Why I Am Not A Capitalist
However, both to clarify to these folks why they should look for more than they find in neoliberalism at present and to clarify those who are repelled by neoliberalism how RxC ideas differ, I offer this blog post (originally a tweet storm as an intellectual critique and explain why I am no fellow traveler of neoliberalism. Modern neoliberalism has its roots in the work of Milton Friedman and a previous generation of neoliberal thinkers, but seeks a broader coalition. To understand the bounds of what I am talking about, think of the set of views that includes the politics of Emmanuel Macron, the bulk of mainstream academic economists, most people in the top 10-.1% of the US income distribution who live in cosmopolitan cities, Tyler Cowen, and, to a far lesser degree, moderate Liberal Radicals like The Economist.
Before I get into my substantive critique, let me share a few caveats.
- I will focus almost exclusively on critique today. Many reading this will be familiar with my solution set. Furthermore, because I will only offer critique, I expect that nearly all of what I will say will be congenial to a group of folks I often strongly disagree with, including populist or authoritarian figures. My perspective lies at the intersection of their intellectual critique of neoliberalism and the political sociology of the current neoliberal configuration, though obviously I believe its present coalition can be greatly enlarged by offering a more cogent intellectual perspective.
- I will express my points mostly in the language of economics, not because I think this is the only or the best language, but because I think this is the language most deeply accepted by neoliberals and thus least likely to be ignored by them.
- While I am directly responding to the project articulated by the Niskanen Center, my critique applies to a wide range of other views in the liberal individualist tradition. This includes most of what usually goes under the heading “left-libertarianism”, most people who think UBI and similar ideas are cure-alls, and most close adherents of philosophers such as John Rawls and Ronald Dworkin.
- I am going to focus on one particular line of critique, not because it is the only possible one nor because I believe it is exclusive or exhaustive, but because I believe it is the deepest and most pernicious failure in this philosophy and the one whose solution would require the most systematic rethinking of the whole project, rather than just tweaks along the edges. That issue is the problem of what one might call public goods, but is much broader than how economists tend to think of public goods. As a result, I will label the issue of increasing returns.
The structure of my argument is:
- increasing returns are the central problem of political economy (a point which many neoliberals, such as James Buchanan, seem to agree with me on
- unsurprisingly given 1, they are at the center of almost every major political question today,
- neoliberalism, no matter how much social insurance you pile on top, offers no framework for grappling with increasing returns,
- modern neoliberalism makes no progress on this and in fact willfully ignore pressing related policy questions,
- modern neoliberalism as currently constituted, as a result of the previous points, is an intellectual cul-de-sac and a dangerous distraction from the serious project of responding to the challenges of our time.
First, why are increasing returns so important? Very simply, civilization is definitionally about increasing returns. If there were not increasing returns, we could all live in isolated huts or villages and be just as well off as we are today. Cities, which are literally the basis of terms like “citizen” and “bourgeoisie”, are increasing returns phenomena. All the network technology by which it is possible for me to communicate these ideas and all the motivation for the project of political philosophy is increasing returns. Thus, any political philosophy or political economy that does not put increasing returns at its center and have a comprehensive approach to dealing with it is dead on arrival and simply misses the point of the whole exercise.
Second, beyond these abstract points, a majority of the major political problems of our time are outgrowths of a failure to deal with the problem of increasing returns in a coherent way. Let me give a few examples:
- Network and data economies of scale are classic increasing returns phenomena and are widely seen as the reason for extreme market power in technology. Treating such systems as private property thus inevitably leads to monopoly.
- There are huge economies of scale in portfolio management that are responsible for the horrific institutional investor monopoly problem.
- The issues around zoning and land use on which so many left-libertarians focus these days are largely disputes over complementarities across plots’ use and spillovers at different levels.
- Insurance pools have increasing returns, because of selection dynamics, and thus many of the issues around social insurance of various sorts should be thought of as issues of increasing returns.
- Investment in information goods, whether “innovation” or news quality, is one of the most extreme examples of increasing returns as important information is available to all.
- Most environmental issues are best seen as resources that bring benefits to many people if preserved. Global change is the most extreme example, where anything we do to the climate affects the welfare of literally everyone living on the planet.
Third, standard neoliberal capitalism, such as you find in Milton Friedman’s Capitalism and Freedom and prominently revived by those at the Niskanen Center, simply has no coherent framework for dealing with increasing returns. There is an endless stream of work showing that the type of private property-and-competition based markets neoliberal capitalism utilizes do not work well in contexts with increasing returns, such as Hotelling (1938) and Samuelson (1954). There are different ways to phrase it: with increasing returns, marginal cost pricing does not cover average costs; there is natural monopoly with increasing returns; there is a free-rider problem; private provision of public goods leads generically to only one contributor.
Now, you can put bandaids on this problem: a little tax-funded R+D here, a bit of social insurance there, a sprinkling of antimonopoly policy, but ultimately these are all precisely the sort of kludgeocracy that neoliberals tend to denounce. Furthermore, to the extent that there is any method behind all of this, it is democracy based on a paradigm of one person one vote, which simply has never been claimed to have any of the virtues that are touted for markets under any remotely broad circumstances. You can wrap this conception of democracy in a thousand kludges, with judges, representatives, checks and balances etc, and you probably do get somewhere better, just as with capitalism, but again, this is precisely the sort of kludgeocracy and elitist technocracy that:
- is hard to explain to anyone especially among the public,
- is profoundly inelegant and usually adapts poorly to e.g changing social circumstances and technology,
- regularly faces crises of legitimacy, as it is facing today.
And if that is the answer that in effect neoliberal capitalism offers to the central problem of political economy, I submit that is not much of an answer at all.
Fourth, do modern approaches to neoliberalism do anything on this issue? I would submit these on average make backwards progress relative to our current intellectual milieu. I don’t think our current milieu has grappled well with these issues, but there are seeds. There is a growing anti-monopoly movement. There are growing attempts to use open source approaches to deal with collective goods. There is the excellent work of Elinor Ostrom and others on ways of addressing commons using informal mechanisms. There’s phenomenal work in sociology moving past atomistic conceptions of the economy. And there are some reasonably coherent attempts to address these issues by organizations such as American Affairs on the right and People’s Policy Project on the left. I do not agree with most of the substance in either of these visions and in fact believe both would lead us in a deeply dark direction; I view much of my goal to avoid and resist these dark directions. In a future blog post I plan to offer a similarly detailed critique of these perspectives. But again, staying here away from my solution set.
The key point is that the focus on social insurance, “regulation”, a simplistic conception of the migration issue, a total lack of attention to enormously growing concentrations of private power, lack of fundamental research funding, declining news quality, looming environmental catastrophe, and pretty much anything else that falls under the heading of a public goods or increasing returns issue completely sidesteps and ignores essentially everything that is leading to the present crisis of the liberal order. Thus, while I am deeply sympathetic as a matter of political sociology to the project of uniting self-identified libertarians with self-identified progressives, as an intellectual project there is nothing I have seen yet that feels to me other than a reheating of precisely the sort of Milton Friedman-style neoliberalism that got us here.
Such leftovers are at this point beyond being rancid to the point of literally being poisonous, especially when they pose as a way out of our current quagmire, because they distract from the desperate task of formulating a liberal solution to the crisis we confront. On most direct policy issues neoliberals actually discuss I am basically aligned and I suspect I would vote for many of the candidates they would if only to preserve the space to think about other solutions. However, as an intellectual as opposed to a political matter this sort of neoliberalism has gone beyond being the opium to anyone and have become the opiod crisis of the policy and technocratic elites who are rapidly headed for a lethal overdose.