Political Economy

It seems that there has been a bit of a kerfuffle at Harvard over Greg Mankiw’s introductory economics course, culminating in a walkout by a number of the students. The “Harvard Crimson”:http://www.thecrimson.com/article/2011/11/3/ec-walkout-occupy/ gravely pronounces that “Protesting a class’s ideology damages free academic discourse.”

[click to continue…]

Cover note – over the next several months, I hope to review as many new books on the political economy of advanced industrialized societies post-2008 as I can. There is a lot of interesting work out being done which isn’t getting covered as well as it should in US public debate. Next up: Lane Kenworthy.

Conflict of interest warning: Although I’ve I’ve tried to review the book as though it were written by a complete stranger, Colin was effectively the co-supervisor of my dissertation and is a friend (albeit one whom I don’t see nearly enough of).

Colin Crouch – The Strange Non-Death of Neo-Liberalism (available from Powells, “Amazon”:http://www.amazon.com/gp/product/0745652212/ref=as_li_ss_tl?ie=UTF8&tag=henryfarrell-20&linkCode=as2&camp=217145&creative=399373&creativeASIN=0745652212 (deprecated)).

The Strange Non-Death of Neo-Liberalism looks at the prospects of neo-liberalism (which Crouch sees as claiming that “optimal outcomes will be achieved if the demand and supply for goods and services are allowed to adjust to each other through the price mechanism, without interference by government or other forces”) post-2008, and argues that they are pretty good. Even if neoliberalism _should_ have been discredited, it is emerging more powerfully than ever, as states cut back welfare and public spending in the wake of the crisis. Crouch argues that neoliberalism, despite its claims, is effectively “devoted to the dominance of public life by the giant corporation.” What neo-liberals, and some leftists, see as a conflict between the market and the state is in fact an argument over how the two should relate to each other. Neoliberals are not pushing for free markets so much as a certain style of politics, which masquerades as a commitment to free markets, independent of politics, but in fact is an unhealthy hybridization of the two. To the extent that politics pervades markets, and markets pervades politics, both suffer.
[click to continue…]

It isn’t a good thing to have contradictory beliefs. Since I’ve notice what appear to be such beliefs in myself recently, I thought I’d share, both because I guess that there are others out there who also have them, and in the hope that Crooked Timber’s community of readers can tell either that I should discard some of them (on grounds of falsity) or that I’m wrong to think them contradictory. So here goes.

Belief 1: As a keen reader of Paul Krugman, Brad DeLong (yes, really), our own John Quiggin and other left-leaning econobloggers, I believe that most Western economies need a stimulus to growth, that austerity will be counterproductive, and that without growth the debt burden will worsen and the jobs crisis will get deeper.

Belief 2: As someone concerned about the environment, I believe that growth, as most people understand it, is unsustainable at anything like recent rates. Sure, more efficient technologies can reduce the environmental impacts of each unit of consumption, but unless we halt or limit growth severely, we’ll continue to do serious damage. There are some possibilities for switching to less damaging technologies or changing consumption patterns away from goods whose production causes serious damage, but the transition times are likely to be long and the environmental crisis is urgent.

Belief 3: Some parts of the world are just too poor to eschew growth. People in those parts of the world need more stuff just to lift them out of absolute poverty. It is morally urgent to lift everyone above the threshold where they can live decent lives. If anyone should get to grow their consumption absolutely, it needs to be those people, not us.

Belief 4: The relative (and sometimes absolute) poverty that some citizens of wealthy countries suffer from is abhorrent, and is inconsistent with the status equality that ought to hold among fellow-citizens of democratic nations. We ought to lift those people out of poverty.

If I were to attempt a reconciliation, I’d say that this suggests zero or negative growth in material consumption for the wealthier countries but a massive programme of wealth redistribution among citizens at something like the current level of national income, coupled with a commitment to channel further technological progress into (a) more free time (and some job sharing) or a shift in the mix of activity towards non-damaging services, like education (b) switching to green technologies (c) assistance to other nations below the poverty threshold. All of those things need mechanisms of course if they’re to happen — and I’m a bit light on those if I’m honest, outside of the obvious tax-and-transfer. What we don’t need is more in the way of “incentives” to already-rich supposed “wealth creators” and the like. What we certainly don’t need is a strategy that purports to assist the worst off in the wealthiest countries by boosting economic activity without regard to the type of activity it is, in the hope that this gives people jobs and, you know, rising tides, trickling down and all that rigmarole. The trouble is that Belief 1, which I instinctively get behind when listening to the austerity-mongers, is basically the same old tune that the right-wing of social democracy has been humming all these years. It is just about the only thing that will fly for the left politically in a time of fear, joblessness and falling living standards, but it seems particularly hard to hold onto if you take Belief 2 seriously.

