For those who buy into fairy tale about how markets operate independently of
political power, and state’s instruments of violence (the police and the military), I have a
nice piece of oceanfront property in Arizona.
Chicago neoclassical economics school is a well known pseudo-science school,
one of the pillars of EconomicLysenkoism (along with Supply Side
Economics). This is an economic cult, an ideology of financial oligarchy.
So it is more proper to this school not neoclassical,
but as aptly suggested by Bill Black “theoclassical” or Chicago Ponzinomics. It is a neoliberal phenomenon, not neoclassical. High level of
support by financial oligarchy was crucial for it break into mainstream and even
(despite compete absurdness of its postulates) make it dominant during
1980-2000.
Like
in Lysenkoism, and high demand sects anybody who strays from the cult is in
danger of being ostracized. As Mark Thoma observed:
Some years ago, when I first presented an empirical paper questioning some
of the conventional views on trade to a high profile economics conference, a
member of the audience (a very prominent economist and a former co-author of
mine) shocked me with the question "why are you doing this?"
There is a useful part of neoclassical economy related to thinking about an aggregate
social phenomena in terms of costs and benefits of individual participants, and
that can be sometimes (but not always) as a useful supplementary approach. Bastartized version of
this notion which tries to imply cost-benefit motives in all human interactions is called
Freakonomics. Still you can view some choices people make
as tradeoffs between desired goals and social constraints (which can interpreted
as costs).
Still neoclassical economics as practiced by Chicago school is driven by
ideology and financed by financial oligarchy.
And like Trofim Lysenko and his followers those people are as close to criminals
as one can get. Like Rabbies and Catholic Priests can be criminals, the same
is true about people in academic mantles. Corruption of academics is nothing new,
but corruption of economists is a very dangerous mass form of white-collar crime as close to Madoff and his associates as one can get. This is the way we should look at the
Chicago schools: kind of incarnation of Lysenko henchmen or, if you wish, Chicago
mafia in a university environment. Actually similar way of thinking can be applied to Harvard (see
Harvard Mafia, Andrei Shleifer and the economic rape of Russia ).
Is neoclassical economics a mafia? Sort of, says Christopher Hayes in a very
well-written and very interesting
piece in The Nation. He
says orthodox economists are a close-knit group and are quick to penalize those
among them or from outside who overstep the boundaries. Here is an excerpt:
So extreme is the marginalization of heterodox economists, most people don't
even know they exist. Despite the fact that as many as one in five professional
economists belongs to a professional association that might be described as
heterodox, the phrase "heterodox economics" has appeared exactly once in the
New York Times since 1981. During that same period "intelligent design,"
a theory endorsed by not a single published, peer-reviewed piece of scholarship,
has appeared 367 times.
It doesn't take much to call forth an impressive amount of bile from heterodox
economists toward their mainstream brethren. John Tiemstra, president of the
Association for Social Economics and a professor at Calvin College, summed up
his feelings this way: "I go to the cocktail parties for my old schools, MIT
and Oberlin, and people are all excited about Freakonomics. I kind
of wince and go off to another corner or have another drink." After the EPI
gathering, Peter Dorman, an economist at Evergreen State College with a gentle,
bearded air, related an e-mail exchange he once had with Hal Varian, a well-respected
Berkeley economist who's moderately liberal but firmly committed to the neoclassical
approach. Varian wrote to Dorman that there was no point in presenting "both
sides" of the debate about trade, because one side--the view that benefits from
unfettered trade are absolute--was like astronomy, while any other view was
like astrology. "So I told him I didn't buy the traditional trade theory," Dorman
said. "'Was I an astrologer?' And he said yes!"
Please note that some of the most close to Lysenkoism figures at Chicago, such
as Cochrane and Fama, are in the business school rather than the econ department.
And they were key enablers of Goldman Sacks and Co. looters. Deregulation
wave was promoted by right wing extremists who recruited corrupted academicians
like Milton Friedman to perform specific role of Trojan horse to undermine New Deal.
He managed to made the "invisible hand" a prefect pocket picker! And the method of spreading
influence was essentially borrowed from the Lysenko book: control the economic department
and those who went to college and studied those theories in the 70’s and 80’s would
then go to Wall St and Government and enact them. Control the key academic magazines
and conferences and any aspiring economists need either to conform or leave the
field.
Here is one telling comment about corruption of those modern day Lysenkoists
in the blog
Crooked Timber
ogmb 09.18.09 at 12:01 pm
...Cochrane is the AQR Capital Management Professor of Finance
at the University of Chicago Booth [formerly Graduate] School of Business. Which
incidentally also makes his whining that Krugman ‘accuses us
literally of adopting ideas for pay,
selling out for “sabbaticals at the Hoover institution”
and fat “Wall street paychecks”’ a bit malnourished in the introspection
department, coming from someone who holds a chair sponsored by a quantitative
trading firm at a school sponsored by the founder of an EMH investment
firm. (Nevermind that Krugman never, literally or otherwise, accused Cochrane
and his peers of selling out to Wall Street…)
In this ideologyMilton Friedman
has playied the role of false prophet. Surrounded by "lesser giants" of neoclassical economics, producing continued stream
of detached from reality papers and speeches. It also includes several clown who
as Krugman noted have some qualities of irritable adolescents, but actually are proper
heirs of Academician Trofim Lysenko:
And that same adolescent quality was evident in the reactions to the Obama administration’s
attempts to deal with the crisis — as Brad DeLong points out, people like Robert
Lucas and John Cochrane (not to mention Richard Posner, who isn’t a macroeconomist
but gets his take from his colleagues) didn’t say that when serious scholars
like Christina Romer based policy recommendations on Keynesian economics, they
were wrong; the freshwater crowd declared that anyone with Keynesian views was,
by definition, either a fool or intellectually dishonest. So the freshwater
outrage over finding their own point of view criticized is, you might think,
a classic case of people who can dish it out but can’t take it.
But it’s actually even worse than that.
When freshwater macro came in, there was an active
purge of competing views: students were not exposed, at all,
to any alternatives. People like Prescott boasted that Keynes was never mentioned
in their graduate programs. And what has become clear in the recent debate —
for example, in the assertion that Ricardian equivalence rules out any effect
from government spending changes, which is just wrong — is that
the freshwater side not only turned Keynes into
an unperson, but systematically ignored the work being done in the New Keynesian
vein. Nobody who had read, say,
Obstfeld and Rogoff would have
been as clueless about the logic of temporary fiscal expansion as these guys
have been. Freshwater macro became totally insular.And hence the most surprising
thing in the debate over fiscal stimulus: the raw
ignorance that has characterized so many of the freshwater comments.
Above all, we’ve seen the phenomenon of well-known economists “rediscovering”
Say’s Law and the Treasury view (the view that government cannot affect the
overall level of demand), not because they’ve transcended the Keynesian refutation
of these views, but because they were unaware that there had ever been such
a debate.It’s a sad story. And the even sadder thing is that it’s very unlikely
that anything will change: freshwater macro will get even more insular, and
its devotees will wonder why nobody in the real world of policy and action pays
any attention to what they say.
The proper label for neo-classical economics might be "theological voluntarism",
the term which has some academic aura... There are several issues here:
Excessive dependence or even open prostitution to the financial oligarchy.
It's deplorable but probably unavoidable as the grip of financial community of economic
profession does not requires any additional commentary. Also there are always exceptions
to the rule.
Mathematical masturbation instead of science (Mathiness). When, for example, a
paper that propose even a linear equation (or God forbid differential equation)
does not provide any estimate of errors of input data such a paper in a narrow sense
can be called mathematical masturbation. Classic example here would be any paper
that has inflation as an input variable. In a more broad sense this occurs when
research paper contains results or mathematical model which rely on idealised, with
little connections to reality postulates about the structure of economic activities.
Many supply/demand models belong to this category as they rely on existence of equilibrium
between supply and demand and/or are ignoring Minsky instability hypothesis. Most
neo-classical economics can be called a theory in a desperate search for suitable
reality.
Relying on discredited and openly anti-scientific assumptions or hypothesis.
Examples include, but not limited to "supply side voodoo", "monetarism", "Taylor
rule", "permanent equilibrium fallacy", "invisible hand" (both as a postulate about
absence of manipulation of the markets and the idea that "free markets lead to efficient
outcomes" disregarding the role of government and almost permanent government intervention
as well as issues of economic rent and taxation of participants to support an aristocracy
or oligarchy).
the search for a macroeconomic theory founded on (roughly) neoclassical
micro, which has been the main direction of macro research for 40 years
or so, was a wrong turning, forcing us to retrace our steps and look for
another route.
Think Lucas and Prescott as Mirror-Moses, leading gullible Macroites further
and further from the Promised Land, themselves evermore unable to ask for directions.*
Couldn't have said it better, or with so few expletives, myself. But then, that's
why he has a book contract.
Don’t try to legislate on the market; it is stronger than our puny laws.
It is omnipotent
Don’ try to regulate outcomes, the market with input from all of its participants
always knows best. It is omniscient
Do the right things and the market will reward you, the wrong things and
you’ll be punished. It is beneficent
Omnipotence, omniscience and beneficence are the attributes of a god, not
a mere device for buying, selling and exchanging. - A strange deity that abhors
morality and where even the most atheistic libertarians have been suckered into
believing in the market’s "invisible hands" like multiple Holy Ghosts.
The "Chicago School" is perhaps one of the better known American "schools"
of economics. In its strictest sense, the "Chicago School"
refers to the approach of the members of the Department of Economics at the
University of Chicago over the past century. In a looser sense, the term
"Chicago School" is associated with a particular brand of economics which adheres
strictly to Neoclassical
price theory in its economic analysis, "free market" libertarianism in much
of its policy work and a methodology which is relatively averse to too much
mathematical formalism and willing to forego careful general equilibrium reasoning
in favor of more results-oriented partial equilibrium analysis. In recent
years, the "Chicago School" has been associated with "economic imperialism",
i.e. the application of economic reasoning to areas traditionally considered
the prerogative of other fields such as political science, legal theory, history
and sociology.
The "Chicago School" has had various phases with quite different characteristics.
Nonetheless, the main consistent factor seems to be that it has always held
a unique,distinct and influential place in the realm of economics at any time.
In the modern day, under the "Chicago School" umbrella, we can count various
further schools of thought which are discussed in more detail elsewhere:
e.g. Monetarism
in the 1960s,
New Classical/Real
Business Cycle macroeconomics from the 1970s until today, and more recently,
the
New Institutionalism,
New
Economic History and
Law-and-Economics
movements.
The University of Chicago was founded in 1892 by oil magnate John D. Rockefeller.
Its initial economics department, under the leadership of the American
apologist,
J. Laurence
Laughlin, counted radical American
Institutionalists
such as Thorstein
Veblen,
Wesley Mitchell
and John Maurice
Clark
among its faculty. In this period, the department was like any other in
the United States.
The "Chicago School" really began in the 1920s with the diumvurate of Frank
H. Knight
and Jacob Viner.
They were, for the most part, theoreticians (Knight more in the
Jevonian-Austrian
tradition, Viner leaning towards the
Marshallian).
In an age when empiricism ruled most of American economics, Knight and Viner
set up the economics department at Chicago as a bastion of counter-institutionalism
and, as such, the department soon acquired something of a "siege" mentality.
Also at Chicago during this time were the "Mathematical Trio" --
Oskar Lange,
Henry Schultz
and Paul H.
Douglas
-- economists with a particular bent for the theoretical approach of the
Lausanne School.
Younger faculty included monetary theorists Henry C.
Simons and Lloyd
Mints.
The characteristics of the early Chicago School of 1920-1950 differ considerably
from the later Chicago School. They were highly suspicious of "positivistic"
economic methodology and denounced economic imperialism, arguing for a confined
role for economic analysis (esp. Knight). They were suspicious of the
efficiency claims of laissez-faire economics, arguing for it only on
a "non-consequential" basis. They welcomed active government policies
to cure recessions (esp. Viner's recommendations on "reinflating" the economy,
and Simons's "Chicago
Plan" for counter-cyclical monetary policy), and counted a fully-fledged
socialist in their ranks (Lange). Furthermore, most of the faculty
was not averse to rigorous, theoretical general equilibrium reasoning,
but were leading practitioners of the art (Lange, Schultz, Douglas).
However, like the later Chicago School, the early Chicago School
was hostile to "alternative" economic paradigms. For the most part, they
did not welcome the
Keynesian
Revolution in macroeconomics and denounced the
Monopolistic
Competition approach in microeconomic theory. To a good extent, the
issues these "alternative" paradigms purported to solve, they felt could be
handled reasonably well within the confines of Neoclassical theory.
The economics department underwent an upheaval during the 1940s. Schultz
died with tragic suddenness, Viner left for Princeton, Lange left for political
life in Poland and Douglas became a U.S. Senator. Knight, whose interests
were moving away from economic theory, went into semi-retirement, handing the
reigns of the department over to Simons, Mints and Director.
There was a new injection of blood during this period as the department tried
to regain its bearings. The first lurch was towards
Walrasian
economics. Several students associated with the departed Lange and Schultz
remained -- such as
Yntema
and Mosak
-- and Chicago went on to welcome Jacob
Marschak,
Tjalling
Koopmans and the the
Cowles Commission
right next door. The Walrasian period lasted until 1955, when it moved
(was hounded off?) to Yale.
The 1940s also saw the appointment of development theorists H.
Gregg Lewis
and Bert F.
Hoselitz.
These appointments were accompanied by a group of agricultural economists, Theodore
W. Schultz,
D. Gale Johnson
and Walter Nicholls, who had been left Iowa State in protest over one of the
most famous violations of academic freedom. Apparently, the powers-that-be of
Iowa, home of the American dairy industry, had pressured the university to force
a young economist to recant a study in which he had concluded that margarine
was no less nutritious than butter.
In the 1960s, the department began to congeal into a new shape, led by George
J. Stigler
and Milton
Friedman.
This is what became the "Second" Chicago School, which is perhaps the most famous
and polemical one. Stigler and Friedman were avowed
Marshallians,
and eschewed the methodology of the now-departed Walrasians of the Cowles Commission.
As the contemporary ditty went:
"I read my Marshall completely through
From beginning to end and backward too
I read my Marshall so carefully
That now I am Professor at U of C".
The Stigler-Friedman period was characterized by faithful adherence to Neoclassical
economics and maintained itself dead against the concept of market failures,
reinforcing the Chicago School stance against
imperfect
competition and
Keynesian
economics. Through their influential journals -- notably, the
Journal of Political
Economy and the
Journal of Law and
Economics -- the research programme of the Chicago School was advanced
and diffused. It was the Second Chicago School that is often accused of
being the modern version of
Manchester
School liberalism (or, as some maintain, the more conservative tradition
of
American apologism).
In microeconomics, led by George
Stigler,
the guiding maxim in the Chicago approach was to preserve the Neoclassical paradigm
whenever possible, never to doubt it. When there is no obvious solution to a
particular problem, the recommended course was to extend the Neoclassical paradigm
by incorporating new concepts into it that would make the subject matter amenable
to economic analysis. Examples of extensions to the Neoclassical paradigm conceived
by Chicago economists are search theory (due to George
Stigler),
human capital theory (due to Gary
Becker
and T.W.
Schultz) and property rights/transaction cost theory (due to Ronald H.
Coase).
The Chicago School's impulse for extension of Neoclassical price theory is
largely responsible for the "imperialist" character of which it is often accused.
Business
and finance, previously the prerogative of practitioners and business schools,
were brought into the economic spotlight by Chicago economists such as A.W.
Wallis,
Harry Markowitz,
Merton H. Miller
and Eugene F.
Fama. Further afield, political science and institutional theory were
brought into Neoclassical economics by Chicago School economists such as G.J.
Stigler,
R.H. Coase,
James Buchanan,
Armen Alchian
and Harold
Demsetz. Economic history were given a Neoclassical reading by Robert
W. Fogel
and Douglas C.
North,
while the Chicago Law School (esp. Richard
Posner
and William M.
Landes)
used economics to rethink swathes of legal theory. Perhaps most famously,
sociological issues like addiction, family and even marriage were given a thoroughly
economic interpretation in the hands of Gary S.
Becker
and Jacob Mincer.
[Naturally, not all the "Chicago School" economists are at the University
of Chicago, e.g. Alchian, Mincer, North, etc., but it is not unreasonable to
argue that they are part of that school of thought.]
[George P. Shultz, better known as the Secretary of Labor and subsequently
of the Treasury under Richard Nixon and later Secretary of State under Ronald
Reagan, Shultz was also professor of industrial relations and later dean of
the Business School at Chicago during the 1960s.]
[It is revealing that the adamantly anti-imperialist Friedrich A.
von Hayek,
who was at Chicago during the 1950s, was confined to an appointment on an interdisciplinary
"Committee on Social Thought", rather than the economics department proper.
Walrasian theory, which has tended to be of more limited scope, has also had
very little presence at Chicago over the past half-century: the only theorist
to have successfully infiltrated the Chicago citadel was Hugo
Sonnenschein,
but then he came as president of the university. With the exception of
the work of Lester
Telser,
the "alternative" paradigm of
game theory
has also been conspicuously absent until recently.]
In macroeconomics, the most renowned phase of the Chicago School has been
that of "Monetarism"
under the leadership of Milton
Friedman,
its best-known advocate. For the longest time, Chicago was the only school in
America not swept by the
Keynesian
Revolution (the presence of Lloyd A.
Metzler
for a brief period on the faculty was exceptional). This does not mean that
the old Chicago School was opposed to government intervention - indeed, Viner's
policy conclusions are at times hard to distinguish from
Keynes's.
But in Friedman'sMonetarism, it found a theoretical and empirical means by which to begin rolling
back the Keynesian revolution. Although prominent in the 1960s, Friedman has
always claimed that the main tenets of Monetarism can be found in the work of
early Chicago School economists such as Henry
Simons.
(see our
survey of Monetarism).
Monetarism has since given way to the more mathematically rigorous
"New Classical"
economics of Robert E.
Lucas in
the 1970s and 1980s. The quantitatively-oriented "Walrasian" flavor of
New Classicism meant that the appointments of Robert
Lucas, Thomas
Sargent,
Michael Woodford and Robert
Townsend
at Chicago met with quite some opposition from the older hands. Nonetheless,
in its policy conclusions and rigorous adherence to Neoclassical theory, the
New Classical school remains by most accounts the natural inheritor of the Chicago
School mantle in modern macroeconomics.
Despite, or perhaps as a result of, its mischievous but always unique perspective,
the University of Chicago has taken in a lion's share of
Nobel Prizes
in economics: Milton
Friedman,
T.W. Schultz,
G.J.Stigler,
R.H. Coase,
G.S. Becker,
M.H. Miller,
R.W. Fogel
and R.E.Lucas
were all on the Chicago faculty when they received their awards. If we
were to add Chicago-trained economists, the list of Nobelists would expand
to include Hebert
Simon, James
Buchanan,
Harry Markowitz
and Myron
Scholes.
"The Influence of Dumping on Monopoly Price", 1928, JPE
A Mathematical Refomulation of the General Theory of International
Trade, 1932.
Student of
Schultz
whose dissertation (1932) proved instrumental to the theory of international
trade, subsequently taking an appointment as professor of statistics
at Chicago Business School. Director of the
Cowles
Commission from 1937 to 1943. In 1949, he joined the finance department
at Ford Motor Corp.
One of the first deans of Chicago's Graduate School of Business,
later Chancellor of the University of Rochester and presently the eminence
grise at the American Enterprise Institute.
Henry Simons and Irving Fisher supported the Chicago Plan to take away the bankers
ability to create money.
"Simons envisioned banks that would have a choice of two types of holdings: long-term
bonds and cash. Simultaneously, they would hold increased reserves, up to 100%. Simons saw
this as beneficial in that its ultimate consequences would be the prevention of
"bank-financed inflation of securities and real estate" through the leveraged creation of
secondary forms of money."
Bankers do need to ensure the money they lend out gets paid back to balance their
books.
Banking requires prudent lending.
If someone can't repay a loan, they need to repossess that asset and sell it to recoup
that money.
If they use bank loans to inflate asset prices they get into a world of trouble when
those asset prices collapse.
As the real estate and stock market collapsed the banks became insolvent as their assets
didn't cover their liabilities.
They could no longer repossess and sell those assets to cover the outstanding loans and
they do need to get the money they lend out back again to balance their books.
The banks become insolvent and collapsed, along with the US economy.
When banks have been lending to inflate asset prices the financial system is in a
precarious state and can easily collapse.
Cont ......
Sound of the Suburbs 2 hours ago
That was the 1920s.
What was the ponzi scheme of inflated asset prices that collapsed in Japan in 1991?
Japanese real estate.
They avoided a Great Depression by saving the banks.
They killed growth for the next 30 years by leaving the debt in place.
Japan could study the Great Depression to avoid this fate.
What was the ponzi scheme of inflated asset prices that collapsed in 2008?
"It's nearly $14 trillion pyramid of super leveraged toxic assets was built on the back
of $1.4 trillion of US sub-prime loans, and dispersed throughout the world" All the
Presidents Bankers, Nomi Prins.
We avoided a Great Depression by saving the banks.
We left Western economies struggling by leaving the debt in place, just like Japan.
It's not as bad as Japan as we didn't let asset prices crash in the West, but it is this
problem has made our economies so sluggish since 2008.
We, in turn, seem to have learnt something from Japan, as they did let asset prices
crash.
The banking system and the markets are still closely coupled.
Any significant fall in asset prices will feed back into the banking system.
We are trapped, and the only way to keep things from collapsing is to keep pumping in
more and more liquidity.
It's a choice
Let the assets bubbles collapse, and watch this feed back into the financial
system.
Keep the whole thing afloat, but make things worse in the long run as the bubbles
just get bigger and bigger.
We've gone for option two.
That's why the FED get so jittery when the markets start to fall.
During the coronavirus lockdowns there was no way the markets could be allowed to
reflect what was going on in the real economy.
The banking system would go down.
Sound of the Suburbs 1 hour ago remove link
They learnt from the mistakes of the 1920s and put regulations in place to ensure this
didn't happen again.
Financial stability arrived in the Keynesian era and was locked into the regulations of
the time.
"This Time is Different" by Reinhart and Rogoff has a graph showing the same thing
(Figure 13.1 - The proportion of countries with banking crises, 1900-2008).
Neoclassical economics came back and so did the financial crises.
The neoliberals removed the regulations that created financial stability in the
Keynesian era and put independent central banks in charge of financial stability.
Why does it go so wrong?
Richard Vague had noticed real estate lending balloon from 5 trillion to 10 trillion
from 2001 – 2007 and knew there was going to be a financial crisis.
Richard Vague has looked at the data for financial crises going back 200 years and found
the cause was nearly always runaway bank lending.
We put central bankers in charge of financial stability, but they use an economics that
ignores the main cause of financial crises, private debt.
Most of the problems are coming from private debt.
The technocrats use an economics that ignores private debt.
The poor old technocrats never really stood a chance.
The globalists found just the economics they were looking for.
The USP of neoclassical economics – It concentrates wealth.
Let's use it for globalisation.
Mariner Eccles, FED chair 1934 – 48, observed what the capital accumulation of
neoclassical economics did to the US economy in the 1920s. "a giant suction pump had by 1929 to 1930 drawn into a few hands an increasing proportion
of currently produced wealth. This served then as capital accumulations. But by taking
purchasing power out of the hands of mass consumers, the savers denied themselves the kind of
effective demand for their products which would justify reinvestment of the capital
accumulation in new plants. In consequence as in a poker game where the chips were
concentrated in fewer and fewer hands, the other fellows could stay in the game only by
borrowing. When the credit ran out, the game stopped"
This is what it's supposed to be like.
A few people have all the money and everyone else gets by on debt.
I've been following her work for several months now and think her premises much sounder
than Matthew Ehret's, who are actually on the same Canadian team. Generally, the three of us
are working on exposing the rise and spread of what's now known as Neoliberalism. And of
course, there's Dr. Hudson who's ahead of us all.
The line of investigation initiated by Upton Sinclair into the shared Board memberships at
key elite universities within the USA that erased the traditional teaching of
political-economy and replaced it with the mathematical economics which lie at the root of
Neoliberalism's Junk Economics
I see as very promising as they're also prominent bankers and Old Money with social
connections to England's Royalty and Nobility--the primary members of Europe's Rentier
Class . When I look over the comments, many have forgotten just what Class owns the
Duopoly and controls the federal government. Trump was never allowed into their circle but
was used by some of its members in the pursuit of interests that are still shrouded in fog.
My working hypothesis there is they were quite worried that too much industrial capacity had
been foreclosed and moved such that it caused a real threat to national security; thus the
need for MAGA.
With the rise of the Eurasian Bloc, the "threat" isn't military; it's economic. As I wrote
earlier today, an economy based on consumerism will collapse when the consumers can no longer
consume. Hudson's 100% correct that debt's that can't be repaid won't. The current degree of
economic polarization is miniscule compared to what might ensue if the Bidenites don't
forestall it--200 Million people bankrupt while 100 Million have good paying jobs and can
afford their debts--the remaining 40-50 Million are mostly impoverished children. This time
the part of the public that gets shafted as in 2009 under Obama isn't going to sit still, and
what happened in DC will be repeated elsewhere with meaning this time. A genuine MAGA Fascist
wanting control will need to disarm the Rentier Class and the Swamp thus ousting the
current "Friendly Fascist" regime--and that would require a paramilitary since that's
basically what composes the Swamp--Civil War between two Factions of Reaction that would also
split the military. Wonder what barflies think of all that?
Earlier in the week I linked to the latest Renegade Inc program which had Dr.
Hudson as one of the guests. That show's
transcript is now available. Here's an excerpt with Ross Ashcroft asking a question:
"Ross: What do you think are the megatrends that we should be looking at in 2021? What do
you think is the direction of travel, if you like, for so-called developed economies?
"Michael Hudson: Well, the big trend in any economy is the growth of debt, because the
debt grows exponentially. The economy has painted itself into a debt corner. We can see that
in real estate. We can see that for small business. There's also almost no way to recover.
The Federal Reserve has been printing quantitative easing to keep stock and bonds high. But
for the real economy, the trend is polarization and lower employment.
"The trend also is that state and local finances are broke, especially in the biggest
cities, New York City, San Francisco and Los Angeles. They're not getting income tax revenue
from the unemployed or closed businesses. They're not getting the real estate tax with so
many defaults and mortgage arrears. In New York City there's talk of cutting back the subways
by 70 percent. People will be afraid to take the subways when they're overcrowded with people
with the virus. So you're having a breakdown not only in state and local finances, but of
public services that are state run – public transportation services, health services,
education is being downsized. Everything that is funded out of state and local budgets is
going to suffer.
"And living standards are going to be very sharply downward as people realize how many
services they got are dependent on public infrastructure."
And this one I must also include:
"Ross: What is the one thing that has really surprised you in 2020? What have you laughed
at? What has given you a chuckle?
"Michael Hudson: The surprise – that I really shouldn't have been surprised at
– is how naive Bernie Sanders supporters were in thinking that they were going to get a
fair deal and that the elections were going to be fair. The illusion is that people were
actually going to have a fair election when the last thing the vested interests wanted was
Bernie Sanders or Elizabeth Warren or any kind of reformer. So what happened to Sanders is
what happened to Corbyn in Britain and the Labour Party's neoliberal leadership.
"So what's for laughs? I guess, Tulsi Gabbard's takedown of Kamala Harris was absolutely
wonderful. Everybody just broke out laughing, cheering for her. And of course, that's why she
was marginalized, and now we have Kamala Harris as the senior vice president."
Of course, none of the dire economic news is being reported with the focus instead on Wall
Street's markets, with much of the public just as brainwashed about it as Trump. The last
third focuses on politics, which is what most barflies want to read about. So, click the link
and read what Dr. Hudson sees in the tea leaves.
In a sense the USA is a theocratic society with neoliberal religion as the state religion. Not that different from the
USSR whioch also was a theocratic society with some perversion of Marxism as the state religion.
I capitulate. Ron you are correct, we are post peak.
Post Peak
OK, now what?
It is so strange to be post-peak and not have high prices for crude,
and food.
I guess that will be coming.
note- biofuels should not be counted in liquids tally. It is a different animal, with the
source being dependent on farming and soil, not drilling and geology. Just because ethanol is
used for propulsion shouldn't matter- electrons and batteries aren't counted either, and
rightly so. Those belong in a different category- transportation energy.
I have argued for several years that peak oil is a low price phenomenon, not a high priced
phenomenon.
The most overrated law in economics is that of supply and demand. This law suffers from
what Richard Feynman called "vagueness" (see https://www.youtube.com/watch?v=EYPapE-3FRw
). The problem is that it is always satisfied and hence gives absolutely no information about
prices.
Another problem with market theory (beyond vagueness) is that it lacks a time axis.
The theory states that the relationship between price and supply moves along the demand
curve, but doesn't say how fast, just that "in the long run" the system will reach
equilibrium. Being in equilibrium means being somewhere on the demand curve.
So for example, if prices go up, the demand quantity is expected to go down. The question
is when.
Where does this go wrong? In classical market theory, for example, unemployment is
impossible, because if labor supply outstrips demand prices (wages) should fall until until
equilibrium is attained. This has been observed to be false on many occasions, including
right now.
As Feymann states in the video, "If it disagrees with experiment, it's WRONG! That's all
there is to it." Classical economics isn't just too vague, it is wrong.
Keynes joked about this that in the long term we'll all be dead. He meant equilibrium will
never be reached, so we are never on the demand curve. He argued that "sticky prices",
meaning the unwillingness to accept pay cuts, kept labor markets permanently out of
equilibrium.
It's worth pondering whether oil prices are "sticky" as well. Saying yes is saying the law
of supply and demand doesn't apply (in the short term). This year we have seen that both
OPEC's politicking and panicky traders can cause wild swings in price unrelated to supply and
demand.
Where market theory is vague is the shape of the demand curve. For example, if oil supply
can't meet demand in the near future, as some here have posited, how high will prices go?
Some claim it will go over $200, as people get desperate for it. Some claim that higher
prices would increase efforts to find and drill more, putting a lid on prices. Some claim the
shortage would crash the world economy, depressing prices. Some claim that faced with oil
shortages, the world would simply switch to EVs, or stop wasting the gunk on poorly designed
transportation systems, so prices would stay more or less the same.
Who is right? Nobody knows. So we don't know the shape of the demand curve. The theory is
hopelessly vague.
I have argued for several years that peak oil is a low price phenomenon, not a high
priced phenomenon.
Schinzy,
The price of crude oil is only part of the Peakoil phenomenon. How much is left in the
ground counts, however more important is at which velocity the remaining Gb can be
extracted. I am not a geologist, but common sense says that when an oilfield is well depleted
(50-70%) the most of the remaining barrels will be extracted at a much lower speed, even at
very high oilprices. With secondary and tertiary EOR technology most conventional oilfields
will not produce the same or close to the same amount of barrels/day as before for many more
years. That's also my conclusion from what I have read more than a decade ago.
Of course with high oilprices new, relatively small, oil fields will come online and (more
advanced) EOR will start in other fields, but no matter how you look at it: depletion never
stops. With most oilfields in the world past-peak, only a tremendous amount of money (needed
to develop EOR) can prevent world crude oilproduction from falling like a rock. And all those
EOR technologies will deplete oilfields faster. Big gains in the beginning, more
disappointments later.
Will there be significant amount of shale oil developed in the future in other countries than
the U.S. ? If so, is that wise, regarding an already existing runaway climate change ?
I capitulate. Ron you are correct, we are post peak.
Post Peak
OK, now what?
It is so strange to be post-peak and not have high prices for crude,
and food.
I guess that will be coming.
NOTE:
biofuels should not be counted in liquids tally. It is a different animal, with the
source being dependent on farming and soil, not drilling and geology.
Just because ethanol is
used for propulsion shouldn't matter -- electrons and batteries aren't counted either, and
rightly so. Those belong in a different category- transportation energy.
I have argued for several years that peak oil is a low price phenomenon, not a high priced
phenomenon.
The most overrated law in economics is that of supply and demand. This law suffers from
what Richard Feynman called "vagueness" (see https://www.youtube.com/watch?v=EYPapE-3FRw
). The problem is that it is always satisfied and hence gives absolutely no information about
prices.
Another problem with market theory (beyond vagueness) is that it lacks a time axis. The theory states that the relationship between price and supply moves along the demand
curve, but doesn't say how fast, just that "in the long run" the system will reach
equilibrium. Being in equilibrium means being somewhere on the demand curve.
So for example, if prices go up, the demand quantity is expected to go down. The question
is when.
Where does this go wrong? In classical market theory, for example, unemployment is
impossible, because if labor supply outstrips demand prices (wages) should fall until until
equilibrium is attained. This has been observed to be false on many occasions, including
right now.
As Feymann states in the video, "If it disagrees with experiment, it's WRONG! That's all
there is to it." Classical economics isn't just too vague, it is wrong.
Keynes joked about this that in the long term we'll all be dead. He meant equilibrium will
never be reached, so we are never on the demand curve. He argued that "sticky prices",
meaning the unwillingness to accept pay cuts, kept labor markets permanently out of
equilibrium.
It's worth pondering whether oil prices are "sticky" as well. Saying yes is saying the law
of supply and demand doesn't apply (in the short term). This year we have seen that both
OPEC's politicking and panicky traders can cause wild swings in price unrelated to supply and
demand.
Where market theory is vague is the shape of the demand curve. For example, if oil supply
can't meet demand in the near future, as some here have posited, how high will prices go?
Some claim it will go over $200, as people get desperate for it. Some claim that higher
prices would increase efforts to find and drill more, putting a lid on prices. Some claim the
shortage would crash the world economy, depressing prices. Some claim that faced with oil
shortages, the world would simply switch to EVs, or stop wasting the gunk on poorly designed
transportation systems, so prices would stay more or less the same.
Who is right? Nobody knows. So we don't know the shape of the demand curve. The theory is
hopelessly vague.
I have argued for several years that peak oil is a low price phenomenon, not a high
priced phenomenon.
Schinzy,
The price of crude oil is only part of the Peakoil phenomenon.
How much is left in the
ground counts, however more important is at which velocity the remaining Gb can be
extracted. I am not a geologist, but common sense says that when an oilfield is well depleted
(50-70%) the most of the remaining barrels will be extracted at a much lower speed, even at
very high oilprices.
With secondary and tertiary EOR technology most conventional oilfields
will not produce the same or close to the same amount of barrels/day as before for many more
years. That's also my conclusion from what I have read more than a decade ago.
Of course with high oilprices new, relatively small, oil fields will come online and (more
advanced) EOR will start in other fields, but no matter how you look at it: depletion never
stops.
With most oilfields in the world past-peak, only a tremendous amount of money (needed
to develop EOR) can prevent world crude oil production from falling like a rock. And all those
EOR technologies will deplete oilfields faster.
Big gains in the beginning, more
disappointments later.
Will there be significant amount of shale oil developed in the future in other countries than
the U.S. ? If so, is that wise, regarding an already existing runaway climate change ?
@ThreeCranes trol -- China had already agreed to play ball, but was still gathering the
infrastructure. S. Korea and a few other nations took the work in the meantime.
Meantime, as Sam Francis (RIP) noted in the early nineties, Main Street USA turned into
dollar stores and flea markets and retail dumps and fast food pits.
Yes, nations that make things control the future. They also develop consumer economies.
Thus in a few more years stuff made in China be beyond the price range of the average
American.
A strange mixture of Black nationalism with Black Bolshevism is a very interesting and pretty alarming phenomenon. It proved to
be a pretty toxic mix. But it is far from being new. We saw how the Eugène Pottier famous song
International lines "We have been naught we
shall be all." and "Servile masses arise, arise." unfolded before under Stalinism in Soviet Russia.
We also saw Lysenkoism in Academia before, and it was not a pretty picture. Some Russian/Soviet scientists such as Academician Vavilov
paid with their life for the sin of not being politically correct. From this letter it is clear that the some departments
already reached the stage tragically close to that situation.
Lysenkoism was "politically correct" (a term invented by Lenin) because it was consistent with the broader Marxist doctrine.
Marxists wanted to believe that heredity had a limited role even among humans, and that human characteristics changed by living
under socialism would be inherited by subsequent generations of humans. Thus would be created the selfless new Soviet man
"Lysenko was consequently embraced and lionized by the Soviet media propaganda machine. Scientists who promoted Lysenkoism with
faked data and destroyed counterevidence were favored with government funding and official recognition and award. Lysenko and his
followers and media acolytes responded to critics by impugning their motives, and denouncing them as bourgeois fascists resisting
the advance of the new modern Marxism."
The Disgraceful Episode Of Lysenkoism Brings Us Global Warming Theory
Notable quotes:
"... In the extended links and resources you provided, I could not find a single instance of substantial counter-argument or alternative narrative to explain the under-representation of black individuals in academia or their over-representation in the criminal justice system. ..."
"... any cogent objections to this thesis have been raised by sober voices, including from within the black community itself, such as Thomas Sowell and Wilfred Reilly. These people are not racists or 'Uncle Toms'. They are intelligent scholars who reject a narrative that strips black people of agency and systematically externalizes the problems of the black community onto outsiders . Their view is entirely absent from the departmental and UCB-wide communiques. ..."
"... The claim that the difficulties that the black community faces are entirely causally explained by exogenous factors in the form of white systemic racism, white supremacy, and other forms of white discrimination remains a problematic hypothesis that should be vigorously challenged by historians ..."
"... Would we characterize criminal justice as a systemically misandrist conspiracy against innocent American men? I hope you see that this type of reasoning is flawed, and requires a significant suspension of our rational faculties. Black people are not incarcerated at higher rates than their involvement in violent crime would predict . This fact has been demonstrated multiple times across multiple jurisdictions in multiple countries. ..."
"... If we claim that the criminal justice system is white-supremacist, why is it that Asian Americans, Indian Americans, and Nigerian Americans are incarcerated at vastly lower rates than white Americans? ..."
"... Increasingly, we are being called upon to comply and subscribe to BLM's problematic view of history , and the department is being presented as unified on the matter. In particular, ethnic minorities are being aggressively marshaled into a single position. Any apparent unity is surely a function of the fact that dissent could almost certainly lead to expulsion or cancellation for those of us in a precarious position , which is no small number. ..."
"... The vast majority of violence visited on the black community is committed by black people . There are virtually no marches for these invisible victims, no public silences, no heartfelt letters from the UC regents, deans, and departmental heads. The message is clear: Black lives only matter when whites take them. Black violence is expected and insoluble, while white violence requires explanation and demands solution. Please look into your hearts and see how monstrously bigoted this formulation truly is. ..."
"... The claim that black intraracial violence is the product of redlining, slavery, and other injustices is a largely historical claim. It is for historians, therefore, to explain why Japanese internment or the massacre of European Jewry hasn't led to equivalent rates of dysfunction and low SES performance among Japanese and Jewish Americans respectively. ..."
"... Arab Americans have been viciously demonized since 9/11, as have Chinese Americans more recently. However, both groups outperform white Americans on nearly all SES indices - as do Nigerian Americans , who incidentally have black skin. It is for historians to point out and discuss these anomalies. However, no real discussion is possible in the current climate at our department . The explanation is provided to us, disagreement with it is racist, and the job of historians is to further explore additional ways in which the explanation is additionally correct. This is a mockery of the historical profession. ..."
"... Donating to BLM today is to indirectly donate to Joe Biden's 2020 campaign. This is grotesque given the fact that the American cities with the worst rates of black-on-black violence and police-on-black violence are overwhelmingly Democrat-run. Minneapolis itself has been entirely in the hands of Democrats for over five decades ; the 'systemic racism' there was built by successive Democrat administrations. ..."
"... The total alliance of major corporations involved in human exploitation with BLM should be a warning flag to us, and yet this damning evidence goes unnoticed, purposefully ignored, or perversely celebrated. We are the useful idiots of the wealthiest classes , carrying water for Jeff Bezos and other actual, real, modern-day slavers. Starbucks, an organisation using literal black slaves in its coffee plantation suppliers, is in favor of BLM. Sony, an organisation using cobalt mined by yet more literal black slaves, many of whom are children, is in favor of BLM. And so, apparently, are we. The absence of counter-narrative enables this obscenity. Fiat lux, indeed. ..."
"... MLK would likely be called an Uncle Tom if he spoke on our campus today . We are training leaders who intend, explicitly, to destroy one of the only truly successful ethnically diverse societies in modern history. As the PRC, an ethnonationalist and aggressively racially chauvinist national polity with null immigration and no concept of jus solis increasingly presents itself as the global political alternative to the US, I ask you: Is this wise? Are we really doing the right thing? ..."
I am one of your colleagues at the University of California, Berkeley. I have met you both personally but do not know you closely,
and am contacting you anonymously, with apologies. I am worried that writing this email publicly might lead to me losing my job,
and likely all future jobs in my field.
In your recent departmental emails you mentioned our pledge to diversity, but I am increasingly alarmed by the absence of diversity
of opinion on the topic of the recent protests and our community response to them.
In the extended links and resources you provided, I could not find a single instance of substantial counter-argument or alternative
narrative to explain the under-representation of black individuals in academia or their over-representation in the criminal justice
system. The explanation provided in your documentation, to the near exclusion of all others, is univariate: the problems of
the black community are caused by whites, or, when whites are not physically present, by the infiltration of white supremacy and
white systemic racism into American brains, souls, and institutions.
Many cogent objections to this thesis have been raised by sober voices, including from within the black community itself,
such as Thomas Sowell and Wilfred Reilly. These people are not racists or 'Uncle Toms'. They are intelligent scholars who reject
a narrative that strips black people of agency and systematically externalizes the problems of the black community onto outsiders
. Their view is entirely absent from the departmental and UCB-wide communiques.
The claim that the difficulties that the black community faces are entirely causally explained by exogenous factors in the
form of white systemic racism, white supremacy, and other forms of white discrimination remains a problematic hypothesis that should
be vigorously challenged by historians . Instead, it is being treated as an axiomatic and actionable truth without serious consideration
of its profound flaws, or its worrying implication of total black impotence. This hypothesis is transforming our institution and
our culture, without any space for dissent outside of a tightly policed, narrow discourse.
A counternarrative exists. If you have time, please consider examining some of the documents I attach at the end of this email.
Overwhelmingly, the reasoning provided by BLM and allies is either primarily anecdotal (as in the case with the bulk of Ta-Nehisi
Coates' undeniably moving article) or it is transparently motivated. As an example of the latter problem, consider the proportion
of black incarcerated Americans. This proportion is often used to characterize the criminal justice system as anti-black. However,
if we use the precise same methodology, we would have to conclude that the criminal justice system is even more anti-male than it
is anti-black .
Would we characterize criminal justice as a systemically misandrist conspiracy against innocent American men? I hope you see
that this type of reasoning is flawed, and requires a significant suspension of our rational faculties. Black people are not incarcerated
at higher rates than their involvement in violent crime would predict . This fact has been demonstrated multiple times across multiple
jurisdictions in multiple countries.
And yet, I see my department uncritically reproducing a narrative that diminishes black agency in favor of a white-centric explanation
that appeals to the department's apparent desire to shoulder the 'white man's burden' and to promote a narrative of white guilt .
If we claim that the criminal justice system is white-supremacist, why is it that Asian Americans, Indian Americans, and Nigerian
Americans are incarcerated at vastly lower rates than white Americans? This is a funny sort of white supremacy. Even Jewish
Americans are incarcerated less than gentile whites. I think it's fair to say that your average white supremacist disapproves of
Jews. And yet, these alleged white supremacists incarcerate gentiles at vastly higher rates than Jews. None of this is addressed
in your literature. None of this is explained, beyond hand-waving and ad hominems. "Those are racist dogwhistles". "The model minority
myth is white supremacist". "Only fascists talk about black-on-black crime", ad nauseam.
These types of statements do not amount to counterarguments: they are simply arbitrary offensive classifications, intended to
silence and oppress discourse . Any serious historian will recognize these for the silencing orthodoxy tactics they are , common
to suppressive regimes, doctrines, and religions throughout time and space. They are intended to crush real diversity and permanently
exile the culture of robust criticism from our department.
Increasingly, we are being called upon to comply and subscribe to BLM's problematic view of history , and the department is
being presented as unified on the matter. In particular, ethnic minorities are being aggressively marshaled into a single position.
Any apparent unity is surely a function of the fact that dissent could almost certainly lead to expulsion or cancellation for those
of us in a precarious position , which is no small number.
I personally don't dare speak out against the BLM narrative , and with this barrage of alleged unity being mass-produced by the
administration, tenured professoriat, the UC administration, corporate America, and the media, the punishment for dissent is a clear
danger at a time of widespread economic vulnerability. I am certain that if my name were attached to this email, I would lose my
job and all future jobs, even though I believe in and can justify every word I type.
The vast majority of violence visited on the black community is committed by black people . There are virtually no marches
for these invisible victims, no public silences, no heartfelt letters from the UC regents, deans, and departmental heads. The message
is clear: Black lives only matter when whites take them. Black violence is expected and insoluble, while white violence requires
explanation and demands solution. Please look into your hearts and see how monstrously bigoted this formulation truly is.
No discussion is permitted for nonblack victims of black violence, who proportionally outnumber black victims of nonblack violence.
This is especially bitter in the Bay Area, where Asian victimization by black assailants has reached epidemic proportions, to the
point that the SF police chief has advised Asians to stop hanging good-luck charms on their doors, as this attracts the attention
of (overwhelmingly black) home invaders . Home invaders like George Floyd . For this actual, lived, physically experienced reality
of violence in the USA, there are no marches, no tearful emails from departmental heads, no support from McDonald's and Wal-Mart.
For the History department, our silence is not a mere abrogation of our duty to shed light on the truth: it is a rejection of it.
The claim that black intraracial violence is the product of redlining, slavery, and other injustices is a largely historical
claim. It is for historians, therefore, to explain why Japanese internment or the massacre of European Jewry hasn't led to equivalent
rates of dysfunction and low SES performance among Japanese and Jewish Americans respectively.
Arab Americans have been viciously demonized since 9/11, as have Chinese Americans more recently. However, both groups outperform
white Americans on nearly all SES indices - as do Nigerian Americans , who incidentally have black skin. It is for historians to
point out and discuss these anomalies. However, no real discussion is possible in the current climate at our department . The explanation
is provided to us, disagreement with it is racist, and the job of historians is to further explore additional ways in which the explanation
is additionally correct. This is a mockery of the historical profession.
Most troublingly, our department appears to have been entirely captured by the interests of the Democratic National Convention,
and the Democratic Party more broadly. To explain what I mean, consider what happens if you choose to donate to Black Lives Matter,
an organization UCB History has explicitly promoted in its recent mailers. All donations to the official BLM website are immediately
redirected to ActBlue Charities , an organization primarily concerned with bankrolling election campaigns for Democrat candidates.
Donating to BLM today is to indirectly donate to Joe Biden's 2020 campaign. This is grotesque given the fact that the American
cities with the worst rates of black-on-black violence and police-on-black violence are overwhelmingly Democrat-run. Minneapolis
itself has been entirely in the hands of Democrats for over five decades ; the 'systemic racism' there was built by successive Democrat
administrations.
The patronizing and condescending attitudes of Democrat leaders towards the black community, exemplified by nearly every Biden
statement on the black race, all but guarantee a perpetual state of misery, resentment, poverty, and the attendant grievance politics
which are simultaneously annihilating American political discourse and black lives. And yet, donating to BLM is bankrolling the election
campaigns of men like Mayor Frey, who saw their cities devolve into violence . This is a grotesque capture of a good-faith movement
for necessary police reform, and of our department, by a political party. Even worse, there are virtually no avenues for dissent
in academic circles . I refuse to serve the Party, and so should you.
The total alliance of major corporations involved in human exploitation with BLM should be a warning flag to us, and yet this
damning evidence goes unnoticed, purposefully ignored, or perversely celebrated. We are the useful idiots of the wealthiest classes
, carrying water for Jeff Bezos and other actual, real, modern-day slavers. Starbucks, an organisation using literal black slaves
in its coffee plantation suppliers, is in favor of BLM. Sony, an organisation using cobalt mined by yet more literal black slaves,
many of whom are children, is in favor of BLM. And so, apparently, are we. The absence of counter-narrative enables this obscenity.
Fiat lux, indeed.
There also exists a large constituency of what can only be called 'race hustlers': hucksters of all colors who benefit from stoking
the fires of racial conflict to secure administrative jobs, charity management positions, academic jobs and advancement, or personal
political entrepreneurship.
Given the direction our history department appears to be taking far from any commitment to truth , we can regard ourselves as
a formative training institution for this brand of snake-oil salespeople. Their activities are corrosive, demolishing any hope at
harmonious racial coexistence in our nation and colonizing our political and institutional life. Many of their voices are unironically
segregationist.
MLK would likely be called an Uncle Tom if he spoke on our campus today . We are training leaders who intend, explicitly,
to destroy one of the only truly successful ethnically diverse societies in modern history. As the PRC, an ethnonationalist and aggressively
racially chauvinist national polity with null immigration and no concept of jus solis increasingly presents itself as the global
political alternative to the US, I ask you: Is this wise? Are we really doing the right thing?
As a final point, our university and department has made multiple statements celebrating and eulogizing George Floyd. Floyd was
a multiple felon who once held a pregnant black woman at gunpoint. He broke into her home with a gang of men and pointed a gun at
her pregnant stomach. He terrorized the women in his community. He sired and abandoned multiple children , playing no part in their
support or upbringing, failing one of the most basic tests of decency for a human being. He was a drug-addict and sometime drug-dealer,
a swindler who preyed upon his honest and hard-working neighbors .
And yet, the regents of UC and the historians of the UCB History department are celebrating this violent criminal, elevating his
name to virtual sainthood . A man who hurt women. A man who hurt black women. With the full collaboration of the UCB history department,
corporate America, most mainstream media outlets, and some of the wealthiest and most privileged opinion-shaping elites of the USA,
he has become a culture hero, buried in a golden casket, his (recognized) family showered with gifts and praise . Americans are being
socially pressured into kneeling for this violent, abusive misogynist . A generation of black men are being coerced into identifying
with George Floyd, the absolute worst specimen of our race and species.
I'm ashamed of my department. I would say that I'm ashamed of both of you, but perhaps you agree with me, and are simply afraid,
as I am, of the backlash of speaking the truth. It's hard to know what kneeling means, when you have to kneel to keep your job.
It shouldn't affect the strength of my argument above, but for the record, I write as a person of color . My family have been
personally victimized by men like Floyd. We are aware of the condescending depredations of the Democrat party against our race. The
humiliating assumption that we are too stupid to do STEM , that we need special help and lower requirements to get ahead in life,
is richly familiar to us. I sometimes wonder if it wouldn't be easier to deal with open fascists, who at least would be straightforward
in calling me a subhuman, and who are unlikely to share my race.
The ever-present soft bigotry of low expectations and the permanent claim that the solutions to the plight of my people rest exclusively
on the goodwill of whites rather than on our own hard work is psychologically devastating . No other group in America is systematically
demoralized in this way by its alleged allies. A whole generation of black children are being taught that only by begging and weeping
and screaming will they get handouts from guilt-ridden whites.
No message will more surely devastate their futures, especially if whites run out of guilt, or indeed if America runs out of whites.
If this had been done to Japanese Americans, or Jewish Americans, or Chinese Americans, then Chinatown and Japantown would surely
be no different to the roughest parts of Baltimore and East St. Louis today. The History department of UCB is now an integral institutional
promulgator of a destructive and denigrating fallacy about the black race.
I hope you appreciate the frustration behind this message. I do not support BLM. I do not support the Democrat grievance agenda
and the Party's uncontested capture of our department. I do not support the Party co-opting my race, as Biden recently did in his
disturbing interview, claiming that voting Democrat and being black are isomorphic. I condemn the manner of George Floyd's death
and join you in calling for greater police accountability and police reform. However, I will not pretend that George Floyd was anything
other than a violent misogynist, a brutal man who met a predictably brutal end .
I also want to protect the practice of history. Cleo is no grovelling handmaiden to politicians and corporations. Like us, she
is free. play_arrow
Blacks will always be poor and fucked in life when 75% of black infants are born to single most likely welfare dependent mothers...
And the more amount of welfare monies spent to combat poverty the worse this problem will grow...
taketheredpill , 37 minutes ago
Anonymous....
1) Is he really a Professor at Berkeley?
2) Is he really a Professor anywhere?
3) Is he really Black?
4) Is he really a He?
LEEPERMAX , 44 minutes ago
BLM is an international organization. They solicit tax free charitable donations via ActBlue. ActBlue then funnels billions
of dollars to DNC campaigns. This is a violation of campaign finance law and allows foreign influence in American elections.
CRM114 , 44 minutes ago
I've pointed this out before:
In 2015, after the Freddie Gray death Officers were hung out to dry by the Mayor of Baltimore (yes, her, the Chair of the DNC
in 2016), active policing in Baltimore basically stopped. They just count the bodies now. The clearance rate for homicides has
dropped to, well, we don't know because the Police refuse to say, but it appears to be under 15%. The homicide rate jumped 50%
almost immediately and has stayed there. 95% of homicides are black on black.
The Baltimore Sun keeps excellent records, so you can check this all for yourself.
Looking at killings by cops; if we take the worst case and exclude all the ones where the victim was armed and independent
witnesses state fired first, and assume all the others were cop murders, then there's about 1 cop murder every 3 years, which
means that since has now stopped and the homicide rate's gone up...
For every black man now not murdered by a cop, 400 more black men are murdered by other black men.
taketheredpill , 46 minutes ago
"As an example of the latter problem, consider the proportion of black incarcerated Americans. This proportion is often used
to characterize the criminal justice system as anti-black. However, if we use the precise same methodology, we would have to conclude
that the criminal justice system is even more anti-male than it is anti-black ."
It is the RATIO of UNARMED BLACK MALES KILLED to UNARMED WHITE MALES KILLED in RELATION TO % OF POPULATION. RATIO.
RATIO. UNARMED.
BLACK % POPULATION 13% BLACK % UNARMED MEN KILLED 37%
WHITE % POPULATION 74% BLACK % UNARMED MEN KILLED 45%
Is there a trend of MORE Black people being killed by police?
No. But there is an underlying difference in the numbers that is bad.
>>>>> As of 2018, Unarmed Blacks made up 36% of all people UNARMED killed by police. But black people make up 13% of the (unarmed)
population.
There's a massive Silent Majority of Americans , including black Americans, that are fed up with this absurd nonsense.
While there's a Vocal Minority of Americans : including Democrats, the media, corporations and race hustlers, that wish to
continue to promulgate a FALSE NARRATIVE into perpetuity...because it's a lucrative industry.
Gaius Konstantine , 57 minutes ago
A short while ago I had an ex friend get into it with me about how Europeans (whites), were the most destructive race on the
planet, responsible for all the world's evil. I pointed out to him that Genghis Khan, an Asian, slaughtered millions at a time
when technology made this a remarkable feat. I reminded him the Japanese gleefully killed millions in China and that the American
Indian Empires ran 24/7 human sacrifices with some also practicing cannibalism. His poor libtard brain couldn't handle the fact
that evil is a human trait, not restricted to a particular race and we parted (good riddance)
But along with evil, there is accomplishment. Europeans created Empires and pursued science, The Asians also participated in
these pursuits and even the Aztec and Inca built marvelous cities and massive states spanning vast stretches of territory. The
only race that accomplished little save entering the stone age is the Africans. Are we supposed to give them a participation trophy
to make them feel better? Is this feeling of inferiority what is truly behind their constant rage?
Police in the US have been militarized for a long time now and kill many more unarmed whites than they do blacks, where is
the outrage? I'm getting the feeling that this isn't really about George, just an excuse to do what savages do.
lwilland1012 , 1 hour ago
"Truth is treason in an empire of lies."
George Orwell
You know that the reason he is anonymous is that Berkley would strip him of his teaching credentials and there would be multiple
attempts on his life...
Ignatius , 1 hour ago
" The vast majority of violence visited on the black community is committed by black people . There are virtually no marches
for these invisible victims, no public silences, no heartfelt letters from the UC regents, deans, and departmental heads. The
message is clear: Black lives only matter when whites take them. Black violence is expected and insoluble, while white violence
requires explanation and demands solution. Please look into your hearts and see how monstrously bigoted this formulation truly
is."
