Posts Tagged ‘crisis’
Tags: cartoon, crisis, economy, Obama, poverty, recovery, United Kingdom, United States
Tags: crisis, economics, forecasting, Keynes, mainstream, Marx, neoclassical, prediction
This semester, I’m teaching a course on Marxian economic theory. It’s been a real eye-opener for the the students, who seem a bit surprised to learn that there is such a wholesale critique of the mainstream economics they’ve been learning. Some are even intrigued by this new way of thinking about the economy, which led one of them to pose the following question: did Marxists predict the crisis better or more accurately than mainstream economists?
Well, I explained, that’s setting the bar pretty low, since mainstream economists simply failed to predict the crash of 2007-08. But, I explained, Marxists did no better. And that’s because economic forecasting is like selling snake oil: lots of folks earn lots of money promising the ability to predict economic events but all they’re doing is selling the promise, not the actual ability, to get the forecasts right. (And, of course, they pay nothing for their failures, since they’ve left town long before people discover the magic elixir doesn’t work.)
And that’s what has happened to the students: they’ve been told mainstream economics is superior to all other approaches, that it’s a “real science,” because of its predictive power. And they’re willing to jump ship, as it were, if an alternative theory offers more predictive power.
The problem is, as Sir David Hendry explains, forecasting only works if the future behaves the same as the past, if it follows the same rules and falls under the same normal distribution. If it doesn’t, then all bets are off. What that means for me (and for Chris Dillow) is that Marxists are no better at predicting the future than mainstream economists. In fact, economic forecasting, of whatever sort, is a false promise.
But then I went on in my response to the student’s question: what really distinguishes different groups of economists is whether or not they include the possibility of a crisis in their theories and models—and what they would suggest doing once such a crisis occurred (including measures to prevent future crises). And there the difference between mainstream and Marxian economics couldn’t be starker: mainstream economics simply doesn’t include the possibility of crises (except as an exogenous event) whereas Marxists start from the proposition that instability is inherent (and therefore an endogenous tendency) in an economy based on the capitalist mode of production. That’s one fundamental difference between them. The other is that, once a crisis occurs (such as in 2007-08), the two groups of economists offer very different solutions: whereas mainstream economists spend their time debating whether or not any kind of intervention is warranted (based on neoclassical versus Keynesian assumptions concerning invisible and visible hands), Marxist economists presume that interventions are always-already being made (in terms of determining who pays the costs of the crisis) and that it’s better both to help those who are most vulnerable and to put in place the kinds of institutional changes that would prevent future crises.
So, no, I don’t put a lot of stock in economic forecasting, whether promised by mainstream economists or others. It’s a promise of control that is a lot like selling snake oil. But I’m willing to throw in my lot with an approach that, first, actually includes the possibility of such crises at the very center of the theory and, second, is willing to move outside the paradigm of private property and markets to help those who are hurt by the crisis and to change the rules so that those who created the crisis in the first place no longer have the incentive and means to do it again in the future.
And you don’t need a crystal ball to know that, if such changes are not made, another crisis is awaiting us just around the corner.
Here’s the graph Bruce is referring to in the comments on this post:
And here’s the same series going back earlier:
Tags: chart, crisis, finance, inequality, rich
As expected, a year after the crash, 2009 was a bad year for the 400 richest Americans.
However, as James Stewart explains, that supposedly bad year was actually pretty damn good, especially in comparison to everyone else:
That’s the year that market averages hit their post-financial-crisis lows, and prices of nearly all assets plunged. Since the superrich depend disproportionately on assets, rather than earned income, they suffer more during hard times for financial markets since more of their assets are at risk, or so the theory goes.
Plenty of people did get hit in 2009, including people at the very top. But all things are relative. The fortunate 400 people with the highest adjusted gross incomes still made, on average, $202 million each in 2009, according to Internal Revenue Service data. And this doesn’t even count income that doesn’t show up as adjusted gross income, such as tax-exempt interest.
Yet the top 400 paid an average federal income tax rate of less than 20 percent, far lower than the top rate of 35 percent then in effect.
Tags: crisis, economics, education, heterodox, Keynes, mainstream, Marx, neoclassical, United Kingdom
Yesterday in class, after explaining to students that graduate students in economics no longer study either the history of economic thought or economic history, they asked me if I thought, in the wake of the crash of 2007-08, the training of students in economics—at either the undergraduate or graduate levels—would change.
My answer was, “I don’t know. But, the last time ‘business as usual’ in economics was challenged, in the late 1960s and early 1970s, it was students in economics—at the University of Michigan and elsewhere—who were the ones to initiate the change.”
