Posts Tagged ‘economists’

Inequality

Mainstream economists have gotten much better estimating the obscene levels of inequality that exist today. But imagining equality? They still find that almost impossible.

top10

Emmanuel Saez, Gabriel Zucman, and Thomas Piketty have been at the forefront of estimating the extraordinary growth of inequality that has taken place since the late-1970s and early-1980s in the United States—when incomes for the top 10 percent grew about three times as fast as those of the bottom 90 percent, thus reversing the trend of more than three decades of the postwar period when they grew at roughly the same rate.

But then, when the BBC asked mainstream economists about the effect inequality has on growth and prosperity, well, they just can’t get themselves to imagine an equal or even a substantially less unequal distribution of income.

Deirdre McCloskey, of course, is very relaxed about inequality “as long as it’s not force or fraud that caused it.” Jared Bernstein, for his part, just wants a better balance between productivity and incomes for middle-class families. And then there’s Jonathan Ostry, who is worried about opportunity and not inequality, and Branko Milanovic, who think we need inequality to provide incentives.

And there, in one package, we have all the ways mainstream economists demonstrate their long-held justification of inequality and their profound inability to imagine an equal distribution of income. Basically, for them, inequality is not a problem and equality is not the goal—because capitalism alone is capable of producing growth (McCloskey); even the levels of inequality we saw in the late-1970s (when the top 1 percent captured about 10 percent of all income) are too high a goal (Bernstein); inequality is not a problem as long as there are “adequate opportunities for the less well-off in society” (Ostry); and, finally, because inequality has always existed (Milanovic).

Milanovic, at least, imagines there might be problems down the road:

“If the gaps keep on increasing as they’ve increased in the last 20 years, you would end up with two types of societies within a single country. If there is no sufficient middle class and if the poor really are very far from the rich, then you really cannot speak of a single society.

“We could end up with a kind of a global plutocracy, this global one per cent or even half a per cent that are very similar among themselves, but really belong to different nations.”

But, basically, all of them, along with most other mainstream economists, take the world as it is—based on capitalist commodity production—as normal, such that inequality is either benign (it’s what we get in exchange for more stuff) or necessary (as the condition for getting people to work).

And they simply can’t imagine anything like what the rest of us envision: a world in which we have eliminated the obscene levels of inequality that current economic arrangements are creating.

minimum_wage_fin copy

Special mention

danzcolorplus6553-668x501

original

Students often ask me if the discipline of economics has changed since the spectacular crash of 2007-08.

“Not much,” I tell them. “The economists and economic theories that prevailed before the crash are still pretty much the ones that are on top today.”

The good students, of course, get the irony: the mainstream economics they’ve been taught celebrates free markets and “creative destruction” but the discipline itself seems to be anything but.

And that’s exactly what Frederico Fubini found when he compared the rankings of top economists in 2006 and 2015: barely anything had changed.

Despite the profound – and largely unpredicted – financial and economic turmoil of the intervening decade, the intellectual influence of those whose theories suffered the most evidently remains undented.

After a succession of bursting multi-trillion-dollar credit bubbles, you might wonder what to make of Robert Lucas’s view that rational expectations enable perfectly calculating “agents” to maximize economic utility. You might also want to rethink Eugene Fama’s efficient markets hypothesis, according to which prices of financial assets always reflect all available information about economic fundamentals.

You must not be an economist. In fact, Lucas and Fama both moved up in the RePEc rankings during the period I examined, from 30 to nine and from 23 to 17, respectively. And the persistence at the top is striking across the board. Among the top ten economists in September 2015, six were already there in December 2006, and another two were ranked 11 and 13.

Mobility in the RePEc rankings remains subdued even after widening the sample. For example, of the top 100 economists in September 2015, only 14 were absent from the much wider top 5% in 2006, and only two others had advanced more than 200 spots over the previous decade. Among those recently ranked from 101 to 200, just 24 were not in the top 5% in 2006, and only ten others had moved up by more than 200 places. The rate of renewal among the 200 most influential economists was as low as 25% – and just 16% among the top 100 – during a decade in which the explanatory power of prevailing economic theory had been found severely wanting.

So, as mainstream economists gather in San Francisco for their annual meeting, they’ll be listening to pretty much the same figures and presenting the same ideas they did back in 2006.

