Below is an email conversation I had today with JW Mason that I think will be useful to others. It concerns how the development of business enterprises and their cost structure creates room for socialization. One thing I mention briefly but don’t get into is how the accounting profession periodically responds to these socializing tendencies with increasingly costly and detailed accounting frameworks. The most notable recent example is activity based costing which tries to measure just how much of overhead costs a particular product line uses and allocate overhead costs accordingly. These systems have gotten some traction but they haven’t taken over even in places where they are most useful, such as hospital costing and pricing, because they are so incredibly costly. The main purpose of these systems is simply the more “accurate” allocation of cost-something you only need to do for pricing purposes. Hence the argument that at a certain point it would be easier for overhead costs to simply be paid for by governments. Anyway, enjoy the exchange.
NT: I listened to your left forum talk again. It reminded me to bring up something about your discussion of hospitals- I was somewhat confused by it. I'm not sure why a lot of "cross-subsidization" would make something not a commodity. a going concern's goal is net income as a whole, not net income on each specific product line. To the extent that providing a whole array of services is necessary to be a going concern, there's no necessary reason not to have a variety of profit margins, including notionally negative ones. Indeed overhead costs becoming a larger and larger percentage of total costs is almost a law of capitalist development- a point I'll return to.
One way to approach this is to say that as overhead costs become a larger and larger percentage of total costs, pricing becomes more strategic and the allocation of costs to specific product lines is more and more arbitrary. Thus from a socialist point of view, the development of industry towards more and more overhead costs is a case of socializing oneself as eventually it becomes more worthwhile for the state to simply pay overhead costs and have the business continue as before.
JM: The point I was trying to make is that healthcare doesn’t actually break down into specific products. There are a lot of people engaged in a lot of cooperative activity that, in the aggregate, lead to better health outcomes. But trying to assign specific costs to specific services is arbitrary and incoherent. Pretty much your second paragraph.
NT: Yeah the confusing part to me was just I'm so deep into the costing literature that this is just a general point about capitalist development. I guess hospitals are unique in the sense that it's very labor intensive and labor is an overhead cost in this instance (basically) so the arbitrary costs being assigned is much more directly related to human activity than in other cases (where the overhead cost is machinery or at least not especially labor). but I think we can press this point more generally.
have you ever read anything about activity based costing?
JM: I agree it’s a general tendency — that was actually my point. But I think that hospitals are particularly clear examples because the overhead component is unusually large and, especially, because the division of activity into commodities is arbitrary on the consumption side as well as on the production side. Transit let’s say has comparably high fixed costs but there is a distinct individual outcome of getting from point a to point b, which you do or don’t get from the system in a pretty unambiguous way. Whereas with health care better health outcomes are only weakly linked to the particular services the individual gets.
NT: Ahhhh now I understand what you were getting at. it's not just that you can't relate specific products to specific costs it's that you also can't relate specific outcomes to specific products. thus the relation of costs and outcomes is even more tenuous. I'm so used to thinking at this from the business side that I guess i missed the consumer point- it's clearer to me when i think of the health care services as intermediate inputs and health care outcomes as the final outputs.
NT: here's a piece on activity based costing in hospitals FYI
Matt Bruenig has a post up going back to one of his favorite wells- trolling UBI critics. My first instinct is similar to Seth Ackerman’s instincts in regard to Matt Yglesias trolling: “Now, right away I know what you’re thinking: IGNORE IT, IT’S A TROLL. And obviously I know that.. As the old saying goes, ask not for whom Yggy trolls, he trolls for thee.” Like Ackerman however, I couldn’t help myself.
