A U.S. economist in Shanghai Daily

Interesting that a Chinese paper should publish a reasonably prominent American economist. On the list I am on (Pen-L) De Long was considered right wing but I suppose within the mainstream he is probably regarded as to the left. Anyway this is an interesting opinion piece. The piece makes it sound as if Marx looked at matters in moral terms and really does nothing to explain Marxist analyses. However, that problem doesn't matter in China at this stage. The article points out the problem of gross unequal distribution of income under capitalism and in China poverty within great wealth as it adopts a capitalist system. De Long has abandoned Pen-L for some time I believe but he likes to come back and provoke leftists.
It is hard to see how democratic policies can do that much to balance the market. Anyway it is not the market but capitalism that is the problem. Democratic politics is a realm where money counts just as in the marketplace and capital has the money and also the power of ownership of the means of production. Certainly democracy gives the people some power over market forces but it will always be limited by the needs of capital that is the engine that runs the whole system.


Shanghai Daily (2/1/08)Would Marx say rising tide today lifts all boats?By: J. Bradford DeLongA century and a half ago, Karl Marx both gloomily and exuberantlypredicted that the modern capitalism he saw evolving would proveincapable of producing an acceptable distribution of income.Wealth would grow, Marx argued, but would benefit the few, not the many:the forest of upraised arms looking for work would grow thicker andthicker, while the arms themselves would grow thinner and thinner.Ever since, mainstream economists (in the West) have earned their breadand butter patiently explaining why Marx was wrong. Yes, the initialdisequilibrium shock of the industrial revolution was and is associatedwith rapidly rising inequality as opportunities are opened toaggressiveness and enterprise, and as the market prices commanded by keyscarce skills rise sky-high. But this was - or was supposed to be -transient.A technologically stagnant agricultural society is bound to be anextremely unequal one: by force and fraud, the upper c lass pushes thepeasants' standards of living down to subsistence and takes the surplusas the rent on the land they control.By contrast, mainstream economists argued, a technologically advancingindustrial society was bound to be different.First, the key resources that command high prices and thus producewealth are not fixed, like land, but are variable: the skills of craftworkers and engineers, the energy and experience of entrepreneurs, andmachines and buildings are all things that can be multiplied.As a result, high prices for scarce resources lead not to zero- ornegative-sum political games of transfer but to positive-sum economicgames of training more craft workers and engineers, mentoring moreentrepreneurs and managers, and investing in more machines and buildings.Second, democratic politics balances the market. Government educates andinvests. It also provides social insurance by taxing the prosperous andredistributing benefits to the less fortunate. Economist Simon Kuznetsproposed the existence of a sharp rise in inequality uponindustrialization, followed by a decline to social-democratic levels.But, over the past generation, confidence in the "Kuznets curve" hasfaded. Social-democratic governments have been on the defensive againstthose who claim that redistributing wealth exacts too high a cost oneconomic growth.The consequence has been a loss of morale among those of us who trustedmarket forces and social-democratic governments to prove Marx wrongabout income distribution in the long run - and a search for new anddifferent tools of economic management.Increasingly, pillars of the establishment are sounding like shrillcritics. Consider Martin Wolf, a columnist at The Financial Times.Wolf recently excoriated the world's big banks as an industry with anextraordinary "talent for privatizing gains and socializing losses ...(and) get(ting) ... self-righteously angry when public off icials ...fail to come at once to their rescue when they get into (well-deserved)trouble ... (T)he conflicts of interest created by large financialinstitutions are far harder to manage than in any other industry."For Wolf, the solution is to require that such bankers receive their payin installments over the decade after which they have done their work.But Wolf's solution is not enough, for the problem is not confined tohigh finance.The problem is a broader failure of market competition to give rise toalternative providers and underbid the fortunes demanded for their workby our current generation of mercantile princes.(The author is professor of economics at the University of California atBerkeley and a former assistant US treasury secretary. Copyright:Project Syndicate, 2008. www.project-syndicate.org.)