Roberts Affirms the Total State Model
Yesterday, the Roberts court affirmed the Obama defense of the so-called “Affordable Care Act.” To me, it is not a particularly surprising result. Two years ago, I noted that the Obama Admin’s principal argument relied on the classification of the mandate as a tax and that the legislation–all 2000 pages plus–was carefully crafted to categorize any penalty as an excise tax. As I wrote at the time, Obama–his “socialist” caricature notwithstanding–wasn’t arguing the case by making appeals to the Communist Manifesto. He was merely relying on past American constitutional precedent. He had “the firm’s” legal team carefully draft the new rules of the health care political economy to pass compliance strictly with the firm’s monopoly power to tax.
And it passed the compliance test. Indeed, John Roberts used this decision to affirm the role of his court to be the adjudicators of compliance and not the arbiters of constraint. Really, the judiciary is the only possible monkey wrench in a model of total government by political competition/rent-seeking. Yesterday, Roberts proclaimed that the role of the judiciary is not to save us from democracy, which, of course, means “the firm.”
We simply pose a simple question to Mr. Roberts: who wrote that 2000 page piece of legislation? Who could compose an entire model of political economy from the mere power to tax in a fully “compliant” manner. Justice ain’t that blind, sir….
Incredibly, there are some so-called libertarians who are hailing this decision as a bulwark against the future regulatory State because of some speculative nonsense that Roberts has now taken the “commerce clause” off the table. Sheeeeyyyyyytttttt. The regulatory state ultimately derives from the power to tax. The Firm more or less is the regulatory state. It is not going anywhere.
Let us dispense with the romance and the delusion. Politics is a rent-seeking game. Richard Posner and the Chicago School had it wrong. It is not a game where nothing is being redistributed, that is, where outlays = rents. Tullock and the Virginia School have the better model but resorted to a ridiculous “inefficient market hypothesis” to try to save liberalism in a public choice context when it became apparent that rents >> outlays. Tullock, himself, in explaining why he couldn’t convert to the libertarianism, more or less admitted that he simply preferred the blue pill to the red pill–he was too married to the institutionalism he was critiquing to defect.
If we accept that firms can arise in a “free market” of horizontal trading partners because a hierarchy of economic governance can sometimes prove to maximize economic rents relative to a regime of horizontal trading partners–as a consequence of the frictional costs of bargaining–we have to accept the reality of “firms” in political competition. It is indefensible to hold a position of firms as a consequence of economic rent-seeking in a free market but no firms as a consequence of rent-seeking in political competition. Yes, we can think of political parties as “firms,” but the actual firm is the State.
Today we know(or we should know) that Madisonian Democracy is a horribly flawed political concept. The idea that high institutional frictional costs constrain political competition/rent-seeking is just wrong. On the contrary, the high institutional transaction costs are what actually guarantee the emergence of “the Firm.” Equal competitive agents(“gangs”) fighting over rents in a highly frictional environment can be literally infinitely wasteful. To avoid this, you thus have a type of hierarchical, economic governance that emerges–the Firm.
John Roberts, “evil genius,” I think not. I think the evil geniuses are these libertarian think tanks and mags that keep propagandizing “proper role of government,” “limited government,” and demonstrate infinite capacity to find “silver linings” in libertarian-conservative fusionism. You doubt the “State as Firm?” Well, sometimes you just have to actually give a demonstration of the empirical reality. Below is just the “legislative component” of “the Firm.” Do you see any silver linings, any evidence of limited government, any evidence that it matters one fuck whether it is the monopoly power to tax or to “regulate” regarding the ends of our Firm?
The House Legislative Component of The Firm
The Senate Legislative Component of The Firm
What Would Lysander Spooner Say?
Although I’m not a progressive, I nonetheless still generally enjoy the content published by Counterpunch. Counterpunch, after all, is in my blogroll. However, occasionally they will publish something that I find to be completely bullshit. The last time I made note of such an example involved a ridiculous screed by Pam Martens regarding the Free State project that more or less reduced to advocating police state tactics to get rid of the rift raft in her neighborhood. Now I’ve found another example with this article, Saving the Postal Service (and Union Jobs), that amounts to little more than a PSA from the Post Office.
