No Substitute for Economic Justice
Posted by Kevin Carson on Jul 26, 2010 in Commentary, Feature Articles • 26 commentsIn 1919 Frank Crane pointed out (in “Justice,” one of his Four Minute Essays) that charity was a poor substitute for justice. Charity, he said, is a palliative which leaves injustice — privilege — in place, while helping the most unfortunate. Charity makes it possible for the poor and unemployed to scrape by, thus enabling the system of privilege to continue. But justice makes charity unnecessary by removing the root causes of poverty and unemployment.
Today, we could say of the welfare state and Keynesian fiscal policy what Crane said of charity.
A whole host of statistics indicate that the current recession is unlike any other since the Great Depression. The number of long-term unemployed, and the number of people competing for each available job, are both more than double their levels in the recession of the early 1980s. While I think Obama’s stimulus package probably stopped the free-fall in job loss that occurred in First Quarter 2009 — just barely — we can see that as soon as the money stops being spent the economy stagnates again. So we’re probably headed either into the second leg of a W-shaped recession, or into a long-term period of stagnation and zero job growth.
Our old ideas on what it takes to overcome the state capitalist economy’s inherent tendencies toward excess capacity are becoming obsolete. And the causes go back to Frank Crane’s understanding of justice.
Injustice is at the heart of our economic problems. By making capital and land artificially scarce and expensive, the state forces workers to sell their labor in a buyer’s market and thereby reduces the bargaining power of labor. The owners of land and capital are thereby enabled to collect scarcity rents.
The economic effects are destabilizing. Income shifts from workers, who work mainly to meet their consumption needs, to rentiers with a high propensity to save and invest. The result is a chronic tendency toward overaccumulation and underconsumption.
At the same time, the state subsidizes the most centralized, capital-intensive forms of production, leading to mass-production industry with overbuilt plant and equipment that’s constantly plagued with idle capacity.
The problem was “solved” for a while by World War II, which blew up most of the plant and equipment outside the U.S. and created a permanent war economy to absorb a major part of the destabilizing economic surplus. But by 1970 the industrial capacity of Europe and Japan had been rebuilt, and the old tendencies toward chronic stagnation were resumed.
Since then the tendencies toward stagnating economic growth, excess capacity, and jobless recoveries have increased from one decade to the next. The economy has become increasingly dependent on speculative bubbles to soak up surplus capital, and on growing consumer debt to absorb excess industrial output.
Given state capitalism’s inherent tendencies toward stagnation, the welfare state and Keynesian demand management are absolutely necessary parts of it.
State intervention creates maldistribution of purchasing power and excess production capacity. Government attempts to remedy the resulting destabilizing tendencies by taxing a small fraction of what was originally shifted from the producing classes to the rentier classes, and giving it to the most destitute portion of the exploited classes, in order to prevent politically destabilizing levels of unemployment and homelessness. It runs a deficit during economic downturns in order to provide sufficient demand to compensate for the shortfall in purchasing power.
The problem is that the relative periods of downturn keep getting longer, and the deficit spending required to correct for the chronic demand shortfall keeps getting larger.
Once the state substitutes privilege for justice, it inevitably creates destabilizing tendencies that must be met by one of two possible courses of action. One is to remove the privileges and allow the natural operation of justice, so that the chronic instabilities don’t arise. The other is to add secondary interventions like the welfare state and Keynesian fiscal policy, so the destabilizing tendencies don’t get too bad — and to keep increasing the level of such intervention when it no longer works the way it should.
So to the “conservatives” who want to “cut spending” and “balance the budget,” I give this warning: Understand the implications of what you demand. If you will not have a welfare state and deficit spending, you must have a free market — a genuine free market, not the kind of fake “free market” the U.S. Chamber of Commerce, AEI and Heritage Foundation call for. You must cease to enforce monopoly rents to the owners of land, capital and “intellectual property.”
If you go only halfway, removing the palliative measures without removing the injustice — if you choose a fake corporatist version of the “free market” — you will only give us another Great Depression worse than the last one.
