Month: February 2018

Next week, ECON 155 Urban Economics will take up pollution.

And like every other economic good we have already considered or will take up, we will discover that this good is differentially distributed by race, ethnicity, educational achievement, and last but not least, wealth.

Our standard marginal analysis holds that in a world with many goods and limited resources, every good — including pollution — has its optimum quantity. Moreover, each consumer will display a slightly different “basket of goods” that she prefers and among these goods will display a slightly different indifference curve, the curve that measures how many of one good any consumer will exchange for some number of another good.

Like every good, the supply of and demand for pollution is constrained by forces that economists can represent as variables. So, for example, a community whose gainfully employed adult population is employed by a paint production facility will be constrained in its decisions over how to handle the toxic runoff by the fact that regulating the toxic runoff will necessarily place downward pressure on marginal returns and, as a consequence, wages may be depressed and employees may lose their employment. Along any indifference curve for any consumer in this city there will be some amount of pollution she will tolerate (the optimum level of pollution) in order not to jeopardize her employment. Her employment and livelihood are in this way constraints that shape acceptable levels of pollution.

Now let us assume that any employee (employee x) receives her healthcare through her employer. Let us further assume that employee x has no deductible. Her healthcare is essentially free. And yet on account of the toxic waste produced by her plant, the life expectancy of employee x is reduced by some measurable number of years and months. This cost, the limit on employee x‘s life expectancy, is a further constraint that would have to be factored into the marginal benefits and marginal costs associated with both her continued employment and the level of pollution she is willing to tolerate.

Now let us further assume that consumers who enjoy wealth are at liberty to purchase housing at a safe distance from the paint production facility. Because it is not subject to toxic waste, property values increase as we move away from the facility. As property values increase so too do the revenues that municipal governments raise from properties. These revenues in turn pay for superior schools, well-maintained parks, a public auditorium and public museum. The school district that falls closer to the plant is dependent on the lower property values of homes in the district. The municipality cannot raise funds sufficient for an auditorium, parks, museums, and so forth.

In real terms, this too is an “externality” produced by the paint production facility. It is a “cost” born by consumers. But, since they have “chosen” to live in the toxic district and “chosen” to work at the paint plant, marginal analysis faultlessly concludes that along their indifference curves members of this community find the costs arising from pollution — in poor health, shorter life expectancy, no parks, no auditorium, no museum, and poorly funded and staffed schools — exactly equal to the marginal benefit they derive from employment at the paint plant.

But now let us hold that toxic-free environments, good health, superior education, and safe, secure, affordable homes in livable neighborhoods are among the “public goods” citizens in a republic can impose upon their own private households. This intervention into the market, as we have seen, gives rise to both marginal benefits and marginal costs. But the public, whose sole duty it is to preserve res publica, the republic, has determined that these goods are among the goods that are non-negotiable, goods for the sake of which and in pursuit of which they are willing and eager to endure marginal losses in other areas.

So, for example, to preserve their employment at the paint plant, they might be willing to be taxed at a higher rate and designate their revenues for site remediation and technological retooling in exchange for a greater share in their place of employment and better health.

Yet, as this example illustrates, there is nothing that by its nature is either public or private. Some one — whether a public person or a private — will determine the value communities place on goods, including pollution. And, there will always be tradeoffs. Yet, some goods — liberty, for example — are non-negotiable in a republic. However high their cost, such goods will be protected. The question is, what goods enjoy this status: education? Health? Security? Leisure? Privacy? Speech? Association?

In these cases, we will not count the cost, because we recognize that the integrity of our community itself rests on these goods. Which brings us back to pollution.

Pollution — our tolerance of it and our willingness to distribute it differentially — is the clearest indication of the kind of society we are: a tyranny, an oligarchy, a despotism, a democracy, or a republic. A republic, in which all wealth is shared, will distribute pollution equally. A democracy will distribute pollution by vote. A despotism will distribute pollution privately. An oligarchy will leave only the few pollution-free. And a tyranny will impose pollution on the weak.

Economists will, in each instance, be equipped to measure the marginal cost and benefit of each distribution of goods; who benefits, who loses. But in no instance will economists be able to say which distribution is preferable. Why? Because economics, by definition, characterizes or models how decisions are, in fact, made; not how they should be made. Which means that a society that rests upon private enterprise, by definition, has no means of telling whether the direction it is moving is good or bad.

