Failing At Democracy

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Posts in this series.

One of the reasons I read old books is that they help me understand the chaotic events of our current times. In The Public And Its Problems, John Dewey lays out a theory of the democratic state, and as we shall see, we are doing badly at it.

Recall that the public is a group of people who have common interests that need to be addressed, usually arising from the actions of other people. The public empowers certain of its members with the task of representing and protecting those interests. We call the aggregate of those people the state. [1]

The origins of the state.

This description implicitly separates “the state” from specific forms of government. Any reasonably large group of people has some form of government, and the bigger the group the more complex the government. In order for there to be a state, there must be a public.

It may be said that not until recently have publics been conscious that they were publics, so that it is absurd to speak of their organizing themselves to protect and secure their interests. Hence states are a recent development. Chapter 3, The Democratic State, p. 116.

One way to think about this is that the modern self-aware public evolved from prior traditional societies. The serfs in a feudal society generally do not see themselves as participants in government, but as fulfilling pre-ordained social roles.

What is a Democratic State?

Dewey likes this definition:

Democracy is a word of many meanings. … But one of the meanings is distinctly political, for it denotes a mode of government, a specified practice in selecting officials and regulating their conduct as officials. P. 121.

It’s not a soaring aspiration. It’s a functional description of what has to be done. The democratic state needs two things: 1) a system for the public to select its officials; and 2) a system for regulating the conduct of officials.

Selection of officials.

In the US, we elect a small group of officials, and they in turn select others for subsidiary roles. The public, all of us, are responsible for selecting officials who will represent our interests in conflicts with individuals or groups of people, as corporations and militias. The public may fail at its task by selecting people who use their position to enrich themselves and their cronies at the expense of the public or otherwise. Dewey says the crucial step is the selection of the right people. [2]

Regulating the Conduct of Officials.

The US Constitution provides two methods for regulating officials. These are impeachment, in the case of the executive and judicial branches, and expulsion, for the legislative branch. These are supplemented by rules that allow for sanctions short of removal, such as censure, and formal means for investigation through committees. There are statutes and formal regulations that constrain conduct of other officials, and many informal rules, now called norms. These laws and rules provide for sanctions.

The evolution of political democracy.

Political democratic states in Western Europe and North America evolved from older forms of government as the result of many small non-political developments. Dewey emphatically denies that these changes were driven by some overarching cause, such as an innate desire for democracy, or by dramatic changes in philosophical theories.

But theories of the nature of the individual and his rights, of freedom and authority, progress and order, liberty and law, of the common good and a general will, of democracy itself, did not produce the movement. They reflected it in thought; after they emerged, they entered into subsequent strivings and had practical effect. P. 123.

As an example, the ideas of John Locke were one of the theoretical sources for the Founding Fathers. His ideas are grounded in the rising economics of mercantilism, the attenuation of religious hegemony, and rising scientific understanding. He seems to be arguing against earlier thinkers grounded in earlier social, cultural, and intellectual structures. [3] Democracy was not the driving force of any of these changes. It emerged as a solution to the societal problems these non-political changes created.

Dewey doesn’t try to explain the entire evolution. He points to just two factors. First, the changes that led to democracy were driven by a fear of government and a desire to keep it to a minimum. This seems like a plausible reaction to an all-powerful monarchy, as existed in England and France, for example. Earlier governments were tied into other institutions, like the Church, and these too were feared or loathed. These institutions came to be seen as oppressive, not to groups of people but to individuals. There was already a growing tendency to think of the individual as the atomic unit. [4[ For Dewey, individualism was the result. [5]

The second important factor is the rise of science and technology. Over time it created changes in the nature of productive work and increased the range of consumer goods. People of all classes wanted more. The old rules became obstacles, and people began to question these rules and the system that produced them.

The old conception of Natural Law as the source of morality merged with the new idea that laissez-faire economics was a natural law in a synthesis that opposed artificial political laws. This led to the conclusion that government interference in property was bad, if not a moral evil, and the role of government should be little more than to protect property rights and personal integrity.

This is an overly simplified history, even more simplified by me, but it gives an idea of the genesis democracy as Dewey defines it. It leads to the conclusion that government officials are likely to be bad, so we should have short terms and serious control.

Problems arising from large organizations.

In earlier times, people’s primary relationships were face-to-face, family, friends, co-workers, church members, local people. The government was hardly relevant in day-to-day life. Its primary impact was taxes, the occasional war, and a few laws. By the time Dewey is writing, the primary relationships were impersonal, the individual was facing large corporate organizations in many aspects of life, including productive work. The state acted directly acted on individuals, touching their lives in many ways.

Group, or conjoint, action through business entities rivals the government in impact on individuals. Businesses “reach out to grasp the agencies of government;” not out of evil intent necessarily, but because they are the best organized groups of people. Even so, the power of these organizations has been controlled and directed by the state to some extent, and more is possible.

Discussion.

The second impeachment of Trump shows us that as a nation we have done badly at democracy. We elected unfit officials, people who are stupid, venal, conspiracy-ridden, power-maddened or a combination. Unfit legislators have for decades let the executive branch do monstrous things and refused to hold any of them accountable. The unfit people who staff our courts at all levels, but especially the unconstrained ideologues of SCOTUS have stymied legislative power, and have limited accountability of government and business elites with their pronouncements. Prosecutors are at fault as well, because they refuse even to investigate powerful private entities and their executives.

We fail democracy if we do not carry out our responsibility to regulate the conduct of our officials, and continue to select unfit people as our officials.

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[1] I discuss these matter in detail in earlier posts, especially … and ….

[2] Dewey discusses different ways in which leaders were selected in earlier times, which I skip. It’s worth noting that we still elect people who met those irrelevant criteria: military and religious leaders, children of officials, charismatic people, and old white men. Pp. 117-9.

[3] I agree with Dewey about this, but it’s very far afield.

[4] Think of Descartes, sunk in self-contemplation. We also see it in Locke.

[5] Individualism lies at the heart of social contract theory and neoliberalism. Dewey rejects social contract theory.

Dewey On The State

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There is no such thing as the State
And no one exists alone….
September 1, 1939
W. H. Auden

Index to posts in this series.

In Chapter 1 of The Public And Its Problems, Dewey introduces his conceptions of a public and the state. This post discusses Chapter 1, and it might be helpful to read the first part of it. Chapter 2 is focused on the state. Dewey starts by pointing out that his views are radically different from standard ideas about the state.

The state is not created as a direct result of organic contacts as offspring are conceived in the womb, nor by direct conscious intent as a machine is invented, nor by some brooding indwelling spirit, whether a personal deity or a metaphysical absolute will. P. 86.

Dewey doesn’t think there is a perfect or ideal form of the state towards which all states are evolving, or such that we could measure each existing state against it to determine the quality of a state. States arise to meet situations, he thinks. Situations vary, solutions vary, cultural acceptance of solutions vary, histories vary, and each of these and more influence the form of a state. All we can hope to do is to measure how well that form meets the needs and desires of the related public.

Here’s how Dewey formulates the connection between the public and the state:

The lasting, extensive and serious consequences of associated activity bring into existence a public. In itself it is unorganized and formless. By means of officials and their special powers it becomes a state. A public articulated and operating through representative officers is the state; there is no state without a government, but also there is none without the public. P. 109.

It is the appointment of officers and the grant of special powers that forms the state. Through those officers, themselves members of the public, the state organizes the public. The state itself is just a select group of people given special powers. It doesn’t matter who grants those powers. It could be by democratic vote. It could be by force of arms, as kingdoms were organized for centuries. Or it could be that a group of rich people arranges things to their liking. Or something else.

Dewey points out that there are many different forms of states across space and time. He claims that they exhibit traits which show that they are functioning in accordance with his formulation. These traits, or marks, relate to the consequences arising from the actions of a group of people, intentionally or not. [1] We can both check the theory and begin to study states by observing and studying these marks.

