Home > Uncategorized > Economics of poverty, or the poverty of economics

Economics of poverty, or the poverty of economics

from David Ruccio

Yesterday, the winners of the 2019 winners of the so-called Nobel Prize in Economics were announced. Abhijit Banerjee, Esther Duflo, and Michael Kremer were recognized for improving “our ability to fight global poverty” and for transforming development economics into “a flourishing field of research” through their experiment-based approach.

The Royal Swedish Academy of Sciences declared:

This year’s Laureates have introduced a new approach to obtaining reliable answers about the best ways to fight global poverty. In brief, it involves dividing this issue into smaller, more manageable, questions–for example, the most effective interventions for improving educational outcomes or child health. They have shown that these smaller, more precise, questions are often best answered via carefully designed experiments among the people who are most affected.

As every year, mainstream economists lined up to laud the choice. Dani Rodrik declared it “a richly deserved recognition.” Richard Thaler, who won the award in 2017 (here’s a link to my analysis), extended his congratulations to the Banerjee, Duflo, and Kremer and to the committee “for making a prize that seemed inevitable happen sooner rather than later.” While Paul Krugman, the 2008 Nobel laureate, refers to it as “a very heartening prize—evidence-based economics with a real social purpose.”

Nothing new there. To a one, mainstream economists always use the occasion of the Nobel Prize to applaud themselves and their shared approach to economic and social analysis—a celebration of private property, free markets, and individual incentives.

What is novel this time around is that the winners include the first woman economist to win the prize (Duflo) and only the third non-white economist (Banerjee).*

But what about the content of their work? I’ve discussed the work of Duflo and Banerjee on numerous occasions on this blog (e.g., herehere, and here).

As it turns out, I’ve written a longer commentary on the “new development economics” as part of a symposium on my book Development and Globalization: A Marxian Class Analysiswhich is forthcoming in the journal Rethinking Marxism.

I begin by noting that idea of Banerjee, Duflo, Kremer and the other new development economists is that asking “big questions” (e.g., about whether or not foreign aid works) is less important than the narrower ones concerning which particular development projects should be funded and how such projects should be organized. For this, they propose field experiments and randomized control trials—to design development projects such that people can be “nudged,” with the appropriate incentives, to move to the kinds of behaviors and outcomes presupposed within mainstream economic theory.

Here we are, then, in the aftermath of the Second Great Depression—in the uneven recovery from capitalism’s most severe set of crises since the great depression of the 1930s and, at the same time, a blossoming of interest in and discussion of socialism—and the best mainstream economists have to offer is a combination of big data, field experiments, and random trials. How is that an adequate response to grotesque and still-rising levels of economic inequality (as shown, e.g., by the World Inequality Lab), precarious employment for hundreds of millions of new and older workers (which has been demonstrated by the International Labour Organization), half a billion people projected to still be struggling to survive below the extreme-poverty line by 2030 (according to the World Bank), and the wage share falling in many countries (which even the International Monetary Fund acknowledges) as most of the world’s population are forced to have the freedom to sell their ability to work to a relatively small group of employers for stagnant or falling wages? Or, for that matter, to the reawakening of the rich socialist tradition, both as a critique of capitalism and as a way of imagining and enacting alternative economic and social institutions.

I go on to raise three critical issues concerning the kind of development economics that has been recognized by this year’s Nobel prize. First, the presumption that analytical techniques are neutral and the facts alone can adjudicate the debate between which development projects are successful and which are not is informed by an epistemological essentialism—in particular, a naïve empiricism—that many of us thought to have been effectively challenged and ultimately superseded within contemporary economic and social theory. Clearly, mainstream development economists ignore or reject the idea that different theories have, as both condition and consequence, different techniques of analysis and different sets of facts.

The second point is that class is missing from any of the analytical and policy-related work that is being conducted by mainstream development economists today. At least as a concept that is explicitly discussed and utilized in their research. One might argue that class is lurking in the background—a specter that haunts every attempt to “understand how poor people make decisions,” to design effective anti-poverty programs, to help workers acquire better skills so that they can be rewarded with higher wages, and so on. They are the classes that have been disciplined and punished by the existing set of economic and social institutions, and the worry of course is those institutions have lost their legitimacy precisely because of their uneven class implications. Class tensions may thus be simmering under the surface but that’s different from being overtly discussed and deployed—both theoretically and empirically—to make sense of the ravages of contemporary capitalism. That step remains beyond mainstream development economics.

