Matt Yglesias is Reinventing History

Matt Yglesias and I certainly do read history differently.  He writes recently in a Salon article:

The basic economic foundations of industrial capitalism as we've known them for the past 150 years or so have an activist state at their core. Building political institutions capable of doing these things properly is really difficult, and one of the main things that separates more prosperous places from less prosperous ones is that the more prosperous places have done a better job of building said institutions. There's also the minor matter of creating effective and non-corrupt law enforcement and judicial agencies that can protect people's property rights and enforce contracts.

The point is, it takes an awful lot of politics to get an advanced capitalist economy up and running and generating wealth. A lot of active political decisions need to be made to grow that pie. So why would you want to do all that? Presumably because pie is delicious. But if you build a bunch of political institutions with the intention of creating large quantities of pie, it's obviously important that people actually get their hands on some pie. In other words, you go through the trouble of creating advanced industrial capitalism because that's a good way to create a lot of goods and services. But the creation of goods and services would be pointless unless it served the larger cause of human welfare. Collecting taxes and giving stuff to people is every bit as much a part of advancing that cause as creating the set of institutions that allows for the wealth-creation in the first place.

This is counter-historical crap.  Unfortunately, my real job is taking all my time today so I can only give a few quick responses rather than the thorough beating this deserves

  1. Capitalism is not a "system."  It is an un-system.   It is an order that emerges from individuals exchanging goods and services to their mutual self-interest.  While it requires a rule of law, those rules can be exceedingly simple -- at their core they are "don't deal with other people via force or fraud."  Sure, case law can be complex - what happens to a land deed that has one boundary on a river when the river moves.  But I don't think this is what Matt is thinking of.  
  2. Yglesias is following the typical socialist-progressive line that our modern wealth creating capitalist economy was somehow created by the government.  I am sure this line works with the low information voter, but that does not make it any more true.  Industrial capitalism arose long before the government even acknowledged its existence.  The US economy was generating wealth - for everyone, rich and poor - long before politicians stuck an oar into the economic waters.  Go back even 85 years and you will not see anything in the "political economy" that would be recognizable to a modern progressive.  In other words, the wealth creation came first, and then the politics came second.
  3. Again we see this bizarre progressive notion that wealth creation is this thing apart, like a water well in the desert.  Income distribution in this model is a matter of keeping the piggy rich people from hogging all the water.  But in a free society, the economy and its gains are not separate from people, they are integral to the people.  Gains are not somehow independent variables, but are the results of individual gains by each person in the system.  People operate by mutual self-interest.  When I work for you, I get a paycheck, you get your products made -- we both gain.  Steve Jobs grew wealthy selling iPads, but simultaneously my iPad made me vastly better off.
  4. It is wrong to say that all distributions of wealth are arbitrary.  In a free society, there emerges a natural distribution of wealth based on people's exchange with each other.  And contrary to the progressive mythology, that system was floating all boats, not just the rich ones, long before the government gained the power to redistribute wealth.  Yglesias is right in saying that income distribution in a progressive political economy is arbitrary.  In fact, income in any government-managed economy is distributed arbitrarily to whoever can gain power.  I am always amazed at progressives who somehow have this vision that there will be some group of people with absolute power who wukk make sure there will be a flat and equitable income distribution.  When has that ever happened?  Name even a single socialist country where that has happened.
  5. What political decision has ever been made the grows the pie, except perhaps to keep the government's hands off pie creation?  When "political" decisions are made to grow the pie, what you actually get is bailouts of Goldman Sachs, wealth funneled to connected billionaires like Elon Musk, and Solyndra.  Politics don't create wealth, they are a boat anchor lashed to the wealth creators.  The only thing politicians can do productively is make the boat anchor lighter.
  • Krishnan K Chittur

    There is no bridging the gap ... In their minds, if an economy works (i.e. when THEY say it works) the Government takes all the credit - and when it fails, the private sector is to be blamed. The market exists because GOVERNMENT said so and created it - ... there is simply nothing anyone can write that would convince regressives of the power of the marketplace, individual initiative, risk taking by entrepreneurs - they imagine that no matter what, the ones that produce will keep producing and take the abuse - and when they do not, they are anti-social and anti-people and so on ... Ph.D - Piled High and Deeper - that is the meaning of many of the degrees these academics hold

  • NL7

    Capitalism, markets, entrepreneurialism, whatever you call it, is a set of behaviors that naturally flow from human beings existing. Although honest rulemaking can aid in the development of complex commercial interactions among multitudes of stranfers, for the most part governmental rules exist to quash the market impulses of the citizenry. Prisoners invest in production supplies to make shanks and wine, children swap baseball cards or legos, and cavemen traded pelts for bone knives. It's really difficult to stamp out the human impulse to invest, create and trade.

