Robert Aumann, the great Israeli mathematician, is known politically as a deep reactionary.
Someone offers Reuven and Shimon NIS 1,000 together, if they can manage to agree on the question of how to split the money between them. Reuven says to Shimon: ‘Great, let’s split it half and half.’ Shimon says: ‘No. I am not leaving here with less than NIS 900. You will get 100. Take it or leave it.’ Reuven says to him: ‘Be rational. What is the difference between us? Why should you get more?’ Shimon says: ‘Rational or not, do what you want. Either I leave here with 900 or with nothing. You decide.’
Reuven thinks and says: ‘Okay, NIS 100 is money nevertheless. What am I going to do with this irrational mule? I myself am rational and I will take the 100. I need to advance my goal of getting as much money as possible, and my choice is between zero and 100. One hundred is still something.’
What is the paradox? That the irrational person gets more than the rational person.
The Arabs present rigid and unreasonable opening positions at every negotiation. They convey confidence and assurance in their demands, and make certain to make absolutely clear to Israel that they will never give up on any of these requirements. Absent an alternative, Israel is forced to yield to blackmail due to the perception that it will leave the negotiating room with nothing if it is inflexible.
There isn’t anything that we can convince the other side is sacred to us, that we’re willing to ‘be killed for it, rather than transgress.’ If there were something like that, then we wouldn’t be in the situation we are in today.
When did we get a lot of respect? When we bombed the reactor in Iraq, in Operation Entebbe, in the Six-Day War. Gestures don’t bring respect, but rather scorn, not just here but everywhere in the world because that’s human nature. Anyone who remembers the expulsion from Gush Katif relates to it with a shrug: ‘You expelled your own people.’ We didn’t get points because of the expulsion.
Nonetheless it often happens that the far right-wing observer is willing to admit truths that the centrist or left-liberal cannot stomach.
In volume 2 of Aumann’s Collected Papers, I recently came across “Power and Taxes”, an Econometrica paper from 1977, co-authored with Mordecai Kurz. The authors analyse “the actions of the government… as an endogenous consequence of the political forces that enable it to maintain power.”
This leads them to the following point:
[We] will make an assumption that we consider a basic ingredient of a democratic society, namely that
every agent can, if he wishes, destroy part or all of his endowment.
It goes without saying that the part that is destroyed cannot be taxed. If one thinks of one’s endowment as labour, then the above means that there is no forced labour: an individual may, if he wishes, “destroy” his labour, by simply working less (or not at all).
It may not be immediately clear why this assumption changes anything — after all, who would want to destroy his endowment – what good would it do anybody? The answer is that it gives the minority considerable threat power — power that is vital in determining taxes…
[A] strike involves the destruction of endowment (in the form of labour services) in the face of what are considered unfavourable terms of trade or excessive taxation.
While Aumann and Kurz focus on labour strikes, in real economies the level of private investment spending varies much more than labour supply.
The level of private, taxable economic activity (and thus the level of government revenue) is far more sensitive to the willingness of asset-holders to invest.
Private property ensures that owners have the right to withhold their “endowment” – i.e. not invest in productive activity – if they don’t expect an adequate rate of return, due to high tax rates or low confidence in the “business climate”.
Governments are thus vulnerable to capital strikes, as explained by Fred Block in his article (also from 1977) on the class character of the state:
[Those] who manage the state apparatus — regardless of their own political ideology — are dependent on the maintenance of some reasonable level of economic activity. This is true for two reasons. First, the capacity of the state to finance itself through taxation or borrowing depends on the state of the economy. If economic activity is in decline, the state will have difficulty maintaining its revenues at an appropriate level. Second, public support for a regime will decline sharply if the regime presides over a serious drop in the level of economic activity, with a parallel rise is unemployment and shortages of key goods. Such a drop in support increases the likelihood that the state managers will be removed from power one way or another. And even if the drop is not that dramatic, it will increase the challenges to the regime and decrease the regime’s ability to take effective actions.
In a capitalist economy the level of economic activity is largely determined by the private investment decisions of capitalists. This means that capitalists, in their collective role as investors, have a veto over state policies in that their failure to invest at adequate levels can create major political problems for the state managers. This discourages state managers from taking actions that might seriously decrease the rate of investment. It also means that state managers have a direct interest in using their power to facilitate investment, since their own continued power rests on a healthy economy. There will be a tendency for state agencies to orient their various programs toward the goal of facilitating and encouraging private investment. In doing so, the state managers address the problem of investment from a broader perspective than that of the individual capitalist. This increases the likelihood that such policies will be in the general interest of capital.
Block took this to mean that there are structural mechanisms, beyond the conscious identification of state managers with capitalist interests, that discipline them to act in certain ways.
Whether they are bureaucrats or elected politicians, whether their goals are to expand military capacity or implement social reforms, state managers are reliant for income on firms making productive investments, and rentiers giving credit.
They (state managers) thus face constraints that reduce their feasible set of actions: they can’t for long implement policies that harm the confidence of owners of capital.
The nature of this dependence was also conceded in a recent speech by the Australian Prime Minister.
After listing her “values” — “the things I still believe in; the things that drive me on” (stale banalities like “respect”, education and “hard work”) — Julia Gillard explained her government’s “policies and plans”, and “why my government is doing it”:
Because we know that we can’t deliver on any of those values without a strong economy and because we know that we can’t deliver on a strong economy without economic reform: significant fiscal consolidation; leveraging new investment in human capital; restructuring markets untouched by earlier waves of reform; right through to economic reforms in areas as diverse as carbon, water, and skills.
This says much about the limits of reformism and the trajectory of parties such as the ALP and the Greens.
Even those state managers with sincere reformist objectives must maintain the level of economic activity (especially when government expenditure is the means by which they hope to achieve progressive development). This means support for policies benefiting the national capitalist sector.
And the latter inevitably leads, especially in times of downturn, to support for welfare cuts, austerity budgets, attacks on the labour movement, military expeditions to Afghanistan or East Timor, etc.
For those who want better, neither keeping the bastards honest, nor “replacing the bastards” (the Greens’ declared aim) will do.