The problem of inequality

Timothy Noah has one story about inequality. Mine, I think, is a bit different.

According to Noah’s story, while conservatives mostly deny the existence of inequality, liberals tend to focus on the gap between the 1 percent and everyone else and forget about the skills-based gap between those with a college education and those without.

I wonder what people he’s talking about. At least in the discipline of economics, while he’s mostly correct about conservatives (who spend a good bit of their time, when they address the issue of inequality at all, denying it’s a problem), liberal economists are the ones who have focused on the different rewards to different levels of education (which can then be solved by improving schools and encouraging higher levels of education). What conservative and liberal economists share is the idea that, in a market system, everyone gets what they deserve (at least when markets clear and there’s full employment).

As I see it, the idea that we needed to worry about the widening gap between the 99 percent and those at the very top actually came from outside the terms of that conservative-liberal debate—in the empirical work of Thomas Piketty and Emmanuel Saez and in the critique of current economic arrangements posed by the Occupy Wall Street movement. It has represented a challenge to both conservatives (based on the idea that inequality is a real problem) and liberals (since the 1 percent-99 percent gap simply can’t be accounted for by skill-based technical change).

Moreover, focusing on the top 1 percent (and, within that, the top .1 percent and top .01 percent) of the nation’s income distribution raises, in turn, the issue of class, which neither conservative nor liberal economists ever want to discuss.

Nor, as it turns out, does Noah. Until the end, when he finally mentions the divergence between the share of income going to capital (which has been rising) and that going to labor (which has been falling). But focusing on factor shares actually takes us away from skill-based inequality, even when connected to the demise of the union movement, and toward something more fundamental: the growing gap between the vast majority who produce the nation’s wealth and the tiny minority at the top who are able to appropriate a larger and larger share of that wealth.

And solving that problem means going beyond the terms of the conservative-liberal discussion of the problem of inequality and putting class itself on the table.

I guess, in the end, that’s where my story about the problem of inequality differs from the one Noah wants to tell.

Summers in the city

 

Today, in reading about the Koch brothers’ mounting pile of petroleum coke in Detroit, I was reminded of the infamous 1991 memo by Larry Summers concerning exporting dirty industries to the Third World.

The neoclassical logic is impeccable:

The measurements of the costs of health impairing pollution depends on the foregone earnings from increased morbidity and mortality. From this point of view a given amount of health impairing pollution should be done in the country with the lowest cost, which will be the country with the lowest wages. 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.

And that, it seems, is what Detroit has become:

“What is really, really disturbing to me is how some companies treat the city of Detroit as a dumping ground,” said Rashida Tlaib, the Michigan state representative for that part of Detroit. “Nobody knew this was going to happen.” Almost 56 percent of Canada’s oil production is from the petroleum-soaked oil sands of northern Alberta, more than 2,000 miles north.

How’s that austerity stuff workin’ out for ya?

Not so well, eh?

Not when, as Eurostat [pdf] announced earlier today, Gross Domestic Product fell by 0.2 percent in the euro area (EA17) and by 0.1 percent in the larger EU27 during the first quarter of 2013. Even the United States, four years into the “recovery,” grew by a paltry 0.6 percent compared with the previous quarter (and, when compared with the same quarter of the previous year, GDP rose by only 1.8 percent).

Not when, as Paul Krugman explains, the two major studies invoked by economists and politicians to justify austerity measures have been thoroughly discredited.

So, the question remains, why do many members of the elite in both the United States and in Western Europe continue to impose the Draconian measures that, together, represent economic austerity?

While the “psychology answer”—that deficits represent some kind of moral question—might work in terms of selling austerity (it certainly works on my students), it doesn’t explain why those at the top continue to believe in the need for austerity.* What we need, instead, is a class analysis of the different ways capitalism is configured and reconfigured according to both neoclassical austerity and Keynesian stimulus policies.

To his credit, Krugman does take some initial steps in that direction for the specific case of austerity:

As many observers have noted, the turn away from fiscal and monetary stimulus can be interpreted, if you like, as giving creditors priority over workers. Inflation and low interest rates are bad for creditors even if they promote job creation; slashing government deficits in the face of mass unemployment may deepen a depression, but it increases the certainty of bondholders that they’ll be repaid in full. I don’t think someone like Trichet was consciously, cynically serving class interests at the expense of overall welfare; but it certainly didn’t hurt that his sense of economic morality dovetailed so perfectly with the priorities of creditors.

But that’s just the beginning. We need to do much more in terms of analyzing the class effects of the policies on both sides of the mainstream debate.

And, of course, of what a class alternative looks like—since we know that that austerity stuff is certainly not working out for most of us.