Two weeks ago I made a post that was as comprehensively misunderstood, relative to my intent, as anything I have written in quite a while. So let me try again. I meant to assert the following:

1) Sometimes Republicans (conservatives) make loud, radical, extreme ‘philosophical’ claims they don’t really mean. Democrats (liberals), on the other hand, don’t ever really do this.

I was interpreted by some as asserting the following:

2) Invariably, whenever Republicans (conservatives) seem to say something crazy or radical, they don’t mean it. They are always moderates about everything. In fact, they are liberals. We can ignore any appearances to the contrary.

Well, I for sure didn’t mean 2. Crikey.

In general, the way to keep 1 clear of 2 is by applications of ‘some’, and appropriate cognates. (I’m saying that sometimes Republicans/conservatives do something that Democrats/liberals never do, not that Republicans/conservatives never don’t do this thing that Democrats/liberals never do.) It may be that my original post was insufficiently slathered with ‘some’. For present post purposes, if I should ever seem to be saying 2), add ‘some’ until it turns into some variant on 1). On we go. [click to continue…]

Aside from containing a brilliant exposition of how blogospherical “rebuttal” actually works — basically endless posts by halfwits repeating that X (an eminent scholar) is an ignoramus because X has contradicted the received wisdom of a tribe — this post by Dave Graeber at Naked Capitalism has to be one of the most informative and entertaining pieces I’ve read in a long while. What happens when the findings of anthropologists about earlier societies clash with the a priori assumptions of economists about how things _must_ have happened? Well, you can guess. The really interesting stuff is in the anthropological detail, so read the whole thing, as they say, but I’ll just quote Graeber on economics and scientific method:

bq. Murphy argues that the fact that there are no documented cases of barter economies doesn’t matter, because all that is really required is for there to have been some period of history, however brief, where barter was widespread for money to have emerged. This is about the weakest argument one can possibly make. Remember, economists originally predicted all (100%) non-monetary economies would operate through barter. The actual figure of observable cases is 0%. Economists claim to be scientists. Normally, when a scientist’s premises produce such spectacularly non-predictive results, the scientist begins working on a new set of premises. Saying “but can you prove it didn’t happen sometime long long ago where there are no records?” is a classic example of special pleading. In fact, I can’t prove it didn’t. I also can’t prove that money wasn’t introduced by little green men from Mars in a similar unknown period of history.

I’ll leave those who are better qualified than I to argue about the econometrics, but the timing of this paper’s release is extraordinary.

bq. Expenditure cuts carry a significant risk of increasing the frequency of riots, anti-government demonstrations, general strikes, political assassinations, and attempts at revolutionary overthrow of the established order. While these are low- probability events in normal years, they become much more common as austerity measures are implemented. … We demonstrate that the general pattern of association between unrest and budget cuts holds in Europe for the period 1919-2009. It can be found in almost all sub-periods, and for all types of unrest. Strikingly, where we can trace the cause of each incident (during the period 1980-95), we can show that only austerity-inspired demonstrations respond to budget cuts in the time- series. Also, when we use recently-developed data that allows clean identification of policy-driven changes in the budget balance, our results hold.

Via Kevin O’Rourke.

This is just a short post seeking, for the purposes of mutual clarification, to highlight where I think the real differences lie between someone like me and “left neoliberals” like Matt Yglesias. I think that something like Yglesias’s general stance would be justifiable if you believed in two things: (1) prioritarianism in the Parfit sense and (2) that real (that is, inflation adjusted) income levels reliably indicate real levels of well-being, at least roughly. For those who don’t know, prioritarianism is a kind of weighted consequentialism, such that an improvement in real well-being counts for more, morally speaking, if it goes to someone at a lower rather than a higher level of well-being. So prioritarism is a bit like a utilitarianism that takes a sophisticated and expansive view of utility and weights gains to the worse-off more highly. This view assigns no instrinsic importance to inequality as such. If the best way to improve the real well-being of the worst off is to incentize the talented (thereby increasining inequality) then that’s the right thing to do.
[click to continue…]

