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Privatized Profits, Socialized Costs, Writ Large

Referencing a contribution by Ezra Klein to an ongoing conversation about Wal-Mart, its business model and the social, political, and economic consequences of that model, Reihan Salam states, or, perhaps, sketches, the case for wage subsidies:

Hence the case for wage subsidies. Wal-Mart shouldn't be held responsible for solving all our social ills. On the center-left, there really are (at least) two distinct approaches to Wal-Mart: in cities like Chicago, politicians target big-box stores per se, as though Wal-Mart were a black-hatted corporate villain that exists in a vacuum. (McDonald's also plays this role.) Then there are those who very sensibly advocate comprehensive national policies that would impact all of us. My bias is clear. The right policies are those that use revenues raised by broad-based taxes to fund a basic minimum: a decent wage and health care.

At first brush, this is baffling. In the final analysis, it remains baffling. I suspect I will still find it baffling even after I have digested Salam and Douthat's argument for wage subsidies in their forthcoming book. For manifestly, the proposed wage subsidies are intended as a solution to the problem of the substandard wages and benefits provided by Wal-Mart - and many other corporations these days - and equally manifestly, a standard line of conservative analysis would rightly portray such a subsidy as a de facto subsidy of Wal-Mart's scrooge-like wage policies. Wal-Mart will be enabled to continue its low-wage, low cost policies, which are profitable, but impose significant externalities on a society unwilling to countenance Dickensian conditions among the poor and lower-middle; and the costs of those externalities will be borne by you and me, dear readers. The plutocrats will reap their earthly rewards, while we will pay to mitigate the penury of their employees. Or, they could simply pay higher wages, and pass the costs along to us as consumers of goods and services, and eliminate the government middlemen, which would be less convoluted. As I say, baffling.

Nevertheless, more remains to be said, for the very consideration of any sort of wage subsidy signifies something, something that receives altogether too little consideration in American political discourse. It signifies that we believe - rightly - that the deliverances of market discipline cannot be equated with justice. Now, it might be argued that these subsidies are necessary as a utilitarian measure, a purchasing of social peace, lest the masses revolt against the capitalist system - and this aspect is always present in these social-democratic policy debates. Certainly the New Deal may be portrayed in these terms, at least in part. But this only forces the regression of the question to a deeper level: if subsidies are the price of social tranquility, on what grounds would the masses conceivably revolt? Why, they would revolt because they believed they were receiving a raw deal from the economic system, that is, that they were being treated unfairly - which is, in the parlance of the age, to state that they were being treated unjustly. And the American political system would disburse the subsidies because the American people, generally, would regard Dickensian or quasi-Dickensian conditions among the working poor and lower-middle as - wait for it! - unjust, and unbecoming of America.

So, this very proposal presupposes that market outcomes are often orthogonal to justice, and may even be rankly unjust. Injustice, though, however systemic it may be, is only made concrete in the actions of identifiable persons towards other identifiable persons. Which is to say that it is Wal-Mart that perpetrates definable, specific injustices against certain persons.

Why, therefore, is it the case that I must pay for the rectification of Wal-Mart's injustices, as these are defined by my society? After all, I haven't hired anyone for a substandard wage, and then scheduled his work hours so as to keep him just below the threshold that would qualify him for health benefits. Ah - there is the rub: the conviction that the system of predatory global capitalism, forever seeking profits through innovations in labour arbitrage, has some benefits to bestow upon us, and is, in some sense, inevitable (ah, that doctrine of fatality! Paganism lives!); the only thing that remains to us is to mitigate those externalities through public policy, a postmodern version of bread and circuses for the propertyless masses.

What's the point if the proposal itself implicitly concedes the injustice of the system, and concedes, moreover, the incapacity of a purely positive system - which is what the economics profession conceives the system of global trade as being - to deliver substantively desirable outcomes?

Comments (13)

You have hit on what's always troubled me. By offering wage subsidies aren't we perepetuating a business model we claim to be insustainable? I believe so.

