Dean Baker on the corruption of the economics profession

By Dean Baker

Most of us are willing to believe the direct opposite of what we can see with our own eyes because we accept the analysis of the solar system developed by astronomers through many centuries of careful observation. The overwhelming majority of people will never go through the measurements and reproduce the calculations. Rather, our belief that the earth revolves around the sun depends on our confidence in the competence and integrity of astronomers. If they all tell us that the earth in fact orbits the sun, we are prepared to accept this view. Unfortunately the economics profession cannot claim to have a similar stature. This is both good and bad. It is good because it doesn’t deserve that stature. Economists too often work as hired guns for those with money and power. It is bad because the public needs expertise in economics, just as it needs expertise in medicine and other areas.

Read rest here.

PS: A post on why the current crisis has not undermined the mainstream can be seen here.

Jorge Castañeda and the wrong lessons from Liberalization Reforms

Jorge Castañeda, ex-advisor to the left of center candidate Cuauhtémoc Cárdenas, and ex-foreign affairs secretary in the right wing administration of Vicente Fox has written here about the need for further reforms in Mexico. He sings the praises of NAFTA.

"NAFTA brought with it a spectacular increase in Mexican exports, as well as a dramatic shift in their composition. But it proved to be a great disappointment in terms of foreign investment inflows and economic growth, which has averaged 2.6% per year over the last two decades – slower than Peru, Chile, Colombia, Brazil, and Uruguay. As a result, Mexico’s income gap with the US and Canada has barely narrowed."

The change in exports was basically associated to an acceleration of the 'maquilization' process, manufacturing exports with low local value added content. No comments on the massive immigration* and the fact that neither growth nor income distribution have improved after NAFTA (both claims often made about what to expect from it from the free trade crowd).

So what should Peña Nieto do? According to Castañeda:

"Energy reform opens up electricity generation and oil exploration, extraction, and refining to private foreign or domestic investment through licenses, concessions, production sharing, or profit sharing. The oil workers’ union has been banished from the board of directors of Pemex, the national oil company, and new contracts for shale oil and gas, together with deep-water prospecting and drilling, will be signed with a government agency, not with Pemex. 

Once the myriad legal and political obstacles are cleared, Mexico will be able to increase oil and gas production, drive down the price of electricity, and stimulate growth in an otherwise lethargic economy."

In other words, deregulation, weakening of unions to attract foreign capital (more secure environment for capital, since Mexico is such a paradise for workers), and that would lead to growth. No changes from the old Washington Consensus mantra.

You would expect that the failures of "Free Trade", liberalization and deregulation were incorporated, as much as the lessons from financial deregulation in the US after the 2008 crisis, but the resilience of Neoliberal ideas, in the face of adverse evidence, is impressive indeed.

* On lack of convergence with the US and immigration Blecker and Esquivel say: "the data show that there has been no economic convergence whatsoever between Mexico and the United States since NAFTA’s enactment. As a result, the historical Mexico-US economic gap in percentage terms has not been reduced after 15 years of free trade, and the incentives to migrate are probably even greater than before." Read their assessment of NAFTA here.

'Tips or Starve' or the Wage crisis: The USA's new underclass

A documentary on the working poor. Not sure if this is right, but it seems that in bars and restaurants the wage is below the federal minimum of US$7.25 (see video at 4:40).

Michael Pettis on Chinese Liberalization Reforms and Economic Growth

Two posts worth reading by Michael Pettis (here and here; might need subscription). He suggests in the first one that reports that consumption in China is much higher than previously thought are exaggerated (Ken Peng suggested here that consumption levels are 10% higher than what is often assumed, i.e. closer to 45% rather than 35% of GDP). He argues that if China is to continue to grow, even at a slightly reduce pace, then it:

"must find a way to grow without even faster growth in credit, and the best way to do so... is to boost consumption growth by sharply increasing the household income share of GDP and to shift investment from the state sector to far more efficient smaller businesses."

No problem with the first part. Not sure about the second, i.e. the notion that small private businesses are more productive than large public firms. In fact, public investment has been central for Chinese growth all along, and if anything it is the decline in public spending that has hurt the recovery in developed countries.

A note of clarification on why he argues that credit expansion is dangerous in China. He says in his most recent post that:

"A recent China Beige Book survey suggests that a large and rising share of new loans is being extended simply to roll over old loans that cannot be repaid out of operating earnings. China needs credit growth, in other words, just to avoid recognising bad loans, and any attempt to constrain money growth is likely to cause a surge in financial distress."

Fair enough, but as noted before here, these bad loans are in Chinese currency and do NOT represent a real threat to economic growth, since the central bank can always act as a lender of last resort in domestic currency. The solution he proposes makes even less sense, namely: interest rate liberalization, which was in the list of measures proposed by the infamous Washington Consensus (point 4 in Williamson's original decalogue).

The idea is that market determined interest rates would be higher and preclude excessive debt accumulation, I imagine. Also, higher interest rates would reduce investment, particularly in housing, again in my interpretation of what Pettis suggests. Yet, the experience in countries that actually liberalized interest rates, and the whole financial system, was not to reduce debt and tame excessive speculation.

The demand for credit depends on real economic activity and if consumption and investment (in particular public investment that is autonomous) continues to expand it will increase even with higher rates of interest. The effect of interest rate/financial liberalization is to increase the share of the pie that goes to creditors and capital in general, which according to Pettis' correct logic would reduce the redistribution towards wages and slowdown growth.

