Post Keynesian economics and academic freedom

Tom Palley wrote a short post on his recent experience with the Post Keynesian Economics Society (PKES). The post raises interesting issues about what constitutes an economic topic and where to draw the line between academic and non-academic work. A similar debate recently occurred on the listserv of the Union for Radical Political Economy (URPE) regarding an announcement about the Gaza conflict (specifically, whether it constituted genocide, whether URPE should have a statement on the topic, and so on).

On the two main topics of Tom's piece -- what constitutes an economic related topic, and what is an academic subject -- I should say that I tend to think that there are relatively clear answers (and my views might not be hegemonic, in this field; see what I did there?). I come from a political economy tradition, that harks back to classical political economy, according to which economics is about the material conditions for the reproduction of society, in which social classes, and the conflict between them are central not only for the determination of distribution, but also of the pace of accumulation and progress (another question open to debate).* Hence, issues related to Ukraine and Palestine, and other geopolitical issues are certainly part of political economy, and it is hard to suggest that they should be excluded from conversation.

On the other, whether something can be consider academic or not, at least from a sociological point of view, is entirely determined by peer review, what economists doing academic work in economics define as academic work. In this case, what Post Keynesians (PKs) considered PK economics to be. From that point of view, and regarding PKs, it seems clear that the issues of the war in Ukraine, that Tom was discussing (whatever the views on that were), would have always been seen as part of the tradition, and a perfectly reasonable topic of inquiry. Just to provide an example, in the second issue of the Journal of Post Keynesian Economics (the journal that gave the name to the tradition), Charles Issawi had a long discussion of the Arab-Israeli conflicts to understand the 1973 oil shock (there are other papers in that issue on similar topics).

Mainstream economics always took a dim view of PKs willingness to entertain issues that were hard to formalize. Robert Solow famously said that:

"The proper way to do macroeconomics can hardly be all historical context and no analytical structure. Unfortunately the school has provided no systematic description or example of what it conceives to be the right way to do macroeconomic theory. Thus far so-called post-Keynesianism seems to be more a state of mind than a theory." 

Note that, while critical of PKs, Solow was not for the exclusion of PKs from conversation, and he was always willing to discuss with heterodox economists (on this see my short piece on his relation to ROKE on the occasion of his death).

In other words, the post by Tom was on economics on a topic that PKs considered economics, at least ib the past.** For those reasons, it seems hard to justify the PKES decision, which appears punitive and an attempt to stifle conversation, the sort of thing they persistently criticize about the mainstream. This is much worse given the current attack on academic freedom, particularly in the US, with Trump going after academia in general.

* For my views on heterodoxy, and its relation to that tradition see this old post, and this paper. On Post Keynesian economics see this old piece.

** Colin Danby reminded me of the old PK listserv that used to be more than announcement emails, and was effectively a forum for the discussion of ideas. 

The Unreal Basis of Neoclassical Economics

By Al Campbell, Ann Davis, David Fields, Paddy Quick, Jared Ragusett and Geoffrey Schneider

originally posted here

Introduction
Ten years after the financial crisis, we still find mainstream economists engaging in overly simplistic analysis that does not accurately capture the dynamics of the real world. People studying economics need to know that the principles of mainstream economics are hopelessly unrealistic. In this short article, we demonstrate that the ten principles of economics in Gregory Mankiw’s best-selling textbook are divorced from reality and reflect an extreme and unwarranted bias towards unregulated markets.[ii] Mankiw’s “Ten Principles of Economics” should more accurately be titled “Ten Principles of Unrealistic Neoclassical Theory.”

Mankiw’s Principle #1:  People Face Tradeoffs/There is no such thing as a free lunch.
Mankiw ignores the historical determination of the distribution of resources and the crucial distinction between those whose income comes almost entirely from the performance of labor and those whose income comes from their ownership of capital. As a result he is unable to recognize the political power that results from the concentration of wealth in the capitalist class, and to analyze the distributional impact of decisions in which those who gain are often significantly different from those who lose. In addition, history is full of accounts of forcible appropriation of resources that appeared to be “free” to those who acquired them.

Mankiw’s Principle #2:  The Cost of Something Is What You Give Up to Get It/Opportunity Cost
Insofar as individuals are able to make decisions, their choices can be described as “giving up” one opportunity in order to take up another. This tells us nothing about the determination of the choices that are available to them. The “choice” of a worker as to whether to take on a dangerous job or face eviction from a home requires a very different analysis than one suitable for a discussion of the choice between apples and oranges. On a different level, an analysis of the “trade-off” between income now and increased income in the future requires an understanding of ecological limits to the growth of material production.

