Economics

William Blum on Socialism vs. Capitalism

William Blum, the long-time fierce critic of American and western imperialism, has come back to writing his Anti-Empire Report after a period of illness. He’s an older man of 84, and due to kidney failure has been placed on dialysis for the rest of his life. This has left him, as it does others with the same condition, drained of energy, and he says he finds writing the report difficult. Nevertheless, his mind and his dissection of the ruthless, amoral and predatory nature of western capitalism and corporate greed is as acute as ever.

There’s a section in the Anti-Empire Report, where he discusses the advantages of socialism versus capitalism. He notes that there were two studies carried out under George Dubya to see if private corporations were better than federal agencies. And the federal agencies won by a huge margin every time. He writes

Twice in recent times the federal government in Washington has undertaken major studies of many thousands of federal jobs to determine whether they could be done more efficiently by private contractors. On one occasion the federal employees won more than 80% of the time; on the other occasion 91%. Both studies took place under the George W. Bush administration, which was hoping for different results. 1 The American people have to be reminded of what they once knew but seem to have forgotten: that they don’t want BIG government, or SMALL government; they don’t want MORE government, or LESS government; they want government ON THEIR SIDE.

He also states that the juries’ still out on whether socialist countries are more successful than capitalist, as no socialist country has fallen through its own failures. Instead they’ve been subverted and overthrown by the US.

I think he’s wrong about this. The Communist bloc couldn’t provide its people with the same standard of living as the capitalist west, and the state ownership of agriculture was a real obstacle to food production. The bulk of the Soviet Union’s food was produced on private plots. Similarly, Anton Dubcek and the leaders of the Prague Spring, who wanted to reform and democratize Communism, not overthrow it, believed that Czechoslovakia’s industrial development was held back through the rigid structure of Soviet-style central planning.

However, he still has a point, in that very many left and left-leaning regimes have been overthrown by America, particularly in South America, but also across much of the rest of the world, as they were perceived to be a threat to American political and corporate interests. And for the peoples of these nations, it’s questionable how successful capitalism is. For example, in the 1950s the Americans overthrew the Guatemalan government of Jacobo Arbenz after he dared to nationalize the banana plantations, many of which were own by the American corporation, United Fruit. Benz was a democratic socialist – not a Communist, as was claimed by the American secret state – who nationalized the plantations in order to give some dignity and a decent standard of living to the agricultural workers on them. The government that overthrew Benz was a brutal Fascist dictatorship, which imposed conditions very close to feudal serfdom on the plantation labourers.

Which leads to a more general point about the emergence of capitalism, imperialism and the exploitation of the developing world. Marxists have argued that capitalism had partly arisen due to western imperialism. It was the riches looted from their conquered overseas territories that allowed western capitalism to emerge and develop. Again this is a matter of considerable debate, as some historians have argued that the slave trade and plantation slavery only added an extra 5 per cent to the British economy during the period these existed in the British empire, from the mid-17th century to 1840. More recently, historians have argued that it was the compensation given to the slaveowners at emancipation, that allowed capitalism to develop. In the case of the large slaveholders, this compensation was the equivalent of tens of millions of pounds today. At the time the plantation system was in crisis, and many of the plantation owners were heavily in debt. The slaveholders used the money given to them by the British government – £20 million, a colossal sum then-to invest in British industry, thus boosting its development.

This system has continued today through what the Swedish economist Gunnar Myrdal termed ‘neocolonialism’. This is the international trading system which the former imperial masters imposed on their colonies after the end of imperialism proper following the Second World War. High tariffs and other barriers were imposed to stop these countries developing their own manufacturing industries, which could produced finished goods that would compete with those of Europe and the west. Instead, the former subject nations were forced through a series of trade agreements to limit themselves to primary industries – mining and agriculture – which would provide western and European industry with the raw materials it needed. As a global system, it’s therefore highly debatable how successful capitalism is in providing for people’s needs, when the relative success of the capitalist west has depended on the immiseration and exploitation of countless millions in the developed world.

And in the developed west itself, capitalism is failing. In the 19th century Marx pointed to the repeated crises and economic slumps that the system created, and predicted that one of these would be so severe that it would destroy capitalism completely. He was wrong. Capitalism did not collapse, and there was a long period of prosperity and growth from the late 19th century onwards.

But terrible, grinding poverty still existed in Britain and the rest of the developed world, even if conditions were slowly improving. And the long period of prosperity and growth after the Second World War was partly due to the foundation of the welfare state, Keynsian economic policies in which the government invested in the economy in order to stimulate it, and a system of state economic planning copied from the French.

Now that Thatcherite governments have rolled back the frontiers of the state, we’ve seen the re-emergence of extreme poverty in Britain. An increasing number of Brits are now homeless. 700,000 odd are forced to use food banks to keep body and soul together, as they can’t afford food. Millions more are faced with the choice between eating and paying the bills. In the school holiday just passed, three million children went hungry. And some historians are predicting that the refusal of the governments that came after the great crash of 2008 to impose controls on the financial sector means that we are heading for the final collapse of capitalism. They argue that the industrial and financial elite in Europe know it’s coming, are just trying to loot as much money as possible before it finally arrives.

The great, free trade capitalism lauded by Thatcher, Reagan and the neoliberal regimes after them has failed to benefit the majority of people in Britain and the rest of the world. But as the rich 1 per cent have benefited immensely, they are still promoting neoliberal, free trade policies and imposing low wages and exploitative working conditions on the rest of the population, all the while telling us that we’re richer and generally more prosperous than ever before.

Back to Blum’s Anti-Empire Report, he also has a few quotes from the American comedian Dick Gregory, who passed away this year. These include the following acute observations

“The way Americans seem to think today, about the only way to end hunger in America would be for Secretary of Defense Melvin Laird to go on national TV and say we are falling behind the Russians in feeding folks.”

“What we’re doing in Vietnam is using the black man to kill the yellow man so the white man can keep the land he took from the red man.”

For more, see https://williamblum.org/aer/read/150

The Bank of England admits monetary policy does not work

Published by Anonymous (not verified) on Tue, 19/09/2017 - 5:47pm in

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Economics

Readers will recall my post that published correspondence between Glynn Worthington, who reads this blog, and the Bank of England.

Based on my reply Glynn went back to the Bank of England, saying:

Dear Brendan,

I referred your email directly to Professor Richard Murphy, who, in his blog this week, says quite bluntly, that you are lying when you say that the Bank of England has not financed government by printing money.

As the Bank of England says on its own web site:

“Quantitative easing (QE) is an unconventional form of monetary policy where a Central Bank creates new money electronically to buy financial assets, like government bonds. This process aims to directly increase private sector spending in the economy and return inflation to target.”

So new money is created. And this helps fund the government. Indeed the Bank of England returned the interest payments to the government! What is that unless funding government?

Might I say too that I fear you didn’t answer my query concerning the order of things. I say that spending comes before taxation. What is the Bank’s view, in simple English?

Kind Regards,

Glynn Worthington.

The questions were direct, appropriate and fair. Glynn has now shared the Bank’s respone with me:

Dear Mr Worthington

Thank you for your further email of 15 September.  Professor Murphy is entitled to his own view, but we at the Bank think differently about QE.

The reason for that, is because at some point in the future, the Bank will sell its government bond holdings back to private investors.  And those bonds will then have to be repaid by the government as and when they mature – just as they would for any borrower.

I hope that you can see that this approach is rather different to simply printing money and giving it the government.  That is not a policy which the Bank has undertaken and is not what we think of as QE.

