Economic Human Rights, Not Tough Policy Tradeoffs

Martha McCluskey —

According to conventional law and economics wisdom, problems of economic inequality are best solved with targeted redistributive spending, not universal human economic rights. A political economy perspective suggests the opposite: that legal rights are crucial for economic justice.

Orthodox law and economics tellsus: all rights have a cost.  Law allocates economic gain, but cannot generate it, in this view.  From this premise, any new economic rights aimed at supporting those who are disadvantaged must come at the expense of some other economic gain.  For example, a universal right to affordable health care would simply mask an inevitable tradeoff in public and private spending:  fewer resources for education or jobs.  In addition, in this logic, an economic entitlement to receive basic human support will replace market discipline with incentives for waste, reducing economic resources overall.

What orthodox law and economics doesn’t tell us:  all costs have a right.  That is, any costs associated with new economic rights arise not from essential economics, but instead from contingent legal and political arrangements. Particular legal and political regimes produce, organize and limit access to human needs like education or health care. Law itself shapes the economic forces that appear to be disrupted when law re-allocates rights to advance general human needs.

On the question of health care, for example, a complex system of legal rights and institutions already protects economic gain for some at the expense of health and economic security for others.  Legal systems distributing risks and rewards in health care include patent rights, insurance regulation, corporate governance rules, antitrust law, criminal law, and tax policy. Moreover, these legal rights are not firmly settled or self-evident, but instead are continually questioned and modified, especially in response to lobbying, litigation, and advocacy by industry interests.  New rights to egalitarian economic support can similarly re-arrange economic gain and loss as a legitimate and beneficial function of democracy.

Further, we should not presume human economic rights amount to zero sum transfers or costly economic distortions.  That conventional law and economics thinking rests on the myth of an essential market order that transcends law and politics, thereby closing off analysis of how re-structuring the market could generate far better economic conditions.  But a more complete law and political economy view recognizes that entitlements do not come at the expense of naturally productive market activity; instead, entitlements generate and govern market production. New legal rights can give people new power to resist existing market constraints, and that transformative power can lead the economy to new levels of prosperity and stability. Continue reading

Free Trade Free for All: Market Romanticism Versus Reality

Jamee K. Moudud – 

The drama surrounding President Trump’s decision to impose import tariffs on steel and aluminum has roiled the Republican Party and wide swathes of the corporate elite. The tariff decision comes on the heels of political bluster about the US being treated “unfairly” by other countries. This accusation of “unfairness” when it comes to US trade deficits is well worn. In a previous era, Japan was the alleged culprit of “unfair” trade practices because of its persistent trade surpluses with the U.S.

This type of political theater draws on a romanticized view of international trade and its persistent conflict with empirical reality. As an explanation of global trade relations,  the Heckscher-Ohlin-Samuelson (HOS) model of foreign trade relies on both of the standard neoclassical assumptions about “efficient” markets. First, it assumes perfectly competitive markets, composed of many, small firms, each without any  ability to set prices. Second, it assumes that there are zero externalities to economic transactions, meaning that transactions do not have any un-priced, third-party effects. And of course, the model assumes the economy  is fundamentally based on barter, according  no roles for money, credit, and effective demand. The absence of money implies that there is no possibility of an increase in liquidity preference (a term coined by Keynes to describe the desire to hold cash rather than illiquid assets) in uncertain times and thus no possibility of shortfalls of effective demand. Together, these propositions of the HOS model predict that a legal framework of “free trade” will produce balanced trading relationships on the international level and full employment in each domestic economy. Significantly, assuming that there is perfect competition implies that firms in each country, regardless of its level of industrialization, have access to the same technology needed to produce goods for the international market. Perfect competition implies that no firm injures others, a point of view that has been challenged by many authors. (See the edited volume by Moudud, Bina, and Mason Alternative Theories of Competition: Challenges to the Orthodoxy). The core aspect of the broad alternative perspectives is that firms do seek to damage each other by attempting to take away market shares via price-setting and cost-adjusting processes. This has nothing to do with either “perfect” or “imperfect” markets.

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Whatever Happened to “Just Prices?”

Robert Hockett – 

Are prices the sort of thing that can be fair or unfair? It seems to be common to assume so. Health care is said to cost too much, unhealthy foodstuffs to cost too little. Air and water, we say, should be free. Maybe college and health insurance should be as well?

Yet while we frequently hear and say such things in informal settings, many in more ‘serious’ company appear to concede that prices can no more be fair or unfair than the number seven can be yellow or green. There are only individual preferences – my wish to pay less, your willingness to pay more – and market prices that all of us ‘take’ and don’t ‘make.’ In this foundationally critical matter, so closely bound up with the way we meet needs in a market economy, it seems we are most (if not all) of us neoclassical economists now.

But do we really have to give up the idea of fair prices? In a forthcoming paper, Roy Kreitner and I say, Not so fast. We interrogate and rehabilitate the idea of fair prices in part through a critical look at its recent history, and in part through a look at the ways in which prices are actually determined in contemporary economies. We abjure, however, any attempt to link this inquiry with ‘just price’ theory of the sort that flourished, in a number of forms, before the so-called ‘marginalist revolution’ of the late 19th century – the revolution that purported to slay what we used to call ‘political economy’ and birthed ‘economics.’

In this post I aim to fill-in that gulf and trace some connecting lines. For it turns out that our attempt at a ‘just price’ revival has a venerable and unjustly forgotten pedigree in hardcore just price theory of the pre-marginalist variety.

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