Mankiw’s Principle #3:  Rational People Think at the Margin.
Neither consumers nor producers, nor humans in many other social roles, generally act on the margin. The assertion of marginal analysis that decisions must be such as to equate marginal benefit with marginal cost is simply a restatement of the first derivative condition resulting from maximization subject to a constraint, rather than a reflection of real human choice. Mainstream theory then defines behavior according to this mathematical construction even though it does not govern actual choice in the real world. But more important is the presumption that all decision-making is guided by the well-being of isolated individuals, and thus that “rationality” consists of behavior that maximizes the benefit of the individual decision–maker. This dismisses the fact that people are social animals whose decision-making recognizes the interaction between individuals, and it ignores how in the real world people make decisions considering their whole situation under possible alternatives, material restraints, imperfect information, their cognitive abilities, the existing power structures, and culture.

Mankiw’s Principle #4:  People Respond to Incentives.
This is tautological. Furthermore, models based on monetary incentives by selfish, isolated individuals and firms in perfectly competitive markets are unrealistic and ignore crucial real world issues. Monetary incentives are not all that matters. In the real world people make many decisions on the basis of their evaluation of the resulting well-being of many people beyond themselves, or on social and cultural norms.

Mankiw’s Principle #5:  Trade Can Make Everyone Better Off.
Trade can increase total production, but trade has distributional impacts, with winners and losers. Trade in modern capitalism tends to foster inequality while undermining wages and working conditions for many laborers. This principle promotes unregulated trade, but unregulated trade has not proven to be the best route to economic development, nor is it good for all people. In the real world, infant industries, immiserating growth, terms of trade shocks, and increasing inequality render this principle useless as a policy guide.

Mankiw’s Principle #6:  Markets Are Usually a Good Way to Organize Economic Activity.
As there are no measurable units by which one can classify all specific economic activities in the real world as “good” or not, principle #6 is nothing more than a neoclassical ideological declaration of faith. Markets are human creations that operate differently in various economic systems, and the various existing and potential economic systems themselves are human creations. The first real question then is if under an existing system private capitalist markets driven by the profit motive do better than possible alternative human creations for providing the good or service, potentially driven directly by the desire to meet specific human needs. Important examples providing evidence of the inferior performance (efficiency and effectivity) of private capitalist market-driven systems are well run social security systems and single-payer health care systems. Avoiding the error of accepting the system as given, a deeper question would be if under some different economic system, which was not built to favor capitalist accumulation, alternatives could outperform profit-driven markets operating in capitalist systems.

Mankiw’s Principle #7:  Governments Can Sometimes Improve Market Outcomes.
Behind this assertion is the idea that markets are natural and could run without any government intervention, and that such natural markets tend to be efficient but sometimes are not quite optimal. In those cases the efficiency of markets could be improved by government tweaks. To the contrary, in the real world all markets are created by governments, which both establish the rules of the game and enforce them, and thereby determine market outcomes. If the government passes laws requiring that food be safe, that changes the market for food, and yields different market outcomes than if those laws did not exist. With this understanding, principle #7 is reduced to the not very profound statement that because governments create markets, they have the ability to create them with better or worse outcomes. Further, the issue always ignored by neoclassical economics of social divisions is particularly important for considering “better market outcomes”: better for whom? Market rules are shaped by power structures to benefit some classes and other social groups more favorably than others (for example capitalists at the expense of workers, First World countries at the expense of Third World countries, etc.).

Mankiw’s Principle #8:  A Country’s Standard of Living Depends on Its Ability to Produce Goods and Services.
Higher GDP per capita does not necessarily result in a higher material standard of living for all people within, as well as between, countries. Furthermore, neoclassical economics operates with a definition of “standard of living” as the amount of goods and services consumed, so this principle reduces to the not quite tautological, but not very insightful, claim that the amount of goods and services consumed in a country depends on its ability to produce them. In the real world what people are concerned with is their quality of life, which includes social respect, power to act on one’s desires, conditions of work (and not just pay), social relations, and much more. Neoclassical economics does not address the extension of principle #8 to what people in the real world are actually concerned with, their quality of life, for which the goods and services produced are just one among many determinants.

Mankiw’s Principle #9:  Prices Rise When the Government Prints Too Much Money.
Since the neoclassical definition of “too much money” is the amount that makes prices rise, this is a tautology. In the real world the relationship between prices and the money supply is complex: expanding money might cause a jump in prices or it might cause no price increases at all, depending on many other things in the economy.  The applied policy transformation of this into the incorrect claim that “prices rise when the government prints more money” is an ideological artifice, used today to justify austerity policies and keeping wages low.

