Economics for a Civilized Society

Greg Davidson, Paul Davidson

• Publisher: Routledge
• Year: 2016
• ISBN:
  9781134902460
• Edition: 1
• Topic: Business
• Subtopic: Business General
• Index: Business

This collection includes translated works by Japanese women writers that deal with the experiences of modern women. The work of these women represents current feminist perception, imagination and thought.

1 In Pursuit of Civilization

A conservative philosophy of economics has dominated the political agenda of the 1980s and 1990s. This philosophy can be epitomized in the following question: What’s the difference between love and prostitution? If we asked this question of those whose economic philosophy shaped American politics in the 1980s and 1990s, the answer is that prostitution is a valuable service that some people are willing to pay for, while love is not for sale and therefore is worthless. This philosophy of market valuations provides the basis for all values in conservative economics.

Conservative economics focuses exclusively on one of the two major types of human motivation: self-interest. Unfortunately the other source of human inspiration – what we refer to as civic values – is locked out of the conservative economic framework. Consequently, when debating national policy we can compare the costs and benefits of prostitution, but are blind to the importance of love.

Nations are built on the motivating forces of both self-interest and civic values. When self-interest and civic values are combined, they reinforce each other so that a nation can enjoy both prosperity and justice. Difficulties arise when society is governed by only one of these two forces because you can’t buy justice in the marketplace, and similarly, you can’t build prosperity on civic pride alone. A prosperous civil society combines self-interest and civic values so that the citizens may reap the benefits of each.

Unfortunately, in the last twenty-five years, we have come to view the nation’s future in terms of choices between these competing parts of our heritage; self-interest or civic values. Liberals and Conservatives have each adopted a fragment of the national heritage as the centrepiece for their economic policies; social values for liberals and ‘the bottom line’ of self-interest for conservatives. As the political pendulum has swung, the policy choices that the nation has offered have, at best, provided improvements in one sphere at dreadful costs in the other. The liberalism of the Great Society programmes of the 1960s sapped the incentives behind the profit motive, just as the politics of self-interest in the 1980s and 1990s eroded and degraded civic values.

Unemployment and inflation are both evils. To deny jobs and income to those who want to work, that is, to promote unemployment in order to combat inflation, violates basic civilized values. To permit inflation, on the other hand, undermines the wealth earned by individuals acting in accordance with their own self-interest. Liberals see the civic need for a fully employed society, even if this causes inflation and thus devalues the accumulated assets held by the wealthy. Conservatives, on the other hand, demand that inflation be stopped, even if this means that some people lose jobs and businesses lose profits as a result.

For more than two decades, the tragedy of economic policy has been the conventional wisdom that it is necessary to create sufficient unemployment to constrain inflation. The power of the anti-inflation (or pro-unemployment) philosophy was demonstrated as recently as early 1994. Policy makers at the Federal Reserve decided that inflation was a major threat since unemployment declined to 8.5 million workers (or 6.5 per cent of the labour force) in February 1994 from 9.4 million workers (or 7.4 per cent of the labour force) in 1992. These Federal Reserve policy makers (including two Clinton appointees) believed that it was more important to depress the growing economic prosperity to fight inflation than it was to continue growth in profits and jobs. The Federal Reserve raised interest rates to slow growth and reduce economic opportunities for the unemployed who earnestly wanted to work. This conservative approach is based on a false premise – namely that it is impossible to maintain a prosperous full employment society that is also protected from inflation.

A NATURAL RATE OF UNEMPLOYMENT?

The view that a free market society requires a significant portion of its population who want to work to remain unemployed has its origin in the Marxian notion of the need for an ‘industrial reserve army of the unemployed’ to keep workers in their place. In its recent conservative manifestation this industrial army of the unemployed has been resurrected by conservative economists under the less-emotive appellation of the ‘natural rate of unemployment’.¹

The concept of a natural rate of unemployment provides justification for Federal Reserve Policies that raise interest rates and encourages our government to move towards a balanced budget before full employment is achieved. Those who champion this natural rate concept are essentially claiming that it is bad for our society if businessmen hire more unemployed workers when market conditions provide profit opportunities for producing more output. This natural unemployment rate argument states that, by reducing the ranks of the remaining unemployed in response to possible profit opportunities, these self-interested businessmen will cause the economy to ‘overheat’.

The ‘natural rate’ advocates argue that the Federal Reserve must destroy potential profit opportunities by raising interest rates whenever entrepreneurs hire a sufficient numbers of workers to reduce unemployment below its natural rate. It is better to keep more than 6 per cent of American workers unemployed than to hire them and in so doing make them productive, income-earning, tax-paying members of society. (The worldly wisdom of the policy makers at the Bank of Canada is that it requires 9.5 per cent of the employable labour force in Canada to be unemployed to contain inflation. Double-digit unemployment rates are also the prevailing wisdom of the natural unemployment rate of policy makers in most of the nations that make up the European Community as well.)

If some proportion of workers who want to work to earn income are required to be perpetually unemployed, then they must either starve to death or live as ‘parasites’ off government entitlements and/or private charity. The social welfare net of entitlements has permitted many governments to maintain the mask of civility while consigning a significant proportion of the working population to a standard of living below what a fully employed economy could afford.

