Economic representations and the power of ideas

from David Ruccio

 

As readers know, there are few things I take more seriously than economic representations and the power of ideas.

As I argued in my book, representations of the economy (including, of course, issues of inequality) are produced and disseminated in many different discursive forms and social sites, only one of which is the academic discipline of economics. We also find them in academic disciplines other than economics (such as anthropology, sociology, cultural studies, and so on) and in many places outside the academy (including in literature, from Balzac to DeLillo).

Falling real wages in the USA 2007- 2014

from David Ruccio

As the Economic Policy Institute explains,

Game theory—in practice

from David Ruccio

 

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Back when I taught Principles of Microeconomics, I offered a lecture or two on game theory. Given how terrible most textbook presentations are, I used to borrowed heavily from the work of Judith Mehta and Shaun Hargreaves-Heap and Yanis Varoufakis to explain the key assumptions behind and the tensions generated within game theory.

Now, Varoufakis is back—in a very different capacity, of course—to explain the lesson he learned from his studies of game theory:

The current conflict is not between nations, but between classes (2 graphs)

from David Ruccio

Most of the commentary on the ongoing euro crisis, especially the current Greek debt negotiations, has been couched in terms of a conflict between nations. This is particularly true of mainstream economists, whose nation-state-based models downplay or ignore class, even as the policies they advocate have tremendous class implications.

So, it’s fallen to—however ironically—financial strategist and professor of finance Michael Pettis to remind us the current conflict is not between nations, but between classes.

The whole piece, beginning with the French indemnity of 1871-73, is worth a careful read. But I want to focus here on what Pettis writes about the class conditions that led to and follow on from the current crisis.

First, Pettis makes the important point that the capital flows from north to south within the euro zone were based on important class changes within Germany (he uses his native Spain throughout as his example in the south but most of his analysis follows for Greece and other countries):

Decomposing the top decile US income share into 3 groups, 1913-2013

from David Ruccio

The share of total income captured by the top 1 percent actually shrunk in 2013, falling from 21.22 percent to 18.98.

But, as Emmanuel Saez [pdf] explains, that decline is probably a statistical anomaly:

Decomposing the top decile US income share into 3 groups, 1913-2013

from David Ruccio

Greek tragedy to triumph (9 charts)

from David Ruccio

Greece has gone from tragedy to triumph—from the tragedy of austerity-induced suicides to the triumph of the anti-austerity landslide victory of Syriza.

So, before we get lost in the media hysteria of “radical leftists,” “firebrand” leaders, and jittery international financial markets, let’s be clear about what Greek voters rejected on Sunday.

Greek workers rejected an austerity program that has led to a decline of more than 25 percent in Gross Domestic Product since 2007.

Will market forces solve the problem of stagnant wages and growing inequality?

from David Ruccio

Will market forces solve the problem of stagnant wages and growing inequality? 

Piketty’s response to Mankiw et al.: “and some consume academics.”

from David Ruccio

I didn’t attend the most recent American Economic Association/Allied Social Sciences Association meetings in Boston. But, according to Chuck Collins, several sessions focused on the sensation of French economist Thomas Piketty and his 2014 book on inequality, Capital in the Twenty-First Century.

As an outsider to academic economics, I was struck by just how compartmentalized and smug the field appears. At one point, [Gregory] Mankiw even put up a slide, “Is Wealth Inequality a Problem?” Any economist who ventures across the disciplinary ramparts will, of course, find a veritable genre of research on the dangerous impacts of extreme inequality.

We now have over two decades of powerful evidence that details how these inequalities are making us sick, undermining our democracy, slowing traditional measures of economic growth, and turning our political system into a plutocracy.

Mankiw, at another point in his presentation, had still more embarrassing comments to make. Piketty, he intoned, must “hate the rich.” Piketty’s financial success with his best-selling book, Mankiw added, just might lead to self-loathing.

These clearly well-rehearsed quips, aimed at knee-capping the humble French economist, fell flat. Mankiw’s presentation, entitled “R > G, so what?,” came across as little more than an apologia for concentrated wealth.

And Piketty’s response?

Once again on rigid wages

from David Ruccio

source*

Mainstream economists continued to be mystified by the fact that, even as the official unemployment rate has decreased, workers continue to get the same wages as before. That is, nominal wages for many workers in the United States simply aren’t increasing—that is, they are “upwardly rigid.” 

