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.

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.

Still think economics is a science?

What’s it going to take to finally bury the idea that mainstream economics is a science?

We all know mainstream economics is not a science at the microeconomic level, taking into account something as studied and debated as the minimum wage. And it’s certainly not a science at the macroeconomic level, give the fact that mainstream economists failed to predict the timing, severity, or duration of the current crises, not to mention the “pay-to-play” activities of such luminaries as R. Glenn Hubbard and Larry Summers.

And now we have the sorry spectacle of the Reinhart-Rogoff mistakes (as noted by Mike Konczal [ht: ms] and Dean Baker, based on new research by Thomas Herndon, Michael Ash, and Robert Pollin, and then weakly defended by Carmen Reinhart and Kenneth Rogoff), which call into question the much-vaunted 90 percent (debt-to-GDP) threshold.

We might be able to simply dismiss mainstream economists’ claims to scientificity, and then move one, if we didn’t also have to consider the widespread misery—of poverty and unemployment, in the United States and around the world—their work has directly caused and otherwise served to justify.

Overdetermination avant la lettre?

In the midst of the Second Great Depression, mainstream economists have discovered overdetermination.

Or so it seems from Mark Thoma’s comment [ht: br] on Henry Farrell’s post on Daron Acemoglu and James A. Robinson’s new essay, “Economics versus Politics: Pitfalls of Policy Advice” [pdf].

Economics affects politics, and vice versa. What an idea! Hell, my undergraduate students discovered the issue this week while discussing Dan Koeppel’s book, Bananas: The Fate of the Fruit that Changed the World. (Admittedly, El Pulpo’s activities in Central America make an easy target.)

I can’t but applaud the recognition (however belated) of the mutual constitutivity of economics and politics, especially the effects on inequality. But let me offer a few cautionary comments:

First, it is not the case that economists in general (technocratic or otherwise) have ignored political issues. In fact, contra Farrell, there is no single “economists’ way of thinking about policy problems.” The treatment of economics as separate from politics is a fault of mainstream economics. Nonmainstream or heterodox economists—Marxian, radical, old institutionalist, and so on—have been paying attention to the mutual effectivity of economics and politics (with the lines of causality running in both directions) for generations. That (and not the economics of Adam Smith) is why we called it political economy.

Second, why does the analysis seem always to focus on workers and unions (as in the Acemoglu and Robinson essay) and not on the political effects of capitalists banding together (as Jacob Hacker and Paul Pierson clearly explain in Winner-Take-All-Politics) to engage in “organized combat”? Yes, it’s time we recognize that workers have played an important role (through their unions and the political parties they supported) in creating and strengthening democracy—and, at the same time, we understand how the tiny elite now ruling society is doing everything it can to undermine those very same democratic processes and institutions (and, of course, to continue to prevent any kind of democratic decisionmaking in the enterprises they own and run.)

And, finally, if we’re interested in the complex and changing intersection of economics and politics, it’s not clear we’re going to get very far when the economics itself is conceived along neoclassical lines (with its emphasis on market failures and rent-seeking behavior). A different approach, one that traces the flows of surplus within and between economic and political institutions, is surely a better way of getting a handle on how economics and politics participate in constituting one another—and therefore in understanding the conditions and consequences of the grotesque inequalities that have accompanied (as both condition and consequence) the Second Great Depression.

So, yes, let’s focus on the “systematic forces that sometimes turn good economics into bad politics.” And then discuss what we mean by good economics, in order to create a better politics.

That’s how the rest of us have been using overdetermination for years now, without any help from or recognition by mainstream economists.

Past and present

Reading Daniel Little’s commentary of the history of the British Marxist historical journal Past & Present, I was reminded of the differences between economics and history—and, for that matter, between economics and all other academic disciplines.

Little demonstrates that it’s possible for a non-Marxist professor of Philosophy (and now university chancellor) to write a sympathetic review of an avowedly Marxist journal—and a journal that, notwithstanding the fact that it was originally organized by members of the British Communist Party, included among its editors and contributors a wide variety of non-Marxist historians.*

Can you imagine something similar in Economics? Not a chance! What distinguishes the discipline of Economics from history and all other disciplines in the social sciences and humanities is the fact that there is a hegemonic theory—neoclassical economics—that is taken by its adherents to be the sole arbiter of what is and is not economic science. With very few exceptions, Marxist economic theory and analysis are not taught, published, or funded within the discipline. And, again with very few exceptions, mainstream economists do not evince any sympathy for, much less contribute articles to or participate in conferences organized by, the kinds of journals that regularly publish Marxist economics.

