The Economic Benefits of Racism

Today’s Upshot (NYT 03/19/18) calls attention to an extensive study showing that black men who enjoy the same economic and academic advantages as white men still do not enjoy the same compensation on today’s job market. The study, led by researchers at Stanford, Harvard and the Census Bureau, “debunks a number of other widely held hypotheses about income inequality. Gaps persisted even when black and white boys grew up in families with the same income, similar family structures, similar education levels and even similar levels of accumulated wealth.” The executive summary of the study concludes: “initiatives whose impacts cross neighborhood and class lines and increase upward mobility specifically for black men hold the greatest promise of narrowing the black-white gap.”

Really? Here’s the problem. If I am an employer and I am interested in winning the highest value for shareholders, I will use every legal means — including race, gender, nationality, immigration status, and sexual preference —  to draw down factor costs.

Yes, there is a cultural factor. Regions of the country that are most thoroughly integrated, most educated, and most wealthy show less racial bias than regions that are less integrated, less well educated, and least wealthy. Less bias; but not no bias. “In low-poverty neighborhoods, two types of factors are most strongly associated with better outcomes for black men and smaller black-white gaps: low levels of racial bias among whites and high rates of father presence among blacks.”

Yes, wealth matters. So, too, does culture; a culture in which whites display lower levels of racial bias. But isn’t this a tautology? Where there is less racial bias, employers display less racial bias in compensation packages. Got it.

The greatest movement not simply in wealth, but against the culture of racism, came with the federal Civil Rights legislation of 1964 and 1965; imposed “from above”; enforced “from above”; carrying penalties serious enough to bring movement to America’s three-century old “peculiar institution.” Did this “intervention into free markets” (M Friedman, Capitalism and Freedom 1962) give rise to inefficiencies? Sure. Any intervention into any system driven by inertia necessarily impedes its original course and, measured in terms of that course, generates inefficiencies. But, since when did efficiency become the universal standard against which we should or should not enact policies? Black men are systemically discriminated against; yes, the culture needs to change; yes, wealth makes all change easier. But, black men are being systemically discriminated against. Yes, any intervention gives rise to inefficiencies. But, black men are being discriminated against.

Related image
African American students walk to school in Little Rock, Arkansas, in 1957. Troops sent by the federal government stand by to make sure the students are allowed to enter the school.

The question is the role the public might play in eliminating racial discrimination. Or, put differently, we need to ask: which “initiatives” might have “impacts cross neighborhood and class lines” and give rise to “increased upward mobility specifically for black men hold the greatest promise of narrowing the black-white gap”? Because identity can be used and is being used invidiously, today, in private markets in order to increase marginal benefits, it is up to the public to impose penalties upon private entities significant enough to deter and eliminate the behavior.

Milton Friedman mistakenly supposed that the marginal cost of racial preference would outweigh the marginal benefit and, therefore, that the free market, left to itself, would resolve the problem of racial discrimination (op. cit. 111-115). Fifty-six years later, we are seeing a grand reversal of 1964-65 all across the US; and equally obnoxious discrimination all across Europe. Men (+ PM May) have decided to generate efficiency at the expense of the marginalized. No surprise here. It is clear therefore that the market has failed to eliminate discrimination. Not because the market has “failed” in general, but because it has “succeeded.” It has succeeded taking advantage of difference as a marginal benefit for shareholders: differences in race, ethnicity, gender, and sexual preference. This is what free markets do. This is how they are supposed to function.

That said, huge efficiencies are being lost when over half the workforce is stuck with substandard education, health, no political voice and little social security. Efficiency mongers need therefore to look beyond the short-term inefficiencies generated by social change and take advantage of the long-term efficiencies they can win by implementing a strict policy of non-discrimination, specially in wages and benefits. And the public should stand ready to impose serious costs on private entities that fail to eliminate discrimination in their wage and benefit packages.

Mediation and Opposition

A passage from Karl Marx’s Capital reads:

The categories of bourgeois economics consist precisely of forms of this kind. They are forms of thought which are socially valid, and therefore objective, for the relations of production belonging to this historically determined mode of social production, i.e. commodity production (Capital, Volume I, 1982:169).

