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Science, PseudoScience and Society

Advance of Zombie ideas in XX and XXI centuries

News Recommended books Recommended Links Financial_skeptic Political skeptic Groupthink Neoliberalism as a New Form of Corporatism
Lysenkoism and politization of science Harvard Mafia Cargo Cult Science Cargo cult programming IT offshoring Skeptic Deception Deception as an art form
Obscurantism and Mayberry Machiavelli Mayberry Machiavellians Leo Strauss and the Neocons Pseudoscience and Scientific Press Pollyanna creep Belief coercion within religious groups  
Casino Capitalism Corruption of Regulators Neoclassical Pseudo Theories and Crooked and Bought Economists as Fifth Column of Financial Oligarchy Rational Fools vs. Efficient Crooks: The efficient markets hypothesis Friedman --founder of Chicago school of deification of market Supply Side or Trickle down economics Invisible Hand Hypothesys: The Theory of Self-regulation of the Markets
Neoliberal Brainwashing -- Journalism in the Service of the Powerful Few In Foreign Events Coverage The Guardian Presstitutes Slip Beyond the Reach of Embarrassment Neo-theocracy as a False Drive to a Simpler Society Dumbing down america Information Technology Wonderland Pseudoscience and Scientific Press Scientific Fraud
Skeptical view on Programmers Health Secular Humanism Anti-intellectualism Skeptical quotes Humor Financial Humor Etc
  Programmers have a very precise understanding of truth. You can’t lie to a compiler. Try it sometime. Garbage in, garbage out. Booleans, the ones and zeros, trues and falses, make up the world programmers live in. That’s all there is! I think programming is deep, it teaches us about the non-cyber universe we live in. There’s something spiritual about computers, and I want to understand it.

Nick Geoghegan

Science has been misused for political purposes many times in history. However, the most glaring examples of politically motivated pseudoscience happened just recently, in XX century. That means that it is useful to review historic examples of "Zombie ideas" used for political purposes and the pattern that defines that abuse.

The important lesson of XX century is that discredited economic and political ideas, no matter how absurd,  don't die as long as they serve well power that be.  In a way they are real living dead, sucking blood from humans.  Those ideas that should have died long ago, still shamble forward, like Zombies. Usage of such ideas is one of the most dangerous deception schemes practiced  by modern elites

It's not easy to write about pseudo science. The problem has to do with the fluid nature of the concept. It has no single, precise meaning and there is little agreement about its constituent elements. But first and foremost it involved subjugation of scientific aims to political goals and deliberate attempt in deception and subsequent cover up. But recently almost all social and economic science became political and all politics involved deception: to say that a politician is not lying is the same as to say that an alcoholic is not drinking. Still there are different degrees of lies and different level of density of the "cloud of deception".

Discredited ideas with political support or "Zombies" can be extremely dangerous for people who oppose them.  Lysenkoism probably represents classic early example when an set of obvious lies was supported by repressive apparatus of state and dissenters were prosecuted and sentenced to Gulag.  For nearly 45 years, the Soviet government used propaganda to foster unproven theories of agriculture promoted by Trofim Lysenko. Scientists seeking favor with the Soviet hierarchy produced fake experimental data in support of Lysenko’s false claims. Contradicting scientific evidence from the fields of biology and genetics was simply banned. University programs taught only Lysenkoism . This state supported attempt to suppress generics  continued for over forty years, until 1964, and even managed to spread to other communist countries, such as  China.

What we saw it as a tragedy in Stalin's Russia genetics, we now see it as a farce in USA economics with neo-classical economics flourishing with the supportive guidance of neoliberal state and financial oligarchy.

The whole neoclassical economics is essentially a set of zombie ideas which are kept in the forefront by financial oligarchy. The financial crisis of 2008 buried key ideas of  'free market liberalism' (aka neoliberalism), such as the 'Efficient Markets Hypothesis', yet these zombie ideas still were dug our, dressed and continue to be sold via major newspapers and journals. Much like Lysenkoism in the USSR by CPSU. See

This is  a real Faustian bargain for academic scholars. One can trade the independence for political influence, good salary and other perks. It is also helps in the power grab. And despite popular image of scientists, they proved to be as corruptible, if not more corruptible, as anybody else. Historically the scientific community is generally held together and all its affairs are peacefully managed through its joint acceptance of the same fundamental scientific beliefs. Science is best practiced in a voluntary, peaceful and free atmosphere.

But that idyllic arrangement firmly belongs to  the past. Now we can talk only about the level of political pressure on scientists via research grants, not so much about presence or absence of such a pressure.  What really matters as far as politics and science is concerned is what type of environment the individual scientists have to work in and what degree of freedom they can enjoy.

Historically the situation changed irrevocably since early XX contrary, which signified discovery of atomic particles.  It should be understood that the modern scientist, built in the modern "neoliberal" democracies, is at the same time - and it is possible that even in the first place - a political agent, a manipulator. For the unwashed masses a public scientist represent the ultimate carrier of truth for a given discipline, so his opinion have a distinct political weight. And the architects of these systems use this values of scientists to the fullest extent possible. Like we can see with neoclassical economics, scientists have turned into an instrument of cognitive manipulation, when  under the guise of science financial oligarchy promote beneficial to itself a false and simplistic picture of the world, which brainwash the masses into "correct" thinking.

In this sense one can say that Lysenkoism represented a natural side effect of  shrinking of freedom of the scientific community and growing influence of political power on science. As by Frederick Seitz noted in his The Present Danger To Science and Society

Everyone knows that the scientific community faces financial problems at the present time. If that were its only problem, some form of restructuring and allocation of funds, perhaps along lines well tested in Europe and modified in characteristic American ways, might provide solutions that would lead to stability and balance well into the next century. Unfortunately, the situation is more complex, made so by the fact that the scientific establishment has become the object of controversy from both outside and inside its special domain. The most important aspects of the controversy are of a new kind and direct attention away from matters that are sufficiently urgent to be the focus of a great deal of the community's attention.

The assaults on science from the outside arise from such movements as the ugly form of "political correctness" that has taken root in important portions of our academic community. There are to be found, in addition, certain tendencies toward a home-grown variant of the anti-intellectual Lysenkoism that afflicted science in the Stalinist Soviet Union. So-called fraud cases are being dealt with in new, bureaucratic ways that cut across the traditional methods of arriving at truth in science. From inside the scientific community, meanwhile, there are challenges that go far beyond those that arise from the intense competition for the limited funds that are available to nourish the country's scientific endeavor.

The critical issue of arriving at a balanced approach to funding for science is being subordinated to issues made to seem urgent by unhealthy alliances of scientists and bureaucrats. Science and the integrity of its practitioners are under attack and, increasingly, legislators and bureaucrats shape the decisions that determine which paths scientific research should take. There is, in addition, a sinister tendency, especially in environmental affairs, toward considering the undertaking of expensive projects that are proposed by some scientists to remedy worst-case formulations of problems before the radical and expensive remedies are proven to be needed. They are viewed seriously though they are based on the advice of opportunistic alarmists in science who leap ahead of what is learned from solid research to encourage support for the expensive remedies they perceive to be necessary. The potential for very great damage to science and society is real.

Of course, the rise of 'Lysenkoism' in the Soviet Union in the late 40th of the twentieth century is one of the most tragic pages of the history of science.  Trofim Lysenko, a Soviet agronomist, came to prominence as the proponent of a theory of heredity that stood in direct opposition to Mendelianism. The details of this theory need not concern us, except to note that it was 'Larmarckist' in its contention that it is possible for organisms to inherit acquired characteristics.  This was wrong and the principles of Mendelianism - the theory of heredity - were well understood by then. But Lysenko theory fitted nicely with the Soviet ideology. Particularly, the idea that acquired characteristics could be inherited held out the promise of the perfectibility of mankind which as strange as it may sound was the necessary precondition to irreversible victory of socialism/communism (later when nationalistic forces  tore apart the USSR  it became clear that such hopes are completely misplaced). 

So the Stalinist state intervened in the pre-exiting scientific struggle by declaring the victor and the consequences, certainly for many of the scientists involved and arguably also for the USSR agriculture, were disastrous.  The essence of Lysenkoism is that pseudo-scientific theory became a pseudo-religious cult and the power of state was used to suppress dissidents. Many scientists were exiled; some killed. Unfortunately we cannot dismiss the obviously pernicious use of ideology by Lysenko and his supporters simply as an aberration of the era that is often brushed aside as 'the cult of personality' (with or without naming the personality in question). This proved to be much more dangerous and at the same time remarkably resilient phenomenon that survived the dissolution of the USSR. Actually the situation repeated with the USA economics when anything that was not neo-classic was suppressed was by-and-large similar although this time this time it happened without any killings.

Do not fool yourself that Lysenkoism is irrevocably connected with communist ideology. The link was poorly accidental. In reality Lysenkoism emerged more like a cult which was extremely convenient for the control freaks in high position in government. It's not a secret that a lot of high-level administrators in academic institutions belong to the category of micromanagers and as such they are naturally predisposed to Lysenkoism.  

In general "Lysenkovisation of  science" occurs when the state tries to control both the methodologies and goals of scientific activity and that happens all over the world, although to different degree.

In the USSR huge bureaucratic institutions such as VASKhNIL and VIEM had been set up with the specific goal to control resources and, especially, scientific press.  Part of the reason that Lysenkoism gained official support in the Soviet Union was because the Mendelian approach to genetics contradicted official ideology, in particular, Engels's dialectical materialism. In early 50th, just before his death Stalin began to sense that Lysenkoism can hinder practical science by interfering with the academic atmosphere of toleration of dissent most conducive to scientific accomplishment. He even went as far as to declare that

“no science can develop and proper without the clash of opinions, without freedom of criticism.”

But it was too late...

Other governments are also far from being immune from this kind of tendency to select between scientific theories on the basis of ideology rather than the balance of evidence.

More benign variant of Lysenkoism that does not rely on the power of the state is usually called Cargo Cult ScienceAnother related term is "Mayberry Machiavellis". A long time ago -- well, actually it was just a year, but it seems like a lot longer than that -- a former Bush advisor John DiIulio got into quite a bit of trouble for revealing to Esquire that the White House did not possess, in any conventional definition of the term, a policy-making process:

...on social policy and related issues, the lack of even basic policy knowledge, and the only casual interest in knowing more, was somewhat breathtaking—discussions by fairly senior people who meant Medicaid but were talking Medicare; near-instant shifts from discussing any actual policy pros and cons to discussing political communications, media strategy, et cetera. Even quite junior staff would sometimes hear quite senior staff pooh-pooh any need to dig deeper for pertinent information on a given issue...

This gave rise to what you might call Mayberry Machiavellis—staff, senior and junior, who consistently talked and acted as if the height of political sophistication consisted in reducing every issue to its simplest, black-and-white terms for public consumption, then steering legislative initiatives or policy proposals as far right as possible.

Dan Gardner - Senior Writer for The Ottawa Citizen writes: "Cabinet meetings were scripted, Mr. O'Neill discovered, by White House staffers who sent advance notes to cabinet secretaries telling them when they were 'supposed to speak, about what, and for how long.'" Is this the shadow of Politburo or what?

There are also strong analogies between Reaganomics and Lysenkoism. Useful discussion is at  "The Financial Crisis and the Systemic Failure of Academic Economics"

The Financial Crisis and the Systemic Failure of Academic Economics, by David Colander, Hans Föllmer, Armin Haas, Michael Goldberg, Katarina Juselius, Alan Kirman, and Thomas Lux: [From the conclusion] ..."We believe that economics has been trapped in a sub-optimal equilibrium in which much of its research efforts are not directed towards the most prevalent needs of society. Paradoxically self-reinforcing feedback effects within the profession may have led to the dominance of a paradigm that has no solid methodological basis and whose empirical performance is, to say the least, modest. Defining away the most prevalent economic problems of modern economies and failing to communicate the limitations and assumptions of its popular models, the economics profession bears some responsibility for the current crisis. It has failed in its duty to society to provide as much insight as possible into the workings of the economy and in providing warnings about the tools it created. It has also been reluctant to emphasize the limitations of its analysis. We believe that the failure to even envisage the current problems of the worldwide financial system and the inability of standard macro and finance models to provide any insight into ongoing events make a strong case for a major reorientation in these areas and a reconsideration of their basic premises."

While at the surface it looks like rent-seeking behavior of dishonest economists the analogy is pretty strong. A broad critique of Neoclassical economics has been put forward in the book Debunking Economics by Steve Keen  See, for example:

Dr. Nikolai Bezroukov


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If history repeats itself...how incapable must Man be of learning from experience

George Bernard Shaw

"No science is immune to the infection of politics and the corruption of power."

Jacob Bronowski (1908-1974),
British scientist, author.
Encounter (London, July 1971).

[Nov 16, 2017] Natural Rate Hypothesid is junk science. There is nothing natural in natural rate of empoyment

Notable quotes:
"... Controlling inflation solely by focusing on workers wages since 1980 but allowing monopoly power and economic rents to skyrocket since 1980 is the main reason for the extreme inequality that has developed ..."
"... Prima facie evidence of distorted labor market where buyers of labor have control. At the very least, the next democratic President should use their weekly address to point out the metrics relating economic gains, net wealth gains, productivity gains, to wage gains. The Presudent should remind employers to fairly share the gains. Once the metrics indicate distortion in the labor markets the President will then introduce corrective legislation using the public communications weight behind this free market notion of a fair labor market, using these metrics. Let us try this bully pulpit, public communications effort with the idea of building public momentum for correctives, and maybe we will return to the 1960s future when gains were more proportionally shared. Perhaps we wont need much legislation at all, afterall we had one generation comport with fairness, you know, rational expectations. ..."
"... if demand cannot be kept up by wages, then the only option is loans and we have seen in 2008 the catastrophic results of that ..."
Nov 16, 2017 | economistsview.typepad.com

djb , November 16, 2017 at 01:46 AM

non accelerating inflation rate of unemployment is a better term

there is nothing "natural" about that rate

there are many factors that play a role, but the most important are

1. monopoly power is the most important, without monopoly power, in a perfectly competitive market, excessive inflation is not possible

2. factors that affect bargaining power OF workers

Controlling inflation solely by focusing on workers wages since 1980 but allowing monopoly power and economic rents to skyrocket since 1980 is the main reason for the extreme inequality that has developed

Paine -> djb... , November 16, 2017 at 05:18 AM
These are important conjectures

We may indeed have chosen to repress wage rates while allowing Firms market power over output prices and wages.

And firms share of total Economic rents and E rent rates themselves and thus total gross profits to rise.

Largely unchecked by policy moves

JF -> djb... , November 16, 2017 at 08:26 AM
Prima facie evidence of distorted labor market where buyers of labor have control.

At the very least, the next democratic President should use their weekly address to point out the metrics relating economic gains, net wealth gains, productivity gains, to wage gains. The Presudent should remind employers to fairly share the gains.

Once the metrics indicate distortion in the labor markets the President will then introduce corrective legislation using the public communications weight behind this free market notion of a fair labor market, using these metrics.

Let us try this bully pulpit, public communications effort with the idea of building public momentum for correctives, and maybe we will return to the 1960s future when gains were more proportionally shared. Perhaps we wont need much legislation at all, afterall we had one generation comport with fairness, you know, rational expectations.

We can expect to do that again, especially as all new economists will be trained on the why and on how to accomplish this metric of shared gains. One can only hope.

djb -> JF... , November 16, 2017 at 01:59 PM
I know this may not exactly fit your MMT model

if we don't allow median wages to go up to match production/productivity

and if economic rents continue to go up disproportionally then we need to do a redistribution, ideally by taxes, to get the median wage to keep pace with production/productivity

otherwise demand for products will eventually falter, making us all poorer for it

if demand cannot be kept up by wages, then the only option is loans and we have seen in 2008 the catastrophic results of that

[Nov 16, 2017] Should We Reject the Natural Rate Hypothesis

Nov 16, 2017 | economistsview.typepad.com

15, 2017 Should We Reject the Natural Rate Hypothesis? Olivier Blanchard:

Should We Reject the Natural Rate Hypothesis?, by Olivier Blanchard, PIIE : Fifty years ago, Milton Friedman articulated the natural rate hypothesis. It was composed of two sub-hypotheses: First, the natural rate of unemployment is independent of monetary policy. Second, there is no long-run tradeoff between the deviation of unemployment from the natural rate and inflation. Both propositions have been challenged. Blanchard reviews the arguments and the macro and micro evidence against each and concludes that, in each case, the evidence is suggestive but not conclusive. Policymakers should keep the natural rate hypothesis as their null hypothesis but keep an open mind and put some weight on the alternatives. [ paper ]

Posted by Mark Thoma on Wednesday, November 15, 2017 at 10:22 AM in Academic Papers , Economics , Macroeconomics | Permalink Comments (9)


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Paine , November 15, 2017 at 03:44 PM

"there is a strong case, although not an overwhelming case, to allow U.S. output to exceed potential for some time, so as to reintegrate some of the workers who left the labor force during the last ten years."

Blanchard calls for exploring the unknown regions
of lower and lower unemployment

Lower UE rates
Instead of accelerating output price inflation
Or even wage inflation
Given possible productivity pick ups
We may discover
We get a return to higher and higher participation
Not an unhappy result after all

Paine -> Paine ... , November 15, 2017 at 03:49 PM
The parting of the ways with the likes of Blanchard and krugman might come
When at long last wage rates do begin to rise faster then
Say
labor productivity plus three percent

But if the acceleration of the expected rate of change
of the rate of output price change
accelerates slowly

We'll have plenty of policy means and time to moderate the expansion of demand
Given the political will

Paine -> Paine ... , November 15, 2017 at 03:51 PM
Or better consider the imposition of a mark up warrant system
On selected firms and sectors
Paine -> Paine ... , November 15, 2017 at 03:58 PM
What is completely missed by looking at the impact of a slump on long run output capacity
Is the actual lost output out of existing capacity
And the misery this inflicts now
for many too many


Ten years of sub possible output
Contain How many weeks upon weeks
of reduced Welfare for too many souls ?

Paine -> Paine ... , November 15, 2017 at 04:01 PM
If average slack is now 7%
And could
with aggressive macro nautics
be reduced to 2%

We
each of us only live in the now
and for only a single all too brief life time

anne -> Paine ... , November 15, 2017 at 03:58 PM
This is arguing well, I agree and am grateful.
Paine -> anne... , November 15, 2017 at 04:08 PM
Blanchards uses the definition of potential output
That suggests over production has to be off set by under production

I.e. Potential output is not technical maximum output by any means

PO
Is more like a rate of output and consequent rate of existing factor utilization
That does not unduly
stress
the various institutional arrangements and practices
Or overly tax
the stability of existing social norms
Considered necessary
to sustaining the good of society
thru
It's gradual development over time

Paine -> Paine ... , November 15, 2017 at 04:11 PM
There is another set of conflicting visions
One of which
That any class pov might hatch

A vision
Perhaps too Faustian for most souls of that class
That is restless
to push faster
To Venture more
Face uncertainty with boldness even audacity

anne -> Paine ... , November 15, 2017 at 04:11 PM
Nice, nice.

[Nov 04, 2017] Who's Afraid of Corporate COINTELPRO by C. J. Hopkins

Highly recommended!
These tactics do not just suppress information. They enforce conformity at much deeper level.
Notable quotes:
"... I am using the Orwellian verb "unperson" playfully, but I'm also trying to be precise. What's happening isn't censorship, technically, at least not in the majority of cases. While there are examples of classic censorship (e.g., in the UK, France, and Germany), apart from so-called "terrorist content," most governments aren't formally banning expressions of anti-corporatist dissent. This isn't Czechoslovakia, after all. This is global capitalism, where the repression of dissent is a little more subtle. The point of Google unpersoning CounterPunch (and probably many other publications) and Pulitzer Prize-winning journalists like Hedges is not to prevent them from publishing their work or otherwise render them invisible to readers. The goal is to delegitmize them, and thus decrease traffic to their websites and articles, and ultimately drive them out of business, if possible. ..."
"... Another objective of this non-censorship censorship is discouraging writers like myself from contributing to publications like CounterPunch, Truthdig, Alternet, Global Research, and any other publications the corporatocracy deems "illegitimate." Google unpersoning a writer like Hedges is a message to other non-ball-playing writers. The message is, "this could happen to you." This message is meant for other journalists, primarily, but it's also aimed at writers like myself who are making a living (to whatever degree) writing and selling what we think of as "literature." ..."
"... These tactics do not just suppress information. They enforce conformity at much deeper level. ..."
"... Chomsky explains how this system operates in What Makes Mainstream Media Mainstream . It isn't a question of censorship the system operates on rewards and punishments, financial and emotional coercion, and subtler forms of intimidation. Making examples of non-cooperators is a particularly effective tactic. Ask any one of the countless women whose careers have been destroyed by Harvey Weinstein, or anyone who's been to graduate school, or worked at a major corporation. ..."
"... C. J. Hopkins is an award-winning American playwright, novelist and satirist based in Berlin. His plays are published by Bloomsbury Publishing (UK) and Broadway Play Publishing (USA). His debut novel, ZONE 23 , is published by Snoggsworthy, Swaine & Cormorant. He can reached at cjhopkins.com or consentfactory.org . ..."
Nov 04, 2017 | www.unz.com

On November 30, 2016, presumably right at the stroke of midnight, Google Inc. unpersoned CounterPunch. They didn't send out a press release or anything. They just quietly removed it from the Google News aggregator. Not very many people noticed. This happened just as the "fake news" hysteria was being unleashed by the corporate media, right around the time The Washington Post ran this neo-McCarthyite smear piece vicariously accusing CounterPunch, and a number of other publications, of being "peddlers of Russian propaganda." As I'm sure you'll recall, that astounding piece of "journalism" (which The Post was promptly forced to disavow with an absurd disclaimer but has refused to retract) was based on the claims of an anonymous website apparently staffed by a couple of teenagers and a formerly rabidly anti-Communist, now rabidly anti-Putin think tank. Little did most people know at the time that these were just the opening salvos in what has turned out to be an all-out crackdown on any and all forms of vocal opposition to the global corporate ruling classes and their attempts to quash the ongoing nationalist backlash against their neoliberal agenda.

Almost a year later, things are much clearer. If you haven't been following this story closely, and you care at all about freedom of the press, freedom of speech, and that kind of stuff, you may want to take an hour or two and catch up a bit on what's been happening. I offered a few examples of some of the measures governments and corporations have been taking to stifle expressions of dissent in my latest piece in CounterPunch , and there are many more detailed articles online, like this one by Andre Damon from July, and this follow-up he published last week (which reports that Pulitzer Prize-winning journalist and author Chris Hedges has also been unpersoned). Or, if you're the type of soul who only believes what corporations tell you, and who automatically dismisses anything published by a Trotskyist website, here's one from last December in The Guardian , and an op-ed in The New York Times , both of which at least report what Google, Twitter, and Facebook are up to. Or you could read this piece by Robert Parry , who also has "legitimate" (i.e., corporate) credentials, and who hasn't been unpersoned just yet, although I'm sure they'll get around to him eventually.

I am using the Orwellian verb "unperson" playfully, but I'm also trying to be precise. What's happening isn't censorship, technically, at least not in the majority of cases. While there are examples of classic censorship (e.g., in the UK, France, and Germany), apart from so-called "terrorist content," most governments aren't formally banning expressions of anti-corporatist dissent. This isn't Czechoslovakia, after all. This is global capitalism, where the repression of dissent is a little more subtle. The point of Google unpersoning CounterPunch (and probably many other publications) and Pulitzer Prize-winning journalists like Hedges is not to prevent them from publishing their work or otherwise render them invisible to readers. The goal is to delegitmize them, and thus decrease traffic to their websites and articles, and ultimately drive them out of business, if possible.

Another objective of this non-censorship censorship is discouraging writers like myself from contributing to publications like CounterPunch, Truthdig, Alternet, Global Research, and any other publications the corporatocracy deems "illegitimate." Google unpersoning a writer like Hedges is a message to other non-ball-playing writers. The message is, "this could happen to you." This message is meant for other journalists, primarily, but it's also aimed at writers like myself who are making a living (to whatever degree) writing and selling what we think of as "literature."

Yes, as you've probably guessed by now, in addition to writing political satire, I am, as rogue journalist Caitlin Johnstone so aptly put it once, an "elitist wanker." I've spent the majority of my adult life writing stage plays and working in the theater, and it doesn't get any more elitist than that. My plays are published by "establishment" publishers, have won a few awards, and have been produced internationally. I recently published my "debut novel" (which is what you call it if you're an elitist wanker) and am currently trying to promote and sell it. I mention this, not to blow my little horn, but to the set the stage to try to illustrate how these post-Orwellian intimidation tactics (i.e., unpersoning people from the Internet) work. These tactics do not just suppress information. They enforce conformity at much deeper level.

The depressing fact of the matter is, in our brave new Internet-dominated world, corporations like Google, Twitter, and Facebook (not to mention Amazon), are, for elitist wankers like me, in the immortal words of Colonel Kurz, "either friends or they are truly enemies to be feared." If you are in the elitist wanker business, regardless of whether you're Jonathan Franzen, Garth Risk Hallberg, Margaret Atwood, or some "mid-list" or "emerging" author, there is no getting around these corporations. So it's kind of foolish, professionally speaking, to write a bunch of essays that will piss them off, and then publish these essays in CounterPunch. Literary agents advise against this. Other elitist literary wankers, once they discover what you've been doing, will avoid you like the bubonic plague. Although it's perfectly fine to write books and movies about fictional evil corporations, writing about how real corporations are using their power to mold societies into self-policing virtual prisons of politically-correct, authoritarian consumers is well, it's something that is just not done in professional elitist wanker circles.

Normally, all this goes without saying, as these days most elitist wankers are trained how to write, and read, and think, in MFA conformity factories, where they screen out any unstable weirdos with unhealthy interests in political matters. This is to avoid embarrassing episodes like Harold Pinter's Nobel Prize lecture (which, if you haven't read it, you probably should), and is why so much of contemporary literature is so well-behaved and instantly forgettable. This institutionalized screening system is also why the majority of journalists employed by mainstream media outlets understand, without having to be told, what they are, and are not, allowed to report. Chomsky explains how this system operates in What Makes Mainstream Media Mainstream . It isn't a question of censorship the system operates on rewards and punishments, financial and emotional coercion, and subtler forms of intimidation. Making examples of non-cooperators is a particularly effective tactic. Ask any one of the countless women whose careers have been destroyed by Harvey Weinstein, or anyone who's been to graduate school, or worked at a major corporation.

Or let me provide you with a personal example.

A couple weeks ago, I googled myself (which we elitist wankers are wont to do), and noticed that two of my published books had disappeared from the "Knowledge Panel" that appears in the upper right of the search results. I also noticed that the people "People Also Search For" in the panel had changed. For years, consistently, the people you saw there had been a variety of other elitist literary wankers and leftist types. Suddenly, they were all rather right-wing types, people like Ilana Mercer and John Derbyshire, and other VDARE writers. So that was a little disconcerting.

I set out to contact the Google Search specialists to inquire about this mysterious development, and was directed to a series of unhelpful web pages directing me to other unhelpful pages with little boxes where you can write and submit a complaint to Google, which they will completely ignore. Being an elitist literary wanker, I also wrote to Google Books, and exchanged a number of cordial emails with an entity (let's call her Ms. O'Brien) who explained that, for "a variety of reasons," the "visibility" of my books (which had been consistently visible for many years) was subject to change from day to day, and that, regrettably, she couldn't assist me further, and that sending her additional cordial emails was probably a pointless waste of time. Ms. O'Brien was also pleased to report that my books had been restored to "visibility," which, of course, when I checked, they hadn't.

"Whatever," I told myself, "this is silly. It's probably just some IT thing, maybe Google Books updating its records, or something." However, I was still perplexed by the "People Also Search For" switcheroo, because it's kind of misleading to link my writing to that of a bunch of serious right-wingers. Imagine, if you were a dystopian sci-fi fan, and you googled me to check out my book and see what else I had written, and so on, and my Google "Knowledge Panel" popped up and displayed all these far-right VDARE folks. Unless you're a far-right VDARE type yourself, that might be a little bit of a turn-off.

At that point, I wondered if I was getting paranoid. Because Google Search runs on algorithms, right? And my political satire and commentary is published, not only in CounterPunch, but also in The Unz Review, where these far-right-wing types are also published. Moreover, my pieces are often reposted by what appear to be "Russia-linked" websites, and everyone knows that the Russians are all a bunch of white supremacists, right? On top of which, it's not like I'm Stephen King here. I am hardly famous enough to warrant the attention of any post-Orwellian corporate conspiracy to stigmatize anti-establishment dissent by manipulating how authors are displayed on Google (i.e., subtly linking them to white supremacists, anti-Semites, and others of that ilk).

So, okay, I reasoned, what probably happened was over the course of twenty-four hours, for no logical reason whatsoever, all the folks who had been googling me (along with other leftist and literary figures) suddenly stopped googling me, all at once, while, more or less at the exact same time, hundreds of right-wingers started googling me (along with those white supremacist types they had, theoretically, already been googling). That kind of makes sense when you think about it, right? I mean, Google couldn't be doing this intentionally. It must have been some sort of algorithm that detected this sudden, seismic shift in the demographic of people googling me.

Or, I don't know, does that possibly sound like a desperate attempt to rationalize the malicious behavior of an unaccountable, more or less god-like, global corporation that wields the power of life and death over my book sales and profile on the Internet (a more or less god-like global corporation that could do a lot of additional damage to my sales and reputation with complete impunity once the piece you're reading is published)? Or am I simply getting paranoid, and, in fact, I've developed a secret white supremacist fan base without my knowledge? Only Google knows for sure.

Such are the conundrums elitist literary wankers have to face these days that is, those of us wankers who haven't learned to keep our fucking mouths shut yet. Probably the safest course of action, regardless of whether I'm being paranoid or Google does have me on some kind of list, is to lay off the anti-corporatist essays, and definitely stop contributing to CounterPunch, not to mention The Unz Review, and probably also give up the whole dystopian satire novel thing, and ensure that my second novel conforms to the "normal" elitist wanker rules (which every literary wanker knows, but which, technically, do not exist). Who knows, if I play my cards right, maybe I can even sell the rights to Miramax, or okay, some other corporation.

Once that happens, I assume that Google will want to restore me to normal personhood, and return my books to visibility, and I will ride off into the Hollywood sunset with the Clintons, Clooneys, and Pichais, and maybe even Barack Obama himself, if he isn't off jet skiing with Richard Branson, or having dinner with Jeff and MacKenzie Bezos, who just happen to live right down the street, or hawking the TPP on television. By that time, CounterPunch and all those other "illegitimate" publications will have been forced onto the dark web anyway, so I won't be giving up all that much. I know, that sounds pretty cold and cynical, but my liberal friends will understand I just hope all my new white supremacist fans will find it in their hearts to forgive me.

C. J. Hopkins is an award-winning American playwright, novelist and satirist based in Berlin. His plays are published by Bloomsbury Publishing (UK) and Broadway Play Publishing (USA). His debut novel, ZONE 23 , is published by Snoggsworthy, Swaine & Cormorant. He can reached at cjhopkins.com or consentfactory.org .

anonymous , • Disclaimer November 3, 2017 at 12:15 pm GMT

Thank you for mustering the courage and then taking the time to spell out these outrages in a straightforward, unemotional way. I've appreciated the humor that centers your other essays, but there's not a damned thing funny about this.

But why are things as they are? With billions aplenty, our rulers must be driven by their libido dominandi. We're left to wonder only whether they get off more on ostracizing the Hopkinses, on buying the politicians, or on herding the sheep from bathrooms to statues to flags.

[Nov 01, 2017] The Political Organization Men

Notable quotes:
"... The Organization Man ..."
"... What Whyte ran across was the sub-culture of the workplace as followed by those who set themselves upon a "career path" within a specific organization. The stereotypical examples are those, to quote Whyte , "who have left home spiritually as well as physically, to take the vows of organization life. [They adopt an ethic that] rationalizes the organization's demand for fealty and gives those who offer it wholeheartedly a sense of dedication." ..."
"... Today, some private-sector organizations have moved away from the most extreme demands of such conformity, but some other career lines have not, two examples being the military and career party politics. ..."
"... The Power Elite ..."
"... The Organization Man. ..."
"... hose who make their careers within these entities, especially the military and the government, are ideologically conditioned to identify their well-being with the specific goals of their chosen organizations. That means they must bind themselves not only to the goals, but also to the ethics of their workplace. ..."
"... Those who balk are eventually punished and cast out of the organizations. Those who guide these organizations, and essentially decide how rules and ethics will be interpreted and applied, are Mills's "power elite." ..."
"... It may come as a surprise to the reader that party politics as practiced by many of the Western democracies is quite similar. The "power elites" who reside at the top of the so-called greasy pole, holding positions as the head of ruling and contesting parties, are likely to demand the same sort of obedience to orders as any military officer. ..."
"... Rafe explained it this way ..."
"... Leaders of political parties can control their organizations in dictatorial fashion. They have power to reward or punish their party's cohorts in a fashion that can make or break careers. For instance, they control the dispersal of party funds from monies for elections right down to one's office budget; they determine whether a candidate will have to face a primary challenge; they make all committee assignments; they can promote and demote within the party ranks. ..."
"... As Rafe Mair observed, the possibilities for both reward and punishment are almost endless. In this way elected officials become bound to the diktats of their party's leaders. They cannot normally vote their conscience or reliably represent their constituency unless doing so coincides with the desires of their party's leadership. ..."
"... Foreign Policy Inc.: Privatizing America's National Interest ..."
"... America's Palestine: Popular and Official Perceptions from Balfour to Israeli Statehood ..."
"... This is an excellent summary of the basis in mentality of what is factually a 21st century version of a fascist regime. Even though two political parties and the shell forms of republican government may exist, the reality is that the parties are factions and the way things operate is via conformity and loyalty to an authoritarian power structure. ..."
Nov 01, 2017 | consortiumnews.com

Many working-class Americans voted for Donald Trump believing he would address their needs, not those of rich Republicans. But all pols, it seems, end up conforming to their political group's priorities, as Lawrence Davidson explains.

By Lawrence Davidson

In 1956, William H. Whyte published a book entitled The Organization Man about America's societal changes in the post-World War II economy. Basing his findings on a large number of interviews with CEOs of major American corporations, Whyte concluded that, within the context of modern organizational structure, American "rugged individualism" had given way to a "collectivist ethic." Economic success and individual recognition were now pursued within an institutional structure – that is, by "serving the organization."

Whyte's book was widely read and praised, yet his thesis was not as novel as it seemed. "Rugged individualism," to the extent that it existed, was (and is) the exception for human behavior and not the rule. We have evolved to be group-oriented animals and not lone wolves. This means that the vast majority of us (and certainly not just Americans) live our lives according to established cultural conventions. These operate on many levels – not just national patriotism or the customs of family life.

What Whyte ran across was the sub-culture of the workplace as followed by those who set themselves upon a "career path" within a specific organization. The stereotypical examples are those, to quote Whyte , "who have left home spiritually as well as physically, to take the vows of organization life. [They adopt an ethic that] rationalizes the organization's demand for fealty and gives those who offer it wholeheartedly a sense of dedication."

Today, some private-sector organizations have moved away from the most extreme demands of such conformity, but some other career lines have not, two examples being the military and career party politics.

For insight in this we can turn to the sociologist C. Wright Mills , whose famous book The Power Elite was published the same year as Whyte's The Organization Man. Mills's work narrows the world's ruling bureaucracies to government, military and top economic corporations. T hose who make their careers within these entities, especially the military and the government, are ideologically conditioned to identify their well-being with the specific goals of their chosen organizations. That means they must bind themselves not only to the goals, but also to the ethics of their workplace.

Those who balk are eventually punished and cast out of the organizations. Those who guide these organizations, and essentially decide how rules and ethics will be interpreted and applied, are Mills's "power elite."

How this works out in the military is pretty obvious. There is a long tradition of dedication to duty. At the core of this dedication is a rigid following of orders given by superiors. This tradition is upheld even if it is suspected that one's superior is incompetent.

It may come as a surprise to the reader that party politics as practiced by many of the Western democracies is quite similar. The "power elites" who reside at the top of the so-called greasy pole, holding positions as the head of ruling and contesting parties, are likely to demand the same sort of obedience to orders as any military officer.

The Organization Man or Woman in Politics

Running for and holding office in countries like the United States and Canada often requires one to "take the vows of organization life." Does this support democracy or erode it? Here is one prescient answer: the way we have structured our party politics has given us "an appalling political system which is a step-by-step denial of democracy and a solid foundation for a 'soft' dictatorship."

One of the elegant rooms at President Trump's Mar-a-Lago club. (Photo from maralagoclub.com)

Those are the words of the late Rafe Mair , a Canadian politician, broadcaster, author and a good friend of this writer. Rafe spent years in Canadian politics, particularly in his home province of British Columbia, and his experience led him to the conclusion expressed above. How does this translate into practice?

Rafe explained it this way : "In a parliamentary [or other form of representative] democracy the voter transfers his rights to his member of parliament [congressperson, senator or state legislator] to exercise on his behalf – the trouble is, by running for his political party the [elected person, in turn, is led to] assign your [the voter's] rights to the [party] leader for his exclusive use!"

There is no law that makes the elected official do this. However, the inducements to do so are very powerful.

Leaders of political parties can control their organizations in dictatorial fashion. They have power to reward or punish their party's cohorts in a fashion that can make or break careers. For instance, they control the dispersal of party funds from monies for elections right down to one's office budget; they determine whether a candidate will have to face a primary challenge; they make all committee assignments; they can promote and demote within the party ranks.

As Rafe Mair observed, the possibilities for both reward and punishment are almost endless. In this way elected officials become bound to the diktats of their party's leaders. They cannot normally vote their conscience or reliably represent their constituency unless doing so coincides with the desires of their party's leadership.

... ... ...

Lawrence Davidson is a history professor at West Chester University in Pennsylvania. He is the author of Foreign Policy Inc.: Privatizing America's National Interest ; America's Palestine: Popular and Official Perceptions from Balfour to Israeli Statehood ; and Islamic Fundamentalism . He blogs at www.tothepointanalyses.com .

Stephen J. , October 30, 2017 at 9:19 am

I believe we are prisoners of a corrupted "democracy."
-- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- –
July 13, 2017
The Prisoners of "Democracy"

Screwing the masses was the forte of the political establishment. It did not really matter which political party was in power, or what name it went under, they all had one ruling instinct, tax, tax, and more taxes. These rapacious politicians had an endless appetite for taxes, and also an appetite for giving themselves huge raises, pension plans, expenses, and all kinds of entitlements. In fact one of them famously said, "He was entitled to his entitlements." Public office was a path to more, and more largesse all paid for by the compulsory taxes of the masses that were the prisoners of "democracy."
[more info on this at link below]
http://graysinfo.blogspot.ca/2017/07/the-prisoners-of-democracy.html

Sam F , October 30, 2017 at 11:42 am

Yes, our ertswhile democracy has been completely corrupted. Thanks to Lawrence Davidson, William Whyte, C. Wright Mills, and Rafe Mair for this consideration of the systemic corruption of political parties. The diseases of conformity within party organizations are a nearly inherent problem of democracy.

The improper influence which determines the policies conformed to by parties is the central problem, and stems largely from influence of the economic Power Elite, directing the policies to which the Organization Man must be obedient to be chosen. This distortion can be eliminated by Amendments to the Constitution to restrict funding of mass media and elections to limited individual contributions.

Our problem is that we cannot make such reforms because those tools of democracy are already controlled by oligarchy, which never yields power but to superior force. Talk of justice and peace is not in their language of might makes right, and has no effect whatsoever. They yielded to the 1964 Civil Rights Act only because their fear of riots in the streets led them to pretend that MLK et al had been persuasive.

The foreign wars may be stopped by the defeat, isolation, and embargo of the US by foreign powers. But within the US, the full price of democracy must again be paid the People of the US. The oligarchy must be defeated by superior force: only those who deny enforcement to oligarchy and terrify the rich will bring them to yield any power. That is likely to await more severe recessions and inequities caused by the selfish and irresponsible rich.

mike k , October 30, 2017 at 3:42 pm

You are exactly right Sam F. Unfortunately time is quickly running out for our corrupt "civilization." The time to cultivate and practice wisdom has passed. The sad truth is that our goose is cooked; there will be no cavalry showing up to save us. We are now "eating our karma" and will reap our just deserts. Not because I or anyone say so, but because implacable laws of nature will now play out. Dominant intellectual species occupy a precarious position in planetary evolution, and we are on the verge of a great fall – and all the King's horses and all the King's men will not be able to put our extincting species together again ..

Sam F , October 30, 2017 at 4:11 pm

Your reply touches a responsive chord, in that humanity seems to have made so little permanent progress in its million years or so, mostly in its last few hundred years, an insignificant fraction of planetary history. But the history and literature of temporary progress lost is significant as the repository of ideas for future democracies, at those rare moments when they are designed.

Our diseased society is but one tree in the forest of democracies. The US is or will be like the apparently healthy tree that took down my power lines last night, a pretty red oak with brilliant autumn leaves, but sideways now and blocking the road. But like the leaves on that tree, we can see the problem and still hope to be as happy as this year's leaves on healthier trees.

As in what I like to call the universal mind of humanity, individuals may have foresight and thoughts beyond their apparent functions, which survive in that greater mind of their thoughts recorded or just passed along, and in that way their learning is not in vain.

Drew Hunkins , October 30, 2017 at 10:34 am

Trump did nix out the TPP and did desire a rapprochement of sorts with Moscow. He also regularly asserted that he wanted to re-build American manufacturing in the heartland and wanted to rein in Washington's footprint across the globe. Of course Trump ultimately capitulated to the militarist Russophobes. One can only put so much stock in campaign pronouncements, but he did come off as less bellicose than Killary, that was clear to any fair minded observer.

Trump's also been a nightmare as it comes to workers' rights in general, consumer and environmental protections and fair taxation as it relates to regressive vs progressive rates. He was also an Islamophobe when it comes to Iran and fell right in line with Adelson and the other ZIonist psychopaths.

The most welcoming aspect of Trump was his desire to make peace with Russia, this has been completely sabotaged by the deep state militarists. This is the reason the Corkers, Flakes and much of the establishment mass media browbeat and attack him relentlessly. Most of them ignore what he actually should be admonished for opting for nuclear brinkmanship instead.

exiled off mainstreet , October 30, 2017 at 11:25 am

This is the best description I have seen about Trump's role.

Bob Van Noy , October 30, 2017 at 10:37 am

Thank you CN and Lawrence Davidson for what I think is a accurate explanation of the failure of our Democracy. I especially like the reference to C. Wright Mills who is a heroic character for me. I think Mr. Mill's book on the Power Elite was prescient, as was his thinking in general. He published a little known book "Listen, Yankee" (1960) that was very insightful about the then current Cuban Revolution. It seems in retrospect that there was plenty of warning at the time for America to wake up to the goals of Big Government and Big Business but it was either successfully repressed or ignored by those who might have made a difference, like Labor. At any rate, C. Wright Mills died too early, because he seemed uniquely suited to make a difference. His writing remains current, I'll add a link.

http://www.cwrightmills.org

mike k , October 30, 2017 at 3:47 pm

I am a big CW Mills fan too. We have had many warnings – now we are going to experience the fate of those who ignore wisdom.

tina , October 30, 2017 at 10:31 pm

Hey, college UWM 1984- 1987 Mass Comm, I did not graduate , but we studied Mills, Lewis Mumford, and my favorite, Marshall McLuhan. Also, first time I was introduced to Todd Gitlin and IF Stone. While I did not pursue a life in journalism, I so appreciate all those who did the hard work. I still have all my college required reading books from these people, it is like a set of encyclopedias, only better. And better than the internet. Keep up the work CN , I am not that talented, but what you do is important.

BobH , October 30, 2017 at 12:04 pm

First, let me commend Lawrence Davidson for his selection of two of the most insightful writers of the sixties to use as a springboard for his perceptive essay. A third(John Kenneth Galbraith) would complete a trilogy of the brilliant academic social analysis of that time. Galbraith's masterpiece(The Affluent Society) examined the influence of the heavy emphasis corporate advertising had on American culture and concluded that the economic/social structure was disproportionately skewed toward GDP(gross domestic product) at the expense of educational investment. This was in direct contrast with the popular novels and essays of Ayn Rand, the goddess of greed whose spurious philosophy had come to epitomize the mindset that continues to plague the globe with the neoliberal ideals that have been reinvented under many names over time; i.e. laissez faire, trickle down,the Laffer curve, free market economics and monetarism.

Zachary Smith , October 30, 2017 at 12:17 pm

Usually such claims are themselves no more than campaign hot air. However, in their ignorance, voters may well respond to such hot air, and the result can be a jump from the proverbial frying pan into the fire. U.S. voters seem to have taken just such a leap when they elected Donald Trump president.

Nowhere in this essay are either of the terms "Hillary" or "Clinton" mentioned. U.S. voters had the choice of a known evil on the "D" side of the ballot, or another person well understood to be a shallow, self-centered, rich *****. They were going to end up with an unqualified person either way the voting went. Quite possibly the nod went to Trump because 1) his promises were surely more believable than those of Clinton and 2) Trump wasn't yet the known destroyer of entire nations.

Describing the predicament of the voters as "ignorance" just isn't fair when looking at the overall picture.

mike k , October 30, 2017 at 3:50 pm

Yes. Voters were put in a no win situation. That's why I did not participate in the "show" election.

Realist , October 31, 2017 at 4:33 am

What were Obama's reasons for failing to take a stand, once elected, on all the promises he made during his campaigns? He mostly gave away the store to the other side, and insulted his supporters while doing so. Talk about progressives not getting a "win" even after carrying the elections. Two terms earlier, the media called the contest one of two "moderates" between Bush and Gore. If that was "moderation" practiced by Dubya, I need a new dictionary. Most recent elections have been pointless, especially when the Supreme Court doesn't allow a complete recount of the votes. In a field of 13(!) primary candidates last year, the GOP could not provide one quality individual. The Dems cheated to make sure the worst possible of theirs would get the nomination. I see nothing but mental and moral midgets again on the horizon for 2020. I don't expect Trump to seek re-election. He will have had a bellyful should he even survive.

Stephen J. , October 30, 2017 at 12:23 pm

I believe what has happened to all of us is: "The Imposition of a New World Order." This plan has been helped by puppet politicians. Therefore the question must be asked: "Is There An Open Conspiracy to Control the World'?
[More info on this at link below]
http://graysinfo.blogspot.ca/2014/12/is-there-open-conspiracy-to-control.html

john wilson , October 30, 2017 at 1:00 pm

Stephen: why do you ask the question to which you already know the answer? Yes, we're all screwed and have been for years. The bankers already control the world and the military make sure its stays that way.

Stephen J. , October 30, 2017 at 1:44 pm

Very true john wilson. Questions beget answers and information.
cheers Stephen J.

mike k , October 30, 2017 at 3:52 pm

It's like the Purloined Letter by Poe – the truth of our enslavement is so obvious, that only the deeply brainwashed can fail to see it.

Zachary Smith , October 30, 2017 at 12:48 pm

The parts of The Organization Man I found most interesting were the chapters about "Testing The Organization Man". The companies were deliberately selecting for people we currently label Corporate Psychopaths. Whyte suggested memorizing some "attitudes" before taking one of the tests. Among them:

I loved my father and my mother, but my father a little bit more
I like things pretty much the way they are
I never worry much about anything
I don't care for books or music much
I love my wife and children
I don't let them get in the way of company work

You can substitute any number of things that you won't allow to get in the way of company work .

Ecology. Laws. Regulations. Integrity. Religion.

"Screw planet Earth. Exxon comes first!" Or "screw Jesus and the horse he rode in on. We need to cut taxes and balance the budget. People are poor because they're too lazy to get a job."

mike k , October 30, 2017 at 3:53 pm

Good points. Brainwashing in action revealed.

john wilson , October 30, 2017 at 12:55 pm

Democracy is another word for consensual slavery. In a communist system or a dictatorship etc you are told you are a slave because you have no voice or choice. In a democracy you do have a choice and its between one salve master and another. If you vote Democrat you are just as much a slave to the system as you are if you vote Republican. The possibility of a third choice which might just free you from your chains, is a fantasy and only there as window dressing to give democracy some credibility. The term for this dilemma is called being TOTALLY SCREWED!!

mike k , October 30, 2017 at 3:55 pm

Amen John. You got it right brother.

exiled off mainstreet , October 31, 2017 at 11:01 am

This is an excellent summary of the basis in mentality of what is factually a 21st century version of a fascist regime. Even though two political parties and the shell forms of republican government may exist, the reality is that the parties are factions and the way things operate is via conformity and loyalty to an authoritarian power structure.

[Oct 27, 2017] The Rise and Fall of the Phillips Curve by Ed Walker

Notable quotes:
"... The History of the Phillips Curve: Consensus and Bifurcation ..."
"... The Fed Has a Theory. Trouble is the Proof is Patchy ..."
"... Do Phillips Curves Conditionally Help to Forecast Inflation? ..."
"... Declining Labor and Capital Shaes ..."
"... I am constantly baffled by economists trying to explain very complex non-linear system with simple two variable models. I have been dealing with a couple of engineering problems today where the publication I am using has over 50 design charts just for gravity pipe flow. Each chart has about five variables accommodated while holding a number of others constant. ..."
"... So I think we see the Philips curve predictably happening in the short-term in fields like technology where there is big demand and not enough people. However, as a general rule across the economy, I simply don't see why the relationship between inflation and unemployment should be the same today as it was in 2007, 1997, 1987, or 1977. ..."
"... Economics is infected with too much ideology and not enough scientific method. That is more the definition of a religion than a science. ..."
"... If neoliberals were intellectually honest, they wouldn't call it supply side economics, they'd call it philo-capital economics ..."
"... 80's Poly-Sci defined, "neo-feudalism" (or, as "Shock Doctrine", privatization of all "resource" + government capacity, subject financial sector capture) ..."
"... As far as I can tell, the whole idea of NAIRU is strictly an artifact of economic modeling, not something that's actually ever been observed in the wild. And doesn't it seem odd that making sure we don't drop below NAIRU is something the Fed feels like it needs to intervene to ensure rather than letting the market sort it out. Even if NAIRU was a real thing, you would assume that low unemployment –> increased wages –> increased prices –> reduced consumption –> lay-offs and higher unemployment. Which is to say, if there were such a thing as a natural rate of unemployment, wouldn't markets naturally produce it, obviating any need for the Fed to, say, jack up interest rates to keep the economy from "heating up" (I guess because people have so much money burning holes in their pockets?). It almost like, when it suits the capitalists, they stop believing in this whole "invisible hand" thing .strange ..."
"... "Neoliberalism sees competition as the defining characteristic of human relations. It redefines citizens as consumers, whose democratic choices are best exercised by buying and selling, a process that rewards merit and punishes inefficiency. It maintains that "the market" delivers benefits that could never be achieved by planning. ..."
Oct 27, 2017 | www.nakedcapitalism.com

The Rise and Fall of the Phillips Curve Posted on October 27, 2017 The Phillips Curve says that there is an inverse relation between unemployment and inflation. Low unemployment is correlated with a rise in inflation. It's an article of faith to economists of all stripes. It's listed in the popular introductory economics textbook by N. Gregory Mankiw as one of the Ten Things All Economists agree on . It's especially loved by the Fed, which raises or lowers interest rates depending in part on its predictions. Its critics point out that its predictions are poor.

In this post, I discuss the derivation of the Phillips Curve, its adaption by Samuleson and Solow to manage the economy, its breakdown in the 1970s, exploitation by neoliberals of that breakdown to replace Keynesian demand-based economics with monetarism and supply-side economics, its rejuvenation, and the evidence that it doesn't make accurate predictions.

I conclude with some observations based on an important paper by Simcha Barkai that challenges the core beliefs of neoliberalism. It suggests we can raise wages substantially without causing inflation by lowering corporate profits.

History

This part is based on Sections I-III of Robert Gordon's article, The History of the Phillips Curve: Consensus and Bifurcation , Economica (2011) 78, 10–50 (behind paywall, but you can find it online at your local library). Gordon is an economics professor at Northwestern and has worked on the Phillips Curve for decades.

William Phillips published a paper in 1958 showing a correlation between wage growth and inflation in the UK between 1861 and 1913. He fitted a curve to the data, and then compared that curve to UK data from two later periods. There was a remarkable similarity for most of the two periods, with exceptions Phillips explains away. Here is the curve Phillips derived:

1. w t = -.90 + 9.64U -1.39

Gordon says that " the inflation rate would be expected to equal the growth rate of wages minus the long-term growth rate of productivity." P. 12.

1a. p = w – k

Here p is inflation, w is wage growth, and k is productivity growth. Generally in these equations, lower case letters are rates of change and upper case letters are levels. We can substitute Equation 1a into Equation 1 to get the original Phillips Curve.

2. p = -.90 + 9.64U -1.39 – k.

Paul Samuelson and Robert Solow picked up on the Phillips paper with a paper of their own in 1960. Gordon says much of their paper is a discussion of pre-Phillips theory. They can't find data on the US economy similar to that found by Phillips for the UK economy, so they work up some of their own data and make some calculations showing a result similar to that of Phillips. Whereas Phillips does not mention the possibility that the curve might shift, Samuelson and Solow find such shifts and offer possible explanations, such as strong labor unions.

Here's a schematic drawing of the Phillips Curve from Wikipedia :

The standard curve might be the one on the left. It shows very high inflation at very low unemployment, but falls quickly as unemployment rises. That suggested to Samuelson and Solow that there is a trade-off if the economy is in specific parts of the Phillips Curve: by allowing a slightly higher level of inflation, you could get a big drop in unemployment. The US tried this idea in the 1960s. This policy was tied to Keynesianism, which was the predominate theory in the Kennedy and Johnson era, and into the Nixon Presidency.

When OPEC massively increased the price of oil in the early 70s, inflation soared far past the level suggested by the Phillips Curve. The neoliberals at the University of Chicago argued that the failure of the Phillips Curve proved that Keynesian economics was worthless, and pushed their solution: monetarism. They also had a formula to replace the Phillips Curve as a predictor of inflation.

Their explanation for the failure of the trade-off was something like this. Suppose the beginning rates of inflation and unemployment are at Point A on the above chart. The Fed lowers interest rates resulting in a small increase of inflation, so that the economy moves to Point B with lower unemployment. People believe that is unsustainable, and that the economy will revert to the natural rate of unemployment, the vertical line. As a result, the Phillips Curve shifts up and to the right over time, so that the economy moves to Point C, with the beginning unemployment rate but higher inflation.

The neoliberals won. Keynesianism lost out and was replaced by monetarism. This was probably not deserved, according to Gordon. He says that Samuelson and Solow were not talking about the situation that came about in the 70s, but rather the situation in the early 1960s. He also spends a good part of his paper showing that the formulas offered by Friedman and the neoliberals for predicting inflation were a total failure both on factual and theoretical grounds.

Gordon himself proposed a version of the Phillips Curve designed to deal with the problem of supply and demand shocks like the Oil Shock:

3. p = Ep t + b(U t – U t N ) + z t + e t

In Equation 3, the second U term is the natural rate of unemployment, z t represents cost-push pressure, and e t is apparently a constant. The natural rate of unemployment and the z term vary over time, and for some reason so does the e term. There is nothing left of the wage term. The Phillips Curve is now free from the bonds of factual data that gave Phillips his interesting result. It's a curve-fitting exercise, using economic theories put together in a way that fits the data. It's a complicated formula in which every term needs to be calculated from some other theory or data.

Gordon says that Equation 3 is the canonical version of the Phillips Curve. It is incorporated in most econometric models, modified by some other variables and terms, including levels of taxation, expectations of inflation, inflation inertia, which relates to price and wage rigidity in the short run, and a host of other terms. But as we shall see, it doesn't work as a predictor.

Criticism of the Phillips Curve

The Phillips Curve has been controversial for a long time, as Mankiw admits in his introductory textbook. Ben Leubsdorf wrote a very readable criticism for the Wall Street Journal on August 14, 2014, just before the Fed started raising interest rates. His title is The Fed Has a Theory. Trouble is the Proof is Patchy (sadly behind a paywall; it's available online at your local library).

Leubsdorf confirms that most economists believe that there is a short run trade-off between inflation and unemployment and also agree that this trade-off doesn't hold in the long term, meaning that we can't get permanently lower unemployment by accepting a bit more inflation. But the problem is that there is also no apparent connection in the short run either. Here's a chart originally in Leubsdorf's article and reprinted in a post discussing the article by Jared Bernstein .


Source: Wall Street Journal

To read this chart, select an expansion period from the list on the upper right, find the line that color, and locate the circle at one end of the line; that's the starting point. Then follow the line to see how the relationship between unemployment (x-axis) and inflation (y-axis) changes over time. As you can see there is no apparent connection in any except the first expansion. The lack of connection to theory is especially obvious in the current expansion.

The Leubsdorf article has several quotes from Very Serious People to the effect we think there's a relationship and we're going to act like there is a relationship, and we can fine-tune the economy with our gut instincts.

It doesn't look like the latest study will change minds either. That one comes from the Philadelphia Fed in August 2017, Do Phillips Curves Conditionally Help to Forecast Inflation? The conclusion is that the Phillips Curve does worse than something called a univariate model which I won't discuss.

In this September 26 New York Times article there are more Very Serious People explaining they need to follow their instincts about the economy in deciding on interest rates and they are sure inflation is coming. Meanwhile, the economy continues to add jobs with no obvious increase in inflation as shown by the blue line on the above chart. Inflation is currently running at 1.3% .

Damage From the Phillips Curve

We have already seen that the first notable failure of the Phillips Curve was used to undermine Keynesian economics in favor of monetarism. As a result, working people of all classes were doubly harmed, first by the abandonment of the Fed of any significant role in cutting unemployment, and second by the savage use of high rates to control inflation.

Here's a chart showing the labor share in gross national product on the left axis (blue line) and the prime rate on the right axis (red line).

The grey bars are recessions. This chart shows that up to 2000 every time workers start to get a bigger share of the GDP, the Fed raises interest rates. The Phillips Curve was the justification for those rate hikes. There is some evidence wages are firming up today, and maybe even rising a fraction faster than inflation. Following tradition but not evidence, the Fed is raising rates. If that hurts workers, also in accordance with tradition, that's just too bad.

Observations

Take another look at Equation 1a. If we set inflation at zero, Equation 1 says that wage growth equals productivity growth. That's not true. Here's a chart from the Economic Policy Institute .

The wage line is for production and non-supervisory personnel, which the EPI says is about 80% of employed people. The average wage for all workers has grown somewhat faster, but is still well under the rate of increase of productivity over the long term.

Money produced in the economy goes either to capital or labor. So, the excess gains from productivity must be going to capital.

