Nietzsche’s marginal children?

It’s not often that the work of Friedrich Nietzsche is connected to economics. I have only had the occasion to mention his name three times on this blog (here, here, and here), although Jack Amariglio and I do devote the better of a chapter of Postmodern Moments in Modern Economics, on institutionalist economics, to Nietzsche’s critique of value.

Corey Robin [ht: m] has made another important connection between Nietzsche and economics: the work of Austrian economists such as Friedrich Hayek and Ludwig von Mises. He makes his argument carefully, in the sense that he doesn’t try to establish a direct connection between Nietzsche and the Austrians. The relationship is, instead, one of “elective affinity,” which can be found (to quote from Robin’s own discussion of the article):

in the startling symmetry between Nietzschean and marginal theories of value; in the hostility to labor as the source or measure of value; in the insistence that morals be forged in a crucible of constraint; in the vision of an idle class of taste-makers creating new values and beliefs.

Robin’s argument is provocative, in the best sense of that word—it forces us to think through the relationship between economists’ treatments of value and the other ways value has been constructed and deconstructed in the modern world. In my view, there is in fact a strong affinity between Nietzsche’s “perspectivism” and the radical subjectivism one finds in Austrian treatments of value.

My only major critique of Robin’s argument (I have some minor ones but I’ll leave those aside for now) is that he doesn’t draw a sharp enough distinction between Austrian marginalists and mainstream neoclassical marginalists. That’s important because, while Austrian marginalists may be on the ascendance in recent years (connected, in turn, to the rise of the libertarian Right), they are still mostly outcasts within mainstream economics, which is dominated by neoclassical marginalism.

And the difference? Neoclassical marginalism is founded on the idea of utility-maximizing consumers (along with profit-maximizing producers), leading to equilibrium within and across markets and an efficient allocation of scarce resources for society as a whole. Austrian marginalists, on the other hand, reject the idea that anyone can have the knowledge to make such society-wide calculations. Instead of efficiency, the Austrians focus on the freedom of individuals (especially entrepreneurs) to make decisions based on their local plans and limited knowledges. To put it in a nutshell, while both groups celebrate capitalism, they do so for different reasons: efficiency versus freedom.

My point is simple: not all contemporary marginalism should be considered Nietzsche’s children. Perhaps the Austrians but certainly not the neoclassicals who dominate the discussion of economic theory and policy within mainstream economics and who remain wedded to the kinds of humanism, positivism, and scientism that Nietzsche himself would have found to be the expressions of a slave morality.

Austerity—now or in the future?

Eduardo Porter makes the case against austerity now (when unemployment is high)—but he wants to see austerity in the future (when, presumably, full employment is achieved). In other words, Porter believes we should be Keynesians now and switch to being neoclassicals somewhere down the line.

But there’s a fundamental asymmetry in Porter’s view of austerity: in the Keynesian moments, stimulus comes from a combination of tax cuts and spending increases. But later, in the neoclassical moments, he focuses only on spending cuts.

Fortunately, there is a way to square the circle, if only our political masters could overcome their partisan animus to embrace it. The answer is to combine some stimulus in the present — via tax cuts or more public spending — with transparent, legally binding initiatives to limit spending in the future.

For instance, the administration could propose raising the retirement age a decade down the road. It could also save a lot of money by rejiggering Medicare’s cost-sharing formulas. The higher-income elderly could be made to shoulder a larger share of their health care costs in the future.

Swapping future cuts in Social Security and Medicare for more spending today will not be an easy deal. Liberal Democrats will balk at trimming the social safety net. House Republicans appear immune to any fiscal compromise.

The Obama administration has tried some of this at the margin. It proposed changing the price index used to adjust Social Security benefits, slowing their rise. It has had no success.

But a deal along these lines offers a plausible political path toward an economic policy that is not quite as self-destructive as the one we’ve got. The goal: Keynesian today, when the economy needs it, but not tomorrow.

Well, what happened to tax increases?

Because the Porters of the world take tax increases on wealthy individuals and large corporations off the table, austerity is guaranteed—either now or in the future.

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.

Laws of economics don’t exist!

source

Zachary Karabell [ht: gh] is right on two counts: First, the “laws of economics” are often invoked to rule out policies and strategies, including alternative institutions, to solve pressing economic and social problems. And second, “laws of economics” don’t actually exist.

