Criticize former U.S. Senator Alan Simpson all you want.

As the Republican co-chairman of the Cat Food Commission, Simpson is an inviting target. His comment that Social Security is a “milk cow with 310 million tits,” and that medical treatment for disabled veterans is too costly, make him an easy target.

But Simpson’s argument is irrefutable:

1. The U.S. government has limited resources. It cannot do all the things that people want it to do.

2. Therefore, it must prioritize how it uses those resources.

3. It isn’t going to stop bombing, invading, and occupying other countries. It isn’t going to close the more than 700 military bases it has around the world. It isn’t going to stop giving hundreds of billions of dollars to military contractors and security companies.

4. It isn’t going to increase tax rates on the wealthiest Americans back to the levels of the 1940s-1990s, when economic growth was higher and unemployment was lower than today.

5. It isn’t going to cut the fat benefits it pays to, for instance, former U.S. Senator Alan Simpson, who unlike most Americans has a defined-benefit pension and free medical care in addition to his personal wealth.

6. Therefore, it has to cut benefits to some other groups of people who lack political power to stop the cuts.

7. Therefore, it has to cut benefits to the retired, the disabled, and the unemployed.

For the most part, higher education has been replaced by vocational training. That transition has been driven by two main factors.

First, our society puts a dollar value on everything. The “value” of higher education is measured principally by the difference in lifetime income it can produce.

Second, our society espouses the myth that everyone should have and can benefit from higher education. That results in a massive influx of students who have neither the aptitude nor the inclination to pursue traditional subjects. To serve those students, colleges and universities change their curricula to incorporate more job training.

The real “villain,” if there is one, is the irrational esteem that society gives to university degrees as a measure of personal worth. A good, honest, hard-working ditch digger with a high school diploma is just as important as a university professor with multiple doctorates. There is no need to force everyone into the “higher education” path, and we shouldn’t do it. But we do.

All hail Marx and Lennon.

The Times newspaper of London recently ran an article and reader forum asking a question that no American newspaper would dare to ask:

“Was Marx Right?”

The Marx in question, of course, was not Groucho, Harpo, Zeppo, or even the 1980s pop-rock singer Richard Marx. It was Karl Marx (1818-1883), whose villainous shade terrified generations of schoolchildren, and more than a few American politicians, from 1917 to 1991.

That terrifying figure, of course, was the Marxist boogeyman of right-wing legend. The real Marx was a considerably less threatening presence. He wasn’t a very nice fellow, to be sure: a personality defect he shared with Beethoven and Wagner. Mostly, however, he was just an academic scribbler with dreams of changing the world.

But the question “Was Marx right?” is too blunt an instrument. Right about what? Marx was an economist, political philosopher, social analyst, activist, and anti-Semite. He had a lot of opinions about a lot of things. Some of them were daft. Some of them, however, are starting to seem pretty brilliant.

Marx the Classical Economist

Unlike the nightmarish cartoon of his alter ego, Marx did not come out of nowhere. He followed in the footsteps of other classical economists and tried to solve problems that had stumped them.

Chief among his predecessors was Adam Smith (1723-1790), who in 1776 published The Wealth of Nations, a book that set the agenda for all work in economics since then. Conservatives and libertarians often wear ties bearing Smith’s picture, but they’ve never actually read anything he wrote. They wouldn’t like him if they did.

What Economics Does

In talking about Marx or any other economist’s theories, it’s important to understand what economics really does.

Almost all economists, for example, talk about what tends to  happen in the long run and “at equilibrium.” But the long run is always in the future and the economy is never at equilibrium. All economists, regardless of their ideological biases, tell a story about how they think the economy works and where they think it’s going. They can often cite evidence to support their stories, but the economy is so complex that that there’s usually some evidence to support almost any theory.

As a result, it’s impossible to “prove” that one economist’s story is right and another’s story is wrong. What you need to do is compare what the story says with what you see going on in the world. How closely do they match? How well does a story explain the current economic situation and predict future economic developments? Does a story make internal sense?

