September 16, 2009
Bonuses
Whilst we’re on the subject of financial crisis today, there’s an absolutely excellent piece over at Causes of the Crisis. The contention – that it was a crisis of regulation above all else – is, in my opinion, correct (though I’d whack in thoughts about massive trade imbalances with China to boot).
Now, I’m going to be a little cheeky and quote liberally from a part of that article to make another, related point:
Eventually scholars and pundits began to realize that even a burst housing bubble was not enough to have caused the crisis, since what we were experiencing was a banking crisis (albeit one that was triggered by a burst housing bubble). Many banks had invested heavily in triple-A rated tranches of subprime mortgage-backed securities, and when delinquencies and defaults on subprime mortgages began to spike, the price of these tranches began to fall, calling into question the solvency of banks that had invested in them. But since nobody knew which banks had the biggest subprime investments, or how far the value of these investments would eventually fall, the effect of the sudden re-evaluation of their soundness was to trigger interbank panic, a lending freeze, and the recession; or so most scholars now believe.
How can the banks’ investments in subprime mortgage-backed securities be explained? Here, too, “irrationality” could be invoked, since it can be used as an all-purpose tool to “explain” any error. But self-interest, i.e., “greed,” is always the most popular explanation among economists—and the general public. So a new idea took root: Far from being irrational, bankers knew how risky these investments were, but made them anyway because they were paid big bonuses for short-term profits.
This “executive compensation” theory of the crisis is now the keystone of the conventional wisdom, having been embraced by President Obama, the leaders of France and Germany, and virtually the entire financial press. But if anyone has evidence for the executive-compensation thesis, they have yet to produce it. It’s a great theory. It “makes sense”—we all know how greedy bankers are! But is it true?
The evidence that has been produced suggests that it is false.
For one thing, bankers were often compensated in stock as well as with bonuses, and the value of this stock was wiped out because of the investments in question. Richard Fuld of Lehman Brothers lost $1 billion this way; Sanford Weill of Citigroup lost half that amount. A study by René Stulz and Rüdiger Fahlenbrach showed that banks with CEOs who held a lot of stock in the bank did worse than banks with CEOs who held less stock, suggesting that the bankers were simply ignorant of the risks their institutions were taking. Journalists’ and insiders’ books about individual banks bear out this hypothesis: At Bear Stearns and Lehman Brothers, for example, the decision makers did not recognize the risks until it was too late, despite their personal investments in the banks’ stock.
Perhaps the most powerful evidence against the executive-compensation thesis, however, is that 81 percent of the mortgage-backed tranches purchased by banks were rated AAA, and thus produced lower returns than the double-A and lower-rated tranches of the same mortgage-backed securities that were available. Bankers who were indifferent to risk because they were seeking higher return, hence higher bonuses, should have bought the lower-rated tranches universally, but they did so only 19 percent of the time. And most of those purchases were of double-A rather than A, BBB, or lower-rated, more-lucrative tranches.
This is spot-on. Bonuses did not cause the crisis.
But it does not follow that bonuses don’t matter. They do.
They matter because they represent a small strata of society acquiring income, and in turn eventually wealth, which is vastly in excess of what others in society can expect to receive. The vast income inequality that results is not a defensible consequence of proportionate remuneration for the work that bankers do: pushing numbers on computer screens and finding ways to exploit risk (with, as it turned out, taxpayer guarantee if it all went wrong) to make obscene profits for obscenely large and irresponsible corporations.
Partly, this is because I do not believe that bankers do a particularly useful job: rather than fawning over them as “free-wheeling innovators” and “the entrepreneurs that power our economy” as the rightist myth has it, I’m inclined to believe with FSA chairman Lord Turner that much of what bankers do has no “socially useful” purpose. Correspondingly, I find it hard to believe that they deserve or are worth the sums they receive for their socially useless activities.
And I find it especially hard to believe that they deserve or are worth those sums when there are people in this country who have so little – many of them being children, who cannot be blamed for their poverty, and yet whose poverty has already stunted their chances of being anything other than poor due to the fact social mobility in this country is not only bad, but getting worse. This is all compounded by the fact we now know that excessive inequality is bad for everyone.
The problem with bonuses was never that they “caused the crisis”. They didn’t. The problem with bonuses is that they represent the sharp-end of a society which is riven by indefensible inequalities and poverty. In their egregious levels of remuneration, bonuses exemplified (and precipitated) the very worst of this. Bonuses were obscene and indefensible before the crisis, and they are obscene and indefensible after the crisis. That they did not cause the crisis was never the point. Old-fashioned, unashamedly left-wing thoughts about unjustifiable inequality and poverty were the point. Compass’ High Pay Commission, please take note.
