In the Search for an Optimal Level of Inequality

Recently, the blog ThinkMarkets published a post by Gunther Schnabl about how Friedrich Hayek’s works helped to understand the link between Quantitative Easing and political unrest. The piece of writing summarized with praiseworthy precision three different stages of Friedrich Hayek’s economic and political ideas and, among the many topics it addressed, it was mentioned the increasing level of income and wealth inequality that a policy of low rates of interest might bring about.

It is well-known that Friedrich Hayek owes the Swedish School as much as he does the Austrian School on his ideas about money and capital. In fact, he borrows the distinction between natural and market interest rates from Knut Wicksell. The early writings of F.A. Hayek state that disequilibrium and crisis are caused by a market interest rate that is below the natural interest rate. There is no necessity of a Central Bank to arrive at such a situation: the credit creation of the banking system or a sudden change of the expectancies of the public could set the market interest rate well below the natural interest rate and, thus, lead to what Hayek and Nicholas Kaldor called “the Concertina Effect.”

At this point we must formulate a disclaimer: Friedrich Hayek’s theory of money and capital was so controversial and subject to so many regrets by his early supporters – like said Kaldor, Ronald Coase, or Lionel Robbins – that we can hardly carry on without reaching a previous theoretical settlement over the apportations of his works. Until then, the readings on Hayek’s economics will have mostly a heuristic and inspirational value. They will be an starting point from where to spring new insights, but hardly a single conclusive statement. Hayekian economics is a whole realm to be conquered, but precisely, the most of this quest still remains undone.

For example, if we assume – as it does the said post – that ultra-loose monetary policy enlarges inequality and engenders political instability, then we are bound to find a monetary policy that delivers, or at least does not avoid, an optimal level of inequality. As it is explained in the linked lecture, the definition of such a concept might differ whether it depends on an economic or a political or a moral perspective.

Here is where I think the works of F.A. Hayek have still so much to give to our inquiries: the matter is not where to place an optimal level of inequality, but to discover the conditions under which a certain level of inequality appears to us as legitimate, or at least tolerable. This is not a subject about quantities, but about qualities. Our mission is to discover the mechanism by which the notions of fairness, justice, or even order are formed in our beliefs.

Perhaps that is the deep meaning of the order or equilibrium that it is reach when, to use the terminology of Wicksell and Hayek’s early writings, both natural and market interest rates are the same: a state of affairs in which the most of the expectancies of the agents could prove correct. The solution does not depend upon a particular public policy, but on providing an abstract institutional structure in which each individual decision could profit the most from the spontaneous order of human interaction.

White Supremacists

“White supremacy” has become a central part of the left’s narrative. In an hour and a half of casual news watching on television in early October 2017, for example, I heard three references to white supremacy. That’s more than I did in the decade 2005 to 2015, I believe.

One utterance came from the sports channel ESPN’s African-American commentator Jemele Hill who called president Trump a “white supremacist.” She added that he surrounded himself with white supremacists. Perhaps, by implication of the term “surround,” she meant several millions of his 63 million voters, or even all of them. This kind of verbal hysteria is not new and neither are intemperate television commentators but, in the recent past, such breathless declarations would have been laughed out of the park or negatively sanctioned, or both. Not anymore. Ms Hill’s statement was not exactly an isolated incident either.

In the first two weeks of October 2017, I hear the word “supremacist” on radio or television at least once a day. I am sure it has not happened before in my fifty years in this country (as an immigrant). This new tolerance makes some sense in political context.

For the inconsolable of Pres. Trump’s election, I suspect – but I don’t know for a fact – that the claim is by way of passing the baton at a time when the investigation on “Russian collusion” to elect him, now in its thirteenth month, is going nowhere. If he did not betray the country, what can we accuse him of that’s difficult for decent minded people to forgive, they ask? Digging into this country’s complex and troubled past is always a good bet if you are looking for dirt to throw at an American.

Mr Trump’s own intemperate comments – although never directed at the usual African-Americans targets of real supremacists – helped identify a valuable, superficially semi-plausible charge. The sudden emergence in the collective consciousness of unhappy young white Americans on the occasion of the 2016 election also contributed. (“…in the collective consciousness…;” they were around before that.) Unhappy young whites can but with little effort be turned into the racist rednecks of countless movies. Thus, the white supremacy narrative may be part of a half-blind collective endeavor to discredit for the long term the social forces thought to be associated with the sensational defeat in 2016 of a moderate liberal (and a feminist to boot; more on this below).

