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‘The Alternative’ is just the book economists should read — and won’t

“The Alternative,” by Nick Romeo  (Public Affairs)
By Becca Rothfeld Washington Post

In 1991, long before Lawrence Summers claimed, while president of Harvard, that women were innately disinclined toward science, he served as chief economist of the World Bank. In this capacity, too, he distinguished himself. “I’ve always thought that under-populated countries in Africa are vastly UNDER-polluted,” he wrote to his colleagues in a memo. “I think the economic logic behind dumping a load of toxic waste in the lowest wage country is impeccable and we should face up to that.” After all, he reasoned, the rest of the world would not lose out on much money or value if poor people with shorter life spans sickened and died; it would be far more profitable to keep healthier populations with higher incomes alive. (Summers later told a Senate committee that the memo was satirical and “never intended in any way as a serious policy recommendation.”) José Lutzenberger, Brazil’s environment minister, replied to the memo: “Your reasoning is perfectly logical but totally insane.”

According to Nick Romeo, we could say much the same thing to the majority of contemporary economists. In Romeo’s diligently researched and admirably principled new book, “The Alternative: How to Build a Just Economy,” he argues that the world wrought by neoclassical economics is “perfectly logical” – but horrifically inhumane.

Fortunately, it is not the only option. The eight case studies in “The Alternative” present diverse solutions to the problems of paltry wages, rampant unemployment, unstable housing and exploitative labor practices. At a time when global and national politics often overshadow local victories, it is heartening to hear of a successful workers’ cooperative in Spain, or of the small city in Portugal that empowers its residents to determine how to allocate its budget, or of the handful of American cities where there are plans to establish “a public-sector platform to create more humane and efficient labor markets” – in effect, to reconceptualize gig work as a public utility so as to protect workers while allowing them to enjoy flexible schedules.

“The Alternative” is a brisk and sensible book that details bold and ingenious proposals in measured tones. Romeo, a writer for the New Yorker and a professor of journalism at the University of California at Berkeley, has the approachable style of a moderate but the bold convictions of a radical. Though the tactics he chronicles differ dramatically, they are all designed to reimagine “the economy as a place of moral action and accountability,” and they are all examples of the sort of compassionate creativity that Summers and his ilk should, but probably won’t, dare to muster. Indeed, “The Alternative” is the sort of book that Summers and his ilk should, but probably won’t, read and learn from.

It was not always thus. “The insight that economics is in essence a subfield of philosophy was once widespread,” Romeo writes wistfully. In an earlier era, many of the subject’s leading lights were commendably humanistic: Adam Smith is renowned as both a moral philosopher and the founder of the dismal science.

But in the intervening centuries, mainstream academics have adopted what Romeo describes as “a technocratic, quasi-scientific vocabulary,” an arcane lexicon that “obscures the ethical and political questions that lie at the heart of the discipline.” Although “the major topics of economics are inescapably moral and political,” many of today’s thinkers refuse to countenance value judgments, much less acknowledge that their supposedly neutral methods are rife with questionable assumptions.

Romeo suggests their approach is not merely intellectually dishonest: It plays straight into the hands of the wealthy. By framing the market as “a realm of immutable laws and forces,” he writes, neoclassical economists deter us from “pursuing alternative arrangements” – ones that might allow a much broader swath of people to live fulfilling and comfortable lives.

Because mainstream economists refuse to rethink their field, the task has fallen to organizers and policymakers on the ground, and the bulk of “The Alternative” is dedicated to the quietly heroic figures who are implementing novel initiatives in their own communities. Romeo writes of the Austrian town of Gramatneusiedl, which has pioneered a job guarantee program in which “participants shape the work they do,” coming together to “brainstorm with social workers about their skills and interests”; the annual climate budgeting process in Oslo, during which every department in the city “identifies specific policies and actions to reduce its emissions”; and the “true price” system at De Aanzet, an independent grocery store in the Netherlands, that takes the environmental and social costs of production into account. For instance, De Aanzet charges 3.97 euros (about $4.25) for a kilo of tomatoes when it would normally charge 3.75 euros (about $4).