The problems begin with his first premise “Some argue that the UBI is bad because it would discourage work”. Of course, I’m sure you can find some UBI critic who makes this simplistic criticism. However, it is not the substance of most criticisms and it is certainly not the substance of critics like Stephanie Kelton or Pavlina Tcherneva. It doesn’t advance the substance of the ongoing (perhaps interminable…) policy debate between UBI advocates and UBI critics to attack these nameless simplistic critics of UBI in this way- well except to cast aspersions about people like Kelton and Tcherneva by associating them with this straw man. We’ll return to this point. The bottom line is, the actual criticism of UBI isn’t that it “discourages work.” The main criticism of UBI from people like Tcherneva is that UBI attempts to make it easier for people to not work using money without redistributing obligations to work to others- the way wealth does. To formulate this point as I have in other posts on this blog- to give people a property right in subsistence you need to abridge capitalist property rights and have a mechanism for equitably (not equally!!!) distributing work. Traditional formulations of UBI do not have the second two and therefore they do not do the first.
This first simplistic premise is the key to Bruenig’s whole misleading argument. “If getting income without having to work for it is bad, and wealth allows you to get income without having to work for it, then that means wealth is also bad”. The problem with wealth of course is not that it allows one to have an income “without work” but that it imposes a larger obligation to work on others undemocratically and grants them greater control over the production process. For those with wealth to be able to realize the proceeds of wealth as output, someone else has to produce output that they don’t themselves consume. Other forms of passive income- child allowances and social security for example- serve a democratically decided public purpose and are premised on the explicit or implicit obligation of “prime age” workers (as a group) to work. An equitable distribution of work does not imply that every single human must work the same amount.
This leads to Bruenig’s truly outrageous charge that the logic of “UBI Critics” is implicitly premised on the idea that the racial wealth gap is good.
“If wealth is bad in this particular way, then that means having less wealth is better than having more wealth. This is because having less wealth means you receive less non-work income and are therefore less vulnerable to the toxic effects of receiving non-work income.”
The racial wealth gap refers to a situation in the United States where Blacks and Latinos have far less wealth than Whites. Normally this is seen as bad for Blacks and Latinos. But if the argument above is correct, then that means the racial wealth gap is actually good for Blacks and Latinos because it ensures that they receive far less non-work income.
Note how what Bruenig presents as the logic of “UBI critics” is actually the exact opposite of the logic presented above. Further the logic above much more closely represents the views of the UBI critics Bruenig most routinely interacts with. From the logic above it follows that the racial wealth gap- just like the wealth gap as a whole- is bad because it inequitably and undemocratically redistributes the obligation to work to black and latinx people. Worse, this obligation to work is concentrated in the worst paying and worst condition jobs both because the lack of access to wealth creates barriers to educational attainment and because white people with control over the means of production crowd African Americans into low wage occupations (See Michelle Holder’s excellent recent book “African American Men and the Labor Market during the Great Recession”).
Further it gives white people, through their inequitable control of wealth, an undemocratic and profoundly undesirable control of the working conditions and lives of people of color up to the present day. In short, inequitable distributions of work emerge first and foremost from inequitable distributions of wealth and attacking wealth inequality- as JG advocates overwhelmingly support- is a key piece of moving towards a society with equitable distributions of work. Further, in reality many UBI critics are also for reducing work. Hyman Minsky pushed for a “4 hour workday” movement over thirty years ago. The challenge is redistributing work equitably and it is notable that creating social and democratic mechanisms for the equitable distribution of work is not part of the UBI narrative.
Like Yglesias, Bruenig knows there are holes in his argument and that they don’t apply to his most common interlocutors. The point of his post (and tweets) isn’t actually to prove his premise- which is absurd- it’s to cast innuendo and doubt about the beliefs and intentions of UBI critics. I will let the reader make their own judgement about the desirability- and frankly the ethics- of such a rhetorical posture.
