What are economists good for?

To judge by Christopher Snyder’s attempt to defend contemporary economists, the answer is clear: nothing!

Yes, Snyder is right, economists have expanded their domain, to analyze such issues as art auctions and corruption. But then he goes off the rails.

That’s because the only kind of economics Snyder appears to know about and give credence to is mainstream economics—in terms of what he argues are the “core concepts” that underlie what he presumes to be all economists’ thinking.

What are those core concepts, around which all of us supposedly organize our theories and models?

For starters, Snyder thinks the most important one is “scarcity”:

Devoting resources to one project—say, preventing diabetes—means some other worthy project—curing cancer—goes unserved. So, in determining whether a choice should be undertaken, one of the functions of economics is to argue that its benefits should not be considered in isolation but weighed against its costs. Costs put a dollar value on what has to be given up when one choice is made over another.

But he never even considers the possibility that scarcity is institutionally created, not a given. And different economies are characterized by different kinds of scarcities, which are endogenously produced and reproduced. Thus, capitalism both creates and is characterized different scarcities from other economic systems, such as slavery and feudalism. Where is that in Snyder’s definition of what economists do and the core concepts they supposedly hold.

And then there’s “value,” which for Snyder “is the result of the interaction of several impersonal market forces,” illustrated in the usual fashion:

But there’s no mention of long-run “natural” prices (of the sort classical economists such as David Ricardo or, more recently, Piero Sraffa focused on) or a class theory of value (emphasizing surplus labor, which Karl Marx developed in his critique of political economy)—or any one of a large number of other ways value can be, has been, and is being analyzed within economics.

Finally, Snyder, discusses “modern empirical research” and the attempt to uncover “true causal relationships rather than overinterpreting apparent correlations as causation.”

Uncovering causal relationships is difficult in economics. Opportunities to run experiments are limited by the expense and ethics involved in controlled interventions in markets (although these opportunities are growing, owing to an explosion of interest in laboratory and field experiments).

Once again, Snyder overlooks the many alternative approaches—concerning both “facts” and “causation”—within economics.

Sure, mainstream economists might claim they’ve finally solved the problem of “causal identification” (as they’ve claimed so many other times in the past). But they still fail to acknowledge the possibility that different economic theories produce different sets of facts. Nor do they consider the idea that economists actually use different notions of causation: some limit themselves to essentialist, one-way causation (from given causes to effects), while others, criticize essentialism and look at mutual effectivity (in which everything is seen to be both cause and effect).

The existence of different notions of scarcity, value, and causation within economics doesn’t prove that mainstream economists are wrong. It merely shows that reducing economics to a set of core concepts that pertain only to what mainstream economists do is wrong.

The problem, of course, is that’s the only set of concepts to which generations of students, who have been taught by mainstream economists, have been exposed. And Snyder just continues that tradition.

In the end, mainstream economists are good for nothing precisely because they exclude all other ways of thinking about and doing economics.

Scarce workers?

Readers know the old adage: in this world nothing can be said to be certain, except death and taxes.

And, we should add, employers complaining they can’t find enough good workers.

The fact is, if workers were really scarce, their wages would be rising dramatically. That’s how things works in a capitalist labor market: employers who want to hire workers offer higher wages.

But, according to the latest report from the Bureau of Labor Statistics, average hourly earnings of private-sector production and nonsupervisory employees increased by 4 cents to $21.84—and weekly earnings by $1.34. That’s an annual rate of just 2.1 percent, the same as the rate of inflation.

Workers’ wages continue to increase at a very slow rate because the situation is exactly the opposite of what employers claim: workers are not scarce, they’re abundant.

While the official unemployment rate (the red line in the chart above) was 4.8 percent in January, the expanded (or U6) rate—which includes marginally attached workers and those who are employed part-time but prefer full-time jobs (the green line in the chart)—was a much higher 9.4 percent.

Meanwhile, the civilian employment-population rate (the ratio of total civilian employment to the civilian noninstitutional population or, more simply, the portion of the adult population 16 years and older that is employed) was still below 60 percent—and thus far less than its pre-crash peak (in December 2006) of 63.4 percent.

There are in fact plenty of potential workers out there—in the labor force and in the larger working-age population. But employers would rather complain than pay higher wages to hire them.

Economics of scarcity

Mike the Mad Biologist [ht: sm] casts doubt on the idea of scarcity. And for good reason:

While they seem to have receded somewhat, a couple of years ago, there were quite a few arguments about the fundamentals of economics (especially macroeconomics) and how to teach them. As an outsider, one thing that struck me as odd was the emphasis on scarcity (e.g., economics is called the science of scarcity). It’s odd because, at least in wealthy societies, there are very few scarce items. We’re definitely not slacking in our ability to produce calories, which arguably for most of human, if not hominin, history was the vital concern.

