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Science, PseudoScience and Society

Advance of Zombie ideas in XX and XXI centuries

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

Nick Geoghegan

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

But it was too late...

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

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

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

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

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

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

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

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

Dr. Nikolai Bezroukov


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

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

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

[Mar 19, 2017] Krugman is a hypocrite.

Mar 19, 2017 | economistsview.typepad.com
RGC : March 17, 2017 at 06:57 AM , 2017 at 06:57 AM
Krugman is a hypocrite.

He spent the primary railing against Bernie Sanders, who polled much better against Trump than Hillary and who had much better policy proposals than Hillary. Now he complains about what he himself promoted.

So now the Republicans and Democrats can go back to playing Good Cop/Bad Cop - just like the last 30 or so years. And Krugman can go back to pretending to fight the right wing while at the same time guarding against any success of the left wing.

RGC -> RGC... , March 17, 2017 at 07:05 AM
And now the talk is about Obamacare versus Ryancare, instead of Obamacare versus Medicare for all - just the way PK and his plutocrat sponsors wanted.
Rune Lagman -> kurt... , March 17, 2017 at 03:29 PM
Neoliberal Democrats seem impervious about killing jobs (or driving down wages) with "free" trade agreements. But now you want us to bleed for the health-insurance industry.

Why should the average American family pay $10,000/year (your 5% of GDP) to support a completely useless industry (health-care insurance)? And you wonder why Hillary lost the election.

If you're concerned about jobs, there are plenty more useful things to do, like renewable energy, energy-conservation, refurbishing the electrical grid to support renewable energy, not to mention traditional infrastructure; then there's water conservation, scientific research etc.

Pinkybum -> Rune Lagman... , March 17, 2017 at 02:43 PM
You can advocate all you want. There is going to be another four years of Republican majorities in the house and they are not going to go for Medicare For All. There are plenty of issues where the majority of people want things:

1. Taxing the rich
2. Not increasing the military budget
3. Keeping abortion legal
4. Medicare for all

Politically not so much.

Rune Lagman -> Pinkybum... , March 17, 2017 at 04:22 PM
Failing to advocate for MFA just blatantly demonstrates, to the Average American, that the Democratic Party is beholden to Wall Street (and keep people away from the voting-booth.

Until Pk (and the Democratic party-establishment) understands this simple truth, they will keep flounder in the desert. And the more "Bernie-bashing" they do (especially quoting MFA), the more they will alienate the average American.

kurt -> Rune Lagman... , March 17, 2017 at 03:10 PM
He NEVER advocated against single payer. You sir are a liar.
Rune Lagman -> kurt... , March 17, 2017 at 03:46 PM
You're mincing words. Paul Krugman says he is for Medicare-For-All, but then he comes up with all these nonsensical excuses against Medicare-For-All.

Just like Donald trump's health-plan will provide better and cheaper health-insurance for everybody. Just because he says so, doesn't make it so.

https://krugman.blogs.nytimes.com/2016/01/18/health-reform-is-hard/

".. calls for single-payer in America at this point are basically a distraction."

Rune Lagman -> sanjait... , March 17, 2017 at 10:42 AM
"This is a guy who has a prestigious academic record and a huge international reader base. He could do or go pretty much anywhere he wants."

You're absolutely correct, Paul, and many other "prominent" people (some I know personally) that I used to respect, went "all in" on Hillary Clinton (and what she represents, i.e. neoliberal wisdom).

All of them are very well off, and seem to be isolated from us "workin' stiffs". They seem to all get their information from the corporate media.

Only Paul can explain his decision to crusade against (in spite of earlier writings) Medicare-For-All and anything else proposed by Bernie.

pgl -> Rune Lagman... , March 17, 2017 at 11:17 AM
"Only Paul can explain his decision to crusade against (in spite of earlier writings) Medicare-For-All and anything else proposed by Bernie."

This is another baseless smear. Simply because he voted for one candidate or another does not justify such garbage.

Rune Lagman -> pgl... , March 17, 2017 at 11:26 AM
No one cares who Paul actually voted for. We're debating Paul's recent (last year or two) writings. I.e. Paul's (very) public opinions.
yuan -> pgl... , March 17, 2017 at 11:55 AM
Krugman mocked Sanders for promoting the idea of medicare-for-all in the primary debates. This was unadulterated partisan hippy bashing that contradicted his earlier columns.
RGC -> sanjait... , March 17, 2017 at 10:59 AM
I would if you promise to pay attention instead of blocking it out.

You should already understand it if you paid attention.

pgl -> RGC... , March 17, 2017 at 11:18 AM
He is paying attention. He is not blocking it out. Show us one article from Krugman where he said single payer was bad policy. Just one. It does not exist.
Rune Lagman -> pgl... , March 17, 2017 at 11:29 AM
http://economistsview.typepad.com/economistsview/2016/01/paul-krugman-bernie-sanders-and-medicare-for-all.html

(link courtesy of EMichael above)

"Krugman ..., arguing that it is implausible that we could get the sort of political force necessary to implement a universal Medicare system."

anne -> Rune Lagman... , March 17, 2017 at 01:53 PM
http://econospeak.blogspot.com/2016/01/paul-krugman-bernie-sanders-and.html

January 18, 2016

Paul Krugman, Bernie Sanders, and Medicare for All
By DEAN BAKER

Paul Krugman weighs in * this morning on the debate between Bernie Sanders and Hillary Clinton as to whether we should be trying to get universal Medicare or whether the best route forward is to try to extend and improve the Affordable Care Act. Krugman comes down clearly on the side of Hillary Clinton, arguing that it is implausible that we could get the sort of political force necessary to implement a universal Medicare system.

Getting universal Medicare would require overcoming opposition not only from insurers and drug companies, but doctors and hospital administrators, both of whom are paid at levels two to three times higher than their counterparts in other wealthy countries. There would also be opposition from a massive web of health-related industries, including everything from manufacturers of medical equipment and diagnostic tools to pharmacy benefit managers who survive by intermediating between insurers and drug companies.

Krugman is largely right, but I would make two major qualifications to his argument. The first is that it is necessary to keep reminding the public that we are getting ripped off by the health care industry in order to make any progress at all. The lobbyists for the industry are always there. Money is at stake if they can get higher prices for their drugs, larger compensation packages for doctors or hospitals, or weaker regulation on insurers.

The public doesn't have lobbyists to work the other side. The best we can hope is that groups that have a general interest in lower health care costs, like AARP, labor unions, and various consumer groups can put some pressure on politicians to counter the industry groups. In this context, Bernie Sanders' push for universal Medicare can play an important role in energizing the public and keeping the pressure on.

Those who think this sounds like stardust and fairy tales should read the column by Krugman's fellow New York Times columnist, health economist Austin Frakt. Frakt reports ** on a new study that finds evidence that public debate on drug prices and measures to constrain the industry had the effect of slowing the growth of drug prices. In short getting out the pitchforks has a real impact on the industry's behavior.

The implication is that we need people like Senator Sanders to constantly push the envelope. Even if this may not get us to universal Medicare in one big leap, it will create a political environment in which we can move forward rather than backward.

The other point has to do with an issue that Krugman raises in his blogpost *** on the topic. He argues that part of the story of lower health care costs in Canada and other countries involves saying "no," by which he means refusing to pay for various drugs and treatments that are considered too expensive for the benefit they provide.

While there is some truth to this story, it is important to step back for a moment. In the vast majority of cases, the drugs in question are not actually expensive to manufacture. The way the drug industry justifies high prices is that they must recover their research costs. While the industry does in fact spend a considerable amount of money on research (although they likely exaggerate this figure), at the point the drug is being administered this is a sunk cost. In other words, the resources devoted to this research have already been used; the economy doesn't somehow get back the researchers' time and the capital expended if fewer people take a drug that is developed from their work.

Ordinarily economists treat it as an absolute article of faith that we want all goods and services to sell at their marginal cost without interference from the government, like a trade tariff or quota. However in the case of prescription drugs, economists seem content to ignore the patent monopolies granted to the industry, which allow it to charge prices that are often ten or even a hundred times the free market price. (The hepatitis C drug Sovaldi has a list price in the United States of $84,000. High quality generic versions are available in India for a few hundred dollars per treatment.) In this case, we are effectively looking at a tariff that is not the 10-20 percent that we might see in trade policy, but rather 1,000 percent or even 10,000 percent.

This sort of gap between price and marginal cost leads to exactly the sort of distortions that economists predict when the government intervenes in a market with trade tariffs, except the distortions are hugely larger with drugs. Companies have incentive to engage in massive marketing efforts, they push their drugs for conditions for which they may not be appropriate, and they conceal evidence suggesting their drugs may be less effective than advertised, or possibly even harmful. They also lobby politicians for ever longer and stronger patent protection, and they use the legal system to harass potential competitors, both generic and brand. Even research is distorted by this incentive structure, with large portions of the industry's budget being devoted to developing copycat drugs to gain a share of a competitor's patent rents.

Perhaps the worst part of this story is that the patent monopolies put us in a situation where we might have to say no. The industry's monopoly allows it to say that it will not turn over a life-saving drug for less than $100,000, $200,000, or whatever price tag it chooses. However, if there was no patent monopoly, we would be looking at buying this drug at its cost of production. That will rarely be more than $1,000 and generally much less. At those prices, it will rarely make sense to say no. (The same issue arises with most medical equipment – once we have the technology, producing a magnetic resonance imaging scanner is relatively cheap, as would be the cost of an individual screening.)

We do have to pay for the research, but the way we are now doing it is incredibly backward. It is like paying the firefighters when they show up at the burning house with our family inside. Of course we would pay them millions to save our family (if we had the money), but it is nutty to design a system that puts us in this situation.

We should be looking for a system that pays for the research upfront. There are various mechanisms to accomplish this goal. (Here's **** my plan for a system of publicly funded clinical trials.) Obviously overhauling our system for financing drug research is not something that is done overnight, but it is an issue that needs attention. The current system is incredibly wasteful and it needlessly puts in a situation where we have to say no in contexts where the costs to society of administering treatment are actually very low.

This doesn't mean that we would pay for everything for everybody. There are some procedures that actually are very expensive, for example surgeries requiring many hours of the time of highly skilled surgeons. But we should be trying to design a system that minimizes these sorts of situations, rather than making them an everyday occurrence.

* http://www.nytimes.com/2016/01/18/opinion/health-reform-realities.html

** http://www.nytimes.com/2016/01/19/upshot/even-talking-about-reducing-drug-prices-can-reduce-drug-prices.html

*** http://krugman.blogs.nytimes.com/2016/01/18/health-reform-is-hard/

**** https://cepr.net/documents/publications/clinicaltrials_2008_03.pdf

Rune Lagman -> pgl... , March 17, 2017 at 11:38 AM
https://krugman.blogs.nytimes.com/2016/01/18/health-reform-is-hard/

".. calls for single-payer in America at this point are basically a distraction."

yuan -> Rune Lagman... , March 17, 2017 at 11:58 AM
".. calls for single-payer in America at this point are basically a distraction."

stop quoting this "baseless smear". ;)

Rune Lagman -> yuan... , March 17, 2017 at 12:26 PM
LOL
anne -> Rune Lagman... , March 17, 2017 at 01:06 PM
http://krugman.blogs.nytimes.com/2016/01/18/health-reform-is-hard/

January 18, 2016

Health Reform Is Hard
By Paul Krugman

My column * and Bernie Sanders' plan crossed in the mail. But the Sanders plan in a way reinforces my point that calls for single-payer in America at this point are basically a distraction. Again, I say this as someone who favors single-payer - but it's just not going to happen anytime soon.

Put it this way: for all the talk about being honest and upfront, even Sanders ended up delivering mostly smoke and mirrors - or as Ezra Klein says, puppies and rainbows. ** Despite imposing large middle-class taxes, his "gesture toward a future plan", as Ezra puts it, relies on the assumption of huge cost savings. If you like, it involves a huge magic asterisk.

Now, it's true that single-payer systems in other advanced countries are much cheaper than our health care system. And some of that could be replicated via lower administrative costs and the generally lower prices Medicare pays. But to get costs down to, say, Canadian levels, we'd need to do what they do: say no to patients, telling them that they can't always have the treatment they want.

Saying no has two cost-saving effects: it saves money directly, and it also greatly enhances the government's bargaining power, because it can say, for example, to drug producers that if they charge too much they won't be in the formulary.

But it's not something most Americans want to hear about; foreign single-payer systems are actually more like Medicaid than they are like Medicare.

And Sanders isn't coming clean on that - he's promising Medicaid-like costs while also promising no rationing. The reason, of course, is that being realistic either about the costs or about what the system would really be like would make it a political loser. But that's the point: single-payer just isn't a political possibility starting from here. It's just a distraction from the real issues.

* http://www.nytimes.com/2016/01/18/opinion/health-reform-realities.html

** http://www.vox.com/2016/1/17/10784528/bernie-sanders-single-payer-health-care

RGC -> sanjait... , March 17, 2017 at 12:09 PM
You're too antagonistic. If you want to be duped by plutocrats and their toadies I won't bother to set you straight.
Peter K. -> RGC... , March 17, 2017 at 01:18 PM
Sanjait is a brainwashed technocrat.

A sycophant and suck-up.

[Mar 19, 2017] They say when all you have is a hammer, every problem looks like a nail. And the risk is that when every policy adviser is an economist, every problem looks like inadequate per-capita gross domestic product

Notable quotes:
"... Sociologists spend their careers trying to understand how societies work. And some of the most pressing problems in big chunks of the United States may show up in economic data as low employment levels and stagnant wages but are also evident in elevated rates of depression, drug addiction and premature death. In other words, economics is only a piece of a broader, societal problem. So maybe the people who study just that could be worth listening to. ..."
"... "Once economists have the ears of people in Washington, they convince them that the only questions worth asking are the questions that economists are equipped to answer," said Michèle Lamont, a Harvard sociologist and president of the American Sociological Association. "That's not to take anything away from what they do. It's just that many of the answers they give are very partial." ..."
"... For starters, while economists tend to view a job as a straightforward exchange of labor for money, a wide body of sociological research shows how tied up work is with a sense of purpose and identity. ..."
"... "Wages are very important because of course they help people live and provide for their families," said Herbert Gans, an emeritus professor of sociology at Columbia. "But what social values can do is say that unemployment isn't just losing wages, it's losing dignity and self-respect and a feeling of usefulness and all the things that make human beings happy and able to function. ..."
"... That seems to be doubly true in the United States. For example, Ofer Sharone, a sociologist at the University of Massachusetts, Amherst, studied unemployed white-collar workers and found that in the United States, his subjects viewed their ability to land a job as a personal reflection of their self-worth rather than a matter of arbitrary luck. They therefore took rejection hard, blaming themselves and in many cases giving up looking for work. In contrast, in Israel similar unemployed workers viewed getting a job as more like winning a lottery, and were less discouraged by rejection. ..."
"... By and large, 'librul' economists ignore distribution...preferring to concentrate on growth from policies like corporate-negotiated 'free' trade and trickle down monetary policy that favors the Wall Street banking cartel. ..."
"... BTW what happened to Krugman's perfunctory twice a year column on inequality? ..."
"... The nicotine addict cares about as much about 'risk under uncertainty' as Harford. ..."
Mar 19, 2017 | economistsview.typepad.com
Fred C. Dobbs : March 18, 2017 at 03:02 AM

, 2017 at 03:02 AM
What if Sociologists Had as Much Influence as
Economists? https://nyti.ms/2m9yDHL via @UpshotNYT
NYT - NEIL IRWIN - MARCH 17, 2017

Walk half a city block in downtown Washington, and there is a good chance that you will pass an economist; people with advanced training in the field shape policy on subjects as varied as how health care is provided, broadcast licenses auctioned, or air pollution regulated.

Turn on cable news, and the guests who opine on the weighty public policy questions of the day quite often have some title like "chief economist" underneath their name. And there are economists sprinkled throughout the government - there is an entire council of them advising the president in most administrations, if not yet in this one.

But as much as we love economics here - this column is named Economic View, after all - there just may be a downside to this one academic discipline having such primacy in shaping public policy.

They say when all you have is a hammer, every problem looks like a nail. And the risk is that when every policy adviser is an economist, every problem looks like inadequate per-capita gross domestic product.

Another academic discipline may not have the ear of presidents but may actually do a better job of explaining what has gone wrong in large swaths of the United States and other advanced nations in recent years.

Sociologists spend their careers trying to understand how societies work. And some of the most pressing problems in big chunks of the United States may show up in economic data as low employment levels and stagnant wages but are also evident in elevated rates of depression, drug addiction and premature death. In other words, economics is only a piece of a broader, societal problem. So maybe the people who study just that could be worth listening to.

"Once economists have the ears of people in Washington, they convince them that the only questions worth asking are the questions that economists are equipped to answer," said Michèle Lamont, a Harvard sociologist and president of the American Sociological Association. "That's not to take anything away from what they do. It's just that many of the answers they give are very partial."

As a small corrective, I took a dive into some sociological research with particular relevance to the biggest problems facing communities in advanced countries today to understand what kinds of lessons the field can offer. In 1967, Senator Walter Mondale actually proposed a White House Council of Social Advisers that he envisioned as a counterpart to the well-entrenched Council of Economic Advisers. It was never created, but if it had been, this is the sort of advice it might have been giving recent presidents.

For starters, while economists tend to view a job as a straightforward exchange of labor for money, a wide body of sociological research shows how tied up work is with a sense of purpose and identity.

"Wages are very important because of course they help people live and provide for their families," said Herbert Gans, an emeritus professor of sociology at Columbia. "But what social values can do is say that unemployment isn't just losing wages, it's losing dignity and self-respect and a feeling of usefulness and all the things that make human beings happy and able to function.

That seems to be doubly true in the United States. For example, Ofer Sharone, a sociologist at the University of Massachusetts, Amherst, studied unemployed white-collar workers and found that in the United States, his subjects viewed their ability to land a job as a personal reflection of their self-worth rather than a matter of arbitrary luck. They therefore took rejection hard, blaming themselves and in many cases giving up looking for work. In contrast, in Israel similar unemployed workers viewed getting a job as more like winning a lottery, and were less discouraged by rejection.

(When the job search becomes a blame game
http://phy.so/310028844 via @physorg_com)

It seems plausible that this helps explain why so many Americans who lost jobs in the 2008 recession have never returned to the labor force despite an improved job market. Mr. Sharone is working with career counselors to explore how to put this finding to work to help the long-term unemployed. ...

ilsm -> Fred C. Dobbs... , March 18, 2017 at 03:43 AM
I thought they did, and they stay on one side of the shark.
JohnH -> Fred C. Dobbs... , March 18, 2017 at 07:54 AM
By and large, 'librul' economists ignore distribution...preferring to concentrate on growth from policies like corporate-negotiated 'free' trade and trickle down monetary policy that favors the Wall Street banking cartel.

BTW what happened to Krugman's perfunctory twice a year column on inequality?

ilsm : , March 18, 2017 at 03:41 AM
Tobacco survived buying politicians and better lawyers. And Madison Ave.

Inference (what Harford call "fact") may be truth in the confidence band.

The nicotine addict cares about as much about 'risk under uncertainty' as Harford.

Climate change action (the idea that US should park the SUV and move in to the city) is denied in the same way.

"Facts" about the study populations are inferences to one making a 'decision'. If the decision maker is an addict....

Same for Obamacare idolatry.

[Mar 19, 2017] Why neoliberal economists understand banking? Because it is profitable

Mar 19, 2017 | economistsview.typepad.com
RGC -> RGC... March 18, 2017 at 08:53 AM , 2017 at 08:53 AM
Why don't mainstream economists understand banking?

Why Mainstream Economists' Theory of Finance is Useless

by Ismael Hossein-Zadeh


"A major reason for these economists' bewilderment in the face of financial bubbles and bursts is that, according to their theoretical shibboleth, expansion of finance/fictitious capital on a macro or national level is not supposed to deviate much from that of industrial/real capital, as the magnitude of the former is essentially determined or limited by the requirements of the real sector of the economy.

The theory maintains that there is an auspicious synergy between the financial and real sectors of an economy: finance capital tends to shadow industrial capital as if its main function is to grease the wheels of the real sector, that is, of manufacturing and commercial undertakings -just as it was more or less the case in the early stages of capitalism, when there was not yet a large, independent financial sector.

http://www.counterpunch.org/2014/11/21/why-mainstream-economists-theory-of-finance-is-useless/

RGC -> RGC... , March 18, 2017 at 10:15 AM
What are the major causes of instability and inequality in an economy? - Land and Debt.

Which topics does mainstream economics ignore? - Land and debt.

paine -> RGC... , March 18, 2017 at 10:28 AM
Private land and debt

Plus job flux

paine -> paine... , March 18, 2017 at 10:30 AM
Instablity that is

Firm spending is the wild goose

Inequality is a bourgeois metric

RGC -> paine... , March 18, 2017 at 10:50 AM
The more extreme inequality is, the less bourgeois.
RGC -> paine... , March 18, 2017 at 10:46 AM
Job flux is proximate, land and debt are ultimate.
paine -> RGC... , March 18, 2017 at 10:26 AM
Compared to total domestic payroll compensation
its
A tear drop

[Mar 18, 2017] The real question is: can quasi religious analysis from the positions of neoclassical economics be called analysis. Or is this a new type of Lysenkoism?

Mar 18, 2017 | economistsview.typepad.com
im1dc -> Peter K.... March 18, 2017 at 09:52 AM , 2017 at 09:52 AM
Well, pgl is an ECONOMIST and you play on on this Blog so why not:

"Ask five economists and you'll get five different answers - six if one went to Harvard."

Edgar Fiedler

pgl -> im1dc... , March 18, 2017 at 09:54 AM
Oh that is my sin. I'm an economist and PeterK hates people who can actually do analysis. That explains a lot.
libezkova -> pgl... , -1
The real question is: can quasi religious analysis from the positions of neoclassical economics be called analysis. Or is this a new type of Lysenkoism?

[Mar 18, 2017] If economics is involved in maximizing utility for everyone, how can so called economists justify policies that harm large portions of the population, harm the environment, deplete natural resources, keep people in poverty, deny healthcare, propagate wars, advance demagoguery

Notable quotes:
"... it is only because mean spirited supply side economists show up on tv and in the media all the time ..."
"... this is because these are the people the billionairs want to see quoted all the time as they think it serves their bottom line ..."
"... the one mistake this article makes is assuming that the ones it identifies as economists are representatives of the true science of economics ..."
"... those economists who do so need to be ashamed of themselves ..."
Mar 18, 2017 | economistsview.typepad.com
djb : March 18, 2017 at 07:31 AM
"What if Sociologists Had as Much Influence as Economists? - NYTimes"

it is only because mean spirited supply side economists show up on tv and in the media all the time

this is because these are the people the billionairs want to see quoted all the time as they think it serves their bottom line

however I do not believe they portray the truth about economics and in a just society they wouldn't even get through their courses

so there is no conflict between economics and sociology

the one mistake this article makes is assuming that the ones it identifies as economists are representatives of the true science of economics

if economics is involved in maximizing "utility" for everyone, how can so called "economists" justify policies that harm large portions of the population, harm the environment, deplete natural resources, keep people in poverty, deny healthcare, propagate wars, advance demagoguery

those economists who do so need to be ashamed of themselves

its the people not the science

[Mar 18, 2017] The power of neoliberalism is that a majority of the people do not have the analytical skills to sort it out neoliberal lies and much of them is covered with math and obsure terminology

Neoliberalism is a dangerous secular religion used for redistribution wealth up and restoring the power of financial oligarchy.
Mar 18, 2017 | economistsview.typepad.com

Lee A. Arnold : March 18, 2017 at 04:22 AM

Making a combined comment on the links about sociological explanation (NYTimes, Understanding Society, and Tim Harford):

I want to point out that monocausal explanation in society is fairly useless, especially in a society-in-crisis, for at least two very DIFFERENT reasons: 1. complexities, which are analytical things about lots of specifics, and 2. common emergence of agreement, a central moral thing about trust.

These sound high-falutin', but they are just shorthand for two different things which keep coming up in our conversations everywhere:

So therefore, the vested interests of the status quo, at any moment, are engaged in two very different efforts:

  1. providing so much complicated information and false information that most people stay confused, and
  2. buying votes, buying elections, buying lobbyists.

Any operating political hack knows this, will tell you this is his/her job.

This has been going on since the middle of the 18th Century, perhaps longer. And of course, we see where all this has led us.

My point in making the distinction, the distinction about finding 2. common agreement to get anything done under 1. conditions of complexity & uncertainty, is to get it out of the way, to clear the floor, to make a very different point:

A majority of the people don't ever have the analytical skills to sort it out. As follows:

Lee A. Arnold -> Lee A. Arnold ... , March 18, 2017 at 04:23 AM
A majority of the people don't have the analytical skills to sort out the lies. How do we deal with this?

First, realize has little to do with the level of intelligence or education.

It appears to be a difference in HOW people take "information" into themselves. There is a big difference between "orality" and "literacy" cultures. Trump's speeches give a very good illustration of this, perhaps a perfect example.

The distinction was first emphasized by Walter Ong in his perennial book Orality and Literacy (1982). Here is an adaptation of his list of some traits of "oral" culture:

1. Sounded word is itself power, an action-event. Words are not taken in as mere signs.

2. Your knowledge is limited to what you can personally recall: To retain & retrieve information, without reading & writing, you must think in mnemonic patters shaped for ready oral recurrence. Thus, heavily rhythmic, balanced, repetitious. Use of antitheses, alliterations & assonances, epithetic or other formulary expressions, standard thematic settings ("the assembly, the meal, the duel, the hero's helper", etc.) proverbs, etc. This even determines syntax.

3. The logic of argument is additive rather than subordinative. Use of the conjunction "and", instead of dependent clauses.

4. The discourse is aggregative rather than analytic: Elements of thought are clusters, parallel terms, antithetic terms, recurrent epithets such as "brave" soldier, "beautiful" princess, etc., and these couplings are rarely dismantled.

5. Redundant or "copious": Heavy use of repetition because spoken words evaporate, which would prevent the continuity that is required for thinking. It also helps overcome the problem that members of the same audience have different comprehension levels; and helps overcome acoustical lapses in the assembly hall.

6. The resulting culture tends to conservative or traditionalist: Use of repetition accentuates the learning of ages, to the detriment of new discoveries and innovations.

7. Close to the human lifeworld.

8. Agonistically toned: Knowledge is situated within a context of STRUGGLE in the lifeworld. Use of challenges, riddles, proverbs, struggles, descriptions of violence. The flip-side of this is heavy use of extreme praise: "fantastic, beautiful", etc.

9. Empathetic & participatory, rather than objectively, scientifically distanced.

10. Homeostatic: Oral societies live in a present which keeps itself in equilibrium by sloughing off memories which no longer have present relevance.

11. Situational rather than abstract.

12. Verbomotor lifestyle: In oral society, courses of action and attitudes toward issues depend significantly more on effective use of words and thus on human interaction, and significantly less on non-verbal, often largely visual input from the "objective" world of print or things. In addition, oral folk commonly manifest their schizoid tendencies by extreme external confusion, leading often to violent action, including mutilation of self and others: going "berserk, amok".

13. Noetic role of heroic "heavy" figures, and of the fantastic & bizarre.

14. Orality, community and the sacred: it is all combined.

Note that Ong's brilliant list describes the cognitive style of Trump's speeches, of Fox News reportage, and describes the thought processes and speech-styles of many voters.

Julio -> Lee A. Arnold ... , March 18, 2017 at 08:32 AM
Wonderfully thought provoking post.

[Mar 18, 2017] The Role of Experts in Public Debate

Notable quotes:
"... Economist James K. Galbraith disputes these claims of the benefit of comparative advantage. He states that "free trade has attained the status of a god" and that ". . . none of the world's most successful trading regions, including Japan, Korea, Taiwan, and now mainland China, reached their current status by adopting neoliberal trading rules." He argues that ". . . comparative advantage is based upon the concept of constant returns: the idea that you can double or triple the output of any good simply by doubling or tripling the inputs. But this is not generally the case. For manufactured products, increasing returns, learning, and technical change are the rule, not the exception; the cost of production falls with experience. With increasing returns, the lowest cost will be incurred by the country that starts earliest and moves fastest on any particular line. Potential competitors have to protect their own industries if they wish them to survive long enough to achieve competitive scale."[42] ..."
"... Galbraith, as always, is very succinct and readable. I well remember sitting in an economics lecture in the 1980's when the Professor mentioned Galbraith and described him as with distain someone 'who's ideas were more popular with the public than with economists'. The snigger of agreement that ran around the students in the hall made me realise just how ingrained the ideology of economics was as I'm pretty sure I was the only one of the students who'd actually read any Galbraith. ..."
"... I'd also recommend Ha-Joon Chang as someone who is very readable on the topic of the many weaknesses of conventional ideas on comparative advantage. ..."
"... "The modern conservative is engaged in one of man's oldest exercises in moral philosophy; that is, the search for a superior moral justification for selfishness." ..."
"... I've noticed many experts are especially bad at verbosity. Maybe they think somehow that quantity of words is a form of potency. Maybe that's it. Also individuals with a grievance who write posts about their grievance. I know when I have a grievance it's hard to shut up. I'm just being honest. I'll keep rambling and rambling, repeating myelf and fulminating. Thankfully I know better than to write like that. ..."
"... Thing 13: Making rich people richer doesn't make the rest of us richer. Trickle down economics doesn't work because wealth doesn't trickle down. It trickles up, which is why the rich are the rich in the first place ..."
"... Thing 23: Good economic policy does not require good economists. Most of the really important economic issues, the ones that decide whether nations sink or swim, are within the intellectual reach of intelligent non-economists. Academic Economics with a capital "E" has remarkably little to say about the things that really matter. Concerned citizens need to stop being intimidated by the experts here. ..."
"... Although Ha Joon Chang is an excellent economist, I would also strongly recommend Michael Hudson, Michael Perelman, Steve Keen and E. Ray Canterbery - they are really great, along with Samir Amin of Senegal. ..."
"... A major issue is that those incapable politicians do rely upon experts, but they have consistently selected experts not on their track record (such as how good economists were at predicting the evolution of the economy, or how good political scientists were at predicting the evolution of communist or Arab societies), but on whether pronouncements of experts corresponded to their ideological preconceptions and justified their intended policies. ..."
"... A bit like rejecting physicians' diagnoses when they do not suit you and preferring the cure of a quack. ..."
"... This is not restricted to economists, it pervasive in science in general. I can't remember how many times I got a paper for peer review where I couldn't figure out what the person was trying to say because they layered the jargon ten levels deep. ..."
"... I think it is as simple as: if you create something that justifies the behaviors of the rich and powerful, you have something to sell and willing buyers. If you create something that delegitimizes the behaviors of the rich and powerful, you not only have no willing patrons but you have made powerful enemies. ..."
"... It is the law of supply and demand for pretentious bullshit. ..."
"... Leave workers exposed to starvation long enough and they'll work for next- to-nothing. The solution to James O'Connor's Fiscal Crisis of the State is to clean house in a big way, a very big way. Put everyone out on the street and start all over again. (Everyone but the 1% of course.) ..."
"... It's Andrew Mellon's advice for getting out of the Depression: "liquidate labor, liquidate stocks, liquidate farmers, liquidate real estate it will purge the rottenness out of the system. High costs of living and high living will come down. People will work harder, live a more moral life. Values will be adjusted, and enterprising people will pick up from less competent people." ..."
"... The Reserve Army of Labor saves the Capitalist Day, once again. (Except for the little problem that the 1% won't accept their own liquidation, so Goldman Sachs and the rest must be exempted from the purging–which means that the purging can't work.) ..."
"... Not too long before he died, Paul Samuelson said: "Maybe I was wrong on the subject of jobs offshoring." (I.e., maybe offshoring all the jobs and dismantling the US economy wasn't so intelligent after all!) ..."
"... C. Wright Mills called them "crackpot realists." ..."
"... It's all a part and parcel of the meritocracy. If you don't have a degree in Econ, your opinion doesn't matter about why your job moved to China. If you don't have a degree in Urban Planning, you don't get to comment on how the city wants to tear down the park and put up condos. ..."
"... Their advice helped lead to this 2008 Financial Crisis. The promise of neoliberalism was faster growth. It did not happen. Quite the opposite. It gave the rich intellectual cover to loot society. That"s what this was always about. ..."
"... Then there's the matter of the Iraq War. Another example. Many foreign policy "experts", particularly affiliated with the neoconservative assured the American people that invading Iraq would be easy to do and lead to lots of long term benefits. Others insisted, despite evidence to the contrary, that Saddam was developing weapons of mass destruction. Now look at where we are. No WMDs, long and cost war, with no long-term solutions. Many of said "experts" later endorsed Clinton. ..."
"... We do not need pro-Establishment experts who sell themselves out to enrich themselves. We need experts who act in the public interest. ..."
Mar 18, 2017 | www.nakedcapitalism.com

By Sandwichman. Originally published at Angry Bear

Jonathan Portes asks, " What's the role of experts in the public debate? " He assumes it is his prerogative, as an expert, to define that role:

I think we have three really important functions.

First, to explain our basic concepts and most important insights in plain English. Famously, Paul Samuelson, the founder of modern macroeconomics, was asked whether economics told us anything that was true but not obvious. It took him a couple of years, but eventually he gave an excellent and topical example – simply the theory of comparative advantage.

Similarly, I often say that the most useful thing I did in my 6 years as Chief Economist at DWP was to explain the lump of labour fallacy – that there isn't a fixed number of jobs in the economy, and increased immigration or more women working adds to both labour demand and labour supply – to six successive Secretaries of State. So that's the first.

Second is to call bullshit.

O.K. I call bullshit. What Portes explained "to six successive Secretaries of State" was a figment of the imagination of a late 18th century Lancashire magistrate, a self-styled " friend to the poor " who couldn't understand why poor people got so upset about having their wages cut or losing their jobs - to the extent they would go around throwing rocks through windows, breaking machines and burning down factories - when it was obvious to him that it was all for the best and in the long run we would all be better off or else dead.

I call bullshit because what Portes explained to six successive Secretaries of State was simply the return of the repressed - the obverse of "Say's Law" (which was neither Say's nor a Law) that "supply creates its own demand," which John Maynard Keynes demolished in The General Theory of Employment, Interest and Money and that John Kenneth Galbraith subsequently declared " sank without trace " in the wake of Keynes's demolition of it.

I call bullshit because when Paul Samuelson resurrected the defunct fallacy claim that Portes explained to six successive Secretaries of State, he did so on the condition that governments pursued the sorts of "Keynesian" job-creating policies that the discredited principle of "supply creates its own demand" insisted were both unnecessary and counter-productive.

But the lump of labor argument implies that there is only so much useful remunerative work to be done in any economic system, and that is indeed a fallacy . If proper and sound monetary, fiscal, and pricing policies are being vigorously promulgated , we need not resign ourselves to mass unemployment. And although technological unemployment is not to be shrugged off lightly, its optimal solution lies in offsetting policies that create adequate job opportunities and new skills.

[Incidentally, as Robert Schiller has noted, the promised prevention of mass unemployment by vigorous policy intervention did not imply the preservation of wage levels. Schiller cited the following passage from the Samuelson textbook, " a decrease in the demand for a particular kind of labor because of technological shifts in an industry can he adapted to - lower relative wages and migration of labor and capital will eventually provide new jobs for the displaced workers."]

I call bullshit because what Portes explained to six successive Secretaries of State was not even Paul Samuelson's policy-animated zombie lump-of-labour fallacy but a supply-side, anti-inflationary retrofit cobbled together by Richard Layard and associates and touted by Tony Blair and Gerhard Schroeder as the Third Way " new supply-side agenda for the left. " Central to that agenda were tax cuts to promote economic growth and "active labour market policies" to foster non-inflationary expansion of employment by making conditions more "flexible" and lower-waged:

Part-time work and low-paid work are better than no work because they ease the transition from unemployment to jobs.

Encourage employers to offer 'entry' jobs to the labour market by lowering the burden of tax and social security contributions on low-paid jobs.

Adjustment will be the easier, the more labour and product markets are working properly. Barriers to employment in relatively low productivity sectors need to be lowered if employees displaced by the productivity gains that are an inherent feature of structural change are to find jobs elsewhere. The labour market needs a low-wage sector in order to make low-skill jobs available.

I call bullshit because in defending the outcomes of supply-side labour policies, Portes soft-pedaled the stated low-wage objectives of the Third Way agenda. In a London Review of Books review, Portes admitted that "it may drive down wages for the low-skilled, but the effect is small compared to that of other factors (technological change, the national minimum wage and so on)." In the Third Way supply-side agenda, however, a low-wage sector was promoted as a desirable feature - making more low-skill jobs available - not a trivial bug to be brushed aside. In other words, in "driving down wages for the low skilled" the policy was achieving exactly what it was intended to but Portes was "too discreet" to admit that was the stated objectives of the policy.

dk , March 18, 2017 at 4:47 am

I found this helpful in better understanding the economics discussed:
https://en.wikipedia.org/wiki/Comparative_advantage#Criticism

Economist James K. Galbraith disputes these claims of the benefit of comparative advantage. He states that "free trade has attained the status of a god" and that ". . . none of the world's most successful trading regions, including Japan, Korea, Taiwan, and now mainland China, reached their current status by adopting neoliberal trading rules." He argues that ". . . comparative advantage is based upon the concept of constant returns: the idea that you can double or triple the output of any good simply by doubling or tripling the inputs. But this is not generally the case. For manufactured products, increasing returns, learning, and technical change are the rule, not the exception; the cost of production falls with experience. With increasing returns, the lowest cost will be incurred by the country that starts earliest and moves fastest on any particular line. Potential competitors have to protect their own industries if they wish them to survive long enough to achieve competitive scale."[42]

Galbraith also contends that "For most other commodities, where land or ecology places limits on the expansion of capacity, the opposite condition – diminishing returns – is the rule. In this situation, there can be no guarantee that an advantage of relative cost will persist once specialization and the resultant expansion of production take place. A classic and tragic example, studied by Erik Reinert, is transitional Mongolia, a vast grassland with a tiny population and no industry that could compete on world markets. To the World Bank, Mongolia seemed a classic case of comparative advantage in animal husbandry, which in Mongolia consisted of vast herds of cattle, camels, sheep, and goats. Opening of industrial markets collapsed domestic industry, while privatization of the herds prompted the herders to increase their size. This led, within just a few years in the early 1990s, to overgrazing and permanent desertification of the subarctic steppe and, with a slightly colder than normal winter, a massive famine in the herds."

PlutoniumKun , March 18, 2017 at 5:45 am

Galbraith, as always, is very succinct and readable. I well remember sitting in an economics lecture in the 1980's when the Professor mentioned Galbraith and described him as with distain someone 'who's ideas were more popular with the public than with economists'. The snigger of agreement that ran around the students in the hall made me realise just how ingrained the ideology of economics was as I'm pretty sure I was the only one of the students who'd actually read any Galbraith.

I'd also recommend Ha-Joon Chang as someone who is very readable on the topic of the many weaknesses of conventional ideas on comparative advantage.

/L , March 18, 2017 at 6:39 am

James K Galbraith is the son of the famous New Deal economist John K Galbraith.

John K G:

"The modern conservative is engaged in one of man's oldest exercises in moral philosophy; that is, the search for a superior moral justification for selfishness."

"In the case of economics there are no important propositions that cannot be stated in plain language."

/L , March 18, 2017 at 7:10 am

John K G on The Art of Good Writing

"I was an editor of Fortune under Henry Luce, the founder of Time, Inc., who was one of the most ruthless editors that I have ever known, that anyone has ever known. Henry could look over a sheet of copy and say, "This can go, and this can go, and this can go," and you would be left with eight to ten lines which said everything that you had said in twenty lines before.

And I can still, to this day, not write a page without the feeling that Henry Luce is looking over my shoulder and saying, "That can go." That illuminate one "problem" in our age of internet, unlimited space to be verbose and no editors that de-obscure the writers "thoughts".

JEHR , March 18, 2017 at 8:24 am

/L–This site is just wonderful! Anything you want to know about knowing seems to be here. Thanks for the great link.

sgt_doom , March 18, 2017 at 2:21 pm

Recommendation: Wealth, Power and the Crisis of Laissez-Faire Capitalism , by Donald Gibson

Norb , March 18, 2017 at 8:54 am

I wonder if this phenomenon – the desirability succinct communication -- was a holdover of earlier times, when accurate communication made the difference between life and death. Settling and developing a continent would place a high value on such purposeful human exchanges.

Today, we are awash in branding and marketing intended to maintain the current order. The language is used to obfuscate, not clarify experience or goals.

An expert in any field that has the ability to communicate in a general , popular mode, is of great value to society. Truth and understanding is its main function. Knowledge, or insight that cannot be shared is more often than not just an excuse to hide methods of control and exploitation.

If citizens can't get the generalities right, the specifics will be impossible to comprehend.

craazyman , March 18, 2017 at 5:23 pm

Almost everything can go. I remember seeing a video of the photographer William Klein saying a master photographer is remembered for just a handfull of images. Maybe 10 or 15, tops. Out of probably at least 100,000 serious photos.

Of course what goes is necessary fertilizer for what doesn't go. You can't avoid it. Hahahah. But you have to let it go anyway. Or your editor has to be williing to cut.

I've noticed lots and lots of posts here could be a lot better if the post author had said the same thing in half as many words. Most wouldn't lose any persuasion, if they had any to begin with. And they'd gain reader attention for the pruning.

I've noticed many experts are especially bad at verbosity. Maybe they think somehow that quantity of words is a form of potency. Maybe that's it. Also individuals with a grievance who write posts about their grievance. I know when I have a grievance it's hard to shut up. I'm just being honest. I'll keep rambling and rambling, repeating myelf and fulminating. Thankfully I know better than to write like that.

Having saidd all that, Say was rite. If the supply of labor increases, that createes its own demand for jobs! How is that not completely obvious.

PlutoniumKun , March 18, 2017 at 9:18 am

Ah yeah, sorry, getting my JK's mixed up. Both are good.

fresno dan , March 18, 2017 at 7:03 am

PlutoniumKun
March 18, 2017 at 5:45 am

Huffington Post review has a synopsis of the Ha-Joon Change book. http://www.huffingtonpost.com/ian-fletcher/a-review-of-ha-joon-chang_b_840417.html
My favorite:
Thing 13: Making rich people richer doesn't make the rest of us richer. Trickle down economics doesn't work because wealth doesn't trickle down. It trickles up, which is why the rich are the rich in the first place

shinola , March 18, 2017 at 12:55 pm

Thanks for the tip PK & thank you fd for the link to the review. I'm going to check this fellow out; sounds like he has some interesting things to say. One of the "things" that may apply to the above article:

Thing 23: Good economic policy does not require good economists. Most of the really important economic issues, the ones that decide whether nations sink or swim, are within the intellectual reach of intelligent non-economists. Academic Economics with a capital "E" has remarkably little to say about the things that really matter. Concerned citizens need to stop being intimidated by the experts here.

sgt_doom , March 18, 2017 at 2:18 pm

Although Ha Joon Chang is an excellent economist, I would also strongly recommend Michael Hudson, Michael Perelman, Steve Keen and E. Ray Canterbery - they are really great, along with Samir Amin of Senegal.

Anonymous2 , March 18, 2017 at 8:10 am

A word of warning from the UK. Denigrate experts too much and you end up like us with government by people who really are inexpert. That is not an improvement.

Mael Colium , March 18, 2017 at 8:39 am

Ha! I think an anti brexiter just rolled the white eye.

Strange that the awful things that the experts told us all would happen haven't and don't look like happening since the people called bullshit on the EU mess. Britain with or without those blokes in dresses up north will do just fine as they steer themselves out of the EU quagmire. I'll take the people anytime anonymous – they have more common sense than the experts. Didn't you read the article?

Anonymous2 , March 18, 2017 at 9:51 am

If you are referring to economic forecasters, they, by definition, are not experts.

sgt_doom , March 18, 2017 at 2:16 pm

Thank you!!!

I remember back in the 1980s, when so-called "experts" were prattling about such nonsense as . . .

"Computers don't make mistakes, humans make mistakes !"

Which was surely untrue as anyone with any real IT expertise back then would have explained that 97% or more of hardware crashes generate software problems (for obvious reasons).

visitor , March 18, 2017 at 9:16 am

A major issue is that those incapable politicians do rely upon experts, but they have consistently selected experts not on their track record (such as how good economists were at predicting the evolution of the economy, or how good political scientists were at predicting the evolution of communist or Arab societies), but on whether pronouncements of experts corresponded to their ideological preconceptions and justified their intended policies.

A bit like rejecting physicians' diagnoses when they do not suit you and preferring the cure of a quack.

voislav , March 18, 2017 at 8:28 am

This is not restricted to economists, it pervasive in science in general. I can't remember how many times I got a paper for peer review where I couldn't figure out what the person was trying to say because they layered the jargon ten levels deep. This is in chemistry, so things are typically straightforward, no need for convoluted explanations and massaging of the data.

But people still do it because that's the culture that they've been educated in, a scientific paper has to be high-brow, using obscure words and complicated sentences.

Steve Ruis , March 18, 2017 at 8:55 am

I think it is as simple as: if you create something that justifies the behaviors of the rich and powerful, you have something to sell and willing buyers. If you create something that delegitimizes the behaviors of the rich and powerful, you not only have no willing patrons but you have made powerful enemies.

It is the law of supply and demand for pretentious bullshit.

Paul Hirschman , March 18, 2017 at 9:03 am

So in the end, we wind up with Say's Law anyway, since creating a "low wages" sector is exactly how Say's Law functions–supply creates its own demand because declining wages means investment spending can increase, which keeps aggregate demand where it needs to be for full employment.

This is the solution, we are told, to Keynes "sticky prices." Jim Grant makes this very argument in his book about the "short-lived" crisis of the early 1920s. Leave workers exposed to starvation long enough and they'll work for next- to-nothing. The solution to James O'Connor's Fiscal Crisis of the State is to clean house in a big way, a very big way. Put everyone out on the street and start all over again. (Everyone but the 1% of course.)

It's Andrew Mellon's advice for getting out of the Depression: "liquidate labor, liquidate stocks, liquidate farmers, liquidate real estate it will purge the rottenness out of the system. High costs of living and high living will come down. People will work harder, live a more moral life. Values will be adjusted, and enterprising people will pick up from less competent people."

The Reserve Army of Labor saves the Capitalist Day, once again. (Except for the little problem that the 1% won't accept their own liquidation, so Goldman Sachs and the rest must be exempted from the purging–which means that the purging can't work.)

Back to managing stagnation.

Paul Hirschman , March 18, 2017 at 9:09 am

Managing stagnation is what we have "experts" for in the first place.

sgt_doom , March 18, 2017 at 2:12 pm

Not too long before he died, Paul Samuelson said: "Maybe I was wrong on the subject of jobs offshoring." (I.e., maybe offshoring all the jobs and dismantling the US economy wasn't so intelligent after all!)

Just finished a book called, The Death of Expertise , by a professor of national security (oh give me a frigging break!!!!), Tom Nichols.

Biggest pile of crapola I have ever read! The author was also yearning for the days when "experts" were blindly followed!

Sandwichman , March 18, 2017 at 2:38 pm

C. Wright Mills called them "crackpot realists."

marku52 , March 18, 2017 at 3:25 pm

It's all a part and parcel of the meritocracy. If you don't have a degree in Econ, your opinion doesn't matter about why your job moved to China. If you don't have a degree in Urban Planning, you don't get to comment on how the city wants to tear down the park and put up condos.

Altandmain , March 18, 2017 at 5:00 pm

The answer is that said "experts" have failed the general public miserably.

Their advice helped lead to this 2008 Financial Crisis. The promise of neoliberalism was faster growth. It did not happen. Quite the opposite. It gave the rich intellectual cover to loot society. That"s what this was always about.

Now people wonder, why they don't trust "experts"?

Then there's the matter of the Iraq War. Another example. Many foreign policy "experts", particularly affiliated with the neoconservative assured the American people that invading Iraq would be easy to do and lead to lots of long term benefits. Others insisted, despite evidence to the contrary, that Saddam was developing weapons of mass destruction. Now look at where we are. No WMDs, long and cost war, with no long-term solutions. Many of said "experts" later endorsed Clinton.

We do not need pro-Establishment experts who sell themselves out to enrich themselves. We need experts who act in the public interest.

[Mar 18, 2017] The Problem With Facts

Notable quotes:
"... It did not. PR guru John Hill had a plan - and the plan, with hindsight, proved tremendously effective. Despite the fact that its product was addictive and deadly, the tobacco industry was able to fend off regulation, litigation and the idea in the minds of many smokers that its products were fatal for decades. ..."
"... This is the study of how ignorance is deliberately produced; the entire field was started by Proctor's observation of the tobacco industry. The facts about smoking - indisputable facts, from unquestionable sources - did not carry the day. The indisputable facts were disputed. The unquestionable sources were questioned. Facts, it turns out, are important, but facts are not enough to win this kind of argument. ..."
"... Written for and first published in the Financial Times . ..."
"... My book " Messy " is available online in the US and UK or in good bookshops everywhere. ..."
Mar 18, 2017 | timharford.com
Just before Christmas 1953, the bosses of America's leading tobacco companies met John Hill, the founder and chief executive of one of America's leading public relations firms, Hill & Knowlton. Despite the impressive surroundings - the Plaza Hotel, overlooking Central Park in New York - the mood was one of crisis.

