Posts Tagged ‘capitalism’

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Special mention

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As I tell my students, nothing gets a mainstream economist frothing at the mouth quite like mentioning Karl Polanyi.

Or at least it used to, when mainstream economists actually knew who Polanyi was and grasped—however dismissively—what he wrote about the history of capitalism.

To his credit, Eric Hilt (pdf) appears to know something about the author of The Great Transformation and how his work influenced the new history of capitalism. And his review of ten recent books, including Edward Baptist’s The Half Has Never Been Told and Sven Beckert’s Empire of Cotton: A Global History, is not as dismissive as those of other mainstream economists, such as Alan L. Olmstead.

Much of the research of economic historians focuses on questions originating in economic theory, which tend to be quite narrow. In contrast, these book present expansive narratives and explore questions that may not be amenable to the analytical tools of economists. The authors’ critical perspectives also distinguish their work from that of economic historians and make it relevant to the concerns of many popular readers. The historians of capitalism rightly remind us that economic growth and development can have human costs not captured in average incomes; that our economic history includes no small measure of cruelty, coercion, and expropriation, rather than free exchanges occurring in the context of secure property rights; and that the economic system we have today is not a natural condition, but the outcome of policy choices that could have been made differently.

Hilt is, I think, correct: the new history of capitalism does represent a reminder to—and thus an indictment of—contemporary mainstream economics, precisely because it includes an analysis of the “cruelty, coercion, and expropriation” of the emergence and development of capitalism and the idea that contemporary capitalism is “not a natural condition.”

Generations of economics students won’t have seen or heard either of those propositions. Indeed, what little history has been presented to them emphasizes exactly the opposite: that capitalism emerged both smoothly—without conflict, through voluntary decisions and the spread of markets—and naturally—in a manner that corresponds to human nature.

But then, as if he can’t help himself, Hilt chooses the side of mainstream economists against the new historians of capitalism—because they haven’t demonstrated the appropriate respect. On Hilt’s reading, Baptist, Beckert, and the others haven’t respected capitalism, either historically (because of the role of slavery and its coercive institutions in the history of capitalism) or today (especially after the crash of 2007-08 and the misery it has visited on tens of millions of ordinary citizens, in the United States and around the world). And they don’t respect the “rigor” and “sophisticated analyses” of mainstream economic history, which they “have failed to engage.”

The influence of the recent crisis and the Great Recession in these works. . .creates something of a pitfall for their analysis. Just as poor historical analogies can distort our understanding of the present, modern analogies can produce fallacious or unsound is misapplied. Although financial development often leads to volatility, and although venality and corruption among financiers seems to be as close to a historical constant as one can find, not all finance is harmful. The financial sector performs of vitally important function. . .

Ignoring the economic history literature has led historians of capitalism to make assertions that have been refuted conclusively and to get important elements of their arguments wrong.

In the end, what Hilt can’t seem to abide in the new history of capitalism are two things: first, that historically violence played an important role in the emergence and development of capitalism—rather than, as mainstream economists would have it, that the brutal institutions of slavery and government imposition of market forces are fundamentally incompatible with capitalism; and second, that methodologically the new historians fail to articulate and test “counterfactual” statements.

The fact is, mainstream economists always seek to minimize the role of violence and force in the emergence and development of capitalism and to resort to problematic causal inferences in an attempt to isolate the effects of economic, cultural, political and natural forces within a complex, evolving social totality.

So, no, capitalism didn’t need to resort to “cruelty, coercion, and expropriation” over the course of its history. But it did—and those conditions that are often hidden underneath the “very Eden of the innate rights of man” have stamped both its origins and the way it continues to operate today.

Or, as Polanyi (pdf) himself wrote,

the market has been the outcome of a conscious and often violent intervention on the part of government which imposed the market organization on society for noneconomic ends.