The choice is clear. If you will not have justice, you must have welfare and Keynesian stimulus spending. There is no third way.
C4SS (c4ss.org) Research Associate Kevin Carson is a contemporary mutualist author and individualist anarchist whose written work includes Studies in Mutualist Political Economy, Organization Theory: A Libertarian Perspective, and The Homebrew Industrial Revolution: A Low-Overhead Manifesto, all of which are freely available online. Carson has also written for such print publications as The Freeman: Ideas on Liberty and a variety of internet-based journals and blogs, including Just Things, The Art of the Possible, the P2P Foundation and his own Mutualist Blog.
thanks for clarifying Kevin!
I agree that these folks shouldn’t be subsidized and they shouldn’t receive massive direct and indirect handouts, but is there something wrong, per se, with one’s “high propensity to save and invest”? Maybe I’m inferring too much, and that was not the point?
But “overaccumulation and underconsumption,” I guess I’d like to see someone expand on what is really meant by that concept, because although colorful and emotive, it strikes me as vulgar and inaccurate descriptions of what’s happened..
David: There’s nothing wrong with it as such, so long as market mechanisms are free to coodinate the amount of saving with the need for it. The problem is when an artificially large share of total income goes away from those with a high propensity to spend, and toward those with a high propensity to invest–in which case we get the destabilizing tendencies that a whole range of stagnationist thinkers have analyzed (from the liberal J.A. Hobson to J.M. Keynes to Neo-Marxists like Paul Sweezy and Harry Magdoff).
By overaccumulation and underconsumption, I simply mean that we have far greater industrial capacity than can dispose of its full output. Even with demand fueled by home equity debt on bubble-inflated housing prices, with everybody maxing out their credit cards and taking out Ditech loans to replace everything they owned every few years, the economy still had idle production capacity before the crash. And the structure of the economy meant that debt-financed demand from asset bubbles was the only way to keep the wheels turning. The tendency since the 1970s has been toward mushroom growth of the FIRE economy as a sponge for surplus capital, and the growth of the financial sector as a solution to the lack of profitable outlets in physical production capacity.
For more on these crisis tendencies, you might check out Ch. 3 in the free ebook version of Homebrew Industrial Revolution:
http://homebrewindustrialrevolution.wordpress.com
This post conevys exactly what I meant when I said a few weeks ago something to the effect of "I'm against the welfare state and I'm also against abolishing the welfare state" (I like phrasing things in paradoxical ways; the best insights begin in confusion).
Thanks Kevin for yet another wonderfully written post
I don't disagree with any of this but the question I would have is how do we translate this into action?
As everyone here probably knows by now, I'm in favor of establishing secessionist regions and municipalities that subsequently pursue economic policies like what Kevin has outlined in his "Political Program for Anarchists." For instance, I would argue that a secessionist Vermont, Texas, Detroit, or Los Angeles should begin by radically deregulating land and housing markets, and the non-profit and small business sectors, e.g. repealing the overwhelming majority of zoning and licensing laws, taxes, building codes, land use and housing regulations. Taxes and regulations should be eliminated from the bottom up and subsidies and welfare should be eliminated from the top down. Public sector bureaucrats should be fired and relief programs funded by direct cash payments to recipients, e.g. Friedman's Negative Income Tax, Philippe Van Parijs's ideas on stakeholder grants and basic income, etc. So-called "public-private partnership" and the subsidies, regulatory privilege, and land grants these involve should end. It's also true that independent regions could implement a free credit market of the kind Kevin favors and recognize and uphold things like squatters' rights to vacant lots and abandoned buildings and housing. Andrew Yeoman (yes, I know some of you think he's the devil) recently suggested that the entry of mega-corporations like Wal-Mart into a particular town or community should be approved by popular referendum and not just decisions made by elected officials, bureaucrats, bankers, and Chamber of Commerce types.
