Posts Tagged ‘economics’

41GDU+UlrQL._SY344_BO1,204,203,200_ culture

For most mainstream economists, culture is either a commodity like any other (and therefore subject to the same kind of supply-and-demand analysis) or a reminder term (e.g., to explain different levels of economic development, when all the usual explanations—based on preferences, technology, and endowments—have failed).

For Raymond Williams [ht: ja], culture was something very different.

Williams makes it clear early on that if he could pick only one term to investigate, it would be “culture.” The word comes from the Latin verb colere and originally meant “to cultivate,” in the sense of tending farmland. A “noun of process,” it gradually expanded to include human development, and by the late 18th century, people commonly used “culture” to mean how we cultivate ourselves. Following the Industrial Revolution, however, the word took on a new emphasis: It came to mean both an entire way of life (as in “folk” or “Japanese” culture) and a realm of aesthetic or intellectual activity that stood apart from, or above, the everyday (basically, what people parody when they say “culchah”). Over several hundred pages, Williams shows how dozens of writers developed these senses of “culture” in order to explain, and manage, the changes remaking British society in the 19th century—from rapid industrialization to the new markets it created for literature, and from land enclosure to overseas colonization.

Williams (along with, of course, many others, including Stuart Hall and Edward Said) redefined the meaning of culture, which provided “a record of change, and of the clashes of interest that drive that change.” Williams and the other “cultural materialists” of the time challenged both traditional humanities scholarship (which sought to identify and cultivate the elitist “finer values”) and traditional Marxism (according to which culture either reflected the “economic base” or, in its mass commodified form, forced workers to accept capitalist values).

Implicitly, Williams and the others also challenged mainstream economists’ version of culture, by emphasizing the idea that culture both registers the clashes of interest in society (culture represents, therefore, not just objects but the struggles over meaning within society) and stamps its mark on those interests and clashes (and in this sense is “performative,” since it modifies and changes those meanings).

That’s the approach I took in my presentation last year in my talk on “Culture Beyond Capitalism” in the opening session of the 18th International Conference on Cultural Economics, sponsored by the Association for Cultural Economics International, at the University of Quebec in Montreal.

The basic idea is that culture offers to us a series of images and stories—audio and visual, printed and painted—that point the way toward alternative ways of thinking about and organizing economic and social life. That give us a glimpse of how things might be different from what they are. Much more so than mainstream academic economics has been interested in or able to do, even after the spectacular debacle of the most recent economic crisis, and even now in the midst of what I have to come the Second Great Depression.

And it was in honor of Williams that I accepted the invitation to write the entry on “Capitalism” for Keywords for American Cultural Studies, and later, with Maliha Safri, to launch the Keywords series in the journal Rethinking Marxism.

economist-naked

I’m taking nominations for the best examples of dismal economic scientists.

While I wait for your suggestions, I’m going to offer two of my own nominations: Tyler Cowen and Paul Romer.

I am nominating Cowen because, in his argument that the economy probably needs a “reset,” he only focuses on lowering workers’ wages. First, he makes no mention of resetting corporate profits or the incomes of those at the very top, as if what they manage to capture were completely off limits. All the adjustment in the new, “grimmer future” will be born by those at the bottom. Second, he completely overlooks the mechanisms of his own economic theory: if lower rates of economic growth are the product of lower rates of growth of available workers (a key factor in the theory of secular stagnation), then the relative scarcity of workers should mean higher—not lower—wages. In other words, Cowen is determined to make sure all the costs of the new, slower-growing economy will be born by shifted onto those who can least afford it. For that reason, I nominate Cowen for the title of dismal economist.

I also want to nominate Romer, who continues to double down on his “mathiness” argument, by asserting (against all the work that has taken place in the philosophy of science in recent decades) that (a) there’s a single truth, (b) that truth can only be obtained via science, and (c) mathematical modeling is the singular method for making progress in science to obtain truth. There are so many things wrong with each of those assertions it’s hard to know where to begin. And I won’t, at least right now. Let me just say Romer deserves his nomination as one of the most dismal economists because of the extraordinary arrogance, pretentiousness, and ignorance of the following statements:

About math:. . .I’ve seen clear evidence that math can facilitate scientific progress toward the truth.

If you think that math is worthless or dangerous, I’m sure that there are people who will be happy to discuss this with you. I’m not interested. I’m busy.

About truth and science: My fundamental premise is that there is an objective notion of truth and that science can help us make progress toward truth.