Your question regarding the return of interest payments to the government is a very reasonable one.  As the owner of government bonds, the Bank accumulates interest repayments paid by the government.  We return those monies to the Treasury.

So, there is a portion of the stock of outstanding government bonds that the government effectively no longer pays interest on.  You might think of it as a 0% loan.  But it is still a loan.  Again, I hope you can see that this is different to printing money and giving it to the government.

Regarding whether taxation is necessarily required to finance government spending, the answer is no, it is not.  Along with raising money via taxation, governments can borrow money and they can create money outright.

Regarding money creation, we tend to think that while monetary policy (in general) might boost spending for a time, eventually it will push up on prices, and inflation, which brings ‘real’ spending power back to where it would have been without that stimulus.

I hope that answers your question.

Kind regards

Nicole

Public Enquiries | Communications

Bank of England |Threadneedle Street|London|EC2R 8AH|+44 20 3461 4878

enquiries@bankofengland.co.u

That seems to require some unpacking.

First there is the quite extraordinary claim that the Bank will sell its bonds back to private investors. This has not happened yet. Mark Carney gave no hint that  it might yesterday but was looking at the long term. And in other places where QE has been used this has not yet happened, although in fairness the US says it might try doing so, which might be useful to prove just why this is such a bad idea when new debt creation for public benefit is so much more useful. And when the only direction of travel so far has been literally trillions of pounds, euros, dollars or yen (it does not matter which currency you use) going into QE  purchases and precisely none going the other way, to rely in this argument is, I would suggest, pretty desperate. To imply that all debt will be sold back is worse than that; it is right now an utterly implausible claim.

Adair Turner has argued that in practice it should be recognised that this debt has been monetised. I agree with him. In view of what Mark Carney said yesterday I think deep down he would also agree. There is no chance that all this debt will actually be resold to the public. To claim that it will be as if it is a fact in the way the BoE does here is wholly inappropriate. They have a duty to talk about the world as it is, and not about a fantasy that clearly does not exist.

Second it’s curious that the BoE wants to pretend both that this debt exists and that there is no special relationship regarding it with the government when so obviously the interest waiver proves that this is not true. What that waiver proves is not that there is still the same debt as they claim, when that debt was characterised by the interest payment, but that the debt in question no longer exists because its terms have been waived. The original debt obligation has been cancelled in other words, whatever the BoE claim. That is the reality that needs to be faced. The question is what has replaced it. I return to that below.

Third, there’s the oddity that it is claimed that these debts will be redeemed in due course. Technically, of course, some redemptions have already happened. And QE debt has been rolled over despite that technical redemption: new gilts were used to replace those redeemed. Again, reality has been suspended and the BoE needs to admit it.

Fourth, there is the curious issue of whether there is a new loan or not at zero interest rate. That’s open to question for reasons already noted. What there undoubtedly is is a debt. And on this issue the BoE really should read its own bank notes. Money is a debt paying zero interest. That is one of its major characteristics. So the BoE is in this case party to a zero interest rate loan that it claims is not money because it claims it is a loan, when all money is a loan because all money is in reality debt that is ultimately underpinned by the government on the basis of its ability to raise future taxation revenue, which is what also underpins the value in this relationship. Far from the existence of this loan proving there is no money created in in this relationship I think it precisely proves it does create money, in precisely the usually accepted form that money has. The BoE has, I think really shot itself in the foot here.

But it is the fifth claim which is fascinating. To reiterate, the Bank says:

Regarding whether taxation is necessarily required to finance government spending, the answer is no, it is not. Along with raising money via taxation, governments can borrow money and they can create money outright.

Incredibly importantly, the Bank admit that tax is not necessary for government spending. This is the admission of something I have long argued and proves that we do not have tax and spend in the UK (or elsewhere) but instead have spend and tax. The spend comes first and how to pay for it comes second. Borrowing is an alternative.

But what is most interesting is the admission right at the end of this paragraph, that the government can create money outright. This is, of course, a fact. The so-called ‘Bradbury pounds’ issued in World War I were Treasury created money that by-passed the Bank of England entirely and were completely accepted as currency (and why not; after all they too were backed by the promise of future tax revenue?). And the Bank is admitting here is that this is possible now. I suspect they had little choice but do so. After all, on their balance sheet they are holding £435 billion of government (or Treasury) promises to pay with no interest due on them. Or you might call it, Treasury created money as the residual balance sheet component of QE, in which the Bank have been an active and knowing participant. This is government created money used to cancel a liability – for the gilts that the BoE nominally holds but on which no interest is paid. Of course the BoE has to agree that the government can create money.

And that is precisely why it then goes into a vigorous defence of why it should not do so, saying:

Regarding money creation, we tend to think that while monetary policy (in general) might boost spending for a time, eventually it will push up on prices, and inflation, which brings ‘real’ spending power back to where it would have been without that stimulus.

This is farcical. £435 billion has failed to do deliver this outcome. Around the world trillions has failed to deliver much inflation. And when Brexit inflation falls out of the system (as it will if negotiations go well) then the need for more stimulus to create inflation in the UK will arise again, and with it demand for more QE. So the bogey of inflation can be ignored.

In that case what’s left in the statement? Well, it’s a simple admission that monetary policy – the whole raisin d’etre of the BoE – does not work. In other words, the whole farce of Bank of England independence has been a waste of time. What was always needed was, and is, fiscal policy. Or People’s QE, I would suggest.

The reality is that the BoE has just made the most extraordinary series of admissions. They will require further thinking and comment. But as I now need to head for Holyrood I leave others to start that process.

Fisking Carney

Published by Anonymous (not verified) on Tue, 19/09/2017 - 1:55am in

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Economics

Mark Carney, Governor of the Bank of England, said today:

Any prospective increases in Bank Rate would be expected to be at a gradual pace and to a limited extent, and to be consistent with monetary policy continuing to provide substantial support to the economy.

There remain considerable risks to the UK outlook, which include the response of households, businesses and financial markets to developments related to the process of EU withdrawal. The MPC will respond to these developments as they occur insofar as they affect the behaviour of households and businesses, and the outlook for inflation.

What does that mean? I suggest one of my usual lists.

First, rate rises, if they happen, will be small. If base rate rose above 1 per cent based on this comment I would be amazed. They may well not get that far.

Second, those rate rises will be, at best, widely paced. What else does gradual mean?

Third, Brexit negotiation stress will derail this process. Which means derailment is inevitable.

Fourth, as Brexit driven inflation falls out of the system (as is likely over the next few months) this whole process could also come to an end.

And, last, QE is very unlikely to unwind, and could even recommence.

To put it another way, monetary policy is going to stay near the zero bound and any rate increase there might be (maybe in November, more likely February based on this) will be largely a token gesture so that the Bank can soon after indicate its continuing stress about Brexit without going to a zero base rate.

Whatever else I think of Carney what I am now sure about is that he is not a big risk taker, which is what serious rate rises would be.

But he is also a man who likes a gesture. And I think he’s laying the plans for more than one, both of which will have vastly more symbolic than practical significance as rates rise and then fall again within the next year.  I wouldn’t be at all surprised if by next Autumn the base rate is 0.25%.

