Hayek

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Neoliberal Angst?

I wonder why it is that neoliberals so reject the label we have given them.  Is it because they’e embarrassed?  I don’t think so.  They all seem very proud of their attachment to the old order.  Every so often one of them will surface and proclaim bitterly that they are misunderstood and they they don’t deserve the opprobrium piled on them by those nasty “leftists” who want to sully the pristine reputations of people like Mises and Hayek.  Poor dears.  Are we to feel sympathy for a group of thinkers who, collectively, opened the door to regression and decline?  All in the name of some misty eyed nostalgia for ideas that had been overwhelmed by history in the early part of the twentieth century? 

I recently came across this problem at a much narrower and personal level.  A correspondent engaged in an short investigation into what neoliberalism is and determined that  “there is no single definition”.  It is thus a meaningless concept.

No it isn’t.

But why do proponents of neoliberal ideas have to take this tack?  Why is it necessary for them to go underground and conduct an anonymous campaign rather than defend neoliberalism from behind the recognizable ramparts its originators erected for themselves?  Why do the relish the notion of being underdogs engaged in a struggle against the oppression of government and tyranny?

Because neoliberalism failed.

The enterprise that Mises, Hayek, and the others pursued was the undoing of the progress made in the first decades of the twentieth century towards a more democratic and less rigid, inflexible, and inhuman conception of our political economy.  The real anathema to the neoliberals was the mitigation of the outcomes of laissez-faire capitalism by the injection of democratic ideas into the mix of social governance.  That mitigation was seen as an occlusion of “liberty”.  So something like the New Deal here in America was cast by neoliberal thinkers as the first ugly step on the road to serfdom.  That it appeared to be popular and that it worked as a policy set in the depths of depression were of no consequence.  

Popularity was seen as the dead hand of ignorance.  How could ordinary voters, riven through as they are with narrow self-interest and lack of awareness, possibly be relied upon to see the benefits of economic liberty?  Especially economic liberty for the wealthy folk and large corporations whose generosity supported the academic work of the early neoliberals.  No.  Popularity was a bad thing.  Very bad.  As expressed in democracy it was particularly bad.  Being opposed to democratic governance became a feature of neoliberals.  They didn’t emphasize it too much because of the obvious ramifications — they were in a minority, especially during the Cold War when America was loudly proclaiming the virtues of democracy hither and yon.  Being anti-democratic in an era of burgeoning democracy is not, dare I say it, popular.  Which is, perhaps, why neoliberals cast themselves as defenders of freedom instead of democracy.  It keeps them within the framework of American ideology.  

Policy is another matter.  Keynesian ideas seemed to work.  This was even more anathema to the neoliberals who proselytize the efficacy of pure market solutions to every problem known to mankind.  Interference in “the market”, whatever that is, is pure tyranny.  It is also a restriction on the liberties of the wealthy and large corporations whose generosity supported the academic work of the early neoliberals — sorry: I am repeating myself.  That slippery slope towards serfdom has many entrances.  Neoliberals are stalwart in their ability to identify and defend against the foul contamination of the free market by the evil forces of the state.  Especially, it turns out, in democracies. 

Perhaps the sensitivity of the neoliberals to being so-called is that they want simply to be “liberals”.  Their problem being that the word liberal has many interpretations, as is, perhaps, normal for an idea that has been in current in politics for so long.  Meanings mutate as context changes.  Meanings mutate as different minds wrap themselves around an idea and bend it to a particular circumstance.  

Liberalism has always been a contentious idea.

The literature is replete with both adoration and scorn of liberality.  It is a hydra like concept.  And its various strands are inconsistent.  Indeed, they often contradict themselves.  The issue is that each step along the road towards liberality limits the scope of the prior steps.  So the first gains in civic justice were limited by the expansion of political justice.  That’s where the neoliberal hatred of democracy begins.  How can someone be free and then have to give up some of that freedom within a commonweal?  And if that community is expressed through the construct of the state, how is that different from the oppression of authority under the ancient systems that civic justice was supposed to eliminate?

Even more recently the progress towards political justice has been, itself, limited by the search for social justice.  Liberalism has introduced into itself another limitation.  Equalities of various sorts appear to contradict what appeared to be earlier achievements.  

There’s no need to explicate this progression here other than to note that those who gained from the first steps towards liberality have seen those gains reduced subsequently as others claimed their own right to progress.  Neoliberals are defending the early gainers against the later followers.  They cast themselves as in possession of an absolute definition of liberality when, in fact, they represent a moment in time.  Their beliefs are contingent on a social and political arrangement that subsequent liberal moments have rendered obsolete.  Their purity implies a negation of that subsequent history.

There’s nothing wrong, of course, with representing the past.  There is virtue in all of us remembering the route we have taken.  There was an awful lot of hard work and blood spilled along the path we have taken into modernity.  The project is not yet complete, as the current battles over social justice demonstrate.  Liberalism is not a static idea.  It twists and bends as contexts change.  As it always has.  

And some of its offshoots are left behind as failed experiments.  There is, within the urge towards liberality, always the complication that when it fails it leads us back to subjugation.  Regression is as likely as progression when we lose the sense of balance needed to build upon past progress rather than uproot it.  We are, I think, in such a moment.  

Which is why confronting the neoliberals is essential.  Their definition and beliefs are not liberal in today’s context.  They fail to account for the rise of popular self-governance which they still see through the lens of the inter-war chaos that so distorted the views of both Mises and Hayek.  Inter-war Austria was hardly an archetype of modern democracy, and yet both of those early neoliberals used its chaos as demonstrative of the inevitability of regression in the face of popular self-governance.  They thus utterly failed to adapt to modern democracy.  Modern libertarians remain stuck in that same intellectual space.  

On consequence of this inability to progress is the narrative that neoliberals have had to create to explain the origins of “the market”.  In their telling markets are natural phenomenon.  They can only be restricted and not enabled by the state.  History tells us otherwise.  But to side with history is to align with the state as a beneficial and not malign actor.

This is, perhaps, our biggest problem of engagement with neoliberals.  Not only are they defending an anachronistic view of society — one long swept away by the very forces they so adore, after all the division of labor is now so extensive that the consequent complexity has eliminated the possibility of simple interpretations of “the market”.  But they are reduced to defending, through denial of its existence, the power and status of this who benefitted from the early achievements of liberality.  They have to tolerate the concentration of political and economic power because to argue otherwise introduces the state as a distributive agent.  

Did I mention the gratitude of their wealthy and large corporate supporters?

So we arrive at the apparent upset that defenders of neoliberalism have when called neoliberal.    They call the word an epithet hurled at them by, gasp, leftists who want to restrict freedom and do all sorts of harm to the liberties attributed to “free markets”.  

But, there never were such free markets.  So there never were the associated liberties.  

