Home > Uncategorized > Partying like it’s 1848

Partying like it’s 1848

from Peter Radford

This is not a time to dwell on the inconsistencies and even contradictions of the recent uprising of populism in the western world. Treat it as a fact. It just is. For there can be no mistaking the trend: people, large numbers of people, in a large swathe of Europe and America really are unhappy with their lot in life. Really unhappy. Fully 52% of Republican supporters of Donald Trump tell pollsters that they are angry with the way the country is going. Not just unhappy or disappointed, but angry. Anger leads to really bad political decision making. It is not a constituent of reasoned argument. It leads too quickly to rash thought and even to hatred.

One theme that emerges from this populist moment is the identification of immigration as a source of concern. No, not just concern, but of deep unease. People in both the UK and the US can be heard demanding that they “get their country back”. Leaders in both nations have lamentably failed to identify the importance of immigration as a lightening rod for malaise. Nor have they reacted with anything sensible as policy.

Here in America the reason most often given for the failure to deal with immigration is the gridlock in Washington. It is impossible to begin a conversation about immigration policy because the pre-existing political positions are so well laid out and well established that any talk leads immediately to a conformation of gridlock. So stasis abounds and people get more and more impatient.

The same goes for economic policy. This is what interests me most of course. The failure of economics is breath-taking. 

The failure of politicians to implement anything resembling sound economic policy even more so. I think the two go hand in hand. After all we cannot blame politicians for bad policy of the economics profession itself is still utterly incapable of updating itself to take into account its terrible pre-crisis performance. Worse, the constant infighting and name calling within economics has produced the same gridlock we lament in Washington: nothing can change because people’s reputations are at stake.

Economics is well known for the hubris of its leading lights. They are not exactly shrinking violets. It takes a certain kind of arrogance to announce to the world that the profession has sufficient knowledge that the business cycle is defeated. It takes an even more peculiar sort of arrogance to say such a thing and then make no adjustment when the business cycle rages on after you have said it.

I have, rather naively as it turns out, always thought that academics were a group we could rely on to change their minds in the face of evidence. If there was one part of society we could turn to for fact-based discussion it was supposed to be academia. Apparently not. Facts be damned. The neo-religious zeal with which the Chicago School defends its evidently rotten ideas is wondrous to watch. And every time those folks mount such a defense they erode both their personal integrity and that of the profession as a whole. No wonder the fringes of economics teem with apostasy, the high churches are both wrong and too proud to yield.

I am tired of the argument. I have invested too much of my own time in trying to create a space for economics to engage in debate about its own failings. Perhaps I am being too hasty, but I do not detect enough effort to construct a better product. Yes there are all sorts of attempts being made, but the great redoubt remains unchanged. The textbooks remain full of error. The old ideas are simply being re-processed. And society is being short-changed.

Ultimately, I think, it will be the relevance of economics that is diminished.

Professional economics rose in status considerably post-war. It attained a status for professionalism and competence that in retrospect its core ideas were not capable of sustaining. Those ideas were industrial in origin. Its basic structures were derivatives of crises decades ago. Even its great score-keeping ability and its measurement of the center of its attention have become steadily less relevant to the world it seeks to interpret. GDP is a moribund concept and needs an overhaul, but a profession as divided as economics cannot undertake the task. It is too busy fighting the 1930’s wars over and over again.

Speaking of which:

One of the greatest disappointments of this populist moment is the absolutely awful response from the left in politics. I read time and time again that either Brexit or Trump signifies a “crisis in capitalism”. People on the left have been twittering on about a crisis in capitalism since Marx made it fashionable to do so. Leftists have become akin to those religious sects who repeatedly predict the apocalypse and who never change their minds  when their predictions repeatedly fail. Instead of re-inventing a left of center narrative – one with a certain amount of flexibility perhaps – they wander off and yammer on about technicalities, the treachery of less-than-pure colleagues, or the apparent grip on history that the right wingers must have. After all, uncle Karl was surely right.

Well maybe in 1848. Not now. The world has moved on.

