Sympathy for the devil

The devil in the title is our oldest enemy. Not the hoofed and horned one, but rent.

Rent is gains in excess of what is required to mobilize a factor of production. The term comes from land as gains accrue to ownership with no relation to the merit or exertion of the owner. For millenia specialists in violence have thought over this rent, and then constructed myths to justify their privilege. Even in this century we saw this in the Congo. One of the great epics in liberal history is the repeal of the corn laws. These were extensive barriers enacted in 19th century against the importation of grain. This acted against the interests of the labouring classes (and the industrialists who employed them), but in favour of established land owners. The repeal of the corn laws is taken as a victory against rents by fiat and a triumph of liberalism. Yet I think many classical liberals now often neglect the fact that these laws were made possible by their backing by the land holdings.

Natural rents can beget rents by fiat, and spread. They are just as unjustified, and just as dangerous.

Rent is a force for this ill in some fairly straightforward ways. It provides the funds to employ hordes of interested sophists, professional spivs and content providers. This was the source of a great deal of Adam Smith’s skepticism about governments. Active policy would generally be in the interests of those who could pay for thinkers to spruik their interest as independent thinkers (he included himself) were rare. As such is was best to avoid active policy where possible. [fn1]

There’s something more than merely the ability to fund sophistry though. There seems to be tendency to give authority to those made wealthy by rent; to listen dutifully and respectfully as they tell us that it is for the good of all and only right that they continue to receive this wealth. Rent does not just pay for the dissemination of views, but also gives weight to its arguments, including those for its expansion.

I think this is important to understand for good policy into the future. Whilst things are far less perverted than they were prior to the industrial revolution, rents arising from resources, or from regulations, professional cartels and especially managerialism are still enemies of good policy. The gains accrued to the top 1% of the American population far in excess of any demonstratable contribution in itself makes efficient taxation and resolution of the fiscal position far more difficult than it should and finance rents have made that sector more dangerous.

A number of times Paul Frijters and I have debated this in comments here, this being a good example.

Paul sees this as a result of misguided notions of economic mobility on the part of “aspirationals”. A large body of the population (and voters) envision that they can one day join the rentiers in their affluence. At the least they want to self identify with “winners” and avoid associating  their identity with “losers”. They are loathe to see anyone act against the interests of their future selves or their imagined peers. If the affluence concerned was the fruit of merit or perspiration this would be fine – these can be pursued and perhaps realised to the boon of all involved. But rent seeking is at best zero sum, and usually negative sum. The losses of all exceed the benefits of the winner.

I believe however that it comes from a natural bias, similar to the status quo bias. The ownership of unearned wealth is justified merely because that’s how things are. Privilege vindicates itself.In 1982 Galbraith espoused a version of this when he said “Wealth, in even the most improbable cases, manages to convey the aspect of intelligence.”.

A while ago when some research appeared to demonstrate that increased inequality was associated with increased conservatism I considered it consistent with my hypothesis. Paul likewise thought the same with his hypothesis.

The main point  of this post is to set out these hypotheses and a few more. Just a public record.

Adam Smith had very strong feelings on this, and immense contempt for the respect that the rich and powerful were given. Take this passage from Moral Sentiments.

This disposition to admire, and almost to worship, the rich and the powerful, and to despise, or, at least, to neglect persons of poor and mean condition, though necessary both to establish and to maintain the distinction of ranks and the order of society, is, at the same time, the great and most universal cause of the corruption of our moral sentiments. That wealth and greatness are often regarded with the respect and admiration which are due only to wisdom and virtue; and that the contempt, of which vice and folly are the only proper objects, is often most unjustly bestowed upon poverty and weakness, has been the complaint of moralists in all ages.

In his day, more than our own, disparities in income and wealth were clearly attributable to privilege rather than merit. Since this has been “the complaint of moralists in all ages”, he clearly thought it was from a basic element of human nature.

