Posts Tagged ‘economics’

 

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This, according to the Obama administration, is what “a broad array of ideological views” [ht: br] looks like:

  • Paul Krugman (Princeton University), Alan Blinder (Princeton University), Claudia Goldin (Harvard University), Anat Admati (Stanford University), Erik Brynjolfsson (Massachusetts Institute of Technology), and Roland Fryer (Harvard University), who were among the economists invited to have lunch with President Obama on 18 June; and
  • Martin Feldstein (Harvard University), Robert Hall (Stanford University), Ben Bernanke (former Federal Reserve Chairman), Edward Glaesar (Harvard University), Luigi Zingales (University of Chicago), Kevin Hassett (American Enterprise Institute), and Melissa Kearney (the Hamilton Project), who were invited for lunch yesterday.

Apparently, that’s what we’ve come to in this country, when “consulting a wide variety of perspectives” is in fact limited to a discussion within a narrow range, from the extreme right to mainstream liberalism. No one who actually offered a real sense of the impending crisis before 2007-08. Nor anyone who is critical of capitalism and is seriously thinking about alternative economic institutions.

The problem is not just that Obama is only listening to a narrow set of views. The list of invitees to the two gatherings also serves as an official stamp of approval—that these economists’ views are worth listening to, and all other approaches to economic analysis can be safely marginalized.

 

Off today to give a talk on “Culture Beyond Capitalism” in the opening session of the 18th International Conference on Cultural Economics, sponsored by the Association for Cultural Economics International, to be held at the University of Quebec in Montreal.

I plan to start my multimedia presentation on how “culture offers to us a series of images and stories—audio and visual, printed and painted—that point the way toward alternative ways of thinking about and organizing economic and social life” with the original 1928 version of Harry McClintock’s “Big Rock Candy Mountains.”

Where they hung the jerk
That invented work
In the Big Rock Candy Mountains.

inequality-014

After learning that Joseph Stiglitz had been invited to give a lecture on inequality at the University of Oxford, I asked my friend Stephen Whitefield, Professor of Politics, University Lecturer in Politics, and Rhodes Pelczynski Tutorial Fellow in Politics, Pembroke College, to offer his sense of Stiglitz’s lecture. I am pleased to publish his comments here.

It was a huge pleasure for me and my college (Pembroke) and my Department (Politics and International Relations), with the support of the UK Fulbright Commission, to welcome Joseph Stiglitz back to the University of Oxford to deliver the 4th Annual Fulbright Distinguished Lecture. Stiglitz had been Drummond Professor of Political Economy in Oxford in the 1970s. Of course, he won the Nobel Prize for his work that shows, as I understand it, that when markets don’t function with perfect information—that is to say, almost always–then there is also always room for government intervention to improve welfare outcomes. That was a huge turn in the debate, even if many mainstream economists and their political allies/masters have yet to catch up.

Stiglitz was in Oxford to talk about “The Causes and Consequences of Inequality and What Can Be Done About It,” which topic marks another great turn in the debate about what kind of political economy we want, from thinking that inequality is irrelevant, since all boats are rising, to thinking that inequality matters, because it makes just about everything worse, at least when it is at very high levels. Stiglitz was of course also central to shifting the current of academic opinion on this topic. And he demonstrated in a brilliant talk—which everyone can link to here (as a podcast or video)—that he is not averse to turning that scholarship into powerful and persuasive accessible language. I have also to add that Stiglitz is a great person to talk to. As Ngaire Woods, his old friend, said in her introduction to his lecture, Stiglitz listens to people.

So, I know he will not be at all put out if he reads me to say that, while his dissection of the causes and consequences of inequality was outstanding, his discussion of what can be done about them was rather light. I told him that myself at dinner afterwards, as did others. I am sure that a lot of that would have been sorted out if he had had more time to talk. After all, he is not at all short of policy prescriptions, as are others like Thomas Piketty, who advocates a global wealth tax. But the problem is not that there is a lack of policies to put forward. In my view, the main problem is with the lack of a clear vision about how to build the political alliances that are necessary to enact those prescriptions. Maybe Stiglitz is right that things look better in places like Brazil and that we can learn things from its experience. Becoming Swedish, however, even if we thought that an attractive proposition—and I still have Per Wahloo in mind when thinking about Swedish Social-Democracy—is just not an option. So, how do we create a winning coalition against inequality that looks plausible and appropriate to our national conditions?

