from Peter Radford
I don’t want to spend much time on Trump and his version of economics primarily because I am not sure what it is. Nor, I think, does he.
One thing worth mentioning is that there is an unprecedented disconnect between the economics profession and the incoming President. Just about every economist I know says that Trump will be bad for the economy, and that the best we can hope for is that his notoriously poor attention span will prevent him from doing much.
For a much more detailed discussion of this disconnect go and read Justin Wolfers article in the New York Times.
What intrigues me is that this near complete separation between the economics profession, of all political persuasions, and the incoming administration is in stark contrast to that between Trump and both Wall Street and small business owners.
Is this because Wall Street and small business has a better handle on the economy? Or is it because they are deluded and are thus in for an ugly surprise?
There’s a part of me that would argue that Wall Street and small business are better informed than economists are about the economy. This opinion is based on my continued amazement at the extraordinarily strange convolutions that economics puts itself through in order to “prove” its various propositions. They are, frankly, absurd. So much so that any conclusions economists draw from their mathematics ought be taken with bucket loads of salt. Economists are steadfastly incapable and unwilling to amend their ideas and are still stuck in major reconsideration mode after the real world repudiation of their confidence and theories that the Great Recession represented. Suffice to say that were I a politician trying to steer the ship of state through these turbulent times, the last place I would look for economic advice is to a profession that still — despite the evidence — builds its theories on the quicksands of rationality, perfect information and so on. Read more…
from Peter Radford
Here’s a well known quote:
“For really I think that the poorest he that is in England hath a life to live, as the greatest he; and therefore truly, sir, I think it’s clear, that every man that is to live under a government ought first by his own consent to put himself under that government … and I do think that the poorest man in England is not bound in a strict sense to that government that he hath not had a voice to put himself under.”
Thus spoke Colonel Rainsborough at Putney in 1647.
This is an early instance of the rise of the modern liberal view of government. Rainsborough lost the argument with Cromwell and Ireton because the issue of property ownership intruded into the debate. That issue revolved around the question of the likelihood that those who owned no property would infringe on the rights of those who did, were the former allowed to participate in their own governance. So even at this formative moment in modern constitutional development the possibility that a liberal stance could evolve down two parallel tracks was clear.
Liberalism was subject to division at its inception.
One track, the one that dominated early on and which echoes strongly to this day, argues that for a person to have a voice in their own government they ought to have an overt stake in society. And the most obvious and material such stake is the ownership of property. Read more…
from Peter Radford
My wife is reading Kahneman’s “Thinking Fast and Slow”, somewhere in which he relates his reaction when he first came across the bedrock of mainstream economics: rational microeconomic behavior. I must admit I had a very similar reaction. The description of human behavior that underpins modern economics is so bizarre that my first thought was that it must be some form of Monty Pythonesque satire. Surely, I thought, this is a joke and in a few pages all will be revealed. But no. Economics really is built on a foundation that to outside eyes is not just odd, but what appears to be a deliberate spoof.
What is even more strange, and those of you who listen to economists and take them seriously please suspend your sense of humor at this point, is that this total perversion of humanity is then taken as the essential starting point for all subsequent theorizing. Economists are all brought up nowadays to repeat the mantra that all “good” theorizing about the economy at higher levels — what economists call macroeconomic theory — has to be based on a foundation of theorizing at a lower level — what economists call microeconomics. So in the literature and in conversation it is common to come across the phrase that some higher level idea is based upon “micro foundations”.
Except that foundation is exactly what Kahneman and others laugh at.
You would too if you spent any time at all thinking about it.
Which brings me to another point: economics is full of these oddities that anyone outside the profession would dismiss a priori as some form of ludicrous joke. Read more…
from Peter Radford
I am going to be writing an extensive review of Avner Offer and Gabriel Söderberg’s excellent book: “The Nobel Factor” in the near future. Meanwhile allow me to share a a couple of early comments because they bear heavily on how we all approach the Trump administration.
Offer and Söderberg clarify the circumstances behind the shift in economics that occurred in the late 1970’s and came into full effect in the subsequent decades. Their focus is heavily on how the Nobel Prize in economics has reinforced that shift and how the very origins of the prize were steeped in political bias on the part of the Swedish Central Bank, which was involved at the time in a guerrilla war against the then prevailing (in Sweden) economics of social democracy.
