Commentary

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McCloskey Disses Democracy

Actually it’s McCloskey dissing what she calls leftish economists generally, although poor Piketty and his notorious book provides the moment she seizes to attack us misguided folk. Riven through with fundamental error and hopelessly soft we have all, apparently, misunderstood the great sweep of history.

The lesson from which is that all is swell if we just leave it alone. We need to set aside our petty and foolish concerns about the environment, and a whole host of other nonsense about market imperfections – and, yes, government imperfections too – we need to acknowledge the great wealth that surrounds us, and gorge on the pile of goodies that capitalism has brought us.

Oh, and we all need to shut about poverty. It doesn’t exist. Not at all. You see we are all better off than our ancestors. That ought to be enough. We need not worry our little heads about anything else. The great economic system in the sky will provide all we want, need, or can imagine. Perhaps a few things we cannot imagine either. After all it was the innovative spirit in the sky that brought us all iPods well before we knew we absolutely, and desperately, needed them.

Yes: our current cornucopia is enough to quash and otherwise contradict all that silly talk about poverty. It is just that: silly talk. It is the kind of talk that polite leftish folk indulge in after a hard day of calculating their retirement portfolios, and teaching heresies to innocent young students whose minds are thus polluted with skepticism for that spirit in the sky.

A spirit that Deirdre has decided ought remain nameless because the word “capitalism” is so fraught with misguided and inappropriate taint that it no longer serves a useful pedagogical purpose. If it ever did.

Well now, I admit that I am better off than my grandmother. She began work at age thirteen as a scullery maid in a great house in the English countryside. Before her, I am sure, she was better off than her grandmother, although probably not by as much as the difference that separates me from her. You see that great surge in working class material wealth that McCloskey attributes – correctly in total – to an entire two century sweep, is actually more clustered at the latter end of that period. The first portion [half?] of our great leap forward in material wealth saw a decidedly more mixed history than the one McCloskey likes to purvey.

How can that be?

If the great spirit in the sky was working tirelessly throughout those two hundred years or so, then surely the benefits ought to have accrued more evenly. Why is the material leap more focused towards the end? At least for the ungrateful poor who don’t realize they are actually wealthy.

Perhaps it had something to do with democracy. Or, alternatively put, the push back by folk like my grandmother against the system that seemed to be permanently stacked against them. They voted repeatedly to distribute wealth more evenly, to limit the risks of living in the spirit’s system, and to otherwise guard against to excesses of the capitalists. They had a sense of balance. A sense that allowed the economic system to flourish but within more decently proscribed limits. Distribution was important because it allowed everyone to feel an equal participant. Excess undermines that feeling.

Yes, Deirdre, distribution does matter. It matter s a lot. In fact it matters so much that rightists – I resist the obvious impulse to use the word “wrongists” – wanting to defend the great spirit in the sky ought to pay very great attention.

Because maldistribution can, and I will stay polite here, mess things up. Big time. Really big time. It creates political problems in a democracy. And that then creates problems for the economy.

McCloskey styles herself as an economic historian, but she remains first and foremost rooted in a particular tradition. This is obvious from her references to rightish heroes that includes the likes of Smith, Say, Mises, Hayek, and Friedman. It is a spectacular and honorable tradition. It lauds the spirit in the sky. It applauds the great gift giver. It worships the system-we-cannot-name and which we must obey if we want to reap its rewards and steep ourselves in it endless goodies. Most of all that tradition teaches us, sternly I might add, to deny that any of us ought imagine we can interfere in the great spirit’s machinations and produce a better result. It is simply not possible.

And it is especially not possible if we use the agency of the state. McCloskey uses the word “state” in a pejorative tone throughout her work. It’s as if the phrase “we the people” was never uttered. Or, at least, were it uttered it was quickly taken back and hidden lest the great spirit in the sky takes fright.

Yes Deirdre I am better off than my grandmother. Much better off. She was denied an education. It was inappropriate back then for girls to get an education. It was unnecessary. After all they were going to dedicate their lives to the enrichment of their betters. And if they were lucky a few scraps would fall their way too. In contrast I have an education – although I realize in the rightish tradition what I call education is actually mis-education. I am steeped in the great spirit’s goodie giving largesse.

