Democrats & Liberals Archives

Economics Should be Subset of Civics

As I have stated in my last post, economists believe that the holy grail of economics is efficiency. However, contrary to what economists usually state, economics is concerned only with the efficiency of money transactions. They even put $ signs on disease, life and other social problems. Everything comes down to the almighty dollar. Our number one concern should be with the wellbeing of each of our citizens. For want of a better term, I’m calling this civics. Economics would then be a subset of civics.

Tim Harford in "The Undercover Economist" thinks economics covers all our human needs. So naturally he takes a dim view of taxes:

"Even more than subsidies, taxes are a common cause of inefficiency: the government taxes market transactions and spends the money on, we hope, good things like police forces and schools. Why are taxes inefficient? Because they destroy the information carried by prices in perfectly competitive, efficient markets: price no longer equals cost, so cost no longer equals value."

Let's take a look at this. Suppose I label the money the company pays the government, not a tax, but a cost. This makes sense. If the company needs police forces and schools, and also courts, business statistics, a defense department, etc., etc., then it must pay for them. This is a cost of doing business in the U.S. and it is definitely worth a lot of money. If you assume that taxes are a cost, then you may have an efficient market even if the companies are taxed.

Economists don't look at it this way. They focus on the money and on business. Everything else is called an "externality." Some "externalities" they try to work with, such as buying and selling pollution credits. Other "externalities," such as social problems or the reduction in finite resources - oil well depletion, for instance - are disregarded.

Because the view of the economist prevails, we present corporations with tax cut after tax cut in order to increase efficiency and make the market more "perfect." Maybe the markets are more "perfect" for business but they are less than "perfect" for labor.

Somehow, "perfection" is not even considered when our Congress offers subsidies to energy companies, as they did recently. It may not be "perfect" but the corporations take the money anyway.

Laissez faire is dangerous. Worrying only about "efficiency" is pernicious. Considering that America must be concerned primarily with business produces gross unfairness.

It's time to look at the big picture, at the civics. Civics is concerned with, or should be concerned with, improving the lot of all our citizens. Included here are civil rights, education, health, economic opportunity, protection, security, justice and everything else covered by citizenship. Being part of an economy is only one aspect of civics. Economics is a subset, or should be a subset of civics.

Posted by Paul Siegel at June 2, 2006 5:23 PM
Comments
Comment #153858

Paul, this is a fine article.

Much of my personal concern now is centered around economic justice in this country. These assumptions by economists in the technical terms they use, indicate to me, as well as to you, that civic-mindedness is the furthurest thing from their minds.

I think this linked article is a simplified view of this phenomenon.

http://www.tompaine.com/articles/2006/05/30/rejecting_the_yoyos.php

I am struck when I read economic reports about how everything that seems to benefit the worker and the middle class is couched in negative terms—increases in wages are inflationary ‘pressures’ is one example. Virtually everything that makes the Wall Street pundits happy are diametrically opposed to any gains for the working class. Class warfare indeed.

Everything that makes this country run seems to benefit the very few while being balanced on the backs of the many. All the costs and risks in building our country are socialized and the profits are privatized through tax deferrals, private no-bid contracts, and monopolization of industries.

And the final defense for the average American, government (through regulation, safety rules, pensions, unions, anti-trust laws and law suits), has been systematically attacked, deformed and co-opted in service of corporations.

Most of the time, we the people don’t even know about this because of the consolidation of the news media over the last twenty years. The MSM’s concern to bring the truth to the people has slowly been strangled and silenced in a “he said/she said” type of journalism that turns its back on ferreting out the facts and the truth because of profits (ratings).Of course, if the Ameican public’s attention span extended past the half-hour sitcom deadline, that would alleviate some of the news fog.

I think the job of government is to serve the needs of the people, to look out for their welfare, their health, their education, their protection, to enable and assist whenever possible
the individual’s search for “life, liberty and the pursuit of happiness.” The job of government is not imperialism, it is not war profiteering, it is not raping the environment for profit, or supporting the political fringe in limiting invidual freedoms or responsibilities.

I think this government has strayed from these goals, and I think it’s going to take alot of time, patience, heartache and hard work to get it pointing in the right direction again.

Posted by: Tim Crow at June 2, 2006 7:13 PM
Comment #153861

Paul,

Good post, but I think you are being perhaps a bit simplistic. Economics is what runs a society, whether capitalistic or collectivist. The difference is how the economy is governed.

