Bulletin of neoliberal pseudoeconomics, 2011

For the list of top articles see Recommended Links section

NEWS CONTENTS

• 20110811 : It's the Political Economy, Stupid! by Peter Dorman: ( Economist's View )
• 20110505 : "No Credible Macroeconomist is a Monetarist Anymore" ( "No Credible Macroeconomist is a 'Monetarist' Anymore", May 05, 2011 )
• 20110505 : Peter Temin: Macroeconomics Has Lost Its Way ( Peter Temin: Macroeconomics Has Lost Its Way, May 05, 2011 )
• 20110326 : What Use is Economic Theory? by Mark Thoma ( March 18, 2011 )

Old News ;-)

[Aug 11, 2011] It's the Political Economy, Stupid! by Peter Dorman:

Economist's View

... While I catch up, let me toss something out for discussion:

It's the Political Economy, Stupid!, by Peter Dorman:

argeec :

The best post I've read in a long time!

Lollipop :

to argeec... Me too. I recently spent some time back with the working class side of my family due to a death and I was startled by just how bad things were for them. No leave, paid or unpaid, for a family death, children losing adult teeth due to lack of funds for dental care, adults so beaten down by multiple hardships they can hardly function. As a middle class person, I don't have the money to make things better, but I can damn well see when it's time to remind the elites that there are limits to how much oppression people will take before they get chaos.

JeffF :

to Lollipop... So far in the UK the elite seems to think the solution is to simply crack down harder.

Ron :

It would have been easier to do in the sixties, but almost everyone except racial minorities were fat dumb and happy then. MLK had begun to change his focus from race to poverty and economic equality but a sniper ended that. Boutique liberals at a disco were not exactly a revolutionary crowd. Most revolutionary groups at the margins were dominated by dark and sinister agendas of revenge and hate and lust for their own power.

Democracy still needs a little work.

paine :

to Ron... " everyone except racial minorities were fat dumb and happy then" are you speaking of the meany era white wage class ??

you might want to review that period. Notice a little thing called the wage price spiral. Yes the corporate reaction starting with carter/volcker vastly amped by reagan crushed that manifestation of class struggle

But fat dumb and happy. Nope two out of three of those are probably wrong about the white wage class. Yes lots of em were wedged into a pack of reactionary idiots by a wonderously effective two party one two punch. But after the break down of bretton woods and the national de industrialization process began to work its grim magic

Why to me at least a little chauvinist opium seems understandable. Of course at some point you hit bottom go cold turkey and sober up maybe when they get the monkey off their back white job class amerika may find itself in 1931 and begin to take names and kick ass

ilsm :

to paine ... "yes lots of em were wedged into a pack of reactionary idiots by a wonderously effective two party one two punch"

Calvinism, or as the Muslims say

Inch Allah.

Predetermination

Patricia Shannon :

Ron... Minorities have never been the only people who were poor.

me :

"Consequence of rising income/wealth inequality: riots in Middle East, Israel, UK & popular anger in China. Will they start in the US too? -" Nouriel Roubini

Just sayin......

paine :

to me... exactly never underestimate the people

denim :

"The real problem is political, and it is profound. Unless we can unseat the class that sees the world only through its portfolios, they may well take us all the way down. Unfortunately, no one seems to have a clue how such a revolution can be engineered in a modern, complex, transnational economy."

There are those who make their living with their large portfolios. True. They are the mule. When enough oats are eaten by the mule, the sparrows find a few pass through for them. That mode is via our pension portfolios, 401k portfolios, IRA portfolios and indirectly by the portfolios of our life insurance company. You know the mule hates Social Security and Medicare primarily because it makes no money for him. But strangely enough, we make the oats for the mule. If we become unproductive, the mule's portfolio shrinks. Thus, the mule hates unions because strikes reduce his income. "If I went to work in a factory the first thing I'd do is join a union." FDR

paine :

to denim... there are better contrived set ups to use up local mules out there else where beyond our borders

and yet i see the beginnings of a recycling process in the green sprouts of minimum wage manufacturing

its all highly transport cost dependent right now but ....

we just needed to destroy the legacy of the CIO that is nearly complete

i can imagine a broad meeting of trans national corporate bosses where the key note speaker begins

"mission accomplished"

let us hope Clio makes the bastards eat such words

just a guy :

"Unfortunately, no one seems to have a clue how such a revolution can be engineered in a modern, complex, transnational economy"

Mme. Dufarge knew what to do.

evagrius :

to just a guy... Actually, there might be one approach....

A universal, global day in which no one buys anything.

Shut off electricity, buy no gas, don't go to work, no shopping whatsoever, no watching TV, no computers, no internet, no buying newspapers, no radio, nothing.......

In other words....a full, real, complete Sabbeath day.

A day of silence....mourning for democracy.

