Why American Colleges Are Becoming a Force for Inequality

We like to view higher education as the "great equalizer" that leads to social mobility. But selective colleges have long been accused of perpetuating class divides, rather than blurring them.

A recent landmark study by Stanford's Caroline Hoxby and Harvard's Christopher Avery lent further empirical evidence to this accusation, finding that high-achieving low-income students do not have access to selective schools. The study showed that the mismatch is due to a lack of knowledge, not quality. . . . Yet while the information gaps are real and need to be addressed, there is a much deeper structural problem. If most top colleges wanted to be truly equitable, they could not be with their current business model. There is not a golden pot of low-income applicants that schools want but are failing to reach. Instead, many schools don't want more low-income students because they won't be able to pay for them without a major overhaul of school funding practices. Outside of the handful of super-elite universities with fortress endowments, colleges' finances are currently designed around enrolling a disproportionately high number of high-income students. These schools could not afford to support more low-income or middle-income students absent either a huge increase in tuition, a commensurate reduction in spending, or a dramatic change in public funding.

Why I Let My Students Cheat On Their Game Theory Exam:

On test day for my Behavioral Ecology class at UCLA, I walked into the classroom bearing an impossibly difficult exam. Rather than being neatly arranged in alternate rows with pen or pencil in hand, my students sat in one tight group, with notes and books and laptops open and available. They were poised to share each other’s thoughts and to copy the best answers. As I distributed the tests, the students began to talk and write. All of this would normally be called cheating. But it was completely OK by me.

Hard Hats, Hippies, and the Real Antiwar Movement

Over the months that stretched to years—staffing tables, working on resolutions, and organizing protests, petition campaigns, and other events—I spoke with fellow labor activists about their experiences within the Vietnam antiwar movement. They remembered the college students, the educated and religious pacifists, Eugene McCarthy, and the Weather Underground.

But these colleagues, whose days in labor and/or peace politics spanned the three decades between the wars, remembered more: the high-school kids from Brooklyn and the Bronx, for whom college was a remote dream, who left school by the thousands to protest the war; their working-class communities, which loved their soldier-sons but abhorred the war; the unions that took out advertisements condemning the war, sponsored labor-education programs about Indochina, co-sponsored rallies, and started petition drives; the draft resisters, who were often as concerned with the class inequities of the Selective Service System as they were with the immorality of the war itself; the veterans, most of whom had never protested before, joining and helping to lead the movement when they returned stateside; the working-class GIs who refused to fight; and the deserters who walked away.

via Corey Robin

I posted a link the other day to Corey Robin's article, Nietzsche’s Marginal Children: On Friedrich Hayek. There are a couple of good critiques up as well: Critics respond to “Nietzsche’s Marginal Children”. Henry offers his view in Nietszche and the Marginalists.

Let me take a brief detour. I've noticed that undergraduate economics offers no rigorous account of what drives long run economic growth. Furthermore, there's no rigorous account of how and why capital, which is a sunk cost, gets "baked into" perfect competition and zero economic profit. Economics, as Henry notes, is about equilibrium, and at a true equilibrium, there's no growth at all. Economists talk about long run economic growth, but their writing is almost mystical. It either "just happens" or it relies on the magic of "entrepreneurship."

Henry finds an important theme in both Nietzsche and the Austrians: the idea of the "heroic individual." In Nietzsche (as best I can recall from reading him many years ago), the heroic individual is the "ubermensch" who rejects the slave morality of Christianity. In the Austrians it is the entrepreneur. In Weber, according to Henry, it is the politician; politics "provides a ground in which these very few individuals can fully develop themselves through struggle."

One way that some communists view communism is that in communism, the concept of the heroic individual is deprecated rather than extolled. Individuals, in this view of communism, should not try to become exceptional; the acme of virtue is to be the undistinguished member of the masses. I can't blame capitalists for this view: real communists really hold this view.* But I think this view is naive and simplistic.

*I can blame capitalists for insisting that anything that any communist wants to do (that they don't like) necessarily entails every controversial or erroneous view that any other communist ever had.

It is true that communism is necessarily concerned with the well-being of everyone. It is not, however, true, that the trade-off between the well-being of the many and the well-being of exceptional few is as the capitalists describe it, and it is not true that we must somehow eliminate exceptionalism to achieve communism.

The issue is not exceptionalism per se, the issue is the moral status of the exceptional individual. In one view of human nature, the exceptional individual has the moral right, and perhaps has even a moral obligation, to dominate, subordinate ordinary individuals. Taking away this moral right, in this view, is tantamount to stamping out exceptionalism. Domination of the ordinary is the incentive to and reward for becoming exceptional; if we take away this social incentive, no one will become exceptional, and we will be doomed to a civilization of static mediocrity.

But wait... I have failed to define a key term: what precisely do I mean by "exceptional." The dictionary definition doesn't help: "exceptional" just means being unusual or out of the ordinary. But everyone, from Nietzsche to the Austrians, means something more: there are some particular characteristics that are both morally valued and exceptional. There is a thread running through Nietzsche to the Austrians to present-day "common knowledge": by exceptional in this context, we mean the person who has the awareness to see the world as something that can be shaped, the will to try and shape the world into what he or she wants it to be, and the skill, energy and cleverness to succeed in shaping the world. Such people are indeed unusual; most people are asleep, most who are awake lack a strong will, and most who are awake and willful lack skill, energy, or cleverness. For the sake of brevity, I will label a person with awareness, will, skill, energy, and cleverness as an "entrepreneur."

The naive communist view, then, is that in capitalism (and to a lesser extent in previous social structures) the entrepreneur achieves domination over the ordinary. Communists do not like any relations of domination and submission; therefore, if we eliminate exceptionalism then we eliminate relations of domination and submission. Go to the root cause, n'est pas?

There are, however, two subtleties that this naive view ignores. Why should the entrepreneur be incentivized and rewarded by dominance? More importantly, why should the entrepreneur be exceptional in the first place?

I argue first that entrepreneurship is its own reward. We do not need to socially incentivize and reward the entrepreneur. At the beginning of capitalism, incentivizing the entrepreneur with social dominance was one effective way of achieving industrialization. We know this is true because that's what we did, and it got us to the modern industrial civilization. It is possible that the capitalist way was the only way, or perhaps just the best way, but that's an argument about the past. The question today is whether we still want to reward the entrepreneur with social dominance, or, more precisely, to believe we reward the entrepreneur with social dominance. I argue second that the entrepreneur is exceptional is an artifact of modern civilization, strongly leveraged by capitalism. It is not that most people are not entrepreneurs, it is that modern civilization actively molds the masses of people into non-entrepreneurs; entrepreneurs are exceptional in that they have, for one reason or another, overcome or escaped this process.

