Posts Tagged ‘inequality’

global

There is perhaps no more cherished an idea within mainstream economics than that everyone benefits from free trade and, more generally, globalization. They represent the solution to the problem of scarcity for the world as a whole, much as free markets are celebrated as the best way of allocating scarce resources within nations. And any exceptions to free markets, whether national or international, need to be criticized and opposed at every turn.

That celebration of capitalist globalization, as Nikil Saval explains, has been the common sense that mainstream economists, both liberal and conservative, have adhered to and disseminated, in their research, teaching, and policy advice, for many decades.

Today, of course, that common sense has been challenged—during the Second Great Depression, in the Brexit vote, during the course of the electoral campaigns of Bernie Sanders and Donald Trump—and economic elites, establishment politicians, and mainstream economists have been quick to issue dire warnings about the perils of disrupting the forces of globalization.

I have my own criticisms of Saval’s discussion of the rise and fall of the idea of globalization, especially his complete overlooking of the long tradition of globalization critics, especially on the Left, who have emphasized the dirty, violent, unequalizing underside of colonialism, neocolonialism, and imperialism.*

However, as a survey of the role of globalization within mainstream economics, Saval’s essay is well worth a careful read.

In particular, Saval points out that, in the heyday of the globalization consensus, Dani Rodrick was one of the few mainstream economists who had the temerity to question its merits in public.

And who was one of the leading defenders of the idea that globalization had to be celebrated and it critics treated with derision? None other than Paul Krugman.

Paul Krugman, who would win the Nobel prize in 2008 for his earlier work in trade theory and economic geography, privately warned Rodrik that his work would give “ammunition to the barbarians”.

It was a tacit acknowledgment that pro-globalisation economists, journalists and politicians had come under growing pressure from a new movement on the left, who were raising concerns very similar to Rodrik’s. Over the course of the 1990s, an unwieldy international coalition had begun to contest the notion that globalisation was good. Called “anti-globalisation” by the media, and the “alter-globalisation” or “global justice” movement by its participants, it tried to draw attention to the devastating effect that free trade policies were having, especially in the developing world, where globalisation was supposed to be having its most beneficial effect. This was a time when figures such as the New York Times columnist Thomas Friedman had given the topic a glitzy prominence by documenting his time among what he gratingly called “globalutionaries”: chatting amiably with the CEO of Monsanto one day, gawking at lingerie manufacturers in Sri Lanka the next. Activists were intent on showing a much darker picture, revealing how the record of globalisation consisted mostly of farmers pushed off their land and the rampant proliferation of sweatshops. They also implicated the highest world bodies in their critique: the G7, World Bank and IMF. In 1999, the movement reached a high point when a unique coalition of trade unions and environmentalists managed to shut down the meeting of the World Trade Organization in Seattle.

In a state of panic, economists responded with a flood of columns and books that defended the necessity of a more open global market economy, in tones ranging from grandiose to sarcastic. In January 2000, Krugman used his first piece as a New York Times columnist to denounce the “trashing” of the WTO, calling it “a sad irony that the cause that has finally awakened the long-dormant American left is that of – yes! – denying opportunity to third-world workers”.

The irony is that Krugman won the Nobel Prize in Economics in recognition of his research and publications that called into question the neoclassical idea that countries engaged in and benefited from international trade based on given—exogenous—resource endowments and technologies. Instead, Krugman argued, those endowments and technologies were created historically and could be changed by government policies, including histories and policies that run counter to free trade and globalization.

Krugman was thus the one who gave theoretical “ammunition to the barbarians.” But that was the key: he considered the critics of globalization—the alter-globalization activists, heterodox economists, and many others—”barbarians.” For Krugman, they were and should remain outside the gates because, in his view, they were not trained in or respectful of the protocols of mainstream economics. The “barbarians” could not be trusted to understand or adhere to the ways mainstream economists like Krugman analyzed the exceptions to the common sense of globalization. They might get out of control and develop other arguments and economic institutions.

But then the winds began to shift.

