Frightened by growing inequality

Bruce Judson, author of the forthcoming It Could Happen Here: America on the Brink, finds the newest economic inequality numbers to be frightening:

The Census Data reports that, contrary to the almost universal expectations of economists, economic inequality most likely did not decrease in 2008. Experts had anticipated that the declines in income of the rich would lead to a reversal in this groups ever–widening share of our national income. Instead, the Census reported that the 2008 income losses by the top 10% of Americans were offset by larger losses among middle class and poorer Americans.

The conventional economic wisdom, based on historical data, is that income inequality decreases, at least temporarily, as the richest Americans lose income faster than less-well-off Americans during a downturn. In contrast, this new data suggests that the dangerous cycle toward increasing income at the top of America has become even more self-reinforcing than previously recognized. We are now at the point where the pure market forces [whatever they might be], which many economists told us would eliminate this issue, are no longer effective.

The two key ideas behind his book are (a) that economic inequality can reach a self-reinforcing cycle, where a rise in inequality creates—via concentrations of wealth and power—the conditions for even more inequality, and (b) that

once economic inequality reaches a self-reinforcing cycle it is halted only by inevitably controversial, hard-fought, bitterly opposed government action.

It is clear that, in the current situation, existing inequalities are leading to solutions to the crises of capitalism that involve bailing out capital and making the rest of us pay for it.

Occupy California

The current crises of capitalism are affecting, in different ways, all aspects of U.S. society and all regions of the country. The budget cuts in California are certainly among the most dramatic.

In response to the cuts in higher education and the effects of the crises on the wider society, students at the University of California-Santa Cruz have occupied one of the campus buildings—and have asked for support for their occupation and called for more occupations throughout the state.

Here is an excerpt from their manifesto:

Let’s be frank: the promise of a financially secure life at the end of a university education is fast becoming an illusion. The jobs we are working toward will be no better than the jobs we already have to pay our way through school. Close to three-quarters of students work, many full-time. Even with these jobs, student loan volume rose 800 percent from 1977 to 2003. There is a direct connection between these deteriorating conditions and those impacting workers and families throughout California. Two million people are now unemployed across the state. 1.5 million more are underemployed out of a workforce of twenty million. As formerly secure, middle-class workers lose their homes to foreclosure, Depression-era shantytowns are cropping up across the state. The crisis is severe and widespread, yet the proposed solutions – the governor and state assembly organizing a bake sale to close the budget gap – are completely absurd.

T. J. Clark, who holds the George C. and Helen N. Pardee Chair as Professor of Modern Art at the University of California-Berkeley and is the author of numerous books, including Farewell to an Idea: Episodes from a History of Modernism (1999) and, most recently, The Sight of Death: An Experiment in Art Writing (2006), gave a recent speech at Berkeley on the current situation in California in relation to higher education. Here are some excerpts:

What I see in front of me – the banners, the faces, the demands – is the life of the university as I understand it. It is the university taking on form in the public sphere – escaping from the academic boardroom, shrugging off the jargon of the entrepreneurs and patent-seekers, and reminding us what a university really is. A university is not a brand name. It is not an umbrella organization for a 150 assorted corporate laboratories, with the faculty inside each striking bargains with their funders about how much or how little of the new knowledge they produce is immediately going to be “privatized.” A university – a public university – is not a finishing school for the sons and daughters of the shrinking few able to afford the fees. A university does not build its future on the backs of those most vulnerable in its midst – the men and women who keep the places we learn in safe and clean and continuing to function. A university – this is the last and vital element in its moral and intellectual life – does not see its crisis in isolation from the one that is threatening the state as a whole. It knows what is happening in schoolrooms in Richmond and Oakland and San Jose. It feels the despair of those for whom community college or the Cal State system seemed to offer a way forward, and who now see their courses cancelled and buildings shuttered. And all this – this is what is unforgivable – in a state whose concentrations of private and corporate wealth remain immense, but which a failed political system has put off limits even when the very life or death of our society is at stake.