Subtitled "What Would Ben Franklin Say," the piece is an exercise in the logical fallacy of special pleading that ostensibly makes the argument that monopoly postal rates are the price we pay for funding public union pension plans. Of course, that's not how the argument is actually presented. Instead its the typical clap trap that postal delivery is a public good and austerity measures pursued by the forces of privatization threaten not only public pensions but vital Saturday delivery for little old ladies out in the boondocks who will likely drop dead as a consequence. Besides, we are told, since 1970, the post office has not accepted a nickel of tax-payer monies. And the current postmaster Patrick Donahoe(Wilford Brimley has apparently retired) promises a new era of Gorbachev-esque market reforms for our monopoly provider.
Ordinarily, I probably would have let the article slide without comment except I was struck by the subtitled reference to Franklin, the conservative appeal to tradition–why, the horrors, the “historically significant” Ben Franklin post office on Market St is under siege–and the snide reference to Somalian anarchy. Well, that did it for me. If we are going to appeal to tradition then I would only remind our author, Jack A. Smith, that it was an American anarchist, Lysander Spooner, back in 1844, who demonstratively kicked the Post Office’s collective ass, operating his American Letter Mail Company though a maze of loopholes for 7 years until the Government finally shut it down for good. But by that time, however, Spooner’s company had managed to deliver the mail, without subsidy, for a postage rate of 3 cents. As such, Spooner is the rightful father of the 3 cent stamp. The State shut down Spooner but matched the postal rate–of course, with a tax subsidy. When the direct subsidies ended in 1970, that’s when the postal rates began their current ascent.
So, Mr. Smith, little old ladies in the boondocks would have received their medicines in the mail for 3 cents–without subsidy. Now, truth be told, the Post Office is not really that high on my shit list. Frankly, I appreciate the noise. After all, little old ladies are not the only one who get their drugs through the mail.
Social Forces and the Ideology of Wishful Thinking
Will Wilkinson and ED Kain team up for “social forces” argument against libertarianism. What exactly is this “social forces” argument? Distilled to its essence, it’s the contention that impersonal structural impediments create a redistribution problem. Now, in one sense, I’m in agreement; there is a redistribution problem, but–as I see it–it’s not exactly the same problem as identified by Wilkinson/Kain.
The Wilkinson/Kain interpretation, starting with Wilkinson:
(i) The Liberal vs Conservative debate over poverty/wealth
liberals tend to explain both poverty and wealth in terms of luck and the influence of social forces while conservatives tend to explain poverty and wealth in terms of effort and individual initiative
(ii) Libertarians side with the conservatives in this debate
What about libertarians? According to Jonathan Haidt and his colleagues, their patterns of moral sentiment and judgment make libertarians look a lot like liberals who care a great deal about liberty and not very much for suffering. Like liberals, libertarians don’t put very much emphasis on what Haidt calls the “binding foundations” of the moral sense–obedience to authority, in-group loyalty, and a sensitivity to moralized purity and disgust–which play a large role in conservative moral sentiment and judgment. This makes libertarians look like a lot like especially freedom-loving liberals with slightly hard hearts.
But, having lived most of my adult life among them, experience tells me that when it comes to the explanation of poverty and wealth libertarians are close cousins to conservatives. It’s my view that this shared sense of robust agency and individual responsibility for success and failure is the psychological linchpin of “fusionism”–that this commonality in disposition has made the long-time alliance between conservatives and libertarians possible, despite the fact that libertarians are almost identical to liberals in their unconcern for the conservative binding foundations.
(iii) There is a larger structural problem that counters a robust individual agency(although there is still room for some degree of individual agency)
my own drift from right-leaning libertarian to libertarian-leaning liberal has a lot to do with issues around the conditions for robust agency and the role of broad socio-economic forces in establishing those conditions, or not. I’ve come to accept, for example, that diffuse cultural forces, such as racism or sexism or nationalism or intergenerational poverty, can deprive an individual of her rightful liberty without any single person doing anything to violate her basic rights. This takes me a long way toward standard liberalism. But I find that my gut nevertheless leans right on issues of personal responsibility.
