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Trade, Truth and Trump

from Dean Baker

Donald Trump seems to have driven a substantial portion of the media into a frenzy with his anti-trade rhetoric. While much of what Trump says is wrong, and his solutions are at best ill-defined, the response in the press has largely been dishonest.

For example, a New York Times editorial tried to imply that there was an ambiguous relationship between the size of the trade deficit and employment in manufacturing. It pointed out that Japan and Germany, both countries with trade surpluses, had seen a comparable percentage decline in the number of workers employed in manufacturing as the United States over the last quarter-century.

What the editorial for some reason chose to ignore was that Japan and Germany have seen near-stagnant labor force growth over the last quarter-century. Other things equal, we should therefore expect to see a smaller increase or larger percentage point decline in manufacturing jobs in these countries than in the United States, where the labor force has grown by more than 25 percent over this period.

The editorial also neglected to mention that Japan now has just under 17 percent of its workforce employed in manufacturing, while in Germany the share is almost 20 percent. This compares to 8.6 percent in the United States. If the United States had the same share of its workforce employed in manufacturing as Japan, we would have another 11 million manufacturing jobs. If we had the same share as Germany, we would have another 16 million manufacturing jobs. That would make a huge difference in the US labor market.  There are some simple and undeniable points about the pattern of trade over the last quarter-century. First, trade has cost the United States a large number of manufacturing jobs. Second, the loss of manufacturing jobs has been bad news for the less-educated segment of the workforce, essentially the 60 percent of workers without college degrees. Manufacturing employment has historically been a source of relatively good-paying jobs for this group, so the loss of these jobs has put downward pressure on the wages of this group more generally.

Finally, in the context of a below full-employment economy (a.k.a. “secular stagnation”), a trade deficit reduces overall employment and output. In a fully employed economy we can envision the loss of demand due to a trade deficit leading to lower interest rates, thereby stimulating investment and consumption. That doesn’t happen when we are looking at near zero interest rates.

Anyhow, it is possible to accept these facts and still argue that the pattern of trade over this period has been a net benefit to the country. But denying these facts is the sort of thing we would expect from Donald Trump, not people engaged in a serious policy debate.

If we want to discuss trade more seriously, we would also ask about what barriers have been left in place. Is there really no way someone can be qualified to be a doctor unless they have completed a residency program in the United States? We would save roughly $100 billion a year (at $700 per family) if we paid our doctors the same amount as doctors in Germany and Canada. There are similar restrictions that protect dentists and other highly paid professionals from international competition.

The fact that highly educated workers have been “winners” in the global economy was less due to their education and skill, and more the result of their ability to use political power to protect their occupations. In the same vein, a major part of recent trade agreements has been stronger and longer patent and copyright protection.

These government granted monopolies are forms of protectionism that are equivalent to tariffs of several hundred or thousand percent on the protected items. This is a huge deal economically and often a matter of life and death when it comes to patent protection on prescription drugs. There are more efficient mechanisms for financing innovation and creative work, but the pharmaceutical and entertainment industry don’t want the discussion because they don’t want to jeopardize the protectionism that benefits them.

Donald Trump is a hateful bigot, but that doesn’t mean that everything he says is wrong. It would be a huge step forward if his critics could acknowledge that the recent pattern of trade has been harmful to large segments of the population. Furthermore, this is due to the way trade policy was designed, not the uncontrollable forces of globalization.

If respectable leaders in politics and the media continue to repeat glib clichés rather than taking the economic reality of trade policy seriously, it should not be surprising that the victims of trade will look to demagogues like Trump. It is unfortunate when we get a more honest discussion of a major policy issue from Donald Trump than the New York Times.

See article on original site

  1. robert locke
    August 18, 2016 at 3:21 pm

    “Donald Trump is a hateful bigot, but that doesn’t mean that everything he says is wrong. It would be a huge step forward if his critics could acknowledge that the recent pattern of trade has been harmful to large segments of the population. Furthermore, this is due to the way trade policy was designed, not the uncontrollable forces of globalization.”

    Dean, I do not understand why you and others do not understand that the reason the German or Japanese manufacturing sectors are stronger than the US has to do with their outperforming US manufacturing in the 1980s and 1990s because of the inability of the US management systems to compete against the Japanese and German and that has nothing to do with trade.

    There is a mountain of literature about this subject that US economists have not read or have forgotten, much of it my own (Look, for example, at the bibliography in my The Collapse of the American Management Mystique, OUP, 1996). The collapse of US manufacturing in those years is a matter of record. So was the ability of Germans to reinvent their manufacturing sector in the same period; it was the hard work of German consultants, work councilors, trade unionists. and firms in the German stakeholder system of management that outperformed the Americans who let their manufacturers be savaged by financial capitalists.

    That is why, if you look at the top twenty firms in Germany and compare them to American, you’ll find so many industrial firms among them (Volkswagen, no. 1. Daimler Benz, BASF, etc.), and none in the top US twenty. The issue was not trade advantages (after all Germany had and has trade surpluses under free trade regimes during globalizatiion) but the managerial systems of a superior nature that carried through a stalwart renovation of German industry, and the failure of US management culture to care enough about US manufacturing to renovate it. Rather, they abandoned manufacturing for investor capitalism where there was so much money to be made. Talking to economists about such subjects is like talking to people suffering from autism. Speak to Germans involved in the reform of German manufacturing in the 1990s, as I did, and you would learn something. What the Germans did to turn their industries around was simply remarkable. The story of how US management failed to carry through a similar turnabout in traditional manufacturing is deeply disturbing.

    • jlegge
      August 19, 2016 at 12:36 pm

      I think that I have stumbled on a further explanation: http://michael-hudson.com/2016/08/finance-is-not-the-economy/

      Hudson is very persuasive in his discussion of the rise of the FIRE sector and its corrosive effect on the “real” or “productive” sector of a modern economy. High on the list is the explosion of household mortgage debt. Germany has a far lower incidence of owner-occupied households that the USA (or Britain, or Australia) and in the absence of a large market for household mortgages German financial institutions, at least, those that focus on the German market, have to support the real sector or nothing.

      You may be being unduly unkind to American managers: up until around 1980 they seemed quite competent and prepared to learn from Japan (see NUMMI for an example). “Real” managers, who looked to grow their business and profits by the efficient delivery of better products, were displaced by “agent managers”. Agent managers saw their task as maximising the rents that the financial sector could extract from their businesses. Instead of borrowing to invest in productive equipment they borrowed to finance share buybacks.

      Agent managers were quite successful on their own terms: since they had no interest in production for the real economy it is not surprising that the firms that they managed proved uncompetitive in it.

      • robert locke
        August 19, 2016 at 4:15 pm

        German savings banks, which are semi-public institutions that finance household mortgages, keep interest rates very low. There are no or few speculative bubbles in real estate. Consequently, in my part of Germany, housing prices are stable, which has stopped me from profiting from my investment. My house is worth about what it was fifteen years ago when I bought it. .

        There was a concerted effort in the US to reform manufacturing, expressed in he society of American Manufacturing Excellence, founded in 1985, the Deming Societies, and even now in the Kata movement promoting lean manufacturing. But economists never paid any attention to it, and neither did MBA programs in US business schools.

      • jlegge
        August 20, 2016 at 6:48 am

        Not having a real estate bubble has clearly been good for Germany and most Germans.

        I am not in a position to say that “all” MBA programs in US universities teach econobabble instead of real management. I fear that the majority do.

  2. graccibros
    August 18, 2016 at 7:48 pm

    Can the American establishment, political or economic, have any full and direct conversation with its people, the citizenry, about any major topic: trade, unemployment, drugs, race, Mass Incarceration, “equal justice under law,” which has disappeared at the top and the bottom (according to Michelle Alexander, Matt Taibii, Bryan Stevenson, and the authors of “People Get Ready.”).

    Sorry to offer a cynical moment but the establishment is no longer capable of this type of dialogue.

    But the way, I haven’t received any notices of blog postings since Aug. 7th, just informed Ed Fullbrook, so if others have experienced the same, time to pipe up. No actions on my part.

    • robert locke
      August 19, 2016 at 8:21 am

      “Can the American establishment, political or economic, have any full and direct conversation with its people, the citizenry, about any major topic”

      The point I have been making for decades is that economics as studied and researched in Anglo-Saxonia cannot evaluate the importance of trade in the decline of the US middle classes because it excludes the subject of management from its purview. Discussing comparative management at the firm and national level, as a host of experts who are not economists have done, is essential to any full and direct conversation of the economists conversation with the people. :

      • William Neil
        August 19, 2016 at 10:11 pm


        I’m taking your argument in and I think it has some merit; the question is what weight and proportion to give it with other factors. I think Thomas Frank’s suggestion that a good portion of the Republican professional base shifted parties between late Eisenhower and Johnson (Kennedy helped, Goldwater’s rise too) to the Dems and their growing infatuation with high tech (Atari Democrats) contributed to moving the party away from labor’s base in manufacturing…and the bias of the economics profession towards quants pushed the same way.

        But what I really had in mind was the turn towards China and the implications for all aspects of American life. Never fully discussed and those who tried, Bill Greider in “One World, Ready or Not, (1997) were viciously attacked by Paul Krugman. It was and remains very inconvenient for Dems today, the make-up of the party, to contemplate that they themselves helped raise the world’s next superpower to that status by pursuit of the China Market that age old American dream…coupled with International giants (American based) to lower manufacturing costs and break labor unions…the fact the Chinese would drive if not control the bargains and learn how to capture world raw materials markets while we obsessed with Middle Eastern crusades at trillions in costs and nothing to show…its too painful to contemplate and the proof is in the shapes we must twist the TPP into and its rationales..lately a bulwark against the power our trade policies raised up! (taking nothing away from Chinese hard work, creative economics and long term deep thinking now strategically and globally).

        I’ve seen in my own intellectual life the doors slam and the quiet “how dare you” answer my inquiries …

        It’s shameful for our democratic pretensions.

      • robert locke
        August 20, 2016 at 7:55 am

        It is rather disingenuous to blame the Chinese for US corporations outsourcing. Decisions to produce in China and export back into the US, which hurt US workers, were made by US corporation executives to enhance their profits. The hard bargains they drove with their Chinese suppliers to keep their costs down and profits up are a matter of record. US corporate greed as much as Chinese ambitions fed these trade deficits. Private sector management not democratic politics is the real culprit, as is the despoliation of the pension and retirement plans of workers in the last two decades of the 20th century. I call it managerialism.

  3. jlegge
    August 19, 2016 at 2:48 am

    The erosion of US (and British, and Australian) manufacturing is a fact and the impact on those without college degrees is a fact. There is unlikely to be a single cause: free trade is part of it, and so (as Robert Locke explains) is the financialisation of the US economy and the rising dominance of zero value added FIRE industries. The US has a cultural problem in that modern manufacturing is highly collaborative and the frontier myth is of self-sufficiency. Lester Thurow drew the analogy between US football and Association Football (soccer): in soccer the player with the ball is in charge of the play; in the US game the whole offense, including the quarterback, are judged on their ability to accurately carry out the coach’s instructions. (In soccer a coach who attempts to influence play can be ordered off the ground.)

    The most basic critique of free trade has to be its flawed theoretical foundations: start with a false assumption, compound it with perfect logic, and end up in Bedlam. http://www.johnmlegge.com/blog/flaws-in-free-trade/

  4. August 19, 2016 at 12:00 pm

    A very interesting and informative post and discussion, not least the extension of it via John Legge’s link.

    If I were to disagree at all it would be to say that Bob Locke’s view on economics omitting [the ideological influence of] Management is not wide enough: it omits Man and the realities of Life, like Man’s need to eat, learn, share and cooperate with others in learning from mistakes and “renewing the face of the earth”.