Scientists were publishing solid evidence of a link between smoking and cancer. From the viewpoint of Big Tobacco, more worrying was that the world's most read publication, The Reader's Digest, had already reported on this evidence in a 1952 article, "Cancer by the Carton". The journalist Alistair Cooke, writing in 1954, predicted that the publication of the next big scientific study into smoking and cancer might finish off the industry.

It did not. PR guru John Hill had a plan - and the plan, with hindsight, proved tremendously effective. Despite the fact that its product was addictive and deadly, the tobacco industry was able to fend off regulation, litigation and the idea in the minds of many smokers that its products were fatal for decades.

So successful was Big Tobacco in postponing that day of reckoning that their tactics have been widely imitated ever since. They have also inspired a thriving corner of academia exploring how the trick was achieved. In 1995, Robert Proctor, a historian at Stanford University who has studied the tobacco case closely, coined the word "agnotology".

This is the study of how ignorance is deliberately produced; the entire field was started by Proctor's observation of the tobacco industry. The facts about smoking - indisputable facts, from unquestionable sources - did not carry the day. The indisputable facts were disputed. The unquestionable sources were questioned. Facts, it turns out, are important, but facts are not enough to win this kind of argument.

... ... ...

Written for and first published in the Financial Times .

My book " Messy " is available online in the US and UK or in good bookshops everywhere.

[Mar 17, 2017] Evangelical Scientists Refute Gravity With New Intelligent Falling Theory

Mar 17, 2017 | www.theonion.com
KANSAS CITY, KS-As the debate over the teaching of evolution in public schools continues, a new controversy over the science curriculum arose Monday in this embattled Midwestern state. Scientists from the Evangelical Center For Faith-Based Reasoning are now asserting that the long-held "theory of gravity" is flawed, and they have responded to it with a new theory of Intelligent Falling.

Rev. Gabriel Burdett explains Intelligent Falling.

"Things fall not because they are acted upon by some gravitational force, but because a higher intelligence, 'God' if you will, is pushing them down," said Gabriel Burdett, who holds degrees in education, applied Scripture, and physics from Oral Roberts University.

Burdett added: "Gravity-which is taught to our children as a law-is founded on great gaps in understanding. The laws predict the mutual force between all bodies of mass, but they cannot explain that force. Isaac Newton himself said, 'I suspect that my theories may all depend upon a force for which philosophers have searched all of nature in vain.' Of course, he is alluding to a higher power."

Founded in 1987, the ECFR is the world's leading institution of evangelical physics, a branch of physics based on literal interpretation of the Bible.

According to the ECFR paper published simultaneously this week in the International Journal Of Science and the adolescent magazine God's Word For Teens! , there are many phenomena that cannot be explained by secular gravity alone, including such mysteries as how angels fly, how Jesus ascended into Heaven, and how Satan fell when cast out of Paradise.

The ECFR, in conjunction with the Christian Coalition and other Christian conservative action groups, is calling for public-school curriculums to give equal time to the Intelligent Falling theory. They insist they are not asking that the theory of gravity be banned from schools, but only that students be offered both sides of the issue "so they can make an informed decision."

"We just want the best possible education for Kansas' kids," Burdett said.

Proponents of Intelligent Falling assert that the different theories used by secular physicists to explain gravity are not internally consistent. Even critics of Intelligent Falling admit that Einstein's ideas about gravity are mathematically irreconcilable with quantum mechanics. This fact, Intelligent Falling proponents say, proves that gravity is a theory in crisis.

"Let's take a look at the evidence," said ECFR senior fellow Gregory Lunsden."In Matthew 15:14, Jesus says, 'And if the blind lead the blind, both shall fall into the ditch.' He says nothing about some gravity making them fall-just that they will fall. Then, in Job 5:7, we read, 'But mankind is born to trouble, as surely as sparks fly upwards.' If gravity is pulling everything down, why do the sparks fly upwards with great surety? This clearly indicates that a conscious intelligence governs all falling."

Critics of Intelligent Falling point out that gravity is a provable law based on empirical observations of natural phenomena. Evangelical physicists, however, insist that there is no conflict between Newton's mathematics and Holy Scripture.

"Closed-minded gravitists cannot find a way to make Einstein's general relativity match up with the subatomic quantum world," said Dr. Ellen Carson, a leading Intelligent Falling expert known for her work with the Kansan Youth Ministry. "They've been trying to do it for the better part of a century now, and despite all their empirical observation and carefully compiled data, they still don't know how."

"Traditional scientists admit that they cannot explain how gravitation is supposed to work," Carson said. "What the gravity-agenda scientists need to realize is that 'gravity waves' and 'gravitons' are just secular words for 'God can do whatever He wants.'"

Some evangelical physicists propose that Intelligent Falling provides an elegant solution to the central problem of modern physics.

"Anti-falling physicists have been theorizing for decades about the 'electromagnetic force,' the 'weak nuclear force,' the 'strong nuclear force,' and so-called 'force of gravity,'" Burdett said. "And they tilt their findings toward trying to unite them into one force. But readers of the Bible have already known for millennia what this one, unified force is: His name is Jesus."

>

[Mar 17, 2017] Economic Ideas You Should Forget Bruno Frey Springer

Mar 17, 2017 | www.springer.com

Reporting on cutting-edge advances in economics, this book presents a selection of commentaries that reveal the weaknesses of several core economics concepts. Economics is a vigorous and progressive science, which does not lose its force when particular parts of its theory are empirically invalidated; instead, they contribute to the accumulation of knowledge.

By discussing problematic theoretical assumptions and drawing on the latest empirical research, the authors question specific hypotheses and reject major economic ideas from the "Coase Theorem" to "Say's Law" and "Bayesianism." Many of these ideas remain prominent among politicians, economists and the general public. Yet, in the light of the financial crisis, they have lost both their relevance and supporting empirical evidence.

This fascinating and thought-provoking collection of 71 short essays written by respected economists and social scientists from all over the world will appeal to anyone interested in scientific progress and the further development of economics.

Introduction

Ideas are the drivers behind innovation, may they be political, economic, in the arts or in science. "Nothing is as powerful as an idea whose time has come" is a popular quote attributed to Victor Hugo. But what about ideas whose time has already passed? Ideas that might have had value at a certain point in time but are still sticking around even though we should forget them?

In this book, we collect economic ideas whose time has passed and throw |them into the dustbin of history. Economics has a sound base of theory supported by empirical research that is taught the same way all over the world. Yet, according to Popper, we gain scientific progress only by rejecting specific hypotheses within the theoretical framework. Economics is a vigorous and progressive science, which does not lose its force when particular parts of its theory are empirically rejected. Rather, they contribute to the accumulation of knowledge.

We bury ideas from the "Coase Theorem" to "Say's Law" to "Bayesianism". We let established scientists and lesser known younger colleagues speak. We give voice not only to economists but also to associates from other social sciences. We let economists from all fields speak and question ideas. We say goodbye to the positive effects of an abundance of choice; we bid farewell to the idea that economic growth increases people's well-being. We doubt that CEOs are paid so well merely because of their talent and question the usefulness of home ownership. Doubting assumptions and ideas is at the core of economics.

The essays do not idolize models or references and base their content on one single idea that should be forgotten. They reflect entirely personal views; the book therefore only contains contributions by single authors. This makes the content parsimonious and distinctive.

[Mar 13, 2017] Economics can not be separate from politics and politics can not be separated from economics. That is why neo classical economics is a pseudoscience similar to Lysenkoism

Mar 13, 2017 | economistsview.typepad.com
im1dc : March 12, 2017 at 10:07 AM , 2017 at 10:07 AM
This is real news

This article is a proof of the Equality

Economics = Politics

and

Politics = Economics

When Trump picked Pruitt to Head the EPA he picked a quack Global Warming Climate Change denier AS WELL AS A Lobbyist for Big Energy whose goal is antithetical to the mission of the EPA

We can see that here, Big Energy focusing on State legislatures, in addition to Congress, to slow or stop Electric Cars to keep reliance upon petroleum based fuels while they have friends in high offices to help them advance their special interest agendas

https://www.nytimes.com/2017/03/11/business/energy-environment/electric-cars-hybrid-tax-credits.html

"State by State, Electric Car Rebates Are Under Attack"

By HIROKO TABUCHI...3-12-2017

"While the battle in Washington gets much of the attention, the most direct attack against electric vehicles is being waged in statehouses."...

libezkova -> im1dc... , March 12, 2017 at 07:41 PM
Economics = Politics

and

Politics = Economics

Very true. Thank you !

Only political economy exists, neo-classical economics is a pseudo science.

Or economic Lysenkoism ( https://en.wikipedia.org/wiki/Lysenkoism ) if you wish.


[Mar 10, 2017] Why do mainstream economists insist on employing the neoclassical paradigm? Because they are richly rewarded for doing so

Mar 10, 2017 | economistsview.typepad.com
RGC : March 09, 2017 at 07:54 AM

Why do mainstream economists insist on employing the neoclassical paradigm?

Were they intimidated and /or rewarded?:

"This was a period of secularization of US colleges.

Businessmen were replacing clergymen on boards.
They were displaced by others more exclusively attuned to the Gospel of Wealth.

For example, Professor Allen Eaton was fired from the University of Oregon for successfully pushing a series of characteristically Georgist measures: municipal ownership of the Eugene waterworks; taxation of waterpower sites; direct election of US Senators; keeping valuable State-owned timberlands from being given to the Southern Pacific.

Elisha Andrews was forced from Brown University for favoring populists George and Bryan.


Scott Nearing was fired in 1915 from the University of Pennsylvania.

Pennsylvania Trustee Joseph Rosengarten explained that "men holding teaching positions in the Wharton School introduce there doctrines wholly at variance with those of its founder and... talk wildly and in a manner entirely inconsistent with Mr. Wharton's well-known views and in defiance of the conservative opinions of men of affairs".

His best-known "variant idea" was opposing child labor.


Life under Seelye could be perilous for the truly scholarly. In 1884, Seelye peremptorily fired one of John B. Clark's colleagues, the homonymic geologist John Clarke, for "heterodoxy".

http://www.masongaffney.org/publications/K1Neo-classical_Stratagem.CV.pdf
RGC -> RGC... , March 09, 2017 at 08:09 AM

Did plutocrats insure that favorable theories dominated?:

Classicals vs Neoclassicals: Tax and Rent

Posted on 8 January 2011

"At the university I attended, a few of the academics were strongly influenced by Classical Political Economy, especially that of Smith and Ricardo. Prior to my student days, one of them had published a paper in the Cambridge Journal of Economics entitled "On the origins of the term 'neoclassical'" (no free link available), which is quite well known in heterodox circles.

In it, he argued that the 'classical' in the term 'neoclassical' is a misnomer and that neoclassical and classical economics actually have little in common, despite attempts by neoclassicals to claim Smith, in particular, as their forefather.


The classical-influenced economists at my university happened to belong to the Sraffian School. This school attempts to synthesize Classical value and distribution with Keynesian output and employment determination, and is also known for its key role and victory in the Cambridge Capital Controversy. The school is named after Piero Sraffa, whose interpretation of Classical Political Economy, particularly Ricardo's work, has been highly influential.

Sraffians are not the only modern-day economists influenced by Smith and Ricardo. Another prominent example is Michael Hudson.

In a recent interview (h/t to Tom Hickey), Hudson discusses one big difference between the Classical economists and the neoclassicals: their analysis of taxation as applied to economic rent.

Hudson touches on a number of noteworthy points during the interview. He draws attention to a historical correspondence that would probably surprise many, between high top tax rates and strong economic growth, and observes that the top rates were high in the period prior to WWII.

Importantly, the focus of taxation in Classical Political Economy, which Hudson argues influenced US government policy in the late 1800s and much of the first half of the 1900s, was on confiscating economic rents. These rents include income that derives from ownership of assets that appreciate in value merely because of the growth in national income and/or improved public infrastructure, and not due to any participation in the production process (they arise especially in the real estate and financial sectors).

It is not mentioned in the interview, but profit, of course, is also income that derives from the mere ownership of assets – the means of production.

However, the classical economists were engaged in a class war with rentiers, not capitalists.

It was Marx who drew this reasoning out to its logical conclusion, and this probably goes a long way to explaining why neoclassical theory, rather than being a continuation of classical economics (as was often claimed once it was established), was an escape into a different conceptualization of a capitalist economy that sought to reframe the distribution of income as the result of marginal contributions (an attempt that failed and was the chief target and theoretical casualty of the Cambridge Capital Controversy).

Even so, there does remain a significant distinction between profit, which relates to assets employed in the production process, and economic rents. For this reason, Marx also distinguished between these two categories of income and spent a great deal of space in volume 3 of Capital analyzing the various forms of surplus value, including different types of rent.

Hudson goes on to stress that the taxation imposed in the late 1800s and first half of the 1900s was highly progressive. Initially only the top 1 percent of income earners were required to submit tax returns. The purpose of this was to keep taxes on wages and profit low to promote price competitiveness against lower wage countries.

This can be contrasted with neo-liberal policies of today which seem to be designed almost with the opposite intent: to tax wage and profit income (and also consumption) but provide loopholes or tax breaks for the recipients of economic rents.

Above all, Hudson distinguishes between what the classical economists meant by the term "free market" and what that term has come to mean in the neo-liberal period.

Hudson emphasizes that, for the classical economists, "free market" meant a market unencumbered by rent-based claims on income that would draw economic activity away from income production and toward speculation.

The aim of the classical economists was to incentivize production. This is a very different notion than the neo-liberal one of labor-market "deregulation" (meaning regulation in favor of employers over employees), which is really just code for union smashing and an attack on real wages, or the neo-liberal deregulation of financial markets, which is a euphemism for enabling financial parasitism.

Hudson makes another observation in passing. The observation is not central to his argument in the interview, but is relevant to current debates over deficits and public debt, and consistent with MMT.

He notes that immediately prior to the commencement of the only extended period of high capitalist growth (WWII until the late 1960s), the US population was not in debt, and in fact had pent up savings from the war that it was waiting to spend.

By little or no debt, Hudson clarifies that he means little or no private debt. There was, of course, a large public debt – larger as a percentage of GDP than the current US government "debt".

This public debt did not matter, in spite of the familiar opposition to deficits and public debt, the echoes of which can be heard today, simply because the budget deficit shrinks endogenously once private-sector activity and income growth resume. This is precisely what happened in the immediate postwar period.

Today, with the US government the monopoly issuer of its own flexible exchange-rate fiat currency, public "debt" is – or rather should be – even less of an issue. Unlike in the immediate postwar period, the government is not subject to the constraints of Bretton Woods or a similar commodity-backed money system. It is free to utilize its fiscal capacity to the extent necessary to restore full employment.

Government "debt" is nothing other than the accumulated net financial wealth of the non-government.

Once the non-government is ready to spend, income growth will deliver stronger revenues, reducing the deficit. But the private sector needs to have its debt under control before it will resume spending at levels sufficient to sustain strong economic growth.

In addition to the absence of significant private debt at the end of WWII, there were other factors that contributed to the strong growth of the immediate postwar period, including Keynesian demand-management policies, a progressive tax system, and significant financial regulation.

All these beneficial features of the economy were gradually undermined, and then exposed to outright attack from the 1970s onwards.

Hudson discusses how, over time, much of the progressivity in the tax system was removed, paving the way for the construction of the inequitable and anti-productive monster of today.

Keynesian demand-management policies were also largely eschewed throughout the neo-liberal era on the basis of an opportunistic misinterpretation of the stagflation of the 1970s. All this took place alongside deregulation of the financial sector and an aggressive dismantling of worker employment protections.

The result of this neo-liberal policy mix was an increasing financialization and "rentification" of the economy, widening income inequality, and an adherence to fiscal austerity that directly corresponded, as a matter of accounting, to an unsustainable build up in the only US debt that matters – private debt – and culminated in the Global Financial Crisis and Great Recession.

If the aim is to restore sustainable growth under capitalism (which is not my preferred social system, but presumably the one commanding the allegience of policymakers), the insights obtained from the classical economists in conjunction with the lessons of the postwar period would seem to suggest some combination of the following policy responses: tighter regulations of speculative activities; a more steeply progressive tax system targeted at the confiscation of economic rents and the incentivization of production and consumption; stronger worker protections; and the abandonment of the faulty construct of a 'government budget constraint' and a return to deficit expenditure sufficient to underpin non-government net saving and full employment.

But the actual policy response has instead been to manipulate financial markets to engineer a massive transfer of wealth to the rentiers and exacerbate income and wealth inequality; to continue with the approach of taxing wage and profit income along with consumption rather than economic rents; and possibly even to revert foolishly to austerity while the private sector remains deeply indebted.

http://heteconomist.com/classical-vs-neoclassical-economics-tax-and-rent/

RGC -> RGC... , March 09, 2017 at 08:27 AM
[Were they enticed by the allure of science and mathematics?]:

Because I said so: the persistence of mainstream policy advice

Nathaniel Cline Kirsten Ford Matías Vernengo

Abstract:

"The current global crisis has shown the limitations of the mainstream approach.

We trace the origins of the limitations of the dominant neoclassical views to the capital debates and to the rise to dominance of intertemporal general equilibrium.

The limited use of the Arrow-Debreu model, which became dominant after the capital debates, in terms of policymaking, is central to understand the persistence of policy guided by the aggregative model.

We use the International Monetary Fund (IMF) as a case study of this perplexing continuity of policy advice.

Given our survey, we conclude that even though the economy is in the midst of the worst capitalist crisis since the Great Depression, a significant paradigmatic shift in economics is extraordinarily unlikely."

................................................................................

Concluding remarks

"Economists have frequently argued in favor of laissez faire policy, and the reasons underpinning this position have more often than not been associated to their ideological perspective.

Whenever the classical authors defended the free market, however, it was never under the presumption that it would lead to full utilization of resources or an equitable distribution of income. The free market was typically defended as an instrument of modernization, that is, an institutional innovation of the rising bourgeoisie against feudal obstacles to economic development.

It was only with the rise of the neoclassical paradigm that the free market came to be considered a mechanism for the determination of income shares of the same factors of production and equated to efficiency in the use of factors of production.

With this, the free market ceased to be defended as an instrument of modernization, and instead hailed as a superior institution in itself.

The Great Depression and the Keynesian Revolution sapped the faith in free market policies, but did not attack the core ideas behind the marginalist views of market efficiency.

The attack on the main tenets of neoclassical economics that started with the Keynesian Revolution in the 1930s and culminated with the capital debates in the 1960s, showed the logical limitations of the marginalist approach, and forced the mainstream into a defensive position.

With the abandonment of the old notion of long run equilibrium, and the adoption of intertemporal equilibrium, the efficiency of markets was not seen as the result of the persistent forces of the economy.

If nothing else, the new notion of equilibrium provided a logically coherent notion of market efficiency.

Absent solid theoretical foundation, and, oftentimes, empirical support, the persistence of laissez-faire policy could at least be anchored to the authority of intertemporal equilibrium.

The limitations of such a strategy have become increasingly evident.

The duplicity of a profession that teaches models known to be logically incorrect, and uses these very models for policy analysis – even when the actual outcomes do not correspond to the expected results according to the prescription – is hard to justify.

The role of the social conflicts of the 1960s, the inflation of the 1970s, and the rise of several corporate institutions in the rise of pro-market policies have been extensively analyzed.

However, the role of the changing attitudes within the economics profession have seldom emphasized the incisive effect that the capital debates had in promoting the revival of the defense of free markets for their own sake.

"The current global crisis has shown the limitations of the pro-market liberalizing policies of the last few decades, but from our perspective, it will not be sufficient to promote a meaningful revision of the foundations of economic analysis, and the timidity of the IMF rethinking of its policy stance is a good example of what to expect.

"In the meantime, learning economics at least remains, as Joan Robinson caustically put it, the best way to avoid being deceived by economists.

file:///C:/Users/RON/Downloads/pdf.pdf

RGC -> RGC... , March 09, 2017 at 08:58 AM
Mainstream (neoclassical) economics originated as a reaction and defense to the progressive reforms of the late 1800's.

It was sponsored and funded by plutocrats that endowed private universities like Chicago, Columbia, etc.

Neoclassical economists selected specific mathematic techniques to convince that free, competitive markets were natural, efficient and optimal.

When their mathematics was shown to be defective, they ignored the proof, revised their assumptions to evade or developed new mathematics that, while not related to the real world, could at least not be shown to be faulty.

It appears that neoclassical economists are basically intellectual hit-men for the plutocracy.

RGC -> RGC... , March 09, 2017 at 09:29 AM
If an economist writes a column in MSM, is employed at the Fed, ECB, IMF, World Bank, or is a professor at an 'elite", private university - chances are s/he is a neoclassicist and a hit-wo/man.
RGC -> RGC... , March 09, 2017 at 10:32 AM
Romer says they want to stay in the club, or the church:


Posted on
June 11, 2015

Euler's Theorem Denialism

Paul Romer


The U.S. Department of Energy employs physics Ph.D.s to manage our nuclear weapons. How would you feel if some of them wrote blog posts saying that it is possible to build a perpetual motion machine?

What if they did this to signal their loyalty to some club of physicists? Wouldn't you wonder why membership in this club was important enough get them say that they do not believe the second law of thermodynamics? And what kind of physics club would use an endorsement of the perpetual motion machine as a loyalty oath?

In a recent post, David Andolfatto, who is a Vice President at the Federal Reserve Bank of St. Louis, gives a brazen display of mathiness–brazen because he denies Euler's theorem, which for economists is about the same as denying the second law of thermodynamics is for physicists.


The type of mathiness that is hardest to root out is the opaque mathiness illustrated by Lucas (2009). It combines math that is hard to understand with verbal claims that can be shown to be misleading, but only after a careful analysis of the math.

By taking advantage of ambiguity and misdirection, its verbal claims can mislead without saying anything that is actually false.


Andolfatto's brazen mathiness involves a verbal statement about a mathematical model that flies in the face of an impossibility theorem. No model can do what he claims his does. No model can have a competitive equilibrium with price-taking behavior and partially excludable nonrival goods.


If you are not an economist, this would be a model in which someone who has a monopoly on an idea can charge for its use, but somehow is unable to influence the price that users have to pay, which should sound implausible at least.

If you are an economist, you know that there is a very simple argument based on Euler's theorem that proves this type of model is impossible. The proof goes back a long way. I know that Karl Shell invoked it in the late 1960s. I restated it in the AER article of mine that Andolfatto quotes, so it was fresh in his memory. Dietz Vollrath has a recent post that works through the logic again.


In its most general form, the proof relies on a step that invokes a fact about production processes: If you double all the rival inputs (the inputs you can touch or stub your toe on) you double the output. Some economists try to evade the theorem by denying the possibility of replication.

But Andolfatto's paper makes the required assumption about production openly–constant returns to scale in rival inputs. So he's got no wriggle room. I can't for the life of me see how Andolfatto thinks he can evade Euler's theorem.
It is certainly possible that he is confused. But if you were confused, wouldn't you try to understand the proof that says what you want to claim has to be false before you go ahead and claim it anyway?

So the only conjecture that makes sense to me is that this is part of being in the club. But if so, there is an interesting differentiation of roles by status. Lucas knows a proof when he sees one and is careful to avoid getting caught saying something that is provably false. He sticks to the Marshallian framework where nonrival goods are nonexcludable. Prescott, in his paper with McGrattan (AER 2010) least tries to cover his tracks by inserting his imaginary input, location. Then he can simply assert that it does not get compensation and he can take the income that Euler's Theorem allocates to location and transfer it to his nonrival inputs. From Minnesotta types who are so preachy about avoiding free parameters, you have to admire the audacity of adding an entirely free variable. But Prescott, like Lucas, he is careful not to deny Euler's Theorem.

But the next level down in the hierarchy, followers like Boldrin and Levine are willing to just embarrass themselves:

It is widely believed that competitive equilibrium always results in prices equal to marginal cost. Hence the belief that competition is inconsistent with innovation. However widespread this belief may be, it is not correct. It is true only in the absence of capacity constraints, (2008, p. 436)
They say they can ignore Euler's Theorem, because in their bizarro version of a competitive equilibrium, prices for inputs do not equal marginal products.

But instead of presenting a competitive equilibrium of this type, they present a model* with an innovator who turns out to have market power. Their solution? The innovator has to be a price taker because they say so:

Making the initial single innovator behave competitively even in the very first period may be a source of misunderstanding. Since, by necessity, she has a monopoly in the initial period, why do we not take account of her incentive to restrict the initial supply ? (Boldrin and Levine, 2008, p. 438)


So in the analogy from physics, Boldrin and Levine say that it is possible to build a perpetual motion machine, but to their credit, at the last moment they back off and invoke the can-opener joke: "Well we haven't actually built a perpetual motion machine, so let's just assume that we have one." So what to make of Andolfatto, who goes all in: "I built one back in 1999 when I was in graduate school."

It is as if the prophets who lead the Mormon Church never have to say anything specific about where the Book of Mormon comes from. Officials at the next level down have to say that Joseph Smith transcribed it from golden plates that he found in upstate New York. Regular church members have to say that it is a literal fact that the gold plates were written in 400 AD by Mormon and Moroni, using a script called reformed Egyptian, and were held together in a D-ring binder.

The provably false statements that economists like Andolfatto make (and he is certainly not alone) may be more than mere signals. They might be an irreversible commitment to stay at an institution where his club is already in control because they prevents someone from ever being employable at a competitive institution where logic is still valued.

Having a strong affiliation with other members of a religion can be a good thing, so I would not be bothered to learn that some of our nuclear physicists are Mormons. But I would be worried to learn that some of them were members of the perpetual motion club. And I am worried that some outposts of the Fed have been permanently colonized by economists who are on the record as Euler's-Theorem-deniers.

https://paulromer.net/eulers-theorem-deniers/

libezkova -> RGC... , March 09, 2017 at 10:39 AM
That's good thank you. I am thinking along the same lines:

In some way unregulated finance acts as cancer cells in human body (while this analogy is definitely superficial it might be stimulating for thinking about neoliberalism):

1. Uncontrollable growth detached from real economics ("casino capitalism" with its proliferation of hedge funds, private equity firms, derivatives, credit default swaps and similar instruments).

2. Suppression of immune system so that this uncontrollable growth should not be checked (aka deregulation, capture of economics departments, an army of neoliberal think tanks)

3. Like cancel creates a blood network to stimulate its own growth, finance also diverts lion share of resource in the economy for its own consumption -- casino consumption.

4. Very difficult to fight and can reoccur if treatment was insufficient or ineffective.

RGC -> libezkova... , March 09, 2017 at 10:58 AM
Cancer is good.

The Traditional analogy is to a parasite, particularly the type that invades the brain of the host and tricks the host into feeding the parasite ahead of itself, even if the host starves itself to death in the process.

That has the feature of purposeful action.

[Mar 10, 2017] Crony capitalism is the only sort that has ever existed and corporations have always engaged in politics to their own benefit.

Mar 10, 2017 | economistsview.typepad.com
DrDick : Thursday, March 09, 2017 at 07:59 PM , March 09, 2017 at 07:59 PM
Strikes me that if your economic theory cannot deal with political engagement by corporations, you need to scrap your economic theory. Crony capitalism is the only sort that has ever existed and corporations have always engaged in politics to their own benefit.
libezkova said in reply to DrDick ... , March 09, 2017 at 01:48 PM
While I agree with you, the statement that "Crony capitalism is the only sort that has ever existed" might not be completely true.

There were short historical periods of "deviations".

Napoleonic France and Early New Deal might well be considered as temporary departures from crony capitalism model.

Of source later everything "returned to normal", but what was accomplished initially was definitely not crony capitalism. Especially legislation.

The New Deal was probably one of the few successful attempt in history to reign on financial sector. Napoleon was also extremely suspicious of financial sector (which is actually typical for any nationalist who just got political power; corruption comes later on)

The New Deal relegated financial sector to the secondary roles for the next 30 years or so. Only in 70th they became reckless again. Amazing achievement...

Also some industries, especially at early stages are definitely "less crony" then others. IT industry probably such an area after the introduction of IBM PCs (August 12, 1981) till the dot-com boom.

New Deal democrat -> DrDick ... , March 09, 2017 at 03:12 PM
As I have pointed out several times, the corporate form with its very powerful advantage of limited liability is nothing more than a license granted by the Sovereign. Once upon a time it was a very sparingly granted privilege.

So, at a very fundamental level I wonder if we have reached a point where it should be granted at all - certainly beyond the first 10 years of corporate existence.

anne : , March 09, 2017 at 05:53 PM
The essence of the neo-classical theory is the constraint on choice imposed by given and widely shared technology and competitive markets for resources and vendors. Political engagement derives from and is focused on seeking monopolistic power. The various theories of monopolistic competition are instructive but fall far short of the standard sought by neoclassical theory....

-- Joseph Bower

[ Then where does an economist go from here? This is fascinating. ]

[Mar 10, 2017] Political Engagement by Corporations Derives from and is Focused on Seeking Monopolistic Power

Mar 10, 2017 | economistsview.typepad.com
"Political Engagement by Corporations Derives from and is Focused on Seeking Monopolistic Power," Interview of Joseph Bower : ...Q: The neoclassical theory of the firm does not consider political engagement by corporations. How big of an omission do you think this is?
There has been extensive writing about the power and scope of corporations going back at least to Edward Mason and Carl Kaysen. In a chapter I wrote,1) I explored the role of large corporations in terms of their impact on factors other than the product market. Echoing Kaysen I emphasized location, employment, product line choices, vendors that because of their scale and scope give firms powers far beyond those conceived in the neo-classical model and unconstrained by traditional notions of price competition. The neo-classical model simply does not comprehend the modern corporation.
But if we are talking about a theory carefully constructed on a set of axioms, the theory really can't consider political engagements. The essence of the neo-classical theory is the constraint on choice imposed by given and widely shared technology and competitive markets for resources and vendors. Political engagement derives from and is focused on seeking monopolistic power. The various theories of monopolistic competition are instructive but fall far short of the standard sought by neoclassical theory. ...
JohnH : , March 09, 2017 at 12:46 PM
Monopoly power? I thought 'libruls' didn't about monopoly power! After all, it is of absolutely no concern to them that the Fed colludes with the Wall Street banking cartel to ration credit and low interest rates to their wealthy clientele, who use the money to speculate, not make productive investments.
kthomas -> JohnH... , March 09, 2017 at 12:51 PM
Well, corporations are people, with sovereign rights and constitutionally-upheld rights. It's an odd time in history.
anne -> pgl... , March 09, 2017 at 05:48 PM
Joan Robinson wrote about this back in the 1930's....

[ Then do set down a reference. What should be read? ]

anne -> anne... , March 09, 2017 at 06:03 PM
Political Engagement by Corporations Derives from and is Focused on Seeking Monopolistic Power

-- Joseph Bower

[ While this assertion seems obvious, how to construct a countervailing response is surely not obvious though the need seems to have been growing especially since labor unions lost significance influence in the 1980s. ]

anne -> anne... , March 09, 2017 at 06:19 PM
http://www.bls.gov/webapps/legacy/cpslutab3.htm

January 15, 2017

United States Union Membership Rates, 1992-2016

Private wage and salary workers

1992 ( 11.5)
1993 ( 11.2) Clinton
1994 ( 10.9)

1995 ( 10.4)
1996 ( 10.2)
1997 ( 9.8)
1998 ( 9.6)
1999 ( 9.5)

2000 ( 9.0)
2001 ( 8.9) Bush
2002 ( 8.6)
2003 ( 8.2)
2004 ( 7.9)

2005 ( 7.8)
2006 ( 7.4)
2007 ( 7.5)
2008 ( 7.6)
2009 ( 7.2) Obama

2010 ( 6.9)
2011 ( 6.9)
2012 ( 6.6)
2013 ( 6.7)
2014 ( 6.6)

2015 ( 6.7)
2016 ( 6.4)

anne -> anne... , March 09, 2017 at 06:09 PM
https://fred.stlouisfed.org/graph/?g=cYl1

January 30, 2017

Labor Share of Nonfarm Business Income and Real After-Tax Corporate Profits, 1992-2016

(Indexed to 1992)


Decline in labor share of income:

92.7 - 100 = - 7.3%

Increase in real profits:

276.8 - 100 = 176.8%

anne -> anne... , March 09, 2017 at 06:10 PM
https://fred.stlouisfed.org/graph/?g=cvEc

January 30, 2017

Labor Share of Nonfarm Business Income and Real After-Tax Corporate Profits, 2000-2016

(Indexed to 2000)


Decline in labor share of income:

91.2 - 100 = - 8.8%

Increase in real profits:

210.7 - 100 = 110.7%

anne -> anne... , March 09, 2017 at 06:15 PM
https://fred.stlouisfed.org/graph/?g=cvEi

January 30, 2017

Labor Share of Business Income and Real After-Tax Corporate Profits, 2007-2016

(Indexed to 2007)


Decline in labor share of income:

96.6 - 100 = - 3.4%

Increase in real profits:

126.7 - 100 = 26.7%

anne -> pgl... , March 09, 2017 at 06:32 PM
Joan Robinson wrote about this back in the 1930's....

[ The topic is important, and I would have welcomed learning how better to approach it and what other thoughts there might be on the topic. ]

Jay : , March 09, 2017 at 01:30 PM
Political engagement by unions derives from and is focused on _____________?
DrDick -> Jay... , March 09, 2017 at 01:46 PM
Attempts to balance the disproportionate power of corporations. I realize you are an idiot, but do try to visit reality occasionally.
Jay -> DrDick ... , March 09, 2017 at 02:46 PM
If that is what gets you to sleep at night keep deluding yourself. Me thinks if you had your way corporate political spending would be banned but corporate political spending by organizations more equal than others - unions - would be acceptable.
pgl -> Jay... , March 09, 2017 at 03:36 PM
Oh Lord - the ghost of PeterK rules. Can we please stop this pointless garbage?
Peter K. -> pgl... , March 09, 2017 at 03:46 PM
PGL the worst troll on EV.

A pathetic old man.

pgl -> Peter K.... , March 09, 2017 at 04:08 PM
Another insightful and productive comment. Snicker.
DrDick : , March 09, 2017 at 01:48 PM
Strikes me that if your economic theory cannot deal with political engagement by corporations, you need to scrap your economic theory. Crony capitalism is the only sort that has ever existed and corporations have always engaged in politics to their own benefit.
New Deal democrat -> DrDick ... , March 09, 2017 at 03:12 PM
As I have pointed out several times, the corporate form with its very powerful advantage of limited liability is nothing more than a license granted by the Sovereign. Once upon a time it was a very sparingly granted privilege.

So, at a very fundamental level I wonder if we have reached a point where it should be granted at all - certainly beyond the first 10 years of corporate existence.

pgl -> DrDick ... , March 09, 2017 at 03:35 PM
Regulatory capture is an economic theory. The bread and butter of this excellent blog. Now if you mean the economic theory taught by Greg Mankiw in his overpriced books - yea, they are weak narrow subsets of what actual economics do.
Peter K. -> pgl... , March 09, 2017 at 03:47 PM
"The bread and butter of this excellent blog."

You really are a pedantic jerk.

pgl -> Peter K.... , March 09, 2017 at 04:08 PM
More incredible insights! Snicker.
DrDick -> pgl... , March 09, 2017 at 04:54 PM
It is much more than just regulatory capture. It is lobbying, political contributions, overt corruption, and much more.
point -> DrDick ... , March 09, 2017 at 05:43 PM
That would seem about right. Scrap it. Or at least abandon mathematical pretense.

The situation in

"But if we are talking about a theory carefully constructed on a set of axioms, the theory really can't consider political engagements."

seems to be equivalent to a geometry where some class of objects, say regular polygons, are empowered with the free will to change the postulates of the geometry in mid-proof.

Without recognizing sudden rules changes, it seems economic proofs go astray.

The really interesting stuff looks like it's in the postulate changing and feedback business anyway.

pgl : , March 09, 2017 at 03:33 PM
"The various theories of monopolistic competition are instructive but fall far short of the standard sought by neoclassical theory."

I'm curious what he means by the "standard sought by neoclassical theory". Joan Robinson coined 'monopolistic competition' and her exposition of the implications of this concept were well received by even neoclassical types.

Not to criticize as his research is important. But let's remember the contributions of the first great woman economist.

Peter K. -> pgl... , March 09, 2017 at 03:47 PM
Robinson would think of you as a sad joke if she was still alive.
pgl -> Peter K.... , March 09, 2017 at 04:09 PM
She would spit on your grave. Snicker.
Peter K. -> pgl... , March 09, 2017 at 06:29 PM
I surprised you don't call her "Joan" as if you know her, like you do with everyone else.
anne : , March 09, 2017 at 05:53 PM
The essence of the neo-classical theory is the constraint on choice imposed by given and widely shared technology and competitive markets for resources and vendors. Political engagement derives from and is focused on seeking monopolistic power. The various theories of monopolistic competition are instructive but fall far short of the standard sought by neoclassical theory....

-- Joseph Bower

[ Then where does an economist go from here? This is fascinating. ]

[Mar 10, 2017] As Joan Robinson said you should study economics to protect yourself from the lies of economists

That's not so much about Eurocentric modernism as America-centric neoliberalism
Notable quotes:
"... He first caught the scent that something was off as an economics student in India, wondering why, despite his mastery of the mathematics and technology of the discipline, the logic always escaped him. Then one day he had an epiphany: the whole thing was "cockeyed from start to finish." To his amazement, his best teachers agreed. "Then why are we studying economics?" demanded the pupil. "To protect ourselves from the lies of economists," replied the great economist Joan Robinson. ..."
"... Kanth realized that people are not at all like Adam Smith's homo economicus , a narrowly self-interested agent trucking and bartering through life. Smith had turned the human race - a species capable of wondrous caring, creativity, and conviviality - into a nasty horde of instinctive materialists: a society of hustlers. ..."
"... how this way of thinking took hold of us, and how it delivered a society which is essentially asocial - one in which everybody sees everybody else as a means to their own private ends. ..."
"... he argues, consigned us to an endless and exhausting Hobbesian competition. For every expansion of the market, we found our social space shrunk and our natural environment spoiled. For every benefit we received, there came a new way to pit us against each other. Have the costs become too high? ..."
"... "That's our big dream," says Kanth. "Everyone and everything is a stepping stone to our personal glorification." When others get in our way, we end up with a grim take on life described succinctly by Jean Paul Sartre: "Hell is other people." ..."
"... Mr. Kanth makes some valid points, but his criticism of the European Enlightenment is mistaken. Many of the horrors of modernity had their origins in the Counter-Enlightenment and in the Church Inquisitions, not the Enlightenment. The modern police state is a refinement of and a descendant of the struggles against heresy. ..."
"... Agreed. Parramore's phrase 'history of a set of bad ideas' does seem a bit harsh for a description of the Enlightenment. ..."
"... Like most big ideas, the problem isn't with the original idea so much as the corruption of it over the years as it's put into practice. Massive reform is necessary for sure but I'll take the Enlightenment over nasty, brutish, and short any day. ..."
"... I read somewhere that some Native Americans looking down on the ruins of San Fransisco after the great quake of 1906, thought that at last the crazy white people would realize the folly of their ways, and become normal humans. ..."
"... So they were amazed that before the ruins even stopped smoking, the crazy white people, ignoring the obvious displeasure of the Great Spirit, were busy rebuilding the same mess that had just been destroyed. ..."
"... I have a strong suspicion that evil empires do not come to their senses, rather, one way or another, they get flattened. ..."
"... I can remember arguing over this in my philosophy classes way back in the 80's – that Objectivism and the Enlightenment were two sides of the same coin, and that those Enlightenment writers were writing tomes to justify their own greed and prejudices, while cloaking their greed and prejudices in "morality". ..."
"... At the time (I was young) it seemed to me that the Enlightenment was an attempt to destroy the basis of Jesus's and Buddha's philosophy – that the most moral position of humanity was to care for its members, just as clans, tribes, families, and other human societies did. ..."
"... "They didn't accomplish much" meaning they lost militarily to cultures with more aggression and better weapons. ..."
"... It seems to me that humans, as hierarchical mammals, really do have a desire to compete with each other for status and respect. The trouble is in organizing all of society around this one struggle, forcing everyone into explicit competition and making the stakes too high. When the losers can't afford to buy food, when they and their little children live on the street and die in the cold, when their kids can never compete on an equal field to improve their own status, things have gone too far. And in addition to material needs, humans also have a need for independence, an escape from being constantly ordered around by the winners and under someone else's thumb. ..."
"... Note, as an aside, how granting economic rights to outgroups like women and Blacks brought them into the same market competition. Well, a lot of men don't want to compete with women for status. They want to compete with each other. The more competitors you add the harder it is to win. But when all resources ..."
"... I think you're right about that and if we do ever manage to abolish capitalism and develop a less violent and more egalitarian society, there will need to be an outlet for that innate desire. I propose hockey. Beats starting a war . ..."
"... When President Trump defeated his rival in the last election, among the many ways in which the event was captured was a representation of the President as Perseus carrying the head of Medusa (Clinton) in his outstretched left hand. Medusa was a monster gorgon of the Greek mythology; a representation in this case by Clinton (a woman) who dared to take real power in this essentially male world and silenced for trying to participate in the public discourse (election). ..."
"... The point is that what passes as Modernism has never entered modern life. In support of my proposition I cite an encounter between a journalist and Mahatma Gandhi in 1930s: The journalist asked Gandhi, "Mr. Gandhi, what is your opinion of the western civilization?" Gandhi replied instantaneously "It would be a good idea". ..."
"... I think he's right about Eurocentric modernism being incompatible with human civilization. But it can't be just an evolutionary accident that civilization is so aggressive. It served a purpose. We refer to it as 'survival'. I used to tell my daughter not to make fun of those 'dorky little boys' too much because they all had a way of growing up to be very nice men. And I told her women are the reason we have all survived, but men have made it so much easier! And etc. ..."
"... I believe that one element of modern life that should be removed forever is the infinite search for maximizing profits. ..."
"... On more than one occasion I've compared the rent-seeking profit mongers to Molocks that cultivate us milder Eloi and cannabalize us. ..."
"... But the economics profession's problem isn't "blind faith in science." It's a massive failure to apply the scientific method, combined with an expectation that we all put our blind faith in THEM anyway. ..."
"... Essentially a post-modern critique of modernism without all the jargon of p-m critical theory (yay!!). I don't think we have enough data from the pre-modern huddling societies to determine if that's how we want to live. Yes, my boss at work exploits me, but on the other hand, I can walk into an air-conditioned supermarket and survey row after row of steaks that I can afford to buy. I love to drive cars. The cinema is enchanting. Dying of a plague is a very remote possibility. We could give it all up, but there's no guarantee our lives would be richer or fuller–just different, at best. ..."
"... Just how dark were the Dark Ages? Or, to borrow Churchill's phrase, how dark would a NEW Dark Age be? ..."
"... Two possibles: the cargo cult children of Mad Max: Beyond the Thunderdome, or the society depicted in Aldous Huxley's Ape and Essence. At least the Church in Rome and Constantinople provided some kind of lifeline of civilization during the collapse of the Roman Empire. What similar institution have we now? ..."
"... Sounds like bog-standard post-modernist tosh to me, just without the obscure ProfSpeak jargon that usually accompanies it. I fail to see how this is helpful. ..."
"... The only thing missing in this post is Bambi. Of course the Bushmen would kill Bambi dead with spears and roast her flesh over a fire. So would we, actually. hmmmm. ..."
"... I agree dude is right that the values now unraveling (democracy, pluralism, individualism, free speech, international-ism (in both the good and bad ways)) go all the way back to that time. ..."
"... But this article is a perfect example of throwing the baby out with the bathwater. Surely none of the third world cultures he praises got where they are by totally throwing out previous systems, the good parts and bad, every time they faced a crisis. ..."
"... IMO the problem is enlightenment values have been hollowed out, narrowed to only those superficial aspects of those values which benefit the marketplace. Like how real food got turned into Mosanto fast-food so gradually, nobody noticed that the nutrients are missing. ..."
"... Adam Smith had some good points that have been lost along the way, namely penalizing rent seeking. ..."
"... Smith has been seriously misrepresented. The Theory of Moral Sentiments shows a very different side to that presented by those who selectively quote from The Wealth of Nations. ..."
"... It's hard to tell from the rather incoherent summary of what looks like an incoherent argument, but the "everything went wrong after the Enlightenment" meme has been circulating for ages. It was speared pretty effectively by Domenico Losurdo in "War and Revolution" some years ago. The author seems to be jumbling all sorts of arguments together, some valid and some not, but the valid arguments are in general criticisms of liberalism, which is not the same of the Enlightenment. ..."
"... This is a very good point, as the Enlightenment was not merely a straight line connection to the blight of NeoLiberalism ..."
"... The naked embrace of selfishness, while never absent over these centuries, did have countervailing currents and forces with which to contend that were sometimes able to at least minimize the damage. But more recently, with supposedly scientific NeoLiberal economic thought sweeping the field throughout much of the first world, and with the overall decline of religious and moral systems as a counterpoise, things have reached an unlovely pass. ..."
"... homo economicus ..."
"... For further reading, I strongly recommend John Ralston Saul's "Voltaire's Bastards". ..."
"... I think that people who are interested in how the Enlightenment may or may not have contributed to the problems of modernity would do well to read Enemies of the Enlightenment: The French Counter-Enlightenment and the Making of Modernity , by Darrin McMahon. Another book of value is The Enlightenment: And Why It Still Matters , by Anthony Pagden. ..."
"... I should have mentioned that the full title is "Voltaire's Bastards: The Dictatorship of Reason in the West". ..."
Mar 10, 2017 | www.nakedcapitalism.com

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

Across the globe, a collective freak-out spanning the whole political system is picking up steam with every new "surprise" election, rush of tormented souls across borders, and tweet from the star of America's great unreality show, Donald Trump.

But what exactly is the force that seems to be pushing us towards Armageddon? Is it capitalism gone wild? Globalization? Political corruption? Techno-nightmares?

Rajani Kanth, a political economist, social thinker, and poet , goes beyond any of these explanations for the answer. In his view, what's throwing most of us off kilter - whether we think of ourselves as on the left or right, capitalist or socialist -was birthed 400 years ago during the period of the Enlightenment. It's a set of assumptions, a particular way of looking at the world that pushed out previous modes of existence, many quite ancient and time-tested, and eventually rose to dominate the world in its Anglo-American form.

We're taught to think of the Enlightenment as the blessed end to the Dark Ages, a splendid blossoming of human reason. But what if instead of bringing us to a better world, some of this period's key ideas ended up producing something even darker?

Kanth argues that this framework, which he calls Eurocentric modernism, is collapsing, and unless we understand why and how it has distorted our reality, we might just end up burnt to a crisp as this misanthropic Death Star starts to bulge and blaze in its dying throes.

A Mass Incarceration of Humanity

Kanth's latest book, Farewell to Modernism: On Human Devolution in the Twenty-First Century , tells the history of a set of bad ideas. He first caught the scent that something was off as an economics student in India, wondering why, despite his mastery of the mathematics and technology of the discipline, the logic always escaped him. Then one day he had an epiphany: the whole thing was "cockeyed from start to finish." To his amazement, his best teachers agreed. "Then why are we studying economics?" demanded the pupil. "To protect ourselves from the lies of economists," replied the great economist Joan Robinson.

Kanth realized that people are not at all like Adam Smith's homo economicus , a narrowly self-interested agent trucking and bartering through life. Smith had turned the human race - a species capable of wondrous caring, creativity, and conviviality - into a nasty horde of instinctive materialists: a society of hustlers.

Using his training in history and cultural theory, Kanth dedicated himself to investigating how this way of thinking took hold of us, and how it delivered a society which is essentially asocial - one in which everybody sees everybody else as a means to their own private ends. Eurocentric modernism, he argues, consigned us to an endless and exhausting Hobbesian competition. For every expansion of the market, we found our social space shrunk and our natural environment spoiled. For every benefit we received, there came a new way to pit us against each other. Have the costs become too high?

The Creed of Capture

The Eurocentric modernist program, according to Kanth, has four planks: a blind faith in science; a self-serving belief in progress; rampant materialism; and a penchant for using state violence to achieve its ends. In a nutshell, it's a habit of placing individual self-interest above the welfare of community and society.

To illustrate one of its signature follies, Kanth refers to that great Hollywood ode to the Western spirit, "The Sound of Music." Early in the film, the Mother Superior bursts into song, calling on the nun Maria to "climb every mountain, ford every stream."

Sounds exhilarating, but to what end? Why exactly do we need to ford every stream? From the Eurocentric modernist viewpoint, Kanth says, the answer is not so innocent: we secretly do it so that we can say to ourselves, "Look, I achieved something that's beyond the reach of somebody else." Hooray for me!

"That's our big dream," says Kanth. "Everyone and everything is a stepping stone to our personal glorification." When others get in our way, we end up with a grim take on life described succinctly by Jean Paul Sartre: "Hell is other people."

Sounds bad, but didn't Eurocentric modernism also give us our great democratic ideals of equality and liberty to elevate and protect us?

Maybe these notions are not really our salvation, suggests Kanth. He notes that when we replace the vital ties of kinship and community with abstract contractual relations, or when we find that the only sanctioned paths in life are that of consumer or producer, we become alienated and depressed in spirit. Abstract rights like liberty and equality turn out to be rather cold comfort. These ideas, however lofty, may not get at the most basic human wants and needs. .