Dangers of ‘running with the mainstream pack’

Published by Anonymous (not verified) on Mon, 18/09/2017 - 10:43pm in

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Economics

An absolutely fabulous speech — and Soskice and Carlin’s textbook Macroeconomics: Institutions, Instability, and the Financial System — that Dullien mentions at the beginning of his speech — is really a very good example of the problems you run into if you want to be ‘pluralist’ within the mainstream pack. Carlin and Soskice explicitly adapts a ‘New […]

Paul Krugman: Complacency Could Kill Health Care

Published by Anonymous (not verified) on Mon, 18/09/2017 - 7:50pm in

"there is a real chance that Graham-Cassidy ... will ... become law, because not enough people are taking it seriously":

Complacency Could Kill Health Care, by Paul Krugman, NY Times: ...last year far too many people were complacent; they assumed that Trump couldn’t possibly become president, so they felt free to engage in trivial pursuits. Then they woke up to find that the inconceivable had happened.

Is something similar about to go down with health care?

Republican attempts to destroy Obamacare have repeatedly failed, and for very good reason. Their attacks on the Affordable Care Act were always based on lies, and they have never come up with a decent alternative. ...

The sponsors of the Graham-Cassidy bill now working its way toward a Senate vote claim to be offering a moderate approach that preserves the good things about Obamacare. In other words, they are maintaining the G.O.P. norm of lying both about the content of Obamacare and about what would replace it.

In reality, Graham-Cassidy is the opposite of moderate. It contains, in exaggerated and almost caricature form, all the elements that made previous Republican proposals so cruel and destructive. ... It would eliminate the individual mandate, undermine if not effectively eliminate protection for people with pre-existing conditions, and slash funding for subsidies and Medicaid. There are a few additional twists, but they’re all bad...

Yet there is a real chance that Graham-Cassidy ... will nonetheless become law, because not enough people are taking it seriously. ...

The main reason Republican leaders couldn’t do that on previous health bills was public outrage and activism. Letters and phone calls, demonstrators and crowds at town halls, made it clear that many Americans were aware of the stakes, and that politicians who voted to take health care away from millions would be held accountable.

Now, however, the news cycle has moved on, taking public attention with it. Many progressives have already begun taking Obamacare’s achievements for granted, and are moving on from protest against right-wing schemes to dreams of single-payer. Unfortunately, that’s exactly the kind of environment in which swing senators, no longer in the spotlight, might be bribed or bullied into voting for a truly terrible bill.

The good news is that for technical reasons of parliamentary procedure, Graham-Cassidy has to pass by the end of this month, or not at all. The bad news is that such passage is a real possibility.

So if you care about preserving the huge gains the A.C.A. has brought, make your voice heard. Otherwise we may wake up to another terrible morning after.

Indeterminacy, the Belief Function and Reinventing IS-LM

Published by Anonymous (not verified) on Mon, 18/09/2017 - 7:50pm in

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Economics

Roger Farmer:

Indeterminacy, the Belief Function and Reinventing IS-LM: This is my final post featuring research presented at the conference on Applications of Behavioural Economics and Multiple Equilibrium Models to Macroeconomics Policy Conference held at the Bank of England on July 3rd and 4th 2017.

Today I will talk about the work of two of my graduate students and co-authors, Giovanni Nicolò and Konstantin Platonov. Both of them gave presentations at the conference. ...

Giovanni’s research is on the empirics of models with multiple equilibria and sunspots. ...

The final conference paper that I will discuss in this series, “Animal Spirits in a Monetary Economy”, was co-authored by myself and Konstantin Platonov. Konstantin presented our paper at the conference and we wrote about our work for VOX here.

I have been critical of the IS-LM model in several of my posts. My paper with Konstantin  fixes some of the more salient problems of IS-LM by reintroducing two key ideas from Keynes. 1. The confidence fairy is real. 2. If confidence remains depressed, high unemployment can exist forever.  Our Vox piece presents the key findings of the paper in simple language. ...

Kurds in Iraq: from Sykes-Picot to no-fly zones and beyond

Published by Anonymous (not verified) on Mon, 18/09/2017 - 5:40pm in

Will the approaching referendum on independence open up
a new phase for the Kurds, abrogating
the Sykes-Picot Agreement?

lead Masoud Barzani has exceeded his allowed term as president of the Iraqi Kurdistan region. Kay Nietfeld/ Press Association. All rights reserved.The situation of the Kurds in a drastically changing
Middle East has received little attention in academe and less in the
media despite their growing impact on regional and international politics. The
biggest stateless people living in the Middle East are on the verge of a new
status, not only in Iraqi Kurdistan, where a referendum for independence takes
place on September 25, 2017, but also in Syria and Turkey. In Syria, Kurds have
fought an organised and effective struggle against the IS. In Turkey, they have
suffered a massive destruction of Kurdish cities, displacement of half a
million Kurds and eradication of all forms of legal entity by the Turkish
state. Then there is Iran. This
week’s short series looks at current political struggles of the Kurds in four
neighbouring countries.
Mehmet Kurt, series editor.

Since the 2011 ‘Arab Spring’ revolutions sent a seismic
shock wave through the Middle East the suffering of Kurds such as Alan Kurdi and the fight of the peshmerga
(Kurdish militia) against the Islamic State has catapulted the Kurds’ plight
as a ‘stateless nation’ to the world’s attention. 

On the liberation of Sinjar from the Islamic State, Masoud
Barzani, the President of the Kurdistan Region of Iraq, called for the
international community to move beyond the ‘Sykes-Picot borders’. This phrase
is a shorthand for the artificial and arbitrary frontiers imposed at the end of
the First World War by Britain and France which locked the Kurds into the
Turkish, Syrian and Iraqi states where they have experienced sustained attempts
at assimilation, denial of identity and human rights, and genocidal attack.

To emphasize his intent, Barzani announced in 2016 his
intention to hold a referendum on independence for the Kurdistan Region of Iraq,
now confirmed for 25 September 2017.  How
did it come about that such suffering should befall the Kurds in the states
they found themselves and what are the prospects for Kurdish independence as a
result of this referendum?

The Kurds and ‘post-colonial sequestration’

The Kurds’ quest for independence is partly the product of
geography: their ancestral homeland around the Taurus mountains occupies a
peripheral border region at the intersection of the historic empires of the
Turks, Persians and Arabs.

Under these empires the Kurdish tribes attempted to carve
out high levels of autonomy and were often in conflict with the central
authority and other rival tribes. Following the demise of the Ottoman Empire at
the end of the First World War, they found themselves divided between three
successor states: Iraq, Syria and Turkey where they became regionally
concentrated ‘non-assimilating minorities’. This underlying sense of malaise
finds conceptual framing in the ‘syndrome of post-colonial sequestration’, a term coined by the
late Professor Fred Halliday in a
succinct and incisive openDemocracy article
in 2008 to explain the
experience of peoples such as the Kurds and Palestinians. This underlying sense of malaise
finds conceptual framing in the ‘syndrome of post-colonial sequestration’, a term coined by the
late Professor Fred Halliday.

Halliday noted that various peoples have found, during
moments of momentous historic change (the end of WW1, WW2, colonial withdraw) that
if they were not able (due to bad luck, poor leadership or other circumstances)
to obtain a state, then they may remain trapped until the next moment of
opportunity. To understand their plight, he argued, it is important to be aware
that the division of the world into today’s ‘nation states’ does not correspond
to any fundamental principles of natural justice or historic entitlement. It is
rather arbitrary and haphazard – the result of power politics, accidents, wars,
state crises and hegemonic or colonial intervention.

