Posts Tagged ‘mainstream’

Last year, I was honored to deliver the 9th Annual Wheelright Memorial Lecture at the University of Sydney.

A couple of weeks ago, my longtime friend and collaborator Katherine Gibson presented the 2017 Wheelright Memorial Lecture, “Manufacturing the Future: Cultures of Production for the Anthropocene.”

her work has consistently challenged orthodox and heterodox economics’ primary focus upon the operation of ‘Big-C’ Capitalism. Instead, Gibson has crafted a unique methodological framework she terms ‘participatory action research’, which looks to the diversity of existing community economic arrangements by engaging directly with local subjects.

The method engages with local communities to shed light upon the idiosyncrasies and often non-commercial nature of local modes of provisioning. Rather than accepting the ‘tragedy of the commons’ – the notion of the inevitable degradation of commonly used land and resources – Gibson’s work has revealed the importance of the commons to many existing developmentally diverse communities. She thereby challenges the core tenet of orthodox economics, which prioritises the optimisation of the allocation of scarce resources through facilitating smoothly functioning markets.

China Financial Crisis Art

Chen Wenling, “What You See Might Not Be Real” (2009)

I’ll admit, there are times when I regret the fact that I’m a relativist. Wouldn’t it be nice, I say to myself on occasion, to be able to claim—beyond a shadow of a doubt, to my students, colleagues, or readers of this blog—that something or other (neoclassical economics or capitalism or name your poison) is wrong and that the alternative (Marxian economics or socialism or what have you) is absolutely correct.

But then I read a defense of capital-T truth—such as David Roberts’s [ht: ja] attack on the alt-right and fake news and his presumption that the liberal mainstream is uniquely capable of upholding “truth, justice, and the American way”—and I thank my lucky stars that I don’t have to make such outlandish, embarrassing arguments. Fortunately, my relativism means I’m not saddled with the mainstream liberals’ delusion that they have, if not God, at least Superman on their side.

I’ve been over this epistemological terrain before (e.g., here, here, and here). But it seems, in the current conjuncture, mainstream liberals—in their zeal to attack Donald Trump and the right-wing media’s defense of his administration’s outlandish claims about a wide variety of issues, from climate change to the Mueller investigation—increasingly invoke and rely on an absolutist theory of knowledge. And then, of course, claim for themselves the correct side in the current debates.

As Roberts sees it, the United States

is experiencing a deep epistemic breach, a split not just in what we value or want, but in who we trust, how we come to know things, and what we believe we know — what we believe exists, is true, has happened and is happening.

The primary source of this breach, to make a long story short, is the US conservative movement’s rejection of the mainstream institutions devoted to gathering and disseminating knowledge (journalism, science, the academy) — the ones society has appointed as referees in matters of factual dispute.

In their place, the right has created its own parallel set of institutions, most notably its own media ecosystem.

Consider the assumptions built into those statements for a moment. Roberts believes that society has appointed a unique set of mainstream institutions—journalism, science, the academy—to serve as referees when it comes to adjudicating the facts in play. Nowhere does he discuss how, historically, those institutions came to occupy such an exalted position. Perhaps even more important, he never considers the disputes—about the facts and much else—that exist among journalists, scientists, and academics. And, finally, Roberts never mentions all the times, in recent years and over the centuries, the members of those institutions who got it wrong.

What about the reporting on the weapons of mass destruction in Iraq? Or the Tuskegee Study of Untreated Syphilis in the Negro Male? Or the university professors and presidents, at Yale, Harvard, and elsewhere, who supported and helped devise the U.S. war in Vietnam?

The list could go on.

There is, in fact, good reason not to simply accept the “facts” as gathered and disseminated by mainstream institutions. Historically, we have often been misled, and even mangled and killed, by those supposed facts. And, epistemologically, the members of those institutions—not to mention others, located in different institutions—produce and disseminate alternative sets of facts.

