Home > Political Economy > The market and inequality: Progressives lose when they accept the Right’s framing

The market and inequality: Progressives lose when they accept the Right’s framing

from Dean Baker

Paul Krugman joined a debate on the morality of markets, arguing that the United States has not met the fundamental condition of equality of opportunity that libertarian conservatives agree is necessary for fairness. While this is true (only in loon tune land does a kid growing up in Anacostia have the same opportunity as a kid growing up in Chevy Chase), this argument wrongly cedes the main point to the right.

It is ridiculous to argue that the inequality in the U.S. is simply the result of free markets. Markets are structured by governments, and the rich have used their control of the government to structure the market in ways to make themselves richer.

The mechanisms for upward redistribution can be seen everywhere. [Emphasis added by editor] Most recently the government bailouts of too big to fail banks meant that the top executives of Citigroup, Goldman, and the rest could continue to draw paychecks in the tens of millions of dollars. The implicit government guarantee enjoyed by these institutions amounts to a subsidy of tens of billions each year that is divided among their higher paid employees and their shareholders.

Patent and copyright monopolies are another way in which the government redistributes income upward. The income from these government granted monopolies flows overwhelmingly to people in the top 10 percent of the income distribution. These interventions in the market serve a purpose, but there are other ways to support research and creative activity that are more efficient and lead to less inequality.

The pattern of trade pursued by the United States over the last three decades, in which less educated workers are placed in competition with low-paid workers in the developing world, while the most highly educated workers are largely protected, also increases inequality. This effect is increased as a result of the over-valued dollar.

Federal Reserve Board policy that explicitly sacrifices employment in order to insure against inflation also has the effect of redistributing income upward. When the Fed raises interest rates to keep the unemployment rate from falling too low it is factory workers and store clerks who lose their jobs, not doctors and lawyers. Of course, the main beneficiaries of lower inflation are bondholders who would see their wealth eroded by higher inflation.

Governments also write the rules of corporate governance. In the United States these rules allow top executives to pilfer their companies. The top executives of Toyota, Hyundai, KLM and other huge foreign corporations all get well paid. But their compensation is likely to be measured in the low millions, not the tens or even hundreds of millions pocketed by CEOs in the United States. The difference is that the laws of corporate governance apply more of a check on the behavior of top management in other countries.

The role of government in determining market outcomes is easy to see for those who bother to look. It is understandable that conservatives, who want to like to see more income flowing to the top, would argue that inequality was just the result of the natural workings of the market. It far more difficult to see why progressives would ever accept such nonsense.

See article on original website

  1. merijnknibbe
    January 13, 2011 at 9:00 am

    “Markets are structured by governments”

    I want to emphasize that this point is emphasized by Institutionalists, Marxists, Austrians, Post-Keynesians and just go on alike. But you won’t find it in neo-classical textbooks – even property rights are taken as a matter of fact, and not as a juridical/cultural construct.

  2. January 13, 2011 at 6:27 pm

    The biggest way that markets are structured by governments is the land tenure, as the US government for example has subsidized landownership since its founding. The US has never had a truly free market.

  3. January 14, 2011 at 7:18 am

    That’s because Krugman still has to get rid of the central idea of neoclassical economics: That markets can be analysed without considering the social and political environment in which these markets are constructed. Nevertheless, I like him because he is one of the best “internal” critics of neoclassical economics.

  4. Alice
    January 14, 2011 at 11:26 am

    If progresive lose / lost – it happemed 30 years ago – but it atkes more than progresives to change the vote….maybe now. I wont hold my breath – there are some hideously intellectually challenged cobbled ideas implicit in groups like the tea party.

  5. Norman L. Roth
    January 14, 2011 at 5:26 pm

    Dear me: All that ‘dialectic’ and conversation about “Smith’s Curse”,the evils of “property relations”, “How ‘progressives'(??)lose when they accept the Right’s (?framing”.”The market(always b-aaa-a-d!)and inequality”.Do we detect a hint of zombie-marxism here?Hint: Consult marx’s typically unhinged rant about “Commodity fetishism”.But it’s really O.K. to hate markets & “property relations” folks: Look who you got for ‘real-world’ support.
    (1) “Basically, national socialism and marxism are the same,Fuhrer himself, 1941 oration.
    (2)”We are socialists. We are enemies of to-days capitalistic system.We are determined to destroy this system under all conditions”. Same fuhrer, 1927
    (3)The good of the national community [“civic relations”?] takes priority over that of the individual.But the state must retain all control.Every property owner should feel himself to be an agent of the state.The third-reich will always retain the right to to control property owners.” 1931 speech by “Uncle Adolph’.
    (4)National Socialism takes for itself the pure ideals from each of these two camps: From the camp of ‘Tradition’ we take national resolve. From the materialism of marxist dogma,living creative socialism.”
    (5)The real “icing on the cake”? “First comes socialist redemption. Then like a whirlwind comes national liberation” Paul Josef Goebbels, 1931. Norman L. Roth, author of TELOS & TECHNOS: The Teleology of Economic Activity & the Origins of Markets

  6. January 14, 2011 at 9:25 pm

    Why is it that comments that concern land are kept awaiting moderation for a long time, while other comments are swiftly posted?

