This site has moved to
The posts below are backup copies from the new site.

August 19, 2010

Latest Posts from Economist's View

Latest Posts from Economist's View

Justice within Property-Owning Democracies

Posted: 19 Aug 2010 12:27 AM PDT

Daniel Little argues that "The acceleration of inequalities of income and wealth in the US economy is flatly unjust, by Rawls's standards":

A property-owning democracy, by Daniel Little: John Rawls offered a general set of principles of justice that were formally neutral across specific institutions. However, he also believed that the institutions of a "property-owning democracy" are most likely to satisfy the two principles of justice. So what is a property-owning democracy?

In Justice as Fairness: A Restatement (2001) Rawls offered a more explicit discussion of this concept than was offered in A Theory of Justice: Original Edition (1971). Here are several important descriptions:

Let us distinguish five kinds of regime viewed as social systems, complete with their political, economic, and social institutions: (a) laissez-faire capitalism; (b) welfare-state capitalism; (c) state socialism with a command economy; (d) property-owning democracy; and finally, (e) liberal (democratic) socialism.
Regarding any regime four questions naturally arise. One is the question of right: that is, whether its institutions are right and just. Another is the question of design: that is, whether a regime's institutions can be effectively designed to realize its declared aims and objectives. This implies a third question: whether citizens, in view of their likely interests and ends as shaped by the regime's basic structure, can be relied on to comply with just institutions and the rules that apply to them in their various offices and positions. The problem of corruption is an aspect of this. Finally, there is the question of competence: whether the tasks assigned to offices and positions would prove simply too difficult for those likely to hold them.
What we would like, of course, are just and effectively designed basic institutions that effectively encourage aims and interests necessary to sustain them. Beyond this, persons should not confront tasks that are too difficult for them or that exceed their powers. Arrangements should be fully workable, or practicable. Much conservative thought has focused on the last three questions mentionsed above, criticizing the ineffectiveness of the so-called welfare state and its tendencies toward waste and corruption. But here we focus largely on the first question of right and justice, leaving the others aside. (136-137)

(Notice that these four questions converge closely with the feasibility conditions on reforms mentioned in an earlier post.)

There is similar but less developed language in the original version of the Theory of Justice:

Throughout the choice between a private-property economy and socialism is left open; from the standpoint of the theory of justice alone, various basic structures would appear to satisfy its principles. (TJ, 258)

Rawls argues that the first three alternatives mentioned here (a-c) fail the test of justice, in that each violates conditions of the two principles of justice in one way or the other. So only a property-owning democracy and liberal socialism are consistent with the two principles of justice (138). Another way of putting this conclusion is that either regime can be just if it functions as designed, and the choice between them is dictated by pragmatic considerations rather than considerations of fundamental justice.

Here is how Rawls describes the fundamental goal of a property-owning democracy:

In property-owning democracy, ... the aim is to realize in the basic institutions the idea of society as a fair system of cooperation between citizens regarded as free and equal. To do this, those institutions must, from the outset, put in the hands of citizens generally, and not only of a few, sufficient productive means for them to be fully cooperating members of society on a footing of equality (140).

Rawls isn't very explicit about the institutions that constitute a property-owning democracy, but here is a general description:

Both a property-owning democracy and a liberal socialist regime set up a constitutional framework for democratic politics, guarantee the basic liberties with the fair value of the political liberties and fair equality of opportunity, and regulate economic and social inequalities by a principle of mutuality, if not by the difference principle. (138)

This last point is important:

For example, background institutions must work to keep property and wealth evenly enough shared over time to preserve the fair value of the political liberties and fair equality of opportunities over generations. They do this by laws regulating bequest and inheritance of property, and other devices such as taxes, to prevent excessive concentrations of private power. (51)

And concentration of wealth is one of the deficiencies of a near-cousin of the property-owning democracy, welfare-state capitalism:

One major difference is this: the background institutions of property-owning democracy work to disperse the ownership of wealth and capital, and thus to prevent a small part of society from controlling the economy, and indirectly, political life as well. By contrast, welfare-state capitalism permits a small class to have a near monopoly of the means of production. (139) [also Collected Papers, p. 419]

The past thirty years have taken us a great distance away from the social ideal represented by Rawls's Theory of Justice. The acceleration of inequalities of income and wealth in the US economy is flatly unjust, by Rawls's standards. The increasing -- and now by Supreme Court decision, almost unconstrained -- ability of corporations to exert influence within political affairs has severely undermined the fundamental political equality of all citizens. And the extreme forms of inequality of opportunity and outcome that exist in our society -- and the widening of these gaps in recent decades -- violate the basic principles of justice, requiring the full and fair equality of political lives of all citizens. This suggests that Rawls's theory provides the basis for a very sweeping critique of existing economic and political institutions. In effect, the liberal theorist offers radical criticism of the existing order.

(Thomas Pogge's John Rawls: His Life and Theory of Justice has a good discussion of this topic.)

links for 2010-08-18

Posted: 18 Aug 2010 11:01 PM PDT

Can Government Help with Structural Unemployment?

Posted: 18 Aug 2010 04:33 PM PDT

At MoneyWatch:

Can Government Help with Structural Unemployment?

I answer yes. I also wonder why we seem to have forgotten about the lags in the policy process:

Policymakers keep making this mistake. Things look tenuous -- and there are plenty of worrisome signs right now -- but then they make excuses, adopt rosy scenarios, and find other ways to wait until they actually see the bad outcome before moving to action. It's like covering yourself up after the blow. Or saying you'll close the barn door if you see the horses running toward it. Who'll get there first? There's plenty to suggest that we need to insure against the chance that things get much worse right now. In any case, we need to try to offset the problems we already have. But yet, there's no action. It's frustrating to see conditions so bad, with signs they could get worse, and have no sense of urgency from policymakers.