It certainly wouldn't cause a complete change but...if truly organized, even on a rolling country basis...who knows?

paine :

great stuff in here for instance

"Keynes was wrong about the power of "academic scribblers". Idea-smiths provide language, narratives and tools for those in control, but the broad contours of policy depend on who the controllers happen to be..... As long as there are even a few economists who proclaim the virtues of austerity and deregulation, however, their views will dominate. They haven't won a battle of ideas; they are simply the ones who have been handed the microphone."

and i'll add if the necessary" few economists " don't already exist then they will be constructed quickly out of the existing crew of highly positioned opportunists

forget the life time sycophants with pure hoodoo models like lucas and sargent and instead think hard about greg mankiw john taylor and marty feldstein ---to be fair it prolly would happen to me if i was worth the effort--

more importantly its my guess put brad delong champion of sane neoliberalism as he is now "out side the tent " put him in the right golden harness shoot bob rubin in front of him and bingo you'd have taylor's intellectual twin --recall the john candy brain wash in volunteers --

----------------

on the other hand

this conflation of finance capital with rentiers is a bad blunder

and this is worse " the ability to see it at a system level presupposes either a system-level organization of the class or the existence of individual interests that are transparently systemic. Neither appears to be the case today"

in fact this all against all when focused not on the generality of corporate capitalism but just among the finance sub class it becomes dead wrong

the various "national" and institutional partitions and fissures exist between finanz corporations, but short of inter great power war this is secondary notice the ease of the bank bail versus the meager auto bail these hi fi guys are well hooked up

we do not suffer from the anarchy of financial striving but its tightly concentrated interests

part versus whole "class" perspectives do not dominate wall street

yes all corporate bottom lines are inter connected this is well understood but hio fi bottom lines are as we discovered hyper inter connected

we need to sharply draw the conflict of class interests here

i think the contrived stag through out the advanced economies suggests the deeper interests conflict arises from a conflict of the corporate global pov and each advanced country's job class's national point of view

its childs play for cross board global playing board MNCs to grasp the preference they manifest for advanced hemisphere stag and emerging hemisphere boom right now

follow the arbitrage

paine :

to paine ... and as for this:

" Unless we can unseat the class that sees the world only through its portfolios, they may well take us all the way down."

its hysterical chicken little nonsense how that motivates organized fight back escapes me when we need to face the daunting task of building the organizations to fight back thru and that looks to require time time some may conclude we don't have before the corpos take us all down

my guess for lots of good folks arriving at that conclusion will sink into despair and depression or desperation

isn't that a likely response to cries of their taking us all down. Shades of eco doom scenarios

paine :

to paine ... look

we have plenty of time to throw these bums out

take that on faith if nothing else

long arch of history bending toward justice and all that

paine :

to paine ... "the narcotic effects of power are such that those who drive the dynamics of elite conflict rarely see the larger picture -- behave, for all practical purposes. as though they were incapable of seeing the larger picture (call it, if you like, discursive hegemony), and those who believe they see a larger picture are structurally excluded from bringing about changes in response to their perception" precisely the type of panic i'm suggesting

corporate stooges doped up on power will crash the planet

ilsm :

to paine ... Living with type II error.........

Soylent green is people.

The eaters have the war machine

The eatees.............

carping demon :

paine ... It's all a matter of scale, under the arc of history, but will our grandchildren be measuring fleas with metersticks or oceans with demitasses?

ken melvin :

Wow! Thanks to you both. What recourse do we have. All the media mentioned the role of unions in the WI elections, none them mentioned the role of the Kochs.

Yang :

This is a great post.

It always is and always will be a power struggle. But then what can we do about it?

I am frustrated with Obama and his administration. However, because of the issues stated in this article, I do end up being like an Obama apologist. But mainly, I still know that Obama and the democrats are still strictly better than ANY Republicans, especially because I want to work on environmental policy. In order to stay in power, they do need to cater to public opinion, which has unfortunately been fiscally conservative for at least a couple of decades now. How can we change that?

mrrunangun :

to Yang... We can change the government by changing the elected officials who comprise it. And keep rejecting incumbents until we get people, at least in the WH who will oppose the banksters' servants in Congress. But if we continue to support the Obamas, Schumers, Franks, et al because their hearts are in the right place on our pet issues, the banksters can rest easy knowing that their will shall be done.

DrDick :

to mrrunangun... This, however, overlooks the stranglehold the rentiers have on the nominations process. We do not even get to vote for anyone they do not approve of. The only way to overcome that is full public financing of elections and barring all private contributions. The current SCOTUS is no likely to allow that.

beezer :

to DrDick... The change, if it comes, will rise from the municipal and state levels.

The DC downshift to states is running further down to municipalities right now. Not later. Now. And it's pissing a whole lot of property taxpayers off.

Time to hang the local nose of anger on the Teapublican/free staters from the bottom up.

DrDick :

to beezer... I agree completely that the resistance must build from the local grassroots up. The rentiers have less of a presence there and it is easier to have a direct perceptible impact. It also establishes an independent organizational structure and trains politicians to compete at higher levels.

foosion :

>>the class that sees the world only through its portfolios>>

Portfolios are not doing very well these days. Equities are down sharply. Bond value are up, but lower yields means lower returns. What good does it do to save a few points of tax when you're losing more than few points of income? What good does it do to hold wages down when that hurts the growth of your portfolio.

