Trying to Understand Economic Justice

The picture is of Phryne of Thespia being tried in Athens. Phryne was a good time girl who became fabulously rich. She was scandalous, but aware of her charms, and was once arraigned before Judges because she got into the water (inspiring statues of Aphrodite amongst others) in the nude, in full view of the citizens. Her lawyer was eloquent, but the Jury looked severe; so, clever thing, she got her kit off and asked for an alternative verdict. She was acquitted on all counts.
Gerome isn't, of course, St Jerome, but I thought of him. He used to have a really good time in one way or another (I presume barely ethically, with drink or women, though you never know), and then feel so guilty he'd periodically reevaluate himself. What better example for modern economics?

Over the course of the Summer, I spent a great deal of time attempting to understand what people meant by justice. Augustine said that states without it were bands of robbers--something British readers attempting to deal with Her Majesty's Revenue and Customs and their latest debacle may agree with. But what is economic justice?

Amartya Sen posed the question well in his latest revisiting of the philosophical principle. He introduces a 'flute problem', which could, I suppose, bring each of us out to more knowledge of ourself. Imagine a world in which a person has made a flute. Another can play it very well; a third has never had one. Who should have it? The utilitarian would say that the person who can bring the greatest benefit to society with it would be the person who can play it well. The libertarian would say that the flute is the property of the person who made it, as would a certain sort of Marxist, and the redistributionist would say that 'society' should give it the person who has never had a flute before.

Multiply that problem a lot, and you get something of the flavour of our present macroeconomic debate. Around that debate, however, profound differences have emerged between those who take a social scientific approach, those who are mathematically trained, and those who are concerned with philosophical justice but who haven't developed a proper economic critique of how to get to it.

The social scientists are currently flailing. We're part of a herd; we're motivated by 'animal instincts'; confidence is everything in the economy; a paradigm shift in economics is happening and misconceived pseudo-markets are failing. George Soros' money is behind a good bit of this, as are the sinners-turned-preachers like Nassim Taleb who have made their money and who now want to point out how mad the process of capital accumulation was for them.

Of all the arguments, I think that the one concerned with a paradigm shift is closest to the mark. What I mean by that is that the way of interpreting the world that currently reigns amongst those who keep an eye on economics is shimmering, and may soon be displaced. It's a cliche to call for a new economics, but I do wonder if our theories need to be regenerated in the face of electronic money and the body of antagonism to traditional economies and societies created by globalisation in its new form.

For instance, simple monetary theories, however elaborated, based on assumptions about averaged individual responses to money balances and the effect of changes in money supply do not make sense in a world in which electronic transactions effectively turn individuals into hubs for electronic money flows. Some people, at the moment, are experiencing their own stagflation, as banks soak up electronic QE, cut credit, raise charges, and take no account of food or real consumer inflation. Similarly, CPI, RPI and the income tax system, are predicated on people having at all moments access to funds that are new to them (rather than manipulated credit balances), equity which they own (rather than the bank) and a degree of control and predictability in their spending. Other people are expected to behave as those with low debts and spare capital always would have behaved, except they are not.

People are now located, in the Atlantic world especially, in a strange wonderland. Their governments generate money electronically, leveraged on bonds which are faith-based instruments owned by other governments whose people make things and who need to wash their profits around. Governments more than occasionally buy those bonds themselves. With the money they have lent themselves, they intervene to stop banks and funds which are part-owned by those governments from either destroying the euro, undermining the dollar, or driving up the franc and pound. Banks who profit from the flows, and who are the recipients of what are in effect huge subsidies, spend their time extracting a sort of economic rent from land values, loans, equity, and debt which means that ordinary people, and small businesses, are not benefitting from any of this process except insofar as they are not suffering from collapsed banks and hyperinflation, yet.

Economies are, in essence, being run with tools that purport to work on closed systems, with Keynesian or monetarist ideas that work in the same way, except that the system is not closed. They economists attempting to run the system are acting like parodies of nineteenth century scientists, suspecting either the existence of relativity or the luminiferous ether, but without any means of proving themselves right or wrong. Worse; what if the economists are nineteenth century scientists who have just discovered black holes and multiverses? Could they have processed it at all?

Traditional economists aren't much better. The insistent application of mathematical models based around correlation, standard deviation, or theories of indifference has proven bankrupt, literally. Yet, still convinced that their earth is the centre of the universe, they add epicycles here and ignore the evidence of their eyes there. The most interesting have dived into economic history, and have begun to question whether taxes should be based on economic rent, in the form of a land value tax, rather than income. Some have become fundamentalists; others, in the popular book world reflecting the light on the walls of the academic cave, have turned into Duns Scotus and identified lists of things that their God is not.

I should diverge for a moment from my self righteousness. The problem is that those economists who have the mathematical chops to understand that individual behaviours can't translate into a sort of predictive history of communities easily have avoided the question with a complex proof that behaviours can be charted if you assume that they are fixed and that your assumptions are correct. Dispense with doubt, and you get the magnificent 'random walk within corridors' of the Ehrenfest Urn model-- 'stochastic resonance with reflecting barriers'. But what if the barriers are fluid and not generated by the system? What if you're looking at atoms when you should be looking at waves and strings in a dozen wrapped dimensions?

Maths isn't all maths, of course. Biologists and systems mathematicians are different from probabilists like Keynes or those obsessed with the application of calculus to marginal economics, and all are very different from physicists. My impression of physicists today is that they all vary, between topographers of spacetime and apostles of Leibniz. Imagine what all of this can do to people who, after all, earn their money by giving very clever mitigation for men to make loads of money, or for men who have made loads of money and who want to keep it, or for rich men they want to be.

This sort of confusion is precisely the sort of thing that historians, rather than economists, would recognise. Grand theorists from (the bad)Oswald Spengler to (the intriguing) Mancur Olsen, for instance, have long predicted a moment when complexity and self-seeking would tip from pluralism to a sort of lobby-based anarchy that would strangle the ordinary economy. Even if you weren't given to such grand schemes, things like the unsustainability of cheap oil in an hydrocarbon economy, the 'ponzi' nature of social security and national insurance schemes, and the demented growth of the servile state determined to shackle its own citizens and opposed only by people determined to switch the chains to someone else, may have given you a clue.

I'm beginning to wonder. Having read and tried to absorb a good part of John Medaille's work on distributism, if the time for a new-old idea based on the insight that power follows property and that real property--not bank-owned property--should be distributed as widely as possible hasn't come around.

I started this summer off thinking about alternative economic theories. In the next few days, I want to explore the last alternative--a last to do by that all should believe in, to misquote Auden. An inflationary crash-- a sort of stagflation 2.0--must come at some point to the modern west. People should begin to look beyond it, to what should happen afterward.

So, well, here we go. I apologise to any regular readers I have left, after my long neglect. Distributism here I come, and I'll start with a little list of the sort my one demented reader knows I love.