The third problem is that the new development economists, like their colleagues in other areas of mainstream economics, take as given and homogeneous the subjectivity of both economists and economic agents. Economists (whether their mindset is that of the theoretician, engineer, or plumber) are seen as disinterested experts who consider the “economic problem” (of the “immense accumulation of commodities” by individuals and nations) as a transhistorical and transcultural phenomenon, and whose role is to tell policymakers and poor and working people what projects will and not reach the stated goal. Economic agents, the objects of economic theory and policy, are considered to be rational decision-makers who are attempting (via their saving and spending decisions, their participation in labor markets, and much else) to obtain as many goods and services as possible. Importantly, neither economists nor agents are understood to be constituted—in multiple and changing ways—by the various and contending theories that together comprise the arena of economic discourse.

The Nobel committee has recognized the work of Banerjee, Duflo, and Kremer as already having “helped to alleviate global poverty.” My own view is that it demonstrates, once again, the poverty of mainstream economics.

 

*The only other woman, in the 50-year history of the Nobel Prize in Economics, was Elinor Ostrom (2009), a political scientist; the other non-white winners were Sir Arthur Lewis (1979) and Amartya Sen (1998).

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  1. Craig
    October 15, 2019 at 9:27 pm

    The individual is ALWAYS neglected if not completely ignored in present economic theories…even the heterodox ones.

    Make finance a public utility guided and aligned with the new monetary paradigm of Direct and Reciprocal Monetary Gifting and both the system and the individual will thrive. And rapid progress toward survival in dealing with climate change and the need for renewable energy sources will immediately become doable instead of (irrationally) “too expensive.”

  2. October 16, 2019 at 4:11 pm

    Cross-posting

    Scrap the EconNobel
    Comment on Peter Dorman on ‘A Nobel for the Randomistas’

    Peter Dorman comments: “I don’t think anyone was surprised by this year’s ‘Nobel’ prize in economics, which went to three American-based specialists in the design of on-the-ground experiments in low income countries, Abhijit Banerjee, Esther Duflo and Michael Kremer.”

    Indeed, the EconNobel has been criticized on various grounds: (i) male-predominance, (ii) theory-predominance, (iii) rich-western-capitalism-focused, (iv) geriatric-predominance, (v) white-predominance, (vi) University of Chicago bias. All these biases have been addressed and solved to everybody’s satisfaction with the team of young/female/poverty-concerned/empirical/multicultural, Cambridge-MA prize winners.

    One problem, though, has been carefully avoided, i.e. that economics is NOT a science to this day. The major approaches — Walrasianism, Keynesianism, Marxianism, Austrianism, MMT — are mutually contradictory, axiomatically false, materially/formally inconsistent and all got the foundational economic concept profit wrong. Economics is a failed science.

    Economics has NEVER been a science but a smokescreen for political agenda-pushing. BOTH orthodox and heterodox economists are NOT scientists but clowns and useful idiots in the political Circus Maximus. The “Bank of Sweden Prize in Economic Sciences” is a fraud for 50 years.#1

    Peter Dorman wonders “Carefully controlled social experiments can be very expensive! When I read the work of the prize-winners and their coauthors, I often find myself wondering how much did it cost to do this research, and who paid for it? This is a form of Big Science, and it requires big support.”

    This is an easy question. Economics departments, chairs, institutions, and pre-selected individuals are traditionally funded by the Oligarchy. Rockefeller called the university ‘the best investment’ he ever made. In our days, though, the quality of sponsors/funders/agenda-pushers has considerably deteriorated. The active players are not at all secret, the New York Times shows a meeting-photo of well-known billionaire Jeffrey Epstein and well-known Harvard economist and political busybody Larry Summers.#2

    From all this one can conclude with a high degree of probability that the EconNobel is a well-calculated, Oligarchy-sponsored, aristocracy-decorated PR stunt that has much to do with the deception of the general public and NOTHING at all with science.

