*The Third Pillar: How Markets and the State Leave the Community Behind*

That is the forthcoming Raghuram Rajan book, due out February 26, 2019.


I remember reading this guy's book a while ago, and noting he was central banker to India. It was rather conventional, and, as expected, he believed in money non-neutrality. If only he believed in the "real bills doctrine", which is how the world actually works (i.e., if you're a bank, just give your good customers the money they demand, asking for collateral in return, and all is well), I would like him more. But you can't get into his position of power by speaking the truth and not drinking the Kool-Aid. Compare with 150 years ago, when "real bills doctrine" was, correctly, the orthodoxy.

so, is this paid content? like an advertisment?

It's Ray. He's working on a chess patent with his hot young Filipina GF when not holding forth on monetary policy.

His comments are still more interesting to read than most posted here including yours.

He has his moments for sure. Net positive.

Ray, I've just finished reading the wikipedia article on "real bills doctrine". I learn a lot from your comments and following your links or references. Thanks.

Is it not a little peculiar that the economist who (not very long ago) wrote 'The Great Stagnation' and 'The Average is Over', now appears so disinterested in writing about economic growth.

The Mandarin pronunciation of '4' is similar to the Chinese word for death. The result is that Chinese people will avoid using the number whenever possible. Does the same rule apply to American economists?

'uninterested' not "disinterested"

I know of an American economist who (superstitiously?) avoids saying that someone has died. He prefers "passed".

Amazon: "Rajan offers a way to rethink the relationship between the market and civil society and argues for a return to strengthening and empowering local communities as an antidote to growing despair and unrest." How can local communities in, say, Wisconsin, compete with state capitalism in, say, China?

Amazon: "As he [Rajan] shows, throughout history, technological phase shifts have ripped the market out of those old webs and led to violent backlashes, and to what we now call populism. Eventually, a new equilibrium is reached, but it can be ugly and messy, especially if done wrong." Is the "new equilibrium" one in which state capitalism prevails while "old webs" (that would be Wisconsin) survive by local community boosterism?

Maybe the Amazon summary misses Rajan's point (which seems to be an emphasis on social policy as opposed to, for example, economic policy), but I am more impressed with Cowen's point that social, political, and economic policies must be given emphasis in order to achieve the level of economic growth to sustain us and an inter-connected and thriving global economy.

"As he [Rajan] shows, throughout history, technological phase shifts have ripped the market out of those old webs and led to violent backlashes, and to what we now call populism. Eventually, a new equilibrium is reached, but it can be ugly and messy, especially if done wrong."
So, the guy just stumbled across Polanyi for the first time?

What does "empowering local communities" even mean?

In the USA it means hiring more minorities.

I thought it was deporting or jailing minorities and the poor so the community doesn't need to see any poor people or non-white better off than white men and their current wife and kids.

Might be one of those things where if we knew we'd be doing it.

All over the world, voters are turning against globalism.

We can say all over the world voters are stupid, or maybe we should try to understand why globalism is not working.

There is a difference between “voters understand and like the way something sounds” and “is working.” Globalization is working just fine.

Where are the people throwing away their cell phones never to use them again, only doing things face to face?

Building cell phones requires a hundred thousand people working in or supporting factories making millions per year. Slash the scale of just the cell phone making to make it local would increase the cost to tens of thousands of dollars per cell phone. Just like the cost of government communications devices before globalism took locally mandated government communication technology to high volume production.

Note, the cost to the economy of giving the private sector better comms than the military had was a hundred times higher than simply the cost to the economy for the military, but the number of users increased by 1000 to 10,000.

Globalism is the way to increase the cost to the global economy of new products.

To introduce something new to a local economy produced by just the local community costs so much, the local community will refuse to pay the hjgh costs, and new products and services are slow to be produced and adopted.

Does Rajan engage Stephen Marglin: “By promoting market relationships, economics undermines reciprocity, altruism, and mutual obligation, and therewith the necessity of community. The very foundations of economics, by justifying the expansion of markets, lead inexorably to the weakening of community.”

I don't know about markets, but I often think about how the state crowds out community: volunteer fire departments, Rotary clubs, churches feeding the poor... all going the way of the Dodo.

Churches and other charitable institutions feed a much larger share of the population than in 1980.

"Claim: In 1980, there were 200 food banks in the U.S. Today, there are over 40,000 food banks, pantries, and soup kitchens.

Fact: The Oklahoma City Food Bank was the 21st food bank in the U.S. when it opened in 1980. According to the USDA, there are currently over 200 food banks in the U.S., with over 63,000 food pantries and shelters."


