Posts Tagged ‘utopia’

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From the beginning, mainstream macroeconomics has been a battleground between the visible and the invisible hand.

Keynesian macroeconomics, represented on the left-hand side of the chart above, has an aggregate supply curve with a long horizontal section at levels of output (Y or real GDP) below full employment (Yfe). What this means is that the aggregate demand determines the actual level of output, which can be and often is at less than full employment (e.g., when AD falls from AD1 to AD2, output to Y1, and prices to P2), with no necessary tendency to return to full employment and price stability. Therefore, according to Keynesian economists, the visible hand of government needs to step in and, through a combination of fiscal and monetary policy, move the economy toward full employment (at Yfe) and stable prices (at P1).

Neoclassical macroeconomists, like their classical predecessors, have a very different view of the macroeconomy, which is represented on the right-hand side of the chart. They start with a vertical aggregate supply curve at a level of output corresponding to full employment. Therefore, according to their theory—often referred to as Say’s Law or “supply creates its own demand”—aggregate demand does not determine the level of output; instead, it determines only the price level. Thus, for example, if aggregate demand falls (e.g., from AD1 to AD2), output does not change (it remains at Yfe)—only the price level falls (from P1 to P2). On the neoclassical view, the invisible hand of the market maintains full employment (through the labor market) and reverses price deflation (through the so-called real-balance effect) by boosting aggregate demand (back to AD1 from AD2).

Anyone who has read or heard the intense debates concerning capitalism’s recurrent crises, recently and going back to the 1930s, knows that there are significant theoretical and policy differences between Keynesian and neoclassical macroeconomists. For example, Keynesians focus on uncertainty (especially the uncertain knowledge of investors) and the important role of government (especially fiscal) policy, while neoclassicals emphasize the supply side (especially the role of correct “factor prices,” particularly wages) and the necessity of getting government out of the way of markets (relying, instead, on rules-driven monetary policy).*

But there are equally significant similarities between the two approaches. For example, both Keynesian and neoclassical economists tend to blame economic downturns on exogenous events. There is nothing in either theory that recognizes capitalism’s inherent instability. Instead, mainstream macroeconomists of both stripes direct their attention to equilibrium outcomes—of less-than-full employment in the case of Keynesians, of full employment for neoclassicals—such that only something outside the model can shift the underlying variables and cause the economy to move away from equilibrium. That’s why neither group was able to foresee the crash of 2007-08, let alone the other eighteen recessions and depressions that have haunted capitalism during the past century. Their theories literally don’t include the possibility, endogenously created, of capitalism’s ongoing crises.

There’s another, perhaps even more important, similarity I want to draw attention to here: their shared utopianism. The premise and promise of both Keynesian and neoclassical macroeconomics is that, with the appropriate institutions and policies, capitalism can be characterized by and should be celebrated for achieving full employment and price stability. Those are the shared goals of the two theories. And their criteria of success. Thus, each group of macroeconomists is able to claim a position of expertise when the actual performance of the economy achieves, or at least moves closer and closer to, a utopia characterized by levels of output and a price level that corresponds to full employment and price stability.

It is precisely in this sense that the economic utopianism of mainstream macroeconomics conditions and is conditioned by an epistemological utopianism. Because they know how the macroeconomy works—because of their theoretical and modeling certainty—both Keynesian and neoclassical macroeconomists claim for themselves the mantle of scientific superiority. These are the lords of macroeconomic policy, domestically and internationally, moving back and forth among their positions as academics, corporate advisers, and policy experts. Hence the persistent claim on both sides that, if only the politicians and policymakers listened to them and adopted the correct economic policies, everything would be fine. Not to mention the ongoing complaints, again on the part of both groups of mainstream macroeconomists, that their advice has been ignored.

That, of course, is where the critique of mainstream macroeconomics begins—with a radically different utopian horizon. When the explanations and policies of either side are said to have failed, there’s a shift to the opposing viewpoint. Thus, for example, neoclassical macroeconomics held sway (in the United States and elsewhere) in the run-up to the crash of 2007-08—just as it had in the years preceding the first Great Depression. Leading macroeconomists and their students had moved away from and largely ignored anything that had to do with Keynesian macroeconomics (including, most notably, Hyman Minsky’s writings on financial instability). Then, of course, the tables were turned and at least some mainstream macroeconomists went back and discovered (many for the first time) the theories and policies associated Keynesian tradition.

It’s a familiar back-and-forth pendulum swing that we’ve seen in many other countries, in other times. From neoclassical free markets and deregulation to government stimulus and one or another form of reregulation—and back again. But we also need to recognize that the failures of mainstream macroeconomics, when examined from an alternative perspective, have actually succeeded. As I wrote back in 2010, the failure of neoclassical macroeconomists were apparent to many: they

failed to see the onset of the current crises; they have had little to offer in terms of understanding how the crises occurred even after the fact; and they certainly haven’t had much in the way of good policy advice to solve the problems of unemployment, poverty, and inequality. . .

