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Filthy Lucre: Economics for People Who Hate Capitalism

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Joseph Heath is a philosopher who has studied a lot of economics. His exposition of economic principles is highly accurate, and he delivers his message with a rare sense of humor. Heath's natural tendencies are towards left-wing anti-capitalism, but experience has taught him the pitfall of the proposed alternatives to the capitalist market-place. He wants us all to get the message not so we will stop seeking a better world, but rather so that we will seek a possible rather than an impossible world.

"Economic illiteracy on the left," says Heath, "leads people of good will to waste countless hour promulgating or agitating for schemes and policies that have no reasonable chance of success or that are unlikely to actually help their intended beneficiaries.'' (p. 5) He gives the example of a documentary on worker cooperatives in Argentina. "While the material is quite affecting and some of the footage is remarkable, the events of the film are presented in what can only be describes an intellectual vacuum...You would never know, watching the film, that there is an extensive economic literature on the subject of cooperatives---written by socialists and nonsocialists alike---dating back over a century, that raises serious doubts about the possibility of structuring an economy along these lines." (p. 5)

Heath begins by asserting that there has been a real "end of ideology" narrowing-down in the past several decades of substantive disputes concerning how an economy should be run. "There is a stark difference," he notes, "between [the current] ethos and a time when mild-mannered, middle-class people actually thought it might be helpful to tear down various pillars of Western civilization and rebuild everything from the ground up." (p. 23) This is precisely the case, in my estimation. And for this reason, the standard ideologies of the Left and the Right are irrelevant and misleading in attempting to deal creatively with contemporary economic problems. "The scope of state action," Heath observes, "and the appropriate level of taxation cannot be settled at the level of political ideology; they now depend upon the answer to empirical questions concerning the occurrence and severity of collective action problems and the effectiveness of government in resolving them." (39) Oh, if only our ideologues of Left and Right only understood this, and turned their impressive intellect and social commitment to solving real problems in really solvable ways!

Heath is duly critical of traditional economic theory's hostility to the notion that morality plays a role in the economy. "Levitt and Dunbar," he writes, "repeatedly draw on an invidious contrast between "morality"--described as "the way we would like the world to be"---and "economics"---the study of how the world actually is. The message is pretty clear: Morality is for girls. Economics is for tough guys, who are able to stare the world in the eye and come to terms with the things are." (p. 48) Even more pithy, he writes "Social scientists who take morality seriously are called "sociologists," whereas those who think it's all a scam call themselves "economists." Of course this is somewhat tongue-in-cheek because the rise of behavioral economics in the past two decades has returned morality to the economy in a big way, as Heath spends the rest of the chapter assuring us.

Some of what Heath tells us in this book is so obvious that it is painful to recognize it bears repeating. Here is Heath on so-called Tax Freedom Day: "Every year, in dozens of countries around the world, right-wing anti-tax groups calculate and the solemnly declare a "Tax Freedom Day," in or to let people know what day the `stop working of the government and start working for themselves.' ...You're not really `working for the government' when your kids are going to public school, you're commuting on public roads, and you expect the government to pay your hospital bills when you're old and infirm. You're simply financing your own consumption." (p. 90)

To explain international trade (against the protectionists and the anti-globalization people), Heath uses an explanation due to David Friedman: "There are two ways for Americans to produce automobiles: they can build them in Detroit, or they can grow them in Iowa....simply put the wheat onto ships and sent them out into the Pacific ocean. The ships come back a short while later with Toyotas on them." (p. 112)

Heath stresses correctly throughout the book that there are no known alternatives to capitalism. He doesn't tell us to stop looking, but he is completely intolerant of those who offer us warmed-over, historically failed, solutions. "Here's a question that causes proponents of worker co-ops some measure of discomfort: Given that they enjoy massive tax advantages in many jurisdictions, why are there not more of them? Furthermore, why are supplier and consumer cooperatives not more common?" (p. 190) The answer, of course, is that they are very inefficient except in certain small niche situations (e.g., law firms are generally partnerships).

Heath's analysis of wages is generally accurate and informative. The arguments are rather complex here, but he strongly supports the notion that trying to achieve social equality through mandating particular wage configurations (e.g., equal pay for equal work, "fair trade" coffee) is a losing proposition because such measures have unintended consequences that work against the egalitarian goals of the policies. Heath believes that one of the most anti-moral aspects of capitalism is that jobs are not paid their "moral worth," but rather what the market will bear. Heath identifies "what the market will bear" with how easily a worker can be replaced. Thus, the men that remove Heath's garbage and trash work a lot hard and for less intrinsic satisfaction than Heath does as a philosopher, but they earn far less. Heath argues that nothing can be done to correct this violation of elementary justice without causing even more violations of justice as well as promoting serious economic inefficiencies. This is correct.