The trouble is that the economic system, since its inception, has required some external, stabilizing factor, despite the best efforts of political economists and other positivists to portray it as a self-sustaining, perpetual motion/production machine. The traditional methodology of stabilization has been poor relief, of which - we should be candid enough to admit - wage subsidies are but one form. Contemporary consumer capitalism has also evolved various mechanisms of consumer credit as systemically compensatory factors, but these merely borrow from the future, and are - essentially - convoluted ponzi schemes that presuppose increasing "liquidity" and what Keynesians used to refer to as "velocity of money" - spending all of that "liquidity" with greater rapidity. Eventually the engine overruns, the crankshaft breaks, sending a rod through the block, and the party stops.

And then someone else owns your country.

It seems to me that the sense in which "the system"--any country--requires poor relief is a sense that has nothing to do with failures of capitalism and much to do with human nature. Some of these aspects of human nature are no one's fault: People grow too old to care for themselves and sometimes they have no family or their families cannot or will not give them all they need. Some people have disabilities from the outset that require care. Other aspects of human nature are to be faulted: laziness, irresponsibility of various sorts.

Now all of this means that some people will either have to end up being cared for by others or that the others will have to harden their hearts (in the case of fault) and let people suffer the consequences. But this latter option becomes less tenable when the lazy and/or irresponsible have children. The children then become in a sense hostages. If it is inadvisable, as it often is, to take them from their feckless parents, you become more or less obligated to support Mr. and Mrs. (or just Miss) Feckless and their whole family.

Not a single bit of this has anything, to my mind, to do with Wal Mart. In my opinion, that's why handouts just should just be ordinary handouts and not wage subsidies.

No doubt my saying this has nothing to do with Wal Mart means I look to some like Scrooge myself.

Of course it has something to do with the failures of capitalism, because we've been discussing this same feature of capitalism for well nigh four centuries now, with the only difference being the greater theoretical and mathematical sophistication of the models our contemporaries bring to the debate. Back in the early Seventeenth century, someone dwelling in rural Scotland or Northern England could provision himself with a new pair of shoes by trapping some animal and working with the skins for an hour and a half; whereas, were he to seek to purchase a manufactured pair of shoes with money earned at the prevailing rates for wage-labour, he'd have to toil for over a week in order to purchase those shoes. The point, then, was - and remains - that because, as Ricardo observed, the market rate for labour tends gradually to approach the natural rate for labour (no prizes for surmising what the "natural" rate for labour is), the productive capacity of the capitalist/industrialist system outstrips the ability of wage-labourers to purchase its output, under a purely market-disciplined labour market. Various forms of poor-relief have served as compensatory measures, and the Nineteenth century witnessed the development of labour organizations, socialist/welfarist politics, and the like. The Twentieth century brought us Keynesianism and later, consumer credit. This is the reason for the prevalence of discussions of "Fordism" in the literature; the assumption among relatively enlightened industrialists of the time was that providing a decent wage would enable the labourer to purchase some of the spectacular output of the industrial system, and would also give him a greater stake in it. The contemporary assumption is that the labourer will take care of himself, and that profitability will follow upon ever more arcane and globalized systems of labour arbitrage. Which means that Ricardo's observation has gained new saliency.

Moreover, it is simply a fiction that those falling behind, or those requiring of charity or welfare, are always those who are lazy and indigent, such that we can licitly harden our hearts against their sins. The lesson of history - something one can perceive in America's own labour struggles, and in the fact that turn-of-the-Twentieth-century Britain saw upwards of 40% of families living in one room flats with six or more people - is that the labour of large numbers of people will only command that natural rate, or a little more. This is, to be certain, a facet of human nature: the diversity of endowments. If anyone wishes to advance the argument - libertarians do it all the time, implicitly or explicitly - that these purely market outcomes equate to justice, and that a society which permits them should perceive itself as just, he or she is at liberty to do so. He or she will also be at liberty to witness the political dominance of the left. The libertarian-minded have been caterwauling over the course of Western economic and political history since the latter half of the Nineteenth century, without condescending to re-examine their assumptions: how does something substantial, namely, justice, emerge from the workings of a purely positive system of economic law? Everything about our actual political practice indicates that even we do not quite accept this alchemical illusion, this conjurer's trick; hence, the bizarre talk of balancing market outcomes, compensating for them, etc.

I'd _much_ rather have the manufactured shoes than the ones made from the skin of an animal after an hour and a half. I think that's a rational preference. But that's just one point among many here.