    We might do better to restrict competition to games and ideas, motivating self-improvement, good work and ideas with honours, prizes and recognition of credit-worthiness rather than illusory profit. As I assume we still do in education and military service.

  5. robert locke
    August 19, 2016 at 3:51 pm

    “Bob Locke’s view on economics omitting [the ideological influence of] Management is not wide enough: it omits Man and the realities of Life, like Man’s need to eat, learn, share and cooperate with others in learning from mistakes”

    Dave, according to a CPI Report
    Policy and investment in German renewable energy of
    April 2016,

    “Between 2005 and 2015, investors poured over €150
    billion into renewable energy in Germany
    Energy companies and utilities, households, farmers,
    energy co-operatives, municipalities, banks, and
    institutional investors all provided capital to renewable
    energy projects, relying upon policy that provided
    reliable revenues, attractive returns and certainty. Since
    the cost of renewable energy was often higher than
    energy from more conventional energy sources, policy
    was needed to plug the gap between renewable energy
    costs and the prevailing market price for electricity.”

    Policy was not the only factor involved in the promotion of renewal energy, so was the stakeholder nature of German organizational culture. German two board management, with a Management Board, and a Supervisory board gives a voice, in the latter, to employees, government, trade unions, and other extra-mural interests outside the firm, which supported renewable energy policies.

    I didn’t mention these environmental protection aspects of German management in my previous comments because I was concentrating on how the Germans, in the 1990s, successfully met through their stakeholder management system, the challenge to their manufacturing in the 1980s that threatened their economy.. I discuss this in the last chapters of Appreciating Mental Capital, which is in our management monograph series. If you visit Goerlitz,where I live, you’ll find a beautiful city where citizens “learn, share and cooperate with” each other in the public spaces. There are a lot of rules and regulations, which are often irksome (including high energy prices), but the prices is worth paying for having one of the 50 most beautiful cities in the country in which to live..

    • August 19, 2016 at 9:13 pm

      Well, what can I say? Good for them (and you)! But that is German domestic policies and management and not the global economics you so rightly criticise. I’m looking at German successes impoverishing others and seeing strategic tree planting world wide as worthwhile work: not only providing renewable energy but increasing carbon absorption and the capacity for that. I’m grappling with the paradox of Germany perpetuating carbon emissions and human under-development by mass-producing quality cars rather than producing what it needs and sharing its know-how. Though it is right to reward the quality engineering, what about the quality policy recomendations of the German economist Fritz Schumacher: “Small is Beautiful” and “Intermediate technology”?

      • robert locke
        August 20, 2016 at 7:43 am

        Never said the Germans were perfect. They are now reopening lignite fed power plants in my region because they do not have enough power generated by renewal energy sources. We do not like that, but the Poles across the border have been generating power by lignite fired plants and have no intention of stopping..

  6. August 20, 2016 at 10:32 am

    William Neil: “(taking nothing away from Chinese hard work, creative economics and long term deep thinking now strategically and globally)”.

    Another excellent comment. As a Brit I’ve been looking at this in terms of the causes and effects of Brexit. My comment having been emasculated by our democratic press, I’ll repeat it here. It starts with money “out of thin air” and ends with those “clever Chinese” and what I see as the logically if not psychologically easy way out.

    “I came home to the Malvern newspapers of 20th and 27th July to find folk still squabbling about Brexit. Like Jeremy Corbyn I voted to “stay” onIy 75% sure that was best, and agree only 75% with Clive Smith and John Gunton’s advice – “Get over it” – for if Julian Roskam’s history is dubious, that’s no excuse for “kicking” him. l agree more with Caitlin Croker, on treating the vote as “advisory”, for it was seen by many (including myself) as the only opportunity they had to protest against Osborne’s Banker-ruled austerity and Cameron’s playing games with the referendum: “Heads I win, tails you lose”.

    “Unlike most voters today, I lived through the Hitler war and learned the Christian philosophy which turned our Empire into a Commonwealth and warring nations into a cooperative EEC. Barbara Dodd may be proud to be British, but I have been ashamed to be English since Thatcher sold off our jobs and communications media to international speculators in the City and did what General de Gaulle had feared: helped turn the European Economic Community into a US-style political European Union. But why? In my old age I ask this impartially as a former public servant, scientist and systems analyst.

    “One has to “join the dots” of international history to see European law as Roman and ours as that of our Norman invaders; to see the invention of book printing being followed by Machiavelli advising would-be kings to “tell the people what they wish to hear” and just four years after that by war over the Reformation of Christianity. Henry VIII not only embroiled us in these but – forced by his financiers to pay interest on war debts – legalised the previously forbidden usury. Elizabeth I obtained her gold via piracy on the high seas. England’s bankers, however, really started the rot by inviting Dutchman William of Orange to throw out our then Scottish king, James II, Amsterdam paying for the war by “creating money out of thin air”. In 1694 London’s financiers did likewise, forming the Bank of England to pension off the monarchy and enable the City to control our government via its budget. That it does seems to be why there is so little difference between Conservative and Labour governments.

    “The Americans twice threw out this Reserve Banking as unconstitutional, but in 1913 were conned into seeing the private Federal Reserve Bank as the Government’s, enabling Wall Street to emerge rich and powerful from two World Wars, dominating US government, NATO defences against Stalinist Russia, the IMF (International Monetary Fund) and WTO (World Trade Organisation). The EEC also rejected the English system, but our City helped the USA sponsor the European Central Bank and its euro. So now we have three banking systems competing (as the clever Chinese watch), with little England’s “special relationship” exposing the City to mighty US Federal power if we resist European take-over by no longer clinging to our “Big Brother”.

    “Surely, then, Brexit is “out of the frying-pan, into the fire”. What we really need to do is to work out how to put out the fire, i.e. reform the banking system by being honest instead of Machiavellian about how it works. Without the confidence tricks, that is virtually what happens in a credit card system.

    “In this a bank loan merely creates a credit limit, which indebts us only insofar as we use it and don’t pay off in the agreed time. We indebt ourselves not to the banks, but to those who credit us with goods; we merely account for our repayment with monetary credit given to us for earning our keep (which includes our looking after ourselves). Treating banks, businesses and government departments as persons is already recognised as a legal fiction, which as a fiction creates no international right to our credit cards. In reality, bought ownership is shared, or a personal responsibility. Everything else seems to follow, including local banks and governments for local purposes. If everyone has credit available when they need it, there is no need for tax, profits, wages, interest and the like. Charges for un-regenerated, unjustifiable and/or unearned resource use amount to fines, while the price theory of economists already assumes local traders vary charges to clear their shelves.

    “So yes, I agree with Caitlin Croker. For all the immediate reasons she gives and even more because of our responsibility for life on Earth and the future of our children’s children, we all need to do some very serious thinking and to hold our politicians to account before they act. Let us hope our new Prime Minister, more serious than Cameron, turns out not to be a Thatcher look-alike despite starting with Machiavellian prayers and “strong” commitment to nuclear re-armament”.

    Of course I agree with Bob Locke: ” Decisions to produce in China and export back into the US [UK] , which hurt US [UK] workers, were made by US [UK] corporation executives to enhance their profits”; but Thatcher and Reagan trusted Milton Friedman and their yes-men trusted them, not being clever enough to foresee the political effects of allowing financial speculators to replace real business managers as corporation executives.

    • August 20, 2016 at 12:06 pm

      PS. I’m following up Raymond Aitken’s comment on RWER 74, from whence the concepts in this outline can be seen to be comparable to my credit card economy:


    • robert locke
      August 21, 2016 at 12:37 pm

      Yours is a sad scenario in which we are ensnared, but perhaps we give too much credit to politics and not enough to managerialism in the private sector as a focus of reform. If firm governance were institutionally different, director-primacy capitalism and instruments of financialization could be held in check. But that would require reforms in civil society that would give communal interests and firm stakeholders a voice in decision making. Economists neglect this subject completely. So did I until I found myself in Germany in the 1970s studying the history of German business education and corporate governance as part of a greater investigation into German industrialization — that opened my eyes to alternatives.

    • August 21, 2016 at 11:40 pm

      “Perhaps we give too much credit to politics … as a focus for reform”? I’m not sure what you are getting at here, Bob, with corruptable party politics being now so obviously discreditable. If law institutionalises and representatives of corrupt bankers and businessmen have bent law to allow corrupt practices, and economic “science” deconstructs the economy as it is, perpetuating corrupt practices by programming future businesses to reproduce the aims which reproduce the corruption, it seems to me one needs to step outside the vicious circle and rethink politics, business and economics in terms of what they should be, not what they are.

      That, anyway, is how the systems analysis phase in SSADM works. One creates a functional diagram of data flows for different purposes, then reduces this to relations between entities, then iteratively reconsiders the logical need for the entities, data processing and options, cross-checking by examining the life history of each entity and internal record. What is true for all is true for any, but options may be needed in practice because at start-up histories are not yet complete, while audit trails and error correction processes are needed because some histories may be (accidentally or deliberately) corrupted.

      • robert locke
        August 22, 2016 at 9:51 am

        “Perhaps we give too much credit to politics … as a focus for reform”? I’m not sure what you are getting at here,”

        I simply mean that, if the institutions of civil society functioned in such a way as to give all the stakeholders, i.e.,owners, employees, customers, a voice in corporate governance, we would not need to have the government involved in heavy-handed bureaucratic ways to redistribute wealth and give welfare relief to the disadvantaged in a civil society that is now organized to benefit the top 1%. You don’t need politics if the institutions of civil society function properly, just like you do not need police to maintain order if there is an institutionalized moral order in society where the citizens obey because of conscience rather than fear of the police force. Confucius called the well functioning civil society, one created by the deliberate fostering of moral order through teachings, institutions, and law.

  7. August 21, 2016 at 12:36 pm

    Failed institutions
    Comment on jlegge and Robert Locke on ‘Trade, Truth and Trump’

    The monetary order and banking are institutions that evolved historically. Like in biological evolution the outcome of this messy process is often sub-optimal. Institutions can and must be carefully designed and constructed. The U.S. is particularly bad at institution building.

    Mortgage financing, for example, is a very old and rather simple business. In Germany it was institutionalized in 1900 with the Mortgage Banking Act. This law was so well-crafted that it worked with minor modifications until 2005 when deregulation became the hype of the day.

    The core of the risk-minimizing regulation had been that a mortgage bank can finance at most 60 percent of the carefully assessed long term value of a house (without imputed speculative gains). As a result, there has never been a real estate boom-bust cycle in Germany since 1900. That is quite remarkable when one considers that Japan, the U.S., UK, Spain and many other economies have been badly devastated by real estate busts.

    Interim results: (i) financial crises are the result of a bad institutional design, (ii) the U.S. is particularly untalented at institution building, (iii) in the international arena, according to a variant of Gresham’s Law, bad institutions crowd good institutions out. This is the most detrimental side-effect of globalization.

    What holds for banking holds for other institutions. First and foremost for the relations between business and labor. The legal status of unions has always been precarious in the U.S.

    With regard to trade one has to keep in mind that the beneficial effects have been theoretically derived since Ricardo under the condition of equilibrium. So, the often lamented negative effects for the American workforce do not necessarily come from trade per se but from the trade DEFICITS of the U.S.

    Dean Baker concludes: “Donald Trump is a hateful bigot, but that doesn’t mean that everything he says is wrong. It would be a huge step forward if his critics could acknowledge that the recent pattern of trade has been harmful to large segments of the population.”

