Too Much Faith in Markets Denies Us the Good Life
John Maynard Keynes’s generation of economists assumed that as people became more efficient at satisfying their wants, they would, and should as rational agents, work less and enjoy life more. Yet power relationships and the insatiability of human wants are such that we have maintained an ethic of acquisitiveness.
International rivalries add fuel to the acquisitive fire. We are constantly being told to gear up to face further challenges, particularly from the Chinese and other poor but industrious peoples. But why, if we already have enough, should we strive for a larger presence in emerging markets?
It is worth recalling that the ideal of economic growth as an end without end is of fairly recent origin. When British Prime Minister Harold Macmillan told the voters in 1959 that they had “never had it so good,” he was echoing the widely held view at the time that the capitalist countries of the West were rapidly approaching a consumption plateau, and the main problem of the future would be to ensure that the fruits of the new abundance were democratically distributed.
Nevertheless, the perception of imminent bliss in the 1960s led to the restoration of Darwinian capitalism in the 1980s. And economic growth quickly and decisively came to trump all other objects of economic policy.
Margaret Thatcher (elected prime minister of the U.K. in 1979) and Ronald Reagan (elected president of the U.S. in 1980) added an essential ingredient to the philosophy of growth: an ideological faith in the market system. Faster growth would come from markets freed of red tape, lighter taxes and weaker trade unions. The Thatcher-Reagan philosophy also viewed increasing income inequality as acceptable insofar as it improved the incentives of the “wealth creators”: There would be a “trickle down” from rich to poor.
It was the shift to a market-based philosophy of growth that inflamed the insatiability of wants -- by abandoning any interest in the social outcome of growth. The market was bound by the rule of law, but there was no longer any moral, political or cultural restraint on the individual pursuit of wealth. Keynes’s notion of satiety had no place.
Such a system cannot work according to plan. It is both economically and morally inefficient. The Anglo-American system of the past 30 years, dominated by the financial-services industry, has been retained for the benefit of a predatory plutocracy that creams off the riches in the name of freedom and globalization.
So, what intellectual, moral and political resources still exist in Western societies to reverse the onslaught of insatiability and redirect our purposes toward the good life?
In many ways, the political economy of the first half of the 20th century was admirably tailored to realizing the good life. The problem was that it lost the language for describing itself in these terms. This is the main reason why it failed to survive the economic and social troubles that beset Western societies in the 1970s. The historian Peter Clarke has usefully distinguished between “moral” and “mechanical” reformism. Moral reformism saw improvements in material conditions as ways of elevating the moral condition of the people; mechanical reformism simply aimed to increase their prosperity.
Deprived of their ethical language by the collapse of religion and the strongly individualist fashion in economics and political philosophy, by the second half of the century, “moral” liberals were forced back on purely “mechanical” arguments. They stressed the positive effect on productivity of a better-fed, better-housed, better-clothed, healthier and better-educated workforce. This was almost certainly true. However, once the commonly accepted language became one of efficiency, the moral reformers were vulnerable to the charge that their reforms had created inefficiency by lessening the incentives to work and save, and by stealing resources from the productive sector.
The social liberalism of the 1950s and ’60s had nothing left to put in place of the profit motive, no defenses to offer against the philosophy of untrammeled self-interest. Tax rates tumbled, the welfare state was reined in, state industries were privatized, and the financial sector was set free.
The coup de grace was delivered by the fall of communism. In the Cold War era, the West had to proclaim its own concept of the good life to counter the appeal of communism. This necessity was now gone. Market individualism remains the only game in town.
What would an economic organization geared to realizing the basic goods for every citizen -- economic and personal -- look like? It would have to produce enough to satisfy everyone’s basic needs and reasonable standards of comfort. It would also have to reduce the amount of necessary work, freeing up time for leisure.
Just as important, it would have to ensure a less unequal distribution of wealth and income, not just to diminish the incentive to work, but also to improve the social bases of health, personality, respect and friendship.