If we eliminate welfare as we know it in order to help balance the budget and to force the unemployed to look for jobs that do not exist because of policies specifically designed to maintain a natural unemployment rate, and if private charities do not replace these entitlement payments, dollar for dollar, then only three alternative scenarios are possible.

First, unable to obtain any form of income maintenance, the unemployed will slowly starve to death. As they die, the rate of unemployment among the surviving members of society will fall below the critical unemployment rate value. To prevent inflationary overheating, the Federal Reserve will then be forced to destroy additional profit opportunities so that businessmen, facing slack markets, will discharge enough previously employed workers to refill the unemployment ranks to the amount necessary to maintain a natural rate. Under this scenario of ‘starving the unemployed’, additional employed survivors must be continually sacrificed to maintain unemployment.

Second, the unemployed can attempt to compete with the employed by lowering their wage requirements and/or improving their skills. If, however, the system always requires a significant portion of the population to be unemployed to prevent overheating, the newly employed will gain their jobs at the expense of the previously employed. Job search will merely be a game of musical chairs where the Federal Reserve undertakes to assure there are always fewer chairs than players.

Third, those who are cast upon the trash-heap of the unemployed without entitlements, may decide that it is in their self-interest to create an illegal entitlements system, i.e., to steal from the employed, rather than quietly starve to death. If, as the crime rate increases, society’s response is to incarcerate these criminals, then the result will be more spending on entitlements for food, clothing, and shelter via prisons and orphanages. If, instead, society decides to expand the death penalty rather than locking up such criminals, and if we are successful in catching them, then the result will be to reduce the rankings of these unemployed more rapidly than under the first ‘starving the unemployed’ scenario. This will force the Federal Reserve to raise interest rates all the more rapidly to replenish the unemployment rate.

There are other possible policies that do not require a permanent army of unemployed and starving paupers to achieve a prosperous inflation-free economy. These alternatives hold greater promise for a civilized society. Our argument is not that the current safety net system to keep these paupers alive is desirable. Rather it is that a civil society can, and must, develop policies to assure employment for all and thereby deplete the army of paupers. Only if we accept a barbaric system that requires that we deliberately keep more than 6 per cent of the labour force unemployed, then, for both ethical and practical reasons, society must take care of the unemployed. It is cruel to develop welfare policies that punish the unemployed under the guise of motivating them to work, if, simultaneously, policy makers operate under the presumption that we must keep more than 8 million Americans unemployed. The best welfare system is to end the problem of unemployment and assure that everyone who wants to work for a living has an opportunity to do so. The best way to end welfare as we know it is to create the opportunity for every unemployed person to work their way out of poverty to the dignity of being a productive member of a civil society.

CIVILIZING CONSERVATISM

A few economists have advocated civil policies that do not require a permanent army of unemployed to achieve a prosperous, inflation-free society. To develop the discussion of these policies we must first understand the economic principles of a civilized society. Considerable progress in reducing the twin evils of unemployment and inflation can be achieved if we are willing to go beyond the choices posed by liberal or conservative economics alone. To fight unemployment and inflation we must make use of both self-interest and civic values in our economic governance. Until we adopt economic principles based on both self-interest and civic values, we will be doomed to political trade cycles of economic decline and social injustice interspersed with periods of relative prosperity. The transitory economic triumphs, if any, of any one Presidency or Congress will merely inflame the problems of the next. Since World War II, fleeting victories convinced first Liberals and then Conservatives that their hour of triumph paved the way towards a brighter future. The only constant has been the slow erosion of the resources and the economic greatness of America and the free world to deliver a growing prosperity to all members of our global civil society.

As a result of inconsistent and increasingly conservative governmental policies, we have witnessed a decline in our civilization, both as individuals and as a nation. The right to vote, which is surely one of the most basic foundations of our democracy, was exercised in the 1994 US elections by less than 40 per cent of registered voters.

The duty to pay taxes has eroded to the point where a third of the US population avoids paying their full share. In April 1995 (on the hundredth day of the Conservative Congress lead by Speaker Gingrich) the media implied that tax avoidance was socially acceptable (if not quite desirable) when it noted that about two dozen American billionaires would rather give up their American citizenship than pay an estimated $1.4 billion in taxes to the nation that gave them the opportunity to earn their billions. In order to replace the taxes that rich expatriates and others who do not completely comply with the tax law, the tax burden on honest taxpayers is more than eight per cent higher.

As a nation, we have lost the ability to cope with inflation without resorting to barbaric policies that work only if a significant portion of our population remains unemployed. We have accepted the notion that the working poor and the unemployed not only deserve their fate, but that they are to be blamed for it (as if only a character flaw could keep a person out of work and in poverty). We have watched the breakdown of one of the best accomplishments of American civilization, the post-World War II international economic order, without even a lingering memory of why we helped create it.

