About Peter Radford

Posts by Peter Radford:

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Why Trump?

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.

For those of us who value economics as an understanding of a critical part of social reality we must insist that those inhabiting that alternative world take full responsibility for the outcome of their ideas if, and when, those ideas are allowed to seep into actual policy making. They must be blamed. And we ought to demand an explanation as to why the imposition of fanciful ideas onto an unsuspecting world, with the core consequences now becoming apparent, is at all ethical.

You see, Polanyi was right. At least in so far as he projects the blame for extreme politics, in a major part, onto the shoulders of those who advocate policy based upon theories that stand not so much on solid foundations but in midair.

It is not possible now, nor has it ever been, to extract economics from its socio-political context. It is not possible to remove history. Nor is it possible to remove the panoply of institutional, cultural, geographic, intellectual, or technological frameworks within which economic activity takes place. Those things frame every single transaction. They channel them. They constrain them. And they create the pathway along which an economy travels. If we ignore such things then the consequent study is a sterile amoral technical exercise of little practical value.

Yet that limited small thing, centered around the mathematics of allocation within scarcity, has been presented to the world as the theoretical structure upon which we ought rely if we wish to prosper. It has become the most important part of the meta-structure we know as neoliberalism, and it is neoliberalism and its hollowing out of the socio-economic environment in which we live that has produced the combustible political context within which Trump has emerged as a viable candidate.

I have often suggested here that a key characteristic of mainstream economics is its fundamental distaste for democracy. We read it in the way in which economics pours scorn on government – even democratic government – as an automatic and inevitable problem in the achievement of efficiency, whatever that is. The anti-social bias is palpable.

Economics with its relentless attention to individual liberties and the freedom to exchange personal property in various markets, has forgotten, or neglected, the other half of the liberty bequeathed us by modernity: that of being equal amongst our peers. It is this second half of freedom that manifests itself as democracy. And it is this second half that presses back against the excesses of the first. This must be, for to preserve the freedoms expressed within economics we must mitigate the tendency, inherent within it,  to accentuate differences in the terrain of society. Too much inequality undermines the willingness of the least equal to accept the workings of the market upon which modern economics is built. At some point rationality requires limitation of that freedom. It is only by accepting both halves of liberty – of individuality and of equality – that we can protect them both. They must be balanced. Neither survives alone.

Yet most economists scoff at this thought. Indeed they have deliberately stricken from their domain any reference to equality, and they, instead, sneer at any effort to smooth the differences their allocative mechanism might amplify.

So, at best, modern economics is a half-truth. It can only ever be a partial defense of social or economic freedom. Its deliberate blindness to the other half makes it inapplicable as a complete social theory. Its contempt for democracy makes it irrelevant in modern societies. Perhaps most economists don’t realize this, they are too caught up in the wonders of the mechanics of their dangerous half-truth.

But say it often enough, say it loudly enough, and, especially, say it with the authority of a scholarly background and the damage can be awful.

You might just make a Trump legitimate.

Ideas matter. We all acknowledge that. From where I sit economics has a lot to answer for. Polanyi was right, and that really matters.

 

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Trumped?

My head hurts this morning. I don’t know why I would be so disoriented by Trump’s continued rise to power, it was, after all very predictable once he entered the race, but it still hurts.

And, yes, it was predictable.

The Republican party has steadily vanished into a haze of obstreperous religious business driven drivel from which only a far right populist could ever emerge with any coherence. One of the great laughs anyone can have in this current peculiar electoral season is to listen to a Republican claim that Trump doesn’t belong in the party of Lincoln.

That’s true. He doesn’t. But the Republicans are not the party of Lincoln. They co-opted the name and perverted it. In most ways they are now the exact opposite. Especially when you take the scarcely veiled racism of their state level activists into account. We only have to look at the many local efforts to limit access to the polls – all in the pure name of being opposed to voter fraud – that disproportionately affect African-American voters. Guess which states those efforts are most advanced. I’ll give you a one word clue: Confederacy.