(iv) This structural problem is the root of the redistribution problem. The resolution to this problem demands both a degree of material and psychological assistance(within limits)
In plenty of circumstances in which people are suffering due to no fault of their own, I think they need both material assistance and the conviction that they can improve their lives if they really try.
Now Kain:
(i) Restate the premise of the liberal vs conservative debate over poverty. Affirm that libertarians take the conservative side.
Whereas libertarians and conservatives attribute success and failure to the personal strengths and flaws of individuals, liberals see a vast array of social forces, luck, and other things outside of the direct control of individuals as playing a more important role in the success or failure of individuals. Thus, for a liberal poverty is structural and for a libertarian or a conservative it is the result of human shortcomings.
(ii) Libertarian affirmation of the conservative position is an example of “vulgar libertarianism”
I find the libertarian rejection of structural and broad social forces shaping success and failure peculiar. For one thing, the most valuable insights of libertarianism are bound quite closely to the idea that special interests work with government to distort the playing field and protect certain interests and people and corporations over others. The free market creates a more level playing field, ideally, that allows for fewer distortions of power and more equality of opportunity.
And yet many libertarians only take that critique so far, and at the end of the day we find ourselves still with a discussion about winners and losers. It doesn’t make sense to craft a broad social critique of the state and its interactions with society and then turn around and pretend those factors play no role in the success or failure of you and me. This is what Kevin Carson describes as “vulgar libertarianism.”
(iii) Libertarians don’t take their theories seriously enough. Libertarianism demands that “social forces” be taken into account. So we reject the conservative “rugged individualist” interpretation and embrace the Wilkinson version of individual agency. In particular, we should be concerned about a safety net to account for market failure.
Fortunately, I don’t think that strain of thought exists in anywhere near so broad a constituency as the winners-vs-losers brand of rugged individualism does on the right. Most liberals, I believe, understand the importance of self-reliance, hard work, and making the crutches of the state as unnecessary as possible. Are there anti-growth, anti-market forces at work on the left? Of course there are. But these tend to have a very small influence over public policy.
Meanwhile, the goal of libertarian-leaning liberals everywhere should be making markets work for ordinary people. To do that you need to couple free markets with a strong, efficient safety net that rewards risk and hard work but doesn’t let people fall through the cracks. A market-based, bottom-up liberalism should still embrace the reality that market failure is both necessary and causes a great deal of pain. The role of the state is ameliorating that pain for ordinary workers – not bailing out or protecting the wealthy and well-connected.
Now, I’m occasionally accused of being at “definitional war” with political reality. This criticism pertains to my oft refusal to accept the “accepted” political categories. But there is good reason to refuse them. And,frankly, the Wilkinson/Kain interpretation of the redistribution problem demonstrates the peril of accepting them. That’s because the premise of the their argument, to begin with, is utterly bunk. Namely: that the conservative position regarding poverty/wealth/markets=rugged individualism, or more precisely, rejects any consideration of “social forces.”
I’ve composed many a post outlining the incongruence of philosophical conservatism with “free markets.”1 The raison d’etre of (modern) Conservatism proper, as outlined by Russell Kirk, for example, is a “republican” form of government to serve as a bulwark against the tide of change from “social forces.” Conservatism accepts the market, but not the “free market,” not in the libertarian sense. This should be clear from reading Kirk(indeed for the likes of Kirk, a free market is a threat to the necessary transcendence that must underlie a stable social order). Conservatives use the phrase “free market” but there is an implicit social context behind the conservative usage of that term. The market must exist within defined social limits and can only function properly within these defined limits. Indeed, if it goes outside these limits then it can be a social force for structural poverty–for example, in weakening the foundation of the traditional family.
Therefore, we actually find that both liberals and conservatives view poverty/wealth/markets, in terms of an individual agency problem, as a function of social context. 2
So, the initial premise of the Wilkinson/Kain interpretation that views left/right as “social context vs atomism” is not correct.