It is notable that the whole conception of a general change in price level has been gradually falling into disfavor in recent years. In considerable part this has been due is the recognition of the fact that prices do not tend to move up and down together. Rather, when a general index of prices moves down, it is likely that the sensitive prices will fall very much more than the administered prices, with the reverse behavior in the case of a price rise. The whole conception of a general change in price level does not apply to such price behavior. Yet the impediment to general price changes would seem to be the presence of insensitive prices and of price administration. If all prices were “made in the market,” and therefore as sensitive as most agricultural prices, the concepts of a price level and of general price changes would be appropriate so long as the constant flux of individual price relationships to conceive of wage rates that are as sensitive as goods prices and of general changes in the price-wage level, though of course the latter conception is appropriate only to a sensitive-price economy. - Gardiner Means (Means 1947, pages 33-34).
What is inflation? The Oxford dictionary defines inflation as “A general increase in prices and fall in the purchasing value of money”. What does a “general” increase in prices mean?For that matter, what is “the value of money?”. We are so accustomed to the concept of inflation and “the value of money” that we rarely fundamentally question them. From the perspective of economic theory however, there is no prima facie compelling reason to think these are coherent theoretical concepts. This does not mean we can’t construct an index of prices, but not every index has a coherent analytical vision behind it (for a famous example, look at the misery index). The late great Fred Lee liked to say “all economic theory is product specific and price specific”. This means that a theory can only coherently explain the behavior of individual products and prices and one can’t presume it also applies to the behavior of an index. Indices can change because of all sorts of reasons that have nothing to do with the underlying dynamics explained by theories.
In traditional neoclassical theory, the theoretical edifice behind a price index is that there is one generalized “value of money” and an index of current consumer goods and services prices successfully measures it. The fundamental forces of supply and demand are supposed to determine relative prices and the quantity of money straightforwardly determines the overall price level through determining “overall” demand. These theorists presumed that you can aggregate individual product, individual firm demand and supply curves into “market” demand and supply curves. You can then put all the product demand and supply curves into a general equilibrium system where the same forces determine relative prices and thus money has no role besides as a numeraire (the famous “Hahn problem”). Thus they had a product specific and price specific theory which they assumed was aggregatable to the macroeconomic level. However, none of these steps have proven to be true ( Andrews 1964, Jo 2016, Lee et al 2004 and Moudud 2012). Thus there is no neoclassical theoretical foundations for a monolithic “general” price level.
Since there is no unitary force moving "general prices" in contradistinction to relative prices, there is no unitary value of money. There is only a range of things you can buy at different prices. Why then do we persist in treating Consumer Price indices as fundamental? Why is the same index used to adjust everything from wage contracts to social security? In other words, if effective demand doesn't determine the price level but only impacts specific prices, and only weakly at that, what theoretical meaning does a price index have? So the consumer price index grew 3 per cent faster, so what? Does that say something about the value of money in general or did 6 industries increase their target profit margins? Did product quality change significantly across a number of products important to consumers? Neoclassicals try to get around the product quality issue by “quality adjusting” price level indices. However, once you don’t have some homogeneous substance which is the “essence” of all output (whether that substance is labor time, or utility) there is no theoretical basis for such adjustments.
Using developments in Post-Keynesian theory originating with Means I would argue that an index of consumer prices fixed relative to organized exchange prices and an index of administered goods and service prices could be constructed separately in a coherent way. I would further make the case for constructing an index of tradable administered price goods and services and non-tradable ones since they behave differently (whether because of baumol disease productivity factors or because non-tradable goods face localized and more geographically concrete competition). However, the reason to construct these indices isn’t to claim all the prices in the index will change for the same reason but simply to say that they are more similar to each other than the prices in other indexes. Nor would we any longer be driven to claim that faster growth in one more more of these indexes necessarily says anything about the state of effective demand and thus necessarily implies that x or y macroeconomic policy is worthwhile.
