Posts Tagged ‘markets’


Harry G. Frankfurt (the author of, among other books, On Bullshit) attempts to argue that we aren’t, or at least shouldn’t be, concerned about inequality.

I suspect that people who profess to have this intuition are actually not responding to the inequality they perceive but to another feature of the situation they are observing. What I believe they find intuitively to be morally objectionable in circumstances of economic inequality is not that some of the individuals in those circumstances have less money than others. Rather, it is the fact that those with less have too little.

Branko Milanovic correctly reminds Frankfurt that all our needs are social needs. Thus, there’s no way of distinguishing between “authentic” and “inauthentic” needs and thus no way of being concerned about poverty without worry about inequality.

So, his reasoning brings him back to the beginning where he is unable to define needs as separate from the context where they are expressed. He is  unable to do so because he is unable to distinguish between the so-called “authentic” needs and those that we develop simply by living in a society from the very moment when we are born.We cannot define what the “good life” is independently of the others.

So, his whole edifice crumbles.


That’s one dimension of the problem: all our needs are social needs. (And as Jack Amariglio and I argued back in Postmodern Moments, the modernist Marxian argument that “planning can succeed where markets could not in discerning all of the needs underlying the plan and in calculating all of the effects of instituting it” is “unhelpful and ultimately damaging in distinguishing between capitalism and socialism.”)

But there’s another dimension of the problem: the existence of inequality is bad for everyone within society, the rich and middle class as well as the poor (the argument made by Kate Pickett and Richard Wilkinson), and it is literally a killing field (because, as Göran Therborn has argued, millions of people die premature deaths because of it).

Taken together—the idea that all needs are social needs and that inequality kills individuals and society as a whole—we really do need to be concerned about the grotesque (and rising) levels of inequality in the world today.

To argue otherwise is bullshit.


Special mention

huck3aug 167449_600


I have to laugh when I read the back and forth about who sneered at whom in the battle over mainstream macroeconomics.

According to Paul Romer, Chicago’s rejection of MIT-style macroeconomics was a defensive reaction to the sarcasm of Robert Solow. Paul Krugman says no; Dornbusch, Fischer, and others at MIT tried to meet Chicago halfway but “Chicago responded with trash talk.”


First, is anyone surprised that economists at Chicago and MIT engaged in sarcasm toward each other’s work? That’s what mainstream economists do all the time. They’re dismissive of the work in other academic disciplines. They ridicule radical and heterodox approaches within economics. And, yes, they engage in trash talk about mainstream theories other than their own. All the time. For as long as I’ve been studying economics. And of course even earlier.

Second, we’re going to now explain the pendulum swings of mainstream macroeconomics, back and forth between more Keynesian versions and more neoclassical versions, according to who sneered at whom? There’s a bit more going on here, including developments inside the discipline and events in the world beyond the academy. The trajectory of mainstream macroeconomics both influenced and was influenced by everything else taking place inside and outside the academy (and I doubt trash-talking between schools of thought had a whole helluva lot to do with it).

Modern Economics


So, what did take place? Basically (and Greg Mankiw [pdf] is a pretty good guide here, at least once you set aside the silly language of scientists and engineers), mainstream macroeconomics (the blue and yellow bars in the chart above) was invented in the late-1940s/early-1950s as neoclassical economists (like Paul Samuelson and John Hicks) attempted to domesticate Keynesian economics and combine it with neoclassical economics, thus creating what came to be called the “neoclassical synthesis.” (In those days, the teaching of mainstream economics started with macroeconomics, thus reflecting the problems of capitalist instability that culminated in the first Great Depression, and then turned to the supply-and-demand framework of neoclassical microeconomics. These days, it’s the reverse: micro before macro.) Chicago, too, was part of the synthesis, to the extent that Milton Friedman and others spoke the same language, although of course they arrived at very different conclusions: while Paul Samuelson and Co. believed they’d solved the problem of instability, through active fiscal and monetary policies, Friedman and Co. preached the virtues of free markets and the problems created by government intervention. It was the visible hand of government intervention versus the invisible hand of laissez-faire.*

In the mid-1970s, a new approach emerged at Chicago—the so-called rational expectations revolution of Robert Lucas and Thomas Sargent—that is best described as neo-neoclassical macroeconomics. The idea was that, since on average economic agents had expectations that coincided with the “real” values in the economy (akin to the “correct” predictions of econometricians), including the outcomes of any and all economic policies, it was simply impossible to surprise rational people systematically. Therefore, government policy aimed at stabilizing the economy was doomed to failure.