Actually, it seems strange to suggest that none of the gains from increased productivity go to capital, as Equation 1a does. Consider a company like Google. It can buy a few more computer blades and serve more customers with little or no increase in total wages. The gains from the productivity of the new capital all go to the company. Or consider a company that outsources its labor. Some of the gains might be used to cut prices, I suppose, but surely most of the gain stays with the company.

The following chart shows the sudden growth in top wealth. It demonstrates that the growth began at the same time as the productivity-wages gap began, more support for the idea that the gains from productivity are going to capital.

Capital can take many forms. It could be plant and equipment, commercial or agricultural land, personal residences, art, gold, and many other things believed to store value, whether or not they are actually producing anything, or even whether they actually store value. We know that top wealth is rising, the stock market is up, and the value of residential real property in all major cities is rising. All these and more suggest that the total amount of capital is increasing. All that increase is funded by the gains from productivity.

A recent paper by Simcha Barkai, Declining Labor and Capital Shaes , provides a convincing explanation. The labor share is declining he says. But so is what he calls the "capital share", a defined term, calculated by multiplying the "required rate of return" by the capital stock deployed in the non-financial business sector. Capital stock includes plant and equipment, land, and intangibles such as patents and software, less depreciation. The required return on capital is approximately and sensibly defined as the cost of obtaining capital in the financial markets. He shows that the cost of capital has declined by 7% over the period of his study, 1984-2014. If the amount of capital deployed had increased as might be expected with this large drop in cost, the capital share might have remained the same. Instead, businesses did not deploy additional capital, and the capital share declined by some 30% over the period. During that period the labor share declined 10% from a larger starting point.

The combined losses were more than made up by increases in the profits share. Profits add to the value of the firm, and are distributed by the owners of firms as they see fit, which isn't to lowly workers. This is from Barkai's paper:

Across specifications, the profit share (equal to the ratio of profits to gross value added) has increased by more than 12 percentage points. To offer a sense of magnitude, the value of this increase in profits amounts to over $1.1 trillion in 2014, or $14 thousand for each of the approximately 81 million employees of the non-financial corporate sector. P. 3.

Barkai attributes this almost entirely to increased concentration of US industries, and most of the paper is devoted to proof of that conclusion. He links that increase in concentration to changes in anti-trust law and policy engineered by Robert Bork when he was at the University of Chicago.

Conclusion

Following Barkai, we should rewrite Equation 1a like this:

1b. p = w + γ + c t – k

where γ is the rate of growth of the profits share, c t is the rate of growth of the capital share, w is the rate of growth of wages, p is inflation, and k is productivity. Substituting the original Phillips equation, Equation 1 into Equation 1b gives us

4. p = -.90 + 9.64U -1.39 + γ + c t – k.

This equation calls attention to the role that profits play in the economy, something economists generally generally ignore. When people do discuss profits, it's always in the context of the importance of capital and the need to coddle it. That view lies at the heart of neoliberalism, and at the heart of Fed policy. It is also at the heart of the Law and Economics movement also spawned at the University of Chicago, a movement that has changed the legal system to favor capital. If neoliberals were intellectually honest, they wouldn't call it supply side economics, they'd call it philo-capital economics.

Equation 1 has been replaced by Equation 3 in the standard model of the Phillips Curve.

3. p = Ep t + b(U t – U t N ) + z t + e t

Making this work with Barkai's analysis is harder. We get a clue from Gordon's explanation of the z term: he call it cost push, meaning price shocks caused by labor unions and "bauxite barons". This is where capital growth fits in. The ability to control markets gives firms the ability to cause price shocks, as when pharmaceutical companies drive up the price of epi-pens or other drugs, but also the ability to gradually increase prices above the rate of inflation. Therefore, I'd rewrite Equation 3 this way:

5. 3. p = Ep t + b(U t – U t N ) + γ + c t + e t

Gordon doesn't explain the e term, so we'll just let that pick up anything that used to be in the z term that is somehow missed by my addition. It would, for example, include demand-pull inflation, which hasn't been a problem for some time.

In the current situation, with profits at very high levels, we can easily increase wages without increasing inflation if the rich were willing to accept lower profits, subject to the availability of sufficient resources to meet the new levels of demand substantially higher wages might cause.

Barkai says just distributing the historically high profits to workers would give every working person (other than those in the financial sector) a $14K raise. That dwarfs the make-believe $4K-9K per household the Republicans promise from their proposed tax cuts.

Unfortunately, the Phillips Curve isn't the only thing blocking action to help the average citizen.

Synoia , October 27, 2017 at 10:16 am

Economists will tell whatever story, with whatever rationale that fits their story, to please their pay-masters.

Just like court magicians or priests divining augers for their emperors

They try to predict the future of a chaotic system, which is impossible.

Telling the rich and powerful what they want to hear is both possible and profitable.

rd , October 27, 2017 at 1:21 pm

I am constantly baffled by economists trying to explain very complex non-linear system with simple two variable models. I have been dealing with a couple of engineering problems today where the publication I am using has over 50 design charts just for gravity pipe flow. Each chart has about five variables accommodated while holding a number of others constant.

So I believe the Philips curve is valid but it is in a different place in multi-variable space each decade or so based on fundamental changes in the economy. Over the past thirty years, I can think of four major changes off the top of my head that lead me to expect the Philips curve to translate in multi-variable space:

1. Free trade agreements (NAFTA etc.)
2. Technology displacing workers
3. Baby boomer demographic moving from entering peak productivity to retirement age
4. Women and minorities are becoming more widespread throughout most or all jobs.

So workers to day are now competing more with Second and Third World workers while technology is dramatically changing the workplace (e.g. secretarial positions dramatically reduced), and inexperienced 25 year old white men, women, minorities are being hired to replace experienced 60 year old white men. Why would we expect to have a nice linear relationship between unemployment and wages across this period?

So I think we see the Philips curve predictably happening in the short-term in fields like technology where there is big demand and not enough people. However, as a general rule across the economy, I simply don't see why the relationship between inflation and unemployment should be the same today as it was in 2007, 1997, 1987, or 1977.

Economics is infected with too much ideology and not enough scientific method. That is more the definition of a religion than a science.

diptherio , October 27, 2017 at 10:42 am

Good article. In my econ undergrad, I remember my intermediate macro professor pointing out that reality didn't match the theoretical Philips curve very well and then we continued assuming that it did, for the remainder of the course. {facepalm}

If neoliberals were intellectually honest, they wouldn't call it supply side economics, they'd call it philo-capital economics

Might I suggest "capitalphilic economics"? Seems to roll off the tongue a little better.

nonclassical , October 27, 2017 at 11:17 am

80's Poly-Sci defined, "neo-feudalism" (or, as "Shock Doctrine", privatization of all "resource" + government capacity, subject financial sector capture)

tegnost , October 27, 2017 at 11:22 am

I'll just leave this here along with a little deep thinking by diptherio
https://www.nakedcapitalism.com/2016/05/naked-capitalisms-diptherio-discusses-flaws-in-unemployment-reporting.html

diptherio

Doncha just love how it's defined, in practice, as whatever the unemployment rate seems to settle around. If I'm not mistaken, in the 70's NAIRU was considered to be 6 or 7 %. Then unemployment fell and inflation didn't accelerate so they changed NAIRU to 5%.

What I want to know is if there has ever been a documented case where it can be shown that low unemployment levels actually led to accelerating-inflation. The inflationary periods in US history that I'm familiar with seem to have all been caused by supply shocks (i.e. oil embargo) or financial shenanigans (the housing market of the early aughties). Ditto for other countries, so far as I know.

As far as I can tell, the whole idea of NAIRU is strictly an artifact of economic modeling, not something that's actually ever been observed in the wild. And doesn't it seem odd that making sure we don't drop below NAIRU is something the Fed feels like it needs to intervene to ensure rather than letting the market sort it out. Even if NAIRU was a real thing, you would assume that low unemployment –> increased wages –> increased prices –> reduced consumption –> lay-offs and higher unemployment. Which is to say, if there were such a thing as a natural rate of unemployment, wouldn't markets naturally produce it, obviating any need for the Fed to, say, jack up interest rates to keep the economy from "heating up" (I guess because people have so much money burning holes in their pockets?). It almost like, when it suits the capitalists, they stop believing in this whole "invisible hand" thing .strange

diptherio , October 27, 2017 at 3:07 pm

*blushes* Applying simple logic to mainsteam economics is always entertaining when it's not maddening

vlade , October 27, 2017 at 10:48 am

If I remember right, Phillips published this paper because LSE was pushing him to publish something so that they could justify awarding him professorship and tenure, and he could go to tinkering with his MONIAC. I was told he just wanted to get something out, and this was the first idea he had so he wrote it up, but wasn't really persuaded..

The damage to the real world the academia demands does..

JTMcPhee , October 27, 2017 at 3:31 pm

"Real world" powers can riffle through the files of academia, hard and soft sciences or the various humanities or whatever, even languages and linguistics, and, because "freedom," can always come up with something published that "proves" whatever line of BS the looters are pushing at any given moment to increase their "take."

But then ever since humans discovered ratiocination, thus it has always been. SOMEone or SOMEthing always has to be "the authority," or at least "authoritative "

Samuel Conner , October 27, 2017 at 4:11 pm

That story puts a new spin on "publish or perish", something like "(you) publish and (a lot of other people will) perish (sooner)".

Ned , October 27, 2017 at 11:07 am

This is one reason why America is being parasitized by finance -- - Math. That and the math card in computers that allows the instantaneous creation of speculation and playing of the numbers with hypothetical money that later translates into real productivity or more likely misery.

The average American's eyes glaze over as soon as you put up a math formula. He of course, will memorize all manner of arcane sports trivia and statistics, but when it comes time to quantify his own economic doom, or to think about his or her own economic travails with numbers and curves, it's mind shutdown time.

This is why we love Yves. She has allowed us to get an insight into, become informed and learn about economics through high quality reporting. Thank you for this reminder of the hocus pocus and the witch-doctory that is casting our spell into economic hell.

nonclassical , October 27, 2017 at 11:24 am

not just "math": Rand-Friedman-libertarian ideological definition:

"Neoliberalism sees competition as the defining characteristic of human relations. It redefines citizens as consumers, whose democratic choices are best exercised by buying and selling, a process that rewards merit and punishes inefficiency. It maintains that "the market" delivers benefits that could never be achieved by planning.

Attempts to limit competition are treated as inimical to liberty. Tax and regulation should be minimised, public services should be privatised. The organisation of labour and collective bargaining by trade unions are portrayed as market distortions that impede the formation of a natural hierarchy of winners and losers. Inequality is recast as virtuous: a reward for utility and a generator of wealth, which trickles down to enrich everyone. Efforts to create a more equal society are both counterproductive and morally corrosive. The market ensures that everyone gets what they deserve.

We internalise and reproduce its creeds. The rich persuade themselves that they acquired their wealth through merit, ignoring the advantages – such as education, inheritance and class – that may have helped to secure it. The poor begin to blame themselves for their failures, even when they can do little to change their circumstances.

Never mind structural unemployment: if you don't have a job it's because you are unenterprising. Never mind the impossible costs of housing: if your credit card is maxed out, you're feckless and improvident. Never mind that your children no longer have a school playing field: if they get fat, it's your fault. In a world governed by competition, those who fall behind become defined and self-defined as losers."

https://www.theguardian.com/books/2016/apr/15/neoliberalism-ideology-problem-george-monbiot

Synoia , October 27, 2017 at 11:49 am

That you suffer from parasites is your fault, but God help you if you try to eradicate them.

Summer , October 27, 2017 at 2:01 pm

Your link dances around calling it out: neoliberalism is a rebranding of social darwinism.

Not much "neo" about it. But for all the alleged "progress," it seems we're trapped in a culture that really finds it hard to let go of the 19th Century. And mot just economically, but socially as well.

"natural hierarchy of winners and losers " – does not exist. They rebranded to try to get around all the artificial selection in the global economy.

Ed Walker Post author , October 27, 2017 at 1:50 pm

In an early draft of this article, I had a reference to Econned, where Yves discusses the use of the Gaussian Copula in the organization of RMBSs. So, yes, it's largely the math that Samuelson and Solow and the people who came later loved.

You'll note that I only use very simple math, mostly because it's a nice shorthand, like Equations 1a and 1b

flora , October 27, 2017 at 2:09 pm

an aside: For readers who do not 'read math' you provide understandable English translations of the equations. Thanks.

Quanka , October 27, 2017 at 11:56 am

vlade hit on a key point, IMO. I was an undergrad at prestigious Midwestern school during the period where they split the Econ department in 2 -- a econometrics-esque degree from the Math/Science school, vs. 'Economics' which they kept in the College of Arts and Letters. They've been strangling the latter department since while ensuring steady flow of grants to the math-based department, a la the Phillips story alluded to above.

Seconding diptherio – I remember the introductory statistics and econometric courses I was required to take, where we'd routinely dissect econ reporting in the press based on flawed mathematics or poor statistical methods, and yet carry as though these were meaningful and useful figures (e.g. unemployment, inflation).

So what to do -- do you try to change the way economics is practiced? Or do you try to take away the influence that neoliberalism and/or industrial capitalism have on the education fields? And how exactly do you do that (reform education) given how instrumental it is for neoliberalism to continue.

I see an analogy here, maybe I am wrong. Picture bull-fighting, an appropriate concept,I think. I see neoliberalism as the Matador, education as the cape, and the public as the bull. So the questions above might be rephrased as from the bull's perspective, do you chase the cape or gore the matador?

The stakes are high for the matador -- although as a spectator that fact is hidden in plain sight.

flora , October 27, 2017 at 11:58 am

Thanks for this very readable and important post. Demystify the Phillips Curve and other economic "truths" being used against Main Street is significant.

" This equation calls attention to the role that profits play in the economy, something economists generally generally ignore. When people do discuss profits, it's always in the context of the importance of capital and the need to coddle it. That view lies at the heart of neoliberalism, and at the heart of Fed policy."

Travis Bickle , October 27, 2017 at 12:53 pm

When you think about it, the PC supports the argument of how Supply & Demand explains pretty much everything about economics. It you need to explain economics in a nutshell to a working guy who thinks nothing is really all that complicated (were it not for intellectuals over-thinking things), it fills the bill rather nicely. A matter of rhetorical Supply & Demand, come to think of it.

Thuto , October 27, 2017 at 1:08 pm

For most people, being confronted with "scientific evidence" is enough to lay to rest any and all doubt about the claims being made in a proposition. Scientific evidence hardens claims into hard facts, and does so quickly. What better way to make something appear scientific than to riddle its academic literature with curves and formulas, and give it its own pride of place at the nobles side by side with real sciences. That real sciences have laws that are universally applicable or can at least be reconciled across levels of reality with the consistency you'd expect of something labelled a science (e.g. how quantum electrodynamics reconciles classical electrodynamics at the atomic and subatomic levels) seems to be a minor inconvenience to those with vested interests in having economics accepted by the public as a hard science (precisely, I say again, because presenting "scientific evidence" with formulas and curves disarms most people, among them the political ruling class, of their critical thinking faculties). Add living in an age of credentialism to the mix and the general ineptitude of our ruling politicians and one can see how economists can wreak so much havoc with their ex-cathedra pronouncements on what makes the economy work

Ed Walker Post author , October 27, 2017 at 1:59 pm

The material about Simcha Barkai's paper is the most interesting part of this to me. That paper strikes a serious blow at the heart of neoliberal antitrust law, but it also explains the wage-productivity gap and shows the way to social changes that would benefit most of us.

Also, the billionaires of the world now control $6 Trillion. https://www.theguardian.com/business/2017/oct/26/worlds-witnessing-a-new-gilded-age-as-billionaires-wealth-swells-to-6tn

So naturally Republicans want tax cuts for the pig rich.

whateverhelps , October 27, 2017 at 2:21 pm

Phillips Curve has ever been ideological nonsense. Sad to see it alive 30 years later

EoH , October 27, 2017 at 3:49 pm

The Philips Curve exemplifies the dysfunction created by separating mathematical/quantitative descriptions of an economy from that same lived economy and its history. The PC was originally developed on British data covering a period roughly from ten years after the Crystal Palace Exhibition of 1851 to WWI, and then extended to WWII. Over the same period, literature met Oliver Twist and Alice and her rabbit hole, was jostled by Hardy and Lawrence, and jolted by Joyce, Woolf and Eliot, not least because a woman writer demanded a room of her own. The changes in social, economic and political life were comparable.

The British statistics cover a period when power shifted as dramatically as literature. A suffrage limited to propertied men became universal. The agency, the organization, persistence and determination necessary to create that change was considerable. So, too, a landowning aristocracy, once at the apex of all social, political, legal and economic life, saw its monopoly shrink, or rather found itself joined by large business owners, financiers, traders and press lords, and for a time, trades union leaders.

Parliament expressed that power shift, for example, by ending tariffs protecting domestic grain production, substituting, instead, subsidies for imported food stuffs, in order more cheaply to keep workers fed and at their machines. (A hard-fought concession to a new, competing power block of manufacturers, their financiers and traders,) A major constitutional crisis in 1910-11 presaged adoption of Bismarckian welfare programs, which America did not see until FDR and LBJ. These were a modest but viciously fought concession in order to avoid the kind of extra-constitutional change experienced by Russia a few years later.

Workers over this period witnessed the final stage of enclosures (privatizing of common lands), the end of cottage industries, and the rise, dominance and decline of heavy industry. The Crystal Palace's startling iron pillars and acres of glass yielded to curtain walls and structural steel. Technology, as today, raced headlong. Stage coaches gave way to steam railroads; the telegraph to the telephone and wireless; lances, swords and muzzle loaders to dreadnoughts, flying machines, automatic weapons and poison gas – all with vastly different supply chains, need for capital and levels of employment.

The empire added half of Africa, notably South Africa and its ores, diamonds and gold, and de facto control of Egypt and its canal at Suez. De jure imperial relations existed with India and the "white commonwealth" countries of Canada, Australia, New Zealand and South Africa (post-Boer War). De facto imperial relations existed with much of Latin America, the Caribbean and East Asia. The pound was a global currency and the Royal Navy was admonished to "rule the waves", an aspiration that has since given way to following and buying from the stars and stripes. The ebb and flow of imperial power affected raw material prices coming in and export prices going out.

By what logic would the statistics of economic relations, of changing notions of acceptable levels of employment and inflation (capital's nemesis), not be affected by dramatic changes in social, political and economic conditions? Demonstrating sufficient continuity to establish a "law" for those relations for a single country, let alone one valid across time and national boundaries, would seem to be a sisyphean task.

Wisdom Seeker , October 27, 2017 at 5:13 pm

There's a persuasive interpretation of Phillips' original work and application to US data by John Hussman, which argues :

1) Phillips' original paper is right but most of the work since is garbage which missed the point.

2) Phillips' correct result is a relationship between unemployment and real wage growth ("wage inflation"), not consumer prices.

3) Most modern interpretations have either incompetently lost the point about real wages, or deliberately obfuscated. (Modern econ exists to serve capital more than labor, so this is not surprising.)

Hussman followed up the original piece with some others in recent years:
2013 / 11/ 04
2014 / 08 / 25

And from January 19, 2010 (emphasis added) :

"When labor is scarce (low unemployment), the price of labor tends to rise relative to the price of other things (thus we observe real wage inflation ). In contrast, when labor is plentiful (high unemployment), the price of labor tends to stagnate relative to the price of other things (real wages stagnate)."

Whether real wage inflation translates into consumer price inflation depends on the supply and demand of consumer goods, repayment of debts, workers' need to save for retirements etc.

I believe real wage growth, at the expense of corporate profits, is exactly what has been missing from the health of the economy for the past 20-40 years.

I also suspect the true reason why central banks fear low unemployment is because those increases in workers' wages will come at the expense of corporate profitability. (Especially in an economy with high corporate profit levels and inadequate price competition.)

I also suspect most modern recessions have not been caused by the low unemployment, but rather by the credit tightening applied to prevent low unemployment – to prevent workers from enjoying higher wages at the owners' expense.

[Oct 21, 2017] John Brennan's Police State objective was to push new administration into the corner from which it could not improve relations with Russia

Notable quotes:
"... Again Mike Whitney does not get it. Though in the first part of the article I thought he would. He was almost getting there. The objective was to push new administration into the corner from which it could not improve relations with Russia as Trump indicated that he wanted to during the campaign. Convincing Americans in Russia's influence or Russia collusion with Trump was only a tool that would create pressure on Trump that together with the fear of paralysis of his administration and impeachment would push Trump into the corner from which the only thing he could do was to worsen relations with Russia. What American people believe or not is really secondary. With firing of Gen. Flynn Trump acted exactly as they wanted him to act. This was the beginning of downward slope. ..."
"... The only part that is absurd is that Russia posed a bona fide threat to the US. I'm fine with the idea that he ruined Brennen's plans in Syria. But thats just ego we shouldn't have been there anyway. ..."
"... I am reading Howard Zinn, A Peoples History of the USA, 1492 to the Present. A sad story, how the USA always was a police state, where the two percent rich manipulated the 98% poor, to stay rich. When there were insurrections federal troops restored order. Also FDR put down strikes with troops. ..."
"... America wants to see Jewish oligarchs and their pet 'reformers' e.g. Garry Kasparov in charge of Russia. In the middle east they want endless war until all threats to Israel have been removed. ..."
"... "Brennan had a strong motive to strike back at Moscow. He had "a dog in the fight", and his dog lost. And since he couldn't win on the battlefield, his only choice was to launch an asymmetrical attack via the media. Isn't this where the Russia hacking idea originated?" -- Whitney ..."
"... "The absence of evidence suggests that Russia hacking narrative is a sloppy and unprofessional disinformation campaign that was hastily slapped together by over confident Intelligence officials who believed that saturating the public airwaves with one absurd story after another would achieve the desired result " ..."
Oct 21, 2017 | www.unz.com

Fran Macadam , October 20, 2017 at 3:08 pm GMT

A credible reading of the diverse facts, Mike.
Kirk Elarbee , October 20, 2017 at 8:27 pm GMT
Sadly, Brennan's propaganda coup only works on what the Bell Curve crowd up there would call the dumbest and most technologically helpless 1.2σ. Here is how people with half a brain interpret the latest CIA whoppers.

http://www.moonofalabama.org/2017/10/everyone-hacked-everyone-hacked-everyone-spy-spin-fuels-anti-kaspersky-campaign.html

utu , Next New Comment October 21, 2017 at 5:18 am GMT
Again Mike Whitney does not get it. Though in the first part of the article I thought he would. He was almost getting there. The objective was to push new administration into the corner from which it could not improve relations with Russia as Trump indicated that he wanted to during the campaign. Convincing Americans in Russia's influence or Russia collusion with Trump was only a tool that would create pressure on Trump that together with the fear of paralysis of his administration and impeachment would push Trump into the corner from which the only thing he could do was to worsen relations with Russia. What American people believe or not is really secondary. With firing of Gen. Flynn Trump acted exactly as they wanted him to act. This was the beginning of downward slope.

Anyway, the mission was accomplished and the relations with Russia are worse now than during Obama administration. Trump can concentrate on Iran in which he will be supported by all sides and factions including the media. Even Larry David will approve not only the zionist harpies like Pam Geller, Rita Katz and Ilana Mercer.

Pamela Geller: Thank You, Larry David

http://www.breitbart.com/big-hollywood/2017/10/19/pamela-geller-thank-larry-david/

anon , Disclaimer Next New Comment October 21, 2017 at 5:54 am GMT
OK.

The only part that is absurd is that Russia posed a bona fide threat to the US. I'm fine with the idea that he ruined Brennen's plans in Syria. But thats just ego we shouldn't have been there anyway.

No one really cares about Ukraine. And the European/Russian trade zone? No one cares. The Eurozone has its hands full with Greece and the rest of the old EU. I have a feeling they have already gone way too far and are more likely to shrink than expand in any meaningful way

The one thing I am not positive about. If the elite really believe that Russia is a threat, then Americans have done psych ops on themselves.

The US was only interested in Ukraine because it was there. Next in line on a map. The rather shocking disinterest in investing money -- on both sides -- is inexplicable if it was really important. Most of it would be a waste -- but still. The US stupidly spent $5 billion on something -- getting duped by politicians and got theoretical regime change, but it was hell to pry even $1 billion for real economic aid.

ThereisaGod , Next New Comment October 21, 2017 at 6:37 am GMT
" ..factions within the state whose interests do not coincide with those of the American people."

All the more powerfully put because of its recognisably comical. understatement.

Thank you Mr Whitney. Brilliant article that would be all over the mainstream media were the US MSM an instrument of American rather than globalist interests.

Capn Mike , Next New Comment October 21, 2017 at 6:45 am GMT
Headline: " Trump / Russian Collusion: Questions Remain"

Body: blahblahyaddayadda Where's the evidence? (question) blahblahyaddayadda..Who's Responsible? (question) etc etc.

Takeaway: Uh. Trump Russian Collusion

jilles dykstra , Next New Comment October 21, 2017 at 6:46 am GMT
I am reading Howard Zinn, A Peoples History of the USA, 1492 to the Present. A sad story, how the USA always was a police state, where the two percent rich manipulated the 98% poor, to stay rich. When there were insurrections federal troops restored order. Also FDR put down strikes with troops.
anonymous , Disclaimer Next New Comment October 21, 2017 at 10:29 am GMT
@Fran Macadam

Yes. To have the best chance to change minds, though, the article should be edited one more time.

Errors like "Capital Hill," using "have" instead of "has" with "none" ("So far, none of the four investigations on Capital Hill have produced "), and even a missing word ("perception [of] Russia") are needless distractions that enable those who want to avoid or prevent others from thinking critically. People tend to overlook these things when they're sympathetic, and to seize upon them when they're not.

Logan , Next New Comment October 21, 2017 at 11:16 am GMT
@jilles dykstra

You should be aware that Zinn's book is not, IMO, an honest attempt at writing history. It is conscious propaganda intended to make Americans believe exactly what you are taking from it.

Anon , Disclaimer Next New Comment October 21, 2017 at 12:15 pm GMT
I distrust economic explanations because there are usually stronger forces in play, forces we are skittish about mentioning. America's interest, driven by AIPAC and the neocon policy brains trust, is less in the world than in the middle east and eastern Europe, two areas where Jews and nationalists have long engaged in bloody conflict. The interest in North Korea is that it could sell weapons to Iran.

Writing in 1920 Belloc speaks of the Jewish hatred for Russia. You could add the Jewish hatred for Ukraine, Poland, Lithuania, and other eastern countries where Jews and Christians have historically had an unpleasant relationship. Jews want to see a politically correct united Europe where nationalism and religion will be extinguished by laws against hate speech and cultural re-education. They much preferred the Slavic nations under Communism. They bent over backwards to make excuses for Stalin and his successors.

America wants to see Jewish oligarchs and their pet 'reformers' e.g. Garry Kasparov in charge of Russia. In the middle east they want endless war until all threats to Israel have been removed. While there are multiple factors at work, e.g. Hillary's wanting an excuse for losing, the effort of Jews to master their traditional Christian and Muslim enemies is probably the most powerful and simultaneously the one we can't discuss openly -- a perilous state of affairs.

Grandpa Charlie , Next New Comment October 21, 2017 at 1:09 pm GMT

"Brennan had a strong motive to strike back at Moscow. He had "a dog in the fight", and his dog lost. And since he couldn't win on the battlefield, his only choice was to launch an asymmetrical attack via the media. Isn't this where the Russia hacking idea originated?" -- Whitney

The pity of it is that many Americans now find Putin more credible than any American president! In such a mishmash, Whitney has cut through the identity politics and the personality cults to get almost to the root -- where it started in 2013 -- the real issue that no government wants citizens to recognize or understand, the issue of WMDs -- in this case, chemical warfare . Here's the story, told from the official USA side , complete with anti-Russian headline that hardly represents the story itself:

https://tcf.org/content/report/red-line-redux-putin-tore-obamas-2013-syria-deal/

Forget about official USA bias in this account by The Century Foundation, the history is accurate enough that we easily see that there is no consensus on any of it. For one brief moment – long enough that some horrible WMDs were destroyed – Russia and USA seemed to act sensibly together and then back to the never-ending fight. It reminds of a Tom-and-Jerry cartoon, where the action suddenly freezes due to some distraction, and then the cat and the mouse resume where they left off.

What is the best that we can hope for? That somehow we can untangle the Gordian knot of she-said-he-said -- about supposed Russian hacking in election 2016 (?) -- before one Last Superpower or another resorts to the sword of nuclear Armageddon?

How about this as our goal -- maybe, just maybe, we can somehow return to pre-9-11 levels of cooperation between USA and Russia.

Without having to relive 9-11 either metaphorically or virtually?

TG , Next New Comment October 21, 2017 at 2:03 pm GMT
"The absence of evidence suggests that Russia hacking narrative is a sloppy and unprofessional disinformation campaign that was hastily slapped together by over confident Intelligence officials who believed that saturating the public airwaves with one absurd story after another would achieve the desired result "

But it DID achieve the desired result! Trump folded under the pressure, and went full out neoliberal. Starting with his missile attack on Syria, he is now OK with spending trillions fighting pointless endless foreign wars on the other side of the world.

I think maybe half the US population does believe the Russian hacking thing, but that's not really the issue. I think that the pre-Syrian attack media blitz was more a statement of brute power to Trump: WE are in charge here, and WE can take you down and impeach you, and facts don't matter!

Sometimes propaganda is about persuading people. And sometimes, I think, it is about intimidating them.

Anonymous , Disclaimer Next New Comment October 21, 2017 at 2:05 pm GMT
Whitney is another author who declares the "Russians did it" narrative a psyop. He then devotes entire columns to the psyop, "naww Russia didn't do it".

There could be plenty to write about – recent laws that do undercut liberty, but no, the Washington Post needs fake opposition to its fake news so you have guys like Whitney in the less-mainstream fake news media.

So Brennan wanted revenge? Well that's simple enough to understand, without being too stupid. But Whitney's whopper of a lie is what you're supposed to unquestionably believe. The US has "rival political parties". Did you miss it?

Jake , Next New Comment October 21, 2017 at 2:32 pm GMT
The US is doing nothing more than acting as the British Empire 2.0.

WASP culture was born of a Judaizing heresy: Anglo-Saxon Puritanism. That meant that the WASP Elites of every are pro-Jewish, especially in order to wage war, physical and/or cultural, against the vast majority of white Christians they rule.

By the early 19th century, The Brit Empire's Elites also had a strong, and growing, dose of pro-Arabic/pro-Islamic philoSemitism. Most of that group became ardently pro-Sunni, and most of the pro-Sunni ones eventually coalescing around promotion of the House of Saud, which means being pro-Wahhabi and permanently desirous of killing or enslaving virtually all Shiite Mohammedans.

So, by the time of Victoria's high reign, the Brit WASP Elites were a strange brew of hardcoree pro-Jewish and hardcore pro-Arabic/islamic. The US foreign policy of today is an attempt to put those two together and force it on everyone and make it work.

The Brit secret service, in effect, created and trained not merely the CIA but also the Mossad and Saudi Arabia's General Intelligence Presidency. All four are defined by endless lies, endless acts of utterly amoral savagery. All 4 are at least as bad as the KGB ever was, and that means as bad as Hell itself.

Logan , Next New Comment October 21, 2017 at 3:04 pm GMT
@Grandpa Charlie

Fair enough. I didn't know that about the foreword. If accurate, that's a reasonable approach for a book.

Here's the problem.

Back when O. Cromwell was the dictator of England, he retained an artist to paint him. The custom of the time was for artists to "clean up" their subjects, in a primitive form of photoshopping.

OC being a religious fanatic, he informed the artist he wished to be portrayed as God had made him, "warts and all." (Ollie had a bunch of unattractive facial warts.) Or the artist wouldn't be paid.

https://www.theguardian.com/artanddesign/2013/nov/08/cromwell-portraitist-samuel-cooper-exhibition

Traditional triumphalist American narrative history, as taught in schools up through the 60s or so, portrayed America as "wart-free." Since then, with Zinn's book playing a major role, it has increasingly been portrayed as "warts-only," which is of course at least equally flawed. I would say more so.

All I am asking is that American (and other) history be written "warts and all." The triumphalist version is true, largely, and so is the Zinn version. Gone With the Wind and Roots both portray certain aspects of the pre-war south fairly accurately..

America has been, and is, both evil and good. As is/was true of every human institution and government in history. Personally, I believe America, net/net, has been one of the greatest forces for human good ever. But nobody will realize that if only the negative side of American history is taught.

Wally , Next New Comment October 21, 2017 at 3:16 pm GMT
@Michael Kenny

Hasbarist 'Kenny', you said:

"There must be something really dirty in Russigate that hasn't yet come out to generate this level of panic."

You continue to claim what you cannot prove.

But then you are a Jews First Zionist.

Russia-Gate Jumps the Shark
Russia-gate has jumped the shark with laughable new claims about a tiny number of "Russia-linked" social media ads, but the US mainstream media is determined to keep a straight face

https://www.lewrockwell.com/2017/10/robert-parry/jumping-the-shark/

Yet Another Major Russia Story Falls Apart. Is Skepticism Permissible Yet?

https://theintercept.com/2017/09/28/yet-another-major-russia-story-falls-apart-is-skepticism-permissible-yet/

+ review of other frauds

Logan , Next New Comment October 21, 2017 at 3:20 pm GMT
@Jake

Most of that group became ardently pro-Sunni, and most of the pro-Sunni ones eventually coalescing around promotion of the House of Saud, which means being pro-Wahhabi and permanently desirous of killing or enslaving virtually all Shiite Mohammedans.

Thanks for the laugh. During the 19th century, the Sauds were toothless, dirt-poor hicks from the deep desert of zero importance on the world stage.

The Brits were not Saudi proponents, in fact promoting the Husseins of Hejaz, the guys Lawrence of Arabia worked with. The Husseins, the Sharifs of Mecca and rulers of Hejaz, were the hereditary enemies of the Sauds of Nejd.

After WWI, the Brits installed Husseins as rulers of both Transjordan and Iraq, which with the Hejaz meant the Sauds were pretty much surrounded. The Sauds conquered the Hejaz in 1924, despite lukewarm British support for the Hejaz.

Nobody in the world cared much about the Saudis one way or another until massive oil fields were discovered, by Americans not Brits, starting in 1938. There was no reason they should. Prior to that Saudi prominence in world affairs was about equal to that of Chad today, and for much the same reason. Chad (and Saudi Arabia) had nothing anybody else wanted.

Grandpa Charlie , Next New Comment October 21, 2017 at 3:25 pm GMT
@Michael Kenny

'Putin stopped talking about the "Lisbon to Vladivostok" free trade area long ago" -- Michael Kenney

Putin was simply trying to sell Russia's application for EU membership with the catch-phrase "Lisbon to Vladivostok". He continued that until the issue was triply mooted (1) by implosion of EU growth and boosterism, (2) by NATO's aggressive stance, in effect taken by NATO in Ukraine events and in the Baltics, and, (3) Russia's alliance with China.

It is surely still true that Russians think of themselves, categorically, as Europeans. OTOH, we can easily imagine that Russians in Vladivostok look at things differently than do Russians in St. Petersburg. Then again, Vladivostok only goes back about a century and a half.

Wally , Next New Comment October 21, 2017 at 3:26 pm GMT
@Jake

Jake has no proof whatsoever for any of his threadbare 'blame the gentiles' tactics.

Jake just makes things up to suit his supremacist Jew, aren't we special, 'Chosen Ones' agenda.

The tide is turning.

http://www.codoh.com

Seamus Padraig , Next New Comment October 21, 2017 at 3:39 pm GMT
@utu

Anyway, the mission was accomplished and the relations with Russia are worse now than during Obama administration.

I generally agree with your comment, but that part strikes me as a bit of an exaggeration. While relations with Russia certainly haven't improved, how have they really worsened? The second round of sanctions that Trump reluctantly approved have yet to be implemented by Europe, which was the goal. And apart from that, what of substance has changed?

Seamus Padraig , Next New Comment October 21, 2017 at 3:45 pm GMT
@Grandpa Charlie

That pre-9/11 "cooperation" nearly destroyed Russia. Nobody in Russia (except, perhaps, for Pussy Riot) wants a return to the Yeltsin era.

Ludwig Watzal , Website Next New Comment October 21, 2017 at 3:46 pm GMT
It's not surprising that 57 percent of the American people believe in Russian meddling. Didn't two-thirds of the same crowd believe that Saddam was behind 9/11, too? The American public is being brainwashed 24 hours a day all year long.

The CIA is the world largest criminal and terrorist organization. With Brennan the worst has come to the worst. The whole Russian meddling affair was initiated by the Obama/Clinton gang in cooperation with 95 percent of the media. Nothing will come out of it.

This disinformation campaign might be the prelude to an upcoming war.
Right now, the US is run by jerks and idiots. Watch the video.

anonymous , Disclaimer Next New Comment October 21, 2017 at 3:50 pm GMT
Only dumb people does not know that TRUMP IS NETANYAHU'S PUPPET.

The fifth column zionist jews are running the albino stooge and foreign policy in the Middle East to expand Israel's interest against American interest that is TREASON. One of these FIFTH COLUMNISTS is Jared Kushner. He should be arrested.

https://www.globalresearch.ca/donald-trumps-likudist-campaign-against-iran/5614264

[The key figures who had primary influence on both Trump's and Bush's Iran policies held views close to those of Israel's right-wing Likud Party. The main conduit for the Likudist line in the Trump White House is Jared Kushner, the president's son-in-law, primary foreign policy advisor, and longtime friend and supporter of Netanyahu. Kushner's parents are also long-time supporters of Israeli settlements on the occupied West Bank.

Another figure to whom the Trump White House has turned is John Bolton, undersecretary of state and a key policymaker on Iran in the Bush administration. Although Bolton was not appointed Trump's secretary of state, as he'd hoped, he suddenly reemerged as a player on Iran policy thanks to his relationship with Kushner. Politico reports that Bolton met with Kushner a few days before the final policy statement was released and urged a complete withdrawal from the deal in favor of his own plan for containing Iran.

Bolton spoke with Trump by phone on Thursday about the paragraph in the deal that vowed it would be "terminated" if there was any renegotiation, according toPolitico. He was calling Trump from Las Vegas, where he'd been meeting with casino magnate Sheldon Adelson, the third major figure behind Trump's shift towards Israeli issues. Adelson is a Likud supporter who has long been a close friend of Netanyahu's and has used his Israeli tabloid newspaper Israel Hayomto support Netanyahu's campaigns. He was Trump's main campaign contributor in 2016, donating $100 million. Adelson's real interest has been in supporting Israel's interests in Washington -- especially with regard to Iran.]

Miro23 , Next New Comment October 21, 2017 at 4:56 pm GMT
A great article with some excellent points:

Putin's dream of Greater Europe is the death knell for the unipolar world order. It means the economic center of the world will shift to Central Asia where abundant resources and cheap labor of the east will be linked to the technological advances and the Capital the of the west eliminating the need to trade in dollars or recycle profits into US debt. The US economy will slip into irreversible decline, and the global hegemon will steadily lose its grip on power. That's why it is imperative for the US prevail in Ukraine– a critical land bridge connecting the two continents– and to topple Assad in Syria in order to control vital resources and pipeline corridors. Washington must be in a position where it can continue to force its trading partners to denominate their resources in dollars and recycle the proceeds into US Treasuries if it is to maintain its global primacy. The main problem is that Russia is blocking Uncle Sam's path to success which is roiling the political establishment in Washington.

American dominance is very much tied to the dollar's role as the world's reserve currency, and the rest of the world no longer want to fund this bankrupt, warlike state – particularly the Chinese.

First, it confirms that the US did not want to see the jihadist extremists defeated by Russia. These mainly-Sunni militias served as Washington's proxy-army conducting an ambitious regime change operation which coincided with US strategic ambitions.

The CIA run US/Israeli/ISIS alliance.

Second, Zakharova confirms that the western media is not an independent news gathering organization, but a propaganda organ for the foreign policy establishment who dictates what they can and can't say.

They are given the political line and they broadcast it.

The loosening of rules governing the dissemination of domestic propaganda coupled with the extraordinary advances in surveillance technology, create the perfect conditions for the full implementation of an American police state. But what is more concerning, is that the primary levers of state power are no longer controlled by elected officials but by factions within the state whose interests do not coincide with those of the American people. That can only lead to trouble.

At some point Americans are going to get a "War on Domestic Terror" cheered along by the media. More or less the arrest and incarceration of any opposition following the Soviet Bolshevik model.

CanSpeccy , Website Next New Comment October 21, 2017 at 5:11 pm GMT
@utu

On the plus side, everyone now knows that the Anglo-US media from the NY Times to the Economist, from WaPo to the Gruniard, and from the BBC to CNN, the CBC and Weinstein's Hollywood are a worthless bunch of depraved lying bastards.

Thales the Milesian , Next New Comment October 21, 2017 at 5:53 pm GMT
Brennan did this, CIA did that .

So what are you going to do about all this?

Continue to whine?

Continue to keep your head stuck in your ass?

So then continue with your blah, blah, blah, and eat sh*t.

You, disgusting self-elected democratic people/institutions!!!

AB_Anonymous , Next New Comment October 21, 2017 at 5:59 pm GMT
Such a truthful portrait of reality ! The ruling elite is indeed massively corrupt, compromised, and controlled by dark forces. And the police state is already here. For most people, so far, in the form of massive collection of personal data and increasing number of mandatory regulations. But just one or two big false-flags away from progressing into something much worse.

The thing is, no matter how thick the mental cages are, and how carefully they are maintained by the daily massive injections of "certified" truth (via MSM), along with neutralizing or compromising of "troublemakers", the presence of multiple alternative sources in the age of Internet makes people to slip out of these cages one by one, and as the last events show – with acceleration.

It means that there's a fast approaching tipping point after which it'd be impossible for those in power both to keep a nice "civilized" face and to control the "cage-free" population. So, no matter how the next war will be called, it will be the war against the free Internet and free people. That's probably why N. Korean leader has no fear to start one.

Art , Next New Comment October 21, 2017 at 6:18 pm GMT
An aside:

All government secrecy is a curse on mankind.

Trump is releasing the JFK murder files to the public. Kudos!

Let us hope he will follow up with a full 9/11 investigation.

Think Peace -- Art

Ben10 , Next New Comment October 21, 2017 at 6:28 pm GMT

Ben10 , Next New Comment October 21, 2017 at 6:42 pm GMT

Rurik , Next New Comment October 21, 2017 at 7:01 pm GMT

@Miro23

American dominance is very much tied to the dollar's role as the world's reserve currency, and the rest of the world no longer want to fund this bankrupt, warlike state – particularly the Chinese.

indeed, there are many Americans like myself that pray the world will find a way to end the Federal Reserve Note as the world's reserve currency.

As long as this state of affairs persists, the Fiend will reign supreme.

At some point Americans are going to get a "War on Domestic Terror" cheered along by the media. More or less the arrest and incarceration of any opposition following the Soviet Bolshevik model.

under Hillary I would say that would have been a dead certainty

Under Trump, I'm not so sure..

as long as the American people are armed to the teeth, (and we are ; ), then I feel reasonably assured that a full-scale, gulag type of Soviet system is far off, false flag or no false flag, (so long as we have our guns)

Mr. Anon , Next New Comment October 21, 2017 at 7:07 pm GMT
@utu

The objective was to push new administration into the corner from which it could not improve relations with Russia as Trump indicated that he wanted to during the campaign.

Good point. That was probably one of the objectives (and from the point of view of the deep-state, perhaps the most important objective) of the "Russia hacked our democracy" narrative, in addition to the general deligitimization of the Trump administration.

Art , Next New Comment October 21, 2017 at 7:11 pm GMT
And, keep in mind, Washington's Sunni proxies were not a division of the Pentagon; they were entirely a CIA confection: CIA recruited, CIA-armed, CIA-funded and CIA-trained.

Clearly the CIA was making war on Syria. Is secret coercive covert action against sovereign nations Ok? Is it legal?

When was the CIA designated a war making entity – what part of the constitution OK's that? Isn't the congress obliged by constitutional law to declare war? (These are NOT six month actions – they go on and on.)

Are committees of six congressman and six senators, who meet in secret, just avoiding the grave constitutional questions of war? We the People cannot even interrogate these politicians. (These politicians make big money in the secrecy swamp when they leave office.)

Syria is only one of many nations that the CIA is attacking – how many countries are we attacking with drones? Where is congress?

Spying is one thing – covert action is another – covert is wrong – it goes against world order. Every year after 9/11 they say things are worse – give them more money more power and they will make things safe. That is BS!

9/11 has opened the flood gates to the US government attacking at will, the various peoples of this Earth. That is NOT our prerogative.

We are being exceptionally arrogant.

Close the CIA – give the spying to the 16 other agencies.

Think Peace -- Art

Rurik , Next New Comment October 21, 2017 at 7:12 pm GMT
@Ben10

right at 1:47

when he says 'we can't move on as a country'

his butt hurt is so ruefully obvious, that I couldn't help notice a wry smile on my face

that bitch spent millions on the war sow, and now all that mullah won't even wipe his butt hurt

when I see ((guys)) like this raging their inner crybaby angst, I feel really, really good about President Trump

MAGA bitches!

Mr. Anon , Next New Comment October 21, 2017 at 7:15 pm GMT
@jilles dykstra

I am reading Howard Zinn, A Peoples History of the USA

A Peoples History of the USA? Which Peoples?

Tradecraft46 , Next New Comment October 21, 2017 at 8:04 pm GMT
I am SAIS 70 so know the drill and the article is on point.

Here is the dealio. Most reporters are dim and have no experience, and it is real easy to lead them by the nose with promises of better in the future.

Horace J , October 21, 2017 at 8:52 pm GMT
@Grandpa Charlie

Origins of the Korean war are quite complex. There is no simple answer. You may wan to consult the article at this link:

http://original.antiwar.com/justin/2013/07/28/who-really-started-the-korean-war/

And consult the links within. A rich and fascinating history awaits.

See this for why the North Korean invasion, though alarming in D.C. was considered a god-send by many in Washington:

https://www.shmoop.com/korean-war/politics.html

[Oct 11, 2017] The elite schools, and I have taught as a visiting professor at a few of them, such as Princeton and Columbia, replicate the structure and goals of corporations

Notable quotes:
"... The elite schools, and I have taught as a visiting professor at a few of them, such as Princeton and Columbia, replicate the structure and goals of corporations. If you want to even get through a doctoral committee, much less a tenure committee, you must play it really, really safe. You must not challenge the corporate-friendly stance that permeates the institution and is imposed through corporate donations and the dictates of wealthy alumni. Half of the members of most of these trustee boards should be in prison! ..."
"... Speculation in the 17th century in Britain was a crime. Speculators were hanged. And today they run the economy and the country. They have used the capturing of wealth to destroy the intellectual, cultural and artistic life in the country and snuff out our democracy. There is a word for these people: traitors. ..."
Oct 11, 2017 | www.unz.com

Originally from: The elites "have no credibility left" by Chris Hedges

...The elite schools, and I have taught as a visiting professor at a few of them, such as Princeton and Columbia, replicate the structure and goals of corporations. If you want to even get through a doctoral committee, much less a tenure committee, you must play it really, really safe. You must not challenge the corporate-friendly stance that permeates the institution and is imposed through corporate donations and the dictates of wealthy alumni. Half of the members of most of these trustee boards should be in prison!

Speculation in the 17th century in Britain was a crime. Speculators were hanged. And today they run the economy and the country. They have used the capturing of wealth to destroy the intellectual, cultural and artistic life in the country and snuff out our democracy. There is a word for these people: traitors.

[Oct 10, 2017] The US Economy: Explaining Stagnation and Why It Will Persist by Thomas I. Palley

Highly recommended!
The paper is two years old. Looks how his prediction fared. Stagnation is still with us althouth low oil prices lifted all the boats. But this period is coming to the end.
Notable quotes:
"... The financial crisis that erupted in 2008 challenged the foundations of orthodox economic theory and policy. At its outset, orthodox economists were stunned into silence as evidenced by their inability to answer the Queen of England's simple question (November 5th, 2008) to the faculty of the London School of Economics as to why no one foresaw the crisis. ..."
"... Six years later, orthodoxy has fought back and largely succeeded in blocking change of thought and policy. The result has been economic stagnation ..."
"... Perspective # 3 is the progressive position which is rooted in Keynesian economics and can be labeled the "destruction of shared prosperity hypothesis" ..."
"... It is identified with the New Deal wing of the Democratic Party and the labor movement, but it has no standing within major economics departments owing to their suppression of alternatives to economic orthodoxy. ..."
"... However, financial excess is just an element of the crisis and the full explanation is far deeper than just financial market regulatory failure According to the Keynesian destruction of shared prosperity hypothesis, the deep cause is generalized economic policy failure rooted in the flawed neoliberal economic paradigm that was adopted in the late 1970s and early 1980s. ..."
"... globalization reconfigured global production by transferring manufacturing from the U.S. and Europe to emerging market economies. This new global division of labor was then supported by having U.S. consumers serve as the global economy's buyer of first and last resort, which explains the U.S. trade deficit and the global imbalances problem. ..."
"... This new global division of labor inevitably created large trade deficits that also contributed to weakening the aggregate demand (AD)generation process by causing a hemorrhage of spending on imports (Palley, 2015) ..."
"... Finance does this through three channels. First, financial markets have captured control of corporations via enforcement of the shareholder value maximization paradigm of corporate governance. Consequently, corporations now serve financial market interests along with the interests of top management. Second, financial markets in combination with corporations lobby politically for the neoliberal policy mix. ..."
"... Third, financial innovation has facilitated and promoted financial market control of corporations via hostile take-overs, leveraged buyouts and reverse capital distributions. Financial innovation has therefore been key for enforcing Wall Street's construction of the shareholder value maximization paradigm. ..."
"... The second vital role of finance is the support of AD. The neoliberal model gradually undermined the income and demand generation process, creating a growing structural demand gap. The role of finance was to fill that gap. Thus, within the U.S., deregulation, financial innovation, speculation, and mortgage lending fraud enabled finance to fill the demand gap by lending to consumers and by spurring asset price inflation ..."
"... this AD generation role of finance was an unintended consequence and not part of a grand plan. Neoliberal economists and policymakers did not realize they were creating a demand gap, but their laissez-faire economic ideology triggered financial market developments that coincidentally filled the demand gap. ..."
"... the financial process they unleashed was inevitably unstable and was always destined to hit the wall. There are limits to borrowing and limits to asset price inflation and all Ponzi schemes eventually fall apart. ..."
"... the long duration of financial excess made the collapse far deeper when it eventually happened. It has also made escaping the after-effects of the financial crisis far more difficult as the economy is now burdened by debts and destroyed credit worthiness. That has deepened the proclivity to economic stagnation. ..."
"... The neoliberal labor market flexibility agenda explicitly attacks unions and works to shift income to wealthier households. ..."
"... That model inevitably produces stagnation because it produces a structural demand shortage via (i) its impact on income distribution, and (ii) via its design of globalization which generates massive trade deficits, wage competition and off-shoring of jobs and investment. In terms of the three-way contest between the government failure hypothesis, the market failure hypothesis and the destruction of shared prosperity hypothesis, the economic policy debate during the Great Recession was cast as exclusively between government failure and market failure. ..."
"... This attitude to fiscal policy reflects the dominance within the Democratic Party of "Rubinomics", the Wall Street view associated with former Treasury Secretary Robert Rubin, that government spending and budget deficits raise real interest rates and thereby lower growth. According to that view, the US needs long-term fiscal austerity to offset Social Security and Medicare Side-by-side with the attempt to reflate the economy, the Obama administration also pushed for major overhaul and tightening of financial sector regulation via the Dodd- Frank Act (2010). ..."
"... The Obama administration's softcore neoliberalism would have likely generated stagnation by itself, but the prospect has been further strengthened by Republicans. ..."
"... The Obama administration was to provide fiscal stimulus to jump start the economy; the Fed would use QE to blow air back into the asset price bubble; the Dodd-Frank Act (2010) would stabilize financial markets; and globalization would be deepened by further NAFTA-styled international agreements. This is a near-identical model to that which failed so disastrously. Consequently, stagnation is the logical prognosis. ..."
"... Consequently, the economy is destined to repeat the patterns of the 1990s and 2000s. However, the US economy has also experienced almost twenty more years of neoliberalism which has left its economic body in worse health than the 1990s. That means the likelihood of delivering another bubble-based boom is low and stagnation tendencies will likely reassert themselves after a shorter and weaker period of expansion ..."
Apr 10, 2015 | www.thomaspalley.com

Abstract

This paper examines the major competing interpretations of the economic crisis in the US and explains the rebound of neoliberal orthodoxy. It shows how US policymakers acted to stabilize and save the economy, but failed to change the underlying neoliberal economic policy model. That failure explains the emergence of stagnation, which is likely to endure

Current economic conditions in the US smack of the mid-1990s. The 1990s expansion proved unsustainable and so will the current modest expansion. However, this time it is unlikely to be followed by financial crisis because of the balance sheet cleaning that took place during the last crisis

Revised 1: This paper has been prepared for inclusion in Gallas, Herr, Hoffer and Scherrer (eds.), Combatting Inequality: The Global North and South , Rouledge, forthcoming in 2015.

The crisis and the resilience of neoliberal economic orthodoxy

The financial crisis that erupted in 2008 challenged the foundations of orthodox economic theory and policy. At its outset, orthodox economists were stunned into silence as evidenced by their inability to answer the Queen of England's simple question (November 5th, 2008) to the faculty of the London School of Economics as to why no one foresaw the crisis.

Six years later, orthodoxy has fought back and largely succeeded in blocking change of thought and policy. The result has been economic stagnation

This paper examines the major competing interpretations of the economic crisis in the US and explains the rebound of neoliberal orthodoxy. It shows how US policymakers acted to stabilize and save the economy, but failed to change the underlying neoliberal economic policy model.

That failure explains the emergence of stagnation in the US economy and stagnation is likely to endure.

Current economic conditions in the US smack of the mid-1990s. The 1990s expansion proved unsustainable and so will the current modest expansion. However, this time it is unlikely to be followed by financial crisis because of the balance sheet cleaning that took place during the last crisis.

Competing explanations of the crisis

The Great Recession, which began in December 2007 and includes the financial crisis of 2008, is the deepest economic downturn in the US since the World War II. The depth of the downturn is captured in Table 1 which shows the decline in GDP and the peak unemployment rate. The recession has the longest duration and the decline in GDP is the largest. The peak unemployment rate was slightly below the peak rate of the recession of 1981-82. However, this ignores the fact that the labor force participation rate fell in the Great Recession (i.e. people left the labor force and were not counted as unemployed) whereas it increased in the recession of 1981-82 (i.e. people entered the labor force and were counted as unemployed).

Table 1. Alternative measures of the depth of US recessions.

... ... ...

Table 2 provides data on the percent change in private sector employment from business cycle peak to trough. The 7.6 percent loss of private sector jobs in the Great Recession dwarfs other recessions, providing another measure of its depth and confirming it extreme nature. 2 Over the course of the 1981-82 labor force participation rose from 63.8 percent to 64.2 percent, thereby likely increasing the unemployment rate. In contrast, over the course of the Great Recession the labor force participation rate fell from 66.0 percent to 65.7 percent, thereby likely decreasing the unemployment. The decrease in the labor force participation rate was even sharper for prime age (25 – 54 years old) workers, indicating that the decrease in the overall participation rate was not due to demographic factors such as an aging population. Instead, it was due to lack of job opportunities, which supports the claim that labor force exit lowered the unemployment rate. Table 2. U.S. private employment cycles, peak to trough. Source: Bureau of labor statistics and author's calculations.

... ... ...

Broadly speaking there exist three competing perspectives on the crisis (Palley, 2012).

For the period 1945 - 1975 the U.S. economy was characterized by a "virtuous circle" Keynesian growth model built on full employment and wage growth tied to productivity growth. This model is illustrated in Figure 1 and its logic was as follows. Productivity growth drove wage growth, which in turn fuelled demand growth and created full employment. That provided an incentive for investment, which drove further productivity growth and supported higher wages. This model held in the U.S. and, subject to local modifications, it also held throughout the global economy - in Western Europe, Canada, Japan, Mexico, Brazil and Argentina.

Figure 1. The 1945 – 75 virtuous circle Keynesian growth model. Wage growth Demand growth Full employment Productivity growth Investment

After 1980 the virtuous circle Keynesian growth model was replaced by a neoliberal growth model. The reasons for the change are a complex mix of economic, political and sociological reasons that are beyond the scope of the current paper. The key changes wrought by the new model were:

  1. Abandonment of the commitment to full employment and the adoption of commitment to very low inflation;
  2. Severing of the link between wages and productivity growth.

Together, these changes created a new economic dynamic. Before 1980, wages were the engine of U.S. demand growth. After 1980, debt and asset price inflation became the engine The new economic model was rooted in neoliberal economic thought. Its principal effects were to weaken the position of workers; strengthen the position of corporations; and unleash financial markets to serve the interests of financial and business elites.

As illustrated in figure 2, the new model can be described as a neoliberal policy box that fences workers in and pressures them from all sides. On the left hand side, the corporate model of globalization put workers in international competition via global production networks that are supported by free trade agreements and capital mobility.

On the right hand side, the "small" government agenda attacked the legitimacy of government and pushed persistently for deregulation regardless of dangers. From below, the labor market flexibility agenda attacked unions and labor market supports such as the minimum wage, unemployment benefits, employment protections, and employee rights. From above, policymakers abandoned the commitment of full employment, a development that was reflected in the rise of inflation targeting and the move toward independent central banks influenced by financial interests.

Figure 2. The neoliberal policy box. Globalization WORKERS Abandonment of full employment Small Government Labor Market Flexibility

Corporate globalization is an especially key feature. Not only did it exert downward inward pressures on economies via import competition and the threat of job off-shoring, it also provided the architecture binding economies together. Thus, globalization reconfigured global production by transferring manufacturing from the U.S. and Europe to emerging market economies. This new global division of labor was then supported by having U.S. consumers serve as the global economy's buyer of first and last resort, which explains the U.S. trade deficit and the global imbalances problem.

This new global division of labor inevitably created large trade deficits that also contributed to weakening the aggregate demand (AD)generation process by causing a hemorrhage of spending on imports (Palley, 2015)

An important feature of the Keynesian hypothesis is that the neoliberal policy box was implemented on a global basis, in both the North and the South. As in the U.S., there was also a structural break in policy regime in both Europe and Latin America. In Latin America , the International Monetary Fund and World Bank played an important role as they used the economic distress created by the 1980s debt crisis to push neoliberal policy

They did so by making financial assistance conditional on adopting such policies. This global diffusion multiplied the impact of the turn to neoliberal economic policy and it explains why the Washington Consensus enforced by the International Monetary Fund and World Bank has been so significant. It also explains why stagnation has taken on a global dimension.

