The delusions of liberalism at the end of the end of history

Why liberals need to accept that the foundational ideology of the West is obsolete

No serious political scientist or pundit today would deny that liberalism, the foundational ideology of the Western world for the last few centuries, is under attack. Autocrats like Russia’s Vladimir Putin, Hungary’s Viktor Orbán, or Turkey’s Recip Erdogan have offered an illiberal challenge to liberal democracy that has gained strong appeal with its constituents. But in the very bastions of the liberal West, liberalism is also succumbing from the onslaught of far-right populism. That people like Donald Trump or Boris Johnson would become leaders of their respective countries would have seemed inconceivable just a few decades earlier. Now the question seems to be which country will be the next to fall into the cracks.

Despite these concerns, liberals from both the left and right of the political spectrum appear hopeful in their hubris. In the first two centuries after its inception, liberalism successfully dismantled the political absolutism of the ancien regime, and universalized the Western values of individual rights and liberties that almost every society on earth now takes for granted. In the 20th century it also fended off two great illiberal challenges in the form of fascism and communism. Although the term is annoyingly taken as a synonym of “left-winger” in the US, almost everyone in the Western world today believes him or herself to be a liberal from a political-philosophical perspective. Unfortunately, this label is usually self-applied without stopping to think what being a liberal actually means which is extremely problematic: a foundational political ideology that remains unchallenged eventually becomes a hindrance rather than a help to human progress when its adherents fail to realize it may be obsolete.

This lost post will make the controversial point that liberalism has reached that point of obsolescence. More so, I will argue that it is a political ideology tarnished with blood, riddled with hypocrisy and contradictions, and which has become a rhetorical concept intended to justify the presumed superiority of Western civilization and thought as a justification for Western hegemony. And even if by the end of these lines you remain steadfast in your belief that liberalism is a sacred pillar of modernity and must be defended at any cost, hopefully it would make you uncomfortable enough that you will never look at liberalism the same way. Continue reading

The exorbitant privilege of capital

Why we need to rethink capital’s relationship with labor

The robber barons

Capital has an exorbitant privilege. With capital we are able to undertake productive investments and reap a potentially infinite amount of rewards. However, capital is not the only factor of production: for those investments to succeed, we also need labor. Unfortunately the rewards received by labor are infinitesimal and declining. In the majority of the industrialized world, the share of national income received by labor has been dropping over the past decades as a result of a myriad of factors like globalization, deregulation of labor markets, and the neutering of the power and influence of unions. The root of this privilege goes back to the origins of capital and its historic process of accumulation.

Where does capital come from? One source is from capital itself. Any increase in the value of an asset provides the owner with additional income which can then be reinvested into other capital assets. Similarly, some assets like stocks and bonds provide a regular stream of income in the form of interest payments or dividends.  Additionally, physical capital like robots or other types of automated equipment can also produce additional capital without human input. However, the main source of capital is labor. Your work, as an employee of any firm, contributes to the profits of the firm through which the firm is then able to accumulate further capital. No amount of capital will make a firm thrive in the absence of labor which is why the two are not perfect substitutes. But capital’s exorbitant privilege comes from the fact that, unlike labor, it can generate infinite returns. Let’s see how this process takes place in practice. Continue reading

On inequality and consumption

A vibrant market economy benefits from more egalitarian income distribution

Inequality matters. Not just as an issue of fairness but also because a vibrant, market economy is much better off when wealth and income are spread around more evenly among the population. There are two reasons for this. First, consumption of certain goods and services “takes off” after a population reaches a certain level of income. Secondly, because the more people consume these goods and services, the more competition there is and the cheaper they become. In other words, the same amount of GDP among two populations but with vastly different distribution of income will result in vastly different consumption patterns; and consequently, production patterns as well. Let’s see how this manifests in real life.

A tale of two countries

When it comes to inequality, it’s hard to think of two regions in the world more disparate than Latin America and Scandinavia. Latin America has long held the title of most unequal region of the world, and even though most countries in the region are now considered “middle income”, a significant share of their population are still poor. Furthermore, those in the so-called middle class still have considerably lower purchasing power than a middle-class Westerner. In contrast, Scandinavia is one of the most egalitarian regions in the world thanks to a generous cradle-to-grave welfare state. When using Gini coefficients, a measure used by economists to measure inequality (with 0 being perfectly equal and 1 being perfectly unequal), Latin America tends to fall in the .45-.55 range. In contrast, Scandinavia usually ranks at .25-35. Continue reading

Embracing democratic socialism

Be on the right side of history and start wishing capitalism goodbye

Democratic socialism

There is just one New Year’s Resolution worth having in 2019: become a democratic socialist.

