Protest of the day

As many as 200,000 demonstrators marched through the streets of Brazil’s biggest cities on Monday in a swelling wave of protest tapping into widespread anger at poor public services, police violence, and government corruption.

The demonstrations are the first time that Brazilians, since a recent decade of steady economic growth, are collectively questioning the status quo. . .

For President Dilma Rousseff, the demonstrations come at a delicate time, as price increases and lackluster growth begin to loom over an expected run for re-election next year.

Polls show Rousseff still is widely popular, especially among poor and working-class voters, but her approval ratings began to slip in recent weeks for the first time since taking office in 2011. Rousseff was booed at Saturday’s Confederations Cup opener as protesters gathered outside.

Through a spokeswoman, Rousseff called the protests “legitimate” and said peaceful demonstrations are “part of democracy.” The president, a leftist guerrilla as a young woman, also said that it was “befitting of youth to protest.”

Cartoon of the day

Special mention

The hegemony of neoclassical economics

It’s one thing to argue about whether or not neoclassical economics continues to exercise hegemony within the discipline of economics. It’s another thing entirely to blame heterodox economists, as Noah Smith does, for that hegemony.

Notwithstanding the arguments made by a variety of economists (including friends of mine, such as John Davis and Will Milberg) that the dominance of neoclassical economics has given way to a much more open, pluralist situation in economics, my own view is that neoclassical economic theory continues to occupy a hegemonic position within the discipline of economics. Part of that disagreement stems from the difference between predominance and hegemony: I’ve often argued that neoclassical economists may constitute a minority among practicing economists (if we count all the folks who hold doctorates in economics and teach and use economics in a variety of settings other than the top-ranked departments of economics). Still, neoclassical economic theory is in a hegemonic position in terms of determining a wide variety of things, from who gets the best academic jobs and who gets promoted within those jobs to how research money is allocated and what kinds of research gets published in the main economic journals.

And that includes one of Smith’s prime examples: Daron Acemoglu, Simon Johnson, James A. Robinson’s essay on the colonial origins of development published in the American Economic Review. While the authors may not explicitly invoke individual optimization or supply/demand, their framework—in which development is defined as growth in national income and the appropriate institutions for development are defined as those securing private-property rights—certainly stems from neoclassical economics. A better example of the hegemony of neoclassical economics could not be found.

In any case, what is truly mind-blogging about Smith’s discussion of neoclassical economics is the idea that the use of the term by heterodox economists—their supposed pigeonholing people as neoclassical economists—is what undermines pluralism in economics and drives economists back into the neoclassical camp.

Sorry but no. Not a chance. There is much less pluralism in economics than in any other academic discipline—from philosophy to physics—precisely because of the hegemony of neoclassical economic theory. It’s not that every idea out there or every article that gets published is a direct or unified exposition of neoclassical economics (not theory, whatever its pretensions, can ever be so closed and exclusive). The neoclassical will-to-hegemony should not be confused with its ability to determine every aspect of the discipline. But the fact that heterodox economic theories and ideas remain so marginalized within the discipline—such that economics students and economists themselves, even dissident ones, know so little about alternatives to neoclassical economics—is precisely the effect (and, in turn, a condition) of the hegemony of neoclassical economics.

And that is true, even now. After years of experimental, behavioral, and seemingly atheoretical empirical work. And after years since the onset of the worst economic crisis since the First Great Depression.

Those of us who work in and around economics continue to be disciplined and punished by the hegemony of neoclassical economics.

Trying desperately to defend the 1 percent

I’ve often said that the Occupy Wall Street movement’s greatest contribution, to date, has been to focus on the opposition between the 1 percent and everyone else.

And, to judge from Greg Mankiw’s latest, the OWS argument continues to have considerable bite. That’s because Mankiw, in an attempt to defend the 1 percent, throws everything against the wall in the hope that at least something will stick.

What does Mankiw come up with? Here’s some of what he tries: assertions without any empirical confirmation (“high earners have made significant economic contributions”), personal anecdotes (“I was raised in a middle-class family; neither of my parents were college graduates. My own children are being raised by parents with both more money and more education. Yet I do not see my children as having significantly better opportunities than I had at their age.”), one empirical study (about the high pay to CEOs in closely-held firms, a result that can be explained in a diametrically opposed manner), the supposedly high percentage of income paid in federal taxes by the top 1 percent (as if 28.9 percent is really that large a number), and a long slew of possible explanations of income inequality other than class or power (including IQ, “self-control, ability to focus, and interpersonal skills,” and preferences for income over “personal and intellectual freedom”).

What a mess! But, of course, the underlying framework Mankiw presumes is the usual neoclassical story of productivity and “just deserts”—the idea that, in a competitive equilibrium (and assuming no externalities or public goods), everyone gets what they deserve.

But it’s precisely that neoclassical story that the OWS movement has successfully challenged. Hence Mankiw’s everything-but-the-kitchen-sink argument, which simply reveals mainstream economists’ desperate attempt to defend their own economic theory and, with that, the interests of the 1 percent.

Protest of the day

Brazilians in more than 200 cities within the country and around the world [ht: avs] are planning demonstrations this week.

Chart of the day

U.S. income inequality, as measured by the Gini index, rose 33.2 percent between 1979 and 2007. According to a recent study by the Economic Policy Institute, shifts in the market distribution of income—especially the redistribution of income from labor to capital—were the primary factors driving the rise in inequality.

In terms of only market income, the index rose 23.2 percent, which means that roughly 30 percent of the rise in post-tax, post-transfer inequality between 1979 and 2007 can be attributed to changes in the redistributive nature of tax and budget policy. In other words, government tax and transfer policy did not effectively push back against the sharp market-based rise in inequality, and by many measures the tax and transfer system actually exacerbated pretax inequality trends, creating even less equitable growth in post-tax, post-transfer income. On net, the federal tax and transfer system reduced the Gini index by 17.1 percent in 2007, down from a 23.4 percent reduction in 1979.

One possible conclusion is that the radical shift from labor to capital income caused the extraordinary increase in U.S. income inequality in two ways: directly (via the market distribution of income) and indirectly (via changes in tax and transfer policies).

Cartoon of the day

Special mention