I studied a fair bit of economics history though. Back in the day there was a lot less math and a lot more explanation. (This is around the 1920s-1940s.)
Now, of course, with all these articles looking like mathematical gobbledy-gook and the greater resources that economics departments have, with all these pretensions to being akin to the objective natural sciences, you'd think that the mainstream liberal brand of economics would have had far greater success in managing our economies and predicting and avoiding crises.
Nope.
World economic crises have become bigger and badder since 1980, precisely when all the "distortions" of "discredited" Keynesian economics was dust-binned and was replaced by neo-liberalism, both in the academy and among policy-makers.
This is because neo-liberal economics primary utility is in rationalizing a system of wealth distribution that rewards capital and suppresses labour. It isn't about identifying the one-best policy. If it was, the economic course pursued for the past three decades would have been abandoned as self-evidently failing in the 1990s, and as inarguably failed with the present massive world crisis.
But being totally discredited is nothing serious to these people. It seems that only when the capitalist class is being eaten alive by their hunger-crazed victims (the rest of humanity) with all of civilization, including [most importantly!] their own palaces and treasures lying in ruins around them, and neo-liberal economists have been lynched and burned alive, that they'll consider the possibility that a paradigm-shift is occurring, and that there might have been some flaws in their underlying assumptions. For the present time, it's a better career choice to be a liberal economist than to be an auto-worker or an administrative clerk, so all is right with the world AND with their theories.
And that explains stuff like this: "Can demographics explain why the income shares of high earners have increased?"
There's been a massive shift of wealth from the poorest 80% to the wealthiest 20%, with the top 5% enjoying the lion's share of the gains. The middle class is shrinking. Billionaire investor Warren Buffet says that there's been a class war going on in the USA and that his side is winning.
But what does he know? He's just a billionaire investor who doesn't have a clue how the real world works. The last thing we want to do is talk about stuff like "class war" when, with the magic of bullshit neo-liberal economics we can drain all the blood out of a topic and attribute things to random forces that nobody in particular can be blamed for:
The two points I'm mashing together are the following:1) The hypothesis that the sharp rise in executive compensation was driven by an equally sharp rise in firm values. This study (pdf) concludes that "[t]he sixfold increase of CEO pay between 1980 and 2003 can be fully attributed to the six-fold increase in market capitalization of large US companies during that period." According to this story, the increase in high-earner wages isn't a problem that needs solving: CEOs are being paid their marginal product.
2) The hypothesis that the sharp rise in equity prices was driven by demographics. The story we'd tell here is that as the leading edge of the baby boom reached the age of 40 or so, the demand for financial assets increased, driving up firm values. (See here for a theoretical model that develops the point.) The timing certainly fits: the rise in asset prices began in 1985.
So the claim is that demographic pressures are behind the underlying cause of the increasing concentration of income in the right-hand tail of the income distribution. Clearly, the timing fits this story. The beginning of both the asset price boom and the trend to higher top-end salaries occurred when baby boomers started saving/investing.
As far as policy goes, this is very much a story in which those high executive salaries are best thought of as rents: those CEOs just happened to be at the right place at the right time.
So, there's been no weakening of the labour movement. No union-busting. There's been no destruction of unionized jobs through automation, globalization, lay-offs and speed-ups. There's been no shrinking of the welfare state under various pretexts. There's been no income tax-cuts that mainly benefited the wealthiest, while payroll taxes, property taxes, consumption taxes and user-fees, primarily affecting average people, haven't been increased. The world's financial markets haven't become increasingly de-regulated, allowing for massive gambling profits for the few, along with increasingly frequent panics, meltdowns, and bail-outs (paid for by the unprivileged many).
Nope. None of that.
Share prices just increased because the baby-boomers started saving for their retirement.
It turns out that WE are the "greedy capitalist" we've been running from.
Whatever.
6 comments:
Baby boomers are forced to put rapidly depreciating cash into stocks, and therefore the work CEOs do is suddenly many times more valuable to society, and it's okay for the top 5% to skim off the wealth from all these financial transactions. How wonderful.
