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Unsound on equality

August 15, 2014 Leave a comment

from Peter Radford

In a recent speech I gave on inequality, I described the relevance of economics in a series of quotes thusly:

“Political economy you think is an enquiry into the nature and causes of wealth – I think it should rather be called an enquiry into the laws which determine the division of the produce of industry amongst the classes who concur in its formation” ~ Ricardo to Malthus correspondence, quoted in Sraffa, 1951

“The real scientific study of the distribution of wealth has, we must confess, scarcely yet begun. The conventional academic study of the so-called theory of distribution into rent, interest, wages, and profit is only remotely related to the subject. This subject, the causes and cures for the actual distribution of capital and income among real persons, is one of the many now in need of our best efforts as scientific students of society” ~ Irving Fisher, 1919

“Does Inequality in the distribution of income increase or decrease in the course of a country’s economic growth? What factors determine the secular level and trends of income inequalities? … These are broad questions in a field of study that has been plagued by looseness in definitions, unusual scarcity of data, and pressures of strongly held opinions.” ~ Kuznets, 1955

“I am wandering away from my usual concerns briefly to discuss an even more nagging and pervasive tradeoff, that between inequality and efficiency. It is in my view, our biggest socioeconomic tradeoff, and it plagues us in dozens of dimensions of social policy.” ~ Okun, 1975

“Of the tendencies that are harmful to sound economics, the most seductive, and my opinion the most poisonous, is to focus on questions of distribution … The potential for improving the lives of poor people by finding different ways of distributing current production is nothing [italics in original] compared to the apparent limitless potential of increasing production.” ~ Lucas, 2004

“Equality lacks relevance if the poor are growing richer.” McCloskey, 2014

The journey from being actively concerned, through a somewhat guilty admission of a lack of progress, to a stab at a general idea, thence to the notion of inequality as a cost of seeking growth, only to arrive, finally, at a patronizing dismissal of the entire topic is an arc of embarrassing failure.
Read more…

Various Thoughts

July 15, 2014 2 comments

from Peter Radford

There is no point is bashing away at old economics or old economists. They are what they are. And it isn’t as if there is a compelling alternative to orthodoxy, if there were we wouldn’t be in this never ending and unproductive cycle of throwing stones at the establishment.

I think we all ought take comfort in the fact that a few decades ago things were so much different. The generation that trashed economics was on the rise and on the outside once. There are great reputations to be made fixing and updating the entire enterprise. In a business where incentives are so lauded, I imagine the incentive of fame should bring a savior soon enough.

Meanwhile it was sobering to read:

“The modern industrial system is no longer essentially a market system. It is planned in part by large firms and in part by the modern state. It must be planned, because modern technology and organization can flourish only in a stable environment, a condition the market cannot satisfy.” – J.K. Galbraith, “The New Industrial State”

Looking back at the state-of-the-art analysis concerning business organization in the first post-war decades we find a picture so discordant with modern business theory that it is hard to connect the two. There was a distinct feeling back then that the complexity of a modern economy would overwhelm the ability of the simple structures of a market and that long and complicated production processes therefore needed to be set within a controlled environment. That environment being a bureaucratic and centrally planned “meso-economy” called a business firm. Read more…

Clockwork Justice?

July 4, 2014 6 comments

from Peter Radford

One of the central beliefs held by people who advocate a market based worldview is that, somehow, markets are apolitical, they are antiseptic, they are objective. This is nonsense. It is dangerous nonsense.

That markets work according to rules does not make them objective or even impersonal. Rules are human constructs. Ergo markets are simple extensions of base human attitudes and are thus fraught with all the frailties that encumber all human activity.

The sanitization of markets, by which I mean the constant effort to make them appear “natural” or “neutral” and thus “fair”, is an ideological cover that market ideologues desperately, and successfully, propagate. It is a cover to mask the consequences of this supposed naturalness and to give it the imprint of ethical cleanliness. After all if the outcomes of a market are simply those of nature working her course, who are we too argue?

Economists, or at least orthodox economists, are the great cheerleaders of this ruse to get us all to accept our fate. Over the course of the development of economics much work has been put in to the elucidation of the mechanics of markets. There is an overpowering sense of determinism in the result. Start here, crank the machinery, and let the outcomes just flop out. The market is such that any outcome is “correct”, because left untouched market machinery always hones in on the superior outcome. Thus the current distribution of income “must” be the correct one: the market created it and the market is always, unerringly, right. Read more…

Can economists explain much?