... ... ...

Kanth, like many, senses that a global financial crisis, or some other equivalent catastrophe, like war or natural disaster, may soon produce painful and seismic economic and political disruptions. Perhaps only then will human nature reassert itself as we come to rediscover the crucial nexus of reciprocities that is our real heritage. That's what will enable us to survive.

... ... ...

DJG , March 10, 2017 at 10:27 am

Oh?

"The Eurocentric modernist program, according to Kanth, has four planks: a blind faith in science; a self-serving belief in progress; rampant materialism; and a penchant for using state violence to achieve its ends. In a nutshell, it's a habit of placing individual self-interest above the welfare of community and society."

Kanth hasn't dealt much with the wild skepticism of Enlightenment and modernist thinkers: That would put a strain on such simplistic thinking. He's never heard of Kant or Rousseau? Pascal? He's never even read Matthew Arnold's "Dover Beach"? Dickens? A speech by Abraham Lincoln? The novels of Jane Austen? Maybe some articles by Antonio Gramsci? The Leopard by Tomasi di Lampedusa? Anything about Einstein? Or even Freud for that matter? Looked at a painting or etching or work in ceramic by Picasso?

Just because economics has devolved into looting and excuse-making for looting isn't a critique of the cultural and scientific flowering that were part of the Enlightenment and Modernism. Are we really supposed to think that Milton Friedman and his delusions have destroyed all aspects of the enormous changes since 1600 or so? And I, for one, don't want to backslide into the Baroque–when states used their power for religious wars so virulent that Silesia and Alsace were depopulated.

kgw , March 10, 2017 at 12:03 pm

Alienation is not the name of a river in Egypt BTW, Did any of your examples lead to anything other than this?
The sum of individuals adds up to the bizarre creature we call "culture." A flower in the air, to be sure.

craazyman , March 10, 2017 at 12:12 pm

They didn't even have food delivery! This post isn't the best evah in the history of NC - I mean it shouldn't be censored or taken down or anything and everybody has a right to an opinion, but "Oy Vey what a shock to a reader's delicate intellectual sensibilities."

You wonder if it's Beer Goggles that are being looked through or if this is a case of transference and projection. The fact that the post author is a poet raises suspicion, since they aren't the most reliable sources when it come so sober factual analysis.

Vatch , March 10, 2017 at 10:35 am

Mr. Kanth makes some valid points, but his criticism of the European Enlightenment is mistaken. Many of the horrors of modernity had their origins in the Counter-Enlightenment and in the Church Inquisitions, not the Enlightenment. The modern police state is a refinement of and a descendant of the struggles against heresy.

If one is going to criticize societies for lacking "moral economies", it's not just the European (and American) based societies that need to be targeted. Other societies have deep failures that extend back for millennia, such as the caste system of India.

lyman alpha blob , March 10, 2017 at 1:51 pm

Agreed. Parramore's phrase 'history of a set of bad ideas' does seem a bit harsh for a description of the Enlightenment.

Been a while since I read Candide , but the end where he meets the world famous sage and asks for the secret of happiness in a terrible world only to be told 'Tend your own garden' and then having the gate slammed in his face has always stuck with me.

You could interpret that to mean isolate yourself from your fellow human beings and just look out for yourself, but I don't think that's what Voltaire was getting at.

Like most big ideas, the problem isn't with the original idea so much as the corruption of it over the years as it's put into practice. Massive reform is necessary for sure but I'll take the Enlightenment over nasty, brutish, and short any day.

Mark P. , March 10, 2017 at 1:53 pm

http://www.kashgar.com.au/articles/life-in-india-the-practice-of-sati-or-widow-burning

Widow-burning - a wonderful holistic Indian practice that those evil post-enlightenment European imperialists obstructed.

steelhead23 , March 10, 2017 at 10:43 am

Perhaps, beyond anthropology, there are lessons in evolutionary biology. Individual humans are fairly weak animals. Our ancestors were obligated to "huddle" to survive, or as Richard Dawkins might suggest, huddling, banding together in families and groups, was an evolutionarily successful strategy. Those well adapted to communal living were more likely to survive, so that tendency was selected for. However, "cheaters" can also survive. That is, it is not uncommon in the natural world to find individuals and groups of individuals who cheat the group – expend less energy to reproduce, such as male sunfish that display the secondary sexual characteristics of females, so are not driven off by nest building males, make a mad dash in to fertilize eggs when a real female shows up, but provides no protection for the young – the adult male does that. In human culture, there are also cheaters, those who provide little to the larger society, yet reap a disproportionate level of resources.

So, learning more of our cultural roots and adopting positive measures for social cohesion is a good idea, but much like Jesus' view that the poor will always be with us, cheaters, from banksters to dictators, will too.

MtnLife , March 10, 2017 at 10:43 am

As Kanth sees it, most of our utopian visions carry on the errors and limitations born of a misguided view of human nature. That's why communism, as it was practiced in the Soviet Union and elsewhere, projected a materialist perspective on progress while ignoring the natural human instinct for autonomy- the ability to decide for ourselves where to go and what to say and create. On flip side, capitalism runs against our instinct to trust and take care of each other.

I think this paragraph speaks volumes for transitioning to a society with a BGI with libertarian socialist leanings. Let people be free to create what they are passionate about while allowing humans to express their innate desire to care for one another without it signifying weakness or at their time own personal expense. I don't think this approach necessarily precludes rockets to Mars either. The engineers who are passionate will still get together and build one. It may take a little longer if they can't convince others to help but hopefully this will foster more cooperative approaches and less viewing of other humans as consumables.

Great post. Thanks for sharing.

JTMcPhee , March 10, 2017 at 12:27 pm

And where does "libertarian socialism" end up taking us? Hmmm http://www.nakedcapitalism.com/2011/11/journey-into-a-libertarian-future-part-i-%e2%80%93the-vision.html

No thanks. We're pretty well there already.

MtnLife , March 10, 2017 at 1:21 pm

Libertarianism and libertarian socialism are two different things. Libertarianism is a less authoritative conservatism while libertarian socialism is a less authoritative social democracy. Think Chomsky, not Ron Paul. Or think of it as a more relaxed Bernie who thinks things should be done on a smaller, more local scale.

Watt4Bob , March 10, 2017 at 10:44 am

Kanth, like many, senses that a global financial crisis, or some other equivalent catastrophe, like war or natural disaster, may soon produce painful and seismic economic and political disruptions. Perhaps only then will human nature reassert itself as we come to rediscover the crucial nexus of reciprocities that is our real heritage. That's what will enable us to survive.

I read somewhere that some Native Americans looking down on the ruins of San Fransisco after the great quake of 1906, thought that at last the crazy white people would realize the folly of their ways, and become normal humans.

So they were amazed that before the ruins even stopped smoking, the crazy white people, ignoring the obvious displeasure of the Great Spirit, were busy rebuilding the same mess that had just been destroyed.

I have a strong suspicion that evil empires do not come to their senses, rather, one way or another, they get flattened.

justanotherprogressive , March 10, 2017 at 10:45 am

Yes, yes, yes! THIS!

I can remember arguing over this in my philosophy classes way back in the 80's – that Objectivism and the Enlightenment were two sides of the same coin, and that those Enlightenment writers were writing tomes to justify their own greed and prejudices, while cloaking their greed and prejudices in "morality".

At the time (I was young) it seemed to me that the Enlightenment was an attempt to destroy the basis of Jesus's and Buddha's philosophy – that the most moral position of humanity was to care for its members, just as clans, tribes, families, and other human societies did.

The most frequent response from professors and classmates to my thesis? But those clans, tribes, families, etc., didn't accomplish much, did they? As if the only reason for humanity's existence was to compete against itself

Needless to say, I didn't stick with Philosophy ..

Darius , March 10, 2017 at 12:13 pm

And we need new syntheses, at which this is an attempt.

It's not a stretch to say the trend since the renaissance has been to exalt the individual. Kanth is aiming for a communitarian philosophy. An interesting departure point for discussion. I don't see what people find so offensive.

reslez , March 10, 2017 at 12:09 pm

"They didn't accomplish much" meaning they lost militarily to cultures with more aggression and better weapons.

It seems to me that humans, as hierarchical mammals, really do have a desire to compete with each other for status and respect. The trouble is in organizing all of society around this one struggle, forcing everyone into explicit competition and making the stakes too high. When the losers can't afford to buy food, when they and their little children live on the street and die in the cold, when their kids can never compete on an equal field to improve their own status, things have gone too far. And in addition to material needs, humans also have a need for independence, an escape from being constantly ordered around by the winners and under someone else's thumb.

Capitalism made the stakes too high. But it was designed by the winners.

You might argue that there were plenty of "hopeless losers" in the systems that preceded capitalism - the orphans, elderly crones, and beggars without livelihoods who used to wander the hedgerows in medieval times. We have more resources now which also means no excuses.

Note, as an aside, how granting economic rights to outgroups like women and Blacks brought them into the same market competition. Well, a lot of men don't want to compete with women for status. They want to compete with each other. The more competitors you add the harder it is to win. But when all resources are restricted to the market, it's unjust to exclude any group from access. Once again the stakes are too high. Social democracies are better places to live for exactly this reason.

lyman alpha blob , March 10, 2017 at 1:18 pm

It seems to me that humans, as hierarchical mammals, really do have a desire to compete with each other for status and respect.

I think you're right about that and if we do ever manage to abolish capitalism and develop a less violent and more egalitarian society, there will need to be an outlet for that innate desire. I propose hockey. Beats starting a war .

Hemang , March 10, 2017 at 10:50 am

When President Trump defeated his rival in the last election, among the many ways in which the event was captured was a representation of the President as Perseus carrying the head of Medusa (Clinton) in his outstretched left hand. Medusa was a monster gorgon of the Greek mythology; a representation in this case by Clinton (a woman) who dared to take real power in this essentially male world and silenced for trying to participate in the public discourse (election).

I take this example to point out that both Lynn Parramore and Rajni Kanth declaring in a version of mumbo-jumbo are sadly wrong-modernism has always been skin-deep excepting in accommodating the technological element in the tone of life. Voltaire and Rousseau aside, both Kanth and Parramore know which side of the mumbo-jumbo bread is their butter; even bemoaning the collapsing supposed ruins of modernism they do not fail to take advantage! "Eurocentric modernism has unhinged us from our human nature" asserts Kanth in his "book" but I would like to bluntly ask him: Please define your "us" and "our" in that proposition and clarify if poor Indians like Yours Truly find a dot in that set.

The point is that what passes as Modernism has never entered modern life. In support of my proposition I cite an encounter between a journalist and Mahatma Gandhi in 1930s: The journalist asked Gandhi, "Mr. Gandhi, what is your opinion of the western civilization?" Gandhi replied instantaneously "It would be a good idea".

Stephanie , March 10, 2017 at 11:04 am

"The Eurocentric modernist program, according to Kanth, has a penchant for using state violence to achieve its ends."

I'm not entirely sure how this differentiates Eurocentric modernism from any other civilization.

Hemang , March 10, 2017 at 11:45 am

It does not at all. This is the price one pays as an innocent reader by reading social science mumbo jumbo which is so irksome. It lacks the grace of the real mumbo jumbo too. Kanth is bluffing; the author misunderstands his stupid linguistic constructions of Kanth and incomprehension and chaos follow. The whole article seems to be a bluff about a bluff(the book).

susan the other , March 10, 2017 at 11:15 am

I think he's right about Eurocentric modernism being incompatible with human civilization. But it can't be just an evolutionary accident that civilization is so aggressive. It served a purpose. We refer to it as 'survival'. I used to tell my daughter not to make fun of those 'dorky little boys' too much because they all had a way of growing up to be very nice men. And I told her women are the reason we have all survived, but men have made it so much easier! And etc.

We have been very successful as a species; surviving all of our own inquisitions, pogroms, hallucinations and yes, this is a serious situation we are in. We might even try to guide ourselves out of it, using science and technology, as we huddle.

JEHR , March 10, 2017 at 11:18 am

I believe that one element of modern life that should be removed forever is the infinite search for maximizing profits.

Art Eclectic , March 10, 2017 at 11:34 am

On more than one occasion I've compared the rent-seeking profit mongers to Molocks that cultivate us milder Eloi and cannabalize us.

readerOfTeaLeaves , March 10, 2017 at 11:56 am

I suspect there was a fatal error long, long ago: you lend me your ram so my ewe can have offspring. If there are twins, we each get one; if not, we agree upon future breeding rights and grazing areas. After generations of this sort of breeding activity, I have in my mind the notion that there is a 'natural increase' from lending or swapping.

Along comes a scribe with a tablet, whom I have now hired to list the number of my flocks (wealth on the hoof); I lend you forms of wealth (rams, ewes, oxen, axes, boats) , and the scribe assumes there must be some 'natural increase' as the outcome of this lending and swapping. Consequently, the scribe carves cuneiform markings to represent what we might call 'compound interest' that result from lending and swapping of non-biological resources - despite the fact that if you sit two clay tablets in the sun, they do not (and never will!) create an additional clay tablet. Ditto heaps of dollar bills; it's not the money that creates increase; it's the assumption of 'increase' (originating in breeding activity of flocks and herds) that makes the money generate surplus - not any property of those scraps of paper themselves.

BTW: FWIW, double entry bookkeeping seems to trace the earliest period of modernism, which IMVHO adds heft to Kanth's argument about something shifting probably earlier than 400 years ago.

It's possible that Michael Hudson has covered this; if so, I've not had time to read it yet. I hope to in future. David Graeber's work on redemption ('buying back' someone enslaved or indentured) and his anthropological findings also lend heft to Kanth's analysis.

Karen , March 10, 2017 at 11:28 am

I certainly agree with this:

"He first caught the scent that something was off as an economics student in India, wondering why, despite his mastery of the mathematics and technology of the discipline, the logic always escaped him. Then one day he had an epiphany: the whole thing was "cockeyed from start to finish.""

But the economics profession's problem isn't "blind faith in science." It's a massive failure to apply the scientific method, combined with an expectation that we all put our blind faith in THEM anyway.

I think our problems do not stem from any theories or ideologies, they are the predictable result of human nature – specifically of the fact that the balance between the loving side of human nature and the aggressive side is not evenly distributed among individuals. It is precisely the most aggressive among us who most desire, and work the hardest, to dominate and control others.

jrs , March 10, 2017 at 12:39 pm

I had the same experience as he had with economics with law, ok I only studied it when studying business and that does not a lawyer make, but it made no sense for me. But I do think I maybe just have the wrong kind of brain for it, expect a logic that isn't there.

Phil in KC , March 10, 2017 at 11:33 am

Essentially a post-modern critique of modernism without all the jargon of p-m critical theory (yay!!). I don't think we have enough data from the pre-modern huddling societies to determine if that's how we want to live. Yes, my boss at work exploits me, but on the other hand, I can walk into an air-conditioned supermarket and survey row after row of steaks that I can afford to buy. I love to drive cars. The cinema is enchanting. Dying of a plague is a very remote possibility. We could give it all up, but there's no guarantee our lives would be richer or fuller–just different, at best.

Just how dark were the Dark Ages? Or, to borrow Churchill's phrase, how dark would a NEW Dark Age be? I don't think you can get rid of Modernism very easily, for certain parts would survive. Science and tech, for example. Ideas of surveillance and control. But along with this, new prejudices, new superstitions, perhaps? What perverse new form of religion or philosophy might arise from the ashes of our civilization?

Two possibles: the cargo cult children of Mad Max: Beyond the Thunderdome, or the society depicted in Aldous Huxley's Ape and Essence. At least the Church in Rome and Constantinople provided some kind of lifeline of civilization during the collapse of the Roman Empire. What similar institution have we now?

Anonymous , March 10, 2017 at 11:58 am

Sounds like bog-standard post-modernist tosh to me, just without the obscure ProfSpeak jargon that usually accompanies it. I fail to see how this is helpful.

craazyman , March 10, 2017 at 11:38 am

The only thing missing in this post is Bambi. Of course the Bushmen would kill Bambi dead with spears and roast her flesh over a fire. So would we, actually. hmmmm.

Ivy , March 10, 2017 at 11:38 am

To illustrate one of its signature follies, Kanth refers to that great Hollywood ode to the Western spirit, "The Sound of Music." Early in the film, the Mother Superior bursts into song, calling on the nun Maria to "climb every mountain, ford every stream."

Sounds exhilarating, but to what end? Why exactly do we need to ford every stream? From the Eurocentric modernist viewpoint, Kanth says, the answer is not so innocent: we secretly do it so that we can say to ourselves, "Look, I achieved something that's beyond the reach of somebody else." Hooray for me!

Many would part company with Kanth over the above characterization. There are many reasons why people climb mountains and ford streams that do not include, or even consider, that element of exclusive personal achievement. Some might even aver that climbing and fording and so many other human activities are done "because it is there", while others appreciate a spiritual or other inspirational aspect.

Will we climbers and forders be told that we are selfish or otherwise deficient or on the wrong side of history or whatever the mal du jour is because we like a little bit of hygge or Gemütlichkeit as we live our lives?

windsock , March 10, 2017 at 12:22 pm

Quite that is indeed the point where I stopped reading and started skimming someone who mistakes metaphors in a musical for physical actions is not going to enlighten my world (no matter how much I dislike the film).

jrs , March 10, 2017 at 12:48 pm

climbing every mountain and fording every stream is probably impossible in the literal sense (aren't there way too many streams for this? and mountains probably too), and certainly it is impossible in the metaphoric one.

So mostly it's completely unrealistic bilge.

Musicismath , March 10, 2017 at 1:49 pm

I don't see why poor Julie Andrews, of all people, has to be singled out here as exemplifying malign post-Enlightenment discourses of proprietorship and exploitation. That's just mean . Surely those ideologies are better examined through a close reading of the Shamen's inexcusable '90s electro hit "Move Every Mountain"?

schultzzz , March 10, 2017 at 11:45 am

I agree dude is right that the values now unraveling (democracy, pluralism, individualism, free speech, international-ism (in both the good and bad ways)) go all the way back to that time.

But this article is a perfect example of throwing the baby out with the bathwater. Surely none of the third world cultures he praises got where they are by totally throwing out previous systems, the good parts and bad, every time they faced a crisis.

IMO the problem is enlightenment values have been hollowed out, narrowed to only those superficial aspects of those values which benefit the marketplace. Like how real food got turned into Mosanto fast-food so gradually, nobody noticed that the nutrients are missing.

PKMKII , March 10, 2017 at 11:47 am

While it's obvious how this thesis deflates modern capitalism, it would also appear to me that the idea of refocusing on "kinship and community" would present a challenge to the "global solidarity" mentality underlying most leftist thinking as well. You cannot simultaneously have an emphasis on the huddled community, while also arguing that workers worldwide have a deeper and more important connection than the business owner and his or her employees (assuming both are from within the same community, natch). Either you assume humans have a universal commonness, which effectively obliterates the notion of community, or you accept humans tend towards tribalism, which both discounts any notion of creating a global, uniform leftist economics, but also suggests a troubling tendency towards xenophobia.

cojo , March 10, 2017 at 12:06 pm

Good point, "kinship and community" are analogous to tribalism and nationalism on a larger scale unless you rephrase it to mean kinship with your family and neighbors on the local level, and with humanity on a national/global level. Unfortunately, some of our current liberal globalists seem to be forgetting the part about local kinship and community while embracing global humanity. I dunno, may have something to do with cheaper labor abroad.

PKMKII , March 10, 2017 at 1:00 pm

Partly, but there's also an association in the minds of many liberals and leftists of localized control and thinking equating with oppression, historically. Things like segregation, discrimination, violations of the separation of church and state, anti-labor employment & worksite laws, etc.

cojo , March 10, 2017 at 11:48 am

I think Kanth is quick to criticize materialism and scientific progress for all our ills while seeming to have missed the horrid standards of living in his anthropological studies prior to scientific progress with enlightenment principles over theocracy. I'd like to know what the longevity of per-enlightenment citizens was compared to today. In fact, longevity in this country around 1900 was still in the mid 40's for most.

What I find would have been a better argument is to focus his critique not on scientific progress, but on how there always seems to be a certain small minority of the population which seems to have an out sized voice in how we choose to self govern. What we seem to be losing today is the silent majority of voices who are for universal health care, not eroding further entitlements, bodily security as well as economic security while still being able to encourage those who chose to take risks and put themselves through more work and strain to be fairly rewarded.

The problem as I see it today, is that the pendulum, both politically, and socially, has swung too far towards the selfish individualist.

PKMKII , March 10, 2017 at 1:04 pm

The problem with how science is seen in a modernist context is two-fold. The "blind faith" leads people to see it as all-encompassing, all-powerful, and not recognizing its scope and where that scope ends. Ergo, anything that is successfully sold to the public and TPTB as "science" gets said treatment and is viewed as being unquestionable (like, say, neoclassical economics).

Don Midwest USA , March 10, 2017 at 11:50 am

Bruno Latour has been on this for decades in 1991 the book "We Have Never Been Modern" This has been followed by many other books, prizes, invited lectures, and thought exhibition called Reset Modernity. The book, published last year, is related to the exhibition with that title. Published by MIT press with 60 authors.

Reset Modernity

Reset Modernity!
Edited by Bruno Latour and Christophe Leclerc

Overview
Modernity has had so many meanings and tries to combine so many contradictory sets of attitudes and values that it has become impossible to use it to define the future. It has ended up crashing like an overloaded computer. Hence the idea is that modernity might need a sort of reset. Not a clean break, not a "tabula rasa," not another iconoclastic gesture, but rather a restart of the complicated programs that have been accumulated, over the course of history, in what is often called the "modernist project." This operation has become all the more urgent now that the ecological mutation is forcing us to reorient ourselves toward an experience of the material world for which we don't seem to have good recording devices.

Reset Modernity! is organized around six procedures that might induce the readers to reset some of those instruments. Once this reset has been completed, readers might be better prepared for a series of new encounters with other cultures. After having been thrown into the modernist maelstrom, those cultures have difficulties that are just as grave as ours in orienting themselves within the notion of modernity. It is not impossible that the course of those encounters might be altered after modernizers have reset their own way of recording their experience of the world.

At the intersection of art, philosophy, and anthropology, Reset Modernity! has assembled close to sixty authors, most of whom have participated, in one way or another, in the Inquiry into Modes of Existence initiated by Bruno Latour. Together they try to see whether such a reset and such encounters have any practicality. Much like the two exhibitions Iconoclash and Making Things Public, this book documents and completes what could be called a "thought exhibition:" Reset Modernity! held at ZKM | Center for Art and Media Karlsruhe from April to August 2016. Like the two others, this book, generously illustrated, includes contributions, excerpts, and works from many authors and artists.

Sam , March 10, 2017 at 11:51 am

Seems to me that the insight into the relevancy of anthropology vis a vis economics is a product of science. And Adam Smith had some good points that have been lost along the way, namely penalizing rent seeking.

Anonymous2 , March 10, 2017 at 1:14 pm

Smith has been seriously misrepresented. The Theory of Moral Sentiments shows a very different side to that presented by those who selectively quote from The Wealth of Nations.

David , March 10, 2017 at 12:01 pm

It's hard to tell from the rather incoherent summary of what looks like an incoherent argument, but the "everything went wrong after the Enlightenment" meme has been circulating for ages. It was speared pretty effectively by Domenico Losurdo in "War and Revolution" some years ago. The author seems to be jumbling all sorts of arguments together, some valid and some not, but the valid arguments are in general criticisms of liberalism, which is not the same of the Enlightenment.

JerseyJeffersonian , March 10, 2017 at 1:25 pm

This is a very good point, as the Enlightenment was not merely a straight line connection to the blight of NeoLiberalism. Rather, there were those, such as Burke, or some of our "Founding Fathers" who were students of history, and while discriminating observers of the deleterious elements of human nature, they were also cognizant of the more helpful elements of that same human nature.

They, however, tended toward the view that those helpful elements required deliberate nurturance in order to come to the fore. Some of this nurturance could be achieved by partially neutralizing the deleterious elements by balancing interests (you weren't going to get rid of the propensities, but you could limit the scope of their play by pitting societal forces one against the other in political structures, vide the doctrine of separation of powers), while nurturance could also be achieved through perpetuation of those societal institutions that address the individual conscience and behaviors like religious doctrine and examples.

The naked embrace of selfishness, while never absent over these centuries, did have countervailing currents and forces with which to contend that were sometimes able to at least minimize the damage. But more recently, with supposedly scientific NeoLiberal economic thought sweeping the field throughout much of the first world, and with the overall decline of religious and moral systems as a counterpoise, things have reached an unlovely pass.

But it would be incorrect to solely blame Enlightenment themes for where we are today. Much of what was presumed to be necessary to the proper, humane functioning of the ideal Enlightenment society has been pushed aside in favor of the degraded every-man-for-himself, homo economicus scourge that holds sway.

Fox Blew , March 10, 2017 at 12:08 pm

Great post. For further reading, I strongly recommend John Ralston Saul's "Voltaire's Bastards".

Vatch , March 10, 2017 at 12:40 pm

Joseph de Maistre, the conservative critic of Enlightenment values, deserves far more blame for the horrors of modernity than do Voltaire or his like minded colleagues. And I can't even find de Maistre mentioned in the index of Saul's book.

Since I haven't read Saul's book, I won't advise people against reading it. But I think that people who are interested in how the Enlightenment may or may not have contributed to the problems of modernity would do well to read Enemies of the Enlightenment: The French Counter-Enlightenment and the Making of Modernity , by Darrin McMahon. Another book of value is The Enlightenment: And Why It Still Matters , by Anthony Pagden.

Fox Blew , March 10, 2017 at 1:28 pm

Thanks for mentioning Joseph de Maistre. I have never heard of him. I think you'd enjoy this book, nonetheless. Saul doesn't actually "blame" Voltaire. He blames those who came after Voltaire. For that matter, the bulk of the book is about the 20th century's (mis)interpretation of the Enlightment project. I should have mentioned that the full title is "Voltaire's Bastards: The Dictatorship of Reason in the West".

David , March 10, 2017 at 1:45 pm

Strongly recommend MacMahon's book – it's excellent.

Susan , March 10, 2017 at 12:26 pm

echoes: Marilyn Waring per his comment on women.
the book If Women Counted
the documentary: Who's Counting? Marilyn Waring on Sex, Lies and Global Economics

Interesting story Waring told when I heard her speak in Toronto – As she boarded a bus at the airport to travel to her hotel, and a young man (20s) recognized her because the film is shown to high school students throughout Canada.

And Capital Institute's John Fullerton FIELD GUIDE TO A REGENERATIVE ECONOMY Primarily due to reading George Monbiot's inane rejection of the work of Allan Savory and Capital Institute's work with Grasslands LLC. Brought to me this morning by Nicole Foss and the Guardian.

And for farmer's and lovers of the land, I couldn't help but hear Wendell Berry, "It all turns on affection."

Interesting to have these things intersect with this morning's coffee. Thank you.

[Mar 09, 2017] Did plutocrats insure that favorable theories dominated?

Please note that Hudson refers to "internal" debt -- debt that is hold by Us citizents. This debt probally does not matter. But the US debt to china is completly different story. it matters.
Notable quotes:
"... In it, he argued that the 'classical' in the term 'neoclassical' is a misnomer and that neoclassical and classical economics actually have little in common, despite attempts by neoclassicals to claim Smith, in particular, as their forefather. ..."
"... In a recent interview (h/t to Tom Hickey), Hudson discusses one big difference between the Classical economists and the neoclassicals: their analysis of taxation as applied to economic rent. ..."
"... Hudson touches on a number of noteworthy points during the interview. He draws attention to a historical correspondence that would probably surprise many, between high top tax rates and strong economic growth, and observes that the top rates were high in the period prior to WWII. ..."
"... Importantly, the focus of taxation in Classical Political Economy, which Hudson argues influenced US government policy in the late 1800s and much of the first half of the 1900s, was on confiscating economic rents. These rents include income that derives from ownership of assets that appreciate in value merely because of the growth in national income and/or improved public infrastructure, and not due to any participation in the production process (they arise especially in the real estate and financial sectors). ..."
"... However, the classical economists were engaged in a class war with rentiers, not capitalists. ..."
"... It was Marx who drew this reasoning out to its logical conclusion, and this probably goes a long way to explaining why neoclassical theory, rather than being a continuation of classical economics (as was often claimed once it was established), was an escape into a different conceptualization of a capitalist economy that sought to reframe the distribution of income as the result of marginal contributions (an attempt that failed and was the chief target and theoretical casualty of the Cambridge Capital Controversy). ..."
"... Above all, Hudson distinguishes between what the classical economists meant by the term "free market" and what that term has come to mean in the neo-liberal period. ..."
"... Hudson emphasizes that, for the classical economists, "free market" meant a market unencumbered by rent-based claims on income that would draw economic activity away from income production and toward speculation. ..."
"... The aim of the classical economists was to incentivize production. This is a very different notion than the neo-liberal one of labor-market "deregulation" (meaning regulation in favor of employers over employees), which is really just code for union smashing and an attack on real wages, or the neo-liberal deregulation of financial markets, which is a euphemism for enabling financial parasitism. ..."
"... He notes that immediately prior to the commencement of the only extended period of high capitalist growth (WWII until the late 1960s), the US population was not in debt, and in fact had pent up savings from the war that it was waiting to spend. ..."
"... By little or no debt, Hudson clarifies that he means little or no private debt. There was, of course, a large public debt – larger as a percentage of GDP than the current US government "debt". ..."
"... This public debt did not matter, in spite of the familiar opposition to deficits and public debt, the echoes of which can be heard today, simply because the budget deficit shrinks endogenously once private-sector activity and income growth resume. This is precisely what happened in the immediate postwar period. ..."
"... Government "debt" is nothing other than the accumulated net financial wealth of the non-government. ..."
"... Once the non-government is ready to spend, income growth will deliver stronger revenues, reducing the deficit. But the private sector needs to have its debt under control before it will resume spending at levels sufficient to sustain strong economic growth. ..."
"... In addition to the absence of significant private debt at the end of WWII, there were other factors that contributed to the strong growth of the immediate postwar period, including Keynesian demand-management policies, a progressive tax system, and significant financial regulation. ..."
"... Hudson discusses how, over time, much of the progressivity in the tax system was removed, paving the way for the construction of the inequitable and anti-productive monster of today. ..."
"... The result of this neo-liberal policy mix was an increasing financialization and "rentification" of the economy, widening income inequality, and an adherence to fiscal austerity that directly corresponded, as a matter of accounting, to an unsustainable build up in the only US debt that matters – private debt – and culminated in the Global Financial Crisis and Great Recession. ..."
"... But the actual policy response has instead been to manipulate financial markets to engineer a massive transfer of wealth to the rentiers and exacerbate income and wealth inequality; to continue with the approach of taxing wage and profit income along with consumption rather than economic rents; and possibly even to revert foolishly to austerity while the private sector remains deeply indebted. ..."
Mar 09, 2017 | economistsview.typepad.com
RGC -> RGC... March 09, 2017 at 08:09 AM
Did plutocrats insure that favorable theories dominated?:

Classicals vs Neoclassicals Tax and Rent

Posted on 8 January 2011

"At the university I attended, a few of the academics were strongly influenced by Classical Political Economy, especially that of Smith and Ricardo. Prior to my student days, one of them had published a paper in the Cambridge Journal of Economics entitled "On the origins of the term 'neoclassical'" (no free link available), which is quite well known in heterodox circles.

In it, he argued that the 'classical' in the term 'neoclassical' is a misnomer and that neoclassical and classical economics actually have little in common, despite attempts by neoclassicals to claim Smith, in particular, as their forefather.

The classical-influenced economists at my university happened to belong to the Sraffian School. This school attempts to synthesize Classical value and distribution with Keynesian output and employment determination, and is also known for its key role and victory in the Cambridge Capital Controversy. The school is named after Piero Sraffa, whose interpretation of Classical Political Economy, particularly Ricardo's work, has been highly influential.

Sraffians are not the only modern-day economists influenced by Smith and Ricardo. Another prominent example is Michael Hudson.

In a recent interview (h/t to Tom Hickey), Hudson discusses one big difference between the Classical economists and the neoclassicals: their analysis of taxation as applied to economic rent.

Hudson touches on a number of noteworthy points during the interview. He draws attention to a historical correspondence that would probably surprise many, between high top tax rates and strong economic growth, and observes that the top rates were high in the period prior to WWII.

Importantly, the focus of taxation in Classical Political Economy, which Hudson argues influenced US government policy in the late 1800s and much of the first half of the 1900s, was on confiscating economic rents. These rents include income that derives from ownership of assets that appreciate in value merely because of the growth in national income and/or improved public infrastructure, and not due to any participation in the production process (they arise especially in the real estate and financial sectors).

It is not mentioned in the interview, but profit, of course, is also income that derives from the mere ownership of assets – the means of production.

However, the classical economists were engaged in a class war with rentiers, not capitalists.

It was Marx who drew this reasoning out to its logical conclusion, and this probably goes a long way to explaining why neoclassical theory, rather than being a continuation of classical economics (as was often claimed once it was established), was an escape into a different conceptualization of a capitalist economy that sought to reframe the distribution of income as the result of marginal contributions (an attempt that failed and was the chief target and theoretical casualty of the Cambridge Capital Controversy).

Even so, there does remain a significant distinction between profit, which relates to assets employed in the production process, and economic rents. For this reason, Marx also distinguished between these two categories of income and spent a great deal of space in volume 3 of Capital analyzing the various forms of surplus value, including different types of rent.

Hudson goes on to stress that the taxation imposed in the late 1800s and first half of the 1900s was highly progressive. Initially only the top 1 percent of income earners were required to submit tax returns. The purpose of this was to keep taxes on wages and profit low to promote price competitiveness against lower wage countries.

This can be contrasted with neo-liberal policies of today which seem to be designed almost with the opposite intent: to tax wage and profit income (and also consumption) but provide loopholes or tax breaks for the recipients of economic rents.

Above all, Hudson distinguishes between what the classical economists meant by the term "free market" and what that term has come to mean in the neo-liberal period.

Hudson emphasizes that, for the classical economists, "free market" meant a market unencumbered by rent-based claims on income that would draw economic activity away from income production and toward speculation.

The aim of the classical economists was to incentivize production. This is a very different notion than the neo-liberal one of labor-market "deregulation" (meaning regulation in favor of employers over employees), which is really just code for union smashing and an attack on real wages, or the neo-liberal deregulation of financial markets, which is a euphemism for enabling financial parasitism.

Hudson makes another observation in passing. The observation is not central to his argument in the interview, but is relevant to current debates over deficits and public debt, and consistent with MMT.

He notes that immediately prior to the commencement of the only extended period of high capitalist growth (WWII until the late 1960s), the US population was not in debt, and in fact had pent up savings from the war that it was waiting to spend.

By little or no debt, Hudson clarifies that he means little or no private debt. There was, of course, a large public debt – larger as a percentage of GDP than the current US government "debt".

This public debt did not matter, in spite of the familiar opposition to deficits and public debt, the echoes of which can be heard today, simply because the budget deficit shrinks endogenously once private-sector activity and income growth resume. This is precisely what happened in the immediate postwar period.

Today, with the US government the monopoly issuer of its own flexible exchange-rate fiat currency, public "debt" is – or rather should be – even less of an issue. Unlike in the immediate postwar period, the government is not subject to the constraints of Bretton Woods or a similar commodity-backed money system. It is free to utilize its fiscal capacity to the extent necessary to restore full employment.

Government "debt" is nothing other than the accumulated net financial wealth of the non-government.

Once the non-government is ready to spend, income growth will deliver stronger revenues, reducing the deficit. But the private sector needs to have its debt under control before it will resume spending at levels sufficient to sustain strong economic growth.

In addition to the absence of significant private debt at the end of WWII, there were other factors that contributed to the strong growth of the immediate postwar period, including Keynesian demand-management policies, a progressive tax system, and significant financial regulation.

All these beneficial features of the economy were gradually undermined, and then exposed to outright attack from the 1970s onwards.

Hudson discusses how, over time, much of the progressivity in the tax system was removed, paving the way for the construction of the inequitable and anti-productive monster of today.

Keynesian demand-management policies were also largely eschewed throughout the neo-liberal era on the basis of an opportunistic misinterpretation of the stagflation of the 1970s. All this took place alongside deregulation of the financial sector and an aggressive dismantling of worker employment protections.

The result of this neo-liberal policy mix was an increasing financialization and "rentification" of the economy, widening income inequality, and an adherence to fiscal austerity that directly corresponded, as a matter of accounting, to an unsustainable build up in the only US debt that matters – private debt – and culminated in the Global Financial Crisis and Great Recession.

If the aim is to restore sustainable growth under capitalism (which is not my preferred social system, but presumably the one commanding the allegience of policymakers), the insights obtained from the classical economists in conjunction with the lessons of the postwar period would seem to suggest some combination of the following policy responses: tighter regulations of speculative activities; a more steeply progressive tax system targeted at the confiscation of economic rents and the incentivization of production and consumption; stronger worker protections; and the abandonment of the faulty construct of a 'government budget constraint' and a return to deficit expenditure sufficient to underpin non-government net saving and full employment.

But the actual policy response has instead been to manipulate financial markets to engineer a massive transfer of wealth to the rentiers and exacerbate income and wealth inequality; to continue with the approach of taxing wage and profit income along with consumption rather than economic rents; and possibly even to revert foolishly to austerity while the private sector remains deeply indebted.

http://heteconomist.com/classical-vs-neoclassical-economics-tax-and-rent/

libezkova -> RGC... , March 09, 2017 at 10:39 AM
That's good thank you. I am thinking along the same lines:

In some way unregulated finance acts as cancer cells in human body (while this analogy is definitely superficial it might be stimulating for thinking about neoliberalism):

  1. Uncontrollable growth detached from real economics ("casino capitalism" with its proliferation of hedge funds, private equity firms, derivatives, credit default swaps and similar instruments).
  2. Suppression of immune system so that this uncontrollable growth should not be checked (aka deregulation, capture of economics departments, an army of neoliberal think tanks)
  3. Like cancel creates a blood network to stimulate its own growth, finance also diverts lion share of resource in the economy for its own consumption -- casino consumption.
  4. Very difficult to fight and can reoccur if treatment was insufficient or ineffective.

[Mar 09, 2017] Our Obsolete Market Mentality

Mar 09, 2017 | economistsview.typepad.com
anne : March 08, 2017 at 11:23 AM , 2017 at 11:23 AM
http://billtotten.blogspot.co.il/2005/06/our-obsolete-market-mentality.html

1947

Our Obsolete Market Mentality
Civilization Must Find a New Thought Pattern
By Karl Polanyi

The first century of the Machine Age is drawing to a close amid fear and trepidation. Its fabulous material success was due to the willing, indeed the enthusiastic, subordination of man to the needs of the machine.

Liberal capitalism was in effect man's initial response to the challenge of the Industrial Revolution. In order to allow scope to the use of elaborate, powerful machinery, we transformed human economy into a self-adjusting system of markets, and cast our thoughts and values in the mold of this unique innovation.

Today, we begin to doubt the truth of some of these thoughts and the validity of some of these values. Outside the United States, liberal capitalism can hardly be said to exist any more. How to organize human life in a machine society is a question that confronts us anew. Behind the fading fabric of competitive capitalism there looms the portent of an industrial civilization, with its paralyzing division of labor, standardization of life, supremacy of mechanism over organism, and organization over spontaneity. Science itself is haunted by insanity. This is the abiding concern.

No mere reversion to the ideals of a past century can show us the way. We must brave the future, though this may involve us in an attempt to shift the place of industry in society so that the extraneous fact of the machine can be absorbed. The search for industrial democracy is not merely the search for a solution to the problems of capitalism, as most people imagine. It is a search for an answer to industry itself. Here lies the concrete problem of our civilization.

Such a new dispensation requires an inner freedom for which we are but ill equipped. We find ourselves stultified by the legacy of a market-economy which bequeathed us oversimplified views of the function and role of the economic system in society. If the crisis is to be overcome, we must recapture a more realistic vision of the human world and shape our common purpose in the light of that recognition. Industrialism is a precariously grafted scion upon man's age-long existence. The outcome of the experiment is still hanging in the balance. But man is not a simple being and can die in more than one way.

The question of individual freedom, so passionately raised in our generation, is only one aspect of this anxious problem. In truth, it forms part of a much wider and deeper need - the need for a new response to the total challenge of the machine.


The Fundamental Heresy

Our condition can be described in these terms:

Industrial civilization may yet undo man. But since the venture of a progressively artificial environment cannot, will not, and indeed, should not, be voluntarily discarded, the task of adapting life in such a surrounding to the requirements of human existence must be resolved if man is to continue on earth. No one can foretell whether such an adjustment is possible, or whether man must perish in the attempt. Hence the dark undertone of concern.

Meanwhile, the first phase of the Machine Age has run its course. It involved an organization of society that derived its name from its central institution, the market. This system is on the downgrade. Yet our practical philosophy was overwhelmingly shaped by this spectacular episode. Novel notions about man and society became current and gained the status of axioms. Here they are:

As regards man, we were made to accept the heresy that his motives can be described as "material" and "ideal", and that the incentives on which everyday life is organized spring from the "material" motives. Both utilitarian liberalism and popular Marxism favored such views.

As regards society, the kindred doctrine was propounded that its institutions were "determined" by the economic system. This opinion was even more popular with Marxists than with liberals.

Under a market-economy both assertions were, of course, true. Butonly under such an economy. In regard to the past, such a view was no more than an anachronism. In regard to the future, it was a mere prejudice. Yet under the influence of current schools of thought, reinforced by the authority of science and religion, politics and business, these strictly time-bound phenomena came to be regarded as timeless, as transcending the age of the market.

To overcome such doctrines, which constrict our minds and souls and greatly enhance the difficulty of the life-saving adjustment, may require no less than a reform of our consciousness.


The Market Trauma ....

anne -> anne... , March 08, 2017 at 12:37 PM
https://en.wikipedia.org/wiki/The_Great_Transformation_(book)

"The Great Transformation" * is a book by Karl Polanyi, a Hungarian-American political economist. First published in 1944, it deals with the social and political upheavals that took place in England during the rise of the market economy. Polanyi contends that the modern market economy and the modern nation-state should be understood not as discrete elements but as the single human invention he calls the "Market Society".

A distinguishing characteristic of the "Market Society" is that humanity's economic mentalities were changed. Prior to the great transformation, people based their economies on reciprocity and redistribution and were not rational utility maximizers. After the great transformation, people became more economically rational, behaving as neoclassical economic theory would predict. The creation of capitalist institutions not only changed laws but also fundamentally altered humankind's economic mentalities, such that prior to the great transformation, markets played a very minor role in human affairs and were not even capable of setting prices because of their diminutive size. It was only after the creation of new market institutions and industrialization that the myth of humanity's propensity to barter and trade became widespread in an effort to mold human nature to fit the new market based economic institutions. Polanyi thus proposes an alternative ethnographic approach called "substantivism", in opposition to "formalism", both terms coined by Polanyi.

* http://inctpped.ie.ufrj.br/spiderweb/pdf_4/Great_Transformation.pdf

Mr. Bill -> DrDick ... , March 08, 2017 at 12:33 PM
"I found myself coming back to the central arguments of the book: the embeddedness of a market economy in a broader set of social arrangements, the rejection of an autonomous economic sphere, the folly of treating markets as self-stabilizing. ..." Wow.

What the heck was the great transformation ? In as few of words as possible.

RC AKA Darryl, Ron -> Mr. Bill... , March 08, 2017 at 12:47 PM
[Other than her dad's magnum opus?]

https://en.wikipedia.org/wiki/The_Great_Transformation_(book)

General argument

Polanyi argued that the development of the modern state went hand in hand with the development of modern market economies and that these two changes were inextricably linked in history. Essential to the change from a premodern economy to a market economy was the altering of human economic mentalities away from a non-utility maximizing mindset to one more recognizable to modern economists.[5] Prior to the great transformation, markets had a very limited role in society and were confined almost entirely to long distance trade.[6] As Polanyi wrote, "the same bias which made Adam Smith's generation view primeval man as bent on barter and truck induced their successors to disavow all interest in early man, as he was now known not to have indulged in those laudable passions."[7]

The great transformation was begun by the powerful modern state, which was needed to push changes in social structure and human nature that allowed for a competitive capitalist economy. For Polanyi, these changes implied the destruction of the basic social order that had reigned because of pre-modern human nature and that had existed throughout all earlier history. Central to the change was that factors of production like land and labor would now be sold on the market at market determined prices instead of allocated according to tradition, redistribution, or reciprocity.[8] He emphasized the greatness of the transformation because it was both a change of human institutions and human nature.

His empirical case in large part relied upon analysis of the Speenhamland laws, which he saw not only as the last attempt of the squirearchy to preserve the traditional system of production and social order but also a self-defensive measure on the part of society that mitigated the disruption of the most violent period of economic change. Polanyi also remarks that the pre-modern economies of China, the Incan Empire, the Indian Empires, Babylon, Greece, and the various kingdoms of Africa operated on principles of reciprocity and redistribution with a very limited role for markets, especially in settling prices or allocating the factors of production.[9] The book also presented his belief that market society is unsustainable because it is fatally destructive to human nature and the natural contexts it inhabits.

Polanyi attempted to turn the tables on the orthodox liberal account of the rise of capitalism by arguing that "laissez-faire was planned", whereas social protectionism was a spontaneous reaction to the social dislocation imposed by an unrestrained free market. He argues that the construction of a "self-regulating" market necessitates the separation of society into economic and political realms. Polanyi does not deny that the self-regulating market has brought "unheard of material wealth", but he suggests that this is too narrow a focus. The market, once it considers land, labor and money as "fictitious commodities" (fictitious because each possesses qualities that are not expressed in the formal rationality of the market), and including them "means to subordinate the substance of society itself to the laws of the market."[10]

This, he argues, results in massive social dislocation, and spontaneous moves by society to protect itself. In effect, Polanyi argues that once the free market attempts to separate itself from the fabric of society, social protectionism is society's natural response, which he calls the "double movement." Polanyi did not see economics as a subject closed off from other fields of enquiry, indeed he saw economic and social problems as inherently linked. He ended his work with a prediction of a socialist society, noting, "after a century of blind 'improvement', man is restoring his 'habitation.'"

[Mar 09, 2017] Levitt is prophetic in portraying the hubris and triumphalism of neoliberalisms advocates and the risks that their experiments took

Notable quotes:
"... the attempt to impose on the rest of the world a radical Anglo-American vision of the autonomy of market forces, backed by sanctions to subordinate nations, peoples and communities to the rights of property, is a Utopian project which threatens to unleash uncontrollable reactionary political forces" (p. 52). It is "incompatible with democratic governance, cultural diversity and pluralism ..."
"... The vast majority of Sanders's supporters are not Marxists clamoring for a dictatorship of the proletariat or the nationalization of industry. Most are, probably without knowing it, secret followers of Karl Polanyi. Polanyi's classic, The Great Transformation, was published in 1944-the same year that FDR promised a "Second Bill of Rights" guaranteeing employment, housing, social security, medical care, and education to all Americans. Today, Polanyian arguments are once again in the air. Since his ideas seem to be everywhere but he is rarely mentioned, a (re-)introduction to his thinking, and its relevance to politics in 2016, is in order. ..."
Mar 09, 2017 | economistsview.typepad.com
Peter K. : March 08, 2017 at 01:02 PM , 2017 at 01:02 PM
"Many of these essays were written years ago, yet Levitt is prophetic in portraying the hubris and triumphalism of neoliberalism's advocates and the risks that their experiments took. As she writes, "the attempt to impose on the rest of the world a radical Anglo-American vision of the autonomy of market forces, backed by sanctions to subordinate nations, peoples and communities to the rights of property, is a Utopian project which threatens to unleash uncontrollable reactionary political forces" (p. 52). It is "incompatible with democratic governance, cultural diversity and pluralism" (52)."

...

Peter K. : , March 08, 2017 at 01:08 PM
https://www.dissentmagazine.org/online_articles/karl-polanyi-explainer-great-transformation-bernie-sanders

Karl Polanyi for President

Patrick Iber and Mike Konczal ▪ May 23, 2016

Should health care and education be rights, or products that those with enough money can purchase in markets? About seventy-five years ago, in response to the Great Depression, Franklin D. Roosevelt offered, through the programs of the New Deal, an expanded definition of freedom founded on economic security-immortalized as "freedom from want" in his famous speech of 1941. In our own time, severe inequality and the most serious economic crisis since the Great Depression have once again brought the issue of what should count as a right to the surface of political debate.

One candidate, Bernie Sanders, has argued explicitly that health care and education-two things that the New Deal mostly left alone-should be rights and therefore accessible to all. While public policy pundits fight over the specifics, they miss that Sanders, by discussing these things as rights instead of just policies, has changed the nature of the debate. This key distinction helps explain why tens of thousands have turned out to Sanders rallies across the country-not to mention the millions who have supported him online and at the polls-demonstrating enthusiasm for a politics that he explicitly identifies as "democratic socialism." But what kind of socialism?

The vast majority of Sanders's supporters are not Marxists clamoring for a dictatorship of the proletariat or the nationalization of industry. Most are, probably without knowing it, secret followers of Karl Polanyi. Polanyi's classic, The Great Transformation, was published in 1944-the same year that FDR promised a "Second Bill of Rights" guaranteeing employment, housing, social security, medical care, and education to all Americans. Today, Polanyian arguments are once again in the air. Since his ideas seem to be everywhere but he is rarely mentioned, a (re-)introduction to his thinking, and its relevance to politics in 2016, is in order.