III The role of finance in the neoliberal model

Owing to the extraordinarily deep and damaging nature of the financial crisis of 2008, financial market excess has been a dominant focus of explanations of the Great Recession. Within the neoliberal government failure hypothesis the excess is attributed to ill-advised government intervention and Federal Reserve interest rate policy. Within the neoliberal market failure hypothesis it is attributed to ill-advised deregulation and failure to modernize regulation.

According to the Keynesian destruction of shared prosperity hypothesis neither of those interpretations grasps the true significance of finance. The government failure hypothesis is empirically unsupportable (Palley, 2012a, chapter 6), while the market failure hypothesis has some truth but also misses the true role of finance That role is illustrated in Figure 3 which shows that finance performed two roles in the neoliberal model. The first was to structurally support the neoliberal policy box. The second was to support the AD generation process. These dual roles are central to the process of increasing financial domination of the economy which has been termed financialization (Epstein, 2004, p.3; Krippner, 2004, 2005; Palley, 2013). Figure 3. The role of finance in the neoliberal model. The role of finance: "financialization" Supporting the neoliberal policy box Aggregate demand generation Corporate behavior Economic policy Financial innovation The policy box shown in Figure 2 has four sides.

A true box has six sides and a four sided structure would be prone to structural weakness.

Metaphorically speaking, one role of finance is to provide support on two sides of the neoliberal policy box, as illustrated in Figure 4.

Finance does this through three channels. First, financial markets have captured control of corporations via enforcement of the shareholder value maximization paradigm of corporate governance. Consequently, corporations now serve financial market interests along with the interests of top management. Second, financial markets in combination with corporations lobby politically for the neoliberal policy mix.

The combination of changed corporate behavior and economic policy produces an economic matrix that puts wages under continuous pressure and raises income inequality.

Third, financial innovation has facilitated and promoted financial market control of corporations via hostile take-overs, leveraged buyouts and reverse capital distributions. Financial innovation has therefore been key for enforcing Wall Street's construction of the shareholder value maximization paradigm.

Figure 4. Lifting the lid on the neoliberal policy box. The neoliberal box Corporations Financial markets

The second vital role of finance is the support of AD. The neoliberal model gradually undermined the income and demand generation process, creating a growing structural demand gap. The role of finance was to fill that gap. Thus, within the U.S., deregulation, financial innovation, speculation, and mortgage lending fraud enabled finance to fill the demand gap by lending to consumers and by spurring asset price inflation

Financialization assisted with this process by changing credit market practices and introducing new credit instruments that made credit more easily and widely available to corporations and households. U.S. consumers in turn filled the global demand gap, along with help from U.S. and European corporations who were shifting manufacturing facilities and investment to the emerging market economies.

Three things should be emphasized.

  1. First, this AD generation role of finance was an unintended consequence and not part of a grand plan. Neoliberal economists and policymakers did not realize they were creating a demand gap, but their laissez-faire economic ideology triggered financial market developments that coincidentally filled the demand gap.
  2. Second, the financial process they unleashed was inevitably unstable and was always destined to hit the wall. There are limits to borrowing and limits to asset price inflation and all Ponzi schemes eventually fall apart. The problem is it is impossible to predict when they will fail. All that can be known with confidence is that it will eventually fail.
  3. Third, the process went on far longer than anyone expected, which explains why critics of neoliberalism sounded like Cassandras (Palley, 1998, Chapter 12). However, the long duration of financial excess made the collapse far deeper when it eventually happened. It has also made escaping the after-effects of the financial crisis far more difficult as the economy is now burdened by debts and destroyed credit worthiness. That has deepened the proclivity to economic stagnation.
IV Evidence

Evidence regarding the economic effects of the neoliberal model is plentiful and clear Figure 5 shows productivity and average hourly compensation of non-supervisory workers (that is non-managerial employees who are about 80 percent of the workforce). The link with productivity growth was severed almost 40 years ago and hourly compensation has been essentially stagnant since then.

Figure 5.

... ... ...

Table 3 shows data on the distribution of income growth by business cycle expansion across the wealthiest top 10 percent and bottom 90 percent of households. Over the past sixty years there has been a persistent decline in the share of income gains going to the bottom 90 percent of households ranked by wealth. However, in the period 1948 – 1979 the decline was gradual. After 1980 there is a massive structural break and the share of income gains going to the bottom 90 percent collapses. Before 1980, on average the bottom 90 percent received 66 percent of business cycle expansion income gains. After 1980, on average they receive just 8 percent.

Table 3. Distribution of income growth by business cycle expansion across the wealthiest top 10 percent and bottom 90 percent of households. Source: Tcherneva (2014), published in The New York Times , September 26, 2014. '49- '53 '54- '57 '59- '60 '61- '69 '70- '73 '75- '79 '82- '90 '91- '00 '01- '07 '09- '12 Average Pre-1908 Average Post-1980 Top 10% 20% 28 32 33 43 45 80 73 98 116 34% 92% Bottom 90% 80% 72 68 67 57 55 20 27 2 -16 66% 8%

Figure 6 shows the share of total pre-tax income of the top one percent of households ranked by wealth. From the mid-1930s, with the implementation of the New Deal social contract, that share fell from a high of 23.94 percent in 1928 to a low of 8.95 percent in 1978. Thereafter it has steadily risen, reaching 23.5 percent in 2007 which marked the beginning of the Great Recession. It then fell during the Great Recession owing to a recession-induced fall in profits, but has since recovered most of that decline as income distribution has worsened again during the economic recovery. In effect, during the neoliberal era the US economy has retraced its steps, reversing the improvements achieved by the New Deal and post-World War II prosperity, so that the top one percent's share of pre-tax income has returned to pre-Great Depression levels.

Figure 6. US pre-tax income share of top 1 percent. Source: http://inequality.org/income-inequality/. Original source: Thomas Piketty and Emanuel Saez (2003), updated at http://emlab.edu/users/saez.

As argued in Palley (2012a, p. 150-151) there is close relationship between union membership density (i.e. percent of employed workers that are unionized) and income distribution. This is clearly shown in Figure 7 which shows union density and the share of pre-tax income going to the top ten percent of wealthiest households. The neoliberal labor market flexibility agenda explicitly attacks unions and works to shift income to wealthier households.

Share of income going to the top 10 percent 2013: 47.0% Union membership density 11.2% 0% 10% 20% 30% 40% 50% 60% 1917 1923 1929 1935 1941 1947 1953 1959 1965 1971 1977 1983 1989 1995 2001 2007 2013 Source: Data on union density follows the composite series found in Historical Statistics of the United States; updated to 2013 from unionstats.com. Income inequality (share of income to top 10%) from Piketty and Saez,

"Income Inequality in the United States, 1913-1998, Quarterly Journal of Economics , 118(1), 2003, 1-39. Updated Figure 7. Union membership and the share of income going to the top ten percent of wealthiest households, 1917 – 2013. Source: Mishel, Gould and Bivens (2015). Table 4 provides data on the evolution of the U.S. goods and services trade balance as a share of GDP by business cycle peak. Comparison across peaks controls for the effect of the business cycle. The data show through to the late 1970s U.S. trade was roughly in balance, but after 1980 it swung to massive deficit and the deficits increased each business cycle. These deficits were the inevitable product of the neoliberal model of globalization (Palley, 2015) and they undermined the AD generation process in accordance with the Keynesian hypothesis.

Table 4. The U.S. goods & services trade deficit/surplus by business cycle peaks, 1960 – 2007. Sources: Economic Report of the President, 2009 and author's calculations. Business cycle peak year Trade balance ($ millions) GDP ($ billions) Trade balance/ GDP (%) 1960 3,508 526.4 0.7 1969 91 984.6 0.0 1973 1,900 1,382.7 0.1 1980 -25,500 2,789.5 -0.9 1981 -28,023 3,128.4 -0.9 1990 -111,037 5,803.1 -1.9 2001 -429,519 10,128.0 -4.2 2007 -819,373 13,807.5 -5.9

Finally, Figure 8 shows total domestic debt relative to GDP and growth. This Figure is highly supportive of the Keynesian interpretation of the role of finance. During the neoliberal era real GDP growth has actually slowed but debt growth has exploded. The reason is the neoliberal model did nothing to increase growth, but it needed faster debt growth to fill the demand gap created by the model's worsening of income distribution and creation of large trade deficits. Debt growth supported debt-financed consumer spending and it supported asset price inflation that enabled borrowing which filled the demand gap caused by the neoliberal model. Figure 8. Total domestic debt and growth (1952-2007). Source: Grantham, 2010.

V The debate about the causes of the crisis: why it matters

The importance of the debate about the causes of the crisis is that each perspective recommends its own different policy response. For hardcore neoliberal government failure proponents the recommended policy response is to double-down on the policies described by the neoliberal policy box and further deregulate markets; to deepen central bank independence and the commitment to low inflation via strict rules based monetary policy; and to further shrink government and impose fiscal austerity to deal with increased government debt produced by the crisis For softcore neoliberal market failure proponents the recommended policy response is to tighten financial regulation but continue with all other aspects of the existing neoliberal policy paradigm. That means continued support for corporate globalization, socalled labor market flexibility, low inflation targeting, and fiscal austerity in the long term. Additionally, there is need for temporary large-scale fiscal and monetary stimulus to combat the deep recession caused by the financial crisis.

However, once the economy has recovered, policy should continue with the neoliberal model For proponents of the destruction of shared prosperity hypothesis the policy response is fundamentally different. The fundamental need is to overthrow the neoliberal paradigm and replace it with a "structural Keynesian" paradigm. That involves repacking the policy box as illustrated in Figure 9.

The critical step is to take workers out of the box and put corporations and financial markets in so that they are made to serve a broader public interest. The key elements are to replace corporate globalization with managed globalization that blocks race to the bottom trade dynamics and stabilizes global financial markets; restore a commitment to full employment; replace the neoliberal anti-government agenda with a social democratic government agenda; and replace the neoliberal labor market flexibility with a solidarity based labor market agenda.

The goals are restoration of full employment and restoration of a solid link between wage and productivity growth.

Figure 9. The structural Keynesian box Corporations & Managed Financial Markets Globalization Full Employment Social Democratic Government Solidarity Labor Markets

Lastly, since the neoliberal model was adopted as part of a new global economic order, there is also need to recalibrate the global economy. This is where the issue of "global rebalancing" enters and emerging market economies need to shift away from export-led growth strategies to domestic demand-led strategies. That poses huge challenges for many emerging market economies because they have configured their growth strategies around export-led growth whereby they sell to U.S. consumers.

VI From crisis to stagnation: the failure to change

Massive policy interventions, unequalled in the post-war era, stopped the Great Recession from spiraling into a second Great Depression. The domestic economic interventions included the 2008 Troubled Asset Relief Program (TARP) that bailed out the financial sector via government purchases of assets and equity from financial institutions; the 2009 American Recovery and Reinvestment Act (ARRA) that provided approximately $800 billion of fiscal stimulus, consisting of approximately $550 billion of government spending and $250 billion of tax cuts; the Federal Reserve lowering its interest target to near-zero (0 - 0.25 percent); and the Federal Reserve engaging in quantitative easing (QE) transactions that involve it purchasing government and private sector securities. At the international level, in 2008 the Federal Reserve established a temporary $620 billion foreign exchange (FX) swap facility with foreign central banks.

That facility provided the global economy with dollar balances, thereby preventing a dollar liquidity shortage from triggering a wave of global default on short-term dollar loans that the financial system was unwilling to roll-over because of panic.3

Additionally, there was unprecedented globally coordinated fiscal stimulus arranged via the G-20 mechanism. 3

The FX swaps with foreign central banks have been criticized as being a bail-out for foreign economies. In fact, they saved the US financial system which would have been pulled down by financial collapse outside

Despite their scale, these interventions did not stop the recession from being the deepest since 1945, and nor did they stop the onset of stagnation. Table 5 shows how GDP growth has failed to recover since the end of the Great Recession, averaging just 2.1 percent for the five year period from 2010 – 2014. Furthermore, that period includes the rebound year of 2010 when the economy rebounded from its massive slump owing to the extraordinary fiscal and monetary stimulus measures that were put in place

Table 5. U.S. GDP growth. Source: Statistical Annex of the European Union, Autumn 2014 and author's calculations.

The growth rate for 2014 is that estimated in October 2014.

1961 - 1970 1971 - 1980 1981 - 1990 1991 - 2000 2001 - 2007 2008 - 2009 2010 - 2014

4.2% 3.2% 3.3% 3.5% 2.5% -1.6% 2.1%

Table 6 shows employment creation in the five years after the end of recessions, which provides another window on stagnation. The job creation numbers show that the neoliberal model was already slowing in the 1990s with the first episode of "jobless the US.

Many foreign banks operating in the US had acquired US assets financed with short-term dollar borrowings. When the US money market froze in 2008 they could not roll-over these loans in accordance with normal practice. That threatened massive default by these banks within the US financial system, which would have pulled down the entire global financial system.

The Federal Reserve could not lend directly to these foreign banks and their governing central banks lacked adequate dollar liquidity to fill the financing gap. The solution was to lend dollars to foreign central banks, which then made dollar loans to foreign banks in need of dollar roll-over short-term financing. recovery".

It actually ground to stagnation in the 2001 – 2007 period, but this was masked by the house price bubble and the false prosperity it created. Stagnation has persisted after the Great Recession, but the economic distress caused by the recession has finally triggered awareness of stagnation among elites economists. In a sense, the Great Recession called out the obvious, just as did the little boy in the Hans Anderson story about the emperor's new suit

Table 6. U.S. private sector employment creation in the five year period after the end of recessions for six business cycles with extended expansions. Source: Bureau of labor statistics and author's calculations. * = January 1980 the beginning of the next recession Recession end date Employment at recession end date (millions) Employment five years later (millions) Percent growth in employment Feb 1961 45.0 52.2 16.0% Mar 1975 61.9 74.6* 20.5% Nov 1982 72.8 86.1 18.3% March 1991 90.1 99.5 10.4% Nov 2001 109.8 115.0 4.7% June 2009 108.4 117.1 8.0% The persistence of stagnation after the Great Recession raises the question "why"? The answer is policy has done nothing to change the structure of the underlying neoliberal economic model.

That model inevitably produces stagnation because it produces a structural demand shortage via (i) its impact on income distribution, and (ii) via its design of globalization which generates massive trade deficits, wage competition and off-shoring of jobs and investment. In terms of the three-way contest between the government failure hypothesis, the market failure hypothesis and the destruction of shared prosperity hypothesis, the economic policy debate during the Great Recession was cast as exclusively between government failure and market failure.

With the Democrats controlling the Congress and Presidency after the 2008 election, the market failure hypothesis won out and has framed policy since then. According to the hypothesis, the financial crisis caused an exceptionally deep recession that required exceptionally large monetary and fiscal stimulus to counter it and restore normalcy. Additionally, the market failure hypothesis recommends restoring and renovating financial regulation, but other than that the neoliberal paradigm is appropriate and should be deepened In accordance with this thinking, the in-coming Obama administration affirmed existing efforts to save the system and prevent a downward spiral by supporting the Bush administration's TARP, the Federal Reserve's first round of QE (November/December 2008) that provided market liquidity, and the Federal Reserve's FX swap agreement with foreign central banks

Thereafter, the Obama administration worked to reflate the economy via passage of the ARRA (2009) which provided significant fiscal stimulus. With the failure to deliver a V-shaped recovery, candidate Obama became even more vocal about fiscal stimulus However, reflecting its softcore neoliberal inclinations, the Obama administration then became much less so when it took office. Thus, the winners of the internal debate about fiscal policy in the first days of the Obama administration were those wanting more modest fiscal stimulus.4 Furthermore, its analytical frame was one of temporary stimulus with the 4 Since 2009 there has been some evolution of policy positions characterized by a shift to stronger support for fiscal stimulus. This has been especially marked in Larry Summers, who was the Obama administration's goal of long-term fiscal consolidation, which is softcore neoliberal speak for fiscal austerity Seen in the above light, after the passage of ARRA (2009), the fiscal policy divide between the Obama administration and hardcore neoliberal Republicans was about the speed and conditions under which fiscal austerity should be restored.

This attitude to fiscal policy reflects the dominance within the Democratic Party of "Rubinomics", the Wall Street view associated with former Treasury Secretary Robert Rubin, that government spending and budget deficits raise real interest rates and thereby lower growth. According to that view, the US needs long-term fiscal austerity to offset Social Security and Medicare Side-by-side with the attempt to reflate the economy, the Obama administration also pushed for major overhaul and tightening of financial sector regulation via the Dodd- Frank Act (2010).

That accorded with the market failure hypothesis's claim about the economic crisis and Great Recession being caused by financial excess permitted by the combination of excessive deregulation, lax regulation and failure to modernize regulation Finally, and again in accordance with the logic of the market failure hypothesis, the Obama administration has pushed ahead with doubling-down and further entrenching the neoliberal policy box. This is most visible in its approach to globalization. In 2010, free trade agreements modelled after NAFTA were signed with South Korea, Colombia and Panama. The Trans-Pacific Partnership (TPP) and the Trans-Atlantic Trade and Investment Partnership (TTIP), two mega-agreements negotiated in secrecy and apparently bearing chief economic adviser when it took office. This shift has become a way of rewriting history by erasing the memory of initial positions. That is also true of the IMF which in 2010-2011 was a robust supporter of fiscal consolidation in Europe. similar hallmarks to prior trade agreements, are also being pushed by the Obama administration

The Obama administration's softcore neoliberalism would have likely generated stagnation by itself, but the prospect has been further strengthened by Republicans.

Thus, in accordance with their point of view, Republicans have persistently pushed the government failure hypothesis by directing the policy conversation to excessive regulation and easy monetary policy as the causes of the crisis. Consequently, they have consistently opposed strengthened financial regulation and demands for fiscal stimulus.

At the same time, they have joined with softcore neoliberal Democrats regarding doubling-down on neoliberal box policies, particularly as regards trade and globalization Paradoxically, the failure to change the overall economic model becomes most visible by analyzing the policies of the Federal Reserve, which have changed the most dramatically via the introduction of QE. The initial round of QE (QE1) was followed by QE2 in November 2010 and QE3 in September 2012, with the Fed shifting from providing short-term emergency liquidity to buying private sector financial assets.

The goal was to bid up prices of longer term bonds and other securities, thereby lowering interest rates on longer-term financing and encouraging investors to buy equities and other riskier financial assets. The Fed's reasoning was lower long-term rates would stimulate the economy, and higher financial asset prices would trigger a positive wealth effect on consumption spending. This makes clear the architecture of policy.

The Obama administration was to provide fiscal stimulus to jump start the economy; the Fed would use QE to blow air back into the asset price bubble; the Dodd-Frank Act (2010) would stabilize financial markets; and globalization would be deepened by further NAFTA-styled international agreements. This is a near-identical model to that which failed so disastrously. Consequently, stagnation is the logical prognosis.

VII Déjà vu all over again: back to the 1990s but with a weaker economy

The exclusion of the destruction of shared prosperity hypothesis, combined with the joint triumph of the market failure and government failure hypotheses, means the underlying economic model that produced the Great Recession remains essentially unchanged. That failure to change explains stagnation. It also explains why current conditions smack of "déjà vu all over again" with the US economy in 2014-15 appearing to have returned to conditions reminiscent of the mid-1990s.

Just as the 1990s failed to deliver durable prosperity, so too current optimistic conditions will prove unsustainable absent deeper change The déjà vu similarities are evident

All of these features mean both policy context and policy design look a lot like the mid-1990s. The Obama administration saved the system but did not change it

Consequently, the economy is destined to repeat the patterns of the 1990s and 2000s. However, the US economy has also experienced almost twenty more years of neoliberalism which has left its economic body in worse health than the 1990s. That means the likelihood of delivering another bubble-based boom is low and stagnation tendencies will likely reassert themselves after a shorter and weaker period of expansion

This structurally weakened state of the US economy is evident in the further worsening of income inequality that has occurred during the Great Recession and subsequent slow recovery.

... ... ...

Thomas I. Palley, Senior Economic Policy Advisor, AFL-CIO Washington, D.C. mail@thomaspalley.com

[Oct 09, 2017] Instead of drawing the best and the brightest, or being a place where scholarship was valued, where students were taught critical thinking skills, the University I attended was nothing more than an expensive diploma mill for the children of the wealthy

Chris Hedges published this book eight years ago and the things he predicted have sadly been realized
Notable quotes:
"... his screed is a liberating tonic against the crazy-making double-speak and the lies Americans are sold by our country's elite in order to distract us from the true threat and nature of the Corporate State, from the cult of celebrity, to how our nation's Universities have been hijacked to serve the interests, not of the public, but of our corporate overlords. It explains the self-same conditions in all aspects of our society and culture that we now must face, the ever-shrinking flame of enlightenment being exchanged for the illusory shadows on a cave wall. ..."
"... He fearlessly and incisively calls us out on the obvious farce our democracy has become, how we got here, and highlights the rapidly closing window in which we have to do something to correct it. It is a revelation, and yet he merely states the obvious. The empire has no clothes. ..."
"... One of the most powerful aspects of this book was in regard to how our Universities are run these days. I may be in the minority, but I experienced a life-changing disillusionment when I gained entrance to a prestigious "elite" University. Instead of drawing the best and the brightest, or being a place where scholarship was valued, where students were taught critical thinking skills, the University I attended was nothing more than an expensive diploma mill for the children of the wealthy. In the eyes of the University, students were not minds to be empowered and developed, but walking dollar signs. ..."
"... Instead of critical thinking, students were taught to OBEY, not to question authority, and then handed a piece of paper admitting them to the ruling class that is destroying America without a moral compass. Selfishness, deceit, disregard for the common good, and a win-at-all-costs attitude were rewarded. Empathy, curiosity, dissent, and an honest, intellectually rigorous evaluation of ourselves and our world were punished. Obviously I am not the only one to whom this was cause to fear for the future of our country. ..."
Oct 09, 2017 | www.amazon.com

H. I. on May 13, 2011

This Book Explains EVERYTHING!!!!!

Hedges cogently and systematically dismantles the most pernicious cultural delusions of our era and lays bare the pitiful truths that they attempt to mask. This book is a deprogramming manual that trims away the folly and noise from our troubled society so that the reader can focus on the most pressing matters of our time.

Despite the dark reality Hedges excavates, his screed is a liberating tonic against the crazy-making double-speak and the lies Americans are sold by our country's elite in order to distract us from the true threat and nature of the Corporate State, from the cult of celebrity, to how our nation's Universities have been hijacked to serve the interests, not of the public, but of our corporate overlords. It explains the self-same conditions in all aspects of our society and culture that we now must face, the ever-shrinking flame of enlightenment being exchanged for the illusory shadows on a cave wall.

As a twenty-something caught in the death-throes of American Empire and culture, I have struggled to anticipate where our country and our world are heading, why, and what sort of life I can expect to build for myself. Hedges presents the reader with the depressing, yet undeniable truth of the forces that have coalesced to shape the world in which we now find ourselves. The light he casts is searing and relentless. He fearlessly and incisively calls us out on the obvious farce our democracy has become, how we got here, and highlights the rapidly closing window in which we have to do something to correct it. It is a revelation, and yet he merely states the obvious. The empire has no clothes.

One of the most powerful aspects of this book was in regard to how our Universities are run these days. I may be in the minority, but I experienced a life-changing disillusionment when I gained entrance to a prestigious "elite" University. Instead of drawing the best and the brightest, or being a place where scholarship was valued, where students were taught critical thinking skills, the University I attended was nothing more than an expensive diploma mill for the children of the wealthy. In the eyes of the University, students were not minds to be empowered and developed, but walking dollar signs.

Instead of critical thinking, students were taught to OBEY, not to question authority, and then handed a piece of paper admitting them to the ruling class that is destroying America without a moral compass. Selfishness, deceit, disregard for the common good, and a win-at-all-costs attitude were rewarded. Empathy, curiosity, dissent, and an honest, intellectually rigorous evaluation of ourselves and our world were punished. Obviously I am not the only one to whom this was cause to fear for the future of our country.

Five stars is not enough. Ever since I began reading Empire of Illusion, I have insisted friends and family pick up a copy, too. Everyone in America should read this incredibly important book.

The truth shall set us free.

[Oct 06, 2017] How Economists Turned Corporations into Predators

Highly recommended!
The idea the a scientist can be a gangster was probably first presented by Sir Arthur Conan Doyle in his famous Sherlock Holmes detective stories. Neoliberalism just made this a reality. Mass production of "scientific gangsters" is an immanent feature of neoliberalism.
Notable quotes:
"... By Lynn Parramore, Senior Research Analyst at the Institute for New Economic Thinking. Originally published at the Institute for New Economic Thinking website ..."
"... The Idea That Businesses Exist Solely to Enrich Shareholders Is Harmful Nonsense ..."
"... Neil Fligstein wrote a good book awhile back called The Transformation of Corporate Control that shows how most large manufacturing companies were initially run by engineers, then sales people, then finance people (as corporations came to be seen as bundles of assets as opposed to businesses). I think this transformation paralleled the rise of neoclassical economics. So, not so much "chicken-and-egg" as "class war." In Germany, at least until recently, I believe CEO's of manufacturing firms were still disproportionately engineers. ..."
"... a group of hedge fund activists can suck the value that you've created right out, driving your company down and making you worse off and the company financially fragile ..."
"... That means transforming business education, including the replacement of agency theory with innovation theory ..."
"... since gigantism is the norm, rather than family run farms in a mostly agrarian economy such failures are catastrophic. The linkage between these elephants tends to create systemic risk. Previously, failure was small and isolated. ..."
"... Welcome to our wonderful new world of infinite mutual vulnerability! Risk On! Nuclear weapons, Equifax, Googleamazon, NSApanopticon, FIRE, hacking, crapification The Soviet Union vanished as an entity, many starved, but the mopes there at least still knew how to raise up edible crops and live on "less" and maybe do better collective response to that sharp peak on the entropy curve. Wonder how things might play out exceptionally, here in the Empire? ..."
"... It should be noted that Michael Jensen of HBS, one of the originators of the `maximize shareholder value' of corporate governance, is on some short lists for this year's not-exactly-the-Nobel Prize in Economics. ..."
Oct 06, 2017 | www.nakedcapitalism.com

By Lynn Parramore, Senior Research Analyst at the Institute for New Economic Thinking. Originally published at the Institute for New Economic Thinking website

The Idea That Businesses Exist Solely to Enrich Shareholders Is Harmful Nonsense

In a new INET paper featured in the Financial Times , economist William Lazonick lays out a theory about how corporations can work for everyone – not just a few executives and Wall Streeters. He challenges a set of controversial ideas that became gospel in business schools and the mainstream media starting in the 1980s. He sat down with INET's Lynn Parramore to discuss.

Lynn Parramore: Since the 1980s, business schools have touted "agency theory," a controversial set of ideas meant to explain how corporations best operate. Proponents say that you run a business with the goal of channeling money to shareholders instead of, say, creating great products or making any efforts at socially responsible actions such as taking account of climate change. Many now take this view as gospel, even though no less a business titan than Jack Welch, former CEO of GE, called the notion that a company should be run to maximize shareholder value "the dumbest idea in the world." Why did Welch say that?

William Lazonick: Welch made that statement in a 2009 interview , just ahead of the news that GE had lost its S&P Triple-A rating in the midst of the financial crisis. He explained that, "shareholder value is a result, not a strategy" and that a company's "main constituencies are your employees, your customers and your products." During his tenure as GE CEO from 1981 to 2001, Welch had an obsession with increasing the company's stock price and hitting quarterly earnings-per-share targets, but he also understood that revenues come when your company generates innovative products. He knew that the employees' skills and efforts enable the company to develop those products and sell them.

If a publicly-listed corporation succeeds in creating innovative goods or services, then shareholders stand to gain from dividend payments if they hold shares or if they sell at a higher price. But where does the company's value actually come from? It comes from employees who use their collective and cumulative learning to satisfy customers with great products. It follows that these employees are the ones who should be rewarded when the business is a success. We've become blinded to this simple, obvious logic.

LP: What have these academic theorists missed about how companies really operate and perform? How have their views impacted our economy and society?

WL: As I show in my new INET paper " Innovative Enterprise Solves the Agency Problem ," agency theorists don't have a theory of innovative enterprise. That's strange, since they are talking about how companies succeed.

They believe that to be efficient, business corporations should be run to "maximize shareholder value." But as I have argued in another recent INET paper , public shareholders at a company like GE are not investors in the company's productive capabilities.

LP: Wait, as a stockholder I'm not an investor in the company's capabilities?

WL: When you buy shares of a stock, you are not creating value for the company -- you're just a saver who buys shares outstanding on the stock market for the sake of a yield on your financial portfolio. Public shareholders are value extractors , not value creators.

By touting public shareholders as a corporation's value creators, agency theorists lay the groundwork for some very harmful activities. They legitimize "hedge fund activists," for example. These are aggressive corporate predators who buy shares of a company on the stock market and then use the power bestowed upon them by the ill-conceived U.S. proxy voting system, endorsed by the Securities and Exchange Commission (SEC), to demand that the corporation inflate profits by cutting costs. That often means mass layoffs and depressed incomes for anybody who remains. In an industry like pharmaceuticals , the activists also press for extortionate product price increases. The higher profits tend to boost stock prices for the activists and other shareholders if they sell their shares on the market.

LP: So the hedge fund activists are extracting value from a corporation instead of creating it, and yet they are the ones who get enriched.

WL: Right. Agency theory aids and abets this value extraction by advocating, in the name of "maximizing shareholder value," massive distributions to shareholders in the form of dividends for holding shares as well as stock buybacks that you hear about, which give manipulative boosts to stock prices. Activists get rich when they sell the shares. The people who created the value -- the employees -- often get poorer.

###p"downsize-and-distribute" -- something that corporations have been doing since the 1980s, which has resulted in extreme concentration of income among the richest households and the erosion of middle-class employment opportunities.

LP: You've called stock buybacks -- what happens when a company buys back its own shares from the marketplace, often to manipulate the stock price upwards -- the "legalized looting of the U.S. business corporation." What's the problem with this practice?

WL: If you buy shares in Apple, for example, you can get a dividend for holding shares and, possibly, a capital gain when you sell the shares. Since 2012, when Apple made its first dividend payment since 1996, the company has shelled out $57.4 billion as dividends, equivalent to over 22 percent of net income. That's fine. But the company has also spent $157.9 billion on stock buybacks, equal to 62 percent of net income.

Yet the only time in its history that Apple ever raised funds on the public stock market was in 1980, when it collected $97 million in its initial public offering. How can a corporation return capital to parties that never supplied it with capital? It's a very misleading concept.

The vast majority of people who hold Apple's publicly-listed shares have simply bought outstanding shares on the stock market. They have contributed nothing to Apple's value-creating capabilities. That includes veteran corporate raider Carl Icahn, who raked in $2 billion by holding $3.6 billion in Apple shares for about 32 months, while using his influence to encourage Apple to do $80.3 billion in buybacks in 2014-2015, the largest repurchases ever. Over this period, Apple, the most cash-rich company in history, increased its debt by $47.6 billion to do buybacks so that it would not have to repatriate its offshore profits, sheltered from U.S. corporate taxes.

There are many ways in which the company could have returned its profits to employees and taxpayers -- the real value creators -- that are consistent with an innovative business model. Instead, in doing massive buybacks, Apple's board (which includes former Vice President Al Gore) has endorsed legalized looting. The SEC bears a lot of blame. It's supposed to protect investors and make sure financial markets are free of manipulation. But back in 1982, the SEC bought into agency theory under Reagan and came up with a rule that gives corporate executives a "safe harbor" against charges of stock-price manipulation when they do billions of dollars of buybacks for the sole purpose of manipulating their company's stock price.

LP: But don't shareholders deserve some of the profits as part owners of the corporation?

WL: Let's say you buy stock in General Motors. You are just buying a share that is outstanding on the market. You are contributing nothing to the company. And you will only buy the shares because the stock market is highly liquid, enabling you to easily sell some or all of the shares at any moment that you so choose.

In contrast, people who work for General Motors supply skill and effort to generate the company's innovative products. They are making productive contributions with expectations that, if the innovative strategy is successful, they will share in the gains -- a bigger paycheck, employment security, a promotion. In providing their labor services, these employees are the real value creators whose economic futures are at risk.

LP: This is really different from what a lot of us have been taught to believe. An employee gets a paycheck for showing up at work -- there's your reward. When we take a job, we probably don't expect management to see us as risk-takers entitled to share in the profits unless we're pretty high up.

WL: If you work for a company, even if its innovative strategy is a big success, you run a big risk because under the current regime of "maximizing shareholder value" a group of hedge fund activists can suck the value that you've created right out, driving your company down and making you worse off and the company financially fragile. And they are not the only predators you have to deal with. Incentivized with huge amounts of stock-based pay, senior corporate executives will, and often do, extract value from the company for their own personal gain -- at your expense. As Professor Jang-Sup Shin and I argue in a forthcoming book, senior executives often become value-extracting insiders. And they open the corporate coffers to hedge fund activists, the value-extracting outsiders. Large institutional investors can use their proxy votes to support corporate raids, acting as value-extracting enablers.

You put in your ideas, knowledge, time, and effort to make the company a huge success, and still you may get laid off or find your paycheck shrinking. The losers are not only the mass of corporate employees -- if you're a taxpayer, your money provides the business corporation with physical infrastructure, like roads and bridges, and human knowledge, like scientific discoveries, that it needs to innovate and profit. Senior corporate executives are constantly complaining that they need lower corporate taxes in order to compete, when what they really want is more cash to distribute to shareholders and boost stock prices. In that system, they win but the rest of us lose .

LP: Some academics say that hedge fund activism is great because it makes a company run better and produce higher profits. Others say, "No, Wall Streeters shouldn't have more say than executives who know better how to run the company." You say that both of these camps have got it wrong. How so?

WL: A company has to be run by executive insiders, and in order to produce innovation these executives have got to do three things:

First you need a resource-allocation strategy that, in the face of uncertainty, seeks to generate high-quality, low-cost products. Second, you need to implement that strategy through training, retaining, motivating, and rewarding employees, upon whom the development and utilization of the organization's productive capabilities depend. Third, you have to mobilize and leverage the company's cash flow to support the innovative strategy. But under the sway of the "maximizing shareholder value" idea, many senior corporate executives have been unwilling, and often unable, to perform these value-creating functions. Agency theorists have got it so backwards that they actually celebrate the virtues of " the value extracting CEO ." How strange is that?

Massive stock buybacks is where the incentives of corporate executives who extract value align with the interests of hedge fund activists who also want to suck value from a corporation. When they promote this kind of alliance, agency theorists have in effect served as academic agents of activist aggression. Lacking a theory of the value-creating firm, or what I call a "theory of innovative enterprise," agency theorists cannot imagine what an executive who creates value actually does. They don't see that it's crucial to align executives' interests with the value-creating investment requirements of the organizations over which they exercise strategic control. This intellectual deficit is not unique to agency theorists; it is inherent in their training in neoclassical economics .

LP: So if shareholders and executives are too often just looting companies to enrich themselves – "value extraction," as you put it – and not caring about long-term success, who is in a better position to decide how to run them, where to allocate resources and so on?

WL: We need to redesign corporate-governance institutions to promote the interests of American households as workers and taxpayers. Because of technological, market, or competitive uncertainties, workers take the risk that the application of their skills and the expenditure of their efforts will be in vain. In financing investments in infrastructure and knowledge, taxpayers make productive capabilities available to business enterprises, but with no guaranteed return on those investments.

These stakeholders need to have representation on corporate boards of directors. Predators, including self-serving corporate executives and greed-driven shareholder activists, should certainly not have representation on corporate boards.

LP: Sounds like we've lost sight of what a business needs to do to be successful in the long run, and it's costing everybody except a handful of senior executives, hedge fund managers, and Wall Street bankers. How would your "innovation theory" help companies run better and make for a healthier economy and society?

WL: Major corporations are key to the operation and performance of the economy. So we need a revolution in corporate governance to get us back on track to stable and equitable economic growth. Besides changing board representation, I would change the incentives for top executives so that they are rewarded for allocating corporate resources to value creation. Senior executives should gain along with the rest of the organization when the corporation is successful in generating competitive products while sharing the gains with workers and taxpayers.

Innovation theory calls for changing the mindsets and skill sets of senior executives. That means transforming business education, including the replacement of agency theory with innovation theory. That also means changing the career paths through which corporate personnel can rise to positions of strategic control, so that leaders who create value get rewarded and those who extract it are disfavored. At the institutional level, it would be great to see the SEC, as the regulator of financial markets, take a giant step in supporting value creation by banning stock buybacks whose purpose it is to manipulate stock prices.

To get from here to there, we have to replace nonsense with common sense in our understanding of how business enterprises operate and perform.

Enquiring Mind , October 6, 2017 at 10:44 am

Owners come first!
That was the slogan of our former board chair. He didn't disclose to the employees that his compensation was influenced mightily by how big the net income was. He did tell the employees that they were well down the hierarchy, after Owners (capital O) and then vendors and then customers. His former employees deserted in droves.

RepubAnon , October 6, 2017 at 12:14 pm

I'd say that maximizing long-term shareholder value is a great idea the problem is, as is so often the case these days, short-term thinking.

Driving away a company's best employees makes that quarter's numbers look better, but destroys long-term value. Same thing for so many other short-term, "I'll be gone, you'll be gone" strategies.

One step to fixing things – change the definition of long-term capital gains from the current 1 year to, say, 5 years. This "one simple trick" would fix everything from the carried interest loophole to the abuses inherent in the current Wall Street gambling mentality.

It won't happen, of course, but it'd be nice.

Tim , October 6, 2017 at 2:21 pm

We can talk about what is best in theory, but reality is just that, shareholders come first.

They control the board and the CEO and the CEO institutes the will of the shareholders down into the business entities, determining the level of reinvestment in the business units and the level of employee compensation. That will continue to be the case until the company goes bankrupt at which point shareholders are entitled to nothing.

I agree with others that Jack Welch is saying what he is saying after the fact. Way too easy to do.

a different chris , October 6, 2017 at 10:47 am

>Welch had an obsession with increasing the company's stock price and hitting quarterly earnings-per-share targets, but he also understood

Yeah so he talks a good game but when he had the reins – one of the most powerful men in the world meekly (ok, that's a hilarious adjective when applied to Jack Welsh) followed the herd. Or more accurately, found out where the herd was heading and got out in front of it. The true sign of modern "leadership".

RepubAnon , October 6, 2017 at 12:20 pm

Folks at GE back in the day nicknamed him "Neutron Jack" – if he visited a site, all the employees disappeared, leaving only the buildings standing

digi_owl , October 6, 2017 at 1:06 pm

Or more accurately, found out where the herd was heading and got out in front of it. The true sign of modern "leadership".

Reminds me of something i have read, supposedly a quite from some politician or other, going to the tune of "i need to find out where the mob is going, so i can lead them there".

Left in Wisconsin , October 6, 2017 at 1:06 pm

Welch's primary business strategy at GE was to exit every product market in which GE's market share was not in the top two in the industry (selling them off or closing them down) and reallocate resources to industries where GE was market dominant, often buying up the competition rather than truly investing in innovation. A truly awful human being.

Synoia , October 6, 2017 at 11:18 am

As I personally have always believed, Employees have more invested in their employers than shareholders. Shareholders can sell quickly and have no loyalty. Employees do not enjoy such a liquid "jobs market."

There also seems to be a turning point in companies, where they change the perception of the customers form a group to be treasured, to a group who are to b exploited – change the relationship so the customers become "marks."

I also believe there should be an almost automatic "break -up" provision for companies who reach a certain market share.

Finally there should be one definition of income, and it should include Wages, Dividends, and Capital Gains.

Vatch , October 6, 2017 at 11:27 am

there should be an almost automatic "break -up" provision for companies who reach a certain market share.

Yes, anti-trust enforcement would be nice. Hypothetical President Sanders might actually do that. Real and hypothetical Presidents Bush, Obama, Romney, B. Clinton, H. Clinton, and Trump have other priorities.

readerOfTeaLeaves , October 6, 2017 at 12:15 pm

Sen Bernie Sanders sees right through the neoclassical fetters, blinders, and bullshit. He recognizes how intellectually and economically stagnant and dangerous it is. He has the most powerful conceptual, articulate grasp of economics that I've seen the past 40 years. He also, IIRC, had MMTer Stephanie Kelton as an advisor, and had her advise the Senate Finance Committee. Also notable: Sen Elizabeth Warren.

The other political operators that you mention are still in thrall to neoclassical assumptions. They mistake 'takers' for 'makers' and are economically bamboozled. And it has worked out well for all of them, on a personal basis, so it is not surprising that they don't see the problems.

Anyone actually trying to build an innovative business, OTOH, has to see through the bamboozlement or else you're out of business pronto.

JTMcPhee , October 6, 2017 at 12:05 pm

Chicken and egg question:

The class of humans that by inclination and opportunity become C-Suite and VC looters and "owners:" did they precede the imprimatur of "economists" with their notions of price, value, and crossing of curves, or did the "economists" do a Martin Luther, nail up a bunch of theses, and preach fire and brimstone to turn the greedheads loose?

And was/is any other outcome for the species and the planet even possible?

Left in Wisconsin , October 6, 2017 at 1:14 pm

Neil Fligstein wrote a good book awhile back called The Transformation of Corporate Control that shows how most large manufacturing companies were initially run by engineers, then sales people, then finance people (as corporations came to be seen as bundles of assets as opposed to businesses). I think this transformation paralleled the rise of neoclassical economics. So, not so much "chicken-and-egg" as "class war." In Germany, at least until recently, I believe CEO's of manufacturing firms were still disproportionately engineers.

Carla , October 6, 2017 at 3:05 pm

"most large manufacturing companies were initially run by engineers, then sales people, then finance people"

The Lincoln Electric Company, which became famous for its "Incentive Management" program of compensating employees, was a client of mine. Over three decades I saw it progress through precisely those stages, and gradually lose every characteristic that had made the company unique.

readerOfTeaLeaves , October 6, 2017 at 12:30 pm

This post was a genuine pleasure to read. Especially:

If you work for a company, even if its innovative strategy is a big success, you run a big risk because under the current regime of "maximizing shareholder value" a group of hedge fund activists can suck the value that you've created right out, driving your company down and making you worse off and the company financially fragile .

And we've had a government by and for hedge fund managers for about the same amount of time that we've had economic woes. One problem is that hedge funders like Romney, who actually don't think about consumer product development, actually don't have to test and deploy products, bring their bean-counter assumptions to business and make a hash of things. I mention Romney specifically, because he presents himself to the world as a paragon of economic wisdom.

Romney has a prestigious business school background. Which makes me want to highlight this:

Innovation theory calls for changing the mindsets and skill sets of senior executives. That means transforming business education, including the replacement of agency theory with innovation theory .

JTMcPhee , October 6, 2017 at 12:59 pm

Just a thought: "innovation theory," like MMT, is maybe just a tool set? "Innovation" includes "autonomous combat devices," and CRSP-R, and nuclear weapons, and the F-35, and fracking, and derivatives, and plastics, and charter schools, stuff and ideas that for some of us constitute "value" are corporations as the category has grown to be, any more likely to "innovate" in the areas of social improvements and possibilities, or stewardship of the planet, or close down the toll stations and all the other rent collection scams and extortions they have "innovated" to date? Or release their chokehold on "policy?"

Says the proponent: "Major corporations are key to the operation and performance of the economy. So we need a revolution in corporate governance to get us back on track to stable and equitable economic growth. Besides changing board representation, I would change the incentives for top executives so they are rewarded for allocating corporate resources to value creation. Senior executives should gain along with the rest of the organization when the corporation is successful in generating competitive products while sharing the gains with workers and taxpayers." There seems to be so much wrong and just more Biz-babble about this, one hardly knows where to start unpacking.

"Major corporations are key?" Really? Monsanto? GM? Bechtel? The Big Banks? And "back on track": When has the political economy, writ small or large, ever been "on track to stability and equitable growth," said "growth' itself seemingly one of the pathologies that's killing us? And who's going to write the entries for the corporate senior executives' dance cards that will measure their "success," in those feel-good categories?

But it's a good conversation piece, and maybe an opening into Something Better, however us inherently mostly self-interested, self-pleasing omnivorous predators might define "better "

Disturbed Voter , October 6, 2017 at 12:36 pm

Badly run companies, naturally extinguish themselves. Unfortunately they take down their customers, owners, vendors and employees in the process. But the government can step in and either save a company that otherwise would die, or act as a crony corruption partner on behalf of a well connected company. Same as it always was.

But since gigantism is the norm, rather than family run farms in a mostly agrarian economy such failures are catastrophic. The linkage between these elephants tends to create systemic risk. Previously, failure was small and isolated.

JTMcPhee , October 6, 2017 at 1:06 pm

Welcome to our wonderful new world of infinite mutual vulnerability! Risk On! Nuclear weapons, Equifax, Googleamazon, NSApanopticon, FIRE, hacking, crapification The Soviet Union vanished as an entity, many starved, but the mopes there at least still knew how to raise up edible crops and live on "less" and maybe do better collective response to that sharp peak on the entropy curve. Wonder how things might play out exceptionally, here in the Empire?

allan , October 6, 2017 at 12:48 pm

It should be noted that Michael Jensen of HBS, one of the originators of the `maximize shareholder value' of corporate governance, is on some short lists for this year's not-exactly-the-Nobel Prize in Economics.

[Oct 06, 2017] Prof. Philip Mirowski keynote for Life and Debt conference

Highly recommended!
Among interesting ideas that Mirkowski presented in this lecture are "privatization of science" -- when well paid intellectual prostitutes produce the reuslt which are expected by their handlers. the other is his thought on the difference between neoclassical economics and neoliberalism. Neoliberalism believes in state intervention and this intervention should take the form of enforcing market on all spheres of human society.
Another interesting idea that neoliberalism in many cases doe not need the success of its ideas. The failure can also be exploited for enforcing "more market" on the society.
In other words market fundamentalism has all features of civil religion and like in Middle Ages it is enforced from above. heretics are not burned at the stake but simply ostracized.
Notable quotes:
"... how it is that science came to be subordinate to economics and the very future of nature to be contingent upon the market. ..."
"... As a leading exponent of the Institutional school, he has published formal treatments of financial markets that update Minsky's 'financial instability hypothesis' for the world of computerised derivative trading. ..."
Aug 18, 2013 | www.youtube.com

Life and Debt: Living through the Financialisation of the Biosphere

How can it be that the climate crisis, the biodiversity crisis and the deepest financial crisis since 1930s have done so little to undermine the supremacy of orthodox economics?

The lecture will preview material from Mirowski's new book: Never Lt a Serious Crisis Go to Waste: How Neoliberalism Survived the Financial Meltdown (Verso, 2013).

In this lecture, Professor Mirowski responds to the question of how it is that science came to be subordinate to economics and the very future of nature to be contingent upon the market. Charting the contradictions of the contemporary political landscape, he notes that science denialism, markets for pollution permits and proposals for geo-engineering can all be understood as political strategies designed to neutralize the impact of environmentalism, as they all originated in the network of corporate-sponsored think-tanks that have made neoliberal accounts of society, politics and the economy so prevalent that even the most profound crises are unable to shake their grip on the political imagination.

For those of us who are still paying attention, the task of constructing an alternative politics of science and markets is a vital one.

Philip Mirowski is Carl E. Koch Professor at the University of Notre Dame, Indiana. His most famous book, More Heat Than Light: Economics as Social Physics (1989) established his reputation as a formidable critic of the scientific status of neoclassical economics. His Machine Dreams: Economics becomes a Cyborg Science (2002) presents a history of the Cold War consolidation of American economic orthodoxy in the same intellectual milieu that produced systems theory, the digital computer, the atomic bomb, the strategy of Mutually Assured Destruction, and the 'think tank'. The Road from Mont Pelerin: the Making of the Neoliberal Thought Collective (with Dieter Plewhe, 2009), drawn from the archives of the Mont Pelerin Society and the Chicago School, presents a scholarly history of neoliberalism: the political movement initiated by Friedrich Hayek and Milton Friedman in the 1940s, which has since become the world's dominant philosophy of government.

As a leading exponent of the Institutional school, he has published formal treatments of financial markets that update Minsky's 'financial instability hypothesis' for the world of computerised derivative trading.

This lecture is presented by the UTS Cosmopolitan Civil Societies Research Centre and the Australian Working Group on Financialisation at the University of Sydney.

[Oct 01, 2017] Bulletproof Neoliberalism by Paul Heideman

Highly recommended!
Notable quotes:
"... Mirowski identifies three basic aspects of neoliberalism that the Left has failed to understand: the movement's intellectual history, the way it has transformed everyday life, and what constitutes opposition to it. Until we come to terms with them, Mirowski suggests, right-wing movements such as the Tea Party (a prominent player in the book) will continue to reign triumphant. ..."
"... Joining a long line of thinkers, most famously Karl Polanyi, Mirowski insists that a key error of the Left has been its failure to see that markets are always embedded in other social institutions. Neoliberals, by contrast, grasp this point with both hands -- and therefore seek to reshape all of the institutions of society, including and especially the state, to promote markets. Neoliberal ascendancy has meant not the retreat of the state so much as its remaking. ..."
"... he also recognizes that the neoliberals themselves have been canny about keeping the real nature of their project hidden through a variety of means. Neoliberal institutions tend to have what he calls a "Russian doll" structure, with the most central ones well hidden from public eyes. Mirowski coins an ironic expression, "the Neoliberal Thought Collective," for the innermost entities that formulate the movement's doctrine. The venerable Mont Pelerin Society is an NTC institution. Its ideas are frequently disseminated through venues which, formally at least, are unconnected to the center, such as academic economics departments. Thus, neoclassical economists spread the gospel of the free market while the grand project of remaking the state falls to others. ..."
"... At the same time as neoliberal commonsense trickles down from above, Mirowski argues that it also wells up from below, reinforced by our daily patterns of life. Social networking sites like Facebook encourage people to view themselves as perpetual cultural entrepreneurs, striving to offer a newer and better version of themselves to the world. Sites like LinkedIn prod their users to present themselves as a fungible basket of skills, adjustable to the needs of any employer, without any essential characteristics beyond a requisite subservience. Classical liberalism always assumes the coherent individual self as its basic unit. Neoliberalism, by contrast, sees people as little more than variable bundles of human capital, with no permanent interests or even attributes that cannot be remade through the market. For Mirowski, the proliferation of these forms of everyday neoliberalism constitute a "major reason the neoliberals have emerged from the crisis triumphant." ..."
"... Finally, Mirowski argues that the Left has too often been sucked in by neoliberalism's loyal opposition. Figures like Joseph Stiglitz or Paul Krugman, while critical of austerity and supportive of the welfare state, accept the fundamental neoclassical economic precepts at the heart of neoliberal policy. Mirowski argues that we must ditch this tradition in its entirety. Even attempts to render its assumptions more realistic -- as in the case of behavioral economics, for example, which takes account of the ways real people diverge from the hyperrationality of homo economicus -- provide little succor for those seeking to overturn the neoliberals. ..."
"... Mirowski's insistence on the centrality of the state to the neoliberal project helps correct the unfortunate tendency of many leftists over the past decade to assent to neoliberal nostrums about the obsolescence of the state. Indeed, Mirowski goes further than many other critics who have challenged the supposed retreat of the state under neoliberalism. ..."
"... Loïc Wacquant, for instance, has described the "centaur state" of neoliberalism, in which a humanist liberalism reigns for the upper classes, while the lower classes face the punitive state apparatus in all its bestiality. ..."
"... Mirowski shows us that the world of the rich under neoliberalism in no way corresponds to the laissez-faire of classical liberalism. The state does not so much leave the rich alone as actively work to reshape the world in their interests, helping to create markets for the derivatives and securities that made (and then destroyed) so many of the fortunes of the recent past. The neoliberal state is an eminently interventionist one, and those mistaking it for the austere nightwatchman of libertarian utopianism have little hope of combating it. ..."
"... Mirowski's concern to disabuse his readers of the notion that the wing of neoliberal doctrine disseminated by neoclassical economists could ever be reformed produces some of the best sections of the book. His portrait of an economics profession in haggard disarray in the aftermath of the crisis is both comic and tragic, as the amusement value of the buffoonery on display diminishes quickly when one realizes the prestige still accorded to these figures. Reading his comprehensive examination of the discipline's response to the crisis, one is reminded of Freud's famous broken kettle. The professional economists' account of their role in the crisis went something like (a) there was no bubble and (b) bubbles are impossible to predict but (c) we knew it was a bubble all along. ..."
"... Though Krugman and Stiglitz have attacked concepts like the efficient markets hypothesis (which holds that prices in a competitive financial market reflect all relevant economic information), Mirowski argues that their attempt to do so while retaining the basic theoretical architecture of neoclassicism has rendered them doubly ineffective. ..."
"... First, their adoption of the battery of assumptions that accompany most neoclassical theorizing -- about representative agents, treating information like any other commodity, and so on -- make it nearly impossible to conclusively rebut arguments like the efficient markets hypothesis. ..."
Oct 01, 2017 | www.jacobinmag.com

To understand how a body of thought became an era of capitalism requires more than intellectual history.

"What is going to come after neoliberalism?" It was the question on many radicals' lips, present writer included, after the financial crisis hit in 2008. Though few were so sanguine about our prospects as to repeat the suicidal optimism of previous radical movements ("After Hitler, Our Turn!"), the feeling of the day was that the era of unfettered marketization was coming to a close. A new period of what was loosely referred to as Keynesianism would be the inevitable result of a crisis caused by markets run amok.

Five years later, little has changed. What comes after neoliberalism? More neoliberalism, apparently. The prospects for a revived Left capable of confronting it appear grim.

Enter Philip Mirowski's Never Let a Serious Crisis Go to Waste: How Neoliberalism Survived the Financial Meltdown . Mirowski maintains that the true nature of neoliberalism has gone unrecognized by its would-be critics, allowing the doctrine to flourish even in conditions, such as a massive financial crisis, that would seem to be inimical to its survival. Leftists keep busy tilting at the windmill of deregulation as the giants of neoliberalism go on pillaging unmolested.

Mirowski identifies three basic aspects of neoliberalism that the Left has failed to understand: the movement's intellectual history, the way it has transformed everyday life, and what constitutes opposition to it. Until we come to terms with them, Mirowski suggests, right-wing movements such as the Tea Party (a prominent player in the book) will continue to reign triumphant.

The book begins with the war of ideas -- a conflict in which, Mirowski argues, the Left has been far too generous in taking neoliberals at their word, or at least their best-publicized word. We have, in effect, been suckered by kindly old Milton Friedman telling us how much better off we'd all be if the government simply left us "free to choose." But neoliberals have at times been forthright about their appreciation for the uses of state power. Markets, after all, do not simply create themselves. Joining a long line of thinkers, most famously Karl Polanyi, Mirowski insists that a key error of the Left has been its failure to see that markets are always embedded in other social institutions. Neoliberals, by contrast, grasp this point with both hands -- and therefore seek to reshape all of the institutions of society, including and especially the state, to promote markets. Neoliberal ascendancy has meant not the retreat of the state so much as its remaking.

If Mirowski is often acidic about the Left's failure to understand this point, he also recognizes that the neoliberals themselves have been canny about keeping the real nature of their project hidden through a variety of means. Neoliberal institutions tend to have what he calls a "Russian doll" structure, with the most central ones well hidden from public eyes. Mirowski coins an ironic expression, "the Neoliberal Thought Collective," for the innermost entities that formulate the movement's doctrine. The venerable Mont Pelerin Society is an NTC institution. Its ideas are frequently disseminated through venues which, formally at least, are unconnected to the center, such as academic economics departments. Thus, neoclassical economists spread the gospel of the free market while the grand project of remaking the state falls to others.

At the same time as neoliberal commonsense trickles down from above, Mirowski argues that it also wells up from below, reinforced by our daily patterns of life. Social networking sites like Facebook encourage people to view themselves as perpetual cultural entrepreneurs, striving to offer a newer and better version of themselves to the world. Sites like LinkedIn prod their users to present themselves as a fungible basket of skills, adjustable to the needs of any employer, without any essential characteristics beyond a requisite subservience. Classical liberalism always assumes the coherent individual self as its basic unit. Neoliberalism, by contrast, sees people as little more than variable bundles of human capital, with no permanent interests or even attributes that cannot be remade through the market. For Mirowski, the proliferation of these forms of everyday neoliberalism constitute a "major reason the neoliberals have emerged from the crisis triumphant."

Finally, Mirowski argues that the Left has too often been sucked in by neoliberalism's loyal opposition. Figures like Joseph Stiglitz or Paul Krugman, while critical of austerity and supportive of the welfare state, accept the fundamental neoclassical economic precepts at the heart of neoliberal policy. Mirowski argues that we must ditch this tradition in its entirety. Even attempts to render its assumptions more realistic -- as in the case of behavioral economics, for example, which takes account of the ways real people diverge from the hyperrationality of homo economicus -- provide little succor for those seeking to overturn the neoliberals.

For Mirowski, these three failures of the Left go a long way toward explaining how neoliberals have largely escaped blame for a crisis they created. The Left persistently goes after phantoms like deregulation or smaller government, which neoliberals easily parry by pointing out that the regulatory apparatus has never been bigger. At the same time, we ignore the deep roots of neoliberal ideology in everyday life, deceiving ourselves as to the scale of the task in front of us.

Whatever criticisms of Mirowski's analysis are in order, much of it is compelling, particularly in regard to the intellectual history of the NTC. Mirowski's insistence on the centrality of the state to the neoliberal project helps correct the unfortunate tendency of many leftists over the past decade to assent to neoliberal nostrums about the obsolescence of the state. Indeed, Mirowski goes further than many other critics who have challenged the supposed retreat of the state under neoliberalism.

Loïc Wacquant, for instance, has described the "centaur state" of neoliberalism, in which a humanist liberalism reigns for the upper classes, while the lower classes face the punitive state apparatus in all its bestiality. But Mirowski shows us that the world of the rich under neoliberalism in no way corresponds to the laissez-faire of classical liberalism. The state does not so much leave the rich alone as actively work to reshape the world in their interests, helping to create markets for the derivatives and securities that made (and then destroyed) so many of the fortunes of the recent past. The neoliberal state is an eminently interventionist one, and those mistaking it for the austere nightwatchman of libertarian utopianism have little hope of combating it.

It's here that we begin to see the strategic genius of neoliberal infrastructure, with its teams of college economics professors teaching the wondrous efficacy of supply and demand on the one hand, and the think tanks and policy shops engaged in the relentless pursuit of state power on the other. The Left too often sees inconsistency where in fact there is a division of labor.

Mirowski's concern to disabuse his readers of the notion that the wing of neoliberal doctrine disseminated by neoclassical economists could ever be reformed produces some of the best sections of the book. His portrait of an economics profession in haggard disarray in the aftermath of the crisis is both comic and tragic, as the amusement value of the buffoonery on display diminishes quickly when one realizes the prestige still accorded to these figures. Reading his comprehensive examination of the discipline's response to the crisis, one is reminded of Freud's famous broken kettle. The professional economists' account of their role in the crisis went something like (a) there was no bubble and (b) bubbles are impossible to predict but (c) we knew it was a bubble all along.

