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Power: take two

from Peter Radford

I have been reading Walter Scheidel’s wonderful book “The Great Leveler”, which gives us a very long period perspective on inequality.  Were I to be limited to only two books on inequality, this would be one.  It covers the ebb and flow of inequality over an extremely long time, with extensive discussions on civilizations as diverse as ancient China and ancient Rome.  Anyone who wants to make a serious contribution to the understanding of inequality has to be familiar with Scheidel and his mountain of data.

At the risk of being too brutal to Scheidel’s argument, here is my very brief version of it:

  • Inequality is the norm, not the exception, throughout history
  • Its ebb and flow is dictated more by the impact of warfare and mayhem on society than by social reform or redistributive governance
  • Our current high level of inequality is simply a return to the norm because the devastation of capital during the first half of the twentieth century has now worn off, and the urgency for social reform caused by the two world wars has dissipated

And that’s about it!

What I like about the simplicity of this general idea is that it undermines the logic — at least in my mind — of economic forces being the key determinant of resource allocation.  Politics trumps economics at every turn.  Each time a society suffered a wave of mayhem it appears to have created opportunity for a reshuffling of the social order during which time resources were temporarily more evenly distributed.

Sometimes this more equal distribution was a result of deliberate action by an elite trying to stave off social unrest whilst it [re]established itself securely.  Sometimes it was a result of the wholesale destruction of capital and the consequent “clearing the decks” before a new elite rose to power to co-opt resources for itself.  Sometimes the mayhem was purely warfare related, other times it was a result of a natural disaster like the Black Death.

In any case the episodic rise and fall of real wages  was firmly in the hands of political forces as societies shaped and then re-shaped their power structures and as new elites found themselves able to obtain rents and other sources of disproportionate wealth acquisition not available to the average citizen.

The logic of history, to the extent that such a thing exists, is best described as a pulse fluctuating around a norm of inequality, with purely economic forces playing a secondary role in terms of distribution, and with political power playing the dominant role.

So much for “marginalism”!

Oddly this reality helps justify Robert Lucas’ ridiculous assertion that attempts to explain inequality are a dangerous sideshow for economists.  As it turns out he is correct.  Economics is too limited in its scope to be able to offer an explanation.  It has made itself so small a part of the overall explanation of social wealth allocation that its contribution can also only be minor.  By carving itself away from politics in order to study only markets, and idealized markets at that, economics has nothing to say about inequality.  Those economists who have stepped into the arena have inevitably had to expand their reach beyond the standard or mainstream toolkit of economics and incorporate social and political elements into their explanations.

This doesn’t invalidate things such as the interplay between supply and demand, what it does invalidate is the attempt to create a “scientific” economics based on the notions of marginal productivity and the inevitability of the relationships that such marginal analysis purport to describe.

The only inevitability in society is that elites will always distort resource allocation in a parochial or self-serving manner, reducing the so-called natural forces of economics to irrelevancy.  Unless, of course, those elites are eliminated by warfare or similar mayhem. In which case economics temporarily emerges as significant whilst a new elite rises to power.

The premier role this analysis gives to politics and social studies generally is a price economics pays for being the study of market allocation alone.  Apparently Lucas is content with economics being a bit player in the study of economies as long as it preserves its market biased ideological purity.

One last thing: if we consider a list of major economic phenomena of interest and importance in real economic life as we experience it, economics actually has weak or no explanations for many.  It is poor on growth.  It is almost blind on industrial organization.  It doesn’t even care, per Lucas, about inequality,  and so on.  But it is wonderfully logical and gives awesome insight into the fantasy world of perfect markets.  Wherever economist think they have a strong explanation it is almost always only in reference to a phenomenon they have arbitrarily constructed and not in reference to something beyond the laboratory.

Power matters:  Economics no so much.

  1. Helge Nome
    April 17, 2019 at 6:24 pm

    Perhaps, the so called “economics”, as practiced today should be classified as an artful deception?

  2. Econoclast
    April 17, 2019 at 7:45 pm

    My economics professors at both undergraduate and graduate levels explicitly refused to believe that income and wealth distribution was a topic for economics, saying that this was something better suited for sociology or political science. I can count the exceptions on one hand: Abba Lerner, Sid Hoos (husband of sociologist Ida Hoos), labor economist Varden Fuller, and history of economic thought teacher Arthur Leigh. It is ironIc that those same dominant neoclassical ideologists assigned readings in Thorstein Veblen and John Kenneth Galbraith, both of whom were centrally concerned with inequality.

