Adam Smith, F. Zaman’s RWER paper and the 99% Movement
Social movements unsupported by strong intellectual storylines rarely prove successful. For example, despite the everyday obviousness of their subjection, a century of brave women struggling for liberation never got beyond step one, the vote, until Beauvoir’s The Second Sex and its subsequent popularizations made both the injustice and the possibility of victory intellectually comprehensible.
The 99% Movement has emerged out of the street-level fallout from the stark reversal of the primary societal trends that for generations characterised the US, Canada and other countries: the now rapid and accelerating movement of wealth, income, opportunity and power away from the middle classes and into the hands of the wealthiest 1%, especially the 0.1%. It is as if when no one was looking the socio-economics hourglass has been turned upside down. And why was no one looking? Because there was no theory or social narrative through which to view it. It is not just science that needs theories to be able to see empirical reality.[1] They are just as crucial, if not more so to societies. That is why, for example, Thomas Paine was so important to the success of the American Revolution. If there is no story that explains what is and how it came to be and moreover one that offers a possible victorious ending (“I have a dream.”), movements die a slow death under the weight of their grievances and the cost of their tactics.
Without the Beauvoirs major social movements become marooned at the tactical level. Festering soon follows. The 99% Movement has not yet begun to fester, but it will if it does not begin now to integrate its gritty street-level narrative with a strategic intellectual one. Until a few weeks ago no such possibility existed. But now it does thanks to L. Frederick Zaman’s paper in the current issue of the Real-World Economic Review.
Nash dynamics of the wealthy, powerful, and privileged:
America’s two-player, Darwin metaeconomy
http://www.paecon.net/PAEReview/issue61/LFZaman61.pdf
Zaman’s primary inspiration, contrary to what his paper’s title suggests and also to what almost anyone might guess, is Adam Smith. The paper includes an appendix with eight passages from The Wealth of Nations. Of course they are not, with one exception, the passages favoured by the Mankiws of this world.
Zaman’s innovation is threefold.
First, he applies his deviant reading of Smith (in particular, Smith’s analysis of how capitalism works) to 20th and 21st century America.
Second, he realizes that Smith’s analysis is isomorphic to the outcomes of strategic interaction described by the two-player Nash equilibrium concept.
Third, he fits his Smithian analysis of America into a Nash equilibrium model.
The result is explosively illuminating and deeply anchored in economics’ most sacred text.
And Zaman even spells out how it pertains to the 99% Movement. His paper
. . . provide[s] an overarching analytical framework for explaining in considerable detail the political warfare that has been ongoing behind the scenes, historically, between the Republican and Democratic parties, from the Great Depression to the present. Appendix 1 lists all strategic transitions that are in principle possible in the Nash dynamics of Figure 1 . . . [p.54]
Here are a few passages.
The ruling elite and middle class of capitalism in this essay are two macro players in a real-world ‘Nash dynamics’ in which each is working to establish and maintain an economic, political, and social order favorable to their side. [p. 52]
The question raised here concerning the future is whether the nation will be moved by the ruling elite (Wall Street’s wealthiest 1%) backwards conspiratorially to the previous ruling elite alliance {E, E} of the wealthiest 1%; or whether today’s populist 99% movement will gain the strength needed to move the nation forward, democratically, to the progressive, egalitarian alliance {P, P} rethought for the 21st century. It may be that populist upheaval on America’s political Main Street (physically on the streets and virally on the internet) may be required (once again), to transition the real-world Nash equilibrium (elite political disconnect) {E, P} progressively forward into a new 21st century alliance {P, P} between the ruling elite and middle class – the alliance demonstrated by 20th century history to be most equitable to America’s middle class. [emphasis added] [p. 55]
[The paper’s] Fundamental Theorem . . .is that, whether in economics, politics, or socially, rather than openly declaring and promoting their true intentions and objectives in the spirit of democracy, it is virtually always more effective for society’s “ruling elite,” as suggested by Adam Smith, to engage in collusion that achieves their objectives conspiratorially behind the scenes. [p. 56]
The ‘99% movement’ . . . , if it is to be effective, requires a radical critique of the ruthless Darwin metaeconomy that elaborates in principle what this movement is up against, shows what it therefore must do to succeed, and indicates what are the movement’s long term prospects. Figure 2 give some indication of what may be required. [emphasis added] [p. 59]
Never has a theoretical paper in economics been more applicable to its time. Will it be wasted?
And by the way: Who is F. Zaman? Does he have an institutional affiliation? Read his paper and find out. Life is stranger than fiction.
Edward Fullbrook
Recent books: Sex and Philosophy, Decline of the USA and Ontology and Economics (editor)
Republish this post as you wish.