Incoherence notwithstanding, however, little in the discipline has changed in the wake of the crisis. Mirowski thinks that this is at least in part a result of the impotence of the loyal opposition -- those economists such as Joseph Stiglitz or Paul Krugman who attempt to oppose the more viciously neoliberal articulations of economic theory from within the camp of neoclassical economics. Though Krugman and Stiglitz have attacked concepts like the efficient markets hypothesis (which holds that prices in a competitive financial market reflect all relevant economic information), Mirowski argues that their attempt to do so while retaining the basic theoretical architecture of neoclassicism has rendered them doubly ineffective.

First, their adoption of the battery of assumptions that accompany most neoclassical theorizing -- about representative agents, treating information like any other commodity, and so on -- make it nearly impossible to conclusively rebut arguments like the efficient markets hypothesis. Instead, they end up tinkering with it, introducing a nuance here or a qualification there. This tinkering causes their arguments to be more or less ignored in neoclassical pedagogy, as economists more favorably inclined toward hard neoliberal arguments can easily ignore such revisions and hold that the basic thrust of the theory is still correct. Stiglitz's and Krugman's arguments, while receiving circulation through the popular press, utterly fail to transform the discipline.

Mirowski also heaps scorn on the suggestion, sometimes made in leftist circles, that the problem at the heart of neoclassical economics is its assumption of a hyperrational homo economicus , relentlessly comparing equilibrium states and maximizing utility. Though such a revision may be appealing to a certain radical romanticism, Mirowski shows that a good deal of work going on under the label of behavioral economics has performed just this revision, and has come up with results that don't differ substantively from those of the mainstream. The main problem with neoclassicism isn't its theory of the human agent but rather its the theory of the market -- which is precisely what behavioral economics isn't interested in contesting.

In all, Mirowski's indictment of the state of economic theory and its imbrication with the neoliberal project is devastating. Unfortunately, he proves much less successful in explaining why things have turned out as they have. The book ascribes tremendous power to the Neoliberal Thought Collective, which somehow manages to do everything from controlling the economics profession to reshaping the state to forging a new sense of the human self. The reader is left wondering how the NTC came to acquire such power. This leads to the book's central flaw: a lack of any theory of the structure of modern capitalism. Indeed, the NTC seems to operate in something of a vacuum, without ever confronting other institutions or groups, such as the state or popular movements, with interests and agendas of their own.

To be fair, Mirowski does offer an explanation for the failure of popular movements to challenge neoliberalism, largely through his account of "everyday" neoliberalism. At its strongest, the book identifies important strategic failures, such as Occupy's embrace of "a mimicry of media technologies as opposed to concerted political mobilization." However, Mirowski extends the argument well beyond a specific failure of the Occupy movement to propose a general thesis that developments like Facebook and reality TV have transmitted neoliberal ideology to people who have never read Friedman and Hayek. In claiming that this embodied or embedded ideology plays an important role in the failure of the Left, he places far more explanatory weight on the concept of everyday neoliberalism than it is capable of bearing.

At the simplest level, it's just not clear that everyday neoliberalism constitutes the kind of block to political action that Mirowski thinks it does. No doubt, many people reading this article right now simultaneously have another browser tab open to monster.com or LinkedIn, where they are striving to present themselves as a fungible basket of skills to any employer that will have them. In this economy, everyone has to hustle, and that means using all available means. That many of these same readers have probably also done things like organize against foreclosures should give pause to any blurring of the distinction between using various media technologies and embracing the ideology Mirowski sees embodied in them.

Indeed, the ubiquity of participation in such technologies by people who support, oppose, or are apathetic about neoliberalism points to a larger phenomenon on which Mirowski is silent: the labor market. Put bluntly, it is difficult to imagine anyone engaging in the painfully strained self-advertisement facilitated by LinkedIn in a labor market with, say, 2-percent unemployment. In such a market, in which employers were competing for comparatively scarce workers, there would be very little need for those workers to go through the self-abasing ritual of converting themselves into fungible baskets of skills. In our current situation, by contrast, where secure and remunerative employment is comparatively scarce, it is no surprise that people turn to whatever technologies are available to attempt to sell themselves. As Joan Robinson put it, the only thing worse than being exploited by capitalism is not being exploited by it.

In evaluating the role of everyday neoliberalism, it is also helpful to move, for the moment, beyond the perspective of the United States, where the NTC has clearly had great success, and adopt that of countries where resistance is significantly more developed, such as Venezuela or South Africa. Especially in the former, popular movements have been notably successful in combating neoliberal efforts to take over the state and reshape the economy, and have instead pushed the country in the opposite direction. Is it really plausible that a main reason for this difference is that everyday neoliberalism is more intense in the United States? I doubt it. For one thing, the strength of Venezuela's radical movements, in comparison with the US, clearly antedates the developments (social media, Here Comes Honey Boo Boo , and so on) that Mirowski discusses.

Moreover, it is just as plausible that the entrepreneurial culture he describes is even more extensive in the slums of the global South, where neoliberal devastation has forced many poor households to rely on at least one family member engaging in semi-legal arbitrage in goods salvaged from garbage or made at home. Surely such activities provide a firmer foundation for commercial subjectivity than having a 401(k). That resistance has grown in such circumstances suggests that looking to malignant subjectivities to explain popular passivity is an analytic dead-end.

If everyday neoliberalism doesn't explain the comparative weakness of the US left, what does? This is, of course, the key question, and I can do no more than gesture at an answer here. But I would suggest that the specific histories of the institutions of the American left, from the Communist Party to Students for a Democratic Society to labor unions, and the histories of the situations they confronted, provide us with a more solid foundation for understanding our current weakness than the hegemony of neoliberal culture does. Moreover, with a theory of capitalism that emphasizes the way the structure of the system makes it both necessary and very difficult for most people to organize to advance their interests, it becomes very easy to explain the persistence of a low level of popular mobilization against neoliberalism in the context of a weakened left.

If Mirowski's account doesn't give us a good basis for explaining why popular resistance has been so lacking in the US, it nonetheless suggests why he is so concerned with explaining the supposed dominance of neoliberal ideology among the general population. From the beginning, he raises the specter of right-wing resurgence, whether in the form of Scott Walker surviving the recall campaign in Wisconsin, the Tea Party mania of 2010, or the success of right-wing parties in Europe. However, much of this seems overstated, especially from a contemporary perspective. The Tea Party has, for all intents and purposes, disappeared from the front lines of American politics, and the Republican Party, while capable of enacting all kinds of sadistic policies on the state level, has remained in a state of disarray on the national level since the 2006 congressional elections.

More fundamentally, the argument that the voting public embraces neoliberalism doesn't square well with recent research by political scientists like Larry Bartels and Martin Gilens emphasizing the profound disconnect between the policy preferences of the poor and what transpires in Washington. What appears to be happening is less the general populace's incorporation into neoliberalism than their exclusion from any institutions that would allow them to change it. Importantly, this alternative explanation does not rely on the Left conceit that rebellion lurks perpetually just below the placid social surface, ready to explode into radical insurgency at any moment. It simply contends that the political passivity of neoliberalism's victims reflects a real diminution of their political options.

Mirowski's failure to address these larger institutional and structural dynamics vitiates much of the explanatory power of his book. On a purely descriptive level, the sections on the intellectual history of neoliberalism and the non-crisis of neoclassical economics illuminate many of the hidden corners of neoliberal ideology. However, if Mirowski is right to suggest that we need to understand neoliberalism better to be successful in fighting it -- and he surely is -- then much more is needed to explain neoliberal success and Left failure.

To understand how a body of thought became an era of capitalism requires more than intellectual history. It demands an account of how capitalism actually works in the period in question, and how the ideas of a small group of intellectuals came to be the policy preferences of the rich. Mirowski has given us an excellent foundation for understanding the doctrine, but it will remain for others to explain its actual development.

https://staticxx.facebook.com/connect/xd_arbiter/r/Z2duorNoYeF.js?version=42#channel=f1c0e2812ec10f6&origin=https%3A%2F%2Fwww.jacobinmag.com

[Sep 27, 2017] Restating the case against trickle down

Notable quotes:
"... Claim 1 is a restatement of the marginal productivity theory which is at the heart of neoclassical economics. In a general equilibrium model of a perfectly competitive economy with full employment, it can be deduced as a theorem. With constant returns to scale, ..."
"... The two propositions seem at odds. If people earn their marginal productivity (by #1), there should not be the externalities (in #2). The presence of the externalities suggests that incomes are not set according to marginal contributions to the economy. In turn, that calls into question the general equilibrium model. ..."
"... If, I repeat, If capital is invested, it is much more likely to be in automation. Which maintains or increases productivity while lowering labor costs. Demand is the only thing that can increase employment. But, that employment could be anywhere in the world. ..."
"... Alongside these two points I would add the (in econ-blogospheric terms, Sumnerian) point that Central Banks switched from targeting unemployment to targeting inflation; the result has been much longer periods of unemployment and underemployment, (arguably) artificially depressing wages, especially at the low end. (Hence wage stagnation). ..."
Sep 27, 2017 | crookedtimber.org

Restating the case against trickle down (updated in response to comments)

by John Quiggin on September 2, 2017 I've just given a couple of talks focusing on inequality, one for the Global Change Institute at UQ, following a presentation by Wayne Swan and the second at a conference organized by the TJ Ryan Foundation (including great talks by Peter Saunders, Sally McManus, and others), where I was responding to a paper by Jim Stanford from the Centre for Future Work. Because I was speaking second in both cases, I didn't prepare a paper or slides, but tailored my talk to complement the one before. That can be a high risk strategy, but in this case, I think it worked very well.

It led me to a new, and I hope improved, statement of the case against 'trickle down' theory. As always, the most important part of a refutation is a clear statement of the theory you propose to refute, so that it can be shown where it falls down. After the talks I wrote this up, and it's over the fold. Comments and constructive criticism much appreciated.

The case against trickle down, restated

The trickle down theory relies on the following claims*

  1. In the absence of taxes and other government interventions, high market incomes reflect, and elicit, high productivity, investment and effort.
  2. More effort from highly productive workers and investors increases the productivity of workers in general.

The trickle down argument then starts with the claim that reducing tax on high income earners will lead them to work harder and invest more. Since they are (by claim 1) the most productive members of the community, their efforts will (by claim 2) make everyone else more productive, and will benefit consumers. So, reducing taxes on high income groups will make everyone better off.

Claim 1 is a restatement of the marginal productivity theory which is at the heart of neoclassical economics. In a general equilibrium model of a perfectly competitive economy with full employment, it can be deduced as a theorem. With constant returns to scale,

Claim 2 is generally assumed to be true, although it's not usually spelt out. It is true either if there are external economies of scale such as information externalities (the most productive provide a model for others to copy) or complementarity in production (working with highly productive colleagues and managers makes people in general more productive). With economies of scale, Claim 1 needs to be interpreted carefully, The implication is not that everyone receives a payment equal to their marginal product, but that market incomes are (roughly) proportional to average and marginal productivity.

If Claim 2 doesn't hold then all the benefits of increased effort from highly productive workers and investors is captured by the workers and investors themselves. This means that the there is no 'trickle down' except through the tax system. The policy implication is that tax rates for high income earners should be set at or near the top of the 'Laffer curve' where revenue is maximized, estimated by Piketty, Saez and Stantcheva at around 80 per cent.

The neoclassical model that gives rise to Claim 1 has never been a fully accurate representation of the economy. But it is even less accurate now than in the past. The crucial recent developments, likely to continue in the absence of radical policy change, are:

These developments mean that cuts in the top rate of income tax will primarily reward ownership of capital, unproductive activity, or luck in choosing ones parents, rather than increasing productivity. They also undermine the second proposition underlying trickle down theory. The pursuit of monopoly profits ('rent-seeking' in the jargon of free-market economics) reduces rather than increases the productivity of the economy as a whole.

That's the theory. The empirical evidence, which was in dispute for a long time, is now clear-cut, at least for the United States. Decades of pro-rich policies have, unsurprisingly, made the rich much richer. Contrary to the predictions trickle down theory, the result has been to reduce, rather than increase, the productivity and dynamism of the economy. The combination of slower growth and increased inequality implies, as a matter of arithmetic, that the majority of the population must be worse off.

*There are some other versions of trickle down that can be dismissed more easily. Most notably, there's the idea that the spending of the rich will create employment. That's true, but more employment would be generated if income were redistributed to the poor, who save less of their income and consume more.

BruceJ 09.02.17 at 1:51 am ( 1 )

Claim 1 is a restatement of the marginal productivity theory which is at the heart of neoclassical economics. In a general equilibrium model of a perfectly competitive economy with full employment, it can be deduced as a theorem.

Honestly, this makes 'neoclassical economics' sound suspiciously like yet another perpetual motion scheme.

mclaren 09.02.17 at 2:02 am ( 3 )
We can also cite the exponential growth of share buybacks to boost stock prices and thus enrich CEOs + corporate officials with stock options. This now seems to be the main corporate use for profits, as opposed to investment. This trend would seem to short-circuit the whole argument in claim 1, since if businesses use profits to buy back shares instead of investing to increase productivity, claim 1 is entirely moot.

See "Profits Without Prosperity" by William Lazonick, Harvard Business Review, 2014.

https://hbr.org/2014/09/profits-without-prosperity

Wally 09.02.17 at 2:13 am ( 4 )
"2. More effort from highly productive workers and investors increases the productivity of workers in general."

What, people claim this? With a straight face? I work in a factory. I'd say the opposite is true, the harder I work, the more everyone else slacks off!

OldClark 09.02.17 at 2:48 am ( 5 )
Tinkle down theory: We must coddle the rich, because if we don't, then they will have a sad and won't work hard. But the poor? Anything they get makes them work less hard.

But maybe: Tax the rich harder and they work harder, because they still want more, more, more. And the poor? Anything they get empowers them, and further motivates them to escape poverty.

Ian Maitland 09.02.17 at 2:48 am
"The empirical evidence [against trickle down theory], which was in dispute for a long time, is now clear-cut, at least for the United States."

I wonder if the clause tacked on to that sentence -- "at least for the United States" -- isn't a dead giveway?

What about the rest of the world? True, globalization enriched corporations and created Third World billionaires, but the most striking development of the two or three decades up to 2007 was the transformation of the situation and prospects of the world's poor. 2015 economics Nobelist Angus Deaton has said: "Life is better now than at almost any time in history. More people are richer and fewer people live in dire poverty. Lives are longer and parents no longer routinely watch a quarter of their children die."

Between 1970 and 2006, the percentage of the world population in poverty has fallen by 80 percent from 27% to 5%. The corresponding total number of poor has fallen from 403 million in 1970 to 152 million in 2006. At the same time, various measures of global inequality have declined substantially and measures of global welfare increased by somewhere between 128% and 145% (Pinkovskiy.& Sala-i-Martin 2009; see also Kinley, 2009: 14-15).

It is amazing how we take for granted what in retrospect will be seen as a golden age. How quickly we have forgotten how, before globalization, much of the Third World had been written off by experts. In the 1960s and 1970s, for example, Peter Singer placed Bangladesh in the "hopeless" category. "We have no obligation to assist countries whose government make our aid ineffective," Singer wrote. Paul Ehrlich wrote in The Population Bomb that, "India couldn't possibly feed two hundred million more people by 1980." He endorsed a system of "triage" that would end food aid to "hopeless" countries such as India and Egypt. (India has gone from being an economic basket case to a bread basket). Garrett Hardin used the lifeboat earth metaphor to argue against helping the world's poorest. That help would lead to unsustainable population growth that would capsize the lifeboat, so they had to be thrown overboard.

Globalization was mostly about the lifting of barriers to trade and investment and liberalizing domestic economies. The era has been called "the age of Milton Friedman" by Andrei Shleifer (2009) because it marked a stride toward a global free market. The miracle of globalization was, accidentally or on purpose, the result of the unleashing of market forces. Instead of planners, foreign aid, high tariffs and import substitution, it was greater market openness that drove this transformation.

I don't know if this qualifies as "trickle down," but I think we should all give thanks for what has been accomplished. Sadly, the Great Recession and the populist revolt have put the brakes on the process.

John Quiggin 09.02.17 at 3:53 am ( 7 )
@6 I've responded to this point before, as follows:

In the wake of the GFC, some advocates of economic liberalism have sought to shift the ground of debate, arguing that, whatever the impact of financial globalisation on developed countries, it has been hugely beneficial for India and China which, between them, account for a third of the world's population.
There are all sorts of problems with this argument.

The relatively disappointing economic performance of China and India in the postwar decades certainly provides strong grounds for criticising the economic policies of Mao Zedong and Nehru. But even in the days when some observers saw these policies as providing an appropriate development path for the countries that adopted them, no one seriously proposed their adoption by developed countries. And as more attention has been focused on the irrational aspects of these policies (such as the Great Leap Forward, in which people were made to melt down their cooking pots to provide scrap for backyard smelters, which presumably produced new cooking pots, or the dozens of licenses required to undertake the simplest economic activity in India) it has become easier to understand why their removal or relaxation

At the same time, neither of these rapidly-growing economies come anywhere near meeting the standard description of a free-market economy. China still has a huge state-owned enterprise sector, a tightly restricted financial system and a closely managed exchange rate. India began its growth spurt before the main period of market liberalisation and also retains a large state sector. In both countries, as earlier in Japan and South-East Asia, the state has played a major role in promoting particular directions of development.

In summary, while the development success stories of China and India, and, before them of Japan and the East Asian tigers, may have some useful lessons for countries struggling to escape the poverty trap, they can tell us nothing about the relative merits of economic liberalism and social democracy.

Alex SL 09.02.17 at 4:43 am ( 8 )
I am not an economist (is IANAE a thing?), but it always seemed to me that the two main problems with trickle-down are the second to last paragraph – empirical disproof – and the idea that, say, lowering taxes from 35% to 25% is some kind of huge incentive that will make people who are affected by that change work harder. I do not find it a priori plausible that somebody would ever say:

"Hey, if I work harder to earn another $10,000 I will only actually get to take $6,500 home. If that is the case, then I will not work harder and rather lose out on the $6,500, even if I could really do with another $6,500. So there. But if you lower the tax rate so that I get to keep $7,500, now we are talking! Those 10% are so much more relevant than the other 65%." (Add zeroes at the end of those numbers as required.)

This is just not a reasoning that will ever make sense or occur to anybody in real life, i.e. outside of a libertarian think tank, unless we are indeed talking a tax rate of 95%.

Matt 09.02.17 at 5:56 am ( 9 )
I do not find it a priori plausible that somebody would ever say:

"Hey, if I work harder to earn another $10,000 I will only actually get to take $6,500 home. If that is the case, then I will not work harder and rather lose out on the $6,500, even if I could really do with another $6,500. So there. But if you lower the tax rate so that I get to keep $7,500, now we are talking! Those 10% are so much more relevant than the other 65%."

for what it's worth, I have thought things at least very similar to that several times, and even acted on them, when, for example, I was already teaching several classes, and I was asked if I'd like to teach one more. At that point, teaching one more would start to have significant impact on my quality of life and ability to do writing. I'd be unhappy. But, I could use the extra money. But each dollar cut off made a bit difference, considering that it would actually be a pretty significant impact on my happiness at that point to teach another class. Even if I could use the money, it had to be a fair amount of money before I'd take the class on. Now, I don't mean to draw any sort of general conclusion from this, or to suggest that it's a problem with the post, or to suggest that my situation suggests anything important about tax policy or whatnot. But, that things like this happens seems pretty clear to me, because they have happened to me.

Bill 09.02.17 at 9:47 am (
The two propositions seem at odds. If people earn their marginal productivity (by #1), there should not be the externalities (in #2). The presence of the externalities suggests that incomes are not set according to marginal contributions to the economy. In turn, that calls into question the general equilibrium model.
ccc 09.02.17 at 9:54 am ( 11 )
"So, reducing taxes on high income groups will make everyone better off."

Even if 1 and 2 hold that "better off" conclusion still does not follow. Or at minimum "better off" must be defined and qualified. How well off social animals like us are arguably depend on both absolute and relative factors. Even if 1 and 2 raise the economic floor for literally everyone they may also increase economic inequality, which can cause health worsening (spirit level type argument) and worse equality of opportunity for the children of those not earning most. Seeing one's child strive but not succeed because of a system of economic inequality is arguably a "being worse off" factor.

nastywoman 09.02.17 at 10:08 am ( 12 )
"Trickle down" never works if you don't have Rich dudes who don't trickle down enough. But it kind of works if you have a German Mittelstands-dude who has such a high social conscious with an empathetic responsibility for his workers and his community that he pays his workers excellent – insists on NOT firing -(or outsourcing) them and is in economical crisis even willing to sacrifice his own well being for the well being of his community and workers.

And this simple Kindergarten-wisdom (philosophy?) just doesn't apply (anymore?) in THE homeland – even supposedly – and to a certain extend applied when a dude called Ford made sure that his workers could afford the cars they build.

Collin Street 09.02.17 at 11:21 am ( 13 )
"Trickle down" never works if you don't have Rich dudes who don't trickle down enough.

It's better than that: even if trickle-down actually works the way it's supposed to the way it's supposed to work it'll make problems of equality worse, not better, long-term. See, you're giving the money to people with the expectation that they will use it to make "profitable investments". But a profitable investment -- definitionally -- returns more money to its maker than they spend: the result of "trickle down" is profitable investments made by the currently-rich that make them even richer .

Tim Worstall 09.02.17 at 11:23 am ( 14 )
"Claim 2 is generally assumed to be true, although it's not usually spelt out. It is true either if there are information externalities (the most productive provide a model for others to copy) or complementarily in production (working with highly productive colleagues and managers makes people in general more productive).

If Claim 2 doesn't hold then all the benefits of increased effort from highly productive workers and investors is captured by the workers and investors themselves. This means that the there is no 'trickle down' except through the tax system. The policy implication is that tax rates for high income earners should be set at or near the top of the 'Laffer curve' where revenue is maximized, estimated by Piketty, Saez and Stantcheva at around 80 per cent."

Well, no, not really. Imagine, just imagine for a moment, that the harder work and greater investment in pursuit of those higher incomes leads to something like that new leukemia drug just approved. $500k a treatment today, that being cheaper than the other treatment, bone marrow transplant. And in 10 or so years time the patent expires and it drops in price again. No, this is not an argument that drug patents are super, rather, do we think that people are incentivised to create new things by the prospects of gaining gazillions?

Are those 600 Americans likely to get this treatment each year made richer by its existence?

We're made richer by being able to consume the greater production of those more highly motivated high productivity people, aren't we?

As to the 80% peak, that suffers from the same problem that the very similar Diamond and Saez one does. It assumes that we've already closed off all avenues of avoidance (D&S using "allowances" to mean this). A residence based tax system, rather than a passport one, is just such an allowance. For you can avoid by leaving the country and we've even got a name for when this happened, the brain drain.

Further, the Staggers gets the NI situation wrong. D&S, certainly, talk about "taxes on income", not "income taxes". They specifically include employer paid taxes on employment income. Meaning adding employers' NI for the UK, not just the residual 2% employees'. At which point, with allowances like residence based, D&S give us something like 54% as the Peak. Or, given NI, somewhere around where we are with income tax alone right now, 45% or so.

bob mcmanus 09.02.17 at 12:03 pm ( 15 )
IANAE, and no longer reading as much economics as I used to, and this may belong to JQ's last paragraph about trivial trickle-down theories, but I was inspired to visit the Marx-Kalecki three-sector model. (Investment goods, wage goods, luxury goods/capitalist consumption.) Which as usual, approaches the problem from the production side. "Trickle-down" in this case depends on how capitalist spend their increased income, whether on investment or luxury goods.

John Bellamy Foster Monthly Review, 2013. One point here is to refute the "profit-squeeze" theory, which still endures in some Marxian economics. This may be a "what next after refuting trickle-down."

Only for those interested, I am not capable or enthused to defend the whole thing.

"For Kalecki, the power of labor to increase money wages!although present to a minor extent in the normal business upswing!was not a significant economic threat to capital even at full employment due primarily to the pricing power of firms. Hence, if the system neglected consistently to promote full-employment through the stimulation of government spending this was not to be attributed to economic reasons per se, but rather to the political threat that permanent full employment would represent to the capitalist class."

I buy this completely, and the "pricing power of firms" is the main reason I oppose any UBI job guarantee/ELR is much better. But state infrastructure is best. The taxes on capital and capitalists must go to government spending ( socialized worker consumption ) and investment (workers capital?) or it is counterproductive.

bob mcmanus 09.02.17 at 12:22 pm ( 16 )
Sorry. Two more things

1) The Meidner Plan is back in the news, see Jacobin.

2) Increased taxes on capitalists for redistribution will upset capitalists. You want to drive almost every economist nuts, start talking about state control of pricing . That can done indirectly in ways like gov't housing or Medicare-for-all. The problems with redistribution without socialized pricing are evident in the PPACA.

Alex SL 09.02.17 at 1:11 pm ( 17 )
Matt @9,

I may misunderstand, but the way you describe it it seems as if the concern to become overworked would have been the main factor. I must say that if the question is whether we want to lower top tax rates by 10% so that more people work themselves to death and get a heart attack in their 40s I'd say thanks but no thanks.

Maybe even phrasing it as "working harder", as I did in my first comment, is the wrong way of looking at trickle-down economics; the main argument seems to be that an investor or company owner would rather let their money sit around useless and earn a mere 1% in interest than invest in some 'job creating' activity that earns a return of 20% if they only get to keep 13%. Phrased like that I think it would be hard to argue that any even half-rational investor would ever reject the 13% ROI.

The problem might be that there just is no additional, unused opportunity for productive activity that earns a return of 20% on investment if the masses have seen stagnant wages for the last few decades. How would they afford to buy the new product that the investment would be in, except in the sense of a zero sum game where another investment elsewhere becomes less attractive to make up the difference? So if the investor's tax rate is lowered their choices are still money sitting around uselessly or inflating a bubble.

steven t johnson 09.02.17 at 1:38 pm
A man digging a ditch with a shovel is working much harder than the dude with a backhoe. It is not clear the guy working harder gets paid more. It's not clear the guy on the backhoe is getting more than minimum wage. The amount of profit expected from the ditch seems to me to depend on a lot more than how hard or productive either worker is. And the last I looked, economics doesn't have an agreed upon theory on the dynamics of the general rate of profit.

All that stuff about marginal revenue productivity etc. seems to me to be unlikely to be much more than ideology.

bob mcmanus 09.02.17 at 2:40 pm ( 19 )
Last one, because I would like this to be clearer. I am inverting is a little bit from "decreased taxes with increase growth" to "will increased taxes inhibit growth" using a 3-department model because:

Krugman on Taxing Rents yesterday

Krugzilla: "much corporate taxation probably doesn't fall on returns to physical capital, but rather on monopoly rents."

So question for Quiggin, leaving aside finance and rents

Are increased taxes on physical/fixed capital a good thing, growth and welfare enhancing?
Are increased taxes on corporate returns, profits, good?
Should we end all depreciation allowances?
De we want to tax productive investment?

It is about the framing. Too often this is argued as about capitalist income and capitalist consumption, as in Obama taxing private jets.

nastywoman 09.02.17 at 5:35 pm ( 20 )
@13
"See, you're giving the money to people with the expectation that they will use it to make "profitable investments".

Or to spend it for a really great watch? – as I happen to know -(and love) these great Swiss Watchmakers who love to have the dough of Rich US-dudes redistributed towards some real cool Craftsmen. -(wherever they are) – as I'm right now spending some time with some really cool US carpenter -(in Iceland) – who loves it too – when he get's flown to Iceland to do some "real cool" work here too.

And isn't that really "fascinating" that so many "Rich Dudes" -(of all nations) seem to have this "thing" about (only) making "profitable investments" in order to return more money to themselves – than they spend – in order to make them even richer BUT when it comes to pay for a "Craftsman" who manufactures a nice well done cabinet -(or a well working golden watch) a "Real Rich Dude" is even willing to throw in a first class airline ticket to Geneve?

Whassup?

John Quiggin 09.02.17 at 11:17 pm ( 21 )
Bill @10 This is a good point. I think (1) needs to be modified to say that incomes are proportional to marginal product. Then point (2) requires generalized external economies of scale, which is the central idea in endogenous growth theory. I'll work on this.

Tim @14 The example you give is precisely covered by point 2.

Ebenezer Scrooge 09.03.17 at 12:27 am ( 22 )
Trickle-down is popular because many people are happy to tug their forelock if they can look down on somebody else. This is more an American disease than a European one.
Collin Street 09.03.17 at 1:07 am ( 23 )
Phrased like that I think it would be hard to argue that any even half-rational investor would ever reject the 13% ROI.

You think other people are like you. Other people think other other people are like them. What this says about advocates of trickle-down economics is left as an exercise.

Gareth Wilson 09.03.17 at 7:00 am ( 24 )
There is a problem which is referred to in New Zealand as the three B's. Once people own a boat, a BMW, and a bach (holiday home), there's a tendancy to work less hard, maybe even retire early and sit around doing nothing. Margaret Thatcher herself harshly criticised the British equivalent of this. I share your skepticism that tax rates will help with this, but it is a problem.
nastywoman 09.03.17 at 7:45 am ( 25 )
– or let's blame it all on the "fashionable American-Anglo culture of "Disruption"?
While in sane and reasonable economical environments the words "trickle down" just don't exist BUT a culture of "Cooperation and Compromises or how do the Germans call it "Mitbestimmung" – and there is no need for "trickle down" in Mitbestimmung as everybody agrees that everybody should get her or his faire share of the "winnings".
bob mcmanus 09.03.17 at 10:19 am ( 26 )
Okay fine

"Capitalist income when directed by policy into productive actually job-creating investment is of general benefit and should be taxed at a lower marginal rate."

is the big trickle-down, the primal, universal trickle-down that enables all the others.

Not capitalist income vs labour income, not capital income share vs labour share, the problem is capital vs labour, " good to increase capital cause jobs " is an assumption so basic I don't even know how to quantify its adversary or opposition. Raw Number of workers? Capital's opposition is made invisible by mainstream economics. And looking at capitalist income or capitalist share of income or marginal productivity etc I think are means to ensure that capital quantity keeps increasing ("cause we can tax the profits or outflow") and capitalist political power (cause we don't want to lose the factory or sports stadium cause jobs) keeps increasing.

No, Marx didn't go here, but then Marx believed that increasing capital quantity would inevitably lead to proletarian revolution. We no longer have that excuse.

Tax not consumption, tax not income, tax capital directly so that we have less of it. The govt can use the income to create socialized investment and production.

CarlD 09.03.17 at 11:10 am ( 27 )
"In the absence of taxes and other government interventions,"

This is always the weasel out. There are always at least some taxes and government interventions on which to blame the failure of markets to work their magic.

bob mcmanus 09.03.17 at 12:25 pm (
Last one again. I may not respond if anyone bothers, because this is at least orthogonal to the OP.

How to tax capital? Simple, an example. Declare face value of equities at closing bell on April 15 and tax it. 50%, 10%, 0.1%. Forget realized capital gains or transaction taxes, tax face values. Yes indeed I understand what will happen to face values the day before and the day after. I want to drive NASDAQ to zero, how about Krugman? Why not? (Also bonds and bank assets, of course)

Yes, I know we do tax property at a local level and I spent some time looking for the tax incidence between business wealth and housing values but I suspect it varies wildly along with a maze of capital-protecting laws. I did notice that non- profits are taxed differently if at all, in other words, still looking at property under the lens of income. So the Clinton Foundation provides Chelsea economic security and political power in perpetuity.

Capital is a power relation that shows up in de-facto segregated communities and unequal education spending and outcomes and I would possibly tax houses as I would equities.

And of course all this can be incremental and marginal, we don't need to go fullbore expropriation from the start.

But private property is a socialized power relation, and we want to discourage private investment as much as possible. Otherwise, its still a trickle down economy.

faustusnotes 09.03.17 at 12:27 pm ( 29 )
I think it's important to take issue with comment 6, by Ian Maitland, which is a collection of despicable lies. I know it makes no difference to Ian Maitland, who is a lying shill, but it is important for people reading.

First Maitland says (contradictorily) that the proportion of the world population in poverty has fallen to 5%, and that only 152 million people live in poverty. This is untrue. The World Bank estimates that 10.7% of the world's population, or about 790 million people, live in poverty, and that the majority of poverty reduction has only occurred due to China and India (i.e. no change in Africa). Maitland is using dubious numbers from a single shonky 2009 analysis published in that dumpster for shit papers, the NBER.

Second, Peter Singer never wrote the phrase Maitland accuses him of, with respect to the Bangladesh famine. Singer's paper on the famine can be found here and is a discussion of the urgent need to increase aid to "East Bengal", as well as whether people in developed countries are justified in impoverishing themselves in support of starving people in East Bengal (he concludes that they should not impoverish themselves so much that their utility is lower than that of the Bangladeshis they want to help). He discusses and dismisses the idea that people in rich countries should not give aid to East Bengal because the real cause of its famine is population control, and aid without population control won't work: He recommends aid now, and then further aid for population control. He says people should be "working full time" to push both issues with their government, and sneers at the UK government for valuing concorde more than starving Bangladeshis.

The nearest quote to that which Maitland attributes to Singer comes from a later book, Practical Ethics , and is part of a discussion about whether rich people should give money to aid poor countries, and how to judge the best way to do this. Practical Ethics was written in 1979, about the time that now-independent Bangladesh was becoming a success story in health, population control and nutrition despite being much poorer than India. In the sentence before the sentence closest to that which Maitland cites, Singer states that we have an obligation to assist poor countries, but not to waste our money on ways that don't help. This sentence has nothing to do with Bangladesh, and nothing to do with abandoning poor countries to starve – in fact it concerns the best way to do precisely the opposite.

In short, what Maitland wrote here is entirely false, deliberately misleading, and malicious. I know most people on here are aware that Maitland is a lying liar, but just in case anyone is new here and thinks that the failure to challenge his lies is a sign that they're accepted by others as fact, here is the rebuttal: everything at comment 6 is a vicious lie, and people like Maitland should be deeply ashamed of themselves for the deliberate and mendacious lies they tell.

Layman 09.03.17 at 12:50 pm (
Garett Wilson: "There is a problem which is referred to in New Zealand as the three B's. Once people own a boat, a BMW, and a bach (holiday home), there's a tendancy to work less hard, maybe even retire early and sit around doing nothing. Margaret Thatcher herself harshly criticised the British equivalent of this. I share your skepticism that tax rates will help with this, but it is a problem."

Why is this a problem? Sure, it's an affront to Puritanism, but besides that?

Cranky Observer 09.03.17 at 1:03 pm ( 31 )

= = = Once people own a boat, a BMW, and a bach (holiday home), there's a tendancy to work less hard, maybe even retire early and sit around doing nothing. [ ] I share your skepticism that tax rates will help with this, but it is a problem. = = =

Why? Why is it a problem, that is?

I realize that many global cultures based on English, Scots, and closely-related Northern European cultures have adopted the neo-Puritan attitude that mankind deserves to be punished and that 60-100 hours/week of grinding labor from age 16 to 80 is a necessary part of that punishment. I'm less sure why the rest of us should accept that, particularly given the trend toward automation of production of the necessities of life.

some lurker 09.03.17 at 2:55 pm ( 32 )
The devil is, as always, in the details. These arguments always ignore the inconvenient facts of tax brackets (you mean the 90% tax rate for high earners doesn't apply to the first dollar earned?) or deductions/exemptions. My rule of thumb is that top earners pay an effective tax rate of around a third of the actual rate. George Romney was assessed a 70-90% rate in the 60s and paid something in the 30s: his son Willard would have been assessed a 39.6% rate and paid something in the teens, probably not too far off what most of the CT commentariat pay.

Economics is theoretical politics just as politics is applied economics: it all made more sense when it was called "political economy." Then you knew that economists were trying to write policy and that politicians were trying to hide their schemes behind some academic fig leaf.

And +1 to the "tinkle-down" variant I'll be sure to use that.

Tim Worstall 09.03.17 at 5:11 pm ( 33 )
"Tim @14 The example you give is precisely covered by point 2."

Umm, how? If there's a consumer surplus then the workers and inventors and capitalists etc simply aren't gaining all of he value. I don't we generally think that there is usually a consumer surplus?

RD 09.03.17 at 5:18 pm ( 34 )
GW @ 24

A rich guy on holiday at the beach notices a local fisherman sitting on the beach strumming a guitar and sipping a beer at 1400 hours. He inquires as to why he is not still at work.

Local; "I've caught enough fish for today!"

Rich Guy; "But if you work harder and longer, 6 or 7 days a week, 12 hours a day, you will be able to buy another fishing boat, employ more fisherman, buy 2 more boats, then 4 boats."

Local:" What for?"

Rich Guy: " So you can retire and sit on the beach strumming your guitar and drinking beer!"

bruce wilder 09.03.17 at 6:07 pm ( 35 )
. . . the marginal productivity theory . . . is at the heart of neoclassical economics. In a general equilibrium model of a perfectly competitive economy with full employment, it can be deduced as a theorem. . . . The neoclassical model . . . has never been a fully accurate representation of the economy.

Way to go out on a limb with classic understatement. Never a " fully accurate representation"!

It seems to me we are back in Lesson 1 / Lesson 2 economics, wondering whether Lesson 2 is going to be an explanation of how Lesson 1 is wrong and wrong in every conceivable respect and implication, . . . or an explanation of how Lesson 1 is right, but not quite right.

In some respects, you seem to want to turn the claims for trickle-down economics topsy-turvy and show how pretty much the opposite of what the advocates of trickle-down predicted and recommended has turned out to be true and ought to be recommended.

But, in other respects, you seem to want to defend neoclassical economics, as a merely imperfect representation, which has, perhaps become less accurate as the further development of the economic system has unfolded.

The rhetorical turn, "it is even less accurate now than in the past" leads to a narrative in which epiphenomena are transformed into their own causal forces, perhaps to avoid the contradiction in your analysis. Wage stagnation is an outcome that disproves the neoclassical economics that recommended the policies that created wage stagnation, but some instinct holds you back from saying that, so now wage stagnation is itself a reason to believe that neoclassical economics is "less accurate" a representation. Did wage stagnation cause itself? Did the recommendations or expectations of orthodox neoclassical economics have anything to do with it?

I guess we do not need to answer and we should not wonder if the recommendations themselves were innocent misunderstandings of the economy or a fraudulent apology for policy that in fact targeted the consequent upward redistribution of income and wealth.

Is neoclassical economics simply a rhetoric engine for generating these frauds or did neoclassical economists know what the powers-that-be were doing as well as how to sell what the powers-that-be were doing? It is a classic conundrum in economics. The doctrines of economics provide the styling for the outward apology and (importantly false) rationale (see the discussion of the allegedly Machiavellian roles of James M Buchanan and Milton Friedman in the other thread) for policy, but also the operating manual for policy. Somewhere, someone has to have some idea of what they are doing, in pulling the levers and operating the machinery of the economic system. Even granted that there might be important limits -- the serious people have been known to run the economy off the edge of a cliff. It is just hard to know even then -- when we are enveloped in a crisis of crisis capitalism -- if the powers-that-be are doing it by mistake (1930) or on purpose (2008).

I cannot tell from the OP whether you think economic theory and the intuitions it cultivates, for better and worse, should matter or not. Is neoclassical economics wrong? Or misused?

Howard Frant 09.03.17 at 7:55 pm ( 36 )
I sort of question whether it's even worth engaging with trickle-down at this level, as opposed to just saying "Well, it doesn't work." Are there still serious ecenomists who are saying it does?

JQ@7

The dramatic increase in income and reduction in poverty in the Third World go far beyond China and India. China is the most extreme, but it's pretty much everywhere, except Africa.

Alex SL@8

People are always tempted to respond to economists' assertions by saying,"Well, *I* wouldn't do that!" Unfortunately, introspection generally doesn't work, because the assertions usually are not about what a typical person would do, but about what people on the margin would do, i.e., people who are close to indifferent beween doing it and not doing it.

steven t johnson@18

Two things you can be sure of (both in line with neoclassical theory): 1) The guy operating the backhoe will be making more than the guy wielding the shovel 2) The guy operating the backhoe will be making (a lot) more than the minimum wage.

J-D 09.03.17 at 8:48 pm ( 37 )
Gareth Wilson
How is it a problem? a problem for whom?
F 09.03.17 at 9:30 pm ( 38 )
14 is also addressed quite well and in detail by Michael Pettis' latest .
Peter T 09.04.17 at 12:05 am ( 40 )
1) The guy operating the backhoe will be making more than the guy wielding the shovel 2) The guy operating the backhoe will be making (a lot) more than the minimum wage.

At the level of: a lot of guys wielding shovels will move less dirt than a lot of guys driving back-hoes, and so be less productive and have less to share, this is true.

At the level of the work-crew digging ditches it's not. Three guys dig a ditch – one marks the line, one drives the back-hoe, one shovels the odd bits that the back-hoe can't do. Every so often they change places, because they all know all the jobs, and shovelling is hard work. Or old Joe drives the back-how while young Dave does the shovel, because that's fairer given Joe's got a bad back. Joe gets paid a bit more because he's senior. And Ramjit gets paid most because he's in charge and is responsible for seeing that the ditch goes where it's supposed to.

You can't devolve cooperative production down to individual productivity.

Tabasco 09.04.17 at 12:20 am ( 41 )
"The dramatic increase in income and reduction in poverty in the Third World go far beyond China and India."

No one talks much about South Korea, but a generation ago they were very poor. Now they are as rich as Japan, with income distribution like the Scandinavians. Of course this all happened with a great deal of heavy handed government intervention, to the disapproval of free market fundamentalists in the West, but it was still capitalism.

Gareth Wilson 09.04.17 at 12:24 am ( 42 )
It's a problem because the man with the three B's could be producing more wealth and improving everyone's standard of living, but he isn't.
J-D 09.04.17 at 5:49 am ( 43 )
Gareth Wilson
Well, hypothetically he could be; but then again, hypothetically he could be hard at work grinding the faces of the poor, and it's a good thing, and not a problem, that he isn't. What he is actually doing is indulging himself with leisure, which at least contributes to his own standard of living. If everybody works less, everybody has more leisure, which is a contribution to everybody's standard of living.
Scott V 09.04.17 at 1:46 pm ( 44 )
"If Claim 2 doesn't hold then all the benefits of increased effort from highly productive workers and investors is captured by the workers and investors themselves. "

This statement does not seem accurate.

My restatement would be:

If Claim 2 doesn't hold then all the benefits of increased effort from highly productive workers and investors is captured by the workers, investors and their customers.

Encouraging a popular actor to take on another role, replacing someone less skilled, will not in and of itself increase anyone's productivity. It will however benefit those that consume the actors output.

Equally encouraging a highly paid person working to abandon their secure position and take the risk of starting a firm or joining a risky start-up, may in the short run only benefit those that consume the new product.

SMV

Jake Gibson 09.04.17 at 2:34 pm ( 45 )
If, I repeat, If capital is invested, it is much more likely to be in automation. Which maintains or increases productivity while lowering labor costs.
Demand is the only thing that can increase employment. But, that employment could be anywhere in the world.
otpup 09.04.17 at 6:01 pm ( 46 )
The old myth that acquisitiveness always and everywhere falls into the neat little channels that happen to make it socially productive rather than the opposite.
bruce wilder 09.04.17 at 9:47 pm ( 47 )
Howard Frant @ 69 (re: backhoe)
Peter T @ 40 (re: workcrew)

Yes to both of you.

Like Howard, I do not see what is gained here by linking the intuitions of "trickle-down" to marginal product theory of allocative efficiency. I have even used the "big shovel" theory myself to explain the concept of marginal product and its application to wages.

But, marginal product theory is an analysis arrested at a very early stage, with no uncertainty or strategic behavior, let alone such pre-requisites of practical production organization as science, engineering, energy and management -- all of them touched on in Peter T's sketch.

It seems particularly remarkable that JQ makes no mention of what I would take to be the biggest betrayal of "trickle-down": that lowering the marginal rates of income tax on super-high wage earners "incentivizes" (horrible word used here ironically) CEOs to direct the affairs of large enterprises in ways that transfer income upward, including but not limited to, control frauds.

If the economic system is organized primarily in hierarchical organization, then allowing those in charge to do well by predation and looting is probably a formula for increasing inequality. A wild and crazy idea I know, but there it is.

John Quiggin 09.05.17 at 12:30 am ( 48 )
BW @47 "It seems particularly remarkable that JQ makes no mention of what I would take to be the biggest betrayal of "trickle-down": that lowering the marginal rates of income tax on super-high wage earners "incentivizes" (horrible word used here ironically) CEOs to direct the affairs of large enterprises in ways that transfer income upward, including but not limited to, control frauds. "

That was the central point of the post (incentives reward unproductive rent-seeking), so either I've been very unclear or BW is reading uncharitably/with poor comprehension. If anyone is still reading the thread, could they help me work out which it is.

J-D 09.05.17 at 2:44 am ( 49 )
John Quiggin

That was the central point of the post (incentives reward unproductive rent-seeking), so either I've been very unclear or BW is reading uncharitably/with poor comprehension. If anyone is still reading the thread, could they help me work out which it is.

'I/you/they could have written that more clearly' is like a fortune-teller's cold reading, the kind of thing that is always or nearly always true, but in this case it seems to me you were clear enough (and as a cold reading obviously it applies to bruce wilder as much as it does to you; and to me as well, of course). It seems as if there was some reason (although I can't think of one) that it was important to bruce wilder to signal disagreement with you instead of, as could so easily have been done, signalling agreement, making the same point not as a correction of an omission on your part but as an amplification: 'One particularly important/striking example of what you're discussing is the behaviour of CEOs of large corporations transferring income upwards including, but not limited to, control frauds' (or something like that).

RD 09.05.17 at 2:44 am ( 50 )
No one ever said on their death bed, "I wish I had spent more time at the office."
bob mcmanus 09.05.17 at 11:46 am ( 51 )
(incentives reward unproductive rent-seeking)

Kodak vs Apple Janitors

"The smaller reminders can be just as telling. One former Apple contractor recalled spending months testing a new version of Apple's operating system. To celebrate the release, the Apple employees they'd worked closely with on the project were invited to a splashy party in San Francisco, while the contractors had beers among themselves in a neighborhood pub."

A large part of the Stormfront and Breitbart funding comes from Silicon Valley.

To tell the truth, I am not that interested in Tim Cook. I am not even interested in the Apple janitors.

I am interested in those employees that benefit from ultimate rent-seeking company Apple who went to the San Francisco party, and support either the libertarian right or the neoliberal center (and probably TPP). Whatever economic theory we come up with has to reach those folk and not threaten their livelihoods or it is politically as useless as Georgism.

CaptFamous 09.05.17 at 4:18 pm ( 52 )
Has anyone done a critique of trickle-down from the perspective of supply chain optimization? I'm a bit rusty on it, but a lot of the work that's been done on creating incentives for supply chain partners shows why just giving people money in the hopes that they spend it never pays back as well as just keeping the money (they reoptimize at a level that involves them just pocketing a higher percentage of the money than they otherwise would have), and that effective incentives demand the desired behavior before they pay out.
RD 09.05.17 at 4:41 pm ( 53 )
The air in Shanghai was breathable when everyone rode a bicycle. Plus exercise.
Procopius 09.06.17 at 9:21 am ( 54 )
@nastywoman -- I just had to inform you that Ford DID NOT make sure his workers could afford to buy the product they made. That was one of the most successful public relations frauds ever propagated. What Ford did was to announce a "plan." Like Trump he was a little short on the details. There were strings on the proposal. If the worker was thought to not bathe often enough, he didn't get the $5. If a worker's hair was considered too long, he did not get the $5. If the spies from the Service Department decided his lawn needed mowing, he didn't get the $5. If his neighbors said he didn't go to church on Sunday, he didn't get the $5. If the worker's English was thought to be deficient, he didn't get the $5. There were many, many more strings. Ford, in fact, paid his workers rather poorly, and his Service Department was very skilled at "talking with" anyone who was dissatisfied. Henry Ford (Old Henry) was a nasty, priggish, anti-Semitic, racist [bannable], and the world is a better place with him dead.
anon/portly 09.06.17 at 6:06 pm ( 55 )
That was the central point of the post (incentives reward unproductive rent-seeking)

Presumably that is here:

These developments [presumably points (i) to (iv) listed just above] mean that cuts in the top rate of income tax will primarily reward ownership of capital, unproductive activity, or luck in choosing ones parents, rather than increasing productivity. They also undermine the second proposition underlying trickle down theory. The pursuit of monopoly profits ('rent-seeking' in the jargon of free-market economics) reduces rather than increases the productivity of the economy as a whole.

If I was trying to convince someone of the desirability of higher marginal tax rates on high earners, I would certainly bring up some version of JQ's point (ii):

(ii) the increasing proportion of profits derived from monopoly power and financial sector speculation

But, even though in most ways I couldn't be farther from Bruce Wilder in terms of appreciation for the insights of neoclassical economic theory, alongside point (ii) I would have made a point that is more like what I think BW is suggesting: the remuneration of high(er) earners (seemingly increasingly, but perhaps this is really an old story) seems to be far more subject to manipulation and less the result of pure market forces than the remuneration of low(er) earners.

(Maybe BW would actually say that no one's remuneration has anything to do with any sort of market, but that the remuneration of higher earners especially has nothing to do with any sort of market).

(Also maybe this point is being made explicitly in the OP, and I just can't see it – as JQ didn't include an explicit version of this point alongside points (i) to (iv), it makes me wonder if he doesn't think there's been a significant change in this tendency).

Alongside these two points I would add the (in econ-blogospheric terms, Sumnerian) point that Central Banks switched from targeting unemployment to targeting inflation; the result has been much longer periods of unemployment and underemployment, (arguably) artificially depressing wages, especially at the low end. (Hence wage stagnation).

anon/portly 09.06.17 at 6:16 pm ( 56 )
As an addendum to my previous comment, is it obvious that lower marginal tax rates actually encourages unproductive rent-seeking among corporate executives? At first glance I would think it would just alter the form; labor income vs. stock options vs. perks and so on. At second glance I wonder if it couldn't go the other way, maybe the income effect would out-weigh the substitution effect. (I might not be thinking very clearly about this).

Anyway, after reading the following, I have never underestimated the intensity (insanity?) of people, no matter how well off they are, about maintaining their income at what they feel is the "necessary" level:

https://www.wsj.com/articles/SB866579346786280500

[Sep 27, 2017] The architect of supply-side economics is now a professor at Columbia University, former University of Chicago economist Robert Mundell is an academic charlatan

Notable quotes:
"... For the architect of the euro, taking macroeconomics away from elected politicians and forcing deregulation were part of the plan ..."
"... The idea that the euro has "failed" is dangerously naive. The euro is doing exactly what its progenitor – and the wealthy 1%-ers who adopted it – predicted and planned for it to do. ..."
Jan 20, 2017 | economistsview.typepad.com
RC AKA Darryl, Ron :

Thanks to New Deal democrat, who made me curious about yesterday's "comment section in re Summers' piece." Then thanks to Ron Waller for his comment which closed with: (Good read: "Robert Mundell, evil genius of the euro".)

https://www.theguardian.com/commentisfree/2012/jun/26/robert-mundell-evil-genius-euro

Robert Mundell, evil genius of the euro

Greg Palast

For the architect of the euro, taking macroeconomics away from elected politicians and forcing deregulation were part of the plan

The idea that the euro has "failed" is dangerously naive. The euro is doing exactly what its progenitor – and the wealthy 1%-ers who adopted it – predicted and planned for it to do.

That progenitor is former University of Chicago economist Robert Mundell. The architect of "supply-side economics" is now a professor at Columbia University, but I knew him through his connection to my Chicago professor, Milton Friedman, back before Mundell's research on currencies and exchange rates had produced the blueprint for European monetary union and a common European currency.

Mundell, then, was more concerned with his bathroom arrangements. Professor Mundell, who has both a Nobel Prize and an ancient villa in Tuscany, told me, incensed:

"They won't even let me have a toilet. They've got rules that tell me I can't have a toilet in this room! Can you imagine?"

As it happens, I can't. But I don't have an Italian villa, so I can't imagine the frustrations of bylaws governing commode placement.

But Mundell, a can-do Canadian-American, intended to do something about it: come up with a weapon that would blow away government rules and labor regulations. (He really hated the union plumbers who charged a bundle to move his throne.)

"It's very hard to fire workers in Europe," he complained. His answer: the euro.

The euro would really do its work when crises hit, Mundell explained. Removing a government's control over currency would prevent nasty little elected officials from using Keynesian monetary and fiscal juice to pull a nation out of recession.

"It puts monetary policy out of the reach of politicians," he said. "[And] without fiscal policy, the only way nations can keep jobs is by the competitive reduction of rules on business."

He cited labor laws, environmental regulations and, of course, taxes. All would be flushed away by the euro. Democracy would not be allowed to interfere with the marketplace – or the plumbing.

As another Nobelist, Paul Krugman, notes, the creation of the eurozone violated the basic economic rule known as "optimum currency area". This was a rule devised by Bob Mundell.

That doesn't bother Mundell. For him, the euro wasn't about turning Europe into a powerful, unified economic unit. It was about Reagan and Thatcher.

"Ronald Reagan would not have been elected president without Mundell's influence," once wrote Jude Wanniski in the Wall Street Journal. The supply-side economics pioneered by Mundell became the theoretical template for Reaganomics – or as George Bush the Elder called it, "voodoo economics": the magical belief in free-market nostrums that also inspired the policies of Mrs Thatcher.

Mundell explained to me that, in fact, the euro is of a piece with Reaganomics:

"Monetary discipline forces fiscal discipline on the politicians as well."

And when crises arise, economically disarmed nations have little to do but wipe away government regulations wholesale, privatize state industries en masse, slash taxes and send the European welfare state down the drain.

Thus, we see that (unelected) Prime Minister Mario Monti is demanding labor law "reform" in Italy to make it easier for employers like Mundell to fire those Tuscan plumbers. Mario Draghi, the (unelected) head of the European Central Bank, is calling for "structural reforms" – a euphemism for worker-crushing schemes. They cite the nebulous theory that this "internal devaluation" of each nation will make them all more competitive.

Monti and Draghi cannot credibly explain how, if every country in the Continent cheapens its workforce, any can gain a competitive advantage.
But they don't have to explain their policies; they just have to let the markets go to work on each nation's bonds. Hence, currency union is class war by other means.

The crisis in Europe and the flames of Greece have produced the warming glow of what the supply-siders' philosopher-king Joseph Schumpeter called "creative destruction". Schumpeter acolyte and free-market apologist Thomas Friedman flew to Athens to visit the "impromptu shrine" of the burnt-out bank where three people died after it was fire-bombed by anarchist protesters, and used the occasion to deliver a homily on globalization and Greek "irresponsibility".

The flames, the mass unemployment, the fire-sale of national assets, would bring about what Friedman called a "regeneration" of Greece and, ultimately, the entire eurozone. So that Mundell and those others with villas can put their toilets wherever they damn well want to.

Far from failing, the euro, which was Mundell's baby, has succeeded probably beyond its progenitor's wildest dreams.

[Needless to say, I am not a fan of Robert Mundell's.]

Peter K. -> RC AKA Darryl, Ron... , January 20, 2017 at 07:19 AM

Excellent article!

"It puts monetary policy out of the reach of politicians," he said. "[And] without fiscal policy, the only way nations can keep jobs is by the competitive reduction of rules on business."

Reminded me of a point made by J.W. Mason:

http://jwmason.org/slackwire/what-does-crowding-out-even-mean/

"..It's quite reasonable to suppose that, thanks to dependence on imported inputs and/or demand for imported consumption goods, output can't rise without higher imports. And a country may well run out of foreign exchange before it runs out of domestic savings, finance or productive capacity. This is the idea behind multiple gap models in development economics, or balance of payments constrained growth. It also seems like the direction orthodoxy is heading in the eurozone, where competitiveness is bidding to replace inflation as the overriding concern of macro policy."

Peter K. -> RC AKA Darryl, Ron... , January 20, 2017 at 07:30 AM
I wonder how this fits with the national savings rate discussion of Miles Kimball and Brad Setser.

Like would they advise Greece to boost their national savings rate or doesn't it matter since Germany controls monetary policy?

RC AKA Darryl, Ron said in reply to Peter K.... , January 20, 2017 at 08:58 AM
"I wonder how this fits with the national savings rate discussion of Miles Kimball and Brad Setser."

[Don't know and it sounds like way too much work for me to try to figure out. Savings rate is not a problem for us and it is difficult to see how Greece could realistically increase theirs sufficient to change anything without some other intervention being made first to decrease unemployment and increase output.]

pgl -> RC AKA Darryl, Ron... , January 20, 2017 at 09:47 AM
It is also too much work for PeterK. If he can't cherry pick it, he don't bother.

But note our net national savings rate has been less than 2% for a long, long time.

[Sep 25, 2017] Free market as a neoliberal myth, the cornerstone of neoliberalism as a secular religion

Highly recommended!
Notable quotes:
"... Two of my criticisms about Krugman/Friedman, etc is that is 'free markets' are supposed to substitute for policy in the government sphere. Except very telling except when we're talking about funding the security state. ..."
"... The other is that the real power of markets is that in a real free market (not a Potemkin one) decisions are made often at the point where needs, information, incentives, and economic power come together. But where the large scale decisions the governments have to make, markets fail. Policy though doesn't. But Neoliberals hate policy. ..."
"... Well, duh. "Policy" and "Capitalism" don't go together and never have. When you enact policy, you destroy the ability to make profit and you get the 1970's. ..."
"... Free market is a neoliberal myth, the cornerstone of neoliberalism as a secular religion. Somewhat similar to "Immaculate Conception" in Catholicism. ..."
"... In reality market almost by definition is controlled by government, who enforces the rules and punish for the transgressions. ..."
"... Also note interesting Orwellian "corruption of the language" trick neoliberals use: neoliberals talk about "free market, not "fair market". ..."
"... After 2008 few are buying this fairy tale about how markets can operate and can solve society problems independently of political power, and state's instruments of violence (the police and the military). This myths is essentially dead. ..."
"... Friedmanism is this sense a flavor of economic Lysenkoism. Note that Lysenko like Friedman was not a complete charlatan. Some of his ideas were pretty sound and withstood the test of time. But that does not make his less evil. ..."
Jan 06, 2017 | economistsview.typepad.com
anne -> Paul Mathis... , December 31, 2016 at 07:09 PM
Krugman's refusal to endorse fiscal stimulus unless the economy is at zero lower bound. That is not only anti-Keynesian, it plays directly into the hands of the debt fear mongers. (Krugman is also worried about the debt.)