    So while I'll agree that relatively non-corrupt institutions like courts and currency can be helpful to commerce, it's seriously misleading to act as though they create commerce. In the absence of honest police and courts, merchants just develop their own security forces and have to work within their own defined rules - look at the Hanseatic League, the Silk Road, or whatever else. Early merchants used special certificates in place of cosmpolitan currency, just like modern checks. People always want stuff and they were willing to invest and trade to serve that desire thousands of years before police cruisers or wire taps or Motions for Summary Judgment. Honest legal systems are probably fairer and more efficient than some of the previous substitutes (which were often used to defend oligopolies) but that's a complement of broader commerce, not a requirement.

    Of course, the broader problem is assuming that selling products to people is not sufficient access to the "pie." Walmart lets me buy their stuff with the understanding that I pay for the work of all the people involved in its production and transportation, and McDonald's lets me have my choice of hot food within a minute of desiring it. I have access to countless services on the Internet and in any major US metro area. I'd say our access to the pie is substantial.

    Sure, some people have less access to material wealth than others. If you're a redistributionist, who simply believes a priori that needing and wanting stuff is the same as deserving it, then I can see why you'd want higher taxes. But there's nothing wrong with asking people who use stuff to pay for it.

    If we really want to look at the big picture of society, which this entry seems to intend, then let's consider all the people in prison. Something like 3% of the US population (7M people) are incarcerated or under judicial supervision right now and many more are carrying criminal records. They have radically reduced access to the bounty of society while incarcerated, moderately reduced access to societal resources while under probation or parole (e.g. reduced ability to cross state or county lines to access services or goods), and difficulty finding employment or securing investors while bearing criminal records. Somebody who really wants to broaden the access of the poor and disadvantaged to the wealth of society should focus on criminal justice reform. Repealing drug prohibition, legalizing victimless crimes, and drastically reducing incarceration and probation for other offenses would have the effect of improving the material well-being and economic standing of millions of Americans going forward. They could have freer access to move around, find jobs, start businesses, and enjoy the pie.

  • SamWah

    Liars just do that so well!

  • mesaeconoguy

    Yep, absolute horseshit.

    This guy is dumber than Kevin Dumb, which is saying quite a lot.

    It would take literally hours to unwind this moron's stupidity, especially the gratuitous pie bit.

  • Mark Liveringhouse

    I am a free market advocate just like most of you here. But, let me make the conservative case for the (a) welfare system. The fact is there exists in almost modern developed nation a large group of what can only be classified as surplus labor. This group of people cannot sustain themselves economically in the modern world. There are a lot of reasons for this, but they are not important and for the most part cannot be changed.

    In the "olden days" this group of people lived short, miserable lives. They were consumed by infectious diseases like TB, typhus,polio, malaria, influenza, yellow fever, and other factors like child birth and simple malnutrition. If they did not succumb to these illnesses they lived hand to mouth subsistence lives on the frontier or in the inner ghettos of the expanding urban areas, and even then they did not live long lives.

    Modern medicine, nutrition, and other factors now allow these groups of people to live long lives. There really is not much that society can do for this group and most social policy has simply made the situation worse. What conservatives need to recognize, and in reality we have made this recognition, is that the welfare state is simply a cost of doing business. With this understanding we can play a part in making it as efficient as possible with significant political participation. But, by wanting something that is politically impossible means that you will not have any political power and cede the ability to make decisions to a group of people that use the welfare system to further enhance that power.

  • obloodyhell

    }}} Prisoners invest in production supplies to make shanks and wine, children swap baseball cards or legos, and cavemen traded pelts for bone knives. It's really difficult to stamp out the human impulse to invest, create and trade.

    Communism/Collectivism certainly does a wonderful job.

    And the Oriental Mode of Production (aka a "Water Monopoly Economy", or a "Hydraulic Empire") -- which is where we are headed -- does a remarkable job of killing all that gets produced. It succeeded in keeping one of the most inventive and hard working peoples of the world locked in place for millennia:

    "Marxist truth!", sneered Skashkash. "Marx himself didn't believe it!"
    "[Prove it!]"
    "Very well," replied Skashkash. "First, Karl Marx held two values above all others -- the revolution and scientific truth. Second, Marx, a man of undoubted genius, died without ever finishing his magnum opus, 'Das Kapital'. A genius does not die without finishing his life's work - I could cite you examples as nauseum - but Marx lingered for years without finishing 'Das Kapital'."
    "So what? He got old and sick and couldn't write, but what he wrote was the truth."
    "No, the reason that Marx never finished his work was that his two prime values, revolution and scientific truth, were in conflict. He had, as you will doubtless recall, set up a progression of social orders, from chattel
    slavery, to feudalism, to capitalism, to what he called socialism - a kind of unspecified utopia. In fact, there was another step after capitalism available for his study, but he suppressed it, because it was incompatible
    with his notion of revolution. He called it the 'Oriental Mode of Production' and it was amply demonstrated in Chinese history. It is capitalism made subordinate to the state by means of innumerable petty regulations. You could describe it as enlightened petty despotism, or as symbiosis of the individual and the collective. Had Marx elected to follow scientific truth instead of revolution, he would have predicted what happened in the U.S. after the Great Depression. He would have been a major prophet."