Th rise of Trump and his inchoate  platform should not be a shock to anyone who has paid attention to the American economy: it sucks for most folk. It sucks, in particular, for the older white blue collar male cohort that used to be the backbone of the Democrats. This guys have seen the consequences of thirty years of neoliberalism up close. They don’t like what they saw. They are in a surly mood.

If history is anything to go by, this surly mood will only get worse if it isn’t countered by policies that actually deal with its root cause.

Which brings me to Clinton and the Democrats.

The left, I use the word broadly, in America is just as culpable as the right. For decades now the Democrats have acquiesced to and accommodated swathes of neoliberal economic policies that have summed up into a massive attack on the majority of voters. Unfettered free trade, business deregulation, especially of the banks, endless pro-business initiatives in the name of encouraging job creation, a blind eye to the ravages of outsourcing and offshoring, and decidedly limp-wristed tax policies are not a stellar left-of-center record. They simply reinforced the degradation of middle and lower class America initiated by the intellectual triumph of right wing economics.

Forgive me for repeating myself, but, the failure – our failure – to expunge from economics the single minded focus on market forces as if no others existed, and as if the economy wasn’t riddled with other phenomena of equal if not more importance, has contributed to the societal malaise that enables Trump. Yes, I mean that.

Ideas, as we all know, have awesome consequences. Rotten ideas have rotten consequences. A profession, if that is an appropriate word to describe an academic discipline, that hides itself from the social impact it has cannot deny the consequences of its ideas simply by hiding. We all know the truth. The school[s] thought that unleashed rational choice, general equilibrium, individualism, and the superiority of market forces, whatever they are, is at the center of the plutocracy that currently is being unhinged by Trump’s populist attack.

And, yes, I also mean that.

We read a lot about the Republican ‘establishment’ being up in arms about the rise of Trump. Well, as I see it, Trump is doing us a favor. He is, by channeling the angry voice of his supporters, leading an assault on the plutocracy that led us all astray.

I just wish that assault was coming from the left, but the Clintonian neoliberal machine still owns the Democrats and poor old Bernie Sanders has such an uphill fight to change that.

As I said, my head hurts this morning.

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What Would Smith Say?

Sometimes I pity poor Adam Smith. I really do. He’s an accidental icon of all that’s wrong in economics. And let’s face it that’s a lot of wrong to be an icon of. How many times have we all been reminded that his metaphorical reference to an invisible hand performing some wild and strange magic is the root of most modern economics? And how often are we reminded that he used those words just once in a book of over eight hundred pages?

The invisible hand was just not that important to Smith. He didn’t mean to launch economics into a century or more of quixotic and ever more bizarre search for something that he meant as a passing reference to the superficial order he saw around him.

Smith spent no more time on the invisible hand metaphor than he did on other phrases that are much more concrete. How about this one:

“Regulation is in support of the workman, it is always just and equitable.”

Where in the corpus of mainstream economics is this phrase worked up into a fully fledged and extended effort in the manner that the throwaway reference to the invisible hand is?

Well we don’t need to explain much further: economics was and is an extension of politics. It is politics waged by other means. It doesn’t exist as a coherent entity, it exists as variations to be deployed preferentially to support some other argument. And that other argument is usually political.

So early economists latched onto the magic of the invisible hand to explain why state interference was a ‘bad thing’. They worked away at establishing what looked like a scientific explanation of what they called the ‘market system’ or the ‘price mechanism’ and why those magical and, I must admit, mythical phenomena produce an ‘order’ that cannot be improved upon by government intervention. The conclusion of their epic trek into the intellectual desert was that any form of government intervention is perverse, no matter how well intentioned.

Take that you regulatory fools!

