Softpanorama

Home Switchboard Unix Administration Red Hat TCP/IP Networks Neoliberalism Toxic Managers
May the source be with you, but remember the KISS principle ;-)
Skepticism and critical thinking is not panacea, but can help to understand the world better

Fifth Column of Financial Oligarchy: Chicago School of Market Fundamentalism

News Recommended Books Recommended Links Economism and abuse of economic theory in American politics The efficient markets hypothesis Milton Friedman Monetarism Fiasko
Critique of neoclassical economics Supply Side or Trickle down economics Free Markets Newspeak The Idea of Dynamic Stochastic General Equlibrium Rational expectations scam Hyman Minsky Samuelson bastard Keynesianism
Invisible hand Robert Lucas  Thomas Sargent Gene Fama Freakonomist Levitt -- a one dimentional idiot Gary Becker Richard Posner
John Kenneth Galbraith Criminal negligence in financial regulation Cargo Cult Science Inflation vs Deflation Lysenkoism Humor Etc

Neoclassicism is the ideology of the plutocracy which still governs the USA

Lewis L. Smith

Neoclassical economics—and especially that derived from Milton Friedman’s pen—is mad, bad, and dangerous to know.

Steve Keen

"The only thing in common between noted [Chicago school] economists is sheer incompetence"

Willem Buiter

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 Economic Lysenkoism (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 ideology Milton 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:

  1. 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.
  2. 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.
  3. 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).

Chicago (or as some called it freshwater) school specializes in deification of the market (often in the form of "invisible hand" deification, see The Invisible Hand, Trumped by Darwin - NYTimes.com). 

The Measured Version of My Screaming
John Quiggin finally makes explicit What Everyone Knows: that the clusterfuck that has been made of Macroeconomics is due largely to an attempt to leverage (insufficiently robust) Microeconomic Theory:
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.

Read the Whole Thing.

Here are some postulates of Chicago school as described in  Economics: A Clandestine Religion Masquarading As A Science ( The American Monetary Institute):

As Wikipedia noted

...Chicago School economists are associated with Washington Consensus,[12][13] which John Williamson says is "disappointing".[14]

The history of Chicago school is complex (THE CHICAGO SCHOOL):

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'sBut in Friedman's Monetarism, 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.

Early Chicago of 1892 - 1920s

The First Chicago School of 1920-1945

Post-War Chicago of the 1945-1960

The Second Chicago School of the 1960s-1970s

The Third Chicago School (1970s-Today)

Chicago Business and Finance

Resources on the Chicago School


Top Visited
Switchboard
Latest
Past week
Past month

NEWS CONTENTS

Old News ;-)

[Mar 11, 2020] Neoliberal v Neoclassical economics - what's the difference - Renegade Inc

Mar 11, 2020 | renegadeinc.com

Neoliberal v Neoclassical economics – what's the difference? By Claire Connelly Economics & Finance | Loading 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.

https://www.youtube.com/embed/cf2YQ-1wvrc?feature=oembed

Claire Connelly 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. Claire Connelly Latest posts by Claire Connelly ( see all )

Posted in Economics & Finance Tagged Economic Policy , Free Market , laissez-faire , Mont Perin Society , Neoclassical Economics , Neoliberalism 15 thoughts on "Neoliberal v Neoclassical economics – what's the difference?"
  1. Pingback: Renegade Inc: Neoliberal v Neoclassical economics – what's the difference? – Brave New Europe
  2. Tom Woods says: March 19, 2018 at 6:26 pm

    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

    1. Dave says: March 19, 2018 at 8:07 pm

      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

    2. David Blobaum says: March 19, 2018 at 8:57 pm

      (Whenever someone disqualifies someone else based on assumption I know I'm dealing with bruised ego) Reply

    3. John Giles says: March 20, 2018 at 6:13 am

      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

  3. Alan Luchetti says: March 20, 2018 at 12:13 am

    "(Whenever the two economists mentioned are Milton Friedman and F.A. Hayek, I know I'm dealing with somebody who hasn't read anything.)"

    I think you meant "dealing to".

    And why so ignorant of Hayek on capital theory? 😉 Reply

  4. Hoobert Herver says: March 20, 2018 at 9:38 pm

    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

  5. Bob Kaufman says: March 21, 2018 at 12:30 pm

    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

    1. Dave says: March 28, 2018 at 4:46 am

      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

  6. Youri says: March 23, 2018 at 12:40 am

    great article Claire! love your articles at New Matilda by the way, and enjoyed your interview at Redacted Tonight and love Renegade INC at RT 🙂 Reply

  7. Cliff Cobb says: March 26, 2018 at 6:38 am

    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

  8. Chris Auld says: May 30, 2018 at 11:46 pm

    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

    1. Steven says: May 31, 2018 at 12:24 pm

      Chris, your criticism is so misleading.

      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

  9. Claire says: May 31, 2018 at 12:15 pm

    Hi Chris,

    I highly recommend reading this short piece by Professor Steven Keen:

    http://www.eastasiaforum.org/2009/05/30/why-neoclassical-economics-is-dead/ .

    Or this piece by Lars Syll: https://larspsyll.wordpress.com/2016/11/03/what-is-wrong-with-neoclassical-economics/ .

    Perhaps you will find them useful in understanding why it's questionable that neoclassical economics has anything useful to say about financial stability.

    Kind regards,

    Claire Reply

  10. Pingback: Neoliberal v Neoclassical economics
Leave a Reply Cancel reply

Your email address will not be published. Required fields are marked *

Next up

Event: How Economics Professors can stop failing us

Renegade Inc

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.

Read More Browse content Read / Watch / Listen Search Manifesto

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.

You can find us at

Explore

Business
Economics & Finance
Life
Arts & Culture
Politics
Renegade TV

More

Manifesto
About
Membership
Cohort C
Privacy
Contact

© Copyright 2020 Renegade Inc. Website by Webb London . We use cookies to ensure that we give you the best experience on our website. If you continue to use this site we will assume that you are happy with it. Ok preload image preload image

[Feb 24, 2020] The fatal flaw of neoliberalism: it's bad economics by Dani Rodrik

Notable quotes:
"... 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. ..."
Nov 14, 2017 | www.theguardian.com

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.

Facebook 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.

Facebook 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

[Feb 22, 2020] Corruption of academia by financial oligachy

Feb 22, 2020 | www.moonofalabama.org

vk , Feb 22 2020 13:46 utc | 22

Another example of American "democracy" and "freedom" at work:

Gabriel Zucman, leading inequality economist was stopped from getting a tenured post at Harvard University because he called for a wealth tax.

Gabriel Zucman, leading inequality economist was stopped from getting a tenured post at Harvard University because he called for a wealth tax .

"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.

[Feb 01, 2020] A new ideology, neoliberalism, was wrapped around 1920s neoclassical economics, to make it look brand new.

Feb 01, 2020 | www.zerohedge.com

Batman11 , 4 hours ago link

The US worked things out after using neoclassical economics in the 1920s, but then they forgot again.

At 25.30 mins you can see the super imposed private debt-to-GDP ratios.

https://www.youtube.com/watch?v=vAStZJCKmbU&list=PLmtuEaMvhDZZQLxg24CAiFgZYldtoCR-R&index=6

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.

https://www.bankofengland.co.uk/-/media/boe/files/quarterly-bulletin/2014/money-creation-in-the-modern-economy.pdf

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."

https://www.newworldencyclopedia.org/entry/Henry_Calvert_Simons

"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.

The UK:

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)

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.

https://www.youtube.com/watch?v=vAStZJCKmbU&list=PLmtuEaMvhDZZQLxg24CAiFgZYldtoCR-R&index=6

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

https://www.youtube.com/watch?v=1WOs6S0VrlA

The PBoC know how to spot a Minsky Moment coming, unlike the FED, BoE, ECB and BoJ.

geekz_rule , 4 hours ago link

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)

Falcon49 , 6 hours ago link

"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.

[Jan 25, 2020] Rabobank What If... The Protectionists Are Right And The Free Traders Are Wrong by Michael Every

Highly recommended!
Notable quotes:
"... 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. ..."
Jan 25, 2020 | www.zerohedge.com

"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:

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:

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...

[Jan 08, 2020] Deification of questionable metrics is an objective phenomenon that we observe under neoliberalism

Jan 08, 2020 | angrybearblog.com

.

  1. likbez , January 8, 2020 4:00 am

    @run75441 January 7, 2020 5:45 pm

    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

    https://www.theguardian.com/commentisfree/2019/nov/24/metrics-gdp-economic-performance-social-progress

    Also see a rather interesting albeit raw take on the same ("Growth for the sake of growth is the ideology of the cancer cell." ) at:

    http://casinocapitalism.info/Skeptics/Financial_skeptic/Casino_capitalism/Number_racket/gdp_is_a_questionable_measure_of_economic_growth.shtml

    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.

[Dec 29, 2019] The process of imbecilization of the West

Dec 29, 2019 | www.moonofalabama.org

vk , Dec 28 2019 15:28 utc | 4

One more example of the process of imbecilization of the West:

Millennials are turning to magic & astrology for 'empowerment' because liberal ideology failed them

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:

Silent Conflict: A Hidden History of Early Soviet-Western Relations , by Michael Jabara Carley

Here's an interview with him in Sputnik News , in the occasion of this book's release.


[Dec 23, 2019] Productivity Does Not Explain Wages

Dec 21, 2019 | www.nakedcapitalism.com

By Blair Fix, a political economist based in Toronto. He researches how energy use and income inequality relate to social hierarchy. His first book, Rethinking Economic Growth Theory From a Biophysical Perspective , was published in 2015. Twitter: @blair_fix . Republished from Economics from the Top Down via Evonomics

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 .


BillS , December 21, 2019 at 4:46 am

approximation, animals are roughly cubes. Or, if you're a physicist, they're spheres.

..or, more accurately, tori. ;-)

https://www.quora.com/Is-the-human-body-a-torus-donut-topologically

HotFlash , December 21, 2019 at 9:28 am

Yep, that sounds right. Zen-ish philosopher Alan Watts observed that animals, including humans, are tubes.

oaf , December 21, 2019 at 9:44 am

Mostly all
HF? Happy Holidays; Happy Solstice! Brighter days ahead

Hayek's Heelbiter , December 21, 2019 at 2:05 pm

Actually, genomically, human beings are 70% acorn worm.

https://www.sciencedaily.com/releases/2015/11/151118155119.htm

D. Fuller , December 22, 2019 at 1:12 pm

Tube-within-a-tube. The digestive system being the second tube.

Sound of the Suburbs , December 21, 2019 at 4:51 am

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.

Economists assume pay rises with productivity because it did in the Keynesian era, but it doesn't anymore.
http://www.industryweek.com/sites/industryweek.com/files/uploads/2016/11/29/Declining-Wages.jpg
We need those exceptionally intelligent Chinese economists to look at today's problems.
They are really good at it.

Sound of the Suburbs , December 21, 2019 at 5:04 am

Thank god for Google images.
That link has gone bad.
https://www.forbes.com/sites/timworstall/2016/10/03/us-wages-have-been-rising-faster-than-productivity-for-decades/#5e26b1637342

The image is the same – Forbes are putting a different spin on it.
I am just reading their take on it now.

teacup , December 21, 2019 at 1:50 pm

industryweek link gets a 404 not found.

Bill Smith , December 21, 2019 at 6:12 am

"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."

