Posts Tagged ‘economics’


Apparently, there’s a new documentary film [ht: ja]—Boom Bust Boom, directed by Monty Python’s Terry Jones—whose aim is to to popularize the work of Hyman Minsky.

Minsky’s genius was to show that financially complex capitalism is inherently unstable. Under conditions of stability, firms, banks and households will, over time, move from a position where their income pays off their debt, to one where it can only meet the interest payments on it. Finally, as instability rises, and central banks respond by expanding the supply of money, people end up borrowing just to pay back interest. The price of shares, homes and commodities rockets. Bust becomes inevitable.

This logical and coherent prediction was laughed at until it came true. Mainstream economics had convinced itself that capitalism tends towards equilibrium; and that any shocks must be external.

This is the latest attempt, in a long sequence since the crisis of 2007-08, to rediscover and examine the implications of Minsky’s work (which I’ve discussed many times on this blog).

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Larry Rohter’s interview with Sebastião Salgado (whose work I have discussed before, here and here) includes an important exchange about the role Salgado’s previous study of economics has played in his photography.

Q. Wim Wenders makes a very interesting observation in the film, saying that your training as an economist helped prepare you for the kind of photography you do. Do you think that’s true? Did it help, and if so, in what way?

A. Yes, it helped. In reality, when you consider a photographer, he’s the fruit of his heritage. My visual heritage comes from the mountains where I grew up and a lot of my intellectual heritage from having been an economist. The economics I did was not the economics of business administration, it’s not micro. I did macroeconomics — the economics of public finances, political economy, I studied Marx and Keynes. In reality, that kind of economics is a kind of quantified sociology, so that kind of preparation gave me a real training. I had to study, I had to read a lot of philosophy, political science, I had to read a whole bunch of things that gave me a solid grounding, and that was something fabulous.

So when I became a photographer, I had a series of instruments for analysis and synthesis, and clearly all of that helped me.

Salgado’s answer has two important implications—one concerning the liberal arts, the other economics. The point about the liberal arts is that we’re teaching students how to think, not providing them job skills. As they acquire the ability to think critically about the world around them, as they develop an intellectual foundation to grapple with new and old ideas and challenge the existing common senses, they can decide how they’re going to leave their mark on the world. Along the way, of course, they’re going to have to figure out how to earn a living—to put a roof over their heads, pay for their food and clothing, and so on—but that’s not the goal or aim of their liberal arts education. Clearly, Salgado’s studies of economics didn’t direct him to a career as an economist but, instead, gave him some of the intellectual tools he could later use as a “photographer without adjectives.”

But it’s also clear that Salgado’s involvement with economics is not the same as many students today have. It’s much closer to what I had in college and graduate school, and continue to try to provide to my students in the classroom (even when I teach microeconomics). He studied Marx and Keynes, he read philosophy and political science, he was exposed to economics he refers to as “a kind of quantified sociology.” That’s certainly not what many of my colleagues in economics are doing to students today. They build formal mathematical models, which the undergraduate and graduate students are never taught to think about critically let alone question. They teach students the conclusions of the models but never the underlying assumptions. As a result, students learn how to manipulate the equations (at least well enough to pass the exams) but not how to relate those models to what they’ve learned elsewhere in the liberal arts or to consider what other kinds of economic theories and models might be used to make sense of what is going on in the world.

In both those senses, many students today—in the liberal arts generally, and perhaps especially in economics—are simply not being given the “instruments for analysis and synthesis” Sebastião Salgado acquired in his early intellectual formation. Our students may be able to take lots of pictures but I worry they’re being denied the opportunity of becoming great photographers.


Andrew Bacevich begins his review of Christian Appy’s new book, American Reckoning: The Vietnam War and Our National Identity, with the following:

Policy intellectuals — eggheads presuming to instruct the mere mortals who actually run for office — are a blight on the republic. Like some invasive species, they infest present-day Washington, where their presence strangles common sense and has brought to the verge of extinction the simple ability to perceive reality. A benign appearance — well-dressed types testifying before Congress, pontificating in print and on TV, or even filling key positions in the executive branch — belies a malign impact. They are like Asian carp let loose in the Great Lakes.

Appy’s examples include, in the area of national security, Cold Warriors McGeorge Bundy, Walt Whitman Rostow, and Samuel P. Huntington. Bacevich then extends the analysis to the new foreign policy intellectual establishment associated with Ashton Carter in his return to the Pentagon as President Obama’s fourth secretary of defense.