Maybe that’s Roberts’s problem. He actually thinks facts are gathered, as if they’re just out there in the world, waiting to be plucked, harvested, or dug up like fruits and vegetables by people who have no particular interest in which facts find their way into their baskets.

Alternatively, we might see those facts as being created and manufactured, through a process of knowledge-production, which relies on concepts and theories that are set to work on the raw materials generated by still other concepts and theories. The implication is that different sets of concepts and theories lead to the production of different knowledges—different sets of facts and their discursive and social conditions of existence.

I have no doubt that many journalists, scientists, and academics “see themselves as beholden to values and standards that transcend party or faction.” But that doesn’t mean they actually operate that way, somehow above and apart from the paradigms they use and the social influences exerted on them and the institutions where they work.

As for as Roberts is concerned, only the “far right” rejects the “very idea of neutral, binding arbiters” and adheres to a “tribal epistemology.” And mainstream liberals? Well, supposedly, they have the facts on their side.

If one side rejects the epistemic authority of society’s core institutions and practices, there’s just nothing left to be done. Truth cannot speak for itself, like the voice of God from above. It can only speak through human institutions and practices.

For Roberts, it’s either epistemic authority or nihilism. Absolute truth or an “epistemic gulf” that separates an “increasingly large chunk of Americans,” who believe “a whole bunch of crazy things,” from liberal Democrats.

What Roberts can’t abide is that we “live in different worlds, with different stories and facts shaping our lives.” But, from a relativist perspective, that’s all we’ve ever had, inside and outside the institutions of journalism, science, and the academy. Throughout their entire history. Different stories and different sets of facts.

And that hasn’t stopped the conversation—the discussion and debate within and between those different, often incommensurable, stories and facts. The only time the conversation ends is when one set of stories and facts is imposed on and used to stamp out all the others. A project always carried out in the name of Truth.

Clearly, Roberts mourns the passing of a time of epistemological certainty and universal agreement that never existed.

Roberts instead should mourn the effects of a Superman theory of knowledge that got him and other mainstream liberals into trouble in the first place. In recent years, they and their cherished facts simply haven’t been persuasive to a large and perhaps growing part of the population.

And the rest of us are suffering the consequences.

 

Detention-MustNotQuestion-CorporateSchool-Polyp

Mainstream economics lies in tatters. Certainly, the crash of 2007-08 and the Second Great Depression called into question mainstream macroeconomics, which has failed to provide a convincing explanation of either the causes or consequences of the most severe crisis of capitalism since the Great Depression of the 1930s.

But mainstream microeconomics, too, increasingly appears to be a fantasy—especially when it comes to issues of corporate power.

perfect_competition_long_run

Neoclassical microeconomics is based on a set of models that assume perfect competition. What that means, as my students learned the other day, is that, while in the short run firms may capture super-profits (because price is greater than average total cost, at P1 in the chart above), in the “long run,” with free entry and exit, all those extra-normal profits are competed away (since price is driven down to P2, equal to minimum average total cost). That’s why the long run is such an important concept in neoclassical economic theory. The idea is that, starting with perfect competition, neoclassical economists always end up with. . .perfect competition.*

Except, of course, in the real world, where exactly the opposite has been occurring for the past few decades. Thus, as the authors of the new report from the United Nations Conference on Trade and Development have explained, there is a growing concern that

increasing market concentration in leading sectors of the global economy and the growing market and lobbying powers of dominant corporations are creating a new form of global rentier capitalism to the detriment of balanced and inclusive growth for the many.

And they’re not just talking about financial rentier incomes, which has been the focus of attention since the global meltdown provoked by Wall Street nine years ago. Their argument is that a defining feature of “hyperglobalization” is the proliferation of rent-seeking strategies, from technological innovations to mergers and acquisitions, within the non-financial corporate sector. The result is the growth of corporate rents or “surplus profits.”**

Fig6-1

As Figure 6.1 shows, the share of surplus profits in total profits grew significantly for all firms both before and after the global financial crisis—from 4 percent during the 1995-2000 period to 19 percent in 2001-2008 and even higher, to 23 percent, in 2009-2015. The top 100 firms (ranked by market capitalization) also saw the growth of their surplus profits, from 16 percent to 30 percent and then, most recently, to 40 percent.***

The analysis suggests both that surplus profits for all firms have grown over time and that there is an ongoing process of bipolarization, with a growing gap between a few high-performing firms and a growing number of low-performing firms.

