economists

Nobel economics: the behaviorism of economic decisions and its secret

Published by Anonymous (not verified) on Wed, 11/10/2017 - 12:00am in

1440_shop-therefore-i-am

Lots of folks have been asking me about the significance of the so-called Nobel Prize in economics that was awarded yesterday to Richard Thaler.

They’re interested because they’ve read or heard about the large catalog of exceptions to the usual neoclassical rule of rational decision-making that has been compiled by Thaler and other behavioral economists.

One of my favorites is the “ultimatum game,” in which a player proposes an allocation of an endowment (say $5) and the second player can accept or reject the proposal. If the proposal is accepted, both players get paid according to the proposal; if the proposal is rejected, both players get nothing. What Thaler and his coauthors found is that most of the second players would reject proposals that would give them less than 25 percent of the endowment—even though, rationally, they’d be better off with even one penny in the initial offer. In other words, many individuals are willing to pay a cost (i.e., get nothing) in order to punish individuals who make an “unfair” proposal to them. Such a notion of fairness is anathema to the kind of self-interested, rational decision-making that is central to neoclassical economic theory.

Other exceptions include the “endowment effect” (for the tendency of individuals to value items more just because they own them), the theory of “mental accounting” (according to which individuals can overcome cognitive limitations by simplifying the economic environment in systematic ways, such as using separate funds for different household expenditures), the planner-doer model (in which individuals are both myopic doers for short-term decisions and farsighted planners for decisions that have long-run implications), and so on—all of which have implications for a wide variety of economic behavior and institutions, from consumption to financial markets.

So, what is the significance of Thaler’s approach economics?

As I see it, there are three stories that can be told about behavioral economics. The first one is the official story, as told by the Nobel committee, which starts from the proposition that “economics involves understanding human behaviour in economic decision-making situations and in markets.” But, since “people are complicated beings,” and even though the neoclassical model “provided solutions to important and complicated economic problems,” Thaler’s work (alone and with his coauthors) has contributed to expanding and refining economic analysis by considering psychological traits that systematically influence economic decisions—thus creating a “a flourishing area of research” and providing “economists with a richer set of analytical and experimental tools for understanding and predicting human behavior.”

A second story is provided by Yahya Madra (in Contending Economic Theories, with Richard Wolff and Stephen Resnick): behavioral economics forms part of what he calls “late neoclassical theory” that both poses critical questions about neoclassical homo economicus and threatens to overrun the limits of neoclassical theory by offering “a completely new vision of how to specify the economic behavior of individuals.” Thus,

Based on its psychological explorations, behavioral economics confronts a choice: will it remain a research field that merely catalogs various shortcomings of the traditional neoclassical model and account of human behavior or will it break from neoclassical theory to formulate a new theory of human behavior?

A third story stems from a recognition that behavioral economics challenges some aspects of neoclassical economics—by pointing out many of the ways individuals are guided by forms of decisionmaking that violate the rule of self-interested rationality presumed by traditional neoclassical economists—and yet remains within the strictures of neoclassical economics—by focusing on individual behavior and using rational decision-making as the goal.

Thus, Thaler’s work and the work of most behavioral economists focuses on the limits to individual rationality and not on the perverse incentives and structures that plague contemporary capitalism. There’s no mention of the ways wealthy individuals and large corporations, precisely because of their high incomes and profits, are able to make individually rational decisions that—as in the crash of 2007-08—have negative social ramifications for everyone else. Nor is there a discussion of the different kinds of rationalities that are implicit in different ways of organizing the economy. As I wrote back in 2011, “is there a difference between how capitalists (who appropriate the surplus for doing nothing) and workers (who actually produce the surplus) might decide to distribute the surplus to others?”

Moreover, while behavioral economics have compiled a long list of exceptions to neoclassical rationality, they still use the neoclassical ideal as the horizon of their work. This can be seen in what is probably the best known of Thaler’s writings (with coauthor Cass Sunstein), the idea of “libertarian paternalism.” According to this view, “beneficial changes in behavior can be achieved by minimally invasive policies that nudge people to make the right decisions for themselves.” Thus, for example, Thaler proposed changing the default option in defined-contribution pension plans from having to actively sign up for the plan (which leads to suboptimal outcomes) to automatically joining the plan at some default savings rate and in some default investment strategy (which approximates rational decision-making).

The problem is, there’s no discussion of the idea that workers would benefit from an alternative to defined-contribution plans—whether defined-benefit plans or the expansion of Social Security. It’s all about taking the institutional structure as given and “nudging” individuals, via the appropriate design of mechanisms, to make the kinds of rational decisions that are presumed within neoclassical economics.

Paraphrasing that nineteenth-century critic of political economy, we can say that economic decision-making appears, at first sight, a very trivial thing, and easily understood. Its analysis shows that it is, in reality, a very queer thing, abounding in metaphysical subtleties and theological niceties. We might credit Thaler and other behavioral economists, then, for having taken a first step in challenging the traditional neoclassical account of rational decision-making. But they stop far short of examining the perverse incentives that are built into the current economic system or the alternative rationalities that could serve as the basis for a different way of organizing economic and social life. And, in terms of economic theory, they appear not to be able to imagine another way of thinking about the economy, as a process without an individual subject.

However, taking any of those steps would never be recognized with a Nobel Prize in economics.

Tagged: behavioral economics, capitalism, capitalists, economics, economists, incentives, individualism, neoclassical, Nobel Prize, Richard Thaler, surplus, workers

Promises, promises

Published by Anonymous (not verified) on Tue, 03/10/2017 - 12:00am in

208_cartoon_wages_to_nowher_large

They keep promising, ever since the recovery from the Great Recession started more than eight years ago, that workers’ wages will finally begin to increase. But they’re not.

