Posts Tagged ‘economics’

unions

It’s clear, at least to many of us, that if the United States had a larger, stronger union movement things would be much better right now. There would be fewer cases and deaths from the novel coronavirus pandemic, since workers would be better paid and have more workplace protections. There would be fewer layoffs, since workers would have been able to bargain for a different way of handling the commercial shutdown. And there would be more equality between black and white workers, especially at the lower end of the wage scale.

But, in fact, the American union movement has been declining for decades now, especially in the private sector. Just since 1983, the overall unionization rate has fallen by almost half, from 20.1 percent to 10.3 percent. That’s mostly because the percentage of private-sector workers in unions has decreased dramatically, from 16.8 percent to 6.2 percent. And even public-sector unions have been weakened, declining from a high of 38.7 percent in 1994 to 33.6 percent last year.

The situation is so dire that even Harvard economist Larry Summers (along with his coauthor Anna Stansbury) has had to recognize that the “broad-based decline in worker power” is primarily responsible for “inequality, low pay and poor work conditions” in the United States.*

Summers is, of course, the extreme mainstream economist who has ignited controversy on many occasions over the years. The latest is when he was identified as one as one of Joe Biden’s economic advisers back in April. Is this an example, then, of a shift in the economic common sense I suggested might be occurring in the midst of the pandemic? Or is it just a case of belatedly identifying the positive role played by labor unions now that they’re weak and ineffective and it’s safe for to do so?

I’m not in a position to answer those questions. What I do know is that the theoretical framework that informs Summers’s work has mostly prevented him and the vast majority of other mainstream economists from seeing and analyzing issues of power, struggle, and class exploitation that haunt like dangerous specters this particular piece of research.

Let’s start with the story told by Summers and Stansbury. Their basic argument is that a “broad-based decline in worker power”—and not globalization, technological change, or rising monopoly power—is the best explanation for the increase in corporate profitability and the decline in the labor share of national income over the past forty years.

Worker power—arising from unionization or the threat of union organizing, firms being run partly in the interests of workers as stakeholders, and/or from efficiency wage effects—enables workers to increase their pay above the level that would prevail in the absence of such bargaining power.

So far, so good. American workers and labor unions have been under assault for decades now, and their ability to bargain over wages and working conditions has in fact been eroded. The result has been a dramatic redistribution of income from labor to capital.

labor share

Clearly, as readers can see in the chart above, using official statistics, the labor share of national income fell precipitously, by almost 10 percent, from 1983 to 2020.**

profit rate

Not surprisingly, again using official statistics, the profit rate has risen over time. The trendline (the black line in the chart above), across the ups and downs of business cycles, has a clear upward trajectory.***

Over the course of the last four decades is that, as workers and labor unions have been decimated, corporations have been able to pump out more surplus from their workers, thereby lowering the wage share and increasing the profit rate.

But that’s not how things look in the Summers-Stansbury world. In their view, worker power only gives workers an ability to receive a share of the rents generated by companies operating in imperfectly competitive product markets. So, theirs is still a story that relies on exceptions to perfect competition, the baseline model in the world of mainstream economic theory.

And that’s why, while their analysis seems at first glance to be pro-worker and pro-union, and therefore amenable to the concerns of dogmatic centrists, Summers and Stansbury hedge their bets by references to “countervailing power,” the risk of increasing unemployment, and “interferences with pure markets” that “may not enhance efficiency” if measures are taken to enhance worker power.

Still, within the severe constraints imposed by mainstream economic theory, moments of insight do in fact emerge. Summers and Stansbury do admit that the wage-profit conflict that is at the center of their story does explain the grotesque levels of inequality that have come to characterize U.S. capitalism in recent decades—since “some of the lost labor rents for the majority of workers may have been redistributed to high-earning executives (as well as capital owners).” Therefore, in their view, “the decline in labor rents could account for a large fraction of the increase in the income share of the top 1% over recent decades.”

The real test of their approach would be what happens to workers’ wages and capitalists’ profits in the absence of imperfect competition. According to Summers and Stansbury, workers would receive the full value of their marginal productivity, and there would be no need for labor unions. In other words, no power, no struggle, and no class exploitation.

That’s certainly not what the world of capitalism looks like outside the confines of mainstream economic extremism. It’s always been an economic and social landscape of unequal power, intense struggle, and ongoing class exploitation.