By way of moving beyond post-colonial sequestration,
Halliday recommended these peoples to seek to establish democratic forms
including federalism, which once consolidated could lead to discussion of all
issues, including independence. Halliday focussed on the Palestinians and the
Tibetans, making only passing reference to the Kurds, which I expand here with
my primary focus on the Kurds in Iraq.

The Kurds in Iraq

The imposition of  European-style ‘nation-states’ on the Middle
East led to deeply divided societies due to the straight lines drawn across
tribal lands on the map enclosed with the 1916 Asia Minor Agreement signed
between Britain and France – otherwise known as the Sykes-Picot agreement.

Map of Sykes–Picot Agreement showing areas of control and influence agreed between the British and the French. Royal Geographical Society, 1910-15. Signed by Mark Sykes and François Georges-Picot, 8 May 1916. Wikicommons/public domain.In 1916 the British Navy converted from coal to oil,
immediately elevating the Middle East into a new strategic scenario. Oil had
been discovered in Persia in 1909 by the Anglo-Persian Oil Company and it was
thought that the lands of Turkish Arabia also held promise. Following the
invasion of Basra, occupation of Baghdad, and demise of the Ottoman Empire, the
British took on the League of Nations Mandate for Iraq. 

The Kurds seemed poised to obtain a homeland as stated in
the Treaty of Sèvres (1920). However, with Turkey resurgent under the
leadership of Kemal Ataturk, the subsequent Treaty of Lausanne (1923) omitted
any reference to a Kurdish homeland. Instead the Kurds became constituted as a
concentrated geographic minority in the three Ottoman successor states of
Turkey, Iraq and Syria, as well as incorporated into the new dynasty of Pahlavi
Iran.

The Hashemite Kingdom of Iraq was given independence in 1932
with its potentially vast oil resources discovered in Kirkuk in 1927 under the
control of the British controlled ‘Iraq Petroleum Company’. In their occupation
of Iraq the British encountered major resistance from the Kurds in the north,
both after the First World War and then during the Second World War when forces
led by Mustafa Barzani (1903-1979) gained control of large parts of Erbil. RAF
bombers were deployed causing the rebels to flee over the border into Iran. The
Anglo-Soviet invasion and occupation of Iran in 1941 presented an opportunity
for the Kurds to found the Mahabad Republic in 1946 under the Kurdistan
Democratic Party (KDP).

Mustafa Barzani was a prominent general in this and thus his
son, Masoud Barzani, was born under the Kurdish flag. However, the newly
installed pro-British Shah crushed the nascent Kurdish republic causing Barzani
and his followers to retreat over snow-covered mountains to the Soviet Union
where they found sanctuary. Following
the overthrow of the Iraqi monarch in 1958 Mustafa Barzani returned to Iraq
following promises of Kurdish autonomy. But these did not materialize, and this
led to the Iraqi-Kurdish war, 1961-70. The
Ba’ath Party came to power in 1968 with Saddam Hussein the driving force. The 1970
Iraqi-Kurdish Autonomy Agreement offered meaningful autonomy on paper but it
was not possible to find a solution to sharing oil revenues or resolving the
status of Kirkuk, so it was never implemented. Instead, an Arabization programme around Kirkuk was instigated and
Barzani and his peshmerga took up armed rebellion against the Baghdad
government. 

A further aspect of the dynamic set in motion is that the
state system created by external powers after the First World War provides
ample opportunity for the regional states to play the Kurds in neighbouring
states as a card against the state in which they reside. The Kurds also try and
play one regional state off against each other. Different tribes or factions of
Kurds (tribes, the KDP and PUK) will also do the same. On top of this, the Kurds are used as a pawn
in the game of the external powers as they attempt to manipulate the Middle
East to their advantage. On top of this, the Kurds are used as a pawn
in the game of the external powers as they attempt to manipulate the Middle
East to their advantage.

A prime example of this was the mid-1970s when the Kurds
were literally ‘sold down the river’ as part of a deal between Iraq and Iran on
the Shatt al Arab waterway (the 1975 Algiers Agreement). Having played his
Kurdish card, Saddam then proceeded to easily crush the Kurdish rebellion in
the north of Iraq. Mustafa Barzani escaped to the United States where he died
in 1979. During this time, based on differences in ideology and strategy, Jalal
Talabani split off from Mustafa Barzani’s Kurdistan Democratic Party and formed
the Patriotic Union of Kurdistan (PUK) in 1975. Thus, an intense and sometimes blood
rivalry was inaugurated within the Kurds of Iraq, with rival peshmerga forces
bidding for exclusive control of territory in order to control resources and
establish and maintain networks of patronage.

Following Saddam’s invasion of Iran in 1980, Iraqi Kurds
again found support in Iran under Khomeini to attack the military forces of the
Ba’athist regime. There followed Saddam’s genocidal Anfal campaign in which
thousands of Kurdish villages were destroyed and Barzani males aged 7-70 were
killed in retribution. This culminated in the sarin and mustard gas attack on
Halabja by Saddam’s cousin, Ali Hassan Al Majid, leaving 5000 dead. After Saddam’s
invasion of Kuwait in 1990 and the 1991 Gulf War, George H. Bush encouraged the
Shia in the south and the Kurds in the north to rise up. When they did so,
Saddam attacked them and the Kurds fled to the highest points of the peaks of
the Zagros in affirmation of their enduring refrain, ‘no friends but the
mountains’.

No-fly zones, de facto autonomy and the Iraqi-Kurdish
civil war

Images in western media of Kurdish families huddled on the
mountains to escape Saddam’s helicopter gunships led to the creation of a ‘no-fly
zone’ in the northern part of Iraq. Saddam withdrew all governmental services
from the Kurdistan Region and this erosion of the sovereignty of the Iraqi
state allowed the Kurds to create two Kurdistan Regional Governments (KRG)
formed by the KDP in Erbil and the PUK in Sulaimainiyah.

This mirrored the dominance of the two main families and their
associated political parties: the Barzanis and KDP in Erbil and Dohuk, and the
Talibani and PUK in Sulaimaniyah and Kirkuk. The intense rivalry between these
two families with their associated political parties and accompanying patronage
networks over UN ‘oil-for-food’ revenues led to the Kurdish civil war in Iraq
in the mid-1990s.

In another twist of the ‘Kurdish card’ the KDP, facing
defeat at the hands of the PUK, requested Saddam’s forces to enter Erbil to
evict the militias of the PUK. Iraqi army tanks rolled in and in a couple of
hours eliminated the Iraqi opposition which had been taking refuge there. The
signing of the 1998 Washington Agreement committed Kurdish political parties to
resolve their differences and act in a unified manner against Saddam. The September 11 attacks gave the perfect
opportunity to implement regime change in Iraq, a long desired neo-con
objective, which would allow access to the vast Iraqi oil reserves. Just as the British had eighty years earlier,
the Americans then faced the task of building an administration that would cope
with the fissiparous tendencies of Iraq’s deeply divided society.

The Kurdistan region in federal Iraq

For the Kurds, the US-led invasion was undoubtedly a
liberation, as it sent their oppressor Saddam Hussein to the gallows and
provided an opportunity to further develop their autonomy enshrined as a federal
region enshrined in the 2005 constitution. A key question for the place of
Kurdistan in federal Iraq is that posed by the ‘paradox of federalism’: that
is, the paradox that the various measures of federal systems designed to
alleviate tensions in deeply divided societies through allowing autonomy and
facilitating power sharing – namely, regional government and control of
resources – can at the same time serve as a ‘stepping stone’ to secession.