On another level, mainstream economists have succeeded. Not only have they maintained their hegemony within the discipline; their models and policy advice have kept the discussion confined to tinkering with the existing set of capitalist institutions. In terms of policy: a bail-out of Wall Street and a mild set of financial reforms, a small stimulus program, and an expansionary monetary policy. And intellectually: a rediscovery of Keynes and an allowance of behavioral approaches to finance. They haven’t proposed even the public works programs and financial reorganization of the New Deal, let alone an honest debate about capitalism itself.

In this sense, the continued failure of mainstream economists has become a success for capitalism.

That’s why we need to question the shared utopianism of the two sides of mainstream macroeconomics. What has gone missing from much of the current debate, even outside the mainstream, is that full employment and price stability are consistent with the worst abuses of contemporary capitalism. As David Leonhardt recently explained,

The headlines may talk about growth, but we are living in a dark economic era. For most families, income and wealth have stagnated in recent decades, barely keeping pace with inflation. Nearly all the bounty of the economy’s growth has flowed to the affluent.

And if you somehow doubt the economic data, it’s worth looking at the many other alarming signs. “Deaths of despair” have surged. For Americans without a bachelor’s degree, one social indicator after another — obesity, family structure, life expectancy — has deteriorated.

There has been no period since the Great Depression with this sort of stagnation. It is the defining problem of our age, the one that aggravates every other problem. It has made people anxious and angry. It has served as kindling for bigotry. It is undermining America’s vaunted optimism.

In fact, an even stronger argument can be made: the various attempts to move the economy toward full employment and price stability have created the conditions whereby capitalism has both broadened and deepened its presence and made the lives of the vast majority of people even more unstable and insecure.

The utopianism of mainstream macroeconomics represents a dystopia for “most families” attempting to survive within contemporary capitalism.

What’s left then is a critique of the assumptions and consequences of mainstream macroeconomics—of both neoclassical and Keynesian economic theories. The goal is not just to tinker with the theories (e.g., by bringing finance into the discussion) or the policies (such as technocratic changes to the tax code and raising the level of productivity). Recognizing how narrow the existing discourse has become means we need to question the entire edifice of mainstream macroeconomics, including its utopian promise of full employment and price stability.

Only then can we begin to recognize how bad things have gotten under both the successes and failures of mainstream macroeconomics and to imagine and invent a radically different set of economic institutions.

That’s the only utopian horizon currently worth pursuing.

 

*Throughout I refer to two groups of Keynesian and neoclassical macroeconomists. But, of course, both theories have changed over time. Today, the two opposing sides of mainstream macroeconomics are constituted by new Keynesian and new classical theories, with increased attention to the “microfoundations” of macroeconomics. The former emphasizes market imperfections (such as price stickiness and imperfect competition), while the latter dismisses the relevance of market imperfections (and emphasizes, instead, flexible prices and rational expectations). And then, of course, there’s the ever-shifting middle ground, which is the basis of a macroeconomics according to which new Keynesian and new classical are both valid, at different points in the business cycle. Like the earlier neoclassical synthesis, the middle ground of “new consensus macroeconomics” is the approach presented to most students of economics.

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General views of Seattle-based grafitti artists Jonathan Matas and Zach Rockstad's mural called "Up and Down" depicting Karl Marx and Adam Smith located on Mott Street just north of Houston Street in

Mainstream economists refer to it as price theory, everyone else value theory. But whatever it’s called, it’s at the center of economists’ differing explanations of what happens in (and alongside) markets.

As I see it, price/value theory serves as the framework to explain a wide range of phenomena, from how and for how much commodities are exchanged in markets through the determinants of the distribution of incomes to the outcomes—for the economy and society as a whole—of the allocation of resources and commodities through markets.

And each price/value theory has a utopian dimension. It’s not just an accounting for and an explanation of the conditions and consequences of commodity exchange; it’s also a way of thinking about the fairness and justice of markets. It therefore informs (and is informed by) a utopian horizon within and beyond markets.

Let me explain. Mainstream economists today generally rely on a price theory that has been produced, disseminated, and revised by neoclassical economists in a tradition that dates from the late-nineteenth century. Students know it as what they learn in the typical microeconomics course, the rest of us by the celebration of free markets in mainstream theory and policy.*

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The starting point of neoclassical value theory is that commodities exchange on markets at a price (p*) that is determined by supply and demand.** But that’s only the beginning. According to neoclassical economists, supply and demand are ultimately determined by human nature—a combination of tastes and preferences (utility), know-how (technology), and resources (factor endowments)—which are taken as given or exogenous.

And that leads to one of the major conclusions of neoclassical theory: the prices of goods and services, as well as the distribution of income, are ultimately determined by—and therefore reflect—human nature. That’s important because, if for whatever reason you don’t like the existing set of prices of commodities or the distribution of income, you face the formidable task of changing human nature.

Other significant conclusions also follow from neoclassical price theory, including:

  • Everyone gets what they pay for (since price is equal to the ratio of marginal utilities).
  • Everyone is equal (since, via the invisible hand, everyone’s marginal rate of substitution is equal to that of everyone else).
  • Everyone benefits from markets (since utility-maximation and profit-maximization lead to Pareto efficiency, i.e., a situation in which no one can be made better off without making someone worse off).