Referencing “the laws of economics” as a way to refute arguments or criticize ideas has the patina of clarity and certainty. The reality is that referencing such laws is simply another way to justify beliefs and inclinations. I may agree that the war on drugs is flawed, but not because it violates “laws of economics,” but rather because it fails in most of its basic goals. The test of whether government spending or central bank easing is good policy should be whether they succeed in ameliorating the problems of stagnant growth and high unemployment, not on what the “laws of economics” erroneously say about certain future outcomes.

But the so-called laws of economics don’t exist because people aren’t rational or because economics is based on a limited amount of information. Laws in economics are only artifacts of particular models and theories, and therefore particular sets of assumptions. You only get a law of the sort “if x then y” (e.g., if demand decreases, then price falls or if the government runs a deficit and debt increases, then all hell will break loose and we’re on our way to Greece) because of particular sets of assumptions (often unannounced and overlooked) buried in particular models, which are themselves products of particular economic theories.

Thus, we can have neoclassical laws and Keynesian laws and Marxian laws—but not laws of economics in general.*

The real problem, however, is the invoking of economic laws to stunt the discussion of policies and strategies, of options that might be chosen but are then taken off the table. And that’s part of a more general “economizing” of political debate within contemporary capitalism, especially by the Right. The right-wing within politics and the right-wing within the discipline of economics. (I know, the Left also often invokes laws, which in my view is a problem, but they’re less of a player in contemporary debates.) We as a society can’t do something—tackle poverty or unemployment, tax the rich or create democratic enterprises—because, right-wing politicians and economists say, it would violate the so-called laws of economics.

That’s subordinating society to economics, a product (in Karl Polanyi’s language) of disembedding the economy, of reducing society to obeying the so-called laws of a self-regulating market system.

But a self-regulating market system, just like the laws of economics, doesn’t exist. The real problems arise in the attempt to create such a system, by invoking the laws of economics to eliminate any and all constraints on economic activity. That’s what got us into the current mess in the first place. And following the so-called laws of economics, whether neoclassical or Keynesian, won’t get us out of it anytime soon.

*Although, to be clear, on my interpretation, there are no laws of economics (or, for that matter, of history) in Marx. The laws we find, for example, in Marx’s Capital were actually promulgated by the classical political economists, which Marx then showed were the result of endogenous tendencies within capitalism—rather than, as the classicals tended to argue, the product of an exogenous and transhistorical condition. And, of course, as with the tendency of the general rate of profit to fall, Marx then proceeded to demonstrate how a set of counter-tendencies might move things in a different direction. So, no iron laws, just tendencies, which themselves depended on a particular set of economic and social conditions.

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.

History, utopia, and full employment

Yes, history is important. But not only for the reasons given by Brad DeLong. In my view, history gives us the sense that things have not always been what they are, and therefore don’t have to be in the future what they are today. It offers us, in other words, the space not only for interpreting the world but for changing it.

Which brings me to the question of utopia. I’ve already had my say about Erik Olin Wright’s book, Envisioning Real Utopias. But I do want to comment on John Quiggin’s review. Yes, the Left—including Marx—does have a “long tradition of suspicion of utopianism.” But it’s not how Quiggin sees it. The Marxian critique of utopian thinking was less about imagining a different way of organizing society (since there is much to be admired in the ideas of people like Charles Fourier) and more about how to get there. That was Marx’s critique: the utopian socialists sought merely to encourage the elite to think about a different set of economic and social institutions instead of believing that real people, in their collective struggles, would make real changes in the existing order in order to create real steps toward something that today would be considered only a utopia.

And, as it turns out, it’s not just libertarians and reactionaries who have a utopian streak. All economic theories—on both the Left and the Right—are based on some kind of utopia. For example, neoclassical economists imagine a world of private property and free markets that lead to Pareto efficiency, in which no one can be made better off without making someone worse off. And then the debate, among neoclassical economists, is about how close to or far away the real economy is from such a utopia—and, of course, what policies need to be adopted to get there.

Marxists, for their part, imagine a radically different utopia, one in which exploitation is eliminated, and the direct producers are not excluded from the act of appropriating the surplus labor they perform. That’s a very different kind of utopia, with a very different set of policy options and demands on the current system.