A story that matches reality, explains well, predicts future events, and makes internal sense is a good economic story. Marx’s story is a fairly good one. So is the story told by Keynesian economists. So is the story told by monetarist economists, though the true parts of that story are included in the Keynesian story. Conservatives often prefer the story told by Austrian economists, although — or perhaps because — that story has turned into little more than an apologetic for big business.

How Workers’ Wages Are Determined

Marx was trying to solve a problem that had baffled earlier economists, including Adam Smith.

First, they assumed that economic value* is created by labor. Therefore, if it took the same amount of labor to produce two things, then they had the same economic value or price. Market conditions can affect prices in the short run, but in  the long run, the prices of goods tend to reflect how much labor it takes to make them. According to classical economists, that is the “natural price” toward which the actual market price will gravitate over time. Thus, the natural price in classical economics corresponds to the  “equilibrium price” in modern economics: the price toward which the actual market price moves over time but almost never reaches.**

Second, they assumed that if two things exchanged for each other, then they had the same amount of economic value.

Third, they assumed that when workers got paid, they were exchanging the products of their labor for the money from the capitalist.

By those assumptions, the products of workers’ labor should tend to be equal in economic value to the money paid by the capitalist. But if the capitalist pays workers exactly what their produce is worth, and then sells it for exactly what it’s worth, then there’s nothing left over for the capitalist. Where does the capitalist’s profit come from?

Marx answered that the capitalist was paying for not for the products of the workers’ labor, but for the workers’ labor power: for their ability to produce. Instead of buying what the workers made, the capitalist was basically renting their ability to make it. And notice what Marx did: He took the same facts as Adam Smith, but told a different story explaining those facts.

Like any other commodity, the workers’ labor power has its economic value (price) determined by how much labor is required to produce it. In other words, wage levels are determined by how much it costs to feed workers, house them, and sustain their ability to produce value for the capitalists.

How Surplus Value Turns into Profit

Suppose that it takes only four hours of an eight-hour working day for the worker to produce enough to keep himself or herself alive and producing. Under the capitalist system, that’s the value of the worker’s labor power and that’s how much he or she will tend to get paid in the long run.

But the workers still work an entire day for the capitalist, who pays them only for half a day. The extra half-day for which the workers don’t get paid is the “surplus value” that the capitalist receives as profit.

Note that this isn’t because capitalists are bad people: some are and some aren’t. Surplus value exists because of the way the capitalist system works. The capitalist doesn’t produce anything himself, but he gets money because he has money. Most modern economists disagree with this view, but in Marx’s time, it was a tremendous insight and a great leap forward.

Modern Economics Takes a Step Backward

Most modern economists take a more, shall we say, “cooperative” attitude toward capitalism.

Instead of saying that the worker’s labor has a specific value — even if that value is sometimes difficult to calculate — modern economists say that its value is subjective.

In other words, the worker’s output has no specific value: instead, it’s worth whatever the capitalist says that it’s worth. There can be no “surplus value” because the value of what each worker produces is defined as whatever the capitalist pays him or her.

No matter how low wages get or how high profits get, no matter how unfairly the system is rigged in favor of Wall Street, corporations, and the politically-connected rich, it’s all good.

The workers get paid only a pittance because that’s all their labor is worth. The capitalists and their top managers get paid a fortune because — well, because they must be contributing something valuable or they wouldn’t get paid so much. That’s what passes for logic in modern economics.

Money Distorts Our View of the World

Marx’s greatest insight was in seeing how capitalism distorts our way of seeing the world.

Under an economy of simple commodity production, each worker produces a good or service. He/she exchanges that good or service for money, and then exchanges the money for other goods and services. For example, a farmer grows wheat, exchanges some of the wheat for money, and uses the money to buy clothing.

So the pattern of economic life is C-M-C: commodities get money, which in turn gets more commodities. Useful things are the beginning and end of the process, with money seen only as an instrument to get them.