What we need are public forums to agitate for these kinds of economic policies. My best guess is that largely symbolic political campaigns on secessionist platforms that include these kinds of ideas in the economic realm would be the best way to go.
[...] One from the Left, by Kevin Carson [...]
Keith: I agree that scaling back privilege is probably easier done at a local level, through more libertarian-flavored versions of (say) the Cleveland Model. And a major portion of the total barriers to alt economic development are local zoning and other regulations. But I’m increasingly inclined to see the main hope for a change in government policy in its fiscal exhaustion and hollowing out, rather than any particular kind of agitation, and to see the proper primary means for building alternatives as simply bypassing the state.
"But I’m increasingly inclined to see the main hope for a change in government policy in its fiscal exhaustion and hollowing out, rather than any particular kind of agitation,"
Robert Higgs recently made a similar argument concerning foreign policy. In his view, the empire will gradually recede as it becomes increasingly cost prohibitive due to escalating liabilities for entitlements, fiscal bankruptcy, and overall economic decline. Some of this also jibes fairly well with Martin Van Creveld's thesis on the decline of the state. Bill Lind has argued that the American empire will probably undergo the same process of gradual retreat and decline as the Spanish empire and for the same reasons: the consequences of fiscal extravagance.
Interestingly, a related argument could be made regarding the police state. Some economists have argued that what ultimately killed Prohibition is its costs being made unaffordable due to the Great Depression. I've noticed a similar trend in recent times with some states considering early release of prisoners for budgetary reasons. The head of Virginia's prison system came out yesterday in favor of reducing the prison population by simply not putting non-violent people in prison in the first place. This is a far cry from how it was ten or fifteen years ago when Virginia was a leading police state headed up by the likes of George Allen and Ronald Angelone.
Hey Carson,
Do you know about http://openfarmtech.org? These people are doing exactly what you suggest. Building open-source technology for using local resources to build an advanced lifestyle. Awesome! Maybe you guys can collaborate or at least feature them or analyze them or something. I'm extremely impressed by what they have so far: An open source tractor, a machine for making bricks (to build houses) from local earth, a machine shop, etc. A little publicity could go a long way here. Tell me what you think.
- Bleicke
Damn you, Carson! One step ahead of me, as always. So when do you think is this whole local/micro business going to get off the ground?
Keith: That seems to be a growing phenomenon. California’s a textbook example of a state in the process of being hollowed out, and Schwarzenegger is increasingly open to things like legalizing pot and scaling back the drug war as a result.
Bleicke: I mentioned OSE in my “Homebrew Industrial Revolution” paper for C4SS last year, and in Ch. 5 of the book with the same title.
Your guess is as good as mine, Bleicke. But the rise of efforts like 100kGarages, and the intersection of several trends like Peak Oil and high long-term unemployment, make me think we’re near the beginning of a long takeoff trend. The informal economy is historically associated with unemployment and economic downturns, and right now long-term unemployment is double its levels in the Reagan recession. And the number of people scared of unemployment on a long-term basis, and altering their lifestyles accordingly, is probably also at a record level. The switch to DIY and frugality is likely to be major and permanent. At the same time, the material possibilities of micromanufacturing are just beginning to take off.
>The choice is clear. If you will not have justice, you must have welfare and Keynesian stimulus spending. There is no third way.
I think this conclusion is false, and it comes about because you are studying the economy with a keynesian view.
You say:
>But by 1970 the industrial capacity of Europe and Japan had been rebuilt, and the old tendencies toward chronic stagnation were resumed.
>Since then the tendencies toward stagnating economic growth, excess capacity, and jobless recoveries have increased from one decade to the next.
But this is not true. This crisis is not a crisis of overproduction. There can hardly be overproduction. What really is happening is that the goods being produced are not what the consumer want. It is not a problem of excess production, but a problem of what type of goods are being produced.
