Relevant and even prescient commentary on news, politics and the economy.


by Sandwichman  (re-posted with author’s permission):

In his Essay Concerning Human Understanding, John Locke affirmed, “I do not question but that human knowledge, under the present circumstances of our beings and constitutions, may be carried much farther than it hitherto has been, if men would sincerely, and with freedom of mind, employ all that industry and labour of thought, in improving the means of discovering truth, which they do for the colouring or support of falsehood, to maintain a system, interest, or party, they are once engaged in.”

In Takings: Private Property and the Power of Eminent Domain, Richard Epstein, henceforth Professor Piestein, gave the quintessential demonstration of how to employ “all that industry and labour of thought… for the colouring or support of falsehood.” In his “philosophical preliminary” chapter, “A Tale of Two Pies” Professor Piestein purported to illustrate, with a drawing of two pies, a Lockean perspective on “how natural rights over labor and property can be preserved in form and enhanced in value by the exercise of political power.”

Here is what Professor Piestein’s pies looked like. Sandwichman coloured them in to make them prettier:

And here is what Professor Piestein wrote about his pies:

The larger pie indicates the gains that are possible from political organization. The outer ring represents the total social gains, while the dotted lines indicate the proportion of the gain received by each individual member. The implicit normative limit upon the use of political power is that it should preserve the relative entitlements among the members of the group, both in the formation of the social order and in its ongoing operation. All government action must he justified as moving a society from the smaller to the larger pie.

A couple of questions go unasked and, of course, unanswered by Professor Piestein.

Why should we assume that the unequal endowments are the consequence of natural rights rather than a backward projection of the inequalities imposed in political society by its rulers? Second, even if the unequal endowments had been present in nature, why should that make the more fortunate individuals entitled to a proportionately larger share of the social gains, since they are, after all, social gains? In The Natural and Artificial Rights of Property Contrasted (1832), Thomas Hodgson wrote:

Laws being made by others than the labourer, and being always intended to preserve the power of those who make them, their great and chief aim for many ages, was, and still is, to enable those who are not labourers to appropriate wealth to themselves. In other words, the great object of law and of government has been and is, to establish and protect a violation of that natural right of property they are described in theory as being intended to guarantee.

What would Locke say? I’ll not waste your time with a pile of extraneous exegesis and superfluous hermeneutics. Number VIII of Locke’s Essays on the Law of Nature was titled, “Is Every Man’s Own Interest the Basis of the Law of Nature? No.” Number VIII was the source for several of the arguments in Chapter Five, “Of Property,” in Locke’s Second Treatise on Civil Government.

What part of the word “no” did Professor Piestein not understand?

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"Of Property" and the Mercantilist Fallacy

  Sandwichman at Econospeak offers a look at a piece of history:

“Of Property” and the Mercantilist Fallacy

“Though the earth, and all inferior creatures, be common to all men, yet every man has a property in his own person: this no body has any right to but himself. The labour of his body, and the work of his hands, we may say, are properly his. Whatsoever then he removes out of the state that nature hath provided, and left it in, he hath mixed his labour with, and joined to it something that is his own, and thereby makes it his property.”

The above is the core of what is commonly referred to as John Locke’s “labour theory of property.” It is a extraordinarily compelling narrative, resplendent with “self-evident truth” (“We hold these truths to be self evident…) and nearly indiscernible ambiguity (what does “labour” mean? what’s “mixing” got to do with it?).
It is widely acknowledged by Locke scholars that his economic views were essentially mercantilist. Keynes suggested that Locke stood with “one foot in the mercantilist world and one foot in the classical world.” However that may be, chapter five of Locke’s Second Treatise on Civil Government, “Of Property”, is relentlessly, incorrigibly, two-footedly mercantilist. And nobody seems to have noticed (except possibly John R. Commons).

Why would this even matter?

Yeah, sure, we are told, ad nauseum, about how PROPERTY is the be all and end all of freedom, democracy and prosperity. A comic-book, social Darwinist pseudo-Locke lends the right-wing libertarian anti-tax mantra a veneer of moral righteousness and intellectual gravitas.

