Let the Games begin!
(c) Can Stock Photo / Mark2121

Over the last couple of years,  I have been very hard on progressives on this website. It is no surprise to me, then that  a progressive has decided not to take it anymore and bite back. In fact, I am surprised (and more than a little disappointed) that up until now no progressive has provided a cogent, comprehensive critique of my neoliberal (aka conservative) ramblings.

Now that one has bitten back, I will attempt to be no less comprehensive in answering his criticisms. Because of the huge scope of the subject, do not be surprised if I need more than one post to do the job!

My Adversary, Chease

First,  allow me to say a few introductory words about my opponent, whom I will call Chease. Chease is an example of what one sees so very seldom anymore: a gentleman. Although he might grow a little irritated (as do we all) from time-to-time in the midst of arguing for beliefs for which he evidently feels very passionate, nevertheless he has never stooped to insults or ad hominem remarks. What is important for him in a discussion is only the reasoning and the evidence. From my own experience, this is all too rare a quality that should be encouraged wherever we find it. As a country, we need many, many more conversations like this if we are to avoid civil war.

From time-to-time in comments to my posts, Chease has nibbled on the edges of my neoliberal arguments, typically concerning the desirability of free-markets. Usually, I have responded by devoting an entire post (sometimes two) to my counterargument. Essays of this nature include:

• The Interaction of Ideologies: A Bemused Response to “Cheese”
• Feedback Loops and Economic System States
• Economic System States, Feedback Loops, and Adam Smith’s Invisible Hand
• The Cultural Desirability of Capitalism
• The Cultural Desirability of Capitalism – 2
• Can U.S. Capitalism Be Supported Politically?
• The Political Defense of US Capitalism
• Compromise Between the Right and the Left
• Are You Unconvinced Democrats Are Growing More Authoritarian?
• Are Leftist Economies Better Than Free-Markets?
• A Closer Look at the Index of Economic Freedom

Because Chease’s critique is extensive, I will construct my reply by first quoting a small section of his critique, and then giving my reply section-by-section.

Problems With the Foundations of Neoliberalism

Chease begins with some questions about the foundations of neoliberalism.

A few problems with the foundations of your argument. Let me elucidate two of them in detail. First, there is the idea that the impetus for economic progressivism is obsolete because a sufficiently liberalized market is incapable of producing inequality enough to be a danger to society. Second, there is the idea that racism is a thing of the past and that anti-rascism is now more violent and dangerous than racism.

Another way of expressing his first concern is as follows: My argument is that free-markets, “sufficiently liberalized”, can not produce enough economic inequality to be a danger to society. Therefore, economic progressivism is not needed to redress the problem of economic inequality. Chease disputes that reality is like this.

Before I give my response, allow me to explain my understanding of the phrase “economic progressivism.” Progressivism is an ideology that requires the centralization of economic power (among other forms of power it would centralize) in the state. This being the case, we would find it very useful to characterize how much a government intrudes into and dominates an economy. Also, we would need some measure of how unequal the distribution of a country’s economic output is. Luckily, both kinds of measures are readily available.

The first statistic measuring how much a government controls its economy is the index of economic freedom. This statistic is calculated every year by the Heritage Foundation and the Wall Street Journal for every country in the world for which there is sufficient information. The index varies from zero to 100; if the index for a country is zero, that country’s government has total, dictatorial control over  the economy, and if it is 100, the government has absolutely no control whatsoever. First, it should be noted, that while an economy might generally move in a more “progressive” direction if it’s freedom index decreases, progressives might not necessarily view their economy as progressive if the index decreases too much toward total, dictatorial control. Similarly, if the index gets too close to 100, neoliberals might think other effects might prevent markets from becoming totally free. For example, if government has absolutely no control over the economy, it would not be able to enforce contracts, without which free-markets could not exist. Nevertheless, as long as we avoid the extreme limits, we can take a lower index as indicating a more progressive economy, and a higher index as denoting a more laissez-faire, free-market. To see more of the details on how the index of economic freedom is calculated, see my post A Closer Look at the Index of Economic Freedom.

