Everyone would probably agree that The Globalization Paradox: Democracy and the Future of the World Economy is not exactly light reading. A copy of that book on your coffee table would not impress your date – nor would Sartre’s Being and Nothingness of course – unless you’re dating some very strange women.
Actually it’s probably best to hide all books. Real men don’t read, they do, and make money. But then the country’s in trouble and it’s an election year, and all the talk is about how to get out of the mess we’re in, and who’s best to lead that effort – so you’d better have something to say, to prove you’re not an out-of-touch dimwit. And if you want to appear smart and urbane and sophisticated and part of the smart set you’ll mutter something about how you just know, in your bones, that there’s now a real danger that America will turn into Greece, crushed by its debt load, and be doomed.
She’ll be impressed, because she vaguely remembers she once might have heard some Very Important People saying something like that on television, maybe. So you might pour her a little more of that choice chardonnay and riff on austerity economics – we really should shut down all government spending, or as much as we can, and lay off all those government employees and deny them unemployment benefits, because we’d have to add more debt to pay for that. Yes, all those corporations that rely on government contracts to stay afloat, providing everything from paper clips to janitorial services, will go under, and of course the number of unemployed will then really skyrocket. But we have to live within our means. That’s the way to prosperity – cut and grow, as they like to call it.
She’ll be impressed. You’ve thought about this. You are just like those Very Important People.
Cool. But you’d better hope she hasn’t read Keynes and and Nobel Prize economists like Paul Krugman. This is nonsense of course – and there’s new data to prove it – so be careful. In fact, perhaps you should just ask her to tell you about her cats and what she’d really like to do if she could have any job in the world. The nation may be arguing about economic theory but that doesn’t mean they want to. It’s just the hot-button issue right now. And no one gets lucky talking about it. It’s not sexy.
But there is that book on the Globalization Paradox – from Dani Rodrik, a professor at Harvard’s Kennedy School of Government and the go-to guy on globalization and economic development, considering international and development economics, and history and political economy and all sorts of things. He tries to work out which policies best promote growth. Yes, it’s dull stuff, but this particular book is about how “we cannot simultaneously pursue democracy, national self-determination, and economic globalization.” You can’t have it all, no matter what Obama or Romney might say. You see, the social arrangements of democracies vary quite a bit and will “inevitably clash with the international demands of globalization” – so national priorities really should take precedence. He calls for “customizable globalization supported by a light frame of international rules” – whatever that might mean. But nothing is ever simple. And thus he also seems to imply you should not trust mainstream economists. The Very Important People are often wrong.
And now, in a new column in Project Syndicate, he tells us why:
The most widely held theory of politics is also the simplest: the powerful get what they want. Financial regulation is driven by the interests of banks, health policy by the interests of insurance companies, and tax policy by the interests of the rich. Those who can influence government the most – through their control of resources, information, access, or sheer threat of violence – eventually get their way.
It’s the same globally. Foreign policy is determined it is said first and foremost by national interests – not affinities with other nations or concern for the global community. International agreements are impossible unless they are aligned with the interests of the United States and, increasingly, other rising major powers. In authoritarian regimes, policies are the direct expression of the interests of the ruler and his cronies.
It is a compelling narrative, one with which we can readily explain how politics so often generates perverse outcomes. Whether in democracies, dictatorships, or in the international arena, those outcomes reflect the ability of narrow, special interests to achieve results that harm the majority.
Yes, that’s the conventional wisdom, what the Very Important People say – our government is being taken over by the very few, which pleases everyone on Fox News and dismays everyone else, and all foreign policy is cold calculation, not the idealistic humanitarianism we invoke when we bomb this country and invade and occupy that other one. Say that and you’ll sound insightful and wise.
But Rodrik argues all this is rather incomplete and oddly misleading, and offers this proposition:
Interests are not fixed or predetermined. They are themselves shaped by ideas – beliefs about who we are, what we are trying to achieve, and how the world works. Our perceptions of self-interest are always filtered through the lens of ideas.
So cold hard-headed realism is not what it seems:
Consider a struggling firm that is trying to improve its competitive position. One strategy is to lay off some workers and outsource production to cheaper locations in Asia. Alternatively, the firm can invest in skills training and build a more productive workforce with greater loyalty and hence lower turnover costs. It can compete on price or on quality.
The mere fact that the firm’s owners are self-interested tells us little about which of these strategies will be followed. What ultimately determines the firm’s choice is a whole series of subjective evaluations of the likelihood of different scenarios, alongside a calculation of their costs and benefits.