And it’s crap.

But there are bigger fish to fry: LABOUR.

While socialists and even liberals may be inclined to circumscribe the sanctity of property, they are loath to gainsay the hallowed individualist framing of labour. Some folks even think it’s downright revolutionary to insist on the worker’s right to the whole product of labour. Labour, though,  is only conventionally something an individual performs. Labour is social. Labour power is best understood as a common-pool resource.
The ideology of labour as an extension of the self is pervasive, persuasive and pernicious. From that perspective, solidarity is a voluntary act of magnanimity that can be “terminated at will” just like a redundant employee. As individuals, the relationship between workers is accidental; their relationships with the employer and with the state are what matters.

The inescapable mercantilism of Locke’s notion of natural law puts that individualist ideology in a different light. In his Essay on the Law of Nature, Locke was adamant that “the rightness of an action does not depend on its utility; on the contrary, its utility is a result of its rightness.” “It is impossible,” Locke wrote, “that the primary law of nature is such that its violation is unavoidable. Yet, if the private interest of each person is the basis of that law, the law will inevitably be broken…”

Here is where the mercantilism comes in: “when any man snatches for himself as much as he can, he takes away from another man’s heap the amount he adds to his own, and it is impossible for anyone to grow rich except at the expense of someone else.” To avoid any mistake, Locke reiterates his objection to positing “every man’s self interest the basis of natural law”:

“For in such a case each person is required to procure for himself and to retain in his possession the greatest possible number of useful things; and when this happens it is inevitable that the smallest possible number is left to some other person, because surely no gain falls to you which does not involve somebody else’s loss.”

An unequivocal zero-sum game. “No gain falls to you which does not involve somebody else’s loss.” “It is impossible for anyone to grow rich except at the expense of someone else.”

Now there are those who will object that Locke modified his views between the earlier Essay on the Law of Nature and his later Second Treatise on Civil Government. Not so. In the latter, and especially in the chapter “Of Property,” Money plays a pivotal role in repealing what has become known as the spoilage limitation:

“He that gathered a hundred bushels of acorns or apples, had thereby a property in them… He was only to look, that he used them before they spoiled, else he took more than his share, and robbed others. And indeed it was a foolish thing, as well as dishonest, to hoard up more than he could make use of.”

Someone who took so much that it spoiled before he could use it did a foolish, dishonest thing and robbed others. In short, if you take so much that it rots, it was never yours to take.

How does Money nullify that limitation? The person who gathers more perishable goods than he can use can exchange it for durable Gold or Silver. Problem solved.

Locke was a staunch metallist who insisted on the intrinsic value of Money as represented by its weight and fineness. This is not some incidental biographical trivia. Locke’s well documented views on Money were decisive in the monetary reform and re-minting of British coinage in the 1690s.

According to Locke, it was not the absolute quantity of Gold and Silver a nation held that determined its wealth but the proportion of Gold and Silver it held relative to the holdings of the rest of the world:

“Riches do not consist in having more Gold and Silver, but in having more in proportion, than the rest of the World, or than our Neighbours, whereby we are enabled to procure to our selves a greater Plenty of the Conveniencies of Life than comes within the reach of Neighbouring kingdoms and States, who, sharing the Gold and Silver of the World in a less proportion, want the means of Plenty and Power, and so are Poorer.”

A zero-sum game. What was “one man’s gain is another’s loss” in useful things is mitigated by its transmutation into metal Money where one man’s gain is still another’s loss but is at least not a net loss (through waste). This later proviso, though, only holds good for Money with an intrinsic value of specified weight and fineness.


Some readers may have wondered at the parenthetical reference to John R. Commons back in the second paragraph. Commons didn’t specifically address the passages I cited from the Essay on the Law of Nature. In fact, it wasn’t published until 20 years later. Nor did he discuss Locke’s influential writings on Money. But he did make a point in a reply to a critic that is germane to my argument here.