It is interesting to note that Keynes in the general theory comes to a similar conclusion. He says in the greatly underrated chapter 4 that, “...the well-known, but unavoidable, element of vagueness which admittedly attends the concept of the general price-level makes this term very unsatisfactory for the purposes of a causal analysis, which ought to be exact”.This leads to one of the greatest statements on quantitative analysis ever made:
To say that net output to-day is greater, but the price-level lower, than ten years ago or one year ago, is a proposition of a similar character to the statement that Queen Victoria was a better queen but not a happier woman than Queen Elizabeth — a proposition not without meaning and not without interest, but unsuitable as material for the differential calculus. Our precision will be a mock precision if we try to use such partly vague and non-quantitative concepts as the basis of a quantitative analysis
This is a well known set of issues; yet strangely heterodox economists have not really taken it up. You can still find plenty of heterodox economists uncritically speaking of “inflation”. A fruitful avenue of future research would be reorganizing data to be coherent from a heterodox economics point of view. From here we can ask what different policy implications would heterodox economists derive from multiple price indices, including multiple indices of asset prices?
Andrews, P.W.S. 1964, On Competition in Economic Theory, Macmillan & Co Ltd, London, and St. Martin’s Press, New York.
Jo, Tae-Hee. "What if there are no conventional price mechanisms?." Journal of Economic Issues 50.2 (2016): 327-344.
Lee, Frederic S., and Steve Keen. "The incoherent emperor: a heterodox critique of neoclassical microeconomic theory." Review of Social Economy 62.2 (2004): 169-199.
Keynes, John Maynard. 1936. The General Theory of Employment, Interest and Money. London: Macmillan.
Means, Gardiner Coit, Warren J. Samuels, and Frederic S. Lee. A monetary theory of employment. ME Sharpe, 1994.
Moudud, Jamee K. "The hidden history of competition and its implications." Alternative Theories of Competition: Challenges to the Orthodoxy 14 (2012): 27.
We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain Inalienable Rights, that among these are Life, Liberty and the pursuit of Happiness
JW Mason’s talk at Left Forum last month was an excellent guide to current political possibilities for the left.
One small criticism which doesn’t take away from the value of the talk is his use of the term “property claims” in defining Neoliberalism. He says that “neoliberalism is a radical, utopian project to reshape all of society around markets and property claims”. The legal analyst in me would like to nitpick (which is not very important to his point but very important to a legally informed heterodox political economy) that nearly everything is about property claims in a western legal system and that dynamic vastly predates neoliberalism. In fact, the transition from Feudalism to Capitalism is in large part the product of the elimination of communal property claims on public lands and subsistence property claims on putatively “private” lands (called Profit-à-prendre or the “right of taking”).
It is common on the left to speak of private property rights when they mean “alienable property rights”, or more specifically, “capitalist property rights”. I think it is important for the left not to accede to this framing. Property rights are always in fact imposed obligations on others to respect those rights (This is for you Hohfeld heads out there). After all, property rights are decidedly not one’s relation to things but one’s relation to other people in regard to a thing (or a concept for that matter). Thus what are typically described as “property rights” is really the maldistribution (and the “bundling”) of property rights. Thus when we abridge capitalist property rights in large and small ways we aren’t taking away property rights but redistributing them and reducing the imposed burden of maldistributed property rights. Rent control doesn’t “reduce property rights”, it gives a renter a new property interest in an apartment (or storefront) than they did not previously enjoy. The difference is that this new property right isn’t for sale.
I think this example points the way to a third pillar of a left political economy beyond conscious, non-market planning and the democratization of planning apparatuses. This third pillar is “Inalienable Property Rights” but could also be called absolute economic rights. What distinguishes the left’s “end vision” from Neoliberalism is we want to gradually end the alienability of certain property claims and expand the amount of inalienable property rights enjoyed equally by every individual. The end goal of course is a comprehensive suite of inalienable rights to health care, housing, self-expression, freedom of movement, participation in production, material subsistence, procedural and substantive justice, et cetera. It is extremely doubtful we can get close to such an array of inalienable rights under capitalism but we have no alternative than to try and get as close as we can. This is, after all, the essence of class struggle.