Mankiw’s Principle #10:  Society Faces a Short-Run Tradeoff between Inflation & Unemployment.
The relationship between inflation and unemployment is complex and does not follow a systematic pattern. By the 1970s data from the real world had caused textbooks to go from Phillips Curves to Shifting Phillips Curves to abandoning them entirely. In view of that experience, principle #10 of a short-term trade-off between inflation and unemployment has become a neoclassical ideological justification for challenging those who advocate policies that would reduce the rate of unemployment, by fostering fears of inflation that may never materialize.
In conclusion, Mankiw’s so-called “Ten Principles of Economics” ignore crucial realities of the economic world. In particular, Mankiw excludes power imbalances, inequality, social forces, development experiences, the realities of market behaviors, laws and outcomes, realistic measures of quality of life, and recent macroeconomic data from his principles. It is hard to imagine a less useful set of ideas to guide modern societies in designing a good economic system. Unfortunately, almost all other mainstream principles of economics textbooks parrot these same principles. Students of economics will have to look elsewhere for useful analysis of the economy and how to build a democratic economy and society that works for all.

References
Mankiw, Gregory. Principles of Economics, 7^th Edition. Stamford, Connecticut: Cengage. 2015.

End-notes
[i] In a subsequent article, we will offer a set of principles of radical political economy to provide a more realistic, alternative approach.
[ii] The authors are members of the steering committee of the Union for Radical Political Economics (URPE). The ideas presented in this article are those of the authors and not of URPE. The purpose of this article is to make readers aware that there are alternatives to the principles of economics put forth by mainstream economists. We synthesize the critiques of mainstream economics by radical political economists in order to give students and teachers ammunition to confront the unrealistic paradigm of neoclassical economics that currently dominates the profession.

The Nature of Capitalism and Secular Stagnation

McCloskey, Lazonick, Despin, and Shaikh (I'm covered)

The joint AEA/URPE session was very lively, but suffered from the last minute absence of Brad DeLong. He did send the notes of what he was going to discuss here. On the topic of stagnation per se only Hans Despin suggested that it was an important phenomenon, but not necessarily for the same reasons Larry Summers and Brad De Long. It was unclear to me, however, that his views were based on a demand side story, and, hence, that this was more like Steindl would call it a question of stagnation policy. All the others, for different reasons were against the idea of secular stagnation.

Deirdre McCloskey, who said she was an Austrian economist (and no, that doesn't make her heterodox, just a different version of the orthodox marginalist approach), argued vigorously against it. I was a bit surprised that nobody pushed back on her explanation of growth as based on ideas, and the notion that the movement of the marginal productivity of capital (that she drew in an imaginary blackboard as being downward sloping) to the right is what explains improved livings standards. I mean I agree that capital accumulation does not explain growth (it's the other way round, growth of demand explains capital accumulation, but nobody there believed in that, other than me, and I was just the moderator), but at this point the notion of downward MPK curves should receive more criticism among heterodox economists.

Lazonick and Shaikh had more to debate on the nature of capitalism, in particular with McCloskey, and the reasons for technological innovation, with both emphasizing the role of the state in promoting technical change, rather than the idea of the innovator as a superhero.

PS: I was going to film it, but the memory card jammed, and in spite of all the technological advancement, we're left only with oral history.

An increase in rents is behind the rise in inequality

Eileen Appelbaum

Eileen Appelbaum delivered the David Gordon Memorial Lecture at the Chicago Meetings of the Union of Radical Political Economics (URPE). The lecture, and the comments by John Schmitt will be published later in the Review of Radical Political Economics (RRPE). The gist of the argument is that ever stronger corporations use their dominant position in markets, patent and copyright protections, and their political influence to obtain favorable regulations and tax breaks to earn monopoly rents at the expense of consumers. She noted that the evidence suggests that inequality has increased more between establishments (firms) than within them, which is impressive given the increasing gap between management and plant salaries. She cited the work by Richard Freeman on how two thirds of the increase in inequality is caused by between establishment differences.

Freeman argument was made popular by his two clones story. According to him:

"consider two indistinguishable workers, you and your clone. By definition, you/clone have the same gender, ethnicity, years of schooling, family background, skills, etc. In 2006 you/clone graduated with identical academic records from the same university and obtained identical job offers from Facebook and MySpace. Not knowing any more about the future than the analysts who valued Facebook and MySpace roughly equally in the mid-2000s, you/clone flipped coins to decide which offer to accept: heads – Facebook; tails – MySpace. Clone’s coin came up heads. Yours came up tails. 