July 1, 2014 12 comments

from Peter Radford

Greg Clarke ends his book “A Farewell to Alms” with a not too encouraging summation about the ability of economists to explain much. Allow me to give you three lengthy quotes:

“In economics, however, we see instead that our ability to describe and predict the economic world reached a peak around 1800. In the years since the Industrial Revolution there has been a progressive and continuing disengagement of economic models from any ability to predict differences of income and wealth across time and across countries and regions.”

“Since then economics has become more professional. Graduate programs have expanded, pouring out a flood of talented economists armed with an ever more sophisticated array of models and statistical methods. But since the Industrial Revolution we have entered a strange new world in which the rococo embellishments of economic theory help little in understanding the pressing questions that the ordinary person asks of economics.”

“Our economic world is one that the deluge of economics journal articles, working papers, and books – devoted to ever more technically detailed studies of capital markets, trade flows, tax incidence,sovereign borrowing risk, corruption indices, rule of law – serves more to obscure than to illuminate. For the economic history of the world constructed in these pages is largely innocent of these staples of the discipline. The great engines of economic life in the sweep of history – demography, technology, and labor efficiency – seem uncoupled from theses quotidian economic concerns.”

It must be frustrating to try to stay within the boundaries of economics and end up having to admit that fully three-quarters of all growth since the Industrial revolution crops up in the standard models of growth as a “residual”. That residual being, as Moses Abromovitz suggested, being a measure of the ignorance of economists.  Read more…

Mystery Growth Theory

June 24, 2014 7 comments

from Peter Radford

I have been reading Gregory Clark’s brief history of the world economy “A Farewell to Alms” as part of my continuing reading on inequality. Somehow I think I need to know more about the entire arc of growth in our modern era and inevitably that means reading more about the great mystery of the surge in living standards since about 1750. Clark gives me a fairly standard view. He divides history into two distinct positions. An older “Malthusian” era, where growth was negligible, and a modern era dominated by “innovation”.

On page 197 he tells us:

“For, although modern economies are deeply complex machines, they have at heart a surprisingly simple structure. We can construct a simple model of this complex economy and in that model catch all the features that are relevant to understanding growth.”

That ought to encourage us all.

A simple model – how economists love those – but all inclusive.

Read on: Read more…

Equality

May 21, 2014 21 comments

from Peter Radford

All the justified fuss over inequality in recent months begs a rather significant question doesn’t it? If we are all so vexed over inequality we must have some yardstick or some more ideal state we could call equality. What is it?

The problem I have is that equality almost immediately disappears into a fog.

There are very few of us who would argue for the blandness of total equality. That seems to be as inhuman as extreme inequality. After all we are all very different and thus there is an inherent tendency towards lumpiness in society. Some people will always outperform others whilst some will underperform. Some will be richer and others poorer. This much is so simple we can move on quickly. After all we don’t want to fall into the trap that has ensnared orthodox economists: they cannot do their work without expunging humanity from their equations. Else all that lumpiness gets in the way of the smooth operation of maximization, efficiency, and rationality. So they sweep it away peremptorily by making absurd assumptions and then pretend to have discovered something of extreme value about humanity. Ridiculous, I know, but they plod on stupidly despite it.

So what is equality in the context of our discussion of inequality?  Read more…

Think like an economist?

May 13, 2014 11 comments

from Peter Radford

Perhaps we are all asking too much. The burden is just too heavy a load. One point of entry too limited. A single, albeit determined, band of thinkers too narrow, too isolated, or too specialized to give us all that we want.

I am talking about economics of course.

We, that is society at large, want economists to deliver us from the great cycles and risks that seem to bedevil what we call the economy. This last crisis, the Great Recession, has plunged economics into a frenzy of introspection, self-analysis, and denial all at once. It has frozen the discipline into large well entrenched camps each holding ideas that appear to be economics, but which are often so contradictory that some of us are left believing the discipline no longer exists as a coherent body of thought. If ever it did so exist.

So do we ask too much?

Can one body of thought handle all the big questions that economies generate?  Read more…

Science or Politics?

May 9, 2014 4 comments

from Peter Radford

Paul Krugman, with whom I do not always agree, asks two very pertinent questions:

“Were the freshwater guys always just pretending to do something like science, when it was always politics? Is there simply too much money and too much vested interest behind their point of view?”

Let’s set aside our differences for a moment and unite behind those questions.

Yes. It was always politics.

Yes. There is simply too much money and too much vested interest behind their point of view.

