Posts Tagged ‘mainstream’

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No matter how many stories I tell them about thought control in economics, students and colleagues in other disciplines simply don’t believe me.

They don’t understand the restrictions on the professors who are hired in many economics departments, the narrow range of methods and perspectives published in the leading economics journals, the limits on economics research projects that actually receive funding, and even the strict surveillance of what can be taught to students in basic undergraduate and graduate economics classes. It’s beyond their imagination that mainstream economists do all they can—within their departments and in the wider discipline—to make sure other approaches (often referred to as heterodox economics and, often, noneconomics) are displaced to (and, in many cases, beyond) the margins.

So, it comes as no surprise to me—but it probably does to everyone outside of economics—that a senior lecture rat the University of Glasgow, Alberto Paloni [ht: sm], an expert in post-Keynesian theory, has been stopped from teaching a core degree module on macroeconomics.

This, after an essay in the Royal Economic Society newsletter specifically cited Paloni’s course as introducing a necessary pluralism into the teaching of economics:

Examples of courses that successfully incorporate pluralist approaches to teaching economics already exist. For instance, the second year macroeconomics course at Glasgow University acknowledges the existence of alternative perspectives within economics and gives students the tools to contrast the standard macroeconomic theory with post-Keynesian economics. Students are made aware of how different perspectives employ different approaches and reach different conclusions, and asks them to evaluate critically how well theories explain empirical evidence. . .In contrast to Glasgow, most macroeconomics courses teach from a single textbook and teach students to solve problems within models as opposed to comparing different types of models and seeing which generate more credible conclusions.

All Paloni did was teach students some Post Keynesian macroeconomics. Post Keynesian theory, for those who are unfamiliar with the term, focuses on elements of the economic approach inspired by John Maynard Keynes (such as time, radical uncertainty, financial fragility, and so on) that are often domesticated by or simply removed from modern mainstream macroeconomics. Nothing too radical, then—just one among many alternatives to the theory that prevails in economics and, as we now know, the set of approaches and policies got us into the current mess.

Fortunately, the students in the Glasgow University Real World Economics Society decided not to take the decision lying down. So, they initiated a petition that received over 150 signatures and was then passed on to the heads of the Department of Economics and the Adam Smith Business School, respectively, as well as to the Principal of the University of Glasgow.

Here are some excerpts from their petition:

It is with great dismay that we are writing this.

It has recently been decided by the Economics Department at our university to remove Dr Alberto Paloni from teaching the course Economics 2B. . .

Economics 2B is compulsory for undergraduate economists at the University of Glasgow and attended by around 400 students each year. Paloni’s part of the course introduces students to heterodox economics with a focus on post-Keynesian economics. This is often the first, if not only, time that economics students engage with heterodox economics in their academic life. The course receives extraordinary student feedback.

The content of the course will, for now at least, remain unchanged. The teaching of it will be resumed by mainstream economists. Next year, more specifically, it will be taught by Prof Tatiana Kirsanova.

With mainstream economists for half a semester teaching perspectives that are highly critical of what they do, we sincerely fear that the content will be completely removed from the course sooner rather than later. Furthermore, until a potential removal, we fear that the heterodox content will be taught with the attitude that it is irrelevant and/or outright wrong.

The removal of Paloni’s teaching has been decided in the name of promoting research-led teaching. The department wants to (A) have Professors teaching Level 1 and 2 and (B) have the Macroeconomics Research Cluster involved in the course. Paloni belongs to the Finance Research Cluster.

We find these reasons dubious. Firstly, we do not think that it is the case that a professorship leads to a higher teaching quality. Secondly, we do not think that it is necessary to hold a professorship in order to teach the fairly basic content in Economics Level 1 and 2. Thirdly, we think that removing the only post-Keynesian economist in the department from teaching post-Keynesian economics is antithetical to the aim of promoting research-led teaching.

This is another story about thought control in economics I’ll tell in the future—and students and colleagues outside of economics again probably won’t believe me.

 

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Mark Tansey, Recourse (2011)

One of the great advantages of economics graduate programs outside the mainstream (like the University of Massachusetts Amherst, where I did my Ph.D.) is we were encouraged to read, listen to, and explore ideas outside the mainstream—especially the liberal mainstream.

