Filthy Lucre: Economics for People Who Hate Capitalism
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Capitalism describes the achievement of the common good by the market as the work of an invisible, almost divine, hand. In fact, planning is viewed as counter-productive and futile. The divine hand can achieve a better outcome than an office full of public servants and computer simulations. Heath actually concedes that: On the other hand, when attempts are made to change how the market or Capitalism operate, the Capitalist argument is that human nature becomes a negative.
There is a moral hazard that human beings will attempt to exploit the State-imposed system for their own advantage. They will be lazy, unmotivated and deceitful. There is no recognition that the human nature of the few might make no material negative difference to the common good. We are asked to accept human nature in producers, but not in consumers.
Filthy Lucre : Economics for Those Who Hate Capitalism
Selfishness means that no business wants to lose market share to a competitor, none wants to make a loss, none wants to be wound up. As a result, the natural tendency of a business or of human nature is to be defensive. People lie, cheat, defraud, exploit, undercut, overcharge, misrepresent, overpromise and underdeliver.
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They abuse positions of power, they abuse monopolies, they form cartels, they collude, they conspire against the public. These consequences of human nature under Capitalism, which are denied by its advocates, have to be countered by legislative initiatives of the State. The market has to be forced to be honest. The human nature of Capitalists cannot be trusted to run the market honestly or effectively.
The market cannot operate legitimately or perfectly in the absence of the State. The market, left to its own devices, will not only prejudice consumers, but other competitors.
Filthy Lucre: Economics for People Who Hate Capitalism - Joseph Heath - Google Книги
The very failure of the market invites and legitimates the intervention of the State. If Capitalists were as virtuous as their apologists proclaim, there would be no need for the State. The market has nobody to blame but the human nature of participants in the market. One problem with State intervention is getting it right. The nature and extent of the intervention should be no more than is necessary to honour the promise of a perfect market. That is a by-product of what Capitalism does. If it could better achieve its primary goal making more capital without employing people, then it would and does do so e.
Thus, if we assess Capitalism by whether it achieves full employment one of my socio-economic criteria , then we are judging it by an outcome rather than a goal. This is an outcome of one aspect of competition. The natural tendency of Capitalism built into the human nature of a capitalist is to charge whatever price you can get away with, whatever people are prepared to pay. Thus, an unrestricted monopoly will inflate its prices, unless some restraint is imposed by the market or the State or people simply refuse to buy their product.
The more there is effective competition, the greater the commercial pressure to reduce prices or differentiate in terms of quality. The more we save money on some products through lower prices , the more we have to spend on additional products. We still spend the same amount of money, only we spend it on a greater diversity of products and capitalists.
As a result, a greater diversity of people are employed in the process. However, because the amount of money being spent remains the same, the wages of each employee across the diversity of employers might be reduced. The more scarce it is, the higher the price. People who want work are theoretically abundant. Because full employment is not a goal, people and employees are treated like any other input.
The abundance of potential employees reduces wages.
If we all want a job, then we will all have to drop our wages. In a sense, the same amount of money has been allocated to the same total wages bill. We can either have unemployment and higher wages, or full employment and lower wages. If the goal of Capitalism was full employment, it would go about things in a different way.
Heath tells an apocryphal story about an engineer who witnessed Chinese workers building a dam with picks and shovels. The response was that this would destroy many jobs. The composition of this total price might be: The problem is that the strategy will always come under pressure when the corporation encounters competition. If it is to remain constant, then one of the other three inputs in our determination of the price has to be reduced.
Of the three inputs, two are supplied by other Capitalists, one is supplied by the workforce. There is often less bargaining power with the other Capitalists. They want to maintain their pricing, and might even have entered into medium-to-long term supply contracts property leases, loan agreements, supply agreements that guarantee the price of their goods or services. Thus, Capitalists insulate themselves from the risks, and the burden of cost-cutting falls to workers. You either have to reduce your individual wages or some of you will lose your jobs.
They have little bargaining power with the corporation. One way they try to increase their bargaining power is to leverage their collective power through membership of a trade union. However, Capitalism despises this challenge to their bargaining power. The other way to get a fair wage is for the State to legislate a minimum wage. However, in a way, it achieves the same level of insulation as the input of other Capitalists into the price mechanism have achieved. Therefore, a minimum wage will result in greater unemployment.