Unfortunately, that is both the past and present of the discipline of economics. Perhaps the current crises of capitalism, which were in part created by the hegemony of neoclassical economics, will change that for the future.

*The August 1983 issue of Past & Present includes two articles covering the history of the journal—one by Marxists Christopher Hill, R. H. Hilton, and Eric Hobsbawm, the other by the non-Marxist Jacques Le Goff.

Inequality, the Second Great Depression, and mainstream economics

This morning, we’re faced with the extraordinary spectacle of two left-of-center, Nobel Prize-winning economists stumbling all over themselves trying to make sense of the role of inequality in creating and sustaining the Second Great Depression.

Really?! Now, they may have missed the trend of growing inequality over the course of the past three decades. Still, with all the talk of obscene levels of inequality in the last five years and mainstream economists, even the best and the brightest, are still having a hard time formulating a theory about the impact of that inequality in producing the conditions for the crash of 2007-08 and sustaining the recovery that never was.

First, Joseph Stiglitz argued that “Inequality stifles, restrains and holds back our growth.” Then, Paul Krugman responded by telling us he’s not convinced “that this particular morality tale is right.”

It’s true, they agree that current economic conditions are, for that vast majority of people, pretty ugly. And that inequality distorts the political process, by allowing those on top to buy their favorite politicians and policies.

Both Stiglitz and Krugman also mention that growing inequality fosters financial crises, although from all that I’ve read neither has ever offered a theory of how that actually works.

So, their big disagreement is centered on the role of inequality (which, after a brief hiatus in 2009, is growing once again) in sustaining the current non-recovery, which I have come to refer to as the Second Great Depression. Basically, Stiglitz borrows from the radicals’ playbook and makes an underconsumption argument, which Krugman attempts to refute by invoking private savings rates and the idea that there can be full employment “based on purchases of yachts, luxury cars, and the services of personal trainers and celebrity chefs.”

Sure, but there isn’t. Not even close. And, according to all the projections I’ve seen, there won’t be for quite some time.

It is surely an embarrassment for mainstream economics that two of its best can barely even begin a serious discussion of the complex and contradictory effects of inequality on the pace and nature of growth since the financial crash of 2008. But, to give them credit, they’re still way out in front of their mainstream colleagues, who aren’t even attempting to make sense of the role inequality has played and continues to play in creating the Second Great Depression.

Capital vs. labor

source

For much of the postwar period, mainstream economists contented themselves with the observation that the factor distribution of income in the United States—basically, profits versus wages—was relatively constant. Therefore, they didn’t need to concern themselves with the dreaded c-word (class), and they could marginalize the economic theory that actually focused on class (Marxism).

And, even when things started to change, they held to their dogma. The growing gap between productivity and average wages was one sign the factor distribution had turned against labor in favor of capital. So was the increasing inequality in the distribution of income—for example, of the top 1 percent against everyone else. It became increasingly obvious to many of us that the kind of capitalism we experienced in the immediate postwar period—when both wages and profits were growing—was giving way, starting in the mid-1970s, to a different kind of capitalism, a much more unequal kind of capitalism—when profits began to grow at the expense of wages.

But, of course, mainstream economists mostly ignored these trends. And when, in the last few years, they finally began to take notice, the unequalizing pattern of U.S. capitalism was explained—really, explained away—by exogenous events, such as globalization and skill-based technical change. In other words, changes in the distribution of income reflected gains to those at the top, who just happened to be those with more education and more skills and thus were winners in the globalized world economy. And if others had a problem with that, they just needed to acquire more education and more skills and get their “deserved” share of the economic pie.

Now, even that excuse has fallen apart and it’s become obvious to mainstream economists—starting with Paul Krugman—that capital’s income has been growing at the expense of labor’s income.

