Pragmatic Utopia #27

A few weeks ago I got interested in market socialism and promised to go learn more. To review, market socialism is a catch-all term for egalitarian economies that combine some form of public or cooperative ownership with the market system. Obviously “socialism” and “central planning” have been combined in common parlance, but market socialism is an effort to sever that association. Today, I’ll report back on one of the most sophisticated proposals for a market socialist economy, John Roemer’s idea of “coupon socialism.”

Bears on the Alaska pipeline. The Alaska Permanent Fund is probably the closest thing in America to Roemer’s coupon socialism proposal (although not THAT close)

John Roemer is a rare breed: a Marxian economist. He is closely associated with a school of thought known as Analytical Marxism, whose proponents tried to reconstruct Marxian theory using the tools of modern social science (in Roemer’s case, equilibrium analysis and game theory). There is one big difference between Roemer’s version of Marxism and most others: he thinks the most pernicious inequality is unequal ownership of productive assets rather than unequal power between workers and management. I find this focus on capital ownership appropriate for the modern day; in Piketty’s Capital, in data on the racial wealth gap, we see that ownership drives inequality–especially at the very high end of the distribution–more than income.

Roemer presents his big idea in A Future for Socialism, but I read a condensed version in Equal Shares: Making Market Socialism Work, an edited volume where Roemer’s proposal is followed by commentary and criticism from ten or so sympathetic reviewers. I think this is an awesome format for a book. You read the proposal, it seems brilliant at first, then you watch the very thoughtful reviewers poke holes in it from every practical and philosophical angle.

What problem is Roemer trying to solve? It seems that his main objection to our current political economy is that a small group of individuals actively fight, through politics, for high levels of profit-inducing public bads–environmental degradation, consumer fraud, socialized financial risk. This is Bernie Sanders’s millionaires and billionaires speech overlaid with a Mancur Olson-style warning about the pathological behavior of special interests. The task for market socialism is to distribute goods through the price system and distribute the profits relatively equally among the population “without unacceptable costs in efficiency.” We stick with the price system because by now almost everyone has been persuaded that Soviet-style planning doesn’t work and Hayek and the Austrians were right about prices as signals. So the question is, can you preserve a market economy and just share the profits equally?

Here’s how Roemer would do it. There are two kinds of money: dollars and coupons. Dollars are what you’re used to; coupons can only be used to purchase ownership rights in firms. Upon turning 18, everyone receives an equal number of coupons from the government. You can’t trade your coupons for dollars (except with the Treasury); you can only allocate them to mutual funds who then buy shares in firms on your behalf. When you hold the shares of a company, you get certain ownership rights, primarily the right to receive dividends and the right to vote for directors. When you die, all shares and unspent coupons revert to the state.This 100% inheritance tax and the non-transferability of coupons prevents ownership from becoming concentrated in the hands of wealthy capitalists as we have today. Instead, we all receive roughly equal capital income except insofar as you choose better mutual funds than I do. The employment system works the “normal” way, so you can make as much money in the labor market as you’d like if you get nostalgic for inequality.

Some more details on how the financial system works. Firms raise capital not by selling stock (since coupons can’t be exchanged for dollars) but by taking on credit from banks, which are themselves public companies in the same system. Roemer’s vision of using banks to monitor firms (rather than the threat of takeover we have in the U.S. stock market) draws heavily on the Japanese keiretsu banking system. Finally, Roemer leaves it as an open question how to deal with new private firms that crop up: whether they would be purchased by the government and auctioned for shares in the public sector, or whether private firms could coexist with public ones. There are lots of other details needed to make this system work which I won’t go into; if you see a glaring hole let me know and I’ll tell you if and how Roemer tried to solve it.