That’s an extraordinary set of conclusions—about commodities, markets, and capitalism—which is why, as I explain to my students, so much theoretical work has to be done to go from the initial assumptions to the final results.

That set of conclusions is the basis of the utopianism of neoclassical price theory.  According to neoclassical economists, the capitalist distribution of income is fundamentally fair. If every factor of production (e.g., capital and labor) is remunerated according to its marginal contribution to production, and each individual sells to firms the amount of each factor they desire (because of utility-maximization), the resulting distribution represents “just deserts.” It’s fair on an individual level and it represents justice for society as a whole. Let free markets operate, without any external intervention (e.g., by the state), and the result will be both fair and just.

It’s that powerful conclusion that serves as the starting point for value theory, the critique of the core of mainstream economics—with, of course, very different results.

Take the case of Marxian value theory. Marxian economists accept the notions of fairness and justice, a standard upheld by mainstream economists, and then shows that commodities and markets can’t but fail to achieve those goals. They do this, first, by showing that every commodity has two numbers attached to it—exchange-value and value—not just the one—price—and showing how those two numbers are equal only under a very particular set of assumptions. Then, second, they demonstrate that, even if the two numbers are equal (such that the form of value in exchange equals the value of commodities in production), the production of commodities is based on a “social theft,” that is, the exploitation of workers.

Here’s the idea: assume that all commodities exchange at their values (that is, the kind of world—of free markets, private property, perfect information, and so on—presumed by mainstream economists). Labor power, too, is allowed to be bought and sold at its value. But after the value of labor power is realized in exchange and is set to work, more value is extracted than it costs employers to purchase it. In other words, an extra value—a surplus-value—is created by laborers (during the course of production) and appropriated by capitalists (and then realized, when the finished commodities are sold, in exchange).

My view is that the critique of capitalist class exploitation forms the utopian horizon of Marxian value theory. Since exploitation violates the social norms of fairness and justice (of “just deserts,” i.e., that everyone within capitalism gets what they deserve), it points in a quite different direction: the possibility of creating the economic and social conditions whereby exploitation is eliminated.

The differences between neoclassical price theory and Marxian value theory couldn’t be more stark. The differences are even more dramatic when we compare their utopian horizons. Whereas neoclassical price theory leads to a utopian celebration of capitalist markets, Marxian value theory both informs and is informed by a utopian critique of capitalist exploitation—and therefore a movement beyond capitalism.

In both cases—neoclassical price and Marxian value theory—the story about commodity exchange, and therefore the analysis of the form that wealth takes under capitalism, has a utopian dimension. The two theories have that in common. Where they differ is the form that utopian dimension takes. Neoclassical price theory is guided by a utopianism according to which free markets and private property represent the best possible way of organizing an economy—and therefore should be created and defended by any means necessary. Marxian value theory, as I interpret it, serves as a critique of all such utopianisms. It marks their failure, on their own terms, and points in a different direction—toward the possibility (but certainly not the necessity) of eliminating the exploitation that serves as the basis of capitalist wealth, and therefore of creating a different standard of fairness and justice.

As is well known, for generations of Marxian economists that utopian horizon has been summarized as “from each according to their ability, to each according to their needs.”

 

*To be clear, modern neoclassical price theory extends some important aspects of the theory originally elaborated by Adam Smith—such as the focus on individuals and the general praise for free markets—but it also represents a fundamental break from Smith’s theory—especially from the classical labor theory of value Smith and other classical economists (such as David Ricardo) utilized.

**It’s actually a pretty complicated set of steps, which most students are never taught. The key is that p*, the equilibrium price, is determined not just by supply and demand, but by the imposition of a third condition—a market-clearing equation—such that the quantity supplied is arbitrarily assumed to be equal to the quantity demanded.

 

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It’s hard to imagine any kind of utopian project in Puerto Rico—especially after a decade of mounting economic crisis and a savage series of austerity measures, and then of course the widespread devastation of and notably slow recovery from Hurricane Maria.

But that’s exactly what’s taking place on the island, according to a recent report by Naomi Klein in The Intercept.

Puerto-_Crypto-_A  CASA_PUEBLO_APORTACIONES

In fact, in the midst of the disaster, two radically different utopian visions are taking shape: one is a libertarian project of privatization and gated communities for newly minted cryptocurrency millionaires and billionaires; the other aims to create a decentralized form of sovereignty—of energy, food, and much else—for ordinary Puerto Ricans.

Neither vision is new; aspects of both were being articulated before the hurricane reduced much of the island to rubble. But they’ve taken on new urgency, in the midst of the collapse of the old model and the series of shocks—both economic and environmental—that have made contemporary Puerto Rico such a disaster zone.

In many ways, it’s a familiar story. We’ve seen this kind of battle of utopian visions in many cases of “disaster capitalism”: from Chile in the 1970s through post-Katrina New Orleans to the largest ever municipal bankruptcy in Detroit. Each created the possibility of criticizing the existing model and then radically remaking the economic and social landscape.

Puerto Rico is the latest site of this battle of fundamentally different utopian visions.