Except they could just as easily have started with that other quote I gave above. They could, had they been so disposed, have started with the magic of regulation and its unchallengeable efficacy in the ‘regulatory system’. At least I think so. The real economy is so darned complex and inscrutable that pretty much any grand theory can be created to explain it. There’s sufficient evidence to support all sorts of wild and contradictory ideas. That’s why the economy is so much fun to talk about. It’s an intellectual playground. The only way you can ever actually ‘prove’ a theory is to take a look at its plausibility and especially at the foundational assumptions upon which it stands.

Which brings me back to poor Adam Smith: the ultimate end point of that trek into the market magic desert and the quest for a ‘proof’ of the invisible hand’s status as the ultimate allocator-in-chief in an economy is the edifice known as General Equilibrium. The great crescendo of work that ended up with Arrow-Debreu is nothing short of stunning. It is architecture of the highest order. It is an analytical tour de force. And it proves beyond reasonable doubt that there is no such thing as general equilibrium. The restrictions economists have to place on the world in order to arrive at their hold grail totally destroy its relevance and utility. They have proved the trek was worthless.

Not that they stopped. Economists rarely do. They are too proud of their efforts. Even if those efforts were in vain.

So, having invested so much effort into such an elaborate fiction, and no doubt so embarrassed by its utter futility, they plod on as if nothing happened. They use general equilibrium as if it is indeed general and as if indeed there is such a thing as an equilibrium. Whilst the world around us suggests that neither is remotely a plausible explanation  an actual economy.

But never mind: it keeps economists employed. And it provides useful input for another of my pet peeves about mainstream economics. Which is that marginal productivity theory must be bogus. The employment and remuneration of economists is disproof of it.

Anyway I am plunged into this dishumor by the spectacle of economists ranging far and wide over the current presidential election and, in particular, pronouncing that the reform of the rotten American health care system and its replacement with some form of a single payer system is ‘impractical’.

The evidence from around the world suggest this is not true. Indeed, on the contrary, the evidence suggest it is overwhelming probable.

So why are so many of our leading economists lamenting want they call the ‘misleading’ and ‘impractical’ quest for a single payer system here? What would Smith say?

That they are referring to the political practicality. They are referring to various cultural and institutional rigidities that apparently channel our economy down a path that other economies do not follow. They are, in short, announcing that they believe the economy is deeply and profoundly influenced by its historical and institutional setting.

Which, seems to me, to be a considerable blow to their mainstream thought that economics is somehow independent of such trivia. In fact, were I so bold, I would argue that their own argument against the impracticality of single payer is an admission that their entire mainstream enterprise of so-called ‘positive’ economics unconstrained by mere politics, history, and so on is a farcical and dangerous illusion. It is so dangerous to the commonwealth – now there’s a thought – that it ought to be heavily regulated.

Regulation! What was Smith saying about that? …

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The Times Are A’Changing – Uber Style

Well at least in my head.

One of the reasons this year’s presidential election is so interesting is that it is the first where younger voters – aka the “millennial generation” – will make up the same proportion of the electorate as do baby boomers. The times, as the baby boomer song goes, are a’changing.

Indeed if I recall the words to that song it urges the older folk to get out of the way if they can’t help the changes that are on their way.

How perfectly symmetrical.

Hillary Clinton is, in my view, the perfect baby boomer politician. She is steeped in, and scarred by, the trench warfare of the great cultural wars unleashed by the civil, women’s, and gay rights movements that have pushed most Western democracies far away from where they were in the 1960’s. Clinton came of age, worked, and has aged all within the vortex of those wars. And, to the extent that progress has been made, feels complacent and self congratulatory over that progress.

None of which matters to the younger voters.

They are emerging into adulthood in a vastly different landscape. Their issues are not those cultural battles, which for them seem settled or uncontroversial, but are predominantly economic. They are the first generation for whom the bromides of neoclassical economics and the notion of never-ending rising prosperity courtesy of so-called free markets ring distinctly hollow. They are deeply suspicious of the mainstream arguments being thrown back at Bernie Sanders, not because they are naive young fools, but because they are experiencing, first hand, the consequences of overly expensive education, paucity of opportunity, high debt levels, and severely limited upside potential for the majority. They are learning to cope with limited means. They are not at all afraid of more extreme solutions precisely because they are not feeling the security that lulled their parents into the grip of neoliberalism back in the 1980’s.

