by Dan Kervick
Appeared originally at Rugged Egalitarianism, 13 January 2016
The challenges of the 21st century are going to require a greater degree of economic coordination and planning than people have grown accustomed to during the neoliberal laissez faire splurge of the past several decades.
Yet there remain powerful ideological forces pushing against the necessary political and economic adjustments, especially in the United States where an extreme, anti-social culture of radical individualism remains dominant – along with a general aversion to thinking about ambitious and coordinated societal projects or profound institutional changes.
Liberal Drift
Along the same lines, the late 20th century saw a growing embrace of a minimalist liberal conception of government in which the democratic state was to remain neutral with respect to all “conceptions of the good”. That extreme form of liberalism, which comes in both right and left varieties, has failed. The world can no longer afford a style of governance that seeks to remain neutral about all questions of what constitutes a good life, a good society and genuine human progress.
Re-Socialization
The political economies of the developed world, and most of the rest of the world for that matter, are mixed economies whose institutions were forged in the struggles between classical liberalism and socialism that characterized the politics and intellectual debates of the previous two centuries. All of these economies exhibit some mix of liberal and socialist institutions. Neither tendency is going away, and rightly so, since there will always be viable discussions to be had in an evolving society about the proper balance between personal liberty and social coordination. But in the United States the pendulum has swung much too far in the classical liberal direction, and it is time for the socialist contribution to our contemporary world to be acknowledged and embraced, and for more socialist themes and conceptions to be brought forward without double-talk and embarrassment, and promoted as viable solutions.
Combatting Macro Think
Macroeconomics offers a useful general framework for organizing some of our thinking about our economic lives at the most abstract level. But its approaches to the causal mechanisms linking the many different parts of those lives together are often crudely oversimplified, empirically unsupported and dangerously neutral on the most important specifics. Unfortunately, the neo-scholastic habits of neoliberal macroeconomic thinking have come to pervade much of our broader public discourse about the economy, replacing informed debate about concrete alternatives with arid generalizations drawn from empirically inadequate theories positing magical causal mechanisms operating in an institutional vacuum. The economic discourse that we most need right now must be more detail-oriented, institutionally literate, historically rich, alive to troublesome complexities and contingencies, capable of grappling with flux, dynamism and structural evolution, and organized around choices and solutions pertaining to practical social engineering tasks. New generations of economists should look more to practical arts like medicine and engineering for their professional and intellectual models, and less to high-level sciences like physics and biology, for which there are no really close correlates in the world of social phenomena. In later posts I will offer more specific criticisms of the foibles of macro think.
Monetary Monomania
The post-2008 environment has seen a profusion of economic fads and theorizing around money and the monetary system, some old and some new: old-style Friedmanian monetarism, new-style Market Monetarism, “New” Keynesianism (which is just monetarism with a superficial Keynesian face), MMT, Positive Money, the reanimation of the Chicago Plan, Bitcoin and other alternative moneys, various kinds of populist greenbackers, People’s QEers … the list goes on. None of these approaches is devoid of insights and value, and credit should be given where credit is due, but the obsession with the monetary system and monetary fixes has knocked a lot of our public discourse seriously off track. These lines of argument often tend to rely on a priori, armchair theorizing about the nature of money and the monetary system, with grand conclusions drawn from these resolutely theoretical notions about real world economic processes and the expected actual effects of policy choices. Taken together this tendency represents a profoundly conservative reaction to the economic challenges facing us: a vain attempt to address our problems at a non-interventionist arm’s length, by working with only our exchange media and not the goods and services being exchanged. But we can’t fix our woefully inadequate, poorly designed and oppressive economic system solely by tinkering with interest rates, price levels, money supplies, monetary flows, financial asset levels or inflation expectations. More hands-on re-engineering of the institutions, power relations and production and distribution systems in the underlying non-financial economy are needed.