Orthodox economics is a sham as a science. It is an ideology masquerading as science. How else can we describe a body of thought that appears totally inflexible and immune to contradictory evidence? It does not adjust. It’s believers do not learn. They preach. They proselytize. Their theory lies exposed for all to see as a mere prop for a particular point of view. A point of view that justifies inequality of outcomes and mean spirited indifference to the plight of vast swathes of our fellow citizens in the name of pseudo-efficiencies in the allocation of our collective resources. These supposed efficiencies are neither observable nor measurable in the real world, but only within the enclosed, cramped spaces of models specially created to produce a very limited and desired outcome. Desired, that is, by those who value extreme individualism over community, excessive competition over cooperation, and an almost pathological belief in rational behavior over human cognitive frailty. Read more…

Affluent Rules

May 9, 2014 4 comments

from Peter Radford

A couple of weeks ago I led off an article with a quote from a new Gilens and Page paper – linked to in the article. Subsequently I have acquired and waded through the Gilens book “Affluence & Influence”.

Time for a few more quotes, all from page 81 of the aforementioned book:

“The complete lack of government responsiveness to the preferences of the poor is disturbing and seems consistent with the most cynical views of American politics. These results indicate that when preferences between the well-off and the poor diverge, government policy bears absolutely no relationship to the degree of support or opposition among the poor.” 

“For those proposed policy changes on which middle- and high-income respondents’ preferences diverge by at least 10 percentage points, policy responsiveness for the 90th percentile remains strong … but is indistinguishable from zero for the 50th percentile”

“But when their views differ from those of more affluent Americans, government policy appears to be fairly responsive to the well-off and virtually unrelated to the desires of low- and middle-income citizens.”

In the context of our ongoing debate over inequality I think these quotes stand for themselves. Read more…

Categories: inequality, Plutonomy

Irving Fisher and inequality

May 4, 2014 9 comments

from Peter Radford

“The real scientific study of the distribution of wealth has, we must confess, scarcely begun. The conventional academic study of the so-called theory of distribution into rent, interest, wages, and profits is only remotely related to the subject. This subject, the causes and cures for the actual distribution of capital and income among real persons, is one of the many now in need of our best efforts as scientific students of society.”  Irving Fisher, President’s address to the American Economic Association, 1919

Later in that same speech he gave us his opinion of patrimonial capitalism:

“I believe that it is very bad public policy for the living to allow the dead so large and unregulated an influence over us.”

That sentiment has now reappeared as Piketty’s call not to allow the past to devour the future.

With respect to the “right” to create inheritances via wills Fisher points us to Chief Justice Coleridge of England: Read more…

Moving On

April 29, 2014 13 comments

from Peter Radford

We now live, whether we have grasped that fact or not, in a post-Piketty era. This will seem silly to many of you who have toiled at the coal face of progressive issues for years, but I think it is something worth reflecting on. It isn’t us who need to be convinced. It is all those who have denied or avoided reality.

Something has changed.

Robert Locke, with whom I am having a rather public dialog with says this with regard to my note earlier about Piketty and the new Gilens & Page study:

“Peter, having convictions confirmed by numbers is nice, but for people who have lived observant lives since 1980, they just amount to “a penetrating glimpse into the obvious.” We need hopeful suggestions about how American public opinion can be effectively mobilized to institute an economic democracy. What books or articles, or people, should we listen to or read to effect that? We need to enter into a penetrating discuss[sic] about how change is managed. It won’t be easy. We had the abolitionists before the Civil War. Did they get rid of slavery? We had the Progressive movement at the beginning of the 20th century but it produced managerialism,not democracy. The people most effective in getting change done are the enemies of economic democracy. The system we have today is the result of their post1970 quite efficient transformational work.”

I do not want to raise Piketty to too exalted a status, but we ought to recognize his achievement, and that his effort is part of a much larger research scheme involving many others. This new era exists because we now have a massive dataset, thoroughly and transparently compiled across nations and through time sufficient to act as a foundation for a pivot away from the thinking of these past four decades.  Read more…

First Piketty and now Gilens and Page

April 23, 2014 27 comments

from Peter Radford

“When the preferences of economic elites and the stands of organized interest groups are controlled for, the preferences of the average American appear to have only a minuscule, near-zero, statistically non-significant impact upon public policy.” – Martin Gilens & Benjamin Page, ” Testing Theories of American Politics: Elites, Interest Groups, and Average Citizens, forthcoming this Fall

Wow. The second shoe drops.

Whilst we are all absorbing the impact of Piketty – and I repeat: go read it before you comment on capitalism henceforth – in come Gilens and Page with a blockbuster paper that shreds any concept that America is a functioning democracy, where by democracy we mean a state whose policies are influenced by popular sentiment.