So wait: Karl who?

Karl Polanyi was born in 1886 in Vienna and educated in Budapest, twin capitals of what was then the Austro-Hungarian Empire. A soldier during World War I, he supported an anti-aristocratic revolution in 1918 in Hungary known as the Aster Revolution, but fled the short-lived Communist government headed by Bela Kún in 1919. Arriving in Vienna, he lived out its years as a "socialist municipality," governed by Social Democrats, which featured workers' cooperatives, public housing, free health care, and a flourishing municipal culture. That formative experience came to an end with the rise of fascism; Polanyi fled to England in 1933, where he taught adult education through the Workers' Educational Association. In the early 1940s, he spent time in Vermont, and a two-year grant from the Rockefeller Foundation allowed him to complete The Great Transformation. He taught at Columbia University before retiring to Canada in 1953, where he died in 1964.

The Great Transformation? What is that? A book about magic?

It's a book about political economy. It's one of the most important books on the topic, in fact, and should be viewed as part of the canon of left thought.

Here's a story that we hear all the time. The free market is the most effective way of ensuring prosperity. We can ensure that the market is free by getting the government to simply get out of the way, or, at most, fix a few market failures here or provide some economic security. The more parts of life that become like markets, the better. That's not just because markets are the best for ensuring the good life-it's that free markets are also a foundation for liberty itself, because economic freedom is political freedom.

Polanyi's work dismantles this argument in two important ways. The first is to show that markets are planned everywhere they exist. Economic organization is always the result of the state. "Laissez-faire," he writes, "was planned. . . . [The] laissez-faire economy was the product of deliberate state action."

Polanyi says that the economy is "embedded" in society-part of social relations-not apart from them. He believes that a pure free market society is a utopian project, and impossible to realize, because people will resist the process of being turned into commodities. In fact, he calls labor a "fictitious commodity," along with land and money. And this process of turning fictitious commodities into market commodities can only be carried out by the state.

...

Peter K. : , March 08, 2017 at 01:11 PM
"Should health care and education be rights, or products that those with enough money can purchase in markets? About seventy-five years ago, in response to the Great Depression, Franklin D. Roosevelt offered, through the programs of the New Deal, an expanded definition of freedom founded on economic security-immortalized as "freedom from want" in his famous speech of 1941. In our own time, severe inequality and the most serious economic crisis since the Great Depression have once again brought the issue of what should count as a right to the surface of political debate."

Think about how Chavitz (sp?) the Republican congresscritter was going on about how the working poor need to give up their Iphones in order to get health care.

"One candidate, Bernie Sanders, has argued explicitly that health care and education-two things that the New Deal mostly left alone-should be rights and therefore accessible to all."

That's why he was attacked by the likes of Hillary and PGL and why his surrogate Keith Ellison was prevented from winning the DNC election. The Democrats still want to be the party of business.

Sanjait -> Peter K.... , March 08, 2017 at 01:41 PM
Don't forget to ware your mittens when you go to stand outside the tent pissing in. Wouldn't want your pink hands to get cold.
RC AKA Darryl, Ron -> Sanjait... , March 08, 2017 at 01:50 PM
Don't you work in finance? If so then you are no one to go on talking about pink hands. That would place you in the elite do-nothing watering trough up to your elbows.
RC AKA Darryl, Ron -> RC AKA Darryl, Ron... , March 08, 2017 at 01:51 PM
Ya don't have to be white to be privileged.
Sanjait -> RC AKA Darryl, Ron... , March 08, 2017 at 01:55 PM
Nope.

You know what they say about assumptions?

That's you right now.

Sanjait -> RC AKA Darryl, Ron... , March 08, 2017 at 01:56 PM
Plus, bonus points to you for the vapid populist claim that everyone in finance does nothing. On an economics blog even ... that's just asinine. You should be better than that.
Sanjait : , March 08, 2017 at 01:53 PM
I wonder about pieces like the Great Transformation, that seem to idealize pre-modern societies as a way of critiquing modern societies.

I'm no historian but my intuition and moderate knowledge of the third world tells me that premodern societies should be viewed more as Hobbesian State's of Nature than ones where traditions and pastoral goodness results in what modern liberalism would view as ideal.

There's also the fact that market economies have existed since forever. I can buy that a Great Transformation has occurred in how we perceive our individual roles in society wrt market economics, but still, all of recorded human history, and much history before that, is of rich people lording over poorer ones.

That problem still exists, but are we to believe it actually got worse over the course of the Industrial Age? That seems dubious.

Lastly, to the fanboys who decry "capitalism", meaning market economics generally, there is the huge problem of lacking any plausible alternative. They typically shift freely from decrying the very concept of capitalism to making specific assertions about how our capitalism isn't European style enough, seemingly without realizing how this shift massively alters the scope of the conversation.

[Mar 08, 2017] How long obscure and definitely unscientific and quasi-religious theory of free markets will remain so dominant ?

Notable quotes:
"... Lastly, to the fanboys who decry "capitalism", meaning market economics generally, there is the huge problem of lacking any plausible alternative. They typically shift freely from decrying the very concept of capitalism to making specific assertions about how our capitalism isn't European style enough, seemingly without realizing how this shift massively alters the scope of the conversation. ..."
"... the attempt to reimpose the liberal economic order after the fall of the soviet camp produced the present world economic crisis and the potential demise of democracy in The OECD ..."
"... You are trying to act as a propagandist, a fanboy of neoliberalism. And after 2008 you are in a very bad, almost Zugzwang position in this chess party, as you have no real arguments to counteract claims that you are just a neoliberal Jesuit trying to defend yet another Flat Earth theory for personal benefit. ..."
"... There are alternatives to neoliberalism (aka "free market fundamentalism") -- both the New Deal capitalism and Scandinavian model are the alternatives. They were tried, they are not perfect, but they do work and they can last. Neoliberalism can't -- it is a self-destructive social system because like colony of bacteria on squirrel carcass redistribution of wealth up at some point stops because there is nobody to rob anymore. ..."
"... And Trump is the first robin in this respect -- a clear sign of both crisis of neoliberalism and the crisis of the US society, as a society governed by neoliberal ideology. ..."
"... I suspect that the mechanism used to achieve such a longevity are the same mechanisms that are used in a typical high demand sects, amplified by Wall Street financial resources, which allow recruiting and lavishly paying propagandists, capturing economic departments at the universities, financing neoliberal think tank, corrupting the regulators, etc. ..."
"... I know that Mont Pelerin Society consciously adopted Bolshevism methods to spread their ideology, so to a certain extent this is Bolshevism (or more correctly Trotskiysm) 2.0. As Marx noted "history repeats ... " ..."
"... And like Bolsheviks neoliberals act as occupiers of the host country using its resources to spread their messianic ideology and impoverish people, which they view as pure instruments for achieving their globalist goals. Exactly like Bolsheviks viewed Russian people. As Stalin quipped "Gratitude is a sickness suffered by dogs." This is the real motto of neoliberalism. ..."
"... The first is that in its essential nature it is utopian and nonhistorical. It is utopian in that it describes not the world as it ever has been or ever could be, but a fantasy that exists only in the minds of its adherents. It is a powerful myth because whenever one points to the failures and shortcomings of attempts to promote free market principles, its adherents reply by insisting that the market hasn't yet been made pure enough. If only we decrease government involvement, further reduce regulation, remove restrictions on the kinds of compacts companies can form with one another, further gut the power of trade unions, and so forth, we will see the birth of a glorious new economic world in which all will be right in the world and God will be on his throne. But as Polanyi argues, not only has such a creature as a self-regulating free market economy never existed, it never could. In fact, what has passed for self-regulating markets has in fact been the result of drastic and pervasive government intervention. Additional interventions take place to protect society as a whole from the damage that a self-regulating economy inflicts on the citizenry as a whole. ..."
"... This is another reason why belief in a self-regulating free market is a sheer fantasy: it is predicated on a host of impossible situations being possible. As the effects of a self-regulating free market occur, society intervenes to counteract the harmful effects of that economy. For instance, workers compensation is neither required nor desirable by pure free market principles. The same is true for unemployment insurance or anti-trust legislation. Or pollution standards. ..."
Mar 08, 2017 | economistsview.typepad.com
Sanjait : March 08, 2017 at 01:53 PM
I wonder about pieces like the Great Transformation, that seem to idealize pre-modern societies as a way of critiquing modern societies.

I'm no historian but my intuition and moderate knowledge of the third world tells me that premodern societies should be viewed more as Hobbesian State's of Nature than ones where traditions and pastoral goodness results in what modern liberalism would view as ideal.

There's also the fact that market economies have existed since forever. I can buy that a Great Transformation has occurred in how we perceive our individual roles in society wrt market economics, but still, all of recorded human history, and much history before that, is of rich people lording over poorer ones.

That problem still exists, but are we to believe it actually got worse over the course of the Industrial Age? That seems dubious.

Lastly, to the fanboys who decry "capitalism", meaning market economics generally, there is the huge problem of lacking any plausible alternative. They typically shift freely from decrying the very concept of capitalism to making specific assertions about how our capitalism isn't European style enough, seemingly without realizing how this shift massively alters the scope of the conversation.

DrDick -> Sanjait... , March 08, 2017 at 04:49 PM
"I'm no historian but my intuition and moderate knowledge of the third world tells me that premodern societies should be viewed more as Hobbesian State's of Nature than ones where traditions and pastoral goodness results in what modern liberalism would view as ideal."

You mean like 19th century Britain? Your complete ignorance of both history and anthropology is duly noted, as well as your lack of reading comprehension in regard to what Polanyi wrote. I do not agree with everything he had to say, but he has some important insights ignored by many modern American economists.

Paine : , March 08, 2017 at 02:52 PM
Paraphrase: "the attempt to reimpose the liberal economic order after the fall of the soviet camp produced the present world economic crisis and the potential demise of democracy in The OECD "
libezkova : , March 08, 2017 at 03:02 PM
"Lastly, to the fanboys who decry "capitalism", meaning market economics generally, there is the huge problem of lacking any plausible alternative."

You are trying to act as a propagandist, a fanboy of neoliberalism. And after 2008 you are in a very bad, almost Zugzwang position in this chess party, as you have no real arguments to counteract claims that you are just a neoliberal Jesuit trying to defend yet another Flat Earth theory for personal benefit.

There are alternatives to neoliberalism (aka "free market fundamentalism") -- both the New Deal capitalism and Scandinavian model are the alternatives. They were tried, they are not perfect, but they do work and they can last. Neoliberalism can't -- it is a self-destructive social system because like colony of bacteria on squirrel carcass redistribution of wealth up at some point stops because there is nobody to rob anymore.

As simple as that.

And Trump is the first robin in this respect -- a clear sign of both crisis of neoliberalism and the crisis of the US society, as a society governed by neoliberal ideology.

The question that should be asked is: how long obscure and definitely unscientific and quasi-religious theory will remain so dominant, as neoliberalism was from 1980 till, say, 2008 (28 years). Actually it was quite influential before that (say from late 50th) and remains quite influential after the Great Crash of 2008 (so a decade from 2008 till now).

I suspect that the mechanism used to achieve such a longevity are the same mechanisms that are used in a typical high demand sects, amplified by Wall Street financial resources, which allow recruiting and lavishly paying propagandists, capturing economic departments at the universities, financing neoliberal think tank, corrupting the regulators, etc.

I know that Mont Pelerin Society consciously adopted Bolshevism methods to spread their ideology, so to a certain extent this is Bolshevism (or more correctly Trotskiysm) 2.0. As Marx noted "history repeats ... "

And like Bolsheviks neoliberals act as occupiers of the host country using its resources to spread their messianic ideology and impoverish people, which they view as pure instruments for achieving their globalist goals. Exactly like Bolsheviks viewed Russian people. As Stalin quipped "Gratitude is a sickness suffered by dogs." This is the real motto of neoliberalism.

If somebody clams that free markets are self-sustained and are not just human artifacts, created and maintained entirely by government intervention (after neoliberals obtained political power via "quite coup" mechanisms) he/she is either an idiot, or a stooge of financial oligarchy (the major beneficiary of neoliberalism as in "cue bono").

Long before Reagan ascendance Polanyi dispelled two central claims about the myth of the self-regulating free market.

== quote ==

The first is that in its essential nature it is utopian and nonhistorical. It is utopian in that it describes not the world as it ever has been or ever could be, but a fantasy that exists only in the minds of its adherents. It is a powerful myth because whenever one points to the failures and shortcomings of attempts to promote free market principles, its adherents reply by insisting that the market hasn't yet been made pure enough. If only we decrease government involvement, further reduce regulation, remove restrictions on the kinds of compacts companies can form with one another, further gut the power of trade unions, and so forth, we will see the birth of a glorious new economic world in which all will be right in the world and God will be on his throne. But as Polanyi argues, not only has such a creature as a self-regulating free market economy never existed, it never could. In fact, what has passed for self-regulating markets has in fact been the result of drastic and pervasive government intervention. Additional interventions take place to protect society as a whole from the damage that a self-regulating economy inflicts on the citizenry as a whole.

The second major point that Polanyi makes is that of embeddedness: any economic system is embedded in society as a whole, with a host of moral, political, and religious values that are not primarily economic in nature. The self-regulating free marketers would somehow wish for an economic system that is distinct from and separated from those values; that is, an economic system that is not embedded. But such a thing, Polanyi argues, is impossible.

This is another reason why belief in a self-regulating free market is a sheer fantasy: it is predicated on a host of impossible situations being possible. As the effects of a self-regulating free market occur, society intervenes to counteract the harmful effects of that economy. For instance, workers compensation is neither required nor desirable by pure free market principles. The same is true for unemployment insurance or anti-trust legislation. Or pollution standards.

There is no question that keeping a plant from polluting is an interference with the market, but this is an example of noneconomic values trumping economic ones.

[Mar 07, 2017] On Perverse Incentives and Replication in Science

Mar 07, 2017 | economistsview.typepad.com
Douglas Campbell:

On Perverse Incentives and Replication in Science : Stephen Hsu has a nice blog post on this topic. He writes about this common pattern:

1. Study reports results which reinforce the dominant, politically correct, narrative.
2. Study is widely cited in other academic work, lionized in the popular press, and used to advance real world agendas.
3. Study fails to replicate, but no one (except a few careful and independent thinkers) notices.

#1 is spot-on for economics. Woe be to she who bucks the dominant narrative. In economics, something else happens. Following the study, there are 20 piggy-back papers which test for the same results on other data. The original authors typically get to referee these papers, so if you're a young researcher looking for a publication, look no further. You've just guaranteed yourself the rarest of gifts -- a friendly referee who will likely go to bat for you. Just make sure your results are similar to theirs. If not, you might want to shelve your project, or else try 100 other specifications until you get something that "works". One trick I learned: You can bury a robustness check which overturns the main results deep in the paper, and your referee who is emotionally invested in the benchmark result for sure won't read that far. ...

Most researchers in Economics go their entire careers without criticizing anyone else in their field, except as an anonymous referee, where they tend to let out their pent-up aggression. Journals shy away from publishing comment papers, as I found out first-hand . In fact, much if not a majority of the papers published in top economics journals are probably wrong, and yet the field soldiers on like a drunken sailor. Often, many people "in the know" realize that many big papers have fatal flaws, but have every incentive not to point this out and create enemies, or to waste their time writing up something which journals don't really want to publish (the editor doesn't want to piss a colleague off either). As a result, many of these false results end up getting taught to generations of students. Indeed, I was taught a number of these flawed papers as both an undergraduate and a grad student.

What can be done? ...

tew : , March 07, 2017 at 11:52 AM
I also highly recommend this regarding priming research in psychology: https://replicationindex.wordpress.com/2017/02/02/reconstruction-of-a-train-wreck-how-priming-research-went-of-the-rails/

Even many of the comments are good, including one from Dr. Kahneman himself, whose book is the object of criticism!

anne -> tew... , March 07, 2017 at 12:12 PM
https://en.wikipedia.org/wiki/Priming_(psychology)

Priming is an implicit memory effect in which exposure to one stimulus (i.e., perceptual pattern) influences the response to another stimulus.

A Brave Named Sioux -> anne... , March 07, 2017 at 01:53 PM
Intertrial priming allows an accumulation of effects from iterations of trials. ceu

If we see fed governors repeatedly drop rates when dollar becomes 22% stronger, we could soon assume that rates and dollar strength are indirectly related. Are new import taxes about to increase the $ strength by 22%? will this retard FG hawks? What will the shake out be for investments? For treasuries vs. common stock?

The Econometrix : , March 07, 2017 at 12:07 PM
I think that replication would be a good exercise for PhD students.
sanjait : , March 07, 2017 at 01:17 PM
This is a problem in every academic field.

But it would seem that fields that don't rely heavily on controlled experiments, as in the "hard" sciences, might be more vulnerable to this kind of issue. But only marginally so, because bad controlled experimental data does also exist.

Either way, it's a bit of a comic irony that the field of economics hasn't found good ways to address this. Isn't identifying in clear-eyed terms and addressing market failures kind of your thing, Econ?

John Williams -> sanjait... , March 07, 2017 at 04:27 PM
Actually, the seminal paper on this issue is Ioannidis (2005) "Why most published research findings are false," PloS Medicine, vol 2, issue 8, e124, is about biomedical research. However, Andrew Gelman has lots to say on the topic regarding social sciences.
point : , March 07, 2017 at 01:21 PM
"In fact, much if not a majority of the papers published in top economics journals are probably wrong, and yet the field soldiers on like a drunken sailor."

It's possible I have a new hero. Unless writing from Moscow he's a Putin plant.

(sarcasm alert, please)

BenIsNotYoda : , March 07, 2017 at 01:37 PM
Good article. This is especially true in social sciences because the political correctness is more directly related.

Economics has become a discipline of "trend followers" or "herd behavior"

pgl : , March 07, 2017 at 03:17 PM
Yes!

"1. Study reports results which reinforce the dominant, politically correct, narrative.
2. Study is widely cited in other academic work, lionized in the popular press, and used to advance real world agendas.
3. Study fails to replicate, but no one (except a few careful and independent thinkers) notices."

Leave it to Cato to write "Do Budget Deficits Raise Long-Term Interest Rates?" which is a great example of (2).

https://object.cato.org/sites/cato.org/files/pubs/pdf/tbb-0202-1.pdf

They rely on some nonsense from Barro-Ricardian freak Paul Evans:

https://www.jstor.org/stable/1812704?seq=1#page_scan_tab_contents

That's right – Evans got this intellectual garbage published in the American Economic Review in 1985 over the objections of many sensible economists. But Barro-Ricardian equivalence was the politically correct view among the anti-Keynesian New Classical types who ruled back then. Evans wanted us to believe that the Reagan fiscal stimulus would not raise real interest rates as the rich people who got those massive tax cuts would not consume their new after-tax income. Of course, consumption as a share of national income soared as they did spend their tax cuts. So what was Evans evidence? Interest rates did not rise as the deficit soared? Wait real interest rates did rise from around 2% to 6%. Evans measured the wrong interest rate (nominal) and he overstated fiscal stimulus by using the actual deficit during a period of overall weak aggregate demand. But the AER published this intellectual garbage anyway. At least people have noticed that this stupid paper was not replicated (#3).

Peter K. -> pgl... , March 07, 2017 at 06:34 PM
PGL only talks about the New Classicals but not the neoliberals.
Mr. Bill : , March 07, 2017 at 05:00 PM
Actually, the article seems germane. Just in time for the Tom Price )formerly known as Howdy Doody( unleashed the beginning salvo on the entitled.

The Republican talking points were right out of the George Bush era.

Economic Freedom

Maybe the authors simply had to wait a while longer for replication. One and two seem too being demonstrated by the swamp, as we speak.

Boy, oh, boy, I can't wait till those Trump voters have their benefits removed by the USO (United States of Oligarchy). (cynically)

Mr. Bill -> Mr. Bill... , March 07, 2017 at 05:29 PM
Mmm, mm, Fatdaddy, what's for dinner.

The Trump base. Scrumptious. Maybe not by the standards of Rome, yet.

dwb : , March 07, 2017 at 05:35 PM
If it is not replicable it is religion, not science.

People have deep need for a belief system. The right has an invisible being in the sky. The left has math models that cannot be verified, aka social science and economic.

If there is not a double blind clinical trial or similarly replicable result, don't bet your career or legacy on it.

libezkova : , March 07, 2017 at 06:42 PM
It might be interesting to look at history of neoclassical economics from this perspective.

Hyman Minsky critique of neoclassical economics remains relevant -- it is a junk science. There no place of any math equations connecting of supply and demand without taking into account the existence of financial system and its dominant influence on markets. In this sense book-bust cycle under capitalism is an immanent feature due to positive feedback loop introduced by financial system.

another important issue to reconsider is the role of banks. If it is difficult to make private banks profitable if they operate under strict regulation it might be no place for private banks at all.

Current "private banks" are actually corrupt and criminal private-public partnerships acting on the principle "privatize profits -- shift to public all the debts".

This is not acceptable under democracy.

[Mar 06, 2017] Keynesianism and the Great Recession

Notable quotes:
"... Keynesianism offered important tools for overcoming the economic crisis, but its application by Obama's government was too half-hearted and misdirected (going to banks rather than households) to effectively reduce the recession. Clinton paid the price. ..."
"... We need to work towards a post-capitalist system that aims at promoting equality, enhances instead of destroys the environment, is based on cooperation, and is engaged in planning to achieve short term, medium term, and long-term goals. ..."
"... "The Labour and time of the poor is in civilised countries sacrificed to the maintaining of the rich in ease and luxury. The Landlord is maintained in idleness and luxury by the labour of his tenants. The moneyed man is supported by his extractions from the industrious merchant and the needy who are obliged to support him in ease by a return for the use of his money." ..."
"... "But the rate of profit does not, like rent and wages, rise with the prosperity and fall with the declension of the society. On the contrary, it is naturally low in rich and high in poor countries, and it is always highest in the countries which are going fastest to ruin." ..."
Mar 06, 2017 | www.nakedcapitalism.com
An Interview with Walden Bello

Keynesianism offered important tools for overcoming the economic crisis, but its application by Obama's government was too half-hearted and misdirected (going to banks rather than households) to effectively reduce the recession. Clinton paid the price.

This interview with Walden Bello is based on the article "Keynesianism in the Great Recession:
Right Diagnosis, Wrong Cure," available here from the Trans National Institute.

Q: What were the main ways in which neoliberalism created the Great Recession?

A: Neoliberalism sought to remove the regulatory constraints that the state was forced to impose on capitalist profitability owing to the pressure of the working class movement.

But it had to legitimize this ideologically. Thus it came out with two very influential theories, the so-called efficient market hypothesis (EMH) and rational expectations hypothesis (REH). EMH held that without government-induced distortions, financial markets are efficient because they reflect all the available information available to all market participants at any given time. In essence, EMH said, it is best to leave financial markets alone since they are self-regulating. REH provided the theoretical basis for EMH with its assumption that individuals operate on the basis of rational assessments of economic trends.

These theories provided the ideological cover for the deregulation or "light touch" regulation of the financial sector that took place in the 1980s and 1990s. Due to a common neoliberal education and close interaction, bankers and regulators shared the assumptions of this ideology. This resulted in the loosening of regulation of the banks and the absence of any regulation and very limited monitoring of the so-called "shadow banking" sector where all sorts of financial instruments were created and traded among parties.

With so little regulation, there was nothing to check the creation and trading of questionable securities like subprime mortgage-based securities. And with no effective monitoring, there were no constraints on banks' build-up of unsustainable balance sheets with a high debt to equity ratios.

Without adult supervision, as it were, a financial sector that was already inherently unstable went wild. When the subprime assets were found to be toxic since they were based on mortgages on which borrowers had defaulted, highly indebted or leveraged banks that had bought these now valueless securities had little equity to repay their creditors or depositors who now came after them. This quickly led to their bankruptcy, as in the case of Lehman Brothers, or to their being bailed out by government, as was the case with most of the biggest banks. The finance sector froze up, resulting in a recession-a big one-in the real economy.

Q: So how did these banks get to be so big and powerful? What drove the "financialization boom" that triggered the recession?

A: Financialization or an increasing preference for speculative activity instead of production as a source of profit was driven by four developments. The first was the abolition, during the Clinton Administration, of the Glass-Steagall Act that had served as a Chinese Wall between commercial or retail banking and investment banking, as a result of tremendous pressure from the big banks felt left out of the boom in trading. The second was the expansive monetary policy promoted by the Federal Reserve to counter the downturn following the piercing of the dot.com bubble in the first years of the new century. Third was the government and business' move to shore up effective demand by substituting household indebtedness for real wage increases. Fourth was the lifting of capital controls on the international flow of finance capital, following the era of financial repression during the post-war period. These developments acted in synergy, first to produce a speculative boom in the housing and stock markets, then feeding on one another to accelerate an economic nose-dive during the bust.

Q: What was the worst impact of the crisis, and upon whom?

A: With unemployment hitting 10 per cent in 2010, working people suffered the most. Although the unemployment rate is now down to five per cent, that fall has been driven less by improved labor market conditions than a falling rate of participation, as discouraged workers withdrew from the labor force. More than 4 million homes were foreclosed. Lower income households, the main victims of aggressive loan sharks, suffered most.

As far as growth was concerned, the recovery was tepid, with average GDP growth barely 2 per cent per annum between 2011 and 2013, less than half the pace of the typical post-World War II expansion. In terms of inequality, the statistics were clear: 95% of income gains from 2009 to 2012 went to the top 1%; median income was $4,000 lower in 2014 than in 2000; concentration of financial assets increased after 2009, with the four largest banks owning assets that came to nearly 50% of GDP.

An Economic Policy Institute study summed up the trends: "[T]he gains of the top 1 percent have vastly outpaced the gains for the bottom 99 percent as the economy has recovered."
At the individual and household level, the economic consequences of being laid off were devastating; with one study finding that workers laid off during recessions "lose on average three full years of lifetime income potential." One estimate showed that the income of the United States would have been $2 trillion higher had there been no crisis, or $17,000 per household.

Q: What did Keynesianism offer as a way of responding to the crisis?

A: Keynesianism offered two major weapons for overcoming the crisis. The first and most important was a fiscal stimulus, or deficit spending by government. The second was monetary expansion. Essentially, these were forms of government intervention designed to revive the economy after a collapse of investment on the part of the private sector. They are called "countercyclical" since they are designed to counter the recessionary pressures brought about by the crisis of the private sector.

Q: How were Keynesian policies and strategies applied in the wake of the onset of the recession?

A: The Keynesian interventions were in the right direction. Unfortunately, they were applied half-heartedly by the Obama administration. For instance, the size of the fiscal stimulus $787 billion might have been enough to prevent the recession from getting worse, but it was not enough to trigger an early recovery, which would have demanded at least $1.8 trillion, according to Cristina Romer, the head of Obama's Council of Economic Advisers.

Expansive monetary policy was always a second best solution and was not as effective as a fiscal stimulus. Yes, cutting interests to zero and quantitative easing-or providing banks with infusions of money-did have some impact, but this was rather small since, for the most part, individuals and corporations did not want to go further into debt but wanted to focus on lessening their debt.

Q: What three things could have been done, "truer" to the spirit of Keynesianism, that would have reduced the recession?

A: First of all, there should have been a much bigger stimulus, one along the lines of Cristina Romer's proposal of $1.8 trillion. Second, instead of focusing on saving the banks, the government should have devoted resources to assisting the millions of troubled homeowners, a move which would have raised effective demand. Third, the insolvent banks should have been taken over or nationalized and the billions spent on recapitalizing them or guaranteeing their borrowing should have been devoted to creating jobs to absorb the unemployed.

Q: Is financialization still a threat?

A: Yes, even conservative analysts say that the so-called Dodd-Frank reform encourages moral hazard or reckless behavior by banks owing to their belief that when they get into trouble, the government will bail them out.

Derivatives-which Warren Buffet called "weapons of mass destruction"-are still virtually unregulated. And so is the shadow banking sector. The non-transparent derivatives market is now estimated to total US$707 trillion, or significantly higher than the US$548 billion in 2008.

As one analyst puts it, "The market has grown so unfathomably vast, the global economy is at risk of massive damage should even a small percentage of contracts go sour. Its size and potential influence are difficult just to comprehend, let alone assess." Former U.S. Securities and Exchange Commission Chairman Arthur Levitt, the former chairman of the SEC, says that none of the post-2008 reforms has "significantly diminished the likelihood of financial crises."

Q: What has been the legacy of the crisis on U.S. politics?

A: One can say that the Obama administration's failure to reinvigorate the economy after eight years and to reform the banks was the central factor that lost the elections for Hillary Clinton. If there's one certainty that emerged in the 2016 elections, it was that Clinton's unexpected defeat stemmed from her loss of four so-called "Rust Belt" states: Wisconsin, Michigan, and Pennsylvania, which had previously been Democratic strongholds, and Ohio, a swing state that had twice supported Barack Obama.

The 64 Electoral College votes of those states, most of which hadn't even been considered battlegrounds, put Donald Trump over the top. Trump's numbers, it is now clear, were produced by a combination of an enthusiastic turnout of the Republican base, his picking up significant numbers of traditionally Democratic voters, and large numbers of Democrats staying home.
But this wasn't a defeat by default. On the economic issues that motivate many of these voters, Trump had a message: The economic recovery was a mirage, people were hurt by the Democrats' policies, and they had more pain to look forward to should the Democrats retain control of the White House.

The problem for Clinton was that the opportunistic message of this demagogue rang true to the middle class and working class voters in these states, even if the messenger himself was quite flawed. These four states reflected, on the ground, the worst consequences of the interlocking problems of high unemployment and deindustrialization that had stalked the whole country for over two decades owing to the flight of industrial corporations to Asia and elsewhere. Combined with the financial collapse of 2007-2008 and the widespread foreclosure of the homes of millions of middle class and poor people who'd been enticed by the banks to go into massive indebtedness, the region was becoming a powder keg of resentment.

True, these working class voters going over to Trump or boycotting the polls were mainly white. But then these were the same people that placed their faith in Obama in 2008, when they favored him by large margin over John McCain. And they stuck with him in 2012, though his margins of victory were for the most part narrower. By 2016, however, they'd had enough, and they would no longer buy the Democrats' blaming George W. Bush for the continuing stagnation of the economy.
Clinton bore the brunt of their backlash, since she made the strategic mistake of running on Obama's legacy-which, to the voters, was one of failing to deliver the economic relief and return to prosperity that he had promised eight years earlier.

Q: In what ways do we need to go beyond Keynesianism to address current economic and ecological problems?

A: I think Keynesianism has valuable insights into how a capitalist economy operates and can be steadied so its inherent instability and contradictions can be mitigated. But, as Minsky says, these solutions do not address the inherent instability of the system. A new equilibrium contains the seeds of disequilibrium. With its focus on growth propelled by effective demand, Keynesianism also has problems addressing the problem of ecological disequilibrium brought about by growth.
The real issue is capitalism's incessant search for profit that severely destabilizes both society and the environment. I think there is no longer any illusion, even among its defenders, that capitalism is prone to crises, and these days, these are crises that not only stem from the dynamics of production but from the dynamics of finance.

We need to work towards a post-capitalist system that aims at promoting equality, enhances instead of destroys the environment, is based on cooperation, and is engaged in planning to achieve short term, medium term, and long-term goals. In this scheme, finance would function to link savings to investment and savers to investors, instead of becoming an autonomous force whose dynamics destabilizes the real economy. A post-capitalist society does not mean the elimination of the market. But it does mean making use of the market to achieve democratically decided social goals rather than having the market drive society in an anarchic fashion.

0 0 23 0 0 This entry was posted in Economic fundamentals , Free markets and their discontents , Guest Post , Macroeconomic policy , The destruction of the middle class , The dismal science on March 4, 2017 by Yves Smith . Subscribe to Post Comments 48 comments craazyboy , March 4, 2017 at 3:52 am

But Yobs! EMH is more than just a hypothesis. It's really, really true stuff. Say Paris Hilton or even some squillionaire heir dude decides to spend a little pocket change on a brand new pair of self driving, artificial intelligence, rocket powered yoga pants.

An enterprising Silicon Valley startup will emerge and, with the help of IPO financing, supply the product 'cause there is demand. It's that simple!

Clearpoint , March 4, 2017 at 10:46 am

But can they patent their invention, monopolize the market, and defend their obscene profits with an army of New York and D.C. lawyers circling around the money machine? If so, count me in!

der , March 4, 2017 at 7:25 am

We need to work towards a post-capitalist system that aims at promoting equality, enhances instead of destroys the environment, is based on cooperation, and is engaged in planning to achieve short term, medium term, and long-term goals.

Not going to happen because there is no long-term goal. That pile of derivative crap will keep growing forestalling the day the nothing cancer it's based on metastasis and brings it down, quantitative easing is a placebo. That's the medium term. In the short term there's Silicon Valley's monopolization model, run by selfish man-boy innovators stroking the egos of old greedy politicians who look down on indebted, seduced spend happy deplorables. The latest video of insecure man-boy Travis Kalanick arguing with and dismissing the views of one of his drivers "Some people don't like to take responsibility for their own shit." shows the attitude of the ruling classes toward the 90% deplorable suckers they're working to con with new "Innovations".
https://www.youtube.com/watch?v=gTEDYCkNqns

The long-term our elites have given up on, smart people they are and as Chris Hedges has said "know what's coming" as today's news brings warnings of permafrost gas release. What are our elites solutions? Do as Peter Thiel and buy citizenship to an island nation, or like those smart people who purchased a condo in some mid-western abandoned missile silo? Why they have a doctor and dentist on the condo board has me confused, what no butcher, baker, candle-stick maker? And then what? After Bannon's apocalyptic melt down come back home and take an Uber ride to your AirBnB where the doctor's serve up a delicious gourmet feast?

The Best and Brightest, the ruling class. Time is running out, as the planet burns.

Clearpoint , March 4, 2017 at 11:22 am

When you have a finance dominated economy, the uber ceo is the standard for what the "best and brightest" will become. That youtube video captures the immaturity, selfishness, and arrogance of this child masquerading as a man.

Sound of the Suburbs , March 4, 2017 at 8:46 am

If you want things biased in your favour, bias the economics that everything runs on.

The Classical Economists looked out on a world of small state, basic capitalism in the 18th and 19th Centuries and observed it. It is nothing like our expectations today because they are just made up.
Adam Smith in the 18th century:

"The Labour and time of the poor is in civilised countries sacrificed to the maintaining of the rich in ease and luxury. The Landlord is maintained in idleness and luxury by the labour of his tenants. The moneyed man is supported by his extractions from the industrious merchant and the needy who are obliged to support him in ease by a return for the use of his money."

We still have a UK aristocracy that is maintained in luxury and leisure and can see associates of the Royal Family that are maintained in luxury and leisure by trust funds. As these people are doing nothing productive, nothing can be trickling down, the system is trickling up to maintain them.

Adam Smith in the 18th century:

"But the rate of profit does not, like rent and wages, rise with the prosperity and fall with the declension of the society. On the contrary, it is naturally low in rich and high in poor countries, and it is always highest in the countries which are going fastest to ruin."

Exactly the opposite of today's thinking, what does he mean?

When rates of profit are high, capitalism is cannibalising itself by:
1) Not engaging in long term investment for the future
2) Paying insufficient wages to maintain demand for its products and services

Today's problems with growth and demand.

Amazon re-invested its profits and didn't suck them out as dividends and look how big it's grown. Ignoring today's economics can work wonders.

The Classical Economists direct observations come to some very unpleasant conclusions for the ruling class; they are parasites on the economic system using their land and capital to collect rent and interest to maintain themselves in luxury and ease (Adam Smith above).

What can these vested interests do to maintain their life of privilege that stretches back centuries?
Promote a bottom-up economics that has carefully crafted assumptions that hide their parasitic nature. It's called neoclassical economics and it's what we use today.

The distinction between "earned" and "unearned" income disappears and the once separate areas of "capital" and "land" are conflated. The landowners, landlords and usurers are now just productive members of society and not parasites riding on the back of other people's hard work.
Unearned income is so easy, it's the UK favourite today.

Most of the UK now dreams of giving up work and living off the "unearned" income from a BTL portfolio, extracting the "earned" income of generation rent.

The UK dream is to be like the idle rich, rentier, living off "unearned" income and doing nothing productive.
Powerful vested interests come up with neoclassical economics so that it works in their favour and only bottom-up economics can be easily corrupted. Top-down economics is based on real world observation.

Their neoclassical economics blows up in 1929 due to its own internal flaws but the powerful vested interests still love it as they designed it to work in their favour.

Keynes comes up with new ideas that herald the New Deal and a way out of the Great Depression.

The powerful vested interests don't want to lose their beloved neoclassical economics and fuse it with Keynes ideas to roll out after the war. This gives them the opportunity to get rid of some of Keynes's more unpleasant conclusions, generally tone it down and remove all the really obvious conflicts with their neoclassical economics. The only real Keynesian economics was in the New Deal.

When the Keynesian synthesis fails in the 1970s, they seize the opportunity to bring back their really biased neoclassical economics.

It still doesn't work of course.

It's reliance on debt based consumption and debt based speculation, tend to end in debt deflation, e.g. the Great Depression, today's secular stagnation.

Today's secular stagnation is only being achieved by the Central Banker's pumping in their trillions to stave off debt deflation and there are plenty of asset bubbles still to burst.

Sound of the Suburbs , March 4, 2017 at 8:54 am

Two halves to make a whole.

Supply side economics – when inflation is too high and demand exceeds supply
Demand side economics – when inflation is too low and supply exceeds demand

Today's economics was a solution to what went before it, as Keynesian capitalism had ended in the stagflation of the 1970s, but it was far too extreme.

Looking back with two assumptions:

1) Money at the top is mainly investment capital as those at the top can already meet every need, want or whim. It is supply side capital.
2) Money at bottom is mainly consumption capital and it will be spent on goods and services. It is demand side capital.

Pre-1930s – Supply side economics leading to:

Too much investment capital leading to rampant speculation and a Wall Street crash
Too little consumption capital and demand is maintained with debt.

Leads to Great Depression and the debt deflation of an economy mired in debt

Post-1930s – Demand side economics leading to:

Too little investment capital compared to demand, supply constrained.
Too much consumption capital, leading to very high inflation.

Imbalance causes stagflation.

Post-1980s – Supply side economics leads to:

Too much investment capital leading to rampant speculation and a Wall Street crash, asset bubbles all over the place.
Too little consumption capital and demand is maintained with debt. Global aggregate demand is suffering and with such subdued demand there are few places for real investment leading to more speculation.

Leads to the secular stagnation of the new normal, the assert bubbles have yet to burst.

Maybe it's just the balance between supply and demand necessary to achieve that happy medium.

Two halves to make a whole.

Sound of the Suburbs , March 4, 2017 at 9:02 am

One half at a time:

Pre-1930s – Supply side economics – Runs into the debt deflation of the Great Depression.

Post-1930s – Demand side economics – Runs into stagflation.

Post-1980s – Supply side economics – Runs into the new normal of secular stagnation as the Central Bankers manage to stave off the under-lying debt deflation.

Sound of the Suburbs , March 4, 2017 at 12:49 pm

When the system stays the same for too long it is gamed.

Demand side economics

The goal is full employment and workers game the system through unions constantly going on strike for ever more petty demands.

Supply side economics

Bankers game the system as they are insufficiently regulated.

This time they have come up with:

1) An asymmetric reward structure where there are bonuses for profits and no penalties for losses. They are incentivised to blow bubbles.

2) The Greenspan and Bernanke put encourage ever more reckless behaviour from the stock market crash in 1987.

3) TBTF – just go crazy, we will get bailed out.

Miltiades , March 4, 2017 at 8:57 am

What can one do to maintain equinimity amidst this situation?

susan the other , March 4, 2017 at 2:28 pm

drink

OpenThePodBayDoorsHAL , March 4, 2017 at 8:08 pm

Separate money and credit. We have a ridiculous system that requires credit creation in order to create money, eventually too much credit is created, but instead of that just being a banking crisis it's also a monetary and economic crisis. Free your mind a little. Just separate the two.

s , March 5, 2017 at 4:01 am

Money is credit its not attached to any commodity ..

Paul Greenwood , March 4, 2017 at 9:01 am

German Capitalism was State-sponsored. Siemens & Halske were based in Berlin and lived off State contracts for railways, telegraphs. French Capitalism was State-sponsored. English Capitalism was sponsored by Discrimination against Congregationalists, Quakers, Unitarians, Baptists who were outside the Church of England and could not therefore go to University or enter Professions under Test & Corporation Acts 1665. They had to enter Trade. Hence Cadbury, Rowntree, James Barclay, Samuel Lloyd were Quakers – the latter two forming banks.

Siemens created Deutsche Bank. As for Finance in Germany, Bleichroeder was Bismarck's banker – the Bauer Family of Frankfurt became Rothschild. The Finance in London was largely German immigrants – Kleinwort Benson, Sassoons, Cassel etc.

http://www.academicresearchjournals.org/ARJHC/PDF/2015/January/Michie.pdf

Britain ultimately lacked investment opportunities because of Free Trade letting competitors export goods into the UK market but tariffs preventing UK exports to USA, Germany, Russia, France etc. Hence Capital was exported building huge foreign investment portfolio through The City – liquidated in 1st World War

Anonymous , March 4, 2017 at 9:18 am

'When the subprime assets were found to be toxic since they were based on mortgages on which borrowers had defaulted, highly indebted or leveraged banks that had bought these now valueless securities had little equity to repay their creditors or depositors who now came after them.'

Interesting interpretation. Unfortunately it bears little relationship to what actually happened. The financial crisis was a repo crisis. Most collateralized mortgage obligations had plenty of equity to cover default losses. Unfortunately, they were by nature opaque and hard to analyze quickly, and like a murmuration of birds, everyone zigged at the same time, so there were no buyers. The repo aspect of the crisis was what really counted. Suddenly repo lenders refused to lend. Investment banks once had longer term financing in place, but this eroded over the several years prior to the crisis. See Cohan 'House of Cards.' Also Ed Conard's 'Unintended Consequences.'

JEHR , March 4, 2017 at 10:20 am

Anonymous, you are forgetting the role of the massive sub-prime mortgage fraud that the banks initiated and then the banks foreclosed on those who had bought the offered mortgages rather than re-negotiate new mortgages. Forget repo; remember the fraud: forget opaque and hope for transparency which was in short supply during the crisis. It's all about the fraud , you know.

justanotherprogressive , March 4, 2017 at 10:29 am

Hmmmm ..let's see if I understand you correctly. It appears that when everyone thought they were buying lunch, they were buying sh*t sandwiches. So the problem wasn't that they were being sold sh*t under another name, the problem was that they weren't willing to buy that sh*t? So if they'd have been willing to eat sh*t instead of what they thought they were going to get, everything would have been hunky dory? Ah ..lunch, sh*t, but it's all the same, huh? Anything for a buck?

Anonymous2 , March 4, 2017 at 12:33 pm

Anonymous

Read Yves 's book.

Yves Smith Post author , March 5, 2017 at 4:15 am

This is not correct. I wrote about this in sordid detail in ECONNED, with the details of the structures, the amounts, and who was exposed.

Subprime CDOs (more accurately, asset backed CDOs, which at the time happened to consist heavily of BBB- RMBS exposures) were a significant portion of repo collateral. They went almost without exception to zero.

Those exposures wound up disproportionately at heavily leveraged, systemically important, and tightly coupled financial institutions. The Eurobanks loaded up on ABS CDOs because their trader bonus formulas highly incentivized it (see discussion of "negative basis trade"). AIG and the monolines were as we know heavily exposed. US investment banks were heavily exposed by virtue of either being stupidly heavily involved in subprime CDOs at the worst moment (Citi and Merrill, I explain why/how), Lehman and Bear by simply being weakly capitalized second tier investment banks that tried getting to be first tier by going way overweight in total risk terms in RMBS and doing a bad job of risk management (Bear by extending too much in its warehouse lines to originators like IndyMac and New Century as well as being a large CDS player; Lehman by taking on too much risk everywhere, witness its obvious balance sheet problems in 2008). Morgan Stanley also had a weak balance sheet and big CDO/RMBS exposures, see AIG trial for details; Goldman was heavily exposed to ABS CDOs by having too cleverly trying to pick up extra margin by brokering them to Middle Eastern investors, leaving them exposed when their AIG hedge was gonna fail.

Yes. repo was the proximate cause, but contrary to your claim, a lot of the collateral was no good and that was why the repos were not rolled.

skippy , March 5, 2017 at 4:55 am

Amends . Yves

Risk controls were shite and industry made its own bed . the rest is just a battlefield post mortem .

disheveled . which has more grounding in biopolotics pushing ideological outcomes than excruciating analytical financial misgivings .

Anonymous , March 4, 2017 at 9:21 am

People who advocate reindustrialization and manufacturing are out of their minds. Manufacturing margins are shrinking everywhere. China and Germany are going to be in deep trouble. Bruce Greenwald, of Columbia Business School, says that in fifty years most of the things that you buy will be made within fifty miles of your home. Actually, they may be made in your garage, by you, and you may not 'buy' them, per se, so much as buy the raw materials and make them. What's that likely to do for manufacturing jobs?

cnchal , March 4, 2017 at 9:54 am

>Bruce Greenwald, of Columbia Business School, says that in fifty years most of the things that you buy will be made within fifty miles of your home.

Anybody can say anything. Even nonsense.

Benedict@Large , March 4, 2017 at 1:06 pm

That 50 mile radius is not only true; it's obvious. Fifty years from now, all of our roadways and bridges will have crumbled, and so the transport of finished goods beyond 50 miles of their manufacture will be nigh on impossible.

Of course the transport of raw materials from their origins to their points of refinement will also be similarly limited, which means that most of what most of us use will be made out of sticks.

justanotherprogressive , March 4, 2017 at 10:43 am

I'm sitting in my kitchen looking at all the things that are manufactured, from my fridge, to my clothes, to my car, to my floors, to the farm equipment I can see outside my window, etc. And heaven knows none of these things last as long as they used to, so yes, I am going to have to replace all this some day as is the farmer ..
So yes, there will be manufacturing jobs in the future, and not just within a 50 mile radius. Perhaps when the actual economy gets better for people in the lower 90%, they will be more willing to spend money on manufactured products. But in order for their economy to get better, they are going to have to be the ones doing the manufacturing, aren't they?

Sound of the Suburbs , March 4, 2017 at 10:05 am

Derivatives are the biggest threat to the financial system.

James Rickards in Currency Wars gives some figures for the loss magnification of complex financial instruments/derivatives in 2008.

Losses from sub-prime – less than $300 billion
With derivative amplification – over $6 trillion

It was the derivatives that really did the damage; derivatives were the mechanism that allowed a housing bust in one nation to infect the global economy.

Derivatives were used as leverage to increase bonuses on the way up and losses on the way down.

The derivatives market is now bigger than ever, no sensible regulations have been put in place since 2008.

Where does the real danger come from with derivatives?
Jim Rickards was at the top of LTCM when it collapsed in 1998 and saw how the collapse in a link of the derivative chains turns losses, from nett to gross within the system.

Everyone panicked as it was impossible to gauge the size of the losses.

When Lehman Brothers collapsed in 2008, everyone panicked as it was impossible to gauge the size of the losses.

The same problem ten years later and the same problem will happen next time as no regulations are in place. Everyone still believes the risk with derivatives only comes from their nett value as they have learnt nothing from experience.

Credit Default Swaps are an unregulated insurance product that bought down AIG in 2008, the largest insurance company in the world. They took the insurance premiums and didn't put anything aside in case these insurance policies had to pay out as they weren't regulated.

CDSs are the most dangerous of the derivative products, they bought down AIG and it all happened in a division in Curzon Street, Mayfair in the UK.

Warren Buffett points out further problems back in 2002:
http://www.fintools.com/docs/Warren%20Buffet%20on%20Derivatives.pdf

They are zero sum bets, so why do bankers love them?
Both sides think they are taking the right side of the bet and both sides can post profits until that future bet is realised. They are great for bonuses.

They don't incur any costs up front and allow for enormous leverage, they are great for bonuses.

Derivatives are the transmission mechanism for crises in one part of the world to infect the whole global economy.

They interconnect the major banks in a way that has devastating consequences should one of them fail, this has already been demonstrated by LTCM in 1998 and Lehman Brothers in 2008.

The nett losses turn to gross losses within the derivatives chains and the losses are incalculable as these chains are opaque and hard to trace.

We know the biggest threat to the financial system; will anyone do anything about it?

Kurtismayfield , March 4, 2017 at 10:25 am

First of all, there should have been a much bigger stimulus, one along the lines of Cristina Romer's proposal of $1.8 trillion.

I was just reading accounts of the events leading up to the stimulus package, and it seems Ms. Tomer was told time and time again that her stimulus proposals were politically impossible. Is there actual evidence that Obama ever saw that 1.8 trillion figure? According to Scheiber's book, Summers kept brushing off Romer's numbers.

If so, the important economic advisors never wanted to fight for what was necessary at a time when a majority of the US public would have gone along with anything. They really are just a bunch of careerists.

