Heterodox, Trespasser, Malthusian and other economist labels

I discussed long ago what it means to be heterodox in economics. Bob Kuttner, who I once saw giving a talk at the New School (in the 1990s), a very sharp journalist that knows quite a bit about economics, sings the praises of Dani Rodrik as an heterodox economist. I discussed Rodrik before, in particular his notion that there is only one economics (neoclassical, of course as in the title of his book One Economics, Many Recipes). And he is not subtle about it either. As I noted back then, in his Has Globalization Gone Too Far, that in spite of Kuttner's review is not particularly critical and is indeed mildly for globalization, Rodrik says that: “when I mention ‘economists’ here, I am, of course, referring to mainstream economics, as represented by neoclassical economists (of which I count myself as one).”

Rodrik is, or was a few years ago at least, in what Colander, Holt and Rosser refer to as the cutting edge of the profession (my views on that here), which is to say he is heterodox in the same way that Joe Stiglitz or Paul Krugman are heterodox. They are willing to suggest that some imperfections make the laissez-faire dream of the most fundamentalist neoclassical authors somewhat overstated. But as much as Krugman and Stiglitz accept the conventional macro model, with the natural rate hypothesis, the same is true for Rodrik, which essentially accepts the basic Heckscher-Ohlin-Samuelson trade model (for a critique go here). He is a moderate neoclassical economist; a potty trained one if you will, but certainly not heterodox.

Don't get me wrong, in many policy issues Rodrik, like Krugman and Stiglitz, is on the right side, even if he gets there in ways that I would suggest are contradictory, and can be seen as an ally of heterodox economists on these policy issues. But I think it is a bit much to call him a critic of globalization, in particular because it underplays the role of true critics, that often paid a steep professional price, in terms of prestige and money, to defend their views. For example, his critique of the Washington Consensus was that the policies (essentially austerity cum deregulation, trade liberalization and privatization, or what you would call neoliberal policies) were incomplete and more institutional reforms were needed to make them work. So Rodrik was basically playing the Douglas North New Institutional imperfection card (now used very effectively by Acemoglu, Robinson and co-authors). Summarizing his work I said back then:

"Rodrik (1999b) suggested that five types of institutions, defined as behavioral rules that govern the interaction between economic agents, are relevant to explain successful development experiences: property rights, regulatory institutions, institutions for macroeconomic stabilization, institutions for social insurance, and institutions for conflict management."

The problem, as I noticed back then, was that the institutions he was pushing for (note that property rights are in the original Williamson consensus decalogue) were more harmful than good. They reduced the ability to promote state intervention in the economy and the scope for industrial policy, they were geared for macro stability narrowly focused on price stability (he probably wouldn't disagree with the idea of the natural rate in macro), and even when he was for social insurance policies, didn't seem to notice that his macro policies would make more social spending almost by definition impossible.

I should say that I find it very apropos that Kuttner compares him with Albert Hirschman, and calls the latter one of Rodrik's heroes, even if I think Rodrik is a different kind of trespasser, not interested in interdisciplinarity per se, but in using economics concepts for insights into other social sciences. More like a social science imperialist (for my take on Hirschman's interdisciplinarity go here). Hirschman was a development economists that was against planning, and that thought that there was something relevant about Hayek's Road to Serfdom (a book that says that any intervention by the state ends up in a slippery slope towards fascism*; the same argument Reagan made about Medicare in the 1960s). Hirschman had a serious debate with Currie on the issue of planning, regarding the latter's World Bank mission to Colombia, and was generally seen as friendly critic of the mainstream (see Roger Sandilands views, which are, correctly I would add, very critical of Hirschman). Like Rodrik, Hirschman got hired by Harvard, which is hardly known for hiring controversial lefties that go against the grain, which he only left to the Institute of Advanced Studies because he was a terrible teacher. Also, like with Hirschman's contributions, many heterodox and progressive intellectuals tend to overplay the critical aspects of Rodrik's work.

In my view, the problem with the friendly critic, that accepts all of the main tenets of mainstream marginalism, without taking seriously the heterodox critiques of the internal logic of neoclassical economics, is that they end up validating some of this illogical ideas, and the foundation for the neoliberal policies people like Rodrik supposedly abhor.