But, and this is why I am a leftish leaning softie so please forgive me Deirdre, I listened to my grandmother. Closely. She told me, in no uncertain terms, that I ought to be fearful of “them”. “They” she said, could “take it all away”. So I was not to take for granted that the spirit in the sky was benign. It isn’t. It cannot be. Because, as the rightish tradition says so clearly, the spirit’s motivation is entirely selfish. It is the selfishness of individuals that creates the conditions within which the spirit flourishes so abundantly. Smith said so. Say, Mises, Hayek, and Friedman confirmed it as being so.

The system-we-cannot-name is rooted in venal bourgeois values. You said so yourself Deirdre.

The difference between McCloskey’ rightish, and dare I say it misguided, folk and me and my proper thinking ilk, is that they believe that the great spirit, that system-we-cannot-name, is self organizing. That is to say it operates best without the interference of sullied human hands. Human institutions. Human culture. Human anything. It produces, and will produce, great goodies, as long as we leave it well alone. Most importantly, it has an enormous and unbeatable ability to cleanse itself of error. Not that it can err. But, for the sake of argument, were it to err – which it cannot – it would self-right itself. We, on the other hand, believe that their system needs a gentle nudge now and again to keep it on course.

And, this is my grandmother’s lesson, the system-we-cannot-name distributes not just wealth, but power too. So accumulations of wealth are simultaneously accumulations of power. And we know what a great historian once said about power and its corrupting influence. So the nudges we need to give the great spirit in the sky are designed to keep it within bounds and to offset its tendency to concentrate wealth. Which is to say its tendency to concentrate power.

It is ironic, I find, to be scolded albeit gently, for being profoundly wrong about economic history, for risking the ire of the great spirit in the sky, for being merely philosophical rather than scientific, and for ignoring our current massive wealth. Especially when the scold ignores the parallel political history. Or, rather, interprets that history as a succession of stupid efforts to intervene in the workings of the economic system. As if the two were separable.

I think, ultimately, I agree with McCloskey: economics, properly constructed, is a historical discipline. This, to me, implies that it is rooted in real world events and their interpretation. The problem with that interpretation is that ideological worldviews intrude. Inevitably. Inescapably. McCloskey has a particular worldview. It is a right of center view. It is a view that denies the rights of people to address what they perceive as social wrongs through modern democratic means. Those modern democratic means being the government. It denies that any wrongs can exist because the spirit in the sky is so all seeing and powerful it will right them before they appear.

The tradition in which McCloskey sits, denies forcibly and very loudly that the government can play any role whatever in the economy. It has constructed an entire intellectual edifice – Smith-Say-Mises-Hayek-Friedman et al – to enforce that denial. It has sought to interfere in the democratic process in order to neuter any influence that process might have.

And this surely cannot be lost on anyone: the triumph of that tradition post-1980 has wrought not a great surge in wealth, but a great stuttering that has now fallen into what many of McCloskey’s allies are calling a great stagnation. The very system-we-cannot-name and which is the giver of all gifts is, apparently, failing to give in the same degree of abundance that it once did. The leap forward, upon which McCloskey leans so much in her defense of rightish economics, appears to be in a somewhat halting mode.

A mode that cannot be attributed to leftish influence because that influence has faded radically since Reagan and Thatcher derided government and did away with society.

McCloskey’s engine of growth and all things good has a problem. It is a problem it developed after the rightish tradition and its policies rose to complete power. It has, as someone once said “magneto” problems.

Let us call this, then, the McCloskey dilemma: if, as the rightish folk think, distribution doesn’t matter and that all things democratically decided are maladroit if not outright evil, why is it the system is not chugging along at full speed?

Is it, perhaps, that the rightish assault on collective action, or as I prefer to call it democratically elected government, has undermined the delicate balance between capitalism [there, I said it] and democracy and has thus undone the balance of power needed to make the system-we-cannot-name work its magic benignly?

Economists, even clever economic historians, ignore politics at their peril.

But then they know that. Which is why they construct economic theories and histories that expunge politics. The purpose, you see, of rightish economics in the Smith-Say-Mises-Hayek-Freidman tradition is to create the illusion that civil society can remain civil only if we eliminate politics. Anyone, like poor Piketty, who dares to bring politics back inside the domain of economic thought, has to be derided and taught his error. Politics, whilst as deeply seated in human behavior as any economic is, must be denied if capitalism is to be set free.

And that is why McCloskey is so vexed with Piketty.

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American Decline To Accelerate?

This is off topic:

I have a number of American friends who are Republicans. For years they have berated Obama for a lack of leadership. They consider him arrogant yet ineffectual. They blame him for what they perceive as a decline in the power and prestige of America.