Banks, Finance and the Money System
That doesn’t mean I will be ignoring money, banking and finance. Far from it. Some of the continuing allures of monetary monomania are made possible by conceptual confusions, empirical and logical errors, and institutional illiteracy about the nature of banking systems and operations, monetary systems and financial relationships. I will address many of these interrelated topics going forward, since more understanding means less monetary monomania. My arguments will often tend to be skeptically oriented, aimed at deflating the grand pretentions of the monetary magi.
Moving Beyond Countercyclical Thinking
The environment of economic ideas in mainstream discourse tends to be dominated by a focus on cyclical issues and problems, and by debates over the best countercyclical policy approaches to these problems. The idea is that the economy has at any given time an optimal, full capacity level of output, and that the job of economic policy is to smooth out the peaks and troughs in deviations from that optimal level. In the post-2008 world, the trough has been very deep indeed, and so countercyclical policy debate has assumed even greater prominence than ever. Rightly so, and it would be foolish to deny the importance of this department of economic thinking. We have needed countercyclical policy in the past and will need it in the future. But returning an oppressive, persistently dysfunctional – and, frankly, somewhat barbaric – economic system to its “normal” level of functioning is not a sufficient condition for social and human progress. It is important that we push more of the debate out of that tight countercyclical policy corner and into the wider, open spaces of imaginative thinking about structural or systemic progress and change. Macroeconomists don’t seem to be helping much here at the present time, since the analytical toolkits with which they have been provisioned by their academic training and the narrow ideological constraints of mainstream professional discourse don’t seem easily adaptable to thinking about broader structural problems. If all you have are countercyclical tools, every social problem looks like a cyclical nail – and so economic public policy discussions return again and again to cyclical problems arising within a broadly conservative framework.
A More Organic Understanding of Supply and Demand
I am often struck by some of the strident and balkanized thinking that has emerged around the subjects of supply and demand. Economic pundits often seem quite fixated on dividing the economy into a supply side and a demand side, and then identifying themselves (or others) as either supply-siders or demand-siders, associated with dramatically different sets of policy preferences. But while abstracting demand behavior from supply behavior can be useful for certain kinds of analysis, the economy itself does not contain a supply side or a demand side, since almost every economic agent is both a supplier of goods and demander of goods at one and the same time, and their supply behaviors and demand behaviors are causally connected in very intimate and obvious ways. I will attempt to say more on this subject and help push toward a more organic perspective on supply and demand.
Equality, Democracy and Power
Economic policy discussions are, or at least ought to be, embedded in deeper questions of the social and cultural relationships and attitudes in which the economic institutions of production, accumulation and distribution are embedded. There is reason to be concerned that US society may be evolving an especially rigid and harsh class structure, with large economic and cultural gaps separating different groups, and disenfranchising the less privileged groups from effective intellectual and political participation in the making of social choices and the working out of their own social liberation. We now see the emergence of something almost like a new caste system. Economic policy discussions tend to be dominated by well-off, white, knowledge class males who share social presuppositions, and have a default disposition to support the basic structures of an economic society in which they comprise the fortunate elect. Bitterly anti-democratic sentiments have become epidemic in some quarters among members of this class, and pose a great danger to everyone else in the society. I will be discussing some of these phenomena, along with several other related ones, including the inherent social dangers of concentrated private wealth; the denial and double-think that surround the very real systems of oppression and exploitation in our time; the perverse incentives and institutions in American society that deposit some of the worst and most philistine members of our society in positions of great power; and the necessity of seeing the 21st century political landscape as the scene of a struggle for supremacy between concentrated private wealth and democratic political communities. I will also take up where I left off in the previous incarnation of this blog with the discussion of Thomas Piketty’s arguments in Capital in the 21st Century.