A better economy with low taxes and oppressed workers would be ideal for the portfolio class, but lacking that a better economy would be best.

JeffF :

to foosion... Once you are rich enough it matters far more what your wealth is relative to others than what it is absolutely.

Absolute wealth just buys stuff, and the top .1% long ago could buy all the stuff they can think of.

Relative wealthy buys power. Political power. Servants. Cheap underclasses to employ. Freedom to act regardless of the laws that exist or used to exist.

Matt Young :

"Unfortunately, no one seems to have a clue how such a revolution can be engineered in a modern, complex, transnational economy."

We do it all the time, we rebel against central government. Remember where the elites hang out, central government. We are simply a little shocked after the last episode in 1860, but we are over that and the revolutions can continue.

moopheus :

In other words, economics is politics by another means.

Mercutio :

Re: "The real problem is political, and it is profound. Unless we can unseat the class that sees the world only through its portfolios, they may well take us all the way down. Unfortunately, no one seems to have a clue how such a revolution can be engineered in a modern, complex, transnational economy."

There are plenty of ideas about how to do precisely that.

I suggest you begin with John Robb's Global Guerrillas blog

http://globalguerrillas.typepad.com/globalguerrillas/

me :

@just a guy said

Unfortunately, no one seems to have a clue how such a revolution can be engineered in a modern, complex, transnational economy"

SDS United States and SDS Germany.

Michael Vester was a German exchange student (Fulbright at Bowdoin College. Back in Germany he encouraged Gerhard Brandt who coined the term "New Left". University of Michigan, Al Haber became the first president of the US - SDS. Tom Hayden became the public face of SDS and the "New Left".

Vester visited Haber and Hayden at the US SDS headquarters in NY. Thus the collaboration began.

West German students adopted the Black Panthers militancy and became the RAF (Red Army Faction).

As usual the state department and CIA had to be involved. They attempted to sponsor pro-American rallies. The US was surprised at the negative reaction of the German press.

I think the point is, history doesn't repeat, is just rhymes.

[email protected] :

One would think that "those who sit at the pinnacle of wealth" would realize that it's in their best interests to share that wealth more equitably, as in the past. After all, they now have the most to lose.

Sasha :

to [email protected]... Monkey with his fist in the cookie jar.

FDR and Keynes were the true friends of capitalism and the wealthy, but many are not so wise.

wallyfurthermore :

"We are not living through an epoch of intellectual failure, but one in which there is no available mechanism to oust a political-economic elite.."

Oh, there's a mechanism.

beezer :

to wallyfurthermore... Wally, the mechanism is that you go to the local Dem city committee and volunteer. If you have money you give it. Then you host the candidate for the neighbors. Then you hold a sign for four hours on election day.

And now that the Teapublicans have exposed their real selves, many will agree with you and the candidates you support.

If you don't think that doesn't work you weren't paying attention in 2010. Teapublicans said they wanted jobs, and they hung death panels and taking $500 billion away from Medicare, on Democrats. Wipe out.

But now it's clear to all but the retarded that Teapublicans are the ones who want to end Medicare and SS too, just for good measure. Time to use the lesson of 2010, but in reverse.

We can force Obama to be Democrat. We really can. But it takes some effort.

Patricia Shannon :

beezer... Right, beezer.

rufus :

[Dorman] "But the ability to see it at a system level presupposes either a system-level organization of the class or the existence of individual interests that are transparently systemic. Neither appears to be the case today. From what we (you and me) can see from our vantage point, the ruling demands are to make sure my bonds are serviced, my counterparties pony up, the markets I invest in stay liquid, and expenditures for public welfare (i.e. the losers and chiselers) are slashed."

In order to affect the paradigm the incentives must be properly tied. As Reich puts it, the realization that [liberal paraphrasing] 'a slightly smaller piece of a much bigger pie, is better than a large piece of a smaller rotting pie'.

[Robert Reich] http://www.charlierose.com/view/interview/11253

I like his point on missing a golden opportunity to require/extort concessions from the banks/financial elites that would have helped the economy. I would have liked to have seen a significant measure further of imposing specific regulation in exchange for the bailout parachutes (a blank check concession would have been sufficient at the time...hell, what choice did they have). But such is the benefit of hindsight woulda, coulda(s).

[apologies if this is double posted...trying to preview on the run is no bueno]

Sandwichman :

"Unfortunately, no one seems to have a clue how such a revolution can be engineered in a modern, complex, transnational economy."

That's not true. Someone has a clue. A revolution CAN'T be "engineered" by technocrats -- even "progressive" ones. A revolution can only be an organic development. The clue is in the historical narrative that the progressive technocrats spend so little time trying to comprehend.

hapa :

to Sandwichman... how about a short list.

W :

In other words, the ruling ideas of each age have ever been the ideas of its ruling class.