This is twaddle. But it is commonplace.

My reaction is thus:

If there is decline it is an internal rotting away of its vaunted middle class. It is a neglect of its infrastructure. It is a loss of ambition. It is a dumbing down of its politics.

This began in 1980 and the ascension of Reagan and his economic agenda which was a deliberate redistribution of both risk and wealth within the economy. Reaganite policies were designed to shift “responsibility” – aka risk – onto the shoulders of the citizenry. They were designed to limit the influence of government. They were designed, consequently, to heighten the ability of private enterprise to accrue, uncontested, a greater share of aggregate wealth. The goal was to create a harsher, more competitive, and less certain environment for the people. It was a pro-business and anti-social agenda from the outset.

The policies were a great success. Business profited by instituting a full range of ideas and strategies that were, themselves, derived from the extreme right wing economics of people like Hayek and Friedman. Business schools propagated the ideas with gusto. Newly minted managers implemented them. They re-shaped the economic landscape in the pursuit of shareholder value. This meant eliminating job security, reducing wages, cutting staffing levels, outsourcing and offshoring functions, and squeezing benefits. It was an all-out attack on the middle class.

The result was easily predictable. None of the counter balancing effects that right wing economists expected occurred. None. That too was predictable. Right wing economics is a naive and utopian illusion constructed to cover and permit a shift in power within society. The market, which they predicted would step in and mitigate any anti-social consequences of the Reaganite program, simply failed to do so. Indeed it was the mechanism enabling those anti-social consequences. It amplified them by successively encouraging businesses to shorten yet further their planning horizons, and by punishing those who failed to adopt cost cutting with sufficient zeal.

This was an era of cynicism and disconnection. It was an era of private equity and hedge funds who purported to shift resources around the economy to more efficient ends, but in truth sought only to aggrandize those fortunate enough to be on the inside. They destroyed lives and futures in order to enrich a few.

So the middle class saw its lifestyle erode rapidly. It was asked to accept more risk, yet it was not rewarded to cover that risk. Its purchasing power was gradually reduced. Its costs were increased. And the services and infrastructure that enabled it in the golden post-war years were allowed to decline both in number and quality.

This is why America is now diminished. At least in its its own mind. It invests less in its future and has lost the ability to use the agency of its government to soften the blows of everyday life.

As this economic rot set in it was mirrored with a steady radicalization of the political right. One aspect of this was the alliance forged by the corporatist wing of the Republican party with evangelical Christian activists. This was an alliance of convenience not ideology. The corporatists needed energetic ground troops to make its cash support pay off at the polls. The quid pro quo being that the corporatists accepted  the extreme social agenda of the evangelicals.

The result of this arrangement was an onrush into mainstream politics of a distinctly anti-modern and anti-science set of policy positions. Allied with the rise of cable based news media – especially of Fox news pushing its Murdoch dictated big business positions – this had the effect of stripping away at notions of objectivity or empirical fact checking. It became possible in American politics to create facts rather than to observe them. This, in turn and coupled with the Reaganite message of anti-government rhetoric, infused the Republicans with a series of positions on issues that are radically out of step with the world beyond its shores.

America has lost faith in science. It is steadily reducing government funding for long term high risk scientific research. It has adopted an ambivalent perspective on issues such as alternative energy sources and environmental degradation. Indeed, the Republican party is steadfast in rejecting all progress on those issues. The long term consequence of this anti-science stance on the right is that America will inevitably cede its post-war role as innovative leader. It is another case of sacrificing the long term for some short term gain. And, please note, our remarkably short term driven business sector will not fill the research gap: the profit potential is too tenuous. The Europeans, Chinese, and others will take over as global research leaders.

Which brings me to where I ought to have started.

One of the consequences of the Republican win in last week’s elections is that leadership on various Congressional committees will now change hands. Key amongst these is leadership of the Senate environmental committee which now seems destined to go to James Inhofe, the senator from Oklahoma. He is a committed denier of the truth of global warming. He authored a book – “The Greatest Hoax – How the Global warming Conspiracy Threatens Your Future” – claiming that global warming is a hoax being played by insidious anti-American elements, including left leaning scientists, who want to undermine the traditional American way of life. His position on global warming is that it is impossible, and arrogant, to imagine that mankind can have an impact on the environment because “God’s still up there” to oversee everything. This is the man who will represent the U.S. at 2015’s international conference on global warming.

Really?

