Home > Uncategorized > Why debate markets vs. government when we let the right rig the market?

Why debate markets vs. government when we let the right rig the market?

from Dean Baker

I was happy to see this segment of Ezra Klein’s show (hosted by Rogé Karma) which featured an interview with Columbia University Law Professor Katharina Pistor. Pistor is the author of The Code of Capital: How the Law Creates Wealth and Inequality.

I’ve not yet read the book, but got the gist from the interview. Pistor is arguing that we have structured the market in ways that generate enormous inequality. In the interview, she presents several ways in which the law has been written that facilitate the accumulation of wealth by a small group of people. These include rules on property in land, intellectual property, and the creation of corporations as distinct entities with an existence independent of their owners.

Pistor’s point is that the way these rules are structured is not set in stone. They can be written differently so that they don’t lead to so much inequality.[1] Having written several books and endless blogposts in this vein, Pistor’s interview almost made my day. (There is also the video version.) 

I say almost because, even though her work was getting a high-profile spot in the New York Times (and I gather her book has also been well-received), I doubt very much that any of the intellectual types who write on politics will absorb its main point. With few exceptions, the people who write about and pontificate on politics have their brain hard-wired to the view that liberals want the government and conservatives want to leave things to the market. They insist that this is the main conflict in political debates both in the United States and around the world.

Of course, Pistor’s point is that we have allowed the market to be structured in a way that leads to an enormous share of income flowing to those at the top. We didn’t have to do it that way.

We don’t need to have patent and copyright monopolies and other forms of intellectual property. Creating intellectual property and making these monopolies longer and stronger is a political decision. It has led to enormous inequality, both in making people like Bill Gates tremendously wealthy, and also providing the basis for the alleged bias in technology that allows people with STEM skills to do very well in the current economy. STEM skills would likely be far less valuable in an economy that had weaker intellectual property rules and relied more on alternative methods to finance innovation and creative work.

There is a similar story with rules on incorporation. We don’t have to give corporations legal personhood, as our courts have done. We can also have different rules of corporate governance that make it more difficult for top executives to pay themselves salaries in the tens of millions annually.

I can go on at length on this, as I have. Those who are interested can read my books (they are free) or Pistor’s. But the point is that the market has been structured in ways that lead to enormous inequality. It could be structured differently.

Taking the current structure of the market as a given puts progressives at an enormous disadvantage. To my view, government social programs like Social Security, Medicare, and public education are enormously important. But the need for redistributive program increases enormously if we allow the market to be structured in a way that leads to massive inequality. And, the ability for pay for them decreases, especially in a political system that allows the wealthy to have such disproportionate influence.

Accepting that conservatives want the free market, after we have allowed them to rig the rules to redistribute massive amounts of income upward, is like saying that supporters of grandfather rules for voting believed in race-blind democracy. After all, anyone whose grandfather was a registered voter was eligible to vote, regardless of race. Defining the battle lines as being about the role of the government versus the market, as opposed to a battle over the structure of the market, essentially gives away the store.

If there is a counter anywhere to the argument that Pistor is making (others have also made a similar argument, notably Yale political science professor Jacob Hacker), I have not seen it and cannot imagine what it would be. The rules of the market are pretty much infinitely malleable. There is no natural market outcome. Many right-wingers may want the world to believe the rules of the market are just given to us by god or nature, but nothing could be further from the truth.

For some reason, this point doesn’t seem to affect political debate. I suspect that even the people embracing Pistor’s argument last week will turn around in the near future and tell us that conservatives want to leave things to the market. It seems that, even though the structure of the market is not fixed by god or nature, it is a fact of nature that this view must be central to our political debates.

[1] Pistor repeatedly refers to these rules as “fictions.” I think that framing is unfortunate. The rules are very real, but her point, as I take it, is that they could be different. The fact that something is socially created doesn’t make it fiction.

  1. Greg Daneke
    January 18, 2023 at 4:32 pm

    Great points are usual Dean. Too many have read Hayek instead of Polanyi (published in the same year). Thus, the invisible hand job prevails, despite the fact Adam Smith spoke of markets free of rentiers.

  2. deshoebox
    January 18, 2023 at 5:51 pm

    You’ve probably seen the GoFundMe movement to support sending the planet’s 500 wealthiest people to Mars to establish a permanent colony there. I have contributed $100 to this, although I live on a modest fixed income, because it is so obviously a win-win solution. They can live forever in unimaginable luxury in a high-tech colony on our sister planet and we won’t have to put up with them here on Earth any more. They will want assurances that we’ll keep running the terrestrial economy in such a way that the enormous cost of keeping the Mars luxury colony going continues to be paid. But we say, “Of course, why not? You have earned the right to retire to Mars so the least we can do is to help make that possible.” Any of them who wants to pay the $500 million fare (one way) back to Earth for a brief nostalgic visit is naturally welcome to do so. And they can send postcards any time they want. Please help support this highly worthwhile endeavor, won’t you? We are only sorry the rocket can only hold 500 people.

  3. January 27, 2023 at 8:50 pm

    In “On Vancouver’s Housing Crisis,” Michael Hudson said “junk economics” occurs when all the money flows to banks & real estate while the people are priced out. Through a land tax and a strengthened capital gains tax, the people could be reimbursed by a citizens’ dividend.

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