What Price?

datePosted on 15:18, June 10th, 2016 by E.A.

This one bubbled up after a three week run of in depth work. I blame my subconscious.

One of the fun parts of being at university was attending lectures for subjects I was not actually enrolled in. One of these was economics. I was doing Political Economics in POLS but the un-enrolled course I was sitting in on was hard core, perfectly pure, Chicago School dogma being drummed into eager young acolytes all ready to get out there and be part of the machine.

It was interesting stuff and while I soon found it to 20% sound theory and 80% minute social mechanics and psychology BS packaged as truth but I continued to attend lectures for the rest of the year, sitting up the back, smugly standing out by my dress, hair length and general demeanour as not one of the true believers.

They knew I was an infiltrator because they didn’t see me at tutorials and I was not of the general mold of Economics students but since I could hold a conversation on general concepts, was up with market play and kept turning up no one ratted me out, to which I was thankful.

And one of the interesting things I learnt attending that course was the concept of externalities, which in general is when a business excludes a particular costs from a product or process from its cost calculations.

For example a factory using chemicals in its production process will not factor in the cost of the toxic waste it produces, that is dumped into the water, sky or environment, if it does not have to, thereby making the product cheaper and generating more profit for the business.

But the concept does not stop there and I remember being fascinated as the lecturer expounded further on whether the decision to exclude was deliberate or due to incomplete information and if it was deliberate how such deliberations played out in the cost/benefit calculations.

It was, as he calmly noted (like a Mongol warlord ordering a pile of heads to be built form the population of a conquered city), not something that any aspect of morality should have influence on and at the end of the day the decision was to be deliberately amoral, made on pure cost calculation alone (in the Mongol case a simple calculation that fear would weaken the enemy and make victory come easier). And when he presented within the frame work of the economic theory (which at the end of the day boils down to “how to make the most profit”) it made perfect sense.

Such theories are clear, clean and crystalline in their perfection and inside their own particular paradigm make perfect sense, all the part fit together and the machine functions smoothly (my favorite example of such a theory at the time was John Rawls Theory of Justice but I have mellowed in my age).

Of course unexpected or unwanted things do occur and no functional theory can simply exclude them if it wants to pass peer review but often the mechanism to enable this is to simply treat the rouge data as a black box effect (ie X goes in, we don’t know what goes on in there, and Y comes out) or to set it up as having minimal impact (an externality) and the results of such styles of thinking is to either run very quickly into dogma (as economics has done) when confronted with a more holistic situation than its mechanistic process can handle or fall before the new and more complete picture.

And the process goes something like this: Ignore, ridicule then accept but acceptance only occurs after the current adherents of a theory pass on or give up or when the truth is so absolute that it cannot be denied.

Of course logic itself can easily become as much of a dogma as any crack-pot theory or religion (I always laugh when I go to people’s houses and they have the oh so trendy “Thou shall not commit logical fallacies” wall chart in their toilet) and the purpose of this post is not to wade of into the realm of abstract philosophical concepts but to look at the idea (such as externalities) and examples of such in real life (something all good philosophies should be doing).

And it’s here where we start to swing this post back towards the title of this blog, Kiwi (ie New Zealand) politics. But before people turn off thinking I am on another one of my rogernomics rants I beg a moment to show that I am not and am in fact looking at something far more relevant and current, poverty in New Zealand.

There is a reason why social safety nets exist. There is a reason why NZ built state housing in the 30s. There is a reason why states have laws to regulate economic and other activities and those reasons are, while possibly not absolute, due to a clear and obvious acceptance of most if not all related costs (to the state as well as groups and individuals), or to put it in other terms, refusal to allow externalities.

Now before someone accuses me of Keynesian leanings, that’s John Maynard Keynes not John Moneymarket Key for those not in the know, it’s worth pointing out that I am not advocating any solution which is can be simply boiled down to “make the state pay for it” any more than our PM is advocating “let the market take care of it” (although that is what he is doing).

Oh no it’s not that simple, but then again holistic theories never are. Reality is, often a messy beast that will not only track dirt into the house but also trail dirty paw/foot prints all over the rug, hide a nasty little surprise behind (or under the couch) and generally make you wish you never owned/spawned a cat/dog/children.

But back to poverty in NZ; right now, without going too far into media histrionics, the questions are: Do we have poverty in NZ, is it widespread, is it growing and (most importantly) what can we do about it?

Currently we have media reports of families sleeping in cars and garages, the government (mostly though ultra-hypocrite Paula Bennett, a previous receiver of state support and funding for education and living but also our beloved PM doing his best to put his “thinking serious face” on when confronted by the media) suggesting they live in motels or just go online and fill in some forms, beggars on the streets of the major cities and state housing stock (and the attendant social capital that it creates) being sold off to let the market take care of things but are these things sufficient to say we have a poverty problem in NZ?