Producing a car or producing central heating (imagine same or similar price) add the same towards the GDP, but it is not the same for the consumer. The consumer might choose to purchase one but not the other. Therefore, if you start building a lot of what the consumer does not want, you will end up with a lot of goods that the consumer is not buying. A simple (and wrong) explanation would be saying that there is excessive production. But in reality the problem is that the production is not matching the consumer needs, therefore this production is not being consumed. The capital structure is distorted, but if you study aggregates (f.e. GDP) you are missing this information.
So you see that it is not a problem of excess production, but a problem of not producing what the consumer needs.
Therefore, stimulating demand, the keynesian style, only leds to more producing of goods nobody needs, more malinvestment and unnecessary waste. It prevents the needed corrections and leds to a later bigger recession, when the now bigger distortions in the capital structure are corrected. If you keep applying keynesian measures and dont let the corrections happen, you will destroy the productive economy.
So in reality, the keynesian solution is the best way to destroy the state capitalist system, at the price of creating a colossal economic collapse. The conservative way of limiting spending is the only way to keep the corporate system in place for a longer time, because it mimics in some ways what a free market would do to correct the distortions on the capital structure, but obviously still saving the politically connected.
The conservative way the producers are the ones paying. In the free market way the irresponsibles would be the ones paying. The keynesian way is the route to a total economic collapse.
Hugo: Your "malinvestment vs. overinvestment" argument strikes me as analogous to Austrian arguments that technological unemployment is impossible, which I also disagree with. Both assume that demand is naturally upwardly elastic without limit. If the state subsidizes production capacity and people make a consumption-leisure tradeoff that requires a lower level of output than the state-subsidized production capacity can produce, then there's a problem with overproduction.
Mises' theory of credit-fueled malinvestment is useful, but it's not the Rosetta Stone for everything.
And the assertion that consumer demand can't be insufficient to purchase economic output strikes me as more an a article of faith than anything that's logically necessary. If the state's privileges and monopolies do, in fact, shift income from classes with a higher propensity to consume to classes with a higher propensity to invest, then the level of gross investment would naturally lead to an overall production capacity that could not dispose of its full product regardless of what it produced.
I agree that Keynesianism stabilizes state capitalism by preventing the correction of excess capacity, and makes it possible to run overbuilt industry at full capacity through a system of planned obsolescence and other forms of supply-push marketing.
I really dont think you understood my point.
>If the state subsidizes production capacity and people make a consumption-leisure tradeoff that requires a lower level of output than the state-subsidized production capacity can produce, then there’s a problem with overproduction.
There is a problem of producing too much of what the state is subsidizing. Its not that all the needs of the people are completely fulfilled. People might want OTHER goods.
>And the assertion that consumer demand can’t be insufficient to purchase economic output strikes me as more an a article of faith than anything that’s logically necessary.
Yes, because its silly. Its not what I said.
>If the state’s privileges and monopolies do, in fact, shift income from classes with a higher propensity to consume to classes with a higher propensity to invest, then the level of gross investment would naturally lead to an overall production capacity that could not dispose of its full product regardless of what it produced.
You are making my point. When there is a distortion in the capital structure, the market wont produce what the people demand.
You keep calling overproduction in general, to what it is a problem of resource allocation. Even you describe it as that, but call it otherwise.
>I agree that Keynesianism stabilizes state capitalism by preventing the correction of excess capacity, and makes it possible to run overbuilt industry at full capacity through a system of planned obsolescence and other forms of supply-push marketing.
I really think keynesianism would ultimately lead to economic caos. Through the years I have come to think that this would not be extremely bad in the long run. It would hurt short term, but, from the ashes, a true libertarian society could arise.
On the contrary, I think the conservative (neo-conservative?) solution is much more clever, because it allows state capitalism to keep functioning, obviously at the expense of the producers and for the benefit of the oligarchs. And as long as there is food on the table the people will tend to cope with anything. This is why I think this option is much more dangerous long term.
