Allocation of resources – the invisible hand, socialism, and the mystery of social life…

The economy may have become slowly the most fascinating mystery around…
Physics and biology have made so much progress as to render the natural world at least understandable enough that we can work on it in a way our ancestors would not have imagined possible: flying, going to the moon, curing many diseases (or blowing ourselves up, big time).
Psychology is frustrating, but at least at the individual level there are many cases when patterns can be understood, and help given. And when not, at least you can always take pills – they will never be enough to eradicate urangst, or despair. But you can track their action, however limited or short-lived.
Not so in economy. It still seems that even economists mostly make wrong predictions and propose solutions, which don’t work. And non-economists generally appear lost, mostly resorting to fully inadequate tools: morality (“the modern economy is bad”), childish voluntarism (“let’s just create jobs and/or distribute money and/or whatever”)…What is exactly the matter?
Until “recently” (two centuries ago, even for most of the world a couple of decades ago), the issue of producing and allocating goods was relatively simple: shortage was the rule. There was mostly not enough food, not enough non-food items, not enough luxuries of course. This did not mean that there was no economy to think about: it took a long time for the right concepts to come around, but slowly emerged the ideas of specialization and comparative advantage, the notion that free trade could benefit both parties, and some understanding of that most vexating of all issues, currency. At least, on the latter, it was understood that the supply of currency had as much impact on the price of goods as the supply of goods themselves. And there was much thinking about resources allocation and privat property, from Rousseau to Marx, for instance. And still, not much was understood at all, and “solutions” proved worse than the ills in many times – just think about the Soviet Union as an experiment of solution…
Now, what gradually happened was that the very underpinning of the world so far was changing radically: penury was on the wane. Productivity and machines made such progress that there is now more food than we can eat overall (or at least there is the potential for it) and there are certainly more goods than we can “reasonably” consume (hence the constant product “innovations” – and don’t think it would be any different if we were to add more poor countries: markets saturate rather quickly in a world of such productivity as ours). There is no real shortage of food or non-food, there can only be a shortage in some places where the economy is too little developed, and of course there can be a shortage of land, which is a rather special good in that respect! What we have not developed, however, is any understanding of what to do with this…
Don’t get me wrong. We know a couple of things which don’t work: centralized planning (too few people to decide too many things just cannot work – it is like trying to handle complex processes with one old processor, instead of a massively parallel computer, to take a tech-analogy – and in addition central planning gives too much power to a few, and this is a great source of corruption), for instance. And we also know (more or less) that there appears to be a few economic “laws” that you ignore to your own risk: inflating money devaluates it, say, and a lot of other good things on interest rates, public borrowing, administrative barriers etc. Even so, it seems most people have never heard of them. Recently, in a rare display of intelligence, Sarkozy’s government announced that they were considering re-introducing economics teaching in high school (whoever was the moron who took out the miserable 2 hours that used to be taught during only one year, as if even this was too much!?).
But more fundamentally, the tools, both mental and factual, are still the ones developed for a world of shortage. And so is the vision of income allocation. The interesting situation is that:
- We have a world of potential sufficient supply of pretty much everything for pretty much everybody, if the best technology were used everywhere
- Given the number of more or less idle people around (unemployed or underemployed, in rich and poor countries alike), there is the potential to produce really a great deal more
- The few problems on the way are:
o If you produce these additional goods and potential clients do not have the resources to buy them, you lose money, and you have to find this money somewhere (see “does not grow on trees”)
o If you first distribute money around to poor people so they can purchase something, you create inflation
o Experience has shown to whoever cares to look that full-scale “socialism” (in the sense of state property and state-ordered distribution of income) corrupts ethics absolutely, ruins the economy and destroys freedom – if anyone has doubts, I volunteer to organize tours of the worst bits of the former Soviet Union.

Looks like a pretty evil conundrum: we have the resources to feed and clothe all, but we don’t know how to allocate them better. Should this not be a topic for research? How to do it in a way that works, that is…and without going back to closed borders where you make people everywhere worse off.