If we need a measure of why it is that America may be losing its prestige or its world leadership, we need to look no further than Inhofe. He is an anti-science fool. He holds a key position on one of America’s top scientific committees. The irony is exquisite. How can anyone admire or respect a nation that puts up a blockhead as a leader in such a position?

If we need to measure how far America is declining perhaps we need to measure how many key leadership positions here are filled by Inhofe like characters who live firmly in the past and deny the  existence of the very problems they are supposed to be solving.

Leadership does not begin and end at Obama. It extends, especially now, to within the Republican party. That, I submit, is a greater source of our decline than anything else.

And don’t get me started on Paul Ryan and his total inability to do basic arithmetic. He is our new Budget guru.

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Economics as the Third Culture?

Is economics a “third culture” the way Noah Smith suggests it is?

Is it sufficiently different that it deserves its own category apart from the humanities and the sciences?

Who cares?

Well, clearly Smith does. His article is interesting, though, more for what it shows us about the viewpoint of those who are trying to defend it against external claims of failure and/or irrelevance.

He notes that economists can be distinguished from scientists and engineers by the narratives they construct. They are story tellers. Albeit story tellers armed with prodigious amounts of obscure mathematics. Yet story tellers nonetheless. They are dedicated to constructing persuasive accounts of why their particular assumptions about the world can assist society in both understanding and controlling the transactional aspect of everyday intercourse. They seek to explain exchange and all the phenomena that influence it. Some of these phenomena are revered as “forces” or “laws”, thus imbuing them with a quasi-scientific and naturalistic status. Such forces play an exalted role in the stories economists weave. They are the economic equivalent of the ancient gods of Olympus. They punish those who dare defy them and they reward those who bow down in supplication.

It would be difficult to imagine an engineer telling stories. Why would they need to?

When bridges fall down it is either because of wear and tear, or it is because of human fallibility: an engineer can point to an error in the plans.

When markets fail it is because the economic gods work in inscrutable ways and with such deftness that the causes of failure lie hidden deep within the complexity of the economy. It is never because of human fallibility. There are no errors in the plans because the plans are just stories, and like all stories they are a sampling of the depths of human experience. The error must be sourced somewhere in the murkiness of the un-sampled part, in a story yet to be told.

Economists are never wrong because the stories they tell are never complete. They are models. They are simplifications. Of course there is another chapter that covers crises. It’s just that the current story has no crises in it. The plot can’t accommodate a crisis, so it cannot exist.

So economics is a kind of fiction. Mathematical fiction.

I suppose that’s a third culture of sorts.

What caught my eye in particular is this statement half way through Smith’s article:

“The main insight, in my opinion, is that most things in the world have some randomness in them …”

Really?

This is an insight of economics? Randomness?

I must misunderstand somewhat. I thought economics, in its mainstream incarnation at least, treated randomness like a plague. Randomness surely would imply more than a smidgeon of uncertainty, and uncertainty is to be found nowhere in orthodoxy. Indeed mainstream economists go to enormous lengths to constrain their parallel world within various kinds of perfection: rationality, equilibrium, foresight, information and so on. Randomness sits well outside their narrative. At least as I understand it. Then again there are some kinds of fiction I don’t find appealing, so I tend to ignore points that aficionados trumpet loudly.

And even if it were a character in the mainstream story, the claim that it is somehow a unique insight of economists is suspect to say the least. I imagine others might stake a claim. Many a better claim.

He goes on:

“Dealing with randomness has made econ stringer in some ways than traditional sciences …”

So he really believes that economics has dealt with randomness. Presumably by ignoring it. I am missing something. This must be one of those stories with multiple meanings only revealed at the very end. And I haven’t reached the end.

But this I cannot misunderstand:

“Literature describes human behavior, while natural science ignores it. But economists want to control human behavior, and that means the object of their study is as smart and free-willed as the economists themselves”

Gulp. I hope this is a joke.

Whatever it is, the implications are astonishing.

Economists want to “control human behavior”? Maybe that’s because their model of behavior is so laughably naive that none of their narrative makes sense without bending reality to fit it rather than the other way round.

And humans are as “smart and free-willed” as economists? Smart? Let’s not go there. But free-willed? Where, exactly, is the free will in abiding by the laws of the economic gods? The precise determinism of mainstream economics holds its model humans in a vice like grip. They have no choice but to obey the rules. Else they are tossed outside the story. Vagaries are not allowed. Preferences are rigidly enforced, unchanging and eternal they weigh upon the model humans eliminating any vestiges of humanity. Why? Because it makes the math easier and allows the economists to make sure their narratives are as self-consistent and precise as possible.