A former fed who trained the police in Buffalo believes the elderly protester who was hospitalized after a cop pushed him
to the ground "got away lightly" and "took a dive," according to a report.
The retired FBI agent, Gary DiLaura,
told The Sun
he thinks there's no chance Buffalo officers will be convicted of assault over the
now-viral video showing the
longtime
peace activist Martin Gugino fall and left bleeding on the ground.
" I can't believe that they didn't deck him. If that would have been a 40-year-old guy going up there, I guarantee you they'd
have been all over him, " DiLaura said.
" He absolutely got away lightly. He got a light push and in my humble opinion, he took a dive and the dive backfired because
he hit his head. Maybe it'll knock a little bit of sense into him, " added the former fed, who trained Buffalo police on firearms
and defensive tactics, according to the report...
It's a great brainwashing process, which goes very slow[ly] and is divided [into] four basic stages. The first one [is]
demoralization ; it takes from 15-20 years to demoralize a nation. Why that many years? Because this is the minimum number
of years which [is required] to educate one generation of students in the country of your enemy, exposed to the ideology of
the enemy. In other words, Marxist-Leninist ideology is being pumped into the soft heads of at least three generations of American
students, without being challenged, or counter-balanced by the basic values of Americanism (American patriotism).
The result? The result you can see. Most of the people who graduated in the sixties (drop-outs or half-baked intellectuals)
are now occupying the positions of power in the government, civil service, business, mass media, [and the] educational system.
You are stuck with them. You cannot get rid of them. T hey are contaminated; they are programmed to think and react to certain
stimuli in a certain pattern. You cannot change their mind[s], even if you expose them to authentic information, even if you
prove that white is white and black is black, you still cannot change the basic perception and the logic of behavior. In other
words, these people... the process of demoralization is complete and irreversible. To [rid] society of these people, you need
another twenty or fifteen years to educate a new generation of patriotically-minded and common sense people, who would be acting
in favor and in the interests of United States society.
Yuri Bezmenov
American Psycho , 16 minutes ago
This article was one of the most articulate and succinct rebuttals to the BLM political power grab. I too have been calling
these "allies" useful idiots and I am happy to hear this professor doing the same. Bravo professor!
Capitalism always prevails: everything else is either a prop up or an obstacle. An
obstacle is expected to be either ignored or destroyed. In this context, there's only so
much Asian hive mind culture (fascism) can do.
Oh, and wages are also at historical lows. The Phillips Curve is a farce, neoclassical
theory is a fraud
" i listened to about 3 mins of some bill gates ted talkish thing, wondering, will these dim
bulbs ever assume responsibility for anything?
all the msm talking heads have been revealed for what they are: state propagandists. not
one krugmanian friedmanite will ever say, "I didn't see this coming and I pimped myself out
for the last 40 years selling snake oil and getting nobel prizes for it and have revealed
myself to be unqualified to turn on a light switch no matter how much money I have made and
recognition I have received. Clearly I know nothing". why would anyone listen to an msm
personality that's been sold to them as some kind of "expert"?
Neoliberal v Neoclassical economics – what's the difference?
By Claire Connelly
Economics & Finance |
Bookmark to dashboard
Neoliberalism and neo-classical economics are often terms that are used
interchangeably by various economists and financial writers, but actually, there are important differences between
the two. We've had some requests from readers to make that distinction more obvious, so here goes
Neo-classical economic theory puts 'man' as a rational human being at the heart of the
economic system, extrapolating the functions of the economy based on optimised behaviour of rational, well-informed
individuals trading with one in another in what is effectively a barter system (which as I'm sure we all know by now,
never actually existed
).
It is based on the
general equilibrium model
pioneered by late 19th century economist
Leon Walras
, of the
Lausanne School. Ironically, neoclassical economics guarantees full employment because it models a system with no
frictions or inconveniences like trade unions, minimum wage laws or imperfect information. Also false.
It also guarantees that society will find an optimal allocation of resources on its
own, so long as markets are competitive, and there are no externalities, like pollution, which go unaccounted for.
Neoclassicists are concerned about monopoly power, neoliberals are not. Neoclassicists
believe it merits government intervention and regulation. Neoliberals, do not.
It is possible to be a neoclassical without being a neoliberal.
The most important thing to understand is that neoliberalism is a post-war political
movement that grew out of
the Mont Pelerin Society
, a
thought collective that formed a consensus not to put the market at the centre of the state, but to take it over
completely. Its entire objective is to co-opt economics and subvert the public interest to suit the needs of powerful
capitalist institutions and the politicians, economists, financiers, philosophers, bankers, think-tanks and media
organisations that support them.
Neoliberalism is associated with laissez-faire economic liberalism and was pioneered by
economist Milton Friedman & Friedrich Hayeck, but as the economic historian, Philip Mirowski points out, this is a
deliberate deception to trick people into thinking it is concerned about market equilibrium.
It is the doctrine by which white collar crime has been allowed to prosper unprosecuted
while governments of wealthy nations like the US and UK have abdicated their responsibility for employment, health
care, education and the general well-being of the populations they are supposedly elected to serve. In their minds,
government exists only to maintain property rights, defend capitalists and maintain price stability, (which
apparently doesn't count as intervention when it works in the favour of the wealthy).
We
are what we eat, well, in free market terms anyway
Whilst
90% of the US media (film, TV and radio) is controlled by only 6 companies.
Unlike neoclassicists and neoliberals, heterodox economists and other post-Keynesians, reject the notion of general
equilibrium. They believe the economy evolves through non-equilibrium states over time. Heterodox economists believe
governments need to introduce instability-thwarting mechanisms to stabilise the economy, maintain full employment,
and retain social equity.
"Free-market economists may want you to believe that the correct boundaries of the
market can be scientifically determined, but this is incorrect," writes institutional economist, Ha-Joon Chang, in
his book
23 Things They Don't
Tell You About Capitalism
.
https://www.youtube.com/embed/J7m9wfFnH6o
"If the boundaries of what you are studying cannot be scientifically determined, what
you are doing is not a science," writes the Cambridge University economist.
"Recognising that the boundaries of the market are ambiguous and cannot be
determined in an objective way lets us realise that economics is not a science like physics or chemistry, but a
political exercise."
In other words, a strong economy requires constant time, attention, assessment, and
when it is called for, intervention. The rules will not always be the same, nor the causes. But it helps to start
with an understanding
of the role and purpose of
government spending
and
taxation
.
Further Listening
Listen to this interview economic historian Philip Mirowski who delves into the further
nuances of these economic mindsets.
Claire Connelly
Claire Connelly is the lead writer of Renegade Inc. An award-winning freelance journalist, speaker, and
founder of subscription journalism experiment, Hello Humans.
Specialising in economics, technology and policy, Connelly is working on her first book due out in 2018.
With more than a decade of experience under her belt, Claire has written for leading publications
including The Australian Financial Review, The Saturday Paper, ABC, SBS, Crikey, New Matilda, VICE &
others. She is the co-host of The Week In Start-Ups Australia, and features regularly as a commentator on
TV and radio shows including Radio National's Download This Show, ABC's The Drum, Ten's The Project, and
more.
Latest posts by Claire Connelly
(
see
all
)
What were Hayek's contributions to capital theory? Just wondering. I have never
encountered a single person who speaks of "neoliberalism" (a term we ourselves never use to describe what we
believe) who has read a single word of Hayek's economic work. Or who even knows who Ludwig von Mises is.
(Whenever the two economists mentioned are Milton Friedman and F.A. Hayek, I know
I'm dealing with somebody who hasn't read anything.)
Reply
But of course you have read everything and know all, right Tom ? What
specifically is wrong with this account ? If you can't dispute anything within the piece why do you attempt
to dismiss it out of hand by implying without a shred of evidence what someone has or hasn't read ? How
could you possibly know what someone has read or hasn't ?
Reply
What actually is "capital theory", Tom. Why don't you use the term
'neoliberalism?
Why do you think Claire hasn't heard of Mises and why would it be important anyway? Mises and the Austrian
School are part of the problem that the article refers to.
Reply
Sorry. I just don't believe even smart people can manage markets. That's the
nature of markets: they are individual. If you haven't read Von Mises or Hayek, you're missing out on the
thinking of two very smart people. It is hard for me to embrace the idea that – because a market doesn't seem
to function as a person might want it to – persons should be given authority to govern those markets in a way
that suits them. That, in itself, distorts the market.
Reply
I am responding to an article by you in today's The Automatic Earth about the
vengeance of capitalism. I could not get the response area to work so that is why I am coming to you this way.
You write eloquently and I see the creation of increasing suffering due to a form
of capitalism and class privilege in America and globally. I have read and listened to Keen, Hudson and Kelton.
From my review they all approach the ability of a nation that controls their own currency as an ability to
create an unlimited amount of money to use to reduce human suffering with no discussion of the ultimate end
game if we continue to do so.
There is a lot of suffering now and because of climate change, increasing
usurping of jobs by technology and global resource depletion and more a lot more suffering may be coming our
way.
How much money are they (and you) thinking of creating?
What are the implications of creating money at a much more rapid pace than we
have been with no upper limits in sight?
What are the upper limits of money creation? How would we know?
Our present system of capitalism and privilege is like a drug. It feels good at
the start but kills us in the end,
I am fearful that an addiction to the unlimited or substantial and on going use
of money created from thin air will do the same.
What say you?
PS: Please accept with compassion all the typos that are probably in this note.
Reply
You keep forgetting that having the ability to create money also gives you the
ability to destroy that same money. What is collected in tax revenue is destroyed. More money is issued to
create infrastructure. The deficit in a country that can create it's own currency is really just a ratio of
what is collected(destroyed) and what is created(spent).
Now ask yourself what happens when you quit destroying money and keep right on creating it
Reply
The aim of distinguishing neoclassical and neolilberal is of merit. The interview
with Mirowski makes clear, however, that that are numerous strands of neoliberalism that overlap with each
other, with some drawing on neoclassical arguments, and others having a different starting point. But it is not
clear to me that all of them agree on the market fundamentalism, which is generally regarded as the defining
characteristic of neoliberalism. Was Joseph Schumpeter a neoliberal? His ideas about entrepreneurship have
probably done more to make monopoly respectable than the parallel work of von Mises. Schumpeter's thought has
entered the mainstream in the U.S. via Peter Drucker, who thought the modern corporation was the engine of all
forms of human progress. In Germany, Ordo-liberalism was another form of neoliberalism that called for a strong
state. Was this self-contradiction? What I find frustrating in most discussions on the Left of these thinkers
is the inability or unwillingness to recognize the ***partial*** validity of their ideas. On the particular
subject of government interference to protect against monopoly power, it was Gabriel Kolko, a socialist, who
first showed in 1962 that Progressives were responsible for the national monopolies that emerged around 1900.
Even now, progressives fail to comprehend the many ways in which regulation benefits big business and stifles
small business. Designing regulations that do more social and environmental good than harm is much harder than
most progressives seem to recognize. Analyzing the sociology and politics of neoliberal organizations, as
Mirowski does, gets us no closer to finding way to create effective government programs that do not
simultaneously feed the leviathan of an expansive state. I would very much like to know which heterodox
economists are actually addressing the tough problems we face rather than defining the boundaries between
neoclassical thought and their own domain..
Reply
There are a very large number of errors in this piece. Fundamentally, what is
described as "neoclassical economics" is actually just one model, Walras' circa 1870 general equilibrium model.
If one defines neoclassical economics as equivalent to that one model, then there has never been a single
neoclassical economist, as absolutely no one limits attention to that one model.
The body of research most actual economists would describe as "neoclassical
economics" encompasses an enormous body of work which posits that some social phenomena can be understood as
emergent results of individual, intentional behavior. That research includes literally thousands of papers
studying the phenomena the author wrongly believes are simply excluded by assumption, such as unemployment,
unions, minimum wage laws, and imperfect information. There is an entire field, Public Economics, devoted to
the study of "the role and purpose of government spending and taxation."
The idea that government can and should "introduce instability-thwarting
mechanisms to stabilize the economy, maintain full employment, and retain social equity" is also, contrary to
the article's assumptions, very much part of mainstream, neoclassical thought, and has been for almost a
century.
After having implicitly defined mainstream economics as solely the study of a
single 1870 model, the article then also misrepresents heterodox economics. Notably, the Marxian economist
(less than 1% of all economists) such as Chang do not "reject the notion of general equilibrium". Marxian
analysis is explicitly grounded in general equilibrium, both in Marx's work and in modern neo-Marxian form, and
can be expressed in the same analytical framework as the Walrasian model (see for example:
https://www.jstor.org/stable/1911113?seq=1#page_scan_tab_contents
).
The article is correct that neoliberalism is a strain of political thought, and
not economics at all: they're not even the same type of thing, much the same thing. That's all the article
ought to say -- it gets everything about what economists think, and what neoclassical economics is, really, really
wrong.
Chris Auld
Department of Economics
University of Victoria
Reply
Most though not all mainstream economics is neoclassical economics.
Neoclassical economics is based on marginalism, or optimising behaviour,
expected utility theory, and either implicit or explicit general equilibrium analysis. The economy, in the
absence of frictions, would behave like a stable equilibrium system. In a macroeconomic sense, this is the
basis of all versions of the neoclassical synthesis, including second generation dynamic stochastic general
equilibrium models.
These models all have Walrasian and Wicksellian roots. They all assume
optimising behaviour. They always adopt the ergodic hypothesis and these days adopt rational expectations
formation. Not only that, they have all been constructed in defiance of what we know about the history and
nature of money; they all ignore ontological uncertainty, in the Keynesian sense; they all exclude genuinely
endogenous financial instability and crisis; they are biased towards an essentially technological
explanation of income distribution; they all incorporate a natural or non-accelerating inflation rate of
unemployment; they all exhibit long run money neutrality; they all incorporate an efficient markets approach
to financial markets.
There are of course elements of what some would regard these days as
mainstream economics which don't fit under the neoclassical banner. However, for the most part, mainstream =
neoclassicism.
The greatest divide between neoclassical economics and genuine (i.e. not
'new') institutional economics, is the F-twist of Milton Friedman – the notion that unrealistic axiomatic
foundations in some sense don't matter, and neither does an approach which does not naturally incorporate
realistic institutions.
Of course, economists using a neoclassical frame have things to say about
unemployment, minimum wages, etc. But, as Hyman Minsky put it, "The game of policy making is rigged; the
theory used determines the questions that are asked and the options that are presented. The prince is
constrained by the theory of his intellectuals."
You accuse the author of errors, and I think you are ungenerous – and, more
importantly – incorrect. My advice to you is to read Steve Keen's best-seller 'Debunking Economics'. You
could even read my 'Economics for Sustainable Prosperity'. If you read these two books, you will be much
more aware of the limitations of neoclassical economics, and the rich insights available from the many
economists who have worked, and who are working today, outside the neoclassical frame.
Reply
Perhaps you will find them useful in understanding why it's questionable that
neoclassical economics has anything useful to say about financial stability.
Steve Payson, an US economics practictioner of long standing, will talk about his
book 'How Economics Professors Can Stop Failing us' which provides an eye-opening expose on economics
professors that will surely shock anyone who is not familiar with the topic, and even some of those who are
familiar with it. Ellen Quigley has recently completed her research into economics education in the UK and will
provide a perspective on our local profession.
Our mission is to explain how we reached this moment in history to prevent it from
repeating itself. Again. By considering options not previously considered, readers, creators, entrepreneurs, business
and community leaders can make better, more informed and empowered decisions, so we can all begin to think differently
about our personal and public financial stability.
"... Neoliberalism and its usual prescriptions – always more markets, always less government – are in fact a perversion of mainstream economics. ..."
"... The term is used as a catchall for anything that smacks of deregulation, liberalisation, privatisation or fiscal austerity. Today it is routinely reviled as a shorthand for the ideas and practices that have produced growing economic insecurity and inequality, led to the loss of our political values and ideals, and even precipitated our current populist backlash. ..."
"... The use of the term "neoliberal" exploded in the 1990s, when it became closely associated with two developments, neither of which Peters's article had mentioned. One of these was financial deregulation, which would culminate in the 2008 financial crash and in the still-lingering euro debacle . The second was economic globalisation, which accelerated thanks to free flows of finance and to a new, more ambitious type of trade agreement. Financialisation and globalisation have become the most overt manifestations of neoliberalism in today's world. ..."
"... That neoliberalism is a slippery, shifting concept, with no explicit lobby of defenders, does not mean that it is irrelevant or unreal. Who can deny that the world has experienced a decisive shift toward markets from the 1980s on? Or that centre-left politicians – Democrats in the US, socialists and social democrats in Europe – enthusiastically adopted some of the central creeds of Thatcherism and Reaganism, such as deregulation, privatisation, financial liberalisation and individual enterprise? Much of our contemporary policy discussion remains infused with principles supposedly grounded in the concept of homo economicus , the perfectly rational human being, found in many economic theories, who always pursues his own self-interest. ..."
Neoliberalism and its usual prescriptions – always more markets, always less government – are in fact a perversion of
mainstream economics.
As even its harshest critics concede, neoliberalism is hard to pin down. In broad terms, it
denotes a preference for markets over government, economic incentives over cultural norms, and
private entrepreneurship over collective action. It has been used to describe a wide range of
phenomena – from Augusto Pinochet to Margaret Thatcher and Ronald Reagan, from the
Clinton Democrats and the UK's New Labour to the economic opening in China and the reform of
the welfare state in Sweden.
The term is used as a catchall for anything that smacks of deregulation, liberalisation,
privatisation or fiscal austerity. Today it is routinely reviled as a shorthand for the ideas
and practices that have produced growing economic insecurity and inequality, led to the loss of
our political values and ideals, and even precipitated our current populist backlash.
We live in the age of neoliberalism, apparently. But who are neoliberalism's adherents and
disseminators – the neoliberals themselves? Oddly, you have to go back a long time to
find anyone explicitly embracing neoliberalism. In 1982, Charles Peters, the longtime editor of
the political magazine Washington Monthly, published an essay titled
A Neo-Liberal's Manifesto . It makes for interesting reading 35 years later, since the
neoliberalism it describes bears little resemblance to today's target of derision. The
politicians Peters names as exemplifying the movement are not the likes of Thatcher and Reagan,
but rather liberals – in the US sense of the word – who have become disillusioned
with unions and big government and dropped their prejudices against markets and the
military.
The use of the term "neoliberal" exploded in the 1990s, when it became closely associated
with two developments, neither of which Peters's article had mentioned. One of these was
financial deregulation, which would culminate in the 2008
financial crash and in the still-lingering euro debacle . The second was economic
globalisation, which accelerated thanks to free flows of finance and to a new, more ambitious
type of trade agreement. Financialisation and globalisation have become the most overt
manifestations of neoliberalism in today's world.
That neoliberalism is a slippery, shifting concept, with no explicit lobby of defenders,
does not mean that it is irrelevant or unreal. Who can deny that the world has experienced a
decisive shift toward markets from the 1980s on? Or that centre-left politicians –
Democrats in the US, socialists and social democrats in Europe – enthusiastically adopted
some of the central creeds of Thatcherism and Reaganism, such as deregulation, privatisation,
financial liberalisation and individual enterprise? Much of our contemporary policy discussion
remains infused with principles supposedly grounded in the concept of homo
economicus , the perfectly rational human being, found in many economic theories, who
always pursues his own self-interest.
But the looseness of the term neoliberalism also means that criticism of it often misses the
mark. There is nothing wrong with markets, private entrepreneurship or incentives – when
deployed appropriately. Their creative use lies behind the most significant economic
achievements of our time. As we heap scorn on neoliberalism, we risk throwing out some of
neoliberalism's useful ideas.
The real trouble is that mainstream economics shades too easily into ideology, constraining
the choices that we appear to have and providing cookie-cutter solutions. A proper
understanding of the economics that lie behind neoliberalism would allow us to identify –
and to reject – ideology when it masquerades as economic science. Most importantly, it
would help us to develop the institutional imagination we badly need to redesign capitalism for
the 21st century.
N eoliberalism is typically understood as being based on key tenets of mainstream economic
science. To see those tenets without the ideology, consider this thought experiment. A
well-known and highly regarded economist lands in a country he has never visited and knows
nothing about. He is brought to a meeting with the country's leading policymakers. "Our country
is in trouble," they tell him. "The economy is stagnant, investment is low, and there is no
growth in sight." They turn to him expectantly: "Please tell us what we should do to make our
economy grow."
The economist pleads ignorance and explains that he knows too little about the country to
make any recommendations. He would need to study the history of the economy, to analyse the
statistics, and to travel around the country before he could say anything.
Facebook
Twitter Pinterest Tony Blair and Bill Clinton: centre-left politicians who enthusiastically
adopted some of the central creeds of Thatcherism and Reaganism. Photograph: Reuters
But his hosts are insistent. "We understand your reticence, and we wish you had the time for
all that," they tell him. "But isn't economics a science, and aren't you one of its most
distinguished practitioners? Even though you do not know much about our economy, surely there
are some general theories and prescriptions you can share with us to guide our economic
policies and reforms."
The economist is now in a bind. He does not want to emulate those economic gurus he has long
criticised for peddling their favourite policy advice. But he feels challenged by the question.
Are there universal truths in economics? Can he say anything valid or useful?
So he begins. The efficiency with which an economy's resources are allocated is a critical
determinant of the economy's performance, he says. Efficiency, in turn, requires aligning the
incentives of households and businesses with social costs and benefits. The incentives faced by
entrepreneurs, investors and producers are particularly important when it comes to economic
growth. Growth needs a system of property rights and contract enforcement that will ensure
those who invest can retain the returns on their investments. And the economy must be open to
ideas and innovations from the rest of the world.
But economies can be derailed by macroeconomic instability, he goes on. Governments must
therefore pursue a sound
monetary policy , which means restricting the growth of liquidity to the increase in
nominal money demand at reasonable inflation. They must ensure fiscal sustainability, so that
the increase in public debt does not outpace national income. And they must carry out
prudential regulation of banks and other financial institutions to prevent the financial system
from taking excessive risk.
Now he is warming to his task. Economics is not just about efficiency and growth, he adds.
Economic principles also carry over to equity and social policy. Economics has little to say about how
much redistribution a society should seek. But it does tell us that the tax base should be as
broad as possible, and that social programmes should be designed in a way that does not
encourage workers to drop out of the labour market.
By the time the economist stops, it appears as if he has laid out a fully fledged neoliberal
agenda. A critic in the audience will have heard all the code words: efficiency, incentives,
property rights, sound money, fiscal prudence. And yet the universal principles that the
economist describes are in fact quite open-ended. They presume a capitalist economy – one
in which investment decisions are made by private individuals and firms – but not much
beyond that. They allow for – indeed, they require – a surprising variety of
institutional arrangements.
So has the economist just delivered a neoliberal screed? We would be mistaken to think so,
and our mistake would consist of associating each abstract term – incentives, property
rights, sound money – with a particular institutional counterpart. And therein lies the
central conceit, and the fatal flaw, of neoliberalism: the belief that first-order economic
principles map on to a unique set of policies, approximated by a Thatcher/Reagan-style
agenda.
Consider property rights. They matter insofar as they allocate returns on investments. An
optimal system would distribute property rights to those who would make the best use of an
asset, and afford protection against those most likely to expropriate the returns. Property
rights are good when they protect innovators from free riders, but they are bad when they
protect them from competition. Depending on the context, a legal regime that provides the
appropriate incentives can look quite different from the standard US-style regime of private
property rights.
This may seem like a semantic point with little practical import; but China's phenomenal
economic success is largely due to its orthodoxy-defying institutional tinkering. China turned
to markets, but did not copy western practices in property rights. Its reforms produced
market-based incentives through a series of unusual institutional arrangements that were better
adapted to the local context. Rather than move directly from state to private ownership, for
example, which would have been stymied by the weakness of the prevailing legal structures, the
country relied on mixed forms of ownership that provided more effective property rights for
entrepreneurs in practice. Township and Village Enterprises (TVEs), which spearheaded Chinese
economic growth during the 1980s, were collectives owned and controlled by local governments.
Even though TVEs were publicly owned, entrepreneurs received the protection they needed against
expropriation. Local governments had a direct stake in the profits of the firms, and hence did
not want to kill the goose that lays the golden eggs.
China relied on a range of such innovations, each delivering the economist's higher-order
economic principles in unfamiliar institutional arrangements. For instance, it shielded its
large state sector from global competition, establishing special economic zones where foreign
firms could operate with different rules than in the rest of the economy. In view of such
departures from orthodox blueprints, describing China's economic reforms as neoliberal –
as critics are inclined to do – distorts more than it reveals. If we are to call this
neoliberalism, we must surely look more kindly on the ideas behind the most dramatic
poverty reduction in history.
One might protest that China's institutional innovations were purely transitional. Perhaps
it will have to converge on western-style institutions to sustain its economic progress. But
this common line of thinking overlooks the diversity of capitalist arrangements that still
prevails among advanced economies, despite the considerable homogenisation of our policy
discourse.
What, after all, are western institutions? The size of the public sector in OECD countries
varies, from a third of the economy in Korea to nearly 60% in Finland. In Iceland, 86% of
workers are members of a trade union; the comparable number in Switzerland is just 16%. In the
US, firms can fire workers almost at will;
French labour laws have historically required employers to jump through many hoops first.
Stock markets have grown to a total value of nearly one-and-a-half times GDP in the US; in
Germany, they are only a third as large, equivalent to just 50% of GDP.
Facebook
Twitter Pinterest 'China turned to markets, but did not copy western practices ... '
Photograph: AFP/Getty
The idea that any one of these models of taxation, labour relations or financial
organisation is inherently superior to the others is belied by the varying economic fortunes
that each of these economies have experienced over recent decades. The US has gone through
successive periods of angst in which its economic institutions were judged inferior to those in
Germany, Japan, China, and now possibly Germany again. Certainly, comparable levels of wealth
and productivity can be produced under very different models of capitalism. We might even go a
step further: today's prevailing models probably come nowhere near exhausting the range of what
might be possible, and desirable, in the future.
The visiting economist in our thought experiment knows all this, and recognises that the
principles he has enunciated need to be filled in with institutional detail before they become
operational. Property rights? Yes, but how? Sound money? Of course, but how? It would perhaps
be easier to criticise his list of principles for being vacuous than to denounce it as a
neoliberal screed.
Still, these principles are not entirely content-free. China, and indeed all countries that
managed to develop rapidly, demonstrate the utility of those principles once they are properly
adapted to local context. Conversely, too many economies have been driven to ruin courtesy of
political leaders who chose to violate them. We need look no further than
Latin American populists or eastern European communist regimes to appreciate the practical
significance of sound money, fiscal sustainability and private incentives.
O f course, economics goes beyond a list of abstract, largely common-sense principles. Much
of the work of economists consists of developing
stylised models of how economies work and then confronting those models with evidence.
Economists tend to think of what they do as progressively refining their understanding of the
world: their models are supposed to get better and better as they are tested and revised over
time. But progress in economics happens differently.
Economists study a social reality that is unlike the physical universe. It is completely
manmade, highly malleable and operates according to different rules across time and space.
Economics advances
not by settling on the right model or theory to answer such questions, but by improving our
understanding of the diversity of causal relationships. Neoliberalism and its customary
remedies – always more markets, always less government – are in fact a perversion
of mainstream economics. Good economists know that the correct answer to any question in
economics is: it depends.
Does an increase in the minimum wage depress employment? Yes, if the labour market is really
competitive and employers have no control over the wage they must pay to attract workers; but
not necessarily otherwise. Does trade liberalisation increase economic growth? Yes, if it
increases the profitability of industries where the bulk of investment and innovation takes
place; but not otherwise. Does more government spending increase employment? Yes, if there is
slack in the economy and wages do not rise; but not otherwise. Does monopoly harm innovation?
Yes and no, depending on a whole host of market circumstances.
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Twitter Pinterest 'Today [neoliberalism] is routinely reviled as a shorthand for the ideas
that have produced growing economic inequality and precipitated our current populist backlash'
Trump signing an order to take the US out of the TPP trade pact. Photograph: AFP/Getty
In economics, new models rarely supplant older models. The basic competitive-markets model
dating back to Adam Smith has been modified over time by the inclusion, in rough historical
order, of monopoly, externalities, scale economies, incomplete and asymmetric information,
irrational behaviour and many other real-world features. But the older models remain as useful
as ever. Understanding how real markets operate necessitates using different lenses at
different times.
Perhaps maps offer the best analogy. Just like economic models, maps are highly
stylised representations of reality . They are useful precisely because they abstract from
many real-world details that would get in the way. But abstraction also implies that we need a
different map depending on the nature of our journey. If we are travelling by bike, we need a
map of bike trails. If we are to go on foot, we need a map of footpaths. If a new subway is
constructed, we will need a subway map – but we wouldn't throw out the older maps.
Economists tend to be very good at making maps, but not good enough at choosing the one most
suited to the task at hand. When confronted with policy questions of the type our visiting
economist faces, too many of them resort to "benchmark" models that favour the
laissez-faire approach. Kneejerk solutions and hubris replace the richness and humility of
the discussion in the seminar room. John Maynard Keynes once defined economics as the "science
of thinking in terms of models, joined to the art of choosing models which are relevant".
Economists typically have trouble with the "art" part.
This, too, can be illustrated with a parable. A journalist calls an economics professor for
his view on whether free trade is a good idea. The professor responds enthusiastically in the
affirmative. The journalist then goes undercover as a student in the professor's advanced
graduate seminar on international trade. He poses the same question: is free trade good? This
time the professor is stymied. "What do you mean by 'good'?" he responds. "And good for whom?"
The professor then launches into an extensive exegesis that will ultimately culminate in a
heavily hedged statement: "So if the long list of conditions I have just described are
satisfied, and assuming we can tax the beneficiaries to compensate the losers, freer trade has
the potential to increase everyone's wellbeing." If he is in an expansive mood, the professor
might add that the effect of free trade on an economy's longterm growth rate is not clear
either, and would depend on an altogether different set of requirements.
This professor is rather different from the one the journalist encountered previously. On
the record, he exudes self-confidence, not reticence, about the appropriate policy. There is
one and only one model, at least as far as the public conversation is concerned, and there is a
single correct answer, regardless of context. Strangely, the professor deems the knowledge that
he imparts to his advanced students to be inappropriate (or dangerous) for the general public.
Why?
The roots of such behaviour lie deep in the culture of the economics profession. But one
important motive is the zeal to display the profession's crown jewels – market
efficiency, the invisible hand, comparative advantage – in untarnished form, and to
shield them from attack by self-interested barbarians, namely
the protectionists . Unfortunately, these economists typically ignore the barbarians on the
other side of the issue – financiers and multinational corporations whose motives are no
purer and who are all too ready to hijack these ideas for their own benefit.
As a result, economists' contributions to public debate are often biased in one direction,
in favour of more trade, more finance and less government. That is why economists have
developed a reputation as cheerleaders for neoliberalism, even if mainstream economics is very
far from a paean to laissez-faire. The economists who let their enthusiasm for free markets run
wild are in fact not being true to their own discipline.
H ow then should we think about globalisation in order to liberate it from the grip of
neoliberal practices? We must begin by understanding the positive potential of global markets.
Access to world markets in goods, technologies and capital has played an important role in
virtually all of the economic miracles of our time. China is the most recent and powerful
reminder of this historical truth, but it is not the only case. Before China, similar miracles
were performed by South Korea, Taiwan, Japan and a few non-Asian countries such as Mauritius
. All of these countries embraced globalisation rather than turn their backs on it, and they
benefited handsomely.
Defenders of the existing economic order will quickly point to these examples when
globalisation comes into question. What they will fail to say is that almost all of these
countries joined the world economy by violating neoliberal strictures. South Korea and Taiwan,
for instance, heavily subsidised their exporters, the former through the financial system and
the latter through tax incentives. All of them eventually removed most of their import
restrictions, long after economic growth had taken off.
But none, with the sole exception of Chile in the 1980s under Pinochet, followed the
neoliberal recommendation of a rapid opening-up to imports. Chile's
neoliberal experiment eventually produced the worst economic crisis in all of Latin
America. While the details differ across countries, in all cases governments played an active
role in restructuring the economy and buffering it against a volatile external environment.
Industrial policies, restrictions on capital flows and currency controls – all prohibited
in the neoliberal playbook – were rampant.
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Twitter Pinterest Protest against Nafta in Mexico City in 2008: since the reforms of the
mid-90s, the country's economy has underperformed. Photograph: EPA
By contrast, countries that stuck closest to the neoliberal model of globalisation were
sorely disappointed. Mexico provides a particularly sad example. Following a series of
macroeconomic crises in the mid-1990s, Mexico embraced macroeconomic orthodoxy, extensively
liberalised its economy, freed up the financial system, sharply reduced import restrictions and
signed the North American Free Trade Agreement (Nafta). These policies did produce
macroeconomic stability and a significant rise in foreign trade and internal investment. But
where it counts – in overall productivity and economic growth – the
experiment failed . Since undertaking the reforms, overall productivity in Mexico has
stagnated, and the economy has underperformed even by the undemanding standards of Latin
America.
These outcomes are not a surprise from the perspective of sound economics. They are yet
another manifestation of the need for economic policies to be attuned to the failures to which
markets are prone, and to be tailored to the specific circumstances of each country. No single
blueprint fits all.
A s Peters's 1982 manifesto attests, the meaning of neoliberalism has changed considerably
over time as the label has acquired harder-line connotations with respect to deregulation,
financialisation and globalisation. But there is one thread that connects all versions of
neoliberalism, and that is the
emphasis on economic growth . Peters wrote in 1982 that the emphasis was warranted because
growth is essential to all our social and political ends – community, democracy,
prosperity. Entrepreneurship, private investment and removing obstacles that stand in the way
(such as excessive regulation) were all instruments for achieving economic growth. If a similar
neoliberal manifesto were penned today, it would no doubt make the same point.
Critics often point out that this emphasis on economics debases and sacrifices other
important values such as equality, social inclusion, democratic deliberation and justice. Those
political and social objectives obviously matter enormously, and in some contexts they matter
the most. They cannot always, or even often, be achieved by means of technocratic economic
policies; politics must play a central role.
Still, neoliberals are not wrong when they argue that our most cherished ideals are more
likely to be attained when our economy is vibrant, strong and growing. Where they are wrong is
in believing that there is a unique and universal recipe for improving economic performance, to
which they have access. The fatal flaw of neoliberalism is that it does not even get the
economics right. It must be rejected on its own terms for the simple reason that it is bad
economics.
A version of this article first appeared in Boston
Review
"Last year, the faculty at Harvard's Kennedy School of Government voted to offer Mr.
Zucman, 33, a tenured position. But Harvard's president and provost nixed the offer, partly
over fears that Mr. Zucman's research could not support the arguments he was making in the
political arena, according to people involved in the process." NYT
He subsequently got a post at the University of California, Berkeley.
The tell tale sign; debt rises much faster than GDP in the US in the 1920s.
(Japan 1980s; US, UK and Euro-zone before 2008; China after 2008)
The bankers were inflating asset prices with bank credit.
Bank credit effectively brings future prosperity into today.
The 1920s boomed on borrowed money and the 1930s were impoverished as they made the
repayments.
In the 1930s, they pondered over where all that wealth had gone to in 1929 and realised
inflating asset prices doesn't create real wealth, they came up with the GDP measure to track
real wealth creation in the economy.
The transfer of existing assets, like stocks and real estate, doesn't create real wealth
and therefore does not add to GDP. The real wealth creation in the economy is measured by
GDP.
Inflated asset prices aren't real wealth, and this can disappear almost over-night, as it
did in 1929 and 2008.
Real wealth creation involves real work, producing new goods and services in the
economy.
Henry Simons was a founder member of the Chicago School of Economics and he had worked out
what was wrong with his beliefs in free markets in the 1930s.
Banks can inflate asset prices with the money they create from bank loans.
Henry Simons and Irving Fisher supported the Chicago Plan to take away the bankers ability
to create money.
"Simons envisioned banks that would have a choice of two types of holdings: long-term
bonds and cash. Simultaneously, they would hold increased reserves, up to 100%. Simons saw
this as beneficial in that its ultimate consequences would be the prevention of
"bank-financed inflation of securities and real estate" through the leveraged creation of
secondary forms of money."
"Stocks have reached what looks like a permanently high plateau." Irving Fisher
1929.
This 1920's neoclassical economist that believed in free markets knew this was a stable
equilibrium. He became a laughing stock, but worked out where he had gone wrong.
Banks can inflate asset prices with the money they create from bank loans, and he knew his
belief in free markets was dependent on the Chicago Plan, as he had worked out the cause of
his earlier mistake.
It was those bankers inflating the US stock market with margin lending.
It's not quite the same this time.
Let the bank's collapse for a Great Depression
Save the banks, but leave the debt in place for Japanification .
How did this old belief set come back again?
A new ideology, neoliberalism, was wrapped around 1920s neoclassical economics, to make it
look brand new.
The reckless bankers and robber barons had made a lot of money in the 1920s and they
rather liked the way things had been before, but after the reckless bankers and robber barons
had run riot in the US in the 1920s, beliefs in economic liberalism and the markets were in
short supply.
Just a few diehards, like Hayek, were left and they were hiding out at the LSE in the UK
in the 1930s. He was looking to put a new slant on those old ideas.
In the 1940s, Hayek put together his theories of the markets being a mechanism for
transmitting the collective wisdom of market participants around the world through pricing.
It was never going to get into the mainstream until nearly everyone had forgotten what
happened last time they believed in the markets.
At last, in the 1980s, the people were ready to believe in the markets again.
Before 1980 – banks lending into the right places that result in GDP growth
(business and industry, creating new products and services in the economy)
Debt grows with GDP
After 1980 – banks lending into the wrong places that don't result in GDP growth
(real estate and financial speculation)
Debt rises much faster than GDP
2008 – Minsky Moment
After 2008 – Balance sheet recession and the economy struggles as debt repayments to
banks destroy money. We are making the repayments on the debt we built up from 1980 –
2008.
What happened in 1979?
The UK eliminated corset controls on banking in 1979 and the banks invaded the mortgage
market and this is where the problem starts.
This is the UK, but everyone has made the same mistake.
One economics, one ideology.
Global groupthink.
At 25.30 mins you can see the super imposed private debt-to-GDP ratios.
What Japan does in the 1980s; the US, the UK and Euro-zone do leading up to 2008 and China
has done more recently.
The tell tale sign of neoclassical economics; debt rises much faster than GDP
The PBoC saw the Chinese Minsky Moment coming and you can too by looking at the chart
above. The Chinese bankers had been loading their economy up with their debt products and it
was just about to crash.
Our experts look at public debt and consumer price inflation, but the problems develop in
private debt and asset price inflation so the "black swan" flies in under their radar.
Davos 2018 – The Chinese know financial crises come from the private debt-to-GDP
ratio and inflated asset prices
thatcher was a neoliberal. neoliberalism is both nationalism (for the long con game) and
globalist (the goal)
The Mont Pelerin Society's (Austria 1940's) favorite "economist" F. v Hayek proposed path
of "liberty" and "freedom" [only for the inbred 1% (Neoliberalism)] (Friedman, Buchanan,
"Chicago School", were later disciples)
1) Deregulate global financial markets - DONE
2) Deregulate global trade - DONE
3) Create the illusion and urgency of national bankruptcy with fake (fiat) debt (thereby
neuter a nation's capability to enforce laws - eliminate the people's ability to defend
against being overwhelmed and consumed by the 1%) - DONE
this manufactured illusion of bankruptcy is critical path for the inbred 1%'s agenda. the
"debt" is used to justify austerity measures for the people, and to tee up, the privatization
plan, which is about transforming the public debt, into private debt, where the 1% can
extract usury, ad infinitum.
#AusterityIsCode4Looting - austerity measures are plain evidence, the system has already
been looted by generational globalist wealth.
then lastly, the kill shot:
4) Privatize Everything. recreate us ALL as permanent rent payers of even the most basic
necessities of life (Air, water, food, shelter, health care). the public debt of a ntion has
been effectively eliminated, transmuted into private debt; the service of which (usury) is
FOREVER- Almost COMPLETE
#PrivatizationIsTheft - privatization today is STRICTLY about prioritizing national
productivity (work) away from the commons and general welfare, extracting and transferring it
to the inbred 1% rent-seeking parasites (Extreme Redistribution of wealth from the people TO
the Billionaires, NOTHING for the people)
"People only accept change when they are faced with necessity, and only recognize
necessity when crisis is upon them."
Same old process...Problem, Reaction, Solution
They corrupt the current system and advance their agenda as far as they can (gaining
public support using the process above). When they detect growing resistance and distrust of
the system...they then encourage and use that trend to advance their agenda further using the
same Problem, Reaction, Solution process. The crash/destruction of the current status quo and
the fear and chaos that comes with it will be blamed on populism/nationalism. The people (in
chaos and fear) will seek safety and security...and will willingly accept the solutions
offered up to them. Rinse and repeat.
The bottom line is they know that acceptance of global centralization of power and
control...is a bottoms up process (the people must willing accept/demand it). It must be
accomplished in evolutionary stages through gradualism. However, when they have reach a
certain point and want to take the next major step, they undermine the peoples trust in the
current system and encourage and use the people's blow-back. Blow-back will be blamed for all
the chaos and fear.
"... Yet it took until 1860 for the UK to fully embrace free trade, and even then the unpalatable historical record is that during this 'golden age', the British: Destroyed the Indian textile industry to benefit their own cloth manufacturers; Started the Opium Wars to balance UK-China trade by selling China addictive drugs; Ignored the Irish Potato Famine and continued to allow Irish wheat exports; Forced Siam (Thailand) to open up its economy to trade with gunboats (as the US did with Japan); and Colonized much of Africa and Asia. ..."
"... Regardless, the first flowering of free trade collapsed back into nationalism and protectionism - bloodily so in 1914. Free trade was tried again from 1919 - but burned-out even more bloodily in the 1930s and 1940s. After WW2, most developed countries had moderately free trade - but most developing countries did not. We only started to re-embrace global free trade from the 1990s onwards when the Cold War ended – and here it is under stress again. In short, only around 100 years in a total of 5,000 years of civilization has seen real global free trade, it has failed twice already, and it is once again coming under pressure. ..."
"... Of course, this doesn't mean liked-minded groups of countries with similar-enough or sympathetic-enough economies and politics should avoid free trade: clearly for some states it can work out nicely - even if within the EU one could argue there are also underlying strains. However, it is a huge stretch to assume a one-size-fits-all free trade policy will always work best for all countries, as some would have it. That is a fairy tale. History shows it wasn't the case; national security concerns show it can never always be the case; and Ricardo argues this logically won't be the case. ..."
"When I used to read fairy tales, I fancied that kind of thing never happened, and now here I am in the middle of one!" (Alice
in Wonderland, Chapter 4, The Rabbit Sends in a Little Bill)
Submitted by Michael Every of Rabobank
2020 starts with markets feeling optimistic due to a US-China trade deal and a reworked NAFTA in the form of the USMCA. However,
the tide towards protectionism may still be coming in, not going out.
The intellectual appeal of the basis for free trade, Ricardo's theory of comparative advantage, where Portugal specializes in
wine, and the UK in cloth, is still clearly there. Moreover, trade has always been a beneficial and enriching part of human culture.
Yet the fact is that for the majority of the last 5,000 years global trade has been highly-politicized and heavily-regulated . Indeed,
global free-trade only began following the abolition of the UK Corn Laws in 1846, which reduced British agricultural tariffs, brought
in European wheat and corn, and allowed the UK to maximize its comparative advantage in industry.
Yet it took until 1860 for the UK to fully embrace free trade, and even then the unpalatable historical record is that during
this 'golden age', the British:
Destroyed the Indian textile industry to benefit their own cloth manufacturers;
Started the Opium Wars to balance UK-China trade by selling China addictive drugs;
Ignored the Irish Potato Famine and continued to allow Irish wheat exports;
Forced Siam (Thailand) to open up its economy to trade with gunboats (as the US did with Japan); and
Colonized much of Africa and Asia.
As we showed back in '
Currency
and Wars ', after an initial embrace of free trade, the major European powers and Japan saw that their relative comparative advantage
meant they remained at the bottom of the development ladder as agricultural producers, an area where prices were also being depressed
by huge US output; meanwhile, the UK sold industrial goods, ran a huge trade surplus, and ruled the waves militarily. This was politically
unsustainable even though the UK vigorously backed the intellectual concept of free trade given it was such a winner from it.
Regardless, the first flowering of free trade collapsed back into nationalism and protectionism - bloodily so in 1914. Free
trade was tried again from 1919 - but burned-out even more bloodily in the 1930s and 1940s. After WW2, most developed countries had
moderately free trade - but most developing countries did not. We only started to re-embrace global free trade from the 1990s onwards
when the Cold War ended – and here it is under stress again. In short, only around 100 years in a total of 5,000 years of civilization
has seen real global free trade, it has failed twice already, and it is once again coming under pressure.
What are we getting wrong? Perhaps that Ricardo's theory has major flaws that don't get included in our textbooks, as summarized
in this overlooked quote
"It would undoubtedly be advantageous to the capitalists of England [that] the wine and cloth should both be made in Portugal
[and that] the capital and labour of England employed in making cloth should be removed to Portugal for that purpose." Which is pretty
much what happens today! However, Ricardo adds that this won't happen because "Most men of property [will be] satisfied with a low
rate of profits in their own country, rather than seek a more advantageous employment for their wealth in foreign nations," which
is simply not true at all! In other words, his premise is flawed in that:
It is atemporal in assuming countries move to their comparative advantage painlessly and instantly;
It assumes full employment when if there is unemployment a country is better off producing at home to reduce it, regardless
of higher cost;
It assumes capital between countries is immobile , i.e., investors don't shift money and technology abroad. (Which Adam Smith's
'Wealth of Nations', Book IV, Chapter II also assumes doesn't happen, as an "invisible hand" keeps money invested in one's home
country's industry and not abroad: we don't read him correctly either.);
It assumes trade balances under free trade - but since when has this been true? Rather we see large deficits and inverse capital
flows, and so debts steadily increasing in deficit countries;
It assumes all goods are equal as in Ricardo's example, cloth produced in the UK and wine produced in Portugal are equivalent.
Yet some sectors provide well-paid and others badly-paid employment: why only produce the latter?
As Ricardo's theory requires key conditions that are not met in reality most of the time, why are we surprised that most of reality
fails to produce idealised free trade most of the time? Several past US presidents before Donald Trump made exactly that point. Munroe
(1817-25) argued: " The conditions necessary for Free Trade's success - reciprocity and international peace - have never occurred
and cannot be expected ". Grant (1869-77) noted "Within 200 years, when America has gotten out of protection all that it can offer,
it too will adopt free trade".
Yet arguably we are better, not worse, off regardless of these sentiments – so hooray! How so? Well, did you know that Adam Smith,
who we equate with free markets, and who created the term "mercantile system" to describe the national-protectionist policies opposed
to it, argued the US should remain an agricultural producer and buy its industrial goods from the UK? It was Founding Father Alexander
Hamilton who rejected this approach, and his "infant industry" policy of industrialization and infrastructure spending saw the US
emerge as the world's leading economy instead. That was the same development model that, with tweaks, was then adopted by pre-WW1
Japan, France, and Germany to successfully rival the UK; and then post-WW2 by Japan (again) and South Korea; and then more recently
by China, that key global growth driver. Would we really be better off if the US was still mainly growing cotton and wheat, China
rice and apples, and the UK was making most of the world's consumer goods? Thank the lack of free trade if you think otherwise!
Yet look at the examples above and there is a further argument for more protectionism ahead. Ricardo assumes a benign global political
environment for free trade . Yet what if the UK and Portugal are rivals or enemies? What if the choice is between steel and wine?
You can't invade neighbours armed with wine as you can with steel! A large part of the trade tension between China and the US, just
as between pre-WW1 Germany and the UK, is not about trade per se: for both sides, it is about who produces key inputs with national
security implications - and hence is about relative power . This is why we hear US hawks underlining that they don't want to export
their highest technology to China, or to specialize only in agricultural exports to it as China moves up the value-chain. It also
helps underline why for most of the past 5,000 years trade has not been free. Indeed, this argument also holds true for the other
claimed benefit of free trade: the cross-flow of ideas and technology. That is great for friends, but not for those less trusted.
Of course, this doesn't mean liked-minded groups of countries with similar-enough or sympathetic-enough economies and politics
should avoid free trade: clearly for some states it can work out nicely - even if within the EU one could argue there are also underlying
strains. However, it is a huge stretch to assume a one-size-fits-all free trade policy will always work best for all countries, as
some would have it. That is a fairy tale. History shows it wasn't the case; national security concerns show it can never always be
the case; and Ricardo argues this logically won't be the case.
Yet we need not despair. The track record also shows that global growth can continue even despite protectionism, and in some cases
can benefit from it. That being said, should the US resort to more Hamiltonian policies versus everyone, not just China, then we
are in for real financial market turbulence ahead given the role the US Dollar plays today compared to the role gold played for Smith
and Ricardo! But that is a whole different fairy tale...
In my golden days, I did manufacturing throughput analysis, cost modeled parts, and
reviewed component and transportation distribution. I am curious. Forget all that
neoliberal stuff . . .
Ohh, those golden days
Measurement has its place and is the cornerstone of science, but it is not equal to
pattern recognition. And when applied to social phenomena with their complexity it is
more often a trap, rather then an insight.
You need to understand that.
Deification of questionable metrics is an objective phenomenon that we observe under
neoliberalism.
A classic example of deification of a questionable metric under neoliberalism is the
"cult of GDP" ("If the GDP Is Up, Why Is America Down?") See , for example
For example, many people discuss stagnation of GDP growth in Japan not understanding
here we are talking about the country with shrinking population. And adjusted for this
factor I am not sure that it not higher then in the USA (were it is grossly distorted by
the cancerous growth of FIRE sector).
So while comparing different years for a single country might make some limited sense,
those who blindly compare GDP of different countries (even with PPP adjustment) IMHO
belong to a modern category of economic charlatans. Kind of Lysenkoism, if you wish
That tells you something about primitivism and pseudo-scientific nature of neoliberal
economics.
We also need to remember the "performance reviews travesty" which is such a clear
illustration of "cult of measurement" abuses that it does not it even requires
commentary. Google has abolished numerical ratings in April 2014.
Recently I come across an interesting record of early application of it in AT&T at
Brian W Kernighan book UNIX: A History and a Memoir at late 60th, early as 70th.
Imbecilization is a normal historical process where intellectual declines follows the
economic decline of a given empire. There's growing evidence the West is going through the
same process.
A with any composite, complex historical process, imbecilization doesn't happen in a
uniform and linear way. Economics was the first science that descended into pseudo-science in
the capitalist world (after Marx dismantled Classic Economics). Philosophy followed. Erudite
art degenerated after the fall of Modernism somewhere in the 1950s. Human sciences in general
became fragmented and little more than a constelation of esoterism and pseudo-sciences - a
condition they still enjoy today (e.g. the dismembering of History into Sociology, Behavioral
Economics and others).
Meanwhile, the so-called STEM or "Hard Sciences" continued to prosper for some decades,
until they also hit a ceiling in the 1990s. The fall of the profitability of the capitalist
world led it to resort to "financialization" to keep the system going, which resulted in the
most brilliant capitalist mathematicians to be hosed to Wall Street instead to the likes of
NASA. Those MIT mathematicians and rocket scientists created the algorithms Wall Street still
uses today, but they did not stop the 2008 meltdown.
Nowadays, those brilliant STEM minds are nothing more than fraudsters who keep their
careers going by creating meaningless experiments (because they need the funding) only to
publish articles and keep their production quotas or self-censuring bootlickers for Wall
Street and Big Pharma. When they get to work for a big corporation, they are mere architects
of planned obsolescence or patent renewing. There's a new book I strongly recommend all of
you to read:
Does productivity explain income? I asked this question in a
previous
post
. My answer was a bombastic
no
. In this post, I'll dig deeper into the reasons that
productivity doesn't explain income. I'll focus on wages.
The Evidence
Let's start with the evidence trumpeted as proof that productivity explains wages. Looking across firms, we
find that sales per worker correlates with average wages. Figure 1 shows this correlation for about 50,000 US
firms over the years 1950 to 2015.
Figure 1: The correlation between a firm's average wages and
its sales per worker.
Data comes from Compustat. To adjust for inflation, I've divided wages and sales
per worker by their respective averages (in the firm sample) in each year. I've shown stock tickers for select
firms.
Mainstream economists take this correlation as evidence that productivity explains wages. Sales, they say,
measure firms' output. So sales per worker indicates firms' labor productivity. Thus the evidence in Figure 1
indicates that productivity explains (much of) workers' income. Case closed.
The Problem
Yes, sales per worker correlates with average wages. No one disputes this fact. What I dispute is that this
correlation says anything about productivity. The problem is simple. Sales per worker
doesn't measure
productivity
.
To understand the problem, let's do some basic accounting. A firm's sales equal the unit price of the firm's
product times the quantity of this product:
Sales = Unit Price × Unit Quantity
Dividing both sides by the number of workers gives:
Sales per Worker = Unit Price × Unit Quantity per Worker
Let's unpack this equation. The 'unit quantity per worker' measures labor productivity. It tells us the
firm's output per worker. For instance, a farm might grow 10 tons of potatoes per worker. If another farm grows
15 tons of potatoes per worker, it unambiguously produces more potatoes per worker (assuming the potatoes are
the same).
The problem with using sales to measure productivity is that
prices
get in the way. Imagine that
two farms, Old McDonald's and Spuds-R-Us, both produce 10 tons of potatoes per worker. Next, imagine that Old
McDonald's sells their potatoes for $100 per ton. Spuds-R-Us, however, sells their potatoes for $200 per ton.
The result is that Spuds-R-Us has double the sales per worker as Old McDonald's. When we equate sales with
productivity, it appears that workers at Spuds-R-Us are twice as productive as workers at Old McDonald's. But
they're not. We've been fooled by prices.
The solution to this problem seems simple. Rather than use sales to measure output, we should measure a
firm's output
directly
. Count up what the firm produces, and that's its output. Problem solved.
So why don't economists measure output directly? Because the restrictions needed to do so are severe. In
fact, they're so severe that they're almost never met in the real world. Let's go through these restriction.
1: Firms must produce identical commodities
To objectively compare productivity, you have to find firms that produce the same commodity. You could, for
instance, compare the productivity of two farms that produce (the same) potatoes. But if the farms produce
different things, you're out of luck.
Here's why. When firms produce different commodities, we need a common dimension to compare their outputs.
The problem is that the choice of dimension affects our measure of output.
To see the problem, let's return to our two farms, Old McDonald's and Spuds-R-Us. Suppose that Spuds-R-Us
produces 10 tons of potatoes per worker. Tired of growing potatoes, Old McDonald's instead grows 5 tons of corn
per worker. Which workers are more productive?
The answer depends on our dimension of analysis.
Suppose we compare potatoes and corn using mass. We find that Spuds-R-Us workers (who produce 10 tons per
worker) are more productive than Old McDonald's workers (who produce 5 tons per worker).
Now suppose we compare potatoes and corn using energy. Furthermore, imagine that corn has twice the caloric
density of potatoes. Now we find that workers at Spuds-R-Us (who produce half the mass of food at twice the
caloric density) have the same labor productivity as Old McDonald's workers.
The lesson? Unless two firms produce the same commodity, productivity comparisons are subjective. They
depend on the choice of dimension.
Restriction 2: Firm output must be countable
When you read economic textbooks, it's clear that the discipline of economics is stuck in the 19th century.
Firms, the textbooks say, produce
stuff
.
But what about all those other firms that don't produce stuff? What is their output? What, for instance, is
the output of Goldman Sacks? What is the output of a high school? What is the output of a hospital? What is the
output of a legal firm?
Yes, these institutions do things. But it defies reason to give these activities a 'unit quantity'. In other
words, it defies reason to quantify the output of these institutions.
Restriction 3: Firms must produce a single commodity
Complicating things further, we can objectively measure output only when firms produce a single commodity.