[1] “Whether you can observe a thing or not depends on the theory which you use. It is theory which determines what can be observed.” (Albert Einstein’s comment to Heisenberg during the latter’s Berlin lecture 1926)
”People only see what they believe.” (Robert A Johnson, 1 Nov 2012, http://www.youtube.com/watch?v=QE6MkSyDny0)
I have serious problems with articles like this, which presuppose that economic ideas are the prime movers in historical change. What Adam Smith said or did not say about how capitalism works did not “cause” the triumph of the .01% over the 99% in the US nor will Zaman’s discovery of some ideas in Smith restore the balance of wealth distribution towards the middle classes.
Politics is the driving force behind wealth distribution and it is not driven by ideas. As Marx would say: ideas are used by the people who hold power to justify their policies, but the policies are driven by greed and the lust for dominance.
Economists need not study Smith’s texts to understand the current mal-distribution of wealth but to study recent history instead. It was not because of a fit of absentmindedness in the ranks of economics that the mal-distribution grew. It arose when the US started to lose out in global competition in the 1980s. When large US staple industries (automobiles, rubber, electronics, machine tools, etc) began to fail in the competitive struggle, US companies had less money to distribute to their stakeholders. In their system of director primacy governance (an institutional argument) top management, in order to keep their salaries up and pay dividends, lowered the amount of the diminishing income pie they distributed to employees (by lowering wages, eliminating pensions and welfare packages, etc.), thereby increasing the gap between the .01 and the 99%. None of this was a secret at the time to intelligent observers but because of the way neoclassical economics had evolved and been institutionalized in academia it was a secret to economists. This article is an example of how economists just want to take the easy way out by finding the answer to the mal-distribution crisis in some economics text. Stop talking to each other and start talking to smart people in other fields who can enlighten you.
to robert locke above, i would suggest the purpose of the article was not as he read but rather that to galvanize enough people in the world to see something one needs a vehicle to take that message out that will be read or digested, that was the purpose as i read it and he offered one book as a possibility to accomplish this.
as to your explanation of why the u.s. went down the tubes, i suggest you consider this in a bit wider complex. The car companies do offer an example of the decline in american goodies but it was not because of engineering progress so much as from the “good enough” ideas and the cost to the “Bottom Line” to do the changes that were necessary to compete with Japan and others. much had to do with quality and i dont mean just the final product but the process, for example, it was seen as the most economic solution to make four or more of an IC or transistor and then select out from those the ones to keep or remark as something else. We did quality selection rather then reduce the errors or methods or change processes as this would have been more expensive to the “Bottom Line” and so not a respectable choice. Japan did it right and changed the processes so they could pass almost EVERY part made.
The Japanese lost out because they were so good at making things and had so many american dollars they needed to invest those dollars, so they did the commercial real estate bubble thing and when it popped…they sort of lost a bunch. American higher economics won in the way it has evolved and been running for some time.
I like the statement Krugman made about Quantum Physics made by Max Planck – the theory advances one funeral at a time. We hear only what we have filters to hear, we see only what we have models in our mind to categorize the images into and we think only in the intellectual boxes our minds and our ISM’s create for us. We gather in groups and self-reinforce these boxes and figure out how to exercise the devils on contradicting ideas and data from while leaving the core ISM intact. This is often not an easy job.
Before Smith wrote his “Wealth of Nations” he wrote on called “The Theory of Moral Sentiments” – Smiths most well know work – “Wealth” – has been taken apart and bastardized to be used to justify the workings of those doing economic rent. It works because parts and pieces can be extracted and the rest just not read or even ignored. This is very much like what those who believe in the Bible as the “Inerrant Word of God” – they can only do such by picking and choosing and if in doubt of what they are doing just read the bible starting at Genesis 1, word for word, word after word, and see how many contradictions one finds and in the stories how many times a story is actually repeated from a different author talking about the same things often in contradiction to what was written before (it really is a great exercise to see the different styles and tones of the different authors all pieced together) Much of how Smith is taken is done in exactly the same RELIGIOUS format and methods as Economics has modeled itself in such a way as to be the accepted weapon and tool of the elites to justify and explain how and why they deserve the place and status and wealth they have gathered.
There are many clear thinking ways to visualize something, many different ways and tools to look at the parts and relationships to try and understand or conceptualize something. The trick is to look at those little things that do not fit (but can be twisted to fit an ISM) and to ask what these say about the overall accepted method of logic and reasoning the box allows one. Its is often rejected to look like this because it gets scary and fear and might get one rejected from the large accepted story, you might even get SHUNNED. God this all begins to look like religion of the more fundamentalist variety after a while.