A couple of small bits of elements for potential ideas:
- Probably not the best approach to throw millions of money at some executives, as if they were such a rare resource – I mean, good management skills are rare, but that rare?? Rising inequality is kind of not exactly what seems to make the most sense in terms of allocating resources better (I mean better here not from a moralperspective, that it would be better if poverty were to disappear, but from an effectiveness perspective, that a better distribution would be one that reduced crises, by having more spread consumption and more stability in the system…I am dreaming!)
- Maybe at least part of the answer (and also part of the expanation of why the “financial world” has looked so out of control in recent years…) is in this fundamental innovation of the last 30 years: capital has grown increasingly mobile, across borders and inside borders. This is great, it has allowed considerable innovations, and massive growth in a number of countries that once looked desperately poor. But this has not been accompanied by more freedom of movement for labour. Quite the contrary, with all rich countries clamping down on immigration. It means poor countries workers are “locked in” and have a bad bargaining position, while rich countries workers can resist salary changes, but then see their jobs move overseas…Not that it is so simple, but I guess part of the answer lies there somewhere.

Just thoughts. I have no theory and I think the problem is so complex that it may largely lay beyond our capacity to solve it. After all, this is about psychology, compounded billions of times. What makes people work, strive, etc. The total failure of the large-scale experiment to replace private property and market by state property and planning should make us humble and careful – but it should not prevent from asking the questions…

On reality denial - the French Left

It could seem that my "transatlantic" focus is rather one way if I continue talking only about American politics...no worries!

[This post was started a couple of days ago and not finished...so it might look a bit old to French readers, but not so to others...]

The French Left has recently been giving a particularly absurd show - but unfortunately this has deep roots, and is not mere aberration. Looking at what befell the candidates for Socialist Party leadership is enlightening.



The Socialists just went through several months of campaigning, and finally an election by the party members, for their "General Secretary", i.e. party leader. Many things were weird:

-> A bit over 50% of card-carrying party members voted - so the leader was elected by maybe a total of 60,000 votes or so. The Socialists are a party that typically will aim at getting from 6 to 12 million votes or so in a general election - not much of a primary, really!

-> One of the frontrunners, the mayor of Paris Bertrand Delanoe, narrowly got pushed out after the first round, after having been an early frontrunner. Delanoe's sin: he expressed in June his identity as "a socialist and a liberal" (the latter being in France understood generally as "free-market fanatic", which is not how he meant it of course). Given the general hyper-statist mood (financial crisis...), this clearly cost him a lot.



-> The two ladies who made it to the second round, Martine Aubry (the eventual winner by a handful of votes) and Segolene Royal (who was not a good loser, once again) fought bitterly and appeared to be rather from enemy camps than from the same party. What was weird was their political positioning:

> Aubry positioned herself as a "true left" believer, a kind of "historical socialism" stalwart - although she is the daughter of previous European Commission President Jacques Delors, of centre-left democrat-christian fame, and herself an able technocrat with a history of close relations with business circles. She was supported by the absurd (let's not say "unlikely" - this is not "unlikely" but clearly absurd!) alliance of the eurosceptic/old left wing of the party, and the clearly "social-liberal" (as we say in France) side of it (whose leader, Dominique Strauss-Kahn, could not run because he is heading the IMF...).

> As usual it would be difficult to say exactly what Segolene Royal stood for but she was arguably a combination of "more to the left" (popular participation is her great topic, as opposed to decisions coming from the top) and "more to the right" (a liking for law and order topics and, most importantly it seems, a professed openness to maybe one day discuss the possibility of talking to the Centre in order to consider some kind of "let's not call it an alliance but..."). The latter (readiness to talk to the Centre) was attacked by her internal opponents in pretty much the way the US neocons attacked Obama for his professed openness to maybe talk possibly one day to adversaries of the US. Seems the neocons are not the only absolute morons around.


So, in short, the leardership election was won "to the left", and through a vote involving a handful of card-carriers. And what does this "left" mean?

Marcel Gauchet in Lieux de Memoire has analyzed "left" and "right" not anymore like what they pretend to be, but as identities. As such, it does not matter so much what ideologies they cover, but rather whom you belong to. In this sense, they are still valid: there are still people who relate to them, and are convinced to be right...But what does this mean, except for this identity, which could be a secular, urban replacement of the old religious and village identification...?