One such vision is sponsored by the administration of Governor Ricardo Rosselló Nevares, backed by the Financial Oversight and Management Board (which consists of seven members appointed by the President of the United States and one ex-officio member designated by the Governor of Puerto Rico, created by the Puerto Rico Oversight, Management and Economic Stability Act of 2016). Even before Hurricane Maria hit the island, the goal was to cut back on and eventually privatize government services, especially the power grid and public school system, and attract wealthy individuals and create corporate tax havens with massive tax breaks to an island that is functionally bankrupt. The latest step in this plan was announced at Blockchain Unbound, a three-day “immersive” pitch earlier this month at San Juan’s ornate Condado Vanderbilt Hotel for blockchain and cryptocurrencies with a special focus on why Puerto Rico will “be the epicenter of this multitrillion-dollar market.”

Department of Economic Development and Commerce Secretary Manuel Laboy Rivera

used the conference to announce the creation of a new advisory council to attract blockchain businesses to the island. And he extolled the lifestyle bonuses that awaited attendees if they followed the self-described “Puertopians” who have already taken the plunge. As Laboy told The Intercept, for the 500 to 1,000 high-net-worth individuals who relocated since the tax holidays were introduced five years ago — many of them opting for gated communities with their own private schools — it’s all about “living in a tropical island, with great people, with great weather, with great piña coladas.” And why not? “You’re gonna be, like, in this endless vacation in a tropical place, where you’re actually working. That combination, I think, is very powerful.”

The various elements of the other, opposing utopian vision also preceded Maria. Casa Pueblo, a decades-old community and ecology center with deep roots in the Cordillera Central, is one source.

Already a community hub before the storm, the pink house rapidly transformed into a nerve center for self-organized relief efforts. It would be weeks before the Federal Emergency Management Agency or any other agency would arrive with significant aid, so people flocked to Casa Pueblo to collect food, water, tarps, and chainsaws — and draw on its priceless power supply to charge up their electronics. Most critically, Casa Pueblo became a kind of makeshift field hospital, its airy rooms crowded with elderly people who needed to plug in oxygen machines.

Thanks also to those solar panels, Casa Pueblo’s radio station was able to continue broadcasting, making it the community’s sole source of in- formation when downed power lines and cell towers had knocked out everything else. Twenty years after those panels were first installed, rooftop solar power didn’t look frivolous at all — in fact, it looked like the best hope for survival in a future sure to bring more Maria-sized weather shocks.

But there’s also the Segunda Unidad Botijas 1 farm school in Orocovis (where students learn and practice (“agro-ecological” farming), Organización Boricuá (a network of farmers who use traditional Puerto Rican methods), the Citizens Front for the Audit of the Debt (which in the year before Hurricane Maria called for an audit of the island’s debt), and now JunteGente (the People Together, which has begun drafting a people’s platform, one that will unite their various causes into a common vision for a radically transformed Puerto Rico).

So, Puerto Rico is now the home of two radically different utopian visions—one that promises a playground for the super-rich, the other a new model of self-management for the majority of the island’s population.

But there are two problems confronting the second, more popular vision. First, it requires a level of political participation of the population “that has a lot of other things on its plate right now.” Thinking big and scrambling just to survive in the midst of disaster are often difficult to articulate and sustain simultaneously.

The other problem is time—the difference between “the speed of movements and the speed of capital.” As Klein explains,

Capital is fast. Unencumbered by democratic norms, the governor and the fiscal control board can whip up their plan to radically downsize and auction off the territory in a matter of weeks — even faster, in fact, because their plans were fully developed during the debt crisis. All they had to do was dust them off and repackage them as hurricane relief, then release their fiats. Hedge fund managers and crypto-traders can similarly decide to relocate and build their “Puertopia” on a whim, with no one to consult but their accountants and lawyers.

Clearly, the libertarian utopian project clearly has time—and the power of capital and government, in Puerto Rico and on the mainland—on its side. But that doesn’t mean it will win. It can be imposed by decree but it still requires popular consent.

Arguably, the power of that consent is more closely aligned with the

dream of a society with far deeper commitments and engagement — with each other, within communities, and with the natural systems whose health is a prerequisite for any kind of safe future.

The future of Puertopia will be the outcome of the battle between two radically different visions of utopia for the island and its people.

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John Baldessari, “Man Running/Men Carrying Box” (1988-1990)

It was Paul Samuelson who, in 1997, declared with morbid optimism that “Funeral by funeral, economics does make progress.”*

What Samuelson presumed is that, over time, wrong ideas would be killed and laid to rest and better ideas would flourish, thus creating the foundation for progress in economic thought.

That’s what I consider to be the epistemological utopianism of mainstream economic thought: using the correct scientific methods, the work that economists do gets closer and closer to the Truth—the singular, incontestable, capital-t truth. It used to be the case (for Samuelson and many others, such as fellow Nobel laureates Kenneth Arrow, Gerard Debreu, and Paul Krugman) that mathematical models represented the best way of making progress (inspired by a particular conception of nineteenth-century physics).** The current fad is to rely on randomized experiments and big data as evidence that economics is finally becoming a real, empirical science (akin to biology and medicine).