And so it goes: both sides in economics, and even the Keynesian middle, seem stuck in a time warp. Yet the march of technology, the change in demographics, the rising interconnection of societies around the world, the change in the nature and methods of business, and the need to re-evisage the nature and impact of growth have all failed to cause a radical re-interpretation of the discipline’s core ideas. They are simply assumed to be timeless and to have undiminished application no matter what happens to the economy.

The last great book on economics was by Keynes. There have been critiques aplenty since, some powerful others not so much, but no one has taken the time to sit down and re-write the core from a deep understanding of the changed world. The flood of formalized work over the past few decades has simply papered over the ever decreasing tightness of the connection between the core ideas and the economy itself. The discipline has become more and more self-referential; its advances more and more arcanely technical rather than interpretative; and its center more and more hallowed rather than open to challenge.

In many ways the entire effort smacks of the 1848 spirit. It attacks with zealous accuracy problems that are, whilst never entirely gone, less and less those we face today. It fails to update its thinking at the same pace that the economy is changing. It lives in the tenured, protected, sedate world of an academia that itself is looking less and less a model for future education. It resists change with a prodigious willpower.

Will the future care?

I don’t know.

But I do know it isn’t 1848. And I do now that the people of the western world need help if they are to avoid this populist moment engulfing the great liberty and prosperity that economics was once proud to have contributed to.

  1. aul Davidson
    July 18, 2016 at 10:10 pm

    the problem is that most “Keynesians” never read Keynes– they took their interpretation of Keynes from Paul Samuelson’s neoclassical synthesis Keynesianism — which was not Keynes — but was simply classical economics where sticky money wages and prices was the sole cause of unemployment!! Samuelson resurrected the Classical [neoclassical] microfoundations for hsi view of Keynes — and as he is reported to have told Colander and Landreth in their book THE COMING OF KEYNEIANISM TO AMERICA, Samuelson found the General Theory “unpalatable” and therefore merely assumed it was a slowly adjusting Walrasian System — the slow adjustment due to stickiness of money wage rates!

    But Keynes, on page 257 of The General Theory specifically states that “Classical Theory was accustomed to rest the supposedly self-adjusting character of the economic system on an assumed fluidity of money-wages; and, when there is rigidity , to lay on this rigidity the blame for maladjustment….My difference from this theory is primarily a difference of analysis”.

    For several decades, now, starting with my MONEY AND THE REAL WORLD book of the 1960s I have tried to persuade my fellow economists that Keynes’s analysis provided a different analysis for , what he called “A Monetary Theory of Production” where liquidity and the “essential properties”of all liquid assets are the basis of the “business cycle” and even persistent unemployment.

    The latest version of my explanation is in my new book POST KEYNESIAN THEORY AND POLICY [Elgar publishers]

    I wanted to title the thesis of this book WHOSE AFRAID OF JOHN MAYNARD KEYNES?

    If you would only read it you would get a new economic theory that explains the Great Recession as a result of the securitization of mortgage backed derivatives by US investment bankers who advertised these securities as “good as cash” and the rating agency giving these securities AAA ratings — when the resale market for these derivatives
    was not designed to be ORDERLY!

    So how about reading my book instead of clamoring that economists are never bound by the facts?

    Paul Davidson

    • graccibros
      July 18, 2016 at 10:22 pm

      I haven’t gotten to your book, but I will refer you back to yanis varoufakis and the posting earlier today on “the continuing tension between Neoliberal economics and democracy…” very relevant for stick wages and prices and markets not clearing: essentially Polanyi says the “double movement” – no apologies, gets in the way, and the more democratic the society the more double movements to block us from your leanings toward proper monetary interventions and the hope of so many employers that wages will stay low or fall, fall especially hard during panics, recessions and depressions? How’s that working in Greece? Or here, for that matter? Immigration kind of approaches the issue, but the way the Right and Center handle it in the US, both go off on extremely loopy side excursions…this is to rich, too complex to handle in a blog, sorry…so don’t hold me to a completed answering theory…going back to Peter: you can’t have a proper discussion of immigration and economics of wages, labor markets in the US without discussing the fates of Latin and Central American economies from the 1960’s on, esp. what happened under Reagan, NAFTA, bailouts for banks…and don’t look now, we live next to a failed state in Mexico, and you have to get to the drug markets to explain that…instead we get Renya Grande’s “The Distance Between Us,” very good childhood memoir that liberal dems in Maryland loved, and elevated, told us nothing about the economics between the two countries and a certain Obama leaning editor in New York rejected my critique, carefully written of what was going on…sorry, hard to discuss without spilling over boundaries

