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Discrediting NCE: does "Britain's Broken Economy" do it?

by ARGeezer Sun Sep 26th, 2010 at 03:20:11 PM EST

Britain's Broken Economy - and how to mend it  by The new political economy network.  An e-book published by Soundings.

This is an attempt to construct a compelling alternative to the current Neo-Classical Economic which has been taught to almost all now alive who have formally studied economics. Sadly, more than 90% of those accept that framework as reality. The popular attitude is that, while there may be some problems, there is really no alternative to this existing approach. This e-book is an attempt to provide just such a compelling alternative. This is a difficult task and I believe this could become a valuable contribution. The authors are generally on point, at least in their conception, though I do find some aspects with which to quibble:

The economic crisis should herald a new progressive moment for the centre left, but instead there is a lack of a sense of purpose, and a difficulty in defining a new radical politics. Nowhere is this problem more acute than in the realm of political economy, where the discrediting of neoclassical economics has left an intellectual void in policy making.

The revival of a progressive politics requires a new political economy that will enable Britain's transition from casino capitalism to a balanced, low carbon, equitable form of economic development. We need an economics whose principles are ecologically sustainable wealth creation, cultural inventiveness, equality and human flourishing.

I must dispute one of the above statements:


Neo-Classical Economics should have been but, in fact, has not been discredited and still stands in the place that should be occupied by a genuine economic theory. In fact Neo-Classical Economics has constituted the very void the authors describe for the most of the last century, as it is much more a piece of effective propaganda than it is an effective economic theory. Thus the paper assumes much of what very much still needs to be accomplished. NCE will not be discredited until >60% of the public understand that NCE is retained despite its failures and not because of its utility but rather for its propaganda utility to the wealthy as a means of both justifying and disguising their success in accumulating great wealth while impoverishing 95% of society. I do grant, however, that such assertions need a healthy development before being presented in a general forum and the authors do understand that NCE is a problem, despite some unfortunate ways of casting their views, and their goal of building a positive alternative very much needs to be done and the paper is helpful in that regard, especially for UK audiences.

The political analysis is obvious and on track:

There is no cast-iron law that states that crises of capitalism end in victories for the left - and certainly not in Britain. And yet this is not a Conservative moment - it is clear that the Coalition has no viable plan for rebuilding the economy. The problem is that Labour does not have one either. The task for Labour now is to come up with a vision of the economy that is different from what it was offering justbefore the crash.

Labour made the mistake of buying the snake oil of neo-classical economics. It must now discard it, and develop ideas for the economy that are both practical and humane - based on the principles of environmentally sustainable wealth creation, durability, cultural inventiveness, equality and human flourishing.

But to say that neo-classical economics has been discredited when the supposed party of the center left in Britain still needs to discard and repudiate NCE is a bit contradictory. And there remains the question: from whom are the campaign contributions to come? But it is a good sign that, at least, there is this organization.

The Foreword goes on to note the dangers in accepting the cliches about the discrediting of the existing economic theory by pointing out how the response by the current Con-Lib Government seems to be reverting to views last put forward in the '30s, such as balanced budget orthodoxy and concentrates too much on criticizing the NCE of the last 30 years, without acknowledging that the orthodoxy of the '30s was also NCE. But they at least caution against a return to the even more poisonous Snake Oil of that era.

There had always been a diaspora of discontents - old Keynesians, socialists, Marxists, greens, liberals, members of non-governmental organisations - that kept going during the long, wilderness. And it was in an attempt to bring together these voices, in the hope that the sum would be more than the parts, that the New Political Economy Network was born. The left's answer to the Mont Pelerin conference in 1947 that launched the fightback against collectivism was a meeting in The Guardian's new offices in King's Cross in the autumn of 2009. A series of seminars and public meetings followed, and the network continues to grow. This e-book is the first attempt at piecing together an alternative to the orthodoxy. It is still very much work inprogress.

The problem seems to be that, in an attempt to bring together many voices, they have created a muddled chorus that meanders along for 60 pages, 25 of which are foreward, introduction and afterword. In its present form this e-book is not a magical sword with which to slay the dragon but rather a large, fluffy pillow with which to annoy the dragon -- suicidally, I fear.