If you do not accept this premise, I’m sure that there are people who would be happy to debate it with you. I’m not interested. I’m busy.

And please do not write to tell me that science is a social process or that the progress it makes toward the truth can be irregular. I know.

Me, I’m not too busy to discuss either the fundamental injustices of contemporary capitalism or the often-worthless and dangerous role mathematics, truth, and science have played and continue to play in the discipline of economics.

I’m also not too busy to post additional nominations for dismal economists.

ECON23 ECON25

We know (e.g., as a result of the 2013 Pew Research Center survey) that most people in the world believe that current economic arrangements favor the well-off and that economic inequality is a very big problem.*

And they’re right: the economy system in most countries is fundamentally unfair (favoring those at the top over everyone else) and that, as a result, the gap (between those at the top and everyone else) is a problem that needs to be solved—if not within the current economy system, then in a different one.

But we also know, since at least the pioneering study by Dan Ariely and Michael I. Norton, that people’s beliefs about inequality are quite different from actual levels of inequality. That notion is confirmed by a new study, by Vladimir Gimpelson and Daniel Treisman, “Misperceiving Inequality.” What they show is that, on a wide variety of measures (of income and wealth inequality, poverty, earnings for different jobs, and so on), what people think they know is often wrong. Perhaps even more important, they show that the perceived level of inequality—and not the actual level—correlates strongly with demand for redistribution and reported conflict between rich and poor.

Why should this matter? Because representations of the economy that minimize the existence of inequality or the problems associated with inequality are bound to reinforce the systematic misperceptions found by researchers.

That’s exactly what much mainstream economics accomplishes. It deflects attention from the existence of inequality (e.g., by focusing on growth versus distribution) and from the economic and social problems created by inequality (by attributing inequality to forces like globalization and technological change beyond our control or invoking more education as the solution).

Mainstream economics therefore forms part of what Gimpelson and Treisman refers to as “ideology,” “which may predispose people to ‘see’ the level of inequality that their beliefs and values convince them must exist.” And the strength of mainstream economics in the United States—in colleges and universities as well as in the media, think tanks, and in government—is one of the main reasons Americans, more than citizens in other countries, tend not to believe in inequality.

*Specifically, the public in advanced (median of 74 percent), emerging (70 percent) and developing (70 percent) economies are mostly in agreement that the current economic system generally favors the wealthy and is not fair to most people in their country. And, in 31 of the 39 countries surveyed, half or more of the population believe that the gap between the rich and the poor is a very big problem in their societies.

Is Dan Price [ht:sm], the founder and CEO of Gravity Payments who raised the salaries of his employees and slashed his own pay, a socialist hero?

Well, no. Not really. Price certainly doesn’t think so. And, in the end, he—not Gravity’s employees as a group—is the one who decided what the new pay scheme would look like. He is the one who took the decision to distribute some of the surplus produced by his workers back to them in the form of higher wages and to take a smaller amount of that surplus in his compensation.

But I do like the fact that the two KTVB interviewers, Dee Sarton and Carolyn Holly, are clearly taken with Dan Price and his decision—which presumably stand in sharp contrast to all the other CEOs they’ve been forced to interview over the years.

Even more, Price’s decision proves once again (as I argued back in 2013) that “capitalists do lots of different things.”

They do make profits (at least sometimes, but over what timeframe are they supposedly maximizing those profits?). But they don’t follow any single rule. They also seek to grow their enterprises and destroy the competition and maintain good public relations and buy government officials and reward their CEOs and squeeze workers and lower costs and build factories that collapse and. . .well, you get the idea. In other words, they appropriate and distribute surplus-value in all kinds of ways depending on the particular conditions and struggles that take place over the shape and direction of their enterprises.

So, I’m not prepared to celebrate Price as a “good capitalist,” as against all the “bad capitalists” who are choosing to increase the gap between average workers’ pay and the enormous payments to CEOs.

My point is a actually somewhat different: first, that capitalists—whether in Columbus or Seattle—do lots of different things, and presuming they follow a simple rule (whether profit-maximization as in the usual neoclassical story, or the accumulation of capital in many heterodox stories) means missing out on the complex, contradictory dynamics of capitalist enterprises; and second, that other kinds of enterprises (in which workers themselves make the decisions about how the surplus is appropriated and distributed) would do even more, on a wider scale, to transform the dynamics of the distribution of income and wealth in the U.S. economy.