Heath overstates this immorality, however. He repeatedly asserts that wages do not reflect the value of what workers create. This may be true if we use a concept of "intrinsic" value that deviates from market value. But if he means wages deviate from the market value of what the worker creates, this is essentially wrong. He supports the notion that wages are disconnected from the value of the product of labor by noting that a factory worker in a poor country might make 1/100 the wage of the same worker in a similar factory in a rich country, yet they produces exactly the same good. This may be true, but their marginal productivity could be very different. When the wage is very low, labor will be used very intensively and hence the marginal product of labor will be low. In equilibrium, the marginal product of labor just equals the wage. In the rich country, wages are very high so labor is used ", and its marginal product will be high---again equal to the wage.

In his treatment of poverty, Heath faults the Left for believing that "the only thing wrong with poor people is that they have no money." (p. 259) "Would that this were true," he notes, "since then we would know how to fix their problems. In reality, poverty tends to be a symptom, rather than a cause, of a much deeper set of problems. His treatment of this issue is very incisive and his use of the data is excellent. For instance, he notes that "There are empirical studies that examine how people handle large lump-sum cash transfers---such as lottery winnings or bequests---and the results are pretty devastating. A 2001 study in the United States suggested that about 70% of people who receive large lump-sum payments spend it all in the first two years."

My only critique of the book, and it is a serious one, is that Heath gives the impression that serious social problems and dislocations associated with economic growth have no cures at all. "This book lacks a happy ending" Heath asserts in the closing pages. The fault lies with Heath, not our economic system. It is hard to think of a serious economic problem, including poverty, global warming, environmental destruction, government corruption, gender inequality, and so on, that cannot be seriously and vigorously addressed and cured without imposing unacceptable economic burdens on people. This does not mean that such solutions are easy to carry out. They are not. But, they are difficult to achieve because there are powerful groups that gain from the status quo and will fight vigorously against any change that impinges on their prerogatives. The struggle for a better world is ineluctably a deeply divisive struggle of progressive grass-roots movements against the illegitimate powers that deprive people of what they need to live decent and productive lives. Heath's book is useful because he tells us some ways not to pursue this struggle, but it is demoralizing because he does not tell us what to do instead.

Joseph Heath is a Canadian philosopher at the University of Toronto. He wrote this book because he feels that economics is important and that those on the left have not spent enough time coming to grips with it. As a result they cannot spot the fallacies in the arguments of the right and they "waste countless hours ... agitating for schemes ... that have no chance of success or that are unlikely to help their intended beneficiaries."

Don't be put of by the sub title "Economics for those who hate capitalism". This book is excellent and deserves to be widely read by everyone with an interest in economics which, as Heath points out, should be all of us.

Heath deals to six 'right wing' fallacies and then subjects six 'left wing' fallacies to what he calls sympathetic testing of their economic plausibility. He discusses the role that governments play in setting the scene for markets, looks at incentives, competition, taxes, free trade and personal responsibility. He then examines pricing, profit, the impending 'collapse' of capitalism, equal pay, wealth disparities and leveling down.

His discussions of the Peacocks tail as an argument against the market is flawed although his use of game theory payoff tables is excellent. He overstates the case for state as opposed to contract based intervention in market creation and enforcement of breaches of contract. However, in my opinion these are minor issues.

His discussion on free trade is masterful and he has the grace to admit that he changed his mind on this from youthful opposition to free trade. Apart from a very light coverage of deadweight loss, his explanations of tax effects are excellent and his arguments for a social insurance model covering the welfare state provision of healthcare and old age pensions is thought provoking. He uses the 'moral hazard' argument to good effect when explaining a different view of personal responsibility and explains 'hyperbolic discounting' as the causal mechanism behind the apparent fecklessness of the poor. His discussion of some of the lessons from behavioral economics is clear and concise and his defense of the price mechanism would pass muster with von Mises. Along the way he skewers wooly headed thinking by Naomi Klein and John Ralston Saul.

Buy this book!!

Joseph Heath does a great job in Economics Without Illusions of dispelling economic fallacies. He addresses 12 common fallacies--6 from the right and 6 from the right. This is the kind of book someone in the middle of the political spectrum will love to read, as it is a very thoughtful analysis with no obvious biases. (Fair and balanced, if I may use those words). Heath discusses taxation, public goods (he refers to them as club goods),the minimum wage, comparative advantage,rent control, price manipulation, and a number of other controversial subjects in this book.