Tom said,
September 16, 2009 at 5:42 pm
Good post.
There are a couple of other points that need to be emphasised:
1) CEOs and employees of banks are not entrepreneurs, and the belief that they are damages entrepreneurship because it suggests that gambling with other people’s money is what entrepreneurship is all about. We need more James Dysons and Larry Pages and Sergey Brins and fewer overpaid moneymen.
2) Financial incentivisation does not necessarily assist in creativity. As Dan Pink points out in this video, the idea that people’s creativity is maximised by financial incentivisation is incorrect. In the kind of creative jobs that most of us will be working in over the coming decades, people work best when given freedom, autonomy, and independence to pursue work they know to be important.
3) The notion that high-taxes and greater wealth-redistribution is bad for economic growth is illogical (this is an argument I try to make here vis a vis crude Internet libertarianism). If there is a weak welfare state people will have a lower incentive to experiment and innovate by setting up new businesses than if they have a reasonable guarantee of security if they fail.
Equality, as you say, is important for many reasons beyond basic principles of justice.
Dan said,
September 16, 2009 at 6:11 pm
I find it hard to believe that they deserve or are worth the sums they receive for their socially useless activities.
But no-one (or no-one sensible, at any rate) is says that people should get the bonuses because they deserve the money. Sensible folk like me say that the bankers should get their bonuses because they are entitled to the money which they earn, because every person is the morally rightful owner of himself and his own labour, etc etc. It is not up to you, me, and certainly not the state to start working out who ‘deserves’ what, because it is not your, mine, or the state’s money (well, ignoring the fact that in the banking sector it probably *is*) at stake. The idea that there should be a Central Desert Board to decide how much people ought to earn based on whether or not they are Socially Useful sounds terrible to me on the best of days, even ignoring the disastrous economic consequences and the potential (looking at history, most likely to be realized) for bad people to rise to the top.
Having said all this, yes, the banking sector is currently a scam, and yes it should be shut down tomorrow (all that needs to happen is for the state to withdraw the special privileges it gives to its banker friends), and yes, with the standard Hayekian reservations about the coherence of the term I’d even probably agree it is socially useless. But the way to sort it all out is the let a gale of competition blow through the whole rotten system. I won’t defend the bankers, but I will defend free markets.
As for your whole luck egalitarian part, you seriously need to read some of Susan Hurley’s work on the topic – she argues at a reasonably high level of abstraction, but is extremely convincing that appeals to luck and responsibility are either fundamentally incoherent, or blatently question begging.
Dan said,
September 16, 2009 at 6:15 pm
Tom,
I mostly agree with your points 1 and 2 (although IMO they don’t exactly militate towards equality). As for point 3, I’d highly recommend this paper by Gwartney et al (http://www.cato.org/pubs/journal/cj18n2/cj18n2-1.pdf), in particular figures 2 and 3 (probably my favourite graphs in the world). I know, I know, it’s in the Cato journal, but all of the data they base those graphs on is publicly available from the OECD.
Tom James said,
September 16, 2009 at 10:08 pm
Thanks. Food for thought on the cato paper…
Paul said,
September 16, 2009 at 11:20 pm
Tom,
be warned, Dan is the Bad Conscience house libertarian. Most of what he says is insane (:P) so take him with a pinch of salt.
As for the Cato institution, they’re a bunch of mentalists too. (I speak as the editor of a newsletter which is running a contribution from that very think tank, incidentally. Watch this space).
Dan,
Yes, you go down your mental entitlements deontological libertarian route as usual, and I will as usual refuse to follow yada yada yada (we’ve been here before, many many times). Although I am loving your final implication that under the present system the best rise to the top, as oppose to, you know, having been born to wealthy(ish) parents able to secure them good educations and connections at crucial junctures in their lives.
and with all the standard leftiest reservations, I think I can partially agree. This, as we’ve established before, is one area (like drug decriminalisation/legalisation), where we can agree: I think a healthy dose of competition would do the financial institutions wonders. Problem is, how you going to introduce it? Looks like breaking up the banks to be small enough to fail is necessary, and who’s gonna be able to do that? Hmm, not the minimal state…
(Obviously, post-introduction of more competition, i’m going to want to establish a state that mitigates for the undeserved ineqaulities and horrible consequences of unrestrained markets, you don’t believe those things exist ergo no big state required yada yada yada circles we go around in again yada yada)
I’ll go for question begging. On the grounds that they rest on an unarged appeal to the claim: "It is morally bad for people to suffer from inequalities (which they do not deserve), because cet par inequality is bad.