However much “real Marxists”  might want to adopt (or invent) another kind of economic analysis, the fact is that in nearly all respects, save one, Karl Marx was a fairly straightforward neoclassical economic thinker. The criticisms he leveled against classical economic thinkers, such as Ricardo, or Smith, or Say, were leveled by other neoclassical economic thinkers as well. Nothing terribly exciting here. Neoclassical economics was only just emerging when Marx wrote his Capital; nevertheless, by the late 1850s, William Stanley Jevons (1835-1882) was already criticizing the standard classical model in terms virtually identical to the terms Marx used in Capital. Indeed, when “real Marxists” revert to a “dialectical materialist” (which is to say Hegelian) “economics,” they are guilty of the very forms of thought that Marx, in fact, criticized in Capital.

Marx’s economic approach was thoroughly neoclassical; or, since “neoclassical” economics was not a term used in the 1860s, it was thoroughly “bourgeois,” as Marx himself put it.

What does this mean? It means that by the 1860s economic thinkers had already recognized the relativity of all value: as the value of one factor shifts, so shift the values of all other factors to which it is related, including labor. They had also come to recognize the central role innovation played in the value of both goods and of labor. Labor, which had seemed the central factor in production for economists such as Adam Smith and David Ricardo, now appeared to be a dependent variable itself, subject to the inevitable value fluctuations of other factors. This web of mutual constitution had become, in effect, a social totality.

An earlier Marx, prior to and during the revolutions of 1848 and 1849, would have cried — he did cry — “foul!” Not so the author of Capital. That ship had sailed. If all factors — capital, labor, abstract value and material wealth — are tied together in a dynamic, integrated, rational social formation, as neoclassical economic thinkers (including Marx) argued, then little could be gained from pitting one of these factors — labor — against another — capital; since labor was as much the product of capital as capital was the product of labor.

After World War I, Max Weber’s student, Georg von Lukács, attempted to redeem Marxist thought from the clutches of neoclassical economics by theorizing an ideal-typical laborer and his ideal-typical consciousness and practice. Yes, Lukács, admitted; the historically constrained and limited working class is tragically wedded to its opposite. But, if we isolate the ideal-typical working class from its historical condition, we can then see, argued Lukács, that it forms a more perfect, more comprehensive, more integrated totality.

Fail. One does not escape the clutches of “bourgeois” economics simply by idealizing and transhistoricizing bourgeois ontology.

Yet, in one respect, Marx’s approach differed radically not only from other neoclassical economic thinkers, but also from the vast majority of Marxist thinkers as well. Where they take the comprehensive, universal, integrated whole to be both the origin and goal of history, the Marx of Capital takes this totality to be one of capital‘s most illustrious products. Society is integrated in the manner described by neoclassical (i.e., “bourgeois”) economics. This is why the categories of “bourgeois economic thought” are able to characterize the real economic world with such amazing accuracy. Adopting a different, alternative, set of categories (“Marxist” categories) is as silly as adopting “Marxist” categories for understanding nuclear physics or molecular biology.

Where Marx differed is precisely where he said he differed. Yes, these categories enjoy validity, but only “for the relations of production belonging to this historically determined mode of social production, i.e., commodity production.” Take away commodity production and social relations mediate one another differently. Indeed, a thorough, careful reading of Capital shows that Marx felt that one of the central differences separating the capitalist social formation from other social formations was precisely in their degree of comprehensive, total integration. Since other societies are not mediated by a singular social form — the value form of capital/labor — they display a far greater diversity not simply in things, but in ways of valuing things. Marx’s critique of capitalist modernity therefore began with a critique of the totalizing character of capital; of its tendency to give rise to a comprehensive, rationally and socially integrated whole. But, in order to recognize the toxic character of this totality, one has first to recognize its historically and socially constrained character.

Bourgeois economists are inclined, to the contrary, to view their categories as quasi-metaphysical, eternally valid, truths — which, of course, is pure nonsense.

