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I think it's a good idea to continue efforts at discrediting NCE, but I don't think that in the end such work is either a necessary or sufficient condition for replacing it as the standard toolbox of liberal, democratic policy prescriptions.  After all, there already exists a long and prestigious line of pretty mainstream economists who have won Nobel prizes discrediting various aspects of NCE, not to mention the legions of other thinkers and writers in other fields and backgrounds.  

What is necessary and sufficient for overthrowing and replacing NCE? At a minimum, an alternative framework for thinking about policy should provide the same inherently compelling wisdom about how things work in the world with easy-to-apply formulas for implementing policy changes within the existing institutions and organizations of liberal democratic societies.

It is not enough to point out the negatives.  There has to be a positive replacement that is as inherently compelling as the simple framework of individual, competitive rational actors, something which is apparent to most people through simple observation of daily life, has been.  And the key to any replacement to NCE is that it must tend to support the interests of the policy elite as a class. (And this is true even if it presupposes replacing the current elite with a new one, regardless of how much more "democratic" the new elite is supposed to be.) NCE has been so successful because it provides an intellectual framework which supports, in its various forms, the interests of the upper middle class of liberal democracies -- those people whom Marx called the Bourgeisie and Robert Reich now calls the the symbolic analysts. A replacement for NCE must simply do a better job of that if it doesn't propose to overthrow that class - to which most of us here probably belong - entirely.

by santiago on Mon Sep 27th, 2010 at 05:05:02 PM EST
Also:

Buy media
Buy professors
Buy bloggers

(Especially ones who can post that NCE has been throughly debunked by Nobel winners in one paragraph, and then continue to suggest that it has 'inherently compelling wisdom' in the next.)

by ThatBritGuy (thatbritguy (at) googlemail.com) on Mon Sep 27th, 2010 at 05:26:43 PM EST
[ Parent ]
NCE has been so successful because it provides an intellectual framework which supports, in its various forms, the interests of the upper middle class of liberal democracies

This is an oversimplification.

NCE supports the interests of the particular part of the upper middle class that identifies with the financial sector, as opposed to the industrial sector. The postwar conflict really never was between the working class and the upper class - it was between the industrial and the financial sectors. The fact that being a worker is more pleasant in an industrial state than in a merchant republic is more or less incidental, but did enable the conventional wisdom from the Interbellum - where the conflict really was between the workers and the bourgeoisie - to survive.

So, rather than being a cornerstone of liberal democracy and far from being an alliance of the entire upper middle class, neo-classical economics is a clear case of special pleading by one part of the upper middle class against everyone else. This fact both provides a power base from which to challenge it and belies the assertion that it is the only theoretical framework for economics that is compatible with the institutions of liberal democracy.

- Jake

Austerity can only be implemented in the shadow of a concentration camp.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Mon Sep 27th, 2010 at 05:40:02 PM EST
[ Parent ]
So, rather than being a cornerstone of liberal democracy and far from being an alliance of the entire upper middle class, neo-classical economics is a clear case of special pleading by one part of the upper middle class against everyone else.

Unfortunately, the beneficiaries of that pleading -- the financial sector -- have, by far -- the most disposable income with which to plead their case to elected and appointed officials and they also are smart enough to buy or rent the mainstream media. But they have succeeded so wildly in their efforts as to alienate almost everyone who they are not buying or renting.

As the Dutch said while fighting the Spanish: "It is not necessary to have hope in order to persevere."

by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Mon Sep 27th, 2010 at 05:50:05 PM EST
[ Parent ]
They also have the distinct medium-term disadvantage that industrial civilisation actually works. Merchant republics, on the other hand, periodically crash and burn, with each crash being more spectacular than the preceding one, until they crash out so hard that they cannot recover.

In a sense, I am not so concerned about the ultimate fate of neo-classical economics, or any of the other arts of intellectual prostitution that serve the propaganda needs of the financial class: They will go away - either because their paymasters are ousted from power, or because the countries their paymasters mismanage crash and burn. My concern is mostly with trying to make sure that it's the former rather than the latter that ends up being applicable to European civilisation...