    The Free Speech Movement at Berkeley occurred during my second year in grad school. The core issue was “relevance”. One of the constituent issues was the call for interdisciplinary studies, which the university had averted across the board.

    Integration into interdisciplinary studies at both undergrad and grad levels has occurred ever since, but I wonder about its real penetration into the field of study called “economics”. I wonder if some departments aren’t offering the illusion of true interdisciplinary study. My recent review of the curricula at two dozen top universities makes me wonder.

    “Power matters: Economics no so much.” Precisely.

    • April 25, 2019 at 2:28 am

      “My economics professors at both undergraduate and graduate levels explicitly refused to believe that income and wealth distribution was a topic for economics, saying that this was something better suited for sociology or political science.”

      I am also guessing that economics endowments sponsored by billionaires were also not considered a worthy topic of discussion.

      • Econoclast
        April 25, 2019 at 3:54 pm

        Correct. And things have gotten so much worse than they were in the 60s even though my research on top economics department curricula shows more classes on income and wealth distribution.

  3. April 18, 2019 at 12:26 am

    The 18th century term for macroeconomics was “Political Economy,” with “Economics” being split off as a separate category in the 19th. Maybe the 18th folks were more accurate and honest? Of course, there’s the old adage, “You can’t repeal the law of supply and demand” (regardless of politics); and there’s Gresham’s Law that — regardless of fiat money, where governments may issue coinage made of nickel and copper, and claim those coins are worth the same as equivalent ones made of silver — that the less intrinsically-worth coins will cause the public to hoard the silver coins, regardless of what politics claim or try (so “‘bad’ money drives out ‘good’ money”). But these are only a couple relatively minor exceptions. And so, yes, you’re right. It’s true that in macroeconomics politics most always trumps economics, and those who have the gold most commonly make the rules.

  4. Helen Sakho
    April 18, 2019 at 2:18 am

    All excellent comments. When Political Economy turned into a study of “passivity” things turned very sour. An excellent Political Economist old friend and colleague (Alan Freeman) who ran Political Economy seminars used to say: “If these people understood the value of Political Economy” we would not even be teaching Economics. He was absolutely right. It used to take two to tango, and now that has become reality. We are moving towards a “one- man- band” and the one with the bigger weapons shall have the last dance with a beautiful smile!

    • April 18, 2019 at 11:13 pm

      Your elaboration and encouragement are appreciated Dr.(?) Sakho, even if such a hypothetical “last dance” were to occur and be punctuated by a smirk.

      Returning to economics education, it should clearly be increased and improved. Firstly, in the USA for example, only about one in every one hundred colleges and universities requires economics courses of all students. Secondly, for the past couple years I’ve been asking American bankers to explain how money is created in the United States. Even at such prestigious organizations as J.P. Morgan Chase, I’ve yet to hear a correct answer (with the most common one being, “by printing money”). But here are basic U.S. processes:


      The government charters the Federal Reserve System to create new money in two ways:


      (1) U.S. Treasury gives the Federal Reserve Treasury bonds that become Fed assets.

      (2) The Fed lends money to member banks by simply crediting member banks’ accounts with the Fed. The Fed lends bookkeeping-record amounts of money to member banks, at the “discount rate” of interest, in return for member banks’ promissory notes.

      (3) Member banks in turn lend this newly created money to businesses and consumers by simply crediting such borrowers’ bank accounts with invisible “money.”

      (4) Recipients deposit government checks into banks as commercial bank deposits.

      (5) The Fed can allow its banks to lend up to 90% of their deposits as excess reserves.

      (6) New borrowers can continue with their own re-deposits up to about 28 times.

      (7) Per empirical measurements of average spending turnover of originally loaned funds: the total amount of fiat money (un-backed by gold or silver), created by the Federal Reserve and its commercial bank members together, is approximately ten times the amount of the underlying government debt.

      (8) So the money supply goes up along with the national debt.

      (9) The newly created money exists mostly in bank account books, not paper money (i.e., currency), which is only about ten percent of total money.