The context of Commons’s observations is crucial to the significance of his remark, so I will reproduce a substantial excerpt here:

My point of view is indeed personal, as was said by Professor Homan of all institutional economists. It is simply my own experience in collective action from which I drew a theory of the part played by collective action on individual action. It may or may not fit other people’s ideas of institutionalism. It started, indeed, with my trade-union membership and my later participation in labor arbitration; then turned to drafting a public utility law designed to ascertain and maintain reasonable values and reasonable practices; then to drafting and participating in administration of an industrial commission law with the similar purpose of reasonable practices applied to employers and employees; then to representing the western states before the Federal Trade Commission on the Pittsburgh Plus case of discrimination; then to aiding the House Committee on Congressman Strong’s bill for stabilization of prices; meanwhile administering and developing a plan for unemployment insurance finally enacted into law.

I do not see how anyone going through these 45 years of participation could fail to arrive at two inferences, conflict of interest and collective action. Even the state itself turned out to be merely collective action of those in possession of sovereignty.
Meanwhile I was necessarily studying hundreds of decisions, mainly of the United States Supreme Court, endeavoring to discover on what principles they decided disputes of conflicting interests under the clauses of the Constitution relating to due process, to taking property and liberty, and to equal treatment. I found that none of the economists had taken this point of view, and none of them except Professor Ely, had made any contributions that would make it possible to fit legal institutions into economics or into this constitutional scheme of American judicial sovereignty.

Drumroll… Now here’s his point:

Going back over the economists from John Locke to the orthodox school of the present day, I found they always had a conflicting meaning of wealth, namely a material thing and the ownership of that thing. But ownership, at least in its modern meaning of intangible property, means power to restrict production on account of abundance while the material things arise from power to increase the abundance of things by production, even overproduction.

A simple point but a profound and subtle one. Ownership is not the same as the material thing owned. But beyond that, the restrictive implication of ownership is contrary to the abundance implication of the material things owned.

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Reading the story, asking normal business questions

Peter Dorman at Econospeak writes a gem of a post asking readers to ask simple questions when offered a morality tale by journalists, or an implied cause and effect tale, and how it takes no special skill to ask simple business questions that the journalist should at least ask, even if not o tanswer all of them.

Peter Dorman writes:

The Spin on Tires

It would be nice to have economic literacy in journalism.  Take this morning’s story in the New York Times about a pair of tire factories in Amiens.  One is managed by Dunlop; its workers agreed to a schedule of constantly shifting workweeks and shift work, and it is still operating.  The other is managed by Goodyear.  There the workers rejected the disruptive schedule, and the factory is shutting down.  The comparison is presented as a morality tale, where the responsible workers, recognizing the new demands of productivity and competitiveness in a globalized economy, did the right thing, while their obstinate counterparts, representative of all that’s wrong with France, preferred heroic self-annihilation.

Reading the article, I couldn’t help but think that this analysis of The Real Reason the French Economy is Sputtering was there all along, looking for a story to attach itself to.

But an economist might ask a few simple questions.  First, what is the elasticity of the total production cost of a tire with respect to the changes in work hours?  I realize the reporter wants to emphasize the symbolism, the importance of workers bending to the employer’s will as a virtue in and of itself, but perhaps there is a factual dimension worth looking into.  Just a suggestion.

Second, what is the market for these tires?  In particular, who if anyone will pick up the market share being abandoned by Goodyear?  Is this about outsourcing of a portion of tire production to lower-cost producers in developing countries?  Or is it about a shrinking domestic market that no longer needs the output of both plants?  Or some combination of the two or something else?

In particular, it is interesting that both factories, despite their different nameplates, are owned by the same company, Goodyear Dunlop.  Thus, this story describes a consolidation.  The very least an enterprising journalist can do is to inquire into the company’s overall capacity.  Is it cutting back elsewhere in Europe?  Are they shifting production geographically?  Is it possible that they might want only one operation in Amiens in any case, and that the only result of the contest over worker concessions is which plant it will be?

