Archive for June, 2010

Hope Cemetery, Barre, Vermont

That’s it. Today is the last day for the Department of Economics and Policy Studies at the University of Notre Dame. Tomorrow, ECOP will be officially shut down.

For those who are not familiar with the history, here’s a little recap: ECOP started as a Department of Economics open to alternative perspectives in 1975, when Chuck Wilber was hired as the chair. The department continued to grow and flourish, adding new members and new areas of research and teaching, to become one of the premier departments of “heterodox economics” in the United States. (To be clear, in the United States, a department of heterodox economics means that it includes some heterodox economists, not that it is exclusively heterodox. To refer to the Notre Dame program as a department of heterodox economics serves to distinguish it from all the other, exclusively mainstream departments, which include no heterodox economists.) Over the years, thousands of graduate and undergraduate students were exposed to both mainstream and heterodox perspectives through the teaching, research, and service of members of the department.

In 2003, the university administration decided to start the process of closing down the department, by renaming the existing program the Department of Economics and Policy Studies, and creating a new department (the Department of Economics and Econometrics), which was defined as an exclusively neoclassical program. The new department was given complete control over the doctoral program and the right to make all new hires in economics. The old, renamed department took primary responsibility for the undergraduate program, which continued to flourish.

This year, the university administration took the second step in closing down ECOP, by deciding to dissolve the department and to ask the remaining members to find positions for themselves elsewhere. As of tomorrow, the Department of Economics and Econometrics will be renamed the Department of Economics and become the sole program of both undergraduate and graduate economics at the university. (More elements of this history, including some of the key documents, can be found here.)

What this means is that the University of Notre Dame has decided to enshrine neoclassical theory as the privileged approach to economics precisely when, in the midst of the greatest crisis of capitalism since the Great Depression, the economics establishment is being called into question and alternative approaches are being discovered and explored. But such discussions will no longer be officially sanctioned at the University of Notre Dame.

Misery loves company

Posted: 30 June 2010 in Uncategorized
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And boy is there a lot of company these days. . .

According to the latest Pew Research Center survey, “The Great Recession at 30 Months,” over half of the U.S. population has taken a direct hit from the capitalist crises:

More than half (55%) of all adults in the labor force say that since the Great Recession began 30 months ago, they have suffered a spell of unemployment, a cut in pay, a reduction in hours or have become involuntary part-time workers.

The numbers are extraordinary.

  • The work-related impact of this recession extends far beyond the 9.7 percent who are unemployed or the 16.6 percent who (according to the U.S. Bureau of Labor Statistics) are either out of work or underemployed. The Pew Research survey finds that about a third (32 percent) of adults in the labor force have been unemployed for a period of time during the recession.
  • Most Americans (54 percent) say the U.S. economy is still in a recession.
  • More than six-in-ten Americans (62 percent) say they have cut back on their spending since the recession began in December 2007; just 6 percent say they have increased their spending.
  • About half the public (48 percent) say they are in worse financial shape now than before the recession began; one-in-five (21 percent) say they are in better shape.
  • A third (32 percent) of adults now say they are not confident that they will have enough income and assets to finance their retirement, up from 25 percent who said that in February 2009.
  • More than a quarter (26 percent) of Americans say that when their children become the age they are now, their children will have a worse standard of living than they now have.

Clearly, the vast majority of Americans are aware they are being made to pay in the current crises, and their sense of their prospects for the future is bleak.

Having company doesn’t make their misery any easier to accept.

Mind the gap

Posted: 30 June 2010 in Uncategorized
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For those (like Paul Krugman) who are floundering around trying to understand whether or not there’s a link between inequality and capitalist crises, the similarities between 2007 and the situation just before the Great Depression couldn’t be clearer.

The latest study by the Center for Budget and Policy Priorities shows that the gap between the very top and the rest of the recipients of income in the United States increased enormously in the last three decades.

The gaps in after-tax income between the richest 1 percent of Americans and the middle and poorest fifths of the country more than tripled between 1979 and 2007. . .Taken together with prior research, the new data suggest greater income concentration at the top of the income scale than at any time since 1928.

The gap in income between the wealthiest Americans and all others has grown strikingly in recent decades, the CBO data show. In 1979, when the data begin, the average after-tax incomes of the top 1 percent of households were 7.9 times higher than those of the middle fifth of households. By 2007, top incomes were 23.9 times higher than those of the middle fifth — a more than tripling of the income gap.

