Moving On

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. 

Crucially it debunks the conservative notion that there is a self-adjusting mechanism in free market systems which allows us to ignore what appear to be heinous outcomes like our contemporary inequality. Conservative economists argue we ought ignore such outcomes because they are what the market “wants”, and since the market is simply a reflection of our accumulated preferences freely expressed, those outcomes must also be what we want. It is a powerful argument. It is simple and profound. It is wrong.

It is wrong because the rate of return on capital is higher than economic growth. So the logic of inequality is more foundational than the logic of market competition. Free market economics, in its various guises, never went deep enough. It stopped short at what I consider to be an ideologically convenient layer of thought.

Free market economics has a long history, but it is almost always advocated to contrast with reality not to explain it. It came into being to illustrate why whimsical autocratic interference in the workings of a market might hinder the accumulation of wealth. Its recent version came into being during the Cold War when capitalists needed theoretical underpinnings to create a moral superiority over Soviet style communism. Its creators were, by and large, born and raised during an aberration in our history, in a period when capitalism could be made to look benign. They used limited references to history, and they had limited analytical technology to allow them to massage large quantities of data. Kuznets is a shining example of this.

Piketty has changed this.

He has reintroduced history. He has explicitly reintroduced political economy. He has delved deeper into the foundations of capitalism and produced a fact that needs a response. It needs a new theory. He has not produced that theory, he has simply pointed out the natural asymmetries within capitalism.

Further, he has done in much of Marx. For all the same reasons.

Both left and right now need to reformulate their thinking.

The logic of capitalism is not that that it is self defeating. Nor that it is self adjusting. It just is. It plods along inexorably undermining much of what we observe as modern and socially beneficial. It will destroy the middle class. Relentlessly. It will plunge us back into a modern form of the Gilded Age. It requires the counter balancing force of democracy to humanize and channel it. It needs constant tempering.

That many of us have observed this as obvious is neither here nor there. That it confirms our convictions is irrelevant – though nice. It is the public who need to hear about it. They are the ones who have lived the myths of opportunity, of upward mobility, of merit based success, of American “exceptionalism”, and of market efficacy. They are the ones who need to be educated because they are the voters who can influence the next generation of policy. And it is policy that can correct our course.

Who should we read? I don’t know exactly. Clearly the fact that Piketty’s book is now a best seller and has sold out on Amazon tells us that he is being read. But there are others: Saez and Zucman’s paper is in the same vein. But I think the real literature is now to be written which ought to be exciting to any young economist who wants to make a contribution to society rather than simply to economics.

Remarkably, Irving Fisher’s 1919 presidential adress to the American Economic Association was on the importance of the topic of inequality, mainstream economics – paradigm or not – ignored him. It culminated in the absurdity of Robert Lucas and his statement that distribution doesn’t matter and that studying it is a waste of time. Yes it matters. Fisher knew it. Piketty proves it.

Finally, and with respect to the public: I was having coffee whilst going through a presentation I am preparing on inequality. A friend asked to look at it and comment. He had two reactions. First he though the word “inequality” was provocative and redolent of class warfare. He wanted me to think of another word. Second, he was astounded at the data in my charts. Piketty data. He had never seen anything like it. Why, he wondered, do our politicians not talk about this?

He went further. He said that removing the scales of myth will be deeply disturbing. People, he argued, have been ignoring the pressure of reality, but they know viscerally that something is wrong. Quite what they are not sure. But those myths allow them to maintain hope. A hope that things will improve. I hope that they can muddle through and survive. A hope that they will avoid the financial pitfalls that unemployment and illness inevitably now bring. To have that hope they need to believe in the larger American system and that it is fair. Take away that veil of fairness and you take away that hope. After that comes anger and resentment. After that comes recrimination. After that comes social unrest.

And, yes, he ended there. With the inevitability of upheaval.

Post-Piketty we can now contemplate upheaval on the basis of fact rather than pure emotion or observation of the obvious.

When I helped Edward, Norbert, and Grazia form the World Economic Association it was because I imagined a moment like this would arise. There is now more momentum behind change, and we have the vehicle – one of many to be sure – to help facilitate that change. We have journals that could be dedicated to such things. We have conferences that could feature such things. And we have access to thousands of people who can advocate such things. We can, therefore, help establish an economic democracy.

First we need to communicate with our neighbors.

This starts at the bottom, because, as Gilens and Page point out, the top isn’t listening.