Sure, profits continue to rise. And so is the stock market. But not wages. And mainstream economists can’t come up with an adequate explanation of why that’s the case.

U3-wages

We’ve all heard or read the story. According to mainstream economists, as the unemployment rate falls (the blue line in the chart above), a labor shortage will be created and workers’ wages (the red line) will begin to rise.

That’s the promise, at least. But the official unemployment rate is now down to 4.4 percent (from a high of 9.9 percent in 2009) and yet wages (for production and nonsupervisory workers) are only increasing at a rate of 2.3 percent a year—much less than the 4 percent workers saw back in 2007 when the unemployment rate was pretty much the same.

What’s going on?

One of the things going on is the Reserve Army. The existence of a large pool of unemployed and underemployed workers competing with other workers for the available jobs is keeping wage growth at a very low rate.

full-part-time

Consider, for example, the growth of full-time (the green line in the chart above) and part-time work (the purple line) in the United States. Since 1968, the two kinds of employment increased more or less simultaneously—until the most recent crash. Notice in the chart that, as full-time employment fell (from 121.9 million in 2007 to 111 million in 2010), part-time employment soared (from 24.7 million to 27.4 million). But then, even as full-time work began to increase again (reaching 125.8 million in August 2017), part-time employment remained high (27.6 million in that same month).

part-time

And it’s that pool of part-time American workers (in addition to the pool of surplus workers in other countries, increased automation, and low wages in the retail and food-service sectors) that is keeping most workers’ wages from growing.

Mainstream economists keep promising the American working-class an increase in wages. But neither they nor the economic system they celebrate is able to deliver on those promises.

The fact is, the longer those promises are proffered but remain unmet, the more frustrated workers will become. And the more likely it is they will demand a solution—a radically different economic system that doesn’t rely on a Reserve Army and can actually deliver on its promises to workers.

Tagged: economics, economists, full-time, mainstream, part-time, profits, reserve army, unemployment, United States, wages, workers, working-class

What are economists good for?

Published by Anonymous (not verified) on Tue, 19/09/2017 - 11:00pm in

political-22

To judge by Christopher Snyder’s attempt to defend contemporary economists, the answer is clear: nothing!

Yes, Snyder is right, economists have expanded their domain, to analyze such issues as art auctions and corruption. But then he goes off the rails.

That’s because the only kind of economics Snyder appear to know about and give credence to is mainstream economics—in terms of what he argues are the “core concepts” that underlie economists’ thinking.

What are those core concepts, around which all economists supposedly organize their theories and models?

For starters, Snyder thinks the most important one is “scarcity”:

Devoting resources to one project—say, preventing diabetes—means some other worthy project—curing cancer—goes unserved. So, in determining whether a choice should be undertaken, one of the functions of economics is to argue that its benefits should not be considered in isolation but weighed against its costs. Costs put a dollar value on what has to be given up when one choice is made over another.

But he never even considers the possibility that scarcity is institutionally created, not a given. And different economies are characterized by different kinds of scarcities, which are endogenously produced and reproduced. Thus, capitalism both creates and is characterized different scarcities from other economic systems, such as slavery and feudalism. Where is that in Snyder’s definition of what economists do and the core concepts they supposedly hold.

And then there’s “value,” which for Snyder “is the result of the interaction of several impersonal market forces,” illustrated in the usual fashion:

Figure-2-Snyder-768x671

But there’s no mention of long-run “natural” prices (of the sort classical economists such as David Ricardo or, more recently, Piero Sraffa focused on) or a class theory of value (emphasizing surplus labor, which Karl Marx developed in his critique of political economy)—or any one of a large number of other ways value can be, has been, and is being analyzed within economics.

Finally, Snyder, discusses “modern empirical research” and the attempt to uncover “true causal relationships rather than overinterpreting apparent correlations as causation.”

Uncovering causal relationships is difficult in economics. Opportunities to run experiments are limited by the expense and ethics involved in controlled interventions in markets (although these opportunities are growing, owing to an explosion of interest in laboratory and field experiments).

Once again, Snyder overlooks the many alternative approaches—concerning both “facts” and “causation”—within economics.

Sure, mainstream economists might claim they’ve finally solved the problem of “causal identification” (as they’ve claimed so many other times in the past). But they still fail to acknowledge the possibility that different economic theories produce different sets of facts. Nor do they consider the idea that economists actually use different notions of causation: some limit themselves to essentialist, one-way causation (from given causes to effects), while others, criticize essentialism and look at mutual effectivity (in which everything is seen to be both cause and effect).

The existence of different notions of scarcity, value, and causation within economics doesn’t prove that mainstream economists are wrong. It merely shows that reducing economics to a set of core concepts that pertain only to what mainstream economists do is wrong.

The problem, of course, is that’s the only set of concepts to which generations of students, who have been taught by mainstream economists, have been exposed. And Snyder just continues that tradition.

In the end, mainstream economists are good for nothing precisely because they exclude all other ways of thinking about and doing economics.

Tagged: causation, classical, economics, economists, facts, mainstream, Marx, scarcity, value

How do you like them facts?

Published by Anonymous (not verified) on Tue, 12/09/2017 - 11:00pm in

wage-inequality

Apologists for mainstream economics (such as Noah Smith) like to claim that things are OK because good empirical research is crowding out bad theory.

I have no doubt about the fact that the theory of mainstream economics has been bad. But is the empirical research any better?

Not, as I see it, in the academy, in the departments that are dominated by mainstream economics. But there is interesting empirical work going on elsewhere, including of all places in the International Monetary Fund (as I have noted before, e.g., here and here).

