Milton Friedman — an intellectually dishonest peddler of neoliberalism

October 24, 2021 5 comments

from Lars Syll

Last Friday, November 9, saw the big “Milton Friedman Centennial” celebration at the University of Chicago’s Becker Friedman Institute for Research in Economics. It was a big day for fans of one of the Founding Fathers of neoliberal/libertarian  free-market ideology …

One episode in Milton Friedman’s career not celebrated (or even acknowledged) at last week’s centennial took place in 1946, the same year Friedman began peddling his pro-business “free market economics” ideology.

According to Congressional hearings on illegal lobbying activities ’46 was the year that Milton Friedman and his U Chicago cohort George Stigler arranged an under-the-table deal with a Washington lobbying executive to pump out covert propaganda for the national real estate lobby in exchange for a hefty payout, the terms of which were never meant to be released to the public.

The arrangement between Friedman and Stigler with the Washington real estate lobbyist was finally revealed during he Buchanan Committee hearings on illegal lobbying activities in 1950. But then it was almost entirely forgotten, including apparently by those celebrating the “Milton Friedman Centennial” last week in Chicago.

Mark Ames

In the U.S. between 1989 and 2020, spending on prescription drugs rose from 0.6 percent of GDP to 2.4 percent of GDP

October 23, 2021 Leave a comment

from Dean Baker

That simple point might have been worth mentioning in an article reporting on efforts by Democrats to rein in prescription drug costs since 1989. The current level of spending of roughly $500 billion a year comes to more than $1,500 for every person in the country. Annual spending on prescription drugs is roughly one and a half times as much as the proposed spending in President Biden’s Build Back Better proposal.

It’s also worth noting that this piece repeatedly refers to Democrats’ efforts to “control” drug prices. This is inaccurate. The government already controls drug prices by granting companies patent monopolies and related protections. As a result, drug companies can charge prices that are often several thousand percent above the free market price. In the absence of these protections, we would likely be spending less than $100 billion a year on drugs, for a saving of $400 billion annually.

The point is that it is not necessary to have the government intervene to bring prices down. We could have the government not intervene, or intervene less, to avoid allowing drug companies to charge such high prices.

World money, world creditocracy

October 22, 2021 1 comment

from Radhika Desai and Michael Hudson  

We are now ready to approach the question of how these national monetary orders of capitalism relate to one another internationally. One key contradiction has powered the history of world money under capitalism. On the one hand, money is created by states or those delegated and controlled by them. On the other, there can be no world state under capitalism, and thus no world money. When dominant states nevertheless seek to foist their currency on the world as world money, they add new layers of contradictions and volatilities to the already unstable logic inherent in the geopolitical economy of capitalism (Desai, 2013), the “relations between [its] producing states” as Marx once put it (Marx, [1858]1973, p. 886).

Dominant states and their capitalists seek to externalise onto other states or territories the consequences of their capitalism’s contradictions, such as excess commodities and capital, or the need for cheap labour and raw materials. These efforts victimize subordinated economies, but make rivals of states that are able to contest this domination. When the latter happens, there are confrontations – diplomatic, economic or even military – like those between Britain and her nineteenth century rivals, such as Germany. The result then was a Thirty Years’ Crisis (1914-45), including two world wars and a Great Depression.  Today, we are witnessing rising tensions between the US and countries like China and Russia. Read more…

Rich jerks in space

October 21, 2021 2 comments

from Dean Baker

As a big fan of the original Star Trek, I have to confess that it was kind of neat to see Captain Kirk actually go into space. But there is a real issue here about the silly games of the super-rich that is worth some thought.

There have been numerous stories and papers about the huge increase in the wealth of the super-rich since the pandemic began. Virtually all of this is due to the run-up in the stock market during this period. Part of that is bounce back, the S&P 500 lost almost one-third of its value between its pre-pandemic peak in February of 2020 and its pandemic trough a month later. If we want to tell a really dramatic story we can start at the pandemic trough and take the rise in the stock market from March 20th.

But even if we are being serious, there has been an extraordinary runup in the stock market in the last twenty months. The S&P 500 is more than one-third higher than its pre-pandemic peak.

There are several different explanations for this increase. One is simply that low-interest rates generally boost stock prices. Interest rates did plummet during the pandemic shutdown, with the 10-year Treasury rate falling from a bit over 1.8 percent in February of 2020 to lows of under 0.6 percent last summer. As a general rule, lower interest rates will mean higher stock prices.

