THE REVENGE OF THE NERDS

Wallyver offers a very interesting and useful reply to my comment on his comment, and I should like to keep the exchange going a bit longer, but I need to warn the young and impressionable that this will get a trifle gnarly, so if you do not feel a faint fluttering of your heart at the prospect of a little mathematics, it might be best to pass by this post and wait for the next snark.

The subject is index numbers, and their difficulties. Wallyver references Paasche and Laspeyres index numbers, which, as he says, are the industry standard, though by no means the only measures out there. There are two problems with price indices, only the second of which is addressed by the efforts of Paasche and Laspeyres [two old-time economists, needless to say.] Both problems arise when one is trying to measure the rate of inflation. As I explained a while back in an earlier post [part of my How to Study Society series], the first problem is that different households spend their available income in different ways -- one household spends a huge proportion on housing, and almost nothing on education; a second spends relatively little on housing, a great deal on education, and in addition buys lots of clothes. And so forth. Since prices change from year to year in a wide assortment of ways, some rising a lot, some a little, and some falling, whether a household experiences a high or low rate of inflation will in part depend on how it spends its money. It would, of course, be possible, although absurd, to construct an inflation index for each separate household, but once having done that, how on earth would you aggregate them to arrive at something identifiable as the economy-wide inflation rate? The simple answer is that it cannot be done, which means that the Consumer Price Index [or Producer Price Index, or any other similar price index] is a fiction. It is not an approximation -- that suggests there is a real or true number that in practice we can only approximate. But that is false. There is no such number. Wallyver refers to attempts to craft price indices that are deliberately weighted to reflect the experiences of ordinary low or middle income households rather than rich households. This attempt, of which I was quite unaware [like so much else, alas], is one of many interesting attempts that have been made to formulate economic measures that are designed to express a progressive ideological perspective [such as, for example, revisions to the Gross Domestic Product that take account of unpaid household labor by women.]

The second problem, which Paasche and Laspeyres address, is that households, in response to price changes or other considerations, typically alter the mix of goods and services that they consume. One household may decide to eat less fish and more meat, because fish these days is a good deal more expensive at the market than fish. [Example: I have to pay upwards of $20 a pound at Whole Foods for tuna or swordfish, but yesterday I got really nice bone-in pork loin chops for half that price. When I was a young Instructor, fifty plus years ago, the situation was precisely reversed -- fish was cheap, meat was expensive.] Another household may cut back on its recreational budget because it is putting a daughter through a pricey college.

In general, from one year to the next, both the quantities and the prices of the goods in the typical market basket [assuming there is such a thing] will change, and not all in the same direction either. So, how to compare the price of the market basket of goods and services purchased in the base year with the price of the market basket of goods purchased in the current year? [The universal practice is to choose some year as the year against which every later situation is being measured -- the so-called base year. The index for that year is arbitrarily put at 100. Then, each subsequent year can be seen easily as some percentage increase or decrease of the base. So a price index of 112 means a 12% rise over the base year.]

Paasche and Laspeyres each offered a proposal, and as will become clear, they are two different, equally plausible, and totally arbitrary ways of trying to square the circle. Paasche said: Let's compare what it costs a household to buy its current market basket of goods and services at current prices with what it would cost that household to buy the same market basket of goods at the prices that reigned in the base year. Laspeyres said: Let's compare what it would cost, at today's prices, for a household to buy the market basket of goods and services that they bought in the base year, with what it actually cost them to buy that same market basket of goods at the prices in the base year.

Hmm. How does either one of those measures help us? Not a lot, I am afraid, since both involve counterfactual assumptions. To Paasche, we must say: But the household didn't buy the current market basket of goods and services back then in the base year. That is just the problem. The shape of their purchases has changed. To Laspeyres, we object: But the household is not buying, this year, the market basket of goods and services they bought in the base year. Now Paasche and Laspeyres knew that, of course, as did everyone else who contributed to this literature [including the late, great Irving Fischer].

Wallyver notes that the difference between the two numbers, over a single year, is likely to be very small. That would be a heartening fact if there were some objective number that we were trying, experimentally, to approximate. After all, in real science, where margins of error are a universal fact of life, a very small margin of error is cause for elation. BUT THERE IS NO OBJECTIVE QUANTITY THAT THESE VARIOUS MEASURES ARE TRYING TO APPROXIMATE. In the immortal words of Gertrude Stein [who was, I believe, talking about Oakland, California], "there is no there there."

Since I have started this riff, let me mention two problems with price indices before I knock it off and invite Wallyver to respond, should he wish to. The first problem is that in addition to changes in the contents of the market basket purchased by the hypothetical typical household, there also occur changes over time in the range of goods and services available to be purchased. IPads did not exist ten years ago [I think.] If a household buys an IPad, neither Paasche nor Laspeyres nor any other index designer has a way of factoring that into an index. [This is, in odd ways, akin to the problem of describing the rational choices of agents whose utility functions themselves change over time -- see my comments on military strategy and Game Theory in my Formal Methods blog.]