Mind you, although Pettis seems to think about credit creation in mainstream terms, with credit driving economic activity, he can be read as suggesting that growth is demand-led, which is pretty radical.

Unemployment Reigns While Benefits Cease

Involuntary unemployment in the US disdainfully reins supreme. And with inaction on extending long-term unemployment benefits, not only will a critical lifeline be lost, but every state will face the prospect of employment losses in 2014 that will set back positive gains experienced in 2013, see here.

A previous post on the issue can be seen here.

Is Argentina on the verge of an external crisis?

There is for starters the question of what causes external crises. As I have noted in other places (chapter 7 here or here, for example), external crises are NOT caused, in general, by fiscal deficits (quite the opposite, fiscal crises are the result of balance of payments crises). External crises result from the inability to service foreign debt (and to import intermediate and foreign goods), which are caused by a shortage of foreign currency (i.e. dollars).

As it can be seen in the graph above (data from Orlando Ferreres for those concerned with the sources), the current account surplus as a share of exports has shrunk and is now negative (at around 4% or so of exports). Note, however, that the level is far from desperate, and well below the crises levels when the current account deficit is above 60% of the exports.

Part of the anxiety is associated to the fall in the central bank's reserves, which stand at around US$33 billions now, down from slightly more than US$50 in 2011. The European crisis and the negative real rates of interest explain the drain on reserves, which are also not at a critical point right now. A combination of exchange controls, that have been in place (and have not been particularly efficient), and higher rates of interest might stop the outflows.*

Sure enough a balance of payments crisis could ensue, if say Vulture Funds eventually force a default, or if an external shock like a worsening of the crisis in the central countries followed by flight to safety, or a collapse of the terms-of-trade lead to a sudden decrease in the value of exports. But those do not seem to be necessarily intrinsic to the Argentine situation, and a slow recovery in the center, with significant amounts of international liquidity, and no incredible collapse of the prices of commodities seems as likely as the alternative.

In other words, the problem in Argentina, which is relevant for many countries in the region, is the long-term development strategy, and not the short-run balance of payments position. What the shrinking of the current account surpluses, and the resulting constraints on policy space, suggests is that the continuous dependence on commodity exports (manufacturing exports go mostly to the region, i.e. Brazil, and produce a deficit), and the absence of a more coherent policy of import substitution and of industrial development, continues to be relevant, as predicted more than 60 years ago by Prebisch and ECLAC.

* Higher rates can be compensated by subsidized credit by the public banks if demand for credit increases, but that would require demand expansion.

New Title: The Handbook of the Political Economy of Financial Crises

From the abstract:

The Great Financial Crisis that began in 2007-2008 reminds us with devastating force that financial instability and crises are endemic to capitalist economies that lack powerful and dynamically changing financial regulations that can keep the powerful forces of leverage and credit within sustainable bounds. Economists from Marx to Keynes, and Minsky to Kindleberger have well understood this profoundly important fact, yet the dominant mainstream economics of "rational expectations", "efficient markets" and "laissez-faire" that rationalized widespread financial liberalization and still dominates the economics profession has gotten it, literally, "dead wrong". The Handbook of The Political Economy of Financial Crises describes the theoretical, institutional, and historical factors that can help us understand the forces that create financial crises - with an emphasis on the crisis of 2007- 2008 - and the strengths and weaknesses of varying theoretical perspectives and policy approaches that have tried to comprehend and limit these financial tsunamis.

See more here.

NOTE: Although all of the chapters will be invaluable to the reader, one in particular that will be worth much perusing is by Prof. James Crotty on the irrelevance of efficient market hypothesis (EMH), which can preliminarily be seen here .

Media watch: Unemployment benefits for a million workers being cut

Unemployment insurance ends today for several distressed unemployed workers (about 10% of the unemployed will loose benefits, as reported by the NYTimes; see graph below). This was part of the bi-partisan fiscal deal that avoided another government shutdown and the debt-ceiling crisis to continue. The cuts are deep and the consequences will be significant, as noted by the EPI.

These news in and of itself are terrible, but not surprising. However, reading the NYTimes piece one cannot but notice that the reference to the EPI is preceded by the qualification that it is "a left-of-center" think tank, while the subsequent quote from the chief economist at JP-Morgan/Chase is hyphen free. Yep, JP-Morgan that has just settled to pay $13 billion for their fraudulent selling of mortgage bonds. No, JP-Morgan, contrary to EPI, is an uninterested observer of markets, or at least that seems to be the implication suggested by the NYTimes.

The same could be said about the quote of what Rand Paul told Fox News [“If you extend it beyond that, you do a disservice to these workers. When you allow people to be on unemployment insurance for 99 weeks, you’re causing them to become part of this perpetual unemployed group in our economy;” yeah, because the problem is that those bums don't want to work and love handouts], i.e. no warning that Fox and Paul are part of the Lunatic Fringe right wing conservative movement. You either hyphenate everybody or you don't. But the NYTimes obviously thinks that workers and left of center groups are more dangerous. Oh well.

Modern slavery in numbers

There are slightly less than 30 million people in slave labor conditions in the world (the ILO puts the figure at around 21 millions; see here). Most of them are in South Asia and Africa (see map below). By percentage of the population Mauritania and Haiti, followed by Pakistan and India, lead in this dreadful statistic.

By absolute numbers the main countries are India and China, for obvious reasons. The numbers are in the table below. The causes are obviously complex, but result ultimately of poverty, labor market informality and the inability to incorporate workers into the formal labor market. In addition, it is more prevalent in areas where national governments have little access, and as a result more likely in failed States.