As to your civics proposal. All of the items you mentioned in your deliniation are a part of any society, the difference is the importance given to each. However, they all incur a cost, either directly or indirectly. Only a bonehead economist, and there are some out there, would deny the costs associated with civil rights, education,justice, et al. The cost of each must be factored in as a debit against income(taxes). What society must decide is how much to allot to each one. Just as when a business develops a budget, or our household budget is being prepapred, so much must be allotted to each item.

In a perfect society, a balance would be struck and a good, solid, workable spending plan would emerge from the process. Unfortunately, two things interefere with the process: one is the inclination for the dominant party to skew the figures in the direction it wants to go, and two, government has one big advantage over a business or our household: government can raise taxes or print more money. We can’t.

This why we need a strong two-party system in government, to restore balance. Unfortunately, both the Republicans and the Democrats have the same tendency mentioned above. When either one is dominant, the figures get skewed.

Posted by: John Back at June 2, 2006 7:22 PM
Comment #153871

Paul,

There is always occurs a problem with writing a critique about something one knows little or nothing about. It always seems to come out in the critique. Economics is a theoretical and mathmatical science trying to explain the movement of goods and services in the economy. Funny, economics used to be called political economics. Around the turn of the 20th century there was a split in the political economy arena forming two distinct paths of study. Political science dealt with the subjective theories of human and nation state behaviors and interactions. Economics dealt(or tries to deal with) the objective science of markets. Each will always be lacking what the other brought to it. But in the context of the times (the age of industrialization, the enlightenment of science and technology), the split was inevitable.

Paul,

Economics doesn’t run society or markets, it just tries to explain it. People run society.
Some economic models do take into consideration the costs of civil rights, education, et al. but they will usually be considered a market inefficiency. This is not meant to be construed as a bad thing. If your set of assumptions include profit maximization, then additional costs not associated with the pure production and distribution of goods will end up that way.

Keith

Posted by: Keith at June 2, 2006 8:08 PM
Comment #153872

Sorry, the last half of my post was in regards to John Backs remarks

Keith

Posted by: Keith at June 2, 2006 8:09 PM
Comment #153873

I think this link indirectly speaks to the Bush administration’s lack of credibility regarding… I was going to say the economy, but I think I’ll just say—full stop.

http://rozius.blogspot.com/2006/06/paul-krugman-secretary-paulson-protect.html

Posted by: Tim Crow at June 2, 2006 8:14 PM
Comment #153877

Keith

Perhaps I didn’t make myself clear in my first post. I tried to say that economics governs a society and the government involved gives direction to the economics.

Speaking hypotheticaly: In a capitalistic society, the emphasis is on the individual and his/her ability to prosper by understanding and using market forces. The government acts as a referee to make sure the playing field stays even and level so that everyone has an equal chance to benefit. We are of course speaking of a perfect society. In a collectivist society, the emphasis is one the state rather than the individual. Government’s role is to take in as much as ossible and then redistribute it as it sees fit. Generally, government decides the priorities rather than market forces. Most governments, with some exceptions, are a mix of both philosophies.

Now, this may not be classical economics, but it is practical economics.

Posted by: John Back at June 2, 2006 8:50 PM
Comment #153881

As a person who has little extra cash each month but have managed to have a home to rent. This rental is a buisness and I get to write off many things to the house that I would not be able to take as a tax deduction if I was a private entity. The prime area to be at is where you take home a salery from the company say 250k a year and have to pay the company 150k a year as a loan to the company. As long as on the books your company is loosing money you pay little to no taxes but benifit hugely from the programs that the tax money is spent on. ie. education, the highway system, safety regulations.

Posted by: timesend at June 2, 2006 8:56 PM
Comment #153917

Adam Smith was a moral philosopher, not an economist. The free market is a very moral system. Economics is a methods. Society decides what it values. The free market just gives it to them. Of course, you cannot repeal the laws of supply and demand. The market gives and limits options. Some things you just cannot have or some things you cannot have at the same time as other things.

Posted by: Jack at June 2, 2006 11:15 PM
Comment #153919

Right on. When rateing a countrys well being economics terms like GDP etc. should only be one factor. A basket of data should be taken into account. Infant mortality rate is a better measure of how a people are doing ,for example. The US has a worse rate than Cuba,for heavens sake, and all of western Europe. We are a little better than Latvia. How about literacy rates? Not the average income(tilted) but what is the income of the preponderant number of people. How about the time workers spend with their families? Why might this kind of data be important to track? Because if it is not given credence sociatal problems are ignored until they become catastrophies.