Another complaint is that the paper does not truly even attempt to defend foundational concepts put forward by Keynes and rejected, largely without basis, by Thatcher, Reagan and the NCE crowd at the first occasion after the death of Keynes that there was a problem with the Keynesian approach . The particular way in which Keynes' theories were being applied ran into problems and the NCE crowd used this as an opportunity to spew forth voluminous rhetoric to make everything Keynes ever wrote toxic. This cannot be allowed to stand.

NCE doesn't work. Keynes' macroeconomics largely does. Keynes provides a foundation on which a functioning theory of economics can be built. NCE does not.

The programs the NCE think tanks had assembled were merely a coherent set of assertions and beliefs, which have almost entirely turned out to be unfounded and have been dis-confirmed by events. The "think tanks" mostly thought about rhetoric and polemics. Can anyone cite a significant contribution to economic theory coming from a libertarian think tank?

Yet the accomplishments of the "think tanks" are legion. The problems of the '70s largely were failures of governmental regulatory responses to increasingly assertive attempts by the financial sector to avoid regulation via globalization and to repeal existing domestic regulations. It was the rhetoric coming from the "think tanks", picked up by the popular press, that paved the way for Margaret Thatcher Ronald Reagan, under whom deregulation and fiscal policies favorable to finance and the wealthy began in earnest.

The promise was that de-regulation would produce private sector jobs, but the result was that all sectors but finance suffered. Domestic industry was largely allowed to be disbanded. The benefits went mostly to Wall Street and The City. The promise was broken. Instead of prosperity the UK got an epidemic of looting by the financial sector which itself has turned into an over-sized parasite that continues to drain the life out of all other sectors.

The essential validity of Keynes' General Theory needs to be publicly reasserted and NCE must actively be discredited in the public mind as the fraud it is and to be shown to have served, consciously or not, as the cover story for the looting of the society via control fraud by a tiny elite of wealth who have, perhaps legally, gotten control of the levers of power and used them, almost certainly illegally, to their massive personal benefit. In its present form the paper seems too timid to even attempt a vigorous push back against received stupidity, though it does suggest the further calamities which await 95% of the UK population if national policy continues down these lines.

A crisis in the private sector caused by massive market failure and corporate abuse of power has been reinvented as a crisis of the public sector. A public debt that is modest by historical comparison
and largely attributable to a fall in tax revenues has been turned into an opportunity for the Coalition government to pursue a destructive level of fiscal austerity.

This folly, and the reinvention of economic reality by the right and its media allies, is a consequence of the left's political weakness and Labour's lack of a social and democratic political economy. The Coalition's economic policies threaten to plunge Britain back into recession or a protracted period of stagnation. Millions of people who gained little if nothing from the economic boom will be asked to bail out the few who took the lion's share.

However, I fear that a clear description of the likely consequences of the current policies, absent a sharp critique, a clear contextualization of what Classical and Neo-Classical Economics has wrought in UK society over the last two centuries and a set of coherent alternative theories, policies and goals is more likely to demoralize than to inspire broad opposition. What is needed is greater specificity. A critique by Merijn Knibbe of Britain's Broken Economy in Real-World Economic Review makes similar points and then proceeds to provide some of that specificity:

Redefining economics to redefine the economy

Once upon a time, economists like Milton Friedman, Gary Becker and Robert Lukas redefined economics with concepts like `Permanent Income', `Human Capital' and `Rational Expectations'. There might be some value in at least the first two of these concepts. But it is not just these individual concepts. These (and other) concepts are linked by three common denominators which makes them neo-classical: atomistic man, rational choice and efficient markets.  These denominators are, in my view, not needed to define these concepts - but at present they are at the core of it. These concepts, in a less precise shape, are also cornerstones of neo-liberal thinking and are (or were?) even part of what Germans call modern `Zeitgeist', the `atmosphere' of a certain era (there is a surprising similarity between the `You can do it if you want it' individualism  part of the new age movement and `rational neo classical man). The e-book does a good job when it, implicitely, attacks this `Zeitgeist' by, for instance, stating that job security is not just a `rigidity' which hampers the working of efficient markets - but also a cornerstone of many peoples live. It does not do a good job - in fact: a bad job - when it wants to restrict these ideas to `Labour'. The very succes of neo-liberal `There is no such thing as society' economic ideas is partly caused because left wing as well as right wing economists have embraced these ideas. Or, I do dare to state this for my country, they are often not even aware of alternatives. Many Dutch economists are, for instance, probably not able to mention even one Dutch economic historian, have never mastered double entry accounting, are not familiar with National Accounting and know next to nothing of modern consumer studies. Indeed, these are not radical methods, but that's exactly the point. So called `radical' Post Keynesian ideas are quite consistent with i.e. mainstream modern consumer studies - while neo classical economics are not. It's not the Post Keynesians (or the Georgists, or...) who are the fringe-thinkers!