 

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By now, everyone knows that Joel Osteen, the Prosperity Gospel preacher in Houston’s Lakewood Church, initially refused to open the doors to shelter the victims of Tropical Storm Harvey.

That’s certainly a good reason for people to hate Osteen.

Kate Bowler [ht: ji], the author of Blessed: A History of the American Prosperity Gospel, offers three other reasons for hating Osteen:

#1—Osteen represents the Christian 1 percent

From aerial views of his jaw-dropping mansion to the cut of his navy suits, he always looks like a man with a good reason to be smiling. He is a wealthy man who unapologetically preaches that God has blessed him, with the added bonus that God can bless anyone else, too. The promise of the prosperity gospel is that it has found a formula that guarantees that God always blesses the righteous with health, wealth and happiness. For that reason, churchgoers love to see their preachers thrive as living embodiments of their own message. But the inequality that makes Osteen an inspiration is also what makes him an uncomfortable representation of the deep chasms in the land of opportunity between the haves and the have-nots. When the floodwaters rise, no one wants to see him float by on his yacht, as evidenced by the Christian satire website the Babylon Bee’s shot Tuesday at Osteen: “Joel Osteen Sails Luxury Yacht Through Flooded Houston To Pass Out Copies Of ‘Your Best Life Now.’ ”

#2—There is a lingering controversy around prosperity megachurches and their charitable giving

When a church that places enormous theological weight on tithes and offerings is not a leader in charitable giving, the most obvious question is about who is the primary beneficiary of the prosperity gospel? The everyman or the man at the front?

#3—The Prosperity Gospel’s answer to the question about evil in the world is not unlike the one offered by neoclassical economics

Its central claim — “Everyone can be prosperous!”—contains its own conundrum. How do you explain the persistence of suffering? It might be easier to say to someone undergoing a divorce that there is something redemptive about the lessons they learned, but what about a child with cancer? This week, the prosperity gospel came face-to-face with its own theological limits. It was unable to answer the lingering questions around what theologians call “natural evil.” There is a natural curiosity about how someone like Osteen will react in the face of indiscriminate disaster. Is God separating the sheep from the goats? Will only the houses of the ungodly be flooded? The prosperity gospel has not every found a robust way to address tragedy when their own theology touts that “Everything Happens for a Reason.”

For neoclassical economists, everything happens—good and evil, both prosperity and poverty—because of people’s choices.

I have offered my own reasons for questioning the Prosperity Gospel—what I have called the American Hustle—and yet for taking it seriously—especially in terms of support for Donald Trump.

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Almost very time MFA hears a mainstream economist speak—on topics ranging from the danger of raising the minimum wage to how we all benefit from free trade and globalization—she responds, “Where did they get their degree, from a Cracker Jack box?”

No doubt, she’d react in the same manner if she listened to the members of the closing panel at the 2017 Lindau Meeting on Economic Sciences, who were asked to answer the following question: what could and should we do about inequality?

It’s a terrific question, given the obscene—and still rising—levels of inequality that characterize contemporary capitalism, in the United States and around the world. But those who take the time to watch the video (available here) just aren’t going to learn much about either the causes of inequality or what we can do about it.

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The panel consisted of three winners of the so-called Nobel Prize in Economic SciencesDaniel L. McFadden (2000), James J. Heckman (2000), and Christopher A. Pissarides (2000)—and one “young economist,” Rong Hai.

Individually and together, the panelists simply don’t have anything interesting or insightful to say about inequality.

It’s true, none of the men received their Nobel Prizes for research on inequality, although Hai is currently doing research on inequality (e.g., in relation to credit constraints and tax policy). That itself is a comment on how little inequality has figured as an important concern within mainstream economics. And, given the venue, they’re all mainstream economists. Because of that, there’s little they can say—and a great deal they simply can’t say—about inequality.

Their comments (only some of which were actually prepared) range from the obvious—the issue of poverty is different from that of inequality—to the all-too-frequent sidestep—inequality is caused by globalization and technology.