The Global Slavery Index 2013 Report, where you can find the map and table shown above, is available here.

You are what you eat, or what you plant perhaps

Maize is another name for corn, by the way. Colors are not the best. But wheat, maize, soybean, rice and sorghum dominate, at least by area harvested.

Solow on Greenspan's new book and the misrepresentation of the mainstream

Solow's review was published in the New Republic here (h/t Robert Vienneau). Solow has lost nothing of his ironic and acerbic style of criticism. As noted by Vienneau there is a great line at the end about Greenspan's mentor Ayn Rand:

"It is sometimes claimed that Alan Greenspan is a closet follower of Ayn Rand; he certainly had an early association with her circle. I got through maybe half of one of those fat paperbacks when I was young, the one about the architect. Since then I have found it impossible to take Ayn Rand seriously as a novelist or a thinker. In the past I have gone on the assumption that Greenspan’s ideas about economic life are his own, just what is contained in his writings, and the Ayn Rand question does not arise. But now there is this book, with its particular misinterpretation of mainstream economics, which might be thought to reopen the question if anyone is interested."

So basically he says Greenspan might be a crank after all. Yet, Solow has actually a couple of nice things to say about the old 'maestro.' For him, the injection of liquidity after the 1987 crash, and allowing the unemployment rate to fall below 6% or so (what most considered the natural rate) suggest that "it is only fair to say that he was a very good chairman of the Fed."

This in spite of his "two big mistakes." One mistake was allowing (I would say almost promoting) the housing bubble. The other, the relevant one for Solow, was his:

"deep-seated conviction that the unregulated financial system was self-stabilizing, that the self-interest of all those clever and experienced participants with a lot of their wealth at stake would keep the accumulation of risk within tolerable bounds. So he promoted deregulation and financial consolidation (as did others, of course) and, when this simple faith proved wrong, allowed disaster to strike."

If  being a monetary crank that shares responsibility for the deregulation of the financial sector and the current global crisis (let alone his role in the Bush tax cuts, or his promotion of cutting Social Security benefits) does not make him a terrible Fed chairman, I don't know what would.

Also, I think Solow is right, Greenspan does not represent well the more moderate New Keynesian mainstream. Yet, in many respects his sort of fringe radical right wing Ayn Rand version of the mainstream, like supply side and Austrian economics, is also part of the mainstream and shares several crucial elements. I would argue that the problem with Greenspan is NOT that he misrepresents the mainstream, but that his deregulation mantra is perfectly compatible with the mainstream. Lets not forget that Larry Summers (a New Keynesian that favors fiscal expansion and is concerned about the possibility of secular stagnation now) was during the Clinton era presiding over deregulation.

Academic freedom watch: corporate donors to decide economic hires at Florida State

Academic freedom is in danger at Florida State. At least is what has been reported here. In short:

"A foundation bankrolled by Libertarian businessman Charles G. Koch has pledged $1.5 million for positions in Florida State University's economics department. In return, his representatives get to screen and sign off on any hires for a new program promoting 'political economy and free enterprise.'"

This is bad in any field, but in economics where the incentives to be pro-business and 'free' markets are already huge it's even worse.

This reminds me of what Veblen said, almost a hundred years ago about what at the time where called schools of commerce, and which would fit our business schools now, and most likely this new program in the political economy of the free enterprise. Veblen said in The Higher Learning in America:

"A college of commerce is designed to serve an emulative purpose only -- individual gain regardless of, or at the cost of, the community at large -- and it is, therefore, peculiarly incompatible with the collective cultural purpose of the university. It belongs in the corporation of learning no more than a department of athletics. Both alike give training that is of no use to the community,except, perhaps, as a sentimental excitement. Neither business proficiency nor proficiency in athletic contests need be decried, of course. They have their value, to the businessmen and to the athletes, respectively, chiefly as a means of livelihood at the cost of the rest of the community, and it is to be presumed that they are worth while to those who go in for that sort of thing. Both alike are related to the legitimate ends of the university as a drain on its resources and an impairment of its scholarly animus. As related to the ostensible purposes of a university, therefore, the support and conduct of such schools at the expense of the universities is to be construed as a breach of trust."

It was true back then and is still true now. But at least one would expect that the university would have the freedom of choosing and evaluating its own faculty according to their own criteria. If corporate criteria is introduced, on top of the questionable character of the program, it is difficult to understand what is to be gained. Worse, in this case, it is a public institution.

Bortis on the Classical-Keynesian Approach and the limits of neoclassical-Walrasian economics

The paper Prof. Bortis presented at the 1st World Keynes Conference at Izmir University in Turkey is here. From the intro:

The paper starts with considering the domination of the neoclassical exchange paradigm since the Marginalist Revolution 1870-1890, brought about by Alfred Marshall’s Principles of Economics. The inability of neoclassical theory to properly explain the formation of the fundamental prices prevailing in modern monetary production economy, the prices of production to wit, through the mechanism of supply and demand and to cope with the deep depression of the 1930s initiated a classical-Keynesian counterrevolution in the course of Shackle’s Years of High Theory 1926–1939 (Shackle 1967), a counterrevolution which was accomplished in 1960 through Sraffa’s Production of Commodities by Means of Commodities (section 2). However, as is alluded to in section (3), a wide gap existed between Keynes’s General Theory and Sraffa (1960), Keynes emphasising uncertainty about the future associated with the various investment projects, Sraffa putting determinism to the fore with the prices of production being governed by technology and distributional institutions. Section four deals with Pasinetti’s effort to close the gap between Keynes and Sraffa, which opens the way to the classical-Keynesian synthesis of Keynes and Sraffa, set out in the central section (5). In the following section (6) the classical-Keynesian system of political economy is compared with neoclassical-Walrasian economics made operational by Marshall; here we also ask the question as to which of the two theoretical systems is more plausible. In section (7) classical-Keynesian economic policies are set out. Some implications of classical-Keynesian political economy for political philosophy and the associated political system are exhibited in section (8). The concluding remarks emphasise the necessity for a new economic, financial and political world order.