In the first case, rationalism is the reigning theory of knowledge; in the second case, it’s empiricism. However, both theories represent two sides of the same epistemological coin, defined by a radical separation between theory and reality and some sort of correspondence between them. In other words, both rationalism and empiricism are foundationalist theories of knowledge according to which the gap between theory and reality is eventually—”funeral by funeral”—closed.

It’s a utopianism that serves as both the premise and promise of mainstream economists’ practice. And we know something about the consequences of that epistemological utopianism—for example, the combination of ignorance and arrogance when it comes to the work of nonmainstream economists (who stand accused of not doing science and therefore of not contributing to the progress of economics), noneconomists (whose methods are neither mathematically nor empirically rigorous enough), and everyday economists (who either produce cultural representations that accord with the lessons of mainstream economics, in which case they be invoked as illustrations, or whose work is dismissed and needs to be attacked and eradicated, because it runs counter to mainstream economics). Not to mention the idea that, in the midst of the worst economic crises since the first Great Depression, mainstream economists could blithely assert that their theories had done just fine; the only problem was the fact that policymakers hadn’t adequately listened to or followed the advice of mainstream economists. Finally, of course, there’s the closing-off of publishing venues (like the leading journals), research funding (especially the National Science Foundation), teaching positions (especially in research universities), and so on—all in the name of a singular scientific method and conception of truth.

As I have shown (e.g., here and here), mainstream liberals today are also obsessed with the defense of science and capital-t Truth. 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—they increasingly invoke and rely on an absolutist theory of knowledge. And then, of course, claim for themselves the correct side in the current debates. They, too, are guided by the utopianism of essentialist theories of knowledge.

The problems with epistemological utopianism are legion. I’ve mentioned some of the nastier consequences above. But there are other issues. For example, in their defense of absolute truth, they invoke a time—before the current “post-truth” regime—when a set of institutions (such as journalism, science, and the academy) supposedly got it right. Except they can’t ever cite an example of how those institutions successfully adjudicated the facts in play—when, supposedly, there was universal assent to the truth claims, either within the academy or the wider society—and they ignore all the times when they simply got it wrong.

Moreover, they’re willing to admit that the claims to truth are often deflected by lots of other influences—such as narratives, confirmation bias, ethics, and information overload. But the problem is always “out there,” among regular people, and not the scientists themselves (whether in economics or other disciplines). Epistemological utopians simply can’t acknowledge that, in their daily practice, mainstream economists and liberal thinkers are also engaged in story-telling, that they accept evidence that confirms their preconceived notions and assess counter evidence with a critical eye, make ethics-laden decisions based on relations of unequal power, and operate with overconfidence based on the illusion of knowledge.

There are, of course, many alternatives to the utopianism of absolutist epistemology. One of them is what I call “partisan relativism,” associated with the Marxian critique of political economy.

In fact, I (with my friend and frequent coauthor Jack Amariglio) have just published an entry on “epistemology” in the Routledge Handbook of Marxian Economics. There, we discuss many different contributions to Marxian epistemology and highlight the role that postmodernism has played in providing an alternative to and moving beyond the long history of attributing to Marx a modernist project of attempting to delimit the certainly of scientific knowledge from non-science (or ideology). Thus, we write, postmodern Marxists

frequently call attention to the “relativism” that they believe is Marx’s main epistemological message and/or is exemplified in his texts. Marx’s aleatory materialism, for postmodern Marxists, also establishes an under-determination in the realm of knowledge; a discursive whole cannot close itself. Influenced by Jacques Derrida’s conception of “deconstruction,” postmodern Marxists insist that discourse is always marked by slippages, aporia, displacements, and deferments. For them, meaning is overdetermined and uncertain. A certain knower is thus a contradiction in terms.

In addition, if scientific discourse is not the mirror of nature, then there is an “ethical” dimension to all knowledge production. Cornel West, utilizing Richard Rorty among other “pragmatist” philosophers, brings out the enduring, constitutive ethical and political aspects of how and what we know, and what we intend to do with this knowledge.

Thus, we go on to explain, relativist Marxists dispute the claims of a certain knowing subject (indeed, they challenge the very idea that knowledge begins with a knowing subject) and focus instead on how knowledge claims are internal to theoretical frameworks and the manner in which knowledges produce within different theories or discourses have specific—and often quite different—conditions and consequences in the world within which those knowledges are produced.

Thus,

For many Marxist epistemologists, knowledge is active and actionable, and its existence as material image/image of the material is one requisite condition for the revolutionary socioeconomic—especially class—change that Marx vehemently proposed.

And that, in the end, is the utopian moment of Marxian epistemology—not a utopian appeal or aspiration to absolute truth, but instead a practice (one might even call it an ethics) of materialist critique. That critique operates at two different levels: it is a critique of all theoretical claims (such as those made by mainstream economists) that normalize or naturalize the existing economic and social order and a critique of capitalism itself, since from a Marxian perspective capitalist societies are based on and serve to reproduce an exploitative class structure.

It should come as no surprise then that the utopian horizon of Marxian epistemology is summarily rejected by mainstream economists and liberal thinkers—or that the latter’s epistemological utopianism often serves to locate itself within and ultimately to justify, by treating as normal or natural, the existing set of economic and social institutions.