[ Only correct to a degree, economic weakness is recognized. ]

Gibbon1 -> anne... , December 31, 2016 at 10:21 PM
Two of my criticisms about Krugman/Friedman, etc is that is 'free markets' are supposed to substitute for policy in the government sphere. Except very telling except when we're talking about funding the security state.

The other is that the real power of markets is that in a real free market (not a Potemkin one) decisions are made often at the point where needs, information, incentives, and economic power come together. But where the large scale decisions the governments have to make, markets fail. Policy though doesn't. But Neoliberals hate policy.

AngloSaxon -> Gibbon1... , January 01, 2017 at 06:08 PM
Well, duh. "Policy" and "Capitalism" don't go together and never have. When you enact policy, you destroy the ability to make profit and you get the 1970's.
likbez -> Gibbon1... , -1
Free market is a neoliberal myth, the cornerstone of neoliberalism as a secular religion. Somewhat similar to "Immaculate Conception" in Catholicism.

In reality market almost by definition is controlled by government, who enforces the rules and punish for the transgressions.

Also note interesting Orwellian "corruption of the language" trick neoliberals use: neoliberals talk about "free market, not "fair market".

After 2008 few are buying this fairy tale about how markets can operate and can solve society problems independently of political power, and state's instruments of violence (the police and the military). This myths is essentially dead.

But like Adventists did not disappear when the Second Coming of Christ did not occurred in predicted timeframe, neoliberals did not did not disappeared after 2008 either. And neither did neoliberalism, it just entered into zombie, more bloodthirsty stage.

The fact that even the term "neoliberalism" is prohibited in the US MSM also helped. It is king of stealth ideology, unlike say, Marxists, neoliberals do not like to identify themselves as such. The behave more like members of some secret society, free market masons.

Friedmanism is this sense a flavor of economic Lysenkoism. Note that Lysenko like Friedman was not a complete charlatan. Some of his ideas were pretty sound and withstood the test of time. But that does not make his less evil.

And for those who try to embellish this person, I would remind his role in 1973 Chilean coup d'état ( https://en.wikipedia.org/wiki/1973_Chilean_coup_d%27%C3%A9tat ) and bringing Pinochet to power. His "Chicago boys" played a vital role in the events. This man did has blood on his hands.

http://www.bidstrup.com/economics.htm

Of course, bringing a reign of terror to Chile was not why the CIA had sponsored him. The reason he was there was to reverse the gains of the Allende social democracy and return control of the country's economic and political assets to the oligarchy. Pinochet was convinced, through supporters among the academics in the elite Chilean universities, to try a new series of economic policies, called "neoliberal" by their founders, the economists of the University of Chicago, led by an economist by the name of Milton Friedman, who three years later would go on to win a Nobel Prize in Economics for what he was about to unleash upon Chile.

Friedman and his colleagues were referred to by the Chileans as "the Chicago Boys." The term originally meant the economists from the University of Chicago, but as time went on, as their policies began to disliquidate the middle class and poor, it took on a perjorative meaning. That was because as the reforms were implemented, and began to take hold, the results were not what Friedman and company had been predicting. But what were the reforms?

The reforms were what has come to be called "neoliberalism." To understand what "neoliberal" economics is, one must first understand what "liberal" economics are, and so we'll digress briefly from our look at Chile for a quick

[Sep 20, 2017] Neoliberalism has had its day. So what happens next by Martin Jacques

Notable quotes:
"... Capital in the Twenty-First Century ..."
Sep 20, 2017 | www.theguardian.com

he western financial crisis of 2007-8 was the worst since 1931, yet its immediate repercussions were surprisingly modest. The crisis challenged the foundation stones of the long-dominant neoliberal ideology but it seemed to emerge largely unscathed. The banks were bailed out; hardly any bankers on either side of the Atlantic were prosecuted for their crimes; and the price of their behaviour was duly paid by the taxpayer. Subsequent economic policy, especially in the Anglo-Saxon world, has relied overwhelmingly on monetary policy, especially quantitative easing. It has failed. The western economy has stagnated and is now approaching its lost decade, with no end in sight.

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After almost nine years, we are finally beginning to reap the political whirlwind of the financial crisis. But how did neoliberalism manage to survive virtually unscathed for so long? Although it failed the test of the real world, bequeathing the worst economic disaster for seven decades, politically and intellectually it remained the only show in town. Parties of the right, centre and left had all bought into its philosophy, New Labour a classic in point. They knew no other way of thinking or doing: it had become the common sense. It was, as Antonio Gramsci put it, hegemonic. But that hegemony cannot and will not survive the test of the real world.

ss="rich-link tone-comment--item "> Third parties aren't 'spoilers'. They're at the cutting edge of democracy Kevin Zeese Read more

The first inkling of the wider political consequences was evident in the turn in public opinion against the banks, bankers and business leaders. For decades, they could do no wrong: they were feted as the role models of our age, the default troubleshooters of choice in education, health and seemingly everything else. Now, though, their star was in steep descent, along with that of the political class. The effect of the financial crisis was to undermine faith and trust in the competence of the governing elites. It marked the beginnings of a wider political crisis.

But the causes of this political crisis, glaringly evident on both sides of the Atlantic, are much deeper than simply the financial crisis and the virtually stillborn recovery of the last decade. They go to the heart of the neoliberal project that dates from the late 70s and the political rise of Reagan and Thatcher, and embraced at its core the idea of a global free market in goods, services and capital. The depression-era system of bank regulation was dismantled, in the US in the 1990s and in Britain in 1986, thereby creating the conditions for the 2008 crisis. Equality was scorned, the idea of trickle-down economics lauded, government condemned as a fetter on the market and duly downsized, immigration encouraged, regulation cut to a minimum, taxes reduced and a blind eye turned to corporate evasion.

It should be noted that, by historical standards, the neoliberal era has not had a particularly good track record. The most dynamic period of postwar western growth was that between the end of the war and the early 70s, the era of welfare capitalism and Keynesianism, when the growth rate was double that of the neoliberal period from 1980 to the present.

Facebook Twitter Pinterest Ronald Reagan and Margaret Thatcher, pictured in 1984, ushered in the era of neoliberalism. Photograph: Bettmann Archive

But by far the most disastrous feature of the neoliberal period has been the huge growth in inequality. Until very recently, this had been virtually ignored. With extraordinary speed, however, it has emerged as one of, if not the most important political issue on both sides of the Atlantic, most dramatically in the US. It is, bar none, the issue that is driving the political discontent that is now engulfing the west. Given the statistical evidence, it is puzzling, shocking even, that it has been disregarded for so long; the explanation can only lie in the sheer extent of the hegemony of neoliberalism and its values.

But now reality has upset the doctrinal apple cart. In the period 1948-1972, every section of the American population experienced very similar and sizable increases in their standard of living; between 1972-2013, the bottom 10% experienced falling real income while the top 10% did far better than everyone else. In the US, the median real income for full-time male workers is now lower than it was four decades ago: the income of the bottom 90% of the population has stagnated for over 30 years .

A not so dissimilar picture is true of the UK. And the problem has grown more serious since the financial crisis. On average, between 65-70% of households in 25 high-income economies experienced stagnant or falling real incomes between 2005 and 2014.

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Large sections of the population in both the US and the UK are now in revolt against their lot

The reasons are not difficult to explain. The hyper-globalisation era has been systematically stacked in favour of capital against labour: international trading agreements, drawn up in great secrecy, with business on the inside and the unions and citizens excluded, the Trans-Pacific Partnership (TPP) and the Transatlantic Trade and Investment Partnership (TTIP) being but the latest examples; the politico-legal attack on the unions; the encouragement of large-scale immigration in both the US and Europe that helped to undermine the bargaining power of the domestic workforce; and the failure to retrain displaced workers in any meaningful way.

As Thomas Piketty has shown, in the absence of countervailing pressures, capitalism naturally gravitates towards increasing inequality. In the period between 1945 and the late 70s, Cold War competition was arguably the biggest such constraint. Since the collapse of the Soviet Union, there have been none. As the popular backlash grows increasingly irresistible, however, such a winner-takes-all regime becomes politically unsustainable.

Large sections of the population in both the US and the UK are now in revolt against their lot, as graphically illustrated by the support for Trump and Sanders in the US and the Brexit vote in the UK. This popular revolt is often described, in a somewhat denigratory and dismissive fashion, as populism. Or, as Francis Fukuyama writes in a recent excellent essay in Foreign Affairs : "'Populism' is the label that political elites attach to policies supported by ordinary citizens that they don't like." Populism is a movement against the status quo. It represents the beginnings of something new, though it is generally much clearer about what it is against than what it is for. It can be progressive or reactionary, but more usually both.

Brexit is a classic example of such populism. It has overturned a fundamental cornerstone of UK policy since the early 1970s. Though ostensibly about Europe, it was in fact about much more: a cri de coeur from those who feel they have lost out and been left behind, whose living standards have stagnated or worse since the 1980s, who feel dislocated by large-scale immigration over which they have no control and who face an increasingly insecure and casualised labour market. Their revolt has paralysed the governing elite, already claimed one prime minister, and left the latest one fumbling around in the dark looking for divine inspiration.

Facebook Twitter Pinterest Brexit was the marker of a working-class revolt. Photograph: Mark Thomas/Alamy

The wave of populism marks the return of class as a central agency in politics, both in the UK and the US. This is particularly remarkable in the US. For many decades, the idea of the "working class" was marginal to American political discourse. Most Americans described themselves as middle class, a reflection of the aspirational pulse at the heart of American society. According to a Gallup poll, in 2000 only 33% of Americans called themselves working class; by 2015 the figure was 48%, almost half the population.

Brexit, too, was primarily a working-class revolt. Hitherto, on both sides of the Atlantic, the agency of class has been in retreat in the face of the emergence of a new range of identities and issues from gender and race to sexual orientation and the environment. The return of class, because of its sheer reach, has the potential, like no other issue, to redefine the political landscape.

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The working class belongs to no one: its orientation, far from predetermined, is a function of politics

The re-emergence of class should not be confused with the labour movement. They are not synonymous: this is obvious in the US and increasingly the case in the UK. Indeed, over the last half-century, there has been a growing separation between the two in Britain. The re-emergence of the working class as a political voice in Britain, most notably in the Brexit vote, can best be described as an inchoate expression of resentment and protest, with only a very weak sense of belonging to the labour movement.

Indeed, Ukip has been as important – in the form of immigration and Europe – in shaping its current attitudes as the Labour party. In the United States, both Trump and Sanders have given expression to the working-class revolt, the latter almost as much as the former. The working class belongs to no one: its orientation, far from predetermined, as the left liked to think, is a function of politics.

The neoliberal era is being undermined from two directions. First, if its record of economic growth has never been particularly strong, it is now dismal. Europe is barely larger than it was on the eve of the financial crisis in 2007; the United States has done better but even its growth has been anaemic. Economists such as Larry Summers believe that the prospect for the future is most likely one of secular stagnation .

Worse, because the recovery has been so weak and fragile, there is a widespread belief that another financial crisis may well beckon. In other words, the neoliberal era has delivered the west back into the kind of crisis-ridden world that we last experienced in the 1930s. With this background, it is hardly surprising that a majority in the west now believe their children will be worse off than they were. Second, those who have lost out in the neoliberal era are no longer prepared to acquiesce in their fate – they are increasingly in open revolt. We are witnessing the end of the neoliberal era. It is not dead, but it is in its early death throes, just as the social-democratic era was during the 1970s.

A sure sign of the declining influence of neoliberalism is the rising chorus of intellectual voices raised against it. From the mid-70s through the 80s, the economic debate was increasingly dominated by monetarists and free marketeers. But since the western financial crisis, the centre of gravity of the intellectual debate has shifted profoundly. This is most obvious in the United States, with economists such as Joseph Stiglitz, Paul Krugman, Dani Rodrik and Jeffrey Sachs becoming increasingly influential. Thomas Piketty's Capital in the Twenty-First Century has been a massive seller. His work and that of Tony Atkinson and Angus Deaton have pushed the question of the inequality to the top of the political agenda. In the UK, Ha-Joon Chang , for long isolated within the economics profession, has gained a following far greater than those who think economics is a branch of mathematics.

;'Virtually no one foresaw the triumph of Jeremy Corbyn', pictured at rally in north London last week. Photograph: Daniel Leal-Olivas/AFP/Getty Images

Meanwhile, some of those who were previously strong advocates of a neoliberal approach, such as Larry Summers and the Financial Times 's Martin Wolf, have become extremely critical. The wind is in the sails of the critics of neoliberalism; the neoliberals and monetarists are in retreat. In the UK, the media and political worlds are well behind the curve. Few recognise that we are at the end of an era. Old attitudes and assumptions still predominate, whether on the BBC's Today programme, in the rightwing press or the parliamentary Labour party.

Following Ed Miliband's resignation as Labour leader, virtually no one foresaw the triumph of Jeremy Corbyn in the subsequent leadership election. The assumption had been more of the same, a Blairite or a halfway house like Miliband, certainly not anyone like Corbyn. But the zeitgeist had changed. The membership, especially the young who had joined the party on an unprecedented scale, wanted a complete break with New Labour. One of the reasons why the left has failed to emerge as the leader of the new mood of working-class disillusionment is that most social democratic parties became, in varying degrees, disciples of neoliberalism and uber-globalisation. The most extreme forms of this phenomenon were New Labour and the Democrats, who in the late 90s and 00s became its advance guard, personified by Tony Blair and Bill Clinton, triangulation and the third way.

But as David Marquand observed in a review for the New Statesman , what is the point of a social democratic party if it doesn't represent the less fortunate, the underprivileged and the losers? New Labour deserted those who needed them, who historically they were supposed to represent. Is it surprising that large sections have now deserted the party who deserted them? Blair, in his reincarnation as a money-obsessed consultant to a shady bunch of presidents and dictators, is a fitting testament to the demise of New Labour.

The rival contenders – Burnham, Cooper and Kendall – represented continuity. They were swept away by Corbyn, who won nearly 60% of the votes. New Labour was over, as dead as Monty Python's parrot. Few grasped the meaning of what had happened. A Guardian leader welcomed the surge in membership and then, lo and behold, urged support for Yvette Cooper, the very antithesis of the reason for the enthusiasm. The PLP refused to accept the result and ever since has tried with might and main to remove Corbyn.

Just as the Labour party took far too long to come to terms with the rise of Thatcherism and the birth of a new era at the end of the 70s, now it could not grasp that the Thatcherite paradigm, which they eventually came to embrace in the form of New Labour, had finally run its course. Labour, like everyone else, is obliged to think anew. The membership in their antipathy to New Labour turned to someone who had never accepted the latter, who was the polar opposite in almost every respect of Blair, and embodying an authenticity and decency which Blair patently did not.

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Labour may be in intensive care, but the condition of the Conservatives is not a great deal better

Corbyn is not a product of the new times, he is a throwback to the late 70s and early 80s. That is both his strength and also his weakness. He is uncontaminated by the New Labour legacy because he has never accepted it. But nor, it would seem, does he understand the nature of the new era. The danger is that he is possessed of feet of clay in what is a highly fluid and unpredictable political environment, devoid of any certainties of almost any kind, in which Labour finds itself dangerously divided and weakened.

Labour may be in intensive care, but the condition of the Conservatives is not a great deal better. David Cameron was guilty of a huge and irresponsible miscalculation over Brexit. He was forced to resign in the most ignominious of circumstances. The party is hopelessly divided. It has no idea in which direction to move after Brexit. The Brexiters painted an optimistic picture of turning away from the declining European market and embracing the expanding markets of the world, albeit barely mentioning by name which countries it had in mind. It looks as if the new prime minister may have an anachronistic hostility towards China and a willingness to undo the good work of George Osborne. If the government turns its back on China, by far the fastest growing market in the world, where are they going to turn?

Brexit has left the country fragmented and deeply divided, with the very real prospect that Scotland might choose independence. Meanwhile, the Conservatives seem to have little understanding that the neoliberal era is in its death throes.

'Put America first': Donald Trump in Cleveland last month. Photograph: Joe Raedle/Getty Images

Dramatic as events have been in the UK, they cannot compare with those in the United States. Almost from nowhere, Donald Trump rose to capture the Republican nomination and confound virtually all the pundits and not least his own party. His message was straightforwardly anti-globalisation. He believes that the interests of the working class have been sacrificed in favour of the big corporations that have been encouraged to invest around the world and thereby deprive American workers of their jobs. Further, he argues that large-scale immigration has weakened the bargaining power of American workers and served to lower their wages.

He proposes that US corporations should be required to invest their cash reserves in the US. He believes that the North American Free Trade Agreement (Nafta) has had the effect of exporting American jobs to Mexico. On similar grounds, he is opposed to the TPP and the TTIP. And he also accuses China of stealing American jobs, threatening to impose a 45% tariff on Chinese imports.

To globalisation Trump counterposes economic nationalism: "Put America first". His appeal, above all, is to the white working class who, until Trump's (and Bernie Sander's) arrival on the political scene, had been ignored and largely unrepresented since the 1980s. Given that their wages have been falling for most of the last 40 years, it is extraordinary how their interests have been neglected by the political class. Increasingly, they have voted Republican, but the Republicans have long been captured by the super-rich and Wall Street, whose interests, as hyper-globalisers, have run directly counter to those of the white working class. With the arrival of Trump they finally found a representative: they won Trump the Republican nomination.

The economic nationalist argument has also been vigorously pursued by Bernie Sanders , who ran Hillary Clinton extremely close for the Democratic nomination and would probably have won but for more than 700 so-called super-delegates, who were effectively chosen by the Democratic machine and overwhelmingly supported Clinton. As in the case of the Republicans, the Democrats have long supported a neoliberal, pro-globalisation strategy, notwithstanding the concerns of its trade union base. Both the Republicans and the Democrats now find themselves deeply polarised between the pro- and anti-globalisers, an entirely new development not witnessed since the shift towards neoliberalism under Reagan almost 40 years ago.

Another plank of Trump's nationalist appeal – "Make America great again" – is his position on foreign policy. He believes that America's pursuit of great power status has squandered the nation's resources. He argues that the country's alliance system is unfair, with America bearing most of the cost and its allies contributing far too little. He points to Japan and South Korea, and Nato's European members as prime examples.He seeks to rebalance these relationships and, failing that, to exit from them.

As a country in decline, he argues that America can no longer afford to carry this kind of financial burden. Rather than putting the world to rights, he believes the money should be invested at home, pointing to the dilapidated state of America's infrastructure. Trump's position represents a major critique of America as the world's hegemon. His arguments mark a radical break with the neoliberal, hyper-globalisation ideology that has reigned since the early 1980s and with the foreign policy orthodoxy of most of the postwar period. These arguments must be taken seriously. They should not be lightly dismissed just because of their authorship. But Trump is no man of the left. He is a populist of the right. He has launched a racist and xenophobic attack on Muslims and on Mexicans. Trump's appeal is to a white working class that feels it has been cheated by the big corporations, undermined by Hispanic immigration, and often resentful towards African-Americans who for long too many have viewed as their inferior.

A Trump America would mark a descent into authoritarianism characterised by abuse, scapegoating, discrimination, racism, arbitrariness and violence; America would become a deeply polarised and divided society. His threat to impose 45% tariffs on China , if implemented, would certainly provoke retaliation by the Chinese and herald the beginnings of a new era of protectionism.

Trump may well lose the presidential election just as Sanders failed in his bid for the Democrat nomination. But this does not mean that the forces opposed to hyper-globalisation – unrestricted immigration, TPP and TTIP, the free movement of capital and much else – will have lost the argument and are set to decline. In little more than 12 months, Trump and Sanders have transformed the nature and terms of the argument. Far from being on the wane, the arguments of the critics of hyper-globalisation are steadily gaining ground. Roughly two-thirds of Americans agree that "we should not think so much in international terms but concentrate more on our own national problems". And, above all else, what will continue to drive opposition to the hyper-globalisers is inequality.

[Sep 19, 2017] Neoliberalism: the deep story that lies beneath Donald Trumps triumph: How a ruthless network of super-rich ideologues killed choice and destroyed people's faith in politics by George Monbiot

Highly recommended!
Notable quotes:
"... The book was The Constitution of Liberty by Frederick Hayek . Its publication, in 1960, marked the transition from an honest, if extreme, philosophy to an outright racket. The philosophy was called neoliberalism . It saw competition as the defining characteristic of human relations. The market would discover a natural hierarchy of winners and losers, creating a more efficient system than could ever be devised through planning or by design. Anything that impeded this process, such as significant tax, regulation, trade union activity or state provision, was counter-productive. Unrestricted entrepreneurs would create the wealth that would trickle down to everyone. ..."
"... But by the time Hayek came to write The Constitution of Liberty, the network of lobbyists and thinkers he had founded was being lavishly funded by multimillionaires who saw the doctrine as a means of defending themselves against democracy. Not every aspect of the neoliberal programme advanced their interests. Hayek, it seems, set out to close the gap. ..."
"... He begins the book by advancing the narrowest possible conception of liberty: an absence of coercion. He rejects such notions as political freedom, universal rights, human equality and the distribution of wealth, all of which, by restricting the behaviour of the wealthy and powerful, intrude on the absolute freedom from coercion he demands. ..."
"... The general thrust is about the gradual hollowing out of the middle class (or more affluent working class, depending on the analytical terms being used), about insecurity, stress, casualisation, rising wage inequality. ..."
"... So Hayek, I feel, is like many theoreticians, in that he seems to want a pure world that will function according to a simple and universal law. The world never was, and never will be that simple, and current economics simply continues to have a blindspot for externalities that overwhelm the logic of an unfettered so-called free market. ..."
"... "Neoliberalism" is entirely compatible with "growth of the state". Reagan greatly enlarged the state. He privatized several functions and it actually had the effect of increasing spending. ..."
"... As for the rest, it's the usual practice of gathering every positive metric available and somehow attributing it to neoliberalism, no matter how tenuous the threads, and as always with zero rigour. Supposedly capitalism alone doubled life expectancy, supports billions of extra lives, invented the railways, and provides the drugs and equipment that keep us alive. As though public education, vaccines, antibiotics, and massive availability of energy has nothing to do with those things. ..."
"... I think the damage was done when the liberal left co-opted neo-liberalism. What happened under Bill Clinton was the development of crony capitalism where for example the US banks were told to lower their credit standards to lend to people who couldn't really afford to service the loans. ..."
Nov 16, 2017 | www.theguardian.com
he events that led to Donald Trump's election started in England in 1975. At a meeting a few months after Margaret Thatcher became leader of the Conservative party, one of her colleagues, or so the story goes, was explaining what he saw as the core beliefs of conservatism. She snapped open her handbag, pulled out a dog-eared book, and slammed it on the table . "This is what we believe," she said. A political revolution that would sweep the world had begun.

The book was The Constitution of Liberty by Frederick Hayek . Its publication, in 1960, marked the transition from an honest, if extreme, philosophy to an outright racket. The philosophy was called neoliberalism . It saw competition as the defining characteristic of human relations. The market would discover a natural hierarchy of winners and losers, creating a more efficient system than could ever be devised through planning or by design. Anything that impeded this process, such as significant tax, regulation, trade union activity or state provision, was counter-productive. Unrestricted entrepreneurs would create the wealth that would trickle down to everyone.

This, at any rate, is how it was originally conceived. But by the time Hayek came to write The Constitution of Liberty, the network of lobbyists and thinkers he had founded was being lavishly funded by multimillionaires who saw the doctrine as a means of defending themselves against democracy. Not every aspect of the neoliberal programme advanced their interests. Hayek, it seems, set out to close the gap.

He begins the book by advancing the narrowest possible conception of liberty: an absence of coercion. He rejects such notions as political freedom, universal rights, human equality and the distribution of wealth, all of which, by restricting the behaviour of the wealthy and powerful, intrude on the absolute freedom from coercion he demands.

Democracy, by contrast, "is not an ultimate or absolute value". In fact, liberty depends on preventing the majority from exercising choice over the direction that politics and society might take.

He justifies this position by creating a heroic narrative of extreme wealth. He conflates the economic elite, spending their money in new ways, with philosophical and scientific pioneers. Just as the political philosopher should be free to think the unthinkable, so the very rich should be free to do the undoable, without constraint by public interest or public opinion.

The ultra rich are "scouts", "experimenting with new styles of living", who blaze the trails that the rest of society will follow. The progress of society depends on the liberty of these "independents" to gain as much money as they want and spend it how they wish. All that is good and useful, therefore, arises from inequality. There should be no connection between merit and reward, no distinction made between earned and unearned income, and no limit to the rents they can charge.

Inherited wealth is more socially useful than earned wealth: "the idle rich", who don't have to work for their money, can devote themselves to influencing "fields of thought and opinion, of tastes and beliefs". Even when they seem to be spending money on nothing but "aimless display", they are in fact acting as society's vanguard.

Hayek softened his opposition to monopolies and hardened his opposition to trade unions. He lambasted progressive taxation and attempts by the state to raise the general welfare of citizens. He insisted that there is "an overwhelming case against a free health service for all" and dismissed the conservation of natural resources. It should come as no surprise to those who follow such matters that he was awarded the Nobel prize for economics .

By the time Thatcher slammed his book on the table, a lively network of thinktanks, lobbyists and academics promoting Hayek's doctrines had been established on both sides of the Atlantic, abundantly financed by some of the world's richest people and businesses , including DuPont, General Electric, the Coors brewing company, Charles Koch, Richard Mellon Scaife, Lawrence Fertig, the William Volker Fund and the Earhart Foundation. Using psychology and linguistics to brilliant effect, the thinkers these people sponsored found the words and arguments required to turn Hayek's anthem to the elite into a plausible political programme.

Thatcherism and Reaganism were not ideologies in their own right: they were just two faces of neoliberalism. Their massive tax cuts for the rich, crushing of trade unions, reduction in public housing, deregulation, privatisation, outsourcing and competition in public services were all proposed by Hayek and his disciples. But the real triumph of this network was not its capture of the right, but its colonisation of parties that once stood for everything Hayek detested.

Bill Clinton and Tony Blair did not possess a narrative of their own. Rather than develop a new political story, they thought it was sufficient to triangulate . In other words, they extracted a few elements of what their parties had once believed, mixed them with elements of what their opponents believed, and developed from this unlikely combination a "third way".

It was inevitable that the blazing, insurrectionary confidence of neoliberalism would exert a stronger gravitational pull than the dying star of social democracy. Hayek's triumph could be witnessed everywhere from Blair's expansion of the private finance initiative to Clinton's repeal of the Glass-Steagal Act , which had regulated the financial sector. For all his grace and touch, Barack Obama, who didn't possess a narrative either (except "hope"), was slowly reeled in by those who owned the means of persuasion.

As I warned in April, the result is first disempowerment then disenfranchisement. If the dominant ideology stops governments from changing social outcomes, they can no longer respond to the needs of the electorate. Politics becomes irrelevant to people's lives; debate is reduced to the jabber of a remote elite. The disenfranchised turn instead to a virulent anti-politics in which facts and arguments are replaced by slogans, symbols and sensation. The man who sank Hillary Clinton's bid for the presidency was not Donald Trump. It was her husband.

The paradoxical result is that the backlash against neoliberalism's crushing of political choice has elevated just the kind of man that Hayek worshipped. Trump, who has no coherent politics, is not a classic neoliberal. But he is the perfect representation of Hayek's "independent"; the beneficiary of inherited wealth, unconstrained by common morality, whose gross predilections strike a new path that others may follow. The neoliberal thinktankers are now swarming round this hollow man, this empty vessel waiting to be filled by those who know what they want. The likely result is the demolition of our remaining decencies, beginning with the agreement to limit global warming .

Those who tell the stories run the world. Politics has failed through a lack of competing narratives. The key task now is to tell a new story of what it is to be a human in the 21st century. It must be as appealing to some who have voted for Trump and Ukip as it is to the supporters of Clinton, Bernie Sanders or Jeremy Corbyn.

A few of us have been working on this, and can discern what may be the beginning of a story. It's too early to say much yet, but at its core is the recognition that – as modern psychology and neuroscience make abundantly clear – human beings, by comparison with any other animals, are both remarkably social and remarkably unselfish . The atomisation and self-interested behaviour neoliberalism promotes run counter to much of what comprises human nature.

Hayek told us who we are, and he was wrong. Our first step is to reclaim our humanity.

justamug -> Skytree 16 Nov 2016 18:17

Thanks for the chuckle. On a more serious note - defining neoliberalism is not that easy since it is not a laid out philosophy like liberalism, or socialism, or communism or facism. Since 2008 the use of the word neoliberalism has increased in frequency and has come to mean different things to different people.

A common theme appears to be the negative effects of the market on the human condition.

Having read David Harvey's book, and Phillip Mirowski's book (both had a go at defining neoliberalism and tracing its history) it is clear that neoliberalism is not really coherent set of ideas.

ianfraser3 16 Nov 2016 17:54

EF Schumacher quoted "seek first the kingdom of God" in his epilogue of "Small Is Beautiful: a study of economics as if people mattered". This was written in the early 1970s before the neoliberal project bit in the USA and the UK. The book is laced with warnings about the effects of the imposition of neoliberalism on society, people and the planet. The predictions have largely come true. New politics and economics needed, by leaders who place at the heart of their approach the premise, and fact, that humans are "by comparison with any other animals, are both remarkably social and remarkably unselfish". It is about reclaiming our humanity from a project that treats people as just another commodity.


Filipio -> YouDidntBuildThat 16 Nov 2016 17:42

Whoa there, slow down.

Your last post was questioning the reality of neoliberalism as a general policy direction that had become hegemonic across many governments (and most in the west) over recent decades. Now you seem to be agreeing that the notion does have salience, but that neoliberalism delivered positive rather than negative consequences.

Well, its an ill wind that blows nobody any good, huh?

Doubtless there were some positive outcomes for particular groups. But recall that the context for this thread is not whether, on balance, more people benefited from neoliberal policies than were harmed -- an argument that would be most powerful only in very utilitarian style frameworks of thought (most good for the many, or most harm for only the few). The thread is about the significance of the impacts of neoliberalism in the rise of Trump. And in specific relation to privatisation (just one dimension of neoliberalism) one key impact was downsizing (or 'rightsizing'; restructuring). There is a plethora of material, including sociological and psychological, on the harm caused by shrinking and restructured work-forces as a consequence of privatisation. Books have been written, even in the business management sector, about how poorly such 'change' was handled and the multiple deleterious outcomes experienced by employees.

And we're still only talking about one dimension of neoliberalism! Havn't even touched on deregulation yet (notably, labour market and financial sector).

The general thrust is about the gradual hollowing out of the middle class (or more affluent working class, depending on the analytical terms being used), about insecurity, stress, casualisation, rising wage inequality.

You want evidence? I'm not doing your research for you. The internet can be a great resource, or merely an echo chamber. The problem with so many of the alt-right (and this applies on the extreme left as well) is that they only look to confirm their views, not read widely. Open your eyes, and use your search engine of choice. There is plenty out there. Be open to having your preconceptions challenged.

RichardErskine -> LECKJ3000 16 Nov 2016 15:38

LECKJ3000 - I am not an economist, but surely the theoretical idealised mechanisms of the market are never realised in practice. US subsidizing their farmers, in EU too, etc. And for problems that are not only externalities but transnational ones, the idea that some Hayek mechanism will protect thr ozone layer or limit carbon emissions, without some regulation or tax.

Lord Stern called global warming the greatest market failure in history, but no market, however sophisticated, can deal with it without some price put on the effluent of product (the excessive CO2 we put into the atmosphere).

As with Montreal and subsequent agreements, there is a way to maintain a level playing field; to promote different substances for use as refrigerants; and to address the hole in ozone layer; without abandoning the market altogether. Simple is good, because it avoids over-engineering the interventions (and the unintended consequences you mention).

The same could/ should be true of global warming, but we have left it so late we cannot wait for the (inevitable) fall of fossil fuels and supremacy of renewables. We need a price on carbon, which is a graduated and fast rising tax essentially on its production and/or consumption, which has already started to happen ( http://www.worldbank.org/content/dam/Worldbank/document/SDN/background-note_carbon-tax.pdf ), albeit not deep / fast / extensive enough, or international in character, but that will come, if not before the impacts really bite then soon after.

So Hayek, I feel, is like many theoreticians, in that he seems to want a pure world that will function according to a simple and universal law. The world never was, and never will be that simple, and current economics simply continues to have a blindspot for externalities that overwhelm the logic of an unfettered so-called free market.

LionelKent -> greven 16 Nov 2016 14:59

And persistent. J.K. Galbraith viewed the rightwing mind as predominantly concerned with figuring out a way to justify the shift of wealth from the immense majority to an elite at the top. I for one regret acutely that he did not (as far as I know) write a volume on his belief in progressive taxation.

RandomLibertarian -> JVRTRL 16 Nov 2016 09:19

Not bad points.

When it comes to social safety net programs, e.g. in health care and education -- those programs almost always tend to be more expensive and more complicated when privatized. If the goal was to actually save taxpayer money, in the U.S. at least, it would have made a lot more sense to have a universal Medicare system, rather than a massive patch-work like the ACA and our hybrid market.

Do not forget that the USG, in WW2, took the deliberate step of allowing employers to provide health insurance as a tax-free benefit - which it still is, being free even from SS and Medicare taxes. In the post-war boom years this resulted in the development of a system with private rooms, almost on-demand access to specialists, and competitive pay for all involved (while the NHS, by contrast, increasingly drew on immigrant populations for nurses and below). Next, the large sums of money in the system and a generous court system empowered a vast malpractice industry. So to call our system in any way a consequence of a free market is a misnomer.

Entirely state controlled health care systems tend to be even more cost-effective.

Read Megan McArdle's work in this area. The US has had similar cost growth since the 1970s to the rest of the world. The problem was that it started from a higher base.

Part of the issue is that privatization tends to create feedback mechanism that increase the size of spending in programs. Even Eisenhower's noted "military industrial complex" is an illustration of what happens when privatization really takes hold.

When government becomes involved in business, business gets involved in government!

Todd Smekens 16 Nov 2016 08:40

Albert Einstein said, "capitalism is evil" in his famous dictum called, "Why Socialism" in 1949. He also called communism, "evil", so don't jump to conclusions, comrades. ;)

His reasoning was it distorts a human beings longing for the social aspect. I believe George references this in his statement about people being "unselfish". This is noted by both science and philosophy.

Einstein noted that historically, the conqueror would establish the new order, and since 1949, Western Imperialism has continued on with the predatory phase of acquiring and implementing democracy/capitalism. This needs to end. As we've learned rapidly, capitalism isn't sustainable. We are literally overheating the earth which sustains us. Very unwise.

Einstein wrote, "Man is, at one and the same time, a solitary being and a social being. As a solitary being, he attempts to protect his own existence and that of those who are closest to him, to satisfy his personal desires, and to develop his innate abilities. As a social being, he seeks to gain the recognition and affection of his fellow human beings, to share in their pleasures, to comfort them in their sorrows, and to improve their conditions of life. Only the existence of these varied, frequently conflicting, strivings accounts for the special character of a man, and their specific combination determines the extent to which an individual can achieve an inner equilibrium and can contribute to the well-being of society."

Personally, I'm glad George and others are working on a new economic and social construct for us "human beings". It's time we leave the predatory phase of "us versus them", and construct a new society which works for the good of our now, global society.

zavaell -> LECKJ3000 16 Nov 2016 06:28

The problem is that both you and Monbiot fail to mention that your "the spontaneous order of the market" does not recognize externalities and climate change is outside Hayek's thinking - he never wrote about sustainability or the limits on resources, let alone the consequences of burning fossil fuels. There is no beauty in what he wrote - it was a cold, mechanical model that assumed certain human behaviour but not others. Look at today's money-makers - they are nearly all climate change deniers and we have to have government to reign them in.

aLERNO 16 Nov 2016 04:52

Good, short and concise article. But the FIRST NEOLIBERAL MILESTONE WAS THE 1973 COUP D'ETAT IN CHILE, which not surprisingly also deposed the first democratically-elected socialist government.

accipiter15 16 Nov 2016 02:34

A great article and explanation of the influence of Hayek on Thatcher. Unfortunately this country is still suffering the consequences of her tenure and Osborne was also a proponent of her policies and look where we are as a consequence. The referendum gave the people the opportunity to vent their anger and if we had PR I suspect we would have a greater turn-out and nearly always have some sort of coalition where nothing gets done that is too hurtful to the population. As for Trump, again his election is an expression of anger and desperation. However, the American voting system is as unfair as our own - again this has probably been the cause of the low turn-out. Why should people vote when they do not get fair representation - it is a waste of time and not democratic. I doubt that Trump is Keynsian I suspect he doesn't have an economic theory at all. I just hope that the current economic thinking prevailing currently in this country, which is still overshadowed by Thatcher and the free market, with no controls over the city casino soon collapses and we can start from a fairer and more inclusive base!

JVRTRL -> Keypointist 16 Nov 2016 02:15

The system that Clinton developed was an inheritance from George H.W. Bush, Reagan (to a large degree), Carter, with another large assist from Nixon and the Powell Memo.

Bill Clinton didn't do it by himself. The GOP did it with him hand-in-hand, with the only resistance coming from a minority within the Democratic party.

Trump's victory was due to many factors. A large part of it was Hillary Clinton's campaign and the candidate. Part of it was the effectiveness of the GOP massive resistance strategy during the Obama years, wherein they pursued a course of obstruction in an effort to slow the rate of the economic recovery (e.g. as evidence of the bad faith, they are resurrecting a $1 trillion infrastructure bill that Obama originally proposed in 2012, and now that they have full control, all the talk about "deficits" goes out the window).

Obama and the Democratic party also bear responsibility for not recognizing the full scope of the financial collapse in 2008-2009, passing a stimulus package that was about $1 trillion short of spending needed to accelerate the recovery by the 2010 mid-terms, combined with a weak financial regulation law (which the GOP is going to destroy), an overly complicated health care law -- classic technocratic, neoliberal incremental policy -- and the failure of the Obama administration to hold Wall Street accountable for criminal misconduct relating to the financial crisis. Obama's decision to push unpopular trade agreements didn't help either. As part of the post-mortem, the decision to continuing pushing the TPP may have cost Clinton in the rust belt states that went for Trump. The agreement was unpopular, and her shift on the policy didn't come across as credible. People noticed as well that Obama was trying to pass the measure through the lame-duck session of Congress post-election. With Trump's election, the TPP is done too.

JVRTRL daltonknox67 16 Nov 2016 02:00

There is no iron law that says a country has to run large trade deficits. The existence of large trade deficits is usually a result of policy choices.

Growth also hasn't gone into the tank. What's changed is the distribution of the gains in GDP growth -- that is in no small part a direct consequence of changes in policy since the 1970s. It isn't some "market place magic". We have made major changes to tax laws since that time. We have weakened collective bargaining, which obviously has a negative impact on wages. We have shifted the economy towards financial services, which has the tendency of increasing inequality.

The idea too that people will be "poorer" than in the 1920s and 1930s is just plain ignorant. It has no basis in any of the data. Wages in the bottom quartile have actually decreased slightly since the 1970s in real terms, but those wages in the 1970s were still exponentially higher than wages in the 1920s in real terms.

Wages aren't stagnating because people are working less. Wages have stagnated because of dumb policy choices that have tended to incentives looting by those at the top of the income distribution from workers in the lower parts of the economy. The 2008 bailouts were a clear illustration of this reality. People in industries rigged rules to benefit themselves. They misallocated resources. Then they went to representatives and taxpayers and asked for a large no-strings attached handout that was effectively worth trillions of dollars (e.g. hundreds of billions through TARP, trillions more through other programs). As these players become wealthier, they have an easier time buying politicians to rig rules further to their advantage.


JVRTRL YinxxXing 16 Nov 2016 01:50

Part of the problem is a quirk of the U.S. system. We have an electoral college system, which was originally adopted over 200 years ago, in part, in order to help to preserve slavery. If the presidential election was based on a national vote, I suspect we would have higher participation rates, because every vote in every state would carry equal weight.

As things stand now, in 35-40 states in any election cycle, there usually isn't much doubt about the result of the presidential race.

On top of this, there are all kind of obstacles that tend to make voting more difficult. e.g. voting on a weekday, voter IDs, voter suppression efforts.

JVRTRL -> RandomLibertarian 16 Nov 2016 01:44

"The tyranny of the 51 per cent is the oldest and most solid argument against a pure democracy."

"Tyranny of the majority" is always a little bizarre, given that the dynamics of majority rule are unlike the governmental structures of an actual tyranny. Even in the context of the U.S. we had minority rule due to voting restrictions for well over a century that was effectively a tyranny for anyone who was denied the ability to participation in the elections process. Pure majorities can go out of control, especially in a country with massive wealth disparities and with weak civic institutions.

On the other hand, this is part of the reason to construct a system of checks and balances. It's also part of the argument for representative democracy.

"Neoliberalism" is entirely compatible with "growth of the state". Reagan greatly enlarged the state. He privatized several functions and it actually had the effect of increasing spending.

When it comes to social safety net programs, e.g. in health care and education -- those programs almost always tend to be more expensive and more complicated when privatized. If the goal was to actually save taxpayer money, in the U.S. at least, it would have made a lot more sense to have a universal Medicare system, rather than a massive patch-work like the ACA and our hybrid market.

Entirely state controlled health care systems tend to be even more cost-effective. Part of the issue is that privatization tends to create feedback mechanism that increase the size of spending in programs. Even Eisenhower's noted "military industrial complex" is an illustration of what happens when privatization really takes hold.

daltonknox67 15 Nov 2016 21:46

After WWII most of the industrialised world had been bombed or fought over with destruction of infrastructure and manufacturing. The US alone was undamaged. It enjoyed a manufacturing boom that lasted until the 70's when competition from Germany and Japan, and later Taiwan, Korea and China finally brought it to an end.

As a result Americans born after 1950 will be poorer than the generation born in the 20's and 30's.

This is not a conspiracy or government malfunction. It is a quirk of history. Get over it and try working.

Arma Geddon 15 Nov 2016 21:11

Another nasty neoliberal policy of Reagan and Thatcher, was to close all the mental hospitals, and to sweeten the pill to sell to the voters, they called it Care in the Community, except by the time those hospitals closed and the people who had to relay on those institutions, they found out and are still finding out that there is very little care in the community left any more, thanks to Thatcher's disintegration of the ethos community spirit.

In their neoliberal mantra of thinking, you are on your own now, tough, move on, because you are hopeless and non productive, hence you are a burden to taxpayers.

Its been that way of thinking for over thirty years, and now the latest group targeted, are the sick and disabled, victims of the neoliberal made banking crash and its neoliberal inspired austerity, imposed of those least able to fight back or defend themselves i.e. vulnerable people again!

AlfredHerring GimmeHendrix 15 Nov 2016 20:23

It was in reference to Maggie slapping a copy of Hayek's Constitution of Liberty on the table and saying this is what we believe. As soon as you introduce the concept of belief you're talking about religion hence completeness while Hayek was writing about economics which demands consistency. i.e. St. Maggie was just as bad as any Stalinist: economics and religion must be kept separate or you get a bunch of dead peasants for no reason other than your own vanity.

Ok, religion based on a sky god who made us all is problematic but at least there's always the possibility of supplication and miracles. Base a religion on economic theory and you're just making sausage of your neighbors kids.

TanTan -> crystaltips2 15 Nov 2016 20:10

If you claim that the only benefit of private enterprise is its taxability, as you did, then why not cut out the middle man and argue for full state-directed capitalism?

Because it is plainly obvious that private enterprise is not directed toward the public good (and by definition). As we have both agreed, it needs to have the right regulations and framework to give it some direction in that regard. What "the radical left" are pointing out is that the idea of private enterprise is now completely out of control, to the point where voters are disenfranchised because private enterprise has more say over what the government does than the people. Which is clearly a problem.

As for the rest, it's the usual practice of gathering every positive metric available and somehow attributing it to neoliberalism, no matter how tenuous the threads, and as always with zero rigour. Supposedly capitalism alone doubled life expectancy, supports billions of extra lives, invented the railways, and provides the drugs and equipment that keep us alive. As though public education, vaccines, antibiotics, and massive availability of energy has nothing to do with those things.

As for this computer being the invention of capitalism, who knows, but I suppose if one were to believe that everything was invented and created by capitalism and monetary motives then one might believe that. Energy allotments referred to the limit of our usage of readily available fossil fuels which you remain blissfully unaware of.

Children have already been educated to agree with you, in no small part due to a fear of the communist regimes at the time, but at the expense of critical thinking. Questioning the system even when it has plainly been undermined to its core is quickly labelled "radical" regardless of the normalcy of the query. I don't know what you could possibly think left-wing motives could be, but your own motives are plain to see when you immediately lump people who care about the planet in with communist idealogues. If rampant capitalism was going to solve our problems I'm all for it, but it will take a miracle to reverse the damage it has already done, and only a fool would trust it any further.

YouDidntBuildThat -> Filipio 15 Nov 2016 20:06

Filipo

You argue that a great many government functions have been privatized. I agree. Yet strangely you present zero evidence of any downsides of that happening. Most of the academic research shows a net benefit, not just on budgets but on employee and customer satisfaction. See for example.

And despite these privitazation cost savings and alleged neoliberal "austerity" government keeps taking a larger share of our money, like a malignant cancer. No worries....We're from the government, and we're here to help.

Keypointist 15 Nov 2016 20:04

I think the damage was done when the liberal left co-opted neo-liberalism. What happened under Bill Clinton was the development of crony capitalism where for example the US banks were told to lower their credit standards to lend to people who couldn't really afford to service the loans.

It was this that created too big to fail and the financial crisis of 2008. Conservative neo-liberals believe passionately in competition and hate monopolies. The liberal left removed was was productive about neo-liberalism and replaced it with a kind of soft state capitalism where big business was protected by the state and the tax payer was called on to bail out these businesses. THIS more than anything else led to Trump's victory.

[Sep 19, 2017] Neoliberalism: the idea that swallowed the world by Stephen Metcalf

Highly recommended!
Notable quotes:
"... The word ["neoliberalism"] has become a rhetorical weapon, but it properly names the reigning ideology of our era – one that venerates the logic of the market and strips away the things that make us human. ..."
"... Last summer, researchers at the International Monetary Fund settled a long and bitter debate over "neoliberalism": they admitted it exists. Three senior economists at the IMF, an organisation not known for its incaution, published a paper questioning the benefits of neoliberalism ..."
"... The paper gently called out a "neoliberal agenda" for pushing deregulation on economies around the world, for forcing open national markets to trade and capital, and for demanding that governments shrink themselves via austerity or privatisation. The authors cited statistical evidence for the spread of neoliberal policies since 1980, and their correlation with anaemic growth, boom-and-bust cycles and inequality. ..."
"... In the aftermath of the 2008 financial crisis, it was a way of assigning responsibility for the debacle, not to a political party per se, but to an establishment that had conceded its authority to the market. For the Democrats in the US and Labour in the UK, this concession was depicted as a grotesque betrayal of principle. Bill Clinton and Tony Blair, it was said, had abandoned the left's traditional commitments, especially to workers, in favour of a global financial elite and the self-serving policies that enriched them; and in doing so, had enabled a sickening rise in inequality. ..."
"... Peer through the lens of neoliberalism and you see more clearly how the political thinkers most admired by Thatcher and Reagan helped shape the ideal of society as a kind of universal market ..."
"... Of course the goal was to weaken the welfare state and any commitment to full employment, and – always – to cut taxes and deregulate. But "neoliberalism" indicates something more than a standard rightwing wish list. It was a way of reordering social reality, and of rethinking our status as individuals. ..."
"... In short, "neoliberalism" is not simply a name for pro-market policies, or for the compromises with finance capitalism made by failing social democratic parties. It is a name for a premise that, quietly, has come to regulate all we practise and believe: that competition is the only legitimate organising principle for human activity. ..."
"... No sooner had neoliberalism been certified as real, and no sooner had it made clear the universal hypocrisy of the market, than the populists and authoritarians came to power ..."
"... Against the forces of global integration, national identity is being reasserted, and in the crudest possible terms. What could the militant parochialism of Brexit Britain and Trumpist America have to do with neoliberal rationality? ..."
"... It isn't only that the free market produces a tiny cadre of winners and an enormous army of losers – and the losers, looking for revenge, have turned to Brexit and Trump. There was, from the beginning, an inevitable relationship between the utopian ideal of the free market and the dystopian present in which we find ourselves; ..."
"... That Hayek is considered the grandfather of neoliberalism – a style of thought that reduces everything to economics – is a little ironic given that he was such a mediocre economist. ..."
"... This last is what makes neoliberalism "neo". It is a crucial modification of the older belief in a free market and a minimal state, known as "classical liberalism". In classical liberalism, merchants simply asked the state to "leave us alone" – to laissez-nous faire. Neoliberalism recognised that the state must be active in the organisation of a market economy. The conditions allowing for a free market must be won politically, and the state must be re-engineered to support the free market on an ongoing basis. ..."
"... Hayek had only his idea to console him; an idea so grand it would one day dissolve the ground beneath the feet of Keynes and every other intellectual. Left to its own devices, the price system functions as a kind of mind. And not just any mind, but an omniscient one: the market computes what individuals cannot grasp. Reaching out to him as an intellectual comrade-in-arms, the American journalist Walter Lippmann wrote to Hayek, saying: "No human mind has ever understood the whole scheme of a society At best a mind can understand its own version of the scheme, something much thinner, which bears to reality some such relation as a silhouette to a man." ..."
"... The only social end is the maintenance of the market itself. In its omniscience, the market constitutes the only legitimate form of knowledge, next to which all other modes of reflection are partial, in both senses of the word: they comprehend only a fragment of a whole and they plead on behalf of a special interest. Individually, our values are personal ones, or mere opinions; collectively, the market converts them into prices, or objective facts. ..."
"... According to the logic of Hayek's Big Idea, these expressions of human subjectivity are meaningless without ratification by the market ..."
"... ociety reconceived as a giant market leads to a public life lost to bickering over mere opinions; until the public turns, finally, in frustration to a strongman as a last resort for solving its otherwise intractable problems. ..."
"... What began as a new form of intellectual authority, rooted in a devoutly apolitical worldview, nudged easily into an ultra-reactionary politics ..."
Aug 18, 2017 | www.theguardian.com

The word ["neoliberalism"] has become a rhetorical weapon, but it properly names the reigning ideology of our era – one that venerates the logic of the market and strips away the things that make us human.

Last summer, researchers at the International Monetary Fund settled a long and bitter debate over "neoliberalism": they admitted it exists. Three senior economists at the IMF, an organisation not known for its incaution, published a paper questioning the benefits of neoliberalism . In so doing, they helped put to rest the idea that the word is nothing more than a political slur, or a term without any analytic power. The paper gently called out a "neoliberal agenda" for pushing deregulation on economies around the world, for forcing open national markets to trade and capital, and for demanding that governments shrink themselves via austerity or privatisation. The authors cited statistical evidence for the spread of neoliberal policies since 1980, and their correlation with anaemic growth, boom-and-bust cycles and inequality.

Neoliberalism is an old term, dating back to the 1930s, but it has been revived as a way of describing our current politics – or more precisely, the range of thought allowed by our politics . In the aftermath of the 2008 financial crisis, it was a way of assigning responsibility for the debacle, not to a political party per se, but to an establishment that had conceded its authority to the market. For the Democrats in the US and Labour in the UK, this concession was depicted as a grotesque betrayal of principle. Bill Clinton and Tony Blair, it was said, had abandoned the left's traditional commitments, especially to workers, in favour of a global financial elite and the self-serving policies that enriched them; and in doing so, had enabled a sickening rise in inequality.

Neoliberalism: the idea that swallowed the world – podcast

Over the past few years, as debates have turned uglier, the word has become a rhetorical weapon, a way for anyone left of centre to incriminate those even an inch to their right. (No wonder centrists say it's a meaningless insult: they're the ones most meaningfully insulted by it.) But "neoliberalism" is more than a gratifyingly righteous jibe. It is also, in its way, a pair of eyeglasses.

Peer through the lens of neoliberalism and you see more clearly how the political thinkers most admired by Thatcher and Reagan helped shape the ideal of society as a kind of universal market (and not, for example, a polis, a civil sphere or a kind of family) and of human beings as profit-and-loss calculators (and not bearers of grace, or of inalienable rights and duties). Of course the goal was to weaken the welfare state and any commitment to full employment, and – always – to cut taxes and deregulate. But "neoliberalism" indicates something more than a standard rightwing wish list. It was a way of reordering social reality, and of rethinking our status as individuals.

Still peering through the lens, you see how, no less than the welfare state, the free market is a human invention. You see how pervasively we are now urged to think of ourselves as proprietors of our own talents and initiative, how glibly we are told to compete and adapt. You see the extent to which a language formerly confined to chalkboard simplifications describing commodity markets (competition, perfect information, rational behaviour) has been applied to all of society, until it has invaded the grit of our personal lives, and how the attitude of the salesman has become enmeshed in all modes of self-expression.

In short, "neoliberalism" is not simply a name for pro-market policies, or for the compromises with finance capitalism made by failing social democratic parties. It is a name for a premise that, quietly, has come to regulate all we practise and believe: that competition is the only legitimate organising principle for human activity.

No sooner had neoliberalism been certified as real, and no sooner had it made clear the universal hypocrisy of the market, than the populists and authoritarians came to power. In the US, Hillary Clinton, the neoliberal arch-villain, lost – and to a man who knew just enough to pretend he hated free trade . So are the eyeglasses now useless? Can they do anything to help us understand what is broken about British and American politics? Against the forces of global integration, national identity is being reasserted, and in the crudest possible terms. What could the militant parochialism of Brexit Britain and Trumpist America have to do with neoliberal rationality? What possible connection is there between the president – a freewheeling boob – and the bloodless paragon of efficiency known as the free market?

It isn't only that the free market produces a tiny cadre of winners and an enormous army of losers – and the losers, looking for revenge, have turned to Brexit and Trump. There was, from the beginning, an inevitable relationship between the utopian ideal of the free market and the dystopian present in which we find ourselves; between the market as unique discloser of value and guardian of liberty, and our current descent into post-truth and illiberalism.

Moving the stale debate about neoliberalism forward begins, I think, with taking seriously the measure of its cumulative effect on all of us, regardless of affiliation. And this requires returning to its origins, which have nothing to do with Bill or Hillary Clinton. There once was a group of people who did call themselves neoliberals, and did so proudly, and their ambition was a total revolution in thought. The most prominent among them, Friedrich Hayek, did not think he was staking out a position on the political spectrum, or making excuses for the fatuous rich, or tinkering along the edges of microeconomics.

He thought he was solving the problem of modernity: the problem of objective knowledge. For Hayek, the market didn't just facilitate trade in goods and services; it revealed truth. How did his ambition collapse into its opposite – the mind-bending possibility that, thanks to our thoughtless veneration of the free market, truth might be driven from public life altogether?


When the idea occurred to Friedrich Hayek in 1936, he knew, with the conviction of a "sudden illumination", that he had struck upon something new. "How can the combination of fragments of knowledge existing in different minds," he wrote, "bring about results which, if they were to be brought about deliberately, would require a knowledge on the part of the directing mind which no single person can possess?"

This was not a technical point about interest rates or deflationary slumps. This was not a reactionary polemic against collectivism or the welfare state. This was a way of birthing a new world. To his mounting excitement, Hayek understood that the market could be thought of as a kind of mind.

Adam Smith's "invisible hand" had already given us the modern conception of the market: as an autonomous sphere of human activity and therefore, potentially, a valid object of scientific knowledge. But Smith was, until the end of his life, an 18th-century moralist. He thought the market could be justified only in light of individual virtue, and he was anxious that a society governed by nothing but transactional self-interest was no society at all. Neoliberalism is Adam Smith without the anxiety.

That Hayek is considered the grandfather of neoliberalism – a style of thought that reduces everything to economics – is a little ironic given that he was such a mediocre economist. He was just a young, obscure Viennese technocrat when he was recruited to the London School of Economics to compete with, or possibly even dim, the rising star of John Maynard Keynes at Cambridge.

The plan backfired, and Hayek lost out to Keynes in a rout. Keynes's General Theory of Employment, Interest and Money, published in 1936, was greeted as a masterpiece. It dominated the public discussion, especially among young English economists in training, for whom the brilliant, dashing, socially connected Keynes was a beau idéal . By the end of the second world war, many prominent free-marketers had come around to Keynes's way of thinking, conceding that government might play a role in managing a modern economy. The initial excitement over Hayek had dissipated. His peculiar notion that doing nothing could cure an economic depression had been discredited in theory and practice. He later admitted that he wished his work criticising Keynes would simply be forgotten.

... Hayek built into neoliberalism the assumption that the market provides all necessary protection against the one real political danger: totalitarianism. To prevent this, the state need only keep the market free.

This last is what makes neoliberalism "neo". It is a crucial modification of the older belief in a free market and a minimal state, known as "classical liberalism". In classical liberalism, merchants simply asked the state to "leave us alone" – to laissez-nous faire. Neoliberalism recognised that the state must be active in the organisation of a market economy. The conditions allowing for a free market must be won politically, and the state must be re-engineered to support the free market on an ongoing basis.

That isn't all: every aspect of democratic politics, from the choices of voters to the decisions of politicians, must be submitted to a purely economic analysis. The lawmaker is obliged to leave well enough alone – to not distort the natural actions of the marketplace – and so, ideally, the state provides a fixed, neutral, universal legal framework within which market forces operate spontaneously. The conscious direction of government is never preferable to the "automatic mechanism of adjustment" – ie the price system, which is not only efficient but maximises liberty, or the opportunity for men and women to make free choices about their own lives.

As Keynes jetted between London and Washington, creating the postwar order, Hayek sat pouting in Cambridge. He had been sent there during the wartime evacuations; and he complained that he was surrounded by "foreigners" and "no lack of orientals of all kinds" and "Europeans of practically all nationalities, but very few of real intelligence".

Stuck in England, without influence or respect, Hayek had only his idea to console him; an idea so grand it would one day dissolve the ground beneath the feet of Keynes and every other intellectual. Left to its own devices, the price system functions as a kind of mind. And not just any mind, but an omniscient one: the market computes what individuals cannot grasp. Reaching out to him as an intellectual comrade-in-arms, the American journalist Walter Lippmann wrote to Hayek, saying: "No human mind has ever understood the whole scheme of a society At best a mind can understand its own version of the scheme, something much thinner, which bears to reality some such relation as a silhouette to a man."

It is a grand epistemological claim – that the market is a way of knowing, one that radically exceeds the capacity of any individual mind. Such a market is less a human contrivance, to be manipulated like any other, than a force to be studied and placated. Economics ceases to be a technique – as Keynes believed it to be – for achieving desirable social ends, such as growth or stable money. The only social end is the maintenance of the market itself. In its omniscience, the market constitutes the only legitimate form of knowledge, next to which all other modes of reflection are partial, in both senses of the word: they comprehend only a fragment of a whole and they plead on behalf of a special interest. Individually, our values are personal ones, or mere opinions; collectively, the market converts them into prices, or objective facts.

