Posts Tagged ‘Brexit’

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Mainstream economists have been taking quite a beating in recent years. They failed, in the first instance, with respect to the spectacular crash of 2007-08. Not only did they not predict the crash, they didn’t even include the possibility of such an event in their models. Nor, of course, did they have much to offer in terms of explanations of why it occurred or appropriate policies once it did happen.

More recently, the advice of mainstream economists has been questioned and subsequently ignored—for example, in the Brexit vote and the support for Donald Trump’s attacks on free trade during the U.S. presidential campaign. And, of course, mainstream economists’ commitment to free markets has been held responsible for delaying effective solutions to a wide variety of other economic and social problems, from climate change and healthcare to minimum wages and inequality.

All of those criticisms—and more—are richly deserved.

So, I am generally sympathetic to John Rapley’s attack on the “economic priesthood.”

Although Britain has an established church, few of us today pay it much mind. We follow an even more powerful religion, around which we have oriented our lives: economics. Think about it. Economics offers a comprehensive doctrine with a moral code promising adherents salvation in this world; an ideology so compelling that the faithful remake whole societies to conform to its demands. It has its gnostics, mystics and magicians who conjure money out of thin air, using spells such as “derivative” or “structured investment vehicle”. And, like the old religions it has displaced, it has its prophets, reformists, moralists and above all, its high priests who uphold orthodoxy in the face of heresy.

Over time, successive economists slid into the role we had removed from the churchmen: giving us guidance on how to reach a promised land of material abundance and endless contentment.

However, in my view, there are three problems in Rapley’s discussion of contemporary economics.

First, Rapley refers to economics as if there were only one approach. Much of what he writes does in fact pertain to mainstream economics. But there are many other approaches and theories within economics that cannot be accused of the same problems and mistakes.

Rapley’s not alone in this. Many commentators, both inside and outside the discipline of economics, refer to economics in the singular—as if it comprised only one set of approaches and theories. What they overlook or forget it about are all the ways of doing and thinking about economics—Marxian, radical, feminist, post Keynesian, ecological, institutionalist, and so on—that represent significant criticisms of and departures from mainstream economics.

In Rapley’s language, mainstream neoclassical and Keynesian economists have long served as the high priests of economists but there are many others—heretics of one sort or another—who have degrees in economics and work as economists but whose views, methods, and policies diverge substantially from the teachings of mainstream economics.

Second, Rapley counterposes the religion of mainstream economics from what he considers to be “real” science—of the sort practiced in physics, chemistry, biology, and so on. But here we encounter a second problem: a fantasy of how those other sciences work.

The progress of science is generally linear. As new research confirms or replaces existing theories, one generation builds upon the next.

That’s certainly the positivist view of science, perhaps best represented in Paul Samuelson’s declaration that “Funeral by funeral, economics does make progress.” But in recent decades, the history and philosophy of science have moved on—both challenging the linear view of science and providing alternative narratives. I’m thinking, for example, of Thomas Kuhn’s “scientific revolutions,” Paul Feyerabend’s critique of falsificationism, Michel Foucault’s “epistemes,” and Richard Rorty’s antifoundationalism. All of them, in different ways, disrupt the idea that the natural sciences develop in a smooth, linear manner.

So, it’s not that science is science and economics falls short. It’s that science itself does not fit the mold that traditionally had been cast for it.

My third and final point is that Rapley, with a powerful metaphor of a priesthood, doesn’t do enough with it. Yes, he correctly understands that mainstream economists often behave like priests, by “deducing laws from premises deemed eternal and beyond question” and so on. But historically priests served another role—by celebrating and sanctifying the existing social order.

Religious priests occupied exactly that role under feudalism: they developed and disseminated a discourse according to which the natural order consisted of lords at the top and serfs at the bottom, each of whom received their just deserts. Much the same was true under slavery, which was deemed acceptable within church teachings and perhaps even an opportunity to liberate slaves from their savage-like ways. (And, in both cases, if those at the bottom were dissatisfied with their lot in life, they would have to exercise patience and await the afterlife.)

Economic priests operate in which the same way today, celebrating an economic system based on private property and free markets as the natural order, in which everyone benefits when the masses of people are forced to have the freedom to sell their ability to work to a small group of employers at the top. And there simply is no alternative, at least in this world.

