In the Land of Equilibria

           I recently debated Ottawa Citizen columnist and MacDonald-Laurier Institute honcho John Robson on BNN regarding the role of unions in society.  It was a rather nasty exchange, as these things go: he’s a smart, aggressive, neo-con who was on the offensive from the opening introductions:

          A few days later, he lampooned me in a column, titled “An Economic Children’s Story”: a humorous fairy tale about a land where unions kill the goose that laid the golden egg, until taxpaying denizens (starting in Wisconsin) throw off the oppressive yoke imposed on them by overpaid teachers and garbage collectors.

            His fable was entertaining, but I thought the characters lacked motivation.  Besides, if workers were really paid in golden eggs, unions would never have been invented.  Instead, unions were born in a less pastel-hued world where workers have to fight even for the basics of survival.  Employers and their think tanks have been complaining ever since: always promising that if only unions stopped messing with the free market, we could finally achieve high productivity, low taxes, and a flood of trickle-down prosperity. 

            So here’s another fairy tale: one I learned long ago, in first-year university economics.  It takes place in a far-away land called Equilibria, a happy place where supply always equals demand, and self-starting folks live to truck and trade.

            They produce a rich variety of goods and services reflecting the natural comparative advantage of each producer, and meet in a giant flea market to exchange their wares.  Some Equilibrians flip burgers and collect garbage, while others manage private equity placements and devise structured credit instruments.  Some are much better off than others (due to randomly uneven endowments of economic luck), but everyone is better off going to the flea market than just sitting around at home.  So they should be thankful. 

            Best of all, the whole process is overseen by a giant, omnipresent hand, which ensures that everyone works to the best of their (randomly endowed) abilities.  No-one has ever seen this hand (it is invisible, apparently).  But everyone knows it exists, thanks to the teachings of a caste of high priests called Economists.

            Eventually, however, in a kind of economic original sin, the burger-flippers and garbage-collectors became envious, and decided they wanted more out of life than the invisible hand was allowing them.  They got together and began to agitate.  They formed unions that won a better deal at the flea market for many (but not all) of the riff raff.  And they pressured their king and queen to provide certain things that weren’t even available at the flea market (like free education and health care). 

            The private equity and structured debt specialists did not like this turn of events.  They longed for an earlier era when the richest 1 percent of Equilibrians took home 25 percent of all the stuff from the flea market (instead of merely 15 percent or a measly 10 percent).

            In one part of Equilibria (the part that spoke English), a new dynasty came to power, led by King Gipper and Queen Iron Lady, determined to restore proper decorum to the flea market.  They promised that everyone would be richer if unions and free public services were eliminated.  They even argued the flea market didn’t need any adult supervision at all (apart from some well-armed knights to protect the fanciest stuff on display). 

            After thirty years, the burger-flippers and garbage-collectors were still no better off.  But the richest 1 percent once again took home 25 percent of the flea market’s wares.  Strangely, though, the English-speaking flea markets were not working as well as those where other languages were spoken (especially Chinese).  This must have been because unions weren’t yet quite weak enough, nor taxes yet quite low enough.  So the dynasty kept trying.

            They even came up with a new idea: they built some higher floors at the flea market, held up not by concrete, but by enormous stacks of fancy paper.  This made the flea market look very busy for a while – until the upper floors collapsed and many tables were ruined.  Indeed, if it weren’t for trillions of special gold coins (called Stimuli) supplied by the king and queen, the whole flea market would have disintegrated in chaos. 

            Garbage-collectors didn’t cause the flea market to collapse.  And they didn’t capture many of the Stimuli in the aftermath.  But the dynasty wanted someone to blame, and the garbage-collectors were a convenient target.  After all, they made more than the burger-flippers.  And they were rather malodorous, to boot.  So the dynasty sent the town crier out to complain loudly how unfair it was that garbage-collectors made more than burger-flippers, and for a while the riff raff began to fight amongst themselves.

            What happened next?  That part of the story hasn’t been written yet.  But one thing is certain: if we cut the wages (and pensions) of the garbage-collectors, the burger-flippers will still be poor.  And despite the collapse at the flea market, there is still some awfully fancy stuff on display at the private equity and structured credit stalls.  It’s hard to believe it will go unnoticed forever. 

            All this is just a fairy tale, of course.  But as I retell it to my daughter at bedtime, I can’t help thinking it’s more informative than the competing fable.  You know, the one about how unions, weaker than at any time in at least thirty years, somehow caused an economic conflagration that enveloped the entire world – and how they killed a golden goose that never actually existed.

This commentary originally appeared in the Ottawa Citizen.

7 comments

  • I have to admit, after watching that and being quite inside the dynamics of the arguments, I came to the following conclusion. Potentially an epiphany, at least for me.

    How could neo cons like Robson and the army of neo con economists get things so diabolical wrong. Sure, those reading those words that are laughing, and presumably from the right, I am very serious. How can a whole academic, and practitioner group within a field be so blatantly ignorant of the facts of the field they are studying.

