Posts Tagged ‘economics’

Mainstream economists argue that time makes money. According to the Austrians, production takes time, because of “roundabout” methods, which creates the additional value that flows to capital. Neoclassical economists have a different theory: the return to capital is the reward for savings created by time-deferred consumption. However, in both cases, time is the basis of the value that is captured as profits.*

In Cosmopolis, the 2003 novel by Don DeLillo (adapted for the cinema by David Cronenberg in 2012), Erik Packer’s “chief of theory,” Vija Kinski, explains they have it backwards:

“Money makes time. It used to be the other way around. Clock time accelerated the rise of capitalism. People stopped thinking about eternity. They began to concentrate on hours, measurable hours, man-hours, using labor more efficiently.”. . .

“Because time is a corporate asset now. It belongs to the free market system. The present is harder to find. It is being sucked out of the world to make way for the future of uncontrolled markets and huge investment potential. The future becomes insistent. This is why something will happen soon, maybe today,” she said, looking slyly into her hands. “To correct the acceleration of time. Bring nature back to normal, more or less.”

DeLillo (via Kinski), as it turns out, is right—at least when it comes to healthcare in the United States.

According to a series of reports in the most recent issue of the British medical journal The Lancet (confirming the results of a study I wrote about last year), increasing inequality means wealthy Americans can now expect to live up to 15 years longer than their poor counterparts.

As economic inequality in the USA has deepened, so too has inequality in health. Almost every chronic condition, from stroke to heart disease and arthritis, follows a predictable pattern of rising prevalence with declining income. The life expectancy gap between rich and poor Americans has been widening since the 1970s, with the difference between the richest and poorest 1% now standing at 10.1 years for women and 14.6 years for men.

The obscenely unequal distribution of income and wealth in the United States is responsible for increasingly unequal health outcomes.**

In addition, both structural racism (the “systematic and interconnected web of institutions and factors that lead to adverse health outcomes”) and mass incarceration (on prisoners, their families, and their communities), according to two other studies, exacerbate class-based health inequalities.

While the authors of one of the studies argue that “the health-care system could soften the effects of economic inequality by delivering high-quality care to all,” they conclude that the U.S. system falls “far short of this ideal.” That’s because disparities in access to care—based on income, race, and unequal rates of imprisonment—are far wider in the United States than in other wealthy countries.

Moreover, according to another study, even after the Affordable Care Act’s coverage expansion, twenty-seven million Americans remain uninsured and, even for many with insurance, access to affordable care remains elusive. At the same time, unneeded and even harmful medical interventions remain common (due, in part, to the fragmented health-care delivery system), corporate administration consumes nearly a third of health spending, and wealthy Americans consume a disproportionate and rising share of medical resources.

Thus, the editors of the series conclude,

Although a Series about health published in a medical journal may seem far removed from the political arena where much of the decision making about how to address these factors lies, the message of this collection of papers transcends that distance. . .it is no radical statement to say that Americans deserve better and, most importantly, the time for action has arrived.

It is time, in other words, to make the necessary changes so that money is available to provide decent healthcare for all Americans.

 

*One neoclassical economist, the late Nobel laureate Kenneth Arrow (pdf), did have the intellectual honesty to admit that the absence of future markets represented a severe shortcoming of capitalism, a coordination failure, and supported the case for a socialist economy.

**The authors also note that the medical system in the United States itself influences inequality, as an employer of nearly 17 million Americans. Although physicians and nurses are generally well paid, many other health-care workers are not:

The health-care system employs more than 20% of all black female workers; more than a quarter of these health-care workers subsist on family incomes below 150% of the poverty line, and 12.9% of them are uninsured.

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Back in 2003, in Postmodern Moments in Modern Economics, Jack Amariglio and I set out to identify and unsettle some of the key binaries that structure the work of modern economists. Vijay Prashad [ht: ja] has just done something similar with respect to conceptions of modern violence.

Our view, in a nutshell, was that many approaches to modern economics, however different they might be in terms of methods and conclusions, shared certain foundational axes—especially binary oppositions concerning stability, rationality, and order. Thus, for example, neoclassical economists tell a story about the emergence of order from disorder via the “invisible hand.”