Remember that the goal of Capitalism is not necessarily to achieve full employment. Of course, one other response to a minimum wage would be to reduce the proportion of one of the other inputs into price to compensate. A one percent increase in wages could be offset by a one percent reduction in profit. However, this is out of the question. It interferes with the primary goal of Capitalism, which is to generate more capital from the capital we already have.
Whose fault is it? The Social Welfare State deals with the issue by providing unemployment benefits. Perhaps this involves an element of empathy, altruism and charity that is bad for Capitalism or society as a whole. However, the benefits all get spent on rent, groceries and other essentials, which are provided by Capitalism. Thus, the benefit is effectively a safety net for business. It just keeps the money flowing in the system. Of course, the benefits are funded out of the taxes we all including corporations pay. Once again, the State remedies a failure of Capitalism even though Capitalism declines responsibility for full employment.
There is rarely a sense in which the relationship is a joint venture aimed at jointly succeeding in the market. I think this could be ameliorated, if the relationship was seen more as a joint venture, and the input of an employee given the same respect as the input of another Capitalist. They think it is a form of theft. Before property can be theft, there must be profit, which Marx regarded as the surplus value created by labour. The thing is that, once capital exists, it wants to multiply. Capital wants to make more capital.
It takes money to make money. I do, however, advocate different ways of sharing it around. It's perfectly acceptable for capital to earn an appropriate return of investment. So the profit goes around in the system. Arguably, this should be not just the management team, but the whole staff.
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Thus, I think profit is necessary not just to compensate capital, but to incentivize and motivate the joint venturers including staff. In fact, this is a reality that Capitalists, Socialists, Communists and Anarchists all have to recognise. There has to be clarity about what the State has to do, how it will do it most efficiently, how much it will cost and how it will be funded by taxation.
A budget needs to be set, just as if we had established a corporation to carry out the task. Hopefully, by buying collectively, it is able to leverage its bargaining power and buy so more cost-effectively. Heath writes far more eloquently and persuasively on this topic than I could in the space that I have allowed myself. His book deserves to be read for that reason alone. Taxation is also a vehicle for achieving some redistribution of wealth.
Heath argues convincingly that the State should not manipulate prices. However, I do advocate a progressive tax system, so that those who earn more money pay more taxes.
I also advocate a minimum wage, that would be at least enough for a subsistence standard of living for a couple with two children. The goal is to pull people up, rather than pull people down. View all 5 comments. Heath is a lefty himself from way back, and one who, as he notes in his thoughtful introduction, held many of the Left fallacies he explicates in detail, ere exposure to center and right-thinkers in the course of his university profession revealed how ignorant of the economic bases he actually was. Thus, despite its split into six fallacies held by and addressed towards either side, it seemed clear to me that it's the Gauche ones into which he pours the better strength of his spirit: That's not to say it isn't a useful primer for the reader of any particular political stance—rather, that the unveiling of the right fallacies strike me as being less-aimed towards achievable goals, whereas Heath believes in progressive reform and hopes that the exposure of fallacious thinking will channel those efforts into better achievable results.
I once heard Heath state, in a Bloggingheads conversation with Will Wilkinson, that over the years he had gradually come to the conclusion that John Stuart Mill was right about everything —a tongue-in-cheek admission that nonetheless illustrates how utilitarianism seems prone to filling the abscesses left by deflated enthusiasms, tempered optimisms, and diminished radicalization.
This probably reflects that the latter six are both more interesting in their timber, and that they are ones I used to be more strongly aligned to, and, hence, would stand to learn more from in having their erroneous natures clearly revealed. And clarity is both what Heath strives mightily for and impressively achieves: Those with a mid or high level understanding of economics might find all of what he covers to be nothing new, but for those others, like myself, whose grasp is never better than middling and tenuous, ofttimes emotionally driven, the entirety of its contents went a long way towards clearing the miasmatic air of the dismal science.
Two extra chapters that Heath wrote for the book but decided against including: Spare the Rod, Spoil the Child. Evolution does not optimize. Individuals cannot be counted upon to do what is necessary to promote their own interests as a group. There is an element of irrationality in our moral and legal reasoning. The consequentionalist position, wherein outcomes are evaluated only in regard to one's actions is a minority position. Capitalism does not derive from Spontaneous Order —it requires a state to secure even the most basic conditions of private property, free exchange, contracts—and inevitably comes to require more of the state to solve Collective Action Problems via various social programs.