The only difference in recent decades is that capital has become much stronger and labor weaker, at least in part because of the theories and policies produced and disseminated by mainstream economists like Summers and Stansbury. Now, as they stand at the gates of hell, it may just be too late for their extreme views and the economic and social system they have so long celebrated.

*The link in the text is to the column by Summers and Stansbury published in the Washington Post. That essay is based on their research paper, published in May by the National Bureau of Economic Research.

**We need to remember that the labor share as calculated by the Bureau of Labor Statistics includes incomes (such as the salaries of corporate executives) that should be excluded, since they represent distributions of corporate profits.

***I’ve calculated the profit as the sum of the net operating surpluses of the nonfinancial and domestic financial sectors divided by the net value added of the nonfinancial sector. The idea is that the profits of both sectors originate in the nonfinancial sector, a portion of which is distributed to and realized by financial enterprises. The trendline is a second-degree polynomial.

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Ah, the things we end up doing during the lockdown. . .

I stumbled upon this video while searching for something else on my computer yesterday. It’s a talk I gave, “The New Reading of Marx’s Capital,” at the Lattelecom International Conference on New Strategies in the New World Order in Riga on 13 October 2011. So, because it may have some contemporary relevance, I decided to upload it and share it with readers.

Anyone who is interested can download the Powerpoint presentation I used by clicking on this link.

That I know of, there are only five other Youtube videos in which I appear (from 2000, 2003, 2012, 2016, and 2019).

Three and a half weeks ago, Bernie Sanders became the last challenger to drop out of the race, thus clearing the way for Joe Biden to become the Democratic nominee on the November presidential ballot.

Since then, the novel coronavirus has engulfed the country (and, of course, the world), the U.S. economy has mostly come to a standstill, and tens of million American workers have joined the ranks of the unemployed, while “essential” workers are forced to commute to and labor in perilous conditions and jobless families have found it necessary to walk or take to their cars to wait in line by the thousands outside food banks.

Biden therefore has to find a way of presenting a progressive alternative to Trump by articulating some clear ideas, and perhaps eventually a detailed plan, to confront the most dramatic economic and social crises to face the United States since the first Great Depression.

Given the fact that Biden was the first choice of the conservative Democratic establishment, which breathed a sigh of relief when he and not Sanders (or, for that matter, Elizabeth Warren) became the presumptive nominee, he was quickly warned that he needed to pay attention to and incorporate ideas from progressive movements inside and outside the party.

Just hours after Sanders ended his campaign, seven groups made up of young left-wing activists—the Alliance for Youth Action, Justice Democrats, the March for Our Lives Action Fund, NextGen America, Student Action, the Sunrise Movement, and United We Dream Action—sent an open letter to Biden with a set of demands spanning policy and personnel to earn their support in the general election against Donald Trump.

Messaging around a “return to normalcy” does not and has not earned the support and trust of voters from our generation. For so many young people, going back to the way things were “before Trump” isn’t a motivating enough reason to cast a ballot in November. And now, the coronavirus pandemic has exposed not only the failure of Trump, but how decades of policymaking has failed to create a robust social safety net for the vast majority of Americans.

And then, a few weeks later, Bloomberg revealed that one of Biden’s economic advisers was none other than. . .Larry Summers.

As it turns out, Summers was the first name on the “Biden Do Not Reappoint” (or, alternatively, Do Not Resuscitate) list published last month by Robert Kuttner, who wrote that Summers in 2009 “not only lowballed the necessary economic stimulus and ended it prematurely, but he successfully fought for rescuing the biggest banks rather than taking them into temporary receivership.”

The response to Bloomberg’s scoop was quick and equally categorical. In a joint statement, two of the organizations that signed the open letter—Justice Democrats and the Sunrise Movement—announced they were launching a petition asking Biden to disavow Summers, whom the groups noted has a long history of advocating for harmful economic policies and a record of bigoted statements. And David Sirota, senior adviser and speechwriter on the Sanders campaign, tweeted that Biden “has chosen as his economic adviser the main Democratic proponent of the China PNTR deal and Wall Street deregulation. Apparently, Biden may really have meant it when he said ‘nothing will fundamentally change’.”

What is it about Summers that provokes such ire from progressive individuals and movements?

