Bell Curve The Law Talking Guy Raised by Republicans U.S. West
Well, he's kind of had it in for me ever since I accidentally ran over his dog. Actually, replace "accidentally" with "repeatedly," and replace "dog" with "son."

Wednesday, July 07, 2010

Free Markets and the Welfare State

It's been a recurring theme on this blog that Republican characterizations of an inherent contrast between "Free Markets" and welfare states (which are invariable labeled as "socialist" or more commonly "socialistic") are BS. There is a good discussion of the ideological aspects of this, as portrayed in a recent book by American Enterprise Institute President, Arthur Brooks, on Daily Dish here. The crux of the discussion on Daily Dish is that Brooks is making a false distinction between Free Markets and redistribution. That article also cites evidence from this study on the Economic Freedom of the World here. My interest in not so much in the debate about Brooks' book. Rather I want to delve in more detail in to the differences between different European systems and the US.

One of the things that Sullivan points out is that by some measures, American markets are less free than some European markets. But why is this? I've mentioned the world of Peter Katzenstein before on this blog and it comes up again. Katzenstein pointed out that a lot of smaller European states like Denmark and the Netherlands are forced by their small size to be open to international trade. That fact means that if they are going to respond to the political demands for compensation to people who lose out from this exposure to international competition they cannot do it through protection, they must do it through redistribution. But note that redistribution is funded through taxes and debt rather than restrictions on property rights or market competition.

For example, Denmark ranks 19th most free in terms of access to world trade while the United States ranks 29th. That indicates that the US is significantly more protectionist than the Scandinavian and therefore infamously "socialist" Denmark. Now, France ranks 40th so really what the Republican rhetoric is about, at least with regard to free trade, is setting up France as the only alternative system to a completely unregulated, tax free Cheney-esque plutocracy. They also see France as the universal representative of all things European. But the problem with this is that tax structures can be set up that don't prevent free markets from functioning or restrict trade. That's the difference between countries like Denmark and France.

But Republicans don't want to discuss the existence of a capitalist equilibrium that includes free markets, higher taxes and a relatively generous welfare state. Why not? Because what they most concerned with preventing redistribution not with preserving free markets. But they know that "Let me keep my stuff and screw you" is a poor vote getter. So they go to great lengths to equate any redistribution of wealth with the complete destruction of capitalism, private property and the American way.

Some on the left help them in their efforts by opposing any policy based on competition and individual liberty and initiative. When people on the left oppose every attempt to work with rather than against market forces, it only makes the Republicans' rhetoric look reasonable and well founded, which it is not.


The Law Talking Guy said...

I'm writing a piece right now about First Amendment law arguing that the "marketplace of ideas" is the dominant First Amend. metaphor today, and explaining how this happens and what it means. What is so clear from my readings is just how pervasive the metaphor is. It is a laissez-faire metaphor that dangerous because it posits nonintervention as the primary goal for the government in both the world of ideas and of economics.

Curiosuly, Judge Posner, a famous Chicago school guy but not a dumb-dumb, wondered why the 'marketplace' metaphor did not mean a level of government regulation, correcting for 'market failures' and so on.

My point of this is not to bore you with my research, but to say that yes, the conservatives have won the rhetorical battle everywhere (largely as a result of the 'victory' in the Cold War, I think, but also because of the lovefest between social science and ultrarationalist economics today).

So liberals can't win by challening that dominant metaphor directly. You are right: when they oppose thnigs called 'competition' and so forth, they lose. It has to be a subtle undermining and twisting to turn around the mental oceanliner of the nation. How do we start taking the notion of free markets and competition and allow it to produce, rhetorically, a more interventionist state?

I think the Judge Posner had a clue. Markets need rules. Markets need enforcement.

Raised By Republicans said...

Right! Markets need rules! And corporations cannot be expected to do anything other than obey the letter of the law and maximize their profits. If we eliminate the regulations, we are forced to rely on their sense of community to preserve the public good.

The recent financial collapse was a marvelous opportunity to reframe the debate. The Democrats have largely missed that opportunity because of the blood bath that ensued over health care.

I think they should have done financial regulatory reform first. But reasonable people will disagree and I'm not going to say that health care reform isn't a vital national interest as well.

Raised By Republicans said...

On a side note: What do you mean by "ultrarationalist?" Is it the assumption that people are goal oriented, have transitive preferences and can anticipate the consequences of their actions that you object to? Or is your complaint about something more specific within that broad range of approaches known as "rational choice" social science?

The Law Talking Guy said...

I am talking about the approach of some economists and some social scientists to apply rather extreme rational assumptions to build intricate models that are quite divorced from reality, almost self-absorbed. Part of what happens is that modelers will build models based on presumed preferences of actors without investigating or understanding them well. For example, some have analyzed segregation and urged that federal civil rights laws were unnecessary because segregation is market-inefficient and will naturally go away. What happens sometimes is people get so excited and wrapped up in building fancy mathematical models that real world checks on them get lost. That's what I'm saying.

Raised By Republicans said...

I see your point about the example you give. But isn't calling that "ultrarationalist" a bit like calling the fraudulant statistics used by Research2000 "ultra statistical?"

The Law Talking Guy said...

What better term do you have? I think the term "ultrarationalist" is fine in that the proponents of such methods themselves think they are being supremely rational in their approach. They discount, in other words, the existence of contradictory or nonrational goals, assuming that those, too, must be rationally derived - not just rationally pursued.

Raised By Republicans said...

How about "bad" or "poorly researched" or "ultra-theoretical" (to reflect its lack of empirical grounding)? Why the insistence on implying that the problem is fundamentally one of rationalism? That is that the problem is somehow inherent in assuming that people are goal oriented, have transitive preferences and anticipate the consequences of their actions?

In effect, you are blaming all rationalist approaches for this fault and the differences are only matters of degree. From what you said your objection was, I don't think that's what your complaint really is.

For example, if a researcher could how that in the narrow confines of their particular research question that their assumptions about motivation/preferences are well supported by empirical evidence, I don't think you would object, right? The crux of your objection then is on a lack of empirical support for specific applications rather than rationalism per se.

On a side note, I'm not entirely sure what you mean by "contradictory ... goals" but if I get your drift then I can think of rationalist researchers who examine just this. That is, they examine circumstances when decision makers have to maximize utility on multiple dimensions some of which represent trade offs between each other (i.e. they represent contradictory goals).

I don't know any rational choice researchers (at least in political science) who would characterize a goal as "non rational." This assertion, that goals are what are rational or not, is a common error among my students in classes in which I discuss rational choice approaches. Goals are what they are. Decision-makers can be rational or not but their goals simply are. Rationality is a description of decision making process not a measure for evaluating goals.

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