If a firm produces two (or more) commodities, its output is affected by how we add the commodities together.
To see the problem, let's return to Old McDonald's and Spuds-R-Us. Suppose that both farms have diversified
their production. Spuds-R-Us produces 5 tons of potatoes and 1 ton of corn per worker. Old McDonald's produces
1 ton of potatoes and 5 tons of corn. Which workers are more productive?
The answer depends on our dimension of analysis. In terms of mass, both farms produce 6 tons of food per
worker. So labor productivity appears the same. But suppose we measure the output of energy. Again, we'll
assume that corn has double the caloric density of potatoes. Suppose corn contains 2 GJ (gigajoule) per ton,
while potatoes contain 1 GJ per ton. Now we find that Old McDonald's workers are about 60% more productive than
workers at Spuds-R-Us. Here's the calculation:
Spuds-R-Us:
5 tons potato × 1 GJ / ton + 1 ton corn × 2 GJ / ton = 7 GJ
Old McDonald's:
1 ton potato × 1 GJ / ton + 5 ton corn × 2 GJ / ton = 11 GJ
This 'aggregation problem' is why the neoclassical theory of income distribution assumes a single-commodity
world -- a world in which everyone produces and consumes the same thing. In this one-commodity world, we can
measure productivity unambiguously. In the real world (with many commodities) productivity depends on our
choice of dimension.
The Severity of the Problem
Let's take stock. If we want to measure productivity objectively, the restrictions are severe:
Firms must produce the same commodity
This commodity must be countable
Firms must produce only one commodity
These conditions are so stringent that they're rarely met in the real world. This is a bit of a problem for
neoclassical theory. It proposes that everyone's income is explained by their productivity. But only in the
rarest of circumstances can we measure productivity objectively.
It's hard not to laugh at this predicament. It's like Newton proclaiming that gravitational force is
proportional to mass. But in the next sentence he realizes that mass can be measured only in the rarest of
circumstances.
The Neoclassical Sleight of hand
Neoclassical economists don't think of themselves as Newtons who can't measure mass. Instead, economics
textbooks don't even mention the problems with measuring productivity. In these textbooks, all seems well in
neoclassical land.
But all is not well. Neoclassical economists perpetuate their fantasy by relying on a sleight of hand.
Here's what they do.
First, economists argue that the purpose of all economic activity is to give consumers
utility
. Buy
a potato and you get utility. Buy a cigarette and you get utility. Utility, economists say, is the universal
dimension of output. By measuring utility, we can compare the output of any and all firms (no matter what they
produce).
After proclaiming that utility is the universal dimension of output, economists pull their trick. Utility,
they say, is
revealed through prices
. So a painting worth $1000 gives the buyer 1000 times the utility
as a $1 potato.
With this thinking in hand, economists see that a firm's sales measure its output of utility:
Sales = Unit Price × Unit Quantity
Sales = Unit Utility × Unit Quantity = Gross Utility
So sales become a universal measure of utility, and utility is the universal measure of output. Now, when we
compare sales per worker to wages (as in Figure 1), economists proclaim that we're comparing productivity to
wages.
Except we're not.
The problem is that this whole operation is circular. The idea that prices reveal utility is a
hypothesis
.
And as every good scientist knows, you can't use your hypothesis to test your hypothesis. But that's what
neoclassical economists do. They assume that one aspect of their theory is true (the link between prices and
utility) to test another aspect of their theory (the link between productivity and income). This is a big no
no.
Why do economists use this circular reasoning? Probably because they don't know they're doing it. Economists
take as received wisdom the idea that prices reveal utility. But this is just a hypothesis. In fact, it's a bad
hypothesis. Why? Because we can never measure utility independently of prices.
Why are Sales Related to Wages
Whenever I go through the logic above, mainstream economists will retort: "But look at the correlation
between wages and sales! How can this not show that productivity explains wages?" Their reasoning seems to be
that, absent an alternative explanation, this correlation must support their hypothesis.
In
No,
Productivity Does Not Explain Income
, I gave an alternative explanation. The correlation between wages and
sales per worker, I argued, follows from accounting principles.
Sales isn't a measure of output. It's an
income
stream. Once earned, this income gets split by the
firm into different categories. Some of it goes to workers. Some of it goes to other firms (as non-labor
costs). And some of it goes to the firm's owners as profit.
Figure 2: Dividing a firm's income stream.
Accounting
principles dictate that a firm's sales get divided into profits and wages.
By
definition, the terms on the left must sum to the terms on the right. So it's not surprising that we find a
correlation between wages and sales. They're related by an accounting identity.
In comments on
No,
Productivity Does Not Explain Income
(and on other sites), some economists pounced on this argument, saying
it was fatally flawed. And in hindsight, I admit that I wasn't clear enough about my reasoning. I was thinking
about the real world. But the economists who critiqued my reasoning were thinking in terms of pure mathematics.
To frame the debate, let's think about something more concrete than income. Let's think about volume. In
rough terms, the volume of an object is the product of its length, width and height:
V = L × W × H
Now, let's pick a dimension -- say length. Will the length of an object correlate with its volume? In general
terms, no. I can make an object with any volume using any length. I just have to adjust the other dimensions
appropriately. By doing so, I can make a cube have the same volume as a box that is long and thin.
So in pure mathematical terms, the accounting definition of volume doesn't lead to a correlation between
length and volume.
But when we look at real-world objects -- like animals -- we
will
find a correlation. If we took all
the species on earth and plotted their length against their volume, we'd expect a tight correlation. A bacteria
has a small length and a small volume. A blue whale has a big length and a big volume. Fill in the gaps between
and we should get a nice tight line.
The reason for this correlation is that animals cannot take any shape. You'll never find an animal that is a
mile long and a few micrometers wide. Such a beast doesn't exist. Yes, the shapes of animals vary. But in the
grand scheme, this varation is small. As a first approximation, animals are roughly cubes. Or, if you're a
physicist,
they're
spheres
.
With this shape restriction, it follows from the definition of volume that animal length should correlate
with animal volume. We'd be astonished if it didn't.
So too with the correlation between sales per worker and wages. True, this correlation doesn't follow purely
from accounting principles. It follows jointly from accounting principles, and the fact that firms can't take
any form. We don't find firms that pay their workers nothing. That's slavery and its illegal. Similarly, we
don't find (many) firms that pay their workers the entirety of sales. That leaves no room for profit.
So in the real world, there are restrictions on how firms can divide their income stream. Here's what these
restrictions look like. In Figure 3, I've plotted the distribution of firms' payroll as a portion of sales.
This is the portion of sales that goes to workers. Across all firms, it's a pretty tight distribution,
clustered around 25%.
Figure 3: The distribution of firm payrolls as a fraction of
sales.
Data is for US firms in the Compustat database over the years 1950–2015.
Yes, it's theoretically possible for a firm to give any portion of its sales to workers. But this isn't what
happens in reality. In the real world, most firms give between 10% and 50% of their sales to workers. Just like
with the shape of animals, there are real-world restrictions on the 'shape' that firms can take.
Given these restrictions, it's not surprising that we find a correlation between sales per worker and wages.
When a firm's income stream grows, so does the amount going to workers.
None of this has anything to do with productivity. It's all about income. Sales are the firm's income. And
wages are the portion of this income given to workers.
Prices The Elephant in the Room
Let's conclude this foray into neoclassical thinking. The reason that sales don't measure firm output is
because they mix unit prices with unit quantities. Yes, sales per worker correlates with wages. But the
elephant in the room is prices. Greater sales may be due to greater output. But it can also be due to greater
unit prices.
In many cases, price differences are
everything
.
Imagine that a lawyer and a janitor both work 40 hours a week as self-employed contractors. The lawyer
charges $1000 per hour, while the janitor charges $20. At the end of the week, the lawyer has 50 times the
sales as the janitor. This difference comes down solely to price. The lawyer charges 50 times more for their
hourly services than the janitor.
The question is
why
?
Neoclassical economists proclaim they have the answer. The lawyer, they say, produces 50 times the utility
as the janitor. Ask economists how they know this, and they'll answer with a straight face: "Prices revealed
it."
It's time to recognize this sleight of hand for what it is: a farce. The reality is that we know virtually
nothing about what causes prices. And we will continue to know nothing as long as researchers believe the
neoclassical farce.
Further Reading
The Aggregation Problem: Implications for Ecological and Biophysical Economics.
BioPhysical Economics
and Resource Quality
. 4(1), 1-15.
SocArxiv
Preprint
.
Economists are always prepared for yesterday's problems.
Inflation was a big problem in the Keynesian era and every effort has been made to ensure that it doesn't
return.
Exceptionally intelligent Chinese economists have been looking at today's problems.
Davos 2018 – They know financial crises come from the private debt-to-GDP ratio and inflated asset prices
https://www.youtube.com/watch?v=1WOs6S0VrlA
The PBoC know how to spot a Minsky Moment coming, unlike the FED, BoE, ECB and BoJ.
The black swan flies in under our policymaker's radar.
Our policymakers are always looking in the wrong direction.
They fixate on public debt, and so don't see the problems emerging in private debt
The central banks look at consumer price inflation, while the problems are emerging in asset price inflation.
Your salesperson might negotiate higher prices on every deal, and that might correlate with their higher
productivity in a regulated and truly competitive market.
What does sales at higher prices in a (de facto) deregulated and increasingly monopolist market space
point to? Not to greater productivity, imo, but to deregulated monopoly. It too oftern points to unregulated
rentier-ism, or price gouging. Why has the cost of, say, insulin
tripled
over
the past decade? Not because of greater productivity. How can these price increases in this deregulated
market environment possibly point to real productivity? It points to price gouging. Since there is more
rentier-ism in the market, the old idea that prices/wages can be reliably equated with productivity becomes
meaningless, imo.
Do your other employees building widgets become "less productive" suddenly when your salesman catches a
cold? (You can come up with a bunch of these showing that productive can not be precisely equal to money
earned, because they exist on different time scales measuring different firm aggregates).
Is the salesman "more productive" if he kidnaps the children of a client and blackmails him into buying
more product? What would "productive" mean in any useful sense if there's no independent definition of
utility? Not every dollar earned is a measure of "productive" -- unless you redefine productive to mean
"every dollar earned by any measure".
When the US invaded Santo Domingo to extract debts, was that "productive" in any meaningful sense? That
would seem to be an abuse of language, rather than saying what you mean.
The problem here is that "productive" is a
moral
justification -- and so it must continue to mean
something more than simply money earned in order to morally justify the order. That's the goal of the use of
the word productive -- that thus the results are
just
.
"It's time to recognize this sleight of hand for what it is: a farce. The reality is that we know
virtually nothing about what causes prices. And we will continue to know nothing as long as researchers believe
the neoclassical farce."
This is what I don't understand, I think its obvious why there are prices. The whole idea of business, and
capitalism generally, is to charge as much as possible while spending as little as possible.
Beyond a certain point I do believe greed drives inflation -- companies will charge whatever they think they
can get away with long before there is wage pressure. Wage pressure in my experience is a reaction to
inflation, not a driver of it. For some reason many people of the conservative persuasion seem to get this
backwards.
Absolutely. The use of "we" here is problematic. What needs to be made clear is the fundamental
distinction between those who study capitalism, where the fundamental driver is the search for profit, and
those who study "the economy," for whom profit either doesn't exist or is the "marginal productivity of
capital," a concept which has been shown over and over to be nonsensical, and the fundamental drivers are
things we can't explain – individual wants and preferences and various completely unpredictable "shocks."
There is no collective "we." It's them against us.
It is obvious that prices are seriously out of kilter with actual value of products & services but is this a
result of all that extra money that was created to save the banks after 2008? And what about the vital function
of price discovery then. How does that work out? I do believe that there is something missing from this article
and that is a break-out of "wages". I suppose you could break it down to wages, salary & management which may
be more instructive. How does productivity relate to management then, both internally and externally? By
externally I mean when consultants are called into a company to do management's job. If you think that this
cannot be a serious concern, then reflect that the UK's NHS paid out between $350 million and $600 million
worth of taxpayer money on management consultancy in 2014 alone. What effect did that have on the NHS's
productivity then?
It sounds like the sure path to higher productivity is to encourage monopolies and oligopolies that can
raise prices pretty much at will while reducing the number of workers. The question becomes: why hasn't US
productivity surged as its markets became increasingly concentrated?
Blair Fix touches on an important issue behind the layers of terminology, concepts and policies that have so
impacted our everyday lives. So if labor productivity doesn't explain wages, income or prices, then what are
the true factors influencing prices and stagnant real wages?
Pricing power, labor cost, and profit margins of large transnational corporations have benefitted from their
increasingly monopolistic control of markets to suppress competition, use of global labor arbitrage, enjoyment
of very low and even negative real interest rates, tax policies and use of tax havens, hidden subsidies,
automation, neutering of organized labor, and purchased political influence. The productivity of labor in the
West has essentially been made irrelevant in many cases. Important stuff in so many ways.
Still appreciate the famous EPI chart that shows how the wealthy have captured the entire differential
between stagnant real wages and the rising productivity of labor since neoliberal capitalism made its
appearance on the world stage four decades ago. Trillions:
Hence 'private equity' is a euphemism for cannibalizing any source of equity for a quick profit. We have
an entire paradigm that is a farce. Based on value (equity) which in turn is based subjectively on whatever
you can snooker. It is one step forward and two steps backwards at this point. The Chinese have a beautiful
view of our debacle. No wonder they can tease out the contradictions. But it's not like we, places like NC,
haven't been screaming about all this loud and clear. (Steve Keen for starters.) The thing the aptly named
Mr. Fix is saying resides beneath the surface: If we are ever in so desperate a position to raise prices too
much nobody will buy and the system will collapse. And because of our horror-at-the-thought we have avoided
pricing oil where it belongs. Instead we have burned it with abandon, devastating the environment while we
were at it. A very expensive abandonment. It was an unrecognized consequence; an unavoidable one for the
sake of profit – whereas the other accounting anomalies are more "discretionary". When you are desperate
nothing is discretionary. If price ever comes to equal "utility" aka value, then there will be very little
commerce. It makes Richard Murphy's advocacy for Oil Bankruptcy a very rational suggestion. Mitigate the
devastation – that's about all we'll be able to do.
Even Adam Smith admitted that the economic value of something has no relation to its intrinsic utility, but
only to the relative balance of supply and demand for it.
If there are more workers than jobs, wages will be driven down and productivity gains will decouple from
wages – although with low wages, there will be little incentive to invest in making workers more productivity
so productivity may decline as a second-order effect.
If there are more jobs than workers, wages will be bid up, and productivity gains will be largely captured
by workers because it is the limiting factor in any economy that captures the profits. At the same time, high
wages will tend to spur higher productivity because there will be strong incentive to make efficient use of
relatively expensive labor.
At the base of Niagara Falls, water is cheap and it is not used efficiently. Using water efficiently in
Niagara Falls will not increase its price. In the Gobi desert, water is expensive and it is used efficiently.
Not using water efficiently in the Gobi desert will not make it cheaper.
The core of modern macroeconomics is to take what is fundamentally simple and confuse the heck out of it.
then what are the true factors influencing prices and stagnant real wages?
That would be the human factor. Greed, honesty, and desires and conscious acts. Economics cannot capture the
human factor.
Every human on Earth is capable of affecting markets dramatically by one act. Humans making multiple
decisions every day. All 7.5 billion. One person can change markets and history with one act. Gavrilo Princip,
for instance. Or by using an Internet post to affect markets.
To accurately model economics? All decisions made by each and every person on the planet would have to be an
input into any model. Each person's actions would have to have a solid, predictable outcome with no deviations.
A person becomes depressed, then A and B and C can ONLY happen.
Which would rule out occurrences such as Malaysia Flight 370 and quite a few other possibilities.
Economics and economists are in no way, shape, or form capable of accounting for the human factor. Which is
why there should be no laws of economics. More like, guesswork and observing trends in a general and gross
manner. Only to pray for accuracy.
LTCM was an example of economics and economists over-stepping their intellect. LTCM employed the
observations from John Nash (the subject of the move, A Beautiful Mind) and his Nobel prize winning work. Their
system worked until it didn't. Other humans made decisions that trashed.
People chose not to play the game. For LTCM? Such decisions by others outside of LTCM's control were fatal.
The issue with game theory, etc? For it to work, one has to have enforcers or project power to force people to
play by a set of rules. One could call this, the basis of American foreign policy – financial in nature.
The "Law of Supply and Demand"? Routinely violated. A person can decide arbitrarily to put items on sale.
The Human Factor.
Trends in economics are like trends on Twitter. You just never know. Economists are trend chasers. Having
more in common with Internet "influencers" trying to convince people that a $5 pair of shoes is actually worth
$400, than with actual science. THAT being an example of how prices are determined, in part.
Neoliberal economics is a case study of a select group (economists) influencing politicians and others, to
support their version of economics.
Economics and economists are in no way, shape, or form capable of accounting for the human factor.
Which is why there should be no laws of economics.
+1000
Great post DF! This whole discussion reminds me of the shortest job I ever had – selling crappy stereo
speakers out of the back of a white van for a day.
I'd answered an ad not knowing what I'd be getting into. The people who were "training" me would drive up
to an unsuspecting person in a mall parking lot and try to sell these speakers. They had a set dollar amount
per day there were supposed to sell to get a bonus, so if they could sell a speaker for $200 they would and
if at the end of the day they needed $25 to meet their sales quota, the last speaker would go for $25. The
whole thing depended on two very big human factors – greed and gullibility.
I'm sure an economist could come up with productivity figures for this operation, but what it really was
was a scam.
The job you describe reminds me of Eastern European bazaars back in the day where items being sold
"fell off" the back of a truck. Or Hoboken, NJ market on a certain block. :)
Thank you NC for yet another article exposing the sham of neoclassical economics. Here's a paragraph from a
book I happen to be reading yesterday
"..the neoclassical economic perspective is
the
ideology par excellence of capitalist political
economy. It is a theory that explains nothing more than how to assure that capitalism remains capitalism. That
is, neoclassical economics demonstrates how wealth and resources may continue to function to the advantage of
the minority that controls wealth and the immediate access to political power. It is an ideology because it
depicts as "rational" only economic behavior that seeks the "utility maximization" characteristic of market
exchange. That other motives and values might deserve priority in our action as economic agents is either
unthinkable (ruled out by definition) or, worse, held to be economically "irrational." Neoclassical economic
theory is itself a system of morality- and theology and ethics – masquerading as "science." Yet those who
dissent from this hidden morality have a difficult task before them. For this debate concerning the ethics of
economics is consistently suppressed in public discourse. Reigning economic theory makes calls for the
substantive realignment of existing economic power appear as madness. Dissenters are
by definition
"unrealistic," "utopian," or "irresponsible.""
And
this was written almost 30 years ago
in the book 'God and Capitalism – A Prophetic
Critique of Market Economy'. The excerpt is from chapter three – 'The "Fate" of the Middle Class in Late
Capitalism' by Beverly W. Harrison.
Can we please get an SEC or FASB ruling requiring the explicit breakout of salary payroll on the income
statement of EVERY public listed company?
Capitalism has ALL manner of enumeration of uses of capital, but nowhere is labor listed! I don't care for
labor hidden inside direct/indirect "costs of goods sold", "SG&A", "R&D" etc. Just put a payroll expense (minus
payroll taxes, minus the healthcare and whatnot, straight payroll) line item somewhere in the 10-k. Is it a
crime to ask?
Forgive me if this has been discussed previously. It's from a September Atlantic article on
economics I happened upon, a review of a book by Applebaum written by Sebastian Mallaby:
"...Applebaum opens his book with the observation that economics was not always the
imperial discipline. Roosevelt was delighted to consult lawyers such as Berle, but he
dismissed John Maynard Keynes as an impractical 'mathematician'. Regulatory agencies were
headed by lawyers, and courts dismissed economic evidence as irrelevant. In 1963, President
John F. Kennedy's Treasury secretary made a point of excluding academic economists from a
review of the international monetary order, deeming their advice useless. William McChesney
Martin, who presided over the Federal Reserve in the 1950s and '60s, confined economists to
the basement.
Starting in the l970s, however, economists began to wield extraordinary influence..."
I know all who are discussing financial matters here know this - it was just good for me
to see it spelled out. I see, however, the rest of the review is very economist oriented and
no mention of Michael Hudson whatsoever; it is, after all, the Atlantic. Yay for Roosevelt
and Kennedy though!
The
Economics Debate, again and again The debate on the economics profession – its
alleged ills and failings -- abates at times, but never ends. A recent
piece in The Guardian taking the profession to task for its lack of reform has prompted a
response from a group of economists. I thought it was time to re-up my own views on this
debate, in the form of two sets of ten commandments. The first set is directed at economists,
and the second to non-economists.
Ten commandments for economists
1. Economics is a collection of models; cherish their diversity.
2. It's a model, not the model.
3. Make your model simple enough to isolate specific causes and how they
work, but not so simple that it leaves out key interactions among causes.
4. Unrealistic assumptions are OK; unrealistic critical assumptions
are not OK.
5. The world is (almost) always second-best.
6. To map a model to the real world you need explicit empirical
diagnostics, which is more craft than science.
7. Do not confuse agreement among economists for certainty about how the
world works.
8. It's OK to say "I don't know" when asked about the economy or
policy.
9. Efficiency is not everything.
10. Substituting your values for the public's is an abuse of your
expertise.
Ten commandments for non-economists
1. Economics is a collection of models with no predetermined conclusions;
reject any arguments otherwise.
2. Do not criticize an economist's model because of its assumptions; ask
how the results would change if certain problematic assumptions were more realistic.
3. Analysis requires simplicity; beware of incoherence that passes itself
off as complexity.
4. Do not let math scare you; economists use math not because they are
smart, but because they are not smart enough.
5. When an economist makes a recommendation, ask what makes him/her sure
the underlying model applies to the case at hand.
6. When an economist uses the term "economic welfare," ask what s/he means
by it.
7. Beware that an economist may speak differently in public than in the
seminar room.
8. Economists don't (all) worship markets, but they know better how they
work than you do.
9. If you think all economists think alike, attend one of their
seminars.
10. If you think economists are especially rude to non-economists, attend
one of their seminars.
I have spent enough time around non-economists to know that their criticism often misses the
mark. In particular, many non-economists tend not to understand the value of parsimonious
modeling (especially of the mathematical kind). Their typical riposte is: "but it is more
complicated than that." It is of course. But without abstraction from detail, there cannot be
any useful analysis.
Economists, on the other hand, are very good at modeling but not so good at navigating among
their models. In particular, they often confuse a model, for the model. A big
part of the problem is that the implicit scientific method to which they subscribe is one in
which they are constantly striving to achieve the "best" model.
Macroeconomists are particularly bad at this, which accounts in part for their dismal
performance. In macroeconomics, there is too much of "is the right model the classical or the
Keynesian one" (and their variants), and too little of "how do we know whether it is the
Keynesian or the classical model that is the most relevant and applicable at this point in time
in this particular context."
By Anat R. Admati, the George G.C. Parker Professor of Finance and Economics at Stanford University Graduate School of Business
(GSB), a Director of the GSB Corporations and Society Initiative, and a senior fellow at Stanford Institute for Economic Policy Research.
Originally published at
ProMarket
Author's note: This essay is based on a speech I gave at the
Stigler Center 2019 Conference on Political Economy of Finance. Whereas the content refers to my experiences as an academic with
expertise in finance and economics, the key ideas apply to other areas in business schools and beyond. I hope colleagues will reflect
on the harm from silos and on our opportunities as academics to benefit society.
In the real world, it turned out, important economic outcomes are often the consequences of political forces. During 2010, people
within regulatory bodies told me privately that false and misleading claims were affecting key policy decisions. They urged me to
help clarify the issues and I felt compelled to become involved. Despite years of
research and advocacy , however, flawed
claims persist and still have an impact. (A recently
updated document lists and debunks 34 such claims.)
Many of my experiences in the last decade, which involved extensive interactions outside as well as within academia, were sobering.
I saw confusion, willful blindness , political
forces, various and sometimes subtle forms of corruption, and
moral disengagement
, first hand. The harm from economists ignoring political economy became increasingly evident. There was no way for me to return
to ignoring the issues.
It was also impossible to explain my experiences using economics alone. In writing an essay in 2016 for a book on Finance in
a Just Society edited by a philosopher, I went beyond economics and finance and drew from scholarship in political science, law,
sociology, and social psychology. My essay was entitled " It
Takes a Village to Maintain a Dangerous Financial System ."
Sadly, among the enablers of our inefficient and distorted financial system are economists and academics. Perhaps most shocking,
a fallacious claim about the impact and "cost" of more equity funding, which contradicts basic teachings in corporate finance, has
been included in many versions and editions of banking textbooks authored by prominent academic and former Federal Reserve governor
Frederic Mishkin. (See Section 3.3
here or Chapter 8 of The Bankers' New Clothes .)A risk manager
in one of the largest banks, whom I met in 2016 at a conference attended almost exclusively by practitioners and regulators and who
had dropped out of a top doctoral program in finance, quipped in an email after quoting from an academic paper: "with such friends
[as academics], who needs lobbyists?"
Lobbyists, who engage in "marketing" ideas to policymakers and to the public, are actually influential. They know how to work
the system and can dismiss, take out of context, misquote, misuse, or promote research as needed. If policymakers or the public are
unable or unwilling to evaluate the claims people make, lobbyists and others can create confusion and promote misleading narratives
if it benefits them. In the real political economy, good ideas and worthy research can fail to gain traction while bad ideas and
flawed research can succeed and have an impact.
Luigi Zingales highlighted political economy issues within our profession in a 2013 essay entitled "
Preventing
Economists' Capture " and in his 2015
AFA presidential address entitled "
Does Finance Benefit Society
?" Zingales notes and laments a pro-business and pro-finance bias within economics and finance and the pervasive blindness to
issues such as corporate fraud and political forces. "Awareness of the risk of [economists'] capture is the first line of defense,"
he writes in his 2013 essay. I agree that the issues are real yet often denied or ignored, and that recognizing problems is essential
for addressing them.
Governance and political economy challenges are pervasive beyond banking, where I encountered them so clearly. For example, corporate
governance research, including my own coauthored papers (in
1994 and
2009 ) on shareholder activism, has focused almost exclusively on conflicts between shareholders and managers, effectively assuming
that competitive markets, contracts, and laws protect everyone except for the narrowly-defined "shareholder" -- who is implicitly
assumed to own only one corporation's shares and to care only about the price of those shares.
Having observed governance and policy failures in banking, I realized that the focus on shareholder-manager conflicts is far too
narrow and often misses the most important problems. We must also worry about the governance of the institutions that create and
enforce the rules for all. How power structures and information asymmetries play out within and between institutions in the private
and public sectors is critical.
A 2017 Journal of Economic Perspectives Symposium on the modern corporation includes
an essay I wrote on the distortions that arise
as a result of the focus in corporate governance on financialized targets that purport to capture "shareholder value" when combined
with political economy forces that can lead to governments failing to set and enforce proper rules. The symposium also includes
an essay by Luigi Zingales on how political
and market power feed off each other. We both noted that more public awareness and understanding of these problems is essential for
addressing them.
Economists and academics have numerous opportunities to be helpful by looking more frequently out of their windows, expanding
their domain beyond "solved political problems," collaborating across disciplines, and bringing back a more holistic approach to
their work. Small changes in this direction are starting to happen, as the Stigler Center's conferences on the political economy
of finance show, but we can and should do much more.
Numerous research topics are ripe for more study by theorists and empiricists. Within the following long list of topics (still
a partial one) there are low-hanging fruits and more challenging problems that may require interdisciplinary reach and which tenured
academics are in a particularly privileged position to take on: whistleblower policies, the impact of consumers, employees, and politicians
on corporate actions, accounting rules for derivatives, the effectiveness of boards, audits and auditors regulation, the design of
bankruptcy laws, money laundering, corporate fraud, the organization and pricing of deposit insurance, debt subsidies, the role of
financial literacy and ideology in policy discussions, the structure and governance of regulatory agencies and central banks, lobbying
of multinational corporations, the governance of international bodies such as Financial Stability Board, Basel Committee, and IMF,
and the political economy of corporate enforcement.
Anat Admati. Photo by Nancy Rothstein
Engaging with policy issues in our research and teaching, and even engaging in
advocacy when appropriate and effectively lobbying on behalf
of the public (for example by writing
comment letters or
opinion pieces ) can be valuable and important. Policy
involvement, however, requires not only disclosing
potential conflicts of interest but, most importantly, scrutinizing research carefully to ensure it is adequate for guiding policy.
A problem I have become acutely aware of is that economists and others can be cavalier in claiming that research is relevant for
real-world application without such scrutiny.
As a theorist, I know models have unrealistic and sometimes stylized assumptions, yet models can bring important insights, and
theoretical and empirical papers that capture key features of the real world can be useful for policy. It takes a big leap of faith,
however, and can actually do more harm than good, to claim that models whose assumptions greatly distort the real world are adequate
for real-world applications. Specific examples are discussed in the
first paper I wrote with Peter DeMarzo,
Martin Hellwig, and Paul Pfleiderer (Sections 5-7), the
omitted chapter from the book I wrote with Martin Hellwig, Paul Pfleiderer's
paper on the misuse of models in finance
and economics (which starts with the old joke about the economist assuming a can opener on a deserted island and, among other things,
compares economics and physics) and a recent
presentation by Paul Pfleiderer that discusses the role of assumptions in theoretical and empirical research and which includes
great visuals.
The key takeaways if research is claimed to be relevant for the real world are:
Just because a model claims to "explain" something in the real world does not give it logical or actual validity . Even if
we may never have the data to be able to reject a model, there are ways to apply casual empiricism ("if this model was true, we would
observe x and we don't"), and we must be especially careful if a model contradicts other plausible explanations for what we see.
(Consider: "cigarette smoking improves people's health" as an "explanation" of why people smoke.) Just because a model can be
"calibrated" does not give it logical or actual validity .
Applying inadequate economic models to policy in the real world is akin to building bridges using flawed engineering models. Serious
harm may follow.
We can also enrich our teaching and connect more dots for our students by
developing interdisciplinary courses and by bringing out
the bigger picture, at least occasionally, in teaching standard courses. For example, basic corporate finance courses show how to
calculate the debt tax shield, and we should point out that there is no good reason for the tax code to subsidize debt relative to
equity and that this tax code can create distortions. We can also ask whether shareholders as individuals actually want a company
in which they hold shares to pursue "
positive Net Present Value
" projects that involve pollution or deceptive marketing of harmful products.
Many students are anxious to have such discussions. There is a broad sense today that standard business practices and dysfunctional
governments have exacerbated economic, social, and political problems. We must find ways to broaden the discussion beyond our narrow
lanes. Academic silos are part of the problem, and we should break them to be part of the solution.
Finally, we can and should engage in trying to ensure that governments and other institutions serve society. If only conflicted
experts engage in the process of creating rules, especially on important issues that appear technical and confusing such as accounting
standards or financial regulation, we get what Karthik Ramanna calls "
thin political markets " and
our assumptions about markets are more likely to be false. Academics may be in the best position to inform policy, expose flawed
or poorly enforced rules, and help hold power to account. We cannot assume others will be able or willing to do it without our help.
Governance and politics are key to outcomes everywhere. Related issues about power and control and about the respective roles
of governments and private sector institutions are playing out prominently today in the technology sector. A course I
taught recently about
the internet allowed me to compare and contrast the finance and internet sectors. The Stigler Center has laudably been informing
policy related to digital platforms .
In a recent Harvard
Business Review piece, I argue that business schools should practice and promote "civic-minded leadership" much more than
they currently do. (The text is also available
here .) I hope more academics and academic institutions recognize and embrace the great opportunities we have to try to make
the world a better place.
Does anyone know of a good book (or series of books) that discusses the history and evolution of economics. Ideally, I'm looking
for something that discusses particular political philosophers (e.g Adam Smith, Marx, Keynes, Mises, etc.) in sequence. What I'm
interested in is not only their ideas, but also their histories–what were the circumstances of their lives that lead to their
ideas and how did the political environment they found themselves in contribute. Also, how were the philosophies adopted or corrupted
by followers (e.g. Marx and Russian communism, Adam Smith and neoliberalism). I have yet to find a truly comprehensive book that
has this info. I would expect a title something like "History of Political Economy." Any suggestions from the NC commentariate?
So far I haven't found one book that covers it all. And most books I do find try to describe all economic thought in terms
of the author's particular belief system, which to me isn't all that helpful. So I read a lot of books on history, economics,
and archeology to try and piece together an accurate story. And I still have not read nearly enough to have a complete picture.
If I was much smarter I'd try to do it on my own. Sadly, I'm only mildly intelligent and a crappy writer. Somebody get Michael
Hudson on this so I can read it. I'll start the Kickstarter campaign.
It's much like religion in that introspection and study is generally confined to the walled-garden-containing-all-that-is-true-in-this-world
of choice.
This question intrigued me enough to explore what the Library of Congress catalog has to offer in response to it. The short
answer, based on a good deal of rather fancy searching, is not much -- in English. The subject heading, "Economics–History," is
the one that LC applies to the history of economics as a discipline. However, it retrieves so many citations as to be all but
useless, even when those results are sorted chronologically, because it has been applied to so many works that treat narrow rather
than broad sub-topics. LC has numerous books sharing the straightforward title, History of Economic Thought; they range in date
from 1911 on. The oldest is by Lewis F. Haney. The latest of them seems to be the 2nd "updated" edition of History of Economic
Thought, by E. K. Hunt (2002).
The Library of Congress has also established the subject heading "Political economy–history." However,
it is attached to only one title that covers the topic broadly: Histoire de la pensée économique : abrégé des analyses et
des théories économiques des origines au XXe siècle / Alain Redslob (2011). Despite characterizing itself as a 'summary' the
book comes in at a hefty 355 pages. LC classifies this work at HB75. A title search on "Political Economy" yields, to my eye,
only one somewhat recent work that seems to offer a general treatment: Political economy / Dan Usher (2003). Coming in at 427
pages, it is classified as "Economics" and classed at HB171.5. LC applies the heading 'Economics–Historiography" to eleven works
of which the most relevant here may be: History and historians of political economy / Werner Stark ; edited by Charles M.A. Clark
(1994). As a check of those results a bit of googling turned up a set of essays edited by Maxine Berg under the title, Political
Economy in the Twentieth Century (1990), which set out to represent thinking outside the 'mainstream' of neoclassical or Keynesian
traditions. LC classes it at HB87.
For books titled "History of Political Economy" it looks like one would have to go back into
the 19th century, to discover works bearing just such a title by John K. Ingram (1888; reprinted 2013 by Cambridge UP) and Gustav
Cohn (1894), thus apparently from the point where the Berg essays begin. I have read nothing by any of the authors I've mentioned
here; am just posting the outcome of my searching fwiw.
I have, but haven't yet finished, "An Economist's Guide to Economic History" by Blum and Colvin. If the text itself is insufficient,
the bibliography ought to be pretty comprehensive.
Yes Galbraith Sr was the last classical that pointed out the failings of the payed for PR merchants that some have called economists
and to rub salt in that wound claim dominate economics has no value based biases.
Richard Wolff (of Democracy at Work) has one but I'm not able to search for the title. Just google/qwant his name and a title
that you will recognize as what you are looking for will appear.
I've skimmed that book and it seemed accessible and neatly putting together timelines and major inflection points in the development
or economics.
"In the real world, it turned out, important economic outcomes are often the consequences of political forces."
Sorry to sound mean, but, duh.
"The key takeaways if research is claimed to be relevant for the real world are:
Just because a model claims to "explain" something in the real world does not give it logical or actual validity. Even if we
may never have the data to be able to reject a model, there are ways to apply casual empiricism ("if this model was true, we would
observe x and we don't"), and we must be especially careful if a model contradicts other plausible explanations for what we see.
(Consider: "cigarette smoking improves people's health" as an "explanation" of why people smoke.)"
Did the individuals she is addressing ever take a required undergraduate course in research methods?
Not understanding that is like believing that money does actually grow on trees. I don't understand how this could be
a revelation to supposedly intelligent people with advanced degrees.
You've got Evonomic's newsletter sign-up text box, copy-pasted in here, along with the article text. Guessing that wasn't intentional.
Mentioning it just in case.
This has "Academics may be in the best position to inform policy, expose flawed or poorly enforced rules, and help hold power
to account. We cannot assume others will be able or willing to do it without our help."
Given the funding method for much of academics (wealthy patrons, wealthy think tanks, wealthy companies and wealthy parents)
is it reasonable to expect that academics will truly speak truth to power?
In my view, the article implies a more vigilant economic profession COULD be important in influencing policy.
But I have doubts this could occur.
Economics and economists may be used in the same way that an insurance company executive told me that outside consultants were
sometimes chosen at his firm.
He suggested that consultants were sometimes selected because they were expected to agree with what management wanted to do.
One could suggest that similar dynamics exist for newspaper editorial writers.
If editorial writers were to go counter to their expected editorial content (right or left), they could well be expecting their
future paychecks would be at risk.
Western economics has evolved to serve TPTB, not the common good.
One can see that outside voices, such as Steve Keen and Michael Hudson, are relegated to outside the mainstream.
And on top of that, as Nassim Nicholas Taleb and others have regularly pointed out, achieving a high degree of efficiency
typically comes at the expense of safety.
An old Star Trek episode titled The Trouble With Tribbles is about Star Fleet and Klingons disputing ownership of a planet
which can grow vast amounts of food grains. In one short scene the Klingons claim ownership based on their more efficient exploitation
of resources (more efficient than the Federation) which, they claim, gives them 'rights' to own the planet. To which either McCoy
or Kirk say to themselves, "Oh yes, they're efficient all right. Ruthless, but efficient."
And on top of that, as Nassim Nicholas Taleb and others have regularly pointed out, achieving a high degree of efficiency
typically comes at the expense of safety.
No system ever operates at a greater efficiency than at the moment before its collapse.
Just something to think about, Capitalism rewarding efficiency rather than sustainability or robustness. Both of these require
the expenditure of resources, costs, which subtract from potential profits.
Yes, exactly. I liked this piece, long overdue for me. But what exactly is "efficiency"? I agree that there is no good reason
for the tax code to subsidize debt if, if, adequate financing is otherwise available. Hence the question: Why is there no alternative?
I dunno about small changes but I'm pretty sure we need to be able to downshift, as opposed to spinning out disastrously. There's
this too: finance itself (because financial time is much faster than ordinary time) is more desperate, even frantic, to maintain
its survival in a competitive "economy" so that as finance turns into financialization it achieves critical mass. And in order
just to hang on and not explode requires massive infusions of new money just so finance can stay on top of their own monster.
Some rodeo. The first good regulation for economic security might be to extend financial time – reducing the necessity for huge
turnover profits. But doing so in a way that preserves finance in a tame and domestic manner. Like preventing all the animals
in the barn from eating exponential volumes of alfalfa and producing mud slides of manure in order that the noble farmer doesn't
lose his tennies whilst mucking . Thereby reducing the risks inherent in equity finding – which for a sole proprietor (should
any still exist) is also known as crushing debt.
> The first good regulation for economic security might be to extend financial time – reducing the necessity for huge turnover
profits.
In ecology there is a tau function, the delay time. Predator population lags prey variation and can stabilize systems. And
Theo Compernelle gives details about delaying response time, as the productivity of a work session drops with the number of interruptions.
The Oct 28 Links included the article "Asynchronous Communication: The Real Reason Remote Workers Are More Productive", along
similar lines.
This seems to go against instant messaging, hi frequency trading, and OODA loops. But those seem to operate best in disregulated
situations. To extend financial time – what would that do to speculation?
Edit: Also, Taleb had something on taking data points too often leading to noisy results.
tau function seems to apply here. so as not to eat the seed corn. by extending financial time I meant slow it way down, in
my mind that means extending obligations over a much longer period. That might also mean many fewer financings, less opportunity
to speculate. tau is interesting; nice to know nature has this one figured out.
speculation is the "money" in financial markets. lenghten time=0 opportunity=0liquidity
on the other hand maybe another LTCM can be avoided.
pet theory, financial markets and all their attendend complexity exist to abosrb blasting high energy, innovation to assure survival,nutjob
i know
I'm thinking that one possibility would be money that expires after a set amount of time. Say one year. Money could not then
be used as an asset. It would have to be continuously and reliably spent. All assets would be physical. For one thing, we would
know what society really possessed, as opposed to the imaginary stuff/asset money is.
When I was a little boy, obsessing over Christmas presents, it seemed to me that politics was economics and that economics
was about the extraction of resources from the earth, and from human beings, with all kinds of shenanigans about timing.
No matter how much I learn, it seems that not much has changed.
Thank you for this post! Political economics is a much better name for this pseudo science. If aerospace engineers were wrong
as often as theses clowns airplanes would routinely fall out of the air.
And as Boeing so aptly demonstrates, putting the MBA PMC types in charge of the engineers, also results in airplanes falling
out of the air.
But huge props to Steve Keen for calling this out!
Paul Samuelson and Milton Friedman took the "animal spirits" out of economics and turned it into a mathematical model. However,
the behavioral economics and psychological research has shown that people are hard-wired in ways that make the mathematical models
flawed and erroneous.
As a design engineer, we use lots of complex modeling but ultimately our design blueprints and specifications are not rigidly
based on these models because people and/or robots have to build and operate the things. So there is a fair amount of simplification
and clarification that has to happen to have something built without major errors and then operated without major errors, as well
as maintained with varying levels of attention and funding. These require a fair amount of understanding about how humans process
and execute things and/or the limitations on what can be programmed into robots and computers.
I point out to junior engineers that the people who will build and operate the systems did not necessarily graduate in the
top 25% of their high school class unlike the designers. However, many of them have different skill sets that the designers don't
have, such as how to operate heavy equipment and do physical trade activities. So we need to design systems to a common denominator
that work from design and operations viewpoints.
In economics, we are seeing the systems being biased by focusing on theoretical models that don't actually work in practice
because they don't account for what people actually do compared to what a "rational" model says they should do. Hence the crap
about "trickle-down" that never actually works in practice in tax cut plans for the wealthy. Similarly, complex private healthcare
systems in the US don't remotely follow a "perfect information" model that would allow the "invisible hand" to produce efficiency.
so we get massive bloat and rentiere models that prey on consumers. However, that has become a feature, not a bug, on K-street.
Thank you X 10. Samuelson and Friedman claimed they could take the "animal spirits", aka human nature however defined, out
of economics. The claim amounts to saying they could measure, quantify, model, and manipulate human responses to changing situations,
which amounts to a claim of god-like understanding of human mental capacities. How do they measure a human? Reason and logic and
measurable outputs are only a part – and how large a part is as yet undetermined – in human awareness and decision making. Logic
is a good servant but a bad master, as the saying goes. Samuelson and Friedman construct a 'rational man' without ever questioning
the epistemology of their construct. (Mary Shelly might recognize the conceit.)
Michael Hudson is perhaps the best place to start. (Bill Black is a close second. Author of "The Best Way to Rob a Bank is
to Own One.")
Really, if one's education includes a healthy dose of history, anthropology, sociology, politics, and social theory, it's tempting
to suggest that economics is a self-important and smug discipline. Wow, politics affects markets, property relations, and conflict
over economic surplus! Wow. Good to know. And someone just told me that human beings aren't as rational as economists assume.
Wow again. Thanks.
"... "There's a whole neoliberal agenda," she said, referencing the received free-market wisdom that cutting public budgets spurs economic growth. "And then the way that traditional theory has fomented it or not contested it -- there's been kind of a strange symbiosis between mainstream economic thinking and stupid policies." ..."
"... Dr. Mazzucato takes issue with many of the tenets of the neoclassical economic theory taught in most academic departments: its assumption that the forces of supply and demand lead to market equilibrium, its equation of price with value and -- perhaps most of all -- its relegation of the state to the investor of last resort, tasked with fixing market failure. She has originated and popularized the description of the state as an "investor of first resort," envisioning new markets and providing long-term, or "patient," capital at early stages of development. ..."
"... Emphasizing to policymakers not only the importance of investment, but also the direction of that investment -- "What are we investing in?" she often asks -- Dr. Mazzucato has influenced the way American politicians speak about the state's potential as an economic engine. In her vision, governments would do what so many traditional economists have long told them to avoid: create and shape new markets, embrace uncertainty and take big risks. ..."
Meet the Leftish Economist With a New Story About Capitalism
Mariana Mazzucato wants liberals to talk less about the redistribution of wealth and more
about its creation. Politicians around the world are listening.
By Katy Lederer
Mariana Mazzucato was freezing. Outside, it was a humid late-September day in Manhattan,
but inside -- in a Columbia University conference space full of scientists, academics and
businesspeople advising the United Nations on sustainability -- the air conditioning was on
full blast.
For a room full of experts discussing the world's most urgent social and environmental
problems, this was not just uncomfortable but off-message. Whatever their dress -- suit,
sari, head scarf -- people looked huddled and hunkered down. At a break, Dr. Mazzucato
dispatched an assistant to get the A.C. turned off. How will we change anything, she wondered
aloud, "if we don't rebel in the everyday?"
Dr. Mazzucato, an economist based at University College London, is trying to change
something fundamental: the way society thinks about economic value. While many of her
colleagues have been scolding capitalism lately, she has been reimagining its basic premises.
Where does growth come from? What is the source of innovation? How can the state and private
sector work together to create the dynamic economies we want? She asks questions about
capitalism we long ago stopped asking. Her answers might rise to the most difficult
challenges of our time.
In two books of modern political economic theory -- "The Entrepreneurial State" (2013) and
"The Value of Everything" (2018) -- Dr. Mazzucato argues against the long-accepted binary of
an agile private sector and a lumbering, inefficient state. Citing markets and technologies
like the internet, the iPhone and clean energy -- all of which were funded at crucial stages
by public dollars -- she says the state has been an underappreciated driver of growth and
innovation. "Personally, I think the left is losing around the world," she said in an
interview, "because they focus too much on redistribution and not enough on the creation of
wealth."
Her message has appealed to an array of American politicians. Senator Elizabeth Warren,
Democrat of Massachusetts and a presidential contender, has incorporated Dr. Mazzucato's
thinking into several policy rollouts, including one that would use "federal R & D to
create domestic jobs and sustainable investments in the future" and another that would
authorize the government to receive a return on its investments in the pharmaceutical
industry. Dr. Mazzucato has also consulted with Representative Alexandria Ocasio-Cortez,
Democrat of New York, and her team on the ways a more active industrial policy might catalyze
a Green New Deal.
Even Republicans have found something to like. In May, Senator Marco Rubio of Florida
credited Dr. Mazzucato's work several times in "American Investment in the 21st Century," his
proposal to jump-start economic growth. "We need to build an economy that can see past the
pressure to understand value-creation in narrow and short-run financial terms," he wrote in
the introduction, "and instead envision a future worth investing in for the long-term."
Formally, the United Nations event in September was a meeting of the leadership council of
the Sustainable Development Solutions Network, or S.D.S.N. It's a body of about 90 experts
who advise on topics like gender equality, poverty and global warming. Most of the attendees
had specific technical expertise -- Dr. Mazzucato greeted a contact at one point with,
"You're the ocean guy!" -- but she offers something both broad and scarce: a compelling new
story about how to create a desirable future.
'Investor of first resort'
Originally from Italy -- her family left when she was 5 -- Dr. Mazzucato is the daughter
of a Princeton nuclear physicist and a stay-at-home mother who couldn't speak English when
she moved to the United States. She got her Ph.D. in 1999 from the New School for Social
Research and began working on "The Entrepreneurial State" after the 2008 financial crisis.
Governments across Europe began to institute austerity policies in the name of fostering
innovation -- a rationale she found not only dubious but economically destructive.
"There's a whole neoliberal agenda," she said, referencing the received free-market
wisdom that cutting public budgets spurs economic growth. "And then the way that traditional
theory has fomented it or not contested it -- there's been kind of a strange symbiosis
between mainstream economic thinking and stupid policies."
Dr. Mazzucato takes issue with many of the tenets of the neoclassical economic theory
taught in most academic departments: its assumption that the forces of supply and demand lead
to market equilibrium, its equation of price with value and -- perhaps most of all -- its
relegation of the state to the investor of last resort, tasked with fixing market failure.
She has originated and popularized the description of the state as an "investor of first
resort," envisioning new markets and providing long-term, or "patient," capital at early
stages of development.
In important ways, Dr. Mazzucato's work resembles that of a literary critic or rhetorician
as much as an economist. She has written of waging what the historian Tony Judt called a
"discursive battle," and scrutinizes descriptive terms -- words like "fix" or "spend" as
opposed to "create" and "invest" -- that have been used to undermine the state's appeal as a
dynamic economic actor. "If we continue to depict the state as only a facilitator and
administrator, and tell it to stop dreaming," she writes, "in the end that is what we
get."
As a charismatic figure in a contentious field that does not generate many stars -- she
was recently profiled in Wired magazine's United Kingdom edition -- Dr. Mazzucato has her
critics. She is a regular guest on nightly news shows in Britain, where she is pitted against
proponents of Brexit or skeptics of a market-savvy state.
Alberto Mingardi, an adjunct scholar at the libertarian Cato Institute and director
general of Istituto Bruno Leoni, a free-market think tank, has repeatedly criticized Dr.
Mazzucato for, in his view, cherry-picking her case studies, underestimating economic
trade-offs and defining industrial policy too broadly. In January, in an academic piece
written with one of his Cato colleagues, Terence Kealey, he called her "the world's greatest
exponent today of public prodigality."
Her ideas, though, are finding a receptive audience around the world. In the United
Kingdom, Dr. Mazzucato's work has influenced Jeremy Corbyn, leader of the Labour Party, and
Theresa May, a former Prime Minister, and she has counseled the Scottish leader Nicola
Sturgeon on designing and putting in place a national investment bank. She also advises
government entities in Germany, South Africa and elsewhere. "In getting my hands dirty," she
said, "I learn and I bring it back to the theory."
The 'Mission Muse'
During a break at the United Nations gathering, Dr. Mazzucato escaped the air conditioning
to confer with two colleagues in Italian on a patio. Tall, with a muscular physique, she wore
a brightly colored glass necklace that has become something of a trademark on the economics
circuit. Having traveled to five countries in eight days, she was fighting off a cough.
"In theory, I'm the 'Mission Muse,'" she joked, lapsing into English. Her signature
reference is to the original mission to the moon -- a state-spurred technological revolution
consisting of hundreds of individual feeder projects, many of them collaborations between the
public and private sectors. Some were successes, some failures, but the sum of them
contributed to economic growth and explosive innovation.
Dr. Mazzucato's platform is more complex -- and for some, controversial -- than simply
encouraging government investment, however. She has written that governments and state-backed
investment entities should "socialize both the risks and rewards." She has suggested the
state obtain a return on public investments through royalties or equity stakes, or by
including conditions on reinvestment -- for example, a mandate to limit share buybacks.
Emphasizing to policymakers not only the importance of investment, but also the
direction of that investment -- "What are we investing in?" she often asks -- Dr. Mazzucato
has influenced the way American politicians speak about the state's potential as an economic
engine. In her vision, governments would do what so many traditional economists have long
told them to avoid: create and shape new markets, embrace uncertainty and take big
risks.
... ... ...
Earlier in the day, she pointed at an announcement on her laptop. She had been nominated
for the first Not the Nobel Prize, a commendation intended to promote "fresh economic
thinking." "Governments have woken up to the fact the mainstream way of thinking isn't
helping them," she said, explaining her appeal to politicians and policymakers. A few days
later, she won.
Then she would advocate free banking, like Selgin. Better more efficient banking is a huge
and profitable investment for government.
So before the leftwards jump on her idea of investment, start here and explain why
suddenly, making finance more efficient for everyone is a bad idea.
Or ask our knee jerkers, before they jump on her ideas with all their delusions, why not
invest in dumping the primary dealer system? That is obviously inefficient and generates the
ATM costs we pay. Why not remove that with a sound investment f some sort?
Everything is through the eye of the beholder, for lelftwards it is the wonder of central
planning, for the libertariaturds it is about efficiency via decentralization.
Then comes meetup, and waddya know, each side brings a 200 page insurance contract they
want guaranteed before any efficiency changes are made. The meeting selects business as
normal. We will select business as normal, our economists will approve.
I am thrilled / s at the feeling of fulfillment I, well, feel, that an academic deems the
obvious. It definitely, indicates that we are approaching, wokeness !
Economists are beginning to evolve, again, almost, but not quite capturing the curl of the
real time world.
" There's a whole neoliberal agenda," she said, referencing the received free-market wisdom
that cutting public budgets spurs economic growth. "And then the way that traditional theory
has fomented it or not contested it -- there's been kind of a strange symbiosis between
mainstream economic thinking and stupid policies."
That is a deep vision that needs to be unpacked. My impression of traditional theory is
that it discourages the neoliberal, market deism.
"... "There's a whole neoliberal agenda," she said, referencing the received free-market wisdom that cutting public budgets spurs economic growth. "And then the way that traditional theory has fomented it or not contested it -- there's been kind of a strange symbiosis between mainstream economic thinking and stupid policies." ..."
"... Dr. Mazzucato takes issue with many of the tenets of the neoclassical economic theory taught in most academic departments: its assumption that the forces of supply and demand lead to market equilibrium, its equation of price with value and -- perhaps most of all -- its relegation of the state to the investor of last resort, tasked with fixing market failure. She has originated and popularized the description of the state as an "investor of first resort," envisioning new markets and providing long-term, or "patient," capital at early stages of development. ..."
Meet the Leftish Economist With a New Story About Capitalism
Mariana Mazzucato wants liberals to talk less about the redistribution of wealth and more about
its creation. Politicians around the world are listening.
By Katy Lederer
Mariana Mazzucato was freezing. Outside, it was a humid late-September day in Manhattan, but
inside -- in a Columbia University conference space full of scientists, academics and
businesspeople advising the United Nations on sustainability -- the air conditioning was on
full blast.
For a room full of experts discussing the world's most urgent social and environmental
problems, this was not just uncomfortable but off-message. Whatever their dress -- suit, sari,
head scarf -- people looked huddled and hunkered down. At a break, Dr. Mazzucato dispatched an
assistant to get the A.C. turned off. How will we change anything, she wondered aloud, "if we
don't rebel in the everyday?"
Dr. Mazzucato, an economist based at University College London, is trying to change
something fundamental: the way society thinks about economic value. While many of her
colleagues have been scolding capitalism lately, she has been reimagining its basic premises.
Where does growth come from? What is the source of innovation? How can the state and private
sector work together to create the dynamic economies we want? She asks questions about
capitalism we long ago stopped asking. Her answers might rise to the most difficult challenges
of our time.
In two books of modern political economic theory -- "The Entrepreneurial State" (2013) and
"The Value of Everything" (2018) -- Dr. Mazzucato argues against the long-accepted binary of an
agile private sector and a lumbering, inefficient state. Citing markets and technologies like
the internet, the iPhone and clean energy -- all of which were funded at crucial stages by
public dollars -- she says the state has been an underappreciated driver of growth and
innovation. "Personally, I think the left is losing around the world," she said in an
interview, "because they focus too much on redistribution and not enough on the creation of
wealth."
Her message has appealed to an array of American politicians. Senator Elizabeth Warren,
Democrat of Massachusetts and a presidential contender, has incorporated Dr. Mazzucato's
thinking into several policy rollouts, including one that would use "federal R & D to
create domestic jobs and sustainable investments in the future" and another that would
authorize the government to receive a return on its investments in the pharmaceutical industry.
Dr. Mazzucato has also consulted with Representative Alexandria Ocasio-Cortez, Democrat of New
York, and her team on the ways a more active industrial policy might catalyze a Green New
Deal.
Even Republicans have found something to like. In May, Senator Marco Rubio of Florida
credited Dr. Mazzucato's work several times in "American Investment in the 21st Century," his
proposal to jump-start economic growth. "We need to build an economy that can see past the
pressure to understand value-creation in narrow and short-run financial terms," he wrote in the
introduction, "and instead envision a future worth investing in for the long-term."