Thus, a more nuanced communist view abandons the idea that we should eliminate the entrepreneur as an exceptional insult to the non-entrepreneurial masses. Instead, we should first establish that the entrepreneur has no consequent right to subordinate others. Secone, the goal of communism should be to turn everyone into entrepreneurs. We should all be aware that the world is to be shaped, we should all have the will to shape it, and we should all develop the skill, energy, and cleverness to be successful in actually shaping it.

Corey Robin draws an interesting, perhaps flawed, connection between Nietzsche and the Austrians. Robin is aware of his critics, and highlights Kevin Vallier critique from the right, On Robin’s Tenuous Connection between Nietzsche and Hayek, and Philip Pilkington's from the left, The Ideology to End Ideologies – A Response to Corey Robin on Nietzsche, Hayek, Mises, and Marginalism.

I'm somewhat unique. I'm a fiftyish economics undergraduate student who thought and read a lot about economics before I started school, and I have a pronounced Marxist bias. I've also spent many years reading as a lay person about physics and meta-physics (i.e. how physicists and philosophers think about the task of "doing physics").

In a related article Marginal Utility Theory as a Blueprint for Social Control, Pilkington believes that the marginal theory of value is simply absurd, resting on obviously false assumption, and leading to a picture of reality so far removed from the actual reality that it has no real intellectual value at all. In Eb on What they Teach in School, the inimitable Buce weighs in, albeit peripherally.

Even as a Marxist, however, I'm not so sure.

One idea that was drilled into my head in my studies in physics is that a model is a model. The map is not the territory. I look at all the marginalist models I've just finished learning in Intermediate Micro and Macro (the last time, I think, an economics undergraduate will ever look at the underlying models), and I see, well, models. Given some assumptions that seem to hold (or at least be useful) sometimes, they seem to provide some insight into some kinds of behavior. Some sometimes some some. Physicists seem to have few conceptional problems with some and sometimes. I don't see any fundamental metaphysical conflict between the marginal theory of exchange value and the Labor Theory of exchange value; indeed I wrote a paper on the subject: The Labor Theory of Value.

As I see it, there are two fundamentally competing metaphysical views on economics, and these views compete on the descriptive, normative, and valuative levels.

In the descriptive sense (according to my admittedly half-expert understanding) the marginalist/Austrian view, and especially the neo-classical macroeconomic view, maintains that the economy is always in the one and only socially optimal equilibrium, no matter what we might observe happening. There are no "technical" fixes that can be made by anyone, especially the government. The underlying physical fundamentals of the economy — technology, productivity, physical and human capital development — can and do change, but they change only slowly, and it takes a lot of work to change them. All interventions to try to change our economic behavior without changing the fundamentals move us away from equilibrium. The market will adjust automatically and quickly, so the best these interventions can be is ineffective. When interventions are extreme enough to actually alter our economic behavior, the do their worst: they force us to stop trying to change the fundamentals and actively work just to restore the equilibrium the government has disturbed. Hence the response to the Nixon stimuli was the Volker recession. The marginalist/Austrian view in this sense is: it ain't broke; don't try to fix it.

In the descriptive sense, the competing Keynesian view maintains that the economy can, sometimes, be persistently out of equilibrium, or stuck in a socially sub-optimal equilibrium. Individual consumers and firms often, but not always, correct economic imbalances; when they cannot, the government must step in to correct it. The government, in the Keynesian view, is hardly perfect, and they can err; it is a distortion of Keynesianism to say that whatever the government does is good. However, the government can, at least sometimes, do good.

Intertwined with these descriptive views are normative views. In the marginalist/Austrian view, the market outcome is by definition the socially optimal outcome. Not only is the market always in equilibrium, it is always in the socially optimal equilibrium, by definition.

In the Keynesian view, the market outcome and the socially optimal economic outcome, while related, are substantively different things. I'm not talking about values and outcomes that are fundamentally outside the realm of economics; I'm talking about purely economic outcomes. For example, market outcomes tend to produce income and wealth inequality; we might decide, socially, that less inequality is a more socially optimal economic outcome, even though the "market" must be "distorted" to achieve this outcome.

The question of values is not quite as clear. In The Reactionary Mind, Corey Robin makes a strong case that "reactionaries" (i.e. marginalists/Austrians) view political inequality as a positive virtue. Descriptively, political inequality exists when some individuals have the power to arbitrarily command other individuals. (The notion of individual, arbitrary command is different from socialized command, e.g. submission to democratically agreed-upon constraints on behavior.) Reactionaries, according to Robin, think that relations of individual domination and submission are not only a virtue, but the primary, fundamental raison d'être of human civilization. Keynesians value political equality, the state where no individuals can arbitrarily command others.

There's nothing disreputable per se about having political values, and seeking to express those values in a society. Furthermore, all political expression of values involves some degree of coercion and imposition. If the marginalists/Austrians value political inequality, that's what they value, and they are just as much citizens and human beings as I am. I cannot expect but that they will try to express — and, to some degree, coerce and impose — those values in a society. There is, however, something fundamentally disreputable in describing reality inaccurately, intentionally or ignorantly, in order to achieve the political expression of one's values.

Thus, the Keynesian critique of the reactionary, the Austrian, the marginalist, etc. takes place at two levels. The first is on the level of competing values. The Keynesians want political equality; the Austrians want political inequality. They Keynesians are going to like democracy; the Austrians are not going to like it. I know I personally like Keynesian values more than Austrian values, but there is no objective sense with which we can scientifically say that one is more accurate than the other. All we can do is discover who has sufficient will, power, cleverness, skill, and ability to make their values preeminent in society.

The second level of critique, however, goes deeper. We Keynesians assert that in addition to the legitimate and reputable project of imposing their values on society (just as we legitimately and reputably seek to impose our own values on society), the Austrians are guilty of inaccurately describing objective reality. The sort of marginal analysis they use is, while useful and applicable under certain circumstance, not a universal description of economic reality. The sort of perfectly competitive markets they talk about when they assert that markets lead, by definition, to socially optimal outcomes, do not actually exist in reality, and the few markets that even approximate perfect competition are rare, limited, and usually separated from ordinary consumers by a layer of monopolistic or oligopolistic markets. And, as Marx has shown, if all capitalist markets were in fact perfectly competitive, capitalism would self-destruct. That capitalism has not (yet) self-destructed does not by itself disprove Marx; it shows only that capitalists are not, in fact, actually capitalists in an economic sense. Capitalists have enough intelligence to know that they cannot subscribe in practice to the ideology they endorse in theory.

Larry the Barefoot Bum Calls Me Stupid. Sort of. [Link Fixed] Sort of? I really, actually, completely call him — well, his post, but close enough — really, actually, completely stupid. Kinda what the whole series is about.

