5 posts tagged “moral philosophy”
For Project Syndicate...
What do we owe our great-great-great grandchildren? What actions are we obligated to do now in order to diminish the risks to our descendants and our planet from the increasing likelihood of significant global warming and its associated climate change?
Everybody--well, almost everybody: ExxonMobil, U.S. Vice President Richard Cheney, and their paid-for servants and deluded acolytes are exceptions or pretend to be exceptions--understands that when human burn hydrocarbons carbon dioxide goes up into the atmosphere, where it acts like a giant blanket, absorbing infrared radiation coming up from below and warming the earth.
Everybody understands that we really do not know how much global warming a given amount of extra carbon dioxide produces. We have models, we have forecasts, we have projections, but global warming might be a much smaller and might be a much larger problem than the central-case projections of climate models suggest. Everybody--well, almost everybody: ExxonMobil, U.S. Vice President Richard Cheney, and their paid-for servants and deluded acolytes are exceptions or pretend to be exceptions--understands that here uncertainty is not our friend, and certainly not an excuse for inaction. Uncertainty about its effects should lead us to do more to guard against global climate change than if we knew global warming would proceed exactly as the central-case projections forecast.
Everybody--well, almost everybody: ExxonMobil, U.S. Vice President Richard Cheney, et cetera, et cetera--understands that the world's governments, non-profit institutions, and energy companies ought to be spending a much bigger fortune than they currently are on research: research into technologies that generate power without adding carbon dioxide to the atmosphere, research into technologies that such carbon out of the atmosphere into forests or oceans, research into technologies that cool the earth by reflecting more of the sunlight that lands on us.
Everybody--well, almost everybody: U.S. Vice President Richard Cheney, et cetera, et cetera--understands that the burden of dealing with global climate change over the next two generations should be carried by the rich countries of the world. They got to take an easy carbon emissions-intensive path to industrialization and riches. It looks like China, India, and company will not be able to take such an easy path, and it would be unfair to penalize them for the loss of the easy hydro-carbon burning road.
Everybody--well, almost everybody, et cetera, et cetera--understands that now is the time to build the international institutions that will manage our reactions to global climate change over the next several centuries. Now is not the time to disrupt these institutions, or to prevent their creation.
What there is real dispute about is what else we should be doing right now and in the next decade. We economists like to think of things in terms of prices. And when we economists see something going wrong in the sense of having destructive side-effects, we like to tax it. Taxing it makes the individuals who are undertaking actions feel in their wallets the destruction they are causing elsewhere. Maybe the action is still worth doing, and maybe not. Imposing a tax--imposing the right tax--on those who are, say, driving low-mileage SUVs is a way of harnessing the collective intelligence of humanity to deciding in which case the bad side-effects are a reason to stop. But it has to be the right tax.
An SUV going ten miles in the city and burning a gallon of gasoline pumps about 3 kilograms--6.5 pounds--of carbon in the form of carbon dioxide into the atmosphere. Should the extra tax on this--and on all carbon emissions--appropriate for global warming be on the order of five cents a gallon, fifty cents a gallon, or a dollar fifty a gallon? Our views will change as we learn more, but at the moment whether the tax should be five or fifty cents a gallon hinges on a question of moral philosophy: how much do we believe that we owe our distant descendents?
Australian economist John Quiggin has a very illuminating discussion on his website <http://johnquiggin.com/wp-content/uploads/2006/12/sternreviewed06121.pdf>. The *Stern Review on Global Climate Change* (on the internet at <http://www.hm-treasury.gov.uk/independent_reviews/stern_review_economics_climate_change/sternreview_index.cfm>) which comes down more on the side of fifty cents a gallon, immediately, does so because they project that spending today to reduce carbon emissions is a very good investment for the future. If the world grows in per capita income at about 2% per year, a marginal expenditure of roughly $70 today in cutting carbon emissions would be worth it if it were to enrich the world of 2100 by about an extra $500 of year-2006 purchasing power, once all the damages to the world economy and environment from global warming, costs of adjustment, and so on are taken into account. This looks like a very good deal to Nick Stern and his team.