Grumpy Engineer , March 4, 2017 at 11:36 am

I have a hard time taking anything said by Christina Romer seriously. After all, she was one of the authors of the infamous ARRA justification report that predicted a 10% peak unemployment rate without the stimulus and a 8% peak unemployment rate with it. That prediction assumed $800 billion in spending and tax cuts, and we got that $800 billion. The unemployment rate shot past 10% anyway. [Additionally, the return to a 6% unemployment rate took twice as long as predicted and only reached that level because of a plummeting labor force participation rate.] The failure of the predictions in the ARRA justification report were truly epic .

Competence matters. The economists working for the White House (Romer among them) didn't have it.

This is part of why Trump won. The ARRA justification report promised a glorious V-shaped recovery with 300k to 500k jobs per month. We didn't even average 200k per month. The ACA promised cheaper health insurance by $2000 per year. Premium rose sharply instead. When you implement grand new plans, those plans need to ACTUALLY WORK!!

KurtisMayfield , March 4, 2017 at 12:27 pm

It sounds like Ms. Romer wrote a report which matched the exact amount that her bosses were going to get from Congress. So she was giving cover for something that was already decided.

And the ACA is a pile of crap that anyone being involved with should be ashamed of. Unfortunately since the Federal government is completely captured by the renter's there is zero chance of reform without a complete political revolution.

Yves Smith Post author , March 5, 2017 at 4:19 am

Summers agreed that Romer's analysis was correct, and Summers is the last person to say that sort of thing. It's in Ron Suskind's book Confidence Men. He nixed it for political reasons, not economic ones.

Is it not hard to imagine that Romer was pressured to create a model to sell the deal? Why would her second model be so different from her earlier one otherwise? That happens all the time in the private sector. If you haven't seen it, you haven't been looking.

Watt4Bob , March 4, 2017 at 10:41 am

People keep forgetting that a large portion of that $781 billion was in the form of tax credits weighted towards the usual suspects.

And since the MOTU never let an emergency go to waste, the scrum at the trough resulted in the actual stimulus being even more anemic than it is portrayed.

grayslady , March 4, 2017 at 11:22 am

Here in Illinois, which received the second or third highest amount of stimulus dollars, most of the money was spent on bridge and road repairs. Yes, those repairs provided some construction jobs, but, otherwise hardly served to promote the economy for ordinary people. The only really large project to receive stimulus money here was the destruction of a massive, abandoned Outboard Marine plant sitting right on the shores of Lake Michigan. The building was dangerous–and an eyesore–and occupied prime real estate. Unfortunately, what remains on the site is a low level of rubble. Apparently, there isn't enough money, or interest, in developing the land to provide jobs, recreational space, new living accommodations–anything that might improve people's lives. In other words, the stimulus was used to repair the old and crumbling, but not to generate new opportunities.

Lyle James , March 4, 2017 at 12:18 pm

Here's a conundrum which baffles me: Bello writes (as have many before):

"These developments acted in synergy, first to produce a speculative boom in the housing and stock markets, then feeding on one another to accelerate an economic nose-dive during the bust."

So we did have our bust in the real estate market, here in California. My own property, purchased in 2005, dropped about 30% in value in 2008 from its market high in 2007.

It's nine years later - and my property value is now back up to its 2007 value. So is Los Angeles (and other cities no doubt) back in a "boom" that is inevitably headed again for a "bust"? It seems to me the economy is worse now than it was in 2007, and if these prices were an unsupportable boom then, why wouldn't they be now? And yet we are (so I'm told) in a period of rising interest rates and tight credit, two things absent the last "boom." I'm befuddled.

susan the other , March 4, 2017 at 2:33 pm

I think Picketty Capitalism has been going on so long that the GFC was caused by the labor classes being deprived too long, then the banksters realized it and tried to resuscitate them but it was too late and because the stimulus was too small even the cure got caught in the implosion

JerryDenim , March 4, 2017 at 6:53 pm

All of the desirable neighborhoods in LA are now well above their 2007 valuations. It seems like pure madness. The way-out exurbs of the Antelope Valley and the Inland Empire are still lower but almost everything in LA city limits is considerably higher now than in 2007. Median income for normal Americans is still lower than in the year 2000, but yet no one seems to think the market is in another bubble? I share your befuddlement. I live/rent in LA and I am sitting on a good chunk of cash I would like to put towards purchasing a home, but I can't bring myself to pay $600k for a 2 bedroom, 1 bath, 1200 square foot, 1950's shit box that some jerk is trying to flip for a $200,000 profit. I'm still hoping for another housing crash. The fundamentals of this market are rotten and prices need to come down before I consider tethering myself to a large, long period mortgage.

Gman , March 5, 2017 at 5:38 am

Housing is not just about fulfilling our basic human need for security and warmth, but also our innate powerful tendencies toward aspiration and speculation.

Sure it is our house, our home, our security etc but for most of us mere mortals it is our biggest financial outlay and has increasingly come to be seen in investment terms.

Thus over time property has gradually displaced gold as the major store of wealth, and this fixation has clearly been exploited accordingly.

Crucially it is also one of the biggest and most effective means for the debt creation, through mortgages and their numerous spin offs, that underwrites and drives most modern economies.

So apart from its obvious practical uses, property fulfils many other functions within economies, many of which used to be filled by gold ie asset backed promises to pay, but without its numerous obvious limitations. We can't keep finding or creating more gold to keep up with debt/credit expansion, but we can keep building more houses, or creating or exploiting more desirable environments for them for example.

Equally as important, and unlike gold, government can regulate supply. This ensures that demand ideally outstrips supply to pump the sometimes apparently illogical price inflation that keeps people chasing the horizon and thus keep feeding debt/money into the system.

LIBRE , March 4, 2017 at 12:32 pm

Seems like there should be the discussion that there are two competing theories running simultaneously here in the US and much of the EU. My understanding of JMK's theory is that after the expansion of debt and other financial stimulus to get us out of a recession, that after the recovery Keynes called for paying off debt through generating surplus that we retire debt in the form of higher taxes until we reach equilibrium. But that never happened. You overlay the Neoliberial macro ideology and voila we get tax cuts to the wealthy instituted by Reagan and Bush43 and austerity for everybody else, exactly the wrong medicine. Compound the growth of debt by trillions of dollars spent on never ending wars. The partial embrace of supply-side policy for 35 years accelerated growing government debt, thus causing subsequent economic crisis.

It is as if our economic policy leaders are bipolar or schizophrenic. Between this mishmash of conflicting policy and accelerating the uncoupling of labor from capital and wealth creation, inequality has become endemic and without change will become much, much worse. Just wait till the BLS U-6 participation number drops to 40% as millions of jobs cease to exist in the next 20 years while 80% of the wealth will be held by a handful of people. In this "free market" casino capitalist system with its insider trading, zero sum wars, and disregard for collateral damage, survival will only happen for a few. It will be ugly for those trapped in the Kansas silo. Little did George Miller realize in the late 70's that his Mad Max movie would be a documentary.

Philman , March 4, 2017 at 1:42 pm

Jimmy Dore argues basically the same thing here:
https://www.youtube.com/watch?v=3R6O-AdvzTM

shinola , March 4, 2017 at 1:43 pm

Let's see – A gambling addict makes reckless bets using credit and loses big. His Uncle Sam bails him out and admonishes him to never do it again but does nothing else to deter future bad behavior.

The casino is still open for business, offering unlimited chips on credit.

What can one rationally expect to happen?

susan the other , March 4, 2017 at 2:57 pm

Is Walden Bello an Argentinian by any chance? He sounds like my ancient boyfriend Ezekiel who was the smartest, funniest guy I ever. And he always made fun of me, my idiocy, and the USA for thinking we were the only answer for humanity. I loved him, but I was a dummy and I loved him too late. As for this delightful article, it's better than butter dumplings, I loved it too. I won't elaborate all the points. It was great. I'm pondering how wise it seems to demand a post capitalist society which uses the market to achieve democracy and environmental justice – but I definitely do think it's time has come and we are ready to go forward with this idea. Thank you for posting this. (versus both financial and industrial capitalism which both fail to address the shitstorm we are facing).

sunny129 , March 4, 2017 at 4:44 pm

'The real issue is capitalism's incessant search for profit that severely destabilizes both society and the environment.'

Good Luck, fighting against powerful CRONY Capitalists running the Country!

sunny129 , March 4, 2017 at 4:44 pm

'The real issue is capitalism's incessant search for profit that severely destabilizes both society and the environment.'

Good Luck, fighting against powerful CRONY Capitalists running the Country!

Adamski , March 4, 2017 at 5:28 pm

Yves, where can I buy ECONNED that isn't Bezos?

katiebird , March 4, 2017 at 5:37 pm

Barnes and Noble for one.

Powell's Books for two.

Adamski , March 4, 2017 at 8:50 pm

I should've said I'm in the UK. No luck, gonna get it secondhand from Biblio. Sorry for lack of royalties then Yves.

Kalen , March 4, 2017 at 6:44 pm

Another excellent, very succinct and up to the point expose of Keynesianism, a condemned by corporate economists, out of fashion economic theory with plenty of experimental foundations. Mostly the so-called " direct government investments into the mainstream economy as a methods of increasing an aggregate economic demand was hypocritically criticized as detrimental to free markets and free trade, while the same investment in Wall Street financial instruments was welcomed.

Here is another interesting unique, take what is or may be so-called demand side economics in the context of Keynesianism which only deals with a fraction of the issues of the economy in a deflationary spiral.

An excerpt from:
https://contrarianopinion.wordpress.com/economy-update/

IS THE END GAME FOR THE SSE RADICALISM NEAR? MAY BE.

"The Supply Side Economics (SSE) did us all. Yes. Under this benign name the SSE represent an extreme radical and dangerous ideology based on the unfounded (or rather borrowed) believe that "If we build, they will come" supply side fantasy that implicitly assumes that the real demand (nominal demand minus weighted debt incurred while producing the demand) does not need not be of any concern to the economic, financial and political decision makers, spelling the decades of doom to the people who work for living and created a paradise for the parasitic rent seekers, financial oligarchs and their government cronies.

The SSE (Supply Side Economic) was presented in the early seventies as an alternative to the Keynesian Theory that supposedly was concerned about the Demand Side Economics (DSE) but in fact it was not [only tangentially]. It cared mostly about the so-called aggregate demand stimulation initiated generally through the government investment policies leaving the task of "real demand" creation on the shoulders of the working people through the organized labor actions and leftist political movements lobbying the government and imparting on the government fiscal policies in a way beneficial to the labor and restricting the power of economic elites.

For the true demand side economic we would need a set of fiscal and economic and trade policies that would build up the institutional support for completely different, non financial, assets classes such as: the labor asset class (LAC) and the natural environment assets class (NRAC) [and more]. The economic, fiscal and monetary policies of the government in the DSE are [suppose to be] dedicated to maintain the fair value and stable growth of the above asset classes while leaving the other financial assets classes exposed to the global free markets. The true DSE guaranties demand and adjust the supply to fit the real demand hence no deflationary death spiral is ever possible, and if value-based [not debt based] monetary system is imposed, no inflationary pressures may ever develop."

JerryDenim , March 4, 2017 at 7:01 pm

"The non-transparent derivatives market is now estimated to total US$707 trillion, or significantly higher than the US$548 billion in 2008."

Wow! Is this figure real? Not that 548 billion is small sum but I thought the derivative market in pre-crash '08 was in the neighborhood of 8 trillion? It's now 707 trillion? That's nearly a hundred-fold increase in 9 years.

Anyone knowledgeable enough on the world derivative market to comment?

cnchal , March 4, 2017 at 9:16 pm

$548 trillion – the billion is likely a transcription mistake.

Note the fatuous accuracy, down to the trillion where in the next paragraph is this.

>As one analyst puts it, "The market has grown so unfathomably vast, the global economy is at risk of massive damage should even a small percentage of contracts go sour. Its size and potential influence are difficult just to comprehend, let alone assess ."

Basically, no one knows. It could be over a quadrillion (1000 X 1 trillion) or a 1 followed by 15 zeros.

To give these figures a faint wisp of reality, I like using Nimitz class aircraft carriers as coins of the realm.

$707 trillion would buy 153,420 of them at their original cost of $4.6 billion each, and were they placed end to end would stretch 31,707 miles.

Bernie Sanders: The business of Wall Street is fraud and greed.

JerryDenim , March 5, 2017 at 2:33 am

So you're saying Uncle Sam should be able to backstop it all in the next crisis then??

Just kidding! Thanks for the visual aid.

Hemang , March 5, 2017 at 3:40 am

What an ironic fate for the ever elegant Czar of style and the chief chair of the blue blooded aristocracy of Bloomsbury Lord Keynes to be first turned into 'keynesianism' and then as if it is not enough, to be 'discussed' by low caste nincompoops in crude English. Alas. The author should not call Trump opportunistic, pray tell me which capitalistic harlot is not one? He is constitutionally elected please.

[Mar 06, 2017] Too much Maths, too little History The problem of Economics - YouTube

Mar 06, 2017 | www.youtube.com
Edward Dodson 10 months ago The first presenter (Professor Skidensky?) has described very clearly my own experience as a student and subsequently as a teacher. Decades ago when I began my work on a master's degree I initially chose economics but soon became very disillusioned by the reliance on mathematics and the absence of investigation into historical experience and societal norms. Nor was there any serious investigation into the validity of propositions put forward as economic theory. At once time in class I engaged my economics professor in a long exchange over the impact of land hoarding and land speculation in the U.S. economy. After about twenty minutes he simply ended our exchanged exasperated because he could not counter the observations made by evidence offered by real world observations. Fortunately, my university offered an interdisciplinary alternative, a Master of Liberal Arts degree and I switched programs. My course of study permitted me to read and study the great political economists, who were all historians and all moral philosophers. They examined markets, market forces, and government as a primary externality, and they reached moral judgments based on the principles of justice they embraced. Along the way, I was introduced to the writings of the great French school of political economists, the Physiocrats, and to the American Henry George. George's theory of the business cycle, based on the classical three factor model of how economies and societies function, provided to be quite useful in my later work as a market analyst in the real estate sector. When I retired from my professional work in the mid-2000s I gave some thought to entering a doctorate program in order to acquire the credentials for college instruction. The very low probablility of ever securing a full-time teaching position pushed me in a different direction. Instead, I developed two courses to teach to senior adults in a non-credit environment. One is titled "Understanding our Political Economy." The other is "The History of Economic Thought." Although I do introduce basic economic concepts, such as factor of production and wealth distribution in these two courses, my students are not required to know or use mathematics in order to understand such concepts. I found an introductory economics textbook written by Professor Harry Gunnison Brown used to teach basic economics without even one equation in the book. Each course is two semesters in length is discussion oriented. My view is that the more I am required to lecture, the less the students are learning. I am more than happy to share this course material with any teacher who is attracted to the interdisciplinary approach offered by the study of political economy and by reliance on the classical three factor model of wealth production and distribution. I can be reached by email at edod08034@comcast.net.

[Mar 03, 2017] We should reject masked by mathiness typical neoclassical junk that is mainstream now.

Notable quotes:
"... That is exactly what makes macro a pseudoscience (as Cassidy called it "Utopian economics".) You can't talk about economics ignoring existence of finance, because finance is an elephant in the room. A church of efficient stochastic equilibrium and an invisible hand that drives economics to it (the hand of God) is junk science, and always was. ..."
Mar 03, 2017 | economistsview.typepad.com
libezkova : March 02, 2017 at 07:14 PM , 2017 at 07:14 PM
"macro rightly got a lot of stick by largely ignoring the role of finance,"

That is exactly what makes macro a pseudoscience (as Cassidy called it "Utopian economics".) You can't talk about economics ignoring existence of finance, because finance is an elephant in the room. A church of efficient stochastic equilibrium and an invisible hand that drives economics to it (the hand of God) is junk science, and always was.

As much as I admire the mathematics, its use in macro is perverted and unscientific because it relies on unrealistic assumptions. Its all pure mathiness.

Most of terminology that neoclassical economy introduced smells "fraud" or at least is detached from reality. "Output gap" and related notion "potential output" can serve as an example. Look at WWII production. For example, even potential output of a single plant (let's say three shift work and full utilization of equipment) is pretty convoluted notion as there is a high level of dependence on suppliers and somewhere typically "bottleneck" exists that prevent the factory achieving this input. Still Hjalmar Schacht achieved wonders during WWII by just ordering German factories to continue producing without waiting for orders to come.

Also it looks like Simon Wren-Lewis equalizes Keynes with Paul Samuelson simplification (or perversion if you wish) of Keynes thoughts ( http://econ.bus.utk.edu/department/emeritus/samuelson'sarrogance100%20final.pdf )

== quote ==
Moreover, Keynes [1936, p. 177, 179] had denounced Walras's approach as wrong when he wrote "Now the analysis of the previous chapters [of The General Theory] made it plain that this account [in Walras] of the matter must be erroneous .this [Walrasian system] is a nonsense theory".
== end of quote ==

And even worse, like most neoliberal economists, he tends to ignore Hyman Minsky important contribution to understanding of source of instability in capitalist economics.

That fact alone IMHO makes his lectures junk science.

libezkova -> libezkova... , March 02, 2017 at 07:14 PM
I remember that during 2008 events somebody called Bernanke not a specialist on Great Depression, but a charlatan, who tried to explain Great Depression using neoclassic economics.

I think that was an apt definition.

Mr. Bill : , March 02, 2017 at 10:21 PM
"I acknowledge that macro rightly got a lot of stick by largely ignoring the role of finance, but I also point out that the poor recovery has involved a vindication of the core macro model: austerity is a bad idea at the ZLB, QE was not inflationary and interest rates on government debt did not rise but fell."

No shit Dick Tracy. Look at the devastation of the US of O (The United States of Oligarchy). Let's join the Military in defending the shipping lanes, 3 hots and a cot.

I'm glad the core macro-model has been vindicated.

Sanjait : , March 02, 2017 at 11:29 PM
Is it my imagination or are the crazies around here getting crazier, and becoming increasingly unable to even begin talking about macro in a serious way.

I mean, I don't mind a bit of vituperation or even limited amounts of incoherence and insanity, if it is accompanied by at least earnest attempts to have substantive discussions. But it just feels like the essential substance has become increasingly rare.

libezkova -> Sanjait... , -1
"Is it my imagination or are the crazies around here getting crazier, and becoming increasingly unable to even begin talking about macro in a serious way."

If you think that neoliberal economists and their low-level supporters like some members of this blog are crazy you are wrong. They are corrupt the same way as Mafia members are corrupt. That's why they are unable to discuss economics in a serious way. Only "religious dogma" based way is permitted.

Neoliberal Jesuits will defend their "flat earth" theory and ostracize heretics as long as financial oligarchy is in power, because their well being is dependent on it, and they are paid by financial oligarchy to do the job.

When neoliberalism was hatched it deliberately emulated methods of influence used by Communists (and Austrians were intimately aware of them, because the country experienced communist revolution, which failed) in trying to expand their influence at university departments and by creating think tanks. Those subversive methods proved way too successful and they are now really entrenched: neoclassic economic thinking permeates the society to the same or higher degree as Marx political economy in the USSR.

See LSE discussion "Masters of the Universe: Hayek, Friedman, and the Birth of Neoliberal Politics "

https://www.youtube.com/watch?v=ehrjP2_ffPc

libezkova : , March 03, 2017 at 08:48 AM
I think that that one of the few better and more productive pathway of discussing economic events is the one that stems from Hyman Minsky work with its idea of positive feedback loops in economics with one from financial system that periodically destabilizes the capitalist economy and create a financial crisis.

The neoclassical concept of equilibrium is way too primitive and attempts to build economics as branch of physics. It should be discarded for good, as the way it is used now is close to pure charlatanism.

We also have an uncertainty principle here as even the suggestion of the intervention can change the dynamics of the system (look at "Fed talk" )

The role of the state now is so huge that any talk about the economy achieving equilibrium by itself is fraud outside few special cases. And actually the introduction of neoliberalism was the "revolution from above" -- a coup d'état, if you wish.

== quote ==

In microeconomic theory, cost-minimization by consumers and by firms implies the existence of supply and demand correspondences for which market clearing equilibrium prices exist, if there are large numbers of consumers and producers. Under convexity assumptions or under some marginal-cost pricing rules, each equilibrium will be Pareto efficient: In large economies, non-convexity also leads to quasi-equilibria that are nearly efficient.

However, the concept of market equilibrium has been criticized by Austrians, post-Keynesians and others, who object to applications of microeconomic theory to real-world markets, when such markets are not usefully approximated by microeconomic models. Heterodox economists assert that micro-economic models rarely capture reality.
== end of quote ==

Steve Keen in one who uses and try to develop further Minsky concepts and he was one of the few who predicted the financial crash on 2008. IMHO he should get more respect and coverage at the expense of neoliberal stooges like Krugman.

Ha-Joon Chang, Philip Mirowski, Joseph Stiglitz, Richard Koo, Yanis Varoufakis, Noam Chomsky all have interesting and IMHO more realistic ideas about how the modern economy really function and what can be more appropriate ways to model it.

We should reject masked by mathiness typical neoclassical junk that is mainstream now.

[Mar 03, 2017] Where do experts come from?

Mar 03, 2017 | economistsview.typepad.com
RC AKA Darryl, Ron : March 01, 2017 at 04:40 AM , 2017 at 04:40 AM
RE: Where do experts come from?


http://magic-maths-money.blogspot.com/2017/02/where-do-experts-come-from.html

Over the weekend, Brigitte Nerlich published a piece on the origin of the 'deficit model'.


My post from the weekend on trying to find the origins of the 'deficit model' in #scicomm https://t.co/fhZk8bXUg2
- Brigitte Nerlich (@BNerlich) February 27, 2017The 'deficit model' is the idea that if the public understood scientific concepts they would accept the judgements of scientists. Or, if scientists shout loud enough eventually people will agree with them. Or, people don't like GMOs/fracking/climate change science because they are dumb.
This is a hot-topic in the aftermath of the US Presidential Election and theUK's EU Referendum, when 'experts' were widely ignored and her contribution has been well received.


@BNerlich Very good.
1/ I think there are some roots in the "health belief model" which dates to the 1950s --> https://t.co/cPOdz0EcOd
- Roger Pielke Jr. (@RogerPielkeJr) February 27, 2017My reaction to Brigitte's tweet was "Spinoza of course", but there was no reference of the seventeenth century Dutch philosopher in her piece.
My interest is as part of my remit as the RCUK Academic Fellow for Financial Mathematics between 2006 and 2011 was the 'publicunderstanding of Financial Mathematics', or at least the 'public engagement with Financial Mathematics'. This introduced me to the issue of the 'deficit model' over a period in time dominated by the 'Great Financial Crisis, which started 10 years ago yesterday.

For almost ten years I have been trying to figure out what is the relationship between finance, mathematics and ethics. To me, a significant contributor to the GFC was the belief that 'science' had some how tamed financial risk. Therefore to understand the GFC it was necessary to understand where the faith in scientific determinism originated, and I think the source (in European science at any rate) is in Spinoza. The argument is presented in the book I am finishing off for Palgrave


You can catch #Palgrave author Timothy Johnson speaking about morality out of money at the @EdSciFest on 9 April https://t.co/bQ2GzCOLRB
- Palgrave Finance (@PalgraveFinance) February 21, 2017and I have extracted two relevant sections, separated by some 27,000 words and 125 years.
Baruch Spinoza would produce the most influential development of Descartes' philosophy that incorporated ideas from de Groot and Hobbes during the 'Dutch Golden Age'...

[Lengthy description along the framework of Western philosophy that you must go to the link and read to get your honest reaction to this explanation.]

...I suspect students of Spinoza and Hegel will object to my caricature, but I think the essential point that " Spinoza's contribution to western philosophy was in suggesting that humans were capable of attaining a complete picture of the universe that provided certain knowledge." is important in understanding why 'science' believes in the 'deficit model'.

*

[I have a shorter version: Only crazy people will work that hard to convince everyone else that they are really the sane ones. If you were to study the private lives of philosophers, none more than Nietzsche and Machiavelli, then this MIGHT be apparent or maybe not. We also must overcome our learned ignorance which imposes upon us the distinction between private lives and public lives which disciplines us to accept immoral behavior as respectable as long as the wicked are deftly rational.]

RC AKA Darryl, Ron -> RC AKA Darryl, Ron... , March 01, 2017 at 04:41 AM
But yes, understanding the limits of knowledge is at least as important as knowledge itself.
RC AKA Darryl, Ron -> RC AKA Darryl, Ron... , March 01, 2017 at 12:43 PM
Greed is good by any other name still stinks.

[Mar 03, 2017] Machiavelli as an economist

Neoliberal take on Machiavelli... This crazy idea that the ruler is "political entrepreneur" is definitely 100% neoliberal. Other then example of the neoliberal thinking this peace is junk.
Notable quotes:
"... Moreover, the ruler is a political entrepreneur: his job is no different from a job of a tailor, carpenter, teacher. He is after selfish objectives which are attained under constraints. The constraints for the ruler are of two kinds: he must somehow acquire the power and he must be able to keep it despite attempts of many people to prevent him from coming to power or trying to overthrow him. ..."
Mar 03, 2017 | glineq.blogspot.com

Machiavelli as an economist

I was recently rereading The Discourses (as I periodically enjoy doing) and on Sunday I read a review of an interesting new book on Machiavelli -an inexhaustible topic indeed. So I thought of writing down why I, and I would presume many economists, admire Machiavelli (and thus adding to this inexhaustible topic yet another piece).

There is a clear affinity between economists and political scientists in the Machiavelli tradition. For Machiavelli, the objective of a ruler or a politician is maximization of power in two dimensions, at any point in time and over time. This is exactly the same as maximization of income or utility over time. The ruler is a rational homo politicus in the same way that people, according to economists, are rational homo economicuses .

Moreover, the ruler is a political entrepreneur: his job is no different from a job of a tailor, carpenter, teacher. He is after selfish objectives which are attained under constraints. The constraints for the ruler are of two kinds: he must somehow acquire the power and he must be able to keep it despite attempts of many people to prevent him from coming to power or trying to overthrow him.

The ruler therefore must have the famous virtù which is indeed one of the rarest combination of talents. He must fight off domestic foes, foreign enemies or adversaries, and must combine the use of deception, violence and genuine concern for his subjects in the right proportions to be able to stay in power. Machiavelli's politician is like a businessman. There are cases when the businessman will gain more by lying and others when he would gain more by telling the truth. Similarly, the ruler would sometimes gain more through violence, guile and ruse, and at other times through honesty and improvements of his subjects' welfare. The attractiveness of Machiavelli to economists comes also from the fact his ruler always remains a self-interested individual who might do well for his subjects not because he cares about them but because he believes that doing well for them would be ultimately good for himself. In that he is like Adam Smith's baker: he is selling us bread not because he is concerned about our hunger but because he is concerned about his self-interest.

Throughout centuries Machiavelli has, of course, been accused of condoning many evils. Yet his type of the politician is much more benign and better for the mankind that the types that have normally ruled us. This is because the rulers who actually come to believe they are trying to accomplish good things are most likely to create endless bloodsheds. Most of the killings in history have been motivated by "goodness" and desire to be virtuous. Surely, all religious wars have been such. In recent past, all communist exactions (most notably, the collectivization in the Soviet Union and the Great Leap Forward in China) were motivated by the desire to lift people from their millennial poverty. George W. Bush's invasion and occupation of Iraq cannot be explained otherwise since no economic or any other rational objective was ever achieved or was even given serious consideration in the decision to wage the war.

The most potentially destructive forces today are hidden under the banner of "goodness". Whether this is done hypocritically or because the rulers believe in such professions of "goodness" is immaterial; the latter is even worse. The terms under which such "goodness" is projected to the heathens-"the American exceptionalism,", "the Third Rome", "Hindutva", "the new (old) Caliphate"-are nothing but a self-license to impose own values and beliefs on those who dare disagree with them. Such rulers are the most bloodthirsty because belief in own moral superiority renders them unconcerned with reality.

Machiavelli's ruler will for sure also engage in deception and cruelty, but his objective will never be to impose one form of government or religion, or more generally a set of beliefs as such, on others. He might decide to impose a new government if he believes that this would increase his dominion. This would be a rational objective, grounded in self-interest. Ideological puritans who want to bring happiness to others would engage in such operations more frequently and fully. Disengaging from them implies for the ideological zealots a destruction of their own intimate world of beliefs; never so with Machiavelli's ruler who would give up the operation once its costs outweigh the benefits.

The world ruled by politicians who follow own interest like Adam Smith's baker, and leave the rest of the world in peace, may be the best world we can hope for.

[Mar 01, 2017] Bolshevism proved that discredited utopian ideology can exist in zombie state for a couple of decades; so we might have 10-20 years or so to find a new ideology that would replace neoliberalism

Mar 01, 2017 | economistsview.typepad.com
February 27, 2017 at 09:51 PM , 2017 at 09:51 PM
Is Trump an accident or just a side effect of a bigger trend ?

See for example Richard Evans story about collapse of Weimar Republic: https://www.amazon.com/Coming-Third-Reich-Richard-Evans/dp/0143034693

Also interesting are thoughts of John Ralston Saul
https://www.amazon.com/Collapse-Globalism-Reinvention-World/dp/0670063673

Here is his interview ( 28 min long):
https://www.youtube.com/watch?v=kXUJEWNHweE

Looks like Donald Trump did not win because he is great politician, but because of previous 30 years of dominance of neoliberalism. Blame Margaret Thatcher.

A utopian ideology that failed to deliver on its promise "in a long run" (it can very long run like Flat Earth theory) is unsustainable.

People who now do not consider Milton Friedman to be a sad joke are very rare. "Free market" ideology is devalued considerably from late 60th. Probably more then dollar.

Neoliberal Jesuits (aka academic economists who still adhere to neoliberal ideology) still are trying to stem or reverse the slide. Much like the previous generation of Jesuits tried to defend flat Earth hypothesis. We see their efforts in this blog too.

IMHO modern neoliberal Jesuits nave even less chances to persuade the audience now. At least 17 years of neoliberal bubbles and neoliberal excesses like outsourcing and offshoring speak for themselves. And lemmings no longer want to march to the cliff under the banners of this failed religion.

After let's say of 30 years of complete dominance they also lost control of the language (with at the peak was comparable with the Bolshevism dominance in language in the USSR). With all those pseudo-religious terms like NAIRU, GDP, U3, core inflation and such.

Look at fiasco of neoliberal MSM during recent Presidential elections. The fact the sitting president openly calls neoliberal MSM "fake news" tells that neoliberalism is in trouble.

And all those very emotional laments against Trump (Trump this, Trump that) is just the result of failure to understand the problems, that the US society faces due to collapse of neoliberalism and its promises.

Desperation of defenders of ideology (like Jesuits fight with heretics ) is just another sign that the time for neoliberal dominance is probably over.

And that it was neoliberal politicians like Bill Clinton and Obama who hatched Trump. Much like Roman republic hatched its own transition to Julius Caesar. So instead or along with indignation, we should ask yourself a simple question: how neoliberalism created Trumpism.

BTW Neoliberalism has very little to do with classic liberalism (being, in reality, a flavor of corporatism) much like Neoconservatism has almost nothing to do with Conservatism (being a flavor of Trotskyism).

Bolshevism proved that a discredited utopian ideology can exist in a zombie state for a couple of decades; so we might have 10-20 years or so in which some new ideology will emerge that will replace neoliberalism. I hope that it will not be neofascism.

cm -> libezkova... , February 27, 2017 at 10:30 PM
Trump was not an accident (in the sense of confluence-of-random-events freak accident).

I wouldn't blame Ms. Thatcher for it either. Her ascendancy was likewise an expression of (the same) social dynamics. Her perhaps-counterpart was Reagan, but the situation and the general dynamics in the US were different at the time, so it (he) didn't lead to the same outcomes.

With the US still "the" technology leader (perhaps not in *all* aspects academically but in most, and certainly commercially and thus dominating academia) - and also probably because of "less (or more favorable?) regulation" and more easily available VC money in the US (USD hegemony?), the new technology industries took off in the US predominantly.

This has (in part) carried the US economy for about 2-3 decades, but a reversion to mean is plausible even if I don't really see it yet.

The US is still a formidable, capable, and yes, meritorious entity, if it doesn't "collectively" (or rather by elite misjudgment?) undermines itself.

yuan -> libezkova... , February 27, 2017 at 11:25 PM
dude, the usa has always been a neoliberal nation. the past 30 years are not unusual in the least.

https://iww.org/history/biography/EugeneDebs/1

"Debs was arrested and sentenced to ten years in Atlanta Penitentiary. He was still in prison when as the presidential candidate of the Socialist Party, he received 919,799 votes in 1920. His program included proposals for improved labour conditions, housing and welfare legislation and an increase in the number of people who could vote in elections. President Warren G. Harding pardoned Debs in December, 1921."

reason -> libezkova... , -1
"With all those pseudo-religious terms like NAIRU, GDP, U3, core inflation and such. "

Of those terms only NAIRU could in any way be called "pseudo-religious". All the others are empirical measures (however flawed) with clear definitions. An empirical measure by itself can do no harm. People giving too much weight to a single measure can do harm, but that is something completely different.

[Mar 01, 2017] Neoliberalism productivity

Mar 01, 2017 | stumblingandmumbling.typepad.com
Neoliberalism & productivity

Chris Edwards says the privatizations started by Thatcher "transformed the British economy" and boosted productivity. This raises an under-appreciated paradox.

The thing is that privatization isn't the only thing to have happened since the 1980s which should have raised productivity, according to (what I'll loosely call) neoliberal ideology. Trades unions have weakened, which should have reduced "restrictive practices". Managers have become better paid, which should have attracted more skilful ones, and better incentivized them to increase productivity. And the workforce has more human capital: since the mid-80s, the proportion of workers with a degree has quadrupled from 8% to one-third.

Neoliberal ideology, then, predicts that productivity growth should have accelerated. But it hasn't . In fact, Bank of England data show that productivity growth, averaged over 20 years, has trended down since the 1970s.

Why?

It could be that neoliberal reforms did give a short-lived boost to productivity. I'm not sure. As Dietz Vollrath says , economies are usually slow to respond to a rise in potential output. If there had been a big rise in potential output, therefore, it should show up in the data on 20-year growth. It hasn't.

Another possibility is that the productivity-enhancing effects of neoliberalism have been outweighed by the forces of secular stagnation – the dearth of innovations and profitable investment projects.

But there's another possibility – that neoliberalism has in fact contributed to the productivity slowdown.

I'm thinking of three different ways in which this is possible.

One works through macroeconomic policy. In tight labour markets of the sort we had in the post-war years, employers had an incentive to raise productivity because they couldn't so easily reply upon suppressing wages to raise profits. Also, confidence that aggregate demand would remain high encouraged firms to invest and so raise capital-labour ratios. In the post-social democracy years, these spurs to productivity have been weaker.

Another mechanism is that inequality can reduce productivity. For example, it generates (pdf ) distrust which depresses growth by worsening the quality of policy; exacerbating "markets for lemons" problems; and by diverting resources towards low-productivity guard labour.

A third mechanism is that neoliberal management itself can reduce productivity. There are several pathways here:

- Good management can be bad for investment and innovation. William Nordhaus has shown that the profits from innovation are small . And Charles Lee and Salman Arif have shown that capital spending is often motivated by sentiment rather than by cold-minded appraisal with the result that it often leads to falling profits. We can interpret the slowdowns in innovation and investment as evidence that bosses have wised up to these facts. Also, an emphasis upon cost-effectiveness, routine and best practice can deny employees the space and time to experiment and innovate. Either way, Joseph Schumpeter's point seems valid: capitalist growth requires a buccaneering spirit which is killed off by rational bureaucracy.

- As Jeffrey Nielsen has argued , "rank-based" organizations can demotivate more junior staff, who expect to be told what to do rather than use their initiative.

- The high-powered incentives offered to bosses can backfire . They can incentivize rent-seeking, office politics and jockeying for the top job rather than getting on with one's work. They can crowd out intrinsic motivations such as professional pride. And they can divert (pdf) managers towards doing tasks that are easily monitored rather than ones which are important to an organization but harder to measure: for example, cost-cutting can be monitored and incentivized but maintaining a healthy corporate culture is less easily measured and so can be neglected by crude incentive schemes.

- Empowering management can increase opposition to change. As McAfee and Brynjolfsson have shown , reaping the benefits of technical change often requires organizational change. But well-paid bosses have little reason to want to rock the boat by undertaking such change. The upshot is that we are stuck in what van Ark calls (pdf) the "installation phase" of the digital economy rather than the deployment phase. As Joel Mokyr has said , the forces of conservatism eventually suppress technical creativity.

All this is consistent with the Big Fact – that aggregate productivity growth has been lower in the neoliberal era than it was in the 1945-73 heyday of social democracy.

I'll concede that this is only suggestive and that there might be another possibility – that the strong growth in productivity in the post-war period was an aberration caused by firms catching up and taking advantage of pre-war innovations. This, though, still leaves us with the possibility that slow growth is a feature of normal capitalism.

February 26, 2017 | Permalink

| Comments You can follow this conversation by subscribing to the comment feed for this post. soru | February 26, 2017 at 02:23 PM

Most such 200 year graphs, you can see historical events like WWII and Thatcher. This is clearly not random noise, but doesn't seem to tie obviously into the historical narrative either.

Maybe it is more to do with globalism; the first peak at 1870 is the start of 'new imperialism'. Imperial lands were for the first time things you could invest in as a regular capitalist (as opposed to a 'venture state' like the East India company). And 1970 is the date when the end of the war in Vietnam made the same true of much of the third world.

Peter K. | February 26, 2017 at 02:43 PM
Exactly.

That's how I've been thinking about productivity. Tight labor marktets and social democratic macro. Unfortunately economists are trained not to think in these terms.

Also since the Reagan/Thatcher revolution, productivity increase have coincided with financial bubbles like the Dot.com tech stock and epic housing bubbles. Massive leveraged ponzi schemes are "increasing productivity" or profits.

http://econospeak.blogspot.com/2017/02/ponzilocks-and-twenty-four-trillion.html

http://econospeak.blogspot.com/2017/02/the-cutz-putz-bezzle-graphed-by-fred.html

Stewart S | February 26, 2017 at 03:29 PM
There is another explanation. The proportion of service industries in the economy has grown rapidly and accelerated with globalisation. It is difficult to squeeze productivity gains out of hairdressers and care workers.

The slowing technical change hypothesis has been proposed many times in the past, e.g. James Galbraith and seems to make more sense than just trying to blame it on capitalism. If it was just neo-liberalism I would expect to see weaker effects in countries with different models. I think that there is too much ideology in your arguments.

Bekett's Dog | February 26, 2017 at 08:49 PM
Do you link any of the productivity slowdown with the 'orthodox' Marxist analysis of the Tendential Fall in the Rate of Profit? The fall begins at the end of the period of productivity growth and has not recovered as the rate of profit hasn't either (depending on which analysis you use).
One of the most plausible explanations for the continued fall even with the moderating factors of neoliberalism is the increase in the moral depreciation of capital. This has arguably accelerated with the information technology revolution. More and more firms seeking to gain advantage by replacing hard and software at greater and greater rates but with no actual increase in productivity (or profitability). This suggests even more technology in an installation phase (possibly an endless one). (On a similar vein David Harvey cites Brian Arthur's analysis that the evolution of technology is often largely driven by trying to solve problems the technology itself has created: better touchscreen phones, more than how we use the existing technology for productive gain.)
Thus, the surplus capital absorption problem is addressed by: rent seeking in property; increasing investment into fictitious capital (novel financial instruments); investment in new technology with little productivity gain, other than by increasing the productivity in the technology sector itself. All of which results in little genuine investment.
I am not sure the economic policy response to this (if you accept the analysis, but don't believe in the imminent socialist revolution)? Two policy elements being to deliberately target higher inflation (as a means of deleveraging debt) and taxing non-productive wealth holding (such as a land tax))?

Steve roth | February 26, 2017 at 11:13 PM
Another possible explanation?

Wealth concentration has been skyrocketing since circa 1980.

The inevitable result: the annual velocity of wealth has been plummeting, from 27% to 18%:

https://fred.stlouisfed.org/graph/?g=cQF0

For pretty obvious reasons: declining marginal propensity to spend out of wealth.

Less spending, less production.

Even while capacity - at least as measured by available labor hours - has steadily increased:

https://fred.stlouisfed.org/graph/?g=cQF1

aragon | February 26, 2017 at 11:14 PM
Of course Neoliberalism does not increase productivity. That's just propaganda as the statistics show.

What happened in the 1970's - The oil crisis, in 1973 and 1979, followed by Thatcherism-Reganomics.

https://en.wikipedia.org/wiki/1973_oil_crisis
But what is economics for?

We can't motive CEO's due to the effects of Maximising Share Holder Value, although some haven't got the message.
https://hbr.org/2017/02/why-we-need-to-stop-obsessing-over-ceo-pay-ratios

We can't motivate workers by treating them as widgets, the Vitality curve is a very bad idea.

Profits from innovation can be huge, Google, Amazon, etc. Although not as big as monopoly profits in a network business (e.g. Microsoft)

Slow growth is the consequence of deliberate concentration of wealth to the already wealthy.

The Golden Era was an era of greater equality at least in the UK. Inequality depresses growth.

The rate of technological change is greater then ever, just look at the device you are reading this on.

Countries with different models (mercantilism) like China?

Steve roth | February 26, 2017 at 11:20 PM
Oops, replace first link with:

https://fred.stlouisfed.org/graph/?g=cQFc

John M | February 27, 2017 at 02:40 PM
I found the opening paragraphs hilarious. These days, those arguments can only be parody -- nicely refuted by the rest of the article.

I have noticed a general misunderstanding of "productivity". One way to increase "productivity" is to lay off workers while keeping production unchanged. Overall, that tends to backfire because the workers buy fewer things, but it benefits the firms that do it. (It's "the Prisoner's Dilemma", "the tragedy of the commons", "the race to the bottom", etc.)

If you've introduced a self-checkout system that eliminates ten jobs and replaces them with one job, you've greatly improved productivity.

For reasons like this, I think that "productivity" and "economic growth" should be decoupled.

[Feb 27, 2017] Kenneth Arrow has died

Feb 27, 2017 | crookedtimber.org
The person who had promoted general equilibrium fallacy and mathiness in economics

Patrick S. O'Donnell 02.22.17 at 3:34 pm

I won't dispute the accolades (and not only because it's in bad taste), especially the long-standing consensus that he was "a very good guy."

All the same, I'm inclined to believe that Arrow's undoubtedly clever if not brilliant "impossibility theorem" (Amartya Sen describes it as a 'result of breathtaking brilliance and power') had, and speaking generally, a pernicious effect on the discipline of economics, captured in part by Deirdre (né Donald) McCloskey's comment that it, along with other qualitative general theorems in the discipline, "do not, strictly speaking, relate to anything an economist would actually want to know," in other words, "axiomatizing economics" (which Arrow alone cannot be held responsible for) was a turn for the worse, no doubt motivated by a desire to bring (natural) scientific respectability and putative "rigor" (of the sort believed to characterize physics) to a field not amenable to same (to put it bluntly if not mildly).

For a different sort of critique of his work in this regard in economics and the "social choice" literature, see Hausman and McPherson's Economic Analysis, Moral Philosophy, and Public Policy (Cambridge University Press, 2nd ed., 2006).

There is also a vigorous critique of the use of this theorem by professional economists and political scientists in S.M. Amadae's Rationalizing Capitalist Democracy: The Cold War Origins of Rational Choice Liberalism (University of Chicago Press, 2003).

Sen has a decidedly more favorable assessment of the "impossibility theorem" in his book, Rationality and Freedom (Belknap Press of Harvard University Press, 2002).

Alas, it was mischievous interpretations and application of his famous "impossibility theorem" that unequivocally did enormous harm to the discipline of political science, particularly with regard to democratic theory (and by implication, praxis as well): see Gerry Mackie's Democracy Defended (Cambridge University Press, 2003). Donald A. Coffin 02.22.17 at 4:16 pm ( 5 )

Links abound of course. For an excellent discussion of his contributions, this (the first of four posts that will appear this week) is a good place to start.
https://afinetheorem.wordpress.com/2017/02/22/the-greatest-living-economist-has-passed-away-notes-on-kenneth-arrow-part-i/
peterv 02.23.17 at 10:57 pm ( pnee:

For us members of the general public, the return of Jobs to Apple was a complete surprise. It was not rumored in any way in any public forum, to my knowledge. The futures for the company considered possible by external observers (ie, non-insiders) were many more than before. Exactly as I said and as you agree, the public announcement of Jobs' return was new information which increased public uncertainty.

Lee A. Arnold 02.24.17 at 11:45 am ( 19 )
"Information" has different definitions in different disciplines. One of Arrow's last lectures explains his use of the word, and also his view of the current state of many other things. Only 9 pages, no math:

http://www.wifo.ac.at/jart/prj3/wifo/resources/person_dokument/person_dokument.jart?publikationsid=47076&mime_type=application/pdf

likbez 02.26.17 at 11:20 pm (

Two questions to esteemed commenters here:

1. Is not the idea of permanent equilibrium a fallacy?

2. If not excessive use of mathematics in economics called mathiness?

[Feb 25, 2017] Tyler Cowen as a yet another corrupt neoliberal economist

Feb 25, 2017 | www.nytimes.com

Peter K. said...February 25, 2017 at 08:20 AM

https://www.bloomberg.com/view/articles/2016-09-12/debating-government-s-role-in-boosting-growth

September 12, 2016

Tyler Cowen: There are a few reasons, but the internet may be the biggest. It is easier to have fun while unemployed. That's a social problem for some people.

Noah Smith: If that's true -- if we're seeing a greater preference for leisure -- why are we not seeing wages go up as a result? Is that market also broken?

Cowen: Maybe employers just aren't that keen to hire those males who prefer to live at home, watch porn and not get married. Is that more of a personal failure on the part of the worker than a market failure?

-------------------

And Sanjait likes Tyler Cowen. He's a scumbag.

[Feb 25, 2017] DeLong as t enured prima donna who is immune from his own damage.

Feb 25, 2017 | economistsview.typepad.com
Tom aka Rusty -> Peter K.... February 21, 2017 at 10:51 AM , 2017 at 10:51 AM
If I'm not mistaken Delong seems to think the US government has a greater interest in aiding Chinese workers than Us workers.

Tenured prima donna who is immune from his own damage.