Roemer’s interlocutors all share an interest in some form of market socialism, but that’s about it. There were many types of criticism, but I’ll share two main buckets. First, a handful of the reviewers were skeptical of the technical details of Roemer’s proposed financial market. Even if rich people aren’t allowed to use their cash to buy equity in companies, they could find workarounds. They could buy a derivative that tracks corporate share prices. Or, since some forms of debt allow for variable returns, the rich could just become lenders rather than shareholders. And on that topic, since firms would have to finance their activities entirely through debt, one commentator worries that citizen shareholders would encourage firms to take huge risks since from their perspective there’s only upside. Finally, the 100% inheritance tax would warp investors’ time preferences: older people would want to invest in companies that basically liquidate all their assets and pay out enormous dividends in the short term. This concern is why Roemer specified that all investing would have to go through mutual funds, but there’s nothing preventing certain funds from specializing in these “cash cow” companies and recruiting older investors. The solution to this problem might need to be a less severe inheritance tax.

Second, a larger group of reviewers raise philosophical concerns about the kind of citizens and the kind of democracy Roemer’s proposal gets us. A common criticism was that while Roemer’s proposal achieves a more egalitarian resource distribution, it does not achieve much more egalitarian control over the economy. William Simon, Debra Satz, Josh Cohen, Joel Rogers, and Erik Olin Wright all express an interest in a version of socialism that affords some control over investment decisions to organizations–like trade associations, unions, worker cooperatives–that facilitate democratic participation. Indeed, it’s unclear what the value of citizen ownership of the coupons is supposed to be.  Simon argues that coupons would bring out the worst aspects of lotteries, where people take unwise risks. It seems to me that most of us are more qualified to contribute to local governance and the management of our workplaces than we are to invest in the stock market.

I still take away some very helpful ideas from Roemer’s proposal and the responses. First, although I am unsure about his solution, I find his articulation of the problem very accurate, re: the divergence between the public interest and the interests of wealthy capital owners. Second, I appreciate how Roemer challenges us to think about property on a spectrum between “public” and “private.” His coupons are a clever example of a property form that has both private characteristics (you choose how to allocate it; you have a right to dividends) and public ones (you can only spend it on stock; you can’t transfer it). I think we should be more creative in imagining new forms of property. Third, the thoughtful reviewers suggested many good ideas that deserve their own full exploration. One that stood out was Fred Block’s comments on “design principles” for financial markets. He thinks that financial markets should be segmented (e.g. separate firms specializing in mortgages vs. currency vs. stocks) to prevent funds flowing into speculative investments and to encourage specialized expertise in each arena. This idea will require a separate post.

1. The massively multiplayer role-playing game of life
Ryan Avent will be the star of this week’s links. In his first appearance, Avent wrote about the trend of men dropping out of the labor force and spending much of their time playing video games. Avent is drawing mostly on the research of Erik Hurst, which I’ve discussed here before. Throughout the piece, Avent is careful to remain agnostic about causation; it’s unclear when people are just filling their unemployed time with something, which happens to be video games, and when they are actually more willing to leave work in the first place because the alternative of gaming is so attractive. The second possibility shouldn’t be so shocking; games have gotten extremely compelling and many low-wage jobs are…not. People who love any hobby “do not need to spend much time on the job each week before the income gain from another hour at work starts to look a poor trade-off for an additional hour away from it.” Avent closes on an impressively realistic note, free from the moralizing you might expect: “Whether it is emptier and sadder than [a life] spent buried in finance, accumulating points during long hours at the office while neglecting other aspects of life, is a matter of perspective. But what does seem clear is that the choices we make in life are shaped by the options available to us. A society that dislikes the idea of young men gaming their days away should perhaps invest in more dynamic difficulty adjustment in real life.

2. Poverty and productivity
Here’s Avent again. He’s responding to a frequent claim you see these days that goes: “Why is anyone worried about automation at work when the statistics show very slow productivity growth in recent years?” He thinks those two stories can be reconciled. Here’s the model–note, just a theoretical model that is consistent with our world. First, assume that the digital revolution has created an abundance of labor through globalization, part-time and contractor arrangements, and automation. The people who lose a job due to these forces usually don’t become unemployed; rather, they take a new job with worse pay. “Given the structure of our social safety net, automation tends to increase poverty and inequality rather than unemployment.” As wages fall, it becomes economical to hire people for low-productivity work. So then you get more people working in low productivity jobs, which looks like “declining productivity” in the stats (this is an empirical claim that someone should test…). Next, abundant cheap labor reduces the incentive to invest in future labor-saving technology, further slowing productivity growth. It’s a fascinating model that deserves a closer look. The bolded sentence is the really important thing to keep in mind.