It took science many many centuries and millennium to figure out what a vacuum was or that space with nothing in it actually existed. We might consider plate tectonics or maybe the age of the earth or how about the sun as the center of the solar system. how about how and why a fusion bomb works? or a fission bomb? – one death at a time it takes.
I assume robert you are in another field as i am. It would be a good idea to look at ways to combine fields and tools and find the different layers of explanation and to see how these layers connect and where they indicate we are missing something at one or all layers.
I also suggest that there are real patterns that other critters in nature might offer us if we look. Nature, long before man arrived out of the evolutionary process, found or accepted or they just worked, patterns for living in groups and yet staying connected and ways to select out the adaptive qualities and yet hold others in reserve. In light of what I said, I suggest you go read Frans deWaal’s books some. Several are extremely good and show ways and patterns that work, nature only cares about working and little about good and evil if at all. But start with his first lay published one, one of the later additions if possible, of “Chimpanzee Politics: Power and Sex among Apes” – i quote a few lines from a review by one C. Davis in an Amazon Book review:
“………
Chimpanzee Politics: Power and Sex among Apes was a very disturbing book to read. Perhaps this is because of the way Franz de Waal chose to end the book. The story about how Luit finished his reign as “alpha male” was extremely upsetting.
One of the key themes in the book is that so called political behavior is rooted at a level of development that is below cognitive and is as much instinctive as it is learned. Learning about the male chimpanzee’s quest for dominance, it makes one wonder how much our behavior is motivated by inherent drives that are not only irrelevant in modern cultures, but are unknowable by those who experience the motivation.
This book has changed the way I look at and understand the word around me.
I strongly recommend this book, but it is not for the faint-hearted.
………”
This is another layer, the layer nature plays on, that we exist in, and we make up our stories and theories to paste over this layer, upon layer, upon layer……but they all can and need to be interconnected to se the Complex Adaptive Nature of the world we get to play in…
poraille:
Your paragraph #5 concerning the dismantling of Adams being used as a”standard bearer” for class propaganda is most accurate; especially as an appeal to scripture, of sorts. I may be mistaken but I sense you are a business person and perhaps in engineering?
While I see the point concerning deconstructing the “Adam’s Rib” narrative of the 1% as an essential criteria for disarming class legitimation, it does no good to explore the same practice in turn to proving another “consent” theory from the same garden of eden Utopia.
Krugman’s “funeral parlor” also sounds good but is really another fallacy called Post hoc ergo propter hoc, Latin for “after this, therefore because of this” and is just simplistically clever. I liked it though, and it’s a nice catchy phrase!
One point about the Japanese competency and successes following WWII. It is true that the Japanese are resourceful, disciplined to a fault and skilled at meticulous patient detail. However, they were given American technology and enhanced it while also being able to “retool” and refine the processing of materials (practiced as they are traditionally short on resources…); while America refused to retool and lost advantage over time. Finance in America began to exchange equity for liquidity and resorted to bust-out hostile takeovers; now called Private Equity. The Japanese refused to interact with this model at first and saw this as counterproductive and even destructive and wasteful: “the ugly American” style.
American politics forced their hand and frankly the biggest mistake the Japanese made was to enter into global acquisitions with good money that American & European sharks wanted exposed. They began following Western finance ideas and indeed they did have a bubble and an economic collapse. But make no mistake, the recovery was lost between their own elite money class and the global carry trade that ruthlessly shorted the Yen whenever it appeared to gain strength. That is a good deal more than outgrowing a path dependency and careless speculations. The facts involve capital flight and other tactics over the lost decade of Japan, but they were not alone in the economic equity raiding that ‘neo-con free market ideologues pushed on the world. And why care? Because it is happening to us right now. So when you peel that onion and attempt to apply theoretical cocktails to understanding: be sure your present minded and historically grounded before you place your bets and quote your phrases.
What I don’t see is why you positioned your posture against robert locke? The critical point he objected to was accepting “prime mover” descent theories (Adam’s Rib=authorization of a manipulating narrative). It completely displaces the real argument based upon real actions of real people taking things for real reasons. Add enough of these “reals” and you have real history not a fairytale excuse for injustice being “classically” acceptable.
On the intricate convolutions of the American Economy as being in “decline” (relative to some recent golden age? When was that?) I suggest you might take a look at the article:
…http://rwer.wordpress.com/2012/12/19/in-the-usa-when-income-grows-who-gains-1976-2008-chart/…also here at “Real-World” (chart & comments) concerning income distribution since circa 1970.