 

*“Credo of a Lucky Textbook Author,” Journal of Economic Perspectives 11 (Spring): 159.

**It’s a particular conception of physics that has been disputed by many others, including Thomas Kuhn (and his theory of “scientific revolutions”), Paul Feyerabend (who argued that there are no useful and exceptionless methodological rules governing the progress of science or the growth of knowledge), Richard Rorty (who criticized the idea of knowledge as representation), and Michel Foucault (who showed that different systems of thought and knowledge—epistemes or discursive formations, in Foucault’s terminology—are governed by different sets of rules). Their criticisms of essentialist epistemologies apply as well to the more recent turn to “empirical” methods as the foundation of economic knowledge.

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The dystopia of the American healthcare system certainly invites a utopian response—a ruthless criticism as well as a vision of an alternative.

As I showed last week, the left-wing response involves a critique of the conditions and consequences of the capitalist organization of U.S. healthcare and the fashioning of a radical alternative. Single-payer, which uses tax revenues to finance the purchase of adequate healthcare services for everyone, is one possibility. On top of that, it is necessary to expand the diversity of healthcare providers, which would include more democratic, cooperative or worker-owned healthcare enterprises.

That’s how activists, educators, and policymakers informed by heterodox economics can begin to rethink the U.S. healthcare system. What about mainstream economics?

Given the persistent attacks on and attempts to replace Obamacare by Republican legislators—against a “government takeover” of healthcare in the name of “free markets”—one would expect mainstream economists to provide a theoretical justification based on their usual utopianism—of an efficient allocation of scarce resources in an economy characterized by private property and individual decisions in unregulated markets.

However, as it turns out, they can’t. And that’s all because of Kenneth Arrow.

Consider, for example, the 2017 New York Times column by Greg Mankiw.

In Econ 101, students learn that market economies allocate scarce resources based on the forces of supply and demand. In most markets, producers decide how much to offer for sale as they try to maximize profit, and consumers decide how much to buy as they try to achieve the best standard of living they can. Prices adjust to bring supply and demand into balance. Things often work out well, with little role left for government. Hence, Adam Smith’s vaunted “invisible hand.”

Yet the magic of the free market sometimes fails us when it comes to health care.

Mankiw, who is known to celebrate free markets in everything, is forced to allow for an exception when it comes to healthcare. (Fellow mainstream economist John Cochrane, in a sharp riposte, argued that “For once, I think Greg got it wrong.”)

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The reason is because, back in 1963, future Nobel Laureate Arrow published “Uncertainty and the Welfare Economics of Medical Care.” Mankiw’s column (and the longer treatment for his textbook [pdf]) is basically a restatement of the issues raised by Arrow over a half century ago.

According to Arrow, healthcare is characterized by a set of “special features,” all of which stem from the “prevalence of uncertainty.” These include the following:

  • an irregular, unpredictable demand for medical care
  • an element of trust in the relationship between patient and provider
  • considerable uncertainty as to the quality of the healthcare provided as well as asymmetry of knowledge concerning that quality
  • a restricted supply (e.g., because of licensing)
  • a combination of price discrimination (e.g., between the insured and uninsured) and price-fixing

In consequence, the healthcare industry cannot be expected to operate along the lines of, or to deliver the same results as, the canonical neoclassical model of perfect competition.

Thus, Arrow concludes,

It is the general social consensus, clearly, that the laissez-faire solution for medicine is intolerable. . .

The logic and limitations of ideal competitive behavior under uncertainty force us to recognize the incomplete description of reality supplied by the impersonal price system.

Neither Arrow nor Mankiw suggests what the alternative is. But it’s clear that, from the perspective of mainstream economics, healthcare cannot be shoehorned into the neoclassical model of perfect competition they use to analyze all other commodities and markets. What we can say is their theory of the economics of healthcare leaves open the possibility of considerable extra-market intervention and regulation.

Healthcare is where the utopianism of neoclassical economics fails.

But then we can ask, where does that utopianism not fail? Why should it hold any better when it comes to other capitalist commodities, such as labor power, money, and land? And, if it does not, then neither the modes of analysis nor the policy conclusions that are central to mainstream economics retain any validity.

In my opinion, that’s why the issue of utopia and healthcare is so important.

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This is the first in a series of blog posts on the utopian dimensions of healthcare.

I’ve written quite a bit about the U.S. healthcare dystopia over the years—including a seven-part series back in 2016.* But I haven’t yet addressed the utopian dimensions of healthcare reform.

The appearance of the new issue of Jacobin Magazine, titled “The Health of Nations,”  is a good occasion to start that discussion. Adam Gaffney starts with much the same question that provoked my own series of blog posts: “if American health care used to be so much worse, why is it in crisis now?”

In part because, despite such wide-ranging reform, the system’s injustices remain unresolved, pervasive, and deadly.

The figures tell the story. Even without Republican rollbacks, twenty-eight million have no insurance, and, according to the Commonwealth Fund, some forty-one million are underinsured. A substantial portion of the nation—predominantly those of low and middle income and disproportionately people of color—cannot afford to see doctors, pay for medicine, or go to the emergency room.