The rest of Chapter 2 discusses four such traits. They are: a) temporal and geographical contiguity; 2) the “… fact that the quantitative scope of results of conjoint behavior generates a public with need for organization.” P. 94; 3) states are concerned with behaviors and outcome that are long-established; 4) children and other dependents are the peculiar concern of a state. [2]

The trait of contiguous territory is obvious. As to temporal contiguity, He says that discrete harms occurring at irregular intervals will not stir up demand for representation of the interests of a public that would lead to the creation of a public.

The second trait is more problematic. People in a territory experience a range of impacts from the conjoint action of other people, and those impacts change over time. If there were such a thing as an ideal state, we would not expect different ranges of harm or changes that would necessitate changes in the nature of the state. But that is the case. Dewey sees this as confirmation of hypothesis about the nature of states.

The state is primarily concerned with established patterns of action. Dewey says that established patterns are engrained in members of the public, and that people resist changes. The state has helped in the establishment of those patterns. Innovation is essentially an individual act, and innovation is mostly resisted by the public.

About the most we can ask of the state, judging from states which have so far existed, is that it put up with their production by private individuals without undue meddling. P. 103.

This works better in some states than in others. [3] The point is that with old, established behaviors, there seems to be a psychological desire to make them uniform and official.

Dewey’s fourth mark, that children and other dependents are a special focus, seems obvious. Children are the future, so the public sees the need to make sure that they are protected and supported. For other dependents, such as “the insane and the permanently helpless”, there is a need to insure care and treatment as appropriate. Underlying this is the reality that when people are unable to protect themselves, the vast part of the public wants them protected.

Dewey discusses each of these four marks of the state with concrete examples, showing his view of the history of states. the kinds of things a state might do, and in the case of the fourth mark, a basic introduction into his ethical thought.

One of those sub-issues seems especially current: the role of laws and regulations. Dewey points out that no one can calculate all the ways and different people who might be affected by an action or an innovation. That creates an insecurity among those who might be affected. They form a public, and create state officials and empower state action to protect themselves from possible future harm.

It is not merely that the combined observations of a number cover more ground than those of a single person. It is rather that the public itself, being unable to forecast and estimate all consequences, establishes certain dikes and channels so that actions are confined within prescribed limits, and insofar have moderately predictable consequences. P. 98.

Laws and regulations benefit the actor, the innovator, and the rest of us. They make it unnecessary for actors to work out every last detail of a proposed action, because there are regular forms which can be adapted to their needs and desires. The rules may be irritating, but at least one can predict with reasonable certainty the risks and rewards.

People persist in calling laws and rules “commands”, as if they issued form some distant dictator. Dewey says that’s wrong. He points out that this command view is the logical outcome of theories of the state based on will, or causality, whether divine or human. Dewey says that these views rest on the idea of a superior force imposing its will on others.

Rules of law are in fact the institution of conditions under which persons make their arrangements with one another. They are structures which canalize action; they are active forces only as are banks which confine the flow of a stream, and are commands only in the sense in which the banks command the current. P. 99.

To extend the metaphor: we have a name for a river not constrained by its banks: we call it a flood.
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[1] Pollution is a good example. The intent of a polluter is not to harm others, it’s to maximize profits. But pollution harms others.

[2] This transition is extremely confusing. I’m not sure I have it exactly right, especially point 2.

[3] For example, I’ve heard a number of French people complain about the refusal of the government to permit innovation, and the tight constraints imposed on innovators.

Index And One Last Introduction To The Public And Its Problems By John Dewey

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Posts in this series.

1. Introduction To New Series: The Public And its Problems by John Dewey
2. Why Read Old Books?
3. The Public And Its Problems By John Dewey
4. The Public In John Dewey’s The Public And Its Problems
5. What Would John Dewey Say About Court-Packing
6. Dewey On The State
7. Failing At Democracy
8. Dewey’s Functional Definition of Democracy
9. Dewey’s Aspirational View Of Democracy
10. Dewey’s Aspirational View Of Democracy
11. The Port Huron Statement
12. The Social Critique Of The Port Huron Statement
13. Democratic Values In Practice
14. Bad Habits Of Thinking Make It Hard To From Community
15. The Two Commmunitites And The Future Of Democracy
16. The Public’s Problem In Finding Itself
17. Final Thoughts On The Public And Its Problems

I’ve been promising to read this book for some time. I wrote Post 1, the original introduction, last March, but didn’t follow up for some of the reasons in the post; plus Stephanie Kelton’s excellent book The Deficit Myth seemed more important. I wrote Posts 1, 2, and 3 before I got very far into the book. Post 2 seemed like a decent reintroduction. But now that I’m well into the book I see it differently. It’s not a work of political science as I thought. It’s frankly philosophical. It brings Pragmatism to bear on the problem of government. That requires a different introduction, one in which I explain a bit of why I think this book is relevant today.

Early on in my writing here I discussed Thomas Kuhn’s book The Structure of Scientific Revolutions, written in 1962.

Kuhn starts by describing what he calls normal science: the day to day practice of scientists. Their work is based on an infrastructure consisting of theories of various strengths, instruments, and techniques that together make up a paradigm. This paradigm organizes their thinking so that they have an idea of what they are doing when they do physical and thought experiments. Kuhn says that normal science uses the paradigm to solve puzzles. The puzzles themselves are set up by the paradigm, and the scientist expects to be able to solve them using the rules and equipment of the paradigm.

That seems obvious in the case of physics and biology, but it’s also true in the social sciences. [1] We understand sociology, psychology, economics and political science through frameworks, which Kuhn calls paradigms, consisting of theories of various strengths, instruments, and techniques which we use to think about how our society works. These fields overlap in politics and government, and the paradigms do too.

There is a battle inside the Democratic Party between a group of centrists and a group of progressives. The battle pits progressive policies against the centrist’s drive for power. Progressives offer a range of policies that they believe will help the American people, such as Medicare For All, The Green New Deal, police and criminal law reform, and changes to laws that unfairly favor the rich and powerful, like tax laws. The centrists include both neoliberal corporatists and a bunch of mushy liberals. They claim there is a middle ground on every issue. They argue that the only important thing is winning more elections, They promise good stuff if they win, presumably mild improvements like the Dodd-Frank financial reform bill, or Obamacare. Nothing they propose is sufficient to the actual problems we face.

I think the Democratic Party lacks a paradigm of governance. There is no internal agreement on basic issues of governance or policy. [2] I am a progressive in the sense that I favor the policies they do. Those policies have wide support, but we aren’t winning. It’s worse than that. As a segment of the Democratic Party, progressives also lack a theory of governance, a paradigm shared by a large enough number of people that they would be in a position to actually govern. To see this, imagine that Bernie Sanders had been elected this year. How would he fill the thousands of Presidential appointment slots? Are there that meany people ready to govern who agree with his positions?

One good place to look for a paradigm is at the writings of John Dewey, including The Public And Its Problems. All of Dewey’s thinking is based on the philosophy of Pragmatism. [3] One reason I like Dewey is that he is a champion of small-d democracy. His life was devoted to making life better for all of us, using government at all levels.

In this post I suggestged an economic program for the left, hinged on Franklin Delano Roosevelt’s Four Freedoms speech from 1941 and Modern Money Theory. It still seems plausible to me, especially because MMT is based on a pragmatic approach to economics. Now I see that what I forgot was the crucial issue of a philosophy of governing, a philosophy of the reasons for governance, in short, a paraddigm.

To put that in everyday language, I mean a story about our nation that justifies and guides the actual practice of governance. That philosophy should offer a way to justify choice of policies, and a way of identifying the core group of supporters as people who agree with the paradigm and the choices it suggests. One good story is the US as the Can-Do Nation, a nation that loves problems and loves to solve them. I think that is a nice description of pragmatism in action.