If you already are one, congratulations! This post may be preaching to the choir but I’m sure you’ll enjoy it anyway and will at least give you some good arguments against those who are still in denial (which sadly includes many on the left). If you’re not, keep reading and if these arguments don’t convince you, then perhaps nothing ever will.

What is democratic socialism?

The best way to describe democratic socialism is to start by what it’s not: communism. If you’re the kind that instantly has a mini heart attack by even a fleeting mention of the word “socialism”, relax, we’re not nostalgic for a return of the Soviet Union nor are we here to provide lame apologies for the disaster that is Venezuela (more on this later). With that out of the way, let’s explain in detail. Democratic socialism is the economic system whereby the means of production are owned and directly controlled by the people who work it. The key word here is directly. Whereas communism attempted to do this by having the state take control of these means (which proved disastrous), social democracy seeks no intermediary. Imagine an economy where every business was a worker-owned cooperative and workplaces guaranteed similar democratic rights to their workers as citizens are guaranteed in the public sphere. That’s basically it.

Democratic socialism might sound similar to social democracy but in practice, social democracy remains capitalist: there is no fundamental difference in the corporate ownership structure in social democratic countries to liberal capitalist ones. The main difference is that social democratic societies tend to provide a wider array of public services (a welfare state and state-owned firms) as well as take a more active role in preventing market excesses (regulation). They also encourage strong trade unions to give voice to workers in the workplace; in fact, many social democratic parties were born from the late 19th century and 20th century labor movements. Social democratic systems like the Nordic Model therefore sit in a muddled middle ground between socialism and capitalism, incorporating the capitalist ownership structure but with strong and active states that help ensure a socially just society. Continue reading

The New Right ecosystem

The communities and personalities behind conservatism’s lastest bid for your hearts and minds
The New Right Ecosystem

The New Right Ecosystem (click to enlarge)

The emergence of a new conservative movement in the Western world in the 21st century has been one of the most important political developments of our time. But despite the way that this movement has influenced recent elections and produced shocking results like Trump and Brexit, the grand majority of people still fail to understand how and where it emerged. Ever since Hillary Clinton first spelled out the “alt-right” in a campaign speech in 2016, this term has been used as a catch-all for all right-wing politicians and pundits that have pursued a populist, anti-establishment rhetoric but this too proven to be far too limiting in scope for understanding the breadth of the movement. It also ignores that many of the people pushing the movement’s ideas don’t identify with the alt-right, aren’t anti-establishment, and may even be coming from the left itself.

I have therefore created a convenient infographic on what I call the New Right Ecosystem: the assortment of communities that are supporting the New Right movement. Some are obvious, like the original alt-right, the men’s rights activists, or the troll and meme armies that proliferate on forums such as 4chan. Many of these were mentioned in a seminal 2016 Breitbart piece co-authored by who was then the rising superstar of the alt-right, Milo Yiannopolous. But over the past decade even other communities that once appeared to embrace left-wing values have shifted squarely into the Trump camp, as is the case with the New Atheist and skeptic communities that initially arose to combat religious fundamentalism of all kinds in the post-9/11 Bush years. Finally, others like the libertarians are using the New Right as a platform to pursue their free market agendas. The fact that nearly all alt-right and anti-establishment pundits refer to themselves as libertarians or “classic liberals” (an increasingly used euphemism for libertarian sympathies) is telling of how nationalism and market fundamentalism have formed a strange and toxic marriage.

I am confident that the infographic is mostly self-explanatory after reading the legends.  However, this post will serve as a basic F.A.Q., with more analysis coming in future posts. Continue reading

Your third-world reptilian brain

When your attitudes don’t develop in line with your incomes

Between today and Sunday, Mexicans will be able to vote in a public referendum on whether to cancel the construction of a new airport for Mexico City or allow it to proceed. The (admittedly shambolic) referendum is organized by the incoming government of Andrés Manuel López Obrador who promised to cancel the airport during his campaign but has since acceded to allow the public to settle the matter instead. But why cancel the largest infrastructure project in modern Mexican history? Well, it just so happens that the airport is being built on what’s left of Lake Texcoco, the only surviving wetland in the Mexico City metro area. It is an area prone to flooding, earthquakes, and sinking. But beyond that, it also sits on top of one of the largest aquifers in the region, one that supplies millions of people in the surrounding suburbs with fresh water.