I’m fine with that. As Ive said before, I dont think you can rationally establish that inequality is bad and equality is good (cet par). I think it’s a basic moral value you either ascribe to (more or less) or don’t (more or less). As established before, I ascribe to it, you don’t. I’ve long since given up hope of being able to argue you out of your position. If you think i’m "question begging, fine. I call it a foundational moral principle that defines who I am. Foundations of ethics, limits of philosophy etc etc…but as I’ve said before (yada yada yada) I’ll fight to stop your world coming about, because that’s how important i think it is. Thankfully, though, there’s even less chance of libertopia than of leftie liberal utopia coming about (though not much of that, either). So as remarked last month, we continue to piss into the online wind.
yada yada yada yada ad infinitum ad nauseum
Dan said,
September 17, 2009 at 1:39 pm
Although I am loving your final implication that under the present system the best rise to the top, as oppose to, you know, having been born to wealthy(ish) parents able to secure them good educations and connections at crucial junctures in their lives.
I think you misunderstand what I was saying, which is that in *politics* there is a tendency for the worst to rise to the top. (Frank Knight’s famous quote comes to mind: “The probability of the people in power being individuals who would dislike the possession and exercise of power is on a level with the probability that an extremely tender-hearted person would get the job of whipping master in a slave plantation.”) It is the distribution of *power* that matters, not the distribution of *wealth*, and one of the fundamental reasons why libertarians like me advocate curtailing the state is so that the two are distinct.
I wasn’t arguing that the market brings about a distribution perfectly based on merit, although as an empirical matter I think capitalism approximates a meritocracy more than a lot of folks on the left think. (Recent social scientific research on heredity, particularly adoption- and twin-studies should give people on the ‘nurture’ and social environment side a lot of pause for thought: for instance, the graph at http://www.marginalrevolution.com/marginalrevolution/2009/08/the-inheritance-of-education.html is very striking, I think.)
Anyway, aside from all the yada yada yada, I have a question. Suppose you get your way, and manage to found an egalitarian utopia somewhere on the planet. Would individuals be free to exit, if they so chose? In other words, imagine you have a West/East Germany situation, one side egalitarian, the other not. Would you build the Berlin Wall?
Paul said,
September 17, 2009 at 1:45 pm
Yes, to stop your side coming over and recking ours.
Ste For Sure said,
September 17, 2009 at 2:11 pm
I love Dan’s implication that in an “egalitarian utopia” folk would all be desperate to run across the border and work for slave wages for LibertyCorp.
Dan said,
September 17, 2009 at 2:55 pm
I love Dan’s implication that in an “egalitarian utopia” folk would all be desperate to run across the border and work for slave wages for LibertyCorp.
Some would, some wouldn’t. In an egalitarian utopia, presumably, earnings would be controlled for ‘morally arbitrary’ factors; there would be a lot of people not being paid anything like their full marginal product. If there is even slight competition for labour in Libistan (and obviously I think there would be), the most productive individuals would be materially better off there. So what does the egalitarian utopia do when these productive individuals get uppity about being exploited and want to leave? I’d genuinely like to know.
Paul said,
September 17, 2009 at 3:18 pm
Well Dan, if we’re talking about Utopia, I guess the citizens of this Utopia will probably have and share a Cohen-esque ethos of justice, and will see the benefits of their maringal product – which rest ultimately upon arbitrary factors – as needing to be redistributed (probably through taxation, not necessarily an earning cap) to wider society in the interests of living in a just society to the benefit of all.
They persumably wont want to go and liver in Libertstan on the basis that in Liberstan they could have more, more MORE! for themselves, due to the fact in SocioUtopia they not only have enough for themselves, but can participate in helping ensure that their fellow human beings do too – and, possessing a socialist ethos of justice, that’s just fine for them.
Is now a good time to point out that a) I am not a socialist, b) I know such a utopia is impossible, c) I don’t advocate trying to establish such utopias?
Can we now stop with the silly thought experiment about walls, and the freedom for those who through luck of birth arbitrarily posses highly-remunerated “talents” to abandon those less fortunate for themselves, and the presumed implications that I’m some sort of dictator who would shoot these talented peeps as they swim across the river?