So, on that score, contemporary mainstream economists do operate like a priesthood, producing and disseminating a narrative—in the classroom, research journals, and the public sphere—according to which the existing economic system is the only effective way of solving the problem of scarcity. The continued existence of that economic system then serves to justify the priesthood and its teachings.

However, just as with other priesthoods and economic systems, today there are plenty of economic heretics, who hold beliefs that run counter to established dogma. Their goal is not to take over the existing religion, or even set up an alternative religion, but to create the economic and social conditions within which their own preferred theories no longer have any relevance.

Today’s economic heretics are thus the ultimate grave-diggers.

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On the eve of their presidential election, the French people and politicians continue to debate how they should respond to the end of “Les Trente Glorieuses,” a period that appears to receding into ancient history.

Except, as it turns out, for those at the very top, for whom the last thirty years have been quite glorious.

According to new research by Bertrand Garbinti, Jonathan Goupille-Lebret, and Thomas Piketty, between 1983 and 2014, average per adult national income rose by 35 percent in real terms in France. However, actual cumulated growth was not the same for all income groups:

the growth incidence curve is characterized by an impressive upward-sloping part at the top. Cumulated growth between 1983 and 2014 was 31% on average for the bottom 50% of the distribution, 27% for next 40%, and 50% for the top 10%. Most importantly, cumulated growth remains below average until the 95th percentile, and then rises steeply, up to as much as 100% for the top 1% and 150% for the top 0,01%.

The contrast with the earlier, 1950-1983 period is particularly striking. In effect, during the “Thirty Glorious Years,” Garbinti, Goupille-Lebret, and Piketty observe the exact opposite pattern: growth rates were very high for the bottom 95 percent of the population (about 3.5 percent per year) and fell abruptly above the 95th percentile (1.5 percent at the very top). However, as is clear from the chart above, between 1983 and 2014, growth rates were very modest for the bottom 95 percent of the population (about 1 percent per year) and rose sharply above the 95th percentile (3 percent at the very top).

As we know, similar patterns hold for the United Kingdom (which voted for Brexit) and the United States (which elected Donald Trump).

The key question in France, in the first and second rounds of the presidential election, is how French voters will respond to a political economy that has generated thirty glorious years only for those at the very top.

March 31, 2017

Special mention

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2o16 will be remembered by many for the troubling signs associated with Brexit and Trump’s victory in the U.S. presidential race.

But, for the world’s billionaires, it was a great year.

According to Forbes [ht: ja],

It was a record year for the richest people on earth, as the number of billionaires jumped 13% to 2,043 from 1,810 last year, the first time ever that Forbes has pinned down more than 2,000 ten-figure-fortunes. Their total net worth rose by 18% to $7.67 trillion, also a record. The change in the number of billionaires — up 233 since the 2016 list — was the biggest in the 31 years that Forbes has been tracking billionaires globally. Gainers since last year’s list outnumbered losers by more than three to one.

Yes, indeed, capitalism has been very, very good to the world’s billionaires.

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But apparently they’re worried, too—albeit for very different reasons. And with very different means at their disposal.

According to CNN [ht: db], many of the world’s billionaires are commissioning secret shelters to house their families and staff.

Gary Lynch, general manager of Texas-based Rising S Company, says 2016 sales for their custom high-end underground bunkers grew 700% compared to 2015, while overall sales have grown 300% since the November US presidential election alone.

The company’s plate steel bunkers, which are designed to last for generations, can hold a minimum of one year’s worth of food per resident and withstand earthquakes.

So, precisely because 2016 was a great year for the world’s billionaires, it looks like 2017 will be highly remunerative for companies that design and build luxurious “doomsday bunkers” to protect the billionaires from the torches and pitchforks wielded by those they’re leaving behind.

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There doesn’t seem to be anything remarkable about mainstream economists’ rejection of the new populism.

Lest we forget, mainstream economists in the United States and Europe (and, of course, around the world) mostly celebrated current economic arrangements. As far as they were concerned, everyone benefits from contemporary globalization (the more trade the better) and from the distribution of income created by market forces (since everyone gets what they deserve).

To be sure, those who identify with different wings of mainstream economics debate the extent to which there are market imperfections and therefore how much interference there should be in markets. Conservative mainstream economists tend to argue in favor of less regulation, their liberal counterparts for more government intervention. But they share the same general economic vision—that capitalism is characterized by “just deserts,” stable growth, and rising standards of living.

Except of course in recent decades it hasn’t. Not by a long shot.