But they don’t have anything to say about contemporary economic and social institutions, especially those of capitalism, or about history. They don’t discuss in any detail the changes in recent decades that have led to the current obscene levels of inequality or, for that matter, the relationship between the factor distribution of income (e.g, between labor and capital) and the size distribution of income (e.g., the growing gap between the 1 percent and everyone else).

Their concern about and knowledge of the causes and consequences of inequality are, at least to judge from their presentations in this panel, stupefyingly limited.

Maybe MFA is right: they did get their degrees from Cracker Jack boxes.

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Last fall, just before the presidential election, I posted a report on the perilous condition of the American working-class.

Now, thanks to the Rand Corporation [ht: ja], we have a report on how terrible working conditions are in the United States.

Most Americans between the ages of 25 and 71 spend most of their available time in a given day, week, or year forced to have the freedom to sell their ability to work to a small group of employers. Thus, as the authors of the study note,

The characteristics of jobs and workplaces—including wages, hours worked, and benefits, as well as the physical demands and risk of injury, the pace of work, the degree of autonomy, prospects for advancement, and the social work environment, to name a few—are important determinants of American workers’ well-being. Some of these job characteristics also affect workers’ social and family lives.

Here are some of the major findings, which paint a picture of a work environment that is often stressful, taxing—both physically and mentally—and demeaning:

  • Nearly three-fourths of Americans report either intense or repetitive physical exertion on the job at least one-quarter of the time.
  • More than one-half of Americans report exposure to unpleasant and potentially hazardous working conditions.
  • Nearly one in five workers—a share the study calls “disturbingly high”—say they face a hostile or threatening environment at work, which can include sexual harassment and bullying.
  • Most Americans (two-thirds) frequently work at high speeds or under tight deadlines, and one in four perceives that they have too little time to do their job.
  • Only 57 percent of workers can take breaks when they want to, and just 31 percent can choose with whom they work.
  • Nearly two-thirds of workers experience at least some degree of mismatch between their desired and actual working conditions, and this fraction rises to nearly three-quarters when taking job benefits into account.

And those conditions spill over into the rest of workers’ lives:

  • About one-half of American workers do some work in their free time to meet work demands.
  • While many Americans regularly adjust their personal schedules to accommodate work matters, many (31 percent) are unable to adjust their work schedules to accommodate personal matters.

Overall, as the authors of the study conclude,

for many Americans, work can be taxing across a range of core dimensions, including at the physical, social, mental, and time levels.

What then?

As that prescient Manchester industrialist wrote to American readers 131 years ago,

The development of production on the basis of the capitalistic system has of itself sufficed. . .to do away with all those minor grievances which aggravated the workman’s fate during its earlier stages. And thus it renders more and more evident the great central fact, that the cause of the miserable condition of the working class is to be sought, not in these minor grievances, but in the Capitalistic System itself.

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The crisis takes a much longer time coming than you think, and then it happens much faster than you would have thoughtRudi Dornbusch

Last week, a wide variety of U.S. media (including the Wall Street Journal and USA Today) marked what they considered to be the ten-year anniversary of the beginning of the global economic crisis—from which we still haven’t recovered.

The event in question, which occurred on 9 August 2007, was the announcement by international banking group BNP Paribas that, because their fund managers could not calculate a reliable net asset value of three mutual funds, they were suspending redemptions.

But, as I explain to my students, “Beware the appearance of precision!” For example, the more numbers after the decimal point (2.9, 2.93, 2.926, etc.), the more real and precise the number appears to be. But such a number is only ever an estimate, a best guess, about what is going on (whether it be the growth of output or the increase in new home sales).

The same holds for dates. It would be odd to choose a particular day ten years ago that, among all the possible causes and precipitating events, put the U.S. and world economies on the road to the Second Great Depression. That would be like saying World War I was caused on 28 June 1914, when Yugoslav nationalist Gavrilo Princip assassinated Archduke Franz Ferdinand of Austria. Or that the first Great Depression began on Black Thursday, 24 October 1929.