John Kenneth Galbtraith is a good read if you have an interest in economics. He deserves credit for managing the ww2 economy and the boom afterwords. Unlike most economic text he is a pretty good read. He passed recently,to bad.

Posted by: BillS at June 2, 2006 11:22 PM
Comment #153933

My knowledge of economic theory is not strong, but I have come to the opinion that one of the reasons that in the American society “Everything comes down to the almighty dollar”, is that the culture does not know how to process or evaluate anything that cannot be quantified. Arguements as to the quality of life, or experiential value or human rights or dignity simply do not (literally) compute. Stopping to smell the roses has no entry on the spread sheet.
Even in BillS’s note, he is trying to fit his statements into a numerical paradigm. It is virtually an organic/systemic disability which handicaps the presentation of a liberal set of values. Speaking in a language the more conservative people comprehend (dollars and other numbers) filters out a significant portion of our concerns.


Posted by: dana at June 3, 2006 12:28 AM
Comment #153957

Jack,

Dead wrong. A free market is an amoral system.

Posted by: gergle at June 3, 2006 7:18 AM
Comment #154052

Economy holds good news - for the rich

Posted by: womanmarine at June 3, 2006 3:29 PM
Comment #154067

womanmarine:

Thanks for the link.

Posted by: Tim Crow at June 3, 2006 4:14 PM
Comment #154161

The next big give away to the super-rich is pendingb in congress right now. It is the elimination of the last vestige of the inheritance tax. They are calling it “the death tax”. This tax break only benefits the the top 1%. It is estimated to cost the treasury a trillion dollars in ten years.
There is some hope it will fail. Senators and congresspeople from even the reddest of states are concerned about the fiscal impact. There is a strong conservative arguement against it also even though most Republican leaders have been bought and paid for on this one already. As former treasury secretary Reubin put it,”If you believe in equality of opportunity then you must support an inheritance tax.” Without it we will become even more of an aristocracy. Another point is the damage enormous wealth can do to its recipients. The same arguement that wellfare breeds indolence,sloth and poor character developement also applies to the children of the wealthy,sometimes in spades,(see: Paris Hilton)
Hopefully enough thoughtful conservatives(there Jack?) will balk at the measure to block it. Contact your reps. Even in the red zone.

Posted by: BillS at June 3, 2006 11:33 PM
Comment #154246

Paul, I agree with your premise that economics without social relevance is like having a little knowledge, a dangerous thing. Economics 101 should be taught in highschool. Perhaps we would have less voo-doo economic shenanigans from Washington, if we did.

Posted by: gergle at June 4, 2006 11:41 AM
Comment #154282

I’m usually a flaming liberal, but I’m going to have to take the side of the economists here.
Wait, let me say the REAL economists, not the paid shills for the ultra-rich.
Any free-market system that actually takes ALL costs into account will operate efficiently, and that will work to distribute goods and services according to who can and will pay.
Let’s look at factory hog farming as an example (I will ignore the “animal rights” side of the debate and focus strictly on the economics). Currently, factory farms get to dispose of their waste (blood, feces, carcases) by dumping them in huge cesspools on the farms. Ultimately, these pools drain into the local groundwater and nearby streams, causing illness in local communities and long-term contamination of local waterways. That has a cost, but the cost is not borne by the party responsible. Instead, the rest of society pays when we have to support the sick and infirm affected by the pollution, along with all the other nth order costs. Clearly, it can be calculated that every pig slaughtered has caused some portion of the overall cost to society. That cost is probably higher than the actual cost of simply neutralizing and disposing of the waste in a responsible manner. If the government simply taxed every pig at the dollar value of the cost to society, the factory farm would be highly incentivized to simply clean up its own backyard.
A shorter way of saying this is that every industry, business, and entity should be forced to account for itself as a zero-impact entity. If that entity produces waste products, it should be held financially accountable for expelling those products to the degree that the waste is harmful. After all, someone has to pay for the harmful waste, so why not make the producer pay in a scientifically and economically sound fashion?
Obviously, this is demonstrated most easily where physical products/waste is concerned, but it can be extended to less concrete areas as well.
The only groups whose interest is harmed by this type of accounting are the companies/industries that operate in a fashion that is ONLY profitable when all the cost factors are not considered. They buy legislation to protect their way of doing business, to the detriment of both our political process and our quality of life.

