Archive for October 2011
I was recently challenged by a thoughtful friend on my general support for the Occupy Wall Street movement. I hope I don’t do violence to his perspective in approximating his position in my own words.
If the last few years have shown us anything, he argues, it’s that the government is an unreliable guardian of the public good.
What happened with the 2008 bailouts is horrible – banks were able to privatize their profits and socialize their losses. The world would probably have been better off if we had simply let the big banks fail.
It may be true that the government has been co-opted by special interests; that’s what happens to governments, by and large. The answer cannot be to demand the government fix things, because it can’t be trusted with regulatory power. The answer is less federal regulation of markets.
The attitude of the protesters, he continues, is that the government should be called upon to fix everything, and to guarantee a certain minimum level of social welfare. That is a childish perspective. All you are guaranteed in life is a chance to succeed, and you should focus on working to improve your lot, rather than asking the government to fix it for you. Asking the government to ensure social prosperity is asking it to do something it has neither the competence nor the mandate to do.
I won’t try to address every point of this position – I’d like to focus on what I found the most provocative assertion – that the government is an incompetent custodian of social welfare, and it should be deprived of authority rather than reformed.
In formulating my reply I’d like start with a story. While I was traveling by train from Heidelberg to Cologne I passed through a gorgeous area of Germany called the Oberes Mittelrheintal, a river valley that stretches some 65 kilometers along the Rhine, crowded with beautiful medieval castles. They are so dense that by train you pass one every ninety seconds or so for perhaps half an hour.
Why are there so many castles along the Middle Rhine Valley, and what does it have to do with federal regulation?
During the period between the tenth century and the introduction of gunpowder artillery into Europe, a well-built castle was essentially impregnable. The creation of castles under the Holy Roman Empire was carefully monitored and strictly controlled by the central government, because once a castle went up it was almost impossible to force a local ruler to do anything. For a period of centuries a pattern emerged – during times of a strong federal government, castle building was slow. If you built an unauthorized castle during the reign of Charlemagne, for example, an army would come and stop you before it was completed, and your lands would be seized. During times of weak central government – when succession was being contested, or the monarch was in his minority – local nobles would seize the chance, and build castles as quickly as they could, granting them local autonomy and weakening central control.
The castles along the Rhine were built by nobles who were little more than gangsters, the infamous robber barons, who would use fortified positions on the Rhine to gouge river merchants for “tolls.” As a river merchant traveled down the Rhine, he would encounter a heavy chain barricade at each castle, and pay a toll in order to proceed. The practice of extorting tolls from merchants, who had depended on the river for trade for many centuries, was so lucrative that many castles were built in a crowded region.
Eventually the castles fell into ruin, and remained in poor condition until the nineteenth century, when Germany experienced a love affair with the middle ages, and the Prussian government poured money into restoring them to their former glory.
Incidentally, it occurred to me as I was traveling through the Rhine Valley that the Gibichungs in the great German Romance Nibelungenlied, which Wagner took as the basis for his Götterdämmerung, would certainly have been robber barons of this type. We can see what a thick gloss of romantic nostalgia does to transform the basic facts of history.
But I digress. What is important for this discussion is that the merchant sailing down the Rhine, when confronted by a castle, has two options. He can pay the toll, or give up being a river merchant.
This simple example illustrates two tendencies in the social, political, military, and economic history of Europe that inevitably confront the student of history: 1) transactions do not occur in a vacuum, they occur in the context of power relationships which help determine their outcome. When there is little symmetry or parity in the degree of power brought to the table by the various parties, the more powerful party will generally extract favorable terms. 2) In the absence of counter-balancing forces, there is a historical tendency for the accumulation of power and resources to form a positive feedback loop, whereby the wealthy and the powerful use their wealth and power to become more wealthy and more powerful.