3. Men are the worst, volume 52,831
In the NYT, Thomas Edsall reviews a bunch of research on “the decline of men” in higher education, the workforce, and family life (h/t Harrison Marks). David Autor and co-authors found that boys raised in single-parent households do significantly worse than their sisters in school and employment, which provides a mechanism for the “decline of men” to perpetuate itself and worsen across generations. There are some pretty dire warnings embedded in quotes from psychologists about potential political crisis and social dysfunction if men aren’t sufficiently “civilized” by marriage, labor unions, and organized religion. This stuff will make you think hard about the extent to which bad male behavior is biologically vs. socially determined. In sociology, we naturally hold that it’s completely socially determined but I personally have no idea. If you’ve read something good about sex/gender (this comment implies agnosticism as to which is the right term) differences in behavior that gives fair consideration to biology and social influence, I’d love to hear about it.

4. What is neoliberalism, in one paragraph (a hopeless attempt)
Neoliberalism is the most abused word in social science / political commentary. Matt Stoller read Greta Krippner’s book Capitalizing on Crisis, which I’ve mentioned here before and will do a full review on eventually, and shares the definition of neoliberalism he took away from it. “Neoliberalism is a kind of statecraft. It means organizing state policies as if they are the consequences of depoliticized financial markets. It allows moving power from public institutions to private institutions, and allowing governance to happen through concentrated financial power.” The point of this definition is to distinguish neoliberalism from “real free markets,” which Stoller likes. Wendy Brown also emphasizes that neoliberalism should be understood as a political project where the state “extend[s] and disseminate[s] market values to all institutions and social action.”

5. Could it happen here? It being universal healthcare.
You know a debate is getting involved when it moves from Twitter to Medium. Matt Bruenig and Lyman Stone had a six part debate about the extent to which Nordic social democracy is “exportable” to the American context (Bruenig I, Stone I, Bruenig II, Stone II, Bruenig III,Stone III). The content is very interesting but it’s a little frustrating because they each want to have a different debate. Bruenig wants to stick to the narrow question of whether the small size of the Nordic states makes it easy or hard for them to pull off social democracy. People often say their smallness makes it easy, but he thinks it’s actually much harder (and thus all the more reassuring for the U.S.). One, the Nordics rely heavily on exports and would suffer if their high taxes and wages made their products uncompetitive; and two, people could more easily immigrate to other European countries if they wanted to escape the high taxation.

Stone disagrees with the size argument; he says the Nordics are basically city states in that a high percentage of their population resides in the capital cities. This leads them into much back-and-forth about how to measure ruralness and whether the Nordics are more or less rural than the U.S. But Stone also has many other arguments about why social democracy works in Scandinavia and wouldn’t work here, mostly concerning their institutions and political culture. Bruenig takes a disappointingly mechanical view of institutions: “What I am trying to determine is if the US had its versions of Kela (SSA) and Vero (IRS) operate the same way as they do in Finland (collecting the same or similar taxes, providing the same or similar benefits and services), would it work or not? And by “work,” I mean “there is no technical economic reason why it would fail.” By “work” I do not mean “there is no cultural, political, or other reason why it would fail.””

Fair enough, but I don’t think this is a helpful question. Stone rightfully argues that you need to explain how and why people would consent to a radically different welfare state. Like him, I am skeptical of copy-and-pasting institutions and think you need to draw a path from here to there. I see that as one benefit of the coupon socialism proposal discussed above, i.e. that it builds on a tradition of stock ownership which, for better or worse, is embedded in American custom.

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