Politics

Q&A: Joseph Heath

An interview with the University of Toronto economics philosopher

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• 5,523 words

Joseph Heath

A lot of popular theorists sell themselves by making their audience feel smart. Call it the “Platitudes for Dummies” formula: establish your credentials, and then tactfully explain to readers what they already know. Joseph Heath is the opposite, spinning good reads out of very complicated ideas. A professor at the University of Toronto and the author of three meaty, but very engaging popular works—The Efficient Society, The Rebel Sell (co-authored with Andrew Potter), and now Filthy Lucre: Economics for People Who Hate Capitalism—Heath respects his readers’ intellectual curiosity, and shows them a good time without resorting to glorified common sense. He possesses a rare combination of talents: an appreciation for the nitty-gritty, and the ability to translate even the most difficult ideas into an accessible language. On top of that, he has an earnest desire to set the record straight.

This explains why Heath, whose background is in philosophy, has produced one of the finest economic primers to engage the twenty-first-century layperson. Filthy Lucre is substantive, first and foremost: it goes down easy, but not at the expense of solid facts and cogent arguments. Second of all, it’s ideologically sensitive. Heath understands the leftist aversion to economics, but he wants capitalism’s opponents to understand the system they hate, and make better arguments for its improvement (he’s often taken arms against liberal naïveté—for instance, The Rebel Sell, his and Potter’s critique of the counterculture, which would have saved me a lot of time had I read it as a teenager). Though his sympathies edge toward the left of centre, he courts right-wing readers with a similar understanding. As a result, there’s no reason to read it with one eyebrow raised. The book, which addresses right- and left-wing fallacies in sets of six, is refreshingly free of ulterior motives.

I should mention that I am a member of his target audience. Born and raised a small-l liberal, I demonstrated my way through high school assuming that the power of my conscience would make up for my deficient grasp of the Bad Things I hollered about. Several years later, when the subprime mortgage crisis began to look serious, I tried very hard to redress the oversight and become “economically literate”; at best, I got to a provisional understanding of the economic concepts I could no longer fake my way through. Wikipedia proved more useful than many of the popular texts on the market: either they didn’t tell me anything meaningful, or they told me something I didn’t like but lacked the competence to rebut. By contrast, Filthy Lucre provides a clear-as-day explanation of what you could try for years to figure out.

Some of the lessons are painful—price manipulation tends to cause more harm than good, global trade is not just exploitative, and capitalism is actually much better than any existing alternative—but Heath attacks misguided policy prescriptions and fallacious arguments, not the moral qualms they spring from; he thinks that good intentions are best acted on with good background knowledge. For every bitter pill, there’s an argument that provokes an instinctive “right-on” reaction by articulating what you might feel but don’t know how to say.

I think one of the reasons I enjoyed the book so much was that I trusted you—there wasn’t that sneaking suspicion that if I accepted your arguments, I’d be suckered into a conclusion contrary to my values. Is this the kind of paranoia that keeps a lot of lefties from learning the basics of economic theory?

Joseph Heath: Absolutely. People have this sense that if they buy into economics, even the elementary premises, they’re going to be forced to accept some sort of Cato Institute view of the world. I think that part of persuading people to take it seriously is to start with the end point, and show that you can actually study economics and accept the basic principles, and nevertheless wind up with something morally tractable. There are lots of economists, people like Joseph Stiglitz, who are conventional economists in the sense that they accept the basic neoclassical framework, and yet they have very left-liberal views of things. Lots of people spend time trying to defend the labour theory of value, the old classical paradigm, because they think that to be a radical economist you have to opt out of the standard framework that’s used in contemporary economics, and that’s simply not true.

Since writing the book, watching the crisis unfold, how do you feel governments have handled their economic imperatives?