The Liberal vs Conservative debate over poverty/wealth =False Premise #1
Thus, obviously, if Premise #1 is not correct, then Premise #2 becomes problematic. Now one would have to show that libertarians are in agreement with conservatives over the necessary and proper social context for individual agency. But equivalence between conservatives and libertarians on this matter is demonstratively false. For example: the drug war, contractual arrangement between consenting adults(whether prostitution or “marriage” between same-sex adults, etc), immigrant labor.
Libertarians side with the conservatives =False Premise #2
So we have dispensed with the assumptions that (i) conservatism with respect to poverty/wealth/markets is atomistic and rugged individualist and (ii) that libertarianism is equivalent to the actual conservative view of individual agency and social context.
This leaves to address a dangling claim of sorts: Do hold libertarians hold atomistic and rugged individualist ideas often attributed to conservatives but not actually held by conservatives? That is, is libertarianism, in terms of it’s individualism, defined by an atomistic social analysis built over: “libertarians attribute success and failure to the personal strengths and flaws of individuals.”
I suppose one could appeal to Rand’s objectivist ethics to make this case, but even I would think that to be a vulgar reading of Rand. After all, Rand certainly didn’t invent the concept of the “American Dream.” When I think of libertarian social analysis, I tend to start with Charles Comte, Charles Dunoyer and Jean-Baptiste Say from the radical French liberal tradition.
There is an oft asked question concerning the origin of libertarianism. We can find the hint of the ideas historically embedded in virtually all cultures in one form or another, but certainly we would likely start with Étienne de La Boétie and the French Physiocratic tradition. But, as a social/political theory proper, it is the French Liberal tradition, specifically the social analysis that stems from liberal class theory, that serves as its modern origin.
To me, it is absurd to equate libertarian social analysis with late nite American Dream infomercials.
Libertarian Social analysis of poverty/wealth/markets is atomistic and rugged individualist =False Premise #3. Possible Notable Exceptions include: The biased sample of Will Wilkinson’s DC cocktail circuit and DC libertarian think tank employment.
Libertarian social analysis is fundamentally concerned with the social context of human individual agency. So much so, in fact, that the actual historical divisions in libertarianism, e.g., social vs individualist, are a direct function of bitter disputes regarding social context and human agency. Joseph Déjacque, for example, is famous(well at least famous in hard core libertarian circles) for accusing Pierre-Joseph Proudhon of being “liberal, but not libertarian.” This is a familiar charge that has been often repeated by “social anarchists” against “individualists,” calling them “liberals.” It is an accurate charge to the extent that individualists accept “liberal institutions” of civil society that includes such things as private property and markets. But the term liberal, in this context, is meant as a slur of sorts against an identity of the “petty bourgeoisie.” Carson’s use of the term “vulgar libertarianism” is actually a criticism of identifying the “petty bourgeoisie” with the constraints of American conservatism.
The point here is that libertarianism, as evidenced by it’s internal divisions, very much takes it’s social analysis foundations seriously. However,theses divisions are not indicative of weakness or wrongness of the theory. That is to say, “vulgar libertarianism” is no more of a problem for libertarianism than the problem of “petty bourgeoisie” is a problem for libertarianism.
Vulgar Libertarianism is a disqualifying factor exposing the relevant limits of libertarian social analysis =False Statement
At this point, what I have attempted to refute is the Wilkinson/Kain logical case against any libertarian objection to a Wilkinson/Kain moral claim for the necessity of some version of a redistributive state.
So Wilkinson’s appeal to racism and sexism, and Kain’s appeal to market failure, are not actually in the clear in terms of escaping a libertarian critique.
Wilkinson appears to have now adopted a progressive view of civil society, that is, a view that assigns a necessary role for the State to correct the oppressive tendencies of civil society. One of the important contributions of the historical deconstructive scholarship of Thaddeus Russell, particularly with respect to his work, “Renegade History of the United States,” is to punch serious holes in Wilkinson’s cultural impediment argument. Eternal vigilance often emanates from the bowels of civil society and not from the upper echelons of legislative chambers or Washington think tanks. No doubt that racism and sexism are components of a social structure impediment, but, more often than not, the State is an enforcer of the Status quo, and not liberating agents. You certainly not going to find “11 Freedoms That Drunks, Slackers, Prostitutes And Pirates Pioneered And The Founding Fathers Opposed” in the official state textbooks.