- Jake

Austerity can only be implemented in the shadow of a concentration camp.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Mon Sep 27th, 2010 at 06:14:32 PM EST
[ Parent ]
But there isn't actually much evidence that industrial civilization works any better than merchant republics, to use your categories. I can't really name any historical precedent of industrial societies that have been any more immune to booms and busts of various kinds, at least as I am understanding your use of those terms. Can you?
by santiago on Tue Sep 28th, 2010 at 11:34:24 AM EST
[ Parent ]
The 20th century offers a number of rather decisive examples.

But perhaps more to the point, there's boom-and-bust and then there's boom-and-bust. If you have a sophisticated sovereign that is prepared to act as employer, lender and borrower of last resort, the stock market can crash and burn periodically without any major impact on the real economy. If you have a sovereign that has abdicated its responsibilities for economic planning to the very stock market that periodically flames out... well, not so much.

- Jake

Austerity can only be implemented in the shadow of a concentration camp.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Tue Sep 28th, 2010 at 11:47:27 AM EST
[ Parent ]
It sounds reasonable and I'm inclined to believe it, but I can't actually name the examples of sustainable industrial societies in the 20th century, if that's what you mean.  I can think of lots of examples of busts among both merchant-dominated and industrialist-dominated societies however.
by santiago on Tue Sep 28th, 2010 at 11:56:06 AM EST
[ Parent ]
Vietnam feathered the 1997 asian crisis much better than other SEA countries, for example...

Un roi sans divertissement est un homme plein de misčres
by linca (antonin POINT lucas AROBASE gmail.com) on Wed Sep 29th, 2010 at 02:31:27 AM EST
[ Parent ]
There are degrees of sustainability. No modern state has ever been sustainable on a century-long time scale, due to the consumption of irreplaceable natural resources. However, there is a difference between being unsustainable on a century-long time scale and moving in the right direction, and being unsustainable on a year- or decades-long time scale and sitting on your hands.

Consider the difference between Germany and Britain when it comes to energy policy: Germany has a long-term natural gas import agreement with Russia. This is obviously not sustainable over centuries, because natural gas production is not sustainable over centuries. But it is sustainable over the next few decades. At the same time, Germany has a reasonably spirited feed-in-tariff for sustainable electricity, meaning that it is moving towards greater sustainability in electricity generation.

Britain, on the other hand, has stupidly decided to place its trust in the natural gas spot market - which, combined with their location in the tail end of all the pipelines, means that they will be the first to be cut off when the steel hits the rail and there's a supply crunch. That used to be sustainable on a year-long time scale back when they were net exporters, but now that they're not, they have to resort to thinly veiled prayers every winter (they don't even have enough storage capacity to make their spot market strategy halfway sensible). And as far as sustainable electricity generation goes, there are third-world countries with higher penetration and superior regulatory regimes (which is a royal shame, since Britain has the best sustainable electricity resource north of the Sahara).

- Jake

Austerity can only be implemented in the shadow of a concentration camp.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Wed Sep 29th, 2010 at 07:34:06 AM EST
[ Parent ]
I can't actually name the examples of sustainable industrial societies in the 20th century...

It perhaps might be more fruitful to examine countries that could be sustainable, or largely sustainable, given the adoption of political economic policies that are designed to optimize sustainability and then look at why those who could be sustainable in fact are not sustainable. Let's start with the USA.

The USA, blessed with continental resources, was sustainable until it approached domestic peak oil in the 1960s. There can be little doubt that the USA could have moved decisively to a position of sustainability as late as 1980, had we chosen to do so. Jimmy Carter attempted to start us on that path. The long recession of the 1970s would have been the perfect environment for the application of a Keynesian strategic energy infrastructure stimulus that would have both made the country more sustainable and have reduced the length and depth of the recession.

Instead we got a barrage of anti-Keynesian propaganda and rhetoric from a collection of relatively new think tanks, via the media and the mouths of Republican politicians, which, in conjunction with opposition from conservative Democrats from resource rich states, frustrated any attempts to change the direction of national policy, blamed the problem on those who had the oil we needed and focused US policy both on insuring access to that oil AND on continuing our dependence on that oil. This married the interests of both the resource extraction industries and the military-industrial complex while playing to the bellicose and jingoist popular strains in the southern populations, now being incorporated into the Republican electoral base. Those southern populations also supplied a disproportionate number of recruits for the new all volunteer post-Vietnam military.