I also want to mention that I own de Waal’s book and it is based upon socio-biological biases in perspectives from behaviorism and seriously flawed determinism. The Chimpanzees are in captivity! He presumes that this gives him greater “insight” and says so right in his preface:”Like an island biogeographer, I saw more because there was less (xv)”
This is inexcusable! I suppose that people that like to blame or attribute “instincts” to either good or bad behavior would love this “interpretative” narrative…but frankly that is about on par with “descent from the Apes” which goes back in line with Adam’s Rib stories! It is equivalent to going into a prison and assessing Human interactions. I do have to admit, though, it is very similar to some of the characters I have known from Wall Street!
i suggest you look to Jane Goodall’s “IN THE SHADOW OF MAN” and work your way up to more complex ethology studies in the wilds that have been documented. I promise you that you will be pleasantly surprised about the differences.
If you want to step off of the normative and look at some of the critical contexts of the past 60+ years, check out the implications of these documents:
1
http://www.spartacus.schoolnet.co.uk/USAmarshallP.htm
2
http://en.wikipedia.org/wiki/NSC-68
3
Foreign Economic Aid: Means and Objectives By Milton Friedman
http://books.google.com/books?hl=en&lr=&id=uTQiUNs5IzgC&oi=fnd&pg=PA1&dq=freidman+foreign+economic+aid+means+and+objectives&ots=m6qNXAS9pz&sig=dtel4YXmEPsl002kD8NXJpW4ugM#v=
onepage&q=&f=false=
These 3 documents show essentially that we went from building and buying out the middle classes of the world (in defense against the Post War Russian Communist threat…), to bankrupting the middle class under a backroom declaration of ECONOMIC WARFARE and the decades that produced cold war / black market “intelligence” and instituted expansive corporatism ….globally…where politics is war by another name.
With the Cold War came the advent of National Security and the Cult of Secrecy…
…is it a coincidence that along with “intel” communities and secrecy we end up with
asymmetrical information and rational choice as the foundations for economic exploit?
I see a suspicious correlation myself, but it definitely did not come from Adam’s Rib!
see:
4
Some Developments in Economic Theory Since 1940: An Eyewitness Account
http://www.annualreviews.org/doi/full/10.1146/annurev.economics.050708.143405
Upon checking the post, it appears that the very critical historical assessment presented by Milton Friedman has not completely lit up. in this document the champion of injustice and greed literally provides a strategic plan to dump the Marshall Plan and basically let the middle class starve rather than build them up. cheaper & more expedient! It’s a real piece of work.
3
Foreign Economic Aid: Means and Objectives By Milton Friedman
http://books.google.com/books?hl=en&lr=&id=uTQiUNs5IzgC&oi=fnd&pg=PA1&dq=freidman+foreign+economic+aid+means+and+objectives&ots=m6qNXAS9pz&sig=dtel4YXmEPsl002kD8NXJpW4ugM#v=
onepage&q=&f=false=
poraille – Thanks for that comment.
Poraille – “those who believe in the Bible as the inerrant word of God” etc. I largely agree with what you are saying, but you are misrepresenting the situation by saying it out of context.
Prior to the Reformation, the Catholic authorities insisted on an agreed (Latin) text, the equivalent of peer reviewed comment and licenced interpreters. Printing and translating the Bible blew holes in that, and people who by and large learned their literacy by reading the Bible tended to start at the beginning with “Adam’s rib” and take the Fall of mankind and Mosaic legalism as being what it was all about, without ever getting so far as understanding (as against notionally accepting) Christian forgiveness, self-sacrifice and the significance of the Resurrection.
In that context you then need to realise that Machiavelli published “The Prince” just four years before Luther set alight the Reformation. Luther still believed man was hopeless, though his hope lay in the Bible (evangelism, not Christ, c.f John 1) as the Word conveying to us the overpowering goodness of God. I don’t think the same can be said of Calvin, the systematic Swiss statesman, who seems to have been more legalistic than Moses and more condemnatory than the dreaded Inquisition. In any case, in Britain the Calvinists and Machiavellian statesmen set the scene for the subsequent development of Capitalism, with (from another thread) the dominance of its “dishonest” Nashian [E,E] strategy over the previous “utopian” [P,E] compromise. This is the bit of history the Calvinistic evangelicals, fed by the 1%, never get to hear, and though rejoicing in their own redemption has often made them graceful to needy individuals, it can also take their eye off Christ’s overall mission: to make all mankind (including even Israel and the 1%) “fit for purpose”.
Let’s have a Merry Christmas, everybody, and make a New Year’s Resolution to be more hopeful, so we can get on with the job.