On a slightly different note, and I guess once we are in the topic of who should be considered heterodox and who is a follower of Hirschman, here is another question of labels. Dietrich Vollrath comes out of the closet as a Malthusian. That's a bit funny. I know neoclassical economists, in particular, after Clark's A Farewell to Alms, have come to embrace the epithet, but in all fairness, for a reasonably educated person Malthusian is sort of an insult (btw, on my views on some of the mistakes with the ideas of demographic transitions and Malthusian traps see this).

* On this, Jeremy Adelman tells us in his biography of Hirschman that: "when he found a copy of Friedrich von Hayek’s recently published (in London, in March 1944) The Road to Serfdom in a Rome bookstore, a nerve was struck. 'Reading this book is very useful for someone like me who grew up in a ‘collectivist’ climate—it makes you rethink many things and has shown me in how many important points I have moved away from the beliefs I had when I was 18 years old.'" Those would be his more progressive, Marxist, convictions. Hirschman had lived in Germany, not the Soviet Union, by the way.

Post-neo-Malthusianism -- a global demographic transition?

OK, all you Malthus enthusiasts out there, after a way-too-long hiatus, here are some of my latest graphs and interpretations:

First, let's look at global population levels since C.E. 0. The data are mostly, of course, from Angus Maddison (R.I.P.), with UN data spliced after 2008.

You can see a liftoff in the late middle ages, some acceleration in the early modern era, and an exponential explosion starting about the industrial revolution era and continuing until now. As I recently argue, this level growth is sufficient to claim that the correlated growth in aggregate demand is sufficient to explain many things, in particular the great growth in (and supply to) demand for capital to meet the aggregate consumer demand, all correlated with the English and later industrial revolutions.

Good. Now, lets look at the really interesting, at least to me, information somewhat buried in this first graph. The next graph is in log differences of the population levels, so showing the change in population growth rates.

Here we see, with some interesting variations that I will not comment on here, that the second derivative of population levels was mostly positive up until about 1960 (I have windowed graphs that allow this granularity). So growth rates were ever-increasing to rates significantly above two percent annually.

Since then, we see a (strong) reversal in growth rates, back to about one percent annually. This has large implications for important things economic going forward. First, should this continue, the first derivative will go  negative (population will peak then decrease - in other work, I show this could happen around 2085 2045). Second, under my nascent and evolving theory of Industrial Capitalism, the correlated fall in aggregate demand will diminish the demand for and supply of global productive capital. This implies a drop in accumulated capital, eventually including financial capital if asset values fall. There are other important implications, but these are biggies.

Should you be one among us desiring yet another crisis of capitalism, this one is a doozy since we will be pushing the demise-of-capitalism water downhill, instead of uphill as has been the case since Marx.

This is probably enough for now.

Sincerely,

Thomas post-neo Malthus Bannister

p.s. I am seriously thinking of legally changing my name to the above.

The End of Endless Growth?

In my assigned role as the (anti) Thomas Robert Bannister (Malthus), I thought I would return to the blog after a far-too-long hiatus with this post to share recent work. Note that this work is the other main area of research beyond my dissertation interest of the role of energy revolutions in economic history. I'll return to that one given recent posts here, but for now:

This work asks many questions, the fundamental one being do we really need to radically change behaviours to attain zero growth, or, what do we really mean by zero growth?

The conditional answer is that our world can achieve zero total growth (in the expected lifetimes of some of us) while still having per-capita GDP growth. The key, wearing my anti-Malthus hat, is population-conditional. To introduce the topic, here is a figure from my model that shows GDP levels peak at about 2080. I think that is a very radical outcome, with many implications. It is based on several forecasts, including the current UN low population forecast.

The only other forecast I'll mention for now is that the per-capita real GDP increases through the forecast period. The second-largest caveat is the large forecast error bands; I'll simply note that at least I show them. Most climate models (of which this is a member) eschew error estimates. I can do so because I use empirical forecasting methods.

So, peak GDP levels in 2080 with continuing real per-capita output growth (forever). A surprising result certainly to me. The largest caveat in this method is the population curve you believe we are on. I'll discuss that in a future post. For now, just enjoy that a (credible?) model exists that allows the zero-gowth crowd and the lift-the-poor crowd to coexist on the same model path.

I will monitor questions. This will be my EEA talk; just a heads-up for those who wish to stockpile (potatoes and other) ammunition.