Posted by: Govt Skeptic at June 4, 2006 2:48 PM
Comment #154302

“…the factory farm would be highly incentivized…”

Incentivized?! You ain’t one of them (he eyes narrow in hostility) Real varmint ee-con-o-mysts er ya?

So wouldn’t the costs roll down the ecomonic food chain and straight into the left ear of the consumer? Come on, bacon is expensive enough as it is!

Posted by: Tim Crow at June 4, 2006 4:45 PM
Comment #154374

Paul:

It’s time to look at the big picture, at the civics. Civics is concerned with, or should be concerned with, improving the lot of all our citizens. Included here are civil rights, education, health, economic opportunity, protection, security, justice and everything else covered by citizenship. Being part of an economy is only one aspect of civics. Economics is a subset, or should be a subset of civics.


I appreciate you bring up the subject between economics and civil rights. I would argue that your contention that civics should be a subset of ecnomics is ill founded. A starving man would think you crazy to want to know how well well his free speach rights are being protected while his stomach is empty.

I think Maslow’s Hierarchy of Needs is a more thoughtful approach. I wont bore you with a rendition of this theory. However, it basically makes the point that in times of prosperity, we have the freedom to think of civics because our economic needs are met.

Moving back to politics, this is why Clinton made the statement “it’s the economy stupid!” as he ran for president shortly after the recession of 1991.

If this theory is correct, (and it is pretty close), democrats would have a hard time using your theory because it would imply that economic needs are now being met, and so now we can focus on civics. If that were the case, we on the right would want to know what all the bellyaching is about with regard to high gas prices, and median incomes stagnating and tens of millions without health insurance.

I think a better stategy from the left would be to combine your thoughts to say that civics and ecnomics should go hand in hand. There are two big truths (from my perspective) ecomically. First is that the national economy from a macro scale looks in very good shape. However at the same time those on the bottom end of the scale are really struggling and are not moving up the ladder.

I would argue that it is good economics and good civics to improve the standard of living of the poor. As an example I would choose health care. I would argue that the decisions of the past were not necessarily wrong, but now is a different situtation. Health care costs are far greater than fourty years ago. In addition union membership is on the rocks. Health care for the working poor is good economics and good civics because it allows the poor to be more productive. Particulary if the working poor can have access to good healthcare before a major health crisis. (an ounce of prevention is better than a pound of cure). I would be hard pressed to find a liberal who would argue that it is bad civics to provide health care for the poor. It is probably also good economics.

For this and other reasons I would reject your thought that economics should be a subset of civics. I believe a starving man would thing you wrong. I think a better approach is to directly link them.

by the way, what cultures would you point to as an example?

Craig

Posted by: Craig Holmes at June 4, 2006 11:34 PM
Comment #154376

Paul:

I would like your thoughts on a sin tax on foods. What would be wrong with using science to discover which foods are most likely to increase the cost of healthcare in the future. (high fat and sugar products). In theory what would be wrong with taxing them now with a value added tax, and using the proceeds for preventative health care for the poor? Increase taxes on McDonalds, Wendy’s etc. At a dollar a hamberger. Put 50 cents a can tax on sugar pop, and use 100% of those taxes for health care for the poor.

I would argue that this “in theory” would be good civics (health care for the poor) and good economics because it would reduce demand for high fat/sugar products. It would reduce costs (admitedly in theory) of medicine in the future by reducing diseases such as diabetes etc. It would make us all healthier and more active.

On the funny side it might help with the energy crisis because our big behinds would be smaller, and not as much weight for our cars to carry around.

Craig

Posted by: Craig Holmes at June 4, 2006 11:44 PM
Comment #280734

I know this post comes years later, but someone needs to set things straight. I’ll address the Govt Skeptic. What you described, minus the “what we need” part, is exactly true and it is the way things are. However, the reason the free market is the only right way to handle that situation is because YOU have the power under the free market system, not government and not the pig farmer. The glory of the free market is that you get to choose NOT to buy from the pig farmer who does anything reprehensible. It’s kind of like a real-time republic. You have a vote.

So, what do you do with that vote? You CHOOSE TO buy from the next pig farmer who improves their waste disposal, animal rights, AND lowers the cost not only to you but to the society as a whole. That’s the glory of innovation. That’s the glory of incentive. The next pig farmer realized that he had to do it better, safer, and more honorable or you, collectively, wouldn’t buy from him. And so the original distasteful pig farmer went out of business because of the free market system and the whole world is better off, including you.

Government had nothing to do with it.

Posted by: Free Marketeer at April 21, 2009 4:01 PM
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