I wonder if we might use the same kind of analysis to examine Obama’s economic team, especially the first group of economic advisers. They included Treasury Secretary Timothy Geithner (whose “counselors” included Lewis Alexander, Gene Sperling, and Lael Brainard), National Economic Council Director Lawrence Summers, Deputy Director of the National Economic Council (and now Chairperson of the Council of Economic Advisers) Jason Furman, and others. In Obama’s case, the members of the economics “Brains Trust” weren’t from Yale but had close associations with Robert Rubin, the former co-chairman of Goldman Sachs who served as Treasury secretary under Bill Clinton.

As Matt Taibbi wrote back in 2009,

The significance of all of these appointments isn’t that the Wall Street types are now in a position to provide direct favors to their former employers. It’s that, with one or two exceptions, they collectively offer a microcosm of what the Democratic Party has come to stand for in the 21st century. Virtually all of the Rubinites brought in to manage the economy under Obama share the same fundamental political philosophy carefully articulated for years by the Hamilton Project: Expand the safety net to protect the poor, but let Wall Street do whatever it wants. “Bob Rubin, these guys, they’re classic limousine liberals,” says David Sirota, a former Democratic strategist. “These are basically people who have made shitloads of money in the speculative economy, but they want to call themselves good Democrats because they’re willing to give a little more to the poor. That’s the model for this Democratic Party: Let the rich do their thing, but give a fraction more to everyone else.”

And that’s exactly what we got: save Wall Street and expand the safety net for the poor. What we didn’t get is creative thinking about the major banks (which, had they been nationalized, could have easily played an important role in a real economic recovery) or international trade (which, in the case of NAFTA, was never renegotiated, and in the case of the TPP, has been all about extending the reach of major corporations) or workers (who would have benefited from Card Check and other measures to make it easier to organize unions and, even more, play a role in running the enterprises in which they work or set up their own enterprises) or healthcare (which was reformed in such a way that, while health insurance was expanded, it did not change the way healthcare itself is provided), and so much more.

So, like the Cold War national security advisers and the new Pentagon team, Obama’s economic advisers restricted the discussion and let “Washington’s clubby network of fellows, senior fellows, and distinguished fellows” know that the “prevailing verities” of economic discourse “would remain sacrosanct.” They chose not to look at a different economic problem, much less reverse the existing economic paradigm. Instead, they affirmed it—with a little minor tweaking here and there.

One can only imagine what economic policy would have been like had the country’s economic policy not been in the hands of state intellectuals, who devised policies for the benefit of a few, but had actually been creatively and critically devised by intellectuals from the working classes who continue to be ravaged by the crash of 2007-08 and the lopsided recovery of the last six years.


If you watched the Downton Abbey Season 5 finale, you will have seen the elaborately staged grouse shoot:

The bird shooting party is an extraordinary example of what life is like for these fortunate silver-spooners. They have helpers to clean their guns and prepare their guns. They have helpers to carry their guns to the field and to quickly reload for them after they shoot. They have helpers to beat the bushes and scare the birds into flight above their heads. And once the birds have been shot out of the air they have dogs to retrieve them from the fields.

Anything else we can do for you, chaps? Why yes. Once the unlucky birds are brought back to the house, it’s up to Mrs. Patmore and the cooks to clean and prepare them and serve them up as a delicious dinner. It’s amazing how much you can get done when everyone else does it for you. That’s a secret the rich have always tried to keep to themselves.


As it turns out, those scenes are a good way of understanding the mechanisms behind James Kwak’s chart of wealth distribution in the United States:

Imagine all the families in the United States lined up from left to right along the X-axis, from poorest to richest; the red line shows the total value of (almost) everything they own, minus their debts. All household wealth is represented by the area under the red line. The problem with understanding this picture, however, is that the red line is indistinguishable from zero for the vast majority of the population—all the wealth is crammed into the right-hand part of the chart.

Indeed! Those at the very top today have figured out what those who lived upstairs in Downton Abbey knew almost a century ago: it’s amazing how much wealth you can come to own when everyone else creates it but ends up owning very little of it.



As I noted a few days ago (in discussing the notion of human capital), the concept of capital has undergone an extraordinary redefinition and expansion in recent years. Now, in the work of mainstream economists, it has come to refer to, in addition to physical capital, human, social, intellectual, and many other forms of capital.

What’s going on?