In the wake of the financial crisis, the cracks began to show in the consensus on globalisation, to the point that, today, there may no longer be a consensus. Economists who were once ardent proponents of globalisation have become some of its most prominent critics. Erstwhile supporters now concede, at least in part, that it has produced inequality, unemployment and downward pressure on wages. Nuances and criticisms that economists only used to raise in private seminars are finally coming out in the open.

A few months before the financial crisis hit, Krugman was already confessing to a “guilty conscience”. In the 1990s, he had been very influential in arguing that global trade with poor countries had only a small effect on workers’ wages in rich countries. By 2008, he was having doubts: the data seemed to suggest that the effect was much larger than he had suspected.

And yet, as Saval points out, mainstream economists’ recognition of the unequalizing effects of capitalist globalization has come too late: “much of the damage done by globalisation—economic and political—is irreversible.”

The damage is, of course, only irreversible within the existing economic institutions. Imagining and enacting a radically different way of organizing the economy would undo that damage and benefit those who have been forced to have the freedom to submit to the forces of capitalist globalization.

But Rodrik and Krugman—and mainstream economists generally—don’t seem to be interested in participating in that project, which would give the “barbarians” a say in creating a different kind of globalization, beyond capitalism.

 

*Back in 2000—and in a series of articles, book chapters, and blog posts since then—I have attempted to rethink the relationship between capitalist globalization and imperialism. Marxist economist Prabhat Patnaik has also made the case for the continuing relevance of imperialism as an analytical construct for understanding and challenging effectively the logic and dynamics of contemporary capitalism.

Triff_Brain_MRI

We’ve long known there is a strong correlation between growing up in poverty and low academic achievement. Thus, for example, children living in poverty tend to have lower scores on standardized tests, lower grades, and are less likely to graduate from high school or go on to college.

Now we’re learning that that there is a correlation between poverty and children’s actual brain development.

According to Mike Mariani, the results of studying the “neurocognitive profile” of socioeconomic status and the developing brain are startling. For example, according to one study, kids from poorer, less-educated families tended to have thinner subregions of the prefrontal cortex—a part of the brain strongly associated with executive functioning—than better-off kids. Moreover, according to the data from another study:

small increases in family income had a much larger impact on the brains of the poorest children than similar increases among wealthier children. And [Kimberly] Noble’s data also suggested that when a family falls below a certain basic level of income, brain growth drops off precipitously. Children from families making less than $25,000 suffered the most, with 6 percent less brain surface area than peers in families making $150,000 or more.

Noble is one of the pioneers in this area and, in order to go beyond correlation to causality, she’s now proposing a randomized controlled trial of giving some mothers a $333 monthly income supplement or others a $20 monthly income supplement.

I am all in favor of giving cash to members of poor households—as against, for example, taking over poor people’s lives by using brain science to promote more effective “executive function skills” such as “impulse control” and “mental flexibility” of the sort proposed by the Crittenton Women’s Union (pdf).

However, as I see it, there are two problems inherent in the way these new poverty-brain trials are proceeding.

First, the trial that Noble proposes is another instance of the kind of work we’re now seeing in development economics (associated especially with Abhijit Banerjee and Esther Duflo), which conducts experiments on poor people. One “treatment” group is assigned randomly to receive an intervention, and the other is randomized to receive the “control” experience, enabling the investigators to assess the impact of one intervention or another—in this case, on brain development. In other words, poor people are being used as human guinea pigs to conduct scientific experiments.

What’s the alternative? Set up programs, with the participation of poor people, to analyze the causes and consequences of poverty and identify changes that need to be made in the system in order to end existing poverty and prevent its recurrence in the future.

Second, the focus is on the brains of poor children, which in Noble’s language are “at much greater risk of not going through the paces of normal development to eventually become the three-pound wonder able to perform intellectual feats, whether composing symphonies or solving differential equations.”

What about the brains of rich children—why are they presumed to go through “the paces of normal development”? I’m thinking, for example, of the new psychological research on the “pathologies of the rich,” which involves studies of “social class as culture” and “sharing the marbles.” And, of course, there’s the infamous 2013 manslaughter trial of Ethan Couch, whose defense included a witness saying the teen was a product of “profoundly dysfunctional” parents who gave him too much and never taught him the consequences of his actions.