... ... ...

The more Hayek's idea expands, the more reactionary it gets, the more it hides behind its pretence of scientific neutrality – and the more it allows economics to link up with the major intellectual trend of the west since the 17th century. The rise of modern science generated a problem: if the world is universally obedient to natural laws, what does it mean to be human? Is a human being simply an object in the world, like any other? There appears to be no way to assimilate the subjective, interior human experience into nature as science conceives it – as something objective whose rules we discover by observation.

... ... ...

More than anyone, even Hayek himself, it was the great postwar Chicago economist Milton Friedman who helped convert governments and politicians to the power of Hayek's Big Idea. But first he broke with two centuries of precedent and declared that economics is "in principle independent of any particular ethical position or normative judgments" and is "an 'objective' science, in precisely the same sense as any of the physical sciences". Values of the old, mental, normative kind were defective, they were "differences about which men can ultimately only fight". There is the market, in other words, and there is relativism.

Markets may be human facsimiles of natural systems, and like the universe itself, they may be authorless and valueless. But the application of Hayek's Big Idea to every aspect of our lives negates what is most distinctive about us. That is, it assigns what is most human about human beings – our minds and our volition – to algorithms and markets, leaving us to mimic, zombie-like, the shrunken idealisations of economic models. Supersizing Hayek's idea and radically upgrading the price system into a kind of social omniscience means radically downgrading the importance of our individual capacity to reason – our ability to provide and evaluate justifications for our actions and beliefs.

As a result, the public sphere – the space where we offer up reasons, and contest the reasons of others – ceases to be a space for deliberation, and becomes a market in clicks, likes and retweets. The internet is personal preference magnified by algorithm; a pseudo-public space that echoes the voice already inside our head. Rather than a space of debate in which we make our way, as a society, toward consensus, now there is a mutual-affirmation apparatus banally referred to as a "marketplace of ideas". What looks like something public and lucid is only an extension of our own pre-existing opinions, prejudices and beliefs, while the authority of institutions and experts has been displaced by the aggregative logic of big data. When we access the world through a search engine, its results are ranked, as the founder of Google puts it, "recursively" – by an infinity of individual users functioning as a market, continuously and in real time.

... ... ...

According to the logic of Hayek's Big Idea, these expressions of human subjectivity are meaningless without ratification by the market – as Friedman said, they are nothing but relativism, each as good as any other. When the only objective truth is determined by the market, all other values have the status of mere opinions; everything else is relativist hot air. But Friedman's "relativism" is a charge that can be thrown at any claim based on human reason. It is a nonsense insult, as all humanistic pursuits are "relative" in a way the sciences are not. They are relative to the (private) condition of having a mind, and the (public) need to reason and understand even when we can't expect scientific proof. When our debates are no longer resolved by deliberation over reasons, then the whimsies of power will determine the outcome.

This is where the triumph of neoliberalism meets the political nightmare we are living through now. "You had one job," the old joke goes, and Hayek's grand project, as originally conceived in 30s and 40s, was explicitly designed to prevent a backslide into political chaos and fascism. But the Big Idea was always this abomination waiting to happen. It was, from the beginning, pregnant with the thing it was said to protect against. Society reconceived as a giant market leads to a public life lost to bickering over mere opinions; until the public turns, finally, in frustration to a strongman as a last resort for solving its otherwise intractable problems.

... ... ...

What began as a new form of intellectual authority, rooted in a devoutly apolitical worldview, nudged easily into an ultra-reactionary politics. What can't be quantified must not be real, says the economist, and how do you measure the benefits of the core faiths of the enlightenment – namely, critical reasoning, personal autonomy and democratic self-government? When we abandoned, for its embarrassing residue of subjectivity, reason as a form of truth, and made science the sole arbiter of both the real and the true, we created a void that pseudo-science was happy to fill.

... ... ...

[Sep 18, 2017] Critical Realism: Mathematics versus Mythematics in Economics

Highly recommended!
Notable quotes:
"... I argue here that it's the abuse of mathematics by Neoclassical economists -- who practice what I have dubbed "Mythematics" rather than Mathematics--and that some phenomena are uncovered by mathematical logic that can't be discovered by verbal logic alone. ..."
"... A lady in the audi­ence named Barb Jacobson suggested that using the name Neo-Classical gives it a cer­tain degree of cache and wants you guys to start call­ing it for what it is: "Scorched Earth Economics." What a great name to use and doesn't it ring true? ..."
Oct 02, 2015 | www.debtdeflation.com

This is the brief talk I gave at a conference celebrating 25 years of the Critical Realist seminar series at Cambridge University. Critical realists argue against the use of mathematics in economics; I argue here that it's the abuse of mathematics by Neoclassical economists -- who practice what I have dubbed "Mythematics" rather than Mathematics--and that some phenomena are uncovered by mathematical logic that can't be discovered by verbal logic alone.

I give the example of my own model of Minsky's Financial Instability Hypothesis, which revealed the possibility of a "Great Moderation" preceding a "Great Recession" before either event had happened.

David Milburn, September 12, 2015 at 9:38 am

Steve,

Last week Prof Bill Mitchell was in London where he gave a talk on re-framing the language used in the media that carried on the myth of the main­stream groupthink. A lady in the audi­ence named Barb Jacobson suggested that using the name Neo-Classical gives it a cer­tain degree of cache and wants you guys to start call­ing it for what it is: "Scorched Earth Economics." What a great name to use and doesn't it ring true? Barb Jacobson is spot on!

Sue Madden, September 13, 2015 at 8:28 am

Hi Steve,
I was really amused to see an inter­view a while back in the New Sci­en­tist, with the "research chief" (!!) at the B of E. If you haven't seen it, you really must:

Opinion Interview with Andy Haldane: "Sackcloth and Ashes on Thread needle Street" New Scientist 25 March 2015

Corbyn was elected leader!!!! Now the sparks will fly. At least a pub­lic debate wor­thy of the name might at last be heard in our sad country.

Thanks for your work in trying to enlighten us!!
Sue.

[Sep 13, 2017] The Rape of the American Mind

Notable quotes:
"... Repeat mechanically your assumptions and suggestions, diminish the opportunity for communicating dissent and opposition. This is the formula for political conditioning of the masses. ..."
"... I-dont-care reaction ..."
"... Confusing a targeted audience is one of the necessary ingredients for effective mind control." ..."
"... Ennui of the bureaucrat, entropy of an inability to change, and the credibility trap of failed ideologies in a failing empire. ..."
"... Not so for the financiers and their minions. They will not be quiet, alas. The more badly they behave, the louder they seem to become. ..."
"... Although a child is limited by lack of faculty and experience, the speculator is hampered by vanity, a self-imposed lack of human development, and an almost obsessive preoccupation with drinking, favorite objects, and teats. ..."
jessescrossroadscafe.blogspot.com
"He who dictates and formulates the words and phrases we use, he who is master of the press and radio, is master of the mind. Repeat mechanically your assumptions and suggestions, diminish the opportunity for communicating dissent and opposition. This is the formula for political conditioning of the masses.

The big lie and monotonously repeated nonsense have more emotional appeal in a cold war than logic and reason.

The continual intrusion into our minds of the hammering noises of arguments and propaganda can lead to two kinds of reactions. It may lead to apathy and indifference, the I-dont-care reaction, or to a more intensified desire to study and to understand. Unfortunately, the first reaction is the more popular one. Confusing a targeted audience is one of the necessary ingredients for effective mind control."

Joost Meerloo, The Rape of the Mind

There is going to be another financial crisis within the next two years, and it will be global, and it may be much more consequential than the other two or three we have seen since the Fed embarked on this course of its long and checkered career.

It is also avoidable, and in their quiet, private moments the really good economists can see it coming. Why don't they say anything? Ennui of the bureaucrat, entropy of an inability to change, and the credibility trap of failed ideologies in a failing empire.

They did not get to where they are by 'rocking the boat.' And so they will be quiet, unless they see some advantage in it for them, most ordinarily in a pay for say.

Not so for the financiers and their minions. They will not be quiet, alas. The more badly they behave, the louder they seem to become.

They are short term, and almost infantile in the self-centered reasoning. Although a child is limited by lack of faculty and experience, the speculator is hampered by vanity, a self-imposed lack of human development, and an almost obsessive preoccupation with drinking, favorite objects, and teats.

They see something and they want it, they know only what they can feel in the desire of the moment, morally they are undeveloped, and when they make a mess they cry loudly, until an adult comes to clean it up for them. But unlike a child they have no gratitude, no sense of their own dependency, or natural affection for others.

Have a pleasant evening

[Sep 11, 2017] Neo-classical economics as a new flat earth cult

Highly recommended!
Notable quotes:
"... Comparative advantage is an absurdity. Protectionism is the only way to wealth, yet economists brainwashed generations of 17 and 18 year olds to believe that up was down and free trade would help the US. ..."
"... This is a new "flat earth" cult. And pretty well paid one: academic economists recently became something like lackeys of financial oligarchy and get some crump from the financial oligarchy table in return to promoting neo-classical economics, as a valuable for neoliberals pseudo-science. ..."
"... People who "do not fit" are filtered at early stages, much like in political parties. Nepotism is another factor. Having relatives in high positions (like is the case with Summers), being member of the dominant ethnic clan, or being a friend of an influential economist (like academic Mafiosi Andrei Shleifer) greatly helps... ..."
"... The most interesting part about this pseudoscience is how well it fits together (reminding me Marxism, to which it was a reaction). ..."
Apr 11, 2017 | economistsview.typepad.com

Will US Economists apologize for destroying the US? Free trade ruined America, April 11, 2017 at 03:28 PM

Will the American Economic Association ever apologize to the American people for helping to destroy the country with their absurd, simple-minded free trade preaching?

Comparative advantage is an absurdity. Protectionism is the only way to wealth, yet economists brainwashed generations of 17 and 18 year olds to believe that up was down and free trade would help the US.

AEA should toast itself in the ruins of Ohio, North Carolina or Iowa - pick any one of the thousands of ruined cities to gloat over.

libezkova -> Will US Economists apologize for destroying the US? Free trade ruined America, April 11, 2017 at 04:48 PM
You are simply naïve.

This is a new "flat earth" cult. And pretty well paid one: academic economists recently became something like lackeys of financial oligarchy and get some crump from the financial oligarchy table in return to promoting neo-classical economics, as a valuable for neoliberals pseudo-science.

Tremendous value of neoclassical economics for neoliberals is that they can use mathiness (trying to imitate physics) to obscure the promotions of neoliberal thinking. In fact, neoclassical economics is the major tool of indoctrination into "free market" nonsense of university students.

People who "do not fit" are filtered at early stages, much like in political parties. Nepotism is another factor. Having relatives in high positions (like is the case with Summers), being member of the dominant ethnic clan, or being a friend of an influential economist (like academic Mafiosi Andrei Shleifer) greatly helps...

People who do not fit but have tremendous talent are often suppressed. Like was the case with Hyman Minsky (and he was lucky that his career was at late stages during the full triumph of neoliberalism -- he managed to get a tenured professor position in 1965 when he was 46)

The most interesting part about this pseudoscience is how well it fits together (reminding me Marxism, to which it was a reaction).

Set of neoclassical myths such as "efficient market hypothesis", "rational expectations", "generalized stochastic equilibrium", "invisible hand", comprise a pretty coherent "secular religion". It may even have some minor value as a mathematical theory of some fictitious economic space (almost like in a computer game like Civilization) that never existed and will never exist.

But it is sold differently and tends to produce predictions and prescriptions (highly politicized in their nature) in line with neoliberal thinking. That's why it is maintained and promoted.

So expecting them to apologize is nonsense.

You can benefit from re-reading recent discussion of Karl Polanyi famous book "The Great Transformation" in this blog

http://economistsview.typepad.com/economistsview/2017/03/a-foreword-to-kari-polanyi-levitt.html#comment-6a00d83451b33869e201b7c8de5388970b

Another interesting question is how neoliberalism and neo-classical economics survived the financial meltdown. Here Professor Phillip Mirowski has some interesting insights:

https://www.youtube.com/watch?v=zsiT9P87J4g

>

[Aug 20, 2017] These days, with the internet, it is far easier for a smaller fraction to gravitate to an echo chamber, reinforce group think, and believe their numbers are much larger than what, in reality, exists.

Notable quotes:
"... Reminds me of the 60's and the SDS and their ilk. A large part of the under 30 crowd idolized Mao's Little Red Book and convinced themselves the "revolution" was imminent. So many times I heard the phrase "Up Against the Wall, MFs." Stupid fools. Back then people found each other by "teach-ins" and the so called "underground press." In those days it took a larger fraction to be able to blow in each other's ear and convince themselves they were the future "vanguard." ..."
Aug 20, 2017 | turcopolier.typepad.com

doug -> Tyler... , 18 August 2017 at 10:40 AM

-"Trump isnt our last chance. Its your last chance."

Reminds me of the 60's and the SDS and their ilk. A large part of the under 30 crowd idolized Mao's Little Red Book and convinced themselves the "revolution" was imminent. So many times I heard the phrase "Up Against the Wall, MFs." Stupid fools. Back then people found each other by "teach-ins" and the so called "underground press." In those days it took a larger fraction to be able to blow in each other's ear and convince themselves they were the future "vanguard."

These days, with the internet, it is far easier for a smaller fraction to gravitate to an echo chamber, reinforce group think, and believe their numbers are much larger than what, in reality, exists. This happens across the board. It's a rabbit hole Tyler. Don't go down it.

[Aug 10, 2017] The aspiration toward such objective knowledge belongs to the highest of which man is capable

Aug 10, 2017 | www.moonofalabama.org

V. Arnold | Aug 6, 2017 6:59:29 AM | 93

Probably my last post on this;

For the scientific method can teach us nothing else beyond how facts are related to, and conditioned by, each other. The aspiration toward such objective knowledge belongs to the highest of which man is capable, and you will certainly not suspect me of wishing to belittle the achievements and the heroic efforts of man in this sphere. Yet is equally clear that knowledge of what is does not open the door directly to what should be. One can have the clearest and most complete knowledge of what is , and yet not be able to deduct from that what should be the goal of our human aspirations.

Objective knowledge provides us with powerful instruments for the achievements of certain ends, but the ultimate goal itself and the longing to reach it must come from another source. And it is hardly necessary to argue for the view that our existence and our activity acquire meaning only by the setting up of such a goal and of corresponding values. (Albert Einstein, 1939)

I thought it dealt with thinking in general, just swell. ;-)

[Jul 17, 2017] It Takes a Theory to Beat a Theory The Adaptive Markets Hypothesis naked capitalism

Notable quotes:
"... This piece sounds like the survival of the fittest in vogue during GE's CEO Jack Welch days. I always add something to the nietzschean sentence. What does not kill you will make you stronger or will physically and mentally disable you for life. What is the what? The what can be the being pushed to play the most distasteful and absurd capitalist games. A hierarchical screwing! ..."
"... We rely on groups to support each other, because individually it is very hard to survive through chaos. That's the reason we are herd or pack animals, and our associations are know as society. ..."
"... When Maggott Thatcher stated 'there is no such thing as society." she was denying our basic survival mechanism to promote her own narrow, neoliberal, selfish ends. ..."
"... The Master and His Emissary ..."
"... The Minimalist Program ..."
"... brain functions across time and under myriad circumstances to generate behaviors ..."
"... i was disappointed to find he simply dove deeper into the proposition that our behavior is determined by our genes. Homo sapiens's prime adaptation is culture, which allows learned behaviors in individuals to be tranformed into adaptations. Our genes do not determine our behavior. We do. And we determine the behavior of the next generation by our choices of what cultural norms to propagate. ..."
"... As Bill Black has pointed out numerous times, the people who brought on the financial collapse were acting completely rationally. They crashed their own corporations not out of irrationality. They did it because they were trying to make themselves rich, and they didn't give a damn about the corporations they were looting in the process. ..."
"... The writer himself should have spent more time focusing on that great white shark because he's failed to notice he's given renewed life to social darwinism. These "highly evolved" institutions he talks about – like banks and hedge funds – are, in fact, keenly honed predators. Which is odd. An advanced social species like ours isn't supposed to prey on other members. His competition model involves people essentially eating other people. He's failed to note any distinction between inter-species and intra-species competition. ..."
Jul 17, 2017 | www.nakedcapitalism.com

diptherio , July 12, 2017 at 12:09 pm

All that, and not one mention of fraud how convenient.

No Way Out , July 12, 2017 at 12:32 pm

Fraud? They're professionals.

https://www.youtube.com/watch?v=DYa6FNKSgbk

JEHR , July 12, 2017 at 12:57 pm

diptherio, that was my thought also as I read more and more rapidly down the article. Fraud seems to have disappeared from financial discussions altogether.

grizziz , July 12, 2017 at 1:00 pm

I believe fraud is covered under #5 as 'innovation.'

hemeantwell , July 12, 2017 at 2:02 pm

Convenient is putting it mildly. About 2/3 of the way through I was waiting for a reference to Keynes, or Minsky, or Marx or -- and this is from my reading of Geoffrey Ingham's "The Nature of Money" -- Weber but instead found him coasting into some general behavioral precepts before landing without reference to anyone. It's like we're witnessing Spinoza concoct a system, rather than an economist talk about the importance of dropping models that have been under attack, and via arguments that are much more specific, for decades.

ChrisPacific , July 12, 2017 at 9:57 pm

I think this model handles fraud a lot better than the EMT does. If you accept that individuals make decisions based on a collection of subjective heuristics unique to that individual (which may not bear more than an indirect relationship to rationality) then you need to consider the possibility that those heuristics might be manipulated by an outside party for the purpose of separating said individual from their cash. Which would cover a wide range of behaviours, from fraud to lesser examples like marketing (which is also not modeled by the EMT).

On a first impression it seems to be at least approximately consistent with reality and how people behave, which puts it ahead of EMT and most modern economic theory right off the bat, but it looks like more work is needed to get it to a point where it becomes a developed model capable of making falsifiable predictions.

ChrisPacific , July 12, 2017 at 11:56 pm

I also take exception to the definition of 'rationality' as the solution to an optimization problem based on a universal utility function in which everything can be measured by a single number and is directly comparable to everything else. To the extent this article uses the term, it seems to be adopting the standard utility maximization definition, which means it's more of a minor heresy than a completely new theory.

paul , July 12, 2017 at 12:13 pm

So adaptive markets are pretty much the same as rational ones, just taking a slightly more roundabout route to those optimal outcomes? Never been taken with the invocation of evolution outside biology. A lot of bacteria get killed before they find a way round a decent antibiotic.

Evolution at the speed of thought has me quite baffled.

Sue , July 12, 2017 at 2:21 pm

This piece sounds like the survival of the fittest in vogue during GE's CEO Jack Welch days. I always add something to the nietzschean sentence. What does not kill you will make you stronger or will physically and mentally disable you for life. What is the what? The what can be the being pushed to play the most distasteful and absurd capitalist games. A hierarchical screwing!

Terry Flynn , July 12, 2017 at 12:36 pm

OK I lay my cards on the table as someone who came from economics and ended up following the psychologists but this sounds like a belated attempt to reconcile a bunch of findings from experimental economics that were long known in psychology And which lay out an unduly long list of assumptions in an attempt to keep some links with economics when the psychologists recognised back in 1960 that just two assumptions were needed – giving the flexibility required to explain all sorts of heuristics.

Synoia , July 12, 2017 at 12:41 pm

Close, but no cigar:

We've seen how biofeedback measurements can be used to study behavior, We know that human behavior, both the rational and the seemingly irrational ,

Nonlinear Feedback generates Chaos .

As a result of this feedback As long as those challenges remain stable over time, their heuristics will eventually adapt to yield approximately optimal solutions to those challenges.

Nonlinear feedback – Chaos

Assumption = As long as these challenges remain stable .

Chaos removes any possibility of stability.

Good article, but the conclusion is hopeless, because the author is seeking some assurance of stability where there is none.

Now to the social part of the thought experiment:

We rely on groups to support each other, because individually it is very hard to survive through chaos. That's the reason we are herd or pack animals, and our associations are know as society.

When Maggott Thatcher stated 'there is no such thing as society." she was denying our basic survival mechanism to promote her own narrow, neoliberal, selfish ends.

Ultrapope , July 12, 2017 at 4:01 pm

I agree with your comment Synoia but I do have a small quibble with where you say Chaos removes any possibility of stability. Chaos in markets can lead to financial ruin, which is a form of stability. Think bank runs. Sudden, unpredictable changes in the market could cause investors to get cold feet and pull out there money en masse. Once my bank runs out of money I can predict with reasonable certainty that if I didn't get my money out in time, I ain't getting it back (well ok, maybe if I was too big to fail things would be different ). Regardless, you are right, the author isn't doing his theory any justice in assuming "challenges remain stable over time".

Synoia , July 12, 2017 at 5:49 pm

Sudden, unpredictable changes in the market could cause investors to get cold feet and pull out there money en masse.

That's the embodiment of Chaos.

jsn , July 13, 2017 at 6:40 am

I can only guess that "depression" is the stability Ultrapope is referring to.

animalogic , July 13, 2017 at 12:29 am

Maybe.
But, as with many things, there are varying quantities/qualities of "chaos". Differences count.

Carolinian , July 12, 2017 at 12:58 pm

Great article.

Financial markets are a product of human evolution, and follow biological laws instead. The same basic principles of mutation, competition, and natural selection that determine the life history of a herd of antelope also apply to the banking industry, albeit with somewhat different population dynamics.

It's time Lefties admit that the conservatives are right about one thing: there is such a thing as "human nature." Traditional humanism with its roots in religion prefers to see us as moral beings who must choose between good and evil using our "free will." But it's possible that what is really happening is that our sometimes overpowering instincts are warring with our reason. Where the conservatives get it wrong is by putting all the emphasis on the former–the latter not so much.

I have a friend who dislikes dogs and complains about people anthropomorphizing their pets. My reply is that what motivates animal lovers is not so much that they are like us but that we are like them. This recognition–that we are a part of nature–may be a way out of the planet's looming disaster. Good to see economists taking up a theory that admits reality.

Grebo , July 12, 2017 at 11:11 pm

there is such a thing as "human nature."

My stock response to this is "no, there is animal nature and there is human culture ". The point of the latter is largely to control the former.

jsn , July 13, 2017 at 6:46 am

This is a much deeper comment than it first appears. Thanks!

Tomonthebeach , July 12, 2017 at 1:00 pm

As a psychologist, when I look at economics (which is often), I see a few dangerous linear assumptions elaborated in complex calculus trying to apply LISREL or some other tool to make sense of past economic behavior which is then projected forward just in time to be proven incorrect – much of the time.

A theory is no use if it cannot be shown to predict better than what we have already. We have theories in behavioral science like chaos and complexity which seem to capture irrationality to some extent. We also have analytic strategies that do not depend on linear equations – dynamical models. Such dynamic models have been shown to predict all sorts of behaviors in the animal world, and work by folks like Josh Epstein has shown it works for people too.

Maybe thinking more dynamically is key to better understanding – like why Bitcoins are worth anything more than a bag of Legos – at least Legos are tangible.

edr , July 12, 2017 at 1:04 pm

Homo sapiens isn't Homo economicus. Humans have a full set of values, some of which conflict with straight up monetary gains.

There is some level of honest behavior that is most profitable to a society. Brazil and the U.S. have had similar level of land and natural resources but very different outcomes. Corruption is the indicator that determines which society did better.

Stephen Gardner , July 12, 2017 at 2:39 pm

Your statement: "Homo sapiens isn't Homo economicus" is the crux of the issue. This is why so much of modern economic theory is bunk. The main hypothesis is incorrect. My training is in physics so what we used to say to denigrate a theory that was based on bad assumptions was "assume a spherical cow". The economics profession has been harming the common people with their "spherical cows" for decades but it's all good because the people Carlin called the real owners have done nicely. At least until now. I think I'm beginning to here the distant sound of tumbrils rolling toward the homes of the real owners.

Jeremy Grimm , July 12, 2017 at 3:00 pm

Isn't "Assume a can-opener" or something like that the punch line for the joke about some guys starving on a desert island when a can of stew washes up on the beach.

Found it!:
[https://en.wikipedia.org/wiki/Assume_a_can_opener]
"There is a story that has been going around about a physicist, a chemist, and an economist who were stranded on a desert island with no implements and a can of food. The physicist and the chemist each devised an ingenious mechanism for getting the can open; the economist merely said, "Assume we have a can opener"

Terry Flynn , July 12, 2017 at 3:17 pm

yeah I always loved that joke. It ties in with the comments above made by Tomonthebeach and edr. The psychological stuff I deal with is careful to stay within the confines of the problem we are trying to solve, rather than assume some global utility function underpinned by homo economicus (and which therefore borders on religion).

Synoia also made a great comment regarding dynamics . if I'd stayed in academia the next project I'd have been trying to address was using choice model parameters as "starting values" to implement agent based models alas that's something I never got to investigate and that I hope others will.

Jeremy Grimm , July 12, 2017 at 3:58 pm

Reminds me of another joke -- mechanical engineering has made great progress elaborating the mathematics for a chair with zero legs and for chairs with one and two legs. There is a lot of excitement in recent developments in the study of chairs with three legs but deep mysteries remain in efforts to understand the mathematics of chairs with more than three legs.

Terry Flynn , July 12, 2017 at 4:26 pm

lol hadn't heard that one, thanks!

Byron the Light Bulb , July 12, 2017 at 1:10 pm

Ayn Rand's Objectivism was just a mating strategy in that it provided justification for her to poach husbands from heiresses and slap the buns on dreamboat Alan Greenspan. [Have you read my book? Let's erect that skyscraper.–Ayn] The economy is just a vehicle for the human genomes of economists to replicate.

David Barrera , July 12, 2017 at 1:41 pm

Survival to what? For the most part to a second nature world which is a cultural construction.
Adaptation to environment, as if the latter had been thrown to us by the gods of nature or, to give you a more scientific tang, it had been formed by natural evolutionary forces. Undoubtedly, the most powerful agents through the institutions they shape and control have a lot to do on how thick is the air we breath and how heavy is the weight of the world we carry on our backs. This is not to say that they are not to some degree obliged to their inheritance and creations or that others can not have any saying, influence or acquiescence to them.
Adaptations to changes, as if the changes were the inevitable product of autopiloted supra-objective structures for agents without agents and such changes-now indeed- brought about the corollary of adaptation.

Mel , July 12, 2017 at 2:10 pm

I still prefer Iain McGilchrist's The Master and His Emissary , for its neurological detail. It covers the same scope as this post, yet also says some things.

jCandlish , July 12, 2017 at 2:46 pm

Noam Chomsky was careful to label his latest linguistic approach The Minimalist Program , because it is not testable by hypotheses. It is a shame that this point of rigor was lost on his MIT colleges at the Sloan School.

Whatever. Adaptive Market? Fine. Never admit to the command economy.

Jeremy Grimm , July 12, 2017 at 3:51 pm

Thank you for the reference to Chomsky's recent books on linguistics. But a quibble -- did Chomsky label his linguistic approach as a 'Program' because it doesn't generate testable hypotheses? I haven't read "The Minimalist Program" yet but would think he used the label 'Program' to indicate he was proposing a broad framework for new research in linguistics and its implications for human cognition. I believe Chomsky is presenting the case for his life's work and proposing paths for its continuation.

jCandlish , July 12, 2017 at 4:58 pm

Quibble noted.

The MP is an approach to the subject of linguistics and language. While it encapsulates theoretical elements, an approach isn't provable. Linguistics is goofy because it is within the intersection of mathematics and biology, fields which expose themselves to different levels of rigor.

The sloppy five key principles of the singular Adaptive Market Hypothesis are teasing my brain functions across time and under myriad circumstances to generate behaviors other than to retch. They read like a sell sheet.

MP, in Chomsky's own words
https://youtu.be/Rgd8BnZ2-iw?list=PLGp2jSK7C8hC8zNdENTa3Y__VGQbcUK1D&t=2618

Jeremy Grimm , July 13, 2017 at 2:28 am

Thank you very much! it's too late at night to follow Chomsky's video but I put it on my list for tomorrow afternoon. I was surprised by how the price for Chomsky's book "The Minimalist Program" cost. The video will help me decide whether to spring for the book now or watch for a used copy..

As for the post -- I am not sure why we were presented with it. It seems like some warmed over rancid tripe.

Jeremy Grimm , July 13, 2017 at 2:44 am

Did you mean to reference https://www.youtube.com/watch?v=Oq5lMTKJiqE
This is titled "The minimalist program and language acqusition". I have a copy of "What kind of Creatures are We?" and I've watched several of his videos derivative from his Dewey Lectures.

Ignacio , July 12, 2017 at 3:44 pm

5. Survival is the ultimate force driving competition, innovation, and adaptation.

Nope.
This is an old view of evolution. Evolution has evolved more than that. Survival is just one of the forces. I would argue that randomness is a very powerful force.

Left in Wisconsin , July 12, 2017 at 4:17 pm

This seems a transparent effort by (some) economists to substitute one ridiculous paradigm with another. I guess the title says it all.

This was the most hilarious part:

On one side of the divide were the free market economists, who believe that we are all economically rational adults, governed by the law of supply and demand. On the other side were the behavioral economists, who believe that we are all irrational animals, driven by fear and greed like so many other species of mammals.

So not only is the neoclassical paradigm NOT driven by greed but apparently it (rational maximization) is the exact opposite! Who knew?

Terry Flynn , July 12, 2017 at 4:41 pm

yeah it's why people like me are regarded as traitors . if you disagree with both sides you simply double your enemies (there is a Terry Pratchett point in there) ..

it's simply a case of horses for courses in certain circumstances yes a traditional individual maximisation function works in others the maximand is some societal one. You can use the same simple psychological theory of prediction but you have to recognise what the intrinsic "underlying scale of value" is. The psychologists have known since 1927 that choices can be "irrational" according to neoclassical economics. By understanding how people make errors they have been streets ahead (e.g. proving something in 1960 that an economist published in 1974 and got a "nobel" prize for)

Jeremy Grimm , July 12, 2017 at 5:02 pm

Is this post representative of the deep thought available from the Sloan School? Drag in some evolution and discussions of our origins as troglodytes -- make a quick review of behavioral theories of the market -- throw in some Darwin and voilà -- "adaptive markets". If I give up on trying to derive a theory for how the market operates from a theory for how the individuals in that market operate why do I care about the rational economic man or the adaptive man evolving in the jungles of the market. Perhaps I might question some of the other assumptions used to construct my model of the market and look more closely at some of the fraud and some of the smarmy trading practices[as many other commenters noted].

Does the new book by the author of this post explain how to develop the heuristics which will eventually adapt to yield approximately optimal solutions -- so some quants can program my adaptive trader computer program?

[Footnote: "adaptive" is cool also for sounding like "adaptive systems" a systems approach for solving problems like noise cancellation.]

meeps , July 12, 2017 at 6:44 pm

If it takes a theory to beat a theory, this author needs to look under more rocks. This theory isn't new. Its former iteration was faith healing (to pray harder). The Adaptive Markets Hypothesis iteration is to flail and suffocate on the beach longer. I'll give it points though for cleverly tucking old articles of faith into a pocket protector.

bdy , July 12, 2017 at 7:18 pm

Nice when you don't even have to revise the textbooks to accommodate the new paradigm. I can already hear the calls for deregulation so that markets can better adapt.

Steven , July 12, 2017 at 8:03 pm

About a third through I thought I knew where he was going: economic behavior is predicated on cultural norms, it appears to give rise to laws where those norms are stable across time, but recent rapid shifts in norms have created behaviors which are not anticipated by the laws, exposing the fallacy of calling them laws. Example: short term profit seeking to the exclusion of all else was not culturally allowed before, but now it is. This leads to different market behavior. Prior observers were not wrong about the laws they pronounced. The laws simply relied on moral restraints that were as ubiquitous, and thus as hidden, as water is to a fish.

Instead, i was disappointed to find he simply dove deeper into the proposition that our behavior is determined by our genes. Homo sapiens's prime adaptation is culture, which allows learned behaviors in individuals to be tranformed into adaptations. Our genes do not determine our behavior. We do. And we determine the behavior of the next generation by our choices of what cultural norms to propagate.

Oh well.

blennylips , July 12, 2017 at 9:27 pm

If you got the time, I'd recommend "sitting" in on Robert Sapolsky's 2010 Stanford course " Human Behavioral Biology ".

Its very good. Genes are not the dictator of behavior, just one of several players. The environment comes in through epigenetics. See https://en.wikipedia.org/wiki/Dutch_famine_of_1944%E2%80%9345#Legacy for example.

H. Alexander Ivey , July 13, 2017 at 12:20 am

economic behavior is predicated on cultural norms

Yeah, if he had specified culture to be what most would call sub-cultures, like the 1%, the professional class, the blue-collar group, etc., then he would have a broad based, but consistent actions, division of an economy. But that idea is high heresy; there is not a 'society', there is only lone individuals acting alone. Quite the crock of BS.

PS. in the interest of 'efficiency' (instead of creating a second posting, I'll piggyback here), let me say these replys are one reason why I support this site: After reading the first 3 paragraphs and skimming his section headers, I recognized the storyline. So I dived into the replies and learned what was worth learning. Thanks guys, you saved my blood pressure.

craazyman , July 12, 2017 at 8:44 pm

This post could be a Thomas Friedman writing contest winner!

"We've travelled millions of years into our past, looked deep inside the human brain, and explored the cutting edge of current scientific theories. , , , We're neither entirely rational nor entirely irrational, hence neither the rationalists nor the behavioralists are completely convincing. We need a new narrative for how markets work, and now have enough pieces of the puzzle to start putting it all together."

That's not quite at Mr. Friedman's level of mixed metaphorical mayhem . . . But it's close!

It makes me think of FANTASTIC VOYAGE with Racquel Welch and Donald Pleasance, when scientists were shrunk to microscopic size and then rode around inside a human body's ciruclatory system in incredibly small submarine that lookd like a space ship. Then there was trouble and Donald Pleasance was sucked up head first into the white blood cell. I'm not making this up! You can Youtube it and see.

It may be that there's white blood cell like things we don't have the scientific equipment to see that actually cause booms and busts, but if we could see them through things like telescopes or time machine space ships like the Post sort of says, then you could see how they suck people up into them. This really is cutting edge financial science.

Also, if somebody has never been an animal, then how do they know animals are driven by fear and greed, That made me stop and think, just at the end of the first paragraph! That seems like an extraordinary claim to make. Maybe somebody can be injected with Zebra genes and let loose in Tanzania in some national park for a few weeks until the genes wash out of their system. Then they can report back. But until that time, it's only speculation.

H. Alexander Ivey , July 13, 2017 at 12:25 am

Dang craazyman. I wish I had said that. I stand in awe of your analytical insights of paragraph 1.

And there's no need for me to youtube, I saw the original big screen version. Ha!

Wisdom Seeker , July 13, 2017 at 1:48 pm

Did either of you read the actual book (Isaac Asimov)? Book usually beats movie.

Steven Greenberg , July 13, 2017 at 10:26 am

As Bill Black has pointed out numerous times, the people who brought on the financial collapse were acting completely rationally. They crashed their own corporations not out of irrationality. They did it because they were trying to make themselves rich, and they didn't give a damn about the corporations they were looting in the process.

Wade Riddick , July 14, 2017 at 12:41 am

As others have noted, the absence of fraud in this model is telling.

The writer himself should have spent more time focusing on that great white shark because he's failed to notice he's given renewed life to social darwinism. These "highly evolved" institutions he talks about – like banks and hedge funds – are, in fact, keenly honed predators. Which is odd. An advanced social species like ours isn't supposed to prey on other members. His competition model involves people essentially eating other people. He's failed to note any distinction between inter-species and intra-species competition.

The gene selection he invokes is far more complicated. We live in societies whose rules determines winners and losers. What, in essense, is this competition best optimizing? Does "survival" in this system mean optimizing each individual's potential? What is it we want "economic survival" to mean? He talks about environmental adaptation but leaves out the fact we define our own environment. There's no way to efface politics.

[Jul 13, 2017] How economics became a religion John Rapley

Notable quotes:
"... Main image: Maxian/Getty/iStockphoto/Guardian Design ..."
"... This is an edited extract from Twilight of the Money Gods: Economics as a Religion and How it all Went Wrong by John Rapley, published by Simon & Schuster on 13 July at £20. To order a copy for £17, go to ..."
"... bookshop.theguardian.com ..."
"... or call 0330 333 6846. Free UK p&p over £10, online orders only. Phone orders min p&p of £1.99. ..."
Jul 13, 2017 | www.theguardian.com
--> Its moral code promises salvation, its high priests uphold their orthodoxy. But perhaps too many of its doctrines are taken on faith. By John Rapley Its moral code promises salvation, its high priests uphold their orthodoxy. But perhaps too many of its doctrines are taken on faith. By John Rapley How economics became a religion Share on Facebook Share on Twitter Share via Email View more sharing options Share on LinkedIn Share on Pinterest Share on Google+ Share on WhatsApp Share on Messenger Close

Tuesday 11 July 2017 01.00 EDT Last modified on Tuesday 11 July 2017 11.20 EDT A lthough Britain has an established church, few of us today pay it much mind. We follow an even more powerful religion, around which we have oriented our lives: economics. Think about it. Economics offers a comprehensive doctrine with a moral code promising adherents salvation in this world; an ideology so compelling that the faithful remake whole societies to conform to its demands. It has its gnostics, mystics and magicians who conjure money out of thin air, using spells such as "derivative" or "structured investment vehicle". And, like the old religions it has displaced, it has its prophets, reformists, moralists and above all, its high priests who uphold orthodoxy in the face of heresy.

Over time, successive economists slid into the role we had removed from the churchmen: giving us guidance on how to reach a promised land of material abundance and endless contentment. For a long time, they seemed to deliver on that promise, succeeding in a way few other religions had ever done, our incomes rising thousands of times over and delivering a cornucopia bursting with new inventions, cures and delights.

This was our heaven, and richly did we reward the economic priesthood, with status, wealth and power to shape our societies according to their vision. At the end of the 20th century, amid an economic boom that saw the western economies become richer than humanity had ever known, economics seemed to have conquered the globe. With nearly every country on the planet adhering to the same free-market playbook, and with university students flocking to do degrees in the subject, economics seemed to be attaining the goal that had eluded every other religious doctrine in history: converting the entire planet to its creed.

Yet if history teaches anything, it's that whenever economists feel certain that they have found the holy grail of endless peace and prosperity, the end of the present regime is nigh. On the eve of the 1929 Wall Street crash , the American economist Irving Fisher advised people to go out and buy shares; in the 1960s, Keynesian economists said there would never be another recession because they had perfected the tools of demand management.

The 2008 crash was no different. Five years earlier, on 4 January 2003, the Nobel laureate Robert Lucas had delivered a triumphal presidential address to the American Economics Association. Reminding his colleagues that macroeconomics had been born in the depression precisely to try to prevent another such disaster ever recurring, he declared that he and his colleagues had reached their own end of history: "Macroeconomics in this original sense has succeeded," he instructed the conclave. "Its central problem of depression prevention has been solved."

No sooner do we persuade ourselves that the economic priesthood has finally broken the old curse than it comes back to haunt us all: pride always goes before a fall. Since the crash of 2008, most of us have watched our living standards decline. Meanwhile, the priesthood seemed to withdraw to the cloisters, bickering over who got it wrong. Not surprisingly, our faith in the "experts" has dissipated.

Hubris, never a particularly good thing, can be especially dangerous in economics, because its scholars don't just observe the laws of nature; they help make them. If the government, guided by its priesthood, changes the incentive-structure of society to align with the assumption that people behave selfishly, for instance, then lo and behold, people will start to do just that. They are rewarded for doing so and penalised for doing otherwise. If you are educated to believe greed is good, then you will be more likely to live accordingly.

The hubris in economics came not from a moral failing among economists, but from a false conviction: the belief that theirs was a science. It neither is nor can be one, and has always operated more like a church. You just have to look at its history to realise that.


T he American Economic Association, to which Robert Lucas gave his address, was created in 1885, just when economics was starting to define itself as a distinct discipline. At its first meeting, the association's founders proposed a platform that declared: "The conflict of labour and capital has brought to the front a vast number of social problems whose solution is impossible without the united efforts of church, state and science." It would be a long path from that beginning to the market evangelism of recent decades.

Yet even at that time, such social activism provoked controversy. One of the AEA's founders, Henry Carter Adams, subsequently delivered an address at Cornell University in which he defended free speech for radicals and accused industrialists of stoking xenophobia to distract workers from their mistreatment. Unknown to him, the New York lumber king and Cornell benefactor Henry Sage was in the audience. As soon as the lecture was done, Sage stormed into the university president's office and insisted: "This man must go; he is sapping the foundations of our society." When Adams's tenure was subsequently blocked, he agreed to moderate his views. Accordingly, the final draft of the AEA platform expunged the reference to laissez-faire economics as being "unsafe in politics and unsound in morals".

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'Economics has always operated more like a church' Trinity Church seen from Wall Street. Photograph: Alamy Stock Photo

So was set a pattern that has persisted to this day. Powerful political interests – which historically have included not only rich industrialists, but electorates as well – helped to shape the canon of economics, which was then enforced by its scholarly community.

Once a principle is established as orthodox, its observance is enforced in much the same way that a religious doctrine maintains its integrity: by repressing or simply eschewing heresies. In Purity and Danger, the anthropologist Mary Douglas observed the way taboos functioned to help humans impose order on a seemingly disordered, chaotic world. The premises of conventional economics haven't functioned all that differently. Robert Lucas once noted approvingly that by the late 20th century, economics had so effectively purged itself of Keynesianism that "the audience start(ed) to whisper and giggle to one another" when anyone expressed a Keynesian idea at a seminar. Such responses served to remind practitioners of the taboos of economics: a gentle nudge to a young academic that such shibboleths might not sound so good before a tenure committee. This preoccupation with order and coherence may be less a function of the method than of its practitioners. Studies of personality traits common to various disciplines have discovered that economics, like engineering, tends to attract people with an unusually strong preference for order, and a distaste for ambiguity.

The irony is that, in its determination to make itself a science that can reach hard and fast conclusions, economics has had to dispense with scientific method at times. For starters, it rests on a set of premises about the world not as it is, but as economists would like it to be. Just as any religious service includes a profession of faith, membership in the priesthood of economics entails certain core convictions about human nature. Among other things, most economists believe that we humans are self-interested, rational, essentially individualistic, and prefer more money to less. These articles of faith are taken as self-evident. Back in the 1930s, the great economist Lionel Robbins described his profession in a way that has stood ever since as a cardinal rule for millions of economists. The field's basic premises came from "deduction from simple assumptions reflecting very elementary facts of general experience" and as such were "as universal as the laws of mathematics or mechanics, and as little capable of 'suspension'".

Deducing laws from premises deemed eternal and beyond question is a time-honoured method. For thousands of years, monks in medieval monasteries built a vast corpus of scholarship doing just that, using a method perfected by Thomas Aquinas known as scholasticism. However, this is not the method used by scientists, who tend to require assumptions to be tested empirically before a theory can be built out of them.

But, economists will maintain, this is precisely what they themselves do – what sets them apart from the monks is that they must still test their hypotheses against the evidence. Well, yes, but this statement is actually more problematic than many mainstream economists may realise. Physicists resolve their debates by looking at the data, upon which they by and large agree. The data used by economists, however, is much more disputed. When, for example, Robert Lucas insisted that Eugene Fama's efficient-markets hypothesis – which maintains that since a free market collates all available information to traders, the prices it yields can never be wrong – held true despite "a flood of criticism", he did so with as much conviction and supporting evidence as his fellow economist Robert Shiller had mustered in rejecting the hypothesis. When the Swedish central bank had to decide who would win the 2013 Nobel prize in economics, it was torn between Shiller's claim that markets frequently got the price wrong and Fama's insistence that markets always got the price right. Thus it opted to split the difference and gave both men the medal – a bit of Solomonic wisdom that would have elicited howls of laughter had it been a science prize. In economic theory, very often, you believe what you want to believe – and as with any act of faith, your choice of heads or tails will as likely reflect sentimental predisposition as scientific assessment.

It's no mystery why the data used by economists and other social scientists so rarely throws up incontestable answers: it is human data. Unlike people, subatomic particles don't lie on opinion surveys or change their minds about things. Mindful of that difference, at his own presidential address to the American Economic Association nearly a half-century ago, another Nobel laureate, Wassily Leontief, struck a modest tone. He reminded his audience that the data used by economists differed greatly from that used by physicists or biologists. For the latter, he cautioned, "the magnitude of most parameters is practically constant", whereas the observations in economics were constantly changing. Data sets had to be regularly updated to remain useful. Some data was just simply bad. Collecting and analysing the data requires civil servants with a high degree of skill and a good deal of time, which less economically developed countries may not have in abundance. So, for example, in 2010 alone, Ghana's government – which probably has one of the better data-gathering capacities in Africa – recalculated its economic output by 60% . Testing your hypothesis before and after that kind of revision would lead to entirely different results.

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'The data used by economists rarely throws up incontestable answers' traders at the New York Stock Exchange in October 2008. Photograph: Spencer Platt/Getty Images

Leontief wanted economists to spend more time getting to know their data, and less time in mathematical modelling. However, as he ruefully admitted, the trend was already going in the opposite direction. Today, the economist who wanders into a village to get a deeper sense of what the data reveals is a rare creature. Once an economic model is ready to be tested, number-crunching ends up being done largely at computers plugged into large databases. It's not a method that fully satisfies a sceptic. For, just as you can find a quotation in the Bible that will justify almost any behaviour, you can find human data to support almost any statement you want to make about the way the world works.

That's why ideas in economics can go in and out of fashion. The progress of science is generally linear. As new research confirms or replaces existing theories, one generation builds upon the next. Economics, however, moves in cycles. A given doctrine can rise, fall and then later rise again. That's because economists don't confirm their theories in quite the same way physicists do, by just looking at the evidence. Instead, much as happens with preachers who gather a congregation, a school rises by building a following – among both politicians and the wider public.

For example, Milton Friedman was one of the most influential economists of the late 20th century. But he had been around for decades before he got much of a hearing. He might well have remained a marginal figure had it not been that politicians such as Margaret Thatcher and Ronald Reagan were sold on his belief in the virtue of a free market. They sold that idea to the public, got elected, then remade society according to those designs. An economist who gets a following gets a pulpit. Although scientists, in contrast, might appeal to public opinion to boost their careers or attract research funds, outside of pseudo-sciences, they don't win support for their theories in this way.

However, if you think describing economics as a religion debunks it, you're wrong. We need economics. It can be – it has been – a force for tremendous good. But only if we keep its purpose in mind, and always remember what it can and can't do.


T he Irish have been known to describe their notionally Catholic land as one where a thin Christian veneer was painted over an ancient paganism. The same might be said of our own adherence to today's neoliberal orthodoxy, which stresses individual liberty, limited government and the free market. Despite outward observance of a well-entrenched doctrine, we haven't fully transformed into the economic animals we are meant to be. Like the Christian who attends church but doesn't always keep the commandments, we behave as economic theory predicts only when it suits us. Contrary to the tenets of orthodox economists, contemporary research suggests that, rather than seeking always to maximise our personal gain, humans still remain reasonably altruistic and selfless. Nor is it clear that the endless accumulation of wealth always makes us happier. And when we do make decisions, especially those to do with matters of principle, we seem not to engage in the sort of rational "utility-maximizing" calculus that orthodox economic models take as a given. The truth is, in much of our daily life we don't fit the model all that well.

For decades, neoliberal evangelists replied to such objections by saying it was incumbent on us all to adapt to the model, which was held to be immutable – one recalls Bill Clinton's depiction of neoliberal globalisation, for instance, as a "force of nature" . And yet, in the wake of the 2008 financial crisis and the consequent recession, there has been a turn against globalisation across much of the west. More broadly, there has been a wide repudiation of the "experts" , most notably in the 2016 US election and Brexit referendum.

It would be tempting for anyone who belongs to the "expert" class, and to the priesthood of economics, to dismiss such behaviour as a clash between faith and facts, in which the facts are bound to win in the end. In truth, the clash was between two rival faiths – in effect, two distinct moral tales. So enamoured had the so-called experts become with their scientific authority that they blinded themselves to the fact that their own narrative of scientific progress was embedded in a moral tale. It happened to be a narrative that had a happy ending for those who told it, for it perpetuated the story of their own relatively comfortable position as the reward of life in a meritocratic society that blessed people for their skills and flexibility. That narrative made no room for the losers of this order, whose resentments were derided as being a reflection of their boorish and retrograde character – which is to say, their fundamental vice. The best this moral tale could offer everyone else was incremental adaptation to an order whose caste system had become calcified. For an audience yearning for a happy ending, this was bound to be a tale of woe.

The failure of this grand narrative is not, however, a reason for students of economics to dispense with narratives altogether. Narratives will remain an inescapable part of the human sciences for the simple reason that they are inescapable for humans. It's funny that so few economists get this, because businesses do. As the Nobel laureates George Akerlof and Robert Shiller write in their recent book, Phishing for Phools , marketers use them all the time, weaving stories in the hopes that we will place ourselves in them and be persuaded to buy what they are selling. Akerlof and Shiller contend that the idea that free markets work perfectly, and the idea that big government is the cause of so many of our problems, are part of a story that is actually misleading people into adjusting their behaviour in order to fit the plot. They thus believe storytelling is a "new variable" for economics, since "the mental frames that underlie people's decisions" are shaped by the stories they tell themselves.

Economists arguably do their best work when they take the stories we have given them, and advise us on how we can help them to come true. Such agnosticism demands a humility that was lacking in economic orthodoxy in recent years. Nevertheless, economists don't have to abandon their traditions if they are to overcome the failings of a narrative that has been rejected. Rather they can look within their own history to find a method that avoids the evangelical certainty of orthodoxy.

In his 1971 presidential address to the American Economic Association, Wassily Leontief counselled against the dangers of self-satisfaction. He noted that although economics was starting to ride "the crest of intellectual respectability an uneasy feeling about the present state of our discipline has been growing in some of us who have watched its unprecedented development over the last three decades".

Noting that pure theory was making economics more remote from day-to-day reality, he said the problem lay in "the palpable inadequacy of the scientific means" of using mathematical approaches to address mundane concerns. So much time went into model-construction that the assumptions on which the models were based became an afterthought. "But," he warned – a warning that the sub-prime boom's fascination with mathematical models, and the bust's subsequent revelation of their flaws, now reveals to have been prophetic – "it is precisely the empirical validity of these assumptions on which the usefulness of the entire exercise depends."

Leontief thought that economics departments were increasingly hiring and promoting young economists who wanted to build pure models with little empirical relevance. Even when they did empirical analysis, Leontief said economists seldom took any interest in the meaning or value of their data. He thus called for economists to explore their assumptions and data by conducting social, demographic and anthropological work, and said economics needed to work more closely with other disciplines.

Leontief's call for humility some 40 years ago stands as a reminder that the same religions that can speak up for human freedom and dignity when in opposition, can become obsessed with their rightness and the need to purge others of their wickedness once they attain power. When the church retains its distance from power, and a modest expectation about what it can achieve, it can stir our minds to envision new possibilities and even new worlds. Once economists apply this kind of sceptical scientific method to a human realm in which ultimate reality may never be fully discernible, they will probably find themselves retreating from dogmatism in their claims.

Paradoxically, therefore, as economics becomes more truly scientific, it will become less of a science. Acknowledging these limitations will free it to serve us once more.

Main image: Maxian/Getty/iStockphoto/Guardian Design

This is an edited extract from Twilight of the Money Gods: Economics as a Religion and How it all Went Wrong by John Rapley, published by Simon & Schuster on 13 July at £20. To order a copy for £17, go to bookshop.theguardian.com or call 0330 333 6846. Free UK p&p over £10, online orders only. Phone orders min p&p of £1.99.

• Follow the Long Read on Twitter at @gdnlongread , or sign up to the long read weekly email here . Topics The long read

[Jul 05, 2017] Replication crisis

Notable quotes:
"... already been disproved ..."
"... there is no crisis ..."
"... Epistemic virtue issues ..."
"... This wasn't enough! ..."
"... failing to find something ..."
"... Mentorship/community issues ..."
"... in this particular domain ..."
"... much more than we thought ..."
Jul 05, 2017 | meaningness.com

Rob MacLachlan, 2017-01-03

I agree that the replication crisis is more than just a normal scientific self-correction. For one thing, it is about widespread methods problems, rather than refining or replacing a particular theory. But I don't agree that "they should have known" based on statistics education. First, I came away from three semesters of statistics with a vague impression that multiple comparisons correction and conditional stopping were "picky" theoretical considerations. There was just no discussion of how wrong you can be if you break "the rules".

The more subtle and fascinating part of the replication crisis is how fields evolved standards of practice that seem "designed" to satisfy the institutional incentives for maximum publishable results per unit effort. This is evolution in action.

Some people like Meehl in psychology noticed the problem decades ago, but everyone was too busy writing papers to pay attention to these party poopers.

More broadly, it isn't obvious what the right level of rigor and the strictness standards for evidence should be. The skeptical position is always strong. Formal statistical procedures for confident knowledge are only about 100 years old. Somehow we got along before then, and succeeded in socially constructing functional systems. Social psychology is an example of just such a functional system; it just wasn't optimizing what we thought it was.

Rob

Rob MacLachlan, 2017-01-03

To put it another way, the current replication crisis narrative is level 5, comparing systems. To say it is just about bad methods is level 4. The level 5 understanding is that the system structure and incentives must change.

Jayarava, 2017-01-03

Historians

Citing when you can't remember the author or title is bad method. Yes? If you're saying that its a fact you ought to be able to back it up. I'm not familiar with the claim you make, though it is not central to my own work, so I might have missed it. Still...

Getting things completely wrong used to be a lot more common than it is today. Which is a testament to progress.

I agree that the problem goes deeper. But my story about what has gone wrong is different - I've tried to make this comment stand-alone, but it may rely on terminology I've been developing this year on my blog. It's hard to get across my point without the jargon.

The field of psychology tried to move from non-science to science by ostensibly adopting scientific methods. The trouble is that at this level of the science stack, the methods of reductive materialism are very difficult to apply or simply don't apply. That difficulty was never really acknowledged or accounted for. Methods for studying systems, or even the acknowledgement that human beings are social animals, seemed to get lost in the rush to find results that would make the physicists pay attention.

This is really a failure of metaphysical reductionism, because it did not allow those working at the upper levels of the stack the proper freedom to chose methods appropriate to their level. Reductionists who dominate science only recognise the lowest levels as real, thus psychology had try too hard to make their results fit that skewed paradigm. Psychology was never going to be very amenable to analysis because systems dominate at that level of the stack. The havoc already wrecked by the Romantics following Freud meant that psychology had been so decontextualised from its social milieu that once reductionists got involved it was always going to be a disaster.

Many biologists are antireductive in outlook, because once you take your organism apart it ceases do anything interesting. Even so the gold standard for knowledge and method is reductionism, even when it is entirely inappropriate to the scale and level.

Since you are right about hindsight here is some foresight:

Biology is currently dominated by Neoliberal political ideology and Utilitarian philosophy that is going to have to change at some point. Compare Richard Dawkins to the late Lynn Margulis or Frans de Waal and you realise that Dawkins perpetuates some completely ludicrous myths about people and evolution.

The role of symbiosis, hybridisation, cooperation, communities, and other systemic features of living systems are almost completely written out of history. Witness the extent of hybridisation amongst human species that makes a mockery of the "tree" metaphor for evolution. Similarly our nature as social animals, which requires that we operate on the basis of in-group empathy and reciprocity as all social animals do, is still being nudged out of the mainstream by the (literally) insane assumptions of Nash and game theory.

A time will come when we have a paradigm shift in biology that will expose wrong-headed methods that obscured knowledge and obstructed progress after the discovery of DNA. This will be on the same scale as the psychology debacle, but it might not get the same level of press as psych because people respect biology and psych has always been suspect.

The unfolding debacle in psychology is nothing compared to the fantasy island that is economics. In economics many of the major tenets still taught up to graduate level have already been disproved , but that has not changed anything. For example in the 1970s (!) Sonnenschein, Mantel, and Debreu proved that a demand curve need not be a simple curve with a downward slope - in practice a demand curve can be any polynomial, i.e. any wavy line (Steve Keen Debunking Economics ).

The equivalent is teaching the planetary model of an atom to PhD level. And then noting that an atom is nothing like a solar system, but continuing to model it as a solar system because anything else is too hard! The failure of the vast majority of professional economists to predict either the Great Crash of 1929 and the subsequent Depression or the Great Recession of 2008 and the subsequent stagnation is an indictment that goes far deeper than what is happening in psychology. Neoclassical Economics is no better than a hoax. No amount of failure to replicate seems to have any effect on the economics hegemony.

Finally, here's a weird thing about the replication crisis in psychology. The very same bloggers and tweeters who promote the "replication crisis" narrative, still routinely blog and tweet about one-off, non-replicated studies recently published in psych journals as if there is no crisis .

Gary Basin, 2017-01-03

Virtue and method may be insufficient; unflattering anecdata

This helped clarify some thoughts I've had floating around in my mind for a while, thanks.

Around 2012, in the context of algorithmic trading, I tasked myself (with the help of a team) with finding a way to predict price movements of a certain set of securities at a certain frequency (or lower). The details of the problem aren't that important but one critical side effect was a limited data set.

Methodological issues

I myself had no more than undergrad statistics knowledge although some members of the team had grad-level training and experience working on applied problems (most relevant being in physics).

Nevertheless, we fell into the trap of bad statistics -- fooling ourselves to make methodological exceptions due to small expected effect sizes (sounds like psych, eh?), data snooping, etc

For one thing, it is about widespread methods problems, rather than refining or replacing a particular theory. But I don't agree that "they should have known" based on statistics education. First, I came away from three semesters of statistics with a vague impression that multiple comparisons correction and conditional stopping were "picky" theoretical considerations. There was just no discussion of how wrong you can be if you break "the rules".

My guess is more time spent learning to not break the rules would have not helped...

Epistemic virtue issues

If we fooled ourselves into seeing something that wasn't there, we would waste money doing further research on it, and then directly lose money by trying to make real-world, real money predictions with it. This wasn't enough! In this case, I think it was the mindset that failing to find something wasn't an option because of the plan I had created (for various reasons) to find a way along this path.

Skin in the game isn't sufficient if you are hamstrung to play the game anyway. You need a way to surrender a path and look for alternatives

In economics many of the major tenets still taught up to graduate level have already been disproved, but that has not changed anything. For example in the 1970s (!) Sonnenschein, Mantel, and Debreu proved that a demand curve need not be a simple curve with a downward slope - in practice a demand curve can be any polynomial, i.e. any wavy line (Steve Keen Debunking Economics).