But this explanation will not go too far: the interest rate on 10-year Treasury bonds is currently over 1.6 percent. The gap between a 1.8 percent pre-pandemic Treasury yield and the current 1.6 percent yield could only explain a small portion of the rise in the stock market.

A second possibility is Read more…

Soft-wars

October 20, 2021 Leave a comment

from Blair Fix

Political economist Chris Mouré has a new paper out in the Review of Capital as Power. It’s called ‘Soft-wars’, and it is a fascinating case study of the behavior of big tech.

The story starts in 2011, when Microsoft led a $4.5 billion consortium purchase of Nortel and Novel. Later than year, Google responded by buying Motorola for $12.9 billion. The funny thing is that Google then proceeded to sell off what it had just bought. By 2014, almost nothing was left of Google-owned Motorola. Nothing except patents. And that, Mouré thinks, was the whole point.

Mouré argues that this acquisition war was ultimately a battle over intellectual property. Google and Microsoft were competing to control the mobile market. And the way to do that was not to ‘produce’ anything. It was to command property rights.

The timing of the 2011 patent war, Mouré notes, was no coincidence. It corresponded with the moment when Google’s profits caught up to Microsoft. Figure 1 shows the trend. This is Mouré’s analysis of ‘differential profit’ — the profit of Microsoft and Google measured relative to the average profit of the S&P 500. You can see that Google entered the 21st century as a bit player. But by the 2010s, Google was a behemoth whose profits matched those of Microsoft.

Read more…

David Card and the minimum wage myth

October 19, 2021 15 comments

from Lars Syll

Nobel Prize Economist David Card on testing Econ 101 theories in the real  world - MarketplaceBack in 1992, New Jersey raised the minimum wage by 18 per cent while its neighbour state, Pennsylvania, left its minimum wage unchanged. Unemployment in New Jersey should — according to mainstream economic theory’s competitive model — have increased relative to Pennsylvania. However, when ‘Nobel prize’ winning economist David Card and his colleague Alan Krueger gathered information on fast food restaurants in the two states to check what employment effects the minimum wage really have — using a basic difference-in-differences approach — it turned out that unemployment had actually decreased in New Jersey relative to that in Pennsylvania. Counter to mainstream theory we had an anomalous case of a backward-sloping supply curve.

Lo and behold!

But of course — when facts and theory don’t agree, it’s the facts that have to be wrong … Read more…

WEA letter of support for scientists in Mexico

October 18, 2021 1 comment

Prosecutors in Mexico seeking arrest warrants for more than 30 scientists

“The World Economic Association –with its 15,000 members-is committed to the development, promotion and diffusion of economic research and knowledge; advocating plurality of thought, method and philosophy. We are convinced that these activities can only be carried out in a context of freedom, exempt of intimidation and harassment. In this spirit we voice our apprehension for  the 31 Mexican scientists and scientific administrators accused by the Mexican government of grave financial crimes. In this regard, we fully subscribe the concerns raised by the International Secretaries of the U.S. National Academies of Sciences, Engineering and Medicine in a public letter to the President of Mexico dated October 6, 2021″

If this is a wage-price spiral, why are profits soaring?

October 17, 2021 3 comments

from Dean Baker

That’s the question millions are asking, even if economic reporters are not. The classic story of a wage price spiral is that workers demand higher pay, employers are then forced to pass on higher wages in higher prices, which then leads workers to demand higher pay, repeat.

We are seeing many stories telling us that this is the world we now face. A big problem with that story is the profit share of GDP has actually risen sharply in the last two quarters from already high levels.

Baker Oct.

Read more…

How emerging markets hurt poor countries

October 16, 2021 1 comment

from C. P. Chandrasekhar and Jayati Ghosh

It is by now well known that three decades of financial globalization have led to massive increases in income and asset inequalities in the United States and Europe. But in the developing world, the effects of financial globalization have been even worse: along with new inequality and instability, the creation of “emerging markets” to support investment in poor countries has undermined development projects and created a relationship in which poor countries supply financial resources to rich ones. This is exactly the opposite of what was meant to happen. Yet this growing disparity in per capita incomes across the global North and South is not a bug in the system but a result of how global financial markets have been allowed to function.

The biggest promise of neoliberal finance, initially pushed by economists such as Ronald McKinnon from the late 1970s onward, was that it would enable greater and more secure access to resources for development for countries deemed too poor to generate enough savings within their own economies to fund necessary investment. To access savings from abroad, they were encouraged to tap into global financial markets.