How does this matter? If my salesperson negotiates higher prices on every deal, that's better for my company and I'd say he/she is more productive.

flora , December 21, 2019 at 12:54 pm

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.

flora , December 21, 2019 at 8:08 pm

see for example this Forbes article:
https://www.forbes.com/sites/johnmauldin/2019/12/20/americans-are-not-free-to-choose-anymore/

@pe , December 23, 2019 at 4:15 am

There's the slight of hand

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 .

Amfortas the hippie , December 21, 2019 at 6:49 am

another narrative take on this curious phenomenon:
https://newrepublic.com/article/155666/life-algorithm

tegnost , December 21, 2019 at 8:08 am

That's a good one, thanks

inode_buddha , December 21, 2019 at 7:35 am

"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.

Left in Wisconsin , December 21, 2019 at 1:11 pm

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.

inode_buddha , December 21, 2019 at 2:24 pm

Or, like I say, "Who is "we", white woman?"

The Rev Kev , December 21, 2019 at 9:55 am

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?

JohnH , December 21, 2019 at 11:10 am

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?

Chauncey Gardiner , December 21, 2019 at 11:19 am

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:

https://www.epi.org/productivity-pay-gap/

Susan the Other , December 21, 2019 at 2:34 pm

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.

TG , December 21, 2019 at 1:26 pm

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.

flora , December 21, 2019 at 3:06 pm

One of the harms of monopoly power is it can artificially create resource scarcity to drive up prices.

D. Fuller , December 21, 2019 at 2:01 pm

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.

lyman alpha blob , December 22, 2019 at 10:23 am

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.

D. Fuller , December 22, 2019 at 1:07 pm

Thanks.

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. :)

teacup , December 21, 2019 at 2:18 pm

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.

Bob Hertz , December 22, 2019 at 8:22 am

I am not trained in economics, but I wrote an article on this subject several years ago entitled "Productivity is Bunk."

My point was that wages often depend on bargaining power and protected status, rather than industrial productivity.

Cases in point are unionized workers vs. non-unionized workers, and government employees vs. everyone else.

Also note the incredible productivity of American farmers, versus their almost-uninterrupted financial precariousness.

As Groucho Marx used to say," who are you going to believe? Me or your own lying eyes?"

kiers , December 22, 2019 at 9:49 pm

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?

[Dec 23, 2019] Economics was not always the imperial discipline and economists in the past were not trusted by politicians

Dec 23, 2019 | www.moonofalabama.org

juliania , Dec 22 2019 19:25 utc | 26

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!

[Dec 21, 2019] The Economics Debate, again and again

Dec 21, 2017 | rodrik.typepad.com
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."

Posted at 10:11 AM | Permalink | Comments (5)

[Dec 14, 2019] There is No Economics Without Politics

Dec 14, 2019 | www.nakedcapitalism.com

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.


aj , December 13, 2019 at 10:41 am

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?

The Historian , December 13, 2019 at 12:33 pm

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.

One website that has been of great help finding sources is:
http://www.hetwebsite.net/het/introd.htm

Good luck to you. If you do find a great book, let us all know!

aj , December 13, 2019 at 1:04 pm

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.

Sol , December 13, 2019 at 3:25 pm

+1

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.

Alfred , December 13, 2019 at 4:01 pm

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.

eg , December 13, 2019 at 8:17 pm

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.

https://www.palgrave.com/gp/book/9783319965673

witters , December 13, 2019 at 8:37 pm

John Kenneth Galbraith – 2 books.

Economics in Perspective: a critical perspective
History of Economics:The Past as the Present

skippy , December 13, 2019 at 9:21 pm

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.

aj , December 13, 2019 at 11:33 pm

From the book descriptions these are probably my best start. It makes sense it would be JK Galbraith. Thanks a bunch.

Deplorado , December 14, 2019 at 12:33 am

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.

anon in so cal , December 13, 2019 at 10:44 am

"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?

lyman alpha blob , December 13, 2019 at 12:53 pm

You beat me to it with that first quote.

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.

somecallmetim , December 13, 2019 at 7:22 pm

It's the advanced degrees that do it, reducing the supposedly to possibly, or maybe formerly

skippy , December 13, 2019 at 9:24 pm

The problem with mainstream economics is its concept of theory to start with, but, you'll get that with ideological funding.

diptherio , December 13, 2019 at 12:12 pm

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.

Susan the Other , December 13, 2019 at 1:50 pm

I signed up. Couldn't hurt if it's free.

skippy , December 13, 2019 at 9:25 pm

I hear the first step into any ideologically driven construct is an expression of free [will].

John Wright , December 13, 2019 at 12:24 pm

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.

It is not because Keen and Hudson are incorrect.

flora , December 13, 2019 at 12:38 pm

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."

Another Amateur Economist , December 13, 2019 at 1:22 pm

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.

Susan the Other , December 13, 2019 at 2:05 pm

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.

Steve H. , December 13, 2019 at 3:06 pm

> 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.

Susan the Other , December 13, 2019 at 3:43 pm

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.

farmboy , December 13, 2019 at 7:50 pm

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

skippy , December 13, 2019 at 9:33 pm

The McCrazzypants part about that is interruption or increased lag in information is denoted in the loss of billions in productivity.

Not that it actually translates to better outcomes for the bulk of humanity or life on this orb.

Another Amateur Economist , December 13, 2019 at 11:41 pm

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.

Danny , December 13, 2019 at 1:32 pm

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.

David Laxer , December 13, 2019 at 2:10 pm

NARRATIVE ECONOMICS
https://cowles.yale.edu/sites/default/files/files/pub/d20/d2069.pdf

Glen , December 13, 2019 at 2:17 pm

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!

Arthur Dent , December 13, 2019 at 4:58 pm

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.

flora , December 13, 2019 at 7:45 pm

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.)

eg , December 13, 2019 at 8:24 pm

You might like Pilkington's "The Reformation in Economics" (one that I have finished)

https://www.palgrave.com/gp/book/9783319407562

Paul Hirschman , December 13, 2019 at 11:12 pm

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.

[Dec 07, 2019] While neoliberal talk much about the redistribution of wealth we need to talk more about its creation. And that involves the state.

Notable quotes:
"... "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. ..."
Dec 07, 2019 | economistsview.typepad.com

anne , November 28, 2019 at 12:05 PM

https://www.nytimes.com/2019/11/26/business/mariana-mazzucato.html

November 26, 2019

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.

Paine -> Paine ... , December 02, 2019 at 08:47 AM
Socialize corporate net cash flow
joe -> anne... , December 05, 2019 at 08:12 AM
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.

Mr. Bill -> anne... , December 05, 2019 at 06:21 PM
" the way society thinks about economic value"

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.

Mr. Bill -> Mr. Bill... , December 05, 2019 at 06:31 PM
" 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.

[Dec 07, 2019] https://www.nytimes.com/2019/11/26/business/mariana-mazzucato.html

Notable quotes:
"... "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. ..."
Dec 07, 2019 | www.nytimes.com

November 26, 2019

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

[Dec 07, 2019] Simple Economics that Most Economists Don't Know

Notable quotes:
"... 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. ..."
Dec 07, 2019 | economistsview.typepad.com

anne , December 05, 2019 at 05:46 AM

http://cepr.net/blogs/beat-the-press/simple-economics-that-most-economists-don-t-know

December 4, 2019

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.

* https://deanbaker.net/images/stories/documents/Rigged.pdf

Paine -> anne... , December 05, 2019 at 10:53 AM
Dean over his head ?

The stats on return to capital is anything but simple and straight forward

As to shares

Stat

Break compensation into percentiles

Look at the share of total compensation
Going to
the middle sixty
The bottom twenty
and
The top twenty

and of course
The top one percent
Aka the top ten percent of the top ten percent
And
If possible
the top 10 percent of the top one percent

And the top 10 percent of the top ten percent of the top ten percent of the top ten percent ...of the top ....

Paine -> Paine ... , December 05, 2019 at 11:03 AM
Kalecki way back in thr soup line era

193n

Used the concept Of market power

Defined as the output price mark up

Over input costs


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

Now compare a matrix of inputs

Paine -> Paine ... , December 05, 2019 at 11:11 AM
Yes we made up the rate of interest

It's a sky hook

And to be fair
it has an upper and lower limit


Lower limit
Zero interest turns mark up over wages all into firm market power


Upper limit ?

We have several possibles

How about one that leaves all prices
At least at
firm break even operation
Is that possible
No red ink maximum

Nope
We are now in the quick sand

What is a market system without some red ink ...eh ?

How about a rate that would
but for self financed firms
Put am all into the red ?

Fun

Much more fun then trying to
Figure out how to
Best macro manage a real
Market based production system

[Dec 01, 2019] Academic Conformism is the road to 1984. - Sic Semper Tyrannis

Highly recommended!
Dec 01, 2019 | turcopolier.typepad.com

Academic Conformism is the road to "1984."

Symptoms-of-groupthink-janis-72-l

The world is filled with conformism and groupthink. Most people do not wish to think for themselves. Thinking for oneself is dangerous, requires effort and often leads to rejection by the herd of one's peers.

The profession of arms, the intelligence business, the civil service bureaucracy, the wondrous world of groups like the League of Women Voters, Rotary Club as well as the empire of the thinktanks are all rotten with this sickness, an illness which leads inevitably to stereotyped and unrealistic thinking, thinking that does not reflect reality.

The worst locus of this mentally crippling phenomenon is the world of the academics. I have served on a number of boards that awarded Ph.D and post doctoral grants. I was on the Fulbright Fellowship federal board. I was on the HF Guggenheim program and executive boards for a long time. Those are two examples of my exposure to the individual and collective academic minds.

As a class of people I find them unimpressive. The credentialing exercise in acquiring a doctorate is basically a nepotistic process of sucking up to elders and a crutch for ego support as well as an entrance ticket for various hierarchies, among them the world of the academy. The process of degree acquisition itself requires sponsorship by esteemed academics who recommend candidates who do not stray very far from the corpus of known work in whichever narrow field is involved. The endorsements from RESPECTED academics are often decisive in the award of grants.

This process is continued throughout a career in academic research. PEER REVIEW is the sine qua non for acceptance of a "paper," invitation to career making conferences, or to the Holy of Holies, TENURE.

This life experience forms and creates CONFORMISTS, people who instinctively boot-lick their fellows in a search for the "Good Doggy" moments that make up their lives. These people are for sale. Their price may not be money, but they are still for sale. They want to be accepted as members of their group. Dissent leads to expulsion or effective rejection from the group.

This mentality renders doubtful any assertion that a large group of academics supports any stated conclusion. As a species academics will say or do anything to be included in their caste.

This makes them inherently dangerous. They will support any party or parties, of any political inclination if that group has the money, and the potential or actual power to maintain the academics as a tribe. pl


doug , 01 December 2019 at 01:01 PM

Sir,

That is the nature of tribes and humans are very tribal. At least most of them. Fortunately, there are outliers. I was recently reading "Political Tribes" which was written by a couple who are both law professors that examines this.

Take global warming (aka the rebranded climate change). Good luck getting grants to do any skeptical research. This highly complex subject which posits human impact is a perfect example of tribal bias.

My success in the private sector comes from consistent questioning what I wanted to be true to prevent suboptimal design decisions.

I also instinctively dislike groups that have some idealized view of "What is to be done?"

As Groucho said: "I refuse to join any club that would have me as a member"

J , 01 December 2019 at 01:22 PM
Reminds one of the Borg, doesn't it?

