Why We Disagree About Taxes, Entitlements, and Economic Theory in General

In a previous post drawing the distinction between procedural and substantive justice, I noted my objection to the idea that procedural fairness ought to be subverted in order to guarantee predetermined outcomes.  However—and although I predicted that most Americans would probably agree with me—I did not touch on the difficulty in refuting the intrinsic appeal in guaranteeing a baseline standard of living.  Though there may be a presumption in favor of ignoring outcomes so long as everyone gets a fair shake through the established political and economic mechanisms, it is only a rebuttable presumption.  As I explain below, the conflict between procedural and substantive justice is inevitable in advanced economies such as ours, as it flows from the conflict between man’s conflicting theoretical and practical natures.

Wealth in a high finance, first world context is, to a large extent, artificial, resulting in difficulty in reconciling the real with the conceptual.  In simpler economies, by comparison, one can readily conceptualize the practical value of, say, a bushel of corn based on how many apples or hammers or buttons it can be traded for.  Even in slightly more complex currency-based economies, one can still conceptualize the value of a bushel of corn to the extent that money can be used to buy other useful items.

In advanced economies, however, most individuals don’t spend their productive energies in actually producing anything in a visceral or corporeal sense. Instead, the economically productive life of a typical, middle-class American is intensely specialized and often only abstrusely related to the useful good or service ultimately produced.  Because our economic activity bears little obvious relation to the ultimate actual goods and services, it is impossible, for practical purposes, to discern the relationship between our economic activity and our consumption of goods and services obtained from others.  Most people can fathom the conversion between bushels of corn and dozens of eggs, but not the conversion between bushels of corn and a Toyota.  One can hardly even begin to understand the correlation between sitting in front of a computer 40 hours a week and the objects of middle-class consumption:  a mortgage, car and student loan payments, health insurance, a vacation once or twice a year, a pension, etc.  The exchange rate between the two is purely theoretical.  And, unless you implicitly accept that market economics fairly determines these exchange rates, you’re bound to conclude, as many liberals do, that standards of living must be set from the top-down.

Conceptualizing economics in terms of property rights becomes difficult, then, for two reasons.  First, as described above, in advanced economies, the connection between labor and property is tenuous and, as a result, it becomes difficult to say with confidence that one “deserves” the things one owns.  This is a point Mark Thompson touched on when he suggested how difficult it was “to distinguish between the ‘deserving’ and the ‘undeserving’ (really, the ‘productive’ and the ‘unproductive’)” in America.  For conservatives, it’s not that hard, since we’re already committed to notions of property rights and procedural justice.  My point here is, strong allegiances to property rights and procedural justice can be a hard sell.

Liberals, on the other hand, are typically only loosely committed to market economics.  And that commitment tends to be merely political or instrumental rather than ideological, conceived in the recognition that mainstream America is precommitted to market economics, and thus there is little point in railing against it.  Instead, liberals tend to wait for symptoms of large economies, like income disparity or recessions, to present opportunities to put certain economic decisions under the control of the government (from which, incidentally, they never return).

But even if you do implicitly accept the values set by the market, these values are still, ultimately, theoretical.  Regardless of the legitimacy of the market and its ability to accurately determine value, it never yields values and exchange rates that approach the same kind of psychological legitimacy experienced in a barter system in which actually useful goods or services are traded for other actually useful goods or services.  Because we cannot hold in our brains all at once the long chain of exchanges establishing why a certain number of hours spent in front of a computer at our jobs equals an iPad or a car payment or a year’s tuition, we base these exchanges on something other than an understanding of actual value.

The problem is that humans are fundamentally pragmatic, not theoretical.  That a market economy may be theoretically sound is well and good, but theory is no touchstone for our day-to-day economic choices.  Yet, if theoretical value does not serve as a touchstone, and if actual value in a complex economy is likewise out of reach, what is left but that our economic choices have become matters of convention?

This, I think, accounts for many of our disagreements about political and economic theory:  Humans at once demand theoretical consistency and practical understanding about the various relationships in the world.  The political and economic theories upon which we have created exponential wealth and comfort for ourselves have also, inevitably, undermined our ability to understand the actual nature of the relationships among economic exchanges.  Conservatives and liberals are both guilty of ignoring this paradox.  Conservatives advocate fidelity to the theoretical foundations of our political and economic institutions, while ignoring the often unpredictable and counter-intuitive outcomes that arguably result in substantive injustices.  Liberals, on the other hand, seek to circumvent the theoretical altogether and to establish, by fiat, the substantive nature of economic relationships, while ignoring the fact this implicitly results in procedural injustices.

[Cross-posted at my sub-blog here at the League.]