The “new Chicago” economists then developed a whole series of macroeconomic models based on perfect information, rational expectations, and instantaneously market-clearing prices—whereby the only problems came from “exogenous shocks.” MIT (and Berkeley and other departments) responded by focusing on asymmetric information, “sticky” prices, and other market imperfections that might lead capitalist economies to less than full employment. It’s what we now call call “new Keynesian” economics.

Those are the limits of the current orthodoxy—the limits of the kinds of models that can be used and of the policies that should be adopted. They are the limits of the debate within mainstream economics.

And whatever sneering takes place between the two sides is, for those of us who practice a different kind of economics, merely a storm in a teacup.


*Here I’m referring only to mainstream macroeconomics. All the other approaches, from the Keynesian and Sraffian economics of Cambridge University through Modern Monetary Theory to Marxian economics, were then and continue to be simply sneered at and ridiculed by both MIT and Chicago.


Special mention

jm071415_COLOR_Greece_Euro__15551413_8col lb0710cd_15527189_8col


The Wall Street Journal is absolutely right: Pope Francis acknowledges the scientific consensus concerning the human/social origins of climate change and argues there is “an urgent need” for policies designed to cut carbon emissions and switch to renewable sources of energy.

But the pope goes further by weaving his signature theme of economic justice and his vehement criticism of capitalism throughout the encyclical.

What the pope does is build on the central economic themes of the apostolic exhortation Evangelii Gaudium, and then extend them to the issue of the natural environment, especially the causes and consequences of climate change. The result is a radical critique of contemporary capitalism.

There are many aspects of the 183-page Laudato Si’ I simply cannot discuss here.* What I want to do in this post is highlight some of the specifically economic themes of the papal encyclical that was officially released yesterday.

Many news stories have already highlighted the pope’s rejection of carbon emission trading as a solution to the problem of climate change:

The strategy of buying and selling “carbon credits” can lead to a new form of speculation which would not help reduce the emission of polluting gases worldwide. This system seems to provide a quick and easy solution under the guise of a certain commitment to the environment, but in no way does it allow for the radical change which present circumstances require. Rather, it may simply become a ploy which permits maintaining the excessive consumption of some countries and sectors. (126)

But there is a great deal more in the economics of Laudato Si’.

Throughout the encyclical, the pope highlights the relationship between climate change and the “economy of exclusion,” particularly the way the continued deterioration in the natural (and, he doesn’t overlook, social) environment affects the poorest, most vulnerable people on the planet.** Here are two examples:

Many of the poor live in areas particularly affected by phenomena related to warming, and their means of subsistence are largely dependent on natural reserves and eco-systemic services such as agriculture, fishing and forestry. They have no other financial activities or resources which can enable them to adapt to climate change or to face natural disasters, and their access to social services and protection is very limited. (20)


One particularly serious problem is the quality of water available to the poor. Every day, unsafe water results in many deaths and the spread of water-related diseases, including those caused by microorganisms and chemical substances. Dysentery and cholera, linked to inadequate hygiene and water supplies, are a significant cause of suffering and of infant mortality. (23)

Not surprisingly, this leads to his reiteration of the preferential option for the poor:

In the present condition of global society, where injustices abound and growing numbers of people are deprived of basic human rights and considered expendable, the principle of the common good immediately becomes, logically and inevitably, a summons to solidarity and a preferential option for the poorest of our brothers and sisters. . .We need only look around us to see that, today, this option is in fact an ethical imperative essential for effectively attaining the common good. (117)

And that’s the other side of the focus on the poor: the idea that the natural environment is part of the common good.

Human ecology is inseparable from the notion of the common good, a central and unifying principle of social ethics. The common good is “the sum of those conditions of social life which allow social groups and their individual members relatively thorough and ready access to their own fulfilment [sic]” (116).

So, if it is clear that climate change is a pressing issue, especially for the poor and most vulnerable, what stands in the way of effectively dealing with the problem? Here the pope extends his economic analysis to identify the interests and ideas that represent obstacles to both thinking about and finding appropriate solutions to climate change.

