Neoliberalism’s conception of economic reality as . . .

from Lukas Bäuerle and PNLE

The most powerful and at the same time dangerous aspect of neoliberal thought is its conception of economic reality as governed by a separate sphere of absolute truths. In aligning with a long-standing tradition of perennial philosophies (lat. perennis: constant, lasting), neoliberalism has set out to reconfigure our world according to an image that was dead from the very outset. The myth neoliberalism is operating on philosophically is the idea of a world of hidden truths and principles behind the ambiguous and chaotic phenomena we are experiencing in daily life. There is a logic behind the chaos, reigning independently of time and space. This proposition is not just “talk” – it is a deep-seated ontological frame of contemporary economic thought that has found its way into the discipline’s textbooks and, hence, has to be learnt by millions of students around the globe semester after semester (i.e. in Mankiw, 2021, 2ff.). “Stop engaging with reality and start thinking about economic laws working behind the curtains” is what students face but a lot of them intuitively reject (Pühringer and Bäuerle, 2019).

The power of neoliberal thought, then, lies with conquering the public imagination through institutionalized impact and installing the fixed imagery of a narrowly interpreted “Market Mechanism” working miraculously backstage in the theatre of social reality. 

Amazon is not identical with your corner shop.

from Gerald Holtham (originally a comment)

Radford’s points are true but the microfoundations movement in macroeconomics is guilty of greater intellectual crimes than merely attempted reductionism. It is not as if the foundations are built on extensive empirical study of the decision-making elements in an economy. We have a representative consumer who behaves according to the axioms of rational choice under conditions of certainty equivalence. Similarly there is a representative firm modelled in the same way. So we start with illegitimate aggregates, illegitimate because the behavioural reaction functions are not strictly linear so the aggregate would behave like an individual only if all individuals were identical. Spoiler alert: Elon Musk is not absolutely identical with the homeless guy in the doorway. Amazon is not identical with your corner shop. Moreover, there is no empirical basis for the supposed individual behaviour anyway, since empirical work from the Allais paradox on has often found the axioms of choice are violated in the case of the consumer.. And companies do not generally have a set of well defined strategies before them and know the consequences of each at least probabilistically. People do not operate under conditions of certainty equivalence and how they actually deal with uncertainty is not considered or explored. These are not microfoundations. They are not really micro and are themselves without any empirical foundation. Yet every macroeconomist who produces a theory or proposition is encouraged to jump through the pointless hoops of showing it is consistent with optimisation by non-existent representative agents. I wonder if there has ever been a greater distortion of a serious discipline.

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Contributors: Richard Parker, Richard B. Norgaard, James K. Galbraith, Lukas Bäuerle, William E. Rees, Jayati Ghosh, Richard C. Koo, Neva Goodwin, Max Koch, Jayeon Lindellee, Johanna Alkan Olsson, Katharine N. Farrell, John Komlos, Clive L. Spash, Adrien O.T. Guisan, Andri W. Stahel, Jamie Morgan, Edward Fullbrook

 

If you feel that there is nothing new or liberal about neoliberal economics, and that neoliberal economics is to understanding capitalism what astrology is to understanding the Cosmos, read this book!  – Yanis Varoufakis

The proliferation and efflorescence of indicators

from Ken Zimmerman (originally a comment)

In the early 20th century the emergence of the United States as a global force unparalleled and nearly unrivaled in material might catapulted obscure economic indicators into central, abiding elements of national life. No “man on the street” would have given a thought to gross national product or national income in the 1920s or at any point before then, and not simply because that number didn’t exist. People wouldn’t have thought of their nation or their society or their own lives in terms of the collective material production of their country. And they would not have marked success or failure by a series of indicators.

That changed markedly after World War II, for two reasons. Though the basic contours of unemployment, GDP, and inflation were formed in the 1930s, not until after the war did they coalesce into simple, straightforward statistics that could be tracked, issued, and debated on a regular, ongoing basis. In essence, the numbers were invented in the 1930s but marketed only after 1945. And with a few leading indicators in hand, people went about doing what they always do: they invented more.

Marketing was crucial; without that, the numbers might have remained useful but obscure. The proliferation of indicators after the war was driven

Consumer prices 1209-2020

from Jonathan Nitzan and Shimshon Bichler

This long-term consumer price series shows that, after 1900, inflation changed in two important ways:

For nearly the last 45 years the US has taken the wrong road

from Ken Zimmerman (originally a comment)

I shall be telling this with a sigh

Somewhere ages and ages hence:

Two roads diverged in a wood, and I—

I took the one less traveled by,

And that has made all the difference.