The situation in Canada is very different than the situation in the United States—there has been a certain amount of “crisis envy” in Canada. There is this inclination to think that the United States is just the purest form of capitalism, and therefore all social pathologies that show up in the United States will eventually show up in every other capitalist society, which is really the wrong picture of things. The United States is this sort of little experimental offshoot of Western civilization, where they do all kinds of things that nobody else imitates—therefore, they wind up with all kinds of problems that nobody else gets. In the United States you saw the complete collapse of the investment banking system. In Canada, none of the banks were threatened at all in their solvency. Therefore, what Canada got was a dramatic decrease in exports to the United States, and so we had a completely different kind of recession. But there’s no problem in the credit sector, there’s no problem in the financial sector, which is the “lifeblood of the economy” [laughs].

I don’t think it’s unreasonable, much of what Canada is doing. I would prefer that the Conservatives spend the stimulus money on more socially productive things. A recession is the one time where [standard] economics get reversed, and suddenly a lot of things that are bad become good—running a deficit, profligate spending. And in Canada, we seem to be getting recessions once every twenty years, so it really is like a once-in-a-generation opportunity to spend all kinds of money on public works. It is kind of tragic having a party in power that has no positive agenda whatsoever, and no idea how to spend money. Although frankly, it’s not obvious that they even need to be engaged in fiscal stimulus right now, because they still have monetary room.

Do you think the Left has reacted in an economically sensible way?

I haven’t seen much coming out of the Left on this. This is actually a phenomenon in North America and in Europe, which maybe in retrospect will be dissected: the Left has singularly failed to profit at all from the economic crisis—which, when you think about it, is kind of extraordinary. I mean, capitalism almost blows up, and the traditional critics of capitalism don’t seem to get any mileage out of it. People were particularly struck by the last round of European Parliament elections, where all of the left-wing parties got dealt a setback. It’s certainly the case that the liberal Left has benefited enormously from the crisis, the Keynesian Left, but the radical left has not benefited particularly well. Partly because they haven’t had anything that useful to say in terms of what they might do differently. So there’s been a lot of I-told-you-so’s, but there hasn’t been a lot of, “Here’s how we’re going to fix it.”

Thus Filthy Lucre.

The problem is that when you have a crisis like this, which is complicated, even understanding what happened, why it happened, and why it generated a recession is subtle, and requires, really, the framework of neoclassical economics. Having opted out of that framework, people are poorly positioned to even understand what happened, much less to recommend any kind of regulatory solutions to it. How are you going to stop the problem from happening again? You have to be able to get into the nitty-gritty of how financial markets work, and how central banking works, and so forth, to address that. But the Left, broadly speaking, has no opinion on central banking. People barely have an opinion on the tax code. Those are the questions that become relevant when you have a crisis like this, and often people are sort of intellectually poorly equipped to have opinions on the matter.

It’s interesting, it seems like the reviews and the interviews you’ve been doing for this book have been positive—leftists in general seem very supportive of the project and eager to take their medicine. On the other hand, when you wrote The Rebel Sell, you got a lot of pissed-off reviewers who thought that the book was too conservative.

The Rebel Sell didn’t get a single uniformly positive review. Filthy Lucre has received almost suspiciously positive reviews. Partly because people think it’s even handed. I think part of the reason why people like it on the Left is that they don’t tend to have worked-out views on any of these economic questions. People have very, very abstract and schematic views, about profit being bad and so forth, but there’s a lack of sophistication in people’s economic thinking. So when you start producing arguments that break things down a little bit, people sort of go, “Oh, that’s interesting, I’ll have to think about that some more,” because they haven’t thought about it. Whereas all the cultural stuff that we were talking about in The Rebel Sell, everybody already had an opinion on. And that’s actually part of the problem that we were trying to diagnose in that book, which is that the Left got sidetracked into cultural politics because of the counterculture. As a result, people have these intense views on all kinds of things—you know, the politics of the Burning Man festival—and they don’t have any views at all about central banking. Well, in the grand scheme of things, what happens in central banking is actually way more important than what happens out in the desert.

What accounts for the shift towards cultural thinking?