On the other hand, critics point out that the world today is poor: average GDP per capita at purchasing power parity today is roughly $7000. We expect improvements in and the spread of technology to make the world of 2100, at a 2% per year growth rate much richer than the world of today: $50,000 per capita of year-2006 purchasing power. We today can use the marginal $70 per capita, critics say, much more than the richer people of 2100 will need the $500 they would gain from not having to suffer from the effects of global climate change.
What critics don't often say is that the same logic applies to the world today. The U.S., Japan, and Western Europe today have average incomes of roughly $40,000 per capita. The poorer half of the world's population today have incomes of less than $6,000 per capita. I believe that the same logic which says that we today need our $70 more than the people of 2100 need an extra $500 also tells us that we ought to tax the world's rich in the OECD more and more to fund world development as long as each extra $500 in first-world taxes generates even as little as $70 in extra poor-periphery incomes. If we in the world's rich now are stingy toward the (likely to be much richer) future and want to leave them our environmental mess to deal with, we should be lavish toward our poor brothers and sisters today. If we today are stingy toward our poor brothers and sisters now, we should be lavish toward our descendents.
At least, that is what we should do, if our actions are based on some moral principle--rather than on the principle that what we have, we hold.
Friedman Completed Keynes
J. Bradford DeLong
The most famous and influential American economist of the past century died in November. Milton Friedman was not the most famous and influential economist in the world -- that honor belongs to John Maynard Keynes. But Milton Friedman ran a close second.
From one perspective, Milton Friedman was the star pupil of, successor to, and completer of Keynes’s work. Keynes, in his General Theory of Employment, Interest and Money , set out the framework that nearly all macroeconomists use today. That framework is based on spending and demand, the determinants of the components of spending, the liquidity-preference theory of short-run interest rates, and the requirement that government make strategic but powerful interventions in the economy to keep it on an even keel and avoid extremes of depression and manic excess. As Friedman said, “We are all Keynesians now.”
But Keynes’s theory was incomplete: his was a theory of employment, interest, and money. It was not a theory of prices. To Keynes’s framework, Friedman added a theory of prices and inflation, based on the idea of the natural rate of unemployment and the limits of government policy in stabilizing the economy around its long-run growth trend – limits beyond which intervention would trigger uncontrollable and destructive inflation.
Moreover, Friedman corrected Keynes’s framework in one very important respect. The experience of the Great Depression led Keynes and his more orthodox successors to greatly underestimate the role and influence of monetary policy. Friedman, in a 30-year campaign starting with his and Anna J. Schwartz’s A Monetary History of the United States , restored the balance. As Friedman also said, “and none of us are Keynesian.”
From another perspective, Friedman was the arch-opponent and enemy of Keynes and his successors. Friedman and Keynes both agreed that successful macroeconomic management was necessary - that the private economy on its own might well be subject to unbearable instability and that strategic, powerful, but limited economic intervention by the government was necessary to maintain stability. But, while for Keynes, the key was to keep the sum of government spending and private investment stable, for Friedman the key was to keep the money supply -- the amount of purchasing power in readily spendable form in the hands of businesses and households-- stable.
A relatively minor, technical difference in means, you might say. A difference of opinion that rested on different judgments about how the world works, which could (and ultimately was) resolved by empirical research, you might say. And you would be half right. For this difference in means, tactics, and empirical judgments rested on top of deep gulf in Keynes’s and Friedman’s moral philosophy.
Keynes saw himself as the enemy of laissez-faire and an advocate of public management. Clever government officials of goodwill, he thought, could design economic institutions that would be superior to the market -- or could at least tweak the market with taxes, subsidies, and regulations to produce superior outcomes. It was simply not the case, Keynes argued, that the private incentives of those active in the marketplace were aligned with the public good. Technocracy was Keynes’s faith: skilled experts designing and fine-tuning institutions out of the goodness of their hearts to make possible general prosperity -- as Keynes, indeed, did at Bretton Woods where the World Bank and IMF were created.
Friedman disagreed vociferously. In his view, it usually was the case that private market interests were aligned with the public good: episodes of important and significant market failure were the exception, rather than the rule, and laissez-faire was a good first approximation. Moreover, Friedman believed that even when private interests were not aligned with public interests, that government could not be relied on to fix the problem.
