Archive for September, 2009

Capitalism’s wages

Posted: 17 September 2009 in Uncategorized
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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. . .


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.


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.”

fighting irish

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.

Academic Freedom

Cary Nelson, national president of the American Association of University Professors, has contributed a long article about the whole Neve Gordon affair.

The essence of his analysis and recommendation:

Indeed it has been clear from the outset, as [university president] Carmi openly acknowledged in an August 27th letter to Ben-Gurion faculty, that donor anger is a major factor in her attacks on Gordon. Inside Higher Ed reported that Amos Drory, Ben-Gurion’s vice president for external affairs, wrote to complaining donors to say “the university is currently exploring the legal options to take disciplinary action.” It is not the first time fund-raising priorities, not principle, have shaped administrative understandings of academic freedom, but that does not blunt the lesson that this represents one of the most severe threats to academic freedom.

Carmi’s own academic freedom, one may note, would have allowed her to reject Gordon’s views while asserting his right to hold them. That is, in effect, what Gordon recommended: “She has to cater to the people that provide the money, so a strong letter of condemnation of my views would have been fine with me. But there’s a difference between saying you disagree wit me, and threatening me.” Instead she mounted an international assault and sought to gut academic freedom in the process. While Gordon has job security, his vulnerability to myriad other forms of internal reprisal is obvious. There are many kinds of research support and institutional recognition that require administrative endorsement. More serious still is the message Carmi has sent to untenured and contingent faculty: exercise your academic freedom at your peril. The chilling effects at Ben-Gurion University have hardened into a deep freeze. There is reason for principled faculty to question the president’s ability to serve in her position.


Certain ideas achieve hegemony in economics in a number of different ways: discursively (when particular ideas are taken as a kind of common sense), via journals (such that some ideas get published in “top” journals and others not), as a result of grants and other funding (that go to some economists and not others), pedagogically (when some ideas are presented in textbooks and the classroom, and others are not), and many other ways.

According to a recent article by Ryan Grim, based on an investigation by the Huffington Post, the Federal Reserve has succeeded in buying one wing of the economics profession, the one focused on the study of monetary economics:

The Federal Reserve, through its extensive network of consultants, visiting scholars, alumni and staff economists, so thoroughly dominates the field of economics that real criticism of the central bank has become a career liability for members of the profession.


There was much discussion of monetary policy and the role of Central Banks at the Sibos conference in Hong Kong. One of the speakers was Joseph Yam, who is stepping down as chief executive of the Hong Kong Monetary Authority after 16 years:

He said there was a conflict between the private, short term interest of financial groups to maximise profits and the public interest of effective financial intermediation that provided support to the economy. “This conflict has not been talked about much, if at all, even in central banking forums,” he said.


As I wrote previously, there’s a resurgence of interest in Marx. People writing about and giving lectures on him and his ideas (especially in relation to the current crisis). Unfortunately, many of the writers and lecturers know little about Marxian theory and recent scholarship on Marxian ideas (understandable, at least in the United States, given past history) or treat that theory seriously (unfortunate, especially when they don’t know much). So, Marx and Marxian ideas get set up—and then quickly knocked down.

That’s certainly the case with Professor DeLong’s recent lecture, “Understanding Marx.” He repeats much of the old nonsense (Marxian theory is based on economic determinism, class doesn’t have much to do with changing the world, and so on) and then reduces Marx to “six big things to say”—inevitably, 3 right and 3 wrong. What an injustice to DeLong’s students, who are simply not getting a view of Marx and Marxian theory informed by serious scholarship.

Let me focus on just one of DeLong’s points, concerning the labor theory of value. Here’s DeLong:

What I think is going on inside Marx’s head is something strange. To say that “the value relation[s] between the products of labour… have absolutely no connection with their physical properties” is simply wrong: if the coffee beans are rotten–or if their caffeine level is low–they have no value at all, for nobody will buy them. Marx says that the value of a good is something inscribed within it and attached to it–the socially-necessary labor time for its production—that then bosses people around. And it is the values–not the prices at which things are actually bought and sold–that are the elements of the real important reality. And those values: “appear as independent beings endowed with life and entering into relation both with one another and the human race.”

And his critique?

Now I have never found anybody who thinks this way.
Nobody I talk to believes that “values” are objective quantities inherent in goods by virtue of the time it took to produce them.

Now, there are lots of things that can be, and have been, said and written about Marx’s labor theory of value. But the idea that it can be simply dismissed because DeLong doesn’t know anybody “who thinks this way” betrays a lack of seriousness.

What DeLong doesn’t get is (a) Marx developed a critique of political economy, which was aimed at the mainstream economics of his day (which was based on the labor theory of value) and (b) different theories of value have different entry points and logics. So, analyzing the “language of commodities” from the Marxian perspective of labor and class is surely quite different from analyzing it in terms of the exogenous features of nature (preferences, technology, and endowments) presumed by neoclassical economists.

That’s what one does in teaching economics: explain the various theories (including their assumptions and logics) and sketch out their consequences (for the world of ideas and for society). That’s a task that appears to be too difficult for Professor DeLong.


As the news of the decision to eliminate the Department of Economics & Policy Studies at the University of Notre Dame spreads, I am receiving reports of cutbacks in programs and centers at a wide range of universities. In some cases, the decision is couched in terms of financial exigency; in other cases, such as at ND, there is no mention of finances. In all cases, however, the result is the elimination of pioneering programs and a decline in the quality of higher education.

Just last night I heard about the elimination of the Cultural Studies program at the University of North Carolina-Chapel Hill and the the Center for Interdisciplinary Research in Philosophy, Interpretation, and Culture at SUNY-Binghamton.

The problem is, no one really knows what to do. Clearly, though, the university, as we have known it, is in crisis. Part of the problem is financial. Part of it is top-down university decision-making and the lack of faculty governance. The fact is, many spaces that do not conform to the most mainstream academic canons are being eliminated.