Economists can only tell us whether our policies are likely to lead to the outcomes we desire; but they cannot tell us which outcomes we should desire.

Neoliberal thinkers mistake this absence of guidance for liberty. In fact, it is the opposite of liberty. Liberty are the positive conditions that give rise to responsible action; that make it possible for us to respond knowingly, intelligently, responsibly. For 2.4M years, in all traditions — Jewish, Hindu, Muslim, Christian, Buddhist, Taoist — in all traditions, these conditions have been identical: superior learning, good health, security, and sufficient leisure to make responsible decisions.

The problem, then, that pollution presents to our current communities is that many of our communities have mistaken the absence of constraint for positive liberty. This, however, is a uniquely private, economic, understanding of liberty. By definition, it has no rudder, no guidance, no compass. It follows its nose. When we enable publics to govern themselves — when we empower republics — they are better suited than private households to reflect critically on the conditions that give rise to freedom.

We are quickly approaching and may already have passed the point where massive, systemic environmental collapse is inevitable. Should this prove true, it will be because we did not cultivate publics capable of and empowered to preserve republican values and institutions.

Today in Economics 155 we covered public goods. In theory, a public good is any good that is both “non-excludable and non-rivalrous” in that individuals cannot be effectively excluded from use and where use by one individual does not reduce availability to others (Krugman & Wells 2012:481). By that definition, however, there are ever fewer goods that fit the standard definition.

Our Urban Economics textbook offers an alternative definition:

 The crucial feature of a public good is that consumption of the good (the protection offered by a policeman) is “shared” among consumers. Given this property, the “social” benefit from an added unit of the public good is found by summing the additional benefit from the extra unit across all the residents, who share consumption of the unit. The social benefit is then compared with the cost of the extra unit. When the two are equal, the level of provision of the public good is socially optimal (JK Brueckner 2011:160).

Curiously, both Krugman & Wells and Brueckner treat individuals who benefit from public goods as though they were private consumers. This, however, leads to a category error. And, unfortunately, this category error is commonplace, specially in the US.

The terms public and private come to us from Latin: publicus and privatus. But their meanings go back much further to the Greek πολιτεία and οἰκονομία. Politeia is the public space where citizens (πολιτης) govern both public and private lives. Oikonomia (in case it was not clear) is the sphere of private production and consumption, from οἶκος, meaning “household.” The οἶκος is the private sphere; the πολιτεία is the public sphere where citizens govern over both private and public goods.

The category error arises because we want to treat public goods as though they were produced and consumed privately. Thus JK Brueckner’s unconscious pairing of a “shared” good with — not citizens — but consumers.

Happily, most western European nations have overcome this category error. Citizens — all citizens — enjoy the full range of public goods: not just clean water and an effective constabulary; but health care, education, housing, and a pension. These public goods are not subject to the vagaries of the market. They are public goods, governed by and shared among the public.

Obviously, this was not always the case. In an age when monarchs and nobles governed subjects and serfs, the public was completely identified with the household of the lord of the manner. Two world wars convinced much of Europe that the privileged status of the lord — and the subject status of royal subjects — had given rise to citizens ill-equipped to face the rise of fascism. A well-educated, healthy, secure, and reasonably leisured public would not have followed Mussolini, Hitler, or Franco down the road of fascism. Western Europe learned the hard way.

The US did not. Indeed, it was the European war itself and the unprecedented public debt created by that war that generated a level of economic growth among working families never seen before or since. This growth also saved the US from political extremism. FDR was followed by a series of Presidents and Congresses who tended to steer a path down the middle. But the war itself — its devastation, loss, and complete elimination of productive capacity — barely touched the US, or where it touched the US touched it in positive ways. The US therefore never really learned the difference between public and private spheres, or between citizens and consumers. To the contrary, until it was eclipsed by Japan and Germany, the US became a consumer’s paradise, and citizenship became synonymous with consumption.

Back to public goods. I have often had occasion to recall Aristotle’s off-hand remark:

And if they cannot procure it through money-making, they try to get it by some other means, using all their faculties for this purpose, which is contrary to nature : courage, for example, is to produce confidence, not goods; nor yet is it the job of military leadership and medicine to produce goods, but victory and health. But these people turn all skills into skills of acquiring goods, as though that were the end and everything had to serve that end (Pol. 1257-1258).