Heh. Aesthetically, no doubt. But the point is that the natural rate for labour, under a pure market discipline, and in the absence of commons or anything like unions, protected markets, etc., will be abysmally low for many fields. Wage subsidies, as I have indicated, make little sense to me; but at least proponents don't regard wages-trending-towards-societal-subsistence as just.

Okay, I didn't say that those requiring help were always lazy and self-indulgent. I said there were two groups, and that one group was. My point was though that both groups are of such a sort as to be "always with us" regardless of our economic system.

I freely admit to being unfamiliar with Ricardo's maxim about natural value of labor and market value. I'll read up on it if I can find a link. The illustration of the shoes hardly proves the point, though, because they wouldn't be the same shoes. Much less durable and good, I would guess. And the actual situation I find myself surrounded by seems to undercut the claim in question, because our poor nowadays in the U.S. have many things they never could have made for themselves and are materially much better off in innumerable ways than even many not regarded as poor in, say, the 13th century or however far we have to go back to get to the point where it can't be said of poverty, "That was the fault of capitalism."

Surely you aren't trying to argue that there were no people unable to support themselves before wicked capitalism came along? No needed supplementary or support systems? That would be an obviously false thing to say.

I know that you haven't said that poverty is caused solely by laziness or other defects of character, or deprivations of virtue. I was merely electing to emphasize the other side of the coin, the side most conservatives either pretend does not exist, or well, I'll get to that momentarily. The illustration of the shoes does demonstrate the point I wish to make, inasmuch as it demonstrates that, absent some sort of commons, and absent the sort of compensatory measures of uplift which characterize all non-libertarian and non-subsistence societies, wages and compensation for large swathes of the population will trend toward the natural limit. I'm not concerned to make or refute the point that Western poor are relatively prosperous, by comparison to African and Asian poor; that point is simply not terribly interesting to me, inasmuch as a standard of living is a cultural artifact - which, to my mind, renders American poverty and African poverty, above the level of bare subsistence, nearly incommensurable. Conservatives are enamored of this trope, but it is merely an elision of the point at hand, which concerns a structural feature of market dynamics.

Neither, then, do I find the material abundance generated by capitalism terribly relevant; much of the abundance enjoyed by the poor is enjoyed precisely because of all of the compensatory mechanisms we have elaborated in order to sustain the system, and our societies. A more relevant comparison would be to illegal labourers, on the condition that these cannot access our health-care system at public expense, cannot place their anchor-children in the public educational system, and so on. The rates their labour commands, outside the constraints and conditions of a regulated economy, will more nearly approximate the natural rate, because the market discipline is purer, ie., freer from all of those messy "private" judgments concerning values, justice, well-being, and so forth.

Moreover, of course there have always, or at least usually, been indigent people, and social-support systems intended to provide for their basic necessities. However, prior to the advent of capitalism per se, the overwhelming majority of people supported themselves independently, on their own farms, on the commons, and, when necessary, performed odd jobs for wages. The development of capitalism gradually removed these opportunities for independence and self-provisioning, and subjected the masses, now constrained to accept wage-labour, to a stringent market discipline which left them, until the advent of more modern/modernish supplementary support mechanisms, either no better off, or, in enough instances, worse off than they had been/would have been running their own little farms and grazing a few cows on the commons. And the economic reality is that, absent all of those economic interventions which libertarians are wont to decry as infringements upon the holy immunities of capital, this would remain the case. Even so, it is increasingly the case as a consequence of globalism, which is, in the main, merely a sophisticated form of international labour arbitrage. And most of us obviously think this problematic at some level, otherwise, support for the reinstitution of absolute laissez-faire would be waxing at the moment, which it is not, thank God.

My argument, therefore, has nothing to do with prosperous paupers or the enduring imperative of charity; rather, my point is that, if we as a society regard market outcomes as in some sense unjust - which, on the evidence, we do - then we ought to contemplate a variety of distributional (read: not re-distributional) reforms, as well as means of recreating and replicating commons in the contemporary environment, obviating the necessity of convoluted schemes of wage-subsidization. In other words, lets attempt to reform our societies so that we are binding up the inevitable wounds of scarcity, and not the preventable ones of injustice.