When we want to succeed in changing economics for the better, i.e. in the direction of a more real life science which does take account of the importance of social bonds, uncertainty, the difference between labor/entrepreneurial incomes like profit and wages and rentier incomes like rents and bonuses and which recognizes cultural differences we will have to redefine economics again - the individual concepts as well as the `worldview' behind these concepts. As part of my (very) long term goal, `Indices of food and housing as indicators of human welfare, 1600 - 2020′ I will try to make a humble contribution to such a redefinition. None of the individual parts are new, all of it is consistent with National Accounting and double entry bookkeeping but the combination of the individual items may be slightly less usual.


Knibbe then proceeds to list three re-definitions that would be very helpful:

1. A redefinition of investing and saving which includes consumer durables.

In National Accounting and Keynesian economics, saving is basically seen as producing something (capital goods, stock) which is used in a later period. The same holds, of course, for consumer durables....

2. Redefining inflation.

The largest single item in the `basket' of goods used to calculate inflation is `housing', including energy and the like....The reason why `imputed rent' is used is straightforward: it is closer to a `monetary efficient market' price than costs of housing of an owner occupied house, like interest, write offs and the like. But that's exactly the problem. Households as a producer which own a house do not operate on a `monetary efficient market' - and our statistics should reflect this.

3. A `long term double entry accounting view of market transactions'.

Market transactions, by definition, have to be booked at the left as well at the right side of the accounts. For a person, this does not make much sense when one buys an icecream. But it does make sense when one buys a house (or a car, or other large items). To be honest: it makes so much sense that the bank every month reminds me of the passiva side of my balance sheet. Money, in the shape of debt, is surely not neutral, just read the Dean Baker op eds on housing....The unifying background of these ideas is the household as a producing unit which is embedded in a society and culture

It is a sobering fact that the role of the family, the only legitimate source for workers and citizens per conservative cant, is not acknowledged in the theory they use to protect their position.

Display:
I took the liberty of sending the e-mail reproduced below to the correspondence link provided Saturday night. I think they would benefit from reading and incorporating the ideas in the recommended reading.

Gentlemen,

I have just finished working my way through your e-paper. What you have started is a vital task, not just for the UK but also for the USA, where we also have suffered from almost exclusive application of Neo-Classical Economics for the past 120 years and are now suffering under the equivalent of your own Tony Blair in the guise of Barrack Obama.  While the paper discusses some of the problems with NCE it does not offer a succinct critique of the subject nor does it deal with the fundamental problem of the capture of academia by proponents of NCE and the systematic indoctrination of the public mind with cliches derived from NCE. The result of those two factors is that NCE is the framework through which the policy makers, the educated public and even the general population view economics. You are thus proposing to fight a very unequal fight on grounds prepared by and favorable to your opponents. I see this as a very bad idea.

First, I would suggest some of your authors get a broader context on what the proponents of NCE have in fact accomplished. To that end I recommend two works. The first is The Great Transformation by Karl Polanyi, which will place the entire history of economics in a proper social context and reveal NCE as the impossible Utopian exercise which it is, ripping the economy out of its social context and making its operation subject to supposed autonomous laws which must be obeyed, which do not work and which, when implemented, reduced the human element of society to the fictitious commodity of labor as well as reducing all aspects of the environment to the fictitious market commodity of land, in the process subjecting British society to massive and needless shocks, as is shown by examining comparable transformations in other countries. Neo-Classical Economists do not like economic history because the facts of that history are inconvenient to the theories on which NCE is based.