This history is, perhaps, the clearest indication of the inherent anti-democractic intentions of modern economics.
Democratically aware economics and the more commonly quoted mainstream or neoclassical economics have very different attitudes towards the mitigation of lifetime risks that we all experience.
In a socially democratic world such risks are borne by the community via the redistribution of wealth, taxation, and the establishment of government provided safety-net programs of various sorts. In the world of modern economics the libertarian approach dominates: people provide their own risk mitigation through the purchase of private insurance. In this latter world the government plays no role. Indeed, any attempt on the part of government to play a positive role is regarded as, by definition, an attack on the ability of so-called free markets to produce maximal social welfare. Read more…
from Peter Radford
I am not going to become involved in endless analysis of Trump’s presidency. I think we ought let it speak for itself.
Nor am I going to waste space critiquing the huge contribution that academic economics has made to Trump’s rise to power. I think the anti-democratic nature of mainstream economics is both palpable and speaks for itself too. Economics is largely a libertarian discipline and sneers at anything remotely involving “we the people” unless it can re-package us as some sort of mystical marketplace. In which case we all are perfect. It’s only when we vote that we, apparently, become venal, self-serving, irrational, and riddled with error.
Nor am I going to re-litigate the Clinton campaign, it was so lamentable in its total misunderstanding of the state of the nation that it deserves legendary status as an all time bust. Then again we ought to have been warned: Clinton was rejected in 2008 for very similar reasons. Quite why the Democratic Party powers-that-be allowed themselves to be fooled by her combination of incompetence and neoliberal nonsense is beyond me.
With that out of the way: we enter a new year of remarkable uncertainty. Trump is an extraordinarily weak man, he is prone to gaffes, he has no clue about economics, his foreign policy is already disrupting alliances and making the world less safe, and he will undoubtedly be at odds with the Republicans in Congress before long. My guess is that they realize how easily he can be maneuvered by the simplest of flattery and they are thus salivating at the chance to ram through their anti-social attack on workers, the safety net, and all things vaguely Obama as soon as things start up again later this month.
I would like to be able to say that Obama left the economy in reasonable shape, but the scar of inequality prevents me from being able to. The enormous gulf that has opened up in society, with one part able to trumpet opportunity, wealth, and optimism, and the much larger part facing decline, stagnation, pessimism, and decreasing healthiness is the legacy of the entire Reagan/Clinton/Bush/Obama era. It is a blot on our own sense of achievement. It is a blight that the next few decades will have to both endure and attempt to eliminate. Read more…
“the surge in inequality and the stagnation of wages”
from Peter Radford
I listened last night to Matt Dickinson from Middlebury college give a talk about the recent election. This is my synopsis:
- The election did not represent much of a change in voter patterns. Trump’s victory was based more on a tweak rather than a reconstruction of the voting patterns of the 2012 election. So this was not a revolutionary moment, marking, instead, a logical further step in a longer term trend. That trend was the steady shift of lesser educated white voters in old industrial areas towards the Republican party. Looking at the 2016 result we see this trend manifested in the very small margins of victory for Trump in states such as Michigan, Pennsylvania, Wisconsin, and Ohio. The entire election outcome hinged on about two hundred thousand votes in those states. The immense dissatisfaction with the economy within those few states was sufficient to put Trump into the White House.
- Conversely, the Democrats failed to stitch together a repeat of Obama’s winning formula. This is particularly true of the combination of the black and Hispanic vote. Prior to election day there had been heady talk of a surge in Hispanic voters whose activity was thought to be a counter-punch to Trump’s repeated criticism of illegal immigration, his advocacy of mass deportation, and the construction of a wall to keep illegal immigrants out. This surge turns out not to have been a factor. Instead a sizable portion of the Hispanic vote — which did rise slightly over 2012 — went to Trump, partially, as it turns out, because many legalized Hispanic voters resented their illegal brethren as much, if not more, than their white compatriots. As for the black vote: it remains a Democratic monolith, but was not as enthused, naturally, over Clinton as it was for Obama. The diminution in the black vote alone can account for Clinton’s loss in a couple of the rust belt states.