Which of these latter to pursue is not a function of ideology and preference, but of reasoned, evidentiary consideration—it is not Natural but rather of empirical questions regarding the occurrence and severity of collective action problems , that is, Prisoner Dilemmas. People have a tendency to overestimate the importance of external incentives in motivating human conduct.
In particular, we are prone to overestimating them in regard to power, money and status. External incentives do matter; but such as morality and social norms also act as a constraint upon human conduct. Welfare states are incentivized to streamline and tighten their tax systems to maximize revenue and minimize evasion and growth-inhibitors taxes on corporations and investment.
These last two combined are also why governments prefer to tax dividends and make debt interest payments tax deductible. Humans are incredibly complex psychologically. Behavioral Economics must be taken into account to explain why Standard Rational Actor models sometimes get things wrong. Behavioral Economics has not proven itself to generate results with the same explanatory and predictive power of the Standard Economic Model, but it is a real influence on incentives—external incentives aren't everything and incentives can be very complex business.
Economists use efficiency to describe outcomes— not means—where one person's satisfaction cannot be increased without worsening someone else's. The Invisible Hand Theorem states that a perfectly competitive market—ie, all market exchanges as per above—will generate a perfectly efficient outcome. The Second Best Theorem of Lancaster and Lipsey, which Heath describes as one of the most powerful arguments against laissez-faire capitalism ever invented , stands potently against the IHT mentioned directly above: The argument for market solutions must be made on a case-by-case basis—it cannot be derived from an abstract model of how an ideal economy would function.
Neither the state nor the market produce or consume anything—they are rather the institutions through which people coordinate their production and consumption. Taxes are, in essence, club fees: One of the goods that can be purchased most efficiently in this way is insurance—the larger the pot, the larger the gain for the the individual.
Taxes are simply the financing of your own consumption, and your money will be spent on club goods instead of private goods. With taxes, what we should ask is if the benefits that come from the formation of an optimal sharing group outweigh the costs that we associate with it. Tax deadbeats are just like market frauds—an expense of market exchange and consumption.
Heath conducts a great discussion of club goods like state pensions as pooled annuity purchases, an instance of insurance—whereas what those who wish to privatize pensions are asking for is individuals to invest money in the market to fund their own retirement. This in an attempt to change apples into oranges, with much different risk levels and optimization points, and this should be the first thing factored in any discussion about doing so. Final note on taxes: This is a reality that tends toward bringing peace of mind, an effect that most people unjustly discount. Heath is solid on how to conceive of free trade: Free trade basically is an exchange of vouchers—currency—that can only be used to buy goods or services from the other country.
Even if these vouchers are exchanged for other currency, at some point down the line someone, somewhere, will want them to buy goods and services from the issuing country. The sole exception to this is the US Dollar—but currency muddies the picture, and ignorant people believe, erroneously, that countries are structured like and compete with each other like corporations.
Free trade is all about comparative advantages: Detroit auto-workers compete with Iowa farmers for car production, not with Japanese auto-workers. There are two ways for Americans to produce automobiles: Growing them in Iowa makes use of a special technology that turns wheat into Toyotas: The ships come back a short while later with Toyotas on them. Productivity helps give comparative advantages to certain sectors. Countries do compete for foreign investment, and the factors involved vary, depending upon the industry in question. What is important is that comparative advantage comes about through differences between countries—in fallacy, the Left misunderstands this to seek trade restrictions; the Right misunderstands it to seek the pauperization of labour.
Insurance comes from pooling risk, so that the bell curve of outcomes has a decreased variance. This pooling is intended to increase win-win efficiency gains. Examples can be found in two Canadian provinces: Saskatchewan is mostly farming country with stringent weather and a single-crop season, so pooling risk is a popular solution.
On the other hand, Alberta, with an industry mostly comprised of ranching and oil, faces a larger threat from theft—so property rights become paramount therein. Moral hazard comes from the disincentives created by risk pooling, the tendency for free riders to avail of the efforts of others from the spreading of risk—this tends to shift the bell curve so that the hazardous left-right extremes, of previous low incidence, become more likely.
Reason says that moral hazard, though real, should be managed, because the benefits of risk-pooling mostly outweigh the costs of moral hazard a rather relevant exception? Exotic Investment Vehicles and their insuring prior to the crash of Heath offers good stuff on the Left and Right perceptions of moral hazard among the lower-classes , or rule-breaking based on ideology and views on responsibility. While perverse incentives and moral hazard are serious, the question asked should be do the benefits of pooling poverty risk outweigh the costs?