There is a real emergency, we recognize, and many of us are willing to help address it. What do we want? What would bring us on board, as active participants in a work of reconstruction?Well, supposing we were presented with an honest and transparent and coherent plan for the preservation of the public university in hard times… Supposing the plan was one in which sacrifices really were shared – in which the pet projects and inflated building programs and hidden overhead were no longer off limits when cuts were discussed… Supposing the profit-generating parts of the UC system (and they exist, by the way) were asked – maybe temporarily, as part of the true emergency – to contribute a proportion of their surplus to the urgent needs of the university’s teaching heart… Supposing the preservation of the true economic, racial, and ethnic diversity of UC’s student body was an absolute priority, an un-negotiable part of our institution’s character… Supposing it was simply unthinkable for the university’s future to be decided, as Yudof and the Regents are planning, by a commission of professional school managers and technicians who seldom or never face an actual classroom or a lab…

Then we would come on board. And this can still happen, my friends. We are at a moment of near-breakdown, and no one is pretending that the way out of it will be pain-free. An immense amount depends on the wider politics of the state. It is up to us to argue the case for a public university – for public education – in a democracy in crisis. The crisis is real. But crises produce choices. They shine a light on managers and management-speak. They make another vision possible. They remind us of why we think teaching and learning and the production of new knowledge matter – why they are vital to the life of society at large –and they call us to fight to preserve the space in which they can thrive. The fight has begun.

It’s official-recap

“Those who cannot remember the past are condemned to repeat it.”

Here’s a recap of the events leading up to and following on the recent decision to close the Department of Economics and Policy Studies at the University of Notre Dame:

• April 2008: students raise concerns that the issues—such as history, alternative theories, and social justice—represented by the Department of Economics and Policy Studies are being marginalized from the curriculum, and they launch a petition demanding pluralism in the teaching of economics
• Spring 2009: in order to encourage pluralism within the curriculum, two students design and teach a new course, “Alternative Approaches to the Firm”
• April 2009: students invite Marxian economist Richard D. Wolff to give a public lecture, “Capitalism Hits the Fan,” which was attended by over 200 students, faculty, staff, and others
• 11 September 2009: the Observer breaks the story that the dean has decided to eliminate the Department of Economics and Policy Studies
• 16 September 2009: the Chronicle of Higher Education picks up the story
• 18 September 2009: students initiate a petition expressing their opposition to the decision to eliminate the Department of Economics and Policy Studies and calling for a strengthening of the department
• 22 September 2009: Teresa Ghilarducci writes about the decision in the Chronicle

Students on the Open Economics blog offer a running commentary on the decision and a series of links to the 2003 decision to split the Department of Economics into two departments: the Department of Economics and Econometrics and the Department of Economics and Policy Studies. At the time, the university argued that the existence of two departments would allow many different perspectives to flourish on campus, and denied the accusation that splitting the department was the first step in a process of eventually eliminating the Department of Economics and Policy Studies.

And the history, as written, needs to be corrected. David Glenn’s Chronicle article is wrong about the origins of the split. He writes:

Early in this decade, the University of Notre Dame’s economics department was bruised by a long series of quarrels over methods and ideology. So in 2003 the university’s leaders came up with a Solomonic solution: They split the department in two.

In fact, the economics department was bruised by the university administrators’ decision to split the department. The department voted 16-5 against the decision. (The College Council also voted against the decision, by a similar margin.) It was thus a quarrel between the department and some university administrators, not a quarrel within the department.

Once the split occurred, the neoclassical department (Economics and Econometrics) was given control over the Ph.D. program and all new hires in economics. The other department (Economics and Policy Studies) was denied access to the Ph.D. program as well as the ability to hire (even to replace faculty who left).

And so we arrive at one of the lessons of history: “all great world-historic facts and personages appear, so to speak, twice. . .the first time as tragedy, the second time as farce.”

It’s official-update 6

Teresa Ghilarducci, the Director of the Schwartz Center for Economic Policy Analysis and a former colleague at Notre Dame, has contributed a terrific Brainstorm essay on the Chronicle of Higher Education web site. In “Neoclassical Economists on the Ropes (Except at Notre Dame),” she explains that neoclassical economics is being called into question—thus forcing mainstream economists to nervously shift in their old office chairs.

The solution?

Economists need to be broader, more self-critical, deeply knowledgeable about economic institutions. This is why it’s dumbfounding that the University of Notre Dame created an economics department filled — by intent! — of only neoclassical economists and banned their Ph.D. economists who are policy-oriented and non-orthodox from the department.

And her recommendation?

Here is a modest recommendation for this aspiring top-tier university: Put all the economists it hired for the economics department in an economics department and let ideas interact. After all that is what universities do and what economic thinking and economic regulation needs.

Finally, as of this evening, over 750 people have signed the ND student petition. Extraordinary! If you haven’t yet expressed your support, or if you want to forward it to others, here’s the petition.

The fetishism of mathematics and its secret

Many economists are obsessed with mathematics. That’s especially true among neoclassical economists but not unknown, as I have discovered, among Marxian and other heterodox economists.

Clearly, Krugman’s critique of mathematical elegance has struck a chord:

As I see it, the economics profession went astray because economists, as a group, mistook beauty, clad in impressive-looking mathematics, for truth.