Part of it is what we diagnosed in The Rebel Sell. It also has to do in part with the fact that back in the nineteenth century, when Marx was writing, it seemed as though capitalism had inherent crisis tendencies, and by studying economics you could sort of find out why the system was going to collapse. But post-Second World War, with the success of the welfare state, people became increasingly persuaded that the system wasn’t actually going to collapse, and that the state was perfectly capable of managing. So an idea developed in the sixties that there was this complex technostructure that included the state, and the economy, and so forth, which were all part of this unified repressive complex. And if it was going to have crisis tendencies, that those crisis tendencies would be outside of the economic and the bureaucratic sphere—maybe, for example, in the cultural sphere. So there was this move towards the view that, first of all, the pathologies of modern society were much broader than just the problem of self-interest in capitalism, that they involved some kind of instrumental rationality or technocratic consciousness—there was this broadening of the diagnosis of the pathologies of modern societies. Accompanying that was the view that the system was actually much broader as well. It wasn’t really important to learn the details of the system, because you weren’t interested in tinkering with it, you were interested in overthrowing the whole thing. There were a lot of currents that pushed people away from becoming familiar with the economics of the day.

Could you say that by approaching economics from a social angle—discussing not only the concepts, but who gets them wrong and why—you’re sort of spoonfeeding people who are reluctant to study economics straight?

I do that in my courses—there’s this course I teach, Markets and Morals, where I’m basically trying to teach basic economics to humanities students who would never take an economics course. A lot of popular economics books do that, spoonfeeding the model which is taught in economics 101. I quite self-consciously don’t do that in the book. The book is organized around essentially areas of moral concern, [particularly] in the second half of the book, where I talk about left-wing fallacies. So while it’s nominally organized around fallacies, it really is concerned about moral issues that people raise with capitalism. The status of profit, the justice of prices, the justice of wages.

How does your philosophical background influence your take on economics?

Well, two things equip philosophers to comment on these things. The first is that philosophy has always been concerned about rationality, and there are centuries of debates in philosophy about the nature of practical rationality. So when philosophers encounter the economic model, they instantly recognize it as one particular theory of practical rationality—what economists are doing is taking one theory and sort of pumping it to see how much they can get in terms of predictive value. When you discover limitations on the predictive value of that model, economists often say, “Oh, don’t know what to do now,” because their disciplinary specialization is that they apply this one model. But a philosopher looking at that is likely to say, “Oh, OK, you’ve run out of options for that model—how about this one?” In other words, there’s a whole repertoire of conceptions of practical rationality available within philosophical literature, many of which can be operationalized and applied to economic phenomena, broadly construed.

There’s a reason why economists are sort of hostile to certain moral concerns that people have had. And not just economists. In the ’60s and ’70s, which was the heyday of positivist social science, where people were trying to emulate the natural sciences, there was a very powerful disciplinary push toward establishing the intellectual respectability and the scientific credentials of the social sciences. There was this incredibly powerful taboo about talking about obviously normative questions, questions of social justice, or even distributive justice, and economists kind of got around that by claiming that efficiency was a non-moral value. All that stuff got purged from the social sciences, so often those sorts of investigations wound up being pursued in philosophy departments, or if economists wanted to write about them, they wrote about them in philosophy journals. So there’s this long-standing tradition of reflection on normative questions that wound up being sort of ghettoized in philosophy departments—that’s broken down significantly over the past couple of decades, but for a long time it was the case. Often philosophers are people who have some background in thinking in a rigorous way about, for example, questions of distributive justice, because that’s part of their training. Whereas if you come up in an economics department, often you get no training on those questions.

I should say that I found a lot more substance in this book than in other popular economics books I’ve read, where it’s sort of common sense regurgitated back to you by someone smarter than you are.

A lot of popular economics books are written by people who are sort of right-wing, centre-right-wing, who are sort of broadly complacent from the moral point of view—they’re morally reconciled to the world. Therefore they approach economics in a kind of whimsical way, where it’s like, “Oh, isn’t it interesting!” You know, “Have you ever wondered why eggs cost more than…?” Because to them, economics is sort of a neat decoding of the world in which they live. Which is fine and everything, but there are a lot of people who have very serious moral concerns about various aspects of the way our society is organized. Therefore, economic questions are deadly serious questions—they involve life and death for millions of peasants in the third world, it really matters, these questions of social justice arise, and a whimsical style is not really appropriate for addressing those types of moral concerns. A lot of popular economics completely misses that constituency, because either it ignores the question or treats it as being just emotionalism. What I really wanted to do with the book was to take the moral concerns seriously, and to show how serious economics addresses the serious moral concerns that people have about capitalism. And some of the concerns survive the scrutiny, whereas other concerns don’t.