The second problem concerns changes in the efficiency or performance of goods customarily considered members of the same category. We are all aware of the dramatic improvements in memory, speed, and general performance of computers oer the last thirty years or so. How does one take that into account when trying to answer the Paasche or Laspeyres question, "What would the computer I bought this year have cost in the base year?" [or alternatively, "What would the computer I bought in the base year have cost this year?"] "The" computer? Are we comparing an Apple IIE [my very first computer] with an iMac?

Well, enough said, I think. I invite the fellow nerds out there to respond.

THE EVANESCENCE OF MEMORY

It is distressing, but not really surprising, that heroic struggles for freedom and justice, even when successful, tend to be forgotten by subsequent generations. Young people in South Africa, who have benefited directly by the successful anti-apartheid freedom fight, have grown up in a land in which they have, and take for granted, rights that their parents, and even their older brothers and sisters, risked their lives for. Young women in America can scarcely believe that their mothers and grandmothers had to brave ridicule, dismissal, and much worse for the rights they enjoy so unthinkingly. Even in the Afro-American Studies Department in which I taught for the last sixteen years of my career, doctoral students whose field of study included the Civil Rights Movement found it hard to call to mind the names of men and women with whom their own professors had marched. And so I ought not to be surprised to find that so many working men and women in America are utterly ignorant of the bloody battles union organizers fought for the five day week, health care, paid vacations, safe working conditions, and decent wages.

Right now, we are witnessing a blatant and unabashed effort by an emboldened right wing to strip working men and women of the simply right to organize and bargain collectively. Let us not be misled. Republicans are attempting to dismantle, piece by piece, the structure of social justice and welfare that it has taken a century and more to construct. They want to eliminate labor unions, terminate Social Security, phase out Medicare, get rid of safety and quality controls on products sold in the marketplace, and reduce the vast majority of Americans to the status of virtual serfdom, all in the name of free markets, liberty, and the American Way.

This is a fight worth fighting, and each one of us must do whatever he or she can do to support those who are on the front lines. Give money to the strikers and the Wisconsin State Senators who have absented themselves to block the Governor from forcing through a bill to destroy public employee unions. Sign petitions, go to rallies, and proclaim everywhere the truth that labor organizing is, in our country at this time, THE progressive thing to do. It is more important right now than buying a Volt or separating your garbage for recycling. It is even more important than saving the whales, although all of those are worthwhile efforts.

This fight began in earnest with the successful attempt by that Potemkin Village of a man Reagan to kill PATCO [google it, if you don't' know], and it will not stop until we have driven the troglodytes back into their caves. There cannot be a compromise on this issue, because our success in winning it is the condition for all future meaningful compromises on any other issues of public policy. It is fully as important as ending slavery.

THE FUTURE OF SOCIALISM FINAL POST

It would seem, if this argument is correct, that things are proceeding just as Marx anticipated. As capitalist social relations mature, the elements of socialist planning begin to develop deep within the corporation, which is truly the womb of capitalism. Why then are the prospects for social and economic justice so bleak? Why has the term “late capitalism,” once used by socialist theorists to describe what they confidently believed to be the death throes of the established order, now become a wry joke shared, with sighs and the rolling of eyes, by aging radicals like myself? Why have any signs of a true movement of the masses died out, to be replaced by an identity politics that is fundamentally assimilationist rather than revolutionary in its thrust? In short, if all is going as predicted, why aren’t we having any fun?

The answer, I think, is that along with everything that he got right, Marx got three big things wrong, with the result that the liberatory potential he saw in the internal contradictions of capitalism is nowhere in evidence today. Let me say something about each of these failures of analysis or prediction.

First, Marx completely failed to anticipate that the capitalist state would develop the ability to manage and, to some extent, to control the increasingly wild booms and busts that threatened to destroy the capitalist order. He quite presciently foresaw that the ever more rational organization of production within the firm would come into contradiction with the anarchic distribution of the market, resulting in crises of over-production and under-consumption. The great crash of ’29 was just what the good Doctor of Philosophy ordered, albeit too late to gladden his heart.

But Marx was convinced that capitalists, confronted with disaster, would be unable to coordinate their actions in order to save their skins. In an odd way, he was too much in thrall to the classical economic theory he had subjected to such a penetrating critique in Capital. It took imaginative theoretical and practical defenders of capitalism like Keynes and Roosevelt to see that with far-sighted fiscal and monetary policies, the state could sufficiently dampen the business cycle to enable capitalism to survive. To put the point differently, Marx, very much in common with the other economists of his day, failed to see how powerful the state had become under capitalism.

The pulse still quickens in the circles I frequent when the tech stock market bubble bursts or Paul Krugman forecasts a calamitous reversal in housing prices, the way old war horses flare their nostrils and stamp their hooves at the sound of distant trumpets. But the truth is that our corporate masters will never again allow a serious threat to the foundations of the economic house they have built.

