Posts Tagged ‘mainstream’

Heinrich Kley, "Sabotage" (Betriebsstorung)

Heinrich Kley, “Sabotage” (Betriebsstorung)

I have long argued (e.g., here and here) that capitalism involves a kind of pact with the devil: control over the surplus is reluctantly given over to the top 1 percent in return for certain promises, such as just deserts, economic stability, and full employment.

In recent years, as so often in the past, we’ve witnessed those at the top sabotaging the pact (simply because they have the means and interest to do so) and now, once again, they’ve undermined their legitimacy to run things.

First, they broke their promise of just deserts, as the distribution of income has become increasingly (and, to describe it accurately, grotesquely) unequal and the tendency toward high concentrations of wealth has returned, threatening to create a new class of coupon-clippers. Then, they ended the Great Moderation with speculative decisions that ushered in the worst economic crisis since the First Great Depression. And, now, the promise of full employment appears to be falling prey to the prospect of secular stagnation.

That’s the worry expressed in a new ebook edited by Richard Baldwin and Coen Teulings published by Vox. While secular stagnation can be defined in different ways, the basic idea is that, for the foreseeable future, economic growth—and therefore the prospect of full employment—is probably going to be much lower than it was in the decades leading up to the global crises of 2007-08. Moreover, what little growth is expected will most likely be accompanied by great inequality and financial stability.

If it becomes a reality, secular stagnation represents the end of the pact with the devil. It’s going to be impossible to keep any of the promises—just deserts, economic stability, and full employment—that have maintained capitalism’s legitimacy.

I don’t know if the members of the 1 percent are aware of or concerned about the extent to which secular stagnation may be their undoing (because, in fact, they may hold out the hope that more austerity can successfully be imposed to keep pumping out the surplus). But, to judge from many of the contributions to the Vox volume, the prospect of secular stagnation certainly appears to be worrying mainstream macroeconomists.

Why? Because their own promise was to analyze the uneven and shifting patterns of the macroeconomy and to devise the appropriate set of monetary and fiscal policies to ensure the continuation of the pact with the devil. However, secular stagnation—including the idea that the real rate of interest would have to be negative to maintain an equilibrium of savings and investment—calls into question the efficacy of the kinds of macroeconomic policies that have long held sway among mainstream macroeconomists. Now, they’re not sure they’ll be able to maintain the promise of creating a just distribution of income, avoiding financial instability, and creating enough jobs to ensure every able-bodied person who wants a decent, well-paying job can have one.

Actually, as we’ve seen, they haven’t been able to fulfill that promise for the past 7 years. And now, the threat of secular stagnation means they won’t able to do it anytime in the near future.

There just may not be a happy Disney ending to this one. . .

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.

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.

01202428

There’s probably a story here but, for the life of me, I don’t know what it is.

A nude portrait of University of Cambridge economics fellow Victoria Bateman [ht: ja] has gone on display in London’s Mall Galleries as part of an exhibition by the Royal Society of Portrait Painters. Commissioned by Bateman in celebration of her own birthday, the portrait was painted by Anthony Connolly.

Best I can tell, Bateman is an unremarkable economist (with an econometric paper [pdf] on grain prices in early modern Europe and a book, Markets and Growth in Early Modern Europe, on a related topic). And her own comments on the portrait are not particularly insightful (in terms of either the aesthetics of the painting itself or the context for exhibiting the portrait). But kudos to her for citing the work of Dobb, Hobsbawm, Brenner, and Wallerstein in her paper (since they’re rarely cited in mainstream economic history), and for having the courage to present her portrait to the public (how many academics, let alone academic economists, would have the nerve?).

As for myself, while there aren’t a lot of mainstream economists I’d like to see in the nude (whether represented in painting, photography, or some other artistic medium), I do think that, after the crises of 2007-08 and in the midst of the Second Great Depression, the lot of them should be disrobed and hung in a gallery.

The rogues gallery.

