Predistribution as Credible Commitment
In defense of deliberately suboptimal policy
Much has been made of the somewhat schizophrenic character of neoliberal political philosophy: are they dispassionate social welfare maximizers attracted to market mechanisms for their practical virtues, or propertarians improving lives on the side?Are strong property rights a tool for securing freedom, or do they constitute it? The standard answer is: don’t worry about it, when it’s time to give policy recommendations, politics proper can be set aside. They’re just here to, as Milton Friedman put it when asked to defend his Chilean escapades, “render technical economic advice”.
What this means, in the broadly left-liberal context of the Democratic Party, is that the arguments offered for economic liberalization are ostensibly utilitarian ones. Yes, weakening labor protections will hurt people, and yes, that’s bad - but it’ll generate enough wealth to make up for it. We can’t all win, but we’ll “compensate the losers”.
A recent NBER paper finds that the losers, for some reason, don’t much like this sort of thing: given a choice between distributionally equivalent “redistributive” (via taxes and transfers) and “predistributive” (meaning roughly labor market regulation and industrial policy) policies, less-educated voters are substantially more likely than their credentialed peers to prefer the predistributive option. "Basic income, not basic jobs" is, for whatever reason, a characteristically professional-class preference. This does not, of course, imply that the professionals are wrong - but it demands explanation.
The authors briefly offer a number of hypotheses. There is, as always, the twin specters of status competition and self-esteem, but there’s also the possibility they’re simply skeptical about the redistributive policies themselves. Both plausible, both no doubt contributing factors to some degree, but their relative importance is an empirical question that the authors leave unanswered.
The “classical liberals” themselves, however, are placed in a difficult situation. Admitting relative status effects as legitimate sources of harm would make the whole consumer economy into a single colossal externality, rendering it, by their own lights, a proper object of political action. Those prepared to bite that bullet have already defected to the center-left: global warming presents much the same sort of problem. Mont Pelerin’s rightmost flank, willing to abandon the pretense of value-neutrality and say “yes that’s a market failure, no I don’t care”, has similarly departed, joining up with paleoconservatives in their effort to roll back modernity altogether.
For the rest of them, there’s only one possible answer: the low-education voters are simply wrong. The standard variant holds that they are, in particular, misinformed: the clear solution is to shout “it’s Kaldor-Hicks efficient” louder and louder and louder and louder until the message finally makes it through their thick working-class skulls. But there are those who say no, that’s ridiculous, the masses have just the same skulls as you or I - the real problem is with their tiny working-class brains.
And it’s this theory, the myth of “the myth of the rational voter”, which has has led certain elements of “classical liberalism” somewhere far removed from liberalism in the classical sense. Hayek, defending Pinochet, said that he would “prefer a liberal dictator to democratic government lacking liberalism”. Thiel, explaining why he “no longer believe[s] that freedom and democracy are compatible”, condemned the “the unthinking demos that guides so-called ‘social democracy’”. And for David Friedman, far more radical than his father, “the best form of government is competitive dictatorship--the way we run restaurants and hotels.”
And it’s precisely because of the existence of people like this (and their smarter, subtler, more “moderate” allies) that I think the voters have a point. This is not to say that voters aren’t ignorant or irrational. Of course they are. But I think, at a gut level, the average person understands that there are powerful forces at work in this country which are not their friend and cannot be trusted. This instinct does not let them reliably identify who or why or how, and it provides much of the fuel for that characteristically American and thoroughly counterproductive paranoid style of politics, but insofar as it leads them to cling to whatever little power they have, it is absolutely correct.
Trading in your union card for a tax credit may be, in strictly financial terms, a good deal - but it’s giving up power today for a dollar tomorrow. Not all of it, of course - not the vote, which is in the view of the liberal idealists making the offer the main and most legitimate form of power in a liberal democracy. But to the rest of us, the power of the vote is next to nothing; a civic ritual at most. Power, to what little extent the average person has it, comes from being useful, from being someone it would be inconvenient to alienate. It comes, in large part, from labor market inefficiencies. Steel tariffs might “shrink the pie”, but they also give steel workers slightly more (though still not much) say over how it gets cut; a make-work infrastructure project might not be the best available investment, in purely financial terms, but it recruits its own constituency - there’s no sense in cancelling it once enough costs are sunk. This power may be worth the price; it may not be. But it’s worth something.
An unsympathetic observer might call this hostage-taking. I might say the same about capital strikes. But this is a difference, once again, of politics. It is a dispute over who has claims which must be met, and who merely has interests which, if they behave themselves, might be; over which of the threats to the “liberal democratic basic order” can go on plotting, and which must unilaterally disarm. Mere “technical economic advice” cannot settle this; those who claim otherwise are not to be trusted.