      (10) When there is no increasing national debt, there is no corresponding increase in the money supply! The Bill Clinton administration’s 1990s budget surpluses, of hundreds of billions of dollars, caused the Congressional Budget Office to project paying off the national debt completely, and then some. This gravely worried Fed Chair Alan Greenspan (as stated in his 2007 book, “The Age of Turbulence,” Pages 213 and 214):

      “. . . looming large was the disappearance of the national debt . . . in January 2001 the possibility was real. Nearly a decade of rising productivity growth and budget discipline had put the U.S. government in a position to generate surpluses . . . the nonpartisan Congressional Budget Office was getting ready to raise its projection of the surplus to a stunning $5.6 trillion over ten years.

      “. . . we [at the Federal Reserve Open Market Committee] spent hours trying to imagine how the Fed would operate in a brave new world of minimal federal debt… Our primary lever of monetary policy was buying and selling treasury securities… But as the debt was paid down, those securities would grow scarce, leaving the Fed in need of a new set of assets to effect monetary policy. For nearly a year, senior Fed economists and traders had been exploring the issue of what other assets we might buy and sell… the Fed would have to learn to manage a complex portfolio of municipal bonds, bonds issued by foreign governments, mortgage-backed securities, auctioned discount-window credits, and other debt instruments. It was a daunting prospect.”


      (1) The Fed’s Open Market Committee can also buy or sell more Treasury IOUs, up to its assets on hand, thus increasing or reducing the money supply.

  5. Jan Milch
    April 18, 2019 at 8:35 am

    The eminent sociologist, historical social scientist and world-systems analyst
    Immanuel Wallerstein made an interesting reflection about the “Ontological Dilemmas” some days ago:
    Immanuel Wallerstein-Commentary No. 495, April 15, 2019

    “Epistemology, especially statistics, is the study of how we measure things and how we know if our measurements are correct. Ontology is the study of whether the things we are measuring actually do exist.

    A very long time ago, beginning in the sixteenth century, analysts were primarily concerned with methodological problems. But in the last century, more and more analysts turned their concerns to ontological problems.

    The reason for this shift was the sense of increasing numbers of analysts that most of the benefits were awarded to those who worked on methodological problems. They turned to ontological problems as a way of challenging the domination of thought activity by a small group of the entire population.

    They said, in effect, what you are studying does not exist; if you study what exists you discover different groups gain the benefits of collective activity. They asserted that there are groups that existed defined by specific groups, such as gender or race.

    Increasingly, the majority of analysts turned therefore to the study of such groups as defined by ontology.

    In recent years, the spokespeople for methodology began a movement to the primacy of return to their emphasis. Thus continued the struggle of thought possibilities.

    The shift to ontology has not been without its own difficulties; this can be seen by attempting to use ontology to obtain acceptable results.

    Let me give some examples: Suppose we say that nothing exists. Does the statement that exist?

    Let me give a second example. If nothing exists, are the two ways of forming groups equally valid? Is the statement that consonant with ontology premises?

    What we see therefore is a pattern in which analyses shift over time, back and forth, between methodology and ontology primacy. These shifts occur slowly over long periods of time.

    However, in the last 50 years or so, the shifts have become more frequent. What could explain this? It seems that shifts in structure of the modern world-system may account for greater frequency of shifts. Insofar as all these shifts occur within the framework of the modern world-system’s own normality, shifts are slow and infrequent.

    But when the modern world-system enters a structural crisis, everything becomes more frequent and chaotic, and shifts from the emphasis on methodology to the emphasis on ontology are no exception.

    Thus, we are adding a third layer to our understanding of thought activity. There is the methodological emphasis, the ontological emphasis, and the structure of the modern world-system. What exists? This is not a solvable problem. Rather, we can speak of ontological dilemmas.”

    • April 18, 2019 at 10:44 pm

      Thank you, Jan Milch, for posting Wallerstein’s brilliant analysis. How we proceed to investigate reality, and learning to distinguish between what is real and what is not — and to what degree(s) — are of paramount importance. What we find or claim to know after such efforts, while also essential and crucial, are derived results.