Perhaps the best place to begin is the piece that Michael Hirsh published in the National Journal back in 2013, when Barack Obama was considering Summers as the replacement for Federal Reserve Board Chairman Ben Bernanke. Hirsh noted that while “on paper, Summers is a superb candidate to succeed Bernanke in a post that the brilliant 58-year-old Harvard professor has pined for since his earliest days in Washington, he was “a very risky choice for chairman.”*

Why? Hirsh presented two main reasons: First, Summers often used his power and intellectual arrogance “to bully opponents into silence, even when they have been proved right.” Second, he had committed “a lot of errors in the past 20 years”—from his moves to deregulate Wall Street in the administration of Bill Clinton to the too-tepid response to the Second Great Depression under Obama—and “yet in no instance has Summers ever been known to publicly acknowledge a mistake.”**

Hirsh’s article played an important role—in addition to opposition from four Democrats on the Senate Banking Committee—in forcing Summers to withdraw his name from consideration for the post.***

As regular readers know, I have had my own running battle with Summers and his economic views on this blog. For example, I challenged him on the idea that inequality is necessary consequence of entrepreneurship; that capitalism has no inherent flaws and the problems of unemployment, inequality, and so on “can be addressed with proper fiscal and monetary policies”; that Summers, unlike most academics, has been very well paid to play on behalf of those who have a big stake in what’s being debated inside and outside the academy; that his “belated, poorly thought-out, population-driven ‘discovery’ of the possibility of secular stagnation” received undeserved accolades from other mainstream economists; that the cure for secular stagnation does not reveal a flaw in capitalism but instead has an easy fix, an increase in government-financed infrastructure spending; and finally that workers’ compensation depends on productivity growth and therefore it’s not necessary—and perhaps even counter-productive—to shift attention from growth to solving the problem of inequality.

More recently, Summers joined fellow Harvard economist Gregory Mankiw in criticizing the kind of wealth taxes that were proposed by Sanders and Warren (as scored by Emmanuel Saez and Gabriel Zucman)—because, among other things, wealthy people can avail themselves of many ways to avoid such taxes (thus reducing the projected revenues) and because closing loopholes would “involve placing limits on the ability to be charitable or to establish trusts for the benefits of grandchildren.”****

The fact is, Summers continues to represent, from his perch at Harvard, both the theoretical blinders and bullying stance of mainstream economics as well as the rush to return to “business as usual” within the Democratic Party.

If Biden wants to signal to wealthy donors and large corporations and banks that, if he somehow manages to defeat Trump in November, “nothing will fundamentally change,” then he really can’t do better than to stick with Summers.

 

*Back in 2013, my own choice, for what it’s worth, was Federal Reserve Governor Sarah Raskin.

**As I wrote in 2009, those characteristics (which Cornel West described as “a braininess that lacks wisdom and vision” and “a smartness that lacks a sensitivity to the poor and the marginal”) are a good description of most mainstream economists I have come across over the years.

***Kuttner, in a more recent piece, wrote that “After Summers personally complained to David Bradley, then the publisher of Atlantic Media, which owned National Journal, Hirsh was advised to seek other work—he ended up moving to Politico and then to Foreign Policy, though no errors were ever found in the Summers piece and no correction was ever issued.”

****If readers want to follow the debate, here is a link to the rejoinder by Saez and Zucman (pdf) and a follow-up response by Summers and his coauthor Natasha Sarin.

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Mark Tansey, “Garden” (2006)

Modern Monetary Theorists are having a moment, as governments (many of them run by conservative regimes, such as Donald Trump and the Republicans in the United States) are running gigantic fiscal deficits in order to combat the economic crisis occasioned by the coronavirus pandemic.*

This time, with the $2 trillion CARES Act, the U.S. federal government has taken an additional step down the road of Modern Monetary Theory, by having the Federal Reserve buy an unlimited amount of Treasury bonds and government-backed mortgage bonds — whatever was necessary “to support smooth market functioning”—in other words, by simply creating the necessary money.

But, as Michael Hudson et al. explain, the idea that is being celebrated right now—that running government budget deficits is stabilizing instead of destabilizing—”is in many ways something quite different than the leading MMT advocates have long supported.”

Modern Monetary Theory (MMT) was developed to explain the logic of running government budget deficits to increase demand in the economy’s consumption and capital investment sectors so as to maintain full employment. But the enormous U.S. federal budget deficits from the Obama bank bailout after the 2008 crash through the Trump tax cuts and Coronavirus financial bailout have not pumped money into the economy to finance new direct investment, employment, rising wages and living standards. Instead, government money creation and Quantitative Easing have been directed to the finance, insurance and real estate (FIRE) sectors. The result is a travesty of MMT, not its original aim.