Under capitalism, however, the capitalist starts out with money, uses it to buy goods and services (raw materials, machinery, and labor), and then exchanges the result for more money.

The pattern is now M-C-M: money is the beginning and end of the process, the Alpha and the Omega. No longer merely an instrument to buy useful things, money becomes the center of the capitalist society’s worldview, as it has become the center of ours.

Economic Crises and Unemployment Are Essential

Marx saw occasional economic crises not as a problem for capitalism, but as an essential feature of the system.

Economic crises throw people out of their jobs and into the “reserve army of the unemployed,” to strike terror into any workers who still have their jobs. That makes wages drop and gives capitalists relatively more profit both during and after the crisis.

The current recession follows the pattern Marx predicted. As millions of workers have lost their jobs, and others have taken pay cuts, Wall Street and corporate profits are higher than ever before. There are currently five unemployed people for every new job. Hundreds of people apply even for the most menial and low-paying job openings. Workers know that they can easily be replaced. It’s a race to the bottom.

Update: The New York Times gave additional confirmation of this phenomenon in its July 26, 2010 article “Industries Find Surging Profits in Deeper Cuts.” As the article observes:

Many companies are focusing on cost-cutting to keep profits growing, but the benefits are mostly going to shareholders instead of the broader economy … “There’s no question that there is an income shift going on in the economy,” Mr. Harris added. “Companies are squeezing their labor costs to build profits.”

Marx on Balance

Marx didn’t get everything right. His explanation of what causes economic crises (changes in the “organic composition of capital”) is dubious. His conception of human nature (not discussed here) is completely unrealistic. But on balance, particularly in economics, he got a lot more things right than many modern economists. Maybe that’s why we hear so little about him in our time.

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*Classical economists distinguished between economic value (price) and use-value (usefulness). To illustrate the difference, Adam Smith compared water to diamonds. The use-value of water is much greater than the use-value of diamonds: if you don’t get any water, you’ll die. Paradoxically, however, the economic value of diamonds is much greater than the economic value of water. A thing must have use-value in order to have economic value, but they’re not the same.

**The difference is that classical economists thought the natural price of goods was determined by how much labor it took to produce them, but that supply and demand also influenced the current price. Modern “neoclassical” economics says that the equilibrium price of goods is determined by supply and demand, but that labor costs also influence the current  price. The two viewpoints are essentially mirror images of each other, with classical economics focusing on how production affects prices and modern economics focusing on how market conditions affect prices. Both are valid viewpoints, and each is useful in analyzing different aspects of the economy.

For More Information

Marx, Karl, Capital, Volume I. London: Penguin Classics, 1976. There are three volumes of Marx’s Capital, but you can get most of the essential ideas from Volume I, which is available inexpensively in paperback.

Sweezy, Paul M., The Theory of Capitalist Development. New York: Monthly Review Press, 1970. This is a classic, definitive, clearly-written primer about Marx’s economic theory. If you just want to get the basics, it’s the best.

Tucker, Robert C., ed., The Marx-Engels Reader. New York: W.W. Norton, 1978.

President Barack Obama’s nomination of Judge Sonia Sotomayor to the U.S. Supreme Court was predictable, as was the fuss that her nomination engendered.

Her critics’ main complaint against Judge Sotomayor is the claim that she’s biased in favor of her race, which is Hispanic. In her early career, she was on the National Council of La Raza, a Hispanic lobbying group whose name means “the race.” One can imagine the denunciations that would ensue if a white Supreme Court nominee had been on the board of an organization promoting the interests of the Caucasian race — as, in fact, one was.*

On the other hand, such denunciations are misguided, whether applied to Hispanics, Caucasians, or to members of the local Rotary Club. There’s nothing wrong with having warm feelings toward one’s own people and seeking to advance their interests, as long as our actions are legal and consistent with our moral and professional obligations. Quite the opposite: such feelings are perfectly natural and normal.