Formally, the United Nations event in September was a meeting of the leadership council of
the Sustainable Development Solutions Network, or S.D.S.N. It's a body of about 90 experts who
advise on topics like gender equality, poverty and global warming. Most of the attendees had
specific technical expertise -- Dr. Mazzucato greeted a contact at one point with, "You're the
ocean guy!" -- but she offers something both broad and scarce: a compelling new story about how
to create a desirable future.
'Investor of first resort'
Originally from Italy -- her family left when she was 5 -- Dr. Mazzucato is the daughter of
a Princeton nuclear physicist and a stay-at-home mother who couldn't speak English when she
moved to the United States. She got her Ph.D. in 1999 from the New School for Social Research
and began working on "The Entrepreneurial State" after the 2008 financial crisis. Governments
across Europe began to institute austerity policies in the name of fostering innovation -- a
rationale she found not only dubious but economically destructive.
"There's a whole neoliberal agenda," she said, referencing the received free-market
wisdom that cutting public budgets spurs economic growth. "And then the way that traditional
theory has fomented it or not contested it -- there's been kind of a strange symbiosis between
mainstream economic thinking and stupid policies."
Dr. Mazzucato takes issue with many of the tenets of the neoclassical economic theory
taught in most academic departments: its assumption that the forces of supply and demand lead
to market equilibrium, its equation of price with value and -- perhaps most of all -- its
relegation of the state to the investor of last resort, tasked with fixing market failure. She
has originated and popularized the description of the state as an "investor of first resort,"
envisioning new markets and providing long-term, or "patient," capital at early stages of
development.
In important ways, Dr. Mazzucato's work resembles that of a literary critic or rhetorician
as much as an economist. She has written of waging what the historian Tony Judt called a
"discursive battle," and scrutinizes descriptive terms -- words like "fix" or "spend" as
opposed to "create" and "invest" -- that have been used to undermine the state's appeal as a
dynamic economic actor. "If we continue to depict the state as only a facilitator and
administrator, and tell it to stop dreaming," she writes, "in the end that is what we get."
As a charismatic figure in a contentious field that does not generate many stars -- she was
recently profiled in Wired magazine's United Kingdom edition -- Dr. Mazzucato has her critics.
She is a regular guest on nightly news shows in Britain, where she is pitted against proponents
of Brexit or skeptics of a market-savvy state.
Alberto Mingardi, an adjunct scholar at the libertarian Cato Institute and director general
of Istituto Bruno Leoni, a free-market think tank, has repeatedly criticized Dr. Mazzucato for,
in his view, cherry-picking her case studies, underestimating economic trade-offs and defining
industrial policy too broadly. In January, in an academic piece written with one of his Cato
colleagues, Terence Kealey, he called her "the world's greatest exponent today of public
prodigality."
Her ideas, though, are finding a receptive audience around the world. In the United Kingdom,
Dr. Mazzucato's work has influenced Jeremy Corbyn, leader of the Labour Party, and Theresa May,
a former Prime Minister, and she has counseled the Scottish leader Nicola Sturgeon on designing
and putting in place a national investment bank. She also advises government entities in
Germany, South Africa and elsewhere. "In getting my hands dirty," she said, "I learn and I
bring it back to the theory."
The 'Mission Muse'
During a break at the United Nations gathering, Dr. Mazzucato escaped the air conditioning
to confer with two colleagues in Italian on a patio. Tall, with a muscular physique, she wore a
brightly colored glass necklace that has become something of a trademark on the economics
circuit. Having traveled to five countries in eight days, she was fighting off a cough.
"In theory, I'm the 'Mission Muse,'" she joked, lapsing into English. Her signature
reference is to the original mission to the moon -- a state-spurred technological revolution
consisting of hundreds of individual feeder projects, many of them collaborations between the
public and private sectors. Some were successes, some failures, but the sum of them contributed
to economic growth and explosive innovation.
Dr. Mazzucato's platform is more complex -- and for some, controversial -- than simply
encouraging government investment, however. She has written that governments and state-backed
investment entities should "socialize both the risks and rewards." She has suggested the state
obtain a return on public investments through royalties or equity stakes, or by including
conditions on reinvestment -- for example, a mandate to limit share buybacks.
Emphasizing to policymakers not only the importance of investment, but also the direction of
that investment -- "What are we investing in?" she often asks -- Dr. Mazzucato has influenced
the way American politicians speak about the state's potential as an economic engine. In her
vision, governments would do what so many traditional economists have long told them to avoid:
create and shape new markets, embrace uncertainty and take big risks.
Inside the conference, the news was uniformly bleak. Pavel Kabat, the chief scientist of the
World Meteorological Organization, lamented the breaking of global temperature records and said
that countries would have to triple their current Paris-accord commitments by 2030 to have any
hope of staying below a critical warming threshold. A panel on land use and food waste noted
that nine species account for two-thirds of the world's crop production, a dangerous lack of
agricultural diversity. All the experts appeared dismayed by what Jeffrey Sachs, the S.D.S.N.'s
director, described as the "crude nationalism" and "aggressive anti-globalization" ascendant
around the world.
"We absolutely need to change both the narrative, but also the theory and the practice on
the ground," Dr. Mazzucato told the crowd when she spoke on the final expert panel of the day.
"What does it mean, actually, to create markets where you create the demand, and really start
directing the investment and the innovation in ways that can help us achieve these goals?"
Earlier in the day, she pointed at an announcement on her laptop. She had been nominated for
the first Not the Nobel Prize, a commendation intended to promote "fresh economic thinking."
"Governments have woken up to the fact the mainstream way of thinking isn't helping them," she
said, explaining her appeal to politicians and policymakers. A few days later, she won.
Reply Thursday, November 28, 2019 at 12:05 PM
"... The existence of the bubble and the fact that it was driving the economy could both be easily determined from regularly published government data, yet the vast majority of economists were surprised when the bubble burst and it gave us the Great Recession. This history should lead us to ask what other simple things economists are missing. ..."
Simple Economics that Most Economists Don't Know
By Dean Baker
Economists are continually developing new statistical techniques, at least some of which
are useful for analyzing data in ways that allow us to learn new things about the world.
While developing these new techniques can often be complicated, there are many simple things
about the world that economists tend to overlook.
The most important example here is the housing bubble in the last decade. It didn't
require any complicated statistical techniques to recognize that house prices had sharply
diverged from their long-term pattern, with no plausible explanation in the fundamentals of
the housing market.
It also didn't require sophisticated statistical analysis to see the housing market was
driving the economy. At its peak in 2005 residential construction accounted for 6.8 percent
of GDP. This compares to a long-run average that is close to 4.0 percent. Consumption was
also booming, as people spent based on the bubble generated equity in their homes, pushing
the savings rate to a record low.
The existence of the bubble and the fact that it was driving the economy could both be
easily determined from regularly published government data, yet the vast majority of
economists were surprised when the bubble burst and it gave us the Great Recession. This
history should lead us to ask what other simple things economists are missing.
For this holiday season, I will give three big items that are apparently too simple for
economists to understand.
1) Profit shares have not increased much -- While there has been some redistribution in
before-tax income shares from labor to capital, it at most explains a small portion of the
upward redistribution of the last four decades. Furthermore, shares have been shifting back
towards labor in the last four years.
2) Returns to shareholders have been low by historical standards -- It is often asserted
that is an era of shareholder capitalism in which companies are being run to maximize returns
to shareholders. In fact, returns to shareholders have been considerably lower on average
than they were in the long Golden Age from 1947 to 1973.
3) Patent and copyright rents are equivalent to government debt as a future burden –
The burden that we are placing on our children through the debt of the government is a
frequent theme in economic reporting. However, we impose a far larger burden with
government-granted patent and copyright monopolies, although this literally never gets any
attention in the media.
To be clear, none of these points are contestable. All three can all be shown with widely
available data and/or basic economic logic. The fact that they are not widely recognized by
people in policy debates reflects the laziness of economists and people who write about
economic policy.
Profit Shares
It is common to see discussions where it is assumed that there has been a large shift from
wages to profits, and then a lot of head-scratching about why this occurred. In fact, the
shift from wages to profits has been relatively modest and all of it occurred after 2000,
after the bulk of the upward redistribution of income had already taken place.
If we just compare end points, the labor share of net domestic product was 64.0 percent in
2019, a reduction of 1.6 percentage points from its 65.6 percent share in 1979, before the
upward redistribution began. If, as a counter-factual, we assume that the labor share was
still at its 1979 level it would mean that wages would be 2.5 percent higher than they are
now. That is not a trivial effect, but it only explains a relatively small portion of the
upward redistribution over the last four decades.
It is also worth noting the timing of this shift in shares. There was no change in shares
from 1979 to 2000, the point at which most of the upward redistribution to the richest one
percent had already taken place. The shift begins in the recovery from the 2001
recession.
This was the period of the housing bubble. The reason why this matters is that banks and
other financial institutions were recording large profits on the issuance of mortgages that
subsequently went bad, leading to large losses in the years 2008-09. This means that a
substantial portion of the profits that were being booked in the years prior to the Great
Recession were not real profits.
It would be as though companies reported profits based on huge sales to a country that
didn't exist. Such reporting would make profits look good when the sales were being booked,
but then would produce large losses when the payments for the sales did not materialize,
since the buyer did not exist. It's not clear that when the financial industry books phony
profits it means there was a redistribution from labor to capital.[1]
There clearly was a redistribution from labor to capital in the weak labor market
following the Great Recession. Workers did not have enough bargaining power to capture any of
the gains from productivity growth in those years. That has been partially reversed in the
last four years as the labor share of net domestic income has risen by 2.4 percentage
points.[2] This still leaves some room for further increases to make up for the drop in labor
share from the Great Recession, but it does look as though the labor market is operating as
we would expect.
Returns to Shareholders Lag in the Period of Shareholder Capitalism
It is common for people writing on economics, including economists, to say that companies
have been focused on returns to shareholders in the last four decades in a way that was not
previously true. The biggest problem with this story is that returns to shareholders have
actually been relatively low in the last two decades.
If we take the average real rate of return over the last two decades, it has been 3.9
percent. That compares to rates of more than 8.0 percent in the fifties and sixties. Even
this 3.9 percent return required a big helping hand from the government in the form a
reduction in the corporate income tax rate from 35 percent to 21 percent.
The figure for the last two decades is somewhat distorted by the fact that we were
reaching the peak of the stock bubble in the late 1990s, but the story is little changed if
we adjust for this fact. If we take the average real return from July of 1997, when the price
to earnings ratio was roughly the same as it is now, it is still just 5.7 percent, well below
the Golden Age average when companies were supposedly not being run to maximize shareholder
value.
It is striking that this drop in stock returns is so little noticed and basically does not
feature at all in discussions of the economy. Back in the late 1990s, it was nearly
universally accepted in public debates that stocks would provide a 7.0 percent real return on
average in public debates.
This was most evident in debates on Social Security, where both conservatives and liberals
assumed that the stock market would provide 7.0 percent real returns. Conservatives, like
Martin Feldstein, made this assumption as part of their privatization plans. Liberal
economists made the same assumption in plans put forward by the Clinton administration and
others to shore up the Social Security trust fund by putting a portion of it in the stock
market. The Congressional Budget Office even adopted the 7.0 percent real stock returns
assumption in its analysis of various Social Security reform proposals that called for
putting funds in the stock market.
Given the past history on stock returns and the widely held view that returns would
continue to average close to 7.0 percent over the long-term, the actual performance of stock
returns over the last two decades looks pretty disappointing from shareholders' perspective.
It certainly does not look like corporations are being run for their benefit, or if so, top
executives are doing a poor job.
One of the obvious factors depressing returns has been the extraordinary run up in price
to earnings ratios. A high price to earnings ratio (PE) effectively means that shareholders
have to pay a lot of money for a dollar in corporate profits. When PEs were lower, in the
1950s and 1960s, dividends yields were in the range of 3.0 -5.0 percent. In the recent years
they have been hovering near 2.0 percent. When the PE is over 30, as is now the case, paying
out a dividend of even 3.0 percent would essentially mean paying out all the company's
profits as dividends. Clearly that cannot happen, or at least not on a sustained basis.
While shareholders have not done well by historical standards in recent decades, CEO pay
has soared, with the ratio of the pay of CEOs to ordinary workers going from 20 or 30 to 1 in
the 1960s and 1970s, to 200 or 300 to 1 at present. There is a story that could reconcile
soaring CEO pay with historically low stock returns.
Corporations have increasingly turned to share buybacks as an alternative to dividends for
paying out money to shareholders. The process of buying back shares would drive up share
prices. Part of this is almost definitional, with fewer shares outstanding, the price per
share should go up. If buybacks push up share prices enough to raise the price to earnings
ratio, then in principle other investors should sell stock to bring the PE back to its prior
level. But if this doesn't happen, then buybacks could increase PEs.
That would of course imply huge irrationality in the stock market, but anyone who lived
through the 1990s stock bubble and the housing bubble in the last decade knows that large
investors can be exceedingly irrational for long periods of time. Anyhow, if share buybacks
do raise PEs there would be a clear story whereby CEOs could drive up their own pay, which
typically is largely in stock options, to the detriment of future shareholders, which would
explain both soaring CEO pay and declining returns to shareholders.
Whether this story of share buybacks raising PE is accurate would require some serious
research (I'd welcome references, if anyone has them), but what is beyond dispute is that the
last two decades have provided shareholders with relatively low returns. That seems hard to
reconcile with the often repeated story about this being a period of shareholder
capitalism.
Patents and Copyright Monopolies Are Implicit Government Debt
There is a whole industry dedicated to highlighting the size and growth of the government
debt, largely funded by the late private equity billionaire Peter Peterson. The leading news
outlets feel a need to regularly turn to the Peterson funded outfits to give us updates on
the size of the debt.
When presenting the horror story of a $20 trillion debt and the burden it will impose on
our children, there is never any mention of the burden created by patent and copyright
monopolies. This is an inexcusable inconsistency.
Patent and copyright monopolies are mechanisms that the government uses to pay for
services that are alternatives to direct spending. For example, instead of granting drug
companies patent monopolies and software developers copyright monopolies, the government
could just pay directly for the research and creative work that was the basis for these
monopolies. There are arguments as to why these monopolies might be better mechanisms than
direct funding, but these arguments don't change the fact they are mechanisms the government
uses for paying for services.
While we keep careful accounting of the direct spending, we pretend the implicit spending
by granting patent and copyright monopolies does not exist. This makes zero sense, especially
given the size of the rents being created by these monopolies.
In the case of prescription drugs alone, we will spend close to $400 billion (1.8 percent
of GDP) this year above the free market price, due to patent protections and other monopolies
granted by the federal government. This is considerably more than the $330 billion in
interest that the Congressional Budget Office projected we would spend on the $16.6 trillion
in publicly held debt in 2019.[3]
And this figure is just a fraction of the total rents from patent and copyright
monopolies, which would include most of the payments for medical equipment, computer software
and hardware, and recorded music and video material. Since these payments dwarf the size of
interest payments on the debt, it is difficult to understand how anyone concerned about the
burdens the government was creating could ignore patents and copyrights, while harping on
interest on the debt.
As I have often argued there are good reasons, especially in the case of prescription
drugs, for thinking that direct funding would be a more efficient mechanism than patent
monopolies. In the case of prescription drugs, direct funding would mean that all findings
would be immediately available to all researchers worldwide. If drugs were sold at free
market prices, it would no longer be a struggle to find ways to pay for them. And, we would
take away the incentive to push drugs in contexts where they are not appropriate, as happened
with the opioid crisis. (See "Rigged: How Globalization and the Rules of the Modern Economy
Were Structured to Make the Rich Richer," for a fuller discussion - it's free. * )
While the relative merits of patent/copyright monopolies and direct funding can be
debated, the logical point, that these monopolies are an implicit form of government debt,
cannot be. It shows the incredibly low quality of economic debate that this fact is not
widely recognized.
The Prospect for Simple Facts and Logic Entering Economic Debate in the Next Decade
The three issues noted here are already pretty huge in terms of our understanding of the
economy. The people who write in a wide range of areas should be aware of them, but with few
exceptions, they are not.
Unfortunately, that situation is not likely to change any time soon for a simple economic
reason, there is no incentive for people who write on economic issues to give these points
serious attention. They can continue to draw paychecks and get grants for doing what they are
doing. Why should they spend time addressing facts and logic that require they think
differently about the world?
As has been noted many times, there is no real consequence to economists and people
writing about the economy for being wrong. A custodian who doesn't clean the toilet gets
fired, but an economist who missed the housing bubble whose collapse led to the Great
Recession gets the "who could have known?" amnesty.
Given this structure of incentives, we should assume that economists and others who write
on economics will continue to ignore some of the most basic facts about the economy. That is
what economics tells us.
[1] Since income is supposed to be matched by output in the GDP accounts, the
corresponding phony entry on the output side would be the loans that subsequently went bad.
These loans were counted as a service when they were issued. Arguably, this was not accurate
accounting.
[2] This rise in labor share appears in the net domestic income calculation, but not in
the net domestic product figure. The reason is that there has been a sharp drop in the size
of the statistical discrepancy over the last four years, as output side GDP now exceeds the
income side measure. It is common to assume that the true figure lies somewhere in the
middle, which would mean the increase in labor share is likely less the 2.4 percentage points
calculated on the income side.
[3] This subtracts out the $50 billion in interest payments remitted from the Federal
Reserve Board.
This simple conception generalized deans
Bean hunt for rents
How might one do this
Well first make up a rate of interest
And take a system wide wage snap shot
From mines oceans forests and fields
Thru factories warehouses ultilities
boats and trains
To barber shops malt shops and convenience stores
Mark up the wage cells of your matrix
By your invented rate of interest
Now compare this vector to the 've tor of actual prices
You get a vector of rents aka profits of enterprise and residuals
"... As the Gramscian theorists Chantal Mouffe and Ernesto Laclau observed, our political identities are not a 'given' – something that emerges directly from the objective facts of our situation. We all occupy a series of overlapping identities in our day-to-day lives – as workers or bosses, renters or home-owners, debtors or creditors. Which of these define our politics depends on political struggles for meaning and power. ..."
"... The architects of neoliberalism understood this process of identity creation. By treating people as selfish, rational utility maximisers, they actively encouraged them to become selfish, rational utility maximisers. As the opening article points out, this is not a side effect of neoliberal policy, but a central part of its intention. As Michael Sandel pointed out in his 2012 book 'What Money Can't Buy: The Moral Limits of Markets' , it squeezes out competing values that previously governed non-market spheres of life, such as ethics of public service in the public sector, or mutual care within local communities. But these values remain latent: neoliberalism does not have the power to erase them completely. This is where the hope for the left lies, the crack of light through the doorway that needs to be prised open. ..."
"... More generally, there is some evidence that neoliberalism didn't really succeed in making us see ourselves as selfish rational maximisers – just in making us believe that everybody else was . For example, a 2016 survey found that UK citizens are on average more oriented towards compassionate values than selfish values, but that they perceive others to be significantly more selfish (both than themselves and the actual UK average). Strikingly, those with a high 'self-society gap' were found to be less likely to vote and engage in civic activity, and highly likely to experience feelings of cultural estrangement. ..."
"... Perhaps a rational system is one that accepts selfishness but keeps it within limits. Movements like the Chicago school that pretend to reinvent the wheel with new thinking are by this view a scam. As J.K. Galbraith said: "the problem with their ideas is that they have been tried." ..."
"... They tried running an economy on debt in the 1920s. The 1920s roared with debt based consumption and speculation until it all tipped over into the debt deflation of the Great Depression. No one realised the problems that were building up in the economy as they used an economics that doesn't look at private debt, neoclassical economics. ..."
"... Keynes looked at the problems of the debt based economy and came up with redistribution through taxation to keep the system running in a sustainable way and he dealt with the inherent inequality capitalism produced. ..."
"... Neoliberalism, which has influenced so much of the conventional thinking about money, is adamant that the public sector must not create ('print') money, and so public expenditure must be limited to what the market can 'afford.' Money, in this view, is a limited resource that the market ensures will be used efficiently. Is public money, then, a pipe dream? No, for the financial crisis and the response to it undermined this neoliberal dogma. ..."
"... The financial sector mismanaged its role as a source of money so badly that the state had to step in and provide unlimited monetary backing to rescue it. The creation of money out of thin air by public authorities revealed the inherently political nature of money. But why, then, was the power to create money ceded to the private sector in the first place -- and with so little public accountability? ..."
Lambert here: Not sure the soul is an identity, but authors don't write the headlines. Read
on!
By Christine Berry, a freelance researcher and writer and was previously Director of
Policy and Government for the New Economics Foundation. She has also worked at ShareAction and
in the House of Commons.
Originally published at Open Democracy .
"Economics is the method: the object is to change the soul." Understanding why Thatcher said
this is central to understanding the neoliberal project, and how we might move beyond it.
Carys Hughes and Jim Cranshaw's opening article poses a crucial challenge to the left in
this respect. It is too easy to tell ourselves a story about the long reign of neoliberalism
that is peopled solely with all-powerful elites imposing their will on the oppressed masses. It
is much harder to confront seriously the ways in which neoliberalism has manufactured popular
consent for its policies.
The left needs to acknowledge that aspects of the neoliberal agenda have been overwhelmingly
popular: it has successfully tapped into people's instincts about the kind of life they want to
lead, and wrapped these instincts up in a compelling narrative about how we should see
ourselves and other people. We need a coherent strategy for replacing this narrative with one
that actively reconstructs our collective self-image – turning us into empowered citizens
participating in communities of mutual care, rather than selfish property-owning individuals
competing in markets.
As the Gramscian theorists Chantal Mouffe and Ernesto Laclau observed, our political
identities are not a 'given' – something that emerges directly from the objective facts
of our situation. We all occupy a series of overlapping identities in our day-to-day lives
– as workers or bosses, renters or home-owners, debtors or creditors. Which of these
define our politics depends on political struggles for meaning and power.
Part of the job of politics – whether within political parties or social movements
– is to show how our individual problems are rooted in systemic issues that can be
confronted collectively if we organise around these identities. Thus, debt becomes not a source
of shame but an injustice that debtors can organise against. Struggles with childcare are not a
source of individual parental guilt but a shared societal problem that we have a shared
responsibility to tackle. Podemos were deeply influenced by this thinking when they sought to
redefine Spanish politics as 'La Casta' ('the elite') versus the people, cutting across many of
the traditional boundaries between right and left.
The architects of neoliberalism understood this process of identity creation. By treating
people as selfish, rational utility maximisers, they actively encouraged them to become
selfish, rational utility maximisers. As the opening article points out, this is not a side
effect of neoliberal policy, but a central part of its intention. As Michael Sandel pointed out
in his 2012 book 'What Money Can't Buy: The Moral Limits of Markets' , it squeezes out
competing values that previously governed non-market spheres of life, such as ethics of public
service in the public sector, or mutual care within local communities. But these values remain
latent: neoliberalism does not have the power to erase them completely. This is where the hope
for the left lies, the crack of light through the doorway that needs to be prised open.
The Limits of Neoliberal Consciousness
In thinking about how we do this, it's instructive to look at the ways in which neoliberal
attempts to reshape our identities have succeeded – and the ways they have failed. While
Right to Buy might have been successful in identifying people as home-owners and stigmatising
social housing, this has not bled through into wider support for private ownership. Although
public ownership did become taboo among the political classes for a generation – far
outside the political 'common sense' – polls consistently showed that this was not
matched by a fall in public support for the idea. On some level – perhaps because of the
poor performance of privatised entities – people continued to identify as citizens with a
right to public services, rather than as consumers of privatised services. The continued
overwhelming attachment to a public NHS is the epitome of this tendency. This is partly what
made it possible for Corbyn's Labour to rehabilitate the concept of public ownership, as the
2017 Labour manifesto's proposals for public ownership of railways and water – dismissed
as ludicrous by the political establishment – proved overwhelmingly popular.
More generally, there is some evidence that neoliberalism didn't really succeed in making us
see ourselves as selfish rational maximisers – just in making us believe that
everybody else was . For example, a 2016 survey found that UK citizens
are on average more oriented towards compassionate values than selfish values, but that they
perceive others to be significantly more selfish (both than themselves and the actual UK
average). Strikingly, those with a high 'self-society gap' were found to be less likely to vote
and engage in civic activity, and highly likely to experience feelings of cultural
estrangement.
This finding points towards both the great conjuring trick of neoliberal subjectivity and
its Achilles heel: it has successfully popularised an idea of what human beings are like that
most of us don't actually identify with ourselves. This research suggests that our political
crisis is caused not only by people's material conditions of disempowerment, but by four
decades of being told that we can't trust our fellow citizens. But it also suggests that deep
down, we know this pessimistic account of human nature just isn't who we really are – or
who we aspire to be.
An example of how this plays out can be seen in academic studies showing that, in game
scenarios presenting the opportunity to free-ride on the efforts of others, only economics
students behaved as economic models predicted: all other groups were much more likely to pool
their resources. Having been trained to believe that others are likely to be selfish,
economists believe that their best course of action is to be selfish as well. The rest of us
still have the instinct to cooperate. Perhaps this shouldn't be surprising: after all, as
George Monbiot argues in 'Out of the Wreckage' , cooperation is our species' main
survival strategy.
What's Our 'Right to Buy?'
The challenge for the left is to find policies and stories that tap into this latent sense
of what makes us human – what Gramsci called 'good sense' – and use it to overturn
the neoliberal 'common sense'. In doing so, we must be aware that we are competing not only
with a neoliberal identity but also with a new far-right that seeks to promote a white British
ethno-nationalist group identity, conflating 'elites' with outsiders. How we compete with this
is the million dollar question, and it's one we have not yet answered.
Thatcher's use of flagship policies like the Right to Buy was a masterclass in this respect.
Deceptively simple, tangible and easy to grasp, the Right to Buy also communicated a much
deeper story about the kind of nation we wanted to be – one of private, property-owning
individuals – cementing home-ownership as a cultural symbol of aspiration (the right to
paint your own front door) whilst giving millions an immediate financial stake in her new
order. So what might be the equivalent flagship policies for the left today?
Perhaps one of the strongest efforts to date has been the proposal for ' Inclusive Ownership
Funds ', first developed by Mathew Lawrence in a report for the New Economics Foundation,
and announced as
Labour policy by John McDonnell in 2018. This would require companies to transfer shares
into a fund giving their workers a collective stake that rises over time and pays out employee
dividends. Like the Right to Buy, as well as shifting the material distribution of wealth and
power, this aims to build our identity as part of a community of workers taking more collective
control over our working lives.
But this idea only takes us so far. While it may tap into people's desire for more security
and empowerment at work, more of a stake in what they do, it offers a fairly abstract benefit
that only cashes out over time, as workers acquire enough of a stake to have a meaningful say
over company strategy. It may not mean much to those at the sharpest end of our oppressive and
precarious labour market, at least not unless we also tackle the more pressing concerns they
face – such as the exploitative practices of behemoths like Amazon or the stress caused
by zero-hours contracts. We have not yet hit on an idea that can compete with the
transformative change to people's lives offered by the Right to Buy.
So what else is on the table? Perhaps, when it comes to the cutting edge of new left
thinking on these issues, the workplace isn't really where the action is – at least not
directly. Perhaps we need to be tapping into people's desire to escape the 'rat race'
altogether and have more freedom to pursue the things that really make us happy – time
with our families, access to nature, the space to look after ourselves, connection with our
communities. The four day working week (crucially with no loss of pay) has real potential as a
flagship policy in this respect. The Conservatives and the right-wing press may be laughing it
down with jokes about Labour being lazy and feckless, but perhaps this is because they are
rattled. Ultimately, they can't escape the fact that most people would like to spend less time
at work.
Skilfully communicated, this has the potential to be a profoundly anti-neoliberal policy
that conveys a new story about what we aspire to, individually and as a society. Where
neoliberalism tapped into people's desire for more personal freedom and hooked this to the
acquisition of wealth, property and consumer choice, we can refocus on the freedom to live the
lives we truly want. Instead of offering freedom through the market, we can offer
freedom from the market.
Proponents of Universal Basic Income often argue that it fulfils a similar function of
liberating people from work and detaching our ability to provide for ourselves from the
marketplace for labour. But in material terms, it's unlikely that a UBI could be set at a level
that would genuinely offer people this freedom, at least in the short term. And in narrative
terms, UBI is actually a highly malleable policy that is equally susceptible to being co-opted
by a libertarian agenda. Even at its best, it is really a policy about redistribution of
already existing wealth (albeit on a bigger scale than the welfare state as it stands). To
truly overturn neoliberalism, we need to go beyond this and talk about collective
ownership and creation of wealth.
Policies that focus on collective control of assets may do a better job of replacing
a narrative about individual property ownership with one that highlights the actual
concentration of property wealth in the hands of elites – and the need to reclaim these
assets for the common good. As well as Inclusive Ownership Funds, another way of doing this is
through Citizens' Wealth Funds, which socialise profitable assets (be it natural resources or
intangible ones such as data) and use the proceeds to pay dividends to individuals or
communities. Universal Basic Services – for instance, policies such as free publicly
owned buses – may be another.
Finally, I'd like to make a plea for care work as a critical area that merits further
attention to develop convincing flagship policies – be it on universal childcare, elderly
care or support for unpaid carers. The instinctive attachment that many of us feel to a public
NHS needs to be widened to promote a broader right to care and be cared for, whilst firmly
resisting the marketisation of care. Although care is often marginalised in political debate,
as a new mum, I'm acutely aware that it is fundamental to millions of people's ability to live
the lives they want. In an ageing population, most people now have lived experience of the
pressures of caring for someone – whether a parent or a child. By talking about these
issues, we move the terrain of political contestation away from the work valued by the market
and onto the work we all know really matters; away from the competition for scarce resources
and onto our ability to look after each other. And surely, that's exactly where the left wants
it to be.
The problem is that people are selfish–me included–and so what is needed is
not better ideas about ourselves but better laws. And for that we will need a higher level of
political engagement and a refusal to accept candidates who sell themselves as a "lesser
evil." It's the decline of democracy that brought on the rise of Reagan and Thatcher and
Neoliberalism and not some change in public consciousness (except insofar as the general
public became wealthier and more complacent). In America incumbents are almost universally
likely to be re-elected to Congress and so they have no reason to reject Neoliberal
ideas.
So here's suggesting that a functioning political process is the key to reform and not
some change in the PR.
Carolinian, like you, I try to include myself in statements about "the problem with
people." I believe one of the things preventing progress is our tendency to believe it's only
those people that are the problem.
Human nature people are selfish. It's like the Christian marriage vow – which I understand is a Medieval invention
and not something from 2,000 years ago – for better or worse, meaning, we share (and
are not to be selfish) the good and the bad.
"Not neoliberals, but all of us." "Not the right, but the left as well." "Not just Russia, but America," or "Not just America, but Russia too."
Perhaps a rational system is one that accepts selfishness but keeps it within limits.
Movements like the Chicago school that pretend to reinvent the wheel with new thinking are by
this view a scam. As J.K. Galbraith said: "the problem with their ideas is that they have
been tried."
My small brain got stuck on your reference to a 'Christian marriage vow'. I was just
sitting back and conceiving what a Neoliberal marriage vow would sound like. Probably a cross
between a no-liabilities contract and an open-marriage agreement.
"people are selfish"?; or "people can sometimes act selfishly"? I think the latter is the
more accurate statement. Appeal to the better side, and more of it will be forthcoming.
Neolib propaganda appeals to trivial, bleak individualism..
I'm not sure historic left attempts to appeal to "the better angels of our nature" have
really moved the ball much. It took the Great Depression to give us a New Deal and WW2 to
give Britain the NHS and the India its freedom. I'd say events are in the saddle far more
than ideas.
I rather look at it as a "both and" rather than an "either or." If the political
groundwork is not done beforehand and during, the opportunity events afford will more likely
be squandered.
And borrowing from evolutionary science, this also holds with the "punctuated equilibrium"
theory of social/political change. The strain of a changed environment (caused by both events
and intentionally created political activity) for a long time creates no visible change to
the system, and so appears to fail. But then some combination of events and conscious
political work suddenly "punctuates the equilibrium" with the resulting significant if not
radical changes.
Chile today can be seen as a great example of this: "Its not 30 Pesos, its 30 Years."
Carolinian, you provide a good illustration of the power of the dominant paradigm to make
people believe exactly what the article said–something I've observed more than enough
to confirm is true. People act in a wide variety of ways; but many people deny that altruism
and compassion are equally "human nature". Both parts of the belief pointed out
here–believing other people are selfish and that we're not–are explained by
projection acting in concert with the other parts of this phenomenon. Even though it's flawed
because it's only a political and not a psychological explanation, It's a good start toward
understanding.
"You and I are so deeply acculturated to the idea of "self" and organization and species
that it is hard to believe that man [sic] might view his [sic] relations with the environment
in any other way than the way which I have rather unfairly blamed upon the nineteenth-century
evolutionists."
Gregory Bateson, Steps to an Ecology of Mind, p 483-4
This is part of a longer quote that's been important to me my whole life. Worth looking up.
Bateson called this a mistake in epistemology–also, informally, his definition of
evil. http://anomalogue.com/blog/category/systems-thinking/
"When plunder becomes a way of life for a group of men in a society, over the course of
time they create for themselves a legal system that authorizes it and a moral code that
glorifies it."
― Frédéric Bastiat
Doesn't mean it's genetic. In fact, I'm pretty sure it means it's not.
The Iron Lady once proclaimed, slightly sinisterly: "Economics is the method. The object
is to change the soul." She meant that British people had to rediscover the virtue of
traditional values such as hard work and thrift. The "something for nothing" society was
over.
But the idea that the Thatcher era re-established the link between virtuous effort and
just reward has been effectively destroyed by the spectacle of bankers driving their
institutions into bankruptcy while being rewarded with million-pound bonuses and munificent
pensions.
The dual-truth approach of the Neoliberal Thought Collective (thanks, Mirowski) has been
more adept at manipulating narratives so the masses are still outraged by individuals getting
undeserved social benefits rather than elites vacuuming up common resources. Thanks to the
Thatcher-Reagan revolution, we have ended up with socialism for the rich, and everyone else
at the mercy of 'markets'.
Pretending that there are not problems with free riders is naive and it goes against
people's concern with justice. Acknowledging free riders on all levels with institutions that
can constantly pursue equity is the solution.
At some points in life, everyone is a free rider. As for the hard workers, many of them
are doing destructive things which the less hard-working people will have to suffer under and
compensate for. (Neo)liberalism and capitalism are a coherent system of illusions of virtue
which rest on domination, exploitation, extraction, and propaganda. Stoking of resentment (as
of free riders, the poor, the losers, foreigners, and so on) is one of the ways those who
enjoy it keep it going.
The Iron Lady once proclaimed, slightly sinisterly: "Economics is the method. The object
is to change the soul." She meant that British people had to rediscover the virtue of
traditional values such as hard work and thrift. The "something for nothing" society was
over.
But the idea that the Thatcher era re-established the link between virtuous effort and
just reward has been effectively destroyed by the spectacle of bankers driving their
institutions into bankruptcy while being rewarded with million-pound bonuses and munificent
pensions.
The dual-truth approach of the Neoliberal Thought Collective (thanks, Mirowski) has been
more adept at manipulating narratives so the masses are still outraged by individuals getting
undeserved social benefits rather than elites vacuuming up common resources. Thanks to the
Thatcher-Reagan revolution, we have ended up with socialism for the rich, and everyone else
at the mercy of 'markets'.
Pretending that there are not problems with free riders is naive and it goes against
people's concern with justice. Acknowledging free riders on all levels with institutions that
can constantly pursue equity is the solution.
The Iron Lady had a agenda to break the labor movement in the UK.
What she did not understand is Management gets the Union (Behavior) it deserves. If there
is strife in the workplace, as there was in abundance in the UK at that time, the problem is
the Management, (and the UK class structure) not the workers.
As I found out when I left University.
Thatcher set out to break the solidarity of the Labor movement, and used the neo-liberal
tool of selfishness to achieve success, unfortunately,
The UK's poor management practices, (The Working Class can kiss my arse) and complete
inability to form teams of "Management and Workers" was, IMHO, is the foundation of today's
Brexit nightmare, a foundation based on the British Class Structure.
And exploited, as it ever was, to achieve ends which do not benefit workers in any
manner.
The left needs to acknowledge that aspects of the neoliberal agenda have been
overwhelmingly popular: it has successfully tapped into people's instincts about the kind
of life they want to lead, and wrapped these instincts up in a compelling narrative about
how we should see ourselves and other people.
Sigh, no this is not true. This author is making the mistake that everyone is like the top
5% and that just is not so. Perhaps she should get out of her personal echo chamber and talk
to common people.
In my travels I have been to every state and every major city, and I have worked with just
about every class of people, except of course the ultra wealthy and ultra powerful –
they have people to protect them from the great unwashed like me – and it didn't take
me long to notice that the elite are different from the rest of us but I could never explain
exactly why. After I retired, I started studying and I've examined everything from Adam
Smith, to Hobbes, to Kant, to Durkheim, to Marx, to Ayn Rand, to tons of histories and
anthropologies of various peoples, to you name it and I've come to the conclusion that most
of us are not neoliberal and do not want what the top 5% want.
Most people are not overly competitive and most do not seek self-interest only. That is
what allows us to live in cities, to drive on our roadways, to form groups that seek to
improve conditions for the least of us. It is what allows soldiers to protect each other on
the battlefield when it would be in their self interest to protect themselves. It is what
allowed people in Europe to risk their own lives to save Jews. And it is also what allows
people to live under the worst dictators without rebelling. Of course we all want more but we
have limits on what we will do to get that more – the wealthy and powerful seem to have
no limits. For instance, most of us won't screw over our co-workers to make ourselves look
better, although some will. Most of us won't turn on our best friends even when it would be
to our advantage to do so, although some will. Most of us won't abandon those we care about,
even when it means severe financial damage to us, although some will.
For lack of a better description, I call what the 5% have the greed gene – a gene
that allows them to give up empathy and compassion and basic morality – what some of us
call fairness – in the search for personal gain. I don't think it is necessarily
genetic but there is something in their makeup that cause them to have more than the average
self interest. And because most humans are more cooperative than they are competitive, most
humans just allow these people to go after what they want and don't stand in their way, even
though by stopping them, they could make their own lives better.
Most history and economics are theories and stories told by the rich and powerful to
justify their behavior. I think it is a big mistake to attribute that behavior to the mass of
humanity. Archeology is beginning to look more at how average people lived instead of seeking
out only the riches deposited by the elite, and historians are starting to look at the other
side of history – average people – to see what life was really like for them, and
I think we are seeing that what the rulers wanted was never what their people wanted. It is
beginning to appear obvious that 95% of the people just wanted to live in their communities
safely, to have about what everyone else around them had, and to enjoy the simple pleasures
of shelter, enough food, and warm companionship.
I'm also wondering why the 5% think that all of us want exactly what they want. Do they
really think that they are somehow being smarter or more competent got them there while 95%
of the population – the rest of us – failed?
At this point, I know my theory is half-baked – I definitely need to do more
research, but nothing I have found yet convinces me that there isn't some real basic
difference between those who aspire to power and wealth and the rest of us.
" ..and I've come to the conclusion that most of us are not neoliberal and do not want
what the top 5% want. Most people are not overly competitive and most do not seek
self-interest only. That is what allows us to live in cities, to drive on our roadways, to
form groups that seek to improve conditions for the least of us. It is what allows soldiers
to protect each other on the battlefield when it would be in their self interest to protect
themselves. "
I really liked your comment Historian. Thanks for posting. That's what I've felt in my gut
for a while, that the top 5% and the establishment are operating under a different mindset,
that the majority of people don't want a competitive, dog eat dog, self interest world.
I agree with Foy Johnson. I've been reading up on Ancient Greece and realizing all the
time that 'teh Greeks' are maybe only about thirty percent of the people in Greece. Most of
that history is how Greeks were taking advantage of each other with little mention of the
majority of the population. Pelasgians? Yeah, they came from serpents teeth, the end.
I think this is a problem from the Bronze Age that we have not properly addressed.
Mystery Cycles are a nice reminder that people were having fun on their own.
I have more or less the same view. I think the author's statement about neoliberalism
tapping into what type of life people want to lead is untenable. Besides instinct (are we all
4-year olds?), what people want is also very much socially constructed. And what people do is
also very much socially coerced.
One anecdote: years ago, during a volunteer drive at work, I worked side by side with the
company's CEO (company was ~1200 headcount, ~.5bn revenue) sorting canned goods. The guy was
doing it like he was in a competition. So much so that he often blocked me when I had to
place something on the shelves, and took a lot of space in the lineup around himself while
swinging his large-ish body and arms, and wouldn't stop talking. To me, this was very rude
and inconsiderate, and showed a repulsive level of disregard to others. This kind of behavior
at such an event, besides being unpleasant to be around, was likely also making work for the
others in the lineup less efficient. Had I or anyone else behaved like him, we would have had
a good amount of awkwardness or even a conflict.
What I don't get is, how does he and others get away with it? My guess is, people don't
want a conflict. I didn't want a conflict and said nothing to that CEO. Not because I am not
competitive, but because I didn't want an ugly social situation (we said 'excuse me' and
'sorry' enough, I just didn't think it would go over well to ask him to stop being obnoxious
and dominant for no reason). He obviously didn't care or was unaware – or actually, I
think he was behaving that way as a tactical habit. And I didn't feel I had the authority to
impose a different order.
So, in the end, it's about power – power relations and knowing what to do about
it.
Yep, I think you've nailed it there deplorado, types like your CEO don't care at all
and/or are socially unaware, and is a tactical habit that they have found has worked for them
in the past and is now ingrained. It is a power relation and our current world unfortunately
is now designed and made to suit people like that. And each day the world incrementally moves
a little bit more in their direction with inertia like a glacier. Its going to take something
big to turn it around
I too believe "most of us are not neoliberal". But if so, how did we end up with the kind
of Corporate Cartels, Government Agencies and Organizations that currently prey upon
Humankind? This post greatly oversimplifies the mechanisms and dynamics of Neoliberalism, and
other varieties of exploitation of the many by the few. This post risks a mocking tie to
Identity Politics. What traits of Humankind give truth to Goebbels' claims?
There definitely is "some real basic difference between those who aspire to power and
wealth and the rest of us" -- but the question you should ask next is why the rest of us
Hobbits blindly follow and help the Saurons among us. Why do so many of us do exactly what
we're told? How is it that constant repetition of the Neoliberal identity concepts over our
media can so effectively ensnare the thinking of so many?
Maybe it's something similar to Milgram's Experiment (the movie the Experimenter about
Milgram was on last night – worth watching and good acting by Peter Sarsgaard, my kind
of indie film), the outcome is just not what would normally be expected, people bow to
authority, against their own beliefs and interests, and others interests, even though they
have choice. The Hobbits followed blindly in that experiment, the exact opposite outcome as
to what was predicted by the all the psychology experts beforehand.
people bow to authority , against their own beliefs and interests, and others
interests, even though they have choice
'Don't Make Waves' is a fundamentally useful value that lets us all swim along. This can
be manipulated. If everyone is worried about Reds Under the Beds or recycling, you go along
to get along.
Some people somersault to Authority is how I'd put it.
Yep, don't mind how you put that Mo, good word somersault.
One of the amusing tests Milgram did was to have people go into the lift but all face the
back of the lift instead of the doors and see what happens when the next person got in. Sure
enough, with the next person would get in, face the front, look around with some confusion at
everyone else and then slowly turn and face the back. Don't Make Waves its instinctive to let
us all swim along as you said.
And 'some people' is correct. It was actually the majority, 65%, who followed directions
against their own will and preferred choice in his original experiment.
That's a pretty damn good comment that, Historian. Lots to unpick. It reminded me too of
something that John Wyndham once said. He wrote how about 95% of us wanted to live in peace
and comfort but that the other 5% were always considering their chances if they started
something. He went on to say that it was the introduction of nuclear weapons that made
nobody's chances of looking good which explains why the lack of a new major war since
WW2.
Good comment. My view is that it all boils down to the sociopathic personality disorder.
Sociopathy runs on a continuum, and we all exhibit some of its tendencies. At the highest end
you get serial killers and titans of industry, like the guy sorting cans in another comment.
I believe all religions and theories of ethical behavior began as attempts to reign in the
sociopaths by those of us much lower on the continuum. Neoliberalism starts by saying the
sociopaths are the norm, turning the usual moral and ethical universe upside down.
Your theory is not half-baked; it's spot-on. If you're not the whatever it takes, end
justifies the means type, you are not likely to rise to the top in the corporate world. The
cream rises to the top happens only in the dairy.
Your 5% would correspond to Altemeyer's "social dominators". Unfortunately only
75% want a simple, peaceful life. 20% are looking for a social dominator to follow. It's
psychological.
Excellent comment. Take into consideration the probability that the majority of the top 5%
have come from a privileged background, ensconced in a culture of entitlement. This "greed"
gene is as natural to them as breathing. Consider also that many wealthy families have
maintained their status through centuries of calculated loveless marriages, empathy and other
human traits gene-pooled out of existence. The cruel paradox is that for the sake of riches,
they have lost their richness in character.
This really chimes with me. Thanks so much for putting it down in words.
I often encounter people insisting humans are selfish. It is quite frustrating that this
more predominant side of our human nature seems to become invisible against the
propaganda.
I'm barely into Jeremy Lent's The Patterning Instinct: A Cultural History of Humanity's
Search for Meaning , but he's already laid down his central thesis in fairly complete
form. Humans are both competitive and cooperative, he says, which should surprise no one.
What I found interesting is that the competitive side comes from primates who are more
intensely competitive than humans. The cooperation developed after the human/primate split
and was enabled by "mimetic culture," communication skills that importantly presuppose that
the object(s) of communication are intentional creatures like oneself but with a somewhat
different perspective. Example: Human #1 gestures to Human #2 to come take a closer look at
whatever Human #1 is examining. This ability to cooperate even came with strategies to
prevent a would-be dominant male from taking over a hunter-gatherer band:
[I]n virtually all hunter-gatherer societies, people join together to prevent powerful
males from taking too much control, using collective behaviors such as ridicule, group
disobedience, and, ultimately, extreme sanctions such as assassination [This kind of
society is called] a "reverse dominant hierarchy because rather than being dominated, the
rank and file manages to dominate.
yes, this chimes in with what I`ve been thinking for years after puzzling about why
society everywhere ends up as it does – ie the fact that in small groups as we evolved
to live in, we would keep a check on extreme selfish behaviour of dominant individuals. In
complex societies (modern) most of us become "the masses" visible in some way to the system
but the top echelons are not visible to us and are able to amass power and wealth out of all
control by the rest of us. And yes, you do have to have a very strange drive (relatively
rare, ?pathological) to want power and wealth at everyone else`s expense – to live in a
cruel world many of whose problems could be solved (or not arise in the first place) by
redistributing some of your wealth to little palpable cost to you
Africa over a few million years of Ice Ages seems to have presented our ancestors with the
possibility of reproducing only if you can get along in close proximity to other Hominids
without killing each other. I find that a compelling explanation for our stupidly big brains;
it's one thing to be a smart monkey, it's a whole different solution needed to model what is
going on in the brain of another smart monkey.
And communications: How could spoken language have developed without levels of trust and
interdependence that maybe we can not appreciate today? We have a word for 'Blue' nowadays,
we take it for granted.
There is a theory that language originated between mothers and their immediate progeny,
between whom either trust and benevolence exist, or the weaker dies. The mother's chances for
survival and reproduction are enhanced if she can get her progeny to, so to speak, help out
around the house; how to do that is extended by symbolism and syntax as well as example.
I recall the first day of Econ 102 when the Prof. (damned few adjuncts in those days)
said, "Everything we discuss hereafter will be built on the concept of scarcity." Being a
contrary buggah' I thought, "The air I'm breathing isn't scarce." I soon got with the program
supply and demand upward sloping, downward sloping, horizontal, vertical and who could forget
kinked. My personal favorite was the Giffen Good a high priced inferior product. Kind of like
Micro Economics.
Maybe we could begin our new Neo-Economics 102 with the proviso, "Everything we discuss
hereafter will be based on abundance." I'm gonna' like this class!
Neo-lib Econ does a great job at framing issues so that people don't notice what is
excluded. Think of them as proto-Dark Patternists.
If you are bored and slightly mischievous, ask an economist how theory addresses
cooperation, then assume a can opener and crack open a twist-top beer.
Isn't one of the problems that it's NOT really built on the concept of scarcity? Most
natural resources run into scarcity eventually. I don't know about the air one breaths,
certainly fish species are finding reduced oxygen in the oceans due to climate change.
If you would like that class on abundance you would love the Church of Abundant Life which
pushes Jesus as the way to Abundant Life and they mean that literally. Abundant as in Jesus
wants you to have lots of stuff -- so believe.
I believe Neoliberalism is a much more complex animal than an economic theory. Mirowski
builds a plausible argument that Neoliberalism is a theory of epistemology. The Market
discovers Truth.
Had a lovely Physics class where the first homework problem boiled down to "How often do
you inhale a atom (O or N) from Julius Caesar's last breath". Great little introduction to
the power and pratfalls of 'estimations by Physicists' that xkcd likes to poke at. Back then
we used the CRC Handbook to figure it out.
Anyway, every second breath you can be sure you have shared an atom with Caesar.
I don't think Maggie T. or uncle Milty were thinking about the future at all. Neither one
would have openly promoted turfing quadriplegic 70-year-olds out of the rest home. That's how
short sighted they both were. And stupid. We really need to call a spade a spade here. Milty
doesn't even qualify as an economist – unless economics is the study of the destruction
of society. But neoliberalism had been in the wings already, by the 80s, for 40 years. Nobody
took into account that utility-maximizing capitalism always kills the goose (except Lenin
maybe) – because it's too expensive to feed her. The neoliberals were just plain dumb.
The question really is why should we stand for another day of neoliberal nonsense? Albeit
Macht Frei Light? No thanks. I think they've got the question backwards – it shouldn't
be how should "we" reconstruct our image now – but what is the obligation of all the
failed neoliberal extractors to right society now? I'd just as soon stand back and watch the
dam burst as help the neolibs out with a little here and a little there. They'll just keep
taking as long as we give. This isn't as annoying as Macron's "cake" comment, but it's close.
I did like the last 2 paragraphs however.
Here's a sidebar. A universal one. There is an anomaly in the universe – there is
not enough accumulated entropy. It screws up theoretical physics because the missing entropy
needs to be accounted for for their theories to work to their satisfaction. It seems to be a
phenomenon of evolution. Thus it was recently discovered by a physics grad student that
entropy by heat dissipation is the "creator" of life. Life almost spontaneously erupts where
it can take advantage of an energy source. And, we are assuming, life thereby slows entropy
down. There has to be another similar process among the stars and the planets as well, an
evolutionary conservation of energy. So evolution takes on more serious meaning. From the
quantum to the infinite. And society – it's right in the middle. So it isn't too
unreasonable to think that society is extremely adaptable, taking advantage of any energy
input, and it seems true to think that. Which means that society can go long for its goal
before it breaks down. But in the end it will be enervated by lack of "resources" unless it
can self perpetuate in an evolving manner. That's one good reason to say goodbye to looney
ideologies.
For a view of humanity that is not as selfish, recommend "The Gift" by Marcel Mauss.
Basically an anthropological study of reciprocal gift giving in the oceanic potlatch
societies. My take is that the idea was to re-visit relationships, as giving a gift basically
forces a response in the receiver, "Am I going to respond in kind, perhaps even upping what
is required? Or am I going to find that this relationship simply isn't worth it and walk
away?"
Kind of like being in a marriage. The idea isn't to walk away, the idea is you constantly
need to re-enforce it. Except with the potlatch it was like extending that concept to the
clan at large, so that all the relationships within the clan were being re-enforced.
"Kind of like being in a marriage. The idea isn't to walk away, the idea is you constantly
need to re-enforce it. "
amen.
we, the people, abdicated.
as for humans being selfish by default i used to believe this, due to my own experiences
as an outlaw and pariah.
until wife's cancer and the overwhelming response of this little town,in the "reddest"
congressional district in texas.
locally, the most selfish people i know are the one's who own everything buying up their
neighbor's businesses when things get tough.
they are also the most smug and pretentious(local dems, in their hillforts come a close
second in this regard) and most likely to be gop true believers.
small town and all everybody literally knows everybody, and their extended family and those
connections are intertwined beyond belief.
wife's related, in some way, to maybe half the town.
that matters and explains my experience as an outcast: i never belonged to anything like that
and such fellowfeeling and support is hard for people to extend to a stranger.
That's what's gonna be the hard sell, here, in undoing the hyperindividualist, "there is no
such thing as society" nonsense.
I grew up until Junior High in a fishing village on the Maine coast that had been around
for well over a hundred years and had a population of under 1000. By the time I was 8 I
realized there was no point in being extreme with anyone, because they were likely to be
around for the rest of your life.
I fell in love with sun and warmth when we moved away and unfortunately it's all
gentrified now, by the 90s even a tar paper shack could be sold for a few acres up in
Lamoine.
Yep, small towns are about as close as we get to clans nowadays. And just like clans, you
don't want to be on the outside. Still when you marry in, it would be nice if the town would
make you feel more a member like a clan should / would. ;-)
But outside of the small town and extended families I think that's it. We've been atomized
into our nuclear families. Except for the ruling class – I think they have this quid
pro quo gift giving relationship building figured out quite nicely. Basically they've formed
their own small town – at the top.
By the way, I understand Mauss was an influence on Baudrillard. I could almost imagine
Baudrillard thinking how the reality of the potlatch societies was so different than the
reality of western societies.
That's the big problem I see in this discussion. We know, or at least think we know,
what's wrong, and what would be better; but we can't get other people to want to do something
about it, even those who nominally agree with us. And I sure don't have the answer.
Neoliberalism, in its early guise at least, was popular because politicians like Thatcher
effectively promised something for nothing. Low taxes but still decent public services. The
right to buy your council house without putting your parents' council house house in
jeopardy. Enjoying private medical care as a perk of your job whilst still finding the NHS
there when you were old and sick. And so on. By the time the penny dropped it was too
late.
If the Left is serious about challenging neoliberalism, it has to return to championing the
virtues of community, which it abandoned decades ago in favour of extreme liberal
individualism Unfortunately, community is an idea which has either been appropriated by
various identity warriors (thus fracturing society further) or dismissed (as this author
does) because it's been taken up by the Right. A Left which explained that when everybody
cooperates everybody benefits, but that when everybody fights everybody loses, would sweep
the board.
If the Left is serious about challenging neoliberalism, it has to return to championing
the virtues of community
I agree. The tenuous suggestions offered by the article are top down. But top-down
universal solutions can remove the impetus for local organization. Which enervates the power
of communities. And then you can't do anything about austerity, because your Rep loves the
PowerPoints and has so much money from the Real Estate community.
Before one experiences the virtue, or power, of a community, one has to go through the
pain in the ass of contributing to a community. It has to be rewarding process or it won't
happen.
"An example of how this plays out can be seen in academic studies showing that, in game
scenarios presenting the opportunity to free-ride on the efforts of others, only economics
students behaved as economic models predicted: all other groups were much more likely to pool
their resources. Having been trained to believe that others are likely to be selfish,
economists believe that their best course of action is to be selfish as well. The rest of us
still have the instinct to cooperate. Perhaps this shouldn't be surprising: after all, as
George Monbiot argues in 'Out of the Wreckage', cooperation is our species' main survival
strategy."
Since so many people believe their job is their identity, would be interssting to know
what the job training or jobs were of the "others."
>so many people believe their job is their identity
Only because the social sphere, which in the medium and long term we *all depend
on* to survive, has been debased by 24/7/365 neolib talking points, and their purposeful
economic constrictions..
How many people have spent their lives working for the "greater good"? How many work
building some transcendental edifice from which the only satisfaction they could take away
was knowing they performed a part of its construction? The idea that Humankind is selfish and
greedy is a projection promoted by the small part of Humankind that really is selfish and
greedy.
Where does wealth creation actually occur in the capitalist system?
Nations can do well with the trade, as we have seen with China and Germany, but this comes
at other nation's expense.
In a successful global economy, trade should be balanced over the long term.