Ten years later, Clone is in the catbird’s seat in the job market — high pay, stock options, a secure future. You struggle. Back to university? Send job search letters to close friends? Ask distant acquaintances to help? The you/clone thought experiment may seem extreme, but recent research that I have conducted with colleagues finds that the earnings of workers with near-clone similarity in attributes diverged so much by the place they worked that rising inequality in pay among employers has become the major factor in the trend rise in inequality."

This, the fact that workers with similar skills get paid significantly different wages, suggests to her that the old story that inequality results from skill-biased-technical-change (SBTC) is incorrect, and that the power of corporations to extract rents can be seen as a New Labor Segmentation, which is superimposed on the old one, researched by David Gordon and his co-authors.

I am looking forward to the publication of her paper.

American Economic Association Meeting in Chicago

I'm off (URPE program here). Pretty busy, and won't post for a while. Talk to each other ;)

PS: Mainstream micro is terrible at describing too, btw. And there are a few heterodox macro people that aren't that bad at describing.

Call for Papers: URPE Reader

The Union for Radical Political Economics (URPE) has put a call for papers for the new reader. The last reader was titled Political Economy and Contemporary Capitalism and was published in 2000. I had a chapter on trade and finance (here). It provided an alternative to the mainstream in a variety of topics, including foreign financial crises, health care, social security, and welfare reform, while at the same time demonstrating the variety of heterodox (alternative) approaches available to economic inquiry. It was essentially an academic tool showcasing the latest work in heterodox research. This would be an excellent opportunity for young scholars, and very welcome for those teaching economics, in particular after the failure of the mainstream regarding the 2008 Global Crisis.

New Website For Union For Radical Political Economics (URPE) Up and Running

The official website for Union For Radical Political Economics (URPE) has been refurbished, with a new layout design, including new drop-down menus, etc. See here.

Cooney & Vernengo on the Global Crisis of Capitalism

Professors Matias Vernengo and Paul Cooney discuss their analyses of the global economic crisis.

Tom Weisskopf on 50 Years of Radical Political Economy

From the abstract,

I examine first how radical political economy (RPE) has evolved over the last five decades, as the overall political climate in the United States has shifted increasingly to the right. I explore how this political shift, as well as new developments within mainstream economics, have altered the focus of much of RPE and the activities of many of its practitioners. I then offer suggestions to radical political economists as to the future orientation of RPE.

Read rest here (subscription required).

And for other posts on the nature & evolution of radical political economy, see here & here.

Prospects of the Global Crisis of Capitalism: Post Keynesianism vs. Marxism?

The debate on the Global Crisis and the Marxist vs Post Keynesian views with a relatively long session of Q&A.

Robin Hahnel: The Invisible Foot - A Tribute to E. K. Hunt

A paper by Robin Hahnel, published by the Review of Radical Political Economics, pays tribute to the work and intellectual legacy of E.K. Hunt, Emeritus Professor of Economics at the University of Utah.

From The Abstract:

This article pays homage to E. K. Hunt who was a founding member of URPE who helped build chapters on several campuses in western states. Much of the author’s own research work over the past forty years was an attempt to strengthen criticisms Hunt voiced long ago about markets and blind spots in mainstream economic theory. The article reviews work inspired by Hunt regarding externalities, endogenous preferences, the Coase theorem, and an alternative to the market system known as participatory planning.

Read here (subscription required)

On The Rise and Fall of Radical Political Economy In US

The professional eyes of the [social scientist] are on the down people, and the professional palm of the [social scientist] is stretched toward the up people … he is an Uncle Tom not only for this government and ruling class but for any government or ruling class. 

-Martin Nicolaus, “Remarks at ASA Convention,” The American Sociologist 4, 2 (May 1969): 155

The rise and fall of radical political economy in the US is rooted in the rise and ultimate decline of social radicalization there of the 1960s and 1970s. This radicalization was dominated by fuzzy New Left (NL) ideological critiques of American capitalism, notwithstanding that many radicals of the time rejected such critiques as inadequate.

By Al Campbell

Since the term NL was created to refer to everyone with a radical critique of the system other than the ‘Old Left’ (OL), it included many different strands of political thought and ideologies. In addition, in the early years of the NL in the mid-sixties, many prominent members and groups pointedly declared themselves ‘anti-ideological,’ asserting that pure activism would replace ideology. Most currents in the NL fairly quickly came to realise that they had an ideology whether they acknowledged it or not, and so turned to its conscious development. In practice this resulted in approaching one or another of the orientations that existed in the (small) US left, above all Stalinism, Social Democracy, Anarchism, (US) Radical Populism or Marxism. The various NL individuals and currents typically eclectically mixed these and, in addition, continually made major changes to their theories and ideologies over relatively short periods of time. All of these points together indicate the need for caution when referring to ‘a NL ideology’. For a compact treatment of a significant number of the threads in the US NL ideological tapestry, see Young (1977). I will simply refer to ‘the vague NL ideology.’ It was largely a product of the specific history of that US radicalisation. Above all, it was defined by things in the existing society that it was against. Critically absent was an alternative based on a radical social theory – by implication, the alternative was just to eliminate the problems.