Mainstream economists, as I teach my students, start with the idea of scarcity—the combination of limited means and unlimited desires. And then, after a great deal of math and a wealth of assumptions, they prove that a system of private property and free markets provides a perfect balance between those limited means and unlimited desires.

But, as I also teach them, the mainstream presumption is that scarcity is universal—both transcultural and transhistorical. In other words, they start with the idea that all human beings, in all times and places, have had to confront and solve the problem of scarcity.

An alternative is to see scarcity as an institutional, historical and social, phenomenon. In particular places, at particular times, the existing set of economic and social institutions makes certain goods and services scarce. Thus, for example, oil is scarce because of the particular configuration of the energy industry, the personal car and truck culture, the government-sponsored expansion of the highway system, and so on. That’s what makes oil scarce. Similar stories can be told about the scarcity of water, arable land, good public transportation, high-quality mass education, and so on. Their scarcity is the product of particular sets of institutions in particular societies.

Why is that important? Because, as against the assumption of mainstream economists that scarcity is always with us (and therefore can’t be changed), the idea that scarcity is an institutional phenomenon means that changing economic and social institutions can change or eliminate scarcities.

The same applies, of course, to abundances. Right now, we’re living in a society that has created a surplus of labor (and, as a result, stagnant wages), which is part and parcel of capitalism’s law of population. If we get rid of capitalist institutions, then we can create a new law of population, one in which the labor workers perform and the value they create are not turned against them.

Nature and scarcity

A little over a week ago, in a talk I gave at the Appalachian Center at the University of Kentucky, “Trash the System or Crash the Planet,” I noted that Naomi Klein and many other environmentalists treat the natural environment as scarce, as immutable or given.

What is strange about that argument is that it’s exactly the framework—of unlimited desires and limited means—that forms the basis of the economic theory she and others—including me—are so critical of. It’s how neoclassical economists, the ones who promote free trade and criticize any and all forms of government intervention, understand the world: through the lens of scarcity. It’s how they arrive at their conclusion that, in a world of private property and free markets, self-interested households and corporations will arrive at an efficient allocation of scarce resources. All societies face the same problem—scarcity—and free markets are the best way of dealing with it.

Now, I understand that free-marketeers actually want it both ways: a scarce nature in their neoclassical theories of value, and natural limitations that can ultimately be overcome (as in this recent piece by Matt Ridley) through technological innovation.

But what about that notion of scarcity?

What Klein and others seem NOT to want to imagine is that each society—each way of organizing the economic dimensions of our lives, each way of arranging the production, consumption, and distribution of goods and services—has its own laws of resources, both human and nonhuman. Of workers as well as of oil, of population as well as water. What that means is that changing institutions leads to a change in scarcity—of what is scarce, how it is scarce, what scarcity means, and so on. It is not a question of acknowledging and adapting to scarcity, as neoclassical economists want us to do, but of undoing existing forms of scarcity by changing the institutions whereby we treat resources—again, both human and nonhuman—as scarce. Instead of what? Instead of abundant, overflowing, unproductive, and so on.

What I have in mind, of course, is George Bataille’s critique of the classical notion of utility or usefulness in favor of the notion of expenditure. An abundant instead of a scarce nature.

A concrete example of what I have in mind is a dispute—one that is back in the news as a result of the ruling by a federal judge in favor of seed giant Monsanto Co. in a lawsuit filed on behalf of 60 family farmers, seed businesses and organic agricultural organizations challenging the company’s seed patents. Monsanto is creating a particular kind of scarcity, which is useful to its bottom line, a scarcity of patented seeds and intellectual property, which stands opposed to the farmers who want to save and share seeds, and thus to treat nature as not scarce but abundant. As providing abundant seeds and proliferating food variety and as the basis of livelihood for millions of farmers. Or, to invoke another example, the scarcity of land as private property for cattle ranchers in Brazil versus the abundance of latex, with carefully scored rubber trees, for rubber-tappers like Chico Mendes, who was subsequently killed for attempting to protect the abundance of the forest and the livelihoods of the rubber-tappers.

The challenge, it seems to me, is to treat scarcity as an economic and social construction, as the product of particular kinds of institutions and discourses, and to tap the potential of rethinking nature as abundant.

To do so will allow us to imagine trashing the system and, at the same time, avoid crashing the planet.