The Iraqi Constitution contained a number of articles which
addressed the highly contentious issue of the management of oil, many of which
were contradictory and deliberately vague in order to allow the fractious
negotiating parties to sign it. This included Articles 140 and 143 on Kirkuk
which allowed for a referendum on its place in the new federal Iraq as well as
including a mechanism to handle the process of Arabization that had taken place
there. However, these measures were never implemented by the Baghdad
government.

As US combat forces withdrew from Iraq at the end of 2011,
the unresolved issues in Iraq’s federal polity erupted in the warrant issued by
the increasingly authoritarian Prime Minster Nouri al-Maliki for the arrest of
the Sunni Iraqi Vice-President, Tariq al-Hashimi, who fled to the Kurdistan Region.
This was only the first indication of the approaching storm. The division of the world into today’s ‘nation states’ does not correspond
to any fundamental principles of natural justice or historic entitlement.

In 2014 the ‘perfect storm’ hit the Kurdistan Region: global
oil prices collapsed, the central government ceased payments to the KRG due to
disputes over oil exports, and the Islamic State launched an offensive on the
Kurdistan Region’s capital of Erbil , and hundreds of thousands of Iraqis were
given refuge in the Kurdistan Region. As they swept back into Iraq from Syria
to occupy Mosul in June 2014, Islamic State celebrated their removal of the
Sykes-Picot borders by dismantling the frontier checkpoints and declaring a new
Caliphate.  

ISIS celebrates takeover of Nineveh Province, saying the 'Sykes-Picot Borders' have been removed, June 11, 2014. Memri TV/Wikicommons.Some rights reserved.

Masoud Barzani reflected ruefully on how six divisions of the Iraqi army had ‘melted like snow’  in the face of 1,500 fighters in pick-up
trucks, stripping off their uniforms and abandoning state-of-the-art US
military equipment to the Islamic State. In August 2014 the IS advance on Erbil was
only stopped by Iranian and US airstrikes giving the Kurds time to regroup. As the Iraqi army crumbled Maliki asked
Barzani to occupy oil-rich Kirkuk province and other disputed territories to
prevent their capture by IS. Accordingly, Barzani’s KDP Peshmerga moved in,
creating ‘facts-on-the-ground’ and occupying 95% of the so-called ‘disputed
territories’.  The Iraqi Security Forces reorganised
under US tuition, recaptured Mosul in 2017 and reinstated the berm denoting the
Syria-Iraq border. The question was would this also be the end of any chance for
the Kurds of Iraq to redraw the Sykes-Picot borders?

The international community has a ‘low appetite’ for
secession as most states in the world are made up of different ethnic, religious
or linguistic groups, so too frequent secession threatens the majority of the
world’s states.

As Ephraim Nimni points out, ‘nations that have states are
only a small fraction of all nations, but we insist in associating nations with
states and in regarding the majority of nations that are stateless as
problematic or lacking something.’ The international community has instead preferred
self-determination and autonomy to take place within existing state structures
– through constitutional arrangements such as federalism, devolution, autonomy
and other forms of power sharing.

As a result, since 1945 there have been very few cases of secession.
South Sudan is only the second state (after Eritrea) to complete secession in
post-colonial Africa, gaining sovereignty with the consent of its former parent
state, though only after a long and violent struggle. It has gone onto
experience civil war and occupy the no.1 ranking in the failed states index.

The 2008 recognition of Kosovo by mostly western states
shows the political nature of upholding self-determination of peoples over the
territorial integrity of states. For the western states, Kosovo’s recognition
was partly based on earned ‘sovereignty’ by conforming to EU and US foreign
policy agendas promoting democratic principles. This suggested that recognition
could be awarded to entities that succeed in building effective democratic
institutions. In 2006 Montenegro seceded from the Federation of Serbia and
Montenegro in a peaceful, negotiated process following a referendum. Could a
similar development happen in Iraq to end the curse of the Sykes-Picot borders
for the Kurds?

The rise of IS drew attention to the inability of the
federal state of Iraq to protect its citizens, a powerful indication of
failure. But looking back, the decade 2003-2013 is now seen almost as a ‘golden
decade’ of high oil receipts for the Kurdistan Regional Government and an
opportunity that was squandered through lack of accountability and rumoured corruption. 

Furthermore, the Kurdistan Region has a political and
economic crisis. Masoud Barzani has exceeded his allowed term as President and
the Kurdistan Region’s Parliament
has been suspended for many months, although moves are afoot to
reconvene it. The Gorran
party’s position
is that these issues must be resolved before any
referendum on independence takes place.

Economically, the KRG is billions of dollars in debt and
unable to pay civil servants who make up 80% of the work force. For many Kurds,
the struggle to make a living and have access to clean water and electricity is
their most pressing concern. In this context, the charge has been made that
President Barzani’s referendum is designed to distract from these issues and garner nationalist
legitimacy.

Whilst there is a ‘no’ campaign the result is likely to be a
‘yes vote’ as, whilst they may not even be that impressed with the current
Kurdish political elite, it seems the vast majority of Kurds in Iraq dream of
an independent Kurdish state and to be able to hold a Kurdish passport as a
symbol of identity. The Kurdistan Regional Government seeks to cut a deal with
other groups living in Kurdistan – Arabs, Turkmen and Assyrian Christians –  to persuade them they will be better off with
the KRG than the Baghdad government.

Farewell to Sykes-Picot?

The Kurdistan Regional Government has made clear that with
this referendum there is no intention to redraw all the border lines of the
Middle East to create a Kurdish state, merely to define a border within the
state of Iraq.

Unsurprisingly, it has not won much in the way of overt international
support or from the government of Iraq in Baghdad. The Iraqi Prime Minister,
Haider al-Abadi, argued that it was not the time for a referendum on
independence and has received authorisation from Parliament to use all measures
to prevent the referendum taking place. 
The Iranian government expressed opposition  and the Turkish government has said that there
‘will be a price to pay’ for holding the referendum.  Concerned that it would detract from the
fight against IS, US Secretary of State, Rex Tillerson, called President
Barzani to ask him to postpone the referendum which he declined to do.
Furthermore, the United Nations and the European Union have made clear that
they are unable to support the referendum unless invited by a sovereign state,
that is the federal government in Baghdad.  Only Israel has openly supported the idea of
the KRG becoming an independent state.

Given the absence of overt support either from the international
or parent state level (the federal government in Baghdad) for an agreed
secession from Iraq, the most likely outcome of the referendum is that a ‘yes
vote’ will be used by the KRG in an attempt to leverage further autonomy and
greater control of oil revenues through a greater degree of ‘asymmetric federalism’
for the Kurdistan Region or some form of confederal arrangement. 

If this course is followed, then by pressing for the consolidation
of their democratic rights within a federal or confederal constitution the
Kurds would be following Halliday’s injunction to press for human rights and
democracy within the states they find themselves.  Similarly, the attempt of the Kurds in Syria to
build new forms of democratic practice also represent an attempt to transcend
the constraints of the centrally controlled ‘nation-states’ of the dominant
Turkish, Arab or Persian ethnic group.

Until now the Kurdish experience of the state in the modern
Middle East has been largely one of authoritarian assimilation, denial of
identity, military force and genocide. It is hardly surprising then that the
Kurds in the states of Turkey, Iraq, Syria, and Iran should be at the forefront
of exploring new forms of democratic experiment, including ones which seek to go
beyond the unitary, centralized authoritarian states which have hitherto been
dominant in the modern Middle East. 

