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.