And that is their underlying problem.

Nostalgia is often a veil over an illusion.  Our memories fail us too often.  The trajectory of what Balibar has called, aptly, “equaliberty” is a difficult one.  Liberty in the neoliberal sense emerged first from the old order because it was something that a rising newly powerful group sought.  They carved it out from the old way of life to their own benefit.  The equality part that has been fought over since, and which the neoliberals attempt to disparage and reduce, is a natural consequence of that first step.  It implies a struggle for power between that first liberated power group and those who want to follow in its footsteps.  

Neoliberalism is an entirely appropriate word to describe the effort to prevent that second step. Neoliberals are dedicated the the jealous guardianship of the power amassed by the first to achieve liberty.  No wonder they see power-sharing as tyranny.  Their entire intellectual edifice is a construct to preserve power within a constrained group.  

That they reject such an interpretation of their efforts as being a leftist epithet simply means that they feel vulnerable.  Of course they do.  Their project has been exposed over the past few decades as a power grab by the wealthy and large corporations who generously support their academic work.   How hard is it for neoliberals too understand the term “follow the money”?

Isn’t following money something they applaud?  Are they damned by their own ideas?

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Pondering Neoliberalism … Again

I apologize for the length and somewhat arbitrary nature of the following, it is an accumulation of thoughts as I react to the notion expressed by an acquaintance that the term “neoliberalism” has little to no explanatory power for the development of American policy since the Johnson years …

  1. I agree that the word/term neoliberalism has no clear technical definition.  This, however does not mean that people who called themselves, or thought of themselves, as neoliberal did not exist or have significant influence over public policy.  In their translation of the sparse notes taken at the 1938 Lippmann Colloquium Jurgen Reinhardt and Serge Audier begin by saying “Even the concept of ‘Neo-liberalism’ is far from being clear …”.  Those notes, however, offer decisive evidence that the attendees at the colloquium thought of themselves as united in a broad project intended to rehabilitate nineteenth century classical liberalism.  In particular they felt a need to distinguish a revitalized liberalism from what they saw as the morally inferior version that provided the framework for early twentieth century laissez-faire capitalism.  In order to accomplish this they adopted the word neoliberal without being precise about its meaning.  They intended to develop their ideas further towards such precision.
  1. So, the 1938 colloquium is the formal starting point of the neoliberal project.  It is important to note, though, that those beginnings were heavily European.  Only two Americans attended the 1938 meeting and one of those was Lippmann himself.  The American influence and adaptation of neoliberalism only came after World War II.  The original colloquium established a research agenda and the intention had been to re-convene in 1939 to discuss the creation of a set of more formal principles under the banner of neoliberalism.  Obviously that did not take place.  It was left to Hayek, an original attendee who had subsequently been recruited into the Chicago school’s newly renovated research program, to instigate the renewal of the project, which he did when he formed the Mount Perelin Society, an organization that exists to this day.
  1. Hayek’s agenda differed in many ways from that described by the debates in 1938.  This is one of the primary reasons that neoliberalism has a rather diffuse meaning.  One example would be the role of the state.  The original meeting attendees had in mind a state that provided a solid social safety net to offset the downsides of capitalist economic activity.  Hayek, in contrast, thought that this implied a larger state presence in the economy and was thus an anathema and offensive to liberty — hence his “Road to Serfdom”.  The continental European version of neoliberalism never quite shook off the original vision for the state, whereas the American version became more adamant through time that state activity was inherently counter-productive, intrusive, and limiting to growth.  
  1. It is also important to note the contingency in this history.  American geopolitical pressures created a bias in postwar intellectual development towards the Hayek/libertarian position and away from the European alternative.  Indeed so striking was this bias, and so strong the postwar American cultural and political influence in the West, that the entire academic narrative of economics was bent towards a severe pro-market — and by implication anti-Soviet — territory.  Branco Milanovic has gone so far as to dub modern American dominated mainstream economics as “Cold War economics” precisely because of this development.
  1. In sum: neoliberalism has no single formal definition; it manifests itself in various versions — for instance as Ordoliberalism in Europe; and it exists in America as a major influence on modern economics and especially strongly in the newer Chicago/Virginia tradition in the work of Hayek, Stigler, Friedman, Becker, Lucas, Fama, Buchanan, and Tullock.  [as opposed to the original more pluralistic Chicago School of people like Knight, Viner, and Simon].

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But our interest is more in the arena of broader public policy not just academic economics.  So we return to the larger story.

Hidden in the narrative above is the influence of private money.  For instance, the financial support for the re-modeling of the Chicago economics department in the aftermath of the war was through a series of substantial gifts designed to encourage and sponsor the influence of pro-market ideology.  The Walgreen family and the Volker foundation [under the leadership of Harold Luhnow] were prominent in this effort.  The objective was overt: to create an intellectual platform for the eventual destruction of the New Deal policy framework that had hindered private wealth creation and corporate profit making. 

Furthermore: the shift at Chicago included a realization that the legal profession could be a conduit for the attack on the New Deal and thus needed to be channeled in a supportive direction.  That gave rise to the “law and economics” tradition spearheaded by the likes of Director and Posner whose interpretation of justice became inseparable from their conception of economic efficiency.  This opened the door to pro-market jurisprudence and became a major component of modern neoliberalism in America with particular impact on the execution of anti-trust law [but also in the definition of monopoly etc].  American neoliberalism was subsequently expressed not just in public policy formation, but also in the steady intrusion of pro-market thought into the courtroom. [contra Brandeis]

Concurrent with this effort was the steady politicization of business.  It took time for the business community to become more politically active.  It is in this context that the Powell memorandum has its significance — perhaps less for what it says than for what it encouraged, which was the rallying of the business community behind the need to influence public policy and shift it towards a more pro-business attitude.  Wrapped in patriotic language, the Cold War rhetoric that Powell employed to rally business to the anti-New Deal cause is a striking example of the evolution of neoliberal thought.  Prior to Powell the business community was remarkably apolitical, subsequently it became highly political.

This anti-New Deal and more pro-business platform is well illustrated in the careers of Ronald Reagan and Milton Friedman both of whom rose to public attention because they had significant corporate backing as they created their respective brands.  In the context of the Cold War both were able to present their pro-market views as [conveniently] also pro-American.  That those views were heavily influenced by Hayek and his interpretation of neoliberalism is clear.

So the emergence of modern neoliberal public policy has its origins in the convergence of three strands:

First was the academic effort to rescue classical liberalism from the debacle of the Great Depression and the associated inequities of laissez-faire.  This is the original 1938 -1947 emphasis.

Second was the desire of wealthy people and corporations to create a platform to undo the New Deal in order to re-assert their social and political status and to protect their wealth/profits.  This was the 1947 – 1970 emphasis.

