All posts by mchughrussell

Teach the Controversy

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Over at the Soros-funded Institute for New Economic Thinking, there have recently been a few blog-posts about the potential of, and the need for, economics curriculum reform. In a recent example, Abdul Alassad characterises the problem as follows:

rational debates of ideas has been replaced by dogma, to the detriment of society. A dogma is a set of principles laid down by an authority as incontrovertibly true. Today, economics is taught as a set of assumptions that are unquestionably infallible, static, and undeniably true.

This misses the mark. Very few trained economists think that the dominant economic models are universal or incontrovertible. Rather, the danger of current economic teaching lies in the presentation of single models as the baseline for the analysis of economic problems, within a broader framework that relies on a single mode of economic analysis (the neoclassical synthesis). The result is that those whose exposure to economic concepts is limited to undergrad teaching come away with an attitude to the heterodoxy equivalent to the grade-schooler belief that there’s no such thing as negative numbers. Until you teach them how to manipulate unfamiliar ideas, questions that depend on those concepts will seem nonsensical.

So what’s the alternative? The failure of neoclassical models to predict or prevent the financial crisis, and its complicity in unavoidable perpetuation of inequalities under thirty years of neoliberalism could be used as an argument for simply replacing the dominant paradigm with another. The push for a more historical approach to economics provides a different, and likely more fruitful, answer: teach the controversy. It’s not clear why undergrads shouldn’t be exposed to the incompatible models of the Keynesians and the monetarists, marginalists and institutionalists, Marx and Hayek, Friedman and Coase.  For that matter, why shouldn’t they spend more time engaging with hard questions about the relationship between economic variables and real-world social practice, à la David Graeber or Thomas Piketty?

Of course, undergrads exposed to a variety of models, with often conflicting opinions about how policy will effect outcomes, and to theoretical texts that raise questions about the true nature of economic practice may end up somewhat confused about how the real world works. But this is exactly as it should be: if the last ten years have taught us anything, it’s that the world needs fewer, not more people convinced that they know how to organize an economy.

We’re All Capitalists Now

economics

Those concerned about inequality often place emphasis on the “income share of labour,” a.k.a. the ratio between the amount doled out in wages and the amount doled out in profits, treating it as a useful index of “how workers are doing.” This is logical enough insofar as workers are the ones, so the story goes, who have to rely on wages to eat.

In this sharp if somewhat technical review of Piketty’s Capital in the 21st Century, Peter Lindert (there’s a link to the pdf here) reiterates how unhelpful this measure is.

Shares of labor versus capital in current income…have never proved to be good predictors of inequality, and continue to be poorly correlated with it over time and space.

One caveat that Piketty raises in Capital is that returns on capital, high or low, only matter for his analysis insofar as they are concentrated in the hands of the few. If capital wealth was equally held by everyone, or if returns on capital were doled to everyone by the state on a per capita basis, then increasing the rate of return on capital would at worst have no impact on income inequality and, if returns to labour were unequally distributed, could actually increase overall income equality. Here’s Lindert again:

Having 60 percent of national income go to labor incomes could reflect perfect equality, with 60 percent of the population equally sharing labor incomes and the other 40 percent equally sharing property incomes. Or it could mean horrific inequality if the 60 percent going to labor were shared by everyone except one propertied ruling family.

Of course, one doesn’t need such extreme hypotheticals to make the point. In today’s industrialized economies, many if not most workers actually rely solely on income from capital for the last 10-25% of their lives (i.e. when they are retired). In such societies, one way that returns on labour could fall is if workers all decided to to be richer in their retirement than during their working years – i.e. to save more in the early days and spend more on the backend. Of course, to say “we are all capitalists now” does not deny the massive inequality in the holding of wealth, or that some are for all intents and purposes wholly excluded from any ownership of the commonweal. But it does demand that we shift attention away from abstract class categories toward questions of actual distribution and how economic structures impact on its evolution.

Lindert’s first example points to a very different problem. In most people’s minds, what Marx called exploitation–the idea that some were able to get an income from the social weal without working–was synonymous with the immiseration of the working classes. Yet one possible future (one that concerns some proponents of a basic income) is a world in which there is a reasonable level of income equality, but in which only some people have access to (or choose to get ) additional benefits derivable from work. It seems unlikely that workers in such a world could be called exploited; it is certain that the income share of labour would still tell us close to nothing about how just the society was.

Inconceivable!

economics, politics, , , , , , ,

Good news, everyone: finance is getting more democratic, because technology.