It’s silly, and you know that it is.
Ste For Sure said,
September 17, 2009 at 3:40 pm
“I’d genuinely like to know.”
you would genuinely like to know what lefties would do if in a hypothetical utopia some people wanted to move to another hypothetical utopia. really? thats the kind of question you think is important to know the answer to? you don’t think that is an utterly utterly absurd point of departure for political debate?
again we see the weird, cult-like detachment from the real world characteristic of all the libertarians iv ever spoken to (and that includes Peter when he was 16 *sorry mate*)
Dan said,
September 17, 2009 at 3:45 pm
Perhaps I shouldn’t have used the word “utopia,” bringing as it does connotations of universal perfect compliance. What I really mean, I guess, is what you think the right thing to do would be if you were in charge of a government given reasonable assumptions of human nature (e.g. that not *everyone* will motivated to live their lives wholly by a stringent egalitarian ethos, that *some* people are self-interested, etc). If you like you can even assume against all the evidence that egalitarian and capitalist economies will be on a par, because the point about productive individuals standing to gain more by moving still stands.
I’m not especially trying to catch you out, I’m just genuinely interested how far your egalitarian convictions lead you and what your intuitions say on this matter. Of course, I do think that it would be morally abhorrent to fence in those talented people who want to leave (you may write this off as hyperbolic but I think we’d be getting beyond ‘on a par with forced labour territory and entering ‘actual slavery’ territory), but I am genuinely interested in how you’d resolve the dilemma. It’s not a particularly contrived or fanciful or silly situation, you have to admit that there have been real historical examples which are not exactly dissimilar. And I also think it is one of the major defects of egalitarianism that (as far as I can tell) the choices are either a) fence people in, b) make the entire world egalitarian, or c) see your economy drained of productivity. As you’re a reasonably smart egalitarian, I’d be interested to hear your thoughts.
Dan said,
September 17, 2009 at 3:48 pm
you would genuinely like to know what lefties would do if in a hypothetical utopia some people wanted to move to another hypothetical utopia. really? thats the kind of question you think is important to know the answer to? you don’t think that is an utterly utterly absurd point of departure for political debate?
Well you can see above that I’ve tried to clarify the example a bit, but yeah, I do think it is quite an interesting topic. I don’t know that it’s particuarly *important* with respect to political debate, but then again, neither is posting on comments threads on blogs and seeing as we’re both guilty of that I’m not sure you can really talk.
Paul said,
September 17, 2009 at 3:55 pm
Very briefly:
Of course we can’t fence people in. That would be abhorent, I agree.
But then, I’m not advocating an over-night switch to stringent egalitarianism that seeks to bring about even Rawlsian levels of inequality (i.e. only that which can be justified insofar as it makes the worst off better off).
I advocate more gradual shifts towards compensating for the ENORMOUS inequalities we have now, and moving to something which takes better account of the morally arbitrary nature of a great deal of present inequality (and poverty), and seeks to redress that through, in particular, redistributive taxation, but also (and here I get all wishy washy), changing the social emphasis away from self-acquisitive individualism and towards collective endeavour; away from competition and towards co-operation. I don’t think human beings have to be wired up to be as individualistic and self-acquisitive as they currently are (and are encouraged to be). I think they can be far more compassionate and collective-minded.
Advocating this shift and doing things like actually reducing inequality could, I believe, in turn encourage many people not to view life as a dog-eat-dog capitalist competition with each other, but in time, as a collective endeavour, part of which’s role is to correct for arbitrary factors which if left uncheck lead to suffering and injustice and inequality.
Now, it’s a given that *some* people still won’t want to stay before, after or during the gradual social reconstruction. They must be free to leave: the consequences of preventing them doing so would indeed by totalitarian and horrific.
The reason I’m not particularly bothered about this is that I don’t think many *will* leave. Partly, many may come to see (a la Spirit Level) that a more equal society actually benefits them in many ways, partly others just won’t want to leave their friends, families etc and will choose to put up with it, albeit begrudgingly. Some will leave, sure. But I don’t think it’s a massive problem for a developed nation state.
After all, that high-tax hell hole known as Sweden hasn’t apparently experienced a mass-exodus of The Talented, thus leaving it’s economy crippled and flailing…
(whereas some low-tax paradises – Iceland, Cayman – seem to be doing decidely less well, hmm?)