And that would imply that the hard-headed realism of austerity economics – shut everything down and spend nothing, so we can grow – is quite subjective too. It’s one of many possible solutions to a specific problem, and choosing that one solution may say more about you and your values than it does about any sort of reality.
And the same applies globally:
Imagine that you are a despotic ruler in a poor country. What is the best way to maintain your power and pre-empt domestic and foreign threats? Do you build a strong, export-oriented economy? Or do you turn inward and reward your military friends and other cronies, at the expense of almost everyone else? Authoritarian rulers in East Asia embraced the first strategy; their counterparts in the Middle East opted for the second. They had different conceptions of where their interest lay.
Or consider China’s role in the global economy. As the People’s Republic becomes a major power, its leaders will have to decide what kind of international system they want. Perhaps they will choose to build on and strengthen the existing multilateral regime, which has served them well in the past. But perhaps they will prefer bilateral, ad hoc relations that allow them to extract greater advantage in their transactions with individual countries. We cannot predict the shape that the world economy will take just from observing that China and its interests will loom larger.
And there’s Europe and beyond:
Are German Chancellor Angela Merkel’s domestic political fortunes best served by stuffing austerity down Greece’s throat, at the cost of another debt restructuring down the line, or by easing up on its conditions, which might give Greece a chance to grow out of its debt burden? Are US interests at the World Bank best served by directly nominating an American, or by cooperating with other countries to select the most suitable candidate, American or not?
In short, there are all sorts of ways to justify where self-interest lies, and thus lots of heated talk. But Rodrik argues that our interests are pretty much held hostage to our ideas, our general notions of this and that, and not cold undeniable reality. And the worst thing is that it’s all so trendy:
Policymakers, like all of us, are slaves to fashion. Their perspectives on what is feasible and desirable are shaped by the zeitgeist, the “ideas in the air.” This means that economists and other thought leaders can exert much influence – for good or ill.
John Maynard Keynes once famously said that “even the most practical man of affairs is usually in the thrall of the ideas of some long-dead economist.” He probably didn’t put it nearly strongly enough.
And what we get is impressive sounding nonsense:
In the aftermath of the financial crisis, it became fashionable for economists to decry the power of big banks. It is because politicians are in the pockets of financial interests, they said, that the regulatory environment allowed those interests to reap huge rewards at great social expense. But this argument conveniently overlooks the legitimizing role played by economists themselves. It was economists and their ideas that made it respectable for policymakers and regulators to believe that what is good for Wall Street is good for Main Street.
Economists love theories that place organized special interests at the root of all political evil. In the real world, they cannot wriggle so easily out of responsibility for the bad ideas that they have so often spawned.
And one of those who commented on what Rodrik says here quoted G. K. Chesterton – “Men have always one of two things: either a complete and conscious philosophy or the unconscious acceptance of the broken bits of some incomplete and shattered and often discredited philosophy.”
By the way, the young lady left long ago. She decided you were a nerd. Or maybe, if she was smart, she saw through your unconscious acceptance of the broken bits of some incomplete and shattered and often discredited philosophy.
But Kathleen Geier hasn’t left, and over at the Washington Monthly she discusses her beef with the economics profession:
Most American economists don’t have anything like Rodrik’s nuanced understanding of self-interest. To them, self-interest equals utility maximization, and utility maximization basically means accumulating as much wealth as possible, and the only way to achieve that on a large scale is through low taxes, a radically diminished public sector, and heavily deregulated markets.
But there are other ways to achieve economic growth, particularly if we are interested in doing so over the long term. For example, if we want to have the kind of society where entrepreneurship is encouraged, we would create a health care system that doesn’t tie people’s access to affordable care to their employment. And if we wanted a society that made the most efficient use of everyone’s talents, we’d ensure that everyone who is capable of succeeding in college could get a higher education for free.
These days, the apostles of the free market argue that in order for the economy to thrive, the government must drastically cut back spending. But in reality, the best way to promote economic growth is through fiscal stimulus by the government. Cutting spending dramatically reduces the kind of growth and innovation that our free market system could otherwise achieve.
“But in reality…” – ah, there are many of those. But you see her point. We may have been bamboozled:
It’s long been fashionable among the neoliberal pundit class to deride New Deal policies such as Social Security, strong unions, and labor protections, but the fact is that those programs were created by self-interested elites who wanted to save capitalism. At the time, the capitalist system was in crisis, and it was feared that if concessions were not made to the masses, they would revolt. Achieving the minimal level of economic security that the New Deal provided did much to extinguish revolutionary fervor, and the owners of capital were able to breathe a sigh of relief.