Heath also takes on some popular economic writers like Steven Landsburg (The Armchair Economist) and Charles Wheelan (Naked Economics) and shows how they have oversimplified the world. (Heath feels Landsburg has overestimated the effect of incentives on behavior). This book isn't perfect, I have one or two disagreements with Heath. For instance, his comparison of taxation with paying club or condo dues seems weak--you can withdraw from a club or association much easier than you can leave a country. Nonetheless, this is an enjoyable book that is well worth the price.

I am socially liberal, very conscious of global warming and generally don't mind Canadian level of taxes to effect some level of universal access to education and health care. But I despair of Left/Green parties being able to manage a complex economy. So I mostly vote right, trusting that our checks and balances will keep the right from rolling back social liberties.

I highly welcome this book, though I doubt it will have much effect on its intended audience, the Left. And I also doubt that the average Right voter will read it. Both would gain, though this book is an uneven effort.

In each of his 12 chosen subjects, Mr. Heath mostly has the correct basic idea and addresses popular and distressing misconceptions (6 on the right, 6 on the left). He makes his point quickly and points out what is dangerous about those false beliefs.

Where he gets in trouble, most of the time, is his analogies and his detailed opinions. Strangely, he seems better at dissecting holes in socialist dogmas rather than capitalist ones. Maybe because he is more familiar with them?

His chapter on wage analysis is brilliant and so is his analysis of consumption. Contrast that with the chapter on taxes. Sure, there are goods and services that are best procured at an universal level so the State is best equipped to tax and fund them. Not necessarily to provide those services, but he doesn't see that (you can have publicly funded health or education, delivered competitively by non-governmental entities, for example). But he makes it seem as if governments stick to only those services that need to be purchased and provided collectively. If only.

Still in the tax section, a rather silly statement that "no one cares about their taxes, only their gross relative salary". Is Mr. Heath that naive? People can emigrate when they see too much government takeaway, with uncertain value for themselves or for the community. I, and others I know, left France. Lots of Canadians left for the US in the 90s, what was then called the "Brain Drain", though some then realized that their lower taxes also meant more education and health care headaches.

He cites Sweden, but neglects to mention that it is a model of Socialist success in Europe. It costs a lot, but delivers the goods. Some other European countries also have lots of taxation but don't deliver much value to their electorate, though their public sector employees can do rather well.

Often, as I read, I got annoyed by the details while wholly agreeing with the overall idea. Reminding Libertarians that an efficient economy requires enforcement of rules is a case in point. It does, otherwise people will only trade with their close acquaintances. This is supposedly a reason for the elaborate socializing required in Asian businesses until recently - you'd better know your associates if you can't expect the state to referee efficiently and even-handedly.

But he then messes it up with a comparison to fish tail lengths in "unregulated nature". Fine, as far as that goes, but most species do not develop traits that are overly counter-productive, despite the superficially valid game theory arguments he employs. And I doubt trappers in North America spent quite as much time stealing from each other as he'd have it, collaboration would likely have set in quickly.

Another zinger: "no one would provide plumbing services if it wasn't for insurance". Well, maybe not in North America, but our fascination for liability coverage is not universally paralleled elsewhere.

Last, but not least, I found his analysis about compulsiveness as a root cause of poverty to be extremely harsh to the poor. An unjust and paternalistic generalization, in my opinion. If anything, it kind of shoots down his arguments for transfers through taxation, which he had painstakingly put together.

So, at the "big idea level", this is a good book. At the detail level, I often found sloppy argumentation and personal opinions that unfortunately detract from the very valid points he is making. What is also missing as a message leftwards is that a healthy economy, helped, or, even better, just not hindered, by economically savvy bureaucrats, means a sufficiently large tax base to allow funding of left initiatives.

3.5/5 stars.

Economic illiteracy in the U.S. is one of the big causes for the acrimonious politics. Economists are largely to blame for this as they have failed to communicate effectively with the public.

Economic illiteracy is the target of, "Economics without Illusions: Debunking the Myths of Modern Capitalism" by Joseph Heath. Heath is a Canadian philosophy professor and brings a refreshing viewpoint.

He claims that both the right wing and the left get it wrong. His book isdivided into six right-wing and six left-wing fallacies.

The right wing is wrong in thinking that the market can get along without government intervention. Heath shows that the market itself is a creation of government and intimately involved in keeping it free and competitive. Even if the government's involvement was reduced to just enforcing the rules and keeping records, that entails an enormous expenditure of billions of dollars. He makes the point that "this is a social program. If we are willing to support the
regulation of the market, why not other social programs benefiting education and health care, etc?

Heath agrees that the heart of the left-wing is in the right place in wanting to do something about poverty. But he claims that the methods they often propose, like tinkering with wages or prices, often end up doing more harm to the poor than good. He advises other indirect methods of eliminating poverty, especially by improving health care, housing, public health, and education.