Of course, being that most of those millions of people happen to be from poor and working class households means that their opinion on the matter had little influence on the current government when it drew up its plans. And well, the wetlands themselves have been largely abandoned, a giant greenfield site just waiting for it to be filled up with concrete and steel. Plans to restore some semblance of the old lake have not fared well in the last few decades despite its historical significance. Mexico City – or as it was called in Aztec times, Tenochtitlan – was once the Venice of America: a city built on the lake, crisscrossed by canals and floating croplands. It must have been an impressive sight to the Spaniards when they first marched across the city’s causeways. But after the conquest, the Spaniards began to dry out the lake in order to expand the city, in the process destroying the fragile anti-flooding mechanisms that the Aztecs had built. The response to constant flooding of the city was to dry out the lake further. After independence, the process of “modernizing” the capital continued, with the last canals being turned into freeways during the 1950s and 60s, and the lake itself practically disappearing by the 1990s save for a few remaining reservoirs which face an uncertain future once the airport is up and running, whenever that may be: it already faces a 2-year delay at least, a $2.5 billion cost overrun, and no shortage of corruption allegations over the opacity in the awarding of contracts. Continue reading

The Spectrum Fallacy

Why all of something good isn’t better than just some of it

The economic rise of China since the 1980s has been one of the most, if not the most, impressive feats of economic progress ever. It has eradicated poverty by the hundreds of millions, created an industrial sector that has dwarfed anything ever seen in human history, and despite the country’s size and maturity, continues to grow at a pace that any Western democracy and even most developing economies can only dream of. This has been largely been achieved by the Chinese government’s adoption of market policies. China is now the world’s greatest trading nation and also a massive receptor and supplier of foreign investment. Capitalism works, and it follows that China is the perfect example of why countries should liberalize their economies and embrace free markets unconditionally.

Except it doesn’t follow.

If you were tempted to draw this apparently obvious conclusion, congratulations, you are a victim of what I like to call the Spectrum Fallacy, possibly the most pernicious flaw of logical argumentation in policy circles. What is the Spectrum Fallacy? It is the flawed premise that just because something is demonstrably better than something else, more of that something is necessarily better than only some of it. It is very similar to a well known logical fallacy, the false dilemma. Like the false dilemma, the spectrum fallacy assumes that there is a false choice, that one must necessarily choose between two mutually exclusive options (statist communism or laissez-faire capitalism). However, here we are assuming not that there are more choices but that either of these two choices can be better when they are applied less extremely across the spectrum of possibilities. Continue reading

Why libertarians are wrong about seatbelts (and pretty much everything else)

Nanny state laws don’t just protect the victim but everyone else too

I have made it clear in previous writings that I find libertarianism to be possibly the most morally repugnant economic ideology, and also a particularly dystopian one if put into practice. My most obvious objection to it is that is presents only axiomatic evidence to vilify the actions of the state. Under pure libertarianism, aside from the enforcement of private property and possibly national defense (the “nightwatchman state”), the state has no role to play in society. More so, forcible methods of financing for said state, namely taxation, is viewed as “theft” or even as Robert Nozick argued, as forced labor. Despite this, there is a role for the state in enforcing legislation, but this too is vastly limited in scope. Nanny state laws that impede personal freedom are seen as unnecessary and morally unjust, even if they seek to prevent undesirable outcomes. The best example is the libertarian aversion to something most people would take for granted: laws that force people to wear seatbelts.

Under libertarian logic, seatbelt laws are immoral because they take away the right of a person to decide out of their own free will whether they wish to risk death on the road. This risk is hardly questionable: motorists who don’t wear seatbelts are more than twice as likely to die in a road accident than those who wear them. It seems almost common sense that a) if you’re a motorist you should wear a seatbelt and b) the state would do good in ensuring that even the people irresponsible enough not to wear a seatbelt will not risk their own death in doing so. Libertarians will have none of that, arguing in the primacy of individual freedom over anything else. There is a slippery slope logical fallacy employed here; the argument is not so much that such a law is bad per se, but that any state that is capable of creating and enforcing such a law can create and enforce more and more severe laws that encroach on freedom. Today it is seatbelts, the next logical and inevitable step is turning into Stalinist Russia*. Continue reading

Fellow economists, we’re mostly to blame for this mess

Brexit, Trump. We built the world that let extremism thrive
This is on us

This is on us

Dear world, on behalf of economists I offer an apology. More than anything or anyone else, we are responsible for the clusterfuck that has been 2016.