Well, I don’t know the answer to that right now. But here is a gesture in that direction. First, an irony—that he gave this talk in Oxford where we are of course constantly seeking the support of the 0.01-percenters, including to fund a chair to commemorate Senator Fulbright in my college and department. There were a number of such people in the lecture theatre. But note next something we all know (or strongly believe since Wilkinson and Pickett), that in highly unequal societies even the richest 1 percent appear to have worse health outcomes compared to their counterparts in more equal societies. Stiglitz did not offer a very convincing explanation as to why this is the case. He put it down to stress, which is possible but not very plausible on the face of it. Susan Kelly, who is a medical sociologist at the University of Exeter, puts a more likely hypothesis to my mind: over-treatment. There is apparently a negative correlation at the top end between numbers of physicians and health outcomes. But, who knows? A good question to research. . .

But, to return to my point about the political coalition to implement a reduction in levels of inequality, what we need to know is this: who are the political actors interested in doing this? This was not addressed in any explicit way by Stiglitz, and it seems to me a characteristic of even progressive policies presented by scholars that the questions of who will implement them and in whose political interests they are enacted are seldom on the table. There is talk—just—in analyses of inequality of class but not much about class interests or class actors. Now, there was an implicit answer in Stiglitz’s talk. Perhaps it is the enlightened rich who will use their massive power to reduce inequality, because they will come to see that it is harmful to their interests. Maybe. I have my doubts. Certainly I would not expect inequality to come down to the levels that I would find economically, socially, or politically appropriate if those were the political forces driving it.

But if not the rich, then who? By the admission of all involved in the analysis of inequality, the period from around 1930 to 1980 was one of declining inequality and of course in the post-WWII period of rapid economic growth as well. A time also, not coincidentally, of strong organised trade unions and a mobilised working class. All that is recognised. Less so is the counterpart in international relations, the existence of the Soviet Union and then the Communist bloc and the international communist movement, which presented an alternative to capitalism that many working-class people found attractive and the rich found terrifying enough to make significant concessions. I suspect it takes a stick as well as a carrot to make the rich see their self-interest differently.

Almost all of that historical moment is gone now, and not all for the bad. As a student of the Soviet system, I only lament it when thinking about the appalling kleptocracy that emerged from its womb, to use Marx’s kind of metaphor—a kleptocracy that aspired to be as rich as our own oligarchs. But we should remember that the creation of unions and left movements was the work of generations of intellectuals—I mean that in the broadest Gramscian terms—to create not just policies but first and foremost social and political actors. Perhaps that is what we now need to concentrate on imagining, not to mention doing.

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As if to illustrate the point I made the other day (about earnings at the top being themselves distributions of the income captured by capital), Seth Ackerman put together the chart above (from data in Simon Mohun’s recently published article on unproductive labor) comparing the sum of profits and managerial compensation to non-managerial compensation, both as shares of total net income.

Indeed, in a direct rebuttal of the neoclassical marginal-productivity theory of distribution, capital’s share of income has been growing at the expense of labor’s share since the late-1970s.

Piketty-US-scale-factor

The storm unleashed by Chris Giles’s takedown (follow the links) of Thomas Piketty for the Financial Times (with responses now by Piketty himself, Neil Irwin, Simon Wren-Lewis, Steven Pressman, and others) reminds me of two stories.

First, there’s the story of a seminar by Hollis Chenery, one of the pioneers of economy-wide development planning models, at Yale University in the early 1970s. One of the participants in the seminar, who later was one of my professors in graduate school, offered Chenery a large sum of money to put together the appropriate matrix of data—and then an even larger sum of money not to invert the matrix. The point: there are so many mistakes, assumptions, and elements of pure guesswork involved in compiling any set of economic data, it is a fundamental mistake to presume the correct economic policy or strategy can be devised—and then offered as objective and accurate “expert” advice—by simply running the model.