Drawing upon Adam Smith as the original source, neoclassical economists begin with the premise that civil society, rather than being governed by an overarching religious authority or state, is fractured into a plethora of individuated and competing human atoms who take actions on their own behalf without knowing in advance either the actions of others or, for that matter, the potential consequences of their own actions. Then, the apparent chaos that is suggested by the interaction of the teeming mass of individual actors is shown to converge toward a well ordered, “general equilibrium” solution—in which social welfare is maximized—by virtue of decentralized markets. Thus, the modernist paradox is solved by showing that (a) economic coordination can be achieved (market transactions are mostly orderly processes) as the outcome of (b) the unintended (or not-necessarily intended) actions of self-interested, rational agents. Thus, the initial premise of apparent anarchy or disorder is overcome by the order that is taken to be both an essential attribute and the necessary effect of market processes. The unfolding of this story gives rise to the characteristic optimism and progressivism—the utopian vision—of mainstream economic modernism since it confirms post-Enlightenment beliefs in the efficacy and social beneficence of rationally directed, free, and individual choice.

Marxian economists are, of course, quite critical of the neoclassical story. They consider the story to be a pure fiction: capitalism cannot possibly achieve the harmonious coordination or produce the socially beneficial outcomes foretold by most mainstream economists. As it turns out, however, the contrast between order and disorder contained within the neoclassical master narrative also helps to constitute much of the alternative Marxian crisis theory. Thus, Marxists have often reduced the difference between capitalism and socialism to the choice between one system (capitalism) characterized by instability, irrationality, and disorder and the other (socialism) defined by stability, rationality, and order. We find these tensions played out in a variety of ways in the Marxian tradition—in the differentiations and oppositions between production and circulation, the conception of competition, the opposition of markets and planning, and the role of subjectivity—with dubious theoretical and political effects.

According to Prashad, the asymmetry of Western media’s reporting on recent acts of violence—including, hours apart, Khalid Masood’s attack in London and the U.S. bombing of the al-Badia school in the Syrian town of Raqqa—is a reminder that a series of binaries “operate to blind thinking about violence in the world.”

Our days have become hallucinations, with violence always at the edge of consciousness. But violence is understood through these binaries in ways that befuddle those who believe in a universal humanity, those who believe—in concrete terms—that people in Kabul deserve empathy and sympathy as much as people in Berlin. In fact, the scale of the violence in Kabul is so much greater than in Berlin that you would imagine greater sympathy for those in far more distress. But actually the logic of these binaries moves consciousness in the opposite direction.

Here are some of binary oppositions identified by Prashad:

Eastern Malevolence / Western Benevolence

There is standard belief amongst reporters—for example—that Western actions are motivated by the highest values and are therefore benevolent. The loftiest values of our time—democracy and human rights—are sequestered inside the concept of the West. The East—bedraggled—is treated as a place without these values. It is bereft, a bad student. There is what Aimé Césaire calls “shy racism,” for it suggests that Easterners cannot be given the benefit of doubt when they act, or that Westerners could not also be malevolent in their objectives. The way this logic runs it is the Eastern bombing of Syria’s Aleppo, conducted by the Oriental despot Bashar al-Asad, that is inhumane, while it is the Western bombing of Iraq’s Mosul (250 to 370 civilians killed in the first week of March) that is humane. It would pierce the armor of Western self-regard to admit that its armed forces could—without sentiment of care—bomb mosques and schoolhouses.

State Legality / Non-State Illegality

States do not normally act outside the confines of international law. If they do, then it is in error. Or there are some states that are not proper states, but “rogue states” that do not behave according to the principles of civilization. Normal states, not rogue states, the logic of shy racism goes, never intentionally violate the laws of war and behave in a barbaric way. Their acts of murder are always unintentional because it would be too costly for them to intentionally murder civilians.

Violence to Heal / Violence to Hurt

When the US military conducted its massive bombing run against Iraq in March 2003 under the name “Shock and Awe,” it was considered to be in the service of human rights and security. But the language used by its architects was genocidal. . .