The latest, from Mai Dao, Mitali Das, Zsoka Koczan, and Weicheng Lian, documents two important facts: the decline in labor’s share of income—in both developed and developing economies—and the relationship between the fall in the labor share and the rise in inequality.

I demonstrate both facts for the United States in the chart above: the labor share (the red line, measured on the left) has been falling since 1970, while the share of income captured by those in the top 1 percent (the blue line, measured on the right) has been rising.

labor shares

Dao et al. make the same argument, both across countries and within countries over time: declining labor shares are associated with rising inequality.

And they’re clearly concerned about these facts, because inequality can fuel social tension and harm economic growth. It can also lead to a backlash against economic integration and outward-looking policies, which the IMF has a clear stake in defending:

the benefits of trade and financial integration to emerging market and developing economies—where they have fostered convergence, raised incomes, expanded access to goods and services, and lifted millions from poverty—are well documented.

But, of course, there are no facts without theories. What is missing from the IMF facts is a theory of how a falling labor share fuels inequality—and, in turn, has created such a reaction against capitalist globalization.

Let me see if I can help them. When the labor share of national income falls—the result of the forces Dao et al. document, such as outsourcing and new labor-saving technologies—the surplus appropriated from those workers rises. Then, when a share of that growing surplus is distributed to those at the top—for example, to those in the top 1 percent, via high salaries and returns on capital ownership—income inequality rises. Moreover, the ability of those at the top to capture the surplus means they are able to shape economic and political decisions that serve to keep workers’ share of national income on its downward slide.

The problem is mainstream economists are not particularly interested in those facts. Or, for that matter, the theory that can make sense of those facts.

Tagged: 1 percent, economics, economists, exploitation, facts, inequality, mainstream, outsourcing, surplus, technology, theory, wages, workers

What could and should we do about inequality?

Published by Anonymous (not verified) on Tue, 29/08/2017 - 10:00pm in

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Almost very time MFA hears a mainstream economist speak—on topics ranging from the danger of raising the minimum wage to how we all benefit from free trade and globalization—she responds, “Where did they get their degree, from a Cracker Jack box?”

No doubt, she’d react in the same manner if she listened to the members of the closing panel at the 2017 Lindau Meeting on Economic Sciences, who were asked to answer the following question: what could and should we do about inequality?

It’s a terrific question, given the obscene—and still rising—levels of inequality that characterize contemporary capitalism, in the United States and around the world. But those who take the time to watch the video (available here) just aren’t going to learn much about either the causes of inequality or what we can do about it.

Nobel-inequality

The panel consisted of three winners of the so-called Nobel Prize in Economic SciencesDaniel L. McFadden (2000), James J. Heckman (2000), and Christopher A. Pissarides (2000)—and one “young economist,” Rong Hai.

Individually and together, the panelists simply don’t have anything interesting or insightful to say about inequality.

It’s true, none of the men received their Nobel Prizes for research on inequality, although Hai is currently doing research on inequality (e.g., in relation to credit constraints and tax policy). That itself is a comment on how little inequality has figured as an important concern within mainstream economics. And, given the venue, they’re all mainstream economists. Because of that, there’s little they can say—and a great deal they simply can’t say—about inequality.

Their comments (only some of which were actually prepared) range from the obvious—the issue of poverty is different from that of inequality—to the all-too-frequent sidestep—inequality is caused by globalization and technology.

But they don’t have anything to say about contemporary economic and social institutions, especially those of capitalism, or about history. They don’t discuss in any detail the changes in recent decades that have led to the current obscene levels of inequality or, for that matter, the relationship between the factor distribution of income (e.g, between labor and capital) and the size distribution of income (e.g., the growing gap between the 1 percent and everyone else).

Their concern about and knowledge of the causes and consequences of inequality are, at least to judge from their presentations in this panel, stupefyingly limited.

Maybe MFA is right: they did get their degrees from Cracker Jack boxes.

Tagged: 1 percent, capital, capitalism, economics, economists, inequality, labor, mainstream, Nobel Prize

Don’t f*ck with wages?!

Published by Anonymous (not verified) on Sat, 26/08/2017 - 1:04am in

www.usnews

There’s nothing that gets mainstream economists going like a proposal to raise workers’ wages.

Except the idea of raising workers’ wages in other countries.

Then you’re screwing with both wages and international trade. And mainstream thinkers just won’t allow that.

That’s why Eduardo Porter considers the AFL-CIO’s proposal that the North American Free Trade Agreement guarantee that “all workers — regardless of sector — have the right to receive wages sufficient for them to afford, in the region of the signatory country where the worker resides, a decent standard of living for the worker and her or his family” a “fairly loopy idea.”

As I see it, the only thing loopy about the proposal is the idea that the Trump administration would actually take it seriously.

Then there’s MIT’s David Autor:

Stipulating that countries must pay above-market wages when producing export goods for the U.S. feels like outrageous economic imperialism.

And finally Harvard’s Dani Rodrik, according to whom the idea of a living wage

is very difficult to define and can be harmful to employment if enforced too strictly.

So, there you have it: according to mainstream economists, attempting to raise workers’ wages, especially wages in Mexico and elsewhere, is “loopy,” an example of “economic imperialism,” and “harmful to employment” if actually enforced.

Now, to be clear, as I showed earlier this year, workers on both sides of the border have lost out, and their losses are mostly not due to NAFTA. The wage share of national income was declining in both the United States and Mexico before the free-trade agreement was implemented—and it’s continued its slide since then.

Why then are mainstream economists so opposed to raising Mexican workers’ wages—which, after all, is merely an example of leveling-up as against a race-to-the-bottom?

It’s because mainstream economists actually believe workers are paid according to their productivity. They get what they’re worth. In other words, “just deserts.”