Why not just say that?

Oh, wait... I remember why....

Kevin P. Gallagher :

The most thorough and well researched book on the relationship between economists and the change in macroeconomic policy in the US can be found in a 2002 Cambridge University Press book by Brown University political scientist, Mark Blyth: "Great Transformations: Economic Ideas and Institutional Change in the Twentieth Century"

http://www.amazon.com/Great-Transformations-Economic-Institutional-Twentieth/dp/0521010527

Recommended reading for anyone thinking about political economy in the US and for "recovering economists" like Mark Thoma who rightly said a few weeks back that he needed to look outside the profession. Here is the "product description" of the book:

Mark Blyth argues that economic ideas are powerful political tools as used by domestic groups in order to effect change since whoever defines what the economy is, what is wrong with it, and what would improve it, has a profound political resource in their possession. Blyth analyzes the 1930s and 1970s, two periods of deep-seated institutional change that characterized the twentieth century. Viewing both periods of change as part of the same dynamic, Blyth argues that the 1930s labor reacted against the exigencies of the market and demanded state action to mitigate the market's effects by "embedding liberalism" and the 1970s, those who benefited least from such "embedding" institutions, namely business, reacted against these constraints and sought to overturn that institutional order. In Great Transformations, Blyth demonstrates the critical role economic ideas played in making institutional change possible and he rethinks the relationship between uncertainty, ideas, and interests on how, and under what conditions, institutional change takes place. Mark Blyth is an assistant professor of political science at the Johns Hopkins University specializing in comparative political economy.

William :

I agree completely with this post. But I think things are even more depressing. For the elite almost everyone else (say those below the upper10% of the distribution) is now just an expensive nuisance - their very existence leads to a demand for welfare programmes, Social Security, taxes etc. The traditional factors (Christian charity, fear of revolution, the need for soldiers to defend the rich or domestic servants to attend to their daily wants) which linked the rich and poor have disappeared. As the very rich can avoid taxes (by moving to a suitable haven) or manipulate the political system to remove any element of progression in the system, they can ensure that the crisis is used as an excuse to eliminate the elements of redistribution and insurance which made post-1945 capitalism a productive and socially acceptable system. F

Sasha :

to William... "say those below the upper 10% of the distribution"

You mean they're slumming it? It'd be amazing if the top 1% make the cut.

Jesse :

Which came first, the flawed theories or the corrupting influences that promoted them.

I would not consider the academic scribblers as virtuous in this, as quite a few along with the regulators, etc. proved to be willing tools. And still are.

http://jessescrossroadscafe.blogspot.com/2011/08/great-flaw-in-free-trade-theory-and.html

Fred C. Dobbs :

http://thecaucus.blogs.nytimes.com/2011/08/11/romney-says-corporations-are-people-in-exchange-with-heckler/

NYT - August 11, 2011, Romney to Hecklers: 'Corporations Are People'

A small but aggressive audience challenged Mitt Romney at the Iowa State Fair on Thursday about threats to Social Security and corporate earnings

Mitt Romney, who likes to promote his years in the private sector when out on the stump, offered a glimpse into his own business perspective at the Iowa State Fair on Thursday, telling a group of hecklers, "Corporations are people, my friend."

Mr. Romney was speaking at the fair's soapbox Thursday morning, but when it was time for the question-and-answer session, the mood turned heated, with a small group of angry hecklers calling on Mr. Romney to support raising taxes on the wealthy to help fund social entitlement programs. ...

"We have to make sure that the promises we make in Social Security, Medicare and Medicaid are promises we can keep, and there are various ways of doing that," Mr. Romney said. "One is we can raise taxes on people."

"Corporations!" the protesters shouted, suggesting that Mr. Romney, as president, should raise taxes on large businesses. "Corporations!"

"Corporations are people, my friend," Mr. Romney responded, as the hecklers shouted back, "No they're not!"

"Of course they are," Mr. Romney said, chuckling slightly. "Everything corporations earn ultimately goes to people. Where to do you think it goes?"

When someone in the front row angrily suggested that "it goes in their pockets," Mr. Romney, becoming increasingly animated, asked: "Whose pockets? People's pockets!" ...

-----

Well, rich people's pockets, anyway.

On the other hand, "We have to make sure that the promises we make in Social Security, Medicare and Medicaid are promises we can keep, and there are various ways of doing that," Mr. Romney said. "One is we can raise taxes on people."

So it appears he's FOR raising taxes. Just not on rich people?

Fred C. Dobbs :

Fred C. Dobbs... ... "We're led by a man who is a fine fellow but he's out of his depth and doesn't understand how the economy works," said Mr. Romney, who is leading the Republican field in many polls but is not taking part in Saturday's Iowa Straw Poll.

When the questions turned combative, Mr. Romney held his ground.

"If you want to speak, you can speak, but right now it's my turn," Mr. Romney said to applause, leaning down into the crowd to cut off an elderly man who was yelling at him about Social Security.

