Posts Tagged ‘Deirdre McCloskey’

Jbug39V

It should perhaps come as no surprise that, as capitalism has been called into question and socialism generated increasing interest during the past decade, capitalism’s defenders have resorted to a long historical view. Look, they say, how capitalist growth has decreased poverty and led to improvements in people’s lives around the globe. Just stick with it and all will eventually be well.

That’s why, as Jason Hickel points out, the above infographic, based on sketchiest of data going back to 1820, is one of Bill Gates’s favorites. Or why Deirdre McCloskey never tires in scolding the critics of capitalism that “the Great Fact of modern life, the most surprising secular news since the domestication of plants and animals, is the rise of real income per head.”

The past two centuries of economic growth have done more to help the world’s poor than any activity by governments or charities or trade unions.

There are problem, of course, in the data—especially in basing the key series on an absurdly low poverty line of $1.90 a day.* Perhaps even more important, as Hickel explains, the numbers obscure the actual historical process:

that the world went from a situation where most of humanity had no need of money at all to one where today most of humanity struggles to survive on extremely small amounts of money. The graph casts this as a decline in poverty, but in reality what was going on was a process of dispossession that bulldozed people into the capitalist labour system, during the enclosure movements in Europe and the colonisation of the global south.

The masses people who were bulldozed into the capitalist labor system now produce and consume the immense accumulation of commodities that represents the growing wealth of nations around the world.**

But even as the percentage of workers living in extreme poverty has declined, especially in recent decades, they’re falling further and further behind the tiny group at the top. That’s because the incomes generated by economic growth on a global scale have been unevenly distributed.

e4

As the authors of the World Inequality Report 2018 have shown, while the real incomes of the bottom 50 percent of the world’s population increased (by 94 percent) from 1980 to 2016, they only captured a relatively small share (about 12 percent) of total growth during that period—while the world’s elite (whose incomes increased by 101 percent) captured more than twice that share (27 percent).***

What about those countries, such as China and India, where most of the decline in the population living in extreme poverty took place? There, the differences in total cumulative income growth was even more obscene. In China, for example, the incomes of the bottom 50 percent grew by less than 420 percent, while those of the top increased by 1920 percent. And in India, the growing gap between the bottom 50 percent and the top 1 percent is even more stark: just over 100 percent versus 857 percent.

That spectacular growth in inequality on a global scale is the part of the story the current defenders of capitalism such as Gates and McCloskey don’t want to tell. Yes, the percentage of the world’s population living in extreme poverty (at least according to conventional measures) has fallen. But that growing mass of wage-workers has been enlisted, forcibly or otherwise, in the project of producing a surplus that has been captured not by them, but by a tiny group at the top.

In other words, extreme poverty may have fallen but relative immiseration has proceeded apace—the result of a growing gap between those who have a lot and those who now have a little.

As I see it, declining poverty and growing inequality are two sides of the same historical coin of the growth of capitalism on a global scale.

 

*As Lant Pritchett has explained,

The exclusive reporting of international poverty based on the penurious “dollar a day” poverty line (morphed by inflation into the less lyrical “$1.90 a day” line) was a tool for “defining development down”. . .

A low bar poverty line necessarily treats both people just above the poverty line and people in considerable comfort and prosperity as “not poor” and hence necessarily creates false equivalences in which those just above and just below a poverty line were considered to be different (one “poor” and one “not poor”) but two people above the poverty line with very different incomes were treated the same (both “not poor”).

**I made much the same argument back in 2016:

global capitalism has changed over its history. At one time (especially in the nineteenth century), it meant industrialization in the global north and deindustrialization in the mostly noncapitalist global south (which were, in turn, transformed into providers of raw materials, which became cheap commodity inputs into northern capitalist production). Later, especially after decolonization (following World War II), we saw the beginnings of capitalist development in the south (under the aegis of the state, with a set of policies we often refer to as import-substitution industrialization), which involved a reindustrialization of the south (producing consumer goods that were previously imported) and a change in the kinds of industry prevalent in the north (which both exported consumer goods to the rest of the world, which after the first Great Depression and world war were once again growing, and often provided inputs into the production of consumer goods elsewhere). Later (especially from the 1980s onward), with the accumulation of capital in India, China, Brazil, and elsewhere, noncapitalist economies were disrupted and millions of peasants and rural workers (and their children) were forced to have the freedom to sell their ability to work in urban factories and offices. As a result, their monetary incomes rose (which is not to say their conditions of life necessarily improved), which is reflected in the growing elephant-body of the global distribution of income.