I will expand more in a future post but worth noting that this is one motivating factor behind my preference for a Job Guarantee over a Universal Basic Income. Job Guarantee advocates (rightly or wrongly) think that with enough struggle it is possible to give individuals an inalienable property right in a job, broadly defined. This is inspired by an argument that emerged in the 1960s that welfare benefits should be treated as a property right (Morris 1968). The difficulty with UBI from this “rights based” point of view is that no similar property right in subsistence can be created using money without abridging capitalist property rights- something which most UBI proponents do not advocate. This is why I’ve argued before that “single payer in food and housing” is more workable than UBI, at least on a narrow economic level, because it directly abridges capitalist property rights (i.e. the right to sell to anyone). The priority from this point of view is granting an important inalienable right that (ostensibly, at least) can be provided under capitalism which can, in turn, create the political energy to get more inalienable rights (i.e. it is a non-reformist reform).
Beyond the “what is consistent with capitalism” debate, there is something even more controversial for leftists that follows from this argument. Guaranteeing certain rights, such to healthcare, housing, transportation or communication infrastructure, may require coercion of individuals in order to be credible. Of course, it may be possible to guarantee one or two of these things through more indirect methods such as raising wages. However, the more we socialize economic activities and restrict the ways that money can purchase power and prestige, the more difficult it is to guarantee all we want to guarantee through money. On the other hand, use values, especially with things like housing, will always be qualitatively heterogeneous. Allocating different quality use values could be a way to reward people for providing very necessary services like the production of food or medical services. At the same time, we need to clearly think about and potentially plan for the eventuality that obligations to work, whether generated through monetary taxes or direct obligations, may be something a left society of inalienable rights needs.
Of course the traditional solution on the left is to encourage people to do activities through the pride of contribution- the “new socialist man” as it were. However, this “solution” is still coercive in its own way. The dark underside of valorizing volunteerism is “people will die if you don’t get up and do this”. Work distributed via the moral force of social norms tends to be inequitably distributed to the most empathetic. This in turn leads to a disproportionate burden on women, people of color, queer people and more marginalized groups. We’ve all seen activist spaces where marginalized people are scrambling while others don’t pull their weight. Volunteerism leads to inequitable distributions of work, and not on “from each according to their ability” basis . Many leftists don’t see this is as coercive-to the contrary, historical examples of small scale stateless societies are regularly venerated by parts of the left. While these societies may have much to teach us, it is delusional to think that their norm enforcement mechanisms (e.g. communal pressure, expectations, and tradition, along with the implicit threat of expulsion) are not extremely coercive.
For example, communal pressure is often presumed to be much more benign and harmless than it actually is because it doesn’t resemble the brutal forms of formal coercion we’re used to from the history of nation states and capitalism. Thus it’s easy to paint those of us concerned with these types of more informal coercion as “authoritarians” because we think the burden of work should be distributed equitably through explicit, formal coercion. I would argue however that if we’re going to build a truly sustainable left society we need to ensure we don’t accidentally build the foundations of our new world on what may end up being unacceptable and unmanageable institutions of coercion . Cities have historically played a very real, very freeing function for many people, not only because urban anonymity allows us to interrogate, challenge, and subvert the identities previously assigned to us by our immediate communities, but also because in place of informal customs and norms they substitute explicit, formalized rules of social engagement that we can dependably rely upon to structure our interactions with people we know and don’t know alike. In our quest to make a better world we should be mindful not to sacrifice these gains.
To sum up, the debate over freedom and property is a debate the left is much more well situated than is commonly realized. Capitalist property rights are not the totality of property rights and we need to get more comfortable with asserting that ordinary people should have an array of property claims on society in order to create true freedom and human flourishing. The rallying cry of inalienable property rights has the potential to be powerful. However, a corollary that may make the left uncomfortable is that inalienable property rights may need inalienable obligations in order to succeed.
Hohfeld, Wesley Newcomb. "Fundamental legal conceptions as applied in judicial reasoning." The Yale Law Journal 26.8 (1917): 710-770.
Morris, David. "Welfare Benefits as Property: Requiring a Prior Hearing." Administrative Law Review (1968): 487-506.