At the same time, changes in the economies of the developed world in the late 1980s generated mobile finance willing to slosh around the globe in search of higher returns. Read more…

Weekend read – Red Giant

October 15, 2021 Leave a comment

from Shimshon Bichler and Jonathan Nitzan

Introduction

In 2012, we published a paper in the Journal of Critical Globalization Studies titled ‘Imperialism and Financialism: The Story of a Nexus’. Our topic was the chameleon-like Marxist notion of imperialism and how its different theories related to finance. Here is the article’s summary:

Over the past century, the nexus of imperialism and financialism has become a major axis of Marxist theory and praxis. Many Marxists consider this nexus to be a prime cause of our worldly ills, but the historical role they ascribe to it has changed dramatically over time. The key change concerns the nature and direction of surplus and liquidity flows. The first incarnation of the nexus, articulated at the turn of the twentieth century, explained the imperialist scramble for colonies to which finance capital could export its excessive surplus. The next version posited a neo-imperial world of monopoly capitalism where the core’s surplus is absorbed domestically, sucked into a black hole of military spending and financial intermediation. The third script postulated a World System where surplus is imported from the dependent periphery into the financial core. And the most recent edition explains the hollowing out of the U.S. core, a red giant that has already burned much of its own productive fuel and is now trying to financialize the rest of the world in order to use the system’s external liquidity. The paper outlines this chameleon-like transformation, assesses what is left of the nexus and asks whether it is worth keeping. (p. 42)

In the second part of the paper, we looked a little closer at the red-giant argument. Specifically, we wanted to gauge the degree to which U.S. capital had declined and examine whether this decline indeed forced the rest of the world to financialize. And what we found surprised us: the ‘financial sector’ did seem to become more important everywhere, but its rise was led not by the United States, but by the rest of the world!

Our article was published almost a decade ago, so we though it would be interesting to update our figures and see what has changed, if anything. Read more…

The growth of hierarchically ordered non-market economic organisations (i.e. corporations)

October 15, 2021 Leave a comment

from Terry Hathaway

Contemporary political and economic discourse sees capitalist systems characterised as market economies, and references to both The Market and markets are ubiquitous; markets are seemingly everywhere. This situation is distinctly odd, as while economic relations have been more and more characterised as “markets”, many economies have seen both the withering away of traditional marketplaces and the concurrent growth of hierarchically ordered non-market economic organisations (i.e. corporations).

The reason that markets can be both seen everywhere and exist practically nowhere is due to two points. Read more…

China’s Evergrande Conundrum

October 14, 2021 2 comments

from C. P. Chandrasekhar

China’s Evergrande group, identified as the world’s most indebted property company with accumulated liabilities in excess of $300 billion, missed an interest payment instalment due on September 23, 2021 on bonds borrowed through US dollar bond markets. Though the company enjoys a 30-day grace period to pay up and avoid being in default, the absence as yet of any clarification on the missed instalment has increased uncertainty. Markets seem sceptical that the firm would meet in full the $129 million of interest payments on its bond issues due this month and the $850 million due by year end. Evergrande’s share prices have collapsed by more than 85 per cent over the last year.

An Evergrande default and possible bankruptcy can have repercussions in China as well as abroad, so the global media has been obsessed with this one company for weeks now. Read more…

Three conceptualisations of the market

October 13, 2021 1 comment

from Terry Hathaway – http://www.paecon.net/PAEReview/issue97/Hathaway97.pdf

Watson (2018) shows that within neoclassical economics the shifting definition of the market has led to three conceptualisations of the market that are rolled into one another; the descriptive concept, the analytical concept, and the formalist concept. The descriptive concept can be seen in Smith where the idea is of “the market literally as a marketplace, with all the hustle and bustle of people going about their business” (ibid: 21). The analytical concept is the most common economics textbook account and is used to describe market-clearing dynamics. It stems from neoclassical thinking about partial equilibrium in a single product market. Finally, the formalist concept is the concept deriving from general equilibrium neoclassical models. However, as Watson notes, Read more…

“What is the true value of my property?”

October 12, 2021 1 comment

from Blair Fix – http://www.paecon.net/PAEReview/issue97/Fix97.pdf

Putting a fence around something and calling it “property” is step one of capitalization. But property alone is not enough. Romans had property. So did most feudal kingdoms. But these societies did not have capitalization. To capitalize property, there is a second step. You must mix property with finance.