Government failures, Friedman argued, were greater and more terrible than market failures. Governments were corrupt. Governments were inept. The kinds of people who staffed governments were the kinds of people who liked ordering others around.
At the same time, Friedman believed that even when the market equilibrium was not the utilitarian social-welfare optimum, and even when government could be used to improve matters from a utilitarian point of view, there was still an additional value in letting human freedom have the widest berth possible. There was, Friedman believed, something intrinsically bad about government commanding and ordering people about -- even if the government did know what it was doing.
I do not know whether Keynes or Friedman was more right in their deep orientation. But I do think that the tension between their two views has been a very valuable driving force for human progress over the past hundred years.
Communist revolution is necessary and inevitable because...
The Technology Marx: ...capital is not a complement to but a substitute for labor, and so technological progress and capital accumulation that raise average labor productivity also lower the working-class wage. Hence the market system cannot and will be seen to be unable to deliver the good society we all deserve, and it will be overthrown.
The Market Extent Marx: ...businessmen continually extend the domain of captalism, and competition from poor workers in newly-incorporated peripheral regions puts a lid on the wages of labor. Hence inequality grows in the core, and triggers revolution.
The Unveiling Marx: ...previous systems of hierarchy and domination maintained control by hypnotizing the poor into believing that the rich in some sense "deserved" their high seats in the temple of civilization. Capitalism unveils all--replaces masked exploitation by naked exploitation--and without its ideological legitimation, unequal class society cannot survive.
The Ideology Marx: ...although the ruling class could appease the working class by sharing the fruits of economic growth, they will not. They are trapped by their own ideological legitimation--they really do believe that it is in some sense "unjust" for a factor of production to earn more than its marginal product. Hence social democracy will inevitably collapse before an ideologically-based right-wing assault, income inequality will rise, and the system will be overthrown.
The Solidarity Marx: ...factory work--lots of people living in cities living alongside each other working alongside each other develop a sense of their common interest and of class solidarity, hence they will be able to organize, and revolt.
Who is the real Marx? Ah, grasshopper, not until you have learned not to ask that question will you be able to snatch the pebble from my hand...
Total Installed Steam Horsepower in Britain:
In 1800: the equivalent of seven SUVs
In 1870: the equivalent of the motor vehicles registered in Berkeley today...
We Are Live at Salon, with an Obituary for Milton Friedman
J. Bradford DeLong (2006), "A Man Who Hated Government," Salon (November 16, 2006) http://www.salon.com/news/feature/2006/11/17/milton_friedman/
Also see:
Sam Brittan at the Financial Times: Salon (November 16, 2006) http://www.salon.com/news/feature/2006/11/17/milton_friedman/
Greg Ip at the Wall Street Journal: http://online.wsj.com/article/SB116369744597625238.html?mod=hps_us_at_glance_most_pop
Steven Pearlstein at the Washington Post: http://www.washingtonpost.com/wp-dyn/content/article/2006/11/16/AR2006111601779_pf.html
J. Bradford DeLong (2006), "A Man Who Hated Government," Salon (November 16, 2006) http://www.salon.com/news/feature/2006/11/17/milton_friedman/
"Lord, enlighten thou our enemies," prayed nineteenth-century British economist and moral philosopher John Stuart Mill in his Essay on Coleridge http://olldownload.libertyfund.org/Texts/MillJS0172/Works/Vol10/PDFs/Mill_1277.pdf. "Sharpen their wits, give acuteness to their perceptions, and consecutiveness and clearness to their reasoning powers: we are in danger from their folly, not from their wisdom; their weakness is what fills us with apprehension, not their strength."
For every left-of-center American economist in the second half of the twentieth century, Milton Friedman (1912-2006) was the incarnate answer to John Stuart Mill's prayer. His wits were smart, his perceptions acute, his arguments strong, his reasoning powers clear, coherent, and terrifyingly quick. You tangled with him at your peril. And you left not necessarily convinced, but well aware of the weak points in your own argument.