    I have two major themes to my answer-

    1) they are not that clever, like most fields, you get your quacks and slow moving donkeys. So potentially we see a bit of that within our economics profession, with a distribution of cleverness highly skewed to the progressive left leaning side.

    2) potentially the profession have become so specialized, that quite a number of specialties that I would deem become so specialized that an inefficiency takes hold and destroys the knowledge base that allows these specialists erode in abilities that they functionally become disconnected. Somehow without some mechanism or too much of a mechanism i.e. interests of the wealthy, the disconnect is allowed enough internally positive reinforcement to overcome these inefficiencies and instead of imploding, they survive.

    3) This one focuses on the last but is more or less a special case, that is, the field becomes so overwhelmed with the notions of adhering to somekind of external guidance towards an irrational goal that it starts pruning itself of the necessary branches of knowledge that it implodes and in this special case, it is the quest to establish some overarching goal of positivist scientific goal based on some archaic mathematical basis. As I have said before, math is good, but in a Latour type of way, what exactly are these economic scientists really doing when the apply such farfetched abstraction that the theory can never transcend itself in a legitimate praxis.

    Kind of results in a Terry Gilliam type Brazil movie in the heart of right wing economists. The progressive economists become terrorists trying to break into peoples bank account and fix things, whereas the orthodoxy in control keeps robbing the bank accounts of the masses and ensuring them that things are fine and being run exactly how they should be. THis is all fine, until your name is Mr. Buttle and you get mistaken for Mr. Tuttle.

    Anyway, it really did strike me how overextended Mr. Robeson’s very limited knowledge base became when he reached just a little bit outside of his small box at the top of the stairs. Somebody get that lid.

  • Terrible debate. Bizarre, totally bizarre. Sorry you had to live through that Jim.

  • How about this for an ending? The garbage -collectors and the burgher flippers send King Gipper and Queen Iron Lady, with their paper hanging cronies of course, to local squares for a date with a head removing device.

  • Starting at 10:30, Robson asserts that competition for employees automatically bids up wages without unions and then cites McDonald’s and Walmart as employers that have succeeded without unions.

  • He what? Um, because of course McDonald’s and WalMart are so well known for bidding up their employees’ wages–what would we do without high-wage employers like those? Yes, sir, I’m just living off the trickle-down effect from those high-on-the-hog WalMart employees.

    As to Paul’s question, I think the thing is that academic economists don’t exist in a vacuum. They’re influenced by a lot of factors. They have ties to economists who moved into employment in the private sector, which generally means working either for think tanks endowed by Very Rich People, or for financial institutions–banks and so forth. They are influenced by the existence of endowed research chairs–again, normally endowed by Very Rich People. Some directly take money from interest groups, normally well heeled ones; there’s one professor at my institution known for having taken tobacco money. For all these private economists, economists occupying endowed chairs and economists doing economics for money, the Upton Sinclair adage applies: “It is difficult to get a man to understand something, when his salary depends upon his not understanding it!” These people’s goals are less research than propaganda, and they are the more insidious in that their self-respect hinges on convincing themselves that their propaganda is true (or if not precisely literally true, reflects or advances some higher truth).
    But the many academic economists who are not competing for these chairs and who do not take money are still influenced by the fact that their peers are doing these things. They work and publish in an environment which is as it were doped with instructors, colleagues, peer reviewers, tenure evaluators and so on who are in effect propagandists. It is very likely to colour their views.

  • One problem with economics, especially macroeconomics, is that it is impossible to do controlled experiments. You can’t set up two identical counties and see what happens when you have two different interest rates.

    In other sciences bad theories are eventually driven out if it doesn’t match the data. In economics there is no reliable data, so bad theories can stick around indefinitely.

  • @plg thanks for the followup and it may be a fairly accepted norm that such behaviours you mention diffuse much of the economic profession. However, I am sure it is not recognized as much from an external viewpoint.

    Fundamentally I am not just focusing on some small notion of bias here. My target is the slippery meeting between power and economic thought. There are many economists from a wide background, however, unlike other professions, there are very limited pipelines of power that attach themselves quite selectively into the profession- from academics to practitioners- the tentacles filter out much of the discourse, that might somehow prevent the legitimation the current regime of wealth.

    I guess my main criticism and it goes back to this interview between Jim and Mr. Robson. The right’s position some kind of scripted attempt as personifying a popularized scientific economics of “non-science” and has been for 30 years, and the talking heads from the right , despite the biggest meltdown in decades, has not changed much.

    In many ways, given what is at stake for the future, it is like the build up to the great enlightenment. I have to say I had this feeling that Robson was like some aristocrat or potentially jester speaking for the king attempting to thwart the threats.

    Are right wing economists and the financial community that got us into this mess the religious leaders that will deny the reality that is unfolding in front of them?

    This is something the economics profession must ask itself- quite seriously- as change is forced upon the economy, whether it be for deeper levels of social sustainability or green sustainability, economic cannot simply retreat back to some safe scripting. It just is uncivilized to do such. Sadly they go back to this discourse on some notion of innovative maximization argument. Talk about an upside down world.

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