All of this is speculative, because I don’t know the tire market in France.  That’s what I would want to learn from a newspaper story, a rather long one at that, on the subject.  This might also help me understand why the US, where few workers are unionized and none have the will or ability to resist whatever schedule is dictated to them, is not blanketed in tire factories.

Incidentally, there has been a ton of research in the past decade documenting the health effects of exactly the sort of work schedule being imposed at Dunlop.  It is associated with significantly elevated levels of a wide range of diseases; arguably it represents the single greatest occupational safety and health threat experienced in developed countries.  An informed journalist might want to weave that into the story too.

(re-posted with permission of the author)

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Interpreting the news of getting high on net wealth news

US Household wealth regains pre-recession peak!  crows this story.

Steve Roth‘s chart to 2010 from Asynptosis demonstrates the drop in net worth for most of us.

pgl at Econospeak adds perspective:

So Whose Wealth Is At a Record High?

This news story must be good news for some folks:

According to the Federal Reserve, household wealth amounted to $66.1 trillion at the end of 2012 and further gains in stock and house prices have allowed Americans to make up for the losses incurred during the recession.

If you want to protest that not everyone has recovered their lost wealth, the story sort of concedes this further down:

The recovered wealth — most of it from higher stock prices — has been flowing mainly to richer Americans. By contrast, middle class wealth is mostly in the form of home equity, which has risen much less.

Households owners’ equity in real estate peaked at $12.5 billion in 2005 and then plummeted. While it has partially recovered, it was only $8.2 billion at the end of 2012 according to the Flow of Funds Accounts. Given that consumer prices have risen by almost 20 percent over this period, our equity in real estate is still far below its 2005 peak value.

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Only 6% Of Public Knows Deficit Is Declining

Prof Barkley Rosser at Econospeak also asks questions on the freaking out over the fiscal deficit numbers:

Only 6% Of Public Knows Deficit Is Declining

Yes, here we go again, massive public ignorance post # I forget how many.  This has been floating around out there for awhile but was on Rachel Maddow last night, and here is a link with suitable discussion of relevant facts from Dave Johnson, perhaps important as this silly sequester is about to land on us supposedly driven by the overwhelming need to get the deficit under control,  As it is, apparently 62% think it is rising, while 28% think it is constant.

Among things that the public is wrong about, this one sticks out for being so far off from the facts.  And as is noted, not only is the deficit declining, but it is doing so at a very dramatic rate.  Without doing anything we should be able to stabilize the debt/GDP ratio within about two to three years, although to maintain that down the road, further adjustments would need to be made.  Being an austerian is one thing, but being completely out of touch with reality is quite another.

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Risk = Freedom?

Peter Dorman at Econospeak speaks to the current selling of big idea models of the world (re-posted with permission from the author):

There’s a review on the Dissent website by Steve Randy Waldman of Freaks of Fortune: The Emerging World of Capitalism and Risk in America by Jonathan Levy. The book sounds interesting, but it is apparently based on a commonplace but false understanding of the relationship between freedom and risk-taking.

At the individual level it is absolutely true that we face a tradeoff between risk and freedom. You can opt for a secure life, but only at the expense of creativity, individualism, moral courage and all the other Emersonian goodies. Each one of us, every day, faces this choice. Mostly it is just a matter of a tiny bit of risk-taking, but these moments add up, and from time to time there is a fundamental fork in the road. We make our own freedom.

But the social level is another story. Individuals take the array of risks as given; society can choose how much risk its members will face and what their risk-freedom tradeoffs will be, at least up to a point. If the objective is to minimize all risk of any sort, especially all risks to health and income, the result will be stultifying. But that’s not where we are on the Great Risk Curve.

 Rather, the debates we have are about whether to cut back or extend social insurance programs like Social Security and Medicare, social protections like TANF and Medicaid, and more or less regulation of finance, pollution and such. It seems clear to me that more security of this sort, which limits the downside risk individuals face in their personal lives, reduces the cost of living freely.