“Matt Yglesias”:http://thinkprogress.org/yglesias/2011/08/04/287553/the-new-labour-record-on-income-growth/ responds to Chris’s post below, by suggesting that British “lefties”‘ criticisms of New Labour’s record on inequality are discredited by a Lane Kenworthy graph, which he says he’ll take as a decisive argument in favor of what he calls “progressive neo-liberalism,” “until [he sees] a rebuttal of it.” But didn’t we have a rebuttal of Yglesias’ interpretation from “Brian Weatherson”:https://crookedtimber.org/2010/10/01/fun-with-gini-coefficients/, the last time he was pushing this line, back in October 2010? Perhaps he found this rebuttal inadequate in some way. But even if this were so, one would have thought that Lane’s own quite specific and limited explanation of what the graph suggests – that it showed that the UK poor probably did better under Labour than they would have under the Conservatives – might have given him pause (I’m quite sure that Chris, for all his dislike of New Labour, would agree with Lane’s claim here).

I also should note that he had a “go”:http://thinkprogress.org/yglesias/2011/07/30/283784/the-diversity-of-privilege/ last week at John Quiggin’s arguments about inequality, where he suggested that NYU professors had it pretty good, and that:

bq. a lot of the political dialogue I see online seems to consist of a slightly strange form of class resentment in which intellectuals, nonprofit workers, or public servants express bitterness about the high incomes of businesspeople whose lives they don’t actually envy.

I wrote a somewhat ill-tempered post in response to this, and then deleted it, because I wasn’t greatly looking forward to policing the comments section. So I’ll limit myself to saying that Yglesias’ aside certainly doesn’t do justice to the genuine and quite serious debates around inequality, which, as far as I can see, are not being driven by ‘class resentments’ but by a genuine and well-founded dismay about the current state of the US political economy. Enormous disparities of wealth help reinforce huge disparities in political power (see e.g. Bartels’ findings on how the interests of different economic segments get represented in the electoral process) in a self reinforcing cycle. That’s a problem – and it’s a _particularly big problem_ for someone who wants to concentrate on maximizing growth first, and only on sharing out the goodies afterwards. As “Cosma says”:http://cscs.umich.edu/~crshalizi/weblog/778.html in the best post on this broad set of topics that I’ve read to date.

bq. “When you tell us that (1) the important thing is to maximize economic growth, and never mind the distributional consequences because (2) we can always redistribute through progressive taxation and welfare payments, you are assuming a miracle in step 2.” For where is the political power to enact that taxation and redistribution, and keep it going, going to come from? A sense of _noblesse oblige_ is too much to hope for (especially given how many of our rich people have taken lots of economics courses), and, for better or worse, voluntary concessions will no longer come from fear of revolution.

To be clear – I think that Matthew Yglesias is an extremely smart and interesting writer, even when I disagree with him, as I often do. He’s a net contributor to US public debate. But when he comes up against this particular set of issues, he has an unfortunate tendency to wave difficulties in his position away by making -unsubstantiated imputations about the motives of people who bring up the problem of wealth inequality, and- (update: now withdrawn – see his comment below) referring to graphs which don’t actually say what he thinks they say. I wish he’d do better.

Update – I see that Chris has also updated his post in response.

Last night’s BBC Newsnight in the UK featured “an item on living standards”:http://www.bbc.co.uk/iplayer/episode/b0132003/Newsnight_03_08_2011/ (at about 29′) and an interview with Doug McWillians of the “Centre for Economics and Business Research”:http://www.cebr.com/ think tank (whoever they are). McWilliams asserted that the UK faces a decline in living standards of 25 per cent over the next 20 years or so because of wage competition from overseas: “we” are going to be 25 per cent worse off. I have no idea how plausible this is.{fn1} However, if I’d been the interviewer I’d have followed up by asking McWilliams, “so, the economy is going to shrink by 25 per cent over the next few years?” Because I’m pretty sure that the economy is going to continue to grow, and that McWilliams also believes this, (eventually, and maybe sluggishly) and asking that follow-up would have forced him to make it explicit that he thinks we face a future of contraegalitarian redistribution (and, judging by some of the other elements in the item, longer hours). Unfortunately, the question never came. Until these questions get asked though, we’ll still have a political debate dominated by the assumption that growth-promoting policies will provide people with better lives, even though it seems that they won’t. (Which doesn’t, of course, establish that in the absence of such policies things wouldn’t get even worse.) To protect and improve the real living standards of ordinary people, we need to get redistribution explicitly onto the agenda and not just allow the assumption that rising tides lift (the key political assumption of “left neoliberalism” it seems to me) to stand.