And there is history itself:
It’s no accident that economic growth soared in the post-World War II era. A much greater public sector and a more highly regulated economy actually helped that economy to grow and become more efficient. But in the intervening decades, elites have forgotten those lessons, and the American economics profession, which has pushed a vision of self-interest and the good society that was grossly distorted, and yet extremely influential, has a lot to answer for here. What Rodrik refers to as “the unbridled liberalization and financial excess” of the past several decades was promoted by the economics profession as a whole, and it has led us to the brink of economic disaster.
And we are where we are:
Indeed, with its corrupt and dysfunctional government, stagnant economy, soaring income inequality, and significantly diminished social mobility, America is on its way toward becoming a second-rate power. Ironically, a more realistic concept of what is in their best interests might have prevented, and may still yet prevent, our elites from wrecking our economy, and, over the long haul, destroying themselves.
Yes, it just gets odd. Paul Krugman has called the Ryan budget, a study in austerity economics, ludicrous and cruel – “voodoo economics, with an extra dose of fantasy, and a large helping of mean-spiritedness” – and Krugman is not alone. The US Conference of Catholic Bishops wrote to the Republicans, twice, telling them that what was in that budget was immoral and violated the basic teachings of the Church, and Jesus would have hated it. So Paul Ryan, a devout Catholic, took the bull by the horns and spoke about his budget at Georgetown, our oldest and most respected Catholic university – arguing he understood Catholic doctrine far better than all the Jesuit theologians there. They weren’t impressed. So then, in a bit of damage-control, he said he really hated Ayn Rand and all her writings about the virtue of selfishness – in spite of what he had said over all the years, on record, about how everything he believes could be traced back to her. It was bizarre – but one must make adjustments. Government must be approved by the Church, or something. Rodrik put it this way – “Our perceptions of self-interest are always filtered through the lens of ideas.”
But one response to the Geier item, in the comments section, was this:
The supreme irony is that Ayn Rand was writing her dystopian novels about an economy and infrastructure crumbling under too much regulation during the precise time when it was in fact thriving. In the years since, we’ve seen Rand’s theories put more and more into practice – and NOW we DO have a crumbling infrastructure and a seriously endangered economy.
Nothing is ever simple. And America does seem to be on its way toward becoming a second-rate power. Forget American Exceptionalism, and in fact, in the New York Times, E. L. Doctorow offers a primer for that:
To achieve unexceptionalism, the political ideal that would render the United States indistinguishable from the impoverished, traditionally undemocratic, brutal or catatonic countries of the world, do the following…
The list is long, but there’s this:
If you’re one of the conservative-majority of a refurbished Supreme Court, rule that corporations, no less than human beings, have the right under the First Amendment to express their political point of view. To come to this judgment, do not acknowledge that corporations lack the range of feelings or values that define what it is to be human. That humans can act against their own interest, whereas corporations cannot act otherwise than in their own interest. That the corporation’s only purpose is to produce wealth, regardless of social consequences.
This decision of the court will ensure tremendous infusions of corporate money into the political process and lead to the election in national and state legislatures of majorities of de facto corporate lobbyists.
Given corporate control of legislative bodies, enact laws to the benefit of corporate interests. For example, those laws sponsored by weapons manufacturers wherein people may carry concealed weapons and shoot and kill anyone by whom they feel threatened.
Give the running of state prisons over to private corporations whose profits increase with the increase in inmate populations. See to it that a majority of prisoners are African-American.
When possible, treat immigrants as criminals.
Deplete and underfinance a viable system of free public schools and give the education of children over to private for-profit corporations.
Make college education unaffordable.
Inject religious precepts into public policy so as to control women’s bodies.
Enact laws prohibiting collective bargaining. Portray trade unions as un-American.
Enact laws restricting the voting rights of possibly unruly constituencies.
Propagandize against scientific facts that would affect corporate profits. Portray global warming as a conspiracy of scientists.
Having subverted the Constitution and enervated the nation with these measures, portray the federal government as unwieldy, bumbling and shot through with elitist liberals. Create mental states of maladaptive populism among the citizenry to support this view.
Hey, we’re almost there now! But it’s all in our clear self-interest, and being done in the name of hard-headed realism.
And that’s so very seductive. But the attractive and intriguing woman left long ago. She sensed shallow nonsense in the air, and somehow sensed real danger. She saw the book on the coffee table.