In his retort, he says,

I didn’t care then, but recently came upon [this TSIB post] and thought, the nerve of this Larry the Cable Guy character. I don’t suppose he’s calling me stupid. [Yes, I was. -LTBB] That would be original. Instead he goes for the atheist standby of calling all Christians stupid. . . . It’s all any atheist has: “Show me God” and calling you stupid. I don’t know who Larry the Cucumber is or why he goes by the hideous name “Barefoot Bum.” Is he daring any Christian to wash his horrendous hooves? I don’t get it. Larry the Laughing Thalidomide Baby would be a better moniker than “Barefoot Bum.” . . . “There is no God. And I hate Him!” is the atheist creed. It’s really a case of the lady dost protesting too much, methinks.

Amazingly enough, it gets funnier. Read the rest.

Nietzsche’s Marginal Children: On Friedrich Hayek: How did the conservative ideas of Friedrich Hayek and the Austrian school become our economic reality? By turning the market into the realm of great politics and morals.

I haven't written anything in a while (schoolwork has been heavy lately), so I want to reiterate a point I've made before about the difference between capitalism and communism.

Capitalism is not about "free markets." In the economic sense of perfectly competitive markets, free markets do not and cannot exist in actual reality. We have a few markets that are approximately perfectly competitive, but those markets usually exist not to supply the consumer but to supply monopolistic or oligopolistic end-stage producers. For example, economists usually consider agricultural production to be close to perfectly competitive, but most agricultural production goes through one of the big food processing conglomerates, such as Archer Daniels Midland or General Foods. Similarly, a lot of clothing production is perfectly competitive, but most ends up being sold through Walmart, Target, or a couple of other chains.

In the political sense of markets free of government interference, free markets are impossible. Markets require both money and reliable promises, all of which require a government. Political free market advocates want enough government interference to protect their own interests, but not enough to protect yours.

If capitalism is not about "free markets," then communism as anti-capitalism cannot be about "central planning." Central planning is a tool that both communist and capitalist governments use under various historical circumstances, mostly when fighting wars. Most Western economies were very strictly centrally planned during the Second Imperialist War. Both the Soviet Union under Lenin and Stalin, as well as China under Mao, had to fight long, protracted, and continuous wars (especially Russia), and simultaneously had only a few decades to catch up with centuries of Western capitalist development (especially China).*

*The Soviet Union and China also developed communism in a social and cultural environment very different from that which we are used to in the West; because of this deep cultural difference, we must expect them to do things that we find absurd, incomprehensible, or repugnant, and would never be countenanced in the West. (I'm sure they find many of our practices absurd, incomprehensible, or repugnant.) Communism does not entail becoming Russian or Chinese.

I will readily admit that a centrally micromanaged economy is a Bad Idea in many circumstances. But not all, however: almost all capitalist businesses, some of them very large, operate internally as centrally micromanaged economies. Furthermore, at the macroeconomic level, investment is controlled by a fairly small group of people, who exogenously set various macroeconomic variables such as interest rate, money supply, bank reserve requirements, and bank lending standards. (The argument in even neoclassical economics is not whether to exogenously set macro variables, but which variables to set and which variables to allow to respond exogenously endogenously.) What makes humans human are our ability to plan and our ability to socially coordinate our actions. Unplanned, uncoordinated evolution is very very slow and very very painful; It is nonsensical to throw away our most powerful tools, our ability to make decisions in the present based on our understanding of the future and our ability to communicate and coordinate our actions. Again, the point is not whether to have a "planned" economy, but what to plan and, most importantly, who does the planning.

The who is the crux of biscuit.

Capitalism is the idea that private individuals should "own" the means of production, and that individuals should use the means of production for their own benefit. In capitalism, social constraints on individuals' use of the means of production should be as little as possible; in practice, those social constraints are determined by the owners of capital themselves, to prevent self-destructive internecine strife. Ownership (and remember that ownership is socially constructed) of the means of production, i.e. money, grants individuals enormous social and political power. I would be very happy to let you control almost all the guns if I get just enough guns to control all the money. Mao was wrong: political power comes from the vault of the bank, not the barrel of the gun.

In contrast, Communism is the idea that "society" should "own" the means of production, and "society" should determine how to use the means of production for the benefit of workers. Of course, "society" is a placeholder here: individuals are real, "society" is an abstraction that should not be reified. It's a placeholder for a social process, including mores, customs, and institutions, that individuals socially construct. But communism is more than just some sort of social process; capitalism is also a social process which is itself socially constructed. Communism demands at least that the social process we use to determine the use of the means of production operate for the benefit of the workers, not the owners of capital. The argument among communists, then, is what kind of mores, customs, and institutions will actually benefit workers.

(I want to take a slight detour here. I advocate what political scientists would strictly term not communism but democratic socialism; strictly speaking, in political science jargon, "communism" means either the end stage of socialism, rule by the communist party, or a political system based on pure Kantian altruism. This labeling is applied by academic political scientists, who of course constitute a capitalist institution. I could call myself a socialist, but in reality, there are too many people who call themselves "socialists" that advocate (at best) only welfare-state capitalism, and laissez-faire capitalists like to brand as "socialist" anyone who advocates even the tiniest bit of welfare-state capitalism. ("I'm a socialist!" "Oh, you're voting for Obama?" Sigh.) I call myself a communist to make clear that, whatever my specific ideas, I advocate a radical departure from capitalism, not incremental welfare-state-ism; I'd rather have that distinction immediately clear and leave the details of my ideas to further discussion.)

Russia and China tried to see to the workers' benefit by implementing a self-selecting, self-promoting national communist party can exercise direct managerial control over factories, stores, farms, etc., and the workers who operate them. This effort collapsed in Russia, and it has been so substantially modified in China that, although controversial, one can legitimately call China an authoritarian capitalist state. (There's some evidence that the coordination afforded by an authoritarian state, which does not depend on economic coercion to maintain political power, operates more efficiently than a technically republican state such as the United States.) The two biggest justifications for this particular structure are that both Russia and China needed economic development immediately, and that they had few of the social, cultural, and institutional precursors for a successful republic or democracy. (A republic or a democracy, like any other social construction, cannot simply be dropped on a society like an overcoat.) If you're in a substantially economically underdeveloped (in relative terms) country with a long tradition of authoritarianism, a ruling communist party is not such a bad idea; the alternative is, perhaps, only a choice between tyranny and fascism.

But the West does not have the conditions that justify party rule. We have a highly developed economy; we don't have to make a "big push" to catch up with anyone else to secure our survival. We also have a the social, cultural, and institutional characteristics that can support the development of democracy. There's no reason we must make the same sort of compromises and adjustments required by Russia and China. (Neither should we ignore their accomplishments or, where appropriate, copy their methods, simply because they operated in a different cultural context.)