My sense is that, whereas capital traditionally referred to the property of capitalists—and thus their claim on some portion of new value created in the form of profits—it now means something very different: any stock that can be accumulated over time to yield an income (or at least, as in the case of housing, a flow of benefits). One interpretation, then, is we’re being moved by this reimagining of capital further and further away from any notion of class (such as implied by the differences between capital and labor and the accumulation of capital by and for the benefit of a tiny minority in society). But there is, I think, a somewhat different interpretation: we’re still obsessed by class (perhaps even more than before) and, precisely because of that, the mainstream project is to turn all of us into capitalists, with the shared goal of accumulating and managing our individual portfolios of various forms of capital.

Income share by labor and corps to 2011

It is perhaps not a coincidence that capital is being redefined and expanded precisely when the “capital share”—that is, the share of national income going to corporate profits—has reached record highs (not coincidentally, just as the wage share is at a record low) and some (such as Thomas Piketty and sympathetic readers) are expressing a worry that current trends in the unequal distribution of wealth may, if they continue, represent a return to the réntier incomes and inherited wealth characteristic of “patrimonial capitalism.”

So, capital is still a problem that haunts economics.

The problem of capital can be traced back to the first texts of modern economics. While I don’t have the space here to present a full history of economic thought, it is important to note that, for Adam Smith, the stock of physical capital played an important role in creating the wealth of nations. But, at the same time, Smith worried that capitalists might not carry out their “historical mission” of accumulating capital—if, for example, they chose to divert some of their profits to other uses, such as luxury consumption. David Ricardo, too, worried about the capitalists’ mission—if, with continual growth, the declining fertility of land under cultivation meant that rent on the land cut into profits and thus slowed the process of accumulation. Marx, of course, challenged both the classicals’ definition of capital—preferring to see it as a social relationship, rather than a thing—and their worry that the accumulation of capital (in the form of c and v, constant and variable capital) would slow as a result of exogenous events—because, for Marx, the problems were endogenous, as capital itself created obstacles to smooth and continuous accumulation. Even in early neoclassical growth theory (for example, in the Solow model), capital carried the hint of class, as it still had to be accumulated by a small group of investors—with the caveat, of course, that labor also stood to benefit as a result of more jobs and a higher marginal productivity.

But that previous class dimension of capital seems to have radically changed with the proliferation of new, expanded notions of capital.

This issue of capital came up as I was reading the commentaries on Piketty’s book that were delivered in a session at the recent American Economic Association meetings. All of the respondents—mainstream economists of various hues and stripes—took issue with Piketty’s definition and measurement of wealth. However, let me for the sake of this post, focus on one of them, by David Weil [pdf]. Weil’s view is that, in addition to productive capital (the K one finds, alongside labor, in the usual neoclassical production function), capital should also include two other forms of wealth: human capital and “transfer wealth.” In his hands, labor income is now transformed into another kind of return on capital, the result of which is that a portion of national income (his calculations indicate 38 percent) represents a payment for education above and beyond “brute” labor. Human capital has the additional advantage, for mainstream economists like Weil, that it is more equally distributed (“there is a limit to how much human capital even the richest parent can cram into the head of his or her child”) than physical or financial capital. And then there are the Social Security payments workers rely on as retirement income. Weil also wants to treat them as capital, as a “transfer wealth.” He does acknowledge potential objections (“Ownership of transfer wealth conveys no control rights, and it can’t be sold or borrowed against, although it is not clear that these characteristics would be very valuable to those who hold it. Because it is annuitized, transfer wealth does not pass on to heirs, and so it is certainly true it affects the dynamics of inequality differently than market wealth.”) but then, impressed with the “gross size of these transfer claims,” Weil proceeds to treat them as a form of individual wealth—instead of as a social claim by one group of former workers on the surplus being created by existing workers.

The proliferation of these notions moves capital further and further away from its previous associations, in one way or another, with class and the process of producing, capturing, and utilizing the surplus in the form of capitalist profits. That’s one of the effects of redefining capital and imagining that wages and Social Security represent different returns on capital.

At the same time, the new forms of capital continue to be haunted by the issue of class, precisely in the insistence that everyone—not just capitalists—owns some and that forms such as human capital and “transfer wealth” are more equitably distributed than traditional (physical and financial) capital. In other words, mainstream economists’ attempts to redefine and expand what we mean by capital still carry the whiff of a claim on net income that is something above and beyond what laborers receive by exchanging their ability to work for a wage.

