Archive for August, 2010

Like language in general, different economic languages influence how we think, because of what they habitually oblige us to think about.

Guy Deutscher offers the following example:

Suppose I say to you in English that “I spent yesterday evening with a neighbor.” You may well wonder whether my companion was male or female, but I have the right to tell you politely that it’s none of your business. But if we were speaking French or German, I wouldn’t have the privilege to equivocate in this way, because I would be obliged by the grammar of language to choose between voisin or voisine; Nachbar or Nachbarin. These languages compel me to inform you about the sex of my companion whether or not I feel it is remotely your concern. This does not mean, of course, that English speakers are unable to understand the differences between evenings spent with male or female neighbors, but it does mean that they do not have to consider the sexes of neighbors, friends, teachers and a host of other persons each time they come up in a conversation, whereas speakers of some languages are obliged to do so.

By analogy, in economics, different languages—different theories or discourses—oblige us to think about certain things, and to think about them in certain ways. For example, the language of neoclassical economics obliges us to think about capitalism as a system that balances unlimited desires and limited means, while the language of Marxian economics obliges us to see and talk about a system based on exploitation, contradiction, and crisis.

Again, from Deutscher:

When your language routinely obliges you to specify certain types of information, it forces you to be attentive to certain details in the world and to certain aspects of experience that speakers of other languages may not be required to think about all the time. And since such habits of speech are cultivated from the earliest age, it is only natural that they can settle into habits of mind that go beyond language itself, affecting your experiences, perceptions, associations, feelings, memories and orientation in the world.

Moreover, the hegemony of one among many different economics languages (an issue Deutscher does not mention) means that, in the discipline, students and professors are obliged to think about certain things, and to think about them in certain ways. Such a language—for example, the language of neoclassical economics—becomes such a habit of mind that it appears to be a natural language, a description of the world as it actually is.

That’s the importance of examining the existence and effects of different languages in economics: it challenges the idea that all economists think in fundamentally the same way. It shows that the discipline of economics is actually a Tower of Babel, which some choose to ignore by imposing a single language on its practitioners and everyone else.

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New Orleans, like the national as a whole, represents a tale of two recoveries—one for the wealthy, a very different one for everyone else.

Five years after Hurricane Katrina devastated the city of New Orleans (as well as, let’s not forget, broad swathes of the rest of Louisiana and Mississippi), the rebuilding program has, according to the Washington Post, “often offered the most help to the most affluent residents.”

“The recovery is really the tale of two recoveries,” said James Perry, executive director of the Greater New Orleans Fair Housing Action Center. “For people who were well off before the storm, they are more likely to be back in their homes, back in their jobs and to have access to good health care. For those who were poor or struggling to get by before the storm, the opposite is true.”

The same is true of the recovery from the Great Recession: profits have soared and those who share in the profits have emerged unscathed, while the rest of the population is suffering from unemployment, home foreclosures, and the effects of generalized economic insecurity.

The two recoveries are remarkably similar, and have imposed similarly unequal burdens on those who are living through them.

College dropout factories

Posted: 27 August 2010 in Uncategorized
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I often criticize the extent to which college students are coddled and given a virtual guarantee by academic administrators that they will successfully graduate. What that means is that professors are supposed to satisfy the student as customers instead of challenging them to participate in the work of learning.

Ben Miller and Phuong Ly focus on a different, but equally real, problem: the growing number colleges that take students’ money and then fail to provide the conditions for students to successfully graduate. One example is Chicago State, which “has the worst graduation rate of any public four-year university in Illinois and one of the worst in the nation, with just 13 percent of students finishing in six years.” Even more, such an

experience of educational incompetence at the college level isn’t just a Chicago phenomenon. Nationwide, low-income minority students are disproportionately steered toward colleges not where they’re most likely to succeed, but where they’re most likely to fail. . .

As a percentage of their student bodies, these college dropout factories enroll twice as many part-time students, nearly twice as many from low-income families, and around 50 percent more blacks and Hispanics than the average American college or university. They mainly serve local communities, admit most of their applicants, and have much less money than colleges that are higher in prestige. Most upper-middle-class parents would never send their kids to these schools—nor have they generally even heard of them. Not surprisingly, the worst of the dropout factories are allowed to roll along in dysfunction, year after year.

The fact is, there’s not a single system of higher education in the United States but many different systems. As I have discovered many times, the experiences of professors and students at elite schools are simply not the same as those in other schools, much less in the dropout factories.

But, Miller and Ly argue, the solution is not to lower standards in non-elite schools.

Quite the opposite: the colleges that successfully graduate low-income and minority students don’t ask less of them. They ask more. Researchers have found that more challenging coursework makes success rates go up, not down.

That’s what we need to be doing at all college and universities: challenging students to learn. And more: we need to eliminate the dropout factories and create a system of higher education for all students that is decently funded and provides the conditions for students to learn and, as a result, to successfully graduate.

Conservatives, of course.

Jonny Thakkar has the temerity to argue that conservatives should read Marx. Why? Because “If they want to be consistent, conservatives ought really to be anti-capitalist.”

The aspect of Marx’s thought that most interests Thakkar is the melting argument in the Communist Manifesto:

The bourgeoisie cannot exist without constantly revolutionizing the instruments of production, and thereby the relations of production, and with them the whole relations of society. . .Constant revolutionizing of production, uninterrupted disturbance of all social conditions, everlasting uncertainty and agitation distinguish the bourgeois epoch from all earlier ones. All fixed, fast-frozen relations, with their train of ancient and venerable prejudices and opinions, are swept away, all new-formed ones become antiquated before they can ossify. All that is solid melts into air, all that is holy is profaned.

As Thakkar puts it,

when combined with Marx’s economic argument in Capital it implies nothing less than this: to the degree that technological change is built into capitalism, so must institutional change be. In every single generation certain institutions will become obsolete, and with them their attendant practices and values. There will be no rest, only motion.

In the end, what Thakkar wants is a nonlibertarian, non-American Enterprise Institute conservatism, one that conserves institutions in the face of the melting effects of capitalism. In his view, “To be truly conservative we would have to tame what we ourselves have let loose,” a position that puts him worlds away from what passes for conservatism in the United States today.

I cannot say I share Thakkar’s vision of the desirable society but I do admire both the quality of his reading of Marx and his courage in challenging the intellectual foundations of the contemporary conservative movement. If only liberals would wake up and understand the importance of reading Marx in the midst of the current crises of capitalism.

Kerouac’s Chicago

Posted: 27 August 2010 in Uncategorized
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A reader reminded me that Jack Kerouac, when he returned to Chicago in 1950, saw it quite differently from Carl Sandburg.

The same scraggly streets in dirty dawns. . .the eastern metropolis again. . .Negro workingmen waiting for work-buses and coughing; the early traffic in cars; the great Rubble of City stretching in all directions like a puzzle and a damnation and an enigma. It was the same Chicago as in ’47. . .but this time I did not stop to examine the “riotous, tinkling night” of Bop at the Loop; and beans in hungry diners.

I hated Gary, I even hated South Bend (land of car-dealers and gravely desolation); what are we going to do?*

So, what has changed since 1950?

* from Windblown World: The Journals of Jack Kerouac, 1947-1954, ed. Douglas Brinkley, 313 (New York: Viking-Penguin, 2006)

Of course, I’m hostile to the myth.

Gavin Kennedy is right. Yesterday, I gave him credit for unmasking the myth of the invisible hand in Adam Smith’s writings. I, too, “have read what Adam Smith actually wrote and then contrasted [it] with what has been claimed by some modern economists.” Indeed, I have done research on Smith and teach the Wealth of Nations to students. I actually have the students read the text, so that they can discover for themselves what Smith did—and did not—write.

Therefore, at least on this score, Kennedy and I are in substantial agreement: the myth of the invisible hand

erects a wholly unsupportable expectation on a very thin reed, which was bound to disappoint its true believers and those innocents who relied on its supposed benefits.

Then, of course, we part company. While Kennedy believes “the myth obscures the real power of bottom-up markets which have done more good for humanity than all the top-down state-sponsored tyrannies that have existed since ancient times,” my own view is that all such stories about markets are just that: myths.

The debate about the relationship between growing inequality and the economic crises is heating up. But many of the participants in the debate remain in the dark.

On the Economist web site, both R.A. and W.W. have joined the ongoing debate. But they’re about as clueless as most of the other participants.

R.A. simply can’t imagine how growing inequality played a role in causing the crises. The best R.A. can do is blame the poor.