    Egmont Kakarot-Handtke

    #1 For details see
    https://axecorg.blogspot.com/2019/08/links-on-economics-nobel.html

    #2 New York Times

  3. Ken Zimmerman
    October 22, 2019 at 10:54 am

    If economists were educated beyond economic theories and mathematics and had at least a modicum of curiosity about events around them, they’d know that the work for which these folks were awarded a Noble Prize is not either innovative or new. Anthropologists and government policy designers went down this road, fruitlessly 50 years ago. The culture of poverty is a notion in social theory asserting that the values of people experiencing poverty play a significant role in perpetuating their impoverished condition, sustaining a cycle of poverty across generations. It was discussed and criticized academically (Goode & Eames 1996; Bourgois 2001; Small, Harding & Lamont 2010) and included in policy documents in the 1970s. Pushed aside in the 1990s it made a comeback at the beginning of the 21st century. It offers one way to explain why poverty exists despite anti-poverty programs. Critics of the early culture of poverty arguments insist that explanations of poverty must analyze how structural factors interact with and condition individual characteristics (Goode & Eames 1996; Bourgois 2001; Small, Harding & Lamont 2010). For example, Small, Harding & Lamont (2010), note” since human action is both constrained and enabled by the meaning people give to their actions, these dynamics should become central to our understanding of the production and reproduction of poverty and social inequality.”

    The first proponents of the theory argued that the poor are not only lacking resources but also acquire a poverty-perpetuating value system (culture). One of the creators of the theory, anthropologist Oscar Lewis contends, “The subculture [of the poor] develops mechanisms that tend to perpetuate it, especially because of what happens to the worldview, aspirations, and character of the children who grow up in it”. (Lewis 1969, p. 199) Some later supporters (Young 2004; Newman 1999; Edin & Kefalas 2005; Dohan 2003; Hayes 2003; Carter 2005; Waller 2002; Duneier 1992) contend that the poor do not have different values, but their ways of life do separate them for mainstream society.

    The term “subculture of poverty” (later shortened to “culture of poverty”) made its first appearance in “Lewis’s ethnography Five Families: Mexican Case Studies in the Culture of Poverty” (1959). Lewis worked hard to show “the poor” as legitimate subjects whose lives were transformed by poverty. He argued that although the burdens of poverty were systemic and therefore imposed upon these members of society, they led to the formation of an autonomous subculture as children were socialized into behaviors and attitudes that perpetuated their inability to escape the underclass.

    Lewis identified 70 characteristics (1996 [1966], 1998) that indicated the presence of the culture of poverty, which he argued was not shared among all the lower classes. The people in the culture of poverty have a strong feeling of marginality, of helplessness, of dependency, of not belonging. They are like aliens in their own country, convinced that the existing institutions do not serve their interests and needs. Along with this feeling of powerlessness is a widespread feeling of inferiority, of personal unworthiness. This is true of the slum dwellers of Mexico City, who do not constitute a distinct ethnic or racial group and do not suffer from racial discrimination. In the United States the culture of poverty that exists in the black community has the additional disadvantage of racial discrimination.

    People with a culture of poverty have very little sense of history. They are a marginal people who know only their own troubles, their own local conditions, their own neighborhood, their own way of life. Usually, they have neither the knowledge, the vision nor the ideology to see the similarities between their problems and those of others like themselves elsewhere in the world. In other words, they are not class conscious, although they are very sensitive to status distinctions. When the poor become class conscious or members of trade union organizations, or when they adopt an internationalist outlook on the world they are, in my view, no longer part of the culture of poverty although they may still be desperately poor. (Lewis 1998)

    Although Lewis was concerned with poverty in the developing world, the culture of poverty concept proved attractive to US public policy makers and politicians. It strongly informed documents such as the Moynihan Report (1965) as well as the War on Poverty, more generally. The culture of poverty also emerges as a key concept in Michael Harrington’s discussion of American poverty in The Other America (1962). For Harrington, the culture of poverty is a structural concept defined by social institutions of exclusion that create and perpetuate the cycle of poverty in America.

    Since the 1960s, critics of culture of poverty explanations for the persistence of the underclasses have attempted to show that real world data do not fit Lewis’s model (Goode & Eames 1996). In 1974, anthropologist Carol Stack issued a critique of it, calling it “fatalistic” and noticing the way that believing in the idea of a culture of poverty does not describe the poor so much as it serves the interests of the rich. She writes, citing Hylan Lewis another critic of Oscar Lewis’ Culture of Poverty:

    The culture of poverty, as Hylan Lewis points out, has a fundamental political nature. The ideas matter most to political and scientific groups attempting to rationalize why some Americans have failed to make it in American society. It is, Lewis (1971) argues, “an idea that people believe, want to believe, and perhaps need to believe.” They want to believe that raising the income of the poor would not change their lifestyles or values, but merely funnel greater sums of money into bottomless, self-destructing pits. This fatalistic view has wide acceptance among researchers, welfare planners, and the voting public. Indeed, even at the most prestigious universities, the country’s theories alleging racial inferiority have become increasingly prevalent. In this way, she demonstrates the way that political interests to keep the wages of the poor low create a climate in which it is politically convenient to buy into the idea of culture of poverty (Stack 1974). In sociology and anthropology, the concept created a backlash, pushing scholars to look to structures rather than “blaming-the-victim” (Bourgois 2001).

