Thursday, 16 January 2014

Becker or Beccaria?

There once was a young marquis who didn’t know what to do with his life. Fortunately, two older friends took him in hand, found him a journal to write for, and a cause to champion: the abolition of the barbarous punishments of an earlier epoch that had trespassed into the Age of Reason. The friends conceded to others that the young man ‘knows nothing of our criminal system’ and that  ‘… writing is laborious for him, and costs him so much effort that after an hour he collapses and can’t go on”.  But no matter:  “When he had amassed the materials” they ‘wrote it out, arranging them in order, and made a book out of them’ (Pierro Verri quoted in Paolucci 1963 xiv). In 1764 On Crimes and Punishments appeared, nominally written by Cesare Beccaria but in all probability by Pierro Verri, given Beccaria’s suspicious near zero productivity in the subsequent decades. But however anticlimactic his later career, Crimes and Punishments gave Beccaria a hugely successful entrĂ©e into the republic of letters.

The timing was, after all, perfect. In 1762  - just three years after Adam Smith had announced that even the ‘greatest ruffian’ is not without the principle sympathy -   a blameless calico merchant was broken on the wheel at the order of a tribunal of Toulouse nobility. Voltaire stormed at this outrage, and in 1764 the King annulled the terrible sentence. Thus Crimes and Punishments is very easily seen as  a shriek of the cult of sensibility against the official violence of the day. But there are other interpretations. Henry Paolucci takes the book to be an act of complaisance of a renegade noble, simultaneously gratifying the bourgeois and pleasing the absolute monarchy by deploying a bourgeois rhetoric to justify the extinction of aristocratic prerogative (Paolucci 1963). Bentham took it as the kernel of his philosophy, and historians of ideas prize it as a fountainhead of utilitarianism. I would suggest Becarria is recognizable as a prototype of the criminologist of our day: Becarria almost totally ignores crimes of violence, and construes legitimate punishment purely as an act of social efficiency. He accommodates no notion of equity as foundation for punishment: “an eye for an eye” - most palpably a principle of equity – is as alien to him as it is to the current criminological mind set.

But the author of the volume under review has a different use for Crimes and Punishments.  For Harcourt it is device to launch himself at his overarching target; policies of deregulation and free markets. His point of impact is the Economics of Crime, with its seemingly Benthamite logic and its ‘Chicago’ provenance. Some how, it is insinuated, Becaria will be the key to Becker, and all that spells.

Harcourt turns the key, but, regrettably, the lock doesn’t move. Harcourt immediately notes the incongruity between Becker and Beccaria. Beccaria may have been Benthamite avant la lettre but he was no economic liberal. And this is no surprise: utilitarianism  - the maximization of aggregate utility – amounts to an infinitely ramified prescription of what should be done, and is consequently perfectly totalitarian in implication.

And Chicago is not Benthamite, anyway. Its normative axiom is Paretianism not utilitarianism, something quite different. And its distinguishing axiom is a positive one:  a panglossian assumption of ‘efficiency’. Stigler, Becker etc do not merely seek efficiency, desire efficiency, hope for efficiency. Rather, they hold everything is efficient. Whatever is extant is efficient. And this applies to regulation as much as anything else. In the United States sugar regulation has been extant since 1789. And, consistent with his tenets, Stigler in a posthumous publication defended the appalling thicket of regulation engulfing this industry (Stigler 1992).

I venture to doubt whether the author approves a protection racket – in all senses of the term - that drives up sugar prices for hundreds of millions of consumers to the benefit of a tiny group of producers with politicians in their debt. But I am even more ready to wager the author of the Illusion of Free Markets would pour scorn on any move to deregulate that industry. For it is his evident conviction is that every economic encounter is and must be rigged, fixed, sewn up. He is possessed of a nihilism about the very possibility of the abolition of privilege, the symmetrical treatment of parties. This is not simply a nihilism about the attainment of an ideal, but even about the merely closer approach to the ideal.We are permanently trapped, it seems, in abusive associations. It is perhaps not surprising that this drastic nihilism is asserted rather than argued. What would be the argument? The frequent observation that to play is to have rules is no argument for this nihilism. Neither is one provided for by the author’s learned and curious history of 18th century regulation.

Harcourt, Bernard E (2011), The Illusion of Free Markets: Punishment and the Myth of the Natural Order¸Harvard University Press.

Paolucci, Henry (1963) ‘Introduction’ to On Crimes and Punishments by Cesare Beccaria, Indianapolis : Bobbs-Merrill.

 Stigler George J. 1992  ‘Law or Economics?' Journal of Law and Economics, 35( 2), pp. 455-468.

Wednesday, 1 January 2014

More is Less: the Australian Productivity Miracle

Here is the news:

Australian economy is now less productive than it was 10 years ago.

Let me spell that out: for a given quantity of labour and capital, Australia is now producing less than it was a decade ago

And not just a trifle less; 5.18 percent less, to precisely report (the inevitably approximate) estimate of the Australian Bureau of Statistics. (5260.0.55.002 Estimates of Industry Multifactor Productivity, Table 2, 6 December 2013).

How has this remarkable feat been achieved?  How - in the face of a decade of technical progress - has Australia managed to produce 5 percent less per unit of input than it was in 2002/3?

Several candidate explanations will not serve as answers. There has been no continuous succession of destructive ‘acts of God’ (droughts, flood) over the past decade, which would blunt the impact of impact of improving technology. Similarly, there has been no unremitting upward trend in the price Australia’s pays for the raw materials it imports, which would have the same effect. (GDP, remember, is the amount of income derived from the application of factors of production, and less income will be drawn for any given application of factors if imported raw materials cost more). Finally, ten years is long enough, presumably, for factor markets to be in equilibrium on average, and pay each factor what it adds to production: an implicit assumption of the ABS measure of ‘multi-factor productivity’.

Finally, the dismal productivity performance occurred over both Liberal and Labor governments; though the performance under the Rudd-Gillard epoch is worse than the Howard’s last five years. Consider the percent change in ‘multi-factor productivity’ year by year:

2002/3              -0.2
2003/4             1.1
2004/5             -1.0
2005/6             -0.6
2006/7             -0.7
2007/8             -0.8
2008/9             -1.7
2009/10           0.1
2010/11           -1.3
2011/12           0.5
20012/13         -0.8

Here is my shot at this unwelcome marvel: the resources boom is to blame. It has given Australia gratuitous windfall income, and the entirety of society has taken this income out in the form of leisure on the job. 

Whatever the cause, the ABS data is grist for a picture of creeping somnolence consuming Australia.