The problem, of course, is that the more capital is detached from the traditional role of the capitalist—to serve as “a machine for the conversion of this surplus-value into additional capital”—the more it calls into question the idea that the class of capitalists serves any particular role at all in today’s society. This is a problem that, of course, has reinforced by the onset and enduring legacy of the most severe crisis since the First Great Depression.

In this sense, the proliferation of new forms of capital—in the midst of the growing inequality that both caused and is now the consequence of the Second Great Depression—merely serves to remind us of the antithesis between the character of wealth as socially produced and privately captured. That is the real problem with capital that simply can’t be solved within the existing economic institutions.


*This illustration was produced by the Capital Drawing Group.



While mainstream economists continue to discuss and debate their favorite topics—when to hike interest rates, the appropriate measure of capital, how to apply monetary rules, the outcome of debt negotiations in Europe, and much else—they never mention one obvious fact: capitalism kills. In particular, it kills babies and middle-aged people.

According to Alice Chen, Emily Oster, and Heidi Williams [pdf], capitalism kills babies. The United States, for example, ranks fifty-first in the world in infant mortality—comparable to Croatia, despite an almost three-fold difference in income per capita. But, as it turns out, it’s not differences at birth that explain the low ranking of the United States; it’s the high rate of postneonatal deaths. And that high rate (e.g., in comparison to Finland and Austria in the authors’ study) is “due entirely, or almost entirely, to high mortality among less advantaged groups. Well-off individuals in all three countries have similar infant mortality rates.” In other words, the high level of infant deaths in the United States are almost entirely a consequence of the grotesque levels of economic inequality that capitalism has created within the United States.

We also have to admit that capitalism kills middle-aged people. In a study recently published in the American Journal of Preventive Medicine, Katherine A. Hempstead and Julie A. Phillips found that suicide rates among middle-aged men and women in the United States have been increasing since 1999, with a sharp escalation since 2007. Their conclusion is that

Relative to other age groups, a larger and increasing proportion of middle-aged suicides have circumstances associated with job, financial, or legal distress and are completed using suffocation. The sharpest increase in external circumstances appears to be temporally related to the worst years of the Great Recession, consistent with other work showing a link between deteriorating economic conditions and suicide.

What’s the old adage, an ounce of prevention is worth a pound of cure? Well, in this case, preventing neonatal deaths and middle-aged suicides should start with eliminating capitalism.

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By his own account, Yanis Varoufakis is an “erratic Marxist.” He’s also, it appears, a committed critic of postmodernism.

In my previous discussion of Varoufakis’s interpretation of Marxism, I deliberately avoided mentioning his “pot shot” at postmodernism:

A Greek or a Portuguese or an Italian exit from the eurozone would soon lead to a fragmentation of European capitalism, yielding a seriously recessionary surplus region east of the Rhine and north of the Alps, while the rest of Europe is would be in the grip of vicious stagflation. Who do you think would benefit from this development? A progressive left, that will rise Phoenix-like from the ashes of Europe’s public institutions? Or the Golden Dawn Nazis, the assorted neofascists, the xenophobes and the spivs? I have absolutely no doubt as to which of the two will do best from a disintegration of the eurozone.

I, for one, am not prepared to blow fresh wind into the sails of this postmodern version of the 1930s.

But, as friends reminded me, I had forgotten (or repressed?) Varoufakis’s earlier attack on postmodernism, which he delivered in two reviews (or two versions of a review) of a book on postmodernism and economics.

As it turns out, I had a hand in the book in question, Postmodernism, Economics, and Knowledgewhich I edited with two close friends and comrades: Jack Amariglio and Stephen Cullenberg.

In the longer version of the review, which appeared in 2002 in the Journal of Economic Methodology [unfortunately gated], Varoufakis was actually quite complimentary about at least some aspects of the book.

Anyone interested in the postmodern stirrings of economic discourse should turn immediately to Post-Modernism, Economics and Knowledge, edited by S. Cullenberg, J. Amariglio and D. Ruccio (Routledge 2001). It explicates Postmodernity’s various strands succinctly and with sensitivity to the large retinue of meanings that the postmodern condition has acquired over the years. It comprises twenty-two taut, well-crafted chapters categorised in seven distinct parts blending nicely into one another. Of the contributors most are economists, albeit of a somewhat iconoclastic disposition, while three philosophers, one English professor and one anthropologist combine forces with them to offer the reader a delightful mixture of perspectives. Perhaps the book’s greatest asset is its clear, thoughtful introduction that gives the whole edifice its integrity, restrains the wayward tendencies of some contributors and whets the reader’s appetite.