Second, a friend in graduate school, who already had a Ph.D. in mathematics, took it upon himself to work through the mathematics presented in the tenth edition of Paul Samuelson’s famous Foundations of Economic Analysis. He told me he was amazed to find more than one hundred mistakes in the book, even after so many editions. The point of this example: lots of errors are made—and then repeated by authors and overlooked by readers—even in the most famous writings of economists. And the errors committed in Samuelons’ Foundations certainly didn’t stop the mathematization of mainstream economics in the postwar period.

As for Piketty, my view is, first, we need to give him credit for making all of his data, mistakes and all, freely available on-line. Second, even if in one or another country, during one or another period of time, the distribution of wealth has not become more unequal, the fact remains that the distribution of wealth is and remains profoundly and grotesquely unequal. Even Giles can’t dispute that point. And finally, I can only imagine what the reaction would be if Piketty had actually collected data not on wealth, but on capital in the twenty-first century, and had attempted to calculate changes in the rate of exploitation over time.

 

It’s clear we are in the midst of an acute period of inequality: not only of grotesque levels of economic inequality (which are now well documented) but also of a wide-ranging discussion of the conditions and consequences of that extreme inequality (which appears to be taking off).

There are, of course, the deniers, like my dear friend Deirdre McCloskey. What inequality, is her mantra. The only thing that matters is economic growth, such that the amount of stuff people have today is much more than they’ve had throughout much of human history. OK, but that doesn’t tell us much about how that growth took place (it’s the surplus, Deirdre) or what it’s consequences are (on the majority who actually produce the surplus versus the tiny minority who appropriate it).

And then there are those who are actually thinking seriously about inequality, some of whose work is published in the latest issue of Science (a lot of which, unfortunately, is behind a paywall). Leave aside the silly article on econophysics (really, the existing distribution of income is a kind of “natural inequality,” which is what you would get from entropy?), the article that focuses on the psychological pathologies of the poor (what about those of the rich?), and the fact that all the economics is narrowly confined to mainstream theories (which have done more to deflect attention from, as against the wide range of heterodox theories that have actually focused on, inequality over the course of the past three decades). Just the fact that a special issue of such a prestigious journal is devoted to the problem of inequality tells us something about how it has risen to the top of our agenda.

And it offers lots here to think about: the types of inequality that can be found in the archeological record (Heather Pringle), the absence of fundamental inequalities in hunter-gatherer societies (Elizabeth Pennisi), the devastating effects of inequality on health (Emily Underwood), growing inequality in developing countries (Mara Hvistendahl and Martin Ravallion), the intergenerational transmission of inequality via unequal maternal circumstances and health at birth (Anna Aizer and Janet Currie), and finally a dire warning about what will happen if current inequalities continue to grow (Angus Deaton):

The distribution of wealth is more unequal than the distribution of income, and very high incomes will eventually pupate into very large fortunes, ultimately leading to a hereditary dystopia of idle rich.

The pair of articles by economists—one by Thomas Piketty and Emmanuel Saez, the other by David Autor—tells us a great deal about how the issue of inequality is being framed within mainstream economics (since, as I wrote above, all the various types of nonmainstream economics are simply ignored in the issue). For Piketty and Saez, it’s all about the inequality (both income and wealth) that separates the top 1 percent (and, within that, the top .1 percent and .01 percent) from everyone else, while Autor’s piece focuses on the inequality of earnings within the bottom 99 percent. The debate comes down to seeing inequality as a result of high CEO incomes and returns on accumulated wealth (especially when the rate of return on wealth is greater than the overall growth rate, leading to more concentration of wealth) versus the inequality that derives from earnings based on different levels and kinds of skill (presuming that earnings are equal to marginal productivities). In other words, it’s a (mostly) classical approach—which focuses on scarce wealth concentrated in the hands of the already richversus a (thoroughly) neoclassical approach—according to which scarce skills attract higher earnings. The solution from the classical perspective is a global tax on wealth; from the neoclassical viewpoint, all we need is an increase in education and skills for those at the bottom.