  1. April 29, 2014 at 11:28 am

    Reblogged this on Political Economics Review Blog and commented:
    Worth reading! “Moving on” by Peter Radford (Real-World Economics Blog)

  2. robert r locke
    April 29, 2014 at 1:44 pm

    Soft Economics

    Peter, far from me to denigrate Piketty; his work is important because, if for no other reason, it has awaken so many from their dogmatic slumbers. But I would like to use an example, drawn from Operational Research, isomorphically, to illustrate the limitations of the postPiketty critique. Just yesterday, I received an e-mail from David Lane, an Operational Research Science/Management Science expert, who said that he was reading the book, Confronting Managerialism, that JC Spender and I wrote. In that book, we noted that Operational Research entered into a crisis about its methodology (especially mathematical modeling) in the 1970s, culminating in an article by Russell Ackoff, “The Future of Operational Research is Past” (which would be for economics, “The Future of neoclassical economics is past.”) Ackoff wrote that OR (read neoclassical economic models) can never be a “perfect representation of a problem [because they leave out] the application not only of science with a capital S but also all the arts and humanities we can command” He accused OR of “mathematic masturbation without substantive knowledge of organizations, institutions or their management.” (JOR, 30, 1979, 93-102). Since Ackoff was a leading OR pioneer, it would be for neoclassical economics as if Paul Samuelson had entered into apostasy. Remember neoclassical economics borrowed heavily from OR in model building decision models, i.e., linear programming, in the 1950s-60s, and later for models in financial economics.

    Lane wrote to me: “I do not know if you are aware of this but Ackoff’s 1979 brought forth a ‘Kuhnian Crisis’ in OR that Dando and Bennett speak of. A key development is the emergence of a range of development of Soft OR ‘problem structuring methods’ that seek to move beyond a purely technical and calculative form of OR/MS to something which engages with the social/organisational context. This has been one of the most fruitful developments in Europe, which has been almost entirely neglected in…America.”

    I answer that I did appreciated that Kuhnian crisis and told a story: “I was invited to give some talks in the School of Management at Trinity College, Dublin in 1988. The man responsible, Bill Kingston had read a book I had written in 1984 about The End of the Practical Man. I told Bill in conversation shortly after I arrived that people in OR had had a sort of ‘nervous breakdown’ after Ackoff’s article, The Future of Operational Research is past, a crisis of confidence in OR scientific methods. At a lunch in my honor Bill introduced me to the head of OR at Trinity College and (we were 10 sitting around a table) told him my story about OR having a nervous breakdown. I wanted to drop through the floor. But the OR man, thought for a while, and said, “yes we did.” And a good conversation ensued.”

    (Lane writes: For an introduction to PSMs, the following paper by my former colleague at LSE might be of interest:
    Rosenhead, J. 1996. What’s The Problem? An introduction to problem structuring methods. Interfaces 26(6): 1-24.

    For an introduction to the methodological debates, and a re-formulation of what PSMs can offer OR/MS (and, hence, a Trojan Horse critique of traditional OR/MS) I attach a copy of:
    Lane, D. C. 2010. High Leverage Interventions: Three cases of defensive action and their lessons for OR/MS today. Operations Research 58(6): 1535–1547)

    I have always admired OR people for facing up to shortcoming in their methods. It reveals an intellectual honesty that mainline economics lacks. But this is not the main point of this comment. I don’t think the Piketty effect Peter talks about is commensurate with the Soft OR Lane describes. It lacks, for one thing, the social-institutional dimension. I almost never find articles in the rwer or posts in this blog that discuss any institutions in their complex historical specificity, except my own. I talk about nothing else.

    • April 29, 2014 at 5:52 pm

      Robert, Interesting comments.

      I think managerialism, rather than lack of detailed knowledge of institutions, which is the problem. The managers have run many fields into the ground including economics, operations research and even physics. The managers have managed for appearance according to superficial metrics perhaps for funding allocation reasons rather for actual health or achievement of their subjects (of which they may lack actual knowledge).

      In the case of economics (and also other fields), the disease is “observation-less theorizing” mentioned by Bergmann, B. (2009), “The economy and the economics profession: both need work”, Eastern Economic Journal, 35, pp. 2-9.

      The management makes into “non-science”: economics, operations research and even some areas of physics. Why economics (or other fields) is not a science is described here:

      • robert r locke
        April 30, 2014 at 7:19 am

        “I think managerialism, rather than lack of detailed knowledge of institutions, which is the problem”

        I find it somewhat ironic that you write this, when we are engaged in a great institutional fight trying to dislodge orthodox economists from institutional control of academia. How they got there and how to get them out has more to do with institutional power-politics than economic thought,

      • April 30, 2014 at 7:31 am

        Sorry. I don’t mean institutions are unimportant, as they are important. What I mean is that managerialism works across many different types of institutions with the same debilitating effect. The corrupting influence of managers works in bureaucracies, government agencies, universities, research establishments, journals, etc.

  3. April 29, 2014 at 2:08 pm

    “Who should we read? I don’t know exactly.”