The word “finance” evokes a sense of awe – a sense of other-worldly complexity. But at its heart, finance is simple. It is the act of reducing property to a number – a price. Merge property and finance, and you have capitalization. How this merger happened historically is complicated. But let’s again reduce history to an apocryphal story. To paraphrase Rousseau:

Having enclosed a plot of land, the first capitalist took it into his head to put a number on his property and found people simple enough to believe him.

This act of giving property a number, Jonathan Nitzan and Shimshon Bichler (2009) observe, is the central ritual of capitalism. It is the ritual of capitalization … and it comes with a problem.

Because “capitalization” is literally just slapping numbers onto property, any number is as good as the next one. My property could be a 23. It could also be a 1023. In other words, property can have any conceivable price. But which price is “correct”? Ever since our apocryphal capitalist put a number on his property, capitalists have agonized over this question: “what is the true value of my property?” Read more…

The preventable horrors of the pandemic and the short case for open research

October 12, 2021 3 comments

from Dean Baker and Arjun Jayadev

 The Covid 19 pandemic is once again at an inflection point– with cases now falling sharply in most of the world. The current pandemic may be coming under control, but after millions of preventable deaths,  this is very far from a success story and it is as good  a time as any to take a hard look at our failings, especially with regard to our management of knowledge

Across the world, the number of Covid infections are declining: the United States numbers are finally falling after the Delta variant sent it soaring in the late summer; India-perhaps the hardest hit country in the world where cases peaked at more than 400,000 a day in early May, is now reporting just over 20,000 cases daily, the equivalent of 5,000 a day in the United States. Similar declines can be seen in countries around the world.

This drop worldwide is due to a combination of both the spread of vaccines and, perhaps more importantly, natural immunity arising out of many infections.  According to a New York Times article, for example, the number of infections in India as of early May was likely close to 540 million, when the official count was just 27 million. Since the pandemic was still in full force in the country at the time, an extrapolation would imply 750 to 800 million infections, close to 60 percent of the country’s population.

While such widespread infections might help to contain the pandemic, it came with a horrible human cost.  While the official number of deaths is around 450,000, researchers have estimated likely death tolls in the range of 1.6 million to almost 6 million in urban areas along according to one study. There is a similar story throughout the developing world, where the actual number of infections and deaths hugely exceed the already devastating official statistics.

That this death toll has occurred, even when the world is (rightly) celebrating the rapid development of effective vaccines, means that we have failed badly in getting these vaccines distributed widely around the world. Crucially, this has been a failure of political will, not the lack of capacity to produce and distribute vaccines. Read more…

Life expectancy in the U.S.

October 11, 2021 2 comments

from John Komlos – http://www.paecon.net/PAEReview/issue97/Komlos97.pdf

A good economy would not have 150,000 deaths of despair a year with life expectancy declining even before Covid (Figure 7) (Case and Deaton, 2020). When traditional social structures of support dissolved for working class whites there was nothing to take their place and despair accumulated. The family was gone, the unions were gone, neighborly love was gone, the churches were no longer relevant, the government looked the other way, and the gig economy did not offer enough income to succeed in the marriage market. For these folks there was nothing to grasp onto except a bottle, the trigger, or a hypodermic needle.

Komlos Oct 10

Source: (Arias and Xu, 2019, Xu et al, 2020, Arias, Tejada-Vera, Ahmad, 2021).
Note: The estimate for 2020 pertains to the first half of the year.

Raising Keynes

October 10, 2021 2 comments

from Lars Syll

The defeat and suppression of the classical perspective — with its evolutionary, institutionalist, and developmental descendants — cleared the way for a dogmatic economics that exalted self-regulating competitive markets …

As we have seen, this perspective soon ran into serious — but temporary — difficulties with the Great Depression, mass unemployment, and the rise of Keynes, whose theory is revived in Harvard University economist Stephen A. Marglin’s Raising Keynes …

Raising Keynes: A Twenty-First-Century General Theory (9780674971028):  Stephen A. Marglin - BiblioVaultMarglin’s basic argument is stated in two parts. First, he focuses on the “Keynesian first-pass model” in the context of the static, general equilibrium framework favored by John Hicks (this is known in textbooks as the IS-LM model). He concludes that within that framework, Keynes’s theory is reduced to dealing with “frictions and rigidities,” implying that “if only” markets were competitive in the neoclassical mode, mass unemployment could not exist …