Third was the geopolitical pressure within America to create an anti-Soviet narrative, and to build a set of values in stark contrast to the socialist perspective.  This was an emphasis continuing through to the collapse of the Soviet Union, and came to dominate the thought of American leadership on both sides of the political aisle subsequently.

Each of the three had different policy and intellectual implications.  They often overlapped.  But they also sometimes contradicted each other.  The convergence is, however, clear. The post Lyndon Johnson era was dominated by this convergence.  The inconsistencies  and contradictions that are evident in policy, and which contrasts it to any “pure” form of neoliberalism, are due entirely to differences of the outlooks and goals of the people within its three sources.  This jockeying for control of the neoliberal agenda is crucial to our understanding of its impact.

An example of this would be the advocacy of low taxes which clearly benefits the wealthy and corporate elite.  A true “Hayekian” neoliberal would consequently advocate a reduction in social spending to offset the reduced revenues. But that conflicts with the popularity of social spending.  So a “pure” neoliberal regime could never be fully executed.  The conflict of the neoliberal ideal of a low tax regime with the popularity of continued social spending produced not a public policy shift away from spending, but, rather, an acceptance of fiscal profligacy.  This profligacy was less an issue for the wealthy and corporate sector than it was for the academic wing of neoliberalism.  Its continuance indicates which had more power. [Besides, the rise in Federal debt instruments created an asset class eagerly held by the wealthy and helped entrench their financial and political power — not only did the wealthy enjoy lower taxes, but they earned a return on the debt issued to offset the lost revenue produced by those lower taxes.  Plus they began to wield power through the backdoor of the credit markets — as Clinton bemoaned.].

Another contrast is within the role of the state.  A purist neoliberal like Hayek wanted to reduce the social profile of the state — to minimize its provision of goods/services —  but, at the same time, he wanted the state to be powerful in its enforcement of pro-market policy.  His vision of strong state activity, though, was in contrast to the interests of business.  True neoliberals wanted to encourage competition.  Business wanted to restrict competition in order to extract rents i.e. what Warren Buffett famously called “moats”.  Practical business interests, especially post-Citizens United, overpowered the academic theorists and came to exert greater influence on how neoliberalism was actually manifested in action. 

Meanwhile, power struggles such as these between the different strands of neoliberalism thus contributed to the incoherent execution of it in policy.

Friedman offers another example: his opposition to interference in market activity implied opposition to trade unions.  That allied him with business interests.  As did his vocal position on the role of business in society.  But he was a purist.  He also saw professional organizations such as the American Medical Association as impediments to the operation of markets and the achievement of market driven efficiency.  That won him few friends in the upper echelons of the ever more prosperous professional classes who were benefitting from the growing power of the corporate sector.  It was the rise in wealth of this class that provided an increasing portion of America’s top echelon of wealthy citizens.  More and more of the elite has been subsequently drawn from the ranks of private sector bureaucracy rather than from the older entrepreneurial or capitalist class.

Eventually, as indicated by some of my examples above, the three converging interests became dominated by its business element: the character of neoliberalism in its “actual existing” form was corporate rather than either the early 1938 or the later more “pure” Chicago versions.  Indeed, the original version faded into a more academic setting and provided the only occasional intellectual support for policy, while the Cold War version lingered on as justification for global trade governance and the implementation of American preferences on the world stage.

With regard to trade: Slobodian has documented how the early neoliberals such as Hayek were insistent upon the adoption of a worldwide governance regime to enforce rules regarding the flow of capital and goods between states.  This was the foundation for globalization and the increase in trade witnessed over the past few decades.  The neoliberal motivation for such a framework was that it restricted the role of individual states, some of whom might be too easily influenced by democratically driven domestic policies.  Such policies might harm trade.  They might also constrain profit.  

Again the contrasts are worth dwelling on.  Rigorous international governance [aka regulation] of trade and capital was acceptable.  But domestic regulation was not.  The neoliberals abhorred local or national interference in markets because of the implied loss of efficiency, and to make such interference less likely they wanted to tie the hands of national governments by enmeshing them in an international set of rules.  This is, perhaps, the best example of the neoliberal agenda and it origins at work: the early neoliberals had watched the degradation brought about by the populist driven slide into post World War I fascism.  They so feared a second such slide that any hint of democratic government was immediately interpreted as the onset of decline.  The world had to be wrapped in rules that prevented local outbreaks of popular government mucking with the free movement of capital, goods, and even of labor.

Note, though, that those international rules were not democratically established on the world stage.  They were promulgated from within the citadel of the largest economy in the world — they were an aspect of hegemony as much as a manifestation of enlightened global management.  They were, after all, called the “Washington Consensus” and not the “Helsinki” or “Beijing” consensus.

Ultimately those rules led not just to the protection of trade, but also to the recent popular dislike of globalization.  Trade has clearly benefited consumers everywhere.  There has been a cost in the form of a movement of work from high wage to low wage nations.  This loss of work was generally compensated for by adoption of offsetting domestic policies.  Neoliberalism at the national level — the “small state impulse — led to reduced safety nets [contra Lippmann!] rather than augmented safety nets,  because of the increased presence of the state in the labour market such support would require.  So globalized trade led to benefits diffused across the entire consumer population; concentrated losses among displaced worker populations; and increased profit for those corporations able to shift work abroad.  The uncompensated disruption inherent in this is part of the root cause of current populism

The possibility of popular politics with its potential to disrupt the market is the root cause of the firmly anti-democratic attitude of the neoliberals.  People like Hayek, but also people like Friedman and Stigler, had a healthy dislike for popular decision making.  Public choice theory is an offshoot of this attitude — it is an an attempt to discredit public policy makers.  They regarded democratic choice as ill-informed at best and decidedly destructive at worst.  The fear that a state could succumb to the popular will was a central feature of neoliberalism at its inception. And, going all the way back to the Lippmann Colloquium, the tumult of Europe between the wars provided ample demonstration to Hayek and the others that socially sensitive public policy was inevitably self-destructive.  Subsequently, Hayek and his followers were never able to distinguish between a democratically elected state and an authoritarian based state.  They simply saw the ”state” as a monolithic entity opposed to liberty and the freedom of the individual.  It was, in their view, inevitably corrupt and incompetent no matter how popular it might be.  

As an aside with respect to this view of the state.  A contradiction emerged between the rigorous all-knowing and hyper rational individual conceived as central to [Chicago school based] rational choice theory, and the supposedly gullible and easily misled voter inhabiting the shadows of public choice theory [based in Virginia, although Buchanan was a student of Stigler’s].  The slipshod acceptance of each conception simultaneously embodied in precisely the same people/voters/economic agents demonstrates how contingent theory became in pursuit of its ideologically driven goals.  Depending on what the current argument was, agents were either stupid or all-knowing.  If ever there was an indictment of modern economics as being entirely ideological rather than empirical, it is this unresolved paradox.