Francois Furet in his books on the French Revolution showed how, starting from the Revolution onwards, what had once been the "left" of ideas and parties (and politicians) got constantly pushed to the "right" by the emergence of more revolutionary, further "left" ideas and movements. The criteria of being "more revolutionary" being to be for more equality - not more liberty.

I guess we have arrived at the point where we have gone full circle. Some ideas have been going from left to right, then back and forth - such as nationalism, the engine of the Revolution, then later in the 19th century becoming the source of a major right wing movement - and now? are not many defenders of the nation-state, again, on the left? The left never really was the party of the movement, is it still the party of equality?

Probably there is a lot to gain in trying to understand "left" and "right" as temperaments: "why not" against "why", "it could get better" vs. "it could get worse". But it is doubtful whether the French left even still matches this description, and it is Sarkozy's strength to have understood it: most of the left speaks only of preserving, conserving, defending...Not much optimism that things could get better!

Now, why did I name this post "reality denial"? Because the current state of affairs of the left in France is:
- a strong (both through public presence and votes) far-left movement that is against "capitalism", markets, globalization, private property, name it (and which is partly "alternative", i.e. ecological, libertarian in social issues - but only partly so)
- a mainstream socialist party, which is led by graduates of public administration, with a significant training in economics and international relations, but apparently pretend to be some communist operatives from the fifites...I mean, seriously, this is what they talk about:
-> globalization is BAD BAD BAD - just ask the millions of Chinese, Indians and others who escaped poverty in the past twenty years what they think? but never mind, it seems equality is meant only for French state employees??
-> markets are REALLY EVIL - never mind that the left wing governments under President Mitterrand did probably more market friendly reforms than the right, and that, unsurprisingly, combined as it was with reinforced (but "traditional French", one could say) public investments and planning, it worked, with France enjoying a very good time in the nineties, with strengthened competitiveness and a modernized country
-> more more more regulation is GOOD - no one even dares talk about reducing bureaucracy and red tape. Any "deregulation" is just evil - full stop - move over.

Now, this really sounds like a party that is ready to govern in the 21th century, doesn't it? Flatly deny the tremendous positive changes that globalization has brought for such a large share of the world's poor (sorry, just count how many there are in China and India, who recently went out from poverty!). Deny the accomplishments of the governments you ran and the obvious merits of focusing the state on where it can do most good, and let the market decide of resource allocation. As if we had not had enough experience of governments (left and right) throwing billions of dollars at: steel (ended up downsizing and globalizing anyway), shipbuilding (ended up with the only shipyard remaining open being the one that was clearly competitive from the start), computers (ended up wiped away anyway), banks (anyone remembers how much state-owned Credit Lyonnais lost for the taxpayers!?)... And finally, always proposing just more more more more rules?! You must be kidding...?
But then, there is the right...

Political spectrum

"Obama is a socialist" -
now that he has been elected (and he has picked his economic team), we could laugh about this statement. But let's rather pick it apart:

(1) it means that "socialist" is an insult - interesting from Europe where pretty much every country is or has been governed in recent years by a socialist or social-democratic party...

(2) it means that, for many, any attempt at having the State provide some sort of health coverage for all and/or some kind of redistribution is "socialism" - which just indicates a very wide understanding of words indeed

(3) it illustrates the difficulty of communicating political debates across the Atlantic - some of the issues:

• the Republican party is now so far "right" that many of its members would not even be accepted in "mainstream" extreme-right/neo-fascist parties in Europe - they would have to go to the "lunatic fringe" of the splitter-microparties. Say, Sarah Palin. Why? because no one remotely electable in Europe would stand for creationism - put in another way: no one would vote for a creationist!
• the political discourse in the US is still defined at least in part by "fear of the reds", even though 1917 and the Cold War are long past - the only other country where I can think of something partly similar (on the right only) is Italy (but obviously with very different roots)
• at the same time, the US sees, and has seen, massive State intervention in the economy, and everyone wants more, or nearly everyone!

Now, Obama probably would sit somewhere on the centre-right in most European countries, simply because the political field is in a different place altogether. But, lest you think this means you can just say Europe is more to the "left" or America to the "right" - where do you expect the next Prime Minister or President to be black???

[and, a wink to despairing French leftists, where do you get real primaries to choose your leader?]

But this leads us neatly to the car industry, I guess?