Tom James said,
September 17, 2009 at 4:18 pm
I’m rather more interested in the empirical answer to the following question:
“What is the nature of the relative costs and benefits of a robust welfare state[1] vs. a more free market economy[2]?”
Are the two even contradictory (I’m thinking specifically of the economy of Denmark or the Netherlands, which are strongly free-market yet also high-tax and high-welfare countries that have higher GDP/capita than we do in the UK)
Also Dan, re:
“It is the distribution of *power* that matters, not the distribution of *wealth*”
Wealth leads very easily to power, does it not? And more pertinently a lack of wealth (i.e. poverty) leads to a lack of power. I’m all for further demoratisation of the state and tearing down hierarchies but we need to focus on both ends of the candle.
“capitalism approximates a meritocracy more than a lot of folks on the left think.”
On the contrary. Merit is irrelevant. What matters in capitalism is what is in demand. Football players now are paid more than football players of 50 years ago. This fact is not down to greater skill at football amongst the current generation, but entirely down to the fact that demand for good footballers is considerably higher.
And utopia is utopia.
[1]: i.e. high levels of unemployment benefit/health benefit/subsidised public transport funded by honest tax’n'spend (as opposed to PFI and “playing at shops” in the public sector).
[2]: Less bureaucracy, red tape, stronger anti-trust laws, open borders etc.
Paul said,
September 17, 2009 at 4:30 pm
Tom,
I don’t think the concepts of “robust welfare state” and “free market” are as amenable to those covnenient definitions as you suppose, ergo the dichotomy you set up and the apparent dilemma you wish to face is something of a chimera.
“Wealth leads very easily to power, does it not? And more pertinently a lack of wealth (i.e. poverty) leads to a lack of power. I’m all for further demoratisation of the state and tearing down hierarchies but we need to focus on both ends of the candle.”
As a good Libertarian, Dan will refuse to recongise that being poor = having less power. Apparently, freedom and power are only affected by the state, and the impacts of, say, the market don’t count.
“On the contrary. Merit is irrelevant. What matters in capitalism is what is in demand. Football players now are paid more than football players of 50 years ago. This fact is not down to greater skill at football amongst the current generation, but entirely down to the fact that demand for good footballers is considerably higher.”
No, Dan is right to an extent (and you are wrong to say that merit is “irrelevant”, which is a statement too far).
Dan is trying to make the point (i think) that capitalism does map on to merit in some important ways: e.g. compared to Soviet Russia, merit (rather than skullduggery and sheer evil) may get you to the top, and conversley in Soviet Russia lots of very merit-holding people made it absolutely nowhere because the system was profoundly shit.
Dan is making a fair point that capitalism is meritocratic, to an extent.
The correct reply is: under prevalent conditions, it’s not meritocratic enough
To which Dan replies: let’s have more competition, smaller corporations and less state interference then
To which the correct reply is: OK to the first two (esp the second), but nay to the third, for the state is required to correct for the worst failings of capitalism, e.g. when it fails to be meritocratic, or when meritocracy leads to the abandonment of the poor (e.g. because they are deemed to “lack merit”, or because the so-called meritocracy lacks genguine equality of opportunity due to entrenched structures of privilege) etc. Egalitarians like me then want to say something else, that goes: meritocracy isn’t enough, because it doesn’t compensate for the arbitrary fact that many people are born without “merit” as defined in the capitalist system, and hence their lives go considerably worse. (Dan then says “I’m unmoved by your considerations of the arbitrary, and i’m not bothered about equality, either”. This is the point where I decide he’s morally wired-up in a fundamentally different way to me…and I edge slowly to the door in fear).
Also, after this point we fall out about all sorts of questions about what the state can/cannot achieve empirically, and about the philosophical nature of freedom, self-ownership, coercion etc etc etc etc
Ste For Sure said,
September 17, 2009 at 7:10 pm
Dan,
yeah, i went too far there…crossed the line of internet banter into being unjustly offensive. sorry about that.
Dan said,
September 17, 2009 at 9:08 pm
Peter,
good post, and precisely the kind of thing I was looking for. I actually don’t find that much in there I take exception to; if you want to edge towards a society with that kind of redistributive/socialistic ethos by voluntarily convincing people that it is the best/most just way to live, I of course have no problem with that. The main thing for me is that people have freedom of exit. (I’m increasingly coming round to the view that the best proxy for freedom is freedom of exit; my ideal world would probably be one of about 10 000 different city-states with varying political systems and freedom of exit.) Sweden is an interesting example, because it a) has extremely high economic freedom despite the levels of taxation and is b) small and ethnically homogeneous. I can see a reasonable number of people being attracted to places like this if they had the choice – even quite a few talented types who could be seen as losing out by staying but who keenly feel the tight social bonds. I am not personally one of these people, but I recognise that some folks are into that sort of thing. I reckon the numbers who go in for it will be less than you expect (Nozick has a nice little essay called Who Would Choose Socialism; the admittedly unscientific but still interesting answer is something like 9% of the population.)