    Piketty remains back ordered in my book store. In the meantime, for keen analysis of a modern non equilibrium perspective, I am finding a powerful elegance in “Foundations of Economic Evolution” by Carsten Herrmann-Pillath (though I should be fifty years younger and reading it as course work under a brilliant multi faceted professor).

  4. Herb Wiseman
    April 29, 2014 at 3:09 pm

    The facts and logic will never bring about change. See Why Bad Beliefs Don’t Change by Lester. We need to take a page from Bernays (see his 8 point formula) and actually put together a campaign to alter the beliefs of the public. A reading list and books like Piketty’s are interesting but only to a few of us economic nerds. We have part of Bernays’ 1 and 2 complete. Six steps to go.

  5. PJM
    April 30, 2014 at 4:27 am

    Nice post, Peter. I don’t think Piketty did in Marx, Bernstein did (and I think Marx would have agreed with him, had he been alive). That doesn’t mean that Marx’s politics and intellectual spirit doesn’t live on (though I tend to think not a small number of self-described Marxists are mostly incapable of aiding the progress of either).

  6. robert r locke
    May 1, 2014 at 6:08 am

    Lyonwiss, I couldn’t agree more with your comment that “managerialism works across many different types of institutions with the same debilitating effect.” That is the point of studies like Mike Rother’s on Toyota Kata, and Tom Johnson’s on Toyota’s operations at the Georgetown plant in Kentucky (H. T. Johnson & Anders Broems, Profits Beyond Measure, 2000). Profits Beyond Measure is a pun, that stresses the soft organization culture the underlies Toyota efficiency, not management devised and imposed financial accounting systems, which are the instruments of managerialism. Today Toyota, the largest vehicle manufacture in the world, announced record profits. It stresses employee involvement, just as in Germany employee elected works councils are deeply involved in the implementation of work processes. Managerialism also works across business and economic serving institutions. The example I cite so frequently, is the American created and American exported business school, which in their curricula, their recruitment, and interrelations with society are not public institutions but institutions that serve the private interests of the managerial caste, in spreading the ideology and practice of income mal-distribution to the top. Japan does not have business schools, neither does Germany, with a few exceptions.

  7. davetaylor1
    May 1, 2014 at 9:29 pm

    Following up Robert’s comments on ‘soft OR’, I found a short but very interesting paper ringing bells with my own experience in Britain, where the hardlining took off under Thatcherism (1979).

    It captures the mood very succinctly in section 9: “but a change in the emphases of OR foundered on a general desire to hold fast to the familiar. This was the decade when Russell Ackoff spoke out in two papers, published and debated by the OR Society : ‘‘The future of OR is past’’ and ‘Resurrecting the Future of OR’ “.

    In section 5 (on 1954-61) criticism led the author to say “I had however forgotten that the old VHF DF [Direction Finding], albeit not very accurate, was user-friendly and the pilots loved it. … I added human factors to my list of subject areas for essential study”. He moves in section 10 to the line we were taking by 1970: “We were all, in effect, seeking theories of decision aiding rather than theories of decision”.

    He goes on to describe how post-1979 the emphasis shifted strategically from OR of practical problems to OR of OR. In section II he says: “This sort of work has continued apace and much is now operationally available. Similar extensions of the scope of OR have also taken place in many European countries. A Working Group, of which I am a member, ensures that communication of ideas is widespread”. Of the US he says: “I am less optimistic about the direction in which US operational research is moving”.

    There is a nice Biblical story about managerialism. A centurion asks Jesus to heal his servant, but doesn’t want to trouble him. “All you need to do is say so and it will happen, as my slaves would make it happen for me”. Jesus (trying hard to keep a straight face) says “Greater faith than this I have never seen”.

    Shippers may decide destinations but navigation actually has to be DONE, with captains plotting their courses and trained staff or a PID servo “aiding” the machinery with information. Otherwise, the journey and eventually the ship WILL “self-organise” – by crashing! However, when it reliably makes governors, directors, CEOs and officers richer rather than delivering the cargo, that hasn’t happened on its own. Even if the institutional steering gear is faulty and the crew training hasn’t covered getting one’s hands dirty doing steering maintenance.

  8. May 4, 2014 at 3:56 am

    Economics is the ordained life experience of humanity, and is a paradigm presenting the experience of money in an age.

    As communicated in Ephesians 1:10, economics is the paradigm and stewardship of all things by Jesus Christ in every epoch, bringing them to maturity and perfection, much like a ship’s captain completes the manifest before setting sail.

    Economics is defined as the life experience between a person and another, a corporation, and the state, that is government; either it be ethical or pathological; economics is the trust and flow that comes from sovereignty, and the model that best presents economics is the Dispensation Economics Manifest.