Our mature capitalist economy is no longer the unplanned, unintended consequence of the playing out of market forces, for all the lip service that its apologists pay to “free enterprise” on festive occasions. Rational planning is as pervasive at the macro-economic level as it is within the firm. But that planning – far more sophisticated and nuanced than either Marx or the state planners of the Soviet Union could have anticipated – is securely within the service of private interests, not the public good.

The second obstacle to the development of a revolutionary working class movement has been the persistence of pre-capitalist passions and attachments that Marx was convinced capitalism’s invasive rationalization of economic life would weaken and ultimately destroy – nationalist loyalties, ethnic identifications, racial antagonisms, and religious faiths. The secularization of life seemed to be well under way in Marx’s time. The Catholic Church had lost its grip on public life in France, Germany, and Italy. The ancient antagonism of the urban and the rural was dissolving, as Marx had indeed predicted. And the ever-increasing mobility of both labor and capital bid fair to consign nationalist sentiment to public holidays and political speeches.

The optimistic confidence that class interests would defeat the irrationality of nationalism reached its height in 1914, as socialists world-wide – my grandfather among them – refused to believe that French and German workers would fight one another in the trenches at the behest of their capitalist masters. With the bloody refutation of that belief, something died in the heart of the socialist movement. To be sure, the unanticipated success of the Bolsheviks in Russia encouraged some to believe that despite all, the proletarian movement was on the march [though not my grandfather, who sided with Norman Thomas and the Mensheviks]. But the success first of the Soviet Union and then of Mao’s revolution in China, important as it was to the unfolding of the twentieth century, had nothing at all to do with the birth of socialism in the womb of capitalism.

In the United States, race had already opened a chasm in the worker’s movement that, in a revised form, persists to this day. When four million Black men and women walked out of slavery, prepared for the free labor market with agricultural, craft, and industrial skills that they had used as slaves to make the South rich, they encountered implacable hostility from white workers, whether immigrant or native-born. White workers until after the Second World War struck devil’s bargains with their employers, conceding labor peace and low wages in return for whites-only hiring practices. This fact, perhaps more than any other, doomed the American working class movement to eventual failure.

At this nightmare moment in recent history, little need be said about the persistence and intensification of ethnic and religious antagonisms throughout the world. Try as we may, we socialists can no longer cling to the hope that class interests will unite men and women across national, ethnic, racial, and religious divides in a vibrant revolutionary movement to replace capitalism with a humane, just, egalitarian social order. Capitalists are doing their part. Not only are they crafting the elements of rational planning that a socialist economy would require. They are in the forefront of efforts to put the divisiveness of race, ethnicity, nationality, and religion behind us, for these divisions are not good for business. It is the people who remain mired in self-destructive and self-defeating irrationality.

Marx’s third and most serious mistake concerns the direction in which the labor force evolved as feudalism gave way to early capitalism, and then to the mature capitalism we see today. In the middle of the nineteenth century, when Marx was doing the British Museum research on which his hauptwerk was based, one of the most striking changes taking place in British society was the destruction of the old crafts – weaving, spinning, woodworking, and the rest – and the incorporation into machinery of the skills they once required. In late feudal and early modern times, a working man was known by the trade he plied, learned in a long apprenticeship and symbolized by the kitbag of tools he brought with him to the job. The complex social structure of crafts left indelible marks on the family names that so many Americans bear today – Wheelwright, Carver, Chandler, Taylor, Cartwright, Schneider, Schreiber, Weaver, Shepherd, Farmer, Smith.

Capitalism ate away corrosively at the craft tradition, deskilling artisans and turning them into a homogeneous pool of semi-skilled workers who could master the skills of a factory job in a few weeks and were thus available to be moved easily from job to job by the fluctuations in the market demand for industrial labor. Marx saw this progressive homogenization of the labor force as the correlate to the process by which small independent entrepreneurs were being crushed by competitive forces and absorbed into larger and larger firms driven to expand by a need to achieve control over their input and output prices. He foresaw a world in which a united industrial working class would confront concentrated capital, until finally, when a major crash had fatally weakened capital, labor would seize control of the means of production and substitute socialist planning for capitalist anarchy.

It was not only an inspiring dream, at least for some of us. It was also a quite plausible projection of trends that were working themselves out powerfully in Marx’s day. But it was not to be. On the side of capital, as Marx anticipated, relentless concentration did take place, leading to the world of vast multi-national conglomerates with which we are all familiar. To be sure, a subordinate domain of small business flourished, rather like the flora that live under the soaring canopy in an Amazon rain forest. Nevertheless, Marx got that part of the future right.

It is on the side of labor that things have not progressed as Marx imagined they would. For a time, the growth of industrial capitalism did indeed produce a vibrant labor movement that evolved very much as Marx expected. First individual factories, then entire industries, finally entire national labor forces were organized, giving rise in the United States to the American Federation of Labor and the Congress of Industrial Organizations, while in Europe the labor movement was so successful that it was able to create and sustain major political parties.