The point of communism, if we go to Marx, is that the workers should own the means of production. We communists are struggling, just as the capitalists struggled for centuries, to define what that means, and we have to abandon ideas that either (depending on who you ask) failed or are no longer applicable to material circumstances. In the West, therefore, communism has to mean democratic communism, ownership of the means of production by a democratic state.

I've been reading a lot about bitcoin lately, and I just heard about Ripple. (Click on Buce's other link too.)

I might or might not post something more coherent and elaborate, but for now, I have a few random thoughts on the subject of stateless/anonymous currency.

First, it should be obvious any means of payment that can be used privately can be used illegally, i.e. for fraud, money laundering, and payment for illegal goods and services. The only reason to avoid the scrutiny of the state is do something the state considers objectionable. Obviously, there's no guarantee that what the state considers objectionable is something that the people consider objectionable. However, unless you're an anarchist, the solution is not better money but a better state.

Nothing is truly anonymous, and, as Karl Denninger, BitCoin is not anonymous. If we grant the state any legitimacy, then it has the power to defeat any attempt at anonymous transactions, including transactions in physical cash. All we can do is make it more difficult to ascertain the identity of those involved in certain kinds of transactions. Cash or BitCoins, you oppose the state at your own risk.

If you don't like state currency, and you have no intention to do anything objectionable to the state, it is legal in most countries to hold physical gold. Nothing stops you from holding your wealth in gold if you believe gold is a more stable store of value than currency, private or public bonds, equities, or other socially-constructed contracts.

Money is the relationship of the state to the economy. Money is the fundamental public good that the state provides, and only a state can provide money as money. (People can, of course, still barter, but even gold-as-commodity is, by definition, a commodity, not a money-thing. It is only by the action of the state that anything, including gold, can serve as a money-thing.

Money is a tool; it is an instrument of the will of individuals, groups, organizations, and institutions. One of those institutions is the state. It is nonsense to assert that anyone or any institution, the state included, has an a priori or objective "obligation" to use a tool in a particular way. If you want me to do something, you waste your time asserting I have moral obligation; you can succeed only by making it somehow in my interest to do what you want me to do. Likewise with the state. If you, like Denninger, want the state to contract the money supply in an economic contraction, you must show that it is in the interest of the state, or in the public interest, to do so. (I'm not sure that Denninger is substantively wrong: it might be the case that it is in the interest of the state or public to stabilize the currency in some sense. His moral argument, however, that the state has an obligation to do so in return for its privilege of seigniorage during an expansion, fails to be persuasive.)

As I've noted before, I don't think anarchism in the literal sense of "no state", is possible or desirable. In the sense that it means "no relations of subordination," I also disagree; I think that in many (but not all) things, the individual should be subordinate to the majority, because, paradoxically, it is in the broad interest of most individuals to subordinate themselves to the majority. Needless to say, this idea requires more elaboration. Money represents the ability for an individual to demand goods and services from the society, therefore for it to be money-as-money (and not merely barter, which is not demand), money has to be socially constructed. Because money is the quintessential non-excludable, non-rival public good, it requires the use of violence to marginalize free riders.

Classical economists conceptualize the economy as an ecology. It can be studied, carefully, and gently, but it cannot be actively managed. To a classical economist, the best way to take care of an economy is the same way an ecologist would advise taking care of an ecosystem: the primary goal is to keep it pristine, to keep outside forces from fucking it up. An economy, like an ecology, changes over time, but those changes are internal, "organic," and usually slow. Even when changes are not slow, the best advice is just to let the economy (like an ecosystem after a forest fire) work itself out internally. Indeed, the forest fire analogy is very apt: as best I understand ecology (which is not that well), we do the ecosystem a disservice by preventing forest fires; even catastrophic change is baked into the structure of the ecosystem. Similarly, we do the economy a disservice by preventing depressions, crashes, bubbles, etc. We lose Schumpeter's "creative destruction" by a too-stable economy.

Keynesian economists conceptualize the economy as a city full of people. A city is kinda like an ecology, but not really: no one can "control" a city, but it requires active intervention to stay alive. Individuals will work a lot of things out on there own, but there are too many areas that cannot simply work out individually. There's no magic Keynesian bullet: an economist has to really look at individual cases and situations to see when intervention or regulation is needed. But, unlike a classical economist, a Keynesian will say that we can make a case for intervention and regulation more than just those necessary to enable markets and keep the ecosystem from getting fucked up.

Central-planning communists see the socialist economy like a spacecraft. It has to be intentionally and specifically built, by experts, with all the bureaucratic management seen in any very large corporation. Just as the free market would never have got us to the Moon*, the free market is never going to get us to a socialist economy. Typical people cannot vote on how the economy works any more than they can vote on the design of a rocket engine.

*Sorry, Bob, but it just wasn't going to happen.

To be slightly less charitable, some central-planning communists see the socialist economy like an army. As bureaucratized and inefficient as all national armies are, no free-market army has ever effectively fought a war, much less run one. Similarly, although it might seem bureaucratized and inefficient, an economy run along the lines of an army should, in central-planning theory, outperform a free-market economy just as a centrally commanded, rigidly hierarchical army always outperforms an individualistic, free-market army. There are, of course, a lot of different ways to run an army, and army-paradigm communists have a lot to disagree with among themselves, but the debate there is not whether, but what kind.

All these economists say they have scientific disagreements, but the differences are primarily moral. Ecosystems are as rigidly hierarchical as any engineering bureaucracy or any army. Scientifically, physically, we can see the economy as an ecosystem, a city, an engineering project, or an army. These distinctions are not imposed by nature; they are human choices, and choices have to be seen in a moral context, not a descriptively scientific context. (Of course, a scientific understanding of psychology and sociology can tell us something about the kinds of choices people want to make, and we need an ordinary scientific understanding of the physical world to effectively implement our choices.)

Thus, whether to view the world as a classical economist, Keynesian economist, or central-planning communist economist is a choice, a moral decision, and reflective of the preferences of the economist. Hence my view that economics is an essentially normative endeavor, whose central project is explicitly or implicitly promoting one philosophical view of the economy. For example, the idea that economics should be entirely descriptive implicitly promotes the classical view of economics as an ecosystem that can be studied but not managed, which is itself a normative choice. Because I see both ecosystems and bureaucracies as rigidly hierarchical, I conclude that people choose to see economics as classical or centrally planned are those who prefer hierarchies, either because they are at the top, or because they believe they would be at the top of a new hierarchy. These preferences may be consciously suppressed (or advocates just might not understand the implications), but I think they really are there.