A governance paradigm should begin by asking two philosophical questions: what is the nature of the individual, and how do we operate in the world. I think centrists accept the neoliberal answer to the first question: human individuals are atomized utility maximizing creatures, with little or no social connection. They think the problem is explaining why such atomized individuals would stick together. They argue that the answer is the social contract theory. That theory leads them to answer the second question with some form of compulsion as the reason human beings more or less behave.

Dewey flatly disagrees, as we saw in this post. As we go through this book, I plan to look for ideas that might be useful in a paradigm for progressives.

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[1] The post goes into a critique of economics that I would state differently today.

[2] I won’t air my grievances with the Democratic Party in detail here. I’ll just note that the party has done nothing for the economic well-being of people it asserts are its core constituencies: working people, unions, and especially Black and Brown working people. It has done practically nothing to restrain corporate power in any sphere of life. It has not tried to educate people about economic issues. For the most part it aligns itself with the Republicans on economic theory. It does little to defend its minor successes on social issues, and less to expand them. Inevitably the limits of action are imposed by the most conservative Senators, whether it’s Joe Lieberman or Joe Manchin.

[3]The word pragmatism refers to the American philosophy. I give a short primer on Pragmatism in three posts, here, here, and here. Also this.

What Would John Dewey Say About Court Packing?

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In footnote 2 to the first post in this series, I noted that the American philosopher John Dewey rejects what we now call Social Contract Theory. I was taught this theory in school as an explanation of the rationality of the State, and it was reinforced when I read John Rawls’ A Theory Of Justice. Once again I find myself unlearning a principle I never thought to question.

When I say I was taught Social Contract Theory in school I overstate. My teachers in law school occasionally mentioned it without really arguing it out or describing alternatives. I’m certainly no expert on it. This article in the Stanford Encyclopedia of Philosophy gives an overly detailed discussion of contemporary views of the theory. Here’s the article I linked in the previous post from the Internet Encyclopedia of Philosophy which is more readable. As I noted, the social contract approach is dominant in political thinking.

Dewey flatly rejects this idea. I linked to one source for this in the first post. He discusses it in passing in his book Experience and Nature (1925). [1] Dewey discusses the nature of the mind of the individual, and illustrates it with a discussion of what he calls “social compact” theory. [2] Dewey thinks that human beings have changed as our understanding of nature and human nature have grown and changed.

The conception of the individual changed completely. No longer was the individual something complete, perfect, finished, an organized whole of parts united by the impress of a comprehensive form. What was prized as individuality was now something moving, changing, discrete, and above all initiating instead of final. P, 271 (references are to the Kindle Edition.)

He takes up what he calls the social compact, as a way of illustrating this change. He describes it this way:

The [social compact theory] declared that [the state] existed by means of agreements between individuals who willed the institution of civil order. P. 273.

Dewey says that the originators of this idea might have thought that their forms of government came about through war, accidents, personal interests and other natural occurrences, so naturally they were corrupt and warlike. A new arrangement brought about by actual agreements and enforceable covenants would be better. Dewey agrees with one aspect of social contract theory.

… [S]ocial institutions as they exist can be bettered only through the deliberate interventions of those who free their minds from the standards of the order which obtains. The underlying fact was the perception of the possibility of a change, a change for the better, in social organization. P. 274.

Dewey says that once people became aware of this, they began to change social conditions,

Social conditions were altered so that there were both need and opportunity for inventive and planning activities, initiated by innovating thought, and carried to conclusion only as the initiating mind secured the sympathetic assent of other individuals. P. 274-5

He is careful to point out that new innovative ideas don’t become reified until other individual minds come to agreement.

The wrong part of social contract theory is that once people established a form of government, the newly created form became fixed and immutable. The wrong idea is that there is only one right form, and that once it is in place, we don’t have to think about it again. Dewey thinks this idea is derived directly from social compact theory. It makes it difficult to change as time reveals new needs, new problems. It becomes a barrier to change. [3[

What does this have to do with court-packing?

Corey Robin says that the conservative movement has developed a three-legged stool to gain and hold power. He says they rely on the Electoral College, the Senate, and the courts, especially SCOTUS. Each of these is tilts grossly toward the power of the minority. They exploit these ruthlessly to control the exercise of government power. Robin calls this Gonzo Constitutionalism. That seems right.

It isn’t just the Constitution, though. Over the past centuries we have evolved a set of institutions and general theories of government to flesh out Constitutional provisions. Some are simply rules of varying degrees of formality, such as Blue Slips and the filibuster, or at the state level, the convention that redistricting is done only once every ten years following the census. Others are statutory, like the SEC and the Centers for Disease Control. Still others are the result of SCOTUS decisions, like the currently disfavored idea of substantive due process. [4] Robins says that conservatives exploit these, increasing their scope or destroying them as gives them more power.

Robin concludes that the Democrats will have to recognize that the institutions and norms that got us this far are failing because the conservatives have refused to accept them, and to work within their limits. Dewey would add that the point of government is to solve collective problems faced by the public, such as the climate crisis, the pandemic, the ugly disparities in wealth, income and life chances, and the failure to hold elites accountable for their actions. Conservatives deny that these as problems and do not offer any solutions.

Robin says that if the Democrats ever take control of government, they will have to be just as relentless in replacing failed norms as the conservatives are in destroying them. The Democrats will have to create new norms, new institutions, and new ways of understanding our democracy, all of which they will have to enforce remorselessly.

I’ll just add that if Robin’s solution includes court-packing, Dewey would approve. And so would I.

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[1] This book is difficult even by Dewey’s standards. It’s a sort of Pragmatist metaphysics. I have hardly scratched the surface, but this part makes sense on its own.

[2] To put this in context, I’m reading from Chapter 6 titled Nature, Mind and The Subject . Dewey describes the views of Plato and Aristotle concerning the nature of the individual. He concludes that they did not look at psychological states. They say that the objects in the world and the patterns they create, and the patterns humans need to recreate them, all are given by nature. The mind of the individual is an observer and learner of those objects and patterns. The artisan follows those patterns to create objects. That is as true of the maker of clay pots as it is of the philosopher looking at human society. I think this means the self is not a subject as we use the term, not exactly a self-driven agent, but simply another kind of object in the world. I could easily be wrong.

He then turns to more modern ideas of the individual.

The idea that generalization, purposes, etc., are individual mental processes did not originate until experience had registered such a change that the functions of individualized mind were productive of objective achievements and hence capable of external observation. P. 270-1, Kindle Edition.

This is a tipping point in our development as a species.

[3] Dewey writes: “The fact that the intent of the perception was veiled and distorted by the myth of an aboriginal single and one-for-all decisive meeting of wills is instructive as an aberration…”. P. 274. So much for John Rawls’ Original Position. Dewey accepted the basic idea of evolution: that there is no purpose to natural evolution, no drive to some perfect state. Purpose comes from people.

[4] Another example is Marbury v. Madison in which the slave-holder John Marshall decided that SCOTUS was the final arbiter of questions of constitutionality. That hasn’t worked out well especially in the protection of our democracy. Consider the absurd holdings in Shelby County v. Holder and Citizens United v. FEC. For serious criticism see The Case Against The Supreme Court by Erwin Chemerinsky.

The Public In Dewey’s The Public And Its Problems

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The first chapter of John Dewey’s The Public and Its Problems lays out the structure of his conception of political theory. I discuss the method he proposes to follow here. In this post I give his definitions of public and state, and a brief sketch of the argument.

Dewey starts with the observation that we live in groups of people from the beginning to the end of our lives. We are in a strong sense created by those groups. Their influence shapes us in deep as well as shallow ways. All of our actions take place in the context of such groups.

People’s actions have consequences, direct and indirect. Some actions mostly affect the parties to the transaction, as a discussion between friends about the weather. Others have indirect effect, as friends joining for dinner at a restaurant. We call these private, because they don’t affect large numbers of people and do not have any significant impact on others.