The 'isms' had it, be it Nazism, Fascism, Communism, Totalitarianism, Elitism all demand conformity and adherence to group think. If one does not co-tow to whichever 'ism' is at play, those outside their group think are persecuted, ostracized, jailed, and executed all because they defy their conformity demands, and defy allegiance to them.

One world, one religion, one government, one Borg. all lead down the same road to -- Orwell's 1984.

Factotum , 01 December 2019 at 03:18 PM
David Halberstam: The Best and the Brightest. (Reminder how the heck we got into Vietnam, when the best and the brightest were serving as presidential advisors.)

Also good Halberstam re-read: The Powers that Be - when the conservative media controlled the levers of power; not the uber-liberal one we experience today.

[Dec 01, 2019] Neoliberalism Tells Us We're Selfish Souls How Can We Promote Other Identities by Christine Berry,

Highly recommended!
Notable quotes:
"... 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? ..."
Nov 01, 2019 | www.nakedcapitalism.com

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.

This article forms part of the " Left governmentality" mini series for openDemocracy.

Carolinian , November 1, 2019 at 12:36 pm

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.

Angie Neer , November 1, 2019 at 12:42 pm

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.

MyLessThanPrimeBeef , November 1, 2019 at 4:55 pm

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."

Carolinian , November 1, 2019 at 5:54 pm

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."

The Rev Kev , November 1, 2019 at 8:06 pm

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.

Carey , November 1, 2019 at 9:05 pm

"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..

Carolinian , November 2, 2019 at 9:14 am

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.

Mark Anderlik , November 2, 2019 at 10:58 am

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."

J4Zonian , November 2, 2019 at 4:40 pm

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.

Capital fn 4 , November 1, 2019 at 1:11 pm

The desire for justice is the constant.

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.

Anarcissie , November 2, 2019 at 10:09 am

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.

Capital fn. 4 , November 1, 2019 at 1:16 pm

The desire for justice is the constant.

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.

Synoia , November 2, 2019 at 12:58 pm

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 Historian , November 1, 2019 at 1:43 pm

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.

Foy , November 1, 2019 at 5:09 pm

" ..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.

SKM , November 1, 2019 at 5:52 pm

me too, great observation and well put. Made me feel better too! Heartfelt thanks

Mo's Bike Shop , November 1, 2019 at 8:00 pm

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.

Carey , November 1, 2019 at 5:15 pm

Thanks very much for this comment, Historian.

deplorado , November 1, 2019 at 5:22 pm

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.

Foy , November 1, 2019 at 7:43 pm

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

Jeremy Grimm , November 1, 2019 at 6:49 pm

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?

Foy , November 1, 2019 at 7:47 pm

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.

Mo's Bike Shop , November 1, 2019 at 8:12 pm

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.

Foy , November 1, 2019 at 11:17 pm

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.

susan the Other , November 1, 2019 at 8:07 pm

thank you, historian

The Rev Kev , November 1, 2019 at 8:14 pm

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.

Mr grumpy , November 1, 2019 at 9:56 pm

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.

Janie , November 1, 2019 at 11:59 pm

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.

Grebo , November 2, 2019 at 12:25 am

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.

Kristin Lee , November 2, 2019 at 5:21 am

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.

Davenport , November 2, 2019 at 7:57 am

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.

Henry Moon Pie , November 1, 2019 at 1:49 pm

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.

SKM , November 1, 2019 at 6:02 pm

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

Mo's Bike Shop , November 1, 2019 at 8:37 pm

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.

Anarcissie , November 2, 2019 at 10:18 am

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.

chuck roast , November 1, 2019 at 2:00 pm

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!

Off The Street , November 1, 2019 at 2:27 pm

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.

jrs , November 1, 2019 at 3:11 pm

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.

shtove , November 2, 2019 at 3:45 am

Yes, I suppose people in cities in south-east Asia wearing soot-exclusion masks have a different take on the abundance of air.

Jeremy Grimm , November 1, 2019 at 6:57 pm

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.

Mo's Bike Shop , November 1, 2019 at 8:53 pm

"The air I'm breathing isn't scarce."

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.

Susan the Other , November 1, 2019 at 2:08 pm

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.

Susan the Other , November 1, 2019 at 2:42 pm

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.

djrichard , November 1, 2019 at 3:05 pm

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.

Amfortas the hippie , November 1, 2019 at 3:26 pm

"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.

Mo's Bike Shop , November 1, 2019 at 9:23 pm

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.

djrichard , November 1, 2019 at 10:49 pm

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.

Anarcissie , November 2, 2019 at 10:29 am

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.

David , November 1, 2019 at 3:07 pm

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.

deplorado , November 1, 2019 at 8:30 pm

>>Neoliberalism, in its early guise at least, was popular because politicians like Thatcher effectively promised something for nothing.

This. That's it.

Thank you David, for always providing among the most grounded and illuminating comments here.

Mo's Bike Shop , November 1, 2019 at 9:54 pm

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.

No idea how to do that from the top.

Capital fn. 4 , November 1, 2019 at 3:12 pm

Jeez louise-
one more attempt to get past Skynet

PKMKII , November 1, 2019 at 4:05 pm

Anyone have a link to the studies mentioned about how Econ majors were the only ones to act selfishly in the game scenarios?

Rod , November 2, 2019 at 3:30 pm

this may not get the ECON majors specifically but this will raise your eyebrows

https://www.nationalgeographic.com/magazine/2018/06/embark-essay-tragedy-of-the-commons-greed-common-good/

this is next gen coming up here

Summer , November 1, 2019 at 5:33 pm

"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."

Summer , November 1, 2019 at 5:35 pm

"Ultimately, they can't escape the fact that most people would like to spend less time at work."

And that is a key point!

Carey , November 1, 2019 at 7:39 pm

>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..

Jeremy Grimm , November 1, 2019 at 7:13 pm

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.

Sound of the Suburbs , November 2, 2019 at 4:59 am

Let's work out the basics, this will help.

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.

Now, we can move on further.

The UK's national income accountants can't work out how finance adds any value (creates wealth).
Banks create money from bank loans, not wealth.
https://www.bankofengland.co.uk/-/media/boe/files/quarterly-bulletin/2014/money-creation-in-the-modern-economy.pdf
We have mistaken inflating asset prices for creating wealth.

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.

Sound of the Suburbs , November 2, 2019 at 5:37 am

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.

https://www.youtube.com/watch?v=g6iXBQ33pBo&t=2485s

He thinks we have been on the wrong path for one hundred years.

Some very important things got lost 100 years ago.

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.

Sound of the Suburbs , November 2, 2019 at 8:11 am

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.

Sound of the Suburbs , November 2, 2019 at 8:44 am

Economics, the time line:

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.

Kristin Lee , November 2, 2019 at 5:54 am

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? "

Paul Hirshman , November 2, 2019 at 3:33 pm

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?

[Dec 01, 2019] Nobel prize in Economics and not Novel prize but the price of awarded by neoliberal Sveriges Riksbank and it is not even strictly in economics

Notable quotes:
"... 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. ..."
Dec 01, 2019 | www.nakedcapitalism.com

Ignacio , November 30, 2019 at 6:22 am

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.

Pelham , November 30, 2019 at 10:28 am

We should also note in passing that the Nobel Prize in Economics is not actually a Nobel Prize.

JEHR , November 30, 2019 at 1:39 pm

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.

From Wickipedia :

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!

teacup , November 30, 2019 at 4:09 pm

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.

Both awards pander to the rentier class.

cnchal , November 30, 2019 at 8:52 am

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.

Susan the Other , November 30, 2019 at 12:00 pm

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.

Stadist , November 30, 2019 at 9:56 am

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.

TG , November 30, 2019 at 10:29 am

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.

[Nov 27, 2019] Economics for Inclusive Prosperity (EfIP) by Dani Rodrik

Nov 27, 2019 | rodrik.typepad.com

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.

[Nov 21, 2019] How Neoliberal Thinkers Spawned Monsters They Never Imagined

Highly recommended!
Nov 21, 2019 | www.nakedcapitalism.com

Posted on November 20, 2019 by Yves Smith By Lynn Parramore, Senior Research Analyst at the Institute for New Economic Thinking. Originally published at the Institute for New Economic Thinking website

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.


Bruce Bartlett , November 20, 2019 at 10:05 am

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.

Grebo , November 20, 2019 at 3:39 pm

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.

rd , November 20, 2019 at 10:34 am

A couple of thoughts:

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.

voteforno6 , November 20, 2019 at 11:50 am

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 .)

BlakeFelix , November 20, 2019 at 12:46 pm

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.

LifelongLib , November 20, 2019 at 1:37 pm

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.

Massinissa , November 20, 2019 at 2:36 pm

"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.

inode_buddha , November 20, 2019 at 4:16 pm

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.

Allegorio , November 20, 2019 at 9:50 pm

"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!

Ford Prefect , November 20, 2019 at 8:11 pm

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.

Procopius , November 21, 2019 at 8:49 am

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.

Patrick Thornton , November 21, 2019 at 9:11 am

Santa Clara Count v Southern Pacific RR 1886 – SCOTUS Court Reporter Bancroft Davis, a former RR executive, claimed in his headnote summary of the case that the Court had ruled that corporations are entitled to 14th Amendment protections (thus preventing their regulation by an individual state) thus establishing the legal precedent that corporations are "persons" with speech rights. In fact, the Court never made that determination. The result is a legal precedent established by a bit of legal trickery. Buckley v Valeo 1976: giving money to a political campaign=speech. Citizens 2010: no limit on "speech" (money). The 14 amendment was established to protect former slaves and was used by the court instead to protect corporations (property).

New Wafer Army , November 20, 2019 at 2:17 pm

"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.

GramSci , November 20, 2019 at 5:17 pm

+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."

JBird4049 , November 20, 2019 at 11:10 pm

IIRC Lenin did warn about Stalin.

J7915 , November 20, 2019 at 11:25 pm

Louis 4 of France is the state, and the state was him.
Lenin is better known, IIRC for identifying capitalists as useful idiots.

Massinissa , November 20, 2019 at 2:33 pm

"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.

salvo , November 20, 2019 at 2:51 pm

yep, Marx would never have called himself a Marxist :-)

"Marxism" is just a set of analytic tools to describe the capitalist society and power relations

those who consciously call themselves "Marxist" do it clarify their adherence to those tools not to express an ideological position

Anthony K Wikrent , November 20, 2019 at 10:41 am

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.

deplorado , November 20, 2019 at 4:02 pm

Thank you for illuminating a deeper viewpoint.

WJ , November 20, 2019 at 9:57 pm

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.

notabanktoadie , November 20, 2019 at 11:15 am

The Progressive Approach in a nutshell:

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.

LifelongLib , November 20, 2019 at 1:55 pm

"welfare banks deposit guarantees"

Don't know about you, but I like being protected from losing all my money if the bank goes under

Arizona Slim , November 20, 2019 at 2:01 pm

Yeah, me too!

notabanktoadie , November 20, 2019 at 2:17 pm

I lived in Tucson for a while. Met the love of my life there.

Show some loyalty, gal!

flora , November 20, 2019 at 3:33 pm

+1

notabanktoadie , November 20, 2019 at 2:11 pm

Accounts at the Central Bank are inherently risk-free.

So why may only depository institutions have those?

Hmmm? Violation of equal protection under the law much?

Or would the TRS-80 at the Fed be overloaded otherwise?

LifelongLib , November 20, 2019 at 2:36 pm

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

notabanktoadie , November 20, 2019 at 2:53 pm

My apologies for not detailing everything in every comment. :)

Welcome aboard or rather hello brother!