The liberal mainstream at the time, not unlike today, consisted of neoclassical microeconomics (with market imperfections) and a version of Keynesian macroeconomics (which was, in the usual IS-LM models, best characterized as hydraulic or bastard Keynesianism). Essentially, what liberal economists offered was a theory of a “mixed economy” that could be made to work—both premised on and promising “just deserts” and stable growth—with an appropriate mix of private property, markets, and government intervention.

For many of us, liberal mainstream economics was a dead end—uninspired and uninspiring both theoretically and politically. Theoretically, it marginalized history (both economic history and the history of economic thought) and ignored the exciting methodological debates taking place in other disciplines (from discussions of paradigms and scientific revolutions through criticisms of essentialism and determinism to fallibilist mathematics and posthumanism). And politically, it ignored many of the features of real capitalism (such as poverty, inequality, and class exploitation) and rejected any and all alternatives to capitalism (in a liberal version of Margaret Thatcher’s “there is no alternative”).

Then as now, what liberal economists offer was, as Gerald Friedman has recently pointed out, a “political economy of despair.”

The reaction to my paper — the casual and precipitous conclusion that it must be wrong because it projects a sharply higher rate of GDP growth — comes from the assumption that the economy is already at full employment and capacity output. It is assumed that were output significantly below full employment, then prices would fall to equilibrate the two. This is the political counsel of despair. It is based on classical economic theory and the underlying acceptance of Say’s Law of Markets (named for the great Classical economist Jean-Baptiste Say), which says that total supply of goods and services and the total demand for goods and services will always be equal. The shoe market creates the right amount of demand for shoes — it works out so neatly that the true measure of the supply of shoes, of potential output, can be taken by measuring actual output. This concept is used as a justification for laissez-faire economics, and the view that the market mechanism finds a harmonious equilibrium. . .

There is, of course, a politics as well as a psychology to this economic theory. If nothing much can be done, if things are as good as they can be, it is irresponsible even to suggest to the general public that we try to do something about our economic ills. The role of economists and other policy elites (Paul Krugman is fond of the term “wonks”) is to explain to the general public why they should be reconciled with stagnant incomes, and to rebuke those, like myself, who say otherwise before we raise false hopes that can only be disappointed.

Fortunately, back in graduate school and continuing after we received our degrees, we were encouraged to look beyond liberal economics—both outside the discipline of economics (in philosophy, history, anthropology, and so on) and within the discipline (to strains or traditions of thought that developed criticisms of and alternatives to liberal mainstream economics).

Marx was, of course, central to our theoretical explorations. But so were other thinkers, such as Axel Leijonhufvud (whose work I’ve discussed before). He—along with others, such as Robert Clower and Hyman Minsky—challenged the orthodox interpretation of Keynes, especially the commitment to equilibrium. Leijonhufvud was particularly interested in what happens within a commodity-producing economy when exchanges take place outside of equilibrium.

The orthodox Keynesianism of the time did have a theoretical explanation for recessions and depressions. Proponents saw the economy as a self-regulating machine in which individual decisions typically lead to a situation of full employment and healthy growth. The primary reason for periods of recession and depression was because wages did not fall quickly enough. If wages could fall rapidly and extensively enough, then the economy would absorb the unemployed. Orthodox Keynesians also took Keynes’ approach to monetary economics to be similar to the classical economists.

Leijonhufvud got something entirely different from reading the General Theory. The more he looked at his footnotes, originally written in puzzlement at the disparity between what he took to be the Keynesian message and the orthodox Keynesianism of his time, the confident he felt. The implications were amazing. Had the whole discipline catastrophically misunderstood Keynes’ deeply revolutionary ideas? Was the dominant economics paradigm deeply flawed and a fatally wrong turn in macroeconomic thinking? And if this was the case, what was Keynes actually proposing?

Leijonhufvud’s “Keynesian Economics and the Economics of Keynes” exploded onto the academic stage the following year; no mean feat for an economics book that did not contain a single equation. The book took no prisoners and aimed squarely at the prevailing metaphor about the self-regulating economy and the economics of the orthodoxy. He forcefully argued that the free movement of wages and prices can sometimes be destabilizing and could move the economy away from full employment.