Judge Sotomayor’s court  rulings are a different matter. In her work as a judge, she is obliged to treat all people impartially regardless of their race. If her work as a judge showed a bias in favor of Hispanics, that would be unacceptable. However, no one accuses her of such bias.

The Troubling Case of Ricci v. DeStefano

Judge Sotomayor has also been criticized for her ruling in the 2008 case of Ricci v. DeStefano. Eighteen firefighters (17 white, one Hispanic) in New Haven, Connecticut had passed a promotion exam that no black candidates passed. The city government threw out the test results, and the 17 white firefighters who passed the test sued the city for racial discrimination under Title VII of the Civil Rights Act of 1964. Judge Sotomayor was part of a three-judge panel that ruled against the firefighters.

I hope that in her confirmation hearings, Judge Sotomayor explains more completely why she ruled as she did in that case. In a survey of her major cases, The New York Times noted that Sotomayor normally explains her legal reasoning in detail, but the three-judge panel provided only an uninformative one-paragraph explanation of the decision. Certainly, it’s peculiar to have a panel of judges rule that a law against racial discrimination does in fact permit racial discrimination as long as it’s against whites. However, the problem might not be with Judge Sotomayor or the three-judge panel, but with previous court rulings about Title VII of the U.S. Civil Rights Act.

In particular, the panel relied, as it had to, on the “Bona Fide Occupational Qualifications” doctrine. That doctrine outlaws job requirements that have a “disparate negative impact” on some protected group (principally women and African-Americans) unless an employer can prove that the requirements are necessary and that no alternative would have less disparate impact.

In Ricci v. DeStefano, the disparate impact was clear: None of the African-American candidates passed the promotion test, while 17 whites and one Hispanic did pass the test. The New Haven city government most likely wanted to avoid being sued by the African-American test-takers for racial bias, so it ended up being sued by the white test-takers for racial bias. Sometimes, you just can’t win. Judge Sotomayor seems to have ruled accordingly, and the case doesn’t make a whole lot of sense. It might be a mistake to blame the mess on her, but she needs to explain it. (She also needs to explain her reasoning in the unrelated case of Didden v. Village of Port Chester, which dealt with property rights and eminent domain).

Applying the Law vs. Reading the Law

President Obama’s critics have also blasted him for nominating an ethnic woman to the court: a so-called “twofer,” because she fills two affirmative action quotas (non-white, non-male) at once. Instead, his critics argue, he should have sought “the best-qualified person,” presumably meaning a person with the most experience on the bench, who has made the largest number of important rulings, and who also would be approved by Republican radio talk-show host Rush Limbaugh.

They don’t consider the notion that, to paraphrase the Bible (Mark 2:27), “the law was made for people, not the other way around.” Applying the law requires more than just being able to read the law. Judges who know first-hand about the lives and problems of litigants can apply the law more intelligently and compassionately.

Supreme Court Justices Roberts, Scalia, and Alito are well-qualified by their life experience to understand the problems of bankers, oil company executives, and the idle rich. They are totally unqualified to understand the problems of minimum-wage workers at Wal-Mart or the victims of racial discrimination. To them, such people are a blank. To Judge Sotomayor, who has had different life experience, they are real people whose lives matter. Regardless of what the law says, a judge’s background makes a difference in how he or she interprets it. That’s why balancing the court with judges of various backgrounds is a good idea.

Fair enough on both sides. President Obama is a liberal. He wants a Supreme Court judge who agrees with him on most issues. Rush Limbaugh is what currently passes for a conservative. He wants a Supreme Court judge who agrees with him. As it happens (thank goodness), only one of them is president.

Historical Perspective: The Case of Trucksylvania

But let’s step back for a moment to view the situation more objectively. Arguments about current issues are often clouded by passions on both sides. We need to bypass those clouds.