General William Westmoreland, testifying before President Nixon's Commission on an All-Volunteer [Military] Force, denounced the idea, saying that he did not want to command an army of mercenaries. Milton Friedman interrupted him: "General, would you rather command an army of slaves?" Westmoreland got angry: "I don't like to hear our patriotic draftees referred to as slaves." And Friedman got rolling: "I don't like to hear our patriotic volunteers referred to as mercenaries. If they are mercenaries, then I, sir, am a mercenary professor, and you, sir, are a mercenary general." And he did not stop: "We are served by mercenary physicians, we use a mercenary lawyer, and we get our meat from a mercenary butcher" http://www.davidrhenderson.com/articles/0199_thankyou.html. As George Shultz likes to say: "Everybody loves to argue with Milton, particularly when he isn't there."
Thinking as hard as he could until he got to the root of the issues was his most powerful skill. "Even at 94," Chicago economist and Freakonomics http://www.amazon.com/exec/obidos/ASIN/006073132x/ author Steve Levitt wrote on his website yesterday, "he would teach me something about economics whenever we talked" http://www.freakonomics.com/blog/2006/11/16/sad-news-milton-friedman-has-died/. In this morning's New York Times http://www.nytimes.com/2006/11/17/business/17milton.html?ex=1321419600&en=a0db578046e72e19&ei=5088&partner=rssnyt&emc=rss, Chicago economist Austen Goolsbee quotes from Milton Friedman's Nobel autobiography:
Friedman said that when he arrived [at the University of Chicago] in the 1930s, he encountered a "vibrant intellectual atmosphere of a kind that I had never dreamed existed."
"I have never recovered."
His world-view began with a bedrock faith in people, in their ability to make judgments for themselves, and thus an imperative to maximize individual freedom. On top of that was layered a deep faith and conviction that free markets were almost always the best and most magical way of coordinating every conceivable task. On top of that was layered a powerful conviction that a look at the empirical facts--a marking-to-market of your beliefs to reality--would generate the right conclusions. And on top of that was layered a fear and suspicion of government as an easily-captured tool for the enrichment of cynical and selfish interests that sought to grab whatever they could. Suffusing all was a faith in the power of argument and the utility of reason. He was an optimist: people could be taught the truths of economics, and if they were properly taught then institutions could be built to protect all against the corruption and overreach of the government.
And he did fear the government. He hated government's and society's sticking their nose into people's private business. And he interpreted "people's private business" extremely widely. He hated the War on Drugs, which he saw as a cruel and destructive breeder of crime and violence. He scorned government licensing of professions--especially doctors, who heard over and over again about how their incomes were boosted by restrictions on the number of doctors that made Americans sicker. He feared deficit spending: cynical politicians could pretend that the costs of government were less than they were by pushing the raising of taxes to pay for spending off into the future. He sought to innoculate citizens against such political games of three-card-monte: "Remember," he would say, "to spend is to tax."
This did not mean that government had no role to play. Enforcement of property rights, adjudication of contract disputes--the standard powerful rule-of-law underpinnings of the market--plus a host of other government interventions when empirical circumstances made them appropriate: Mayor Ken Livingstone's congestion tax on cars in central London is Milton Friedman's. Friedman's negative income tax is one of the parents of what is now America's largest anti-poverty program: the Earned Income Tax Credit. And, most important, government had a very powerful and necessary role to play in keeping the monetary system working smoothly through proper control of the money stock. If there was always sufficient liquidity in the economy--enough but not too much--then you could trust the market system to do its job. If not, you got the Great Depression, or hyperinflation.
In his belief that the government was required to undertake relatively narrow but crucially important strategic interventions in order to stabilize the macroeconomy--keep production, employment, and prices on an even keel--Milton Friedman was in the same chapter if not on the same page as John Maynard Keynes, the economic giant of the previous generation whose doctrines and influence Friedman worked tirelessly to supplant and minimize. The Great Depression had convinced Keynes that central bankers alone could not rescue and stabilize the market economy. In Keynes's view, stronger and more drastic strategic interventions were needed to boost or curb demand directly. Friedman and his coauthor Anna J. Schwartz argued in their Monetary History of the United States that this was a misreading of the lessons of the Great Depression, which in Friedman's view was caused by monetary mismanagement or perhaps could have been rapidly alleviated by skillful monetary management alone. Over the course of forty years, Friedman's position carried the day. Federal Reserve Chair Ben Bernanke right now holds Milton Friedman's view, not John Maynard Keynes's, of what kind of strategic interventions in the economy are necessary to provide for maximum production, employment, and purchasing power, and stable prices.