But as industrial capitalism gave way to a complex mix of industrial and service firms with huge, bureaucratically managed assemblages of employees, the leveling and homogenization ceased. There came into existence a pyramidal hierarchy of job categories with sharply unequal wage, salary, and compensation schedules. Instead of a world in which the propertyless masses sell their labor and are poor, while the owners of capital hire labor and live on the profits from this unequal exchange, we see today an economy in which even the very rich, by and large, are salaried, and capital is owned by share holders who exercise little or no control over what is nominally their property. Indeed, comfortably compensated and securely tenured economists like Paul Samuelson, bemused by the reversibility of their equations, have taken to saying that it makes little effective difference to the economy whether capital hires labor or labor hires capital.

This highly unequal allocation of the rewards and burdens of labor has undermined that solidarity on which Marx was counting. Steel workers, miners, and textile operatives could forge some degree of unity, despite their geographic dispersion and the many differences in the nature of their jobs. Even hospital and hotel workers, secretaries and fast food workers, could find some common ground on which to stand in their struggle against the exploitation inflicted on them by capital. But whatever theoretical connections there might be between them and lawyers, middle managers, and tenured college professors, the gap in the salaries and conditions of labor between the two groups, the utter disparity in their life experiences and life chances, have made a fruitful solidarity out of the question. Workers have grown progressively less unified, until at long last, Organized Labor has come to be, and to be seen, as nothing more than an interest group, on a par with, but often less powerful than, gun owners, retirees, and fundamentalist Christians.

All of us are familiar with this world, for it is, after all, our world, and we understand intuitively that our life chances are determined not by whether we own the means of production, but rather by where on the pyramid of jobs we end up. It is worth taking a moment to look at a few facts and figures, simply to remind ourselves just how steep that pyramid is. I am referring not to the much-discussed explosion of compensation at the highest executive levels, but to the deeply entrenched inequality all up and down the pyramid. [These numbers come from Bureau of Labor Department tables, and date from 2004. I have not bothered to update them, but the thrust of what I am saying remains correct.]

In the town of Amherst, Massachusetts, where I lived for many years, a teacher at the Amherst Regional High School with a Master’s Degree will, after fourteen years, earn $61,353 a year. If her husband is a fireman in town who is also trained as an EMT, his salary will go up to $45,000 a year. Their combined family income will then be larger than that of ninety percent of the families in the United States. Stop and think about that for a moment: a high school teacher and a fireman. If the teacher had married a professor at the University, by the time he had risen to the rank of full professor and served in that rank for a while, he might well be earning about $140,000 a year. Their family income would then be larger than that of roughly 97% of all American families. By any reasonable classification, they should count as among the rich, and yet all of us are so conditioned by the meretricious images of the mass media that we would unthinkingly describe them as a “middle-income family.”

Not surprisingly, the numbers are much worse for African-American families. Now that the federally mandated minimum wage is on its way up to $7.25 an hour, a Black husband and wife working fulltime minimum wage jobs can look forward to the time when their annual household income of $29,000 puts them solidly in the Black Middle Class, with more than forty percent of Black households doing less well.

T he shape of the income pyramid in America has changed very little in the past century and more, save to become somewhat steeper. This in itself is odd, when we reflect that over that period of time America has been transformed from primarily an agricultural economy into to an industrial economy, then to a service economy, and now to an information age economy. One might plausibly have expected that so radical a series of transformations would work some alteration in the pattern of compensation, but it has not.

Apologists for capitalism, who are now as common as houseflies, like to offer two connected explanations for the inequality in wages and salaries, which taken together are intended as a justification as well. The first rests on a misinterpretation of a famous eighteenth century mathematical theorem, the second on a common logical fallacy. Mathematics first.

Leonhard Euler, the great Swiss mathematician, proved a theorem about linear homogeneous functions that was, in the nineteenth century, given an important economic interpretation. The theorem was construed as saying that under certain conditions, the wages paid to workers in a free and competitive labor market exactly equal their marginal contribution to the output of the firm for which they work, or, as it is sometimes called, their marginal product. Thus, if a vice-president in an executive suite makes more than a secretary in the steno pool, that is because the vice-president contributes exactly that much more to the productive activity of the firm. It would be both unjust and inefficient to take away some of the executive’s pay and give it to the secretary, even though they are both, no doubt, nice people and hard-workers.

The problem with this rationale for unequal pay is that it turns out, upon closer inspection, not to apply to any known or even possible capitalist system. In the first place, the theorem holds only for economies whose production function is linear homogeneous [assuming that it even makes sense to speak of the production function of an entire economy], and as is easy enough to show, this is equivalent to saying that the economy is in long run equilibrium. But as Marx pointed out, and as every economist since has reaffirmed, capitalism is never in long-run equilibrium. A capitalist economy is always engaged in what Joseph Schumpeter, in a famous phrase, called creative destruction. Furthermore, it follows directly from Euler’s equation that a firm with a linear homogeneous production will, if it pays each of its employees his or her marginal product, make a zero profit, and a firm regularly making zero profit will of course cease to exist.

All of this is quite well known to all economists, but it has not dissuaded them and their epigones from wrapping themselves in the sanctity of mathematics whenever proposals for wage and salary equalization surface.

So much for mathematics. Now logic.