(Parenthetically, friends often wonder how it is possible for me — a post-Marxian theorist — to be at home in a thoroughly neoclassical economics department such as UC Berkeley’s. There is, I explain, no difference in the interpretive categories we all use. The difference arises from my viewing these categories through an historical (non-Hegelian) frame. History under capitalism is going somewhere; it displays a directional dynamic; it displays rationality; it forms a comprehensive, integrated whole. But this is not because history behaves this way naturally. The dialectical behavior of history is among capitalism’s most enduring inventions. But it is by no means a feature of all of history. To the contrary, prior to the 14th c, history is, quite literally, going nowhere.)

Two thoughts: (1) the non-esoteric character of post-Marxian economic thinking offers social scientists shaped by Marx a valuable platform from which to defend the relative historical and social validity of their critique of capitalism, not on transcendental or quasi-Hegelian grounds, but on the grounds that non-Marxian economic thinking ignores its own socially and historically delimited character; (2) on these same grounds, post-Marxian economic thinking is less likely to be taken in by oppositional political forms; forms which tend to dehistoricize or transcendentalize one or more  agents (e.g., the poor, the working class, the farmers) in a political conflict, as though these agents were less thoroughly embedded in the capitalist social formation. If we are all embedded in the same social formation and if this formation is both totalizing, but also historical, then there is value in our searching for ways out of its domination over us, ways grounded neither in superior (esoteric) knowledge, nor in superior ontology, but rather in careful, thoughtful, and sympathetic listening, thinking, and political action.

Mapping (White-Collar) Crime

This morning we had a little fun in lecture. The standard formula for crime is (1-a)L – aJ – e, where a is the likelihood of being apprehended, L is the loot I anticipate earning, aJ is the cost if apprehended, and e is the expense of the tools of the trade. By design the model is highly subjective. If I can earn what I anticipate I should be earning through legal activities — i.e., if the risk a and costs aJ and e outweigh the L loot I anticipate from illegal activity — then I will obey the law. If not, I won’t.

How do you use crime maps?

Even if you have not used mapping — to decide where to buy a home, which neighborhoods to avoid — it is likely that you have used mapping to get from point A to point B. Between these points, you have witnessed, first-hand, places you would not want to go, not at night, not alone.

J Katz notes how “crime news provides the sociologist with a handy, detailed map to trace the institutional geography of the sacred in modern society” (1987:53); toward what do we gravitate; from what do we flee?

To this we can add an entire racialized, linguistic, aesthetic and gendered geography of shapes, sounds, and images that are familiar to us from popular movies, novels, news hours, NPR and FOX.

Our neighborhoods, as nearly as possible, are packed full of the artifacts we cherish; our lived experience — safe, green, warm, happy, healthy, fit, opulent spaces. To individuals who live in the “fear zones” — the “red” zones displayed on crime maps — our neighborhoods both attract and repel. For, it is clear, occupants of the “fear zones” also cherish safety, green lawns, and warm, happy, and fit neighbors and neighborhoods; and, yet, they also know that, when they cross the invisible boundary separating our neighborhood from theirs, they — as living artifacts of the “fear zones” — become objects of attention, objects of fear, of danger. Their speech, their dress, their race or carriage singles them out. The attention is palpable.

Our desire is to contain and limit the spread of “fear zones.” And we do so by controlling for and aJ. That is to say, we increase a, the likelihood of being apprehended, and aJ, the cost if apprehended, to a point where, we hope, crime will not pay for occupants of the “fear zones” — criminals for whom even a small L rises so far above their potential legitimate income that “crime pays” up to the margin: increased jail sentencing, increased incarceration, increased policing, increased surveillance — decreasing the likelihood and opportunity for crime.

Here is where white-collar crime comes into play. White-collar crime obeys the same formula as blue-collar crime: (1-a)L – aJ – e. In the case of white-collar criminals, e is an important factor since it includes education at Booth, or Harvard, and Haas, where white-collar criminals learn the tricks of the trade. In order for crime to pay, it must cover e. Of course, if a, the likelihood of being apprehended, is low, then this reduces pressure on covering e. Finally, if aJ, the penalty I will suffer if apprehended is low, then this means I am willing to settle for less L, the loot I anticipate winning. Yet, in every respect, the formula holds good for both white and blue-collar crime.