  2. graccibros
    July 18, 2016 at 10:11 pm

    Two thoughts come to mind: I can’t disagree with anything you wrote, Peter. If asked who has come closest to the complete revision, I would say James Galbraith’s essays-polemics during the 2010-2011 attempts to head off the Obama people and his economists from doing deficit reduction measures, and L. Randall Wray’s “handbook” – Modern Monetary Theory, which is not a book for the masses, certainly. The response to Galrbraith’s confident assertions at, for example, Bloomberg, was to call him a “crank”… or worse. I haven’t seen the labels yet for Wray. I’ve tried my own hand at a popular translation between the two – and I think they both build on Keynes, I don’t see a disagreement there – by noting that if the economic world turned upon hard and fast scientific “reactions,” then the numbers on the US federal spending, debt and deficit during and at the end of the Second World War ought to have invoked “scientific wrath” and runaway inflation and collapse. Instead…well, most of the readers here know the opposite happened: the golden three decades after 1945, with signals of troubles apparent by the late 1960’s. Ditto for England after the Napoleonic Wars…there are counters to both my examples: both societies with the huge debt and annual deficits were the leading economies of their time and had just vanquished their main rivals…stood astride the globe, or a good part of it. But it doesn’t change the numbers…just the context…

  3. Paul Davidson
    July 18, 2016 at 10:34 pm

    the problem is that no one reads the General Theory. I define a classic book in economics as one everyone cites but no one reads. “Keynesians” economists of the mainstream get their Keynes from Paul Samuelson’s interpretation which he called Neoclassical Synthesis Keynesianism which emphasizes that his “Keynesian” theory is based on classical microeconomic foundations. where the only cause of unemployment is the rigidity of money wages and prices.

    but Keynes, on page 257 of the General Theory, specifically stated “Classical Theory has been accustomed to rest the self-adjusting character of the economic system on an assumed fluidity of money-wages; and, when there is rigidity , to lay on this rigidity the blame for maladjustment….My difference from this theory is primarily a difference of analysis”.

    Since the 1960s I have been trying to convince my fellow economists that Keynes’s theory of unemployment lays in what he called the “essential properties” of all liquid assets nd not on any rigidity of wages and prices — or even exchange rates in an open economy..

    My latest book POST KEYNESIAN THEORY AND POLICY provides the best explanation of what Keynes’ theory is about and why Samuelson’s and other mainstream Keynesians are just as wrong as the Chicago School Monetarists regarding macroeconomics and unemployment.

    I wanted to title this explanation WHOSE AFRAID OF JOHN MAYNARD KEYNES? but the publish did not thin this good for an academic book!

    So if you would read my book, you would see that some economists are basing the their on the facts. The Global financial crisis of 2007-8 is shown to be due to the investment bakers in the USA creating mortgage backed securities to sell to anyone wanting a larger return in the era of low interest rtes. These derivatives were advertised to be “as good as cash” and rated AAA by the rating agency– thereby indicating that one could liquidate one’s holdings of these securities quickly and at a price not much different from the previous market price .

    the resale market was organized by the investment bankers — but had no market maker to maintain ORDERLINESS when MOST BECAME BEARS in the market! The result was the resale price of derivatives crashed!

    The accounting rule of “mark to market” required all the holder of such derivative securities to reduce the asset value of their derivative holdings o zero — resulting in wiping out much if not al of the net worth. The result was a tremendous decline in private spending on produced goods and services and the Great Recession

    So rrad my book if you want a theory that is consistent with the facts!!

    Paul Davidson

  4. July 18, 2016 at 10:35 pm

    I agree with a great deal of Peter Radford’s analysis, but I have to take issue with the proposition that “The last great book on economics was by Keynes”.