We are an oligarchy, with a slew of special interest groups providing a supporting cast to an economic elite who manage to direct policy to their advantage. Not always, but often enough to skew society prodigiously. Having established with their research that American policymaking is dominated by an elite, Gilens and Page end:

“Americans do enjoy many features central to democratic governance, such as regular elections, freedom of speech and association, and widespread (if still contested) franchise. But we believe that if policymaking is dominated by powerful business organizations and a small number of affluent Americans, then America’s claims to being a democratic society are seriously threatened.”

Read more…

Categories: Plutonomy

Paradigm Lost?

April 22, 2014 12 comments

from Peter Radford

The story so far:

Robert Locke asserts that neoclassical economics never attained paradigm status and thus cannot be seen as about to be dethroned from its exalted perch. He also decries the failure of mainstream economics to discuss its failures. This only a few months after an interview conducted by Paul Rosenberg with Edward Fullbrook in the RWER issue #66 in which he discussed the contrast between new and old paradigms in economics, and I may have stirred things up when I used a Thomas Kuhn quote to begin one of my own articles earlier this month.

So is there? Or isn’t there?

Let me try to square the circle.

Clearly there exists in economics some center of gravity. Indeed this center is so large that it appears to engulf most else around it. Economists either acknowledge that the discipline is rife with many voices – these seem to be in the minority – or they simply behave as if the big questions have been settled and that what they do is “economics” without the need to give a more precise definition. These latter are what I suspect Locke would refer to as the “mainstream”.

Equally clearly, at least to those who occupy the center, mainstream economics is a coherent whole. It isn’t just the degree of mathematical formality with which it is expressed, it isn’t just a methodology, nor is it just a set of “laws”, insights” “tools” and what have you. It is all of these packaged together. If a person doesn’t conform to this package then he or she is outside the mainstream and will find it hard, often impossible, to advance professionally or participate in the major arguments of the day.

The boundaries of the center are malleable to a degree. There are factions within it so it is not thoroughly homogenous. But there are sufficient shared traits that, to someone on the outside looking in, the center is manifest. It is manifest enough to exert enormous power over what is or isn’t published. It is manifest enough to dominate what is taught in most schools and universities. It is manifest enough to dominate policy circles and other domains that require input from economists.

It is manifest enough to deserve to thought of as  a paradigm. Read more…

Categories: New vs. Old Paradigm

Capital: Piketty and such

April 18, 2014 12 comments

from Peter Radford

I will not pile on any more: the Piketty book is required reading. Enough said.

What strikes me is that his data set is so comprehensive that it ought to end many of those lingering debates within economics. I doubt it will, but it ought to.

I have a few comments I want to make because of his book and the reaction to it.

First: it confirms, in my mind, my argument that economic systems cannot ever be carved out of their historical, social, and political contexts. Not, at least, if the analyst wants to be left with anything at all useful. Studying economics as some abstracted other-worldly stand alone entity is entirely pointless. Pretending that everyday people act in an economic sense without reference to a whole slew of cultural, institutional or other relationships and pressures is just nonsense. Of course they do. We all know that.

I understand that distilling some uniquely “economic” regularities is useful. I understand that establishing certain cause and effects relationships can help us understand society, but, ultimately it is society we are understanding, not just some economic agents roaming about absent any other influences. So anything understood within the domain of economics must then be converted to, or fitted within, the larger picture before it is thought of as having any relevance. Particularly policy relevance.

So it is not enough to build upon micro foundations unless those foundations extend across a diverse realm that includes all the elements at the base of the society being studied. To avoid such an extension is to display an extraordinary and willful narrow mindedness.

With this in mind, I think Piketty’s book is the starting point for a thorough review of economic thought. Including much current heterodox thought which suffers from the same disease as orthodoxy: it is not comprehensive enough to have real value. Read more…

Categories: New vs. Old Paradigm

Class Based Economics

April 16, 2014 29 comments

from Peter Radford

Buried somewhere in the pile of stuff I have accumulated as I think about inequality are these statistics:

  1. Of all the income generated between 2009 and 2011 in the US 121% went to the top 1% of income earners
  2. The top 1% owns just over half of all investment assets including 64.4% of all bonds
  3. And, the bottom 90% incurs 72.5% of all debt

Think through the consequences of these numbers.

Basically we have an economy where the top 1% reaps all the rewards; where less well off people constantly fall further behind; and where the top folk lend to the bottom folk so that the less well off can keep on consuming and thus boosting the profits of the businesses the top folk own. This is a nice game for the rich as long as it lasts. Here in the US that would be the past forty years or so.