Self-consistent and precise.

Fiction.

A third culture. Neither humanity nor science.

Perhaps not good enough for either?

 

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Self Criticism in Economics

This is a bit of a rant. Please bear with me.

I rarely do this, but here’s a link to one of my favorite economics blogs:

Unlearning Economics:Economists Dissing Economics

The problem with all this self-criticism is that many of the people doing the dissing are responsible for the disarray they are criticizing. A different view is that none of them saw fit to make enough noise to change things.

This may unfair of me.

Notice also that much of this criticism is dated. The wheels have been coming off economics for a long time, yet inertia is sufficient to prevent change.

This may also be unfair of me.

But, ask yourself: where else in our economy could so much analytical ineptitude be tolerated for so long? Where else could repeated failure be fobbed off so easily? Where else could so much fraction, discord, and general incoherence be treated as a “profession”?

If some of the so-called heterodox alternatives to the dominant theories were so compelling surely they would have been more widely accepted. It is not enough to carp about other people’s evident failings – and believe me, as a relative outsider those failings are glaringly evident – because I believe those who complain have a responsibility to build the better alternative.

Instead we are confronted repeatedly by the same old stuff. The same old utopian nonsense, or the same old half complete theories. For sure, around the fringes there are signs of progress, but mostly they, too, suffer from incompleteness, over reliance on formalism, and, unfortunately too often, a highly naive interpretation of reality.

There is a mass of work going on within economics. Well intentioned work. Brilliant work no doubt. But it isn’t advancing us. It is not penetrating the fog of complexity or uncertainty that real world people working in the economy take for granted as the basic condition they must deal with.

I am talking about the basic stuff outsiders would consider to be economics.

There is an issue here we need to be clear about: lots of economists don’t work on the economy. They work in obscure sub-fields of economics, so they think of themselves as immune to the criticism, post-crisis, that economics is a failed enterprise. They regard themselves as making progress, albeit in largely irrelevant and purely academic domains that will have only marginal – if that – impact on society. These people are not economists in any popular or vernacular definition of the word. They are technicians adept at analysis. They could be mathematicians just as easily. Or computing theorists. Or quasi-physicists. Or whatever. By and large they’re good with numbers. That’s it. As if that’s economics.

The problem is that at the root of their knowledge sits the same profoundly unreal and naive vision of humanity that infects and thus incapacitates mainstream economics. They propagate it unwittingly. They tolerate it.

It is one thing to stylize, synthesize, or otherwise simplify in order to abstract from reality. It is entirely another matter to obliterate reality along the way. Modern economics – most of it – just isn’t about the economy. It is self-perpetuating and self-regarding. It values itself above its value to society. And when confronted by the complex uncertainties of the real world it sets about the performative task of altering reality to fit its theories.

Economics is about bending the world to fit the theory rather than the other way around.

How else can you explain the profoundly anti-democractic nature of new classical thought?

Anyway, enough of my complaining. It is disheartening to come across lists like that at Unlearning Economics.

I hope you all can prove me wrong about economics.

I really do.

 

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A Reminder on Democracy

I am cleaning up my files. The Gilens and Page article on democracy in the US is in the pile. This is a reminder of their conclusion:

“Despite the seemingly strong empirical support in previous studies for theories of majoritarian democracy, our analyses suggest that majorities of the American public actually have little influence over the policies our government adopts. Americans do enjoy many features central to democratic governance, such as regular elections, freedom of speech and association, and a widespread (if still contested) franchise. But we believe that if policymaking is dominated by powerful business organizations and a small number of affluent Americans, then America’s claims to being a democratic society are seriously threatened.”

Ah. But as a wise person said just this week: “equality is irrelevant if poor people are getting richer”.

That we lose our democracy along the way is of no importance. After all losing democracy is a subject for study by political scientists, and we all know that politics has absolutely nothing to do with economics. Don’t we?

No we don’t.

Only a naive fool can theorize about economics and pretend that the political and social ramifications of their theories have no importance or that those ramifications have no impact on their theories.

It’s time for economists to crawl out of the weeds, take a deep breath, and get back to doing political economy.

There were wise heads back then too, when economics was called political economy. And they called it that for a reason. A damn compelling reason.

Because that’s what we have: a political economy

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