The gap between the top 1 percent and the poorest fifth of Americans widened even more sharply. In 1979, the incomes of the top 1 percent were 22.7 times higher than those of the bottom fifth. By 2007, top incomes were 74.6 times higher than those at the bottom — more than tripling the rich-poor gap in 28 years.

And for those who think that changing tax rates will solve the problem, the study has the answer:

The bulk of the increase in after-tax income inequality since 1979 reflects changes in pre-tax incomes. The incomes of the top 1 percent rose 141 percent from 1979 to 2007 before taxes are considered, the CBO data show. The top 1 percent’s share of before-tax income (like its share of after-tax income) more than doubled from 1979 to 2007, from 9.3 percent to 19.4 percent.

By 2007, the top 1 percent had before-tax incomes that were 24 times higher than those of the middle fifth of Americans — a share that had nearly tripled since 1979.

The rapidly rising pre-tax incomes of the wealthy help to explain the notable rise in the percentage of total tax revenue collected from these households. CBO’s data show that the share of total federal taxes paid by the top 1 percent of households rose from 25.5 percent in 2000 to 28.1 percent in 2007, the second-highest share since 1979 (only 2006 was higher).

The increase in the share of taxes paid by the wealthy is often cited erroneously as evidence that their tax burden is rising. In reality, the effective federal tax rate for the top 1 percent of households — the percentage of their income that they pay in federal taxes — declined from 33.0 percent of income in 2000 to 29.5 percent in 2007.

The top 1 percent paid a growing share of total taxes chiefly because they received a growing share of total before-tax income: 19.4 percent in 2007, compared to 17.8 percent in 2000.

So, if we want to understand the links between inequality and capitalist crises, we need to start by analyzing the growing gap in the distribution of income prior to the onset of the crises. And if we want to eliminate that gap and avoid the next crisis, we have to move beyond the class structures of capitalism that created them in the first place.

There’s a silver lining to the current levels of unemployment—for capitalism.

Steve Matthews, for Bloomberg, argues that long-term unemployment is good for business. It leads to increases in productivity and lower inflation, and thus higher profits.

The 6.8 million Americans out of work for 27 weeks or longer — a record 46 percent of all the unemployed — are providing U.S. companies with an eager, skilled and cheap labor pool. This is allowing businesses to retool their workforces, boosting efficiency and profits following the deepest recession since the 1930s, and contributing to a 61 percent rise in the Standard & Poor’s 500 Index since March 2009.

“Companies are getting higher-productivity employees for the same or lower wage rate they were paying a marginal employee,” said James Paulsen, who helps oversee about $375 billion as chief investment strategist at Wells Capital Management in Minneapolis. “Not only are employees higher skilled, you have a better skill match. You have a more productive and more adaptive labor force.”

Falling wage pressures will help keep inflation low, contributing to lower Treasury-bond yields, according to Mark Vitner, a senior economist at Wells Fargo Securities LLC in Charlotte, North Carolina. He forecasts 10-year Treasuries will yield about 3.1 percent in the third quarter, compared with 4 percent in April.

The lack of wage pressure also “reinforces the case for globally exposed companies” because “there has been better cost containment in the U.S. than in some of our competitors,” said Ethan Harris, head of North America economics at Bank of America-Merrill Lynch Global Research in New York. He said this would benefit businesses such as Cincinnati-based Procter & Gamble Co., the world’s largest consumer-products company, and Atlanta-based Coca-Cola Co., the world’s biggest soda maker. . .

U.S. productivity gains averaged 2.9 percent from 2000 through the first quarter of 2010, compared with 2.1 percent in 1990-1999 and 1.5 percent in 1980-1989, according to the Labor Department. The increased efficiency has helped improve earnings, with more than 80 percent of companies in the S&P 500 index reporting profits that exceeded the consensus analysts’ estimates during the most recent quarter, Bloomberg data show.

“The U.S. has been enhancing its global competitiveness,” Harris said. “We don’t see inflation picking up until there is a substantial drop in the unemployment rate.”

That’s exactly how capitalism works: capitalists in the midst of a crisis decide to lay off workers, leading to higher unemployment. Given the pressure of the reserve army of the unemployed, workers who have a job work harder, produce more, and their jobs fall behind the increased productivity. Profits rise and, over time, capitalists solve their crisis on their own terms.

For the capitalists, but not for the rest of us, that’s the silver lining of unemployment.