By subsidizing the financial sector and its debt overhead, this policy is deflationary instead of supporting the “real” economy. The effect has been to empower the banking sector, whose product is credit and debt creation that has taken an unproductive and indeed extractive form.

Let me back up for a moment. I’ve been an advocate of Modern Monetary Theory ever since I began to study it (at the prodding of friends [ht: br]), as can be seen in various of my blog posts. In particular, from the perspective of the Marxian critique of political economy, two formulations that represent both critiques of and alternatives to those of mainstream economics are particularly useful: government deficits and bank money.

Perhaps the best known (and, in many ways, most controversial) aspect of Modern Monetary Theory is the logic of running budget deficits. The mainstream view is that the government imposes taxes and then uses the revenues to pay for some portion of government programs. To pay for the rest of its expenditures, the state then borrows money by issuing bonds that investors can purchase (and for which they receive interest payments).** But, neoclassical economists complain, such borrowing has a big downside: budget deficits increase the demand for loans, because the government competes with all the loans that private individuals and businesses want to take on—thus leading, in the short run, to the so-called crowding-out effect and, in the long run, an increase in government debt and the potential for a government default.

Advocates of Modern Monetary Theory dispute both of these conclusions: First, they argue that governments should never have to default so long as the country has a sovereign currency, that is, so long as they issue and control the kind of money they tax and spend (so, e.g., the United States but not Greece). Second, taxes and bonds do not and indeed cannot directly pay for spending. Instead, the government creates money whenever it spends.*** Clearly, this is useful from a left-wing perspective, because it creates room for government spending on programs that benefit the working-class—including, but certainly not limited to, the much-vaunted jobs guarantee.****

The second major contention between mainstream economics and Modern Monetary Theory concerns the role of banks—in particular, the relationship between bank lending and money. As Bill Mitchell explains,

Mainstream economic theory considers banks to be institutions that take in deposits which then provides them with the funds to on-lend at a profit. Accordingly, the ability of private banks to lend is considered to be constrained by the reserves they hold.

In other words, banks are seen as financial intermediaries, funneling deposits and then (backed by reserves) allocating a multiple of such deposits to the best possible, most efficient uses.

From the perspective of Modern Monetary Theory, private banks don’t operate in this way. Instead, they create money, by making loans—and reserve balances play little if any role.

A bank’s ability to expand its balance sheet is not constrained by the quantity of reserves it holds or any fractional reserve requirements. The bank expands its balance sheet by lending. Loans create deposits which are then backed by reserves after the fact. The process of extending loans (credit) which creates new bank liabilities is unrelated to the reserve position of the bank.

This is exactly the opposite of the mainstream story, with the implication that banks create loans (and therefore money) based on the profitability of making such loans, an activity that has nothing to do with the central bank’s adding more reserves to the system.

Both points—concerning the financing of government spending and endogenous bank money—are well known to anyone who has been exposed (either sympathetically or critically) to Modern Monetary Theory. In my view, they fit usefully and relatively easily into modern Marxian economics, especially in terms of both the theory of the state (e.g., government finances) and the theory of (fiat) money.

The problem, it seems to me, arises in the terms of the major complaint registered by Hudson et al.—namely, that government stimulus plans have mostly been directed to the finance, insurance and real estate (FIRE) sectors, which are considered unproductive and extractive, and not to the “real” economy, which is not.

Readers who know something about the history of economic thought will recognize that these productive/unproductive and extractive/non-extractive distinctions have a long lineage and can be traced back, first, to the French Physiocrats and, later, to Adam Smith—in other words, to the beginnings of modern mainstream economics.

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Using his Tableau Économique, François Quesnay attempted to show that the proprietors and cultivators of land were the only productive members of the economy and society, as against the unproductive class composed of manufacturers and merchants. It follows that the government should promote the interests of the landowners, and not those of the other classes, which were merely parasitic. Smith took up this distinction but then redeployed it, to argue that any labor involved in the production of commodities (whether agricultural or manufacturing) was productive, and the problem was with revenues spent on unproductive labor (such as household servants and landlords). The former led to the accumulation of capital, which increased the wealth of nations, while the latter represented conspicuous consumption, which did not.