The violence of the Iraqi insurgency, on the other hand, was immediately considered to be violence intended to hurt, to create problems not only for the United States, but for Iraq itself. The violence of the West is prophylactic, while the violence of the East is destructive.

Precious Life / Disposable Life

When news broke of the failed US raid on the village of al-Jineh (Yemen), the Western media concentrated on the death of Ryan Owens who was a Seal Team 6 member. There was a great deal of discussion on his death and little mention of the civilians who were killed by Owens’ comrades in that raid. If they were mentioned it was as a number: twenty-eight or thirty. There were no names in the stories, no way to make these people into human beings. Nothing about Mohammad Khaled Orabi (age 14), Hasan Omar Orabi (age 10), Ahmad Nouri Issa (age 23), Mustapha Nashat Said al-Sheikh (age 23), Ali Mustapha (age 17), Abd al Rahman Hasim (age 17), and not even Nawar al-Awlaki (age 8) whose father and brother had been killed in earlier raids. No mention of the names of the forty-two Somali refugees gunned down by a Saudi helicopter gunship, a weapons system provided by the United States. To offer these names would be to give these people humanity.

Legible Narrative / Illegible Narrative

It would be an illogical narrative to suggest that Western generals want to raze cities. That is not their motivation. When the US flattened Fallujah (Iraq) in 2004, under the command of then Major General James Mattis of the 1st Marine Division, this was not the intent. That the use of Depleted Uranium led to cancer rates fourteen times higher than in Hiroshima (Japan) after the atom bomb was dropped there was incidental, not deliberative. It is impossible to imagine an American, for instance, being cruel in military strategy. On the other hand, it is easy to imagine a Syrian general, such as General Issam Zahreddine, being systematically vicious. It is not possible to see both as ferocious. It would be an illegible narrative if these two stories were set side by side. One is so obviously a better man (Mattis) than the other (Zahreddine). The character of the man of the West always surmounts the character of the man of the East.

Prashad’s point is that the distinctions created in and through these binary oppositions serve to erect and naturalize a set of differences—for example, between terrorism and counter-terrorism—that see an Enlightenment logic behind all Western states’ acts of violence and something else, the motivations emanating from some “darker world,” behind al-Qa’ida and other such forces.

To break down the distinctions between them represents, as in the case of the binaries that structure modern economics, “a scandal against civilization itself.”

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I’m often asked—by students and readers of this blog—why I include Keynesian economics, alongside neoclassical economics, within mainstream economic theory.

The major reason I do so is because the mainstream debate within the discipline of economics is mostly confined within limits defined by neoclassical economics and Keynesian economics—between (as I explained last year), the conservative invisible hand of free markets and the more liberal visible hand of government intervention.

It’s basically what most students of economics are exposed to their in their micro and macro courses:

At the microeconomic level, capitalism (or, as liberals generally refer to it, the market system) has the potential of achieving an efficient allocation of resources. As for the macroeconomy, capitalism is capable of providing stable growth and full employment. Capitalism, therefore, promises the best possible outcomes both for individuals and for the economy as a whole.

Now, while conservative mainstream economists believe that efficiency, growth, and full employment stem from allowing markets to operate freely, liberal mainstream economists argue that markets are often imperfect and therefore the only way to achieve (or at least approximate) those goals is to intervene in and regulate markets. Those are the terms of the mainstream debate in economics, from the origins of modern economic discourse in the late-eighteenth century right on down to the present.

Keynesian economics was, of course, born as a critique of neoclassical economics, in the midst of the First Great Depression, when the allocation of resources was anything but efficient and capitalism provided neither stable growth nor full employment. Far from it!

Keynes introduced new ideas into economic discourse, emphasizing the role of economic and social structures (such as collective bargaining and, from later Keynesians, imperfect competition), mass psychology (especially with respect to investors and stock-market speculators), and fundamental uncertainty (it was impossible to make rational decisions in the face of an unknown—and unknowable—future).

However, as recent essays by Michael Roberts and Chris Dillow remind us, Keynesian economics has severe shortcomings.