So, what is a public good? In classical terms a public good is any good upon whose supply to citizens is sufficient to maintain a healthy republic. This understanding of public goods is reproduced in the preamble to the US Constitution: “We the People of the United States, in Order to form a more perfect Union, establish Justice, insure domestic Tranquility, provide for the common defence, promote the general Welfare, and secure the Blessings of Liberty to ourselves and our Posterity, do ordain and establish this Constitution for the United States of America.”

It is what makes (or made) the US a member of the growing list of uniquely republican nations: res publica, Latin for “the wealth we hold in common.”

A public good is any good that promotes and preserves republican values and institutions. When these goods are subject to private markets and private institutions, it necessarily creates a category error.

So, can economists — whose very method and outlook is necessarily shaped by the private household economy, however big or small the private household — can economists truly come to terms with a public good, not on their terms, but on its own terms?

Yes they can, but only if they hold public goods constant. This is what the grandfather of neoclassical economics, Alfred Marshall, did. In his Principles of Economics (1891), Marshall showed how and why public goods held a privileged place among all goods. Such goods were set aside by publics for no other reason than that these publics found them necessary in order to maintain their own public character. Did public goods give rise to deadweight loss and a misallocation of resources? Some did. Some did not. But, according to Marshall, the very question itself was inapposite. Public goods did not aim at efficiency or productivity or marginal benefit. A well-educated individual is not more or less efficient, as though the only way to measure public good was through private efficiency. Education is a good in and of itself. The same held true for health, safety, and security. These are not goods in the normal sense, thought Marshall. If we subject them to marginal analysis they lose their character as public goods; they are transformed into private goods.

Is economics then blind to public goods? No. Not entirely. First, economics has the capacity to measure the effects that public goods have on private markets. They can, for example, measure the effects a highly educated public have on the labor market. Yes. A highly educated labor market gives rise to higher wages. But it also shifts production towards higher end goods. So, for example, a recent study found that Germany was hard-pressed to fill manual labor and service labor positions from a population of Germans educated and trained in the German education system. Part of the push in Germany to embrace more immigrants was that it needed individuals not trained and educated in Germany to fill the ranks of manual and service worker positions. Second, economics has the capacity therefore to measure the marginal benefit (and loss) of public goods. A healthy workforce is uniformly more productive; whether it is always more productive in excess of the cost of healthcare is still an open question; although not in countries where healthcare is a public good. Private-public healthcare schemes, because they measure “success” in terms of marginal efficiency of capital/labor, tend to place downward pressures on service and give rise to higher costs. Fully public schemes by contrast measure “success” solely by health outcomes. Such schemes are able to keep costs down for the simple reason that increasing marginal returns is nowhere an incentive within the system. Doctors become doctors and nurses become nurses not because there is money in the game, but because they are driven to ever greater health outcomes. But the benefits of a healthy population, like an educated population, go beyond the marginal benefits these goods offer to private investors. Being healthy and being educated are goods in their own rights.

Finally, economists can measure the value of public goods in terms of the institutional arrangements they help to create, maintain, and protect. Here the US has performed very badly indeed. Like Europe in the 1910s and 1920s, the US today appears bent on sending its marginal efficiencies up the income hierarchy to the very top — where, in purely economic terms, these efficiencies perform least efficiently. Yes, this holds factor costs down and so, on paper, enhances the marginal efficiency of capital/labor. Yet, at the high cost of 80M lives. This was the lesson that Europe learned but that the US did not. Strong republican institutions preserve deep republican values. But the reverse also holds. Where republican institutions are compromised by private markets, their days are numbered; which is surely the case in the US today. Economists can measure this drift with pinpoint accuracy. Moreover, they can identify the mechanisms that give rise to this drift towards fascism and away from republicanism. And they can identify, again with pinpoint accuracy, how these mechanisms would have to change in order to preserve, maintain, and rebuild republican institutions.

But they can no more trigger these mechanisms than can a physicist generate a black hole — even though she understands why it appears where it does and as it does. The public alone can create these conditions. At the same time, economists do not help when they offer definitions of public goods where such goods are only private goods in disguise. That actually makes the problem worse. We can do better. And now we absolutely have to.

 

 

Last week I joined a team of graduate students, lecturers, and librarians who fanned out across the UC Berkeley campus to recruit new members into our union UC AFT 1474. Why the urgency?

It is not secret that trade unions — sometimes also called “bargaining units” — have retreated, quite dramatically, from the American landscape.