"You came here to listen!" the man retorted, to which Mr. Romney replied: "No, no, I came here to talk. Hold on a second, let me speak."

Moments later, when he realized he wasn't changing any of the hecklers' minds, he said they were free to vote for someone else.

"I'm not going to raise taxes - that's my answer," he said. "And if you want someone who can raise taxes, you can vote for Barack Obama."

stunney :

to Fred C. Dobbs... "'We're led by a man who is a fine fellow but he's out of his depth and doesn't understand how the economy works,' said Mr. Romney, who is leading the Republican field in many polls but is not taking part in Saturday's Iowa Straw Poll."

But isn't Romney a Republican?

Republicans' economic record is risibly awful, and demonstrably way worse than that of Democrats:

• http://www.dailykos.com/story/2008/07/17/552884/-Proof:-Democrats-Are-Better-For-the-Economy?detail=hide
• http://www.dailykos.com/story/2010/6/16/876547/-Reagan-Revolution-Home-To-RoostIn-Charts
• http://www.dailykos.com/story/2006/11/05/267042/-Why-Investors-Should-Ditch-the-Republicans
• http://www.angrybearblog.com/2008/10/ranking-presidents-on-real-economic.html
• http://www.asymptosis.com/small-government-spurs-growth-economists-say-no.html

Fred C. Dobbs :

Fred C. Dobbs... Well, do we want a president who will let the Bush Jr Tax-Cuts-For- the-Wealthy expire in 2012, or not?

Obama prepares to revive tax cut debate - for now and 2012 http://t.co/Hw5qzYl - USA Today

Fred C. Dobbs :

Fred C. Dobbs... S&P Does Not Believe The Bush Tax Cuts Will Get Lifted In 2012 http://t.co/tiJk7b5 - Business Insider

A very interesting line in S&P's full report wherein it downgraded the sovereign debt of the US from AAA to AA+.

'Compared with previous projections, our revised base case scenario now assumes that the 2001 and 2003 tax cuts, due to expire by the end of 2012, remain in place. We have changed our assumption on this because the majority of Republicans in Congress continue to resist any measure that would raise revenues, a position we believe Congress reinforced by passing the act.'

rufus :

to Fred C. Dobbs... "We have to make sure that the promises we make in Social Security, Medicare and Medicaid are promises we can keep, and there are various ways of doing that," Mr. Romney said.

This, to me, epitomizes the great 'shell game' of the right. They may be construed as 'promises', or miss-titled as 'entitlements', but in fact they are 'social contracts'. Given that the populace has paid into the accounts and met their part of the agreement over their lifetimes. Failing to keep such 'promises' is a breach of contract.

Fred C. Dobbs :

Fred C. Dobbs... (Mitt got into a lot of trouble in the last Iowa straw poll, basically ended up looking VERY foolish. So, keep a stealthy profile this time. Best way to stay in first place is to keep very low & very quiet. It's not yet about collecting delegates, it's about collecting $$$.)

http://www.nytimes.com/2011/08/11/opinion/bruni-mitt-romneys-vanishing-act.html

NYT - August 10, 2011 - FRANK BRUNI Mitt's Vanishing Act

Pella, Iowa

If the Iowa Republican debate were to provide a truly accurate mirror of the race at this juncture, Tim Pawlenty would wear a sandwich board, with a scrawled plea to the state's voters: "Save me." Michele Bachmann would spin onto the stage in a giant teacup, to find a microphone three times the size of anyone else's and a spotlight four times as bright. Newt Gingrich, looking characteristically put out, would unveil a new campaign slogan: "The Glower for This Hour."

And the party's most likely nominee, Mitt Romney? He wouldn't show. The less seen of him, after all, the better.

That's not my harsh assessment. That's been his de facto campaign strategy this summer.

His curious absence through the debt-ceiling showdown even set off a spirited name game in the news media, with different scribes lofting different sobriquets: the missing Mormon, the phantom front-runner and (courtesy of Ben Smith of Politico) a denizen of the Mittness Protection Program.

Couple his low profile with his history of reinvention and you wind up with a candidate who campaigns in disappearing ink. It's tough to get a read on him, and he leaves no strong impression.

He did, in fact, emerge from Mittness Protection and materialize (or is that Mitterialize?) in Iowa on Wednesday, in advance of the debate, which he will actually attend. But he'll leave before the straw poll on Saturday. Now you see him. Now you don't. ...

Patricia Shannon :

Fred C. Dobbs... I wouldn't vote for Romney, but he is right about this. A corporation is made up of people. The profits go to rich people.

anotherBudgetWonkasaurus :

"The real problem is political, and it is profound. Unless we can unseat the class that sees the world only through its portfolios, they may well take us all the way down."