Dan said,
September 17, 2009 at 9:45 pm
Tom,
Wealth leads very easily to power, does it not? And more pertinently a lack of wealth (i.e. poverty) leads to a lack of power. I’m all for further demoratisation of the state and tearing down hierarchies but we need to focus on both ends of the candle.
The whole point of classical liberalism is that it sets things up in way such that it does not. We are actually closer to a left-critique of Marxism in the respect that we realize that the more powerful the state, the more appealing a target it is for capture by special interests. Stuff like bailing out bankers offends me deeply, but what a lot of folks on the left don’t appear to understand is that by simply ceding more powers to the state, adding more layers of regulation, and putting up ever greater barriers to entry, the mutual interconnectedness between big business and big government gets ever larger and meanwhile the worst off in society do not even get a look in.
Power, at least in the sense in which it should be minimized or decentralized, is a measure of the ability of someone to get *other people* to do stuff against their will. In some sense, sure, the wealthy are more powerful than the poor: they have more stuff at their disposal, and they can do more with it. But when it comes to interpersonal relations, I see the kind of power that money brings (in the absence of a state) as far less invidious than the power official positions bring. Imagine for a minute that you have to choose between a) living in a minimal state which protects persons and their property, with Bill Gates (i.e. the most powerful individual) extremely pissed off at you or b) living in a socialist world with the head of the Central Planning Board extremely pissed off at you. I know which one I’d prefer, personally. I think Hayek put it nicely when he said:
“the “substitution of political for economic power” now so often demanded means necessarily the substitution of power from which there is no escape for a power which is always limited. What is called economic power, while it can be an instrument of coercion, is in the hands of private individuals
never exclusive or complete power, never power over the whole life of a person. But centralised as an instrument of political power it creates a degree of dependence scarcely distinguishable from slavery.”
On the contrary. Merit is irrelevant. What matters in capitalism is what is in demand. Football players now are paid more than football players of 50 years ago. This fact is not down to greater skill at football amongst the current generation, but entirely down to the fact that demand for good footballers is considerably higher.
Obviously meritocracy is a disputed concept, but I take it to mean something along the lines of “a system of social organization in which offices and positions are assigned with respect to talent and aptitude for the job.” Of course no system manages to fulfil this perfectly, but I reckon that capitalist competition generates a process by which it is pretty well approximated. Certainly at least in comparison to other real-world systems. Note that the level of inequality in a society is underdetermined by whether it is a meritocracy or not.
Paul said,
September 17, 2009 at 9:56 pm
Dan,
Sorry your comment got caught in the spam net.
1. Don’t confuse me with that po-faced, lilly-livered sissy known as Peter (Hawkins), thank you very much.
2. “precisely the kind of thing I was looking for”, oh good, i’m glad you are pleased. You are being rather condensending today, I must say. In light of having met your criteria, do I get upgraded from “reasonably smart” to “smart” now? :P (Oh, my competitive side really wants to be juvenile and start comparing final honours scores…:P)
3. Re freedom of exit. You are such a bloody Lockean. Not just the entitlements stuff, but freedom to go elsewhere and start anew…please tell me you’ve read the second treatise? If not, you are in for a treat….
4. Got a reference/link for ‘ol Robbie’s essay?
Re your comments to Tom:
Tom, like I said, Dan is a mentalist so be careful. Especially given that he’s a very intelligent and eloquent mentalist. Don’t get sucked in by his siren song (and remember you’re at a disadvantage cos Dan’s just finished 3 years of Oxfrod and from your comments on the other thread, I take it you are about to embark on the University “experience”
Though Dan, this:
is an interesting maneouvre.
So, bailing out the banks = increasing the size of the state? Because it rests on the introduction of more regulation? Where, exactly, is this new regulation??
Nah, I have a different take (see post on Lehman’s): we’re moving into an era where the state gets marginalised. Mega corporations are increasingly in the ascendency.