Demographic transitions, Malthusian traps and supply constrained growth

Gregory Clark's book The Farewell to Alms re-popularized the Malthusian model (for the relevant chapter go here). The basic idea is that population dynamics and the so-called demographic transition do have an important impact on economic growth. Robert Malthus' idea is relatively well known, even if there is an incredible amount of confusion in the way it is explained by modern neoclassical authors.

As all classical authors, Malthus assumed that real wages tended to be at subsistence levels. He emphasized more than others, eg. Smith or Marx, the physiological elements associated to subsistence, and his theory of population influenced David Ricardo (friends sometimes will push you in the wrong direction, but this should not be exaggerated; Ricardo was no Malthus). And this has nothing to do with some Iron Law of Wages (again this reflects the fact that mainstream authors like Clark have limited, to say the least, understanding of the surplus approach; for Ricardo and other classical authors on real wages see Stirati here).*

At any rate, Malthus notion was that if wages increased, population growth would ensue and bring them back to subsistence levels, hence real wages could not grow. In the mainstream story this is connected with lack of growth of income per capita. The economy would be in a Malthusian trap.** Population growth is bad in this Malthusian world, that is why the good reverend, like modern Republicans (and I would assume more than a few neoclassical economists), was for abstinence and delayed marriages.

The idea is that higher population, for a given technology, leads to more mouths to feed. Classical ideas that suggest that the extent of the market (and, hence, population) might have a positive impact on the division of labor (who said that?) are not discussed by modern neoclassical authors (also explains their dislike of Kaldor-Verdoorn Law). At any rate, the modern theory of economic growth is still dominated by supply-side explanations, in which technological progress is either exogenous (Solow) or endogenously determined by spending on education (or some variation of the topic in the endogenous growth literature).

Demographic transitions, in which the rates of mortality and fertility decline have in this view particular effects on growth. The notion is that the initial fall in fertility leads to a lower youth dependency ratio (less youngsters to feed), and is growth enhancing. Further, mainstream authors assume that workers in the labor force would have a higher savings rate (given life cycle hypothesis arguments) and that would lead to investment (yes, Say's Law). Jeff Williamson suggests (see here) that this, the so-called demographic dividend, in part explains the Economic Miracle in parts of Asia.

On the other hand, the same population dynamics leads to higher old age dependency ratio, and that should have (even if evidence is mixed on that) a negative impact on growth. Note that Eichengreen and his co-authors, suggest that slowdowns in growth are associated to falling productivity (not population dynamics), even if they measure that using Total Factor Productivity (which is not a measure of productivity, but of the changing patterns of functional income distribution; see here).

Mind you there is a more reasonable, demand-led, explanation for why population transitions might have an impact on growth. As the process of structural transformation from agricultural to industrial societies continues, more workers are incorporated in industrial jobs with higher pay, and even if income distribution might worsen, the expansion of urban population (and higher real wages) means an expansion of demand. Obviously once the transition is done, the expansion of real wages (not just from the rural workers moving into cities) must continue. In this case, the main cause for the limits to real wage expansion (demand expansion), and continued growth, come from the balance of payments, since higher wages and consumption lead to increasing imports.

There are many more limitations in the resurgence of Malthusian views in the mainstream. Including the Social Darwinist flavor of Clark's ideas, as noted by Deirdre McCloskey (here). But I'll leave those for another post.

* The main point that mainstream intepretations of classical authors miss is that there is no systematic decreasing relation between real wages and employment in Ricardo and other classical economists, something that Stirati makes clear.

** Note also that some authors suggest that this is the basis for Carlyle's epithet the 'dismal science' for Political Economy. As noted before by Vienneau (see here): "Thomas Carlyle did not coin the phrase 'The dismal science' to refer to Thomas Malthus's anti-utopian theory of population."

A farewell to growth?



It has been common for certain progressive groups to suggest that better income distribution and no growth, or even degrowth more recently, would be better than the capitalist driven consumerist growth process [for a critical review of this literature go here]. Several different strands of thought are involved in this view, and it would probably be worthwhile to disentangle them all.

First, there is an obvious Malthusian flavor to this view, going back to the dire predictions by the Club of Rome in the early 1970s, as a result of limited availability of non-renewable resources. Peak oil has been predicted a few times since. And yes it may very well happen in the near future, but somehow I doubt it. Remember that we moved away from coal and steam engines to oil and combustion ones, not because coal disappeared or became truly scarce, but simple because technological change made it less important as a source of energy (and yes we still burn a lot of coal).