It’s said that people who are ignorant of history are doomed to repeat it. Many of the problems raised by Judge Sotomayor’s nomination were confronted and solved — well or poorly — long ago by Trucksylvania, a tiny but independent Central European duchy established in the year 996 by the Holy Roman Empire under Emperor Otto III.

Trucksylvania was founded as a homeland for truck drivers, which seems remarkably prescient when one considers that trucks wouldn’t be invented until 900 years later.

Though they had nothing to drive, no truck stops at which to eat, and no CB radios on which to say things like “breaker one-nine good buddy,” or “I’ve got a bear in the air,” truck drivers immigrated into Trucksylvania from all over Europe. Meanwhile, the previous inhabitants of Trucksylvania found themselves outnumbered and unwelcome, so many of them emigrated to other countries.

Over the centuries, the culture and institutions of Trucksylvania evolved more and more to reflect the abilities, aspirations, and ideals of truck drivers. People who easily adapted to the requirements of a truck-driving culture were successful and had lots of children for whom they provided the best nutrition and education. People who couldn’t adapt had trouble finding steady jobs. If they had any children at all, they had only a few badly-nourished, ill-educated offspring. If they could move elsewhere, they did.

Culture and heredity mutually reinforced each other, so that the physical and intellectual qualities of Trucksylvanians became ever more closely aligned with the requirements of their truck-driving culture. The children of truck drivers, just like the generations of peas in Gregor Mendel‘s laboratory, tended to inherit the traits of their parents. A social and economic hierarchy emerged, all based on truck-driving ability.

The most reliable though controversial measure of truck-driving aptitude was each person’s Peristaltic Quotient (PQ), which essentially measured the length of time that the person could drive without stopping to go to the loo.

A person’s PQ was defined as average food consumption in grams per day divided by average number of bowel movements per week. Thus, a person who consumed 700 grams of food per day and had seven bowel movements per week had a PQ of 100, which was about average for a Trucksylvanian. A person with an average PQ could drive a truck for a day without stopping; someone with a PQ over 140 could drive as long as two days without stopping.

Apart from the lack of any real trucks to drive, all was well as long as Trucksylvania remained a country “of, by, and for truck drivers.” But that was fated to change.

War with France

In the year 1250, Trucksylvania made a costly mistake when it went to war with France. Though the hardy truck drivers easily won the conflict, the French slaves they brought back to Trucksylvania were a more of a burden than an asset. The average French PQ was shockingly low by Trucksylvanian standards — a mere 85, compared with the Trucksylvanian average of 100.

A few of the French had enough truck-driving aptitude to function well in society, and a very small number of them even had PQs far above the Trucksylvanian average. Most of them, however, found it hard to adapt to a society and economic system based on truck driving. They knew how to bake soufflés; they excelled in creating perfumes and writing love poetry; they were good at mathematics; they even played a fair game of football. But their low average PQ meant that as a population, the French would never be able to compete on equal terms in a truck-driving society. They simply had to go to the bathroom too often.

In their own kind of society, the French would have done fine and it would have been the Trucksylvanians who had problems. But they weren’t in their own kind of society. They were in Trucksylvania. Soufflés were nothing. Truck driving was everything.

The Problem Becomes Acute

When Trucksylvania abolished slavery in 1275 and freed all of its French slaves, the problem became acute. The French population had grown too large to be sent back to its country of origin, so Trucksylvania could not use the approach that U.S. President Abraham Lincoln would support almost 600 years later of deporting former slaves. Somehow, Trucksylvania’s French residents had to be integrated into truck-driving society in spite of their low average PQ and their preoccupation with cooking.

Trucksylvanians of good conscience sympathized with the French but disagreed about what to do. Some pointed out that PQ, though important for truck driving, was only one of many important human qualities. They argued that all people, even the French, had the same human rights regardless of PQ. A few well-meaning people went so far as to argue that the whole idea of PQ was a myth because people’s PQ scores could often be raised somewhat by training and proper diet.