Addendum

Here is the list of the top 20 economists as of November 2015:

economists

top01

I don’t attend the American Economic Association annual meetings. And I’m not in San Francisco this year. However, according to Nelson D. Schwartz, mainstream economists have finally discovered the obvious: income inequality is a real problem in the United States.

The economic association’s meeting is something of a barometer of what concerns economists most, drawing more than 13,000 attendees from the ranks of academia, as well as research groups and the private sector. And in panels, research presentations and speeches, what was once mainly a preoccupation of ivory tower Marxists and other players on the margins of the profession is taking center stage. . .

At the same time, there’s a growing consensus among economists of all ideological stripes that inequality is growing — in the United States and abroad — even if the usual political fault lines appear when the discussion turns to the consequences of the trend and whether new public policies are needed to address it.

“It’s pretty much indisputable that the percentage of income being earned by the top 1 percent, or the top quarter of 1 percent, is going up,” said Richard H. Thaler, the association’s president.

“It was true five years ago, but it was not as widely recognized,” said Mr. Thaler, a behavioral economist who teaches at the University of Chicago. “As with climate change, scientific consensus takes a while to build.”

Inequality, as most people (especially “ivory tower Marxists and other players on the margins of the profession”) know, has been growing since the mid-1970s.

According to data from The World Wealth and Income Database, the top 1 percent income share (including capital gains) grew from 8.86 percent in 1976 to 21.24 percent in 2014. The top 0.1 percent share grew even more: from 0.86 to 4.89.

During the same period, the average (real 2014) incomes (including capital gains) of the top 1 percent grew 178 percent (from $353,380 to $983,896) and those of the top 0.1 percent 356 percent (from $904,450 to $4,129,983). Meanwhile, the average income in the United States increased by only 28 percent (from $46,355 to $59,346).

Now, apparently, at least some members of the American Economics Association are acknowledging that income inequality is an issue that needs to be addressed.

minwage

One of the most studied issues in contemporary economics is the effect of an increase in the minimum wage. But here we have a panel of so-called experts composed of mainstream economists who are uncertain—about whether employment will decrease or output will increase.

Ordinarily, I would applaud a health dose of uncertainty among economists, especially mainstream economists.

median

But, of course, mainstream economists show themselves to be quite certain about things other than the minimum wage, such as the idea that the median American household, notwithstanding the small increase in household income, is actually much better off.

Just sayin’. . .

6a00d83451bd4869e201b8d0f62c32970c-800wi

Special mention

religious-freedom-in-indiana fitzsimmons-19-3

rise-economists

Justin Wolfers has assembled some serious information. But, in my view, he has offered a less-than-serious explanation of that information.

The information is pretty straightforward: references to economists in the New York Times have grown over time and far outnumber mentions of members of other academic disciplines, including historians, psychologists, sociologists, anthropologists, and demographers. (The same is true, as it turns out, of the number of mentions in the Congressional Record.)

I have no reason to dispute the numbers. And they make sense to me—from my own reading of the Times over many decades and the fact that, “if you are running a government agency, a think tank, a media outlet or a major corporation, and don’t have your own pet economist on the payroll, you’re the exception” (to which I would only add, major university).

Wolfers’s explanation is, however, much less serious:

This economist is drawn to conclude that if our relative success is not due to supply, then it must be demand, which means that our popularity reflects the discerning tastes of our audience in the marketplace of ideas.

What I think we need to grapple with is the economizing tendency of bourgeois society. What I mean by that is the idea that, within contemporary society, all major individual and social questions are increasingly subject to an economic logic. Should I stay in school? What kind of job should I look for? How do we organize our households? Can we eliminate poverty? Should we lower the retirement age and expand Social Security benefits? And so on and so forth.

Given the way our society is currently organized, the answers to those questions are generally viewed through an economic lens and couched in an economic language. It’s a lens and language (borrowed mostly from mainstream economics) of incentives, tradeoffs, scarcity, costs and benefits, equilibrium, and so on. It’s a discourse according to which a system based on individual decisions, private property, and markets is considered sacrosanct. And it’s a project that seeks to economize—to subject to an economic calculation—all major individual and social issues.

If that’s true, is it any wonder that economists find themselves at the top of the heap?