I don't think it follows that one regards market outcomes as unjust merely because one thinks it a good idea for there to be various forms of help for people who would otherwise be destitute. It simply means that one doesn't think market outcomes obviate the need for such forms of help. That's all it means in itself, it seems to me.

But look, you can dislike the "trope" of comparing our poor to 13th century poor or even better-than-poor for their time (which was what I said, not present-day poor in Africa). But if you are going to bring up the pair of shoes the guy in old-time Scotland could make for himself in an hour and a half, then I think it's relevant. That guy trapping the animal in Scotland, brought into the 21st century, would not have to work for a week, even at Wal Mart (!) to be able to buy a pair of shoes far, far more practical, waterproof, durable, and useful to him than he could ever have made by trapping an animal and skinning it. (And by the way, trapping the animal itself wasn't counted into the time there, for some reason. Laying and checking traplines is hardly a sinecure, and sometimes you come up empty.) If the life of the ostensibly self-sufficient peasant of the pre-capitalist age is to be lifted up to us as some sort of ideal, of course we are going to point out that peasant's shorter life expectancy, his much harder physical labor, his virtually non-existent healthcare--either privately purchased or subsidized, take your pick--his home that was very hot in the summer and very cold in the winter, his wife having to bear her children with none of the help presently available in childbirth, with the result that she and they were much more likely to die, and so on and so forth.

Is this relevant? You bet. Because the far higher quality and more abundant goods and services presently available to that man's counterpart in the 21st century do not come into existence ex nihilo. They are, in America, produced by people freely engaged in free exchange. Even if we start talking about various forms of socialized medicine and the like, where does the money come from for those things? Santa Claus doesn't deliver them to countries that vote for them. They come from human action, from taxes levied upon people who work and, ultimately, from people who produce wanted goods and services. When, that is, the money doesn't come from deficit spending, which someone as debt-averse as you or I should deplore even when done in a good cause and even, perhaps especially, when done by the government.

Actually, the trope (sans quotations) of the prosperous paupers remains irrelevant, insofar as the point of the comparison was not to draw attention to the relative productivity quotients of two very different economic systems, still less to argue that the peasant's material circumstances are comparable to anything that a poor American might enjoy today, but to contrast systems of property relations in respect of a specific characteristic: the peasant possessed a more stable and secure claim upon the total productivity of his society's economic system than does the contemporary labourer in our own economic system, inasmuch as the peasant was not subjected to a relentless, downward pressure upon his manner and mode of living, driving his produce/compensation ever nearer his natural minimum, whereas the contemporary labourer is increasingly subjected to these pressures as the "social contract" of the Twentieth-century nation-state is rent by market forces. The peasant, by virtue of his possession of what we would now term income-generating property, and his access to the common wealth of society, was more secure in relation to the economic system of his society than the contemporary labourer, who typically lacks income-generating property, and who - because our society has long since discarded the notion - cannot access anything common, and thus finds himself subjected to downward wage pressures and the threat of losing the "property" he holds in fief from the financial establishment. The point of the original comparison was therefore one concerning the respective relations of individuals/families to the customs of property-holding and use, as well as the different logics of the respective systems. In other words: systemic architecture, not productivity per se. Anyway, I'd rather conservatives ceased talking about the wondrous material productivity of capitalism, for a legion of reasons, not least of which is the fact that doing so has abetted the ideologization of conservative thought in the years since the dawn of the Cold War.

And I should think that we do, in fact, discuss these matters within the framework of justice, as evidenced, by, well, the ways in which we actually discuss them: those of us who do discuss them speak constantly of equity, inequality, disproportions, imbalances, desert, dignity and so forth - and if these are not terms from the lexicon of justice, that lexicon must be blank. Now, of course, there are those who adopt a more positivist view of these things, arguing that they "simply are" as they have always been, but it is simply not the case that there have always been, say, CEOs offshoring production and importing cheaper labour, driving wages ever nearer their natural level. And since systems of property relations are never wholly natural, but are always customary and artifactual, and are thus the products of human action, any facts about them are also moral facts, moral realities. Perceiving them rightly involves perceiving them in a certain manner, just as understanding natural kinds involves grasping them according to their natures or essences. Large numbers of people not earning enough to live dignified lives as our society defines this, such that I must be taxed to compensate for this undesirable systemic outcome, is a moral fact. I don't want those who perceive it differently to be pulling the curtain-strings, largely because they already are, hence, these conversations about globalization and wage subsidies, in which articulate policy gurus try to slap a bandage on something their own arguments imply is unjust, as opposed to treating the causes. Besides, those policy folks, and the running dogs of the plutocracy, do in fact perceive moral facts in play: moral facts about their "rights" to engage in these practices, come whatever may - but this, I suppose, takes us back to the foundational era of liberalism itself, and the right of the strong to give the business to the weak, and the right of the weak to take it or go hungry.