Lambert Strether , November 20, 2019 at 3:02 pm

> your initial post

No biggie, but this is not a board. It's a blog. Here, you are referring to a comment , not the original post authored by Lynn Parramore.

LifelongLib , November 20, 2019 at 3:11 pm

Point taken!

Procopius , November 21, 2019 at 8:59 am

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.

Massinissa , November 20, 2019 at 2:38 pm

I don't understand how this is linked to progressives when most of what you describe is the neoliberal approach to banks. Could you explain?

notabanktoadie , November 20, 2019 at 3:03 pm

See Warren Mosler's Proposals for the Banking System, Treasury, Fed, and FDIC (draft)

Also, government insurance of private liabilities, including privately created liabilities, was instituted under FDR in 1932, iirc.

And I've had innumerable debates with MMT advocates who have stubbornly defended deposit guarantees and other privileges for the banks.

notabanktoadie , November 20, 2019 at 3:25 pm

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.

JBirc4049 , November 20, 2019 at 11:28 pm

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.

Synoia , November 20, 2019 at 11:37 am

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.

Carla , November 20, 2019 at 11:47 am

I'm disappointed (but not surprised) that

A. Wendy Brown focuses on big money in politics as the biggest threat to democracy without mentioning never-intended corporate constitutional rights.

B. Lynn Parramore does not call her on it.

What a huge missed opportunity. What a fatal blind spot.

https://movetoamend.org/sites/default/files/how_corporate_constitutional_rights_harm_you_your_family_your_community_your_environment_and_your_democracy.pdf

jsn , November 20, 2019 at 1:13 pm

" 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)."

I'm not seeing the blind spot.

Carla , November 20, 2019 at 3:56 pm

The blind spot is her focus on "money as speech" to the exclusion of the constitutional nightmares created by "corporations are people."

To see why this is such an important (and common) error, please see the link I provided.

jsn , November 20, 2019 at 8:04 pm

She didn't write the article you wanted, but specifically addresses "corporations as people." That doesn't make her blind to your concern.

I share your concern, but don't criticize m I my allies for having marginally different priorities.

But that's just me.

David , November 20, 2019 at 12:22 pm

"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.

Tangfwa , November 20, 2019 at 12:39 pm

Bingo

Jeremy Grimm , November 20, 2019 at 1:14 pm

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.]

David , November 20, 2019 at 5:06 pm

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.

Jeremy Grimm , November 21, 2019 at 9:10 am

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.

GramSci , November 20, 2019 at 5:37 pm

Yes, but what is "The Market" but yet another name for "God, Almighty"?
Plus ça change

Massinissa , November 20, 2019 at 5:46 pm

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.

Susan the Other , November 21, 2019 at 10:23 am

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.

PlutoniumKun , November 20, 2019 at 1:31 pm

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.

Chip Otle , November 20, 2019 at 4:27 pm

This is the best comment of this thread so far.

NancyBoyd , November 21, 2019 at 1:48 pm

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.

In this way, politics is drained of politics.

Carey , November 20, 2019 at 1:38 pm

+100 Thank you.

Joe Well , November 20, 2019 at 1:48 pm

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.

Jerry B , November 20, 2019 at 4:21 pm

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.

David , November 20, 2019 at 5:23 pm

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.

Jerry B , November 20, 2019 at 6:58 pm

Thanks David.

==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.

https://en.wikipedia.org/wiki/Cynthia_Enloe

https://en.wikipedia.org/wiki/Cynthia_Enloe#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.

Nancy Boyd , November 21, 2019 at 2:22 pm

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.

Vegetius , November 20, 2019 at 6:03 pm

>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.

KLG , November 20, 2019 at 1:43 pm

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.

Susan the Other , November 20, 2019 at 1:55 pm

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.

Sol , November 20, 2019 at 3:55 pm

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.

JBird4049 , November 21, 2019 at 12:26 am

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.

Susan the Other , November 21, 2019 at 10:34 am

"the twisted flaming napalm of social atomizing" – that's a keeper.

Math is Your Friend , November 21, 2019 at 1:38 pm

"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.

David , November 21, 2019 at 2:00 pm

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.

shinola , November 20, 2019 at 2:07 pm

Neoliberalism is just a new label for an old (and, supposedly, discredited) social theory. It used to be called Social Darwinism.

salvo , November 20, 2019 at 2:43 pm

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.

Carey , November 20, 2019 at 3:18 pm

Thanks for this comment.

eg , November 20, 2019 at 4:41 pm

"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?

KLG , November 20, 2019 at 5:28 pm

Exactly!

David , November 20, 2019 at 5:30 pm

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.

Jerry B , November 20, 2019 at 7:08 pm

Thanks eg!

===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".

https://www.amazon.com/Code-Capital-Creates-Wealth-Inequality/dp/0691178976

deplorado , November 20, 2019 at 8:36 pm

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.

Jerry B , November 20, 2019 at 9:58 pm

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.

JCC , November 21, 2019 at 9:47 am

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.

https://www.academia.edu/6452889/The_Retreat_of_the_State_A_Book_Review

Thank You for the recommendation.

Paul O , November 21, 2019 at 4:57 am

Thank you for this recommendation. Anything that comes as an audiobook is a massive plus for me.

flora , November 20, 2019 at 6:11 pm

Academics promoting neoliberalim: so many false assumptions (or self-exculpating excuses), so little time.

The Rev Kev , November 20, 2019 at 7:13 pm

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.

Sound of the Suburbs , November 21, 2019 at 3:23 am

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".

Steve Ruis , November 21, 2019 at 8:11 am

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.

[Oct 29, 2019] Impoverished economics? Unpacking the economics Nobel Prize

October 18, 2019 | www.opendemocracy.net

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

anne said in reply to annem October 27, 2019 at 07:14 AM

A Very basic goal conflict indeed. Transformation will never come thru, More effective off sets to Institutionally produced misery powerlesses, helplessness

In a word Systemic human " redundancy "

anne said in reply to anne... October 27, 2019 at 12:40 PM

https://africasacountry.com/2019/10/the-poverty-of-poor-economics

October 17, 2019

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.

anne said in reply to anne... October 27, 2019 at 12:44 PM

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.

[Oct 05, 2019] 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

Highly recommended!
Oct 05, 2019 | economistsview.typepad.com

likbez -> anne... , October 05, 2019 at 04:40 PM

Anne,

Let me serve as a devil advocate here.

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.

[Oct 03, 2019] Infectious Narratives in Economics

Oct 03, 2019 | economistsview.typepad.com

anne , October 02, 2019 at 06:25 AM

https://www.bloomberg.com/news/articles/2019-10-01/robert-shiller-on-infectious-narratives-in-economics-excerpt

October 1, 2019

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.

anne -> anne... , October 02, 2019 at 06:29 AM
Correcting spacing:

Narrative Economics
How Stories Go Viral & Drive Major Economic Events
By Robert Shiller

[Sep 26, 2019] The real trouble with Capitalism: stupid/corrupt economists

Sep 26, 2019 | economistsview.typepad.com

Egmont Kakarot-Handtke , September 25, 2019 at 02:30 PM

ICYMI

The real trouble with Capitalism: stupid/corrupt economists
Comment on Chris Dillow on 'The trouble with capitalism'

For the full text (4950 characters) see here
https://axecorg.blogspot.com/2019/09/the-real-trouble-with-capitalism.html

Egmont Kakarot-Handtke

likbez -> Egmont Kakarot-Handtke ... , September 25, 2019 at 05:39 PM
Great, thank you !

I would argue that

(1) They are not stupid, they were simply bought

(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.

... ... ...
== end ==

[Sep 25, 2019] Capitalism, Alone: Four important -- but somewhat hidden -- themes by Branko Milanovic

Sep 25, 2019 | economistsview.typepad.com

anne , September 24, 2019 at 10:26 AM

https://glineq.blogspot.com/2019/09/capitalism-alone-four-important-but.html

September 24, 2019

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.

-- Branko Milanovic

[Sep 22, 2019] Neoliberalism Political Success, Economic Failure Portside by Robert Kuttner

Highly recommended!
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. ..."
Aug 25, 2019 | portside.org
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."

Click here to read how Robert Kuttner has been unmasking the fallacies of neoliberalism for decades

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.

Read the original article at Prospect.org.

Used with the permission. © The American Prospect, Prospect.org, 2019. All rights reserved.

Click here to support the Prospect's brand of independent impact journalism.

[Sep 19, 2019] Form vs. substance in the neoliberal university

Highly recommended!
This is a classic catch 22 situation with this "oath" described below...
Also I think a lot of professors of neo-classical economics look like the member of Komsomol described below ;-) For them it is about opening new opportunities for advancement not about the truth and the level of corresponding to the reality of this pseudo-scientific neo-classical garbage, with the smoke screen of mathematics as a lipstick on the pig (mathiness)
Most such people will teach students complete garbage understanding that this is a complete garbage with a smile. Still, in in Soviet way it is possible for some to accept the position and work to undermine neo-classical economics acting within the institution using Aesopian language in lectures and papers.
The book Everything Was Forever, Until It Was No More The Last Soviet Generation (In-Formation) by Alexei Yurchak is a recommended reading for those who want to understand the perversion of neoliberal way of life in the USA today, as they mirror the perversions of Soviet life in a very uncanny way.
Notable quotes:
"... Consider an example from the contemporary United States. Today a number of private universities, colleges, and schools in several states require teachers and professors to take a "loyalty oath" to ensure that they do not "hold or foster undesirable political beliefs.... ..."
"... From a political standpoint she disagreed with the practice of taking loyalty oaths, and later, in her role as professor of the sociology of law, she voiced political positions counter to those mentioned in the oath and challenged the oath-taking practice itself. ..."
"... However, before she could do this, she first had to take the oath, understanding that without this act she would not be employed or recognized by the institution as a legitimate member with a voice authorized to participate in teaching, research, and the institution's politics (committees, meetings, elections, and so forth), including even the possibility to question publicly the practice of taking oaths. ..."
"... "The oath did not mean much if you took it, but it meant a lot if you didn't." ..."
"... However, "when a vote had to be taken, everyone roused -- a certain sensor clicked in the head: 'Who is in favor?' -- and you raised your hand automatically" (see a discussion of such ritualized practices within the Komsomol in chapter a). ..."
"... Participating in these acts reproduced oneself as a "normal" Soviet person within the system of relations, collectivities, and subject positions, with all the constraints and possibilities that position entailed, even including the possibility, after the meetings, to engage in interests, pursuits, and meanings that ran against those that were stated in the resolutions one had voted for. ..."
"... These acts are not about stating facts and describing opinions but about doing things and opening new possibilities. ..."
Sep 19, 2019 | www.amazon.com

Originally from: Everything Was Forever, Until It Was No More The Last Soviet Generation (In-Formation) by Alexei Yurchak

formal Shift

A general shift at the level of concrete ritualized forms of discourse, in which the formal dimension's importance grows, while the
informal, substantiative dimension opens up to new meanings, can and does occur in different historical and cultural contexts.

Consider an example from the contemporary United States. Today a number of private universities, colleges, and schools in several states require teachers and professors to take a "loyalty oath" to ensure that they do not "hold or foster undesirable political beliefs....

While the statutes vary, [these institutions] generally deny the right to teach to those who cannot or will not take the loyalty oath" (Chin and Rao 2003, 431 -32). Recently, a sociologist of law took such a loyalty oath at a Midwestern university when her appointment as a professor began.