This crosses over into economics.

An entire generation of economists could fall into the trap of believing in the superiority of markets under all circumstances  because their world that around them, appeared to justify such extreme thought. Thus that generation could, without too much imagination, talk of the never-ending cornucopia that markets bring if left unfettered. The degradation and the inequality was only beginning to accumulate when that generation learned its trade. It is only later in life that the reality set in.

Outside of economics the reality set in much earlier. The current you voter generation lived through seeing their parents steadily stripped of financial, retirement, and job security in the name of a distant idea called shareholder value. In particular they saw the total disinterest of the baby-boomers in maintaining the heritage of the economy they inherited: the rotting infrastructure that surrounds us is no accident, it is the consequence of decades of deliberate avoidance of responsibility – and cost – on the part of a generation obsessed with, and seduced by, market driven economics.

One of those baby-boomer economists – Alan Krueger – has put his name to a paper describing the benefits of Uber and, presumably, the Uber-like employment arrangements that Silicon Valley is so enamored of. Krueger, to be fair, is open about his paid association with Uber so we cannot fault his ethics. What we can fault is his continued starry-eyed adherence to market driven economics.

One of the purposes of the paper, as far as I can tell, is to debunk the idea that Uber drivers are unhappy, sullen, bit-worker types who would prefer a full time job. On the contrary, they are, apparently, very happy. At least according to the Krueger paper. Here is a typical paragraph:

“One theme that emerges from the analysis that follows is that a tremendous amount of sorting takes place in the sharing economy, and, by dint of their backgrounds, family circumstances, and other pursuits, Uber’s driver-partners are well matched to the type of work they are doing. Notably, Uber’s driver-partners are attracted to the flexible schedules that driving on the Uber platform affords. The hours that driver-partners spend using the Uber platform can, and do, vary considerably from day to day and week to week, depending on workers’ desires in light of market conditions. In addition, most driver-partners do not turn to Uber out of desperation or because they face an absence of other opportunities in the job market – only eight percent were unemployed just before they started working with the Uber platform – but rather because the nature of the work, the flexibility, and the compensation appeals to them.”

Great.

As homilies to Uber go the paper is a good one. It sets out in great detail the demographics and assorted facts that describe what Uber euphemistically call its “partners”. It turns out that Uber drivers like what they do because they appreciate the work schedule flexibility and the higher earnings they receive. Uber workers drivers are more typical of the average workforce than traditional taxi drivers or chauffeurs. And that flexibility means that they work fewer hours on average than their traditional peers.

Great again.

And as a matter of personal anecdote I can attest to the fact that the one Uber driver I have talked with would agree with Krueger’s analysis: better hours and better pay are always a good thing.

But.

At what price?

And this is where Kruger starts to gloss over. There’s this for instance in the conclusion:

“First, the U.S. economy was operating at less than full employment during the period studied, and more highly educated and younger workers may have had fewer alternatives available than is normally the case in this time period.”

Do I smell a hint of dumbing down here? Or of an economy in which an education gets you to be an Uber-partner? Is being an Uber-partner – not a worker naturally – what our young can aspire to? After all, as Krueger points out, Uber-partners are representative of the workforce in terms of demographics. So is this the workforce of the future?

I don’t want to belabor this. The paper speaks for itself. But I do want to bring us back to the election and to why baby-boomer economists are in a twist.

You see, elsewhere in his paper Krueger says something very enlightening, and I thank him for making the point:

“In addition, as changes to the health care system help reduce job lock—by making health insurance more readily available and accessible to individuals —more people are likely to become entrepreneurs and take advantage of the flexibility and income-generating potential made possible by the sharing economy.”

Pay attention to this comment.

It is the argument I have been making for ages.