Keynes was aware of this in the past, and realised surplus nations were just as much of a
problem as deficit nations in a successful global economy with a long term future.
Zimababwe has lots of money and it's not doing them any favours. Too much money causes
hyper-inflation.
You can just print money, the real wealth in the economy lies somewhere else.
Alan Greenspan tells Paul Ryan the Government can create all the money it wants and there is
no need to save for pensions. https://www.youtube.com/watch?v=DNCZHAQnfGU
What matters is whether the goods and services are there for them to buy with that money.
That's where the real wealth in the economy lies.
Money has no intrinsic value; its value comes from what it can buy.
Zimbabwe has too much money in the economy relative to the goods and services available in
that economy. You need wheelbarrows full of money to buy anything.
It's that GDP thing that measures real wealth creation.
GDP does not include the transfer of existing assets like stocks and real estate.
Inflated asset prices are just inflated asset prices and this can disappear all too easily as
we keep seeing in real estate.
1990s – UK, US (S&L), Canada (Toronto), Scandinavia, Japan
2000s – Iceland, Dubai, US (2008)
2010s – Ireland, Spain, Greece
Get ready to put Australia, Canada, Norway, Sweden and Hong Kong on the list.
They invented the GDP measure in the 1930s, to track real wealth creation in the economy
after they had seen all that apparent wealth in the US stock market disappear in 1929.
There was nothing really there.
How can banks create wealth with bank credit?
The UK used to know before 1980.
https://www.housepricecrash.co.uk/forum/uploads/monthly_2018_02/Screen-Shot-2017-04-21-at-13_53_09.png.e32e8fee4ffd68b566ed5235dc1266c2.png
Before 1980 – banks lending into the right places that result in GDP growth (business
and industry, creating new products and services in the economy)
After 1980 – banks lending into the wrong places that don't result in GDP growth (real
estate and financial speculation)
What happened in 1979?
The UK eliminated corset controls on banking in 1979 and the banks invaded the mortgage
market and this is where the problem starts.
Real estate does make the economy boom, but there is no real wealth creation in inflating
asset prices.
What is really happening?
When you use bank credit to inflate asset prices, the debt rises much faster than GDP.
https://www.housepricecrash.co.uk/forum/uploads/monthly_2018_02/Screen-Shot-2017-04-21-at-13_53_09.png.e32e8fee4ffd68b566ed5235dc1266c2.png
The bank credit of mortgages is bringing future spending power into today.
Bank loans create money and the repayment of debt to banks destroys money.
https://www.bankofengland.co.uk/-/media/boe/files/quarterly-bulletin/2014/money-creation-in-the-modern-economy.pdf
In the real estate boom, new money pours into the economy from mortgage lending, fuelling a
boom in the real economy, which feeds back into the real estate boom.
The Japanese real estate boom of the 1980s was so excessive the people even commented on the
"excess money", and everyone enjoyed spending that excess money in the economy.
In the real estate bust, debt repayments to banks destroy money and push the economy towards
debt deflation (a shrinking money supply).
Japan has been like this for thirty years as they pay back the debts from their 1980s
excesses, it's called a balance sheet recession. https://www.youtube.com/watch?v=8YTyJzmiHGk
Bank loans effectively take future spending and bring it in today.
Jam today, penury tomorrow.
Using future spending power to inflate asset prices today is a mistake that comes from
thinking inflating asset prices creates real wealth.
GDP measures real wealth creation.
Did you know capitalism works best with low housing costs and a low cost of living?
Probably not, you are in the parallel universe of neoliberalism.
William White (BIS, OECD) talks about how economics really changed over one hundred years
ago as classical economics was replaced by neoclassical economics.
He thinks we have been on the wrong path for one hundred years.
Some very important things got lost 100 years ago.
The Mont Pelerin society developed the parallel universe of neoliberalism from
neoclassical economics.
The CBI (Confederation of British Industry) saw the light once they discovered my equation
(Michael Hudson condensed)
Disposable income = wages – (taxes + the cost of living)
"Wait a minute, employees get their money from wages and businesses have to cover high
housing costs in wages reducing profit" the CBI
It's all about the economy, and UK businesses will benefit from low housing costs. High housing costs push up wages and reduce profits. Off-shore to make more profit, you can pay lower wages where the cost of living is lower,
e.g. China; the US and UK are rubbish.
What was Keynes really doing?
Creating a low cost, internationally competitive economy. Keynes's ideas were a solution to the problems of the Great Depression, but we forgot why
he did, what he did.
They tried running an economy on debt in the 1920s. The 1920s roared with debt based consumption and speculation until it all tipped over into
the debt deflation of the Great Depression. No one realised the problems that were building
up in the economy as they used an economics that doesn't look at private debt, neoclassical
economics.
Keynes looked at the problems of the debt based economy and came up with redistribution
through taxation to keep the system running in a sustainable way and he dealt with the
inherent inequality capitalism produced.
The cost of living = housing costs + healthcare costs + student loan costs + food + other
costs of living
Disposable income = wages - (taxes + the cost of living)
High progressive taxation funded a low cost economy with subsidised housing, healthcare,
education and other services to give more disposable income on lower wages.
Employers and employees both win with a low cost of living.
Keynesian ideas went wrong in the 1970s and everyone had forgotten the problems of
neoclassical economics that he originally solved.
Classical economics – observations and deductions from the world of small state,
unregulated capitalism around them
Neoclassical economics – Where did that come from?
Keynesian economics – observations, deductions and fixes for the problems of
neoclassical economics
Neoclassical economics – Why is that back?
We thought small state, unregulated capitalism was something that it wasn't as our ideas
came from neoclassical economics, which has little connection with classical economics.
On bringing it back again, we had lost everything that had been learned in the 1930s, by
which time it had already demonstrated its flaws.
Ultimately, neoliberalism is about privatization and ownership of everything. This is why
it's so important to preserve the Common Good, the vital resources and services that support
earthly existence. The past 40 years has shown what happens when this falls out of balance.
Our value system turns upside down – the sick become more valuable than the healthy, a
violent society provides for the prisons-for-profit system and so on. The biggest upset has
been the privatization of money creation.
This latest secret bank bailout (not really secret as Dodd-Frank has allowed banks to
siphon newly created money from the Fed without Congressional approval. No more public
embarrassment that Hank Paulson had to endure.) They are now up to $690 billion PER WEEK
while the media snoozes. PPPs enjoy the benefits of public money to seed projects for private
gain. The rest of us have to rely on predatory lenders, sinking us to the point of Peak Debt,
where private debt can never be paid off and must be cancelled, as it should be because it
never should've happened in the first place.
"Neoliberalism, which has influenced so much of the conventional thinking about money,
is adamant that the public sector must not create ('print') money, and so public
expenditure must be limited to what the market can 'afford.' Money, in this view, is a
limited resource that the market ensures will be used efficiently. Is public money, then, a
pipe dream? No, for the financial crisis and the response to it undermined this neoliberal
dogma.
The financial sector mismanaged its role as a source of money so badly that the
state had to step in and provide unlimited monetary backing to rescue it. The creation of
money out of thin air by public authorities revealed the inherently political nature of
money. But why, then, was the power to create money ceded to the private sector in the
first place -- and with so little public accountability?And
if money can be created to serve the banks, why not to benefit people and the
environment? "
The Commons should have a shot at revival as the upcoming generation's desires are
outstripped by their incomes and savings. The conflict between desires and reality may give a
boost to alternate notions of what's desirable. Add to this the submersion of cities under
the waves of our expanding oceans, and one gets yet another concrete reason to think that
individual ownership isn't up to the job of inspiring young people.
A Commons of some sort
will be needed to undo the cost of generations of unpaid negative externalities. Fossil
fuels, constant warfare, income inequality, stupendous idiocy of kleptocratic government
these baked in qualities of neo-liberalism are creating a very large, dissatisfied, and
educated population just about anywhere one looks. Suburbia will be on fire, as well as
underwater. Farmlands will be parched, drenched, and exhausted. Where will Larry Summers dump
the garbage?
"... We should also note in passing that the Nobel Prize in Economics is not actually a Nobel Prize. ..."
"... You are right that the Nobel Prize in Economics is not a Nobel Prize and it is awarded by a bank. Plus, Milton Friedman won in 1976: that tells you a lot about why neoclassical economists are mainly chosen. ..."
"... many of the neoclassical models are pseudoscience, unreflective of the real world. ..."
"... Both awards pander to the rentier class. ..."
"... What? Not even a breath about the insane system called globalization, where raw material from all over the world is shipped to China to be processed into finished goods in the most polluting way possible, to have those goods then shipped and trucked to the Amazon horrorhouses and Walmart stores to be bought and then thrown in the trash a few months later. ..."
There is a quote from The Wolf (Harvey Keitel, Pulp Fiction) not apt for a family blog,
but very apt to describe what a Nobel Prize is, and most prizes indeed are. It is about
sucking
Nordhaus reinforces the conservatism of Sveriges Riksbank so he deserves the prize. I
wouldn't ever expect the prize being given to cutting edge studies that question the validity
of day-by-day assumptions embedded in institutions like S.R.
You are right that the Nobel Prize in Economics is not a Nobel Prize and it is awarded
by a bank. Plus, Milton Friedman won in 1976: that tells you a lot about why neoclassical
economists are mainly chosen.
In February 1995, following acrimony within the selection committee pertaining to the
awarding of the 1994 Prize in Economics to John Forbes Nash, the Prize in Economics was
redefined as a prize in social sciences. This made it available to researchers in such
topics as political science, psychology, and sociology.[29][30] Moreover, the composition
of the Economics Prize Committee changed to include two non-economists. This has not been
confirmed by the Economics Prize Committee. The members of the 2007 Economics Prize
Committee are still dominated by economists, as the secretary and four of the five members
are professors of economics.[31] In 1978, Herbert A. Simon, whose PhD was in political
science, became the first non-economist to win the prize,[citation needed] while Daniel
Kahneman, a professor of psychology and international relations at Princeton University is
the first non-economist by profession to win the prize.
It seems strange to me that non-economists would be awarded a prize for the economy. The
bank certainly knows who to select though!
Milton Friedman was monetarist who taught at the premier neoclassical school, the
University of Chicago. Karl Marx was the premier classical (political) economist. The
neoclassical school gradually came to deny land as a distinct factor of production, John
Bates Clark (whom there is an award named after) solidified the conflation of land and
capital.
This is why many of the neoclassical models are pseudoscience, unreflective of the
real world.
What? Not even a breath about the insane system called globalization, where raw
material from all over the world is shipped to China to be processed into finished goods in
the most polluting way possible, to have those goods then shipped and trucked to the Amazon
horrorhouses and Walmart stores to be bought and then thrown in the trash a few months
later.
Cognative dissonanace much? Lots of economic activity there, with nothing to show for it
except a growing heap of trash and Bezos and the Waltons getting richer by hundreds of
millions per day. What a phucking world.
Her premise, that neoliberal economics is past its sell-by date, is almost too little too
late. It was past its sell-by date by 1950 when it was just getting its second foul wind. We
are in this fix because it was so easy to get here. By using oil for energy. Nobody has used
the butterfly metaphor for oil fed climate change, but it describes the mess. Every
individual use of oil/natgas for our modern lifestyle puts a whole series of requirements for
the very maintenance of that lifestyle – which (like her comment that more work hours
propagate not just more emissions but more manufacturing and more consumption is a vicious
circle) expand exponentially. And what she says point blank, "the thing about a sufficiently
high carbon tax is that it is so disruptive of the market that it has to be accompanied by a
robust and comprehensive role for the state" is just pure poetic justice.
We believe this is due to two factors -- the very high carbon footprints of people at
the top and a political economy effect, in which the wealthy have outsized political impact
and are able to forestall effective climate responses.
I have my suspicions about general carbon footprints based on income levels. I suspect
that many less affluent people end up commuting more because of housing usually being more
costly in cities and immediately nearby cities. Think about it for a moment, are all the
affluent neighborhoods close or far from local centers of employment? In my view the
implication is that carbon footprint from driving around is a necessity for large part of
lower income population while car use comes out more as a luxury, a free choice, for more
affluent people – they have the financial means to find housing relatively close to the
work, while lower income people don't have this choice.
Extrapolating more, I would suspect that most of carbon footprint is at least partially a
necessity for lower income people, while the for higher income people the larger carbon
footprint represents free choice and conspicuous consumption – they do it because they
can .
There are really easy ways to decrease carbon footprint: Dense and functional cities to
enable anyone make the climate friendly choices of not driving car around. But there is
extreme opposition to these kind of dense affordable cities, even in my seemingly progressive
nordic home country. Most of all, housing is seen as a open market business instead of
personal right. This is important, as this prevents the EU countries of more forcible
interventions in to the housing markets but this whole situation is just insane right now as
most EU countries get loans at negative rates, they could easily build and rent out housing
at 'market' prices with really low margins and still at profit for the state. In my view
states should intervene forcibly to urban housing markets to push out new quality housing to
disrupt and drop the general market prices at the moment. Many people, and especially working
people, are staying out of larger cities because the general prices are too high for them.
State intervention would enable anyone to make the 'right' choices and then heavier carbon
taxes could be enacted and people would still have free choice to live where they want and
drive car if they want. But this isn't possible because the free market principles are
applied to housing markets by EU antitrust officials and this prevents state
interventions.
The most ridiculous part of this whole thing that ideology of free market capitalism and
how it's applied prevents this, it's more important to preserve the wealth and rights of
owners in the cities instead of doing the right things. Meanwhile neoliberals and european
ordoliberals are shouting with their heads red that debt is bad and demanding that all the
member countries must work hard to reduce their debt levels no matter what happens. These
people say they agree that climate change is real, but his acknowledgement is just cynical
gaslighting from them, as the only actions they will approve are debt reduction, tax
reduction and privatization of public goods. For them, the state is the problem, not the
solution.
Rich and affluent people have hijacked the whole economic discussion and most important is
ideology of protecting property rights and 'individual' freedoms, to the detriment of our
planet and all of us living on it.
Ultimately it's all about population growth, and in particular, government policies aimed
at maximizing population growth, and top-down pressure from the rich to censure any
discussion of this topic.
That's why they recently gave a Nobel Prize to some economists pushing 'solutions' to
poverty in places like India that have been demonstrated over and over not to work: because
the policy that does work is to limit fertility rates (example: China post-Mao), and the the
rich don't want that, because they love cheap labor.
The problem is compounded by the lousy reputation Economics has acquired among proponents of
an inclusive economy. Too often the discipline is viewed as the source of the policies that
have produced the excesses and fragilities of our time. Mainstream economics and neoliberalism
are viewed as one and the same.
We beg to differ:
Many of the dominant policy ideas of the last few decades are supported neither by sound
economics nor by good evidence. Neoliberalism – or market fundamentalism, market
fetishism, etc. -- is a perversion of mainstream economics, rather than an application
thereof. And contemporary economics research is rife with new ideas for creating a more
inclusive society. But it is up to us economists to convince their audience about the merits
of these claims.
As important as specific policy prescriptions in different domains of economics are, we also
have a bigger claim: our essays produce overarching themes that taken together provide a
coherent overall vision for economic policy that stands as a genuine alternative to market
fundamentalism. This is a vision that rejects the reliance on competitive equilibrium as a
realistic benchmark, understands that the world is always second-best, highlights the role of
power imbalances in shaping existing institutional arrangements, and emphasizes the need for
imagination in devising alternatives that are both more inclusive and more conducive to
prosperity. We strive for a whole that is greater than the sum of the parts.
We do not intend to duplicate the excellent work being done in policy think tanks in
Washington, D.C. and elsewhere. Many economists engage with these think tanks and their ideas
get airing through them. Our initiative is different in that it is a network of academic
economists. We are committed to policy proposals based on sound scholarship. But we also care
about what these policy ideas imply in turn for the way in which we should practice Economics
in the class room and in the seminar room. And we are less influenced by immediate political
constraints or opportunities of the policy scene in Washington, D.C.
We believe Economics can be an ally of inclusive prosperity. That is why we have embarked on
this project. The initial set of policy briefs on the EfIP website is our first step. We hope
they will stimulate and accelerate academic economists' sustained engagement with creative
ideas for inclusive prosperity and that we will be able to follow up soon with an even richer
set of policy discussions.
Political theorist Wendy Brown's latest book, In the Ruins of
Neoliberalism: The Rise of Antidemocratic Politics in the West , traces the intellectual
roots of neoliberalism and reveals how an anti-democratic project unleashed monsters –
from plutocrats to neo-fascists – that its mid-20 th century visionaries
failed to anticipate. She joins the Institute for New Economic Thinking to discuss how the
flawed blueprint for markets and the less-discussed focus on morality gave rise to threats to
democracy and society that are distinct from what has come before.
Lynn Parramore: To many people, neoliberalism is about economic agendas. But your book
explores what you describe as the moral aspect of the neoliberal project. Why is this
significant?
Wendy Brown: Most critical engagement with neoliberalism focuses on economic policy
– deregulation, privatization, regressive taxation, union busting and the extreme
inequality and instability these generate. However, there is another aspect to neoliberalism,
apparent both in its intellectual foundations and its actual roll-out, that mirrors these moves
in the sphere of traditional morality. All the early schools of neoliberalism (Chicago,
Austrian, Freiburg, Virginia) affirmed markets and the importance of states supporting without
intervening in them.
But they also all affirmed the importance of traditional morality (centered in the
patriarchal family and private property) and the importance of states supporting without
intervening in it. They all supported expanding its reach from the private into the civic
sphere and rolling back social justice previsions that conflict with it. Neoliberalism thus
aims to de-regulate the social sphere in a way that parallels the de-regulation of markets.
Concretely this means challenging, in the name of freedom, not only regulatory and
redistributive economic policy but policies aimed at gender, sexual and racial equality. It
means legitimating assertions of personal freedom against equality mandates (and when
corporations are identified as persons, they too are empowered to assert such freedom). Because
neoliberalism has everywhere carried this moral project in addition to its economic one, and
because it has everywhere opposed freedom to state imposed social justice or social protection
of the vulnerable, the meaning of liberalism has been fundamentally altered in the past four
decades.
That's how it is possible to be simultaneously libertarian, ethnonationalist and patriarchal
today: The right's contemporary attack on "social justice warriors" is straight out of
Hayek.
LP: You discuss economist and philosopher Friedrich von Hayek at length in your book.
How would you distribute responsibility to him compared to other champions of conservative
formulations for how neoliberalism has played out? What were his blind spots, which seem
evidenced today in the rise of right-wing forces and angry populations around the world?
WB: Margaret Thatcher thumped Hayek's The Constitution of
Liberty and declared it the bible of her project. She studied it, believed it, and
sought to realize it. Reagan imbibed a lot of Thatcherism. Both aimed to implement the Hayekian
view of markets, morals and undemocratic statism. Both accepted his demonization of society
(Thatcher famously quotes him, "there's no such thing") and his view that state policies aimed
at the good for society are already on the road to totalitarianism. Both affirmed traditional
morality in combination with deregulated markets and attacks on organized labor.
I am not arguing that Hayek is the dominant influence for all times and places of
neoliberalization over the past four decades -- obviously the Chicago Boys [Chilean economists of the '70s
and '80s trained at the University of Chicago] were key in Latin America while Ordoliberalism [a German
approach to liberalism] has been a major influence in the European Union's management of the
post-2008 crises. "Progressive neoliberals" and neoliberalized institutions hauled the project
in their own direction. But Hayek's influence is critical to governing rationality of
neoliberalism in the North and he also happens to be a rich and complex thinker with a fairly
comprehensive worldview, one comprising law, family, morality, state, economy, liberty,
equality, democracy and more.
The limitations? Hayek really believed that markets and traditional morality were both
spontaneous orders of action and cooperation, while political life would always overreach and
thus required tight constraints to prevent its interventions in morality or markets. It also
needed to be insulated from instrumentalism by concentrated economic interests, from aspiring
plutocrats to the masses. The solution, for him, was de-democratizing the state itself. He was,
more generally, opposed to robust democracy and indeed to a democratic state. A thriving order
in his understanding would feature substantial hierarchy and inequality, and it could tolerate
authoritarian uses of political power if they respected liberalism, free markets and
individual freedom.
We face an ugly, bowdlerized version of this today on the right. It is not exactly what
Hayek had in mind, and he would have loathed the plutocrats, demagogues and neo-fascist masses,
but his fingerprints are on it.
LP: You argue that there is now arising something distinct from past forms of fascism,
authoritarianism, plutocracy, and conservatism. We see things like images of Italian right groups giving Fascist
salutes that have been widely published. Is that merely atavism? What is different?
WB: Of course, the hard right traffics in prior fascist and ultra-racist iconography,
including Nazism and the Klan. However, the distinctiveness of the present is better read from
the quotidian right than the alt-right.
We need to understand why reaction to the neoliberal economic sinking of the middle and
working class has taken such a profoundly anti-democratic form. Why so much rage against
democracy and in favor of authoritarian statism while continuing to demand individual freedom?
What is the unique blend of ethno-nationalism and libertarianism afoot today? Why the
resentment of social welfare policy but not the plutocrats? Why the uproar over [American
football player and political activist] Colin Kaepernick but not the Panama Papers [a massive
document leak pointing to fraud and tax evasion among the wealthy]? Why don't bankrupt workers
want national healthcare or controls on the pharmaceutical industry? Why are those sickened
from industrial effluent in their water and soil supporting a regime that wants to roll back
environmental and health regulations?
Answers to these questions are mostly found within the frame of neoliberal reason, though
they also pertain to racialized rancor (fanned by opportunistic demagogues and our mess of an
unaccountable media), the dethronement of white masculinity from absolute rather than relative
entitlement, and an intensification of nihilism itself amplified by neoliberal
economization.
These contributing factors do not run along separate tracks. Rather, neoliberalism's aim to
displace democracy with markets, morals and liberal authoritarian statism legitimates a white
masculinist backlash against equality and inclusion mandates. Privatization of the nation
legitimates "nativist" exclusions. Individual freedom in a world of winners and losers assaults
the place of equality, access and inclusion in understandings of justice.
LP: Despite your view of democratized capitalism as an "oxymoron," you also observe that
capitalism can be modulated in order to promote equality among citizens. How is this feasible
given the influence of money in politics? What can we do to mitigate the corruption of
wealth?
WB: Citizens United certainly set
back the project of achieving the political equality required by and for democracy. I
wrote about this in a previous book, Undoing the Demos , and Timothy
Kuhner offers a superb account of the significance of wealth in politics in Capitalism V. Democracy: Money in Politics
and the Free Market Constitution. Both of us argue that the Citizens
United decision, and the several important campaign finance and campaign speech decisions
that preceded it, are themselves the result of a neoliberalized jurisprudence. That is,
corporate dominance of elections becomes possible when political life as a whole is cast as a
marketplace rather than a distinctive sphere in which humans attempt to set the values and
possibilities of common life. Identifying elections as political marketplaces is at the heart
of Citizens United.
So does a future for democracy in the United States depend on overturning that decision?
Hardly. Democracy is a practice, an ideal, an imaginary, a struggle, not an achieved state.
It is always incomplete, or better, always aspirational. There is plenty of that aspiration
afoot these days -- in social movements and in statehouses big and small. This doesn't make the
future of democracy rosy. It is challenged from a dozen directions – divestment
from public higher education, the trashing of truth and facticity, the unaccountability of
media platforms, both corporate and social, external influence and trolling, active voter
suppression and gerrymandering, and the neoliberal assault on the very value of democracy we've
been discussing. So the winds are hardly at democracy's back.
I think Milton Friedman was vastly more important than Hayek is shaping the worldview of
American conservatives on economic policy. Until Hayek won the Nobel he was virtually
forgotten in the US. Don't know about the UK, but his leaving the London School of Economics
undoubtedly reduced his influence there. Hayek was very isolated at the University of Chicago
even from the libertarians at the Department of Economics, largely due to methodological
issues. The Chicago economists thought was really more of as philosopher, not a real
economist like them.
Friedman was working for Hayek, in the sense that Hayek instigated the program that
Friedman fronted.
I was amused by a BBC radio piece a couple of years ago in which some City economist was
trying to convince us that Hayek was a forgotten genius who we ought to dig up and worship,
as if he doesn't already rule the World from his seat at God's right hand.
Citizens United: The conservative originalists keep whining about activist judges making
up rights, like the "right to privacy" in Roe v. Wade. Yet they were able to come up with
Citizens United that gave a whole new class of rights to corporations to effectively give
them the rights of individuals (the People that show up regularly in the Constitution,
including the opening phrase). If you search the Constitution, "company", "corporation" etc.
don't even show up as included in the Constitution. "Commerce" shows up a couple of times,
specifically as something regulated by Congress. Citizens United effectively flips the script
of the Constitution in giving the companies doing Commerce the ability to regulate Congress.
I think Citizen's United is the least conservative ruling that the conservative court could
have come up with, bordering on fascism instead of the principles clearly enunciated
throughout the Constitution. It is likely to be the "Dred Scott" decision of the 21st
century.
2. Neo-liberalism is like Marxism and a bunch of other isms, where the principles look
fine on paper until you apply them to real-world people and societies. This is the difference
between Thaler's "econs" vs "humans". It works in theory, but not in practice because people
are not purely rational and the behavioral aspects of the people and societies throw things
out of kilter very quickly. That is a primary purpose of regulation, to be a rational
fly-wheel keeping things from spinning out of control to the right or left. Marxism quickly
turned into Stalinism in Russia while Friedman quickly turned into massive inequality and
Donald Trump in the US. The word "regulate" shows up more frequently in the Constitution than
"commerce", or "freedom" (only shows up in First Amendment), or "liberty" (deprivation of
liberty has to follow due process of law which is a form of regulation). So the Constitution
never conceived of a self-regulating society in the way Hayek and Friedman think things
should naturally work – writing court rulings on the neo-liberal approach is a radical
activist departure from the Constitution.
The foundation was laid for Citizens United long before, I think, when the Supreme
Court decided that corporations were essentially people, and that money was essentially
speech. It would be nice if some justice started hacking away at those erroneous decisions
(along with what they did with the 2nd Amendment in D.C. v Heller .)
I honestly think the corporations are people was good and the money is speech is terrible.
If most of the big corporations were actually treated like people those people would be in
jail. They are treated better than people are now. Poor people, anyway. When your corporation
is too big not to commit crimes, it's too big and should go in time out at least.
My understanding is that corporate personhood arose as a convenience to allow a
corporation to be named as a single entity in legal actions, rather than having to name every
last stockholder, officer, employee etc. Unfortunately the concept was gradually expanded far
past its usefulness for the rest of us.
"If most of the big corporations were actually treated like people those people would be
in jail."
Thats part of the problem: Corporations CANNOT be put in jail because they are
organizations, not people, but they are given the same 'rights' as people. That is
fundamentally part of the problem.
True, but corporations are directed by people who *can* be jailed. Often they are
compensated as if they were taking full liability when in fact they face none. I think its
long past time to revisit the concept of limited liability.
"Limited Liability" is basic to the concept of the corporation. How about some "limited
liability" for individuals? The whole point of neo-liberalism is "lawlessness" or the "Law of
the Jungle" in unfettered markets. The idea is to rationalize raw power, both over society
and the family, the last stand of male dominance, the patriarchy. The women who succeed in
this eco-system, eschew the nurturing feminine and espouse the predatory masculine. "We came,
we saw, he died." Psychopaths all!
The executives need to go to jail. Until then, corporate fines are just a cost of doing
business and white collar lawbreaking will continue. Blowing up the world's financial system
has less legal consequence than doing 80 in a 65 mph zone. Even if they just did civil asset
forfeiture on executives based on them having likely committed a crime while in their house
and using their money would go along ways to cleaning things up.
The whittling away of white collar crime by need to demonstrate intent beyond reasonable
doubt means the executives can just plead incompetence or inattention (while collecting their
$20 million after acquittal). Meanwhile, a poor person with a baggie of marijuana in the
trunk of their car goes to jail for "possession" where intent does not need to be shown, mere
presence of the substance. If they used the same standard of the mere presence of a fraud to
be sufficient to jail white collar criminals, there wouldn't be room in the prisons for poor
people picked up for little baggies of weed.
Actually, if you research the history, the court DID NOT decide that corporations are
people. The decision was made by the secretary to the court, who included the ruling in the
headnote to Santa Clara County v. Southern Pacific Railroad, 1886. The concept was not
considered in the case itself nor in the ruling the judges made. However, it was so
convenient for making money that judges and even at least one justice on the supreme court
publicized the ruling as if it were an actual legal precedent and have followed it ever
since. I am not a lawyer, but I think that ruling could be changed by a statute, whereas
Citizens United is going to require an amendment to the constitution. On the other hand, who
knows? Maybe the five old, rich, Republican, Catholic Men will rule that it is embedded in
the constitution after all. I think it would be worth a try.
"Neo-liberalism is like Marxism and a bunch of other isms, where the principles look fine
on paper until you apply them to real-world people and societies."
Marx analysed 19th Century capitalism; he wrote very little on what type of system should
succeed capitalism. This is in distinct contrast to neo-liberalism which had a well plotted
path to follow (Mirowski covers this very well). Marxism did not turn into Stalinism; Tsarism
turned into Leninism which turned into Stalinism. Marx had an awful lot less to do with it
than Tsar Nicholas II.
+1000. I think it was Tsar Nicholas II who said, L'etat, c'est moi"./s; Lenin just
appropriated this concept to implement his idea of "the dictatorship of the proletariat."
"Neo-liberalism is like Marxism and a bunch of other isms, where the principles look fine
on paper until you apply them to real-world people and societies."
I'm sorry, but this is fundamentally intellectually lazy. Marxism isn't so much a way to
structure the world, like Neoliberalism is, but a method of understanding Capitalism and
class relations to capitalism.
Edit: I wrote this before I saw New Wafer Army's post since I hadnt refreshed the page
since I opened it. They said pretty much what I wanted to say, so kudos to them.
These critiques of neoliberalism are always welcome, but they inevitably leave me with
irritated and dissatisfied with their failure or unwillingness to mention the political
philosophy of republicanism as an alternative, or even a contrast.
The key is found in Brown's statement " It also needed to be insulated from
instrumentalism by concentrated economic interests, from aspiring plutocrats to the masses.
The solution, for him [von Hayek], was de-democratizing the state itself. He was, more
generally, opposed to robust democracy and indeed to a democratic state."
Contrast this to Federalist Paper No. 10, Madison's famous discourse on factions.
Madison writes that 1) factions always arise from economic interests ["But the most common
and durable source of factions has been the various and unequal distribution of property."],
and 2) therefore the most important function of government is to REGULATE the clash of these
factions ["The regulation of these various and interfering interests forms the principal task
of modern legislation, and involves the spirit of party and faction in the necessary and
ordinary operations of the government."
In a very real sense, neoliberalism is an assault on the founding principles of the
American republic.
Which should not really surprise anyone, since von Hayek was trained as a functionary of
the Austro-Hungarian empire. And who was the first secretary of the Mont Pelerin Society that
von Hayen founded to promote neoliberalist doctrine and propaganda? Non other than Max Thurn,
of the reactionary Bavarian Thurn und Taxis royal family.
Madison's Federalist 10 is much like Aristotle's Politics and the better Roman historians
in correctly tracing back the fundamental tensions in any political community to questions of
property and class.
And, much like Aristotle's "mixed regime," Madison proposes that the best way of
overcoming these tensions is to institutionalize organs of government broadly representative
of the two basic contesting political classes–democratic and oligarchic–and let
them hash things out in a way that both are forced to deal with the other. This is a
simplification but not a terribly inaccurate one.
The problem though so far as I can tell is that it almost always happens that the
arrangement is set up in a way that structurally privileges existing property rights
(oligarchy) over social freedoms (democracy) such that the oligarchic class quickly comes to
dominate even those governmental organs designed to be "democratic". In other words, I have
never seen a theorized republic that upon closer inspection was not an oligarchy in
practice.
1) Support welfare for the banks (e.g. deposit guarantees) and the rich (e.g. non-negative
yields and interest on the inherently risk-free debt of monetary sovereigns).
2) Seek to regulate the thievery inherent in 1).
3) Bemoan the inevitable rat-race to the bottom when 2) inevitably fails because of
unenforceable laws, such as bans on insider trading, red-lining, etc.
Shorter: Progressives ENABLE the injustice they profess, no doubt sincerely at least in
some cases, to oppose.
Rather stupid from an engineering perspective, I'd say. Or more kindly, blind.
I'm fine with the federal government providing basic banking services (which would
inherently protect depositors) but your initial post didn't say anything about that. If we
continue with a private banking system I want deposit guarantees even if they somehow
privilege the banks better than nothing
I have read that originally conservatives (including many bankers) opposed deposit
insurance because it would lead people to be less careful when they evaluated the banking
institution they would entrust with their money. They did not seem to notice that however
much diligence depositors used, they ended up losing their life's savings over and over. Just
as they do not seem to notice that despite having employer-provided insurance tens of
thousands of people every year go bankrupt because of medical bills. Funny how that
works.
Adding that rather than deposit guarantees, the US government could have expanded the
Postal Savings Service to provide the population with what private banks had so miserably
failed to provide – the safe storage of their fiat.
The banking system was failing in 1932, as was the financial system in 2008, not
necessarily because of any lack of solvency of an individual business although some were, but
because of the lack of faith in the whole system; bank panics meant that every depositor was
trying to get their money out at the same time. People lost everything. It is only the faith
in the system that enables the use of bits of paper and plastic to work. So having a
guarantee in big, bold letters of people's savings is a good idea.
Personally, I see little distance between the Neo Liberal treatment of Market and Naked
Greed, coupled with a complete rejection of Rule of Law for the Common Good.
" It means legitimating assertions of personal freedom against equality mandates (and when
corporations are identified as persons, they too are empowered to assert such freedom)."
"We need to understand why reaction to the neoliberal economic sinking of the middle and
working class has taken such a profoundly anti-democratic form." Really? Does anybody here
believe that? This reads like another clumsy attempt to dismiss actual popular anger against
neoliberalism in favour of pearl-clutching progressive angst, by associating this anger with
the latest target for liberal hate, in this case blah blah patriarchy blah blah. The reality
is that liberalism has always been about promoting the freedom of the rich and the strong to
do whatever they feel like, whilst keeping the ordinary people divided and under control.
That's why Liberals have always hated socialists, who think of the good of the community
rather than of the "freedom" of the rich, powerful and well connected.
The "democracy" that is being defended here is traditional elite liberal democracy, full of
abstract "rights" that only the powerful can exert, dominated by elite political parties with
little to choose between them, and indifferent or hostile to actual freedoms that ordinary
people want in their daily lives. Neoliberalism is simply a label for its economic views
(that haven't changed much over the centuries) whereas social justice is the label for its
social wing (ditto).
I think of this every time I wall home through the local high street, where within thirty
metres I pass two elderly eastern European men aggressively begging. (It varies in France,
but this is slightly closer than the average for a city). I reflect that twenty years of
neoliberal policies in France have given these people freedom of movement, and the freedom to
sit there in the rain with no home, no job and no prospects. Oh, and now of course they are
free to marry each other.
I agree with your analysis and assessment of Wendy Brown, as she is portrayed in her
statements in this post. However I quibble your assertion: "Neoliberalism is simply a label
for its economic views (that haven't changed much over the centuries) whereas social justice
is the label for its social wing (ditto)." The word "Neoliberalism" is indeed commonly used
as a label as you assert but Neoliberalism as a philosophy is obscured in that common
usage.
At its heart I believe Neoliberalism might best be characterized as an epistemology based
on the Market operating as the all knowing arbiter of Truth. Hayek exercises notions of
'freedom' in his writing but I believe freedom is a secondary concern once it is defined in
terms of its relation to the decisions of the Market. This notion of the Market as
epistemology is completely absent from Wendy Brown's discussion of her work in this post.
Her assertion that "neoliberalism's aim [is] to displace democracy with markets, morals
and liberal authoritarian statism legitimates a white masculinist backlash against equality
and inclusion mandates" collapses once the Market is introduced as epistemology.
Neoliberalism does not care one way or another about any of Wendy Brown's concerns. Once the
Market decides -- Truth is known. As a political theorist I am surprised there is no analysis
of Neoliberalism as a tool the Elite have used to work their will on society. I am surprised
there is no analysis of how the Elites have allowed themselves to be controlled within and
even displaced by the Corporate Entities they created and empowered using their tool. I am
surprised there is no analysis of the way the Corporate Entities and their Elite have worked
to use Neoliberalism to subordinate nation states under a hierarchy driven by the decisions
of the World Market.
[I admit I lack the stomach to read Hayek -- so I am basing my opinions on what I
understand of Phillip Mirowski's analysis of Neoliberalism.]
I don't disagree with you: I suppose that having been involved in practical politics
rather than being a political theorist (which I have no pretensions to being) I am more
interested of the reality of some of these ideas than their theoretical underpinnings. I have
managed to slog my way through Slobodian's book, and I think your presentation of Hayek's
writing is quite fair: I simply wonder how far it is actually at the origin of the
destruction we see around us. I would suggest in fact that, once you have a political
philosophy based on the value-maximising individual, rather than traditional considerations
of the good of society as a whole, you eventually wind up where we are now, once the
constraints of religious belief, fear of popular uprisings , fear of Communism etc. have been
progressively removed. It's for that reason that I argue that neoliberalism isn't really new:
it represents the essential form of liberalism unconstrained by outside forces – almost
a teleological phenomenon which, as its first critics feared, has wound up destroying
community, family, industries, social bonds and even – as you suggest – entire
nation states.
Your response to my comment, in particular your assertion "neoliberalism isn't really new"
coupled with your assertion apparently equating Neoliberalism with just another general
purpose label for a "political philosophy based on the value-maximizing individual, rather
than traditional ", is troubling. When I put your assertions with Jerry B's assertion at 6:58
pm:
" many people over focus on a word or the use of a word and ascribe way to literal view of a
word. I tend to view words more symbolically and contextually."
I am left wondering what is left to debate or discuss. If Neoliberalism has no particular
meaning then perhaps we should discuss the properties of political philosophies based on the
value-maximizing-individual, and even that construct only has meaning symbolically and
contextually, which is somehow different than the usual notion of meaning as a denotation
coupled with a connotation which is shared by those using a term in their discussion -- and
there I become lost from the discussion. I suppose I am too pedantic to deviate from the
common usages of words, especially technical words like Neoliberalism.
Considering how elites throughout history have used religion as a bulwark to guard their
privileges, it should be of no surprise that they are building a new one, only this time they
are building one that appeals to the religious and secular alike. Neoliberalism will be very
difficult to dismantle.
But what ironies we create. Citizens United effectively gave political control to the big
corporations. In a time when society has already evolved lots of legislation to limit the
power and control of any group and especially in commercial/monopoly cases. So that what CU
created was a new kind of "means of production" because what gets "produced" these days is at
least 75% imported. The means of production is coming to indicate the means of political
control. And that is fitting because ordinary people have become the commodity. Like
livestock. So in that sense Marx's view of power relationships is accurate although
civilization has morphed. Politics is, more and more, the means of production. The means of
finance. Just another reason why we would achieve nothing in this world trying to take over
the factories. What society must have now is fiscal control. It will be the new means of
production. I'm a dummy. I knew fiscal control was the most important thing, but I didn't
quite see the twists and turns that keep the fundamental idea right where it started.
Exactly. The writer seems determined to tie in neoliberalism with a broader conservative
opposition to modern social justice movements, when in reality neoliberalism (the 'neo' part
anyway) was more than happy to co-opt feminism, anti-racism, etc., into its narrative. The
more the merrier, as 'rights' became associated entirely with social issues, and not economic
rights.
The co-optation neoliberalism has exacted on rights movements has dovetailed nicely with
postmodernism's social-constructivism, an anti-materialist stance that posits discourse as
shaping the world and one that therefore privileges subjectivity over material reality.
What this means in practice is that "identity" is now a marketplace too, in which
individuals are naming their identities as a form of personal corporate branding. That's why
we have people labeling themselves like this: demisexual queer femme, on the spectrum, saying
hell no to my tradcath roots, into light BDSM, pronouns they/them.
And to prove this identity, the person must purchase various consumer products to garb and
decorate themselves accordingly.
So the idea of civil rights has now become utterly consumerist and about awarding those
rights based on subjective feelings rather than anything to do with actual material
exploitation.
The clue is in the way the words "oppression" and "privilege" are used. Under those words,
exploitation, discrimination, disadvantage, and simple dislike are conflated, though they're
very different and involve very different remedies.
The law in its majestic equality forbids the rich as well as the poor from sleeping under
bridges and stealing bread = classical Liberalism.
The bizarre thing is to meet younger neoliberal middle class people whom neoliberalism has
priced out of major cities, who have hardly any real savings, and who still are on board with
the project. The dream dies hard.
David – I enjoy reading your comments on NC as they are well reasoned and develop an
argument or counter argument. The above comment reads more like a rant. I do not disagree
with most of your comment. From my experience with Wendy Brown's writing your statement below
is not off base.:
This reads like another clumsy attempt to dismiss actual popular anger against
neoliberalism in favour of pearl-clutching progressive angst, by associating this anger with
the latest target for liberal hate, in this case blah blah patriarchy blah blah
However, in reading Wendy Brown's comments I did not have the same emotional reaction that
comes across in your comment. I have read the post twice to make sure I understand the points
Wendy Brown is trying to make and IMO she is "not wrong" either. . I would advise you to not
"throw out the baby with the bathwater".
As KLG mentions below, WB is a very successful academic at Berkeley who worked with
Sheldon Wolin as a graduate student IIRC (Sheldon Wolin wrote a terrific book entitled
Democracy Incorporated), so she is not just some random journalist.
Much of WB's writing has gender themes in it and there are times I think she goes over the
top, BUT, IMO there is also some truth to what she is saying. Much of the political power and
economic power in the US and the world is held by men so that may be where WB's reference to
patriarchy comes in.
How could there be patriarchy with men begging in the streets is a valid point. And that
is where I divert with WB, in that the term patriarchy paints with too broad a brush. But
speaking specifically to neo-liberalism and not liberalism as you refer to it, that is where
WB's reference to patriarchy may have some merit. Yes, there are many exceptions to the
neoliberalism and patriarchy connection such as Hillary Clinton, Margaret Thatcher, etc., so
again maybe painting with too broad a brush, but it would be wise not to give some value.
The sociologist Raewyn Connell has written about the connection between neoliberalism and
version of a certain type of masculinity embedded with neoliberalism. Like Wendy Brown,
Connell seems to gloss over the examples of Hillary Clinton, Margaret Thatcher, and the class
based elite bourgeois feminism as counterpoints to neoliberal patriarchy. There are
exceptions to every rule.
Women have made enormous strides in politics and the boardroom. But in the halls of political
and economic power the majority of the power is still held by men, and until women become
close to 50% or more of the seats of power, to ignore the influence of patriarchy/oligarch
version of masculinity(or whatever term a person is comfortable with) on neoliberalism would
be foolish.
Neoliberalism is simply a label for its economic views (that haven't changed much over
the centuries) whereas social justice is the label for its social wing (ditto).
I disagree. IMO, neoliberalism is a different animal than the "traditional elite liberal
democracy", and neoliberalism is much darker and as WB mentions "Neoliberalism thus aims to
de-regulate the social sphere in a way that parallels the de-regulation of markets".
If you have not I would highly recommend reading Sheldon Wolin's Democracy Incorporated:
Managed Democracy and the Specter of Inverted Totalitarianism It is an excellent book.
I haven't read that book by Wolin, though his Politics and Vision is in the bookcase next
to me. I'll try to get hold of it. I didn't know she was his student either.
I think the issues she raises about gender are a different question from neoliberalism
itself, and that it's not helpful to believe that you can fight neoliberalism by
"legitimating assertions of personal freedom against equality mandates" whatever that means.
Likewise, it's misleading to suggest that "Privatization of the nation legitimates "nativist"
exclusions", since the actual result is the opposite, as you will realise when you see that
London buses have the same logo as the ones in Paris, and electricity in the UK is often
supplied by a French company, EDF. Indeed, to the extent that there is a connection with
"nativism" it is that privatisation has enabled an international network of distant and
unaccountable private companies to take away management of national resources and assets from
the people. Likewise, neoliberalism is entirely happy to trample over traditional gender
roles in the name of efficiency and increasing the number of workers chasing the same
job.
In other words, I was irritated (and sorry if I ranted a bit, I try not to) with what I saw
as someone who already knows what the answer is, independent of what the question may be. I
suspect her analysis of, say, Brexit, would be very similar. I think that kind of person is
potentially dangerous.
==I think the issues she raises about gender are a different question from neoliberalism
itself==
Again as I said in my comment I would agree in a theoretical sense that gender and
neoliberalism are different issues but again I believe there is a thread of gender, i.e.
oligarchic patriarchy, of the type of neoliberalism that WB talks about.
===not helpful to believe that you can fight neoliberalism by "legitimating assertions of
personal freedom against equality mandates" whatever that means===
What I think that means is the more libertarian version of neoliberalism. That maybe where
our differences lie, in that my sense is WB is talking about a specific form of neoliberalism
and your view is broader.
===it's misleading to suggest that "Privatization of the nation legitimates "nativist"
exclusions"===
On this I see your disagreement with WB and understand your reference to "that
privatisation has enabled an international network of distant and unaccountable private
companies to take away management of national resources and assets from the people".
Where I think WB is coming from is the more nationalistic, Anglosphere that the Trump
administration is pushing with his border wall, etc. In this WB does expose her far left
priors but again there is some value in her points. From her far left view my sense it Wendy
Brown is reacting to the sense that Trump wants to turn the US into the US of the 1950's and
60's and on many fronts that ship has sailed.
=== Indeed, to the extent that there is a connection with "nativism" it is that
privatisation has enabled an international network of distant and unaccountable private
companies to take away management of national resources and assets from the people. Likewise,
neoliberalism is entirely happy to trample over traditional gender roles in the name of
efficiency and increasing the number of workers chasing the same job. ===
Excellent point and having read some of Wendy Brown's books and paper is a point she would
agree with while still seeing some patriarchial themes running through neoliberalism. To your
point above I would recommend reading some of Cynthia Enloe's work specifically Bananas,
Beaches and Bases.
====I think that kind of person is potentially dangerous====
Wow. Dangerous??? Clearly the post has hit a nerve. Many people in our current society are
dangerous but IMO Wendy Brown is not one of them. A bit hyperbolic in her focus on gender?
Maybe but not wrong. A bit too far left (of the bleeding heart kind)? Maybe. But to call
someone who worked for Sheldon Wolin dangerous. C'mon man.
I have gotten into disputes on NC as IMO many people over focus on a word or the use of a
word and ascribe way to literal view of a word. I tend to view words more symbolically and
contextually. I do not overreact to the use a word and instead try to step back and glean a
message or the word in context of what is the person trying to say? So for instance when WB
uses the phrase "Privatization of the nation" I am not going to react because my own
interpretation is WB is reacting to Trump's nationalism and not to the type of privatization
that your example of London shows.
I am disappointed that most of the comments to this post seem to take a critical view of
Wendy Brown's comments. Is she a bit too far left and gender focused (identity political) for
my tastes? Yes and that somewhat hurts her overall message and the arguments she is trying to
discuss which are not unlike her mentor Sheldon Wolin.
Thanks for the reply David. My sense is we have what I call a "positional" debate (i.e.
Tastes Great! Less Filling!). And positional debates tend to go nowhere.
When WB speaks of gender, note that she then mentions sex, followed by race. By "gender"
she is NOT talking about the rights and power of female people under neoliberalism.
She is speaking of the rights of people to claim, that they are the opposite sex and
therefore entitled to the rights, set-asides and affirmative discrimination permitted that
sex -- for instance, to compete athletically on that sex's sports teams, to be imprisoned if
convicted in that sex's prisons, to be considered that sex in instances where sex matters in
employment such as a job as a rape counselor or a health care position performing intimate
exams where one is entitled to request a same-sex provider, and to apply for scholarships,
awards, business loans etc. set aside for that sex.
WB, in addition to being a professor at Berkeley, is also the partner of Judith Butler,
whose book "Gender Trouble" essentially launched the postmodern idea that subjective sense of
one's sex and how one enacts that is more meaningful than the lived reality people experience
in biologically sexed bodies.
By this reasoning, a male weightlifter can become a woman, can declare that he's in fact
always been a woman -- and so we arrive at the farce of a male weightlifter (who, granted,
must under IOC policy reduce his testosterone for one year to a low-normal male range that is
5 standard deviations away from the female mean) winning a gold medal in women's
weightlifting in the Pan-Pacific games and likely to win gold again in the 2020 Olympics.
If that's not privileging individual freedom over collective rights, I don't know what
is.
>That's how it is possible to be simultaneously libertarian, ethnonationalist and
patriarchal today: The right's contemporary attack on "social justice warriors" is straight
out of Hayek.
Anyone who could write such a statement understands neither libertarianism nor
ethnonationalism. The last half-decade has seen a constant intellectual attack by
ethnonationalists against libertarianism. An hour's examination of the now-defunct Alt
Right's would confirm this.
Similarly, the contemporary attack on SJW's comes not out of Hayek, but from Gamergate. If
you do not know what Gamergate is, you do not understand where the current rightwing and
not-so-rightwing thrust of contemporary white identity politics is coming from. My guess is
Brown has never heard of it.
Far from trying to uphold patriarchy, Contemporary neoliberalism seeks a total atomization
of society into nothing but individual consumers of product. Thus what passes for
liberalization of a society today consists in little more than staging sham elections,
opening McDonalds, and holding a gay pride parade.
This is why ethnonationalism and even simple nationalism poses a mortal threat to
neoliberalism, in a way that so-called progressives never will: both are a threat to
globalization, while the rainbow left has shown itself to be little more than the useful
idiots of capital.
Brown strikes me as someone who has a worldview and will distort the world to fit that
view, no matter how this jibes with facts or logic. The point is simply to array her bugbears
into a coalition, regardless of how ridiculous it seems to anyone who knows anything about
it.
Actually, maybe not "Bingo," if by that you mean Wendy Brown is a typical representative
of "pearl clutching progressive angst." Yes, WB is a very successful academic at Berkeley who
worked with Sheldon Wolin as a graduate student IIRC (who was atypical in just about every
important way), but this book along with its predecessor Undoing the Demos are much
stronger than the normative "why are the natives so restless?" bullshit coming from my
erstwhile tribe of "liberals," most of whom are incapacitated by a not unrelated case of
Trump Derangement Syndrome.
Hayek was eloquent. Too bad he didn't establish some end goals. Think of all the misery
that would have been avoided. I mean, how can you rationalize some economic ideology to
"deregulate the social sphere" – that's just the snake eating its tail. That's what
people do who don't have boundaries. Right now it looks like there's a strange bedfellowship,
a threesome of neoliberal nazis, globalists, and old communists. Everybody and their dog
wants the world to work – for everyone. But nobody knows how to do it. And we are
experiencing multiple degrees of freedom to express our own personal version of Stockholm
syndrome. Because identity politics. What a joke. Maybe we need to come together over
something rational. Something fairly real. Instead of overturning Citizens United (which is
absurd already), we should do Creatures United – rights for actual living things on
this planet. And then we'd have a cause for the duration.
Well stated. The -isms seem like distractions, almost red herrings leading us down the
primrose path to a ceaseless is/ought problem. Rather than discuss the way the world is, we
argue how it ought to be.
Not to say theory, study, and introspection aren't important. More that we appear
paralyzed into inaction since everyone doesn't agree on the One True Way yet.
Let us not get to simplistic here. It helps to understand the origins of political,
economic, and even social ideals. The origin of modern capitalism, for there were
different and more limited earlier forms, was in the Dutch Republic and was part of the
efforts of removing and replacing feudalism; liberalism arose from the Enlightenment, which
itself was partly the creation of the Wars of Religion, which devastated Europe. The Thirty
Years War, which killed ½ of the male population of the Germanies, and is considered
more devastating to the Germans than both world wars combined had much of its energy from
religious disagreements.
The Age of Enlightenment, along with much of political thought in the Eighteenth Century,
was a attempt to allow differences in belief, and the often violent passions that they can
cause, to be fought by words instead of murder. The American Constitution, the Bill of
Rights, the whole political worldview, that most Americans unconsciously have, comes from
from those those times.
Democracy, Liberalism, even Adam Smith's work in the Wealth of Nations were
attempts to escape the dictatorship of kings, feudalism, serfdom, violence. Unfortunately,
they have all been usurped. Adam Smith's life's work has been perverted, liberalism has been
used to weaken the social bonds by making work and money central to society. Their evil child
Neoliberalism, a creation of people like Hayek, was supposed to reduce wars (most of the
founders were survivors of the world wars) and was supposed to be be partly
antidemocratic.
Modern Neoliberalism mutates and combines the partly inadvertent atomizing effects of the
ideas of the Enlightenment, Liberalism, Dutch and British Capitalism, the Free Markets of
Adam Smith, adds earlier mid twentieth century Neoliberalism as a fuel additive, and creates
this twisted flaming Napalm of social atomizing; it also clears out any challenges to money
is the worth of all things. Forget philosophy, religion, family, government, society. Money
determines worth. Even speech is only worth the money spent on it and not any inherent worth.
Or the vote.
"liberalism has been used to weaken the social bonds by making work and money central to
society"
I think you may have swapped the cart and the horse.
Money evolved as a way of aiding and organizing useful interactions within groups larger
than isolated villages of a hundred people.
It also enabled an overall increase in wealth through specialization.
Were it not for money, there would be a difficult mismatch between goods of vastly
differing value. A farmer growing wheat and carrots has an almost completely divisible supply
of goods with which to trade. Someone building a farm wagon a month, or making an iron plough
every two weeks has a problem exchanging that for items orders of magnitude less
valuable.
Specialization is a vital step in improving resources and capabilities within societies.
I've hung out with enough friends who are blacksmiths to know that every farmer hammering out
their own plough is a non-starter, for many reasons.
And I've followed enough history to know that iron ploughs mean a lot more food, which
allows someone to specialize in making ploughs rather than growing food for personal
consumption.
The obvious need is for a way of dividing the value of the plough into many smaller
amounts that can be used to obtain grain, cloth, pottery, and so on.
While the exact form of money is not rigidly fixed, at lower technological levels one
really needs something that is portable, doesn't spontaneously self destruct, and has a
clearly definable value . and exists in different concentrations of worth, to allow
flexibility in transport and use.
Various societies have come up with various tokens of value, from agricultural products to
bank drafts, each with different advantages and disadvantages, but for most of history,
precious metals, base metals, and coinage have been the most practical representation of
exchangeable value.
Money is almost certainly an inevitable and necessary consequence of the invention of
agriculture, and the corresponding increase in population density.
Agreed, but as I've suggested elsewhere liberalism always had the capacity within it to
destroy social bonds, societies and even nations, it's just that, at the time, this was
hidden behind the belief that a just God would not allow it to happen. I see liberalism less
as mutating or being usurped than finally being freed of controls. Paradoxically, of course,
this "freedom" requires servitude for others, so that no outside forces (trades unions for
example) can pollute the purity of the market. It's the same thing with social justice:
freedom for identity group comes through legal controls over the behaviour of others, which
is why the contemporary definition of a civil rights activist is someone who wants to
introduce lots of new laws to prevent people from doing things.
frankly, I don't believe the "monsters" neoliberalism has helped create are an unwanted
side effect of their approach, on the contrary, neoliberalism needs those "monsters", like
the authoritarian state, to impose itself on society (ask the mutilated gilets jaunes).
Repression, inequality, poverty, abuse, dispossession, disfranchisement, enviromental
degradation are certainly "monstrous" to those who have to endure them, but not to those who
profit the most from the system and sit on the most powerful positions. Of course, the degree
of exposure to those monstrosities is dependent on the relative position in the pyramid
shaped neoliberal society, the bottom has to endure the most. On the other side, the middle
classes tend to support the neoliberal model as long as it ensures them a power position
relative to the under classes, and the moment those middle classes feel ttheir position
relative to the under classes threatened, the switch to open fascism is not far, we can see
this in Bolivia.
"neoliberalism needs those "monsters", like the authoritarian state, to impose itself on
society"
If I understood Quinn Slobodian's "Globalists" correctly it was precisely this -- that the
neoliberal project while professing that markets were somehow "natural" spent an inordinate
amount of time working to ensure that legal structures be created to insulate them from the
dirty demos.