Milton Friedman's thought is, I believe, best seen as the fusion of two strongly American currents: libertarianism and pragmatism. Friedman was a pragmatic libertarian. He believed that--as an empirical matter--giving individuals freedom and letting them coordinate their actions by buying and selling on markets would produce the best results. It was not that he thought this was natural law--that markets always worked best. It was, rather, that he believed that places where markets failed were atypical; that where markets did fail there were almost always enormous profit opportunities from entrepreneurial redesign of institutions; that the market system would create now opportunities for trade that would route around market failures; and that government failure was pervasive--that any expansion of government beyond the classical liberal state would be highly likely to cause more trouble than it could solve.
For right-of-center American libertarian economists, Milton Friedman was a powerful leader. For left-of-center American liberal economists, Milton Friedman was an enlightened adversary. We are all the stronger for his work. We will miss him.
Man’s Fate/Man’s Hope
J. Bradford DeLong
I certainly do not want to downplay or dismiss this side of humanity’s history and our current events. I do not want anyone to forget that over less than half of the years contained in the past century—from the outbreak of World War I to the famine that followed Mao’s “Great Leap Forward”—about one in every ten people alive on this planet was shot, gassed, stabbed, burned, or starved to death by his or her fellow human beings.
But that is not the whole story. Indeed, the human abattoirs of the twentieth century—and even the slaughterhouses that various humans are preparing now—may not appear from the perspective of the future to be the most important part of our experience and condition, and of what our descendants will regard as their history. For them, the most important features of what our experience may instead be:
· What UN demographers foresee as the end of the population explosion: the halting of the growth of the human population at ten billion or so around the middle of this century;
· The coming of a truly humane world as the numbers of those engaged in subsistence agriculture, or those whose wages are kept at subsistence-agriculture levels by labor market pressure from those who have migrated from the countryside into teeming cities, fall to a small fraction of human populations.
For most of the twentieth century, large chunks of the world remained desperately poor for one or more of four related reasons: (1) criminal misgovernment; (2) lack of the machines to do anything useful and productive in the world economy besides subsistence agriculture and unskilled service work; (3) lack of the public education system needed to give people the literacy and the skills to operate the machines; and (4) barriers (legal and physical) that kept people where demand was low from selling the products of their work where demand was high.
But over the course of the late twentieth century, these four causes of desperate poverty have largely fallen away. Governments as bad as Kim Jong-Il’s in North Korea are now extremely rare. Nearly all countries in the world are at most one generation away from near-universal literacy. The fast pace of technological progress has created a cornucopia of invention and innovation that is open to every place that can send someone away to get a master’s degree in engineering.
Most important, the barriers to making goods and services in Mauritius, Mozambique, or Mauritania and selling them in New York or Berlin, Santiago or Tokyo are dropping swiftly. The gargantuan container ships that first appeared a generation ago brought one revolution to world trade.
The use of information technology to manage transportation and distribution channels is likely to have a similarly profound effect. Moreover, the advent of the Internet and the fiber-optic cable will do as much to make service-sector work internationally tradable as the coming of the iron-hulled steamship a century and a half ago did to make bulk agricultural products and manufactures internationally tradable.
It will take at least a generation for these changes to make themselves felt in most corners of the world. But inside the industrial core of the world’s rich countries there is already concern about these looming revolutions. Indeed, this concern will only become sharper and stronger, as citizens in rich countries fear that as the remaining barriers to international trade fall, industrial-core income distributions, social orders, and politics will be shaken to their foundations.
For the world as a whole, however, the next two generations are ones that will bring an extraordinary opportunity for economic growth and world prosperity. Perhaps at the end of history there is a pot of gold, after all.
