Home > New vs. Old Paradigm Economics, The Economics Profession > Walking and chewing gum at the same time

Walking and chewing gum at the same time

from David Ruccio

Clearly, liberal economists and columnists are having a difficult time making sense of two key problems at the same time: unemployment and inequality.

Some (like Ezra Klein) think we need to focus on unemployment right now, and leave the issue of inequality until later. Others (like Dean Baker) argue that, since unemployment is a main cause of inequality, economic growth and tighter labor markets will reduce the unequal distribution of gains in the current economy. And then, of course, there are still others (like Paul Krugman) who, while they consider inequality to be a “Big Something Deal,” still think the real issue is how it negatively influences politics and thus prevents policymakers from enacting the obvious unemployment-reducing policies. 

I suppose I should be happy that some progress has, in fact, been made: unemployment and inequality are both on the table right now. Finally!

Still, the problem has been staring us in the face for a long time, and liberal thinkers are only now getting around to considering the possibility that perhaps the two problems are related. No, it’s not an iron law: there can be and have been periods in U.S. economic history of growing inequality with low unemployment, and periods of high unemployment with falling inequality. But when inequality has returned with a vengeance and unemployment remains intolerably high—when the levels of inequality are simply grotesque and tens of millions of workers are unemployed, underemployed, and, if they have a job, are paid below-poverty wages—well, then, we have a problem that the liberal models of economics and politics simply can’t handle.

That’s when we have to look at the political economy as a system, one that for the past six years has generated disastrous levels of both inequality and unemployment with no end in sight. It’s not just a matter of looking at how high unemployment leads to more inequality or at rising inequality as a cause of excessive unemployment. What they need are theories, models, and data series that allow them to see how unemployment and inequality are both being caused by an economic system in which the decisions to create (or not) adequate jobs and to capture large portions of national income are concentrated in a few hands.

Then, and only then, will they be able to walk and chew gum at the same time.

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  1. December 19, 2013 at 1:16 pm | #1

    I think this issue has been ‘staring us in the face’ a long time. (Though, I’n not sure whether we should anthropomophize problems, and imagine that they see, stare and look away like humans. But perhaps, information wants to be free, so the Universal Declaration of Human rights could be amended to include animals, information and problems).
    One of the first accounts i read of the problem was some pamphlets by the Diggers and Levellers from the UK in the 1600′s—-these may have been discovered in 1492 or so when the first native americans discovered the UK—columbus gave them a free trip since they were hitchiking in the galaxy—see 42 on wikipedia and hitchikers).

    One good thing Krugman wrote in a NYT’s magazine in the 90′s, was that inequality is mostly a matter of convention. Wages can be set at arbitrary levels (assuming, of course, that theren’t aren;’t in fact ‘hidden variables’ so that economics is essentially deterministic or self-organized, and Mosca’s ‘iron law of oligarchy’ (pareto-yakovenko distribution) is an invariant, and universal ‘power law’ (or law of power—-see BNarchives). Behavioral economics of course suggests that ‘conventions’, sort of the dual (or complement) of ‘rationality’, actually are not really arbitrary because they are based on rules of thumb (bounded rationality) which are evolutionarily coded. People by tradition or wiring tend to make certain rules—-they want, for example, for people to work in exchange for pay—-even chimps, bonobos, wolf packs, bird schools, etc know this. (see also Samuel Bowles’ papers on cooperation among diverse populations, on the SFI website or in PNAS). But also, as pointed out by Sherwin Rosen (in 1981), Robert Frank (cornell), and apparently eduardo porter (NYT’s), people tend not to cross the t’s and dot the i’s, and hence don’t really know what they are anyone else is worth or what is fair pay. Because of bounded rationality, they often will ‘hate’ people in their own family or community over injustice and unfairness more than they hate their boss or banker. (Witness queen of england , who apparently was highly angry the palace guards were eating nuts from bowls in the Royal Palace. Although I dont believe in Larouchian conspiracies that she controls the world, I imagine she could afford it rather than get all huffy—and besides those people are protecting her—remember Ceasar’s fate.)
    (i would mention that the issue of ‘dotting the i’s is not a problem just reserved for uninformed and poorly educated publics, or economists—it happens in physics too. An entire literature in physics exists simply because they forgot the dot, and mistook an ‘i’ for a 1 when really you need to follow the rule of using an ‘i’ (imaginary number) for an eye, even if it leads to schrodinger’s equation rather than classical diffusion. The world is complex—-see arxiv.org/abs/1210.7785 —most of that was known in 1925 )

    Other than that, Krugman on inequality is mixed if not pretty reactionary (see also Sandwichman’s critiques). He ridiculed anti-WTO protestors in Seattle in 1999, who were against NAFTA, and wrote in SciAm (now owned in the UK i think) that ‘stolper-samuelson theorem’ showed that globalization had no effect on inequality (without pointing out that theorem assumes a perfectly efficient market, so there is no unemployment in the entire world—-even samuelson repudicated that in a late paper in AER). Also if you look in JPE, Krugman has a paper showing (in a less rigorous method than people like Pin Chen) that globalization and ‘free trade’ can easily lead to inequality—-he just thought it was ‘unlikely’.

    My view is his problem is he was at MIT, and now Yale or somewhere and the NYT’s. He certainly sees no ‘market imperfections’ in his world. In the Ivory Tower, there are no elephants in the room—-they’ve all been turned into furniture. The campus looks nice, and who needs to go downtown New Haven (after all, you might get killed).

    Ditto for the others cited (though I’d give a bit more credit to Baker).

    People writing on inequality and employment might want to stare themselves in the face in the mirror. The problem may be you (old song).l

  2. Garrett Connelly
    December 19, 2013 at 1:38 pm | #2

    How could anyone be so naïve as to think inequality is mainly due to unemployment, such a statement has to purposeful propaganda in service of corporatistas.

    One cannot use a computer model to hypothesize about motivations behind and results of Machiavellian manipulations backed by heartless modern militaries quite willing to do the bidding of their corporate masters who are pretending to be democracies.

  3. charlie
    December 20, 2013 at 9:27 pm | #3

    Were the Luddites actually on to something? At the time they could always pull up stakes and go to the new world and leave the machines behind. Has modernization/globalization of employment changed so much that the great majority of work humans can perform causes underemployment to be a new normal? Humans have certainly been written out of the corporate equation of economic and political reality.

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