Why Liberal Economists Dish Out Despair
By Gerald Friedman
APR 20, 2016 | MACROECONOMIC THEORY | HISTORY OF ECONOMIC THOUGHT | INSTITUTIONS, POLICY & POLITICS | REINTRODUCING ECONOMIC THEORY
How Gerald Friedman’s assessment of Bernie Sanders economic proposals prompted a rare public political spat among economists:
The angry reaction to my report revealed that by some combination of rationalization and the dominance of neoclassical microeconomics since the 1970s, liberal economists have virtually abandoned Keynesian economics, which supported the notion that governments can and must intervene in the economy to ensure the best results for society. These economists went back to pre-Keynesian thinking, where price fluctuations are supposed to equilibrate supply and demand at full employment with an optimal distribution of good and services. The very suggestion that government action can result in increases in growth rates or wages is now taken to be obviously wrong. Adopting the language of neoclassical micro welfare economics, everything is already as good as can be — all that government can do is to make it worse. Criticisms of the orthodox model and its policies are deemed worthy of scorn, to be dismissed tout court because they are obviously at variance not only with textbook economics, but with what we need to believe to rationalize failure.
[…]
But what if they are wrong? What if government action could, in fact, raise growth rates or narrow disparities? What would be the expected value of a higher GDP growth rate? Would it be worth some academic debate, even if it leaked into the public realm? Might this debate even serve a socially useful function by giving voters an alternative to the xenophobic political economy of Donald Trump? Many Americans believe that government action can improve economic conditions, especially for workers, and many of these support Trump because they see him as the only candidate who is even willing to consider government action to help working Americans. These voters can look long and hard at the “responsible” Clinton platform for some policy, for any policy to raise growth rates and narrow income disparities. But they won’t find it, because policy elites have closed their minds to the possibility of change.
[…]
Controversy reflects the disagreements and uncertainty that alone can lead to intellectual progress. It is time to inject some of these into orthodox macroeconomics. We have been ill-served by a smugly sure macroeconomics both in imagination and policy. Amazingly, the crisis of 2007-9 has left intact the dominant pseudo-Keynesian orthodoxy; maybe the kerfuffle around my report will help to open some space for constructive dialog in a profession that has clearly grown too complacent.
(Read the article. There has been cross-pollenation between the schools after the fire burned out.)
Awaiting an Economist’s reply
http://foreignpolicy.com/2016/05/19/economics-has-failed-america-globalization-trade/
“Economics Has Failed America”
‘When it comes to the impact of global trade, the dismal science has done a dismal job explaining how to help workers hurt by globalization.’
By *Daniel Altman…May 19, 2016
“As a recovering economist writing on behalf of my erstwhile field, I would like to apologize to every American who has lost a job or a livelihood because of globalization. Economics has failed you. It has failed you because of ideology, politics, and laziness. It has failed you because its teachings are woefully incomplete, and its greatest exponents have done almost nothing to complete them.
Say’s Law is obvious nonsense. What does Say’s Law say about the Great Depression? Suddenly the productive capacity of most of the world disappeared? What about the idle plants? Would the Sayists claim that workers “didn’t really want to work” as Obama’s economists claim now?
Most economic nonsense can be explained by taking equilibrium results and applying them to non-equilibrium situations. Indeed, if one just looks at almost any chart of any market, it is obvious that those markets are not in equilibrium. If the atmosphere was in equilibrium there never would be storms. Static equilibriums are easy to analyze but do not reflect the real world. Look at the assumptions in any introductory textbook. The market analysis assumes that no buyer or seller can affect the market. For nearly all markets, that is obvious nonsense. Another failure of classical economics is the myth of the rational actor. Most human activity is irrational. Just read any daily newspaper. To quote the late Robert Heinlein,”Man is not a rational animal. Man is a rationalizing animal.” Emotion plays a much larger role in economic behavior than most people, certainly most economists, are willing to admit.