My first impression of the reality of a white supremacist movement, based on reading and listening to radio – including National Public Radio – about five days a week, besides watching television, is that there isn’t actually much going on nationwide in this respect. Yet, I am mindful of the fact that I live in “progressive” Santa Cruz, in liberal California. In neither place would one expect to bump casually into white supremacists. And if there were one, he would probably just clench his teeth and keep his mouth shut. In lily-white Santa Cruz, on the contrary, a black supremacist would probably be elected mayor on the first try without really campaigning. (OK, I may be exaggerating a little, here.)

I realize also that my reading habits as a conservative may not lead to chance encounters with supremacist tripe.* So, I wonder: What’s the actual situation? To try and explore this question more deeply, I use a two-step strategy. I look first for existing credible empirical reports on the topic. Second, I look for what should be the products of white supremacist groups, the tracks they should logically be expected to leave on the internet and elsewhere. But first, a brief historical detour. Continue reading

A libertarian case for Hillary Clinton

I have abstained from commenting on the American presidential race between Donald Trump and Hillary Clinton (sorry Rick) for so long because I just wasn’t very interested in it. I’m still not that interested in it, but the topic has come up quite a bit lately here at NOL so I thought I’d throw in my two cents.

First, though, I thought I’d use up a couple of paragraphs to explain why I don’t really follow American presidential elections, even though most intelligent people, in most parts of the world, do. American presidents simply don’t have a lot of power in domestic American politics. Congress controls the purse strings, makes the laws, and, in the case of the House of Representatives at least, is closer to the People than is the President. The Supreme Court is in charge of deciding which laws are good and which are not, and in some cases even has the power to create laws where Congress or the People simply aren’t getting the job done (Proposition 8 in California comes to mind). To me, that makes the executive branch the most boring branch of government.

The one area in American politics where the head of the executive branch does have a lot of leeway, foreign policy, is one area where I’m not particularly worried about either candidate. I’m not worried because both, despite holding views of the world I strongly disagree with, are not advocating anything radical or unpredictable. I’d rather have a presidential candidate advocate the same old garbage of getting in Russia’s face and keeping troops in South Korea because that way I know they’re ignorant and, more importantly, I know they know they’re ignorant on such matters because they defer to the Washington Consensus.

Libertarians don’t like statists and we don’t like statist policies. Some of us don’t even think voting is worth the effort (or even a good idea). I think there is a case to be made, though, for Libertarians and libertarians to get out and vote this fall for Hillary Clinton over Donald Trump. My case rests on 3 hugely important facts (at least to libertarians and Libertarians).

Fact #1: Thanks to the recent wikileaks revelations, we know for sure that Hillary Clinton is in favor of free trade. This is THE most important reason to vote for Hillary Clinton in the fall. Imagine if the United States, led by Trump’s isolationism, were to begin breaking its trade agreements with the rest of the world. Yikes. Free trade has lifted hundreds of millions of people out of poverty over the last 30 years, but because the majority of beneficiaries to trade liberalization have happened to not be American citizens, demagoguery ensues. I understand that Clinton has expressed skepticism in US free trade agreements on the campaign trail, but when you’re in a party that is vying for potential voters who feel they have been hurt by free trade, you’ve gotta do what you’ve gotta do.

Regardless of what Clinton says to the masses, her record on free trade while holding political offices is impressive (a ‘No’ vote on CAFTA notwithstanding). Free trade, or trade liberalization, is one of the fundamental tenets of libertarianism. Individual liberty cannot be realized or even partly realized without markets that are free from the constraints of governments and the factions that manipulate them. Donald Trump, like Bernie Sanders, wants to reverse decades of trade liberalization and the benefits that such a policy has bestowed upon humanity.

(Digression: Libertarians and libertarians are so adamant about free trade not only because it loosens the grip of the state over peoples’ lives, but also because it makes everybody – not just fellow countrymen – better off. When libertarians and Libertarians hear protectionist sentiments from the political class, you will often see or hear us point out that the Great Depression of the 1930s was hastened not only because of central banking policies but also because of the isolationist tariffs that Congress threw up as a response to the economic downturn caused by the new central bank’s policies. Free trade is a BFD.)

Fact #2: Hillary Clinton is much more individualist than Donald Trump. Women’s rights is an individualist issue, and always has been, even though Clinton has made a mockery of the historical movement by playing the “gender card” and defending (and pledging to expand) subsidies in the name of women’s rights. Trump wants to “make America great again,” but Hillary just wants your vote, any way she can get it. If that ain’t individualist, I don’t know what is.

Hillary Clinton is not a racist, either. She marched against The State’s oppression of black Americans in the South and against The State’s discrimination against black Americans in the rest of the country throughout the 1960s. (For what it’s worth, I don’t think The Donald is a racist. Businessmen rarely are, for reasons that should be obvious to any fair-minded person, but his rhetoric on race is absolutely toxic, and he knows it. His deplorable actions bring to mind a certain F-word I won’t mention here.)