The pope, for example, cites those who stand in the way of making real change:

Many of those who possess more resources and economic or political power seem mostly to be concerned with masking the problems or concealing their symptoms, simply making efforts to reduce some of the negative impacts of climate change. (21)

In the meantime, economic powers continue to justify the current global system where priority tends to be given to speculation and the pursuit of financial gain, which fail to take the context into account, let alone the effects on human dignity and the natural environment. (41)

He also challenges responses that benefit only a tiny minority:

Even as the quality of available water is constantly diminishing, in some places there is a growing tendency, despite its scarcity, to privatize this resource, turning it into a commodity subject to the laws of the market. (23)

In some places, rural and urban alike, the privatization of certain spaces has restricted people’s access to places of particular beauty. . .Frequently, we find beautiful and carefully manicured green spaces in so-called “safer” areas of cities, but not in the more hidden areas where the disposable of society live. (31-32)

In the end, of course, the pope has to confront the problems of profits, markets, and private property.

This is what he writes about profits:

The economy accepts every advance in technology with a view to profit, without concern for its potentially negative impact on human beings. Finance overwhelms the real economy. The lessons of the global financial crisis have not been assimilated, and we are learning all too slowly the lessons of environmental deterioration. (81)

Here he is on markets:

Once more, we need to reject a magical conception of the market, which would suggest that problems can be solved simply by an increase in the profits of companies or individuals. Is it realistic to hope that those who are obsessed with maximizing profits will stop to reflect on the environmental damage which they will leave behind for future generations? Where profits alone count, there can be no thinking about the rhythms of na- ture, its phases of decay and regeneration, or the complexity of ecosystems which may be gravely upset by human intervention. Moreover, biodiversity is considered at most a deposit of economic resources available for exploitation, with no serious thought for the real value of things, their significance for persons and cultures, or the concerns and needs of the poor. (139)

And then on private property:

The principle of the subordination of private property to the universal destination of goods, and thus the right of everyone to their use, is a golden rule of social conduct and “the first principle of the whole ethical and social order”. The Christian tradition has never recognized the right to private property as absolute or inviolable, and has stressed the social purpose of all forms of private property. (69)

Finally, it has been noted that the pope doesn’t offer much in the way of concrete proposals to solve the problem of climate change. But he does mention a number of times the positive effects of a particularly noncapitalist form of economic organization: cooperatives.

Liberation from the dominant technocratic paradigm does in fact happen sometimes, for example, when cooperatives of small producers adopt less polluting means of production, and opt for a non-consumerist model of life, recreation and community. (84)


In some places, cooperatives are being developed to exploit renewable sources of energy which ensure local self-sufficiency and even the sale of surplus energy. This simple example shows that, while the existing world order proves powerless to assume its responsibilities, local individuals and groups can make a real difference. (131)

Throughout the encyclical, the pope could not have stated things more clearly: the “maximization of profits” is destroying the natural environment, the “poor, the weak, and the vulnerable” are most at risk of pollution and climate change, and “halfway measures” simply won’t work.

No wonder the Wall Street Journal is concerned about the pope’s “vehement criticism of capitalism throughout the encyclical.” Many more people might actually come to believe him.


*What I found particularly interesting, in addition to the themes I write about here, are the pope’s criticisms of modern (scientistic) epistemology and the hyper-individualist (neoliberal) subject.

**To be clear, the pope is not just referring to the people in rich and poor countries: “There are not just winners and losers among countries, but within poorer countries themselves” (129). And, he might have added, within rich countries.

matt wuerker

graduation-selfie Tremors


Will market forces solve the problem of stagnant wages and growing inequality?

Mark Thoma says no.

The idea that an improving economy will overcome the problem of stagnating real wages and rising inequality that has existed for decades is suspect. Why should this time be any different from the past? Sure, improvements in labor demand relative to supply could make some difference, and a tight labor market is certainly better for the working class than a labor market will high levels of unemployment and a large number of discouraged workers, but should we suddenly expect workers to receive a higher share of national income – income that has increasingly flowed to those at the very top of the income distribution – once we reach full employment?

The data in the chart above appear to confirm Thoma’s review. Yes, there are moments (such as in 1969 and 2000) when a low unemployment rate gave a boost—however temporary—to the share of national income going to labor. However, as a general trend, the wage share has been falling from 1970 onward (from 51.5 percent then to less than 42 percent today) across many periods of both high and low unemployment.

Today, even as the official unemployment rate continues to decrease, the falling wage share—and, with it, an increasingly unequal distribution of income—shows no sign of abating.

Hence Thoma’s reasonable conclusion:

So long as we continue to believe that market forces and the attainment of full employment will solve the problem of stagnating wages and rising inequality. . .inequality will continue to be a problem.