I could give a really technical example of this: take the book The Corporation and the movie that came out with it. I thought that the movie was essentially duplicitous, and the book as well, in the sense that it was consciously misleading and intellectually irresponsible. It’s all about profit-seeking on the part of corporations, and it does not once mention the invisible hand, competitiveness, any of the arguments that have been advanced for the last 200 years about the desirability of market economies and so forth. The big bump in The Corporation is limited liability, and the thinking is that because corporations have limited liability, they engage in this socially pernicious and irresponsible behaviour. And that kind of sounds right on face value, but all limited liability means is that if you own a couple of shares of Bank of Montreal, and Bank of Montreal goes bankrupt, you lose your shares—the creditors can’t come and seize your house and your car. So limited liability is a completely spurious concern. It’s what allows pension funds to hold a couple shares of this and a couple shares of that without the risk of people losing their homes. It’s an absolute no-brainer that corporations should have limited liability with regard to the assets of investors.

But there is a separate issue, and it’s that public corporations have limited liability for tort as well. Say I’m invested in a corporation, and the corporation causes an environmental catastrophe, and say people sue the corporation. What limited liability for tort means is that they can only go after the assets of the corporation—they can’t go after my assets. That, in fact, is a serious restriction, because perhaps the corporation has been secretly polluting for decades, and we the investors have been extracting windfall profits from the fact that we’re engaged in these activities. And that is arguably not only unjust, but a serious encouragement towards irresponsible activity on the part of corporations. So within the scope of limited liability, there’s this red herring, but there’s also a legitimate issue that arises, and there’s actually an active discussion about whether or not that should be modified. This a small example of the way looking at things from an economic perspective affects your ideological commitments. Some of them don’t survive, but some of them do, and they’re obviously much stronger concerns if you can articulate them in a more careful and precise language.

It seems like your point is that capitalism really does work in principle—that the market in its purest form is just an effective mechanism for organizing transactions—but many of the left-wing gripes, however legitimate, aren’t about capitalism as much as the unpleasant consequences thereof, or glitches in the system.

One of the things I learned from David Gauthier, and from Hobbes, is that cooperation is very, very hard. When I was younger, I thought that all it took was common sense and good will to get people to cooperate, and part of just getting older is I’ve become increasingly despairing of the possibilities of spontaneous cooperation. I think that over the years I’ve become impressed by people’s ability to engage in collectively self-defeating behaviour; that is, you get stuck in prisoner’s dilemmas, collective action problems, and people just will not stop.

For example, I think there is no chance of a regulatory solution to the problem of carbon emission. If global warming’s ever going to get fixed, it’s going to get fixed through technological innovation. The argument you hear from the poor countries is that all the carbon in the atmosphere right now was produced through the industrialization of Western countries, so when you do emissions targets, the focus should not be on annual emissions per capita, but rather on your contribution to the stock of carbon in the atmosphere. Therefore, China and India should be able to industrialize and produce as much carbon in that process as Europeans and North Americans produced in the course of their industrialization. Now that’s actually a pretty compelling view—it’s easy for us to say, now that we’re totally industrialized, “A-ha! Now we have to stop producing carbon.” But India and China say, “Look, the only reason it’s a problem is because you guys put all that carbon out there.” Now that is completely not the North American or the European perspective. The carbon in the atmosphere, we treat as being some kind of thing out there. If you look at the debate, to the extent that there is a debate in Canada, it’s all about annual emissions, it’s not about contribution to the carbon stock.

So you have a particular conception of justice, determining what’s a fair arrangement in North America and Europe, and you have another, fairly compelling view of justice coming out of the third world. I cannot imagine circumstances under which those parties would agree—it just seems inconceivable. And as a result, nobody is going to accept emission controls that are going to be binding at all. What we have is a global collective action problem that will eventually destroy the planet. And yet, if you look at systems of international trade that are mediated by the market, you have vast networks of completely global cooperation that involve free rider problems that are potentially just as serious, and yet the cooperation proceeds seamlessly. Why? Because there are well-established property rights, and there’s a market.