Here’s what I find interesting about the debate, not only between the economists but throughout the entire special issue: it’s all about economic inequality—what it is (absolute or relative), how it can be measured (within and across nations, and over time), what its causes and consequences are (including not only the health of individuals but also of society as a whole), and so on—but there’s not a single mention of class.

Not literally. The word class doesn’t appear in any of the articles or reviews. But class is the specter that, in my view, haunts this entire debate. We saw it back in the First Great Depression. And now we’re seeing it rear its ugly head once again, in the midst of the Second Great Depression. We didn’t solve it then. Perhaps, now, we’re ready to tackle it.

And, if we don’t, we’ll be faced with even more inequality all the time.

Update

American-Spectator-cover

As if on cue, the latest issue of the American Spectator focuses on what they consider to be the “new class warfare”—using as a threat the universal symbol of “off with their heads.”

For which Gavin Mueller offers the only appropriate response:

Remember this: no matter how many country clubbers flip through Piketty’s book, at bottom, the rich hate usThey disdain usThey mock us. And they fear us, even though the current balance of forces favors them overwhelmingly and sometimes “common ruin of the contending classes” seems like an optimistic outcome.

Yet I have to fall back on some advice I got as a kid: If the American Spectator wants to cry about class warfare, we should give them something to cry about.

brilliant-economists

Benjamin Wallace-Wells [ht: sm] argues that the broad interest in Thomas Piketty’s book (along with the attention to Nate Silver’s data) is a sign that we’re now speaking the language of economics.

What is up isn’t a mystery. It makes perfect sense to be seeking economic explanations in the years just after the economy has imploded, and while the presidency is preoccupied with trying to fix it. I suspect there’s something else contributing, too — a desire for an objective, numerate authority when elites and their subjective authority are so broadly distrusted.

I suspect that’s true, which is one of the reasons I’ve tried to convince my colleagues that what we should be teaching is critical economic literacy—an ability to understand how economic theories work, and how dependent the conclusions economists arrive at are on the assumptions and concepts of the different economic theories they use.

Wallace-Wells appears to be concerned that economics language is squeezing out other languages and ways of viewing the world. My concern is a bit different: it’s that the hegemony of one economic language serves to marginalize other economic languages. Because that’s the point: there is not a single language of economics, but rather multiple languages. And when the language of mainstream economics is predominant, the ways of looking at and intervening to change the world are confined to a small box. Inequality, for example, becomes narrowly understood in terms of the incomes received by individuals and varying percentiles of the population, while proposals to solve the problem of inequality focus on ways individuals at the bottom can improve their chances and/or how some of the income can be redistributed from the top toward the bottom. But the basic economic structure is never in question—either in terms of how it continues to generate such grotesque levels of inequality or how it might be changed to effect more equal outcomes.

And that’s because the language of mainstream economics has come to dominate our discussions of inequality and much else. So, if Wallace-Wells is right and “the work of one department, economics, is always on the front pages,” then at least let’s make it clear that economists—both academic and everyday—speak in multiple languages. And learning to speak in languages other than that of mainstream economics may just allow us to break through the “curious kind of hesitancy and conditionality on the rest of intellectual culture.”

Update

And, I almost forgot: Yahya M. Madra and Fikret Adaman have published a very useful piece in the current issue of Antipode (behind paywall) in which they argue the economization of the social in the language of neoliberal economic theory (in its different Austrian, Chicago, and post-Walrasian versions) lead to its depoliticization—by cultivating individual “opportunism” as the only sound basis for policy. In my view, what Madra and Adaman demonstrate is that the mainstream language of economics (even when, and perhaps precisely because, it admits of variations in how that language is deployed) reduces the scope for both understanding and doing something about the economic problems that plague us today.