- Incredibly the Clinton campaign completely misread the national mood: it utterly failed to pick up on the devastation that neoliberal economics has produced in the ranks of ordinary families. Indeed, in stark contrast to Trump’s relentless economic populism, Clinton scarcely mentioned the economy at all. She mentioned the economy or jobs less frequently than any other post-war candidate. Instead she focused on whet she presumed to be Trump’s disqualifying personality traits. Unfortunately for her voters were prepared to accept Trump’s boorishness in exchange for his advocacy of economic change. In particular his attacks on free trade, which translate into economic fairness in the minds of displaced workers, were enough to motivate many more of them to vote than had before.
- The thought that the polls “missed” the result is wrong at the national level, where the outcome is almost exactly what most polls predicted, but is correct at the local level where there were too few polls to pick up the trends, especially in the rust belt.
- The non-poll based predictions of political science, based as they were on macro trends such as GDP and income changes, were startlingly accurate. This was a predictable result if we had simply focused on the economy and the resentment against the incumbency.
- The Democrats have declined sharply as a national force in the past decade. The loss of power is very sharp at all levels of government. They are now clearly in need of renewal. Yet their leadership remains eerily familiar.
- Lastly, with respect to the Democrats and renewal: if they focus on the loss to Trump as one of a consequence of bigotry, misogyny, or other rejections of progressive thinking they are doomed to miss the point. This was a result that hinged on economic misery and the perception of lost opportunity. This latter issue being paramount: voters did not simply vent about their own condition, which in many cases has begun to recover, what they resented the most is the thought that the constancy of improvement is gone and that further generations will live diminished lives compared with their own.
from Peter Radford
Well, that was fun. A rebellion has swept away the establishment. I never thought I would say that the rebellion would be manifested within the GOP and that the establishment would be within the Democrats, but that’s what we just witnessed. We on the left must accept that whatever we were saying just didn’t resonate with enough people. The Democrat’s obsession with identity politics that allowed it to ignore the consequences of its embrace of neoliberal economics has led to its separation from its foundational support. The GOP is not the party of the working class, far from it, but its dysfunction and rupture in recent years has allowed it to be co-opted by a demagogue who saw a route to power by using its base to vault himself to the top. Both parties bear equal blame for the morass and malaise. Both parties need reconstructing. Else the rebellion will continue.
For those of you of a left-of-center bent let me quote from James Meade’s wonderful little book “The Intelligent Radical’s Guide to Economic Policy”. It dates from 1975, but still has relevance as we think about how to ditch neoliberalism:
“The intelligent radical is at heart an incurable egalitarian and is appalled by the gross inequalities she observes in modern society. But she desires to cope with them by methods which are compatible with maintenance of a free and efficient system.”
That was written, of course, before inequality really exploded as neoliberalism took hold. Read more…
from Peter Radford
I am hardly alone in ranting on about economics, but it never changes. How can it? The intellectual honesty required to make the sort of shift needed to recapture the discipline’s honor simply doesn’t exist. Its practitioners are too deeply embedded and ingrained. Its students are too intimidated by the burden of its closed social pressures.
Nowhere is there a leader willing to take on the mantle of righting the ship. So it continues to wallow low in the water, not sinking but adrift. It has become an aimless enterprise being more and more revealed as nothing but a combination of artless technique and ideological objective.
When we think of economics nowadays we think of applied mathematics. Applied to certain problems, in certain ways, within certain boundaries, and only against certain data.
Economics has become a small minded sub-discipline designed to produce analysis of small issues or problems that can be contained within the massive restrictions of the subject’s edifice. Read more…
from Peter Radford
A few days ago David Ruccio posted an article titled “Crash and Learn” on the state of economics education. I want to elaborate a little further, although my usual skepticism on this subject does bridle a tad at the concept of economics education. Is that the same as “military intelligence”?
Anyway, in that article is this quote:
In Manchester, Diane Coyle also defends the basic methodology of economics. She says there is confusion among critics between microeconomics, the study of the behaviour of individuals and firms, and macroeconomics, the study of whole economies. Macroeconomics, she admits, “is broken”. But microeconomics is both robust and often verifiable with real-world data. What, she asks, can heterodox economists contribute to typical concerns of microeconomics, such as discovering the right mix of policy incentives to discourage obesity?
Therein, as someone once said, lies the tale.