As our civic institutions erode, we lose our defences against the dangers that the passage of time may bring. History is filled with the wreckage of nations that did not realize the importance of maintaining their civilization until it was too late. The greatest danger facing any civilization is when its people forget the value of their own culture and institutions. When the Roman Empire fell to Attila in ad 453 the Huns were better educated and possessed the more civilized government; and the core of Roman society had already collapsed. Most great nations in history have eventually lost the spark that made their civilization great, and there is no reason to believe that America or any other democracy in our global economy can avoid this fate – but the more we understand the importance of civic values in our own lives, the more likely we are to maintain them.

Where does this hope come from? In the twenty-five years after World War II the United States did experience unprecedented economic prosperity in concert with a vibrant and progressive civic society. The benefits of economic competition were achieved in harmony with the benefits of civic and social values, and that prosperity helped propel most nations of the world along the same path of economic growth.

Today, the conservative philosophy has captured a position of media prominence, but civilized government still continues to be practiced in many places. For example, Thomas Peters and Robert Waterman’s In Search of Excellence identifies a number of corporations which have successfully mixed organizational values with the pursuit of profit. In some of our political institutions there still remains a spark of civic spirit enlightening government combined with market incentives. For example, Title 4 of the 1990 Clean Air Act permits electric utilities that undertake to reduce significantly their sulphur dioxide emissions to reduce acid rain in the Northeast to earn marketable pollution rights that they can sell to other utilities who can not or do not undertake similar sulphur dioxide reductions. The effect is an overall reduction in regional acid rain, where the civic-minded utility receives some extra income as well.

A civilized society shows compassion and caring for all members of the community. It nurtures sensitivity to the needs of others and the desire to deal honestly and openly with all. A civilized society provides the opportunity for all to earn a livelihood, while it encourages excellence in all endeavours that people undertake independent of the monetary rewards for such activities.

A society which requires some members of the system be denied the sharing of economic gains and community participation in order for the economy to function is uncivilized. Economic policies that require certain groups in society be denied employment and a livelihood in order to discipline an inflationary economy are uncivilized. To base social prosperity on the hardship of others is a barbaric philosophy of government.

If a nation can thrive only on the hardships of some groups, it can not be called civilized – especially when the society is wealthy and has the capacity to produce far more goods and services than it currently does. Yet, some very influential bankers, financial writers, economists, and politicians have declared that unemployment is ‘the price you have to pay for bringing down inflation’, while others suggest that unemployment is ‘part of the cure, not the problem’.

We often think of either self-interest or civic values as the important determinant of human behaviour, but too little attention has been focused on what happens when dollars and duty interact. To discuss the design of civilized public policies, we must first examine the analytical and philosophical views of those who advocate a system based solely on self-interest as well as the views of those who attempt to enlist civic values to help achieve specific policy objectives.

We recognize that our book is not the first to call attention to the limitations of self-interest as a governing mechanism for society. For example, under the communitarian banner, sociologist-economist Amitai Etzioni has organized a group to publicize the flaws of the paradigm of self-interest. Our argument, as developed in Chapter 3, does not focus merely on the limitations of the conservative argument. Rather it is based on a fundamental analytical distinction between the external incentives which motivate self-interest behaviour, and the internal incentives which motivate more complex social behaviour, such as loyalty, responsibility, the pursuit of excellence, love, and compassion. This concept of internal incentives permits us to investigate in some depth the nature of civic values and how these, when combined with self-interest, can provide civilized principles for improving our economic environment.

Chapter 4 provides a perspective on why conservative economists, whose analysis rests on self-interest as the sole motivating force, tend to provide advice which rarely works and is almost always uncivilized. Chapter 5 discusses the advantages and disadvantages of both a pure laissez-faire market system and a centrally planned system that is only oriented on civic values.

The remaining chapters will then develop a civilized approach to some specific major economic problems facing our nation as we approach the twenty-first century.

As may have become clear already, we are consciously making a distinction between liberalism and conservatism with which some conservatives (as well as some liberals) may not be comfortable. Some conservatives, such as the economist Milton Friedman, trace their philosophy back to that which went by the name of Liberalism in the eighteenth- and nineteenth-centuries. They see themselves as the ‘true’ liberals, in contrast to those who have stolen the title to serve quite antithetical ends. Friedman writes that ‘the intellec...

Table of contents

• Cover
• Half Title
• Title Page
• Copyright Page
• Dedication
• Table of Contents
• Preface to the First Edition
• Preface to the Second Edition
• 1 In Pursuit of Civilization
• 2 The Demise of Liberal Economics and the Emergence of Conservatism
• 3 The Political Economy of Civilization
• 4 What’s Wrong with Economists?
• 5 The Entrepreneurial Market System vs. State Socialism
• 6 Why Taxpayers Pay their Taxes
• 7 The Basic Problem of an Entrepreneurial System: Unemployment
• 8 Unemployment Develops because Money doesn’t Grow on Trees
• 9 Fighting Inflation: Controlling the Money Supply vs. Buffers and Tips
• 10 Policy for a Civilized Global Economy: Whose International Debt and Currency Crisis is it Anyhow?
• 11 A Final Summing Up
• Sources and References
• Index