[Feb 21, 2017] Our situation with neoliberalism reminds me lines from the Hotel California

Feb 21, 2017 | economistsview.typepad.com
libezkova -> libezkova... February 20, 2017 at 08:36 PM , 2017 at 08:36 PM
Our situation with neoliberalism reminds me lines from the "Hotel California " ;-)

http://www.azlyrics.com/lyrics/eagles/hotelcalifornia.html
== quote ==
Last thing I remember, I was
Running for the door
I had to find the passage back
To the place I was before
"Relax, " said the night man,
"We are programmed to receive.
You can check-out any time you like,
But you can never leave! "

[Feb 21, 2017] Globalisation and Economic Nationalism naked capitalism

Notable quotes:
"... Yet, a return to protectionism is not likely to solve the problems of those who have lost ground due to globalisation without appropriate compensation of its 'losers', and is bound to harm growth especially in emerging economies. The world rather needs a more inclusive model of globalisation. ..."
"... From an energy point of view globalisation is a disaster. The insane level of fossil fuels that this current world requires for transportation of necessities (food and clothing) is making this world an unstable world. Ipso Facto. ..."
"... Those who believe that globalisation is bringing value to the world should reconsider their views. The current globalisation has created both monopolies on a geopolitical ground, ie TV make or shipbuilding in Asia. ..."
"... Do you seriously believe that these new geographical and corporate monopolies does not create the kind bad outcomes that traditional – country-centric ones – monopolies have in the past? ..."
"... Then there is the practical issue of workers having next to no bargaining power under globalization. Do people really suppose that Mexican workers would be willing to strike so that their US counterparts, already making ficew times as much money, would get a raise? ..."
"... Basically our elite sold us a bill of goods is why we lost manufacturing. Greed. Nothing else. ..."
"... So proof is required to rollback globalization, but no proof was required to launch it or continue dishing it out? It's good to be the King, eh? ..."
"... America hasn't just gotten rid of the low level jobs. It has also gotten rid of supervisors and factory managers. Those are skills you can't get back overnight. For US plants in Mexico, you might have US managers there or be able to get special visas to let those managers come to the US. But US companies have shifted a ton, and I meant a ton, to foreign subcontractors. Some would put operations in the US to preserve access to US customers, but their managers won't speak English. How do you make this work? ..."
"... The real issue is commitment. Very little manufacturing will be re-shored unless companies are convinced that it is in their longterm interest to do so. ..."
"... There is also what I've heard referred to as the "next bench" phenomenon, in which products arise because someone designs a new product/process to solve a manufacturing problem. Unless one has great foresight, the designer of the new product must be aware there is a problem to solve. ..."
"... When a country is involved in manufacturing, the citizens employed will have exposure to production problems and issues. ..."
"... After his speech he took questions. I asked "Would Toyota ever separate design from manufacturing?" as HP had done, shipping all manufacturing to Asia. "No" was his answer. ..."
"... In my experience, it is way too useful to have the line be able to easily call the designer in question and have him come take a look at what his design is doing. HP tried to get around that by sending part of the design team to Asia to watch the startup. Didn't work as well. And when problems emerged later, it was always difficult to debug by remote control. ..."
"... How about mass imports of cheap workers into western countries in the guise of emigrants to push down worker's pay and gut things like unions. That factor played a decisive factor in both the Brexit referendum and the US 2016 elections. Or the subsidized exportation of western countries industrial equipment to third world countries, leaving local workers swinging in the wind. ..."
"... The data sets do not capture some of the most important factors in what they are saying. It is like putting together a paper on how and why white men voted in the 2016 US elections as they did – and forgetting to mention the effect of the rest of the voters involved. ..."
"... I had a similar reaction. This research was reinforcing info about everyone's resentment over really bad distribution of wealth, as far as it went, but it was so unsatisfying ..."
"... "Right to work" is nothing other than a way to undercut quality of work for "run-to-the-bottom competitive pay." ..."
"... I've noticed that the only people in favor of globalization are those whose jobs are not under threat from it. ..."
"... First off, economic nationalism is not necessarily right wing. I would certainly classify Bernie Sanders as an economic nationalist (against open borders and against "free" trade). Syriza and Podemos could arguably be called rather ineffective economic nationalist parties. I would say the whole ideology of social democracy is based on the Swedish nationalist concept of a "folkhem", where the nation is the home and the citizens are the folk. ..."
"... So China is Turmpism on steroids. Israel obviously is as well. Why do some nations get to be blatantly Trumpist while for others these policies are strictly forbidden? ..."
"... One way to look at Globalization is as an updated version of the post WW1 Versailles Treaty which imposed reparations on a defeated Germany for all the harm they caused during the Great War. The Globalized Versailles Treaty is aimed at the American and European working classes for the crimes of colonialism, racism, slavery and any other bad things the 1st world has done to the 3rd in the past. ..."
"... And yes, this applies to Bernie Sanders as well. During that iconic interview where Sanders denounced open borders and pushed economic nationalism, the Neoliberal interviewer immediately played the global guilt card in response. ..."
"... During colonialism the 3rd world had a form of open borders imposed on it by the colonial powers, where the 3rd world lost control of who what crossed their borders while the 1st world themselves maintained a closed border mercantilist regime of strict filters. So the anti-colonialist movement was a form of Trumpist economic nationalism where the evil foreigners were given the boot and the nascent nations applied filters to their borders. ..."
"... Nationalism (my opinion) can do this – economic nationalism. And of course other people think oh gawd, not that again – it's so inefficient for my investments- I can't get fast returns that way but that's just the point. ..."
"... China was not a significant exporter until the 2001 inclusion in WTO: it cannot possibly have caused populist uprisings in Italy and Belgium in the 1990s. It was probably too early even for Pim Fortuyn in the Netherlands, who was killed in 2002, Le Pen's electoral success in the same year, Austria's FPOE in 1999, and so on. ..."
"... In the 1930s Keynes realized, income was just as important as profit as this produced a sustainable system that does not rely on debt to maintain demand. ..."
"... "Although commercial banks create money through lending, they cannot do so freely without limit. Banks are limited in how much they can lend if they are to remain profitable in a competitive banking system." ..."
"... The Romans are the basis. Patricians, Equites and Plebs. Most of us here are clearly plebeian. Time to go place some bets, watch the chariot races and gladiatorial fights, and get my bread subsidy. Ciao. ..."
"... 80-90% of Bonds and Equities ( at least in USA) are owned by top 10 %. 0.7% own 45% of global wealth. 8 billionaires own more than 50% of wealth than that of bottom 50% in our Country! ..."
"... Globalisation has caused a surge in support for nationalist and radical right political platforms. ..."
"... Trump's withdrawal from the Trans-Pacific Partnership seems to be a move in that direction. ..."
"... Yet, a return to protectionism is not likely to solve the problems of those who have lost ground due to globalisation without appropriate compensation of its 'losers' ..."
"... and is bound to harm growth especially in emerging economies. ..."
"... The world rather needs a more inclusive model of globalisation. ..."
Feb 21, 2017 | www.nakedcapitalism.com
DanielDeParis , February 20, 2017 at 1:09 am

Definitely a pleasant read but IMHO wrong conclusion: Yet, a return to protectionism is not likely to solve the problems of those who have lost ground due to globalisation without appropriate compensation of its 'losers', and is bound to harm growth especially in emerging economies. The world rather needs a more inclusive model of globalisation.

From an energy point of view globalisation is a disaster. The insane level of fossil fuels that this current world requires for transportation of necessities (food and clothing) is making this world an unstable world. Ipso Facto.

We need a world where goods move little as possible (yep!) when smart ideas and technology (medical, science, industry, yep that's essential) move as much as possible. Internet makes this possible. This is no dream but a XXIth century reality.

Work – the big one – is required and done where and when it occurs. That is on all continents if not in every country. Not in an insanely remote suburbs of Asia.

Those who believe that globalisation is bringing value to the world should reconsider their views. The current globalisation has created both monopolies on a geopolitical ground, ie TV make or shipbuilding in Asia.

Do you seriously believe that these new geographical and corporate monopolies does not create the kind bad outcomes that traditional – country-centric ones – monopolies have in the past?

Yves Smith can have nasty words when it comes to discussing massive trade surplus and policies that supports them. That's my single most important motivation for reading this challenging blog, by the way.

Thanks for the blog:)

tony , February 20, 2017 at 5:09 am

Another thing is that reliance on complex supply chains is risky. The book 1177 B.C.: The Year Civilization Collapsed describes how the ancient Mediterranian civilization collapsed when the supply chains stopped working.

Then there is the practical issue of workers having next to no bargaining power under globalization. Do people really suppose that Mexican workers would be willing to strike so that their US counterparts, already making ficew times as much money, would get a raise?

Is Finland somehow supposed to force the US and China to adopt similar worker rights and environmental protections? No, globalization, no matter how you slice it,is a race to the bottom.

digi_owl , February 20, 2017 at 10:12 am

Sadly protectionism gets conflated with empire building, because protectionism was at its height right before WW1.

Altandmain , February 20, 2017 at 1:35 am

I do not agree with the article's conclusion either.

Reshoring would have 1 of 2 outcomes:

Basically our elite sold us a bill of goods is why we lost manufacturing. Greed. Nothing else.

Ruben , February 20, 2017 at 3:07 am

The conclusion is the least important thing. Conclusions are just interpretations, afterthoughts, divagations (which btw are often just sneaky ways to get your work published by TPTB, surreptitiously inserting radical stuff under the noses of the guardians of orthodoxy).

The value of these reports is in providing hardcore statistical evidence and quantification for something for which so many people have a gut feeling but just cann't prove it (although many seem to think that just having a strong opinion is sufficient).

Yves Smith Post author , February 20, 2017 at 3:27 am

Yes, correct. Intuition is great for coming up with hypotheses, but it is important to test them. And while a correlation isn't causation, it at least says the hypothesis isn't nuts on its face.

In addition, studies like this are helpful in challenging the oft-made claim, particularly in the US, that people who vote for nationalist policies are bigots of some stripe.

KnotRP , February 20, 2017 at 10:02 am

So proof is required to rollback globalization, but no proof was required to launch it or continue dishing it out? It's good to be the King, eh?

WheresOurTeddy , February 20, 2017 at 1:05 pm

KnotRP, as far as the Oligarchy is concerned, they don't need proof for anything #RememberTheHackedElectionOf2016

/s

Yves Smith Post author , February 20, 2017 at 6:48 am

You are missing the transition costs, which will take ten years, maybe a generation.

America hasn't just gotten rid of the low level jobs. It has also gotten rid of supervisors and factory managers. Those are skills you can't get back overnight. For US plants in Mexico, you might have US managers there or be able to get special visas to let those managers come to the US. But US companies have shifted a ton, and I meant a ton, to foreign subcontractors. Some would put operations in the US to preserve access to US customers, but their managers won't speak English. How do you make this work?

The only culture with demonstrated success in working with supposedly hopeless US workers is the Japanese, who proved that with the NUMMI joint venture with GM in one of its very worst factories (in terms of the alleged caliber of the workforce, as in many would show up for work drunk). Toyota got the plant to function at better than average (as in lower) defect levels and comparable productivity to its plants in Japan, which was light years better than Big Three norms.

I'm not sure any other foreign managers are as sensitive to detail and the fine points of working conditions as the Japanese (having worked with them extensively, the Japanese hear frequencies of power dynamics that are lost on Westerners. And the Chinese do not even begin to have that capability, as much as they have other valuable cultural attributes).

Katharine , February 20, 2017 at 10:24 am

That is really interesting about the Japanese sensitivity to detail and power dynamics. If anyone has managed to describe this in any detail, I would love to read more, though I suppose if their ability is alien to most Westerners the task of describing it might also be too much to handle.

Left in Wisconsin , February 20, 2017 at 10:39 am

I lean more to ten years than a generation. And in the grand scheme of things, 10 years is nothing.

The real issue is commitment. Very little manufacturing will be re-shored unless companies are convinced that it is in their longterm interest to do so. Which means having a sense that the US government is serious, and will continue to be serious, about penalizing off-shoring.

Regardless of Trump's bluster, which has so far only resulted in a handful of companies halting future offshoring decisions (all to the good), we are nowhere close to that yet.

John Wright , February 20, 2017 at 10:52 am

There is also what I've heard referred to as the "next bench" phenomenon, in which products arise because someone designs a new product/process to solve a manufacturing problem. Unless one has great foresight, the designer of the new product must be aware there is a problem to solve.

When a country is involved in manufacturing, the citizens employed will have exposure to production problems and issues.

Sometimes the solution to these problems can lead to new products outside of one's main business, for example the USA's Kingsford Charcoal arose from a scrap wood disposal problem that Henry Ford had.

https://www.kingsford.com/country/about-us/

If one googles for "patent applications by countries" one gets these numbers, which could be an indirect indication of some of the manufacturing shift from the USA to Asia.

Patent applications for the top 10 offices, 2014

1. China 928,177
2. US 578,802
3. Japan 325,989
4. South Korea 210,292

What is not captured in these numbers are manufacturing processes known as "trade secrets" that are not disclosed in a patent. The idea that the USA can move move much of its manufacturing overseas without long term harming its workforce and economy seems implausible to me.

marku52 , February 20, 2017 at 2:55 pm

While a design EE at HP, they brought in an author who had written about Toyota's lean design method, which was currently the management hot button du jour. After his speech he took questions. I asked "Would Toyota ever separate design from manufacturing?" as HP had done, shipping all manufacturing to Asia. "No" was his answer.

In my experience, it is way too useful to have the line be able to easily call the designer in question and have him come take a look at what his design is doing. HP tried to get around that by sending part of the design team to Asia to watch the startup. Didn't work as well. And when problems emerged later, it was always difficult to debug by remote control.

And BTW, after manufacturing went overseas, management told us for costing to assume "Labor is free". Some level playing field.

The Rev Kev , February 20, 2017 at 2:00 am

Oh gawd! The man talks about the effects of globalization and says that the solution is a "a more inclusive model of globalization"? Seriously? Furthermore he singles out Chinese imports as the cause of people being pushed to the right. Yeah, right.

How about mass imports of cheap workers into western countries in the guise of emigrants to push down worker's pay and gut things like unions. That factor played a decisive factor in both the Brexit referendum and the US 2016 elections. Or the subsidized exportation of western countries industrial equipment to third world countries, leaving local workers swinging in the wind.

This study is so incomplete it is almost useless. The only thing that comes to mind to say about this study is the phrase "Apart from that Mrs. Lincoln, how was the play?" And what form of appropriate compensation of its 'losers' would they suggest? Training for non-existent jobs? Free moving fees to the east or west coast for Americans in flyover country? Subsidized emigration fees to third world countries where life is cheaper for workers with no future where they are?

Nice try fellas but time to redo your work again until it is fit for a passing grade.

Ruben , February 20, 2017 at 3:00 am

How crazy of them to have used generalized linear mixed models with actual data carefully compiled and curated when they could just asked you right?

The Rev Kev , February 20, 2017 at 4:19 am

Aw jeez, mate – you've just hurt my feelings here. Take a look at the actual article again. The data sets do not capture some of the most important factors in what they are saying. It is like putting together a paper on how and why white men voted in the 2016 US elections as they did – and forgetting to mention the effect of the rest of the voters involved.

Hey, here is an interesting thought experiment for you. How about we apply the scientific method to the past 40 years of economic theory since models with actual data strike your fancy. If we find that the empirical data does not support a theory such as the theory of economic neoliberalism, we can junk it then and replace it with something that actually works then. So far as I know, modern economics seems to be immune to scientific rigour in their methods unlike the real sciences.

Ruben , February 20, 2017 at 4:38 am

I feel your pain Rev.

Not all relevant factors need to be included for a statistical analysis to be valid, as long as relevant ignored factors are randomized amongst the sampling units, but you know that of course.

Thanks for you kind words about the real sciences, we work hard to keep it real, but once again, in all fairness, between you and me mate, is not all rigour, it is a lot more Feyerabend than Popper.

The Rev Kev , February 20, 2017 at 5:41 am

What you say is entirely true. The trouble has always been to make sure that that statistical analysis actually reflects the real world enough to make it valid. An example of where it all falls apart can be seen in the political world when the pundits, media and all the pollsters assured America that Clinton had it in the bag. It was only after the dust had settled that it was revealed how bodgy the methodology used had been.

By the way, Karl Popper and Paul Feyerabend sound very interesting so thanks for the heads up. Have you heard of some of the material of another bloke called Mark Blyth at all? He has some interesting observations to make on modern economic practices.

susan the other , February 20, 2017 at 12:03 pm

I had a similar reaction. This research was reinforcing info about everyone's resentment over really bad distribution of wealth, as far as it went, but it was so unsatisfying and I immediately thought of Blyth who laments the whole phylogeny of economics as more or less serving the rich.

The one solution he offered up a while ago was (paraphrasing) 'don't sweat the deficit spending because it is all 6s in the end' which is true if distribution doesn't stagnate. So as it stands now, offshoring arms, legs and firstborns is like 'nothing to see here, please move on'. The suggestion that we need a more inclusive form of global trade kind of begs the question. Made me uneasy too.

Ruben , February 20, 2017 at 10:58 pm

Please don't pool pundits and media with the authors of objective works like the one we are commenting :-)

You are welcome, you might also be interested in Lakatos, these 3 are some of the most interesting philosophers of science of the 20th century, IMO.

Blyth has been in some posts here at NC recently.

relstprof , February 20, 2017 at 4:30 am

"Gut things like unions." How so? In my recent interaction with my apartment agency's preferred contractors, random contractors not unionized, I experienced a 6 month-long disaster.

These construction workers bragged that in 2 weeks they would have the complete job done - a reconstructed deck and sunroom. Verbatim quote: "Union workers complete the job and tear it down to keep everyone paying." Ha Ha! What a laugh!

Only to have these same dudes keep saying "next week", "next week", "next week", "next week". The work began in August and only was finished (not completely!) in late January. Sloppy crap! Even the apartment agency head maintenance guy who I finally bitched at said "I guess good work is hard to come by these days."

Of the non-union guys he hired.

My state just elected a republican governor who promised "right to work." This was just signed into law.

Immigrants and Mexicans had nothing to do with it. They're not an impact in my city. "Right to work" is nothing other than a way to undercut quality of work for "run-to-the-bottom competitive pay."

Now I await whether my rent goes up to pay for this nonsense.

bob , February 20, 2017 at 11:24 pm

They look at the labor cost, assume someone can do it cheaper. They don't think it's that difficult. Maybe it's not. The hard part of any and all construction work is getting it finished. Getting started is easy. Getting it finished on time? Nah, you can't afford that.

Karl Kolchak , February 20, 2017 at 10:22 am

I've noticed that the only people in favor of globalization are those whose jobs are not under threat from it. Beyond that, I think the flood of cheap Chinese goods is actually helping suppress populist anger by allowing workers whose wages are dropping in real value terms to maintain the illusion of prosperity. To me, a more "inclusive" form of globalization would include replacing every economist with a Chinese immigrant earning minimum wage. That way they'd get to "experience" how awesome it is and the value of future economic analysis would be just as good.

The Trumpening , February 20, 2017 at 2:27 am

I'm going to question a few of the author's assumptions.

First off, economic nationalism is not necessarily right wing. I would certainly classify Bernie Sanders as an economic nationalist (against open borders and against "free" trade). Syriza and Podemos could arguably be called rather ineffective economic nationalist parties. I would say the whole ideology of social democracy is based on the Swedish nationalist concept of a "folkhem", where the nation is the home and the citizens are the folk.

Secondly, when discussing the concept of economic nationalism and the nation of China, it would be interesting to discuss how these two things go together. China has more billionaires than refugees accepted in the past 20 years. Also it is practically impossible for a non Han Chinese person to become a naturalized Chinese citizen. And when China buys Boeing aircraft, they wisely insist on the production being done in China. A close look at Japan would yield similar results.

So China is Turmpism on steroids. Israel obviously is as well. Why do some nations get to be blatantly Trumpist while for others these policies are strictly forbidden?

One way to look at Globalization is as an updated version of the post WW1 Versailles Treaty which imposed reparations on a defeated Germany for all the harm they caused during the Great War. The Globalized Versailles Treaty is aimed at the American and European working classes for the crimes of colonialism, racism, slavery and any other bad things the 1st world has done to the 3rd in the past.

Of course during colonialism the costs were socialized within colonizing states and so it was the people of the colonial power who paid those costs that weren't borne by the colonial subjects themselves, who of course paid dearly, and it was the oligarchic class that privatized the colonial profits. But the 1st world oligarchs and their urban bourgeoisie are in strong agreement that the deplorable working classes are to blame for systems that hurt working classes but powerfully enriched the wealthy!

And so with the recent rebellions against Globalization, the 1st and 3rd world oligarchs are convinced these are nothing more than the 1st world working classes attempting to shirk their historic guilt debt by refusing to pay the rightful reparations in terms of standard of living that workers deserve to pay for the crimes committed in the past by their wealthy co-nationals.

And yes, this applies to Bernie Sanders as well. During that iconic interview where Sanders denounced open borders and pushed economic nationalism, the Neoliberal interviewer immediately played the global guilt card in response.

Ruben , February 20, 2017 at 3:23 am

Interesting. Another way to look at it is from the point of view of entropy and closed vs open systems. Before globalisation the 1st world working classes enjoyed a high standard of living which was possible because their system was relatively closed to the rest of the world. It was a high entropy, strongly structured socio-economic arrangement, with a large difference in standard of living between 1st world and 3rd world working classes. Once their system became more open by virtue (or vice) of globalisation, entropy increased as commanded by the 2nd Law of Thermodynamics so the 1st world and 3rd world working classes became more equalised. The socio-economic arrangements became less structured. This means for the Trumpening kind of politicians it is a steep uphill battle, to increase entropy again.

The Trumpening , February 20, 2017 at 3:56 am

Yes, I agree, but if we step back in history a bit we can see the colonial period as a sort of reverse globalization which perhaps portends a bit of optimism for the Trumpening.

I use the term open and closed borders but these are not precise. What I am really saying is that open borders does not allow a country to filter out negative flows across their border. Closed borders does allow a nation to impose a filter. So currently the US has more open borders (filters are frowned upon) and China has closed borders (they can filter out what they don't want) despite the fact that obviously China has plenty of things crossing its border.

During colonialism the 3rd world had a form of open borders imposed on it by the colonial powers, where the 3rd world lost control of who what crossed their borders while the 1st world themselves maintained a closed border mercantilist regime of strict filters. So the anti-colonialist movement was a form of Trumpist economic nationalism where the evil foreigners were given the boot and the nascent nations applied filters to their borders.

So the 3rd world to some extent (certainly in China at least) was able to overcome entropy and regain control of their borders. You are correct in that it will be an uphill struggle for the 1st world to repeat this trick. In the ideal world both forms of globalization (colonialism and the current form) would be sidelined and all nations would be allowed to use the border filters they think would best protect the prosperity of their citizens.

Another good option would be a version of the current globalization but where the losers are the wealthy oligarchs themselves and the winners are the working classes. It's hard to imagine it's easy if you try!

What's interesting about the concept of entropy is that it stands in contradiction to the concept of perpetual progress. I'm sure there is some sort of thesis, antithesis, synthesis solution to these conflicting concepts.

Ruben , February 20, 2017 at 6:07 am

To overcome an entropy current requires superb skill commanding a large magnitude of work applied densely on a small substratum (think of the evolution of the DNA, the internal combustion engine). I believe the Trumpening laudable effort and persuasion would have a chance of success in a country the size of The Netherlands, or even France, but the USA, the largest State machinery in the world, hardly. When the entropy current flooded the Soviet system the solution came firstly in the form of shrinkage.

We need to think more about it, a lot more, in order to succeed in this 1st world uphill struggle to repeat the trick. I am pretty sure that as Pierre de Fermat famously claimed about his alleged proof, the solution "is too large to fit in the margins of this book".

susan the other , February 20, 2017 at 12:36 pm

My little entropy epiphany goes like this: it's like boxes – containers, if you will, of energy or money, or trade goods, the flow of which is best slowed down so everybody can grab some. Break it all down, decentralize it and force it into containers which slow the pace and share the wealth.

Nationalism (my opinion) can do this – economic nationalism. And of course other people think oh gawd, not that again – it's so inefficient for my investments- I can't get fast returns that way but that's just the point.

Ruben , February 20, 2017 at 10:51 pm

I like your epiphany susan.

John Wright , February 20, 2017 at 1:25 pm

Don't you mean "It was a LOWER entropy (as in "more ordered"), strongly structured socio-economic arrangement, with a large difference in standard of living between 1st world"?

The entropy increased as a consequence of human guided globalization.

Of course, from a thermodynamic standpoint, the earth is not a closed system as it is continually flooded with new energy in the form of solar radiation.

Ruben , February 20, 2017 at 10:49 pm

Yes, thank you, I made that mistake twice in the post you replying to.

Hemang , February 20, 2017 at 4:54 am

The Globalized Versailles Treaty ! Permit me a short laughter . The terms of the crippling treaty were dictated by the victors largely on insecurities of France.

The crimes of the 1st against the 3rd go on even now- the only difference is that some of the South like China and India are major nuclear powers now.

The racist crimes in the US are even more flagrant- the Blacks whose labour as slaves allowed for cotton revolution enabling US capitalists to ride the industrial horse are yet to be rehabilitated , Obama or no Obama. It is a matter of profound shame.

The benefits of Globalization have gone only to the cartel of 1st and 3rd World Capitalists. And they are very happy as the lower classes keep fighting. Very happy indeed.

DorDeDuca , February 20, 2017 at 1:22 pm

That is solely class (crass) warfare. You can not project the inequalities of the past to the unsuspecting paying customers of today.

Hemang , February 20, 2017 at 1:35 pm

The gorgon cry of the past is all over the present , including in " unsuspecting" paying folks of today! Blacks being brought to US as slave agricultural labour was Globalisation. Their energy vibrated the machinery of Economics subsequently. What Nationalism and where is it hiding pray? Bogus analysis here , yes.

dontknowitall , February 20, 2017 at 5:40 am

The reigning social democratic parties in Europe today are not the Swedish traditional parties of yesteryear they have morphed into neoliberal austerians committed to globalization and export driven economic models at any cost (CETA vote recently) and most responsible for the economic collapse in the EU

https://www.washingtonpost.com/news/wonk/wp/2017/02/15/austerity-was-a-bigger-disaster-than-we-thought/?utm_term=.e4b799b14d81

disc_writes , February 20, 2017 at 4:22 am

I wonder they chose Chinese imports as the cause of the right-wing shift, when they themselves admit that the shift started in the 1990s. At that time, there were few Chinese imports and China was not even part of the WHO.

If they are thinking of movements like the Lega Nord and Vlaams Blok, the reasons are clearly not to be found in imports, but in immigration, the welfare state and lack of national homogeneity, perceived or not.

And the beginnings of the precariat.

So it is not really the globalization of commerce that did it, but the loss of relevance of national and local identities.

Ruben , February 20, 2017 at 4:41 am

One cause does not exclude the other, they may have worked synergistically.

disc_writes , February 20, 2017 at 5:34 am

Correlation does not imply causation, but lack of correlation definitely excludes it.

The Lega was formed in the 1980s, Vlaams Blok at the end of the '70s. They both had their best days in the 1990s. Chinese imports at the time were insignificant.

I cannot find the breakdown of Chinese imports per EU country, but here are the total Chinese exports since 1983:

http://www.tradingeconomics.com/china/exports

China was not a significant exporter until the 2001 inclusion in WTO: it cannot possibly have caused populist uprisings in Italy and Belgium in the 1990s. It was probably too early even for Pim Fortuyn in the Netherlands, who was killed in 2002, Le Pen's electoral success in the same year, Austria's FPOE in 1999, and so on.

The timescales just do not match. Whatever was causing "populism", it was not Chinese imports, and I can think of half a dozen other, more likely causes.

Furthermore, the 1980s and 1990s were something of an industrial renaissance for Lombardy and Flanders: hardly the time to worry about Chinese imports.

And if you look at the map. the country least affected by the import shock (France) is the one with the strongest populist movement (Le Pen).

People try to conflate Trumpism and Brexit with each other, then try to conflate this "anglo-saxon" populism with previous populisms in Europe, and try to deduce something from the whole exercise.

That "something" is just not there and the exercise is pointless. IMHO at least.

The Trumpening , February 20, 2017 at 5:05 am

European regionalism is often the result of the rise of the EU as a new, alternative national government in the eyes of the disgruntled regions. Typically there are three levels of government, local, regional (states) and national. With the rise of the EU we have a fourth level, supra-national. But to the Flemish, Scottish, Catalans, etc, they see the EU as a potential replacement for the National-level governments they currently are unhappy being under the authority of.

Sound of the Suburbs , February 20, 2017 at 4:28 am

Why isn't it working? – Part 1

Capitalism should be evolving but it went backwards. Keynesian capitalism evolved from the free market capitalism that preceded it. The absolute faith in markets had been laid low by 1929 and the Great Depression.

After the Keynesian era we went back to the old free market capitalism of neoclassical economics. Instead of evolving, capitalism went backwards. We had another Wall Street Crash that has laid low the once vibrant global economy and we have entered into the new normal of secular stagnation. In the 1930s, Irving Fisher studied the debt deflation caused by debt saturated economies. Today only a few economists outside the mainstream realise this is the problem today.

In the 1930s, Keynes realized only fiscal stimulus would pull the US out of the Great Depression, eventually the US implemented the New Deal and it started to recover. Today we use monetary policy that keeps asset prices up but cannot overcome the drag of all that debt in the system and its associated repayments.

In the 1920s, they relied on debt based consumption, not realizing how consumers will eventually become saturated with debt and demand will fail. Today we rely on debt based consumption again, Greece consumed on debt. until it maxed out on debt and collapsed.

In the 1930s Keynes realized, income was just as important as profit as this produced a sustainable system that does not rely on debt to maintain demand. Keynes was involved with the Bretton-Woods agreement after the Second World War and recycled the US surplus to Europe to restore trade when Europe lay in ruins. Europe could rebuild itself and consume US products, everyone benefitted.

Today there are no direct fiscal transfers within the Euro-zone and it is polarizing. No one can see the benefits of rebuilding Greece, to allow it to carry on consuming the goods from surplus nations and it just sinks further and further into the mire. There is a lot to be said for capitalism going forwards rather than backwards and making the same old mistakes a second time.

Sound of the Suburbs , February 20, 2017 at 5:25 am

Someone who has worked in the Central Bank of New York and who Ben Bernanke listened to, ensuring the US didn't implement austerity, Richard Koo:

https://www.youtube.com/watch?v=8YTyJzmiHGk

The ECB didn't listen and killed Greece with austerity and is laying low the Club-Med nations. Someone who knows what they are doing, after studying the Great Depression and Japan after 1989. Let's keep him out of the limelight; he has no place on the ship of fools running the show.

sunny129 , February 20, 2017 at 6:42 pm

DEBT on Debt with QEs+ ZRP ( borrowing from future) was the 'solution' by Bernanke to mask the 2008 crisis and NOT address the underlying structural reforms in the Banking and the Financial industry. He was part of the problem for housing problem and occurred under his watch! He just kicked the can with explosive credit growth ( but no corresponding growth in the productive Economy!)and easy money!

We have a 'Mother of all bubbles' at our door step. Just matter of time when it will BLOW and NOT if! There is record levels of DEBT ( both sovereign, public and private) in the history of mankind, all over the World.

DEBT has been used as a panacea for all the financial problems by CBers including Bernanke! Fed's balance sheet was than less 1 Trillion in 2008 ( for all the years of existence of our Country!) but now over 3.5 Trillions and climbing!

Kicking the can down the road is like passing the buck to some one (future generations!). And you call that solution by Mr. Bernanke? Wow!

Will they say again " No one saw this coming'? when next one descends?

Sound of the Suburbs , February 20, 2017 at 4:31 am

Why isn't it working? – Part 2

The independent Central Banks that don't know what they are doing as can be seen from their track record.

The FED presided over the dot.com bust and 2008, unaware that they were happening and of their consequences. Alan Greenspan spots irrational exuberance in the markets in 1996 and passes comment. As the subsequent dot.com boom and housing booms run away with themselves he says nothing.

This is the US money supply during this time:
http://www.whichwayhome.com/skin/frontend/default/wwgcomcatalogarticles/images/articles/whichwayhomes/US-money-supply.jpg

Everything is reflected in the money supply.

The money supply is flat in the recession of the early 1990s.

Then it really starts to take off as the dot.com boom gets going which rapidly morphs into the US housing boom, courtesy of Alan Greenspan's loose monetary policy.

When M3 gets closer to the vertical, the black swan is coming and you have an out of control credit bubble on your hands (money = debt).

We can only presume the FED wasn't looking at the US money supply, what on earth were they doing?

The BoE is aware of how money is created from debt and destroyed by repayments of that debt.

http://www.bankofengland.co.uk/publications/Documents/quarterlybulletin/2014/qb14q1prereleasemoneyc
reation.pdf

"Although commercial banks create money through lending, they cannot do so freely without limit. Banks are limited in how much they can lend if they are to remain profitable in a competitive banking system."

The BoE's statement was true, but is not true now as banks can securitize bad loans and get them off their books. Before 2008, banks were securitising all the garbage sub-prime mortgages, e.g. NINJA mortgages, and getting them off their books. Money is being created freely and without limit, M3 is going exponential before 2008.

Bad debt is entering the system and no one is taking any responsibility for it. The credit bubble is reflected in the money supply that should be obvious to anyone that cares to look.

Ben Bernanke studied the Great Depression and doesn't appear to have learnt very much.

Irving Fisher studied the Great Depression in the 1930s and comes up with a theory of debt deflation. A debt inflated asset bubble collapses and the debt saturated economy sinks into debt deflation. 2008 is the same as 1929 except a different asset class is involved.

1929 – Margin lending into US stocks
2008 – Mortgage lending into US housing

Hyman Minsky carried on with his work and came up with the "Financial Instability Hypothesis" in 1974.

Steve Keen carried on with their work and spotted 2008 coming in 2005. We can see what Steve Keen saw in 2005 in the US money supply graph above.

The independent Central Banks that don't know what they are doing as can be seen from their track record.

Jesper , February 20, 2017 at 4:51 am

Good to see studies confirming what was already known.

This apparently surprised:

On the contrary, as globalisation threatens the success and survival of entire industrial districts, the affected communities seem to have voted in a homogeneous way, regardless of each voter's personal situation.

It is only surprising for people not part of communities, those who are part of communities see how it affects people around them and solidarity with the so called 'losers' is then shown.

Seems like radical right is the preferred term, it does make it more difficult to sympathize with someone branded as radical right . The difference seems to be between the radical liberals vs the conservative. The radical liberals are too cowardly to propose the laws they want, they prefer to selectively apply the laws as they see fit. Either enforce the laws or change the laws, anything else is plain wrong.

Disturbed Voter , February 20, 2017 at 6:31 am

Socialism for the upper classes, capitalism for the lower classes? That will turn out well. Debt slaves and wage slaves will revolt. That is all the analysis the OP requires. The upper class will respond with suppression, not policy reversal every time. Socialism = making everyone equally poor (obviously not for the upper classes who benefit from the arrangement).

J7915 , February 20, 2017 at 11:15 am

Regrettably today we have socialism for the wealthy, with all the benefits of gov regulations, sympathetic courts and legislatures etc. etc.

Workers are supposed to take care for themselves and the devil take the hind most. How many workers get fired vs the 1%, when there is a failure in the company plan?

Disturbed Voter , February 20, 2017 at 11:59 am

The Romans are the basis. Patricians, Equites and Plebs. Most of us here are clearly plebeian. Time to go place some bets, watch the chariot races and gladiatorial fights, and get my bread subsidy. Ciao.

Sound of the Suburbs , February 20, 2017 at 5:39 am

Globalization created winners and losers throughout the world. The winners liked it, the losers didn't. Democracy is based on the support of the majority.

The majority in the East were winners. The majority in the West were losers.

The Left has maintained its support of neoliberal globalisation in the West. The Right has moved on. There has been a shift to the Right. Democracy is all about winners and losers and whether the majority are winning or losing. It hasn't changed.

sunny129 , February 20, 2017 at 6:54 pm

CAPITAL is mobile and the Labor is NOT!

Globalization( along with communication -internet and transportation) made the Labor wage arbitration, easy in favor of capital ( Multi-Nationals). Most of the jobs gone overseas will NEVER come back. Robotic revolution will render the remaining jobs, less and less!

The 'new' Economy by passed the majority of lower 80-90% and favored the top 10%. The Losers and the Winners!

80-90% of Bonds and Equities ( at least in USA) are owned by top 10 %. 0.7% own 45% of global wealth. 8 billionaires own more than 50% of wealth than that of bottom 50% in our Country!

The Rich became richer!

The tension between Have and Have -Nots has just begun, as Marx predicted!

Sound of the Suburbs , February 20, 2017 at 5:50 am

In the West the rewards of globalisation have been concentrated at the top and rise exponentially within the 1%.

How does this work in a democracy? It doesn't look as though anyone has even thought about it.

David , February 20, 2017 at 6:33 am

I think it's about time that we stopped referring to opposition to globalization as a product or policy of the "extreme right". It would be truer to say that globalization represents a temporary, and now fading, triumph of certain ideas about trade and movement of people and capital which have always existed, but were not dominant in the past. Fifty years ago, most mainstream political parties were "protectionist" in the sense the word is used today. Thirty years ago, protectionism was often seen as a left)wing idea, to preserve standards of living and conditions of employment (Wynne Godley and co). Today, all establishment political parties in the West have swallowed neoliberal dogma, so the voters turn elsewhere, to parties outside the mainstream. Often, it's convenient politically to label them "extreme right", although in Europe some left-wing parties take basically the same position. If you ignore peoples' interests, they won't vote for you. Quelle surprise! as Yves would say.

financial matters , February 20, 2017 at 8:00 am

Yes, there are many reasons to be skeptical of too much globalization such as energy considerations. I think another interesting one is exchange rates.

One of the important concepts of MMT is the importance of having a flexible exchange rate to have full power over your currency. This is fine as far as it goes but tends to put hard currencies against soft currencies where a hard currency can be defined as one that has international authority/acceptance. Having flexible exchange rates also opens up massive amounts of financial speculation relative to fluctuations of these currencies against each other and trying to protect against these fluctuations.

""Keynes' proposal of the bancor was to put a barrier between national currencies, that is to have a currency of account at the global level. Keynes warned that free trade, flexible exchange rates and free movement of capital globally were incompatible with maintaining full employment at the local level""

""Sufficiency provisioning also means that trade would be discouraged rather than encouraged.""

Local currencies can work very well locally to promote employment but can have trouble when they reach out to get resources outside of their currency space especially if they have a soft currency. Global sustainability programs need to take a closer look at how to overcome this sort of social injustice. (Debt or Democracy)

Gman , February 20, 2017 at 6:35 am

As has already been pointed out so eloquently here in the comments section, economic nationalism is not necessarily the preserve of the right, nor is it necessarily the same thing as nationalism.

In the UK the original, most vociferous objectors to EEC membership in the 70s (now the EU) were traditionally the Left, on the basis that it would gradually erode labour rights and devalue the cost of labour in the longer term. Got that completely wrong obviously .

In the same way that global trade has become synonymous with globalisation, the immigration debate has been hijacked and cynically conflated with free movement of (mainly low cost, unskilled) labour and race when they are all VERY different divisive issues.

The other point alluded to in the comments above is the nature of free trade generally. The accepted (neoliberal) wisdom being that 'collateral damage' is unfortunate but inevitable, but it is pretty much an unstoppable or uncontrollable force for the greater global good, and the false dichotomy persists that you either embrace it fully or pull up all the drawbridges with nothing in between.

One of the primary reasons that some competing sectors of some Western economies have done so badly out of globalisation is that they have adhered to 'free market principles' whilst other countries, particularly China, clearly have not with currency controls, domestic barriers to trade, massive state subsidies, wage suppression etc

The China aspect is also fascinating when developed nations look at the uncomfortable 'morality of global wealth distribution' often cited by proponents of globalisation as one of their wider philanthropic goals. Bless 'em. What is clear is that highly populated China and most of its people, from the bottom to the top, has been the primary beneficiaries of this global wealth redistribution, but the rest of the developing world's poor clearly not quite so much.

Eustache de Saint Pierre , February 20, 2017 at 7:11 am

The map on it's own, in terms of the English one time industrial Midlands & North West being shown as an almost black hole, is in itself a kind of " Nuff Said ".

It is also apart from London, where the vast bulk of immigrants have settled.

The upcoming bye-election in Stoke, which could lead to U-Kip taking a once traditionally always strong Labour seat, is right in the middle of that dark cloud.

Anonymous2 , February 20, 2017 at 7:51 am

The problem from the UK 's position, I suggest, is that autarky is not a viable proposition so economic nationalism becomes a two-edged sword. Yes, of course, the UK can place restrictions on imports and immigration but there will inevitably be retaliation and they will enter a game of beggar my neighbour. The current government talks of becoming a beacon for free trade. If we are heading to a more protectionist world, that can only end badly IMHO.

Eustache de Saint Pierre , February 20, 2017 at 11:30 am

Unless we get some meaningful change in thinking on a global scale, I think we are heading somewhere very dark whatever the relative tinkering with an essentially broken system.

The horse is long gone, leaving a huge pile of shit in it's stable.

As for what might happen, I do not know, but I have the impression that we are at the end of a cycle.

sunny129 , February 20, 2017 at 7:04 pm

That 'CYCLE" was dragged on ' unnaturally' with more DEBT on DEBT all over the World by criminal CBers.
Now the end is approaching! Why surprise?

Ignacio , February 20, 2017 at 8:15 am

This is quite interesting, but only part of the story. Interestingly the districts/provinces suffering the most from the chinese import shock are usually densely populated industrial regions of Europe. The electoral systems in Europe (I think all, but I did not check) usually do not weight equally each district, favouring those less populated, more rural (which by the way tend to be very conservative but not so nationalistic). These differences in vote weigthing may have somehow masked the effect seen in this study if radical nationalistic rigth wing votes concentrate in areas with lower weigthed value of votes. For instance, in Spain, the province of Soria is mostly rural and certainly less impacted by chinese imports compared with, for instance, Madrid. But 1 vote in Soria weigths the same as 4 votes in Madrid in number of representatives in the congress. This migth, in part, explain why in Spain, the radical rigth does not have the same power as in Austria or the Netherlands. It intuitively fits the hypothesis of this study.

Nevertheless, similar processes can occur in rural areas. For instance, when Spain entered the EU, french rural areas turned nationalistic against what they thougth could be a wave of agricultural imports from Spain. Ok, agricultural globalization may have less impact in terms of vote numbers in a given country but it still can be politically very influential. In fact spanish entry more that 30 years ago could still be one of the forces behind Le Penism.

craazyman , February 20, 2017 at 8:44 am

I dunno aboout this one.

All this statistical math and yada yada to explain a rise in vote for radical right from 3% in 1985 to 5% now on average? And only a 0.7% marginal boost if your the place really getting hammmered by imports from China? If I'm reading it right, that is, while focusing on Figure 2.

The real "shock" no pun intended, is the vote totals arent a lot higher everywhere.

Then the Post concludes with reference to a "surge in support" - 3% to 5% or so over 30 years is a surge? The line looks like a pretty steady rise over 3 decades.

Maybe I'm missing sommething here.

Also what is this thing they're callling an "Open World" of the past 30 years? And why is that in danger from more balanced trade? It makes no sense. Even back in the 60s and 70s people could go alll over the world for vacations. Or at least most places they coould go. If theh spent their money they'd make friends. Greece even used to be a goood place people went and had fun on a beach.

I think this one is a situation of math runing amuck. Math running like a thousand horses over a hill trampling every blade of grass into mud.

I bet the China factor is just a referent for an entire constellatio of forces that probably don't lend themselves (no pun intended) partiicularly well to social science and principal component analysis - as interesting as that is for those who are interested in that kind of thing (which I am acctually).

Also, I wouldn't call this "free trade". Not that the authors do either, but trade means reciprocity not having your livelihood smashed the like a pinata at Christmas with all your candy eaten by your "fellow countrymen". I wouldn't call that "trade". It's something else.

Ruben , February 20, 2017 at 12:36 pm

Regarding your first point, it is a small effect but it is all due to the China imports impact, you have to add the growth of these parties due to other reasons such as immigration to get the full picture of their growth. Also I think the recent USA election was decided by smaller percentage advantages in three States?

Steve Ruis , February 20, 2017 at 9:00 am

Globalisation is nothing but free trade extended to the entire world. Free trade is a tool used to prevent competition. By flooding countries with our cheaper exports, they do not develop the capacity to compete with us by making their own widgets. So, why are we shocked when those other countries return the favor and when they get the upper hand, we respond in a protectionist way? It looks to me that those countries who are now competing with us in electronics, automobiles, etc. only got to develop those industries in their countries because of protectionism.

Why is this surprising to anyone?

craazyman , February 20, 2017 at 10:41 am

Frank would never have sung this, even drunk! . . . .even in Vegas . .

Trade Be a Lady

They say we'll make a buck
But there is room for doubt
At times you have a very unbalanced way of running out

You say you're good for me
Your pickins have been lush
But before this year is over
I might give you the brush

Seems you've forgot your manners
You don't know how to play
Cause every time I turn around . . . I pay

So trade get your balances right
Trade get your balances right
Trade if you've ever been in balance to begin with
Trade get your balances right

Trade let a citizen see
How fair and humane you can be
I see the way you've treated other guys you've been with
Trade be a lady with me

A lady doesn't dump her exports
It isn't fair, and it's not nice
A lady doesn't wander all over the world
Putting whole communities on ice

Let's keep this economy polite
let's find a way to do it right
Don't stick me baby or I'll wreck the world you win with
Trade be a lady or we'll fight

A lady keeps it fair with strangers
She'd have a heart, she'd be nice
A lady doesn't spread her junk, all over the world
In your face, at any price

Let's keep society polite
Go find a way to do it right
Don't screw me baby cause i know the clowns you sin with
Trade be a lady tonight

Gaylord , February 20, 2017 at 10:56 am

Refugees in great numbers are a symptom of globalization, especially economic refugees but also political and environmental ones. This has strained the social order in many countries that have accepted them in and it's one of the central issues that the so-called "right" is highlighting.

It is no surprise there has been an uproar over immigration policy in the US which is an issue of class as much as foreign policy because of the disenfranchisement of large numbers of workers on both sides of the equation - those who lost their jobs to outsourcing and those who emigrated due to the lack of decent employment opportunities in their own countries.

We're seeing the tip of the iceberg. What will happen when the coming multiple environmental calamities cause mass starvation and dislocation of coastal populations? Walls and military forces can't deter hungry, desperate, and angry people.

The total reliance and gorging on fossil energy by western countries, especially the US, has mandated military aggression to force compliance in many areas of the world. This has brought a backlash of perpetual terrorism. We are living under a dysfunctional system ruled by sociopaths whose extreme greed is leading to world war and environmental collapse.

sunny129 , February 20, 2017 at 7:01 pm

Who created the REFUGEE PROBLEMS in the ME – WEST including USA,UK++

Obama's DRONE program kept BOMBING in SEVEN Countries killing innocents – children and women! All in the name of fighting Terrorism. Billions of arms to sale Saudi Arabia! Wow!

Where were the Democrats and the Resistance and Women's march? Hypocrites!

Anon , February 21, 2017 at 12:12 am

"Our lifestyle is non-negotiable." - Dick Cheney.

Ignacio , February 20, 2017 at 2:40 pm

What happened with Denmark that suddenly dissapeared?

fairleft , February 21, 2017 at 8:08 am

Globalisation has caused a surge in support for nationalist and radical right political platforms.
Just a reminder that nationalism doesn't have to be associated with the radical right. The left is not required to reject it, especially when it can be understood as basically patriotism, expressed as solidarity with all of your fellow citizens.

Trump's withdrawal from the Trans-Pacific Partnership seems to be a move in that direction.
Well, that may be true as far as Trump's motivations are concerned, but a major component (the most important?) of the TPP was strong restraint of trade, a protectionist measure, by intellectual property owners.

Yet, a return to protectionism is not likely to solve the problems of those who have lost ground due to globalisation without appropriate compensation of its 'losers'
Japan has long been 'smart' protectionist, and this has helped prevent the 'loser' problem, in part because Japan, being nationalist, makes it a very high priority to create/maintain a society in which almost all Japanese are more or less middle class. So, it is a fact that protectionism has been and can be associated with more egalitarian societies, in which there are few 'losers' like we see in the West. But the U.S. and most Western countries have a long way to go if they decide to make the effort to be more egalitarian. And, of course, protectionism alone is not enough to make most of the losers into winners again. You'll need smart skills training, better education all around, fewer low-skill immigrants, time, and, most of all strong and long-term commitment to making full employment at good wages national priority number one.

and is bound to harm growth especially in emerging economies.
Growth has been week since the 2008, even though markets are as free as they've ever been. Growth requires a lot more consumers with willingness and cash to spend on expensive, high-value-added goods. So, besides the world finally escaping the effects of the 2008 financial crisis, exporting countries need prosperous consumers either at home or abroad, and greater economic security. And if a little bit of protectionism generates more consumer prosperity and economic stability, exporting countries might benefit overall.

The world rather needs a more inclusive model of globalisation.
Well, yes, the world needs more inclusivity, but globalization doesn't need to be part of the picture. Keep your eyes on the prize: inclusivity/equality, whether latched onto nationally, regionally, 'internationally' or globally, any which way is fine! But prioritization of globalization over those two is likely a victory for more inequality, for more shoveling of our wealth up to the ruling top 1%.

[Feb 21, 2017] Mainstream economists, being a stooges of financial oligarchy, have depicted capitalism as natural, as though God-given rather than as a product of institutions and/or politics.

Feb 21, 2017 | economistsview.typepad.com
Peter K. : February 20, 2017 at 12:34 PM , 2017 at 12:34 PM
"Larry sees the coming of globalization as bringing with it a sharp reduction in the market power of American blue-collar workers in mass-production industries, and thus as exerting significant downward pressure on middle class wages and upward pressure on inequality. The live question, he thinks, is how large and significant these pressures have been."

As if this was natural and ordained by God. Can't argue with economics.

And hence the populist backlash.

pgl -> Peter K.... , February 20, 2017 at 12:49 PM
Catholic economics? Lord - the troll parade continues.
RGC -> pgl... , February 20, 2017 at 01:32 PM
Peter K is exactly right.

Mainstream economists have depicted capitalism as natural, as though God-given rather than as a product of institutions and/or politics.

That's how they became mainstream and got jobs at "elite" universities and columns in major newspapers.

Peter K. -> pgl... , February 20, 2017 at 03:14 PM
They say don't feed trolls so I guess I shouldn't feed you and your constant need for attention.
libezkova -> pgl... , February 20, 2017 at 06:04 PM
Did you ever read Evangelii Gaudium ?

http://www.vatican.va/holy_father/francesco/apost_exhortations/documents/papa-francesco_esortazione-ap_20131124_evangelii-gaudium_en.html

If not, you probably can benefit from reading it.

It looks like there should strict external "moral" constrains on economic activity, like they were most of human history. For some activities which are now legal you can spend life in jail even in rather relaxed 30th ( for example, credit cards interest rates are usury rates, no question about it)

All this mathiness junk and operating with unreliable and politically fudged (as in employment numbers and GDP) statistics (as in "There are three kinds of lies: lies, damned lies, and statistics."

We already saw to what economic outcomes neoliberals have led us. While neoliberal were eating the carcass of New Deal things were not that bad.

Now it's over and they are in deep trouble. Election of Trump is just the fist sign of troubles ahead. One swallow does not a summer make.

The problem is that financial oligarchy does not want to part with their illicit gains.

In the past this dilemma, especially in case Jewish bankers, was resolved by killing some part and exiling another part. It would be nice for our Masters of the Universe to remember this historical fact.

[Feb 21, 2017] Roger Farmer's ideas are a combination of market monetarism and New Keynesianism.

Feb 21, 2017 | economistsview.typepad.com
rayward : February 20, 2017 at 05:21 AM , 2017 at 05:21 AM
Roger Farmer's ideas are a combination of market monetarism and New Keynesianism. I recommend his interview by David Beckworth. https://soundcloud.com/macro-musings/rogerfarmer

[Feb 19, 2017] Privilege: still exorbitant. An analysis of the international role of the dollar.