Marx criticized both formulations, arguing that the productive/unproductive distinction had to do not with what workers produced, but rather with how they produced. Within capitalism, labor was productive if it resulted in the creation of surplus-value; and, if it didn’t (such as is the case with managers and CEOs who supervise the production of goods and services, as well as all those involved in finance, insurance, and real estate), it was not. So, the Marxian distinction is focused on surplus-value and thus exploitation.

And that, it seems to me, is the major point overlooked in much of Modern Monetary Theory. FIRE is extractive in the sense that it receives a cut of the surplus created elsewhere in the economy. But so are industries outside of finance, insurance, and real estate, since the boards of directors of enterprises in those sectors extract surplus from their own workers. And those different modes of extraction occur whether or not there’s a jobs guarantee provided by the creation of money by governments or banks.

From a Marxian perspective, then, the crucial distinction—both theoretically and for public policy—is not that between FIRE and the so-called real economy, but between classes that appropriate the surplus and otherwise “share in the booty” and the class that actually produces the surplus.

Right now, in the midst of the coronavirus pandemic, the class that is working to produce the surplus and provide the commodities we need is the one that is carrying the burden—either because they have been laid off and mostly left to their own devices, without paychecks and healthcare benefits, or been forced to continue to labor under precarious and unsafe conditions.

It’s that class, the American working-class, that is suffering from the ravages of the current economic crisis precipitated by the pandemic. They’re the ones, not their employers (whether in FIRE or the “real” economy), who deserve to be bailed out.

 

*Although this is certainly not the first time Republican administrations have run fiscal deficits, and allowed the public debt to soar—as long as they’re in power. They did it under Ronald Reagan, both Bushes, and long before the pandemic with Trump’s tax cuts. The only time American conservatives seem to worry about deficits and debt is when Democrats hold the reins.

**Wealthy individuals and large corporations long ago determined they prefer to be paid to purchase government debt instead of being taxed.

***So why, then, does the government need to tax at all in Modern Monetary Theory? Best I can figure, there are two major reasons: First, taxation makes sure people in the country use the government-issued currency, because they have to pay taxes in that currency (and not, e.g., in some kind of local or digital currency). Second, taxes are one tool governments can use to control inflation. They can take an amount of money out of the economy, which keeps consumers and corporations from bidding up prices.

****But that’s clearly not a new idea. Back in 1943, Michel Kalecki argued that governments had the ability to use a spending program (e.g., through public investment or subsidizing mass consumption) to achieve full employment. But it would likely be opposed by an alliance of big business and rentier interests based on three reasons:

(i) dislike of government interference in the problem of employment as such; (ii) dislike of the direction of government spending (public investment and subsidizing consumption); (iii) dislike of the social and political changes resulting from the maintenance of full employment.

In other words, capitalists are against both the government’s usurping of their private role as masters of the economy and society and the strengthening of the working-class, for whom “the ‘sack’ would cease to play its role as a disciplinary measure.”

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Jean-Pierre Roy, “The Sultan and the Strange Loop” (2016)

The U word has once again reared its ugly head.

I’m referring of course to uncertainty, which at least a few of us are pleased has returned to occupy a prominent role in relation to scientific discourse. The idea that we simply do not know is swirling around us, haunting pretty much every pronouncement by economists, virological scientists, epidemiological modelers, and the like.

How many people will contract the novel coronavirus? How many fatalities has the virus caused thus far? And how many people will eventually die because of it? Do face masks work? How many workers have been laid off? How severe will the economic meltdown be in the second quarter and for the rest of the year?

We read and hear lots of answers to those questions but, while individual forecasts and predictions are often presented as uniquely “correct,” they differ from one another and change so often we are forced to admit our knowledge is radically uncertain.

Uncertainty, it seems, erupts every time normalcy is suspended and we are forced to confront the normal workings of scientific practice. It certainly happened during the first Great Depression, when John Maynard Keynes used the idea of radical uncertainty—as against probabilistic risk—to challenge neoclassical economics and its rosy predictions of stable growth and full employment.* And it occurred again during the second Great Depression, when mainstream macroeconomics, especially the so-called dynamic stochastic general equilibrium approach, was criticized for failing to take into account “massive uncertainty,” that is, the impossibility of predicting surprises and situations in which we simply do not know what is going to happen.