I see myself economically, in broad outlines, as a Keynesian. I prefer the Keynesian "economy as a city" paradigm. We can run the economy as a pure ecosystem, but I don't like the results of that: the cutthroat competition, the incessant narrowing of niches, and the relations of dominance and subordination. We can run the economy as an engineering bureaucracy, but thirty years as an engineer have taught me the limits of what an engineering bureaucracy can do, and I want to do more. And I have no interest whatsoever in anything that even looks like a military.*

*Which is not to disparage my friends who are or have been in the military. As a part of society (and leaving aside the uses to which the capitalist system puts the military, military-style organizations are fine for those who like them. I just don't want the whole economy run like an army.

However, I see myself politically as a democratic communist. Keynes notwithstanding, I believe that Keynesianism is incompatible with private ownership of the means of production, i.e. a distinct capitalist class. It's quite ironic: the capitalist class has never forgiven Keynesian economics for saving capitalism from itself. Without Keynes and Roosevelt, Western capitalism would have fallen, probably to central-planning communism, in the 1930s.

Capitalists hate Keynes because Keynesianism undermines the central capitalist premise of capitalist power over and subordination of the working class. The capitalist class is not and has never been about consumption. Even though they have built a system that is a thousand times more productive than feudalism and monarchism, most capitalists consume less in absolute terms (compare Versailles and the Hearst Castle), and therefore far less in relative terms. Capitalism has been about the inherent value of subordinating the working class to the will of the capitalist class. Keynesianism fundamentally undermines that subordination, by politically allocating economic demand to the working class, and places not the capitalist class but the professional-managerial class as the fundamental ruling class.

We know from the late 1940s to the 1970s that when the working class has a lot of economic demand, the economy performs extremely well; the problem is not that economically independent workers won't work; they will work, and work hard. The problem is that economically independent workers cannot be subordinated. Economically independent black people cannot be discriminated against. Economically independent women cannot be sexually and socially subordinated. People with economic independence demand rights: autonomy, dignity, and respect. The economically independent cannot be controlled and subordinated to the will of the capitalist class. And that's what capitalism is really about: the power of capitalists to subordinate the working class to their own will.

Something else must be found. The capitalist class has decisively wrested control away from the professional-managerial middle class. They now face only the forces of inertia is dismantling the Keynesian political allocation of economic demand. However, as we are seeing even now, when they finally manage to do so, they will face the problem of the falling rate of profit and capitalist over-accumulation. With nuclear weapons, they can no longer rely on war to address over-accumulation. As we have seen in both Russia and China, it doesn't take all that much time to revolutionize even the most authoritarian-submissive population. Ironically, as capitalists increase the subordination of the working class, they will make the working class more susceptible to revolution, by making them more disciplined and accepting of authority in general. A revolution is inevitable; capitalism is snatching defeat from the jaws of the victory the Keynesians handed them.

There's no predicting the outcome of a revolution. The best I can do is put myself into a position where, if a lot of things break my way, I can be of some use to the winners of the revolution. I hope that's enough.

Yes, it's Klezmer bluegrass. Go figure. I had no idea a clarinet could slide like that.



(via Buce, who is a truly unusual person)

Lord Keynes (not to be confused, presumably, with the late John Maynard Keynes) has a good overview of ethical philosophy. Lord Keynes supposes that

a serious ethical theory must pass three tests:

(1) it must not commit the “appeal to nature” fallacy;

(2) it must explain how it overcomes or is consistent with G. E. Moore’s “naturalistic fallacy,” and

(3) it must explain how it overcomes or is consistent with Hume’s “is–ought” problem (sometimes called Hume’s Law and Hume's Guillotine). [Links original]

Lord Keynes has a good starting point, but he* omits some important considerations.

*I'm presuming that "Lord" is meant in a gendered sense.

First of all, a naturalist such as myself must first ask: what facts does the theory try to explain? This question lies, I think, the core of the opposition to G.E. Moore's non-naturalism. Although I haven't made a detailed study of Moore's ethics, he(and ethical non-naturalism in general) seems to assert that ethics by definition cannot simply be an explanation of some facts. Instead, ethics is the study not of how the objective* world actually is; ethics is the study of how the world ought to be and therefore is actually not. By definition, we cannot differentiate naturally between all the different ways the world is not. There is no natural, scientific truth about how the world objectively ought to be, i.e. one preferable way (or a definable subset of ways) the objective world is not, because there are no observable facts about different ways the world is not that a scientific theory could explain.

*I mean "objective" here in the sense of including only the world outside our minds.

Although there's no metaphysical basis for believing that natural science has a monopoly on truth or knowledge, we should not blithely assume that even if we eliminate science a priori that there is a non-scientific truth to be found. Assuming arguendo that science does give us truth*, my first response to someone placing a domain of discourse outside the bounds of scientific truth is to then ask why we should conclude there is any truth at all in that domain. If science is ruled out, why should we then believe there is any such thing as non-scientific ethical truth? Even if we have some intuition that there really are ethical truths, we already know our intuition is a fallible guide; we need a more rigorous demonstration that there really is something out there to be found in some nonscientific, non-naturalistic way.

*Denying this assumption does not immediately help the case for alternative kinds of truth or knowledge.

The case for non-naturalistic ethics seems similar to a particular apologetic strategy of placing God outside the bounds of natural knowledge, and then assuming the existence of a God. The response is similar: to place God, or anything else, outside the bounds of scientific knowledge makes the assertion of its existence, and even meaning, suspect.

If you were paying attention, you saw me sneak in a subtle bias above, when I talked about objective reality, i.e. the world outside our minds. But, of course, the subjective is also real, and we have ample natural, scientific, observational evidence to conclude that minds really do exist, and enough evidence to conclude that our minds are an emergent physical property of physical brains*. And, it seems, there are some interesting facts to explain about minds, facts that seem to bear a striking resemblance to the sorts of things philosophers label as "ethics."

*Like all scientific theories, this conclusion is provisional, and does not exclude the possibility that we might have evidence in the future to radically revise our understanding of minds.

There are some observable facts about our minds: human beings have preferences, we live socially, and our societies are the result of dialectical processes, the most notable of which are the dialectics between selfishness and altruism (both terms broadly construed) and between social norms and individual desires. And indeed, ethical philosophy concerns itself with these dialectics. Some ethical philosophies take a more reductive view and simply declare either selfishness or altruism, or either social norms or individual desires, irrelevant, impossible, or evil; most nuanced philosophies acknowledge these dialectics at least as tensions, and usually try to resolve the tensions analytically.