The issue here is not just the continued existence of obscene poverty, but also grotesque levels of inequality—which affect both poor and rich children, albeit in different ways. In my view, we need to be worried about an economic and social system that generates extreme levels of both poverty and inequality and that alters the brains of all children.

There’s nothing normal not just about the minds of children who are born into such a system, but the system itself.

e17323073cc3316afefe11e8b72d8f89

Mainstream economists have been taking quite a beating in recent years. They failed, in the first instance, with respect to the spectacular crash of 2007-08. Not only did they not predict the crash, they didn’t even include the possibility of such an event in their models. Nor, of course, did they have much to offer in terms of explanations of why it occurred or appropriate policies once it did happen.

More recently, the advice of mainstream economists has been questioned and subsequently ignored—for example, in the Brexit vote and the support for Donald Trump’s attacks on free trade during the U.S. presidential campaign. And, of course, mainstream economists’ commitment to free markets has been held responsible for delaying effective solutions to a wide variety of other economic and social problems, from climate change and healthcare to minimum wages and inequality.

All of those criticisms—and more—are richly deserved.

So, I am generally sympathetic to John Rapley’s attack on the “economic priesthood.”

Although Britain has an established church, few of us today pay it much mind. We follow an even more powerful religion, around which we have oriented our lives: economics. Think about it. Economics offers a comprehensive doctrine with a moral code promising adherents salvation in this world; an ideology so compelling that the faithful remake whole societies to conform to its demands. It has its gnostics, mystics and magicians who conjure money out of thin air, using spells such as “derivative” or “structured investment vehicle”. And, like the old religions it has displaced, it has its prophets, reformists, moralists and above all, its high priests who uphold orthodoxy in the face of heresy.

Over time, successive economists slid into the role we had removed from the churchmen: giving us guidance on how to reach a promised land of material abundance and endless contentment.

However, in my view, there are three problems in Rapley’s discussion of contemporary economics.

First, Rapley refers to economics as if there were only one approach. Much of what he writes does in fact pertain to mainstream economics. But there are many other approaches and theories within economics that cannot be accused of the same problems and mistakes.

Rapley’s not alone in this. Many commentators, both inside and outside the discipline of economics, refer to economics in the singular—as if it comprised only one set of approaches and theories. What they overlook or forget it about are all the ways of doing and thinking about economics—Marxian, radical, feminist, post Keynesian, ecological, institutionalist, and so on—that represent significant criticisms of and departures from mainstream economics.

In Rapley’s language, mainstream neoclassical and Keynesian economists have long served as the high priests of economists but there are many others—heretics of one sort or another—who have degrees in economics and work as economists but whose views, methods, and policies diverge substantially from the teachings of mainstream economics.

Second, Rapley counterposes the religion of mainstream economics from what he considers to be “real” science—of the sort practiced in physics, chemistry, biology, and so on. But here we encounter a second problem: a fantasy of how those other sciences work.

The progress of science is generally linear. As new research confirms or replaces existing theories, one generation builds upon the next.

That’s certainly the positivist view of science, perhaps best represented in Paul Samuelson’s declaration that “Funeral by funeral, economics does make progress.” But in recent decades, the history and philosophy of science have moved on—both challenging the linear view of science and providing alternative narratives. I’m thinking, for example, of Thomas Kuhn’s “scientific revolutions,” Paul Feyerabend’s critique of falsificationism, Michel Foucault’s “epistemes,” and Richard Rorty’s antifoundationalism. All of them, in different ways, disrupt the idea that the natural sciences develop in a smooth, linear manner.

So, it’s not that science is science and economics falls short. It’s that science itself does not fit the mold that traditionally had been cast for it.

My third and final point is that Rapley, with a powerful metaphor of a priesthood, doesn’t do enough with it. Yes, he correctly understands that mainstream economists often behave like priests, by “deducing laws from premises deemed eternal and beyond question” and so on. But historically priests served another role—by celebrating and sanctifying the existing social order.

Religious priests occupied exactly that role under feudalism: they developed and disseminated a discourse according to which the natural order consisted of lords at the top and serfs at the bottom, each of whom received their just deserts. Much the same was true under slavery, which was deemed acceptable within church teachings and perhaps even an opportunity to liberate slaves from their savage-like ways. (And, in both cases, if those at the bottom were dissatisfied with their lot in life, they would have to exercise patience and await the afterlife.)