Macroeconomics is “broken”. I quite agree. It’s nice to see an august member of the trade admitting that snake oil is snake oil no matter how clever the mathematics looks. Not that I blame the math. You can’t make something silly into something smart simply by expressing it in the formal language of math. If the root is rotten so is the formal outcome.
But that part I like more is that she goes on to laud the robust nature of microeconomics.
Micro, if anything, is worse than macro. It is so utterly disconnected from reality that it is incapable of anything other than talking about itself. Which it does loudly and proudly. Read more…
from Peter Radford
As I awake from my self-imposed slumber and re-survey the state of economics:
Nothing has changed.
This is predictable, and, I submit, is the most predictable phenomenon within the ambit of the discipline. Economics is in disrepute, and its current elite are determined to keep it there.
The latest ersatz Nobel prize went to a couple of guys who theorize a lot about contracts. This is the kind of work that now dominates much of economics. Tinkering with mathematics, incentives, and other aspects of minutiae whilst steadfastly turning away from the rapidly approaching storms that threaten the lives of real people outside the tenured redoubts professors hide within.
I have come to think that economics itself is one of the greatest impediments to returning us all to a prosperous and sustainable path. It is one of those moribund institutions that festers away living in a long-ago past, secure in what little it knows, and terrified of what it might not know.
I don’t think people realize just how historical contingent economic is. It was invented in the aftermath of the onset of industrialization, it was an afterthought as a growing chorus of politically motivated observers sought to identify a body of thought to be deployed to defend modernization and to attack the old order.
That old order was the entire system of life built around the stability of an agricultural economy in which land was paramount, aristocrats carved out precious freedoms from the older-still order of monarchs and autocrats, and, by and large, regular people lived as many generations of their ancestors had. The entire social and political structure can be encapsulated in the word: tradition. Read more…
from Peter Radford
For a variety of reasons I pulled Olivier Blanchard’s macroeconomics textbook off my shelf yesterday — I have the fifth edition which dates back to 2007. Or at least that’s how he begins his opening paragraph, he says he’s writing in mid-2007. So it would be easy to plunge into the book and start to look for evidence that Blanchard’s version of economics led us all to expect or predict the crisis that unfolded only a year later.
But that’s no what caught my eye. No I was interested in another aspect of the book: it has no introduction to what an economy is.
I find that strange. Very strange.
This is supposed to be a textbook about macroeconomics. The subject matter of macroeconomics is the economy, or, rather, aspects of the economy, but there’s no attempt to describe the economy. Instead it plunges in as if we all know what an economy is and that it is uncontroversial. It begins thus:
“When macroeconomists study an economy, they first look at three variables:
Output — The level of production of the economy as a whole — and its rate of growth
The unemployment rate — The proportion of workers in the economy who are not employed and are looking for jobs
The inflation rate –the rate at which the average price of the goods in the economy is increasing over time”
So when macroeconomists study an economy they dive right in and study some variables. Do those variables describe what an economy is? They are clearly important, but why these three? Read more…
from Peter Radford
Ben Casselman at fivethirtyeight.com throws us some back to school numbers. They make for depressing reading. America is not committed to education, far from it. Priorities seem to be elsewhere. And short term thinking dominates. Here are a few key highlights:
- The US had roughly 8.4 million teachers back in 2008. Now it has 8.2 million
- This is despite adding about 1 million new students
- So student/teacher ratios have risen back to levels last seen in the 1990’s
- School funding has fallen 6.6% at the sate level, and 1% at the local level [local governments supply about 45% of all school funding]
- Federal funding has increased but not by enough to prevent a total decline in funding of about 2.4% in real terms
- Fifteen states cut funding between 2000 and 2014 by more than 10%, with Arizona leading the way by cutting around 25%
- Some states have increased spending – oil boom rich North Dakota doubled spending between 2008 and 2014
- Weekly wages for teachers have declined 5% over the last five years, causing teaching to become even less attractive as a career for college educated people
- Things are about to get worse: baby boom retirement will put pressure on local and state budgets as health care costs rise and retirement costs need to be funded
from Peter Radford
One of the major reasons, perhaps the major reason, economics is oftentimes irrelevant to our understanding of economies is that it fails to notice a rather salient fact: economies have no end. They have no beginning either. Or, rather, the choice of an ending or a beginning are merely arbitrary selections by an analyst needing to close up the system for analytical purposes. But this act of closure destroys the validity of any results from the subsequent analysis.