When we consider the condition of the great, in those delusive colours in which the imagination is apt to paint it. it seems to be almost the abstract idea of a perfect and happy state. It is the very state which, in all our waking dreams and idle reveries, we had sketched out to ourselves as the final object of all our desires. We feel, therefore, a peculiar sympathy with the satisfaction of those who are in it. We favour all their inclinations, and forward all their wishes. What pity, we think, that any thing should spoil and corrupt so agreeable a situation! We could even wish them immortal; and it seems hard to us, that death should at last put an end to such perfect enjoyment. It is cruel, we think, in Nature to compel them from their exalted stations to that humble, but hospitable home, which she has provided for all her children. Great King, live for ever! is the compliment, which, after the manner of eastern adulation, we should readily make them, if experience did not teach us its absurdity. Every calamity that befals them, every injury that is done them, excites in the breast of the spectator ten times more compassion and resentment than he would have felt, had the same things happened to other men. It is the misfortunes of Kings only which afford the proper subjects for tragedy. They resemble, in this respect, the misfortunes of lovers. Those two situations are the chief which interest us upon the theatre; because, in spite of all that reason and experience can tell us to the contrary, the prejudices of the imagination attach to these two states a happiness superior to any other. To disturb, or to put an end to such perfect enjoyment, seems to be the most atrocious of all injuries. The traitor who conspires against the life of his monarch, is thought a greater monster than any other murderer. All the innocent blood that was shed in the civil wars, provoked less indignation than the death of Charles I. A stranger to human nature, who saw the indifference of men about the misery of their inferiors, and the regret and indignation which they feel for the misfortunes and sufferings of those above them, would be apt to imagine, that pain must be more agonizing, and the convulsions of death more terrible to persons of higher rank, than to those of meaner stations.

One way of parsing this is to say it sounds fairly close to Paul’s hypothesis about associating with winners, particularly when Smith also describes contempt for the poor, or “losers”. Another way is to use the terminology of behavioral economics and say that people are exhibiting sympathetic loss aversion. Losing a fortune is more painful than gaining one is pleasurable, and we do not wish this to happen to someone else.

I’ll also mention this post by Matt Yglesias the other day, since it raises the possibility that the false authority attributed to the powerful comes from another source.

Business occupies a “privileged position” in a mixed-market economy. In other words, neither government bureaucrats nor union organizers nor anyone else wants to eliminate private business or private businessmen. On the contrary, all mainstream figures espouse the view that it’s in the nature of the market economy that prosperity hinges in essential ways on the activities of private businessmen and private businesses. This means that when rich businessmen speak—to their employees, to reporters, to politicians, to people in the community—they aren’t heard in the same way that politicians or talk radio hosts or lobbyists are heard. They’re heard, at least in part, as practical everyday people who happen to have relevant knowledge about the important question of what will and won’t increase business activity. That’s why politicians like to talk about the discussions they’ve had with small business owners back in Fargo/Philly/Framingham/Whateverville. Politicians have a lot of authority when talking to their base, but little authority when talking to the crucial swing constituency of people who are unable to develop a coherent partisan/ideological perspective on politics. “Apolitical” businessmen, by contrast, speak somewhat authoritatively to an apolitical audience.

I remain unconvinced though. The attribution of authority to the powerful predates the concept of  “businessmen” as a distinct group by some time. It is mere coincidence that today the greatest rentiers are called business men instead of lords or daimyo or the like.

I started thinking about this because of the ease the most transparently unearned of rents argued their case in regard to the mining rent tax last year. To Paul it was a “real wake up call”. This week polling suggests their case was not as effective as we believed. With all the usual caveats, perhaps time is on the side of the angels.

[fn1] It’s worth noting that this is milder than Marx’s belief that the sole purpose of the state was protecting expropriators of unearned income, such that once true producers in the proletariat got what they deserved, there would be no need for a state. The difference between Smith and Marx was Marx’s far greater cynicism about the ability of the state to produce good policy, which is bemusing given the cartoonish portrayals of each in popular conversation.

 

 


 

About Richard Tsukamasa Green

Richard Tsukamasa Green is an economist. Public employment means he can't post on policy much anymore. Also found at @RHTGreen on twitter.
This entry was posted in Economics and public policy, Political theory. Bookmark the permalink.

10 Responses to Sympathy for the devil

  1. Peter Patton says:

    The irony of smeering the “aspirationals” (whoever they are), for their alleed lack of concern about “rentiers” by quoting the quintessential trust-fund preppy, Matt Yglesias!

  2. Paul Frijters says:

    Richard,

    (just back from holiday)
    Let me stew over this a while and respond later. As it happens, I just started writing a paper on aspirational voting so its a good time to mull this over.

    The aspirational phenomenon is not just about self-delusion that one is in fact going to be much richer than is likely. It is also about buying into a story of personal success that motivates people to try harder to maintain that illusion. So its not unequivocally a bad trait. What is bad about it is that it seems to be ameneable to abuse by others who hijack the ‘aspirational story’.

  3. Don Arthur says:

    The aspirational phenomenon is not just about self-delusion that one is in fact going to be much richer than is likely. It is also about buying into a story of personal success that motivates people to try harder to maintain that illusion.

    Paul – I wonder whether part of what’s going on is a kind of signaling.

    According to the ‘aspirational story of personal success’ success OUGHT to be a product of talent and hard work.

    Policies that shelter lazy and stupid people from failure are deemed to be unfair. Policies that reward talent and hard work are seen as fair.