While Heath sees the market as the most efficient method we have of distributing goods and services he admits it is less than perfect in distributing wealth. Calling poverty "intractable" and admitting that most people are not paid according to their contribution to society, he offers few solutions other than urging us to remain vigilant to effective changes.

His treatment of poverty is disingenuous, blaming the poor for their poverty, this in spite of admitting that poverty is part of the system. He is much more generous in giving others benefit of the doubt in explaining their irrational choices. While he goes to great length in describing how the poor refuse to defer pleasures for future gains, he gives no solutions other than saying we need to change incentives.

The poor not only have poverty they have to deal with, but also illiteracy, malnutrition, poor health, bad teeth, chronic pain, legal problems, and daily crises and addictions of every type. People suffering high volumes of stress often are not their best at making effective life choices.

The poor are not just victims of commercial exploitation, as Heath notes. As we have known since Aristotle, the costs of interest, profits, inflation, and credit are all passed down to the poorest workers, who do not create their own costs but absorb those of others. In a real sense, they are the engine of the free market, which cannot exist without this underclass. They pay for others' profits.

Heath accuses economists of ignoring the quality and and moral issues that effect the market such as environmental and health issues. We wonder about the efficiency of the free market in the distribution of food. Modern agriculture is very profitable, but very inefficient. It takes a gallon of gas to bring a gallon of milk to the table. Large agricultural and drug interests have conspired to give Americans a very poor diet, maximizing profits instead of health, causing levels of heart disease, cancer, obesity, and diabetes not seen in most other societies. Modern agriculture is also very wasteful. The beef industry, for example, is the greatest consumer of fresh water, requiring 1,500 gallons of water to bring one pound of beef to the table.

Also, can capitalism exist without arms sales and war? Can it exist without causing overpopulation and depletion of natural resources?

Heath says it helps no one to tax the corporations more than others, as they pass the tax along to consumers. We remember the 50s, however, when corporations were taxed up to 90 percent. They did not pay taxes. They instead took advantage of loopholes and plowed their profits back into production, creating the greatest growth rates in our nation's history and controlling executive salaries. What is wrong with that?

Heath asks the left to be more forbearing. We have put up with the inequities in our system for centuries. Heath helps us stay close to the data, but he teaches us is not to expect solutions from economists.

A great read and very common sense. The author dispels fallacies on both sides of the political spectrum in a no non-sense manner. I recommend this to anyone who tries to be an armchair politician or talk politics. Too much of politics is based on misunderstandings and fallacies and the author brings these to light. Recommended for every person that votes or ever wants to vote.
- Ian McHenry

So many authors speak as though their own biases reflect The Real Truth (even if their own biases are well-reasoned) that it is refreshing to find someone who really seems to be striving to arrive at What Is Real - by examining the two main viewpoints and critically discussing the weaknesses of each.

This deserves to be read carefully and each topic should be pondered by the reader, whether they agree with the topic's presentation or not.

Many topics are presented in ways that most of us probably haven't thought of, and many presentations provide us with additional tools with which to try to understand what is going on.

I did not give 5 stars because the author does not address what seems to be a new paradigm regarding unemployment - although in fairness almost no one else does either. He seems to say that the employment market will take care of itself eventually as folks shift to new opportunities created by free markets. However, to me it seems that many, if not MOST, of the jobs in the USA will eventually VANISH as technology increasingly replaces human employees. Obvious examples are farming (where a very few folks produce what used to take most of the population), manufacturing (same - where most assembly tasks remaining in the USA have been replaced with a very few machine tenders / programmers)- and on and on. While science fiction has been imagineing this for longer than most of us have been alive - this is finally beginning to impact society. It will be interesting to see if ANYONE will address this in any productive way.

Economics, as a profession, has done a poor job of communicating to a wider audience in recent years. By far the best exporters of economic thought have been non-economists like Gladwell, Ariely, and to a smaller extent Daniel Pink. Joseph Heath is more rigorous than those writers because he is a trained philosopher, but he is also thankfully free of philosophical or economic jargon that often contaminates the writing of most from the dismal science.

"Economics without Illusions" is one of those rare works of political and economic thought that has intellectual honesty as its guiding ideal, exposing and cutting down the worst economic fallacies of both the left and the right. And while Heath notes very early that "everyone has some moral intuitions that are implicitly if not explicitly anti-capitalist," he shows how that sentiment often leads to sloppy thinking such as "just price," "future discount," "compositional" and other fallacies.

While "Economics without Illusions" is admirably honest and even-handed it is also free of solutions to many of capitalism's inherent contradictions. To his credit, Heath does not try to whip up some sort of nostrum in the closing pages, and the lack of a clear new direction may be disappointing to some, but for me this was a welcome intellectual tune-up that I will no doubt be revisiting every few years or so.