    Even with all the defects, the culture of poverty is today experiencing a resurgence in the social sciences, but most academics now reject the notion of a monolithic and unchanging culture of poverty. Newer research typically rejects the idea that poverty can be explained by the values of the poor. This same research is reluctant to divide explanations of poverty into “structural” and “cultural,” because many see little utility in this old dichotomy.

    It appears the work of Banerjee, Duflo, and Kremer is heading the same direction as the “culture of poverty.” Both seek to socialize (nudge) “poor” folks into ways of life that limit their job options, suppress their collective power to express themselves politically and to organize to gain better living conditions for themselves and their families. That systematically create recessions and force their poorest citizens to pay the costs of those recessions. That favor finance and monied interests over democracy and systematically lie to and steal from the nation and its people, particularly the poor. And that concentrate every effort on ensuring that the poor will remain always poor and those not yet poor will come nearer to it each year. Considering this picture, it is not surprising that the poor are often angry and feel marginalized, helpless, and dependent, and are sensitive to status distinctions. And frequently lack the knowledge, the vision, and the ideology to see the similarities between their problems and those of others like themselves elsewhere in the world.

    • Robert Locke
      October 22, 2019 at 11:15 am

      Ken, as an historian who went through the development of different patterns firm goverrnance in Germany after wwii, l don’t understand this economics of poverty business. If you give the poor a voice in the governance of the economy, of the firm, the culture that ensues is not an economics of poverty but an economics of sustainability. I don’t read and write the same stuff you do.

      • Ken Zimmerman
        October 26, 2019 at 11:12 am

        Robert, it’s the Puritanism and extreme individualism of the US mixed together. First, the Puritan. People are poor because they are morally corrupt or lack the grace of God. Or, people are poor because they are lazy and shiftless, unwilling (not unable) to work hard and be responsible to gain success. Overlaying both is the notion that anyone can find success in the US if they work hard and live an upright life. The fault for failure is on each individual alone. Even many of those who proffer these values are aware they don’t always work in practical, everyday situations. Then there’s the last reason to enable poverty. To help ensure the distribution of wealth and power is not affected by the ‘problems of the poor.’

  4. October 24, 2019 at 3:16 pm

    Ken Zimmerman

    You say: “Anthropologists and government policy designers went down this road, fruitlessly 50 years ago. The culture of poverty is a notion in social theory asserting that the values of people experiencing poverty play a significant role in perpetuating their impoverished condition, sustaining a cycle of poverty across generations.” and “If economists were educated beyond economic theories and mathematics and had at least a modicum of curiosity about events around them, they’d know that the work for which these folks [Abhijit Banerjee, Esther Duflo, Michael Kremer] were awarded a Noble Prize is not either innovative or new.”

    Yes, indeed, the culture of poverty is the subject matter of Anthropology/Sociology/Psychology and other so-called social sciences. No, Psychology, Sociology, etcetera ― PsySoc for short ― is NOT the subject matter of economics. The subject matter of economics is how the economic system works. Economic is a system science and NOT a social science.#1, #2

    Fact is that economics is a failed science. The major approaches ― Walrasianism, Keynesianism, Marxianism, Austrianism, MMT ― are mutually contradictory, axiomatically false, materially/formally inconsistent and ALL got the foundational economic concept ― profit ― wrong. Economists have NO valid theory about how the actual economy works but this does not prevent them from taking part in the political Circus Maximus and to give economic policy advice.#3

    There have always been two economixes, political economics, and theoretical economics. The main differences are: (i) The goal of political economics is to successfully push an agenda, the goal of theoretical economics is to successfully explain how the actual economy works (= true theory). (ii) In political economics anything goes; in theoretical economics, scientific standards are observed.

    Fact is that (i) theoretical economics (= science) had been hijacked from the very beginning by political economists (= agenda pushers), and (ii), political economics has produced NOTHING of scientific value in the last 200+ years.#4

    Because economics is NOT a science but Oligarchy-sponsored political agenda-pushing, the “Bank of Sweden Prize in Economic Sciences in Memory of Alfred Nobel” is a deception of the general public since the first EconNobel 50 years ago.#5

    It is high time to sue the Bank of Sweden for damages and waste of the Swedish peoples’ money.

