SO478 - week 1

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These are my notes from September 26 for SO478 at the London School of Economics for the 2017-2018 school year. I'm taking this module as part of the one-year Inequalities and Social Science MSc program.

The usual disclaimer: all notes are my personal impressions and do not necessarily reflect the view of the lecturer. Feel free to email me (ilostwaldo, gmail) with any questions or corrections.


Introduction

Reading

What’s wrong with inequality? – The Conversation

In short: we should maximise the well-being of the least well off, just in case that happens to be us one day (mentions Rawls’ theory of justice). We do need some (I assume material?) incentives to ensure that people do the difficult jobs, but they should not result in unmanageable inequalities. The main thing to realise is that inequality can prevent people from making full use of their opportunities, which results in inefficiency. In that vein, a slightly higher rate of growth should not be enough to justify too much inequality.

Defending the One Percent by N. Gregory Mankiw

I hadn’t actually heard of Mankiw before, so I came to the paper with pretty much a blank slate in terms of preconceived notions, and I left absolutely hating it. Reading this paper was a very infuriating experience. Basically, this guy is an economist at Harvard who also happens to have very strongly conservative views, which are extremely evident in this paper. Like the paper is covered in the stains of his centre-right ideology and fetish for the profit motive. I have much worse things to say about the paper but I’ll spare you the bulk of them. I took copious notes while reading this and considered trying to type them up, but I think that would make me too angry. I can’t fight him on his own turf (i.e., by addressing his arguments from an economic angle) because I’d have to first accept his axioms about what is “good” and “fair”, and I don’t.

Instead, I’ll just say that the paper completely ignores the role that cultural hegemony plays in maintaining capitalist realism, and thus ignores the possibility that things can change. I believe it is possible for us to transition to a culture where the profit motive is disregarded and we don’t value things solely based on financial considerations; in fact, we’re already there in some small ways. The Mammon-worshipping world that serves as the context for his arguments not only fails to adequately describe our world today, it is also not the world most of want to live in, and, with any luck, we’ll figure out how to build a much better one, with or without the assistance of Dr. Mankiw.

The 4 biggest reasons why inequality is bad for society – ideas.ted.com

A much more relaxing read. 1) Wealthy people have power over the poor, which undermines their personal liberty; 2) Political institutions are weakened; 3) Inefficiency stemming from intergenerational inequality which itself suppresses equality of opportunity; 4) Paves the way for a legitimation crisis (the article doesn’t use that specific phrase but it’s a nice Habermasian way of putting it).

Inequality by Anthony B. Atkinson (chapters 1-2)

I’ve read this book before (and saved some passages I found interesting in Bookmarker) but it’s been a while so I figured I’d re-read the first two chapters to refresh my memory. The book is a little too light on the mechanics of capitalism for my liking, but he does a good job of talking about the softer economic and moral arguments against inequality (both of outcome and of opportunity): it prevents merit from being fully realised, and thus destroys social cohesion. He provides a good overview of various methodological approaches to measuring inequality and the caveats associated with each.

Global Inequality by Branko Milanović (chapter 1)

Compared to the Atkinson book above, I thought Milanović went deeper into the larger economic factors that affect inequality, which I appreciated. He talks about neoliberalism and how, as a result, the biggest benefactors of globalisation have been the rich—not necessarily because of anything inherent to globalisation, but because it has been manipulated to protect the interests of the ruling class. Some interesting points on the effects of the financial crisis on the top 1% (many of whom lost money during the crisis but have since managed to gain it all back, roughly speaking) and the consequent rise in global asset prices.

Capital in the Twenty-First Century by Thomas Piketty (chapter 5)

The book that everyone who wants to seem erudite has on their bookshelf but that no one has read. (I haven’t read it either.) Covers the economic approach to inequality—the political elements are, for the most part, neglected in favour of expounding on the structural economic features that can lead to greater inequality. This chapter is primarily is about the capital/income ratio (which Piketty defines as β=s/g, savings over growth). In the golden age years, income was growing faster than wealth, but around the mid-70’s, wealth start to outpace income growth and so it began to pile up, which had the predictable consequence of reversing inequality trends. This chapter is a lot more technical and focused than the other readings (which makes sense, considering it’s a 600+ page book). Some topics covered: asset bubbles, dividends being taxed more than capital gains (providing an incentive to reinvest), foreign asset ownership, and financialization (which he defines by the value of assets rising more than net wealth).

Lecture

Given by Professor John Hills from the Department of Social Policy at LSE.

Various graphs showing economic inequality from different perspectives (mostly income, but a few for wealth). We all already know most of these stats, all of which support a terrifying narrative: that the top 1% own a staggering amount of wealth (and that share is increasing). Hence why we’re all here.

