Mr Medlock and the Classics: Part 0
Mr Medlock and the Classics: Part 0
A medly of social democratic economics
Oftentimes, the discourse around government intervention in the economy is couched in language and framing which implicitly assumes that efficient outcomes from unfettered markets are the norm rather than the exception. And by and large, I believe in that - I think our first instinct should be to think about tweaking the price mechanism and looking for market-based solutions.
However, there is a competing set of claims which is much less sceptical about intervening in markets. And although I’m not persuaded they are entirely correct, what they do say is credible, coherent and corroborated by academic work - as such, it is worth listening to. That’s right. I’m talking about social democrats. And this is going to be my suggested interpretation of what it means to be Medlock-pilled, featuring content from James Medlock, David Sligar, Matt Darling and Matt Bruenig.
Big Picture Aims
It seems helpful to begin with an outline of what some social democratic goals might be. One description might be competitive egalitarianism. This has two components. Firstly, it recognises that people deserve equal worth, having been brought into this world by the arbitrary lottery of birth - as such, inequality can only be justified on the basis of the Rawlsian difference principle. Secondly, it notes that markets do not exist ab ovo, but instead are moulded by the laws and norms of the land. As such, we can use those laws to produce markets which serve the public interest.
To get this sort of collectively beneficial creative destruction, we need a population that is adequately supported in all aspects of life. This can only be provided by governments - as such, what we are looking for is society as a service. In effect, you pay a fee (better known as taxes) in order to get services like risk-pooling, income-smoothing, poverty-elimination, public goods etc. This can manifest itself into policy proposals in several ways. I’m going to highlight five key strands.
Tax positivity. Insofar as governments exist to solve collective action problems, they are only able to do so via funding from taxation. And that’s something we shouldn’t shame, but instead celebrate.
Welfare positivity. We should be providing benefits in a universal fashion without the odious and exclusionary apparatus of means-testing.
Robust state provision. An effective state is one that invests in its people’s capacity and uses state capacity to address market failures.
Full employment labour markets. When there are job opportunities and when workers are empowered, we can fix other issues in society.
Social wealth funds and YIMBYism. Insofar as wealth begets wealth, we should make financial and housing wealth widely accessible.
In all of this, it is important to remember than the equity-efficiency tradeoff which often stymies attempts at this competitive egalitarianism is somewhat unfounded. In fact, efficiency requires equity to some extent, and equality of opportunity cannot be divorced from equality of outcome. Suppose the first generation had equal opportunities at the beginning - almost as soon as that occurs, the next generation and onwards will have unequal opportunities due to their forebearers being rewarded for previous merit. In fact, what we see is that the competitive market equilibrium is suboptimal if there is substantial inequality, in part because surplus is not a reliable measure of welfare. One example of this is in conservation and environmental policies, where pricing policies are less effective compared to prescriptive policies in reducing water consumption due to differences in household endowments. Another would be the fact that more equal countries have more intergenerational mobility. So we need a state that balances equity and efficiency such that they complement each other.
These are not goals that are ridiculous. The Nordics aren’t collapsing. In fact, these are goals we’ve seen achieved in some form or another across the world. And many of these successes have been made possible by linking tax-and-spend policies together, or by engaging in broad tax-and-spend policies which are low salience and income-replacing. So this is very much a viable policy agenda!