Saturday, July 13, 2013

The social "trade-offs" are no longer trade-offs?

Greg Mankiw has a nice description of the three trade-offs faced by society and how differing views about them are shaped by our ideological predilections. He writes,
Arthur M. Okun... wrote that the big trade-off faced by society is between equality and efficiency. We can redistribute income to give everyone a more equal slice of the economic pie, but as we do so we blunt work incentives and the economic pie shrinks... From this perspective, the Democrats are the party of more equality, and the Republicans are the party of more efficiency.  
Another view is that the important trade-off is between community and liberty. As members of society, we have goals we want to achieve with others. But as we reach those shared goals, we are asked to sacrifice some personal freedoms. From this perspective, the Democrats are the party that emphasizes communal values, and the Republicans are the party that emphasizes individual liberty.
Finally, there is the issue of how much one trusts centralized governmental power. Democrats tend to want to expand the scope of the federal government to improve the lives of the citizenry, while Republicans are more fearful that centralized power leads to abuse and lack of accountability.
There is nothing wrong with these trade-offs by themselves. What makes it disconcerting is how the interests of the economic and political establishment, cutting across party divisions, converges towards one side of the trade-off, thereby perpetuating the status quo.

Consider this. The economically and politically entrenched, and their supporting intelligentsia, have an obvious interest in favoring efficiency over equality. The debate about any form of increase in taxation is a reflection of this trend. The other two trade-offs relate to a cognitive bias that has become socially internalized about the role of the government.

The traditional free market view has been that government's role should be confined to the issue of currency, national defense, protection of property rights, enforcement of contracts, maintenance of law and order, and provision of certain basic public goods. In the post-war consensus, a welfare state consisting of a basic social safety net has become added to government's responsibilities. The dispute about the role of government has mostly revolved around the extent/boundaries of the provision of public goods and social safety nets.

As the economic and political system has become more self-perpetuating (for example, social mobility has declined), the practical and psychological imperatives for its beneficiaries to support public provision of public goods and social safety net has eroded. They are both able and could afford to access most public goods from private providers or pay for their use. Assured of their entrenched socio-political and economic positions, the normative underpinnings of social safety nets is of limited concern for them. A two-tier system - where one group is privileged to access the best schools and health care, benefit from establishment networks, and enjoy even better quality of public goods - which works against equality of opportunity appears to have emerged.

Therefore, the decision makers in all three trade-offs, are more likely (and this likelihood may be increasing) to be pre-disposed in one direction. These are no longer real-world trade-offs, and are confined to ideological debates. Unfortunately, this trend is not confined to the US alone. Marx, it appears, was atleast partially right.


KP said...

Dear Gulzar,

Did I get this right ? "The economically and politically entrenched, and their supporting intelligentsia, have an obvious interest in favoring equality over efficiency." The debate over taxation itself is a preference of efficiency over equality - that IF taxation has to be effected then equal taxation is efficient and is not reflective of equality.

The skew in economics in terms of defending vested interests of those entrenched and justifying it by the use of the language of efficiency is the game. However, market fundamentalism that convinces us that the 'markets distribution of wealth' as just desserts is about succumbing to the performative aspect of economics that corrupts the markets (in this case the public's) view of efficiency.

The grudging acknowledgement of Marx is possibly the only way we acknowledge any marxian analysis - and that suffers from the malaise that if we buy into a form of thinking we need to buy into it wholesale rather than acknowledge specific analysis that powerfully reflects trends as is.( So the grudging bit)

An interesting view of meritocracy

Is Mankiw part of the entrenched elite ? ;)

or as Ashwin Parameswaran argues is the Capitalist system similar to the Communist System in removing the invisible foot of failure - do we need a more radical centrist approach ?

And the big question - why is efficiency and non-performance never an issue for government - other than politicians having to come up with theatrical grandstanding at elections that never ever addresses granular issues of efficiency in government decision making ( take the case of all PPP infrastructure issues that you raise, where there appears to be hardly any relevant contestation that can apply pressure on government to act in 'public' interest)

The problem fundamentally is one where when theories of voting meet theories of economics - then the outcomes are largely 'debates on trade-offs' with hardly any impact on resolving problems at hand with any degree of certainty or refreshing vitality.


gulzar said...

Thanks KP for pointing that out slip. I've corrected it.

Thanks also for those links and comments.