The second work is Neo-Classical Economics as a Stragegem against Henry George by Mason Gaffney, which is available in full text online at:
http://www.masongaffney.org/publications/K1Neo-classical_Stratagem.CV.pdf. Or I could send it as an e-mail attachement. Gaffney shows from quotations of the late 19th and early 20th century US Neo-Classical Economists how Economic theory was consciously recast by these economists so as to frustrate reformers such as Henry George, who was also active with the Liberal Party in England  in the formulation of their land tax policies. It also shows how NCE economists were hired by Columbia University at the behest of J.P. Morgan specifically for their ability to counter Georgist arguments, the consequences of the application of which would have been most expensive to Morgan and how similar considerations were at work at Cornell, Johns Hopkins, The University of Chicago, etc. Gaffney is the uncommon economist who is both familiar and quite comfortable with economic history.

I am somewhat heartened by the election of Ed Miliband as head of the Labor Party to think that Labor may become more receptive to the need to examine the predominance of NCE in academia. This was the subject of hearings before the US Congress this summer with several notable US economists giving testimony. It turns out that the only econometric model for which federal research grant moneys are ever appropriated is the notorious Dynamic Stochastic General Equilibrium Model of the economy, which is a static model that does not include time and which models the entire economy as the result of a single rational actor making all decisions. Small wonder we saw nothing coming in 2008. This approach and policy came under severe criticism by four of the five witnesses appearing. Link: http://gop.science.house.gov/Hearings/Detail.aspx?ID=242

I have been attempting an effort similar to your own, but it is still but a collection of pieces. One of those pieces contains an annotated bibliography of on-line texts  which might be of use: Towards An Economic Tutorial, at The European Tribune, where I write as ARGeezer, as I now retired in Arkansas. The diary also contains some discussion of Karl Polanyi's thought, about which I am planning a diary. Link: http://www.eurotrib.com/story/2010/9/15/203950/023

I wish you well in your endeavor and if I can be of any assistance do not hesitate to contact me.

Sincerely,

(ARGeezer)



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 Sun Sep 26th, 2010 at 03:42:57 PM EST
From wikipediaHere are the three axioms as presented by E. Roy Weintraub:

   1. People have rational preferences among outcomes that can be identified and associated with a value.
   2. Individuals maximize utility and firms maximize profits.
   3. People act independently on the basis of full and relevant information.

Number 3 is wrong:  people do not act independently, they do not and never can have full information, decisions are based on a mixture of relevant and irrelevant information.  

Number 1 is half-right: people have a mixture of rational and emotional preferences driving their actions to achieve the desired result (outcome) some of which can be identified, some not, and the value of these preferences are quantifiable, qualifiable, and a mixture of the two.  

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

by ATinNM on Mon Sep 27th, 2010 at 11:43:49 AM EST
And #2 is only right part of the time both for individuals and firms. Some individuals cling quite irrationally to their own aesthetic preferences or sentiments rather than "maximizing utility" and firms sometimes act strategically at the expense of maximizing profit, especially short and medium term profit.

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 12:12:57 PM EST
[ Parent ]
I would go even farther and claim that #2 being wrong is the usual case.

Humans make strategies. People do not, by and large, re-evaluate their decisions continuously - re-evaluations happen in jumps, when the current way of doing things becomes visibly non-viable, or when some pre-defined (conscious or unconscious) criteria for re-evaluation are met (typically the passage of time, or a margin call or other unpleasant surprise).

People do not, normally, check the balance on their bank account every day - they know, or believe that they know, roughly what their "normal" expenses are "supposed" to cost. So they check their bank account at some interval in order to confirm that everything is in order (typically sometime shortly after payday), and when planning extraordinary expenses. Enterprises do not normally re-evaluate their budget and expenses continuously - formal re-evaluation is usually only undertaken when some pre-defined time period has elapsed (a quarter, a fiscal year, etc.), or when they are uncertain about something or have been unpleasantly surprised in the recent past.

There are three appealing things about this model of human decisionmaking, at least from the perspective of the student of the political economy.

In the first place, it provides a natural and reasonable way to think about bubbles and business cycles: When someone else is employing a strategy that is successful over several of your planning horizons, you will be inclined to adopt that strategy, since it has proven more successful than your current strategy for several of your strategy re-evaluations back-to-back.

At the same time, you will be disinclined to evaluate its viability beyond your planning horizon, on the (implicit) assumption that you can abandon it wholesale during your next strategy evaluation. Or you may realise that it is ultimately unsustainable, but have a shorter planning horizon forced upon you by the fact that you will be the victim of a leveraged buyout if you do not accept a shorter planning horizon.

This is a behavioural pattern that cautionary voices (and even not so cautionary ones) have pointed out as being at or close to the core of every speculative bubble since the invention of money.