The Kurds have without doubt suffered the pernicious effects
of ‘the syndrome of post-colonial sequestration’. Perhaps the silver lining if
there is one, is that, in the current period of momentous regional change in
the Middle East, if the concept has analytical weight, the Kurds have the best
opportunity for a long time to transcend the Sykes-Picot borders. Either in new
forms of autonomy or an independent sovereign state, the Kurds could then attest
to the world that the ‘syndrome of post-colonial sequestration’ is not after
all incurable.

 

Further reading:

Michael Gunter, A Modern History of the Kurds (Markus
Wiener, 2017)

Francis Owtram, ‘The State We’re In: Post Colonial
Sequestration and the Kurdish Quest for Independence Since the First World War’.
In Michael Gunter (ed) Routledge Handbook of Kurdish Studies
(Routledge, 2018)

Francis Owtram, ‘Oil, the Kurds, and the Drive for
Independence: an Ace in the Hole or Joker in the pack? In Alex Danilovich (ed) Iraqi
Kurdistan in Middle Eastern Politics
(Routledge, 2017)

Francis Owtram, ‘The Kurdistan Region of Iraq and the
Federal Constitution: A Perimeter Plinth of State Territorial Integrity or a
Stepping Stone to Secession?’. In Gareth Stansfield and Mohammed Shareef (eds) The
Kurdish Question Revisited
(Hurst, 2017)

Denise Natali, The Kurds and the State: Evolving National
Identity in Iraq, Turkey and Iran
(Syracuse University Press, 2005)

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Al-Farabi on The Democratic Paradox

Published by Anonymous (not verified) on Mon, 18/09/2017 - 5:32pm in

113. The democratic city is the city in which every one of its inhabitants is unrestrained and left to himself to do what he likes. Its inhabitants are equal to one another, and their traditional law is that no human being is superior to another in anything at all. Its inhabitants are free to do what they like. One [inhabitant] has authority over another or over someone else only insofar as he does what heightens that person's freedom.

    Thus there arise among them many moral habits, many endeavors, many desires, and taking pleasure in countless things. Its inhabitants consist of countless similar and dissimilar groups. In this city are brought together those [associations] that were kept separate in all those [other] cities-the vile and the venerable ones. Rulerships come about through any chance one of the rest of those things we have mentioned. The public, which does not have what the rulers have, has authority over those who are said to be their rulers. The one who rules them does so only by the will of the ruled, and their rulers are subject to the passions of the ruled. If their situation is examined closely, it turns out that in truth there is no ruler among them and no ruled.

114. Yet those who are praised and honored among them are [a] those who bring the inhabitants of the city to freedom and to everything encompassing their passions and desires and [b] those who preserve their freedom and their diverging, differing desires from [infringement] by one another and by their external enemies while restricting their own desires only to what is necessary. These are the ones among them who are honored, [deemed] most excellent, and obeyed.

    Any of the other rulers is either equal to them or inferior to them. He is their equal when, in return for his producing the goods they will and desire, they bestow on him honors and money equivalent to what he does for them. Then they are not of the opinion that he has superiority over them. They are superior to him when they bestow honors on him and establish a share of their money for him without receiving any benefit from him. -- Al-Farabi  Political Regime, Translated by Charles Butterworth.

'Democracy', here, means direct election. (Another way of putting it is, perhaps, elected kingship.)* In it the ruling norms consist of human equality and freedom. The main point of a democracy is preference satisfaction. In the paragraphs to follow, Al-Farabi describes democracies as naturally, welcoming, cosmopolitan, multi-cultural and multi-ethnic societies ("the nations repair to it and dwell in it, so it becomes great beyond measure. People of every tribe are procreated in it by every sort of pairing off and sexual intercourse.") Democracy is presented in dazzling colors: it is "the marvelous and happy [polity]. On the surface, it is like an embroidered garment replete with colored figures and dyes. Everyone loves it and loves to dwell in it...." 

While Al-Farabi does not ignore the great crimes that democracies can produce, and he himself prefers a more hierarchically ordered, epistemocratic polity in the manner of Plato, he is more generous than Plato (in Republic VI) toward democracy: for him it is an egalitarian society, where (recall his interest in public enlightenment) the arts, science, and philosophy can flourish and where virtue can be nurtured. This is not the place (recall) to deal with his puzzling treatment of, the transition problem, that is, of how a virtuous city can arise out of a democratic polity despite its animosity toward would-be-virtuous-rulers (who are "soon deposed or killed, or his rulership is disturbed and challenged." [See here for more on his views.])

When he discusses democracy, Al-Farabi's treats citizens and rulers alike, in the manner of a public choice theorist, as calculating agents: "when rulership in it is surrendered to someone, it is....because the inhabitants...took money or some other recompense from him." (116) The citizen-electors are clearly bought by the leader they elect. But self-interest does not stop there.  The citizens also expect the ruler to protect their freedom and to satisfy their "passions and desires." In turn they honor or pay their leader. That is, they understand his rule as a trade with the governed. If he performs his part of the bargain, "they bestow on him honors and money equivalent to what he does for them."

Now, at this point, perhaps prompted by Plato, one expects a treatment of the democratic ruler as, himself, ruled by passion, seeking to satisfy his unruly preferences who may turn into a tyrant. But that's not what we get; rather, Al-Farabi thinks a democratic leader is more akin to a useful puppet, ultimately "subject to the passions of the ruled." He is an instrument of other people's desires. And, he can only get honor and money if he satisfies their needs. This is reflected in the understanding of public virtue in a democratic city. As Al-Farabi goes on to say: "according to" the people in a democratic state, "the virtuous ruler is the one who is excellent at deliberation and fine at using stratagems to gain them their different and variegated desires and passions, preserving that from their enemies, and not depriving [them] of any of their money but restricting himself only to what is necessary for his power. (117) That is, for Al-Farabi, democratic citizens understand themselves as being in a zero-sum environment and admire their ruler for looking out on their behalf and who will do what it takes to defend them against outsiders. That is to say, despite the apparent cosmopolitanism, even a flourishing democratic society will have a strong sense of who is in, and who is out.  

The title of this post mentions paradox. It goes something like this: preference satisfying people understand the world in terms of scarcity and deals that respect proportionality. Their anthropology involves other people being like them in looking out for themselves. Yet, they want to be ruled by a ruler who keeps taxes low, schemes on their behalf, and tries to get the better of foreigners and their enemies. They will pay for that performance. But what is striking is that the ruler is not expected or supposed to look out for himself in his bargain with the city: he is supposed to restrict himself to what is "necessary" not to what he really wants for himself nor is he supposed to try to change the people (those who try are, recall, "soon deposed or killed.")That is, they want a ruler who serves their interests and, crucially, is ultimately not like them at all and not really possible in how they understand the world.

Okay, that's not a real paradox. But it follows from Al-Farabi's view, that in a democracy, the people will be either eternally disappointed in their leaders or be hoodwinked, knowingly.

 

 

*It is worth considering if Al-Farabi was reflecting on a historical source -- the first Caliphs were elected by consensus -- or thinking through the type a priori. If he expects his readers to reflect on the election of the Four Rightly-guided Caliphs then what follows is one of the most important commentaries. 