Rather than being a random or even a natural development in US politics, this combination of policies was buttressed and pressed forward by think tanks and politicians funded by very conservative members of the economic elite, including Richard Mellon Scaife and Richard and David Koch, the libertarian owners of Koch Industries, a natural resources based, privately owned conglomerate based in Witchita, Kansas, with a fascinating history, to briefly digress.

From the first article by Yasha Levine:

What few realize is that the secretive oil billionaires of the Koch family, the main supporters of the right-wing groups that orchestrated the Tea Party movement, would not have the means to bankroll their favorite causes had it not been for the pile of money the family made working for the Bolsheviks in the late 1920s and early 1930s, building refineries, training Communist engineers and laying down the foundation of Soviet oil infrastructure.

The comrades were good to the Kochs. Today Koch Industries has grown into the second-largest private company in America. With an annual revenue of $100 billion, the company was just $6.3 billion shy of first place in 2008. Ownership is kept strictly in the family, with the company being split roughly between right-wing brothers Charles and David Koch, who are worth about $20 billion apiece and are infamous as the largest sponsors of right-wing causes. They bankroll scores of free-market and libertarian think tanks, institutes and advocacy groups. Reason magazine, Heritage Foundation and Cato Institute are just a few of Koch-backed free-market operations. Greenpeace estimates that the Koch family shelled out $25 million from 2005 to 2008 funding the "climate denial machine," which means they outspent Exxon Mobile three to one.

I first learned about the Kochs in February 2009, when Mark Ames and I were looking into the strange origins of the then-nascent Tea Party movement. Our investigation led us again and again to a handful of right-wing organizations and think tanks directly tied to the Kochs. We were the first to connect the dots and debunk the Tea Party movement's "grassroots" front, exposing it as billionaire-backed astroturf campaign run by free-market advocacy groups FreedomWorks and Americans For Prosperity, both of which are closely linked to the Koch brothers. (Funding links for Cato and Heritage Foundations added.)

Fredrick Koch, father of Richard and David, who was an early '20 graduate of MIT in chemical engineering and had in in 1925 co-founded an engineering company, Winkler-Koch, which had patented a more efficient method for cracking crude to make high octane gasoline. But existing US oil companies brought law suits that were not resolved until that advantage had largely ceased to matter. Interestingly, Fredrich Koch had been able to save his fledgling engineering company from the predation of the existing US oil companies in 1930 by helping Joseph Stalin design and build the Soviet Union's petroleum extraction and refinery infrastructure and by selling training at his facility in Wichita for Soviet engineers and technicians. Koch brought an efficient and dedicated team to the Soviet Union and made a significant contribution to the development of the Soviet refining business, which was vital to the Soviet effort in WW II.

Fredrick Koch continued to do business with the Soviets until the death of Stalin. In 1956 he returned from a trip to the Soviet Union and began denouncing the Soviet state and all of its evil deeds. But Koch business with the Soviets had earned Fredrick Koch $500,000 dollars by 1933, when everything in the USA was on sale at a 90% discount. Subsequent to Fredrick Koch return in 1956 from the Soviet Union he co-founded and bankrolled a Witchita chapter of The John Birch Society and began making speeches and writing about "The Communist Menace" to the USA. Fredrick Koch died in 1967, by which time David Koch was firmly in control of the Koch family business.

While Charles and David Koch are not directly responsible for their father's actions that led, in significant part, to their own wealth, the company has much to answer for under David Koch's leadership, so much, in fact, that William Koch, their brother, sued Koch Industries under the False Claims Act because he was outraged by his brothers' business practices and did not want to be associated with ill gotten gains. In the suit it was established that Koch Industries, via its pipeline operations, had systematically defrauded customers, such as The Federal Government and Indian Nations by "cheating measurements" of the amount of oil delivered. According to Bill Koch's statement they stole a million and a half barrels of oil from these clients. Over the years this amounted to hundreds of millions of dollars worth of oil stolen from federal lands. Koch Industries settled the law suit by agreeing to pay a $25 million dollar fine. Thus they got to keep $230 million of stolen wealth, in effect, by agreeing to pay a 10% tax on the loot from their theft. Fine libertarian plunderers.