Very similar to the ideas developed in my old graduate history of thought course.

PS: Geoff Harcourt's book on Post Keynesian economics, which also tries to put together the old classical political economists and Marx with Keynes, is available here.

Ariel Dvoskin on the limits of Walrasian equilibrium

Here is Ariel's PhD dissertation, which is well worth reading for those interested in the evolution and limitations of the marginalist (neoclassical) models. From the abstract:

"The marginalist approach is unable to satisfactorily incorporate capital goods within the supply and demand explanation of prices and distribution, and this seems to have condemned modern general equilibrium theory to face an unpleasant dilemma: either this theory is, like Hahn, truly consistent with its own theoretical object, a notion of equilibrium that must be silent on the issue of how actual economies work; or, alternatively, the theory attempts to provide some explanation of the working of actual economies and in so doing, it must inescapably rely on traditional gravitational ways of reasoning that must presume the illegitimate notion of capital in value terms. Either way modern general equilibrium theory runs into a blind alley, with the implication that, to predict with reasonable accuracy price, quantity and distributional trends as observed in actual economies, an explanation with different theoretical foundations is necessarily called for."

More on why the US should raise the minimum wage

Note that in percent of the median wage the US is at the bottom of the list (Estonia is the only lower in the graph above). Enough said.

Akyüz on the Global Crisis and Trade Imbalances

Yilmaz Akyüz, ex head of the macroeconomic and development division at UNCTAD, and chief economist at the South Centre has a new post on global imbalances. He says:

International trade has been the single most important channel of transmission of contractionary impulses from the financial crisis and recession in the US and the EU. After growing at an average rate of some 7 per cent per annum, the volume of imports by Advanced Economies (AEs) first decelerated sharply in 2008 and then fell by 12 per cent in 2009, largely because of the decline in imports by the US. It bounced back in 2010 due to a broad-based recovery, but lost momentum as Europe went into tailspin. Growth of total volume of imports by AEs barely reached 1 per cent in 2012. In order to avoid a sharp deceleration of growth, Developing Countries (DCs) have had to rely on their own markets or South-South trade. In fact, given the widespread economic downturn in AEs, the latter have also sought expansion in developing country markets in order to kick-start recovery.

Read the rest here.

More on Mandela and Inequality in South Africa

I discusses post-apartheid economic policy in a previous post. The Figure below from The Economist's Graphic Detail shows the evolution of average income by racial group during Mandela's life time.

Note that inequality actually increases during Mandela and post-Mandela ANC governments. From The Economist.

Towards the end of Mandela's incarceration—through to the abolition of Apartheid—fortunes did reverse slightly, but by now the disparity had grown so large that it barely made a dent. Income growth improved substantially for all South Africans after his 1994 election victory, but sufficiently more so for whites, and the balance has been disproportionately weighted in their favour—and increasingly that of Asian South Africans—since he stepped down in 1999. 

Under its own majority rule, the lot of the ever-growing black population—today forming over three-quarters of the national total—has been notably poor. Misguided governance, low-quality education, skills shortages and massive unemployment levels of around 40% have left it more disadvantaged today than when Nelson Mandela was still behind bars. Black income has virtually flat-lined, betraying tremendous gulfs between the wealth of the different racial groups. Sadly, the nation Mandela leaves behind today remains one of the least equal in the world.

 Read full story here.

Real average family income growth in the last decade

Yep, it went all to the top. But not just the 1%. More like the 0.01%! If you take a 10% real increase (meaning 1% per year) it would be the 0.5%.

The perils of China-centric globalization

By Thomas Palley

The last thirty years have witnessed the creation of an integrated global economy. However, what began as a project for globalization has gradually been transformed into a project of “China-centric globalization.” This phenomenon has grave economic and geo-political implications for the US. China-centric globalization has been allowed to develop with great rapidity and little public discussion of its implications and consequences. There is a conceit that there are no security dangers inherent in it because economic links will turn China into a democracy and democracies do not go to war with each other. History shows that conceit to be very dangerous.

Read more.

Chandrasekhar & Ghosh on the missing global recovery

"In mid-November the OECD Secretariat issued the second of its annual assessments of the Economic Outlook for the world economy. The previous assessment was in May. In the short span of time between these two reports, the outlook has indeed changed. The optimism that desperately-searched-for-and-found “green shoots” of recovery generated has waned. To quote the OECD’s report: 'The global recovery remains modest and uneven ... Outcomes this year and near-term prospects appear a little weaker than had been expected in May, at the time of the previous Economic Outlook, with global GDP growth revised down by just under 1⁄2 percentage point both this year and in 2014 to 2.7% and 3.6% respectively.'"

Read the rest here.

Ry Cooder: No Banker Left Behind

Holidays! Time for some music, but no Christmas caroling here (the left is on a war against Christmas, I've been told).

Social programs for the rich, because they don't create a class of moochers unwilling to work (like social programs for the poor). Bankers are Job Creators after all.