Ethics takes its normative character from the fact that human beings are not merely passive, sphexish objects moved around by social reality, but rather actors, beings that act on both the physical and social world to satisfy their preferences and achieve their goals. Furthermore, society presents tensions and dialectics: we cannot satisfy many of our preferences without a society, but society actively frustrates our preferences (see e.g. Freud's The Future of an Illusion and Civilization and Its Discontents.) Fundamentally, then, the study of ethics in the purely descriptive sense consists of psychology, sociology, anthropology, and, to some extent, political science and economics. How have people historically worked out the dialectic between selfishness and altruism, and between social norms and individual desires? But as noted before, people are not just passive objects, they are actors, operating in the present. So we can talk — still scientifically, still naturally, because people and their minds actually exist — about all the different things people want now, and how we can negotiate to decide some reasonably coherent set of goals for the future, and set about achieving them.

Looked at in this way, most of the confusion about ethics seems to disappear. The relevant facts are precisely those subjective facts about how human beings want to change both the physical and social world. The constraints are first how the physical world actually is, and how our actions effect it, and second, how our physical and cultural evolutionary history interacts with our preferences.

I tend to call this view pragmatism: the nontrivial study of how human beings can most effectively change the physical and social world so as to satisfy our preferences and goals. Pragmatism is a fundamentally consequentialist, i.e. concerned primarily with outcomes. Pragmatism is also, in a loose* sense utilitarian, concerned with the promotion of human "happiness" and the reduction of "suffering." (Note that pragmatism should not be confused with expediency or populism, both of which select out some features of normative standards, either immediate effect or majority opinion, as definitive and exclusively authoritative. Pragmatism holds that all the consequence, for all people, are relevant, even though sometimes the immediately useful or the majority opinion might be the pragmatically best option.)

*i.e. without the Benthamite commitment to a strictly linear notion of suffering/happiness and a strictly additive notion of aggregate happiness, which seems like a technical flaw in Benthamite utilitarianism, not a fundamental flaw.

There are, of course, objections to pragmatism. First pragmatism is well, not something other than pragmatism. If one is committed a priori to non-naturalism, then pragmatism is, by virtue of its naturalism, unacceptable. If one is committed to deonticism, pragmatism is, by virtue of its consequentialism, unacceptable. If one is committed to objectivism, then pragmatism is, by virtue of its inherent subjectivism, unacceptable. Pragmatism is what it is, however, and to simply say that it's wrong because it's not an alternative theory is to beg the question at some level or another.

Sometimes these objections are subtly disguised. For example, one might argue, for example, that if the vast majority of people wanted slavery, and very few people objected to it, then pragmatism would condone slavery. The pragmatic response is that the vast majority of people don't want slavery and most do object to it. The opponent believes here that slavery is objectively wrong. But what is the basis for this conclusion? If it is the present unpopularity of slavery, then the evidentiary basis for both our theories would be contradicted by nature. If the opponent believes slavery is objectively wrong for some other reasons than present unpopularity, then she has the burden of explicating those reasons in a non-question-begging way.

Another objective to pragmatism is that it does not provide any guide as to what we should prefer; pragmatism takes our existing preferences, as well as the mutability of those preferences, as facts about the world. But this objection again begs the question: why should an ethical theory tell us what we should prefer, instead of giving us guidance on how we can negotiate and achieve our preferences in a social context? Simply that one prefers than an ethical theory guide our preferences is committing the same "sin" of taking his preferences for granted that he ascribes to pragmatism.

Fundamentally, pragmatism at least satisfies Lord Keynes requirements. It does not commit the "appeal to nature" fallacy, nor does it commit the "is-ought" fallacy, because it does not take the natural world, the world as it is, as the ethical ideal: it recognizes that people want to change the world. It makes an end-run around Moore's naturalistic fallacy, by simply declaring Moore's meta-ethics as incoherent; pragmatism is naturalistic, but takes as its primary domain the subjective, not the objective world.

Thus, I am a pragmatist.

In Incentives: Defining and classifying incentives, I tried to define and classify incentives. Briefly, "An incentive is a social institution that encourages some or all citizens to do what they would not do without the incentive." I classified incentives into five broad categories:

1. Psychological incentives - ways that individuals reconcile conflicts within their own minds
2. Natural incentives - hunger, thirst, etc.; ways that "nature" impels us to do certain things
3. Coercive incentives - ways that social institutions make people do things they just don't want to do
4. Negotiated incentives - trade, reciprocity, quid pro quo
5. Game-theoretic incentives - social institutions to change Prisoner's Dilemma or Snowdrift/Chicken games to win-win games

Interestingly, we can broadly classify political philosophies using this classification of incentives.

Moralist political philosophies say that there are things people ought to do, but that they just don't want to do, at any level; a sound society, therefore, requires coercive incentives to make them do it. For example, a moralistic political philosophy might say that people really do want to kill each other, and must be actively coerced (or tricked) into not doing so. Plato's Republic, for example, is moralistic through and through: the masses simply do not even perceive reality; therefore, their desires cannot possibly reflect reality. Only the philosopher-kings and -queens can perceive reality, only they can know the good, and therefore they must rule the masses for the masses' own good. Plato relies almost exclusively on fraud, but fraud is just as coercive as force. Moralistic political philosophies are necessarily elitist, because the common, majoritarian prevalence of natural incentives is insufficient for creating a good society, a society where the masses do what they ought to do.

Liberal political philosophies take the opposite view: natural incentives are, at a sufficiently abstract level, a basis for a sound society. In the liberal view, the chief impediment to the good is not that the masses fundamentally do not want the good and thus have to be forced or tricked into the good. Instead, the chief impediments are game-theoretic problems: everyone naturally wants a degree of mutual cooperation in some things, but without a state (or state-like social institutions), individuals cannot create game-theoretic incentives on their own. A sound society with a state exists not to coerce people into going the good they do not naturally want to do, but to allow them to have the good they want but cannot achieve on their own.

Anarchist political philosophies do not believe that game-theoretic incentives justify the creation of states. The actual members of state-like institutions always come to believe their own narrow interests constitute the higher good. While they might have a noble purpose, states inevitably slip from providing liberal game-theoretic incentives to moralistic coercive incentives. If repeated interaction, the free adoption of belief systems, or other non-state mechanisms fail to solve Prisoner's Dilemmas/Chicken games, the cure of the state is worse than the disease.

One liberal critique of anarchism is that the use of violence is ineluctable; the best we can do is centralize the use of violence so that we can socially control it. Violence dispersed to individuals is, in the liberal view, much more difficult to socially manage. Furthermore, because violence is more effective when it is concentrated and disciplined, when violence is initially dispersed, it will tend to concentrate, and states, which are really nothing other that institutions that concentrate and discipline the use of violence, will form more-or-less automatically, regardless of any underlying theoretical justification. Even if state-like institutions really do have a tendency to elitism and moralism, we are stuck with them, at least in the short-term. The best we can do is make them better in the short term, and look at long-term solutions for eliminating the state.