But that’s the problem: there’s nothing necessarily just about the prices set in markets, whether for labor power or any another commodity. Raising workers’ wages above current rates—on both sides of the border—represents a different kind of economic justice. It may not be neoclassical justice, which is the only thing Porter, Autor, Rodrik, and other mainstream economists recognize.

It’s a justice based on the idea that workers lose out when they’re paid a wage but create more value than what they receive in the form of wages. They produce a surplus, which their employers appropriate. Both their Mexican employers and their U.S. employers.

Raising workers’ wages would mean there would be somewhat less surplus available to their employers in the form of profits. And that’s a kind of economic justice mainstream economists simply won’t accept.

Tagged: economics, economists, justice, mainstream, Mexico, NAFTA, neoclassical, profits, surplus, Trump, United States, wages, workers

Keywords: capitalism

Published by Anonymous (not verified) on Thu, 03/08/2017 - 10:00pm in

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Yesterday, in a comment on my “Culture Beyond Capitalism,” which was reposted on the Real-World Economics Review blog, “Econoclast” requested I post the entry on “Capitalism” I wrote for Keywords for American Cultural Studies.

Here, then, is the text of the pre-publication version of that entry.

Capitalism

David F. Ruccio

While the capitalist system is generally celebrated by mainstream economists, American cultural studies scholars will search in vain through their writings for actual discussions of the term “capitalism.” Instead, neoclassical and Keynesian economists refer to the “market economy” (in which individuals and private firms make decisions in decentralized markets) or just “the economy” (defined by scarce means and unlimited desires, the correct balancing of which is said to characterize all societies) (Stiglitz and Walsh 2002; Bhagwati 2003; Krugman and Wells 2004; Samuelson and Nordhaus 2004).

In contrast, discussions of the term capitalism have long occupied a central position in the vocabulary of Marxian economic theory. References to capitalism in American studies and cultural studies draw, implicitly or explicitly, on the Marxian critique of political economy: a critique of capitalism as an economic and social system, and a critique of mainstream economic theory. Karl Marx and latter-day Marxists criticize capitalism because it is based on exploitation, in the sense that capitalists appropriate and decide how to distribute the surplus labor performed by the direct producers, and because it periodically enters into crisis, imposing tremendous costs on the majority of people. They also criticize the work of mainstream economists for celebrating the existence of capitalism and for treating capitalist institutions and behaviors as corresponding to human nature (Mandel 1976; Resnick and Wolff 1987; Harvey 1989).

Much of this scholarship draws on Marx and Frederick Engels’s critique of political economy in the Manifesto of the Communist Party (1848) and the three volumes of Capital (1867, 1884, 1894). In the Manifesto, Marx and Engels compare capitalism to other forms of economic and social organization such as feudalism and slavery. What they have in common is that all are based on class exploitation, defined as one group (feudal lords, slaveowners, and capitalists) appropriating the surplus labor of another (serfs, slaves, and wage-laborers). At the same time, capitalism exhibits a distinct dynamic. For the first time in history, it “established the world market,” making it possible for the capitalist class to “nestle everywhere, settle everywhere, establish connexions everywhere” and giving “a cosmopolitan character to production and consumption in every country” (1848, 486, 487). It leads to radical and continuous changes throughout the economy and society, since, as Marx famously put it, “all that is solid melts into air” (487).

If the goal of the Manifesto was to challenge the prevailing belief that capitalism had eliminated classes and class struggles, the point of Capital was to analyze the specific conditions and consequences of the class dimensions of a society in which the capitalist mode of production prevails. Capitalism presumes that the products of labor have become commodities, in the sense that the goods and services human beings produce have both a use-value (they satisfy some social need) and an exchange-value (they can be exchanged for other commodities or money). The existence of commodity exchange, in turn, presupposes a culture congruent with the “fetishism of commodities”: a culture whereby individuals come to believe and act such that they have the freedom to buy and sell commodities; that the commodities they exchange are equal in value and that the commodity owners meet one another as equals in the marketplace; that individuals have well-defined property rights in the commodities they sell and purchase; and that they are able to calculate the ability of external objects to satisfy their needs and desires. The existence of commodity exchange is not based on the essential and universal human rationality assumed within mainstream economics from Adam Smith to the present. Nor can the cultures and identities of commodity-exchanging individuals be derived solely from economic activities and institutions. Rather, commodity exchange both presumes and constitutes particular subjectivities – forms of rationality and calculation – on the part of economic agents (Amariglio and Callari 1993).

In both the Manifesto and Capital, capitalism refers to a system in which capitalists are able to produce commodities that will, at least in principle, yield them a profit. The source of the profit is the value created by the laborers who have been forced (historically, through a process Marx referred to as “primitive accumulation,” and, socially, through capitalist institutions and cultures [1867, 871–940]) to exercise the specifically capitalist “freedom” to sell their ability to labor as a commodity. Under the assumption that all commodities (including labor power) are exchanged at their values, a surplus-value arises based on the ability of capitalists to appropriate the surplus labor performed by the wage-laborers and to realize that extra labor by selling the commodities that are produced. Struggles consequently arise over the “rate of exploitation” (the ratio of surplus-value to the value of labor power labor) and over the subsequent distributions of surplus-value (to managers, state officials, and other capitalists, who receive portions of the surplus). The keyword “capitalism” thus designates not just an economic structure, but also the conflicts, contradictions, and subjectivities inherent in that structure. Both the initial emergence and the subsequent reproduction of capitalism, if and when they occur, often lead to social dislocations and acute crises; they are also conditioned by the most varied cultures and social identities.