That helped understand the Great Depression. At that period, wages [were] highly flexible and all that seemed to occur as they fell was further devastating unemployment. Being true to Keynes’ own insights, he argued, would require an overhaul of macroeconomic theory to place the problems of coordination and information front and center. Rather than simply assuming that price and wage adjustments would cause the economy to restore an appropriate level of output and employment, he suggested a careful analysis of the actual adjustment process in different economies and how the economy might evolve given these processes. As such, he was proposing a biological or cybernetic approach to economics that saw the economy more as an organism groping forward through time, without a clear destination, rather than a machine that only occasionally needed greasing.

That “path not taken” might also have helped us understand the Second Great Depression and the uneven—and spectacularly unequalizing—recovery that liberal mainstream economists have supervised and celebrated in recent years.

Meanwhile, the rest of us continue to look elsewhere, beyond the liberal political economy of despair, for economic and political ideas that create the possibility of a better future.

 

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In my experience, most mainstream economists have never heard of much less read a word written by Thorstein Veblen, the author of “the most considerable and creative body of social thought that America has produced.”

But my students (e.g., in Topics in Political Economy) and regular readers of this blog certainly know about Veblen.

Why is Veblen relevant today? Certainly because of his analysis and critique of conspicuous consumption, which is precisely one of the effects of the obscene levels of inequality we’re witnessing.

Veblen is also relevant because, as Adam Davidson explains, Bernie Sanders’s economic ideas are, like Veblen’s, both ruthlessly critical of the mainstream and profoundly optimistic:

Sanders believes that raising the minimum wage, spending a trillion dollars on infrastructure and offering free college will fundamentally shift the structure of our economy toward the poor and middle class. It will inspire such enthusiasm and determination that more people will work harder and invest more, and the country will easily generate the tax income to pay for it. Hence, Sanders’s plans won’t cost money; they’llraise money. Like Veblen, Sanders spends much of his time denouncing the excesses of others, but at heart he is one of the world’s greatest optimists. Sanders obviously understands that his vision of the economy is at odds with the existing way of seeing things. His website and his stump speeches ask his followers whether they’re ready to start a “revolution.”. . .

Of course, for many people who support Sanders, the fact that his ideas run counter to decades of established economics is exactly the point. Some economists, like Dean Baker and Robert Reich, told me they like Sanders not because of his take on any technical debate but because he has forced the profession — and everybody else — to take his issues seriously. No matter what happens in this election, Sanders’s idealism has sent a clear message to traditional economists on the left: They are taking too long to develop answers to the problems of inequality and the corrosive effects of concentrated wealth. It’s a message that institutionalists have been screaming for more than a century. Now, it seems, they are being heard.

Today, Veblen’s most famous book might be reissued (with a foreword by Sanders, certainly one of Vermont’s most controversial figures) and retitled “Theory of the 1 Percent.”

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Mainstream economists (such as Larry Summers and Paul Krugman) are clutching at straws to try to explain capitalism’s poor performance, especially the specter of low investment and slow growth—otherwise known as “secular stagnation.” The latest straw is monopoly power.

Even the Council of Economic Advisers (pdf) is focusing attention on the monopoly straw—although, like others within mainstream economics, they’re not at all clear why it’s happening.

there is evidence of 1) increasing concentration across a number of industries, 2) increasing rents, in the form of higher returns on invested capital, across a number of firms, and 3) decreasing business and labor dynamism. However, the links among these factors are not clear. On the one hand, it could be that a decrease in firm entry is leading to higher levels of concentration, which leads to higher rents. On the other hand, it could be that higher levels of concentration are providing advantages to incumbents which are then used to raise entry barriers, leading to lower entry. Or it might be that some other factor is driving these trends. For example, innovation by a handful of firms in winner-take-all markets could give them a dominant market position in a very profitable market that could be difficult to challenge, discouraging entry. Even though it is not clear whether or how these three factors are linked, these trends are nevertheless troubling because they suggest that competition may be decreasing and could require attention by policymakers and regulators.