You know how democracy works, right? It means that a service that was previously only sold to some people gets sold to everyone now. It used to be that only finance dudes got to have finance, but now everyone does. Hooray! Let’s watch a video of democracy happening.

What were we talking about? Oh yeah: today’s breathlessness about the democratizing potential of financial institutions comes from Mohammed Al-Erian, who, as “Chair of Barack Obama’s Global Development Council,” apparently has a job whose sole requirement is an uncriticial embrace of the Silicon Valley doctrine of social policy, i.e. the best way to deal with the social problems caused by deterministic technological change and inevitable laissez-faire economic governance is just let them keep happening.

He assures us that this creeping expansion of financial logic into all areas of our lives isn’t just democratic, it’s also disruptive. I mean, what could be more disruptive than just letting faceless, inevitable social processes (“innovations suddenly appear…mechanisms emerge… business models face challenges”) proceed without any attempt to manage their social consequences at all?

Tackling these claims to disruption, democratic potential and to brand-new, never before-seen processes can get pretty tiring. Jill Lepore at The New Yorker has done a pretty devestating take-down of the disruption discourse, attacking head-on the idea that economic change proceeds in big leaps rather than incremental steps. Peter Frase at Jacobin points out that those most committed to “disruption” get cold feet when the disruptions aren’t derived from a tech-enabled business model. Evgeny Morozov has made his career skewering those with a growing religious faith that “more tech means everything is better for everyone” and, if he can be accused of throwing out the baby with the bathwater, part of the reason is that there is just so, so much dirty bathwater.

There are lots of reasons to be happy about increased access to certain financial services. Bringing down the prices of life insurance and small business loans could put them within the reach of people who didn’t otherwise have access to them. That could make their lives better. Al-Erian may be right that technological change will “reduce the cost of financial intermediation while providing for fairer risk-pooling outcomes and better credit underwriting.”

But here’s the thing: cell phones are now within the reach of almost everyone, and it hasn’t made society more democratic. Buzzfeed may have displaced community newspapers, but I can’t see how that makes things more democratic. The last 40 years of financial innovation brought us near-unprecedented levels of wealth inequality and the largest economic crisis since the 1930s. Why would anyone believe that the next 40 years of financial innovation are going to automatically create a utopia of equal democratic citizenship? How can Al-Erian keep using this word “empowerment”  to describe things like kickstarter, Kiva and bitcoin? It’s inconceivable.

Do not pass Go, do not collect $200

The End of Capitalists

economics, politics, , , , , ,

Do not pass Go, do not collect $200Now, I am not sure I totally agree with his reading of the politics, for reasons I’ve tried to spell out elsewhere. But JW Mason does a good job of making a point that has occasionally come up with since the economic crisis drove down interest rates, namely i. that there is no reason to think that real interest rates should be above zero, and ii. when real interests rates are very low, capitalists (qua money owners) have no real function:

Under capitalism, the elite are those who own (or control) money. Their function is, in a broad sense, to provide liquidity. To the extent that pure money-holders facilitate production, it is because money serves as a coordination mechanism, bridging gaps — over time and especially with unknown or untrusted counterparties — that would otherwise prevent cooperation from taking place. [1] In a world where liquidity is abundant, this coordination function is evidently obsolete and can no longer be a source of authority or material rewards.

Back in 2007, Cory Doctorow wrote a short story whose basic conceit was a future in which capital–liquid capital–had truly become obsolete, especially relative to the available human ingenuity, inventiveness and the capacity to make stuff (sigh: yes, yes, i.e. human capital). Low interest rates is one way to make that world happen.

Its easy for egalitarian leftists to get excited about this prospect. Real interest rates that stay consistently below (even very low) economic growth rates would mean the refutation of Piketty‘s grim prophecies. The idea of monocled, top-hatted plutocrats getting crushed under the wheels of history offers the schadenfreude of class enemies losing, with the added zest of partially confirming certain strains of Marxist historicism, in form if not in function.

The defeat of the capitalists, however, doesn’t mean permanent victory for humanity (or the working class, or the multitude, or whatever your favourite representative of eschatological emancipation happens to be). There’s no reason to believe, in a world of low returns on cash, that there won’t be political efforts to hoard the relatively scarce resources that were the source of wealth in Doctorow’s world – education, skills, networks, the preternatural ability to interact with robots. If the last 5000 years are any indication, there are likely to be intellectual movements to justify limited access to the new sources of wealth, as well.

The end of capitalists may mean the end of capitalism as we know it, but it won’t be the end of politics.