Inequality has skyrocketed to obscene levels (and continues to rise), leaving many people behind. The crash of 2007-08 shattered the illusion of stability—and now there’s a deepening worry of “secular stagnation” moving forward. And, while the conspicuous consumption of the tiny group at the top continues unabated, only rising debt keeps everyone else from falling down the ladder.

No wonder, then, that economic populists, especially those on the Right, are rejecting the status quo—and winning campaigns and elections (often in the form of protest votes).

For the most part, to judge by Brigitte Granville’s survey of a variety of Project Syndicate commentators’ responses to populism, mainstream economists remain blind as to “why so many voters have embraced facile policies and populist politics.”

That’s pretty much what one would expect, given mainstream economists’ general commitment to the status quo.

But even when they admit that “much has gone wrong for a great many people,” as Margaret MacMillan does (“Globalization and automation are eliminating jobs in developed countries; powerful corporations and wealthy individuals in too many countries are getting a greater share of the wealth and paying fewer taxes; and living conditions continue to deteriorate for people in the US Rust Belt or Northeast England and Wales”), we read the spectacular claim that today’s populists—these “new, outsider political forces”—are wrong because they “claim to have a monopoly on truth.”

Now, I understand, MacMillian is a historian, not an economist. But the idea that populists are somehow the only ones who claim to have a monopoly on truth is an extraordinary diagnosis of the problem.

Think of the legions of mainstream economists who have lined up over the years to claim a monopoly on the truth concerning a wide variety of policies, from restricting minimum wages and approving NAFTA to deregulating finance and voting no on Brexit. They are the ones who have aligned themselves with the interests of economic and political elites and who, in the name of expertise, have attempted to trump democratic, public discussion of important economic issues.

It should come as no surprise, then, that mainstream economists—such as Harvard’s Sendhil Mullainathan—are so concerned that economists have been demoted within the new Trump administration. The horror! The chairperson of the Council of Economic Advisers is not going to be a member of the Cabinet.

Yes, it is true, business acumen is not the same as economic analytics. (I teach economics in a College of Arts and Letters, not in a business school—and, as I remind my students on a regular basis, I’m the last person they should turn to for investment or business advice.) But that’s a far cry from claiming a monopoly on the truth, which is only available to those who speak and write in the language of mainstream economics.*

If mainstream economists finally relinquished that claim—and, as a result, spent more time both learning the languages of other traditions within the discipline of economics and listening to the grievances and desires of those who have been sacrificed at the altar of the status quo—perhaps then they’d have something useful to contribute to the larger debate about where the world is headed right now.

 

*According to Andrea Brandolini, the late Tony Atkinson understood this: “‘Economists are too often prisoners within the theoretical walls they have erected’, he recently wrote discussing austerity policies, ‘and fail to see that important considerations are missing”

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It is extraordinary that the hegemonic economic theory in the world today—neoclassical economics—still lacks an adequate theory of the firm.

It beggars belief both because neoclassical economics is the predominant theory that is taught to hundreds of thousands of students every year and used to make sense of the world and formulate policy in countless think thanks and government agencies and because the firm (or enterprise or corporation) is one of the central institutions of capitalism. It’s where many (but of course not all) goods and services are produced, value and surplus-value are created, and profits generated for capitalists.

And yet the neoclassical notion of the firm, even when developed by Nobel Prize-winning economists (such as Oliver Hart and Bengt Holmstrom), is not much more than an empty box—without any real history and, as it turns out, without any links to politics.

Daniel Carpenter, the Allie S. Freed Professor of Government in the Faculty of Arts and Sciences and Director of Social Sciences at the Radcliffe Institute for Advanced Study at Harvard University, certainly thinks that’s a problem in terms of making sense of how firms came to be constituted historically and what their effects are on contemporary society.

Q: The neoclassical theory of the firm does not consider political engagement by corporations. How big an omission do you think this is?

 I think it’s an immense omission. For one, we can’t even talk about the historical origins of many firms without talking about corporate charters, limited liability arrangements, zoning, public contracts and grants, and so on. To view these processes as legal and not political is a significant mistake. I’m currently writing a lot on the history of petitioning in Europe and North America, and in areas ranging from railroads, to technology-heavy industries, to extractive industries, to banking, firms (or their investors) had to bring a case before the legislature, or an agency of government, or both. They usually used petitions to do so. 