Since the 1980s we said that inequality didn’t matter. That working and middle class people would be fine if their incomes didn’t worsen even as those in the top 10% (and especially 1%) saw their own income and wealth skyrocket to levels not seen since the Gilded Age. We did not see that people did not view their lot in absolute but in relative terms. We expected them to accept our logic, and acted dumbfounded when they didn’t express gratitude for the few tiny drops of prosperity that trickled down. We never imagined that they’d be rightfully pissed. Then we blamed them for living beyond their means to catch up with the Joneses, for being irresponsible for maxing their credit cards and taking out mortgages on houses they couldn’t afford. We never saw inequality as a psychological problem as much as an economic one.

We called anyone who disagreed a socialist.

Around that same time, we said that free markets were a panacea for growth. True, many countries did benefit heavily from globalization and certainly those countries that did not follow certain basic rules of market logic have fared terribly (Venezuela being a case in point). But globalization was not a panacea for the working and middle classes of the developed world. In our smugness, we said that the lost jobs either to China, Mexico, or technology were a necessary evil for continued productivity growth. We acted like it was their fault that they did not have the skills needed for the new economy, and that it was nobody’s responsibility to find them those skills either. In the dog eat dog world of neoliberal economics there are losers, and we could afford not to be those losers becomes economists are still not being outsourced to India or replaced by robots so we had little empathy for those who were less lucky. We applauded that unemployment fell and didn’t care that it was because people lost stable, salaried jobs and became self-employed with zero benefits. We cared more about the Dow Jones than the Gini index.

We called anyone who disagreed a socialist.

We also assumed that everyone was rational. We even had a name for this species of humanity that always took decisions based on all available information, weighed all options, and picked the one that maximized their utility: homo economicus. Since we thought psychology, sociology, and all the other social sciences were inferior disciplines because they could not prove their hypotheses with econometrics, so we never bothered to accept their insights into human behavior. The result is that we thought markets were self-correcting, industries were self-regulated, and markets punished those who took decisions against the public interest. We saw the “irrational exuberance” of the dot-com bubble and then did nothing when a bigger bubble, the subprime housing bubble, sprung up almost immediately after the first one popped.

We called anyone who disagreed a socialist.

And finally, we assumed we had all the answers. We took the view of Noble laureate Robert Lucas that the “central problem of depression-prevention has been solved, for all practical purposes, and has in fact been solved for many decades”. This was just five years before the global financial crisis. We also poisoned the minds of politicians, who adopted our elegant yet simplistic neoclassical view of how the world worked. We flooded bookstores with titles like Freakonomics and The Economic Naturalist: How Economics Explains Everything to educate the masses on why we knew better. We were conceited, arrogant, and frankly, fucking annoying.

We called anyone who disagreed a socialist.

Then on June 23rd we wondered how the British could be so stupid as to want to leave the EU. On November 8th we were even more perplexed on how Americans could be dumb enough to vote for someone like Trump. From our little intellectual ivory towers, the framework in which we understood the world was perfectly fine. We didn’t get that we didn’t get it.

And now with the twin shocks of a global crisis in 2008-09 and a political crisis in 2016, our world has been shattered. Probably irremediably. But we don’t know it yet. This will still be blamed on people (deplorable as they may be), rather than the structures that conditioned them to be that way. And we’ll be scratching our heads into oblivion by failing to understand why a laid off steelworker from Pennsylvania or miner from Yorkshire won’t be voting with rapturous joy for the man or woman who promises free trade agreements, minority rights, and open immigration in place of the only thing that really matters to them: dignity.

(The author wishes to note that he has stood against everything that has been criticized in this piece since his days as an undergrad. And if you think he is a socialist, well, you’re pretty much the type of person he wrote this for)

The economics of Mad Max

All societies need an economy, even post-apocalyptic ones
There are markets, even in the Wasteland

There are markets, even in the Wasteland

I am not exaggerating when I say that Mad Max: Fury Road is possibly one of the best movies I have seen in my adult life. The high-octane adrenaline-fueled frenzy of non-stop car chase action would be spectacular in itself; that it is also makes emotional, political and philosophical statements in its two amazing hours absolutely shatters the idea that action movies are necessarily mindless and superficial. Its overt feminist undertones have been well documented, and like all the previous Mad Max movies delivers a powerful message about humanity and redemption. What more can you ask for in a summer blockbuster?

Could Mad Max also be a sublime statement on economics? One of the key elements of any dystopian/post-apocalyptic film is that it has to be somewhat believable, and for this to be achieved, there needs to be a realistic depiction of the way society arranges its economic exchanges. After watching Fury Road and then re-watching the original trilogy, it has struck me that each film has a progressively complex economic structure that could well be a coincidence. But with George Miller coincidences rarely exist and perhaps the old man has put even deeper meaning into the franchise that most people have thought.

Here’s an analysis of the economics of each Mad Max film. Continue reading