Abstract
The crisis of 2008–2009 has been viewed primarily as a financial one, which has spilled over into the economy more generally. I want to argue that there is a much deeper crisis, of which the present one is a result. The deeper crisis is political: more specifically, it is a crisis in the ideology and social ethos of the American people. I refer to what has happened to the thinking of United States citizens since the Second World War, and the dangers that that transformation entails for world peace and cooperation—let alone the creation of an economic regime in which deep financial crises do not occur. Short of a change in the ideology of a many of its citizens, I do not believe the United States can succeed in preventing a repeat performance, perhaps many encores, which become increasingly severe.
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Notes
For example, if everyone faces a probability 10% of unemployment, everyone would assent to a tax rate of 10% on his income when employed, receiving 90% of his income when unemployed. This income-smoothing policy, which gives one an expectation of a constant income of 90% of one’s salary, whether employed or not, however, cannot be so easily enacted when risks are heterogeneous. Indeed, there is no simple policy which is the ideal policy for all voters, unless the exposures to risk in the population are identical. That kind of risk homogeneity makes it possible to pass universal insurance even when all are voting in a purely self-interested manner. It is not even necessary that all voters have the same attitudes towards risk, as long as they are each, to at least some degree, risk averse.
For those too young to have been schooled in these numbers, it is worth mentioning that US casualties were approximately 500,000.
The amalgamation between the CIO and AF of L occurred later.
Which is to say that if the white southern vote were distributed between the two parties the way the white vote is distributed in the rest of the population, the Democrats would never lose elections. In Alabama, only 13% of white voters voted for Senator Barack Obama in the 2008 election.
At least, they recommended redistribution among whites. See Katznelson (2005).
See Roemer et al. (2007, Chapter 4). In a two party model of political competition, where parties compete on the economic and race issues, we compute that the race issue may have reduced the average tax rate by ten percentage points. The analysis proposes a theory of political equilibrium, which is a kind of Nash equilibrium, when policies are multi-dimensional, calibrates it to US data for the period 1972–1992, and computes what would happen, counterfactually, to the tax rate at the political equilibrium, had voters been less racist than they actually were.
“Nixon’s southern strategy: It’s all in the charts,” New York Times, May 17, 1970.
Phillips-Fein (2009, p. 27).
See Phillips-Fein (2009, p. 177).
Klinkner and Smith (1999) maintain that the only times when African-Americans have improved their lot in the US have been after wars.
Thus the cold war served a double purpose: it contained the Soviet Union, and the domain of socialism internationally, while also building anti-communist and anti-socialist views at home.
John Kenneth Galbraith argued, correctly in my view, that the Vietnamese liberation movement was primarily nationalist, not communist, and posed no threat to world capitalism. He did not contest the domino theory, but rather, said that Vietnam was not a domino. This view, however, was not dominant in decision-making circles.
These data, and many more, can be found in Wolff (2007).
Capital gains only count as income in the year one sells the asset in the US.
I am grateful to Kenneth Couch for assembling the transfer data by income quantile for the Roemer (2011) article.
For non-statisticians: a centile is one-hundredth, a quintile is one-fifth, a decile is one-tenth: the generic term is ‘quantile.’
For a summary of their work, see Makowski and Ostroy (2001).
An interesting book by Joseph Carens (1981) argued that the main psychological need of individuals is for the respect of their peers, which is established in a market economy by signaling one’s social value with high consumption. He proposed a “utopian” alternative, where salaries are public information, thus making the consumption signal unnecessary. Then market incomes could be taxed and redistributed to provide more equal consumption.
This perhaps puts too fine a point on the relationship between political view and beliefs about labor-supply elasticities. Conservatives say they believe that elasticities are high because that view justifies low taxation. And conversely for liberals.
The utility possibilities set for a society is the set of distributions (or profiles) of utility that can be achieved, by varying tax policy or using other redistributive tools, given society’s technological knowledge and psychology. As we see below, we may define utility possibilities sets under various different kinds of constraint.
If skill differences are not morally arbitrary, then the theory of equal opportunity asserts that those who have worked hard to acquire their skills may deserve more income than others. This important post-Rawlsian point is tangential to the present discussion, but see, for example, Cohen (1989).
I must point out that, 20 years before Cohen, Kolm (1971) made a distinction between maximinning over the sets R and C: he called the result of maximizing over C justice, and the result of maximizing over the set R, “practical justice.” Rawls, however, did not make this distinction.
We may assume that asymmetric information continues to exist in the well-ordered Rawlsian society. But citizens say to the tax authority: “Issue a menu of labor supplies, as a function of skill, which will maximize the utility of the worst-off individuals. Since we all believe in this conception of justice, we will respond by honestly choosing the labor supplies recommended for our individual skill levels.” In other words, the Cohen conception does not require omniscience of the tax authority, but rather a change in the ethos of individuals.
Cohen (2010) indeed concludes his short book by stating that the design problem is a great intellectual challenge for the left. I hope to address it in future work.
I note that several British CEOs recently declined to accept their bonuses. Thus far, this asceticism has not occurred in the US.
I write “naïve” because economic theory, if properly understood, is perfectly clear on this point. Free-market salaries are only welfare-improving in the absence of externalities. The first theorem of welfare economics posits an externality-free world.
See Simon Schama, “The world teeters on the brink of a new age of rage,” Financial Times, May 22, 2010, p. 7.
There already exist some government provided health services (the Veterans’ hospitals, county public-health clinics), and government insurance (Medicare, Medicaid).
However, the recent failure of Republican Congressman Paul Ryan’s budget proposal, to replace Medicare with a voucher plan, has not met well with the polity. Ryan attempted to split seniors (those over 57 years old currently) from younger citizens, by proposing that the voucher plan begin in 8 years. That a Republican lost a recent congressional election in a long-standing Republican district in New York State, shortly after the plan was broached, has been interpreted as a rejection by citizens of the Ryan plan.
In 2010, 5,100 randomly chosen students from Shanghai took the international PISA tests for the first time, representing China. They came in first internationally (the test was administered n 65 countries) in all three tests—reading, mathematics, and science. The US placed 17th, 31st, and 23rd, respectively, in the three tests. US Secretary of Education Arne Duncan said the results were a “wake-up call.” (New York Times, Dec. 20, 2010).
See, for example, Robert Reich, “The senate finance bill merits two cheers,” Financial Times, May 24, 2010, p. 9.
How can one explain the extreme skepticism on the right of the climate-change danger? Perhaps cognitive dissonance is the answer. If one believes that climate-change is real, then large-scale state intervention will be required, and that is ideologically unacceptable. Therefore, climate change is a hoax. I thank David Lefkowitz for this suggestion.
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Acknowledgments
I am grateful to John Bullock for comments and some corrections. I thank Angelo Corlett for inviting me to publish the paper here, even though political philosophy occupies only a minor place in the discussion.
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Although this essay does not mention Brian Barry, I wish to dedicate it to his memory, because Brian was acutely concerned with the topic, and I like to think, would have been sympathetic to its line of argument. I relied on Brian over the years for his deep and canny political insights, his steadfast moral compass, and his intolerance of apparently sophisticated justifications of the status quo. He had a nose for what was right, and possessed much more than an intellectual interest in social justice.
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Roemer, J.E. Ideology, Social Ethos, and the Financial Crisis. J Ethics 16, 273–303 (2012). https://doi.org/10.1007/s10892-011-9115-1
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DOI: https://doi.org/10.1007/s10892-011-9115-1