Other actions affect a larger group, directly or indirectly, or affect a few people strongly. For example, a Pastor of a church gives a sermon, which causes changes in members of the congregation. A neighbor puts up an ugly fence, hurting property values. If the group is large enough, we call the action public. Most of our actions are private. A few have such an impact that we as a society want to encourage or discourage them.

This leads to this definition:

The public consists of all those who are affected by the indirect consequences of transactions to such an extent that it is deemed necessary to have those consequences systematically cared for. P. 69.

We delegate the task of coping with the consequences of public acts to people we designate as officials. This point is necessary to Dewey’s thought, because the thing we call the State only operates through individuals. Some single person issues a regulation. Some single person decides who should be prosecuted for a crime. He takes up the nature of the State in more detail in Chapter 2.

The precise form of the institutions these officials work at, the selection of officials. and other details arise from the historical context. In the US, for example, we have some institutions and forms from England, others from other countries, some created here based on theories current at the time of the founding of the country, some generated here in response to problems that are specific to this place, and some arising in response to subsequent events and changes in social attitudes.

… [W}hen a family connection, a church, a trade union, a business corporation, or an educational institution conducts itself so as to affect large numbers outside of itself, those who are affected form a public which endeavors to act through suitable structures, and thus to organize itself for oversight and regulation. P. 79.

These “suitable structures”, are groups of officials acting through institutions. Of course, these institutions may not suffice. In that case change is necessary. The newly emerging public created by changing conditions may be unable to force the State to adapt to new problems This can have disastrous consequences:

The public which generated political forms is passing away, but the power and lust of possession remains in the hands of the officers and agencies which the dying public instituted. This is why the change of the form of states is so often effected only by revolution. The creation of adequately flexible and responsive political and legal machinery has so far been beyond the wit of man. An epoch in which the needs of a newly forming public are counteracted by established forms of the state is one in which there is increasing disparagement and disregard of the state. General apathy, neglect, and contempt find expression in resort to various short-cuts of direct action. And direct action is taken by many other interests than those which employ “direct action” as a slogan, often most energetically by intrenched class-interests which profess the greatest reverence for the established “law and order” of the existing state. P. 81.

This leads to the assertion that the form of the state must be constantly scrutinized and changed. That doesn’t suit the “intrenched class-interests”. It also leads to this formal definition;

… [T]he state is the organization of the public effected through officials for the protection of the interests shared by its members.

Finally Dewey says that the important thing to understand is that we can’t understand the public and the state by looking for or asserting the existence of special forces outside of intentional human action.

Discussion

1. Dewey’s method turns on facts, but not on the kinds of facts we saw in Arendt’s The Origins Of Totalitarianism or Polanyi’s The Great Transformation. The latter two trace out long historical sequences and use them to understand the then current situation. If followed this method we’d have to look at the organization of hundreds and thousands of societies, from tribes to clans to kingdoms, to the different city-states of ancient Greece, to the empires of the Persians and the Dynasties of China and on and on. That’s not what Dewey did. [1]

Dewey also relies on facts, but he uses facts about the way human beings interact. They are more like the facts used by John Rawls in his book A Theory of Justice. [2] It’s a way of weeding out contingency in the hope of finding a generalizable statement of the problem.

2. The most common way to understand the nature of the state is the theory of the Social Contract. The following begins this thorough discussion.

Social contracct theory … is the view that persons’ moral and/or political obligations are dependent upon a contract or agreement among them to form the society in which they live.

There is no such a contract, of course, and no one actually assents to it in any meaningful way. It’s merely a construct. Dewey addressed social contract theory in a 1888 essay, The Ethics of Democracy.

The notion, in short, which lay in the minds of those who proposed this theory was that men in their natural state are non-social units, are a mere multitude; and that some artifice must be devised to constitute them into political society. And this artifice they found in a contract which they entered into with one another. …
…
The fact is, however, that the theory of the “social organism,” that theory that men are not isolated non-social atoms, but are men only when in intrinsic relations to men, has wholly superseded the theory of men as an aggregate, as a heap of grains of sand needing some factitious mortar to put them into a semblance of order.

Sadly, Dewey got this wrong. Social Contract theory remains dominant and Dewey has receded.

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[1] Aristotle seems to have done it, gathering and classifying 170 constitutions.

[2] Here’s an explanation of the veil of ignorance, the basic starting point of the book.

The Public And Its Problems By John Dewey

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People don’t agree about things, and they can’t always be brought to consensus on important issues. But we have to do something; we can’t just let problems fester. [1] In The Public And Its Problems John Dewey discusses his ideas for the operation of democratic government. The first posts in this series focus on Chapter One, which you can read here. There are two themes, the method Dewey will follow, and the definition of “public” for his purposes. In this post I look at method.

The basis of Dewey’s method is Pragmatism. [2] He starts with the observation that facts do not carry meanings on their face. That is just as true of scientific facts as it is of social facts. We believe in gravity because we experience it. We believe in Newton’s Law Of Gravity because of the method by which it was developed: careful observation, measurement, the repeatability of the measurement and observation, the trustworthiness of the observer/measurer, and more. In general, it is the method that establishes the law, not any one fact. This is true of social science too.

Dewey writes:



No one is ever forced by just the collection of facts to accept a particular theory of their meaning, so long as one retains intact some other doctrine by which he can marshal them. Only when the facts are allowed free play for the suggestion of new points of view is any significant conversion of conviction as to meaning possible. P. 59. [3]

The first sentence refers us back to Charles Peirce’s idea that we only have a reason to change our minds if we have some conflict. As long as we don’t sense a conflict between two of our beliefs, we feel no necessity to doubt our views or to change our minds.

The second sentence offers another reason to change our mind. When facts are allowed free play, when they are brought into the widest context possible, when we can freely put them together in different ways, we can create new constellations that might give us a wholly new understanding.

This is a step one person can take. Einstein, for example, allowed facts to float free in his own mind, and came up with radically new ideas. But most of us aren’t Einstein. We can do some of this in our own mind, but we can do much more if we interact with other people all looking at the same problem with their own personal points of view. That only works, though, if we are not committed to a doctrinal understanding which we refuse to yield. [1]

Dewey says we can all look at the actions of elected officials, bureaucrats, and other organs of the government and agree on the facts of what they are doing. That isn’t enough, though, because facts don’t carry meanings. He then describes a number of theories of the state, including those more or less attributable to Aristotle, Hume, Rousseau and Marx. [4] These theories conflict in fundamental ways. The societies they produce differ also, in ways large and small. Dewey recognizes that the theories are actually used in the formation of governments, along with the facts on the ground.

Here’s my example. The Founders of the US government inherited many institutions from England, and a few from other countries, including legal structures and general ideas about governance, some of which they accepted, and others they dismissed. Colonial governments had created some institutions and theories. There was a heavy dose of Enlightenment thinkers. There were power/money issues, slavery chief among them, but also the different sizes of the original thirteen colonies. These and many others interact in the formation of our state.

Trying to come up with a causal theory of a real state like the US is useless, according to Dewey.

One way out of the impasse is to consign the whole matter of meaning and interpretation to political philosophy as distinguished from political science. Then it can be pointed out that futile speculation is a companion of all philosophy. The moral is to drop all doctrines of this kind overboard, and stick to facts verifiably ascertained. P. 61.

He defines two different kinds of facts.

But the difference between facts which are what they are independent of human desire and endeavor and facts which are to some extent what they are because of human interest and purpose, and which alter with alteration in the latter, cannot be got rid of by any methodology. P 62.

Gravity is a fact which is utterly independent of human desire, interest or purpose. We can study its effects, and think about it in different ways, but we cannot reject it or affect it. The office of County Assessor is a fact, but it is strictly a fact for human purposes, and can be changed or eliminated. We have to consider this in any effort to understand the state .

The first step in is to find a starting point, a set of facts that will enable us to proceed. I’ll take that up in my next post.