    - Alexis A. Gilliland, 'Long Shot for Rosinante' -

  • Eris Guy

    Every elite needs a news media which convinces itself its ideas are correct. It’s a well-paying, respectable position, if you can it. Congrats, Yglesias.

  • Craig Loehle

    1. The first big projects in colonial times were building canals and draining swamps, both of which were done by individuals (including George Washington) and corporations, not the government.
    2. The only way I have any money to invest is if I have made some profit (or savings from my job). No profit, no investing, and with no investing no new jobs because companies can't open stores or buy new equipment. if taxes go up, I have less profit or less savings, therefore less to invest. It is that simple. Big government types seem to think the gov can suck up all the loose money in the country and there will somehow be new jobs

  • John D Rodeman II

    Bob Bradley's books on capitalism and energy (Enron is examines) outlines the issue rather well too.

  • marque2

    There is no such thing as surplus labor. There are folks who don't have the discipline to work - or due to health reasons can not work. Others have low skills and won't get hired because the minimum wage is too high.

    In fact if wages were allowed to fluxuate there would be no unemployment at all. Folks would raise and lower their "rates" until they were hireable. the government spends a lot of effort on preventing folks from applying for a job at the free market rate. Government support of Unions is a good example.

    I agree that the poor should be helped, but like in the old days they were helped by locals, parents, churches, and others who like to do good. If the help is given at the local level decisions can be made - is this person challenged and can't work - we'll just support them, is this person capable of work - well we will give him odd jobs 1/2 time as long as he can show us he is looking. The government system, has no strings, you can sit on your behind loafing with no-one to give you a guilt trip about it - no trying to upgrade skills, or doing a job - sweeping the church, while getting aid - which also improves skills. And this is why we have the "surplus labor"

  • Mark Liveringhouse

    Yes, there is such a concept as surplus labor for exactly the reasons why you mention. The productivity of such a group is such that it is impossible to hire them. Next, your claim that if the "wages we allowed to fluctuate there would be no unemployment at all" is absolutely false. That could be true if wages could be less than zero. But, that is not going to happen. The reason for this is that the overhead/administrative/supervision costs for low wage/low productive labor crowds out the positive value of their output. THe more of them you hire, the less efficient production is.

  • marque2

    Sorry if you are able bodied, and able minded, and have a wage potential of zero, then as I said above, you fall under the category of being disabled or unsound in the mind and then you should get help from family and or charity.

    Your statement is the one that is categorically false.

    If you were to say there are some transitional problems (yes it gets hard to have less than 3% unemployment cuz folks just naturally move around and have to occasionally quit jobs and be unemployed for a month or so) I would agree with you, yes there is transitional unemployment, but not surplus, that is impossible.

  • mesaeconoguy

    Surplus labor is a Marxist concept that doesn’t mean what you think it does.

  • bigmaq1980

    On this example I can agree...Yglesias is sense of economics and not based in reality.

    He wrote a whole article that took Obama only one line:

    "You didn't build that!"

    Actually, it is hard to even read that cow cud.

  • Mark Liveringhouse

    Essentially they are unsound in the mind. That is the problem. YOu can talk all you want about changing this situation but there isn't any public policy that will make the changes. Charity and "family" helped when the average person died young but would only cause problems of violence today.

    TO demonstrate this point, if you actually ran a business and hired people, would you want to hire the average person I am classifying as surplus labor? THe cost of monitoring them would outweigh their real productivity. It is that simple. We have a large underclass of people who cannot take care of themselves.

  • Mark Liveringhouse

    The Germans had a much different definition. And that is the one I am using. There is a reason for that, and it is cruel. In the "olden days", as I said, these people just died away. The Nazis had a different solution for what they considered to be surplus labor. The Social Welfare system is a cost of business of dealing with this problem today.

  • marque2

    The reason people can get away with having no skills, is because they are coddled by the government, which is what creates folks who think they don't need to follow normal rules and creates the "negative worth" as you call it. stop coddling, and a bit of hunger will get most these people working in the system somehow.

    Your point only works - even if mildly because government has created disincentives to work, follow rules and be civil. I would suspect cutting many of the welfare programs would even cut crime and the gang violence we see, cuz they wouldn't be able to sit idly and shoot each other, if they had to spend time trying to feed and clothe themselves with what they produce.

  • mesaeconoguy

    I have never heard that German terminology, and I’ve studied German extensively and I have top 20 degrees in economics and a masters in finance.

    No, the welfare state is not a “cost of doing business,” as marque2 was driving at above, because as technology and innovation progresses (Julian Simon), ways to make previous economic flotsam productive and enhance their standard of living become more widespread.

    Sorry, not true.