    On closer examination the harm to the U.S. population stems ultimately from the rather shaky micro and macro institutional setup. This, though, is alone the POLITICAL business of the American people and their future president. Politics in turn is NOT the proper business of economics understood as a science.

    What Mr. Trump says about trade or any other economic issue is neither true nor false but simply irrelevant because we can be sure that he does not understand how the economy works. This sad fate he shares with orthodox and heterodox economists.

    Egmont Kakarot-Handtke

    • August 21, 2016 at 11:47 pm

      “The trade DEFICITS of the U.S.”

      I am not sure what you intend by this, Egmont. Do you mean a negative balance of trade or deficits in the methods or control of trade?

    • August 22, 2016 at 11:42 am

      Egmont says: “On closer examination the harm to the U.S. population stems ultimately from the rather shaky micro and macro institutional setup. This, though, is alone the POLITICAL business of the American people and their future president. Politics in turn is NOT the proper business of economics understood as a science.”

      I hear and sympathise with what you say above, Egmont, but as I earlier pointed out to Bob, in practice political institutionalising, entrepreneurial motivation and economic education are interlinked, so this all turns on what one understands by economics as a “science”. I think we are agreed a proper understanding (as against business) of a science requires us to go back to axioms, which include not only basic facts but also honest language, dynamic logic and intelligible mathematics. These again are inter-related, because mathematics is a form of language. We differ on what we understand by this. Ken Boulding’s “The Image” drew my attention to the difference between symbolic and what he called “iconic” language. Your post-Cartesian equations are a symbolic shorthand iconic only of static logic, requiring one to already know the relevant facts. The more fundamental post-Euclidian mathematics of my dynamic logic schema is iconic of communication in its own right, once one has grasped the idea of the static structure having dynamic processes going on inside it. What it offers science is what a map offers a traveller: some idea of where to look for what you are interested in. I can topologically map my basic theory of economics onto the polar representation of the standard theory of physics (https://www.google.co.uk/search?q=standard+model&biw=1024&bih=639&tbm=isch&tbo=u&source=univ&sa=X&ved=0ahUKEwj9lfm5trLOAhVBshQKHVhVAV0QsAQINw&dpr=1). Where in physics energy has to be postulated to explain mathematical variation (though simple-minded Humean Occamists believe and bent minds claim the evidence of mathematical variation makes the energy unnecessary: things just happen), in economics the dynamic flows of the evolved produce of nature, information and physical manifestations of it (models) piggy-backing on energy, and the produce of their transformations, can all be accounted for, along with the development and corruption of the information and physical manifestations of the information structure. Likewise in individual minds, though the physical manifestations are limited by neural integrity and our positions in terrestrial and communication structures.

      “[Trump] does not understand how the economy works. This sad fate he shares with orthodox and heterodox economists”.

      Come off it, Egmont. Whether intended to challenge or to criticise, the snide ending is redundant when those inside the system (including yourself) are all in the same boat.

  8. William Neil
    August 21, 2016 at 4:19 pm

    Well, and I mean this to address a number of commentators here, Sven Beckert examined capitalism and trade in his 2014 book, close to being “magisterial,” “Empire of Cotton: A Global History.” His findings are not pretty, and Karl Polanyi, given due only in a deep footnote, not even mentioned in the Index, lurks in the background of the old production methods of yarn and cloth and clothing. “Mercantilism” is revised, to pay just tribute to its actual methods upon indigenous people, to be now called “War capitalism.” The power of the state in setting up trade and in setting up our first wave of industrial capitalism – the mills of the British midlands – is given its full Polanyi due. You can say free trade nobility all you want, but this Cotton Empire, as Bechert states on the last pages, has none of that and he goes on to generalize to what follows: “…our journey through the empire of cotton has shown that civilization and barbarity are linked at the hip, both in the evolution of the world’s first global industry and in the many other industries that have modeled themselves after it.”

    Bechert says it always was a “race to the bottom” on costs, echoed today in the way huge retailors like Wal-Mart dictate brutal cost terms to manufacturers in China…oh sure, they want workers to be treated fairly, but they leave meeting their brutal bottom line low costs to the mechanisms of Chinese society…even when the Chinese law says pay this, work these hours…the firms keep two sets of books one for the international non-profit and corporate “scrutinizers” and another for what is really going on…the reality echoes Richard Smith’s conclusions about “Green Capitalism” and why it was the “God that Failed.”

    When worker courage and civic conscience aligned, after decades of struggle in the late 19th century to improve hours and pay in the British cotton manufacturies, the owners of capital set about the search for ways around the higher cost…in trying to manage the Polanyi diagnosed resistant ancient Indian indigenous methods of cotton production in rural India. American New England factories moved South for cheaper labor and a union free environment. As pay rises in China, a new wave of brutal low cost labor regimes rises in Vietnam, Bangladesh…and so on…the race to the bottom.

    Poking at the hornet’s nest here: powerful Germans saw, in addition to the old dream of “re-unification,” a new source of cheap labor to compete with the already racing to the bottom workers of Eastern Europe in Hungary, Poland, Czechoslovakia and now Slovakia.

  9. August 22, 2016 at 7:43 am

    Neoliberalism is in the words of David Harvey in “A Brief History of Neoliberalism,” “… a theory of political economic practices that proposes that human well-being can best be advanced by liberating individual entrepreneurial freedoms and skills within an institutional framework characterized by strong private property rights, free markets, and free trade.” In my view neither Harvey nor the commenters here grasp just how all-encompassing neoliberalism can be and today actually is. First, the elements that make up neoliberalism have been around in the world for 500 years. But putting them all together and adding the right mix of force and structure to that construction is wholly an American invention. The primary reason so many explanations are offered by the comments here for the financialization and negative impacts of the current US economy organization is that all these explanations have a common origin – American neoliberalism. And that neoliberalism is much more than just political and economic performances and theories. Theory-wise neoliberalism is a theory of everything. From politics and economics, to marriage and family, to religion and science, to democracy and freedom, to war and defense, to entertainment and literature, etc. In this respect it is like the Roman Catholic Church of the Middle Ages or the USSR at the height of its power. This makes it difficult to critique and change. Every argument that might be used to challenge and call for change has already been anticipated and answered. I’m not saying it’s beyond critique or attack. Only that like the changes in the Church and USSR proposed changes are likely to be more effective when they originate from within the edifice of neoliberalism itself. In this respect Donald Trump is good for the US and the world. He’s a savage critic that says he wants neoliberalism to be successful. We’ve seen the results of attacks from outside. Bob, your stories about effete Germans “doing better” are dismissed as so much wrong-headed BS by neoliberals, when they pay attention to them at all. After all any neoliberal knows Europe, including Germany is going down the drain with all that welfare and public purpose spending. Want to put a neoliberal into an apoplectic state just mention German energy policy. Questioning free markets, free trade, absolute private property protection, restricting private company earnings, etc. is a no go. And of course changing the one man-one-woman family, expanding government, increasing business taxes, equal rights for women, and many others don’t even get inside the door. For example, the problems resulting from free trade mentioned can be easily fixed in several ways. Free trade could also be set up as “fair” trade, with appropriate restrictions on traders to protect national sovereignty (especially for smaller nations) and personal property and wealth. Also, each nation involved in trading could guarantee each of its citizens a minimum level of wealth and support for life’s necessities, taking this money out of revenues from trading. Such “simple” fixes have little chance against the current iron clad grip of neoliberalism.

    • August 22, 2016 at 2:53 pm

      A splendid bit of rhetoric, Ken, but if Bob thought my contribution a “sad scenario”, this makes it sound like a hopeless one.

      I’m not only seeing this from the receiving end of neo-liberalism, but also as a scientist grappling with basics and as a Catholic Christian, conscious via the Bible stories of the origins of the universe and its history; of innocence and temptation; of jealousy and slaughter when God preferred the (hard-working) agriculture of Abel to the pastoral (entrepreneurial) farming of Cain; and of a clash between the sensory Right and intuitive (insightful) Left temperaments portayed in the killing of prophets who could be seen (ultimately Christ) to suppress their challenging messages from an unseen God.

      What’s changed? The Christian Good News that the God seen by the self-righteous and jealous as challenging is actually a loving Father, disciplining them only to help them grow up. I have found the Big Bang and PID error-correction bases of post-Einstein and post-Shannon science entirely consistent with this, and in turn with Jungian personality theory. So Christ rose from the dead, and Christianity eventually became the Orthodoxy which an opportunistic self- rather than God-centred Left could enflame Right-minded sensibilities. The point, though, is that the truth of God’s love spread not through an insider but through people who BECAME insiders, i.e. were converted: stone-throwers like St Paul, libertarians like Augustine, non-Catholic intellectuals in more recent times like J H Newman (inspirer of the 1960’s Vatican council) and G K Chesterton (insightful but now suppressed prophet of paradoxical language, intellectual co-existence and economic sanity). In the post-war years, much of what Chesterton advocated came to pass.

      The point, perhaps, is to grasp and keep telling out the truth until (thinking Krugman and Egmont) some influential or potential insiders are converted. If Trump doesn’t understand how economics works and doesn’t trust the establishment, there may be our opportunity to teach him! In 400 ad Constantine didn’t change the problem but he facilitated the paradigm change which led to Christendom. The invention of printing eventually facilitated the Right-minded Reformation of this, reverting to the letter rather than the spirit of its law, so that the dreaded Inquisition, its Devil’s Advocate intended as the equivalent of a university examiner, reverted to self-Righteous prophet killing. This is today merely done less bloodily, as media owners, editors and Right minds suppress inconveniently heterodox theories and opinions.

      • August 22, 2016 at 7:39 pm

        Bob and Dave, I attended a Marianist university for graduate school. The brother who taught ethics had four doctorates from places like the Sorbonne (his academic robes always impressed me) told us that thousands of Marianists had been tortured and killed by the Church for heresy. The Order did not leave the Church, however. It and its members stayed and helped change the Church. This is what I mean by difficult to change. Large sacrifices are necessary. So far I see little of that among American economists, e.g., facing up to threats to their jobs or academic reputations. Most as the old saying says, “go along to get along.” So neoliberalism in economics just keeps holding onto power. Germany has opposed the neoliberal takeover. At times it has been the only or main opposition. So far Germany has survived the struggle. If Trump is elected in November I expect his neoliberal handlers will use him as a battering ram to knock down not only China but a good part of Europe (particularly Germany). Will Germany continue to oppose and to survive?

        Egmont, as for the notion that all of this is beyond the purview of economics as a “systems science,” I can only respond with, how and by whom do you think system and science as they are used in economics are established? Largely by a process controlled by the dominant perspectives in economics graduate schools, professional societies, journals, etc. You may choose to use another way of describing system and science, but this in and of itself has little or no effect on who and what dominates. Unlike the Marianist brothers you are not tortured or burned at the stake. Just relegated to irrelevance with the discipline. You’re ignored. Which is the situation for most economists anyway.

    • robert locke
      August 22, 2016 at 3:38 pm

      ” Bob, your stories about effete Germans “doing better” are dismissed as so much wrong-headed BS by neoliberals,”

      I rather see it as the reverse of what you surmise, Ken. Not only did the Germans stake out a different way from the Americans in their co-determination and stakeholder capitalism, but they did so against the anger and will of the Americans at the height of their power, who fought against and tried to punish the Germans for daring to dissent from their dominant and dominating neo-liberalism. The Germans in their economic life said screw you to this neo-liberalism and succeeded in founding a well- functioning alternative. They did it when the Americans opposed the co-determination laws in the 1950s and the 1970s, and the
      Germans passed them anyway, although in their ire neo-liberal Americans threatened to ruin the Germans for so doing. The fight is still going on, in the struggle to deny access of investor capitalist to the EU, which they seem to think is their right, and in the fight to deny finance capitalism the right to roam the world markets to seek out profitable mergers and acquisitions, firm buyouts, and other free trading in assets, without regard to the effect this financialization has on the people in the communities where these assets are located. The battle against neo-liberalism is not lost, on the contrary, if you stand up to neoliberalism, it is a paper tiger. It is easy to give the neo-liberals the finger nowadays because they have so signally failed in running the financial system and the economy. The fight is really about what should replace neo-liberalism.

