Friday, 6 April 2012

Left and Right Economics

Few if any of us form our basic political views after reading The Wealth of Nations, The General Theory of Employment, Interest and Money, or Das Kapital.  Rather, we cleave to economic theories we find congenial to our more fundamental beliefs.  But, in economic terms, what are those beliefs?

I see the economic difference between left and right as arising from a conflict in the functions of money.  Money, together with the property rights that make it useful, stimulates the production of goods and the provision of services of a price and quality the consumer finds attractive.  But it also provides a mechanism for the allocation of goods supply of which would otherwise be insufficient, assigning them to their highest value use. The first function requires it to be possible to accumulate unequal wealth by producing desirable goods.  The second function requires the division of wealth to be roughly equal, so that the highest priced use can be the best use also.  We have to choose how to accommodate these two opposing needs.

If you and I and everyone else were equally wealthy, you might choose to spend your surplus wealth on a larger garden, while I prefer to eat otoro - each goes to the person who values it most, so that maximum benefit is obtained from it.  But in practice the financial rewards for production result in inequality of wealth - otherwise they wouldn't work - so that scarce goods go to the people who can afford to pay the most - the rich man eats otoro in his large garden while the poor man dines on baked beans in his council flat.

The socialist places great weight on the best allocation of resources to consumers.  Therefore, he, following Saint-Simon and Karl Marx, adopts as his guiding principle "from each according to his abilities, to each according to his needs".  He believes, or at least hopes, that sufficient production can be achieved by state or communal direction - the common ownership of the means of production, distribution and exchange - without the need for the creative destruction of capitalist competition.  Practical experience of 20th century communist states has made this belief rather difficult to sustain.

The right-libertarian cares only about the stimulation of production: it pains him to see any interference in the flow of wealth to those best able to acquire it.  He thinks the optimal allocation of resources is whatever results from unrestrained economic interaction, perhaps leavened by private charity.  In his view the role of the state should be little more than the protection of property rights.  So far as I know this set-up has never been tried in practice, perhaps because democracies need to do more to satisfy hoi polloi, whereas dictators have no incentive to restrict themselves to protecting the rich.

Almost everyone has views somewhere between these extremes.  The left thinks that efficient allocation of resources is the important thing, but will allow enough incentives to production to create a good supply of stuff to allocate.  The right thinks that incentivizing production is the key: it hopes that eventually there will be so much stuff that a sufficient share will trickle down to the poor, but will allow enough redistribution meanwhile to avoid obvious inhumanity.  The centre seeks to compromise.

( This picture is confused somewhat by Keynes' teaching that in some circumstances - a low employment equilibrium - the right economic policy to increase GDP is to run a deficit and get the money to the poor, so as to stimulate demand. Some technocrats may be persuaded by this analysis to favour egalitarian policy even if it runs counter to their instinctive preferences.)

Related to the diference attitudes to the distribution of wealth is a difference in attitudes to communal ownership.  The right-libertarian wishes to avoid the Tragedy of the Commons by putting everything possible into private hands.  (Perhaps he denies the existence of Anthropogenic Global Warming because he can't solve the problem by selling the whole planet to the highest bidder.)  The left-libertarian wishes to minimise inequality by curtailing property rights and holding everything possible in common.  The rest of us will have views which depend on our social as well as our economic leanings.

There's a televised golf tournament going on now in Augusta, Georgia.  It's obvious that no expense has been spared in preparing the course.  If you prefer watching golf to thinking about economics, that's probably what you should be doing.  Otherwise, if seeing it makes you reflect on all the resources being expended on private golf courses for the benefit of a few privileged members, then you are a leftist.  If it makes you marvel at an economic system which can create such a remarkable spectacle, then you are of the right.

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I don't suppose this analysis is original, but I've not seen it plainly stated.   Perhaps a commentator will draw my attention to a source I ought already to have read.

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