1. To be fair, McWilliams says the decline isn’t predetermined, but can be avoided if “we” provide ourselves with enough in the way of high-tech skills to “command a premium”. Of course this is another feature of the “left neoliberal” toolkit, but as the experience of new Labour shows, it is one thing to sloganize (“education, education, education”) it is another to actually change things.

UPDATE: For some reason Matthew Yglesias has “linked to this post”:http://thinkprogress.org/yglesias/2011/08/04/287553/the-new-labour-record-on-income-growth/ taking it to be a data-free assertion that Blair and Brown failed on inequality (I believe that they failed, but it isn’t the subject of this post) and then waving around a Lane Kenworthy graph that he’s fond of in refutation. Two points: (1) the only point in the post that touched on the failure of New Labour was the footnote, which alludes to their record on education not inequality; (2) “Brian posted a few months ago”:https://crookedtimber.org/2010/10/01/fun-with-gini-coefficients/ in response to “the last time”:http://thinkprogress.org/yglesias/2010/09/30/198683/new-labour-and-inequality/ Matt deployed his favourite graph against “me on New Labour’s record”:https://crookedtimber.org/2010/09/30/its-about-the-distribution-stupid/ on inequality, given that, I’m surprised Matt is still waving it around.

Matthew Yglesias waxes sarcastic about the lack of content of my critique of neo-liberalism, and (on Twitter) ‘underpant gnomes theories of social democracy.’ And in so doing, misses the point quite completely: [click to continue…]

Doug Henwood has a go at Matthew Yglesias.

Orthodox types – and I’m including Yglesias, who describes his political leanings as “neoliberal” on his Facebook profile page – usually prefer monetary to fiscal remedies. Why? Because they operate through the financial markets and don’t mess with labor or product markets or the class structure. A jobs program and other New Deal-ish stuff would mess with labor and product markets and the class structure, and so it’s mostly _verboten_ to talk that way. From an elite point of view, the primary problem with a jobs program – and with employment-boosting infrastructure projects – is that they would put a floor under employment, making workers more confident and less likely to do what the boss says, and less dependent on private employers for a paycheck. It would increase the power of labor relative to capital. I’m not sure that Yglesias understands that explicitly, but it’s undoubtedly part of his unexamined “common sense” as a semi-mainstream pundit.

This is wrong in the particulars – as a correspondent has pointed out to me, Yglesias has repeatedly called for employment-boosting infrastructure projects and the like. But – getting away from the polemics and the specific personalities – I think that Doug is onto something significant here. I’d frame it myself in a more wishy-washy way. There is a real phenomenon that you might describe as left neo-liberalism in the US – liberals who came out of the experience of the 1980s convinced that the internal interest group dynamics of the Democratic party were a problem. These people came up with some interesting arguments (but also: Mickey Kaus), but seem to me to have always lacked a good theory of politics.

To be more precise – Neo-liberals tend to favor a combination of market mechanisms and technocratic solutions to solve social problems. But these kinds of solutions tend to discount politics – and in particular political collective action, which requires strong collective actors such as trade unions. This means that vaguely-leftish versions of neo-liberalism often have weak theories of politics, and in particular of the politics of collective action. I see Doug and others as arguing that successful political change requires large scale organized collective action, and that this in turn requires the correction of major power imbalances (e.g. between labor and capital). They’re also arguing that neo-liberal policies at best tend not to help correct these imbalances, and they seem to me to have a pretty good case. Even if left-leaning neo-liberals are right to claim that technocratic solutions and market mechanisms can work to relieve disparities etc, it’s hard for me to see how left-leaning neo-liberalism can generate any self-sustaining politics. I’m sure that critics can point to political blind spots among lefties (e.g. the difficulties in figuring out what is a necessary compromise, and what is a blatant sell-out), but these don’t seem to me to be potentially crippling, in the way that the absence of a neo-liberal theory of politics (who are the organized interest groups and collective actors who will push consistently for technocratic efficiency?) is. Of course I may be wrong – and look forward to some pushback in comments …

Update: Brad DeLong writes a reply, largely replicating a comment below, which says that I believe things that I actually don’t believe at all. My response to the original claim can be found in comments below.

