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rational debates of ideas has been replaced by dogma, to the detriment of society.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.
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 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 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” is not to deny that there is 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 impacts 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 (/choose to/get the additional benefits 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.
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 [...More] ‘ Inconceivable! ‘
Now, 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 [...More] ‘ The End of Capitalists ‘
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 [...More] ‘ “The Danes do it better” ‘
In a (damning, though fair) review of Corey Robin’s 2011 book painting conservative ideology as united only by the revanchist urge to maintain rule (and a slightly less controversial text from a grinning TV posterboy of the American left, Chris Hayes), Andrew Seal argues that placing affect/feeling of individuals at the centre of their analysis—as he claims both authors do—means consistently mistaking hegemony for hierarchy, missing the forest for the trees, and forgetting [...More] ‘ Wolves in Women’s Clothing ‘