Ben Franklin, Consumption and the Industrial Revolution

The idea that demand expansion was central for the Industrial Revolution, in Keynesian fashion, was at some point dominant among economic historians. It was, for example, explicit in both Phyllis Deane and David Landes famous books about it, both published in 1969 (The First Industrial Revolution and The Unbound Prometheus, respectively).

It is also well-known that Adam Smith recognized that productivity growth (the division of labor) was limited by the extent of the market (demand), so that growth and the wealth of nations, which depended on productivity growth, and not on the accumulation of foreign reserves (gold) or trade surpluses as defended by Mercantilists, was in a sense demand-led.

Ben Franklin is not often cited in relation to his economic writings, but he was knowledgeable in the main developments of his time.  He was both a defender of the labor theory of value, and of paper currency in his famous A Modest Enquiry into the Nature and Necessity of a Paper-Currency, and the consensus is that his ideas came essentially from William Petty, the father of the surplus approach according to Marx.

As it turns out Franklin had also something to say about the role of demand in the process of industrialization in Britain. He said in Observations Concerning the Increase of Mankind, Peopling of Countries, etc. (here) that:

"But in Proportion to the Increase of the Colonies, a vast Demand is growing for British Manufactures, a glorious Market wholly in the Power of Britain, in which Foreigners cannot interfere, which will increase in a short Time even beyond her Power of supplying, tho' her whole Trade should be to her Colonies."

In other words, he suggests that the role of higher demand by the colonies was essential in the process of industrialization. I should note that there is no consensus among those that defend the demand side story of the industrial revolution between domestic demand or foreign demand, but increasingly the literature associated to the changes in the patterns of consumption in Britain suggests that it was domestic markets (e.g. Maxine Berg and her discussion of the consumer revolution).

Beyond Gemeinschaft and Gesellschaft: The Foundations for Ethical Political Humanist Social Science

There it is before you—smiling, frowning, inviting, grand, mean, insipid, or savage, and always mute with an air of whispering, come and find out.

-From Joseph Conrad’s "Heart of Darkness"

It is pertinent to recognize that social reality is not an aura of perceived characteristics, in which there lays no unifying substance that could account for coherence. There is an evident danger in oversimplifying things. The attempt of this post is to promote an approach to social science that engages issues concerning social ontology, that is, epistemic positions in regards the means by which to uncover underlying interconnecting structures that constitute the manifestation of certain types of social reality.

In this sense, the very notion society, itself, amounts to an immensely complex entity, the broad functioning of which cannot be captured by obscure models of positivistic simplification.
Pragmatism does not tell us about the existence of anything. By not grasping the essence of human behavior that exhibit interconnections, we as human beings are left mystified about the world in which we live in. In essence, “the attempt to define some underlying reality beneath the ever changing surface of human phenomena, to delineate the common psychobiological structure of man, to specify the common blueprint of the human animal” (Wolf, 1974 [1964]: 33). Hence, we must abandon our Hegelian selves; social scientists have a responsibility to illuminate the intersections of the latent and visible content of human endeavor such that intelligible conclusions of human social life can be holistically developed.

The intention is to build the foundations for an ethical political humanist social science that allows for normative discussion concerning the inherent relationship between the quest for knowledge creation and matters with respect to collectively shared notions of morality (Heyman, 2005). As such, it is not enough to simply explain or predict, but also describe what possibilities exist for human social action. In this sense, humans, regardless of social location, are envisaged as a unified field of study giving rise to generalizations about humanity—“a manner of looking at man and a vision of man” (Wolf, 1974 [1964]: 88). This calls for sedulous scrutiny of ‘what is’ and demands a sociological imagination of ‘what could be’ (Heyman, 2005), which creates the analytical space to study and evaluate particular collective arrangements, according to how they cultivate and sustain the people within them along with an assessment as to the extent to which treatment is consistent with broadly notions of, for example, what constitutes social justice.

This approach is not without criticism, especially from those of postmodern bent. It is argued that such an orientation towards social scientific enquiry is inherently essentialist; social formations, rather, and thus social phenomena, exist through the ideas that envision them—generalization is impossible for ideas (‘knowledges’) are held, bound, and delimited to historically-specific locally contextual social contingencies. Intuitively, moral claims to ‘Enlightenment ideas as social justice are culturally hegemonic, and encompassing conceptions of humanity construct an invasive ‘panopticon’, which reduces human subjects of study to mere ‘objects’ of ‘invariant scientific gaze’ (Shcheper-Hughes, 1995), that is, a designation of a singular human subjectivity and the erasure of alternative subjectivities.

Particular moralities are, nevertheless, the sediment of power projects (Heyman, 2005). It is not unjustified to abandon articulations of humanity. The solution, rather, is a philosophical anthropology that draws on the essence of social conflict, that is, contextual predicaments over human potentialities. From a Marxist historical-materialist point of view, human senses are shaped and refined through working and transforming nature into useful things. It is through one’s relations with what one produced that an individual achieves pleasure and satisfaction. Through visible direct interdependent social production, recognitions of one’s ability, dexterity, and talent are palpable.

What is stressed is that issues of morality are squarely placed within the parameters and social practices of various modes of production. Under capitalism, for instance, authentic human development is limited given that the actually existing physical world forces mankind to be subservient to constrained subjectivities; that is, for those who are forced to sell their labor power for sustenance are severed from their creativity—a condition of alienation that ensues neurotic anxiety. The social organization of production is not oriented to human needs and aspirations, but rather by profit calculations estimated by legally protected extortionists [capitalists]. The social effects are total degradation and total dehumanization of working people, in which they are reduced to nothing but disconnected brutes performing simple animalistic functions, while not developing freely their physical and mental energy for self-actualization.