  7. merijnknibbe
    January 15, 2011 at 8:59 am

    @Norman L. Roth

    1. Analogies: does the fact that Hitler was a vegetarian discredit all vegetarians?
    2. Might there be a small bit of rhetoric in these phrases? The Nazi’s were competing with social-democratic parties (which, by the way, were much less radical than the Nazi’s when it came to expropriation of property and community. by the way: ‘welfare’ as defined in many neo-classical economic macro models is the most extreme kind of ‘community welfare’ that I know about, everybody behaving in the same way).
    3. Socialism: the thing to read is the communist manifesto of Engels and Marx: this does not call for expropriation. Other texts from other authors did, of course. But socialism had many meanings.
    4. The rights framing: in Europe: unemployment in Spain is over 21%, youth unemployment is, unbelievable almost 50% – and everybody seems to agree that a credit fuelled building boom and bust is one of the main reasons this happened. that’s a market thing. The problem is unemployment and these booms and busts – but the thing everybody’s talking about is the Euro. We really do need another framing, just talking about the Euro won’t solve the real problems. And in my view: just taking away rigidities on the labor market also does not do suffice. Take the USA in the thirties: labor markets were (also after Roosevelt) much more flexible than they are nowadays. Even then, the highest peace time growth ever in the 1933-1937 did not make much of a dent in unemployment (even a freshwater fundamentalist like Barro, who at the moment starts to look at these data, concedes this). The reason: unprecedented increases of productivity, even when companies went on this ‘investment strike’ (in fact, one of the reasons behind this strike was probably this ‘productivity surprise’.

    One of the things which is sorely missing from much right wing discourse at the moment is productivity increases and growth – as Dean Baker points out again and again.

    5. If you read this blog carefully, you will notice that almost everybody wants less ‘corporate welfare’, less (upward) distribution of income, Dean Baker wants more competition for highly paid professionals, less ‘socialization of losses’. These are not radicals – these are often slightly conservative people who see merit in a ‘welfare state’ with a government which invests in infrastructure, education and basic social security. Many of us even believe in trimming part of social security subsidies, like mortgage interest deductions.

    6. But indeed, as we all know, the state is a dangerous beast – who ownes the state! The USA as well as the UK know ‘winner takes all’ voting districts. It’s interesting (no, shocking) to see how many millionaires inhabit the USA congress (261, dollars) and the UK Cameron government (18, pounds). Should this have any kind of connection with ‘the rights framing’?

  8. May 30, 2013 at 4:01 pm

    How you can fit yourself into any class of economic “believer”.?
    Here are your credo options.
    [1] Do you believe that human economic activity is the chief culprit in contributing to “climate change” ?
    [2] Do you believe that economic activity, especially that of consumers and business enterprise, should be subjected to state “guidance” ?
    [3] Do you hate “market fundamentalism” ..Whatever that means ?
    [4]Do you believe that an economy based on consumers’ sovereignty and freely chosen investment decisions can can be “planned” by a central body ?
    [5]Do you believe that human institutions can be “designed” for “optimal perfermance” ? e.g. As in “mechanism design” ? Instead of letting them evolve spontaneously ?
    [6] Do you believe that the creation of mega-debt by the state is just a matter of “internal bookeeping” that will remedy itself in the “long-term” ?
    [7] Do you believe that a modern complex economy can be manipulated into gyroscopic, benevolent “equilibrium” by simply pressing the right buttons marked, Money supply, interest rate, and taxation structure ?
    [8] Do you believe that any economic/financial crisis and the human reactions that result from them, no matter how threatening to the thin fabric of civilized restraint, can be “seen through”
    by letting them “run their course” ? Thank you, Just GOOGLE: [1] Norman Roth, Technos
    [2] Norman Roth, Origins of Markets
    [3] Telos & Technos, Roth

  9. June 1, 2013 at 6:09 pm

    Add two more criteria to the above:

    [9] Do you believe that income & wealth “inequalities” are the greatest economic issues besetting our times? And that “levelling” them should be an unfettered discretion in the hands of a centralized state authority ? As well as the criteria for enforcing the levelling aktions ?

    [10] Do you believe that all the rules and laws governing the ownership of intellectual property [patents, copyrights, trade secrets, etc.] should be swept aside and become public property ? To be used at will by anyone who chooses to do so?

    Any suggestions for organizing the above criteria into a scoring & classification system ?
    Suggestions from the chaps at George Soros’s INET would be welcomed. GOOGLE,[1]
    Norman Roth, Economics of Technology [2] Norman Roth, Economist

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