Interestingly, I think we may find increasing common ground as these buggers grow…
Paul said,
September 17, 2009 at 9:57 pm
sorry for pathetic grammar and punctuation
am off for a while now
can’t be bothered editing
Dan said,
September 18, 2009 at 1:26 pm
Paul,
1) Oops, sorry bout that.
2) Yeah I didn’t mean to come across like that – “reasonably smart” is me being effusive. As for finals marks, I’ll show you mine if you show me yours…
3) They will probably take away my libertarian membership card for saying this, but no I have never read the whole thing. I didn’t even realize he emphasized freedom of exit – might have to pop down the library…
4) Can’t for the life of me work out who Robbie is, but if you mean the Hayek quote (which as far as I can tell is the only thing I quoted), it’s from the Road to Serfdom, Ch 10.
So, bailing out the banks = increasing the size of the state? Because it rests on the introduction of more regulation? Where, exactly, is this new regulation??
I meant the cries from the left of “more regulation!” – you’re right, though, that to a substantial extent it hasn’t come through. I like to distinguish between the scope of the state, roughly the areas of life within which it is in primary control, and its size. And the bailouts have increased both, as far as I can tell: the sheer cost of the billions which have been funnelled to the banks, and the unprecedented control and influence of the government in the banking sector (i.e. in the US, a ‘pay czar’ setting the wages of publicly subsidized banks). Now a lot of folks on the left reflexively cheer at any furthering of government involvement in the economy, but they shouldn’t. The idea that once big business and big government get deeper into bed together, they are suddenly going to turn around and start making life better for the little guys is depressingly popular and incredibly naive. It is not true now, and there is a substantial literature showing that it was never true (i.e. Gabriel Kolko’s, a historian with impeccable leftist credentials, book about the New Deal, *The Triumph of Conservatism*).
This is partly why I can’t see your “rise of the corporations, marginalization of the state” story coming true. The truth is that large corporations fear nothing more than competition: they are well aware that in a competitive market, their market position is highly precarious and liable to be overturned at any moment by a smaller and more vigorous rival. Hence, they use their size and influence to lobby the state for special protections and privileges and to erect barriers to entry. Confusing as it may be to leftists, this is why big business is often the biggest cheerleader for more regulation: they realize that their increased size allows them to handle the fixed costs of regulation better than their smaller competitors, and they recognize that their political clout will enable them to influence the content of that regulation to work out in their favour even while giving the external impression of ‘government getting tough on business’. Mega corporations, with the exception of the small few who are genuinely competitive and would remain so in a freed market, cannot maintain their market position without massive state support, which is why I am sceptical that one will ever be able to thrive without the other.
Paul said,
September 18, 2009 at 2:37 pm
re 2) No, i’m going to do my best impression of a grown up and desist from such childish impulses.
re 3) Yes, freedom of exit is huge in Locke. Indeed, it underpins his entire theory of consent (which is nowhere near as silly as has often been said or implied) and also has a lot to do with the extent to which he thinks there are enough unowned resources to go around for a labour-mixing theory of property to work…but this is because he is operating with a great big “unclaimed” wilderness called America in his thought (America was “unclaimed” cos Indians didn’t labour-mix, they moved around, and hence it was fair-game for the white man; this is a massive hole in Locke’s thinking, obviously, as it basically led to one of the justifications for genocide). But basically, Locke thinks: if you don’t like it here under the King of England, off to the State of Nature which is America with you, where you can be your own king and mix your labour with the resources on offer to establish your entitlements etc etc. So, incidentally, a lot of Locke’s thought isn’t directly applicable to the modern world because America is now a nation state with most things claimed under existing legal property rights. But yes, if you call yourself a “Classical Liberal” it is inexcusable not to have read the Second Treatise! (Even if you weren’t this way inclined politically, it’s a truly fantastic piece of work that anyone with an interest in political thought should read).
If I said marginalisation (I can’t be bothered to check if I did), then I shouldn’t have. The story I want to tell/predict is much more complex than the state being marginalised by corporations. I’m thinking about dramatic changes in the way entire power structures are composed. I don’t equate this with the state being “marginalised”, necessarily. Your analysis has a lot in it that I agree with. (Incidentally, a slightly silly comparison, but The Corporation in the first two Alien films, which is monolithic and represents some ungodly hybrid of the totalitarian state and the monopolistic mega-corporation represents one possibility of what I’m driving at, though obviously real-world analysis will be much more nuanced than a Sci Fi film, lol).