Discussion. One alternative method Dewey sees is something like coming up with explanations that seem to fit one’s intuitive understanding of the way things work. This is how we decided the sun goes around the earth. It might explain Aristotle’s idea that people are political animals. Maybe further explanation didn’t seem useful or necessary. But, as Dewey points out, saying that we have politics because we are political animals is circular reasoning.

Dewey’s method focuses on allowing a broad range of facts free play in our minds. That allows us to form new associations among them and draw new conclusions from them. It allows a collaborative effort to make sure we are considering all of the relevant facts. If we record our assumptions, our facts and our discussions reasonably carefully others can inspect them and offer their own insights; and we will be able to check later to see what mistake we made if it turns out badly. [5]

This method of thinking about social matters is common. We see it very clearly in Hannah Arendt’s The Origins of Totalitarianism. Arendt writes entire histories of European anti-Semitism and Imperialism on the way to her examination of the rise of Nazism. It’s at the root of Polanyi’s The Great Transformation, and other books I’ve written about here. Without these roots, it is difficult to understand our society, or, indeed, ourselves.

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[1] Of course we can do nothing. Just ask any Republican.

[2] The word pragmatism refers to the American philosophy. I give a short primer on Pragmatism in three posts, here, here, and here. Also this, which is a sort of introduction to this series.

[3] Page references are to the Kindle edition, Dewey, John. The Public and Its Problems. Ohio University Press.

[4] I’m just guessing at the latter three as Dewey doesn’t attribute them to anyone.

[5] Compare this to the method of Modern Monetary Theory, which I discuss here. The starting place for MMT is the question How does money work in this society? It deals with facts, not assumptions about human nature or philosophies.

Why Read Old Books?

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Trumpalooza 2020 and DemFest are over, the actual campaign is beginning, and I am overwhelmed by the crazy and stupid. I’ve been asking myslef whether it makes sense to continue this project of trying to understand our current morass and what we should do about it. Are old books worth reading in a time of troubles like ours?

One aspect of our current morass is the unwillingness of so many people to rethink any belief they hold. This is an old problem. There is no reason to think we can’t find helpful answers in the works of our ancestors from all times and places. Did Confucius know less about human nature than Aristotle? Did Sophocles understand people less well than Jane Austen?

Charles Sanders Peirce

With these considerations in mind, here’s an extended quote from The Fixation of Belief by Charles Peirce, perhaps the earliest American Pragmatist, published in 1877.

If the settlement of opinion is the sole object of inquiry, and if belief is of the nature of a habit, why should we not attain the desired end, by taking as answer to a question any we may fancy, and constantly reiterating it to ourselves, dwelling on all which may conduce to that belief, and learning to turn with contempt and hatred from anything that might disturb it? This simple and direct method is really pursued by many men. I remember once being entreated not to read a certain newspaper lest it might change my opinion upon free-trade. “Lest I might be entrapped by its fallacies and misstatements,” was the form of expression. “You are not,” my friend said, “a special student of political economy. You might, therefore, easily be deceived by fallacious arguments upon the subject. You might, then, if you read this paper, be led to believe in protection. But you admit that free-trade is the true doctrine; and you do not wish to believe what is not true.” I have often known this system to be deliberately adopted.

Still oftener, the instinctive dislike of an undecided state of mind, exaggerated into a vague dread of doubt, makes men cling spasmodically to the views they already take. The man feels that, if he only holds to his belief without wavering, it will be entirely satisfactory. Nor can it be denied that a steady and immovable faith yields great peace of mind. It may, indeed, give rise to inconveniences, as if a man should resolutely continue to believe that fire would not burn him, or that he would be eternally damned if he received his ingestaITAL otherwise than through a stomach-pump. But then the man who adopts this method will not allow that its inconveniences are greater than its advantages. He will say, “I hold steadfastly to the truth, and the truth is always wholesome.”

And in many cases it may very well be that the pleasure he derives from his calm faith overbalances any inconveniences resulting from its deceptive character. Thus, if it be true that death is annihilation, then the man who believes that he will certainly go straight to heaven when he dies, provided he have fulfilled certain simple observances in this life, has a cheap pleasure which will not be followed by the least disappointment. A similar consideration seems to have weight with many persons in religious topics, for we frequently hear it said, “Oh, I could not believe so-and-so, because I should be wretched if I did.”

When an ostrich buries its head in the sand as danger approaches, it very likely takes the happiest course. It hides the danger, and then calmly says there is no danger; and, if it feels perfectly sure there is none, why should it raise its head to see? A man may go through life, systematically keeping out of view all that might cause a change in his opinions, and if he only succeeds — basing his method, as he does, on two fundamental psychological laws — I do not see what can be said against his doing so. It would be an egotistical impertinence to object that his procedure is irrational, for that only amounts to saying that his method of settling belief is not ours. He does not propose to himself to be rational, and, indeed, will often talk with scorn of man’s weak and illusive reason. So let him think as he pleases.

Peirce calls this the method of tenacity. Underlying it is Peirce’s view, which seems right to me, that when we begin to think for ourselves, when we become individuated, we already have a set of beliefs about the world. As we take in new data, we try to incorporate the new information into our existing set of ideas. Or maybe, as the ostrich, we don’t.

Obviously tenacity has some value. Our beliefs are hard-won assets, and we don’t want to give them up without a good reason. I think our first response to new data is often to apply the method of tenacity. The more dense our web of knowledge and belief, the harder it is to adjust, and the more tightly we cling to our existing beliefs.

There is a problem with the method of tenacity. Peirce says that it’s hard to hold to this method when you rub up against other human beings who don’t hold to the same beliefs.

But why exactly do people change their minds? Peirce says we like our beliefs to be internally consistent and coherent with what we observe. He thinks we are more likely to improve our outcomes if we do this. That makes sense in the context of science and academics, but not so much in day-to-day life. Does Jane Austen have something to add?

Jane Austen, portrait by her sister Casssandra.

In Pride and Prejudice, two of the characters, Darcy and Elizabeth, actually change in crucial ways and for the better. [1] Austen makes it clear that the characters change themselves using the method Peirce approves, careful observation of the external world and intentional incorporation of those observations into or in place of previously held views of the self.

The context is that the two have been jousting with words over several meetings. Darcy’s admiration for Elizabeth is growing, but she is only interested in the battle of wits, and is unaware of his growing infatuation. Then Darcy proposes marriage in a wonderful scene. Elizabeth is shocked, and insulted by the form of the proposal. They fight. Here’s the conclusion.

Elizabeth felt herself growing more angry every moment; yet she tried to the utmost to speak with composure when she said:

“You are mistaken, Mr. Darcy, if you suppose that the mode of your declaration affected me in any other way, than as it spared me the concern which I might have felt in refusing you, had you behaved in a more gentlemanlike manner.”

She saw him start at this, but he said nothing, and she continued:

“You could not have made the offer of your hand in any possible way that would have tempted me to accept it.”

Again his astonishment was obvious; and he looked at her with an expression of mingled incredulity and mortification. She went on:

“From the very beginning—from the first moment, I may almost say—of my acquaintance with you, your manners, impressing me with the fullest belief of your arrogance, your conceit, and your selfish disdain of the feelings of others, were such as to form the groundwork of disapprobation on which succeeding events have built so immovable a dislike; and I had not known you a month before I felt that you were the last man in the world whom I could ever be prevailed on to marry.”

Darcy is one of the wealthiest men in England, and as we see later is a man of taste and discrimination, versed in business and society. Elizabeth is a gentlewoman, but she has no future if she doesn’t marry. Rejecting Darcy is a very serious step.

The next morning Darcy hands her a letter explaining his actions in the two matters that formed the basis for her rejection. Elizabeth reads the letter, and considers carefully the new information against the beliefs she holds about the events. In each particular raised by the letter she sees that Darcy’s explanation offers a better, more coherent and more likely accurate view.