In the case of the United States, the last two centuries have witnessed the widening and deepening of capitalism, both domestically and internationally. Initially a market for foreign (especially British) capitalist commodities, the original thirteen colonies oversaw the establishment and growth of domestic capitalist enterprises, which sought both raw materials and markets for final goods within expanding geographical boundaries and across a heterogeneous class landscape. One result was that noncapitalist – communal, independent, slave, and feudal — producers were eventually undermined or displaced, thereby causing waves of rural peoples – men, women, and children of diverse racial and ethnic origins – to migrate to existing and newly established cities and to sell their labor power to industrial capitalists. The opening up of new domestic markets (through the determined efforts of retail merchants, advertisers, and banks), capitalist competition (which drove down the unit costs of production), and government programs (to establish a national currency and regulate trusts and working conditions) spurred further capitalist growth. The continued development of capitalist manufacturing provoked vast international migrations of laborers: initially, from Africa and Western Europe; later, and continuing to this day, from Latin America, Asia, Eastern Europe, and Africa (Dowd 1977; Duboff 1989; Amott and Matthaei 1996).

The movement of capital that accompanied the expansion of markets and the search for cheaper raw materials transformed regions outside the industrialized Northeast, including the relocation of textile mills to the South, the creation of foundries and automobile factories in the Midwest, the development of the oil industry in the Southwest, and the flourishing of capitalist agriculture and the movie industry on the West Coast. Capital was also exported to other countries to take advantage of lower wage levels and other cost advantages, thereby introducing economic and social dislocations similar to those that had occurred inside the United States. In both cases, governments, business groups, and social movements (such as trade unions, civil rights organizations, and political parties) struggled over the economic and social conditions and consequences of the new industrial capitalist investments – the boom and bust cycles of domestic economic growth; large-scale movements of populations; the formation of new social identities; and imperial interventions. The uneven development of capitalism at home and abroad has left its mark on the culture of the United States (Kaplan and Pease 1993; Jacobson 2000).

Recently, as during the Great Depression of the 1930s and many other times throughout its history, U.S. capitalism recently entered into an economic and cultural crisis. The conditions leading up to the current crisis have put new issues on the agenda of American and cultural studies – the exponential growth of inequality (Collins et al. 2008), the role of economists in creating the crisis (Grossberg 2010), the increasing importance of the financial sector (Martin 2010), the continued racialization of the housing market through subprime lending practices (Lipsitz 2011), and the heightened role of communication technologies and culture in processes of capital accumulation (Fuchs et al. 2010). The severity of the crisis has cast doubt on the legitimacy of neoliberalism and of capitalism itself (Clarke 2010).

In the analysis of this nexus of capitalism and U.S. culture, we face three major challenges that in turn open up new paths of investigation for American and cultural studies. The first concerns globalization. It is often assumed that the internationalization of the U.S. economy and society is a radically new phenomenon, something that burst on the scene in the 1980s. However, when measured in terms of movements of people (migration), goods and services (imports and exports), and money (capital inflows and outflows), the globalization of capitalism achieved, beginning in the 1980s, levels that are quite similar to those experienced almost a century earlier (Ruccio 2003). Because of these similarities and others (particularly the rise in the rate of exploitation and, with it, the increasingly unequal distribution of income and wealth), it is a mistake to describe contemporary developments as unprecedented (Phillips 2002). This is not to say that the forms of capitalist development during the two periods are the same. One of the challenges for students of American culture is to register these differences—such as the outsourcing of jobs, the growth of Wal-Mart, the spread of financial markets, the conduct of wars to protect petroleum supplies, the emergence of new media and communication technologies—without losing sight of the past.

The second challenge is to avoid treating capitalism as a purely economic system, separate from culture. The influence of capitalism on the culture industry— including the rise of a capitalist film industry and the export of U.S. culture (Miller et al. 2001; Wayne 2003)—has been widely studied and debated. What is less clear is that the capitalist economy is “saturated” by cultural meanings and identities. From this perspective, each moment of capitalism, from the existence of commodity exchange to the export of capital, is simultaneously economic and cultural. The point is not to substitute cultural studies for political economy, but to recognize—and analyze, concretely and historically—the cultural conditions of capitalism. Money, commodities, labor power, surplus-value, profits: all of these economic forms require the performance of specific, historically and socially constructed, meanings and identities. It is also important to understand the role of economic thought in influencing the development of U.S. capitalism and U.S. culture generally. These topics remain open, though a fruitful place to begin is by understanding the role that “languages of class” play in creating new class identities (Gibson-Graham et al. 2001), the complex interplay of capitalist and noncapitalist economic imaginaries (Watkins 1998), and the need to rethink the economy and economic knowledge (Grossberg 2010a).

The third potential stumbling block is the treatment of capitalism as an all-encompassing, unitary system that has colonized every social arena and region of the globe. While capitalism certainly represents a powerful project for making and remaking the world, deploying the concept of capitalism as a complete mapping of the economic and social landscape has the effect of obscuring noncapitalist forms of economic organization and cultural sense-making. “Capitalocentrism” (akin to the role played by “phallocentrism” and “logocentrism” with respect to gender and language) hides from view the diverse ways in which people in the United States and elsewhere participate in individual and collective noncapitalist economies— including barter, communal production, gift-making, and solidarity—that fall outside the practices and presumed logic of capitalism (Gibson-Graham 1996; Ruccio and Gibson-Graham 2001). On this view, U.S. culture is heterogeneous and contradictory with respect to different class structures. It contains elements that foster and reproduce capitalism and, at the same time, its noncapitalist others.

References

Amariglio, J. and A. Callari. 1993. “Marxian Value Theory and the Problem of the Subject: The Role of Commodity Fetishism.” In Fetishism as Cultural Discourse, ed. E. Apter and W. Pietz, 186-216. Ithaca: Cornell University Press.