In the second place, it provides a natural way to explain advertising, something that orthodox economists have to invent hilariously contrived just-so-stories to get around: Advertising, in this model, aims to alter consumer strategies on the theory that a sufficiently large subset of consumers will not question their consumption patterns until and unless they become visibly non-viable, or the circumstances of their lives change radically (change in cohabitation status, change in place of residence, etc.).

In the third place, and on a more technical note, it obviates the need for the most contrived of the neoclassical assumptions; namely that every individual has a well-behaved set of preferences.

If you evaluate your options continuously, your preferences will have to be transitive (if A < B and B < C then A < C). This seemingly innocent assumption is, in fact, an extreme imposition upon the credulity of any person who takes even a little time to consider the sheer number of different goods and services available to modern humans in advanced industrial states.

If, on the other hand, your actions are determined by a set of strategies which are all re-evaluated in discrete time and with differing planning horizons, you drastically reduce the number of options available to you in any given evaluation. Of course, this introduces the possibility (in fact the near certainty) that decisions do not commute. If I ask you to pick either A or B, and then later ask you whether you want to swap what you picked for C, you may (indeed often will) end up with a different option in the end than if you had been asked to pick between B and C and then at some later date given the option to swap your pick for A.

- 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 02:42:37 PM EST
[ Parent ]
E. Roy Weintraub is a mathematician who has worked as an economist and has studied "the interconnection between mathematics and economics in the twentieth century" per the wiki link. Fortuitously, I just read an article by a colleague, Bruce Caldwell, who is the director of The Center for the History of Political Economy at Duke and a strong proponent of returning the teaching of the history of economic thought to graduate and undergraduate economics curricula. From Caldwell's article, Adam Smith? Who's he?

It's time to return the history of economic thought to the college curriculum

When I did my graduate work in economics at UNC, the history of economic thought was one of the core classes that all students had to take. We read and studied the great economists of the past-Smith, Malthus, Marx, Marshall, Keynes-whose insights directed (and sometimes misdirected) the progress of our discipline. Things have changed dramatically since then. The history of economic thought has virtually disappeared from the graduate curriculum in the United States, and if current trends continue, in a few decades it will have disappeared from the undergraduate curriculum, as well.

....

Studying the history of economic thought allows students to see where current theories and ways of thinking came from. In itself that's a useful exercise, but one with further benefits-for as one learns more about the history of one's discipline, a whole new set of insights arise. Despite the alleged "progress" in economic thinking over the past two centuries, it is remarkable how many old ideas (both good ones and not so good ones) keep resurfacing. Students need to understand that the idea that we have nothing to learn from the past-a belief too often expressed by economists-is just a scientistic prejudice.

Students who learn about economics without the benefit of a history of thought course are inclined to assume that what they learn from their textbooks is settled fact. They do not see that the development of ideas always involves argumentation and criticism, something that usually disappears in textbook treatments of issues.

History of economic thought courses also expose students to alternatives to mainstream views. Without such a course, an economics student will probably know little or nothing about the likes of Karl Marx, Thorstein Veblen, Carl Menger or F. A. Hayek.

Furthermore, the history of economic thought course is one of the few places in the economics curriculum where economists connect economics to other disciplines within the social sciences and humanities. As the title of Robert Heilbroner's best-selling book, The Worldly Philosophers, emphasizes, economics was the creation of scholars and thinkers who did not see themselves as "economists," but as people trying to make sense of the social universe in the same way that natural philosophers were trying to make sense of the natural world.


It seems that Duke might be a hotbed of economic sanity. The Center for the History of Political Economy publishes the journal History of Political Economy and five economists who specialize in the field are on the faculty at Duke.

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 03:43:45 PM EST
[ Parent ]
Even if all these are correct, that does not make land capital.
by kjr63 on Tue Sep 28th, 2010 at 05:24:45 AM EST
[ Parent ]
Of course. It is NCE that, while not necessiarly insisting on the formal equivalence of land to capital, does insist that there is no real difference and that land shoud be treated as capital. That was the basis for their attack on Henry George. The most basic aim of Classical Economics was to reduce land and labor to fictitious market quantities and to create a self-regulating mechanism, the gold standard, for controling the quantity and value of money.

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 09:44:24 AM EST
[ Parent ]
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 misères
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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