I listened to a really interesting podcast recently from the folks at Capitalisn’t. In general it’s a great podcast for thinking about economics issues, and when capitalism does or doesn’t work. The hosts define capitalism more in the free market way of thinking rather than the competitive market way that I prefer. So, a lot of the time when they talk about a way capitalism isn’t working, it seems to me that they are saying free markets aren’t working, and the problem is one which would be solved by more competitive markets. But, I highly recommend this podcast in general.
Anyway, the most recent podcast was an interview with Thomas Piketty, one of the most brilliant economists alive today.
Piketty falls on the left end of the spectrum for economics, meaning he places a lot of emphasis on reaching equality of outcome, rather than just equality of opportunity. I’m not going to open up that discussion right now, but I will point out that his research has been pretty clear in identifying how inequality and the supply side economics tendencies of the last 40 years has created bad results for equality in both opportunity and outcome.
What really interested me in this discussion was when Piketty and co host Luigi Zingales (another brilliant economist) started to debate what it means to have freedom. Piketty’s argument was basically that people can’t have real freedom if there exist enormous amounts of inequality in society. He refers to what economists call price takers. If you are poor, you don’t get to choose when or how you work, you have to work whenever and however you can, or you starve to death. Luigi points out that, if we were to end that system, it would likely require a strong and invasive government to do so. The government would have to aggressively tax and redistribute, and crack down hard on any unfair labor conditions or non-competitive business practices. This in itself takes away freedom.
Both of them are right, and it identifies a central paradox of freedom: If you are free to do whatever you want, then I am not. If I am free to do whatever I want, then you are not. Freedom is, in the way society has defined it, zero sum. It is something that two people cannot have at the same time. Either person A has it, or person B has (or group A and group B), but both cannot have it.
In the pandemic there were a lot of people complaining about their freedom because they thought having to wear a mask was the same thing as concentration camps. The stupidity of that statement aside, it identifies the freedom paradox. If you have freedom to not wear a mask, I lose freedom because of the risk of infection and death. But, if I am free because I am more protected from infection and death, you are less free because you have to wear a mask.
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Back before the pandemic—well, before the conservative movement gave up all it’s principles—conservatives used to understand the old saying, “my freedom to swing my fists ends where your nose begins.”
This is another zero sum freedom example. If I can swing my fists freely, then I can punch you and not be held accountable because I am free. The moment I can be accountable for your nose, I lose freedom. But now, you have gained freedom because you can do things and still have a nose.
The discussion between Piketty and Zingales is basically the same thing, but with more abstract economic concepts. Should a person be free from abusive employers or landlords, or should employers or landlords be free to use their capital as they see fit? We cannot give more freedom to one without first taking it from the other.
We learned from the robber baron age that people in poverty will do just about anything to survive—even lease out their small children to work in difficult conditions. Landlords controlled almost all housing, and were able to charge oppressive rents to tenants that often made child labor the only real choice. Parent’s didn’t have much freedom to choose otherwise. Think of the Newsies movie here. Not only was there child labor, but there was violent suppression of labor movements. The moment the labor movement took these freedoms away from employers, these children and families had more freedom.
Piketty is more or less arguing that the world is too much like the movie Newsies here, and Zingales is pointing out that if we want to solve it in a way that pleases Piketty, we can only do so by also taking away freedom from others.
I certainly don’t think Zingales was advocating for the ability of employers to beat striking workers bloody or force kids to work. But it is true that Piketty’s vision for increased freedom only comes at the expense of the capital owners.
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The paradox of freedom is this. The ultimate end of total and complete freedom is no freedom at all.
If every person can do as they wish, and my freedom does not end where your nose begins, then whoever has the hardest swinging fists has the most freedom. I can only keep my freedom by making sure everyone understands the consequences for trying to take away my freedom. In this hypothetical world of unbridled freedom, whoever has the biggest guns wins. And if I win because I have the most powerful army, now I am the only person who is free because I can do whatever I feel like with you or to you. This ultimate freedom will inevitably lead to an end of freedom as soon as one person has used their freedom to create the power to keep their freedom.