Amott, Teresa and Julie Matthaei. 1996. Race, Gender and Work: A Multi- Cultural Economic History of Women in the United States. Rev. ed. Boston: South End Press.

Bhagwati, Jagdish. 2003. Free Trade Today. Princeton, NJ: Princeton University Press.

Clarke, J. “After Neo-Liberalism.” Cultural Studies 24 (3): 375-94.

Collins, J.; M. di Leonardis; and B. Williams, eds. 2008. New Landscapes of Inequality. Santa Fe, NM: School of Advanced Research Press.

Dowd, Douglas Fitzgerald. 1977. The Twisted Dream: Capitalist Development in the United States since 1776. 2d ed. Cambridge, MA: Winthrop Publishers.

Duboff, Richard B. 1989. Accumulation and Power: An Economic History of the United States. Armonk, NY: M.E. Sharpe.

Fuchs, C.; M. Schafranek; D. Hakken; and M. Breen. 2010. Special issue on “Capitalist crisis, communication & culture.” tripleC (cognition, communication, co-operation): Open Access Journal for a Global Sustainable Information Society 8 (2): 193-309.

Gibson-Graham, J. K. 1996. The End of Capitalism (As We Knew It): A Feminist Critique of Political Economy. Cambridge, MA: Blackwell.

Gibson-Graham, J. K.; Stephen Resnick; and Richard Wolff, eds. 2000. Class and Its Others. Minneapolis: University of Minnesota Press.

Grossberg, Lawrence. 1998. “Cultural Studies vs. Political Economy: Is Anybody Else Bored with this Debate?” In Cultural Theory and Popular Culture: A Reader, ed. John Storey, 613-24. Athens: University of Georgia Press.

 Grossberg, L. 2010a. Cultural Studies in the Future Tense. Durham, NC: Duke University Press.

———. 2010b. “Standing on a Bridge: Rescuing Economies From Economists.” Journal of Communication Inquiry 34 (4): 316-36.

Harvey, David. 1989. The Condition of Postmodernity: An Enquiry into the Origins of Cultural Change. Cambridge, MA: Blackwell.

Jacobson, Matthew Frye. 2000. Barbarian Virtues: The United States Encounters Foreign Peoples at Home and Abroad, 1876-1917. New York: Hill and Wang.

Krugman, Paul and Robin Wells. 2004. Microeconomics. New York: Worth Publishers.

Lipsitz, G. 2011. How Racism Takes Place. Philadelphia: Temple University Press.

Mandel, Ernest. 1976. Late Capitalism. Rev. ed. New York: Schocken Books.

Martin, R. 2010. “The Good, the Bad, and the Ugly.” Cultural Studies 24 (3): 418-30.

Marx, Karl. 1867-94 (1976-81). Capital: A Critique of Political Economy. 3 vols. Trans. Ben Fowkes and David Fernbach. New York: Vintage Books.

Marx, Karl and Friedrich Engels. 1848 (1976). “Manifesto of the Communist Party.” In Collected Works, vol. 6, 477-519. New York: International Publishers.

Miller, T. et al. 2001. Global Hollywood. London: British Film Institute.

Phillips, Kevin. 2002. Wealth and Democracy: A Political History of the American Rich. New York: Broadway Books.

Resnick, S. A. and R. D. Wolff. 1987. Knowledge and Class: A Marxian Critique of Political Economy. Chicago; University of Chicago Press.

Ruccio, David F. 2003. “Globalization and Imperialism,” Rethinking Marxism 15 (January): 75-94.

Ruccio, David F. and J. K. Gibson-Graham. 2001. “‘After’ Development: Reimagining Economy and Class.” In Re/presenting Class: Essays in Postmodern Political Economy, ed. J.-K. Gibson-Graham et al., 158-81. Durham: Duke University Press.

Samuelson, Paul A. and William D. Nordhaus. 2004. Economics. 18th ed. New York: McGraw-Hill/Irwin.

Stiglitz, Joseph E. and Carl E. Walsh. 2002. Economics. 3d ed. New York: W. W. Norton & Company.

Watkins, Evan. 1998. Everyday Exchanges: Marketwork and Capitalist Common Sense. Stanford: Stanford University Press.

Wayne, Michael. 2003. “Post-Fordism, Monopoly Capitalism, and Hollywood’s Media Industrial Complex.” International Journal of Cultural Studies 6 (1): 82-103.

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Tagged: capitalism, culture, economics, economists, history, mainstream, Marx, miscellaneous, United States

Economics as religion?

Published by Anonymous (not verified) on Wed, 12/07/2017 - 10:00pm in

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Mainstream economists have been taking quite a beating in recent years. They failed, in the first instance, with respect to the spectacular crash of 2007-08. Not only did they not predict the crash, they didn’t even include the possibility of such an event in their models. Nor, of course, did they have much to offer in terms of explanations of why it occurred or appropriate policies once it did happen.

More recently, the advice of mainstream economists has been questioned and subsequently ignored—for example, in the Brexit vote and the support for Donald Trump’s attacks on free trade during the U.S. presidential campaign. And, of course, mainstream economists’ commitment to free markets has been held responsible for delaying effective solutions to a wide variety of other economic and social problems, from climate change and healthcare to minimum wages and inequality.

All of those criticisms—and more—are richly deserved.

So, I am generally sympathetic to John Rapley’s attack on the “economic priesthood.”

Although 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.

However, in my view, there are three problems in Rapley’s discussion of contemporary economics.

First, Rapley refers to economics as if there were only one approach. Much of what he writes does in fact pertain to mainstream economics. But there are many other approaches and theories within economics that cannot be accused of the same problems and mistakes.