"The second period, or the “institutional period” – from 1980 to the present – is marked by a steep proliferation in the number of emergency food providers and changes in the demographics of the recipients of emergency food assistance. More than 80% of pantries and soup kitchens currently operating came into existence between 1980 and 2001. Less
than 18% of either type of agency existed before 1980."
-- Hunger in America 2001, America’s Second Harvest

As cited by
The Charitable Food Assistance System: The Sector's Role in Ending Hunger in America - Congressional Hunger Center
PDF Congressional Hunger Center › 2012/10

As a kid in the 50s and 60s, collecting food and volunteering to feed people was mostly to provide big dinners on holidays, often to old "shutin" kinds of people. March of Dimes to fund medical research to provide free vaccinations to prevent illness was a higher priority. And avoiding polio paralysis, mumps deafness, etc was clearly self interested.

Reagan and Bush pushed the idea that cutting costs of labor by cutting taxes to promote bigger profits was the better way to help the needy with unpaid volunteers and donations. But to coordinate the volunteers seeking charity from higher profit corporations required new and bigger institutions.

Big corporations have big supplies of excess so big organizations need big trucks to pick up an excess 50,000 boxes of corn flakes, for example, after the art work is changed from Chistmas to Valentine Day.

Of course cutting labor costs means workers have lower income, but the prices of everything are not lower because profits are much higher. Thus the need for free food.

The basic idea appears to be that the state and markets are the first two pillars, communities being the neglected third. But really there can only be two pillars, by the law of the excluded middle. Any agreement between parties (which is most of life as we know it, whether conducted within something formally considered a market or not) is either unfettered by the state or it is limited in some way by the state. (It may be restricted by community norms, but that is a market by another name.) There is no third possibility.

Rajan points to expanding globalization and technological change imposing negative externalities on communities, and he may well be right. But I don’t foresee that his proposed solutions will be something other than restrictions on markets (broadly conceived) imposed by the state. In which case it’s the same old debate about the necessity and efficacy of government intervention, but dressed as if something new. The phrase “Third Pillar” reminds me of “The Third Way,” a buzzword popular in the 1990s that has fallen into disuse (if not disrepute).

I withhold judgment until this book is out, but it’s disheartening that smart, sensible economists like Zingales and others (possibly Rajan) are tilting anti-market while professing pro-market views. I think they are sincere, but possibly self-deluded. Advocating restrictions on markets to “make them work better” might be well-founded and correct in some cases, but it’s not helpful to obscure the idea by referring to a market restriction as “pro market.”

Could breaking up large firms to undercut their undue political influence render markets more competitive? Perhaps, but where will we find the public spirited legislators and bureaucrats, beyond the reach of that corrupting influence, to carry out the task?

Could abolishing private property, confiscating assets for rental through periodic auctions, attain nirvana? Perhaps, but where will we find the dispassionate, selfless auctioneers?

I for one prefer our current republic, flawed as it is, to Plato’s.

I dunno. Yuval Levin, echoing Burke, identifies the importance of intermediate institutions, which have waxed and waned but mostly been an important part of most societies for long enough to establish their viability, even if they have been waning lately.

If by “intermediate institutions” you mean webs of voluntary interactions that have arisen spontaneously, I think of that as part of the fabric of “the market.” I agree that the longstanding existence of such institutions is a powerful argument in their favor, even if we’re not entirely sure how or why they are successful (echoing Hayek). So I’m not sure that we disagree.

Intermediate institutions are thriving in today's connected era. Spend 10 minutes on Facebook, LinkedIn, or Reddit and you'll see a ton of activity on any possible topic you can imagine.

Families are a locus of organization that can be orthogonal to the market and the state. They grow/operate by different rules and embody different values. They work on different time/space scales.

In this sense, globally religious organizations also can be market/government/family orthogonal.

Whether local (geographically local) communities can be orthogonal to those others is an interesting question.

For people steeped in a two-way slugfest between market and government, any other source of power looks like a backdoor for the enemy, and a corruption. However, this only makes sense in that bipolar frame. It may be that the frame itself is blinkered and very dangerous. What would the world look like if we actually accepted that some degree of nepotism was natural in an effective government, rather than trying to stamp it out _at any cost?_ If family businesses were a natural intersection of the market and family?

These are the sorts of questions that require a systems perspective beyond strict market or policy ideology.

Yeah food banks are a government thing now too.


Three pillars? How about four? Market, Government, Local Communities, Families? Or five, with NGOs? Or six, with churches?

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