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The issue of uncertainty came to the fore again after the election of Donald Trump, which came as a shock to many—even though polls showed a race that was both fairly close and highly uncertain. FiveThirtyEight’s final, pre-election forecast put Hillary Clinton’s chance of winning at 71.4 percent, which elicited quite a few criticisms and attacks, since other models were much more confident about Clinton, variously putting her chances at 92 percent to 99 percent. But, as Nate Silver explained just after the election,

one of the reasons to build a model — perhaps the most important reason — is to measure uncertainty and to account for risk. If polling were perfect, you wouldn’t need to do this. . .There was widespread complacency about Clinton’s chances in a way that wasn’t justified by a careful analysis of the data and the uncertainties surrounding it.

In my view, Silver is one of the best when it comes to admitting the enormous gap between what we claim to know and what we actually know (as I argued back in 2012), which however is often undermined in an attempt to make the results of models seem more accurate and to conform to expectations.

And that’s just as much the case in social sciences (including, and perhaps especially, economics) and the natural sciences as it is in weather forecasting. Many, perhaps most, practitioners and pundits operate as if science is a single set of truths and not a discourse, with all the strengths and failings that implies. What I’m referring to are all the uncertainties, not to mention indeterminisms, linguistic risks and confusions, referrals and deferences to other knowledges and discourses, embedded assumptions (e.g., in both the data-gathering and the modeling) that are attendant upon any practice of discursive production and dissemination.

As Siobhan Roberts recently argued,

Science is full of epistemic uncertainty. Circling the unknowns, inching toward truth through argument and experiment is how progress is made. But science is often expected to be a monolithic collection of all the right answers. As a result, some scientists — and the politicians, policymakers and journalists who depend on them — are reluctant to acknowledge the inherent uncertainties, worried that candor undermines credibility.

What that means, in my view, is science is always subject to discussion and debate within and between contending positions, and therefore decisions need to be made —about facts, concepts, theories, models, and much else—all along the way.

As it turns out, acknowledging that uncertainty, and therefore openly disclosing the range of possible outcomes, does not undermine public trust in scientific facts and predictions. That was the conclusion of a study recently published in the Proceedings of the National Academy of the Sciences.

In the “posttruth” era where facts are increasingly contested, a common assumption is that communicating uncertainty will reduce public trust. . .Results show that whereas people do perceive greater uncertainty when it is communicated, we observed only a small decrease in trust in numbers and trustworthiness of the source, and mostly for verbal uncertainty communication. These results could help reassure all communicators of facts and science that they can be more open and transparent about the limits of human knowledge.

Even if communicating uncertainty does decrease people’s trust in and perceived reliability of scientific facts, including numbers, that in my view is not a bad thing. It serves to challenge the usual (especially these days, among liberals, progressives, and others who embrace a Superman theory of truth) that everyone can and should rely on science to make the key decisions.*** The alternative is to admit and accept that decision-making, under uncertainty, is both internal and external to scientific practice. The implication, as I see it, is that the production and communication of scientific facts as well as their subsequent use by other scientists and the general public is a contested terrain, full of uncertainty. 

Last year, even before the coronavirus pandemic, Scientific American [unfortunately, behind a paywall] published a special issue titled “Truth, Lies, and Uncertainty.” The symposium covers a wide range of topics, from medicine and mathematics to statistics and paleobiology. For those of us in economics, perhaps the most relevant is the article on physics (“Virtually Reality, by George Musser).

Musser begins by noting that “physics seems to be one of the only domains of human life where truth is clear-cut.”

The laws of physics describe hard reality. They are grounded in mathematical rigor and experimental proof. They give answers, not endless muddle. There is not one physics for you and one physics for me but a single physics for everyone and everywhere.

Or so it appears.

In fact, Musser explains, practicing physicists operate with considerable doubt and uncertainty, on everything from fundamental theories (such as quantum mechanics and string theory) to bench science (“Is a wire broken? Is the code buggy? Is the measurement a statistical fluke?”).

Consider, for example, quantum theory: if you

take quantum theory to be a representation of the world, you are led to think of it as a theory of co-existing alternative realities. Such multiple worlds or parallel universes also seem to be a consequence of cosmological theories: the same processes that gave rise to our universe should beget others as well. Additional parallel universes could exist in higher dimensions of space beyond our view. Those universes are populated with variations on our own universe. There is not a single definite reality.