One communist critique of capitalism is that capitalism is a fundamentally moralistic political system masquerading as a liberal political system. In the communist view, capitalism is based on the moralistic view that people ought to work, they ought to continually increase the productive capabilities of a society, but they have no natural incentive at any level of abstraction to do so. The problem, in the capitalist view, is not a game-theoretic problem — it is not that people naturally want to work and want to increase the productive capabilities, but are concerned about free-riders. The capitalist view really is that the masses just don't want to work, and have to be forced to do so. Capitalism's chief innovation is that the compulsion to work stops being direct — work for the feudal lord or be killed — and becomes abstractly economic — work or you don't have enough money to feed yourself. But a peek under capitalism's liberal rhetoric shows its fundamental moralism. As von Mises said, Ayn Rand "had the courage to tell the masses[:] ... you are inferior and all the improvements in your conditions which you simply take for granted you owe to the effort of men who are better than you." Capitalism is a fundamentally moralistic, elitist system which uses liberal rhetoric to create a "noble lie" to dupe the masses into believing the capitalist state does nothing but give the masses what they want and prevent free-riders from gaming the system. It is, however, the capitalist ruling class itself that is free-riding the system

In my view, communism is the only political philosophy that takes liberalism and utilitarianism seriously. In the communist view, people want to work. Capitalists believe that people have to be forced to work, but communists believe that people have to be forced to work for the benefit capitalist ruling class. Indeed, it is this compulsion to labor for the capitalist ruling class, not work itself, that causes the alienation between individuals and their labor.

At present, our productive forces are insufficiently developed, and nature forces us to work. Communists such as myself believe that capitalism can never build an economy that ameliorates natural compulsion (why should they?). In the transition from capitalism to communism, therefore, communists will inherit insufficiently developed productive forces. Therefore, there will be a phase, transitional communism or democratic socialism, where the state must ensure that some do not free-ride on others' response to nature's compulsion. However, because communism does not view work as inherently alienating and contrary to natural impulses, a transitional communist state can focus only on the game-theoretic incentives and abandon coercive incentives.

In a comment on the running debate on Pragmatism, HH asks:

What would your opinion be to the idea that deontological ethics may simply be the result of a long forgotten pragmatism. Where the pragmatic was the initial impetus but over time the pragmatic justifications fall away, perhaps once understood by everyone, and become the ethical rules or moral duties that people inherit. Even our moral/ethical instincts, it could be argued, are the result of the pragmatism required for survival.

Remember, a justification can be different from a causal history.

I suspect the causal history of our moral beliefs is more evolutionary than intentional. There is some sort of heritable variation, and some sort of selection process (which could be group selection, because ideas don't have the "filling the pool" barrier that genes do), and what we see in our actual cultural ideas is the result of that selection. I don't know how one would go about scientifically proving that's what actually happened, or precisely how we are where we are today, but conceptually, the idea of cultural and moral evolution seems straightforward.

Morality is, of course, a phenomenon of learning beings, and human intelligence is just soup-up learning, so it's likely that some of our moral beliefs are intentionally constructed, and we might have, for some of those, subsequently lost intentionality. But others may never have been intentional ever: they arose by chance, were inherited, and not yet selected against.

But the question is not how did we get the moral beliefs we have today. Instead, s what beliefs do we want preserve into tomorrow?

HH quotes the post:

That pragmatism says that sometimes people have preferences for outcomes that most other people would consider bad, it's doing the job that any meta-ethical system must do.

and asks:

I think I understand what you are saying but unless you are suggesting that popularity be the metric of how ethical a pragmatic solution is, you still have the problem of why any proposed outcome is more ethical than alternatives. Could deonto-ethics just be the initial position that violation of X core moral principles is a worse pragmatic outcome than other outcomes. Does pragmatism need to fiat assume what outcomes are better or worse before actions can be evaluated?

I avoid saying things like "popularity be the metric of how ethical a pragmatic solution is." It assumes there is some quality "ethicalness", which is ontologically distinct from but is hypothesized to be causally linked to another quality, "popularity." Because we can measure popularity, if the causal linkage were true, then popularity would serve as a proxy for ethicalness.

However, I start by saying I have no idea what "ethicalness" might mean, as an inherent property of actions or conditions, independent of our beliefs about those actions and conditions. Thus, the best I can say about popularity is that when making a social decision, c.p. the society will make the more popular decision.

What would you say is ,at least for you, the ultimate objective of ethics? Why be ethical?

I don't really worry about ultimate objectives. I'm just trying to make the world a better place, i.e. one that I would approve of more than I approve of the world we have. I'll let God worry about ultimate objectives.

(via PZ Myers)

Magicians Penn & Teller are atheistic frauds

As Cornelius Van til often said, “Unbelievers can count, but they cannot account for counting.” . . . But if every day is an atheist holiday, then every day is a day without God and a moral law to go along with it. There’s no one beyond me who will judge, so why should I care if I’m ripping people off in the name of ‘supernaturalism.’ Penn might find it wrong, but there is nothing in his worldview that says it’s wrong. . . .

As believers in evolution, they must believe that matter appeared out of nothing and life came from non-life. Penn & Teller would never claim that they could make a single molecule appear out of thin air, but they must believe that the birds, the bees, the trees, and you and me came into existence and evolved from nothing into a superheated, ultimately sterile chemical soup.

We have three economic problems right now in the industrialized, developed world. First, we have very high unemployment, especially youth unemployment. Second, we are worried in general about automation causing job losses. Third, we face a productivity crisis as the developed world's workforce ages and retires, and we have to support more people with fewer working people.

That all three crises exist is insanity, pure and simple: we have both too many workers and too few workers.

It reminds me of my crazy (and apocryphal) aunt: "I don't have enough money to live on!"

"Why not?" I ask. "You have a good-paying job."

"I have to save all my money, otherwise I won't have enough to live on."

Sigh.

One does not have to have a Ph.D. in economics to see the obvious answer: put people to work, which will increase productivity. We can increase productivity directly by producing more goods and services right now with existing capital. We can indirectly improve productivity by creating more capital (factories, stores, trains, airplanes, etc.), and by improving technological and human-capital productivity with education and training. It's blatantly obvious that we can dramatically increase productivity. If we could not, then it would be true that we are already not only operating our economy at full capacity, but that we are increasing productivity as fast as possible. We are doing neither.

The reason we are in this insane situation is simply this: a prosperous society cannot be controlled, subjugated, and dominated. The capitalist system was created to wrest political power from the feudal, land-owning monarchy. It has stayed in power by keeping the working class dependent and impoverished. The prosperity and improvement of the working class in the late 20th century was due to the temporary ascendance of the professional-managerial class, formerly the middle class under capitalism. But the professional-managerial class has been defeated by the capitalists. The capitalist class objects in principle to a prosperous society: prosperous workers believe that they deserve prosperity, autonomy, dignity, and life itself; prosperous workers believe that they have the right to a good life. The capitalist class believes that life itself is a gift given to the working class, that the working class does not live by right, but by the sufferance, sacrifice, and nobility of the capitalist class. Capitalists are happy enough, I suppose, to give the workers life, but it is insufferable ingratitude and presumption for the working class to demand a gift as a right.

