn’t be gainsaid by Ireland’s taxpayers. Sorry, couldn’t resist.]

      Now, does our consideration of the context for Locke’s writing in any way suggest that he wasn’t sincere and was just opportunistically churning out propaganda? Or lessen or contradict the insights we derive from reading him today? Not at all. But by teasing apart the various ways he did — and did not — himself construct and apply his model of a pre-government benevolent society with property rights, I think it suggests a bit about how we should approach using the model he designed. Beyond the political struggle over the legal norms governing sovereignty and absolutism in England with which Locke was directly engaged, his model was meant to be descriptive and suggest direct implications for action only in the settlement of the North American wilderness — a process which it was already clear to thinkers like Locke would produce inevitable conflicts over the shape of the colonial political economy.

      For me, the 2 Treatises deal primarily with juridical issues within political philosophy that concern sovereignty and legitimacy, framed where necessary to address the theological premises of philosophical debates in the 17thC. In that regard, they’re exquisite and timeless. However, personally I don’t find in the Treatises an analytical model with much relevance to understanding political economy, either for Locke’s 17thC England or for today.Report

  3. Avatar Fear and Loathing in Georgetown
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    nadezhda:

    Certainly good points. I disagree largely with how much to weigh the contemporaneous context of Locke’s writing; however, to explain why sufficiently is more than I have time for right now.

    Basically, and this is probably where our normative differences ultimately arise, the best way to understand my outlook is Platonic Realism/Idealism. Namely, that there is a universal Truth that can be comprehended using reason. Consequently, I’m less interested in the contemporaneous and proximate influences on Locke’s writing and more on the truth of the theory. Now, I’m not saying that Locke’s theory is Truth, and it was just to provide an example. Sorry, I feel like that an entirely insufficient reply, but there it is for now.

    What I do find interesting, and you will probably find grating, is how your response ties in with my other time horizons theory, the one to which Mark said he wanted to respond, and which I partially explained in the response over at my place. To put it simply: I contend that those on the political left are more empirically and materially, in the philosophical not cultural sense, focused. This in turn leads them to have a higher discount rate of the future than those on the political right because empirics only tell us what happened, not what necessarily will happen. And the further out into the future, the less emprics help. The consequence is that the left is more relatively more short-term focused, and the right relatively more longer term focused. I have a bunch of quotes that that I use to support that, including the King’s “fierce urgency of now,” Paine’s “eternal now,” and Keynes’ “in the long run we’re all dead” and those walk most truly in the paths of virtue and sane wisdom who take least thought for the morrow. ”

    Anyway, I’m sure you have issues with the logic, but I’ve got it more fleshed out than that. We can probably discuss that later too. But why do I bring it up?

    Well, it partially explains our relative differences in importance placed on the context versus theory. You are more focused on the empirical situation surrounding the birth of the theory with the implied message that it is largely only applicable to its milieu. To further explain my point, take Marxist historiography as the extreme from of left approach to history, which I’m not saying you do, but simply to illustrate my point. It’s THE short-term and material approach to history. It atomizes history into instantaneous struggles based around material factors. These atoms are tacked back together and supposed to explain everything, but it doesn’t really explain how any change occurs.

    Anyway, I just thought it was interesting how our two responses to the same facts differed. At least, I’m assuming you are on the political left.Report

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