While I think Roberts begins by overstating his case (I, for one, am not convinced that “Keynes is the economic hero of those wanting to change the world”), he does convincingly argue that Keynes’s economic prescriptions are based on a fallacy:

The long depression continues not because there is too much capital keeping down the return (‘marginal efficiency’) of capital relative to the rate of interest on money.  There is not too much investment (business investment rates are low) and interest rates are near zero or even negative. The long depression is the result of too low profitability and so not enough investment, thus keeping down productivity growth.  Low real wages and low productivity are the cost of ‘full employment’, contrary to all the ideas of Keynesian economics.  Too much investment has not caused low profitability, but low profitability has caused too little investment.

Dillow, for his part, explains that Keynes “was largely silent about three related issues: class, power and profits, or least he dismissed them lightly.” In a sense, then,

Keynesianism was profoundly conservative. In believing that technocratic governments could provide workers with decent wages and full employment, Keynesianism did away with the need for industrial democracy: one of the achievements of Keynes was to eclipse movements such as guild socialism. It wasn’t Keynes himself who said “the man in Whitehall knows best” but one of his disciples, Douglas Jay – and that encapsulated a key part of Keynesian ideology, its belief in top-down management.

Populism, of course, is a backlash against just this. That slogan “take back control” and the dismissal of experts represent a rejection of Keynesianism; the baby of decent macroeconomic policy is being thrown out with the bathwater of elitism. It’s far from clear that Keynesianism has the intellectual or political resources to fight back.

In my view, neither neoclassical nor Keynesian economics turns out to have the intellectual or political resources to effectively respond to the issues that motivate and resonate within contemporary populism. If anything, they have served to create the problems that have brought right-wing nationalist populism to the fore.

For good reason, both wings of mainstream economics have ceased to be persuasive.

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Those of us of a certain age remember the right-wing political slogan, “America, love it or leave it.” I’ve seen it credited to journalist Walter Winchell, who used it in his defense of Joseph McCarthy’s anti-communist witch hunt. But it’s heyday was in the 1960s, against the participants in the antiwar movement in the United States and (in translation, ame-o ou deixe-o) in the early 1970s, by supporters of the Brazilian military dictatorship.*

I couldn’t help but be reminded of that slogan in reading the recent exchange between the anonymous author of Unlearning Economics and Simon Wren-Lewis (to which Brad DeLong has chimed in, on Wren-Lewis’s side).

Unlearning Economics puts forward an argument I’ve made many times on this blog (as, of course, have many others), that mainstream economics deserves at least some of the blame for the spectacular crash of 2007-08 (and, I would add, the uneven nature of the recovery since then).

the absence of things like power, exploitation, poverty, inequality, conflict, and disaster in most mainstream models — centred as they are around a norm of well-functioning markets, and focused on banal criteria like prices, output and efficiency — tends to anodise the subject matter. In practice, this vision of the economy detracts attention from important social issues and can even serve to conceal outright abuses. The result is that in practice, the influence of economics has often been more regressive than progressive.

Therefore, Unlearning Economics argues, a more progressive move is to challenge the “rhetorical power” of mainstream economics and broaden the debate, by focusing on the human impact of economic theories and policies.

Who could possibly disagree?

Well, Wren-Lewis, for one (and DeLong, for another). His view is that the only task—the only progressive task—is to criticize mainstream economics on its own terms. Even more, he argues that we need mainstream economics, because there should only be one economic theory, on which everyone can and should agree.

Now imagine what would happen if there was no mainstream. Instead we had different schools of thought, each with their own models and favoured policies. There would be schools of thought that said austerity was bad, but there would be schools that said the opposite. I cannot see how that strengthens the argument against austerity, but I can see how it weakens it.

The alternative view is that the discipline of economics has a hegemonic economic discourse (constituted, at least in the postwar period, by an ever-changing combination of neoclassical and Keynesian economics) and a wide variety of other, nonmainstream economic theories (inside the discipline of economics, as well as in other academic disciplines and outside the academy itself). Reducing the critique of austerity (or any other economic policy or strategy) to the issues raised by mainstream economists actually impoverishes the debate.