“How despicably I have acted!” she cried; “I, who have prided myself on my discernment! I, who have valued myself on my abilities! who have often disdained the generous candour of my sister, and gratified my vanity in useless or blameable mistrust! How humiliating is this discovery! Yet, how just a humiliation! Had I been in love, I could not have been more wretchedly blind! But vanity, not love, has been my folly. Pleased with the preference of one, and offended by the neglect of the other, on the very beginning of our acquaintance, I have courted prepossession and ignorance, and driven reason away, where either were concerned. Till this moment I never knew myself.”

Her self-reflection form the basis of her re-evaluation of Darcy as a person.

Darcy is deeply affected by Elizabeth’s rejection. He explains his feelings at the end of the book. This quote gives the flavor.

“I cannot be so easily reconciled to myself. The recollection of what I then said, of my conduct, my manners, my expressions during the whole of it, is now, and has been many months, inexpressibly painful to me. Your reproof, so well applied, I shall never forget: ‘had you behaved in a more gentlemanlike manner.’ Those were your words. You know not, you can scarcely conceive, how they have tortured me;—though it was some time, I confess, before I was reasonable enough to allow their justice.”

Again, we see that he has followed Peirce in re-examining his actions in Elizabeth’s company and in general. It leads him to reinterpret his his behavior, not just toward Elizabeth but in general. And then he recognizes he needs to change, and does so.

But why did they change? I think it’s because both of them have see themselves as intellectually honest in the way Perice recommends. That means facing the facts we perceive, not hiding from those that imperil our current beliefs and opinions. In Darcy’s case, there’s another obvious motivation. He likes and admires Elizabeth, much to his surprise. He admires her fine eyes and her light figure, but mostly he admires her quick wit and understanding. Even after she rejects him that admiration continues. He is certain that he was right to admire her, and that forces him to face himself and his actions squarely as she sees them.

This is also true for Elizabeth, if less obvious. “His attachment excited gratitude, his general character respect; but she could not approve him….” This motivates her to consider carefully his explanations and his observations. It also motivates her to change.

Over time they recognize the strengths and weaknesses in themselves and each other, and they each see that the other is a good match. I think Darcy recognizes that this new self-understanding will make hem a better person.

I was given good principles, but left to follow them in pride and conceit. Unfortunately an only son (for many years an only child), I was spoilt by my parents, who, though good themselves (my father, particularly, all that was benevolent and amiable), allowed, encouraged, almost taught me to be selfish and overbearing; to care for none beyond my own family circle; to think meanly of all the rest of the world; to wish at least to think meanly of their sense and worth compared with my own. Such I was, from eight to eight and twenty; and such I might still have been but for you, dearest, loveliest Elizabeth! What do I not owe you! You taught me a lesson, hard indeed at first, but most advantageous. By you, I was properly humbled. I came to you without a doubt of my reception. You showed me how insufficient were all my pretensions to please a woman worthy of being pleased.”

Elizabeth sees the value of Darcy:

She began now to comprehend that he was exactly the man who, in disposition and talents, would most suit her. His understanding and temper, though unlike her own, would have answered all her wishes. It was an union that must have been to the advantage of both; by her ease and liveliness, his mind might have been softened, his manners improved; and from his judgement, information, and knowledge of the world, she must have received benefit of greater importance.

There’s a lesson here….

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[1] If you haven’t read this book, or haven’t read it lately, I highly recommend it as part of a mental cleansing.

MMT and Mainstream Economics

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Posts in this series. This post begins with links to all posts in this series.

In The Deficit Myth Stephanie Kelton explains in lay terms the fundamental ideas of Modern Monetary Theory and shows that they can be used to organize a economy that works for everyone. Throughout this series I have occasionally pointed to ways that MMT differs from mainstream economics. In this post I will try to get those ideas organized.

1. Elements of Mainstream Economics.

Let’s start with this quote from the J.W. Mason review of the book:

But in my view it’s better—both more accurate and more productive—to see [MMT] as a body of arguments within an older Keynesian tradition of economics. Contrary to the sense you might get from both supporters and detractors, it’s not a crystalline logical structure where, if you remove one piece, the whole thing collapses. Rather, like most emerging bodies of thought, it’s a ramshackle assemblage of parts built at different times for different purposes, tied together with loose solder of association and inference rather than tight bonds of deduction.

The boldfaced part of this sounds to me like a fair description of mainstream economics. We can see some of the assumptions and axioms of mainstream economics in this list by Harvard economist and textbook author N. Gregory Mankiw of ten things economists agree about. The link is a good refresher course in introductory economics.

One crucial assumption is that rational people think at the margin. By “rational” Mankiw means “systematically and purposefully doing the best you can to achieve your objectives.” [1] This is a reference to marginal utility theory, invented by the mathematician William Stanley Jevons around 1870. Jevons’ book is premised on the utilitarianism of Jeremy Bentham. [2] Marginal thinking pervades mainstream economics. [3]

As an example, consider the notion of Pareto Optimality, invented by Vilfred Pareto, another early economist with a STEM background. The idea is that we add up all the individual utilities of all the members of a society at a point in time and get a total. If we change some policy, it will affect the individual utilities. If the new policy makes some people better off and doesn’t make anyone worse off, we approve the policy.

So, for example, suppose a corporation has excess cash. It could distribute the money to shareholders or it could give raises to all the workers who created the excess. Either way is fine under Pareto Optimality. In the real world, the money goes to the shareholders, and the workers are rightly hostile about their stagnant wages. If you don’t like this as a normative principle, you’ll really despise Kaldor-Hicks Optimality.

Other things that went into the early stages of economic theory are based on conditions at the time. That’s why we see the word “markets’ taking a central place. No one thinks that markets of today bear any resemblance to the markets known to Jevons or Adam Smith. It’s also why commodity money, like gold, has a central place, even though the US has only offered fiat money for decades. And it’s one reason we have this mystic reverence for capital and capital accumulation, which we have been taught was the engine of our current prosperity. This reading of history obscures the roles of slavery, government give-aways of land and mineral rights to the wealthy, and the misery of the recessions that unbridled capitalism created.

We have completely forgotten why we have these ideas. We don’t realize that we are centering the ideas of Jeremy Bentham. We never ask why we should prioritize maximizing utility for each individual, or ask ourselves what the balance is between the utility of the day, the decade, or the nation or our children might be. We forget the role of enslavement in the accumulation of capital, and deny the role of government. We ignore the damage capitalism has done to hundreds of millions of us over our history. We don’t question the need for more and more capital accumulation to push the economy where we want it to go. We don’t even ask what ends we want the economy to fulfill. We think and act like we are still on the gold standard.

I realize that many mainstream economists are more or less conscious of all this. But this is the thinking that dominates in our political discourse about the economy. All our politicians, most reporters and pundits (and all right-wing reporters and pundits), and most of us, think and act as if in essentials the “economy” is the same today as it was 150 years ago.

There is a strong tendency in mainstream economics to treat the status quo as if it were the result of the operations of natural laws. This tendency is illustrated in first part of this post.

2. MMT as an alternative.

MMT proceeds from a completely different place. It has no roots in philosophy. It seems to me that MMT is in the tradition of Pragmatism, the American philosophy of Charles Peirce, William James and John Dewey. [4] MMT starts with questions: what is money, and how does it work in our economy? There is no normative principle at work. MMT theorists proceed empirically, studying the way we use money throughout our economy. Money is a thing, and we need to understand its nature and its use. A big part of The Deficit Myth is devoted to examining these questions.

Separate and apart from this inquiry, we need to ask ourselves what we think makes for a good society. This inquiry isn’t about money or the economy, but about our goals. [5] In the US we make these decisions democratically. [6] We elect leaders by majority rule, and we lean on them to legislate and enforce our preferred policies. MMT shows that we can have legislative policies that support our overall desires. That claim, that we can have the things we want, is the real lesson of The Deficit Myth.