Although theories that predict a multiverse are entirely objective—no observers or observer-dependent quantities appear in the basic equations—they do not eliminate the observer’s role but merely relocate it. They say that our view of reality is heavily filtered, and we have to take that into account when applying the theory. If we do not see a photon do two contradictory things at once, it does not mean the photon is not doing both. It might just mean we get to see only one of them. Likewise, in cosmology, our mere existence creates a bias in our observations. We necessarily live in a universe that can support human life, so our measurements of the cosmos might not be fully representative.

Musser’s view is that accepting uncertainty in physics actually leads to a better scientific practice, as long as physicists themselves are the ones who attempt to point out problems with their own ideas.

So, if physicists are willing to live with—and even to celebrate—uncertain knowledge, and even if the general public does lose a bit of trust when a degree of uncertainty is revealed, then it’s time for the rest of us (perhaps especially economists) to relinquish the idea of certain scientific knowledge.

Then, as Maggie Koerth recently explained in relation to the coronavirus pandemic, instead of waiting around around for “absolute, unequivocal facts” to decide our fate, we can get on with the task of making the “big, serious decisions” that currently face us.

 

*Although, as I explained back in 2011, the idea of fundamental uncertainty was first introduced into mainstream economic discourse by Frank Knight.

**And later central bankers (such as the Bank of England’s Andy Haldane) discovered that admitting uncertainty might actually “enhance understanding and therefore authority.”

***The irony is that “the Left” used to be skeptical about and critical of much of modern science—from phrenology, craniometry, and social Darwinism to the atom bomb, sociobiology, and evolutionary psychology.

 

We’re back at it again: “the economy” has broken down and we’re all being enlisted into the effort to get it back up and working again. As soon as possible.

The Congressional Budget Office has announced that it expects the U.S. economy will contract sharply during the second quarter of 2020:

    • Gross domestic product is expected to decline by more than 7 percent during the second quarter. If that happened, the decline in the annualized growth rate reported by the Bureau of Economic Analysis would be about four times larger and would exceed 28 percent. Those declines could be much larger, however.
    • The unemployment rate is expected to exceed 10 percent during the second quarter, in part reflecting the 3.3 million new unemployment insurance claims reported on March 26 and the 6.6 million new claims reported this morning. (The number of new claims was about 10 times larger this morning than it had been in any single week during the recession from 2007 to 2009.)

Just as in the aftermath of the spectacular crash of 2007-08, the supposedly shared goal is to do whatever is necessary to engineer a recovery so that the economy can start operating normally again.

That presumes, of course, that we were satisfied with the normal workings of the economy before, and that such a state of normality is what we all desire moving forward.

But before I attempt to address that issue, it’s important that we stop and think a bit more about what we mean when we refer to this thing called “the economy.” In a fascinating recent interview, Anat Shenker-Osorio [ht: ja], argues that the economy is often portrayed as an all-powerful, personified entity.*

Previously, we would hear politicians admonish that we can’t pass X policy because it will “hurt the economy” — as if it were a being to which we owe our efforts and loyalties. And now, all the more brazenly, Republicans tell us we must sacrifice ourselves or perhaps our elders to the economy.

Another oft-used metaphor for the economy is the human body.

Conservatives, aided and abetted by progressives who also unwittingly employ the metaphor, tend to talk about the economy as a body. You can hear this expressed in language like “it’s suffering” or “the economy is thriving.” We have a “recovery bill” to get the economy “off life support” and “restore it to health.” What this metaphor suggests is that in grave cases, we must “resuscitate the patient” (perhaps with a stimulus bill.)

It seems to me, there’s a third common metaphor for the economy: a machine. Often, especially in conservative political discourse and neoclassical economic theory, the economy-as-machine is said to be functioning on its own, in a technical manner, with all its parts combining to produce the best possible outcome.** Unless, of course, there’s some kind of monkey wrench thrown into the works, such as a government intervention or natural disaster. However, according to liberal politics and Keynesian economics, the economic machine by itself tends to break down and needs to be regulated and guided, through some kind of government policy or program, so that it gets back to working properly.