Examples are everywhere. Ample unemployment insurance makes it easier to work for a startup or switch jobs in general rather than being held down by too strong a need for job security. A stronger public pension system encourages entrepreneurship: people can hazard their savings by starting a business rather than hoarding everything for old age. Social guarantees for basic needs make it possible for artists to risk making art their day job. Professors with tenure (big time risk reduction) can take more controversial positions on public issues. (I don’t say they always do this, but they do it more than they would if all professors were temps.) In each case there is a real tradeoff between freedom and security at the individual level, but society can create programs that relax it, so it takes less courage to live freely.

That’s what I don’t like about the nanny state rhetoric. Yes, of course the state can go too far and overprotect us from risks we would do better to face ourselves. But the state we actually live in goes too far in the other direction. With a stronger safety net we could have less risk and more freedom.

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GDP Gap Stuck at 6%

Pro Growth Liberal points us to this interpretation of new economic data:

GDP Gap Stuck at 6%

Dean Baker gets it right with respect to the latest news on GDP:

A sharp drop in government spending, heavily concentrated in defense, coupled with a decline in inventories caused GDP to shrink at a 0.1 percent rate in the 4th quarter. Government spending fell at a 6.6 percent annual rate, driven by a 22.2 percent decline in defense spending, subtracting 1.33 percentage points from the growth rate in the quarter. A 40.3 drop in the rate of inventory accumulation reduced growth by another 1.27 percentage points. Without these factors, GDP would have grown at a 2.5 percent annual rate in the quarter. Pulling out these extraordinary factors, the GDP data were largely in line with prior quarters.

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Joe Scarborough on the Deficit

Pro Growth Liberal at Econospeak also takes Joe Scarborough to task on Krugman and Keynes:

Joe Scarborough on the Deficit

After his interview with Paul Krugman this morning Joe Scarborough wrote:

Mr. Krugman’s view is that Americans would be better off if its government ran deeper deficits and ignored its longterm debt.
To suggest that Keynesians like Paul Krugman ignore the long-term government budget constraint is either dishonest or shows that Mr. Scarborough does not understand what we are saying. Which is why Mr. Scarborough should check out this list of commentary on the current economics and fiscal situation compiled by Joe Weisenthal.

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The Moral Imperative of a Debt Ceiling

Peter Dorman at Econospeak writes a letter to Bank of America:

The Moral Imperative of a Debt Ceiling

From this morning’s New York Times:

Representative Jerrold Nadler, Democrat of New York, signed on to the trillion-dollar [platinum] coin plan, telling Capital New York: “It sounds silly but it’s absolutely legal. And it would normally not be proper to consider such a thing, except when you’re faced with blackmail to destroy the country’s economy, you have to consider things.”

But he might find resistance from Representative Greg Walden, Republican of Oregon, who said he would introduce legislation to close the loophole and end the debate once and for all.

“My wife and I have owned and operated a small business since 1986. When it came time to pay the bills, we couldn’t just mint a coin to create more money out of thin air,” Mr. Walden said.

Dear Bank of America:
As a lender to my small business, you should be the first to know of a decision I’ve decided to take.  It wasn’t easy, and I’ve given it a lot of thought, but now I’m convinced it’s the right course of action.  I won’t be making my next monthly payment.

It is true that I have already ordered shipments of equipment and materials using the funds I’ve borrowed from you.  It is also true that I have adopted a pricing policy that’s designed to increase market share at the expense of current cash flow.  The result of these choices is that my financial obligations will exceed my revenues for an extended period of time.
I have a line of credit that can cover this shortfall; we discussed it at length in our meeting last month.  I appreciate your willingness to finance it at a negative real interest rate.  But I now believe that it is immoral for me to increase my debt, which could be a burden on my children and grandchildren.  As a result, I have imposed a debt limit on myself—a limit which I refuse to raise.
I’m sure you can understand the sound principles on which this choice is based: taking on more debt is evil.  That’s why I have chosen instead to default on your loan, as well as withhold wages I’ve promised to pay to my workers.  Please support me in this virtuous undertaking.
Sincerely yours…..

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