When economists are asked why some employees are so much more productive than others, and hence deserving of such inflated compensation, their standard answer is education, or, as they sometimes say in an attempt to make the answer sound more impressive, human capital. Actually, that last sentence inverts the real order of explanation, and thus participates in the ideological rationalization that I am attempting to debunk. Let me restate the point: When asked to explain the striking inequality in compensation schedules, economists begin by assuming that the inequality must be justified, for to think otherwise would be to call into question both the foundation of American society and their own comfortable compensation. Those of us at the top of the income pyramid must have a much greater marginal productivity, they conclude. And how can that in turn be accounted for? Education.

Now, it is demonstrably true that in America today, your level of education [or, to be more precise, the number of years of schooling you have completed – not at all the same thing] powerfully affects where on the income pyramid you end up. Indeed, it may be the single most significant determinant. There are very few MBA’s working on the loading dock, and very few K through Twelvers in the executive suites.

But this fact does not imply that the shape of the income pyramid itself is in any way determined by the levels of educational attainment in the work force as a whole. If you have a college degree, your chances of climbing up the pyramid at least to the middle levels are quite good. But if everyone gets a college degree, the pyramid will not flatten out, because there are only so many jobs at the middle level.

To think otherwise is to commit what logicians call the Fallacy of Composition, which is simply the mistake of thinking that because something is true of each member of a group, it can be true of them all. Each of us, we may suppose, can with hard work and determination, be above average, but only in Lake Woebegone can all the children be above average.

Because the American economy is so large, it is easy to lose sight of this simple truth. For each individual, or for all immigrants, or for all African Americans, or even, within limits, for all women, it is indeed true that greater educational attainment will tend to lead to higher compensation, but that is only because the individuals or the group will over time displace some of those in the favored slots. If all the applicants for jobs at a corporation present themselves to the Human Resources Office with MBA’s, the Board of Directors will not terminate the positions of secretary, mail room clerk, and claims adjuster and make everyone a senior manager!

There is one way in which a dramatic educational upgrading of the entire workforce might conceivably trigger a flattening of the entire income pyramid. With better prepared workers available, corporations might shift to different and more profitable production techniques, and those new techniques might result in an array of job positions with more equal associated compensations. Economists would say that the positions defined by the new production function had more equal marginal productivities, which, as we have seen, is nonsense, but nevertheless, the end result might be a flatter pyramid.

Is this likely to happen? Well, for more than one hundred years, the average level of educational attainment in America, as measured by number of years of schooling completed, has been rising. The level of education demanded by the production techniques and job specialties in the American economy has risen correspondingly. And the shape of the pyramid has remained essentially unaltered. Literacy, not to mention computer literacy, is today required even by such poorly paid jobs as department store clerk. And yet, no flattening of the pyramid can be discerned.

What then does explain the shape of the income pyramid? A number of bright economists, willing to challenge the received wisdom, have been puzzling over this question for several generations. More than thirty years ago, Lester Thurow, the MIT economist who served there for a while as Dean of the Sloan School, published a little book called Generating Inequality that took a fresh look at the question. But although it is possible to give partial explanations, especially of an historical sort, for the pattern of compensation in this or that capitalist economy, the seeming permanence of the steep pyramid, its imperviousness to even the most striking changes in the world economy, remains a mystery.

Thus, there is little prospect for the labor solidarity on which a successful socialist transformation must be built. It is now the best of times and the worst of times. Economic rationality marches relentlessly on, while poverty and inequality harden into permanent injustice, and racial, ethnic, national, and religious rivalries tear the world apart.

What can we anticipate for the future? What will my grandfather’s great, great grandson, my grandson Samuel, inherit as he grows to maturity? The impetus within corporations to substitute economic planning for subservience to market forces will strengthen, as the managerial class responds to the imperatives of institutional rationality. Meanwhile, the obscene gap between the gilded life chances of the fortunate and the life-threatening poverty at the bottom of the world economy will persist and come to be seen as an inevitable concomitant of the rational workings of the market.

There will always be class traitors like myself who rail against the inequality from which they personally benefit. But though our excoriating tracts may bring us tenure and advancement, the revolutionary transformation they celebrate will seem as fanciful as the Chronicles of Narnia.

What then is the future of socialism? If socialism is the substitution of rational planning for the anarchy of the market, it is already upon us. If socialism is the achievement, at long last, of justice and equality, it is a dream that has been aborted in the womb of the old order.

A REPORT FROM TIGGER

My oldest and dearest friend is a dedicated radical who is deeply, inconsolably pessimistic about the state of contemporary politics. He is perpetually teasing me about what he sees as my irrational optimism in the face of endless disappointment. I think of him as the Eeyore to my Tigger. [WINNIE THE POOH by A. A. Milne, for my overseas friends.] Perhaps it is simply the fact that North Carolina has begun to sport days in the 70s, or advancing age, or merely irrepressible high spirits, but I am beginning to get that feeling that things are turning to the left at home and abroad.