Rapley’s not alone in this. Many commentators, both inside and outside the discipline of economics, refer to economics in the singular—as if it comprised only one set of approaches and theories. What they overlook or forget it about are all the ways of doing and thinking about economics—Marxian, radical, feminist, post Keynesian, ecological, institutionalist, and so on—that represent significant criticisms of and departures from mainstream economics.

In Rapley’s language, mainstream neoclassical and Keynesian economists have long served as the high priests of economists but there are many others—heretics of one sort or another—who have degrees in economics and work as economists but whose views, methods, and policies diverge substantially from the teachings of mainstream economics.

Second, Rapley counterposes the religion of mainstream economics from what he considers to be “real” science—of the sort practiced in physics, chemistry, biology, and so on. But here we encounter a second problem: a fantasy of how those other sciences work.

The progress of science is generally linear. As new research confirms or replaces existing theories, one generation builds upon the next.

That’s certainly the positivist view of science, perhaps best represented in Paul Samuelson’s declaration that “Funeral by funeral, economics does make progress.” But in recent decades, the history and philosophy of science have moved on—both challenging the linear view of science and providing alternative narratives. I’m thinking, for example, of Thomas Kuhn’s “scientific revolutions,” Paul Feyerabend’s critique of falsificationism, Michel Foucault’s “epistemes,” and Richard Rorty’s antifoundationalism. All of them, in different ways, disrupt the idea that the natural sciences develop in a smooth, linear manner.

So, it’s not that science is science and economics falls short. It’s that science itself does not fit the mold that traditionally had been cast for it.

My third and final point is that Rapley, with a powerful metaphor of a priesthood, doesn’t do enough with it. Yes, he correctly understands that mainstream economists often behave like priests, by “deducing laws from premises deemed eternal and beyond question” and so on. But historically priests served another role—by celebrating and sanctifying the existing social order.

Religious priests occupied exactly that role under feudalism: they developed and disseminated a discourse according to which the natural order consisted of lords at the top and serfs at the bottom, each of whom received their just deserts. Much the same was true under slavery, which was deemed acceptable within church teachings and perhaps even an opportunity to liberate slaves from their savage-like ways. (And, in both cases, if those at the bottom were dissatisfied with their lot in life, they would have to exercise patience and await the afterlife.)

Economic priests operate in which the same way today, celebrating an economic system based on private property and free markets as the natural order, in which everyone benefits when the masses of people are forced to have the freedom to sell their ability to work to a small group of employers at the top. And there simply is no alternative, at least in this world.

So, on that score, contemporary mainstream economists do operate like a priesthood, producing and disseminating a narrative—in the classroom, research journals, and the public sphere—according to which the existing economic system is the only effective way of solving the problem of scarcity. The continued existence of that economic system then serves to justify the priesthood and its teachings.

However, just as with other priesthoods and economic systems, today there are plenty of economic heretics, who hold beliefs that run counter to established dogma. Their goal is not to take over the existing religion, or even set up an alternative religion, but to create the economic and social conditions within which their own preferred theories no longer have any relevance.

Today’s economic heretics are thus the ultimate grave-diggers.

Tagged: Brexit, capitalism, climate change, crises, economics, economists, feminism, feudalism, healthcare, heretics, history, inequality, institutionalism, Keynes, Marx, Michel Foucault, minimum wage, neoclassical, Paul Feyerabend, philosophy, positivism, radical, religion, Richard Rorty, science, slavery, Thomas Kuhn, Trump

Book Review: 50 Economics Classics by Tom Butler-Bowdon

Published by Anonymous (not verified) on Tue, 11/07/2017 - 8:32pm in

With 50 Economics Classics, Tom Butler-Bowdon takes readers on a tour of major economic works from the time of Adam Smith up until the present day, presenting an imaginative canvas of economic thought that showcases the variety of approaches and perspectives that have shaped the discipline. This interdisciplinary and compellingly idiosyncratic book offers new avenues to explore and much to delight in for professional economics, students and general readers, writes Niall Kishtainy.

50 Economics Classics. Tom Butler-Bowdon. Nicholas Brealey. 2017.

Find this book: amazon-logo

As Tom Butler-Bowdon writes in his new book, 50 Economics Classics, students of economics, unlike those studying philosophy or literature, rarely read further than a few decades back. Economics education suffers from a tyranny of the present: learning is pretty much monopolised by the selective distillations of past economic thought contained in the latest textbooks and journal articles. What’s the point of wading through all that old stuff – wordy, muddled and just so long-winded – when the new offers a precise mathematical crystallisation of accumulated economic wisdom that discards past error while retaining what’s useful and true?

Butler-Bowdon’s book is a corrective to this kind of attitude, one which he argues has encouraged an unfortunate narrowness of perspective and groupthink among economists. 50 Economics Classics, a 50-chapter tour of major economic works from the time of Adam Smith to the present, is a celebration of the large imaginative canvasses of the great economists that can only properly be filled in over lengthy books. Of course, Butler-Bowdon’s book is yet another modern distillation of past thinking, but one that is rooted in the source books of the discipline and that showcases the great variation of approaches contained in them as well as their authors’ sweeping ambition and bold, iconoclastic writing.

One challenge in writing 50 Economics Classics must have been which works to include. Butler-Bowdon’s choices are broad, interdisciplinary and compellingly idiosyncratic. There are, of course, many of the usual suspects: Smith’s The Wealth of Nations, Karl Marx’s Capital, John Maynard Keynes’s General Theory. But alongside the pre-eminent works, there are books by major economic thinkers that don’t have such hallowed places in the economic canon. How many economists, let alone general readers, have actually ploughed through the four volumes of Ludwig von Mises’s Human Action, for example? In six clearly written pages, Butler-Bowdon does the job for us – and whets the appetite for more.