Their actions in this respect don't square with a serious belief that markets are natural
at all -- if they were, they wouldn't need so damned much hothousing, right?
I think the argument was that markets were "natural", but vulnerable to interference, and
so had to be protected by these legal structures. There's a metaphor there, but it's too late
here for me to find it.
===spent an inordinate amount of time working to ensure that legal structures be created
to insulate them from the dirty demos===
I enjoyed Slobodian's book as well. Interestingly, there is a new book out called The Code
of Capital: How the Law Creates Wealth and Inequality by Katharina Pistor that discusses
those "legal structures".
If you check out Katharina Pistor on Twitter, you can also find good commentaries and even
videos of talks discussing the book and the matter – it is very edifying to open your
eyes to the fundamental role of law in creating such natural phenomena as markets and, among
other things, billionaires.
Thanks deplorado. I do not frequent Pistor's twitter page as much as I would like.
In reading Pistor's book and some of the interviews with Pistor and some of her papers
discussing the themes in the book, I had the same reaction as when I read some of Susan
Strange's books such as The Retreat of the State: complete removal of any strand of
naïveté I may have had as to how the world works. And how hard it will be to undo
the destruction.
As you mention the "dirty demos" above, one of Wendy Brown's recent books was Undoing the
Demos: Neoliberalism's Stealth Revolution.
Never having read any of Susan Strange's writings, I decided to find a book review of The
Retreat of the State. I found this one and found it very interesting, enough so that I'll go
to abebooks.com and get a copy to read.
Hmm. Definitely Monsters from the Id at work here. I am going with the theory that the
wealthier class pushed this whole project all along. In the US, Roosevelt had cracked down
and imposed regulations that stopped, for example, the stock market from being turned into a
casino using ordinary people's saving. He also pushed taxes on them that exceeded 90% which
tended to help keep them defanged.
So lo and behold, after casting about, a bunch of isolated rat-bag economic radicals was
found that support getting rid of regulations, reducing taxes on the wealthy and anything
else that they wanted to do. So money was pumped into this project, think tanks were taken
over or built up, universities were taken over to teach this new theories, lawyers and future
judges were 'educated' to support their fight and that is what we have today.
If WW2 had not discredited fascism, the wealthy would have use this instead as both Mussolini
and Hitler were very friendly to the wealthy industrialists. But they were so instead they
turned to neoliberalism instead. Yes, definitely Monsters from the Id.
William White (BIS, OECD) talks about how economics really changed over one hundred years
ago as classical economics was replaced by neoclassical economics. https://www.youtube.com/watch?v=g6iXBQ33pBo&t=2485s
He thinks we have been on the wrong path for one hundred years.
This is why we think small state, unregulated capitalism is something it never was when it
existed before.
We don't understand the monetary system or how banks work because:
Our knowledge of privately created money has been going backwards since 1856.
Credit creation theory -> fractional reserve theory -> financial intermediation
theory
"A lost century in economics: Three theories of banking and the conclusive evidence" Richard
A. Werner http://www.sciencedirect.com/science/article/pii/S1057521915001477
This is why we come up with crazy ideas like "financial liberalisation".
If corporations are to be people, then they, like the extremely wealthy, need to be reined
in politically. One step we could take is to only allow money donations to political
campaigns to take place when the person is subject or going to be subject to the politicians
decisions. I live in Illinois, I should be able to donate money to the campaigns of those
running for the U.S> Senate from Illinois, but Utah? If I donate money to a Utah candidate
for the Senate, I am practicing influence peddling because that Senator does not represent
me.
If corporations are to be people, they need a primary residence. The location of their
corporate headquarters should suffice to "place" them, and donations to candidates outside of
their set of districts would be forbidden.
Of course, we do have free speech, so people are completely free to speak over the
Internet, TV, hire halls in the district involved and go speak in person. They just couldn't
pay to have someone else do that for them.
To allow unfettered political donations violates the one ma, one vote principle and also
encourages influence peddling. In fact, it seems as if our Congress and Executive operates
only through influence peddling.
Impoverished economics? Unpacking the economics Nobel Prize
When the world is facing large systemic crises, why is the economics profession celebrating
small technical fixes?
By Ingrid Harvold Kvangraven
This week it was announced that Abhijit Banerjee, Esther Duflo and Michael Kremer won the
Economics Nobel Prize (or more accurately: the 'Sveriges Riksbank Prize in Economic Sciences in
Memory of Alfred Nobel'). The trio of economists were awarded the prize for "their experimental
approach to alleviating global poverty".
On social media and in mainstream newspapers, there was an exceptional level of praise for
the laureates, reflecting their existing rockstar status within development economics. The
Financial Times even claimed that the "Economics Nobel for poverty work will help restore
profession's relevance". However, the widespread calls for celebration need to be considered
with a cautionary counterweight.
The experimental approach to poverty alleviation relies on so-called Randomized Control
Trials (RCTs). Inspired by studies in medicine, the approach targets specific interventions to
a randomly selected group (schools, classes, mothers, etc), and then compares how specific
outcomes change in the recipient group versus those who did not receive the treatment. As the
groups are assumed to be otherwise similar, the difference in outcomes can be causally
attributed to the intervention.
While the laureates were first pioneering this work in the 1990s in Kenyan schools, the
approach is now widely considered the new "gold standard" in development economics, also
sometimes simply called "New Economics". The approach has become enormously influential among
governments, international agencies and NGOs. The body of work pioneered by the laureates, or
the randomistas as they are sometimes called, is meant to alleviate poverty through simple
interventions such as combating teacher absenteeism, through cash transfers, and through
stimulating positive thinking among the people living in poverty. Sound good so far?
While the laureates' approach to poverty research and policy may seem harmless, if not
laudable, there are many reasons for concern. Both heterodox and mainstream economists as well
as other social scientists have long provided thorough critique of the turn towards RCTs in
economics, on philosophical, epistemological, political and methodological grounds. The
concerns with the approach can be roughly grouped into questions of focus, theory, and
methodology.
Focus: tackling symptoms and thinking small
The approach that is being promoted is concerned with poverty, not development, and is thus
a part of the larger trend in development economics that is moving away from development as
structural transformation to development as poverty alleviation. This movement towards
"thinking small" is a part of a broader trend, which has squeezed out questions related to
global economic institutions, trade, agricultural, industrial and fiscal policy, and the role
of political dynamics, in favor of the best ways to make smaller technical interventions.
The interventions considered by the Nobel laureates tend to be removed from analyses of
power and wider social change. In fact, the Nobel committee specifically gave it to Banerjee,
Duflo and Kremer for addressing "smaller, more manageable questions," rather than big ideas.
While such small interventions might generate positive results at the micro-level, they do
little to challenge the systems that produce the problems.
For example, rather than challenging the cuts to the school systems that are forced by
austerity, the focus of the randomistas directs our attention to absenteeism of teachers, the
effects of school meals and the number of teachers in the classroom on learning. Meanwhile,
their lack of challenge to the existing economic order is perhaps also precisely one of the
secrets to media and donor appeal, and ultimately also their success.
The lack of engagement with the conditions that create poverty has led many critics to
question to what extent RCTs will actually be able to significantly reduce global poverty. A
further consequence of this impoverished economics is that it limits the types of questions we
can ask, and it leads us "to imagine too few ways to change the world".
Theory: methodological individualism lives on
In a 2017 speech, Duflo famously likened economists to plumbers. In her view the role of an
economist is to solve real world problems in specific situations. This is a dangerous
assertion, as it suggests that the "plumbing" the randomistas are doing is purely technical,
and not guided by theory or values. However, the randomistas' approach to economics is not
objective, value-neutral, nor pragmatic, but rather, rooted in a particular theoretical
framework and world view – neoclassical microeconomic theory and methodological
individualism.
The experiments' grounding has implications for how experiments are designed and the
underlying assumptions about individual and collective behavior that are made. Perhaps the most
obvious example of this is that the laureates often argue that specific aspects of poverty can
be solved by correcting cognitive biases. Unsurprisingly, there is much overlap between the
work of randomistas and the mainstream behavioral economists, including a focus on nudges that
may facilitate better choices on the part of people living in poverty.
Another example is Duflo's analysis of women empowerment. Naila Kabeer argues that it
employs an understanding of human behavior "uncritically informed by neoclassical microeconomic
theory." Since all behavior can allegedly be explained as manifestations of individual
maximizing behavior, alternative explanations are dispensed with. Because of this, Duflo fails
to understand a series of other important factors related to women's empowerment, such as the
role of sustained struggle by women's organizations for rights or the need to address unfair
distribution of unpaid work that limits women's ability to participate in the community.
Note that there is nothing embedded in RCTs that forces randomistas to assume individuals
are rational optimizing agents. These assumptions come from the economics tradition. This is
therefore not a critique of RCTs per se, but of the way RCTs are employed in the laureates'
work and in most of mainstream economics.
Method: If you didn't randomize it, is it really knowledge?
While understanding causal processes is important in development economics, as in other
social science disciplines, RCTs do so in a very limited way. The causal model underlying RCTs
focuses on causal effects rather than causal mechanisms. Not only do RCTs not tell us exactly
what mechanisms are involved when something works, they also do not tell us whether the policy
in question can be reliably implemented elsewhere. In order to make such a judgement, a broader
assessment of economic and social realities is unavoidable.
Assuming that interventions are valid across geographies and scale suggests that micro
results are independent of their macroeconomic environment. However, while "effects" on
individuals and households are not separate from the societies in which they exist, randomistas
give little acknowledgement to other ways of knowing about the world that might help us better
understand individual motivations and socio-economic situations. As it is difficult to achieve
truly random sampling in human communities, it is perhaps not surprising that when RCTs are
replicated, they may come to substantially different results than the original.
Not only do RCTs rarely have external validity, but the specific circumstances needed to
understand the extent to which the experiments may have external validity are usually
inadequately reported. This has led even critics within the mainstream to argue that there are
misunderstandings about what RCTs are capable of accomplishing. A deeper epistemological
critique involves the problematic underlying assumption that there is one specific true impact
that can be uncovered through experiments.
Recent research has found that alternative attempts to assess the success of programs
transferring assets to women in extreme poverty in West Bengal and Sindh have been far superior
to RCTs, which provide very limited explanations for the patterns of outcomes observed. The
research concludes that it is unlikely that RCTs will be able to acknowledge the central role
of human agency in project success if they confine themselves to quantitative methods
alone.
There are also serious ethical problems at stake. Among these are issues such as lying,
instrumentalizing people, the role of consent, accountability, and foreign intervention, in
addition to the choice of who gets treatment. While ethical concerns regarding potential harm
to groups is discussed extensively in the medical literature, it receives less attention in
economics, despite the many ethically dubious experimental studies (e.g. allowing bribes for
people to get their drivers' licences in India or incentivizing Hong Kong university students
into participation in an antiauthoritarian protest). Finally, the colonial dimensions of
US-based researchers intervening to estimate what is best for people in the Global South cannot
be ignored.
Why it matters: limits to knowledge and policy-making
There will always be research that is more or less relevant for development, so why does it
matter what the randomistas do? Well, as the Nobel Committee stated, their "experimental
research methods now entirely dominate development economics". A serious epistemological
problem arises when the definition of what rigour and evidence means gets narrowed down to one
single approach that has so many limitations. This shift has taken place over the past couple
of decades in development economics, and is now strengthened by the 2019 Nobel Prize. As both
Banerjee and Duflo acknowledged in interviews after the prize was announced, this is not just a
prize for them, but a prize for the entire movement.
The discipline has not always been this way. The history of thought on development economics
is rich with debates about how capital accumulation differs across space, the role of
institutions in shaping behavior and economic development, the legacies of colonialism and
imperialism, unequal exchange, the global governance of technology, the role of fiscal policy,
and the relationship between agriculture and industry. The larger questions have since been
pushed out of the discipline, in favor of debates about smaller interventions.
The rise of the randomistas also matters because the randomistas are committed to provoke
results, not just provide an understanding of the situations in which people living in poverty
find themselves. In fact, it is one of their stated goals to produce a "better integration
between theory and empirical practice". A key argument by the randomistas is that "all too
often development policy is based on fads, and randomised evaluations could allow it to be
based on evidence".
However, the narrowness of the randomized trials is impractical for most forms of policies.
While RCTs tend to test at most a couple of variations of a policy, in the real world of
development, interventions are overlapping and synergistic. This reality recently led 15
leading economists to call to "evaluate whole public policies" rather than assess "short-term
impacts of micro-projects," given that what is needed is systems-level thinking to tackle the
scale of overlapping crises. Furthermore, the value of experimentation in policy-making, rather
than promoting pre-prescribed policies, should not be neglected.
The concept of "evidence-based policy" associated with the randomistas needs some unpacking.
It is important to note that policies are informed by reflections on values and objectives,
which economists are not necessarily well-suited to intervene in. Of course, evidence should be
a part of a policy-making process, but the pursuit of ineffective policies is often driven by
political priorities rather than lack of evidence.
While randomistas might respond to this by arguing that their trials are precisely meant to
de-politicize public policy, this is not necessarily a desirable step. Policy decisions are
political in nature, and shielding these value judgements from public scrutiny and debate does
little to strengthen democratic decision making. Suggesting that policy-making can be
depoliticized is dangerous and it belittles the agency and participation of people in
policy-making. After all, why should a policy that has been proven effective through an RCT
carry more weight than, for example, policies driven by people's demands and political and
social mobilisation?
While the Nobel Prize does leave those of us concerned with broader political economy
challenges in the world anxious, not everything is doom and gloom. Firstly, the Nobel directs
attention to the persistence of poverty in the world and the need to do something about it.
What we as critical development economists now need to do is to challenge the fact that the
Prize also legitimizes a prescriptive view of how to find solutions to global problems.
Secondly, the fact that a woman and a person of color were awarded a prize that is usually
reserved for white men is a step forward for a more open and inclusive field. Duflo herself
recognizes that the gender imbalance among Nobel Prize winners reflects a "structural" problem
in the economics profession and that her profession lacks ethnic diversity.
However, it is obvious that to challenge racism, sexism and Eurocentrism in economics, it is
not enough to simply be more inclusive of women and people of color that are firmly placed at
the top of the narrow, Eurocentric mainstream. To truly achieve a more open and democratic
science it is necessary to push for a field that is welcoming of a plurality of viewpoints,
methodologies, theoretical frameworks, forms of knowledge, and perspectives.
This is a massive challenge, but the systemic, global crises we face require broad,
interdisciplinary engagement in debates about possible solutions.
Ingrid Harvold Kvangraven is a Lecturer in International Development at the University of York.
Reply Saturday, October 26, 2019 at 11:52 AM Paine said in reply
to anne... Development v poverty amelioration
A Very basic goal conflict indeed.
Transformation
will never come
thru,
More effective off sets
to
Institutionally produced
misery powerlesses,
helplessness
The poverty of poor economics The winners of the Nobel Prize in Economics experiment on the poor, but their research doesn't
solve poverty. By Grieve Chelwa and Seán Muller
Monday, the Swedish Academy of Sciences awarded the "Nobel Prize" in economics to Abhijit
Banerjee, Esther Duflo and Michael Kremer for "their experimental approach to alleviating
global poverty."
...
Banerjee and Duflo teach at MIT while Kremer is at Harvard. The trio have been at the
forefront of pushing the use of randomized control trials (RCTs) in the sub-discipline of
economics known as development economics.... The main idea behind their work is that RCTs allow
us to know what works and doesn't work in development because of its "experimental" approach.
RCTs are most well-known for their use in medicine and involve the random assignment of
interventions into "treatment" and "control" groups. And just like in medicine, so the argument
goes, RCTs allow us to know which development pill to swallow because of the rigor associated
with the experimental approach. Banerjee and Duflo popularized their work in a 2011 book "Poor
Economics: A Radical Rethinking of the Way to Fight Global Poverty."
Even though other Nobel prize awards often attract public controversy (peace and literature
come to mind), the economics prize has largely flown under the radar with prize announcements
often met with the same shrugging of the shoulders as, for example, the chemistry prize. This
year has however been different (and so was the year that Milton Friedman, that high priest of
neoliberalism, won).
A broad section of commentary, particularly from the Global South, has puzzled over the
Committee's decision to not only reward an approach that many consider as suffering from
serious ethical and methodological problems, but also extol its virtues and supposed benefits
for poor people.
Many of the trio's RCTs have been performed on black and brown people in poor parts of the
world. And here, serious ethical and moral questions have been raised particularly about the
types of experiments that the randomistas, as they are colloquially known, have been allowed to
perform. In one study in western Kenya, which is one-half of the epicenter of this kind of
experimentation, randomistas deliberately gave some villages more money and others less money
to check if villages receiving less would become envious of those receiving more. The study's
authors, without any sense of shame, titled their paper "Is Your Gain My Pain?" In another
study in India, the other half of the epicenter, researchers installed intrusive cameras in
class rooms to police teacher attendance (this study was actually favorably mentioned by the
Swedish Academy). There are some superficial rationalizations for this sort of thing, but
studies of this kind -- and there are many -- would never have seen the light of day had the
experimental subjects been rich Westerners.
There are also concerns around the extractive nature of the RCT enterprise. To execute these
interventions, randomistas rely on massive teams of local assistants (local academics,
students, community workers, etcetera) who often make non-trivial contributions to the
projects. Similarly, those to be studied (the poor villagers) lend their incalculable emotional
labor to these projects (it is often unclear whether they have been adequately consulted or if
the randomistas have simply struck deals with local officials). The villagers are the ones that
have to deal with all the community-level disruptions that the randomistas introduce and then
leave behind once they've gone back to their cushy lives in the US and Europe.
And while there is an increasing amount of posturing to compensate for this exploitation,
with some researchers gushing about how they and their "native assistants" are bosom buddies,
the payoffs of the projects (lucrative career advancement, fame, speaking gigs, etcetera) only
ever accrue to the randomistas and randomistas alone. The extreme case is obviously this week's
award.
Beyond the ethics of the Nobel winners, their disciples, and the institutions they have
created in their image are two serious methodological problems that fundamentally undermine
their findings.
The first is that the vast majority of studies conducted using these methods (our rough
guess is more than 90%) have no formal basis for generalization. In other words, there is no
basis to believe that the findings of these studies can be applied beyond the narrow confines
of the population on which the experiments are undertaken. This is simply fatal for policy
purposes.
The prize giving committee addresses this only in passing by saying that "the laureates have
also been at the forefront of research on the issue of [whether experimental results apply in
other contexts]." This is misleading at best and false at worst. There are some advocates of
randomised trials who have done important research on the problem, but the majority of key
contributions are not by advocates of randomised trials and the three awardees have been
marginal contributors. The more important point is simply that if the problem of whether
experimental results are relevant outside the experiment has not been resolved, how can it be
claimed that the trio's work is "reducing world poverty?"
The second contradiction is more widely understood: despite the gushing headlines in the
Western press, there is simply no evidence that policy based on randomized trials is better
than alternatives. Countries that are now developed did not need foreign researchers running
experiments on local poor people to grow their economies. There is ample historical evidence
that growth, development and dramatic reductions in poverty can be achieved without randomised
trials. Randomistas claim that their methods are the holy grail of development yet they have
not presented any serious arguments to show why theirs is the appropriate response. Instead,
the case that such methods are crucial for policy is largely taken for granted by them because
they think they are doing "science." But while they are certainly imitating what researchers in
various scientific disciplines do, the claim that the results are as reliable and useful for
economic and social questions is unsupported. It is instead a matter of blind faith -- as with
the conviction many such individuals appear to have of a calling to save the poor, usually
black and brown, masses of the world.
We do not have a view on whether these individuals ought to have been awarded the prize --
prizes are usually somewhat dubious in their arbitrariness and historical contingency. But the
claims made about the usefulness and credibility of the methods employed are concerning, both
because they are unfounded and because they inform a missionary complex that we believe is more
of a threat to the progress of developing countries than it is an aid.
Grieve Chelwa teaches economics at the University of Cape Town. Seán Muller teaches
economics at the University of Johannesburg.
How curious that China starting from being among the poorest of countries, far poorer
than India in 1980, and having a population that is now 1.4 billion could have raised hundreds
of millions to middle class well-being, could have raised hundreds of millions from poverty and
coming ever closer to ending severe poverty in 2020, would have no economist worth a Nobel
prize for work on poverty. To me, this is a travesty of awarding the Nobel Prize for work on
poverty to 3 Massachusetts economists.
Distressing that the astonishing and wonderful progress China has made against poverty
should be given no attention and credit by the Nobel Prize folks or by the articles about the
prize that I have so far read. This tells me that the Massachusetts work on poverty and
evaluation of the work is highly problematic, which I already knew from reading the work.
Japan has a shrinking population. Can you explain to me why on the Earth they need
economic growth?
This preoccupation with "growth" (with narrow and false one dimensional and very
questionable measurements via GDP, which includes the FIRE sector) is a fallacy promoted by
neoliberalism.
Neoliberalism proved to be quite sophisticated religions with its own set of True
Believers in Eric Hoffer's terminology.
A lot of current economic statistics suffer from "mathiness".
For example, the narrow definition of unemployment used in U3 is just a classic example of
pseudoscience in full bloom. It can be mentioned only if U6 mentioned first. Otherwise, this
is another "opium for the people" ;-) An attempt to hide the real situation in the neoliberal
"job market" in which has sustained real unemployment rate is always over 10% and which has a
disappearing pool of well-paying middle-class jobs. Which produced current narco-epidemics
(in 2018, 1400 people were shot in half a year in Chicago (
http://www.chicagotribune.com/news/breaking/ct-met-weekend-shooting-violence-20180709-story.html
); imagine that). While I doubt that people will hang Pelosi on the street post, her
successor might not be so lucky ;-)
Everything is fake in the current neoliberal discourse, be it political or economic, and
it is not that easy to understand how they are deceiving us. Lies that are so sophisticated
that often it is impossible to tell they are actually lies, not facts. The whole neoliberal
society is just big an Empire of Illusions, the kingdom of lies and distortions.
I would call it a new type of theocratic state if you wish.
And probably only one in ten, if not one in a hundred economists deserve to be called
scientists. Most are charlatans pushing fake papers on useless conferences.
It is simply amazing that the neoliberal society, which is based on "universal deception,"
can exist for so long.
Infectious Narratives in Economics
By Robert Shiller - Bloomberg
"Narrative EconomicsHow Stories Go Viral & Drive Major Economic Events"
Concerns that inventions of new machines powered by water, wind, horse, or steam, or that
use human power more efficiently, might replace workers and cause massive unemployment have
an extremely long history, going back to ancient times. Aristotle imagined a future in which
"the shuttle would weave and the plectrum touch the lyre without a hand to guide them." In
such a world, "chief workmen would not want servants, nor masters slaves," he concluded.
Still, it wasn't until the 19th century, an era that brought innovations such as the
water-powered textile loom, the mechanical thresher, and the Corliss steam engine, that
concerns about technology-based unemployment took center stage. The narrative was
particularly contagious during economic depressions when many were unemployed.
The phrase "technological unemployment" first appeared in 1917, but it started its
epidemic upswing in 1928. The count for "technological unemployment" skyrockets in the 1930s
in Google Ngrams, tracing a hump-shaped pattern, rising through time for a while and then
falling, much as is regularly seen with infection diseases. The "technological unemployment"
curve peaked in 1933, the worst year of the Great Depression.
Frequency of Appearance
Appearances in books, as a share of all words
[Graph]
It is curious that the narrative epidemic of technological unemployment began in 1928, a
time of prosperity before the Great Depression. How did the epidemic start? In March 1928,
U.S. Senator Robert Wagner stated his belief that unemployment was much higher than
recognized, and he asked the Department of Labor to do a study. Later that month the
department delivered the study that produced the first official unemployment rates published
by the U.S. government. The study estimated that there were 1,874,030 unemployed people in
the United States and 23,348,602 wage earners, implying an unemployment rate of 7.4%. This
high estimated unemployment rate came at a time of great prosperity, and it led people to
question what would cause such high unemployment amidst abundance.
A month later, the Baltimore Sun ran an article referring to the theories of Sumner H.
Slichter, who in later decades became a prominent labor economist. In the article, readers
are told that Slichter noted several causes of unemployment but said technological
unemployment was "at present the most serious." The reason: "We are eliminating jobs through
labor-saving methods faster than we are creating them." These words, alongside the new
official reporting of unemployment statistics, created a contagion of the idea that a new era
of technological unemployment had arrived. The earlier agricultural depression, with its
associated fears of labor-saving machinery, began to look like a model for an industrial
depression to follow.
Stuart Chase, who later coined the term the "New Deal," published Men and Machines in May
1929, during a period of rapidly rising stock prices. The real, inflation-corrected, U.S.
stock market, as measured by the S&P Composite Index, rose a final 20% in the five months
after the book's publication, before the infamous October 1929 crash. But concerns about
rising unemployment were apparent even during the boom period. According to Chase, we were
approaching the "zero hour of accelerating unemployment":
Machinery saves labour in a given process; one man replaces ten. A certain number of these
men are needed to build and service a new machine, but some of them are permanently
displaced. If purchasing power has reached its limits of expansion because
mechanization is progressing at an unheard of rate, only unemployment can result. In other
words, from now on, the better able we are to produce, the worse we shall be off.
This is the economy of the madhouse.
This is significant: The narrative of out-of-control unemployment was already starting to
go viral before there was any sign of the stock market crash of 1929.
During the week before the October 28–29 stock market crash, a national business
show was running in New York in a convention center (since demolished) adjacent to Grand
Central Station that many Wall Street people passed through to and from work. The show
emphasized immense progress in robot technology in the office workplace. After the show moved
to Chicago in November, the following description appeared in the Chicago Daily Tribune:
Exhibits in the national business show yesterday revealed that the business office of the
future will be a factory in which machines will replace the human element, when the robot --
the mechanical man -- will be the principal office worker.
There were addressers, autographers, billers, calculators, cancelers, binders, coin
changers, form printers, duplicators, envelope sealers and openers, folders, labelers, mail
meters, pay roll machines, tabulators, transcribers, and other mechanical
marvels.
A typewriting machine pounded out letters in forty different languages. A portable
computing machine which could be carried by a traveling salesman was on exhibit.
By 1930 the crash itself was often attributed to the surplus of goods made possible by new
technology. According to the Washington Post, "When the climax was reached in the last months
of 1929 a period of adversity was inevitable because the people did not have enough money to
buy the surplus goods which they had produced."
Fear of robots was not strong in most of the 1920s, when the word robot was coined.
Historian Amy Sue Bix offers a theory to explain why this was so: The kinds of innovations
that received popular acclaim in the 1920s didn't obviously replace jobs. If asked to
describe new technology, people would perhaps think first of the Model T Ford, whose sales
had burgeoned to 1.5 million cars a year by the early part of the decade. Radio stations,
which first appeared around 1920, provided an exciting new form of information and
entertainment, but they did not obviously replace many existing jobs. More and more homes
were getting wired for electricity, with many possibilities for new gadgets that required
electricity.
By the 1930s, Bix notes, the news had replaced stories of exciting new consumer products
with stories of job-replacing innovations. Dial telephones replaced switchboard operators.
Mammoth continuous-strip steel mills replaced steel workers. New loading equipment replaced
coal workers. Breakfast cereal producers bought machines that automatically filled cereal
boxes. Telegraphs became automatic. Armies of linotype machines in multiple cities allowed
one central operator to set type for printing newspapers by remote control. New machines dug
ditches. Airplanes had robot copilots. Concrete mixers laid and spread new roads. Tractors
and reaper-thresher combines created a new agricultural revolution. Sound movies began to
replace the orchestras that played at movie theaters. And, of course, the decade of the 1930s
saw massive unemployment in the United States, with the unemployment rate reaching an
estimated 25% in 1933.
It is difficult to know which came first, the chicken or the egg. Were all these stories
of job-threatening innovations spurred by the exceptional pace of such innovations? Or did
the stories reflect a change in the news media's interest in such innovations because of
public concern about technological unemployment? The likely answer is "a little of both."
The "labor-saving machines" narrative was strongly connected to an underconsumption or
overproduction theory: the idea that people couldn't possibly consume all of the output
produced by machines, with chronic unemployment the inevitable result. The theory's origins
date to the 1600s, but it picked up steam in the 1920s. It was mentioned in newspaper
articles within days of the stock market crash of October 28–29, 1929.
The real peak of these narratives was in the 1930s, during which time they appeared five
times as often as in any other decade, according to a search of Proquest's database of
newspapers.
The topic now appears largely in articles about the history of economic thought, but it is
worth considering why it had such a strong hold on the popular imagination during the Great
Depression, why the narrative epidemic could recur, and the appropriate mutations or
environmental changes that would increase contagion.
Today, underconsumption sounds like a bland technical phrase, but it had considerable
emotional charge during the Great Depression, as it symbolized a deep injustice and
collective folly. At the time it was mostly a popular theory, not an academic theory.
In the 1932 presidential campaign, Franklin Roosevelt ran against incumbent Herbert
Hoover, who had been unsuccessful with deficit spending to restore the economy. Roosevelt
gave a speech in which he articulated the already-popular theory of underconsumption. His
masterstroke was putting it in the form of a story inspired by Lewis Carroll's famous
children's book Alice's Adventures in Wonderland. In that book, a bright and inquisitive
little girl named Alice meets many strange creatures that talk in nonsense and
self-contradictions. Roosevelt's version of this story replaced his opponent with the
Jabberwock, a speaker of nonsense:
A puzzled, somewhat skeptical Alice asked the Republican leadership some simple
questions.
Will not the printing and selling of more stocks and bonds, the building of new plants and
the increase of efficiency produce more goods than we can buy? No, shouted the Jabberwock,
the more we produce the more we can buy.
What if we produce a surplus? Oh, we can sell it to foreign consumers.
How can the foreigners buy it? Why we will lend them the money.
Of course, these foreigners will pay us back by sending us their goods? Oh, not at all,
says Humpty Dumpty. We sit on a high wall called a tariff.
How will the foreigners pay off these loans? That is easy. Did you ever hear of a
moratorium?
On the face of it, underconsumption seemed to explain the high unemployment of the Great
Depression, but academic economists never seriously embraced the theory, which had never been
soundly explained.
The massive unemployment caused by the Great Depression set off serious social problems.
For example, in the United States it caused the forced deportation (then called repatriation)
of a million workers of Mexican origin. The goal was to free up jobs for "real" Americans.
The popular narrative supported these deportations, and there was little public protest.
Newspaper reports showed photos of happy Mexican Americans waving goodbye at the train
station on their way back to their original home to help the Mexican nation.
The dial telephone also played an important part in narratives about unemployment and the
associated underconsumption. During the Great Depression, there rose a narrative focus on the
loss of telephone operators' jobs, and the transition to dial telephones was troubled by
moral qualms that by adopting the dial phone one was complicit in destroying a job. Three
weeks after dial phones were installed in the U.S. Senate in 1930, Senator Carter Glass
introduced a resolution to have them torn out and replaced with the older phones. Noting that
operators' jobs would be lost, he expressed true moral indignation against the new
phones:
I ask unanimous consent to take from the table Senate resolution 74 directing the sergeant
at arms to have these abominable dial telephones taken out on the Senate
side . I object to being transformed into one of the employees of the
telephone company without compensation.
His resolution passed, and the dial phones were removed. It is hard to imagine that such a
resolution would have passed if the nation had not been experiencing high unemployment. This
story fed a contagious economic narrative that helped augment the atmosphere of fear
associated with the contraction in aggregate demand during the Great Depression.
The loss of jobs to robots (that is, automation) became a major explanation of the Great
Depression, and, hence, a perceived major cause of it. Even if the man hasn't lost his job
yet, he will consume less owing to the prospect or possibility of losing his job. The U.S.
presidential candidate who lost to Herbert Hoover in 1928, Al Smith, wrote in the Boston
Globe in 1931:
We know now that much unemployment can be directly traced to the growing use of machinery
intended to replace man power. The human psychology of it is simple and
understandable to everybody. A man who is not sure of his job will not spend his money. He
will rather hoard it and it is difficult to blame him for so doing as against the day of
want.
Albert Einstein, the world's most celebrated physicist, believed this narrative, saying in
1933 that the Great Depression was the result of technical progress:
According to my conviction it cannot be doubted that the severe economic depression is to
be traced back for the most part to internal economic causes; the improvement in the
apparatus of production through technical invention and organization has decreased the need
for human labor, and thereby caused the elimination of a part of labor from the economic
circuit, and thereby caused a progressive decrease in the purchasing power of the
consumers.
By that time, people had begun to label labor-saving inventions as "robots," even if there
were no mechanical men to be seen. One article in the Los Angeles Times in early 1931, about
a year into the Great Depression, said that robots then were already the "equivalent of 80
million hand-workers in the United States alone," while the male labor force was only 40
million.
Though the technological unemployment narrative faded after 1935 (as revealed by Google
Ngrams), it did not go away completely. Instead, it continued to exert some influence in the
runup to World War II, until new narrative constellations about the war became
contagious.
Many historians point to massive unemployment in Germany to explain the accession to power
of the Nazi Party and Adolf Hitler in the election of 1933, the worst year of the Depression.
But rarely mentioned today is the fact that a Nazi Party official promised that year to make
it illegal in Germany to replace men with machines.
To go viral again, the labor-saving machines narrative needed a new twist after World War
II, a twist that could seem to reinforce the newly rediscovered appreciation of human
intelligence, and, ultimately, of the human brain. The narrative turned to the new
"electronic brains" -- that is, computers.
(2) This is not Capitalism, this is Neoliberalism.
But with those minor modifications you point stands: "The real trouble with Neoliberalism:
bought/corrupt economists" ... "And this means that [neoliberal/neo-classical] economics is
proto-scientific garbage."
Here is an extended quote from your comment so that people can more fully appreciate this
line of thinking:
== quote ==
Chris Dillow quotes Martin Wolf: "What we increasingly seem to have is an unstable rentier
capitalism, weakened competition, feeble productivity growth, high inequality and, not
coincidentally, an increasingly degraded democracy."
Chris Dillow then sets out to explain the trouble with Capitalism: "The Bank of England
has given us a big clue here. It points out that the rising profit share (a strong sign of
increased monopoly) is largely confined to the US. In the UK, the share of profits in GDP has
flatlined in recent years. Few, however, would argue that UK capitalism is less dysfunctional
than its US counterpart. Which suggests that the problem with capitalism is not increased
monopoly. So what is it? Here, I commend some brilliant work by Michael Roberts. Many of the
faults Martin discusses have their origin in a declining rate of profit ― a decline
which became acute in the 1970s but which was never wholly reversed."
The whole intellectual/moral misery of economists is contained in this paragraph. Chris
Dillow's explanation starts with the "share of profits in GDP" and ends with the "rate of
profit". Not only are these entirely different things but macroeconomic profit is not
defined, to begin with.
The simple reason is that neither Chris Dillow nor Martin Wolf nor Michael Roberts knows
what profit is.#1 This sad fate they share with Walrasians, Keynesians, Marxians, Austrians,
and MMTers. The dirty secret of economics is that since Adam Smith/Karl Marx economists do
not know what profit is.#2, #3
And this means that economics is proto-scientific garbage but economists have not realized
it to this day.
Capitalism, Alone: Four important--but somewhat hidden--themes
I review here four important, but perhaps not immediately apparent, themes from my
Capitalism, Alone. The book contains many other, more topical, subjects that are likely to
attract readers' and reviewers' attention much more than the somewhat abstract or
philosophical issues briefly reviewed here.
1. Capitalism as the only mode of production in the world. During the previous high
point of the British-led globalization, capitalism shared the world with various feudal or
feudal-like systems characterized with unfree labor: forced labor was abolished in
Austria-Hungary in 1848, serfdom in Russia in 1861, slavery ended in the US in 1865, and in
Brazil only in 1888, And labor tied to land continued to exist in India and to a lesser
degree in China. Then, after 1917, capitalism had to share the world with communism which, at
its peak, included almost a third of the world population. It is only after 1989, that
capitalism is not only a dominant, but the sole, system of organizing production (Chapter
1).
2. The global historical role of communism. The existence of capitalism (economic
way to organize society) throughout the world does not imply that the political systems must
be organized in the same way everywhere. The origins of political systems are very different.
In China and Vietnam, communism was the tool whereby indigenous capitalism was introduced
(explained below). The difference in the "genesis" of capitalism, that is, in the way
capitalism was "created" in various countries explains why there are at least two types of
capitalism today. I am doubtful that there would ever be a single type of capitalism covering
the entire globe.
To understand the point about the different origins, one needs to start from the question
of the role of communism in global history and thus from the interpretation (histoire
raisonéee) of the 20th century (Chapter 3).
There are two major narratives of the 20th century: liberal and Marxist; they are both
"Jerusalem"-like in the Russian philosopher Berdiaff's terminology. They see the world
evolving from less developed toward more developed stages ending in either a terminus of
liberal capitalist democracy or Communism (society of plenty).
Both narratives face significant problems in the interpretation of the 20th century.
Liberal narrative is unable to explain the outbreak of the First World War which, given the
liberal arguments about the spread of capitalism, (peaceful) trade, and interdependence
between countries and individuals that ostensibly abhor conflict should never have happened,
and certainly not in the way it did -- namely by involving in the most destructive war up to
date all advanced capitalism countries. Second, liberal narrative treats both fascism and
communism as essentially "mistakes" (cul de sacs) on the road to a chiliastic liberal
democracy without providing much of reasoning as to why these two "mistakes" happened. Thus
the liberal explanations for both the outbreak of the War and the two "cul de sacs" are often
ad hoc, emphasizing the role of individual actors or idiosyncratic events.
Marxist interpretation of the 20th century is much more convincing in both its explanation
of World War I (imperialism as the highest stage of capitalism) and fascism (an attempt by
the weakened bourgeoise to thwart left-wing revolutions). But Marxist view is entirely
powerless to explain 1989, the fall of communist regimes, and hence unable to provide any
explanation for the role of communism in global history. The fall of communism, in a strict
Marxist view of the world, is an abomination, as inexplicable as if a feudal society having
had experienced a bourgeois revolution of rights were suddenly to "regress" and to reimpose
serfdom and the tripartite class division. Marxism has therefore given up trying to provide
an explanation for the 20th century history.
The reason for this failure lies in the fact that Marxism never made a meaningful
distinction between standard Marxist schemes regarding the succession of socio-economic
formations (what I call the Western Path of Development, WPD) and the evolution of poorer and
colonized countries. Classical Marxism never asked seriously whether the WPD is applicable in
their case. It believed that poorer and colonized countries will simply follow, with a time
lag, the developments in the advanced countries, and that colonization and indeed imperialism
will produce the capitalist transformation of these societies. This was Marx's explicit view
on the role of English colonialism in Asia. But colonialism proved too weak for such a global
task, and succeeded in introducing capitalism only in small entropot enclaves such as Hong
Kong, Singapore and parts of South Africa.
Enabling colonized countries to effect both their social and national liberations (note
there was never a need for the latter in advanced countries) was the world-historical role of
communism. It was only Communist or left-wing parties that could prosecute successfully both
revolutions. The national revolution meant political independence. The social revolution
meant abolishment of feudal growth-inhibiting institutions (power of usurious landlords,
labor tied to land, gender discrimination, lack of access to education by the poor, religious
turpitude etc.). Communism thus cleared the path for the development of indigenous
capitalism. Functionally, in the colonized Third World societies, it played the same role
that domestic bourgeoisies played in the West. For indigenous capitalism could be established
only once feudal institutions were swept away.
The concise definition of communism is hence: communism is a social system that enabled
backward and colonized societies to abolish feudalism, regain economic and political
independence, and build indigenous capitalism.
3. The global dominion of capitalism was made possible thanks to (and in turn it
exacerbates) certain human traits that, from an ethical point, are questionable . Much
greater commercialization and greater wealth have in many ways made us more polished in our
manners (as per Montesquieu) but have done so using what were traditionally regarded as vices
-- desire for pleasure, power and profit (as per Mandeville). Vices are both fundamental for
hyper-commercialized capitalism to be "born" and are supported by it. Philosophers accept
them not because they are by themselves desirable, but because allowing their limited
exercise allows the achievement of a greater social good: material affluence (Smith;
Hume).
Yet the contrast between acceptable behavior in hyper-commercialized world and traditional
concepts of justice, ethics, shame, honor, and loss of face, create a chasm which is filled
with hypocrisy; one cannot openly accept that one has sold for a sum of money his/her right
to free speech or ability to disagree with one's boss, and thus arises the need to cover up
these facts with lies or misrepresentation of reality.
From the book:
"The domination of capitalism as the best, or rather the only, way to organize production
and distribution seems absolute. No challenger appears in sight. Capitalism gained this
position thanks to its ability, through the appeal to self-interest and desire to own
property, to organize people so that they managed, in a decentralized fashion, to create
wealth and increase the standard of living of an average human being on the planet by many
times -- something that only a century ago was considered almost utopian.
But this economic success made more acute the discrepancy between the ability to live
better and longer lives and the lack of a commensurate increase in morality, or even
happiness. The greater material abundance did make people's manners and behavior to each
other better: since elementary needs, and much more than that, were satisfied, people no
longer needed to engage in a Hobbesian struggle of all against all. Manners became more
polished, people more considerate.
But this external polish was achieved at the cost of people being increasingly driven by
self-interest alone, even in many ordinary and personal affairs. The capitalist spirit, a
testimony to the generalized success of capitalism, penetrated deeply into people's
individual lives. Since extending capitalism to family and intimate life was antithetical to
centuries-old views about sacrifice, hospitality, friendship, family ties, and the like, it
was not easy to openly accept that all such norms had become superseded by self-interest.
This unease created a huge area where hypocrisy reigned. Thus, ultimately, the material
success of capitalism came to be associated with a reign of half-truths in our private
lives."
4. Capitalist system cannot be changed. The dominion of hyper-commercial capitalism
was established thanks to our desire to permanently keep on improving our material
conditions, to keep on getting richer, a desire which capitalism satisfies the best. This has
led to the creation of a system of values that puts monetary success as its top. In many ways
it is a desirable evolution because "believing" in money alone does away with other
traditional and discriminatory hierarchical markers.
In order for capitalism to exist it needs to grow and to expand to ever new areas and new
products. But capitalism exists not outside of us, as a external system. It is individuals,
that is, us, who, in our daily lives, create capitalism and provide it with new fields of
action -- so much that we had transformed our homes into capital, and our free time into a
resource. This extraordinary commodification of almost all, including what used to be very
private, activities was made possible by our internalization of the system of values where
money acquisition is placed on the pinnacle. If this were not the case, we would not have
commodified practically all that can be (as of now) commodified.
Capitalism, in order to expand, needs greed. Greed has been entirely accepted by us. The
economic system and the system of values are interdependent and mutually reinforcing. Our
system of values enables hyper-commercialized capitalism to function and expand. It then
follows that no change in the economic system can be imagined without a change in the system
of values that underpins it, which the system promotes, and with which we are, in our
everyday activities, fully comfortable. But to produce such a change in values seems, at
present, to be an impossible task. It has been tried before and ended in the most ignominious
failure. We are thus locked in capitalism. And in our activities, day in, day out, we support
and reinforce it.
The key to the success of neoliberal was a bunch on bought intellectual prostitutes like Milton Friedman and the drive to
occupy economic departments of the the universities using money from the financial elite. which along with think tank continued
mercenary army of neoliberalism who fought and win the battle with weakened New Del capitalism supporters. After that
neoliberalism was from those departments like the centers of infection via indoctrination of each new generation of students.
Which is a classic mixture of Bolsheviks methods and Trotskyite theory adapted tot he need of financial oligarchy.
Essentially we see the tragedy of Lysenkoism replayed in the USA. When false theory supported by financial oligarchy and then
state forcefully suppressed all other economic thought and became the only politically correct theory in the USA and Western
Europe.
Notable quotes:
"... The neoliberal counterrevolution, in theory and policy, has reversed or undermined nearly every aspect of managed capitalism -- from progressive taxation, welfare transfers, and antitrust, to the empowerment of workers and the regulation of banks and other major industries. ..."
"... Neoliberalism's premise is that free markets can regulate themselves; that government is inherently incompetent, captive to special interests, and an intrusion on the efficiency of the market; that in distributive terms, market outcomes are basically deserved; and that redistribution creates perverse incentives by punishing the economy's winners and rewarding its losers. So government should get out of the market's way. ..."
"... Now, after nearly half a century, the verdict is in. Virtually every one of these policies has failed, even on their own terms. ..."
"... Economic power has resulted in feedback loops of political power, in which elites make rules that bolster further concentration. ..."
"... The culprit isn't just "markets" -- some impersonal force that somehow got loose again. This is a story of power using theory. The mixed economy was undone by economic elites, who revised rules for their own benefit. They invested heavily in friendly theorists to bless this shift as sound and necessary economics, and friendly politicians to put those theories into practice. ..."
"... The grand neoliberal experiment of the past 40 years has demonstrated that markets in fact do not regulate themselves. Managed markets turn out to be more equitable and more efficient. ..."
"... The British political economist Colin Crouch captured this anomaly in a book nicely titled The Strange Non-Death of Neoliberalism . Why did neoliberalism not die? As Crouch observed, neoliberalism failed both as theory and as policy, but succeeded superbly as power politics for economic elites. ..."
"... The neoliberal ascendance has had another calamitous cost -- to democratic legitimacy. As government ceased to buffer market forces, daily life has become more of a struggle for ordinary people. ..."
"... After the Berlin Wall came down in 1989, ours was widely billed as an era when triumphant liberal capitalism would march hand in hand with liberal democracy. But in a few brief decades, the ostensibly secure regime of liberal democracy has collapsed in nation after nation, with echoes of the 1930s. ..."
"... As the great political historian Karl Polanyi warned, when markets overwhelm society, ordinary people often turn to tyrants. In regimes that border on neofascist, klepto-capitalists get along just fine with dictators, undermining the neoliberal premise of capitalism and democracy as complements. ..."
"... Classically, the premise of a "free market" is that government simply gets out of the way. This is nonsensical, since all markets are creatures of rules, most fundamentally rules defining property, but also rules defining credit, debt, and bankruptcy; rules defining patents, trademarks, and copyrights; rules defining terms of labor; and so on. Even deregulation requires rules. In Polanyi's words, "laissez-faire was planned." ..."
"... Around the same time, the term neoconservative was used as a self-description by former liberals who embraced conservatism, on cultural, racial, economic, and foreign-policy grounds. Neoconservatives were neoliberals in economics. ..."
"... Lavishly funded centers and tenured chairs were underwritten by the Olin, Scaife, Bradley, and other far-right foundations to promote such variants of free-market theory as law and economics, public choice, rational choice, cost-benefit analysis, maximize-shareholder-value, and kindred schools of thought. These theories colonized several academic disciplines. All were variations on the claim that markets worked and that government should get out of the way. ..."
"... Market failure was dismissed as a rare special case; government failure was said to be ubiquitous. Theorists worked hand in glove with lobbyists and with public officials. But in every major case where neoliberal theory generated policy, the result was political success and economic failure. ..."
"... For example, supply-side economics became the justification for tax cuts, on the premise that taxes punished enterprise. ..."
"... Robert Bork's "antitrust paradox," holding that antitrust enforcement actually weakened competition, was used as the doctrine to sideline the Sherman and Clayton Acts. Supposedly, if government just got out of the way, market forces would remain more competitive because monopoly pricing would invite innovation and new entrants to the market. In practice, industry after industry became more heavily concentrated. ..."
"... Human capital theory, another variant of neoliberal application of markets to partly social questions, justified deregulating labor markets and crushing labor unions. Unions supposedly used their power to get workers paid more than their market worth. Likewise minimum wage laws. But the era of depressed wages has actually seen a decline in rates of productivity growth ..."
"... Financial deregulation is neoliberalism's most palpable deregulatory failure, but far from the only one ..."
"... Air travel has been a poster child for advocates of deregulation, but the actual record is mixed at best. Airline deregulation produced serial bankruptcies of every major U.S. airline, often at the cost of worker pay and pension funds. ..."
"... Ticket prices have declined on average over the past two decades, but the traveling public suffers from a crazy quilt of fares, declining service, shrinking seats and legroom, and exorbitant penalties for the perfectly normal sin of having to change plans. ..."
"... A similar example is the privatization of transportation services such as highways and even parking meters. In several Midwestern states, toll roads have been sold to private vendors. The governor who makes the deal gains a temporary fiscal windfall, while drivers end up paying higher tolls often for decades. Investment bankers who broker the deal also take their cut. Some of the money does go into highway improvements, but that could have been done more efficiently in the traditional way via direct public ownership and competitive bidding. ..."
"... The Affordable Care Act is a form of voucher. But the regulated private insurance markets in the ACA have not fully lived up to their promise, in part because of the extensive market power retained by private insurers and in part because the right has relentlessly sought to sabotage the program -- another political feedback loop. The sponsors assumed that competition would lower costs and increase consumer choice. But in too many counties, there are three or fewer competing plans, and in some cases just one. ..."
"... In practice, this degenerates into an infinite regress of regulator versus commercial profit-maximizer, reminiscent of Mad magazine's "Spy versus Spy," with the industry doing end runs to Congress to further rig the rules. Straight-ahead public insurance such as Medicare is generally far more efficient. ..."
"... Several forms of deregulation -- of airlines, trucking, and electric power -- began not under Reagan but under Carter. Financial deregulation took off under Bill Clinton. Democratic presidents, as much as Republicans, promoted trade deals that undermined social standards. Cost-benefit analysis by the Office of Information and Regulatory Affairs (OIRA) was more of a choke point under Barack Obama than under George W. Bush. ..."
"... Dozens of nations, from Latin America to East Asia, went through this cycle of boom, bust, and then IMF pile-on. Greece is still suffering the impact. ..."
"... In fact, Japan, South Korea, smaller Asian nations, and above all China had thrived by rejecting every major tenet of neoliberalism. Their capital markets were tightly regulated and insulated from foreign speculative capital. They developed world-class industries as state-led cartels that favored domestic production and supply. East Asia got into trouble only when it followed IMF dictates to throw open capital markets, and in the aftermath they recovered by closing those markets and assembling war chests of hard currency so that they'd never again have to go begging to the IMF ..."
"... The basic argument of neoliberalism can fit on a bumper sticker. Markets work; governments don't . If you want to embellish that story, there are two corollaries: Markets embody human freedom. And with markets, people basically get what they deserve; to alter market outcomes is to spoil the poor and punish the productive. That conclusion logically flows from the premise that markets are efficient. Milton Friedman became rich, famous, and influential by teasing out the several implications of these simple premises. ..."
"... The failed neoliberal experiment also makes the case not just for better-regulated capitalism but for direct public alternatives as well. Banking, done properly, especially the provision of mortgage finance, is close to a public utility. Much of it could be public. ..."
The
invisible hand is more like a thumb on the scale for the world's elites. That's why market
fundamentalism has been unmasked as bogus economics but keeps winning politically.This article appears in the Summer 2019 issue of The American Prospect magazine.
Subscribe here .
Since the late 1970s, we've had a grand experiment to test the claim that free markets
really do work best. This resurrection occurred despite the practical failure of laissez-faire
in the 1930s, the resulting humiliation of free-market theory, and the contrasting success of
managed capitalism during the three-decade postwar boom.
Yet when growth faltered in the 1970s, libertarian economic theory got another turn at bat.
This revival proved extremely convenient for the conservatives who came to power in the 1980s.
The neoliberal counterrevolution, in theory and policy, has reversed or undermined nearly every
aspect of managed capitalism -- from progressive taxation, welfare transfers, and antitrust, to
the empowerment of workers and the regulation of banks and other major industries.
Neoliberalism's premise is that free markets can regulate themselves; that government is
inherently incompetent, captive to special interests, and an intrusion on the efficiency of the
market; that in distributive terms, market outcomes are basically deserved; and that
redistribution creates perverse incentives by punishing the economy's winners and rewarding its
losers. So government should get out of the market's way.
By the 1990s, even moderate liberals had been converted to the belief that social objectives
can be achieved by harnessing the power of markets. Intermittent periods of governance by
Democratic presidents slowed but did not reverse the slide to neoliberal policy and doctrine.
The corporate wing of the Democratic Party approved.
Now, after nearly half a century, the verdict is in. Virtually every one of these policies
has failed, even on their own terms. Enterprise has been richly rewarded, taxes have been cut,
and regulation reduced or privatized. The economy is vastly more unequal, yet economic growth
is slower and more chaotic than during the era of managed capitalism. Deregulation has produced
not salutary competition, but market concentration. Economic power has resulted in feedback
loops of political power, in which elites make rules that bolster further concentration.
The culprit isn't just "markets" -- some impersonal force that somehow got loose again. This
is a story of power using theory. The mixed economy was undone by economic elites, who revised
rules for their own benefit. They invested heavily in friendly theorists to bless this shift as
sound and necessary economics, and friendly politicians to put those theories into
practice.
Recent years have seen two spectacular cases of market mispricing with devastating
consequences: the near-depression of 2008 and irreversible climate change. The economic
collapse of 2008 was the result of the deregulation of finance. It cost the real U.S. economy
upwards of $15 trillion (and vastly more globally), depending on how you count, far more than
any conceivable efficiency gain that might be credited to financial innovation. Free-market
theory presumes that innovation is necessarily benign. But much of the financial engineering of
the deregulatory era was self-serving, opaque, and corrupt -- the opposite of an efficient and
transparent market.
The existential threat of global climate change reflects the incompetence of markets to
accurately price carbon and the escalating costs of pollution. The British economist Nicholas
Stern has aptly termed the worsening climate catastrophe history's greatest case of market
failure. Here again, this is not just the result of failed theory. The entrenched political
power of extractive industries and their political allies influences the rules and the market
price of carbon. This is less an invisible hand than a thumb on the scale. The premise of
efficient markets provides useful cover.
The grand neoliberal experiment of the past 40 years has demonstrated that markets in fact
do not regulate themselves. Managed markets turn out to be more equitable and more
efficient. Yet the theory and practical influence of neoliberalism marches splendidly on,
because it is so useful to society's most powerful people -- as a scholarly veneer to what
would otherwise be a raw power grab. The British political economist Colin Crouch captured this
anomaly in a book nicely titled The Strange Non-Death of Neoliberalism . Why did
neoliberalism not die? As Crouch observed, neoliberalism failed both as theory and as policy,
but succeeded superbly as power politics for economic elites.
The neoliberal ascendance has had another calamitous cost -- to democratic legitimacy. As
government ceased to buffer market forces, daily life has become more of a struggle for
ordinary people. The elements of a decent middle-class life are elusive -- reliable jobs and
careers, adequate pensions, secure medical care, affordable housing, and college that doesn't
require a lifetime of debt. Meanwhile, life has become ever sweeter for economic elites, whose
income and wealth have pulled away and whose loyalty to place, neighbor, and nation has become
more contingent and less reliable.
Large numbers of people, in turn, have given up on the promise of affirmative government,
and on democracy itself. After the Berlin Wall came down in 1989, ours was widely billed as an
era when triumphant liberal capitalism would march hand in hand with liberal democracy. But in
a few brief decades, the ostensibly secure regime of liberal democracy has collapsed in nation
after nation, with echoes of the 1930s.
As the great political historian Karl Polanyi warned, when markets overwhelm society,
ordinary people often turn to tyrants. In regimes that border on neofascist, klepto-capitalists get along just fine with
dictators, undermining the neoliberal premise of capitalism and democracy as complements. Several authoritarian thugs,
playing on tribal nationalism as the antidote to capitalist cosmopolitanism, are surprisingly popular.
It's also important to appreciate that neoliberalism is not laissez-faire. Classically, the
premise of a "free market" is that government simply gets out of the way. This is nonsensical,
since all markets are creatures of rules, most fundamentally rules defining property, but also
rules defining credit, debt, and bankruptcy; rules defining patents, trademarks, and
copyrights; rules defining terms of labor; and so on. Even deregulation requires rules. In
Polanyi's words, "laissez-faire was planned."