Economic priests operate in which the same way today, celebrating an economic system based on private property and free markets as the natural order, in which everyone benefits when the masses of people are forced to have the freedom to sell their ability to work to a small group of employers at the top. And there simply is no alternative, at least in this world.

So, on that score, contemporary mainstream economists do operate like a priesthood, producing and disseminating a narrative—in the classroom, research journals, and the public sphere—according to which the existing economic system is the only effective way of solving the problem of scarcity. The continued existence of that economic system then serves to justify the priesthood and its teachings.

However, just as with other priesthoods and economic systems, today there are plenty of economic heretics, who hold beliefs that run counter to established dogma. Their goal is not to take over the existing religion, or even set up an alternative religion, but to create the economic and social conditions within which their own preferred theories no longer have any relevance.

Today’s economic heretics are thus the ultimate grave-diggers.

the-strip-slide-056W-jumbo

The effects of climate change are, as we know, distributed unequally across locations. Therefore, the damages from climate change—in terms of agriculture, crime, coastal storms, energy, human mortality, and labor—are expected to increase world inequality, by generating a large transfer of value northward and westward from poor to rich countries.

What about within countries—specifically, the United States?

A new report, published in Science, predicts the United States will see its levels of economic inequality increase due to the uneven geographical effects of climate change—resulting in “the largest transfer of wealth from the poor to the rich in the country’s history,” according to Solomon Hsiang, the study’s lead author.

F2.large

What is new in the study is that, instead of following the usual climate-change modeling approaches (which describe average impacts for large regions or the entire globe), the authors examine sub-regional, county-level effects.

The results are downright scary:

In general (except for crime and some coastal damages), Southern and Midwestern populations suffer the largest losses, while Northern and Western populations have smaller or even negative damages, the latter amounting to net gains from projected climate changes.

Combining impacts across sectors reveals that warming causes a net transfer of value from Southern, Central, and Mid-Atlantic regions toward the Pacific Northwest, the Great Lakes region, and New England. In some counties, median losses exceed 20% of gross county product (GCP), while median gains sometimes exceed 10% of GCP. Because losses are largest in regions that are already poorer on average, climate change tends to increase preexisting inequality in the United States. Nationally averaged effects, used in previous assessments, do not capture this subnational restructuring of the U.S. economy.

For example, counties in South Carolina, Louisiana, and Florida will be plagued by rising sea levels and more intense hurricanes, while the South and the Midwest will be threatened by increasingly rising temperatures—a trend the researchers warn can slow productivity, increase violent crime, disturb agricultural patterns, and increase energy demands and costs.

Of course, we’re still referring to regions here—not to classes. Some of the counties are poorer, others richer but there is also a great deal of inequality within them. What we’d want to know, then, is what happens to the income and wealth—as well as health, habitat, and much else—of rich and poor classes in the United States.

We don’t have that kind of information or analysis yet.

What we do know is, not everyone is going to be affected in the same way by climate change. Not across countries and certainly not within countries. That’s the problem with averages—with respect to national income, health, or climate change: they obscure or hide the different class effects of large economic and social phenomena.

What we need to remember is, global temperatures are rising as a result of the existing set of economic and social institutions. And, unless they’re changed, those same institutions are going to serve to distribute the damages caused by climate change unequally between regions and classes.

Clearly, it is time to reimagine and radically transform the way the economy is currently organized. And there’s no place better to begin that project than in the United States, where inequality is obscene and social progress has flatlined.

Racing-with-machines

New technologies—automation, robotics, artificial intelligence—have created a specter of mass unemployment. But, as critical as I am of existing economic institutions, I don’t see that as the issue, at least at the macro level. The real problem is the distribution of the value that is produced with the assistance of the new technologies—in short, the specter of growing inequality.

David Autor and Anna Salomons (pdf) are the latest to attempt to answer the question about technology and employment in their contribution to the recent ECB Forum on Central Banking. Their empirical work leads to the conclusion that while “industry-level employment robustly falls as industry productivity rises. . .country-level employment generally grows as aggregate productivity rises.”