Sure, there’s a mainstream critique of austerity: cutting government expenditures in the midst of a recession reduces (at least in most cases) the rate of economic growth. But there are also other criticisms, which don’t and simply can’t be formulated by mainstream economists. From a Marxian perspective, for example, austerity (of the sort we’ve seen in recent years in Europe and even to some extent in the United States, not to mention all the other examples, especially as part of IMF-sponsored stabilization and adjustment programs, around the world) often serves to raise the rate of exploitation. Feminist economists, too, have lodged criticisms of austerity, since it often shifts the burden of adjustment onto women. Radicals, for their part, worry about the effects on power relations. And the list goes on.

They’re all different—perhaps overlapping but not necessarily mutually compatible—criticisms of austerity policies. They raise different issues, precisely because they’re inspired by different, mainstream and heterodox, economic theories.

Wren-Lewis, in his response to Unlearning Economics, wants to limit the debate to the terms of mainstream economics, which is the disciplinary equivalent of “love it or leave it.”

 

*There’s also the awful song by Jimmie Helms, recorded by Ernest Tubb:

Trumponomics

Posted: 22 March 2017 in Uncategorized
Tags: , , ,

TRUMPONOMICS

Part 1 of the Real-World Economics Review on the causes and consequences of Trumponomics is now available.

Here is the direct link to my own contribution, “Class and Trumponomics” (pdf).

Part 2, with additional essays on Trumponomics, will be available next week.

And both issues will combined for a book that will be published in late April.

Men Waiting Outside Al Capone Soup Kitchen JNS.FoodGiveaway2

One of the courses I’m offering this semester is A Tale of Two Depressions, cotaught with one of my colleagues, Ben Giamo, from American Studies. It’s a comparison of the conditions and consequences of the two major crises of capitalism during the past hundred years, the 1930s and the period after the crash of 2007-08.*

It just so happens the Guardian is also right now revisiting the 1930s. Readers will find lots of interesting material, from some evocative street photography from the period (including bread lines, hunger marches, and various protests) to classics of political theater (from Bertolt Brecht and Federico García Lorca to John Dos Passos and Clifford Odets).

I’ve been writing about the Second Great Depression, in mostly economic terms, since 2010. For the Guardian, the idea is that the situation then, in the 1930s, offers lessons for us today—partly for economic reasons but, increasingly, given the victory of Donald Trump and the growth of other right-wing populist-nationalist movements in Europe, in political terms.

Larry Elliott focuses on the economics. Unfortunately, he makes the mistake many commit, by starting with the stock-market crash of 1929—which, as it turns out, was the trigger, but not the cause, of the First Great Depression. He does a much better job examining the different responses to the two precipitating crashes (yes, there were lessons were learned, especially in the United States, with the quick bailout of Wall Street), including identifying those who were left out of the post-2009 recovery.

Wage increases have been hard to come by, and the strong desire of governments to reduce budget deficits has resulted in unpopular austerity measures. Not all the lessons of the 1930s have been well learned , and the over-hasty tightening of fiscal policy has slowed growth and caused political alienation among those who feel they are being punished for a crisis they did not create, while the real villains get away scot-free . A familiar refrain in both the referendum on Brexit and the 2016 US presidential election was: there might be a recovery going on, but it’s not happening around here. . .

The winners from the liberal economic system that emerged at the end of the cold war have, like their forebears in the 20s, failed to look out for the losers. A rising tide has not lifted all boats, and those who do not consider themselves the beneficiaries of globalisation have grown weary of hearing how marvellous it is.

The 30s are proof that nothing in economics is inevitable. There was eventually a backlash against the economic orthodoxies and Skidelsky can see why there is another backlash happening today. “Globalisation enables capital to escape national and union control. I am much more sympathetic since the start of the crisis to the Marxist way of analysing things.

And then, of course, there’s the political backlash, the topic of the most recent piece in the series. Jonathan Freedland begins by noting the differences between the two periods: the fact that ultra-nationalist and fascist movements managed to seize power in Germany, Italy, and Spain in the 1930s, which has not (yet) happened in the more recent period. Trump, for example, has criticized the media but has not (yet) closed any sites down. Nor has he suggested Muslims wear identifying symbols.