This all played well to the ears of the wealthy and corporations desiring to restrict the state’s ability to constrain their activities.  

In the political realm neoliberalism expressed itself as the liberation of the “individual” from the oppression of the state.  That this ended up concentrating power in the hands of the wealthy and the corporate sector was coincidental.  But liberated individuals also had to be prevented from forming associations or expressing popular will through the state.  A purist neoliberal like Friedman was decisively anti-union for this reason — any collective action would restrict the efficiency of the market.  He also held the view that the ferocious competition of his ideal marketplace would prevent any corporate restriction on such efficiency.  Friedman was at least consistent.  Neoliberalism as it came to exist in most policy, however, was that of the corporate sector.  So policies that reduced union impact was enacted.  Policies that encouraged competition — especially anti-trust policies — were not.

“There is no such thing as society” was the inevitable political rallying cry necessitated by the need to square the liberation of the individual and the need to reduce dependency on the state.  By abolishing “society” as a policy-integrating concept the entitlements that might attach to citizenship could be devalued or eliminated.  

Hayek thought over-socialization was the biggest impediment to enduring prosperity.  As a result, the newly liberated individuals, who might realize that the risk they take as a cost of their freedom was too high a price — especially given the lack of compensation for that risk embodied in stagnant wages — had to be encouraged not to view their role as citizens having reciprocal value and to view the risk mitigation offered by the state as an intrusion into their private lives.   Jacob Hacker has documented this aspect of the neoliberal era well.  The well worn balance between risk and reward somehow fell from view as the steady drumbeat of individualism allowed corporations to develop what we now know as the “gig” economy.

Where does this leave us?

A summary so far would be that the intention of the neoliberals was to de-politicize politics.  Inter-war politics had shown them the terrors of fascism and the negative unintended consequences of socialism.  Politics needed to be kept under wraps.  The popular will had to be prevented from putting grit in the machinery of the market which was theorized as the best, and often only, assured generator of prosperity.  In other words, the market had to displace politics as the forum for decision making.  In this respect the neoliberals triumphed beyond their dreams: the current disconnection expressed by voters from their governments — especially in the US and UK, are a remarkable demonstration of how far ideas of society or civics have been eroded by the relentless embrace of all social activity within the market.  Levels of trust are at postwar lows, everything is a commodity, and corporate methods such as cost-benefit analysis have substituted for the social or moral foundation of policy making.  This was the neoliberal agenda — at least in its Cold War version as promoted in America and to a lesser degree in the UK.

So, yes, neoliberalism is incoherent as a formal body of thought.  Then again, so is classical liberalism.  So is socialism.  So is Marxism [perhaps most of all!]. Neoliberalism in 1938 was different from that of 1947 and different again from that of 1980.

This does not invalidate it as a lens through which to evaluate the arc of American political economy and public policy in the post-Johnson era.  Neoliberal thought left its imprint everywhere.  Indeed both major political parties became neoliberal in some form.  [Both Carter and Clinton showed more de-regulatory zeal than Reagan, and Clinton’s deregulation of the banks was both the boldest and most damaging expression of neoliberal thinking]

The three contributory elements of neoliberalism can be distinguished by their origins and the purposes underlying the advocacy of their proponents.  As the ideology evolved it was adapted to the context and the needs of its advocates.

Eventually, it became a combination of a heavily Americanized worldview, a pro-market view, with an emphasis on technocratic efficiency, and acted as a vehicle for the downplay of democratic or socially aware action.  Most of all, and crucially, it was a repurposed as a vehicle for the recapture of political power by an elite threatened by the New Deal [and other similar policies elsewhere]

Its deregulatory aspect led to the financial disasters of 2008/2009.  Its low tax aspect led to fiscal profligacy because it is impossible to square with the popularity of social spending.  It also led to the re-emergence of income and wealth inequality at levels similar to those of the 1920/30s.  Its infection of academic economics led to the sidelining of Keynes and an inability of the discipline to develop theories of growth leading, in turn, to the effective abandonment of macro theorizing and the prioritizing of micro-based thought [the Lucasian “micro-foundations” doctrine].  Its insistence on the individual undermined social cohesion and empathy.  And its co-option by the corporate sector allowed the wage stagnation, shift towards profit, fissuring of the workplace, and movement of work abroad that resulted in a concentration of corporate power, excessive rent-seeking, and a slowdown in innovation.

The Mount Perelin Society still exists and includes amongst its membership an enviable bevy of central bankers and leading politicians from around the world.  Neoliberalism, thus continues to exert influence.  That it slowly emerged as a distinctly pro-corporate [rather than pro-market] perspective is simply a consequence of the funding that flowed into the several think tanks and academic departments where it most flourished.    It is possible to argue that the final version of neoliberalism — that extant prior to the collapse of 2008/2009 — was a corruption of the 1938 version.  All ideologies suffer that fate when they come into contact with the realities of real world power.  But, nonetheless, the arc of American economy development, public policy development, legal philosophy, and corporate management all show the indelible imprint of neoliberal thought.  

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Further comments:

  1. Deregulation of industries such as the airlines has — in general — led to industry concentration.  The social cost has been to reduce innovation and to reduce the power of the consumer.  [The speed of air travel peaked in the mid 1950s].  Recent research suggests that it had a non-negligible impact on slowing economic growth, but that, overall it remains an insignificant factor in our recent slowdown.  It did, however, contribute to the shift in national income towards profits and away from wages.
  1. Trade liberalization was always a major goal of the neoliberals.  As mentioned above consumers have benefitted from increased trade.  But the social costs of the export of work and the hidden benefit of the importation of deflation [via lower costs] weigh heavily on the economy.  Research shows that the movement of workers displaced by the export of work — which ought to have improved domestic productivity [we assume the exported work was mainly in low productive business] — had the opposite effect.  Since exported work was predominantly in manufacturing and displaced workers were predominantly re-hired into the service sector [which is generally much less productive] overall domestic productivity fell and thus pulled down GDP growth rates.  So the consumption benefit was at least in part offset by the loss of productivity.
  1. Capital market deregulation is a classic example of the impact of neoliberal thought.  New Deal era regulations had prevented major bank runs successfully for several decades.  The industry chaffed under those regulations especially as the non-bank financial sector flourished [e.g. the creation of the commercial paper market].  The deregulation of the S&L industry led almost immediately to its collapse because of undue risk taking required to boost profits towards an market-acceptable ROE.  Similarly the abolition of the distinction between investment and commercial banking led directly both to industry concentration and to excessive risk taking and, eventually, to the financial crisis of 2008.  It also led to the over-reliance on the finance sector generally — resources that might have been channelled into the real economy could find a higher return in finance [especially in the derivatives market].  Additionally, the concentration of power in the ever larger banks allowed them to bully/defy the regulators — the best example being the infamous Citi/Travelers merger which was against the law but was executed nonetheless and contributed to the change in regulation.  The abolition of the McFadden Act was supposed to benefit consumers by allowing larger banks to cross state lines — but it mainly manifested itself, not in the creation of greater competition, but in spate of mergers [in which I was involved!!].  All told it is highly debatable whether capital market deregulation produced any lasting social benefit.  It was, however immensely profitable for bank shareholders and executives.
  1. The number of Federal employees is roughly the same as it was in the early 1950s.  It increases temporarily every ten years because of the census.  The increase in government employment generally has all been at the state and local level and mostly reflects higher employment in health, education, police, and fire departments.  The cost of regulation has risen steadily because of excessive rule-making and micro-management by Congress and at various state levels.  The effort to lower costs during the Clinton era led to the outsourcing of most major IT efforts within the major non-defense departments.   This had the effect of making it difficult to execute major reforms, keep up to date, and roll out new programs [e.g. Obamacare].  As noted above, the neoliberal goal to “shrink the state” foundered on the popularity of social programs such as Social Security.  The failure to enact the hoped-for reduction in government led directly to fiscal profligacy — which is distinctly not a neoliberal position [but is OK with business]
  1. The reduction/abolition of price controls was an incidental and contingent goal of neoliberal policy associated with the desire to eliminate most, if not all, regulation of market [aka business] activity.  But, since America has remarkably few Federally imposed price controls to begin with [outside of wartime], it has not been a major component of neoliberal activity in the US.  Contrast that with the steady drumbeat calling for the abolition of environmental and product safety regulations that inhibit freedom in the market.  Friedman’s position that the market will sort out everything —product safety and all — is incredibly naive when compared with actual corporate activity.  That naivety is often used as a veil behind which economists hide — they avoid the social consequences of their theories by talking about various market “failures”.  Such things are not failures at all but realities of power that economists prefer to avoid because they might complicate their theorizing by introducing aspects of sociology or political theory into consideration.  
  1. Tax cuts were a component of neoliberal thought — in association with the reduction of government.  Defunding government in order to create a crisis in which services would have to be cut was a policy tool used effectively [“starve the beast”] during the post-financial crisis years.
  1. The creation of “independent” central banks was also a major policy goal of the neoliberals [although some wanted to go further and abolish central banks altogether].  The premiss being to eliminate democratic [aka popular] influence over the financial system. The long Alan Greenspan era [any conversation with Greenspan would immediately show that neoliberalism was a real “thing”!] coincided with the neoliberal deregulation of the capital markets.  It also led to a relaxation in bank oversight and an unwillingness to consider the regulation of the [then] emerging derivative markets.  Further, the development of the 2% inflation target, and the monetary policy set to go along with it, were driven by neoliberal thought — the long tradition of stable money and non-interference in monetary policy sit well in the Friedman tradition [his history of American monetary policy and re-examination — co-authored with Anna Schwartz — of the role of the Fed during the Great Depression being iconic]. [Caveat: since my wife works at the Fed. I will say no more!]
  1. The reduction in world poverty is a major postwar success.  The association of that with Washington consensus style policies is more contentious.  Global trade was a more important factor in lifting poorly developed nations up, although the record remains spotty [compare, for instance, South Korea with Nigeria] — resource base development was less successful than a broader based approach.  Plus, as mentioned above, the benefit to poorer nations has been partly offset by the slowing of growth and standards of living in the more established economies — lower consumer prices notwithstanding.  Recently, there is a growing concern among lesser-developed nations that the rules-based regime established postwar [and cherished by neoliberals] has served Western and particularly American interests well and, perhaps, the rest of the world less well.  Disputes at the WTO, for instance, have become more contentious, and under Trump America declined even to allow the staffing on its operations — because of American claims of “unfair trade”.  This didn’t seem to be a problem when other nations thought trade was “unfair”.  The original intent of the neoliberals vis the implementation of trade rules was, as mentioned earlier, to limit the influence of individual nations who might be tempted to pursue more popular [democratic?] policies including restrictions on capital movement or the imposition of tariffs.  

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Conclusion:

Neoliberalism is a valid lens through which to view American policy making since the 1960s.  Its various proponents have left a strong impression.  Its major themes still frame most discussion — even post 2007/2009.  Even though it is now in disrepair it maintains a strong hold over intellectual and policy elites, and has left a particular impact on the business community — perhaps most of all.  As a body of thought it was, and remains, incoherent and sometimes contradictory — most ideologies suffer the same malady.  As a reconstruction of classical liberalism it was failure because it failed to match modern socio-economic conditions with the liberties attaching to the classic version.  The modern world is far too complex for the simplicity of an radical individual-based philosophy to apply.  The state is essential — as attested by the popularity of its risk mitigation policies.  The neoliberals never could adjust to the concepts of the model democratic state — their vision of a state was an antique even by 1938.  Their insistence, therefore, on pro-market alternatives to the state’s provision of certain services flew in the face of economic reality and called into question their true objective:  was it the pursuit of efficiency?  Or was it the pursuit of status and power?  

They told us it was the former.  In reality it became the latter.

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All Wet like a River

Heraclitus exists only in fragments.  That’s unfortunate because aphorisms are not the best way to tackle the hubris of the technocrat.  He was on to something though.  We all know his well-worn saying about stepping into rivers.  He tells us that they’re never the same twice.  And yet they stay the same.  Beware, then, the analyst that thinks she sees a regularity in our economy.  It may look the same as before, but it isn’t.  Not in detail.

Yes, I am still stuck wondering about Diane Coyle’s defense of economics.  It has, she says, changed a great deal since it was exposed as somewhat vapid back during the Great Financial Crisis.  I am trying to be gentle.  In truth it was exposed as being a lot worse than vapid. 

The problem I have is that the resurrection of economics, in the eyes of Coyle, is in its contribution as a technocratic bulwark against the visceral or uneducated emotions of democracy.  As a center of empirical wisdom economics can, apparently, regain its luster and provide a counterweight to the fogginess of ideas that emerge, not from dogged adherence to statistical analysis, but from the vague good intentions of the people’s representatives.  The economist-as-technocrat thus replaces the economist-as-theorist at the epicenter of modern policy and decision making.  Technocrats can do what mere politicians might not.  They can stand aloof and make the hard choices.  They can point out the opportunity cost of a choice.  They can hammer out the alternative values within an array of choices.  They can sort the costs from the benefits and weigh them objectively so as to ensure that society reaches the peak of its potential.  They can, in short, make us all efficient.

Whatever that means.

Who knows?

But then the technocrats have a definition of efficiency so we can rely on them.