I guess I agree with this to a large extent, actually, but have a reservation to make: mega corporations advocate specific kinds of regulation which they use to squeeze out competition – but that also means lobbying against regulation that would actually have a negative impact upon them. So the leftists may still be right at root: more regulation is needed – but they get lost along the way and miss the nuances that you point to regarding what kinds of regulation, and how it is enacted and targetted, are required.
As usual, blanket calls – in this case, “more regulation!” – aren’t helpful or productive for the goals motivating the calls.
I’m actually getting really interested in this side of stuff: we have a lot of common ground here, and I think that’s significant re the scope and nature of the problem being faced (and the fact that many aren’t even spotting the problem implies to me that this is a key dimension of it)
Rob said,
September 19, 2009 at 6:11 pm
I fail to see what’s so terrible about denying a right to exit. We deny people rights to exit morally required arrangements all the time. I’m not saying that I would deny people a right to exit, but I fail to see why it would be a reductio if one did. And I suspect the less said about libertarian insistence that it’s only a limit on freedom when property rights get enforced if it’s not libertarian property rights that get enforced, the better.
Dan said,
September 21, 2009 at 12:56 am
And I suspect the less said about libertarian insistence that it’s only a limit on freedom when property rights get enforced if it’s not libertarian property rights that get enforced, the better.
If you really feel this way, I’m puzzled why you would be the first to bring it up. That the Berlin Wall was a restriction on the freedom of East Germans does not exactly require any controversial theory of freedom now, does it?
Rob said,
September 22, 2009 at 10:31 am
Because at no point did the libertarian denial that the property rights distinctive to laissez-faire capitalism come up in the above thread. No, it was never denied that private property rights are a form of power, never. And thinking that scepticism about libertarianism’s moralised theory of freedom implies that I would deny that the Berlin Wall was a limit on freedom, as libertarians (tend to) deny that libertarian property rights are limits on freedom, well… The point I was making was that we deny people rights to exit from morally required arrangements all the time. Even libertarians think that you can’t simply refuse to participate in schemes of mutual respect for each others rights, for example. So I don’t see why denying a right to exit – which of course wouldn’t have to be done in as militaristic a manner as the Berlin Wall did: other border arrangements have existed – is so problematic.
Dan said,
September 24, 2009 at 10:50 am
Because at no point did the libertarian denial that the property rights distinctive to laissez-faire capitalism come up in the above thread.
I have no idea what proposition this is supposed to express, it seems to be missing a verb.
No, it was never denied that private property rights are a form of power, never
Oh, you mean where I said “In some sense, sure, the wealthy are more powerful than the poor,” or “I see the kind of power that money brings (in the absence of a state) as far less invidious than the power official positions bring” (note, “far less invidious,” not “non-existent”) or even when I approvingly quoted Hayek as saying “What is called economic power, while it can be an instrument of coercion…”
You clearly have a bit of a chip on your shoulder about libertarians, but that doesn’t mean you have the right to spout bullshit and mischaracterize what people have actually said.
The point I was making was that we deny people rights to exit from morally required arrangements all the time. Even libertarians think that you can’t simply refuse to participate in schemes of mutual respect for each others rights, for example. So I don’t see why denying a right to exit – which of course wouldn’t have to be done in as militaristic a manner as the Berlin Wall did: other border arrangements have existed – is so problematic.
Of course the difference is that a libertarian scheme of rights only entails *negative* duties, those of refraining from interference with persons and their justly acquired property. There is a huge gulf between forcing people not to interfere with others, and forcing people to stay inside a country against their will to coerce them to work in order to benefit others. The former is entirely reasonable and a precondition of civilized society; the latter is morally abhorrent and on a par with slavery.
Paul said,
September 24, 2009 at 11:04 am
I have to say – as a man with a chip on his shoulder about libertarians – that I think Dan has some very good points.
Rob, you’ve just not done the work required to entitle you to be so dismissive of Dan’s position(s).
And I’m inclined to side with Dan on the rights to exist question as it has been constructed. Whilst we do deny people rights to exit in all sorts of other circumstances (incidentally none of which, Rob, you have specified), it doesn’t thereby follow that there is no problem with denying people the right to leave a country and settle elsewhere, should they so choose.
I don’t think you need to be a libertarian to conclude that denying people the right to exit/end their citizenship and residency is very, very worrying: Dan calls it “slavery” because of the apparent economic motivations for keeping those people within a given territory. I’m not sure I want to endorse the underlying libertarian thoughts. So I’ll just stick with “unjustifiable imprisonment”.
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