Economyths: The Five Stages of Economic Grief

Published by Anonymous (not verified) on Mon, 18/09/2017 - 3:48am in

Tags 

Economics

By David Orrell 

Swiss psychiatrist Elisabeth Kübler-Ross, a pioneer in the field of grief counselling, identified the five stages of grief as denial, anger, bargaining, depression, and acceptance. This extract from Economyths draws on her model of grief as inspiration to chart the long, arduous, but ultimately healthy and healing (we hope, it’s not over yet) process as the economics profession slowly comes to terms with its role in the Great Financial Crisis.

The ten years since the first tremors of the crisis began in 2007 have been a difficult journey, not just for the world economy, but also for the economics profession. The status of the field had never been higher than in the two decades preceding the crisis, during what Ben Bernanke and others called the Great Moderation. Inflation and macroeconomic volatility seemed to be under control, and total national income was growing at an almost steady rate (the fact that total debt was growing even faster was less remarked upon). In 2002, Alan Greenspan received an honorary knighthood from the Queen for ‘his outstanding contribution to global economic stability’. The following year, Nobel laureate Robert Lucas, famous for his theory of ‘rational expectations’, told his audience: ‘My thesis in this lecture is that macroeconomics in this original sense has succeeded: Its central problem of depression prevention has been solved, for all practical purposes, and has in fact been solved for many decades.’With its firm grounding in mathematical rigour, economics was the undisputed queen of the social sciences.

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Economists were therefore more than a little surprised by what jurist and economist Richard Posner – author of books including the aptly-named A Failure of Capitalism: The Crisis of ’08 and the Descent into Depression – inventories as ‘the bursting of the housing bubble (they didn’t know it was a bubble), the ensuing banking collapse, the stock market crash, the sharp decline in output and employment, the global scope of the crisis, and the onset of deflation in the late fall of 2008 that created fears of a depression comparable to the Great Depression of the 1930s’. According to James Heckman from the University of Chicago, ‘Everybody here was blindsided by the magnitude of what happened. But it wasn’t just here. The entire profession was blindsided.’

Indeed, the crisis came as a traumatic event that left mainstream economists in what Greenspan called ‘a state of shocked disbelief’. Models which were based on assumptions of stability, equilibrium and efficiency were of little use when markets were cratering, real estate was sinking into the mud, and oil and food were spiking. And since that time, economists have been working their way slowly and painfully through the different stages or aspects of the grief process, as they realise that their elegant models not only failed to predict the crisis, but also helped to create it.

When Economyths first came out, most economists were in a state of denial – especially those at the top of the profession. Future laureate Tom Sargent said in a 2010 interview “It is just wrong to say that this financial crisis caught modern macroeconomists by surprise.” (No mention of whether the non-modern macroeconomists saw it coming too.) Laureate Robert Lucas preferred to see the unpredictability as a natural result of future laureate Eugene Fama’s efficient market hypothesis (though as Posner notes, that didn’t stop him from predicting, shortly after Lehman’s collapse, that the crisis would soon go away).Fama agreed that the efficient market hypothesis ‘did quite well in this episode’. The Nobel committee apparently agreed too.

As reality sank in, economists soon began lashing out in anger at anyone who dared criticise their field, including yours truly (I’m going to talk about this because it seems to be quite a general problem). At Canada’s top-ranked economics blog Worthwhile Canadian Initiative, for example, a group of prominent academics, including regular contributors to national publications (Globe and Mail, National Post, Maclean’s, Literary Review of Canada, etc.),shared their professional thoughts about the book online. Descriptors used included idiotic, ignorant, intellectually lazy, juvenile, random, rubbish, semi-articulated, and ‘sort of like Malcolm Gladwell without the insight’ – ouch. Someone even compared me to a climate change denier (not uncommon, as it turns out).

One commenter described the online book burning as part of a widely-deployed ‘shoot the messenger’ strategy against critics. Which is fine – we give as good as we get, and at least they don’t grade us. But what was interesting about their discussion was the way these academics, who hailed from top universities such as British Columbia, Carleton, Laval, and so on, managed to maintain the illusion that they were being incredibly tolerant and open to criticism. As one put it, ‘Economists welcome criticism. In the academy, we are well-known, if not infamous, for being direct, abrupt, and rude in criticizing each other (and others). There is a very healthy discussion about methodology. Bring it on.’ But they confused academic bickering with genuine criticism from people who share none of their biases.

The site linked to an even more vituperative blog review by an economics professor at the University of Victoria who of course took pains to say that economics ‘benefits from criticism’, as long as it’s the right type, a topic we discuss further below. (Fortunately I was spared the electronic ‘viruses and hate mail’ which have apparently afflicted other critics of mainstream economics.) And that was about it for thoughtful response from the country’s economics establishment, at least until former Deputy Governor of the Bank of Canada William White (now at OECD) – one of the few people who warned of the financial crisis – cited the paperback edition as a Bloomberg Best Book of 2013, perhaps out of sympathy.

Let’s make a deal

As anger started to burn out, the next stage of the drawn-out and generally exhausting grief process involved bargaining: both with the future – perhaps we can put things right – and in a kind of retroactive bargaining with the past, saying that the event would not have occurred if only something had been done differently. One common argument, anticipated in the book’s introductory chapter, was that there is nothing wrong with economics per se, the problem is one of poor communication: the field’s critics just don’t understand the full rich diversity of economic thought, and are attacking a simplified caricature.

A good illustration of this approach was the 2015 book Economics Rules by Dani Rodrik from Harvard. Echoing Lionel Robbins – who called economic man an ‘expository device’ in 1932 – Rodrick explains that the reason student groups such as the Post-Crash Economics Society are frustrated is that introductory economics courses offer only a pared down version of the theory and give ‘little sense of the diversity of conclusions in economics’. Also most economists are poor at presenting their arguments to the public, because they ‘see themselves as scientists and researchers whose job it is to write academic papers’. Rodrik does note the existence of a ‘guild mentality’ in economics which ‘renders the profession insular and immune to outside criticism’, and observes in a couple of places that ‘Only card-carrying members of the profession are viewed as legitimate participants in economic debates’. Yet later he cites the influence of behavioural psychologists and so on to conclude that ‘the view of economics as an insular, inbred discipline closed to outside influence is more caricature than reality’. (Pardon?) The overall impression is one of bemusement at all the fuss.

After making a number of good points about models, the book concludes with ‘Ten Commandments’ (aka ‘bargaining points’) for economists, and ten for non-economists. Some of these are very sensible – #3 from the latter list, for example, says: ‘Analysis requires simplicity; beware of incoherence that passes itself off as complexity.’ Others are versions of common defences against critics, e.g. #9: ‘If you think all economists think alike, attend one of their seminars’, and #10: ‘If you think economists are especially rude to noneconomists, attend one of their seminars.’ These are surely well-meant and sound fairly innocuous, unless you’re afraid of economics seminars, but they come up all the time in different guises and it’s worth inspecting them a little more closely.

The first is a polite variation of the ‘caricature’ or ‘straw man’ argument, implying that economics is far more diverse and complicated than it appears to an outsider. However, the fact that economists do not agree on every point does not somehow innoculate the field against criticism; and the claim or implication that non-economists don’t fully understand the subject, and need to attend a seminar or take a course to appreciate its mysteries, often boils down to a debating or avoidance tactic (and obviously doesn’t apply to the increasing number of critics from within the field’s own ranks). It also leads to the catch-22, perfectly expressed in a generally glowing 2017 review of Rodrik’s ‘marvelous book’ by economist and game theory expert Ariel Rubinstein, published in the Journal of Economic Literature, that ‘One needs to be an outsider to criticize Economics but one needs to be an economist to do it sufficiently well so as not to be drawn astray by stereotypes’, which doesn’t seem to leave many people. Apparently Rodrik qualifies, despite or because of the fact that he ‘belongs to the elite of the Economics academic establishment’.