Fig6-2

That conclusion is confirmed by their analysis of market concentration, which is presented in Figure 6.2 in terms of the market capitalization of the top 100 nonfinancial firms between 1995 and 2015. The red line shows the actual share of the top 100 firms relative to their hypothetical equal share, assuming that total market capitalization was distributed equally over all firms. The blue line shows the observed share of the top 100 firms relative to the observed share of the bottom 2,000 firms in the sample.

Both measures indicate that the market power of the top companies increased substantially over the 1995-2015 period. For example, the combined share of market capitalization of the top 100 firms was 23 times higher than the share these firms would have held had market capitalization been distributed equally across all firms. By 2015, this gap had increased nearly fourfold, to 84 times. This overall upward surge in concentration, measured by market capitalization since 1995, experienced brief interruptions in 2002−03 after the bursting of the dotcom bubble, and in 2009−2010 in the aftermath of the global financial crisis, and it stabilized at high levels thereafter.****

So, what is causing this growth in market concentration? One reason is because of the nature of the underlying technologies, which involve costs of production that do not rise proportionally to the quantities produced. Instead, after initial high sunk costs (e.g., in the form of expenditures on research and development), the variable costs of producing additional units of output are negligible.***** And then, of course, growing firms can use intellectual property rights and lobbying powers to protect themselves against actual or potential competitors.

Fig6-5

Giant firms can also use their super-profits to merge with and to acquire other firms, a process that has accelerated because—as both a consequence and cause—of the weakening of antitrust legislation and enforcement.

What we’re seeing, then, is a “vicious cycle of underregulation and regulatory capture, on the one hand, and further rampant growth of corporate market power on the other.”

The models of mainstream economics turn out to be a shield, hiding and protecting this strengthening of corporate rule.

What the rest of us, including the folks at UNCTAD, have been witnessing in the real world is the emergence and consolidation of global rentier capitalism.

 

*There’s another reason why the long run is so important for neoclassical economists. All incomes are presumed to be returns to “factors of production” (e.g., land, labor, and capital), equal to their “marginal products.” But short-run super-profits are a theoretical embarrassment. They represent a return not to any factor of production but to something else: serendipity or Fortuna. Oops! That’s another reason it’s important, within a neoclassical world, for short-run super-profits to be competed away in the long run—to eliminate the existence of returns to the decidedly non-productive factor of luck.

**UNCTAD defines surplus profits as the difference between the estimate of total typical profits and the total of actually observed profits of all firms in the sample in that year. Thus, they end up with a lower estimate of surplus or super-profits than if they’d used a strictly neoclassical definition, which would compare actual profits to a zero-rent (or long-run equilibrium) benchmark.

***The authors note that

these results need to be interpreted with caution. More important than the absolute size of surplus profits for firms in the database in any given sub-period, is their increase over time, in particular the surplus profits of the top 100 firms.

****The authors of the study focus particular attention on the so-called high-tech sector, in which they show “a growing predominance of ‘winner takes most’ superstar firms.”

*****Thus, as Piero Sraffa argued long ago, the standard neoclassical model of perfect competition, with U-shaped marginal and average cost curves (i.e., “diminishing returns”), is called into question by increasing returns, with declining marginal and average cost curves.

 

income  wealth

Inequality in the United States is now so obscene that it’s impossible, even for mainstream economists, to avoid the issue of surplus.