We are not in a real economic crisis. In a real crisis, we would be facing some difficult trade-off imposed by physical circumstances: either trading off consumption now for investment to create consumption later, or trading off consumption by some for consumption by others. But shutting down factories, putting people out of work, and then saying we don't have enough for everyone is insane and immoral. And this is precisely what the capitalist class is doing right now.

We are not in an ordinary political crisis. In an ordinary political crisis, well-intentioned people have sharply differing opinions on public policy.

We are in an ideological crisis. The capitalist class has not only shown itself incapable of creating general prosperity, it has shown itself actively hostile to general prosperity. They are bent on creating conditions of general immiseration, because only a miserable population will be truly grateful to the capitalist class for giving them their lives, however "solitary, poor, nasty, brutish, and short" those lives might be.

It is time for something better.

I'm not going to argue directly against Fabius Maximus's argument in Who lies to us the most? Left or Right? that the "Left" lies to us as much as does the right. The Democratic party is "Left" only in relation to the reactionary Republican party. In a sane world, even in a somewhat less insane world, the corporatist Democratic party would be fairly far to the right. And the last few posts share the theme that the American people are all a bunch of sheep. While that position has some validity, I usually find most commenters use that tone to insulate their positions from criticism: if you disagree, you are just rationalizing your passivity. It's tedious. I don't know that Fabius is doing so, but it's a battle I don't want to join.

But I do want to argue against one particular assertion:

The Federal government has spent every dime of the social security taxes, stuffing the Trust Funds with IOUs. These are nothing but an accountant’s convention (an IOU to yourself is not an asset), since even the government can spend money only once. When the system goes cash flow negative soon (see projections from the 2012 Trustees Report) the system changes from a source of income to a cost — a drain instead of a supplement to the Government’s income. Despite this clear reality, the Left dogmatically insists that Social Security is well-funded do to the security of the Trust Funds.

This analysis reveals a deep and fundamental ignorance of basic economics. Every financial assets, i.e. the ownership of any asset not under the owner's physical possession and control, is an IOU: the possessor of the asset has promised to surrender benefits accruing to the asset, as well as possession under certain circumstances, to the owner. All stocks, all bonds, all loans, all bank assets, every component of the economy more sophisticated than 18th century (perhaps even 16th century) capitalism, consists of IOUs. One might argue that Treasury bonds were a particularly bad asset, but the fact that they are "IOUs" is irrelevant.

If one objects to the Social Security Trust Fund (SSTF) holding financial assets in general, the SSTF could hold physical assets. But the government does hold a lot of physical assets: roads, bridges, tunnels, airports, etc. That the SSTF holds government bonds creates an ownership stake in those physical assets. And indeed the excess Social Security taxes that I and the rest of the Baby Boomers have been paying since the 1960s have gone, in part, to (indirectly*) creating those assets.

*Strictly speaking, the government itself doesn't actually "pay" for anything (in the sense that the government doesn't have to spend its finite, limited, store of cash to obtain what it wants. The government just demands what it wants and prints the cash to pay for it. Thus, taxes do not actually pay for government spending. However, government spending takes resources away from consumer spending at full employment, and the United States economy was at more-or-less full employment continuously from the end of the Second Imperialist War to about 2001. Taxes pull private demand out of the system (as well as create demand for cash), so that government spending does not create excess inflation, changing who has to trade off consumer demand for government demand. But when I have to give up something (private goods) to get something (public goods), we can my taxes legitimately "paying for" public goods.

The alternative to holding financial or physical assets is holding cash. However, cash is also an IOU, and it's the worst IOU to hold, both from a macroeconomic perspective and from the perspective of the holders. Cash has no intrinsic use-value; even "commodity" money can be money only because it has no use-value. (Can you eat an ounce of gold? Wear it or burn it to keep warm? Use it to take you to the liquor store?) Cash is an IOU that is (abstractly) a demand against all of society.

But cash, unlike other financial assets, is demand in the complete abstract. When Alice invests, she trades the demand to which her cash entitles her to Bob, in return for a promise from Bob that sometime in the future, he will give Alice some of the demand to which he is then entitled. The demand is still being demanded in the present. But when Alice holds cash, she is simply not demanding what she is entitled to demand, and not allowing anyone else to use that demand in the present. Holding cash reduces aggregate demand. It does not make sense to produce more than we consume. It is very expensive in real terms to build up unsold inventory. When we do not consume all that we produce, we must reduce productivity. Holding cash therefore reduces the real production of goods and services.

Of course, we need some cash: cash is the circulating medium of the economy. It's the job of the government — and only a government can do that job — to ensure that we have just enough cash to keep everything circulating but ensure that not too much cash is stored. Cash is very much like blood: it moves economic demand around, just like blood moves oxygen and nutrients around. Holding cash is like holding deoxygenated and nutrient-free blood: it creates only the illusion that real value has been stored. In reality, we cannot store actual value. All we can do is increase productivity, and consume what we produce.

My generation paid more in Social Security taxes than our parents and grandparents consumed. We sacrificed some of our demand, our right to consume goods and services, to have more when we retired, and this sacrifice fell disproportionately on lower-income workers. We put the decision about how to actually use that demand in the hands of what passes for a democratic decision-making process. Some of that money was spent poorly, but a good fraction was spent increasing productivity and increasing the supply of public goods. True, had that sacrifice been used more wisely we would be even more productive and enjoy more public goods, but without our sacrifice, our economy would not be as productive as it is today. To simply dismiss our sacrifice as worthless paper is both economically illiterate and morally reprehensible.

We do have a real economic crisis looming: We must continue to increase (or, at the very least, maintain) the standard of living of all Americans when a diminishing fraction of them are working. There are only two possibilities. We can impoverish a substantial fraction of our old people, so that working people can maintain their own standard of living (the standard of living bequeathed upon them in part by we who worked and paid excess Social Security taxes from 1960 to 2010), or we can raise productivity so that the fraction of people working can support their parents and themselves in civilized comfort.

The capitalist ruling class does not want to raise productivity. We are at about the maximum productivity that capitalism can support; increase productivity and the rate of return on capital will fall precipitously. The "debate" over "entitlement reform," at a time when banks and businesses are intentionally holding cash and retarding investment and growth in productivity, at a time when we are leaving millions of young people — the young people we need to become productive to support us — uneducated and alienated from all but the most menial economic participation, at a time when the only economic "growth" is financial services and goods and services for the 0.1%, shows that capitalism has become morally and economically bankrupt.