The latest to have his feathers ruffled and to proclaim that mathematics is the special code of economics is Gregory Mankiw:

mathematics is, fundamentally, the language of logic. Modern research into Keynes’s theories—I have conducted such research myself—tries to put his ideas into mathematical form precisely to figure out whether they logically cohere. It turns out that the task is not easy.

No, mathematics is one among many languages, one set of metaphors among others. But for economists like Mankiw, mathematics has a unique, special status in the way economic analysis is carried out. It’s the blunt weapon used to question the validity of Keynes’s theory and to bludgeon other not-necessarily-mathematical approaches to economics.

That’s what I argued in “The Merchant of Venice, or Marxism in the Mathematical Mode,” an essay published in 1988 (during the period when I taught graduate Mathematical Methods for Economics). When mathematics is assumed to be the special code of economics, it is either underprivileged or overprivileged. Underprivileged, if it is seen to be a neutral medium, and thus does not affect the results of economic analysis. It is the “language of logic,” which all economists should be forced to use. Overpriviledged, if it is taken to be the language of the book of nature, which means that only using mathematical formalisms and models provides access to reality.

Underprivileged or overprivileged, empiricism or rationalism—in both cases, mathematics becomes a special code.

The goal of questioning the fetishism of mathematics is, of course, not to argue against the use of mathematical forms of discourse but to recognize that, like all sets of metaphors, mathematics enlightens and obscures, it needs to be written down and erased, at the same time.

And it all began with the Treviso Arithmetic, the earliest known printed mathematics book in the West, an anonymous textbook in commercial arithmetic written in vernacular Venetian and published in Treviso, Italy in 1478.

Rural brain drain

Bethel, VT

The authors of a recent study on young people in a small town in Iowa have discussed the results of their study in the Chronicle of Higher Education [ht: pk].

I agree there’s a problem of brain drain—not only in Ellis, Iowa but in Bethel, Vermont and in many other small towns in rural America. Some young people are leaving and many others, who stay, have a dim future.

But, after that, the authors get it all wrong. They take global capitalism as a given, and can’t imagine any noncapitalist alternatives. They recommend changes in education that sort students into the appropriate places in the capitalist job market, and fail to think about reorganizing the economies of rural America—activities in agriculture, industry, and services—in a noncapitalist manner.

Ultimately, with a plan and a vision the undoing of Middle America is not preordained. The rural crisis has been ignored for far too long, but, we believe, it isn’t too late to start paying attention. The residents of rural America must embrace the fact that to survive, the world they knew and cherished must change. And, on a national level, rural development must be more closely linked to national economic growth priorities, and policies must be created to help these communities prepare for a future that is already here.

Their message is adapt to a changing capitalist world, not change that world in a noncapitalist direction. The policies they advocate thus represent a brain drain of another sort. . .

It’s official-update 5

A group of ND students (current students and recent alumni) have launched a petition “to save and strengthen a liberal arts economics education at Notre Dame.”

The petition reads, in part, as follows:

We – the undersigned students, alumni, faculty, and supporters of a liberal arts economics education – oppose the decision to close the Department of Economics and Policy Studies and call for a strengthening of the liberal arts approach to economics education at Notre Dame.

You will find the full text of the petition here.

FOLLOW-UP. . .

The petition was launched 2 nights ago (late Friday night) and already more than one hundred people—from Notre Dame and around the world, in different disciplines, both students and faculty—have signed.

For reasons I don’t understand, the comment I wanted appended to my own signature didn’t appear. Here’s what I wrote:

I couldn’t be more proud of the students—both current and alumni—who composed this petition. They care about the education they’ve received, and about the education their fellow students will have in the future. In this sense, they represent the best of the University of Notre Dame. These students should be respected, not patronized; and their demands should be taken seriously, not ignored.

ANOTHER FOLLOW-UP. . .

500 signatures and counting on Tuesday evening, 22 September. What an outpouring of support for the students’ demands!

Capitalism’s wages

While David Leonhardt thinks wage growth in the past few months is significant, both Dean Baker and the Federal Reserve Bank of San Francisco offer a very different story. . .

Baker:

For 2009, real wages have unambiguously been falling and are likely to continue to fall as modest increases in commodity prices are not offset by nominal wage growth.So how does Leonhardt get the story so wrong? Most importantly he uses year over year data. This includes the large fall in prices at the end of last year, which still outweighs the impact of falling real wages through 2009. Using year over year data, we can say that real wages have risen in the last year. We will not be able to say that four months from now.