    So if you want to signal that you are talented and willing to work hard, you make a big deal of supporting policies that are seen to reward talent and hard work and punish the opposite.

    The policies that serve this signaling function will vary from time to time and place to place. In some situations free market policies will be seen as rewarding talent and hard work and in others they won’t.

  4. Pedro says:

    You don’t need policies to reward talent and effort, or thrift for that matter. You just need to get rid of policies penalising them.

  5. Richard Tsukamasa Green says:

    Paul – One is buying into the idea of a fair world as well? This could gel with my idea of vindicating the present.

    I agree with your last two sentences though. The idea of meritocracy (for lack of a better word) is important even when it isn’t true in practice. I’m reminded of conversations I had with my Chinese lecturer about the “red eye disease” occurring in China, particularly in the 1980s. This was the immense distrust and resentment of any inequality in income, often expressed in fairly strange ways. She gave many examples of simple vandalism, or of guests sabatoging a house out of resentment. This came after a long period where any difference in outcome was due to cronyism, and then when fortune were most easily made by positions that allowed arbitrage between fixed wholesale and floating market prices. There was also no cultural narrative of meritocracy to work in either after Maoism. The resentment was understandable then. Experience taught that different outcomes were rent, and there was no narrative. Unfortunately this caused conflict and resentment even when the differences were due to hard work.

  6. Paul Frijters says:

    Richard,

    ok, had more time to read it properly now. Thanks for digging up some Adam Smith quotes to bolster my side of the argument. I think I see better where your unease comes from: you observe that those with power and wealth are afforded a respect merely on the basis of that power and wealth. They engender in their followers some degree of identification that makes their followers suffer and rejoice with them. I think this observation is true, but the question is where it comes from: we do not rejoice and suffer with other leaders elsewhere to the same degree. The fortunes of the shah of Iran didnt bother too many in the West, nor will there be many tears for the happenings to the king of Swaziland in Australia. So it is not so much power and wealth in the abstract, but rather the power and wealth we experience and cannot help but wittness. It is, if you like, power and wealth that competes with our own and that far outshines ours. That power and wealth is often of a magnitude we cannot hope to ever compete with so it is hard to believe we really are about to join them, but as an abstract group, it is not hard to believe at all that we want to ‘be with them’. If given the choice between beggar and king, who would you rather side with? So yes, I do think that underlying the respect given to authority is a human ability to imagine themselves in other groups.
    I am not sure what to make of the businessman story. Their status to the lay person is surely a combination of wanting to side with them, and some indirect respect that comes from the position business has in our society as the generator of wealth, which is a more grudging respect rather than something given freely.

    Don,

    in our culture I would agree that aspirational stories usually involve some source of personal merit (hard work) that at once give a reason to disown the losers and exalt the winners. It certainly fits modern politics on the issue. But I can imagine that in previous eras it would have been prowess in battle or beauty or the favour of the gods that could have been seen as equally valid sources of position.
    I agree with Richard and his quotes though that to the aspirationals, it goes much deeper than a mere ratinoal wish to signal some innate trait to others. If it were just a rational calculus, that posturing should not translate to behaviour in the privacy of the elction booth. If it were just a rational calculus, why would someone bother to read the magazines detailing the lives of the rich and famous? So to many degrees, the admiration given to the succesful is personal to the beholder; it partially defines who they are. Whilst richard doesnt quite say what his alternative view to aspiration is, I would guess he ascribes it to some automatic tendency to worship authority. Where I see that as problematic is that it does not fit all the stories that the powerful weave around themselves. Very few of the wealthy portray themselves as deserving just because they exist: they come up with stories about how their position is deserved because they are abundant in some meritorious trait (work, favor of the gods, beauty, talent, etc.).
    Perhaps Richard can try to articulate his alternative a little clearer though: if not because the onlookers get some pleasure out of identification with the rich and powerful, even when they do not personally depend on those rich and powerful for a job or some other direct material benefit, what then drives the respect they give?

  7. Don Arthur says:

    Paul – Yes, even if some of this is about signaling it can’t be the whole story.

    … it is not so much power and wealth in the abstract, but rather the power and wealth we experience and cannot help but wittness. It is, if you like, power and wealth that competes with our own and that far outshines ours.

    I’m not sure this is exactly right. I think people often respond to business success the way they respond to sporting success. When Australians watch the Olympics they feel a special ‘sympathy’ for Australian athletes. When our sports people win, we feel that WE have won.

    This isn’t how we respond to success by athletes from other countries. We might admire their performance and cheer them on, but it’s not quite the same.

    Most people don’t compare themselves to Olympic athletes or the super rich. When the people we compare ourselves to succeed, the response is often different. Envy and social comparison is most likely to occur among peers.