Families who bought silver plans on the Obamacare marketplace still have $8,292 deductibles, but less than half of American households can cover even a $4,000 deductible. Patients take twice-a-day medications only once, skip doses, or fail to ll their prescriptions to save on co-payments. And of course, people die — tens of thousands of people a year—because they lack coverage.

But the crisis in American health care isn’t simply that the ACA didn’t go far enough: it’s that there’s no ACA 2.0 available to finish the job. Real progress has been made, but the incremental reforms left us with a deeply inhumane system.

The problem, as Gaffney sees it, is that

the Right is on the prowl, offering a slew of tired, malicious nostrums about personal responsibility, while liberal reformers have mostly run out of ammunition. But the Left has not, and single payer is now the only potent policy weapon still on the table.

I agree that the Right is attempting to dismantle many of the supports and safeguards, however limited, that are already in place. And liberals simply have nothing new to offer. But, beyond that, should the the utopian horizon for healthcare reform, at least from the Left’s perspective, be limited to Medicare-for-all?

The case Gaffney makes is quite persuasive:

Almost everyone—sick and well, insured and uninsured—has something to gain from this system. Single payer’s universalism is its strength, and the reason we can win it. But the Medicare-for-all movement is both a means and an end: it will clearly make for a happier and healthier nation, but it can also can become a unifying issue within a larger egalitarian political project at a moment of political crisis.

The universalism, I concur, is its strength—much like Social Security, which represents a collective bond whereby current generations of workers contribute to supporting previous generations who are now retired. Single-payer is the use of tax revenues, levied on individuals and corporations, to finance the purchase of adequate healthcare services for everyone. And, yes, it certainly can serve as a key issue within a larger egalitarian project.

But the Medicare-for-all proposal only gets at how healthcare is financed, not how it is produced or provided. It substitutes single-payer for private insurance and individual payments (for copayments and deductibles, and absurdly high expenditures for those without insurance). But it still leaves the mostly profit-driven system of U.S. healthcare services (along with hospitalization, pharmaceutical drugs, nursing homes, rehabilitation facilities, and so on) in private hands.

It therefore doesn’t include a critique of how healthcare is currently provided—by doctors, nurses, technicians, and other healthcare professionals and aides who are forced to have the freedom to work for large profit-making conglomerates—or any kind of proposal to expand the diversity of healthcare providers—whether at the local, regional, and national level, which would include more democratic, cooperative or worker-owned healthcare enterprises.

That’s a utopian horizon—covering both the financing and provision of healthcare—worth articulating and fighting for.

 

*The series started with the problem that, compared to other countries, Americans pay more but get less for their healthcare continued with an analysis of what workers are forced to pay to get access to the healthcare system, the role of healthcare insurance, pharmaceutical companies, hospitals, the double squeeze of declining real incomes and higher healthcare payments, and finally the case for universal, affordable, high-quality healthcare.

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Donald Trump’s decision to impose import tariffs—on solar panels and washing machines now, and perhaps on steel and aluminum down the line—has once again opened up the war concerning international trade.

It’s not a trade war per se (although Trump’s free-trade opponents have invoked that specter, that the governments of other countries may retaliate with their import duties against U.S.-made products), but a battle over theories of international trade. And those different theories are related to—as they inform and are informed by—different utopian visions.

In one sense, Trump and his supporters are right. Capitalist free trade has destroyed cities, regions, livelihoods, and industries. The international trade deals the United States has signed in recent decades have been rigged for the wealthy and have cheated workers. They are replete with marketing scams, hustles, and shady deals, to the advantage of large corporations and a small group of individuals at the top.

But Trump, like all right-wing populists, as I explained recently, offers a utopian vision that looks backward, conjuring up and then offering a return to a time that is conceived to be better. For Trump, that time is the 1950s, when a much larger share of U.S. workers was employed in manufacturing and American industry successfully competed against businesses in other countries. The turn to import tariffs is a way of invoking that nostalgia, the selective vision of a utopia that was exceptional, in terms of both U.S. and world history, and that conveniently conceals or overlooks many other aspects of that lost time, such as worker exploitation, Jim Crow racism, and widespread patriarchy inside and outside households.

It should come as no surprise that mainstream economists, today and in a tradition that goes back to Adam Smith and David Ricardo, oppose Trump’s tariffs and hold firmly to the gospel of free international trade. Once again, Gregory Mankiw has stepped forward to articulate the neoclassical view (buttressed by classical antecedents) that everyone benefits from free international trade:

Ricardo used England and Portugal as an example. Even if Portugal was better than England at producing both wine and cloth, if Portugal had a larger advantage in wine production, Portugal should export wine and import cloth. Both nations would end up better off.

The same principle applies to people. Given his athletic prowess, Roger Federer may be able to mow his lawn faster than anyone else. But that does not mean he should mow his own lawn. The advantage he has playing tennis is far greater than he has mowing lawns. So, according to Ricardo (and common sense), Mr. Federer should hire a lawn service and spend more time on the court.

That’s the basis of neoclassical utopianism—the gains from trade: when international trade is unregulated, and every country specializes according to its comparative advantage, more commodities can be produced at a lower cost and as a result average living standards around the world are improved.