Most of the good news on the economic front lately has been about stopping the decline we were in. Presently, we're stuck at the bottom of the valley, and have been for some time now.

Imagine the Sacramento Valley (it's very long north to south, fairly narrow east to west by comparison). We have fallen down one side of the valley, that is the slump, and are now at the bottom (hopefully). The question is, are we traveling east to west so that we'll hit the other side relatively soon, or are we moving north to south with a long, long trek ahead of us before finally climbing back up to full employment? My fear all along is that without more help from policymakers, it would take a long time before reaching the other side of the valley. And unlike what a traveler might prefer, the other fear is that once we finally get to the other side, the climb out of the valley will be a slow and gradual one rather than a steep ascent.

Part of the problem is surely structural, but there's also a large, cyclical component to our present problems. In either case, the economy needs more help.

"Deficit Hawk Down"

Posted: 18 Aug 2010 12:13 PM PDT

The Real Reason for Germany's Industrial Expansion?

Posted: 18 Aug 2010 11:55 AM PDT

Is lack of copyright protections in the early 1800s The Real Reason for Germany's Industrial Expansion?

I don't know enough about copyright law in Germany and England in the early 1800s to take a strong position one way or the other on the claims in the article. But if it holds up it does seem to say something about the value of an open internet where knowledge, technical knowledge in particular, is widely available at very low cost.

"Tensions Rise in Greece as Austerity Measures Backfire"

Posted: 18 Aug 2010 09:44 AM PDT

How's austerity working out for Greece?:

Tensions Rise in Greece as Austerity Measures Backfire, by Corinna Jessen, Spiegel: ...Athens' ... draconian austerity measures have managed to reduce the country's budget deficit by an almost unbelievable 39.7 percent, after previous governments had squandered tax money and falsified statistics for years. The measures have reduced government spending by a total of 10 percent, 4.5 percent more than the EU and International Monetary Fund (IMF) had required.
The problem is that the austerity measures have in the meantime affected every aspect of the country's economy. Purchasing power is dropping, consumption is taking a nosedive and the number of bankruptcies and unemployed are on the rise. The country's gross domestic product shrank by 1.5 percent in the second quarter of this year. Tax revenue, desperately needed in order to consolidate the national finances, has dropped off. A mixture of fear, hopelessness and anger is brewing in Greek society.

Nikos Meletis ... used to earn a good living at a shipbuilding company in Perama, a port opposite the island of Salamis. "At the moment, I'm living off my savings," the 54-year-old welder says...

Meletis is a day laborer who used to work up to 300 days a year; this year he has only managed to scrape together 25 days' work so far. That gives him 25 health insurance stamps, when he needs 100 in order to insure himself and his family -- including his wife, who has cancer. "How am I supposed to pay for the hospital?" Meletis asks. Unemployment benefits of at most €460 ($590) per month are available for a maximum of one year -- and only if he can produce at least 150 stamps from the past 15 months. ...

While 77 percent of Greek shipping companies indicate they are satisfied with the quality of work done in Perama, nearly 50 percent still send their ships to be repaired in Turkey, Korea or China. Costs are too high in Greece, they say. The country, they argue, has too much bureaucracy and too many strikes, with labor disputes often delaying delivery times.

Perama is certainly an unusually extreme case. But the shipyards' decline provides a telling example of the Greek economy's increasing inability to compete. ...

Prime Minister George Papandreou's austerity package has seriously shaken the Greek economy. The package included reducing civil servants' salaries by up to 20 percent and slashing retirement benefits, while raising numerous taxes. The result is that Greeks have less and less money to spend and sales figures everywhere are dropping, spelling catastrophe for a country where 70 percent of economic output is based on private consumption. ...
The entire country is in the grip of a depression. Everything seems to be going downhill. The spiral is continuing unabated, and there is no clear way out. The worse part, however, is the fact that hardly anyone still hopes that things will improve one day. ...
Menelaos Givalos, a professor of political science at Athens University, has appeared on television, warning viewers that the worst times are still to come. He predicts a large wave of layoffs starting in September, with "extreme social consequences."
"Everything is getting more expensive, I'm hardly earning any money, and then I'm supposed to pay more taxes to help save the country? How is that supposed to work?" asks Nikos Meletis, the shipbuilder. His friends, gathered in a small cafeteria..., are gradually growing more vocal. They are all unemployed, desperate and angry at the politicians who got them into this mess. There is no sympathy here for any of the political parties and no longer any for the unions either.
"They only organize strikes to serve their own interests!" shouts one man, whose name is Panayiotis Peretridis. "The only thing that interests me anymore is my daily wage. A loaf of bread is my political party. I want to help my country -- give me work and I'll pay taxes! But our honor as first-class skilled workers, as heads of families, as Greeks, is being dragged through the dirt!"
"If you take away my family's bread, I'll take you down -- the government needs to know that," Meletis says. "And don't call us anarchists if that happens! We're heads of our families and we're desperate."
He predicts the situation will only become more heated. "Things are starting to simmer here," he says. "And at some point they're going to explode."

I'm not sure what the answer is for Greece, they're in a tough spot, but this does work against the argument that austerity -- even when there is a very strong case for it -- is stimulative. I suppose it could be argued that things would be even worse without the austerity measures, but it's hard to imagine how.

No comments: