Protest of the day

"Leave, you coward"

The graffiti behind the youngster reads: “30 years of humiliation and poverty.”

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Heart of solidarity

The other day, I criticized the dark side of the freedom Edward Glaeser sees as the moral heart of economics.

Nancy Folbre has developed a different but not unrelated critique, based on the ideas of social responsibility and solidarity.

Long before Karl Marx invented the term “class struggle,” socialist ideals grew out of family values of solidarity and care for others. Like families, societies sometimes fail to find the right balance between freedom and responsibility, and if they fail, they fall apart. Freedom is just one chamber of our moral heart. . .

That binding seems to chafe many of our fellow citizens. Many large corporations want to be free of us and have already moved out. They are angling for a no-fault divorce, with no child support or alimony. They don’t want to help pay for our education, our health or our retirement, and with offshore production and clever tax shelters, they won’t have to.

Their hearts are weak, and ours may soon be broken.

Criticizing behavioral economics

Apparently, behavioral economics has come under attack.

Tim Hartford discusses some of the criticisms of behavioral economics that are beginning to appear, for example, by the psychologist Gerd Gigerenzer and the economist Nathan Berg.

Take the simple act of catching a ball in flight. The spirit of neoclassical economics would say that people act “as if” swiftly calculating the parabolic arc of the ball. The spirit of behavioral economics would explain dropped catches with references to some systematic errors in the way we perform that calculation. But in fact, ball-catchers use a cognitive short-cut called the “gaze heuristic,” running forward and back while keeping constant the angle of sight up to the ball as it descends. No amount of “nudging” towards faster differential calculus will help prevent dropped catches.

This is tough on behavioral economists, because in order to be taken seriously by other economists they have had to play the optimizing game. Switching to Gigerenzer’s rules would mean the end of economics as we know it.

Yet the critique is sobering. If behavioral economists do not really understand why we do what we do, there are surely limits and dangers to the project of nudging us to do it better.

To be clear: switching to Gigerenzer’s rules wouldn’t mean the end of economics—only the end of neoclassical economics—as we know it.

Economic disaster porn

Noreen Malone makes the case against economic disaster porn (such as the photos of Detroit I posted the other day).

These indelible pictures present an un-nuanced and static vision of Detroit. They might serve to “raise awareness” of the Rust Belt’s blight, but raising awareness is only useful if it provokes a next step, a move toward trying to fix a problem. By presenting Detroit, and other hurting cities like it, as places beyond repair, they in fact quash any such instinct. Looked at as a piece of art, they’re arresting, compelling, haunting … but not galvanizing. Our brains mentally file these scenes next to Pompeii rather than a thriving metropolis like Chicago, say, or even Columbus.

Joke’s on us

Pete Cashmore has collected some of the jokes about bankers that have been making the rounds.

Here’s one:

A man is stuck in traffic. He asks a police officer about the hold-up and he replies: “The head of the Bank Of England is so depressed about the economy he’s stopped his car and is threatening to douse himself with petrol and set himself on fire. So we’re taking up a collection for him.” The man asks: “How much have you got so far?” The policeman replies: “About 40 gallons, but a lot of people are still siphoning.”

The fact is, after the taxpayer bail-outs and the resumption of business as usual, the banks are even bigger and more likely to precipitate a financial crisis than they were before.

I guess the joke’s on us.

Inequality and social health

As the Economist well understood beforehand (here and here), inequality has been a hot topic among the rich and powerful in Davos. Some of them, it seems, are worried about growing inequality causing political and social instability in the countries where they rule. Philip Aldrick reports on some of the remarks:

“The increase in inequality is the most serious challenge for the world,” Min Zhu, a special adviser at the International Monetary Fund and a former deputy governor of the People’s Bank of China, told delegates at the Davos gathering. “I don’t think the world is paying enough attention.”

His comments echoed an earlier warning from Sir Martin Sorrell, chief executive of media giant WPP, that “inequality, the concentration of wealth is a serious issue” and that marginal tax rates may need to rise for the best-off in society.

Nouriel Roubini, professor of economics at New York University, also warned that inequality “exacerbates political instability”.

That’s the report Tom Ashbrook [ht: mg] uses to introduce his program on inequality, in which he interviews Richard Wilkinson and Kate Pickett (authors of the Spirit Level) and Barry Bluestone (author of Growing Prosperity: The Battle for Growth with Equity in the Twenty-first Century) on the relationship between inequality and social health.

Egypt and neoliberalism

Like many people who are not experts on Egypt but also not satisfied with simplistic references to a Twitter Revolution or the universal desire for democratic reforms in the Arab world, I have been looking for good background material. What is it that is driving the current protests and what might the consequences be?