From a political standpoint she disagreed with the practice of taking loyalty oaths, and later, in her role as professor of the sociology of law, she voiced political positions counter to those mentioned in the oath and challenged the oath-taking practice itself.

However, before she could do this, she first had to take the oath, understanding that without this act she would not be employed or recognized by the institution as a legitimate member with a voice authorized to participate in teaching, research, and the institution's politics (committees, meetings, elections, and so forth), including even the possibility to question publicly the practice of taking oaths.

Here, the informal, substantiative dimension of the ritualized act experiences a shift, while the formal dimension remains fixed and important: taking the oath opens a world of possibilities where new informal, substantiative meanings become possible, including a professorial position with a recognized political voice within the institution. In the sociologist's words, "The oath did not mean much if you took it, but it meant a lot if you didn't." 3 ^

This example illustrates the general principle of how some discursive acts or whole types of discourse can drift historically in the direction of an increasingly expanding formal dimension and increasingly open or even irrelevant informal, substantiative dimension. During Soviet late socialism, the formal dimension of speech acts at formal gathering and rituals became particularly important in most contexts and during most events.

One person who participated in large Komsomol meetings in the 1970s and 1980s described how he often spent the meetings reading a book. However, "when a vote had to be taken, everyone roused -- a certain sensor clicked in the head: 'Who is in favor?' -- and you raised your hand automatically" (see a discussion of such ritualized practices within the Komsomol in chapter a).

Here the emphasis on the formal dimension of organizational discourse was unique both in scale and substance. Most ritualized acts of "organizational discourse" during this time underwent such a transformation.

Participating in these acts reproduced oneself as a "normal" Soviet person within the system of relations, collectivities, and subject positions, with all the constraints and possibilities that position entailed, even including the possibility, after the meetings, to engage in interests, pursuits, and meanings that ran against those that were stated in the resolutions one had voted for.

It would obviously be wrong to see these acts of voting simply as informal, substantiative statements about supporting the resolution that are either true (real support) or false (dissimulation of support). These acts are not about stating facts and describing opinions but about doing things and opening new possibilities.

[Sep 18, 2019] China did the right thing: it shut down "free market" theologician maskeraling as economics from the academia

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. ..."
Sep 18, 2019 | nationalinterest.org

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 .


jonathanpulliam 2 days ago ,

Come to think of it, why ISN'T Boeing's CEO in jail??

Gary Sellars 3 days ago ,

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.

... ... ...

Mephisto 3 days ago ,

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.

jonathanpulliam Mephisto 2 days ago ,

PRC China & the U.S. share one thing at least in common, they lack dignity

Rudi Matich Mephisto 2 days ago ,

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.

Swift Laggard II Rudi Matich 2 days ago ,

China is a hard core capitalist state. Even state ownership is state capitalism

Gary Sellars Mephisto 3 days ago ,

"Due to the behavior of the USA, it has very few actual friends."

Thats better...

Mephisto Gary Sellars 3 days ago ,

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.

Gary Sellars Mephisto 2 days ago • edited ,

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.

Swift Laggard II Mephisto 2 days ago ,

speak for yourself; don't speak for Asian nations. How many have joined AIIB, or BRI? What you believe about China is irrelevant

Mephisto Swift Laggard II 2 days ago ,

https://www.pewresearch.org...
it is interesting, that China is least popular in Asia with its direct neighbors

commit Mephisto 2 days ago ,

It would be interesting to know how the research was made and who they ask.

Mephisto commit 2 days ago ,

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....

Redmond Mephisto 2 days ago ,

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.

commit Redmond 2 days ago • edited ,

IDK, the trade war and other US actions against China are pretty recent. They have good reasons to hate your establishment. No need to look into past.

commit Mephisto 2 days ago • edited ,

> universally disliked all over Asia

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.

Redmond 3 days ago ,

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).

Swift Laggard II Redmond 3 days ago ,

what rule of law are you talking about? do you practice it in your own country?

Gary Sellars Swift Laggard II 3 days ago ,

Law of the Jungle. It's all that the Washingtonian primitives understand...

Walter Tseng 3 days ago ,

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!

[Sep 17, 2019] A Requiem for the Fiscal Theory of the Price Level by Roger E. A. Farmer

Sep 17, 2019 | www.rogerfarmer.com

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'.

[Sep 15, 2019] Americar real Conflict in Trump era is between the two factions of neoliberal elites: financial oligarchy (and associated with them Silicon Valley Moduls) and old manufacturing elite

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. ..."
Sep 15, 2019 | dailycaller.com

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.

(RELATED: Bernie Sanders Says Middle Class Will Pay More In Taxes)

The Rise of Neo-Feudalism

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.

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.

Similar attitudes can be seen in virtually all other culturally dominant institutions, starting with Hollywood. Over 99 percent of all major entertainment executives' donations went to Democrats in 2018, even though roughly half the population would prefer they keep their politics more to themselves. (RELATED: Here Are Reactions From Democrats, Liberal Celebrities To The Mueller Testimony)

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.

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.

[Sep 15, 2019] Thomas Piketty's New Book Brings Political Economy Back to Its Sources

Sep 15, 2019 | economistsview.typepad.com

anne , September 13, 2019 at 06:38 PM

https://promarket.org/thomas-piketty-new-book-brings-political-economy-back-to-its-sources/

September 6, 2019

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.

[Sep 10, 2019] Neoliberal Capitalism at a Dead End by Utsa Patnaik and Prabhat Patnaik

Highly recommended!
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. ..."
Aug 25, 2019 | portside.org
Originally from: Monthly Review printer friendly
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.

Notes
  1. Harry Magdoff, The Age of Imperialism (New York: Monthly Review Press, 1969).
  2. Samuel Berrick Saul, Studies in British Overseas Trade, 1870–1914 (Liverpool: Liverpool University Press, 1960).
  3. Paul A. Baran and Paul M. Sweezy, Monopoly Capital (New York: Monthly Review Press, 1966).
  4. 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).
  5. Joseph E. Stiglitz, " Inequality is Holding Back the Recovery ," New York Times , January 19, 2013.
  6. For a discussion of how even the recent euphoria about U.S. growth is vanishing, see C. P. Chandrasekhar and Jayati Ghosh, " Vanishing Green Shoots and the Possibility of Another Crisis ," The Hindu Business Line , April 8, 2019.
  7. 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.
  8. Federal Reserve Board of Saint Louis Economic Research, FRED, "Capacity Utilization: Manufacturing," February 2019 (updated March 27, 2019), http://fred.stlouisfed.org .
  9. This issue is discussed by Charles P. Kindleberger in The World in Depression, 1929–1939 , 40th anniversary ed. (Oakland: University of California Press, 2013).
  10. Michał Kalecki, " Political Aspects of Full Employment ," Political Quarterly (1943), available at mronline.org.
  11. 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).

[Sep 07, 2019] Thomas Piketty's New Book Brings Political Economy Back to Its Sources

Sep 07, 2019 | economistsview.typepad.com

anne , September 06, 2019 at 01:10 PM

https://promarket.org/thomas-piketty-new-book-brings-political-economy-back-to-its-sources/
September 6, 2019

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.

[Sep 07, 2019] New Keynesian economic theory is wrong.

Sep 07, 2019 | economistsview.typepad.com

Joe , September 05, 2019 at 07:52 PM

https://www.project-syndicate.org/commentary/central-banks-flawed-economic-theory-by-roger-farmer-2019-09

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.

[Sep 07, 2019] The end of Mankiw and his Phillips Curve

Sep 07, 2019 | economistsview.typepad.com

Egmont Kakarot-Handtke , September 05, 2019 at 11:34 AM

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.

Egmont Kakarot-Handtke

#1 NAIRU, wage-led growth, and Samuelson's Dyscalculia
https://axecorg.blogspot.com/2015/01/nairu-wage-led-growth-and-samuelsons.html

#2 Keynes' Employment Function and the Gratuitous Phillips Curve Disaster
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2130421

#3 NAIRU and the scientific incompetence of Orthodoxy and Heterodoxy
https://axecorg.blogspot.com/2017/02/nairu-and-scientific-incompetence-of.html

#4 Full employment, the Phillips Curve, and the end of Gaganomics
https://axecorg.blogspot.com/2018/04/full-employment-phillips-curve-and-end.html

#5 For more details of the big picture see cross-references Employment/Phillips Curve
http://axecorg.blogspot.com/2015/08/employmentphillips-curve-cross.html

#6 Wikimedia AXEC62 Employment Law
https://commons.wikimedia.org/wiki/File:AXEC62.png

[Sep 04, 2019] Remember, it was the academics that got this started in the wrong direction, arguably

Sep 04, 2019 | www.nakedcapitalism.com

Warren: "Monopolist's Worst Nightmare: The Elizabeth Warren Interview" [The American Prospect].

Warren: "Remember, it was the academics that got this started in the wrong direction, arguably."

[Sep 02, 2019] Where is Margaret Thatcher now?

Highly recommended!
Sep 02, 2019 | www.nakedcapitalism.com

ambrit , , August 31, 2019 at 11:55 am

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

The Rev Kev , , September 2, 2019 at 12:37 am

Ring 8, sub-rings 7-10? She will probably find Milton Friedman in the basement there.

ambrit , September 2, 2019 at 7:09 am

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.

[Sep 02, 2019] A Question of Character naked capitalism

Sep 02, 2019 | www.nakedcapitalism.com

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.

John, RIP.

ambrit , August 31, 2019 at 12:34 am

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.

Carolinian , August 31, 2019 at 10:04 am

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.

bassmule , August 31, 2019 at 10:47 am

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.

[Aug 26, 2019] The real problem is that since probably late 60th most academic economists were and still are elite prostitutes of financial oligarchy

Aug 26, 2019 | economistsview.typepad.com

JohnH -> Christopher H.... , August 25, 2019 at 09:27 AM

Blame Economists for the Mess We're In
Binyamin Appelbaum, Aug. 25, 2019
https://www.nytimes.com/2019/08/24/opinion/sunday/economics-milton-friedman.html

"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."

likbez -> JohnH... , August 26, 2019 at 10:22 AM
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.

[Aug 23, 2019] I believe being oblivious is the main qualification for being a successful mainstream economist.

Notable quotes:
"... I believe being oblivious is the main qualification for being a successful mainstream economist. ..."
Aug 23, 2019 | www.nakedcapitalism.com

Skip Intro , , August 23, 2019 at 2:29 pm

I believe being oblivious is the main qualification for being a successful mainstream economist.

[Aug 23, 2019] Austerity is Prosperity

Aug 23, 2019 | www.nakedcapitalism.com

Ian Perkins , August 23, 2019 at 10:57 am

"War Is Peace, Freedom Is Slavery, Ignorance Is Strength." And if Orwell were still around, perhaps he would add: Austerity is Prosperity.

Synoia , August 23, 2019 at 11:24 am

Warriors are Peacekeepers

[Aug 15, 2019] How Richard Vague Discovered Gravity An Interview + Book Review of A Brief History of Doom Two Hundred Years of Financial Cri

Aug 15, 2019 | www.nakedcapitalism.com

Sound of the Suburbs , August 13, 2019 at 5:25 am

What was the problem with Classical Economics?

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.

https://www.youtube.com/watch?v=g6iXBQ33pBo&t=2485s

He thinks we have been on the wrong path for one hundred years.

This was the old switcheroo.

Economics, the time line:

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.

Sound of the Suburbs , August 13, 2019 at 5:48 am

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.

A self-stabilising system it is not.