Using such tactics David Koch increased the annual revenues of Koch Industries from $100 million in 1966 to $100 billion in 2008 a thousand fold increase in forty two years, along the way getting into a series of resource related industries with substantial federal subsidies, including Matador Cattle Company, which uses federal range land for free, acquiring Georgia-Pacific to gain access to subsidized logging on government lands, with the public paying most of the costs and Georgia-Pacific keeping the profits, the ethanol scam and the benefit of government provided right of ways for pipelines via eminent domain at far below market prices and over the objections of private landowners. "Libertarians" enjoying "socialism for the rich." Rich, very rich, and that is just operations in the USA. See the two linked articles by Yasha Levine in The ExileD. Yasha collaborated with Mark Ames in the research on which the foregoing is based.

At this point one can only suspect that the political actions of the Koch brothers are paradigmatic of the methods of business influence on US politics. The Koch brothers and Richard Mellon Scaife were and are not alone in their endeavors. Joseph Coors was an early significant contributor to the Heritage Foundation. Rupert Murdoch has certainly contributed significant support to the Tea Party and other right wing efforts via his Fox News Network and there are others. But one can surmise, from their designation as charitable foundations that the funding for these foundations have been written off as tax expenses at least once, thus making the taxpayers the ultimate funders of their activities.

These "think tanks", working with suborned mass media, have been a significant factor in indoctrinating the political class with the presumptions of Neo-Classical Economics, and not for the effectiveness of that brand of economics as a tool to understand and predict the economy, which it has not and cannot do, but because NCE serves excellently well as a cover for the ongoing looting of the society by the economic elites.

Sustainability of the society is low on the list of priorities when the government is in the hands of a loose coalition of elite looters. They are too busy competing with each other for the loot to be concerned with the viability of the looted. Put a stop to that and we might be able to find out how readily the economy could be run to the benefit of the other 99% and how sustainable its operations could become. I believe our prospects could be quite good, if we could just rid ourselves of the parasites and understand what has happened. Just that.  

As the Dutch said while fighting the Spanish: "It is not necessary to have hope in order to persevere."

by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Thu Sep 30th, 2010 at 12:20:26 AM EST
[ Parent ]
It is not enough to point out the negatives.  There has to be a positive replacement that is as inherently compelling...

The e-book that is the starting point for this diary does a better job, IMO, of providing a replacement than of critiquing the existing theories, though neither are truly adequate. But Britain's Broken Economy is hardly succinct in either case. In order for beneficial change to occur both aspects need to be ready and neither are. In a successful approach each will supplement the other.

In the end the Soviet Union fell because Gorbachev and Shevardnadze crashed the old system in a failed attempt to reform it. This could happen because the system was highly centralized and they occupied the center. But it likely would not have happened had both not been thoroughly dissatisfied with the status quo. They agreed that "We cannot go on living like this."

Our current version of capitalism in the UAS and UK is reaching a similar point of generalized disgust with the status quo. But political power is exercised by nominees of the elite, who are more of a loose cabal of varying interests. It may well be that one or more of the wealthy individuals comprising that elite will also decide that "We cannot go on living like this."

Having a clear critique and a clear alternative program ready to present to a dissatisfied electorate will be essential if any real change is to occur. We seem to have a good ways to go on both those subjects. But it might be as simple as getting the right ammunition in the right weapons. Money, critiques and programs along with compelling leaders and proponents are the critical elements. Were these to come together in an electoral opportunity the results could be quite dynamic.

As the Dutch said while fighting the Spanish: "It is not necessary to have hope in order to persevere."

by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Mon Sep 27th, 2010 at 07:32:30 PM EST
[ Parent ]
The Soviet Union and the Roman Empire both crashed without a critique or an alternative program. Tsarist Russia crashed because of WWI, and the Bolsheviks filled the vacuum, and not so much because communism was an historical inevitability.

Aristocratic France is one of the few examples of change inspired by a humanist program - and even there it went horribly wrong very quickly.

Socialism in the UK was sponsored partly by the middle classes with a few significant contributions from individuals in the upper classes - many of whom were notorious for preferring the idea of working class people to the reality.

The way to create change is to persuade some of the elites that change is moral and in their interests.

I've suggested before that a blanket letter campaign to a few select rich enclaves in the US to find a few sponsors and representatives in that class, who would then put the case for change personally to other members of the class would be by far the most efficient and bloodless way to stage a revolution.