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If you allow private property, then you have to accept some theft along with it; if you want insurance, you have to accept some moral hazard as well. Insurance and actuarial sciences have accompanied the stable rise of Capitalism. Most right-wing decrying of the welfare state is actually aimed against insurance.
Moral hazard is an inescapable part of insurance and risk-pooling schemes; and insurance lubricates our economic systems. What's more, the government welfare programs tend to all be of the insurer of last resort type, where private insurance would face asymmetries and information problems and inevitably fail.
That the latter proves the case is shown by Heath in a well-delineated walk-through of all of the interconnectedness and complexity of the finance industry during the housing bubble, and how the burgeoning asymmetries made the gauging of actual risk difficult, and the payouts demanded during the collapse impossible. In similar manner can the case be made for government-operated insurance pooling for such expensive, complex, disincentivized and information-intensive industries as healthcare. Economics without Illusions is a rare case of "myth-busting" book that actually does its intended job, rather than simply exposing a contrarian position as if it were divine revelation.
Writing from a Leftist position, the author starts by showing how some positions traditionally associated with Conservative politics even if the author is a bit too prone to lump everybody outside of the Left tent, blurring some relevant policy distinctions with a convenient label are not a natural consequence Economics without Illusions is a rare case of "myth-busting" book that actually does its intended job, rather than simply exposing a contrarian position as if it were divine revelation.
Writing from a Leftist position, the author starts by showing how some positions traditionally associated with Conservative politics even if the author is a bit too prone to lump everybody outside of the Left tent, blurring some relevant policy distinctions with a convenient label are not a natural consequence of economical science; indeed, some common pro-market arguments go against the findings of contemporary economical science, especially as they disregard the importance of insurance in a risk society, favouring instead approaches based on individual responsibility alone.
The Left, however, is not spared from Heath's criticism. In his analysis of topics such as "just prices", Heath argues that knowledge of modern Economics is essential for the design of policies that solve critical issues such as inequality without causing nasty side effects like the scarcity traditionally associated with "real-world Socialism". While the book simplifies many positions -- the hand-waving of Libertarianism in Chapter 1 is a particularly low point, lacking the nuance seen elsewhere on the book --, it does so not as strawman-building, but as an attempt to engage what is seen in popular discourse.
The policies proposed by the author are not above criticism, either, both from Leftist and Rightist perspectives. Economics without Illusions is still a very thought-provoking and nuanced book on the "dismal science" and the consequences of Economics on political and social activity.
The discussion of the role played by risk and insurance in modern society alone would be worth the read, but the book successfully shows that each of its discussed topics is way more complicated than the received wisdom -- both on the Left and the Right -- would lead one to think. Oct 04, Westcoastsusan rated it it was amazing Shelves: So it turns out that 'hyperbolic discounting' is not actually an annoying debate technique but rather a description of the universal human tendency to over-weight near term costs and to over-discount long term ones.
We already know this about ourselves. We don't stick to our own virtuous long term plans; Yeah, we're better at it as older adults than we were as teenagers, but we 'sign up to show up' and lock ourselves in to accountability because we know; We know the power of appetite; We know tha So it turns out that 'hyperbolic discounting' is not actually an annoying debate technique but rather a description of the universal human tendency to over-weight near term costs and to over-discount long term ones.
We don't stick to our own virtuous long term plans; Yeah, we're better at it as older adults than we were as teenagers, but we 'sign up to show up' and lock ourselves in to accountability because we know; We know the power of appetite; We know that the horizon can seem infinitely far away. Many social policies that force people to act in their own best interests can be understood not as the high-handed intervention of the "nanny state", but rather as a self-binding strategy that individuals themselves may be perfectly happy to support.
May 23, Suhrob rated it it was amazing. There is a chance that one could rate a book like this high just because one agrees with it. I do agree with vast majority that is said here, but even if I try to account for this bias I still think it is an incredibly worthwhile read and arguably there is genuine attempt to be balanced there are 6 fallacies both for left and right. Don't get turned off by the sensationalist title, this is a well thought through, reasonable discussion. Heath might suffer a bit of hindsight smugness, some point There is a chance that one could rate a book like this high just because one agrees with it.