Via Chris, on Twitter (I hope I’m not preempting him here), an Open Letter from a Keynesian to a Marxist by Joan Robinson, and “Zombie Marx“, an essay by Mike Beggs. Here is Robinson, writing in 1953:

I was a student at a time when vulgar economics was in a particularly vulgar state. … There was Great Britain with never less than a million workers unemployed, and there was I with my supervisor teaching me that it is logically impossible to have unemployment because of Say’s Law. Now comes Keynes and proves that Say’s Law is nonsense (so did Marx, of course, but my supervisor never drew my attention to Marx’s views on the subject). … The thing I am going to say that will make you too numb or too hot (according to temperament) to understand the rest of my letter is this: I understand Marx far and away better than you do. (I shall give you an interesting historical explanation of why this is so in a minute, if you are not completely frozen stiff or boiling over before you get to that bit.) When I say I understand Marx better than you, I don’t mean to say that I know the text better than you do. If you start throwing quotations at me you will have me baffled in no time. In fact, I refuse to play before you begin. What I mean is that I have Marx in my bones and you have him in your mouth. … suppose we each want to recall some tricky point in Capital, for instance the schema at the end of Volume II. What do you do? You take down the volume and look it up. What do I do? I take the back of an envelope and work it out.

And here is Beggs:

There are generations of economists who would call themselves Marxists, or admit Marx as a major influence, who have … engaged with other strands of economic thought and folded them into their worldview, have worried little about dropping from their analyses those aspects of Marx’s argument they believed to be wrong or unhelpful, and have felt no need to pepper their writing with appeals to authority in the form of biblical quotations. But in each generation, there are others who have defended an “orthodox” Marxian economics as a separate and superior paradigm, which can only be contaminated by absorbing ideas from elsewhere. … If we are to engage in these ways with modern economics, what, if anything, makes our analysis distinctively Marxist? It is the two-fold project behind Capital as a critique of political economy: first to demonstrate the social preconditions that lie beneath the concepts of political economy, and especially their dependence on class relationships; and second, to demonstrate these social relations as historical, not eternal. These two strands of Marx’s thought are as valid as ever. The way to apply them today is … is to deal not only, not even mainly, with economic high theory, but also with the applied economics produced every day in the reports and statements of central banks, Treasuries, the IMF, etc., and ask, what are the implicit class relations here? Why are these the driving issues at this point in history? What are the deeper social contradictions lying behind them? The pursuit of a separate system of economics as something wholly other from mainstream economics isolates us from the political and ideological space where these things take place: better, instead, to fight from the inside, to make clear the social and political content of the categories. A side effect is that we learn to think for ourselves again about how capitalism works, to be able to answer the kinds of question DeLong raised against Harvey, no longer lost without the appropriate quotation.

Portugal’s debt has just been downgraded to junk bond status. Ireland’s efforts to boost investor confidence are under threat; Italy is starting to look wobbly.

European politicians are openly expressing their anger at the three main ratings agencies’ oligopoly, accusing them of attempting to exercise improper influence over policy-making – the timing of their downgrades is ‘not a coincidence’, and they are ‘playing politics, not economics’.

Evidence from Ireland bears this out – there seems to be no consistency in the way the ratings agencies evaluate the decisions of governments in the Eurozone periphery. Governments are put under pressure to engage in ‘orthodox’ fiscal retrenchment, in line with the EU’s excessive deficit procedures, and as required of Greece, Ireland and Portugal in line with their IMF-EU loan programmes. But as soon as they take relevant action, they find their ratings downgraded on the ‘heterodox’ grounds that taking money out of the economy will damage growth potential. Two bodies of economic theory seem to be at work here: ‘expansionary fiscal contraction’ when the aim is to enforce cuts, Keynesian counter-cyclical policy when the objective is to punish excessive contraction. Damned if you do and damned if you don’t.

Take a look at this graph, from the IMF’s May report on Ireland.

Each of the vertical red lines I’ve added represents an ‘orthodox’ fiscal adjustment on the part of the Irish government between February 2009 and December 2010. The balance was about 65% spending cuts and 35% tax increases, entirely consistent with conventional thinking. The profile looks like this:

The overall adjustment between 2008 and2014 is €29.6bn. This would be equivalent to about 19% GDP and 22% GNP in 2010. Yet Ireland’s ratings have been consistently cut.

Very odd.

I’m in Madrid at the moment for the annual meeting of SASE, the “Society for the Advancement of Socio-Economics ” (the main organization for economic sociologists). One of the panels tomorrow is an author-meets-critics session on Gary Herrigel’s recent book, _Manufacturing Possibilities._ While I won’t be on the panel, I have written a review of the book, which Gary has in turn responded to – both are below the fold. The review and response are also available in PDF form if you prefer to read it that way.

[click to continue…]