For me the answer/bellwether of the answer to this question was not the media (because they rarely drive events or discussion they just respond to them) or looking out my window (I live in a resolutely blue collar neighborhood) but to the tone of those who support the current government and that tone is starting to change.

A good spike in the data to me was when erstwhile columnist now turned committed blatherer, Jane Bowron, used one of her columns to criticize John Key and the current government and it was poverty in NZ which was the switch she used to cut some strips on our kava swilling PMs backside (I’m hoping Pablo will be wading into the PMs Fiji Visit).

Now Mz Bowron may be a dyed in the wool Green voter in private for all I know but her column is resolutely mainstream and a rather noxious mix of folksy reminiscences, cut rate platitudes and dull day to day observations which are nothing if not well in touch with the main herd and its group consensus but also safely espousing/reinforcing the herds view.

And when one of the herd starts up on topics of such nature and unloads a double barrel of criticism on the current government you know a line has been crossed.

And it’s not just her, the fact that the mainstream media has finally picked up on what is not exactly a new problem (those families sleeping in cars were out where they were a long time before the TV news crews came a calling) and there seem to be subtle changes in the ongoing narrative around the poor, the unemployed and the homeless is enough to trigger a consciousness shift*.

John Key, National, Labour and much of the electorate have treated these issues as externalities for a long long time while not realising the grim flipside to dismantling the welfare state and its only now as that beloved kiwi dream, that of the quarter acre pavalova paradise, is now slipping out of reach of more than just a few poor buggers at the bottom that its beginning to register.

It’s not that home ownership is the main issue, because it’s not, but it’s that home ownership is a core plank in any welfare reform program from all budding peasant revolutionaries’ promises of land for the people to the sub-prime crisis in the US. Its integral to any welfare program and sits low down on Maslow’s hierarchy of needs.

So when you have families living in cars, government departments housing homeless in motels (at a cost they have to pay back) increasing people on the streets AND general house and living costs racing out of reach of average pay packets and entering the realm of market speculation AND middle ground opinion starting to show a growing intolerance with the situation you have a slow but gradual rejection of political, social and economic externalities of poverty in NZ (and the attendant economic and political theories) and the beginning of a more holistic, more realistic view of NZ (complete with acknowledging the value of the market but also the worth of the people that actually compose it).

But if it’s not to plainly spelt out enough at this time let me take it one step further.

Somewhere in the 19th century when Europe created the model of the welfare state and began to address the problems of the growing underclass (and all its associated problems) that capitalism (then in its unadulterated rapacious stage) was creating the choices were clear: take steps to address the problems created by unleashing mercantile greed and labour saving technology on a feudal and mostly rural population or face the consequences and after the 1840s and several socialist near misses the consequences would be more likely to be a return to the savagery of the French revolution (then still a recent memory for many) than anything else.

More than now their eyes were open and ignoring the externalities was not an option. Funny how having a good proportion of the ruling class executed in front of a blood thirsty mob can bring about clarity (sometimes if only for a split second before the blade drops) in those that survive.

And today the focus of the battle is between the ideology of externalities (economics) and the grim meat hook realities waiting if we continue to ignore what we know is happening (a forceful and deliberate realignment of our social and economic priorities or at minimum a bloody attempt to do so buy those most affected by the purposeful and deliberate decline in our nation’s social and living standards by a cabal of ideologically lead criminals that we call politicians and their patrons).

Does that mean we will have revolution in NZ? Maybe, maybe not. The Kiwi psyche seems ill adjusted to sing the hymns of Viva Revolution or Liberty, Fraternity and Equality! But it does seem well suited for the kind of passive aggressive resistance common of general populations living in totalitarian regimes. None the less I would find it hard to see any real loss if such a thing did occur and a selection of MPs, lawyers and accountants were put up against the well in order to ensure that the rest toe the line.

It’s the reason democracies have elections (ritualized revolutions) rather than actual revolutions complete with real bloodshed and the ruling class being executed or imprisoned. Perhaps that’s why John Key is currently hobnobbing with the “duly elected” PM of Fiji; he is getting some advice on how to stave off an uprising.

And while some families living in cars seems like a far cry from and all-star cast singing and dancing their way through the French revolution it’s the fact that the traditional supporters of externalizing the costs of turning NZ into a free market bastion are starting to grumble that makes me wonder as one of the key tenents of counter revolutionary theory is that if you leave it until there are armed bands roaming the hills your chances of fixing it are almost nil.

It has to be caught before it gets to that point, when there are no obvious, flaming symbols of resistance and it often relies on more subtle readings of the situation than any crystalline theory can predict or is willing to acknowledge. And while it may not be the poor and miserable doing the leading, it will sure as be some motivated individual who is willing to say what the mob wants to hear that will be at the front.

In the US, the right has fallen prey to demagoguery while the left seeks to suppress through modulated pacification and assimilation of key themes while keeping the status quo in place.

In NZ the climate for 2017 is ripe for messages and possibly actions. At first it was dildos and mud but for how long?