So part of the appreciation for the market comes from the recognition that cooperation is actually incredibly hard, and that wealthy industrial societies have only ever been created in two ways: on the basis of a market, or on the basis of a planning bureaucracy. The one that was organized on the basis of a planning bureaucracy was worse in every single respect than the market-based kind of organization. In other words, central planning was worse for the environment, it was worse for human health, it was catastrophic in terms of human death and repression, totalitarianism, and it was less egalitarian than, for example, democratic welfare states like Sweden. There’s no perspective from which planning was better, and so it’s all leading in the same direction, right? [laughs]. You can have pre-industrial civilization, which is irrelevant, because, you know, that’s not going to happen. So you haven’t got a lot of options. It’s just not obvious that there has to be another way of doing things. The default arrangement is that people fail to cooperate with one another, and you get a Hobbesian state of nature.

In other words, you might attribute a lot of the problems with capitalism to the fact that life’s a bitch.

[Laughs] I’m what they call a Left Hobbesian, that is, I think that Hobbes’s characterization of our natural propensities is fundamentally correct. Hobbes is a little too extreme, but I think what you get [in the state of nature] is total failure of any large-scale cooperation, and the atomization of society into small groups. That’s the default option. I think poverty is explained by failures of cooperation, war is explained by failures of cooperation—it would account for most human misery. And what we learn from that, and what you should make arguments in defence of—the various pillars of civilization like the welfare state—is in terms of their capacity to promote cooperation.

You get this criticism that capitalism is amoral, which is of no consequence, because it works—

I mean, I don’t even think that’s true. It’s competitive, in that the central mechanism of the market is competitive determination of prices. But competition is not the same thing as amoral interaction. A basketball game is not amoral merely because it’s competitive. It’s an adversarial institution, and within the toolkit of institutional strategies that are available to us, adversarialism is one option. Schoolteachers use it to motivate the kids. I mean, some people aren’t comfortable with that, like I had hippie parents that gave me cooperative Monopoly to play—anti-Monopoly. Cooperative games. And the problem with the cooperative games is that they were boring [laughs]. People feel varying degrees of unease with the use of competition to motivate people, but nonetheless, it’s part of the toolkit, and it’s been widely employed—universally employed—as a way of motivating people. Capitalism motivates people by creating staged competitions between firms that are highly structured. It offers people selective exemption from certain kinds of moral requirements, the same way that sport does. Normally you’re supposed to feel for pity for people who’ve been publicly humiliated, but when you’re doing the humiliating on the sports team, you’re not supposed to feel pity for them—you’re exempted from that moral requirement of sympathy. But that’s not the same thing as amoralism.

So the impression I’m getting is that the biggest mistake the Left makes is imposing its moral considerations directly on the market, which is more or less self-sufficient with regulatory oversight from government.

Yeah, often what happens is that people apply their moral intuitions at kind of the wrong level. There’s nothing wrong with having a reaction to first-order results that the market generates, but often people try to correct the problems by directly intervening at the first-order level. And because the market is a staged competition, you often can’t tinker around at the first-order level. What you need to do is tinker around at a higher-order level, with rule changes and so forth. So say you’re unhappy with the way NHL hockey is working out, the same teams are always winning the Stanley Cup or something like that. And so you think that there’s inequality in the way that the NHL is being structured. A first-order response would be to try a direct handicap, so that [successful] players had to play with one arm tied behind their back or whatever—you directly tinker around to change the outcomes. The problem is that that can have all sorts of perverse effects. So you have to address the first-order problems at the second-order level of rule changes. That takes a little more forbearance, because, first of all, it’s not directly addressing the problem, and second of all, you have to wait a couple of years to see if it has the intended effect. You have to be willing to sort of displace your immediate moral reaction, and endorse more abstract policy remedies. And willing to wait a bit and see what happens.