Not only are the markets not in equilibrium, they don’t always tend toward equilibrium because part of management strategy (Alfred D. Chandler, The Visible Hand: The Managerial Revolution in American Business) has to do with destabilizing markets in order to reap non-competitive profits. Pure competition is the last thing a corporation wants because under the simplest competitive models, pure competition drives profits to zero for every firm.
The influence of social physics on the economic profession and the juvenilization of the field by its close association with business firms (Don’t tell me what’s real; tell me what I want to be real.) has placed a major cost on society. Moreover, the refusal to take Marx’s analysis of power within the firm seriously, has worked to constantly disadvantage labor and fluff capital–exactly what a Marxian analysis would have predicted.
So where we come out is microeconomics is a sub-branch of psychology dealing with incentives and their consequences, and macroeconomics is a hydraulic network theory of the plumbing of cash flows. And the major contributions in the recent past come from anthropologists and communication theory folks (Arrow and Coase).
Absolutely!
An example of the bassackwards thinking is quarterly profit reports. The News always says “they missed their estimates” instead of recognizing that the prediction was wrong! Noooo. The prediction must be right. Reality is wrong. I also never pay attention to “forward P/E”. Nobody knows the future. Profits and earnings NOW are tangible (sort of), next year is just a prediction.
There are usually positive feedbacks that drive some variable to the rails then reverse, like a square-waving relaxation oscillator.
Marx was wrong because he though the proletariat were morally superior to the managerial class. The Chicago school is wrong for the opposite reason.
Both classes have their share of greedy hustlers, and clueless idiots.
I think I should make a stab at reading Das Kapital.
I made a stir in High School when the government class read the Communist Manifesto. I shocked everyone by saying it was a credible description of 19th century 9and early 20th century) capitalism. Only the solution was in err.
IMF taking off blinkers: New IMF Paper Challenges Neoliberal Orthodoxy
(http://www.nakedcapitalism.com/2016/05/new-imf-paper-challenges-neoliberal-orthodoxy.html)
Oh, this is good….
http://www.nakedcapitalism.com/2014/03/neo-liberalism-expressed-simple-rules.html
Neoliberalism (a.k.a. The Washington Consensus) is the dominant ideology of the political class in Washington D.C., shared by both legacy parties. In fact, it’s not clear there is another ideology, which is why we get seemingly weird policymaking processes like RomneyCare morphing into ObamaCare, even as proponents of each version of the same plan hate each other, “narcissism of small differences”-style. Of course, in neo-liberalism’s house are many mansions, many factions, and many funding sources, so it’s natural, or not, that an immense quantity of obfuscation and expert opinion has accumulated over time, making for many fine distinctions between various shades of neo-liberalism.
In this brief post, I hope to clear the ground by proposing two simple rules to which neo-liberalism can be reduced. They are:
#1 Because markets.
#2 Go die!
Of course, these rules can’t be applied, willy-nilly, inartfully, in just any context; Rule #1 — and here we owe an immense debt of gratitude to the work of Outis Philalithopoulos on academic choice theory — doesn’t apply to in (let’s label it) Context #1: The world of the neo-liberal practitioners themselves; the academic guilds, media outlets[1], and think tanks to which they adhere, Flexian style, are distinctly not market-driven; just look at Thomas Friedman. It follows that Rule #2 does not apply to neo-liberal practitioners either, because of their social position just described in Context #1: “wingnut welfare” and its equivalent in the “progressive” nomenklatura; they will have — to strike a blow at random — corporate health insurance. In addition, we have Context #2: The world of the 0.01%. Neither Rule #1 nor Rule #2 rule applies to them, because no rules do.[2] These asymmetries will become more interesting shortly….
A recipe for how to roll back neoliberalism using tried and true methods of populism…
http://washingtonmonthly.com/magazine/junejulyaug-2016/populism-with-a-brain/#.V12WGooqpTY.facebook