In that sense, our problem is less that we have reached the limits of the existence of renewable resources, but more that the consequences, which are associated to Green House Gas (GHG) emissions, will be and already are dire. It is very likely that climate change caused by GHG emissions will lead to increasing costs in terms of food shortages, for example. But the question there is less that we cannot grow [the Malthusian thing, food does not grow as fast as population; the quintessential anti-Malthusian was Ester Boserup, an early feminist economist, that showed that agricultural productivity was determined by population dynamics; in other words, higher population growth led to increasing agricultural productivity], but who bears the costs of growth.

We leave in a world in which many developing countries import food, in part as a result of very high productivity in agriculture in developed countries, and in part as a result of subsidies and trade policies imposed by developed countries. The costs of global warming will fall overwhelmingly over poor and food-insecure countries in dry and tropical regions, that largely depend on rain fed farming, mostly in Sub-Saharan Africa and South Asia.

That means that a more equitable system to redistribute the costs of climate change, and alternative trade and agricultural policies are needed, which provide food security around the globe. Further, to reduce the effects of climate change a huge increase in spending on R&D is necessary.A Green New Deal or environmental equivalent of the space race, and lots of regulation would do a great deal to promote new and cleaner technologies (see for example the 2006 documentary, “Who Killed the Electric Car,” on what a California regulation did for the electric car).

Finally, note that there is no evidence of sustained technological progress (call it division of labor, or productivity, and you see that the wealth of nations might depend on it) with zero growth or negative growth. Productivity is not only pro-cyclical, but also structurally connected to growth. No growth in demand means limited incentives to productivity increases. So only with economic growth there is a hope of getting cleaner technologies. Degrowth also might lead to all sorts of environmental degradation, since it is far from clear that a society with spiraling down output would manage resources efficiently.

Second, there is peculiar view of the relation between income distribution, consumption patterns and economic growth. The notion is that no growth is necessary, since better living conditions can be obtained simply by redistributing income. The presumption seems to be that income distribution will have no effect on patterns of consumption and on economic growth. It is true that the effects of income distribution on growth are ambiguous, but the presumption that they have no effect is very strong.

I have my own views on what is more or less likely under the particular circumstances we are in. It seems reasonable, that if the redistribution towards the less privileged that the no-growth/degrowth crowd want took place that a consumption boom would follow. Particularly in developed countries were wages have been repressed for a while and which the last few years of the recession have made worse. And that would lead to growth, which is the opposite of what they want. But as much as I would favor that sort of redistributive policy, alas it is not in the cards.

Further, although it is true that consumerism is in many respects created by corporations and several elements in the consumption patterns in modern advanced societies are wasteful, one might also be careful about the false moralism of the New Puritans, as James Livingstone refers to those that preach that all thrift is good and all consumption bad. Consumption is associated to growth, and to better living conditions for the poorest among us. After all it has been the consumer society created by the Industrial Revolution that allowed us to obtain several of the benefits that we now take for granted in civilized societies, with longer life expectancy and better quality of life.

Finally, there is a naïve neoclassicism that is also part of the problem with the no-growth/degrowth crowd. It seems that for some, economics is synonymous with a certain view in which supply and demand determine everything, and, hence, the rejection of the consequences of those neoliberal policies must pass through the rejection of growth too.

Of course growth might not be associated to the market forces as suggested in neoclassical theory (and markets might actually work in very different ways than the mainstream thinks they do). Growth might often be the result of limiting the power of markets, and driving economic forces towards alternative goals. And, while it is certainly true that not all growth is good for the environment, an alternative (and Keynesian) perspective of what is behind growth and development processes might open the door for more environmentally friendly economic dynamics. A simple example would be to use the proceeds of say nationalized and heavily regulated oil extraction for investment in research and development of new technologies.

PS: Obviously all of the views discussed above are not held necessarily by any particularly person that believes that no-growth or degrowth is necessary. And I left a few additional views out, e.g. a view that capitalism is doomed and we are on the verge of a new (perhaps better) system (by the way, I don't agree with that one too; capitalism is doing fine, even if workers are not). But all of these propositions are part of the arguments used by different people to suggest that the benefits of economic growth are overrated.