One pathbreaker who features prominently in “The Alternative” is Aaron Seyedian, founder of Well-Paid Maids, a cleaning service in Washington that pays workers $22 an hour before tips and provides them with “an expansive benefits package with twenty-four days of paid time off annually, predictable schedules, employer-paid commuting costs, and excellent health, dental, and vision benefits.” In depressing contrast, “the median hourly wage for cleaners in Washington, D.C., is $15.44 an hour, and many lack sick leave, vacation, or unemployment insurance.”

Federal minimum-wage legislation is no help whatsoever: Since 2009, it has guaranteed only the meager and unlivable sum of $7.25 an hour. The living wage calculator favored by a number of prominent corporations, a tool devised by MIT economist Amy Glasmeier, shows that “a typical American single parent of two children earning $7.25 per hour would need to work 138 hours per week to earn her living wage standard.” Even those who support a more generous “living wage” are often woefully unambitious.

By Romeo’s own admission, the measures he surveys are only stopgaps. Neither companies offering living wages of their own volition nor programs awarding living wage certifications to unusually upstanding employers are a suitable substitute for laws mandating the fair payment of workers. Romeo is emphatic that “only living wage legislation can prevent some firms from undercutting their more ethical competitors.” We could – and Romeo generally does – tell a similar story about most of the proposals in “The Alternative.”

Still, as long as the powers that be continue to twiddle their thumbs and consult Lawrence Summers, the strategies in “The Alternative” have an important place: They are not a “replacement for these political instruments,” Romeo tells us, so much as “a preparation for them.” At a minimum, many of them could induce companies and consumers to behave better.

Orthodox economists are likely to regard these interventions into the market as inefficient. As Romeo points out, however, the costs of prioritizing capital gains over human and planetary flourishing are already vast, even if they are difficult to measure and quantify (and even if the ruling classes have every incentive to turn a blind eye to them). While true prices may prove higher for Western consumers, they do not represent an increase in total cost but “a shift in who pays.” Criminally undercompensated child laborers and victims of climate-induced displacement in other parts of the world already pay an unconscionably high price for the groceries we buy so cavalierly.

Similarly, as the founder of Well-Paid Maids tells Romeo, the wages he offers his employees are “what it costs, right? You’re either paying for it now by actually paying the price of the service in a way that allows somebody to live, or you’re paying for it in the externality, where you’re supporting a business model that doesn’t allow people to take care of themselves. You’re paying for it in the societal and generational costs of how that person’s kids are going to grow up and what choices people are going to make in an environment of scarcity.”

It also happens to be true that many of the initiatives in “The Alternative” prove straightforwardly lucrative. “Multiple academic studies have found that cooperatives with worker governance and ownership are as or more profitable than conventional firms,” Romeo reports, and Well-Paid Maids has flourished in a way that even the most conventional economist could appreciate: The company was yielding $600,000 in annual revenue just two years after its founding.

But Romeo stresses in no uncertain terms that ethical scruples come before the bottom line. Even when we would hemorrhage money by acting morally, we stand to lose something much more important if we fail to devise an economy in which we can treat one another like human beings.

This is the sort of appeal that has no place in neoclassical economics. Its champions will no doubt object that consumers, whom they think of as ruthlessly rational actors, are unwilling to make financial sacrifices in the name of high-minded ideals. But in fact, people have consistently demonstrated they are willing to pay more to protect the workers responsible for the goods they purchase. After De Aanzet adopted a true-price model, “business increased by 5 percent.”

Does it follow that the store’s customers were simply irrational? Romeo does not sound irrational in the least when he writes, “It feels wrong that the person who cares for your children or delivers your packages is not paid enough to go out to dinner once a month, save anything for retirement, or take a vacation.” Like the clientele of De Aanzet, he is simply embracing a more expansive and more intuitive form of rationality – one that counts moral and social harms as costs.

For who, at the end of the day, is more logical? The companies willing to countenance child labor to produce cheap coffee, and the economists willing to dump toxins on the most impoverished people? Or Romeo, who wants to live in a world where everyone has a chance at a decent life?