      • August 22, 2016 at 4:20 pm

        “The fight is really about what should replace neo-liberalism.”.

        Yes, Bob. So have a closer look at what I’ve been saying.

      • robert locke
        August 22, 2016 at 9:06 pm

        Dave, I read carefully what you say of a political-historical nature, because that is my province, and agree with almost all of it because you take standpoints outside the British position that are enlightening. You scientific=systems comments I do not comment about because I would be out of my depth in so=doing. Are they correct, well, I rely on the commentators who are scientifically qualified to enlighten me about that. Generally, I can say, as an historian, that economics as science is an historically contested project.

      • August 22, 2016 at 10:06 pm

        Thanks for this, Bob, much appreciated. But I’m not really looking for comments, I’m hoping to spark insight into “what should replace neo-liberalism”. It is by initially getting “out of one’s depth” that one learns to swim in deep waters.

  10. robert locke
    August 22, 2016 at 9:26 am

    “Bechert says it always was a “race to the bottom” on costs, echoed today in the way huge retailors like Wal-Mart dictate brutal cost terms to manufacturers in China”

    A race to the bottom unless there are countervailing powers in the governance system that stops managerrialism from carrying through such policies. I’m not so sure that the cynicism towards corporate governance draconian policies really applies in stakeholder governance systems. Volkswagen, which has employee elected works councils in its plants worldwide was perfectly willing to have a work council in its Tennessee plant. It brings about more efficient management, but the ideologues in Tennessee, the politicos, torpedoed it.

  11. August 22, 2016 at 12:17 pm

    Ken Zimmerman, William Neil, Robert Locke

    There is politics and there is economics. If the American people elects a president who is committed to Neoliberalism then this is their internal affair.

    Economics is a science which tries to find out how the market economy works. At present economics is a failed science. As far as Neoliberalism is based on economic theory it has NO sound scientific foundation. This holds across the board for Walrasianism, Keynesianism, Marxianism, and Austrianism which are all PROVABLY inconsistent.

    So the whole discussion about economic policy hangs squarely in midair. Economists simply do not know how the market economy works.*

    The failure of traditional Heterodoxy consists in never rising above the level of baseless and pointless politicizing. The proper task of Heterodoxy is to replace Orthodoxy and to make economics a science. It is NOT the task of Heterodoxy to comment on Mr. Trump’s or Mrs. Clinton’s utterances about the economy. This has been done much better by comedians.

    Egmont Kakarot-Handtke

    * For details see posts http://axecorg.blogspot.de/2016/07/economics-deadlocked-between-politics.html and http://axecorg.blogspot.de/2016/05/could-we-please-all-focus-on-key.html

    • robert locke
      August 22, 2016 at 2:59 pm

      It is absolutely the task of economics to comment on Clinton’s or Trump’s policies that effect our economic life, like the environment or the distribution of wealth. Your comments so marginalize economics as a prescriptive science as to make it an enemy of the people.

      • August 23, 2016 at 1:29 pm

        Robert Locke

        There is politics and there is economics. If the American people elects a president who is committed to Neoliberalism then this is their internal affair. If the German people elects politicians who implement co-determination then this is their internal affair. If the UK people votes for Brexit then this is their internal affair. NO economist has to comment on this. In the political sphere the economist can participate just like every other citizen but NOT as economist. A comment on Mr. Trump’s policy is a political statement but not economics.

        An economist is committed to scientific standards alone and his subject matter is the economy and nothing else. From history we know that science and politics do NOT mix. Science has never bettered politics but politics has always corrupted science. So both spheres have to be kept strictly apart.

        All this is clear since J. S. Mill: “A scientific observer or reasoner, merely as such, is not an adviser for practice. His part is only to show that certain consequences follow from certain causes, and that to obtain certain ends, certain means are the most effectual. Whether the ends themselves are such as ought to be pursued, and if so, in what cases and to how great a length, it is no part of his business as a cultivator of science to decide, and science alone will never qualify him for the decision.”

        Political economics has not produced anything of scientific value in the last 200 years. Science has nothing to do with opinion but solely with knowledge. Scientific knowledge takes the form of a consistent theory. At the moment neither Orthodoxy nor Heterodoxy has to offer anything in the way of a consistent theory ― only storytelling and agenda pushing.

        Egmont Kakarot-Handtke

  12. William Neil
    August 22, 2016 at 1:16 pm


    I’ll agree and disagree with footnotes. Perhaps it is inevitable that after puncturing all the schools which pretend to science in economics, and their debunkers you continue the search for the science, the continuities which you hope will be found in, or behind the behavior of markets. Good luck, its like the Heisenberg Uncertainty principle: when will you ever be able to find, much less isolate a “pure market” situation from the political forces which set it up, guide and intervene into it, protect it even under the reigning “pretensions?”

    I’ve always wanted to give a lecture – difficult, since I don’t hold a position as “teacher,” to give citizens my case study in markets and capitalism. So wouldn’t I ask, naturally, based on what you have just written, when did the world, and I’ll limit myself to the U.S., which I know best, have the “purest form” of free markets? This would have to be the time at the greatest number of small competing firms, I would maintain by logic and common sense. That would be in the America which had moved away from the colonial mercantilism – War Capitalism in the Empire of Cotton in the 18th century, to the boyhood of A. Lincoln in the decades prior to the Civil War, and closer to the Jacksonian Revolution than to the 1850’s. Small farmers, small businesses which gave rise to Lincoln’s lasting but inevitably misleading observation that here, in the American “race of life,” (the origins, without naming it, of “The American Dream”) a worker may start out simply being a laborer, a mechanic or farm hand for others, but soon, with hard work, will become a small entrepreneur with either his own land or shop.
    But if we know anything about capitalism, it is that it is never static for long. The Utopian time for capitalism in the world’s most hyper capitalist economy, the America of 1820-1850, leaving the South aside, turned into something quite else by the 1880’s, 1890’s, if not sooner. Small farmers were in revolt, and by 1912 small businesses came to Woodrow Wilson privately to tell about the methods used by oligopolists and monopolists to crush them: too revealing and too crude, too brutal for public discussion and subject to the very retaliation behind the worries.

    If we would focus on American agriculture alone, starting in the 1830’s and following the number of farms, prices and productivity right up through the present, we would see that setting aside what it produces and ecological costs, capitalism eats it own, devours them, leaving the faint glow, striving to be a halo over the “family farm.” At its most productive world markets in the 1890’s and through to the end of WWI, the more the many wheat growing areas produced – US, Canada, Ukraine, Eastern Europe…the more catastrophic the economic terms became for the individual farmer…the long rolling depression in prices of the second half of the 19th century, which drove so much of eastern Europe’s migration.
    Who can, amidst the swirls of myth and competing ideologies, tell this tale, honestly, the closest we’ll ever get to the harsh truths about capitalist economics. “Success through elimination.”

    • August 22, 2016 at 4:12 pm


      This debate has been going along faster than my ability to respond (positively) to your first contribution. I hope you will go back and look at my contributions, which are as much about people not seeing the ecological issues as yours is about the issues themselves. I think I summed this up in terms of “the development and corruption of the information and physical manifestations of the information structure [echoed] in individual minds, though the physical manifestations [there] are limited by neural integrity and our positions in terrestrial and communication structures”.

      My point is, how many city dwellers can imagine what a dust-bowl is like, never mind how it can develop – over timescales they cannot comprehend – from human interference?

      When I was young I moved in the UK from urban Manchester to rural Worcestershire, and later had a couple of children from a deprived area of Manchester join our young family for a holiday. These were amazed when I introduced them to lambs, and they amazed me by saying they had thought lambs were just meat you obtained from the butchers.

      In Britain we have in recent years had some marvellous TV programs on nature which I hope have narrowed the gap a little between the urban and rural consciousness of nature. But our teenagers now seem to be hooked on war-games on ipads and glimsing the like in the news, i.e. NOT learning from the nature programs but leaving me worried they are may be coming to take destructive war for granted as “normal”. That is another problem with the majority of people being sensory rather than intuitive. Whereas thought focussed on memories, like google inquiries on the internet, is fairly unrestricted, one can only actually see or hear one thing at a time. That is good for getting things done but not for being able to imagine what one cannot actually see.

  13. William Neil
    August 22, 2016 at 1:48 pm

    I might add, as a footnote to this mini-lecture on agriculture and markets, and American capitalism’s Utopian moments, that the only text I might use would be Donald Worster’s “Dust Bowl: The Southern Plains in the 1930’s.” It documents, and tells in powerful prose, the story of one of the world’s three greatest ecological disasters, built out of the myths of the American Dream as expressed in agriculture, especially first cattle grazing and then production of wheat for world markets, two successive forms of “monoculture” – all driven by the near religious obsessions of the work ethic interwoven with the American Dream, and pushed into Utopian delusions as they tried eastern farming practices on the dry lands west of the 100th meridian which could not support those practices, urged on by the fabulist notion that “rain will follow the plow,” and despite the 19th century post Civil War warning by John Wesley Powell that such practices could not be supported in those regions.

    One of the few serious books than can blend ecology and economics to tell a vital tale; I buy it for young people with promise and give it as a gift. It is elegant, profound and much more complex that the title would suggest, and gets at all the issues I raised in my longer comment just above…and the Afterword, added in the early 2000’s, 2004, I believe, brings us up to date with the ongoing ecological crisis with global warming and the mining of the aquifers underlying the region that is still living beyond nature’s means. It won the Bancroft prize when it first came out in 1989.

    Never has the American Dream in farming been exposed to more withering intellectual scrutiny, which, at the same time, presents the proponents sympathetically, since the author’s parents were rooted in the region. For scholars, this should represent an ideal; that Bancroft prize was too modest.

    For citizens, it is meant to “disenthrall” us from mainstream economics, and teach us ecology. For those who despise politics as usual in Washington, DC, now covering all parts of the political spectrum, they will get satisfaction in knowing that the vast dust storms carried the eroded soil so far to the east that it clouded the skies and rained that soil down upon the hearings in Washington DC being held to consider aid to the region, in May of 1934. Ships off the east coast had to swab the soil off their decks.

  14. William Neil
    August 23, 2016 at 2:09 pm


    Are you familiar with L. Randall Wray’s book, “Modern Monetary Theory,” which is, in my view, an attempt to do what you say has not been done: advance a heterodox theory, internally consistent. What he tries to do in the book is explain why debts and deficits under a currency issuing centrally banked modern capitalism do not matter in the way Neoliberalism’s austerians assert that they must.

    I think he is really doing the scientific end of this part of story telling, my own story on Keynesianism: which is that if Neoliberalism is right, then both Great Britain, at the end of the Napoleonic wars in 1815-1830, and the U.S. at the end of WWII, should have been in deep economic trouble based on the size of their national debts in relation to GDP: in the first historical case somewhere between 200-230%, in the second more recent instance, 150-180%…you get the idea…but their economic worlds did not implode as statistically they should have according to the modern charts of debt and deficit projections for European states, and the “bond market vigilantes” riding in the U.S.