How about the bottom? Well, inequality does not cause low-income homeowners to buy houses they can’t afford. If we insist on seeing the problem as poorer people having too little money, then the problem is that poorer people have too little money, not that they have too little money compared to extremely rich people. As it happens, the forces that pushed, and continue to “push people at the bottom of the ladder toward choices that put the financial system at risk” are policies intended to reduce wealth inequality by making it easier for lower-income Americans to buy large depreciating assets with two and a half baths.If you ask me, the ultimate culprit in the financial crisis was the American cult of homeownership. There are many ways to help poorer Americans accumulate wealth, such as channeling payroll taxes into personal retirement accounts. But we don’t do that. Instead, because we consider it a humiliating indignity not to have a room or ten of our own, we subsidise home-buying six ways to Sunday and tell banks they won’t have to suffer the downside of loans offered to bad credit risks. I think it’s safe to say that this hasn’t turned out to be the best scheme for helping poorer Americans into the ownership class.

R.A. does think “the causal link running from inequality to crisis is dismissed too casually.” But R.A. simply adopts Raghuram Rajan’s view that the state is to be blamed for encouraging homeownership among those at the bottom of the distribution of income.

What neither commentator wants to do is think through the problem by analyzing (a) the tendencies within U.S. capitalism from the mid-1970s onward to make the distribution of income more unequal and (b) the various channels—through economics, politics, and culture—whereby the growing gap between profits and wages created the conditions for the bubbles of late-1990s and 2000s and the bursting of those bubbles in 2008.

If they did, they’d actually begin to shed some light on the problem.

Take a course in neoclassical economics or listen to a neoclassical economist and you’ll soon learn of the magic of the invisible hand. And you’ll learn that the invisible hand was Adam Smith’s great contribution to moden economic thought.

Much of the rest of Smith is discarded or simply ignored. The labor theory of value. The role of trust and sympathy in allowing markets to operate. The need for public education in a world in which labor is often reduced to drudgery. And so much more.

But the invisible hand remains. The problem is, the invisible hand is an idea that Smith only invokes twice in his main texts—once in the Wealth of Nations, and once in the Theory of Moral Sentiments.

And, as Gavin Kennedy has been arguing, the invisible hand metaphor

was not about markets, regulated of otherwise and in none of the three cases that he uses it was it about markets. The belief that he did refer to markets is a wholly invented myth by modern economists from the 1950s. [The third example Kennedy refers to is in Smith’s Astronomy.]

Why does it matter? According to Kennedy,

If you insist that the ‘invisible hand’ is real, actual, or has content, you take on a wholly fictitious metaphysical idea (‘the hand of God’ or such like construction), which is theology not economics.

My assertion that the metaphor was not used by Adam Smith in relation to markets is based on the close reading of his uses of it. Samuelson and others asserted that it was elated to markets, without a scrap of textual evidence – its is not mentioned in Books I and II of WN, which deal in detail with the workings of markets. Also, his use of it was hardly mentioned by political economists, while Smith was alive, nor for long after he died. Strange for a cardinal principle?

And that’s what we’ve been getting in recent years: a theology of free markets, justified by a powerful metaphor—the invisible hand—for which neoclassical economists have worked very hard to invent a tradition beginning with Adam Smith.

When it comes to explaining the current crises of capitalism, mainstream economists and commentators have been acting like drunks who look for their keys under lamp posts because the light is better there. Now, they may be changing.

Add Barbara Kiviat and Justin Fox to the list (which includes Raghuram Rajan, Robert Reich, and Paul Krugman) who have begun to break the taboo and at least pose the question of the relationship between the growing inequality in the United States and the causes of the current crises.

The fact is, however, they’re still fumbling in the dark and they’re certainly not getting any help from mainstream economists. As Fox explains,

so far there’s nothing even remotely close to conclusive evidence that there is a link. But it does at least feel like there’s something to it. And it’s striking just how little the mainstream economic research of the past 50 years has to say about it. Inequality was seen as a side effect (unfortunate or not, depending on your political leanings) of Great Economic Forces, not something that itself had an impact.

Exactly. Mainstream economists chose to leave in the dark the idea that rising inequality was at least one of the keys to explaining the run-up to and the eventual onset of the crises that erupted in the fall of 2008.

It’s the class taboo, which neoclassical economists continue to enforce but a few honest observers are beginning to challenge.

It’s bad enough that many college students graduate with thousands of dollars of debt, and they’re forced to have the freedom to take a job to pay off their accumulated loans. We certainly need to change the way we finance a college education in the United States. But it takes a neoclassical economist to propose indentured servitude as a way of solving the problem.

Richard Vedder, director of the Center for College Affordability and Productivity and professor of economics at Ohio University, proposes “human capital contracts” as the solution: “instead of going into debt, let individuals sell the equivalent of equity in themselves.”

I guess it takes a neoclassical economist like Vedder to give real meaning to the term “wage slavery”!