Trump may or not be a racist – I’ll give him the benefit of the doubt – but I don’t know for sure. Clinton is definitely not a racist.

Fact #3: Hillary Clinton is a lawyer and she knows how our government is supposed to work (even if she doesn’t like it). One could make the case that Trump knows how our federal system of government works, too, given his braggadocio about buying off politicians, but his is a vulgar understanding of what is, after all, a magnificent example of compromise and diplomacy over our more primal urges. Lawyers make better politicians than businessmen. As Alexis de Tocqueville remarked way back in his 1831 ethnography of the United States:

“the authority [Americans] have entrusted to members of the legal profession, and the influence which these individuals exercise in the Government, is the most powerful existing security against the excesses of democracy […] When the American people is intoxicated by passion, or carried away by the impetuosity of its ideas, it is checked and stopped by the almost invisible influence of its legal counsellors, who secretly oppose their aristocratic propensities to its democratic instincts, their superstitious attachment to what is antique to its love of novelty, their narrow views to its immense designs, and their habitual procrastination to its ardent impatience.”

Lawyers, Tocqueville observed, make up a sort of informal aristocracy in America because their training in the field of law requires them to have a deep respect for precedent and “a taste and a reverence for what is old.” Businessmen are not used to the clumsy, inefficient coalition-building necessary for good governance. That’s why businessman George W Bush was such a failure and attorney Bill Clinton was such a success. Any good libertarian needs to acknowledge the benefits that come from specialization and the division of labor. Any really good libertarian, the kind that has actually read a little bit of FA Hayek’s work, knows that change in the political and institutional arena needs to be done slowly, and preferably through the legal system (no matter how imperfect it may be).

I know all about the bad stuff that Hillary has supported and voted for in the past (especially on foreign policy, and even more especially on foreign policy in Africa). I get it. I really do. But Donald Trump represents a very nasty strain of thought that has swept into power of the country’s Right-leaning political party. His nationalism is antithetical to libertarianism in a way that Clinton’s typical corruption and condescension is not: libertarianism has a long history in this country of dealing with Clinton-esque figures. The American polity was forged by consensus and thus has recourse, perhaps more so than any other presidential system, to constrain exactly this type of persona. This persona is egotistical and out for personal glory and prestige, but libertarians, progressives, conservatives, and others here in the United States have institutions and networks that were created specifically for presidencies run by people like Clinton.

We’re small in number, too small to have a significant impact if we all voted for Clinton, but we have an outsized impact in the realm of ideas and policy. Get behind Clinton in any way that you can, because more of the same ain’t all that bad.

BC’s weekend reads

  1. The Strange Story of a Strange Beast
  2. Dagestan (a region in Russia), religion, and female genital mutilation
  3. Why partitioning Libya might be the only way to save it
  4. Google versus Palestine (h/t Michelangelo)
  5. False consciousness | The value of Marx in the 21st century
  6. The evolution of the state (in two simple pictures)
  7. Round the Decay of that Colossal Wreck

Group Privileges No, Detriments Yes

The concept of “privilege” has become common in political discourse, while the term “detriment” is seldom used. One incurs a detriment, and is detrimented, when one is harmed, offended, displeased, or disadvantaged, unrelated to merit. One obtains a privilege, and is privileged, when a person or group is advantaged, benefitted, pleased, or favored relative to other groups, when the gain is unrelated to merit.

Some socialists emphasize “white privilege.” Suppose a white man is able to walk down a street without being harassed, while a black man will be stopped and questioned by the police. The socialist will say that the white man is privileged in being free of harassment. But actually, the ability of an innocent person to walk without being stopped and frisked is a natural right, not a special favor. The black man has suffered a violation of his natural rights, a detriment not suffered by the white man.

The socialist will also claim that there is “male privilege.” Suppose a man can walk down the street in peace, while a woman walking down the same street will be whistled at, aggressively approached, and may even be physically attacked. Does the man have a privilege? No, one has a natural right to be free of aggression. The woman suffers a violation of her rights, a detriment.

Women suffer many detriments because of social custom and culture, rather than governmental law. Wives tend to do more household work, even when they are working for wages as many hours as the husband. In some fields of work, men have more prestige and authority, unrelated to merit. The culture is not so much giving males privileges as it imposes on women various detriments.

Some detriments are mandated by law. In most places in the US, men are free to remove their shirts, while a bare-breasted woman would get arrested. The men do not have a privilege; the women have a legal detriment.