In this sense, an ethical political humanism assesses social life from a preview that sees society as composed of differentiating relationships, involving conflict and contradiction (Heyman, 2005). Once it is possible to visualize a mode of production, for instance, it is then possible to visualize the mode of political power—the characteristics of social decision-making and the ordering of rights, privileges and responsibilities. In other words, the determination of how the products of labor are distributed determines power differentials concerning how society is to be structured and coordinated. As such, it can be argued that postmodern critiques as mentioned above are tantamount to a justifying the credence of cultural relativism, which turns social scientists into a mere spectators of social situations of human deprivation. The end result is the intellectual paralysis of ‘waiting’—the process by which the social world slips away from the researcher, and, in turn, becomes, muted, numb and dead, a passive acquiescence to manifestations of human suffering.

An outstanding example of a commitment to ethical political humanism is anthropologist Carolyn Nordstrom’s Shadows of War: Violence, Power, and International Profiteering In the Twenty-First Century. Through the use of comparative ethnography of war zones, quite similar, in practice, to sociologist Michael Buraway’s (1998) advocation of ‘The Extended Case Method’, Nordstrom delves into the brutish, harrowing, loathsome world of complex production, transport, distribution, and consumption systems of well-developed global networks of extra-state trade that merge war and capitalist profiteering.

Using the war in Sri Lanka of 1983, and its aftermath as backdrop, Nordstrom demonstrates how such a criminal mundane system of profit unfolds on the front-lines where the eventuation of social instability metamorphoses into persistency. Poor internally displaced are forced to fend for any means of sustenance to feed their families—this includes scrapping anything together to sell for a meager standard of living. Due to the destruction of infrastructure and economic sustainability, the military and police then force people to give up such goods as means of payment for their services. Just as these troops demand payment from the poor, so must they pay up the ladder—compensating commanding officers that demand far greater goods due to their control over valuable resources. The commanders then use such power and manipulation of the social turmoil of their society to forge partnerships and alliances with international corporate wildcatters to trade valuable resources to secure items like weapons, artillery, and consumer products—in the final instance, wealth and ascendancy in the continuousness of warfare, at the expense of those at lower echelons of influence, association, and access to means of production, are fortified. The entire process is an unequivocal example of how the merging of war and profiteering on the global political, economic, and social landscape is forged.

The wealth generated through such system of payola cannot, and does not, stand outside what constitutes the formal global economy. Wealth, by definition, is the accumulation goods and resources having value in terms of production, exchange, and use. For wealth to in fact become wealth it must be involved in a mechanism of fructification. How does the accumulation of goods and resources in the shadow network of extra-state trade evolve into wealth, i.e. how can it acquire the all important use and exchange values? Nordstrom answers this question by stating that it is the combination of the internationalized deregulated financial powerhouses and markets of the cosmopolitan world and the relative freedom of controls found in war zones that permit such abhorrent accumulation to be laundered into legitimacy. The functionality of bamboozlement is efficient due to the fluidity of legality in the apparatus of extra state trade, which bears truth to sociologist Manuel Castells' observation that there exists is a thin line between criminal traffic manifested in war zones from distant parts of the social world and established international trade networks.

Essentially, an ethical political humanist social science provides the necessary sociological lens so as to produce critical arguments about actually existing circumstances concerning human nature. It can provide the means by which to construct effective solutions to collectively recognized interconnected social problems that span the globe, and is an invaluable paradigm for a researcher traveling that tortuous royal road to science.

Works Cited:

Burawoy, Michael. 1998. “The Extended Case Method.” Sociological Theory 16(1):4–33.

Conrad, Joseph. 1990. Heart of Darkness. New York: Dover Publications, Inc.

Heyman, Josiah. 2005. “Eric Wolf’s Ethical-Political Humanism, and Beyond.” Critique of Anthropology 25(1):13–25.

Nordstrom, Carolyn. 2004. Shadows of War: Violence, Power, and International Profiteering in the Twenty-first Century. University of California Press.

Scheper-Hughes, Nancy. 1995. “The Primacy of the Ethical: Propositions for a Militant Anthropology.” Current Anthropology 36(3):409–40.

Wolf, Eric R. 1974 [1964]. Anthropology. New York: W.W. Norton.

Max Sawicky on why basic income programs are NOT the solution for poverty

Max Sawicky's blog was among the best, by progressive economists, and I still miss his posts. So here is a treat from the Next New Deal Blog.

With the coming referendum in Switzerland has come a flurry of commentary about a “Universal Basic Income” (UBI). There are some strange bedfellows from left and right are saying nice things about it. I suggest that it can be a distraction from more important things.

If you don’t have time to read this, just consider that a payment of $10,000 to every U.S. adult, a pretty basic basic income, would cost $2.5 trillion. Game over.

Read the whole post here.

No government shutdown or default next year, but austerity will continue

In other news, the Senate approved by a vote of 67 to 33 the budget deal, avoiding another government shutdown and debt ceiling showdown early next year. The house had voted before. There has been some commentary in the web when the House voted on how this agreement is good, since it avoids even worse austerity, but in all fairness the changes are minor and the unnecessarily restrictive fiscal policy will continue in place. Graph below shows real government consumption and investment spending.