As Shenker-Osorio correctly observes, the metaphor of “the economy” that is shared by both sides of mainstream political and economic discourse puts progressives at a distinct disadvantage:

we see progressives attempt to make arguments about how social welfare programs will “grow the economy” in the hopes of sounding like the reasonable adults in the room. This tacitly reaffirms the toxic idea that our purpose ought to be to serve the economy — that the correct evaluation of policy is how it affects the GDP

Much the same argument is made in favor of other liberal or progressive programs: raising minimum wages, extending health insurance, anti-poverty programs, education and job training, and so on. All are justified as contributing to making the economic machine work better, more productively, by including everyone.

So, what’s the alternative? One possibility, which Shenker-Osorio offers, is to reject the existing metaphors and refuse to continue to debate “who loves the economy best” and, instead, force “the far more relevant discussion: What is best for people.”

I don’t disagree with Shenker-Osorio’s goal but I wonder if there might not be another way of proceeding, by teasing out the implications of thinking about the economy as a machine.

If we continue with the machine metaphor then, first, we can demonstrate that the existing machine, in the midst of the novel coronavirus pandemic, is simply not working. It is an unproductive machine. For example, the U.S. economy-as-machine hasn’t been able to protect people’s health, for example, by providing adequate personal protective equipment for nurses and doctors, ventilators for patients, and masks for everyone else. Even more, it has put many people’s health at additional risk, by forcing many workers to continue to labor in unsafe workplaces and to commute to those jobs using perilous public transportation. Finally, it has expelled tens of millions of American workers, through furloughs and layoffs, and thus deprived them of wages and health insurance precisely when they need them most.

Second, we can read the decisions of the Trump administration—both its months-long delay in responding to the pandemic and then its refusal to enact a nationwide shutdown when it finally did admit a health emergency—as precisely enacting the general logic of the economic machine: that nothing should get in the way of production, circulation, and finance. It fell then to individual states to decide whether and when to shutdown parts of the economic machine and to distinguish between “essential” and “nonessential” sectors.

Finally, we can interpret the repeated calls to reopen the economy—not only by Trump and his advisors, but also by a wide variety of others, from Lloyd Blankfein, the billionaire former CEO of Goldman Sachs, to Republican Sen. Ron Johnson of Wisconsin—as a rational but unconvincing gesture, based on no other reason than that the machine needs to keep operating. It expresses the rational irrationality of the existing economy-machine.

All of which leaves us where? It seems to me, their continued reference to the economy as a machine creates the possibility of our demanding, in the first place, that the machine should remain closed down—for health reasons. People’s health should not be put under any further stress as long as the pandemic continues to ravage individual lives and entire communities.

And in second place, it becomes possible to imagine and invent other assemblages of the existing economy-machine, and even other machines, instead of obeying the logic of the current way of organizing economic and social life in the United States. In fact, while many of the changes to people’s lives have been designed to keep the existing machine functioning (for example, by working at home), it is also possible that people are taking advantage of the opportunity to experiment with how they work and live and creating new spaces and activities in their lives.***

If the common refrain these days is that “nothing will be the same” after the pandemic, perhaps one of the outcomes is that the economy-machine will finally be seen as an empty signifier, unmoored from the reality of people’s lives and incapable of organizing their desires.****

Then, maybe, the existing economy-machine will stop functioning. Before it kills any more of us.

 

*As in the episode of South Park, “Margaritaville” (the third episode in the thirteenth season, broadcast in March 2009), which Shenker-Osorio discusses in her 2012 book, Don’t Buy It: The Trouble with Talking Nonsense about the Economy.

**There is also, of course, an ethics of the economy-as-machine. As I explained back in 2018,

According to neoclassical economists, the capitalist distribution of income is fundamentally fair. If every factor of production (e.g., capital and labor) is remunerated according to its marginal contribution to production, and each individual sells to firms the amount of each factor they desire (because of utility-maximization), the resulting distribution represents “just deserts.” It’s fair on an individual level and it represents justice for society as a whole. Let free markets operate, without any external intervention (e.g., by the state), and the result will be both fair and just.

For Keynesian economists, the machine can be made to operate fairly, and therefore in an ethical manner, when the state can step in (e.g., via fiscal and monetary policy) to create full employment.

***I understand, some of those changes may be experienced as losses—of laboring alongside fellow workers, of certain leisure activities, and so on. But people are inventing all kinds of new ways, even at a physical distance, of provisioning, socializing, and much else.

****And, yes, for those who are interested, as I prepared to write this post, I did go back and reread some of the works of Gilles Deleuze and Félix Guattari, including AntiOedipusCapitalism and Schizophrenia.