  6. Yok
    April 18, 2019 at 6:25 pm

    Thank you for your article

  7. April 18, 2019 at 10:42 pm

    Perhaps, but I can’t help wondering why. Every observable structure, be it physical or not, has an ontology. And the latter both explains its existence and self-produces determinants so it can keep on existing. Because no one is interested in being rewarded in terms of their own output, an economic structure is inherently social. Meaning, reciprocity determines; and individualistic decision making, from whatever power base, cannot be determinant to continuation.

    Market-based economies too cannot escape this logic. But the complexity of the market can hide it. There are two separate, but intertwined in the same units of account, streams of determinant operating in a market economy. Cost incomes determine costs and profit incomes determine profits. Entrepreneurs fail mainly for the reason that profit income disappears into the black hole of “liquidity”. Derivative final output has gone, but claims to it in the aggregate have taken on a life of its own. I suggest this is the ontology of inequality, of which the physical manifestation is only relatively tiny. By far the greatest part is fictitious wealth. Political power plays only a supporting role in this, as I see it.

  8. Ken Zimmerman
    April 25, 2019 at 1:52 pm

    Two comments. First, economists may define and divide their work as they wish. If there is no consensus among them, then different definitions and divisions will either co-exist peaceful. Or they will battle one another for supremacy. If they reach consensus to limit their work to “markets” perfect or otherwise, that is the choice of economists. The question that must be answered is, why should any non-economist follow the lead of economists, where ever it is they decide to go? In other words, is there anything in the choices of economists that is useful for and to non-economists? Also, “laws” invented by economists must pass the same test. These laws are simply rules made-up by economists. Any or all of us could in fact and in theory choose to ignore any one or all these rules. The corollary is thus, these rules continue in operation only because many, but not likely all humans generally follow them in practice. That is certainly the case today with some form of “market” economics dominant in most parts of the world.

    Second, if “Ontology is the study of whether the things we are measuring actually do exist,” then ontology is useful or useless depending on what is understood by “actually do exist.” If this is a reference to the history of the creation of some action or thing, like poverty, democracy, banker, war, love, marginalism, etc. then ontology as a study can be useful. If, on the other hand ontology is a reference to some transcendent or universal reality beyond what humans can or ever will grasp, then ontology is a mere parlor game and thus useless except for light amusement. I suggest the path we need to follow is to give up any concerns for transcendent “reality” and focus on the reality that humans create via their imaginations. Historian Yuval Harari reminds us about what humans are and do. In discussing the coming world of automation and little human work, he says, “Hence virtual realities are likely to be key to providing meaning to the useless class of the post-work world…In any case, the end of work will not necessarily mean the end of meaning, because meaning is generated by imagining rather than by working…But what about truth? What about reality? Do we really want to live in a world in which billions of people are immersed in fantasies, pursuing make believe goals and obeying imaginary laws? Well, like it or not, that’s the world we have been living in for thousands of years already.” For more than 30,000 years it is the only human world. In this way humans (or at least Sapiens) is unique on the planet.

    As to economics today I can only say most of us are living inside the imaginations of other members of our species. This is a demonstration of just how powerful are imagined, make-believe goals and ways of life. If someone who’s already shown they have the “power” (whatever form it takes) to make others do as they wish, tells you to “follow the market” or lose all you have to support you and your family, it’s likely, very likely you will do as instructed. Markets operate because the people in them believe they work or have been forced to believe they work. It would be interesting if some economists somewhere were to spend time examining just how this belief was constructed and how some of us were forced to accept it.

  9. Craig
    April 25, 2019 at 6:27 pm

    Here’s an ontology for you: the cosmos is a continuing abundant, interactive, integrative flow of everything through time. That is its beingness. It’s so powerfully true that you can’t stop it from flowing. This was identified in the rig veda by the much wiser and much more scientifically disciplined sages of that time, and from which we have devolved.

    This fact has elsewhere been identified as the cycle of action of the physical universe. There are within that macrocosmic reality many cycles that reflect it, and the component parts of those flows/cycles are start, change and stop. If economists would study this cycle with an eye to where it stops they might have a very powerful cognition.

    • Helen Sakho
      April 26, 2019 at 12:37 am

      I have always studied and taught Emanuel Wallerstein with enormous interest and respect. His writings on world systems are exemplary. I am very happy that he is amongst us.

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