Demosophia

Toward A New Liberalism

My friend Patrick Joubert Conlon (Born Again Redneck) inspired me with this post to rattle the marbles around in my head by speculating what I really have against socialism. I actually have nothing against the goal of socialism, to tell the truth. That is, I have no investment at all, on a personal level, in whether all boats rise at the same rate or at different rates. Furthermore, if work has intrinsic value then there's something rather admirable about the notion that work-as-labor might be divorced from income sources. People work for reasons other than money, otherwise no one would become a teacher or a college professor.

Besides, it seems to me that it may well be necessary to provide people with income during periods when the economy is unable to place them where they can best contribute by exploiting their labor, at least to a level that sustains SFC (shelter, food and clothing). Not doing so might well be less efficient than we imagine, since the economy doesn't need the same skills at the same rate throughout its history. Thus, if we lose certain people whose labor we don't happen to value at the moment they won't be available when their contributions are important, or even critical, to everyone's survival. The only other option would be to issue humans an "off" switch so they might go into hybernation during periods when they aren't needed. But the Creator didn't see fit to provide us with those, so "social insurance" makes some straightforward sense. After all it was a Republican administration that proposed the "guaranteed minimum wage" suggested by Milton Friedman's "negative income tax."

The problems with "socialism" (defined as distribution based on need rather than "ability") all have to do with moral hazards, some of which actually encourage non-productivity while others just relieve people of moral burdens that their souls might be better off carrying for awhile. Ultimately there are "moral hazards" on both sides, however, unless you think greed to the point of gluttony really is good. The moral hazards are just of a different sort, and we don't really have a societal obligation to protect people from their own moral failings. Our right and obligation is only to protect ourselves, as much as possible, from the consequences of immorality. So the basic argument against a needs-based economy isn't moral, it's that it's not self-sustaining, and will ultimately place us all on the road serfdom. Moreover, there's no "pure socialist system" that would make someone a multi-millionaire simply because his "need" is greater than another who is content with a $50,000 income. We may not all have exactly the same needs, but the variation isn't that great. Multi-millionaires would, by definition, have to be impossibly miserable people in such a system. So you probably couldn't distribute all the wealth based on need even if you could assess it accurately. You'd have to use some other distribution rule or you'd have a lot left over tempting the administrators.

Frankly it might be interesting to just distribute income blindly, ignoring both need and "ability," and turn the whole thing into a lottery. But that would be a tough sell to anyone who's doing OK in the present system. By and large we're more motivated by fear of loss than attraction to gain. This is important, because it's the way we're actually "wired," not some vague ideological abstraction.

Contrary to what many people believe it wasn't LBJ who originally coined the term "The Great Society." It was F.A. Hayek, who used it to describe a not-so-great society composed mostly of strangers. By "great" he simply meant writ-large and choked with anonymity, not admirable. In doing so he acknowledged a lot of things, one of which is that charity and commerce between individuals who know one another is bound to be the exception. Nor did he feel that "the market" necessarily produces the most efficient distribution of labor and goods. Indeed, he argued that a market would be inappropriate if we knew that that it produced optimality with certainty. It's precisely because we do not know what "optimum efficiency" is that markets are appropriate. (This is one of those Hayekian arguments that'll make you cross-eyed if you think about it too much.)

In fact, although Hayek recognized that there was a problem, he made no consistent attempt to derive a solution because he saw (as Patrick suggests in his post) that the solution we have siezed upon (the Welfare State) is bound to create even bigger problems. That was his priority, and the driving force behind his work. Hence, we are not talking about an ideal economy, but a choice between evils. And that's where Hayek left it, pretty much. He never wrote the last chapter of his grand plan, and never intended to. He was a liberal after all, not an Hegellian.

However, society has now developed to the point that we may not be able to tolerate even the "lesser evil" of possible wealth maldistribution for much longer. The reason is the rapid development of the "super-empowered individual" who may, at some point, be able to exercise his will to veto the future for the rest of us should he get too angry. This is ultimately the long term reality that we will have to confront, and it demands a new version of Liberalism.

So, a Hayek or Smith-inspired laissez faire economy may not be a "happy medium" we'll be able to live with in the future. We may very well have to meddle in the economy in some pragmatic and enlightened way. And the way I see it there are two general classes of solutions that we might employ, by mixing and matching at different times and to different degrees. One is a kind of demogrant system for wealth distribution, that's somewhat analogous to Nixon's (Friedman's) GMW. Ideally if the economy were sufficiently productive we could simply grant everyone an allowance sufficient to sustain life, and then let the market take it from there. James Buchanan was recently working on a book about a flat tax combined with a demogrant, so the idea is not anathema to liberalism, or even libertarianism. He calls it the "generality principle."

The other solution is to find a way to turn laborers into capitalists, by enabling more and more people to become invested in the capital market through innovative finance. Pat Moynihan worked on those kinds of projects for much of his career in the Senate, and the concept figures into some of the bold economic reforms in Chile that were inspired by the "Chicago Boys." Combining the flat-tax/demogrant idea with some of these innovative financing concepts in order to get people invested in the market (and by the way, turning them into permanent Republicans) is probably the way of the future, should the "political class" ever get around to doing something useful.

(Cross-posted to The Jawa Report)

Posted by Demosophist at January 17, 2006 09:08 PM | TrackBack