Some topics covered:

Seminar

For the seminar, we were arbitrarily divided into two groups to facilitate a debate on inequality. I was put in the “inequality is good” camp, and my main contribution consisted of putting my Extremely Capitalist hat on and taking that approach to its logical conclusion. To wit—inequality is good because we need some level of (economic) inequality to enable capitalism to function. We need a reserve army of labour to discipline labour. We need people who are unemployed, or underemployed, in order to keep the system politically stable: workers need to know that there are myriad others who would be happy to take their job should they ever slack off. If we want to ensure that people continue to go to jobs they hate, we have to give them something to fear, in the spectre of homelessness and starvation. They need to remain willing slaves of capital. Any attempts at alleviating inequality through making poverty less brutal are bad for capitalism–anything that might empower labour is bad for capital, and so capitalism itself is undermined. And we should make capitalism the telos of our existence.

This is an argument that I have never heard anyone seriously make but that appears to drive a lot of policy decisions, if only subconsciously. To clarify, I think it’s a stupid argument, with the last line being the crux of my proof by contradiction—the axiom that we should put capitalism first, that we should enshrine a system we have constructed over the very thing that system was constructed to serve, is clearly patently absurd. But it’s (imo) at the root of a lot of defenses of the economic system as it is now, so I think its important to understand.

I was then asked, very sensibly, what I thought of the fact that capitalism is destroying our planet. To which I replied: well, who really cares, we can just invest in space travel and move on to a new planet. I call this the Elon Musk approach to capitalist apologetics.

Some other arguments in favour of inequality included: it drives innovation and growth (a more palatable version of my point); it’s part of human nature and so there’s no a priori reason we need to get rid of it; it’s only fair that people be materially rewarded according to their contributions. The arguments on the other side came down to either the practical (too much of it results in inefficiency or loss of social cohesion) or the moral (appealing to the intrinsic human right to self-determination or principles of equality).

It was a fun exercise, but it soon became clear that the two sides were focused on two very different questions: the “inequality is good” people seized on the downsides of trying to eradicate inequality, whereas the “inequality is bad” people extolled the virtues of reducing inequality. Which, I think, sums up the standard arguments for and against inequality. Those who don’t like the idea of reducing it tend to characterise their opponents as trying to get rid of it entirely, whereas many of them would probably be happy with just a little less of it. Of course, this raises the question of whether there is an acceptable level of inequality, and how you could either define or collectively decide on it. I don’t know. Personally, I like to think of absolute equality as this asymptote we know we’ll never reach but should still keep moving towards. Kind of like how you know that your house will never be completely clean but that doesn’t mean you should stop cleaning it.

If I were on the “inequality is bad” side, but still wanted to frame my argument in economic terms in order to appeal to those who don’t care about inequality for moral reasons, I would take the obverse of my argument from before. Namely: if we want to maintain the legitimacy of capitalism, we need to prevent it from undermining itself via its internal contradictions. Capitalist ideology simultaneously impugns the idea of public services and taking care of the weakest members of society while still benefiting from it, in the provision of willing workers and consumers. All the ostensibly anti-inequality redistribution that goes on now is actually just propping up the capitalist system as such—instead of actively reducing inequality, its goal is to keep it at a safe level such that capitalism can continue along its rails. Those who are pro-capitalism but anti-inequality reduction are suffering from a level of cognitive dissonance: they clearly do not understand the long-term consequences of their actions, not just in terms of infringing on people’s quality of life but in terms of (possibly irreparably) damaging the structure of capitalism as a whole. If you make things bad enough, eventually people will prefer a violent revolution or even just death to the way things are, and if you’re not actively trying to make things better, you are walking a very dangerous tightrope, simply because the tides of capitalism are constantly pushing us toward the shore of greater inequality. So there needs to be a very delicate balance in terms of inequality for capitalism to survive, and the current state of inequality has us in danger of falling off the tightrope. (The real question is whether falling off the tightrope now—by means of pushing inequality to its extreme—is better in the long run if it brings up the social upheaval needed to radically transform the system. I’m not sure how I feel about that yet, but I do know that as a mortal being I find it hard to think about “the long run” when I know that I probably won’t be around to see what happens.)

In the end, I think my ideological opposition to inequality comes from wanting to look at the system from first principles: what is the economy for? What do we want it to accomplish, and how much has the current iteration of it drifted from that original purpose? After all, all the systems (economic and otherwise) that we’ve built are just an attempt at figuring out the best way for us to live our fleeting lives while peacefully coexisting with each other. They are means to an end, not an end in themselves. We would do well to remember that more often.