    Perhaps the “science” presented by Wray is marred by the historical contingency that both nations were the leading trading and economic powers of their time, issued their own currency, had their debt widely held and respected, and had sound central banks…whether that is enough to disqualify generalizations broader than these two instances on the positive side, where Wray attempts to systematize and take us, or merely debunks the scientific pretensions of Neoliberalism on debts and deficits…I think ought to be the grounds for a good discussion. I think I know where you’re going to come out, but I shouldn’t presume it.

    • August 23, 2016 at 7:19 pm

      William Neil

      You ask: “Are you familiar with L. Randall Wray’s book, ‘Modern Monetary Theory,’ which is, in my view, an attempt to do what you say has not been done: advance a heterodox theory, internally consistent.”

      Yes. I commented on Wray’s approach on several occasions.*

      You say: “… if Neoliberalism is right, then both Great Britain, at the end of the Napoleonic wars in 1815-1830, and the U.S. at the end of WWII, should have been in deep economic trouble based on the size of their national debts in relation to GDP.”

      These concerns are as old as economics: “Adam Smith, when he wrote his Wealth of Nations, and Burke, when he produced his famous speech on economic reform, understood by ‘political economy’ a ‘branch of the science of the statesman or legislator’, a theory of practice, the science of the prudent management of the public finances. The growth of the huge debts which weighed on the great military nations would end in proving their ruin. This was especially true of England, which had become immensely in debt trough the conquest of her colonial Empire.” (Halévy, 1960, pp. 104-105)

      What is not well understood since Adam Smith is the relationship between growing private/public debt and monetary profit for the economy as a whole (2014). The correct profit equation reads: Qm = Yd+I-Sm. Legend: Qm: monetary profit, Yd: distributed profit, Sm: monetary saving, I: investment expenditure. The profit equation gets a bit more complex when foreign trade and government is included.

      Roughly speaking, what happens in the monetary economy is this: the profit of the business sector as a WHOLE does NOT depend on productivity or low wages or the greed of capitalists or the smartness of managers or the degree of monopoly but on the growth of the household sector’s (public sector’s) debt. Therefore, as long as this private (public) debt grows employment and profit is fine. Needless to add that this implies the existence of a banking sector with the capacity of credit/money creation. Things become worrisome, though, as soon as the credit expansion stops and nasty as soon as the household sector (public sector) as a whole pays the debt back. In this case profit turns into loss and the business sector breaks down (2014). Note well, this happens without any debt crisis or market failure or wrongdoing of the banking sector. It SUFFICES that the private (public) households eventually pay back their debt as they are supposed to do. This is because growing/shrinking household sector (public sector) debt immediately translates into profit/loss of the business sector. Economists cannot see this because standard price and profit theory is false since Adam Smith.

      The size of debt is of secondary importance. Of primary importance is whether (the sum of private and public sector) debt grows or shrinks ― the first derivative of debt, so to speak. The debt/GDP ratio is a misleading indicator.

      Egmont Kakarot-Handtke

      Halévy, E. (1960). The Growth of Philosophic Radicalism. Boston, MA: Beacon Press.
      Kakarot-Handtke, E. (2014a). Mathematical Proof of the Breakdown of Capitalism. SSRN Working Paper Series, 2375578: 1–21. URL
      Kakarot-Handtke, E. (2014b). The Profit Theory is False Since Adam Smith. What About the True Distribution Theory? SSRN Working Paper Series, 2511741: 1–23. URL http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2511741

      * Please go to blogspot http://axecorg.blogspot.de/ and enter Wray in the search field. See also the references to working papers

      • William Neil
        August 23, 2016 at 8:50 pm

        Well, I just finished your 2015 reply to Wray’s work, and I asked him the same question recently at this blog in a discussion of money creation and central banking; I could not find a reference to the role of credit cards in Wray’s book, and asked him to address that…because it seems an outlier to his accounts of the other major “flows.”

        In the same spirit, how do you account for the calamity of the Great Depression based on what you just have written? It was pre-credit card, although there was a growing segment of long time purchases of consumer capital goods…but I never see that debt cited as a major contributing factor…more the speculative frenzy on stocks as the chief form of “indebtedness,” and the now familiar cycle of financial crash effects blowing back into the “real” economy. And lack of purchasing power in the bottom 60%, especially the agricultural sector, which was still 1/3 of the workforce.

      • August 24, 2016 at 5:28 am

        Egmont, since you insist on stating your arguments in the form of equations I have some questions about the equation you present. You say, “The correct profit equation reads: Qm = Yd+I-Sm. Legend: Qm: monetary profit, Yd: distributed profit, Sm: monetary saving, I: investment expenditure.” First, what is the quantitative definition of each of the terms of this equation? Second, is there consensus on these definitions and among which groups? Third, how are these terms created, quantitatively speaking? That is, how are the measurements for these terms performed, by whom, and how? Is there consensus on these performances and among which groups? How is the data collected to measure these terms and how is the data collected to use these terms in the equation you present? Are the processes consistent with one another? Finally, how was the equation derived? That is, was it derived from the observation of actual empirical situations? Or is the equation mainly or only axiomatic.? Or is just an “educated” guess?

      • August 24, 2016 at 5:31 am

        William Neil: Not to comment on what EKH says, but credit cards are just consumer debt. You are right to point out the similarity to the 1920s; the consumer debt then and now was a contributing factor – credit was used to replace the anemic purchasing power of the bottom ( in the 90s/00s & the 1920s).

        But the MMTers ( & Minsky) do point out the importance of such things- saying things like the mainstream’s brilliant ideas progressively destroying the far more intelligent New Deal structures – managed to create a close replica of the 1920s and the conditions that the New Deal regulations had been designed to prevent and control.

      • August 24, 2016 at 12:10 pm

        William Neil

        You say: “It was pre-credit card, although there was a growing segment of long time purchases of consumer capital goods…but I never see that debt cited as a major contributing factor…more the speculative frenzy on stocks as the chief form of ‘indebtedness’, …”

        The outer form of debt is secondary. If the household sector as a WHOLE gets 100 monetary units per period as wage income and spends 110 units this is dissaving -S and increases the household sector’s debt. This involves creating money out of nothing. However, whether the increase of debt takes the form of overdrafts or credit card debt or whatever concrete historical form is secondary. It is from -S where the positive effect on employment comes from.

        When speculators buy stocks on credit this is an entirely DIFFERENT matter which has NO immediate effect on employment. (2011).

        In very rough terms the Great Depression had three interlocking and self-reinforcing causes: (0) Trigger: stock market crash, which weakened the banking sector, (i) debt deflation as described by Koo (2016; 2016), (ii) shortfall of aggregate demand as described by Keynes, (iii) falling profits, FALLING wages (2016).

        The Great Depression is the empirical proof that the market economy is NOT self-correcting (2016). In other words it is a REFUTATION of equilibrium theory or Orthodoxy as a WHOLE.

        In a nutshell, this is what formally/materially consistent economics (= theoretical economics = science) tells you. Political economics in the incarnation of Friedman tells you that it was all the fault of the FED and Bernanke gladly repeats it (2000).

        As for every economist your first decision is to do (a) theoretical economics (= science), or (b), political economics (= agenda pushing). In case (b) you will forever burn in scientific hell. It is as simple as that.

        Egmont Kakarot-Handtke

        Bernanke, B. S. (2000). Essays on the Great Depression. Princeton, NJ: Princeton University Press.
        E.K-H (2016a). Could we, please, all focus on the key question of economics? Blog post. URL http://axecorg.blogspot.de/2016/05/could-we-please-all-focus-on-key.html
        E.K-H (2016b). Demystifying employment theory and policy. Blog post. URL http:
        E.K-H (2016c). The other half plus the hitherto missing true foundations of macroeconomics. Blog post. URL http://axecorg.blogspot.de/2016/07/
        E.K-H (2016d). There is no thrift paradox, or, How economists fell over their own feet. Blog post. URL http://axecorg.blogspot.de/2016/07/there-is-no-thrift-paradox-or-how.html
        Kakarot-Handtke, E. (2011). Primary and Secondary Markets. SSRN Working Paper Series, 1917012: 1–26. URL http://ssrn.com/abstract=1917012.

      • robert locke
        August 24, 2016 at 3:42 pm

        “The Great Depression is the empirical proof that the market economy is NOT self-correcting (2016). In other words it is a REFUTATION of equilibrium theory or Orthodoxy as a WHOLE”

        Everybody knows that the market economy is not self-correcting, and knew it in the 1930s. No much scientific discovery here.

  15. William Neil
    August 24, 2016 at 1:13 pm


    Thank you for your reply on the Great Depression. I can’t draw the boundaries, can’t agree entirely with their rigidness outlined in the equation in your last paragraph, but I do understand what you are saying. I’m very close to your three tiered explanation of the Great Depression, and heartily concur with your assessment of the games that the Friedmanites made it out to be: a crucial Fed error – as if – to link bank to my observational cautions about neat boundaries, as if the Fed “simple error” could be separated from the intellectual climate of the times in the dominant economic thinking.

    Don’t we all look forward to the coming stalemate in economic policy in the West when we face our next great crisis? As if the low-simmering one we are going through now is not bad enough. I’ve outlined the comparisons, referring heavily to Polanyi’s “The Great Transformation” in my essay in the current issue of the magazine here, “Polanyi and the Coming U.S. Election.”

    • robert locke
      August 25, 2016 at 8:18 am

      “As Robert Locke has just said, “The Great Depression is [in 2016] the empirical proof that the market economy is NOT self-correcting”. We may have realised this long before the 1930’s, Bob, but it was Keynes began the explanation of it.”

      Keynes gave ONE explanation for it; others long before him gave explanations. Marx. for example, List, for another, Hobson, Lenin for two more, etc. When I first read about Keynes in the 1950s, my professors told me that he was a prisoner of classical and neoclassical thinking in his dissent.

      • August 25, 2016 at 10:45 am

        Robert Locke

        You say: “Keynes gave ONE explanation for it; others long before him gave explanations. Marx. for example, List, for another, Hobson, Lenin for two more, etc.”

        In economics, almost everything and the exact opposite has already been said sometime, somewhere, by somebody.

        The problem is more than 2000 years old and Parmenides solved it: “There are always many different opinions and conventions concerning any one problem or subject-matter (such as the gods). This shows that they are not all true. For if they conflict, then at best only one of them can be true. Thus it appears that Parmenides … was the first to distinguish clearly between truth or reality on the one hand, and convention or conventional opinion (hearsay, plausible myth) on the other … “ (Popper, 1994)

        Science is the way to figure out what is mere opinion = doxa and what is genuine knowledge = episteme. Knowledge is what is materially/formally consistent and this has to be established by PROOF. Blah-blah and opinion count for nothing.

        Keynes understood this. In the 1934 BBC radio address he tried to answer the central question of economics: “Is the Economic System Self-Adjusting?” Obviously, this is the fundamental question for economic policy and defines the roles of business/state.

        Now, this is the situation. General equilibrium theory delivered the formal proof that an equilibrium exists. This proof is for several reasons not acceptable as we know by now.

        What is still lacking since Keynes is the PROOF that the monetary economy is NOT self-adjusting.* All else is opinion and from opinion we have more than enough.

        Heterodoxy has to become serious and to move from political economics (= blah-blah, plausible myth, agenda pushing) to theoretical economics (= science).

        Egmont Kakarot-Handtke

        * See ‘What Keynes really meant but could not really prove’

      • robert locke
        August 25, 2016 at 11:27 pm

        I say economics is an historically contested project not a science, you’re constantly saying so is so boring and contested.