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Given the centrality of housing sales, mortgages, and mortgage-backed securities in creating the fragility of the financial sector, we could just as easily choose July 2005 (when, as in the green line in the chart above, new one-family house sales peaked), January 2006 (when, as in the blue line, new privately owned housing units starts peaked), or February 2007 (when the Case-Shiller home price index, the red line, started its slide).

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Or, alternatively, we could choose the third quarter of 2006, when the U.S. corporate profit share (before taxes and without adjustments) reached its peak, at almost 12 percent of national income. After that, it began to fall, and the decisions of capitalists dragged the entire economy to the brink of disaster.

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Or the year 2005, when the profits of the financial and insurance sector were at their highest level—at $158.3 trillion—and then began to decline. Then, of course, it was bailed out after falling into negative territory in 2008.

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Or, given the centrality of inequality in creating the conditions for the crash, we can go all the way back to 1980, when the share of income going to the top 1 percent was “only” 10.7 percent—since after that it started to rise, reaching an astounding 20.6 percent in 2006.

Those are all possible dates, some of course more precise than others.

What is important is each one of those indicators gives us a sense of how the normal workings of capitalism—in housing, finance and insurance, corporate profits, and the distribution of income—created, together and over time, the conditions for the most severe set of crises since the first Great Depression. And now, as a result of the crash and the nature of the recovery, all of them have been restored.

Thus creating the conditions for the next crash to occur, ten years after the last one.

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Over the years, I’ve reproduced and created many different charts representing the spectacular rise of inequality in the United States during the past four decades.

Here’s the latest—based on the work of Thomas Piketty, Emmanuel Saez, and Gabriel Zucman—which, according to David Leonhardt, “captures the rise in inequality better than any other chart or simple summary that I’ve seen.”

I agree.

The chart shows the different rates of change in income between 1980 and 2014 for every point on the distribution. The brown line illustrates the change in the distribution of income in the 34 years before 1980, when those at the bottom saw larger growth than those at the top. In contrast, in the decades leading up to 2014, only those at the very top saw high levels of income growth. Everyone else experienced very little gain.

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Lest we forget, however, the U.S. economy was already broken by 1980: the bottom 90 percent only took home about 65 percent of national income, while the top 1 percent managed to capture 10.6 percent of total income in the United States. There was nothing fair about that situation.

A bit like a car that looks good, when shiny and new, but is designed with cheap parts to fail as soon as the warranty expires.

Well, the warranty on the U.S. economy expired in the late 1970s. And then it really began to break down.

By 2014, that already-unequal distribution of income had become truly obscene: the share of income going to the bottom 90 percent had fallen to less than 53 percent, while the share captured by the top 1 percent had soared to over 19 percent.

Leonhardt is right: “there is nothing natural about the distribution of today’s growth — the fact that our economic bounty flows overwhelmingly to a small share of the population.”

Yes, as Leonhardt argues, different policies would produce a somewhat more equal outcome. And, it’s true, “President Trump and the Republican leaders in Congress are trying to go in the other direction.”

But a different economy—a radically different way of organizing economic and social life—would eliminate the conditions that led to unequalizing growth in the first place. Both before 1980 and in the decades since then.

The fact is, the supposed Golden Age of American capitalism was based on a set of institutions that allowed the boards of directors of large corporations to appropriate a growing surplus and to distribute it as they wished. At first, during the immediate postwar period, that meant growing incomes for those in the bottom 90 percent. But, even then, the mechanisms for distributing income remained in the hands of a very small group at the top. And they had both the interest and the means to stop the growth of wages, get even more surplus (from U.S. workers and, increasingly, workers around the globe), and distribute a greater share of that surplus to a tiny group at the very top of the distribution of income.

Those are the mechanisms that need to be challenged and changed. Otherwise, inequality will remain out of control.