Another example would be with carbon. One of the arguments you often hear from people who oppose carbon taxes is that imposing a carbon tax doesn’t guarantee that you’re going to get a reduction in emissions. With cap-and-trade, you can directly specify how much carbon you want to emit—you control quantity and let the price vary. But with carbon taxes, who knows, maybe they’ll just pay the tax. Now, there is no question that if you put a tax on carbon, the amount of carbon used is going to drop. The only problem is that you have to wait and see by how much. Look, the City of Toronto put a five-cent tax on plastic bags, and there’s a seventy percent reduction in the amount of plastic bags being generated in the GTA. I mean, five cents! There are some people who cannot tolerate the idea that it’s going to be left to the market to determine by how much carbon will be reduced, which is, in my mind, kind of crazy. You have to be willing to let it ride for a little bit, and then if you don’t get the reductions you want, you increase the tax. I mean the tool is capable of doing everything that everybody wants to do. I think the mistake people make is wanting to directly resolve problems that are actually more effectively resolved indirectly.

All this in mind, what should progressives be worried about? Where are their efforts best directed?

I think over the course of the twentieth century, the Left has had a huge amount of success in terms of identifying the problems with capitalism, and kind of sounding the alarm. In other words, the kinds of issues that people have raised on the Left, along with the view that markets will not automatically fix them, have been pretty dead on, everything from race relations to environmental problems to wages. There was this view, for example, prior to the civil rights era, that markets would automatically eliminate discrimination. Why? Because any southern restaurant that doesn’t serve black customers will be losing money, and therefore the restaurant across the street that does serve black customers will put them out of business. Tom Flanagan in the Globe a couple months ago made exactly the same argument about discrimination law, that there’s absolutely no need for discrimination law in the workplace because firms that are passing over talented women or talented visual minorities will be at a competitive disadvantage. And the Left said, right from the beginning, that that argument was wrong because it failed to accommodate the way in which social norms function, and the fact that businesses may essentially collude not to compete on those grounds. Which is exactly what happened with southern restaurants, which is exactly what happened with employers, and so on. It’s the same thing with environmental questions. I remember when I was younger, environmental stuff was kind of exotic, nobody was worried about it. And it turns out, what do you know, it is a huge problem. So the Left is extremely good at diagnosing flaws in the system, it’s just that because of, often, a lack of sophistication in economic reasoning, people have invented totally crazy stories about what’s actually generating these defects. And as a result, the policy prescriptions that come out of the Left are often just terrible.

People complain about the Liberals stealing ideas from the NDP, and it’s often true, because people closer to the centre of the political spectrum often have a better theoretical understanding of what’s actually causing the defects in capitalism that the Left is identifying. What generally happens is that the Left sounds the alarm about something, and then leaves it to centrist parties to actually go out and fix it. I think the issues that the Left identifies are all real issues—I mean, environment, poverty, social justice—they’re all real issues [laughs]. So nothing needs to be changed in terms of that focus, people just have to get more serious about the social science required to figure out what causes the issues and how to fix them. And you have to be willing to engage in social science done by people whose views you find objectionable. In other words, sometimes the right-wing sociologists are actually right about what’s causing a particular social problem. It doesn’t mean you have to be right wing to accept that.

So the Left might benefit from knowing its own limitations.

Yeah. And also, realizing that the world is in flux, that there are certain kinds of arrangements that made a lot of sense thirty years ago that maybe don’t make sense anymore. For example, privatization of electricity generation. There’s a compelling argument for having the distribution grid be publicly owned. And when I was young, there was a compelling argument for electricity generation as well to be publicly owned. But in the last twenty years, there’s no longer a compelling case, because it’s not a natural monopoly. In fact, environmental stuff is pushing in exactly that direction, because if you want to be able to feed the grid from your solar arrangement, you’re basically a private electricity generator. The old-fashioned view that all electricity needs to be public sector was based on technology that has completely changed. So people need to be flexible, to realize that even though your moral view hasn’t changed, the consequences of that moral view—state activities, the private sector, etc.—that changes.

Alexandra Molotkow, a former Walrus editor, is the senior editor of Hazlitt.