“The Danes do it better”

politics, , , , , ,

https://www.youtube.com/watch?v=bz_SyOXB1kM

There’s a lot of noise in Chris Maisano’s long critique of Lane Kenworthy‘s work, but in his key claim he’s on the nose and pithy to boot, calling out Kenworthy for adopting the “Danes do it better” argument.

Kenworthy, a professor of sociology and political science at the University of Arizona, has followed the popular “Ted Talk” strategy for academic notoriety: make a controversial claim about a well-known subject in easy-to-understand terms. Kenworthy’s particular brand, which appears to be paying off, is “America’s future is social democratic.”

The core of Maisano’s critique is that Kenworthy gets it right right on policy, wrong on politics. He has no quarter with the normative content of Kenworthy’s policy proposals, but serious doubts about their value as prophecy:

Like a good empirical social scientist, Kenworthy assumes that politics is fundamentally a rational, evidence-based pursuit and that good policy will eventually win out over bad politics. But his appeal to reason and evidence is almost touching considering how patently deranged U.S. political culture can be, particularly when it comes to questions of welfare and social spending. The rhetoric of reaction that Kenworthy dismisses as a gradually weakening obstacle to reform will not be defeated by the force of evidence-based, reasoned argumentation alone.

As a social theorist, I of course have great sympathy for Kenworthy’s entreaty to Consider the Evidence. But pleading does not make it so and evidence doesn’t make policy. Changes happen only after the issues reflected in that evidence have been prioritized over others, and translated into practice through political action.

The great majority of people, if they were to look at the evidence, might conclude that the Danes are better off than Americans. A social democratic United States, however, would require that political institutions and constituencies be organized in a way allows those opinions to be translated into policy change. This is a point that is too often missed by liberals, legal scholars, and policy wonks. Part of the problem may lie, too, in fictional depictions of politics (we might also call it the “West Wing” problem). When it comes to illustrating the politics of political change, it turns out that the Danes really do do it better.

“Project, Opposition, and most Embarrassingly, Truth”

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cross-posted from EUI Global and Transnational Perspectives Working Group

credit: McHugh-Russell

Over at n+1, an editor’s essay on the fragmented pasts and fraught promise of World Literature has spawned a small collection of thoughtful responses. In trying to capture a sense of what weltliteratur might be for, and why the contestants always seem to have fallen short of the mark (“Alas, Rushdie; alas, Naipaul.”), the editors string together an impressive array of traditions and examples, showing how each contributes to a synthesis that fails as much as a whole as in its individual parts.

Steeped as it is in the altogether modern desire to express the universal in the particular—i.e. to not only craft a particular voice, but to somehow choose voices that can stand in for the whole— the editors conclude that perhaps the disappointments of the genre arise not from the particular attempts that have been made of it, but in the shape of the ambition itself.

One of the responses, from Poorva Rajaram and Michael Griffith, dismisses the essay as a lament for a “right kind of universalism” that is not only unrealized, but unrealizable. They end by suggesting to those unsatisfied with the output of the spirit of capitalism as embodied in the publishing houses of northern capitals that they might simply “read more to their taste.”

Is the complaint fair? The essay is an attempt to investigate not what literature should be consumed, but how those engaged in its curation, can support human connection across difference (what Rorty would call the “education of the sentimental imagination”) and stay founded in a commitment to the political value of aesthetic freedom, without becoming Global Literature, i.e. “an empty vessel for the occasional self-ratification of the global elite.”

Joshua Cohen’s letter responds clearly to this ambition. In his view, the problem isn’t with the ends, but with the means. Literature relevance has passed: “Social consciousness has become the new beauty. The political has usurped the aesthetic.” Be that as it may, it’s not clear how much this differs from the essay’s own conclusions, which lay out, by reference to Trotsky (!), a blueprint for an alternative, “internationalist” literature.  Rather than an aesthetic practice with universalist pretensions, the concept here would be an explicit project that beats the path to freedom and solidarity by countering prevailing politics and tastes, rooted in the effort to articulate truths.

The important thing that Rajaram and Griffith seem to have forgotten is that the essay’s authors are not anonymous readers of the stuff put out by those northern-capital publishers, but rather a group of 20- and 30-somethings who edit a surprisingly influential literary journal published just down the street from them. When those editors provide the outline of a project for literature, the curious reader might, instead of suggesting sources that fit the bill, inquire into what exactly those editors have been printing for the last ten years. Because when one starts to look at the diversity, anger, curiosity and honesty that one finds between the journal’s pages, one can only conclude that the essay is neither reading guide, nor lamentation.

It’s a manifesto.