Sound of the Suburbs , August 13, 2019 at 5:33 am

Why do policymakers think debt isn't a problem?

Ben Bernanke is famous for his study of the Great Depression and here it is discussed in the Wall Street Journal.

https://www.wsj.com/articles/SB113392265577715881

"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

"A lost century in economics: Three theories of banking and the conclusive evidence" Richard A. Werner
http://www.sciencedirect.com/science/article/pii/S1057521915001477

It went backwards between Milton Freidman and Ben Bernanke.

Milton Freidman used fractional reserve theory, which was better than financial intermediation theory, but still wrong.

This is why his Monetarism didn't work.

He though banks lending and the moony supply were controlled by central bank reserves, but they aren't.

Brooklin Bridge , August 13, 2019 at 7:06 am

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.

Daniel Romig , August 13, 2019 at 7:24 am

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."

Thank you for observing, Mr. Vague.

Samuel Conner , August 13, 2019 at 9:07 am

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.

Telee , August 13, 2019 at 2:23 pm

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.

Steve H. , August 13, 2019 at 7:43 am

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?

vlade , August 13, 2019 at 8:19 am

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).

Steve H. , August 13, 2019 at 2:31 pm

Thank you, Vlade.

Thorstein's Ghost , August 13, 2019 at 8:01 am

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).

Adam Eran , August 13, 2019 at 8:00 pm

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.

vlade , August 13, 2019 at 8:09 am

I can't remember where I wrote it before.

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.

John , August 13, 2019 at 8:13 am

"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.

Carla , August 13, 2019 at 9:10 am

@ 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!

Bugs Bunny , August 13, 2019 at 10:06 am

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.

https://www.consumerbankers.com/cba-media-center/cba-news/joe-biden-backed-bills-make-it-harder-americans-reduce-their-student-debt

Telee , August 13, 2019 at 7:16 pm

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?

Steve Ruis , August 13, 2019 at 2:35 pm

Duh. That was exactly the purpose. That bankruptcy exempt law for student loans was passed based upon falsehoods. Its actual purpose was to enslave the college educated youth (make them debt slaves) so that they don't go on a rampage like they did in the 1960's and 70's vis-a-vis the Vietnam War.

John Merryman. , August 13, 2019 at 8:29 am

I think part of the problem is that we treat money as a store of value, as well as a medium of exchange.
As a medium, it is a contract, with one side an asset and the other a debt, so in order to store the asset, similar amounts of debt have to be created.
This results in a centripedial effect, as positive feedback draws the asset to the center of the system, while negative feedback pushes the debt to the edges.
Since money and finance serve as the value circulation mechanism, this is like the heart telling the hands and feet to go suck dirt, because they don't get any blood.
A medium and a store are distinct functions. Blood is a medium, fat is a store. Roads are a medium, parking lots are a store.
As a medium, we own money like we own the section of road we are using, or the beer passing through our bodies. It's functionality is in its fungibility.
If we store value in healthy communities, we wouldn't need banks to mediate every relationship.
The irony of our individualistic culture, is it leaves us in our atomized cocoons, allowing more effective top down control and a parasitic feedback mechanism. Sort of like The Matrix.

susan the other` , August 13, 2019 at 6:05 pm

good description of the way an ME and a SoV work against each other; I can never think through what I'm sure is this very contradiction in terms. thanks.

Bobby Gladd , August 13, 2019 at 9:43 am

Sound like an interesting book. Just ordered it. I am reminded of "This Time is Different: 700 years of financial folly."

I worked in subprime risk modeling & mgmt during 2000 – 2005 . We made successive record profits every year of my tenure.

I quit to go back to health care analytics. It was too slimy. I knew it was not gonna end well.

Chauncey Gardiner , August 13, 2019 at 10:15 am

Appears to build on the work of economists Hyman Minsky and Steve Keen. Not as concerned with developments in "Asia" (China), as there seems to be a policy willingness there to substitute state money for private sector debt, and to allow currency depreciation as an adjustment mechanism for the implicit debt writedowns. The policy also plays into China's exports-driven macro model. Similar to the US government and central bank "foaming the runway" for the banks and large corporations in the aftermath of the 2008 financial crisis.

Contemplating the role of compound interest in private sector debt growth in a period of low economic growth. Recent rapid growth of leveraged loans and junk bonds to fund corporate stock buybacks, negative real interest rates to push up financial asset and real estate prices/collateral values, and a lax regulatory environment appear to support an intentional policy of excessive growth in private sector debt. Whether the GFC is entirely in the rearview mirror or is till unfolding in terms of ultimately leading to systemic change also remains open IMO, although neoliberal policies remain firmly entrenched at this time.

Summer , August 13, 2019 at 11:40 am

The part about the financial sector, including housing, being the main components of US "industrial policy" shows the country as whole isn't taking the first advice financial advisors usually give for stability: DIVERSIFY ..

And yet again here is another book/article on the US economy that says nothing about defense spending.

Synoia , August 13, 2019 at 12:20 pm

US Defense spending is not debt. The MMT discussions state that clearly.

One test for "debt" is a simple question: Who can demand the debt be paid?

In the case of USG spending, the only party who could "call the debt" is the USG, and a single party cannot be both debtor and creditor on a debt, that is: cannot owe oneself money.

Summer , August 13, 2019 at 1:59 pm

"Debt" is invested, however, and defense spending is a big use of it and still – boom and bust.

Adam Eran , August 13, 2019 at 8:06 pm

Well all government spending is debt if it spends currency. The dollars are debt. Your checking account is debt too to the bank. When you write a check, you're assigning a portion of the bank's debt to the payee. Dollars are just checks made out to "cash" in fixed amounts. They appear in the Fed's books a liability, too.

What are we owed for a dollar? Answer: relief from a dollar's worth of (inevitable) tax liability.

Back to the original post: It's even ambiguous whether defense spending is consumption. After all, the internet is a product of DARPA (the "D" is for "Defense"). Marianna Mazzucato has a nice TED talk about government as innovator.

tegnost , August 13, 2019 at 12:22 pm

" In both cases, the result is about 16% growth to GDP over 15 years. But in the second case, you don't have a financial crisis."

also in the second case there are not foreclosures and repossessions whereby concentrated financial power confiscates what they sold so they can sell it again by the way where does that activity (repos and foreclosures) go in the calculation of GDP

Adam Eran , August 13, 2019 at 8:06 pm

Disaster capitalism!

Susan the other` , August 13, 2019 at 2:51 pm

Gosh. Where has Mr. Vague been? If this isn't the understatement of the century, I don't know what is. Even dear old Ordoliberal Wolfgang Schaeuble said right up front: "We are overbanked." Steve Keen is still fighting with Krugman about the significance of private debt. And to imply that we have an unspoken "industrial policy" that uses real estate to get us out of a slow patch begs the question. It is not industrial policy, it is the blatant chickenshit avoidance of industrial policy. But never mind all that, the sea change Mr. Vague is avoiding is that industrial manufacturing is being drastically trimmed back, limited, maybe even rationed by country for all we know. To forgive debts won't really cut it. Not that we shouldn't do it. We should simply because debt service is nearly impossible these days. We need to have massive fiscal infusions; money spent wisely to improve civilization and save the environment. Please Mr. Vague. You're more like Mr. Vacuous.

Another Amateur Economist , August 13, 2019 at 11:22 pm

No. It is the "Destruction of Industry Policy." Why make and build, when institutionalized theft, graft, and fraud have become more profitable?

p. Fitzsimon , August 13, 2019 at 3:09 pm

" .industrial policy, even though it was largely unstated: namely, support for the financial and real estate sectors"
I would add the agricultural sector to government supported industry.

Generalfeldmarschall von Hindenburg , August 13, 2019 at 3:09 pm

The brother needs to have a look a Portland, Oregon. Overcapacity, a housing bubble and a homeless crisis all at once. It's bound to crash. Yet there're so many boomers retiring from the first wave of the Tech Era (the folks whose awesome ideas and disruption gave us Dot-Bomb. So they've run up the price of beer in a town famous for craft brewing to unaffordability. They never seem to pay the price.

Jack Parsons , August 13, 2019 at 4:43 pm

The earliest worldwide financial crisis that I'm aware of was the Habsburg silver crisis. Fascinating story.

https://aeon.co/essays/potosi-the-mountain-of-silver-that-was-the-first-global-city

Tim , August 13, 2019 at 8:46 pm

Bush Junior tightened the Bankruptcy laws in his final term before the great recession. I still don't think that was coincidence.

The smart people with all the money DO know this is how economics works, and execute their strategies on their behalf accordingly. The rest of us, get the idiot's guide to the galaxy to work with.

none , August 15, 2019 at 12:07 am

"Debt, the first 5000 years" by David Graeber is on my list of probably-good books that I'm unlikely to get around to reading. Is that similar to this one?

[Aug 15, 2019] Ideology is Dead! Long Live Ideology!

Aug 14, 2019 | www.nakedcapitalism.com

Yves here. Quelle surprise! Economists engage in groupthink, which sounds a little less bad if you call it "ideology".

By Mohsen Javdani, Associate Professor of Economics, University of British Columbia – Okanagan Campus and Ha-Joon Chang, Professor, University of Cambridge. Originally published at the Institute for New Economic Thinking website

Mainstream (neoclassical) economics has always put a strong emphasis on the positivist conception of the discipline, characterizing economists and their views as objective, unbiased, and non-ideological. This is still true today, even after the 2008 economic crisis exposed the discipline to criticisms for lack of open debate, intolerance for pluralism, and narrow pedagogy. [1] Even mainstream scholars who do not blatantly refuse to acknowledge the profession's shortcomings still resist identifying ideological bias as one of the main culprits. They often favor other "micro" explanations, such as individual incentives related to academic power, career advancement, and personal and editorial networks. Economists of different traditions do not agree with this diagnosis, but their claims have been largely ignored and the debate suppressed.

Acknowledging that ideology resides quite comfortably in our economics departments would have huge intellectual implications, both theoretical and practical. In spite (or because?) of that, the matter has never been directly subjected to empirical scrutiny.

In a recent study , we do just that. Using a well-known experimental "deception" technique embedded in an online survey that involves just over 2400 economists from 19 countries, we fictitiously attribute the source of 15 quotations to famous economists of different leanings. In other words, all participants received identical statements to agree or disagree with, but source attribution was randomly changed without the participants' knowledge . The experiment provides clear evidence that ideological bias strongly influences the ideas and judgements of economists. More specifically, we find that changing source attributions from mainstream to less-/non-mainstream figures significantly reduces the respondents' reported agreement with statements. Interestingly, this contradicts the image economists have of themselves, with 82% of participants reporting that in evaluating a statement one should only pay attention to its content and not to the views of its author.

Moreover, we find that our estimated ideological bias varies significantly by the personal characteristics of economists in our sample. For example, economists' self-reported political orientation strongly influences their ideological bias, with estimated bias going up as respondents' political views move to the right. The estimated bias is also stronger among mainstream than among heterodox economists, with macroeconomists exhibiting the strongest bias. Men also display more bias than women. Geographical differences also play a major role, with less bias among economists in Africa, South America, and Mediterranean countries like Italy, Portugal, and Spain. In addition, economists with undergraduate degrees in economics or business/management tend to show stronger ideological biases.

We give more details about our methodology and findings in the following sections, but first let us anticipate some of the conclusions and implications. Theoretically, the implications are upsetting for the positivist methodology dominating the neoclassical economics. As Boland (1991) suggests, "[p]ositive economics is now so pervasive that every competing view has been virtually eclipsed." Yet, the strong influence of ideological bias on views among economists that is evident in our empirical results cannot be reconciled with it.

