Money makes the world go ’round

Another sign of the failure of mainstream economics (one among an ever-increasing number) is the proliferation of new schools of monetary theory in the economics blogosphere.

A recent article in the Economist highlights three such theories: Neo-Chartalism (or Modern Monetary Theory), Market Monetarism (sometimes referred to as Quasi Monetarism), and Austrian economics.

What’s interesting is all three theories have mostly been banished from the journals of mainstream economics (which is why they have either been created, or have been further elaborated and disseminated, within the economics blogosphere) and that all three are focused on some rather rudimentary ideas about what money is and how it works (which is a sign of how weak the theory of money is within mainstream economics).

My own sympathies, as I’ve indicated before, are with Modern Monetary Theory—and I’d like to see much more of an engagement between that particular theory of money and Marxian value theory. As I’ve often explained to students, Marx’s critique of political economy includes money almost from the very beginning (which can both expand and destabilize commodity exchange), in contrast to mainstream economics (both classical and neoclassical) in which money is introduced only after the conditions for a general equilibrium are established. So, Modern Monetary Theory would be an interesting addition to a relatively underdeveloped aspect of the Marxian critique of political economy, the theory of fiat money.

The dispute between, on one hand, Market Monetarists and Austrians, and, on the other hand, mainstream economists is of a different order, concerned mostly with the relationship between the Fed and macroeconomic cycles. From what I’ve read, Market Monetarists are not much more than Quasi Monetarists, in the sense that they make one key change in the model of traditional monetarism (of, e.g., Milton Friedman): they question the extent to which the velocity of money is fixed. OK. As for the Austrians, well, it’s all about how the Fed should be abolished, which ends up being just an extreme version of neoclassical economics (in which all markets instantaneously adjust and a gold standard keeps the money supply in line).

But, taken together, the three theories do demonstrate one of the many reasons mainstream economics has failed—before and now during the Second Great Depression—which is that its practitioners have mostly ignored a central feature of capitalist commodity exchange: money.

Back to the future

Today, as we celebrate the passing of the old and the ushering in of the new, we have to recognize that while we can’t repair the past we can certainly figure out how to create a different future. The key question, as always: what is to be done?

Francis Fukuyama makes a hash of it (arguing, incorrectly, that the working-class and with it Marxism can be consigned to the distant past) but he does identify one key task:

It is not possible to get to that point, however, without providing a serious and sustained critique of much of the edifice of modern neoclassical economics, beginning with fundamental assumptions such as the sovereignty of individual preferences and that aggregate income is an accurate measure of national well-being. This critique would have to note that people’s incomes do not necessarily represent their true contributions to society. It would have to go further, however, and recognize that even if labor markets were efficient, the natural distribution of talents is not necessarily fair and that individuals are not sovereign entities but beings heavily shaped by their surrounding societies.

The Pew Research Center continues to document solid support for socialism (notwithstanding the post-Cold War assault on anything and anyone associated with the idea), especially among some groups (such as young people, African-Americans, those with lower incomes, and Democrats).

Occupations have a long tradition in the United States, Michael Moore reminds us, beginning with the Flint sit-down strike 75 years ago yesterday.

Although there had been prior strikes at other auto plants, Flint represented a new milestone for the union movement. The strike targeted two critical plants, Fisher 1 and 2. Both belonged to General Motors, the biggest of the big three auto manufacturers in the United States. UAW activists realized the strike had the potential to paralyze the auto manufacturer and give them a platform to organize on a national level.

Goldman Sachs is certainly not optimistic about the future:

“Slowing growth (and in places outright contraction), public-sector cuts, and a renegotiation of the social compact between state and society in different parts of the world is an environment ripe for political turmoil,” Goldman said in a note to clients.

Mainstream economists continue not to understand the redistributive effects of government deficits, with Paul Krugman focusing only on the national identity of those who finance deficits and Greg Mankiw arguing (with the help of Laurence Ball) that the question of who wins and who loses is mostly philosophy and not economics.

There is much more, of course, that remains to be done. And it’s clear that the answers are not going to be found within mainstream economics or within the existing forms of capitalism. The only way out of the Second Great Depression is to make a clean break from the past and chart a different future.

Cartoons of the year

Cartoon of the day

Special mention

Cartoon of the day

Special mention

Utopian market populism

One of the strangest aspects of the Second Great Depression has been the rise of right-wing market populism.

The question is, why, after an economic crash caused the policies inspired by free-market fundamentalism, was populist anger captured by the Right and not the Left?

Thomas Frank, just as he did in his bestselling book What’s the Matter With Kansas? provides at least part of the answer:

Somehow the right captured the sense of anger. They completely captured it. You could say they had no right to it, but they did. And one of the reasons they were able to do it was because the liberals were not interested in that anger.

I’m speaking here of the liberal culture in Washington, D.C. There was no Occupy Wall Street movement [at that time] and there was only people like me on the fringes talking about it. The liberals had their leader in Barack Obama … they had their various people in Congress. But these people are completely unfamiliar with populist anger. It’s an alien thing to them. They don’t trust it, and they have trouble speaking to it. I like Barack Obama, but at the end of the day he’s a very professorial kind of guy. The liberals totally missed the opportunity, and the right was able to grab it.