The financial crisis represents the ultimate failure of this education system and of the academic discipline as a whole. Economics education is dominated by neoclassical economics, which tries to understand the economy through modelling individual agents. Firms, consumers and politicians face clear choices under conditions of scarcity, and must allocate their resources in order to satisfy their preferences. Different agents meet through a market, where the mathematical formulae that characterise their behaviour interact to produce an “equilibrium”. The theory emphasises the need for micro-foundations, which is a technical term for basing your model of the whole economy on extrapolating from individual behaviour.
Economists using this mainstream economic theory failed to predict the crisis spectacularly. Even the Queen asked professors at LSE why nobody saw it coming. Now five years on, after a bank bailout costing hundreds of billions, unemployment peaking at 2.7 million and plummeting wages, economics syllabuses remain unchanged.
The Post-Crash Economics Society is a group of economics students at the University of Manchester who believe that neoclassical economic theory should no longer have a monopoly within our economics courses. Societies at Cambridge, UCL and LSE have been founded to highlight similar issues and we hope this will spread to other universities too. At the moment an undergraduate, graduate or even a professional economist could easily go through their career without knowing anything substantive about other schools of thought, such as post-Keynesian, Austrian, institutional, Marxist, evolutionary, ecological or feminist economics. Such schools of thought are simply considered inferior or irrelevant for economic “science”. . .
We propose that neoclassical theory be taught alongside and in conjunction with a broad variety of other schools of thought consistently throughout the undergraduate degree. In this way the discipline is opened up to critical discussion and evaluation. How well do different schools explain economic phenomena? Which assumptions should we build our models upon? Should we believe that markets are inherently self-stabilising or does another school of thought explain reality better? When economists are taught to think like this, all of society will benefit and more economists will see the next crisis coming. Critical pluralism opens up possibilities and the imagination.
The current state of affairs is not good enough. Our classmates tell us that they are embarrassed when their family and friends ask them to explain the causes of the current crisis and they can’t. One of our professors was told that he should follow the dominant research agenda or move to the business school or politics department. Another was told that if he stayed he would be “left to wither on the vine”. This situation is reflected in economics departments across the country – it is national problem. Economics academia can and should be better than this, and that’s why we are calling for change.
Tags: corporations, crisis, inflation, unemployment, wages, workers
Yes, it is true, Binyamin Appelbaum’s original article on inflation is a bit of a mess—combining quotations from clown Alan Greenspan and golfer Kenneth Rogoff with an attempt to assess the distributional consequences of increasing prices. (The follow-up column starts out a bit better, since he makes it clear that wage incomes may not keep pace with higher prices, but then he ends with a statement that—somehow—”a little more inflation” will solve the “profound and enduring unemployment, slow growth, rising income inequality.”)
It’s even worse, though, to attempt to correct Appelbaum by arguing that the only distributional effect of inflation “has been and always will be between net lenders and net creditors.” Yes, wages are prices and nominal incomes, by definition, rise with prices. But that doesn’t mean all incomes—especially wage incomes—move hand in hand with prices.
The chart above is a perfect illustration. Hourly wages (the blue line) and consumer prices (the red line) are not particularly correlated, especially since the crash of 2007-08. And given the continued existence of a large Reserve Army of the Unemployed and Underemployed, it’s quite likely that higher inflation will be accompanied by falling real wages. That’s one reason why corporations would be quite happy with a more accomodationist monetary policy, which would push inflation above the current 1.5-percent rate and 2-percent target. Their profit margins would rise (as output prices increase) while real unit labor costs would fall (as real wages decline).
Workers have already paid the bulk of the costs of the crisis (as a result of massive unemployment, slow growth, and rising income inequality). And now they’re being asked to pay the costs for the recovery (by decreasing, in real terms, what little they receive in nominal wages).
The corporations they work for would like to lower their nominal wages (and there’s an army of neoclassical economists who are willing to make that case for them, in the name of labor-market “flexibility”). The next-best alternative is to lower their real wages (and there’s an army of other economists standing by to make that case, too).
Tags: cartoon, Congress, crisis, debt ceiling, politics, Republicans, shutdown, Tea Party, United States
Tags: business, capitalism, corporations, crisis, instability, Marx, politics, Second Great Depression, Tea Party, United States
Interest in Marx just doesn’t seem to go away.
Not after the Great Financial Crash of 2007-08. In the midst of the Second Great Depression, which also doesn’t seem to be going away.
And so Daniel W. Drezner [ht: sn] is the latest in a long line of professors and pundits who, in recent years, has been compelled to admit that Marx got at least a few things right.
Going beyond Smith and Ricardo, Marx stressed two important facets of the market that they did not. First, he stressed that crisis was endogenous to global capitalism. Marx acknowledged and admired the productive machine that was the capitalist system, but he also stressed that periodic busts were baked into the system. This is a point that spread into some corners of mainstream economics — see Hyman Minsky, Charles Kindleberger or even Reinhart and Rogoff – but could do with a little more emphasis in the old grad school syllabus.