What then would be the appropriate real utopian demand today? This is how Fredric Jameson sees it:

if I ask myself what would today be the most radical demand to make on our own system—that demand which could not be fulfilled or satisfied without transforming the system beyond recognition, and which would at once usher in a society structurally distinct from this one in every conceivable way, from the psychological to the sociological, from the cultural to the political—it would be the demand for full employment, universal full employment around the globe. As the economic apologists for the system today have tirelessly instructed us, capitalism cannot flourish under full employment; it requires a reserve army of the unemployed in order to function and to avoid inflation. That first monkey-wrench of full employment would then be compounded by the universality of the requirement, inasmuch as capitalism also requires a frontier, and perpetual expansion, in order to sustain its inner dynamic. But at this point the utopianism of the demand becomes circular, for it is also clear, not only that the establishment of full employment would transform the system, but also that the system would have to be already transformed, in advance, in order for full employment to be established. I would not call this a vicious circle, exactly; but it certainly reveals the space of the utopian leap, the gap between our empirical present and the utopian arrangements of this imaginary future.

Yet such a future, imaginary or not, also returns upon our present to play a diagnostic and a critical-substantive role. To foreground full employment in this way, as the fundamental utopian requirement, allows us, indeed, to return to concrete circumstances and situations, to read their dark spots and pathological dimensions as so many symptoms and effects of this particular root of all evil identified as unemployment. Crime, war, degraded mass culture, drugs, violence, boredom, the lust for power, the lust for distraction, the lust for nirvana, sexism, racism—all can be diagnosed as so many results of a society unable to accommodate the productiveness of all its citizens. At this point, then, utopian circularity becomes both a political vision and programme, and a critical and diagnostic instrument.

Neoclassical economics and the minimum wage

I often hear the argument that neoclassical economists oppose an increase in the minimum wage.

But the argument is wrong. Neoclassical economists, like Casey Mulligan, actually want to lower the minimum wage.

Market wages normally tend to increase over time with inflation and as workers become more productive. As long as the minimum wage is a fixed dollar amount, the tendency for market wages to increase over time means that economic damage from the minimum wage is shrinking. That’s one reason that economists who see benefits of minimum wages would like to see minimum wages indexed to inflation, allowing the minimum wage to increase automatically as the economic damages fell.

But these are not normal times. The least-skilled workers are seeing their wages fall over time, largely because they are out of work and failing to acquire the skills that come with working. Moreover, the new health care regulations going into effect in January are expected to reduce cash wages, as many employers of low-skill workers are hit with per-employee fines of about $3,000 per employee per year, as the law mandates new fringe benefits for other employers and low-skill workers have to compete with others for the part-time jobs that are a popular loophole in the new legislation. (The minimum wage law restricts flexibility on cash wages, by establishing a floor, but makes no rule on fringe benefits.)

To keep constant the damage from the federal minimum wage, the federal minimum wage needs not an increase but an automatic reduction over the next couple of years in order for it to stay in parallel with market wages.

The fact is, lowering the minimum wage is not what is called for by the neoclassical model of the labor market. If he were intellectually honest, Mulligan would actually have to call for the abolition of the minimum wage.

And the rest of us for the abolition of the wages system itself.

Saving Marx from the zombies

With all due respect to Michael Clune, the real zombie is the repetition of criticisms of Marx’s theory of value that have been walking the earth as the undead dead since shortly after Capital was first published.

To explain: In his review of Daniel Stedman Jones’s book, Masters of the Universe: Hayek, Friedman, and the Birth of Neoliberal Politics, Clune creates a silly parallel between zombie ideas on the Right and Left, between the belief that “reduced state regulation of markets leads to sustainable economic growth” and Marx’s theory of value as a way of forming “a picture of the way the world’s economy works.” Clune then compounds the problem in his exchange with Joshua Clover and Jasper Bernes by invoking a series of problems that, for over the past hundred years or more, Marx’s critics have taken to decisively discredit his theory of value.

I don’t have the time right now to go through Clune’s argument point by point (although it doesn’t amount to much more than a couple of items picked out from the entry on Marx in The Stanford Encyclopedia of Philosophy and another from John Roemer). Let me instead turn the question back to Clune: what theory of value do you propose if, indeed, you jettison Marx’s theory of value? How are you going to think about capitalist commodity exchange, class, surplus, and so much more if you simply discard a Marxian approach? Do you really think the neoclassical theory of value gives you a better picture of the world?

From where I sit, simply discarding Marx’s theory of value (and the wealth of contemporary literature that has rethought and reanimated his approach) leaves Clune in the position of walking with the living dead.