The issue with this turn towards technocracy is the inherent uncertainty pressed upon us by the rivers of Heraclitus.  Can we really draw solid conclusions from the flow of history such that we can predict what to do next?  Is not uncertainty an irreducible problem blocking our view forward?

Certainly the technocrats have amassed a set of tools that dazzle us all.  But the information they rely upon is history.  It is in the past.  Yet it is the future they pretend to discuss.

This is the dilemma we now find ourselves in after centuries of technological advance.  So alienated are we from the simpler world we have been ejected from we now are forced to rely on specialists who decide for us how to interact with our own circumstances.  We have, and the irony is startling, surrendered our agency in order to find our independence.  We, unlike our ancestors, no longer control the provisioning of the necessities or luxuries that we require.  We simply provide our effort in the production of one tiny element of the whole.  We rely, for the rest, on the enormous coordination and administration of the complex we call an economy.  This reality implies we are surrounded not just by the technology that has enabled this complexity, but by the minders of the machines and the technocrats that delve into the deeper workings and meanings of that complexity.  It is only in moments of crisis that we realize just how fallible the technocrats can be.  For all their pomp and hubris, for all their self-evaluation and peer reviewing, and for all their self-referential self-regard they are not that much better at seeing into the future than any of the rest of us.  And their track record, the longer it produces evidence for us to evaluate, ought puncture what remains of the hubris surrounding their status.  They are valuable.  They are just one component of any democratic decision making process.  They ought not dominate how we go about navigating the waters of technological advance.

Prominent economists have, of course, called our attention to the fallibility of decision making.  It is always strange to hear economists like Coyle refer to Hayek’s attack on centralized management, based as it is on the massively fragmented nature of information spread throughout society, as if it is a defense of market based allocation of resources.  As I have said many times: that fragmentation destroys entirely our ability to determine whether any system of management is “better” than any other.  We simply have no idea.  We have no idea whether way over in some corner of the decision space there isn’t a better one lurking and waiting to be discovered.  Likewise we cannot assert that an equilibrium ever exists.  We don’t have the information or the computational power to determine what an equilibrium might look like in the real economy, let alone whether it exists.

This inscrutability within the data was also mentioned by Jean Fourastié who hit upon another feature of the problem.  Amongst his many insights into the difficulties of understanding the complexity of a modern economy one that comes to mind in the context of Coyle’s defense is that time is not homogenous.  Things change.  Compositions change.  Heraclitus was correct.  The river never stays the same.  Worse, the time-lag in gathering data for analysis, and then the time consumed in analysis itself, means that the object of study is obsolete by the time we learn anything from that study.  In Fourastié’s words:

“Factors Become Modified During the Time Required to Verify Them. … One fact is sufficient to prove this; and I ask the reader to reflect upon it, since it is, to my mind, the heart of the problem: the time required to gather information exceeds the duration of the action being studied.”

I call this dead-time.  Our ability to use data as a gateway to understanding the future, and to the development of strategies to determine our path forward, is circumscribed by time.  If the pace of change is faster than our ability to forecast based on analysis, then we are reduced to reaction alone.  And lessons from the past are redundant before we even have a chance to deploy plans based on them.

Thus the speed of our evolution beyond our more primitive, simpler, past, which gave rise to the very need for the study of economics undermines the efficacy of much of what we learn.  As Fourastié points out, the original founders of economics, those who laid out its path, were less affected by the phenomenon of dead-time.  The pace was slower back then. But the technological whirlwind unleashed by industrialization has subverted much of what they took to be solid and invariable lessons.

Which implies a much reduced space for technocratic certainty even as the need for that very technocratic certainty has risen.  Coyle’s hope for economics needs to be modified to accommodate this paradox.  Her technocrats need to be modest.  The increasing complexity of modern economies calls for a greater understanding of what makes them what they are, and yet, simultaneously, makes that understanding less likely.

We are, to put it bluntly, stuck.

“The river where you set your foot just now is gone — those waters giving way to this, now this …”

Exactly.

Heraclitus knew a thing or two.

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Symbiotic Machines and Our Ignorance

Well, what are we to make of all this?

Here’s something I came across in Diane Coyle’s recent book, “Cogs and Monsters”:

“A large range of factual subjects, evidently part of science and duly explainable (in principle) by empirical methods operating under natural laws, treats different kinds of inordinately complex and historically contingent systems — the history of continents and landforms, or the patterns of life’s phylogeny, for example — as not deducible, or predictable at all, from natural laws tested and applied in laboratory experiments, but crucially dependent on the unique character of antecedent historical states in a narrative sequence fully subject to explanation after the fact, but unpredictable beforehand.”

That’s Steven Jay Gould writing in 2003.

He gets it.

Does the economy fit into Gould’s set of “inordinately complex and historically contingent systems”?  Of course it does.  Indeed it’s one of the better examples.  We can always look back and untangle parts of the story as to how or why some economic phenomenon emerged or disappeared.  There are a wide array of perfectly valid economic points of view to cast backwards and articulate such stories.  Our arsenal is full of them.  But that doesn’t mean that any of them have future validity or that a trick played once will work out the same way twice.  Those natural laws so beloved of economists are simply observations that help explain the tracks in the sand we have left behind as we navigate the tides of technological, cultural, and cognitive change.  They are nothing more than a guide into the future and the impenetrable unknown.  

Of course it’s not quite as simple as that.

The enormous stability created by the path dependence of history dictates that deviance is unlikely to be too radical in the immediate future.  Further off is another matter.  

Who, for instance, could have imagined back in the early days of industrialization that our lives would be so totally intermingled with that of the machines we rely upon to deliver out current standard of living?

You are all, naturally, aware of Lynn Margulis’s contribution to evolutionary biology.  She argued that a major step along the way towards life as we know its was the symbiosis between various primitive life forms that ended up producing cells with nuclei.  The primitive forms still exist, but within a mutually beneficial greater whole.  They are no longer separable in the way they once were.

Do we need a theory of economic symbiosis?  Do we need to develop a narrative that organizes our steady journey into a machine mediated existence?  Alternatively, do we need to start discussing how our machines are becoming more and more to resemble us?  Our mutual dependence is quite clear.  Only our hubris stops us from recognizing the inevitability of a total merging in the future.  Where will the line between human and machine be drawn?  