They are forced to play the game -- the path cannot be abandoned until an alternative exists. But it will be tough to find until the path is abandoned...

Mentorship/community issues

I think this could have saved my endeavor. Unfortunately I was in a position where there was no one around me to learn how to do the science in this particular domain , and there was team-wide skepticism of how much knowledge on how to do the science was transferable cross-domain . In hindsight, the answer is much more than we thought .

This is both discouraging and encouraging for the future of social sciences. The discouraging aspect is there may be very few, or no one, left in them that is capable of doing the science properly. From whom will they be mentored and how will the community guide itself, then? On top of this, you have the problem of cultural momentum. The encouraging aspect is the surprising amount of transferability of science-skill between fields. Maybe some physicists will be able to move into psych and revitalize it? This leaves out the issues of applying reductive positivism to "higher domain" fields raised by Jayarava, however.

This is really a failure of metaphysical reductionism, because it did not allow those working at the upper levels of the stack the proper freedom to chose methods appropriate to their level. Reductionists who dominate science only recognise the lowest levels as real, thus psychology had try too hard to make their results fit that skewed paradigm. Psychology was never going to be very amenable to analysis because systems dominate at that level of the stack.

Do you have a sense of what these more appropriate methods are? More exploratory science being labeled as such?

floodmouse, 2017-01-03

Looking for your keys in the light

You've added much analysis & detail, but this strangely reminds of something I was taught as a child: If you lose your keys, you won't find them by staying under the street lamp. You have to go back out there in the dark, where it's cold and scary.

(The person who taught me this was a Sunday school teacher. I've noticed that mentioning anything to do with Christianity gets up the backs of most scientists, but as was so rightly pointed out, there is cargo-cult science just as there is cargo-cult religion, but there are still a few people in both fields who are trying to get it right. )

Duckland, 2017-01-08

Bounded internet communities, Ericsson, podcast questions

Both Kevin Kelly, and you, make the key point that productive scenes need boundaries. My thesis will be that in the "atomized era," the internet and other forces have made boundary-maintenance much more difficult-so scenes are less prevalent, to the culture's detriment.

My (Millenial) friend and (Millenial) I were speculating about this just the other day -- specifically how much more exclusive and comfy online communities used to feel. Funny that the growth of the Internet has caused this boundary-removing effect even on itself. Looking forward to this thesis!

The situated learning stuff is fascinating. Are you familiar with Ericsson's work on expertise? I wonder what the hybrid theory between situated learning and deliberate practice is. Are there contradictions?

I have some questions pertaining to your recent Imperfect Buddha podcast. Sorry if this is the wrong place.

You sounded nonchalant when saying that you don't know how to account for people's frequent comments that they only developed some of the aspects (cognitive, ethical, social, etc) of a particular stage, or even developed stages out of order. Why so nonchalant? Why not more suspicion for Kegan's experimental methodology?

I have a specific (apparent) contradiction in mind about Stage 4. You've written that STEM people are more likely to develop Stage 4 cognitive skills. But also there's a (reasonable) stereotype of STEM people being disdainful for (what appear to them as) arbitrary rules/systems/bureaucracy/etc. How do you square this?

Croulebarbe, 2017-01-08

Screw the rules I have better rules

@Duckland "Ugh, this is so byzantine, why can't this bureaucracy act logically and efficiently? All we have is a slow and illegible mess of incentives with no rhyme or reason to it. They really need to optimize this. If only they had the right system."

Sounds like stage 4 to me.

David Chapman, 2017-01-08

Many topics

Duckland, Croulebarbe - thank you for comments!

how much more exclusive and comfy online communities used to feel.

Yes... partly (many have observed) this is due to the rise of centralized social networks. There used to be zillions of little communities here and there; now a handful of platforms dominate, and commercial reasons dictate discouraging boundaries around subcultures.

Are you familiar with Ericsson's work on expertise?

From secondary sources only. I know the gist; haven't read him.

I wonder what the hybrid theory between situated learning and deliberate practice is. Are there contradictions?

Hmm, interesting questions. Offhand: the situated learning people are anthropologists, and their prototype cases come from traditional, non-systematic communities. (Mayan midwives are their favorite.) So Lave & Wenger have an arguably-stage-5 theory of a stage 3 phenomenon. All lower-stage phenomena persist when you transition into later stages, so we do all learn in part through participation in a community of practice; but in modern societies, we also learn through stage 4 explicit systems of instruction and practice. Those coexist and interact in complicated ways. Offhand, I don't recall research on the details of those interactions, but I'd bet people have done substantial work on that.

even developed stages out of order

Have people said that? I don't recall it. Some geeky people feel they skipped stage 3, but I think they're probably wrong. They just aren't particularly good at emotions and relationships. But this would be hard to test.

Unless you have a very large dataset, or do very careful longitudinal studies, all you can say empirically is that "statistically, most people develop through the stages in order and roughly in sync." I'm pretty sure that's true. There may be exceptions, or not.

I think the uses I am putting the framework to don't depend on whether or not there are rare exceptions.

Now it could also be that the whole story is completely bogus. A lot of psychological work has recently disintegrated in the face of more rigorous experimental replication. (Kegan's framework, and especially Kohlberg's work, have been replicated many times by independent researchers; but they might all be making the same mistakes.) This stuff might also fail a more rigorous test. My guess is not; but unless/until the test is done, one can't know. In academia, this research area seems to have gone out of fashion, so I would guess we're not going to see a strong test anytime soon.

Croulebarbe 's answer to your last questions seems right. That is: "right system vs wrong system" is stage 4.

Also, although a bureaucratic system is justified on a stage 4 basis, sloppy ones operate largely on a stage 3 basis: the rules are interpreted relationally/communally rather than logically. I suspect that's what STEM people particularly loathe.

Sergiu Tamas, 2017-01-18

From a young researcher

When I enrolled the PhD programme It was clear to me that it's high time someone should be able to predict or at least understand which are the key success factors for LGBT healthy relationships in adult life.

While reading your essay I could but think of all my fears as a young and inexperienced researcher. It hurt when reading "the guy who figured out the problem was ignored and never cited" and I figured sincerely one of my deepest stupid motivations for doing this research – Ego satisfaction?

Do I really care about the phenomena I am supposed to study? What is the link than with my engagement, with the time and effort I dedicate to it?

I believe I do have a lust for understanding, I do hope to figure out what is actually going on. But that seems nothing compared to what I should know. The how. The methodology, the ability to study what's relevant, to extract from literature the important issues and to be able to create a research from a methodological point of view that is helpful and that will eventually pinpoint my questions.

Thank you for stating I could be wrong and that's ok, it gives some sort of empowerment to a young researcher like me. I will reflect more on what you call methods of technical rationality, especially publishing negative results and abandoning the famously flawed p<0.05 significance that used to scare the curiosity in me.

And yes, the mythical "scientific method"! I thought I was here to predict and measure. And that there are clear ways for me to be able to control and predict my thesis.
So what I'm taking with me from your essay is firstly becoming a cargo cultist and go towards a meta-systematic approach while looking to master at least some of the methods.

Georgiana, 2017-01-19

Curiosity and progress

Tackling "cargo cult" ​phenomenon is something I ​began to ask myself since I started to teach.​ How can I help the students create something original? ​ How long is it acceptable to imitate and after what stage ​are they ​ expected to produce something original? What context could benefit ​them​? This are legitimate questions in any field. ​I see the phenomenon of imitation as an early stage of learning process or skill acquisition. ​I enjoyed reading your article, ​first because it validated some of my intuitions :) and secondly ​because it underlined the prerequisite for ​overcoming the imitation​ phase - to overpass the form without substance phase.

One of them was curiosity. You've identified curiosity as a source of honesty: "Honesty comes out of curiosity, mostly, I think. If you really do want to know, there's much less motivation to promote a wrong answer-arrived at either through deliberate fraud or sloppy, inadequately-controlled experimentation."​

​As an European working in the Middle East as an aid worker I had many friends ​(nationals) who were looking for ways to immigrate to Europe, Australia or north America for a better life​. I was wondering ​ why aren't they interested to improve things in their own country?

What could change their minds? Reflecting more upon these issues, I understood that among different options to understand the phenomenon, going back to school is the best step towards finding some good leads. I ended up looking at the entire phenomenon of migration. Curiosity was the nudge that led me towards pursuing a phd in the field of migration.

Your analysis about legitimate peripheral participation helped me better understand why some people thrive and some are failing. ​I also had in mind something related to imprinting. Who are the ones that have a major impact on you in an early stage as a junior researcher? How much is the context influencing one's pursue of innovation and how much are other factors influencing its success?

[Jul 04, 2017] Summers as a defender of Flat Earth theory

Highly recommended!
Apr 12, 2017 | economistsview.typepad.com

libezkova said in reply to T... April 12, 2017 at 06:05 AM

"Yes, adding more epicycles will do the trick."

http://personal.lse.ac.uk/reisr/papers/17-wrong.pdf

This guy is funny (and actually rather clueless, Summers is much better ) defender of "Flat Earth" theory:

== quote ==

A related criticism of macroeconomics is that it ignores financial factors. Macroeconomists supposedly failed to anticipate the crisis because they were enamored by models where financial markets and institutions were absent, as all financing was assumed to be efficient (De Grawe, 2009, Skidelsky, 2009). The field would be in denial if it continued to ignore these macro-financial links.

One area where macroeconomists have perhaps more of an influence is in monetary policy. Central banks hire more PhD economists than any other policy institution, and in the United States, the current and past chair of the Federal Reserve are distinguished academic macroeconomists, as have been several members of the FOMC over the years. In any given week, there are at least one conference and dozens of seminars hosted at central banks all over the world where the latest academic research is discussed. The speeches of central bank governors refer to academic papers in macroeconomics more than those by any other policymaker.

... ... ...

A separate criticism of macroeconomic policy advice accuses it of being politically biased. Since the early days of the field, with Keynes and the Great Depression, macroeconomics was associated with aggressive and controversial policies and with researchers that wore other hats as public intellectuals. Even more recently, during the rational expectations microfoundations revolution of the 1970s, early papers had radical policy recommendations, like the result that all systematic aggregate-demand policy is ineffective, and some leading researchers had strong political views. Romer (2016) criticizes modern macroeconomics for raising questions about what should be obvious truths, like the effect of monetary policy on output. He lays blame on the influence that Edward Prescott, Robert Lucas and Thomas Sargent had on field. Krugman (2009) in turn, claims the problem of macroeconomics is ideology, and in particular points to the fierce battles between different types of macroeconomists in the 1970s and 1980s, described by Hall (1976) in terms of saltwater versus freshwater camps.

...Macroeconomists, instead, are asked to routinely produce forecasts to guide fiscal and monetary policy, and are perhaps too eager to comply.

Reply Wednesday, April 12, 2017 at 08:26 AM

djb said...

"Is something really wrong with macroeconomics? - Ricardo Reis"

I appreciate that the author thinks the solution is to have young people look at economics with fresh eyes to bring up new approaches this is a quote when describing how they pick fresh young economists to go on a tour and present their findings:

"the choices are arguably not biased in the direction of a particular field, although they are most likely all in the mainstream tradition"

unfortunately the mainstream tradition is full of biase and restrictions about what is allow to be considered and what is not so if all you allow are people who are expanding on the "mainstream tradition" I think you are severely restricting yourself further a lot of good ideas from the past have been discarded, not allowed, ridiculed, not really analyzed or expanded upon.... presented or taught or represented by people who have never studied the ideas directly got them third hand or 5th hand , from people who misrepresent the ideas in the first place

want fresh new ideas? go back to the beginning of economics, understand over and over what the founds say , go read Adam Smith directly, read the generally theory by Keynes directly don't just assume the verion samuelson gave us of Keynes represents what he actually said, or Hansen or hicks, or what ever nonsense they are passing along today as "what Keynes said" reevaluation the who field over and over

And yea, study over and over the current teachings so you really understand it intuitively don't allow magical thinking to let you "pretend" you got it don't accept that its impossible to really understand it and "that's just what the equations show" understand the limitations, figure out when our fearless leaders and "great minds" and elder statesman of economics are "overplaying their hand" and concluding more than they can this is hard work and it takes dedication and don't assume that econometrics is the only real economics and that theory is "unprovable" or "always subjective" because without theory there is no econometrics, there is just a bunch of meaningless numbers

so yea we can use fresh young minds taking a new look at things but we will nowhere if all we allow is that "they are most likely all in the mainstream tradition"

[Jul 04, 2017] Almost every time I see a "Phillips Curve", I'm reminded how badly understood it is and how poorly economics performs as a scientific discipline

Jul 04, 2017 | www.nakedcapitalism.com

Wisdom Seeker , July 3, 2017 at 2:23 pm

I'm not a professional economist, but almost every time I see a "Phillips Curve", I'm reminded how badly understood it is and how poorly economics performs as a scientific discipline. This area needs a complete rethink. This article above is not that rethink, though I great appreciated the discussion about the perilous state of workers' rights prior to the 20th century.

There is a Phillips Curve but it's probably not what you think. For the U.S. at least, there's empirical evidence that the true relationship is between unemployment and subsequent REAL wage inflation (not nominal). Even here one must be careful, for the link is not that strong. And real wage growth could also be productivity-related… but productivity growth itself might also be a function of labor scarcity. When a population desires to get more work done with fewer hands, innovation favors productivity.

For some charts showing various examples of valid and invalid "Phillips Curves", including a persuasive graph of the unemployment/real wage inflation curve, see these links:

http://www.hussmanfunds.com/wmc/wmc110404.htm

http://www.hussman.net/wmc/wmc131104.htm

Darn , July 4, 2017 at 8:08 am

Also of interest I hope, "Why NAIRU is zOMG hyperinflation" https://www.concertedaction.com/2017/02/19/why-nairu-is-zomg-hyperinflation/

[Jul 04, 2017] Critical Realism: Mathematics versus Mythematics in Economics

Notable quotes:
"... I argue here that it's the abuse of mathematics by Neoclassical economists -- who practice what I have dubbed "Mythematics" rather than Mathematics--and that some phenomena are uncovered by mathematical logic that can't be discovered by verbal logic alone. ..."
"... A lady in the audi­ence named Barb Jacobson suggested that using the name Neo-Classical gives it a cer­tain degree of cache and wants you guys to start call­ing it for what it is: "Scorched Earth Economics." What a great name to use and doesn't it ring true? ..."
Oct 02, 2015 | www.debtdeflation.com

This is the brief talk I gave at a conference celebrating 25 years of the Critical Realist seminar series at Cambridge University. Critical realists argue against the use of mathematics in economics; I argue here that it's the abuse of mathematics by Neoclassical economists -- who practice what I have dubbed "Mythematics" rather than Mathematics--and that some phenomena are uncovered by mathematical logic that can't be discovered by verbal logic alone.

I give the example of my own model of Minsky's Financial Instability Hypothesis, which revealed the possibility of a "Great Moderation" preceding a "Great Recession" before either event had happened.

David Milburn, September 12, 2015 at 9:38 am

Steve,

Last week Prof Bill Mitchell was in London where he gave a talk on re-framing the language used in the media that carried on the myth of the main­stream groupthink. A lady in the audi­ence named Barb Jacobson suggested that using the name Neo-Classical gives it a cer­tain degree of cache and wants you guys to start call­ing it for what it is: "Scorched Earth Economics." What a great name to use and doesn't it ring true? Barb Jacobson is spot on!

Sue Madden, September 13, 2015 at 8:28 am

Hi Steve,
I was really amused to see an inter­view a while back in the New Sci­en­tist, with the "research chief" (!!) at the B of E. If you haven't seen it, you really must:

Opinion Interview with Andy Haldane: "Sackcloth and Ashes on Thread needle Street" New Scientist 25 March 2015

Corbyn was elected leader!!!! Now the sparks will fly. At least a pub­lic debate wor­thy of the name might at last be heard in our sad country.

Thanks for your work in trying to enlighten us!!
Sue.

[Jul 04, 2017] We should reject masked by mathiness typical neoclassical junk that is mainstream now.

Notable quotes:
"... That is exactly what makes macro a pseudoscience (as Cassidy called it "Utopian economics".) You can't talk about economics ignoring existence of finance, because finance is an elephant in the room. A church of efficient stochastic equilibrium and an invisible hand that drives economics to it (the hand of God) is junk science, and always was. ..."
Mar 03, 2017 | economistsview.typepad.com
libezkova : March 02, 2017 at 07:14 PM , 2017 at 07:14 PM
"macro rightly got a lot of stick by largely ignoring the role of finance,"

That is exactly what makes macro a pseudoscience (as Cassidy called it "Utopian economics".) You can't talk about economics ignoring existence of finance, because finance is an elephant in the room. A church of efficient stochastic equilibrium and an invisible hand that drives economics to it (the hand of God) is junk science, and always was.

As much as I admire the mathematics, its use in macro is perverted and unscientific because it relies on unrealistic assumptions. Its all pure mathiness.

Most of terminology that neoclassical economy introduced smells "fraud" or at least is detached from reality. "Output gap" and related notion "potential output" can serve as an example. Look at WWII production. For example, even potential output of a single plant (let's say three shift work and full utilization of equipment) is pretty convoluted notion as there is a high level of dependence on suppliers and somewhere typically "bottleneck" exists that prevent the factory achieving this input. Still Hjalmar Schacht achieved wonders during WWII by just ordering German factories to continue producing without waiting for orders to come.

Also it looks like Simon Wren-Lewis equalizes Keynes with Paul Samuelson simplification (or perversion if you wish) of Keynes thoughts ( http://econ.bus.utk.edu/department/emeritus/samuelson'sarrogance100%20final.pdf )

== quote ==
Moreover, Keynes [1936, p. 177, 179] had denounced Walras's approach as wrong when he wrote "Now the analysis of the previous chapters [of The General Theory] made it plain that this account [in Walras] of the matter must be erroneous .this [Walrasian system] is a nonsense theory".
== end of quote ==

And even worse, like most neoliberal economists, he tends to ignore Hyman Minsky important contribution to understanding of source of instability in capitalist economics.

That fact alone IMHO makes his lectures junk science.

libezkova -> libezkova... , March 02, 2017 at 07:14 PM
I remember that during 2008 events somebody called Bernanke not a specialist on Great Depression, but a charlatan, who tried to explain Great Depression using neoclassic economics.

I think that was an apt definition.

Mr. Bill : , March 02, 2017 at 10:21 PM
"I acknowledge that macro rightly got a lot of stick by largely ignoring the role of finance, but I also point out that the poor recovery has involved a vindication of the core macro model: austerity is a bad idea at the ZLB, QE was not inflationary and interest rates on government debt did not rise but fell."

No shit Dick Tracy. Look at the devastation of the US of O (The United States of Oligarchy). Let's join the Military in defending the shipping lanes, 3 hots and a cot.

I'm glad the core macro-model has been vindicated.

Sanjait : , March 02, 2017 at 11:29 PM
Is it my imagination or are the crazies around here getting crazier, and becoming increasingly unable to even begin talking about macro in a serious way.

I mean, I don't mind a bit of vituperation or even limited amounts of incoherence and insanity, if it is accompanied by at least earnest attempts to have substantive discussions. But it just feels like the essential substance has become increasingly rare.

libezkova -> Sanjait... , -1
"Is it my imagination or are the crazies around here getting crazier, and becoming increasingly unable to even begin talking about macro in a serious way."

If you think that neoliberal economists and their low-level supporters like some members of this blog are crazy you are wrong. They are corrupt the same way as Mafia members are corrupt. That's why they are unable to discuss economics in a serious way. Only "religious dogma" based way is permitted.

Neoliberal Jesuits will defend their "flat earth" theory and ostracize heretics as long as financial oligarchy is in power, because their well being is dependent on it, and they are paid by financial oligarchy to do the job.

When neoliberalism was hatched it deliberately emulated methods of influence used by Communists (and Austrians were intimately aware of them, because the country experienced communist revolution, which failed) in trying to expand their influence at university departments and by creating think tanks. Those subversive methods proved way too successful and they are now really entrenched: neoclassic economic thinking permeates the society to the same or higher degree as Marx political economy in the USSR.

See LSE discussion "Masters of the Universe: Hayek, Friedman, and the Birth of Neoliberal Politics "

https://www.youtube.com/watch?v=ehrjP2_ffPc

libezkova : , March 03, 2017 at 08:48 AM
I think that that one of the few better and more productive pathway of discussing economic events is the one that stems from Hyman Minsky work with its idea of positive feedback loops in economics with one from financial system that periodically destabilizes the capitalist economy and create a financial crisis.

The neoclassical concept of equilibrium is way too primitive and attempts to build economics as branch of physics. It should be discarded for good, as the way it is used now is close to pure charlatanism.

We also have an uncertainty principle here as even the suggestion of the intervention can change the dynamics of the system (look at "Fed talk" )

The role of the state now is so huge that any talk about the economy achieving equilibrium by itself is fraud outside few special cases. And actually the introduction of neoliberalism was the "revolution from above" -- a coup d'état, if you wish.

== quote ==

In microeconomic theory, cost-minimization by consumers and by firms implies the existence of supply and demand correspondences for which market clearing equilibrium prices exist, if there are large numbers of consumers and producers. Under convexity assumptions or under some marginal-cost pricing rules, each equilibrium will be Pareto efficient: In large economies, non-convexity also leads to quasi-equilibria that are nearly efficient.

However, the concept of market equilibrium has been criticized by Austrians, post-Keynesians and others, who object to applications of microeconomic theory to real-world markets, when such markets are not usefully approximated by microeconomic models. Heterodox economists assert that micro-economic models rarely capture reality.
== end of quote ==

Steve Keen in one who uses and try to develop further Minsky concepts and he was one of the few who predicted the financial crash on 2008. IMHO he should get more respect and coverage at the expense of neoliberal stooges like Krugman.

Ha-Joon Chang, Philip Mirowski, Joseph Stiglitz, Richard Koo, Yanis Varoufakis, Noam Chomsky all have interesting and IMHO more realistic ideas about how the modern economy really function and what can be more appropriate ways to model it.

We should reject masked by mathiness typical neoclassical junk that is mainstream now.

[Jun 26, 2017] Dangerous debt level increases: these obvious tidbits never saw the light of day because they did not fit the fantasies of FIRE executives

Notable quotes:
"... Most of the debt before the crisis was taken on by the 45+. They are 10 years older now and not about to re-leverage themselves. The growth will have to come from the younger group but they are full of student and car debt. Will they be able to buy houses for which prices have returned to pre-crisis levels? ..."
"... This leverage game depends on housing but it looks like we will be forced into a change of paradigm. ..."
"... Very well put. The ' leverage game ' comprises the whole neo-liberal paradigm which as you say depends on housing . ..."
"... Here in the UK until the last fifteen years or so, apart from a small number of very top end residential properties there was a ' property ladder ' we used to say . The meaning was that you could start at the bottom and if you chose to, could move up, and even though property prices moved up your wages were likely to increase, but your debt was being eroded bit by bit by inflation which kept the whole thing in sync. ..."
"... In a recession, a debt-burdened corporate sector behaves much as households do, cutting back particularly on capital investment. Government goes the opposite way, hiking debt during a recession to fund automatic stabilizers. But heavy gov't debt, like household debt, is a drag on consumption after a lag of several years. ..."
"... Focusing on household debt alone is of questionable value, when much broader debt aggregates are available. What's clear from the chart comparing household debt in six countries is that Canada and Australia are up to their necks in debt, largely owing to mortgage debt supported by their housing bubbles. ..."
"... When these housing bubbles burst - as bubbles invariably do - these two resource-oriented economies are going to be sucking wind. Unfortunately, in 2014 USgov started applying US income taxation to Canadians who stay 182 days a year or more in the US. Refugees from the Great White North who flee south will face a whole new level of pain when the US IRS works them over with a rubber hose. ..."
Jun 26, 2017 | www.nakedcapitalism.com
Moneta , June 26, 2017 at 7:29 am

For some reason, many economists still don't see it!

Now the general meme is that after 10 years, balance sheets have slowly been repaired as if these household would be about to remake the same debt mistakes.

Most of the debt before the crisis was taken on by the 45+. They are 10 years older now and not about to re-leverage themselves. The growth will have to come from the younger group but they are full of student and car debt. Will they be able to buy houses for which prices have returned to pre-crisis levels?

This leverage game depends on housing but it looks like we will be forced into a change of paradigm.

skippy , June 26, 2017 at 8:02 am

Wages and productivity divergence, crapifiction of long term credit risk, concentration of wealth and assets .

disheveled and the sound track chorus – because markets – all sung by Milton, Rubin, Greenspan, et al but yeah the debt sigh

templar555510 , June 26, 2017 at 8:35 am

Very well put. The ' leverage game ' comprises the whole neo-liberal paradigm which as you say depends on housing .

Here in the UK until the last fifteen years or so, apart from a small number of very top end residential properties there was a ' property ladder ' we used to say . The meaning was that you could start at the bottom and if you chose to, could move up, and even though property prices moved up your wages were likely to increase, but your debt was being eroded bit by bit by inflation which kept the whole thing in sync.

Those days are long gone and I think it is dawning on a lot of us that the game is finally up for this paradigm and there is no going back. Hence the certain air of melancholy which pervades the atmosphere.

I went to a little drinks party on Saturday evening and it was interesting how the room of twenty or so people divided between those stuck in the status quo and those beginning to perceive of a future beyond the status quo .

Jim Haygood , June 26, 2017 at 12:10 pm

Globally, household debt is the smallest of the four commonly used categories of Household, Corporate [non-financial], Government, and Financial. Chart:

http://tinyurl.com/zwqah7t

In a recession, a debt-burdened corporate sector behaves much as households do, cutting back particularly on capital investment. Government goes the opposite way, hiking debt during a recession to fund automatic stabilizers. But heavy gov't debt, like household debt, is a drag on consumption after a lag of several years.

Focusing on household debt alone is of questionable value, when much broader debt aggregates are available. What's clear from the chart comparing household debt in six countries is that Canada and Australia are up to their necks in debt, largely owing to mortgage debt supported by their housing bubbles.

When these housing bubbles burst - as bubbles invariably do - these two resource-oriented economies are going to be sucking wind. Unfortunately, in 2014 USgov started applying US income taxation to Canadians who stay 182 days a year or more in the US. Refugees from the Great White North who flee south will face a whole new level of pain when the US IRS works them over with a rubber hose.

[Jun 26, 2017] From a class conflict perspective, the economics field is responsive to its constituency: the 1%. As Marx and others have pointed out, the ideological necessity of making what is unjust appear as "There Is No Alternative" is the unstated core mandate of the economists

Notable quotes:
"... Ann Pettifor has become so disgusted with all of this "gee, we didn't know" and other incompetencies that she has written a piece demanding that the government take a hard look at the economics profession in a first step to making it responsive and responsible to the people. This is the UK, and we should definitely do it here, US, too. ..."
Jun 26, 2017 | www.nakedcapitalism.com
Susan the other , June 26, 2017 at 11:45 am

Ann Pettifor has become so disgusted with all of this "gee, we didn't know" and other incompetencies that she has written a piece demanding that the government take a hard look at the economics profession in a first step to making it responsive and responsible to the people. This is the UK, and we should definitely do it here, US, too.

DanB , June 26, 2017 at 12:42 pm

From a class conflict perspective, the economics field is responsive to its constituency: the 1%. As Marx and others have pointed out, the ideological necessity of making what is unjust appear as "There Is No Alternative" is the unstated core mandate of the economists. Therefore, despite the ludicrousness of this analysis, I find it another chink in the armor of the dominant ideology that the obvious is now being so gingerly discussed by mainstream economists, the chief ideological propagandists of the 1%.

cocomaan , June 26, 2017 at 5:40 am

When households take on long-term debt, they increase current spending power but commit to a pre-specified path of future debt service (interest payments and amortisations).

How much are these people paid to come up with these thrilling and original conclusions?

[Jun 18, 2017] Economic bungee jumping without cord: Comment on Simon Wren-Lewis on 'Raising the inflation target'

Notable quotes:
"... The argument for a higher inflation target is NOT straightforward, once you understand two things. First interest theory is axiomatically false.#1 Because of this monetary policy never had sound scientific foundations. Second the same holds for fiscal policy.#2 ..."
"... The argument AGAINST higher inflation is that it REDUCES employment. Given the overall situation, the ONLY sensible policy is to increase the average wage rate, such that the rate of change of the wage rate is greater than the rate of change of productivity, because this increases employment. This is a SYSTEMIC necessity and has NOTHING to do with social policy. Employment is co-determined by the relationship between average wage rate, price and productivity. This relationship should automatically produce full employment but does not. ..."
Jun 18, 2017 | economistsview.typepad.com

Egmont Kakarot-Handtke, June 17, 2017 at 08:31 AM

Economic bungee jumping without cord: Comment on Simon Wren-Lewis on 'Raising the inflation target'

You say: "The argument for a higher inflation target is straightforward, once you understand two things. First the most effective and reliable monetary policy instrument is to influence the real interest rate in the economy, which is the nominal interest rate less expected inflation. Second nominal short term interest rates have a floor near zero (the Zero Lower Bound, or ZLB)."

The argument for a higher inflation target is NOT straightforward, once you understand two things. First interest theory is axiomatically false.#1 Because of this monetary policy never had sound scientific foundations. Second the same holds for fiscal policy.#2

Let us assume for a moment that, for whatever reasons, neither monetary nor fiscal policy is applicable. So, given investment expenditures of the business sector and the expenditure ratio of the household sector, the only alternative left is to directly influence the macroeconomic price mechanism.#3

The argument AGAINST higher inflation is that it REDUCES employment. Given the overall situation, the ONLY sensible policy is to increase the average wage rate, such that the rate of change of the wage rate is greater than the rate of change of productivity, because this increases employment. This is a SYSTEMIC necessity and has NOTHING to do with social policy. Employment is co-determined by the relationship between average wage rate, price and productivity. This relationship should automatically produce full employment but does not.

Standard employment theory is false.#4 The proposal to get the economy going by increasing price inflation is the direct result of the complete lack of understanding how the market economy works.

Egmont Kakarot-Handtke

#1 See 'The Emergence of Profit and Interest in the Monetary Circuit'
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1973952

#2 See 'Austerity and the utter scientific ignorance of economists'
http://axecorg.blogspot.de/2015/12/austerity-and-utter-scientific.html

#3 For more details see 'Think deeper'
http://axecorg.blogspot.de/2017/06/think-deeper.html

#4 For details of the bigger picture see cross-references Employment
http://axecorg.blogspot.de/2015/08/employmentphillips-curve-cross.html

[Jun 17, 2017] In cyberpunk, there are no more grand narratives about progress and triumph. Humans have nowhere to go and decay is globalized by Robert Mariani

Jun 01, 2017 | theamericanconservative.com

The most tantalizing predictions of cyberpunk never came true. There are no gangs of cyborgs ruling shantytowns in New York City and there are no corporations larger than the federal government. But the sci-fi subgenre envisions such dystopias being underpinned by something subtler: the state of man's soul when there are no longer limits.

The 1980s provided fertile ground for the piercing new vision of science fiction pioneered by William Gibson and his contemporaries. The global capitalism of Reagan and Thatcher ceded agency from nation-states to nation-agnostic corporations. Less obvious but just as important was the fact that the space race was over and Star Trek 's naivety was laid bare. Computers, not spaceships, would become the measure of progression towards the future. The sleek, utopian vision of the mid-century futurism was further discredited by soaring crime in urban centers.

Modernity that was once expected to bring matching space unitards instead brought radical self-expression. The overabundance of choice, these authors suggested, leads to decadence, decay and a society where people can't see clearly without losing their humanity.

And so the heroes of cyberpunk are outsiders -- the punks to which the genre owes half its name. In cyberpunk, there are no more grand narratives about progress and triumph. Humans have nowhere to go and decay is globalized; this is sci-fi without the comforting thought of alien life. Readers experience an Earth where the concept of "place" has passed its expiration date. Protagonists, like the megacorporations they tangle with, exist across borders, anywhere being as familiar or foreign as anywhere else. Neon Japanese syllabary studs skyscrapers that loom over the crowded downtowns of American cities. Virtual reality is at once a catalyst and a coping mechanism for social breakdown.

What is an individual to do in the face of such brutal atomization? Why, he takes individualism to its perverse conclusions, William Gibson's Neuromancer suggests. Take the following passage:

His face was a simple graft grown on collagen and shark-cartilage polysaccharides, smooth and hideous.

The novel implies that the character might appear a little later with a completely different face. Self was another uncertainty that had been sloughed off by ceaseless momentum. Even the author's jargon serves to impart a feeling of unfamiliarity.

We're starting to live in a time when such terrible and wondrous things are not only technically possible but socially acceptable. Headlines were made last month over a fetal lamb being grown in an artificial uterus. The creature, invaded with tubes, suckles and kicks inside its bulging, rippling enclosure. The juxtaposition of twitching organism and sterile, utilitarian plastic is simply cyberpunk. Gender is going the way of that thug's cartilage-grown face. Male and female is looking more like Coke and Pepsi, with some opting to make their own artisanal cola blends. As rootlessness moves from exception to rule, obligations to others begin to look like hindrances. It isn't difficult to see how three-parent babies in polycarbonate wombs fit into all of this.

Change is fast these days. We can feel acceleration that was once only perceptible between generations. At the same time, the past is more crystallized than it's ever been before. Today's everyman, immersed in a data-sphere orders of magnitude more efficient than any library, can see more clearly than ever that things were different in an ever-familiar past. A world with meaning resolves ever sharper as we speed away from it.

But the left-liberal ethic that was once a vantage point from which the genre's founders saw so far is now fogging their sight, restricting them to toiling within the status quo. Cyberpunk has come true in ways that makes progressives uncomfortable if they are unpacked. The genre's founders married a criticism of corporations to the dreary aesthetic of rootlessness, but progressivism only offers a critique of the former on its own merits. Take away the violence and grit and you get Brave New World , a world that the gender ideologue can't levy an argument against. Consumerization of the body, reproduction and social relations lost their conspicuous ugliness when they were rebranded as "liberation." (Outside of sci-fi, the only major literary figure who tackles these issues , Michel Houellebecq, is painted as a reactionary.)

Gibson's upcoming book, Agency , has a plot one would expect from a lesser author: the future is awful because Trump was elected president. This might seem like a perplexing lack of creativity, but consider the intervening third of a century. Gibson was in the business of scrutinizing Frankensteinization when it was a distant flight of fancy. But becoming a Frankenstein monster of hormones and surgery is here and celebration is mandatory. Dialing down one's own ability to notice things to the level of a Daily Kos commenter becomes a matter of survival. This new subject matter reflects the aesthetics of culture that snapped his leash: lifeless and brutal in its insipid repetition.

Stories motivated by political disappointment are doomed to be forgotten as the election cycle resets. Cyberpunk, on the other hand, is more popular now than even during its literary heyday of the 80s. The blockbuster Ghost in the Shell hit theaters earlier this year and will be followed by a sequel to the seminal Blade Runner in October. Their combined budget probably exceeds that of every cyberpunk film that came before (there aren't many.) Cyberpunk 2077 is set to cost around $100 million, making it the most expensive role-playing video game ever made. If we put on our cyberpunk goggles, all of this means something. Capitalism is a computer that processes desire.

Cyberpunk is not becoming marketable because it offers a solution for society. The message is clear that, in face of inexorable rot, the individual loses his sanity or loses his soul. What the genre does offer is a third choice: to view breakneck dehumanization as a roller coaster ride. There is grim exhilaration in the acceptance that an awesome decline cannot be stopped. A future that was once dark and hopeless is now dark and beautiful when one dives headlong into it. Ugliness becomes thrilling and alienation becomes adventure. The homogenous, numbing light of Brave New World's dystopia is replaced by the dreamy atmosphere of neon-lit alleys. Sisyphus can't change his fate, but he can refuse to nod and clap, blank-eyed, at the world's loss of meaning.

Robert Mariani is the opinion editor at The Daily Caller and the co-founder of Jacobite , a magazine of the post-political right. Follow him on Twitter @robert_mariani

[Jun 17, 2017] Varoufakis explains why economics is not science

Notable quotes:
"... Russell Brand discusses with Yanis Varoufakis what happens when you take on the political, financial and media elite, and how radical reform can occur. Through accounts of his confrontations with the IMF, European institutions and the German government they examine where true power lies and how it is wielded. ..."
"... The 'gurus' of the dominant economic system 'teach' us how economy should be treated, based on mathematical models that assume standard conditions that, essentially, do not exist in the real world. This kind of peculiar 'determinism' in economics is already considered obsolete in other scientific fields. ..."
"... Mainstream economics, dominated by the neoliberal perception, is full of assumptions that are not applicable in the real world, yet being used to justify the satisfaction of the interests of the elites. ..."
"... Almost everywhere, neoliberal policies imposed through IMF have brought unprecedented disaster. Despite the obvious failure, financial technocrats assume that all cases are similar, imposing the same recipe in every region. Their models are full of assumptions in every level and that's why the fail miserably. Yet, despite the obvious disaster, the neoliberal priesthood demands from societies to adopt its models through simple faith. ..."
Jun 17, 2017 | failedevolution.blogspot.gr
globinfo freexchange

Russell Brand discusses with Yanis Varoufakis what happens when you take on the political, financial and media elite, and how radical reform can occur. Through accounts of his confrontations with the IMF, European institutions and the German government they examine where true power lies and how it is wielded.

In a particular part of the interview, Varoufakis explains simply why economics is not science:

I call it organized religion with equations, superstition. The only way to become free of superstition is through overcoming. But you need to study. I've always pissed off my academic colleagues and other economists who actually believe that is real science what they are doing.

Our mathematical models of the weather can be judged by objective reality. If I am a meteorologist and come up with a prediction that tomorrow there is going to be a heatwave in Leicester square, all we have to do is to wait until tomorrow to see if I'm right or wrong. The weather will either confirm or junk my theories about it.

And by the way, this is exactly the process of how real science progress. Try – fail - come with an improved idea, and so on. Real scientists abolish old theories even if they work well with new ones that explain better the nature, the world, etc.

Varoufakis continues:

Let's say that I have the same kind of computer model and actual machine and data mining that the meteorologist does, but instead of using it to predict the weather I use it to predict the stock exchange. And suppose that I was somebody very highly respected as a predictor of stock exchange changes and let's say that today, I were to predict that tomorrow is going to be a major crash in the stock exchange. There might be because I predicted it! In society and in the economy, our beliefs about the phenomenon under study are part of the phenomenon under study.

https://www.youtube.com/embed/BX7JDLkYMWc

The last paragraph above depicts soundly why mainstream economics are far from the concept of modern science. The 'gurus' of the dominant economic system 'teach' us how economy should be treated, based on mathematical models that assume standard conditions that, essentially, do not exist in the real world. This kind of peculiar 'determinism' in economics is already considered obsolete in other scientific fields.

In Quantum Mechanics, for example, Heisenberg's uncertainty principle not only acknowledges that the observer affects the final situation of a physical system but also embeds this interference mathematically. As a consequence, the final situation of a physical system can be determined only in statistical terms.

Mainstream economics, dominated by the neoliberal perception, is full of assumptions that are not applicable in the real world, yet being used to justify the satisfaction of the interests of the elites.

Almost everywhere, neoliberal policies imposed through IMF have brought unprecedented disaster. Despite the obvious failure, financial technocrats assume that all cases are similar, imposing the same recipe in every region. Their models are full of assumptions in every level and that's why the fail miserably. Yet, despite the obvious disaster, the neoliberal priesthood demands from societies to adopt its models through simple faith.

Which shows that the only and real target of the mainstream economics, is simply retain the domination of a small elite on the top of the economic hierarchy, at the expense of the majority of the people.

[Jun 14, 2017] Krugman as a less then necessary additional singer in the shrill liberal chorus

Jun 14, 2017 | economistsview.typepad.com

anne, June 13, 2017 at 12:18 PM

https://krugman.blogs.nytimes.com/2017/06/12/macroeconomics-the-simple-and-the-fancy/

June 12, 2017

Macroeconomics: The Simple and the Fancy

By Paul Krugman

Noah Smith has a nice summation * of his critique of macroeconomics, which mainly comes down, as I read it, as an appeal for researchers to stay close to the ground. That's definitely good advice for young researchers.

But what about economists trying to provide useful advice, directly or indirectly, to policy makers, who need to make decisions based on educated guesses about the whole system? Smith says, "go slow, allow central bankers to use judgment and simple models in the meantime." That would be better than a lot of what academic macroeconomists do in practice, which is to castigate central bankers and other policymakers for not using elaborate models that don't work. But is there really no role for smart academics to help out in this process? And if so, what does this say about the utility of what the profession does?

The thing is, those simple models have done pretty darn well since 2008 - and central bankers who used them, like Ben Bernanke, did a lot better than central bankers like Jean-Claude Trichet who based their judgements on something else. So surely at least part of the training of macroeconomists should prepare them to be helpful in applying simple models, maybe even in making those simple models better.

Reading Smith, I found myself remembering an old line ** from Robert Solow in defense of "fancy" economic theorizing:

"In economics I like a man to have mastered the fancy theory before I trust him with simple theory because high-powered economics seems to be such an excellent school for the skillful use of low-powered economics."

OK, can anyone make that case about modern macroeconomics? With a straight face? In practice, it has often seemed that expertise in high-powered macroeconomics - mainly meaning dynamic stochastic general equilibrium - positively incapacitates its possessors from the use of low-powered macroeconomics, largely IS-LM and its derivatives.

I don't want to make a crude functional argument here: research that advances knowledge doesn't have to provide an immediate practical payoff. But the experience since 2008 has strongly suggested that the research program that dominated macro for the previous generation actually impaired the ability of economists to provide useful advice in the moment. Mastering the fancy stuff made economists useless at the simple stuff.

A more modest program would, in part, help diminish this harm. But it would also be really helpful if macroeconomists relearned the idea that simple aggregate models can, in fact, be useful.

* http://noahpinionblog.blogspot.fr/2017/06/summing-up-my-thoughts-on-macroeconomics.html

** https://books.google.com/books?id=7ABgM8-ExXsC&pg=PA44&lpg=PA44&dq=solow+simple+fancy+economics+trust&source=bl&ots=XflZaM5HLV&sig=vsqDgLLShG5gBda-NBTxyjmclI0&hl=en&sa=X&ved=0ahUKEwjSxZ6ShLnUAhVMNT4KHW9VBIUQ6AEIOjAE#v=onepage&q=solow%20simple%20fancy%20economics%20trust&f=false

Christopher H. - , June 13, 2017 at 12:20 PM
I don't understand why you feel the need to put a link from today's link list into a comment, without any comment from you.
Paine - , June 13, 2017 at 02:05 PM
Often we can't activate the articles because we don't have a NYT sub
Or have used up our free monthly quota

Besides this blog post on macro
Is a gem --

Worth a thousand copies

Christopher H. - , June 13, 2017 at 02:58 PM
fair enough.
$mart $$$$ Behind The Curve - , June 14, 2017 at 04:37 AM
https://www.leg.state.nv.us/Session/79th2017/Bills/AB/AB374_EN.pdf
anne - , June 13, 2017 at 12:50 PM
https://en.wikipedia.org/wiki/Dynamic_stochastic_general_equilibrium

Dynamic stochastic general equilibrium modeling is a branch of applied general equilibrium theory that is influential in contemporary macroeconomics. The DSGE methodology attempts to explain aggregate economic phenomena, such as economic growth, business cycles, and the effects of monetary and fiscal policy, on the basis of macroeconomic models derived from microeconomic principles.

Paine - , June 13, 2017 at 02:11 PM
Too general

some variants include different assumptions
But common assumptions include

No banks
No nominal prices
Micro founding with a single representative agent
An infinite time horizon
A fixed inter temporal fiscal budget
Continuous market clearance
No private debt

On and on one must go

anne - , June 13, 2017 at 04:15 PM
DGSE:

Too general

some variants include different assumptions
But common assumptions include

No banks
No nominal prices
Micro founding with a single representative agent
An infinite time horizon
A fixed inter temporal fiscal budget
Continuous market clearance
No private debt

[ Perfect. ]

anne - , June 13, 2017 at 12:51 PM
http://en.wikipedia.org/wiki/IS%E2%80%93LM_model

The IS–LM model, or Hicks–Hansen model, is a macroeconomic tool that demonstrates the relationship between interest rates and real output, in the goods and services market and the money market (also known as the assets market). The intersection of the "investment–saving" (IS) and "liquidity preference–money supply" (LM) curves is the "general equilibrium" where there is simultaneous equilibrium in both markets. Two equivalent interpretations are possible: first, the IS–LM model explains changes in national income when the price level is fixed in the short-run; second, the IS–LM model shows why the aggregate demand curve shifts. Hence, this tool is sometimes used not only to analyse the fluctuations of the economy but also to find appropriate stabilisation policies.

The model was developed by John Hicks in 1937, and later extended by Alvin Hansen, as a mathematical representation of Keynesian macroeconomic theory. Between the 1940s and mid-1970s, it was the leading framework of macroeconomic analysis. While it has been largely absent from macroeconomic research ever since, it is still the backbone of many introductory macroeconomics textbooks.

anne - , June 13, 2017 at 02:00 PM
http://krugman.blogs.nytimes.com/2011/10/09/is-lmentary/

October 9, 2011

IS-LMentary
By Paul Krugman

A number of readers, both at this blog and other places, have been asking for an explanation of what IS-LM is all about. Fair enough – this blogosphere conversation has been an exchange among insiders, and probably a bit baffling to normal human beings (which is why I have been labeling my posts "wonkish").

[IS-LM stands for investment-savings, liquidity-money -- which will make a lot of sense if you keep reading.]

So, the first thing you need to know is that there are multiple correct ways of explaining IS-LM. That's because it's a model of several interacting markets, and you can enter from multiple directions, any one of which is a valid starting point.

My favorite of these approaches is to think of IS-LM as a way to reconcile two seemingly incompatible views about what determines interest rates. One view says that the interest rate is determined by the supply of and demand for savings – the "loanable funds" approach. The other says that the interest rate is determined by the tradeoff between bonds, which pay interest, and money, which doesn't, but which you can use for transactions and therefore has special value due to its liquidity – the "liquidity preference" approach. (Yes, some money-like things pay interest, but normally not as much as less liquid assets.)

How can both views be true? Because we are at minimum talking about *two* variables, not one – GDP as well as the interest rate. And the adjustment of GDP is what makes both loanable funds and liquidity preference hold at the same time....

Paine - , June 13, 2017 at 02:04 PM
Yes yes yes

U admonished my humble self
For blasting krugman as a less then necessary additional singer in the shrill liberal chorus

But here is where he belongs

This is a giant strike at the last generation
Of the on going macro theorist academic clique

Mr and ms university
Tear down that model


That is the new classical model and it's pitiful off spring new Keynesianism

[Jun 14, 2017] IS-LM stands for investment-savings, liquidity-money and is a junk model

Notable quotes:
"... Dynamic stochastic general equilibrium modeling is a branch of applied general equilibrium theory that is influential in contemporary macroeconomics. The DSGE methodology attempts to explain aggregate economic phenomena, such as economic growth, business cycles, and the effects of monetary and fiscal policy, on the basis of macroeconomic models derived from microeconomic principles. ..."
"... expertise in high-powered macroeconomics - mainly meaning dynamic stochastic general equilibrium - positively incapacitates its possessors from the use of low-powered macroeconomics, largely IS-LM and its derivatives. ..."
Jun 14, 2017 | economistsview.typepad.com
anne , June 12, 2017 at 03:01 PM
http://krugman.blogs.nytimes.com/2011/10/09/is-lmentary/

October 9, 2011

IS-LMentary
By Paul Krugman

A number of readers, both at this blog and other places, have been asking for an explanation of what IS-LM is all about. Fair enough – this blogosphere conversation has been an exchange among insiders, and probably a bit baffling to normal human beings (which is why I have been labeling my posts "wonkish").

[IS-LM stands for investment-savings, liquidity-money -- which will make a lot of sense if you keep reading.]

So, the first thing you need to know is that there are multiple correct ways of explaining IS-LM. That's because it's a model of several interacting markets, and you can enter from multiple directions, any one of which is a valid starting point.

My favorite of these approaches is to think of IS-LM as a way to reconcile two seemingly incompatible views about what determines interest rates. One view says that the interest rate is determined by the supply of and demand for savings – the "loanable funds" approach. The other says that the interest rate is determined by the tradeoff between bonds, which pay interest, and money, which doesn't, but which you can use for transactions and therefore has special value due to its liquidity – the "liquidity preference" approach. (Yes, some money-like things pay interest, but normally not as much as less liquid assets.)

How can both views be true? Because we are at minimum talking about *two* variables, not one – GDP as well as the interest rate. And the adjustment of GDP is what makes both loanable funds and liquidity preference hold at the same time.

Start with the loanable funds side. Suppose that desired savings and desired investment spending are currently equal, and that something causes the interest rate to fall. Must it rise back to its original level? Not necessarily. An excess of desired investment over desired savings can lead to economic expansion, which drives up income. And since some of the rise in income will be saved – and assuming that investment demand doesn't rise by as much – a sufficiently large rise in GDP can restore equality between desired savings and desired investment at the new interest rate.

That means that loanable funds doesn't determine the interest rate per se; it determines a set of possible combinations of the interest rate and GDP, with lower rates corresponding to higher GDP. And that's the IS curve.

Meanwhile, people deciding how to allocate their wealth are making tradeoffs between money and bonds. There's a downward-sloping demand for money – the higher the interest rate, the more people will skimp on liquidity in favor of higher returns. Suppose temporarily that the Federal Reserve holds the money supply fixed; in that case the interest rate must be such as to match that demand to the quantity of money. And the Fed can move the interest rate by changing the money supply: increase the supply of money and the interest rate must fall to induce people to hold a larger quantity.

Here too, however, GDP must be taken into account: a higher level of GDP will mean more transactions, and hence higher demand for money, other things equal. So higher GDP will mean that the interest rate needed to match supply and demand for money must rise. This means that like loanable funds, liquidity preference doesn't determine the interest rate per se; it defines a set of possible combinations of the interest rate and GDP – the LM curve.

And that's IS-LM:

[Graph]

The point where the curves cross determines both GDP and the interest rate, and at that point both loanable funds and liquidity preference are valid.

What use is this framework? First of all, it helps you avoid fallacies like the notion that because savings must equal investment, government spending cannot lead to a rise in total spending – which right away puts us above the level of argument that famous Chicago professors somehow find convincing. And it also gets you past confusions like the notion that government deficits, by driving up interest rates, can actually cause the economy to contract.

Most spectacularly, IS-LM turns out to be very useful for thinking about extreme conditions like the present, in which private demand has fallen so far that the economy remains depressed even at a zero interest rate. In that case the picture looks like this:

[Graph]

Why is the LM curve flat at zero? Because if the interest rate fell below zero, people would just hold cash instead of bonds. At the margin, then, money is just being held as a store of value, and changes in the money supply have no effect. This is, of course, the liquidity trap.

And IS-LM makes some predictions about what happens in the liquidity trap. Budget deficits shift IS to the right; in the liquidity trap that has no effect on the interest rate. Increases in the money supply do nothing at all.

That's why in early 2009, when the Wall Street Journal, the Austrians, and the other usual suspects were screaming about soaring rates and runaway inflation, those who understood IS-LM were predicting that interest rates would stay low and that even a tripling of the monetary base would not be inflationary. Events since then have, as I see it, been a huge vindication for the IS-LM types – despite some headline inflation driven by commodity prices – and a huge failure for the soaring-rates-and-inflation crowd.

Yes, IS-LM simplifies things a lot, and can't be taken as the final word. But it has done what good economic models are supposed to do: make sense of what we see, and make highly useful predictions about what would happen in unusual circumstances. Economists who understand IS-LM have done vastly better in tracking our current crisis than people who don't.

anne - , June 12, 2017 at 03:02 PM
https://en.wikipedia.org/wiki/Dynamic_stochastic_general_equilibrium

Dynamic stochastic general equilibrium modeling is a branch of applied general equilibrium theory that is influential in contemporary macroeconomics. The DSGE methodology attempts to explain aggregate economic phenomena, such as economic growth, business cycles, and the effects of monetary and fiscal policy, on the basis of macroeconomic models derived from microeconomic principles.

Paine - , June 13, 2017 at 01:50 PM
This on academic macro since the seventies

Is the Paul krugman I respect

His hysterics about the trump menace ?

Not so useful

Paul leave that rote tub thumping to hacks

Paine - , June 13, 2017 at 01:50 PM
"expertise in high-powered macroeconomics - mainly meaning dynamic stochastic general equilibrium - positively incapacitates its possessors from the use of low-powered macroeconomics, largely IS-LM and its derivatives."

Amen

[Jun 14, 2017] Brad Delong is peddling his insane neoliberal nonsense again.

Jun 14, 2017 | economistsview.typepad.com

Paine , June 14, 2017 at 08:26 AM

Btw

Brad has a fine little logic ox calculation
This is his best side
The deflection point in his zero lower bound graph
That shows a fed helpless as the real rate climbs as the deflation rate climbs ...
and his little set of equations that generate
A run away deflation
Using a Harmless looking Taylor rule
with too low...for his logic toy system...
(2%) A target inflation rate

If

The neutral rate of the system is dwelling down around one percent

Paine - , June 14, 2017 at 08:29 AM
Brad has his uses for sure

Recall the similar logical toy system he built and manipulated for his mentor Larry Summers

That showed
The benefits of public investment in a period of private doldrums

Paine - , June 14, 2017 at 08:32 AM
Delong, J. Bradford, and Lawrence H. Summers. 2012. "Fiscal Policy in a Depressed Economy." Brookings Papers on Economic Activity 44 (1)


Very much a fun little gadget

Paine - , June 14, 2017 at 08:36 AM
Abstract

In a depressed economy, with short-term nominal interest rates
at their zero lower bound, ample cyclical unemployment, and excess capacity,
increased government purchases would be neither offset by the monetary
authority raising interest rates nor neutralized by supply-side bottlenecks.
Then even a small amount of hysteresis-even a small shadow cast on future
potential output by the cyclical downturn-means, by simple arithmetic, that
expansionary fiscal policy is likely to be self-financing. Even if it is not, it is
highly likely to pass the sensible benefit-cost test of raising the present value
of future potential output. Thus, at the zero bound, where the central bank
cannot or will not but in any event does not perform its full role in stabilization
policy, fiscal policy has the stabilization policy mission that others have
convincingly argued it lacks in normal times. Whereas many economists
have assumed that the path of potential output is invariant to even a deep
and prolonged downturn, the available evidence raises a strong fear that
hysteresis is indeed a factor. Although nothing in our analysis calls into question
the importance of sustainable fiscal policies, it strongly suggests the need
for caution regarding the pace of fiscal consolidation.

Yes yes my fellow home makers
If macro conditions are right ...
even a small Amount of hysteresis can turn the project into a self financing gig

anne - , June 14, 2017 at 11:36 AM
https://www.brookings.edu/bpea-articles/fiscal-policy-in-a-depressed-economy/

March, 2012

Fiscal Policy in a Depressed Economy
By J. Bradford DeLong and Lawrence H. Summers

Abstract

In a depressed economy, with short-term nominal interest rates at their zero lower bound, ample cyclical unemployment, and excess capacity, increased government purchases would be neither offset by the monetary authority raising interest rates nor neutralized by supply-side bottlenecks. Then even a small amount of hysteresis-even a small shadow cast on future potential output by the cyclical downturn-means, by simple arithmetic, that expansionary fiscal policy is likely to be self-financing. Even if it is not, it is highly likely to pass the sensible benefit-cost test of raising the present value of future potential output. Thus, at the zero bound, where the central bank cannot or will not but in any event does not perform its full role in stabilization policy, fiscal policy has the stabilization policy mission that others have convincingly argued it lacks in normal times. Whereas many economists have assumed that the path of potential output is invariant to even a deep and prolonged downturn, the available evidence raises a strong fear that hysteresis is indeed a factor. Although nothing in our analysis calls into question the importance of sustainable fiscal policies, it strongly suggests the need for caution regarding the pace of fiscal consolidation.

anne - , June 14, 2017 at 11:46 AM
Thus, at the zero bound, where the central bank cannot or will not but in any event does not perform its full role in stabilization policy, fiscal policy has the stabilization policy mission that others have convincingly argued it lacks in normal times....

-- DeLong and Summers

[ I find such a rationale for fiscal policy to foster growth only convincing in a limited and possible even politically self-defeating way, and would argue the rationale importantly undervalues fiscal policy as a growth driver. The paper is clear and important though as a beginning rationale for fiscal policy use. ]

anne - , June 14, 2017 at 11:52 AM
Correcting:

I find such a rationale for fiscal policy to foster growth only convincing in a limited and possibly even politically self-defeating way, and would argue the rationale importantly undervalues fiscal policy as a growth driver. The paper is clear and important though as a beginning rationale for fiscal policy use.

Tom aka Rusty - , June 14, 2017 at 09:20 AM
Brad is peddling his insane nonsense again.

http://www.bradford-delong.com/2017/06/no-it-is-really-not-harder-to-make-the-case-for-free-trade-these-days.html#more

Both members of a family must be injured by trade for there to be an injury - stupid.

Poorly paid service workers are ok because they can buy cheap Chinese merchandise (like that makes up for poor benefits and no retirement).

His neoliberal freak flag is showing some wear - and even Krugman knows better.

[Jun 13, 2017] Can anyone make the case doe neoclassical macroeconomics? With a straight face?

Notable quotes:
"... the experience since 2008 has strongly suggested that the research program that dominated macro for the previous generation actually impaired the ability of economists to provide useful advice in the moment. Mastering the fancy stuff made economists useless at the simple stuff. ..."
Jun 13, 2017 | economistsview.typepad.com

anne, June 12, 2017 at 03:23 PM

https://krugman.blogs.nytimes.com/2017/06/12/macroeconomics-the-simple-and-the-fancy/

June 12, 2017

Macroeconomics: The Simple and the Fancy
By Paul Krugman

Noah Smith has a nice summation * of his critique of macroeconomics, which mainly comes down, as I read it, as an appeal for researchers to stay close to the ground. That's definitely good advice for young researchers.

But what about economists trying to provide useful advice, directly or indirectly, to policy makers, who need to make decisions based on educated guesses about the whole system? Smith says, "go slow, allow central bankers to use judgment and simple models in the meantime." That would be better than a lot of what academic macroeconomists do in practice, which is to castigate central bankers and other policymakers for not using elaborate models that don't work. But is there really no role for smart academics to help out in this process? And if so, what does this say about the utility of what the profession does?

The thing is, those simple models have done pretty darn well since 2008 - and central bankers who used them, like Bernanke, did a lot better than central bankers like Trichet who based their judgements on something else. So surely at least part of the training of macroeconomists should prepare them to be helpful in applying simple models, maybe even in making those simple models better.

Reading Smith, I found myself remembering an old line ** from Robert Solow in defense of "fancy" economic theorizing:

"In economics I like a man to have mastered the fancy theory before I trust him with simple theory because high-powered economics seems to be such an excellent school for the skillful use of low-powered economics."