    Or to pick another example, many Women’s Weekly readers identify with princesses like Kate, Mary and Di and seem to sympathetically participate in their good fortune and feel pain when things go wrong. Few would see themselves as competing with them.

  8. Paul Frijters says:

    Don,

    yes, envy and social comparison is also part of the mix – as the number of magazines detailing the falls of grace by the rich and powerful attest to!

    The example you give of athletes is a good illustration of my argument: because they are part of our group we cannot escape them, so we can either shout for them or disown them. I would guess athletes are a little different though because it is well understood that they represent ‘us’, so there is a quite open level of identification in their case that will be lacking with businessmen.

    Even with athletes though, I would say a bit of envy is in the mix. I daresay envy is also in the offing when it comes to Kate and Mary. If things go wrong for them, I expect salacious gossipers to come out of the wood works to gloat over their misfortunes.

    I guess you are right that few of us openly tell ourselves we are in competition with princesses, athletes, and billionaires.

  9. Richard Tsukamasa Green says:

    Paul – You’re quite right I haven’t explained my hypothesis well. Part of the draft for this post went missing in the back end of Troppo and I had to rewrite it, so maybe part of my explanation did likewise but was not replaced.

    If we have a desire to see a fair world, we also would be biased towards ideas that propose that inequalities of wealth and power in the world have a fair justification [fn1]. A completely arbitrary world is dispiriting, nhillism uncomforting, so we are prepared to vindicate and justify what we see. In other or past societies this could be attributed to cosmic factors, so that karma means that present prosperity is due to (unobserved) past virtue, or the Mandate of Heaven conveniently can be interpreted so that retaining power is a cosmic recognition of virtuous leadership. In an industrial society such as ours it is the belief that hard work, intelligence and merit must lead to success. Thus those who are successful must possess these virtues. Unlike past myths this actually has a great deal more going for it, and is verifyable in many circumstances (part of the reason that this is a golden age). It’s just unfortunate that it works to the benefit of those who have success far in excess to their contribution, and they can then use this belief in fairness to make the world less fair.

    There’s no great gulf between our interpretations, and I’m pretty sure there’s no policy implications of choosing one over the other.

    I’m interested in your remarks about sympathy for the Shah, or the prince of Lesotho. Similar to Smith’s remarks about the tears shed for Charles I, I can’t help thinking about the fact that even with a cultural divide and a century past the Scarlet Pimpernel emerged as a pop culture hero rescuing the French Aristocracy, and not any of the other victims of the Terror. Likewise in this century the (daughter of film royalty) Sofia Copolla made a sympathetic film about Marie Antoinette rather than a more mundane guillotined person. They made a film about Anastasia Romanov, not any of the millions that died either in the Tsar’s wars, or the extremes of the Soviets, There’s a film about Puyi, but successful films about Chinese peasantry. This is admittedly a narrow way of looking at it, but divides of time and culture don’t seem that strong. It’s not something that’s easily explained by ideas about fairness either.

    [fn1] Or alternately, especially in parts of the the Christian/Islamic tradition or Buddhist traditions dismiss an unfair world as something unimportant compared to others.

  10. Paul Frijters says:

    Richard,

    yes, I would buy some of that, mainly from the prism of self-esteem: the more just our societies, the more noble the fact that we are part of it and the less we have a moral obligation to fight it so we can feel good and off-the-hook at the same time. So there is a bias for believing our countries are just and if you additionally accept that the rich and powerful have more influence over the stories told about our country’s justness than the weak, then its no coincidence that that justness builds up the position of the rich and powerful rather than that of the weak.
    Where that story has its limits is when it concerns changes or clear disagreements within a group: conditional on all being part of this great and just country, who can we get to pay more taxes? Whilst one may in the short-run appeal to the argument that it would be ‘un-Australian’ or ‘un-American’ to ask this or that group to pay more taxes, this is clearly not a tenable long-run story because it is a fixed-sum game: someone has to cough up the money to keep the state running. The ‘justness’ label to a certain extent just follows the status quo.

    The fascination we have for the super-rich and famous in antiquity (Genghis Khan, Alexander the Great) is perfectly in line with the idea that we secretly fantasize about being rich and famous. Indeed, if you see what atrocities we are prepared to overlook in the historical figures we worship, it is clear you need a very strong pull to make sense of that worship. An interesting side-note here is the fascination the Chinese seem to have towards emperors of previous periods. A yearning almost.

    The reason we don’t include the Shah in that admiration is that he lost. Swaziland is too small.

Leave a Reply

Your email address will not be published. Required fields are marked *

Notify me of followup comments via e-mail. You can also subscribe without commenting.