The Supreme Court’s Supremely Inconsistent Same-Day Decisions

by Ron Baiman | July 17, 2014

Mad Tea Party Illustration

Originally posted at the website of the Chicago Political Economy Group (CPEG).

Let me get this right.

An association of people with an elected leadership with no direct authority over its members whose primary purpose (which its members get to vote on) is to benefit its members, is so potentially oppressive to its members that they have the right to not pay the association for any its benefits (like more than doubling their wages in the last 12 years even as the association is required by law to provide these benefits to them.

However, an association of people with unelected ownership-based leadership (some would say “class power”) that has direct authority over its members (in the sense that it can tell them – with some broad legal limits – what to do for 40 hours week, see for example: Economic Democracy by Robin Archer) whose primary purpose (in the U.S.) is to benefit its owner/leaders so that it is directly commanding its members to do things not in their interest but in the interest of the owner/leaders, has no oppressive power over its members but quite the opposite. The leader/owners of this association will be “oppressed” if they have to not discriminate in benefits that they are legally required to offer to their members.

Let me restate this is simpler terms.

In democratic organizations whose purpose is to benefit members, we’re worried that requiring members to pay for benefits that they have voted on and received, will violate their civil “right” to free-ride by not paying for received benefits?

But in authoritarian organizations whose overriding purpose is to benefit owners, we’re worried that requiring the owners to pay for legally required equal health benefits for women and men will violate their civil “right” to discriminate against women based on their religious precepts by denying them certain kinds of health benefits?

One more time.

In democratic organizations we’re worried about “top-down” oppression of members by not allowing them to “free-ride”?

But in authoritarian organizations we’re worried about “bottom-up” oppression of bosses by not allowing them to discriminate?

Yup. You got it. The first is the Supreme Court’s Harris v. Quinn decision, and the second the Hobby Lobby decision, both released on Monday, June 30, 2014.

You couldn’t ask for a better demonstration of the bankrupt “classic liberal” and Neoclassical Economic ideology of corporations as “private” actors with no social power, a “free and voluntary” realm of “equal exchange” contracts, vs. its view of unions as oppressive sources of tyrannical power that impinge on “individual civil rights”. What could be more backward!

And note that the standard argument that the power of “exit” makes the labor contract “voluntary oppression” (which is nonsense anyway as we all know most workers cannot just “quit” their jobs without potentially incurring severe costs to themselves and their families especially in the current economy with close to 10 million “officially unemployed!) doesn’t work here in any case.

Why is it somehow less oppressive for a women at Hobby Lobby to have to quit her job in order to find an employer who won’t discriminate against her, than it would be for an SEIU HCII member to quit his/her job to find one without an “oppressive” union forcing her/him to pay a “fair share” fee for raising his/her pay and benefits?

Oh but I forgot.

The second association is a “person” whose “civil rights”, including its “right” to impose its religious precepts on its members without their consent, cannot be violated. For example, even though it is an expressly undemocratic organization whose purpose is to serve its owners/leaders and not its members, it has a “free speech” “right” to use money derived from its members for political or other purposes over which they have no say.

But the first, democratic, association that works for its members does not even have the right to be compensated by its members for work that it does directly for them. This association is a potentially oppressive tyrant that is already is prohibited from using money derived from members for political activity without their consent.

Talk about “Alice in Wonderland” Logic – these guys (the five) belong in a rabbit hole not on the Supreme Court!

–Ron Baiman

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Piketty’s Model of Inequality and Growth in Historical Context, Pt 1

by Polly Cleveland | July 15, 2014

Quesnay_Tableau

The first economic model: François Quesnay’s Tableau Économique

In Thomas Piketty’s doomsday model, slowing of growth in the twenty-first century will cause an inexorable increase in inequality. Piketty is not the first to propose a grand model of inequality and growth. To get some perspective on his model, let’s see what the “classical” economists had to say (Part I), and how the “neoclassical” economists responded (Part II).

Part 1. The Classical Economists on Inequality and Growth

The first generation of “classical” economists, notably Francois Quesnay (1694-1774) in France and Adam Smith (1723-1790) in England, knew perfectly well where inequality came from. It was simply a fact of life that most land and other natural resources belonged to a small hereditary nobility. In England, some 2% of the population owned most of the land. This nobility, or their ancestors, gained their estates by force, favoritism, or fraud: that is, conquest, gifts from the king, or bribes to magistrates.

The classical economists recognized that landowners, large and small, received unearned income for the mere fact of holding titles protected by the state. They called this unearned income “rent”. Besides the landowners, these economists identified two other social classes: capitalists who received profit by investing or interest by lending, and workers who received wages. (Of course they recognized that the classes overlapped; successful capitalists soon bought land or married their daughters to landowners.)