Here is where mapping comes in. Even though it constitutes the chief economic risk for occupants of safe neighborhoods — they will lose their homes, lose their savings, lose their pensions, and lose their jobs — white-collar crime appears nowhere on our crime maps. The thefts and assaults in the red “fear zones”? Minuscule. No one loses their job, their home, their pension, their savings. At worst, they get hit on the head and get their wallet or purse stolen. Meh. A nuisance, but only a nuisance. Moreover, since the most violent crimes are reserved for permanent occupants of these “fear zones” the impact of such crimes on occupants of safe neighborhoods is more imaginary than real; part of the “the sacred in modern society” as J Katz puts it — the demons we fear, the angels we adore.

Nevertheless it is to these “fear zones” that we send our police and attack dogs. It is in these “fear zones” that we establish surveillance, even though the high-stakes crime is occurring elsewhere, in the white “empty” zones on our maps of crime.

In a few days, Congress will repeal much of the Dodd-Frank legislation that established surveillance over these blank spaces. Dodd-Frank made it more likely that I would be apprehended, a, and so it decreased the likelihood that I would defraud my depositors. Of course, it would also take a significant bump in aJ, the cost of crime, for white-collar crime not to pay. Wells Fargo and Bank of America have dished out huge sums in penalties under Dodd-Frank; but still nowhere near the benefits, the L, won by defrauding customers. Yet, rather than establishing more surveillance over white-collar crime, rather than increasing the cost of crime, Congress is poised to eliminate the surveillance and lower the cost. Our model indicates that this will infallibly give rise to greater white-collar crime: more foreclosures, lost savings, lost pensions, lost dreams.

There in the white areas, in the “empty” spaces and “uncharted” waters; there is where crime pays the highest dividends. There is where we should be setting up surveillance, sending in more police; it is from these predators that we need protection.


Violence and Freedom

“Live free or Die.” Or so reads the motto of New Hampshire, adopted, appropriately enough, in 1945, when something very much like freedom was at stake. The motto is intended to draw a thread from 1776, through 1945, to the present. Since 1945, however, the motto has undergone serious modification, if not in fact, then in meaning, so that today it might better read “Live free through Death” or “Live free through Killing.” The thread connecting 1776, 1945, and 2018, however, is not so tenuous as many might think.

This intimate connection between 1776 and the present was brought home once again to me as I reread sections of my Max Weber and the Persistence of Religion (London: Routledge 2009). I think it still holds together. Prior to 1324, everywhere, freedom meant only substantive, material freedom. Even among so-called “idealists” (i.e., Platonists), the notion of a vacuum was deemed “horrific.” For the rest, freedom entailed the kinds of things — food, warmth, health, pleasure, friendship, song, wonder — that make sense for people who live in their bodies.

Yet, around 1324, the category “value” began to pull free from the bodies that for 2.4M years it had occupied. It did so when the first clocks were installed in workhouses in the textile producing region of northwestern Europe. The clocks were installed to determine how much time textile workers were working. This length of time was translated into the abstract value of both the labor expended and the item, cloth, produced. Clearly, however, the same would hold true for any article: cloth, shoes, buckles, pottery. Each could now be equated with each other through the abstract time and abstract value that each “contained.”

What has this to do with freedom? Think of it this way: the value of the cloth, the shoes, the buckles, or the pottery; is this value constrained or limited by the objects on which it happens to rest? No. It migrates freely among these objects. Indeed, it transcends them.

The objects themselves, by contrast, are limited and constrained on all sides. Indeed, it is precisely their constrained character that will render them perfect specimens for scientific observation; while their value — their transcendental value — will, by definition, defy scientific observation. Freedom in this newly constructed world is synonymous to the absence of constraint: it is synonymous with the absence of a body.

That much is clear. But this also means that if I harm the body, I take nothing from its freedom. Its freedom remains completely intact. Translated into the new language of human rights, freshly minted in the seventeenth century, these rights are inalienable. They cannot be taken away or sold. Human beings are not free in some instances and unfree in others. All human beings are by nature free. We can become slaves; we do become slaves when we prize life higher than freedom. (This point was eloquently made by GWF Hegel in 1804; and more recently, but less eloquently, by Francis Fukuyama.)