Heath might suffer a bit of hindsight smugness, some points might be discutable, but I think it is even worth a second read something I almost never do! Also a big plus for me is that the essentially the whole book is argued from the neo-classical standpoint i. Heath even explicitly states his reservation to behavioral economics in the appendix via the charity principle. I am much more open to the behavioral approach if done carefully , but I think the first line of attack on most of these fallacies can and should be done from the more classical standpoint.
This concludes the review. Now the part where I unsolicitedly vent my frustration by using snippets from the book aka Give me rampant intellectualism as a coping mechanism! Meanwhile, other departments like philosophy find themselves turning away job applicants literally by the hundreds. As a result, society must rely upon unemployment, rather than low wages, to deter entry into the field.
Oh yes, that does make me feel better! Fret no more, there are solutions too: This is why there are fewer maids than there once were but more massage therapists. They study Dark Energy This is a "landmark" book which anyone on the political "Right" and, especially anyone on the political "Left" should read. The author challenged, and in many cases destroyed my economic assumptions.
Heath is a very witty, intelligent and, when need be, blunt writer, who isn't afraid to tell it like he sees it and back up his points logically. His being a philosopher first, instead of an economist or activist enabled a relatively balanced book, and produced a paradigm of constructive critical th This is a "landmark" book which anyone on the political "Right" and, especially anyone on the political "Left" should read.
His being a philosopher first, instead of an economist or activist enabled a relatively balanced book, and produced a paradigm of constructive critical thought. The book is not flawless, but it is very, very good, and very powerful. Jul 07, Tim K rated it liked it. Real rating should be 3. This book had some very interesting viewpoints it also was very confusing and in my opinion sometimes also wrong viewpoints This review has been hidden because it contains spoilers.
To view it, click here. The book is written by a Canadian philosopher. It scrutinizes economic arguments in the political debate. It does so without any technical difficulties, and by very well formulated and intuitive argumentation. Interesting that paper recycling can reduce amount of trees, as vegetarians reduce cow population, and that car safety increases cancer due prolonged life expectancy.
Extensive welfare state may be inefficient due to high taxation, but regains efficiency by social programs such as maternity leave, which cause higher labor force participation and lower population growth. It equates public and private markets, arguing no effect of tax cuts, without accounting for differences in efficiencies. He eloquently refutes the idea of technologically induced unemployment.
This must mean that a constant immigration of unskilled labor cause extreme wage inequality. That occupations don't get squeezed out by increased cost. He suggests restructuring incentives, to make future costs and benefits be accounted for presently. He blames status competition for the upper bound of happiness that we seem to have reached. Though status completion can be beneficial insofar as spending is for altruistic purposes. Very good book that improves ones understanding of economics. And it only took almost three months!
I learned a lot from this book, although I've probably already forgotten a significant proportion of it. Jan 17, Craig rated it really liked it. A very simplified overview of the field of economics. With critiques of both left and right wing economic policies and theories.
Filthy lucre : economics for people who hate capitalism
A fascinating and humorous introduction for a chap like myself who knows virtually nothing about economics. I'll probably read it agin some day to remind myself. Economics without illusions, why not. Considering that Joseph Heath is neither an economist nor political scientist, I didn't expect much from a book about political biases from an economic standpoint.
But this is actually a decent package of information. This is not a perfect book on economics by any means. Heath cuts corners here and there and is occasionally quite repetitive. Whether minimum wage causes unemployment or not is an unsettled issue, for example, but Heath tries to paint a picture Economics without illusions, why not. Trade specialization increases efficiency thereby increasing the price value of one's labour. This is because the price value of labour is a function of the efficiency of an economy.
In the book Heath criticizes the idea that tax-paying is inherently different from consumption, and that the idea of a tax freedom day is flawed:. It would make just as much sense to declare an annual "mortgage freedom day", in order to let mortgage owners know what day they "stop working for the bank and start working for themselves".
Homeowners are not really "working for the bank"; they're merely financing their own consumption. After all, they're the ones living in the house, not the bank manager. From Wikipedia, the free encyclopedia. In the book Heath criticizes the idea that tax-paying is inherently different from consumption, and that the idea of a tax freedom day is flawed: Economics for People Who Hate Capitalism". Retrieved from " https: Books with missing cover All stub articles. Views Read Edit View history. This page was last edited on 7 October , at