Two central issues divided the NL from the OL. The first was the issue of class. The OL had always recognised the need to fight against all forms of oppression. For example, many though far from all of the leaders of the fight against racism both after and before WWII were part of the OL or strongly influenced by it. But the OL at the same time argued that class oppression played a special role in the maintenance and reproduction of capitalism. Capitalism’s goal was the accumulation of capital which required and rested on class oppression and exploitation. Other forms of oppression could be just as individually damaging as class oppression, but they did not play the same role in the continual reproduction of capitalist social relations. The NL, to the contrary, argued strongly for the absolute theoretical symmetry of all forms of oppression as sources of exploitation, leading to the political idea of ‘multi-vanguardism.’ One of the founding documents of the premier NL RPE group in the USA (discussed further below) reflected this concept: ‘The organization opposes all exploitation on the basis of class, race, gender, ethnicity, sexual orientation and other social/economic/cultural constructs’ (URPE, 1968). As the NL went on to develop its ideologies, it drew on (among other sources) C. Wright Mills’ (1956) model of elites based on power, and consciously opposed this to the Marxist concept of class based at its deepest level on economic exploitation. Mills’ concept was particularly suited to a view of multiple, conceptually equivalent, exploitations.

The other central issue for the NL presented itself Janus-like with two related but conceptually very different faces. Negatively (in several senses of that word), the NL exuded a politically primitive anti-authoritarianism. This was an important endogenous contribution to the NL’s general inability to create sustainable institutions. Positively, the NL championed the concept of Participatory Democracy against both the OL and bourgeois democracy. Long after the NL disappeared, this latter idea has remained as a permanent contribution (or ‘rediscovery,’ as the idea existed before the NL), and is still being debated and developed by many (proto) social movements in the USA that continue to fight against capitalism.

Read the rest here.

Political Economy of the Environment: A Conference of the Union for Radical Political Economics Co-sponsored by New Politics

A Conference of the Union for Radical Political Economics

Co-sponsored by New Politics

St. Francis College, Brooklyn, NY • Saturday, October 5, 2013

Call for Workshop Presentations

If you would like to make a workshop presentation related to the theme of this conference, please send an email to the URPE National Office at urpe@labornet.org.

We are living in a period of increasing environmental crisis and growing inequalities within and between the countries of the world. The obstacles to sustainable development and the equitable distribution of the products of our labor lie in the ways in which our political economic system operates. The necessary technology is already available, and the resources required to end the use of fossil fuels, for example, exist. But multinational corporations, and the governments they control, base their decisions on the maximization of profits, not on the well-being of the world’s people. Understanding and challenging capitalism is therefore essential for the building of local, national and international environmental movements.

The goal of this conference is both to clarify areas of agreement among progressive environmental activists and to promote friendly discussion of disagreements. Thus we would like the plenaries and workshops of the conference to address questions such as the following:

• What would a sustainable and just future look like? 
• What short-run reforms, if any, can enable us to survive the climate crisis until fundamental change can be achieved? 
• Would sustainable development necessitate a reduction in living standards? 
• What have been the main successes of environmental movements and how were they achieved? 
• How do we promote environmental justice, making sure that environmental movements in the US address the specific concerns of African American and Latino/a communities? 
• Is there a conflict between the environmental movement and the labor movement? 
• How are people in the US and other countries responding to the challenge of fracking? 
• How do we assess the Kyoto Protocol? Why did the Copenhagen summit fail? 
• How should we address hazardous waste disposal -- locally, nationally, and internationally? 
• What are the relative merits of carbon taxes and tradable carbon-emission permits as ways of reducing worldwide emissions of greenhouse gases? 
• What are “green taxes” and how could the imposition of taxes on pollutants be made “revenue neutral” or used to make a tax system more progressive? 
• Does environmental regulation result in the loss of jobs, the creation of jobs, or is this the wrong question to ask? 
• How does the changing balance of international power, such as the rise of the BRICS, affect the prospects for reducing environmental damage? 

For updates on the conference program, please visit the program page. For a flyer announcing this call for workshops, click here.