***And, for the middle 40 percent (mostly in North America and Western Europe), the growth in real incomes was much lower (only 43 percent).

Screen shot 2012-05-02 at 10.32.27 AM

Capitalism, as readers well know, hasn’t been doing very well in recent years.* And, of course, every time capitalism falters or makes promises it can’t deliver, alternative ideas—such as socialism—get a hearing. It happened, for example, at the end of the eighteenth century (when the French Revolution wasn’t able to deliver on the promises of liberté, égalité, fraternité), the middle of the nineteenth century (when workers protested the ravages of the Industrial Revolution), the early part of the twentieth century (when union leader Eugene Debs, as presidential candidate of the Socialist Party of America, won almost a million votes), the 1930s (when the Great Depression forced millions of workers onto the unemployed lines), and during the 1960s (when students and many others criticized the military-industrial-academic complex).

If Jonathan Chait is right, it’s happening again. According to him, socialists in Obama-era America

consider the political process fundamentally corrupted by large corporations and harbor suspicions of any policy that relies on, or makes peace with, the profit motive. This idea forms a through-line connecting the left’s objections against the major items of Obama’s agenda. Socialists deemed his health-care reforms deeply disappointing, because they relied on private insurance companies and failed to create a public option to compete with them. They criticized his Wall Street reforms for regulating the big banks rather than breaking them up. And they judged a failure the cap-and-trade law he tried to pass in 2009 and 2010, which compromised too much with energy companies and relied too heavily on market forces. Obama likes to boast that his policies have enabled the private sector to thrive; socialists consider this an inherent problem.

Bernie Sanders is, of course, the standard-bearer of this new discussion of socialism, a term that until recently was simply not allowed in “polite” (i.e., mainstream) political and economic discourse in the United States. But there it is—and, for the first time in a very long time, Americans are being to get a sense that (a) socialism has a very long and rich lineage (which is as old as capitalism itself), (b) in many countries around the world, socialist critics of capitalism are accepted participants in academic and public debate (and, in many cases, have their own political parties), and (c) there are many different approaches to and definitions of socialism (some seeking to regulate and mitigate the negative effects of the excesses of capitalism, others involving a much sharper break from capitalism).

In any case, socialism seems to no longer have the same scary connotations it has had in recent decades and, of course, in many other periods of U.S. history.

The return of socialism helps explain why, for example, some (such as Emma Caterine) argue that Bernie Sanders’s socialism not only is not really socialism, but is actually dangerous to real socialism. To which I can only respond, really, Rosa Luxemburg is the socialist truth you want to invoke in 2015 in the United States, where no social democratic much less communist party even exists? But still, notwithstanding sectarian bickering, the issue of socialism is on the table.

The return of socialism may also explain why Deirdre McCloskey (pdf) [ht: ja], who prides herself on listening to and engaging the rhetoric of others, finds it necessary to be so dismissive of Marx (who, in her words, was “mistaken on almost every point of economics and of history”) and, especially, of the “followers of Marx” (who, again in her words, “have seldom adhered” to the principle of engaging in continuous conversation, “and less so now it seems than once”).

It’s a shame, really, because in my view McCloskey might have something to offer to the renewed discussion of socialism, precisely because of her concern with rhetoric, postmodern epistemology, and the history of capitalism. But, unfortunately, she disqualifies herself precisely because of her dismissiveness (“Marxists have not cracked a serious book in economics published after 1867 or 1885 or 1894”?!) and her unwillingness to cite even a single Marxist economist or economics text of the past decade (the best she can do is attempt to prove how wrong historian Eric Mielants is in his 2008 book, The Origins of Capitalism and the “Rise of the West”). It seems she’s simply thrown herself down the Austrian/libertarian rabbit hole.

Fortunately, in the months (and, perhaps, years) ahead, as the campaign within the Democratic Party develops, and as the capitalist recovery continues to be so one-sided (and, even on its own terms, to threaten a new Armaggedon), the context seems once again ripe for socialism to be taken up as a way both of criticizing the ravages of contemporary capitalism and of exploring real alternatives to the ongoing crises.

As Chait observes, “Even in the face of likely defeat, Sanders has brought new life to an old tradition.”**

*And, to read Paul Mason, might not be doing well in the days and months ahead.