Expect the negative trend to continue. By the way, the Obama administration has continued the tradition started with Carter and then Reagan in which the party of Big Government is the GOP. every single democrat has reduced the deficit, and spending in office (Carter, Clinton and now Obama). Austerity for all is the Dems policy, while the GOP provides Big Government for the few and corporations.

On moderate conservatives and the benefits of dictatorships: More on Friedman

A lot of the discussion about the modern Republican Party is about how it changed and how the moderates willing to compromise, rather than close the government and default for example, have disappeared. But the whole notion of ‘house-trained’ conservatives is a bit mythical in all fairness. If one reads the criticism of conservatives and business groups against Roosevelt there was a lot that would fit the modern Tea Party. And Conservatives like William Buckley Jr. were also pretty radical. There is this notion that conservatives used to be more rational and moderate in the past. But it is hard to agree once one looks at the record.

Think of Milton Friedman, which is seen by many as a moderate pro-market economist with libertarian tendencies, but when you actually look he had some praise for Franco, which is difficult to conciliate with any civilized notion of moderation. I thought it was well worth to provide the transcript of Friedman’s words on Franco and other right wing dictatorships, linked in my previous post. He said:

“I think, and this is a point, a conclusion I came to many years ago, after visits to Russia and Spain, that there is a very great difference that people don’t appreciate between a dictatorship and a totalitarian government. A totalitarian government like the Russian government wants to control every aspect of a man’s life. It has a positive desire to control him. A dictatorship, like Franco’s Spain or like the military government in Brazil, doesn’t want to control every aspect of a man’s life, but it just is going to prevent him from getting in their way. You can do what you want more or less, except when you cross the government. If you cross the government they will exercise arbitrary power in preventing you from doing it. They may put you in jail they may censor the book and so on. But there is a big difference in the feeling of individuals in those two countries; whether they feel like being at behest, that any one of their actions is at the behest of the government or not. Now in Russia, for example, if people talk to us critically they would look over their shoulder to see who is listening; you have none of that feeling if you go to a country like Spain or a country like Brazil. People spoke quite freely in criticism of the government, back and forth.”

Not as bold as Buckley’s veneration for Franco whom he called “an authentic national hero” (National Review, October 26, 1957), lauding the fascist for saving Spain from “the visionaries, ideologues, Marxists and nihilists” in charge (of a democratically elected government). Oh well, at least it is still true that "Generalísimo Franco is still dead!"

PS: Photo above is of Vladimir Herzog, who crossed the government in Brazil back in 1975. He should have looked over the shoulder I guess.

Milton Friedman on economic development and the 'Brazilian Miracle'

The Hoover Institution has made available (h/t Robert Leeson) online the Economics Cassette Series, which "was a 215-tape, subscription-based series produced by Instructional Dynamics Incorporated (IDI) between 1969 and 1978. The biweekly series was composed of interviews with Milton Friedman during which he commented on current economic events, and thus was a sort of companion to Friedman's Newsweek columns."

There are many interesting nuggets for those interested in the history of ideas, and in particular about the current economic problems of that period. In one of the talks he suggests that a precondition for economic growth is low inflation. Not much evidence to support that actually. The famous paper by Bruno and Easterly argued that inflation below 40% a year has no evident effect on economic growth. At any rate, you can check here his discussion of the Brazilian Miracle. For him the Military dictatorship instituted political stability (and he said that there was, at least for an external observer like, a great deal of freedom; he goes on a rant comparing Franco and the Brazilian dictatorship favorably against the Soviet Union), and tight monetary control (no discussion of the wage repression policy in explaining stabilization, but he does discuss 'monetary correction', indexation, which led to inflationary inertia, in very positive terms), and that's, to a great extent, what explains the Brazilian Miracle.

In all fairness, for him the Brazilian Miracle, and also the Japanese Miracle before that, was based on access to external technology, without the cost of developing the technology.There are other fascinating things he says, like how unemployment is caused by the high minimum wage, which was not a problem in Brazil since less people depended on the minimum wage (also evidence for that is flimsy at best; see famous study by Card and Krueger here). Note that soon Friedman's papers and almost everything he wrote will be searchable on the Hoover website.

David Cay Johnston on Budget Deal That Helps Billionaires, Not the Poor

From the intro:

"A bipartisan budget deal to avert another government shutdown comes before the Senate this week. The vast majority of House members from both parties approved the two-year budget agreement last week in a 332-to-94 vote. It is being hailed as a breakthrough compromise for Democrats and Republicans. The bill eases across-the-board spending cuts, replacing them with new airline fees and cuts to federal pensions. In a concession by Democrats, it does not extend unemployment benefits for 1.3 million people, which are set to expire this month. To discuss the deal, we are joined by David Cay Johnston, an investigative reporter who won a Pulitzer Prize while at The New York Times. He is currently a columnist for Tax Analysts and Al Jazeera, as well as a contributing editor at Newsweek."

Cut Unemployment Benefits? A Bonehead Idea

By Heidi Shierholtz

New data released this morning by the Bureau of Labor Statistics show that 13.9 percent of the workforce was unemployed at some point in 2012, much higher than the official 2012 unemployment rate of 8.1 percent. How can this be? Each month, the official unemployment rate provides the share of the labor force unemployed in that month. But this understates the number of people who are unemployed at some point over a longer period, since someone who is employed in one month may become unemployed the next, and vice versa. So the official annual unemployment rate—which is actually the average monthly unemployment rate for the year—is much lower than the share of the workforce that experienced unemployment at some point during the year.