The political question is who gets to make the rules, and for whose benefit. The
neoliberalism of Friedrich Hayek and Milton Friedman invoked free markets, but in practice the
neoliberal regime has promoted rules created by and for private owners of capital, to keep
democratic government from asserting rules of fair competition or countervailing social
interests. The regime has rules protecting pharmaceutical giants from the right of consumers to
import prescription drugs or to benefit from generics. The rules of competition and
intellectual property generally have been tilted to protect incumbents. Rules of bankruptcy
have been tilted in favor of creditors. Deceptive mortgages require elaborate rules, written by
the financial sector and then enforced by government. Patent rules have allowed agribusiness
and giant chemical companies like Monsanto to take over much of agriculture -- the opposite of
open markets. Industry has invented rules requiring employees and consumers to submit to
binding arbitration and to relinquish a range of statutory and common-law
rights.
Neoliberalism as Theory, Policy, and Power
It's worth taking a moment to unpack the term "neoliberalism." The coinage can be confusing
to American ears because the "liberal" part refers not to the word's ordinary American usage,
meaning moderately left-of-center, but to classical economic liberalism otherwise known as
free-market economics. The "neo" part refers to the reassertion of the claim that the
laissez-faire model of the economy was basically correct after all.
Few proponents of these views embraced the term neoliberal . Mostly, they called
themselves free-market conservatives. "Neoliberal" was a coinage used mainly by their critics,
sometimes as a neutral descriptive term, sometimes as an epithet. The use became widespread in
the era of Margaret Thatcher and Ronald Reagan.
To add to the confusion, a different and partly overlapping usage was advanced in the 1970s
by the group around the Washington Monthly magazine. They used "neoliberal" to mean a
new, less statist form of American liberalism. Around the same time, the term
neoconservative was used as a self-description by former liberals who embraced
conservatism, on cultural, racial, economic, and foreign-policy grounds. Neoconservatives were
neoliberals in economics.
Beginning in the 1970s, resurrected free-market theory was interwoven with both conservative
politics and significant investments in the production of theorists and policy intellectuals.
This occurred not just in well-known conservative think tanks such as the American Enterprise
Institute, Heritage, Cato, and the Manhattan Institute, but through more insidious investments
in academia. Lavishly funded centers and tenured chairs were underwritten by the Olin, Scaife,
Bradley, and other far-right foundations to promote such variants of free-market theory as law
and economics, public choice, rational choice, cost-benefit analysis,
maximize-shareholder-value, and kindred schools of thought. These theories colonized several
academic disciplines. All were variations on the claim that markets worked and that government
should get out of the way.
Each of these bodies of sub-theory relied upon its own variant of neoliberal ideology. An
intensified version of the theory of comparative advantage was used not just to cut tariffs but
to use globalization as all-purpose deregulation. The theory of maximizing shareholder value
was deployed to undermine the entire range of financial regulation and workers' rights.
Cost-benefit analysis, emphasizing costs and discounting benefits, was used to discredit a good
deal of health, safety, and environmental regulation. Public choice theory, associated with the
economist James Buchanan and an entire ensuing school of economics and political science, was
used to impeach democracy itself, on the premise that policies were hopelessly afflicted by
"rent-seekers" and "free-riders."
Market failure was dismissed as a rare special case; government failure was said to be
ubiquitous. Theorists worked hand in glove with lobbyists and with public officials. But in
every major case where neoliberal theory generated policy, the result was political success and
economic failure.
For example, supply-side economics became the justification for tax cuts, on the premise
that taxes punished enterprise. Supposedly, if taxes were cut, especially taxes on capital and
on income from capital, the resulting spur to economic activity would be so potent that
deficits would be far less than predicted by "static" economic projections, and perhaps even
pay for themselves. There have been six rounds of this experiment, from the tax cuts sponsored
by Jimmy Carter in 1978 to the immense 2017 Tax Cuts and Jobs Act signed by Donald Trump. In
every case some economic stimulus did result, mainly from the Keynesian jolt to demand, but in
every case deficits increased significantly. Conservatives simply stopped caring about
deficits. The tax cuts were often inefficient as well as inequitable, since the loopholes
steered investment to tax-favored uses rather than the most economically logical ones. Dozens
of America's most profitable corporations paid no taxes.
Robert Bork's "antitrust paradox," holding that antitrust enforcement actually weakened
competition, was used as the doctrine to sideline the Sherman and Clayton Acts. Supposedly, if
government just got out of the way, market forces would remain more competitive because
monopoly pricing would invite innovation and new entrants to the market. In practice, industry
after industry became more heavily concentrated. Incumbents got in the habit of buying out
innovators or using their market power to crush them. This pattern is especially insidious in
the tech economy of platform monopolies, where giants that provide platforms, such as Google
and Amazon, use their market power and superior access to customer data to out-compete rivals
who use their platforms. Markets, once again, require rules beyond the benign competence of the
market actors themselves. Only democratic government can set equitable rules. And when
democracy falters, undemocratic governments in cahoots with corrupt private plutocrats will
make the rules.
Human capital theory, another variant of neoliberal application of markets to partly social
questions, justified deregulating labor markets and crushing labor unions. Unions supposedly
used their power to get workers paid more than their market worth. Likewise minimum wage laws.
But the era of depressed wages has actually seen a decline in rates of productivity growth.
Conversely, does any serious person think that the inflated pay of the financial moguls who
crashed the economy accurately reflects their contribution to economic activity? In the case of
hedge funds and private equity, the high incomes of fund sponsors are the result of transfers
of wealth and income from employees, other stakeholders, and operating companies to the fund
managers, not the fruits of more efficient management.
There is a broad literature discrediting this body of pseudo-scholarly work in great detail.
Much of neoliberalism represents the ever-reliable victory of assumption over evidence. Yet
neoliberal theory lived on because it was so convenient for elites, and because of the inertial
power of the intellectual capital that had been created. The well-funded neoliberal habitat has
provided comfortable careers for two generations of scholars and pseudo-scholars who migrate
between academia, think tanks, K Street, op-ed pages, government, Wall Street, and back again.
So even if the theory has been demolished both by scholarly rebuttal and by events, it thrives
in powerful institutions and among their political allies.
The Practical Failure of
Neoliberal Policies
Financial deregulation is neoliberalism's most palpable deregulatory failure, but far from
the only one. Electricity deregulation on balance has increased monopoly power and raised costs
to consumers, but has failed to offer meaningful "shopping around" opportunities to bring down
prices. We have gone from regulated monopolies with predictable earnings, costs, wages, and
consumer protections to deregulated monopolies or oligopolies with substantial pricing power.
Since the Bell breakup, the telephone system tells a similar story of re-concentration,
dwindling competition, price-gouging, and union-bashing.
Air travel has been a poster child for advocates of deregulation, but the actual record is
mixed at best. Airline deregulation produced serial bankruptcies of every major U.S. airline,
often at the cost of worker pay and pension funds.
Ticket prices have declined on average over
the past two decades, but the traveling public suffers from a crazy quilt of fares, declining
service, shrinking seats and legroom, and exorbitant penalties for the perfectly normal sin of
having to change plans. Studies have shown that fares actually declined at a faster rate in the
20 years before deregulation in 1978 than in the 20 years afterward, because the prime source
of greater efficiency in airline travel is the introduction of more fuel-efficient planes.
The
roller-coaster experience of airline profits and losses has reduced the capacity of airlines to
purchase more fuel-efficient aircraft, and the average age of the fleet keeps increasing. The
use of "fortress hubs" to defend market pricing power has reduced the percentage of nonstop
flights, the most efficient way to fly from one point to another.
Robert Bork's spurious arguments that antitrust enforcement hurt competition became the
basis for dismantling antitrust. Massive concentration resulted. Charles Tasnadi/AP Photo
In addition to deregulation, three prime areas of practical neoliberal policies are the use
of vouchers as "market-like" means to social goals, the privatization of public services, and
the use of tax subsides rather than direct outlays. In every case, government revenues are
involved, so this is far from a free market to begin with. But the premise is that market
disciplines can achieve public purposes more efficiently than direct public provision.
The evidence provides small comfort for these claims. One core problem is that the programs
invariably give too much to the for-profit middlemen at the expense of the intended
beneficiaries. A related problem is that the process of using vouchers and contracts invites
corruption. It is a different form of "rent-seeking" -- pursuit of monopoly profits -- than
that attributed to government by public choice theorists, but corruption nonetheless. Often,
direct public provision is far more transparent and accountable than a web of contractors.
A further problem is that in practice there is often far less competition than imagined,
because of oligopoly power, vendor lock-in, and vendor political influence. These experiments
in marketization to serve social goals do not operate in some Platonic policy laboratory, where
the only objective is true market efficiency yoked to the public good. They operate in the
grubby world of practical politics, where the vendors are closely allied with conservative
politicians whose purposes may be to discredit social transfers entirely, or to reward
corporate allies, or to benefit from kickbacks either directly or as campaign
contributions.
Privatized prisons are a case in point. A few large, scandal-ridden companies have gotten
most of the contracts, often through political influence. Far from bringing better quality and
management efficiency, they have profited by diverting operating funds and worsening conditions
that were already deplorable, and finding new ways to charge inmates higher fees for necessary
services such as phone calls. To the extent that money was actually saved, most of the savings
came from reducing the pay and professionalism of guards, increasing overcrowding, and
decreasing already inadequate budgets for food and medical care.
A similar example is the privatization of transportation services such as highways and even
parking meters. In several Midwestern states, toll roads have been sold to private vendors. The
governor who makes the deal gains a temporary fiscal windfall, while drivers end up paying
higher tolls often for decades. Investment bankers who broker the deal also take their cut.
Some of the money does go into highway improvements, but that could have been done more
efficiently in the traditional way via direct public ownership and competitive bidding.
Housing vouchers substantially reward landlords who use the vouchers to fill empty houses
with poor people until the neighborhood gentrifies, at which point the owner is free to quit
the program and charge market rentals. Thus public funds are used to underwrite a privately
owned, quasi-social housing sector -- whose social character is only temporary. No permanent
social housing is produced despite the extensive public outlay. The companion use of tax
incentives to attract passive investment in affordable housing promotes economically
inefficient tax shelters, and shunts public funds into the pockets of the investors -- money
that might otherwise have gone directly to the housing.
The Affordable Care Act is a form of voucher. But the regulated private insurance markets in
the ACA have not fully lived up to their promise, in part because of the extensive market power
retained by private insurers and in part because the right has relentlessly sought to sabotage
the program -- another political feedback loop. The sponsors assumed that competition would
lower costs and increase consumer choice. But in too many counties, there are three or fewer
competing plans, and in some cases just one.
As more insurance plans and hospital systems become for-profit, massive investment goes into
such wasteful activities as manipulation of billing, "risk selection," and other gaming of the
rules. Our mixed-market system of health care requires massive regulation to work with
tolerable efficiency. In practice, this degenerates into an infinite regress of regulator
versus commercial profit-maximizer, reminiscent of Mad magazine's "Spy versus Spy," with
the industry doing end runs to Congress to further rig the rules. Straight-ahead public
insurance such as Medicare is generally far more efficient.
An extensive literature has demonstrated that for-profit voucher schools do no better and
often do worse than comparable public schools, and are vulnerable to multiple forms of gaming
and corruption. Proprietors of voucher schools are superb at finding ways of excluding costly
special-needs students, so that those costs are imposed on what remains of public schools; they
excel at gaming test results. While some voucher and charter schools, especially nonprofit
ones, sometimes improve on average school performance, so do many public schools. The record is
also muddied by the fact that many ostensibly nonprofit schools contract out management to
for-profit companies.
Tax preferences have long been used ostensibly to serve social goals. The Earned Income Tax
Credit is considered one of the more successful cases of using market-like measures -- in this
case a refundable tax credit -- to achieve the social goal of increasing worker take-home pay.
It has also been touted as the rare case of bipartisan collaboration. Liberals get more money
for workers. Conservatives get to reward the deserving poor, since the EITC is conditioned on
employment. Conservatives get a further ideological win, since the EITC is effectively a wage
subsidy from the government, but is experienced as a tax refund rather than a benefit of
government.
Recent research, however, shows that the EITC is primarily a subsidy of low-wage employers,
who are able to pay their workers a lot less than a market-clearing wage. In industries such as
nursing homes or warehouses, where many workers qualified for the EITC work side by side with
ones not eligible, the non-EITC workers get substandard wages. The existence of the EITC
depresses the level of the wages that have to come out of the employer's
pocket.
Neoliberalism's Influence on Liberals
As free-market theory resurged, many moderate liberals embraced these policies. In the
inflationary 1970s, regulation became a scapegoat that supposedly deterred salutary price
competition. Some, such as economist Alfred Kahn, President Carter's adviser on deregulation,
supported deregulation on what he saw as the merits. Other moderates supported neoliberal
policies opportunistically, to curry favor with powerful industries and donors. Market-like
policies were also embraced by liberals as a tactical way to find common ground with
conservatives.
Several forms of deregulation -- of airlines, trucking, and electric power -- began not
under Reagan but under Carter. Financial deregulation took off under Bill Clinton. Democratic
presidents, as much as Republicans, promoted trade deals that undermined social standards.
Cost-benefit analysis by the Office of Information and Regulatory Affairs (OIRA) was more of a
choke point under Barack Obama than under George W. Bush.
"Command and control" became an all-purpose pejorative for disparaging perfectly sensible
and efficient regulation. "Market-like" became a fashionable concept, not just on the
free-market right but on the moderate left. Cass Sunstein, who served as Obama's
anti-regulation czar,uses the example of "nudges" as a more market-like and hence superior
alternative to direct regulation, though with rare exceptions their impact is trivial.
Moreover, nudges only work in tandem with regulation.
There are indeed some interventionist policies that use market incentives to serve social
goals. But contrary to free-market theory, the market-like incentives first require substantial
regulation and are not a substitute for it. A good example is the Clean Air Act Amendments of
1990, which used tradable emission rights to cut the output of sulfur dioxide, the cause of
acid rain. This was supported by both the George H.W. Bush administration and by leading
Democrats. But before the trading regime could work, Congress first had to establish
permissible ceilings on sulfur dioxide output -- pure command and control.
There are many other instances, such as nutrition labeling, truth-in-lending, and disclosure
of EPA gas mileage results, where the market-like premise of a better-informed consumer
complements command regulation but is no substitute for it. Nearly all of the increase in fuel
efficiency, for example, is the result of command regulations that require auto fleets to hit a
gas mileage target. The fact that EPA gas mileage figures are prominently disclosed on new car
stickers may have modest influence, but motor fuels are so underpriced that car companies have
success selling gas-guzzlers despite the consumer labeling.
Image removed
Bill Clinton and his Treasury Secretary, Robert Rubin, were big promoters of financial deregulation.
Politically, whatever rationale there was for liberals to make common ground with
libertarians is now largely gone. The authors of the 2017 Tax Cuts and Jobs Act made no attempt
to meet Democrats partway; they excluded the opposition from the legislative process entirely.
This was opportunistic tax cutting for elites, pure and simple. The right today also abandoned
the quest for a middle ground on environmental policy, on anti-poverty policy, on health policy
-- on virtually everything. Neoliberal ideology did its historic job of weakening intellectual
and popular support for the proposition that affirmative government can better the lives of
citizens and that the Democratic Party is a reliable steward of that social compact. Since
Reagan, the right's embrace of the free market has evolved from partly principled idealism into
pure opportunism and obstruction.
Neoliberalism and Hyper-Globalism
The post-1990 rules of globalization, supported by conservatives and moderate liberals
alike, are the quintessence of neoliberalism. At Bretton Woods in 1944, the use of fixed
exchange rates and controls on speculative private capital, plus the creation of the IMFand
World Bank, were intended to allow member countries to practice national forms of managed
capitalism, insulated from the destructive and deflationary influences of short-term
speculative private capital flows. As doctrine and power shifted in the 1970s, the IMF, the
World Bank, and later the WTO, which replaced the old GATT, mutated into their ideological
opposite. Rather than instruments of support for mixed national economies, they became
enforcers of neoliberal policies.
The standard package of the "Washington Consensus" of approved policies for developing
nations included demands that they open their capital markets to speculative private finance,
as well as cutting taxes on capital, weakening social transfers, and gutting labor regulation
and public ownership. But private capital investment in poor countries proved to be fickle. The
result was often excessive inflows during the boom part of the cycle and punitive withdrawals
during the bust -- the opposite of the patient, long-term development capital that these
countries needed and that was provided by the World Bank of an earlier era. During the bust
phase, the IMF typically imposes even more stringent neoliberal demands as the price of
financial bailouts, including perverse budgetary austerity, supposedly to restore the
confidence of the very speculative capital markets responsible for the boom-bust cycle.
Dozens of nations, from Latin America to East Asia, went through this cycle of boom, bust,
and then IMF pile-on. Greece is still suffering the impact. After 1990, hyper-globalism also
included trade treaties whose terms favored multinational corporations. Traditionally, trade
agreements had been mainly about reciprocal reductions of tariffs. Nations were free to have
whatever brand of regulation, public investment, or social policies they chose. With the advent
of the WTO, many policies other than tariffs were branded as trade distorting, even as takings
without compensation. Trade deals were used to give foreign capital free access and to
dismantle national regulation and public ownership. Special courts were created in which
foreign corporations and investors could do end runs around national authorities to challenge
regulation for impeding commerce.
At first, the sponsors of the new trade regime tried to claim the successful economies of
East Asia as evidence of the success of the neoliberal recipe. Supposedly, these nations had
succeeded by pursuing "export-led growth," exposing their domestic economies to salutary
competition. But these claims were soon exposed as the opposite of what had actually occurred.
In fact, Japan, South Korea, smaller Asian nations, and above all China had thrived by
rejecting every major tenet of neoliberalism. Their capital markets were tightly regulated and
insulated from foreign speculative capital. They developed world-class industries as state-led
cartels that favored domestic production and supply. East Asia got into trouble only when it
followed IMF dictates to throw open capital markets, and in the aftermath they recovered by
closing those markets and assembling war chests of hard currency so that they'd never again
have to go begging to the IMF. Enthusiasts of hyper-globalization also claimed that it
benefited poor countries by increasing export opportunities, but as the success of East Asia
shows, there is more than one way to boost exports -- and many poorer countries suffered under
the terms of the global neoliberal regime.
Nor was the damage confined to the developing world. As the work of Harvard economist Dani
Rodrik has demonstrated, democracy requires a polity. For better or for worse, the polity and
democratic citizenship are national. By enhancing the global market at the expense of the
democratic state, the current brand of hyper-globalization deliberately weakens the capacity of
states to regulate markets, and weakens democracy itself.
When Do Markets Work?
The failure of neoliberalism as economic and social policy does not mean that markets never
work. A command economy is even more utopian and perverse than a neoliberal one. The practical
quest is for an efficient and equitable middle ground.
The neoliberal story of how the economy operates assumes a largely frictionless marketplace,
where prices are set by supply and demand, and the price mechanism allocates resources to their
optimal use in the economy as a whole. For this discipline to work as advertised, however,
there can be no market power, competition must be plentiful, sellers and buyers must have
roughly equal information, and there can be no significant externalities. Much of the 20th
century was practical proof that these conditions did not describe a good part of the actual
economy. And if markets priced things wrong, the market system did not aggregate to an
efficient equilibrium, and depressions could become self-deepening. As Keynes demonstrated,
only a massive jolt of government spending could restart the engines, even if market pricing
was partly violated in the process.
Nonetheless, in many sectors of the economy, the process of buying and selling is close
enough to the textbook conditions of perfect competition that the price system works tolerably
well. Supermarkets, for instance, deliver roughly accurate prices because of the consumer's
freedom and knowledge to shop around. Likewise much of retailing. However, when we get into
major realms of the economy with positive or negative externalities, such as education and
health, markets are not sufficient. And in other major realms, such as pharmaceuticals, where
corporations use their political power to rig the terms of patents, the market doesn't produce
a cure.
The basic argument of neoliberalism can fit on a bumper sticker. Markets work;
governments don't . If you want to embellish that story, there are two corollaries: Markets
embody human freedom. And with markets, people basically get what they deserve; to alter market
outcomes is to spoil the poor and punish the productive. That conclusion logically flows from
the premise that markets are efficient. Milton Friedman became rich, famous, and influential by
teasing out the several implications of these simple premises.
It is much harder to articulate the case for a mixed economy than the case for free markets,
precisely because the mixed economy is mixed. The rebuttal takes several paragraphs. The more
complex story holds that markets are substantially efficient in some realms but far from
efficient in others, because of positive and negative externalities, the tendency of financial
markets to create cycles of boom and bust, the intersection of self-interest and corruption,
the asymmetry of information between company and consumer, the asymmetry of power between
corporation and employee, the power of the powerful to rig the rules, and the fact that there
are realms of human life (the right to vote, human liberty, security of one's person) that
should not be marketized.
And if markets are not perfectly efficient, then distributive questions are partly political
choices. Some societies pay pre-K teachers the minimum wage as glorified babysitters. Others
educate and compensate them as professionals. There is no "correct" market-derived wage,
because pre-kindergarten is a social good and the issue of how to train and compensate teachers
is a social choice, not a market choice. The same is true of the other human services,
including medicine. Nor is there a theoretically correct set of rules for patents, trademarks,
and copyrights. These are politically derived, either balancing the interests of innovation
with those of diffusion -- or being politically captured by incumbent industries.
Governments can in principle improve on market outcomes via regulation, but that fact is
complicated by the risk of regulatory capture. So another issue that arises is market failure
versus polity failure, which brings us back to the urgency of strong democracy and effective
government.
After Neoliberalism
The political reversal of neoliberalism can only come through practical politics and
policies that demonstrate how government often can serve citizens more equitably and
efficiently than markets. Revision of theory will take care of itself. There is no shortage of
dissenting theorists and empirical policy researchers whose scholarly work has been vindicated
by events. What they need is not more theory but more influence, both in the academy and in the
corridors of power. They are available to advise a new progressive administration, if
that administration can get elected and if it refrains from hiring neoliberal
advisers.
There are also some relatively new areas that invite policy innovation. These include
regulation of privacy rights versus entrepreneurial liberties in the digital realm; how to
think of the internet as a common carrier; how to update competition and antitrust policy as
platform monopolies exert new forms of market power; how to modernize labor-market policy in
the era of the gig economy; and the role of deeper income supplements as machines replace human
workers.
The failed neoliberal experiment also makes the case not just for better-regulated
capitalism but for direct public alternatives as well. Banking, done properly, especially the
provision of mortgage finance, is close to a public utility. Much of it could be public. A
great deal of research is done more honestly and more cost-effectively in public, peer-reviewed
institutions such as the NIH than by a substantially corrupt private pharmaceutical industry.
Social housing often is more cost-effective than so-called public-private partnerships. Public
power is more efficient to generate, less prone to monopolistic price-gouging, and friendlier
to the needed green transition than private power. The public option in health care is far more
efficient than the current crazy quilt in which each layer of complexity adds opacity and cost.
Public provision does require public oversight, but that is more straightforward and
transparent than the byzantine dance of regulation and counter-regulation.
The two other benefits of direct public provision are that the public gets direct evidence
of government delivering something of value, and that the countervailing power of democracy to
harness markets is enhanced. A mixed economy depends above all on a strong democracy -- one
even stronger than the democracy that succumbed to the corrupting influence of economic elites
and their neoliberal intellectual allies beginning half a century ago. The antidote to the
resurrected neoliberal fable is the resurrection of democracy -- strong enough to tame the
market in a way that tames it for keeps.
Robert Kuttner is co-founder and co-editor of The American Prospect, and professor at
Brandeis University's Heller School. His latest book is The Stakes: 2020 and the Survival of American
Democracy . In addition to writing for the Prospect, he writes for HuffPost, The Boston
Globe, and The New York Review of Books.
After 2008 free market economists should be treated at their face value: as academic
charlatans. Now they are treated as goods which are past their shelf life in China and that's a
progress.
Notable quotes:
"... The Chinese don't need, and don't want, a bunch of arrogant pro-US intellectuals giving them lectures. I can't say I blame them. ..."
"... No, that is because after WW2 the US was the only major economy left standing that hadn't been wrecked, and they were in the box seat to set the agenda post Bretton-Woods (and cement for themselves the leading dominant role). The USD is being used increasingly as a cudgel to enforce US hegemony, and that will lead much of the world to seek alternatives. It's happening now, slowly at first, and will only gain speed from here. ..."
During my last visit I stopped by the offices of what remained of the Unirule Institute of
Economics. The well-respected organization was formed in 1993 by six economists, most
importantly Mao Yushi (no relation to Mao Zedong) and Sheng Hong. My organization, the Cato
Institute, gave the former the 2012 Milton Friedman Prize for Advancing Liberty to honor his
work on behalf of human freedom. Now retired at the age of ninety, Mao Yushi paid a price for
activism. Noted his award citation, Mao "has faced severe punishment, exile, and near
starvation for remarks critical of a command-based economy and society." The late Liu Xiaobo, a
Nobel laureate, said of Mao: his "bravery is worthy of our respect."
However, despite the hardship of its founder, Unirule was no revolutionary political
organization. Its name stood for "universal rules," essentially the rule of law. Its focus was
moving toward a more market-oriented economy. The group's work was scholarly, performed by
economists and academics. Its publications were high-brow, its books often published in China.
Unirule's international contacts were mainstream and focused on economic reform.
That Unirule prospered demonstrated how far the PRC had come from the bad old days under Mao
Zedong. Economic integration with the West by no means delivered a libertarian China. Still,
the increasingly vibrant private economy expanded personal autonomy, opening up space absent
since the PRC's founding seventy years ago.
As for politics, other than the question of the Chinese Communist Party's monopoly of power,
most issues could be at least discussed and sometimes debated in academic and other settings. A
vaguely independent media developed, which reported on misdeeds of local governments and
officials. Although this slightly diluted authoritarianism might have appeared to be weakness
to a few who pined for the days of the Cultural Revolution, the system offered a release valve
for people who had no control over their rulers.
That gave CCP officials additional ideas to consider and solutions to employ. Unirule
sponsored lectures, ran conferences, and published books. The group consulted with both local
governments and state companies. Even the national authorities appeared to respect if not
necessarily love Unirule. (In 1980 the government even invited Nobel Laureate Milton Friedman
to Beijing to get his advice.) Asked Jude Blanchette, at the Center for Strategic and
International Studies: "Without independent voices offering alternative viewpoints, how can
China's leaders make effective decisions."
Allowing discussion -- if not exactly dissent -- also might have drained away some of the
dissatisfaction that otherwise would have accumulated against the regime. The pervasiveness of
corruption and intensity of resulting public disgust highlighted the threat both from and to
Communist rule, which came much more from the natural consequences of the monopoly of power
rather than from the expression of discontent with that monopoly.
However, Xi Jinping's ascension to head of both party and government became a dramatic
political inflexion point...
... ... ...
The state agency which sponsored it dropped the affiliation. Newspapers stopped running
articles by its staffers. Discussions of its activities on social media, including the Chinese
phenomenon WeChat, were blocked. Venues cancelled Unirule events. The website was closed down.
Then the organization was twice pushed out of professional spaces. Last year the landlord,
under pressure from regulators, welded the office door shut with staffers still inside; they
had to call the police for rescue. About ten employees and a mass of books, papers and files
ultimately crammed into a small apartment ten floors up in an aged apartment building in a
distant suburb.
The group's latest book, a collection of academic papers, is ready for publication but was
rejected by the PRC's information overseers. The process has been transferred from state to
party, ensuring that everything will be assessed for its propaganda value. More seriously,
Unirule's business license was cancelled, a move the group was fighting. Sheng said he planned
to focus on economic research if the CCP interdict took hold.
... ... ...
A few weeks after my visit Unirule's life appears to have run out. The group announced that
the local government had declared it to be "unregistered and unauthorized." Although Unirule
plans to fight the diktat in court, Sheng admitted that it had essentially no chance of
prevailing and has begun the liquidation process. "We no longer have any space for survival,"
Sheng told the Wall Street Journal . He previously noted that Unirule had been careful
to follow the rules, so the Xi regime wished for the reformers to "disappear by ourselves."
Apparently Xi or someone else high up grew tired of waiting.
... ... ...
Doug Bandow is a senior fellow at the Cato Institute. A former special assistant to
President Ronald Reagan, he is the author of several books, including Foreign Follies: America's New Global Empire .
Nixon's initiative to integrate China with the USA was the biggest strategic mistake the
US ever did. It did not lead to democratization, but rather helped build a powerful
totalitarian Orwellian state.
China clearly has a long term strategic plan how to become the
world leader, and to this end, it steals western technology, locks other nations into dept
traps, builds fifth columns in other countries, uses propaganda and cultural subversion. It
is not yet too late to withdraw all western investment from China and to isolate the country.
Due to the behavior of the CCP, it has very few actual friends.
The strategic plan and task to defeat capitalism had been handed over to China after the
Soviet Union has failed in this endeavor because economically it was no match for capitalist
USA, plus it did not integrate science and technological innovation which without it
capitalism can not be defeated.
China has achieved economic quantity and quality, and is
heading towards full scientific and technological superiority over capitalist USA in the long
run.
In this way socialism through science defeats and overtakes capitalism. Science and more
science, the only way to defeat capitalism.
out of the 3 countries - USA, Russia, China - most of the world is clearly happy with USA
having the leading role, because it is the least evil. Yes, USA is not perfect, Trump is not
a great leader (to say it diplomatically), they have made mistakes (the invasion of Iraq
etc), but they are still much better than USSRv2.0 or totalitarian China.
Even in Asia, China
is widely disliked due to its arrogant and bullying behavior. The Japanese, the Koreans, the
Vietnamese, the Indonesians, none of them really like China.
The fact, that US dollar is the
leading currency has much to do with the world public perception of the stability of the
country. Ie all countries believe the US is the most stable country. So China will have real
trouble convincing the world that yuan is better. I do not believe that China will become a
leading power anytim soon.
You can keep telling yourself that, but its a crock and we non-Americans know it only too
well. Dishonesty and an inability to face truth seems to be an American trait, and the
corruption is only growing worse as the US declines.
"The Japanese, the Koreans, the Vietnamese, the Indonesians, none of them really like
China"
News for you buddy. None of these nations like each other... LOL!! You ever hear Koreans
talking about the Japanese? Now that's hatred...
" The fact, that US dollar is the leading currency has much to do with the world public
perception of the stability of the country."
No, that is because after WW2 the US was the only major economy left standing that hadn't
been wrecked, and they were in the box seat to set the agenda post Bretton-Woods (and cement
for themselves the leading dominant role). The USD is being used increasingly as a cudgel to
enforce US hegemony, and that will lead much of the world to seek alternatives. It's
happening now, slowly at first, and will only gain speed from here.
Pound Sterling used to dominate the world, now where is it? In the future, people will say
the same of the greenback.
I traveled for 1 year across Asia - SE Asia, Thailand, Vietnam, Cambodia, Laos, Indonesia
and 5 months across china. China is almost universally disliked all over Asia due to its
arrogant behavior. And even the famous Chinese investments are increasingly being perceived
as a form of Chinese neocolonialism and rejected
https://www.washingtonpost....
You know how African-Americans commit all sorts of violent crimes, hate speech, and racist
slurs just because they were victims of racial discrimination in America decades ago? It's
the same justification for violence Chinese mainlanders commit against everyone else just
because they suffered from century of humiliation. I'm suspecting that the CCP/PLA is being
coached by the black lefists in the US who have deep hatred against their perceived WASP
establishment. The pattern of angst and diatribes are almost the same.
In the survey you posted above, China is more popular than the USA in Indonesia. Other
countries like Malaysia, Laos, Bangladesh, North Korea are missing. Also, people generally tell to English speaking foreigners what they expect they want to
hear. If the survey was made by Chinese, the results would be different.
The answer is simple and obvious. Democracy and rule of law means that they all go to
jail. In all post-authoritarian shifts, the judicial branch of the government goes into
overdrive, prosecuting past leaders for their crimes. They're really stuck to
authoritarianism no-matter how hard they want democracy.
The CCP is just like a mafia. You won't get in unless you have blood in your hands, and
death is the only way out (unless you can defect to another country and if you can stomach
your immediate family members going to jail for you).
China is doing just great. Its citizens are enjoying a quality of life unprecedented in
China's history (even the author do not dispute this). So why should a democratic majority
89% (PEW) happy individuals must suffer for the selfish few?
History has shown that intellectuals make lousy leaders but great at fomenting chaos +
rebellions. And everyone knows that "soft-spoken criticisms", when weaponized, can kill
millions just as effectively as a nuclear bomb!
Our results have profound implications for the idea that the financial markets are Pareto
efficient which I explore
here in my paper on asset pricing in perpetual youth models. In that paper I assume that
monetary and fiscal policy are passive to
generate realistic asset market volatility. My paper with Pawel shows that the same results can
be generated in a realistic OLG model even when monetary and fiscal policy are active.
The way out of this apparent degeneracy of theory is to adopt an idea I first advocated in
my book on self-fulfilling
prophecies . The way that people form beliefs must be modeled as a new fundamental with the
same methodological status as preferences, technologies and endowments.
Our paper makes a mockery of the attempt to ground neoclassical theory in
'fundamentals'.
This is the conflict between financial elite and Silicon Valley modules against traditional manufactures and extractive
industries like oil, gas, coil, iron ore, etc.
Notable quotes:
"... The First Estate, once the province of the Catholic Church, has morphed into what Samuel Coleridge in the 1830s called "the Clerisy," a group that extends beyond organized religion to the universities, media, cultural tastemakers and upper echelons of the bureaucracy. The role of the Second Estate is now being played by a rising Oligarchy, notably in tech but also Wall Street, that is consolidating control of most of the economy. ..."
A recent
OECD report , is under assault, and shrinking in most places while prospects for upward
mobility for the working class also declines.T
he anger of the Third Estate, both the growing property-less Serf class as well as the
beleaguered Yeomanry, has produced the growth of populist, parties both right and left in
Europe, and the election of Donald Trump in 2016. In the U.S., this includes not simply the
gradual, and sometimes jarring, transformation of the GOP into a vehicle for populist rage, but
also the rise on the Democratic side of politicians such as Sens. Bernie Sanders and Elizabeth
Warren, each of whom have made class politics their signature issue.
Today's neo-feudalism recalls the social order that existed before the democratic
revolutions of the 17th and 18th Century, with our two ascendant estates filling the roles of
the former dominant classes.
The First Estate, once the province of the Catholic Church, has
morphed into what Samuel Coleridge in the 1830s called "the Clerisy," a group that extends
beyond organized religion to the universities, media, cultural tastemakers and upper echelons
of the bureaucracy. The role of the Second Estate is now being played by a rising Oligarchy,
notably in tech but also Wall Street, that is consolidating control of most of the economy.
Together these two classes have waxed while the Third Estate has declined. This essentially
reversed the
enormous gains made by the middle and even the working class over the past 50 years. The
top 1% in America captured just 4.9 percent of total U.S. income growth in 1945-1973, but since
then the country's richest classes has gobbled up an astonishing 58.7% of all new wealth in the
U.S., and 41.8 percent of total income growth during 2009-2015 alone.
In this period, the Oligarchy has benefited from the financialization of the economy and the
refusal of the political class in both parties to maintain competitive markets. As a result,
American industry has become increasingly concentrated. For example, the five largest banks now account
for close to 50 percent of all banking assets, up from barely 30 percent just 20 years ago.
(RELATED: The
Biggest Bank You've Never Heard Of)
Warren Buffett, Jeffrey Immelt, Charles Schwab and Jamie Dimon, at Georgetown University.
Chip Somodevilla/Getty Images.
The concentration numbers in tech are even more frightening. Once a highly competitive
industry, it is now among the most concentrated
. Like the barbarian chieftains who seized land after the fall of Rome, a handful of companies
-- Facebook , Google
, Apple, Microsoft
and
Amazon -- have gained total control over a host of markets, from social media to search,
the software operating systems, cloud computing and e-commerce. In many key markets such as
search, these companies enjoy market shares reaching to eighty or ninety percent.
As they push into fields such as entertainment, space travel, finance and autonomous
vehicles, they have become, as technology analyst
Izabella Kaminska notes, the modern-day "free market" equivalents of the Soviet planners
who operated Gosplan, allocating billions for their own subjective priorities. Libertarians
might point out that these tech giants are still privately held firms but they actually
represent
, as one analyst put it, "a new form of monopoly power made possible by the 'network effect' of
those platforms through which everyone must pass to conduct the business of life."
The role of the Clerisy
The new feudalism, like the original, is not based simply around the force of arms, or in
this case what Marx called "the cash nexus." Like the church in Medieval times, the Clerisy
sees itself as anointed to direct human society, a modern version of what historian Marc Bloch
called the "oligarchy of priests and monks whose task it was to propitiate heaven." This
modern-day version of the old First Estate sets down the ideological tone in the schools, the
mass media, culture and the arts. There's also a Clerisy of sorts on the right, and what's left
of the center, but this remains largely, except for Fox, an insignificant remnant.
Like their predecessors, today's Clerisy embraces an orthodoxy, albeit secular, on a host of
issues from race and gender to the environment. Universities have become increasingly dogmatic
in their worldview.
One study of 51 top colleges found the proportion of liberals to conservatives as much as
70:1, and usually at least 8:1. At elite liberal arts schools like Wellesley, Swarthmore and
Williams, the proportion reaches 120:1.
The increasing concentration of media in ever
fewer centers -- London, New York, Washington, San Francisco -- and the decline of the
local press has accentuated the elite Clerisy's domination. With most reporters well on the
left, journalism, as a 2019 Rand report reveals, is
steadily moving from a fact-based model to one that is dominated by predictable opinion. This,
Rand suggests has led to what they called "truth decay."
The new geography of feudalism
The new feudalism increasingly defines geography not only in America but across much of the
world. The great bastion of both the Oligarchy and high reaches of the Clerisy lies in the
great cities, notably New York, London, Paris, Beijing, Shanghai, Tokyo, San Francisco, Los
Angeles and Seattle. These are all among the most expensive places to live in the world and
play a dominant role in the global media.
Yet these cities are not the progressive, egalitarian places evoked by great urbanists like
the late Jane Jacobs, but more closely resemble the "gated" cities of the Middle Ages, and
their equivalents in places as diverse as China and Japan. American cities now have higher
levels of inequality, notes one recent study , than Mexico.
In fact, the
largest gaps( between the bottom and top quintiles of median incomes are in the
heartland of progressive opinion, such as in the metropolitan areas of San Francisco, New York,
San Jose, and Los Angeles. (RELATED: Got Income
Inequality? Least Affordable Cities Are Also the Bluest)
In some of the most favored blue cities, such as Seattle ,
Portland and San Francisco , not
only is the middle class disappearing, but there has been something equivalent of "ethnic
cleansing" amidst rising high levels of inequality, homelessness and social disorder.
Long-standing minority communities like the Albina neighborhood in
Portland are disappearing as 10,000 of the 38,000 residents have been pushed out of the
historic African-American section. In San Francisco, the black population has dropped from 18%
in the 1970s to single digits and what remains, notes Harry Alford ,
National Black Chamber of Commerce president, "are predominantly living under the poverty level
and is being pushed out to extinction."
This exclusive and exclusionary urbanity contrasts with the historic role of cities. The
initial rise of the Third Estate was tied intimately to the " freedom of the city . " But with
the diminishing prospects for blue-collar industries, as well as high housing costs, many
minorities and immigrants are increasingly migrating away from
multi-culturally correct regions like
Chicago , New York, Los Angeles and San Francisco for less regulated, generally less "woke"
places like Phoenix, Dallas-Ft. Worth, Houston, Atlanta and Las
Vegas.
Yet even as the middle-class populations flee, poverty remains deeply entrenched in our big
cities, with a rate roughly twice that of the suburbs. The much-celebrated urban renaissance
has been largely enjoyed by the upper echelons but not the working classes.
In the city of Philadelphia , for example, the "center city" income rose, but citywide
between 2000 and 2014, for every district that, like downtown, gained in income, two suffered
income declines. Similarly, research shows
that the number of high poverty (greater than 30 percent below the poverty line) neighborhoods
in the U.S. has tripled since 1970 from 1,100 to 3,100.
Undermining the Third Estate
The impact of the rising Clerisy and Oligarchs poses a direct threat to the future of the
Third Estate. On the economic side, relentless consolidation and financialization has
devastated Main Street. In the great boom of the 1980s, small firms and start-ups powered the
economy, but more recently the
rates of entrepreneurship have dropped as mega-mergers, chains and on-line giants slowly
reduced the scope of opportunities. Perhaps most disturbing of all has been the decline in new
formations among younger people.
This phenomenon is most evident in the tech world. Today is not a great time to start a tech
company unless you are in the charmed circle of elite firms with access to venture and private
equity funds. The old garage start-up culture of Silicon Valley is slowly dying, as large firms
gobble up or crush competitors. Indeed, since the rise of the tech economy in the 1990s, the
overall degree of industry
concentration has grown by 75 percent.
Like the peasant farmer or artisan in the feudal era, the entrepreneur not embraced by the
big venture firms lives largely at the sufferance of the tech overlords. As one online
publisher notes on his firm's status with Google:
If you're a Star Trek fan, you'll understand the analogy. It's a bit like being
assimilated by the Borg. You get cool new powers. But having been assimilated, if your
implants were ever removed, you'd certainly die. That basically captures our relationship to
Google.
The Clerisy's War on the Middle Class
For generations, the Clerisy has steadfastly opposed the growth of suburbia, driven in large
part by the aesthetic concerns –the conviction that single-family homes are fundamentally
anti-social– and, increasingly, by often dubious assertions on their environmental
toxicity. In places like California, the United Kingdom, Australia and Canada, government
policies discourage peripheral construction where home ownership rates tend to be higher, in
favor of dense, largely rental housing.
This marks a dramatic turnaround. During the middle of the 20th Century, ownership rates in
the United States leaped from 44 percent in 1940 to 63 percent in the late 1970s. Yet in the
new generation this prospect is fading. In the United States, home ownership among post-college
millennials (aged 25-34) has dropped from 45.4 percent in 2000 to 37.0 percent in 2016, a drop
of 18 percent from the 1970s, according to
Census Bureau data . In contrast, their parents and grandparents witnessed a dramatic rise
of homeownership from 44 percent in 1940 to 63 percent 30 years later.
But the Clerisy's war on middle- and working-class aspiration goes well beyond housing.
Climate change policies already enacted in California
and Germany
have driven millions into "energy poverty." If adopted, many of the latest proposals for such
things as the Green New Deal all but guarantee the
rapid reduction of millions of highly productive and often well-paying energy, aerospace,
automobile and logistics jobs.
Political implications
The war of the Estates is likely to shape our political landscape for decades to come. Parts
of the Third Estate –those working with their hands or operating small businesses–
increasingly flock to the GOP, according to a recent CityLab report. Trump also has a case to make with these workers, as real wages
for
blue-collar workers are now rising for the first time in decades. Unemployment is near
record lows not only for whites but also Latinos and African-Americans. Of course, if the
economy weakens, he may lose some of this support. (RELATED: Trump Blasts Media For
'Barely' Covering 'Great' Economy, Low Unemployment)
But the emergence of neo-feudalism also lays the foundation for a larger, more potent and
radicalized left. As opportunities for upward mobility shrink, a new generation, indoctrinated
in leftist ideology sometimes from grade school and ever more predictably in undergraduate and
graduate school, tilts heavily to the left, embracing what is essentially an updated socialist
program of massive redistribution, central direction of the economy and racial
redress.
Antifa members in Berkeley, California. AFP/Getty/Amy Osborne.
In France's most recent presidential election, the
former Trotskyite Jean-Luc Melenchon won the under-24 vote, beating the "youthful" Emmanuel
Macron by almost two to one. Similarly in the United Kingdom, the birthplace of modern
capitalism, the
Labour Party , under the neo-
Marxist Jeremy Corbyn , won over 60 percent of the vote among voters under 40, compared to
just 23 percent for the Conservatives. Similar trends can be seen across Europe, where the Red
and
Green Party enjoys wide youth support.
The shift to hard-left politics also extends to the United States– historically not a
fertile area for Marxist thinking. In
the 2016 primaries , the openly socialist
Bernie Sanders easily outpolled Hillary Clinton and Donald Trump combined. A 2016 poll by
the Communism Memorial
Foundation found that 44 percent of American millennials favored socialism while another 14
percent chose fascism or communism. By 2024,
these millennials will be by far
the country's biggest voting bloc .
In the current run-up to the Democratic nomination these young voters
overwhelming tilt toward Sanders and his slightly less radical colleague Warren, while former
Vice President Joe Biden retains the support of older Democrats. The common themes of the "new"
Left, with such things as guaranteed annual incomes, rent control, housing subsidies, and free
college might prove irresistible to a generation that has little hope of owning a home, could
remain childless, and might never earn enough money to invest in much of anything. (RELATED: Bernie Sanders Says 'Health Care For All' Will Require Tax Increases)
At the end, the war of the estates raises the prospect of rising autocracy, even under
formally democratic forms. In his assessment in "Democracy in America ," Alexis de
Tocqueville suggests a new form of tyranny -- in many ways more insidious than that of the
monarchical state -- that grants favors and entertainments to its citizens but expects little
in obligation. Rather than expect people to become adults, he warns, a democratic state can be
used to keep its members in "perpetual childhood" and "would degrade men rather than tormenting
them."
With the erosion of the middle class, and with it dreams of upward mobility, we already see
more extreme, less liberally minded class politics. A nation of clerics, billionaires and serfs
is not conducive to the democratic experiment; only by mobilizing the Third Estate can we hope
that our republican institutions will survive intact even in the near future.
Mr. Kotkin is the Presidential Fellow in Urban Futures at Chapman University and the
executive director of the Center for Opportunity Urbanism. His next book, "The Coming Of
Neo-Feudalism," will be out this spring.
The views and opinions expressed in this commentary are those of the author and do not
reflect the official position of the Daily Caller.
Thomas Piketty's New Book Brings Political Economy Back to Its Sources
In the same way that Capital in the Twenty-First Century transformed the way economists look
at inequality, Piketty's new book Capital and Ideology will transform the way political
scientists look at their own field.
By Branko Milanovic
Thomas Piketty's books are always monumental. Some are more monumental than others. His
Top Incomes in France in the Twentieth Century: Inequality and Redistribution,
1901–1998 (published in French as Les hauts revenus en France au XXe siècle)
covered more than two centuries of income and wealth inequality, in addition to social and
political changes in France. His international bestseller Capital in the Twenty-First Century
(Le capital au XXI siècle) broadened this approach to the most important Western
countries (France, the United States, United Kingdom, and Germany). His new book Capital and
Ideology (to be published in English in March 2020; already published in France as Capital et
idéologie) broadens the scope even further, covering the entire world and presenting a
historical panorama of how ownership of assets (including people) was treated, and justified,
in various historical societies, from China, Japan, and India, to the European-ruled American
colonies, and feudal and capitalist societies in Europe. Just the mention of the geographical
and temporal scope of the book suffices to give the reader an idea of its ambition.
Before I review Capital and Ideology, it is worth mentioning the importance of Piketty's
overall approach, present in all three of his books. His approach is characterized by the
methodological return of economics to its original and key functions: to be a science that
illuminates the interests and explains the behaviors of individuals and social classes in
their quotidian (material) life. This methodology rejects the dominant paradigm of the past
half-century, which increasingly ignored the role of classes and heterogeneous individuals in
the process of production and instead treated all people as abstract agents that maximize
their own income under certain constraints. The dominant paradigm has emptied almost all
social content from economics and presented a view of society that was as abstract as it was
false.
The reintroduction of actual life into economics by Piketty and several other economists
(not entirely coincidentally, most of them are economists interested in inequality) is much
more than just a return to the sources of political economy and economics. This is because
today, we have vastly more information (data) than was available to economists a century ago,
not only about our own contemporary societies but also about past societies. This combination
between political economy's original methodology and big data is what I call "turbo-Annales,"
after the French group of historians that pioneered the view of history as a social science
focusing on the broad social, economic, and political forces that shape the world. The topics
that interested classical political economy and the authors associated with the Annales
School can now be studied empirically, and even econometrically and experimentally -- things
which they could not do, both because of the scarcity of data and unavailability of modern
methodologies.
It is within this context that, I believe, we ought to consider Piketty's Capital and
Ideology. How successful was his approach, applied now to the world and over a very long
time-horizon?
"The dominant paradigm has emptied almost all social content from economics and presented
a view of society that was as abstract as it was false."
For the purposes of this review, I divide Piketty's book into two parts: the first, which
I already mentioned, looks at ideological justifications of inequality across different
societies (Parts 1 and 2 of the book, and to some extent Part 3); the second introduces an
entirely new way of studying recent political cleavages in modern societies (Part 4). I am
somewhat skeptical about Piketty's success in the first part, despite his enormous erudition
and his skills as a raconteur, because success in discussing something so geographically and
temporally immense is difficult to reach, even by the best-informed minds who have studied
different societies for the majority of their careers. Analyzing each of these societies
requires an extraordinarily high degree of sophisticated historical knowledge regarding
religious dogmas, political organization, social stratification, and the like. To take two
examples of authors who have tried to do it, one older and one more recent: Max Weber, during
his entire life (and more specifically in Economy and Society), and Francis Fukuyama in his
two-volume masterpiece on the origins of the political and economic order. In both cases, the
results were not always unanimously approved by specialists studying individual societies and
religions.
In his analysis of some of these societies, Piketty had to rely on somewhat
"straightforward" or simplified discussions of their structure and evolution, discussions
which at times seem plausible but superficial. In other words, each of these historical
societies, many of which lasted centuries, had gone through different phases in their
developments, phases which are subject to various interpretations. Treating such evolutions
as if they were a simple, uncontested story is reductionist. It is a choice of one plausible
historical narrative where many exist. This compares unfavorably with Piketty's own rich and
nuanced narrative in Top Incomes in France in the Twentieth Century.
While I am somewhat skeptical about that first part of the book, I am not skeptical about
the second. In this part, we find the Piketty who plays to his strength: bold and innovative
use of data which produces a new way of looking at phenomena that we all observe but were
unable to define so precisely. Here, Piketty is "playing" on the familiar Western economic
history "terrain" that he knows well, probably better than any other economist.
This part of the book looks empirically at the reasons that left-wing, or social
democratic parties have gradually transformed themselves from being the parties of the
less-educated and poorer classes to become the parties of the educated and affluent middle
and upper-middle classes. To a large extent, traditionally left parties have changed because
their original social-democratic agenda was so successful in opening up education and
high-income possibilities to the people who in the 1950s and 1960s came from modest
backgrounds. These people, the "winners" of social democracy, continued voting for left-wing
parties but their interests and worldview were no longer the same as that of their
(less-educated) parents. The parties' internal social structure thus changed -- the product
of their own political and social success. In Piketty's terms, they became the parties of the
"Brahmin left" (La gauche Brahmane), as opposed to the conservative right-wing parties, which
remained the parties of the "merchant right" (La droite marchande).
To simplify, the elite became divided between the educated "Brahmins" and the more
commercially-minded "investors," or capitalists. This development, however, left the people
who failed to experience upward educational and income mobility unrepresented, and those
people are the ones that feed the current "populist" wave. Quite extraordinarily, Piketty
shows the education and income shifts of left-wing parties' voters using very similar
long-term data from all major developed democracies (and India). The fact that the story is
so consistent across countries lends an almost uncanny plausibility to his hypothesis.
It is also striking, at least to me, that such multi-year, multi-country data were
apparently never used by political scientists to study this phenomenon. This part of
Piketty's book will likely transform, or at least affect, how political scientists look at
new political realignments and class politics in advanced democracies in the years to come.
In the same way that Capital in the Twenty-First Century has transformed how economists look
at inequality, Capital and Ideology will transform the way political scientists look at their
own field.
Branko Milanovic is a senior scholar at the Stone Center on Socio-Economic Inequality at the
Graduate Center, City University of New York.
This is a Marxist critique of neoliberalism. Not necessary right but they his some relevant
points.
Notable quotes:
"... The ideology of neoliberal capitalism was the promise of growth. But with neoliberal capitalism reaching a dead end, this promise disappears and so does this ideological prop. ..."
"... The ex ante tendency toward overproduction arises because the vector of real wages across countries does not increase noticeably over time in the world economy, while the vector of labor productivities does, typically resulting in a rise in the share of surplus in world output. ..."
"... While the rise in the vector of labor productivities across countries, a ubiquitous phenomenon under capitalism that also characterizes neoliberal capitalism, scarcely requires an explanation, why does the vector of real wages remain virtually stagnant in the world economy? The answer lies in the sui generis character of contemporary globalization that, for the first time in the history of capitalism, has led to a relocation of activity from the metropolis to third world countries in order to take advantage of the lower wages prevailing in the latter and meet global demand. ..."
"... The current globalization broke with this. The movement of capital from the metropolis to the third world, especially to East, South, and Southeast Asia to relocate plants there and take advantage of their lower wages for meeting global demand, has led to a desegmentation of the world economy, subjecting metropolitan wages to the restraining effect exercised by the third world's labor reserves. Not surprisingly, as Joseph Stiglitz has pointed out, the real-wage rate of an average male U.S. worker in 2011 was no higher -- indeed, it was marginally lower -- than it had been in 1968. 5 ..."
"... This ever-present opposition becomes decisive within a regime of globalization. As long as finance capital remains national -- that is, nation-based -- and the state is a nation-state, the latter can override this opposition under certain circumstances, such as in the post-Second World War period when capitalism was facing an existential crisis. But when finance capital is globalized, meaning, when it is free to move across country borders while the state remains a nation-state, its opposition to fiscal deficits becomes decisive. If the state does run large fiscal deficits against its wishes, then it would simply leave that country en masse , causing a financial crisis. ..."
"... The state therefore capitulates to the demands of globalized finance capital and eschews direct fiscal intervention for increasing demand. It resorts to monetary policy instead since that operates through wealth holders' decisions, and hence does not undermine their social position. But, precisely for this reason, monetary policy is an ineffective instrument, as was evident in the United States in the aftermath of the 2007–09 crisis when even the pushing of interest rates down to zero scarcely revived activity. 6 ..."
"... If Trump's protectionism, which recalls the Smoot-Hawley tariff of 1931 and amounts to a beggar-my-neighbor policy, does lead to a significant export of unemployment from the United States, then it will invite retaliation and trigger a trade war that will only worsen the crisis for the world economy as a whole by dampening global investment. Indeed, since the United States has been targeting China in particular, some retaliatory measures have already appeared. But if U.S. protectionism does not invite generalized retaliation, it would only be because the export of unemployment from the United States is insubstantial, keeping unemployment everywhere, including in the United States, as precarious as it is now. However we look at it, the world would henceforth face higher levels of unemployment. ..."
"... The second implication of this dead end is that the era of export-led growth is by and large over for third world economies. The slowing down of world economic growth, together with protectionism in the United States against successful third world exporters, which could even spread to other metropolitan economies, suggests that the strategy of relying on the world market to generate domestic growth has run out of steam. Third world economies, including the ones that have been very successful at exporting, would now have to rely much more on their home market ..."
"... In other words, we shall now have an intensification of the imperialist stranglehold over third world economies, especially those pushed into unsustainable balance-of-payments deficits in the new situation. By imperialism , here we do not mean the imperialism of this or that major power, but the imperialism of international finance capital, with which even domestic big bourgeoisies are integrated, directed against their own working people ..."
"... In short, the ideology of neoliberal capitalism was the promise of growth. But with neoliberal capitalism reaching a dead end, this promise disappears and so does this ideological prop. To sustain itself, neoliberal capitalism starts looking for some other ideological prop and finds fascism. ..."
"... The first is the so-called spontaneous method of capital flight. Any political formation that seeks to take the country out of the neoliberal regime will witness capital flight even before it has been elected to office, bringing the country to a financial crisis and thereby denting its electoral prospects. And if perchance it still gets elected, the outflow will only increase, even before it assumes office. The inevitable difficulties faced by the people may well make the government back down at that stage. The sheer difficulty of transition away from a neoliberal regime could be enough to bring even a government based on the support of workers and peasants to its knees, precisely to save them short-term distress or to avoid losing their support. ..."