So, the Right was able to champion a campaign against the ruling class, by holding up the market as an ideal. That’s the essence of utopian market populism.

The idea that the free market represents a revolt against the political and economic elite is, of course, preposterous but it took the Left almost four years to develop and act on a different analysis of the crisis, which culminated in Occupy Wall Street. The key to the future of the Occupy movement is to combine an attack on the 1 percent elite who created the crisis with its own utopian moment, an alternative that rejects both the right-wing conception of the free market and the liberal idea of merely regulating markets.

That will be an anger both conservatives and liberals will have to deal with.

“Trash the system or crash the planet”

Political decisions are easy when everyone gains. Real politics starts when there are tradeoffs or conflicts, when some will be helped and others will be hurt by a proposed policy.

That’s the lesson I learned from a young Democratic activist and thinker many years ago. And it’s the lesson of Naomi Klein’s recent essay on “Capitalism vs. the Climate,” which I finally found the time to read.

Klein’s argument—which in my view will be useful reading for students, and should be debated by them as well as intellectuals and activists, and will probably be ignored by most economists—is that the necessary measures to respond to the climate threat and to save the natural environment are incompatible with capitalism. One or the other has to give. “Trash the system or crash the planet,” as Tim Jackson puts it.

In effect, Klein presents a challenge to both environmentalists and socialists—to think seriously about the incompatibility of environmentalism and capitalism, and to become involved in the project of imagining and creating environmentally friendly alternatives to capitalism.

My only criticism of her essay is that Klein fails to cite the long tradition of green-red attempts to develop a relevant intellectual and political program. I am thinking of the line of eco-socialists, from William Morris and the members of the Proletkul’t movement during the Soviet Revolution to Rudolf Bahro, James O’Connor, Joel Kovel, and many others in more recent times. To her credit, though, Klein does mention new political connections that are being made between the Occupy Wall Street and environmental movements.

The lesson is that old-style environmentalism, which attempted to convince us that all of us would gain and no one would be hurt if we just all changed our ways, simply hasn’t worked.

It is not the job of a transformative social movement to reassure members of a panicked, megalomaniacal elite that they are still masters of the universe—nor is it necessary. According to McCright, co-author of the “Cool Dudes” study, the most extreme, intractable climate deniers (many of them conservative white men) are a small minority of the US population—roughly 10 percent. True, this demographic is massively overrepresented in positions of power. But the solution to that problem is not for the majority of people to change their ideas and values. It is to attempt to change the culture so that this small but disproportionately influential minority—and the reckless worldview it represents—wields significantly less power.

That’s why the 99 percent have a vested interest in creating alternatives to capitalism, in order to save ourselves and the planet. And the climate deniers and those who defend the continued existence of capitalism are just going to have to get out of the way.

Out with the old, in with the new

source [ht: ra]

If we spent even a fraction of the time inventing alternatives to capitalism that we do in attempting to reinvent capitalism, we would be much further along in getting rid of the old and bringing in the new.

Roger Backhouse and Bradley Bateman argue that we need to look to the past to invent “a morally acceptable form of capitalism.”

Nancy Folbre documents various attempts to “minimize the perverse incentives that our current form of capitalism creates and move closer to our free enterprise ideals” so as to invent one or another form of “utopian capitalism.”

Joe Stiglitz is also trying to make the case for reinventing capitalism, by using government programs to rein in finance and to make the transition from manufacturing to services.

Clearly, the causes and consequences of the Second Great Depression have undermined the legitimacy of existing forms of capitalism. But then the question is: do we want to waste our time inventing a new form of capitalism, or finally face up to the fact that capitalism has failed and get on with the project of inventing some alternatives?

That’s the question we will have to answer in the new year. . .

Public art of the day

Readers of this blog know that I am a great fan of public art, especially when it is aesthetically and socially significant.

Then, there is the world’s ugliest public art [ht: ja]—such as the Peter the Great Statue I saw in Moscow, which was designed by the Georgian designer Zurab Tsereteli, a close friend of the city’s powerful mayor of the time, Yury Luzhkov. As Jamey Gambrell explains,

The sculpture itself — a monument to the 300th anniversary of the Russian Navy — is a clunky, overbearing construction that has been likened to a big toy soldier stuck atop a bunch of broken model ships. Critics have lambasted it for its awkward scale, its absence of historical accuracy (Peter, for reasons the artist has never explained, is dressed in the costume of a Roman legionnaire) and just plain bad taste. Many have also lamented its placement on a small island in the Moscow River, just opposite the New Tretiakov Gallery, where it disrupts a lovely, low-slung cityscape and competes with the nearby Cathedral of Christ the Savior. The estimated price tag of $15-20 million only added to public ire. But it seems to have been the absurd idea of placing such a huge monument to Peter the Great in Moscow — a city the Russian Tsar and founder of St. Petersburg detested — that finally exhausted the public’s patience.

From what I was told, sometime in 2010, Moscow authorities offered to relocate the statue to Saint Petersburg, but this offer was refused.

Peter the Great may be ugly but it is socially significant, in that it indicates a great deal about contemporary Russia.

Cartoon of the day