The second dimension Marx stressed was power — which is why he’s still appreciated among those who study global political economy. A riff through The Communist Manifesto or the highly underrated Wage Labor and Capital shows the ways in which Marx appreciated how capitalism led to a redistribution and concentration of economic power over time. It’s not that hard to find recent empirical work that bolsters a Marxist analysis of economic power.
Then, as has become de rigueur in these kinds of pieces, there’s the facile reference to one or another of the tired refrains concerning Marx, in complete disregard of the scholarly literature. In this case, it’s Marx as an economic determinism, which even my undergraduate students are well aware is one of those oft-repeated but mistaken interpretations of what Marx and Engels were up to in formulating a materialist interpretation of history.
In any case, the real howler in Drezner’s piece is the following assertion: “We’re operating in a world where the core business interests in the United States — for kicks, let’s call them the “executive committee of the bourgeoisie” — are being ignored.” Really? What more could Drezner or the “core business interests” he refers to want? Even lower workers’ wages and higher corporate profits? Even cheaper money and larger interest-rate spreads for Too Big to Fail banks?
No one is arguing (certainly not I) that the Tea Partiers have been acting—in the first or even last instance—out of economic interests. Not even in the latest debt-ceiling showdown, which apparently they’ve lost. (Race, religion, and so much more play important roles in Tea Party ideology.) But at least some factions of American business did bet on the Tea Party—to criticize Obamacare, to attack transfer programs, to derail minimal government regulations—as long as it could be controlled. But then the Frankenstein monster they created got out of control.
And that’s one thing those core business interests do want: they may not be able to control an always-unstable capitalism but, as the self-appointed masters of the universe, they do want to be able to exercise their control over anyone who is appointed (or aspires to join) their executive committee.
As if to confirm my anti-economic determinist view of the Tea Party, Zack Beauchamp [ht: db] offers an important analysis of the role of racism in creating the government shutdown and the battle over the debt ceiling.
The basic cleavage between North and South, began by slavery, has set the fault lines of American politics again and again. This time, the crisis isn’t as severe as the civil war, nor as divisive as the battle over civil rights. But make no mistake: today’s Republican radicalism, with all of its attendent [sic] terrifying brinksmanship, is the grandchild of the white South’s devastating defeats in the struggle over racial exclusion.
Tags: cartoon, crisis, government, John Boehner, Koch brothers, Obama, Republicans, shutdown, Tea Party, United States
Tags: chart, crisis, debt ceiling, Europe, history, United States
Just a reminder, from the last debt-ceiling showdown in the summer of 2011, against the current Republican (and Republican water-pail-carrying) argument that not raising the debt ceiling has no real consequences.*
Back in 2011, the Standard & Poor’s 500 Stock Price Index fell 14.2 percent (from 8 July to 12 August)—not to mention the other events at that time: the downgrade of the U.S. credit rating, the increase in U.S. borrowing costs, and the stock-market meltdown in Europe.
As always, I’m of two minds about this showdown: on one hand, let them lie in the bed they’ve made; on the other hand, the rest of us are under the bed and, if and when it crashes, we’re all going to be hurt.
*And you don’t have to listen just to me. Yesterday, according to the Wall Street Journal, top Wall Street executives were the ones who were “warning that any effort to pay interest on U.S. debt before other obligations such as Social Security, a strategy some lawmakers think would placate bond investors if the government breaches its borrowing limit, would pose severe risks to financial markets and the economy.”
Tags: capitalism, crisis, noncapitalism, utopia, zombies
Next year, I have to give a major address on rethinking Marx and utopia at a conference on “Capitalism and Socialism” sponsored by the Center for Communal Studies at the University of Southern Indiana (I’ll post the link when the conference web site becomes active).
I still haven’t figured out what I’m going to say yet (although I have some ideas, connected to the theme of critique). And, like John Powers, I’ve never been a “zombie guy” (in fact, I’ve mostly stayed away from the growing list of films and literature featuring zombies). However, based on his article on the post-capitalist dimensions of the zombie apocalypse, I just might have to spend a bit of time studying what zombies have come to represent in the current crises of capitalism.
The first time I was cognizant that zombies might no longer mean what I had grown up being told they meant was during the unexpected sight of Occupy Wall Street protesters dressed as zombies taunting the 1%. I was familiar with the phenomenon of zombie walks – absurdist flash mob street theater – so I wrote the association off to protesters making a pun on “zombie capitalism.” But looking back, I no longer think so.
Sometime in the years leading up to September 17, 2011, zombies had gone from being associated with a terror of mob rule to the promise of release from an inescapably all-encompassing system. To be clear: Zombies were not being equated with corporate capitalism – they had become the revolution itself. Zombies had become the alternative to the system with no alternative.