The unfortunate thing here is that people have been voting in the very people who will make their lot worse, not better and have been doing it since the Reagan Administration. Revolution? Where? By whom? Are we talking Teajadists here? They aren't going to make anything better for the middle and lower classes because all the cuts they want disproportionately affect those classes. Take education...who benefits from solid public education? Certainly not the classes that can afford to send their seed to private schools, right? And where does that leave the next generation? How about all this Social Security talk? Who does that affect? Certainly not people with 5M in the bank, but the middle and lower classes who now have no pensions, and can't save for retirement because there is nothing left to save after the bills are paid.

So spare me all this talk. I used to care a lot but people are now getting what they voted for. And I hope they get it in spades. Only then might they wake up and realize that they are only screwing themselves.

Lollipop :

to anotherBudgetWonkasaurus... The nomination process is owned by the rentiers and they also control the media. People of limited education and average cognitive skills are at a distinct disadvantage given those realities.

Find it within yourself to have compassion for the duped. We'll need all the compassion, mercy, and forgiveness for each other we can muster if we actually want to take our responsibilities as self-governing adults seriously.

FR :

same comments as I posted in the original thread....

Thanks for the very well thought out reasoning in you post.

While you correctly identify the problem and its solution (current "ruling class" and its unseating), you are shy in suggesting how a solution might come about. While I do not advocate violence, history has shown us that fundamentally there are two ways by which subjugated classes improve their position. A traumatic way and less traumatic one.

Revolutions (most egregious examples are the French, Bolshevik, Chinese, and Cuban revolutions), whereby the ruling class, along with its interests, are eliminated by the subjugated classes. A traumatic event indeed, but, in my opinion, not sustainable in the long run unless the entire world adopts those political and economic paradigms.

Less traumatic and, more sustainable in the long term, are the outcomes of strong labor and student movements like the ones that took place in Europe in the 60s and 70s. Those movements made sure to convey to the ruling classes the message that a more equitable wealth distribution and effective social safety net were needed to avoid the extremes and dispossession that a revolution would involve. Reluctantly, the ruling class complied and the social safety nets and income distributions typical of Western Europe emerged.

In the same light, one must interpret the recent unrests in Western European countries (UK, Greece, France) (and most recently in Israel) as a response to the austerity measures taken by conservative governments of these countries to protect rentiers and capitalists. The austerity movement is trying to undo at least some (ideally, all) of the achievements of the 60s and 70s and redistribute wealth away from the "ruled classes", when it is clearly the "ruling class" that should bear most of the cost of its disastrous, reckless, and self-serving policies. While the current message in Western Europe is still not of the same intensity of the 60s and 70s due to a current better wealth distribution than that of the 60s, the message is similar in content and direction. Its intensity may increase if the rentiers and capitalists will insist with their policies.

So, why the US labor and student movements do not materialize or are active to the same extent of the ones in Europe? The answer is very simple… while in Europe the "ruled classes" realized a long time ago that there will never be cooperation between them and the "ruling class", in the US people still believe and pursue the American dream, which is fueled by the once in a while admission of few "mortals" on Mount Olympus. Let's also not forget that constant sense of guilt passed on by the Pilgrims that, somewhat, it is exclusively the individual's fault if his/her life is not better… and, maybe, the Pilgrims they were right given that US citizens keep electing the same (type of) people over and over to lead them. After all, wouldn't you rather have a beer with a nice guy from Texas or Hawaii than protesting in some square?

bakho :

Ronald Reagan famously said, "I am paying for this microphone!"

Dornan is correct, "They haven't won a battle of ideas; they are simply the ones who have been handed the microphone."

Anti-intellectuals have been handed the microphone the same way BigTobacco attacked science linking smoking to cancer, the same way BigOil and DirtyCoal attack climate science or creationists attack evolution.

Al Gore has the right idea with his TV network. Al Gore bought a microphone and simply needs better market penetration to start making more inroads.

Bill McCullam :

We need an Athenian style democracy. There and then one applied one's taxes to what one favored. All Americans can easily be given an option on their IRS 1040 for how their tax dollars be distributed. For example, I may wish to have 60% of my tax dollars given to Medicare, 20% to The Library of Congress, 10% to pay off the national debt, and 10% to The Department of Justice. My neighbor could choose 75% of his contribution to The Marine Corps; 20% to The Department of Transportation, and 5% to The Department of Labor.

ron :

"Genuine public debate and decision-making extends only to those issues on which the elites are divided."

The American public has been focused on the importance of consumption right along with the elites and political class. The elites are elites since they can buy whatever they choose which makes them VIP's to the political class which views it's primary role to create a positive business environment to foster greater consumption. The big issue suddenly is that large parts of the public can no longer practice excessive luxury consumption therefore we have a crisis. If the stock market tanks then the big worry is that the elites might curtail spending, the horror! We all are products of this advertising/consumption mentality including the so called academics along with the elites and political class. The idea that large percentage of the population will suddenly wake up and elect a political class that promotes an alternative to the public's interest in luxury consumption seems extremely unlikely.

beezer :

The big issue is that Teapublicans want to ruin both Medicare and Social Security. That's it. Tell the public they are about to be screwed out of their wages that go to Medicare and SS and that's all you need to do.