In his “second-pass model,” Marglin resets Keynes in a dynamic frame, dealing with events and changes that occur through time … Like Keynes, Marglin argues, correctly, that in this world, persistent involuntary unemployment cannot be resolved by cutting wages and breaking unions, even if you can get away with doing these things. Here, Marglin is, in effect, restating what Keynes’s closest collaborators always argued. My first encounter with Robinson came in a University of Cambridge lecture hall in 1974. She had been sitting in to heckle Frank Hahn, one of the leading neoclassicists there at the time. As undergraduates fled the scene, I introduced myself and she invited me to lunch. Once seated in the buttery of the University Library, she started in: “You can’t put time on the IS-LM diagram. Time comes out of the blackboard.” I had no idea what she was talking about, but she certainly did (and now so do I) …

Marglin has taken 80 years of neoclassical distortions of Keynes, presented them with great clarity in their own language, and then pounded them into dust, pushing the detritus back into the faces of the high priests of the neoclassical synthesis, the New Keynesians, and the New Classical Economists. Raising Keynes issues a challenge that they would be cowardly to refuse – which is not to suggest that they won’t do their best to ignore it.

James K. Galbraith

Again — as so often — it turns out that when we economists disagree it ultimately boils down to methodology . Read more…

The decline of US power based on financialised neoliberal capitalism

October 7, 2021 1 comment

from Radhika Desai and Michael Hudson 

As a new Cold War against China began, it was clear that the pandemic was altering the international balance of power fundamentally. For former US Treasury Secretary, Lawrence Summers, it was likely a “hinge of history”: “[i]f the 21st century turns out to be an Asian century as the 20th was an American one, the pandemic may well be remembered as the turning point”. It would erase 9/11 and 2008 from memory and rank alongside “the 1914 assassination of the Archduke, the 1929 stock market crash, or the 1938 Munich Conference” (Summers, 2020).

However, Professor Summers misses the point. The twentieth century actually was more an attempted American Century than an accomplished one (Desai, 2013) and the shift away from it is looking more certain and decisive than the “ifs” in his assessment let on. The pandemic is less a hinge than an acceleration of the decline of US power based on financialised neoliberal capitalism (Desai, 2020a). The structure of world domination that the US had sought to foist on the world in recent decades is breaking down. Read more…

Mainstream economics — the poverty of fictional story-telling

October 6, 2021 4 comments

from Lars Syll

Why sci-fi and economics have more in common than you think | New HumanistOne of the limitations with economics is the restricted possibility to perform experiments, forcing it to mainly rely on observational studies for knowledge of real-world economies.

But still — the idea of performing laboratory experiments holds a firm grip of our wish to discover (causal) relationships between economic ‘variables.’If we only could isolate and manipulate variables in controlled environments, we would probably find ourselves in a situation where we with greater ‘rigour’ and ‘precision’ could describe, predict, or explain economic happenings in terms of ‘structural’ causes, ‘parameter’ values of relevant variables, and economic ‘laws.’

Galileo Galilei’s experiments are often held as exemplary for how to perform experiments to learn something about the real world. Galileo’s heavy balls dropping from the tower of Pisa, confirmed that the distance an object falls is proportional to the square of time and that this law (empirical regularity) of falling bodies could be applicable outside a vacuum tube when e. g. air existence is negligible. Read more…

Dominant capital and the government

October 5, 2021 1 comment

from Shimshon Bichler and Jonathan Nitzan

This note contextualizes the ongoing U.S. policy shift toward greater ‘regulation’ of large corporations. Cory Doctorow (2021) and Blair Fix (2021) are optimistic about this shift. We doubt it.

  1. The Limits of Power

Large U.S.-based corporations are extremely powerful, but the growth of their power has decelerated considerably.

Figure 1, updated from our ‘Corporate Power and the Future of U.S. Capitalism’ (Bichler and Nitzan 2021), shows the earnings before interest and taxes (EBIT) of the top 200 U.S.-based corporations, ranked by market capitalization, relative to those earned by the average U.S. corporation. The top series confirms that this differential – which proxies the relative power of the top 200 firms – has grown exponentially, rising from roughly 1,000 in 1950 to more than 15,000 in the 2000s. The bottom series, though, shows that the rate at which this differential power has grown trends downwards. Read more…

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