I need hardly reference what is happening in the Middle East. All I can do is watch and hope and marvel at the speed with which seemingly thoroughly entrenched dictatorships are beginning to shake and crumble. I weep for those whose lives have been lost in the uprisings, but I allow myself to hope, perhaps even to believe, that irreversible changes are under way.

Here at home, my eyes are on Wisconsin, of course. There is very little I can do about that either, save to give money, so I have joined Russ Feingold's newly formed Progressives United with a pretty good donation, and I have also given a hundred dollars to the twelve Wisconsin State Senators in absentia. This is painless for me, but it is something, and I can at least comfort myself with the thought that if every like-minded person in America made a donation, large or small, it would add up to a very substantial sum.

This is a country in which fewer than 60% of eligible voters vote in presidential years, and little more than a third in off years. Thus it is that enthusiasm, voter mobilization, turnout is everything. A simple calculation makes the point. There are not quite 230 million citizens eligible to vote, of whom roughly 180 million are registered. About 70% of the registered voters vote in a presidential year, leaving 30% not voting and an equal number unregistered. Suppose that in a bad year for the left, Republicans win 52% of the votes and Democrats win 48%, and suppose as well that the 30% of registered voters who do not bother to vote would break in roughly the same proportions if they all came out to the polls. That means that the Republicans get about 65.5 million votes and the Democrats get 60.5 million, a 5 million vote shortfall, which is enormous. But there are 54 million eligible voters not voting, of whom roughly 26 million are Democrats. If the Democrats can get only 20% of them to the polls, they win, although not by much.

What we are seeing in Wisconsin is a brazen attempt by the Republican governor to gut the unions, which are the major get out the vote machine for the Democrats., In response, opponents of the governor's move, supporting the unions, have poured into the streets in astonishing numbers. The great beast has been awakened!

At the same time, as Frank Rich notes in today's NY TIMES op ed piece, the air is starting to go out of the right wing balloon. Glenn Beck, surely the craziest and most dangerous demagogue to appear on the American scene in a very long time, has lost half of his audience in the past year. Sarah Palin has become a joke to much of America, and despite her fervent band of admirers, no longer carries much political weight even in Republican circles.

We need to mobilize, and the list of horribles being attempted by state and federal Republican lawmakers may turn 0ut to be the most effective organizing tool we have.

I refuse to believe that I am simply giving voice to irrational optimism. I have lived long enough to see America come alive several times, and this is beginning to smell like another such moment. Deo volente.

A REPLY TO WALLYVER

Wallyver raises a question about the seeming parallel between my remarks about index numbers and my discussion of accounting problems in Part Three of my paper, THE FUTURE OF SOCIALISM. First of all, let me say that until he asked this question, the parallel had never occurred to me. It is very interesting.

My point about index numbers was this: because there is no solution to the index number problem -- i.e., no objective, ideology-neutral way to form such measures of social reality -- every effort to grasp conceptually the nature of social reality is unavoidably ideological. This reveals a deeper truth, which is that social reality itself is ungetoverably normatively structured, embodying [in a way that physical reality does not] a perspective or point of view or normative dimension, or indeed more probably several that are in conflict with one another. From this insight, I draw the conclusion that a value-free social science is impossible [and that includes economists as well as sociologists and political scientists, of course].

The point about the accounting discussion is different, but in many ways strikingly similar. Because there is no objective "scientific" solution to the accounting problem once capitalism develops beyond its most primitive stages, supposedly objective decisions concerning profitability in a firm inevitably turn into quasi-political decisions or negotiations among the interested parties. This, I suggest, is part of the process anticipated by Marx by which the new social relations -- of socialism -- grow in the womb of the old capitalist order. If I am correct, then profit-maximizing capitalists have no choice but to engage more and more in decision making whose structure is political rather than, in the old sense, economic, and this fact robs the defenders of capitalism of their strongest argument, which is [pace Hayek] that market-driven decisions are necessarily the most efficient. The problem is not that they are less efficient, but that they are impossible. [By the way, for those who are really into this sort of thing, this is exactly the criticism that Oakeshott has of rationalism in politics, namely that it is impossible, not bad.]

Does that clarify things a bit?

THE FUTURE OF SOCIALISM PART THREE

Perhaps the best way to begin is with the classic essay by Ludwig von Mises entitled “Economic Calculation in the Socialist Commonwealth.” First published in the original German version in 1920, and included in an English version in Friedrich von Hayek’s widely read 1935 collection of essays, Collectivist Economic Planning, von Mises’ essay is generally thought to be a devastating dismantling of the socialist penchant for central planning. His thesis, in a nutshell, is that since the free market does the best possible job of pricing factor inputs, through the interplay of individual decisions to buy or sell, the very most that socialist planners could do, in the ideal case, would be to mimic the operations of the market. Since in the real world they have no hope of achieving that ideal, collectivist planning will always be inferior to free market competition as a way of deciding how most efficiently to employ scarce resources. Thus, contrary to the expectation of Marx and his followers, socialist planning can never improve on the unplanned outcome of the marketplace, but will fall disastrously short of that standard, producing wastage, bottlenecks, shortages of necessary productive inputs and calamitous failures to meet consumer demand. In the jargon of modern economists, unfettered capitalism will tend to put an economy on its production possibility frontier, while socialist planning will consign an economy to a position well below and to the left of that desirable location.