On the other side, some conservatives objected to the notion of trying to integrate the French into Trucksylvanian society. They pointed to the advice of English writer Walter Bagehot (1826-1877), a copy of whose book Physics and Politics had fallen through a temporal rift and landed in 13th-century Trucksylvania:

“A nation means a like body of men, because of that likeness capable of acting together, and because of that likeness inclined to obey similar rules.”

The idea of giving the French equal status in Trucksylvanian society was even worse, they said, quoting Bagehot once again:

“The mixture of persons of different race in the same commonwealth, unless one race had a complete ascendancy, tended to confuse all the relations of life, and all men’s notions of right and wrong; or by compelling men to tolerate in so near a relation as that of fellow-citizens differences upon the main points of human life, led to a general carelessness and scepticism, and encouraged the notion that right and wrong had no real existence, but are mere creatures of human opinion.”

A Compassionate Solution

Conservative objections notwithstanding, Trucksylvania had to give its French residents “a place at the table.” Their lack of truck-driving aptitude meant that their dinner would have to be subsidized by Trucksylvanians. But how to do it? Simply giving money as charity to the French would deprive them of self-respect and make them resent their Trucksylvanian benefactors. Oddly enough, the rulers of Trucksylvania were familiar with the Babylonian Talmud, which advised:

“Whoever shames his neighbor in public, it is as if he shed his blood.”

To help its French residents without shaming them, the Trucksylvanian government decided to give them extra points — the equivalent of a golf handicap — to compensate for their lack of truck-driving ability. The extra points would help them to get good jobs and enjoy social status even if in the aggregate, they never learned to drive as well as Trucksylvanians. In addition to the extra points, Trucksylvania would pour resources into better nutrition and education for the French, enabling them to make the most of whatever truck-driving potential they had.

Of course, to discriminate in favor of one group is equivalent to discriminating against any group not so favored. Ordinary Trucksylvanians, who failed to see the big picture, were angry that their government was treating them unfairly. The French weren’t too happy either, because they had escaped the stigma of being “charity cases” only to be tarred with the new stigma of being “handicap hires.”

But the rulers of Trucksylvania were creative. They needed to think of a reason why it was important for companies to have French employees. It had to be something that didn’t depend on truck-driving ability, which the French lacked. Yes, the reason would be completely bogus. However, the Trucksylvanians expected that if it were even slightly plausible, and if everyone pretended to believe it, then it just might work.

They found their reason: “diversity.” It was vitally important, they said, to have diversity in the workplace, in classrooms, and in every aspect of life. They warned that if you didn’t have diversity, then you couldn’t … uh, you couldn’t … Well, it wasn’t too clear what you couldn’t do, especially if “diversity” just meant that you had to have some French people on the payroll.

For the most part, however, Trucksylvanians accepted the government’s argument. They had little choice, inasmuch as it had been made “a firing offence” to question the value of diversity or to question the abilities of the French.

Tallying Up: “The Perfect is the Enemy of the Good”

So let’s tally up the achievement of Trucksylvania. It started with an unfair situation: French people brought against their will into a society where they didn’t quite fit and couldn’t quite compete. Not their fault. Nothing wrong with them except that they were French, with French attitudes and abilities, trying to live in a society tailored to the attitudes and abilities of Trucksylvanians.

The rulers of Trucksylvania added just a little more unfairness to counterbalance their original sin of having owned French slaves. They mixed in a dash of propaganda and a pinch of hypocrisy, then stirred well. The result was a society in which the majority of good people, regardless of their truck-driving ability, could have a place at the table: the dignity of being citizens and full participants in Trucksylvanian society.

As Voltaire said, “The perfect is the enemy of the good.” Trucksylvania’s solution wasn’t perfect. But it was good.

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*U.S. Supreme Court Justice Hugo Black (1886-1971) started his career as a member of the Ku Klux Klan, but kept it a secret until after he was already serving on the Supreme Court. Ironically, Black became one of the court’s most energetic supporters of civil rights for African-Americans.