**And, as Harold Meyerson explains, if Sanders does lose, his campaign “has to morph into an enduring left-wing movement.”

This formidable task requires, first, that Sanders’s legions understand the unique historic opportunity that their coming together presents: That their victory in all probability won’t be putting Bernie in the White House, but creating a surging and enduring left. That, in turn, requires them to give as much thought to forming or joining autonomous post-campaign organizations, and envisioning post-campaign mobilizations, as they now do to advancing Sanders’s candidacy. Indeed, they need to start forming such organizations today, while they are together campaigning for Sanders, and in the process even reach out to other progressives who may not be for Sanders. These endeavors can’t and shouldn’t be undertaken by the Sanders campaign itself. They fall exclusively to the volunteers. . .

Is this difficult? And how. Is this necessary? Totally.

20140104_FNC089

In episode I of Piketty wars, Harvard University Press published Capital in the Twenty-First Century. In episode II, the reviews of Piketty’s book, by liberal mainstream economists, were generally positive. Now, in episode III, the Right can be found on their Invisible Hand ship, launching a series of attacks against Piketty.*

The first salvo came from beware-of-the-politics-of-envy generals Phil Gramm and Michael Solon, on the opinion pages of (not surprisingly) the Wall Street Journal, who use two main arguments: First, based on research by Philip Armour, Richard V. Burkhauser, and Jeff Larrimore (on which I wrote last year when it first appeared), they make inequality virtually disappear by various sleights of the very-much-visible-hand (by changing the definition of income, the relevant data set, what counts as income, how capital gains are calculated, and so on). Second, they extol the virtues of Bill Gates, Warren Buffett, and the Walton family (as if Gates, Buffett, and Walton alone are responsible for the wealthy they’ve accumulated, in an economy seemingly without workers who actually produce the value they’ve captured).

Then there’s prosperity warrior John Cochrane, also in the pages of the Wall Street Journal, who waves the flag of “good inequality”—because, in his view, “most U.S. billionaires are entrepreneurs from modest backgrounds, operating in competitive new industries. They are decidedly not bad workers, who suffer from awful public schools and who are “stuck in a cycle of terrible early-child experiences, substance abuse, broken families, unemployment and criminality.” Cochrane’s approach is to say anything and everything in order to ridicule the idea of taxation and redistribution and point us toward the only goal he wants us to recognize: prosperity, based on “property rights, rule of law, [and] economic and political freedom.”

Finally, we have the Jedi-knight-turned-Darth Vader of the bunch, my old friend Deirdre McCloskey [pdf]. She enters the duel with Piketty with an eloquent (when is she not?) 51-page essay of a lightsaber. Her main critique is the oft-repeated refrain that it’s poverty, not inequality, that is the real problem—and, of course, in her view, the West has already solved that problem. The idea that growing inequalities should concern us is simply anathema to McCloskey’s Smithian-inspired celebration of the “immense accumulation of commodities.” Who cares if the growing gap between a tiny minority at the top and everyone else undermines the legitimacy of that society, especially its promise of “just deserts”? And then there’s her misreading of Piketty, who simply does not argue that r > g is the basis of contemporary inequalities. As her French nemesis has made clear, the real cause of income inequality is the explosion in top managerial compensation. Then, on top of that, as capital itself grows in importance, and as earnings on capital exceed the growth in total income, there is a tendency for wealth ownership to become more unequal, thus creating the prospect of dynasties of inherited wealth, which Piketty refers to as “patrimonial capitalism.”

Precisely because of growing inequalities in the distribution of income and wealth, the legitimacy of contemporary capitalism is being called into question. Piketty has been a central figure in producing and making sense of the data that demonstrates the existence of those inequalities—in order to warn the Republic of the impending danger. Instead of listening to him, those on the dark side merely deny the existence of a problem and try to make us believe that all is well in the Galaxy.

Meantime, the Death Star of inequality continues to be constructed, which could mean a victory of the Empire over the Republic. Unless, of course, the Rebellion is successful.

 

*Full disclosure: I’m not really a fan of Star Wars and therefore I’m sure I’ve mangled the plot line of Star Wars: Episode III—Revenge of the Sith.

.