Because this Summer the Supreme Court will rule that lecturers and librarians who benefit from our union’s contract negotiations on their behalf will no longer be obligated to bear their fair share of the cost the union shoulders negotiating our contract. Four decades ago, in 1977, the Supreme Court held (unanimously) that public employees who benefited from contract negotiations had to pay a “fair share” fee to the public employees’ union, even if they did not want to join the union. Those fees, in turn, are separated from union dues and reserved strictly for bargaining. This Summer all of that will end. And negotiators will have to depend on compensation paid solely out of the dues of union members. “Fee payers” will disappear as a category.

The case where all of this will be decided is called Janus v AFSCME. “Janus,” a fee-payer to AFSCME will argue that union membership is political speech and that to obligate him to contribute a fee to the union amounts to coerced political speech, which is prohibited by the constitution.

But it occurs to me that we have visited this case before, in 1787. There the issue was the status of slaves: where slaves private property or were they human beings with full rights, obligations, and privileges of their own? The names have changed, but the issue is the same.

Northern delegates, such as Rufus King of New York, were clear. If slaves were property, then they should be regarded the same way as a boat or building or plot of land — valued and taxed accordingly; if they were full human beings (not property), then they should be freed and accorded all of the rights and liberties enjoyed by any other human being in a republic.

The southern delegates equivocated. Slaves were most definitely private property. But — and this is where things got messy — slaves also made up the lion’s share of the population in the south; which meant that, insofar as the number of members in the lower house for each state were tied to the population of adults in that state, southern states would be underrepresented; unless, of course, we conclude that property, real wealth, enjoys full voting rights. To which our good delegate from New York replied: well, then will my property, my boats, my real estate, my assets also enjoy a vote? Good question Rufus.

The debate ended in the devil’s bargain of the 3/5ths clause, without which, in all likelihood, the southern states would not have elected to join the republic. The 3/5ths clause, rightfully, is often presented as an instance of institutional racism, an original sin of sorts, in the formation of the United States.

But, let me suggest that this sin is not entirely understood and is not entirely about race. It is, in fact, about money. Lots of money. For southern land owners race=money=race. Their marginal returns, head and shoulders above the returns commanded by cultivators elsewhere in the world, were wholly dependent on slaves. Take away their slaves and their marginal returns take a deep dive. Maintain them, increase them: these returns meant the leisure and wealth to maintain the “southern way of life.” Nice.

But, of course, it was the stated intention of folks like Rufus King of New York to deprive southern land owners of their property and thus their wealth. And, given their overwhelming advantage in white adults (who were the property of no one), northerners could and probably would have eliminated slavery, if not in 1787, then soon thereafter. Because they had the economic interest and the votes to do so.

Not only therefore did the 3/5ths clause prevent white northerners from overpowering white southerners in the House; it also offered a moral hazard because the greater the number of black slaves, relative to whites, the greater their representation in the House, but also the greater their economic power: the House of Cotton ruled the day.

But, let us suppose for a moment that, legally, slaves are money; they are property. What does it mean for me to give private property a vote in the House? We could say, of course, that the only vote ever cast in the House was the vote of wealth, of money, of capital. But here, in the form of African American men and women, we are saying: this property has a vote, not as a human being, but precisely as property, as money, as capital, as wealth.

1864 and 1865 did away with this conceit, but not the underlying cause.

When, in 1935, the Wagner Act made collective bargaining the law of the land, it declared that workers were also citizens and not simply the property of their employers. They could speak and they could assemble without fearing the retribution of their “owners.” Taft-Hartley, in 1947, of course greatly weakened their rights. Janus will completely eliminate them.

Speech, wealth, and power have been tied together in the US since the very beginning. The 3/5ths clause illustrates only how closely the three are tied. Janus, as a Plaintiff, is being bankrolled by the heirs to the southern plantation owners, the anti-Federalists, the confederates who always hated republican values and institutions: because they threatened their private property, their slaves.

“Slave,” in Greek is δοῦλος. It is the same word used to describe someone who works in another person’s private household, their private enterprise. Liberty, as the framers of the US Constitution understood it, entailed working in one’s own private enterprise. When the Supreme Court rules in favor of Janus it will, in effect, deprive millions of workers their liberty, their ownership of their own bodies. It will transform them into δοῦλος. From that point forward, workers will be subject to the owners of the private enterprise in which they work, without the right to bargain with their employers on a level playing field.