These are crumbs of comfort; they are not intended to minimise the real danger Trump represents to the fundamental norms that underpin liberal democracy. Rather, the point is that we have not reached the 1930s yet. Those sounding the alarm are suggesting only that we may be travelling in that direction – which is bad enough.

There are other warning signs, which suggest closer parallels between the 1930s and today: the shattering of the faith in globalization’s ability to spread the wealth, the growing hostility to those deemed outsiders, and a growing impatience with the rule of law and with democracy. Then, as now, capitalism faces a profound crisis of legitimacy.

In the end, Freedland takes comfort in our having a memory of the 1930s: “We can learn the period’s lessons and avoid its mistakes.” What he fails to acknowledge, however, is that economic and political elites in the 1930s also had vivid memories—of the great crashes of 1873 and 1893 and, of course, the horrors of the “war to end all wars.” But those events were forgotten amidst more short-run memories, including their joining to put down workers’ actions, including the widespread attacks after the 1926 general strike led by the Trades Union Congress in England and the anti-union “American Plan” during the 1920s on the other side of the Atlantic.

The more or less inevitable result in both countries was growing inequality, as large corporations and a tiny group of wealthy individuals at the top managed to capture a larger and larger share of national income—thus creating a financial bubble that eventually crashed, in 1929 just as in 2007-08.

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The memory of the 1929 crash certainly didn’t prevent the most recent one, nor did it create a recovery that has benefited the majority of the population. In fact, it seems the only lesson learned was how it might be possible, in recent years, for those at the top to recovery more quickly than they managed to do after the First Great Depression what they had lost.

It’s that rush to return to business as usual, characterized by obscene levels of inequality, and not the lack of memory of the 1930s, that has created the conditions for the growth and strengthening of populist, right-wing movements in the United States and Europe.

 

*As is my custom, the syllabus is publicly available on the course web site. Readers might find the large collection of additional materials—music, charts, videos, and so on—of interest. They can be found by following the News link.

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Millions of workers have been displaced by robots. Or, if they have managed to keep their jobs, they’re being deskilled and transformed into appendages of automated machines. We also know that millions more workers and their jobs are threatened by much-anticipated future waves of robotics and other forms of automation.

But mainstream economists don’t want us to touch those robots. Just ask Larry Summers.

Summers is particularly incensed by Bill Gates’s suggestion that we begin taxing robots. So, he trots out all the usual arguments, hoping that at least one of them will stick. It’s hard to distinguish between robots and other forms of automation. Robots and other forms of automation produce better goods and services. And, of course, automation enhances productivity and leads to more wealth. So, we shouldn’t do anything to shrink the size of the economic pie.

This last point has long been standard in international trade theory. Indeed, it is common to point out that opening a country up to international trade is just like giving it access to a technology for transforming one good into another. The argument, then, is that since one surely would not regard such a technical change as bad, neither is trade, and so protectionism is bad. Mr Gates’ robot tax risks essentially being protectionism against progress.

Progress, indeed.

What mainstream economists like Summers fail to understand is that not touching the robots—or, for that matter, international trade—means keeping things just as they are. It means keeping the decisions about jobs, just like the patterns of international trade, in the hands of a small group of employers. They’re the ones who, under current circumstances, appropriate the surplus and decide where and how jobs will be created—and, of course, where they will be destroyed. Which, as I explained last year, is exactly how international trade takes place.

And because employers, now and as Summers would like to see the world, are the ones who are allowed to retain a monopoly over jobs and trade, they also decide how the economic pie is distributed and redistributed. Tinkering around the edges—with the usual liberal shibboleths about the need for “education and retraining”—doesn’t fundamentally alter the fact that workers remain subject to decisions about technology and trade in which they have no say. Workers are thus forced to have the freedom to adjust, with more or less government assistance, to decisions taken by their employers.

And to sit back and admire, but not touch, the growth in productivity.*

 

*And that’s pretty much what Brad DeLong also recommends in making, for the umpteenth time, the argument that today, the world’s population is, on average, many times richer than it was during the long preceding age—because both average wealth and consumer choice have increased. Delong, like Summers, doesn’t want us to touch the “innovations that have fundamentally transformed human civilization.”