Arnold Kling  

Martin Wolf on Political Economy

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Gelman's Great Book... Two from Will Wilkinson...

He writes,


But what is a confiscatory government? It is just a government run by profit-maximizers.

...There have to be rules, ethical norms and institutional constraints governing profit-maximizing behavior, to ensure that the maximization operates for the social good. Of course, pure libertarians would deny this. They believe that a society could be constructed on the basis of voluntary exchange, with no coercion. I think that would last until the first well-organized gang came over the hill, as Thomas Hobbes argued. We need the Leviathan. The question is how we tame it.

Read Wolf's whole piece.

Note that Mencius Moldbug argues that a profit-maximizing government would be better than what we have. In order to maximize profits from taxing wealth, a government would have to encourage people to create wealth to begin with.

Robert Mugabe is not building a long-term profitable enterprise. Instead, he is trying to hang on to power and get what he can while he is there.

Suppose that governments were profit-making corporations, subject to takeover bids by other investors. If you wanted to displace Mugabe, you would bid for his corporation. If enough shareholders liked the price you offered, you would own Zimbabwe. Then you could try to turn it around and sell it for a profit.

The problem of taming Leviathan amounts to ensuring that takeovers occur peacefully, by votes of shareholders, rather than through violence. That is why the government corporations in the Moldbug model would need security forces.

One can argue about whether we in the U.S. would be better off under a profit-maximizing corporation instead of our current government. I don't think there is much of an argument about whether the people of Zimbabwe would be better off.

Maybe Moldbug and I should submit this as our take on Creative Capitalism.


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CATEGORIES: Political Economy



COMMENTS (11 to date)
Grobstein writes:

Too creative.

Alex J. writes:

People have a sense of patriotism or other group identity that can be harnessed to get them away from their narrow self interest. An avowedly profit maximizing gov't wouldn't be able to harness that. The best service governments provide is protection from worse governments. A state without a patriotic population might be vulnerable to one which could extract more taxes and field more willing soldiers.

Libra writes:

Alex-

I think that is exactly why democracy became so prevalent - it was the most effective government of war. By getting the people to believe in a cult of state, they were more willing to sacrifice their lives for the state.

However, I'm not sure that this still applies in 2008. A great power war would be decided by cruise missiles, predators, and other super high tech weapons. A wealth maximizing government would be better off than a patriotism maximizing government.

Les writes:

A basic assumption of economics is that individuals pursue their own self-interest. It seems that people in government are just as apt to do this as people not in government.

Therefore it seems to me that the government is already composed of people pursuing their own self-interest. It follows that we thus have a profit-maximizing government in the sense of individuals in government pursuing their own self-interest.

Kurbla writes:

Even if we suppose that government as it is is profit maximizing gang, it is important that government has the role of the management, while voters have role of the owner. There is no other way, really, you can explain surprising fact that salary of US president is $500 000 and not $50 billions, for example.

Replacing voters by shareholders is path to feudalism; voters sell their share, you end with few almighty landlords - and then you observe something you didn't expected - they are so rich, powerful and safe on their positions that they do not have serious competition and hence, they do not care for maximizing profit any more. They have more important things to do - like spreading their religion, building their own kind of Utopia - all that without serious treat to their position.

BGC writes:

I felt that Wolf was arguing against 'economism' - i.e. the belief that economics should be the only, or at least the primary, social system.

I don't think that there really are any economism advocates - it is really a straw man; however, people sometimes talk or write asif economics was the only think that mattered, the only set of rules which had validity. But shooting them down is a bit pointless and smug.

Economics can and should operate only in the economy, and the economy is shrinking - not growing - in terms of its _scope_. For example, there are many areas of human society which used to be bought and sold but are now excluded from the economy - judicial decisions, wives, places at university. etc.

The scope of the economy is therefore continually shrinking, even as its size and complexity is pretty-continuously growing. This is made possible by continuously increasing efficiency (productivity).

The tough question is how to get politics to work _like_ the economy; not to make politics run on economic evaluations, but to get politics to grow in productivity while continually _shrinking_ (not growing) in scope.

To be more explicit. The modern political system works almost the opposite way to the modern economy. The modern political system is continually growing in scope (whereas the economy is shrinking) - i.e. the political system is continually absorbing more aspects of life (this is the big problem about political correctness - and PC really _is_ a big problem).

But politics is - if anything - continually declining in efficiency (its hard to measure, but governments seem less and less capable of achieving even their own self-decided goals, and can only do so at the cost of vast inefficiency).

The deepest aspect of this problem is that we don't even have a vocabulary to describe what politics is supposed to be doing, or what political efficiency would look like. This is why it is hard to avoid using economic language in politics.

This is the problem Mencius Moldbug is working on - my feeling is that the core of his 'system' is really that politics is about social stability and peacefulness, and that profit maximization is only conceived of as a means to this end.

Indeed MM is so devoted to stability that he sometimes seems indifferent to the need for growth. By contrast I have been hugely affected by the portrayal of the Malthusian trap in Greg Clarke's Farewell to Alms - and regard permanent growth as the priority - without which we would (almost) all be starving almost all of the time forever (i.e. the world before 1800). Continual growth demands continual increases in productivity = science and technology (broadly conceived). Which seems to be pretty much what AK argues for.

But we are still no further forward in generating a distinctive description of politics as a social system.

Jusitn Ross writes:

William Niskanen has already written on this topic extensively, I believe:
http://books.google.com/books?id=EJVopQcKjRsC&dq=William+A+Niskanen&pg=PP1&ots=yv4NIEXWre&sig=1hNgvgiMdXJqaMHgK2o90_qrHj0&hl=en&sa=X&oi=book_result&resnum=3&ct=result

Alex J. writes:

Libra, yes, the strength of democracy is its perceived legitimacy. The big threat from without is other social institutions that command more legitimacy (e.g. Islam). Martin van Creveld argues that with the introduction of nuclear weapons, the real area of decisive conflict is legitimacy.

Kurbla, that reminds me of Tyler Cowen's and Alex Tabbarok's paper on high vs. low art. Stalin fiddled with death warrants late into the night. Hitler spent his spare time boring his entourage with interminable monologues. Saddam was relatively gauche with ostentatious building plans, though he had his interminable monologues too.

I agree that a shareholder-management relationship would probably not be stable, not when the CEO can have the board shot.

Alex J. writes:

Arnold,

Have you read "The Ungoverned" by Vernor Vinge?

Wayne A. writes:

That is exactly my take on "creative capitalism".

Hopefully, creative capitalism is just rhetoric for "let's 'crowd-out' these ineffective governments and usurp them with market processes". I really think those business guys are too proud to see something they've created (a fruitful economic system of 'creative capitalists') turned over to the whims of democracy, whether those whims are warlike or otherwise.

But seriously, have we really seen the shrewd Bill Gates turn to the big-government side? Has he really become the establishment? I think he's just an engineer looking for a solution to a problem.

Martin Wolf writes:

You are begging the question. If shareholders owned the United States (or Zimbabwe), what institution would give (and protect) their ownership rights?

By the way, Douglass North advanced the theory that government would improve in a world of mobile factors of production and competition among states. It one of the explanations for the improvement of governance in early modern Europe.

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