Robert Frost.

Frost’s poem is usually interpreted with a positive spin. I give it just the opposite interpretation here.

Commenting today on the world around us is difficult because for nearly the last 45 years the US has taken the wrong road. On the economic side the US has tried to force a brutal neoliberal agenda down the throat first of the world’s poorest nations, then the USSR after 1990, then the developed nations, and finally every non-wealthy American citizen. That effort increased world poverty, especially among children, even in the US, destroyed the US as a manufacturing nation, put the final nails in the coffin of the American middle-class and decimated American workers, deeply embittered three generations of Americans, and facilitated the rise of China as an economic, political, and military world power.

The real issue is what we mean by growth

from Gerald Holtham (originally a comment)

People have come to expect and hope that life will be better for their children than it was for them. That can be true of some people in upwardly mobile families in societies with social mobility. If material welfare is stable in such a society, however, upward mobility must be matched by downward mobility. Therein lies a difficulty; the rich and powerful will not readily accept such an outcome for their offspring. Economic growth is the solvent that dissolves this incipient social conflict. Everyone can share in increasing material affluence. It is common to blame capitalism and the system does exemplify the problem but it goes deeper. It will occur in any society, however organised, where people’s expectations are for improvements in life and where they do not accept their lot or social position passively. Religion used to preach acceptance: “the rich man in his castle, the poor man at his gate; God made them high and lowly and ordered their estate.” With the decline of religious faith that no longer washes.
Of course one theoretical solution is the reign of perfect fairness and a high degree of equality where people accept a stable no-growth economy. Good luck in turning that into a successful political programme.

So the real issue is what we mean by growth.

Pixies and economic theory

from Ken Zimmerman (originally a comment)

When I was 12 and my sister 5 she was convinced that pixies lived in our backyard and protected our house from the coyotes, raccoons, and bobcats that were a problem for city neighborhoods all over Texas due to the drought.  I tried to convince her otherwise but couldn’t.  I agreed to go with her every night before her bedtime to search for the pixies. Never found them and by the time my sister began the new school year she had forgotten about pixies. This is my way of saying human life and knowledge begins and moves on through experience. Despite her detailed description of the pixies she  and I could not experience them. Pixies, like economic theories can be beautiful and fascinating when those who believe in the tell us about them. But we can’t know a pixie till we can see, touch, and judge a pixie. So it is with economic theories. Till we can see and measure a theory operating in events and actions we can observe directly or indirectly, we can’t know it’s value or usefulness. Can people become so enamored of a theory or strongly want to believe it is right that they blindly accept it? Yes. Should they? No. This is a warning economists should particularly take to heart.

The feminist building-blocks of a just, sustainable economy

from Jayati Ghosh

Feminist economists have long argued that the purpose of an economy is to support the survival and flourishing of life, in all its forms. This may seem obvious but it turns on its head the prevailing view, which implicitly assumes the opposite causation: the economy runs according to its own laws, which must be respected by mere human actors. In this market-fundamentalist perspective, it is a potential angry god which can deliver prosperity or devastation and must be placated through all sorts of measures—including sacrifices made in its name.

Yet the economy, its markets and its various institutional forms are human creations, which can also be revised and reshaped according to democratic will. That means economic policies can and should be aligned with social and environmental goals.

This used to be seen as a rather wishful, even eccentric, view. But the pandemic and the emergent threats posed by climate change and other ecological destruction have given it more resonance. Even so, the basic idea can seem a bit woolly and unstructured full of good intent rather than practical strategies for implementation.

Black cats in dark rooms

from Ken Zimmerman (originally a comment)

At least part of the problem here is that these economists seem to have made up a way of doing science that exists nowhere else. To be sure their way existed once among some at or shortly after the beginning of science in Europe.  Scientists are depicted as patiently piecing together a giant puzzle. But with a puzzle you see the manufacturer has guaranteed there is a solution. Certainly not the case with the work of scientists. This view remains common among the general public and even some scientists. When most people think of science, it appears  they imagine the nearly 500-year-long systematic pursuit of knowledge that, over 14 or so generations, has uncovered more information about the universe and everything in it than all that was known in the first 5,000 years of recorded human history. They imagine a brotherhood tied together by its golden rule, the Scientific Method, an immutable set of precepts for devising experiments that churn out the cold, hard facts. And these solid facts form the edifice of science, an unbroken record of advances and insights embodied in our modern views and unprecedented standard of living. Science, with a capital S.