Read the rest here.

New Paper From CEPR: Job Protection Isn’t Enough: Why America Needs Paid Parental Leave

New Paper From CEPR

Twenty years ago, the Family and Medical Leave Act, or FMLA, was signed into law. The FMLA granted certain workers new and important rights, including the ability to take up to 12 weeks of job-protected leave after a birth or adoption, but it fell short in at least two important respects. Without downplaying the historical significance of the FMLA’s guarantee of job-protected leave for a majority of U.S. workers, this review of Census Bureau data from the first two decades of the FMLA suggests that the law had a limited impact on the frequency of parental leave and no impact on the likelihood that
parental leave is paid.

Read the rest here.

John and Richard Toye on the Prebisch-Singer hypothesis: or did Prebisch wholly rely on Singer's work?

Prebisch (center) presiding over an early meeting at ECLA

(Furtado second from the right)

John and Richard Toye paper (subscription required) on Prebisch's contribution to the Prebisch-Singer Hypothesis has had a significant impact on the accepted view about the development their theory. They argue that in their view:

“of the events surrounding the United Nations Economic Commission for Latin America (ECLA) conference in Havana in May 1949 reveals that Prebisch did not discover independently that the terms of trade of primary products were secularly declining, but relied wholly on the previous work of Singer” [italics added].

In other words, they argue that while Prebisch is more well-known in many respects it was the work of Singer that was essential and original in determining the eponym hypothesis. Toye and Toye (2003, p. 443) do NOT argue that Prebisch was unaware of falling commodity prices, but they do suggest that he thought of this as being merely short run phenomena. In their words:

“He [Prebisch] published an article in 1934 arguing that "it is a well-known fact that agricultural prices have fallen more profoundly than those of manufactured articles," and that Argentina had to export 73 percent more than before the depression to obtain the same quantity of manufactured imports (Prebisch [1934] 1991, 341). However, Prebisch was merely noting a fact, and did not provide any theoretical analysis of it (Magariños 1991, 63-64). He saw it as a feature of depression economics, that is, as a short-run cyclical problem. He believed that the remedy was to be found in expansionist economic policies, not, as the Prebisch-Singer thesis would later imply, in major changes in the structure of the international economy” [italics added].

In other words, Prebisch's notion of a structural problem that required a radical change, industrialization, rather than just anti-cyclical macroeconomic policy, basically "wholly relied" on Singer. This is why they believe the first draft of Prebisch's famous Development Manifesto was changed, as accounted by Celso Furtado in his memoirs.

Note, however, that Prebisch was from the early 1930s starting a long trajectory of rethinking his orthodox (somewhat eclectic, but essentially marginalist) views of the functioning of the economy, one in which the fluctuations in the periphery where for the most part accounted by an connected to the oscillations on the central economies. He was also keenly aware of the changes in the hegemonic positions of the US and the UK, and the tribulations of the international financial system.

In a series of papers with Esteban Pérez Caldentey, I have argued that Prebisch was developing a dynamic theory, that would be developed fully in his classes at the University of Buenos Aires, before his Manifesto was conceived in 1949, in which cycle and trend are seen as parts of the same economic impulses. In Prebisch's discussion of the cycle in Argentina, as early as 1934, Prebisch does show awareness of the consequence of a fall in the trend of commodity prices. In the paper we note that:

“The events of the year 1929 were viewed as a further extension of the 1927-1928 cycle. Initially he dated the ascending phase of the cycle between May 1927 and September 1928 (RP, Vol, I. p. 587). Later on however, once the effects of the year 1929 were visible in the Argentine economy he states that the descending phase of the cycle started during 1929 with some symptoms appearing by the middle of 1928 (Ibid. p.613). This point is also emphasized in his 1934 article 'The Present Moment of Our Economy.' He states (RP, Vol. II., p. 158): 'If we were to judge the year 1933…by the evolution of our agricultural exports, we would only be able to say that it was an additional year of contraction adding to those that have …the Argentine economy since 1929.' Prebisch came to realize the distinct character of the Great Depression when he became aware of the profound contraction in agricultural prices. The contraction was so sharp that the agricultural price index reached levels that it had not witnessed since the nineteenth century. As he put it (Ibid., p.346-347 and also 135): 'The collapse in prices…does not constitute the usual phenomenon of cyclical reaction…rather an intense and pertinent decline to positions each time farther away from the level on which developed the relations of production and credit.' And (p. 135) 'It [the decline in agricultural prices] is not a simple return to a previous situation, but of an accentuated and progressive contraction of values, that violently upsets the economic structure of the country'” [italics added].

In other words, it is a matter of trend not cycle, and hence an antecedent of the Prebisch-Singer hypothesis, which is in fact based on his theoretical development of a type of dynamic foreign trade-multiplier story of the cycle.

Also, a careful reading of Furtado's discussion of the writing of the Manifesto suggests that what the Singer paper provided was NOT the empirical basis for a new and radical theory, but the incentive for a more militant and pro-industrialization version of the report. A change in political tone, rather than a significantly different understanding of the problems of development in Latin America, which as we have argued with Esteban, where quite solidified by this time.* As result, I would suggest that Prebisch's fame as the key thinker behind the famous hypothesis is well-deserved, and that the notion that he wholly relied on Singer is hyperbolic at best.

* However, as noted by Mallorquín, Prebisch would put on hold his more radical ideas during his long sojourn in the United Nations system, at ECLAC and then UNCTAD.

PS: For more on Prebisch go to ECLAC's website about him and his legacy here.