It's all okay because it goes along with the system. The system full of ever-greater amounts of neo-liberal policies. That the neo-liberal economists and politicians created. A 'Take the Money from the Poor Act' would stand out as obvious and wrong. Instead the system is set up with laws and regulations that make it possible for the investment arms of American big banks to never lose, to have profit every day of the year (and yet pay no taxes).
I'd like to find a neo-liberal economist and ask them what they say the purpose of neo-liberal economics is. It can't be to explain the economy as-is, so it must be to make the economy as it should be. So what is the goal? What would a perfect neo-liberal economy look like?
Eugene Fama was able to describe his work with mathematical equations. Keynes wasn't able to develop an adequate mathematical explanation for his work.
Math ain't gobbledy-gook, and it ain't some crazy right-wing conspiracy to rob widows and orphans. Embrace it, and your ideas might gain a little traction and currency.
2nd Anonymous,
It's telling that you missed pretty much all the points, which I don't think were all that obscure.
1. I was just making some self-effacing comments about my abilities as an economics student and a mathematician.
2. I was saying that economics hasn't always had so mathematics.
3. I was saying that the mathematics DOESN'T APPEAR TO HAVE NOTICEABLY IMPROVED THE PREDICTIVE POWERS OR POLICY RECOMMENDATIONS OF LIBERAL ECONOMISTS.
[In case it isn't painfully obvious to you, the three decades of stagnation and the current disastrous state of the world economy as a result of three decades of neo-liberal bullshit is what I'm referring to in point 3.]
4. I don't believe that mathematics in economics is a crazy right-wing conspiracy to rob widows and informs. I'M SAYING THAT NEO-LIBERAL ECONOMICS IS.
5. I don't need to embrace mathematics in order to understand the disaster of neo-liberal economics.
6. I don't need to worry about my ideas gaining traction with people such as yourself. I don't care what you think. A lot of people agree with me and I agree with them. The crashing and burning of the neo-liberal "Washington Consensus" is a fantastic enough critique of that system and a validation of its critics. Perhaps you should pull your head out of your ass and learn how to read for basic comprehension. Your failings in that regard probably go a long way to being symptomatic of the same mental failures of neo-liberals. (When they aren't being blatant bullshit artists.)
7. It ain't specifically "widows and orphans" but will "Grandma Millie" do?
And the neo-liberal economists will tell you that neo-liberalism is term coined by non-economists and doesn't really exist. Being surrounded by some economists for a few years, good and bad, and having read a great deal on the savagery of unfettered capital, I tend to think now the all that math and such is really camouflage for a deeply misanthropic and selfish approach to life that can't find social legitimacy any other way.
Neo-liberal economics embraces mathematics, charts, and such whenever the math is on their side for a particular, narrow, argument, or whenever it'd be helpful in bamboozling the semi-interested public. As soon as the math is not on their side, they abandon it, and retreat to large-scale hand-waving (hello free trade) or small-scale moralistic arguments about a few individuals, and neglect to talk about large-scale effects.
Take usury for example. Once upon a time, morally, it was understood to be a sin. Then the argument was made that a man should be free to enter any contract he wishes, and society bought it. Greed is good, and what actual harm, not religious jabbering about the soul, would actually come from lending at interest anyways?
Now nearly all cash is debt, debt with interest compounding on it. It is impossible, mathematically, to pay it all off, and it gets worse and worse every year. Not because the world's governments are incapable of balancing a budget, but because there is not enough money in the world to pay back all the debt. When you go to a casino, it's clear that the house is taking its cut, and you can always leave and stop playing. Not so in global finance.
First Anonymous,
"So what is the goal? What would a perfect neo-liberal economy look like?"
It wouldn't have much to do with the real world. There's not that much work done on oligopoly relative to the size of the whole neo-liberal edifice.
If they were honest about what they were SORTA after, it would probably make us angry. (Angrier than we already are.)
Boris,
I've mentioned (in various places) that a pleasant C.D. Howe Institute economist told a class i was taking that the goal of monetarist anti-inflation policies was to "break workers."
3rd Anonymous,
We need a world jubilee to free everyone from the systemic clutches of the banksters.
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