As the economy shifts towards less long term employment and towards flexible hours, contingent work, and what some call the “gig economy”, the benefits associated with the old working arrangements, and which were normally acquired only after major confrontation with business owners and management, are being lost. Krueger carefully avoids delving into an analysis of the total after-cost net income an Uber-partner makes when the loss of those benefits is taken into account. His analysis is thus typical of a capital tinted viewpoint: the “partners” are now responsible for their own benefits.

But the point is this: people may not be hyper-rational in the way market-magic economists like to claim, but they aren’t stupid either. They still want those benefits. They still need those benefits. And if private capitalists aren’t going to provide them, then someone has to. And that someone turns out to be the government. Uber is not providing such a great premium that its “partners” can pay for private insurance, which we all know is prohibitively expensive. What Uber is doing is classic: it is doing a “Walmart” by outsourcing what used to be an employer responsibility onto the state.

What is different between younger voters and their baby-boomer parents is the realization that if the private sector wants to rent seek and exploit workers, then that action has an inevitable reaction. The victims of the rent seeking and outsourcing will seek to redress their loss and re-establish their personal security using other means. Younger workers are behaving, ironically, exactly as Krueger suggests they might: they are empowered by flexibility, but want to balance that with security.

And that implies a greater willingness to deploy the state in the provision of services that used to be called benefits. And hence the enthusiasm for Bernie Sanders, who of all our candidates, is offering exactly such a program. It’s called social democracy, and the rent-seekers like Uber are creating the ideal conditions in which it can flourish. Rent seekers of the world unite: you are creating the conditions for  leftward lurch in politics.

Which brings me to one last point: all of the above is consistent with what Alan Krueger wrote. With one exception: he was one of the infamous “four top leftish economists” who signed a recent letter decrying the Sanders program as being outrageous and unattainable. It seems that once a mainstream economist always a mainstream economist. Albeit a leftish one. Krueger cannot fathom the appeal of the Sanders program and how it could be forced into being inside the so-called new economy of contingent employment. Yet the answer is right in front of him. In his own paper.

Now who’s being inconsistent? Now who’s not understanding basic economic forces?

 

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Krugman versus Sanders

Paul Krugman seems to be spending an awful lot of his time nowadays trying to  discredit Bernie Sanders. The last two of his blog entries at the New York Times are devoted to explaining why Sander’s extravagant claims are wrong and potentially damaging to the Democratic cause.

I can understand why Krugman is so vexed. What I don’t understand is why he seems so unable to understand why so many people are embracing Sander’s message.

To me it is obvious: the so-called “wonkery” that Krugman loves both to indulge in and to explain to us lesser souls is precisely what has created the world in which we live. So if we are dissatisfied with that world we, to put it mildly, are being consistent if we want to toss overboard that jargon laden, leaden souled, wonkish stuff.

Now, I am equally sure that Krugman will retort that his version of the wonkery is not the cause of our woes. He would, I am sure, point to the right wing economics of that part of the mainstream currently exerting influence, and explain that it’s all the fault of those who advocate the mysticism of markets to be found in that part of the mainstream.

Except, of course, that Krugman is hardly an outsider. He has taken great pains to explain to us all in the past few years that what he calls “textbook” economics is perfectly capable of both diagnosing and curing what ails the economy. It’s just that, according to him, right wing politicians apparently haven’t read the textbook. Krugman is thus more an apologist for a tweaked version of the mainstream than he is an advocate of a more radical revision of it.

In this regard he is hardly alone. Last week’s revelation that four recent so-called left of center economists, all of whom have lead the Council of Economic Advisors to the President [CEA], wrote an open letter to the Sanders campaign decrying the heresy of Sanders with respect to conventional economic thought added fuel to Krugman’s fire. See, he told us, it isn’t just me, these other people are serious economists and they agree with me.

Serious economists.

