Welcome to European Tribune. It's gone a bit quiet around here these days, but it's still going.
Comment crosspost from Daily Kos.

I have to say this, you've done a magnificent job here.

One brief, ironic, comment.

Economic inequality does matter, because it generates the deadweight social welfare losses (deadweight loss economic model) that are the abstraction which the Right uses to attack the idea of living wages and other measures that redistribute income from the economic elite to the working masses.

They've mispecified their model, and failed to recognize that the redisitribution of wealth from sectors of the economy where it will be recycled creating economic growth (e.g. $50 given to a single mother working at Walmart will create demand stimulus, while the same money given to Bill Gates will most likely be invested abroad.)  So what happens is that as income is redistributed from people who spend it creating demand to people who invest it expanding supply, is a collapse in demand and oversupply.  

Keynes lives!

Behind the economic models of the Right spouting economic welfare is a political reality where they endeavour to improve the relative gains of their donors even if it creates social losses.  Why?  Because, once one passes the point of material satiation,(e.g. I can't eat another piece of steak) they enter the world of positional consumption, conspicous consumption whose value is driven by how much one has relative to others rather than the absolute quantity.  And the economy becomes a zero sum game.

Economic growth harms social welfare, because it is directed at this status competition instead of satisfying material needs.

And I'll give my consent to any government that does not deny a man a living wage-Billy Bragg

by ManfromMiddletown (manfrommiddletown at lycos dot com) on Mon Dec 3rd, 2007 at 10:40:29 AM EST
I worked out why you're wrong: you're assuming that everyone competes for status in the same way. They don't, so the economy need not be zero-sum.

There may be some people whose assessment of their own status depends directly on their income, so economic growth may harm those people, but most people don't compete that directly on net worth.

by Colman (colman at eurotrib.com) on Mon Dec 3rd, 2007 at 10:45:25 AM EST
[ Parent ]
It doesn't have to be, but the key is to reduce the competition for status.  This competition is more intense where there is greater economic inequality, because individuals have to compete ever harder to maintain relative position.  See what's happened as higher education has been reduced to an exercise in credentialing by which people are able to justify why they should have leadership roles.  The qualifications for jobs are subject to escalation, so that where a secondary degree may have been sufficient to enter the civil service previously, a university degree is now required.  So increasing portions of one's life are spent in school, of which a decreasing portion is acutally dedicated to the teaching of skills that are useful in the workplace.

The key is to reduce economic inequality, so that the intensity of positional competition is driven down, and the portion of the economy dedicated to material needs is increased.  Doing so may reduce gross economic output (even so much so at to create negative economic growth rates), but improves social welfare and makes the economy more sustainable in the long term.  The impact on environmental economics is profound.  

Consider the pursuit of the country house as something that shows "you've made it", which I understand has led to rampant urban sprawl as Ireland has grown wealthy.  Everyone wants a house in the country, but the process of building houses in the country turns it into suburbs that are neither city, because they lack walkability and public service, nor countryside, because you're surrounded by cookie cutter houses.  So you have building extend further and further out until you have people driving (!) 60-70 kilometers each way each day to work.  So you have a massive increase in the use of gasoline without an increase in social welfare.  It's insane.  If you can ratchet down the positional competition, you can have people live in cities, and substantially reduce the use of gasoline.

This case is particularly notable, because cheap gasoline allows the elite to abandon large portions of the city, and avoid the consequences of their actions.  If everyone who lives around you is from your own class, how are you to know that the economy is shit for the people on the bottom.  Urban diffusion reduces the social relevance of phenomena like the Paris suburb riots, because the fear factor for the elite is reduced.  They can go own and fuck over the poor some more, because it isn't like the backlash is going to reach their country house.

And I'll give my consent to any government that does not deny a man a living wage-Billy Bragg

by ManfromMiddletown (manfrommiddletown at lycos dot com) on Mon Dec 3rd, 2007 at 11:08:38 AM EST
[ Parent ]
It doesn't have to be, but the key is to reduce the competition for status.  This competition is more intense where there is greater economic inequality,

Well, the key is to reduce the effects of the competition for status. And - as you say - a good way to do that is to narrow the available limits. People will still be happier if the prize is a bigger car and not a private jet. Positional display is relative, not absolute. There's no chance to buy a Moon Yacht today, so no one misses one.

But there's something else happening here.

Competition in the US has always had a sociopathic edge to it. It's not just that people want more even if it means harm to others, or they don't care if it means harm to others.

A minority want more because it means harm to others. They actively promote and enjoy the creation  of poverty and lower living conditions for everyone except their cronies. How else can you explain Bush's contempt for Katrina or his decision to try to close teaching hospitals?