Franck Scurti, “Homo Economicus” at Cabinet

Franck Scurti, “Homo Economicus” at Cabinet

Maybe I should leave them alone, and just get on my with my grading. But there are certain misconceptions that get repeated so often someone has to step in to correct the record.

Such as the idea that “economists”—without qualification—are “finally taking inequality seriously.” That’s the title of Mark Thoma’s latest essay in which he has the temerity to assert that “Until recently, most questions surrounding the distribution of income were considered out of the realm of serious, scientific analysis.”

Now, that may be true of mainstream economists, who have either ignored the problem of the distribution of income or  attempted to contain the issue by examining it through the lens of marginal productivity theory (according to which, absent market imperfections, everyone gets what they deserve). But it’s certainly not true of generations of nonmainstream, heterodox economists for whom the distribution of income has been central to the dynamics of capitalist economies.

But my more general point is that you should run anytime anyone argues that “economists do this” or “economists say that.” Given the existence of different theories or discourses within the discipline of economics, there is nothing economists in general do or say. There are only neoclassical economists and Keynesian economists and Marxist economists, and so on—and they all do and say different things, about the distribution of income and much else.

The other pet peeve concerns the characterization of Marx as an economic determinist, again without qualification. This canard has returned in Kevin Quinn’s facile attempt to find a symmetry between Marx and the late Gary Becker.

I want to compare them in another respect. Both championed different forms of Rabid Economism. Marx’s economism was holist,  Becker’s individualist, but both forms are equally reductionist and equally  imbecilic. Marx’s materialism reduces the cultural, the political, the ethical to super-structural epiphenomena: all were just distorted reflections of the underlying reality of class struggle. Becker thinks all human agency simply consists of maximizing utility. For neither thinker do human beings have the ability to think and act  “for the sake of the world,” as Hannah Arendt would say. For each, we are deluding ourselves if we think that acting can ever be a matter of  trying to get things right – to do what is called for, to believe what is warranted -independent of what our interests dictate. For both, in other words, the concept of disinterested action – including the disinterested pursuit of truth – is a snare and a delusion.  Finally, in this latter respect, both systems of thought are self-undermining:   neither can make sense of  itself as a disinterested attempt to understand the human condition.

There is no doubt that Becker championed a reductionist conception of individual decisionmaking and therefore of the universe of economic and social interactions—including, famously, the family, suicide, and racial discrimination.* However, where’s the evidence of Marx’s supposed economism? While it’s an oft-repeated assertion, just a little research would have uncovered a nice piece by Peter G. Stillman disputing that myth, as well as an entire tradition associated with the journal Rethinking Marxism that has sought to distance Marx and Marxist theory from that unfortunate characterization.

So, let’s finally put these two shibboleths to rest: there’s no such thing as this is what economists, without qualification, do or say; and Marxism is not economic determinism.

 

*While we’re on the topic of Becker, permit me one further reflection: while I can’t agree with the praise heaped on him by economists like Justin Wolfers, I will admit to a grudging admiration for someone who was the subject of derision from mainstream economists at places like Harvard and MIT during the 1960s—and yet stuck to his guns and pursued a research strategy that, at least at the time, placed him at the margins of the economics establishment.

hey mr economics

Thomas Palley reminded me of a post I had planned to write on how mainstream economists are attempting to raise the drawbridge. And not just those on the conservative wing.

Liberal mainstream economists, such as Paul Krugman and Simon Wren-Lewis, also want to pull up the drawbridge over the moat and protect the castle of mainstream economics.

According to Krugman, heterodox economists are working with the wrong storyline:

Here’s the story they tell themselves: the failure of economists to predict the global economic crisis (and the poor policy response thereto), plus the surge in inequality, show the failure of conventional economic analysis. So it’s time to dethrone the whole thing — basically, the whole edifice dating back to Samuelson’s 1948 textbook — and give other schools of thought equal time.

Unfortunately for the heterodox (and arguably for the world), this gets the story of what actually happened almost completely wrong.