That’s all very nice, but I’m afraid it’s mostly a tale woven by newspaper reports, television documentaries, and high school lesson plans. And it’s definitely not science.  Let me tell you my somewhat different perspective.

Polluters adore net zero targets

from Yanis Varoufakis

It [capitalism] has always gained pace through the incessant commodification of everything, beginning with land, labour and technology before spreading to genetically modified organisms, and even a woman’s womb or an asteroid. As capitalism’s realm spread, price-less goods turned into pricey commodities. The owners of the machinery and the land necessary for the commodification of goods profited, while everyone else progressed from the wretchedness of the 19th century working class to the soothing fantasies of mindless petit-bourgeois consumerism.

Everything that was good was commodified – including much of our humanity. And the bad externalities that the same production process generated were simply released into the atmosphere. To power the capitalist juggernaut, carbon stored for millennia in trees and under the surface was plundered. For two centuries immense wealth – and corresponding human misery – was produced by exploitative processes that depleted “free” natural capital, carbon in particular. Workers around the world are now paying the cost to nature that the capitalist market never bore.

Free-marketeers would like us to believe that

Less cheer-leading and more realism

from Ikonoclast (originally a comment)

Comments are declining on this blog. People ARE hiding in their holes. Holes can be comfortably furnished. Just ask a hobbit. Of course, when the holes cease to be furnished and the supermarket shelves are empty then things get a little less comfortable.

You will note I wrote, “Every well thought out effort at sustainability postpones catastrophe a little bit.” That is the essential nature of life in an existentialist sense: postponing catastrophe for a little while. “Life is suffering. Existence is limitation.” These are Buddhist concepts. “Every day above ground is a Pyrrhic victory”. That was an attempt at black humor, not original and perhaps it fell flat.

I simply happen to think we need less cheer-leading and more realism. Over-optimism and lack of hard-nosed realism have been our real problem all along, IMHO.

The idea of progress seems one of the theoretical presuppositions of modernity.

from Ken Zimmerman (originally a comment)

Uneconomic growth is growth that produces negative externalities which reduce the overall quality of life. This is also known as unsustainable growth, where the negative social and environmental consequences outweigh the short-term value of an extra unit of growth, making it uneconomic.

But in spite of this quandary growth remains the primary goal. It holds that place because growth is equated with progress. The idea of  progress seems one of the theoretical presuppositions of modernity. One can even regard it, not without reason, as the real ‘religion of Western civilization.’  Historically, this idea was formulated earlier than generally thought, around 1680, during the quarrel of the Ancients and the Moderns, in  which Terrasson, Charles Perrault, the Abbé of  Saint-Pierre, and Fontenelle participated. It was then developed on the initiative of a second generation, including principally Turgot, Condorcet, and Louis Sebastien Mercier. It is not a populist notion. But very much the work of intellectual and commercial elites.

In basing our lives on the idea of progress, we must not pursue the analogy of humanity with an individual man and anticipate a period of old age.

Why economics is not an ecological science?

from  Gregory A Daneke and WEA Commentaries

As an academic discipline economics has actually been organized to have little use for the concepts of ecology (especially: population biology, systemic science, ethology, natural history or biogeography). With the rise of Neoclassical economics, it was specifically designed to be a sterilized, frictionless, and hermitically sealed void in which to suspend economic activity. But of course, this a-societal, a-political, a-historical enterprise was an epistemological impossibility and actually constituted an ideological agenda. This agenda became more pronounced following WWII and the rise of Neoliberalism. The static methods of Neoclassicism were rejuvenated by its clarified and enhanced ideology. It was especially rearmed to ignore the evolution of humans and their institutions, as well as their interactions with natural environment. Beyond the diaspora of intuitionalists to the backwaters of academia, efforts at securing policy respectability for a tangent known as “Ecological Economics” have been more difficult than mixing oil and water (literally). I suspect that much of the antipathy for ecology (or any systems thinking for that matter) was about the fear of having their fatuous (if not fascist) core assumptions and other soiled ideological linen flying in the breeze. 

The global divergence gets bigger

from C. P. Chandrasekhar and Jayati Ghosh

The Covid-19 pandemic operated to expose various global inequalities in their stark form, but it has also further accentuated them at unprecedented scale and speed. The latest World Economic Outlook from the IMF, released in late October 2021, provides further evidence of how the global divide has increased through the course of the pandemic, most of all the gap between advanced economies and the rest of the world.