Kain’s mistakenly equates market failure with “winners and losers.” In the neoclassical sense, market failure may or not make the case for government agency, but this government agency has nothing to do with “redistribution.” In the classical sense, there is an economic analysis concerned with the flow of economic rents to factors of production, and the taxation of persistent economic rent in terms of certain factors(for example, land) serving as a basis for a “redistributive government agency.” In the classical liberal sense, the taxation of economic rent is the fiscal source of government.
Kain, like many others, totally turns economics(the study of political economy) on its head with an argument for a role of government agency to subsidize economic rent. This to me is obscene, and any moral argument to legitimize this serves as the moral foundation for plunder. This can be demonstrated.
For example, consider Rawls. One of the gripes I have about those who rely on Rawls–for example, Wilkinson–is that Rawls significantly modified his theory of Justice in his later years. The later Rawls was (i)public reason (ii) overlapping consensus and (iii) “propertarian democracy.” In a very real sense, the “social justice” rationale of government agency in the US in the 90s followed the later Rawls. The “welfare state” was reformed and an aggressive program to subsidize home ownership–as part of the ownership society– was kicked into high gear.
The results have been catastrophic. I contend that subsidizing economic rent is a grave error; but, in particular, I contend that subsidizing land and home ownership is an utterly disastrous policy(economic rent from land should be a primary fiscal source of any government agency; government agencies should not serve a moral objective to subsidize this). The extent the later Rawls viewed Property-owning democracy as guaranteeing a widespread bulwark against concentration of economic and financial power only demonstrates how wrong he was. A moral objective of a Property-owning democracy, enforced by government agency, has given us the greatest oligarchical concentration of financial power and control in human history.
This leads to the actual “redistribution problem.” How to reverse the concentrated economic power enabled and legitimized by moral claims of social and economic justice.
1 For example: No Bridge Between the Libertarian and Conservative Worldviews
2 A more accurate and thorough contemporary social analysis of “left/right” places the debate over individual agency within the context of communitarian recognition.
The Corporation as Social Contract
This is a follow up post to an earlier piece, Anarchism and The Firm. A re-summarization of that piece:
If we accept the institution of the market, then we must accept the concept of economic rent–if we wish to engage in economic reasoning. Markets will then have rent-seeking participants/actors1. Economic rent is simply earnings or income for use of a resource in excess of that resource’s opportunity costs. In a world of perfect competition equilibrium, there is no economic rent(or firms). But we don’t live in that world(that is, a world where every resource/asset is traded at opportunity cost). We have (i) economic inefficiencies or (ii) relatively inelastic supply curves for specialized labor2 or (iii) product heterogeneity and/or shifts in demand and supply curves3, etc,etc.
Competition in these types of economic rents is a good thing and improves the human condition, at least from an economic standpoint. A dynamic perspective views the entrepreneur as rent-seeking agent that both “creates quasi-rent” and dynamically enforces economic rent as quasi-rent, that is, long-term earnings for asset usage that approach opportunity cost.
Economic inefficiencies explain why we might expect “firms” in a complex economy. For one explanation of this, we can turn to the work of Oliver Williamson regarding the Firm. In a complex economy, you will end up with assets that are specific to one another that may have a trade value much greater than opportunity cost. If these assets are owned by different entities or agents, these mutually dependent trading partners, absent long-term contracts, will have substantial quasi-rents to bargain over in actual returns. This creates the following bargaining dynamic: (1) trading partners have an incentive to “haggle” to maximize their share of the available quasi-rents; this is a type of transaction cost (2) when it is difficult to switch trading partners, the defection state–that is, a failure in negotiations–represents large surplus losses.
The “Williamson Firm” then is a type of DRO, a form of economic governance that arises as means to minimize the bargaining costs of quasi-rents and the costs of defection.4,5
The “Williamson Firm” provides a plausible bargaining foundation for “the Firm” in a free market. A number of qualifiers, however.
(i) the “Williamson Firm” is not necessarily equivalent to the legal construct of the “Limited Liability Corporation”
(ii) the “Williamson Firm” would only be specific to certain economic sectors and would not be universal across all sectors. It arises out of the quasi-rents of asset specificity. Vertical integration is explained in terms of efficiency, and not “market power.”