It is true that economists failed to predict the 2008 crisis (and so did almost everyone). But this wasn’t because economics lacked the tools to understand such things — we’ve long had a pretty good understanding of the logic of banking crises. What happened instead was a failure of real-world observation — failure to notice the rising importance of shadow banking. Economists looked at conventional banks, saw that they were protected by deposit insurance, and failed to realize that more than half the de facto banking system didn’t look like that anymore. This was a case of myopia — but it wasn’t a deep conceptual failure. And as soon as people did recognize the importance of shadow banking, the whole thing instantly fell into place: we were looking at a classic financial crisis.

Wren-Lewis offers much the same interpretation:

Let me get personal. Over the last few years, I have been in charge of a macroeconomics course at Oxford. For better or worse, if past evidence is anything to go by, one or two of those taking this course will end up helping run the economy. There is so much important mainstream theory that needs to be covered in that course, because it is theory that is essential to trying to understand what is currently going on in the world. At its core is Keynesian theory, which has proved its worth since the recession. (Interest rates didn’t rise because of all that government debt, inflation didn’t take off because of all the money that has been created, and austerity did delay the recovery.) It would be a great step backwards if I had to stop teaching part of that, and instead teach Austrian or Marxian views about the macroeconomy, or still worse spend time worrying about what Keynes really meant. I would much rather a future Chancellor, Prime Minister, or advisor to either, remembered from their undergraduate degree that mainstream theory said austerity was contractionary, rather than ‘well it all depends on whether you are a Keynesian or an Austrian’.

In both cases, the argument is that everything we need to analyze and come up with effective policies to get out of the Second Great Depression is contained within mainstream economics. And we don’t really need to do anything fundamental to change the way we teach and do economics. Instead of attempting to learn something about heterodox economic theory and making an alliance with heterodox economists—perhaps even creating new drawbridges into the mainstream castle or blowing up the walls of the castle itself—liberal mainstream economists like Krugman and Wren-Lewis have decided to stick with the hydraulic Keynesian models that can be found in the corners of the castle of mainstream economics.

Don’t get me wrong: I’m not against teaching mainstream economics. I do it all the time, precisely because it’s the hegemonic economic discourse and students need to know how it works (even, and perhaps especially, when it doesn’t work). But that doesn’t mean it’s the only sort of economics students or policymakers should be exposed to. There are a lot of other ideas, which heterodox economists have been developing and using for a long time, that can make sense of and get us out of the current mess we’re in.

But students won’t even know such ideas exist if their professors keep them trapped within the walls of the existing castle.

economics-cartoon

Once again, the work of Hyman Minsky has been discovered—this time, by the BBC.

Minsky’s main idea is so simple that it could fit on a T-shirt, with just three words: “Stability is destabilising.”

Most macroeconomists work with what they call “equilibrium models” – the idea is that a modern market economy is fundamentally stable. That is not to say nothing ever changes but it grows in a steady way.

To generate an economic crisis or a sudden boom some sort of external shock has to occur – whether that be a rise in oil prices, a war or the invention of the internet.

Minsky disagreed. He thought that the system itself could generate shocks through its own internal dynamics. He believed that during periods of economic stability, banks, firms and other economic agents become complacent.

They assume that the good times will keep on going and begin to take ever greater risks in pursuit of profit. So the seeds of the next crisis are sown in the good time.

Much the same can be said about Marx’s work. In both theories, crises are endogenously produced within the capitalist system itself.

The approaches differ, of course: while Minsky focused on rising debt and complacency, Marx emphasized class exploitation and capitalist competition. But it doesn’t take much work to combine the insights of the two thinkers to identify what we might call the “Minsky-Marx moment”—the moment when, as a result of rising debt and competition over the surplus, the whole house of cards falls down.

But you won’t find either in modern macroeconomics. In fact, if you search inside one of the leading texts—Robert Barro’s Macroeconomics: A Modern Approach—you won’t find even a single mention of Minsky or Marx.

It’s no wonder modern mainstream macroeconomists and their students had so little to offer in terms of understanding how and why the latest crisis occurred or what to do once the house of cards did in fact come tumbling down.