Economists like to talk about “general purpose technologies” (GPTs).  The concept is one of those generalities that gets tossed around frequently in discussions of the history of economic growth and the contributions to that growth of various inventions.  GPTs are the holy grail of advancement.  Their effects permeate socio-economic activity to such a degree that each elevation in growth seems impossible with them.  The steam engine, electricity, the computer and now artificial intelligence are often mentioned as iconic GPTs.  But, perhaps, from the perspective of a less anthropocentric and very long term viewpoint the original and longest lasting GPT is the human.  That is to say that we deployed ourselves, our skills, our know-how, and our capacity to do work for millennia to solve the problem of survival.  It is only recently that we added other GPTs to augment that set of attributes.  We found an ability to multiply the effect of our own basic capacities and break free of the Malthusian trap.  In order to do so we entered into a bargain with our machines.  We designed them to serve us.  We own them.  We decide their fates.  We use them.  They would not exist without us.  And yet each of those statements has a negative.  As our dependence increased we began to serve them.  They came to own our ability to prosper.  They came to decide our fates.  They use us.  And we could not exist, at least as we now are, without them.  Where, nowadays, does the pragmatic line exist between the two species?  Especially as we are now designing machines that can think.  What next?  Machines that feel?

So, what are we to make of all this?

Perhaps that we need to re-invent economics in the manner Gould suggests.  As we march towards a true machine/human symbiosis a future economy is not predictable from the so-called laws of economics.  Those laws look backwards not forwards.  Ineluctable complexity is just that.  It cannot be avoided.  Let’s not pretend.  There are no laws sufficient for the purpose of prediction.  None.  So all economic arrangements are simply accommodative to our current circumstances.  Contingency is all.  

In a way this fits perfectly with the Hayekian view that Coyle references in her defense of so-called market forces.  She gives us the usual criticism, referencing Hayek, of centralized organization of an economy.  Since knowledge is dispersed and cannot be collated for central computation, we are told, decentralization is the best and only way to go.  She leaves it there.  At least Hayek left open the door to the rather obvious criticism: if we cannot compute centralized solutions due the dispersion of knowledge and the vastness of the volume of information, how can we then argue that any solution is any better than any other?  We cannot.  We have lost control of the situation.  We cannot identify any solution as being better, being in equilibrium, more efficient, or meeting any other qualitative criterion at all.  We simply do not know.  Everything is a guess.  Maybe based upon some fancy theorizing, but a guess nonetheless.  So markets cannot be called any more or less efficient.  We have, by using the Hayekian logic, acknowledged our ignorance.  To go beyond that ignorance is to venture into ideology.  

But you know all this.

Of course you do.

I ventured into this ramble because of a sequence of articles in the Financial Times.  The existence or absence of hubris is essential for understanding how we can deal with current issues.  In one article, Geoffrey Owen, a former FT editor, says the following:

“Shareholder-based capitalism, with competition between profit-making firms as its driving force, is the means by which society’s resources are used most productively for everyone.” 

That is a highly contestable statement.  Given our lack of true insight into the workings of the economy, and given the lack of integration of corporate theory into economics, by and large,  we simply cannot, and ought not, make statements like that.  We don’t know.  Indeed there is a steady accumulation of evidence that suggest shareholder value, when carried to the extreme, as it has been in recent decades, is greatly harmful to swathes of society.  So to sweep past that evidence and to make assertions that drop straight from the naive and idyllic self-serving assumptions of economists as if they were truths is misleading, and at a deep level purely ideological.

Contrast that with an article today by Martin Wolf who joins the lists as an advocate of monetary tightening in the face of today’s burst of inflation.  His entire article can be resolved into a single perspective: economies are too complex for any idea to be thought of as having enduring value.  The fashion in monetary theory ebbs and flows to reflect the current context.  What was good once is now bad.  And vice versa.  Wolf even trots out the old observation that technocrats have a foolish tendency to prefer being precisely wrong rather than roughly right.  He argues for humility and prudence on the part of central banks because of how little we know about the economy.  Apparently the humble and prudent approach is to squeeze the labor force to stop wages spiraling out of control.  I suppose neither humility nor prudence applies to profit margins which appear to be as wide as ever despite so-called cost pressures.   Economists seem to forget that despite arguing that inflation is “always and everywhere a monetary phenomenon” Milton Friedman gave himself an enormous caveat.  According to Wolf, he also said that money affected the economy with “a lag that is both long and variable”.  In other words he said he had no clue, but prefers to think it’s all about money.  In any case, contra the fashion in contemporary technocracy, prices are established by bureaucratic administration.  They are set to cover costs and achieve a target profit.  It is, as Kalecki explained a long time ago, the volume sold at this administered price, and the target profit, that will trigger a price change.

And yet there is Diane Coyle defending the advances in economics since the Great Financial Crisis, or GFC as she calls it, and the rise of economists as technocrats capable of taking a tough stand.  High on their elevated intellectual perch they can, according to Coyle, make those tough choices because they are not influenced by the vagaries of democratic influence.  In true technocratic style they can calculate and decide in society’s best interests.  Such Platonic perfection would be wonderful, would it not, were it possible?  

Personally I would prefer that they stop pretending to know something that they do not.  Frankly they should all take a leaf out of the critics of “total factor productivity” (TFP).  It is a measure of our ignorance.  Economics just doesn’t understand the drivers of growth in any coherent manner.  Why would it?  They are inscrutable. So TFP is just the odds and ends of ignorance.

Or, perhaps, it’s a measure of our symbiosis with machines?

Just a thought.

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More is Different: A Redux

“Formation is the vanishing of being into nothing, and the vanishing of nothing into being”

Hegel loved his dialectics.  But it isn’t just contrasts that illuminate reality.  It is connections also.  Connections matter.  Single things are interesting.  Perhaps even intriguing.  But it is the way in which things connect that leads us to the better understanding of our surroundings and of ourselves.

Our modern world rests largely on a web of technology that mediates our existence and removes us from our primitive origins.  We pride ourselves on this web.  Our ability to render nature compliant and exploit both our context and our intellect to produce comfortable lifestyles is the essence of modernity.  Any brief study of the past two hundred years will astonish us at the gulf in everyday existence between now and then.  We really do seem to have broken the Malthusian grip that nature held us within for so long.

A great part of that ability to break free consists in our imposition of reasoning on the problems previously preventing us from escape.  We learned to abstract.  We learned practical problem solving.  We learned both to reduce problems to solvable sizes and then to reconstitute solutions from those now-known component parts.  We created, to borrow from Brian Arthur, a reliance on modularity: we learned to build technologies from various parts.  And each part itself was itself modular.  The implied reductionism in this prompted the illusion that the method for superior knowledge was always through breaking things apart and re-assembling them once we knew what each part did.  

Economics took heed of this method and ran with it as if the economy was a technology comprised of parts easily assembled back into a whole.  Economics is justifiably proud of its internal logic.  But is it something that matches reality well?

We need to heed the words of Jorge Luis Borges, who warned us of “reasoning with an internal logic, where reality does not collaborate”. It is possible to fall for the efficacy of abstraction and to forget your purpose.  You can get stuck in a distant corner replete with an enormous library of logical components each of which is exemplary in its consistent splendor but each of which fails utterly to explain much. Except, perhaps, itself. Economics long ago, I am afraid, arrived in such a corner. It has become supremely good at explaining itself. It has become much less useful in explaining the economy. 