Consider the two charts at the top of the post. On the left, income inequality is illustrated by the shares of pre-tax national income going to the top 1 percent (the blue line) and the bottom 90 percent (the red line). Between 1976 and 2014 (the last year for which data are available), the share of income at the top soared, from 10.4 percent to 20.2 percent, while for most everyone else the share has dropped precipitously, from 53.6 percent to 39.7 percent.

The distribution of wealth in the United States is even more unequal, as illustrated in the chart on the right. From 1976 to 2014, the share of wealth owned by the top 1 percent (the purple line) rose dramatically, from 22.9 percent to 38.6 percent, while that of the bottom 90 percent (the green line) tumbled from 34.2 percent to only 27 percent.

The obvious explanation, at least for some of us, is surplus-value. More surplus has been squeezed out of workers, which has been appropriated by their employers and then distributed to those at the top. They, in turn, have managed to use their ability to capture a share of the growing surplus to purchase more wealth, which has generated returns that lead to even more income and wealth—while the shares of income and wealth of those at the bottom have continued to decline.

But the idea of surplus-value is anathema to mainstream economists. They literally can’t see it, because they assume (at least within free markets) workers are paid according to their productivity. Mainstream economic theory excludes any distinction between labor and labor power. Therefore, in their view, the only thing that matters is the price of labor and, in their models, workers are paid their full value. Mainstream economists assume we live in the land of freedom, equality, and just deserts. Thus, everyone gets what they deserve.

Even if mainstream economists can’t see surplus-value, they’re still haunted by the idea of surplus. Their cherished models of perfect competition simply can’t generate the grotesque levels of inequality in the distribution of income and wealth we are seeing in the United States.

That’s why in recent years some of them have turned to the idea of rent-seeking behavior, which is associated with exceptions to perfect competition. They may not be able to conceptualize surplus-value but they can see—at least some of them—the existence of surplus wealth.

The latest is Mordecai Kurz, who has shown that modern information technology—the “source of most improvements in our living standards”—has also been the “cause of rising income and wealth inequality” since the 1970s.

For Kurz, it’s all about monopoly power. High-tech firms, characterized by highly concentrated ownership, have managed to use technical innovations and debt to erect barriers to entry and, once created, to restrain competition.

d7c290116b17732db276c7a508a98911.16-9-xlarge.1

Thus, in his view, a small group of U.S. corporations have accumulated “surplus wealth”—defined as the difference between wealth created (measured as the market value of the firm’s ownership securities) and their capital (measured as the market value of assets employed by the firm in production)—totaling $24 trillion in 2015.

Here’s Kurz’s explanation:

One part of the answer is that rising monopoly power increased corporate profits and sharply boosted stock prices, which produced gains that were enjoyed by a small population of stockholders and corporate management. . .

Since the 1980s, IT innovations have largely been software-based, giving young innovators an advantage. Additionally, “proof of concept” studies are typically inexpensive for software innovations (except in pharmaceuticals); with modest capital, IT innovators can test ideas without surrendering a major share of their stock. As a result, successful IT innovations have concentrated wealth in fewer – and often younger – hands.

In the end, Kurz wants to tell a story about wealth accumulation based on the rapid rise of individual wealth enabled by information-based innovations (together with the rapid decline of wealth created in older industries such as railroads, automobiles, and steel), which differs from Thomas Piketty’s view of wealth accumulation as taking place through a lengthy intergenerational process where the rate of return on family assets exceeds the growth rate of the economy.

The problem is, neither Kurz nor Piketty can tell a convincing story about where that surplus comes from in the first place, before it is captured by monopoly firms and transformed into the wealth of families.

Kurz, Piketty, and an increasing number of mainstream economists are concerned about obscene and still-growing levels of inequality, and thus remained haunted by the idea of a surplus. But they can’t see—or choose not to see—the surplus-value that is created in the process of extracting labor from labor power.

In other words, mainstream economists don’t see the surplus that arises, in language uniquely appropriate for Halloween, from capitalists’ “vampire thirst for the living blood of labour.”