How far should policy be pushed toward these aims? We favor a sort of non-coercive paternalism: encouraging or discouraging certain behaviors, without limiting individual freedoms. We must find ways to reduce the pressure to consume and hence, indirectly, the pressure to work.
To begin, the aim of policy should be to maintain full employment, not full-time employment. Earning a living is an important means to the basic goods of respect and security. But it needn’t imply working eight hours a day, or five days a week, or 1800 hours a year, in a soul-destroying job. Our goal should be stable employment with fewer hours worked, but with more people employed.
The simplest approach would be a progressive reduction in work hours by limiting weekly hours and/or increasing vacation times. Such a framework would allow employers and employees to negotiate flexible retirement and work-sharing arrangements. There is no reason why a general reduction in working hours should bring about a drop in wages. The Dutch, for example, work shorter hours than the British but enjoy a higher average income per head ($48,000 as against $35,000) with a more equal distribution of wealth and income.
Productivity may even go up as workers pack more punch into shorter hours. This seems to have happened in places where the experiment has been tried. Hardly any production was lost in the two months that Edward Heath put the U.K. on a three-day week in 1974, for instance. Moreover, there is plenty of evidence that people are willing to trade income for leisure if they are allowed to and if the fall in income is not too great.
Despite their attractions, however, work-sharing schemes are not affordable to many lower-paid workers. It is in this context that the idea of a basic income -- an income paid by the state, independent of any obligation to work, to each citizen -- becomes appealing.
Two major objections are raised against basic-income proposals: that they would provide a disincentive to work, and that society cannot afford them. Yet when the goal is not to maximize growth but to secure good lives, the aim is precisely to reduce the incentive to work by making leisure more attractive. Furthermore, a rich society can increasingly afford to pay its citizens a basic income.
An unconditional basic income, in the form of a single capital endowment or a guaranteed annual income, would start to give all workers the same choice as to how much work to do, and under what conditions -- a privilege now possessed only by the wealthy.
In the future, education would be informed by the understanding that one’s job would represent a decreasing fraction of one’s waking hours. It would prepare people for a life of fulfillment outside the job market.
The state can also help reduce the pressure to consume. The economist Robert Frank has suggested doing this via a consumption tax, patterned after a 1955 proposal by Nicholas Kaldor. All spending above $7,500 per person would be subjected to an escalating rate of tax.
Such a tax would be redistributive, striking a blow at inequality; it would reduce the pressure to consume; and it would induce saving for retirement. It would also divert resources from conspicuous consumption to spending on behalf of society as a whole -- for such benefits as freedom from traffic congestion, time with family and friends, vacation time, better air quality, more urban parkland, cleaner drinking water, less violent crime and more medical research.
The pressure to consume is inflamed by advertising, which today works mainly to make us want things we otherwise would not have thought of wanting. Advertising could be restricted, for example, by removing its tax deductibility. Companies would simply no longer be allowed to write it off as a business expense.
These proposals are not free of problems. They are indications of direction, not blueprints for legislation. Whatever readers may think of them, they are at least an attempt to develop a collective vision of the good life. To instead simply blunder on without considering what wealth is for is an indulgence we can no longer afford. The greatest waste confronting us is not one of money but of human possibilities.
(Robert Skidelsky is an emeritus professor of political economy at the University of Warwick and the author of a three- volume biography of John Maynard Keynes. Edward Skidelsky, Robert’s son, is a lecturer at the University of Exeter, specializing in aesthetics and moral philosophy, and writes the column “Words That Think for Us” in Prospect Magazine. This is an excerpt from their new book, “How Much Is Enough? Money and the Good Life,” which will be published on June 19 by Other Press. The opinions expressed are their own.)
Today’s highlights: The editors on how Bahrain can model Mideast reform and why Ben Bernanke should ease more; Jonathan Alter on a new Obama campaign mantra; Stephen L. Carter on the failures of capitalism; A. Gary Shilling on why the strong yen won’t last; Takeo Hoshi and Anil Kashyap on Japan’s nuclear safety; Dmitri Trenin on the risk that Russia and China ally against the U.S.
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