While some on the liberal wing of mainstream economics have recently discovered increased concentration within the U.S. economy, they fail to credit the longstanding tradition outside of mainstream economics (e.g., within the Marxian critique of political economy) of analyzing the concentration and centralization of capital and the rise of “monopoly capital.”

Liberal mainstream economists simply have no theory of the contradictory dynamics of capitalism (one that can explain, for example, its recurring boom-and-bust cycles), much less a theory of the firm (other than hanging on to the fantasy of the social benefits of competition). That’s why they don’t have a theory of the causes and consequences of the rise of monopoly capital—nor, for that matter, do they indicate any knowledge of the criticisms of and alternatives to the theory of monopoly capital.

I’m thinking in particular of the work of Bruce Norton who, in a variety of articles, has identified some of the key problems in the theory of monopoly capitalism, especially the presumption that “capitalists always strive to increase their accumulation to the maximum extent possible.”* Norton draws particular attention to the wide variety of distributions of the surplus-value corporate boards of directors appropriate from their workers—not just in the form of dividends, but also “profit taxes, salaries of corporate supervisory managers, lawyers, financial and personnel officers, etc., [which are] equally central to the basic workings of the US economy and particularly aggregate demand.”

Each supports processes shaping in particular ways the social formation, the accumulation process, and the continued appropriation of surplus value, and each is a class process, a distribution of surplus labour. We need accumulation theory which takes pains (1) to identify all these various flows of surplus in a particular social formation and (2) to theorise their variegated inter relationships with other aspects of social life (including the continued extraction of surplus value).

That’s precisely what is missing from mainstream economics, including its liberal wing: a theory of the contradictory class dynamics of capitalist firms and of capitalism as a whole.

 

*See, e.g., his “Epochs and Essences: A Review of Marxist Long-Wave and Stagnation Theories,” published in 1988 in the Cambridge Journal of Economics, and “The Theory of Monopoly Capitalism and Classical Economics,” published in 1995 in History of Political Economy.

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James Sanborn, “Adam Smith’s Spinning Top”

As is well known, mainstream economists are generally opposed to significant increases in the minimum wage and in favor of free international trade. That’s what you’ll find in all the major economics textbooks, the articles and books written by mainstream economics, and in the policy advice they give.

You’ll find a good sampling of their views in the IGM Economic Experts Panel—in questions about trade (from 2012) and the minimum wage (from 2015).

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But there’s a fundamental inconsistency in the case against raising the minimum wage and for free trade. Mainstream economists argue against a minimum-wage increase because it will, so they say, increase unemployment (at least at the bottom of the labor market) . But when it comes to international trade, which has generally hurt employment (at least among certain groups of workers), the argument turns to other things, like efficiency and lower prices for consumer goods.

Their conclusion is that, while the aim of the minimum wage is to help low-wage workers, it actually hurts them. But when it comes to free trade, some workers may be hurt but they (and everyone else) will eventually benefit from lower prices. And, if they don’t all benefit from free international trade, at least it’s possible for the gainers to pay off the losers—but no such argument is made about the minimum wage.

What’s going on? Well, technically, mainstream economists are looking at partial equilibrium (when it comes to the minimum wage) and general equilibrium (concerning free trade) effects. They’re examining a single market in isolation (the labor market) and all markets together (in the case of international trade).

Even more important, they’re demonstrating their theoretical commitment to free markets—the idea that people are hurt by interventions into free markets (like increasing the minimum wage) and benefit from more free markets (especially at the international level). That argument is so ingrained in mainstream markets that it’s impervious to criticism, at least from within mainstream economics.

The idea that the economy might be organized not on the basis of free markets, but on some other foundation—call it community, sharing, subsidiarity, sustainability, or something else—literally makes no sense within mainstream economics.

That’s why mainstream economists continue to spin their free-market top, even though it stops and topples over on a regular basis.

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It doesn’t take a genius to understand that international trade under capitalism creates winners and losers. A few winners and lots of losers.

Generations of heterodox economists have demonstrated exactly that—that, both theoretically and empirically, capitalist trade can and often does have diverging class effects. Mainstream economists, however, persist in arguing exactly the opposite: everyone gains from trade.