      • August 26, 2016 at 9:52 am

        And I say the definition of science and hence of the instances constituting it is a historically contested project, so your constantly insisting – like an old gramaphone record stuck in a groove – on the narrowest and most impractical interpretation of the word is not only boring but, as you are a man of obvious ability, does you no credit. But don’t take our word for it: google yourself and see what others think.

      • robert locke
        August 26, 2016 at 12:04 pm

        Dave, science deals with neutral analytical categories, as in physics, where one fires a cannon ball, using Newtonian mechanics, one can calculate quite accurately where the ball will land. The neutral analytical categories of economics do not permit such predictability. Why do I know that, because economics is an historically contested project. I do not mean by this that scientific assumptions are constantly being challenged which is the stuff of science, but that if you look at the historical record, that economics has been contested as a science throughout the past 300 year. If, for example, classical economists set up neutral analytical science, it is nothing,Friedrich List tells us, but a con operation, used to justify the UK dominance in world trade. List is contesting classical economics as a neutral analytical category. I am sorry if you think my thinking abilities are insufficient to participate on this blog. I only joined in five years ago because Fullbrook asked me to. Better take it up with him.

      • August 26, 2016 at 11:55 pm

        Bob, I’m sorry you seem to think I think your thinking abilities “are insufficient to participate on this blog”. My comment, like the one of yours preceding it, was directed at Egmont, and for all I was challenging him, I went out of my way to say the opposite of that to him.

      • robert locke
        August 27, 2016 at 11:45 am

        Dave, so much for the accuracy of blogging. Every time I post something, that is based on knowledge of history, Egmont predictably come on to denounce history as a waste of time and suggest that historians should be excluded from the dialogue. That is bigotry and I was surprised to see that you were joining in. Here is a comment from his latest blog to prove my point. “The key point is that there is political economics and theoretical economics and ALL political economics is proto-scientific dung. The distinction Orthdoxy/Heterodoxy does NOT stand for right-wing/left-wing but for cargo-cult/science. This translates into the Augean Project: to flush the cheap talkers of ALL colors/schools.**

        And that is directed at me. Throw the baggage out. Never mind that, through historical study I have discovered analytical categories, namely mental capital formation, that the neutral analytical categories of economic mainly disregard. I can tell you Dave, because as a Christian you must encounter it, that social scientists are presumptive and arrogant towards any approach to knowledge other than their own.

      • August 28, 2016 at 9:10 am

        Bob, let’s try and end this misunderstanding. It was my fault, I think, for not addressing the comment which upset you directly to Egmont. The reason I didn’t is that I personally am very conscious of the context in which words are said, and by echoing your phraseology to indicate my AGREEMENT with you I was seeing the argument as Egmont being insulting, you objecting in respect of history and me ADDING my objection [to Egmont] in respect of his misrepresentation of science].

        What makes me so frustrated with Egmont is that we started from the same position: economics having got so bad it was time to “scrap the lot and start again”; but it seems we are at cross-purposes because of his formal Popperian and my first-hand practical experience of science and scientists.

        Ken’s description of scientists below, seeing them as constantly trying to look at their problems and working conclusions from different angles, is very much to the point (that is exactly what Egmont isn’t willing to do), except that Ken is missing the key aspect of writing up results so that others (including future generations) have access to them, resulting in personality clashes and misunderstandings between scientists being manifest in different interpretations of the same issues. (To say nothing of editors who won’t publish what doesn’t fit in with their own pre-conceived objectives).

        I ought to know from my wife constantly misunderstanding me that for people like her that the way you say something has more impact than what you say. So again, I apologise for not addressing my formal objection directly to Egmont, and am sorry if my way of writing upset you.

      • August 28, 2016 at 11:28 am

        Dave, my apology for omitting the “writing up” and “publishing” part of science work. A basic element. Thanks for pointing this out.

      • robert locke
        August 28, 2016 at 3:41 pm

        Dave, no apology necessary, once I understood that your comments were for Egmont, not for me. I should have been able to recognize the object of the comments myself, because of the comment “google yourself and see what others think” My reputation is reasonably solid, when people pay any attention to me, so I wondered what you were reading about me that I had perhaps overlooked. If Egmont is the person you are asking to google himself, then your comment makes sense.

  16. August 24, 2016 at 3:56 pm

    William at 2.09 pm: you say “What [L. Randall Wray] tries to do in the book is explain why debts and deficits under a currency issuing centrally banked modern capitalism do not matter in the way Neoliberalism’s austerians assert that they must. … I think [my misgivings on this] ought to be the grounds for a good discussion.”

    The reality is that we do not have a United Nations central bank but a banker-dominated IMF, so I think your argument pointing to the de facto world dominance of the UK and US currencies post-Napoleonic and Hitler wars pretty well spot on. Likewise what you say about the Great Depression being pre-credit card. They did have hire purchase, but with reducing wages most people became too cash-strapped to risk getting seriously into debt, and communal debt arising from government expenditure was but a small fraction of what it became in the Keynesian era.

    It was BECAUSE of this austerity that so many of us couldn’t afford what we needed, so there seemed no point in businesses producing what they couldn’t sell. The austerity thus spread to and bankrupted many of them, and as the remainder didn’t need to borrow to finance production to generate non-existent sales, even the banks eventually suffered “economic depression”. That was shown by its Keynesian resolution (still financial) in terms of higher wages and government investment in provision and maintenance of communal infrastructure. Those who have redefined the word “economics” in ONLY financial terms are of course nuts. A financial economy is part of and merely a means (not always successful) to the end of a satisfactory real economy.

    The reasons I’ve been advocating a credit-card economy are that on the theoretical side the difference between credit limits, credit, debt and accounting for them are much more obvious, and in practice world-wide infrastructure (Visa, Mastercard etc) infrastructure already exists.

    The nature of employment, ownership, education and legal safeguarding have also become major issues, with semi-automation of most processes, hoarding of acquisitions by absentee landlords, globalisation of communications and central control of information. Here I’ve been advocating a Citizen’s Income allowing us to employ ourselves in what we see or are shown needs doing – with awards for specific good work – along the lines of John Ruskin’s story of the curate’s stipend in “Unto This Last”, and his recognition and resolution of the ecological issue in “The Crown of Wild Olive”.

    This last ties in with John Locke’s proposing in “Two Treatises of Government that ownership needs to be personally earned by improvement [or maintenance?] of what we are given, i.e. not bought by manipulation of the accounts of other people’s, firms, countries or economy’s not-yet-repaid credit. Bob Locke’s German stake-holder governance system seems to answer along these lines the legal fiction of corporate personality.

    John Locke also proposed a trinity of countervailing powers – the government, the executive and the judiciary – to safeguard the law from the lawmakers. But the law-makers having sold off global control of information (patents, copyright, publication), what now?

    I was copied a letter from a British critical realist this morning saying “although at the level of the ‘actual’ Labour seems to be tearing itself apart, Labour will win the next general election and that it will be Corbyn who leads it to victory. My reasoning is that there is palpable widespread and deep disaffection with the old politics and austerity, as we see around the world. Not only is there a struggle going on for the soul of the Labour Party (which Corbyn will very probably win – his betting odds in the leadership contest are 1:8, notwithstanding a hostile mainstream media), but we are witnessing the heat-death of neoliberalism in the UK and a yearning and striving to be free from the constraints of austerity and plutocracy.
    The pulse of freedom [the sub-title of Roy Bhaskar’s book on “Dialectic”) is powerfully asserting itself, and Corbyn and his supporters are articulating it”.

    A respondent, with the US and EU also in mind, was “less sanguine”. “If Corbyn and Sanders can articulate the pulse of freedom, changing the institutional structure of neoliberalism will not occur through the current political system in place. I base this on critical realism. The deep stratification of reality does not allow the typically citizens (and politicians even less so) to clearly understand the causes of the crisis”.

    So we need to get citizens (and especially politicians) focussing on where I’ve ended up: with a clear view of stratification – in everything which has been evolving since the Big Bang to the present day. Here it is most tangibly and relevantly seen in terms of one banking system controlling increasingly centralised production firms feeding increasingly widespread distributors supplying successive generations of individuals. It is most simply represented as a crossed diamond network of communication, its corners standing for the four strata.

    The net effect of this is that each strata controls the others, but in different ways, as in the route-setting, steering, speed or position drift-correction and danger avoidance involved in driving a car or navigating a ship. Each level is connected to all the others but acts on different timescales and with different priorities, effectly timesharing their control. Logically this system aims overall at supplying what is needed to EVERYONE, but from its centralised bank control perspective, only at making financiers monetary profits.

    As I also keep saying for the benefit of the more mathematically inclined, the theory of this reduces to that of a PID control servo, which is not an automatic controller (the naive view of Adam Smith’s “invisible hand”) but a system providing us with the information necessary for us to take the actions we need to. As Robert Locke has just said, “The Great Depression is [in 2016] the empirical proof that the market economy is NOT self-correcting”. We may have realised this long before the 1930’s, Bob, but it was Keynes began the explanation of it.

    A little googling threw up this RWER blog having a low activity rating, despite it having “14,392 other followers”. If anyone out there is actually reading this, get your heads round the crossed-diamond representation of these interconnected strata and discuss them with “typical citizens”. Particularly those interested in politics, and especially local politicians.

    • August 24, 2016 at 5:40 pm

      PS. Would that we could go back and edit our own comments, as I used to be able to on the old Second Spring blog. Apologies for a repeat of ‘infrastructure’ in my 4th para, a spurious newline in the 8th and “typically” instead of typical citizens in the 9th.

      I’m actually writing, however, to share again a useful line of thought which passed through my mind but was overlooked after a family emergency.

      This concerns my “negative” as against “positive” interpretation of money, emphasising debt after spending credit rather than buying power before. This is a “glass half full” rather than “half empty” situation: logically, both interpretations are true. However, in the less abstract example of the old photographic “negatives”, the negative is virtually unintelligible until it is iteself negatived by printing as a “positive”. That is logically equivalent to what happened in Copernicus’s “revolution”, a paradigm change which substituted the earth going round the sun for what we see as the sun going round the earth. We see ourselves paying the shopkeeper in money of positive value, but once we get used to the idea of money being an IOU we could just as easily see him recording our purchase as a debt on the communal “slate”. If we take this view, our credit card account constantly reminds us of how much we owe other people and how much we need to do (given what we have acquired) to gratefully earn our keep. I won’t go on in detail here, but when one “prints” photographic negatives of negative-value debt, the need disappears for all the guesses, artefacts and errors involved in trying to understand the negatives as positive-money copies of positive-value reality.

  17. August 25, 2016 at 3:24 am

    Omnis determinatio est negatio as the philosophers say. Embrace the power of negative thinking!

    But a Citizen’s Income (UBI, BIG = Basic Income Guarantee) is either something every society has always had – welfare. Or something utterly impossible and ridiculous – for as oligarchs well know, it is really a Billionaire’s Income Guarantee, for universal money distribution produces instant inflation for the lesser people, the mere citizens. It’s like slaves deciding to abolish slavery by making everyone a master.

    It is odd that so many cannot see the obvious & decisive objections to BIG/UBI etc, but can believe in an imaginary objection (no one to know what it is) to countries less powerful than the US & UK in their heydays practicing MMT / Functional FInance, There simply isn’t any problem to adding a foreign sector; it can only help a sanely run country. Any of the countries in the Eurozone, say – would greatly benefit in the not very long term by dumping the Euro and deciding to have full employment a la MMT/Keynes/FF.

    • August 25, 2016 at 8:57 am

      I like your slogan, Calgagus. But think through what I was saying about negative money. If one sees someone with negative Billions the inference is not that he is valuable but that “from those that have it all, much is expected”. Who’d want to be a Billionaire? I wouldn’t!
      (And notice how that argument has inflated on our present assumption of positive money)!