The Fed:

As far as the outlook for inflation is concerned, cost pressures remain low.  In particular, wages are barely growing.  Compensation per hour, a broad, but relatively volatile measure, is rising at close to its slowest pace since the series began in the 1940s.  The employment cost index, a somewhat smoother indicator, is growing at the slowest pace since that series began in the early 1980s.  A key reason for the lack of wage pressures is the degree of slack in labor markets, reflecting the very high unemployment rate.

Here’s one of the graphs from the Fed’s presentation:

In other words, high unemployment is keeping nominal wage growth low and guaranteeing that real wages and the employment cost index continue to fall. Those developments, combined with increasing productivity, mean that the rate of exploitation is continuing to rise.

That, unfortunately, is one of capitalism’s main solutions to the current crisis.

It’s official-update 4

According to today’s Chronicle of Higher Education, in an article titled “Notre Dame Plans to Dissolve the ‘Heterodox’ Side of Its Split Economics Department,” this sign (and the department it designates) will be eliminated within the next 2 years.

Some excerpts:

“In light of the crash of the economy, you would think there would be some humility among economists, some openness to new approaches,” says Charles K. Wilber, a professor emeritus of economics at Notre Dame. “There’s not a lot.”

David F. Ruccio, a professor in the economics and policy studies department, says that he cannot imagine being comfortable anywhere other than an economics department. “We have a letter from 2003 guaranteeing our tenure,” he says. “But we have no idea at this point how this is going to work. Which departments will be our tenure homes? What’s going to be my course load? Who’s going to be my boss? Who’s going to be paying my salary? None of these questions have been answered, so I don’t even know how to approach somebody in some other unit.”

“I’m preparing a proposal for a meeting with Father Jenkins,” says Felipe Witchger, a 2008 graduate. “It would be a serious problem if there were no longer a home for critical engagement with economics or for an analysis of the current crisis.”

“I valued the exposure to mainstream quantitative approaches that I received in the econometric courses,” he says. “But I’m most grateful that I was exposed to other approaches, which allowed me to put the neoclassical model in its proper context.”

Alli deJong, a 2007 graduate who now works for a nonprofit organization in New Orleans, echoes that view. “The major taught me to question my assumptions and to question the logic of social systems,” she says. “I could only have gotten that in a department with a strong heterodox component.” Orthodox economic models of human behavior, she says, would never have allowed her to make sense of post-Katrina New Orleans.

“If you’re looking at a school like Notre Dame, with a long Catholic tradition of looking at how values fit into economics,” Mr. [David] Colander says, “that seems to make much better sense than becoming a neoclassical department like every other neoclassical department. There is a pervasive attempt in economics for everyone to try to become just like a small set of elite schools. And that’s crazy.”

And what will be the fate of the courses taught by the heterodox department? Mr. McGreevy says that faculty members in economics and policy studies will be able to continue to offer their upper-level courses, from whatever new departmental perches they find. But they will no longer teach any of the major introductory or intermediate economics courses, a prospect that makes Mr. Ruccio despair.

“When we are no longer in the core of the economics curriculum, students are not going to be getting these diverse perspectives,” Mr. Ruccio says. “And what that means is that nonmainstream ideas, openness to a variety of traditions, are no longer going to be central.”

Mr. Ruccio is on leave this semester, completing a book in Vermont. “I’m actually a bit conflicted about this,” he says. “On the one hand, I’m sorry to be far away from my colleagues as they’re going through this. But on the other hand, I’m glad to have some distance. It’s hard to watch.”

It’s official-update 3

Today’s Observer published 2 statements from ND students—one a 2009 alumnus, the other a current senior—in which they challenge the University to rescind its decision to close the Department of Economics & Policy Studies.

According to Sean Mallin, in a column titled “Bleak future for ND econ,”

The students of Notre Dame will suffer an incredible loss if the administration goes forward with their plan to close the Department of Economics and Policy Studies. We currently have something our peer universities lack: an economics program that is concerned with social justice, human dignity, and theoretical openness. It is a focus that sets us apart from the narrow mainstream and reflects the wider commitments of this university – best exemplified by Fr. Theodore Hesburgh – to academic freedom and the Catholic Social Tradition.

For Matthew Panhans, in a letter titled “An economics sell-out,”

If the department of Economics and Policy Studies is disbanded. . ., and those economists are not allowed to join the Department of Economics, the University is saying that they do not consider pluralism a legitimate voice in economics. Their pursuit for high rankings takes precedence over everything, even if it means sacrificing Notre Dame’s commitment to social justice. I deeply value my education in economics at Notre Dame, one that included critical thinking in the tradition of the liberal arts alongside mathematical rigor. My concern is that future students of economics will not find any room for compassion or understanding in their economics curriculum. Undermining pluralism in economics is for Notre Dame to betray its most precious beliefs.