    An economy is defined as the life experience that comes from the administration of the credit and trade that comes from a household or stronghold. An economy exists for life and death experience, and is determined by the prevailing interest rate of the monetary regime and its monetary policies and schemes.

    All be economists, as the field of economics is not restricted to NYT pundit Paul Krugman, or to ivory tower academicians, such as Oxford’s Simon Wren-Lewis.

    Economics is money based; money is defined as the credit and trade that comes from the administration of a household or stronghold; debt based money bears interest, which is defined as the cost of money.

    The banker regime established the freest of all economies in the history of mankind; beginning in 1999 with the repeal of the Glass Steagall Act and the provision of the Euro, it birthed and established the investor as the centerpiece of economic action.

    The beast regime of regional governance and totalitarian collectivism, seen in Revelation 13:1-4, emerged on October 23, 2013, as Jesus Christ opened the first seal of the scroll of end time events, seen in Revelation 6:1-2, to provide the experience of diktat money replacing the democratic nation state and banker regime, which provided fiat money, to enable the bond vigilantes to begin calling the Interest Rate on the US Ten Year Note, ^TNX, from 2.48%, and thus pivoted the world from the paradigm of liberalism, meaning freedom from the state, into that of authoritarianism.

    Liberalism featured democratic nation states which provided policies of investment choice and schemes of credit. But now with the failure of credit, seen in China, Russia, and the US Small Caps trading lower, authoritarianism is the new normal, and features regional governance which provides policies of diktat and schemes of debt servitude where the debt serf is the centerpiece of economic activity.

    • davetaylor1
      May 4, 2014 at 9:58 pm

      My first reaction to this was, is this “yen guy” serious? a serious Christian offended by my humour? a predestined Calvanist seeing Christ in his own image? or a Capitalist free trader trying to justify the status quo by ridiculing Christian compassion (of the “If you didn’t laugh you’d have to cry” type)?

      Actually, taken seriously, theyenguy’s theology is extremely interesting. Though the plain “Christian family” aim of Revelations 1:1-10 seems inconsistent with God permitting debt servitude to triumph as an end game (an interpretation of the poetic language of Revelations 13:1-4), both are consistent with choosing between good and evil, in the one case voluntarily, in the other the evil being so overwhelmingly bad as to make appreciation of our Redemption from it inevitable.

      However, I don’t think it constructive to look back to Liberalism as better than we’re going to have. (Better to value the Earth and be grateful for real mercies). In our own lifetimes we still have choices to make between good and evil, for on the whole we have used Free Trade to “make money” rather than look after each other as family. Peter Selby’s “Grace and Mortgage” shows this to have been anciently the lament of the Old Testament, hence the Good News of our Redemption (metaphorically, Christ having paid off our mortgage).

      Googling around hasn’t helped me recognise the world events theyenguy referred to. What of significance happened on 23rd October 2013 apart from a storm in the States?

    • davetaylor1
      May 5, 2014 at 11:12 am

      On second thoughts, first an apology to “theyenguy” and everybody for a serious misreference: the “Christian family” aim was of course from his Ephesians reference and not Revelations. (I did have to read chapter 1 from the beginning to get the sense of it). Also a different sort of apology. I’m objecting to his definitions of economics, but having “slept on them”, I can see and appreciate better where he’s coming from: Marshall’s “Economics is a science which studies human behaviour in the ordinary business of life”?

      We are here discussing “Moving on”. Allowing God, outside of time, has “completed the manifest”, our moving job is to deliver it. When we find ourselves aimlessly going round in circles, with half the crew starving and our once again being sucked into a whirlpool of violence, what to do about it? The first task, surely, is for the officers (i.e. economists) to remember and emphatically remind the crew of our aim; the second is for them to remember/learn and teach the crew how to steer, and the third is to overhaul and/or /improve the institutional steering gear. It is not simply painting a picture of what’s happening now, whether or not we are close to port or God’s pulling the plug on us.

      “An economy exists for life and death experience, and is determined by the prevailing interest rate of the monetary regime and its monetary policies and schemes”.

      Yes, but Christians and Muslims learned not to charge interest, merely pay bankers’ wages, and look at their wonderful and beautiful public works despite their relatively primitive equipment. (Schumacher was so right, in “Small is Beautiful”, on the adequacy of “intermediate technology” and looking after the wealth we’ve got). Look how poor Muslim immigrants to formerly Christian countries can quickly acquire housing by families pulling together unburdened by compounded interest. As I see it, that is the one change to the physical institution of banking which is essential if it, not God, is not to “determine” mankind going down the plug-hole. The corresponding ideological change has to be interpreting paper money truthfully, as an IOU rather than wealth, so there is no spurious justification for charging interest.

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