  18. August 26, 2016 at 5:39 am

    Omnis determinatio est negatio is from Spinoza & Hegel. Spreading the gospel of “the power of negative thinking” is the professed aim of Marcuse’s Hegel & the Rise of Social Theory. Money is an IOU, a directed relation, a credit/debt, so has both a “positive” and “negative” side. I agree that thinking of it “negatively” is often the clearest way. But I think we agree there are always other equally correct if sometimes clumsier ways of thinking about it. (You might enjoy Lloyd Biggle’s old sci-fi story Esidarap ot Pirt Dnuor (or Round Trip to Esidarap) (1960) though.) Of course there is nothing good per se about being a negative billionaire, which is why hardly anyone is – nobody is allowed to, is trusted enough to get into that much debt, except for states, whose assets far outweigh chump change like a billion or even trillion – like negative trillionaire Uncle Sam.

    Your Citizen’s Income proposal isn’t too clear, It seems to be a confusion of a Job Guarantee, which is great and which I fanatically support, and some kind of Basic Income. Again, Basic Income is either a big fat nothing – like a proposal that wheels should be round, not square, or a really, really bad idea that can’t work. To quote Wray, proponents of the UBI Univeral Basic Income (Van Parijs & many others) are so bad at economics that they make the mainstream we all love to complain about here look very good.

    UBI sounds so nice, but it [sort of] works out to be another name for slavery, which people who should know better criticize the real solution, a JG, a gubmint job guarantee as. Only sort of, because a UBI simply cannot work – instant very high inflation. The only way it could possibly “work” if it were just pretend, play-acting. In which case I do support a UBI the same way I strongly support chattel slavery: They both belong in nice moralizing Hollywood movies, that show how slavery is evil and how its cousin, the UBI will wreck a society, both particularly afflicting the poor and vulnerable, as always. Why do you think so many rich bastards support UBI / BIG / Citizen’s Income? Unlike most, they know it will just make them richer and more in control.

    From a quote in an earlier comment of yours – “Accepting that people can “be paid without having to work would have been a very big step” [for the Swiss, who were wise enough to vote it down ]. Yes, a big step backwards, because it means accepting that people will be working without having to be paid.

  19. August 26, 2016 at 1:34 pm

    Robert Locke, Ken Zimmerman, Dave Taylor, etcetera

    Cheap talk is the core problem of economics since Adam Smith: “But he had no such ambitions; in fact he disliked whatever went beyond plain common sense. He never moved above the heads of even the dullest readers. He led them on gently, encouraging them by trivialities and homely observations, making them feel comfortable all along.” (Schumpeter, 1994)

    This is how economics became the honeypot for morons, populists, incompetent scientists, and agenda pushers. In principle, there is nothing wrong with this, of course ― these folks, too, need a forum for the exchange of their ideas and an opportunity to politicize and to gossip and to hype their friends and to mob their foes.

    The problem arises with the claim that economics is a science which is as old as Adam Smith/Karl Marx. Because Walrasianism, Keynesianism, Marxianism, Austrianism is PROVABLY false this claim is either a self-delusion or a fraud.

    For every intelligent person it is crystal clear that economics is a failed science. The two main tasks at this critical juncture are (i) positive, i.e. to promote the necessary paradigm shift, and (ii) negative, i.e. to get rid of the proto-scientific dung of the past 200 years. The latter task compares to the Fifth Labor of Heracles and is therefore called Project Augean Stable: “[Augeas] is best known for his stables, which housed the single greatest number of cattle in the country and had never been cleaned, until the time of the great hero Heracles.”* This is a fitting metaphor of current economics.

    Project Augean Stable starts with a clear separation of political economics (= storytelling, agenda pushing) and theoretical economics (= science). The mission of Heterodoxy is to flush the heap of proto-scientific dung out and to make economics a science. Clearly, this cannot be done by gossiping about Mr. Trump or any other freak phenomenon of Circus Maximus.

    Politics is currently trumped to absolute zero. Economics is a trumped science since Adam Smith. Heterodoxy is here to change the latter but not to cheap talk about the former.

    The current situation of economics is summarized with this exhibit

    The key point is that there is political economics and theoretical economics and ALL political economics is proto-scientific dung. The distinction Orthdoxy/Heterodoxy does NOT stand for right-wing/left-wing but for cargo-cult/science. This translates into the Augean Project: to flush the cheap talkers of ALL colors/schools.**

    Egmont Kakarot-Handtke

    * Wikipedia
    ** See also http://axecorg.blogspot.de/2016/08/nothing-to-chose-between-orthodoxy-and.html and http://axecorg.blogspot.de/2016/07/enough-economists-retire-now.html

  20. August 26, 2016 at 11:27 pm

    Thanks for your critique, Calgacus. Two heads are better than one; it is good for a theorist to have a practical mind around, picking up different gems from his reading. What Wray sees as ‘economics’, however, I see not as the field of understanding it should be but as an ability to regurgitate the dishonest language and out-dated epistemology, logic and science of politically misguided hacks.

    Talking about Trade and Truth, therefore, I am likening what we see of monetarised trade to a pre-Copernican “macro” understanding of the direction of the sun’s motion and a Plato’s cave/ photographic negative “micro” interpretation of trade’s kinematic detail, in order to compare it with modern alternatives which accept that the earth goes round the sun and illuminate Plato’s shadows to regenerate the appearance of their sunlit originals. It is not that what we see is untrue but so often the truth that our self-centred interpretation of what we see can be inverted, leading to conflicting views, unnecessary complexity (Cf. Glieck on “each [Feynman] diagram could replace an effective diagram of Schwingerian algebra”), hence incomprehensibility, compensatory over-simplification and confused minds open to being defrauded by seeming authorities via deliberate obfuscation and misrepresentation.

    As I see it, resolving the persistent “laissez-faire” politics resulting from stalemate between rival economic theories will involve going back to the underlying theories of “language and epistemology”, choosing between “symbolic or iconic” on the one hand “matter or energy” on the other, on the basis: not of which is simplest but which causes least complexity. Taking language and epistemology together the choice is between today’s Humean “what you see is all you’ve got” a-causal (hence inconsequential, self-contradictory, meaningless) epistemology, or the historic Judao-Christian account of the creation or evolution of material objects from the energy (c.f. wind, spirit) of a Big Bang, wherein causes and choices between them have consequences, hence reference to them is meaningful.

    It matters for the success of an economic strategy whether the cultural norm we start from is Hume’s self-centred “I’m all right, Jack” or a Christian god-centred “being grateful for large mercies”. Here, I’m extending the argument by saying an economy can be much simpler if it can assume both honest money and trustworthy people.

    The problem in a blog is how to simplify the economics In blog comments we are restricted to a relatively few words. Even if I could display for you my economic equivalent of Feynman’s diagrams, I couldn’t talk them through and demonstrate them interactively to enable you to grasp what you couldn’t intuit of their meaning from their iconic form, as Feynman had to do to in his famous lectures. In economic algebra or speech, using symbols, one idea follows another, whereas in an economy lots of things are happening and interacting with each other at the same time. It can take an awful lot of words to explain everything that can be implied by a relatively simple diagram.

    The reasons for the very recent resignation of the UK Green Party’s leader shows that the problem is not just mine. http://www.bbc.co.uk/news/uk-politics-37130459.

    “Her vision for the party was to show how “economic and environmental justice are indivisible”, she explains, “the idea that tackling environmental problems isn’t an add-on luxury”.

    It was “not a easy concept to get across”, she confesses. “I still don’t think I’ve got the 12 second soundbite. But I am going to keep working on it.”

    So, you say my “Citizen’s Income proposal isn’t too clear, It seems to be a confusion of a Job Guarantee, which is great and which I fanatically support, and some kind of Basic Income”.

    Since I cannot illustrate what I mean with a diagram, let me tell you the story of where it came from. I had read J S MIll’s “Utilitarianism”, proposing the goal of economics as “the greatest happiness of the greatest number”. When our friends were desperately unhappy, my wife and I reflected on what made us happy and concluded it was being grateful for each other; that it was not happiness but what CAUSED happiness which mattered. This reminded me of hitch-hiking during National Service, and how I could only express my gratitude for the kindness of the anonymous members of society who gave me lifts by keeping the system going: giving lifts myself, where they were needed and I was able to. Not long after this I read John Ruskin’s “Unto This Last”, arguing for monetary security rather than incentives with his story of a curate who, despite the modesty of his stipend (an amount the rich could afford to give to every worker), worked his socks off doing not what he had been told but the work HE could see needed doing. Wondering how this theme could be realised in practice, I found myself asking what difference it would make if I were paid at the beginning of the week and owed work, rather than working for an employer who at the end of the week owed me for the work I had done.

    That still didn’t get over the problems of the present system: its origins in enclosures and powered automation depriving traditional inhabitants of work maintaining themselves and their environment; unreliable seasonal work; people deemed unemployable like children, old folk and the disabled; employers having to find jobs which their business didn’t actually need; employers unable to acquire enough money to pay for development and other unsold work because others were hoarding it as valuable. Eventually I realised that money was credit, a bank loan was simply a credit limit, and that the credit card system, of pay-for-what-you-need by doing-what-you-can-when-you-can in principle resolves all the problems by maintaining mutual goodwill and creditworthiness without all the complications of monetary repayments. Admittedly Ruskin’s curate was a Christian, already thanking God for our chances to make good, but children become “spoiled” if not taught to be thankful to their benefactors and to gladly repay them by gradually taking on the disciplines of work.

    So my Credit Card form of Citizen’s Income is indeed a Job Guarantee, but not a guarantee of employment by others; rather, a freedom to do or join in work that is worth or needs doing, much as pensioners and others with employment-independent incomes are now voluntarily doing. The existing pensions, wages and unearned incomes can simply be replaced by credit limits. This is therefore by no means a Basic Income, for the Credit Card concept offers a generous credit limit, sufficient to allow for most variations in everyday living: itself as variable as wages are, to allow for “promotion” as people become more credit-worthy by by reliable public service, including improving themselves. Those running honest businesses and employing others would almost automatically justify a higher credit limit; the wealthy likewise for property maintenance and giving back to society what they don’t actually need. Similar but separate accounts would be kept for business expenses, with firms – not national treasuries – having to maintain their own credit limits in international, national and local transactions. Additional incentives to good work can take the form of honorary awards, as suggested in another Ruskin title: “The Crown of Wild Olive”.

    What would be different is the motivation: changing from buying to show off and jealously guarding what we believe we have earned, to appreciating what we have already been given and minimising debt by buying only what we actually need. This is desperately needed to safeguard the natural environment. The details would work themselves out, but I am quite clear about the need to reorganise society so as to centralise heavy industry and localise towns, produce transport being timeshared with short periods of commuting to work in largely automated industry. This to provide sociable breaks from caring for our own,and doing our own things locally within easy reach of work in need of doing in the countryside.

    If I am still confused about anything here it is there is about prices, which would no longer serve to generate profits, but need to signal irresponsible use of resources which are not being recycled or naturally renewed. It seems to me we could just start from where we are, gradually recalibrating prices and credit limits to average levels which we can nationally afford, clear local shelves and make best use of local production.

    To finish off with your final dig, you seem to be arguing that what is true for a few would be true of all. Part of the deal is that if work needs doing and you won’t do it, your credit limit goes down, but not to such a level that you cannot do the work necessary to maintain oneself. (Those that won’t work, won’t eat: you’ll find that in the Rule of St Benedict). But that wasn’t my point. Do you think someone who cannot work should not be paid?