Work and Employment
A large proportion of economic policy debate has to do with work. But economists seem to rely on ever-shifting conceptions and measures of “full employment”, and use them to manufacture the ongoing illusion that the employment system generally functions well, and is basically self-correcting. In my opinion, the system is instead cruel, stupid, inefficient and backward – but it is admired by social elites because it is a relatively effective system for maintaining hierarchy, control and permanent anxiety among the working classes, and reducing human beings to nothing but factor inputs. The world of work and personal income needs a major overhaul. Hyman Minsky, best known for his work on financial instability, was also a leader in thinking about work, poverty and social solidarity. He was prescient in his predictions about the political dysfunctions and working class divides that would result from an overreliance on welfare state-style solutions to poverty and economic insecurity in preference to a full employment agenda consisting in part of a permanent government job provision program. Such programs need to be created, and then supplemented by other measures to enhance the political and economic power of workers, both at the social level and within their own firms. Also, important new debates are taking place about the potential of technological change to eliminate massive numbers of jobs, but also – in optimistic versions of the story – to provide a new world of abundant leisure. I tend to be skeptical of these intellectual trends, and think it is entirely possible the emerging robot economy won’t give us anything “peak human” but instead usher in the development of entirely new kinds of valuable human work. But whoever is right about this, what we have to guard against are more attempts by plutocratic and other economic elites to divide and disempower working people and the poor by segregating them into politically competing and antagonistic groups. However much of a work burden we end up leaving for us humans, that work burden – and the fruits of the work – need to be shared as evenly as is practically possible.
Consumption, Credit and Investment
All productive economic activity can be viewed as aimed at either consumption or investment: that is, as productive either of goods that are used to satisfy our immediate needs or wants, or goods that are used for the production of other goods in the future. In other words, we produce in order both to enjoy our present and to build the foundations for our future. I will attempt to make the case that the ratio of consumption to total output has grown too high, at least in the United States, and that this is a primary cause of the secular (non-cyclical) stagnation that several economists are now decrying. I will also attempt to make the case that the source of this imbalance is a protracted secular decline throughout the neoliberal era (roughly, the past 40 years) in central government investment, leadership and direction-setting. A related issue is the destabilizing and wealth-shifting explosion of household borrowing and debt levels during the same period. Yet neoliberal economists of both the “liberal” and “conservative” persuasion seem determined to restore these debt levels over time to pre-2008 levels and avoid doing anything to disturb the general pattern of neoliberal decadence and credit-fueled overconsumption.
Economics and Ideology
Economics as it is generally practiced in our society is not a neutral descriptive science, but a discourse of control that is steeped in ideology, double-think and sheer absurdity. It struggles with its appointed task of maintaining the perimeter fence of ideas protecting concentrated capital and plutocratic power from any attempted intellectual or political encroachments from people driven by the more humane and decent instincts that might push us toward a happier, more cooperative and more noble form of life. Economics education systems seem to inculcate orthodoxy at the earliest stage, and then reward those who most obediently internalize that orthodoxy, and devote their careers to making no more than modest changes to its dominant conceptions while reinforcing the established bulwarks with ever-more convoluted epicycles of technical impenetrability. I will attempt to call attention to the many manifestations of double think and absurdity in contemporary economic thinking.
Challenging Neoliberal Culture
It is becoming common to encounter complaints that many uses of the term “neoliberal” have degenerated into little more relatively meaningless expressions of disapprobation, vaguely related somehow to unspecified aspects of economic life the speaker doesn’t like. That may be true of some uses of the term, but I will be arguing that neoliberalism is a real and important phenomenon characterizing a fairly definite – and still ongoing – era in economic history. It is constituted by important changes in economic life and attitudes that have become culturally pervasive: attitudes about the role of commerce, individuality, acquisitiveness, entrepreneurialism and economic liberty in human life, and about the nature of the fundamental relationships among human beings. I frankly see much of it as a cultural disease that must be cured. And one area in which neoliberalism must be fought most strenuously is in the field of education, where the barbarians are not just at the gates, but have already taken control of many of the citadels.