OK, can anyone make that case about modern macroeconomics? With a straight face? In practice, it has often seemed that expertise in high-powered macroeconomics - mainly meaning dynamic stochastic general equilibrium - positively incapacitates its possessors from the use of low-powered macroeconomics, largely IS-LM and its derivatives.

I don't want to make a crude functional argument here: research that advances knowledge doesn't have to provide an immediate practical payoff. But the experience since 2008 has strongly suggested that the research program that dominated macro for the previous generation actually impaired the ability of economists to provide useful advice in the moment. Mastering the fancy stuff made economists useless at the simple stuff.

A more modest program would, in part, help diminish this harm. But it would also be really helpful if macroeconomists relearned the idea that simple aggregate models can, in fact, be useful.

* http://noahpinionblog.blogspot.fr/2017/06/summing-up-my-thoughts-on-macroeconomics.html

** https://books.google.com/books?id=7ABgM8-ExXsC&pg=PA44&lpg=PA44&dq=solow+simple+fancy+economics+trust&source=bl&ots=XflZaM5HLV&sig=vsqDgLLShG5gBda-NBTxyjmclI0&hl=en&sa=X&ved=0ahUKEwjSxZ6ShLnUAhVMNT4KHW9VBIUQ6AEIOjAE#v=onepage&q=solow%20simple%20fancy%20economics%20trust&f=false

anne, June 12, 2017 at 03:24 PM
https://en.wikipedia.org/wiki/Dynamic_stochastic_general_equilibrium

Dynamic stochastic general equilibrium modeling is a branch of applied general equilibrium theory that is influential in contemporary macroeconomics. The DSGE methodology attempts to explain aggregate economic phenomena, such as economic growth, business cycles, and the effects of monetary and fiscal policy, on the basis of macroeconomic models derived from microeconomic principles.

libezkova -> anne... , June 12, 2017 at 09:39 PM
Dynamic stochastic general equilibrium is a pseudoscience.

The problem with most neoclassical economics is that they are very bad mathematicians :-)

See, for example an interesting discussion at:

Why Neoclassical Economists Didnt See the Great Recession Coming by Prof Steve Keen

Uploaded on Jul 12, 2011

Mainstream "Neoclassical" Economists famously did not see the Great Recession coming, and when you look at their theories, it's no wonder. Their favourite model prior to the crisis goes by the name of "Dynamic Stochastic General Equilibrium", or DSGE. These models imagined that the entire economy could be modeled as a single individual. Yet neoclassical researchers proved decades ago that even a single market can't be modeled that way. I explain this proof while outlining the fundamental truth that "Neoclassical Economists Don't Understand Neoclassical Economics".

https://www.youtube.com/watch?v=1L6-loOZYLc

anne, June 12, 2017 at 03:25 PM
https://en.wikipedia.org/wiki/IS%E2%80%93LM_model

The IS–LM model, or Hicks–Hansen model, is a macroeconomic tool that shows the relationship between interest rates and real output, in the goods and services market and the money market (also known as the assets market). The intersection of the "investment–saving" (IS) and "liquidity preference–money supply" (LM) curves is the "general equilibrium" where there is simultaneous equilibrium in both markets. Two equivalent interpretations are possible: first, the IS–LM model explains changes in national income when the price level is fixed in the short-run; second, the IS–LM model shows why the aggregate demand curve shifts. Hence, this tool is sometimes used not only to analyse the fluctuations of the economy but also to find appropriate stabilisation policies.

[Jun 12, 2017] In order to tell the politicians and practitioners something about causes and best means, the economist needs the true theory or else he has not much more to offer than educated common sense or his personal opinion

Notable quotes:
"... What supply-demand-equilibrium economists never understood is that the price mechanism DESTABILIZES the economy. The sequence is as follows: price up - rhoF down - employment down - wage rate down - rhoF down - employment down - and so on. In other words, the market economy is inherently unstable. ..."
Jun 12, 2017 | economistsview.typepad.com

Egmont Kakarot-Handtke

, June 10, 2017 at 08:13 AM
Think deeper
Comment on Bradford DeLong on 'RETHINK 2%'

"In order to tell the politicians and practitioners something about causes and best means, the economist needs the true theory or else he has not much more to offer than educated common sense or his personal opinion." (Stigum)

The fact of the matter is that economists do NOT have the true theory. More precisely, economists do not know how the price- and profit mechanism works. The four main approaches ― Walrasianism, Keynesianism, Marxianism, Austrianism ― are mutually contradictory, axiomatically false, materially/formally inconsistent, and all got profit wrong.

Because of this economic policy guidance never had sound scientific foundations. This holds also for the RETHINK 2% letter to the Federal Reserve Board of Governors#1 which in turn is based on Josh Bivens's article.#2

Note for a start that Josh Bivens does not mention profit ― the pivotal variable of economics ― once. From this follows that his underlying profit theory is false. And from this in turn follows that his whole argument is false. ALL models that do not explicitly define macroeconomic profit are false.

The elementary version of the correct objective, systemic, behavior-free, macrofounded employment equation is shown on Wikimedia.#3 This equation says ― among other things ― that an increase of the factor cost ratio rhoF=W/PR leads to higher employment. The ratio rhoF embodies the price mechanism.

In order to focus on the crucial point imagine the FED has the means to directly influence the price P and increases it by 2%, all other variables unchanged. The correct macroeconomic employment equation tells us that employment falls. Bad move.

Next try. The FED sets the change of price to zero and instead increases the wage rate W by 2 %. The correct macroeconomic employment equation tells us that employment rises. Good move.

What supply-demand-equilibrium economists never understood is that the price mechanism DESTABILIZES the economy. The sequence is as follows: price up - rhoF down - employment down - wage rate down - rhoF down - employment down - and so on. In other words, the market economy is inherently unstable.

#4 Standard employment theory is false. The proposal to get the economy going by increasing price inflation is the direct result of the complete lack of understanding how the market economy works.

Egmont Kakarot-Handtke

#1 Letter to the Federal Reserve Board of Governors
http://www.bradford-delong.com/2017/06/rethink-2.html

#2 Josh Bivens 'Is 2 percent too low?'
http://www.epi.org/publication/is-2-percent-too-low/

#3 Wikimedia
https://commons.wikimedia.org/wiki/File:AXEC62.png
For details see 'Keynes' Employment Function and the Gratuitous Phillips Curve Disaster'
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2130421

#4 See also 'How Wicksell and the rest got inflation/deflation wrong'
http://axecorg.blogspot.de/2016/05/how-wicksell-and-rest-got.html

[Jun 09, 2017] Mr. Trump may be wrecking the state but only after Paul Krugman has wrecked economics

economistsview.typepad.com

Egmont Kakarot-Handtke , June 09, 2017 at 10:32 AM

Jun 09, 2017 | economistsview.typepad.com
Just another wreck
Comment on Paul Krugman on 'Wrecking the Ship of State'

Mr. Trump may be wrecking the state but only after Paul Krugman has wrecked economics.*

Egmont Kakarot-Handtke

* Krugman and the scientific implosion of economics
http://axecorg.blogspot.de/2016/02/krugman-and-scientific-implosion-of.html

Mr. Keynes, Prof. Krugman, IS-LM, and the End of Economics as We Know It
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2392856

Krugman is not an economist
http://axecorg.blogspot.de/2016/09/krugman-is-not-economist.html

The Krugman curse
http://axecorg.blogspot.de/2017/04/the-krugman-curse.html

[Jun 09, 2017] Mr. Trump may be wrecking the state but only after Paul Krugman has wrecked economics.

Jun 09, 2017 | economistsview.typepad.com

Egmont Kakarot-Handtke , June 09, 2017 at 10:32 AM

Just another wreck
Comment on Paul Krugman on 'Wrecking the Ship of State'

Mr. Trump may be wrecking the state but only after Paul Krugman has wrecked economics.*

Egmont Kakarot-Handtke

* Krugman and the scientific implosion of economics
http://axecorg.blogspot.de/2016/02/krugman-and-scientific-implosion-of.html

Mr. Keynes, Prof. Krugman, IS-LM, and the End of Economics as We Know It
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2392856

Krugman is not an economist
http://axecorg.blogspot.de/2016/09/krugman-is-not-economist.html

The Krugman curse
http://axecorg.blogspot.de/2017/04/the-krugman-curse.html

[Jun 04, 2017] Our politicians have been brainwashed by neoliberal economists.

Actually the reverse is true ;-)
Notable quotes:
"... Economics is a corrupt pseudo-science that gives a pseudo-scientific justification for the greed and rapacity of One Percenters. Its methodological flaws are glaring. It's time economists went back to the social science faculty, where they belong. ..."
www.unz.com

greenwichite , 27 Apr 2017 06:44

Our politicians have been brainwashed by neoliberal economists.

These economists produce models that factor-in all the upsides to globalisation, but fail to model any of the crippling, expensive-to-treat consequences of shutting down entire towns in places like Michigan or Lancashire.

They assume people live frictionless lives; that when the European ship-building industry moves to Poland, riveters in Portsmouth can just up-sticks and move to Gdansk with no problem. They encourage a narrative that implies such an English riveter are lazy if he fails to seize this opportunity.

(Let's drop a few economists in Gdansk with £100 in their pockets, and see how their families do.)

Economics is a corrupt pseudo-science that gives a pseudo-scientific justification for the greed and rapacity of One Percenters. Its methodological flaws are glaring. It's time economists went back to the social science faculty, where they belong.

[May 31, 2017] Economics needs to be holistic

Notable quotes:
"... The Wealth of Nations ..."
"... James Stoner is Professor in the Department of Political Science at Louisiana State University. He sits on the editorial board of ..."
"... . The papers presented at the Natural Law and Economics Conference can be found on-line at the conference website . ..."
Jun 02, 2009 | www.thepublicdiscourse.com

Natural Law and Economics Total Strangers or Separated Lovers

Relations between the disciplines have not always been so distant. Scholastic natural lawyers trained in the tradition of Aristotle and Aquinas developed defenses of private property and free trade that influenced authors such as Grotius, who in the seventeenth century laid the groundwork of the modern law of nations and thus the basis of modern trade. John Locke subsequently wrote an incisive account of the natural right to property as the source of economic prosperity, and Adam Smith, who wrote a treatise of moral philosophy before authoring The Wealth of Nations , described what he called a system of natural liberty as the matrix of genuine wealth. Although in the nineteenth century both moral philosophy and economics in the English-speaking world developed under the influence of utilitarianism, contemporary theory in both natural-law moral philosophy and economics emphasizes the centrality of the human person and the practical choices he makes concerning human goods or values. In this regard, the question of the relation of natural law to economics is on the one hand the extent to which economic calculations can be based on notions of objective good established by practical moral reason, and on the other hand the extent to which practical judgments by individuals about their good can be informed by an awareness of global consequences.

Philosophy of Economics

"Philosophy of Economics" consists of inquiries concerning

(a) rational choice,

(b) the appraisal of economic outcomes, institutions and processes, and

(c) the ontology of economic phenomena and the possibilities of acquiring knowledge of them.

Although these inquiries overlap in many ways, it is useful to divide philosophy of economics in this way into three subject matters which can be regarded respectively as branches of action theory, ethics (or normative social and political philosophy), and philosophy of science.

Economic theories of rationality, welfare, and social choice defend substantive philosophical theses often informed by relevant philosophical literature and of evident interest to those interested in action theory, philosophical psychology, and social and political philosophy.

Economics is of particular interest to those interested in epistemology and philosophy of science both because of its detailed peculiarities and because it possesses many of the overt features of the natural sciences, while its object consists of social phenomena.

https://plato.stanford.edu/entries/economics/
Reply Friday, May 26, 2017 at 07:19 AM

James Stoner is Professor in the Department of Political Science at Louisiana State University. He sits on the editorial board of Public Discourse . The papers presented at the Natural Law and Economics Conference can be found on-line at the conference website .

RGC said... [Economics needs to be holistic]: May 26, 2017 at 07:19 AM

Humans exist in, for all practical purposes, a closed system - the earth.

There are resources available within that system and various means for humans to avail themselves of those resources.

Economics is supposed to be the study of the management of available resources in the most adventageous manner.

To do that properly, economics must start with the examination of the whole system.]

Natural Law and Economics: Total Strangers or Separated Lovers?
by James Stoner

"A recent conference at Princeton University asked whether in the midst of current economic challenges natural law philosophy might not provide a better foundation for the practice of economics than the utilitarian account of value that currently underwrites it.

"Relations between the disciplines have not always been so distant. Scholastic natural lawyers trained in the tradition of Aristotle and Aquinas developed defenses of private property and free trade that influenced authors such as Grotius, who in the seventeenth century laid the groundwork of the modern law of nations and thus the basis of modern trade. John Locke subsequently wrote an incisive account of the natural right to property as the source of economic prosperity, and Adam Smith, who wrote a treatise of moral philosophy before authoring The Wealth of Nations, described what he called a system of natural liberty as the matrix of genuine wealth. Although in the nineteenth century both moral philosophy and economics in the English-speaking world developed under the influence of utilitarianism, contemporary theory in both natural-law moral philosophy and economics emphasizes the centrality of the human person and the practical choices he makes concerning human goods or values. In this regard, the question of the relation of natural law to economics is on the one hand the extent to which economic calculations can be based on notions of objective good established by practical moral reason, and on the other hand the extent to which practical judgments by individuals about their good can be informed by an awareness of global consequences."

http://www.thepublicdiscourse.com/2009/06/213/
......................................................
Philosophy of Economics

"Philosophy of Economics" consists of inquiries concerning (a) rational choice, (b) the appraisal of economic outcomes, institutions and processes, and (c) the ontology of economic phenomena and the possibilities of acquiring knowledge of them. Although these inquiries overlap in many ways, it is useful to divide philosophy of economics in this way into three subject matters which can be regarded respectively as branches of action theory, ethics (or normative social and political philosophy), and philosophy of science. Economic theories of rationality, welfare, and social choice defend substantive philosophical theses often informed by relevant philosophical literature and of evident interest to those interested in action theory, philosophical psychology, and social and political philosophy. Economics is of particular interest to those interested in epistemology and philosophy of science both because of its detailed peculiarities and because it possesses many of the overt features of the natural sciences, while its object consists of social phenomena.

https://plato.stanford.edu/entries/economics/

[May 29, 2017] Neoliberal ideology postulated that there is nothing about the economy that cannot be improved by wage cuts and redistributing wealth upwards

May 29, 2017 | economistsview.typepad.com
Christopher H. - May 27, 2017 at 05:26 AM Good points by both djb and NDd.

"The quandary is, why is somebody continuing to make use of an obviously failed model?"

And why is the New York Times printing this?

XXX, May 27, 2017 at 01:28 PM

[And why is the New York Times printing this?]

Parable: A friend stopped by at a small forest service museum in the great northwest. From the informational displays about forest management, there is nothing about a forest that cannot be improved by cutting down trees.

With economics there is nothing about the economy that cannot be improved by wage cuts and redistributing wealth upwards.

[May 29, 2017] There is no property without a government

May 29, 2017 | economistsview.typepad.com

jonny bakho , May 28, 2017 at 07:40 AM

As General Sherman aptly observed:
"There is no property without a government."
The rules for our "Market Economy" are not divine nor set in stone.
In the US, the rules are the product of we the people.
We the people have control over the rules that govern rights to property and obligations to society.
If DeLong's view is correct, that under current rules wealth will become concentrated into the hands of a few, then it is up to we the people to modify the rules to produce a more equitable, just and economically viable set of rules
djb , May 28, 2017 at 08:33 AM
the message to take from this, is that as long the economy is viewed as ideally implemented when people and firms selfishly acquire as much wealth as possible with no consideration for the plight of their fellow humans, ...then that the economy will decay and many people will suffer

it is truly the job of the government to manage the economy in such a way as to maximize utility for all

it is truly to job of economists to advise on how to do this

[May 21, 2017] The Connection Between Finance and Politics Has Been Under-Researched for Years by ProMarket writers

Notable quotes:
"... GR: Then in the beginning of the 2000s comes the beginning of your work with Professor Raghuram Rajan on "rules of the game." You looked at who's setting the rules of the game, who is influencing the rules ofthe game, and what we learn. ..."
"... GR: For decades, economists and other scholars dedicated a lot of intellectual energy to look at the relationship between companies, shareholders and executives, and between shareholders and boards. Maybe there's not enough intellectual energy going into the question of who sets the rules of the game that determine the outcomes and the dynamics in finance? ..."
"... GR: When it comes to politics, many times data aremuch more complicated and debatable, and ambiguous in many ways. When you deal with numbers and with asset prices, maybe it's easier to go with the data than when you go into the realms of politics. ..."
"... GR: Let's talk a little bit about the research that will be presented in this conference. I'll start with the most politically-sensitive paper that we have, a very interesting paper looking into the Obama administration and more than 2,000 meetings that President Obama and his chief aides had with businessmen over the last eight years. I don't know if you could call it crony capitalism, but whatever is happening out there didn't start in the Trump administration. ..."
"... GR: Another paper looks again at the United States and the way that decisions on bailouts of banks were decided after the financial crisis. Can you elaborate a bit on that? ..."
"... GR: When you're ignoring politics, the outcome many times would be to give more power in the market of ideas and in policies to vested interests, to the powerful? ..."
"... GR: Luigi Zingales, thank you very much. ..."
May 19, 2017 | promarket.org

Ahead of the Stigler Center'sconference on the political economy of finance, we interviewed Stigler Center Director Luigi Zingales about the motivation behind the first-of-its-kind conference.

On June 1-2, the Stigler Center will host a first-of-its-kind conference focusing on the role of politics in finance research. In the last twenty years, political considerations have played an increasingly important role in financial economics: from the design of the rules that make financial markets viable to politically-motivated changes in bankruptcy law, from political connections in firms to the effects of political uncertainty on investments. Yet up until now, no conference has been dedicated to it.

Ahead of this conference, we interviewed University of Chicago Booth School of Business Professor and Stigler Center Director Luigi Zingales [also, one of the editors of this blog] about the motivation behind it and the political economy of finance.

https://www.youtube.com/embed/jB1b2T0QtFk

The following is a transcript of the interview, slightly edited for clarity:

Guy Rolnik: I was surprised to understand that, actually, there are not many conferences on the politics of finance.

GR: Why is it that there aren't many conferences on the political economy of finance? You would think that politics has a lot to do with finance.

LZ: I think historically, people have not looked at that aspect a lot. I would like to divide the brief history of the academic field of finance into three periods: I would call the first one-that started in the late '50s-the Modigliani and Miller period. Modigliani and Miller, to simplify to the extreme, said that the way you slice a pizza does not change the size of the pizza. This is a period in which basically finance is irrelevant, and the only frictions that matter are probably only tax frictions.

Then, starting with the '70s, people realized: "Wait a second. If you start to divide a pizza before you produce the pizza, maybe this will have some impact on how the pizza is produced." This is what in jargon goes under "agency," or "asymmetric information." Essentially, the way you allocate the cash flows of the firm has some impact on the way the firm is run.

However, all this is in the context of, "The external rules are fixed. We're in a very predetermined society and the rules are fixed. That's what we do."

Starting with the '90s and then the 2000s, people realized that the rules are not fixed, that actually the changing nature of the rules is very important, and of course, political gain is what makes the rules change.

GR: So this is where the 2008 financial crisis comes in, and after the financial crisis people started to develop a lot of interest in the role of politics in financial crises and the role of politics in finance.

LZ: To be honest, I think things started before the financial crisis. I think probably the intellectual origin of all this is the theory of incomplete contracts developed by Grossman and Hart, where because the cash flow is bargain ex post, then the rules are more fluid. Then this call for renegotiation, or re-discussion, which is to a large degree about politics, comes into the game.

One of the early papers about this is a paper by Patrick Bolton and Howard Rosenthal-a finance guy and a political scientist-looking at how renegotiation of debt and the rules for bankruptcy change dramatically with the business cycle. Every major financial crisis in the United States had the bankruptcy rules restated to some extent, or reshaped.

Traditionally, finance people thought about bankruptcy as a given. Now [they] realize it is not a given, that the rules change. How do they change? They're politically determined. Of course, for the misbeliever, the financial crisis brought this to an attention that could not be ignored.

We've seen the work by Amir Sufi and Atif Mian and Francesco Trebbi looking at the political determinants of the intervention on TARP, and the work that Amit Seru and co-authors have done on the politics around regulation and how ineffective regulation is because of political constraints.

I think that by the beginning of the second decade of the 21st century, politics has become mainstream and was overdue to have a conference dedicated to it.

GR: Then in the beginning of the 2000s comes the beginning of your work with Professor Raghuram Rajan on "rules of the game." You looked at who's setting the rules of the game, who is influencing the rules ofthe game, and what we learn.

LZ: I think that in the late '90s and early 2000, there was a big interest inwhy countries are not more financially developed. Thanks to the work of Andrei Shleifer and Robert Vishny and others, there was this importance of the law as a major factor.

Raghuram and I asked the very simple question: if it is as simple as importing a code from another country, why don't more countries do it? It cannot be just a lack of technical expertise. Lawyers are expensive but can be imported. In fact, Russia did import the best lawyers from the United States. I'm not sure it was a big success.

The conclusion was, no, it's lack of political will. We started to open the debate for, say, "Look, finance does benefit most people, but hurts others." So there is a political economy even with [the] introduction of financial laws.

GR: For decades, economists and other scholars dedicated a lot of intellectual energy to look at the relationship between companies, shareholders and executives, and between shareholders and boards. Maybe there's not enough intellectual energy going into the question of who sets the rules of the game that determine the outcomes and the dynamics in finance?

LZ: I think that the role of conferences like the one here at the Stigler Center is to bring together scholars who work in a certain area, and also give confidence that this area is important, and attract more research.

You're absolutely right, people tend to research where the data are. The famous old joke about economists, that they look where the light is, not where they lost the key, has some element of truth. In finance, there are things that we can observe very well and compensation is one. You're going to have a lot of papers about managerial compensation.

But I think what is important is that even data are endogenous, in a sense. Compustat ExecuComp, which is the primary data source to study this stuff, was created in the early '90s as a result of academic interest in executive compensation.

Going back in history, CRSP, the Center for Research in Security Prices here at Chicago, which is the main data source for security prices research, was created by Jim Lorie, a faculty here, who saw people like Eugene Fama and others interested in this topic and said, "We have to create a data set to analyze."

The role of academia is, in a sense, to open new avenues and then have a data provider follow.

GR: When it comes to politics, many times data aremuch more complicated and debatable, and ambiguous in many ways. When you deal with numbers and with asset prices, maybe it's easier to go with the data than when you go into the realms of politics.

LZ: There are two aspects: one, there are fewer data coming from thepolitical world than from the asset pricing world, even from corporate finance. Even those data tend not to be disclosed and available as much as data on companies. Data on lobbying now start to be widely available. Data on campaign contributions start to be available. The data on corporate donations tend to be more difficult. They're not as established.

Then there is a more difficult problem to tackle: in a sense, politics is much more fluid. Whenever data are available, the deals move somewhere else. As researchers, we're always fighting the last war because we look at what happened in the past, but politics run ahead.

GR: Let's talk a little bit about the research that will be presented in this conference. I'll start with the most politically-sensitive paper that we have, a very interesting paper looking into the Obama administration and more than 2,000 meetings that President Obama and his chief aides had with businessmen over the last eight years. I don't know if you could call it crony capitalism, but whatever is happening out there didn't start in the Trump administration.

LZ: Certainly. I think it's actually very healthy, and one of the goals of this conference is to bring this research from analyzing foreign countries to analyzing the United States. It's much easier to point fingers toward other people. When Ray Fisman wrote the first paper on the political connections of Suharto, everybody clapped. Why? Because it's Indonesia and corruption in Indonesia is something that we think is granted.

Now, when people apply the same technique to the United States of America, a lot of people [are] up in arms and say, "Oh, it's impossible. This is not corruption." But if it worked as a technique for Suharto, why can't it work for Trump, or for Obama, or for people before?

I don't think that these results are specific to the Obama administration. I think that the data are better in recent years, and so, the paper analyzed that rather than analyzing George W. Bush, or Bill Clinton.

GR: Another paper looks again at the United States and the way that decisions on bailouts of banks were decided after the financial crisis. Can you elaborate a bit on that?

LZ: Again, I think that it's not surprising to international scholars that the allocation of aid, the allocation of credit, and particularly the allocation of bailout credit to banks is very politically-determined.

This research is showing that surprise, surprise, without a doubt, in the United States the same happens. I think it's a good example [that]what we've learned analyzing countries around the world can be applied to the United States.

GR: We do look internationally at this conference, and we have an interesting paper on Chile. Chile is a very interesting case for many reasons. One of them, of course, is that for many decades, Chile was the "poster child" of a successful market economy in South America. Recently, people have been looking into the details of what's happening in this economy, and they see some other perspectives on Chile that were not as salient as before.

LZ: I will distinguish two things: First of all, I think that Chile is a fantastic example of the difference between being pro-market and being pro-business. I think that Chile has been very much pro-business, but there is no doubt that it was a huge success in terms of growth. On the other hand, I think there is not enough antitrust policies, or attention to political connections. The result is that the income distribution is extremely unequal, and this really puts, in my view, bounds on future growth.

I think one needs to reconsider the limitations of looking only at micro-measures of market flexibility, and not at the political economy of the country.

In addition, like in many countries, [in Chile] we have a phenomenon where privatizations on the one hand improved efficiency-because the government is not very good at running things-but were probably done to the benefit of some people. One of the major mines was sold to the then son-in-law of Pinochet who now, ironically, was found to [have] actually [paid] money to the son of the current president, [Michelle] Bachelet. This shows that it's not right or left, it is basically crony capitalism.

GR: And China?

LZ: China is a phenomenal example. There is a very exciting paper looking at the way loans are made, and the political incentives, not only the economic incentives, that are present in China.

We tend to look at China with too much of a Western view, not realizing that in China, in every major company there is a representative of the Communist Party who basically oversees the company. These guys tend to have political incentives that are different than the standard market incentives. I think understanding better the interaction between the two is a fascinating topic.

GR: To sum up our discussion: politics is key when it comes to finance, and we should research the relationship between the political world and finance more. Are there any specific things that you think are under-researched today, or over-researched? From a societal point of view, what would be the right research agenda when it comes to finance today?

LZ: First of all, it's very difficult to ask an academic what is the right research agenda because most of the people will answer what they're doing this moment, so I don't want to fall into this trap. In general, the connection between finance and politics has been under-researched for years, and the goal of this conference is precisely to motivate more research. I think there is a need to apply more creative and different approaches.

I think that generally in academia, what tends to be overdone is research that's based on data that areeasily available, with techniques that are fairly well-established, because the cost of production is low, the value added is also low, but also, the risks tend to be low.

I think that what good researchers should do is to be more ambitious, take more risks-especially after you get tenure, there is no justification not to take more risks.

GR: Do economists need help from other disciplines when they're going into the realm of political economy of finance?

LZ: I think economists need help in other disciplines regardless. There was a long period in which economists were sort of colonialists, and they were moving to other fields, ignoring, or not really understanding the other fields, but just trying to grab some of those questions.

I think that those times, by and large, are gone. I think there is a lot of good research interacting psychology with economics. I think that is less so, for example, in sociology. I think that sociologists and economists tend to not interact a lot, and I think there are great opportunities there.

I think also with political scientists, there are more economists acting as political scientists-there is a bit less of an integration. I think that would be helpful, especially in areas like finance. I think if you are in the political economy section of an economics department, you naturally interact with political scientists.

When you come to business school, and you do finance, or you do IO, you tend to be less well-integrated.

GR: Some economists shy away from politics for many reasons, but correct me if I'm wrong: the deeper we go into the political economy of finance, we'll see that politics has a lot of influence on the outcomes of the financial markets, and it will force us to think much more about politics.

LZ: I would also say the opposite. I think that economists, and academics in general, have a huge impact on what happens in the political world. Not immediately, not individually, as they had in academia by themselves, but the academic thinking isa crucial part in shaping politics.

It's very hard to do lobbying without some ideas to support the lobbying. My fear is that academics are not sufficiently aware of their impact. Jean-Paul Sartre used to say you cannot not choose because not choosing is choosing not to choose. I would like to paraphrase and say you cannot ignore politics because ignoring politics is choosing a particular political perspective of ignoring it. You are announcing a particular view, you're not abstaining from it.

The attitude of many academics that say "I do science, I have nothing to do with politics"-they are doing politics in another way.

GR: When you're ignoring politics, the outcome many times would be to give more power in the market of ideas and in policies to vested interests, to the powerful?

LZ: I think that that could be an outcome. It's not necessarily an outcome, but that could be an outcome. I'm just saying that you should be aware of the consequences of your actions because not acting is an action.

GR: Luigi Zingales, thank you very much.

LZ: You're welcome.

Disclaimer: The ProMarket blog is dedicated to discussing how competition tends to be subverted by special interests. The posts represent the opinions of their writers, not those of the University of Chicago, the Booth School of Business, or its faculty. For more information, please visit ProMarket Blog Policy .

[May 21, 2017] The Connection Between Finance and Politics Has Been Under-Researched for Years

May 21, 2017 | economistsview.typepad.com

likezkova, May 20, 2017 at 11:22 AM

A very interesting and important article: The Connection Between Finance and Politics Has Been Under-Researched for Years (https://promarket.org/connection-finance-politics2/ )

That was my point for a long time. Inability to challenge the underlying assumptions of the neoclassical economics and current neoliberal polices (such as Washington consensus) sooner of later backfire both in economics and politics, because politics and economics are intrinsically connected.

to the extent that "pure economics" is a pseudo-science (with bunch of complex mathematical masturbations, much like geocentric theory of movement of planets; which actually did predicted certain movements of plants accurately. using overcomplicated math stuff -- epicycles)

But political posturing often prevent such a reevaluation, even when people understand that something is wrong with the current state of economics.

Much like that fact that the USA pretentions of the world hegemony make deviations from pre-existing policies a sign of "weakness". But is a dialectical way, the obsessive desire to project strength is a serious weakness in itself ;-)

And it looks like this inability and lack of desire to challenge the fundamental assumptions is a very serious problem not only with the US elite, but with the American society as a whole.

http://www.imdb.com/title/tt0104257/quotes

Col. Jessep: [from the witness stand] *You want answers?*

Kaffee: *I want the truth!*

Col. Jessup: [from the witness stand] *You can't handle the truth!*

Emong other things it led to the economic policies that on "being disastrous" scale are probably close the policies that led to Iraq war (remember neocons boasting before this war that we will be greeted with flowers and the cost will be minimal and democracy will flourish in Iraq). The results of outsourcing of manufacturing is very similar to the real result obtains due to the Iraq war.

So there is an important question that the article missed. Can the American elite face the truth?

That answer is: "No". That's why neoclassical economics while discredited as a theory remain dominant as a civil religion of neoliberalism, indoctrination into which is a prerequisite to obtaining an academic degree, and students are indoctrinated into this this bunch of mathiness each year. Compare with Steve Keen "Debunking economics" ( https://www.amazon.com/Debunking-Economics-Revised-Expanded-Dethroned/dp/1848139926 ). Much like Marxism was obligatory in the USSR and can't graduate without passing exams on Marxist political economy.

But, truth be told, neoclassical economics has a strong political undercurrent because historically it emerged (like neoliberalism in late 30th early 40th) as an alternative to Marxism. And to certain extent it did has its value while Marxism and Marxist theory of value were not discredited (that means up to late 40th, early 60th).

Another point is that the US neoliberal elite demonstrated willingness and ability to engage in self-defeating behavior because they do not want to look weak or challenge the postulated of neoliberalism. That's the same behavior the Politburo was engaged in the USSR.

I would shy from using the term "decline od neoliberalism" because it has a flavor of "doom and gloom" (and haw we can speak about decline if a realistic alternative does not exist?), but neoliberalism really faces the crisis of confidence. Neoliberal myths such a "Greed is good", "Casino capitalism is virtuous", "Entrepreneurship is the ultimate value and the source of material reward", "free market", "free trade", "labor market", "poor are guilty of their own fate because they lack responsibility", "rising stock market tide lifts all boats", etc are dispelled.

Promises of "prosperity for all" are not delivered (at least to the lower 80% of population.)

Basically the same situation that existed with Brezhnev socialism in the USSR with the communist ideology stating with 70th.

Instead of the USSR alcoholism epidemic we have opioids and meth epidemic with the same or similar social roots.

Add to this several wars (or more correctly occupations of the countries) going on and resources wasted on those (mostly unwinnable) wars (with the recent myth that "counterinsurgency" tactics will bring the USA the success in Afghanistan -- David Petraeus' myth -- http://www.truth-out.org/news/item/12997-how-petraeus-created-the-myth-of-his-success, https://www.scribd.com/document/67519776/Puncturing-the-Counterinsurgency-Myth-Britain-and-Irregular-Warfare-in-the-Past-Present-and-Future ) which also nobody in the establishment has the courage of challenging and you get the picture. It's not pretty.

That worldview had derived from this conviction that American power implies commitment to global hegemony, and this commitment expressed the nation's enduring devotion to its founding ideals of freedom and democracy.

That also means that election of Trump will not result in proper actions that can change the course of "battleship America" and can rectify the current difficulties. Much like the election of Barack Obama before him.

[May 18, 2017] Hayek and Neoclassicals Meet Information Theory and Fail

Notable quotes:
"... By Jason Smith, a physicist who messes around with economic theory. He graduated from the University of Texas at Austin with a degree in math and a degree in physics, and received his Ph.D. from the University of Washington in theoretical physics. Follow him on Twitter: @infotranecon. Originally published at Evonomics ..."
"... The New Industrial State ..."
"... I think the tradition of economic thinking has been really influential. I think it's actually a thing that people on the left really should do - take the time to understand all of that. There is a tremendous amount of incredible insight into some of the things we're talking about, like non-zero-sum settings, and the way in which human exchange can be generative in this sort of amazing way. Understanding how capitalism works has been really, really important for me, and has been something that I feel like I'm a better thinker and an analyst because of the time and reading I put into a lot of conservative authors on that topic. ..."
May 18, 2017 | www.nakedcapitalism.com
Posted on May 17, 2017 by Yves Smith By Jason Smith, a physicist who messes around with economic theory. He graduated from the University of Texas at Austin with a degree in math and a degree in physics, and received his Ph.D. from the University of Washington in theoretical physics. Follow him on Twitter: @infotranecon. Originally published at Evonomics

The inspiration for this piece came from a Vox podcast with Chris Hayes of MSNBC. One of the topics they discussed was which right-of-center ideas the left ought to engage. Hayes says:

The entirety of the corpus of [Friedrich] Hayek, [Milton] Friedman, and neoclassical economics. I think it's an incredibly powerful intellectual tradition and a really important one to understand, these basic frameworks of neoclassical economics, the sort of ideas about market clearing prices, about the functioning of supply and demand, about thinking in marginal terms.

I think the tradition of economic thinking has been really influential. I think it's actually a thing that people on the left really should do - take the time to understand all of that. There is a tremendous amount of incredible insight into some of the things we're talking about, like non-zero-sum settings, and the way in which human exchange can be generative in this sort of amazing way. Understanding how capitalism works has been really, really important for me, and has been something that I feel like I'm a better thinker and an analyst because of the time and reading I put into a lot of conservative authors on that topic.

Putting aside the fact that the left has fully understood and engaged with these ideas, deeply and over decades (it may be dense writing, but it's not exactly quantum field theory), I can hear some of you asking: Do I have to?

The answer is: No.

Why? Because you can get the same understanding while also understanding where these ideas fall apart ‒ that is to say understanding the limited scope of market-clearing prices and supply and demand – using information theory.

Prices and Hayek

Friedrich Hayek did have some insight into prices having something to do with information, but he got the details wrong and vastly understated the complexity of the system. He saw market prices aggregating information from events: a blueberry crop failure, a population boom, or speculation on crop yields. Price changes purportedly communicated knowledge about the state of the world.

However, Hayek was writing in a time before information theory. (Hayek's The Use of Knowledge in Society was written in 1945, a just few years before Claude Shannon's A Mathematical Theory of Communication in 1948.) Hayek thought a large amount of knowledge about biological or ecological systems, population, and social systems could be communicated by a single number: a price. Can you imagine the number of variables you'd need to describe crop failures, population booms, and market bubbles? Thousands? Millions? How many variables of information do you get from the price of blueberries? One. Hayek dreams of compressing a complex multidimensional space of possibilities that includes the state of the world and the states of mind of thousands or millions of agents into a single dimension (i.e. price), inevitably losing a great deal of information in the process.

... ... ...

The market as an algorithm

The picture above is of a functioning market as an algorithm matching distributions by raising and lowering a price until it reaches a stable price. In fact, this picture is of a specific machine learning algorithm called Generative Adversarial Networks (GAN, described in this Medium article or in the original paper ) that has emerged recently. Of course, the idea of the market as an algorithm to solve a problem is not new. For example one of the best blog posts of all time (in my opinion) talks about linear programming as an algorithm, giving an argument for why planned economies will likely fail, but the same argument implies we cannot check the optimality of the market allocation of resources, therefore claims of markets as optimal are entirely faith-based. The Medium article uses a good analogy using a painting, a forger, and a detective, but I will recast it in terms of the information theory description.

Instead of the complex multidimensional distributions, here we have blueberry buyers and blueberry sellers. The "supply" ( B from above) is the generator G , the demand A is the "real data" R (the information the deep learning algorithm is trying to learn). Instead of the random initial input I - coin tosses or dice throws - we have the complex, irrational, entrepreneurial, animal spirits of people. We also have the random effects of weather on blueberry production. The detector D (which is coincidentally the terminology Fieltiz and Borchardt used) is the price p . When the detector can't tell the difference between the distribution of demand for blueberries and the distribution of the supply of blueberries (i.e. when the price reaches a relatively stable value because the distributions are the same), we've reached our solution (a market equilibrium).

Note that the problem the GAN algorithm tackles can be represented by the two-player minimax game from game theory. The thing is that with the wrong settings, algorithms fail and you get garbage. I know this from experience in my regular job researching machine learning, sparse reconstruction, and signal processing algorithms. Therefore depending on the input data (especially data resulting from human behavior), we shouldn't expect to get good results all of the time. These failures are exactly the failure of information to flow from the real data to the generator through the detector – the failure of information from the demand to reach the supply via the price mechanism.

When asked by Quora what the recent and upcoming breakthroughs in deep learning are, Yann LeCun, director of AI research at Facebook and a professor at NYU, said:

The most important one, in my opinion, is adversarial training (also called GAN for Generative Adversarial Networks). This is an idea that was originally proposed by Ian Goodfellow when he was a student with Yoshua Bengio at the University of Montreal (he since moved to Google Brain and recently to OpenAI).

This, and the variations that are now being proposed is the most interesting idea in the last 10 years in ML, in my opinion.

Research into these deep learning algorithms and information theory may provide insight into economic systems.

An Interpretation of Economics for the Left

So again, Hayek had a fine intuition: prices and information have some relationship. But he didn't have the conceptual or mathematical tools of information theory to understand the mechanisms of that relationship - tools that emerged with Shannon's key paper in 1948, and that continue to be elaborated to this day to produce algorithms like generative adversarial networks.

The understanding of prices and supply and demand provided by information theory and machine learning algorithms is better equipped to explain markets than arguments reducing complex distributions of possibilities to a single dimension, and hence, necessarily, requiring assumptions like rational agents and perfect foresight. Ideas that were posited as articles of faith or created through incomplete arguments by Hayek are not even close to the whole story, and leave you with no knowledge of the ways the price mechanism, marginalism, or supply and demand can go wrong. Those arguments assume and (hence) conclude market optimality. Leaving out the failure modes effectively declares many social concerns of the left moot by fiat. The potential and actual failures of markets are a major concern of the left, and are frequently part of discussions of inequality and social justice.

The left doesn't need to follow Chris Hayes' advice and engage with Hayek, Friedman, and neoclassical economics. The left instead needs to engage with a real world vision of economics that recognizes the limited scope of ideal markets and begins with imperfection as the more useful default scenario. Understanding economics in terms of information flow is one way of doing that.

JULIA WILLE , May 17, 2017 at 8:28 am

Is this just my lack of formal education or is this article very complicated? Honestly I did not understand it at all. Is there any way to explain this different? ( a link to a different way of describing informationtheory / free market theory)
Thanks Julia

PKMKII , May 17, 2017 at 10:23 am

To put it in more layman-friendly terms: price settings are based on information the suppliers gather regarding the market, both demand side and supply side (sales forecasts, commodity pricing, consumer confidence number, focus group information, etc). Demanders do the same. However, they can never have absolute, complete information for either side. So prices, and idea of what prices should be, in a free market never represent a true optimal price, but rather a best guess.

This pokes a few holes in neoclassical economic assumptions:

– Most obviously, prices cannot be optimal in a free market.
– Supply and demand changes cannot account entirely for changes in price, as refinements to the information flow can affect them as well.
– Information asymmetry corrupts prices, and can be used to exploit consumers.
– Information is dependent on a large enough sample size, so neoclassical economics is useless in markets with limited transactions. An easy example of this are those kind of items on shows like Antique Roadshow, where there's so few of the items out there that the expert says, "This is a guess, but really it could go for almost any amount at auction."

So the Left can use this to argue for non-market price controls (to account for the lack of free market price optimization) and for forcing corporations to have better fiscal transparency and more strict anti-trust laws (to increase information flow and to prevent information asymmetry).

JTMcPhee , May 17, 2017 at 11:04 am

Local prices for gasoline look a lot more like looting and chaos to me than any kind of correspondence to "markets." Yesterday at the RaceTrac at the end of my street, "regular" dropped four cents from morning to evening, reflecting the pricing at the two other "service stations" at the intersection. A month or so ago (I got tired of keeping a little record of the changes) the price jumped 25 cents overnight. None of these moves seemed to correspond with the stuff I was reading about in the market conditions around the planet and just in the US - supply and demand? More like the Useless Looters at BP and Shell and others just spin an arrow on a kid's game board to pick the day's price point (that sick phrase), or somebody in the C-Suite decided the "Bottom Line" needed a goose to pump the bonus generator up a bit.

The fraud is everywhere, the looting and scamming too. Seems to me that searching for some "touchstone" to make sense of It All is an exercise in futility.

PKMKII , May 17, 2017 at 11:47 am

Gasoline runs into a different limitation with free market economics, which is that consumers need to be able to freely enter and leave the market in question in order for the free market to function (which is why privatized healthcare doesn't work). Outside of a few urban areas with robust public transportation, most Americans are immediately dependent on gasoline in order to survive. Even those who do have access to a Metro are still dependent on the shipping that uses gasoline. So they can raise prices with a greater confidence that the number of consumers will not drop off as significantly as with other industries.

rn , May 17, 2017 at 12:54 pm

"This pokes a few holes in neoclassical economic assumptions:"

In neoclassical economics, these "holes" are pretty much understood as the prerequisites for "perfect competition", as opposed to imperfect competition or monopolies.

When politics is mixed with economics, these are ignored, as they are in the interest of the ruling class.

HBE , May 17, 2017 at 2:37 pm

Thank you for the laymans version PKMKII. I read it twice, but it only clicked after reading your comment.

LT , May 17, 2017 at 4:01 pm

https://aeon.co/essays/how-the-cold-war-led-the-cia-to-promote-human-capital-theory/

Vastydeep , May 17, 2017 at 11:00 am

PKMKII said it very well, and here's another way to look at it: Centrally-planned economies (say, some Politburo minister in the former Soviet Union) fail because a central bureaucrat cannot possibly guess the demand and distribution for all products (say, metal bathtubs) across an economy in a given year. He guesses, poorly, and either the shortages or the oversupply make our history books.

Market economics makes a better guess, because pricing gives a dynamic estimate of what the supply and demand really are. That this estimate is generally *better* has been (mis)represented as that this estimate is somehow PERFECT - the best estimate that can possibly exist! As the article describes, this assessment (that only a market economy can generate maximal wealth and optimal wealth distributions) is FALSE.

The economics underlying communist central planning failed because they couldn't provide the optimization that comes from valid pricing function. With Shannon's information theory and advanced analytics, it is possible to create a more optimal economy than our current, simplistic market/pricing function provides.

Ever since Samuelson's Economics in 1948, we've worshipped a market god based on scanty math. The first step in moving beyond Samuelson is recognizing that progress is indeed still possible, and then making the choice and determining the steps to pursue it.

Mel , May 17, 2017 at 11:22 am

Not just communist central planning. John Kenneth Galbraith's The New Industrial State makes a special space in society for industries in The Planning Sector. These were the very large businesses that worked with huge capital bases, long lead times, populations comparable to small nations. Planning, both input and output, was key to these businesses because there was too much at stake to risk losing it to the whims of any market. Communist societies were extreme examples, as they were betting the entire national economy, but the parallels with huge "private" firms were quite exact.
The Planning Sector businesses failed when they had to slough off all the activities that were too hard to plan; then they morphed into the Finance/Insurance/Real Estate Sector.

Brian G , May 17, 2017 at 11:15 am

I don't think it is a lack of formal education. It is simply written in a way that is not easy to understand. I have my master's in engineering, and I'm still not sure exactly what this passage is trying to say:
"If you randomly generated thousands of messages from the distribution of possible messages, the distribution of generated messages would be an approximation to the actual distribution of messages. If you sent these messages over your noisy communication channel that met the requirement for faithful transmission, it would reproduce an informationally equivalent distribution of messages on the other end."
From that point on I simply skimmed it and, if I'm not mistaken, the author also assigns positions to Hayek that seem to be a little more extreme than the positions he actually held.

I.D.G , May 17, 2017 at 1:14 pm

Will try to break that:

If you randomly generated thousands of messages from the distribution of possible messages, the distribution of generated messages would be an approximation to the actual distribution of messages.

You can only get to the true distribution assuming an infinite number of samples, everything else is asymptotic approximation to the true posterior distribution. This is true for any mathematical function approximated numerically were closed solutions are not possible to find (ie. not integrable). But this is relevant to the second phrase because:

If you sent these messages over your noisy communication channel that met the requirement for faithful transmission, it would reproduce an informationally equivalent distribution of messages on the other end.

A noisy communication channel introduces random bits of information which are not part of the original distribution, but because that noise is random, you would get a message that is an approximation of the true distribution of the original message being transmitted (is informationally equivalent) as the noise is distributed 'randomly' .

However, this is only true when the number of information bits approach infinity (for large numbers), BE WARE! Indeed that randomness can be very skewed for small samples. this is relevant and interesting because complex systems were you have a large number of variables are not easy to converge with, even when you are aware of the whole system variables (is a mathematically intractable problem).

You can think as market pricing (in an ideal world free of politics and power games, which is not) as a convergence to a complex multidimensional problem, and even though we know that we are NOT aware of all the variables at play for a given product, hence this supposedly God like attributes of market price discovery are unwarranted.

Synoia , May 17, 2017 at 8:23 pm

Looking at the signal gives you both information and a probability of being correct. Now we get to significance, which is defined as 95% probability.

When you get to 95% probability depends on the signal to noise ratio.

Any guesses as to the signal to noise ratio of the News Media?

Tim , May 17, 2017 at 3:27 pm

Actually that's just poor writing.

Jim Haygood , May 17, 2017 at 8:49 am

"Because the information flow from A can never be greater than A's total information, and will mostly be less than that total, the observed prices in a real economy will most likely fall below the ideal market prices."

Surely not. Post-industrial economies feature an asymmetry: individual consumers, catered to predominantly by large nationwide publicly-traded suppliers.

Because of the superior knowledge possessed by suppliers, further leveraged by advertising and publicity which exploits human psychological foibles such as peer pressure and herding, prices in the economy are almost certainly too high versus the ideal of complete information flow (while the price of labor is almost certainly too low).

Nowhere are prices higher than in the nonnegotiable, monopoly services of government. Not only does it charge astronomical property taxes which mean that there's really no such thing as secure property title without income, but also it compels hapless working schmoes to "invest" 15.3% of their income for their entire working lives at approximately zero return.

Mr Trump tear down these prices .

Synoia , May 17, 2017 at 8:26 pm

Nowhere are prices higher than in the nonnegotiable, monopoly services of government.

Really? Care to discuss an example?

Such as the UK NHS v the US Health Care System? Better outcome at nearly half the cost.

Now how is your " prices higher monopoly services of government" doing?

Please post a counter example.

TG , May 17, 2017 at 9:34 am

With respect, it is not empirically incorrect that immigration lowers wages. The historical experience is quite clear, that when governments force population growth, whether through increased immigration or via incentives to increase the local fertility rate, wages for the many fall and profits for the few increase.

Sure more workers means more competition for jobs, but can also result in an increase in the number of jobs – BUT ONLY OVER TIME AND ONLY IF NEEDED INVESTMENTS ARE MADE AND THERE IS ENOUGH MARGINAL CAPACITY TO INVEST AND TECHNOLOGY AND RESOURCES ARE NOT ENTERING THE AREA OF DIMINISHING RETURNS. Which is not guaranteed, especially if the immigration level is massive and constantly increasing.

The United States from around 1929 to 1970 had very low immigration, and, starting from a low level, wages soared. Starting in 1970, the borders to the overpopulated third world have been progressively opened, and wages have started to diverge from productivity and are now starting to decline in absolute terms. Other nations that recently increased the rate of immigration and have seen significant falls in wages are: South Africa, the Ivory Coast, England, Australia, and Singapore – and even some provinces of India, where immigration from Bangladesh has been used to make certain that wages stay near subsistence. Yes immigration was not the only thing going on there, but when rapid forced increases in the supply of labor are always followed by falls in wages, well, the empirical evidence is hardly to be dismissed out of hand.

Remember, no society in all of history has run out of workers. When the headlines say that immigrants are needed to end a labor 'shortage' what is really meant is a 'shortage' of workers who have no option but to accept low wages. However, the only reason that workers can get high wages is that there is a 'shortage' of workers forced to take low wages. It is thus essentially tautological that when immigration is said to eliminate a labor shortage, it is lowering wages, because a labor 'shortage' is in fact what high wages are based on.

PKMKII , May 17, 2017 at 10:31 am

They're arguing that you can't empirically say that immigration decreases wages, because there are simply too many variables in an economy to be able to say definitively if it's a cause or a correlation, i.e. does the immigration decrease wages, or does another socio-economic factor simultaneously decrease wages and cause an influx of immigrants? This is why economics is treated as a soft science, as you can't remove variables in a lab setting the way you can with other sciences.

Ignacio , May 17, 2017 at 11:46 am

"BUT ONLY OVER TIME AND ONLY IF NEEDED INVESTMENTS ARE MADE AND THERE IS ENOUGH MARGINAL CAPACITY TO INVEST AND TECHNOLOGY AND RESOURCES ARE NOT ENTERING THE AREA OF DIMINISHING RETURNS."

Nope. Once immigrants arrive, demand increases instantly, even before they get a job.

H. Alexander Ivey , May 17, 2017 at 9:59 am

Wow. Just wow. A complete, through, and total BS assertion of some kind of economic theory. I am simply stunned at his verbal density of discourse, blithe refusal to explain, and simply name dropping facts, ideas, and concepts that are absolutely not related except in being part of the English language.

I know this is close to an ad hominum attack; I haven't given any specific rebuttal. But I don't have the tools at my disposal right now to avenge what I see as an assault on my analytic abilities.

Good night and good luck.

Synoia , May 17, 2017 at 1:02 pm

Perhaps you should do some reading or studying of math?

Vastydeep , May 17, 2017 at 1:46 pm

If not a specific rebuttal, what *kinds* of things in the article do you disagree with? Perhaps this posting is just a step to some greater knowing. Neoclassical Economics has been taught as "factual and beyond dispute" my whole career - I'm sure that Alchemy and Leechbooks were taught similarly in earlier ages. How might you suggest that we move forward to something better?

"It ain't what you don't know that gets you into trouble. It's what you know for sure that just ain't so." ~ Mark Twain

skippy , May 17, 2017 at 3:44 pm

"Wow. Just wow. A complete, through, and total BS assertion of some kind of economic theory. I am simply stunned at his verbal density of discourse, blithe refusal to explain, and simply name dropping facts, ideas, and concepts that are absolutely not related except in being part of the English language."

Yeah that is a pretty good summation of my experience wrt Austrians over almost 2 decades in a nutter shell[ ] kudos.

Now if only the neoclassicals would abandon the individual and consider vectors in distribution and how groups affect information.

disheveled .. throws toys out of play pen and hurrumphs away . victoriously .

Abate Magic Thinking but NOT Money , May 17, 2017 at 10:39 am

In my limited experience the prices we accept are more to do with contentment than information. We are aware that we can never have perfect information; bounded rationality being our situation*. So as buyers, we end up going with contentment or at least convenience; price too high, content to leave it on the shelf. Price too low and the reaction might be the same because it is too good to be true, or of suspect quality. You can have a bargain staring you in the face and, but you are content because of lack of interest or knowledge.

Good luck to those who try to quantify contentment!

.And then there is the tyranny of choice; not content!

Pip Pip!

* When it comes to the prices people are prepared to pay for products such as cosmetics and super-cars the rule seems to be unbounded irrationality, but hopefully contentment is achieved anyway.

Synoia , May 17, 2017 at 1:12 pm

Please do not confuse commodity price with perceived value.

Perceived value is clearly a signal injection into the information stream (an engineers view of marketing)

huh? , May 17, 2017 at 10:40 am

when it comes to the political application of this 'theoretical' argument I think it will be easily dismissed as more leftist academic pedantry, 'immanentizing the eschaton'- all the comments reflecting the advantages of imperfect information evidence.

SouthLooper , May 17, 2017 at 10:52 am

This is a wonderful, cogent explanation of a very mathematically complex subject, which is Information Theory, that has been used to make profound contributions well beyond telephonic communication for which Claude Shannon developed it, when he discovered it trying to code the English language, and which he failed to do.

R.A. Fisher was also brilliant. His work has had implications in probability, and statistics, economics, and perhaps most profoundly in genetics.

PKMKII , May 17, 2017 at 11:37 am

The neoclassical analysis also doesn't account for single supplier, multiple demand market situations. If blueberries both have the consumer market, but also an industrial market (dye purpose, maybe), then the blueberry supplier has to balance both of those demands, which may end up favoring one or the other, or some state that isn't ideal for either demand market. The universal example is the private property of the business itself. The owner isn't just in the market of whatever service or widget they make, but also in the commercial real estate market. This is especially problematic with housing, as high rents + vacancies create the impression of scarcity and value to prospective buyers.

Synoia , May 17, 2017 at 11:41 am

Good work. Now add the delays in information transfer, and fear and greed buying motivations based on multiple information streams, coupled with information conflicts (injected noise), and you are getting closer to the real world.

Information conflicts are the differing explanations of the Trump/Corey affair. There is much noise in the information stream.

Mel , May 17, 2017 at 12:47 pm

The example seems very sketchy:

Stable prices mean a balance of crop failures and crop booms (supply), population declines and population booms (demand), speculation and risk-aversion (demand)

This is a good example because it's easy to understand appealing, I fear, to our neoclassical prejudices.
It's a bad example because it doesn't seem very multidimensional; appealing to our neoclassical prejudices it collapses easily into "How many blueberry buyers?" and "How many blueberries?"
Trying to imagine something more multidimensional there might be a preference for big blueberries because they're big there might be a preference for small blueberries because people think that they're wild, so they must be tastier. If the markets were segregated, there could be a market-clearing price for big blueberries, and another for small blueberries. But the markets probably aren't segregated, and the prices would play back and forth against each other.
Maybe good too in dealing with prices of different goods, not just The Price. Neoclassical prices are meant to be the information that tells me whether to buy dish soap or a new overcoat instead.

Synoia , May 17, 2017 at 1:25 pm

Stable prices mean a balance of crop failures and crop booms (supply), population declines and population booms (demand), speculation and risk-aversion (demand)

There are no stable prices. With this analysis, the steps to include feedback is clear, and if the feedback is non-linear, non-linear feedback is a characteristic of chaotic systems.

Temporary stability only in a non-linear system, with tipping points etc.

UserFriendly , May 17, 2017 at 1:34 pm

Thank you for this, I found it very helpful.

Plenue , May 17, 2017 at 3:12 pm

Chris Hayes is an idiot. What kind of person can repeatedly visit the post-industrial wasteland of the rust belt for town halls with Bernie Sanders and then say "what we need more of is the philosophy of free-markets"?

But even with that being said, Hayes somehow is still by far the most worthwhile personality on MSNBC.

Left in Wisconsin , May 17, 2017 at 3:41 pm

I think the tradition of economic thinking has been really influential. I think it's actually a thing that people on the left really should do - take the time to understand all of that. There is a tremendous amount of incredible insight into some of the things we're talking about, like non-zero-sum settings, and the way in which human exchange can be generative in this sort of amazing way. Understanding how capitalism works has been really, really important for me, and has been something that I feel like I'm a better thinker and an analyst because of the time and reading I put into a lot of conservative authors on that topic.

While I agree with much of the argument Hayes is making – know thy enemy, etc. – he gets one huge thing wrong here that is very troubling: equating capitalism with markets. "Understanding how capitalism works has been really, really important for me " I'm amazed at how often this trips up otherwise smart people. There is no capitalism in mainstream neoclassical economics (no government either, and you can't have capitalism without government). And get any business person talking freely and they will tell you that everyone in business hates super-competitive markets of the kind fetishized by economists, and that profitability is all about finding niches and other ways to avoid competition.

LT , May 17, 2017 at 4:00 pm

https://aeon.co/essays/how-the-cold-war-led-the-cia-to-promote-human-capital-theory
"Friedman had discovered in human capital theory more than just a means for boosting economic growth. The very way it conceptualised human beings was an ideological weapon too "

Ellis , May 17, 2017 at 4:30 pm

I think it's important to recognize where information theory and the principle of maximum entropy does succeed in economics and that is as a method of doing statistical inference in economics. For those interested, I would recommend looking at the increasing amount of information theoretic research coming out of the Economics Department at the New School for Social Research and UMKC. You can find many good working papers by myself, Duncan Foley, Paulo dos Santos, Gregor Semieniuk, and others on the NSSR Repec page https://ideas.repec.org/s/new/wpaper.html .

Larry Y , May 17, 2017 at 4:56 pm

At Bell Labs, plaques and a statue of Shannon occupy places of honor, in more prominent places than the tributes to other prominent people (including 8 Nobel Prize winners in science).

Here's a presentation by Prof. Christopher Sims of Princeton, at Bell Labs. "Information Theory in Economics" https://youtu.be/a8jt_TmwQ-U – critique of the optimizing rational behavior models, noting people are bandwidth limited ("Rational Inattention"). Non-gaussian! Brings up example of monopolist of with no high capacity limit vs. customers.

J ,

[May 18, 2017] We need to attack and defeat the neoliberal belief that markets are information processors that can know more than any person cou