    I think the combined effects of a selected few great books on economic issues since Keynes’ “The General Theory” “GT”) constitute as great a contribution to economics as the GT itself.

    I am thinking primarily of “The Entropy Law and the Economic Process” by Nicholas Georgescu-Roegen, “Small is Beautiful” by E.F. Schumacher and “Steady State Economics” by Herman Daly. One could perhaps substitute “For the Common Good” by Daly and John Cobb Jr, where the philosophical issues involved in constructing a significantly better society, are more comprehensively addressed, for “Steady-State Economics”, but the ket point is to recognize the enormous contribution Daly made in drawing a constructive, modern approach to economic policy from the earlier insights of J S Mill, Frederick Soddy, E.F. Mishan, Kenneth Boulding and Georgescu-Roegen.

    Personally, more as a counterweight to any over-confident belief in the power of The State to do good without stumbling very seriously, I would also include “The Constitution of Liberty” by F.A. von Hayek, in this notional, collective, post-GT, “Great Book”.

    I am not an uncritical Hayekian by any stretch, and I am really much more inspired by Herman Daly, even when he directly contradicts the Hayekian view of the world. Nonetheless, I think Daly-ite ecological economics is best embraced – and I do think it SHOULD be embraced, because it is bio-physically much more realistic and thus simply better economics than mainstream economics – with a constant cautionary look-back at what Hayek relentlessly warned against. What I have in mind here, is the risk of over-empowering the state or other collective authorities in a very legitimate quest for sustainability and justice, only to, perhaps unintentionally, dangerously undermine the Rule of Law and the foundations of a free society.

    Michael Barkusky
    Pacific Institute for Ecological Economics
    Vancouver BC, Canada

    • graccibros
      July 19, 2016 at 12:45 am

      As I see the American society, and political economy before my eyes in 2016, the great worry is unchecked corporate and private individual wealth’s power over all agencies of government, and the election process. The Sanders campaign might be thought to disprove this, but it is not clear those who funded him could afford to also fund 2,000 similar candidates at all level of American federalism and offices – at the same time.

      One can argue that there is a merger between state and corporate power, and that’s a fair case for the military and prison industrial complex, but I think the private powers drive the system, utilizing the power of the state. Michelle Alexander paints the full portrait of the merger of the two in her book the “The New Jim Crow” and I have objected only to her failure to name neoliberalism as the system beneath the new racism, because she did cite privatization and the debtors cycle that poor blacks are caught up in.

      We’ll know we’re on a better path in American society when von Hayek’s great rival, Karl Polanyi’s Great Transformation is equally cited as the other great book from 1944. Forgive me for inquiry, but is Herman Daly really a von Hayek fan, and not of Polanyi?

    • July 19, 2016 at 12:47 am

      Given some of the crazy neoliberal ideas Hayek has put forth I have a hard time taking him seriously enough to look for positive insight in his more obscure works. From what I can tell so far, he belongs to the “Field of Dreams” economists, who claim steadfastly, despite tons of evidence to the contrary, that local productivity increases inexorably contribute positively to GDP growth. It is hard to do productive economics once you have accepted a gross oversimplification like that into your framework.

      • July 19, 2016 at 4:27 am

        Jeff1089 and Gracibros – I agree Hayek generally overstated his case, and certainly some of his admirers are undoubtedly nuts, but I still think there is something to be learned from The Constitution of Liberty, one of his most thoughtful contributions to inter-disciplinary social theory, if not to narrow technical economics. I must confess to being (probably quite unjustifiably) unfamiliar with Polanyi’s contribution to social theory and it may well be that “The Great Transformation” really does belong in my group of very important contributions to political economy, since the General Theory. I certainly wouldn’t dare say that Daly is a fan of Hayek, nor that Daly is not supportive of many of the ideas of Polanyi. Indeed I suspect there are more references to Polanyi than to Hayek in any of Daly’s major works. I was just suggesting that we keep Hayek’s warnings in mind when we (deliberately) expand state power to control excessive and abusive power in the hands of private owners of capital. And I agree 100%, that capture of the state by private interests is a huge problem. On the issue of economic growth, though, I am continually surprised by how so many”progressive economists” seem to line up with the Cato Institute and the Republicans in treating growth as the summum bonum of economic policy. Most ecological economists influenced in any way by the tradition of JS Mill, Soddy, Schumacher, Mishan, Boulding, Georgescu-Roegen and Daly, reject that view as one that is both myopic and quite unmindful of the biophysical limits of our planet.