Practically, our results imply that it is crucial to adopt changes in the profession that protect academic discourse, as well as the consumers of the economic ideas, from the damaging impacts of ideological bias. In fact, there exists growing evidence that suggests value judgements and political orientation of economists affect not just research ( Jelveh et al. 2018 , Saint-Paul 2018 ), but also citation networks ( Önder and Terviö 2015 ), faculty hiring ( Terviö 2011 ), as well as economists' positions on positive and normative issues related to public policy (e.g. Beyer and Pühringer 2019 ; Fuchs, Krueger and Poterba 1998 ; Mayer 2001 ; van Dalen 2019 ; Van Gunten, Martin, and Teplitskiy 2016 ). It is therefore not a long stretch to imagine that ideological bias could play an important role in suppressing plurality, narrowing pedagogy, and delineating biased research parameters in economics.

One important step that helps identify the appropriate changes necessary to minimize the influence of ideological biases is to understand their roots.

As argued by prominent social scientists (e.g. Althusser 1976 , Foucault 1969 , Popper 1955 , Thompson 1997 ), the main source of ideological bias is knowledge-based, influenced by the institutions that produce discourses. Mainstream economics, as the dominant and most influential institution in economics, propagates and shapes ideological views among economists through different channels.

Economics education, through which economic discourses are disseminated to students and future economists, is one of these important channels. It affects the way students process information, identify problems, and approach these problems in their research. Not surprisingly, this training may also affect the policies they favor and the ideologies they adhere to. In fact, there already exists strong evidence that, compared to various other disciplines, students in economics stand out in terms of views associated with greed, corruption, selfishness, and willingness to free-ride (e.g. Frank and Schulze 2000 , Frank et al. 1993 and 1996 , Frey et al. 1993 , Marwell and Ames 1981 , Rubinstein 2006 , Want et al. 2012 ). [2]

Another important channel through which mainstream economics shapes ideological views among economists is by shaping the social structures and norms in the profession. While social structures and norms exist in all academic disciplines, economics seems to stand out in at least several respects, resulting in the centralization of power and the creation of incentive mechanisms for research, which in turn hinder plurality, encourage conformity, and adherence to the dominant (ideological) views.

Our own exposure to different parts of this social structure while working on this project has in fact been an unpleasant yet eye-opening experience, and a testament to dominant biases in the discipline that strongly impede critical thinking, new perspectives, and plurality. We have been threatened, accused, and insulted for simply asking an important and legitimate question. We have also had first-hand experience with the Top Five journals in economics and some of their (associate) editors' exertion of their strong prejudiced views, which is often disguised under the vail of "inevitably subjective nature of editors' decision-making process," which is supported by the absolute and unaccountable power that is at their disposal. In some cases, the decision regarding our submission blatantly lacked professionalism and respect for plurality of views.

Our world today is characterized by critical issues that economics has a lot to say about, such as inequality, austerity, the future of work, and climate change. However, relying on one dominant discourse which ignores or isolates alternative views will make the economics profession ill-equipped to engage in balanced conversations regarding these issues. This also makes the consumers of economic ideas skeptical about economists and the views and policies they advocate for. We believe that addressing the issue of ideological bias in economics first requires economists to find out about their own biases. Persistent denial of these biases is going to be more harmful than being aware of their presence and influence, even if mainstream economists do not necessarily change their views. Moreover, the economics profession needs to have an in-depth introspection and a real and open debate about the factors underpinning these biases, including economics training and social structures within the discipline that centralize power, encourage group thinking and conformity, dampen innovative thinking and creativity, and hinder plurality.

Experimental Design

Examining issues such as the impact of bias, prejudice, or discrimination on individual views and decisions is very challenging, given the complex nature of these types of behaviour. This has given rise to a field experimentation literature in economics that has relied on the use of deception -- for example, through sending out fictitious resumes and applications, to examine the prevalence and consequences of discrimination against different groups in the labor market. [3] We take a similar approach, namely using fictitious source attributions, in order to investigate the effect of ideological bias on economists (See Section 4 in our online appendix for a more detailed discussion on the use of deception in economics). More specifically, we employ a randomized controlled experiment embedded in an online survey. Economists from 19 different countries were invited to complete an online survey where they were asked to evaluate fifteen statements from prominent economists on a wide range of topics. We received just over 2,400 responses, with the majority of responses (around 92%) from academics with a PhD degree in economics. As reported in our online appendix , our sample includes a very diverse group of economists from a diverse set of institutions. While all participants received identical statements in the same order, source attribution for each statement was randomly changed without the participants' knowledge . For each statement, participants either received the name of a mainstream economist as the source (Control Group), or an ideologically different less-/non-mainstream economist (Treatment 1), or no source attribution (Treatment 2). See Table A8 in our online appendix for a complete list of statements and sources.

The Findings, in Detail

Our analysis of the experimental results reveals several important findings. First, examining the probability of different agreement levels for each statement as well as their comparative degree of consensus (using relative entropy index derived from information theory), we find evidence of clear dissent among economists on the wide variety of topics evaluated (see Figure 1 below). Given that our statements either deal with different elements of the mainstream economics paradigm -- including its methodology, assumptions, and the sociology of the profession -- or issues related to economic policy, the significant disagreement evident in our results highlights the lack of paradigmatic and policy consensus among economists on evaluated issues.

Figure 1: Probability of different agreement levels – By statement

Note: See Table A8 in our online appendix for a complete list of statements and sources.

Second, we find evidence of a strong ideological bias among economists. More specifically, we find that for a given statement, the agreement level is 7.3% (or 22% of a standard deviation) lower among economists who were told that the statement was from a less-/non-mainstream source. Examining statements individually also reveals that in all but three statements, agreement level drops significantly (both quantitatively and statistically, ranging from 3.6% to 16.6%) when the source is less-/non-mainstream.

For example, when a statement criticizing "symbolic pseudo-mathematical methods of formalizing a system of economic analysis" is attributed to its real source, John Maynard Keynes, instead of its fictitious source, Kenneth Arrow, the agreement level among economists drops by 11.6%. Similarly, when a statement criticizing intellectual monopoly (i.e. patent, copyright) is attributed to Richard Wolff, the American Marxian economist at the University of Massachusetts, Amherst, instead of its real source, David Levine, professor of economics at the Washington University in St. Louis, the agreement level drops by 6.6%.

Interestingly, these results stand in sharp contrast with the image economists project of themselves in our survey. In an accompanying questionnaire that appears at the end of the survey, a strong majority of participants (around 82%) agreed that in evaluating a statement, one should only pay attention to its content, rather than its author. Only 18% of participants agreed that both the content of the statement as well as the views of the author matter, and only a tiny minority (around 0.5%) reported the views of the author should be the sole basis to evaluate a statement.

Third, we find that economists' self-reported political orientation strongly influences their views. More specifically, our results suggest that even when we focus on statements with mainstream sources attributed to them , there exists a very significant difference in average agreement level among economists with different political orientations. For example, for a given statement, the average agreement level among economists self-identified as left is 8.4% lower than those self-identified as far left. This already large difference widens consistently as we move to the far right, reaching a difference of 19.6% between the far right and the far left, which is an increase of 133%. This strong effect of political orientation on economists' evaluation of our statements, which does not change after controlling for a wide set of observed characteristics, is another clear manifestation of ideological bias.

The effect of political orientation on economists' views is even more drastic when we examine how changes in attributed sources affects economists with different political orientations. More specifically, for those on the far left, altering the sources only reduces the average agreement level by 1.5%, which is less than one-fourth of the overall effect of 7.3% we discussed before. However, moving from the far left to the far right of the political orientation consistently and significantly increases the effect of changing the source to a 13.3% reduction in agreement level, which is almost 8 times (780%) larger compared to the far left. Interestingly, this is despite the fact that relative to the far left, those at the far right are 17.5% more likely to agree that in evaluating a statement one should only pay attention to its content.

Fourth, our results uncover striking differences by gender. More specifically, we find that the estimated ideological bias is 44% larger among male economists as compared to their female counterparts, even after controlling for potential gender differences in observed characteristics including political orientation and political/economic typology. Moreover, our results highlight a startling difference between male and female economists in their perception of gender problems in the profession. When faced with the statement " Unlike most other science and social science disciplines, economics has made little progress in closing its gender gap over the last several decades. Given the field's prominence in determining public policy, this is a serious issue. Whether explicit or more subtle, intentional or not, the hurdles that women face in economics are very real. ", the agreement level was a whopping 26% higher among female economists than among their male peers.

In addition, when participants were told that the statement was made by the left-wing British feminist economist Diane Elson (rather than the real source, Carmen Reinhart, a mainstream economist at Harvard), male economists showed ideological biases -- their agreement level fell by 5.8%. Interestingly, however, it stayed unchanged for female economists. This seems to suggest that the gender problem in economics is so severe that female economists, who exhibited ideological biases on many other issues (although less than did their male colleagues), put aside their biases in this particular case and focused on the content of the statement.

The discussion around the gender problem in economics has recently taken the center stage. During the recent 2019 AEA meeting, and in one of the main panel discussions titled "How can economics solve its gender problem?" several top female economists talked about their own struggles with the gender problem in economics. In another panel discussion, Ben Bernanke, the current president of the AEA, suggested that the discipline has "unfortunately, a reputation for hostility toward women ." This is following the appointment of an Ad Hoc Committee by the Executive Committee of the AEA in April 2018 to explore "issues faced by women [ ] to improve the professional climate for women and members of underrepresented groups." AEA also conducted a climate survey recently to "provide more comprehensive information on the extent and nature of these [gender] issues." It is well-understood that approaching and solving the gender problem in economics first requires a similar understanding of the problem by both men and women. However, our results suggest that unfortunately there exists a very significant divide between male and female economists in their recognition of the problem.

Fifth, we find systematic and significant heterogeneity in our estimated effect of ideological bias by country, area of research, country where PhD was completed, and undergraduate major, with some groups of economists exhibiting little or no ideological bias and some others showing very strong bias.

For example, we find that economists with a PhD degree from Asia, Canada, Scandinavia, and the U.S. exhibit the strongest ideological bias. On the opposite end we find that economists with PhD degrees from South America, Africa, Italy, Spain, and Portugal exhibit the smallest ideological bias. Similarly, our results suggest that there is the smallest ideological bias from economists whose main area of research is history of thought, methodology, heterodox approaches; cultural economics, economic sociology, economic anthropology, or economic development. On the other hand, we find that economists whose main area of research is macroeconomics, public economics, international economics, and financial economics are among those with the largest ideological bias.

We also find that undergraduate training in economics has a strong effect on our estimated effect of ideological bias. We find that those economists with an undergraduate major in economics, or business/management, exhibit the strongest bias, while those who studied law; history, language and literature; or anthropology, sociology, and psychology show no ideological bias. These results are consistent with the growing evidence that suggests economic training, either directly or indirectly, induces ideological views in students (e.g. Allgood et al. 2012 , Colander and Klamer 1987 , Colander 2005 , Rubinstein 2006 ).

Discussion

Scholars hold different views on whether economics can be a "science" in the strict sense and be free from ideological biases. However, perhaps it is possible to have a a consensus that the type of ideological bias that could result in endorsing or denouncing an argument on the basis of (one's interpretation of) its author's views rather than its substance is unhealthy and in conflict with scientific tenor and the subject's scientific aspiration, especially when the knowledge regarding rejected views is limited .