If someone says we're broke, just say America has more money than God and you've been lied to. No explanation will be needed.

bakho :

Interesting post.

How likely is it that the wealthy elites that rule the world are pulling the strings themselves?

Is it more likely that they rely on MBA type smartest guys in the room to manage the day to day? Those guys are laser focused on short term and justify their pay by the latest quarter. As long as they get paid before the bottom falls out, they don't care.

The incentives for the political system need to be longer term.

don :

"No, the accretion of power by the rentiers has been systematic, structural and the outcome of a decades-long process." A few things that need to change: An end to "deny and delay" - if financial insitutions used the proper accounting, their net worth would drop greatly. What has been happening lately is some rethinking about the ability of these institutions to 'muddle through' or to pass their losses through to taxpayers, the cusp coming with the U.S. downgrade. I doubt if the pressure will ever come to end Asian currency manipulation. But China 'tightening' to halt inflation and at the same time that it keeps the currency dramatically undervalued? How much of this misbehaving will we put up with? Part of the U.S. worker's plight is increased competition with low-wage foreign suppliers, but part is deliberate underpayment of foreign workers.

Sasha :

Overall excellent and to the point - more to the point these days than a thousand discussions of macroeconomic theory. Is Dorman channeling the spirit of Thorsten Veblen?

One quibble. Dorman mentions "failure of regulation to keep pace with technology and transnational scale". But what's happened is not so much that regulation hasn't kept up, as that regulation has been dismantled (e.g. Glass-Steagall) and enforcement all but eliminated.

Other than a few TLA's (three letter acronyms) such as CDO and CDS, there is very little new here. Veterans of the Panic of 1837, for example, would recognize it immediately.

gunste :

Democracy we have in name only. But this republic is a oligarchic plutocracy. The recent Supreme Court rulings have affirmed it: Money rules the day in elections. One man one vote has given way to moneyed propaganda that changes that motto.

CharlieH :

I think it is the promises about Social Security, Medicare, and Medicaid which Romney would like to change.

The GOP has never accepted any of those three, and would like to rewrite history.

The whole debt issue since the 1980s has played out to the GOP's liking. We raised taxes on the first dollar of incomes - Social Security taxes - to cover future Social Security obligations. Taxes on upper bracket income were cut by a similar amount, and the GOP allowed spending to be increased by a similar amount as well - the GOP was happy to spend the Social Security surplus as it came in AND to run up ADDITIONAL DEBT which would make it difficult to repay the Social Security trust fund bonds. That's what STARVE THE BEAST's basic idea was - don't worry at all about spending or deficits, just get revenues as low as possible, and eventually the gap between spending and revenue would be so big, and the debt so close to spiraling out of control, that spending would have to be cut.

Fast forward to spring 2011. The GOP first tried to simply phase medicare out. That failed miserably - if any seniors remember that in two years, it is quite unlikely that the GOP will retain more than half of the seats in congress they now have. But they then just switched gears to an abstract idea of deficits and debt - and latched onto the only way a gridlocked government could be manipulated to stop spending dead in its tracks, the debt limit. The Govt only brings in 60 cents of every dollar spent!

So now, while the GOP congress is unpopular, they've largely succeeded in getting the narrative across - spending is too high, if we don't radically cut spending particularly for entitlements, the debt will spiral out of control.

I think some in the GOP expect the temporary tax cuts not to be renewed - but they'd much prefer to have that happen than to simply have the top bracket taxes revert while those for lower incomes stay at the reduced rates. GOP can run on a promise either to extend the temporary tax cuts again, retroactively, or to permanently cut them to a lesser extent - and will probably win that battle of votes!

But it should be clear - the plan is to starve govt. We spent 18% of GDP before the Baby Boom generation got out of high school, and before there WAS medicare. We've known since the 1960s that we'd have to increase spending in the long run to pay for full social security benefits for the boomer generation and to account for longer life expectancies. And we've known the same thing re: Medicare, along with the fact that medical inflation would crush the budget.

But where are we now? Revenues are 2.5 standard deviations below the mean - nearly 3 sigma, meaning they don't belong to the same set of data as the typical revenues since 1946. Spending is about 2.1 standard deviations above the mean - though not extraordinarly beyond spending during the Reagan years, and we weren't even at war then. But revenue levels during the Reagan years, though substantially lower than what preceeded them especially for income tax revenues - were pretty close to the post-war mean.

Why would we now have the lowest revenues as a fraction of GDP for the past 65 years, at a time when we have LONG known that revenues would need to begin to increase to accomodate the boomer bulge and rising medicare expenses? If not in order to try to scale back or eliminate those benefits?

[May 05, 2011] "No Credible Macroeconomist is a 'Monetarist' Anymore"

Matt Rognlie asks "Is MV=PY useful?" and answers:

No.

See here for why.