        Michael Barkusky

  5. Alan
    July 18, 2016 at 10:46 pm

    Leaders in both nations have lamentably failed to identify the importance of immigration as a lightening rod for malaise. Nor have they reacted with anything sensible as policy.

    That’s just not true. Nicola Sturgeon, the First Minister of Scotland, and her party, the SNP, supports immigration into Scotland, and has pointed out that it is a benefit to the Scottish economy and has strongly defended the rights of current EU immigrants living in Scotland.

  6. July 19, 2016 at 5:18 pm

    Where to start? Radford’s not seeing with his American eyes the dispossession and dispossession, urbanisation and enslavement Marx denounced in 1848 now happening in the remoter parts of the world where it has not already happened? But no: having done my best for over forty years to do what I can about it as a practical scientist, we have this:

    “Perhaps I am being too hasty, but I do not detect enough effort to construct a better product. Yes there are all sorts of attempts being made, but the great redoubt remains unchanged”.

    What the heck does Peter expect when he didn’t support and wouldn’t even critique the constructive paper I spent weeks trying to make intelligible? My impression is he does not understand that some people start by getting their ideas straight, but those with a different type of mind by trying things out using already available materials and methods; others contribute by seeking to overcome limitations, finding or developing new materials and methods; yet others by designing new systems and methods of production using the new methodology and technology, and others trying to envisage how to use and maintain such not yet existing systems in order to educate and train potential users. Summarily, these represent a necessary sequence and usually specialisation in fundamental and applied science, technology, engineering and the education of management and users.

    An editor with a background in bank management who does not understand the significance of fundamental ideas he is being presented with can abort, not effort but (before it has a chance to get started) any possibility of developing the team efforts necessary to “construct a better product”. Nor of course is it just Peter that has done this. “The WEA Online Conferences seek to engage professional economists – academics or not – besides graduate and undergraduate students in Economics considering the variety of theoretical perspectives and the study of the world’s diverse economies”. NB. “professional economists” and “students in economics”, these excluding those providing the various theoretical and historical/international perspectives of their professional interests and studies within real economies. Incidentally, the professional interests include religious (grateful) motivation: the slanderous “neo-religious zeal” is a personality thing, which is why some economists are so susceptible to it.

    I’m glad, then, to move on briefly to the comments. Of course I generally agree with Paul about Keynes, though I see JMK putting together bits of the jigsaw, not seeing the picture whole. I go along too with Ecolecon’s argument for great writers like Schumacher and Daly (but definitely not Hayek!) standing on the shoulders of giants and greater than Keynes when taken together as a team. In the voting for great books, I wanted to list the complete works rather than one book by J K Galbraith, because together these addressed what Graccibros sees: “the great worry [in 2016] is unchecked corporate and private individual wealth’s power over all agencies of government, and the election process”. It seems to me the dishonest Hayek is prepared to see this in the government of nations, but not to admit it applies equally to the government of other organisations by financiers, and their government OF government.

    In information theoretic (as against Hayek’s ‘power’) language, representative government does not have the information processing capacity to fully represent the diverse needs and aspirations of individuals; therefore it governs them, which is the antithesis of the freedom “the powers that be” claim to defend.

    The paradox is resolved in principle if government and organisational management become merely advisory, providing data beyond the ken of even mature individuals, to enable these to manage their own lives. Twenty years experimenting with PID structured computer-assisted management leaves me under no illusions about this being an easy option: the typical managerial mind thinks in terms of controlling rather than helping others. Britain’s new Prime Minister’s intention to insist on technical and worker representation on corporate boards, bringing us more line with German practice, would be at least a step in that direction.

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