Precisely because economies have no end. They have no end as in purpose. They have no end as in time. They just are. They emerge from the myriad interactions of however many people exist at any point in time, they are channeled along a path highly dependent upon whatever happened recently, they are in constant turmoil and evolution, and they are driven by the availability of information and energy sufficient to do work and create local order. That’s it.
They don’t inevitably move towards equilibrium because it is impossible ever to reach such a point. Let me put that differently: even were the economy miraculously to arrive at some sort of equilibrium no one would know because the task of calculating whether or not it was is impossibly complex. So an equilibrium is unrecognizable. Besides, given the inexorable change, any possible equilibrium is so ephemeral as to be irrelevant. Instead of moving an economy towards equilibrium the twin pressures of supply and demand simply contrive to move it into tomorrow. Whatever that is. The economy is a process or a perpetual unfolding without end. It is in a constant state of becoming, but never actually of being.
from Peter Radford
Last week I stirred up a certain curiosity as to why I had lumped Peter Drucker into the same bag as both von Mises and Hayek.
Well, simply put, the three of them, along with Karl Popper and Joesph Schumpeter, had an enormous, even oversized, impact on modern economics. Yes economics. Let’s not fall into the same trap as economists do when they, with a sweep of their hands, dismiss business theory as not an aspect of economics. Of course it is. After all if business is not an aspect of the economy, what is?
In any case, the general point is that there is a distinct Austrian flavor to modern economic/business theory that can be traced back to the work of that group. More importantly, the influence of that group, particularly Hayek, was to emphasize the terrors and the tyranny of socialism to a degree that precludes social democracy as well. In the hands of their various followers that emphasis became exaggerated eventually emerging as doctrinaire anti-government theory.
We thus end up with a profound ideological stance as we enter economic thought: anything the government does almost invariably dilutes or pollutes the so-called perfection of the market. So deeply is this stance accepted that most economists fail to realize its political import: that the democratic expression of the people’s will through their elected representatives is viewed negatively automatically in economic thinking. What economists are saying is that the people are entirely rational in their economic dealings, thus producing the perfection of markets, but are irrational in their political dealings thus mucking up that same perfection. The contradiction is exquisite. The paradox unresolved. Read more…
from Peter Radford
Shocking is an understatement. Donald Trump is unfit for public office, be it town clerk or president of the US. He’s an unbalanced egomaniac. He’s a racist. He’s an immature misogynist. He’s many other awful things. Presidential, he is not.
How did we get here?
Failure. But a particular kind of failure. Failure dressed as success. A success so sweeping and deep that we hardly recognize the extent of the change that it wrought. Naturally I am speaking of the victory of neoliberal thought. Perhaps you were thinking of something else.
For a brief moment after World War II, for a generation and a bit, the western world basked in a quiescence of steady growth, political solidarity, industrial calm, and rising living standards. That much of this was an illusion, or rather a reflection of the prior chaos of the spasmodic ending of the elongated nineteenth century, we ignored. Instead we imagined that a new normal had emerged. Economic depressions had been defeated. Western Europe had settled its ancient scores. And America had emerged as a beacon of democratic freedom, albeit one willing to exert quasi-imperial tendencies in its foreign dealings. Compared with the authoritarian alternative of the Marxist east, America’s heavy hand was tolerable for a generation able to recall the terrors of 1914 through 1945.
This period, though, was bound to end. Within its fabric was an unrest bound to tear at the fragility of the apparent unity. Read more…
from Peter Radford
We hear it all the time. It is a relentless drum beat on the left. Capitalism, we are told, is in crisis. This crisis is manifested in all sorts of ways. We – meaning those of us on the left – need to prepare. We need to counter attack. We need to seize this moment and retrieve from the mess whatever we can. Democracy, in various forms depending on who is writing, is our way forward. Only through democracy can we save society from the crisis in capitalism.
Where, exactly is this crisis?
This occurs to me because at the same time leftist writers are proclaiming the existence of crisis they are often, simultaneously, proclaiming the ever increasing divide in social inequality as defined by income or wealth. Capitalists are doing quite nicely I would imagine if these concerns over inequality are correct. Which they are.
So, where, exactly, is this crisis?