14055218-mmmaintop 1 percent

It has become part of the liberal common sense in the United States (buttressed by the publication of Thomas Piketty’s Capital in the Twenty-First Century) that rising inequality is a top priority, with little discussion of poverty. Conservatives, of course, are pushing back—with the argument (currently being peddled by Deirdre McCloskey, basically a more libertarian version of the argument that more conventionally conservative Martin Feldstein was making in the late-1990s) that we really should be worried about poverty, and forget about inequality.

They’re both wrong. Poverty and inequality are, in fact, connected—both in the long term and in the short term. They’re connected in the long term in the sense that the period of rising inequality, beginning in the late 1970s (measured, as above, by the income share going to the top 1 percent) is also the period during which the poverty rate stopped declining and the number of Americans living below the poverty began a dramatic increase (reaching 46.5 million in 2012).

poverty-2005 top 1-2005

And, in the short term, we can see that the “recovery” that has been engineered to the benefit of those at the very top (again, measured in terms of the share of income going to the top 1 percent) has been accompanied by a dramatic growth in poverty (as measured in both monthly and annual rates).

Clearly, we can’t afford to choose between poverty and inequality. Current economic policies and arrangements, as they have been implemented since the mid-1970s and kept intact in the midst of the Second Great Depression, have led to growing inequality and consigned a growing segment of the population to living in conditions of poverty. Long live the rich, and to hell with the poor! Is it really so difficult to understand the following proposition: a society that lets a tiny elite capture an obscene portion of its income and wealth is also prone to force a large portion of its citizenry to try to survive in conditions of abject poverty?

Fundamentally changing the economic policies and arrangements of such a society—for example, by changing the way the surplus is appropriated and distributed—can serve to eliminate grotesque levels of inequality and, at the same time, the enduring legacy of massive poverty.

 

It’s clear we are in the midst of an acute period of inequality: not only of grotesque levels of economic inequality (which are now well documented) but also of a wide-ranging discussion of the conditions and consequences of that extreme inequality (which appears to be taking off).

There are, of course, the deniers, like my dear friend Deirdre McCloskey. What inequality, is her mantra. The only thing that matters is economic growth, such that the amount of stuff people have today is much more than they’ve had throughout much of human history. OK, but that doesn’t tell us much about how that growth took place (it’s the surplus, Deirdre) or what it’s consequences are (on the majority who actually produce the surplus versus the tiny minority who appropriate it).

And then there are those who are actually thinking seriously about inequality, some of whose work is published in the latest issue of Science (a lot of which, unfortunately, is behind a paywall). Leave aside the silly article on econophysics (really, the existing distribution of income is a kind of “natural inequality,” which is what you would get from entropy?), the article that focuses on the psychological pathologies of the poor (what about those of the rich?), and the fact that all the economics is narrowly confined to mainstream theories (which have done more to deflect attention from, as against the wide range of heterodox theories that have actually focused on, inequality over the course of the past three decades). Just the fact that a special issue of such a prestigious journal is devoted to the problem of inequality tells us something about how it has risen to the top of our agenda.

And it offers lots here to think about: the types of inequality that can be found in the archeological record (Heather Pringle), the absence of fundamental inequalities in hunter-gatherer societies (Elizabeth Pennisi), the devastating effects of inequality on health (Emily Underwood), growing inequality in developing countries (Mara Hvistendahl and Martin Ravallion), the intergenerational transmission of inequality via unequal maternal circumstances and health at birth (Anna Aizer and Janet Currie), and finally a dire warning about what will happen if current inequalities continue to grow (Angus Deaton):

The distribution of wealth is more unequal than the distribution of income, and very high incomes will eventually pupate into very large fortunes, ultimately leading to a hereditary dystopia of idle rich.

The pair of articles by economists—one by Thomas Piketty and Emmanuel Saez, the other by David Autor—tells us a great deal about how the issue of inequality is being framed within mainstream economics (since, as I wrote above, all the various types of nonmainstream economics are simply ignored in the issue). For Piketty and Saez, it’s all about the inequality (both income and wealth) that separates the top 1 percent (and, within that, the top .1 percent and .01 percent) from everyone else, while Autor’s piece focuses on the inequality of earnings within the bottom 99 percent. The debate comes down to seeing inequality as a result of high CEO incomes and returns on accumulated wealth (especially when the rate of return on wealth is greater than the overall growth rate, leading to more concentration of wealth) versus the inequality that derives from earnings based on different levels and kinds of skill (presuming that earnings are equal to marginal productivities). In other words, it’s a (mostly) classical approach—which focuses on scarce wealth concentrated in the hands of the already richversus a (thoroughly) neoclassical approach—according to which scarce skills attract higher earnings. The solution from the classical perspective is a global tax on wealth; from the neoclassical viewpoint, all we need is an increase in education and skills for those at the bottom.