The body, around which freedom once circled, had, by the 18th century, become freedom’s enemy. “Live free or die.” In other words, “I will die for freedom.” This relationship between freedom and death is far from accidental. Indeed, it is now necessary; so that when anyone so much as hints that freedom might be about bodies and care for bodies they are immediately subject to universal approbation. The poor must enjoy the freedom to be poor; the naked must enjoy the freedom to be naked; the hungry the freedom to be hungry, and so on. To deprive them of these freedoms is to condemn them to spiritual death. “Live free or die.”

I suspect that it is for this reason that conservative Evangelical Christians are compelled to do such violence to their own Scripture; but also why so many good liberals also scratch their heads in profound disbelief at how anyone in their right minds could embrace the stories told in the Hebrew and Christian sacred texts; and why the Holy Koran is such a profound mystery not least to practicing Muslims. In a world where bodies do, in fact, matter and where abstract freedom still lies several centuries in the future, it matters very much whether you give a man a loaf of bread or a stone, as Jesus put it so eloquently in the parable. Bodies matter. “Live free or die”? On what planet do you live, man?

But this also helps to explain why notions of “liberty” and “freedom” live so comfortably today and fall so easily from the mouths of persons who make violence their business. The two are not opposites. They compliment one another. Freedom and violence. Live free and die.

The “Trump” Boom

Below is simply the latest self-congratulatory twitter post by forty-five. And, I have to admit that those job numbers are nice to see. Wish they were jobs that could support a working family; but, hey, you can’t have everything. Right? There is only one problem. Forty-five has had nothing to do with this so-called “boom.” If anything, his policies are sure to kill it.Adam Smith — he of Wealth of Nations (1776) fame — already noted that:

When the landlord, annuitant, or monied man, has a greater revenue than what he judges sufficient to maintain his own family, he employs either the whole or a part of the surplus in maintaining one or more menial servants. Increase this surplus, and he will naturally increase the number of  those servants.

When an independent workman, such as a weaver or shoe-maker,  has got more stock than what is sufficient to purchase the materials  of  his own work, and to maintain himself till he can dispose of it, he naturally employs one or more journeymen with the surplus, in order to make a profit by their work. Increase this surplus, and he will naturally  increase the number of his journeymen (Chapter 8, ¶¶19-20).

Paragraph 19 is the tax plan for which forty-five claims responsibility (it was in fact authored by the recently departed Gary Cohn); paragraph 20 was President Obama’s idea (strenuously resisted by Republican so-called “fiscal conservatives”).

It makes sense. If I am a developer or hedge fund manager I am less likely to spend my windfall hiring more employees, “journeymen,” who will bring growth to the economy. Instead I will hire “servants” to serve my own personal needs. How else can we describe Mitch Mcconnell or Paul Ryan other than “menial servants” of David and Chuck Koch? Why is Betsy de Vos Secretary of Education if not to spread the wonders of private education and to ruin the public education system? Adam Smith’s point is well taken: give money to a worker and she will hire more workers. Give money to Betsy de Vos and she will use it to paper her dining room.

Which is why the credit forty-five takes for the current economic boom is so spurious. Even by the Wall Street Journal’s standards, splashed across the front page of their Weekend edition, recovery from the Bush Recession began well before 2016. And just as Adam Smith predicted targeting the middle and bottom of the income hierarchy — not the top — is what gives rise to economic growth.

To be sure, job growth does not necessarily translate into economic growth. This is clear from the sluggishness of hourly earnings.

But, just as Adam Smith predicted (what John Maynard Keynes theorized and World War II confirmed) throw a lot of money into the economy at the bottom and your economy will grow. Throw it at the top? Meh.

So let me hazard the prediction that if not before, then certainly by February 2021 the bottom will once again fall out of this economy.

The “Trump” Boom? Actually we should call it the Obama Boom. And the future recession? You can bet that it will be blamed, that’s right, on Hilary and Barack.