This is really simple.

It explains why our economic policies focus on preserving creditors, bailing out lenders, and keeping the inflation alarms ringing even when there is no inflation. Those policies benefit Read more…

Reformist Economics

April 2, 2014 16 comments

from Peter Radford

“… the act of judgement that leads scientists to reject a previously accepted theory is always based upon more than a comparison of that theory with the world. The decision to reject one paradigm is always the decision to accept another, and the judgement leading to that decision involves the comparison of both paradigms with nature and with each other.” – Thomas Kuhn, The Structure of Scientific Revolutions

I will break my recent silence – I am still burrowing down into the issue of inequality – to make a comment on the skepticism I see concerning the Institute for New Economic Thinking.

It is justified.

Let’s think about this a moment.

If we are to set up an institute to support change, provoke discussion, and otherwise meddle about with the established way of thinking, and thus to earn the moniker of “newness”, we ought not to pack our agendas with a steady stream of establishment figures. That is not the way to revolution. It might, however, be the way to raise esteem and thus get the institution media attention. Read more…

Categories: George Soros' INET

Inequality

March 1, 2014 9 comments

from Peter Radford

I am preparing a talk on inequality here in America, and so have been re-reading the Piketty and Saez work. Amongst the more eye-opening facts I have come across is the assertion, by Saez, that the surge in the top 1% incomes is so large that the growth of the bottom 99% amounts to only half the average [mean].

Think about that for a moment.

It would be like walking into a room full of people two feet tall with one thirty footer in the corner. The mean average is meaningless in such circumstances. We are all taught that in statistics class, but to come across such an egregious example in a dataset as large as all US tax returns is astonishing. Read more…

Is medicine a model for ethics in economics?

February 24, 2014 7 comments

from Peter Radford

A recent correspondent asks whether medicine could act as a template for the importation of ethical standards into economics. On balance I don’t think it can. Here’s why:

Medicine consists of a practical part that faces outward towards its customers. We call those customers patients. From the earliest times medicine has adopted the credo ‘first do no harm’ which forms the ethical bedrock for all subsequent standards. This is relatively easy to do since ‘doing harm’ is quite quickly identified. Even then such an ethical background failed to stop the development and implementation of some outrageous and harmful medical techniques. In the modern era the ‘doing no harm’ ethic has allowed the creation of a number of rules that govern doctor activity and provide a measure of protection to patients. Those rules are enforced by various governing bodies that not only establish and monitor the rules, but also govern the very process that allows someone to call themselves a doctor in the first place. This governance structure gives practical medicine a coherence and shape that are identifiable by the public, and ensures that the profession recognizes it relationship with society at large. Read more…

Adam Smith – Socialist?

February 19, 2014 12 comments

from Peter Radford

No, not really, but almost. Here’s a couple of quotes – both from “The Wealth of Nations” – that would not sit well in contemporary right wing American politics:

“Our merchants and masters complain much of the bad effects of high wages in raising the price and lessening the sale of goods. They say nothing concerning the bad effects of high profits. They are silent with regard to the pernicious effects of their own gains. They complain only of those of other people.”

“People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices.”

The second gets quotes a fair bit because it seems to be a significant cautionary note when considered alongside the rest of “The Wealth Of Nations” in its broadly understood role as a peon to free market capitalism. We all know that Smith was way too sophisticated to be so easily bracketed, but you rarely come across the many such cautions he issued alongside his near mythological reference to what we call the invisible hand. Read more…

Categories: Uncategorized

Do over?

February 11, 2014 3 comments

from Peter Radford

You would have thought that, after all this time, economics would change. Or be changing. Or even be hinting at the possibility of changing. However, while there are a few encouraging signs, there is precious little sign of said motion inside the citadels that dominate the discipline. We still have a profession stuck in a most unprofessional rut, pursuing thinking that reflects not the world around it, but itself.

So, let me say it again: economists are, by and large, more interested in economics than in economies. They spend much more time on trying to display mathematical virtuosity than in trying to get to grips with the world around them. Even those who give the real world space to intrude into their thinking wrap it up in strange and unrepresentative ways.

Let me make this plain to those of you who follow the sport from a distance: most economists make their reputations nowadays by being steeped in the latest mathematics and by being capable of producing supremely logical, tightly wound models that conform to the discipline’s rules and to what the discipline thinks of as important. The relevance of an actual economy – for example the US between 2007 and now – is not considered if it does not allow the wizardry to be displayed. Read more…

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