Archive for April, 2012

It’s hard to keep up with the examples of the selling of education in the new corporate university. Here are two recent ones.

The first is from West Virginia University, which according to John David [ht: db] has sold its economics department to the Koch brothers.

When I arrived at WVU to study economics, it was a new program staffed by moderate faculty members such as Dick Raymond, Bob Saunders, Don Purcell, Gil Rutman, Bob Britt, Jim Thompson and Leo Fishman. Benedum Professor William Miernyk, who founded WVU’s Regional Research Institute, was a key faculty member, and he became my dissertation chair as I focused on the impact of the 1950 UMWA/BCOA Mechanization Agreement.

One recent night, I dreamed that I talked to Dr. Miernyk and told him that the WVU economics area was sold to the Koch Brothers for slightly more than a half million dollars plus another quarter million for graduate students. He turned over in his grave.

The primary WVU agreement, signed by Jane Martin and Wayne King, who were recent top WVU administrators, states that WVU will hire two professors and prescribes that they will teach under the direction of Professor Russell Sobel. One of the professors would also have a joint appointment with Miernyk’s Regional Research Institute. Another component funded several doctoral fellowships and the Koch brothers also agreed to provide operating expense money to the WVU Foundation. The contract is similar to those signed by ultra conservative Grove City College and schools like Clemson. Clemson, however, may have lost the Orange Bowl to WVU but it bowled over WVU with a Koch contract that was twice as large.

The second is from the University of California-Berkeley, which according to Brad DeLong is searching for a new chancellor to “keep Berkeley great.”

The strategy that Berkeley has settled on is to seek to produce the funding stream necessary to maintain a great University by becoming a finishing school for the superrich of Asia. This may be the wrong strategy–I sometimes think so, many others think so, and you can certainly argue so.

But it is the strategy that we have.

And the worst strategy of all is to have no strategy.

A bad strategy is vastly preferable to no strategy, or to an unimplemented strategy.

So we need a chancellor who can implement the strategy that we have.

Those are just two tales among many of the selling of education currently taking place in the new corporate university.

Ever wonder where all the surplus went?

Now, thanks to the Los Angeles Times, we know at least part of the story. Prior to declaring bankruptcy on 15 September 2008, Lehman Brothers had awarded nearly $700 million to 50 of its highest-paid employees.

Here are two of the millions of pages of documents, which show the list of top earners who were pledged $8 million to $51 million in cash, stock, and other compensation:

Now we know where at least some of the surplus has gone—into the pockets of Robert Millard and other top executives at Lehman Brothers.

Now that we know what one trillion dollars look like, we can picture the derivatives exposure [ht: sg] of a bank like JP Morgan chase: $70.151 trillion.*

That’s the nominal exposure. What we don’t know is (a) what kind of exposure each bank has with respect to the exposure of other banks or (b) how much insurance they have taken out on those derivatives. But we do know we’ve been there before, in the run-up to the global financial crisis of 2007-08. And the derivatives market is no more regulated now than it was then.

* That’s roughly the size of the gross world product in 2011. The $1 trillion dollar towers are double-stacked at 930 feet (or 248 meters).

I don’t know whether a “significant number of American voters seem to believe that the unemployed don’t really want jobs because they would prefer to live off unemployment insurance or other social benefits.” But I do know that that’s how Casey Mulligan and a significant number of neoclassical economists see the world.

Nancy Folbre clearly explains the appeal of the neoclassical argument:

It absolves believers of any responsibility for other people’s hardships. It lends credence to the assertion that the labor market would work just fine if it weren’t jammed up by a social safety net. It lays the blame for persistent unemployment squarely on President Obama, who has urged extensions of unemployment benefits and other forms of public assistance.

She also demonstrates that the neoclassical view doesn’t explain but a tiny percentage of the existing unemployment rate.

So, let me ask the relevant question: if neoclassical economists are so hell bent on identifying and blaming those responsible for idleness, why don’t they search for and pin the blame not on workers but on the idleness of corporate profits?

source: International Labour Organization, World of Work Report 2012

Anyone hear of the Second Great Depression?

Special mention

source [ht: sm]

The European: Four years after the beginning of the financial crisis, are you encouraged by the ways in which economists have tried to make sense of it, and by the ways in which those insights have been taken up by policy makers?
Stiglitz: Let me break this down in a slightly different way. Academic economists played a big role in causing the crisis. Their models were overly simplified, distorted, and left out the most important aspects. Those faulty models then encouraged policy-makers to believe that the markets would solve all the problems. Before the crisis, if I had been a narrow-minded economist, I would have been very pleased to see that academics had a big impact on policy. But unfortunately that was bad for the world. After the crisis, you would have hoped that the academic profession had changed and that policy-making had changed with it and would become more skeptical and cautious. You would have expected that after all the wrong predictions of the past, politics would have demanded from academics a rethinking of their theories. I am broadly disappointed on all accounts. . .

The European: And it does not mean that economic growth satisfied the criteria of social fairness.
Stiglitz: Yes, so there is one other thing we have to take into account: What is happening to most citizens in a country? When you look at America, you have to concede that we have failed. Most Americans today are worse off than they were fifteen years ago. A full-time worker in the US is worse off today than he or she was 44 years ago. That is astounding – half a century of stagnation. The economic system is not delivering. It does not matter whether a few people at the top benefitted tremendously – when the majority of citizens are not better off, the economic system is not working.

Joseph Stiglitz, in an interview with Martin Eiermann [ht: gh]

Thomas Kuhn’s The Structure of Scientific Revolutions, first published 50 years ago, is one of the few classics I tell students in pretty much all my classes they have to read before they leave college, whether or not it’s assigned in one of their courses. It contains important lessons, especially for economics, of radical paradigm shifts and the fundamental incommensurability among different theories and approaches.

David Weinberger [ht: eo] retells one of the great stories about Kuhn:

To overstate it: The scientists hated incommensurability because it seemed to imply that science makes no real progress, the philosophers hated it because it seemed to imply that there is no truth, and the positivists hated it because it seemed to imply that science is based on nonrational decisions.

And, apparently, Kuhn grew to hate being challenged about it, at least according to a story told by the documentarian Errol Morris, who as a graduate student at Princeton studied under Kuhn:

“I asked him, ‘If paradigms are really incommensurable, how is history of science possible? … Wouldn’t the past be inaccessible to us? Wouldn’t it be “incommensurable?”‘

He started moaning. He put his head in his hands and was muttering, ‘He’s trying to kill me. He’s trying to kill me.’

And then I added, ‘ … except for someone who imagines himself to be God.’

It was at this point that Kuhn threw the ashtray at me.”

Back in the day, those of us studying radical economics (at the University of Massachusetts Amherst) didn’t throw ashtrays but would taunt the students in neoclassical programs (like Harvard and MIT) by asking, “brother, can youse paradigm?”

Real-world economics

Posted: 29 April 2012 in Uncategorized
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Otis Kaye, "All for One, One for All" (1935)

That’s interesting. I have three of the 10 most viewed posts of the last 30 days on the Real-World Economics Review Blog.

I appreciate the fact that Edward Fulbrook regularly reposts to the RWER blog items from this blog.