Some economists might object that economists are human beings and therefore these biases are inevitable. But economists cannot have their cake and eat it too! Once you admit the existence of ideological bias, the widely-held view that "positive economics is, or can be, an 'objective' science, in precisely the same sense as any of the physical sciences" (Friedman 1953) must be rejected.

Furthermore, the differences we find in the estimated effects across personal characteristics such as gender, political orientation, country, and undergraduate major clearly suggest that there are ways to limit those ideological effects, and ways to reinforce them.

Our finding that those with an undergraduate degree in economics exhibit the strongest ideological bias highlights the importance of economic training in shaping ideological views. In doing so, our study contributes to the literature on economic education, suggesting that ideology can be at least limited by changes in the curricula at earlier stages.

Rubinstein (2006) argues that "students who come to us to 'study economics' instead become experts in mathematical manipulation" and that "their views on economic issues are influenced by the way we teach, perhaps without them even realizing." Stiglitz (2002) also argues that "[economics as taught] in America's graduate schools bears testimony to a triumph of ideology over science."

Economics teaching not only influences students' ideology in terms of academic practice but also in terms of personal behavior. Colander and Klamer (1987) and Colander (2005) survey graduate students at top-ranking graduate economic programs in the U.S. and find that, according to these students, techniques are the key to success in graduate school, while understanding the economy and knowledge about economic literature only help a little. This lack of depth in knowledge acquired, not only in economics but in any discipline or among any group of people, makes individuals lean more easily on ideology. Frank et al. (1993) similarly highlight the importance of economics training in shaping behavior among students by criticizing the exposure of economics students to the self-interest model in economics where "motives other than self-interest are peripheral to the main thrust of human endeavor, and we indulge them at our peril." They also provide evidence that such exposure does have an impact on self-interested behavior.

But education is not the only problem: social structures and norms within the profession also deeply influence economists' adherence to dominant ideological views.

For example, in his comprehensive analysis of pluralism in economics, Wright (2019) highlights several features of the discipline that make the internal hierarchical system in economics "steeper and more consequential" compared to most other academic disciplines. These features include: (1) particular significance of journal ranking, especially the Top Five, in various key aspects of academic life including receiving tenure ( Heckman and Moktan 2018) , securing research grants, invitation to seminars and conferences, and request for professional advice; (2) dominant role of "stars" in the discipline ( Goyal et al. 2006 , Offer and Söderberg 2016 ); (3) governance of the discipline by a narrow group of economists ( Fourcade et al. 2015 ); (4) strong dominance of both editorial positions and publications in high-prestige journals by economists at highly ranked institutions ( Colussi 2018 , Fourcade et al. 2015 , Heckman & Moktan 2018 ; Wu 2007 ); and the strong effect of the ranking of one's institution, as a student or as an academic, in career success ( Han 2003 , Oyer 2006 ).

As another example, in a 2013 interview with the World Economic Association, Dani Rodrik highlights the role of social structure in economics by suggesting that "there are powerful forces having to do with the sociology of the profession and the socialization process that tend to push economists to think alike. Most economists start graduate school not having spent much time thinking about social problems or having studied much else besides math and economics. The incentive and hierarchy systems tend to reward those with the technical skills rather than interesting questions or research agendas. An in-group versus out-group mentality develops rather early on that pits economists against other social scientists." Interestingly, a very similar picture of the profession was painted in 1973 by Axel Leijonhufvud in his light-hearted yet insightful article titled " The life among the Econ ."

It is hard to imagine that the biased reactions we find in our study only emerge in a low-stakes environment, such as our experiment, without spilling over to other areas of academic life. After all, as we discussed at the beginning, there already exists growing evidence which suggests that the political leanings and the personal values of economists influence different aspects of their academic lives. It is also not a long stretch to imagine that such ideological biases impede economists' engagement with alternative views, narrow the pedagogy, and delineate biased research parameters. We believe that recognizing their own biases, especially when there exists evidence suggesting that they could operate through implicit or unconscious modes, is the first step for economists who strive to be objective and ideology-free. This is also consistent with the standard to which most economists in our study hold themselves. To echo the words of Alice Rivlin in her 1987 American Economic Association presidential address, "economists need to be more careful to sort out, for ourselves and others, what we really know from our ideological biases."

Notes

[1] Several scholars have highlighted the connection between ideological views and the lack of plurality in economics and the failure of the profession to predict the 2008 crisis, or to even have an honest and in-depth retrospective explanation that would help develop accountable counter-measures against future crises (e.g. Barry 2017 ; Cassidy 2009 ; Dow 2012 ; Freeman 2010 ; Heise 2016 ; Lawson 2009 ; Stilwell 2019 ). There are also those who believe the 2008 crisis was not predictable, but fault the profession, as Colander (2010) puts it, "for failing to develop and analyze models that, at least, had the possibility of such a failure occurring" (e.g. Cabalerro 2010 ; Colander et al. 2013 ).

[2] Even if this relationship is not strictly casual, it suggests that there exists something about economic education that leads to a disproportionate self-selection of such students into economics.

[3] See Bertrand and Duflo (2017) and Riach and Rich (2002) for a review. Also see Currie et al. (2014) as another example of experimental audit studies with deception.

https://eus.rubiconproject.com/usync.html

https://c.deployads.com/sync?f=html&s=2343&u=https%3A%2F%2Fwww.nakedcapitalism.com%2F2019%2F08%2Fideology-is-dead-long-live-ideology.html

https://acdn.adnxs.com/ib/static/usersync/v3/async_usersync.html Ideology is Dead! Long Live Ideology! | <img src="http://b.scorecardresearch.com/p?c1=2&c2=16807273&cv=2.0&cj=1" />


Cripes , August 14, 2019 at 4:49 am

20 years ago Dr Sam Tsemberis conducted a double-blind trial of chronically homeless mentally ill people in an effort to learn whether being housed first led to better medical outcomes then placing barriers of compliance before getting housed would produce.

Happily, the common sense proposition that having a secure roof improves people's health or medication adherence was proven, and the concept of Housing First as a best practice is accepted today.

Economics is always political economy no matter how hard they try to pretend its algebra.

Paul O , August 14, 2019 at 5:43 am

+1

I read this elsewhere yesterday. Seems Econ mags were not keen to publish or link to it :-)

The Rev Kev , August 14, 2019 at 6:15 am

If ideology is dead then good riddance to it. I have seen and read about too many ideologues that have caused massive damage and deaths over the centuries and economics is no different. Personally I am of the school of thought of doing things in an empirical way and ignoring labels but just seeing what works. If it works, adopt it. If it does not, try something else. The economics of today does not do that. It does not work. It never saw the 2008 crisis coming and it has never proposed and backed reforms so that it will not happen again. It is used to justify a world economy that is causing climate change as it refuses to include most factors into their equations. I find it fascinating too how modern economics makes use of labels to stop discussions of possible paths to explore. Ideological labels has itself proven a huge hindrance. Here is what I mean.

"We should have health care for all."
"That is socialism that!"
"Well I guess that we can't do that then!

I think that Blair Fix's article "No, Productivity Does Not Explain Income" ( https://www.nakedcapitalism.com/2019/08/no-productivity-does-not-explain-income.html ) shows you how modern economists work. You juggle around processes like you do mathematical formulas and expect that it still reflects the real world. In scientific discussion you throw out a theory in a journal. Ideally it should be reproducible in the real world and should be picked apart for any flaws in data or reasoning. But like in Blair Fix's article. the outcome is designated first and then you work you way back to justify it. It fails blind tests like mentioned here which shows it's flawed processes. In Washington DC there is the Victims of Communism Memorial but I do think that there should also be a Victims of Neoliberalism Memorial to reflect current economic thought. In the former there is the Goddess of Democracy statue as a centerpiece. For a statue for the Victims of Neoliberalism I would suggest another statue but based on the acronym BOHICA.

@pe , August 14, 2019 at 7:09 am

The more you see yourself as beyond ideology, the more likely it is that you are a victim of ideology. That's what the post shows: it's the very fields such as business management that see themselves as non-ideological, "common sense" and empirical which are the most ideological, least common sense and least empirical.

If you are aware of your bias, you can minimize (but not eliminate) those affects. But if you believe that you have *perfect* vision, no measurement can show you that you have an astigmatism.

Remember, Obama and Merkel see themselves as pragmatists -- but an objective observer can be assured of finding deep ideological biases and assumption underlying their thought process.

Amfortas the hippie , August 14, 2019 at 8:54 am

aye.
the position of Ignorance .Socratic Perplexity is hard.
but i reckon it' the only way to avoid the mental traps this talks about.
I'm the only one i know in meatspace that even attempts to begin an investigation there("I know that i don't know").
the idea that economics is just like Physics was always suspect, and i think it's pretty amazing that it's taken this long and this many economic disasters to get to the point that the idea of econ=hard science is challenged more or less in the open.
I'd add to this that i figure that the break in Philosophy, early in the last century, between Anglo-American and "Continental" probably precedes and enables this strange phenomena in economics(logical positivism, etc avoiding all that messy humanity attempting to shoehorn everything into a neat equation)
there's a similar phenomenon in a lot of the Humanities anthropology, for instance: taking into account the inherent and largely unconscious bias of the anthropologist embedded with the "savages" he's studying.
"Orthodoxy is Unconsciousness"-Orwell

Mark , August 14, 2019 at 7:33 am

A general observation: Economics without ideology or politics is only a rather peculiar way of using math. Without a reference what positive or negative actually means it is impossible to render jugdement or make policy. While economic outcomes are at the same time always political outcomes and vice versa. That is why the discipline used to call itself political economy.

About the experiment: If I understand it correctly all participants receive the questions only once. How then is it possible to attribute a specific answer towards bias regarding the source? Given that the questions are not of a clear 2+2=4 varietiy but at least somewhat open. Intuitively it seems far more likely that the specific answer is determined by the respondents own beliefs than by their bias regarding the source.

Bobby Gladd , August 14, 2019 at 8:18 am

"The willingness to indulge in ideological thinking -- that is, in thinking that by definition is not one's own, which is blind to experience and to the contradictions that arise when broader fields of knowledge are consulted -- is a capitulation no one should ever make. It is a betrayal of our magnificent minds and of all the splendid resources our culture has prepared for their use."

Robinson, Marilynne. What Are We Doing Here? (p. 2). Farrar, Straus and Giroux. Kindle Edition.

diptherio , August 14, 2019 at 8:39 am

Towards the end of my final year of econ education I pointed out to a professor that the claim that economics should be a positive science, as opposed to a normative one, was itself a normative claim and hence self-contradictory. He looked at me like I was a crazy person and he was one of the 'leftists' in the department.

a different chris , August 14, 2019 at 9:30 am

Haha are you sure that the source of "crazy person" look was your view itself, or rather was it that in your young naivete you spoke what anybody who needs to put food on the table as a working economist would not dare?

m sam , August 14, 2019 at 11:56 am

Huh. So ideology influences our thinking even when we think it doesn't. So in other words water really is wet after all.

m sam , August 14, 2019 at 11:58 am

(Apologies, this was meant as a top level post)

Eclair , August 14, 2019 at 12:16 pm

I had a similar experience, diptherio. It was at the beginning of semester picnic, and one of the profs was holding forth on how the mathematical and analytical methodology would allow us to find the solutions to business questions. Probably because I had drunk too much wine, I piped up, but don't we first have to define what are the critical questions? Deafening silence.

diptherio ,