Only now, instead of the 3/5ths clause applying to Africans, it will apply to all workers. All workers will, in effect, become the property of their employers.

I have never experienced war directly; I have scarcely experienced violence of any kind beyond, say, bullying. Which may help to explain why today’s appointed Psalms and the reading from Habakkuk seemed so foreign to me.

I suppose the good news is that, mixed in with the descriptions of divine arrows and flashing swords are descriptions of events I have experienced: earthquakes, floods, and hurricanes. So, I think I get the drift. During events such as these, life as usual comes to a halt. Indeed, for some, life itself comes to a halt. And so the normal, predictable, order of things is turned upside down.

The psalmist and prophet are telling us that this is what it is like when God is present: the normal, predictable, order of things is turned upside down.

And this precisely is the problem, both for the psalmist and for the prophet. The prophet from exile cannot believe that calamity has not struck:

I heard and my heart pounded,
    my lips quivered at the sound;
decay crept into my bones,
    and my legs trembled.
Yet I will wait patiently for the day of calamity
    to come on the nation invading us.
Though the fig tree does not bud
    and there are no grapes on the vines,
though the olive crop fails
    and the fields produce no food,
though there are no sheep in the pen
    and no cattle in the stalls,
yet I will rejoice in the Lord,
    I will be joyful in God my Savior.

And so, he is going to “wait patiently for the day of calamity” (Hab. 3:16). Similarly for the psalmist:

⁷   Will the Lord cast me off for ever? *
will he no more show his favor?
⁸   Has his loving-kindness come to an end for ever? *
has his promise failed for evermore?
⁹   Has God forgotten to be gracious? *
has he, in his anger, withheld his compassion?
¹⁰   And I said, “My grief is this: *
the right hand of the Most High has lost its power.”
¹¹   I will remember the works of the LORD, *
and call to mind your wonders of old time.
¹²   I will meditate on all your acts *
and ponder your mighty deeds.

The psalmist (also from exile?) is brought to “remember,” “call to mind” and “meditate” not on events near at hand, but distant events, “wonders of old time” (Psalm 77:11-12).

Is that where we are? As much of the world slips back into fascism, as the oligarchs rub their hands together in glee, where is the fire from heaven, the earthquake, the hurricane, the cyclone? Where are the bolts of fire and flaming arrows? “Has God forgotten to be gracious? has he, in his anger, withheld his compassion?”

But then it occurred to me that as this Lenten Fast lurches forward, it is not altogether different than the first Lenten Fast. Rome is busy putting down rebellions and expanding its territories on all fronts. It devotes some, but not too many, troops to Palestine, an outpost of little importance. Most of the religious folk, in any case, are completely comfortable with the occupying Roman force, which, they say, has been very good for business. “Live and let live,” is what they say. No lightening bolts here. No fire from the sky. No earthquakes — yet (see Matt. 27:52). Life is simply proceeding as usual. And even after the crucifixion of the Palestinian Jew Jesus, life will continue on much as it had in any case — earthquakes or no earthquakes, it really doesn’t matter.

The psalmist and prophet want God to intervene, to do something big. They are each waiting.

Lent is a time of waiting for something big. Except that when it comes, when the Jew Jesus is actually crucified, his crucifixion is among the most normal, common, everyday events Romans everywhere can possibly imagine — the Gospel of Matthew notwithstanding. Perhaps like the prophet and the psalmist we too want something big to happen. “Will the Lord cast me off for ever? Will he no more show his favor? Has his loving-kindness come to an end for ever? Has his promise failed for evermore? Has God forgotten to be gracious? Has he, in his anger, withheld his compassion?”

Surely seems that way, doesn’t it?

But let us suppose, as they say, that we are the change we have been expecting in the world; that the road to Jerusalem does not end in a brilliant fireworks display or geological or meteorological cataclysm. The road to Jerusalem ends on a hill far outside the city where criminals are quietly  murdered by soldiers from the occupying force, their bodies left to rot in the Sun. But in this singular case, this crucifixion gave rise to a community charged with bringing into reality the events they had long anticipated — the sick are healed, the blind receive their sight, the lame take up their mats and walk, the prisoners are set free, the hungry are fed, the naked are clothed.

Such events, were they actually to take place, would surely signal the most dramatic cataclysm of all time. It would not be life as usual. It would be a complete disruption. It would turn everything on its head — if only it were true.

Which it is not. And so, like the prophet and the psalmist, we wait and we wonder: when?