Thanks Brad for reposting Matthew Yglesias‘ report from the Brookings Institute. For those of you who are finishing up your papers on transitional economies of Eastern Europe, Yglesias’ report offers a helpful summary. And, yet, like the course, the Brookings Institute meeting begs a couple of interesting questions: efficient for what? Equality for whom? As my students this fall will learn by reading A Marshall’s Principles, unless we are speaking in the abstract — the productive potential of all producers in some discrete economic system (a city, a parish, a country, the world) — investors today think short-term (Flash Boys short-term). Maximizing returns on investment measured in microseconds, of course, masks the long-run. As Jesus famously said, tomorrow will take care of itself. Really?
One of the more interesting outcomes of ECON 161 (thanks to Gerard Roland’s rigorous modeling) is a fairly sophisticated grasp of the incentives driving oligarchic behavior. We discovered that such behavior differs not a hair’s breadth from our own. Oligarchs too are seeking to maximize the returns on their investments and, not unlike the Koch Brothers in the US, oligarchs in former socialist countries recognize the efficiencies that are to be had from determining the regulatory climate in which money is made and lost. As Tom Franks pointed out in the Wrecking Crew, $100,000 on a Senate or House political campaign is likely the most efficient use of resources investors could make. Want to change the regulatory regime? Go for it! We like Professor Roland’s handling of oligarchy because it grasps and models the trade-offs entailed by this shift in regulatory regimes.
This, of course, relates to the other side of the Brookings discussion: democracy. I have argued elsewhere how democracy was already a dead letter once Frank Knight published his devestating criticisms of Lord Keynes in the 1930s. Therein, Professor Knight highlighted the terrible inefficiencies entailed by democracy, not only because it is slow, messy, awkward, and uninformed, but more importantly because the aims of res publica — the things we hold in common — are often at odds with the goals of efficiency. Professor Knight’s views were then updated in Gary Becker’s brilliant 1958 and 1962 articles showing, conclusively, first that the rationality of markets referred not to any specific economic actors, but to the market in aggregate (individual agents be damned), and second that markets were also more responsive than voting booths.
As Professor Yglesias rightly notes: oligarchy is inefficient; poverty is inefficient. And, yet. What investors have learned in the 1990s and 2000s is that wages really are elastic relative to other factors. Investors actually can (and have) transferred the efficiencies realized by stagnating wages, benefits, and employment precarity up the income hierarchy (T Piketty) creating huge efficiencies for those at the top. The second thing that investors have learned is how effective bread and circuses — or nationalism, or racism, or Marvel or DC Comics — truly are. In this respect, I am guessing that I am the only economist perhaps anywhere encouraging his students to ponder Michigan social scientist (formerly from Chicago) George Steinmetz’ treatment of authoritarian post-Fordism from a regulation theory standpoint. According to Steinmetz there are huge efficiencies to be realized through the shift from Fordist to post-Fordist regimes of social regulation and cultural production, not least in the self-monitoring, self-censoring compliance cobbled out of fear and insecurity.
Poverty ain’t that bad. Just ask the top of the income hierarchy. But, what about the great unraveling? Funny thing. As the regulatory and institutional frameworks disintegrate in eastern and southern Europe and along the seam running from north Africa to the northern subcontinent, huge investment opportunties are opening up; oh, yes, and huge risks. What we often forget (see G Arrighi) is that the beneficiaries of these arbitrage opportunities will be long gone once the bombs begin exploding. Begging the questions: efficient for what? Equality for whom?