Smith, witness to the English industrial revolution, proposed the first coherent theory of economic growth. At the start of his Wealth of Nations (1776), he explains how production increases dramatically when workers cooperate and specialize. This can happen both within an enterprise—he gives an example of a “pin factory”—and through market exchange. Hence both increase in population density and improved trade—greater “extent of the market” as Smith puts it—will generate economic growth. That’s why Smith, like Quesnay, advocated free trade, both domestic and international. They opposed government-granted monopolies, such as exclusive trading privileges given to the British East India Company. They also advocated shifting taxes off of activities such as transport and sale of merchandise and onto rent, by taxing land values—what Smith termed the “most equitable” of taxes.

Smith observed that growth was already improving workers’ living standards, as well as undermining the elite landholders. So in his view, growth reduced inequality.

The next generation of classical economists brought new and more dramatic perspectives to growth and inequality.

Thomas Malthus (1776-1834) claimed that workers’ wages would forever remain at “subsistence” due to their alleged propensity to breed faster than food production could increase. Any efforts to feed or otherwise assist the poor were actually counter-productive; the poor would just breed faster. By this logic, growth increased inequality, because the bottom remained stuck. This view, while pleasing to the elite, would have horrified the humane Adam Smith.

David Ricardo (1772-1823), Malthus’s contemporary and friend, proposed a “marginal” theory to explain the magnitude of land rent. The rent of a given parcel of land depends, he said, on its superiority to land barely worth using, that is, “marginal” land. Imagine you are a farm operator. How much more would you be willing to pay the owner of a fine flat parcel down in the valley over a remote, steep parcel you could use for next to nothing? That extra payment is your rent—income to the landowner for the mere fact of holding legal title to land. (Note that location is usually the most important component of land quality.)

Ricardo’s rent theory led him to propose a doomsday model even more frightening than Piketty’s. As population grows, he said, the economy must expand onto lower and lower quality land. Since rent depends on the difference between the best and the poorest land in use, more and more of the economy’s production will go to landowners as rent. Eventually the landowners will take so much that there won’t be enough to provide even starvation wages to workers or minimal profits to capitalists. Only improved technology and gains from trade can stave off collapse. Hence, Ricardo vigorously advocated free trade.

In the final generation of classical economists, two—Karl Marx (1818-1883) and Henry George (1839-1893)—attacked inequality with such force as to provoke a powerful backlash.

Karl Marx, a German revolutionary exiled to England, rejected Malthus’s wage theory. He focused on exploitation of workers by capitalists, among whom he now included landlords. However, like Ricardo, he predicted that growing inequality would lead eventually to a collapse of the capitalist system, and its replacement by a new socialist society. In effect, Marx said growth increases inequality, leading to revolution followed by equality.

Henry George’s bestseller Progress and Poverty (1879) threw a searchlight on the inequities of the late nineteenth century. With Marx, George rejected Malthus’s wage theory. He added his own twist to Ricardo’s theory of land rent. Just as marginal land determines rent, he said, it also determines wages—because a worker will not accept wages lower than what he could earn for himself on marginal land. But the greater the inequality of ownership of land (and other natural resources) the lower will be the quality of marginal land—and hence the lower the wages.

George also added a twist to Adam Smith’s theory of growth. Yes, growth results from cooperation and specialization, and the larger the population and the greater the “extent of the market” the greater the potential for growth. But also, the more equal the people, the greater their ability to cooperate. In George’s words: “association in equality is the law of progress.”

Marx saw history as progressing by action and reaction toward the inevitable overthrow of capitalism. By contrast, George combined his modified growth theory with Ricardo’s inequality theory to argue that progress carries the seeds of its own destruction: A fortunately-situated, relatively egalitarian society may begin to grow and prosper, expanding and attracting population. However this growth primarily benefits the holders of key parcels of land—such as parcels on the waterfront of port cities. As the economy grows, so does inequality. Wages fall, relatively if not absolutely. A wealthy, corrupt elite increasingly controls government. Eventually, the society collapses, or becomes so weak as to fall to invaders—as for example did the Western Roman Empire.

George feared this fate would soon befall the United States. Like his classical predecessors, he opposed government-granted monopolies, notably vast tracts of land handed to railroad companies like Southern Pacific. Also like his predecessors, he proposed shifting taxes onto the unearned income of land and other natural resources. But unlike his predecessors, George turned land taxation into a major and partially successful political crusade, not only in the United States, but in other countries, notably England and its colonies in Canada, Australia, New Zealand, South Africa and Hong Kong. In practice this meant increasing the land component of ordinary property taxes and removing the component on buildings and other improvements, a proposal easy to understand and implement back when property taxes were the primary taxes.

Marx and George—and the huge political movements they inspired—scared the pants off the elites of Europe and the United States. They had to be stopped, and not just physically. The classical focus on inequality and unearned income had to be disappeared from economics. As we will see in part II, that was the purpose of “neoclassical” economics.

–Polly Cleveland

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