Follow the money.

It’s the best way to see the emergence of the corporate university. First, there’s the tyranny of student evaluations, which as Stanley Fish explains are “all wrong as a way of assessing teaching performance”:

they measure present satisfaction in relation to a set of expectations that may have little to do with the deep efficacy of learning.

Students tend to like everything neatly laid out; they want to know exactly where they are; they don’t welcome the introduction of multiple perspectives, especially when no master perspective reconciles them; they want the answers.But sometimes (although not always) effective teaching involves the deliberate inducing of confusion, the withholding of clarity, the refusal to provide answers; sometimes a class or an entire semester is spent being taken down various garden paths leading to dead ends that require inquiry to begin all over again, with the same discombobulating result; sometimes your expectations have been systematically disappointed. And sometimes that disappointment, while extremely annoying at the moment, is the sign that you’ve just been the beneficiary of a great course, although you may not realize it for decades.

But Fish doesn’t connect the dots: when universities are transformed into profit-making corporations, students (and their parents) are the paying “customers” who, instead of being challenged to learn, are there to be satisfied by their professors.* That’s why student evaluations matter so much, because they are used by university administrators to judge the extent to which professors are treating the student customers well.

The second item is the rise of the “idea incubator,” the academic version of business incubators designed to build a bridge, from a very early stage, between academic researchers and the business world. Professors are encouraged to engage in research that has commercial possibilities, and the universities take a cut. The problem is, at least some professors are dedicated to basic research and education and lack the appropriate “entrepreneurial spirit.”

UNIVERSITY executives say they sometimes struggle to find motivated entrepreneurial professors. Medical researchers with promising discoveries may plunge into the marketplace out of a sense of service. For others, though, the motivation can be as simple as the sight of a fellow professor in a new sports car — a behavior common enough that it is known in university circles as “the Porsche principle.”

Both these phenomena—the time and attention devoted to student evaluations and the rise of business-oriented incubators—represent a fundamental transformation of the idea of the university. They represent the capitalist selling of services and products, which undermine the production and dissemination of ideas and critical knowledge—and, with them, academic freedom and faculty governance.

* I should disclose that I was a recipient of the university teaching award in 2009.

They’re at it again, telling noneconomists to just shut up and listen—to “real” economists.

That’s the message Kartik Athreya has for all those people out there who have the audacity to produce and disseminate ideas about economic issues and events without having a Ph.D. in economics. They should just stop their “sophmoric musings” and let economic scientists, who engage in “such careful work with its explicit, careful reasoning, its ever-mindful approach to the accounting for feedback effects, and its transparent reproducibility,” determine what appropriate economic knowledge is. (The essay, “Economics is Hard. Don’t Let Bloggers Tell You Otherwise,” is no longer available on the link reproduced by others. I found it here.)

My first response, which is really too easy, is that Athreya’s timing is all wrong. He’s asking us to bow down to exactly those neoclassical economists who got us into this mess in the first place. Sure, their models are hard: they’re hard to build and manipulate, and they’re hard to understand. You really do need a Ph.D. in economics to work your way through the mathematics. But that certainly doesn’t make the models correct. It’s up to folks who have learned the math and the models to debunk them.

But that still leaves the larger question: are people who “who have not taken a year of PhD coursework in a decent economics department (and passed their PhD qualifying exams)” merely doing “ersatz” economics—a pale imitation of “real” economics—or are there different, incommensurable economic knowledges? On the latter view, there are different knowledges within academic economics (including neoclassical, Keynesian, Marxian, etc. knowledges), different economic knowledges in other academic disciplines (from cultural studies and anthropology to sociology and literary criticism), and different economic knowledges outside the academy (including among bloggers). Athreya wants to certify some of these knowledges as “serious science” and everything else—inside academic economics, in disciplines other than economics, and outside the academy—as nonsense.

Mind you, I don’t necessarily agree with many of the ideas disseminated in economics blogs, whether by economists or noneconomists. But it’s not a matter of ruling them out as ersatz economics. The modernist protocols of scientism can’t guarantee appropriate knowledges with respect to macroeconomics, just as they can’t provide guarantees when it comes to analyzing the causes and consequences (to use Athreya’s examples) the tsunami in East Asia or the earthquake in Haiti.

Only a fool would argue that, because “economics is hard,” only those who have completed “Ph.D. coursework in a decent economics department” should be allowed into the discussion.