 

*- The fact that Chris Trotter has been going on about this for ages is beside the point as he is an identified dyed in the wool socialist and the medias resident dispenser of left opinion.

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3 Responses to “What Price?”

  1. James on June 10th, 2016 at 16:59

    You too-narrowly defined the concept of externality, you made no attempt to explain the link between it and poverty, and you wrote off economists and their use of the term before trying to piggyback off their credibility.

    First, the definition: an externality is characterized by an agreement between any parties, such that the agreement fails to account for effects, either negative or positive, that fall on parties not subject to that agreement. Contrary to what you picked up in your Econ 101 class, nothing in the definition requires that the parties are businesses, nor does it require that the parties are profit maximizers, nor rational, nor self-interested. A benevolent charity, for example, could cause negative externalities, while a ruthless profit maximizing firm might cause positive externalities.

    Second, you made no attempt to explain the relationship between poverty and externalities. For example, you write, with no explanation:

    “There is a reason why social safety nets exist… refusal to allow externalities”.

    Leaving aside the fact that the claim is historically inaccurate, listing outcomes that you do not like does not an externality make. You need to ask yourself, Who are the parties making the transaction, and who and how are the third parties affected?

    This actually turns out to be rather complicated in this case, because you probably want to talk about pecuniary externalities here (e.g. the price effect of increased demand for housing on quasi-fixed supply), but to do that you’d need to consider the rest of the market environment e.g. buyers’ market power, and the extent of market completeness (for a start, see here: https://en.wikipedia.org/wiki/Pecuniary_externality).

    But then, since you don’t much seem to care for the ins-and-outs of markets or have any respect for economists or their understanding here, your want to refer to the externality concept is confusing to me. It might be worth you reading a little bit more on this stuff if you’re actually interested in it [I’d hate for you to end up like poor old David Suzuki and his “decades of misunderstanding externalities”: http://chrisauld.com/2011/08/22/regarding-david-suzukis-inability-to-understand-externality/%5D. In that vein, here are couple of articles on pecuniary externalities that may or may not help:

    http://www.econlib.org/library/Enc/Externalities.html

    http://offsettingbehaviour.blogspot.com/2011/12/pecuniary-and-technological.html

    http://marginalrevolution.com/marginalrevolution/2010/08/pecuniary-externalities.html

  2. E.A on June 10th, 2016 at 18:12

    James:

    Firstly thanks for the post and the links (I will read those), secondly I am aware of externalities outside their economic definition but in a blog post where I am already over the word limit when I post at 2500 words I choose not to get any more long winded than I am already by getting overly in depth.

    Also in a blog post I wont be going into great depth in explaining my points to level of say an academic paper but I was never going to give concrete examples of externalities and poverty but I am more than happy to discuss in the comments section (here).

    I post often with the idea that I will get comment and discussion in which we may discuss further so in that sense thanks for replying, but my views of economics is low and little I see makes me wish to change it. But perhaps a debate on the topic here can. I am always open to new ideas.

    Probably firstly I would restate my position regarding economics slightly. I am not hostile to markets per se, I am hostile to the dominance of markets over people.

    As I said in my post I found a lot of economics to be in depth exploration of various individuals theories rather than actual fact or theory with real applications.

    And for the record I did sit in an ECON 101 paper but I have also sat in many other econ papers and classes as well as read and studied it outside of uni.

    As I said i find 80% of economics to be ritualised BS in many cases with the a lot of it just jazzed up language hiding poor theory.

    But I suspect that you and I will have to agree to disagree on this point as I dont think I could convince you any more than you could convince me.

    Outside of that the simple point I was making is that ignoring, hiding or avoiding the costs of a political policy be it through economic dogma or just bad policy does and will always have the chickens come home to roost.

    happy to discuss further.

  3. Dennis Frank on June 19th, 2016 at 11:09

    Given a dualist frame, always reframe by advocating a third alternative that’s better than both established options. Triangulate the polarity.

    So, generate wealth (right) or distribute wealth (left)? Best to point out that the zero-sum view is only for the simple-minded. Both/and, or an integral view, is for the sophisticated. For the sophisticated to move beyond the usual dispassionate commentary and provide guidance to the whole, a moral motivation is required. Such folk will then suggest that the ideal government for Aotearoa is one that operates from the center of the political spectrum.

    Where does this leave the Labour/Green MoU? Viewed critically, in cloud-cuckoo land if they market the end-product as leftist. Viewed sympathetically, the basis for a change of government provided they market it as center-left (and demonstrate political competence for a change).

    Too many people accept poverty as natural. Pragmatic, sensible, but unnecessary. As one born & raised in the equitable culture of mid-20th century Aotearoa, I know the hybrid socialist/capitalist formula has proven effective. Some would say only because we sold enough mutton to Britain to fund it. Maybe so. I believe that it’s just a matter of political will & consensus.

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