From Regulation to Deregulation and (Perhaps) Back (Talk in Portuguese)

My talk at the Federal University of Rio de Janeiro yesterday, on the rise, fall, and perhaps rise again of the regulatory state in the US, and its relation to ideas, particularly institutionalist, and Chicago School views, as expressed by John R. Commons and George Stigler. In Portuguese, of course.

James K. Galbraith's Veblen-Commons award

Ritual and prestige among the Institutionalists

Jamie got the Veblen-Commons award, something his father received back in 1976. I introduced him, and as expected discussed a bit his contributions to economics, and the understanding of institutions. His most important contributions are on the field of inequality, and the work he has done with the University of Texas Inequality Project (UTIP).

There are many contributions that Jamie and UTIP have made. His use of the UNIDO payroll data, that he noted in his Godley-Tobin Lecture, has significant advantages over tax records and household survey data, and provides a different picture of global inequality. His use of the Theil decomposition is also original and provides new insights on inequality. And there is the more important contribution, his preoccupation with the macro-foundations of distribution theory.

I suggested, however, that perhaps his most provocative contribution to the understanding of economics and the evolution of institutions is in his notion of the Predator State, that in which private interest has taken over the commanding heights to promote the looting of what is left of the New Deal and Great Society project. This notion harks back to his father's famous trilogy -- American Capitalism, The Affluent Society and The New Industrial State (NIS), in particular the latter.

The evolution of of the bureaucratic state that was disappearing as his father wrote about it -- NIS was published in 1967 -- and its transformation into a predatory machine of the elites is central to understand inequality.

On the state of the worldly philosophy: reflections after a visit to the New School

 Dr. Vernengo I presume?

I am pessimist by nature (or nurture), I guess. So I never thought that the current crisis would lead to a collapse of mainstream economics. As I often point out to my students, in the US, it was the Great Depression, and the rise of the Neoclassical Synthesis that made Marginalism dominant. Up to that point the profession was dominated by an eclectic group that included many institutionalists, like Commons or Seligman, a non-Marxist defender of an economic interpretation of history, both of whom were presidents of the American Economic Association (AEA). Mitchell, another institutionalist that was president of the AEA, was the head of the National Bureau of Economic Analysis (NBER). And the administration was full of institutionalist economists during the New Deal. So a crisis might actually lead to the consolidation of a paradigm that was actually contradicted by the facts (yes, full employment of factors of production is hard to defend if you have 25% unemployment, but blame it on rigid wages and you're fine).

On the role of the New School in academia, the topic of our table with Rajiv Sethi and Ramaa Vasudevan, what I suggested, as my interpretation was rather broad, was it is the production of heterodox economists by means of heterodox economists (my definition of the heterodox camp here). In that, at least in the US, the New School is aided by three four other programs, namely Colorado State (CSU), UMass-Amherst, UMKC (Kansas), and Utah. Not sure what is the actual output of all these centers, but most newly minted PhDs end up finding jobs in academia, mostly public universities and liberal arts colleges, in government, in think tanks, and in organizations related to progressive activism from unions to environmental groups. In that respect, even though the profession is not likely to move closer to any heterodox perspective, there is space for heterodox economists to continue to do the kind of work that they were trained to do. In other words, if the crisis will not open new space for heterodox groups, at least not by default, it will also not close old doors.

There was a debate, to some extent represented in our table by the contrast of my and Rajiv's views, on whether to engage the mainstream or tear it down, as Ali Khan put it in another section. I have already written on that here (for a whole book in response to critics that suggest that heterodox authors do not engage the mainstream go here). Still not convinced that engagement is necessary, or that helps to advance the research agenda of heterodoxy. Sure enough that there are ideas here and there that might be useful, but that doesn't require engagement per se. Note that this also does not mean that the study of the mainstream can or should be abandoned. But as I noted, New School students, and heterodox economists in general, understand better the logic and meaning of the mainstream than neoclassical authors themselves (see my debate with Noah Smith here).

The idea that isolation (And from what really? From publishing in the more prestigious journals? From having Ivy League chairs? Or from reality? You choose, but I'll rather be part of the group that was not surprised by the crisis, like Baker, D'Arista, Epstein, Galbraith, Godley, Palley, Pollin, Taylor, Zezza, Wray, etc., and many more) does not allow for the development of reasonable ideas or to have influence is also questionable. In all fairness, by the 1830s, Ricardian economics, and the main propositions of the surplus approach were forgotten and modified in incoherent ways by the likes of Nassau Senior, Stuart-Mill and others. A German philosopher studying alone in the British Museum was able to reconstruct and advance the classical ideas. Yes his academic influence was small at best, but I would be surprised if someone suggested he had no influence (and I don't mean politically, but strictly as an economist). All the same, by the 1930s most of these ideas were again forgotten and misrepresented, and an Italian scholar, working in isolation, while editing Ricardo's works, also reconstructed and advanced on the classical ideas. And on top of that, the 1930s provided the idea of effective demand, and the possibility of upturning Say's Law in the long run. All of these achievements have NOT been lost, in part, because places like the New School continue to produce heterodox PhDs.

This time around there is no need to reconstruct everything from scratch. There is a wealth of accumulated knowledge, and the shoulders of giants to stand upon. Yes, one can be pessimistic about the profession as whole, and probably should be, as Foley seemed to be in the last section, arguing that the heterodox moment after the crisis was really brief. But that is the norm for heterodox authors. And this time around we have the New School!

Living wage, fast food walkouts, and Henry Ford's $5

Something I have not posted about, but that deserves attention is the organization of fast food workers this summer, and the series of walk outs to demand a living wage of $15 per hour (see here, for example). Note that the current minimum wage is less than half at $7.25 per hour, last raised in 2009. Figure below shows the real value now is well below the average of the 1960s and 1970s (data for nominal minimum wage here).

Since the 1980s the real minimum wage has fluctuated at a lower level. One can only hope that fast food workers, with the support of the Service Employees International Union (SEIU), manage to obtain some concessions from junk food corporations.

For a discussion of the Living Wage see this paper by Bob Pollin, and his book (here).

PS: Only recently I've learned that Henry Ford's famous $5 a day wage (which would be more or less $14 per hour today), which went together with  reduction of work time to 8 hours per day, was controlled by the Sociological Department, which required workers not to drink, that they saved money, that they attended church, that they proved a record of saving part of the wages, and of course it was for married men, not for singles or women, since that would not lead to family values. It was also part of a broader program to make good American citizens of the immigrants in his factory. While some progressives actually liked Ford's program, like the institutionalist economist Commons, others like the radical John Reed were not convinced. For more go here.