Image Credit: (Willi Heidelbach CC BY 2.0)

There are discussions, too, of works by once-celebrated, now almost-forgotten, figures, such as Henry George’s 1879 book, Progress and Poverty, with its proposal for the taxation of land. Then there are books by people who one might not consider fully paid-up economists but who nevertheless have made bold economic claims: the famous critique of markets in Karl Polanyi’s The Great Transformation and their acclamation in Ayn Rand’s Capitalism: The Unknown Ideal, for instance. Butler-Bowdon also sprinkles in the occasional popular book – Michael Lewis’s The Big Short and Steve Levitt and Stephen Dubner’s Freakonomics – as well as works by business and management experts, such as Benjamin Graham’s The Intelligent Investor and Michael Porter’s The Competitive Advantage of Nations. As Butler-Bowdon states in his introduction, economists don’t have a monopoly over economic issues any more than philosophers do over the deep questions of life. The goal is to explore great writing about economics, whether or not produced by an establishment economist sitting in a university office – this sort of book is all the better for that.

By way of the author’s discussions of classic texts, we do meet many of the theories and tools of conventional economics: opportunity cost, equilibrium, factors of production and so on. But the book isn’t an attempt at a full-scale excavation of the historical origins of everything contained in today’s standard economic syllabus. There are important bits of the traditional subject left out – general equilibrium and social choice theory – and much included that would never normally find its way into an economics course. Even if diehard purists might throw their hands up in despair, this unconventional approach makes for a fascinating expedition along the major economic highways with interesting detours down scenic routes; the neglected byways invariably put fresh perspectives on the main thoroughfares.

The wide-ranging nature of the book also means that a lot of room is given to specific areas that economists often overlook: economic history, for one. Quite a few chapters are concise accounts of important historical episodes such as the Great Depression and financial crises, these being particularly well covered through the works of Liaquat Ahamed, Paul Krugman and Hyman Minsky, among others. The other area is political economy: that broader, more holistic vision of the economy that underlay the writings of Smith, David Ricardo and Thomas Robert Malthus, which later vanished from academic economics but is still very much alive, particularly in the less conventional contemporary works that Butler-Bowdon includes, such as Naomi Klein’s The Shock Doctrine and Thomas Piketty’s Capital in the 21st Century. As Butler-Bowdon writes, it’s impossible to analyse the economy separately from the state, society and government, and the works he includes constantly throw up interesting connections between spheres of life that orthodox economics assumes to be unconnected.

Butler-Bowdon’s chapters are not simply straight summaries of the chosen works, but thoughtful reflections on why we should care about this or that book and what its relevance is for us today. So while largely letting the ideas speak for themselves, the author doesn’t shy away from summing up and making brief assessments of them, usually in a ‘final thoughts’ section at the end of each chapter. Chapters begin with a couple of key quotes from each book, an ‘in a nutshell’ single-sentence summary and a list of works ‘in a similar vein’. There’s also a brief biography. One possible problem with the book is that Butler-Bowdon’s renderings are done so well that one might never bother going back to the original!

All in all, then, this is an excellent addition to Butler-Bowdon’s 50 Classics series which has titles covering philosophy, politics and psychology among other fields. The book’s alphabetical arrangement of authors creates intriguing temporal and intellectual juxtapositions: Ha-Joon Chang rubs shoulders with Ronald Coase, Milton Friedman with J.K. Galbraith, David Ricardo with Dani Rodrik. Professional economists, students and general readers alike will find much here to delight in and many new byways to explore.

Niall Kishtainy is a writer, economist and historian, and teaches economic history at LSE. His book, A Little History of Economics, was recently published by Yale University Press. He can be found at niallkishtainy.com or on twitter @niallkishtainy.

Note: This review gives the views of the author, and not the position of the LSE Review of Books blog, or of the London School of Economics. 


Economics experts?

Published by Anonymous (not verified) on Fri, 02/06/2017 - 1:06am in

CFM-wages

The so-called economics experts surveyed by the UK Centre for Macroeconomics—whose aim is to inform “the public about the views held by prominent economists based in Europe on important macroeconomic and public policy questions”—are in substantial agreement that “lower real wage growth was beneficial for employment levels during the Great Recession.” A clear majority (65 percent) either strongly agree or agree, which increases (to 70 percent) when the answers are weighted with self-reported confidence levels.

I would bet, based on their responses to other questions, the analogous group of “experts” in the United States—such as the mainstream economists who comprise the IGM Panel—hold the same view.

fredgraph

Here’s the problem: the correlation between wages and employment in the United States (measured in terms of percent change from one year ago in the chart above) does not tell us anything about causality. Mainstream economics experts presume (based on the assumptions embedded in their macroeconomic models) that causality runs from wages to employment. So, in their view, low wage growth is beneficial for employment levels.

What they don’t consider is the opposite relationship: that moderate employment growth (especially during and after a recession) leads to low wage growth.

The key is the Industrial Reserve Army, which is missing from the models used by the so-called experts. As I wrote back in 2015,

While mainstream economists congratulate themselves on a successful economic recovery, which has lowered the headline unemployment rate and requires now a return to “normal” monetary policy, they accept a situation in which a large Reserve Army of Unemployed, Underemployed, and Low-Wage Workers has both been created by and, in turn, fueled a recovery characterized by stagnant wages for most and growing profits and high incomes for a tiny minority at the very top.

In other words, all mainstream economists are doing is congratulating themselves for a job well done—in supporting an economic system that exists not to serve the needs of workers, but in which workers exist only to serve the needs of their employers.

As it turns out, that self-congratulatory stance is adopted by so-called economics experts on both sides of the Atlantic.

Tagged: chart, economists, employment, Industrial Reserve Army, macroeconomics, mainstream, United Kingdom, United States, wages, workers

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