 

*I also don’t buy the idea that the opposite of austerity, Keynesian stimulus, is any less a morality play. The idea that “your spending is my income,” and thus we’re all in this together, is no more technical an idea than cutting deficits as a path to economic growth. Both ideas represent a combination of technique and morality, of how “technical malfunctions” emerge and can be solved and what society can and should look like.

What do capitalists do?

Robert Venturi, Fire Station No. 4

I often invoke Columbus, Indiana in my lectures.

One reason is to suggest to my students that they might shed their prejudices about Indiana and explore some of what the state has to offer—instead of staying on campus and complaining there’s nothing to do except attend football games.

The other reason is to encourage them to question what it is that capitalists actually do. When I ask them, the usual response—consistent with the neoclassical theory that has been presented to them as the only economic theory worth considering—is: “capitalists maximize profits.” (That’s equivalent to the neoclassical rule concerning consumers, that they “maximize utility.”)*

Well, no: capitalists do lots of different things. They do make profits (at least sometimes, but over what timeframe are they supposedly maximizing those profits?). But they don’t follow any single rule. They also seek to grow their enterprises and destroy the competition and maintain good public relations and buy government officials and reward their CEOs and squeeze workers and lower costs and build factories that collapse and. . .well, you get the idea. In other words, they appropriate and distribute surplus-value in all kinds of ways depending on the particular conditions and struggles that take place over the shape and direction of their enterprises.

And Cummins Engine Company is a good example, since it has distributed a good chunk of the surplus it’s managed to appropriate over the years to subsidize the design of gems by a litany of important American architects: I. M. Pei, Harry Weese, Robert A. M. Stern, Richard Meier, Kevin Roche, Robert Venturi, Cesar Pelli and others. In Columbus, Indiana of all places!

My point to the students is not that Cummins is an example of a “good capitalist” as against other “bad capitalists.” No, the idea is that capitalists—whether in the United States or Bangladesh—do lots of different things, and presuming they follow a simple rule means missing out on the complex, contradictory dynamics of capitalist enterprises and therefore of capitalism itself.

 

*It’s also equivalent to what one hears from many so-called radical economists, that “capitalists accumulate capital.” Again, no. Accumulating capital (that is, purchasing new elements of constant and variable capital) is only one of the many possible forms in which capitalists distribute the surplus-value they appropriate from their workers. Sometimes they accumulate capital, and other times they don’t. The presumption that they always seek to accumulate capital is the heroic story proffered by classical economists (so that, in their view, capitalist growth would take place), much as neoclassical economists today presume that capitalists maximize profits (so that, in their view, an efficient allocation of resources will result). Marxists presume neither that capitalists maximize profits nor that they always and everywhere accumulate capital.

Class struggles

It should come as no surprise that, as reported in the Chronicle of Higher Education [paywall], students on college campuses are struggling over the issue of class.

The situation is particularly difficult for first-generation college students (as I was back in the day), who are cast as subjects of “socioeconomic diversity” within institutions of higher education that are increasingly targeting the sons and daughters of the wealthy in order to increase revenues and move up in the rankings.

The class problem in relation to higher education, of course, is an old one, as Thorstein Veblen discussed in the Theory of the Leisure Class:

Ritualistic survivals and reversions come out in fullest vigor and with the freest air of spontaneity among those seminaries of learning which have to do primarily with the education of the priestly and leisure classes. Accordingly it should appear, and it does pretty plainly appear, on a survey of recent developments in college and university life, that wherever schools founded for the instruction of the lower classes in the immediately useful branches of knowledge grow into institutions of the higher learning, the growth of ritualistic ceremonial and paraphernalia and of elaborate scholastic “functions” goes hand in hand with the transition of the schools in question from the field of homely practicality into the higher, classical sphere. The initial purpose of these schools, and the work with which they have chiefly had to do at the earlier of these two stages of their evolution, has been that of fitting the young of the industrious classes for work. On the higher, classical plane of learning to which they commonly tend, their dominant aim becomes the preparation of the youth of the priestly and the leisure classes—or of an incipient leisure class—for the consumption of goods, material and immaterial, according to a conventionally accepted, reputable scope and method. This happy issue has commonly been the fate of schools founded by “friends of the people” for the aid of struggling young men, and where this transition is made in good form there is commonly, if not invariably, a coincident change to a more ritualistic life in the schools.

And, of course, it’s become much sharper in recent years, with growing inequality in the wider society and soaring debt for those students who are trying to follow the American Dream.

While I’m certainly not against the “dialogues” featured in the Chronicle article, what students in fact need is a clear and rigorous discussion of how class works—in the economy and in the wider society. They need academic courses—in economics and sociology but also in literature and the sciences—that explicitly treat the issue of class, which given students the concepts and methods to understand how class works and how it shapes their lives, before, during, and after their studies.