Female detriments can become tragic in cultures where male children are preferred. A boy is not privileged by not being aborted or killed. Rather, the girls suffer a lethal detriment. In my judgment, more progress can be made to stop this anti-female bias by calling it a detriment rather than saying the boys are privileged. Boys as well as girls have a right to not be murdered.

Female detriments have been lethal in India, where rape and violence has made headlines. But there is substantial rape in the US and throughout the world, which clearly makes being female a detriment in much of the world.

The trouble with saying there is a male privilege is that men do not feel privileged by not being attacked or disfavored. It should be normal to be left in peace, and to be respected. By identifying the problem as a detriment, we can then raise more awareness and support for remedies. We can also then better deal with the real privileges, favors to those who get subsidies from government because of political clout.

The language of privilege versus detriments influences policy. “Privilege” implies special favors that should be removed. “Detriment” implies harms and disadvantages that should be stopped. For the problem of infanticide, for example, it is not that privileged boys should be killed in an equal ratio, but that girls should not be murdered for being female.

Let’s speak less of racial and gender privilege, and more of detriments!

Liberty and the Novel II (Austen and After)

(Click for Part I) In Austen’s novels, we find something ‘unheroic’ in that they are concerned with the search of upper class women, bound by codes of gentility, for both a satisfying place in the world and emotional authenticity through marriage. Though there is none of the religious fervour of Pilgrim’s Progress, the message is sent that an ideal community is a small rural community guided by sincerely godly priest, concerned with the daily lives of his congregation.

There is none of the extremism of Quixote’s fantasies and adventures, but the simultaneous process of  triumph over illusion and the growth of inner authenticity, is there in Pride and Prejudice, Sense and Sensibility, Mansfield Park, Emma, Persuasion, and Northanger Abbey, as the characters find marriages worthy of their growing ethical capacities in self-judgement and judgement of others.

Ethical growth means confirming a place in the landowning classes and taking a decidedly ambiguous attitude to making new money in trade. Landed property and religion are the starting points of an ethically tolerable community for Austen. We can see the growth there of what we might now think of as social and political values based on self-ownership and individual responsibility though somewhat constrained by respect for earlier aristocratic expression of these values.

We can see a version of Lukács’ split between heroic progressive bourgeoise and backward looking conformist bourgeoise there. Though it is absurdly crude to take 1848 as the line of of separation between the two tendencies, it is useful to think about the distinction as it evolved over time, including the events of 1848. Over time the basic bourgeois goals of rule of law, individual rights, representative government, and free trade tend to be achieved. The word radical is used less and less for the advocate of bourgeois individualism and more and more for advocates of a socialist state.

In literature the themes of the individual triumphing over circumstances, enduring disaster, awaking from illusions, developing individual moral strength, and finding some moment of authenticity continues. The novel keeps developing as a form, but in many people’s opinion, including my own, it reaches a peak in the early twentieth century (James Joyce, Franz Kafka, Marcel Proust, Virginia Woolf, Thomas Mann) which it has never matched, though ambitious and admirable novels continue to be written.

The more straight forward kinds of heroism are not so prevalent as in earlier novels, but the irony and ambiguity about heroism develops what was already in the genre and intensifies individualism, even while questioning it. Some of these writers were sympathetic to socialism though born into a largely bourgeois liberal world, at least compared with developments after World War One.

Coincidentally or not, this coincides with the transitions from a limited-state individualist nineteenth century liberal politics to the welfarist-administrative state we now know and which is stronger than ever, despite all the cries of ‘neoliberalism’ and ‘market fundamentalism’ that arise in reaction to any attempt to limit the statist drift.

There is a danger of rivaling Lukács’ tendency towards a moralising tendentious Marxism from a pro-liberty point of view, but I am anyway tempted to say that the reduction of the significance of the novel is a symptom of societies which aim to remove individual responsibility in the struggle with circumstances. Or I can put it in terms more amenable to those who welcome the welfarist-administrative tendency. The novel has lost some part of its significance as individualist ways of thinking are less influential in politics.

In fact I can wholly agree with this stereotypical imaginary progressive that Ayn Rand’s attempts to revive the grand individualist heroic aspects of the earlier novel are rather embarrassing. The Peruvian novelist Mario Vargas Llosa (Aunt Julia and the ScriptwriterThe War of the End of the World, The Feast of the Goatetc), who is an eloquent liberty advocate, is a far better novelist, and is as good as anyone currently active, so still not rising to the level of the Modernist greats of about one hundred years ago. Liberty advocates are also part of this cultural shift or loss, however you prefer to see it.

(crossposted at Stockerblog)