The first thing to be said is that in 1920, von Mises was dead right, and I think it is a fair guess that Marx, had he been alive, would have agreed. Von Mises was of course looking at the fledgling Bolshevik government that had just seized power in Russia, ostensibly in the name of Marx and communism. Russia was then still a late feudal economy with a tiny nascent capitalist sector pretty much confined to a few cities west of the Urals. The social relations of capitalist production had scarcely begun to grow in the womb of feudalism, and nothing remotely resembling socialist relations of production could be discerned anywhere in Russia’s economy. The Bolsheviks were well aware of this fact, and engaged in a lively – ultimately bloody – discussion about whether it was theoretically possible to “skip a stage” and go directly from late feudalism to socialism. Marx knew that the answer was no, and so, I suspect, did they, but when one has unexpectedly taken control of a vast nation at considerable personal risk, it would have seemed unnecessarily doctrinaire to turn the state over to whatever capitalists one could find and wait patiently for the slow evolution of new social relationships to run its course. Not surprisingly, what emerged in Russia, and later in the even vaster peasant society of China, bore no resemblance at all to what Marx had in mind when he spoke of socialism growing in the womb of capitalism.

So von Mises was certainly right with regard to the world he was looking at in 1920. The market clearly did a better job of allocating scarce capital resources than any group of planners could, even though Russia numbered among its intelligentsia some of the best economists in the world. [Indeed, it is said that some years later when the young Wassily Leontief took his brilliant new technique of linear programming to the Soviet Commissars and offered it as a tool for sophisticated central planning, they dismissed his offer on the bizarre grounds that since Marx only used addition, subtraction, multiplication, and division, Stalin had decreed that his planners must do likewise. Leontief eventually moved to Harvard, where his theoretical innovation assisted corporate planners to manage their capitalist empires. Many years later, he was awarded the Nobel Prize in economics.]

But von Mises was fundamentally wrong in his conception of the question under debate. Marx did not think that socialists could do a better job than capitalists of running a capitalist economy. Marx had only the greatest admiration for the explosive efficiency of capitalism. No one has ever penned more effusive panegyrics to capitalism than Marx. What Marx said was that inevitably, ineluctably, socialist relations of production would develop within capitalism, devised and advanced by capitalists, not by socialist moles burrowing into the heart of enemy territory in an effort to undermine their fortresses.

If market forces were adequate to the task of making rational allocations of scarce resources, there would be no internal impetus for the evolution of new ways of organizing production. But as we have seen, in a large modern corporation, the play of the market does not of itself resolve questions of allocation, resource use, and profitability. Capitalists do not develop internal planning models of economic decision making because they have been seduced away from the faith of their fathers by tenured radicals on effete Eastern campuses who have never met a payroll. They develop new modes of corporate decision making because their accountants and financial experts cannot tell them, in a neutral, objective fashion, which of the available alternatives will be most profitable. Our cardboard C. E. O., struggling to decide which of his division managers has made the most significant contribution to the firm’s profits, must somehow resolve the disagreement between the two over the proper allocation of the fixed costs of the building in which their production takes place, and over the proper amounts to be charged against the box division’s accounts when it draws its raw materials from the stocks produced by the cardboard division.

Once the firm’s president becomes persuaded by his accountant’s argument, he realizes that the disagreements between his division managers will have to be worked out politically – they will either have to be negotiated, or else he will have to decide them by an exercise of sovereign authority.

In either case, what has happened, even in this very elementary case, is that a decision originally made for the firm by the market, and then made for the firm by an accountant, now has been transformed into a political decision to be made essentially by some form of political mechanism. In short, economic calculation has been replaced by political planning.

No doubt, none of the actors in this miniature drama would consider it in the slightest appropriate for what is usually called the political system to get involved in deciding how fixed costs are to be allocated in the cardboard carton firm. But though there might be many other reasons for keeping the city, the states, or the federal government out of the process, the principal and most plausible reason has evaporated, namely that the decision, being economic in nature, is best made by the impartial working of market forces. The fact of the matter is that the decision is not simply economic – it is not actually an objective scientific decision at all. It is a political decision, required in order to resolve a conflict between the incompatible ambitions of the two division managers, one of whom is seeking to hold his job against the threat of replacement, the other of whom is trying to advance her career by demonstrating her ability to run a division profitably.

The situation we have analyzed in this hypothetical small firm is reproduced throughout the modern capitalist corporate world, with complications, elaborations, and variations that cannot even be hinted at in our example. A major multinational corporation, as has often been remarked, is better compared to a state than to an entrepreneurial firm. Contained within it are huge bureaucratic systems and sub-systems in whose hallways and meeting rooms men and women live their entire working lives. The processes by which corporate-wide calculations of profitability are made involve considerations of tax codes, local ordinances, international trade, exchange rates, inflation rates and regional differential development patterns that are substantially indistinguishable from the corresponding considerations weighed by economic planners in centralized national economies.