They were even warned by one of their own, more than a decade ago. Back in 2004, the late Paul Samuelson, widely recognized as the dean of modern mainstream economists, published an article in the Journal of Economic Perspectives in which he challenged the presumed universal benefits of free trade. It is quite possible, Samuelson argued, that if enough higher-paying jobs were lost by American workers to outsourcing, then the gain from the cheaper prices may not compensate for the loss in U.S. purchasing power. In other words, the low wages at the big-box stores do not necessarily make up for their bargain prices.

But that hasn’t stopped mainstream economists from repeating their story about the benefits to all of expanding trade. In fact, in the midst of the current campaign, in which Donald Trump and Bernie Sanders have recognized and responded to (in very different ways, of course) the insecurities and anxieties of American workers, mainstream economists and their elite allies appear to be even more determined to double-down on their free-trade fantasy.

The latest, in the Wall Street Journal, is from Morton Kondracke and Matthew J. Slaughter.*

Where is the leader with the courage to tell the truth? To say that trade made this nation great, and that trade barriers will destroy far more jobs than they can ever “save.” To explain how trade translates into prosperity and new jobs, and how the disruptions inevitable in a trading economy can be managed for the benefit of those who need help.

There’s nothing new here. Kondracke and Slaughter repeat the usual arguments: the advantage of lower prices for imported goods, the gains from creative destruction, and schemes for those who gain from trade to help the losers.

The fact is, however, workers without jobs and those stuck in low-wage jobs can only afford to buy low-price imported goods; the gains from creative destruction and the shift in the U.S. economy toward services, especially in the financial sector, have been captured mostly by a tiny minority at the top; and, while in principle it’s possible for winners to subsidize losers, it simply doesn’t happen. Capitalists continue to negotiate trade agreements and to offshore jobs while forcing U.S. workers to accept lower wages and fewer benefits—and they continue to capture and keep for themselves most of the gains.

That’s why the ranks of the discontents from capitalist trade have continued to grow.**

*Disclaimer: I supervised Slaughter’s senior thesis on Amartya Sen’s writings on ethics and economics.

**And, to be clear, not just in the United States. Worker unrest is apparently growing in China.

Update

The free traders are certainly under fire but they’re not in retreat. On the contrary. Just as I finished this post, I chanced upon Miriam Shapiro’s flimsy attempt to challenge the “demagogy” of denouncing existing trade details.

I haven’t seen “Boom Bust Boom,” the recently released Monty Pythonesque documentary about capitalism’s periodic crises and the failures of mainstream economics.

However, I have read Andrew O’Heir’s [ht: ja] piece in which he argues the film “finds itself a little behind reality.”

It’s a curious development, and an index of how fast public perception and imagination have shifted. To most regular people in most parts of the world, the thesis that unfettered capitalism is unstable, empowers predatory behavior and worsens inequality is not merely uncontroversial but empirically obvious. We appear to be entering an era of political history when socialist or social-democratic reforms are once again in play. . .

it took more than 20 years after the Clinton-Blair rebranding of the electoral left (as, in effect, the squishier, friendlier right) for large swaths of the public to realize how thoroughly they’d been conned. Now Hillary and payday-lender BFF Debbie Wasserman Schultz and the rest of the compromised Democratic Party apparatus find themselves in a tough spot. . .

Of course Clinton is now walking back her decades-long support for heartless neoliberal policies of austerity, privatization and free trade. At least in the Democratic campaign, she has slid right past the friendly, center-left Keynesianism of “Boom Bust Boom” to position herself as the decaf Bernie, with more hardheaded practicality but only 20 percent less passion. I understand why she thinks that’s the right strategy; I don’t know whether she expects anyone to believe it.

O’Heir also notes the curious omissions in Terry Jones and Theo Kocken’s whimsical documentary:

I honestly can’t tell you why John Maynard Keynes, the father of interventionist macroeconomics and the intellectual avatar of the entire tradition embodied in “Boom Bust Boom,” is never mentioned by name. Have the right-wing attacks on Keynesianism since the Reagan-Thatcher years really rendered him untouchable? I do understand, more or less, why Karl Marx is not mentioned — although it’s time to get over that, for God’s sake.