Of course, MMT doesn’t attempt to overthrow the entire edifice constructed by mainstream economics. Pragmatic theory says that we only change what we have to as our understanding improves. This means, for example, that ideas formed from an examination of data about other parts of the economy are not necessarily overturned by MMT. But even so, the ideas of MMT are a tool for examining the entire structure.

Conclusion.

Both political parties agree that our society can’t have what we want an need because there is no money, so we must suffer the status quo. Speaker Pelosi tells us she will impose PAY-GO. Joe Biden’s adviser Ted Kaufman says that we can’t do anything because “When we get in, the pantry is going to be bare.” In practice, this means we can only have whatever the richest people think is best for us. It’s not true. Speaking personally, it makes me angry when I see it in practice, long lines at food banks, people forced to risk their health to earn enough to eat, lead-ridden water systems in Flint and elsewhere, to name a few.

We need politicians who can read Kelton’s book. Those politicians need advisers who have studied the expanding literature of MMT. Mainstream economics is a dead end for our nation, and it will take the rich down with the rest of us as the planet catches fire and we suffer one horrible disaster after another.

Note: this is the last post in this series. Please feel free to use the comments to ask any questions or comment on any aspects of MMT.
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[Graphic via Grand Rapids Community Media Center under Creative Commons license-Attribution, No Derivatives]

[1] I don’t qualify as rational under this definition. My objectives are rarely systematic, and often I’m not conscious of them. They change from time to time based on my understanding of possibilities and probabilities, as well as contacts with my fellow humans directly and through books. The closer people are to me, the more they have the ability to influence my objectives. Many of the systematic efforts I’ve made failed and others have to be realigned with new and different objectives. And it’s absurd to think that most of my everyday purchases are made with some objective in mind beyond passing fancies. I’m too lazy to change things unless I have to, so often I stay with one system when another would be cheaper and better. And so on.

[2] Jevons’ book, Principles of Economics (1871), is available to read online. It’s an effort to put Bentham’s theories of utilitarianism into the form of a calculus of pleasure and pain. This is from the Preface to the Second Edition:

As to Bentham’s ideas, they are adopted as the starting-point of the theory given in this work, and are quoted at the beginning of chapter ii.

[3] I look at these ideas in several posts, here among others.

[4] I give a short primer on Pragmatism in three posts, here, here, and here.

[5] This question is beyond this series, but I can offer something on the edge of philosophical as a starting place: The Needs Of The Soul, a short essay by Simone Weil. Or listen to a podcast by Partially Examined Life, episode 250.

[6] This is not the place to discuss the problems with our democracy, which I acknowledge are great.

Reviews of The Deficit Myth

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Posts in this series
The Deficit Myth By Stephanie Kelton: Introduction And Index
Debunking The Deficit Myth
MMT On Inflation
Reflections On The Deficit Myth
The National Debt Is Soooooo Big
The Wonkish Myth Of Crowding Out
MMT On International Trade
Social Security And Other Entitlements

The last two chapters of Stephanie Kelton’s The Deficit Myth are focused on the real problems facing our economy and steps we can take to deal with them. These chapters show that thinking along the lines of Modern Monetary Theory is consistent with the goals of progressives, and that MMT can be applied to support working people and our society.

In this post, I look at some of the reviews of the book. I’ll start with this one from the Wall Street Journal by John H. Cochrane. [1] Cochrane begins with a complaint: what is MMT, it’s so confusing. Then he claims he wanted to learn logic and evidence supporting MMT. Maybe a professional economist shouldn’t look for technical descriptions in a book written for the general public. He then spins out a collection of weird stuff (she praises Kennedy for helping unions!) and misreadings (she doesn’t cite peer-reviewed papers, ignoring the footnotes).

He admits that the government can print money to meet its needs. He understands Kelton’s insistence that the real constraint is inflation. But how will we know if there is slack in the economy or if we’ll get terrible inflation, he asks? He likes the concept of the Non-Accelerating Inflationary Rate of Unemployment. Kelton rejects NAIRU on the grounds that there is no such thing. Ignoring her reasoning, he sneers at her conclusion that NAIRU is a “… doctrine that relies on human suffering to fight inflation.” Here’s a chart showing the top-line unemployment rate from FRED:.

The gray bars represent recessions, most of which were caused by the Fed to fight inflation. The result is increased unemployment, which is solid evidence that Kelton is right.

He tries to make actual arguments:

“Taxes are there to create a demand for government currency.” This is a deep truth, which goes back to Adam Smith. Soaking up extra money with fiscal surpluses is, in fact, the ultimate control over inflation. But then arithmetic fails her. To avoid inflation, all the new money must eventually be soaked up in taxes. The new spending, then, is ultimately paid for with those taxes.

Well, not really. That’s why we have a national debt: it’s accounts for the actual wealth created by the government. We can raise or lower it as needed using taxes, all for the rational purpose of managing inflation. [2] There’s much more in the same vein, but that’s the flavor.

Here’s a generally laudatory review from Hans Desplain, a professor of political economy at Nichols College, in the London School of Economics blog. Despain recognizes that this is a book for lay people, and isn’t concerned about Kelton’s failure to address the ontology of money. [3]

Here’s one from the Mises Institute. The writer, Robert P. Murphy, is a senior fellow at the Mises Institute, a group focused on Austrian economics and libertarian political economy. He agrees with much of what Kelton says. His primary objection is this:

… [R]egardless of what happens to the “price level,” monetary inflation transfers real resources away from the private sector and into the hands of political officials.

“Monetary inflation” in this sentence means spending money without regard to tax revenues. Murphy’s concern is the violation of the principle that the private sector should allocate all resources, and any effort by the government to decide what society needs or wants is just bad. Another way to read this is that MMT is agnostic about government action. Kelton advocates forcefully for government action to amke people’s lives better. Murphy is on principle opposed to government spending. This is one of Kelton’s central points. We need to debate the allocation of resources as a society, and we do that through our democratically elected officials.

One final artical, this one by J. W. Mason in The American Prospect. Mason is an Assistant Professor of Economics at the John Jay College at CUNY. Based on his affiliations, he seems to be a progressive.

He points out that MMT is new, and therefore isn’t a polished structure of thought. It’s a “… ramshackle assemblage of parts built at different times for different purposes, tied together with loose solder of association and inference rather than tight bonds of deduction.” He accurately summarizes Kelton’s thesis and her solutions.

Mason disagrees with Kelton’s contention that all money comes from the government. He points out correctly that banks create money, and that Kelton does not address this point. I discussed a paper Kelton wrote on the nature of money here. She argues that money is a debt relationship, a matter of balance sheet entries, and discusses the superiority of this view to other theories. As Kelton says, quoting Randy Wray, “[m]oney is privately created when one party is willing to go into debt and another is willing to hold that debt….” [4]

In footnote 1 here, I briefly discussed the issue of bank-created money in MMT, based on this article by MMT economist Bill Mitchell. Mitchell says that banks do create money, but at the same time they create a liability, so the balance sheets of the bank and the borrower don’t change from the creation of money. When a government creates money it creates a liability on its books, and the consumer gets an asset. As I see it, the difference is that the government can decide to hold the liability forever while banks expect to be repaid promptly, which destroys the money created by the loan. Banks do lose money on loans, leaving the money in circulation, but that’s not supposed to happen. That’s one difference.

The second difference is the the government controls bank lending. It can limit or prevent banks from creating money through regulation of required reserves. Third, obviously the government has to consider bank-created money when addressing inflation. Finally, bank lending does not help in troubled times, when people don’t want to borrow. Right now, for example, personal savings are at a 60-year high, as people who still have jobe pay down debt and put off large purchases.