MFG

Both Donald Trump and Eduardo Porter would have us believe the U.S. trade deficit is a serious problem—and that, if it can brought back into balance, jobs for American workers will be restored.

Nonsense!

Yes, I know, Trump’s attacks on free trade did in fact resonate among working-class voters. And, as I have argued, there is clear evidence that that a tiny group at the top has captured most of the benefits of trade agreements and other measures that have allowed U.S. corporations to engage in increased international trade, both importing and exporting commodities that have boosted their bottom-line.

It’s possible then to make the case (as I did here) that mainstream economists, in their zeal to push globalization forward, ignored those problems and concerns, thus paving the way for Trump’s victory—and, at the same time, that the solutions for those real issues will not come from reducing the trade deficit and supporting a renewal of the manufacturing sector.

First, we have to understand, the U.S. trade deficit has risen and U.S. manufacturing output has fallen not because of the “blind forces” of international trade. For decades now, U.S. corporations have decided to increase their profits by a combination of shifting production to other countries and automating many of the production processes that remain in the United States. And they’ve left the American working-class behind.

Second, there’s no guarantee that increasing manufacturing output within the United States will be accompanied by an equivalent number of new jobs. Just look at the chart at the top of the post. Since 2009, U.S. manufacturing output has increased by more than 38 percent but jobs in the manufacturing sector have only risen by 8.2 percent.

The U.S. trade balance is thus not the problem. The forces of U.S. capitalism have sacrificed the American working-class on the altar of higher profits. They did so before Trump was elected—and they’ve continued to do so since.

Let’s see Trump and Porter balance that.

Sometimes we just have to sit back and laugh. Or, we would, if the consequences were not so serious.

I’ve been reading and watching the presentations (and ensuing discussions) at the Rethinking Macroeconomic Policy conference recently organized by the Peterson Institute for International Economics.

Quite a spectacle it appears to have been, with an opening paper by famous mainstream macroeconomists Olivier Blanchard and Larry Summers and a closing session—a “fireside chat” without the fire—with the very same doyens of the field.

The basic question of the conference was: does contemporary macroeconomics, in the wake of the Second Great Depression, require a few reforms or does it need a wholesale revolution? Blanchard lined up in the reform camp, with Summers calling for a revolution—with the added spice of Adam Posen referring to himself as Trotsky to Summers’s Lenin.

Most people would think it’s about time. They know that mainstream macroeconomics failed spectacularly in recent years: It wasn’t able to predict the onset of the crash of 2007-08. It didn’t even include the possibility of such a crash occurring. And it certainly hasn’t been a reliable guide to getting out of the crisis, the worst since the Great Depression of the 1930s.

So what are the problems according to Blanchard and Summers? In their view, “the events of the last ten years have put into question the presumption that economies are self stabilizing, have raised again the issue of whether temporary shocks can have permanent effects, and have shown the importance of non linearities.”

Only mainstream macroeconomists could possibly have thought that capitalism is self stabilizing. The rest of us—who have read Marx and Keynes as well as the work of Robert Clower, Hyman Minsky, and Axel Leijonhufvud—actually knew something about the roots of capitalist instability: the various ways a monetary commodity-producing economy might (but not necessarily) generate imbalances and instabilities based on the normal workings of the system.

Yes, of course, temporary shocks can have permanent effects. How could they not, when tens of millions of people are thrown out of work and, especially in the wake of the most recent crash, inequality has soared to new heights?

And then there are those “non linearities,” the idea that financial crises are characterized by feedback effects such that shocks, even small ones, “are strongly amplified rather than damped as they propagate.” Bank runs are the quintessential example—whether customers demanding their deposits in the first Great Depression or the run on financial institutions (including insurance companies that issued credit default swaps) that occurred in the midst of the second Great Depression. But that’s not all: when corporations, facing a declining profit rate, choose to sell but not purchase, they make individually rational decisions that can have large-scale social ramifications—for workers, indebted households, and other corporations (on both Main Street and Wall Street).