As a psychological aside, it seems that people who are at a disadvantage due to power asymmetries are much more likely to be aware of them. The reasons for this are obvious, I think, and are clearly projected by some of the dismissive responses we’ve seen to the Occupy Wall Street movement by economic elites, who often seem prepared to believe that their massively disproportionate accumulation of wealth is just and proper, and due to their hard work and merit alone. Or, of course, they may simply not care who suffers.
One might say to the river merchant, you should just find some other river, or travel overland. We must first ask if this constitutes a morally-acceptable reply to the situation, since the exorbitant tolls are essentially a form a robbery. In addition, one generally finds that every river eventually has its castles.
Coming back round to the case of Occupy Wall Street, we find that in modern capitalist societies one of the primary functions of an elected government, if political economists like Jürgen Habermas are to be believed, is to counter-balance the asymmetries inevitably implied by capitalist markets, so that the rich and powerful do not simply screw over the vast majority of people.
Now, as a historical matter, I think it’s important to take sufficient stock of an elementary fact that doesn’t seem to inform contemporary political discussions as much as it should. Since the emergence of cities in Sumer in the fourth millennium BCE, a great many people for a great deal of history have been in thrall to a tiny ruling class. Many centuries have rolled by in which most of the people on the earth were near-slaves to political and military elites. For example, nearly everyone living in an urbanized society between around 1500 and 1000 BCE (with the notable exception of Bronze Age Crete) was a virtual slave of royal rulers, who formed a unified ideological transnational cohort. Their priority in mutually protecting their privileged status is clearly shown in extant treaties, which emphasize matters such as putting down insurrections and returning escaped slaves.
Clearly the positive feedback loop of capital accumulation is the basic engine that drives this phenomenon. An instructive example of this is the collapse of Rome’s agrarian economy between the fifth and the first centuries BCE, as farmers were driven off their lands by moneyed elites, who were able to manipulate the law and the economic conditions of the Roman empire in their own favor, allowing them to buy up farm land into massive super-estates that were worked by slaves captured in war. This, in turn, drove the Roman Empire into ever-more-bellicose expansionism.
The farm economy was driven to extinction by a handful of wealthy senators and owners of massive agricultural estates, and the cities became swollen with the resulting influx of farmers, who had to find work, generally in conditions far less favorable to those they had previously known. The ultimate ultimate outcome of this is well-known: bread and circuses.
In democratic societies, weak federal governments with weak regulation offer the most favorable conditions for the powerful and the wealthy to leverage their resources. That seems obvious to me, but if we need evidence to this effect, I suggest examining the correlation between deregulation and income disparity in the last 30 years in the United States. I daresay the fact that the powerful and wealthy tend to favor ideologies opposed to regulation is another indication. Economic conditions that find, in the wealthiest nation on Earth, 400 individuals in the possession of more wealth than the poorest 150 million people, do not just happen.
An important theoretical consequence to the principle that transactions are shaped by power asymmetries is this: in the actual world, there are no level playing fields. That is, in every zone of transaction or competition, power may be brought to bear to change the conditions of transaction or competition, in ways that favor the powerful and disadvantage those who lack power. Parties come to transactions in the context of their circumstances. The belief that unregulated markets are in some sense neutral strikes me as theoretically naive and dangerous.
The function of proper market regulation is to limit the effect of power asymmetries insofar as they act against the public good, which they frequently do. Otherwise, the market is simply a bellum omni contra omnes, a war of all against all, which is a deplorable and primitive condition.
I do not see any way for the staunch laissez faire market advocate to deal with the problem of castles. The castellans have no legitimate right to extract tolls, and telling the merchant that he should simply find another river is inadequate in nearly every way, not least because such a position guarantees more and more castles. And again, with history as our guide, it is rather common for massive and oppressive accumulations of power and capital to endure for centuries. This is neither an unprecedented nor unlikely outcome.
I see no effective mechanism in the world today for constraining power asymmetries outside of a democratic government. If the government abdicates this responsibility, or is sufficiently co-opted by elites that it remains unable to perform that function, I do not think it will take long for the increasing economic disparities to reach medieval levels or worse.