Posted by Mark Thoma on Wednesday, May 4, 2011 at 10:26 AM in

[May 05, 2011] Peter Temin: Macroeconomics Has Lost Its Way

Here are a few passages from a much longer interview of Peter Temin:

Peter Temin in Conversation with The Straddler: ...In my opinion, macroeconomics has lost its way. The kind of models that many people use-general equilibrium models-start from assumptions of ... omniscient consumers, and various like things which give rise to an efficient economy. As far as I know, there has never been an economy that actually looked like that-it's an intellectual construct. But many people claim that the outcomes of that economy are natural outcomes. When you say "natural," you already have an emotionally laden term. Deviations from the "natural"-say, like, minimum wage laws, or unions, or governments that give food stamps, or earned income tax credits-are interferences with the natural order and are therefore "unnatural." ...

The general equilibirum view tends to lend support to those who want to make the economy more efficient in the sense of having fewer "distortions"-you know, all of these neutral economic words-from taxes, from labor unions, from minimum wages, and so on. Now, what has happened in the last thirty years-and this is what Hacker and Pearson note in their book [Winner-Take-All Politics]-is we have gotten ourselves into a feedback situation. As people have gotten richer, conservative people have funded organizations which generate economic research promoting their political views.

I recently reviewed a book [published by the Federal Reserve Bank of Minneapolis and] edited by Timothy Kehoe and Edward Prescott-a Nobel Prize winner in Economics-which had a very distinguished group of people writing about macroeconomics and depressions using the currently fashionable general equilibrium analysis. In my review, I argued that the answers that they got were terrible, that the model-however useful it is for other things-is not useful to analyze the conditions like the conditions today. And I even suggested [here Temin read from the review]:

Lurking behind these presumed inefficiencies appears to be a campaign for minimal government. Minimal government would not require many taxes as it would not have large expenditures; it would not interfere in labor markets, letting individual workers deal with large business firms as ordinary people deal with the grocery store. This is not an attractive place to live for some people, and this book appears to be supporting such an arrangement by stealth, rather than by direct argument. If this is an intended subtext, it would be appropriate for the authors and the Federal Reserve Bank of Minneapolis to bring it out into the open.[3]

The authors of the book deny that that's what they were doing, but I think it is implicit that current economics has a political stance, or at least political implications.[4] But these guys working at the Minneapolis Fed can say, well, you know, we're not partial, we're neutral scientists. ...

A real problem is that a lot of people don't know enough economic history. I'm an economic historian, which is a kind of endangered species. When I think about macroeconomics, I think about the Great Depression a lot because I worked on it and taught about it and so on. But, look, a lot of people in the 90s didn't have personal experience of the Depression. They didn't think it was terribly relevant. ...

To give you an idea about the state of the profession, here's a key piece of advice for getting published in top journals:

1. You always need to think carefully about the journal you submit to, and you need to research the kinds of papers that have been published there; whether the journal seems to be open to your type of work; who the editor is and what his or her orientation is; and who the associate editors are, because they are likely to be referees for your paper.

This is basically saying that if your "orientation" is different from the editors, freshwater instead of saltwater for example, you can forget about publishing in that journal. Yet we hear about open-mindedness, and that "we're not partial, we're neutral scientists."

Posted by Mark Thoma on Wednesday, May 4, 2011 at 10:17 AM i

[Mar 26, 2011] What Use is Economic Theory? by Mark Thoma

March 18, 2011

The "is economics a science" question is currently being debated on econ blogs. Repeating from a post from 2007, Hal Varian says it's a "policy science":

What Use is Economic Theory?, by Hal R. Varian, August, 1989: ...1. Economics as a policy science Part of the attraction and the promise of economics is that it claims to describe policies that will improve peoples' lives. This is unlike most other physical and social sciences. Sociology and political science have a policy component, but for the most part they are concerned with understanding the functioning of their respective subject matters.

Physical science, of course, has the potential to improve peoples' standards of living, but this is really a by-product of science as an intellectual activity.

In my view, many methodologists have missed this essential feature of economic science. It is a mistake to compare economics to physics; a better comparison would be to engineering. Similarly, it is a mistake to compare economics to biology; a better comparison is to medicine. ... None of the ''policy subjects''--- engineering, medicine... ---is much concerned about methodology, and economists, by and large, aren't either.

When you think about it, it is quite surprising that there isn't more work on the methodology of engineering or medicine. These subjects have exerted an enormous influence on twentieth century life, yet are almost totally ignored by philosophers of science. This neglect should be contrasted with with other social sciences where much time and energy is spent on methodological debate. Philosophy of science, as practiced in philosophy departments, seems to be basically concerned with physics, with a smattering of philosophers concerned with psychology, biology, and a few social sciences.

I think that many economists and philosopher who have written on economic methodology have not given sufficient emphasis to the policy orientation of most economic research. One reason for this is the lack of an adequate model to follow. There is no philosophy of engineering [or] philosophy of medicine...---there is no model of methodology for a policy science on which we can build an analysis. The task of constructing such a theory falls to economists. This is, in my view, one of the most interesting problems for those concerned with methodological issues and the philosophy of the social sciences. ...[continue reading]...

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