Krugman is someone who has made quite a reputation debunking the wisdom of what he calls “serious people” who are those advocating policies he disagrees with, but who are seen as expert by the Washington establishment and its media critics. All through the Obama era Krugman has lambasted such serious people – think, for example, of Simpson and Bowles – for proffering advice based upon their accumulated wisdom, but which Krugman disagrees with. And, more often or not, Krugman has opposed that advice based upon what he calls “macro 101” or the “textbook”.

In other words, throughout the recent intellectual and political conflicts over economic policy, Krugman has steadfastly defended what he sees as textbook economics. Which in his case is a much watered down version of Keynes via John Hicks.

Somehow, though, Bernie Sanders has hit upon something. A controversial something. He has energized a whole slew of Democrats with a much more radical version of the Democratic vision, one that harkens back to a pre-Reagan New Deal era.

Let me quote Obama on Reagan:

“I think Ronald Reagan changed the trajectory of America in a way that … Richard Nixon did not and in a way that Bill Clinton did not.”

Obama said this back in 2008 in an interview in Nevada.

It is an indisputable truth. Reagan did change America. Radically. Profoundly. And he eviscerated the Democrats by so doing. His legacy is as much the loss of the New Deal basis for the left in America as it is the modern Republican party. More to the point for us: Reagan’s rise coincided with the dramatic loss of direction in economics. It was the moment that the ascendancy of market magic and all the mysticism associated with it seduced a generation of economists and sent the bulk of the profession off into irrelevancy. Lost in that tide were a few, like Krugman, who clung to a slightly more useful version of economics. And it was these few who then emerged as the core advisory group to the newly neutered and reoriented Democratic party. Hence the letter I mentioned above.

Now the befuddlement of Krugman-like analysts comes into focus: they, like Hillary Clinton, have dedicated their lives to tinkering with the Reagan era and in modest disagreement with its right wing economist enablers. So overwhelmed were they by the radical success of Reaganism and that of its right wing economics, and so difficult has it been for them to mount even a modest counter-attack on them, that they have become unable to conceive of a more radical line of attack. They have become so bogged down in eking out tiny nudges here and there, in endless battles over minor fine details, and in the expenditure of enormous amounts of energy to take back a single yard of lost ground, that they can no longer think in grand terms.

Indeed the very thought of a radical move to the left is anathema to them. They see everything through the lens of their initial epic defeat. They have been absorbed by the very thing they espouse opposition to, and now justify their ineffective opposition by retreating into ultra-pragmatism.

Their attacks on Sanders are not based on ideological difference so much as on practicality. Bernie Sanders, we are told, cannot execute on his proposals because they will stir up such a reaction on the right that we will lurch along in ever greater gridlock and no progress will be made at all. It is thus better, so they tell us, to nudge around a little more and be content with a few scraps of progress. ‘A half loaf is better than no loaf’ has become their favorite phrase.

Except it isn’t a half loaf. It is more like a single percent of a loaf. It is hopelessly inadequate.

To the shock of the Clinton/Krugman wing of the Democratic party a very large number of people, and especially young people, are saying that the appeasement of the Reaganites and their right wing economist advisors is no longer sufficient. There has to be a more radical way to achieve progress. After all progressives are supposed to, well, progress.

As I see it the Clinton/Krugman generation has spent its energy buried in policy formation and in policy tweaking. It hasn’t spent its energy articulating politics. By which I mean that since the 1980’s the entire left-of-center establishment has devoted itself to making accommodations to Reaganism and not in developing an alternative. The American political economy has been dominated by right wing thinking for over three decades. The results of that domination are clear and are expressed in the form of the economy around us. All the nudging and tweaking have had no noticeable effect. Other, perhaps, than to soften temporarily the steady descent in living standards experienced by an ever increasing percentage of the population.

But we have now reached a moment when enough people have noticed  and and are rejecting that descent. They want a break with the past, not a continuation of it. Such a break cannot be provided by pragmatism. Before the pragmatists get busy installing the new order and making it work in a practical way, someone has to imagine it. Someone has to articulate it.

And that is what Sanders is doing. And that, apparently, is what confuses Krugman.

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