Commandment/bargaining point #10, meanwhile, echoes the idea, also expressed above, that rudeness between economists is evidence of a ‘very healthy discussion about methodology’. I’m assuming this doesn’t include hate mail. Five things … First, the main objection to the arguments made by economists concerns not the style, but the content. Second: as seen below, economists are not rude at all when it comes to questioning their leaders – in fact obsequious deference would seem to be a better description. Third: lack of civility (at least in itself) is not an indicator of healthy scientific debate, in the academy or in the playground. I’d say that advertising it probably reflects more an anxiety about appearing robustly scientific.

Fourth: in his 2006 book The Trouble With Physics, physicist Lee Smolin notes that string theorists cultivate a ‘brash, aggressive, and competitive atmosphere’, though he doesn’t see it as an advantage. He also detects a ‘blatant prejudice’ against hiring women. Could these be related – and could macho posturing be a similar problem in economics? According to one article, by economist Miles Kimball and an untenured female economist who didn’t want to be identified in case it hurt her career, some male economists ‘may not even realize all the ways they routinely put others down – especially those in vulnerable positions who dare not strike back’.

Finally, and related, rudeness might be fine between equals, but one of the functions of social graces is to help deal with asymmetrical power relationships, of the sort encountered in economics departments. A 2015 investigation at the University of Manitoba, for example, concluded that while the department head, an orthodox economist, had insisted ‘that he was committed to maintaining diversity’, his subsequent actions resulted in a change of climate that had the opposite effect. This ultimately led among other things to ‘a violation of academic freedom when orthodox members of the department behaved in ways that discriminated against doctoral students being supervised by heterodox economists’. According to one professor there was ‘serious bullying going on’ including threats to interfere with the tenure process. No wonder the students are calling for revolt (they’re so rude).

Economic depression

It therefore comes as something of a relief to us critics that some economists at least may be proceeding to the penultimate, more passive stage of the grief process, depression. Evidence is provided by a paper by Paul Romer, ‘The Trouble With Macroeconomics’ (he had also been reading Smolin’s book, hence the title), a 2016 preprint of which caused a considerable stir in economics circles. Sounding almost Economyths-like in style, the first sentence of the abstract announces that ‘For more than three decades, macroeconomics has gone backwards’. It goes on to describe the author’s ‘pessimistic assessment of regression into pseudoscience’ and mention the ‘serious failure’ of top economists. Decidedly non-upbeat section titles include ‘Post-Real Models’, ‘Loyalty Can Corrode The Norms of Science’, ‘Back to Square One’, and ‘The Trouble Ahead For All of Economics’. No concrete solutions are proposed for what sounds, to an outsider, like a rather dysfunctional state of affairs.

In the same way that elegant but unfalsifiable string theory has, as Smolin showed, taken over high-energy physics, so mainstream economics has increasingly emphasised elegant but unfalsifiable mathematical models over experimental reality. Most of the parameters in the models cannot be determined from observations, but are simply made up to give the desired answers. Events such as crashes are assumed to be caused by external shocks, rather than internal dynamics. The models can’t make sense out of even basic things like monetary policy, which according to theory – since money plays no significant role in these models – should have little or no effect.

However, the problems are as much sociological as they are mathematical. Just as string theory is characterised by what Smolin described as ‘groupthink’ about the correct way to approach problems, so some economists see it as ‘an extremely serious violation of some honor code for anyone to criticize openly a revered authority figure … neither facts that are false, nor predictions that are wrong, nor models that make no sense matter enough to worry about’.

Romer, who is now chief economist at the World Bank, notes that he sees himself more as a practitioner rather than an academic, so feels free to speak out and tell it like it is, but many people are afraid to criticise a ‘revered leader’ because of the ‘unpleasant reaction’ that it may evoke. He relates a story of running into a colleague who was so angry with him for criticising a paper by Robert Lucas that ‘at first he could not speak. Eventually, he told me, “You are killing Bob.”’ Yikes. So much for that self-image of economists being open to criticism. In fact Romer says he was inspired to write the paper after seeing a documentary about the Church of Scientology.

Paul Mason observed in The Guardian that Romer’s paper is important because he is not an outsider or a rebel, but ‘a doyen of the profession, and from the heart of the US academic mainstream’. As Bloomberg commented, ‘along came one of the leading practitioners of his generation, to say that the skeptics were onto something’. Which, speaking as one such sceptic, is certainly appreciated. In fact in some respects Romer probably goes further – even I didn’t sum an economic argument up as: ‘Assume A, assume B, … blah blah blah … And so we have proven that P is true.’

However, while it is refreshing that some in the mainstream are facing up to these problems, and Romer’s paper is written with great courage, a dose of dark humour, and an obvious concern for the state of economics, there is in fact little acknowledgement that these issues have long been debated and solutions proposed outside of the mainstream; and as argued in this book, it is exactly this deafness to other voices which is at the root of the ‘trouble with economics’, and the reason it has taken so long to confront the fact that there might be a serious problem, let alone actually do something about it.

The path to acceptance

Of course, depression is a state of mind that involves turning inwards. But for an area as insular as mainstream economics, the final stage of the grief process – acceptance – will only come when the field finally gets over itself and opens up to new ideas – or even the old ideas that have been there all along. This may be beginning to happen. In 2017 for example the UK’s Economic and Social Research Council announced that it intended to set up a network with its remit being to ‘revolutionise’ the field of economics: ‘It will be led by a team of 25 world leading experts taken not only from different branches of economics, but also from psychology, anthropology, sociology, neuroscience, economic history, political science, biology and physics.’ Perhaps those experts can answer some of the questions we posed for them back in the original 2010 edition of Economyths. As seen in the revised edition, ideas from areas such as complexity science and data analysis are starting to sink in and have an effect. And some high-profile economists are having a go at new approaches. Joseph Stiglitz, for example, recently contributed to a paper that uses an agent-based model to account for ‘the complex adaptive nature of economic systems, and the implications of money endogeneity’ (i.e. the fact that money is produced by banks).

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But one thing that mainstream economists won’t go near – it doesn’t fit with the models – is the idea that economists might not be quite so impartial, objective and unbiased as they appear. Rodrik, for example, notes that leading economists had bought into the dominant efficient market paradigm which saw markets ‘not only as inherently efficient and stable, but also as self-disciplining’, and that this ‘legitimized and enabled a great wave of financial deregulation that set the stage for the crisis’. He describes it as ‘curious’ that other models were not used. But why would they make that particular choice? Why were other models, such as Minsky’s model of the credit cycle, repressed? And did economists buy in or sell out? The field of economics has an unhealthily close dependency relationship with the financial sector, which may just have clouded its judgement.

Instead of acting out against critics in a way that embarrasses the profession, or ignoring those who want to help, it’s time for mainstream economists to relax the defences and open up a little. A first step is to untangle those institutional effects and other motivations that have shaped their field and which continue to resist change. I’m sure there are plenty of sociologists and psychologists (even grief counsellors probably) who can help. Of course the process can’t be rushed, so here is, not a commandment, but a gentle suggestion to economists in this difficult time: ten years is enough. Time to open the windows and let in the fresh air.

2017 September 17

Adapted from Economyths: 11 Ways That Economics Gets it Wrong, Icon Books; 2nd edition edition (September 12, 2017) 

 

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