The American economy is still, by most measures, deeply depressed. But corporate profits are at a record high. How is that possible? It’s simple: profits have surged as a share of national income, while wages and other labor compensation are down. The pie isn’t growing the way it should — but capital is doing fine by grabbing an ever-larger slice, at labor’s expense.

Wait — are we really back to talking about capital versus labor? Isn’t that an old-fashioned, almost Marxist sort of discussion, out of date in our modern information economy? Well, that’s what many people thought; for the past generation discussions of inequality have focused overwhelmingly not on capital versus labor but on distributional issues between workers, either on the gap between more- and less-educated workers or on the soaring incomes of a handful of superstars in finance and other fields. But that may be yesterday’s story.

And what’s today’s story? For Krugman, it’s all about technology and market imperfections (what he calls monopoly power, not unlike Joe Stiglitz’s rent-seeking behavior).

That may be almost a Marxist sort of discussion. But if they actually did want to have a Marxist discussion of the issue, they’d have to start talking about how new value is created and then distributed—some to the workers who created the value in the first place, some to others who supervise the workers and otherwise make that value creation possible, and another portion retained as corporate profits.

It’s that approach to value that can begin to make sense of the factor distribution of income in the postwar period. Even when the shares remained relatively constant, a portion of officially reported “wages” actually were distributions of the new value created that went to those at the top of the distribution of income.* And things got even worse when the shares of income to capital and labor started to diverge.

We’ll be having a real discussion of the issue when we connect the conflict between capital and labor to an analysis of the conditions and consequences of the crash of 2007-08 and what is happening now during the Second Great Depression.

And when we begin to consider alternative economic arrangements that are not based on the conflict between capital and labor.

 

*In Marxian terms, the rate of exploitation (the ratio of surplus-value to the value of labor power) may be rising even when the capital and labor shares are constant because some of what is reported as wages represents a distribution of the appropriated surplus-value (e.g, to CEOs and others).

Shift happens

As I explained back in April, I often suggest to students they read Thomas Kuhn’s The Structure of Scientific Revolutions. It is particularly important for economics, a discipline in which many practitioners—both mainstream and heterodox—fetishize science and suffer from physics-envy.

John Naughton explains why, even though paradigm shift is “is probably the most used – and abused – term in contemporary discussions of organisational change and intellectual progress,” Kuhn’s book remains important as a challenge to Whig versions of the history and philosophy of science.

Kuhn’s version of how science develops differed dramatically from the Whig version. Where the standard account saw steady, cumulative “progress”, he saw discontinuities – a set of alternating “normal” and “revolutionary” phases in which communities of specialists in particular fields are plunged into periods of turmoil, uncertainty and angst. These revolutionary phases – for example the transition from Newtonian mechanics to quantum physics – correspond to great conceptual breakthroughs and lay the basis for a succeeding phase of business as usual. The fact that his version seems unremarkable now is, in a way, the greatest measure of his success. But in 1962 almost everything about it was controversial because of the challenge it posed to powerful, entrenched philosophical assumptions about how science did – and should – work.

Naughton, in contrast to many commentators, notes the importance of incommensurability in Kuhn’s approach:

But what really set the cat among the philosophical pigeons was one implication of Kuhn’s account of the process of paradigm change. He argued that competing paradigms are “incommensurable”: that is to say, there exists no objective way of assessing their relative merits. There’s no way, for example, that one could make a checklist comparing the merits of Newtonian mechanics (which applies to snooker balls and planets but not to anything that goes on inside the atom) and quantum mechanics (which deals with what happens at the sub-atomic level). But if rival paradigms are really incommensurable, then doesn’t that imply that scientific revolutions must be based – at least in part – on irrational grounds? In which case, are not the paradigm shifts that we celebrate as great intellectual breakthroughs merely the result of outbreaks of mob psychology?

In my experience, the idea that different paradigms or discourses (to use the Foucauldian term) are incommensurable—such that, for example, neoclassical and Marxian economic theories are radically different and literally incommensurable ways of looking at the world—challenges and undermines traditional ways of doing and teaching economics.

In that sense, Naughton is wrong: at least in economics, Kuhn’s approach to the history and philosophy of science is still remarkable.