Les-femmes-dAlger-daprès-Delacroix-XV-Paris-14-Fevrier-1955-huile-sur-toile114-x-146-cm-collection-privée-Europe

Neoclassical economists don’t have a lot to say about the value of art. Basically, they start from the proposition that a work of art, such as Picasso’s “Les femmes d’Alger (Version ‘O’),” is often considered to have two different values: an aesthetic or cultural value (its cultural worth or significance) and a price or exchange-value (the amount of money a work of art fetches on the market). They then demonstrate that, within free markets, individual choices ensure that the price of art generally captures or represents all of the various dimensions of value attributable to the work of art, rendering the need for a separate concept of aesthetic or cultural value redundant. Therefore, on their view, Picasso’s painting is “worth” the record auction price of $179.37 million.*

But the Wall Street Journal (gated) observes that yesterday’s sale of other paintings—including Mark Rothko’s “Untitled (Yellow and Blue)”—reveals something else:

Some paintings act like object lessons in tracking the global migration of wealth, bouncing from one owner to the next in timely turns. Such was the case Tuesday when Sotheby’s sold a $46.5 million Mark Rothko abstract that previously belonged to U.S. banker Paul Mellon and later to French luxury executive François Pinault.

All night long, Sotheby’s sale demonstrated the power that the younger, international set is wielding over the art market, pushing up brand-name artists and newcomers alike. Bidders from more than 40 countries raised their paddles at some point during Sotheby’s $379.7 million sale of contemporary art, and the house said bidding proved particularly strong from collectors in Asia and across Latin America.

Clearly, the ever-expanding bubble in high-end art is predicated on the extraordinary amount of surplus that is being captured by a tiny number of individuals at the very top of the world’s distribution of income and their willingness to spend a portion of it on “vanity capital.”

As Neil Irwin explains,

Let’s assume, for a minute, that no one would spend more than 1 percent of his total net worth on a single painting. By that reckoning, the buyer of Picasso’s 1955 “Les Femmes d’Alger (Version O)” would need to have at least $17.9 billion in total wealth. That would imply, based on the Forbes Billionaires list, that there are exactly 50 plausible buyers of the painting worldwide.

This is meant to be illustrative, not literal. Some people are willing to spend more than 1 percent of their wealth on a painting; the casino magnate Steve Wynn told Bloomberg he bid $125 million on the Picasso this week, which amounts to 3.7 percent of his estimated net worth. The Forbes list may also have inaccuracies or be missing ultra-wealthy families that have succeeded in keeping their holdings secret.

But this crude metric does show how much the pool of potential mega-wealthy art buyers has increased since, for example, the last time this particular Picasso was auctioned, in 1997.

After adjusting for inflation and using our 1 percent of net worth premise, a person would have needed $12.3 billion of wealth in 1997 dollars to afford the painting. Look to the Forbes list for that year, and only a dozen families worldwide cleared that bar.

In other words, the number of people who, by this metric, could easily afford to pay $179 million for a Picasso has increased more than fourfold since the painting was last on the market. That helps explain the actual price the painting sold for in 1997: a mere $31.9 million, which in inflation-adjusted terms is $46.7 million. There were, quite simply, fewer people in the stratosphere of wealth who could bid against one another to get the price up to its 2015 level.

More people with more money bidding on a more or less fixed supply of something can only drive the price upward. On Monday, the auction was for fine art. But the same dynamic applies for prime real estate in central London or overlooking Central Park, or for bottles of 1982 Bordeaux.

The pool of “potential mega-wealthy art buyers” has indeed expanded but it’s still a infinitesimal fraction of the world’s population. Still, it’s enough to set record prices in recent art auctions, which (along with real-estate and fine-wine markets) thereby serves as a window on the grotesque levels of economic inequality we are witnessing in the world today.

But there’s another aspect of the Wall Street Journal story (and of many other articles I’ve read about recent art auctions) that deserves attention: the worry that the highly unequal distribution of income and wealth is migrating out of the West—to the East (especially China) and the Global South (particularly Latin America). It’s a worry that the cultural patrimony of the West is being exported (or, if you prefer, re-exported, after centuries of plunder of the empire’s hinterland) as the surplus being generated within the world economy is increasingly being captured by individuals outside the West.

I wonder, then, if this worry (about the migration of wealth and art) will ultimately be reflected in Western neoclassical economists’ long-held celebration of free markets—and if will there be a new round of preoccupation about the differences between market and aesthetic values, as the demands of new buyers from outside the West succeed in determining ever-higher prices for the art (and utilizing the surplus) the West has long claimed as its own.