The second statistic telling us how equitably a country’s income, its GDP, is distributed is called the country’s GINI index, or sometimes its GINI coefficient. The GINI index is a single number derived from a curve called the Lorenz curve, illustrated in the figure below. If we focus on a position (x, y) on the Lorenz curve then the x percent of the population with the lowest incomes cumulatively receive y percent of the total GDP as an annual income. The shape of the curve in the figure below is purely notional. There is no need for the curve to be smooth as shown below; in fact real Lorenz curves almost certainly are not smooth everywhere and probably have occasional discontinuities. However, they should be piecewise continuous, so that the areas A and B  are unambiguously defined in the triangle below. In terms of these areas, the GINI index is defined as

G = A/(A+B).

If the total GDP is divided in completely equal shares among the population, then the x percent of the population that has the lowest incomes (albeit the same income as every one else) have x percent of the total income (GDP), and y = x all along the Lorenz curve. The Lorenz curve then lies right on top of the line of equality in the figure.

Then with perfect equality of income distribution A = 0 and therefore G = 0. On the other hand, if there is perfect inequality with nobody receiving any income except for one person at the top of the pyramid, then the Lorenz curve hugs the x-axis until x = 100 percent, where the curve jumps discontinuously to 100 percent. Then B = 0 and G = 1, or 100 if as is usually the case it is scaled by a factor of 100. Assuming such a scaling, the GINI index will vary between 0 and 100, with 0 denoting total equality and 100 showing total inequality.

The GINI index can be downloaded from the World Bank, although it is not available for every country and is seemingly calculated only every three years or so. However, if we take its most recent value for a country and plot that value versus the country’s index of economic freedom, we obtain the scatter plot below with one point for every country for which there is data.

Note that the blue trend line slopes downward. What this means is if an economy becomes more of a free-market (freedom index increases), then all other things being equal, the GINI index will decrease and the distribution of the national income becomes more equitable. This is exactly the opposite of what progressives assume!

Of course, all other things are not usually equal in comparing two countries, as is attested by the great amount of scatter of country points about the trend line. In recent years, the GINI index for the U.S. has been rising and its economic freedom has been declining. What is the explanation for that?

For that matter what is the explanation for the negative slope of the trend line above? So far as I know, there is no definitive explanation, but it is very easy to construct a plausible explanation through speculation. So, allow me to speculate! Crony capitalism is defined as an economy characterized by close and mutually advantageous relationships between business leaders and government officials. When do these kinds of relationships arise? They happen when government gains more control over outcomes in the economy and is able to give favors to individual companies; and the leaders of those companies reciprocate with campaign contributions and other forms of support to the politicians leading the government. These are relationships like, say, that between the Solyndra corporation and the Obama administration. They are relationships that are naturally associated with progressive government.

Yet, crony capitalism is the exact opposite of real capitalism because it gives the leaders of government more control over the parts of the economy led by the crony capitalists. In fact, crony capitalism is a variation of that kind of socialism called fascism. Fascism is a style of socialism in which there is a polite fiction that the supposedly private sector owners of companies actually own and control their own companies. However, in a fascist country, the companies are completely controlled by the government through government regulations or other means. In such a state the owners and managers of so-called “private” companies actually become apparatchiks of the state. In such a crony capitalist state wealth flows preferentially to the owners of crony capitalist companies and to their political handlers. Therefore, the more progressive a government and economy becomes, the more their GINI increases and income distribution becomes less equitable. This kind of fascism is what characterizes the present day Russian Federation.

Not only does lessor government control mean in general less inequality in the distribution of income, it usually also means a much larger income. If we plot a country’s per capita GDP versus its index of economic freedom for every country for which there is data, we obtain the scatter plot below.

Clearly, after the index for a country reaches roughly 60, countries’ GDPs begin to increase exponentially with the economic freedom index.

Having stated these facts, let us compare what we know with how Chease has initially framed the problem. He wrote

First, there is the idea that the impetus for economic progressivism is obsolete because a sufficiently liberalized market is incapable of producing inequality enough to be a danger to society.

What the data we have seen has demonstrated supports a much stronger assertion by neoliberalism than Chease states. Not only do free-markets not create more income inequality, but in general free-markets produce less inequality than more progressive economies do. Therefore, there is less danger to instability in states with less government economic control. The exact reason or reasons for the connection between free-markets and less income inequality is, admittedly, not yet known, but I would be willing to bet the association between crony-capitalism and progressivism is a very large piece of the explanation.

I will continue my answers to Chease’s counterarguments in my next post.

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