To me, their results make sense. But for a different reason.

fredgraph

It is clear that, in many sectors—perhaps especially in manufacturing—the growth in output (the red line in the chart above) is due to the growth in labor productivity (the blue line) occasioned by the use of new technologies, which in turn has led to a decline in manufacturing employment (the green line).

nonfarm

But for the U.S. economy as a whole, especially since the end of the Great Recession, the opposite is true: the growth in hours worked has played a much more important role in explaining the growth of output than has the growth in labor productivity.

The fact is, increases in labor productivity—which stem at least in part from labor-saving technologies—have not, at least in recent years, led to massive unemployment. (The losses in jobs that have occurred are much more a cyclical phenomenon, due to the crash of 2007-08 and the long, uneven recovery.)

But that’s not because, as Autor and Salomons (and mainstream economists generally) would have it, there are “positive spillovers” of technological change to the rest of the economy. It’s because, under capitalism, workers are forced to have the freedom to sell their ability to work to employers. There’s no other choice. If workers are displaced from their jobs in one plant or sector, they can’t just remain unemployed. They have to find jobs elsewhere, often at lower wages than their earned before. That’s how capitalism works.

Much the same holds for workers who don’t lose their jobs but who, as new technologies are adopted by their employers, are deskilled and otherwise become appendages of the new machines. They can’t just quit. They remain on the job, even as their working conditions deteriorate and the value of their ability to work falls—and their employers’ profits rise.

What happens, in other words, is the gains from the new technologies that are adopted are distributed unevenly.

share

This is clear if we look at labor productivity for the economy as a whole (the blue line in the chart above) since the end of the Great Recession, which has increased by 7.5 percent. However, the wage share (the green line) has barely budged and is actually now lower than it was in 2009.

productivity

The results are even more dramatic over a long time frame—over periods when labor productivity was growing relatively quickly (from 1947 through the 1970s, and from 1980 until the most recent crash) and when productivity has been growing much more slowly (since 2009).

During the initial period (until 1980), labor productivity (the blue line in the chart) almost doubled while income shares—to the bottom 90 percent (the red line) and the top 1 percent (the green line)—remained relatively constant.

After 1980, however—during periods of first rapid and then slow growth in productivity—the situation changed dramatically: the share of income going to the bottom 90 percent declined, while the share captured by the top 1 percent soared. Even as new technologies were adopted across the economy, the vast majority of people were forced to find work, at stagnant or declining wages, while their employers and corporate executives captured a larger and larger share of the new value that was being created.

Autor and Salomons think they’ve arrived at a conclusion—concerning the “relative neutrality of productivity growth for aggregate labor demand”—that is optimistic.

The conclusions of my analysis are much more disconcerting. The broad sharing of the fruits of technological change, from the end of World War II to the late 1970s, was relatively short-lived. Since then, the conditions within which new technologies have been adopted have created a mass of increasingly desperate workers, who have either been forced to labor in more automated workplaces or have been displaced and thus forced to find employment elsewhere. In both cases, their share of income has declined while the share captured by a tiny group at the top has continued to rise. That’s the “new normal” (from 1980 onward) which looks a lot like the “old normal” of capitalist growth (prior to the first Great Depression), interrupted by a relatively short period (during the three postwar decades) that is becoming increasingly recognized as the exception.

Even more, I can make the case that things would be much better if the adoption of new technologies did in fact displace a large number of labor hours. Then, the decreasing amount of labor that needed to be performed could be spread among all workers, thus lessening the need for everyone to work as many hours as they do today.

But that would require a radically different set of economic institutions, one in which people were not forced to have the freedom to sell their ability to work to someone else. However, that’s not a world Autor and Salomons—or mainstream economists generally—can ever imagine let alone work to create.

WP_20150709_19_25_42_Raw__highres

Mark Tansey, “Discarding the Frame” (1993″

Obviously, recent events—such as Brexit, Donald Trump’s presidency, and the rise of Bernie Sanders and Jeremy Corbyn—have surprised many experts and shaken up the existing common sense. Some have therefore begun to make the case that an era has come to an end.