On the face of it, in terms of GDP changes alone, the divide does not appear to be so stark. Figure 1, which provides IMF estimates of GDP change in the current and past year, suggests that the advanced economies experienced larger declines and are recovering more slowly than emerging market and middle income countries.

Figure 1

Source: Data from IMF World Economic Outlook October 2021

Yet there are good reasons to be careful about such a quick conclusion. The numbers for the emerging markets are massively affected by China, which accounts for an increasing proportion of the aggregate GDP of this set of countries, and which managed to control the spread of the novel coronavirus and to revive its economy quite quickly from early 2020.

4 ways in which humanity’s consciousness needs to shift

from Richard Norgaard

1 – From material progress to holistic survival and morality

The coevolution of economism with the Econocene has led humanity to the brink of disaster. Faith in progress has long been a part of the problem. Actions to stave off climate change have been trimmed and delayed on the presumption that countering environmental destruction has the opportunity cost of foregone human wellbeing through further investments in technology that further increase the production or provide novel forms of material goods.  And yet studies show that wellbeing increases little, if at all, with further material assets after basic needs are met. Shifting from faith in progress toward a consciousness of holistic survival would be more appropriate given the challenges of climate change. I include the word holistic to remind us that we need to be more fully conscious of all peoples and other species too.

Most of the questions we face today are moral questions. We have neither fully faced our moral responsibilities to future generations raised by past environmental destruction nor faced climate change over the past three decades. Economists have avoided addressing moral issues in order to meet legislators’ and the public’s expectations and need for so-called “objective” answers. Hence economists talk of economic efficiency when moral issues are at stake. This shriveling of economists’ ability to think and discuss moral issues is the essence of economism. Economics, in theory, cannot say what is moral, but if political processes determine what is moral, economics can talk about alternative efficient economies that meet moral obligations and paths to them. It is past time for economics to work with moral reasoning and political decision-making rather than falsely standing in for them.

2 – From knowledge hubris to knowledge humility 

New issue of WEA Commentaries

WEA Commentaries
Volume 11, Issue 3
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An egalitarian carbon tax: revenue-neutral and dual policy package
     Fausto Corvino

WHAT IS ECOLOGY? What Economics Should Have Been
     Gregory A Daneke

The Theory of Competition of F.A.Hayek as an Inspirer of the Neoliberal Turn of the 1980s
     Arturo Hermann

Don Webber discusses his book, How to enhance your re- search: 100 practical tips for academics

Common MMT and post-Keynesian beliefs

from Marc Lavoie

MMT is without a doubt part of the post-Keynesian tradition. Besides the link between the government and the central bank, as well as a few claimed novelties, such as the MMT view of the Phillips curve, the implicit MMT macroeconomic theory relies on post-Keynesian macroeconomics and its belief that the market cannot be left on its own and thus must be tamed; MMT relies on a credit-creation view of banking – the endogenous money view of post-Keynesians, more specifically I would say the horizontalist view – where banks are special financial institutions which are something more than financial intermediaries and where central banks essentially pursue defensive operations; there are obvious similarities between the circuit of State money as described by MMT authors and the circuit of private money as described in the Franco-Italian post-Keynesian monetary circuit approach; MMT authors, just like (almost ?) all post-Keynesians reject 100 percent reserve-related schemes that have regained popularity since 2008; both MMT and post-Keynesian economists believe that fiscal policy, not monetary policy, should be the main tool to stabilize the economy, and hence that quantitative easing is unlikely to jump-start the economy. They also favour functional finance à la Abba Lerner, or at least some version of it.

Unmeasured “illth” increasing faster than measured wealth

from Herman Daly

The basic issue of limits to growth that the Club of Rome did so much to emphasize in the early 1970s needs to remain front and center, with recycling considered as a useful accommodation to that limit, but not a path by which the growth economy can continue. Well before becoming physically impossible the growth of the economic subsystem becomes uneconomic in the sense that it costs more in terms of sacrificed ecosystem services than it is worth in terms of extra production. That richer is better than poorer is a truism. No dispute there. But is growth in GDP in wealthy countries really making us richer by any inclusive measure of wealth? That is the question. I think it is likely making us poorer by increasing unmeasured “illth” faster than measured wealth. Even a steady-state economy can be too big relative to the ecosphere.  The neoclassical circular flow picture can never be too big by virtue of its being an isolated system. However, neoclassical economists do recognize that the economy can grow too fast (over-allocation of resources to investment relative to consumption), even though its scale can never be too big.

26 billionaires had as much as the world’s bottom 50%