The idea that it's possible to philosophise one's way out of a dead end is an intellectual conceit. If you're at the stage where you're looking for a new intellectual program, you're at least fifty to a hundred years away from effective influence.

I think a more pragmatic approach that concentrates on a few prime movers and persuades that them a new morality, rather than a new economics, is necessary is more likely to be effective more quickly.

by ThatBritGuy (thatbritguy (at) googlemail.com) on Mon Sep 27th, 2010 at 07:42:24 PM EST
[ Parent ]
The common factor for my reference was the dissatisfaction of an element of the elite in the case of both the Soviet Union and the possibilities for change in the US and UK. The common factor between the US and the Roman Empire is that the ruling paradigm was and is leading to destruction in a similar manner -- the elite as a class was/is devouring the rest of society which, in the case of Rome, destroyed the base on which the Empire rested and which in the case of the US is in the process of so doing.

The differences in the case of the US and UK, as opposed to the Soviets and the Western Roman Empire, is that we are not quite so far along but are proceeding much more quickly, partly due to the rapid rate of change built into our societies, which is a new factor in the history of empires.

Another difference, at least from the case of the Soviets, is that there is a higher number of autonomous actors in US and UK society. Not only are there well developed governing structures in each country but also many corporations, public and private, that have conflicting interests and there are fortunes in the hands of people who have, in effect, cashed out and moved on. Some of these have the good sense to realize that their wealth is greatly diminished without a strong society within which it is based. This is not part of NCE orthodoxy, but many of these people have enough sense to realize this fact.

These are the potential targets for backing of a project to reform the operation of the economy so as to bring it into the service of the society in a sustainable manner. Unless such an effort is deliberately undertaken it is unlikely to happen. And what is likely to happen if we continue with the current arrangements could well lead to situations that few of our countries elites would like. Better to work towards a sustainable and livable world than to await the disaster that lies down the road we are on.

As the Dutch said while fighting the Spanish: "It is not necessary to have hope in order to persevere."

by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Mon Sep 27th, 2010 at 11:25:11 PM EST
[ Parent ]
The way to create change is to persuade some of the elites that change is moral and in their interests.

I agree that this is a vital part of any successful plan.

I've suggested before that a blanket letter campaign to a few select rich enclaves in the US to find a few sponsors and representatives in that class, who would then put the case for change personally to other members of the class would be by far the most efficient and bloodless way to stage a revolution.

This is reasonable but the most secure result would be obtained were it brought about by a triumphant political movement acting through the existing constitutional process of elections, if in a novel fashion.

The idea that it's possible to philosophise one's way out of a dead end is an intellectual conceit. If you're at the stage where you're looking for a new intellectual program, you're at least fifty to a hundred years away from effective influence.

Unless such a movement has a coherent analysis and plan it will never be bought by a group of sponsors with enough wealth and influence to bring it to pass. And such a purpose would surely seem to beat just donating half or more of one's wealth to a variety of worthy causes.

I think a more pragmatic approach that concentrates on a few prime movers and persuades that them a new morality, rather than a new economics, is necessary is more likely to be effective more quickly.

In order to be meaningful it would be necessary to re-embed the functioning of the economy and the regulation of that functioning into the society in a way that worked for the whole society. It is the idea that the economy is autonomous from the society that has to be rejected.

Basically we need to put finance back into a box of regulations, as the e-book proposed and reverse the concentration of wealth. These are all things that we have done before. Properly posed surveys reveal that over 80% of the population of the US prefers the wealth distribution of Sweden to that of the USA.

As the Dutch said while fighting the Spanish: "It is not necessary to have hope in order to persevere."

by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Tue Sep 28th, 2010 at 12:02:37 AM EST
[ Parent ]
I think discrediting NCE is necessary but not sufficient.  Given the status of NCE as the Go-To theory for basing policy I don't see a way forward without taking it down.

However, the old political saying, "You can't beat somebody with nobody" swings into play.  There has to be an alternative ... and a rock-solid alternative, to boot.  So here, we agree.

Skepticism is the first step on the road to truth. -- Denis Diderot

by ATinNM on Mon Sep 27th, 2010 at 11:39:12 PM EST
[ Parent ]

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