And, as I've already intimated, I don't like this because I don't like being taxed to compensate for what big business, corporatists, and their kept politicians have done to others.

Ah, I think I understand. So it doesn't matter how materially well-off the wondrous productivity of capitalism (and it _is_ wondrous, say what you will) makes the contemporary parallel to the "peasant" (who really isn't a peasant, because he is materially so much better off than any peasant). The person in that position of today or tomorrow or a hundred years from now could live markedly better than kings of yore, and, yes, that could be to the credit of the productivity of the free market. Yet you will still call the system "unjust" if he isn't somehow _entitled_, by his rights or commons in the overall economic and political system, to a higher standard of living than what he can presently attain on his own, if the standard of living he presently has is less than what most people in his society at that time desire and think of as "dignified."

I think that's crazy. Unjust, in fact. Certainly unreasonable.

"Those of us who do discuss them speak constantly of equity, inequality, disproportions, imbalances, desert, dignity and so forth."

Well, if you're going to call somebody a "positivist" who doesn't talk about the things you're talking about in those terms, then you can write me down a "positivist" yet again.

Because I intensely dislike such terms when talking about the fact that some people make less money and have a lesser lifestyle than other people, and I try as consistently as possible to avoid them. So I guess that just puts us light-years apart, though I suppose that won't come as a surprise to either of us, I'm rather sad to say.

. Yet you will still call the system "unjust" if he isn't somehow _entitled_, by his rights or commons in the overall economic and political system, to a higher standard of living than what he can presently attain on his own, if the standard of living he presently has is less than what most people in his society at that time desire and think of as "dignified."

Two things: First, yes, I do consider it a form of positivism if the system itself, and thereby also the relations of the participants to its structures and norms, is exempted from judgment; for, once again, the question in my mind has nothing to do with the productivity of the system, but rather concerns the nature of the relations of the parts to one another, and to the whole. It seems to me that the system itself is accepted as a fact, and since it cannot be a natural one, by the nature of the case, it must be a positive one, established by a putatively neutral, empirical "science" - although, oddly, it becomes a matter of moral judgment when one rejects this notion - and it also seems to me that the natural fact that "the poor ye always have with you" is being conflated with the specific features of a contingent, artifactual system, which tends to exacerbate the gulf between the wealthy and the "poor we always have with us". Then again, on the view I oppose, this system is not so much a contingent feature of history, but a positive reality that science has disclosed to us in these latter days, so it is not to be marveled that we quarrel so. So, to answer this point:

I intensely dislike such terms when talking about the fact that some people make less money and have a lesser lifestyle than other people

I don't particularly care for the manner in which many progressives speak of this, either, because I believe that a diversity of endowments, and therefore, the consequences of this, are also natural facts. Nevertheless, this natural fact cannot be conflated with the plainly historical reality of an economic system, which can be judged in part on the basis of how well it accords with other natural facts. Inequality is perfectly natural; certain degrees of it may still be unjust and undesirable.

Second, I cannot say that I really understand even the tone of the objection: are labourers in America, or even the dozens of programmers who have come into contact with our family business, who are now compelled to compete with programmers in Bangalore, supposed to be grateful for a system in which wages are on the downward spiral towards harmonization with the third world (ie., towards the natural level), merely because they live more comfortably (partially as a legacy of interventions in the market) than some rude peasant of the Thirteenth century? I can tell you, they're not grateful, and I can't see why they should be. And that they should accept this, because they are not "entitled" to anything better, though the CEOs fattening their bank accounts are "entitled" to their "earnings"? I don't know anyone who says to himself that he's not entitled to anything better than the shaft, though the shaft-wielder is entitled to wield it on him, and who accepts this as normative. If I did, I'd think him mad.

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