Otherwise, all we’re doing is participating in the “growth of ritualistic ceremonial and paraphernalia and of elaborate scholastic ‘functions’” and watching students struggle, outside the classroom, with the issue of class.

More economic representations

Economists, it seems, have discovered the fact that economic ideas are produced and disseminated outside the texts of academic economics. In novels, for example.

Diane Coyle offers her list of “classics for economists,” after which we have Noah Smith’s “science fiction for economists” (to which Paul Krugman has added his own favorites) and some crime fiction by Mark Palko.

Good. I’m all in favor of expanding the world of economic representations, which is a project Jack Amariglio and I started more than a decade ago (in chapter seven of Postmodern Moments in Modern Economics, on “Academic and Everyday Economic Knowledges) and that I continued (with Economic Representations: Academic and Everyday and an essay in Cultural Studies, titled “Economic Representations: What’s at Stake?”).

But then let’s get serious about the project. First, by going beyond novels, to look at the many other representations of economic ideas (such as in the list above, from fairytales to photography). And second, by  actually taking such diverse economic representations seriously, by analyzing their role alongside and as distinct from the texts of academic economics. What I argued in the Cultural Studies essay is that one of the consequences of examining the texts of nonacademic, “everyday” economics

is that we can begin to unearth and examine knowledges of existing economic arrangements and imaginaries of alternative economies that are hidden within or behind, that in one way or another exceed, ‘official’ ideas about the economy. By official ideas I not only mean mainstream, ‘neo-liberal’ celebrations of private property and free markets to which so much attention is directed these days; I am also referring to heterodox (including Marxian, radical, and other) conceptions of a monolithic, hegemonic global capitalism. Thus, we may find that everyday economic discourses represent the modern-day equivalent of a Bakhtinian carnival, which includes, on the one hand, stylized parodies of (and even attacks on) all sorts of official academic languages and pronouncements and, on the other hand, conceptual strategies and ways of seeing that pave the way for alternative economic practices and institutions.

And today, in the midst of the Second Great Depression, moving beyond official ideas about the economy, which are often imposed by mainstream academic economists, is more important than ever.

One economics—and only one economics

I’m not at all clear as to why the World Economics Association chose to publish an interview with Dani Rodrik.

The WEA, after all, is attempting to fill “a huge gap in the international community of economists—the absence of a professional organization which is truly international and pluralist.” While Rodrik may meet the international criterion, he certainly isn’t an advocate of more pluralism in economics.

On the contrary, his entire approach can be summed up in his parting advice to young researchers:

Identify an intellectual consensus that has gone beyond what the theory and empirics can support and chip away at it. But do so without departing too much from the discipline’s accepted methods!

Now, as many of us have discovered, that may be good advice in terms of building a career within the discipline of economics—don’t step outside the boundaries of “normal science” or (the threat is implied) you’ll be duly punished. But it’s certainly not sound intellectual advice, at least in terms of conducting scholarly work—which, if anything, needs to be committed to honest thinking, “in the sense of not being afraid of the results it arrives at and in the sense of being just as little afraid of conflict with the powers that be.”

Otherwise, it would be like having a department of economics that characterized itself as being purely neoclassical (oh, wait, there is one) instead of open to a variety of perspectives and methods for conducting research and teaching students.

No, Rodrik is no guide to creating more pluralism in economics. But maybe that’s the ultimately ironic point of publishing the interview: it illustrates the narrow limits of debate currently enforced within mainstream economics.

Cartoon of the day

Magic numbers and iron laws

 

Mainstream economists often complain the public doesn’t listen to them. The rest of should complain that, sometimes, as in the case of Reinhart-Rogoff, members of the public (including Harvard colleague Niall Ferguson, at the 1m20s mark) actually do. . .

“Offbeat” economics department—really?!

 

Given the awful track record of the economics departments at Harvard and elsewhere, it’s a bit strange that the economics department at the University of Massachussetts Amherst is referred to as “offbeat” [ht: ke].

Not to mention the fact that the fundamental errors in the now-infamous Reinhart-Rogoff study were first identified by Thomas Herndon, a graduate student at UMass.

It used to be called a radical economics department. In more recent times, it’s often referred to as heterodox economics. Yet, even after the “radical package” was hired back in 1973, the department only ever included a minority of nonmainstream economists. (In the video above, Don Katzner, Sam Bowles, and the late Stephen Resnick discuss some of that history. Matthews’s article also includes links to two other sources: Katzner’s book and a 2007 Nation piece by Chris Hayes.)

But that’s how it is in economics, even now five years into the Second Great Depression, which of course was precipitated by following the policies advocated by mainstream economists: having even a smattering of non-believers is enough to identify the department as something out of the ordinary—whether radical, heterodox, or simply offbeat.