The ontology of money is way beyond the scope of Kelton’s book, but I do agree that at least bank-created money must be incorporated into the MMT framework more thoroughly. Edited to add this: Scott Fullwiller, an MMT economist at UKMC, commented below saying that MMT already incorporates bank-created money thoroughly. Fullwiller refers us to this post by Brian Romanchuk replying to Mason’s review.

Mason points out that this and other issues he raises don’t detract from the central insights of The Deficit Myth, saying that Kelton’s insights can stand alone and serve as a guide for action. This is a very useful review.

This is just a small sample, but it reveals one crucial thing: some serious people have begun to grapple with the actual arguments made by MMT theorists, and others will ignore the challenge MMT poses to conventional thinking, and defend their prejudices to the bitter ugly end.

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[Graphic via Grand Rapids Community Media Center under Creative Commons license-Attribution, No Derivatives]

[1] Here’s the link; it’s behind a paywall, but I got it from my library.

[2] Cochrane’s Wikipedia page has a section titled Main Contributions. It states his research interests, and then offers this assessment, loosely translated as “snicker”:

That is a standard general equilibrium logic, but many financial economists do not view it as a priority and prefer to explain prices without an ultimate reference to choices of households and firms. Similarly, many macroeconomists choose not to worry about asset prices.

In this vein, Cochrane’s work has been to document some empirical patterns and offer some potential explanation….

[3] The ontology of money is a real thing. You could look it up.

[4] Fun question: is bitcoin money? Who is on the opposite side of the balance sheet?

Social Security And Other Entitlements

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Posts in this series
The Deficit Myth By Stephanie Kelton: Introduction And Index
Debunking The Deficit Myth
MMT On Inflation
Reflections On The Deficit Myth
The National Debt Is Soooooo Big
The Wonkish Myth Of Crowding Out
MMT On International Trade

Chapter 6 of Stephanie Kelton’s The Deficit Myth discusses the perennial conservative effort to cut entitlements. [1] Kelton defines entitlements as statutory determinations that people who meet certain criteria are entitled to certain defined payments. She discusses several of the most widely used entitlements, Social Security, Social Security Disability, Medicare, Medicaid, SNAP and welfare.

Kelton describes the history of these programs, beginning with Franklin Delano Roosevelt. FDR saw Social Security as the first step towards a comprehensive array of programs that would insure that the citizens would be truly free. He specifically chose to fund Social Security with a tax, so that people would feel ownership, making it harder for politicians to vote to take away those benefits. it worked. People are firmly attached to the program. The money is put into a “trust fund”, which holds it in the form of special non-negotiable US Treasury notes.

Politicians, goaded by their rich donors, try to weasel around this powerful attachment. They start with basic debt hysteria: the Trust Funds are Going Bust! [2] They base this on the reports of the Trustees of the trust funds, who are directed to estimate the date on which the Social Security Trust Fund will run out of money. If that happens. under current law, Social Security payments will be cut. They then claim that all they want to do is put Social Security on a firm financial footing. But they have to act now. Now! And somehow the only possible actions are benefit cuts and tax hikes for working people.

This worked the last time the deficit hawks of both parties tried it. Under Ronald Reagan both parties agreed to cut benefits, raise the retirement age, and increase FICA taxes. This increase in tax revenues was then used as cover for tax cuts for the filthy rich. The effort was led by Alan Greenspan, an Ayn Rand devotee, and no friend of working people.

Medicare is also funded with specific taxes which are put into a special Treasury account, and has a board of trustees. But there’s a big difference. Under Medicare statutes, the Treasury is directed to make all payments, regardless of the state of the trusts. So, every report of the Trustees says that Medicare is just fine. We could do the same for Social Security, and all other entitlements. That simple change would solve the problem. That’s what Kelton recommends, and it makes perfect sense under Modern Monetary Theory.

Liberals offer other solutions. We could raise the cap on the wages subject to FICA taxes. We could have a millionaires tax that would fund Social Security and other entitlements. We could impose a tiny tax on securities transactions and direct the funds to the various trust funds. I don’t think Kelton is opposed to funding social programs with dedicated taxes, and I don’t think she would object to any of these ideas or to the idea that paying dedicated taxes adds to a sense of ownership. The issue is that people think it must be this way. It doesn’t. MMT teaches us that we have the money to do what we want to do.

Taking the pressure off of funding sources does two things. It relieves the anxiety of the older people, the group Enzi is trying to frighten. But it also frees us to focus on the actual needs of the future and to plan for them. As people get older, their needs change. They need more medical care, more help at home, more and different kinds of medicine, different furniture, different living arrangements, and so on. Their desires change, too. They want to do more travel, to spend more time with their spread-out families, and to enjoy more varied kinds of entertainment, restaurants, and other kinds of get-togethers.

Kelton, writing before the pandemic hit, calls for the expansion of Social Security. She points out that it was originally intended as one leg of a “three-legged stool” of retirement planning. The other two were personal savings and pensions from employment. The latter two are disappearing.

Before the pandemic, 40% of us didn’t have savings of $400 for emergencies. Once upon a time, employers provided defined-benefit plans, which promised to pay retirees a specific amount based on pay and length of service. [3] Most of those plans are gone. Kelton cites a particularly ugly case where McDonnell-Douglas closed a plant in Tulsa and terminated a defined-benefit plan in part because so many workers were approaching retirement age when they could collect a full pension with terrible results for older workers. [4] Congress established the Pension Benefit Guarantee Corporation to cover a portion of the lost benefits when companies terminate plans. The benefits guaranteed are absurdly low.

Employers now establish defined-contribution plans like 401(k)s. The track record of these plans shows that they are an inadequate substitute for most people. They are expensive, as members pay administration costs as well as management fees to Wall Street. The national average all-in fee is 2.2%. The Center for American Progress estimates that “… the typical American worker who earns a median salary starting at age 25 will pay about $138,336 in 401(k) fees over their lifetime.” Median account sizes vary substantially by age. For those over 50, the median is around $66K. The average is much higher, around 200K, showing that these plans primarily benefit the wealthy.

Taken together, these facts show a critical need for a stronger Social Security system, not the cuts sought by conservatives.

Other entitlement programs are under attack from the deficit hawks. There are constant efforts to make it more difficult to enroll in Medicaid, like work requirements or co-pays. Fifteen states haven’t implemented Medicaid expansion as permitted by Obamacare; Missouri just added a constitutional amendment requiring implementation. SNAP benefits are under constant assault by Republicans in the name of frugality, as if these $68 billion in a 4$ trillion budget was meaningful compared to the needs of the population served.

Kelton’s point is that we have the money. We need the will to establish priorities that match our moral values, and a Congress that will legislate those priorities.

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[Graphic via Grand Rapids Community Media Center under Creative Commons license-Attribution, No Derivatives]

[1] It’s one of the more bizarre conservative demands. Social Security is a crucial element of the financial lives of a very large number of older Americans; approximately 40% of retirees would have incomes near or below the poverty line without it. That’s about 21 million voters who are more likely to vote for conservatives. To protect themselves from voter anger, conservatives explicitly call for the “I’ve got mine, screw you Jack” approach: their proposals always exempt today’s older crowd, as if the younger citizens won’t notice that their parents are safe but they aren’t and neither will their parents.

[2] We are currently getting a heavy dose of this from Republicans as they try to avoid passing a pandemic rescue bill that will primarily benefit ordinary Americans. Here’s Senator Mike Enzi, from the metropolis of Wyoming, where he ran a shoe store, insisting that Social Security is the problem. Kelton has a story about Enzi. P. 41 et seq.

[3] The strange locution “defined benefit plan” comes from the Employee Retirement Income Security Act of 1974. Its counterpart is defined contribution plans, which don’t promise any specific payment on retirement. It just requires the employer to pay a specific amount into some kind of plan with whatever vesting rights and investment possibilities the employer chooses.

[4] McDonnell-Douglas eventually merged with Boeing. Here’s a story connecting its executives to the 737 Max disaster.