All of western history, from ancient Egypt to colonial Europe, demonstrates this tendency. It was only when people voluntarily gave up some of their freedoms to a democratic government that this pattern unravelled. Since then the struggle, at least in the United States, has been exactly this dichotomy identified by Piketty and Zingales—competition within the democratic system between races, or between capital owners and labor, or between religious groups, or between political parties. And the tendency hasn’t changed—freedom for one through freedom from the other.
So, what is the right answer for freedom?
Maybe it’s capitalism?
And if you’re a subscriber, you might be able to tell where I’m going with this. If you’re not a subscriber, please consider it—it’s totally free.
Many people reading that capitalism might be the answer might have just been tempted to throw their phone at the wall. Look at all the failures of capitalism!
In reality, the United States abandoned capitalism decades ago. We opted for free markets when capitalism requires competitive markets. If markets are free, then the freedom paradox applies to every market transaction; Amazon ends up owning everything.
Capitalism—real competitive markets—solves this problem. If markets are competitive, and a company or person tries to take freedom from you that you are not willing to give up (giving up your time for a fair wage, for instance), you can go to a competitor who will treat you fairly. The anti-competitive company—the anti freedom company—can either choose to honor your freedom the way the competitive company does, or they can go out of business. This is a system much more like the post WWII system than our current one.
Because the unbounded decision making definition has almost always led one taking away the decision making right of another, essentially what I am suggesting here is a new definition of freedom. The definition of freedom that leads to the fewest bounds on decision making might be this: freedom is the ability of everyone to compete fairly in competitive markets.
These markets are not just economic markets. Politics, dating, religion, sports, and so many other areas are also markets. Nobody, in any of these markets, should have to give away their freedom without choosing to do so for what they deem to be fair compensation.
In this way, the role of the government is to ensure freedom. If markets are not competitive people will lose freedom.
This will require that some people lose some of the unbounded decision making they might want. Does wearing a mask keep you from competing in a market? No. So wear it, because a Covid infection will keep people from competing in a market—sometimes permanently.
This does not mean equality of outcomes, nor should it. Markets don’t guarantee happiness, they guarantee the pursuit of happiness. And keeping that pursuit as a goal will make more people better off than any other system. Everyone gets equal opportunity, and everyone gets better.
In a world where the goal is for everyone to have equal outcomes, advancements are less likely. In the United States we don’t give everyone equal opportunity—not even close. We should, and we need to. But that doesn’t mean everyone will get the same things. Let me give an example.
If everyone gets the same opportunity, then we can assume everyone gets the same quality education from Kindergarten through 12th grade. If everyone gets equal outcomes we must use more resources for lower achieving students, thereby taking resources from all other students. Yes, this will raise the outcomes of the lowest students; but, by taking resources from everyone else, we have lowered the quality of their outcomes—even if only marginally.
If this happens, then we can expect fewer high achievers. Does taking away resources from everyone to give extra resources to the lower achievers make the next Bill Gates, Jeff Bezos, or Steve Jobs less likely? Yes, even if only marginally. If this had been our societal strategy, would we live in a world where lower income people can use their iPhone to order a new Microsoft laptop with two-day shipping through Amazon Prime? Maybe some of these great innovators would still be where they are, but not all of them. And, their personal or monopolistic failures aside, many people are better off because of these successes.
Encouraging the system that puts everyone on an equal starting line will create the best results for everyone. I understand this is idealistic, but we are talking about the idea of freedom. Yes, most wealthy people in the United States today lived a life that was almost infinitely above equal in its opportunity. Yes, many of these companies are now anticompetitive, and restrict market competition as best they can.
These problems are solved by more competitive freedom, not less.
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This is a great piece and a good example of why you should consider writing a book that acts as sort of a political economy explainer for the layman, a la Freakonomics but not so cynical and more frequently correct.
Being and education researcher and teacher, however, I would quibble with your example at the end, as well as your assumption that people are better off because of billionaire demagogues, but I'm all about your call for post WW2 Keynesian policy.