    • August 27, 2016 at 10:09 am

      PS. on Calgacus’s “There simply isn’t any problem to adding a foreign sector” and Egmont’s vs. my view of science, see the new (26 August 2016) posting on the WEA Pedagogy blog:


      Plenty feeding into our discussion there! Like the possibilities and short-coming of science attracting not only well-intentioned Baconian “relief of man’s estate” but causing pollution and empowering malign militancy. Incidentally, where I refer in the first paragraph above to outdated science, I had in mind the still virtually complete neglect or misunderstanding of information science.

      To take my mind off all this, I went back to re-reading Haggard’s “King Solomon’s Mines”, having just read a critique of it by C.S.Lewis, close friend of Tolkien, author of “The Lord of the Rings”. Curiously, the main plot of these two books is almost the same: terrible wars resulting from the possesssion and pursuit of treasure. The differences are in the characterisation and how it plays out. Haggard’s characters are plausibly realistic in a racist sort of way, whereas Tolkien’s are multi-racial and very obviously unreal. In Haggard’s the heroes come home with the treasure, whereas Tolkien’s hero finds peace by destroying the treasure and returning to the satisfactory home he already had. “Small is Beautiful”?

  21. August 27, 2016 at 1:42 pm


    I suppose I could toss out Horkeimer and Adorno’s “Dialectic of Enlightenment” at this point, along with Franz Neumann’s “Behemoth,” to give a philosophical/historical cast to this discussion. Isn’t German society, 19th century on, but especially the Weimar Years, 1918-1932, a fruitful place to examine the tensions between scientific achievements, and pretensions, and the forces that are actually driving society – to ruin in this case.

    It might be a clue, as well, what I am reading, to the contemporary situation in the West…Neumann’s opening summary about the collapse of the Weimar Republic is jolting at any number of points on the conflicts between the core budgetary economics of the German bureaucracy and the cartels, including banking, at odds with democratic procedures as so many points…strong echoes of what Yanis Varouvakis is saying today…the intensity level is different, of course…but otherwise, closely enough for us to worry…and for me to do some more writing about it.

  22. August 27, 2016 at 5:39 pm

    Robert Locke, Ken Zimmerman, Dave Taylor, gracchibros et al.

    Trumpism has become a widespread nuisance. It consists in nonsense maximization = sense minimization under the constraint of 140 characters. Economists are traditionally good at this discipline and they hold the record with zero sense for a standard peer-reviewed DSGE/I=S/IS-LM paper but they regularly need more than 140 characters for the demonstration.

    Economists in general and heterodox economists in particular dabble in:
    ― economic history (William Neil et al.)
    ― history of scientific thought (Asad Zaman et al.)
    ― psychology (Ken Zimmerman et al.)
    ― sociology/Frankfurt School (graccibros et al.)
    ― philosophy/religion/literature (Dave Taylor et al.)
    ― political science (gracchibros et al.)
    ― ethics (mariaalejandramadi et al.).

    All this is very, very interesting but OUT of economics. Isn’t it time for the jacks of all trades to do a little economics? Theory of employment? Theory of profit? What about a consistent and comprehensive explanation of how the economic system works which beats general equilibrium theory hands down?

    Please notice: Heterodoxy and Trumpism do not mix. Never ever. Who cannot answer the question about the difference between income and profit is out of economics. Recall, you are not admitted to physics if you cannot tell the difference between potential and kinetic energy. Science is hard, this holds also for economics. But in politics they are happy about every Trumpy. Think about it.

    Egmont Kakarot-Handtke

    • August 28, 2016 at 7:06 am

      In order to say that economics is a failed science we need to first need to say what science is. You seem to like Popper’s answer on this. Popper is not a bad guide to science in general. What he fails to deal with, however is one really big question in science. What is objectivity and how do we get to it? Popper also ignores how difficult actual “falsification” is. But that is forgivable since he was a philosopher of science and not a practicing scientist. If we do what any scientist ought to do, observe scientists (or people who call themselves by that name) we can get some notion of how objectivity and falsification work in practice. Seems that objectivity is a community practice based on never ending observation from as any many perspectives and as many methods of observing as scientists in the community can imagine. This is also the heart of falsification – comparing the results of observations with estimates of what the observations ought to show. Endless work, often quite boring, and seldom enthralling new knowledge or publishable results. There’s a lot more we get from observing scientists at work, but this I hope gives us a starting point for economists. Does the economics community operate as a scientific community? Does the economics community observe widely, creatively, and with many methods (including but limited to mathematics)? Does the economics community constantly compare these ongoing observations with current and past theories put forward about economic actions and actors, and with current past observations? Is the economics community attempting to do these things? Are they failing? And I agree that what Mr. Trump says or does has little to do with any of this. However, scientific work is intimated involved with history, philosopher, politics, and the social sciences. How could it be otherwise since scientists observe and compare as widely and diversely as possible. And this association omits all the issues of ethics and uncertainty involved with actually practicing science.

    • robert locke
      August 28, 2016 at 9:35 am

      Science is not hard, the time it takes to get a PhD in science is very minimal to the time it takes to get a PhD in history. We spend years accumulating historical data and thinking, thinking, yes thinking about its implications. We cannot rely on economics for much help in interpreting historical research. The New Economic History, a project to introduce econometrics and neoclassical economics into historical studies, has failed, even one of its greatest advocates in the 1970s, McCloskey in a famous essay about the “Rhetoric of Economics,” ended by calling this project, McCloskey’s project in the 1970s, a sham.

      It took me ten years to finally figure out why the historical data I unearthed could not be explain by theory, I just assumed that the theory was right and I had run across some exceptional historical instances, then I had the eureka moment, when it dawned on me that the data was not exceptional but the theory was wrong. Theory hindered clarity, it did not promote it. Egmont, you ask that people accept your idea of science or get out. The OR guru Russell Ackoff said that the treatment of economic problems deserves “not only the application of science with a capital S but all the arts and humanities we can command.”

      • August 28, 2016 at 11:50 am

        Bob, could not agree more with what you say here. I earned my history PhD during the time the New Economic History and Cliometrics was emerging, along with a serious focus on social history. I’ve always done social history, some of it including simple and statistical numerical data. Working on energy, regulation, and technology history is difficult without the mathematical background. But I never allowed the math to take over. As to your story about theory hindering clarity and understanding, I’ve been there also. Although I was skeptical of all theories from the get go. C. West Churchman said much the same as Ackoff in a seminar I took in the 1980s at Berkeley. His emphasis on putting ethics back into economics is what I remember most from the seminar.

  23. August 29, 2016 at 3:27 pm

    Egmont, cc. Bob, Ken and Graccibros, on “the difference between potential and kinetic energy”.

    Surely this is the point of history: to be able to become aware of the kinetic energy driving changes which have occurred in the form of economies and economies, or if one’s primary field is science, science?

    When you have me down for “philosophy/religion/literature (Dave Taylor et al.)”, you really are missing not only the disputed historic basis of my religion, philosophy and literature but also the history, characteristics and dynamism of my own information science, which studies how the energy driving human physiology and information system hardware interprets and records symbolic or iconic signals with the intention of (or intended to) direct our or our IT hardware’s attention to “seeing what they are driving at”; recording also the location of the recording so their guidance potential can be reactivated to direct appropriate actions.

    So successful has IT been that its history has already been largely forgotten: taken for granted by those whose interest is only in using and not understanding its achievements, like car drivers who are not even curious about how internal engines work and differ from steam engines. Those whose a neglect the history of information science never see that
    it has introduced not merely a new field but a new type of science: not merely an 18th century physics of inert objects but one where the behaviour of living things depends on dynamic processes internal to them.

    It is a matter of history that in 1938 C E Shannon discovered the switching circuits of a telephone exchange he was designing not only represented the operations of static logic but were actually perfoming them; that in 1948, after war-time work on encryption alongside Alan Turing, he had realised that messages and thus processing get corrupted, so produced a mathematical theory of information processing as a basis for his invention of dynamic error-correction logic (and hence error-control); that in an introduction to Shannon’s book, Warren Weaver realised the significance of this at three different levels (later manifest in the Chomskian grammar of the Algol68 language at the centre of my own experiments with programming and system reliability). In 1948, also, N Weiner published his parallel work on analogue [macro rather than micro] control logic: “Cybernetics [Steering]: or Control and Communication in the Animal and Machine”; the three levels of significance here were later manifest in PID control logic.

    The issue, of course, is whether this history is relevant to economics. My argument is that it is totally relevant. Economics is not about inert particles affected only by gravity, so that a scale weighing sales against production can come to an equilibrium; it is about active human beings directing their activities [steering] towards diverse goals, in which equilibrium takes the form of staying on course, which in a ship, for example, doesn’t happen automatically but only by a steersman correcting directional errors and the captain changing course as necessary to account for positional drift and approaching dangers. The science of steering has nothing to do with the overall aim (individual ships go to ports all around the word) but everything to do with the logic of steering.

    I believe it should be obvious to anyone who has understood this, that an economy is much better characterised by the dynamic PID logic of 20th century cybernetics than by the static logic characterising the equations of an 18th century mechanical system. In practice we steer the economy by repricing, and Keynes has already proposed government investment to correct positional drift manifest in unemployment. What still needs understanding is the need for something like the rules of the sea protecting vulnerable vessels. If a powered vessel runs down a sailing boat the responsible person is the Captain of the powered boat, not the sailor; likewise bankers should be held responsible if their methods bankrupt firms, partnerships and individuals.

    Tony Lawson’s theme is that Adam Smith’s friend David Hume made a fundamental mistake by understanding science in epistemological rather than ontological terms, i.e reinterpreting what Newton did in terms of what he (Hume) believed was possible, accepting only his own consciousness and discounting invisible and subconscious methods of communication. Put these back, and we can express and therefore compare ontological theories of what really exists in the simple form “y is an x”, as in “an economy is an information system”.

    The Newtonian science of Hume’s era articulated only gravitational potential and the kinetic energy of masses in motion. The relation of these to electricity, magnetism and inert atoms was still unknown, and likewise demonstrable phases of evolution illustrated by persistent heat turning the neutral atoms of ice successively into water, steam and electrified ions, at which point they are attracted to other things and recombine to form things other than water. In our multilayered reality we now see directed energy evolving into four types of stable subatomic particles, four types of atomic molecule (neutral, acid, alkaline and inert saline), four types of living thing (cells, vegetation, animals and linguistic humans), the latter able to create inert objects, harness kinetic energy, distribute electrical energy and communicate information, and at the system level to create structures, mechanical activities, electrical power systems and linguistic communication systems. Among the latter can be counted in turn mathematical systems, active autonoma, automatic control systems and servo control systems in which communication to autonomous humans allows automatic systems to be over-ridden by (in effect) moral judgements and emergency strategies.

    We are supposed to be seeking here a new paradigm for economics. I’m seeing the old one as having got as far as mathematical systems with active mechanical automata (invisible hands) in mind. That’s how I’m seeing your equations, Egmont.

    What I’m saying is that we should be looking at economies (and indeed societies) as communication systems: at the development and structure and possible forms of information and PID control systems, in which the steering is done by monetary pricing, macro correction by investment in public utilities and micro failures put right by tolerance and/or correction of the monetary system.

    You, Egmont, and other folk here say things much more clearly than me. Let me appeal to you in particular to stop wrangling and put your mind to these relatively new scientific ideas, which on the evidence need much more attention and much clearer expression.

    • August 29, 2016 at 3:38 pm

      Grrr! “Those who [se a] neglect the history of information science never see …”.

  24. August 29, 2016 at 3:45 pm

    This I’ve just been sent looks like good news, anyway:


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