Hugo: I see nothing in your argument for "malinvestment vs. overaccumulation" that causes me to doubt my initial assessment: you see demand as upwardly elastic without limit. You seem to assume some a priori reason why there couldn't be more net generic production capacity than there is sufficient demand to absorb the output of. But it's not just that the capital structure is distorted to produce the wrong kind of stuff; it's distorted to produce too much, to the point that products are designed in a way that forces people to consume more of them than they otherwise would if they were better designed, just to keep the wheels turning.
I don't doubt that distortion of the capital structure leads to the wrong *kind* of stuff being produced–that's at the heart of the calculation problem in the corporate economy. But you seem to rule out the possibility that *too much* stuff could be produced because of an excess quantitative investment, or that there might be a surplus available for reinvestment too large to find a productive outlet in investment in *any* kind of production. Sure, people's needs might not ever be completely filled if there were no marginal cost of increased consumption. Hell, we could use iPhones as fill dirt for erosion check. But when it requires effort and disutility to acquire more stuff, then there's point beyond which leisure will be chosen over further consumption.
@Overproduction discussion
If there was massive overproduction of goods that people actually wanted, wouldn't everything be really cheap because there was more than people were willing to buy? But prices are rising.
I'm not saying there's necessarily overproduction of goods people want. Just that there's more built production capacity than would be required to produce what they want. And that's precisely why so much of the capacity has to be diverted to unproductive uses like the military-industrial complex, and to producing stuff that people want *badly* so that it absorbs more production capacity than necessary.
And more stuff Designed to Break ™ like my beloved Apple usually produces…
I wonder though, what would be done with the money if it weren't diverted into production? Even more consumption? That doesn't seem likely.
That makes excellent sense. People would just work less, because they have all they need. So we need some institution to force people into working more because they are made to need more than they actually need.
I think I just understood the whole push-economy-thing.
That's why we still work 40 hours and all the women work too, despite annual productivity increases of 3%+. Damn it! I could be having a 4 Hour Work Week! Everyone could!
@Caron, Chartier: Please make government go away now.
@19, I assume two things would happen: some consumption goods would be produced, and, to the extent that people were already happy with the existing level of consumption goods, people would opt for more leisure.
Hey Carson,
Why don't you write an article about OSE and plug it? I think this is THE agorism project out there. Maybe some c4ss readers who haven't read your Homebrew Manifesto would be interested in joining or funding some of the development. I'd love to see this thing grow. Finally some practical applications, not just theory! This way everyone can do something right now.
- Bleicke
Bleicke: Apple's a good example. Julian Sanchez has an old post called "Dammit, Apple!" about his experience with the iPhone. He took his $300 phone to the Genius Bar with a simple stuck key, and they refused to repair it or give him any advice other than to buy a new one. Using a pocket multi-tool, Sanchez spent ten or fifteen minutes breaking into an extruded plastic "blobject" casing designed to thwart such accessibility, and then unstuck the key in about a second. Imagine if the iPhone and other current Apple consumer electronics were designed with the same user-friendliness and transparency as Jobs' early computers, instead of designed to make you throw away and replace items that could be cheaply nad easily fixed in a sane world.
I think one of my early C4SS columns was on OSE, although I'm too lazy to check. But my paper on "The Homebrew Industrial Revolution" used OSE and 100kGarages as case studies.
Bleicke and Gary: Actually the Wobblies used to have a pamphlet for the 4-hour day, 4-day week. I suspect that without all the labor wasted producing stuff for planned obsolescence, on shipping stuff long distances that could be better produced locally, to earn the money to pay the portion of product price that consists of embedded rents on IP, to pay for embedded high overhead costs from artificially mandated capital outlays and waste, and all the other forms of Rube Goldberg waste and tribute to useless eaters, sixteen hours seems pretty plausible. Of course any society that actually implemented such a thing would probably be classed as a terror state and subject to the full force of U.S. government hostility. As Nixon said of Chile, the policy would be to "make the Proudhonian economy scream," and to make sure that "not one fucking sprocket" got through.
Kevin Carson, how did you get so awesome?
Thanks, Bob. I think it goes back to the time my mom was frightened by a gorilla while she was carrying me.