If capitalists are taking and ever increasing share of the national income, if they are accumulating an ever increasing proportion of the national wealth, and if they have managed to wrestle effective control of the ship of state from the majority of ordinary folks, how can they be in crisis? I would argue that things look pretty dandy if you’re one of them.
There is no crisis in capitalism if you are a capitalist. You’re on a winning roll. You are loving life.
It’s the rest of us that have a problem. We are the ones mired in crisis. We don’t have a crisis of capitalism. We have a crisis because of capitalism. That’s a big difference. Read more…
from Peter Radford
This is not a time to dwell on the inconsistencies and even contradictions of the recent uprising of populism in the western world. Treat it as a fact. It just is. For there can be no mistaking the trend: people, large numbers of people, in a large swathe of Europe and America really are unhappy with their lot in life. Really unhappy. Fully 52% of Republican supporters of Donald Trump tell pollsters that they are angry with the way the country is going. Not just unhappy or disappointed, but angry. Anger leads to really bad political decision making. It is not a constituent of reasoned argument. It leads too quickly to rash thought and even to hatred.
One theme that emerges from this populist moment is the identification of immigration as a source of concern. No, not just concern, but of deep unease. People in both the UK and the US can be heard demanding that they “get their country back”. Leaders in both nations have lamentably failed to identify the importance of immigration as a lightening rod for malaise. Nor have they reacted with anything sensible as policy.
Here in America the reason most often given for the failure to deal with immigration is the gridlock in Washington. It is impossible to begin a conversation about immigration policy because the pre-existing political positions are so well laid out and well established that any talk leads immediately to a conformation of gridlock. So stasis abounds and people get more and more impatient.
The same goes for economic policy. This is what interests me most of course. The failure of economics is breath-taking. Read more…
from Peter Radford
I try to take my own advice: when you have nothing to say, don’t say anything. Thus, for the best part of a month I have busied myself doing other things and staying away from here. It’s been a nice break, and here I am still convinced that there’s not much to say.
The economy is where it was. Economics is where it was. Politics is where it was. The three intermingle, mix, merge, separate and go their different ways in the same manner as before. The same complaints and criticisms are made. The same critics say the same things. Nothing it seems changes.
I think this is what equilibrium must feel like.
Now all I need is some exogenous event to come along and shake things up. You know, like someone being human and changing their mind.
This doesn’t mean that I haven’t been busy. Far from it. I dived deeply into growth. Or, as it turns out, the undergrowth, since the entire topic seems infested with weeds and a tangle of interwoven branches that can easily ensnare the unwary. Read more…
from Peter Radford and the WEA Newsletter
I have become so enmeshed in political activity here that I rarely have time to reflect on the strangeness of it all. Why Trump? Why now? But I was prompted to think a little harder about it when I re-read the following in Karl Polanyi’s “The Great Transformation”:
“Market society was born in England – yet it was on the Continent that its weaknesses engendered the most tragic complications. In order to comprehend German fascism, we must revert to Ricardian England.”
Now I don’t want to plunge into a detailed re-capitulation of inter-war history – that is not my point. I want to focus our attention on the analogy Polanyi brings to mind, and especially how deeply ideas can scar a society when they are applied with religious ferocity without regard to their flaws.
Nor do I want to re-litigate the entire argument about neoclassical economics. Frankly I am tired of wasting my time. If the preponderance of economists want to disconnect from reality, then who am I to argue? Let them. And ignore them. Their ignorance of the real world is both willful and necessary for the alternative world in which they think to cohere. So be it.
But… Read more…
from Peter Radford
There are a few thoughts or words in a normal economics discourse that trigger what I call my ‘market reflex’. Asad Zaman just triggered it. Of course he didn’t mean to, and the sentence in question is in an article I agree with. Further, the sentence, on the surface, looks and sounds so innocuous. Here it is:
“Free market economists believe that markets work best when left alone, and any type of government intervention to help the economy can only have harmful effects”
See what I mean? Innocuous. Asad is totally correct, they do think that. Worse: they mean it. And even more worse: they teach it.
Which gets me truly bothered.
The entire enterprise of contemporary economics, aside from its fringes, is built on this shady and unsubstantiated premiss. It’s shady because it is laden with ideological bias, and it’s unsubstantiated because, well, its unsubstantiated.
Which gets me even more annoyed. Read more…