"... The third weapon consists in carrying out so-called democratic or parliamentary coups of the sort that Latin America has been experiencing. Coups in the old days were effected through the local armed forces and necessarily meant the imposition of military dictatorships in lieu of civilian, democratically elected governments. Now, taking advantage of the disaffection generated within countries by the hardships caused by capital flight and imposed sanctions, imperialism promotes coups through fascist or fascist-sympathizing middle-class political elements in the name of restoring democracy, which is synonymous with the pursuit of neoliberalism. ..."
"... And if all these measures fail, there is always the possibility of resorting to economic warfare (such as destroying Venezuela's electricity supply), and eventually to military warfare. Venezuela today provides a classic example of what imperialist intervention in a third world country is going to look like in the era of decline of neoliberal capitalism, when revolts are going to characterize such countries more and more. ..."
"... Despite this opposition, neoliberal capitalism cannot ward off the challenge it is facing for long. It has no vision for reinventing itself. Interestingly, in the period after the First World War, when capitalism was on the verge of sinking into a crisis, the idea of state intervention as a way of its revival had already been mooted, though its coming into vogue only occurred at the end of the Second World War. 11 Today, neoliberal capitalism does not even have an idea of how it can recover and revitalize itself. And weapons like domestic fascism in the third world and direct imperialist intervention cannot for long save it from the anger of the masses that is building up against it. ..."
The ideology of neoliberal capitalism was the promise of growth.
But with neoliberal capitalism reaching a dead end, this promise disappears and so does this
ideological prop.
Harry Magdoff's The Age of
Imperialism is a classic work that shows how postwar political decolonization does not
negate the phenomenon of imperialism. The book has two distinct aspects. On the one hand, it
follows in V. I. Lenin's footsteps in providing a comprehensive account of how capitalism at
the time operated globally. On the other hand, it raises a question that is less frequently
discussed in Marxist literature -- namely, the need for imperialism. Here, Magdoff not only
highlighted the crucial importance, among other things, of the third world's raw materials for
metropolitan capital, but also refuted the argument that the declining share of raw-material
value in gross manufacturing output somehow reduced this importance, making the simple point
that there can be no manufacturing at all without raw materials. 1
Magdoff's focus was on a period when imperialism was severely resisting economic
decolonization in the third world, with newly independent third world countries taking control
over their own resources. He highlighted the entire armory of weapons used by imperialism. But
he was writing in a period that predated the onset of neoliberalism. Today, we not only have
decades of neoliberalism behind us, but the neoliberal regime itself has reached a dead end.
Contemporary imperialism has to be discussed within this setting.
Globalization and
Economic Crisis
There are two reasons why the regime of neoliberal globalization has run into a dead end.
The first is an ex ante tendency toward global overproduction; the second is that the
only possible counter to this tendency within the regime is the formation of asset-price
bubbles, which cannot be conjured up at will and whose collapse, if they do appear, plunges the
economy back into crisis. In short, to use the words of British economic historian Samuel
Berrick Saul, there are no "markets on tap" for contemporary metropolitan capitalism, such as
had been provided by colonialism prior to the First World War and by state expenditure in the
post-Second World War period of dirigisme . 2
The ex ante tendency toward overproduction arises because the vector of real wages
across countries does not increase noticeably over time in the world economy, while the vector
of labor productivities does, typically resulting in a rise in the share of surplus in world
output. As Paul Baran and Paul Sweezy argued in Monopoly Capital , following the lead of
Michał Kalecki and Josef Steindl, such a rise in the share of economic surplus, or a shift
from wages to surplus, has the effect of reducing aggregate demand since the ratio of
consumption to income is higher on average for wage earners than for those living off the
surplus. 3
Therefore, assuming a given level of investment associated with any period, such a shift would
tend to reduce consumption demand and hence aggregate demand, output, and capacity utilization.
In turn, reduced capacity utilization would lower investment over time, further aggravating the
demand-reducing effect arising from the consumption side.
While the rise in the vector of labor productivities across countries, a ubiquitous
phenomenon under capitalism that also characterizes neoliberal capitalism, scarcely requires an
explanation, why does the vector of real wages remain virtually stagnant in the world economy?
The answer lies in the sui generis character of contemporary globalization that, for the
first time in the history of capitalism, has led to a relocation of activity from the
metropolis to third world countries in order to take advantage of the lower wages prevailing in
the latter and meet global demand.
Historically, while labor has not been, and is still not, free to migrate from the third
world to the metropolis, capital, though juridically free to move from the latter to the
former, did not actually do so , except to sectors like mines and plantations, which
only strengthened, rather than broke, the colonial pattern of the international division of
labor. 4
This segmentation of the world economy meant that wages in the metropolis increased with labor
productivity, unrestrained by the vast labor reserves of the third world, which themselves had
been caused by the displacement of manufactures through the twin processes of
deindustrialization (competition from metropolitan goods) and the drain of surplus (the
siphoning off of a large part of the economic surplus, through taxes on peasants that are no
longer spent on local artisan products but finance gratis primary commodity exports to
the metropolis instead).
The current globalization broke with this. The movement of capital from the metropolis to
the third world, especially to East, South, and Southeast Asia to relocate plants there and
take advantage of their lower wages for meeting global demand, has led to a desegmentation of
the world economy, subjecting metropolitan wages to the restraining effect exercised by the
third world's labor reserves. Not surprisingly, as Joseph Stiglitz has pointed out, the
real-wage rate of an average male U.S. worker in 2011 was no higher -- indeed, it was
marginally lower -- than it had been in 1968. 5
At the same time, such relocation of activities, despite causing impressive growth rates of
gross domestic product (GDP) in many third world countries, does not lead to the exhaustion of
the third world's labor reserves. This is because of another feature of contemporary
globalization: the unleashing of a process of primitive accumulation of capital against petty
producers, including peasant agriculturists in the third world, who had earlier been protected,
to an extent, from the encroachment of big capital (both domestic and foreign) by the
postcolonial dirigiste regimes in these countries. Under neoliberalism, such protection
is withdrawn, causing an income squeeze on these producers and often their outright
dispossession from their land, which is then used by big capital for its various so-called
development projects. The increase in employment, even in countries with impressive GDP growth
rates in the third world, falls way short of the natural growth of the workforce, let alone
absorbing the additional job seekers coming from the ranks of displaced petty producers. The
labor reserves therefore never get used up. Indeed, on the contrary, they are augmented
further, because real wages continue to remain tied to a subsistence level, even as
metropolitan wages too are restrained. The vector of real wages in the world economy as a whole
therefore remains restrained.
Although contemporary globalization thus gives rise to an ex ante tendency toward
overproduction, state expenditure that could provide a counter to this (and had provided a
counter through military spending in the United States, according to Baran and Sweezy) can no
longer do so under the current regime. Finance is usually opposed to direct state intervention
through larger spending as a way of increasing employment. This opposition expresses itself
through an opposition not just to larger taxes on capitalists, but also to a larger fiscal
deficit for financing such spending. Obviously, if larger state spending is financed by taxes
on workers, then it hardly adds to aggregate demand, for workers spend the bulk of their
incomes anyway, so the state taking this income and spending it instead does not add any extra
demand. Hence, larger state spending can increase employment only if it is financed either
through a fiscal deficit or through taxes on capitalists who keep a part of their income
unspent or saved. But these are precisely the two modes of financing state expenditure that
finance capital opposes.
Its opposing larger taxes on capitalists is understandable, but why is it so opposed to a
larger fiscal deficit? Even within a capitalist economy, there are no sound economic
theoretical reasons that should preclude a fiscal deficit under all circumstances. The root of
the opposition therefore lies in deeper social considerations: if the capitalist economic
system becomes dependent on the state to promote employment directly , then this fact
undermines the social legitimacy of capitalism. The need for the state to boost the animal
spirits of the capitalists disappears and a perspective on the system that is epistemically
exterior to it is provided to the people, making it possible for them to ask: If the state can
do the job of providing employment, then why do we need the capitalists at all? It is an
instinctive appreciation of this potential danger that underlies the opposition of capital,
especially of finance, to any direct effort by the state to generate employment.
This ever-present opposition becomes decisive within a regime of globalization. As long as
finance capital remains national -- that is, nation-based -- and the state is a nation-state,
the latter can override this opposition under certain circumstances, such as in the post-Second
World War period when capitalism was facing an existential crisis. But when finance capital is
globalized, meaning, when it is free to move across country borders while the state remains a
nation-state, its opposition to fiscal deficits becomes decisive. If the state does run large
fiscal deficits against its wishes, then it would simply leave that country en masse ,
causing a financial crisis.
The state therefore capitulates to the demands of globalized finance capital and eschews
direct fiscal intervention for increasing demand. It resorts to monetary policy instead since
that operates through wealth holders' decisions, and hence does not undermine their
social position. But, precisely for this reason, monetary policy is an ineffective instrument,
as was evident in the United States in the aftermath of the 2007–09 crisis when even the
pushing of interest rates down to zero scarcely revived activity. 6
It may be thought that this compulsion on the part of the state to accede to the demand of
finance to eschew fiscal intervention for enlarging employment should not hold for the United
States. Its currency being considered by the world's wealth holders to be "as good as gold"
should make it immune to capital flight. But there is an additional factor operating in the
case of the United States: that the demand generated by a bigger U.S. fiscal deficit would
substantially leak abroad in a neoliberal setting, which would increase its external debt
(since, unlike Britain in its heyday, it does not have access to any unrequited colonial
transfers) for the sake of generating employment elsewhere. This fact deters any fiscal effort
even in the United States to boost demand within a neoliberal setting. 7
Therefore, it follows that state spending cannot provide a counter to the ex ante
tendency toward global overproduction within a regime of neoliberal globalization, which makes
the world economy precariously dependent on occasional asset-price bubbles, primarily in the
U.S. economy, for obtaining, at best, some temporary relief from the crisis. It is this fact
that underlies the dead end that neoliberal capitalism has reached. Indeed, Donald Trump's
resort to protectionism in the United States to alleviate unemployment is a clear recognition
of the system having reached this cul-de-sac. The fact that the mightiest capitalist
economy in the world has to move away from the rules of the neoliberal game in an attempt to
alleviate its crisis of unemployment/underemployment -- while compensating capitalists
adversely affected by this move through tax cuts, as well as carefully ensuring that no
restraints are imposed on free cross-border financial flows -- shows that these rules
are no longer viable in their pristine form.
Some Implications of This Dead End
There are at least four important implications of this dead end of neoliberalism. The first
is that the world economy will now be afflicted by much higher levels of unemployment than it
was in the last decade of the twentieth century and the early years of the twenty-first, when
the dot-com and the housing bubbles in the United States had, sequentially, a pronounced
impact. It is true that the U.S. unemployment rate today appears to be at a historic low, but
this is misleading: the labor-force participation rate in the United States today is lower than
it was in 2008, which reflects the discouraged-worker effect . Adjusting for this lower
participation, the U.S. unemployment rate is considerable -- around 8 percent. Indeed, Trump
would not be imposing protection in the United States if unemployment was actually as low as 4
percent, which is the official figure. Elsewhere in the world, of course, unemployment
post-2008 continues to be evidently higher than before. Indeed, the severity of the current
problem of below-full-employment production in the U.S. economy is best illustrated by capacity
utilization figures in manufacturing. The weakness of the U.S. recovery from the Great
Recession is indicated by the fact that the current extended recovery represents the first
decade in the entire post-Second World War period in which capacity utilization in
manufacturing has never risen as high as 80 percent in a single quarter, with the resulting
stagnation of investment. 8
If Trump's protectionism, which recalls the Smoot-Hawley tariff of 1931 and amounts to a
beggar-my-neighbor policy, does lead to a significant export of unemployment from the
United States, then it will invite retaliation and trigger a trade war that will only worsen
the crisis for the world economy as a whole by dampening global investment. Indeed, since the
United States has been targeting China in particular, some retaliatory measures have already
appeared. But if U.S. protectionism does not invite generalized retaliation, it would only be
because the export of unemployment from the United States is insubstantial, keeping
unemployment everywhere, including in the United States, as precarious as it is now. However we
look at it, the world would henceforth face higher levels of unemployment.
There has been some discussion on how global value chains would be affected by Trump's
protectionism. But the fact that global macroeconomics in the early twenty-first century will
look altogether different compared to earlier has not been much discussed.
In light of the preceding discussion, one could say that if, instead of individual
nation-states whose writ cannot possibly run against globalized finance capital, there was a
global state or a set of major nation-states acting in unison to override the objections of
globalized finance and provide a coordinated fiscal stimulus to the world economy, then perhaps
there could be recovery. Such a coordinated fiscal stimulus was suggested by a group of German
trade unionists, as well as by John Maynard Keynes during the Great Depression in the 1930s.
9
While it was turned down then, in the present context it has not even been discussed.
The second implication of this dead end is that the era of export-led growth is by and large
over for third world economies. The slowing down of world economic growth, together with
protectionism in the United States against successful third world exporters, which could even
spread to other metropolitan economies, suggests that the strategy of relying on the world
market to generate domestic growth has run out of steam. Third world economies, including the
ones that have been very successful at exporting, would now have to rely much more on their
home market.
Such a transition will not be easy; it will require promoting domestic peasant agriculture,
defending petty production, moving toward cooperative forms of production, and ensuring greater
equality in income distribution, all of which need major structural shifts. For smaller
economies, it would also require their coming together with other economies to provide a
minimum size to the domestic market. In short, the dead end of neoliberalism also means the
need for a shift away from the so-called neoliberal development strategy that has held sway
until now.
The third implication is the imminent engulfing of a whole range of third world economies in
serious balance-of-payments difficulties. This is because, while their exports will be sluggish
in the new situation, this very fact will also discourage financial inflows into their
economies, whose easy availability had enabled them to maintain current account deficits on
their balance of payments earlier. In such a situation, within the existing neoliberal
paradigm, they would be forced to adopt austerity measures that would impose income deflation
on their people, make the conditions of their people significantly worse, lead to a further
handing over of their national assets and resources to international capital, and prevent
precisely any possible transition to an alternative strategy of home market-based growth.
In other words, we shall now have an intensification of the imperialist stranglehold over
third world economies, especially those pushed into unsustainable balance-of-payments deficits
in the new situation. By imperialism , here we do not mean the imperialism of this or
that major power, but the imperialism of international finance capital, with which even
domestic big bourgeoisies are integrated, directed against their own working people.
The fourth implication is the worldwide upsurge of fascism. Neoliberal capitalism even
before it reached a dead end, even in the period when it achieved reasonable growth and
employment rates, had pushed the world into greater hunger and poverty. For instance, the world
per-capita cereal output was 355 kilograms for 1980 (triennium average for 1979–81
divided by mid–triennium population) and fell to 343 in 2000, leveling at 344.9 in 2016
-- and a substantial amount of this last figure went into ethanol production. Clearly, in a
period of growth of the world economy, per-capita cereal absorption should be expanding,
especially since we are talking here not just of direct absorption but of direct and indirect
absorption, the latter through processed foods and feed grains in animal products. The fact
that there was an absolute decline in per-capita output, which no doubt caused a decline in
per-capita absorption, suggests an absolute worsening in the nutritional level of a substantial
segment of the world's population.
But this growing hunger and nutritional poverty did not immediately arouse any significant
resistance, both because such resistance itself becomes more difficult under neoliberalism
(since the very globalization of capital makes it an elusive target) and also because higher
GDP growth rates provided a hope that distress might be overcome in the course of time.
Peasants in distress, for instance, entertained the hope that their children would live better
in the years to come if given a modicum of education and accepted their fate.
In short, the ideology of neoliberal capitalism was the promise of growth. But with
neoliberal capitalism reaching a dead end, this promise disappears and so does this ideological
prop. To sustain itself, neoliberal capitalism starts looking for some other ideological prop
and finds fascism. This changes the discourse away from the material conditions of people's
lives to the so-called threat to the nation, placing the blame for people's distress not on the
failure of the system, but on ethnic, linguistic, and religious minority groups, the
other that is portrayed as an enemy. It projects a so-called messiah whose sheer
muscularity can somehow magically overcome all problems; it promotes a culture of unreason so
that both the vilification of the other and the magical powers of the supposed leader
can be placed beyond any intellectual questioning; it uses a combination of state repression
and street-level vigilantism by fascist thugs to terrorize opponents; and it forges a close
relationship with big business, or, in Kalecki's words, "a partnership of big business and
fascist upstarts." 10
Fascist groups of one kind or another exist in all modern societies. They move center stage
and even into power only on certain occasions when they get the backing of big business. And
these occasions arise when three conditions are satisfied: when there is an economic crisis so
the system cannot simply go on as before; when the usual liberal establishment is manifestly
incapable of resolving the crisis; and when the left is not strong enough to provide an
alternative to the people in order to move out of the conjuncture.
This last point may appear odd at first, since many see the big bourgeoisie's recourse to
fascism as a counter to the growth of the left's strength in the context of a capitalist
crisis. But when the left poses a serious threat, the response of the big bourgeoisie typically
is to attempt to split it by offering concessions. It uses fascism to prop itself up only when
the left is weakened. Walter Benjamin's remark that "behind every fascism there is a failed
revolution" points in this direction.
Fascism Then and Now
Contemporary fascism, however, differs in crucial respects from its 1930s counterpart, which
is why many are reluctant to call the current phenomenon a fascist upsurge. But historical
parallels, if carefully drawn, can be useful. While in some aforementioned respects
contemporary fascism does resemble the phenomenon of the 1930s, there are serious differences
between the two that must also be noted.
First, we must note that while the current fascist upsurge has put fascist elements in power
in many countries, there are no fascist states of the 1930s kind as of yet. Even if the fascist
elements in power try to push the country toward a fascist state, it is not clear that they
will succeed. There are many reasons for this, but an important one is that fascists in power
today cannot overcome the crisis of neoliberalism, since they accept the regime of
globalization of finance. This includes Trump, despite his protectionism. In the 1930s,
however, this was not the case. The horrors associated with the institution of a fascist state
in the 1930s had been camouflaged to an extent by the ability of the fascists in power to
overcome mass unemployment and end the Depression through larger military spending, financed by
government borrowing. Contemporary fascism, by contrast, lacks the ability to overcome the
opposition of international finance capital to fiscal activism on the part of the government to
generate larger demand, output, and employment, even via military spending.
Such activism, as discussed earlier, required larger government spending financed either
through taxes on capitalists or through a fiscal deficit. Finance capital was opposed to both
of these measures and it being globalized made this opposition decisive . The
decisiveness of this opposition remains even if the government happens to be one composed of
fascist elements. Hence, contemporary fascism, straitjacketed by "fiscal rectitude," cannot
possibly alleviate even temporarily the economic crises facing people and cannot provide any
cover for a transition to a fascist state akin to the ones of the 1930s, which makes such a
transition that much more unlikely.
Another difference is also related to the phenomenon of the globalization of finance. The
1930s were marked by what Lenin had earlier called "interimperialist rivalry." The military
expenditures incurred by fascist governments, even though they pulled countries out of the
Depression and unemployment, inevitably led to wars for "repartitioning an already partitioned
world." Fascism was the progenitor of war and burned itself out through war at, needless to
say, great cost to humankind.
Contemporary fascism, however, operates in a world where interimperialist rivalry is far
more muted. Some have seen in this muting a vindication of Karl Kautsky's vision of an
"ultraimperialism" as against Lenin's emphasis on the permanence of interimperialist rivalry,
but this is wrong. Both Kautsky and Lenin were talking about a world where finance capital and
the financial oligarchy were essentially national -- that is, German, French, or British. And
while Kautsky talked about the possibility of truces among the rival oligarchies, Lenin saw
such truces only as transient phenomena punctuating the ubiquity of rivalry.
In contrast, what we have today is not nation-based finance capitals, but
international finance capital into whose corpus the finance capitals drawn from
particular countries are integrated. This globalized finance capital does not want the world
to be partitioned into economic territories of rival powers ; on the contrary, it wants the
entire globe to be open to its own unrestricted movement. The muting of rivalry between major
powers, therefore, is not because they prefer truce to war, or peaceful partitioning of the
world to forcible repartitioning, but because the material conditions themselves have changed
so that it is no longer a matter of such choices. The world has gone beyond both Lenin and
Kautsky, as well as their debates.
Not only are we not going to have wars between major powers in this era of fascist upsurge
(of course, as will be discussed, we shall have other wars), but, by the same token, this
fascist upsurge will not burn out through any cataclysmic war. What we are likely to see is a
lingering fascism of less murderous intensity , which, when in power, does not
necessarily do away with all the forms of bourgeois democracy, does not necessarily physically
annihilate the opposition, and may even allow itself to get voted out of power occasionally.
But since its successor government, as long as it remains within the confines of the neoliberal
strategy, will also be incapable of alleviating the crisis, the fascist elements are likely to
return to power as well. And whether the fascist elements are in or out of power, they will
remain a potent force working toward the fascification of the society and the polity, even
while promoting corporate interests within a regime of globalization of finance, and hence
permanently maintaining the "partnership between big business and fascist upstarts."
Put differently, since the contemporary fascist upsurge is not likely to burn itself out as
the earlier one did, it has to be overcome by transcending the very conjuncture that produced
it: neoliberal capitalism at a dead end. A class mobilization of working people around an
alternative set of transitional demands that do not necessarily directly target neoliberal
capitalism, but which are immanently unrealizable within the regime of neoliberal capitalism,
can provide an initial way out of this conjuncture and lead to its eventual transcendence.
Such a class mobilization in the third world context would not mean making no truces with
liberal bourgeois elements against the fascists. On the contrary, since the liberal bourgeois
elements too are getting marginalized through a discourse of jingoistic nationalism typically
manufactured by the fascists, they too would like to shift the discourse toward the material
conditions of people's lives, no doubt claiming that an improvement in these conditions is
possible within the neoliberal economic regime itself. Such a shift in discourse is in
itself a major antifascist act . Experience will teach that the agenda advanced as part of
this changed discourse is unrealizable under neoliberalism, providing the scope for dialectical
intervention by the left to transcend neoliberal capitalism.
Imperialist
Interventions
Even though fascism will have a lingering presence in this conjuncture of "neoliberalism at
a dead end," with the backing of domestic corporate-financial interests that are themselves
integrated into the corpus of international finance capital, the working people in the third
world will increasingly demand better material conditions of life and thereby rupture the
fascist discourse of jingoistic nationalism (that ironically in a third world context is not
anti-imperialist).
In fact, neoliberalism reaching a dead end and having to rely on fascist elements revives
meaningful political activity, which the heyday of neoliberalism had precluded, because most
political formations then had been trapped within an identical neoliberal agenda that appeared
promising. (Latin America had a somewhat different history because neoliberalism arrived in
that continent through military dictatorships, not through its more or less tacit acceptance by
most political formations.)
Such revived political activity will necessarily throw up challenges to neoliberal
capitalism in particular countries. Imperialism, by which we mean the entire economic and
political arrangement sustaining the hegemony of international finance capital, will deal with
these challenges in at least four different ways.
The first is the so-called spontaneous method of capital flight. Any political formation
that seeks to take the country out of the neoliberal regime will witness capital flight even
before it has been elected to office, bringing the country to a financial crisis and thereby
denting its electoral prospects. And if perchance it still gets elected, the outflow will only
increase, even before it assumes office. The inevitable difficulties faced by the people may
well make the government back down at that stage. The sheer difficulty of transition away from
a neoliberal regime could be enough to bring even a government based on the support of workers
and peasants to its knees, precisely to save them short-term distress or to avoid losing their
support.
Even if capital controls are put in place, where there are current account deficits,
financing such deficits would pose a problem, necessitating some trade controls. But this is
where the second instrument of imperialism comes into play: the imposition of trade sanctions
by the metropolitan states, which then cajole other countries to stop buying from the
sanctioned country that is trying to break away from thralldom to globalized finance capital.
Even if the latter would have otherwise succeeded in stabilizing its economy despite its
attempt to break away, the imposition of sanctions becomes an additional blow.
The third weapon consists in carrying out so-called democratic or parliamentary coups of the
sort that Latin America has been experiencing. Coups in the old days were effected through the
local armed forces and necessarily meant the imposition of military dictatorships in lieu of
civilian, democratically elected governments. Now, taking advantage of the disaffection
generated within countries by the hardships caused by capital flight and imposed sanctions,
imperialism promotes coups through fascist or fascist-sympathizing middle-class political
elements in the name of restoring democracy, which is synonymous with the pursuit of
neoliberalism.
And if all these measures fail, there is always the possibility of resorting to economic
warfare (such as destroying Venezuela's electricity supply), and eventually to military
warfare. Venezuela today provides a classic example of what imperialist intervention in a third
world country is going to look like in the era of decline of neoliberal capitalism, when
revolts are going to characterize such countries more and more.
Two aspects of such intervention are striking. One is the virtual unanimity among the
metropolitan states, which only underscores the muting of interimperialist rivalry in the era
of hegemony of global finance capital. The other is the extent of support that such
intervention commands within metropolitan countries, from the right to even the liberal
segments.
Despite this opposition, neoliberal capitalism cannot ward off the challenge it is facing
for long. It has no vision for reinventing itself. Interestingly, in the period after the First
World War, when capitalism was on the verge of sinking into a crisis, the idea of state
intervention as a way of its revival had already been mooted, though its coming into vogue only
occurred at the end of the Second World War. 11
Today, neoliberal capitalism does not even have an idea of how it can recover and revitalize
itself. And weapons like domestic fascism in the third world and direct imperialist
intervention cannot for long save it from the anger of the masses that is building up against
it.
Samuel Berrick Saul, Studies in British Overseas Trade, 1870–1914
(Liverpool: Liverpool University Press, 1960).
Paul A. Baran and Paul M. Sweezy, Monopoly Capital (New York:
Monthly Review Press, 1966).
One of the first authors to recognize this fact and its significance was Paul Baran in
The Political Economy of
Growth (New York: Monthly Review Press, 1957).
For the role of such colonial transfers in sustaining the British balance of payments and the
long Victorian and Edwardian boom, see Utsa Patnaik, "Revisiting the 'Drain,' or Transfers
from India to Britain in the Context of Global Diffusion of Capitalism," in Agrarian
and Other Histories: Essays for Binay Bhushan Chaudhuri , ed. Shubhra Chakrabarti and
Utsa Patnaik (Delhi: Tulika, 2017), 277-317.
Federal Reserve Board of Saint Louis Economic Research, FRED, "Capacity Utilization:
Manufacturing," February 2019 (updated March 27, 2019), http://fred.stlouisfed.org .
This issue is discussed by Charles P. Kindleberger in The World in Depression,
1929–1939 , 40th anniversary ed. (Oakland: University of California Press,
2013).
Joseph Schumpeter had seen Keynes's The Economic Consequences of the Peace as
essentially advocating such state intervention in the new situation. See his essay, "John
Maynard Keynes (1883–1946)," in Ten Great Economists (London: George Allen
& Unwin, 1952).
Utsa Patnaik is Professor Emerita at the Centre for Economic Studies and Planning,
Jawaharlal Nehru University, New Delhi. Her books include Peasant Class Differentiation (1987),
The Long Transition (1999), and The Republic of Hunger and Other Essays (2007). Prabhat Patnaik
is Professor Emeritus at the Centre for Economic Studies and Planning, Jawaharlal Nehru
University, New Delhi. His books include Accumulation and Stability Under Capitalism (1997),
The Value of Money(2009), and Re-envisioning Socialism(2011).
Thomas Piketty's New Book Brings Political Economy Back to Its Sources
By Branko Milanovic
In the same way that Capital in the Twenty-First Century transformed the way economists
look at inequality, Piketty's new book Capital and Ideology will transform the way political
scientists look at their own field.
Thomas Piketty's books are always monumental. Some are more monumental than others. His Top
Incomes in France in the Twentieth Century: Inequality and Redistribution,
1901–1998(published in French as Les hauts revenus en France au XXe siècle)
covered more than two centuries of income and wealth inequality, in addition to social and
political changes in France. His international bestseller Capital in the Twenty-First
Century(Le capital au XXI siècle) broadened this approach to the most important
Western countries (France, the United States, United Kingdom, and Germany). His new book
Capital and Ideology (to be published in English in March 2020; already published in France
as Capital et idéologie) broadens the scope even further, covering the entire world
and presenting a historical panorama of how ownership of assets (including people) was
treated, and justified, in various historical societies, from China, Japan, and India, to the
European-ruled American colonies, and feudal and capitalist societies in Europe. Just the
mention of the geographical and temporal scope of the book suffices to give the reader an
idea of its ambition.
Before I review Capital and Ideology, it is worth mentioning the importance of Piketty's
overall approach, present in all three of his books. His approach is characterized by the
methodological return of economics to its original and key functions: to be a science that
illuminates the interests and explains the behaviors of individuals and social classes in
their quotidian (material) life. This methodology rejects the dominant paradigm of the past
half-century, which increasingly ignored the role of classes and heterogeneous individuals in
the process of production and instead treated all people as abstract agents that maximize
their own income under certain constraints. The dominant paradigm has emptied almost all
social content from economics and presented a view of society that was as abstract as it was
false.
The reintroduction of actual life into economics by Piketty and several other economists
(not entirely coincidentally, most of them are economists interested in inequality) is much
more than just a return to the sources of political economy and economics. This is because
today, we have vastly more information (data) than was available to economists a century ago,
not only about our own contemporary societies but also about past societies. This combination
between political economy's original methodology and big data is what I call "turbo-Annales,"
after the French group of historians that pioneered the view of history as a social science
focusing on the broad social, economic, and political forces that shape the world. The topics
that interested classical political economy and the authors associated with the Annales
School can now be studied empirically, and even econometrically and experimentally -- things
which they could not do, both because of the scarcity of data and unavailability of modern
methodologies.
It is within this context that, I believe, we ought to consider Piketty's Capital and
Ideology. How successful was his approach, applied now to the world and over a very long
time-horizon?
"The dominant paradigm has emptied almost all social content from economics and presented
a view of society that was as abstract as it was false."
For the purposes of this review, I divide Piketty's book into two parts: the first, which
I already mentioned, looks at ideological justifications of inequality across different
societies (Parts 1 and 2 of the book, and to some extent Part 3); the second introduces an
entirely new way of studying recent political cleavages in modern societies (Part 4). I am
somewhat skeptical about Piketty's success in the first part, despite his enormous erudition
and his skills as a raconteur, because success in discussing something so geographically and
temporally immense is difficult to reach, even by the best-informed minds who have studied
different societies for the majority of their careers. Analyzing each of these societies
requires an extraordinarily high degree of sophisticated historical knowledge regarding
religious dogmas, political organization, social stratification, and the like. To take two
examples of authors who have tried to do it, one older and one more recent: Max Weber, during
his entire life (and more specifically in Economy and Society), and Francis Fukuyama in his
two-volume masterpiece on the origins of the political and economic order. In both cases, the
results were not always unanimously approved by specialists studying individual societies and
religions.
In his analysis of some of these societies, Piketty had to rely on somewhat
"straightforward" or simplified discussions of their structure and evolution, discussions
which at times seem plausible but superficial. In other words, each of these historical
societies, many of which lasted centuries, had gone through different phases in their
developments, phases which are subject to various interpretations. Treating such evolutions
as if they were a simple, uncontested story is reductionist. It is a choice of one plausible
historical narrative where many exist. This compares unfavorably with Piketty's own rich and
nuanced narrative in Top Incomes in France in the Twentieth Century.
While I am somewhat skeptical about that first part of the book, I am not skeptical about
the second. In this part, we find the Piketty who plays to his strength: bold and innovative
use of data which produces a new way of looking at phenomena that we all observe but were
unable to define so precisely. Here, Piketty is "playing" on the familiar Western economic
history "terrain" that he knows well, probably better than any other economist.
This part of the book looks empirically at the reasons that left-wing, or social
democratic parties have gradually transformed themselves from being the parties of the
less-educated and poorer classes to become the parties of the educated and affluent middle
and upper-middle classes. To a large extent, traditionally left parties have changed because
their original social-democratic agenda was so successful in opening up education and
high-income possibilities to the people who in the 1950s and 1960s came from modest
backgrounds. These people, the "winners" of social democracy, continued voting for left-wing
parties but their interests and worldview were no longer the same as that of their
(less-educated) parents. The parties' internal social structure thus changed -- the product
of their own political and social success. In Piketty's terms, they became the parties of the
"Brahmin left" (La gauche Brahmane), as opposed to the conservative right-wing parties, which
remained the parties of the "merchant right" (La droite marchande).
To simplify, the elite became divided between the educated "Brahmins" and the more
commercially-minded "investors," or capitalists. This development, however, left the people
who failed to experience upward educational and income mobility unrepresented, and those
people are the ones that feed the current "populist" wave. Quite extraordinarily, Piketty
shows the education and income shifts of left-wing parties' voters using very similar
long-term data from all major developed democracies (and India). The fact that the story is
so consistent across countries lends an almost uncanny plausibility to his hypothesis.
It is also striking, at least to me, that such multi-year, multi-country data were
apparently never used by political scientists to study this phenomenon. This part of
Piketty's book will likely transform, or at least affect, how political scientists look at
new political realignments and class politics in advanced democracies in the years to come.
In the same way that Capital in the Twenty-First Century has transformed how economists look
at inequality, Capital and Ideology will transform the way political scientists look at their
own field.
Branko Milanovic is a senior scholar at the Stone Center on Socio-Economic Inequality at the
Graduate Center, City University of New York.
When the Fed or the ECB raises rates, New Keynesian economic theory predicts that the hike
will eventually lead to a decrease in inflation, and that the path from point A to point B
will inevitably be accompanied by higher unemployment. But my own research suggests that New
Keynesian economic theory is wrong. After all, if the Fed were to raise the short-term rate
slowly and support equity markets with a guarantee to purchase a broad-based exchange-traded
fund at a fixed price, there is no reason why the rate increase should cause higher
unemployment.
----
Roger Farmer dumping on the Fed. Somehow a lot of economists have figured out that 'Uncle
cannot do it later'.
I have a different disagreement. First I note that the Fed always follows the One Year
Treasury, it is in the charts, that chart cannot be avoided. Second, once Treasury has
started the rate cycles, it is all over, we will complete the rate cycle, including a down
turn. This has been the case since 1980, likely earlier.
So, why do we fake it? For what purpose, except to say something stupid like Uncle can fix
it later. We always end up in the same place, imbalances that need correction, Treasury has
to take its losses. All the fakery does no one any good.
The end of Mankiw and his Phillips Curve
Comment on David Glasner on 'Mankiw's Phillips-Curve Agonistes'
Gregory Mankiw starts his history of the Phillips Curve with gossiping and name dropping:
"The economist George Akerlof, a Nobel laureate and the husband of the former Federal Reserve
chair Janet Yellen, once called the Phillips curve 'probably the single most important
macroeconomic relationship.' So it is worth recalling what the Phillips curve is, why it
plays a central role in mainstream economics and why it has so many critics. The story begins
in 1958, when the economist A. W. Phillips published an article reporting an inverse
relationship between unemployment and inflation in Britain. He reasoned that when
unemployment is high, workers are easy to find, so employers hardly raise wages, if they do
so at all. But when unemployment is low, employers have trouble attracting workers, so they
raise wages faster. Inflation in wages soon turns into inflation in the prices of goods and
services."
David Glasner immediately spots the fatal mistake of Mankiw's account: "I must note
parenthetically that, as I have written recently, a supply-demand framework (aka partial
equilibrium analysis) is not really the appropriate way to think about unemployment, because
the equilibrium level of wages and the rates of unemployment must be analyzed, as, using
different terminology, Keynes argued, in a general equilibrium, not a partial equilibrium,
framework." Unfortunately, David Glasner then gets lost in supply-demand-equilibrium
blather.
The Phillips Curve (better: Bastard or NAIRU Phillips Curve) is the centerpiece of
standard employment theory. Economists get employment theory wrong for 200+ years.#1-#5
The materially/formally inconsistent NAIRU Phillips Curve has to be replaced by the
correct macroeconomic Employment Law which is shown on Wikimedia.#6
From this equation follows:
(i) An increase in the expenditure ratio ρE leads to higher employment L (the Greek
letter ρ stands for ratio). An expenditure ratio ρE greater than 1 indicates a budget
deficit = credit expansion, a ratio ρE less than 1 indicates credit contraction.
(ii) Increasing investment expenditures I exert a positive influence on employment.
(iii) An increase in the factor cost ratio ρF=W/PR leads to higher employment.
The complete employment equation contains in addition profit distribution, the public
sector, and foreign trade.
Items (i) and (ii) cover Keynes' familiar arguments about aggregate demand. The factor
cost ratio ρF as defined in (iii) embodies the macroeconomic price mechanism. The fact of
the matter is that overall employment INCREASES if the AVERAGE wage rate W INCREASES relative
to average price P and productivity R. Roughly speaking, price inflation is bad for
employment and wage inflation is good. This is the exact OPPOSITE of what microfounded
supply-demand-equilibrium economics teaches.
The testable Employment Law tells one that the best policy to stabilize employment on a
high level is a price inflation of zero and a wage inflation equal to productivity increases.
The 2 percent inflation target has always been political idiocy based on defective
theory.
Thatcher was an English politico. It is not what she said, but what she did that counts. She is probably down in Dante's Inferno,
Ring 8, sub-rings 7-10. (Frauds and false councilors.) See, oh wayward sinners:
http://danteworlds.laits.utexas.edu/circle8b.html
Ah, you think that Milton should be at the bottom, eh? Then, I hope that he knows how to ice skate. (He was the worst kind
of 'class traitor.' [His parents were small store owner/managers.])
Ring 8 of the Inferno is for 'frauds' of all sorts, sub-rings 7-10 are reserved for Thieves, Deceivers, Schismatics, and Falsifiers.
Maggie should feel right at home there.
I'm not
sure the end of homogeneity was the driver of diminished respect for what was once called
character. In the US, I hazard that a bigger factor was the widespread acceptance of
libertarian/neoliberal values. As we've documented, that world view was marketed aggressively
and very successfully by a loosely coordinated but well funded right wing campaign, whose
seminal document was the Powell Memo of 1971 which laid out the vision and many of the tactics
for their war on the New Deal and the community values that supported it. For instance, it
would have been well-nigh impossible for a Mike Milken, who'd gone to prison for securities law
violations (and was widely believed to have engaged in considerably more questionable conduct)
to have rehabilitated himself to the degree he did.
From Amar:
John McArthur, in memoriam
He was one of a kind -- and his kindness and empathy (a much used word I know) was
unbounded. It touched all from dining and custodial staff to taxi drivers. My parents apart,
few other people have had such an influence on me. (And he did me the honor of reading
everything I read: every book every article, every draft, the pages a sea of yellow
highlight)
He was also astute, ruthless and got things done. His mind was extraordinary and his
reading voracious and eclectic -- although you would never guess it from his aw shucks manner
and country bumpkin style.
I first actually talked to him in my second year as assistant professor. We had a long
long lunch at his corner table in the faculty club. We talked about everything -- except why
we were having lunch. At the end he said, "Perhaps you'd like to know why i asked you to
lunch. Well I've been reading your stuff and I wanted to put a face to the writing, to know
who this person was who was writing this stuff."
A few days later a copy of Knight's Risk Uncertainty and Profit arrived in interoffice
mail with one of John's classic handwritten notes, which went something along the following
lines. "I think this will suit the way you think of the world."
I had never encountered the book in my doctoral studies, and it was revelatory.
We had lunches, lasting 2-3 hours nearly every year for the last 20 years after I left
HBS. Always at the Charles ("If we ate at HBS there would be someone stopping by every
minute" he said. At the Charles it was only every 10 minutes. And of course he knew every
single waiter and waitress by name).
The stories he told at the lunches.. Such a pity he did not put his wisdom into a memoir.
But that was not his way.
The benefits of a "classical" education.
One of the main supports of the 'civilized' social interactions that you observe here 'Down
South' is a stubborn refusal to put a price on everything. It is not universal, but it
lingers in pockets of calm salted among the storms of modern living.
Welcome to the South.
I have some neighbors who are the opposite of me politically (in fact most of my
neighbors) but are wonderfully nice people on a personal level. Some of us who grew up here
have had the opposite experience of Yves and lived for awhile in the North where all that
politeness is dismissed as a false front.
Which in many cases it is, but the usefulness of all that unthinking social glue should
not be dismissed out of hand. After decades of elites in thrall to Ayn Rand the country may
be in need a few of those social norms that beatnik rebels in the 1950s found so stultifying.
Perhaps the most amazing thing about Epstein was how all those rich people around him thought
that his three teenager a day habit was perfectly acceptable.
I don't know anything about anything, but after living in the Northeast for my whole life
I spent 10 years in North Carolina. After a decade, I realized that I was never going
to stop being a Yankee, and that I detested "Southern courtesy" which mostly involved people
telling me to "Have a Blessed Day!"
I take part of this back: My favorite item of Southern Courtesy is that you can slander
anyone as long as you end the sentence with " bless his heart!"
Seriously, it's a different culture, and not one that I was ever comfortable with.
"In the early 1950s, a young economist named Paul Volcker worked as a human calculator in
an office deep inside the Federal Reserve Bank of New York. He crunched numbers for the
people who made decisions, and he told his wife that he saw little chance of ever moving up.
The central bank's leadership included bankers, lawyers and an Iowa hog farmer, but not a
single economist. The Fed's chairman, a former stockbroker named William McChesney Martin,
once told a visitor that he kept a small staff of economists in the basement of the Fed's
Washington headquarters. They were in the building, he said, because they asked good
questions. They were in the basement because ''they don't know their own limitations.''
Martin's distaste for economists was widely shared among the midcentury American elite.
President Franklin Delano Roosevelt dismissed John Maynard Keynes, the most important
economist of his generation, as an impractical ''mathematician.'' President Eisenhower, in
his farewell address, urged Americans to keep technocrats from power. Congress rarely
consulted economists; regulatory agencies were led and staffed by lawyers; courts wrote off
economic evidence as irrelevant.
But a revolution was coming. As the quarter century of growth that followed World War II
sputtered to a close, economists moved into the halls of power, instructing policymakers that
growth could be revived by minimizing government's role in managing the economy. They also
warned that a society that sought to limit inequality would pay a price in the form of less
growth. In the words of a British acolyte of this new economics, the world needed ''more
millionaires and more bankrupts.''
In the four decades between 1969 and 2008, economists played a leading role in slashing
taxation of the wealthy and in curbing public investment. They supervised the deregulation of
major sectors, including transportation and communications. They lionized big business,
defending the concentration of corporate power, even as they demonized trade unions and
opposed worker protections like minimum wage laws. Economists even persuaded policymakers to
assign a dollar value to human life -- around $10 million in 2019 -- to assess whether
regulations were worthwhile.
The revolution, like so many revolutions, went too far. Growth slowed and inequality
soared, with devastating consequences. Perhaps the starkest measure of the failure of our
economic policies is that the average American's life expectancy is in decline, as
inequalities of wealth have become inequalities of health. Life expectancy rose for the
wealthiest 20 percent of Americans between 1980 and 2010. Over the same three decades, life
expectancy declined for the poorest 20 percent of Americans. Shockingly, the difference in
average life expectancy between poor and wealthy women widened from 3.9 years to 13.6
years.
Rising inequality also is straining the health of liberal democracy. The idea of ''we the
people'' is fading because, in this era of yawning inequality, there is less we share in
common. As a result, it is harder to build support for the kinds of policies necessary to
deliver broad-based prosperity in the long term, like public investment in education and
infrastructure.
Economists began to enter public service in large numbers in the middle of the 20th century,
as policymakers struggled to manage the rapid expansion of the federal government. The number
of economists employed by the government rose from about 2,000 in the mid-1950s to more than
6,000 by the late 1970s. At first they were hired to rationalize the administration of
policy, but they soon began to shape the goals of policy, too. Arthur F. Burns became the
first economist to lead the Fed in 1970. Two years later, George Shultz became the first
economist to serve as Treasury secretary. In 1978, Volcker completed his rise from the Fed's
bowels, becoming the central bank's chairman.
The most important figure, however, was Milton Friedman, an elfin libertarian who refused to
take a job in Washington, but whose writings and exhortations seized the imagination of
policymakers. Friedman offered an appealingly simple answer for the nation's problems:
Government should get out of the way. He joked that if bureaucrats gained control of the
Sahara, there would soon be a shortage of sand.
He won his first big victory in an unlikely battle, helping to persuade President Nixon to
end military conscription in 1973. Friedman and other economists showed that a military
comprised solely of volunteers, recruited by offering market-rate wages, was financially
viable as well as politically preferable. The Nixon administration also embraced Friedman's
proposal to let markets determine the exchange rates between the dollar and foreign
currencies, and it was the first to put a price tag on human life to justify limits on
regulation.
But the turn toward markets was a bipartisan affair. The reduction of federal income taxation
began under President Kennedy. President Carter initiated an era of deregulation in 1977 by
naming an economist, Alfred Kahn, to dismantle the bureaucracy that supervised commercial
aviation. President Clinton restrained federal spending in the 1990s as the economy boomed,
declaring that ''the era of big government is over.''
Liberal and conservative economists conducted running battles on key questions of public
policy, but their areas of agreement ultimately were more important. Although nature tends
toward entropy, they shared a confidence that markets tend toward equilibrium. They agreed
that the primary goal of economic policy was to increase the dollar value of the nation's
output. And they had little patience for efforts to limit inequality. Charles L. Schultze,
the chairman of Mr. Carter's Council of Economic Advisers, said in the early 1980s that
economists should fight for efficient policies ''even when the result is significant income
losses for particular groups -- which it almost always is.'' A generation later, in 2004, the
Nobel laureate Robert Lucas warned against any revival of efforts to reduce inequality. ''Of
the tendencies that are harmful to sound economics, the most seductive, and in my opinion the
most poisonous, is to focus on questions of distribution.''
Accounts of the rise of inequality often take a fatalistic view. The problem is described
as a natural consequence of capitalism, or it is blamed on forces, like globalization or
technological change, that are beyond the direct control of policymakers. But much of the
fault lies in ourselves, in our collective decision to embrace policies that prioritized
efficiency and encouraged the concentration of wealth, and to neglect policies that equalized
opportunity and distributed rewards. The rise of economics is a primary reason for the rise
of inequality.
And the fact that we caused the problem means the solution is in our power, too.
Markets are constructed by people, for purposes chosen by people -- and people can change
the rules. It's time to discard the judgment of economists that society should turn a blind
eye to inequality. Reducing inequality should be a primary goal of public policy.
The market economy remains one of humankind's most awesome inventions, a powerful machine
for the creation of wealth. But the measure of a society is the quality of life throughout
the pyramid, not just at the top, and a growing body of research shows that those born at the
bottom today have less chance than in earlier generations to achieve prosperity or to
contribute to society's general welfare -- even if they are rich by historical standards.
This is not just bad for those who suffer, although surely that is bad enough. It is bad
for affluent Americans, too. When wealth is concentrated in the hands of the few, studies
show, total consumption declines and investment lags. Corporations and wealthy households
increasingly resemble Scrooge McDuck, sitting on piles of money they can't use
productively.
Willful indifference to the distribution of prosperity over the last half century is an
important reason the very survival of liberal democracy is now being tested by nationalist
demagogues. I have no special insight into how long the rope can hold, or how much weight it
can bear. But I know our shared bonds will last longer if we can find ways to reduce the
strain."
If we discard political correctness issues, the real problem is that since probably late 60th
most academic economists were and still are elite prostitutes of financial oligarchy.
The level of corruption of academic economists reached really unprecedented levels under
neoliberalism. The level of remuneration (direct but mostly indirect) was raised probably ten
fold.
Because one of the way neoliberals got to power is the infiltration of economic
departments in universities via grants and specially created positions. As well as creating
think tanks staffed with "professional neoliberal revolutionaries" as a proxy of Bolsheviks
Party full time party functionaries.
The Classical Economists soon noticed those at the top don't do anything economically
productive, but maintained themselves in luxury and leisure through the hard work of everyone
else.
They couldn't miss it as the European aristocracy never did a stroke of real work.
"The labour and time of the poor is in civilised countries sacrificed to the
maintaining of the rich in ease and luxury. The Landlord is maintained in idleness and luxury
by the labour of his tenants. The moneyed man is supported by his extractions from the
industrious merchant and the needy who are obliged to support him in ease by a return for the
use of his money. But every savage has the full fruits of his own labours; there are no
landlords, no usurers and no tax gatherers." Adam Smith
Economics was a big problem for the powerful vested interests of the 19th century and it
was always far too dangerous to be allowed to reveal the truth about the economy.
How can we protect those powerful vested interests at the top of society?
The early neoclassical economists hid the problems of rentier activity in the economy by
removing the difference between "earned" and "unearned" income and they conflated "land" with
"capital".
They took the focus off the cost of living that had been so important to the Classical
Economists to hide the effects of rentier activity in the economy.
The landowners, landlords and usurers were now just productive members of society
again.
William White (BIS, OECD) talks about how economics really changed over one hundred years
ago as classical economics was replaced by neoclassical economics.
He thinks we have been on the wrong path for one hundred years.
This was the old switcheroo.
Economics, the time line:
Classical economics – observations and deductions from the world of small state,
unregulated capitalism around them
Neoclassical economics – Where did that come from?
Keynesian economics – observations, deductions and fixes for the problems of
neoclassical economics
Neoclassical economics – Why is that back?
We thought small state, unregulated capitalism was something that it wasn't as our ideas
came from neoclassical economics, which has little connection with classical economics.
On bringing it back again, we had lost everything that had been learned in the 1930s and
1940s, by which time it had already demonstrated its flaws.
In the second half of the 20th century, the Mont Pelerin society developed the neoliberal
ideology from neoclassical economics, under the impression that capitalism was a
self-stabilising system that doesn't need regulation.
Their expectations were rather different from the small state, unregulated capitalism that
had been observed and documented by the Classical Economists in the 19th Century.
"The interest of the landlords is always opposed to the interest of every other class
in the community" Ricardo 1815 / Classical Economist
"But the rate of profit does not, like rent and wages, rise with the prosperity and
fall with the declension of the society. On the contrary, it is naturally low in rich and
high in poor countries, and it is always highest in the countries which are going fastest to
ruin." Adam Smith / Classical Economist
Their belief in the markets came from neoclassical economics, which doesn't consider the
elements that ensures markets don't reach stable equilibriums; debt and the money creation of
bank loans.
Richard Vague has studied many of those 19th century financial crises in his book "A Brief
History of Doom" and charts the rollercoaster progress of 19th century small state,
unregulated capitalism.
"Theoretically, neither deflation nor inflation ought to affect long-run growth or
employment. After a while, people and businesses get used to changing prices. If prices fall,
eventually so will wages, and the impact on profits, employment and purchasing power will be
neutral. Borrowers suffer during deflation because their debts are fixed in value, but
creditors benefit because the dollars they get back will buy more. For the economy as a
whole, deflation ought to be a wash."
What has Ben Bernanke got wrong?
He thinks banks are financial intermediaries.
Our knowledge of privately created money has been going backwards since 1856.
Credit creation theory -> fractional reserve theory -> financial intermediation
theory
I like the title. Also, this is one of those cases where the interviewer brings quite a
lot to the table as well as the author. An excellent introduction and a well
carried/developed near metaphor as in, nail on the is a head.
That was a logical thesis to investigate. It seems strange that it has remained out of
sight for so long until Mr. Vague's research and analysis.
The student debt in the USA is currently at $1.5 trillion. That is about 7% of GDP –
and growing. I wonder how this may affect the economy in the US going forward.
As Yogi Berra reminds us, "You can observe a lot by watching."
I don't think it has been "out of sight" so much as "in sight, but ignored". The relation
of private debt to economic downturns has been noticed by others. Irving Fisher in the 20th
Century, Steve Keen today come to mind.
The connection between "over-capacity" and "inability to service" may be new.
I would like to see analysis like this subjected to peer review; I think that there must
be at least a few journals sympathetic to heterodox approaches to economics that would give a
new synthesis like this a fair review process. Going "directly to the people" via popular
writing raises a small concern in my mind.
Steve Keen mathematized the Minsky Hypothesis. The results could be displayed in three
dimensions. The graphs showed that when private debt was included in the calculations, the
recession in 2007 was accurately predicted. Interestingly, there is a period of moderation
which is followed by a rapid crash. During this period of moderation Bernanke was saying that
all the indicators showed that the economy was in good shape. Of course he didn't consider
private debt.
Some points of discussion, I'm not mad if disproven:
: Is the 2.5 Quadrillion dollars in derivatives considered debt? Or is the ability to
create derivatives what drives the excess lending?
: Is the ability to generate excess debt a function of the fractional reserve system, and
thus mostly a benefit for robbers who own banks? The Templars couldn't generate excess debt,
they needed gold on hand to pay the notes, but wasn't there increased trade from their
system, and thus general benefit?
No.
The stupid sums on derivatives are notional principals, and usually grossed up. If I have a
swap with 10m notional with you, it could be worth anything (and most likely the only debt
exposure is any margin-call amount, which would be on 10m swap trivial), but would add 20m to
that dumb number.
I can easily enough generate almost any number for the notional principal w/o increasing
the risk to the system (for example by creating any number of equal-but-opposite trades
between two parties which have a netting agreement)
I can equally (a bit harder, as it requires some thinking) do a few "well placed"
derivatives with notionals in say few billions (but nicely levered) that can sink the whole
system.
No.
In a full reserve system there's no debt, hence no question of "excess debt". As an aside,
"fractional reserve system is a myth". Bank lending is constrained only by capital, not by
any reserves (cf number of banking systems that don't even have any rules on reserves).
I have not read Mr. Vague's book. However, I am curious as to whether he adds anything to
the work of Steve Keen, who predicted the 2007-09 financial crisis, and Hyman Minsky. See,
for example, Keen's "Can We Avoid Another Financial Crisis?" (2017).
Looks like a nice validation of Keen's (and Michael Hudson's) work. That's fine with me,
although a nod in their direction certainly looks warranted since private debt was what led
Keen to predict the Great Recession (and win the Revere Prize for doing so).
Hudson's work on ancient debt jubilees exactly parallels Vague's.
Debt is the only working time machine mankind invented. But the conservation-over-time
still holds.
Technically, for any individual, over their lifetime integral of (income + debt
destruction) >= integral(expenses+ debt creation) [I'm ignoring cases where debt can be
inherited]
So are we heading for a crisis? Right now I(income + debt destruction) < I(expenses +
debt creation) for a large number of indivduals over their lifetime. So unless their income
raises dramatically (expenses for them are often way less discretionary), yes we are, as the
debt destruction will have to compensate.
But to guess the timing – well, that very much depends on the aggregate of those
individuals.A trigger that would further reduce income or increase expense (across the
population) would make it more probable. A small but not sufficient increase in income
(across the population) would postpone it.
"The student debt in the USA is currently at $1.5 trillion."
Thanks to some skillful intervention with the somnolent Congress this debt cannot be
discharged in bankruptcy. That seems to fly in the face of Mr. Vague's conclusions while
redounding to the benefit of the rentier financial class.
@ John -- Please make everyone you know aware that Democrat candidate for president Joe
Biden holds a great deal of responsibility for student debt not being dischargeable in
bankruptcy. This is only one of his high crimes and misdemeanors. Don't let anyone
forget!
That's only one of many reasons that Biden should be defeated. Here's a really good
explanation of how he helped remove educational loans (nearly all of them, not only student
loans) from discharge in bankruptcy.
Biden also strongly supported the Iraq War preventing any opposition views to testify in
his committee. Also a strong supporter of NAFTA anf the TTTP. ( Trump will hammer on this if
he runs against Biden.) His cooperation with southern segregationists resulted in the unequal
drug penalties that fed the prison industrial complex he supported. He had mutiple committee
meeting to rail against black crime when it was expedient. He threw Anita Hill under the bus
and thus aided in putting Clarence Thomas on the Supreme Court. He says he's a union man as
he goes to Comcast, a union buster, for financial aid. He is known as a representative
working for the credit card companies. etc. What's not to like if you're a corporate
democrat?
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Claire Connelly Claire Connelly is the lead writer of Renegade Inc. An award-winning freelance journalist, speaker, and founder of subscription journalism experiment, Hello Humans.
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