But then, in the rest of the review, and especially in the shorter version published in The Post-Autistic Economics Review, Varoufakis spends most of his time attacking postmodernism, presumably to warn off “young dissidents” who are or might be attracted to the idea (“the task of the PAE movement must be to clear the way for radical criticism that avoids the postmodern trap as resolutely as it opposes economic autism”). His basic argument is that the postmodern critique of mainstream economics is doomed to failure, by first being absorbed into mainstream economics and then strengthening it (“Postmodernity unwittingly blows fresh wind in the sails of neoclassicism, the undisputed champion of the deconstructed human agent. While warning us correctly that new authoritarianisms will be born when we get caught up in our own rhetoric, it offers no resistance to the current authoritarianism of neoclassical economics and, more so, the socio-economic system that it serves”), supplemented by the all-too-common allusion that postmodernism is the easy way out (“the postmodern turn will be chosen by pseudo-dissidents whose prime interests lie in acquiring a chic image”).

And the alternative? Varoufakis proposes “an historically grounded understanding of how systematic patterns of power and economics are the joint products of the continual feedback between technological developments and evolving social formations” guided by “an unbending commitment to a rational transformation of society.”

Now, in the reminder of this comment I don’t want to offer a defense of our project of postmodern criticism (developed in that book or in other volumes, such as Postmodern Materialism and the Future of Marxist Theory and Postmodern Moments in Modern Economics). Suffice it to say, given our work on the journal Rethinking Marxism and our other Marxist associations, we’ve never been particularly sympathetic either to neoclassical economics or to capitalism. On the contrary.

What interests me more, given the current crises of capitalism and the predicament of the Left (whether in Greece, Spain, or the United States), are the terms with which we can formulate our critique. Varoufakis sees (or at least saw) a strict dichotomy: postmodern fragmentation or rational transformation. For me, there is no such dichotomy, at least if we allow that rationality is itself a contradictory discursive and social construction. If so, then the battle is between different rationalities, which of course have very different effects.

One rationality, embodied as much in the troika’s formula of austerity for Greece as in the lopsided economy recovery in the United States, is captured by neoclassical economics: everybody gets what they deserve, as long as free markets are unleashed on the world. The other rationality starts with the proposition that everyone should get what they deserve but they don’t—and can’t—within existing economic institutions. Those institutions—capitalist institutions—make “just deserts” impossible.

That idea, that there’s a clash of rationalities within the world today, is precisely an effect of the postmodern questioning of metanarratives. Postmodernism, in this sense, represents a critique of a singular (humanist) rationality, just as it serves to undermine the neoclassical claim of a monopoly on scientific knowledge (indeed, the scientism that animates much of economic theory, mainstream as well as heterodox), the presumption of causal hierarchies within economic analysis (again, both mainstream and heterodox), and much else.

My point is not to simply reverse Varoufakis’s claims, for example, by asserting that fragmentation, irrationality, disunity, and so on are necessarily progressive and that esssentialism, rationality, and unity are necessarily regressive. None of those moves is necessarily one or another, outside of a particular historical conjuncture.

And that’s the point, isn’t it? The effects of the moves that we make, the demands we hold up, the criticisms we formulate depend on a specific context, on what is taken to be the existing common sense and how best to disrupt that common sense. The fact is, modernism (at least in economics) has long been associated with a humanist, universal, scientistic set of claims, and part of the task of carrying out a ruthless criticism of mainstream economics is to challenge and deconstruct those claims (including the idea that such claims are even possible).

Is that all? No, of course not. In my view, the postmodern critique of mainstream economics needs to be supplemented by a Marxist critique. But, I want to be clear, it also goes in the other direction: that Marxist critique (traditionally formulated in terms of “laws of motion,” a hierarchy of base and superstructure, and so on) needs to be supplemented by postmodernism.

In the end, the Varoufakises of the world may disagree. However, what I believe we can come to some agreement on is the need to continue to criticize “the inexorable devaluation of political goods, the vulgar commodification of human bodies and values, the impossibility of conceptualising freedom-from-the-market, the depiction of Central Banks as ‘independent’ only when under the thumb of financial capital, the confusion of liberty with the freedom to exploit and to demean and, above all else, the portrayal of coercion as tâtonnement.”

In my view, both postmodernism and Marxism, each in their different ways, play useful roles in carrying out that critique.