You could make a good case for suggesting that the common thread linking Iraq with Bush's domestic policy isn't some grand imperial scheme, but simply a need to pour contempt on as many humans as possible.

You'll find less severe, but still very toxic, versions of the same mindset throughout the financial markets.

Stability is impossible while this is rewarded instead of being minimised.

by ThatBritGuy (thatbritguy (at) googlemail.com) on Tue Dec 4th, 2007 at 06:52:13 AM EST
[ Parent ]
Ideally you'd channel the status competition down routes useful to society  - which is the real value of philanthropy of course - rather than into damaging behaviours.

But you're right that the current rules reward sociopathic behaviour rather than punishing it.

by Colman (colman at eurotrib.com) on Tue Dec 4th, 2007 at 06:54:44 AM EST
[ Parent ]
Here's the ironic thing about this.  Capitalism is supposed to make mean more peaceful by taming the passions (i.e. I'm going to get glory by killing those heathen mother fuckers over there) that depend on the relative position of oneself to others, by the interests (i.e. I'm going to make a million dollars, and I don't care how much the rest of you make.)

So spoke Albert Hirschman in The Passions and the Interests in which he traces this idea from the 17th century on, showing that before capitalism was justified on the basis of efficiency it was justified on the basis that it was a more peaceful way than the blood and iron of the earlier period in which the passions were central.  

I can't locate the diary now, but Martin Wolf made this exact same argument recently in the FT, making the point that it's much better to live in a world in which people seek status through wealth than by war.  Schumpeter made much the same point earlier, and would seem to be the source that Wolf drew from.

Now, the interesting thing is that it just may be (and probably is) that as economic inequality increases you have the rise of these other ways in which to pursue status for those disenfranchised by the market.  One way, socialism, seeks equality, the other way, fascism, creates an explicit in group (Aryans, etc.) that is equal and an out group that is supposed to be exploited and/or exterminated for the benefit of the in group.  Capitalism gives us fascism, because it isn't concerned with economic distribution, only total economic output.

Status seeking is part of most human existence, but this points to the need for a recognition that you need social rules and social order that is both collectivistic and egalitarian, you need social democracy.  Liberalism is a failed ideology, the choice is between social democracy and fascism.

And I'll give my consent to any government that does not deny a man a living wage-Billy Bragg

by ManfromMiddletown (manfrommiddletown at lycos dot com) on Tue Dec 4th, 2007 at 10:15:19 AM EST
[ Parent ]
I believe in a growing economy it is possible for people to lose status but still increase their standard of living in real terms, and so growth can lead to more social mobility. On the other hand, when growth stops the only way to retain one's standard of living is to concurrently compete for higher status and, as growth is captured by those at the top, social mobility ceases.

We have met the enemy, and he is us — Pogo
by Migeru (migeru at eurotrib dot com) on Tue Dec 4th, 2007 at 10:34:43 AM EST
[ Parent ]
Unfortunately, you're missing the point.

Economic growth is fundamentally anbigous, because it doesn't distinquish between economic output that is material (i.e. bread) and economic output that is positional and must come at someone elses expense.  All goods have components of both, but some are more pure cases.  Education is largely a positional good.  Most people get a university degree not for the love of knowledge, but in order to improve your position relative to others.

The higher the level of economic inequality, the higher the percentage of economic output dedicated to things like Lexuses (Lexi?) instead of Olive trees.  It's about stroking people's egos, and the ostentatious display of wealth in order to convey status instead of making sure people have enough food to eat.

In a world where only absolute gains matter, economic growth is great, because it makes everyone better off.

But in a world where relative goods are what is driving economic growth, economic growth is a zero sum game.  In order for one person to be better off, another must lose.

Social mobility is relational.  It's about the social distance between persons.  Where you have a large middle class, this distance is small, and you don't have the idea that this person has extreme wealth and should be respected, and this person is poor and can be treated like shit.  Capitalism becomes a threat to democracy where it creates economic inequality, and makes some animals more equal than others.

And I'll give my consent to any government that does not deny a man a living wage-Billy Bragg

by ManfromMiddletown (manfrommiddletown at lycos dot com) on Tue Dec 4th, 2007 at 10:51:07 AM EST
[ Parent ]
Education is not positional in the same way as a Lexus. For one thing, as someone said, if we exchange ideas we each end up with two ideas, whereas if we exchange cars we still have one car each. In fact, now that so many people go to college, a university degree is not even a positional good. It's an entry requirement.

We have met the enemy, and he is us — Pogo
by Migeru (migeru at eurotrib dot com) on Tue Dec 4th, 2007 at 11:21:18 AM EST
[ Parent ]


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