A major part of the problem comes straight from the “micro foundations” movement. This effort to explain all higher order phenomena as a simple extrapolation of lower order facts is a danger all scientific endeavor has faced. The problem for economics is that it has failed to re-invent itself subsequent to the modern realization that radical reductionism is a step too far. It soldiers on in defiance of the increasing understanding that the complexity of reality calls into being phenomena at higher levels that are not constructed of lower level parts. They exist only higher up. Connections matter. The hand of the likes of Prigogine is not felt strongly in mainstream economics. 

It may be true, to some extent, that a cloud is simply a bunch of raindrops, but there’s something profound being missed to imagine that “bunch of raindrops” is a sufficient understanding of a cloud. Yet that’s where economics totters along.  Aggregate phenomena are treated as just that, aggregations .  Even the name betrays the thought process.  As a result macroeconomics, once a venerable pursuit, is reduced to almost nothing with enormous policy and social implications. We are told that things “work in practice but not in theory”.  With a straight face. We are given presentations on such things as efficiency as if, at a higher order, it were possible to conceive of an efficient result.  What, exactly, is efficiency at a systemic level, when that system is an open flow subject to uncertain fluctuations and a near incomputable assemblage of information?  A trivial example is the feedback between supply and demand that sits at the center of economics.  Feedback is a connective and dynamic concept.  It says that the two components, in this case supply and demand, can never be thought of either as two separate phenomena and analyzed as such.  They can only be thought of as inextricably linked with neither having a separate existence.  When we iterate back and forth to explain how supply adjusts to demand or vice versa we lose our ability to analyze either by itself.  They now exist as a pair.  Any focus on either separately is rendered useless.  Supply and demand are functions of each other.  They bring each other into existence. Each relies on the other.  Studying either as if this was not true is to ignore the essence of the insight.  It is to fall for the reductionist illusion.  It is an abstraction too far.  It is to ignore Borges and to go somewhere where “reality does not collaborate”.

The result is not knowledge.  It is ignorance.  

A critique of reductionism is not some modern, novel, or radical phenomenon. The debate about complexity and its ramifications has raged for decades. As long ago as 1972 the Nobel winning physicist P.W Anderson could say the following, in an article titled “More is Different”:

“The main fallacy … is that the reductionist hypothesis does not by any means imply a ‘constructionist one’. The ability to reduce everything to simple fundamental laws does not imply the ability to start from those laws and reconstruct the universe”. 

Economics clearly paid no attention to Anderson. 

When we abstract for the purpose of elucidation we must be sure that the implied loss of information was worth the gain. We must be careful not to throw the baby out along with the bathwater. Or, put alternatively, we need to be truly humble about what we know when all we know is based upon the elimination of great swathes of information. 

Modernity is good at eliminating information. We do it all the time. We reduce the intensity of reality into more manageable pieces. We cast aside what we don’t need for the task at hand. We automate and thus eliminate the need for thought on the part of the production team. We rationalize and thereby smooth off the edges that might cause disturbance to the flow of thought. We gain deep insight this way, but at the loss of texture and context. We gain depth at the cost of breadth. 

Ever since the rise of industrialization we have narrowed the lens through which information passes. Our machines replace or amplify muscle power. So our contact with nature is removed from its immediacy and elevated into a more abstract realm governed by measurement, containment, and management. Each of which implies the elimination of information deemed unnecessary.  We engineer our surroundings and our workplaces rather than simply living in them. And each new technological advance adds to the removal of that direct contact. Layer by layer we lose contact with our origins and substitute in its place a mythic alternative with a far more limited information content. We steadily systematize the chaotic in order to extract value from it. We move more and more into a world of structured connections and away from the natural complexity in which we began. 

The steady accumulation of technology has resulted in a poverty of information even though we think of ourselves as living in an age of information.  Our rationalization of the natural world necessarily eliminates what we consider as irrelevant.  And by so doing we cast aside information.  The stimulus of the broad lens of nature is replaced by the narrow lens of constructed artificial reality. 

This steady loss of information, as we narrow the lens continually in order to overcome nature, leads us astray. We believe we are in control and are more knowledgeable when, in fact, we are increasing our ignorance. We begin to make leaps of thought that make sense in the confines of technological currency but which make little sense in the face of the unknown beyond. There is a great danger lurking in that lost information. And every so often it asserts itself and disrupts our so-called advance. Just when we think we are in control we realize we are not.  Such a circumstance reminds us of our deliberate ignorance.  It reminds us that our abstractions bring with them the risk that we stripped out information that might become relevant when we re-engage with the real world.  

Economics is a primary example of this process of casting aside information. 

It has reduced itself, by and large, the study of exchange, allocation, and distribution. It ignores any information not directly applicable to that study. So the needs of society become reduced only to those visible in such circumstances. Anything not involved in the process ending in exchange is stripped away. This abstraction opens the door to formal understanding of a very narrow facet of economic reality. It says nothing about social reality except that certain consumers are willing to pay price x for product y. Upon this simple matrix economics has built a host of observations that belie the simplicity of its basis. 

Economics has, in essence, taken the feedback mechanism between consumers and producers, called it grandiosely the market system and then imagined it has understood the relationship between human needs and the ability to satisfy them. It has not.

Then again, that feedback mechanism is about as good as we can hope for. To refine it further or improve upon it would require us all to be able to articulate our needs more clearly in ways that could be accumulated in to some sort of aggregate demand amenable both to study and satisfaction through organized production. Such an ability and the knowledge associated with it lie permanently beyond our cognitive capacity. The best we can do is to fudge. The best we can do is rely upon approximation and rely on the modest workings of the market to get what we can. 

Perhaps Hayek was right in his denial of the efficacy of central planning.  After all the complexity of reality means that a centrally arranged matching of supply and demand lies beyond our current ability.  But he was wrong to imagine that markets are in any way superior.  They, too, fail to match all needs with all possible solutions.  We simply have no way of knowing whether markets work well.  Any appearance that they do is simply an illusion.

And that’s the lesson of reality: a market is nothing more than a modest effort to meet what needs we can within the narrow scope of a limited flow of information. Is it the best we can do? Is it perfect? Is it better than anything else? Is it optimal? Is it efficient? We have no way of knowing. We lost the information to do those kinds of calculations along the way. And even if we had the information we wouldn’t be able to do the calculation. 

Pretending that such a modest mechanism as a market should dictate anything beyond its limited scope is a foolish error, which if we act upon it, imposes large costs on society as whole. Markets do what they do. Nothing more. Let’s leave it at that. Those connections matter.  Borges was right.  We should always ensure that reality collaborates with our efforts at logic.  The rest is fantasy.

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