Notable quotes:
"... Privilege: still exorbitant. Here's a nice analysis of the international role of the dollar. This is the same argument I tried to make in my Roosevelt Institute piece on trade policy last summer. The Economist* says it better: ..."
"... "Unlike other aspects of American hegemony, the dollar has grown more important as the world has globalised, not less. As economies opened their capital markets in the 1980s and 1990s, global capital flows surged. Yet most governments sought exchange-rate stability amid the sloshing tides of money. They managed their exchange rates using massive piles of foreign-exchange reserves Global reserves have grown from under $1trn in the 1980s to more than $10trn today. ..."
"... Dollar-denominated assets account for much of those reserves. Governments worry more about big swings in the dollar than in other currencies; trade is often conducted in dollar terms; and firms and governments owe roughly $10trn in dollar-denominated debt. the dollar is, on some measures, more central to the global system now than it was immediately after the second world war. ..."
"... America wields enormous financial power as a result. It can wreak havoc by withholding supplies of dollars in a crisis. When the Federal Reserve tweaks monetary policy, the effects ripple across the global economy. Hélène Rey of the London Business School argues that, despite their reserve holdings, many economies have lost full control over their domestic monetary policy, because of the effect of Fed policy on global appetite for risk. ..."
"... America's return on its foreign assets is markedly higher than the return foreign investors earn on their American assets That flow of investment income allows America to run persistent current-account deficits -- to buy more than it produces year after year, decade after decade." ..."
Feb 19, 2017 | economistsview.typepad.com
Peter K. : February 18, 2017 at 06:50 AM
J.W. Mason has some interesting links at his blog:

http://jwmason.org/slackwire/links-and-thoughts-for-feb-17/

Privilege: still exorbitant. Here's a nice analysis of the international role of the dollar. This is the same argument I tried to make in my Roosevelt Institute piece on trade policy last summer. The Economist* says it better:

"Unlike other aspects of American hegemony, the dollar has grown more important as the world has globalised, not less. As economies opened their capital markets in the 1980s and 1990s, global capital flows surged. Yet most governments sought exchange-rate stability amid the sloshing tides of money. They managed their exchange rates using massive piles of foreign-exchange reserves Global reserves have grown from under $1trn in the 1980s to more than $10trn today.

Dollar-denominated assets account for much of those reserves. Governments worry more about big swings in the dollar than in other currencies; trade is often conducted in dollar terms; and firms and governments owe roughly $10trn in dollar-denominated debt. the dollar is, on some measures, more central to the global system now than it was immediately after the second world war.

America wields enormous financial power as a result. It can wreak havoc by withholding supplies of dollars in a crisis. When the Federal Reserve tweaks monetary policy, the effects ripple across the global economy. Hélène Rey of the London Business School argues that, despite their reserve holdings, many economies have lost full control over their domestic monetary policy, because of the effect of Fed policy on global appetite for risk.

During the heyday of Bretton Woods, Valéry Giscard d'Estaing, a French finance minister (later president), complained about the "exorbitant privilege" enjoyed by the issuer of the world's reserve currency. America's return on its foreign assets is markedly higher than the return foreign investors earn on their American assets That flow of investment income allows America to run persistent current-account deficits -- to buy more than it produces year after year, decade after decade."

Exactly right. You can have free capital mobility, or you can have a balanced trade for the US. But you can't have both, as long as the world depends on dollar reserves."

Darryl noted Keynes's Bancor.

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

[Feb 19, 2017] Neoclassical economics rests on the assumption that economies have a natural propensity to equilibrium

Notable quotes:
"... As we discussed long form in ECONNED, orthodox economics rests on the assumption that economies have a natural propensity to equilibrium, and that equilibrium is full employment. ..."
"... their mathematical exposition enables them to dismiss lay critics. ..."
www.nakedcapitalism.com

I hate to come off like a nay-sayer, because I have no doubt that the underlying methodology is useful. But this sounds an awful lot like a new improved version of system dynamics, which the economics profession successfully beat back in the 1970s.

As we discussed long form in ECONNED, orthodox economics rests on the assumption that economies have a natural propensity to equilibrium, and that equilibrium is full employment.

As Paul Samuelson stressed, that assumption is necessary for economics to be science, as in mathed up, and the dominance that economists have achieved is due to their scientific appearances and the fact that their mathematical exposition enables them to dismiss lay critics.

[Feb 19, 2017] Beware of Consultants Bearing Rosy News About Mergers

Notable quotes:
"... They focused on Dennis Carlton , a professor at the University of Chicago's Booth School of Business, and a senior managing director at the consulting firm Compass Lexecon . According to Eisinger and Elliott, Carlton has been paid more than $100 million from consulting activities during his career. ..."
"... Mergers can hurt consumers by giving companies increased market power. The less competitive an industry is, the more the big companies can raise prices, which not only makes life more painful for consumers, but limits the size of the market itself, reducing economic productivity. ..."
"... Obviously, if consultants like Carlton are being paid by the companies that want to merge, they have an incentive to use economics to predict a rosy outcome instead of a bad one. But how easy is that? In an ideal world, it would be very difficult to get away with using economic models to make slanted forecasts. If a certain type of model repeatedly got things wrong in biology or electrical engineering, professors would toss it out, and it would probably no longer be used in most court cases. ..."
"... Does this mean that the theoretical models used by merger consultants like Carlton are wrong? Not necessarily. It just means that it's very hard to know either way. As Eisinger and Elliott demonstrate, however, the models have been known to make some pretty big mistakes. One example they cite is the merger of appliance makers Maytag Corp. and Whirlpool Corp. in 2005. Carlton, hired by those companies, wrote that international competition would prevent the new super-company from raising prices. But he was wrong, and prices went up. ..."
"... The threat of excessive industrial concentration is worth paying more attention to. Economists increasingly are focusing on the harms that monopoly power might be causing. In addition to the well-known effect of higher prices, industrial concentration might exacerbate inequality and decrease labor's share of national income. It might also be reducing business dynamism, which has taken a dive since 2000. ..."
Feb 19, 2017 | www.bloomberg.com
Amid the blizzard of election news last November, two writers at the nonprofit news organization ProPublica came out with a startling investigative report . Jesse Eisinger and Justin Elliott wrote about a small but very wealthy group of American economists who make millions of dollars helping companies deal with the federal government on antitrust cases.

They focused on Dennis Carlton , a professor at the University of Chicago's Booth School of Business, and a senior managing director at the consulting firm Compass Lexecon . According to Eisinger and Elliott, Carlton has been paid more than $100 million from consulting activities during his career.

That's an astounding sum, and it demonstrates how lucrative the economics profession can be for those who reach the top echelons. But the ProPublica reporters suggest that much of this fortune may have been made at the public's expense. Carlton and economists like him are mostly hired by companies that want to do big mergers and acquisitions. This basically involves convincing the government -- which reviews all large corporate acquisitions -- that the merger won't hurt consumers.

Mergers can hurt consumers by giving companies increased market power. The less competitive an industry is, the more the big companies can raise prices, which not only makes life more painful for consumers, but limits the size of the market itself, reducing economic productivity. Any time two companies want to merge, there's the possibility that the result could be a more efficient company, which would lead to lower prices as production costs decline. But there's also the possibility of a less efficient market, where prices rise because of increased monopoly power. You need economics to predict which of these will happen.

Obviously, if consultants like Carlton are being paid by the companies that want to merge, they have an incentive to use economics to predict a rosy outcome instead of a bad one. But how easy is that? In an ideal world, it would be very difficult to get away with using economic models to make slanted forecasts. If a certain type of model repeatedly got things wrong in biology or electrical engineering, professors would toss it out, and it would probably no longer be used in most court cases.

Econ is different. Despite a recent turn away from pure theory and toward empirical work, the profession doesn't always insist on the most rigorous standards of evidence. Economists Joshua Angrist and Jörn-Steffen Pischke have criticized the field of industrial organization, which deals with competition and monopoly power. They say that it still relies on obsolete theoretical models laden with questionable assumptions.

Does this mean that the theoretical models used by merger consultants like Carlton are wrong? Not necessarily. It just means that it's very hard to know either way. As Eisinger and Elliott demonstrate, however, the models have been known to make some pretty big mistakes. One example they cite is the merger of appliance makers Maytag Corp. and Whirlpool Corp. in 2005. Carlton, hired by those companies, wrote that international competition would prevent the new super-company from raising prices. But he was wrong, and prices went up.

This sort of result seems to be the norm in recent years. Northwestern University economist John Kwoka has written an entire book in which he documents how lax U.S. antitrust policy has resulted in less competition and higher prices -- the kind of thing the high-flying consultants are paid to say won't happen.

The threat of excessive industrial concentration is worth paying more attention to. Economists increasingly are focusing on the harms that monopoly power might be causing. In addition to the well-known effect of higher prices, industrial concentration might exacerbate inequality and decrease labor's share of national income. It might also be reducing business dynamism, which has taken a dive since 2000.

So it probably makes sense to take a harder look at antitrust policy in general and merger consultants more specifically. The U.S. system may simply be too lenient. It may rely too much on the testimony of well-paid experts, who are able to use their models to reach the desired conclusion. One solution might be for the government to review the predictions of expert consultants, and see whether they end up being right or wrong -- something that Eisinger and Elliott say isn't done now. The results of these follow-up studies could be made public, so courts and regulators know the track record of a given model or consultant.

That's just one possibility. Any solution to this problem, though, should follow the principle of greater empiricism. The more weight is given to evidence, and the less to theoretical assumptions, the better it will be for the American consumer. Economics is becoming more empirical, and the lucrative world of legal consulting should follow suit.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

To contact the author of this story: Noah Smith at nsmith150@bloomberg.net

[Feb 19, 2017] These Professors Make More Than a Thousand Bucks an Hour Peddling Mega-Merger

Feb 19, 2017 | economistsview.typepad.com
pgl : , February 18, 2017 at 02:21 AM
Here is the story Noah Smith writes about:

https://www.propublica.org/article/these-professors-make-more-than-thousand-bucks-hour-peddling-mega-mergers

"These Professors Make More Than a Thousand Bucks an Hour Peddling Mega-Mergers - The economists are leveraging their academic prestige with secret reports justifying corporate concentration. Their predictions are often wrong and consumers pay the price."

That is just the headline. Way down in the discussion comes the most damning statement:

"These complex mathematical formulations carry weight with the government because they purport to be objective. But a ProPublica examination of several marquee deals found that economists sometimes salt away inconvenient data in footnotes and suppress negative findings, stretching the standards of intellectual honesty to promote their clients' interests."

Of course the government is supposed to hire its own world class economists to review the evidence as well. The problem, however, is that these government agencies are often underfunded. It is hard to compete with the mega-firms who pay $1000 an hour for a consultant when the entire budget for the government review agency is only $100,000. Penny wise, pound foolish.

[Feb 18, 2017] John Kenneth Galbraith, like John Maynard Keynes, was a giant among midgets both figuratively and literally.

Notable quotes:
"... John Kenneth Galbraith laid out the problem of companies with too much market/political power back in the 1950s and 60s. I never read Galbraith in an economics course, only on my own. Economists were not interested...not enough mathematics and marginal this equals marginal that. ..."
Feb 18, 2017 | economistsview.typepad.com
RC AKA Darryl, Ron... , February 16, 2017 at 07:35 AM
John Kenneth Galbraith laid out the problem of companies with too much market/political power back in the 1950s and 60s. I never read Galbraith in an economics course, only on my own. Economists were not interested...not enough mathematics and marginal this equals marginal that.

Nothing like overlooking the elephant is the room...something that economists are better at doing than trying to do their jobs.

RC AKA Darryl, Ron -> JohnH... , February 16, 2017 at 08:27 AM
Totally. John Kenneth Galbraith, like John Maynard Keynes, was a giant among midgets both figuratively and literally.

[Feb 15, 2017] Mankiw's Ten Principles of Economics, Translated

Feb 15, 2017 | www.improbable.com

by Yoram Bauman [1]
University of Washington, Seattle, Washington

The cornerstone of Harvard professor N. Gregory Mankiw's introductory economics textbook, Principles of Economics, is a synthesis of economic thought into Ten Principles of Economics (listed in the first table below). A quick perusal of these will likely affirm the reader's suspicions that synthesizing economic thought into Ten Principles is no easy task, and may even lead the reader to suspect that the subtlety and concision required are not to be found in the pen of N. Gregory Mankiw.


I have taken it upon myself to remedy this unfortunate situation. The second table below summarizes my attempt to translate Mankiw's Ten Principles into plain English, and in doing so to provide the uninitiated with an invaluable glimpse of the economic mind at work. Explanations and details can be found in the pages that follow, but the average reader is advised to simply cut out the table below and carry it around for assistance in the (hereafter unlikely) event of confusion about the basic Principles of Economics.

------------------------------------------------------------

Mankiw's Principles

#1. People face tradeoffs.
#2. The cost of something is what you give up to get it.
#3. Rational people think at the margin.
#4. People respond to incentives.
#5. Trade can make everyone better off.
#6. Markets are usually a good way to organize economic activity.
#7. Governments can sometimes improve market outcomes.
#8. A country's standard of living depends on its ability to produce goods and services.
#9. Prices rise when the government prints too much money.
#10. Society faces a short-run tradeoff between inflation and unemployment.

------------------------------------------------------------

Yoram's Translations

#1. Choices are bad.
#2. Choices are really bad.
#3. People are stupid.
#4. People aren't that stupid.
#5. Trade can make everyone worse off.
#6. Governments are stupid.
#7. Governments aren't that stupid.
#8. Blah blah blah.
#9. Blah blah blah.
#10. Blah blah blah.

------------------------------------------------------------

Explanations and Details

At first glance, the reader cannot but be impressed by the translation's simplicity and clarity. Accessibility, however, should not be mistaken for shallowness: further study will reveal hidden depths and subtleties that will richly reward the attentive student. Indeed, a moment's reflection will identify any number of puzzles and mysteries. Chief among them is probably this: Why do Principles #8, #9, and #10 have identical translations?

The immediately obvious explanation is that these are macro-economic principles, and that I, as a micro-economist, am ill equipped to understand them, let alone translate them.[2] As is often the case in this complex world we live in, this immediately obvious explanation is also wrong. The true reason I have provided identical translations of "Blah blah blah" for Principles #8, #9, and #10 is that these principles say exactly the same thing, namely, "Blah blah blah." Sometime when you've got a few hours to spare, go and ask an economist -- preferably a macro-economist -- what he or she really means by "standard of living" or "goods and services" or "inflation" or "unemployment" or "short-run" or even "too much." You will soon realize that there is a vast difference between, say, what Principle #10 says -- "Society faces a short-run tradeoff between inflation and unemployment" -- and what Principle #10 means: "Society faces blah between blah and blah." My translations are simply concise renderings of these underlying meanings.

Having cleared up that issue, let us go back to Mankiw's

PRINCIPLE #1
People face tradeoffs.
TRANSLATION: Choices are bad.

The reasoning behind this translation is obvious. For example, imagine that somebody comes up to you and offers you a choice between a Snickers bar and some M&Ms. You now have a tradeoff, meaning that you have to choose one or the other. And having to trade one thing off against another is bad; President Truman supposedly asked for a one-armed economics advisor because his two-armed economics advisors were always saying, "On the one hand...but on the other hand..."

People who have not received any economics education might be tempted to think that choices are good. They aren't. The (mistaken) idea that choices are good perhaps stems from the (equally mistaken) idea that lack of choices is bad. This is simply not true, as Mancur Olson points out in his book, The Logic of Collective Action: "To say a situation is 'lost' or hopeless is in one sense equivalent to saying it is perfect, for in both cases efforts at improvement can bring no positive results."

Hence my translation of Mankiw's first principle of economics: Choices are bad. This concept can be a little difficult to grasp -- nobody ever said economics was easy -- but the troubled reader will undoubtedly gain clarity from Mankiw's

PRINCIPLE #2
The cost of something is what you give up to get it.
TRANSLATION: Choices are really bad.

Beyond transforming Mankiw's semantic deathtrap into simplicity itself, this translation has the advantage of establishing a connection between Principle #1 (Choices are bad) and Principle #2 (Choices are really bad).

To continue to deepen the reader's understanding of why choices are bad -- really bad -- let's return to our previous example, in which somebody offers you a choice between a Snickers bar and a package of M&Ms. Suppose, for the sake of argument, that you take the M&Ms. According to Mankiw, the cost of those M&Ms is the Snickers bar that you had to give up to get the M&Ms. Your gain from this situation -- what economists call "economic profit" -- is therefore the difference between the value you gain from getting the M&Ms (say, $.75) and the value you lose from giving up the Snickers bar (say, $.40). In other words, your economic profit is only $.35. Although you value the M&Ms at $.75, having the choice of the Snickers bar reduces your gain by $.40. Hence Principle #2: Choices are really bad.

Indeed, the more choices you have, the worse off you are. The worst situation of all would be somebody coming up to you and offering you a choice between two identical packages of M&Ms. Since choosing one package (which you value at $.75) means giving up the other package (which you also value at $.75), your economic profit is exactly zero! So being offered a choice between two identical packages of M&Ms is in fact equivalent to being offered nothing.

Now, a lay person might be forgiven for thinking that being offered a choice between two identical packages of M&Ms is in fact equivalent to being offered a single package of M&Ms. But economists know better. Being offered a single package of M&M effectively means having to choose between a package of M&Ms (which you value at $.75) and nothing (which you value at $0). Choosing the M&Ms gives you an economic profit of $.75, which is $.75 more than your economic profit when you are offered a choice between two identical packages of M&Ms.

At this point it is worth acknowledging that (1) there may be readers who have failed to grasp the above subtleties in their entirety, and (2) such readers may well be beginning to wonder whether they are, in a word, stupid. Any lingering doubts should be eliminated by the Mankiw's

PRINCIPLE #3
Rational people think at the margin.
TRANSLATION: People are stupid.

One point that is immediately obvious to the most casual observer with the meanest intelligence is that most people do not think at the margin. For example, most people who buy oranges at the grocery store think like this: "Hmmm, oranges are $.25 each. I think I'll buy half a dozen." They do not think like this: "Hmmm, oranges are $.25 each. I'm going to buy one, because my marginal value exceeds the market price. Now I'm going to buy a second one, because my marginal value still exceeds the market price..." We know most people don't think like this because most people don't fill their shopping baskets one orange at a time!

But we are now led inexorably toward a most unhappy conclusion. If -- as Mankiw says -- rational people think at the margin, and if -- as we all know -- most people do not think at the margin, then most people are not rational. Most people, in other words, are stupid. Hence my translation of the third principle of economics: People are stupid.

Before sinking into despair for the fate of the human race, however, the reader would be wise to consider Mankiw's

PRINCIPLE #4
People respond to incentives.
TRANSLATION: People aren't that stupid.

The dictionary says that incentive, n., is 1. Something that influences to action; stimulus; encouragement. SYN. see motive.

So what Mankiw is saying here is that people are motivated by motives, or that people are influenced to action by things that influence to action. Now, this may seem to be a bit like saying that tautologies are tautological -- the reader may be thinking that people would have to be pretty stupid to be unmotivated by motives, or to be inactive in response to something that influences to action. But remember Principle #3: People are stupid. Hence the need for Principle #4, to clarify that people aren't that stupid.

Only truly stupid people can fail to understand my translation of Mankiw's

PRINCIPLE #5
Trade can make everyone better off.
TRANSLATION: Trade can make everyone worse off.

But, the reader may well be asking, isn't the translation of the fifth principle the exact opposite of the principle itself? Of course not.

To see why, first note that "trade can make everyone better off" is patently obviously: if I have a Snickers bar and want M&Ms and you have M&Ms and want a Snickers bar, we can trade and we will both be better off. Surely Mankiw is getting at something deeper than this? Indeed, I believe he is. To see what it is, compare the following phrases:

A: Trade can make everyone better off.
B: Trade will make everyone better off.

Now, Statement B is clearly superior to Statement A. Why, then, does Mankiw use Statement A? It can only be because Statement B is false. By saying that trade can make everyone better off, Mankiw is conveying one of the subtleties of economics: trade can also not make everyone better off. It is a short hop from here to my translation, "Trade can make everybody worse off." (A numerical example can be found in Note #3, below.)

The subtlety evident in Principle #5 is even more clearly visible in the next two principles.

PRINCIPLE #6
Markets are usually a good way to organize economic activity.
TRANSLATION: Governments are stupid.

and

PRINCIPLE #7
Governments can sometimes improve market outcomes.
TRANSLATION: Governments aren't that stupid.

To see the key role that Principle #5 plays in both of these statements, note that the original phrasing of Principle #5 ("Trade can make everyone better off") leads to Principle #6 ("Governments are stupid"). After all, if trade can make everyone better off, what do we need government for? But the translation of Principle #5 ("Trade can make everyone worse off") leads to Principle #7 ("Governments aren't that stupid"). After all, if trade can make everyone worse off, we better have a government around to stop people from trading!

Like the first five principles, Principles #6 and #7 demonstrate the fine distinctions inherent in the economic way of thinking. People are stupid, but not that stupid; trade can make everyone better off, but it can also make everyone worse off; governments are stupid, but not that stupid. Exploring, refining, and delineating these distinctions is the subject matter of upper-level economics classes, doctoral dissertations in economics, and the vast majority of papers in the American Economic Review and other scholarly journals. Should the reader decide to follow this path, the fundamental principles described on the first page of this article will provide invaluable guidance.

Acknowledgement

Thank you to Ivars Skuja for assistance in taking and preparing the photographs[4] that accompany this article.

Notes

1. My own microeconomics text, Quantum Microeconomics, can be found online at <http://www.smallparty.org/quantum>.

2. The exact meanings of the terms "micro" and "macro" may be lost on the reader -- or, more likely, may never have been found in the first place. This should not be cause for concern: absence of these terms from Mankiw's Ten Principles indicates that they are not of fundamental economic importance.

3. Many non-economists (and some economists) are intimidated by numerical examples. To make it easier for those people to recognize that the following is a numerical example, it is formatted in very small type.

Consider a small town with three families. It just so happens that Family #1 needs a snowblower, Family #2 needs a leafblower, and Family #3 needs a lawnmower; each family values their particular need at $200. Fortune appears to be smiling on this town, because it also just so happens that Family #1 owns a leafblower, Family #2 owns a lawnmower, and Family #3 owns a snowblower. These sit unused in their respective garages; each family has no use for its current piece of equipment, and therefore values it at $0.

The situation appears ripe for gains from trade: Family #1 could buy a snowblower from Family #3 for $100, Family #2 could buy a leafblower from Family #1 for $100, and Family #3 could buy a lawnmower from Family #2 for $100. Each family would be $200 better off.

Unfortunately, life in this small town is not so simple; the town is located in a valley that is susceptible to severe air pollution problems. Blowers and mowers emit large quantities of air pollutants, and in fact each blower or mower that is used will make air pollution so bad that hospital bills (for asthma, etc.) will increase by $80 for each family. Three additional blowers and mowers will therefore increase each family's bills by $240.

Two results follow. First, the trades will still take place. For example, Family #1 and Family #3 will both be better off by $100 - $80 = $20 if Family #3 sells Family #1 its snowblower for $100. Second, the three trades together make everyone worse off: each family gains $200 from buying and selling, but loses $240 in hospital bills, for a net loss of $40.

4. To accommodate schools that teach micro and macro separately, Mankiw's Principles of Economics is also published in separate pieces; the accompanying photographs are of the micro piece, Principles of Microeconomics. Note that the same Ten Principles of Economics (some micro, some macro) appear in all versions of the book.

© Copyright 2003 Annals of Improbable Research (AIR)

[Feb 15, 2017] Lysenkoism in the US economics: Mainstream economists who get paid well for their services are not that diverse

Notable quotes:
"... Yes economists are diverse as a group, but the opinions of the majority of that group might be described as having moved to the right since 1970. ..."
Feb 15, 2017 | economistsview.typepad.com
sanjait -> Jerry Brown... , February 15, 2017 at 10:38 AM
Economists are enormously diverse as a group. Any piece that explicitly or implicitly describes them as being homogeneous is being reductionist at best.

But Noah makes good points. Though it's probably worth emphasizing that if there exists a problem of communication between professionals and the public, there is probably mutual blame to be assigned. Economists should talk better to the general public, but as citizens we don't serve ourselves well when we expect the world to cater to our lack of knowledge and interest in complex but important issues.

DrDick -> sanjait... , February 15, 2017 at 10:51 AM
I have to disagree. It is the professionals who need to do a better job of educating the public. It is ridiculous to assume that the general public has the time or resources to discover this for themselves.
Peter K. -> sanjait... , February 15, 2017 at 11:19 AM
"Economists are enormously diverse as a group.

Mainstream economists who get paid well for their services are not that diverse. For one thing, most are white males.

That was Hillary's one good idea about the Fed. One.

Peter K. -> sanjait... , February 15, 2017 at 11:20 AM
"there is probably mutual blame to be assigned."

What a masochist.

Stockholm syndrome.

Jerry Brown -> sanjait... , February 15, 2017 at 11:31 AM
Yes economists are diverse as a group, but the opinions of the majority of that group might be described as having moved to the right since 1970. And often certain types of economists are described as fringe and there is a reluctance to discuss their ideas. That is somewhat understandable because any one economist has only so much time, but it seems to go deeper than that very often. Trade has been one of those areas, and I am happy to see many economists doing some re-evaluation of the free trade mantra, among other things. I would include Paul Krugman in that group.

As far as being a knowledge lacking citizen- well we all are. Ain't no economist got it all completely figured out as far as I know. That's how I read Noah Smith's article, as a call to re-examine some previously sacred ideas with maybe a goal of keeping in mind their effects on different segments of society. And economists or anyone else who wants to impact public policy in a democracy certainly should expect to cater somewhat to those who are less knowledgeable about their theories.

[Feb 15, 2017] Science advances one funeral at a time

Feb 15, 2017 | economistsview.typepad.com
Peter K. -> Jerry Brown... , February 15, 2017 at 05:42 AM
I have come around to the idea to the idea that the people and the left have been ill-served by economists. Whether on trade or on other issues, they are used for their supposed expertise to argue against "populist" solutions. "Populist" solutions aren't efficient. Most center-left economists attacked Sanders for being unserious.

People no longer trust them after being played.

Krugman and others want it just to be about the blue time versus the red team, Keynesianism versus neoclassical. That's the acceptable frame of debate.

But as the election of Trump has shown, it's more complicated than that.

The left needs better economists. It's nice to see Piketty join the campaign of France's Bernie Sanders, who just beat their center-left Hillary in the Socialist primary. He knows things need to change.

If he had joined Bernie Sanders campaign he would have been attacked by the center-left economists as "unserious" and "populist."

Economists mostly argue from authority and people no longer trust their authority. Smith is suggesting they can fall back on empirics and science to boost their legitimacy only if their science backs the truth. Unfortunately economics is too political.

Mike S -> Peter K.... , February 15, 2017 at 06:01 AM
"The left needs better economists."

Really? Offhand, I can think of Dr Krugman and Joe Stiglitz having won Nobel prizes. How many right wing economists have won a nobel in, say the last 25 years?

Tom aka Rusty -> Mike S... , February 15, 2017 at 06:14 AM
Krugman was wrong on the impact of trade on US blue collar workers, a more than minor error.

But who cares about blue collar workers (except on voting day)?

pgl -> Tom aka Rusty... , February 15, 2017 at 06:18 AM
Care to provide a link to where Krugman declared no one would be hurt by a movement to free trade?
Peter K. -> pgl... , February 15, 2017 at 07:10 AM
Krugman made his career by bashing leftwing "populists" over trade and industrial policy.

Rustbucket is right.

BenIsNotYoda -> Peter K.... , February 15, 2017 at 07:15 AM
Peter K is absolutely correct here in his criticism. Krugman made the transition in the 90s with the Clinton/Rubin economic regime. Their day is over. Obama embraced the same and we are all paying the price. By shooting down Bernie, they killed their chances in the election. We need a change. and yes, I agree with Noah. Economists should hold their head in shame. Not for not predicting the crisis. But for doing little afterwards than boosting asset prices.

Repeat after me - High stock prices do NOT cure cancer.

pgl -> BenIsNotYoda... , February 15, 2017 at 07:27 AM
"Krugman made the transition in the 90s with the Clinton/Rubin economic regime."

Check again - Krugman did not serve in the Clinton White House.

Tom aka Rusty -> pgl... , February 15, 2017 at 07:45 AM
Such clever use of language, of course he did not say that exact thing.

You and I both have Rodrik's 1997 both, you know where the exceprt is, so don't be a #$%^.

pgl -> Tom aka Rusty ... , February 15, 2017 at 08:16 AM
I do have Rodrik's excellent book. Might you tell us which page this alleged statement is?
JohnH -> pgl... , February 15, 2017 at 10:33 AM
pgl's usual denial: "Care to provide a link to where Krugman declared no one would be hurt by a movement to free trade?"

pgl intentionally ignores the link I posed many times wherein Krugman stated that labor would benefit from China's accession to WTO...3 million jobs lost later, Krugman finally started to rethink his full throated embrace of 'free' trade, but not pgl!

All too often, economists posing as leftists, like PK, champion investor friendly policies, claiming that they will help labor. And then, when people finally start to catch onto the bait and switch, they wonder why people don't trust economists!

pgl -> JohnH... , February 15, 2017 at 11:04 AM
You provided a link? Really? Where is it?
Mike S -> Tom aka Rusty... , February 15, 2017 at 06:24 AM
Don't remember when this occurred; maybe you could provide a link. Lots of economists get things wrong occasionally, left and right wingers alike.

But, being wrong occasionally doesn't support your reply. Dr Krugman is still a Nobel laureate.

sanjait -> Tom aka Rusty... , February 15, 2017 at 10:42 AM
Tom has no idea how much of the loss of blue collar labor demand in recent decades was due to trade policy vs non-policy related trade trends vs technology shifts.

Further, he has no interest in even beginning to attempt to assess the issue.

So I don't think he has any room to talk about who was "wrong" about the impact of trade on workers.

And he is far from alone in this failing.

DrDick -> Tom aka Rusty... , February 15, 2017 at 10:49 AM
To the extent that he actually was wrong (he did minimize distributional effects in much of his earlier work), he has admitted it and changed his ways.
Peter K. -> Mike S... , February 15, 2017 at 07:12 AM
Stiglitz is good but he didn't stick his neck out and back Bernie Sanders.

Krugman is bad in many ways. As I said in my comment, it's not just about Donkeys versus Republicans.

kthomas -> Peter K.... , February 15, 2017 at 07:29 AM
(yawn)
RC AKA Darryl, Ron -> Mike S... , February 15, 2017 at 09:13 AM
"...How many right wing economists have won a nobel in, say the last 25 years?"

[Economists don't designate conservative or liberal when they hand up their shingle, so one must use supply side, Austrian School, and neoclassical orientations as a proxy for conservative ideology. New Keynesian is a little on the fence, say centrist.]

Ronald Coase - 1991

Gary Becker - 1992

Robert Fogel (jointly with Douglass North, but North can only be definitively classified as eclectic with a whiff of neoclassical general equilibrium) -1993

John Harsanyi, John Nash, and Reinhard Selten won jointly in 1994. They were the game theory guys, which along with their theory of non-cooperative games made considerable contributions to utilitarian ethics, which do no always lead to happy endings for broadly shared social welfare. They were NOT conservatives themselves by any stretch of the imagination, but they were not notably liberals either. Crazy people in search of impossible perfection but willing to cut off a few limbs to get there is my impression.

Robert Lucas - 1995 ('nuff said)

Praise the lord, holy Jesus in 1996 William Vickrey and James Mirrlees who ARE actual liberals were award the Nobel "for their fundamental contributions to the economic theory of incentives under asymmetric information," a topic of great interest to conservatives.

Robert Merton (a social scientist) and Myron Sholes (a financial economist) won in 1997 "for a new method to determine the value of derivatives."

I almost had a heart attack when I got to this one. Amartya Sen won in 1998 "for his contributions to welfare economics." Of course he is from India.

Robert Mundell won in 1999 "for his analysis of monetary and fiscal policy under different exchange rate regimes and his analysis of optimum currency areas." Yep, this is the supply sider that gave the world the EU crisis.

James Heckman "for his development of theory and methods for analyzing selective samples" and Daniel McFadden "for his development of theory and methods for analyzing discrete choice" won jointly in 2000, another case of two liberals getting awarded for research that was of interest to conservatives while being almost entirely unrelated to their own major contributions.

Similarly in 2001, George Akerlof, Michael Spence, and Joseph Stiglitz won jointly "for their analyses of markets with asymmetric information." This one actually had liberal application, but my guess is they got it because conservatives were scratching their heads about where they went wrong with the dot-com bubble.

OK, I got other stuff to do now, but you can take the link and figure it out for yourself. Clearly winning a Nobel still does not make an economists a champion of the liberal political cause. Still to go is Ed Prescott in 2004 if you get my drift.

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


There is actually a book that discusses this in far greater detail that I only discovered well into my own analysis with Google and Wikipedia, but where I looked the experts that wrote the book had the same judgements and misgivings as I did.


https://books.google.com/books?id=Qoj8CwAAQBAJ&pg=PA114&lpg=PA114&dq=James+Mirrlees+conservative+or+liberal&source=bl&ots=MHH0gXsjSP&sig=q387P51rcY372uI2SjAOZMb9Gvk&hl=en&sa=X&ved=0ahUKEwip4p3jw5LSAhWG8oMKHcOtCAUQ6AEILzAD#v=onepage&q=James%20Mirrlees%20conservative%20or%20liberal&f=false

RGC -> Mike S... , February 15, 2017 at 09:36 AM
I agree with Peter K.
...........
The "Nobel prize" was established as 'The Swedish National Bank's Prize in Economic Sciences in Memory of Alfred Nobel".

Some critics argue that the prestige of the Prize in Economics derives in part from its association with the Nobel Prizes, an association that has often been a source of controversy.

Among them is the Swedish human rights lawyer Peter Nobel, a great-grandson of Ludvig Nobel.[27] Nobel criticizes the awarding institution of misusing his family's name, and states that no member of the Nobel family has ever had the intention of establishing a prize in economics.[28]

According to Samuel Brittan of the Financial Times, both of the former Swedish ministers of finance, Kjell-Olof Feldt and Gunnar Myrdal, wanted the prize abolished, saying, "Myrdal rather less graciously wanted the prize abolished because it had been given to such reactionaries as Hayek (and afterwards Milton Friedman)."[25]

Avner Offer's and Gabriel Söderberg's The Nobel factor: the prize in economics, social democracy, and the market turn (Princeton University Press 2016) argues that there has been a dramatic shift in the dominant macroeconomic theories among the academia, and that the creation of the Nobel in 1969 was the cause of this, as it enhanced the prestige of free market ideology and conferred upon it the status of science.

https://en.wikipedia.org/wiki/Nobel_Memorial_Prize_in_Economic_Sciences
...........
As for right wing winners, check out all the U of Chicago recipients.

The 'Nobel" prize was established by a bank to promote the objectives of banks.

And btw, Krugman is no leftwing economist.

RC AKA Darryl, Ron -> RGC... , February 15, 2017 at 09:42 AM
Excellent! THANKS!
Peter K. -> RGC... , February 15, 2017 at 10:18 AM
"I agree with Peter K."

"Science advances one funeral at a time."
- Max Planck

[Feb 12, 2017] Austerity The History of a Dangerous Idea

See also Mark Blyth--"Liberalisms' great trick has been to naturalize very difficult political contests."
Feb 12, 2017 | www.amazon.com

Selected as a Financial Times Best Book of 2013

Governments today in both Europe and the United States have succeeded in casting government spending as reckless wastefulness that has made the economy worse. In contrast, they have advanced a policy of draconian budget cuts--austerity--to solve the financial crisis. We are told that we have all lived beyond our means and now need to tighten our belts. This view conveniently forgets where all that debt came from. Not from an orgy of government spending, but as the direct result of bailing out, recapitalizing, and adding liquidity to the broken banking system. Through these actions private debt was rechristened as government debt while those responsible for generating it walked away scot free, placing the blame on the state, and the burden on the taxpayer.

That burden now takes the form of a global turn to austerity, the policy of reducing domestic wages and prices to restore competitiveness and balance the budget. The problem, according to political economist Mark Blyth, is that austerity is a very dangerous idea. First of all, it doesn't work. As the past four years and countless historical examples from the last 100 years show, while it makes sense for any one state to try and cut its way to growth, it simply cannot work when all states try it simultaneously: all we do is shrink the economy. In the worst case, austerity policies worsened the Great Depression and created the conditions for seizures of power by the forces responsible for the Second World War: the Nazis and the Japanese military establishment. As Blyth amply demonstrates, the arguments for austerity are tenuous and the evidence thin. Rather than expanding growth and opportunity, the repeated revival of this dead economic idea has almost always led to low growth along with increases in wealth and income inequality. Austerity demolishes the conventional wisdom, marshaling an army of facts to demand that we austerity for what it is, and what it costs us.

Metallurgist TOP 1000 REVIEWER on April 20, 2013 Format: Hardcover Vine Customer Review of Free Product ( What's this? )

An interesting Keynesian view of the current EU austerity programs

" I found this to be a very interesting and thought provoking book. The author makes his viewpoint very clear with the book's subtitle "The History of a Dangerous Idea". The essence of the author's argument is that austerity is unfair because it makes workers pay for the mistakes of banks, and even more importantly, dangerous because it does not lead to prosperity, but only to decreased economic growth and increased unemployment. This thesis is backed up by an analysis of the banking crisis of 2008, how it spread from the US to the EU, why the single currency Euro has made the problem worse for the EU and why using austerity to solve the problems will not work. It also discusses the history of the idea of austerity, both in terms of the economic theory that promotes it and the economic history that does not. Conservatives, who find Keynesian economics to be not only wrong, but also the road to economic ruin, will likely be turned off by the book's subtitle and many of the arguments that Professor Blyth utilizes. However, there is a lot of data in this book that they should look at, if only to criticize it. I found this book very enlightening and while I do not agree with all of Professor Blyth's ideas (particularly those of the last chapter), I learned a lot, so for me it was 5-stars.

What is in the book?
The book is divided into 7 chapters, which cover the following:

Chapter 1 - A Primer on Austerity. This is a short chapter that summarizes the main thesis of the book (mentioned above), and sets the stage for the more detailed discussions in subsequent chapters.

Chapter 2 - America: To Big to Fail? This is an excellent chapter that summarizes the origins and unfolding of the 2008-banking crisis in the US. This is a very complicated story, which Professor Blyth tells in a clear manner. The story revolves around repurchase agreements (Repos), mortgage backed securities (MBS), collateralized debt obligations (CDO), credit default swaps (CDS), and how all these interacted in a climate of deregulation to produce the crisis. Professor Blyth does a good job of explaining these terms and how the interaction worked.

Chapter 3 - Europe: Too Big to Bail? This is another very illuminating chapter. It shows how Europe, which first believed it was not going to be affected by the US banking crisis, became a major casualty of it and their own internal banking problems. All these factors were compounded by the single currency Euro, which has removed devaluation as a solution to the crisis, instead fostering the idea that governmental austerity was the only way to correct a problem produced by the private banking sector.

Chapter 4 - Intellectual History of a Dangerous Idea 1692-1942. This chapter goes back to the writings of John Locke, David Hume and Adam Smith to see how the idea of austerity developed. It also covers the idea in the early 20th century and the development of anti-austerity Keynesian economic theory. It is a nice primer on classical economic ideas.

Chapter 5 - Intellectual History of a Dangerous Idea 1942-2012. This chapter carries the story of the idea of austerity into the present time. It shows how the idea of austerity, discredited by the Great Depression and the success of the Keynesian solution (although conservatives would argue these successes were illusory and set the stage for future economic problems), has been resurrected by economists writing in the latter part of the 20th century and early 21st.

Chapter 6. Austerity's Natural History 1914-2012. Blyth presents a lot of data that shows that, contrary to the theories presented in the previous chapter, austerity has not worked in practice. Much of the chapter is spent it refuting the writings of several economists that say that the recent historical data does support the idea. Blyth contends that in general it does not and if is does in a few cases it either does not when all the data is considered, or worked only marginally under a very limited set of conditions.

Chapter 7 - The End of Banking, New Tales and a Taxing Time Ahead. This is a very short eleven-page chapter, but perhaps the most controversial on in the book. Blyth, initially a supporter of bank bailouts as absolutely necessary to prevent a complete collapse of the banking system and with it the whole capitalist economic system and with it democratic society as a whole, now questions whether in might not have been better to let the banks fail. He cites the case of Iceland where the banks were allowed to fail and society has recovered. This was done by making the bank's creditors bear the cost of failure, instead of all of Iceland's citizens. He notes that most of this loss was borne by foreign creditors of a very small country, whose banking system was an immense part of the country's economy, but was small compared to the economies of the US or the EU. Unfortunately, he fails to say how a banking collapse in the US or EU could be handled when the systems are huge compared to Iceland's and where the creditors are largely internal. He does not explain how the failure of these huge banking systems, with their internal creditors, would not result in the scenario he originally envisioned. I found this analysis to be poor and not in keeping with the thoroughness of the rest of the book. Blyth also floats the idea of huge tax increases, either through a one-time tax on assets or a very large increase in higher bracket tax rates. Conservatives, and many not quite so conservative, will likely blanch at these ideas. There is no discussion of the political difficulties of doing this or very much development of the idea, which is contained in only the last four pages of the book.

David Lindsay on September 25, 2016 Format: Paperback Verified Purchase
Brilliant Overview

" Mark Blyth is a professor at Brown University and he explains why austerity doesn't work. He points out that whenever austerity has been tried in the past it has usually proven to be disastrous. What its supporters often seem to forget is that one person's spending is another's income and demand in the economy would collapse if everyone stopped spending. The book is a sobering read because Blyth is not optimistic about the future. However, the book is well written and is often funny.

Blyth shows that the case for austerity does not add up. The US did not pursue austerity during the recession and its economy has been growing. US GDP is 10% higher than it was in 2007. The EU has pursued austerity with vigor, but GDP in the euro zone is still lower than it was in 2007. Blyth shows that countries that cut the most have had lower rates of growth. Blyth claims that all the countries that cut public spending in response to the financial crises had significantly more debt in 2012 than when they started. For example, Ireland's debt to GDP ratio more than quadrupled, from 24.8% in 2007 to 106.4% in 2012. The other problem is that austerity increased unemployment. Throughout southern Europe, unemployment has been at levels not seen since the Great Depression. It is still over 20% in Spain and Greece. As a result of cutting public expenditure Greece's GDP dropped by 30% in four years. There is no evidence that austerity improves growth.

Blyth spends a lot of time trashing the pro-austerity thinking that took place in Europe. Germany is driving economic policy for the euro zone and they have never believed in Keynesian economics. Keynes advised that austerity was a bad idea during a recession. German politicians seem to believe that all nations could have trade surpluses if only they tried hard enough, despite the fact that it is impossible for all countries to have a surplus. Only one European country can be Germany. The Germans have often advocated the sort of solutions that failed in the 1930s. They argue that budget deficits and government debt have to be kept under strict control. The Maastricht Treaty, which established the EU, required that national debt should not exceed 60% of GDP and the deficit should not exceed 3.0%. Entry to the euro also requires a budget deficit of 3.0%.

Blyth points out that when you have a deficit, you can either raise taxes or cut spending to fill the gap. The British government of David Cameron favored the latter in 2010. The British deficit had reached 10% in 2010. However, UK government debt went up, not down, despite the cuts, from 52.3% of GDP in 2009 to 90.7% in 2013. The same pattern was repeated throughout the euro zone. Cutting public expenditure shrank the underlying economy.

The German argument is that running large deficits increases the risk of high inflation. Blyth points out that the Germans have selective amnesia about their past. It was the Wall Street Crash in 1929 not hyper-inflation in 1924 that led to Hitler. Before the crash, 1.25 million people were unemployed in Germany. Hitler was an accidental Keynesian and by 1937 German unemployment had fallen from six million to one million. Unfortunately, much of his spending involved preparing for war. Blyth argues that Germany's continuing insistence on austerity is the biggest threat to the euro zone.

According to Blyth, the current version of the austerity argument was created by a group of Italian economists, originating from Bocconi University, in Milan. He explains why their arguments are deeply flawed. Blyth argues that, apart from Greece, public sector debt in the euro zone countries was not out of control before the financial crises. Blyth rubbishes the theory of "expansionary austerity," that cutting spending will lead to higher economic growth. The "austerians" believed that large spending cuts would be followed by expansion rather than contraction. The reason, they suggested, was that decisive fiscal austerity created confidence in the private sector. Keynesians agreed that insufficient private spending was the cause of the problem, but only governments could stimulate demand on the scale needed. Austerity failed to stimulate demand in Europe. Blyth also argues that everybody cannot cut their way to growth at the same time. The IMF once went along with austerity but it has recently concluded that austerity has had major adverse economic effects.

Blyth is worried that inequality could become a serious problem in the US. The 400 richest Americans own more assets than the poorest 150 million. He argues that both major parties have written off the bottom 30% of society. He claims that the American working class has not had a pay rise since 1979, and globalization has failed them. He believes this explains the anger behind the Trump phenomenon. Blyth points out that rich Americans and the country's biggest companies are reluctant to pay tax, so government borrowing has had to go up. Blyth claims that he pays more tax than GE.

Blyth is critical of Republicans who advocated austerity. Republicans in the US also favored balancing the budget and cutting taxes. Keynesians, like Paul Krugman, argued that this is what Herbert Hoover tried to do in the early 1930s and the result was a 25% unemployment rate. Obama inherited an 11.4% budget deficit in 2009. The Republicans wanted to cut government expenditure but Blyth argues the reason the US has recovered faster than Europe is because it cut less. He makes it clear that it is poorer people who usually rely on government services to make ends meet that are the hardest hit when public expenditure is cut. He believes that the rich and corporate America need to start paying more tax. He also argues that the US government should probably have let its banks go bankrupt – as the Icelandic government did – rather than bail them out.

Blyth reminds us that 2008 was a private sector crisis. The debts of the banks landed on the balance sheet of the public sector through bank bailouts and quantitative easing. In other words, taxpayers bailed out the bankers. He calls this the "greatest bait-and-switch in modern history." The EU is imposing austerity on southern Europe and dismantling the welfare state in Greece in order to protect German banks that made stupid decisions.

Blyth in recent interviews has argued that the EU may have a sinister agenda and it really wants to drag wages in Western Europe down to East European levels so that it can better compete with China. I assumed this must be an exaggeration but it might not be. The Guardian mapped labor costs across the euro zone from 1999 to 2013. What they found is that German workers have barely seen wages rise for that 14-year stretch, despite Germany having massive trade surpluses. We could be in for real trouble.

Fang on September 27, 2016 Format: Paperback Verified Purchase
The Richness of Austerity

" Mark Blyth tries to convey a simple message: austerity simply does not work. Defining austerity as "voluntary deflation in which the economy adjusts through the reduction of wages, prices and public spending to restore competitiveness .best achieved by cutting the state's budget, debts and deficits" (p.2), Blyth argued that austerity's fallacies lies in the impossibility of having everybody to be thrift at the same time and the cyclical nature of debt (pp.7 and 12).

Blyth also suggests that austerity efforts unevenly hurt the lower strata of societies (p.8), and conflates debt and financialization problems in private sector (primarily referring to bank and financial institutions) into state (sovereign) issues (p.6 and p.23). In the first three chapters, Blyth strives to demonstrate that the financial and economic turmoil since 2008 is largely a crisis of financialization, lack of regulation, slow growth and imbalance between monetary policy and final creditor of printing press (in the case of Europe), not that of austerity (save the marginal case of Greece). Blyth argues that it is a mentality of treating these crises as endogenous and private actors as "rational" that underlay the bad policy choices in America and Europe (pp.91-93).

In chapters 4 through 6, Blyth provides an intellectual and practical history of austerity. It is suggested that a spirit of thrift and aversion towards state and state spending runs through the vein of economic liberalism, ranging from classical liberalism to neoclassical economics and to the Austrian school. In more contemporary era, it is public choice theory, neoliberalism and Milton Friedman's monetarism that carries this tradition forward to construct a pro-market and private-sector-favoring package that turns public spending into a corporate calculation of costs and benefits. Blyth goes on to illustrate the history of austerity in practice, arguing that it is usually the Keynesian expansionary policies that couple austerity that reinvigorated economy amid crises; austerity, carried out on its own, constitutes massive redistribution consequences.

Blyth obviously attempts to engage as wide an audience as possible in the public intellectual realm. As much as he is successful in his empirical chapters, Blyth appears to fight a deflationary economic policy with his own inflationary writing strategy. From chapters 4 to 5, he constantly conflates the moral teaching of thrift and financial prudence from Adam Smith to avoidance of debt, the Ordoliberalism's quest for order and proper state function to aversion of democratic politics, the methodological insights of public choice to a general fear of bureaucracy and government, and so on. These inflations, while sometimes credited, are bound to subject to scrutiny and questions.

Moreover, by glossing over the details of this rich intellectual history, Blyth dodges some key questions that his empirical chapters also fail to articulate: what is the distinction between private and public debt, and personal thrift and public austerity, when we talk about austerity, and how significant is it? How does this distinction play out in more classical economic philosophy?