Here’s what I find interesting about the debate, not only between the economists but throughout the entire special issue: it’s all about economic inequality—what it is (absolute or relative), how it can be measured (within and across nations, and over time), what its causes and consequences are (including not only the health of individuals but also of society as a whole), and so on—but there’s not a single mention of class.

Not literally. The word class doesn’t appear in any of the articles or reviews. But class is the specter that, in my view, haunts this entire debate. We saw it back in the First Great Depression. And now we’re seeing it rear its ugly head once again, in the midst of the Second Great Depression. We didn’t solve it then. Perhaps, now, we’re ready to tackle it.

And, if we don’t, we’ll be faced with even more inequality all the time.

Update

American-Spectator-cover

As if on cue, the latest issue of the American Spectator focuses on what they consider to be the “new class warfare”—using as a threat the universal symbol of “off with their heads.”

For which Gavin Mueller offers the only appropriate response:

Remember this: no matter how many country clubbers flip through Piketty’s book, at bottom, the rich hate usThey disdain usThey mock us. And they fear us, even though the current balance of forces favors them overwhelmingly and sometimes “common ruin of the contending classes” seems like an optimistic outcome.

Yet I have to fall back on some advice I got as a kid: If the American Spectator wants to cry about class warfare, we should give them something to cry about.

41RPkq2MSZL bw0330051395440401

Once again, this coming fall, I’ll be teaching Karl Polanyi’s The Great Transformation in my Topics in Political Economy course.

It’s a course based entirely on books (plus a few political economy films, starting with Charlie Chaplin’s Modern Times). I teach four classic texts of political economy, starting with Adam Smith’s Wealth of Nations and then moving on to different responses to Smith’s theory of capitalism: by Karl Marx (volume 1 of Capital), Thorstein Veblen (The Theory of the Leisure Class), and finally Polanyi.

I match each classic text with a contemporary one: for example, Deirdre McCloskey’s Bourgeois Virtues with Smith, Stephen Resnick and Richard Wolff’s Knowledge and Class with Marx, and Joseph Stiglitz’s The Price of Inequality with Veblen. Next time, I’m planning to teach Thomas Piketty’s Capital in the Twenty-First Century as the follow-up to Polanyi.

The discussion, of course, gets pretty complicated—since, during the semester, the students learn that the various authors are not only responding to Smith (whose text, they also figure out, has been poorly rendered in their other economics classes), but also to each other. Polanyi with Marx, for example. And changes in the world are making those intellectual exchanges even more interesting, as Robert Kuttner understands:

Looking backward from 1944 to the 18th century, Polanyi saw the catastrophe of the interwar period, the Great Depression, fascism, and World War II as the logical culmination of laissez-faire taken to an extreme. “The origins of the cataclysm,” he wrote, “lay in the Utopian endeavor of economic liberalism to set up a self-regulating market system.” Others, such as John Maynard Keynes, had linked the policy mistakes of the interwar period to fascism and a second war. No one had connected the dots all the way back to the industrial revolution.

The more famous critic of capitalism is of course Karl Marx, who predicted its collapse from internal contradictions. But a century after Marx wrote, at the apex of the post–World War II boom in both Europe and the United States, a contented bourgeoisie was huge and growing. The proletariat enjoyed steady income gains. The political energy of aroused workers that Marx had imagined as revolutionary instead went to support progressive parliamentary parties that built a welfare state, to housebreak but not supplant capitalism. Nations that celebrated Marx, meanwhile, were economic failures that repressed their working classes.

Half a century later, the world looks more Marxian. The middle class is beleaguered. A global reserve army of the unemployed batters wages and marginalizes labor’s political power. Even elite professions are becoming proletarianized. Ideologically, the view that markets are good and states are bad is close to hegemonic. With finance still supreme despite the 2008 collapse, it is no longer risible to use “capital” as a collective noun. The two leading treasury secretaries during the run-up to the 2008 financial crash, Democrat Robert Rubin and Republican Henry Paulson, were both former CEOs of Goldman Sachs. If the state is not quite the executive committee of the ruling class, it is doing a pretty fair imitation.