Fathers’ versus sons’ wage rates in the USA (2 graphs)

from David Ruccio

As part of his analysis of changing household structure in the United States, Steven Ruggles [pdf] presents the two charts above summarizing data about the relative income of young men.*

What Ruggles finds is that, when comparing the wages of 25-29 year olds to the wage rates of their fathers 25 years earlier (when the fathers were 25-29), relative income peaked in 1958, when young men made about four times as much as their fathers had a quarter-century before. In the 1960s and 1970s, young men’s relative income collapsed, and since the mid-1980s young men have been making less than their fathers had at the same age.

4 charts showing increasing inequality in the USA

from David Ruccio

Let’s end the year with some important charts assembled by Steven Rattner.

Yes, economic growth picked up and financial markets soared to new record highs. But—and it’s a big but—wages remained stagnant (barely budging in real terms), income inequality got worse (increasing from already grotesque levels), the tiny minority at the top made out like bandits (just as they were doing before 2007), and government programs (even with a Democratic president and Senate) did little to ameliorate the effects of stagnant wages and growing inequality. 

The gerontocratic economy

from David Ruccio

According to the U.S. Census Bureau, many more so-called millennials (young adults, 18-34 years old) are living in poverty today, and they have lower rates of employment, compared with their counterparts in 1980.

• One in five young adults lives in poverty (13.5 million people), up from one in seven (8.4 million people) in 1980.
• Today, 65 percent of young adults are employed, down from 69 percent in 1980.

USA wealth gap

from David Ruccio

Pew refers to it as a “nest egg.” The rest of us call it net worth, the difference between total assets and outstanding debt. Whatever name we give it, the problem is the same: the wealth gap between those at the top and everyone else continues to grow.

Household wealth trends in the United States, 1962-2013

from David Ruccio

The chart comes from Ed Wolff’s latest, “Household Wealth Trends in the United States, 1962-2013: What Happened over the Great Recession?”—another in a growing list of investigations into the declining fortunes of the American middle-class.

In the USA the already huge wealth gap between whites and non-whites is growing. (2 graphs)

from David Ruccio

Transforming economics education

from David Ruccio

After the crash of 2008, in the midst of the Second Great Depression, students around the world have been calling for radical changes in the way economics is taught. They know that the discipline of economics, today as in the past, includes more than neoclassical economics—but, for the most part, students are not being exposed to concepts and methods other than those of neoclassical economic theory.

There are, of course, a handful of departments where non-mainstream theories have been developed and taught, alongside and in addition to neoclassical (and, for that matter, traditional Keynesian) economics. In the United States, in terms of Ph.D.-granting institutions, they include the University of Massachusetts at Amherst (where I received my degree), American University, the University of Missouri-Kansas City, the University of Utah, and New School University.

As Aaron Steelman recognizes, that handful also once included the University of Notre Dame. But that is no longer the case, since the current Department of Economics advertises itself as as purely neoclassical department.

Unfortunately, Steelman gets the history wrong.

Black Friday madness

from David Ruccio

Black Friday has apparently become a spectator sport for the leisure class, who look forward to watching videos of shoppers brawling for discounted items from the safety of their own homes. A reality-show Hunger Games, if you will.

Piketty wars: episode III—revenge of the Right

from David Ruccio

In episode I of Piketty wars, Harvard University Press published Capital in the Twenty-First Century. In episode II, the reviews of Piketty’s book, by liberal mainstream economists, were generally positive. Now, in episode III, the Right can be found on their Invisible Hand ship, launching a series of attacks against Piketty.*

Conspicuously consume this!

from David Ruccio

More than a century ago, Thorstein Veblen’s presented his theory of conspicuous consumption (as part of his Theory of the Leisure Class)—an idea that is as applicable today, in the midst of the Second Gilded Age, as it was then.*

But not for Robert Frank, who reduces Veblen’s theory to so-called Veblen goods, which is the idea that demand for some goods increases as prices go up, thus contradicting the usual neoclassical presumption of downward-sloping demand. Frank’s view is this is evidence of craziness—and the super-rich aren’t crazy.

OK, they’re not crazy. But that’s not what Veblen argued. His theory was that, in modern times, in a system of private property and industrial production, all income groups are caught up in “invidious distinction” and “pecuniary emulation.”