The problem, of course, is while the old may be dying, it’s not all clear the new can be born. And, as Antonio Gramsci warned during the previous world-shaking crisis, “in this interregnum morbid phenomena of the most varied kind come to pass.”

For Pankaj Mishra, it is the era of neoliberalism that has come to an end.

In this new reality, the rhetoric of the conservative right echoes that of the socialistic left as it tries to acknowledge the politically explosive problem of inequality. The leaders of Britain and the United States, two countries that practically invented global capitalism, flirt with rejecting the free-trade zones (the European Union, Nafta) they helped build.

Mishra is correct in tracing British neoliberalism—at least, I hasten to add, its most recent phase—through both the Conservative and Labour Parties, from Margaret Thatcher to Tony Blair and David Cameron.* All of them, albeit in different ways, celebrated and defended individual initiative, self-regulating markets, cheap credit, privatized social services, and greater international trade—bolstered by military adventurism abroad. Similarly, in the United States, Reaganism extended through both Bush administrations as well as the presidencies of Bill Clinton and Barak Obama—and would have been continued by Hillary Clinton—with analogous promises of prosperity based on unleashing competitive market forces, together with military interventions in other countries.

Without a doubt, the combination of capitalist instability—the worst crisis of capitalism since the first Great Depression—and obscene levels of inequality—parallel to the years leading up to the crash of 1929—not to mention the interminable military conflicts that have deflected funding at home and created waves of refugees from war-torn zones, has called into question the legacy and presumptions of Thatcherism and Reaganism.

Where I think Mishra goes wrong is in arguing that “A new economic consensus is quickly replacing the neoliberal one to which Blair and Clinton, as well as Thatcher and Reagan, subscribed.” Yes, in both the United Kingdom and the United States—in the campaign rhetoric of Theresa May and Trump, and in the actual policy proposals of Corbyn and Sanders—neoliberalism has been challenged. But precisely because the existing framing of the questions has not changed, a new economic consensus—an alternative common sense—cannot be born.

To put it differently, the neoliberal frame has been discarded but the ongoing debate remains framed by the terms that gave rise to neoliberalism in the first place. What I mean by that is, while recent criticisms of neoliberalism have emphasized the myriad problems created by individualism and free markets, the current discussion forgets about or overlooks the even-deeper problems based on and associated with capitalism itself. So, once again, we’re caught in the pendulum swing between a more private, market-oriented form of capitalism and a more public, government-regulated form of capitalism. The former has failed—that era does seem to be crumbling—and so now we begin to turn (as we did during the last system-wide economic crisis) to the latter.**

However, the issue that keeps getting swept under the political rug is, how do we deal with the surplus? If the surplus is left largely in private hands, and the vast majority who produce it have no say in how it’s appropriated and distributed, it should come as no surprise that we continue to see a whole host of “morbid phenomena”—from toxic urban water and a burning tower block to a new wave of corporate concentration  and still-escalating inequality.

Questioning some dimensions of neoliberalism does not, in and of itself, constitute a new economic consensus. I’m willing to admit it is a start. But, as long as remain within the present framing of the issues, as long as we cannot show how unreasonable the existing reason is, we cannot say the existing era has actually come to an end and a new era is upon us.

For that we need a new common sense, one that identifies capitalism itself as the problem and imagines and enacts a different relationship to the surplus.

 

*I add that caveat because, as I argued a year ago,

Neoliberal ideas about self-governing individuals and a self-organizing economic system have been articulated since the beginning of capitalism. . .capitalism has been governed by many different (incomplete and contested) projects over the past three centuries or so. Sometimes, it has been more private and oriented around free markets (as it has been with neoliberalism); at other times, more public or state oriented and focused on regulated markets (as it was under the Depression-era New Deals and during the immediate postwar period).

**And even then it’s only a beginning—since, we need to remember, both Sanders and Corbyn did lose in their respective electoral contests. And, at least in the United States, the terms of neoliberalism are still being invoked—for example, by Ron Johnson, Republican senator from Wisconsin—in the current healthcare debate

Print

Special mention

650  Pursuit_of_Haplessness_1000_590_418