*For other mainstream economists, if art’s cultural value is not adequately represented by its exchange-value (because, for example, art has “positive externalities,” that is, benefits to society beyond what is captured in the market price), then there is room for public subvention of art and of artists. And that ends up determining the limits of debate within mainstream economics: the neoclassical view of free private art markets (when the two values are the same) versus the alternative view in favor of public support for the arts (if and when they are not).

My long-time friend Stephen T. Ziliak is doing great things with students at Roosevelt University, including teaching an introduction to economics based on the Grapes of Wrath and Theories of Justice, whence the video above.

Here is an excerpt from the lyrics:

Readin’ Greg Mankiw,
Queue the conservative man’s view
Supply, demand, invisible hand too
Following these Ten Commandments he hands to you
Hey kids, you understand what Econ really can do?
These ain’t the pearly gates, Mr. Mankiw
Just preachin’ on profit and Max U
But where’s the vertical mobility?
Masses are enslaved in poverty
Millions for your fat pockets see
This poverty of nations ain’t so efficient
Mainstream economists are mentally deficient
Monotonous lectures despite student resistance
What works on the Blackboard but not with existence
Your crackpot theories plot all the wrong axes
If you are the state we-Uber-killin’ all your taxis

place

The neighborhood you grow up in matters. A great deal. Especially in a highly unequal society like the United States.

Just consider the chart above [ht: ja]. It shows that poor kids (at or below the 25th percentile) who grow up in Baltimore City county—where Freddie Gray was killed—will make, on average, nearly $3,500 less than the national average.

Cook-25 Cook-99

The same is true across the country, including Cook County, Illinois. There (as shown in the chart on the left), a child in a poor family would make $3480—or 13 percent—less at age 26 compared to poor families nationwide (and they’d be much better off if they were raised in DuPage county). By the same token (according to the chart on the right), if a child in the top 1 percent were to grow up in that same county, they would make $1290 more at age 26 compared with children in families in the top 1 percent elsewhere in the country (but they’d do even better in Kankakee county).

That’s what we’ve learned from the new study by Raj Chetty and Nathaniel Hendren. Neighborhood matters. A great deal. Especially in a highly unequal society like the United States.

Bushnell_Social-Aspects_map-7

source

But, in all honesty, we’ve known that neighborhood matters for a long time. Since at least 1901-02, when Charles J. Bushnell published his pioneering study of the Stock Yards neighborhood in the American Journal of Sociology (as if to confirm Justin Wolfers’s observation that “sociologists have typically been quicker than economists to embrace the idea that neighborhoods are important”). Which, remember, was the same neighborhood (referred to as Back of the Yards) Upton Sinclair wrote about in The Jungle.

Bushnell’s analysis was particularly compelling because he compared two neighborhoods that butted up against one another on the south side of Chicago: Back of the Yards and Hyde Park (where the University of Chicago is located). What he showed, for example, is that in 1897, 70 per cent of the families in economic distress were found in 27 per cent of the territory, while in 1900 92.5 per cent of the distress was found in 27 per cent of the territory—and that the territory referred to was located wholly within the Stock Yard district. The difference between the two neighborhoods could not have been more stark.

But, Bushnell also observed,

it is significant to note the fact, indicative of the vaguely apprehended and poorly organized conditions of life in our large cities, that the very community which is thus helping to support the agency which is trying to rescue the people of the Stock Yard district from the effects of their bad sanitary and economic conditions, is at the same time, perhaps without recognizing the fault, sending its garbage over into the Stock Yard district to make its sanitary and economic conditions worse.

It is not just that conditions and outcomes were different in the two neighborhoods; the poor conditions in the Stock Yard district were caused, at least in part, by the fact that the residents of Hyde Park were using the Stock Yard district as their dumping ground.

And that’s the lesson we learned then but seem to have forgotten now: not only that neighborhood matters, but also that—”perhaps without recognizing the fault”—we continue to create and treat our poorest neighborhoods as both a source of enormous wealth and a dumping ground for the detritus of the tiny minority who manage to live elsewhere.

In other words, the solution to the slim prospects of children in poor neighborhoods is not to somehow encourage their families to move into better neighborhoods. What we have to do, as a society, is eliminate the very fact that neighborhood matters—in Baltimore, Chicago, and elsewhere—by transforming the economy that creates such unequal neighborhoods in the first place.