As it turns out, Timothy Mitchell published an essay in 1999, in which he explains the effects of the neoliberal agenda in Egypt and the kinds of changes that were necessary at that time. His basic argument is that the adoption of neoliberalism (with help from the United States and the IMF) meant the concentration of public funds into fewer and fewer hands (some two dozen conglomerates, such as the Osman, Bahgat and Orascom groups), and the transfer of resources to financiers and away from agriculture, industry, and employment.

Here’s his conclusion:

Alternative strategies to the neoliberal agenda must begin in the countryside. The first priority is a far-reaching land reform program, redistributing land holdings of more than five acres. This would improve living conditions immediately, increase agricultural output, and reverse the growing landlordism and merchant monopolies that are returning the countryside to the conditions of the first half of the twentieth century. Redistributing agrarian resources would provide a powerful stimulus to local investment and wealth creation. At present, with consumption of commodities other than food so heavily concentrated among the affluent and super-rich, much of the country’s demand for goods can be satisfied only by imported luxuries. The new wealth of ordinary households would create a vibrant demand for local services and local manufactures. Given the relative importance of workers’ remittances from the Gulf (in 1996-97 they amounted to $3.26 billion, more than double the amount of Western portfolio investment and almost five times the paltry level of direct investment by transnational corporations), this is clearly the level at which radicalinitiatives are needed and can make a difference.

The other priority is political reform. Neoliberalism in Egypt, as elsewhere, has been facilitated by a harsh restriction of political rights. Its results include a parliament more than 100 of whose members the courts declared fraudulently elected, but which announced itself above the law in such matters; and in which the handful of opposition deputies are increasingly deprived of opportunities to question the government. Neoliberalism has consolidated a regime that denies Egyptians the right to organize political opposition or hold political meetings, while forbidding the few legal opposition parties to hold public activities. Neoliberalism has meant a steady remilitarization of power, especially as control shifts away from ministries, many of which are now run by technocrats, to provincial governors, most of whom are still appointed from the upper echelons of the military. And it includes the repeated intimidation of human rights workers and opposition journalists by closures, court cases and imprisonment. Meanwhile, the US refuses every appeal to speak out in public on these issues, declaring no concerns beyond the endurance of the regime and its neoliberal reforms.

What Egypt most needs is not the emergence of so-called civil society (which often means giving the educated and the well-to-do the opportunity to organize and speak on behalf of those they consider in need of “development”). The real need is to stop those in charge, both inside and outside the regime, from preventing neighbors, co-workers and communities from getting together, addressing problems, deciding and arguing for what they want, and exposing the corruption, inanities and injustices of those who hold wealth and power. Like land reform, this is not a new idea; it simply isn’t visible through the narrow window of the neoliberal imagination.

The bailouts explained

 

Protest of the day

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Class conflict in Egypt

According to Juan Cole, the Mubarak government has lost its legitimacy, at least in part as a result of the changing class structure of the country over the course of the past 30 years. Here are excerpts from his analysis:

Revolutionary Arab nationalist leader Gamal Abdel Nasser (d. 1970) conducted extensive land reform, breaking up the huge Central America-style haciendas and creating a rural middle class. Leonard Binder argued in the late 1960s that that rural middle class was the backbone of the regime. Abdul Nasser’s state-led industrialization also created a new class of urban contractors who benefited from the building works commissioned by the government.

From 1970, Anwar El Sadat took Egyptian in a new direction, opening up the economy and openly siding with the new multi-millionaire contracting class. . .

whereas Abdel Nasser’s socialist policies had led to a doubling of the average real wage in Egypt 1960-1970, from 1970 to 2000 there was no real development in the country. . . Nearly half the country now lives in cities, and even many villages have become ‘suburbs’ of vast metropolises.

So the rural middle class, while still important, is no longer such a weighty support for the regime. A successful government would need to have the ever-increasing numbers of city people on its side. But there, the Neoliberal policies pressed on Hosni Mubarak by the US since 1981 were unhelpful. Egyptian cities suffer from high unemployment and relatively high inflation. The urban sector has thrown up a few multi-millionaires, but many laborers fell left behind. The enormous number of high school and college graduates produced by the system can seldom find employment suited to their skills, and many cannot get jobs at all. Urban Egypt has rich and poor but only a small “middle class.” The state carefully tries to control labor unions, who could seldom act independently. . .

The failure of the regime to connect with the rapidly growing new urban working and middle classes, and its inability to provide jobs to the masses of college graduates it was creating, set the stage for last week’s events.

Cole provides the beginnings of a class analysis of the current conflict in Egypt. Much more, of course, remains to be done. We know something about the struggles of the textile workers. I’d appreciate suggestions from readers on further sources, for Egypt and the rest of the Arab world.