(iii) The bounds of the “Williamson Firm” are an important consideration
To succinctly rephrase the qualifying remarks: If the Williamson framework is defined in terms of rent-seeking and adaptation, we should give important consideration to bounds of the firm, given that, in a sense, the vertical integration is explained by the inefficiency of completeness in contracting(for certain sectors). In short, the rent-seeking can very easily become a matter of contrived rents and not quasi-rents.
As I pointed out in my original piece, Stephan Kinsella’s claim of a contractual foundation of “shareholder limited liability,” which he implied had been substantiated by the likes of Robert Hessen, was not an accurate claim. Hessen actually denied the possibility of any strong contractual foundation of shareholder limited liability. Hessen instead appealed to the legal principle of respondeat superior backed by a claim of investor passivity.
My response was that in the absence of a strong contractual foundation, to avoid “the Corporation as Social Contract,” you had to provide an economic or bargaining rationale for the thing you are claiming. In particular, I was referring to limited liability in torts. There is no economic bargaining foundation for this legal protection aspect of the Firm.
I then noted that “investor passivity” was a myth, that it was actually a quite active institutional agent on its own. In fact, I identified this institutional agency as the foundation of “too big to fail.”
Interestingly, over the weekend, I read this summary post at Global Guerrillas that linked to this complexity analysis, The Network of Global Corporate Control, authored by a trio of theorists from Swiss Federal Institute of Technology in Zurich. The technical paper employs a complex graph analysis(a standard tool in complex network analysis) to model the global capitalist network, a network the researchers found to form a giant bow-tie arrangement knotted by a small, interconnected core of financial institutions.
For non-technical summary, refer to this informative New Scientist article.
What we empirically see is that the knot is controlled by a “super-entity” of 147 firms, almost all financial institutions. If you study the paper, what you will see, in plain startling form, is the empirical proof(or a highly compelling proof) that demonstrates the incompatibility of limited liability torts and investor passivity with the free market. Of course, we are defining the free market as a mechanism of competitive dissipation of economic rents. And we are reminded why we should never consider the free market as serving any moral ends–in this case, as means to an ends of a moral claim of ownership liability.
Complex network analysis has no need of conspiracy theories or “bad actors.” It simply models the complex order that emerges from the rules of the system. And what we find is not necessarily collusion of over economic rents, or a violation of the Williamson bound vertically for monopoly rents, but rather a complex entanglement-which violates the Williamson bound–naturally geared toward network preservation. In other words, not “public choice,” but “ruling class.”
What appears to have been empirically verified is the Corporation as Social Contract…
1 The term “rent-seeking” is usually reserved for contrived/artificial rents that are typically a product of government action. But we can generalize it to include profit seeking that includes quasi-rents. The generalization then includes the entrepreneur as a rent-seeking agent. Of course, competition in quasi-rents results in the dissipation of such rent.
2 Easy examples are highly skilled professional athletes, entertainers, or technical personnel. Most, if not all of their compensation(or income), is economic rent, meaning that they would earn much less in an alternative profession or endeavor.
3 Steve Jobs/Apple is an excellent example. Jobs perfected “taste” as a basis for product heterogeneity in consumer computing/electronics, allowing for Apple to enjoy the benefit of economic rent(in this case, profits above “normal profits). There is nothing wrong this type of economic rent-seeking, unless the rent-seeker also seeks to use the patent/copyright regime to prevent competition in product heterogeneity, which is the case with Jobs/Apple. Thus Steve Jobs attempted to use protectionism to protect Apple’s quasi-rent as permanent rent, thus disqualifying him as an “entrepreneurial ideal.” It’s amazing how many libertarians apparently miss the boat on this.
4 For a more detailed account, refer to the 2009 summary compiled by the Economic Sciences Prize Committee
5It is easy to see that the concept of economic rent is a primary dividing line between social anarchism and “free market anarchism.” Social anarchism holds hierarchy mechanisms of governance to be immoral whereas the “free market” variety, in its acceptance of economic rent, cannot make such blanket moral judgements regarding hierarchical forms of governance.
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