So mainstream macroeconomists appear to be waking up from their slumber and seeing capitalism as it is—and as it has functioned for 150 years or so.

You’d think, then, with all the rhetoric of reform and revolution, they’d be in favor of questioning the entire edifice of their theories and models. What we get instead is a bit of tinkering, along the lines of the following: (a) monetary policy is limited because of low interest-rates (although it’s still expected to provide generous liquidity in the even of another shock); (b) more active financial regulation, which still may not be able to keep up with the quickly changing and complex structure of the financial sector and actually prevent financial risks; thus (c) fiscal policy should once again be important, both because of the limits on monetary policy and financial regulation and because, with low interest-rates, government debt is less significant.

No, you’re not mistaken, it sounds a lot like a mainstream version of Keynesian macroeconomic policy, which is consistent with the subtitle of the Blanchard and Summers paper: “Back to the Future.”

That’s it? That’s all we’ve learned in the last ten years? Not a word in their paper about the international dimensions of macroeconomics—nothing about international contagion (e.g., the fact that the crisis started in the United States and then engulfed the rest of the world) or cross-border capital flows. And, perhaps even more important, there’s no discussion of inequality and the role it played both in creating the conditions for the crisis or the way it has characterized the nature of the recovery.*

There’s no reform being proposed here, let alone a revolution. It’s just business as usual, which is exactly the way the recovery itself has been treated.

In the end, Blanchard, Summers, and the other participants in the conference are the macroeconomists who developed the current models and policies. Thus, for all they might venture some mild criticisms of the pre-crisis orthodoxy and call for some new ideas, they are so invested in the status quo, no one should expect a truly radical rethinking from them.

To expect otherwise is just laughable.

 

*Yes, there was one paper in the conference on inequality, by Jason Furman, but it was about growth, not macroeconomic policy. The theme of inequality was not taken up in the rest of the conference—and it was even ridiculed (e.g., in terms of the research currently being conducted in the IMF) by Summers in the final session.

 

208_cartoon_wages_to_nowher_large

They keep promising, ever since the recovery from the Great Recession started more than eight years ago, that workers’ wages will finally begin to increase. But they’re not.

Sure, profits continue to rise. And so is the stock market. But not wages. And mainstream economists can’t come up with an adequate explanation of why that’s the case.

U3-wages

We’ve all heard or read the story. According to mainstream economists, as the unemployment rate falls (the blue line in the chart above), a labor shortage will be created and workers’ wages (the red line) will begin to rise.

That’s the promise, at least. But the official unemployment rate is now down to 4.4 percent (from a high of 9.9 percent in 2009) and yet wages (for production and nonsupervisory workers) are only increasing at a rate of 2.3 percent a year—much less than the 4 percent workers saw back in 2007 when the unemployment rate was pretty much the same.

What’s going on?

One of the things going on is the Reserve Army. The existence of a large pool of unemployed and underemployed workers competing with other workers for the available jobs is keeping wage growth at a very low rate.

full-part-time

Consider, for example, the growth of full-time (the green line in the chart above) and part-time work (the purple line) in the United States. Since 1968, the two kinds of employment increased more or less simultaneously—until the most recent crash. Notice in the chart that, as full-time employment fell (from 121.9 million in 2007 to 111 million in 2010), part-time employment soared (from 24.7 million to 27.4 million). But then, even as full-time work began to increase again (reaching 125.8 million in August 2017), part-time employment remained high (27.6 million in that same month).

part-time

And it’s that pool of part-time American workers (in addition to the pool of surplus workers in other countries, increased automation, and low wages in the retail and food-service sectors) that is keeping most workers’ wages from growing.

Mainstream economists keep promising the American working-class an increase in wages. But neither they nor the economic system they celebrate is able to deliver on those promises.

The fact is, the longer those promises are proffered but remain unmet, the more frustrated workers will become. And the more likely it is they will demand a solution—a radically different economic system that doesn’t rely on a Reserve Army and can actually deliver on its promises to workers.