I follow Noahpinion because 1) he provides a helpful window into the abysmal state of modern macroeconomic theory, and 2) he pisses me off. In the latter regard, his latest crime against humanity is a little ditty about Capital (the concept, not the book). His point of departure is a column by my friend Branko Milanovic urging the discard of the term “human capital.” Noah manages to ignore the points raised by Branko. Some elaboration here provides an inkling of the reductionism inherent in mainstream economics, even when practiced skillfully by kinda-sorta liberals.
Of course there are no a priori incorrect definitions. We can apply whatever names we like to whatever we want. The question here is whether it is useful to imply an analogy between an attribute of the worker — a marketable skill, ability, or educational attainment — and durable productive physical assets, or the ownership thereof.
There is no issue here about abstraction for the sake of analysis, or modeling. Capital-c Capital is as abstract as anything. Is what makes it different from Labor sufficiently fundamental to maintain the distinction that prevailed before the economists’ invention of “human capital”? You know I’m going to say yes.
NS noodles around the difference and similarity between Capital and “human capital” by analogies to prosthetic arms and financial options, or he puts it in the context of a narrow modeling problem — decisions about investment in education. Or Jesuitical digressions on is it wealth or isn’t it. More definitional trivia.
Branko approaches the heart of the matter by noting capital is something that most people have little of, while a small minority have a lot. Not only do most have little, but exploitation of their so-called “human capital” takes an important toll on their well-being — to rent your human capital you must give up your own time. Exploitation of your financial capital incurs brokerage fees and service charges. Not really the same thing.
But Branko pulls his punches. Capital assumes a life of its own and informs the organization of society, in the large. Those who seek to accumulate live on as part of the Capital borg; those that don’t become irrelevant rentiers. Capital exercises overweening influence in otherwise democratic systems, for that reason only nominally democratic systems. Capital, not Labor, determines the conditions of work, where most of our lives are spent.
In the conventional wisdom, augmenting human capital cures all ills. Inequality? We will help people raise themselves up, though while you do, others slip back down. Low wages? We will increase productivity, though wages have not kept up with productivity. And we’re not really doing much for human capital in its own terms either. College becomes increasingly out-of-reach, public schools are under assault by corporate raiders.
Of course, you could model the decision to attend college as some kind of investment, taking account of costs, foregone earnings, one’s preference for making less money sooner vs. more later. If you’re lucky you come up with “statistically significant” elasticity estimates that some other nerd can contradict with a follow-up paper. Meanwhile we face long-term trends in wage stagnation and the so-called ‘college premium,’ support for public education, and student indebtedness, to name a few things that are goin’ on. What a sterile exercise such models are. Think of what college students actually do. Are they rationally maximizing utility with the benefit of long-run foresight and accurate information? If you believe that, delete your account.
It was labeled “consumer theory.” In the barren world of mainstream economics, people are reduced to atomized pleasure-seekers who solve impossible optimization problems with the benefit of limited information on a featureless social plain with no past and no future. And they call it social science!
Capital likes it that way. Its greatest feat — getting you to forget it exists as an overwhelming, malignant, motive force in history. It’s not only a moral issue; it’s an analytical one.