The running of such a corporation requires systems of data acquisition and retrieval entirely beyond the capabilities of the eighteenth and nineteenth century capitalist firms on whose behavior the original models of capitalism were based. To manage such information systems, and thereby to coordinate the decisions, the purchasing and shipping patterns, the product development time-tables, and the promotional campaigns of the many divisions of the firm requires an extremely high level of literacy – both linguistic and computer – on the part of lower and middle level, as well as upper level, employees. Until it is possible to get reliable answers quickly to questions about employee levels, warehouse inventories, price shifts, exchange rates and capital availability, those charged with the central planning of the corporation cannot even begin to carry out their tasks.

Nothing resembling this level of information flow, and consequent decision implementation existed in the early capitalist firms, not even in those that grew to great size in the nineteenth century. The importation into capitalist industrial organization of the model of military command and control was due at least as much to the sheer unavailability of any alternative way of managing and coordinating the behavior of large numbers of people as to the ideological affinity of the early industrial magnates for militaristic modes of organization.

In short, when Marx talks about socialism, he has in mind an economy whose stage of development of technology and organization is so far advanced that national planning is technically possible. Such a stage exhibits both a certain level of technology of production, of data generation and retrieval, and of communication, and also a corresponding level of knowledge and skill on the part of workers at every level, not merely at the top. Although Marx failed to foresee the digital computer, it is not far-fetched to say that his conception of socialism presupposed it, or something equivalent.

Marx expected, for sound reasons, that the technology of production, communication, and management required for the central planning and control of an entire economy would develop first within capitalist firms, in direct response to the pressures of competition and the demands of profitability. And so they have. An immediate consequence of this process is the transformation of economic calculations into political decisions, within the firm. Thus, if by socialism we mean the rationally coordinated planning of an entire national economy in such a way as to transform the major economic choices of the society into political choices, responsive to the will of the people, then it is true that socialism has been growing within the womb of capitalism, or at least that the technical preconditions for of socialism can be seen to be developing there.

The economic systems established in the Soviet Union, in Eastern Europe, in the People’s Republic of China, and in a number of other nations self-described as “socialist,” were not in any usable sense examples of socialism. This description must be denied them not because of the character of their political systems, but quite simply because they did not exhibit either the stage of development of productive forces or the level of development of, and rationalization of, relations of production prerequisite for what Marx meant by “socialism.” An economy cannot, with the best will and the strongest ruling party in the world, move directly from a feudal or early capitalist economic organization to socialism. The reason has nothing whatever to do with piety, ideology, or the inexorable march of history, and has everything to do with the impossibility of planning food production rationally when you cannot even find out with any precision how many acres are under cultivation, or what the pattern of crop yields is from county to county, and when your work force is computer-illiterate.

Note, by the way, that the development of efficient techniques of central planning within a modern capitalist corporation is advanced, not impeded, by the ambition, acquisitiveness, and egocentricity of the managers. Switching over to a planning system in our carton factory does not require the development of socialist consciousness. It requires only that the objective structure of the firm make policy-neutral calculations of profitability theoretically impossible, as in fact they are once the second division of the firm starts to operate. Somewhat more to the point, the coherent management of large modern firms does not require that the capitalist mentality so often credited with the rise of modern capitalism be somehow transcended. The same men [and recently women] who manage the great corporations would, if they were suddenly to find themselves running small firms in a classically competitive environment, adopt precisely the calculations of profitability traditionally conceived as determined for them by the free market. They do not do so when managing large corporations simply because it is technically impossible to do so.

What, then, is the fundamental difference between socialism and capitalism at its most advanced, rationalized, and centralized? Under socialism, economic decisions would be treated [I use the subjunctive because there does not yet exist a socialist society] as collective political decisions, to be made democratically on the basis of the aggregated will of the entire people. In a capitalist society, decisions are taken privately, within the firm, in response only to the interests, the will, or the pressures of those who occupy positions of power within the firm.

The issues available for decision are not at all comparable in the two systems. A socialist society will be presented with choices among economy-wide investment policies or systematic wage policies that simply do not come within anyone’s ambit of decision in a capitalist economy. This, of course, is the principal source of the greater rationality of a socialist economy. But the mechanisms for the acquisition and management of information, and the consequent management of economic activity, will have been developed and tested within the capitalist firm – within the womb of the old society.

A MESSAGE TO JOHN C HALASZ

For some time now, you have been posting extremely long "comments" to my Marx tutorial. I have not replied for several reasons, one of which is that I find what you write rather difficult to engage with or to understand at times. I would like to suggest that rather than using the comments portion of my blog for what are essentially independent essays, you start your own blog and present them in a more orderly and coherent fashion. I would be quite happy to refer my readers to your blog site, leaving the comments section on my blog open for shorter comments directed more immediately to my posts. I do not intend to delete your comments on my blog. I think that would be rude of me. But I do think an independent blog would be a more appropriate site for what you wish to say.