And amid crisis, who should be considered the "ultimate creditor" or "final guarantor" of debt (and money)? There questions certainly exceeds the scope and intention of Blyth's book, but they should be instrumental in deepening our understanding of austerity.

[Feb 12, 2017] The CIA as Organized Crime How Illegal Operations Corrupt America and the World

Notable quotes:
"... By illuminating CIA programs and systems of surveillance, control, and assassination utilized against the civilian population of South Vietnam, we are presented with parallels with operations and practices at work today in America's seemingly perpetual war against terror. ..."
"... Through the policies of covert infiltration and manipulations, illegal alliances, and "brute force" interventions that wreak havoc on designated enemy states, destroy progress and infrastructure under the claim of liberation, degrade the standards of living for people in the perceived hostile nations, "...America's ruling elite empowers itself while claiming it has ensured the safety and prestige of the American people. Sometimes it is even able to convince the public that its criminal actions are 'humanitarian' and designed to liberate the people in nations it destroys." ..."
"... Want to know why the DEA is losing the war on drugs, how torture has become policy? Want to know why the government no longer represents your interests? Look no further. ..."
Feb 12, 2017 | www.amazon.com
Alan Dale on November 27, 2016

5.0 out of 5 stars An Essential Addition to an Essential Body of Work

Of the extraordinarily valuable and informative works for which Mr. Valentine is responsible, his latest, CIA As Organized Crime, may prove to be the best choice as an introduction to the dark realm of America's hidden corruptions and their consequences at home and around the world. This new volume begins with the unlikely but irrevocable framework by which Mr. Valentine's path led to unprecedented access to key Agency personnel whose witting participation is summarized by the chapter title: "How William Colby Gave Me the Keys to the CIA Kingdom."

By illuminating CIA programs and systems of surveillance, control, and assassination utilized against the civilian population of South Vietnam, we are presented with parallels with operations and practices at work today in America's seemingly perpetual war against terror.

Through the policies of covert infiltration and manipulations, illegal alliances, and "brute force" interventions that wreak havoc on designated enemy states, destroy progress and infrastructure under the claim of liberation, degrade the standards of living for people in the perceived hostile nations, "...America's ruling elite empowers itself while claiming it has ensured the safety and prestige of the American people. Sometimes it is even able to convince the public that its criminal actions are 'humanitarian' and designed to liberate the people in nations it destroys."

Mr. Valentine has presented us with a major body of work which includes: The Strength of the Wolf; The Strength of the Pack; The Pheonix Program, to which we may now add The CIA as Organized Crime, and for which we are profoundly indebted.

felixnola on December 6, 2016

5.0 out of 5 stars The Truth About the CIA and What is Instore For You

If you want the inside scoop on the CIA and it's criminal past; this is the book. Additionally, why the Phoenix Program is pertinent for our own times. This book connects the dots.

If you have been wondering why Homeland Security has fusion centers; why the USA Anti-Patriot Act, NDAA and Rex 84 have been passed by Congress; you will get your answer here.

A book every intelligent American needs to read and place in a prominent place in their library. Oh, and don't forget after you read it; spread the word !!! (this book is based upon actual face to face interviews and documents)

Jay Trout on January 2, 2017

5.0 out of 5 stars A crucial tool to understanding present reality. An absolute must read.

Run, don't walk, and get yourself a copy of this book. The author has been warning us for decades about the clear and present danger that is the CIA. I was unaware of Valentine's work for most of those years, perhaps because our media outlets (even the "anti-establishment" ones like Democracy Now and The Intercept) have been compromised. Valentine's work has been suppressed since his ground-breaking book on the Phoenix Program.

Not that I didn't know anything about the sordid history. I knew about MK-Ultra, some of the agency's drug running and empire-building exploits. This work goes much deeper and paints a much bigger picture. The extent of the agency's influence is much greater than I had imagined.

This is not another history book about dirty tricks. It is not just about our insane foreign policy and empire building. The cancer of corruption, of outright crime, has metastasized into every agency of the government right here in the US itself. Those dirty tricks and crimes have become domestic policy- in fusion centers and Homeland Security, in the militarization of local police and in Congress, from Wall Street to Main Street. Border Patrol, the DEA, Justice and State have all been compromised.

Want to know why the DEA is losing the war on drugs, how torture has become policy? Want to know why the government no longer represents your interests? Look no further.

The problem is now. We are the new targets.

Read it and weep, but for God's sake, please read it.
A highly informative and comprehensive book, and a scathing, fearless indictment of government corruption.
I cannot overstate it's importance.

Andrew E. Belshaw on December 6, 2016

Disguising Obama's Dirty War Chapter 22

I just picked up this book and have not read it yet--but I am writing this to CORRECT THE RECORD regarding very basic information.

There are 446 PAGES (not 286, as listed above). 160 Pages is a big difference--obviously, QUALITY is more important than quantity--but I do feel the listing needs be corrected.

The "Inside Look" feature is also cutting off the last 9 chapters of the book, which are as follows:

Chapter 16: Major General Bruce Lawlor: From CIA Officer in Vietnam to Homeland Security Honcho

Chapter 17: Homeland Security: The Phoenix Comes Home to Roost

PART IV: MANUFACTURING COMPLICITY: SHAPING THE AMERICAN WORLDVIEW

Chapter 18: Fragging Bob Kerrey: The CIA and the Need for a War Crimes Tribunal

Chapter 19: Top Secret America Shadow Reward System

Chapter 20: How Government Tries to Mess with Your Mind

Chapter 21: Disguising Obama's Dirty War

Chapter 22: Parallels of Conquest, Past and Present

Chapter 23: Propaganda as Terrorism

Chapter 24: The War on Terror as the Greatest Covert Op Ever

John C. Landon on January 2, 2017

Expose of the CIA mafia

This is a devastating and must-read study of the social and political calamity created by the CIA over the last sixty years. The portrait shows the criminal character of the agency and finally of the government it is said to serve. The portrait is a double shock because it shows not just a sordid corruption but a malevolent 'dark side' mafia-style corruption of american civilization and government. That the CIA controls the drug trade is not the least of the stunning revelations of this history.

[Feb 12, 2017] Neoliberal economists themselves were largely responsible for the unpleasant political consequences typified by Trump and Brexit due to their efforts to promote globalization as stooges of financial oligarchy, who pays them

Feb 12, 2017 | economistsview.typepad.com
Floxo : February 11, 2017 at 01:11 PM

, 2017 at 01:11 PM
I originally tried to post this comment on Mainly Macro. It is in reply to some critical comments I received when I posted a comment suggesting economists themselves were largely responsible for the unpleasant political consequences typified by Trump and Brexit. I argued there has been a failure to properly communicate the serious distributional implications of trade and globalization. This has led people to become disillusioned with stagnant living standards and growing inequality. For some reason, my reply was disallowed, making it appear as though I had no answer to my critics. As my reply addresses issues of concern here I am hoping it will be published .

Thankyou for your replies to my comment.

Stéphane, I did not say trade gain arises from price convergence; neither do trade gains arise from differences in opportunity costs (I think that is what you meant). Trade gain can arise from several sources, these include relative differences in productive efficiency (Ricardian comparative advantage), differences in relative factor abundance (HO theory), from tradeable goods where production exhibits increasing returns to scale and from monopolistic competition (Krugman).

When trade gain is exhausted it is possible to derive further gains from factor mobility. For example, shifting capital from a capital abundant region to a capital poor region will typically result in further gains. An example of this process is off-shoring, where a firm shifts production to another country where wages are lower and rent (the return on capital invested) is higher.

So why are potential gains from globalization a problem? The challenge is the sheer size of the population industrializing from a very low capital base. Economically big regions with abundant labour and scarce capital mean low wages and high rents extending into the long term. For a developed economy, adopting a policy of free trade without capital controls with these regions will have two significant consequences:

1. There is a trade induced shift to more capital intensive production driven by the factor advantage of having a relative abundance of capital. This lowers the domestic labour share of GDP.

2. Capital abundance implies a capital drain as domestic saving is increasingly used to finance foreign investment in productive capacity, driven by the higher foreign return. This correspondingly lowers domestic investment which also slows growth. Labour now has less capital applied to it, reducing labour productivity and also wages.

What are called "magnification effects" virtually guarantee wage earners are big losers in these scenarios, whereas, capital owners are big winners; hence the rise in inequality.

The theoretical support for this view is very robust. I became interested in the debate when such effects showed up strongly in the numerical trade models I develop. Economists, generally, have not supported this basic theoretical perspective, preferring a grab bag of miscellaneous empirically based models. Rapid technological change, too little technological change, skills biased technological change, union demise, banks unwilling to lend, demographics, austerity, labour hoarding, financialization, shift in consumer preference to services and on and on. Personally, I prefer basic economic theory and regard all of these thought bubbles as garbage.

In answer to Anonymous, it is true; many economists assert automation is the principle cause of our economic woes. This is theoretically baseless. I cannot describe a model of how technological improvement is supposed to give rise to the above effects, because no such model exists. Improved technology means we get more goods and services from the same resources of capital and labour, boosting growth and wages and rents.


anne -> Floxo... , February 11, 2017 at 01:23 PM
Where is the precise reference? Mainlymacro must however be separate as "mainly" and Macro" in posting the link.
Floxo -> anne... , February 11, 2017 at 05:09 PM
Thankyou Anne, here is the reference you requested.

https://mainlymacro.blogspot.com.au/2017/01/why-voting-for-article-50-may-ruin-mps.html


anne -> Floxo... , February 12, 2017 at 04:59 AM
https://mainlymacro.blogspot.com.au/2017/01/why-voting-for-article-50-may-ruin-mps.html

January 29, 2017

Why voting for Article 50 * may ruin an MP's career

The last time I did something like this was to urge Labour party members to vote for Smith rather than Corbyn, knowing full well that Corbyn was almost certain to win. Being proved right on that occasion is no consolation, because I would rather have been wrong. This is even more futile, but now as then I feel a decision is about to be made that is both disastrous and irreversible. I also want to say something about the longer term interests of MPs that I have not seen said elsewhere.

There are so many principled reasons for MPs to vote against triggering Article 50. Let me summarise what I see as the main ones here, but this is far from comprehensive....

* https://en.wikipedia.org/wiki/Article_50_of_the_Treaty_on_European_Union

Article 50 of the Treaty on European Union is a part of European Union law that sets out the process by which member states may withdraw from the European Union.

-- Simon Wren-Lewis

anne -> anne... , February 12, 2017 at 05:01 AM
Correcting:

Mainlymacro can now be linked to directly. There is no need to separate "mainly" and "macro" in posting a link.

anne -> Floxo... , -1
Interesting response to an interesting argument. I am grateful for this post.
libezkova -> anne... , February 12, 2017 at 10:34 AM
I do not share your enthusiasm.

A couple of points

1. Neoliberal economists are stooges of financial oligarchy (much like Soviet economists were stooges of Communist Party) and if they do not promote Washington consensus on trade and globalization they would be ostracized and replaced by other no less talented puppets. They all are replaceable and they understand that perfectly well and behave accordingly. Being puppets they have no degrees of freedom to express the discontent with neoliberalism.

2. The author himself is still in completely under the spell of neoclassical economic framework. that's why his critique is so superficial. As in "There is a trade induced shift to more capital intensive production driven by the factor advantage of having a relative abundance of capital. This lowers the domestic labour share of GDP. " What a "neoliberal speak." Reminds me 1984 Newspeak. That was a political decision to shift capital to developing countries in order to destroy union power and decimate "trade unionism" as political force opposing to neoliberalism. As simple as that.

[Feb 11, 2017] The Paradox of Financialized Industrialization

Notable quotes:
"... More than any other economist of his century, Marx tied together the three major kinds of crisis that were occurring. His Theories of Surplus Value explained the two main forms of crises his classical predecessors had pointed to, and which the bourgeois revolutions of 1848 were fought over. These crises were the result of survivals from Europe's feudal epoch of landed aristocracy and banking fortunes. ..."
"... Financially, Marx pointed to the tendency of debts to grow exponentially, independently of the economy's ability to pay, and indeed faster than the economy itself. The rise in debt and accrual of interest was autonomous from the industrial capital and wage labor dynamics on which Volume I of Capital focused. Debts are self-expanding by purely mathematical rules – the "magic of compound interest." ..."
"... Industrial companies profit from labor not only by employing it, but by lending to customers. General Motors made most of its profits for many years by its credit arm, GMAC (General Motors Acceptance Corp.), as did General Electric through its financial arm. Profits made by Macy's and other retailers on their credit card lending sometimes accounted for their entire earnings. ..."
"... This privatization of rents and their transformation into a flow of interest payments (shifting the tax burden onto wage income and corporate profits) represents a failure of industrial capitalism to free society from the legacies of feudalism. ..."
"... Marx expected economies to act in their long-term interest to increase the means of production and avoid unproductive rentier income, underconsumption and debt deflation. Believing that every mode of production was shaped by the technological, political and social needs of economies to advance, he expected banking and finance to become subordinate to these dynamics. ..."
"... It seemed that the banking system's role as allocator of credit would pave the way for a socialist organization of economies. Marx endorsed free trade on the ground that industrial capitalism would transform and modernize the world's backward countries. Instead, it has brought Western rentier finance and privatization of the land and natural resources, and even brought the right to use these country's currencies and financial systems as casinos. And in the advanced creditor nations, failure of the U.S. and European economies to recover from their 2008 financial crisis stems from leaving in place the reckless "junk mortgage" debts, whose carrying charges are absorbing income. Banks were saved instead of industrial economies, whose debts were left in place. ..."
"... No observer of Marx's epoch was so pessimistic as to expect finance capital to overpower industrial capitalism, engulfing economies as the world is seeing today. Discussing the 1857 financial crisis, Marx showed how unthinkable anything like the 2008-09 Bush-Obama bailout of financial speculators seemed to be in his day. "The entire artificial system of forced expansion of the reproduction process cannot, of course, be remedied by having some bank, like the Bank of England, give to all the swindlers the deficient capital by means of its paper and having it buy up all the depreciated commodities at their old nominal values." [6] ..."
"... Marx wrote this reductio ad absurdum not dreaming that it would become the Federal Reserve's policy in autumn 2008. The U.S. Treasury paid off all of A.I.G.'s gambles and other counterparty "casino capitalist" losses at taxpayer expense, followed by the Federal Reserve buying junk mortgage packages at par. ..."
"... The failure to socialize banking (or even to complete its industrialization) has become the most glaring economic tragedy of Western industrial capitalism. It became the tragedy of post-Soviet Russia after 1991, letting its natural resources and industrial economy be financialized while failing to tax land and natural resource rent. The commanding heights were sold to domestic oligarchs and Western investors buying on credit with their own banks or in association with Western banks. This bank credit was simply created on computer keyboards. Such credit creation should be a public utility, but it has broken free from public regulation in the West. That credit is now reaching out to China and the post-Soviet economies as a means of appropriating their resources. ..."
"... Note: Marx described productive capital investment by the formula M–C–M´, signifying money (M) invested to produce commodities (C) that sell for yet more money (M´). But the growth of "usury capital" – government bond financing for war deficits, and consumer lending (mortgages, personal loans and credit card debt) – consist of the disembodied M–M´, making money simply from money in a sterile operation. ..."
Jan 26, 2017 | newscontent.cctv.com
RGC -> RGC... January 26, 2017 at 05:44 AM

The Paradox of Financialized Industrialization
By Michael Friday, October 16, 2015

These remarks were made at the World Congress on Marxism, 2015, at the School of Marxism, Peking University, October 10, 2015. The presentation was part of a debate with Bertell Ollman (NYU). I was honored to be made a permanent Guest Professor at China's most prestigious university.

When I lectured here at the Marxist School six years ago, someone asked me whether Marx was right or wrong. I didn't know how to answer this question at the time, because the answer is so complex. But at least today I can focus on his view of crises.

More than any other economist of his century, Marx tied together the three major kinds of crisis that were occurring. His Theories of Surplus Value explained the two main forms of crises his classical predecessors had pointed to, and which the bourgeois revolutions of 1848 were fought over. These crises were the result of survivals from Europe's feudal epoch of landed aristocracy and banking fortunes.

Financially, Marx pointed to the tendency of debts to grow exponentially, independently of the economy's ability to pay, and indeed faster than the economy itself. The rise in debt and accrual of interest was autonomous from the industrial capital and wage labor dynamics on which Volume I of Capital focused. Debts are self-expanding by purely mathematical rules – the "magic of compound interest."

We can see in America and Europe how interest charges, stock buybacks, debt leveraging and other financial maneuverings eat into profits, deterring investment in plant and equipment by diverting revenue to economically empty financial operations. Marx called finance capital "imaginary" or "fictitious" to the extent that it does not stem from within the industrial economy, and because – in the end – its demands for payment cannot be met. Calling this financial accrual a "void form of capital." [1] It was fictitious because it consisted of bonds, mortgages, bank loans and other rentier claims on the means of production and the flow of wages, profit and tangible capital investment.

The second factor leading to economic crisis was more long-term: Ricardian land rent. Landlords and monopolists levied an "ownership tax" on the economy by extracting rent as a result of privileges that (like interest) were independent of the mode of production. Land rent would rise as economies became larger and more prosperous. More and more of the economic surplus (profits and surplus value) would be diverted to owners of land, natural resources and monopolies. These forms of economic rent were the result of privileges that had no intrinsic value or cost of production. Ultimately, they would push up wage levels and leave no room for profit. Marx described this as Ricardo's Armageddon.

These two contributing forces to crisis, Marx pointed out, were legacies of Europe's feudal origins: landlords conquering the land and appropriating natural resources and infrastructure; and banks, which remained largely usurious and predatory, making war loans to governments and exploiting consumers in petty usury. Rent and interest were in large part the products of wars. As such, they were external to the means of production and its direct cost (that is, the value of products).

Most of all, of course, Marx pointed to the form of exploitation of wage labor by its employers. That did indeed stem from the capitalist production process. Bertell Ollman has just explained that dynamic so well that I need not repeat it here.

Today's economic crisis in the West: financial and rent extraction, leading to debt deflation Bertell Ollman has described how Marx analyzed economic crisis stemming from the inability of wage labor to buy what it produces. That is the inner contradiction specific to industrial capitalism. As described in Volume I of Capital, employers seek to maximize profits by paying workers as little as possible. This leads to excessive exploitation of wage labor, causing underconsumption and a market glut.

I will focus here on the extent to which today's financial crisis is largely independent of the industrial mode of production. As Marx noted in Volumes II and III of Capital and Theories of Surplus Value, banking and rent extraction are in many ways adverse to industrial capitalism.

Our debate is over how to analyze the crisis the Western economies are in today. To me, it is first and foremost a financial crisis. The banking crisis and indebtedness stems mainly from real estate mortgage loans – and also from the kind of massive fraud that Marx found characteristic of the high finance of his day, especially in canal and railroad financing.

So to answer the question that I was asked about whether Marx was right or wrong, Marx certainly provided the tools needed to analyze the crises that the industrial capitalist economies have been suffering for the past two hundred years.

But history has not worked out the way Marx expected. He expected every class to act in its own class interest. That is the only way to reasonably project the future. The historical task and destiny of industrial capitalism, Marx wrote in the Communist Manifesto, was to free society from the "excrescences" of interest and rent (mainly land and natural resource rent, along with monopoly rent) that industrial capitalism had inherited from medieval and even ancient society. These useless rentier charges on production are faux frais, costs that slow the accumulation of industrial capital. They do not stem from the production process, but are a legacy of the feudal warlords who conquered England and other European realms to found hereditary landed aristocracies. Financial overhead in the form of usury-capital is, to Marx, a legacy of the banking families that built up fortunes by war lending and usury.

Marx's concept of national income differs radically from today's National Income and Product Accounts (NIPA). Every Western economy measures "output" as Gross National Product (GNP). This accounting format includes the Finance, Insurance and Real Estate (FIRE) sector as part of the economy's output. It does this because it treats rent and interest as "earnings," on the same plane as wages and industrial profits – as if privatized finance, insurance and real estate are part of the production process. Marx treated them as external to it. Their income was not "earned," but was "unearned." This concept was shared by the Physiocrats, Adam Smith, John Stuart Mill and other major classical economists. Marx was simply pressing classical economics to its logical conclusion.

The interest of the rising class of industrial capitalists was to free economies from this legacy of feudalism, from the unnecessary faux frais of production – prices in excess of real cost-value. The destiny of industrial capitalism, Marx believed, was to rationalize economies by getting rid of the idle landlord and banking class – by socializing land, nationalizing natural resources and basic infrastructure, and industrializing the banking system – to fund industrial expansion instead of unproductive usury.

If capitalism had achieved this destiny, it would have been left primarily with the crisis between industrial employers and workers discussed in Volume I of Capital: exploiting wage labor to a point where labor could not buy its products. But at the same time, industrial capitalism would be preparing the way for socialism, because industrialists needed to conquer the political stranglehold of the landed aristocracy and the financial power of banking. It needed to promote democratic political reform to overcome the vested interests in control of Parliaments and hence the tax system. Labor's organization and voting power would press its own self-interest and turn capitalism into socialism.

China has indeed exemplified this path. But it has not occurred in the West.
All three kinds of crisis that Marx described are occurring. But the West is now in a chronic depression – what has been called Debt Deflation. Instead of banking being industrialized as Marx expected, industry is being financialized. Instead of democracy freeing economies from land rent, natural resource rent and monopoly rent, the rentiers have fought back and taken control of Western governments, legal systems and tax policy. The result is that we are seeing a lapse back to the pre-capitalist problems that Marx described in Volumes II and III of Capital and Theories of Surplus Value.

This is where the debate between Bertell Ollman and myself centers. My focus is on finance and rent overwhelming industrial capitalism to impose a depression stemming from debt deflation. This over-indebtedness is making the labor/capital problem worse, by weakening labor's political and economic position. To make matters worse, labor parties in the West no longer are fighting over economic issues, as they were prior to World War I.

My differences with Ollman and Roemer: I focus on non-production costs
Bertell follows Marx in focusing on the production sector: hiring labor to produce products, but trying to get as much markup as possible – while underselling rivals. This is Marx's great contribution to the analysis of capitalism and its mode of production – employing wage labor at a profit. I agree with this analysis.

However, my focus is on the causes of today's crisis that are independent and autonomous from production: rentier claims for economic rent, for income without work – "empty" pricing without value. This focus on rent and interest is where I differ from that of Ollman, and also of course from that of Roemer. Any model of the crisis must tie together finance, real estate (and other rent-seeking) as well as industry and employment.

The rising debt overhead can be traced mathematically, as can the symbiosis of the Finance, Insurance and Real Estate (FIRE) sector. But the interactions are too complex to be made into a single economic "model." I am especially worried that Roemer's model might be followed here in China, because it overlooks the most dangerous tendencies threatening China today: Western financial practice and its pro-rentier tax policy.

China has spent the last half-century solving Marx's "Volume I" problem: the relations between labor and its employers, recycling the economic surplus into new means of production to provide more output, higher living standards, and most obviously, more infrastructure (roads, railways, airlines) and housing.

But right now, it is experiencing financial problems from credit creation going into the stock market instead of into tangible capital formation and rising consumption standards. And of course, China has experienced a large real estate boom. Land prices are rising in China, much as they are in the West.

What would Marx have said about this? I think that he would have warned China not to relapse into the pre-capitalist problems of finance funding real estate – turning the rising land rent into interest – and into permitting housing prices to rise without taxing them away.

Soviet planning failed to take the rent-of-location into account when planning where to build housing and factories. But at least the Soviet era did not force labor or industry to pay interest or for rising housing prices. Government banks simply created credit where it was needed to expand the means of production, to build factories, machinery and equipment, homes and office buildings.

What worries me about the political consequences of Roemer's model is that it focuses only on what Marx said about the production sector and employer-labor relations. It does not ask how "endowments" come into being – or how China has changed so radically in the past generation. It therefore neglects the danger of industrial capitalism lapsing back into a rent-and-interest economy. And by the same token, it underplays the threat to China and other socialist economies of adopting the West's surviving pre-feudal practices of predatory Bubble Finance (debt leveraging to raise prices) and wealth in the form of land-rent charges.

These two dynamics – interest and rent – represent a privatization of banking and land that rightly are public utilities. Marx expected industrial capitalism to achieve this transition. Certainly socialist economies must achieve it!

China has no need of foreign bank credit – except to cover the cost of imports and the foreign-exchange cost of investment in other countries. But China's foreign exchange reserves already are large enough to be basically independent of the U.S. dollar and euro. Meanwhile, the American and European economies are suffering from chronic debt deflation and depression that will reduce their ability to serve as markets – for their own producers as well as for China.

Today's debt-wracked economies throw into question just what kind of crisis the capitalist countries are experiencing. Marx's analysis provides the tools to analyze its financial, banking and rent-extraction problems. However, most Marxists still view the 2008 financial and junk mortgage crash as resulting ultimately from industrial employers squeezing wage labor. Finance capital is viewed as a derivative of this exploitation, not as the autonomous dynamic Marx described.

The costs of carrying the rising debt burden (interest, amortization and penalties) deflate the market for commodities by absorbing a growing wedge of disposable business and personal income. This leaves less to be spent on goods and services, causing gluts that lead to crises in which businesses scramble for money. Banks fail as bankruptcy spreads. By depleting markets, finance capital is antithetical to the expansion of profits and tangible physical capital investment.

Despite this sterility, finance capital has achieved dominance over industrial capital. Transfers of property from debtors to creditors – even privatizations of public assets and enterprises – are inevitable as the growth of financial claims surpasses the ability of productive power and earnings to keep pace. Foreclosures follow in the wake of crashes, enabling finance to take over industrial companies and even governments.

China has largely solved the "Volume I" problem – that of expanding its internal market for labor, investing the economic surplus in capital formation and rising living standards. It is confronted by Western economies that have failed to solve this problem, and also have failed to solve the "Volumes II and III" problem: finance and land rent. Yet few Western Marxists have applied his theories to the present downturn and its rentier problem. Following Marx, they view the task of solving this problem to be solved by industrial capitalism, starting with the bourgeois revolutions of 1848.

Already in 1847, Marx's Poverty of Philosophy described the hatred that capitalists felt for landlords, whose hereditary rents siphoned off income to an idle class. Upon being sent copies of Henry George's Progress and Poverty a generation later, in 1881, he wrote to John Swinton that taxing land rent was "a last attempt to save the capitalist regime." He dismissed the book as falling under his 1847 critique of Proudhon: "We understand such economists as Mill, Cherbuliez, Hilditch and others demanding that rent should be handed over to the state to serve in place of taxes. That is a frank expression of the hatred the industrial capitalist bears towards the landed proprietor, who seems to him a useless thing, an excrescence upon the general body of bourgeois production." [2]

As the program of industrial capital, the land tax movement stopped short of advocating labor's rights and living standards. Marx criticized Proudhon and other critics of landlords by saying that once you get rid of rent (and usurious interest by banks), you will still have the problem of industrialists exploiting wage labor and trying to minimize their wages, drying up the market for the goods they produce. This is to be the "final" economic problem to be solved – presumably long after industrial capitalism has solved the rent and interest problems.

Industrial capitalism has failed to free economies from rentier interest and rent extraction
In retrospect, Marx was too optimistic about the future of industrial capitalism. As noted above, he viewed its historical mission as being to free society from rent and usurious interest. Today's financial system has generated an overgrowth of credit, while high rents are pricing American labor out of world markets. Wages are stagnating, while the One Percent have monopolized the growth in wealth and income since 1980 – and are not investing in new means of production. So we still have the Volume II and III problems, not just a Volume I problem.

We are dealing with multiple organ failure.

Instead of funding new industrial capital formation, the stock and bond markets to transfer ownership of companies, real estate and infrastructure already in place. About 80 percent of bank credit is lent to buyers of real estate, inflating a mortgage bubble. Instead of taxing away the land's rising rental and site value that John Stuart Mill described as what landlords make "in their sleep," today's economies leave rental income "free" to be pledged to banks. The result is that banks now play the role that landlords did in Marx's day: obtaining for themselves the land's rising rental value. This reverses the central thrust of classical political economy by keeping such rent away from government, along with natural resource and monopoly rents.

Industrial economies are being stifled by financial and other rentier dynamics. Rising mortgage debt, student loans, credit card debt, automobile debt and payday loans have made workers afraid to go on strike or even to protest working conditions. To the extent that wages do rise, they must be paid increasingly to creditors (and now to privatized health insurance and drug monopolies), not to buy the consumer goods they produce. Labor's debt dependency thus aggravates the "Volume I" problem of labor's inability to purchase the products it produces. To top matters, when workers seek to join the middle class "homeowner society" by purchasing their homes on mortgage instead of paying rent, the price entails locking themselves into debt serfdom.

Industrial companies profit from labor not only by employing it, but by lending to customers. General Motors made most of its profits for many years by its credit arm, GMAC (General Motors Acceptance Corp.), as did General Electric through its financial arm. Profits made by Macy's and other retailers on their credit card lending sometimes accounted for their entire earnings.

This privatization of rents and their transformation into a flow of interest payments (shifting the tax burden onto wage income and corporate profits) represents a failure of industrial capitalism to free society from the legacies of feudalism.

Marx expected industrial capitalism to act in its own self-interest by industrializing banking, as Germany was doing along the lines that the French reformer Saint-Simon had urged. However, industrial capitalism has failed to break free of pre-industrial usurious banking practice. And in the sphere of tax policy, it has not shifted taxes away from land and natural resource rent. It has inverted the classical reformers' idea of "free markets" as being free from economic rent and predatory moneylending. The slogan now means economies free for the rentier class to extract interest and rent.

Mode of production or mode of parasitism?

Instead of serving industrial capitalism, today's financial sector is bleeding it to death. Instead of seeking profits by employing labor to produce goods at a markup, it doesn't even want to hire labor or engage in the process of production and develop new markets. The epitome of this postindustrial economics is Enron: its' managers wanted no capital at all – no employment, only traders at a desk (and crooked accountants).

Today's characteristic mode of accumulating wealth is more by financial than industrial means: riding the wave of debt-financed asset-price inflation to reap "capital" gains. This seemed unlikely in Marx's era of the gold standard. Yet today, most academic Marxists still concentrate on his "Volume I" crisis, neglecting finance capitalism's failure to free economies from the rentier dynamics surviving from European feudalism and the colonial lands conquered by Europe.

Marxists who went into Wall Street have learned their lessons from Volumes II and III. But academic Marxism has not focused on the FIRE sector – Finance, Insurance and Real Estate. It is as if interest and rent extraction are secondary problems to the dynamics of wage labor.

The great question today is whether post-feudal rentier capitalism will stifle industrial capitalism instead of serving it. The aim of finance is not merely to exploit labor, but to conquer and appropriate industry, real estate and government. The result is a financial oligarchy, neither industrial capitalism nor a tendency to evolve into socialism.

Marx's optimism that industrial capital would subordinate finance to serve its own needs

Having provided a compendium of historical citations describing how parasitic "usury capital" multiplied at compound interest, Marx announced in an optimistic Darwinian tone that the destiny of industrial capitalism was to mobilize finance capital to fund its economic expansion, rendering usury an obsolete vestige of the "ancient" mode of production. It is as if "in the course of its evolution, industrial capital must therefore subjugate these forms and transform them into derived or special functions of itself." Finance capital would be subordinated to the dynamics of industrial capital rather than growing to dominate it. "Where capitalist production has developed all its manifold forms and has become the dominant mode of production," Marx concluded his draft notes for Theories of Surplus Value, "interest-bearing capital is dominated by industrial capital, and commercial capital becomes merely a form of industrial capital, derived from the circulation process." [3]

Marx expected economies to act in their long-term interest to increase the means of production and avoid unproductive rentier income, underconsumption and debt deflation. Believing that every mode of production was shaped by the technological, political and social needs of economies to advance, he expected banking and finance to become subordinate to these dynamics. "There is no doubt," he wrote, "that the credit system will serve as a powerful lever during the transition from the capitalist mode of production to the production by means of associated labor; but only as one element in connection with other great organic revolutions of the mode of production itself." [4]

The financial problem would take care of itself as industrial capitalism mobilized savings productively, subordinating finance capital to serve its needs. This already was happening in Germany and France.

It seemed that the banking system's role as allocator of credit would pave the way for a socialist organization of economies. Marx endorsed free trade on the ground that industrial capitalism would transform and modernize the world's backward countries. Instead, it has brought Western rentier finance and privatization of the land and natural resources, and even brought the right to use these country's currencies and financial systems as casinos. And in the advanced creditor nations, failure of the U.S. and European economies to recover from their 2008 financial crisis stems from leaving in place the reckless "junk mortgage" debts, whose carrying charges are absorbing income. Banks were saved instead of industrial economies, whose debts were left in place.

Irving Fisher coined the term debt deflation in 1933. He described it as occurring when debt service (interest and amortization) to pay banks and bondholders diverts income from being spent on consumer goods and new business investment. [5] Governments use their tax revenues to pay bondholders, cutting back public spending and infrastructure investment, education, health and other social welfare.

No observer of Marx's epoch was so pessimistic as to expect finance capital to overpower industrial capitalism, engulfing economies as the world is seeing today. Discussing the 1857 financial crisis, Marx showed how unthinkable anything like the 2008-09 Bush-Obama bailout of financial speculators seemed to be in his day. "The entire artificial system of forced expansion of the reproduction process cannot, of course, be remedied by having some bank, like the Bank of England, give to all the swindlers the deficient capital by means of its paper and having it buy up all the depreciated commodities at their old nominal values." [6]

Marx wrote this reductio ad absurdum not dreaming that it would become the Federal Reserve's policy in autumn 2008. The U.S. Treasury paid off all of A.I.G.'s gambles and other counterparty "casino capitalist" losses at taxpayer expense, followed by the Federal Reserve buying junk mortgage packages at par.

Socialist policy regarding financial and tax reform

Marx described the historical destiny of industrial capitalism as being to free economies from unproductive and predatory finance – from speculation, fraud and a diversion of income to pay interest without funding new means of production. On this logic, it should be the destiny of socialist economies to treat bank credit creation as a public function, to be used for public purposes – to increase prosperity and the means of production to give populations a better life. Socialist nations have freed their economies from the internal contradictions of industrial capitalism that stifle wage labor.

China has solved the "Volume I" problem. But it still must deal with the West's unsolved "Volume II and III" problem of privatized finance, land rent and natural resource rent. Western economies seek to extend these neoliberal practices to use finance as a lever to pry away the economic surplus, to finance the transfer of property at interest, and to turn profits, rent, wages and other income into interest.

The failure to socialize banking (or even to complete its industrialization) has become the most glaring economic tragedy of Western industrial capitalism. It became the tragedy of post-Soviet Russia after 1991, letting its natural resources and industrial economy be financialized while failing to tax land and natural resource rent. The commanding heights were sold to domestic oligarchs and Western investors buying on credit with their own banks or in association with Western banks. This bank credit was simply created on computer keyboards. Such credit creation should be a public utility, but it has broken free from public regulation in the West. That credit is now reaching out to China and the post-Soviet economies as a means of appropriating their resources.

The eurozone seems incapable of saving itself from debt deflation, and the United States and Britain likewise are limping along as they de-industrialize. That is what leads them to hope that perhaps socialist China can save them – as long as it remains free of the financial disease. asset stripping and debt deflation. Western neoliberal economists claim that this financialization of erstwhile industrial capitalism is "progress," and even the end of history. Yet having watched China grow while their economies have remained stagnant since 2008 (except for the One Percent), their hope is that socialist China's market can save their financialized economies driven too deeply into debt to recover on their own.

Note: Marx described productive capital investment by the formula M–C–M´, signifying money (M) invested to produce commodities (C) that sell for yet more money (M´). But the growth of "usury capital" – government bond financing for war deficits, and consumer lending (mortgages, personal loans and credit card debt) – consist of the disembodied M–M´, making money simply from money in a sterile operation.

Footnotes

http://michael-hudson.com/2015/10/the-paradox-of-financialized-industrialization/

RC AKA Darryl, Ron -> RGC... January 26, 2017 at 07:32 AM

THANKS! It was awesome, Dude and easy enough to read.

[Feb 04, 2017] Why the Maximize Shareholder Value Theory Is Bogus

Notable quotes:
"... to the corporation ..."
"... The 1970s stagflation hit these companies particularly hard, with the result that the whole was worth less than the sum of the parts. This made for an easy formula for takeover artists: buy a conglomerate with as much debt as possible, break it up and sell off the pieces. ..."
"... But CEOs recognized how the newly-installed leaders of LBO acquisitions got rich through stock awards or option-type compensation. They wanted a piece of the action. ..."
"... It produces short-termism, underinvestment, and a preoccupation with image management . We wrote in 2005 for the Conference Board Review about how the preoccupation with quarterly earnings led companies to underinvest on a widespread basis . Richard Davies and Andrew Haldane of the Bank of England demonstrated that companies were using unduly high discount rates, which punished long-term investment. Pearlstein provides more confirmation: ..."
"... Obliquity gives rise to the profit-seeking paradox: the most profitable companies are not the most profit-oriented. ICI and Boeing illustrate how a greater focus on shareholder returns was self-defeating in its own narrow terms. Comparisons of the same companies over time are mirrored in contrasts between different companies in the same industries. In their 2002 book, Built to Last: Successful Habits of Visionary Companies, Jim Collins and Jerry Porras compared outstanding companies with adequate but less remarkable companies with similar operations. ..."
"... It is our social capital that is now badly depleted. This erosion manifests in the weakened norms of behavior that once restrained the most selfish impulses of economic actors and provided an ethical basis for modern capitalism. ..."
"... A capitalism in which Wall Street bankers and traders think peddling dangerous loans or worthless securities to unsuspecting customers is just "part of the game," a capitalism in which top executives believe it is economically necessary that they earn 350 times what their front-line workers do, a ..."
"... I think that you seriously underestimate Trump. Napoleon excelled in an environment where military success was primary; Trump excels in a mediated environment where PR and imagery are primary. IMVHO, there are some eerie parallels between the two men; whether you like them or not, both men could be characterized by: ambition, vision, vindictiveness, and a willingness obliterate traditional social and political boundaries. ..."
"... Many elite professionals are deeply upset with Trump's win. Yet the ideology that he represents is very much in line with the logic of corporate raiders, many of whom, like him, went to Wharton Business School. And many elite professionals, in particular lawyers and consultants, profited handsomely from the adoption of the buccaneer capitalist view of the world and actively enabled much of its questionable thinking and conduct. ..."
"... That Wharton Business School model is oblivious to the human needs for: fairness, reciprocity, culture, and the need to penalize duplicity. (I would argue that the Wharton model exalts duplicity, if only to pass it off as some kind of exceptional superpower wielded only by Business Elites.) When you corrode trust, you damage economies. ..."
"... Trump is the apotheosis of neoliberal economics + junk-bond fueled casino empires in a media environment that worships 'shareholder value' and has lost sight of what genuinely creates sustainable value over the long term. ..."
"... did Friedman capture the growing political aggressiveness of capital, as capital gradually overcame the Great Fear of the 30s and prepared to mount, as Streeck has argued, a counteroffensive against the constraints of welfare capitalism? Likely all of the above, but in what proportions? ..."
"... It is that acme of Liberalism, Warren Buffett that created this fad. At a time when corporate dividends were taxed as ordinary income, whereas a stock price bump would be tax deferred - and ultimately taxed at long term capital gains rates - the scheme was merely tax avoidance. Warren Buffett's entire empire is based on this and other tax avoidence schemes. ..."
"... The maximize shareholder value ideology in practice looks like maximize CEO compensation and to heck with the company's long term prospects. imo. ..."
"... Considering relationship between share's liquidity and short-termism , any measure which reduces share's liquidity, for example a high tax on short term capital gain, will greatly reduce both short-termism and corporate governance issues as share holders will be forced to assume the risk they were supposed to bear in exchange of supermacy of their interest. ..."
"... While it has damaged corporate social responsibilities and banks' and corporations' long-term financial stability, actions taken pursuant to the Shareholder Value optimization model have served well many individuals on Wall Street, at private equity firms, CEOs of large publicly traded corporations, hedge funds, networked board members, their academic and professional servicers, and the political elite ..."
"... Reflecting back on developments like the dotcom bubble of 1999-2000; the underlying causes of the financial collapse of 2007-09; massive debt-leveraged corporate stock buybacks; socially damaging private equity LBOs; the current volumes of opaque OTC derivatives at large financial institutions; repeated episodes of environmental damage caused by firms in extractive industries seeking short-term financial returns; and the license it provides to exert power over legislation and regulation by those who own and control these corporations in a Citizens United legal framework; etc., it is difficult to see much in the way of redeeming social value in this corporate governance model. ..."
"... Is it simple greed, stupidity, cynicism, groupthink, false consciousness, sociopathy, the 'attractions' of a certain lifestyle, daddy-didn't-love-them-enough or what that leads certain types to behave the ways they do and seek to justify it? ..."
Feb 04, 2017 | www.nakedcapitalism.com

From the early days of this website, we've written from time to time about why the "shareholder value" theory of corporate governance was made up by economists and has no legal foundation. It has also proven to be destructive in practice, save for CEO and compensation consultants who have gotten rich from it.

Further confirmation comes from a must-read article in American Prospect by Steven Pearlstein, When Shareholder Capitalism Came to Town. It recounts how until the early 1990s, corporations had a much broader set of concerns, most importantly, taking care of customers, as well as having a sense of responsibility for their employees and the communities in which they operated. Equity is a residual economic claim. As we wrote in 2013:

Directors and officers, broadly speaking, have a duty of care and duty of loyalty to the corporation. From that flow more specific obligations under Federal and state law. But notice: those responsibilities are to the corporation , not to shareholders in particular ..Equity holders are at the bottom of the obligation chain. Directors do not have a legal foundation for given them preference over other parties that legitimately have stronger economic interests in the company than shareholders do.

And even in the early 1980s, common shares were regarded as a speculative instrument. And rightly so, since shares are a weak and ambiguous legal promise: "You have a vote that we the company can dilute whenever we feel like it. And we might pay you dividends if we make enough money and are in the mood."

However, 1900s raiders who got rich by targeting companies that had gotten fat, defended their storming of the corporate barricades by arguing that their success rested on giving CEOs incentives to operate in a more entrepreneurial manner. In reality, most of the 1980s deals depended on financial engineering rather than operating improvements. Ironically, it was a form of arbitrage that reversed an earlier arb play in the 1960s. Diversified corporations had become popular in the 1960s as a borderline stock market scam. Companies like Teledyne and ITT, that looked like high-fliers and commanded lofty PE multiples, would buy sleepy unrelated businesses with their highly-valued stock. Bizzarely, the stock market would value the earnings of the companies they acquired at the same elevated PE multiples. You can see how easy it would be to build an empire that way.

The 1970s stagflation hit these companies particularly hard, with the result that the whole was worth less than the sum of the parts. This made for an easy formula for takeover artists: buy a conglomerate with as much debt as possible, break it up and sell off the pieces.

But CEOs recognized how the newly-installed leaders of LBO acquisitions got rich through stock awards or option-type compensation. They wanted a piece of the action.

One of their big props to this campaign was the claim that companies existed to promote shareholder value. This had been a minority view in the academic literature in the 1940s and 1950s. Milton Friedman took it up an intellectually incoherent New York Times op-ed in 1970 . Michael Jensen of Harvard Business School and William Meckling of the University of Rochester argued in 1976 that corporate managers needed to have their incentives better aligned with those of shareholders, and the way to do that was to have most of their pay be equity-linked. In the late 1980s, Jensen in a seminal Harvard Business Review article, claimed that executives needed to be paid like entrepreneurs. Jensen has since renounced that view.

Why The Shareholder Value Theory Has No Legal Foundation

Why do so many corporate boards treat the shareholder value theory as gospel? Aside from the power of ideology and constant repetition in the business press, Pearlstein, drawing on the research of Cornell law professor Lynn Stout, describes how a key decision has been widely misapplied:

Let's start with the history. The earliest corporations, in fact, were generally chartered not for private but for public purposes, such as building canals or transit systems. Well into the 1960s, corporations were broadly viewed as owing something in return to the community that provided them with special legal protections and the economic ecosystem in which they could grow and thrive.

Legally, no statutes require that companies be run to maximize profits or share prices. In most states, corporations can be formed for any lawful purpose. Lynn Stout, a Cornell law professor, has been looking for years for a corporate charter that even mentions maximizing profits or share price. So far, she hasn't found one. Companies that put shareholders at the top of their hierarchy do so by choice, Stout writes, not by law

For many years, much of the jurisprudence coming out of the Delaware courts-where most big corporations have their legal home-was based around the "business judgment" rule, which held that corporate directors have wide discretion in determining a firm's goals and strategies, even if their decisions reduce profits or share prices. But in 1986, the Delaware Court of Chancery ruled that directors of the cosmetics company Revlon had to put the interests of shareholders first and accept the highest price offered for the company. As Lynn Stout has written, and the Delaware courts subsequently confirmed, the decision was a narrowly drawn exception to the business–judgment rule that only applies once a company has decided to put itself up for sale. But it has been widely-and mistakenly-used ever since as a legal rationale for the primacy of shareholder interests and the legitimacy of share-price maximization.

How the Shareholder Value Theory Has Been Destructive

The shareholder value theory has proven to be a bust in practice. Here are some of the reasons:

It produces short-termism, underinvestment, and a preoccupation with image management . We wrote in 2005 for the Conference Board Review about how the preoccupation with quarterly earnings led companies to underinvest on a widespread basis . Richard Davies and Andrew Haldane of the Bank of England demonstrated that companies were using unduly high discount rates, which punished long-term investment. Pearlstein provides more confirmation:

A recent study by McKinsey & Company, the blue-chip consulting firm, and Canada's public pension board found alarming levels of short-termism in the corporate executive suite. According to the study, nearly 80 percent of top executives and directors reported feeling the most pressure to demonstrate a strong financial performance over a period of two years or less, with only 7 percent feeling considerable pressure to deliver strong performance over a period of five years or more. It also found that 55 percent of chief financial officers would forgo an attractive investment project today if it would cause the company to even marginally miss its quarterly-earnings target.

As we've stated before, we've been hearing this sort of thing from McKinsey contacts for more than a decade. And the "55 percent" figure likely understates the amount of short-termism. First, even in a presumably anonymous survey, some CFOs might be loath to admit that. Second, for any project big enough to impact quarterly earnings, the CFO is almost certain not to have the final say. So even if his team approves it, it could be nixed by the CEO out of concern for earnings impact.

It empirically produces worse results . We've written from time to time about the concept of obliquity, that in a complex system that is affected by interactions with it, it is impossible to map out a simple path to a goal. As a result, other approaches are typically more successful. From a 2007 Financial Times article by John Kay , who later wrote a book about the concept:

Obliquity gives rise to the profit-seeking paradox: the most profitable companies are not the most profit-oriented. ICI and Boeing illustrate how a greater focus on shareholder returns was self-defeating in its own narrow terms. Comparisons of the same companies over time are mirrored in contrasts between different companies in the same industries. In their 2002 book, Built to Last: Successful Habits of Visionary Companies, Jim Collins and Jerry Porras compared outstanding companies with adequate but less remarkable companies with similar operations.

Merck and Pfizer was one such comparison. Collins and Porras compared the philosophy of George Merck ("We try never to forget that medicine is for the people. It is not for the profits. The profits follow, and if we have remembered that, they have never failed to appear. The better we have remembered it, the larger they have been") with that of John McKeen of Pfizer ("So far as humanly possible, we aim to get profit out of everything we do").

Collins and Porras also paired Hewlett Packard with Texas Instruments, Procter & Gamble with Colgate, Marriott with Howard Johnson, and found the same result in each case: the company that put more emphasis on profit in its declaration of objectives was the less profitable in its financial statements.

Some more commonly-cited reasons for why a focus on shareholder value hurts performance is that it dampens innovation. Pearlstein describes another, how it demotivates workers:

Perhaps the most ridiculous aspect of shareholder–über-alles is how at odds it is with every modern theory about managing people. David Langstaff, then–chief executive of TASC, a Virginia–based government-contracting firm, put it this way in a recent speech at a conference hosted by the Aspen Institute and the business school at Northwestern University: "If you are the sole proprietor of a business, do you think that you can motivate your employees for maximum performance by encouraging them simply to make more money for you?" Langstaff asked rhetorically. "That is effectively what an enterprise is saying when it states that its purpose is to maximize profit for its investors."

And on a societal level, it erodes social capital and trust, which are the foundations for commerce:

It is our social capital that is now badly depleted. This erosion manifests in the weakened norms of behavior that once restrained the most selfish impulses of economic actors and provided an ethical basis for modern capitalism.

A capitalism in which Wall Street bankers and traders think peddling dangerous loans or worthless securities to unsuspecting customers is just "part of the game," a capitalism in which top executives believe it is economically necessary that they earn 350 times what their front-line workers do, a capitalism that thinks of employees as expendable inputs, a capitalism in which corporations perceive it as both their fiduciary duty to evade taxes and their constitutional right to use unlimited amounts of corporate funds to purchase control of the political system-that is a capitalism whose trust deficit is every bit as corrosive as budget and trade deficits.

As economist Luigi Zingales of the University of Chicago concludes in his recent book, A Capitalism for the People, American capitalism has become a victim of its own success. In the years after the demise of communism, "the intellectual hegemony of capitalism, however, led to complacency and extremism: complacency through the degeneration of the system, extremism in the application of i