    Egmont Kakarot-Handtke

    #1 Economics is NOT about Human Nature but the economic system
    https://axecorg.blogspot.com/2017/05/economics-is-not-about-human-nature-but.html

    #2 PsySoc — the scourge of economics
    http://axecorg.blogspot.com/2015/09/psysoc-scourge-of-economics.html

    #3 Econogenics in action
    https://axecorg.blogspot.com/2019/01/econogenics-in-action.html

    #4 Economists: scientists or political clowns?
    https://axecorg.blogspot.com/2017/06/economists-scientists-or-political.html

    #5 Links on the Economics Nobel
    https://axecorg.blogspot.com/2019/08/links-on-economics-nobel.html

    • Ken Zimmerman
      October 26, 2019 at 11:20 am

      Egmont, thanks for your comments. You’re correct that economists today spend little time or effort studying poverty. But anthropologists and sociologists do. Psychologists spend much time and effort to examine and treat the effects of poverty on individuals, families, communities, etc. All three, particularly the first two spend a large amount of time and energy studying all aspects of economic life, including how economists shape that life. Psychologists search more broadly for the positive and negative impacts on people, communities, and nations of economics (as defined by mainstream economists.) In short, you state “the subject matter of economics is how the economic system [if it is system] works.” Anthropologists and sociologists share this focus but look well beyond it to study the workings of society as whole.

      Based on the view of science I hold; I agree mainstream economics today is not a science. My reason for this conclusion is more straightforward than yours’, lack of empiricism.

      I don’t agree with your views on the “economixes.” Science is first empirical, in my view (lightly guided by tentative hypotheses). Only after empirical data has accumulated should any effort at theory be attempted. And then only tentatively. If it functions properly, political economics is the science of economic actions in a political setting.

      Finally, all the Noble prizes are propaganda tools for each science and science in general. The economics prize is particularly egregious. First because economics as presently constituted is not science. Second because economics is overly focused on political maneuvering (both academically and in governance).

      • October 28, 2019 at 10:49 am

        Ken Zimmerman

        You say “Egmont, thanks for your comments. You’re correct that economists today spend little time or effort studying poverty. But anthropologists and sociologists do.”

        In fact, I said that economists spend TOO MUCH time with PsySoc. The subject matter of economics is NOT Human Nature/motives/behavior/action but how the economic system works.

        Economists are known to have dabbled in virtually every discipline: Psychology, Sociology, Political Sciences, Geopolitics, Law, History, Anthropology, Social Philosophy, Philosophy, Theology, Pedagogic, Biology/Evolution, and whatnot. This somewhat perverse habit has been called Economics Imperialism. The perversity consists of the fact that economists have utterly failed in their own discipline. Walrasianism, Keynesianism, Marxianism, Austrianism, MMT is mutually contradictory, axiomatically false, and materially/formally inconsistent.

        In 200+ years, economics has not risen above the proto-scientific level.

        For details see
        Economists: Jacks-of-all-trades ― except economics
        http://axecorg.blogspot.com/2016/11/economists-jacks-of-all-trades-except.html

        Egmont Kakarot-Handtke

      • Ken Zimmerman
        October 29, 2019 at 2:00 pm

        Egmont, you’re a bit confused, seems to me. There is no economic system or systems until people invent them. And the parts of human culture studied by psychologists, sociologists, anthropologists, etc. are all involved in the creation of those systems. In other words, economies are psychological, sociological, anthropological, etc. That economists don’t or choose not to recognize this leads to many wrong conclusions by economists and a great deal of incorrect advice. As to “economic imperialism,” that generally involves an attempt by economists to force all other social science work and social scientists to work within the parameters of economics. That’s wrong in so many ways. Saying that economics has failed is not new, particularly on this blog.

        Thanks for the link. Since economics is a social science, its subject matter is society and culture, part of which is economic actions. This subject matter is inherently complex and has no fixed laws. Therefore, all conclusions from research are tentative, at best. Will change as humans re-invent their societies and cultures. Consequently, providing precise or fixed advice to policy makers is not only a bad idea, but frequently ends in failure. No wonder economists are so frustrated that they cannot bring themselves to accept or even recognize the uncertainty that pervades their research and their theories.

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