 Beyond the past and into the present, there are a range of firm activities that we can’t understand without looking at politics. Industrial organization considers regulator-firm interactions, but does not theorize the fact that now most firms have regulatory affairs and compliance offices, or the fact that firms hire not just lobbyists but lawyers to do a lot of political work for them.

 And in the future, the profitability and survival prospects of many firms in the coming years will depend heavily, in a polarized environment, on the political skills of managers. The theory of the firm was developed in an era (1950s – 2000) when globalism was the rule. What might it look like if Trump and Brexit are the new norm?

Today, of course, many citizens are concerned about the corrupt links between the capitalist firms in which they work and the governments that are supposed to represent the people. In my view, that concern was one of the causes of the Brexit vote and Trump’s victory in the U.S. presidential election.

The problem is, neither the post-Brexit British government nor the Trump administration has given any indication they’re going to solve the problem of the firm. Quite the opposite. Both have tied themselves to the very same capitalist firms that have wreaked havoc on society for decades now.

Meanwhile, neoclassical economists continue to build their models based on a theory of the firm that bears no relationship to the way firms operate in the real world, manipulating market rules and political actors to their own ends.

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Actually, robots do kill people.

A 21 year old external contractor was installing the robot together with a colleague when he was struck in the chest by the robot and pressed against a metal plate. He later died of his injuries, reports Chris Bryant, the FT’s Frankfurt correspondent.

While we certainly need to be aware of industrial accidents associated with robots, what we really need to be more concerned about is the relationship between the use of robotics and the metaphorical killing of workers via the elimination of their jobs.

Richard Baldwin [ht: ja], president of the Centre for Economic Policy Research and Editor-in-Chief of Vox (VoxEU.org, which he founded in June 2007), appears to agree:

Technological advances could now mean white-collar, office-based workers and professionals are at risk of losing their jobs

But, he argues, those who expect Brexit or the kinds of protectionist policies advocated by President Trump to bring back manufacturing jobs are sadly mistaken.

I think he’s right. Blaming international trade and immigration for the precarious plight of the working-class within advanced nations is wrongheaded.* Moreover, as Baldwin explains elsewhere, “We shouldn’t try and protect jobs; we should protect workers.”

However, the mistake Baldwin and other technological optimists make is to treat industrial robots (and their contemporary extensions, such as telepresence and telerobotics) in a purely instrumental fashion, as both inevitable and technically neutral. Just like the ubiquitous NRA bumper sticker: “Guns Don’t Kill People, People Kill People.”

As Bruno Latour (pdf) has explained, the NRA “cannot maintain that the gun is so neutral an object that is has no part in the act of killing.”

You are different with a gun in hand; the gun is different with you holding it. You are another subject because you hold the gun; the gun is another object because it has entered into a relationship with you. The gun is no longer the gun-in-the-armory or the gun-in-the-drawer or the gun-in-the-pocket, but the gun-in-your-hand, aimed at someone who is screaming. What is true of the subject, of the gunman, is as true of the object, of the gun that is held. A good citizen becomes a criminal, a bad guy becomes a worse guy; a silent gun becomes a fired gun, a new gun becomes a used gun, a sporting gun becomes a weapon.

And much the same is true of robotics. Employers are different when they have access to robots. They are another subject because they can reconfigure production by purchasing and installing robots; and robots are different objects when they enter into a relationship with employers, who stand opposed to their workers.

So, as it turns out, “it is neither people nor guns that kill” people. And, by the same token, it is neither employers nor robots that kill workers and their jobs. Responsibility for the action must be shared between the two—the employers who utilize robotics to increase productivity and raise profits, and the robots that are engineered, produced, and then sold for particular purposes, like transforming jobs and replacing workers.

So, yes, we shouldn’t try and protect jobs. Instead, we should protect workers. But the only way to protect workers is to create institutions for workers to be able to protect themselves. Leaving the European Union and electing Trump won’t do that. They are merely empty promises. Nor, as Baldwin presumes, will leaving robots in the hands of employers and expecting government programs to pick up the pieces.

It is still the case that most people are forced to have the freedom to attempt to sell their ability to work to a small group of employers, who have the option of using robots to replace them—across the globe—if and when they deem it profitable.

What that means is: robots and their employers do kill workers. Because of profits.

 

*And, as the United Nations Conference on Trade and Development (pdf) warns, “the increased use of robots in developed countries risks eroding the traditional labour cost advantage of developing countries.” That’s another reason to be cautious when it comes to facile predictions that the combination of globalization and robotics will be an unqualified advantage to workers in the Global South.