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Like Mankiw, most mainstream economists, who are the only ones represented in the IGM Economic Experts panel, oppose import tariffs (as seen in the chart above) and celebrate the utopianism of free international trade.

That’s true even among mainstream economists who have argued that, in reality, the causes and consequences of international trade may not coincide with the rosy picture produced within the usual textbook versions of neoclassical economic theory.

For example, Paul Krugman was awarded the Nobel Prize in economics for his work demonstrating that the relative advantages most neoclassical economists take as given are in fact products of history. Thus, it is possible for countries to enhance their trade advantages (through creating internal economies of scale) by regulating international trade. But Krugman was also quick to belittle “a steady drumbeat of warnings about the threat that low-wage imports pose to U.S. living standards” and, then, in his first New York Times column, to denounce the critics of the World Trade Organization.

A few years later Paul Samuelson, widely recognized as the dean of modern mainstream economics, 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 gains from the cheaper prices may not compensate for the losses 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. And then Samuelson was immediately taken to task by other mainstream economists, most notably Jagdish Bhagwati (along with his coauthors, Arvind Panagariya and T.N. Srinivasan [pdf]), who argued that “that outsourcing is fundamentally just a trade phenomenon [and] leads to gains from trade.”

Finally, Dani Rodrick, the mainstream economist who has been most critical of the role his colleagues have played as “cheerleaders” for capitalist globalization, still defends the standard models of international trade:

It has long been an unspoken rule of public engagement for economists that they should champion trade and not dwell too much on the fine print. This has produced a curious situation. The standard models of trade with which economists work typically yield sharp distributional effects: income losses by certain groups of producers or worker categories are the flip side of the “gains from trade.” And economists have long known that market failures – including poorly functioning labor markets, credit market imperfections, knowledge or environmental externalities, and monopolies – can interfere with reaping those gains.

But Rodrick, like Krugman, Samuelson, and other mainstream economists who have identified problems with the story told by Mankiw, Bhagwati, and other free-traders—who have “consistently minimized distributional concerns” and “overstated the magnitude of aggregate gains from trade deals”—still holds to the neoclassical utopianism that, with “all of the necessary distinctions and caveats,” more international trade can and should be promoted. Thus, as Rodrick argued just last week,

If our economic rules empower corporations and financial interests excessively, then the correct response is to rewrite those rules — at home as well as abroad. If trade agreements serve mainly to reshuffle income to capital and corporations, the answer is to rebalance them to make them friendlier to labor and society at large.

The goal is to make sure everyone, not just “corporations and financial interests,” benefits from international trade.

But recent criticisms of trade deals from within mainstream economics still don’t include the possibility that capitalism itself, with or without free international trade and multinational trade agreements, however the rules are written, privileges one class over another. Capital gains at the expense of workers because it is able to extract a surplus for literally doing nothing. That kind of social theft occurs—both when international trade is regulated and controlled and when it is allowed to operate free of any such interventions.

That’s why Karl Marx ironically came out in support of free trade in his famous speech to the Democratic Association of Brussels at its public meeting of 9 January 1848:

If the free-traders cannot understand how one nation can grow rich at the expense of another, we need not wonder, since these same gentlemen also refuse to understand how within one country one class can enrich itself at the expense of another.

Do not imagine, gentlemen, that in criticizing freedom of trade we have the least intention of defending the system of protection.

One may declare oneself an enemy of the constitutional regime without declaring oneself a friend of the ancient regime.

Moreover, the protectionist system is nothing but a means of establishing large-scale industry in any given country, that is to say, of making it dependent upon the world market, and from the moment that dependence upon the world market is established, there is already more or less dependence upon free trade. Besides this, the protective system helps to develop free trade competition within a country. Hence we see that in countries where the bourgeoisie is beginning to make itself felt as a class, in Germany for example, it makes great efforts to obtain protective duties. They serve the bourgeoisie as weapons against feudalism and absolute government, as a means for the concentration of its own powers and for the realization of free trade within the same country.

But, in general, the protective system of our day is conservative, while the free trade system is destructive. It breaks up old nationalities and pushes the antagonism of the proletariat and the bourgeoisie to the extreme point. In a word, the free trade system hastens the social revolution. It is in this revolutionary sense alone, gentlemen, that I vote in favor of free trade.

That’s because Marx’s critique of political economy embodied a utopian horizon radically different from the utopianism of classical and neoclassical economics. He sought to transform economic and social institutions in order to eliminate capitalist exploitation. And if free trade was the quickest way of getting to the point when workers revolted and changed the system, then he would vote against protectionism and in favor of free trade.

As it turns out, as Friedrich Engels explained forty years later, both protectionism and free trade serve, in different ways, to produce more capitalist producers and thus to produce more wage-laborers. In our own time, Trump’s protective tariffs may do that in the United States, just as free trade has accomplished that in other countries that have increased their exports to the United States.

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But neither protectionism nor free trade can succeed in undoing the “elephant curve” of global inequality, which in recent decades has shifted the fortunes of workers in the United States and Western Europe and those in “emerging” countries and still left all of them falling further and further behind the top 1 percent in their own countries and globally.

Reversing that trend is a goal, a utopian horizon, worth fighting for.